MALAYAN BANKING BERHAD

Transcription

1 JULY 2011 MALAYAN BANKING BERHAD Financial Institution Ratings RM1.5 billion Islamic Subordinated Bonds (2006/2018) RM1.5 billion Subordinated Bonds (2007/2017) Up to RM4.0 billion Innovative Tier-1 Capital Securities (2008/2073) Up to RM3.5 billion Non-Innovative Tier-1 Capital Securities (2008/2108) Proposed up to RM3 billion Tier-2 Capital Subordinated Note Programme CEKAP MENTARI BERHAD Up to RM3.5 billion Subordinated Notes (2008/2038) The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

2 CREDIT RATING RATIONALE FINANCIAL INSTITUTION RATINGS JULY 2011 Analysts: Joanne Kek (603) Shireen Ng (603) Principal Activity: Commercial banking Financial Institution Ratings: Long-term: AAA [Reaffirmed] Short-term: P1 [Reaffirmed] Instruments: (i) RM1.5 billion Subordinated Bonds (2007/2017) (ii) RM1.5 billion Islamic Subordinated Bonds (2006/2018) (iii) Up to RM4.0 billion Innovative Tier-1 Capital Securities (2008/2073) (iv) Up to RM3.5 billion Non- Innovative Tier-1 Capital Securities (2008/2108) (v) Proposed up to RM3 billion Tier-2 Capital Subordinated Note Programme (vi) RM3.5 billion Subordinated Notes (2008/2038) Islamic Contract: (ii) Bai-Bithaman Ajil MALAYAN BANKING BERHAD Initial Rating & Rating Update RAM Ratings has reaffirmed s ( Maybank or the Group ) long- and short-term financial institution ratings at AAA and P1, respectively. At the same time, the respective issue ratings of Maybank and ( Cekap Mentari a subsidiary set up to issue subordinated notes) have been reaffirmed while a AA 1 rating has been assigned to Maybank s proposed up to RM3 billion Tier-2 Capital Subordinated Notes Programme. All the long-term ratings have a stable outlook. Table 1: Debt instruments of Maybank and Cekap Mentari Instrument Rating Action Rating Outlook RM1.5 billion Subordinated Bonds (2007/2017) 1 Reaffirmed AA 1 Stable RM1.5 billion Islamic Subordinated Bonds (2006/2018) 1 Reaffirmed AA 1 Stable Up to RM4.0 billion Innovative Tier-1 Capital Securities (2008/2073) 2 Reaffirmed AA 2 Stable Up to RM3.5 billion Non-Innovative Tier-1 Capital Securities (2008/2108) 2 Reaffirmed AA 2 Stable Proposed up to RM3 billion Tier-2 Capital Subordinated Note Programme 1 Assigned AA 1 Stable Notes: 1 The 1-notch rating differential between Maybank s AAA long-term financial institution rating and the AA1 ratings of its Subordinated Bonds reflect the subordination of the debt facilities to its senior unsecured obligations. 2 The 2-notch rating differential between Maybank s AAA long-term financial institution rating and the AA2 ratings of its Innovative and Non-Innovative Tier-1 Capital Securities reflect the deeply subordinated nature and the embedded interest-deferral feature of the hybrid instruments. Up to RM3.5 billion Subordinated Notes (2008/2038) Reaffirmed AA 2 Stable Note: The up to RM3.5 billion Subordinated Notes are part of the up to RM3.5 billion Non-Innovative Tier-1 Capital Securities transaction. Each issue of Capital Securities will be stapled to the Subordinated Notes issued by Cekap Mentari. The Subordinated Notes carry the same rating as the Non-Innovative Tier-1 Capital Securities. The ratings reflect Maybank s significant systemic importance, excellent franchise and sound credit fundamentals. The Group currently commands the largest share of loans and deposits in the Malaysian banking system, and is supported by stable funding and liquidity positions as well as sound capitalisation levels. With an asset base of RM380 billion as at end-march 2011, Maybank is the largest domestic banking group in Malaysia. While the Group remains the largest financier in the country in terms of gross loans, commanding The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

