Profit before zakat and taxation 762, ,529. Profit before taxation 753, ,529 (183,807) (163,930)

Transcription

1 FINANCIAL STATEMENTS Directors Report Statements of Financial Position Income Statements Statements of Comprehensive Income Statements of Changes in Equity Statements of Cash Flows Summary of Significant Accounting Policies Notes to the Financial Statements Statement by Directors Statutory Declaration Independent Auditors Report Basel II Pillar 3 Disclosures Annual Report 2013 AFFIN BANK BERHAD (25046-T) 51

2 DIRECTORS REPORT The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial year ended 31 December PRINCIPAL ACTIVITIES The principal activities of the Bank during the financial year are banking and related financial services. The principal activities of the subsidiaries are Islamic banking business, property management services, nominee and trustee services. Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles. There were no significant changes in the nature of these activities during the financial year. FINANCIAL RESULTS The Group RM 000 The Bank RM 000 Profit before zakat and taxation 762, ,529 Zakat (8,583) - Profit before taxation 753, ,529 Taxation (183,807) (163,930) Net profit for the financial year 569, ,599 DIVIDENDS The dividends on ordinary shares paid or declared by the Bank since 31 December 2012 were as follows: In respect of the financial year ended 31 December 2012 as shown in the Directors report for that financial year: RM 000 Final single-tier dividend of 6 sen per share paid on 30 April ,100 In respect of the financial year ended 31 December 2013: Single-tier interim dividend of 10 sen per share paid on 24 December ,834 The Directors now recommend the payment of a final single-tier dividend of 6 sen per share amounting to RM91,100,206 which is subject to the approval of members at the forthcoming Annual General Meeting of the Bank. RESERVES AND PROVISIONS All material transfers to or from reserves or provisions during the financial year are shown in the financial statements and notes to the financial statements. 52 AFFIN BANK BERHAD (25046-T) Annual Report 2013

3 DIRECTORS REPORT BAD AND DOUBTFUL DEBTS AND FINANCING Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and financing and the making of allowance for bad and doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and adequate allowances made for doubtful debts and financing. At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad debts and financing, or the amount of the allowance for doubtful debts and financing, in the financial statements of the Group and the Bank inadequate to any substantial extent. CURRENT ASSETS Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that any current assets, other than debts and financing, which were unlikely to realise in the ordinary course of business, their values as shown in the accounting records of the Group and the Bank, have been written down to an amount which they might expected so to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Group and the Bank misleading. VALUATION METHODS At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities in the Group s and the Bank s financial statements misleading or inappropriate. CONTINGENT AND OTHER LIABILITIES At the date of this report there does not exist: (a) any charge on the assets of the Group or the Bank which has arisen since the end of the financial year which secures the liabilities of any other person; or (b) any contingent liability in respect of the Group or the Bank that has arisen since the end of the financial year other than in the ordinary course of banking business or activities of the Group. No contingent or other liability of the Group or the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group or the Bank to meet their obligation as and when they fall due. CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and the Bank that would render any amount stated in the financial statements misleading. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 53

4 DIRECTORS REPORT ITEMS OF AN UNUSUAL NATURE The results of the operations of the Group and the Bank during the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Group or the Bank for the current financial year in which this report is made. SIGNIFICANT EVENT DURING THE FINANCIAL YEAR There is no significant event during the financial year. SUBSEQUENT EVENTS There were no material events subsequent to the reporting date that require disclosure or adjustments to the financial statements. DIRECTORS The Directors of the Bank who have held office during the period since the date of the last report are: Jen Tan Sri Dato Seri Ismail Bin Haji Omar (Bersara) Chairman / Non-Independent Non-Executive Tan Sri Dato Seri Lodin Bin Wok Kamaruddin Non-Independent Non-Executive Director Dr Raja Abdul Malek Bin Raja Jallaludin Independent Non-Executive Director Tan Sri Dato Sri Abdul Aziz Bin Abdul Rahman Independent Non-Executive Director Tan Sri Dato Seri Mohamed Jawhar Independent Non-Executive Director En. Mohd Suffian Bin Haji Haron Independent Non-Executive Director Mr Aubrey Li Kwok-Sing Non-Independent Non-Executive Director Mr Gary Cheng Shui Hee Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) 54 AFFIN BANK BERHAD (25046-T) Annual Report 2013

5 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 2013 and of the financial results and cash flows of the Group and of the Bank for the financial year then ended. The financial statements are prepared on the going concern basis and the Directors have ensured that proper accounting records are kept, applied the appropriate accounting policies on a consistent basis and made accounting estimates that are reasonable and fair so as to enable the preparation of the financial statements of the Group and of the Bank with reasonable accuracy. The Directors have also taken the necessary steps to ensure that appropriate systems are in place for the assets of the Group and of the Bank to be properly safeguarded for the prevention and detection of fraud and other irregularities. The systems, by their nature, can only provide reasonable and not absolute assurance against material misstatements, whether due to fraud or error. The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 194 of the financial statements. DIRECTORS INTERESTS According to the register of Directors shareholdings, the interest of Directors in office at the end of the financial year in shares, warrants and options of related companies are as follows: Ordinary shares of RM1 each As at As at Bought Sold AFFIN Holdings Berhad Tan Sri Dato Seri Lodin Bin Wok Kamaruddin * 808, * 808,714 Boustead Heavy Industries Corporation Berhad Tan Sri Dato Seri Lodin Bin Wok Kamaruddin * 2,000, * 2,000,000 Boustead Petroleum Sdn Berhad Tan Sri Dato Seri Lodin Bin Wok Kamaruddin 5,916, ,916,465 Al-Hadharah Boustead REIT Tan Sri Dato Seri Lodin Bin Wok Kamaruddin * 250, * 250,000 * Shares held in trust by nominee company Annual Report 2013 AFFIN BANK BERHAD (25046-T) 55

6 DIRECTORS REPORT DIRECTORS INTERESTS Ordinary shares of 50 sen each As at As at Bought Sold Pharmaniaga Berhad Tan Sri Dato Seri Lodin Bin Wok Kamaruddin 5,681,886 ^ 6,818,262-12,500,148 ^ Share split on the basis of one (1) bonus share for every ten (10) subdivided shares held on 4 June Bonus issue on 4 June Ordinary shares of RM10 each; RM5 uncalled As at As at Bought Transfer ABB Trustee Berhad *** Jen Tan Sri Dato Seri Ismail Bin Haji Omar (Bersara) 20, ,000 Dr Raja Abdul Malek Bin Raja Jallaludin 20, ,000 *** Shares held in trust for the Bank Ordinary shares of 50 sen each As at As at Bought Sold Boustead Holdings Berhad Tan Sri Dato Seri Lodin Bin Wok Kamaruddin 28,192, ,192,758 Redeemable preference shares of RM1 each As at As at Bought Sold Boustead Petroleum Sdn Berhad Tan Sri Dato Seri Lodin Bin Wok Kamaruddin Other than the above, the Directors in office at the end of the financial year did not have any other interest in shares, warrants and options over shares in the Bank or its related corporations during the financial year. 56 AFFIN BANK BERHAD (25046-T) Annual Report 2013

7 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, except for the share options granted to Directors of the Bank by AFFIN Holdings Berhad, Boustead Holdings Berhad and Lembaga Tabung Angkatan Tentera. Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than the fees and other emoluments shown in the Note 31 to the financial statements) by reason of a contract made by the Bank or by a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial financial interest. CORPORATE GOVERNANCE The Board of Directors is committed to ensure the highest standards of corporate governance throughout the organisation with the objectives of safeguarding the interests of all stakeholders and enhancing the shareholders value and financial performance of the Bank. The Board considers that it has applied the Best Practices as set out in the Malaysian Code of Corporate Governance throughout the financial year. The Bank is also required to comply with BNM s Guidelines on Directorship in the banking institutions ( BNM/GP1 ). (i) Board of Directors Responsibility and Oversight The Board of Directors The direction and control of the Bank rest firmly with the Board as it effectively assumes the overall responsibility for corporate governance, strategic direction, formulation of policies and overseeing the investments and operations of the Bank. The Board exercises independent oversight on the management and bears the overall accountability for the performance of the Bank and compliance with the principle of good governance. There is a clear division of responsibility between the Chairman and the Managing Director/Chief Executive Officer to ensure that there is a balance of power and authority. The Board is responsible for reviewing and approving the longer-term strategic plans of the Bank as well as the business strategies. It is also responsible for identifying the principal risks and implementation of appropriate systems to manage those risks as well as reviewing the adequacy and integrity of the Bank s internal control systems, management information systems, including systems for compliance with applicable laws, regulations and guidelines. Whilst, the Management Committee, headed by the Managing Director/Chief Executive Officer, is responsible for the implementation of the strategies and internal control as well as monitoring performance. The Committee is also a forum to deliberate issues pertaining to the Bank s business, strategic initiatives, risk management, manpower development, supporting technology platform and business processes. The Board Meetings The Board meets on a monthly basis, to review the Bank s financial and business performance, to oversee the conduct of the Bank s business as well as to ensure that adequate internal control systems are in place. The Board met 14 times during the financial year. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 57

8 DIRECTORS REPORT CORPORATE GOVERNANCE (i) Board of Directors Responsibility and Oversight (continued) Board Balance The Board of Directors comprises of seven Non-Executive Directors and one alternate Non-Executive Director. There are four Independent Non-Executive Directors and four Non-Independent Non-Executive Directors. The Board of Directors meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the Managing Director/Chief Executive Officer. In 2013, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of prominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areas particularly in banking. The composition of the Board and the number of meetings attended by each director are as follows: Directors Total Meetings Attended Jen Tan Sri Dato Seri Ismail Bin Haji Omar (Bersara) 14 / 14 Chairman / Non-Independent Non-Executive Director Tan Sri Dato Seri Lodin Bin Wok Kamaruddin 14 / 14 Member / Non-Independent Non-Executive Director Dr Raja Abdul Malek Bin Raja Jallaludin 14 / 14 Member / Independent Non-Executive Director Tan Sri Dato Sri Abdul Aziz Bin Abdul Rahman 14 / 14 Member / Independent Non-Executive Director Tan Sri Dato Seri Mohamed Jawhar 13 / 14 Member / Independent Non-Executive Director En. Mohd Suffian Bin Haji Haron 14 / 14 Member / Independent Non-Executive Director Mr Aubrey Li Kwok-Sing 4 / 14 Member / Non-Independent Non-Executive Director Mr Gary Cheng Shui Hee 7 / 14 Member / Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing) 58 AFFIN BANK BERHAD (25046-T) Annual Report 2013

9 DIRECTORS REPORT CORPORATE GOVERNANCE (i) Board of Directors Responsibility and Oversight (continued) Board Committees Nomination Committee Nominating Committee was established to provide a formal and transparent procedure for the appointment of Directors and Managing Director/Chief Executive Officer. The committee also assesses the effectiveness of the Board as a whole, contribution of each Director, contribution of the Board s various committees and the performance of Managing Director/Chief Executive Officer and key senior management officers. During the financial year ended 31 December 2013, a total of 6 meetings were held. The Nominating Committee comprises the following members and the details of attendance of each member at the Nominating Committee meetings held during the financial year are as follows: Members Total Meetings Attended En. Mohd Suffian Bin Haji Haron 6 / 6 Chairman / Independent Non-Executive Director Tan Sri Dato Seri Lodin Bin Wok Kamaruddin 6 / 6 Member / Non-Independent Non-Executive Director Dr Raja Abdul Malek Bin Raja Jallaludin 6 / 6 Member / Independent Non-Executive Director Tan Sri Dato Sri Abdul Aziz Bin Abdul Rahman 6 / 6 Member / Independent Non-Executive Director Tan Sri Dato Seri Mohamed Jawhar 6 / 6 Member / Independent Non-Executive Director Remuneration Committee Remuneration Committee was established to evaluate and recommend a framework of remuneration for Directors, the Chief Executive Officer and key senior management officers that is competitive and consistent with the Bank s culture, objectives and strategy. During the financial year ended 31 December 2013, a total of 4 meetings were held. The Remuneration Committee comprises the following members and the details of attendance of each member at the Remuneration Committee meetings held during the financial year are as follows: Annual Report 2013 AFFIN BANK BERHAD (25046-T) 59

10 DIRECTORS REPORT CORPORATE GOVERNANCE (i) Board of Directors Responsibility and Oversight (continued) Board Committees (continued) Remuneration Committee (continued) Members Total Meetings Attended Dr Raja Abdul Malek Bin Raja Jallaludin 4 / 4 Chairman / Independent Non-Executive Director Tan Sri Dato Seri Lodin Bin Wok Kamaruddin 4 / 4 Member / Non-Independent Non-Executive Director En. Mohd Suffian Bin Haji Haron 4 / 4 Member / Independent Non-Executive Director Shariah Committee AFFIN Islamic Bank Berhad s business activities are subject to Shariah compliance and conformation by the Shariah Committee. The Shariah Committee is formed as legislated under the Islamic Financial Services Act 2013 and as per Shariah Governance Framework for Islamic Financial Institutions. The duties and responsibilities of the Shariah Committee include the following: Shariah principles at all times; principles; and The Shariah Committee was established in December During the year, a total of 21 meetings were held. The Shariah Committee comprises the following members and the details of attendance of each member at the Shariah Committee meetings held are as follows: Members Total Meetings Attended Dr. Asyraf Wajdi Bin Dato Dusuki 21 / 21 Chairman Associate Professor Dr. Said Bouheraoua 16 / 21 Member Assistant Professor Dr. Ahmad Azam Bin Othman 21 / 21 Member Dr. Yasmin Hanani Binti Mohd Safian 16 / 21 Member Dr. Zulkifli Bin Hasan 16 / 21 Member 60 AFFIN BANK BERHAD (25046-T) Annual Report 2013

11 DIRECTORS REPORT CORPORATE GOVERNANCE (ii) Group Risk Management The Group 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 Group Risk Management function provides support to the Board Risk Management Committee ( BRMC ). Committees namely Board Loan Review and Recovery Committee ( BLRRC ), Management Committee ( MCM ), Group Management Loan Committee ( GMLC ), Asset and Liability Management Committee ( ALCO ), Liquidity Management Committee ( LMC ), Group Operational Risk Management Committee ( GORMC ) and Early Alert Committee ( EAC ) assist the BRMC in managing credit, market, liquidity and operational risks respectively. Responsibilities of these committees include: Board Risk Management Committee ( BRMC ) The main function of Board Risk Management Committee ( BRMC ) is to assist the Board in its supervisory role in the management of risk in the Bank. It has responsibility for approving and reviewing all risk management policies and methodologies of the Bank. BRMC also reviews guidelines and portfolio management reports including risk exposure information. BRMC provides oversight and management of all risks in the Bank. The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively. The Bank s risk management framework is set out in Note 38 to the financial statements. The BRMC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2013, a total of 5 meetings were held. The BRMC comprises the following members and details of attendance of each member at the BRMC meetings held during the financial year are as follows: Members Total Meetings Attended Tan Sri Dato Seri Mohamed Jawhar 5 / 5 Chairman / Independent Non-Executive Director Tan Sri Dato Sri Abdul Aziz Bin Abdul Rahman 5 / 5 Member / Independent Non-Executive Director Dr Raja Abdul Malek Bin Raja Jallaludin 5 / 5 Member / Independent Non-Executive Director En. Mohd Suffian Bin Haji Haron 5 / 5 Member / Independent Non-Executive Director Annual Report 2013 AFFIN BANK BERHAD (25046-T) 61

12 DIRECTORS REPORT CORPORATE GOVERNANCE (ii) Group Risk Management Board Loan Review and Recovery Committee ( BLRRC ) Board Loan Review and Recovery Committee ( BLRRC ) critically reviews loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise the power to veto loan applications that have been accepted by the Group Management Loan Committee ( GMLC ). The Committee is also responsible to review the impaired loans presented by Management. The BLRRC meeting for the Bank were jointly held with AFFIN Islamic Bank and during the financial year ended 31 December 2013, a total of 12 meetings were held. The BLRRC comprises the following members and details of attendance of each member at the BLRRC meetings held during the financial year are as follows: Members Total Meetings Attended Jen Tan Sri Dato Seri Ismail Bin Haji Omar (Bersara) 12 / 12 Chairman / Non-Independent Non-Executive Director Tan Sri Dato Seri Lodin Bin Wok Kamaruddin 12 / 12 Member / Non-Independent Non-Executive Director Laksamana Madya Tan Sri Dato Seri Ahmad Ramli Bin Mohd Nor (Bersara) 12 / 12 Member / Non-Independent Non-Executive Director (Represent AFFIN Islamic Bank Berhad) En. Mohd Suffian Bin Haji Haron 12 / 12 Member / Independent Non-Executive Director Management Committee ( MCM ) MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day operations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank s overall performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget. Group Management Loan Committee ( GMLC ) Group Management Loan Committee ( GMLC ) approves complex and larger loans and workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel of the Bank. 62 AFFIN BANK BERHAD (25046-T) Annual Report 2013

13 DIRECTORS REPORT CORPORATE GOVERNANCE (ii) Group Risk Management (continued) Individual Approvers Credit authority is delegated based on skills, experience and track record of the officer assuming an approver s position. Delegation of credit authority is subject to credit checks to ensure approvers have a clean disciplinary record and not be in a financially embarrassed position. Asset and Liability Management Committee ( ALCO ) ALCO comprising the senior management team chaired by the MD/CEO, manages the Bank s asset liability position and oversees the Bank s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory basis. Liquidity Management Committee ( LMC ) LMC is a sub-committee of the ALCO and its role is to augment the functions of the ALCO by directing its focus specifically to liquidity issues. Group Operational Risk Management Committee ( GORMC ) Responsibilities of the committees include: operating units; if necessary; and any changes to critical business or system related processes. Early Alert Committee ( EAC ) Early Alert Committee ( EAC ) is established within senior management to monitor credit quality through monthly review of the Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 63

14 DIRECTORS REPORT CORPORATE GOVERNANCE (iii) Internal Audit and Internal Control Activities In accordance with Bank Negara Malaysia s GP10 guidelines, the Group Internal Audit Division ( GIA ) conducts continuous reviews on auditable areas within the Bank. The continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance to the audit plan approved by the Audit and Examination Committee ( AEC ). The risk highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA. At present, GIA consists of Operational Audit, IS Audit, Credit Review, Investigation and Compliance. Audit activities include these key components: and provide an independent assessment to the Board of Directors, AEC and Management that appropriate control environment is maintained with clear authority and responsibility with sufficient staff and resources to carry out control responsibilities. and controls exist to contain those risks. produce accurate financial data and provide for the safeguarding of assets, and a documented review of reported results. - training and the dissemination of standards and requirements; - an information system to produce and convey complete, accurate and timely data including financial data; - the upward communication of trends, developments and emerging issues. on control finding until its full resolution. Based on GIA s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on the effectiveness of internal controls maintained by each entity. Audit and Examination Committee ( AEC ) The AEC comprises members of the Bank s Board of Directors whose primary function is to assist the Board of Directors in its supervision over: fulfill its fiduciary duties and obligations; and 64 AFFIN BANK BERHAD (25046-T) Annual Report 2013

15 DIRECTORS REPORT CORPORATE GOVERNANCE (iii) Internal Audit and Internal Control Activities (continued) Audit and Examination Committee ( AEC ) (continued) - are in compliance with all applicable laws, regulations and company policies; and - have adequately addressed the risk relating to internal controls and system, management of inherent and business risks, and ensuring that the assets are properly managed and safeguarded. The AEC is made up of at least three but not more than five members appointed by the Board of Directors from among its non-executive directors. The AEC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2013, a total of 7 meetings were held. The Audit and Examination Committee comprises the following members and details of attendance of each member at the Audit and Examination Committee meetings held during the financial year are as follows: Members Total Meetings Attended Tan Sri Dato Sri Abdul Aziz Bin Abdul Rahman 7 / 7 Chairman / Independent Non-Executive Director Tan Sri Dato Seri Mohamed Jawhar 7 / 7 Member / Independent Non-Executive Director Dr Raja Abdul Malek Bin Raja Jallaludin 7 / 7 Member / Independent Non-Executive Director Dr. Asyraf Wajdi Bin Dato Dusuki 6 / 7 Member / Independent Non-Executive Director (Represent AFFIN Islamic Bank Berhad) (iv) Management Reports Before each Board meeting, Directors are provided with a complete set of board papers itemised in the agenda for Board s review/approval and/or notation. The Board monitors the Bank s performance by reviewing the monthly Management Report, which provides a comprehensive review and analysis of the Bank s operations and financial issues. In addition, the minutes of the Board Committees and Management Committees meetings and other issues are also tabled and considered by the Board. Procedures are in place for Directors to seek both independent professional advice at the Bank s expense and the advice and services of the Company Secretary in order to fulfill their duties and specific responsibilities. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 65

16 DIRECTORS REPORT BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER was a challenging year for the AFFIN Bank Berhad. To address the issue of household debt level, Bank Negara Malaysia ( BNM ) had strengthened the existing measures on responsible lending guidelines by issuing more stringent guidelines in July These measures contributed to further softening of loans growth for the industry as a whole, and especially in the consumer segment. Despite these challenges, the Group remained resilient in the market, registering profit before tax growth of 8.4%, deposits growth of 11.7% and growth of net loans and advances of 8.2 %.Our key financial ratios are within the industry average. The Bank managed to register the performance through preservation of asset quality using proactive account management and effective early detection of potential problematic assets. Management will continue to remain prudent to ensure business sustainability and profitability growth. The bank is also continuously seeking out for new growth opportunities. BUSINESS OUTLOOK FOR 2014 Going into 2014, the Bank will be focusing on controlled loans growth and effective balance sheet management in order to achieve financial year-ended 2014 business targets. Amid increasing competition, margin continues to come under pressure to the banking industry due to the impact of potential hike in Overnight Policy Rate ( OPR ). In view of this scenario, net interest margin is expected to be dampened further. As such, more emphasis will be given on increasing our fee based income. Business opportunities from Economic Transformation Plan ( ETP ) projects are expected to be more significant for the Bank in the coming year and will give positive impact to our business banking sector as a result of stronger collaboration on secondary project financing between its major shareholders, the Lembaga Tabung Angkatan Tentera ( LTAT ) and the Boustead Group of companies as well as our existing/established customers. For consumer segments, higher end auto financing and mortgage will remain as our main drivers for loan growth. The ensure income sustainability, the bank will also emphasis on cross selling of its products such as cards, unit trust, insurance business and promoting new banking products particularly in treasury, forex and wealth management. With continued focus on productivity improvement and customer service enhancement from all our staff, we are optimistic in our outlook for AFFIN BANK BERHAD (25046-T) Annual Report 2013

17 DIRECTORS REPORT RATING BY EXTERNAL AGENCIES The Bank has been rated by the following external rating agency: Name of rating agency: RATING AGENCY MALAYSIA BERHAD ( RAM ) Date of rating: 23 July 2013 Rating classifications: - Long term: A1 - Short term: P1 RAM has reaffirmed the Bank s long-term and short-term financial institution ratings, at A1 and P1, respectively, with a stable outlook. A rating is defined by RAM as being able to offer adequate safety for timely payment of interest and principal, and has adequate credit profile but possess one or more problem areas, giving rise to the possibility of future riskiness. Entities rated in this category have generally performed at industry average and are considered to be more vulnerable to changes in economic condition than those rated in the higher categories. The subscript 1 in this category indicates as higher end of its generic rating in the A category. A P1 rating is defined by RAM as obligations which are supported by superior ability with regards to timely payment of obligations. ZAKAT The Bank s subsidiary, AFFIN Islamic Bank Berhad ( AFFIN ISLAMIC ) is obliged to pay zakat to comply with the principles of shariah. AFFIN Islamic does not pay zakat on behalf of its depositors. HOLDING COMPANY AND ULTIMATE HOLDING CORPORATE BODY The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera Act, AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. In accordance with resolution of the Board of Directors dated 26 February Jen Tan Sri Dato Seri Ismail Bin Haji Omar (Bersara) Chairman En. Mohd Suffian Bin Haji Haron Director Annual Report 2013 AFFIN BANK BERHAD (25046-T) 67

