UPHOLDING VALUES 2016 ANNUAL REPORT

Transcription

1 UPHOLDING VALUES 2016 ANNUAL REPORT

2 COVER RATIONALE This year s cover design concept reflects the strategic balance achieved by each BIMB Holdings Berhad s (BHB) entity in ensuring sustainability through challenging times. Our focus and commitment on a holistic balance serves all stakeholders better through the long term. For BHB, UPHOLDING VALUES refers to the core Islamic values and focus on excellence that define every business under us. As there are 3 key businesses, a triangle shape formed by 3 colours is used as the fulcrum for this cover. BHB s position as a vital contributor to the Malaysian economy is depicted by the landmark icons on one side, while the activities it helps spur and the people it serves are depicted on the other. 20th Annual General Meeting Ballroom 1, Sime Darby Convention Centre 1A, Jalan Bukit Kiara Kuala Lumpur Wednesday, 17 May 2017 at a.m.

3 OVERVIEW LEADERSHIP PERSPECTIVES HIGHLIGHTS ACCOUNTABILITY FINANCIAL STATEMENTS SHAREHOLDERS INFORMATION 20 TH AGM INFORMATION 2 About Us 3 Our Reports At a Glance 6 5-Year Performance Highlights 8 Group Corporate Profile 10 Group Corporate Structure 12 Group Corporate 16 Board of Directors 23 Shariah Committees 26 CEOs of The Group 29 Group Management 54 Group Corporate Events Calendar 62 Media Highlights 64 Group Awards & Accolades 34 Letter to Shareholders 38 Management Discussion and Analysis 50 Sustainability Journey 68 Shariah-Compliant Confirmation Statement 70 Statement of Corporate Governance 107 Audit & Examination Committee Report 116 Statement on Risk Management and Internal Control 122 Additional Compliance 125 Statement on Directors Responsibility 130 Directors Report 137 Statements of Financial Position 139 Statements of Profit or Loss and Other Comprehensive Income 141 Statements of Changes in Equity 144 Statements of Cash Flows 146 Notes to the Financial Statements 277 Statement by Directors 278 Statutory Declaration 279 Independent Auditors Report 286 Properties Owned by BHB Group 293 Share & Warrant Holdings Statistics 299 Regional Group Network 300 Notice of 20 th Annual General Meeting 304 Statement Accompanying Notice of 20 th Annual General Meeting Proxy Form CONTENTS

4 2 BIMB HOLDINGS BERHAD ABOUT US Throughout our history, BIMB Holdings Berhad has contributed significantly to the progress and development of the Islamic financial industry. Our pioneering and innovative Shariah-compliant financial products open a new dimension for the industry and transform the country s financial landscape. Products and services that adhere to Shariah principles & values Continuously growing stakeholder value Upholding Values Committed to integrity and professionalism based on Islamic values Sustaining financial strength & value

5 ANNUAL REPORT OUR REPORTS Overview HOW TO GET THE MOST OUT OF OUR ANNUAL REPORT Tells you where you can find more information within the Report Tells you where you can find more information online at To contact us please refer to the back cover of this Annual Report Leadership In order to provide our various Stakeholders a complete and integrated picture of the Group, we publish a full series of reports on our different businesses. These reports complement our Annual Report. Perspectives REPORT GUIDING FRAMEWORK Annual Report (this report) As our primary Report, our Annual Report provides information on the Group s ability to create value over time, and contains our 2016 financial statements. investors/annual-reports/ Malaysian Financial Reporting Standards Malaysia Companies Act Sustainability Report This inaugural supplementary report presents a balanced and comprehensive analysis of the Group s sustainability performance in relation to issues material to the Group and its Stakeholders. sustainability/overview/ Bursa Malaysia s Sustainability Reporting Guide FTSE4Good Bursa Malaysia Global Reporting Initiative G4 Bank Islam Annual Report Bank Islam is our whollyowned subsidiary, focusing on the Islamic banking sector. It too publishes its own annual report. home/corporate-info/ annual-reports/ Malaysian Financial Reporting Standards Malaysia Companies Act 2016 Takaful Malaysia Annual Report Takaful Malaysia is our subsidiary, focusing on Takaful operations. It too publishes its own annual report. my/corporate/investor/ Pages/financialreports.aspx Malaysian Financial Reporting Standards Malaysia Companies Act 1965 Highlights Accountability ASSURANCE The annual financial statements are audited by KPMG Malaysia for the financial year ended 31 December 2016 Assurance of the information and data provided within the Sustainability Report is provided by BHB Sustainability Steering Committee which reports to the BHB Board of Directors The annual financial statements are audited by KPMG Malaysia for the financial year ended 31 December 2016 The annual financial statements are audited by KPMG Malaysia for the financial year ended 31 December 2016 Financial Statements Scan the QR Code by following these simple steps Shareholders FEEDBACK We need your feedback to make sure we are covering the things that matter to you. For the feedback form, scan the QR Code with your smartphone. You can also to feedback@bimbholdings.com Get it Download the QR Code Reader app from the Google Play (Android Market), BlackBerry AppWorld, App Store (ios/iphone) or Windows Phone Store Run it Run the QR Code Reader app and point your camera at the QR Code 20 th AGM Access it Get access to the feedback form

6 4 BIMB HOLDINGS BERHAD 2016 AT A MALAYSIA S FIRST ISLAMIC FINANCIAL HOLDING COMPANY MALAYSIA S FIRST ISLAMIC BANK MALAYSIA S FIRST AND ONLY PUBLIC-LISTED TAKAFUL OPERATOR MALAYSIA S FIRST AND ONLY SHARIAH-COMPLIANT STOCKBROKING COMPANY

7 ANNUAL REPORT GLANCE Overview group strategic initiatives: 1. DELIVERING STAKEHOLDERS VALUE 2. ROBUST RISK MANAGEMENT 3. DRIVING SYNERGY & RESOURCE MANAGEMENT Leadership Perspectives building blocks: 1. CAPITAL PRESERVATION 2. ROBUST LIABILITY MANAGEMENT 3. SAFEGUARD ASSET QUALITY 4. DRIVE EARNINGS STABILITY corporate strategies: we aim to exceed customers expectation through: > operational excellence > technology driven capabilities > product innovation > performance oriented culture 5. FOSTER A CULTURE OF SERVICE EXCELLENCE whilst delivering superior shareholders value. Highlights Accountability Financial Statements strategic initiatives: > improve revenue > improve customer franchise > improve process > improve people management Shareholders 20 th AGM

8 6 BIMB HOLDINGS BERHAD 5-YEAR PERFORMANCE HIGHLIGHTS PROFIT BEFORE ZAKAT AND TAXATION (RM 000) SHAREHOLDERS EQUITY (RM 000) DEPOSITS FROM CUSTOMERS (RM 000) 717, , , , ,201 2,080,775 2,810,337 2,949,037 3,413,658 3,882,852 32,379,000 36,924,367 40,678,379 43,118,529 45,491, FINANCIAL YEAR ENDED 31 DECEMBER RESTATED STATEMENT OF COMPREHENSIVE INCOME Revenue RM 000 3,528,198 3,310,607 2,967,473 2,809,395 2,473,953 Profit Before Zakat and Taxation (PBZT) RM , , , , ,439 Net Profit Attributable to Owners of the Company RM , , , , ,220 STATEMENT OF FINANCIAL POSITION Share Capital RM 000 1,588,680 1,542,210 1,493,506 1,493,506 1,066,790 Shareholders Equity RM 000 3,882,852 3,413,658 2,949,037 2,810,337 2,080,775 Deposits from Customers RM ,491,753 43,118,529 40,678,379 36,924,367 32,379,000 Takaful Liabilities RM 000 6,639,096 6,588,888 6,323,577 6,082,001 5,580,755 Financing, Advances and Others RM ,189,274 34,294,690 29,524,571 23,740,948 19,507,799 Marketable Securities RM ,164,085 15,110,375 15,528,737 18,409,143 19,162,529 Total Assets RM ,145,127 57,363,828 53,030,205 49,674,545 43,939,909 PER SHARE DATA Earnings Per Share sen Net Assets Per Share RM

9 ANNUAL REPORT th AGM Leadership Perspectives Highlights Accountability Financial Statements Overview FINANCING, ADVANCES AND OTHERS (RM 000) 19,507,799 23,740,948 29,524,571 34,294,690 39,189,274 BASIC EARNINGS PER SHARE (SEN) NET ASSETS PER SHARE (RM) Shareholders FINANCIAL YEAR ENDED 31 DECEMBER RESTATED BALANCE SHEET STRENGTH Net Financing and Advances over Customer Deposits % Gross Impaired Financing Ratio % Net Impaired Financing Ratio % (0.75) (0.83) (0.82) (0.91) (0.67) EFFICIENCY Return on Equity % Return on Assets % DIVIDENDS Gross Dividend Per Share sen VALUATION Price Earnings Ratio times Market Capitalisation RM 000 6,704,230 5,906,663 6,078,569 6,780,517 2,997,680

10 8 BIMB HOLDINGS BERHAD GROUP CORPORATE PROFILE BIMB HOLDINGS BERHAD BIMB Holdings Berhad ( BHB ) is a dynamic Islamic financial holding company with an extensive portfolio of diversified businesses across the Islamic financial industry. The company focuses its investment in Shariah-compliant business entities, with involvement in Islamic banking, takaful business and stockbroking activities. Established on 20 March 1997, BHB was listed on the Main Market of Bursa Malaysia on 16 September The company has an authorised capital of RM2 billlion and paid-up capital of more than RM1.5 billion. Through its main holding portfolio of Bank Islam Malaysia Berhad, Syarikat Takaful Malaysia Berhad and BIMB Securities Sdn Bhd, BHB Group serves million customers across Malaysia. These investments and active participations in developing pioneering Shariah-compliant institutions have led the company to be acknowledged as the country s premier Shariah-based financial services provider. Over the years, BHB has contributed significantly to the tremendous growth of the Islamic financial industry in Malaysia. Aligning itself strategically to maximise marketplace opportunities and the company s potential, BHB is wellpositioned to assist the Government s aspirations to establish the country as a vibrant International Islamic Financial Centre. BANK ISLAM MALAYSIA BERHAD Bank Islam Malaysia Berhad ( Bank Islam ) is the first Shariah-compliant banking institution in Malaysia and South East Asia; and has been playing the leading role in the development of the nation s Islamic banking industry. In fact, it has provided technical assistance in the setting up of several Islamic institutions in the Asian region such as Indonesia, Thailand and Sri Lanka. Incorporated in 1983, it was originally established with the sole purpose of assisting with the financial needs of the Muslim population of Malaysia. Since then, Bank Islam has extended its services to the wider, non-muslim, population fulfilling its Banking-for-All principle. Today, with over 70 innovative and sophisticated Islamic banking products and services, Bank Islam offers a comprehensive range of Shariah-compliant banking and financial solutions to its more than five million customers. Primarily a retail bank with consumer banking constituting more than 70% of total financing, Bank Islam s list of products ranges from the traditional financing, savings and investment solutions exclusively for individual customers, to banking and financial solutions designed to fulfil the fast-changing financial needs of customers from all categories including those related to micro financing, wealth management, capital market, treasury and structured products. The variety of financial services offered by the Bank has come a long way since its early days when it acted as the lead arranger for the world s first Sukuk issuance of RM125 million in 1990 by Shell MDS Sdn Bhd. In serving its ever expanding customer base, Bank Islam currently has the widest dedicated Islamic banking network in Malaysia with 145 branches and more than 1,000 self-service terminals nationwide. A pioneer in the industry, Bank Islam believes in the importance of innovation and has produced some of the most innovative banking solutions for the market. A strong advocator of ethical and responsible financing, Bank Islam s pioneering status has also given it an advantage by having a strong brand name and franchise that significantly differentiates it from its competitors creating an appealing image of being the purest Islamic bank which has attracted and continued to attract a growing, loyal customer base. In addition, the Bank has always been committed to corporate social responsibility, not just by giving back to the community in which it operates but the Islamic finance industry as a whole through knowledge sharing and becoming the source of reference for the industry. In the recent years, the Bank not only had exhibited significant improvements in terms of financial performance but applied robust risk management as well to ensure sustainable of growth. Bank Islam s vision to become A Global Leader in Islamic Banking illustrates its commitment to the expansion of Malaysia s brand of Islamic finance into the global markets. By placing importance to the service excellence culture, Bank Islam continues to offer only the best and cater to the differing needs of the customers as it strives to uphold its status as the symbol of Islamic banking in Malaysia.

11 ANNUAL REPORT Leadership Perspectives Overview BIMB Holdings Berhad ( BHB ) was established on 20 March 1997 and listed on the Main Market of Bursa Malaysia on 16 September SYARIKAT TAKAFUL MALAYSIA BERHAD Syarikat Takaful Malaysia Berhad ( Takaful Malaysia ) began in 1981 when the Government of Malaysia set up a task force to study the feasibility of establishing an Islamic insurance company in Malaysia. That led to the incorporation of Takaful Malaysia on 29 November 1984 followed by the commencement of operations on 22 July After slightly more than a decade of operations, Takaful Malaysia was converted into a public limited company on 19 October 1995, followed by its listing on the Main Board (now known as Main Market ) of Bursa Malaysia Securities Berhad on 30 July The Company s paid-up share capital stands at RM164 million comprising 820,943,855 ordinary shares of RM0.20 each with an authorized capital of RM500 million comprising 2,500,000,000 ordinary shares of RM0.20 each and total assets at Group level standing at RM7.7 billion. For over thirty years, Takaful Malaysia has been one of the leading Takaful operators in Malaysia and has provided the financial strength and risk management expertise that fulfils our customers needs across our 24 service centres. The organisation has evolved to meet clients needs by working closely with them and our consistent profitable growth over the years has enabled our company to provide high returns to our valued shareholders. With our portfolio of Family and General Takaful businesses, our multi-channel distribution capability, strong strategic partnerships, customer-centric products and services, and considerable brand equity, Takaful Malaysia is committed to helping people achieve their ambitions of a brighter and financially more secure future. Takaful Malaysia has successfully set the benchmark in the Takaful industry for our peers and competitors. Our awards and achievements are an acknowledgement from the market and we are proud of the teams that work so hard to make these awards possible. Continuing as a pioneer in our industry, we are the first and only Takaful operator that has been consistently rewarding Cash Back to our General Takaful customers for making no claims during the coverage period. BIMB Holdings Berhad (BHB) is the major shareholder of Takaful Malaysia. Under the BHB Group, BHB also wholly owns Malaysia s first Islamic bank, Bank Islam Malaysia Berhad (Bank Islam). BHB Group has been an active player in developing the Islamic finance sector in Malaysia. BIMB SECURITIES SDN BHD BIMB Securities Sdn Bhd ( BIMB Securities ), established in 1994, is the first and only full-fledged Shariah-compliant stockbroking company in Malaysia. As a participating organisation of Bursa Malaysia ( Bursa ), BIMB Securities principal activities are dealing in listed securities and other related permitted activities. The Company provides an avenue for the investing public to trade in Shariah-compliant securities that have been approved by the Shariah Advisory Council of the Securities Commission ( SC ). In addition, BIMB Securities offers share margin financing, investment advisory, nominees and custodian services, corporate advisory, underwriting as well as placement services. BIMB Securities is a registered Shariah Adviser under Securities Commission and has been offering Shariah advisory services for Islamic capital market products ( ICM ) such as Islamic investment funds, Sukuk issuance and other approved ICM instruments for more than 10 years. Its services are provided at a competitive fee, catering particularly for fund managers who do not have in-house Shariah advisers as well as companies that seek third-party opinions on Shariah-related matters. Highlights Accountability Financial Statements Shareholders 20 th AGM

12 10 BIMB HOLDINGS BERHAD GROUP CORPORATE STRUCTURE % % 5.73 % 5.46 % 5.45 % OTHER %

13 ANNUAL REPORT Overview NOTES: Shareholding structure as at 31 March Core Business Units Other Business Units Leadership 100 % 100 % % Syarikat Al-Ijarah Sdn Bhd SUBSIDIARIES OF CORE BUSINESS UNITS 100% BIMB Investment Management Bhd 100% BIMB Foreign Currency Clearing Agency Sdn Bhd (under members voluntary liquidation) 100% Al-Wakalah Nominees (Tempatan) Sdn Bhd 100% Farihan Corporation Sdn Bhd 100% Bank Islam Trust Co (Labuan) Ltd 100% BIMB Offshore Company Management Services Sdn Bhd SUBSIDIARIES OF CORE BUSINESS UNITS 56.00% PT Syarikat Takaful Indonesia Accountability Highlights Perspectives 42.73% 57.24% PT Asuransi Takaful Keluarga 52.67% PT Asuransi Takaful Umum Financial Statements 100 % Shareholders 51% 49 % SUBSIDIARIES OF CORE BUSINESS UNITS 100% BIMSEC Nominees (Tempatan) Sdn Bhd 100% BIMSEC Nominees (Asing) Sdn Bhd 20 th AGM

14 12 BIMB HOLDINGS BERHAD GROUP CORPORATE INFORMATION BOARD OF DIRECTORS Tan Sri Samsudin Osman Chairman/Independent Non-Executive Director Tan Sri Ismail Adam Senior Independent Non-Executive Director Datuk Zaiton Mohd Hassan Independent Non-Executive Director GROUP CEO Dato Sri Zukri Samat COMPANY SECRETARY Puan Maria Mat Said (LS ) AUDIT & EXAMINATION COMMITTEE Datuk Zaiton Mohd Hassan Chairman Tan Sri Ismail Adam Encik Mohd Zin Idris Encik Mohd Tarmidzi Ahmad Nordin Puan Noraini Che Dan (appointed w.e.f. 13 October 2016) NOMINATION & REMUNERATION COMMITTEE Tan Sri Ismail Adam Chairman Datuk Zaiton Mohd Hassan Encik Mohd Zin Idris (appointed w.e.f. 8 January 2016) Encik Mohd Tarmidzi Ahmad Nordin (appointed w.e.f. 8 January 2016) Datuk Rozaida Omar (ceased as a member w.e.f. 13 October 2016) BOARD RISK COMMITTEE Encik Mohd Tarmidzi Ahmad Nordin Chairman (w.e.f. 28 July 2016) Encik Mohd Zin Idris (appointed 13 October 2016) Puan Noraini Che Dan (appointed w.e.f. 28 July 2016) Puan Rifina Md Ariff (ceased as a member w.e.f. 13 October 2016) SHARIAH SUPERVISORY COUNCIL, BANK ISLAM MALAYSIA BERHAD Professor Dato Dr Ahmad Hidayat Buang Chairman Dr Ahmad Sobri Salamon Assistant Professor Dr Uzaimah Ibrahim Dr Muhammad Syafii Antonio Dr Yasmin Hanani Mohd Safian Encik Muhammad Zahid Abdul Aziz Subject Matter Expert Encik Mohd Nazri Chik Secretary SHARIAH ADVISORY BODY, SYARIKAT TAKAFUL MALAYSIA BERHAD Professor Dr Muhamad Rahimi Osman Chairman (w.e.f. 1 January 2017) Dr Ahmad Sobri Salamon (Chairman until 31 December 2016) Dato Mohd Bakir Hj Mansor (ceased office w.e.f. 31 March 2016) Dr Aida Othman (ceased office w.e.f. 31 March 2016) Dato Wan Mohamad Dato Sheikh Abdul Aziz Dr Ahmad Sufian Che Abdullah Dr Marhanum Che Mohd Salleh (appointed w.e.f. 1 February 2016) Encik Megat Hizaini Hassan (appointed w.e.f. 1 April 2017)

15 ANNUAL REPORT Leadership Perspectives Highlights Accountability Financial Statements Shareholders 20 th AGM Overview Datuk Rozaida Omar Non-Independent Non-Executive Director Encik Mohd Zin Idris Non-Independent Non-Executive Director Puan Rifina Md Ariff Non-Independent Non-Executive Director SHARIAH ADVISORY COMMITTEE, BIMB SECURITIES SDN BHD Emeritus Professor Dato Paduka Dr Mahmood Zuhdi Hj Abdul Majid Chairman (w.e.f. 1 September 2016) Dato Mohd Bakir Hj Mansor (ceased office w.e.f. 31 August 2016) Ir Dr Muhamad Fuad Abdullah Dr Zaharuddin Abdul Rahman (appointed w.e.f. 1 September 2016) CEOs IN THE GROUP Dato Sri Zukri Samat Group Chief Executive Officer, BIMB Holdings Berhad and Managing Director, Bank Islam Malaysia Berhad Dato Sri Mohamed Hassan Kamil Group Managing Director, Syarikat Takaful Malaysia Berhad Encik Rashid Ismail Chief Executive Officer/Executive Director, BIMB Securities Sdn Bhd AUDITORS KPMG Desa Megat PLT (LLP LCA & AF 0759) Level 10, KPMG Tower 8, First Avenue, Bandar Utama Petaling Jaya Selangor Darul Ehsan Encik Mohd Tarmidzi Ahmad Nordin Independent Non-Executive Director Puan Noraini Che Dan Independent Non-Executive Director (appointed w.e.f. 1 April 2016) REGISTERED OFFICE BIMB Holdings Berhad ( X) 31 st Floor, Menara Bank Islam No. 22, Jalan Perak Kuala Lumpur Tel: Fax: SHARE REGISTRAR Symphony Share Registrars Sdn Bhd Level 6, Symphony House Pusat Dagangan Dana 1, Jalan PJU 1A/ Petaling Jaya Selangor Darul Ehsan Tel: Fax: STOCK EXCHANGE LISTING Main Market of Bursa Malaysia Securities Berhad 16 September 1997 Stock Short Name: BIMB Stock Number: 5258

16 upholding our commitment

17 PROFIT BEFORE ZAKAT AND TAXATION Throughout history we have contributed enormously to the progress and development of the Islamic financial industry. Through our various subsidiaries, we have established an +4.2 % TOTAL: RM869.2 extensive portfolio of diversified businesses across the Islamic financial industry and transformed the country s financial landscape. Our contributions toward developing the burgeoning Islamic economy of the country are built on our exacting adherence to Shariah-compliant processes and governance. MILLION 1

18 16 BIMB HOLDINGS BERHAD BOARD OF DIRECTORS Datuk Zaiton Mohd Hassan Independent Non-Executive Director 2. Datuk Rozaida Omar Non-Independent Non-Executive Director 3. Puan Rifina Md Ariff Non-Independent Non-Executive Director 4. Tan Sri Ismail Adam Senior Independent Non-Executive Director

19 ANNUAL REPORT Financial Statements Shareholders 20 th AGM Accountability Highlights Perspectives Leadership Overview Tan Sri Samsudin Osman Chairman/Independent Non-Executive Director 7. Encik Mohd Zin Idris Non-Independent Non-Executive Director 6. Puan Noraini Che Dan Independent Non-Executive Director 8. Encik Mohd Tarmidzi Ahmad Nordin Independent Non-Executive Director

20 18 BIMB HOLDINGS BERHAD PROFILE OF DIRECTORS Declaration of Interest: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. TAN SRI SAMSUDIN OSMAN Chairman/Independent Non-Executive Director 70 years old Male Malaysian Date of Appointment: 1 February 2007 Qualifications: Master of Public Administration, Pennsylvania State University (USA) Bachelor of Arts (Hons), University of Malaya Diploma in Public Administration, University of Malaya Areas of Expertise: Public Administration and Fund Management Work Experience & Positions: Present: Chairman, Employees Provident Fund (EPF) Board and EPF Investment Panel Chairman, BIMB Holdings Berhad Chairman, Sime Darby Industrial Holdings Sdn Bhd Previous: President, Perbadanan Putrajaya Chief Secretary to the Malaysian Government Director General, Public Service Department Secretary General, Ministry of Home Affairs Secretary General, Ministry of Domestic Trade and Consumer Affairs Directorship of Public Companies: Sime Darby Berhad Membership of Board Committees in BIMB Holdings Berhad: None Meeting Attendance: 11 of 11 Board Meetings held in the Financial Year Ended 31 December 2016 TAN SRI ISMAIL ADAM Senior Independent Non-Executive Director 66 years old Male Malaysian Date of Appointment 3 January 2011 Qualifications: Master of Arts (Economics), Vanderbilt University (USA) Bachelor of Arts (Hons), University of Malaya Diploma in Public Administration (Post-Baccalaureate Diploma), University of Malaya Advanced Management Program, Harvard Business School Areas of Expertise: Public Administration and Management, Human Resources Management Organisational Transformation Work Experience & Positions: Present: Group Chairman of Prasarana Malaysia Berhad Previous: Director General, Public Service Department, Malaysia Secretary General, Ministry of Health Director General, National Productivity Corporation Chief Administration Officer, Department of Statistics Senior Project Officer, National Institute of Public Administration (INTAN) Assistant Director of Trade, Ministry of Trade and Industry

21 ANNUAL REPORT Leadership Perspectives Highlights Overview Directorship of Public Companies: Prasarana Malaysia Berhad Westports Holdings Berhad Membership of Board Committees in BIMB Holdings Berhad: Chairman, Nomination & Remuneration Committee Member, Audit & Examination Committee Meeting Attendance: 10 of 11 Board Meetings held in the Financial Year Ended 31 December 2016 Declaration of Interest: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. DATUK ZAITON MOHD HASSAN Independent Non-Executive Director 61 years old Female Malaysian Date of Appointment: 2 February 2006 Qualifications: Fellow, Association of Chartered Certified Accountants (ACCA), United Kingdom Member, Malaysian Institute of Accountants (MIA) Member, Malaysian Institute of Certified Public Accountants (MICPA) Areas of Expertise: Banking, Accounting and Finance Work Experience & Positions: Present: Chief Executive Officer, Malaysia Professional Accountancy Centre (MyPAC) Chairman, Private Pension Administrator Malaysia Previous: Managing Director, Capital Intelligence Advisors Sdn Bhd President/Executive Director, Malaysian Rating Corporation Berhad (MARC) Served 12 years with Maybank in various senior positions in Treasury Operations, International Banking, Assets & Liability Management, Branch Operations including that of General Manager, Group Strategic Planning Directorship of Public Companies: Bank Islam Malaysia Berhad Sime Darby Berhad Dolphin International Berhad FIDE Forum Malaysian Institute of Corporate Governance Membership of Board Committees in BIMB Holdings Berhad: Chairman, Audit and Examination Committee Member, Nomination and Remuneration Committee Meeting attendance: 11 of 11 Board Meetings held in the Financial Year Ended 31 December 2016 Declaration of Interest: She has no conviction for offences within the past 5 years other than traffic offences. She has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. Accountability Financial Statements Shareholders 20 th AGM