3 Ratings: (i) AA 1 [Reaffirmed] (ii) AA 1 [Reaffirmed] (iii) AA 2 [Reaffirmed] (iv) AA 2 [Reaffirmed] (v) AA 1 [Assigned] (vi) AA 2 [Reaffirmed] Rating Outlook: Stable Last Rating Action: 16 December 2010 Coupon Rates/Profit Margins: (i) 4.00% (ii) 5.00% for Years 1-7; 5.70% for Year 8; 5.90% for Year 9; 6.00% for Years (iii) 6.3% for Years 1-10; 3- month KLIBOR % thereafter (iv) 6.85% (v) Determined at issuance (vi) 6.85% Maturity Dates: (i) 13 April 2017 (ii) 15 May 2018 (iii) 25 September 2073 (ii) 27 June 2108 (v) 20 years, from date of first issuance (vi) 25 June 2038 Lead Arranger: Maybank Investment Bank Berhad Trustee: Malaysian Trustees Berhad Shariah Advisor: Maybank Shariah Committee Security: None Kim Eng acquisition catalyst for regional investment-banking franchise although full integration benefits will take time to materialise approximately 18% of the Malaysian market 1, it faces keen competition. Table 2: Maybank s acquisition of Kim Eng Holdings Limited ( Kim Eng ) Details Particulars Acquired stakes and price tags Valuation At SGD3.10 per Kim Eng share: Initial 44.6%-stake for SGD798 million Remaining 55.4%-stake for SGD991 million Total acquisition cost of SGD1,789 million Price to book value (as at December 2010): 1.85 times Price to earnings (for FY Dec 2010) ratio: 23.3 times Expected completion date In August 2011 Issuance of equity and/or debt and internally generated Funding structure funds RAM Ratings estimate of Above 12% Maybank s overall RWCAR, post-acquisition Strategic rationales and synergistic opportunities The extension of Maybank s distribution capabilities to key global financial markets. Acquisition propels expansion into the Thai market Cross-selling opportunities, larger client base. In line with Maybank s regional profit targets and its aspiration of becoming a leading ASEAN wholesale bank. Upon the purchase of the 44.6%-stake, Maybank will make a mandatory general offer for the remaining Kim Eng shares. Maybank intends to take Kim Eng private, delisting the Salient acquisition terms latter s shares from the Singapore Exchange (or SGX). Retention programme to be put in place, with the current chairman continuing to lead Kim Eng for at least another 3 years. Source: Maybank s and Kim Eng s annual reports, RAM Ratings internal estimates and calculations. In January 2011, Maybank announced the acquisition of Kim Eng, a leading Singapore-based regional securities and investment broking group. Maybank completed the acquisition of an initial stake in May 2011 and subsequently launched a mandatory general offer for the acquisition of the remaining Kim Eng shares. The transaction is expected to be completed in August 2011, and is funded through a combination of internal and external funds. Although Maybank will take some time before it can reap the full benefits from Kim Eng s franchise, this acquisition will enable the Group s subsidiary, Maybank Investment Bank Berhad (rated AAA/Stable/P1), to gain a strong regional foothold and allow instant access to the ASEAN market. In fiscal 2010, Kim Eng chalked up SGD412 million of operating income and SGD113 million of pre-tax profit. Its operating income was dominated by stockbroking fees (74%). By 1 As at end-march