18 STATEMENTS OF FINANCIAL POSITION as at 31 December 2013 The Group The Bank Note RM 000 RM 000 RM 000 RM 000 ASSETS Cash and short-term funds 2 9,401,701 7,648,904 4,987,696 3,633,842 Reverse and repurchase agreements with financial institutions - 20,057-20,057 Deposits and placements with banks and other financial institutions 3 482, ,452 1,106,756 1,043,825 Financial assets held-for-trading 4 149, , , ,592 Derivative financial assets 5 56,274 68,872 56,274 68,872 Financial investments available-for-sale 6 7,614,537 7,640,654 6,331,414 5,658,161 Financial investments held-to-maturity 7 500, , , ,670 Loans, advances and financing 8 36,227,785 33,482,626 30,178,910 28,339,269 Other assets 9 220, , , ,790 Amount due from subsidiaries , ,949 Amount due from jointly controlled entity 4,185 2, Tax recoverable Deferred tax assets 11 9,945-6,985 - Statutory deposits with Bank Negara Malaysia 12 1,459,350 1,413,300 1,226,350 1,211,800 Investment in subsidiaries , ,389 Investment in jointly controlled entity Property and equipment , , , ,951 Intangible assets , , , ,887 TOTAL ASSETS 56,437,113 52,104,980 45,390,601 41,676,054 LIABILITIES AND EQUITY Deposits from customers 17 46,088,082 41,263,536 36,800,728 32,224,817 Deposits and placements of banks and other financial institutions 18 4,065,544 4,809,323 2,659,535 3,728,263 Derivative financial liabilities 19 94,522 59,663 94,522 59,663 Bills and acceptances payable 90, ,400 90, ,400 Recourse obligation on loans sold to Cagamas Berhad , , , ,549 Other liabilities , , , ,144 Amount due to subsidiaries ,559 48,528 Provision for taxation 36,402 63,751 34,351 54,177 Deferred tax liabilities 11-13,365-13,099 Subordinated term loan , , , ,960 TOTAL LIABILITIES 52,069,489 47,987,028 41,395,494 37,881,600 Share capital 24 1,518,337 1,518,337 1,518,337 1,518,337 Reserves 25 2,849,287 2,599,615 2,476,770 2,276,117 TOTAL EQUITY 4,367,624 4,117,952 3,995,107 3,794,454 TOTAL LIABILITIES AND EQUITY 56,437,113 52,104,980 45,390,601 41,676,054 COMMITMENTS AND CONTINGENCIES 37 21,863,606 18,981,323 20,196,417 17,411,381 The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements. 68 AFFIN BANK BERHAD (25046-T) Annual Report 2013

19 INCOME STATEMENTS The Group The Bank Note RM 000 RM 000 RM 000 RM 000 Interest income 26 2,121,127 1,984,900 2,150,845 2,012,937 Interest expense 27 (1,308,068) (1,196,228) (1,308,113) (1,196,288) Net interest income 813, , , ,649 Net Islamic banking income , , ,033,804 1,005, , ,649 Other operating income , , , ,890 Net income 1,271,170 1,262,507 1,077,594 1,072,539 Other operating expense 30 (565,186) (571,158) (461,133) (473,673) Operating profit before allowances 705, , , ,866 Allowances for losses on loans, advances and financing 32 56,937 22,512 56,567 7,091 Impairment losses on securities (499) (10,402) (499) (10,402) 762, , , ,555 Share of joint venture s results (210) (230) - - Profit before zakat and taxation 762, , , ,555 Zakat (8,583) (6,064) - - Profit before taxation 753, , , ,555 Taxation 34 (183,807) (171,899) (163,930) (145,251) Net profit after zakat and taxation 569, , , ,304 Attributable to: Equity holders of the Bank 569, , , ,304 Earnings per share (sen): - Basic/fully diluted The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 69

20 STATEMENTS OF COMPREHENSIVE INCOME The Group The Bank Note RM 000 RM 000 RM 000 RM 000 Profit after zakat and taxation 569, , , ,304 Other comprehensive income: Items that may be reclassified subsequently to profit and loss: Net fair value change in financial investments available-for-sale (102,027) 733 (86,770) 1,822 Deferred tax on financial investments available-for-sale 11 24,811 (418) 21,758 (456) Other comprehensive income for the financial year, net of tax (77,216) 315 (65,012) 1,366 Total comprehensive income for the financial year 492, , , ,670 Attributable to equity holders of the Bank: - Total comprehensive income 492, , , ,670 The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements. 70 AFFIN BANK BERHAD (25046-T) Annual Report 2013

21 STATEMENTS OF CHANGES IN EQUITY Attributable to Equity Holders of the Bank AFS Share Share Statutory revaluation Retained capital premium reserves reserves profits Total The Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January ,518, ,337 1,160,651 75, ,371 4,117,952 Comprehensive income: Net profit for the financial year , ,822 Other comprehensive income (net of tax) - Financial investments available-for-sale (77,216) - (77,216) Total comprehensive income (77,216) 569, ,606 Dividends paid (Note 36) (242,934) (242,934) Transfer to statutory reserves ,725 - (156,725) - At 31 December ,518, ,337 1,317,376 (1,960) 1,004,534 4,367,624 At 1 January ,439, ,389 1,011,044 74, ,326 3,600,985 Comprehensive income: Net profit for the financial year , ,266 Other comprehensive income (net of tax) - Financial investments available-for-sale Total comprehensive income , ,581 Issued during the financial year 79, , ,000 Dividends paid (Note 36) (208,614) (208,614) Transfer to statutory reserves ,607 - (149,607) - At 31 December ,518, ,337 1,160,651 75, ,371 4,117,952 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 71

22 STATEMENT OF CHANGES IN EQUITY Non-distributable Distributable AFS Share Share Statutory revaluation Retained capital premium reserves reserves profits Total The Bank RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January ,518, ,337 1,017,200 69, ,603 3,794,454 Comprehensive income: Net profit for the financial year , ,599 Other comprehensive income (net of tax) - Financial investments available-for-sale (65,012) - (65,012) Total comprehensive income (65,012) 508, ,587 Dividends paid (Note 36) (242,934) (242,934) Transfer to statutory reserves ,150 - (127,150) - At 31 December ,518, ,337 1,144,350 4, ,118 3,995,107 At 1 January ,439, , ,624 68, ,489 3,351,398 Comprehensive income: Net profit for the financial year , ,304 Other comprehensive income (net of tax) - Financial investments available-for-sale ,366-1,366 Total comprehensive income , , ,670 Issued during the financial year 79, , ,000 Dividends paid (Note 36) (208,614) (208,614) Transfer to statutory reserves ,576 - (112,576) - At 31 December ,518, ,337 1,017,200 69, ,603 3,794,454 The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements. 72 AFFIN BANK BERHAD (25046-T) Annual Report 2013

23 STATEMENTS OF CASH FLOWS The Group The Bank RM 000 RM 000 RM 000 RM 000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 753, , , ,555 Adjustments for items not involving the movement of cash and cash equivalents: Interest income: - financial assets held-for-trading (160) (789) (160) (789) - financial investments available-for-sale (202,084) (183,906) (201,936) (183,758) - financial investments held-to-maturity (19,984) (23,912) (19,984) (23,912) Dividend income: - financial investments available-for-sale (4,058) (3,204) (4,058) (3,204) Amortisation of premium less accretion of discount - financial investments available-for-sale (12,004) (9,869) (12,004) (9,869) - financial investments held-to-maturity (1,024) (964) (1,024) (964) Gain on sale: - financial assets held-for-trading (366) (697) (366) (697) - financial investments available-for-sale (22,369) (20,634) (18,894) (19,870) - financial investments held-to-maturity (6,144) (19,011) (6,144) (19,011) Unrealised (gain)/loss on revaluation - financial assets held-for-trading (455) 188 (455) derivatives (5,282) (12,925) (5,282) (12,925) - foreign exchange 54,118 (42,325) 54,118 (42,325) Allowance for impairment loss - financial investments available-for-sale financial investments held-to-maturity - 9,590-9,590 Depreciation of property and equipment 16,019 17,784 15,166 16,579 Property and equipment written-off Foreclosed properties - diminution in value - 2,122-2,122 Gain on sale of property and equipment (3,910) (1,098) (3,910) (1,093) Amortisation of intangible assets 7,989 8,568 7,197 7,771 Gain on sale of foreclosed properties (11,041) (10,141) (11,041) (10,097) Net individual impairment 43,872 69,497 43,615 66,845 Net collective impairment 15,253 6,672 15,011 24,242 Bad debt and financing written-off 4,583 7,784 4,509 7,702 Interest expense - subordinated term loan 41,473 40,453 41,473 40,453 Zakat 8,583 6, Subsidiary - diminution in value - - (1,707) - Share of joint venture s results Operating profit before changes in working capital 657, , , ,523 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 73

24 STATEMENTS OF CASH FLOWS The Group The Bank RM 000 RM 000 RM 000 RM 000 CASH FLOWS FROM OPERATING ACTIVITIES (continued) Decrease/(increase) in operating assets: Reverse repurchase agreements with financial institutions 20,057 (20,057) 20,057 (20,057) Deposits and placements with banks and other financial institutions 113,855 (109,758) (62,931) 55,163 Financial assets held-for-trading 16,869 (15,252) 16,869 (15,252) Interest income from financial assets held-for-trading Foreign exchange transaction (29,935) (1,463) (30,378) (161) Loans, advances and financing (2,808,867) (3,874,313) (1,902,776) (3,119,997) Other assets 48,145 (98,483) 27,551 (82,270) Derivative financial instruments 47,457 (56,707) 47,457 (56,707) Statutory deposits with Bank Negara Malaysia (46,050) (144,650) (14,550) (103,150) Amount due from subsidiaries , ,169 Amount due from jointly controlled entity (1,440) Increase/(decrease) in operating liabilities: Deposits from customers 4,824,546 4,716,092 4,575,911 3,152,393 Deposits and placements of banks and other financial institutions (743,779) (2,717,589) (1,068,728) (2,315,574) Bills and acceptances payable (62,192) 70,341 (62,192) 70,341 Recourse obligation on loans sold to Cagamas Berhad (15,759) (14,910) (15,759) (14,910) Other liabilities 86,746 (21,270) 78,172 (26,869) Cash generated from/(used in) operations 2,107,251 (1,749,597) 2,274,363 (1,829,569) Tax refund Zakat paid (7,616) (4,919) - (100) Tax paid (210,386) (128,138) (182,778) (113,845) Net cash generated from/(used in) operating activities 1,889,759 (1,882,654) 2,092,065 (1,943,514) 74 AFFIN BANK BERHAD (25046-T) Annual Report 2013

25 STATEMENTS OF CASH FLOWS The Group The Bank RM 000 RM 000 RM 000 RM 000 CASH FLOWS FROM INVESTING ACTIVITIES Investment in subsidiaries Investment in associate Investment in joint controlled entity (150) Interest received: - financial investments available-for-sale 202, , , ,758 - financial investments held-to-maturity 19,984 23,912 19,984 23,912 Dividend income: - financial investments available-for-sale 4,058 3,204 4,058 3,204 Redemption of financial investments held-to-maturity net of purchase (41,497) 79,820 43,568 79,820 Net purchase of financial investments available-for-sale (42,036) (911,810) (729,623) (412,881) Proceeds from disposal of - property and equipment 7,377 4,091 7,377 3,441 - foreclosed properties 21,961 21,611 21,961 21,371 Purchase of property and equipment (17,443) (20,616) (16,624) (19,480) Purchase of intangible assets (1,236) (458) (1,236) (458) Net cash generated from/(used in) investing activities 153,132 (616,340) (448,560) (117,313) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of shares - 200, ,000 Investment in subsidiary (100,000) Interest payment on subordinated term loan (41,469) (37,344) (41,469) (37,344) Increase in subordinated term loan - 300, ,000 Payment of dividend (242,934) (208,614) (242,934) (208,614) Net cash (used in)/generated from financing activities (284,403) 254,042 (284,403) 154,042 Net increase/(decrease) in cash and cash equivalents 1,758,488 (2,244,952) 1,359,102 (1,906,785) Net (decrease)/increase in foreign exchange (5,691) 14,490 (5,248) 13,188 Cash and cash equivalents at beginning of the financial year 7,648,904 9,879,366 3,633,842 5,527,439 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR (Note 2) 9,401,701 7,648,904 4,987,696 3,633,842 The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 75

26 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. These 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 provisions of the Malaysian Financial Reporting Standards ( MFRS ), International Financial Reporting Standards and the requirements of the Companies Act 1965 in Malaysia. The financial statements incorporate those activities relating to Islamic banking business which have been undertaken by AFFIN Islamic Bank Berhad, a wholly owned subsidiary of the Bank. Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles. The financial statements of the Group and the Bank have been prepared under the historical cost convention, unless otherwise indicated in this summary of significant accounting policies. The preparation of financial statements in conformity with 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 period. It also requires Directors to exercise their judgment in the process of applying the Group and Bank s accounting policies. Although these estimates and judgment are based on the Directors best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 44. Standards and amendments to published standards that are effective and applicable to the Group and the Bank The new accounting standards and amendments to published standards that are effective and applicable to the Group and the Bank for the financial year beginning 1 January 2013 are as follows: 76 AFFIN BANK BERHAD (25046-T) Annual Report 2013

27 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF PREPARATION Standards and amendments to published standards that are effective and applicable to the Group and the Bank (continued) borrowing costs liabilities The adoption of the new accounting standards, amendments and improvements to published standards did not have material impact on the financial statements of the Group and the Bank. Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Bank but not yet effective The Group and the Bank will apply these standards, amendments to published standards from: (i) Financial year beginning on/after 1 January 2014 the current offsetting model in MFRS 132. It clarifies the meaning of currently has a legally enforceable right of setoff that the right of set-off must be available today (not contingent on a future event) and legally enforceable for all counterparties in the normal course of business. It clarifies that some gross settlement mechanisms with features that are effectively equivalent to net settlement will satisfy the MFRS 132 offsetting criteria. Amendments to MFRS 10, MFRS 12 and MFRS 127 (effective 1 January 2014) introduce an exception to consolidation of investment entities. Investment entities are entities whose business purpose is to invest funds solely for returns from capital appreciation, investment income or both and evaluate the performance of its investments on fair value basis. The amendments require investment entities to measure particular subsidiaries at fair value instead of consolidating them. Amendment to MFRS 136, Impairment of Assets (effective 1 January 2014) clarify that disclosure of recoverable amount is required for an asset or cash generating unit when an impairment loss has been recognised or reversed during the period. When the recoverable amount of impaired assets is based on fair value less costs of disposal, additional information about fair value measurement is required. This amendment removes the unintended requirement to disclose the recoverable amount for a cash-generating unit (containing goodwill or indefinite lived intangible assets) when no impairment loss has been recognised or reversed during the period. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 77

28 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF PREPARATION Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Bank but not yet effective (continued) (i) Financial year beginning on/after 1 January 2014 (continued) Continuation of Hedge Accounting (effective 1 January 2014) provides relief from discontinuing hedge accounting in a situation where a derivative (which has been designated as a hedging instrument) is novated to effect clearing with a central counterparty as a result of laws or regulation, subject to meeting the following criteria - the parties to the hedging instrument agree that the central counterparty replaces the original counterparty, other changes to the hedging instrument are limited to those that are necessary to effect replacement of the counterparty. (ii) Financial year beginning on/after 1 January 2017 from 1 January 2017) replaces the parts of MFRS 139 that relate to the classification and measurement of financial instruments. MFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the MFRS 139 requirements. The main change is that, in case where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The financial effect of adoption of MFRS 9 is still being assessed by the Group and the Bank. The Group and the Bank will apply these standards when effective. The adoption standards, amendments to published standards and interpretations to existing standards do not have significant impact on the financial statements of the Group and the Bank except for MFRS 9. (B) CONSOLIDATION The consolidated financial statements include the financial statements of the Bank, subsidiaries and a jointly controlled entity, made up to the end of the financial year. (i) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. 78 AFFIN BANK BERHAD (25046-T) Annual Report 2013

29 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (B) CONSOLIDATION (i) Subsidiaries (continued) 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. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group applies predecessor accounting to account for business combinations under common control. Under the predecessor accounting, assets and liabilities acquired are not restated to their respective fair values but at the carrying amounts from the consolidated financial statements of the ultimate holding company of the Group and adjusted to ensure uniform accounting policies of the Group. The difference between any consideration given and the aggregate carrying amounts of the assets and liabilities (as of the date of the transaction) of the acquired entity is recorded as an adjustment to retained earnings. No additional goodwill is recognised. The acquired entity s results, assets and liabilities are consolidated from the date on which the business combination between entities under common control occurred. Consequently, the consolidated financial statements 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. If the business combination is achieved in stages, the acquisition date fair value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through 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 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisitiondate fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired is recorded as goodwill. If the total of the consideration, non-controlling interest recognised 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 income statement. Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (ii) Changes in ownership interests in subsidiaries without change of control that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 79

30 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (B) CONSOLIDATION (iii) Disposal of subsidiaries When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. (iv) Jointly controlled entities The Group s interest in jointly controlled entities are accounted for in the financial statements by the equity method of accounting. Under the equity method of accounting, interests in jointly controlled entities are initially recognised at cost and adjusted thereafter to recognise the Group s share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group s share of losses in a jointly controlled entities equals or exceeds its interests in the jointly controlled entities (which includes any long-term interests that, in substance, form part of the Group s net investment in the jointly controlled entities), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the jointly controlled entities. (C) INVESTMENTS IN SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES In the Bank s separate financial statements, investments in subsidiaries and jointly controlled entities are carried at cost less accumulated impairment losses. On disposal of investments in subsidiaries and jointly controlled entities, the difference between disposal proceeds and carrying amounts of the investments are recognised in profit or loss. (D) INTANGIBLE ASSETS Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets at the date of acquisition. Goodwill on acquisition of subsidiaries are included in the statement of financial position as intangible assets. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicated that the goodwill may be impaired. The amount retained in the consolidated financial statements is stated at cost less accumulated impairment losses. Impairment losses on goodwill (inclusive of impairment losses recognised in a previous interim period) are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units ( CGU ) for the purpose of impairment testing. The allocation is made to those CGUs that are expected to benefit from the synergies of the business combination in which goodwill arose identified according to operating segment. Computer software Acquired computer software are capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (five years). Computer software classified as intangible asset are stated at cost less accumulated amortisation and accumulated impairment losses, if any. 80 AFFIN BANK BERHAD (25046-T) Annual Report 2013

31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus. (F) RECOGNITION OF INTEREST AND FINANCING INCOME AND EXPENSE Interest and financing income and expense for all interest/profit-bearing financial instruments measured at amortised cost method. The effective interest/profit 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/profit 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/profit 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/profit 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. (G) RECOGNITION OF FEES AND OTHER INCOME Fees and commissions are recognised as income when all conditions precedent are fulfilled. Commitment fees for loans, advances and financing that are likely to be drawn down are deferred (together with related direct costs) and income which forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective interest/profit rate on the financial instrument. Commitment fees and guarantee fees which are material are recognised as income based on a time apportionment method. Dividends are recognised when the right to receive payment is established. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 81

32 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (H) FINANCIAL ASSETS All financial assets which include derivative financial instruments have to be recognised in the statement of financial position and measured in accordance with their assigned category. The Group and the Bank allocate financial assets in the following MFRS 139 categories: Loans, advances and financing, financial assets at fair value through profit or loss, financial investments available-for-sale; and financial investments held-to-maturity. Management determines the classification of its financial instruments at initial recognition. Loans, advances and financing Loans, advances and financing are non-derivative financial assets with fixed or determinable payments that are not quoted in active market. Loans, advances and financing are initially recognised at fair value which is the cash consideration to originate or purchase the loan including any transaction costs and measured subsequently at amortised cost using the effective interest rate method, less impairment allowance. An uncollectible loan, advance and financing or portion of a loan, advance and financing classified as bad is written off after taking into consideration the realisable value of collateral, if any, when in the judgment of the management, there is no prospect of recovery. At each reporting date, the Group and the Bank assess whether there is objective evidence that a loan or group of loans is impaired. A loan or a group of loans is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the loan or group of loans that can be reliably estimated. The criteria that the Group and the Bank use to determine that there is objective evidence of an impairment loss include among others: The estimated period between a loss occurring and its identification for credit cards is six months and for all other loans are twelve months. The Group and the Bank first assess whether objective evidence of impairment exists individually for loans that are individually significant, and individually or collectively for loans that are not individually significant. If the Group and the Bank determine that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the loan in a group of loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. Loans that are individually assessed for impairment and for which no impairment loss is required (over collateralised loans) are collectively assessed as a separate segment. The amount of the loss is measured as the difference between the loan s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the loan s original effective interest rate. The carrying amount of the loan is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. 82 AFFIN BANK BERHAD (25046-T) Annual Report 2013

33 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (H) FINANCIAL ASSETS Loans, advances and financing (continued) The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such loans by being indicative of the borrowers ability to pay all amounts due according to the contractual terms of the loans being evaluated. Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the loans in the Bank and historical loss experience for loans with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Estimates of changes in future cash flows for groups of loans should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Group and the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group and the Bank to reduce any differences between loss estimates and actual loss experience. Rescheduled and restructured loans Where a loan shows evidence of credit weaknesses, the Group and the Bank may seek to renegotiate the loan rather than to take possession of collateral. This may involve an extension of the payment arrangements via rescheduling or the renegotiation of new loan terms and conditions via restructuring. Management monitors the renegotiated loan to ensure that all the revised terms are met and that the repayments are made promptly for a continuous period. Where an impaired loan is renegotiated, the borrower must adhere to the revised and/or restructured repayment terms for a continuous period of six months before the loan is classified as non-impaired. These loans continue to be subjected to individual or collective impairment assessment. Financial assets at fair value through profit or loss This category comprises two sub-categories: financial assets classified as held-for-trading and financial assets designated by the Group and the Bank as at fair value through profit or loss upon initial recognition. A financial asset is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as Derivative financial assets when their fair values are positive. Financial assets held-for-trading consist of debt instruments, including money-market paper, traded corporate and bank loans, and equity instruments, as well as financial assets with embedded derivatives. They are recognised in the statement of financial position as Financial assets held-for-trading. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 83

34 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (H) FINANCIAL ASSETS Financial assets at fair value through profit or loss (continued) Financial instruments included in this category are recognised initially at fair value; transaction costs are taken directly to the income statement. Financial assets at fair value through profit or loss are subsequently carried at fair value. Changes in fair values including the effects of currency translation, interest and dividend income are recognised in the income statement in the period in which the changes arise. The Group and the Bank may designate certain financial assets upon initial recognition as at fair value through profit or loss (fair value option). This designation cannot subsequently be changed. The fair value option is only applied when the following conditions are met: the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise; or the financial assets are part of a portfolio of financial instruments which is risk managed and reported to senior management on a fair value basis; or the financial assets consists of debt host and an embedded derivatives that must be separated. Financial assets for which the fair value option is applied are recognised in the statement of financial position as Financial assets designated at fair value. Fair value changes relating to financial assets designated at fair value through profit or loss are recognised in the income statement. The Group and the Bank may choose to reclassify a non-derivative financial assets held-for-trading out of this category where: in rare circumstances, it is no longer held for the purpose of selling or repurchasing in the near term; or and the Group and the Bank have the intention and ability to hold it for the foreseeable future or until maturity. Financial investments available-for-sale Financial investments available-for-sale are non-derivative financial assets that are either designated in this category or not classified as loans and receivables, held-for-trading or held-to-maturity investments. Financial instruments available-for-sale are initially recognised at fair value plus transaction costs and subsequently measured at fair value. Investments in equity instruments where there is no quoted market price in an active market and whose fair value cannot be reliably measured, will be stated at cost. Any gains or losses arising from the change in fair value adjustments are recognised directly in statement of comprehensive income except for impairment losses and foreign exchange gains or losses. When the financial asset is derecognised, the cumulative gains or loss previously recognised in statement of comprehensive income shall be transferred to the income statement. A financial investments available-for-sale that would have met the definition of loans and receivables may only be transferred from the available-for-sale classification where the Group and the Bank have the intention and the ability to hold the asset for the foreseeable future or until maturity. 84 AFFIN BANK BERHAD (25046-T) Annual Report 2013