22 20 BIMB HOLDINGS BERHAD PROFILE OF DIRECTORS Declaration of Interest: She has no conviction for offences within the past 5 years other than traffic offences. She has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB except by virtue of being a nominee Director of Lembaga Tabung Haji. DATUK ROZAIDA OMAR Non-Independent Non-Executive Director 54 years old Female Malaysian Date of Appointment: 1 December 2009 Qualifications: Member, Association of Chartered Certified Accountants (ACCA) UK A-Level, Birkenhead College, United Kingdom Areas of Expertise: Accounting and Finance Work Experience & Positions: Present: Group Chief Financial Officer, Lembaga Tabung Haji Previous: Finance Director, Glaxo SmithKline Consumer Healthcare Sdn Bhd Finance Manager, Guthrie Trading Sdn Bhd Credit Manager, Citibank Berhad Financial Accountant, Felda Directorship of Public Companies: Syarikat Takaful Malaysia Berhad Pelikan International Corporation Berhad TH Heavy Engineering Berhad Putrajaya Perdana Berhad Membership of Board Committees in BIMB Holdings Berhad: None Meeting Attendance: 11 of 11 Board Meetings held in the Financial Year Ended 31 December 2016 ENCIK MOHD ZIN IDRIS Non-Independent Non-Executive Director 73 years old Male Malaysian Date of Appointment: 20 September 2002 Qualifications: Senior Cambridge Certificate Areas of Expertise: Banking and Finance Work Experience & Positions: Present: None Previous: Executive Director/Chief Executive Officer, Inter-City MPC (M) Sdn Bhd General Manager, Commercial Banking of Malayan Banking Berhad Assistant General Manager, Malayan Banking Berhad Deputy Zone Head, Head Office, Malayan Banking Berhad Area Manager, Malayan Banking Berhad Branch Manager, Malayan Banking Berhad Assistant Branch Manager, Malayan Banking Berhad Trainee Officer, Malayan Banking Berhad Directorship of Public Companies: Bank Islam Malaysia Berhad

23 ANNUAL REPORT Overview Membership of Board Committees in BIMB Holdings Berhad: Member, Audit and Examination Committee Member, Nomination & Remuneration Committee Member, Board Risk Committee Meeting Attendance: 11 of 11 Board Meetings held in the Financial Year Ended 31 December 2016 Declaration of Interest: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. Director, Graham Miller (M) Sdn Bhd Head, General Takaful Division, Syarikat Takaful Malaysia Berhad Business Manager, Jerneh Insurance Sdn Bhd Branch Manager, Progressive Insurance Sdn Bhd Account Executive, Lowndes Lambert Sdn Bhd Directorship of Public Companies: Syarikat Takaful Malaysia Berhad Membership of Board Committees in BIMB Holdings Berhad: Chairman, Board Risk Committee Member, Audit & Examination Committee Member, Nomination & Remuneration Committee Meeting Attendance: 11 of 11 Board Meetings held in the Financial Year Ended 31 December 2016 Declaration of Interest: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. Accountability Highlights Perspectives Leadership ENCIK MOHD TARMIDZI AHMAD NORDIN Independent Non-Executive Director 62 years old Male Malaysian Date of Appointment: 29 June 2015 Qualifications: Associateship of the Chartered Insurance Institute (UK) (ACII) Associate Member, Malaysian Insurance Institute (AMII) MBA in Islamic Finance, International Islamic University Malaysia (UIAM) Areas of Expertise: Insurance/Takaful and Islamic Finance Work Experience & Positions: Present: None Previous: Chief Executive Officer, Etiqa Takaful Berhad Associate Lecturer, Malaysia Insurance Institute PUAN RIFINA MD ARIFF Non-Independent Non-Executive Director 50 years old Female Malaysian Date of Appointment: 1 April 2014 Qualifications: Bachelor of Arts (Hons), Accounting and Financial Analysis, University of Newcastle Upon-Tyne, United Kingdom Financial Statements Shareholders 20 th AGM

24 22 BIMB HOLDINGS BERHAD PROFILE OF DIRECTORS Areas of Expertise: Corporate Finance Work Experience & Positions: Present: Senior General Manager, Corporate Finance & Services, Lembaga Tabung Haji. Previous: Assistant Vice President, Affin Merchant Bank Berhad Senior Manager, Amanah Saham Mara Berhad Senior Officer, Permata Merchant Bank Berhad Directorship of Public Companies: None Membership of Board Committees in BIMB Holdings Berhad: None Meeting Attendance: 10 of 11 Boards Meeting held in the Financial Year Ended 31 December 2016 Declaration of Interest: She has no conviction for offences within the past 5 years other than traffic offences. She has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB except by virtue of being a nominee Director of Lembaga Tabung Haji. Qualifications: Member, Malaysian Institute of Certified Public Accountants (MICPA) Member, Malaysian Institute of Accountants (MIA) Bachelor of Arts (Hons), Economics, University of Manchester, United Kingdom Areas of Expertise: Accounting and Finance Work Experience & Positions: Present: None Previous: Vice President, Finance of MISC Berhad Served 15 years with Perbadanan Nasional Berhad in various senior positions including that of Group General Manager, Finance Audit Senior in Hanafiah, Raslan & Mohamed Directorship of Public Companies: SP Setia Berhad Tenaga Nasional Berhad Bank Islam Malaysia Berhad Membership of Board Committees in BIMB Holdings Berhad: Member, Audit & Examination Committee Member, Board Risk Committee Meeting Attendance: 6 of 8 Boards Meeting held in the Financial Year Ended 31 December 2016 Declaration of Interest: She has no conviction for offences within the past 5 years other than traffic offences. She has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. PUAN NORAINI CHE DAN Independent Non-Executive Director 61 years old Female Malaysian Date of Appointment: 1 April 2016

25 ANNUAL REPORT SHARIAH COMMITTEES Overview Perspectives Leadership PROFESSOR DATO DR AHMAD HIDAYAT BUANG Chairman, Shariah Supervisory Council, Bank Islam Malaysia Berhad Date of Appointment as SSC Chairman: 1 April 2015 (member since 1 April 2011) Qualifications: Bachelor of Shariah, University of Malaya Master of Law (School of Oriental and African Studies), University of London Doctor of Philosophy (School of Oriental and African Studies), University of London Areas of Expertise: Islamic commercial laws (fiqh al-muamalat) Work Experience & Positions: Present: Chairman, Shariah Supervisory Council, Bank Islam Malaysia Berhad Chairman, Group Shariah Committee, MNRB Holdings Berhad Professor and Head, Department of Shariah and Law, Academy of Islamic Studies, University of Malaya Previous: Director, Academy of Islamic Studies, University of Malaya Shariah Advisor, CIMB Bank Berhad Shariah Advisor, OCBC Bank Shariah Advisor, Commerce Tijari Bank Shariah Advisor, Amanah Raya Unit Trust Management Sdn Bhd Shariah Advisor, ASM MARA Unit Trust Management Berhad Shariah Advisor, I-Free Capital Pte Ltd (Singapore) Shariah Advisor, Bumiputra Commerce Trustee Sdn Bhd Shariah Advisor, Perbadanan Usahawan Nasional Berhad Member, Shariah Working Committee for Islamic Banking and Takaful, Bank Negara Malaysia Member, Islamic Education Coordination Advisory Council, Council of Rulers Malaysia Directorship of Public Companies: Nil Membership of Committees in Subsidiaries: Nil Meeting Attendance: 8/8 Highlights Accountability Financial Statements Shareholders 20 th AGM Declaration of Interests: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB.

26 24 BIMB HOLDINGS BERHAD SHARIAH COMMITTEES PROFESSOR DR MUHAMAD RAHIMI OSMAN Chairman, Shariah Advisory Body (SAB), Syarikat Takaful Malaysia Berhad Date of Appointment as SAB Chairman: 1 January 2017 (member since 12 January 2010) Qualifications: Bachelor of Shariah (Hons), University of Malaya, Malaysia Master of Islamic Economics, University of Yarmouk, Jordan Doctor of Philosophy in Islamic Banking, International Islamic University Malaysia Areas of Expertise: Islamic commercial laws (fiqh al-muamalat) Islamic economics, banking and Takaful Work Experience & Positions: Present: Chairman, Shariah Advisory Body, Syarikat Takaful Malaysia Berhad Dean, Academy of Contemporary Islamic Studies (ACIS), Universiti Teknologi MARA (UiTM), Shah Alam Member, Curriculum Review Committee for Muamalat, Takaful, Islamic Banking and Finance of the Ministry of Higher Education Malaysia Member, Dean Council of Islamic Studies, Higher Learning Institutions of Malaysia Member, Shariah Committee, Amanah Saham Darul Iman (ASDI) International Editorial Board, Islamic Finance Review (ISFIRE), London, UK Previous: Member, Shariah Committee, Hong Leong Islamic Bank Berhad Director, Zakat Research Institute of Malaysia (IKaZ), Universiti Teknologi MARA Deputy Director, Centre for Islamic Thought and Understanding (CITU), Universiti Teknologi MARA Award: Darjah Kebesaran Setia Mahkota Kelantan Yang Amat Terbilang (PSK) Directorship of Public Companies: Nil Membership of Committees in Subsidiaries: Nil Meeting Attendance: 6/6 Declaration of Interests: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB.

27 ANNUAL REPORT Perspectives Highlights Accountability Leadership Overview EMERITUS PROFESSOR DATO PADUKA DR MAHMOOD ZUHDI HAJI AB MAJID Chairman, Shariah Advisory Committee, BIMB Securities Sdn Bhd Date of Appointment as SAC Chairman: 1 September 2016 (member since June 2008) Qualifications: PhD (Shariah), University of Malaya M Phil University of Kent, England MA Shariah, University Al-Azhar, Cairo Dip Ed University Ain Shams, Cairo BA Shariah, Yayasan Pengajian Tinggi Islam, Kelantan Areas of Expertise: Islamic Jurisprudence Work Experience & Positions: Present: Emeritus Professor, Academy of Islamic Studies, University of Malaya Research Fellow, International Shari ah Research Academy for Islamic Finance (ISRA) Consultant of Foreign Affairs, Al-Madinah International University (MEDIU) Chairman, Majlis Dakwah Negara (MDN) Deputy Chairman, Lembaga Penasihat Penyelarasan Pelajaran dan Pendidikan Agama Islam (LEPAI) Member, Malaysian Institute of Integrity Chairman, Shariah Committee, Public Islamic Bank Berhad (PIBB) Member, Board of Directors, PIBB Chairman, Shariah Committee, AIA Public Takaful Berhad Member, Board of Trustees, Yayasan Dakwah Islamiah Malaysia (YADIM) Approved Individual Shariah Advisor (by the Securities Commission Malaysia) Previous: Dean, Faculty of Shariah, University of Malaya Director, Academy of Islamic Studies, University of Malaya Professor, Department of Fiqh and Usul, University of Malaya Professor and Dean, Kulliyyah of Islamic Revealed Knowledge and Human Sciences, International Islamic University Malaysia Dean, International Institute of Islamic Thought and Civilization (ISTAC), International Islamic University Malaysia Commissioner, The Human Rights Commission of Malaysia (SUHAKAM) Member, Jemaah Ulama Negeri Kelantan, Majlis Agama Islam dan Adat Istiadat Melayu Kelantan Panel Member, Shariah Court of Appeal Kelantan Award: Dato Paduka Jiwa Mahkota Kelantan Yang Amat Mulia (DJMK) Directorship of Public Companies: Nil Membership of Committees in Subsidiaries: Nil Meeting Attendance: 4/4 Financial Statements Shareholders 20 th AGM Declaration of Interests: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB.

28 26 BIMB HOLDINGS BERHAD CEOs OF THE GROUP DATO SRI ZUKRI SAMAT Group Chief Executive Officer, BIMB Holdings Berhad Managing Director, Bank Islam Malaysia Berhad 59 years old Malaysian Date of Appointment: 18 February 2015 Qualifications: Honorary Doctorate (PhD) in Finance and Islamic Banking, Kolej Universiti INSANIAH MBA (Finance), University of Hull, United Kingdom Areas of Expertise: Finance & Islamic Banking Work Experience & Positions: Present: Group Chief Executive Officer, BIMB Holdings Berhad Managing Director, Bank Islam Malaysia Berhad Previous: Executive Director, Khazanah Nasional Berhad Managing Director, Pengurusan Danaharta Nasional Berhad General Manager, Credit Agricole Indosuez Deputy General Manager, Commerce International Merchant Bank Berhad Senior Account Officer, Pacific Bank Berhad Senior Account Officer, Public Bank Berhad (Corporate Banking) Credit Officer, Bank Bumiputra Malaysia Berhad Directorship of Public Companies: Bank Islam Malaysia Berhad Asian Institute of Finance Berhad Declaration of Interest: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB.

29 ANNUAL REPORT Leadership Perspectives Highlights Accountability Financial Statements 20 th AGM Shareholders Overview DATO SRI MOHAMED HASSAN KAMIL Group Managing Director, Syarikat Takaful Malaysia Berhad 54 years old Malaysian Date of Appointment: 1 April 2007 Qualifications: Fellow, Society of Actuaries, USA Fellow, Actuarial Society of Malaysia Chartered Life Underwriter, American College, United States MBA, University of Iowa, United States Bachelor of Science in Actuarial Science, University of Iowa, United States Areas of Expertise: Actuarial and Insurance/Takaful Work Experience & Positions: Present: Group Managing Director, Takaful Malaysia Chairman, Board of Commissioners, P.T. Syarikat Takaful Indonesia and P.T. Asuransi Takaful Keluarga Previous: Deputy General Manager (Acting General Manager), P.T. AIA Indonesia Senior Vice President and Chief Actuary, ING Insurance Berhad Directorship of Public Companies: Syarikat Takaful Malaysia Berhad Declaration of Interest: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB.

30 28 BIMB HOLDINGS BERHAD CEOs OF THE GROUP ENCIK RASHID ISMAIL Chief Executive Officer/Executive Director, BIMB Securities Sdn Bhd 57 years old Malaysian Date of Appointment: 10 January 2011 Qualifications: CPA, CPA Australia CA, Malaysian Institute of Accountants (MIA) Bachelor of Business (Major In Accounting), Edith Cowan University, Australia Diploma In Accountancy, Universiti Teknologi Mara (UiTM) Areas of Expertise: Stockbroking (Islamic and Conventional) Accounting Industrial Property Strategic Planning Work Experience & Positions: Present: Chief Executive Officer/Executive Director, BIMB Securities Sdn Bhd Chairman, Association of Stockbroking Companies Malaysia Director, BIMSEC Nominees (Tempatan) Sdn Bhd Director, BIMSEC Nominees (Asing) Sdn Bhd Member, Market Participant Board Committee, Bursa Malaysia Berhad Member, Bursa Securities Market Operations Committee, Bursa Malaysia Securities Member, Bumiputera Dealers Representative Education Fund (BDREF), Securities Industry Development Corporation Member, Bumiputera Training Fund (BTF) Board of Trustees, Securities Industry Development Corporation Previous: Chief Executive Officer, MIDF Property Berhad Director, Amanah Ascott Properties & Amanah Scotts Sdn Bhd Head, Strategic Planning, MIDF Berhad Director, MIDF Consultancy and Corporate Services, Amanah Ventures Sdn Bhd and Amanah Property Trust Manager Sdn Bhd Chief Executive Officer & Executive Director Operations, MIDF Sisma Securities Sdn Bhd General Manager & Company Secretary, PB Securities Sdn Bhd General Manager, Seagroatt & Campbell Head, Computer Section, Treasury Department, United Malayan Banking Corporation Head, Money Market Processing, United Malayan Banking Corporation Directorship of Public Companies: Nil Declaration of Interest: He has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB.

31 ANNUAL REPORT GROUP MANAGEMENT Overview (LEFT TO RIGHT) Dato Sri Zukri Samat Group Chief Executive Officer Encik Hizamuddin Jamalluddin Group Chief Strategy Officer Leadership Perspectives Mr Malkit Singh Maan Group Chief Financial Officer Highlights Encik Mohd Nazri Chik Group Chief Shariah Officer Encik Razman Ismail Group Human Capital Puan Maria Mat Said Group Company Secretary & Regulatory Compliance Accountability Financial Statements Puan Wan Norkhairi Wan Samad Group Corporate Communications Encik Mohamad Azlan Mohamad Alam Chief Operations Officer Shareholders 20 th AGM Puan Haryati Yahya Investor Relations

32 30 BIMB HOLDINGS BERHAD PROFILE OF GROUP MANAGEMENT ENCIK HIZAMUDDIN JAMALLUDDIN Group Chief Strategy Officer Encik Hizamuddin Jamalluddin was appointed as the Group Chief Strategy Officer on 11 May He is also the Chief Strategy Officer and Head of Managing Directors Office of Bank Islam. Encik Hizamuddin has spent most of his professional career in corporate management, particularly in corporate planning, cross border merger and acquisition activities, corporate finance and advisory, corporate and debt restructuring, privatisation, investor relations and strategic communications. Before joining Bank Islam in 2007, he was a Director, Corporate Services of Bank Simpanan Nasional and was instrumental in setting up PruBSN Takaful Berhad in Prior to that, Encik Hizamuddin has served as corporate finance specialist at Pengurusan Danaharta Nasional Berhad. Encik Hizamuddin holds a Bachelor of Science in Finance from Northern Illinois University, USA. He is currently a member of the Islamic Finance Committee of Malaysian Institute of Accountants and a senior associate of the Chartered Institute of Islamic Finance Professionals. He was a recipient of the Upcoming Personality for Islamic Finance (Leadership) by the Global Islamic Finance Award He does not hold any directorship in public companies and has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. MR MALKIT SINGH MAAN Group Chief Financial Officer Mr Malkit Singh Maan was appointed as the Group Chief Financial Officer on 11 May He has over 25 years of working experience in finance within a banking environment, and has served several foreign and local banks in various capacities. He is responsible for the financial management of the Company. He is a former Chief Financial Officer of Bank Islam, a role he held from January 2008 until May Mr Malkit is a Certified Practicing Accountant ( CPA ) member of the Australian Society of CPAs and Chartered Accountant of Malaysian Institute of Accountants. He does not hold any directorship in public companies and has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. ENCIK MOHD NAZRI CHIK Group Chief Shariah Officer Encik Mohd Nazri Chik, a Certified Shariah Adviser and Auditor (CSAA-AAOIFI), was appointed as the Group Chief Shariah Officer on 11 May He has 13 years of experience in Shariah management of an Islamic bank. He joined Bank Islam in June 2004 before leaving in 2009 to take up another position with an investment arm of the Dubai government. He rejoined Bank Islam in January 2011 and is responsible for strengthening the Bank s Shariah governance framework and facilitating its efforts in offering Shariah-compliant products and services. An Accreditation Panel of Finance Accreditation Agency and an Executive Committee member of the Association of Shariah Advisors Malaysia, Encik Mohd Nazri Chik is also the Deputy Chairman of the Shariah Supervisory Council of Amana Bank PLC (Sri Lanka). He holds a Master s degree and a Bachelor s Degree in Shariah (Islamic Jurisprudence) from University of Malaya where he continues to serve as an academician. He does not hold any directorship in public companies and has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. ENCIK RAZMAN ISMAIL Head, Group Human Capital Encik Razman Ismail was appointed as the Head of Group Human Capital on 11 May He carries with him 20 years of experience in Human Resources ( HR ) both as a consultant and practicing HR professional. He is also the Head of Human Resources of Bank Islam since July His initial focus has been on strengthening employer branding, establishing succession management process and developing the Bank s talent development blueprint. Prior to joining the Company, he has held various Senior HR positions at renowned banking institutions. He started his career at a consulting firm before moving on to a major multinational technology company. As a consultant, his client engagements cut across various HR functions from organisation development, rewards, performance management, talent assessment as well as merger and integration. Encik Razman holds a Bachelor s Degree in Management with a major in Human Resources and a minor in Communication from Universiti Sains Malaysia.

33 ANNUAL REPORT Leadership Perspectives Highlights Overview He does not hold any directorship in public companies and has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. PUAN MARIA MAT SAID Group Company Secretary & Regulatory Compliance Puan Maria Mat Said was appointed as the Group Company Secretary on 31 December She has over 25 years of experience in the banking industry, mainly, performing legal and secretarial function. Her areas of responsibility include provision of legal and corporate secretarial services for the Company. As the Company Secretary, she is responsible for advising the Board on issues relating to relevant laws, rules, procedures and regulations affecting the Board, as well as best governance practices. She holds a Bachelor of Law from University of Malaya and is also a licensed Company Secretary by the Companies Commission of Malaysia. She does not hold any directorship in public companies and has no conviction for offences within the past 5 years other than traffic offences. She has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. PUAN WAN NORKHAIRI WAN SAMAD Head, Group Corporate Communications Puan Wan Norkhairi Wan Samad was appointed as the Head of Group Corporate Communication on 11 May She has over 30 years of experience in related fields of Corporate Communications, serving the banking industry. She joined Bank Islam in 2001 and was appointed to her current position in She is responsible for the Company s Public Relations and Stakeholders Engagement. Puan Wan Norkhairi holds a Degree in Mass Communications (Public Relations) from Universiti Teknologi Mara. She does not hold any directorship in public companies and has no conviction for offences within the past 5 years other than traffic offences. She has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. ENCIK MOHAMAD AZLAN MOHAMAD ALAM Chief Operations Officer Encik Mohamad Azlan Mohamad Alam has vast experience in the banking industry since From 2004 to 2005 he served RHB Bank Berhad as Vice President, Finance & Administration Islamic Banking Division. In 2005 to 2006, he became the Head of Finance of RHB Islamic Bank Berhad and in 2006 to 2008, he was appointed the Head of Risk Management of RHB Islamic Bank Berhad. He joined BIMB Holdings Berhad in 2008 as the Chief Financial Officer. Since 2015, he has been the Chief Operations Officer of BIMB Holdings Berhad. Encik Mohamad Azlan is a member of Chartered Association of Certified Accountants (ACCA) and Institute of Chartered Secretaries and Administrators (ICSA) of the United Kingdom, and Chartered Accountant of Malaysian Institute of Accountants. He does not hold any directorship in public companies and has no conviction for offences within the past 5 years other than traffic offences. He has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. PUAN HARYATI YAHYA Head, Investor Relations Puan Haryati Yahya was appointed as the Head of Investor Relations on 11 May She has more than 20 years of working experience in the utility and banking industries covering the areas of Corporate Finance, Management Reporting and Investor Relations. She joined Bank Islam in 2012 as the Special Assistant to the Managing Director and currently assumes both roles. Puan Haryati holds a Degree in Accounting from De Montfort University, Leicester (UK) and is a graduate of the Chartered Association of Certified Accountants (ACCA, UK). She does not hold any directorship in public companies and has no conviction for offences within the past 5 years other than traffic offences. She has no family relationship with any directors and major shareholders of BHB, and has no conflict of interest in BHB. Accountability Financial Statements Shareholders 20 th AGM

34 upholding core strengths

35 TOTAL REVENUE We pioneer change through a wealth of innovative Shariah-compliant banking +6.6 % products that have opened a new dimension for the industry. Through prudence and dedicated vigilance we ensure stable returns through thick and thin, while constantly TOTAL: enhancing service levels and realising a high-performing work culture. RM3.5 BILLION 2

36 34 BIMB HOLDINGS BERHAD LETTER TO SHAREHOLDERS Tan Sri Samsudin Osman Chairman PROFIT BEFORE ZAKAT AND TAX RM869.2 MILLION +4.2 %

37 ANNUAL REPORT Overview DEAR SHAREHOLDERS, The financial landscape in Malaysia in 2016 was certainly challenging. Despite facing adversities, I am pleased to share that BIMB Holdings Berhad ( BHB or the Group ) continued to stand our ground as Malaysia s premier Shariah-based financial services group. Focusing on our fundamentals of offering ethical and responsible products to meet the savings, investment, financing and protection needs of Malaysians, we continued to grow from strength to strength. Highlights Perspectives Leadership I am proud to report that our subsidiaries performed well meeting their own key performance indicators ( KPIs ) which, in turn, enabled the Group to meet ours. On the back of a 6.6% increase in revenue to RM3.53 billion, we achieved 4.2% growth in profit before zakat and tax ( PBZT ) to RM869.2 million with total assets expanding 10.1% year-onyear to RM63.1 billion and a healthy risk weighted capital ratio ( RWCR ) of 15.5%. Most importantly to you, our valued shareholders, our earnings per share ( EPS ) remained strong at sen. Indeed, our stock was the best performing among all banks on Bursa Malaysia during the year under review, growing at a commendable 10.76% from the beginning to the end of Our performance enabled us once again to meet our dividend policy of paying out at least 50% of the Group s net profit attributable to ordinary shareholders. BHB s resilient growth is founded on effective operational strategies supported by strong business principles that ensure robust risk management and uncompromising governance. While safeguarding the sustainability of our business, these also enhance the public s confidence in our franchise. As an Islamic financial holdings company ( FHC ), we are responsible not only for our own risk management and governance, but also that of our subsidiaries. Accordingly, in June 2015, we set up a Group Risk Management Committee ( GRMC ) and Group Management Committee ( GMC ), both with representation from BHB as well as our subsidiaries, enabling us to undertake our oversight responsibilities more effectively. The GRMC monitors inherent risks across the Group while identifying emerging risks, including those related to capital management. The Committee meets regularly and reports to the Board every quarter to keep us apprised of the Group s risk profile. The GMC, meanwhile, is tasked with creating further synergies within the Group by promoting greater cross-selling of products and services and driving efficiencies from shared resources. Accountability Financial Statements Shareholders 20 th AGM

38 36 BIMB HOLDINGS BERHAD LETTER TO SHAREHOLDERS PROFIT BEFORE ZAKAT AND TAXATION SHAREHOLDERS EQUITY 2016 RM MILLION 2016 RM3,882,86 MILLION 2015 RM MILLION RM3,413,66 MILLION In terms of corporate governance, we continue to adhere to the Malaysian Code on Corporate Governance ( MCCG ) 2012 and other guidelines as released by our regulatory bodies. Most recently, we have taken cognizance of the standards for financial institutions promulgated by Bank Negara Malaysia ( BNM ) in August 2016, and are making relevant changes to fill in any gaps. Most pertinently, we are working towards meeting the requirements regarding board composition. To ensure we have a majority of independent directors, I no longer serve as a nominee of Lembaga Tabung Haji, and now serve as an independent director. This, together with the appointment of Puan Noraini Che Dan to the Board in April 2016, brings the number of independent directors to five out of a total of eight, meeting BNM s requirement. Pn Noraini s appointment further elevates our female representation on the Board to 50%, exceeding the Government s target of a minimum of 30%. In addition, we have enhanced our Board Charter to reflect BNM s requirements, and are disclosing the remuneration of our Group Chief Executive Officer in our Statement on Corporate Governance. Read Statement on Corporate Governance on pages 70 to 106. Fulfilling our oversight responsibilities, we are playing a more involved role in the governance of our subsidiaries. During the year, the Board observed business dealings with stakeholders as reported in our related party transactions. We also supported Syarikat Takaful Malaysia Berhad ( Takaful Malaysia ) initiative to comply with the Islamic Financial Services Act ( IFSA ) 2012 to seperate its Family and General businesses, with the ultimate objective of creating the most capital-effective and resourceeffective operating structure for the two new business units. Further reinforcing our governance structures, and in keeping with the requirements of IFSA 2013, we have established a Shariah-compliant Confirmation Statement. I am pleased to state that the Chairmen of the Shariah Committees of our operating companies have confirmed that our subsidiaries have adhered to all Shariah principles during the year under review in carrying out their business dealings and activities. Read Shariah-compliant Confirmation Statement on pages 68 to 69. Robust governance and risk management are integral to BHB s sustainability, which also rests on ensuring our business goals are achieved in a manner that is socially and environmentally responsible. We recognise our duty towards our various stakeholders as well as to playing our part in preserving the environment, and are taking concrete steps to adopt a more strategic approach in achieving meaningful change in these domains. Reflecting a fresh approach to sustainability, we are producing our very first Sustainability Report as an independent publication this year. In a sense, we have embarked on a new journey, and welcome your feedback on how we can further improve in effecting change in matters that are important to you. This is important to us because it serves to build our brand and corporate reputation. Read a summary of our Sustainability Journey on pages 50 to 51.