4 geographical segment 2, Kim Eng s Singaporean operations make up almost half (48%) of its revenue, followed by Thailand (32%) and Hong Kong (10%). In addition to a strong presence in Singapore, Kim Eng also boasts solid positions in the equity markets of Thailand, the Philippines and Indonesia. Table 3: Snapshot of Kim Eng s financials SGD million FY Dec 2008 FY Dec 2009 FY Dec 2010 Operating income Brokerage & trading income Pre-tax profits Total Assets 1, , , Net Assets , , Source: Kim Eng s annual reports Profit contributions from investment banking to grow International operations to contribute to 40% of pre-tax profits by 2015 Post-acquisition, the Group s investment-banking division will become a larger business driver, with an estimated pro forma contribution of 8% 3 to Maybank s pre-tax profits - compared to 2% in the financial year ending June 2010 ( FY June 2010 ). RAM Ratings notes, however, that investment-banking income is typically volatile, and is subject to the vagaries of the capital markets. In May 2011, Maybank had announced the receipt of Bank Negara Malaysia s approval to commence talks with RHB Capital Berhad and its major shareholders on a possible merger of their businesses. Negotiations for the potential merger were terminated in June Maybank intends to become a regional financialservices leader by 2015, with its international operations making up 40% of its pre-tax profits. The Bank s targeted markets include the Middle East, China and India, on top of its existing regional operations in Singapore, Indonesia (through Bank Internasional Indonesia, ( BII ), Pakistan (via MCB Bank Ltd) and Vietnam (through An Binh Bank). The Group s strategies include gaining leadership in the domestic insurance sector and turning its subsidiary, Maybank Islamic Berhad (rated AAA/Stable/P1), into the largest Islamic bank in ASEAN. 2 Figures for breakdown of revenue by operating segment are for FY Dec Source: Maybank. Pro forma calculations based on FY June 2010 and FY Dec 2009 results of Maybank and Kim Eng, respectively. 3

5 Indonesian loan books to augment 24% Impaired-loan ratios within expectations Pre-tax profit anticipated to rise in fiscal 2011 Funding capabilities unrivalled by local peers For FY June 2011, Maybank has set a 12% growth target for its overall loan and debt securities. Its Malaysian and Singaporean operations have aimed for respective 12% and 5% growth rates. Meanwhile, BII s lending portfolio is expected to augment 24%, reflective of Indonesia s vastly unbanked population and favourable growth prospects. In 3Q FY Dec 2011, the Group s gross loans expanded an annualised 18% to RM242 billion. The growth had been primarily driven by an annualised 22% jump in the loan books of BII, and an 25% annualised loan growth for Maybank Singapore. On the other hand, loans of Maybank s domestic operations had increased at a more moderate annualised rate of 15% (FY June 2010: +10%). Meanwhile, Maybank s international operations account for approximately 34% of the Group s loans; its 2 largest overseas markets are Singapore and Indonesia, with respective contributions of 20% and 8% to total gross loans. In July 2010, Maybank adopted the FRS 139 recognition criteria for impaired loans 4. As at end-march 2011, its group-level gross impaired-loan ( GIL ) ratio worked out to 3.7% 5 (restated ratio as at end-june 2010: 4.6%) - within RAM Ratings expectations. At the same time, the Group s net impaired-loan ratio stood at 2.4% (restated ratio as at end-june 2010: 2.8%). We expect FY Dec 2011 credit costs to be lower than the previous year; credit costs in 9M FY June 2011 came up to an annualised 0.27% of average gross loans (FY Dec 2010: 0.58%). With the adoption of FRS 139, some adjustments to loan impairments had been made against retained earnings at the start of the current financial year. Maybank achieved a pre-tax profit of approximately RM4.5 billion in 9M FY June 2011 (9M FY June 2010: RM4.0 billion), supported by stronger net interest income contributions from its expanding loan books and lower loan-loss charges. The Group s Malaysian operations accounted for the majority of its pre-tax profits (about 75%), followed by Singapore and Indonesia. Maybank s net interest margin clocked in at 1.99% in 9M FY June 2011 (FY June 2010: 2.09% 6 ); competitive pressures had compressed interest margins on its domestic mortgage and hire-purchase portfolios. All said, RAM Ratings expects the Group s current-year pre-tax profit to surpass the RM5.4 billion achieved in FY June Approximately 67% of the Group s deposits are sourced domestically. Maybank s funding capabilities are viewed to be unrivalled in Malaysia - it commands 15% of the local banking industry s deposits (as at end-march 2011), and has a large, low-cost base of current and savings account deposits (approximately 43% of its 4 The GIL ratio is numerically higher than the previous measure, i.e. gross non-performing-loan ratio, due to more stringent loan-impairment classification criteria; loans less than 3 months in arrears are classified as impaired if they exhibit signs of impairment. 5 By geographical segment, the GIL ratio of its Malaysian operations stand at 4.5% as at end-march 2011; its international operations record a corresponding GIL ratio of 2%. 6 Net interest margin quoted as a percentage of total assets. 4