35 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (H) FINANCIAL ASSETS Financial investments available-for-sale (continued) Impairment of financial investments available-for-sale is assessed when there is an objective evidence of impairment. Cumulative unrealised losses that had been recognised directly in equity shall be removed and recognised in income statement even though the securities have not been de-recognised. Impairment loss in addition to the above unrealised losses is also recognised in the income statement. Subsequent reversal of impairment on debt instrument in the income statement is allowed when the decrease in impairment can be related objectively to an event occurring after the impairment was recognised. For debt securities, the Group set the criteria similar to assets carried at amortised cost. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. Impairment losses recognised in the income statement on equity instruments shall not be reversed. Financial investments held-to-maturity Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group and the Bank have the positive intention and ability to hold to maturity. Financial investments held-to-maturity are initially recognised at fair value plus transaction costs, and subsequently measured at amortised cost using the effective interest method. Financial investments held-to-maturity are measured at amortised cost using the effective interest method. Gains or losses are recognised in income statement when the securities are derecognised or impaired and through the amortisation process. If, as a result of a change in intention or ability, it is no longer appropriate to classify a financial investment as held-to-maturity, the Group and the Bank shall reclassify the investment as available-for-sale and remeasured at fair value, and the difference between its carrying amount and fair value shall be recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses. Any sale or reclassification of a significant amount of financial investments held-to-maturity before maturity during the investments held-to-maturity being reclassified to available-for-sale except for sales or reclassification that: are so close to maturity or call date that changes in the market rate of interest would not have significant effect on the financial asset s fair value; or occur after the Group and the Bank have collected substantially all of the financial asset s original principal; or are attributable to an isolated event that is beyond the Group and the Bank s control are non-recurring and could not have been reasonably anticipated by the Group and the Bank. Impairment of financial investments held-to-maturity is assessed when there is an objective evidence of impairment. The impairment loss is measured as the difference between the financial investments carrying amount and the present value of estimated future cash flows discounted at the financial investments original effective interest rate. Subsequent reversal of impairment is allowed in the event of an objective decrease in impairment. Recognition of impairment losses and its reversal is made through the income statement. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 85

36 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (H) FINANCIAL ASSETS Recognition The Group and the Bank use settlement date accounting for regular way contracts when recording financial asset transactions. Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the statement of financial position as Assets pledged as collateral, if the transferee has the right to sell or repledge them. De-recognition Financial assets are de-recognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Group and the Bank tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent de-recognition). (I) FINANCIAL LIABILITIES All financial liabilities which include derivative financial instruments have to be recognised in the statement of financial position and measured in accordance with their assigned category. The Group and the Bank s holding in financial liabilities are in financial liabilities at fair value through profit or loss (including financial liabilities held-for-trading and those that designated at fair value) and financial liabilities at amortised cost. Financial liabilities are de-recognised when extinguished. Financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial liabilities classified as held-for-trading, and financial liabilities designated by the Group and the Bank as at fair value through profit or loss upon initial recognition. A financial liability is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as Derivative financial liabilities when their fair values are negative. Gains and losses arising from changes in fair value of financial liabilities classified held-for-trading are included in the income statement. Other liabilities measured at amortised cost Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at amortised cost. All the financial liabilities except for derivative financial liabilities of the Group and the Bank are measured at amortised cost. De-recognition Financial liabilities are de-recognised when they have been redeemed or otherwise extinguished. 86 AFFIN BANK BERHAD (25046-T) Annual Report 2013

37 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (J) OFFSETTING FINANCIAL INSTRUMENTS Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously. (K) PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Freehold land is not depreciated as it has an infinite life. Other property and equipment are depreciated on the straight-line basis to write off the cost of the assets or their revalued amounts, to their residual values over their estimated useful lives, summarised as follows: Buildings Leasehold buildings Renovation and leasehold premises Office equipment and furniture Computer equipment and software Motor vehicles 50 years 50 years or over the remaining lease period, whichever is shorter 5 years or the period of the lease whichever is greater 10 years 5 years 5 years Depreciation on capital work in progress commences when the assets are ready for their intended use. Residual value and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date. At each reporting date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is recoverable. A write down is made if the carrying amount exceeds the recoverable amount. Any subsequent increase in the recoverable amount is recognised in the income statement (refer to accounting policy E on impairment of non-financial assets). Gains and losses on disposal are determined by comparing proceeds with carrying amount and are recognised within other operating income in the income statement. (L) LEASES Accounting by lessee Finance leases Leases of property and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 87

38 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (L) LEASES Accounting by lessee (continued) Finance leases (continued) Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property and equipment acquired under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term. Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to the carrying amount of the leased assets and recognised as an expense in income statement over the lease term on the same basis as the lease expense. Operating leases Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on the straight-line basis over the lease period. Initial direct costs incurred by the Group in negotiating and arranging operating leases are recognised in income statement when incurred. Accounting by lessor Finance leases When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method so as to reflect a constant periodic rate of return. Operating leases When assets are leased out under an operating lease, the asset is included in the statement of financial position based on the nature of the asset. Lease income is recognised over the term of the lease on a straight-line basis. (M) FOREIGN CURRENCY TRANSLATIONS Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Ringgit Malaysia, which is the Group and the Bank s functional and presentation currency. 88 AFFIN BANK BERHAD (25046-T) Annual Report 2013

39 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (M) FOREIGN CURRENCY TRANSLATIONS Transactions and balances Foreign currency transactions are translated into the functional currency using the exchanges rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Changes in the fair value of monetary financial assets denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the financial asset and other changes in the carrying amount of the financial asset. Translation differences related to changes in the amortised cost are recognised in income statement, and other changes in the carrying amount are recognised in other comprehensive income. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit and loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the fair value reserve in other comprehensive income. (N) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING Derivatives are initially recognised at fair values on the date on which derivative contracts are entered into and are subsequently remeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative. The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e the fair value of the consideration given or received) unless fair value of the instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge); or (2) hedges of highly probable future cash flows attributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge). Hedge accounting is used for designated derivatives in this way provided certain criterias are met. The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and an on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used, is amortised to income statement over the period to maturity. The adjustment to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 89

40 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (N) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain and loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in other comprehensive income are recycled to the income statement in the periods in which the hedged item will affect income statement (for example, when the forecast sale that is hedged take place). When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing at that time remains in other comprehensive income and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the income statement. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement. Gains and losses on interest rate swaps, futures, forward and option contracts that qualify as hedges are deferred and amortised over the life of hedged assets or liabilities as adjustments to interest income or interest expense. Gains and losses on interest rate swaps, futures, forward and option contracts that do not qualify as hedges are recognised in the current financial year using the mark-to-market method and are included in the income statement. (O) CURRENT AND DEFERRED INCOME TAXES Current tax The tax expense for the period comprises current and deferred tax. Tax is recognised in income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period where the Group s subsidiaries and branch operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. This liability is measured using the single best estimate of the most likely outcome. Deferred tax Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. 90 AFFIN BANK BERHAD (25046-T) Annual Report 2013

41 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (O) CURRENT AND DEFERRED INCOME TAXES Deferred tax (continued) Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised. Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the end of the reporting date and are expected to apply when the related deferred tax assets is realised or the deferred tax liability is settled. Deferred tax is recognised on temporary differences arising on investment in subsidiaries and jointly controlled entity except where the timing of the reversal of the temporary difference can be controlled by the Group and it is possible that the temporary difference will not reverse in the foreseeable future. Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on net basis. (P) ZAKAT Zakat represents business zakat payable by the Group to comply with the principles of Shariah and as approved by the Shariah Committee. The Bank s subsidiary, AFFIN Islamic Bank Berhad only pays zakat on its business and does not pay zakat on behalf of depositors. Zakat provision is calculated based on % of the prior year s net asset method. (Q) CASH AND CASH EQUIVALENTS Cash and cash equivalents consists of cash in hand, bank balances and deposits and placements maturing within one month which are held for the purpose of meeting short term commitments and are readily convertible to cash without significant risk of changes in value. (R) FORECLOSED PROPERTIES Foreclosed properties are stated at the lower of cost and net realisable value. (S) CONTINGENT LIABILITIES AND CONTINGENT ASSETS The Group and the Bank do not recognise a contingent liability but disclose its existence in the financial statements. A contingent liability is possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. However, contingent liabilities do not include financial guarantee contracts. A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank. The Group and the Bank does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 91

42 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (T ) BILLS AND ACCEPTANCES PAYABLE Bills and acceptances payable represent the Bank s own bills and acceptances rediscounted and outstanding in the market. (U) OTHER PROVISIONS Provisions are recognised by the Group and the Bank when all of the following conditions have been met: Where the Group and the Bank expect a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost expense. (V) EMPLOYEE BENEFITS Short-term employee benefits Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. Defined contribution plan The defined contribution plan is a pension plan under which the Group pays fixed contributions to the National Pension Scheme, the Employees Provident Fund ( EPF ) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. The Group s contribution to defined contribution plans are charged to the income statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations. Termination benefits Termination benefits are payable whenever an employee s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without any possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. 92 AFFIN BANK BERHAD (25046-T) Annual Report 2013

43 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (W) FINANCIAL GUARANTEE CONTRACTS Financial guarantee contracts are contracts that require the Group or Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on arm s length terms and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised. appropriate. The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Group for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries. (X) SALE AND REPURCHASE AGREEMENTS Securities purchased under resale agreements are securities which 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 statement of financial position. The difference between sale and repurchase price as well as purchase and resale price are amortised as interest income and interest expense respectively on an effective yield method. (Y) PROFIT EQUALISATION RESERVE ( PER ) AFFIN Islamic Bank Berhad ( AFFIN Islamic ) a wholly owned and subsidiary of the Bank has adopted the revised Guidelines on PER and has apply in managing the Displaced Commercial Risk ( DCR ) in accordance with Shariah principles. The PER is for Mudharabah accounts/deposit products. Under the PER Guidelines, the release of PER shall be appropriated from both Investment Account Holder ( IAH ) and AFFIN Islamic s portion based on the contractual profit sharing ratio at the point of utilisation. The amount of PER shall be limited to the maximum of the either PER of the IAH or AFFIN Islamic depending on prevailing profit sharing ratio. The IAH portion of the existing PER shall be classified as a liability and is recognised at cost. Subsequent apportionments will be recognised in the income statement. The eventual distribution of PER as profit distributable to the IAH will be treated as an outflow of funds due to the settlement of the obligation to the IAH. The PER of the AFFIN Islamic shall be classified as a separate reserve in equity and subsequent apportionments from and distributions to retained earnings will be treated as a transfer between reserves. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 93

44 NOTES TO THE FINANCIAL STATEMENTS 1 GENERAL INFORMATION The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank s subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been no significant changes in these principal activities during the financial year. The number of employees in the Group and the Bank as at 31 December 2013 was 3,417 (2012: 3,342) and 3,187 (2012: 3,122) employees respectively. The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera Act, The Bank is a limited liability company, incorporated and domiciled in Malaysia. 2 CASH AND SHORT-TERM FUNDS The Group The Bank RM 000 RM 000 RM 000 RM 000 Cash and bank balances with banks and other financial institutions 207, , , ,501 Money at call and deposit placements maturing within one month 9,194,200 7,433,676 4,785,167 3,423,341 9,401,701 7,648,904 4,987,696 3,633,842 3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS The Group The Bank RM 000 RM 000 RM 000 RM 000 Licensed banks 359, , , ,301 Licensed investment banks 123, , , ,524 Bank Negara Malaysia - 100, , ,452 1,106,756 1,043, AFFIN BANK BERHAD (25046-T) Annual Report 2013

45 NOTES TO THE FINANCIAL STATEMENTS 4 FINANCIAL ASSETS HELD-FOR-TRADING The Group The Bank RM 000 RM 000 RM 000 RM 000 At fair value Bank Negara Malaysia Monetary Notes 149, ,544 - Negotiable Instruments of Deposit - 150, ,276 Private debt securities in Malaysia - 15,316-15, , , , ,592 5 DERIVATIVE FINANCIAL ASSETS The Group and The Bank 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 312,991 6, ,636 9,504 Cross currency swaps 1,230,649 19,660 1,871,775 37,661 Interest rate derivatives: Interest rate swaps 1,920,713 29, ,622 21,707 By maturity structure of positive fair value 3,464,353 56,274 3,262,033 68,872 The Group and The Bank RM 000 RM 000 Maturing within one year 28,717 43,345 One year to three years 7,320 12,848 Three years to five years 5,597 4,427 Over five years 14,640 8,252 56,274 68,872 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 95

46 NOTES TO THE FINANCIAL STATEMENTS 6 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE The Group The Bank RM 000 RM 000 RM 000 RM 000 At fair value Malaysian Government securities - 5,070-5,070 Malaysian Government investment issues 1,759,211 1,879,076 1,142,371 1,004,366 Sukuk Perumahan Kerajaan 337, , , ,550 Bank Negara Malaysia Monetary Notes 629, , , ,015 Negotiable Instruments of Deposit and Islamic Debt Certificates 882, , , ,059 Bankers acceptances and Islamic accepted bills 196, , , ,751 Khazanah Bonds/Sukuk 237, , , ,556 4,042,823 3,998,321 3,269,484 2,720,367 Quoted securities: Shares in Malaysia 13,604 17,736 13,122 12,806 Private debt securities in Malaysia 2,167 4,173 2,167 4,173 Unquoted securities: Shares in Malaysia 148, , , ,526 Private debt securities - in Malaysia 2,947,839 3,067,124 2,438,124 2,365,334 - outside Malaysia 504, , , ,736 7,659,309 7,688,685 6,375,704 5,703,942 Allowance for impairment of securities (44,772) (48,031) (44,290) (45,781) Movement in allowance for financial investments available-for-sale 7,614,537 7,640,654 6,331,414 5,658,161 At beginning of the financial year 48,031 28,335 45,781 21,591 Allowance made during the year Written-off of allowance for impairment loss (3,758) (9,900) (1,990) (4,924) Transfer from financial investments held-to-maturity - 28,784-28,784 Transfer to subsidiary (482) At end of the financial year 44,772 48,031 44,290 45, AFFIN BANK BERHAD (25046-T) Annual Report 2013

47 NOTES TO THE FINANCIAL STATEMENTS 7 FINANCIAL INVESTMENTS HELD-TO-MATURITY The Group The Bank RM 000 RM 000 RM 000 RM 000 At amortised cost Quoted securities: Private debt securities in Malaysia 31,781 31,781 31,781 31,781 Unquoted securities: Private debt securities in Malaysia 524, , , , , , , ,818 Allowance for impairment of securities (56,364) (62,148) (56,364) (62,148) Movement in allowance for financial investments held-to-maturity 500, , , ,670 At beginning of the financial year 62,148 87,584 62,148 87,584 Allowance made during the year - 9,590-9,590 Written-off of allowance for impairment loss (5,784) (6,242) (5,784) (6,242) Transfer to financial investments available-for-sale - (28,784) - (28,784) At end of the financial year 56,364 62,148 56,364 62,148 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 97

48 NOTES TO THE FINANCIAL STATEMENTS 8 LOANS, ADVANCES AND FINANCING (i) By type The Group The Bank RM 000 RM 000 RM 000 RM 000 Overdrafts 1,752,882 1,834,204 1,569,936 1,647,184 Term loans/financing - Housing loans/financing 5,510,534 5,176,283 3,797,843 3,664,322 - Hire purchase receivables 10,524,044 9,595,286 8,728,354 8,157,056 - Syndicated financing 1,520,412 1,410,697 1,252,340 1,150,704 - Business term loans/financing 12,540,363 11,198,302 10,929,608 9,740,164 Bills receivables 318, , , ,685 Trust receipts 435, , , ,979 Claims on customers under acceptances credits 986,666 1,040, , ,118 Staff loans/financing (of which RM Nil to Directors) 138, , , ,239 Credit/charge cards 82,137 85,258 82,137 85,258 Revolving credits 2,934,652 2,640,078 2,523,945 2,455,344 Factoring 7,073 4,186 7,073 4,186 Gross loans, advances and financing 36,751,800 34,015,627 30,634,622 28,802,239 Less: Allowance for impairment - Individual (223,701) (210,372) (189,117) (175,277) - Collective (300,314) (322,629) (266,595) (287,693) Total net loans, advances and financing 36,227,785 33,482,626 30,178,910 28,339,269 - Included in term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM397,790,000 (2012: RM413,549,000). - Included in Group s business term loans/financing as at reporting date is RM47.4 million (2012: RM35.2 million) of term financing disbursed by AFFIN Islamic Bank Bhd to jointly controlled entity, AFFIN-i Nadayu Sdn Bhd. 98 AFFIN BANK BERHAD (25046-T) Annual Report 2013

49 NOTES TO THE FINANCIAL STATEMENTS 8 LOANS, ADVANCES AND FINANCING (ii) By maturity structure The Group The Bank RM 000 RM 000 RM 000 RM 000 Maturing within one year 7,183,104 7,094,994 6,433,997 6,529,283 One year to three years 4,955,354 3,776,830 4,394,607 3,422,247 Three years to five years 6,498,822 7,027,289 5,727,883 6,256,576 Over five years 18,114,520 16,116,514 14,078,135 12,594,133 36,751,800 34,015,627 30,634,622 28,802,239 (iii) By type of customer The Group The Bank RM 000 RM 000 RM 000 RM 000 Domestic banking institutions - 1,335-1,335 Domestic non-banking institutions - Stockbroking companies Others 1,622,525 1,702,223 1,449,099 1,392,164 Domestic business enterprises - Small medium enterprises 5,900,985 5,159,162 5,421,258 4,731,171 - Others 13,234,095 12,236,170 11,649,365 10,909,570 Government and statutory bodies 162, , ,756 95,861 Individuals 14,939,353 13,980,454 11,475,917 11,064,103 Other domestic entities 251, ,982 8,567 43,256 Foreign entities 640, , , ,526 36,751,800 34,015,627 30,634,622 28,802,239 (iv) By interest/profit rate sensitivity The Group The Bank RM 000 RM 000 RM 000 RM 000 Fixed rate - Housing loans/financing 309, , , ,958 - Hire purchase receivables 10,524,043 9,595,286 8,728,354 8,157,056 - Other fixed rate loans/financing 4,178,246 4,238,013 3,556,430 3,575,916 Variable rate - BLR plus 14,098,831 13,680,021 11,458,345 11,284,216 - Cost plus 7,640,703 6,195,338 6,653,607 5,561,093 36,751,800 34,015,627 30,634,622 28,802,239 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 99

50 NOTES TO THE FINANCIAL STATEMENTS 8 LOANS, ADVANCES AND FINANCING (v) By economic sectors The Group The Bank RM 000 RM 000 RM 000 RM 000 Primary agriculture 478, , , ,231 Mining and quarrying 649, , , ,737 Manufacturing 2,516,273 2,652,586 2,297,207 2,431,936 Electricity, gas and water supply 290, , , ,841 Construction 3,277,346 2,996,080 2,772,575 2,565,423 Real estate 4,623,807 3,710,269 4,192,630 3,300,797 Wholesale & retail trade and restaurants & hotels 2,140,392 1,772,302 1,993,533 1,635,026 Transport, storage and communication 1,965,627 1,684,162 1,858,700 1,667,015 Finance, insurance and business services 4,360,854 4,198,676 3,837,340 3,711,166 Education, health and others 1,358,801 1,326, , ,577 Household 15,082,264 14,123,648 11,593,915 11,183,065 Others 7,540 70,441 4,754 69,425 36,751,800 34,015,627 30,634,622 28,802,239 (vi) By economic purpose The Group The Bank RM 000 RM 000 RM 000 RM 000 Purchase of securities 326, , , ,968 Purchase of transport vehicles 11,232,452 10,032,763 9,438,264 8,594,582 Purchase of landed property of which: - Residential 5,948,524 5,170,831 4,219,088 3,569,346 - Non-residential 5,009,095 4,738,255 4,161,066 3,872,481 Fixed assets other than land and building 238, , , ,500 Personal use 933, , , ,901 Credit card 82,137 85,258 82,137 85,258 Consumer durable Construction 1,996,832 2,068,031 1,417,340 1,853,956 Merger and acquisition 312, , , ,051 Working capital 9,945,383 9,537,743 8,928,713 8,556,715 Others 725, , , ,638 36,751,800 34,015,627 30,634,622 28,802, AFFIN BANK BERHAD (25046-T) Annual Report 2013

51 NOTES TO THE FINANCIAL STATEMENTS 8 LOANS, ADVANCES AND FINANCING (vii) By geographical distribution The Group The Bank RM 000 RM 000 RM 000 RM 000 Perlis 85,125 84,463 33,470 75,126 Kedah 1,088,305 1,051, , ,217 Pulau Pinang 1,825,875 1,665,271 1,698,009 1,574,914 Perak 1,163,213 1,037, , ,392 Selangor 11,281,264 10,829,556 9,140,199 8,975,233 Wilayah Persekutuan 10,529,110 9,614,422 8,901,544 8,196,935 Negeri Sembilan 813, , , ,033 Melaka 869, , , ,588 Johor 3,207,965 2,815,016 2,946,869 2,633,855 Pahang 755, , , ,283 Terengganu 989, , , ,010 Kelantan 244, ,555 49,906 47,809 Sarawak 1,117, ,737 1,088, ,982 Sabah 1,692,677 1,533,859 1,604,644 1,480,515 Labuan 553, , , ,340 Outside Malaysia 536, , , ,007 36,751,800 34,015,627 30,634,622 28,802,239 (viii) Movements of impaired loans The Group The Bank RM 000 RM 000 RM 000 RM 000 At beginning of the financial year 753, , , ,318 Classified as impaired 432, , , ,672 Reclassified as non-impaired (298,268) (375,518) (252,304) (295,513) Amount recovered (130,527) (123,546) (110,745) (102,162) Amount written-off (50,843) (149,116) (49,382) (140,912) At end of the financial year 706, , , ,403 Ratio of gross impaired loans, advances and financing to gross loans, advances and financing 1.92% 2.21% 1.88% 2.16% Annual Report 2013 AFFIN BANK BERHAD (25046-T) 101

52 NOTES TO THE FINANCIAL STATEMENTS 8 LOANS, ADVANCES AND FINANCING (ix) Movements in allowance for impairment on loans, advances and financing The Group The Bank RM 000 RM 000 RM 000 RM 000 Individual impairment At beginning of the financial year 210, , , ,329 Provision for loan impairment 47,903 72,213 47,213 69,391 Amount recovered (4,031) (2,716) (3,598) (2,546) Amount written-off (12,974) (13,362) (12,974) (13,362) Unwinding of discount of allowance (17,825) (14,020) (16,780) (11,535) Exchange differences (21) - At end of the financial year 223, , , ,277 Collective impairment At beginning of the financial year 322, , , ,890 Provision for loan impairment 15,253 6,672 15,011 24,242 Amount written-off (37,568) (135,642) (36,109) (127,439) At end of the financial year 300, , , ,693 (x) Impaired loans by economic sectors The Group The Bank RM 000 RM 000 RM 000 RM 000 Primary agriculture 6,335 7,482 6,222 7,482 Mining and quarrying Manufacturing 40,414 50,795 18,373 29,916 Electricity, gas and water supply 118 1, ,641 Construction 193, , , ,475 Real estate 190 3, ,797 Wholesale & retail trade and restaurants & hotels 31,222 27,246 29,213 23,746 Transport, storage and communication 9,542 7,212 9,477 7,155 Finance, insurance and business services 60,065 63,880 59,483 63,114 Education, health and others 1,868 4,107 1,868 4,107 Household 362, , , ,787 Others - 7,286-7, , , , , AFFIN BANK BERHAD (25046-T) Annual Report 2013

53 NOTES TO THE FINANCIAL STATEMENTS 8 LOANS, ADVANCES AND FINANCING (xi) Impaired loans by economic purpose The Group The Bank RM 000 RM 000 RM 000 RM 000 Purchase of securities 11,641 13,678 11,641 13,678 Purchase of transport vehicles 75,350 54,781 66,780 48,702 Purchase of landed property of which: - Residential 272, , , ,245 - Non-residential 23,707 26,575 21,762 26,015 Fixed assets other than land and building 282 5, ,063 Personal use 7,937 6,738 7,742 6,738 Credit card Consumer durable Construction 65,797 61, Working capital 234, , , ,224 Others 14,112 11,164 14,112 11, , , , ,403 (xii) Impaired loans by geographical distribution The Group The Bank RM 000 RM 000 RM 000 RM 000 Perlis Kedah 23,005 24,622 21,182 23,397 Pulau Pinang 18,781 18,684 17,309 17,342 Perak 14,081 20,754 11,015 19,270 Selangor 318, , , ,176 Wilayah Persekutuan 117, , , ,283 Negeri Sembilan 28,827 31,248 26,196 28,873 Melaka 8,368 7,452 8,011 7,215 Johor 46,552 52,426 43,939 50,310 Pahang 12,038 10,058 8,670 7,097 Terengganu 5,465 3,681 2,985 1,994 Kelantan 4,124 4,153 1,803 1,778 Sarawak 6,290 5,741 5,794 5,154 Sabah 11,298 10,460 11,100 9,060 Labuan Outside Malaysia 90,809 76,591 25,156 15, , , , ,403 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 103