39 ANNUAL REPORT Leadership Perspectives Overview EARNINGS PER SHARE SEN REVENUE 2016 RM3,528,20 MILLION SEN RM3,310,61 MILLION Highlights BHB is very proud that both Bank Islam and Takaful Malaysia continued to receive accolades and recognitions during the year. Bank Islam s customers gave the Bank their vote of confidence, leading to its winning the Platinum Trusted Brand Award for Islamic Financial Services by Reader s Digest in The Bank was also the recepient of the same award for five consecutive years from 2009 to Our Group CEO, Dato Sri Zukri Samat also did us proud by winning the Banking CEO of the Year Asia award from The International Banker Asia & Australasia Banking Awards. Meanwhile, Bank Islam s Chief Strategy Officer, Hizamuddin Jamalluddin was named the Upcoming Personality in Global Islamic Finance (Leadership Role) by the Global Islamic Finance Awards. Bank Islam further strengthened its position as a preferred employer by being named one of Asia s Best Employer Brands by the Employer Branding Institute, as well as ranking 14 th as Malaysia s 100 Leading Graduate Employers. Takaful Malaysia was equally successful in garnering industry recognition. For the second year running, it won The Edge-BRC Best Performing Stock Award (Highest Returns to Shareholders over Three Years) under the Finance sector. Among all government-linked companies ( GLCs ), it delivered the second best return on equity ( ROE ) for the financial year It was also named the Best Takaful Company in Malaysia at the 10 th International Takaful Awards; and the Best Takaful Company at the Global Islamic Finance Awards. These awards are made possible by the contributions of our various stakeholders, to whom we are truly grateful. I would like to thank our regulators for enabling a vibrant ecosystem for the Islamic financial services sector; our analysts, fund managers and members of the media for helping to disseminate fair and objective information on the Group; our shareholders and customers for placing their trust in us; and the entire team at BHB for their hard work and dedication that has seen us maintain our lead as the premier Shariah-based financial services provider. This is a very exciting time for the Islamic financial sector, as it enters a phase of rapid growth and change. My fervent wish is for us to continue to work together so we can be part of this change for the better, and create a brighter future for the Group and the countless stakeholders whose lives we are able to serve in one way or another. Thank you. Tan Sri Samsudin Osman Chairman Accountability Financial Statements Shareholders 20 th AGM

40 38 BIMB HOLDINGS BERHAD MANAGEMENT DISCUSSION AND ANALYSIS BIMB Holdings Berhad ( BHB or the Group ) continued to build on our fundamentals in order to deliver stakeholder value. One of the Group s key strengths is our status as the only Islamic financial holdings company ( FHC ) in the country, which lends us the unique ability to offer end-to-end Shariah-compliant financial services to the market from banking to takaful and stockbroking. The global economy continued to be soft in 2016 due to a combination of factors. Weak growth in the US and other developed nations, and a realignment of policy in China, kept a lid of pressure on international trade, keeping commodity prices subdued and impacting manufacturing. A couple of unexpected geo-political events notably Brexit in June and the outcome of the US General Elections in November further compounded economic uncertainty, by dampening financial markets and stimulating greater volatility. A key positive development was agreement by the Organisation of Petroleum Exporting Countries ( OPEC ) in November to curb oil production. After hitting a 10-year low in January 2016, oil prices rallied towards the second half of the year, mostly due to involuntary production outages, and increased even more following the OPEC agreement and consensus by non-opec producers to also reduce output. In Malaysia, the financial and banking industry was impacted by a generally slower economy coupled with weak consumer sentiment, sluggish loans growth, and a deterioration in asset quality accompanied by an increase in the number of non-performing loans. At the same time, competition for deposits, especially for current and savings accounts, intensified. Bank Negara Malaysia ( BNM ) cut the overnight policy rate ( OPR ) for the first time since 2009 in July While serving to stimulate the economy, it added further pressure on net interest margin ( NIM ). A discussion of Key Emerging Risks & Our Management Strategies

41 ANNUAL REPORT Perspectives Financial Statements Accountability Highlights Shareholders 20 th AGM Leadership Overview Dato Sri Zukri Samat Group Chief Executive Officer Building Quality Portfolios Capital & Liquidity Management Creating Group Synergies Professionalism, Ethics & a Customer-Centric Culture Embracing the Digital

42 40 BIMB HOLDINGS BERHAD MANAGEMENT DISCUSSION AND ANALYSIS GROWTH DRIVEN BY STRONG FUNDAMENTALS Within this challenging environment, BIMB Holdings Berhad ( BHB or the Group ) continued to build on our fundamentals in order to deliver stakeholder value. One of the Group s key strengths is our status as the only Islamic financial holdings company ( FHC ) in the country, which lends us the unique ability to offer end-to-end Shariah-compliant financial services to the market from banking to takaful and stockbroking. We placed additional emphasis on leveraging on this strength in 2016, creating greater Group synergies to grow together as a more cohesive organisation. As a Group, we focused on key areas including asset quality, cost of funds, proactive capital management, and strengthened risk management. With greater Group support, our subsidiaries Bank Islam Berhad ( Bank Islam or the Bank ), Syarikat Takaful Malaysia Berhad ( Takaful Malaysia ) and BIMB Securities Berhad ( BIMB Securities ) were able to enhance their performance. This resulted in some very encouraging numbers for the financial year 2016 ( FY2016 ). KEY ACHIEVEMENTS STRONG FINANCING GROWTH 14.3 % COMPARED WITH INDUSTRY S 5.3% GROSS IMPAIRED FINANCING RATIO 0.98 % COMPARED WITH INDUSTRY S 1.61% NET INTEREST MARGIN HIGHEST RETURN ON EQUITY BASED ON PRE-TAX PROFIT 22 % TAKAFUL PROFIT AFTER ZAKAT AND TAX CAGR 18 % OVER 5-YEAR PERIOD FROM % EXCEEDING THAT OF THE BANKING SYSTEM ROBUST GROUP RISK MANAGEMENT As an FHC, BHB is responsible for the overall risk management of our subsidiaries. We ensure their risk profiles are contained within set limits and do not compromise the safety and soundness of the Group as a whole. In order to fulfil this oversight function, in 2016 we established a Group Risk Management Committee which serves to identify, assess and manage inherent and systemic risks of our subsidiaries and the Group itself within a robust risk management framework. The Group Risk Management Committee, comprising the Chief Risk Officers ( CROs ) and senior management of the Group and our operating companies, meet on a 6 times a year basis to discuss emerging risks and agree on proactive responses to manage and contain these within risk appetites that have been developed. Members of the Committee are able to monitor and report on risks using a newly implemented Group Risk Indicator Dashboard and Reporting Mechanism, respectively. Some of the key emerging risks are: Having sufficient talent who are conversant with the tenets, conditions and principles of Shariah financing Facing challenges of IT disruption in the form of FinTechs Deterioration in asset quality in the banking system, with increase in the absolute volume of gross impaired loans Impact of MFRS9 requiring banks to recognise and provide for expected credit losses ( ECL ) on financial assets Insurance de-tariffication Regulatory requirement to separate Family and General Takaful businesses KEY EMERGING RISKS & OUR MANAGEMENT STRATEGIES Building Quality Portfolios Integral to our risk management are efforts to ensure our subsidiaries build and maintain robust portfolios of quality assets. In fact, Bank Islam has transformed its asset quality management such that it now has one of the lowest gross non-performing financing rates in the banking industry at 0.98%. This is supported by structured preventive actions and a proactive collection mechanism centred around some 180 debt collectors. The fact that retail financing makes up 72.6% of its total, and approximately 55% of its retail financing is repaid via salary deductions, adds an element of security to its portfolio.

43 ANNUAL REPORT Leadership Perspectives Overview Integral to our risk management are efforts to ensure our subsidiaries build and maintain robust portfolios of quality assets. Guided by prudent underwriting standards, Takaful Malaysia reviewed its strategic asset allocation and adopted an asset diversification approach that is responsive to the market environment. As a further measure of prudence, both subsidiaries restrict their underwriting activity to areas in which they have sound knowledge and experience. Capital & Liquidity Management BHB is in the midst of preparing the infrastructure for full compliance with BNM s guidelines on FHC. Under the guidelines, FHCs are to observe the same level of compliance with regard to capital adequacy, liquidity coverage and robust stress testing that apply to financial institutions. The regulator expects full compliance with a capital adequacy ratio of 10.5% by 1 January 2019, while that for the other regulatory safeguards has been set for 1 January In the interim, FHCs will be monitored on their performance. We achieved a capital adequacy ratio of 12.57% for the year under review, while Bank Islam enjoyed an even higher ratio of 15.52% both exceeding the requirement of 8.625% by wide margins. Within the insurance sector, Takaful Malaysia s capital adequacy was also higher than the requirement of 130%. As part of our strategy to strengthen our capital base, BHB is continuing with the dividend reinvestment policy introduced in From 84.0% of the dividend being reinvested into shares for FY2015, approximately 89.4% of the dividend declared for FY2016 was reinvested into 49,061,000 new shares. Bank Islam s liquidity coverage ratio ( LCR ) at 124.7%, meanwhile, has met the minimum regulatory requirement. This is attained from achieving the right balance of deposits mix and garnering adequate high quality liquid assets ( HQLA ), and stable cash inflows from our retail, SME and corporate customers. Creating Group Synergies With the potential for earnings growth severely curtailed in the current financial industry landscape, there is increased pressure on optimising cost and resource efficiency. For an FHC, such efficiencies can be enhanced via greater and more effective sharing of assets, functions and capabilities across the different subsidiaries within the Group. At BHB, we have set up a Group Management Committee to oversee and generate these Group synergies. Financially, this includes cross-marketing and cross-selling of products to high net-worth individuals as well as corporate and commercial clients. Operationally, the Group is enhancing our human capital by mobilising talent within the Group and providing employees exposure to different functions to increase their knowledge and competencies. At the same time, we are creating a pool of Group talent for functions that can be shared such as Shariah compliance and policies, internal audit, human resources ( HR ) management and information technology ( IT ). For a stronger negotiation voice, and bargaining power, we are also combining our procurement activities. In the market, we are creating a stronger Group franchise by organising joint stakeholder engagement events, such as analyst briefings, media treasure hunts and corporate responsibility ( CR ) initiatives. The corporate BHB website further reinforces a united Group front by presenting easy links to the Bank Islam, Takaful Malaysia and BIMB Securities sites, with relevant news and updates from our subsidiaries on the home page. These serve to further underline our integrated strength, and BHB s status as an FHC, in the minds of our various stakeholders. Professionalism, Ethics & Customer-Centric Culture To enhance our competitive edge, we have invested substantially in the career development of our staff in order to create a highly professional and customer centric organisation. Employees at different levels in the organisation are provided professional training and development programmes that commensurate with their roles and responsibilities, to further enhance their competencies, skills and ability to drive the Group towards our business goals. Senior management attend business and financial management as well as leadership programmes at INSEAD Singapore; and set the tone of professionalism throughout the Group. Highlights Accountability Financial Statements Shareholders 20 th AGM

44 42 BIMB HOLDINGS BERHAD MANAGEMENT DISCUSSION AND ANALYSIS A high priority is placed on improving customer services through greater convenience and efficiency. Front liners are regularly trained on all products so they can communicate the benefits and features effectively. We also invest continuously in the hardware used by customers to carry out transactions, such as our ATM machines, to minimise service disruptions, and are expanding the scope of our electronic (or online) services. ONLINE FRONT LINERS HIGH PRIORITY ATM within Bank Islam. At the same time we are also looking for opportunities to work with a few FinTech companies to adopt both front-end and back-end systems and processes that will bring added value to our organisation, enabling us to simplify our operations and remove barriers between us and our customers. On top of that, the online Investment Account Platform ( IAP ) set up in February 2016 by a consortium of Islamic banks, including Bank Islam, marks the beginning of our journey into digital financial technology. In the 10 months that it was operational in 2016, two Restricted Investment Account ( RIA ) transactions (including Bank Islam s RM6.0 million facility for a cooperative entity) totalling RM16.0 million were offered. The funds raised have been successfully disbursed to the business ventures to finance their business activities. We intend to adopt learnings from this new line of business in our own operations to secure our future in an increasingly digitalised environment. About 68.6%¹ of the Malaysian populace have access to internet and 48% buy online at least once a month². This creates great potential for Business to Consumer ( B2C ) transactions which are cost-efficient, convenient and increasingly more appealing to the younger millennial segment. In the takaful sector, we are launching a number of online products that potential customers can read about and subscribe to, at their own time and convenience. The fully automated subscription process for these products has the added advantage of enabling us to lower our premiums, which would be particularly attractive for simple yet effective protection for the 46% subset of the Malaysian population who remain uninsured. We are intensifying efforts to inculcate a Shariah-compliant mindset and culture within BHB to enhance the manner in which management and employees interact with each other as well as with our external stakeholders. In the process, we are building important relationships based on trust and respect internally as well as externally, further enhancing our corporate reputation and brand. Embracing The Digital As part of our efforts to enhance the customer experience, as well as to extend our reach and create greater cost efficiencies, we embarked on a digitalisation programme in Internally, we are increasing our own capabilities by building a strong IT team and working on establishing a Digital Banking division In 2016 we established a Group Risk Management Committee which serves to identify, assess and manage inherent and systemic risks of our subsidiaries and the Group itself within a robust risk management framework.

45 ANNUAL REPORT Overview On the back of a 6.6% increase in Group revenue to RM3.53 billion, our profit before zakat and taxation ( PBZT ) grew 4.2% from RM834.4 million to RM869.2 million, while profit after zakat and taxation ( PAZT ) improved 2.7% from RM612.9 million to RM629.7 million. Leadership Perspectives FINANCIAL REVIEW BHB s financial performance is a direct reflection of that of our subsidiaries. Despite the challenging macro-environment, Bank Islam and Takaful Malaysia continued to focus on their strengths to deliver robust results, both achieving record profits. Based on their prudent yet strategic operations, our subsidiaries were able to deliver on their KPIs, ensuring healthy Group performance. On the back of a 6.6% increase in Group revenue to RM3.53 billion, our profit before zakat and taxation ( PBZT ) grew 4.2% from RM834.4 million to RM869.2 million, while profit after zakat and taxation ( PAZT ) improved 2.7% from RM612.9 million to RM629.7 million with total assets growing 10.1% from RM57.36 billion to RM63.14 billion. We registered a respectable pre-tax return on equity ( ROE ) of 22.0% and pre-tax return on assets ( ROA ) of 1.4%, while earnings per share ( EPS ) was sen. KEY FINANCIAL INDICATORS FOR FY2016 KPI FY2016 ROE (%) based on PBT 22.0 ROA (%) based on PBT 1.4 SEGMENTAL FINANCIAL REVIEW Bank Islam reported a PBZT of RM720.4 million for FY2016, marking a 5.1% (or RM34.7 million) increase over its PBZT in the previous financial year of RM685.7 million. Takaful Malaysia, meanwhile, recorded a PBZT of RM221.0 million for FY2016, an increase of 8.2% as compared with RM204.2 million in the same period last year. The higher profit was mainly due to higher net wakalah fee income. RETURN TO SHAREHOLDERS This year, we were not merely one of the best performing counters among financial institutions on Bursa Malaysia, but the best performer. Our share price appreciated by 10.2% from end December 2015 to end December This compares very favourably against the FBM Kuala Lumpur Composite Index ( FBMKLCI ), which decreased by 3.0% over the same period. Along with a healthy financial performance, we declared an interim dividend of 13.0 sen per ordinary share amounting to RM206.5 million for the financial year. Approximately 89.4% of the dividend was reinvested into 49,061,000 new ordinary shares of RM1.00 each at an issue price of RM3.75 in line with the Group s dividend reinvestment plan. Highlights Accountability Financial Statements Shareholders ROE (%) based on PAT 15.9 ROA (%) based on PAT 1.0 Cost to income ratio (%) 58.7 Earnings per share (sen) Net tangible assets per share (RM) 2.44 ¹ According to defining internet user as anyone who can access the net at home on any device type or connection. ² According to PwC in its Total Retail Survey 2016 report, see 20 th AGM

46 44 BIMB HOLDINGS BERHAD MANAGEMENT DISCUSSION AND ANALYSIS In the face of economic uncertainties, the Bank adopted a defensive corporate strategy for the year, namely to Sustain Capital through Robust Liability Management. This entailed initiatives to grow its current and savings account ( CASA ) as well as retail deposits while exploring opportunities for investment accounts ( IAs ). Amid the more challenging economic environment, the Bank also stepped up efforts to safeguard its asset quality by taking pre-emptive measures to enhance collections and prevent delinquencies. The Bank s total deposits increased from RM43.6 billion to RM46.0 billion. BANK ISLAM KEY ACHIEVEMENTS LAUNCHED THE SECOND RESTRICTED INVESTMENT ACCOUNT ( RIA ) ON IAP AWARDED THE BEST BANK CAPITAL SUKUK BY THE ASSET TRIPLE A ISLAMIC FINANCE AWARDS 2016 ONE OF ASIA S BEST EMPLOYER BRANDS, ACCORDING TO THE EMPLOYER BRANDING INSTITUTE At the same time, it was also able to grow its Unrestricted Investment Account ( URIA ) from RM676 million in 2015 (following its launch only in June 2015) to RM3.8 billion. This was aided by the growth in transactional investment account akin to a current account and the introduction of a new URIA product in May Wafiyah Investment Account ( WIA ). WIA, targeting investors looking at moderate returns in the short to mediumterm, invested into a mixed House & Fixed Asset Financing and Personal Financing Portfolio over a tenure of up to 10 years had attracted RM2.3 billion in investments as at end December The transactional investment account on the other hand grew by RM1.1 billion to RM1.5 billion further strengthening the Bank s balance sheet. Bank Islam also successfully listed its first Restricted Investment Account ( RIA ) for a cooperative entity via the IAP. Established only in February 2016, the bank-intermediated financial technology platform attracted a cooperative entity and a transportation company in its first year, the former being the second RIA to be listed on the platform. With Bank Islam as sponsor, the cooperative entity raised RM6 million from investors with an indicative return of 6.60% per annum and RAM rating of BBB3. The investment is for a period of five years. Further entrenching itself in the capital market, Bank Islam acted as a joint lead manager ( JLM ) for several high-profile transactions including issuances under Lembaga Pembiayaan Perumahan Sektor Awam s RM25.0 billion Government Guaranteed Islamic Commercial Papers/Islamic Medium Term Notes Programme and RM20.0 billion Malaysia Debt Ventures Berhad s Islamic Medium Term Notes Programme. LAUNCHED ASIA PACIFIC S FIRST SHARIAH-COMPLIANT BUSINESS CREDIT CARD-I (VISA INFINITE)

47 ANNUAL REPORT Leadership Perspectives Highlights Overview Meanwhile, the Bank also expended more effort on growing its corporate and commercial financing portfolios to reduce dependencies on retail financing. This led to a 16.5% (or RM710 million) increase in corporate financing, mainly to state government related companies and agencies, financial institutions, property development and co-operatives; while its commercial financing grew 17.1% (or RM821 million), with the recipients being primarily SMEs in property development and telecommunications. As part of the Bank s strategy to attract more funds and grow its fee-based income, it continued to expand its card base with a series of new co-branded visa cards in association with football clubs, starting with the Bank Islam Visa Kelantan FA The Red Warrior Debit Card-i (or the Red Warriors Card ) in May. This was followed by the launch of the Pahang FA card in collaboration with the Pahang Football Association in September, and the Lang Merah Card in association with the Kedah Football Association in October. These have been inspired by the success of its first football related co-branded visa card Bank Islam Visa Team Harimau Debit Card-i with the Football Association of Malaysia. Since it was launched in 2013, the Team Harimau card has been subscribed to by more than 3.0 million card holders. For greater customer convenience, and especially customers in rural areas, Bank Islam also collaborated with PETRONAS to enable its card holders to withdraw cash at PETRONAS station counters. Beginning in April with 150 PETRONAS stations in Kelantan, Terengganu and Pahang, the service was extended in May to include another 136 PETRONAS stations in East Malaysia. The facility, a banking first in the country, helps Bank Islam meet its financial inclusion targets. In terms of its branch network, given the current economic climate, the Bank has made the strategic decision not to pursue its goal of attaining 150 branches, but instead to leverage on the relatively high internet penetration rate in the country to widen its reach and accessibility online. Accordingly, only one new branch was opened during the year, in Setia Alam, Selangor, bringing the total branch network as at end December 2016 to 145. FINANCIAL PERFORMANCE Bank Islam recorded a PBZT of RM720.4 million, representing growth of 5.1%. Year-on-year net financing assets grew by 14.3% to RM39.2 billion, far exceeding the industry s growth at 5.3%, with a continued focus on secured financing. Accordingly, fund based income from financing increased by 12.8%. Nonfund based income also increased, by 17.3%, mainly due to higher gains from the sale of investment securities. As at end December, customer deposits and investment accounts had increased by 5.4% and 463.9% to RM45.9 billion and RM3.8 billion, respectively, the drastic increase in the latter accounted for by the fact that the investment accounts are a relatively new feature in Islamic banking. CASA at 30.8% was still higher than the Islamic banking industry ratio of 26.5%. Meanwhile, the transactional investment accounts increased by RM1.1billion to record RM1.5 billion. The Bank s gross impaired financing ratio as at end December 2016 improved to 0.98% compared to 1.09% as at end December 2015, and was markedly lower than the banking system s 1.61% while the net impaired financing ratio was -0.75%, again bettering the banking system at 0.16%. The Bank s KPIs as at end December 2016 compared favourably against the banking system as at end 2015, with a pre-tax ROE of 17.1% (banking system: 12.4%) and pre-tax return on assets of 1.4% (banking system: 1.3%).Total assets grew 11.9%, outstripping industry growth of 3.7%, from RM49.8 billion to RM55.7 billion. MOVING FORWARD The banking landscape is expected to continue to be challenging in 2017, along with moderation in financing growth in both the household and non-household segments. At the same time NIM will continue to be under pressure, and competition for deposits will intensify. Credit cost is likely to remain elevated along with an increase in impaired assets. Adding to these challenges, banks will need to prepare for implementation of MFRS9 by enhancing their credit risk and loss assessment mechanisms. In response, Bank Islam will continue to engage in defensive play, with enhanced focus on more balanced growth. While seeking to increase its deposits, it will right-size its mix of CASA, investment accounts, short and long-term funds. It will also continue to manage liquidity and deploy capital efficiently in line with Basel III. Notwithstanding the need to sustain NIM, preserving asset quality will remain an important agenda given the cautious operating outlook. At the same time, Bank Islam intends to grow its Digital team and accelerate its digital transformation to keep relevant, efficient and effective in a more demanding operating environment. Accountability Financial Statements Shareholders 20 th AGM

48 46 BIMB HOLDINGS BERHAD MANAGEMENT DISCUSSION AND ANALYSIS TAKAFUL MALAYSIA KEY ACHIEVEMENTS LEADING TAKAFUL OPERATOR IN THE EMPLOYEE BENEFIT MARKET SEGMENT OFFERING PRODUCTS AND SOLUTIONS ONLINE VIA WEBSITE AND ONLINE PORTALS THE EDGE- BRC BEST PERFORMING STOCK AWARD (HIGHEST RETURNS TO SHAREHOLDERS OVER THREE YEARS) IN THE FINANCE SECTOR The insurance sector is undergoing major transformation in anticipation of market liberalisation, the implementation of new government policies, and continued challenging economic conditions marked by, among others, low investment returns, reduced corporate spending and escalating costs. Takaful Malaysia is responding positively to these challenges by engaging in proactive investment management, diversifying its income base and tightening its rein on expenses. During the year, it reviewed its strategic asset allocation intermittently to maintain low exposure to investment assets with volatile returns while increasing its investment in sukuk with attractive yields. It also focused on growing its wakalah fee income by expanding its credit related business and General Takaful business.