6 total deposits). The Group s domestic loans-to-deposits ratio of 88.2% as at end- March 2011 exceeded the Malaysian industry average, but it remains well within the norm for a bank of its size and market position. Elsewhere, BII s loans-todeposits ratio had climbed up to 94% as at end-march 2011 (end-december 2009: 83%), because loan growth (an annualised +27%) in 9M FY June 2011 had outpaced deposit expansion (+19%, annualised). With a liquid-asset ratio of 25.3% as at end-march 2011, Maybank s liquidity profile is considered healthy. Overall RWCAR expected to remain sound at above 12% Under Maybank s Dividend Reinvestment Plan ( DRP ), announced in March 2010, the Group s shareholders can elect to either receive their dividends in cash or reinvest a portion of it in Maybank shares. RAM Ratings understands that the election rate for the DRP (on dividends declared for FY June 2010) came up to a high 88.59%, thus bolstering its capital base. Assuming a conservative full payout of proposed dividends 7 in cash, the Group s overall and Tier-1 riskweighted capital-adequacy ratios ( RWCARs ) would stand at a respective 13.6% and 11.1% as at end-march While the acquisition of Kim Eng may dent its capitalisation levels, we expect Maybank s overall RWCAR to remain above 12%. In April 2011, Maybank issued SGD1 billion Subordinated Notes under a USD2.0 billion Multicurrency Medium-Term Note programme; these Subordinated Notes qualify as tier-2 capital. On the whole, Maybank s capitalisation position is viewed to be sound. 7 Interim dividend for FY Dec 2011 of 28 sen per share (21 sen net dividend, of which 3 sen represents the cash portion while 18 sen is the electable portion). 5

7 Objectives of the Proposed Issue Proceeds from the issuance of the Subordinated Notes under the proposed up to RM3 billion Tier-2 Capital Subordinated Note Programme ( the Programme ) will be used to fund Maybank s working capital as well as for general banking and other corporate purposes. Coupons under the proposed debt facility will be paid semi-annually, in arrears. The Subordinated Notes issued under the Programme are expected to be classified as Tier-2 capital, for inclusion in the calculation of Maybank s RWCAR. The Programme has a 20-year tenure, commencing from the date of its first issuance. Meanwhile, each issuance of Subordinated Notes will be structured to have one of the following tenures: (i) 10 years, on a non-callable basis; (ii) 15 - years, on a 15 non-callable 10 basis, (iii) 12-years, on a 12 non-callable 7 basis or (iv) 10 years, on a 10 non-callable 5 basis. Subordinated Notes with a call option shall be callable on each coupon payment date in the 5 years prior to the maturity date. The aforementioned terms and conditions of the Subordinated Notes issued under the Programme are not exhaustive. Investors will need to review the Trust Deed and Programme Agreement for a comprehensive understanding of the terms and conditions. 6

8 Corporate Information Date of Incorporation: 31 May 1960 Commencement of Business: Major Shareholders (as at 20 April 2011): 12 September 1960 Amanah Raya Nominees (Tempatan) Sdn Bhd* Employees Provident Fund Board Permodalan Nasional Berhad * Nominee for Skim Amanah Saham Bumiputera 45.31% 10.88% 5.32% Directors: Auditor: Listing: Tan Sri Dato' Megat Zaharuddin Megat Mohd Nor Dato' Mohd Salleh bin Hj Harun Dato' Sri Abdul Wahid bin Omar Tan Sri Datuk Dr Hadenan Jalil Dato' Seri Ismail Shahudin Dato' Dr Tan Tat Wai Zainal Abidin Bin Jamal Alister Maitland Cheah Teik Seng Dato Johan Ariffin Sreesanthan Eliathamby Ernst & Young 17 February 1962 (Main Market of Bursa Malaysia) Key Management: Dato Sri Abdul Wahid Omar Khairussaleh Ramli Lim Hong Tat Dr John Lee Hin Hock Geoffrey Stecyk Ridha Wirakusumah Pollie Sim Tengku Dato Zafrul Aziz Muzaffar Hisham Nora Abd Manaf Hans De Cuyper Hazimi Kassim Jerome Hon Kah Cho Mohd Nazlan Mohd Ghazali President & Chief Executive Officer Group Chief Financial Officer Head, Community Financial Services Group Chief Risk Officer Head, Enterprise Transformation Services President Director, Bank Internasional Indonesia Chief Executive Officer, Maybank Singapore Chief Executive Officer, Maybank Investment Bank Berhad Head, Group Islamic Banking Head, Group Human Capital Head, Insurance & Takaful Head, Strategy & Corporate Finance Chief Audit Executive General Counsel & Company Secretary 7