54 NOTES TO THE FINANCIAL STATEMENTS 9 OTHER ASSETS The Group The Bank RM 000 RM 000 RM 000 RM 000 Other debtors, deposits and prepayments 35,131 33,532 34,288 32,057 Cheque clearing accounts 169, , , ,137 Foreclosed properties (a) 15,825 26,745 14,646 25,566 Others , , , ,790 (a) Foreclosed properties At beginning of the financial year 26,745 40,337 25,566 38,962 Disposal during the financial year (10,920) (11,470) (10,920) (11,274) 15,825 28,867 14,646 27,688 Foreclosed properties - diminution in value - (2,122) - (2,122) At end of the financial year 15,825 26,745 14,646 25, AMOUNT DUE FROM SUBSIDIARIES The Bank RM 000 RM 000 Advances to a subsidiary 60, ,296 Other receivables , ,949 The advances of RM60,115,000 (2012: RM153,296,000) to subsidiary are unsecured, bear interest at 3.00% per annum (2012: 3.08%) and have no fixed terms of repayment. 104 AFFIN BANK BERHAD (25046-T) Annual Report 2013

55 NOTES TO THE FINANCIAL STATEMENTS 11 DEFERRED TAX ASSETS / (LIABILITIES) Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts determined after appropriate offsetting, are shown in the statement of financial position: The Group The Bank RM 000 RM 000 RM 000 RM 000 Deferred tax assets: - to be recovered after more than 12 months (5,531) - (5,263) - - to be recovered within 12 months 15,476-12,248-9,945-6,985 - Deferred tax liabilities: - to be recovered after more than 12 months - (5,278) - (4,468) - to be recovered within 12 months - (8,087) - (8,631) - (13,365) - (13,099) At beginning of the financial year (13,365) (20,118) (13,099) (19,211) (Charged)/credited to income statement (Note 34) (1,501) 7,171 (1,674) 6,568 - property and equipment intangible assets (703) 1,920 (917) 1,721 - provision for other liabilities (1,269) 5,066 (1,289) 4,735 Charged to equity 24,811 (418) 21,758 (456) At end of the financial year 9,945 (13,365) 6,985 (13,099) Annual Report 2013 AFFIN BANK BERHAD (25046-T) 105

56 NOTES TO THE FINANCIAL STATEMENTS 11 DEFERRED TAX ASSETS / (LIABILITIES) The movements in deferred tax assets and liabilities during the financial year are as follows: The Group The Bank RM 000 RM 000 RM 000 RM 000 Subject to income tax Deferred tax assets (before offsetting) AFS revaluation reserves 2, Provision for other liabilities 18,543 19,813 17,062 18,351 20,730 19,813 17,062 18,351 Offsetting (10,785) (19,813) (10,077) (18,351) Deferred tax assets (after offsetting) 9,945-6,985 - Deferred tax liabilities (before offsetting) Property and equipment (4,759) (5,228) (4,451) (4,983) Intangible assets (4,458) (3,756) (4,058) (3,141) AFS revaluation reserves (1,568) (24,194) (1,568) (23,326) (10,785) (33,178) (10,077) (31,450) Offsetting 10,785 19,813 10,077 18,351 Deferred tax liabilities (after offsetting) - (13,365) - (13,099) The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as follows: The Group The Bank RM 000 RM 000 RM 000 RM 000 Tax losses 99, , STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA A non-interest bearing statutory deposit is maintained with Bank Negara Malaysia in compliance with requirements of Section 26(2)(c) of the Central Bank of Malaysia Act 2009, the amounts of which is determined at a set percentages of total eligible liabilities. 13 INVESTMENT IN SUBSIDIARIES The Bank RM 000 RM 000 Unquoted shares, at cost 419, ,557 Less: Allowance for impairment losses (30,461) (32,168) 389, , AFFIN BANK BERHAD (25046-T) Annual Report 2013

57 NOTES TO THE FINANCIAL STATEMENTS 13 INVESTMENT IN SUBSIDIARIES The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows: Percentage of equity held Name Principal Activities % % AFFIN Islamic Bank Bhd Islamic banking business PAB Properties Sdn Bhd Property management services ABB Nominee (Tempatan) Sdn Bhd Share nominee services ABB Nominee (Asing) Sdn Bhd Share nominee services ABB Trustee Berhad * Trustee management services AFFIN Factors Sdn Bhd Dormant AFFIN Futures Sdn Bhd Dormant PAB Property Management Services Sdn Bhd Dormant PAB Property Development Sdn Bhd Dormant ABB Venture Capital Sdn Bhd Dormant ABB IT & Services Sdn Bhd Dormant BSNCB Nominees (Tempatan) Sdn Bhd Dormant BSNC Nominees (Tempatan) Sdn Bhd Dormant AFFIN Recoveries Bhd Dormant BSN Merchant Nominees (Asing) Sdn Bhd Dormant AFFIN-ACF Nominees (Tempatan) Sdn Bhd Dormant BSN Merchant Nominees (Tempatan) Sdn Bhd ABB Asset Management (M) Bhd * 80% held by Directors of the Bank, in trust for the Bank. The Bank has received resolution to dissolve the followings: - BSN Merchant Nominees (Tempatan) Sdn Bhd on 23 March 2012 and - ABB Asset Management (M) Bhd on 22 November INVESTMENT IN JOINTLY CONTROLLED ENTITY The Group RM 000 RM 000 Unquoted shares at cost Group s share of post acquisition retained losses (650) (440) - 60 The summarised financial information of jointly controlled entity are as follows: Revenue 16,781 8 Loss after tax (3,050) (460) Total assets 181,084 46,516 Total liabilities 183,572 46,396 Capital commitment for property and equipment - - Annual Report 2013 AFFIN BANK BERHAD (25046-T) 107

58 NOTES TO THE FINANCIAL STATEMENTS 14 INVESTMENT IN JOINTLY CONTROLLED ENTITY AFFIN-i Nadayu Sdn Bhd The jointly controlled entity was incorporated on 1 April 2008 and the details are as follows: Issued and Percentage of paid up equity held share capital Name Principal activities RM 000 % % AFFIN-i Nadayu Sdn Bhd Land development project 1, On 1 April 2008, AFFIN Islamic Bank Berhad and Jurus Positif Sdn Bhd, a subsidiary of Nadayu Properties Berhad (fka Mutiara Goodyear Development Berhad), entered into a joint venture agreement under the Shariah principles ( Musharakah Agreement ) to develop a land into a housing scheme at Bukit Gambir, Pulau Pinang. The agreement also includes an arrangement where Jurus Positif Sdn Bhd may acquire the Bank s shares upon the completion of the project at a mutually agreed price, unless if both shareholders decide to continue the joint venture for subsequent projects. Major strategic operation and financial decisions relating to the activities of AFFIN-i Nadayu requires unanimous consent by both joint venture parties. The Group s interest in AFFIN-i Nadayu Sdn Bhd has been treated as investment in jointly controlled entity, which has been accounted for in the consolidated financial statements using the equity method of accounting. KL South Development Sdn Bhd On 2 January 2013, AFFIN Islamic Bank Berhad ( AiBB ) entered into a Musharakah Joint Venture Agreement ( JV Agreement ) with Albatha Bukit Kiara Holdings Sdn Bhd ( Albatha ), a subsidiary of Bukit Kiara Capital Sdn Bhd, to joint develop a Pursuant to the JV agreement, AiBB acquired 30% stake in the joint venture company namely KL South Development Sdn Bhd ( KL South )(formerly known as Grand Duplex Sdn Bhd) by way of subscription of 150,000 shares of RM1.00 each in KL South at par. The remaining stake of 70% in KL South is held by Albatha. Under the Musharakah structure, AiBB would be the sole banker to KL South, providing financing using the Islamic concept such as Ijarah for the purchase of building and Istisna for the bridging financing. Major strategic operation and financial decisions relating to the activities of KL South requires consent by both joint venture parties. The Group s interest in KL South has been treated as investment in jointly controlled entity, which has been accounted for in the consolidated financial statements using the equity method of accounting. KL South has commenced operations and the project is scheduled for completion by mid AFFIN BANK BERHAD (25046-T) Annual Report 2013

59 NOTES TO THE FINANCIAL STATEMENTS 15 PROPERTY AND EQUIPMENT Buildings Buildings Office Computer <-Leasehold land-> on on equipment equipment Capital Freehold 50 years Less than freehold leasehold and and Motor work in The Group land or more 50 years land land Renovation furniture software vehicles progress Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 January ,126 12,862 5,380 29,950 89, ,842 57,561 68,775 3,609 7, ,013 Additions ,146 2,438 1,785 2,077 5,997 17,443 Disposals (1,450) - - (3,147) - (1,238) (1) - (332) - (6,168) Write-off (755) (572) (1,327) Reclassification (11,138) (11,048) At 31 December ,676 12,862 5,380 26,803 89, ,084 59,427 70,560 5,354 2, ,913 Accumulated depreciation and impairment losses At 1 January ,034 1,572 12,962 23,371 94,065 38,232 59,630 3, ,091 Charge for the financial year ,789 6,449 3,256 3, ,019 Disposal (1,131) - (1,238) (1) - (331) - (2,701) Write-off (750) (486) (1,236) At 31 December ,146 1,693 12,273 25,160 98,526 41,001 63,037 3, ,173 Annual Report 2013 Net book value as at 31 December ,536 10,716 3,687 14,530 63,909 15,558 18,426 7,523 2,157 2, ,740 AFFIN BANK BERHAD (25046-T) 109

60 110 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 15 PROPERTY AND EQUIPMENT Buildings Buildings Office Computer <-Leasehold land-> on on equipment equipment Capital Freehold 50 years Less than freehold leasehold and and Motor work in The Group land or more 50 years land land Renovation furniture software vehicles progress Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 January ,811 12,862 5,380 32,013 89, ,357 54,448 67,617 3,963 1, ,385 Additions ,936 3,915 3, ,403 20,616 Disposals (1,685) - - (2,063) - (637) (189) - (379) - (4,953) Write-off (814) (613) (2,179) - - (3,606) Reclassification (429) (429) At 31 December ,126 12,862 5,380 29,950 89, ,842 57,561 68,775 3,609 7, ,013 Accumulated depreciation and impairment losses At 1 January ,923 1,452 13,266 21,582 88,056 35,667 57,509 3, ,555 Charge for the financial year ,789 7,417 3,192 4, ,784 Disposal (802) - (607) (172) - (379) - (1,960) Write-off (801) (455) (2,172) - - (3,428) Reclassification At 31 December ,034 1,572 12,962 23,371 94,065 38,232 59,630 3, ,091 Net book value as at 31 December ,986 10,828 3,808 16,988 65,698 16,777 19,329 9, , ,922

61 NOTES TO THE FINANCIAL STATEMENTS 15 PROPERTY AND EQUIPMENT Buildings Buildings Office Computer <-Leasehold land-> on on equipment equipment Capital Freehold 50 years Less than freehold leasehold and and Motor work in The Bank land or more 50 years land land Renovation furniture software vehicles progress Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 January ,618 10,972 5,380 28,651 88, ,089 55,482 66,364 3,148 7, ,704 Additions ,999 2,367 1,680 1,581 5,997 16,624 Disposals (1,450) - - (3,147) - (1,238) (1) - (332) - (6,168) Write-off (755) (571) (1,326) Reclassification (11,138) (11,046) At 31 December ,168 10,972 5,380 25,504 88, ,184 57,280 68,044 4,397 2, ,788 Accumulated depreciation and impairment losses At 1 January ,800 1,572 12,196 22,850 91,329 37,456 57,911 2, ,753 Charge for the financial year ,771 6,144 3,062 3, ,166 Disposal (1,131) - (1,238) (1) - (331) - (2,701) Write-off (750) (485) (1,235) Reclassification At 31 December ,903 1,693 11,481 24,621 95,485 40,034 61,082 2, ,985 Annual Report 2013 Net book value as at 31 December ,168 9,069 3,687 14,023 63,540 14,699 17,246 6,962 1,711 2, ,803 AFFIN BANK BERHAD (25046-T) 111

62 112 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 15 PROPERTY AND EQUIPMENT Buildings Buildings Office Computer <-Leasehold land-> on on equipment equipment Capital Freehold 50 years Less than freehold leasehold and and Motor work in The Bank land or more 50 years land land Renovation furniture software vehicles progress Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 January ,814 10,972 5,380 30,377 88, ,094 52,800 65,324 3,501 1, ,288 Additions ,447 3,482 3, ,403 19,480 Disposals (1,196) - - (1,726) - (638) (188) - (378) - (4,126) Write-off (814) (613) (2,039) - - (3,466) Reclassification (44) - (429) (472) At 31 December ,618 10,972 5,380 28,651 88, ,089 55,482 66,364 3,148 7, ,704 Accumulated depreciation and impairment losses At 1 January ,696 1,452 12,344 21,080 85,834 35,069 56,034 2, ,254 Charge for the financial year ,770 6,903 3,013 3, ,579 Disposal (620) - (607) (172) - (379) - (1,778) Write-off (801) (455) (2,032) - - (3,288) Reclassification (15) - - (14) At 31 December ,800 1,572 12,196 22,850 91,329 37,456 57,911 2, ,753 Net book value as at 31 December ,618 9,172 3,808 16,455 65,311 15,760 18,026 8, , ,951

63 NOTES TO THE FINANCIAL STATEMENTS 16 INTANGIBLE ASSETS Computer Goodwill Software Total The Group RM 000 RM 000 RM 000 Cost At 1 January , , ,389 Additions - 1,236 1,236 Write-off - (9) (9) Reclassification from property and equipment (Note 15) - 11,048 11,048 Adjustment - (742) (742) At 31 December , , ,922 Less: Accumulated amortisation At 1 January (105,937) (105,937) Amortised during the financial year - (7,989) (7,989) Write-off At 31 December (113,917) (113,917) Net book value as at 31 December ,430 18, ,005 Cost At 1 January , , ,502 Additions Reclassification from property and equipment (Note 15) At 31 December , , ,389 Less: Accumulated amortisation At 1 January (97,369) (97,369) Amortised during the financial year - (8,568) (8,568) At 31 December (105,937) (105,937) Net book value as at 31 December ,430 15, ,452 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 113

64 NOTES TO THE FINANCIAL STATEMENTS 16 INTANGIBLE ASSETS Computer Goodwill Software Total The Bank RM 000 RM 000 RM 000 Cost At 1 January , , ,880 Additions - 1,236 1,236 Write-off - (9) (9) Reclassification from property and equipment (Note 15) - 11,048 11,048 Adjustment - (742) (742) At 31 December , , ,413 Less: Accumulated amortisation At 1 January (101,993) (101,993) Amortised during the financial year - (7,197) (7,197) Write-off At 31 December (109,181) (109,181) Net book value as at 31 December ,323 16, ,232 Cost At 1 January , , ,993 Additions Reclassification from property and equipment (Note 15) At 31 December , , ,880 Less: Accumulated amortisation At 1 January (94,222) (94,222) Amortised during the financial year - (7,771) (7,771) At 31 December (101,993) (101,993) Net book value as at 31 December ,323 12, , AFFIN BANK BERHAD (25046-T) Annual Report 2013

65 NOTES TO THE FINANCIAL STATEMENTS 16 INTANGIBLE ASSETS Goodwill The carrying amount of the Bank s goodwill has been allocated to the following business segments, which represent the Bank s cash-generating units ( CGUs ): RM 000 RM 000 Enterprise banking 123, ,591 Consumer banking 13,732 13, , ,323 Goodwill is allocated to the Bank s CGU which are expected to benefit from the synergies of the acquisitions. For annual impairment testing purposes, the recoverable amount of the CGUs are determined based on value-in-use calculations using the cash flow projections based on the 2013 financial budgets approved by the Directors, covering a period of 5 years based on the historical Gross Domestic Product ( GDP ) growth rate of Malaysia, revised for current economic conditions. The cash flow beyond the fifth year are projected based on the assumption that the Year 5 operating cash flow will be generated by the respective CGUs at a growth rate of 5% (2012: 5%) on perpetual basis. The cash flow projections are derived based on a number of key factors including past performance and management s expectations of the market developments. The discount rates used are based on the pre-tax weighted average cost of capital plus an appropriate risk premium where applicable ( WACC ), at the date of assessment of the CGUs Enterprise Consumer Enterprise Consumer banking banking banking banking % % % % Pre-tax discount rate No impairment charge was required for goodwill arising from all the business segments. Management views that any reasonable possible change to the assumptions applied is not likely to cause the recoverable amount of all the business segments to be lower than its carrying amount. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 115

66 NOTES TO THE FINANCIAL STATEMENTS 17 DEPOSITS FROM CUSTOMERS The Group The Bank (i) By type of deposit RM 000 RM 000 RM 000 RM 000 Demand deposits 8,202,749 7,350,021 5,449,295 4,716,583 Savings deposits 2,004,242 1,710,748 1,639,656 1,377,258 Fixed deposits 27,693,589 25,204,503 22,098,467 19,965,844 Special investment deposits 574, , Money market deposits 1,050, ,141 1,050, ,141 Negotiable instruments of deposit ( NID ) 6,563,077 5,305,991 6,563,077 5,305,991 46,088,082 41,263,536 36,800,728 32,224,817 The Group The Bank (ii) Maturity structure of fixed deposits and NID RM 000 RM 000 RM 000 RM 000 Due within six months 27,809,157 23,936,263 23,574,338 19,583,709 Six months to one year 6,287,140 6,318,076 4,929,588 5,443,400 One year to three years 118,705 54, ,227 43,608 Three years to five years 31, ,320 31, ,118 Five years and above 10,320-10,320-34,256,666 30,510,494 28,661,544 25,271,835 The Group The Bank (iii) By type of customer RM 000 RM 000 RM 000 RM 000 Government and statutory bodies 8,747,406 7,226,690 5,438,276 4,285,101 Business enterprise 14,007,892 12,837,106 10,327,724 9,534,502 Individuals 11,660,423 8,974,563 10,603,679 8,129,294 Others 11,672,361 12,225,177 10,431,049 10,275,920 46,088,082 41,263,536 36,800,728 32,224, AFFIN BANK BERHAD (25046-T) Annual Report 2013

67 NOTES TO THE FINANCIAL STATEMENTS 18 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS The Group The Bank RM 000 RM 000 RM 000 RM 000 Licensed banks 3,042,849 3,212,031 1,847,213 2,391,811 Licensed investment banks 597, , , ,508 Bank Negara Malaysia - 612, ,055 Other financial institutions 424, , , ,889 4,065,544 4,809,323 2,659,535 3,728,263 Maturity structure of deposits Due within six months 4,057,599 4,806,995 2,651,590 3,725,935 Six months to one year 7,945 2,328 7,945 2,328 4,065,544 4,809,323 2,659,535 3,728, DERIVATIVE FINANCIAL LIABILITIES The Group and the Bank 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 derivatives: Currency forwards 498,726 5, ,155 2,870 Cross currency swaps 2,284,085 51,018 1,188,783 23,725 Interest rate derivatives: Interest rate swaps 2,033,725 38,405 1,695,980 33,068 4,816,536 94,522 3,224,918 59,663 The Group and The Bank By maturity structure of negative fair value Maturing within one year 41,852 23,852 One year to three years 19,701 24,779 Three years to five years 12,361 4,584 Over five years 20,608 6,448 94,522 59,663 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 117

68 NOTES TO THE FINANCIAL STATEMENTS 20 RECOURSE OBLIGATION ON LOANS SOLD TO CAGAMAS BERHAD In the normal course of banking operations, the Bank sells loans to Cagamas Berhad with recourse at values equivalent to the unpaid principal balances of loans and advances due from the borrowers. The Bank is liable in respect of housing loans and hire purchase portfolio sold directly and indirectly to Cagamas Berhad, under the condition that the Bank undertakes to administer these loans on behalf of Cagamas Berhad and to buy back any loans which are regarded as defective based on an agreed prudential criteria. Such financing transactions and the obligations to buy back the loans are reflected as a liability on the statement of financial position. 21 OTHER LIABILITIES The Group The Bank RM 000 RM 000 RM 000 RM 000 Bank Negara Malaysia and Credit Guarantee Corporation Funding programmes 27,897 28,644 27,897 28,644 Margin and collateral deposits 108,258 82, ,428 79,099 Other creditors and accruals 241, , , ,318 Defined contribution plan (a) 13,818 13,593 13,107 12,877 Accrued employee benefits (b) , , , ,144 (a) (b) The Group and the Bank contributes to the Employee Provident Fund ( EPF ), the national defined contribution plan. Once the contributions have been paid, the Group and the Bank has no further payment obligations. This refers to the accruals for short-term employee benefits for leave entitlement. Under employment contract, employees earn their leave entitlement which they are entitled to carry forward and will lapse if not utilised in the following accounting period. Accruals are made for the estimated liability for unutilised annual leave. 22 AMOUNT DUE TO SUBSIDIARIES The amount due to subsidiaries is unsecured, interest-free and have no fixed terms of repayment. 118 AFFIN BANK BERHAD (25046-T) Annual Report 2013

69 NOTES TO THE FINANCIAL STATEMENTS 23 SUBORDINATED TERM LOAN On 10 March 2009, the Bank has taken the first 10 year subordinated loan amounting to RM300 million. The first subordinated loan was constituted by agreement date 6 March 2009 and were issued on 10 March On 26 May 2011, the Bank has taken the second 10 year subordinated loan amounting to RM300 million. The second subordinated loan was constituted by agreement date 20 May 2011 and were issued on 26 May On 16 January 2012, the Bank has taken the third 10 year subordinated loan amounting to RM300 million. The third subordinated loan was constituted by agreement date 3 January 2012 and were issued on 16 January All the subordinated loans were taken with the Bank s Holding Company. The subordinated loans have a prepayment option on the first prepayment date or any interest payment date subsequent to the first prepayment date, giving the Bank the right, subject to Bank Negara Malaysia ( BNM ) approval, to prepay the loans in whole or in part. Interest on subordinated loans payable by quarterly. Subordinated loan I Value : RM300 million Interest rate : Cost of Fund ( COF ) plus 0.75% per annum for period of thirty six months from the issue date, COF plus 1.75% per annum for the next twenty four months and thereafter COF plus 2.00% for the next 5 years. The subordinated loan I will be fully prepaid on 10 March Subordinated loan II and Subordinated loan III Value : RM300 million each Interest rate : Cost of Fund ( COF ) plus 1.00% per annum for the 10 years. COF refers to rate determined by the lender on an interest determination date falling within the interest duration. 24 SHARE CAPITAL Number of ordinary shares of RM1 each The Group and The Bank RM 000 RM 000 Authorised At beginning/end of the financial year 2,000,000 2,000,000 2,000,000 2,000,000 Issued and fully paid At beginning of the financial year 1,518,337 1,439,285 1,518,337 1,439,285 Issued during the financial year - 79,052-79,052 At end of the financial year 1,518,337 1,518,337 1,518,337 1,518,337 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 119

70 NOTES TO THE FINANCIAL STATEMENTS 25 RESERVES The Group The Bank RM 000 RM 000 RM 000 RM 000 Retained profits 1,004, , , ,603 Share premium 529, , , ,337 AFS revaluation reserves (1,960) 75,256 4,965 69,977 Statutory reserves 1,317,376 1,160,651 1,144,350 1,017,200 2,849,287 2,599,615 2,476,770 2,276,117 Statutory reserves At beginning of the financial year 1,160,651 1,011,044 1,017, ,624 Transfer from retained profits 156, , , ,576 At end of the financial year 1,317,376 1,160,651 1,144,350 1,017,200 (a) A single tier company tax was introduced effective 1 January Under this single tier system, tax on a company s profits is a final tax, and dividends distributed to shareholders will be exempted from tax. Companies with Section 108 tax credit balance are given an option to elect to move to a single tier system immediately or allowed to use the Section 108 credit balance for the purpose of dividend distribution during a transitional period of 6 years until 31 December The Bank has elected to use its Section 108 credit balance for the purpose of dividend distribution during a transitional period of 6 years until 31 December The Section 108 balance of the Bank as at 31 December 2007 will be frozen and can only be adjusted downwards for any tax discharged, remitted or refunded during the 6 years period. As at 31 December 2013, the Bank has a tax credit balance of RM2,469,704 (2012: RM2,533,928) under Section 108 of the Income Tax Act, 1967 and tax exempt account balance of RM10,931,988 (2012: 83,016,257) under Section 12 of the Income Tax (Amendment) Act 1999, subject to agreement by the Inland Revenue Board. (b) (c) The statutory reserves of the Group and the Bank are maintained in compliance with the provisions of the Financial Services Act 2013 and Islamic Financial Services Act 2013 and are not distributable as cash dividends. AFS revaluation reserves represent the unrealised gains or losses arising from the change in fair value of investments classified as financial investment available-for-sale. The gains or losses are transferred in the income statement upon disposal or when the securities become impaired. 120 AFFIN BANK BERHAD (25046-T) Annual Report 2013