49 ANNUAL REPORT Leadership Perspectives Highlights Overview To address lower corporate budgets for employee benefits and increasing medical costs, Takaful Malaysia developed tailor-made solutions for individual corporate customers, offering them the best possible value. It also invested in system enhancements to provide these corporations with updated information to better manage their costs. As a result, it managed to retain its top position among takaful operators in the employee benefit market segment. At the same time, to increase its market penetration, Takaful Malaysia worked closely with bank partners to promote its credit life and other existing products while introducing new protection plans. As part of the Company s continuous efforts to offer needs-based financial solutions to bancatakaful customers, it has extended its credit takaful coverage to protect banks term loan customers. Takaful Malaysia also introduced a new tele-marketing campaign for a hospital income plan targeting bancatakaful customers, riding on the success of earlier campaigns for its personal accident product range. Further expanding its reach and accessibility, Takaful Malaysia is tapping into digital channels by introducing online products and services. This has the added advantage of placing it on a stronger footing to compete more effectively in a liberalised market. FINANCIAL PERFORMANCE Takaful Malaysia s operating revenue increased by 12.6% to RM2.0 billion from RM1.8 billion, mainly due to investment income and sales of both Family Takaful and General Takaful. Family Takaful generated gross contributions of RM1.2 billion, marking a 16.4% increase from RM1.0 billion, mainly from Family Takaful mortgage-related products. General Takaful recorded an 8.5% increase in gross contributions to RM516.7 million, driven primarily by the fire and commercial classes. Its total gross contribution of RM1.7 billion was RM211.5 million more than in FY2015. Despite an increase in management expenses, PBZT grew by 8.2% to RM221.0 million from RM204.2 million, while PAZT increased 6.8% from RM163.3 million to RM174.5 million, mainly due to higher wakalah fee income. Its healthy performance meant that Takaful Malaysia was able to meet the following KPIs: EPS of 21.52sen, net assets per share of RM0.89; and 24.9% return on shareholders equity with each financial indicator growing over the year. Total assets increased by 3.1% from RM7.5 billion to RM7.8 billion, mainly from takaful operator funds. GOING FORWARD In 2017, Takaful Malaysia will continue to focus its energies on the four core areas of customer reach, operational agility, cost competitiveness and stakeholder confidence in order to increase its overall market share and further enhance its shareholder value. It is also committed to retaining its leadership in the Family Takaful business by ensuring an extensive range of innovative, needs-based products and services. To differentiate itself, the company will continue to actively promote its unique proposition of rewarding General Takaful customers with 15% Cash Back for no claims during their coverage period. At the same time, Takaful Malaysia seeks to sharpen its competitive edge In light of impending liberalisation of the marketplace following the de-tariffication of motor and fire products. It will increase its IT investments for enhanced operational capabilities and cost efficiencies, and accelerate its digital transformation to further grow its online sales portal. Along with greater digitalisation, it will embark on integrated online marketing initiatives as part of its long-term strategy to meet the growing needs of consumers. Guided by prudent underwriting standards, Takaful Malaysia reviewed its strategic asset allocation and adopted an asset diversification approach that is responsive to the market environment. Accountability Financial Statements Shareholders 20 th AGM

50 48 BIMB HOLDINGS BERHAD MANAGEMENT DISCUSSION AND ANALYSIS BIMB SECURITIES The equities market in 2016 was affected by low commodity prices, depreciation of the Ringgit and reduced investor confidence. The fall in oil price in January to its lowest in more than 10 years saw the KLCI dive to around 1600, but then quickly recover along with the oil price and Ringgit. Lacking key catalysts, however, the market subsequently hovered around from mid-year onwards. Within this landscape, BIMB Securities continued to build its institutional clientele base and promote the Shariah capital market, which received a boost in September with the launch of a fully integrated Islamic securities exchange platform, Bursa Malaysia-i. Our securities arm engaged in regular presentations at clients offices, while arranging company and site visits to listed companies for clients as well as organising knowledge sharing sessions and teach-ins. At the same time, it continued to increase awareness of the Shariah capital market via educational activities targeting universities, polytechnics and Majlis Agama; as well as by collaborating with Bursa Malaysia on various marketing programmes. For ease of transaction by retail clients, it enhanced its epayment system for internet trading, BIS online. FINANCIAL PERFORMANCE Although BIMB Securities saw its gross brokerage contribution from institutional clients reduce from RM13.44 million in 2015 to RM12.11 million in 2016, respectively, it recorded an increase in PBZT of RM0.38 million to RM1.0 million in This was marginally higher than the RM0.67 million achieved in 2015, and was due to lower costs and prudent spending during the year. GOING FORWARD Along with generally sluggish global demand, macro headwinds will continue to weigh down on Malaysia s economic growth in In this light, 2017 will be another challenging year for BIMB Securities. Its performance is likely to mirror that of 2016, or improve slightly at best.

51 ANNUAL REPORT Leadership Perspectives Overview THE YEAR 2017 FOR BHB The key challenge for 2017 and beyond would seem to be uncertainty wrought particularly by prospects of higher rates in the US; and commencement of Brexit negotiations. On a positive note, commodity prices look set to increase on the heels of recently increasing equity prices, especially in the US and regional economies. As stock markets have traditionally moved ahead of the real economy, this provides a glimmer of hope for a turnaround. Market optimism is being stifled, however, by policy uncertainties led by the rise in populism. Domestically, various factors point to more positive economic growth. Increasing oil prices are likely to translate into more activity in the oil and gas sector, enhancing the government s coffers. The plantation sector is also set to improve on the back of higher crude palm oil production after suffering lower yields last year. As an added plus, a weaker Ringgit against the greenback would support export-oriented industries as well as tourism along with more competitively priced products. Additionally, infrastructure spending on highways, rail related investment and RAPID projects in Pengerang will propel capital expenditure among businesses related to construction, manufacturing and the services industries. All said, the country is expected to achieve GDP growth of 4.4% in 2017 after moderating to 4.2% in Within the banking industry, tightened funding conditions due to heightened macroeconomic risks domestically and abroad are likely to lead to modest financing growth of between 4% and 5%. Still, the banking system as a whole should remain profitable, liquid and well capitalised. As banks invest more generously in digitalisation, the entire industry is poised to enter a new, more customer-centric and efficient paradigm. Taking these factors into consideration, BHB will continue to build on our fundamentals to ensure stable, balanced and sustainable growth of each subsidiary, and the Group as a whole. Focusing on greater integration Group-wide, we will leverage on the breadth of our service offerings while enhancing the quality of our service delivery to delight Malaysians from all walks of life with Shariah-compliant financial solutions designed to enhance their lives. The future for BHB continues to look promising as evolution of the Islamic financial sector gains further traction and conviction. In this instance, the Employees Provident Fund ( EPF ) has made an exemplary move by introducing the Simpanan Shariah ( SS ) scheme in August The new scheme provides its members the option to have their savings invested in We are also looking for opportunities to work with a few FinTech companies to adopt both front-end and back-end systems and processes that will bring added value to our organisation, enabling us to simplify our operations and remove barriers between us and our customers. Syariah-compliant stocks. As of 14 September 2016, a total of RM41.1 billion out of the RM100 billion initial allocation had been taken up, demonstrating the level of interest in SS. RM41.1 BILLION ALLOCATION TAKEN UP As the only Shariah-compliant banking stock, and the only Islamic FHC in the country, BHB stands to benefit from such efforts to promote Islamic finance. Our vision, however, is not just to ride on growth of our industry, but also to drive it as we continue along our journey. Highlights Accountability Financial Statements Shareholders 20 th AGM

52 50 BIMB HOLDINGS BERHAD SUSTAINABILITY JOURNEY BIMB Holdings Berhad ( BHB ) has always been attentive to its role as the pioneering Islamic Financial Holding Company, and its responsibility in safeguarding the interest of its stakeholders. Having been well established on the foundations of Shariah principles, BHB places equal importance on economic progress and social development alongside its company performance. Our sustainability exercise (implemented in year 2015) seeks to further ensure that our company s growth will directly benefit our multitude of stakeholders, leading to the wellbeing of the communities we operate in and positive impact on the environment. Outcomes of our sustainability exercise are captured in our inaugural Sustainability Report 2016, which comes together with this book.

53 ANNUAL REPORT SUSTAINABILITY GOVERNANCE STRUCTURE In overseeing the implementation of sustainability practices across the organisation s operations and businesses, we have established a Sustainability Steering Committee ( The Committee ) in 2016, to provide guidance on the organisation s sustainability strategy in alignment with BHB s business direction. The Committee comprises BHB s senior management staff including its Chief Financial Officer, Chief Strategy Officer, Chief Operations Officer and the Head of Legal, Secretarial and Compliance division. BHB s sustainability governance structure includes Project Management Office and Sustainability Working Group, which work together with the Committee for the integration of sustainability matters within the company. SUSTAINABILITY FRAMEWORK BHB s Sustainability Framework is founded on our continuous aspiration and effort to be a Responsible Financial Entity, befitting our status as the only Islamic Financial Holding Company in the country. More details of our sustainability governance structure can be found in the Governance Structure section of our Sustainability Report 2016, which comes together with this book. More details of our Sustainability Framework can be found in the Strategy Overview section of our Sustainability Report 2016, which comes together with this book. Leadership Overview Highlights Perspectives SUSTAINABILITY MATERIAL MATTERS RESPONSIBLE FINANCE INCLUSIVE GROWTH TALENT DEVELOPMENT ISLAMIC FINANCE AND KNOWLEDGE-SHARING ETHICAL PRACTICE AND REPORTING Our identification and prioritisation of sustainability material matters most relevant to our organisation were based on our sustainability exercise, in which a number of workshops and engagements were conducted to assess our company s operating environment and the trends prevalent within the financial industry. We have collectively identified the following as our Materiality Matters: We commit ourselves to provide products and services that contribute not just to our company s financial performance but also effectively provide economic, social and environmental benefits. We ensure that our company grows together with the communities we operate in, and that our company s growth are matched by the society s economic progress. We develop our employees to maximise their talents, and imbue values onto them to ensure that they can also become an upright corporate citizen. We continue to be the source of reference for Islamic banking and finance, and dedicate ourselves to sharing our knowledge and experience for industry s progress. We practice good governance for our entire business operations, and ensure our business decisions are made in the best interest of our various stakeholders. More details on our sustainability-related matters and efforts can be found in the section What Matters to Us of our Sustainability Report 2016, which comes together with this book. Accountability Financial Statements Shareholders 20 th AGM

54 upholding trust & assurance

55 TOTAL ASSET SIZE Our products and services for individuals and businesses assure the best quality of care % and security that you need. We invest our time to hear you out simply because we care for you. As our valued customers and business partners, we take pride in attending to your TOTAL: needs be it for protection, career development or even a business partnership. RM63.1 BILLION 3

56 54 BIMB HOLDINGS BERHAD GROUP CORPORATE EVENTS CALENDAR 14 january 16 february Bank Islam launched e-donation Terminal, the first electronic donation terminal in Malaysia at Masjid Wilayah Kuala Lumpur. Takaful Malaysia and the National Blood Centre jointly organised a Blood Donation Campaign at Menara Takaful Malaysia. The campaign successfully garnered a huge crowd who donated blood for the cause. 27 january Bank Islam sponsored RM65,000 to reward the participating schools that promote creativity among students in Pendidikan Islam subject as well as activities to enliven the school s surau. 30 january-29 september 23 february Takaful Malaysia was awarded the Best Takaful Company in Malaysia award for the fourth consecutive year at the International Takaful Awards 2016 held in London on 23 February Bank Islam allocated approximately RM200,000 to organise AMAL Ihtimam programmes across all regions. These programmes were organised to celebrate with the underprivileged community while giving out zakat to help ease their burden and improve their overall wellbeing. 27 february BIMB Securities collaborated with Bursa Malaysia in organising Shariah Bursa Malaysia for 100 new investors at Impiana Hotel in Ipoh, Perak.

57 ANNUAL REPORT Overview march Takaful Malaysia participated in the Institute and Faculty of Actuaries (IFoA) Asia Conference 2016 which was held at Hilton, Kuala Lumpur. 30 march-09 november Bank Islam, in collaboration with Petrosains, held Visit- To-School programmes across all regions to promote the importance of learning Science as it will develop useful skills for young Malaysians to improve their livelihood and self-sustainability. Through these programmes Bank Islam advocates equal opportunities in education regardless of the students economic background. 01 april Bank Islam signed an MoU with Majlis Ugama Islam Sabah for the usage of Bank Islam s Voucher Encashment service. This innovative product is Malaysia s first cashless voucher that eliminates the need for cheque issuance for corporate bodies, cooperatives, and religious bodies when issuing retail payment. 05 april Bank Islam, in collaboration with PETRONAS and VISA, launched the Cash at Counter service, a first of its kind service in Malaysia that allows Bank Islam customers to withdraw money at PETRONAS stations Mesra shops without having to go to Bank Islam s ATM. Perspectives Leadership Accountability Highlights 31 march Takaful Malaysia successfully organised its 31 st Annual General Meeting (AGM) at Menara Takaful Malaysia. More than 100 shareholders and proxies attended the meeting. More than 80 analysts and fund managers attended the Takaful Malaysia Analyst Briefing which was held in conjunction with Takaful Malaysia s 31 st AGM at the Theatre Hall of Menara Takaful Malaysia. The briefing was presented by the Group Managing Director, Dato Sri Mohamed Hassan Kamil who focused on the company s developmental and business plans. 14 april BIMB Securities and Bursa Malaysia held the second leg of Shariah Bursa Malaysia for another 100 new investors at Hotel Perdana, Kota Bharu, Kelantan. Bank Islam signed an MoU with Lembaga Hasil Dalam Negeri which allows customers to pay taxes through the Bank s TAP Mobile Banking-i. Financial Statements Shareholders 20 th AGM

58 56 BIMB HOLDINGS BERHAD GROUP CORPORATE EVENTS CALENDAR 20 april-27 april Bank Islam joined Minggu Amanah Saham Malaysia, the longest running unit trust exhibition, as one of the partners to showcase products and services offered to customers. 19 may 27 may Bank Islam launched a new co-brand card with Kelantan Football Association called The Red Warrior card. This card is specially designed for the loyal supporters of The Red Warrior team. A portion of the fee is contributed to the association for the development of the football team. BIMB Securities together with Bursa Malaysia organised Shariah Bursa Malaysia for 1,200 participants consisting of lecturers, final year and new students at Universiti Teknologi MARA (UiTM) in Perlis. 01 june BIMB Holdings Berhad ( BHB ) held its 19 th Annual General Meeting at Sime Darby Convention Center. 21 may Bank Islam organised a Green Day programme in conjunction with Earth Day. Bank Islam carried out green activities such as beach cleaning and providing cockleshell artificial reefs as the Bank s contribution towards the betterment of the environment. 25 may 10 june-01 july Bank Islam allocated more than RM40,000 to organise iftar AMAL Ihtimam programmes to celebrate Ramadan with the underprivileged communities as well as to distribute its zakat contributions. Bank Islam expanded its Cash at Counter service at PETRONAS stations to East Malaysia region.

59 ANNUAL REPORT Leadership Highlights Perspectives Overview 18 june 14 july-01 august Takaful Malaysia contributed RM23, to Pertubuhan Al-Khadeen Home of Hope. Bank Islam organised Hari Raya open houses at all five regions for its valued corporate clients june BHB collaborated with Berita Harian for the Semarak Ramadan Programme at Masjid Tengku Ahmad, Jerantut, Pahang. Sahur and Iftar session were held with the local community and tahfiz students. 25 july Bank Islam signed an MoU with Urus Maju Ehsan Sdn Bhd, a subsidiary of Perbadanan Wakaf Selangor, to fund the Selangor Wakaf Land Development Project. Accountability 24 june Takaful Malaysia fulfilled wishes of the Children of Rumah Kasih Harmoni through its Raya Shopping Programme. A mock cheque of RM5, was presented to the Principal of Rumah Kasih Harmoni, Encik Jamaluddin Wahab. 26 july Financial Statements Shareholders 20 th AGM BHB and its group of companies contributed RM535, to Sahabat Korporat Tabung Haji in the form of medical equipment, sling bags and Buku Panduan Kesihatan Jemaah Haji.

60 58 BIMB HOLDINGS BERHAD GROUP CORPORATE EVENTS CALENDAR 27 july 15 august Takaful Malaysia s myjalinan Ilmu Corporate Social Responsibility (CSR) brand, successfully organised a book donation campaign called the Takaful Malaysia s Book Donation Campaign for Children, with the purpose of promoting English literacy amongst the underprivileged children. Books donated were distributed to three selected orphanages namely Yayasan SunBeams, Cheras, Rumah Titian Kasih, Titiwangsa and Shelter Home, Petaling Jaya. Takaful Malaysia was awarded The Edge-BRC Best Performing Stock Award (Highest Returns to Shareholders over Three Years) under the Finance sector for the second time at the prestigious annual awards presentation of The 2016 Edge Billion Ringgit Club Awards. 18 august august 200 lecturers and students of Politeknik Ungku Omar took part in Seminar Shariah Milenia organised by BIMB Securities in collaboration with Bursa Malaysia. BHB organised BHB-Bernama Media Community Drive from Kuala Lumpur to Kemaman for members of the media. Activities revolved around protecting and preserving the marine ecosystem that ended with the release of turtle hatchlings at the Cherating Turtle Sanctuary. These initiatives encourage the media to perform CR activities as well as strengthens their bond with BHB and Bank Islam. 20 august BHB organised a bowling tournament with media representatives of Sarawak in Kuching as a gesture of appreciation for all the coverage given to BHB and its group of companies and to build closer rapport with media houses in Sarawak.

61 ANNUAL REPORT th AGM Leadership Perspectives Highlights Accountability Overview 13 september Bank Islam launched the first Shariah-based corporate credit card, Bank Islam VISA Infinite Business Card-i. The card targets large corporations and SMEs to encourage them to go cashless and have better visibility of their company expenses and cash flow. 23 september Bank Islam sponsored RM45,000 to the organisers of Invention, Innovation & Design Exposition 2016 an event that encourages and promotes innovation and creativity among students and faculties in UiTM. 26 september september Bank Islam launched a new co-brand card with Pahang Football Association called Bank Islam Visa Pahang FA Debit Card-i. This card offers a uniquely designed card for the supporters of Pahang FA as well as allows the supporters to contribute to the development of the football team. Financial Statements Shareholders BHB organised the BHB-Berita Harian Semarak Qurban programme at Perkampungan Orang Asli Kg Tekir, Negeri Sembilan. BHB sponsored RM80,000 to the programme that includes the construction of the surau s gate, basic necessities for the less fortunate families, as well as two cattle to be slaughtered for Jamuan Raya with the local community. 29 september Takaful Malaysia was awarded the Best Takaful Company 2016 Award at the Global Islamic Finance Awards ceremony held in Jakarta on 29 September The Company was acknowledged as the most outstanding Takaful operator at the global level for its sterling performance and contributions in the Islamic financial services industry.

62 60 BIMB HOLDINGS BERHAD GROUP CORPORATE EVENTS CALENDAR 18 october 02 november Bank Islam launched a new co-brand card with Kedah Football Association, called Bank Islam Visa Kedah FA Lang Merah Debit Card-i. This card offers a uniquely designed card for the supporters of Kedah FA as well as allows supporters to contribute to the development of the football team. Bank Islam signed an MoU with Perbadanan Tabung Pendidikan Tinggi Nasional ( PTPTN ) to provide a new repayment channel for borrowers through JomPAY direct debit service. With this collaboration in place, PTPTN borrowers will be able to repay the loan at no additional charge in a more convenient way. 05 november 24 october BHB organised a media bowling tournament in Kota Kinabalu as part of our engagement activities and to foster close rapport with media representatives of Sabah. Bank Islam collaborated with a telco company, OneXOX, to launch a new co-brand card called Bank Islam OneXOX Debit Card-i. The launch of this card was aimed to provide more rewards and benefits to OneXOX dealers. BHB organised a media briefing for Sabah media editors to introduce its subsidiaries business products and services and educate the media as well as public on fundamentals of Islamic Finance in Malaysia, Shariah Governance and Investment Account under IFSA 2013.

63 ANNUAL REPORT Leadership Highlights Overview 07 november BHB organised a media briefing for Sarawak journalists to introduce its subsidiaries business products and services and educate the media as well as public on the fundamentals of Islamic Finance in Malaysia, Shariah Governance and Investment Account under IFSA december Bank Islam signed an MoU with Tabung Pendidikan 1 Bilion ( TP1B ) to provide a new contribution channel using JomPAY services. This collaboration provides convenience for the public and UiTM alumni to contribute to this fund. Perspectives 14 november Accountability Takaful Malaysia`s latest Retail Centre, located at Lembaga Tabung Haji s Islamic Financial Service Centre (IFiC) in Jalan Koo Chong Kong, Ipoh commenced its operation on 14 November The IFiC is a One Stop Centre concept developed by Lembaga Tabung Haji as part of its initiative to provide diverse Islamic products and services that are relevant to all Malaysians. 16 november 20 december Bank Islam hosted a study visit from IBFIM and delegates from Uganda at Menara Bank Islam, Kuala Lumpur. Financial Statements Shareholders 20 th AGM About 60 students from Universiti Kebangsaan Malaysia attended an in-house briefing on Shariah Investment at BIMB Securities Sdn Bhd.

64 62 BIMB HOLDINGS BERHAD Berita Harian 18 October 2016 Utusan Malaysia 27 February 2016 The Edge 22 August 2016 The Star 01 December 2016 The Star 23 January 2016 Financial Dairy 26 January 2016 Malaysian Reserve 29 February 2016 Malay Mail 26 July 2016 The Edge 22 August 2016 MEDIA HIGHLIGHTS Malaysian Reserve 14 September 2016 Utusan Malaysia 25 June 2016 Utusan Malaysia 18 August 2016 Utusan Borneo Sarawak 08 November 2016 Borneo Post (KK) 06 November 2016 Borneo Post (Kuching) 02 April 2016 Focus Malaysia 19 December 2016

65 ANNUAL REPORT Malay Mail 29 July 2016 Sinar Harian 22 July 2016 Focus Malaysia 25 June 2016 Overview Utusan Sarawak 08 November 2016 Leadership Borneo Post (Kuching) 08 November 2016 Utusan Sarawak 04 June 2016 Utusan Malaysia 13 October 2016 Perspectives Berita Harian 12 April 2016 Highlights Borneo Post (KK) 08 November 2016 The Edge 24 October 2016 Accountability Utusan Malaysia 02 August 2016 Financial Statements Utusan Sarawak 04 June 2016 Borneo Post (Kuching) 18 October 2016 Shareholders The Sun 20 June 2016 The Star 18 February 2016 The Malaysian Reserve 08 November th AGM The Sun 25 January 2016

66 64 BIMB HOLDINGS BERHAD GROUP AWARDS & ACCOLADES OUR SUBSIDIARIES CONTINUED TO REAP THE REWARDS OF OUR RELENTLESS EFFORTS TOWARDS CONTINUOUS IMPROVEMENT IN BANK ISLAM MALAYSIA BERHAD Banking CEO of the Year Asia award from The International Banker Asia & Australasia Banking Awards 2016 Critics Choice Best Islamic Retail Banking Innovation Award 2016 (Cambridge IF Analytica UK) by Islamic Retail Banking Awards Upcoming Personality In Islamic Global Finance (Leadership) Award 2016 by Global Islamic Finance Awards 2016 Best CSR Initiative Category for its AL-MAAD (P) Yayasan Islam Perlis Wakaf Fund Project from Cards & Electronic Payments International ( CEPI ) Asia Awards 2016 Best Innovation In Retail Banking Malaysia from The International Banker Asia & Australasia Banking Awards 2016 Technology & Innovation Outstanding Partnership Award Payment Services by Wells Fargo Best Bank Capital Sukuk by The Asset Asian Awards 2016 Islamic Bank of The Year 2016 Malaysia & Recognised Leader In Shari ah Trade Finance by Wealth & Finance Awards 2016 Ranked 14 th In The Top Malaysia s 100 Leading Graduate Employers 2016 Best Wholesale Banking Award 2016 by Global Islamic Finance Awards 2016

67 ANNUAL REPORT th AGM Leadership Perspectives Shareholders Financial Statements Accountability Highlights Overview Best Islamic Bank Malaysia from The International Banker Asia & Australasia Banking Awards 2016 Asia s Best Employer Brand Awards 2016 by Employer Branding Institute The Platinum Trusted Brand Award 2016 (Islamic Financial Services) by Reader s Digest Best Islamic Green Financing by The Asset Asian Awards 2016 Best Commercial Bank Malaysia 2016 in Conjunction with The 11 th Islamic Business & Finance Award by CPI Financial SYARIKAT TAKAFUL MALAYSIA BERHAD Best Takaful Company Malaysia at 10 th International Takaful Awards 2016 The Edge-BRC Best Performing Stock Award (Highest Returns to Shareholders Over Three Years) Finance sector by The 2016 Edge Billion Ringgit Club Awards Best Takaful Company 2016 Award at the Global Islamic Finance Awards

68 upholding key strategies

69 NET INCOME We capitalise on the growth of the highly dynamic Islamic financial industry, allowing its core businesses to thrive and +6.6 % TOTAL: RM2.4 contribute to the economic prosperity of the nation. By being where the growth is, we create investment opportunities for our shareholders and maintain good relationships with our stakeholders, ensuring that they grow together with us. BILLION 4

70 68 BIMB HOLDINGS BERHAD SHARIAH-COMPLIANT CONFIRMATION STATEMENT and Salam Sejahtera In carrying out the roles and the responsibilities of the Shariah Committees as prescribed in the policy documents issued by the regulators, Bank Negara Malaysia and the Securities Commission of Malaysia for the respective financial industries and in compliance with our letters of appointment, we on behalf of the Shariah Committees of the respective Companies within BIMB Holdings Berhad group namely Bank Islam Malaysia Berhad, Syarikat Takaful Malaysia Berhad and BIMB Securities Sdn Bhd hereby submit the following confirmation for the financial year ended 31 December 2016.