9 Corporate Information Major Subsidiaries: Banking Maybank Islamic Berhad PT Bank Maybank Syariah Indonesia Bank Internasional Indonesia Tbk Maybank International (L) Ltd Maybank (PNG) Limited Maybank Philippines Incorporated Investment Banking Maybank Investment Bank Berhad Insurance & Takaful Mayban Fortis Holdings Berhad ETiQa Insurance Berhad ETiQa Takaful Berhad Mayban Life Assurance Berhad Mayban Life International (L) Ltd Asset Management/Trustees/Custodial Mayban International Trust (Labuan) Berhad Mayban Trustees Berhad Mayban Ventures Sdn Bhd Mayban Investment Management Sdn Bhd % 96.80% 97.50% % % 99.97% % 69.05% 69.05% 69.05% 69.05% 62.00% % % % % Capital History: Year Remarks Amount (RM million) 2005 Paid-up capital 3, Employee Share Option Scheme Employee Share Option Scheme Bonus issue Employee Share Option Scheme Employee Share Option Scheme Rights issue 2, Employee Share Option Scheme Issuance of new shares pursuant to Dividend Reinvestment Plan Cumulative Total (RM million) 3, , , , , , , , ,

10 FINANCIAL SUMMARY Group unaudited STATEMENT OF FINANCIAL POSITION (RM million) 30-Jun Jun Jun Jun Mar-11 ASSETS Cash & Money At Call 37, , , , , Deposits & Placements With Financial Institutions 17, , , , , Securities Purchased Under Resale Agreements Financial Assets Held for T rading 2, , , , Financial Investments Available for Sale 29, , , , , Financial Investments Held to Maturity 2, , , , , Gross Loans & Advances 147, , , , , Collective Impairment Allowances ^ (2,757.32) (3,187.61) (3,725.60) (3,838.54) (4,565.19) Individual Impairment Allowances ^^ (3,875.22) (3,353.68) (3,854.03) (3,864.83) (3,142.39) Net Loans & Advances 140, , , , , Statutory Deposits 5, , , , , Investments in Associates and/or Joint Ventures , , , , Other Assets 20, , , , , Property, Plant & Equipment 1, , , , , TOTAL ASSETS 256, , , , , LIABILITIES Customer Deposits 163, , , , , Demand 30, , , , , Savings 27, , , , , Fixed 104, , , , , Negotiable Instruments of Deposits Others , , , , Interbank Deposits 29, , , , , Bills & Acceptances Payable 2, , , , , Securities Sold Under Repurchase Agreements 9, Other Borrowings 2, , , , , Debt Securities & Hybrid Capital 6, , , , , Other Liabilities 21, , , , , TOTAL LIABILITIES 236, , , , , Paid-up Capital 3, , , , , Share Premium & Other Reserves 3, , , , , Statutory Reserves 3, , , , , Retained Profits/(Accumulated Losses) 8, , , , , TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS 19, , , , , Minority Interests TOTAL EQUITY 19, , , , , TOTAL LIABILITIES AND EQUITY 256, , , , , COMMITMENTS & CONTINGENCIES 175, , , , , TIER 1 CAPITAL 16, , , , , CAPITAL BASE 26, , , , , Note: ^ Prior to FY Dec 2010, known as General Loan Loss Reserves ^^ Prior to FY Dec 2010, known as Specific Loan Loss Reserves * After deducting proposed dividends. Capital figures as at end-march 2011 reflect the assumption that the full electable portion under the Dividend Reinvestment Plan is paid in cash. 9