71 NOTES TO THE FINANCIAL STATEMENTS 26 INTEREST INCOME The Group The Bank RM 000 RM 000 RM 000 RM 000 Loans, advances and financing 1,612,728 1,523,683 1,612,728 1,523,683 Money at call and deposit placements with financial institutions 178, , , ,411 Reverse repurchase agreements with financial institutions Financial assets/investments - Held-for-trading Available-for-sale 202, , , ,758 - Held-to-maturity 19,984 23,912 19,984 23,912 Interest rate derivatives 94,003 86,923 94,003 86,923 Others - - 4,003 3,511 2,108,099 1,974,067 2,137,817 2,002,104 Amortisation of premium less accretion of discount 13,028 10,833 13,028 10,833 2,121,127 1,984,900 2,150,845 2,012,937 of which: Interest income earned on impaired loans, advances and financing 10,957 6,838 10,957 6, INTEREST EXPENSE The Group The Bank RM 000 RM 000 RM 000 RM 000 Deposits and placements of banks and other financial institutions 119, , , ,748 Deposits from customers 1,025, ,694 1,025, ,728 Subordinated term loan 41,473 40,453 41,473 40,453 Loan sold to Cagamas Berhad 19,164 19,891 19,164 19,891 Interest rate derivatives 99,226 93,208 99,226 93,208 Others 3,108 2,260 3,108 2,260 1,308,068 1,196,228 1,308,113 1,196, NET ISLAMIC BANKING INCOME The Group RM 000 RM 000 Income derived from investment of depositors funds and others 428, ,994 Income derived from investment of shareholders funds 29,781 23,650 Total distributable income 458, ,644 Income attributable to depositors (237,422) (266,872) 220, ,772 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 121

72 NOTES TO THE FINANCIAL STATEMENTS 29 OTHER OPERATING INCOME The Group The Bank RM 000 RM 000 RM 000 RM 000 Fee income Commission 14,046 13,918 14,046 13,918 Service charges and fees 62,785 63,999 62,785 63,999 Guarantee fees 20,615 22,567 20,615 22,567 97, ,484 97, ,484 Income from financial instruments Gain arising on financial assets held-for-trading: - net gain on disposal unrealised gains/(losses) 455 (188) 455 (188) Gains on derivatives: - realised 3,156 2,711 3,156 2,711 - unrealised 5,282 12,925 5,282 12,925 8,438 15,636 8,438 15,636 Gain arising on financial investments available-for-sale: - net gain on disposal 22,369 20,634 18,894 19,870 - gross dividend income 4,058 3,204 4,058 3,204 26,427 23,838 22,952 23,074 Gain arising on financial investments held-to-maturity: - net gain on redemption 6,144 19,011 6,144 19,011 6,144 19,011 6,144 19,011 Other income Foreign exchange gains/(losses): - realised 121,093 29, ,093 29,901 - unrealised (54,118) 42,325 (54,118) 42,325 Rental income 1,673 1,692 1,631 1,649 Gain on sale of property and equipment 3,910 1,098 3,910 1,093 Gain on disposal of foreclosed properties 11,041 10,141 11,041 10,097 Other non-operating income 14,491 12,428 13,797 12,111 Subsidiaries - diminution in value written back - - 1,707-98,090 97,585 99,061 97, , , , , AFFIN BANK BERHAD (25046-T) Annual Report 2013

73 NOTES TO THE FINANCIAL STATEMENTS 30 OTHER OPERATING EXPENSES The Group The Bank RM 000 RM 000 RM 000 RM 000 Personnel costs (a) 335, , , ,089 Establishment costs (b) 169, , , ,770 Marketing expenses (c) 16,485 16,392 13,332 14,145 Administrative and general expenses (d) 44,072 49,835 35,774 42, , , , ,673 (a) Personnel costs The Group The Bank RM 000 RM 000 RM 000 RM 000 Wages, salaries and bonuses 259, , , ,376 Defined contribution plan ( EPF ) 42,198 41,433 33,929 33,675 Other personnel costs 33,689 32,988 27,358 27, , , , ,089 (b) Establishment costs The Group The Bank RM 000 RM 000 RM 000 RM 000 Rental of premises 21,496 20,750 17,723 17,249 Equipment rental Repair and maintenance 26,337 32,068 21,942 27,318 Depreciation 16,019 17,784 15,166 16,579 Amortisation of intangible assets 7,989 8,568 7,197 7,771 IT Consultancy fees 61,893 60,972 53,231 52,931 Dataline rental 3,890 4,324 3,372 3,759 Security services 13,566 12,109 10,899 9,836 Electricity, water and sewerage 9,566 9,187 7,994 7,688 Insurance and indemnities 3,853 4,789 3,731 4,668 Other establishment costs 3,922 5, , , , , ,770 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 123

74 NOTES TO THE FINANCIAL STATEMENTS 30 OTHER OPERATING EXPENSES (c) Marketing expenses The Group The Bank RM 000 RM 000 RM 000 RM 000 Business promotion and advertisement 7,860 7,837 6,660 7,406 Entertainment 2,628 3,510 2,244 3,067 Traveling and accommodation 4,494 3,632 3,328 2,595 Other marketing expenses 1,503 1,413 1,100 1,077 16,485 16,392 13,332 14,145 (d) Administration and general expenses The Group The Bank RM 000 RM 000 RM 000 RM 000 Telecommunication expenses 5,558 5,118 4,655 4,325 Auditors remuneration 1,433 1,327 1, Professional fees 6,142 5,265 5,154 4,146 Property and equipment written-off Mail and courier charges 2,777 4,135 2,310 3,507 Stationery and consumables 8,902 8,975 6,566 6,820 Commissions expenses 3,215 4,204 2,996 3,984 Brokerage expenses 1,368 1,233 1,242 1,133 Directors fees and allowances 1,873 1,675 1,480 1,332 Donations 1,706 1,880 1,619 1,748 Settlement, clearing and bank charges 7,131 5,739 6,779 5,421 Stamp duties 198 3, ,098 Other administration and general expenses 3,678 7,003 1,650 5,996 44,072 49,835 35,774 42,669 The expenditure includes the following statutory disclosure: The Group The Bank RM 000 RM 000 RM 000 RM 000 Directors remuneration (Note 31) 8,281 7,715 7,888 7,372 Rental of premises 21,496 20,750 17,723 17,249 Equipment rental Auditors remuneration - statutory audit fees under provision prior year audit related fees non audit fees Depreciation of property and equipment 16,019 17,784 15,166 16,579 Amortisation of intangible assets 7,989 8,568 7,197 7,771 Property and equipment written-off AFFIN BANK BERHAD (25046-T) Annual Report 2013

75 NOTES TO THE FINANCIAL STATEMENTS 31 CEO AND DIRECTORS REMUNERATION The Directors of the Bank who have held office during the financial year are as follows: Managing Director/Chief Executive Officer Dato Zulkiflee Abbas Bin Abdul Hamid Non-Executive Directors Jen Tan Sri Dato Seri Ismail Bin Haji Omar (Bersara) (Chairman) Tan Sri Dato Seri Lodin Bin Wok Kamaruddin Dr Raja Abdul Malek Bin Raja Jallaludin Tan Sri Dato Sri Abdul Aziz Bin Abdul Rahman Tan Sri Dato Seri Mohamed Jawhar En. Mohd Suffian Bin Haji Haron Mr Aubrey Li Kwok-Sing Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing) The aggregate amount of remuneration for the Directors of the Bank for the financial year were as follows: The Group The Bank RM 000 RM 000 RM 000 RM 000 Managing Director/Chief Executive Officer Salaries 1,935 1,825 1,935 1,825 Bonuses 3,315 3,150 3,315 3,150 Defined contribution plan ( EPF ) Other employee benefits Benefits-in-kind Non-Executive Directors Fees 1,844 1,648 1,451 1,305 Benefits-in-kind Directors remuneration (Note 30) 8,281 7,715 7,888 7,372 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 125

76 NOTES TO THE FINANCIAL STATEMENTS 31 CEO AND DIRECTORS REMUNERATION A summary of the total remuneration of the Directors, distinguishing between Executive and Non-Executive Directors. Directors * Other Benefits- The Bank Salaries Bonuses Fees emoluments in-kind Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Managing Director/ Chief Executive Officer Dato Zulkiflee Abbas Bin Abdul Hamid 1,935 3,315-1, ,408 Total 1,935 3,315-1, ,408 Non-executive Directors Jen Tan Sri Dato Seri Ismail Bin Haji Omar (Bersara) Tan Sri Dato Seri Lodin Bin Wok Kamaruddin Dr. Raja Abdul Malek Bin Raja Jallaludin Tan Sri Dato Sri Abdul Aziz Bin Abdul Rahman Tan Sri Dato Seri Mohamed Jawhar En. Mohd Suffian Bin Haji Haron Mr Aubrey Li Kwok-Sing Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing) Total - - 1, ,480 Grand total 1,935 3,315 1,355 1, ,888 * Executive Director s other emoluments include allowance and EPF 126 AFFIN BANK BERHAD (25046-T) Annual Report 2013

77 NOTES TO THE FINANCIAL STATEMENTS 31 CEO AND DIRECTORS REMUNERATION Directors * Other Benefits- The Bank Salaries Bonuses Fees emoluments in-kind Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Managing Director/ Chief Executive Officer Dato Zulkiflee Abbas Bin Abdul Hamid 1,825 3, ,040 Total 1,825 3, ,040 Non-executive Directors Jen Tan Sri Dato Seri Ismail Bin Haji Omar (Bersara) Tan Sri Dato Seri Lodin Bin Wok Kamaruddin Dr. Raja Abdul Malek Bin Raja Jallaludin Tan Sri Dato Sri Abdul Aziz Bin Abdul Rahman Tan Sri Dato Seri Mohamed Jawhar En. Mohd Suffian Bin Haji Haron Mr Aubrey Li Kwok-Sing Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing) Total - - 1, ,332 Grand total 1,825 3,150 1,189 1, ,372 * Executive Director s other emoluments include allowance and EPF 32 ALLOWANCES FOR LOSSES ON LOANS, ADVANCES AND FINANCING The Group The Bank RM 000 RM 000 RM 000 RM 000 Individual impairment - made in the financial year 47,903 72,213 47,213 69,391 - written-back (4,031) (2,716) (3,598) (2,546) Collective impairment - made in the financial year 15,253 6,672 15,011 24,242 Bad debts and financing - recovered (120,645) (106,465) (119,702) (105,880) - written-off 4,583 7,784 4,509 7,702 (56,937) (22,512) (56,567) (7,091) Annual Report 2013 AFFIN BANK BERHAD (25046-T) 127

78 NOTES TO THE FINANCIAL STATEMENTS 33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES Related parties Lembaga Tabung Angkatan Tentera ( LTAT ) AFFIN Holdings Berhad ( AHB ) Subsidiaries and associates of LTAT Subsidiaries and associates of AHB as disclosed in its financial statements Subsidiaries of AFFIN Bank Berhad as disclosed in Note 13 Joint controlled entity as disclosed in Note 14 Voting shares in body corporate not less than 15% of votes Key management personnel Related parties of key management personnel (deemed as related to the Bank) Relationships Ultimate holding corporate body, which is Government-Link Investment Company ( GLIC ) of the Government of Malaysia Holding company Subsidiary and associate companies of the ultimate holding corporate body Subsidiary and associate companies of the holding company Subsidiary Joint controlled entity of subsidiary Other related companies The key management personnel of the Bank consist of: - Chief Executive Officer - Members of Senior Management team and the company secretary - Close family members and dependents of key management personnel - Entities that are controlled, jointly controlled 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 responsibility for planning, directing and controlling the activities of the Group and the Bank either directly or indirectly. Key management personnel includes the Chief Executive Officer of the Bank in office during the financial year and his remuneration for the financial year are disclosed in Note 33(b). 128 AFFIN BANK BERHAD (25046-T) Annual Report 2013

79 NOTES TO THE FINANCIAL STATEMENTS 33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES The Group and the Bank do not have any individually or collectively significant transactions 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 other significant related party transactions and balances. (a) Related parties transactions and balances Companies in which certain Ultimate holding Holding Other related Directors have Key Management corporate body company companies substantial interest Personnel Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Income Interest on private debt securities ,296 25, Interest on loans, advances and financing ,151 42, Interest on deposits and placements with banks and other financial institutions ,401 12, Other income ,590 7, ,438 87, Annual Report 2013 AFFIN BANK BERHAD (25046-T) 129 Expenditure Interest on fixed deposits 5,448 3,873 5,989 6,143 11,325 10, Interest on negotiable instruments of deposit Interest on deposits and placements of banks and other financial institutions ,165 15, Interest on special investment account ,565 1, Interest on money market deposits 9,911 7, ,004 2, Brokerage fees Rental ,426 11, Others ,473 40,453 5,877 4, ,599 11,799 47,555 46,657 42,631 47,

80 NOTES TO THE FINANCIAL STATEMENTS 33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (a) Related parties transactions and balances (continued) Ultimate holding Holding Other related corporate body company companies Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Amount due from Private debt securities , ,519 Loans, advances and financing ,334,698 1,493,059 Deposits and placement with banks and other financial institutions - - 3,852 3, , ,932 Intercompany balances ,185 2,745 Security deposits ,992 2, ,852 3,791 2,337,398 2,713,247 Amount due to Demand and fixed deposits 361, , , , , ,807 Negotiable instruments of deposit ,656 - Deposits and placement of banks and other financial institutions , , , ,437 Special investment account ,726 9,366 Money market deposits 399, , ,938 75, , ,844 1,041,776 1,039,347 1,334,473 1,232,610 Commitment ,668,959 1,858,637 Companies in which certain Directors have Key Management substantial interest Personnel Group RM 000 RM 000 RM 000 RM 000 Amount due from Loans, advances and financing - - 2,812 2, ,812 2,771 Amount due to Demand and fixed deposits ,125 15, ,125 15,061 Commitment AFFIN BANK BERHAD (25046-T) Annual Report 2013

81 NOTES TO THE FINANCIAL STATEMENTS 33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (a) Related parties transactions and balances (continued) Companies which certain Ultimate holding Holding Other related Directors have Key Management corporate body company Subsidiaries companies substantial interest Personnel Bank RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Income Interest on special investment account ,311 24, Interest on private debt securities ,296 25, Interest on loans, advances and financing ,336 40, Interest on deposits and placements with banks and other financial institutions ,552 8, Other income ,745 68,020 7,590 7, ,632 92,720 78,774 81, Annual Report 2013 AFFIN BANK BERHAD (25046-T) Expenditure Interest on fixed deposits 5,371 3,873 5,989 6, ,754 9, Interest on negotiable instruments of deposit Interest on deposits and placements of banks and other financial institutions ,165 15, Interest on money market deposits 9,911 7, ,004 2, Brokerage fees Rental ,426 11, Others ,473 40, ,738 4, ,521 11,799 47,555 46, ,356 44,

82 NOTES TO THE FINANCIAL STATEMENTS 33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (a) Related parties transactions and balances (continued) Ultimate holding Holding corporate body company Subsidiaries Bank RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Amount due from Special investment account , ,230 Deposits and placements with banks and other financial institutions - - 3,852 3,791 93, ,434 Intercompany balances , , ,852 3, , ,566 Amount due to Demand and fixed deposits 315, , , ,987 3,724 3,542 Deposits and placement of banks and other financial institutions , ,960 26,720 - Money market deposits 399, , Intercompany balances ,559 48, , ,107 1,041,781 1,039,347 84,003 52,023 Commitment Company which certain Other related Directors have Key Management companies substantial interest Personnel Bank RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Amount due from Private debt securities 782, , Loans, advances and financing 1,235,568 1,456, ,812 2,221 Deposits and placement of banks and other financial institutions 213, , Security deposits 2,992 2, ,234,083 2,473, ,812 2,221 Amount due to Demand and fixed deposits 741, , ,967 12,760 Negotiable instruments of deposit 120, Deposits and placement of banks and other financial institutions 211, , Money market deposits 129,938 75, ,203,005 1,139, ,967 12,760 Commitment 1,550,779 1,778, AFFIN BANK BERHAD (25046-T) Annual Report 2013

83 NOTES TO THE FINANCIAL STATEMENTS 33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (b) Key management personnel compensation The remuneration of key management personnel of the Group and the Bank during the year are as follows: The Group The Bank RM 000 RM 000 RM 000 RM 000 Short-term employment benefits Salaries 7,681 7,748 7,081 7,166 Bonuses 10,852 10,768 10,072 10,013 Defined contribution plan ( EPF ) 3,177 3,127 2,949 2,906 Other employee benefits 1,168 1,208 1,125 1,165 Benefits-in-kind Included in the above table are Directors remuneration as disclosed in Note ,361 23,261 21,669 21, TAXATION The taxation charge arising in Malaysia for the financial year The Group The Bank RM 000 RM 000 RM 000 RM 000 Current tax 180, , , ,556 Under/(over) provision in prior year 1,881 (668) 2,320 (737) Deferred tax (Note 11) 1,501 (7,171) 1,674 (6,568) Tax expense for the year 183, , , ,251 The Group The Bank % % % % Statutory tax rate in Malaysia Tax effect in respect of: Non allowable expenses Non taxable income (0.18) (0.15) (0.27) (0.18) Utilisation of previously unrecognised tax losses (0.12) (0.03) - - Effect of different tax rate (0.85) (0.50) (0.97) (0.59) Tax savings arising from income exempt from tax for International Currency Business Unit ( ICBU ) (0.17) (0.04) - - Under accrual in prior years 0.25 (0.10) 0.34 (0.12) Zakat contribution (0.09) Change in tax rate Average effective tax rate Tax savings of the Group as a result of utilisation of tax losses brought forward from previous years from which the related credit is recognised during the financial year amounted to RM922,320 (2012: RM61,226). Annual Report 2013 AFFIN BANK BERHAD (25046-T) 133

84 NOTES TO THE FINANCIAL STATEMENTS 35 EARNINGS PER SHARE The basic and fully diluted earnings per ordinary share for the Group and the Bank have been calculated based on the net profit attributable to equity holders of the Group and the Bank of RM568,822,000 (2012: RM525,266,000) and RM508,599,000 (2012: RM450,304,000) respectively. The weighted average number of shares in issue during the financial year of 1,518,337,000 (2012: 1,499,330,000) is used for the computation. 36 DIVIDENDS Dividends declared or proposed for the financial years are as follows: The Group and The Bank The Group and The Bank Dividend Amount of Dividend Amount of per share dividend per share dividend sen RM 000 sen RM 000 Ordinary shares Interim dividend paid , ,650 Proposed final dividend (*) , ,100 Dividends in respect of the financial year , ,750 * At the forthcoming Annual General Meeting, a single-tier final dividend in respect of the current financial year of 6 sen per share amounting to RM91,100,206 will be proposed for shareholder s approval. These financial statements do not reflect this final dividend which will be accounted for in the shareholder s equity as an appropriation of retained profits in the financial year ending 31 December 2014 when approved by the shareholder. Dividends recognised as distribution to ordinary equity holders of the Bank: The Group and The Bank The Group and The Bank Dividend Amount of Dividend Amount of per share dividend per share dividend sen RM 000 sen RM 000 Ordinary shares Interim dividend , ,650 Final dividend , , , , AFFIN BANK BERHAD (25046-T) Annual Report 2013

85 NOTES TO THE FINANCIAL STATEMENTS 37 COMMITMENTS AND CONTINGENCIES In the normal course of business, the Group and the Bank make various commitments and incurs certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions. The commitments and contingencies consist of: The Group The Group Positive Positive fair value Credit Risk- fair value Credit Risk- Principal of derivative equivalent weighted Principal of derivative equivalent weighted amount contracts amount* amount* amount contracts amount* amount* RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 135 Direct credit substitutes 1,410,611-1,410,611 1,418, , , ,042 Transaction-related contingent items 1,974, , ,908 2,147,100-1,073, ,690 Short-term self-liquidating trade-related contingencies 573, ,683 82, ,772-90,754 54,644 Irrevocable commitments to extend credit: 9,444,689-2,543,324 2,162,029 9,236,929-2,709,195 2,407,626 - maturity less than one year 7,263,403-1,452,681 1,169,480 6,364,231-1,272,846 1,065,707 - maturity more than one year 2,181,286-1,090, ,549 2,872,698-1,436,349 1,341,919 Lending of banks securities or the posting of securities as collateral by banks,including instances where these arise out of repo-style transactions. (i.e. repurchase / reverse repurchase and securities lending / borrowing transactions) ,939-19,939 - Foreign exchange related contracts (#): 4,326,451 26, ,851 58,070 4,002,348 47, ,075 35,869 - less than one year 3,636,267 24,125 73,219 33,250 3,750,554 42,781 97,948 29,439 - one year to less than five years 594,154 2,514 57,307 16, ,794 4,384 17,127 6,430 - more than five years 96,030-16,325 8, Interest rate related contracts (#): 3,954,438 29, ,516 44,879 2,484,603 21,707 90,826 33,144 - less than one year 809,068 4,592 2, , one year to less than five years 2,442,222 10,637 53,133 15,745 1,834,299 12,892 39,217 11,073 - more than five years 703,148 14,406 66,112 28, ,148 8,252 51,487 22,022 Unutilised credit card lines 179,201-35,840 26, ,103-38,221 28,693 21,863,606 56,274 5,360,227 4,657,757 18,981,323 68,872 4,583,089 3,914,708

86 136 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 37 COMMITMENTS AND CONTINGENCIES The Bank The Bank Positive Positive fair value Credit Risk- fair value Credit Risk- Principal of derivative equivalent weighted Principal of derivative equivalent weighted amount contracts amount* amount* amount contracts amount* amount* RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Direct credit substitutes 1,402,157-1,402,157 1,411, , , ,310 Transaction-related contingent items 1,849, , ,191 2,017,033-1,008, ,316 Short-term self-liquidating trade-relatedcontingencies 353,020-70,604 69, ,573-43,315 43,109 Irrevocable commitments to extend credit: 8,131,913-2,180,381 1,852,810 8,043,626-2,355,961 2,092,567 - maturity less than one year 6,285,251-1,257,050 1,012,054 5,552,840-1,110, ,939 - maturity more than one year 1,846, , ,756 2,490,786-1,245,393 1,166,628 Lending of banks securities or the posting of securities as collateral by banks,including instances where these arise out of repo-style transactions. (i.e. repurchase / reverse repurchase and securities lending / borrowing transactions) ,939-19,939 - Foreign exchange related contracts (#): 4,326,451 26, ,851 58,070 4,002,348 47, ,075 35,869 - less than one year 3,636,267 24,125 73,219 33,250 3,750,554 42,781 97,948 29,439 - one year to less than five years 594,154 2,514 57,307 16, ,794 4,384 17,127 6,430 - more than five years 96,030-16,325 8, Interest rate related contracts (#): 3,954,438 29, ,516 44,879 2,484,603 21,707 90,826 33,144 - less than one year 809,068 4,592 2, , one year to less than five years 2,442,222 10,637 53,133 15,745 1,834,299 12,892 39,217 11,073 - more than five years 703,148 14,406 66,112 28, ,148 8,252 51,487 22,022 Unutilised credit card lines 179,201-35,840 26, ,103-38,221 28,693 20,196,417 56,274 4,881,968 4,267,841 17,411,381 68,872 4,108,009 3,517,008 * The credit equivalent amount and risk-weighted amount is arrived at using the credit conversion factors as per Bank Negara Malaysia s revised Risk Weighted Capital disclosed in Note 5 and 19 to the financial statements.