71 ANNUAL REPORT Leadership Perspectives Highlights Accountability Financial Statements Shareholders Overview The Managements of the Companies are responsible to ensure that their conducts and businesses are in accordance with the Shariah rules and principles, and it is our responsibility to form an independent opinion based on our review on the respective Companies and thenceforth to produce this Confirmation Statement. We have reviewed, interalia, products, transactions, services, processes and documents of the respective Companies to ensure its compliance with Shariah. In performing our roles and responsibilities, we had obtained all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the respective Companies have complied with Shariah. At the management level, the Companies have implemented Shariah governance practices in compliance with policy documents that are relevant to the respective industries which include Shariah Governance Framework for Islamic Financial Institutions issued by Bank Negara Malaysia and Best Practices in Islamic Stockbroking Services Undertaken by Participating Organisation issued by the Securities Commission of Malaysia. Such governance practices include the establishment of internal Shariah compliance functions encompassing audit, review and research to facilitate and support new product development activities, Shariah training, management of Shariah noncompliance risks, Shariah audit and review and the necessary coordination with us on matters that require our decision. We have assessed the Shariah review and Shariah audit reports presented to us and have examined, on a test basis, the transactions, relevant documentations and procedures adopted by the management of the respective Companies. Our assessments were planned and performed in a way that would ensure all the information and explanation considered necessary were obtained in order to provide us with sufficient evidence to give reasonable assurance that the respective Companies have not violated Shariah. We also confirm that every incident of Shariah non-compliant event has been brought to our attention and we have subsequently noted that the corrective as well as preventive measures have been taken by the respective Companies in order to avoid the same from occurring in the future. Any Shariah non-compliant income has also been disposed to charitable causes upon approval by us. We had also reviewed the computation and distribution of Zakat by the respective Companies. In relation to the above, based on the information provided and disclosed to us, we, the Chairmen of the Shariah Committees of the said respective Companies within BIMB Holdings Berhad, do hereby confirm that, to the best of our knowledge, the businesses, operations and activities of the respective Companies for the year ended 31 December 2016 had been conducted in conformity with Shariah. We bear witness only to what we know, and we could not well guard against the unseen! (Surah Yusuf, verse:81) Allah knows best. Professor Dato Dr Ahmad Hidayat Buang Chairman, Shariah Supervisory Council, Bank Islam Malaysia Berhad Professor Dr Muhamad Rahimi Osman Chairman, Shariah Advisory Body (SAB), Syarikat Takaful Malaysia Berhad Emeritus Professor Dato Paduka Dr Mahmood Zuhdi Haji Abdul Majid 20 th AGM Chairman, Shariah Advisory Committee, BIMB Securities Sdn Bhd

72 70 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) The Board of Directors of BIMB Holdings Berhad ( BHB or the Company ) is committed to upholding high standards of corporate governance to preserve stakeholders trust, safeguard their interest and enhance their value in line with BHB Group s objective to be the premier Islamic financial services provider. The Board of Directors ( Board ) acknowledges the significance of governance and has given full commitment to ensure the adoption of high standards of practices in both the Group s businesses and operations. To achieve these objectives, BHB Group embraces the principles and best practices on corporate governance and is guided principally by the following requirements and guidelines: (a) Bank Negara Malaysia s Corporate Governance Policy ( BNM CG Policy ); (b) Malaysian Code on Corporate Governance 2012 ( MCCG 2012 ); (c) Bursa Malaysia Securities Berhad ( Bursa Securities ) Main Market Listing Requirements ( Listing Requirements ); (d) Corporate Governance Guide ( CG Guide ): Towards Boardroom Excellence 2 nd Edition by Bursa Securities; (e) Green Book on Enhancing Board Effectiveness ( Green Book ) by the Putrajaya Committee on Government Linked-Companies High Performance; and (f) Companies Act The chart below illustrates BHB s corporate governance structure: Shareholders BOARD COMMITTEES Audit & Examination Committee ( AEC ) Board of Directors ( Board ) Nomination & Remuneration Committee ( NRC ) Shariah Advisory Board Risk Committee ( BRC ) Internal and External Auditors MANAGEMENT COMMITTEES Sustainability Steering Committee Group Management Committee ( GMC ) Group Chief Executive Officer ( GCEO ) Group Risk Management Committee ( GRMC )

73 ANNUAL REPORT Leadership Perspectives Highlights Overview The application of the respective principles and best practices on corporate governance are highlighted in the various sections of this Statement of Corporate Governance. BHB s established structures, processes and policies help ensure compliance with laws and regulations and provide clear lines of sight for decision-making and accountability. 1. BOARD OF DIRECTORS 1.1 Board Charter The Board Charter covers the following key areas: BOARD CONDUCT DUTIES & RESPONSIBILITIES POWERS OF THE BOARD BOARD EFFECTIVENESS Code of Ethics Conflict of Interest Shareholders Communication Dealing in Securities Whistle Blowing Fiduciary Duties Roles & Responsibilities of the Board, Board Committees, Chairman, GMD/ GCEO & Management, Independent Director, Nominee Director and Company Secretary Authority & Delegation Matters Reserved for the Board Board Composition Appointment/Removal/ Succession Planning Director s Training Director s Evaluation Director s Remuneration In addition to the Board Charter, in discharging its duties, the Board is also guided by its Terms of Reference ( TOR ), a document which specifies the Board s role, power, duties and functions. The Board Charter contains broad principles and requirements on the Board s governance in accordance with the principles of good corporate governance as set out in the recommendation and guidelines issued by the relevant regulatory authorities. It is a dynamic document that is reviewed and updated from time to time to reflect relevant changes to policies, procedures and processes as well as amendments to rules and regulations. The TOR and Board Charter are subject to review once every two years, or when there are material changes to the governance structure, process or procedures. The TOR and Board Charter are available on the Company s website Roles and Responsibility of the Board The Board has the fiduciary duties to exercise their authority for a proper purpose, in good faith and in the best interest of the Company. In discharging their duties, the Directors of BHB exercise reasonable care, skill and diligence with the knowledge, proficiency and experience which is expected of a Director. The Board has the overall responsibility for promoting the sustainable growth and financial soundness of BHB and for ensuring reasonable standards of fair dealing, without undue influence from any party. This includes a consideration of the long term strategy and direction of the Board s decision on BHB, its stakeholders and the general public. Accountability Financial Statements Shareholders The Board has the responsibility to periodically review and approve the overall strategies, business and pertinent policies of the Company. The roles and responsibilities of the Board are clearly set out below: Oversee the implementation of the Company s governance and internal control framework, and periodically review whether these remain appropriate in light of material changes to the size, nature and complexity of the Company s operations; Review and approve a strategic plan in which the Board set the strategic direction for the Company; 20 th AGM

74 72 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) Monitor and review whether the overall performance of the Company and the Group against the set targets and objectives are sustained and properly managed; Oversee the risk management framework for managing business risks and periodically monitor the conduct of the Company s business to evaluate whether the business is being properly managed; Review and approve all policy matters including business plans and pertinent operating policies, and monitoring Management s performance based on Key Performance Indicators; Review risk management practices within BHB and the Group: (i) to ensure adequate internal controls, infrastructure and management information system for compliance with the applicable laws, regulations, directives and guidelines; (ii) to identify principal risks; and (iii) to ensure the implementation of appropriate systems to manage these risks. Review and approve succession plans, including the appointment, training, the remuneration of and where appropriate, replacement of key Management of the Company; Approve policies pertaining to staff salary and benefits; Approve the appointment of Directors and their emoluments and benefits; Approve the Company s investor relations programme or Shareholders communication policy; Approve transactions in accordance with the authority limit, and ensure that the Company s business operations are conducted in accordance with Shariah principles; Promote timely and effective communication between the Company and regulatory authorities on matters affecting or that may affect the safety and soundness of the Company; Promote together with the Management, a sound corporate culture within the Company which reinforces ethical, prudent and professional behavior; and Ensure the Company s activities comply with the Islamic Financial Services Act 2013, Companies Act 2016, Bursa Securities Listing Requirements, Capital Market and Services Act 2007, BNM Guidelines, the Company s Articles & Association and the regulations or guidelines under the relevant laws. The Board has delegated to the Management with certain matters on the day-to-day operations of the Company, which include running the Company in line with the Board s direction. Whilst the Board has delegated the day-to-day responsibilities to the Management, there are matters that are formally reserved for the Board s collective decision. There is a clear segregation of the Management and the Board s roles & responsibilities. This is to ensure that the Board and management are clearly aware of where the limit of responsibilities lies and that due consideration is given to issues at the appropriate level. Matters reserved for the Board comprises amongst others, acquisition and disposal of assets, related party transactions, financial results and declaration of dividends. Other than the above, the Board also represents the interests of the Shareholders. Therefore, the Directors are required to exhibit high standards of integrity, commitment and independence of thought and judgement. The Board s decisions are free from any undue influence and interference from any specific group or interest.

75 ANNUAL REPORT Leadership Overview 1.3 Board Composition The Board of BHB currently consists of eight (8) Non-Executive Directors. Five (5) are Independent Non-Executive Directors, including the Chairman, whilst three (3) are Non-Independent Non-Executive Directors of which two (2) are nominees of Lembaga Tabung Haji and one (1) Non-Independent Non-Executive Director who does not represent any interested Corporate Shareholder. Currently, the Board comprised a majority independent Directors in line with the requirements of the Bursa Securities Listing Requirements as well as BNM CG Policy. Within the Board there is diversity and a wealth of knowledge, experience and skills in the area of accountancy, banking, takaful, public administration and fund management, human resources management, corporate finance and risk management. A brief profile of each member of the Board is provided on pages 18 to 22 of this Annual Report. The diverse background and expertise of the Directors brings new perspective to the Company s operations and enhances the effectiveness of the Board. The Board aims to maintain a diversity of expertise, skills, industry experience and attributes among the Directors and is committed to pursuing diversity in terms of gender, age and other distinction across the Group as the combination of personalities provides a comprehensive range of perspectives and experiences, resulting in improved decision making. The Board has also taken note of Recommendation 2.2 of MCCG 2012 on its approach to gender diversity and the number of female Directors. During the period under review a new female Independent Non-Executive Director was appointed, bringing the number of female Directors to four (4) or 50% of BHB s Board. In 2016, the Company was awarded with the Certificate of Appreciation for achieving the target of at least 30% women on Board in Public Listed Companies by the Minister of Women, Family and Community Development. The Independent Directors participate actively in the Board committees by providing unbiased and independent views, advice and judgement, taking into account the interest of not only the Group but also the Shareholders, employees, the communities in which the Group conduct its business and stakeholders. The Board also took note of the expectation on Directors time commitment to carry out their responsibilities as outlined in Recommendation 4.1 of MCCG In this regard, BHB s Board Charter, stipulates that the maximum number of external professional commitments of each Director must not be more than ten (10) unless with prior approval of the Board. The following diagram gives a brief overview of the Board of Directors diversity in terms of independence, skills/experience, and gender composition. Perspectives Highlights Accountability Financial Statements BOARD COMPOSITION Independent Gender 37.5 % Non-Independent Directors 62.5 % Independent Directors 50 % Male 50 % Female Shareholders BOARD MEMBERS INDUSTRY/ BACKGROUND EXPERIENCE Corporate Finance 1 Insurance & Takaful 1 Accounting and Finance Banking Human Resources Management 1 Public Administration & Fund Management th AGM

76 74 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) 1.4 Nominee Director A Nominee Director has the fiduciary duty to act in the best interest of the Company. In the event of any conflict such Nominee Director shall not subordinate his/her duty to act in the best interest of the Company to his/her duty to the nominator. The conduct/manner of the Nominee Director in exerting the influence of the Shareholder is assessed via the annual Board evaluation exercise. This is a requirement under BNM s Shareholders Suitability Policy. Where a Board member is also a Nominee Director appointed by BHB in a major operating subsidiary or investee company, he/she is expected to update the Board of any material issues discussed or decided at the subsidiary or the investee company level. Two (2) out of eight (8) Directors are nominees of a substantial shareholder. The Chairman of the Company was initially also the nominee of a substantial shareholder. During the year under review, BNM has approved the change of the Chairman s status from a Non-Independent Non-Executive Director to an Independent Non-Executive Director. The fact that the Chairman is an Independent Non-Executive Director will heighten the effectiveness of the Board. 1.5 Independent Non-Executive Director ( INED ) Paragraph 11.6 of BNM CG Policy on Independent Directors stipulates the requirement for majority Independent Directors. The presence of majority INEDs within the current Board facilitates an effective and independent oversight over the Management providing the necessary checks and balances in ensuring the Company operates in a safe and sound manner. Pursuant to Recommendation 3.1 of the MCCG 2012, the Company has adopted a set of criteria to assess the independence of its Independent Directors. The criteria are based on the Director s skills, experience, contributions and economic and family relationships. The criteria adopted are in line with the Bursa Securities Listing Requirement, MCCG 2012 and BNM CG Policy. Hence, the tenure of the Director is also taken into account when assessing the independence of the Independent Director. Additional criteria that are assessed to determine such individual Directors ability to exercise independent judgement are: The Director is free from any business or other relationship which can materially pose any conflict of interest or interfere with the exercise of the Director s judgement or will be disadvantageous to BHB or BHB s interest; The Director s ability to provide objective challenges and constructive feedback to Management, focusing on root cause of issues and potential actions required to rectify the issues discussed; The Director s readiness to challenge other Directors assumptions, believes or viewpoints for the good of BHB; The ability to challenge the assumptions, beliefs or viewpoints of others with the objective of questioning and challenging constructively in the interest of the Company; Willingness to stand up and defend his/her views, beliefs and opinions for the ultimate good of the Company; and Has a good understanding of the Company s business activities in order to provide appropriate responses on the various strategic and technical issues put forth and deliberated by the Board. All INEDs are required to declare their independence on a monthly basis. In this regard, the Board is satisfied with the level of independence demonstrated by all of its Independent Directors and that they are free from business relationship or other circumstances that could materially interfere with their exercise of objective, unfettered and independent judgement.

77 ANNUAL REPORT th AGM Leadership Perspectives Overview The effective participation of INEDs enhances accountability in the Board s decision making process. The responsibilities of an Independent Director include but not limited to the following:- Provide and enhance the necessary independence and objectivity to the Board; Ensure effective checks and balances on the Board; Mitigate any possible conflict of interest between the policy making process and the day-to-day management of the Company; Constructively challenge and contribute to the development of business strategy and direction of the Company; and Ensure that adequate systems and controls to safeguard the interests of the Company are in place. The Board takes cognizance of Recommendation 3.2 of MCCG 2012 that the tenure of an INED should not exceed a cumulative term of nine (9) years. In line with the said recommendation, the Company has a policy that limit an INED to a maximum tenure of nine (9) years. An INED who has served for nine (9) years, may, subject to the Shareholder s and BNM s approval, continue to serve the Company as an INED. 1.6 Senior Independent Non-Executive Director In accordance with best practices on corporate governance, Tan Sri Ismail Adam continues to play his role as the Senior Independent Director ( SID ) of the Board. Shareholders and other stakeholders can convey their concerns to Tan Sri Ismail Adam at ismailadam@bimbholdings.com. Highlights 1.7 Director s Appointment Process All appointment of Directors will first be tabled and deliberated by the NRC. Subsequently, based on the NRC s recommendation, the Board will decide based on the merit, guided by the Company s Policy on Fit and Proper Criteria for Key Responsible Persons ( KRP Policy ). There is a formal and transparent process for the appointment of a new Director and the primary responsibility is delegated to the NRC. The procedure is in line with the Company s KRP Policy which has been implemented since August 2011, BNM s Guideline on Fit and Proper Criteria and BNM CG Policy. Under the said procedure, the NRC makes recommendation to the Board on the suitability of candidates for appointment as Directors in the Company. The NRC is also responsible for ensuring the candidates satisfy the requisite skills and core competencies in accordance with the KRP Policy of the Company, Bursa Securities Listing Requirements, MCCG 2012, BNM CG Policy and BNM s Guideline on Fit & Proper. The KRP Policy outlines the attributes/qualifications required by a candidate to be deemed fit and proper for the appointment as a Director. In assessing the suitability of a candidate, the NRC also conducts an interview with the candidate. Accountability Financial Statements The process flow for the appointment of a new Director is as follows: Identification of candidates Evaluation of suitability on Fit and Proper Interview session by NRC Shareholders Deliberation by NRC and recommendation to the Board Board Approval Upon the Board s concurrence, an application for the appointment of a Director would be submitted to BNM for its approval.

78 76 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) In determining if an individual is fit and proper to hold the position of a Director, the following shall be taken into consideration: His/her probity, diligence, competence and soundness of judgment; His/her reputation, character, integrity (including financial integrity) and honesty; His/her history of offence(s) involving fraud/dishonesty/violence; Whether he/she has been engaged in deceitful/oppressive/improper business practices or any practices which would discredit him/ her; Whether he/she has been engaged/associated/had conducted himself/herself in a manner which may cast doubt on his/her fitness, competence and soundness of judgment; Whether he/she has contravened any provision made by or under any written law designed for protecting members of the public against financial loss due to dishonesty, incompetence or malpractice; and Whether he/she has been declared a bankrupt. The process includes the identification of potential candidates, internal as well as external, governed by the expectation of the roles and capabilities described and required by the Board. This process includes an interview session, followed by a submission to the NRC for deliberation, recommendation to the Board for endorsement and, ultimately, submission to BNM for approval. The selection criteria and process for the appointments of Directors to the Board are detailed in the Board Charter available at The Board and Individual Director s Effectiveness Through a Board and Peer Annual Assessment ( Board Evaluation ) conducted on an annual basis, the NRC undertakes a formal and transparent process to assess the effectiveness of individual Directors, Board Committees and the Board as a whole. The factors considered, amongst others, include the following: NO. CATEGORY CRITERIA 1 Peers/Individual Director Contribution of the Director in meetings, when confronted with the conflict and his/her willingness to challenge prevailing opinion; quality of input provided by the Director; contribution to interaction and the Director s understanding of his/her roles and responsibilities i.e., in his/her capacity as a Director in general, Chairman of Board and Board Committees as well as an Independent Director. 2 Board Committees Terms of Reference; skill and competency; meeting and administration; conduct of meeting; communication to the Board; area of focus specific to each Board Committee; effective role in supporting and facilitating the Board s effectiveness in discharging its responsibilities; and sufficient access to review matters deliberated. 3 Board The responsibilities of the Board in relation to strategic planning, risk management, performance management, financial reporting and succession planning; Board communication and corporate governance; Board operation and interaction; the Board s composition, size and background; the contributions of each member at the Board meetings, decision-making and output. Where necessary, an external consultant/expert will be engaged to assist in and lend objectivity to the annual assessment.

79 ANNUAL REPORT Leadership Perspectives Highlights Overview Upon completion of the evaluation, the Company Secretary would compile the results for the Board s deliberation and approval of any action plan required. The Chairman will engage and discuss the peer assessment results with individual members if necessary. In addition to the above, the major key operating subsidiaries also perform individual assessment of its Directors, Chief Executive Officer/Managing Director as well as other key responsible persons and its Shariah Committee members annually. The assessment covers amongst other the person s probity, personal integrity and reputation, competence and capability, and financial integrity. 1.9 Succession Plan for the Directors BHB has come out with the succession plan for its Directors in The succession plan was also developed arising from BNM CG Policy, particularly in the following areas:- BNM CG POLICY REQUIREMENTS (a) Paragraph 11.4 (b) Paragraph 11.6 The requirement for only one (1) Executive Director in the Board, unless otherwise approved by BNM. ( Executive Director refers to a Director who has management responsibilities in BHB or any of its affiliates) The requirement for majority Independent Directors in the Board. (c) Paragraph The requirement for common Directors to remain in the minority. (d) Paragraph 12.3 (e) Paragraph 12.5 The requirement for majority Independent Directors in the Board Committees. Board Committees must not have any Executive Director in its membership. For the year under review, the Board has conducted a comprehensive gap analysis and succession planning exercise which covers all of the above specific requirements as well as the succession plan for the GCEO, Chairman and the Board as a whole together with the review of the composition of the Board Committees. Accountability Amongst the changes to the Board and its Board Committees arising from the succession plan include: With effect from 13 October 2016; Puan Noraini Che Dan was appointed as a new member of the AEC; Datuk Rozaida Omar and Puan Rifina Md Ariff ceased to be a member of the NRC & BRC respectively; Financial Statements Encik Mohd Zin Idris was appointed as a new member of the BRC; and Tan Sri Samsudin Osman, the Chairman was re-designated from a Non-Independent Non-Executive Director to an Independent Non-Executive Director with effect from 28 November During the year under review, the Board comprised of eight (8) Directors of which five (5) are Independent Non-Executive Directors, five (5) common Directors and two (2) executive Directors. Based on the changes made to the Board compositions, BHB has complied with four (4) areas of the BNM CG Policy as follows: Shareholders (a) Majority Independent Directors in the Board and Board Committees (under Paragraphs 11.6 and 12.3 respectively); (b) No executive Director in the Board Committees (under Paragraph 12.5); and (c) Requirement for Executive Director in the Board (under Paragraph 11.4). However, BHB has yet to comply with the requirement for common Director to remain in the minority (under Paragraph 11.11). 20 th AGM

80 78 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) 1.10 Roles and Responsibilities of the Chairman and the GCEO The roles and responsibilities of the Chairman and the GCEO are distinct and separate. This is to ensure appropriate supervision of the Management, with a clear hierarchical structure. This distinction allows for a better understanding and distribution of jurisdictional responsibilities and accountabilities. This clear structure and focused approach facilitates efficiency and expedites informed decision-making Chairman The Chairman namely Tan Sri Samsudin Osman has been with BHB since 1 February The Chairman holds Master in Public Administration from Pennsylvania State University, USA; Bachelor of Arts (Hons) and Diploma in Public Administration from the University of Malaya. Currently he is also the Chairman of Employees Provident Fund Board and a Director of Sime Darby Berhad. He was formerly the Chief Secretary of the Government of Malaysia from 2001 until 2006 and President of Putrajaya Corporation from 2006 until His vast working experience in the public service and corporate sector is essential in contributing to the positive development of BHB and its subsidiaries. As the Chairman, Tan Sri Samsudin Osman has effectively contributed towards enhancing the Board s role in meeting the Group s strategic and corporate objectives as well as strengthening governance of the Company. During the year under review, the Chairman recorded 100% attendance of the Board meetings. This evidenced his commitment as the Chairman where he has also gained the respect and trust of the other Board members. The primary role of the Chairman is to preside over the Board meeting and ensure the smooth functioning of the meetings in line with good corporate governance practices. The duties of the Chairman includes amongst others: (a) Manage the Board meetings to ensure effective decision making; (b) Provide leadership to achieve the overall performance of the Board in meeting the strategic and corporate objectives of BHB; (c) Ensure the responsibility of the Board, Board Committees and individual Directors are understood by the individual Directors, thus facilitate the effective execution of decision s made; and (d) Develop an effective working relationship with the Management. The Chairman provides leadership to the Board and plays an important role in encouraging and inculcating a positive culture within the Board. In order to ensure that relevant issues are discussed, the Chairman will lead the agenda for the Board meetings and request for views and inputs from the members. Pertinent information and analysis are disseminated to members of the Board prior to the Board meetings, at which the Chairman encourages an open debate on issues, integrity as well as ethical and professional conduct to facilitate decision making. The Chairman also ensures that a consensus is reached at the Board meetings. Where deemed necessary, the Chairman may call for a vote where a decision can be made by a vote of a simple majority. In the event that a consensus cannot be reached, the Chairman may defer the agenda, and request for additional information or research to be conducted on the subject matter, to enable the Board to make an informed decision.