11 FINANCIAL SUMMARY Group unaudited STATEMENT OF COMPREHENSIVE INCOME (RM million) 30-Jun Jun Jun Jun Mar-11 9 months Interest Income 10, , , , , Interest Expense (5,723.17) (5,329.08) (5,650.36) (4,184.35) (3,518.12) Net Interest Income 5, , , , , Income from Islamic Banking Operations , , , Non-Interest Income 2, , , , , Gross Income 8, , , , , Personnel Expenses (1,759.18) (1,946.41) (2,553.96) (2,918.42) (2,533.47) Other Operating Expenses (2,029.57) (2,302.20) (3,005.21) (3,493.65) (2,156.60) Loan Impairment Charges * (694.51) (810.06) (1,698.81) (1,187.98) (454.45) Non-Recurring Items 0.00 (483.82) (1,488.76) Share of Associated Companies'/Joint Ventures' Profits/(Losses) (6.63) (0.84) Pre-Tax Profit/(Loss) 4, , , , , T axation (1,110.83) (1,083.73) (923.58) (1,401.96) (1,175.40) Net Profit/(Loss) 3, , , , Other Comprehensive Income/(Loss): Foreign Currency Translation Differences NA NA NA NA (346.63) Net Gains/(Losses) on Available For Sale Investments NA NA NA NA (121.50) Net Changes in Cash Flow Hedges NA NA NA NA 0.00 Other Components of Comprehensive Income/(Loss) NA NA NA NA 0.00 Income Tax Relating to Components of Other Comprehensive Income/(Loss) NA NA NA NA Total Comprehensive Income/(Loss) NA NA NA NA 2, Note: * Prior to FY Dec 2010, known as Loan Loss Provisions NA = Not available / Not applicable 10

12 FINANCIAL RATIOS Group unaudited KEY FINANCIAL RATIOS (%) 30-Jun Jun Jun Jun Mar-11 PROFITABILITY Net Interest Margin 2.13% 2.06% 2.04% 2.09% 1.99% * Non-Interest Income Margin 1.19% 1.23% 1.10% 1.43% 1.16% * Cost To Income 42.79% 44.12% 53.86% 49.90% 48.90% Cost Over Total Average Assets 1.58% 1.62% 1.92% 1.98% 1.74% * Return On Assets 1.81% 1.55% 0.58% 1.66% 1.69% * Return On Equity 23.37% 20.45% 7.30% 19.73% 20.41% * Dividend Payout 64.53% 72.74% 96.23% 25.42% 75.91% ASSET QUALITY Gross Impaired Loan Ratio ^ 5.55% 3.76% 3.46% 2.89% 3.67% Net Impaired Loan Ratio ^ 3.03% 1.85% 1.51% 1.10% 2.40% Net Impaired Loans To Total Assets ^ 1.71% 1.16% 0.92% 0.69% 1.51% Individual Impairment Allowance For The Period 1.20% 0.55% 1.14% 1.05% 0.51% * Gross Impaired Loan Coverage ^ 80.31% % % % 86.90% Loan Loss Reserve Coverage 4.46% 3.80% 3.91% 3.59% 3.19% Collective Loan Loss Reserve Coverage 1.90% 1.89% 1.96% 1.82% 1.91% LIQUIDITY & FUNDING Liquid Asset Ratio 37.03% 26.49% 25.75% 25.36% 25.25% Interbank Deposits To Total Interest Bearing Funds 13.74% 10.21% 11.09% 8.27% 10.68% Customer Deposits To Total Interest Bearing Funds 76.16% 82.60% 81.89% 84.26% 81.98% Loans T o Deposits Ratio 86.06% 87.98% 87.39% 86.77% 89.78% Loans T o Stable Funds Ratio 68.12% 73.74% 72.49% 71.73% 74.16% CAPITAL ADEQUACY Total Equity To Total Assets 7.74% 7.47% 8.29% 8.51% 8.07% T ier 1 Risk Weighted Capital Adequacy Ratio 9.43% 10.08% 10.82% 10.11% 11.09% # Overall Risk Weighted Capital Adequacy Ratio 14.51% 12.73% 14.81% 13.72% 13.62% # Internal Rate Of Capital Generation 7.89% 6.17% 1.51% 11.41% 5.06% * Note : ^ Prior to FY Dec 2010, Impaired Loans were known as Non-Performing Loans * annualised # Capital Adequacy Ratios assuming full electable portion under the Dividend Reinvestment Plan is paid in cash. 11