87 NOTES TO THE FINANCIAL STATEMENTS 37 COMMITMENTS AND CONTINGENCIES The table below analyses the contractual or underlying principal amounts of derivative financial instruments held or issued. In addition, they also set out the corresponding gross positive credit equivalent of the derivative financial instruments. The Group and The Bank The Group and The Bank Credit Credit Principal equivalent Principal equivalent amount amount amount amount RM 000 RM 000 RM 000 RM 000 Foreign exchange contracts Forward contracts 811,717 13, ,791 19,016 Swaps 3,514, ,022 3,060,558 96,059 Interest rate contracts Swaps 3,954, ,516 2,484,602 90,826 Foreign exchange related contracts and interest rate related contracts are subject to market risk and credit risk. 38 FINANCIAL RISK MANAGEMENT (i) Credit risk Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and contractual obligations to the Bank. Credit risk emanates mainly from loans, advances and financing, loan commitments arising from such lending activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities. The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures. Approval authorities are delegated to Senior Management and Group Management Loan Committee ( GMLC ) to implement the credit policies and ensure sound credit granting standards. An independent Group Risk Management ( GRM ) function, headed by Group Chief Risk Officer ( GCRO ), with direct reporting line to Board Risk Management Committee ( BRMC ) is in place to ensure adherence to risk standards and discipline. Portfolio management risk reports are submitted regularly to BRMC. Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 137

88 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Credit risk measurement Loans, advances and financing Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank s underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. The Bank has developed internal rating models to support the assessment and quantification of credit risk. For consumer mass market products, statistically developed application scorecards are used by the Business to assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan origination. Over-the-Counter ( OTC ) Derivatives The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity). Risk limit control and mitigation policies The Bank employs various policies and practices to control and mitigate credit risk. Lending limits The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, large exposures, connected parties, and geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions. The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers together with potential exposure from market movements. 138 AFFIN BANK BERHAD (25046-T) Annual Report 2013

89 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Risk limit control and mitigation policies (continued) Collateral Credits are established against borrower s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are: - mortgage over residential properties; - charges over commercial real estate or vehicles financed; - charges over business assets such as business premises, inventory and accounts receivable; and - charges over financial instruments such as marketable equities. Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan. 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 longer-term commitments generally have a greater degree of credit risk than short-term commitments. Credit risk monitoring Retail credits are actively monitored and managed on a portfolio basis by product type. A collection management system in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 139

90 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk monitoring (continued) Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists. Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality. Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months. Active portfolio monitoring enables the Bank to understand the overall risk profile and identify any adverse trends or areas of risk concentrations affecting asset quality so that appropriate actions are adopted to manage and mitigate risks. Credit risk culture The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation. System ( LMS ). The LMS provides staff with a progressive self-learning alternative at own pace. Group Risk Management implements an Internal Credit Certification ( ICC ) Programme for both Business Banking and Consumer Credit. The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of knowledge and analytical skills required to make sound corporate and commercial loans to customers. Maximum exposure to credit risk For financial assets recognised on the statement of financial position, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group and the Bank would have to pay if guarantee were to be called upon. For loan commitments and other commitments, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers. All financial assets of the Group and the Bank are subject to credit risk except for cash in hand, equity securities held as financial assets held-for-trading or financial investments available-for-sale, as well as non-financial assets. 140 AFFIN BANK BERHAD (25046-T) Annual Report 2013

91 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) 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 statement of financial position as at reporting date, except for the followings: The Group The Bank Maximum Maximum Carrying Credit Carrying Credit Value Exposure Value Exposure RM 000 RM 000 RM 000 RM 000 Credit risk exposures of on-balance sheet assets: Cash and short-term funds 9,401,701 * 9,234,368 4,987,696 * 4,820,362 Financial investments available-for-sale 7,614,537 # 7,495,386 6,331,414 # 6,212,331 Other assets 191, ,663 Credit risk exposure of off-balance sheet items: Financial guarantees 3,385,415 ^ 2,398,013 3,251,394 ^ 2,326,776 Loan commitments and other credit related commitments 18,478,191 ^ 2,962,214 16,945,023 ^ 2,555,192 Total maximum credit risk exposure 39,099,941 22,281,660 31,692,082 16,063,324 The Group The Bank Maximum Maximum Carrying Credit Carrying Credit Value Exposure Value Exposure RM 000 RM 000 RM 000 RM 000 Credit risk exposures of on-balance sheet assets: Cash and short-term funds 7,648,904 * 7,477,429 3,633,842 * 3,462,366 Financial investments available-for-sale 7,640,654 # 7,531,197 5,658,161 # 5,551,454 Other assets 257, ,354 Credit risk exposure of off-balance sheet items: Financial guarantees 2,592,629 ^ 1,519,079 2,453,189 ^ 1,444,672 Loan commitments and other credit related commitments 16,388,694 ^ 3,064,010 14,958,192 ^ 2,663,337 Total maximum credit risk exposure 34,564,539 19,849,421 26,931,174 13,314,183 The following have been excluded for the purpose of maximum credit risk exposure calculation: * cash in hand # investment in quoted and unquoted prepayment ^ amount stated at notional value Whilst the Group and the Bank s maximum exposure to credit risk is the carrying value of the assets, or in the case of offbalance sheet items, the amount guaranteed, committed or accepted, in most cases the likely exposure is far less due to collateral, credit enhancements and other actions taken to mitigate the credit exposure. The financial effect of collateral held for loans, advances and financing of the Group and the Bank are 68% (2012: 68%) and 66% (2012: 66%) respectively. The financial effects of collateral for the other financial assets are insignificant. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 141

92 142 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Credit risk concentrations Credit risk is the risk of financial loss from the failure of customers to meet their obligations. Exposure to credit risk is managed through portfolio management. The credit portfolio s risk profiles and exposures are reviewed and monitored regularly to ensure that an acceptable level of risk diversification is maintained. Exposure to credit risk is also managed in part by obtaining collateral security and corporate and personal guarantees. The credit risk concentrations of the Group and the Bank, by industry concentration, are set out in the following tables: Reverse Deposits and Repurchase placements Financial agreements with banks assets Financial Financial Loans, On Cash and with and other held- Derivative investments investments advances balance Commitments short-term financial financial for- financial available- held-to- and Other sheet and The Group funds institutions institutions trading assets for-sale maturity financing (*) assets total Contingencies 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Agriculture , ,799 98,279 Mining and quarrying , , ,024 Manufacturing , , ,058 2,500,348-2,753, ,016 Electricity, gas and water supply , , ,411 11,466 Construction , ,105 3,144,160-3,413,843 1,084,501 Real estate ,345 1,525 4,623,807-4,666, ,212 Transport, storage and communication ,259-1,961,669-2,016, ,701 Finance, insurance and business services 1,274, ,597-53,351 4,243, ,741 4,323,226-10,536, ,753 Government and government agencies 7,959, ,544-2,741, ,523-10,968, ,639 Wholesale & retail trade and restaurants & hotels ,377 23,907 2,133,369-2,202,744 1,189,593 Others ,307, ,679 16,499, ,043 Total assets 9,234, , ,544 56,274 7,495, ,336 36,528, ,679 54,638,283 5,360,227 * Not inclusive of collective allowance amounting to RM300 million. Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.

93 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Credit risk concentrations (continued) Reverse Deposits and Repurchase placements Financial agreements with banks assets Financial Financial Loans, On Cash and with and other held- Derivative investments investments advances balance Commitments short-term financial financial for- financial available- held-to- and Other sheet and The Group funds institutions institutions trading assets for-sale maturity financing (*) assets total Contingencies 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Annual Report 2013 AFFIN BANK BERHAD (25046-T) Agriculture , ,629 74,359 Mining and quarrying , ,030 30,460 Manufacturing , ,579 2,635,371-2,808, ,604 Electricity, gas and water supply , , ,874 18,763 Construction , ,410 2,876,413-3,142,862 1,264,474 Real estate ,982-3,707,749-3,717, ,892 Transport, storage and communication ,178 73,641 1,680,704-1,809, ,966 Finance, insurance and business services 759, , ,592 67,425 4,236,881-4,160, ,886, ,624 Government and government agencies 6,717,893 20, , ,904, ,523-9,859, ,225 Wholesale & retail trade and restaurants & hotels ,874 20,040 1,765,174-1,880, ,869 Others ,384, ,186 15,641, ,853 Total assets 7,477,429 20, , ,592 68,872 7,531, ,670 33,805, ,706 50,374,230 4,583,089 * Not inclusive of collective allowance amounting to RM323 million. Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note

94 144 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Credit risk concentrations (continued) Reverse Deposits and Repurchase placements Financial agreements with banks assets Financial Financial Loans, On Cash and with and other held- Derivative investments investments advances balance Commitments short-term financial financial for- financial available- held-to- and Other sheet and The Bank funds institutions institutions trading assets for-sale maturity financing (*) assets total Contingencies 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Agriculture , ,786 93,023 Mining and quarrying , , ,024 Manufacturing ,446 62, ,058 2,287,155-2,472, ,165 Electricity, gas and water supply , , ,822 11,466 Construction , ,105 2,666,179-2,935, ,297 Real estate ,345 1,525 4,192,630-4,235, ,572 Transport, storage and communication ,259-1,854,742-1,910, ,400 Finance, insurance and business services 1,115,964-1,106,756-53,351 3,782,377 74,676 3,799,712-9,932, ,246 Government and government agencies 3,704, ,544-1,998,057-95,861-5,947,860 78,011 Wholesale & retail trade and restaurants & hotels ,104 23,907 1,988,323-2,047,425 1,163,720 Others ,191, ,663 12,339, ,044 Total assets 4,820,362-1,106, ,544 56,274 6,212, ,271 30,445, ,663 43,354,705 4,881,968 * Not inclusive of collective allowance amounting to RM267 million. Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.

95 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Credit risk concentrations (continued) Reverse Deposits and Repurchase placements Financial agreements with banks assets Financial Financial Loans, On Cash and with and other held- Derivative investments investments advances balance Commitments short-term financial financial for- financial available- held-to- and Other sheet and The Bank funds institutions institutions trading assets for-sale maturity financing (*) assets total Contingencies 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Annual Report 2013 AFFIN BANK BERHAD (25046-T) Agriculture , ,551 71,742 Mining and quarrying , ,218 30,460 Manufacturing , ,579 2,421,160-2,594, ,157 Electricity, gas and water supply , , ,903 18,763 Construction , ,410 2,472,518-2,723,570 1,082,510 Real estate ,982-3,298,277-3,308, ,265 Transport, storage and communication ,178 73,641 1,663,557-1,792, ,856 Finance, insurance and business services 435,596-1,043, ,592 67,425 3,524,648-3,672,697-8,909, ,322 Government and government agencies 3,026,770 20, ,662,329-95,861-4,805,017 54,670 Wholesale & retail trade and restaurants & hotels ,524 20,040 1,629,756-1,734, ,197 Others ,004, ,354 12,196, ,067 Total assets 3,462,366 20,057 1,043, ,592 68,872 5,551, ,670 28,626, ,354 39,583,152 4,108,009 * Not inclusive of collective allowance amounting to RM288 million. Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note

96 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Collaterals The main types of collateral obtained by the Group and the Bank are as follows: - for personal housing loans, mortgages over residential properties; - for commercial property loans, charges over the properties being financed; - for hire purchase, charges over the vehicles or plant and machineries financed; and - for other loans, charges over business assets such as premises, inventories, trade receivables or deposits. Total loans, advances and financing - credit quality months-in-arrears more than 3 months (i.e. 90 days) or with impairment allowances. Distribution of loans, advances and financing by credit quality The Group The Bank RM 000 RM 000 RM 000 RM 000 Neither past due nor impaired (a) 33,612,968 30,688,227 28,026,769 26,047,661 Past due but not impaired (b) 2,432,647 2,574,206 2,033,298 2,131,175 Impaired (c) 706, , , ,403 Gross loans, advances and financing 36,751,800 34,015,627 30,634,622 28,802,239 less: Allowance for impairment - Individual (223,701) (210,372) (189,117) (175,277) - Collective (300,314) (322,629) (266,595) (287,693) Net loans, advances and financing 36,227,785 33,482,626 30,178,910 28,339,269 Past due but not impaired includes accounts within grace period of the Group and the Bank amounting to RM1.0 billion (2012: RM1.0 billion) and RM0.9 billion (2012: RM0.9 billion) respectively. 146 AFFIN BANK BERHAD (25046-T) Annual Report 2013

97 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Total loans, advances and financing - credit quality (continued) (a) Loans neither past due nor impaired Analysis of loans, advances and financing that are neither past due nor impaired analysed based on the Group and the Bank s internal credit grading system is as follows: Quality classification The Group The Bank RM 000 RM 000 RM 000 RM 000 Satisfactory 30,400,612 27,497,521 25,143,738 23,278,395 Special mention 3,212,356 3,190,706 2,883,031 2,769,266 Quality classification definitions 33,612,968 30,688,227 28,026,769 26,047,661 Satisfactory: Exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or levels of expected loss. Special mention: Exposures require varying degrees of special attention and default risk is of greater concern. (b) Loans past due but not impaired Certain loans, advances and financing are past due but not impaired as the collateral values of these loans are in excess of the principal and profit outstanding. Allowances for these loans may have been set aside on a portfolio basis. The Bank s loans, advances and financing which are past due but not impaired are as follows: The Group The Bank RM 000 RM 000 RM 000 RM 000 Past due up to 30 days 1,312,337 1,390,570 1,165,696 1,188,938 Past due days 767, , , ,476 Past due days 352, , , ,761 2,432,647 2,574,206 2,033,298 2,131,175 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 147

98 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Total loans, advances and financing - credit quality (continued) (c) Loans impaired The Group The Bank RM 000 RM 000 RM 000 RM 000 Analysis of impaired assets: Gross impaired loans 706, , , ,403 Individually impaired loans 122, ,376 50,399 56,521 Collateral and other credit enhancements obtained During the year, the Bank has not obtained any assets by taking possession of collateral held as security or calling upon other credit enhancements. Private debt securities, treasury bills and derivatives Private debt securities, treasury bills and other eligible bills included in financial assets held-for-trading and financial investments available-for-sale are measured on a fair value basis. The fair value will reflect the credit risk of the issuer. Most listed and some unlisted securities are rated by external rating agencies. The Group and the Bank mainly uses external credit ratings provided by RAM, MARC, Standard & Poors or Moody s. The table below presents an analysis of debt securities, treasury bills and other eligible bills by rating agency. 148 AFFIN BANK BERHAD (25046-T) Annual Report 2013

99 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Private debt securities, treasury bills and derivatives (continued) The Group AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Financial assets held-for-trading Bank Negara Malaysia Monetary Notes , ,544 Financial investments available-for-sale Malaysian Government investment issues ,759,211-1,759,211 Bank Negara Malaysia Monetary Notes , ,674 Sukuk Perumahan Kerajaan 337, ,661 Others ,316,277-1,316,277 Private debt securities 2,243, , ,425 59,070 48,281-3,452,561 Financial investments held-to-maturity Private debt securities ,429 67, ,336 2,581, , ,425 59,070 4,335,416 67,907 8,145,264 The Group AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 149 Financial assets held-for-trading Negotiable Instruments of Deposit , ,276 Private debt securities , ,316 Financial investments available-for-sale Malaysian Government securities ,070-5,070 Malaysian Government investment issues ,879,076-1,879,076 Bank Negara Malaysia Monetary Notes , ,069 Sukuk Perumahan Kerajaan 120, ,550 Others ,109,556-1,109,556 Private debt securities 2,648, , ,619 65,426 33, ,532,877 Financial investments held-to-maturity Private debt securities ,120 85, ,670 * Net of allowance for impairment 2,768, , ,619 80,742 4,427,697 85,566 8,148,460 Collateral is not generally obtained directly from the issuers of debt securities. Certain debt securities may be collateralised by specifically identified assets that would be obtainable in the event of default.

100 150 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (i) Credit risk (continued) Private debt securities, treasury bills and derivatives (continued) The Bank AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Financial assets held-for-trading Bank Negara Malaysia Monetary Notes , ,544 Financial investments available-for-sale Malaysian Government investment issues ,142,371-1,142,371 Bank Negara Malaysia Monetary Notes , ,160 Sukuk Perumahan Kerajaan 269, ,361 Others ,286,592-1,286,592 Private debt securities 1,744, , ,425 59,070 48,281-2,942,846 Financial investments held-to-maturity Private debt securities ,364 67, ,271 2,013, , ,425 59,070 3,545,312 67,907 6,777,145 The Bank AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Financial assets held-for-trading Negotiable Instruments of Deposit , ,276 Private debt securities , ,316 Financial investments available-for-sale Malaysian Government securities ,070-5,070 Malaysian Government investment issues ,004,366-1,004,366 Bank Negara Malaysia Monetary Notes , ,015 Sukuk Perumahan Kerajaan 120, ,550 Others ,073,366-1,073,366 Private debt securities 1,956, , ,619 65,426 33, ,831,086 Financial investments held-to-maturity Private debt securities ,120 85, ,670 * Net of allowance for impairment 2,077, , ,619 80,742 3,149,743 85,566 6,618,715 Collateral is not generally obtained directly from the issuers of debt securities. Certain debt securities may be collateralised by specifically identified assets that would be obtainable in the event of default.

101 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk Market risk is defined as the risk of losses to the Bank s portfolio positions arising from movements in market factors such as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from its trading and investment activities. The Bank s market risk management objective is to ensure that market risk is appropriately identified, measured, controlled, managed and reported. The Bank s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers requirements and proprietary positions. The Bank s market risk management control strategy is established based on its risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis. Market risk arising from the Bank s trading book is primarily controlled through the imposition of Cut-loss and Value-at- Risk ( VaR ) Limits. The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various rates scenarios. The potential long term effects of the Bank s overall exposure is also tracked by assessing the impact on economic value of equity ( EVE ). The Bank s interest rate risk is managed through Earnings-at-Risk ( EaR ) and Economic Value-at-Risk ( EVaR ) limits. In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under abnormal market conditions. The Bank s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 151

102 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Value-at-Risk ( VaR ) Value-at-Risk ( VaR ) is used to compute the maximum potential loss amount over a specified holding period of a trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange rates that could affect values of financial instruments. The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks. Under this methodology, a matrix of historical volatilities and correlations is computed from the past 100 business days market data. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio. The table below sets out a summary of the Bank s VaR profile by financial instrument types for the trading portfolio: Average for the The Group and The Bank Balance financial year Minimum Maximum 2013 RM 000 RM 000 RM 000 RM 000 Instruments FX swap ,375 FX spot (Metro Desk) Government securities Private debt securities Average for the The Group and The Bank Balance financial year Minimum Maximum 2012 RM 000 RM 000 RM 000 RM 000 Instruments FX swap ,468 FX spot (Metro Desk) Government securities Private debt securities AFFIN BANK BERHAD (25046-T) Annual Report 2013

103 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Other risk measures Mark-to-market valuation tracks the current market value of the outstanding financial instruments. Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market movements. Stress tests measure the changes in values arising from extreme movements in interest rates and foreign exchange rates based on past experience and simulated stress scenarios. Sensitivity/Dollar Duration measures the change in value of a portfolio resulting from a 0.001% increase in interest rates. This measure identifies the Bank s interest rate exposures that are most vulnerable to interest rate changes and facilitates the implementation of hedging strategies. Net interest income sensitivity The table below shows the pre-tax net interest income sensitivity for the financial assets and financial liabilities held at reporting date. The sensitivity has been measured using the Repricing Gap Simulation methodology based on 100 basis points parallel shifts in the interest rate. The Group The Bank basis point basis point basis point basis point RM million RM million RM million RM million Impact on net interest income (18.5) 18.5 (21.5) 21.5 As percentage of net interest income -1.8% 1.8% -2.6% 2.6% The Group The Bank basis point basis point basis point basis point RM million RM million RM million RM million Impact on net interest income (3.8) 3.8 (16.8) 16.8 As percentage of net interest income -0.4% 0.4% -2.1% 2.1% Annual Report 2013 AFFIN BANK BERHAD (25046-T) 153

104 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Foreign exchange risk sensitivity analysis Open position Ringgit Impact of Malaysia 1% fall in US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1 % fall in exchange The Group amount amount US Dollar rate US Dollar (304) (997) (987) 10 Others (4,217) (13,821) (13,683) 138 The impact on the outstanding foreign exchange position as at 31 December 2013 for a one percent change in USD exchange rate from to was an increase of RM148,185. Open position Ringgit Impact of Malaysia 1% fall in US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1 % fall in exchange The Group amount amount US Dollar rate US Dollar 769 2,352 2,329 (24) Others (4,384) (13,409) (13,275) 134 The impact on the outstanding foreign exchange position as at 31 December 2012 for a one percent change in USD exchange rate from to was an increase of RM111, AFFIN BANK BERHAD (25046-T) Annual Report 2013

105 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Foreign exchange risk sensitivity analysis (continued) Open position Ringgit Impact of Malaysia 1% fall in US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1 % fall in exchange The Bank amount amount US Dollar rate US Dollar (1,394) (4,568) (4,522) 46 Others (3,197) (10,480) (10,375) 105 The impact on the outstanding foreign exchange position as at 31 December 2013 for a one percent change in USD exchange rate from to was an increase of RM150,477. Open position Ringgit Impact of Malaysia 1% fall in US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1 % fall in exchange The Bank amount amount US Dollar rate US Dollar (6) Others (3,967) (12,134) (12,013) 121 The impact on the outstanding foreign exchange position as at 31 December 2012 for a one percent change in USD exchange rate from to was an increase of RM116,000. Foreign exchange risk The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Limits are set on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The table summarises the Bank s exposure to foreign currency exchange rate risk at reporting date. Included in the table are the Bank s financial instruments at carrying amounts, categorised by currency. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 155

106 156 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Foreign exchange risk (continued) United Great States Britain Australian Japanese The Group Euro Dollar Pound Dollar Yen Others Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 7, ,259 4, ,399 31, ,439 Deposits and placements with banks and other financial institutions - 67,299-29,289-26, ,557 Derivative financial assets - 1, ,334 Financial investments available-for-sale 46, ,631-56, , ,721 Loans, advances and financing 207 1,294, , ,128 1,667,500 Other assets ,820 Total financial assets 54,353 1,864, ,497 85,755 1, ,860 2,589,371 Liabilities Deposits from customers 77, ,478 14,962 6,010 9,839 16, ,371 Deposits and placements of banks and other financial institutions , ,364 Derivative financial liabilities - 4, ,077 5,674 Other liabilities - 2, ,904 Total financial liabilities 77, ,979 14,962 17,329 9,839 17, ,313 Net on-balance sheet financial position (23,209) 1,635,106 97,535 68,426 (8,018) 453,218 2,223,058 Off balance sheet credit commitments 285,323 3,679,237 57,795 87,955 9,932 54,566 4,174,808

107 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Foreign exchange risk (continued) United Great States Britain Australian Japanese The Group Euro Dollar Pound Dollar Yen Others Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 6, ,764 2, , ,620 Deposits and placements with banks and other financial institutions - 129,692-79, ,525 Financial assets held-for-trading - 15, ,316 Derivative financial assets - 1,811-1, ,197 Financial investments available-for-sale - 220, , , ,736 Loans, advances and financing 185 1,598,937 98,514-1,114 1,871 1,700,621 Other assets Total financial assets 6,909 2,099, , ,871 2, ,281 2,563,502 Annual Report 2013 AFFIN BANK BERHAD (25046-T) Liabilities Deposits from customers 110, ,009 7,337 8, , ,877 Deposits and placements of banks and other financial institutions - 612,055-8, ,928 Derivative financial liabilities - 6, ,457 9,993 Other liabilities - 6, ,848 Total financial liabilities 110, ,587 7,337 18, , ,646 Net on-balance sheet financial position (103,303) 1,301,084 93, ,141 1, ,671 1,619,856 Off balance sheet credit commitments 689,007 1,927,908 39, ,679 47, ,321 3,290,

108 158 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Foreign exchange risk (continued) United Great States Britain Australian Japanese The Bank Euro Dollar Pound Dollar Yen Others Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 6, ,064 4, ,355 30, ,596 Deposits and placements with banks and other financial institutions - 95,667-29,289-26, ,925 Derivative financial assets - 1, ,334 Financial investments available-for-sale 46, ,631-56, , ,721 Loans, advances and financing 207 1,158, , ,129 1,531,532 Other assets ,820 Total financial assets 52,848 1,821, ,241 85,755 1, ,018 2,543,928 Liabilities Deposits from customers 77, ,879 14,955 6,003 9,835 16, ,735 Deposits and placements of banks and other financial institutions - 26,720-12, ,811 Derivative financial liabilities - 4, ,077 5,674 Other liabilities - 2, ,987 Total financial liabilities 77, ,183 14,955 18,049 9,835 17, ,207 Net on-balance sheet financial position (24,696) 1,566,106 97,286 67,706 (8,058) 452,377 2,150,721 Off balance sheet credit commitments 231,559 3,521,399 56,676 87,955 10,195 54,258 3,962,042

109 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Foreign exchange risk (continued) United Great States Britain Australian Japanese The Bank Euro Dollar Pound Dollar Yen Others Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 5, ,827 1, , ,234 Deposits and placements with banks and other financial institutions - 170,921-79, ,754 Financial assets held-for-trading - 15, ,316 Derivative financial assets - 1,811-1, ,197 Financial investments available-for-sale - 220, , , ,736 Loans, advances and financing 185 1,434,581 98,514-1,114 1,871 1,536,265 Other assets Total financial assets 5,550 2,035, , ,659 1, ,012 2,496,989 Annual Report 2013 AFFIN BANK BERHAD (25046-T) Liabilities Deposits from customers 109, ,765 7,330 8, , ,458 Deposits and placements of banks and other financial institutions - 612,055-8, ,928 Derivative financial liabilities - 6, ,457 9,993 Other liabilities - 6, ,926 Total financial liabilities 109, ,421 7,330 18, , ,305 Net on-balance sheet financial position (103,497) 1,237,186 92, ,929 1, ,402 1,554,684 Off balance sheet credit commitments 525,244 1,870,422 36, ,679 47, ,785 3,057,

110 160 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Interest/profit rate risk Sensitivity to interest rates arises from mismatches in the interest rate characteristics of the assets and their corresponding liability funding. 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 Group policy guidelines. The following table represents the Group s and the Bank s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates as at reporting date. Non-trading book Noninterest / Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Group month months months years years sensitive book Total rate 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 % Assets Cash and short-term funds 9,178, ,069-9,401, Deposits and placements with bank and other financial institutions 90, , , , , Financial assets held-for-trading , , Derivative financial assets ,639 29,635 56,274 Financial investments available-for-sale 210, ,998 1,318,762 3,056,311 2,087, ,085-7,614, Financial investment held-to-maturity 1, ,102 85,000 73,658-72, , Loans, advances and financing - non-impaired 19,430,962 2,113,869 3,518,151 8,648,969 2,333,664 (300,314) * - 35,745, impaired ,484 # - 482,484 Others (1) ,004,339-2,004,339 Total assets 28,911,160 3,436,710 5,023,350 11,778,938 4,421,004 2,686, ,179 56,437,113 * The negative balance represents collective allowance for loans, advances and financing. # Net of individual allowance. (1) Others include property and equipment, intangible assets, statutory deposits with BNM, tax recoverable, deferred tax assets, other assets and amount due from jointly controlled entity.