81 ANNUAL REPORT th AGM Leadership Perspectives Highlights Accountability Overview GCEO 1.11 Company Secretary Dato Sri Zukri Samat was appointed the GCEO since 18 February Dato Sri Zukri Samat is also the Managing Director of Bank Islam Malaysia Berhad. The GCEO holds MBA (Finance) from the University of Hull, United Kingdom. In year 2014, Dato Sri Zukri Samat received Honorary Doctorate (PhD) in Finance and Islamic Banking, from College University INSANIAH. His vast experience of more than 20 years in banking, Islamic banking and finance has enabled him to effectively discharge his duties and responsibility as the GCEO of BHB and the Group. The GCEO was well recognized for his leadership and management skills in the financial industry. In year 2014 and 2016, Dato Sri Zukri Samat was awarded the Banking CEO of the Year Asia by The International Banker Awards 2014 and The International Banker Asia & Australasia Banking Awards The GCEO has the overall executive responsibility for the day-to-day operations of BHB which includes implementing the policies and strategies adopted by the Board, keeping the Board fully informed of all important aspect of the Company s operation and ensuring sufficient information is disseminated to the Board members. The GCEO also carries the primary responsibilities for ensuring the management competencies including the placement of an effective succession plan to sustain continuity. Key responsibilities of the GCEO include the following:- (a) Provide strong leadership based on ethical values whilst overseeing the day-to-day operations in implementing the policies and strategies approved by the Board; (b) Serve as the intermediary between the Board and the Management in ensuring a strong governance culture; (c) Ensure effective relationship and communication between the Management, the Board, the Shareholders and relevant stakeholders; and (d) Ensure effective communication of the Company s vision, mission and strategy to the employees of BHB. Puan Maria Mat Said was appointed as the Group Company Secretary on 31 December She holds a Bachelor of Law from University of Malaya. She is also a Licensed Secretary by the Companies Commission of Malaysia. The Company Secretary has 25 years of experience in the banking industry, mainly, performing legal and secretarial function. The Company Secretary is responsible for advising the Board on issues relating to relevant laws, rules, procedures and regulations affecting the Board, as well as best governance practices. She is also responsible for advising the Directors on their obligations and duties and facilitates effective dissemination of information to the Board, the Board Committees and the Management. Apart from assisting the Chairman in preparing the agenda and the meetings, the Company Secretary also undertakes amongst others, the following roles: Financial Statements Company Facilitating the highest standard of governance practices among BHB entities and identifying areas for enhancements; Shareholders Ensuring that BHB complies with statutory obligations under the relevant laws and regulations; Monitoring and ensuring BHB s governance framework complies with the Islamic Financial Services Act 2013, the MCCG 2012, BNM CG Policy, Bursa Securities Listing Requirements, Companies Act 2016, Capital Market and Services Act 2007 and all others relevant laws and regulations; and Maintaining the safe keeping of statutory records of the Company in compliance with applicable laws and regulations;

82 80 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) Board Managing matters relating to the Board and Board Committees meeting; Ensuring procedures for the appointment and re-appointment of Directors are adhered to; Organising induction programmes for new Director; Organising and assisting in Directors training; Updating the Board of Directors on any development and changes in relevant laws, regulations and the impact on BHB s business operation; Assisting Directors and Management in executing various corporate proposals by ensuring Board decisions and instructions are properly communicated and carried out; Acting as the point of contact to source for information and to assist the Board in its decision-making; Shareholders Assisting in managing Shareholders communication and resolving their queries; Organising Shareholders meetings as well as preparing all relevant documents required for the meetings; and Managing BHB s relationship with external stakeholders. The Company Secretary performs an oversight role in ensuring uniformity in conduct and adoption of best governance practices within BHB and its Group. The Company Secretary also serves as an adviser on matters pertaining to governance and facilitates the flow and sharing of information among the Board and Board Committees. For the year under review, the Company Secretary undertook the following: Reviewed of the Term of Reference of the Board and Board Committees as well as developed the Board Charter; Established a comprehensive Board succession plan and action plan to comply with BNM CG Policy; Reviewed the Board of Directors and Board Committees remuneration framework; Reviewed the composition of the Board of Directors and Board Committees; Established lines of reporting and communication between subsidiaries in the Group; Participated and reviewed on the production of the Annual Report; and Organized in-house briefing for Directors and Management in relation to new regulatory requirements, i.e., Anti Money Laundering and Anti-Terrorism Financing Act 2001 and the new Malaysian Financial Reporting Standard 9. All Directors have direct and unlimited access to the advice and services of the Company Secretary. The Board is satisfied with the performance and support rendered by the Company Secretary Directors Retirement, Re-Election, Re-Appointment In accordance with the Company s Articles & Association, all Directors of BHB are subject to re-election by the Shareholders at the Annual General Meeting at the first opportunity after their appointment, and in subsequent year one-third (1/3) of the Directors for the time being, or if their number is not three (3) or a multiple of three (3), then the nearest one-third (1/3) are subject to retirement by rotation at least once every three (3) years in accordance with Paragraph 7.26(2) of the Bursa Securities Listing Requirements and Articles 61 and 66 of the Company s Articles & Association.

83 ANNUAL REPORT th AGM Leadership Perspectives Highlights Accountability Overview For the year under review, the re-election and re-appointment of the following Directors were duly approved by the Shareholders at the 19 th Annual General Meeting held on 1 June 2016: 1. Tan Sri Ismail Adam; 2. Puan Rifina Md Ariff; 3. Encik Mohd Zin Idris; 4. Encik Mohd Tarmidzi Ahmad Nordin; and 5. Puan Noraini Che Dan. For the forthcoming Annual General Meeting, the Board of Directors has recommended the re-election of the following Directors for approval by the Shareholders: (a) Pursuant to Article 61 of the Company s Articles & Association and Paragraph 7.26(2) of the Bursa Securities Listing Requirements, Tan Sri Samsudin Osman, Datuk Rozaida Omar and Datuk Zaiton Mohd Hassan shall be retiring at the forthcoming Annual General Meeting and being eligible, have offered themselves for re-election. (b) The Companies Act 2016 which came into force on 31 January 2017 does not impose an age limit for Directors. At the last Annual General Meeting of the Company held on 1 June 2016, the Shareholders have approved the re-appointment of Encik Mohd Zin Idris, who is above the age of 70, pursuant to Section 129 of the Companies Act, The said approval would lapse at the conclusion of this forthcoming Annual General Meeting unless he is re-appointed. Encik Mohd Zin Idris, age 73, has notified the company that he would not be offering himself for re-appointment. Details of the Directors who are due for re-election and re-appointment at the forthcoming Annual General Meeting are disclosed on pages 18 to 22 of this Annual Report. In relation to the application for the re-appointment of Directors to BNM, the NRC will first assess the Directors who are due for re-appointment and then submit its recommendation to the Board for deliberation and approval. Upon obtaining the Board s endorsement, the relevant submission, supported by the justifications for such re-appointment, is made to BNM for its approval three (3) months prior to the expiry of the Director s tenure. Financial Statements Shareholders 1.13 Board Meetings Board meetings are scheduled in advance at the beginning of a new calendar year to enable Directors to plan ahead and fit the year s meetings into their own schedules. The Board meets not less than six (6) times a year, with additional meetings for particular matters, as and when the need arises. The Board continues to proactively engage with the Management or external advisors for information and/or clarification on relevant matters to ensure that the various concerns and issues relevant to the Company s operations are duly addressed. The scheduled Board meetings are held to receive, deliberate and decide on matters reserved for its decision, including the performance of the Group, the business plan and strategies of the Group s and the Group quarterly financial results. Special Board meetings are held as and when required to consider urgent matters that require the Board s expeditious review and consideration. A Director who has interest, either direct or indirect, in any proposal or transaction being considered must declare his or her interest and abstain from participating in discussion and any decision on the proposal.

84 82 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) The Directors have been informed of the expectation of time commitment during their appointment to the Board. This takes the form of the minimum number of Board and Board Committee meetings to be held in a financial year. All Directors are aware of their responsibilities and have devoted sufficient time to discharge their duties and responsibilities. This is evidenced by their satisfactory attendance of the Board meetings. In this regard, the Board is satisfied with the level of time commitment by each of the Directors towards fulfilling their roles in the Board and Board Committees. In the financial year ended 31 December 2016, all the Directors attended at least 75% of the Board meetings held, in compliance with BNM CG Policy and the Bursa Securities Listing Requirements. For the financial year ended 31 December 2016, the Board met eleven (11) times. The details of attendance by each of the Directors of the meeting are as follow:- NO. OF MEETINGS DIRECTOR *HELD ATTENDED % Tan Sri Samsudin Osman Chairman/Independent Non-Executive Director Tan Sri Ismail Adam Senior Independent Non-Executive Director Encik Mohd Zin Idris Non-Independent Non-Executive Director Datuk Zaiton Mohd Hassan Independent Non-Executive Director Datuk Rozaida Omar Non-Independent Non-Executive Director Puan Rifina Md Ariff Non-Independent Non-Executive Director Encik Mohd Tarmidzi Ahmad Nordin Independent Non-Executive Director Puan Noraini Che Dan** Independent Non-Executive Director Notes: * Reflects the number of meetings held during the time the Director held office. ** Noraini Che Dan was appointed on 1 April The proceedings of the meetings, including all issues raised, the deliberation, decision and conclusion made by the Board and Board Committees are properly recorded and minuted.

85 ANNUAL REPORT Leadership Perspectives Highlights Overview 1.14 Access to The Board of Directors has full and unrestricted access to all information pertaining to BHB s affairs including, inter alia, the Group s financial results, annual budgets, reviews against business plans and progress reports on corporate developments to enable them to discharge their duties effectively. The schedule of Board Meetings is circulated in advance to the Board members. The Agenda and Board meeting papers are disseminated to the Directors at least five (5) days prior to the Board meeting to allow sufficient time for the Directors to study and review the issues and, where necessary, to obtain further information and explanation to facilitate an informed decision. At the Board meeting, the Directors deliberate at length on the agenda prior to making decisions. The Management and the external advisers may be invited to attend the Board meetings when necessary, to furnish the Board with explanations on items tabled or to provide clarification on issues that may be raised by any Directors. The deliberations and resolutions passed by the Board are recorded properly, and minutes of the meeting are confirmed at the next Board Meeting. The Company Secretary also regularly updates the Board and/or Management on any changes to regulations and guidelines as issued by BNM, Bursa Securities, Securities Commission, Companies Commission of Malaysia or other regulatory authorities. In addition, the Board has direct and unlimited access to the advice and services of the Management and has the right to seek independent advice on specific matters that in their opinion requires unbiased evaluation, at the expense of BHB. A procedure is in place to facilitate the Board in seeking independent professional advice as follows: (a) A Director may request for independent professional advise by providing the following details: The nature of the independent advice; The likely cost of seeking the independent advice; Details of the independent adviser proposed; (b) The Chairman will consult the Company Secretary whether the request should go directly to the Board or whether it warrants a thorough feasibility study in accordance with relevant BHB policies; (c) Depending on the complexity of the request, the Company Secretary will initiate the process to engage the required advisors; (d) A copy of the report or independent advice will be made available to the Board for deliberation; and (e) All documentation seeking the independent advice must clearly state that advice is sought for the benefit of BHB and must not concern matters of a personal or private nature to the Director or any other individual Number of Directorships and Professional Commitments In compliance with Paragraph of the Bursa Securities Listing Requirements, a Director must not hold more than five (5) Directorships in listed companies to enable the Directors to discharge their duties effectively by ensuring their commitment. Whilst the Board values the experience and perspective gained by the Directors from their professional commitment in other organizations and associations, Paragraph 10.3 of BNM CG Policy requires BHB to establish a policy on the maximum number of external professional commitments. The Board Charter which was approved on 27 January 2017 stipulates that the maximum number of external professional commitments of each Director must not be more than ten (10) unless with the prior approval of the Board. During the period under review, all Directors complied with Paragraph of the Bursa Securities Listing Requirements. Accountability Financial Statements Shareholders 20 th AGM

86 84 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) 1.16 Conflict of Interest Pursuant to BNM CG Policy, the Bursa Securities Listing Requirements and the Companies Act 2016, the Directors are required to declare their interest, including whether such interest arises through close family members. The Board is attentive to the possibility of potential conflict of interest situations involving the Directors and the Company and affirms its commitment to ensure that such situation of conflict is avoided. The Board Charter accentuates that in the event where there may be a conflict of interest, the interested Director shall declare at the beginning of the Board meeting the facts and nature of the conflict and to abstain from participating in discussions and decisions on the matters which directly involved the said Director. In circumstances where a Director is unsure as to whether or not a conflict of interest exists or is material, he/she would discuss the matter with the Chairman prior to the meeting. Where a conflict of interest exists and the Director does not declare his or her interest and/or offer to withdraw, the Chairman should, if he is aware, takes appropriate action to highlight the conflict. In the event of any non-compliance with any requirement on conflict of interest, the Board may or impose such actions as it considers appropriate in the best interest of the Company Directors Training The BHB s Board Charter incorporates a policy on Director s Training which, amongst others, requires: (a) Newly appointed Director to undergo an induction program by the Management where the Company s governance structure, key Management, business and operations and important regulations and laws are highlighted. The induction program is to be held as soon as practicable, no later than three (3) months upon the appointment of the Director; (b) To undergo and complete the Director s Mandatory Accreditation Programme by Bursa Securities within four (4) months of his/her appointment; (c) To complete a core training program under the Financial Institutions Directors Education Program ( FIDE ) within one (1) year and the same to be completed within two (2) years upon the Director s appointment to the Board; and (d) To attend at least two (2) trainings in the calendar year. The Board recognises the value of enhancing the skills and knowledge of its members on relevant new laws and regulations, the changing business environment and risk profile, as well as the latest developments and key challenges in the financial sector. The Board is mindful of the need for continuous training to keep abreast with new developments. The Directors are encouraged to attend forums and seminars facilitated by external professionals in accordance with their respective needs in discharging their duties as Directors. The Board will continue to evaluate and determine the training needs of its Directors to enhance their skills and knowledge. The Company provides a dedicated training budget for the Directors continuing education. Relevant training programmes are arranged by the Company for the Directors and members of the Board Committees. The Directors may also request to attend additional trainings according to their specific requirements as Directors or members of the Board Committees. As at to date, all Directors have attended the FIDE programme and Mandatory Accreditation Programme by BNM and Bursa Securities respectively. In addition, all the Directors have attended at least two (2) trainings during the period under review. The Management conducted an induction programme for all newly appointed Directors within a month of their appointment.

87 ANNUAL REPORT th AGM Leadership Perspectives Highlights Accountability Overview The newly appointed Directors were given an information pack comprising relevant updated corporate information on BHB, Board Charter, Term of References of the Board and Board Committees, as well as other relevant policies related to the Board. The induction program was arranged to assist the Directors in familiarising themselves with the roles and responsibilities of Directors. It also serves to introduce BHB and the Group s businesses, operations and governance practice and arrangements, amongst others. The Directors were briefed on the business operations of the respective subsidiaries during the induction programme. The Company Secretary co-ordinates the organisation of internal training programmes and the Directors attendance of external seminars and programmes. The Company Secretary keeps a complete record of the trainings attended by the Directors. During the year under review, Puan Rifina Md Ariff and Encik Mohd Tarmidzi Ahmad Nordin have completed their FIDE programme as required by BNM. The conferences, seminars and training programmes attended by each Director in 2016 were as follows: DIRECTOR TRAINING PROGRAMME Tan Sri Samsudin Osman Tan Sri Ismail Adam Datuk Zaiton Mohd Hassan Financial Statements Shareholders Corporate Governance Workshop Nomura Central Banker Seminar Thought Leadership Session Programme: Nurturing Strategic, Innovative & Global Mind MFRS 9 Briefing by KPMG International Social Security Conference Private Equity Forum Khazanah Megatrend Forum Forum on Public Delivery Service MFRS 9 Briefing by KPMG The Inside Story of the Annual Report: What Directors Must Know Corporate Governance, Directors Duties and Regulatory Updates Seminar 2016 Briefing on AML/CFT by PWC Corporate Governance Workshop a Dialogue on The New and Revised Auditor Reporting Standards: Implication to Financial Institutions Special Invitation to Industry Briefing on Directors Register Implementation Directors Remuneration Report 2015: Briefing Session for Directors A special briefing on the Implementation of the Recommendations by FIDE Forum The Economist Corporate Network The Innovation Imperative A view from the Periphery 2 nd Distinguished Board Leadership Series Avoiding Financial Myopia by Prof Jeffrey L.Sampler BNM-FIDE Forum Dialogue with Deputy Governor on the Corporate Governance Concept Paper MFRS 9 Briefing by KPMG Effective Board Evaluation Briefing on AML/CFT by PWC

88 86 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) DIRECTOR Datuk Rozaida Omar Encik Mohd Zin Idris Puan Rifina Md Ariff Encik Mohd Tarmidzi Ahmad Nordin Ring the Bell for Gender Equality MFRS 9 Briefing by KPMG TRAINING PROGRAMME A dialogue on The New and Revised Auditor Reporting Standards: Implications to Financial Institutions Launch of Directors Register 2 nd Distinguished Board Leadership Series Avoiding Financial Myopia by Prof Jeffrey L.Sampler MFRS 9 Briefing by KPMG Capital Market Directors Programme FinTech: Business Opportunity or Disruptor by Markus Gnirck and Veiverne Yuen Briefing on AML/CFT by PWC FIDE Core Programme Module A (Bank) FIDE Core Programme Module B (Bank) MFRS 9 Briefing by KPMG Comprehending Financial Statements for Directors and Management FIDE Core Programme Module A (Insurance) FIDE Core Programme Module B (Insurance) Integrity Risks Corruption and Fraud MFRS 9 Briefing by KPMG Briefing on AML/CFT by PWC 4 th Annual Corporate Governance Symposium at Pullman Kuala Lumpur Puan Noraini Che Dan Annual Directors Training 2015 Audit Committee Conference 2016: Setting the Right Tone Financials Hidden I Plain Sight: Why Directors & Management Need to Ask Hard Questions Internal Control & Fraud Prevention Seminar 2016 for the Public & Private Sectors Briefing on AML/CFT by PWC 4 th Annual Corporate Governance Symposium at Pullman Kuala Lumpur 1.18 Directors Trading During Closed Period Directors of BHB are prohibited from trading in any affected securities based on price sensitive information and/or knowledge which have not been publicly announced. In accordance with Paragraph of the Bursa Securities Listing Requirements, the Directors of the Company are reminded that they must not engage in dealings of the Company s shares or of other listed issuers as long as the Directors are in possession of price-sensitive information relating to such listed issuers. However, Directors who are not in possession of price-sensitive information relating to the Company may engage in dealings with such listed securities during a closed period (i.e. the period commencing 30 calendar days before the targeted date of announcement to the Bursa Securities of the quarterly results, up to one full market day after the announcement of the Company s results for the financial quarter) provided that the Directors comply with Paragraph of the Bursa Securities Listing Requirements.

89 ANNUAL REPORT Leadership Perspectives Highlights Accountability 20 th AGM Overview The Board of Directors are reminded on quarterly basis to refrain from dealing in the Company s shares one (1) month prior to the release of BHB s quarterly financial results. BHB has in place a process that must be complied with if any of the Directors wishes to deal in the Company s shares as follows: (a) Prior to the proposed dealing, the Director must give written notice to BHB of his/her intention to deal; (b) Upon receipt of such notice, BHB will make an immediate announcement to Bursa Securities stating the following:- (i) the Director s current shareholdings in the Company; and (ii) the Director s intention to deal in the shares of the Company during a closed period; (c) The proposed deal can only be effected after one full market day of the announcement being made to Bursa Securities; (d) Subsequently, the Director must give notice of the deal in writing to the Company Secretary within one full market day after the deal has occurred. BHB will immediately announce such notice to Bursa Securities stating the following:- (i) the date on which the deal occurred; (ii) the consideration for the deal; and (iii) the number of shares involved in the deal, both in absolute terms and as a percentage of all issued shares of that class in the Company; (e) The Company Secretary will then table at the forthcoming meeting of the Board of Directors, a summary of dealings notified by the Director for notification purposes. Financial Statements Shareholders In the event where a Director deals in the Company s shares outside the closed period, the Director must give written notice of the said deal to the Company Secretary within three (3) market days after the deal has occurred. BHB will then immediately announce the notice to Bursa Securities. During the year under review, there were no transactions by any of the Directors in the shares of the Company. 2. REMUNERATION 2.1 Directors Remuneration The Directors remuneration is a means to acknowledge the Directors contributions. It is also a means to attract, motivate and retain Directors of certain caliber and expertise who are willing to contribute their time, efforts and experience towards managing the Company effectively. The reward levels commensurate with the competitive market and business environment in which the Company operates whilst at the same time reflective of the Directors experience and level of responsibilities. The remuneration structure for the Non-Executive Directors takes into consideration the relevant factors which include the function, responsibilities, expertise, risk involved and time spent for the preparation of the Board and Board Committee meetings. A higher rate (premium) is given to the Chairman of the Board and the Board Committees in view of his/her additional role in guiding and managing the Board and the Board Committee meetings.

90 88 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) 2.2 Director s Remuneration Policy The policy on the remuneration for Directors is as follows: (a) Fees and Other Emoluments Non-Executive Directors are remunerated by way of monthly fees, a sitting allowance and other emoluments. Fees payable to Non-Executive Directors are subject to Shareholders approval at the Annual General Meeting. (b) Benefits In Kind Other benefits such as Directors Health and Medical Benefit together with Directors and Officers ( D&O ) liability insurance and travelling allowance are also provided. The remuneration of the Directors is reviewed regularly to ensure the Directors are reasonably remunerated to reflect their role, responsibilities and efforts in discharging their fiduciary duties. The numbers of Directors of the Company, whose remuneration are paid/payable for their services fall within the following bands: GROUP TO TO Non-Executive Directors Below RM100,000 RM100,001 and RM150,000 RM150,001 and RM200,000 RM200,001 and RM250,001 RM250,001 and RM300,000 RM300,001 and RM350,000 RM350,001 and RM400,000 RM400,001 and RM450,000 RM450,001 and RM500,000 RM500,001 and RM550,000 RM550,001 and RM600,000 RM600,001 and RM650,000 RM650,001 and RM700,000 RM750,001 and RM800,000 RM850,001 and RM900,000 Above RM900, TOTAL 11 10

91 ANNUAL REPORT Leadership Highlights Perspectives Accountability Financial Statements 20 th AGM Shareholders Overview The detail remuneration of the GCEO is as follows: COMPANY TO TO Group Chief Executive Officer RM455,000 RM362,000 The detail of each Director s remuneration during the financial year is disclosed in Note 38 on page 217 of BHB s Financial Statements. During the year under review, the Board has conducted a feasibility study among the banking industry in relation to the total remuneration of BHB against other Financial Holding Companies ( FHC ). The study was conducted based on factors such as market size, size of operations, strategic direction, challenges and financial target. The study also takes into consideration the FIDE Director s Remuneration Report 2015 ( 2015 Report ). The objective of the review was to provide a remuneration that would appropriately recognize the important role, responsibility and contribution of the Non-Executive Directors. The 2015 Report recommended six (6) key considerations in the setting of the Non-Executive Directors remuneration to ensure there was equitable remuneration for role, effort and risk, as follows:- 1. The number of meetings attended to be used as an indicator of a Non-Executive Director s contributions; 2. A meeting fee rate should be based on a comparable rate that the market pays for a talent with similar caliber and expected contributions; 3. The fixed fee (retainer fee) component to be reduced and the meeting fee (sitting fee) component to be increased so that the Non-Executive Directors were better recognised for their preparation and contributions at meetings including meetings with BNM. Fixed fee would be determined by taking into account the Non-Executive Director s expected time spent on Board s education, networking and engagement with stakeholders; 4. Rate for all meeting fees should be standardized for all Board and Board Committee meetings to recognize the value of each member s contributions; 5. The Chairman of the Board and the Board Committees to be remunerated at a premium given the additional role that they play in guiding and managing the Board and the Board Committees; and 6. The remuneration to be paid on a timely and periodic basis. Based on the above, the remuneration of the Non-Executive Directors of BHB was revised with effect from 1 January The Directors remuneration for the year under review and for the financial year ending 31 December 2017 will be tabled for the Shareholders approval at the forthcoming 20th Annual General Meeting of the Company.

92 90 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) 3. BOARD COMMITTEES The Board has established the relevant Board Committees to assist the Board in discharging its duties and responsibilities more efficiently and effectively. The Board delegates certain responsibilities to the following Board Committees, which operate within clearly defined Terms of Reference, primarily to assist the Board in the execution of its duties and responsibilities. Although the Board has delegated its authority to these Board Committees, the ultimate responsibility for final decisions on all matters lies with the entire Board. The Board Committees are as follows: Board of Directors Audit & Examination Committee Nomination & Remuneration Committee Board Risk Committee 3.1 Nomination and Remuneration Committee ( NRC or Committee ) During the year under review the Board decided on the consolidation of the Nomination and Assessment Committee and the Remuneration Committee into Nomination and Remuneration Committee with effect from 13 October The NRC is chaired by Tan Sri Ismail Adam, the Senior Independent Non-Executive Director of BHB. Tan Sri Ismail Adam was appointed as the Chairman of the NRC since 10 December Tan Sri Ismail Adam graduated with a Bachelor of Arts (Hons.) in Economic and a Diploma in Public Administration from the University of Malaya. Tan Sri Ismail Adam also holds Master of Arts (Economic) from Vanderbilt University, USA. Currently Tan Sri Ismail Adam is also the Chairman of Syarikat Prasarana Malaysia Berhad and the Director of Westport Holdings Berhad. Tan Sri Ismail Adam has vast experience in Policy Management and Administration in the course of his civil service career spanning over 38 years. Tan Sri Ismail Adam has made remarkable contribution in fostering the culture of high performance in public services. As the Chairman of the NRC, he is well prepared and effectively leads the Committee by encouraging active participation and contribution from all members and has been very focused and objective during the deliberation of issues and matters concerning BHB. The NRC is primarily responsible for determining and recommending to the Board the remuneration package of the Non-Executive Directors and key Management of the Company. The Committee has four (4) members, of which three (3) are Independent Non-Executive Directors. The current composition of NRC complies with the BNM CG Policy. The NRC meetings are held at least once a year or as and when necessary.