13 FINANCIAL RATIOS Group KEY FINANCIAL RATIOS PROFITABILITY Net Interest Margin Non-Interest Income Margin Cost To Income Cost Over Total Average Assets Return On Assets Return On Equity Dividend Payout ASSET QUALITY Gross Impaired Loan Ratio Net Impaired Loan Ratio Net Impaired Loan To Total Assets Individual Impairment Allowance For T he Period Gross Impaired Loan Coverage Loan Loss Reserve Coverage Collective Loan Loss Reserve Coverage LIQUIDITY & FUNDING Liquid Asset Ratio Loans T o Deposits Ratio Loans To Stable Funds Ratio Short-T erm Funds Liquid Assets T otal Interest Bearing Funds FORMULAE Net Interest Income / Average Total Assets Non-Interest Income / Average Total Assets (Personnel & Other Operating Expenses) / Gross Income (Personnel & Other Operating Expenses) / Average Total Assets Pre-T ax Profit/(Loss) / Average T otal Assets Pre-T ax Profit/(Loss) / Average T otal Equity Dividends / Net Profit/(Loss) T otal Impaired Loans / Gross Loans (Total Impaired Loans - Individual Impairment Allowances) / (Gross Loans - Individual Impairment Allowances) (Total Impaired Loans - Individual Impairment Allowances) / Total Assets Individual Impairment Allowance For T he Period / Average Gross Loans (Collective Impairment Allowances + Individual Impairment Allowances) / T otal Impaired Loans (Collective Impairment Allowances + Individual Impairment Allowances) / Gross Loans Collective Impairment Allowances / (Gross Loans - Individual Impairment Allowances) Liquid Assets / Customer Deposits & Short-Term Funds Net Loans / Customer Deposits Net Loans / (Shareholders' Funds + Total Interest Bearing Funds + Collective Impairment Allowance - Interbank Funding - Property, Plant & Equipment - Investments in Associates) Interbank Deposits + Bills & Acceptances + Securities Sold Under Repos Cash & Short-T erm Funds + Securities Purchased Under Repos + Deposits & Placements With Financial Institutions + Quoted Securities (Excluding Financial Investments Held-T o-maturity) Customer Deposits + Interbank + Bills & Acceptances + Securities Sold Under Repos + Borrowings + Supplementary Capital CAPITAL ADEQUACY Internal Rate Of Capital Generation (Net Profit/(Loss) + Extraordinary Income - Dividend + Collective Impairment Allowances) / Average T otal Equity 12

14 CREDIT RATING DEFINITIONS Financial Institution Ratings A Financial Institution Rating ("FIR") is RAM Ratings' current opinion on the overall capacity of a financial institution to meet its financial obligations. The opinion is notspecific to any particular financial obligation, as it does not take into account the expressed terms and conditions of any specific financial obligation. Long-Term Ratings AAA AA A BBB BB B C D A financial institution rated AAA has a superior capacity to meet its financial obligations. This is the highest long-term FIR assigned by RAM Ratings. A financial institution rated AA has a strong capacity to meet its financial obligations. The financial institution is resilient against adverse changes incircumstances, economic conditions and/or operating environments. A financial institution rated A has an adequate capacity to meet its financial obligations. The financial institution is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. A financial institution rated BBB has a moderate capacity to meet its financial obligations. The financial institution is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. A financial institution rated BB has a weak capacity to meet its financial obligations. The financial institution is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. A financial institution rated B has a very weak capacity to meet its financial obligations. The financial institution has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. A financial institution rated C has a high likelihood of defaulting on its financial obligations. The financial institution is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaultingon its financial obligations. A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations. Short-Term Ratings P1 P2 P3 NP D A financial institution rated P1 has a strong capacity to meet its short-term financial obligations. This is the highest shortterm FIR assigned by RAM Ratings. A financial institution rated P2 has an adequate capacity to meet its short-term financial obligations. The financial institution is more susceptible to the effects of deteriorating circumstances than thosein the highest-rated category. A financial institution rated P3 has a moderate capacity to meet its short-term financial obligations. The financial institution is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. A financial institution rated NP has a doubtful capacity to meet its short-term financial obligations. The financial institution faces major uncertainties that could compromise its capacity for payment of financial obligations. A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the financial institution ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the financial institution ranks at the lower end of its generic rating category. 13