111 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Interest/profit rate risk (continued) Non-trading book Noninterest / Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Group month months months years years sensitive book Total rate 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 % Liabilities Deposits from customers 18,347,659 9,935,597 14,499, ,512-3,185,724-46,088, Deposits and placements of banks and other financial institutions 2,263,614 1,517, , ,590-4,065, Derivative financial liabilities ,116 38,406 94,522 Bills and acceptances payable ,208-90,208 Recourse obligation on loans sold to Cagamas Berhad ,708-3, , Subordinated term loan 900, , , Other liabilities (2) , ,379 Total liabilities 21,511,273 11,453,012 14,774, ,220-3,778,063 38,406 52,069,489 Equity ,367,624-4,367,624 Annual Report 2013 AFFIN BANK BERHAD (25046-T) Total liabilities and equity 21,511,273 11,453,012 14,774, ,220-8,145,687 38,406 56,437,113 On-balance sheet interest sensitivity gap 7,399,887 (8,016,302) (9,751,165) 11,264,718 4,421,004 (5,458,915) 140,773 Off-balance sheet interest sensitivity gap (3) 274,205 1,576,740 (642,495) (1,502,538) 294, Total interest sensitivity gap 7,674,092 (6,439,562) (10,393,660) 9,762,180 4,715,092 (5,458,915) 140,773 (2) Other liabilities include provision for taxation and other liabilities. (3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments. 161

112 162 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Interest/profit rate risk (continued) Non-trading book Noninterest / Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Group month months months years years sensitive book Total rate 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 % Assets Cash and short-term funds 7,427, ,471-7,648, Reverse repurchase agreements with financial institutions , , Deposits and placements with banks and other financial institutions 80, , , , Financial assets held-for-trading , , Derivative financial assets ,165 21,707 68,872 Financial investments available-for-sale 485, , ,194 3,206,109 2,294, ,847-7,640, Financial investment held-to-maturity 197,337 92,000-72,634-89, , Loans, advances and financing - non-impaired 17,571,338 2,625,107 2,746,329 8,123,871 2,195,788 (322,629) * - 32,939, impaired ,822 # - 542,822 Others (1) ,030,153-2,030,153 Total assets 25,762,091 4,025,732 3,467,462 11,402,614 4,490,615 2,769, ,299 52,104,980 * The negative balance represents collective allowance for loans, advances and financing. # Net of individual allowance. (1) Others include property and equipment, intangible assets, statutory deposits with BNM, tax recoverable, other assets, investment in jointly controlled entity and amount due from jointly controlled entity.

113 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Interest/profit rate risk (continued) Non-trading book Noninterest / Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Group month months months years years sensitive book Total rate 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 % Liabilities Deposits from customers 16,137,700 10,080,985 11,870, ,720-2,918,645-41,263, Deposits and placements of banks and other financial institutions 2,318,559 2,466,046 11, ,229-4,809, Derivative financial liabilities ,595 33,068 59,663 Bills and acceptances payable , ,400 Recourse obligation on loans sold to Cagamas Berhad ,345-3, , Subordinated term loan 900, , , Other liabilities (2) , ,597 Total liabilities 19,356,259 12,547,031 11,881, ,065-3,502,630 33,068 47,987,028 Equity ,117,952-4,117,952 Annual Report 2013 AFFIN BANK BERHAD (25046-T) Total liabilities and equity 19,356,259 12,547,031 11,881, ,065-7,620,582 33,068 52,104,980 On-balance sheet interest sensitivity gap 6,405,832 (8,521,299) (8,414,513) 10,736,549 4,490,615 (4,851,415) 154,231 Off-balance sheet interest sensitivity gap (3) 502, ,790 (91,805) (1,148,313) 134, Total interest sensitivity gap 6,908,186 (7,918,509) (8,506,318) 9,588,236 4,625,589 (4,851,415) 154,231 (2) Other liabilities include provision for taxation, deferred tax liabilities and other liabilities. (3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments. 163

114 164 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Interest/profit rate risk (continued) Non-trading book Noninterest / Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Bank month months months years years sensitive book Total rate 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 % Assets Cash and short-term funds 4,777, ,514-4,987, Deposits and placements with banks and other financial institutions 90, , , , ,000 35,712-1,106, Financial assets held-for-trading , , Derivative financial assets ,639 29,635 56,274 Financial investments available-for-sale 210, , ,603 2,466,357 1,884, ,972-6,331, Financial investment held-to-maturity 1, ,101-73,658-71, , Loans, advances and financing - non-impaired 16,143,542 1,904,549 3,003,968 7,313,314 1,694,694 (266,595) * - 29,793, impaired ,438 # - 385,438 Others (1) ,104,013-2,104,013 Amount due from subsidiaries 60, , Total assets 21,282,405 3,395,764 4,072,250 10,050,539 3,679,176 2,731, ,179 45,390,601 * The negative balance represents collective allowance for loans, advances and financing. # Net of individual allowance. (1) Others include property and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, deferred tax assets, investment in subsidiaries and other assets.

115 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Interest/profit rate risk (continued) Non-trading book Noninterest / Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Bank month months months years years sensitive book Total rate 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 % Liabilities Deposits from customers 13,043,316 8,579,819 11,940, ,771-3,119,999-36,800, Deposits and placements of banks and other financial institutions 955,762 1,517, , ,966-2,659, Derivative financial liabilities ,116 38,406 94,522 Bills and acceptances payable ,208-90,208 - Recourse obligation on loans sold to Cagamas Berhad ,708-3, , Subordinated term loan 900, , , Other liabilities (2) , ,188 Amount due to subsidiaries ,559-53,559 Total liabilities 14,899,078 10,097,234 12,120, ,479-3,729,082 38,406 41,395,494 Annual Report 2013 AFFIN BANK BERHAD (25046-T) Equity ,995,107-3,995,107 Total liabilities and equity 14,899,078 10,097,234 12,120, ,479-7,724,189 38,406 45,390,601 On-balance sheet interest sensitivity gap 6,383,327 (6,701,470) (8,047,965) 9,539,060 3,679,176 (4,992,901) 140,773 Off-balance sheet interest sensitivity gap (3) 274,205 1,576,740 (642,495) (1,502,538) 294, Total interest sensitivity gap 6,657,532 (5,124,730) (8,690,460) 8,036,522 3,973,264 (4,992,901) 140,773 (2) Other liabilities include provision for taxation and other liabilities. (3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments. 165

116 166 AFFIN BANK BERHAD (25046-T) Annual Report 2013 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Interest/profit rate risk (continued) Non-trading book Noninterest / Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Bank month months months years years sensitive book Total rate 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 % Assets Cash and short-term funds 3,420, ,227-3,633, Reverse repurchase agreements with financial institutions , , Deposits and placements with banks and other financial institutions 80, ,200 49, ,210 46,627 24,751-1,043, Financial assets held-for-trading , , Derivative financial assets ,165 21,707 68,872 Financial investments available-for-sale 353, , ,505 2,346,475 1,911, ,191-5,658, Financial investment held-to-maturity 197,337 92,000-72,634-89, , Loans, advances and financing - non-impaired 14,782,179 2,466,733 2,334,730 7,016,986 1,578,208 (287,693) * - 27,891, impaired ,126 # - 448,126 Others (1) ,140,817-2,140,817 Amount due from subsidiaries 153, , Total assets 18,987,359 3,790,439 2,724,211 9,633,305 3,536,387 2,817, ,299 41,676,054 * The negative balance represents collective allowance for loans, advances and financing. # Net of individual allowance. (1) Others include property and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, investment in subsidiaries and other assets.

117 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (ii) Market risk (continued) Interest/profit rate risk (continued) Non-trading book Noninterest / Effective Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest The Bank month months months years years sensitive book Total rate 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 % Liabilities Deposits from customers 10,885,801 8,348,808 9,894, ,355-2,851,401-32,224, Deposits and placements of banks and other financial institutions 1,252,267 2,451,800 11, ,707-3,728, Derivative financial liabilities ,595 33,068 59,663 Bills and acceptances payable , ,400 - Recourse obligation on loans sold to Cagamas Berhad ,345-3, , Subordinated term loan 900, , , Other liabilities (2) , ,420 Amount due to subsidiaries ,528-48,528 Total liabilities 13,038,068 10,800,608 9,905, ,700-3,449,215 33,068 37,881,600 Annual Report 2013 AFFIN BANK BERHAD (25046-T) Equity ,794,454-3,794,454 Total liabilities and equity 13,038,068 10,800,608 9,905, ,700-7,243,669 33,068 41,676,054 On-balance sheet interest sensitivity gap 5,949,291 (7,010,169) (7,181,730) 8,978,605 3,536,387 (4,426,615) 154,231 Off-balance sheet interest sensitivity gap (3) 502, ,790 (91,805) (1,148,313) 134, Total interest sensitivity gap 6,451,645 (6,407,379) (7,273,535) 7,830,292 3,671,361 (4,426,615) 154,231 (2) Other liabilities include provision for taxation, other liabilities and deferred tax liabilities. (3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments. 167

118 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk Liquidity risk is the current and prospective risk to earnings or capital arising from a bank s inability to meet its obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. To measure and manage net funding requirements, the Bank adopts BNM s New Liquidity Framework ( NLF ). The NLF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The NLF is also supported by indicative ratios on the Bank s funding structure to monitor the reliance on particular funding sources. The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. Liquidity risk is tracked using internal and external qualitative and quantitative indicators. The Bank also conducts liquidity stress tests to gauge the Bank s resilience in the event of a liquidity crisis. In addition, the Bank has in place the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis and emergencies. The liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long term foreign currency funding and adhering to the guiding principles for foreign currency assets creations. 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. The BRMC is responsible for the Bank s liquidity policy although the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly of the liquidity situation in the Bank. 168 AFFIN BANK BERHAD (25046-T) Annual Report 2013

119 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk disclosure table which is based on contractual undiscounted cash flow The table 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 table 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 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Deposits from customers 21,271,311 10,109,260 14,896, ,547 11,033 46,456,061 Deposits and placements of banks and other financial institutions 2,361,576 1,527, , ,167,938 Bills and acceptances payable 90, ,208 Recourse obligation on loans sold to Cagamas Berhad 2,791 5, , , ,981 Other liabilities 391, ,977 Subordinated term loan 3, ,835 19, , ,474 1,105,684 24,121,389 11,947,708 15,459, , ,507 52,633,849 Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Deposits from customers 18,859,710 10,235,637 12,239, ,525-41,616,521 Deposits and placements of banks and other financial institutions 2,325,773 2,483,628 11, ,821,373 Bills and acceptances payable 152, ,400 Recourse obligation on loans sold to Cagamas Berhad 3,165 5,525 26, , ,876 Other liabilities 306, ,481 Subordinated term loan 3,509 6,678 31, ,215 1,016,039 1,225,565 21,651,038 12,731,468 12,308, ,817 1,016,039 48,579,216 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 169

120 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Deposits from customers 15,956,114 8,722,130 12,255, ,593 11,033 37,109,421 Deposits and placements of banks and other financial institutions 958,535 1,527, , ,668,363 Bills and acceptances payable 90, ,208 Recourse obligation on loans sold to Cagamas Berhad 2,791 5, , , ,981 Other liabilities 359, ,836 Amount due to subsidiaries 53, ,559 Subordinated term loan 3, ,835 19, , ,474 1,105,684 17,424,569 10,560,578 12,721, , ,507 41,809,052 Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Deposits from customers 13,589,500 8,468,130 10,199, ,592-32,526,717 Deposits and placements of banks and other financial institutions 1,258,789 2,469,056 11, ,739,639 Bills and acceptances payable 152, ,400 Recourse obligation on loans sold to Cagamas Berhad 3,165 5,525 26, , ,876 Other liabilities 282, ,144 Amount due to subsidiaries 48, ,528 Subordinated term loan 3,509 6,678 31, ,215 1,016,039 1,225,565 15,338,035 10,949,389 10,268, ,884 1,016,039 38,431, AFFIN BANK BERHAD (25046-T) Annual Report 2013

121 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Derivative financial liabilities Derivative financial liabilities based on contractual undiscounted cash flow: Up to 1 >1-3 >3-12 >1-5 Over 5 The Group and The Bank month months months years years Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Derivatives settled on net basis Interest rate derivatives (1,204) (1,472) (3,275) 2,242 6,142 2,433 Derivatives settled on gross basis Foreign exchange derivatives: Outflow (509,833) (674,028) (911,963) (594,154) (96,030) (2,786,008) Inflow 509, , , ,154 96,030 2,782, (333) (2,961) - - (3,196) Up to 1 >1-3 >3-12 >1-5 Over 5 The Group and The Bank month months months years years Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Derivatives settled on net basis Interest rate derivatives (1,374) (1,986) (5,662) (13,565) 2,062 (20,525) Derivatives settled on gross basis Foreign exchange derivatives: Outflow (523,356) (648,351) (352,435) (126,927) - (1,651,069) Inflow 522, , , ,546-1,638,863 (822) (4,419) (4,584) (2,381) - (12,206) Annual Report 2013 AFFIN BANK BERHAD (25046-T) 171

122 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) 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 counter-guarantees are important factors in assessing the liquidity of the Group and the Bank. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities. Maturities of assets and liabilities of the Group and the Bank by remaining contractual maturities profile are as follows: Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 9,401, ,401,701 Deposits and placements with banks and other financial institutions - 201,906 41, ,738 41, ,597 Financial assets held-for-trading 149, ,544 Derivative financial assets 8,965 22,884 8,136 4,566 11,723 56,274 Financial investments available-for-sale 190, ,941 1,450,706 3,088,400 2,087,340 7,614,537 Financial investments held-to-maturity 70,913 1,075 16, , , ,336 Loans, advances and financing 1,631,991 1,489,733 1,994,497 7,855,233 23,256,331 36,227,785 Other assets 186,368-12,277 5,341 16, ,097 Amount due from jointly controlled entity 4, ,185 Other non-financial assets (1) 1,469, ,746 1,780,057 13,113,111 2,513,539 3,523,365 11,301,104 25,985,994 56,437,113 (1) Other non-financial assets include deferred tax assets, tax recoverable, statutory deposits with BNM, property and equipment and intangible assets. 172 AFFIN BANK BERHAD (25046-T) Annual Report 2013

123 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Liabilities Deposits from customers 21,256,343 10,056,459 14,615, ,714 10,000 46,088,082 Deposits and placements of banks and other financial institutions 2,268,127 1,521, , ,065,544 Derivative financial liabilities 9,234 22,725 20,786 23,847 17,930 94,522 Bills and acceptances payable 90, ,208 Recourse obligation on loans sold to Cagamas Berhad 1,297 1, , , ,790 Subordinated term loan 2, , , ,964 Other liabilities 391, ,977 Other non-financial liabilities (2) , ,402 24,019,942 11,904,489 15,072, , ,930 52,069,489 On balance sheet gap (10,906,831) (9,390,950) (11,548,738) 10,856,079 25,358,064 4,367,624 Off balance sheet credit commitments (1,420,166) - (11,589,139) - - (13,009,305) Derivatives 226, , , ,184-2,206,796 Net maturity mismatch (12,100,713) (8,489,785) (22,748,714) 11,546,263 25,358,064 (6,434,885) (2) Other non-financial liabilities include provision for taxation. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 173

124 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 7,648, ,648,904 Reverse repurchase agreements with financial institutions , ,057 Deposits and placements with banks and other financial institutions - 440,905 18,705 61,186 75, ,452 Financial assets held-for-trading 165, ,592 Derivative financial assets 11,209 26,370 18,534 6,693 6,066 68,872 Financial investments available-for-sale 461, , ,643 3,350,026 2,321,240 7,640,654 Financial investments held-to-maturity 88,623 1,076 16, , , ,670 Loans, advances and financing 1,872,459 1,673,483 1,586,057 10,804,209 17,546,418 33,482,626 Other assets 251,776-9,622 5,215 27, ,658 Amount due from jointly controlled entity 2, ,745 Other non-financial assets (1) 1,413, ,434 1,733,750 11,915,724 2,853,463 2,465,634 14,375,963 20,494,196 52,104,980 (1) Other non-financial assets include tax recoverable, statutory deposits with BNM, investment in jointly controlled entity, property and equipment and intangible assets. 174 AFFIN BANK BERHAD (25046-T) Annual Report 2013

125 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Liabilities Deposits from customers 18,846,259 10,175,444 11,985, ,049-41,263,536 Deposits and placements of banks and other financial institutions 2,324,410 2,473,276 11, ,809,323 Derivative financial liabilities 9,769 19,817 8,655 17,247 4,175 59,663 Bills and acceptances payable 152, ,400 Recourse obligation on loans sold to Cagamas Berhad 1,364 1, , ,549 Subordinated term loan 2,755 2, , ,960 Other liabilities 306, ,481 Other non-financial liabilities (2) ,751-13,365 77,116 21,643,438 12,672,582 12,069, , ,540 47,987,028 On balance sheet gap (9,727,714) (9,819,119) (9,604,193) 13,692,322 19,576,656 4,117,952 Off balance sheet credit commitments - - (12,020,705) - - (12,020,705) Derivatives 143, ,915 1,041, ,594-1,644,126 Net maturity mismatch (9,584,093) (9,487,204) (20,582,902) 13,818,916 19,576,656 (6,258,627) (2) Other non-financial liabilities include provision for taxation and deferred tax liabilities. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 175

126 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 4,987, ,987,696 Deposits and placements with banks and other financial institutions - 441, , , ,438 1,106,756 Financial assets held-for-trading 149, ,544 Derivative financial assets 8,965 22,884 8,136 4,566 11,723 56,274 Financial investments available-for-sale 189, ,763 1,034,393 2,498,445 1,884,482 6,331,414 Financial investments held-to-maturity 70,912 1,075 16, , , ,271 Loans, advances and financing 1,444,624 1,366,165 1,754,008 6,437,263 19,176,850 30,178,910 Other assets 143,359-12,166 5,341 15, ,555 Amount due from subsidiaries 60, ,723 Other non-financial assets (1) 1,233, ,123 1,927,458 8,288,489 2,556,493 2,928,793 9,496,895 22,119,931 45,390,601 (1) Other non-financial assets include statutory deposits with BNM, investment in subsidiaries, deferred tax assets, property and equipment and intangible assets. 176 AFFIN BANK BERHAD (25046-T) Annual Report 2013

127 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2013 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Liabilities Deposits from customers 15,944,196 8,676,352 12,023, ,962 10,000 36,800,728 Deposits and placements of banks and other financial institutions 957,882 1,521, , ,659,535 Derivative financial liabilities 9,234 22,725 20,786 23,847 17,930 94,522 Bills and acceptances payable 90, ,208 Recourse obligation on loans sold to Cagamas Berhad 1,297 1, , , ,790 Subordinated term loan 2, , , ,964 Other liabilities 359, ,837 Amount due to subsidiaries 53, ,559 Other non-financial liabilities (2) , ,351 17,418,969 10,524,382 12,381, , ,930 41,395,494 On balance sheet gap (9,130,480) (7,967,889) (9,453,147) 9,054,622 21,492,001 3,995,107 Off balance sheet credit commitments (1,259,138) - (10,303,371) - - (11,562,509) Derivatives 226, , , ,184-2,206,796 Net maturity mismatch (10,163,334) (7,066,724) (19,367,355) 9,744,806 21,492,001 (5,360,606) (2) Other non-financial liabilities include provision for taxation. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 177

128 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Cash and short-term funds 3,633, ,633,842 Reverse repurchase agreements with financial institutions , ,057 Deposits and placements with banks and other financial institutions - 579,475 67, , ,333 1,043,825 Financial assets held-for-trading 165, ,592 Derivative financial assets 11,209 26,370 18,534 6,693 6,066 68,872 Financial investments available-for-sale 328, , ,229 2,490,392 1,937,965 5,658,161 Financial investments held-to-maturity 88,623 1,076 16, , , ,670 Loans, advances and financing 1,784,693 1,581,005 1,397,768 9,756,008 13,819,795 28,339,269 Other assets 186,437-9,514 5,215 26, ,790 Amount due from subsidiaries 153, ,949 Other non-financial assets (1) 1,211, ,227 1,913,027 7,564,370 2,678,276 1,940,953 12,679,108 16,813,347 41,676,054 (1) Other non-financial assets include statutory deposits with BNM, investment in subsidiaries, property and equipment and intangible assets. 178 AFFIN BANK BERHAD (25046-T) Annual Report 2013

129 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iii) Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued) Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 2012 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Liabilities Deposits from customers 13,579,032 8,419,079 9,982, ,620-32,224,817 Deposits and placements of banks and other financial institutions 1,257,846 2,458,780 11, ,728,263 Derivative financial liabilities 9,769 19,817 8,655 17,247 4,175 59,663 Bills and acceptances payable 152, ,400 Recourse obligation on loans sold to Cagamas Berhad 1,364 1, , ,549 Subordinated term loan 2,755 2, , ,960 Other liabilities 282, ,144 Amount due to subsidiaries 48, ,528 Other non-financial liabilities (2) ,177-13,099 67,276 15,333,838 10,901,721 10,056, , ,274 37,881,600 On balance sheet gap (7,769,468) (8,223,445) (8,115,602) 12,006,896 15,896,073 3,794,454 Off balance sheet credit commitments - - (10,687,961) - - (10,687,961) Derivatives 143, ,915 1,041, ,594-1,644,126 Net maturity mismatch (7,625,847) (7,891,530) (17,761,567) 12,133,490 15,896,073 (5,249,381) (2) Other non-financial liabilities include provision for taxation and deferred tax liabilities. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 179

130 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (iv) Operational risk management Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the bank s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering/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 it is operating and regulatory requirement in force. The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. The capital requirement is calculated by taking 15% of the Bank s average annual gross income over the previous three years. Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process. The Bank gathers, analyses and reports operational risk loss and near miss events to Group Operational Risk Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are reviewed for effectiveness and implemented to minimize 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. 180 AFFIN BANK BERHAD (25046-T) Annual Report 2013

131 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (v) Fair value of financial instruments Financial instruments comprise financial assets, financial liabilities and also off balance sheet financial instruments. The fair value of a financial instrument is the amount at which the instruments could be exchanged or settled between knowledgeable and willing parties in an arm s length transaction. The information presented herein represents estimates of fair values as at reporting date. Fair value information for non-financial assets and liabilities are excluded as they do not fall within the scope of MFRS 132 which requires fair values to be disclosed. This includes property and equipment, statutory deposits with Bank Negara Malaysia, investment in subsidiaries, other assets, tax recoverable, deferred tax and intangible assets. The fair values of the financial assets and financial liabilities of the Group and the Bank approximated to their respective carrying value as at reporting date, except for the following: The Group The Bank Carrying Fair Carrying Fair value value value value RM 000 RM 000 RM 000 RM 000 Financial assets Deposits and placement with bank and other financial institutions 482, ,644 1,106,756 1,142,272 Financial investments held-to-maturity 500, , , ,049 Loans, advances and financing 36,227,785 35,935,141 30,178,910 29,916,913 37,210,718 36,935,914 31,700,937 31,468,234 Financial liabilities Deposits from customers 46,088,082 46,080,076 36,800,728 36,795,136 Deposit and placement of bank and other financial institutions 4,065,544 4,066,031 2,659,535 2,660,006 Recourse obligation on loans sold to Cagamas Berhad 397, , , ,113 50,551,416 50,552,220 39,858,053 39,861,255 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 181