93 ANNUAL REPORT Leadership Perspectives 20 th AGM Overview The main activities of the NRC in 2016 are summarized as follows: (a) Assessment and recommendation to the Board the appointment of new board members in BHB and its subsidiaries; (b) Assessment and recommendation to the Board the appointment of the members of BHB s Board Committees; (c) Assessment and recommendation to the Board on the renewal of the contract of service for Management; (d) Assessment and recommendation to the Board on the succession plan for the Board, re-appointment of Directors and review of the composition of the Board Committees; and (e) Assessment and recommendation to the Board on the review of the Directors remuneration. Seven (7) meetings of the NRC were held during the financial year ended 31 December Details of the members attendance at the meetings are as follows: COMMITTEE MEMBERS ATTENDANCE % Tan Sri Ismail Adam (Chairman) Senior Independent Non-Executive Director Datuk Zaiton Mohd Hassan Independent Non-Executive Director Encik Mohd Zin Idris Non-Independent Non-Executive Director Datuk Rozaida Omar* Non-Independent Non-Executive Director Highlights Accountability Financial Statements Shareholders Encik Mohd Tarmidzi Ahmad Nordin Independent Non-Executive Director 6/ / / / /7 100 Notes: * Datuk Rozaida Omar ceased to be a member w.e.f. 13 October The Terms of Reference of the NRC are available on the Company s website Audit and Examination Committee ( AEC or Committee ) The AEC is led by its Chairman, Datuk Zaiton Mohd Hassan ( Datuk Zaiton ) who was appointed as the Chairman on 4 December She is currently the Chief Executive Officer of Malaysia Professional Accountancy Centre (MyPAC). Datuk Zaiton is a Fellow of the Association of Chartered Certified Accountants (ACCA) and a member of the Malaysian Institute of Accountants ( MIA ) as well as the Malaysian Institute of Certified Public Accountants (MICPA). Paragraph 15.09(1)(c) of the Bursa Securities Listing Requirements stipulates that at least one member of the Committee must be a member of the MIA or equivalent expertise or experience in the field of finance. Hence, Datuk Zaiton s involvement in the AEC is in line with the said requirement. Datuk Zaiton s vast experience in banking, finance and accountancy has enabled her to lead the Committee effectively, particularly in dealing with issues relating to the implementation of new accounting standards and financial reporting.

94 92 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) The AEC is authorised by the Board to conduct activities within its Terms of Reference and has unrestricted access to both the internal and external auditors and the Management. The Committee has five (5) members, of which four (4) are Independent Non-Executive Directors. The current composition of AEC complies with the BNM CG Policy. The Committee met seven (7) times during the year under review. Its activities are summarised in the AEC s Report disclosed on pages 107 to 115 of this Annual Report. 3.3 Board Risk Committee ( BRC or Committee ) The BRC was established in the later part of 2016 and the first meeting was commenced on 11 October The BRC is responsible to assist the Board on risk management and oversee the Management s activities in managing significant risk areas and to ensure that the risk management process is in place and functioning. The BRC is chaired by Encik Mohd Tarmidzi Ahmad Nordin ( Encik Mohd Tarmidzi ), an Independent Non-Executive Director of BHB. Encik Mohd Tarmidzi holds Master of Business Administration from Islamic University of Malaysia in Islamic Banking & Finance. Encik Mohd Tarmidzi is also an Associate member of the Chartered Insurance Institute (UK) (ACII) and the Malaysian Insurance Institute (AMII). Encik Mohd Tarmidzi has more than 30 years of experience in takaful and finance. Prior to his retirement in October 2009, he was the Chief Executive Officer of Etiqa Takaful Berhad. The BRC is supported by the Group Risk Management Committee ( GRMC ) where the members consist of the Group Chief Strategy Officer and Group Chief Financial Officer of BHB together with the Risk Officer of each major key operating subsidiaries. The GRMC assists the BRC to oversee the risk management matters relating to the activities of the Group. The BRC has three (3) members, of which two (2) are Independent Non-Executive Directors. The current composition of BRC complies with the BNM CG requirement. The BRC met two (2) times during the financial year ended 31 December Details of the members attendance at the meetings are as follows: COMMITTEE MEMBERS ATTENDANCE % Encik Mohd Tarmidzi Ahmad Nordin (Chairman) Independent Non-Executive Director Puan Noraini Che Dan Independent Non-Executive Director Encik Mohd Zin Idris* Non-Independent Non-Executive Director Puan Rifina Md Ariff* Non-Independent Non-Executive Director 2/ / / /1 100 Notes: * Puan Rifina Md Ariff ceased to be a member w.e.f. 13 October * Encik Mohd Zin Idris was appointed as a member w.e.f. 13 October The Terms of Reference of the BRC is available at

95 ANNUAL REPORT Leadership Perspectives Highlights Accountability 20 th AGM Overview 3.4 Group Shariah Committee Three (3) separate Shariah Committees provide Shariah guidance and consultation to BHB s key operating subsidiaries (Islamic Banking, Takaful and Stockbroking). In compliance with BNM s Guidelines on the Governance Framework and the Company s Articles of Association, the Shariah Committees ensure that the key operating subsidiaries operate in accordance with Shariah principles. (a) The composition of the Shariah Supervisory Council of Bank Islam is as follows: MEMBERS Professor Dato Dr. Ahmad Hidayat Buang (Chairman) Dr. Ahmad Sobri Salamon Dr. Uzaimah Ibrahim Dr. Muhammad Syafii Antonio Financial Statements Shareholders Dr. Yasmin Hanani Mohd Safian Muhammad Zahid Abdul Aziz (Subject Matter Expert) Ustaz Mohd Nazri Chik (Secretary) (b) The composition of the Shariah Advisory Body of Takaful Malaysia is as follows: MEMBERS Professor Dr. Muhamad Rahimi Osman (Chairman) (w.e.f. 1 January 2017) Dr. Ahmad Sobri Salamon (ceased as Chairman w.e.f 31 December 2016) Dato Mohd Bakir Haji Mansor (ceased office w.e.f. 31 March 2016) Dato Wan Mohamad Dato Sheikh Abdul Aziz Dr. Ahmad Sufian Che Abdullah Megat Hizaini Hassan (appointed w.e.f. 1 April 2017) Dr. Marhanum Che Mohd Salleh (appointed w.e.f. 1 February 2016) Dr. Aida Othman (ceased office w.e.f. 31 March 2016) NATIONALITY Malaysian Malaysian Malaysian Indonesian Malaysian Malaysian Malaysian NATIONALITY Malaysian Malaysian Malaysian Malaysian Malaysian Malaysian Malaysian Malaysian

96 94 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) (c) The composition of the Shariah Committee of BIMB Securities Sdn Bhd is as follows: MEMBERS Emeritus Professor Dato Paduka Dr. Mahmood Zuhdi Haji Abdul Majid (Chairman) (w.e.f. 1 September 2016) Dato Mohd Bakir Haji Mansor (ceased office w.e.f. 31 August 2016) Ir. Dr. Muhammad Fuad Abdullah Dr. Zaharuddin Abdul Rahman (appointed w.e.f. 1 September 2016) NATIONALITY Malaysian Malaysian Malaysian Malaysian 4. SHAREHOLDERS The Board has direct control over the Company, and therefore owes fiduciary duties to the Shareholders. The duty of care requires Directors to exercise good business judgement when making decisions to safeguard the interest of the Company and its Shareholders. The Board recognises the importance of timely, complete, accurate and equal dissemination of information with regard to the Company and its Group s performance and other matters affecting Shareholders interest, investors and the general public. 4.1 Investor Relations ( IR ) The Company has in place an IR Policy to ensure that stakeholders, investors and the investment community, both local and international, as well as the general public are provided with relevant, timely and comprehensive information about BHB. The Company is committed to providing effective and open communication in order to improve disclosure and transparency. The objective of the IR Policy is to lay down the principles and practices to be adopted by BHB in handling its communication so that investors and potential investors could make an informed investment decision and for the public at large to have a clear understanding of the Group and its objectives. The IR Policy consists, amongst others, the following: Communication Guidelines BHB would endeavour to provide clear and fair disclosure of pertinent information to its Shareholders and the investment community in a timely and effective manner; To the extent possible, all disclosures would: (a) be factual, clear and succinct; (b) contain sufficient quantitative information to allow investors to evaluate the importance of such information to the activities of BHB; and (c) Explain the consequences or effects of the information on BHB s future prospects. If the consequences or effects could not be assessed, justification should be provided. IR Best Practices In keeping with the best IR practices, BHB has registered as a member of the Malaysian Investor Relations Association ( MIRA ). MIRA s objectives are to facilitate communication and foster close relationships between Public Listed Companies and the investor community by promoting corporate governance, transparency and enhance shareholder value.

97 ANNUAL REPORT Overview Authorised Spokesperson All of the Company s communication would only be done by the designated spokespersons who would establish and maintain regular dialogue with Shareholders to solicit and understand their views, as well as respond to inquiries from members of the investment community or media. Employees who are not authorised spokespersons must not respond under any circumstances to inquiries from the investment community or media, unless specifically authorised by the designated spokespersons. Any inquiry received should be directed to the IR Department. The designated spokespersons of BHB are as follows: Group Chief Executive Officer; Group Chief Strategy Officer; Leadership Perspectives Group Chief Financial Officer; and Head, Investor Relations. Material BHB would at all times, fully comply with its disclosure obligations under the Bursa Securities Listing Requirements. Highlights Material information concerning BHB, depending on the materiality threshold, could likely have an impact on its share price. This includes such information whether written or oral:- (a) Reports and documents provided to Bursa Securities and other regulators; (b) Materials and statements in BHB s Annual Reports, quarterly reports, press releases, letters and circulars to shareholders; (c) Presentations on behalf of BHB; (d) on BHB s website; Accountability (e) Articles concerning BHB; (f) Correspondence and s; (g) Verbal statements made to outside parties in meetings, briefings, press conferences or during telephone conversations; (h) Interviews with the media; and Financial Statements (i) Speeches given on behalf of BHB. Communication Platform BHB would employ various platforms to effectively engage the Shareholders and the investment community, with emphasis on timely, accurate, fair and transparent disclosure of information. BHB s communication platforms include the following: (a) Annual general meetings; Shareholders (b) Meetings with analysts, investors and media; and (c) Briefings and Press Conferences. BHB would not respond to rumours or market speculation. Clarifications would however be made promptly through announcements to the Bursa Securities, where necessary. 20 th AGM

98 96 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) Major Corporate Exercise BHB would strictly enforce its procedures for the protection of confidentiality until such time as the development of any major corporate exercise, such as merger or acquisition or the launch of a significant new business or product, receives all requisite approvals. Any queries or concerns relating to the Company and/or BHB Group can be conveyed to the following persons: Haryati Yahya Head, Investor Relations Tel: +6 (03) Azizzi Mohammed Deputy Manager, Investor Relations Tel: +6 (03) Contact at investor@bimbholdings.com 4.2 Conferences and Roadshows The Company and its subsidiaries participate in various domestic and international conferences and roadshows, during which its business outlook, strategy and direction are communicated to the relevant stakeholders. 4.3 Financial Results The Company and its Group s unaudited quarterly and audited annual financial results are released within the stipulated regulatory timeline to Bursa Securities, together with the accompanying press releases. During the year under review, the annual audited account and quarterly financial results were announced to the public within the stipulated time as required by Bursa Securities. Details of the release of Annual Reports and quarterly financial results during the period under review:- ANNUAL AUDITED ACCOUNT DATE OF ISSUE/RELEASE Annual Audited Account April QUARTERLY RESULTS DATE OF ISSUE/RELEASE First Quarter 11 May 2016 Second Quarter 26 August 2016 Third Quarter 30 November 2016 Fourth Quarter 27 February 2017

99 ANNUAL REPORT th AGM Leadership Perspectives Highlights Accountability Overview 4.4 Annual Report One of the most important methods of communication to Shareholders is through the Company s Annual Report, which contains comprehensive details about the financial results and overall performance of the Company and BHB Group. The Chairman s Statement in the Annual Report provides an overview of the Company and BHB Group s performance, operations and other matters affecting Shareholders interest. The Company also discloses its sustainability, corporate governance and internal control statements in the Annual Report. disclosed in the Annual Report allows Shareholders and investors to make informed investment decisions regarding BHB Group. 4.5 General Meetings The General Meeting is regarded as the main forum for dialogue and communication during which Shareholders and investors are informed of the financial performance and current developments of the Group. Shareholders are encouraged to attend the General Meeting and participate in the proceedings. The Board notes the recommendation of the MCCG 2012 to serve notice for meetings earlier than the minimum notice period. In the past, the Board has been serving the notice of General Meeting more than twenty-one (21) days prior to the meeting. At the General Meetings, Shareholders are given the opportunity to ask questions or seek clarifications before any resolutions are put forth for approval. The GCEO will also brief Shareholders on the Group s financial performance. The Board, the Management of BHB and of its subsidiaries and the Company s External Auditors are available to respond to Shareholders queries during the General Meeting. The Board and Shareholders jointly provide oversight of the control and management of BHB. The ultimate decision-making authority rests with the Shareholders at the General Meeting where the re-appointment of the Directors, appointment of External Auditors and declaration of final dividend (if any) are approved, amongst others. The rights of Shareholders, including the right to demand for a poll, are specified in the Company s Articles & Association. Pursuant to the Bursa Securities Listing Requirements, with effect from June 2016 all resolutions tabled at the General Meeting are voted by way of a poll. BHB has taken the requisite steps to implement a poll voting process at the forthcoming Annual General Meeting. A press conference is held after each General Meeting, at which the Company s GCEO together with the Managing Director/ Chief Executive Officers of the major key operating subsidiaries, will brief the media on the Group s financial performance and corporate developments. This session also enables the Board and Management to clarify issues and answer questions raised by members of the media. Financial Statements Shareholders 4.6 Media Coverage The Company s major key operating subsidiaries, namely Bank Islam, Takaful Malaysia and BIMB Securities, from time to time engage the media on their respective products, services and activities that are of interest to the public. For any media related enquiries in relation to BHB Group, our Media Relations team can be reached at: media@bimbholdings.com.

100 98 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) 4.7 Website BHB s corporate website, represents another channel of communication with stakeholders and acts as an effective platform to disseminate information to the public at large. It contains information on the Company and BHB Group such as its corporate profile, Management, investor information, financial results and corporate news which can be accessed easily and promptly. The latest BHB and Group updates can be obtained through the corporate website. In addition, stakeholders can obtain regulatory announcements made by BHB to Bursa Securities on the latter s website, 5. ACCOUNTABILITY AND AUDIT 5.1 Financial Reporting and Disclosure The Board has a fiduciary duty to present a clear, balanced and comprehensive assessment of the Company and its Group s performance and prospects. This is presented at the end of each quarter and financial year, primarily through the annual financial statements, quarterly and half-yearly announcement of results to Shareholders as well as the Letter to Shareholders in the Annual Report. In order to discharge its fiduciary duty, the Board is assisted by the AEC to ensure that the financial statements present a true and fair view of BHB Group s financial performance and state of affairs. The Board also ensures that the Company and BHB Group s financial reporting complies with the Malaysian Financial Reporting Standards ( MFRS ), International Financial Reporting Standards ( IFRS ) and Companies Act, Directors Responsibility Statement Pursuant to the Companies Act 2016, the Directors are required to ensure the annual financial statements are prepared in accordance with the provisions of the Companies Act 2016 and applicable approved accounting standards. The Statement by Directors pursuant to Section 251 of the Companies Act 2016 is set out on page 277 of this Annual Report. 5.3 Internal Control The Board recognises the importance of maintaining a sound internal control system that covers financial, operational and compliance controls to safeguard Shareholders investments and the Company s assets. The Statement on Risk Management and Internal Control, which provides an overview of the state of internal control, is set out on pages 116 to 121 of this Annual Report. 5.4 Policies (a) Corporate Disclosure Policy ( CDP ) A CDP has been formulated to enhance BHB s corporate governance, particularly in the area of transparent disclosure to the public. The purpose of the CDP is to enable Shareholders and stakeholders to access business information beyond the Company s financial disclosure. In addition, it ensures that both the Board and Management are able to communicate effectively with stakeholders on a timely basis. (b) Code of Ethics ( COE ) BHB s COE was introduced on 4 June 2014 for reference for all BHB employees, to ensure they meet with the required standards of integrity, professionalism and ethical behaviour. BHB s reputation as a responsible FHC and a good corporate citizen must be maintained and safeguarded for a sustainable growth of the organisation. The COE outlines how BHB employees should act with stakeholders, namely customers, service providers, communities, the media (electronic and print), investors and regulators.

101 ANNUAL REPORT Leadership Highlights Perspectives 20 th AGM Overview The COE also provides the basis for all employees to adhere to a working environment that is productive, positive, enjoyable, safe and free from harassment and discrimination. Each section of the COE covers an area in which employees have responsibilities to BHB, as follows: (a) Personal conduct and protection of BHB s assets; (b) Obligations in conducting BHB s business with other people and organization; and (c) Conflict of interest and other considerations affecting BHB. (c) Whistle-Blowing Policy BHB is committed to the values of transparency, integrity, impartiality and accountability in the conduct of its business and affairs. Wrongdoing such as fraud, corruption, financial impropriety and gross mismanagement should be reported and dealt with in accordance with the Company s established due process. A whistle-blowing policy reflects BHB s commitment to be vigilant at all times. It also assists BHB to manage its risks and contingencies as well as to avoid recurring acts of wrongdoing. BHB promotes an open communication and transparent work culture by setting up internal procedures to address concerns regarding any likely wrongdoing. The policy complements the normal channels of communication and reporting lines within BHB. It also provides an alternative route for employees to raise concerns if the usual lines of communication are not available when the complaint relates to his or her immediate supervisor or head of department. BHB encourages its employees to aspire to the highest possible standards of compliance and ethics. Whistle-blowing policies have therefore been integrated into BHB s practices and culture to help to deter fraud, corruption and mismanagement. Through the effective implementation of this policy, BHB is able to preserve its integrity and transparency. (d) Directors Code of Conduct and Ethics BHB adopts the Code of Ethic in accordance with the following: BNM/GP7-Part 1 Code of Ethics: Guidelines on the Code of Conduct for Directors, Officers, and Employees in the Banking Industry; Accountability Company Directors Code of Ethics established by the Companies Commission of Malaysia; and Code of Ethics for the Financial Services Industry issued by Financial Services Professional Board. The Code of Ethics provides guidance for proper standards of conduct with sound and prudent business practices as well as standards of ethical behavior for Directors, based on the principles of integrity, responsibility, sincerity and corporate social responsibility. Financial Statements BHB s Directors Code of Conduct and Ethics encompasses three (3) major areas, namely: Corporate Governance; Shareholders Relationship with shareholders, employees, creditors and customers; and Social responsibility and the environment. Based on the aforesaid, BHB s Directors are required to discharge their duties and deal with various stakeholders with utmost integrity. This is in line with the Company s core values which place emphasis on ethical dealings with third parties and employees.

102 100 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) (e) Sustainability Policy As a pioneer Shariah-compliant financial services provider, BHB continuously uphold Shariah principles in relation to its business and social responsibilities. Committing itself to promoting sustainable economic and social development, while at the same time creating positive impact on both the community and environment, BHB is establishing a new Sustainability Framework guided by the following:- MCCG 2012; Bursa Malaysia Sustainability Reporting Guide; FTSE4Good Bursa Malaysia and Global Reporting Initiative G4. The new Sustainability Framework serves in meeting BHB s objective to become a Responsible Financial Entity. The framework is driven by the following:- Collective Growth Knowledge Sharing Islamic Principle Ensuring that BHB grow together with the society; Ensuring that BHB s experience and knowledge are shared for the betterment of the Industry and Society; and Ensuring all BHB s business practices and decision are guided by Shariah Principles. In order to realise the above objective, BHB has identified five (5) key areas that represent BHB s core responsibilities namely: NO. KEY AREAS FOCUS 1 Responsible Finance Focus on ethical products and projects that bring positive economic, social and environmental benefits; 2 Inclusive Growth Focus on ensuring all layers of community grow along with BHB through inclusive financial offerings; 3 Talent Development Focus on growing the employees to become valuable assets and be the best they can be; 4 Islamic Finance & Knowledge Sharing Focus on propagating knowledge and continuing to be the global source of reference for Islamic banking & finance; and 5 Ethical Practice & Reporting Focus on ensuring that the Company s practices are governed by the Company s core values and that social and environmental considerations are consistently the Company s top priorities. The above framework and key areas are developed to safeguard the interest and address the issues of BHB s stakeholders. The implementation of sustainability practices and initiatives will promote sustainable economic and social development, while at the same time create positive impact on both the community and the environment. The Company Sustainability Report 2016 is enclosed in a separate report with this Annual Report. (f) Directors Training Policy In recognition on the importance of training for Directors, the Board had adopted a training policy that is embedded in the Board Charter. As part of good corporate governance and acknowledging the significance of Directors roles and responsibilities in BHB, they are provided with continuous training. This would equip the Directors with the relevant knowledge to be able to discharge their duties effectively. The details of each Director s trainings are set out on pages 84 to 86 of the Annual Report.

103 ANNUAL REPORT Leadership Perspectives Highlights Overview (g) Dividend Policy BHB adopts a dividend pay-out policy of at least 50% of the Company s net profit attributable to its ordinary Shareholders. However, the payment of dividend is dependent on the capital requirement of the Company and may be distributed in shares by way of Dividend Reinvestment Plan. While the Board believes in rewarding the Company s Shareholders with steady returns on their investment, the Board is also mindful of retaining adequate reserves for future growth of the Company. (h) Procurement Policy The policy is formed as a guide to procure assets, supplies and services in the most economical manner, taking into consideration factors such as quality, price, delivery, reliability and service level. Any compromise of any of these five (5) factors shall be subject to close scrutiny. It is also BHB s policy to use the Red Book issued by the Putrajaya Committee on GLC High Performance (PCG) as a procurement best practices benchmark to complement its efforts to create greater shareholder value. Under the policy, all budgeted and unbudgeted procurement would require prior approval of the designated Approving Authorities as outlined in BHB s Authority Limits document. 5.5 Relationship with Auditors (a) Internal Auditors The Company s Internal Auditors (currently the function is outsourced to the Internal Audit Division of Bank Islam) report directly to the AEC and have unrestricted access to the AEC. The internal audit function is independent of the activities and operations of other operating units. The Internal Auditors conduct regular audits to evaluate the operating effectiveness of internal controls, and compliance with internal and regulatory requirements across the Company. The audit report, which highlights any findings, along with its recommendations and Management s responses, are tabled to the AEC. Minutes of the AEC meetings are subsequently tabled to the Board. (b) External Auditors The Board has established a transparent and appropriate relationship with its External Auditors through the AEC. The AEC and the Board maintain strong emphasis on the objectivity and independence of the auditors in providing relevant and transparent reports to Shareholders. In compliance with the BNM Policy Documents on External Auditors, the assessment on External Auditors is undertaken by the AEC annually. It is the policy of the AEC to meet with the External Auditors at least two (2) times a year to discuss their audit plan, audit findings and BHB s financial statements. There will be two (2) meetings with the External Auditors held without the presence of the Management. The AEC also meets with the External Auditors whenever it deems necessary. In addition, the External Auditors are invited to attend BHB s Annual General Meetings to answer Shareholders questions on the conduct of the statutory audit and the preparation and contents of their audit report. The audit committee is responsible for reviewing the audits, as well as the recurring audit-related and non-audit services provided by the External Auditors. These recurring audit-related and non-audit services comprise regulatory reviews and reporting, interim reviews, tax advisory and compliance services. The audit committee also reviews all ad-hoc non-audit services. In reviewing such cases, the audit committee ensures that the independence and objectivity of the External Auditors are not compromised in accordance with the assessment criteria set out in the policies and procedures for appointment/ re-appointment of External Auditors for audit and non-audit services. The terms of engagement for services provided by the External Auditors are reviewed by the AEC prior to submission to the Board for approval. The AEC has assessed and reviewed the suitability and independence of the External Auditors and recommended their re-appointment for the financial year ending 31 December The AEC s assessment included a review on the curriculum vitae of the audit team as well as the AEC s own assessment on the following factors:- Minimun qualifying criteria for External Auditors; Scope of audit and auditors performance; Accountability Financial Statements Shareholders 20 th AGM

104 102 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) Independence and objectivity; Audit fees; Their insurance and banking audit experience; and Nature, scope and fees of non-audit services. The AEC has also received feedback from the Management on the professional working relationship with the External Auditors. The External Auditors has provided a confirmation of their independence to the AEC that they are and have been independent throughout the conduct of the audit engagement in accordance with the terms of all relevant professional and regulatory requirements. The AEC also considered the provision of non-audit services by the External Auditors during the year and concluded that the provision of these services did not compromise the External Auditors independence or objectivity and that the fees paid for these services was not significant when compared with the total fees paid to the External Auditors. (c) Audit/Non-Audit Fees Details of the statutory audit, audit-related and non-audit fees paid/payable in the year under review to the auditors are set out below: GROUP RM 000 COMPANY RM 000 FEES PAID/PAYABLE TO KPMG DESA MEGAT PLT Statutory Audit 1, Regulatory-Related Validation or Perbadanan Insurans Deposit Malaysia Returns 163 Statement of Risk Management and Internal Control Review of Statement of Realised and Unrealised Profit or Losses Verification of motor contribution income 2 Non-Audit Limited Review & other non-audit expenses , FEES PAID/PAYABLE TO OTHER AUDITORS Statutory Audit 151 TOTAL 2, CONCLUSION The Board is fully satisfied that in the year under review BHB has taken additional steps and observed good governance practices in accordance with the principles and recommendations of MCCG 2012, Bursa Securities Listing Requirements, BNM CG Policy, the Green Book, MSWG s Malaysian ASEAN Corporate Governance Scorecard and Bursa Securities s 2 nd Edition Corporate Governance Guide and the Companies Act This statement on corporate governance was approved by the Board on 23 March 2017.