15 CREDIT RATING DEFINITIONS Issue Ratings An Issue Rating is RAM Ratings' current opinion on the creditworthiness of a particular debt issue. It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debt issue on a full and timely basis, taking into account its expressed terms and conditions. Long-Term Ratings AAA AA A BBB BB B C D An issue rated AAA has superior safety for payment of financial obligations. This is the highest long-term Issue Rating assigned by RAM Ratings. An issue rated AA has high safety for payment of financial obligations. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments. An issue rated A has adequate safety for payment of financial obligations. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. An issue rated BBB has moderate safety for payment of financial obligations. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. An issue rated BB has low safety for payment of financial obligations. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/oroperating environments. An issue rated B has very low safety for payment of financial obligations. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. An issue rated C has a high likelihood of default. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaulting on a particular debt issue. An issue rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular debt issue. Short-Term Ratings P1 P2 P3 NP D An issue rated P1 has high safety for payment of financial obligations in the short term. This is the highest short-term Issue Rating assigned by RAM Ratings. An issue rated P2 has adequate safety for payment of financial obligations in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. An issue rated P3 has moderate safety for payment of financial obligations in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. An issue rated NP has doubtful safety for payment of financial obligations in the short term. The issuer faces major uncertainties that could compromise its capacity for payment of a particular debt issue. An issue rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular debt issue. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which have been enhanced by a bank guarantee or other supports, respectively. 14

16 CREDIT RATING DEFINITIONS Issue Ratings - Debt-Based Sukuk An Issue Rating for a debt-based sukuk is RAM Ratings' current opinion on the creditworthiness of a particular debt-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debtbased sukuk on a full and timely basis, taking into account its expressed terms and conditions. RAM Ratings sukuk ratings are, however, not a measure of compliance with Shariah principles or the role, formation, practices, legitimacy and soundness of the Shariah advisors recommendations and decisions. Long-Term Ratings AAA AA A BBB BB B C D A sukuk rated AAA has superior safety for payment of financial obligations. This is the highest long-term Issue Rating assigned by RAM Ratings to a debt-based sukuk. A sukuk rated AA has high safety for payment of financial obligations. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated A has adequate safety for payment of financial obligations. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. A sukuk rated BBB has moderate safety for payment of financial obligations. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated BB has low safety for payment of financial obligations. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/oroperating environments. A sukuk rated B has very low safety for payment of financial obligations. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. A sukuk rated C has a high likelihood of default. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaulting on a particular sukuk. A sukuk rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular sukuk. Short-Term Ratings P1 P2 P3 NP D A sukuk rated P1 has high safety for payment of financial obligations in the short term. This is the highest short-term Issue Rating assigned by RAM Ratings to a debt-based sukuk. A sukuk rated P2 has adequate safety for payment of financial obligations in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. A sukuk rated P3 has moderate safety for payment of financial obligations in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated NP has doubtful safety for payment of financial obligations in the short term. The issuer faces major uncertainties that could compromise its capacity for payment of a particular sukuk. A sukuk rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular sukuk. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which have been enhanced by a bank guarantee or other supports, respectively. 15

17 Published by RAM Rating Services Berhad Reproduction or transmission in any form is prohibited except by permission from RAM Ratings. Copyright 2011 by RAM Ratings RAM Rating Services Berhad Suite 20.01, Level 20 The Gardens South Tower Mid Valley City, Lingkaran Syed Putra Kuala Lumpur Tel: (603) / (603) Fax: (603) ramratings@ram.com.my Website: RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. RAM Ratings, its rating committee members and the analysts involved in the rating exercise have not encountered and/or are not aware of any conflict of interest relating to the rating exercise. RAM Ratings will adequately disclose all related information in the report if there are such instances. 16