132 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (v) Fair value of financial instruments (continued) The Group The Bank Carrying Fair Carrying Fair value value value value RM 000 RM 000 RM 000 RM 000 Financial assets Deposits and placements with banks and other financial institutions 596, ,914 1,043,825 1,085,003 Financial investments held-to-maturity 451, , , ,716 Loans, advances and financing 33,482,626 33,185,614 28,339,269 28,087,568 34,530,748 34,254,244 29,834,764 29,614,287 Financial liabilities Deposits from customers 41,263,536 41,261,007 32,224,817 32,222,524 Deposit and placement of banks and financial institutions 4,809,323 4,816,360 3,728,263 3,735,300 Recourse obligation on loans sold to Cagamas Berhad 413, , , ,331 The fair values of derivative financial instruments at the reporting date are as follows: 46,486,408 46,503,698 36,366,629 36,384,155 The Group and the Bank The Group and the Bank Underlying Underlying notional Asset Liability notional Asset Liability RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Foreign exchange contracts - forward contracts 811,717 6,979 5, ,791 9,504 2,870 - swaps 3,514,734 19,660 51,018 3,060,558 37,661 23,725 Interest rate contracts - swaps 3,954,438 29,635 38,405 2,484,602 21,707 33, AFFIN BANK BERHAD (25046-T) Annual Report 2013

133 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (v) Fair value of financial instruments (continued) The derivative financial instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuation in market interest rates or foreign exchange rates relative to their terms. The extent to which instruments are favorable or unfavorable and the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time. The following tables analyse within the fair value hierarchy the Group s and the Bank s assets and liabilities not measured at fair value at 31 December 2013 but for which fair value is disclosed: Level 1 Level 2 Level 3 Total RM 000 RM 000 RM 000 RM 000 The Group 2013 Financial Assets Deposits and placements with banks and other financial institutions - 509, ,644 Financial investments held-to-maturity - 491, ,129 Loans, advances and financing - 35,935,141-35,935,141 Financial Liabilities Deposits from customers - 46,080,076-46,080,076 Deposits and placements of banks and other financial institutions - 4,066,031-4,066,031 Recourse obligation on loans sold to Cagamas Berhad - 406, ,113 Level 1 Level 2 Level 3 Total RM 000 RM 000 RM 000 RM 000 The Group 2012 Financial Assets Deposits and placements with banks and other financial institutions - 626, ,914 Financial investments held-to-maturity - 441, ,716 Loans, advances and financing - 33,185,614-33,185,614 Financial Liabilities Deposits from customers - 41,261,007-41,261,007 Deposits and placements of banks and other financial institutions - 4,816,360-4,816,360 Recourse obligation on loans sold to Cagamas Berhad - 426, ,331 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 183

134 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (v) Fair value of financial instruments (continued) Level 1 Level 2 Level 3 Total RM 000 RM 000 RM 000 RM 000 The Bank 2013 Financial Assets Deposits and placements with banks and other financial institutions - 1,142,272-1,142,272 Financial investments held-to-maturity - 409, ,049 Loans, advances and financing - 29,916,913-29,916,913 Financial Liabilities Deposits from customers - 36,795,136-36,795,136 Deposits and placements of banks and other financial institutions - 2,660,006-2,660,006 Recourse obligation on loans sold to Cagamas Berhad - 406, ,113 Level 1 Level 2 Level 3 Total RM 000 RM 000 RM 000 RM 000 The Bank 2012 Financial Assets Deposits and placements with banks and other financial institutions - 1,085,003-1,085,003 Financial investments held-to-maturity - 441, ,716 Loans, advances and financing - 28,087,568-28,087,568 Financial Liabilities Deposits from customers - 32,222,524-32,222,524 Deposits and placements of banks and other financial institutions - 3,735,300-3,735,300 Recourse obligation on loans sold to Cagamas Berhad - 426, ,331 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. 184 AFFIN BANK BERHAD (25046-T) Annual Report 2013

135 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (v) Fair value of financial instruments (continued) Financial assets held-for-trading, financial investments available-for-sale and held-to-maturity The fair values of financial assets held-for-trading, financial investments available-for-sale and financial investments held-to-maturity are reasonable estimates based on quoted market prices. In the absence of such quoted prices, the fair values are based on the expected cash flows of the instruments discounted by indicative market yields for the similar instruments as at reporting date or the audited net tangible asset of the invested company. Loans, advances and financing Loans, advances and financing of the Group comprise of floating rate loans and fixed rate loans. For performing floating rate loans, the carrying amount is a reasonable estimate of their fair values. The fair values of performing fixed rate loans are arrived at using the discounted cash flows based on the prevailing market rates of loans and advances with similar credit ratings and maturities. The fair values of impaired loans and advances, whether fixed or floating are represented by their carrying values, net of individual and collective allowances, being the reasonable estimate of recoverable amount. Other assets and liabilities The carrying value less any estimated allowance for financial assets and liabilities included in other assets and other liabilities are assumed to approximate their fair values as these items are not materially sensitive to the shift in market interest rates. Deposits from customers, banks and other financial institutions, bills and acceptances payable The carrying values of deposits and liabilities with maturities of six months or less are assumed to be reasonable estimates of their fair values. Where the remaining maturities of deposits and liabilities are above six months, their estimated fair values are arrived at using the discounted cash flows based on prevailing market rates currently offered for similar remaining maturities. The estimated fair value of deposits with no stated maturity, which include non-interest bearing deposits, approximates carrying amount which represents the amount repayable on demand. Recourse obligation on loans sold to Cagamas Berhad For floating rate loans sold to Cagamas Berhad, the carrying value is generally a reasonable estimate of their fair values. The fair values of fixed rate loans sold to Cagamas Berhad are arrived at using the discounted cash flow methodology at prevailing market rates of similarly profiled loans. Subordinated term loan For fixed rate borrowings, the estimate of fair value is based on discounted cash flow model using prevailing lending rates for borrowings with similar risks and remaining term to maturity. For floating rate borrowings, the carrying value is generally a reasonable estimate of their fair values. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 185

136 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (v) Fair value of financial instruments (continued) Derivative financial instruments The fair value of exchange rate and interest rate contracts is the estimated amount the Group would receive or pay to terminate the contracts at the reporting date. Fair value measurements The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy: (a) (b) (c) Level 1 - quoted price (unadjusted) in active markets for identical assets and liabilities; Level 2 - inputs other than quoted price included within level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e.derived from prices); and Level 3 - inputs for the asset and liability that are not based on observable market data (unobservable inputs). Level 1 Level 2 Level 3 (#) Total RM 000 RM 000 RM 000 RM 000 The Group 2013 Assets Financial assets held-for-trading - 149, ,544 Financial investments available-for-sale * - Private debt securities - 3,452,561-3,452,561 - Equity securities , ,153 - Other financial assets - 4,042,823-4,042,823 Derivative financial assets - 56,274-56,274 Liabilities Derivative financial liabilities - 94,522-94,522 Level 1 Level 2 Level 3 (#) Total RM 000 RM 000 RM 000 RM 000 The Group 2012 Assets Financial assets held-for-trading - 165, ,592 Financial investments available-for-sale * - Private debt securities - 3,532,861-3,532,861 - Equity securities 3, , ,474 - Other financial assets - 3,998,319-3,998,319 Derivative financial assets - 68,872-68,872 Liabilities Derivative financial liabilities - 59,663-59, AFFIN BANK BERHAD (25046-T) Annual Report 2013

137 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (v) Fair value of financial instruments (continued) Fair value measurements (continued) Level 1 Level 2 Level 3 (#) Total RM 000 RM 000 RM 000 RM 000 The Bank 2013 Assets Financial assets held-for-trading - 149, ,544 Financial investments available-for-sale * - Private debt securities - 2,942,846-2,942,846 - Equity securities , ,084 - Other financial assets - 3,269,484-3,269,484 Derivative financial assets - 56,274-56,274 Liabilities Derivative financial liabilities - 94,522-94,522 Level 1 Level 2 Level 3 (#) Total RM 000 RM 000 RM 000 RM 000 The Bank 2012 Assets Financial assets held-for-trading - 165, ,592 Financial investments available-for-sale * - Private debt securities - 2,831,071-2,831,071 - Equity securities , ,724 - Other financial assets - 2,720,366-2,720,366 Derivative financial assets - 68,872-68,872 Liabilities Derivative financial liabilities - 59,663-59,663 * Net of allowance for impairment. # The Bank has determined that the net asset value of unquoted equity securities represents fair value at the financial year ended 31 December 2013, therefore there is no unobservable input used for these financial investments classified as Level 3. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 187

138 NOTES TO THE FINANCIAL STATEMENTS 38 FINANCIAL RISK MANAGEMENT (v) Fair value of financial instruments (continued) Fair value measurements (continued) Financial instruments that are valued using quoted prices in active market are classified as Level 1 of the valuation hierarchy. These would include listed equities which are actively traded. Where fair value is determined using quoted prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market parameters 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. These would include corporate private debt securities, corporate notes and most of the Group s OTC derivatives. The Group and the Bank classify financial instruments as Level 3 when there is reliance on unobservable inputs to the valuation model attributing to a significant contribution to the instrument value. Valuation reserves or pricing adjustments where applicable will be used to converge to fair value. The Group and the Bank may also use valuation models or discounted cash flow technique to determine the fair value. Most of the OTC derivatives are priced using valuation models. Where derivative products have been established in the markets for some time, the Group and the Bank use models that are widely accepted by the industry. The valuation techniques and inputs used generally depend on the contractual terms and the risks inherent in the instrument as well as the availability of pricing information in the market. Principal techniques used include discounted cash flows, and other appropriate valuation models. OTC derivatives which are valued using unobservable inputs that are supported by little or no market activity which are significant to the fair value of the assets or liabilities are classified as Level 3. The following table present the changes in Level 3 instruments for the financial year ended: The Group The Bank RM 000 RM 000 RM 000 RM 000 Opening 106, , , ,795 New AFS revaluation reserves 12, , Closing 119, , , ,375 Effect of changes in significant unobservable assumptions to reasonably possible alternatives As at reporting date, financial instruments measured with valuation techniques using significant unobservable inputs (Level 3) mainly include unquoted shares held for socio economic purposes. In estimating its significance, the Group and the Bank used an approach that is currently based on methodologies used for fair value adjustments. These adjustments reflects the values that the Group and the Bank estimate are appropriate to adjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies used can be a statistical or other relevant approved techniques. 188 AFFIN BANK BERHAD (25046-T) Annual Report 2013

139 NOTES TO THE FINANCIAL STATEMENTS 39 LEASE COMMITMENTS The Bank has lease commitments in respect of rented premises and hired equipment, all of which are classified as operating leases. A summary of the non-cancelable long-term commitments, net of sub-leases are as follows: The Group and The Bank RM 000 RM 000 Within one year 10,612 19,931 One year to five years 7,224 8, CAPITAL AND OPERATING COMMITMENTS Capital commitments Capital expenditure approved by the Directors but not provided for int the financial statements amounted to approximately: The Group and The Bank RM 000 RM 000 Authorised and contracted for 7,541 2,864 7,541 2,864 Analysed as follows: Property and equipment 7,541 2,864 Operating commitments Operating expenditure approved by the Directors but not provided for int the financial statements amounted to approximately: The Group and The Bank RM 000 RM 000 Authorised and contracted for 201, ,106 Annual Report 2013 AFFIN BANK BERHAD (25046-T) 189

140 NOTES TO THE FINANCIAL STATEMENTS 41 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 3.5% and 4.5% respectively for year The minimum regulatory capital adequacy requirement remains at 8.0% (2012: 8.0%) for total capital ratio. The Group and the Bank s objectives when managing capital are: Group and the Bank operates; for shareholders and benefits for other stakeholders; and The Group and the Bank maintain a ratio of total regulatory capital to its risk-weighted assets above a minimum level agreed with the management which takes into account the risk profile of the Group and the Bank. The table in Note 42 below summarises the composition of regulatory capital and the ratios of the Group and the Bank for the financial year ended 31 December CAPITAL ADEQUACY The capital adequacy ratios are as follows: The Group The Bank Basel II Basel II Basel II Basel II 2013 ## 2012 # RM 000 RM 000 RM 000 RM 000 Paid-up share capital 1,518,337 1,518,337 1,518,337 1,518,337 Share premium 529, , , ,337 Statutory reserves 1,317,376 1,160,651 1,144,350 1,017,200 Retained profits 1,004, , , ,603 Unrealised gains and losses on AFS (2,579) - 6,533-4,367,005 4,016,878 3,996,675 3,724,477 Less: Goodwill (133,430) (137,323) (137,323) (137,323) Deferred tax assets * (9,326) (10,827) (8,553) (10,227) 55% of cumulative unrealised gains of AFS - - (3,593) - CET1 capital 4,224,249 3,868,728 3,847,206 3,576,927 Tier I capital 4,224,249 3,868,728 3,847,206 3,576, AFFIN BANK BERHAD (25046-T) Annual Report 2013

141 NOTES TO THE FINANCIAL STATEMENTS 42 CAPITAL ADEQUACY The capital adequacy ratios are as follows: The Group The Bank Basel II Basel II Basel II Basel II 2013 ## 2012 # RM 000 RM 000 RM 000 RM 000 Subordinated term loan 810, , , ,000 Collective 143, , , ,568 Less: Investment in subsidiaries/associates/ jointly controlled entity (650) - (389,088) - Tier II capital 952,922 1,052, ,015 1,028,568 Less: Investment in capital instruments of other banking institutions - (10,034) - (10,034) Investment in subsidiaries - (27,389) - (387,389) Total capital/capital base 5,177,171 4,883,655 4,391,221 4,208,072 CET1 capital ratio % % - Tier 1 capital ratio/core capital ratio % % % % Total capital ratio/risk-weighted capital ratio % % % % CET1 capital ratio (net of proposed dividends) ^ % % - Tier 1 capital ratio/core capital ratio (net of proposed dividends) ^ % % % % Total capital ratio/risk-weighted capital ratio (net of proposed dividends) ^ % % % % Risk-weighted assets for: Credit risk 36,529,227 32,659,779 31,911,266 28,731,138 Market risk 299, , , ,838 Operational risk 2,243,503 2,187,846 1,902,412 1,864,563 Total risk-weighted assets 39,072,407 35,108,245 34,109,785 30,854,539 * Deferred tax assets exclude deferred tax arising from AFS revaluation Qualifying collective impairment is restricted to allowances on unimpaired portion of the loans, advances and financing. # The Group comprises the Bank and the Bank s subsidiary, AFFIN Islamic Bank Berhad. ## The Group comprises the Bank and all the Bank s financial and non-financial subsidiaries. ^ Net proposed dividends of RM91,100,000 (2012: RM91,100,000). Annual Report 2013 AFFIN BANK BERHAD (25046-T) 191

142 NOTES TO THE FINANCIAL STATEMENTS 43 LITIGATIONS AGAINST THE BANK (a) A syndicate of lenders, including AFFIN Bank Berhad (the Bank ), had granted facilities of RM62.5 million (the Facilities ) to a borrower to, inter alia, finance a development project. At borrower s request, the Facilities were restructured in 1999 but in July 2000, continued drawdown under the restructured Facilities was refused as borrower had failed to comply with conditions precedent for such drawdown. The lenders and borrower negotiated to resolve the default and the Facilities were restructured again in Further financing was also granted in 2004 and the Project was completed with certificate of fitness in January Subsequent to the completion of the project, borrower brought a claim against the lead banker, as the agent of the syndicate lenders, for loss and damage arising from alleged breach of duty and obligations owed by the lead banker to the borrower in relation to various actions taken or omitted to be taken in disbursements and transactions under the Facilities. The lead banker filed an action against the borrower and its guarantor of the Facilities, for recovery of the amounts outstanding under the Facilities. The 2 actions were consolidated and heard together at full trial. On 6 May 2009, the High Court granted judgment in favour of borrower against the lead banker, as an agent of the lenders, and dismissed the lenders action for recovery of the Facilities. The judgment against the lead banker included a sum of RM115.5 million to be paid, as well as further damages to be assessed and an immediate release of all security granted by the borrower and its guarantors for the Facilities. The award of damages of RM115.5 million was made despite parties agreement that the trial proceed only on issue of liability and no evidence of damage/loss was produced. If the judgment of 6 May 2009 is maintained, lead banker will seek contribution from the lenders, including the Bank. The Bank s share is about RM34.65 million. The lead banker and agent appealed to the Court of Appeal against the High Court decision. An effort at mediation on 9 March 2012 failed as the parties could not come to a settlement. Hearing dates were then fixed for the appeal. The appeal has been argued twice before the Court of Appeal i.e. on 3 August 2012 and 9 November The hearing was continued on 23 January 2013 and 31 January 2013 and decision was given on 27 September 2013 wherein the Court of Appeal allowed the appeal and set aside the High Court Judgment. The Court of Appeal also entered judgment against the borrower for the amount outstanding under the Facilities. The borrower applied for leave to the Federal Court. The borrower obtained a limited order of stay from the Court the Appeal on 22 November 2013 whereby the enforcement of money judgment obtained by the lenders under Court of Appeal decision was stayed pending disposal of the Federal Court appeal application. However the right of the Receiver & Manager to enter into the premises was not stayed but the borrower continued to resist the Receiver & Manager (R & M) appointed by the lenders. The borrower filed an application to stay the R & M from doing their job but the lenders counterclaimed to restrain the borrower s directors, officers and solicitors from dealing with the charged assets and the right to continue with the R & M. Hearing proceeded on 13 January Decision will be given on 29 January The solicitors for the lead banker and the lenders have expressed the view that the lead banker and the lenders have a more than even chance of success in defending the leave application. (b) Other than above, there are various legal suits against the Bank in respect of claims and counter claims of approximately RM117.6 million (2012: RM73.8 million). Based on legal advice, the Directors are of the opinion that no provision for damages need to be made in the financial statements, as the probability of adverse adjudication against the Bank is remote. 192 AFFIN BANK BERHAD (25046-T) Annual Report 2013

143 NOTES TO THE FINANCIAL STATEMENTS 44 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The Group and the Bank make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. To enhance the information content of the estimates, certain variables that are anticipated to have material impact to the Group s and the Bank s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. Allowance for losses on loans, advances and financing The accounting estimates and judgments related to the impairment of loans and provision for off-balance sheet positions is a critical accounting estimate for because the underlying assumptions used for both the individually and collectively assessed impairment can change from period to period and may significantly affect the Group and the Bank s results of operations. In assessing assets for impairment, management judgment is required. The determination of the impairment allowance required for loans which are deemed to be individually significant often requires the use of considerable management judgment concerning such matters as local economic conditions, the financial performance of the counterparty and the value of any collateral held, for which there may not be a readily accessible market. The actual amount of the future cash flows and their timing may differ from the estimates used by management and consequently may cause actual losses to differ from the reported allowances. The impairment allowance for portfolios of smaller-balance homogenous loans, such as those to individuals and small business customers of the private and retail business, and for those loans which are individually significant but for which no objective evidence of impairment exists, is determined on a collective basis. The collective impairment allowance is calculated on a portfolio basis using statistical models which incorporate numerous estimates and judgments, and therefore is subject to estimation uncertainty. The Group and the Bank perform a regular review of the models and underlying data and assumptions as far as possible to reflect the current economic circumstances. The probability of default, loss given defaults, and loss identification period, amongst other things, are all taken into account during this review. Estimated impairment of goodwill The Group performs an impairment review on an annual basis to ensure that the carrying value of the goodwill does not exceed its recoverable amounts from cash generating units to which the goodwill is allocated. The recoverable amount represents the present value of the estimated future cash flows expected to arise from continuing operations. Therefore, in arriving at the recoverable amount, management exercise judgment in estimating the future cash flows, growth rate and discount rate. 45 CREDIT EXPOSURES ARISING FROM TRANSACTIONS WITH CONNECTED PARTIES The following credit exposures are based on Bank Negara Malaysia s revised Guidelines on Credit Transaction and Exposures with Connected Parties, which are effective 1 January (i) The aggregate value of outstanding credit exposures with connected parties (RM 000) 3,013,895 (ii) The percentage of outstanding credit exposures to connected parties as a proportion of total credit exposures 6% (iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default Nil 46 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 26 February Annual Report 2013 AFFIN BANK BERHAD (25046-T) 193

144 STATEMENT BY DIRECTORS PURSUANT TO SECTION 169 (15) OF THE COMPANIES ACT, 1965 We, JEN TAN SRI DATO SERI ISMAIL BIN HAJI OMAR (BERSARA) and EN. MOHD SUFFIAN BIN HAJI HARON, two of the Directors of AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 68 to 193 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Bank as at 31 December 2013 and of the results and cash flows of the Group and the Bank for the financial year ended on the date in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. In accordance with a resolution of the Board of Directors dated 26 February JEN TAN SRI DATO SERI ISMAIL BIN HAJI OMAR (BERSARA) Chairman EN. MOHD SUFFIAN BIN HAJI HARON Director STATUTORY DECLARATION PURSUANT TO SECTION 169 (16) OF THE COMPANIES ACT, 1965 I, EE KOK SIN, the officer of AFFIN BANK BERHAD primarily responsible for the financial management of the Group and the Bank, do solemnly and sincerely declare that, in my opinion, the accompanying financial statements set out on pages 68 to 193, are correct and I make this solemn declaration conscientiously believing the same to be true, by virtue of the provisions of the Statutory Declarations Act, EE KOK SIN Subscribed and solemnly declared by the abovenamed EE KOK SIN at Kuala Lumpur in Malaysia on 26 February 2014, before me. Commissioner for Oaths 194 AFFIN BANK BERHAD (25046-T) Annual Report 2013

145 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF AFFIN BANK BERHAD (Incorporated in Malaysia) REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of AFFIN Bank Berhad on pages 68 to 193 which comprise the statements of financial position as at 31 December 2013 of the Group and of the Bank, and the statements of income, comprehensive income, changes in equity and cash flows of the Group and of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on Notes 1 to 45. Directors Responsibility for the Financial Statements The directors of the Bank are responsible for the preparation of financial statements that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965, and for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements have been properly drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and of the Bank as of 31 December 2013 and of their financial performance and cash flows for the year then ended. Annual Report 2013 AFFIN BANK BERHAD (25046-T) 195

146 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF AFFIN BANK BERHAD (Incorporated in Malaysia) REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: (a) (b) (c) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank and its subsidiaries have been properly kept in accordance with the provisions of the Act. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Bank s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. The audit reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act. OTHER MATTERS This report is made solely to the members of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS (No. AF : 1146) Chartered Accountants SOO HOO KHOON YEAN (No. 2682/10/15 (J)) Chartered Accountant Kuala Lumpur, Malaysia 26 February AFFIN BANK BERHAD (25046-T) Annual Report 2013

147 BASEL II PILLAR 3 DISCLOSURES Introduction 1.1 Background 1.2 Scope of Application 2. Risk Governance Structure 2.1 Overview 2.2 Board Committees 2.3 Management Committees 2.4 Group Risk Management Function 2.5 Internal Audit and Internal Control Activities 3. Capital 3.1 Internal Capital Adequacy Assessment Process ( ICAAP ) 3.2 Capital Structure 3.3 Capital Adequacy 4. Risk Management Objectives and Policies 5. Credit Risk 5.1 Credit Risk Management Objectives and Policies 5.2 Application of Standardised Approach for Credit Risk 5.3 Credit Risk Measurement 5.4 Risk Limit Control and Mitigation Policies 5.5 Credit Risk Monitoring 5.6 Impairment Provisioning 5.7 Credit Risk Culture 6. Market Risk 6.1 Market Risk Management Objectives and Policies 6.2 Application of Standardised Approach for Market Risk 6.3 Market Risk Measurement, Control and Monitoring 6.4 Value-at-Risk ( VaR ) 6.5 Foreign Exchange Risk 7. Liquidity Risk 7.1 Liquidity Risk Management Objectives and Policies 7.2 Liquidity Risk Measurement, Control and Monitoring 8. Operational Risk 8.1 Operational Risk Management Objectives and Policies 8.2 Application of Basic Indicator Approach for Operational Risk 8.3 Operational Risk Measurement, Control and Monitoring 8.4 Operational Risk Culture 9. Shariah Compliance Appendices Annual Report 2013 AFFIN BANK BERHAD (25046-T) 197