105 ANNUAL REPORT Leadership 20 th AGM Perspectives Highlights Overview COMPLIANCE WITH THE MALAYSIAN CODE ON CORPORATE GOVERNANCE 2012 The table below outlines BHB s compliance with the MCCG 2012: PRINCIPLE 1 ESTABLISH CLEAR ROLES AND RESPONSIBILITIES MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 1.1 The Board should establish clear functions reserved for the Board and those delegated to management. Recommendation 1.2 The Board should establish clear roles and responsibilities in discharging its fiduciary and leadership functions. Complied Complied The Terms of Reference of the Board and Board Committees have been established. Schedule of Matters Reserved for the Board is incorporated in the Board Charter. Roles and Responsibilities of the Board are incorporated in the Board Charter. Roles and Responsibilities of the Board Committees in discharging its functions, as well as the authority that has been delegated by the Board are incorporated in its Terms of Reference. Recommendation 1.3 The Board should formalise ethical standards through a Code of Conduct and ensure its compliance. Recommendation 1.4 The Board should ensure that the company s strategies promote sustainability. Complied Complied The Board has approved its Code of Ethics which it incorporated in the Board Charter and Code of Conduct for employees. Sustainability strategies are encapsulated in BHB s Sustainability Report. Accountability Recommendation 1.5 The Board should have procedures to allow its members access to information and advice. Complied The procedure for Directors to seek independent advice has been established. Recommendation 1.6 The Board should ensure it is supported by a suitably qualified and competent Company Secretary. Financial Statements Shareholders Complied The Board is supported by a qualified and competent Company Secretary. Recommendation 1.7 The Board should formalise, periodically review and make public its Board Charter. Complied The Board Charter was initiated in the 1 st quarter of The Board Charter is available on the Company s website.

106 104 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) PRINCIPLE 2 STRENGTHEN COMPOSITION MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 2.1 The Board should establish a Nominating Committee which should comprise exclusively of Non-Executive Directors, a majority of whom must be Independent. Recommendation 2.2 The Nominating Committee should develop, maintain and review the criteria to be used in the recruitment process and annual assessment of Directors. Recommendation 2.3 The Board should establish formal and transparent remuneration policies and procedures to attract and retain Directors. Complied Members of the Nomination and Remuneration Committee comprise only Non-Executive Directors. Three (3) out of four (4) members of the Nomination and Remuneration Committee are Independent Directors. Complied Complied The Terms of Reference of the Nomination and Remuneration Committee is in line with this recommendation. The criteria on the recruitment process and annual assessment of Directors are contained in the Fit and Proper Policy and Procedures for Key Responsible Persons. The Terms of Reference of the Nomination and Remuneration Committee is in line with this recommendation. A Remuneration Framework has been established and is subject to review every two years. PRINCIPLE 3 REINFORCE INDEPENDENCE MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 3.1 The Board should undertake an assessment of its Independent Directors annually. Recommendation 3.2 The tenure of an Independent Director should not exceed a cumulative term of nine years. Upon completion of the nine years, an Independent Director may continue to serve on the Board subject to the Director s re-designation as a Non-Independent Director. Complied The Nomination and Remuneration Committee undertakes assessment of all Directors annually via the Board Evaluation Assessment exercise. Monthly independence declaration by the Independent Directors. Complied The tenure of an Independent Director is capped at nine years and this is incorporated in the Board Charter.

107 ANNUAL REPORT Leadership Perspectives Overview MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 3.3 The Board must justify and seek Shareholders approval in the event it retains as an Independent Director, a person who has served in that capacity for more than nine years. Recommendation 3.4 The positions of Chairman and CEO should be held by different individuals, and the Chairman must be a Non-Executive member of the Board. Complied Complied The Board Charter is in line with this recommendation. The positions of Chairman and Group Chief Executive Officer are held by different individuals. The Chairman is an Independent Non-Executive member of the Board. Recommendation 3.5 The Board must comprise a majority of Independent Directors where the Chairman of the Board is not an Independent Director. Complied The Chairman is an Independent Non-Executive member of the Board. The Independent Directors make up 62.5% of the total Board composition. Highlights PRINCIPLE 4 FOSTER COMMITMENT MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 4.1 The Board should set out expectations on time commitment for its members and protocols for accepting new Directorships. Recommendation 4.2 The Board should ensure its members have access to appropriate continuing education programmes. PRINCIPLE 5 UPHOLD INTEGRITY IN FINANCIAL REPORTING Complied This recommendation is incorporated in the Board Charter and the Fit and Proper Policy and Procedures for Key Responsible Persons. Complied The Company Secretary facilitates the Directors participation in training programmes and ensures the Directors undergo ongoing training. Accountability Financial Statements MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 5.1 The Audit Committee should ensure financial statements comply with applicable financial reporting standards. Recommendation 5.2 The Audit Committee should have policies and procedures to assess the suitability and independence of External Auditors. Complied Directors Responsibility Statement in relation to financial reporting standards is tabled to the Audit Committee during presentation of Annual Audited Financial Statements. Complied Procedures to assess the suitability, independence and performance of External Auditors have been established. Shareholders 20 th AGM

108 106 BIMB HOLDINGS BERHAD STATEMENT OF CORPORATE GOVERNANCE (PURSUANT TO PARAGRAPH OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD AND BANK NEGARA MALAYSIA S CORPORATE GOVERNANCE POLICY) PRINCIPLE 6 RECOGNISE AND MANAGE RISKS MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 6.1 The Board should establish a sound framework to manage risks. Recommendation 6.2 The Board should establish an internal audit function which reports directly to the Audit Committee. Complied Through the Board Risk Committee, the Board of Directors has established a framework to formulate and review risk management policies and risk strategies. Complied The internal audit function of BHB and its subsidiaries (save for Takaful Malaysia) is carried out by the Internal Audit Division of Bank Islam. For Takaful Malaysia, the internal audit function is carried out by its own independent internal audit department. PRINCIPLE 7 ENSURE TIMELY AND HIGH QUALITY DISCLOSURE MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 7.1 The Board should ensure the Company has appropriate corporate disclosure policies and procedures. Recommendation 7.2 The Board should encourage the Company to leverage on information technology for effective dissemination of information. Complied Complied This recommendation is reflected in the Corporate Disclosure Policy. Corporate announcements are made via Bursa LINK and is disseminated via the Company s website. PRINCIPLE 8 STRENGTHEN RELATIONSHIP BETWEEN COMPANY AND SHAREHOLDERS MCCG RECOMMENDATIONS STATUS OF COMPLIANCE REMARKS Recommendation 8.1 The Board should take reasonable steps to encourage Shareholder participation at general meetings. Recommendation 8.2 The Board should encourage poll voting. Recommendation 8.3 The Board should promote effective communication and proactive engagements with Shareholders. Complied Complied The Board of Directors has agreed to serve longer than the required minimum notice period for Shareholders meetings when possible, and actively engage stakeholders prior to each meeting. Poll voting is required under the Bursa Securities Listing Requirements. Complied Communication and engagement with Shareholders are through general meeting and investor conferences.

109 ANNUAL REPORT AUDIT & EXAMINATION COMMITTEE ( AEC ) REPORT Overview Highlights Leadership DATUK ZAITON MOHD HASSAN Chairman of the AEC Perspectives CHAIRMAN S OVERVIEW In line with the Bursa Securities Listing Requirements, as the Chairman of the AEC, I am pleased to present the AEC report for the financial year ended 31 December It is the AEC s principal duty to perform an oversight role on the integrity of the Company and the Group s internal control environment. The AEC ensures that financial statements of the Company and the Group are appropriately prepared, comply with the Malaysian Financial Reporting Standards ( MFRS ) and fairly present the financial position of the Group and the results of its operations. The AEC regularly provides an update to the Board, which assumes the ultimate responsibility for the functions performed by the AEC. Given the challenging market conditions experienced over the last twelve (12) months, the AEC has been particularly vigilant of the need to cover regulatory, compliance, internal audit and operational matters in a manner that focuses on the key potential exposures in the Group s business activities. The AEC assists the Board in fulfilling its oversight responsibilities in areas such as integrity of financial reporting, the effectiveness of the risk management and internal control system and related governance and compliance matters. We are also responsible for making a recommendation to the Board on the appointment and/or re-appointment of the external auditors. In 2016, we held seven (7) AEC meetings where we were briefed on and discussed numerous topics including new MFRS and reporting requirements. Accountability Financial Statements Shareholders 20 th AGM For the financial year ended 31 December 2016, the AEC is satisfied that it has considered and discharged its responsibilities in accordance with its mandate and terms of reference. DATUK ZAITON MOHD HASSAN Chairman of the AEC

110 108 BIMB HOLDINGS BERHAD AUDIT & EXAMINATION COMMITTEE ( AEC ) REPORT AUDIT AND EXAMINATION COMMITTEE REPORT ( AEC OR COMMITTEE ) The Company has fulfilled the requirements of Paragraph of the Bursa Securities Listing Requirements and the best recommended practices of the Malaysian Code of Corporate Governance 2012 with regard to the composition of the AEC. The members of the AEC during the financial year were as follows: Datuk Zaiton Mohd Hassan (Chairman) Independent Non-Executive Director Tan Sri Ismail Adam Senior Independent Non-Executive Director Encik Mohd Zin Idris Non-Independent Non-Executive Director Encik Mohd Tarmidzi Ahmad Nordin Independent Non-Executive Director Puan Noraini Che Dan Independent Non-Executive Director The AEC of BHB consists of experienced and qualified members. The Committee is led by its Chairman, Datuk Zaiton Mohd Hassan, who is a Fellow of the Association of Chartered Certified Accountants ( ACCA ) and a member of the Malaysian Institute of Accountant ( MIA ) as well as the Malaysian Institute of Certified Public Accountants ( MICPA ). This is in line with the requirements under Paragraph 15.09(1) (c) of the Bursa Securities Listing Requirements that at least one member of the Committee must be a member of the MIA or equivalent expertise or experience in the field of finance. During the year under review, Puan Noraini Che Dan, was appointed as an additional member of the AEC. Puan Noraini Che Dan brings with her extensive experience in the finance and accounting industry. Her experience and knowledge will enhance the effectiveness of the Committee, in particular when assessing and reviewing the financial information and internal controls within the Company and the Group. Puan Noraini Che Dan holds a Bachelor of Arts (Hons), Economics from University of Manchester United Kingdom. She is also a member of MICPA and MIA. The Committee facilitates and assists the Board in fulfilling its statutory, oversight and fiduciary responsibilities to its stakeholders. The AEC s salient responsibilities include the review of the following: (a) integrity of the financial statements; (b) performance of the external auditors; (c) effectiveness of internal controls; (d) performance of the Internal Audit functions; and (e) compliance with legal and regulatory requirements.

111 ANNUAL REPORT Leadership Perspectives Highlights Accountability 20 th AGM Overview AEC TERMS OF REFERENCE In performing its duties and discharging its responsibilities, the AEC is guided by its Terms of Reference. It derives its mandate and authority from the Board and has full access to the internal and external auditors as well as the Management of the Company. The Terms of Reference of the AEC is reviewed at least once every two (2) years or as and when necessary. This will ensure the roles and responsibilities of the AEC are reflective of the expected roles of the AEC pursuant to the relevant guidelines issued by BNM and Bursa Securities. The Terms of Reference of the AEC is accessible to the public on the Company s corporate website at GOVERNANCE The AEC provides an independent oversight of the internal and external audit functions, internal controls and checks and balances within the Company. The AEC meets at least six (6) times a year. The AEC has convened seven (7) meetings during the year under review. Details of the members attendance at the AEC meetings held during the financial year ended 31 December 2016 are as follows: COMMITTEE MEMBER ATTENDANCE % Datuk Zaiton Mohd Hassan (Chairman) Independent Non-Executive Director Tan Sri Ismail Adam Senior Independent Non-Executive Director Encik Mohd Zin Idris Non-Independent Non-Executive Director Encik Mohd Tarmidzi Ahmad Nordin Independent Non-Executive Director Financial Statements Shareholders Puan Noraini Che Dan* Independent Non-Executive Director Note: * Puan Noraini Che Dan was appointed as a member on 13 October The Chairman of the Committee updates the Board on key matters deliberated at the AEC s meetings. In addition, minutes of the AEC meetings are circulated to the Board for notification. Any member of the Board may enquire or seek clarification on the matters deliberated by the AEC as recorded in the minutes. The Group Chief Executive Officer, Group Chief Financial Officer and Company Secretary were in attendance at all the meetings. The representatives of the External Auditors, were present during deliberations which require their input and advice. In addition, the AEC had met twice with the External Auditors without the presence of Management, to discuss problems and reservations, if any, arising from the audit, and other matters the External Auditors may wish to discuss.

112 110 BIMB HOLDINGS BERHAD AUDIT & EXAMINATION COMMITTEE ( AEC ) REPORT 2016 IN OVERVIEW The summary of the activities of the AEC in the discharge of its duties and responsibilities for the financial year ended 31 December 2016 included the following: 1. FINANCIAL REPORTING The AEC assists the Board in ensuring the financial statements of the Company and its Group is prepared in accordance with the applicable financial reporting standards. The AEC will review and determine whether in the preparation of the financial statements appropriate accounting policies have been adopted and supported by reasonable and prudent judgement and estimates. The Group Chief Financial Officer ( GCFO ) is responsible for the financial management of the Company. Mr Malkit Singh Maan ( Mr Malkit ), the GCFO, assumed the position since mid He has 25 years of banking related experience and was previously the CFO of Bank Islam Malaysia Berhad ( Bank Islam ). Mr Malkit is a Certified Practising Accountant ( CPA ), a member of the Australian Society of CPAs and Chartered Accountant of MIA. The AEC key responsibilities on financial reporting are as follows: (a) Reviewed the unaudited quarterly financial reports and the audited financial report for submission to BNM, Bursa Securities as well as Securities Commission with Management before recommendation to the Board of Directors for consideration and approval for their release to the abovesaid regulatory authorities. When reviewing the report, the AEC would seek for the assurance that the condensed consolidated interim financial statements have been prepared in accordance with the Malaysian Financial Reporting Standards 134: Interim Financial Reporting, Paragraph 9.22 of the Bursa Securities Listing Requirements and International Accounting Standards 34: Interim Financial Reporting issued by the International Accounting Standards Board; (b) Reviewed the audited statutory accounts of the Company and of the Group, raised issues and reservations, if any, arising from the statutory audit with the External Auditors, prior to recommendation to the Board of Directors for their consideration and approval. The AEC s review included a critical scrutiny of the statutory accounts based on an analytical approach, whilst at the same time obtaining assurance from Management and the External Auditors that the financial statement disclosures were in compliance with relevant and applicable statutory requirement and MFRS. The AEC s scrutiny of the statutory accounts also included a review of the reasonableness of accounting policies and estimates applied by the Group, and reporting on-going concerns, which was concurred by the External Auditors in its Report to the AEC. The AEC had also reviewed significant audit matters highlighted by the External Auditors in their Report to the AEC which warranted the AEC s attention; (c) Reviewed and approved the Report of the AEC and the Statement on Risk Management and Internal Control pursuant to Bursa Securities Listing Requirements for inclusion in the Company s Annual Report; (d) Reviewed the disclosures forming the contents of the Company s Annual Report as required in Part A of Appendix 9C of Bursa Securities Listing Requirements; (e) Reviewed the updates on the internal accounting control in accounting and auditing process to achieve operational effectiveness and efficiency, reliable financial reporting and compliance with regulations and policies; (f) During the year under review, the GCFO and the External Auditors have highlighted on the new requirements on key audit matters. A special briefing for the Board and the Management of the Group on the new financial reporting standards, including the requirements on key audit matters was organised. The briefing was conducted to help the Management and the Board to understand the requirements of the new/revised standards and to facilitate actions to address and meet the new requirements within the stipulated deadline; and

113 ANNUAL REPORT Leadership Perspectives Highlights Accountability Financial Statements 20 th AGM Shareholders Overview (g) For the key audit matters, the External Auditors have focused particularly on credit and valuation. The AEC has also received reports and updates from the External Auditors. The AEC is therefore made aware of all materially relevant issues of concern during the year. In particular, the External Auditors have brought the AEC s attention to the following matters: i. Allowance for impaired financing and advances and others i.i Collective Impairment Allowances The Group s provision for impairment is more than adequate, supported by intensified vigilance on the financing assets, including early warning signals and triggers. The Group s collective impairment provision was at 1.4% against BNM requirement of 1.2%. The Group also has sufficient financing loss buffers with financing loss reserves at 175.4% against industry average of 90.2% as at end December 2016, reflecting its prudent provisioning practices. In addition, the Group s impaired financing ratio as at end of 2016 held firm at 0.98% against the banking industry s gross impaired ratio of 1.61%. BHB Group has in place a process to appropriately group lending exposures based on similar risk characteristics. The basis of grouping lending exposures into portfolios with similar credit risk characteristics include asset type, industry, geographical location, collateral type, past-due status and other relevant factors. A multi-dimensional vintage analysis is done on each of the asset portfolios and the historical loss experience is adjusted based on current observable data to reflect the effects of current conditions. Also removed are the effects of conditions in the historical period that do not currently exist. Impairment allowances are provided based on the revised loss experience. Also, the Credit Management team identifies portfolios that are susceptible to emerging events in the external environment and focuses in effort to manage the risk. The Credit Management team continuously monitored the Group s exposure to the Oil & Gas, Plantation, Property (Bridging Financing) and Manufacturing sectors; and the impact of depreciating Ringgit on the Bank s portfolio since September The Group s exposure to the oil and gas sector constituted 9% of the Group s financing portfolio as at end December Exposures to the volatilities of the USD/ RM exchange rate were not significant. The AEC is regularly updated on the status of the financing portfolios, adequacy of impairment allowances as well as emerging events in the external environment, the potential risks and their impact and also the measures taken to manage the risks. This ensures impairment allowance estimates incorporate timely recognition of potential risk. The AEC also requests and receives information on specific industries based on emerging events in the external environment. The Group also performs regular stress testing on the financing portfolios to assess the impact on the capital and profitability under the various stress scenarios.

114 112 BIMB HOLDINGS BERHAD AUDIT & EXAMINATION COMMITTEE ( AEC ) REPORT i.ii Individual Impairment Allowances Significant financing, that is, total financing outstanding of RM1 million or more are assessed individually. For individually assessed financing, objective evidence of impairment exists if there is a breach of contract, if the customer has significant financial difficulty, if it becomes probable that the customer will enter bankruptcy or other financial reorganisation or if there is consecutive downgrade of two notches for external ratings. The amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the asset s original effective profit rate. In estimating the future cash flows, judgements are made about the realisable value of the collateral pledged and the customer s financial position. The BHB Group also proactively monitors and identifies financing that show signs of stress and could potentially become impaired. The account management officers engage with such customers to advise, restructure and reschedule these accounts. The estimated future cash flows of these accounts are also reassessed and any shortfall in impairment allowances are immediately provided for. The Group s AEC is also updated on the status of these large individual financing accounts. The Credit Management team provides AEC the detailed listing of the individual accounts and the judgement exercised around the individual impairment provisions. ii. Valuation of financial instruments Sukuk In the valuation of the financial instruments, valuation techniques which involve the exercise of judgement and the use of assumptions and estimates are often applied. It should be noted that the valuation process is undertaken by a unit independent of the business. Valuation techniques are used only in the valuation of Level 2 and Level 3 financial instruments. However, significant valuation judgement is only used in respect of Level 3 financial instruments. For Level 2 financial instruments, inputs are market data obtained from independent sources. However, the same is not applicable for the Level 3 financial instruments. Judgement in relation to the valuation of financial instruments are more subjective in respect of Level 3 financial instruments, where the value is based on models that use unobservable market data, i.e., reflect the Group s judgement and assumptions. For the Group, the quantum of Level 3 financial instruments (Sukuk assets) as at 31 December 2016 is not significant. It only represents 0.1% or RM million of the financial assets held at fair value. As for the Level 3 Sukuk liabilities, the carrying amount is RM1.882 billion against the fair value of RM1.917 billion. iii. Valuation of takaful contract liabilities The takaful contract liabilities for family takaful business comprise provision for outstanding claims and participants funds, while takaful contract liabilities for general takaful business comprise provision for outstanding claims, provision for unearned contributions and participants funds. The two key components in deriving to the takaful contract liabilities are the valuation of actuarial liabilities for the family takaful business and the provision for outstanding claims for both family and general takaful businesses. Reports on valuation of liabilities in respect of family and general business were presented and approved by the Syarikat Takaful Malaysia Berhad s ( Takaful Malaysia ) Board on an annual basis.

115 ANNUAL REPORT Highlights Perspectives Leadership Overview iii.i iii.ii Actuarial liabilities family takaful contract liabilities Actuarial liabilities for family business require significant judgement over the estimation of future expected benefits payable to participants from takaful funds. The methodology used for calculating the actuarial liabilities comprise prospective actuarial valuation, cash flow projection valuation and unearned contribution valuation. Although judgements are made about determining the appropriateness of discount, mortality, morbidity and surrender rate assumptions used in calculation of actuarial liabilities, there is constant review and updates to the Takaful Malaysia s Board to ensure the assumptions used are in line with actual experience and reasonable. Provision for outstanding claims family and general takaful contract liabilities The provision for outstanding claims is made for cost of claims (together with related expenses) and Incurred But Not Reported Claims ( IBNR ) at the end of the reporting period by the appointed actuary where historical claims experience are used to project future claims. Judgement is required as there are elements of uncertainty and the projected claims may be different from actual. These uncertainties arise from changes in underlying risk, changes in spread of risks, claims settlement pattern as well as uncertainties in the projection model and underlying assumptions. For family takaful fund, an explicit provision for IBNR is set up to cover delays in claims reporting and was calculated using the Chain Ladder and Expected Loss Ratio methods, the same methods used in prior years. During the year, the actuary has revised the Loss Development Factors ( LDF ) downward to align the factors with actual experience. The actuary will continue to closely monitor the claims experience trend and update the LDF assumptions periodically to reflect actual experience. The Management of Takaful Malaysia and actuary will also review the treatment for case reserves amount in the calculation of IBNR for family takaful products in The actuary will highlight and update the Takaful Malaysia Board on any significant change to the assumptions used on a quarterly basis. For general takaful fund, the provision for IBNR was estimated using the Chain Ladder, Bornhuetter-Ferguson and Expected Loss Ratio methods. The AEC of Takaful Malaysia acknowledged the methodologies and assumptions used and are satisfied that they are reasonable and in line with the requirements of Risk-Based Capital Framework for Takaful Operators (RBCT) and the Guidelines on Valuation Basis for Liabilities of Family and General Businesses issued by BNM. Accountability 2. EXTERNAL AUDIT The AEC of BHB takes comfort on matters that have been discussed, reviewed and approved by the AECs and Boards of the major subsidiaries, namely, Bank Islam and Takaful Malaysia. (a) Reviewed the audit plan of the Company for the year (inclusive of audit approach and scope of work) with the External Auditors prior to the commencement of the annual audit. The External Auditors briefed the AEC on their audit plan pertaining to the statutory audit of the Company for the financial year ended 31 December 2016, highlighting areas of audit emphasis, key regulatory developments, involvement of internal audit and other experts, and the risk of management override; (b) Reviewed the results of the annual audit, the External Auditor s Audit Report and the Management Representation Letter together with the Management s corrective action to address the findings of the External Auditors; (c) Met with the External Auditors without the presence of the Management, to discuss problems and reservation arising from the audit, if any, and other matters the External Auditors may wish to discuss, including the level of assistance provided by the Company s employees to the External Auditors, and any difficulties encounted in the course of the audit work, including any restriction on the scope of activities or access to required information; Financial Statements Shareholders 20 th AGM

116 114 BIMB HOLDINGS BERHAD AUDIT & EXAMINATION COMMITTEE ( AEC ) REPORT (d) Evaluated the performance, independence and suitability of the External Auditors and made recommendations to the Board of Directors on their re-appointment and remuneration. In reviewing the performance, independence and suitability of the External Auditors, the AEC reviewed the curriculum vitae of the audit team as well as conducted an assessment on the External Auditors which covered the following criteria the minimum qualifying criteria of the External Auditors, the scope of audit and auditors performance, their independence and objectivity, audit fee, their insurance audit experience, as well as the nature, scope and fee of non-audit services; and (e) Reviewed the nature, scope and fees for non-audit services provided by the External Auditors and ensured they were fair and reasonable and in line with the laid down practices on non-audit services in order to safeguard the independence and objectivity of the External Auditors and reduce potential conflict of interest. 3. RELATED PARTY TRANSACTION (a) Reviewed, with the assistance of the GCFO, related party transactions entered into by the Company and the Group to ensure that the transactions entered into were in adherence to Paragraphs and of the Bursa Securities Listing Requirements (Chapter 10 Part E Related Party Transactions); (b) Reviewed the adequacy of the Company s and the Group s procedures to ensure that recurrent related party transactions are not more favorable to the related party than those generally available to the public and are not to the detriment of the minority shareholders. Ensured that the related party transactions were conducted in the best interest of the Company and the Group; (c) Reviewed and reported to the Board all related party contracts and transactions entered into by the Company and the Group; and (d) Monitored any potential conflict of interest situations involving Directors and ensured that such situations of conflict are avoided and that the requirements under the Directors Code of Ethics are adhered to. 4. OTHER ACTIVITIES (a) Reviewed the reports of recurrent related party transactions and the Circular to Shareholders with regard to the proposed renewal of shareholders mandate for existing recurrent related party transactions of a revenue or trading nature; (b) Reviewed the Zakat Computation for the Company and its wholly owned subsidiaries for the year under review; (c) Considered and reviewed the proposal for interim dividends for recommendation to the Board. The Dividend Reinvestment Plan ( DRP ) was applied to the entire interim dividend and shareholders have been given the option to reinvest their final dividend in the new BHB shares to be issued pursuant to the DRP; and (d) Reviewed the report on the Company s status of compliance with regulatory requirements namely Bursa Securities Listing Requirements, Islamic Financial Services Act 2013, BNM s Guidelines, Companies Act 2016 and Capital Market and Services Act The report also highlighted any new regulatory requirements as well as consultation papers issued by the relevant regulators and the deadline for compliance. Where relevant, the Committee would review the action plan proposed by the Management in meeting the regulatory requirements and discussed the implications of any latest changes and pronouncements on the Company and the Group, which might be of interest to the AEC and the Board. (e) Reported to the Board on any significant issues and concerns discussed during the AEC meetings together with the relevant recommendations. Minutes of meetings were made available to all Board members. (f) Reviewed the assurance provided by the GCEO and GCFO on the scope and performance of the risk management and internal control system established by the Group prior to recommendation to the Board for acceptance.

117 ANNUAL REPORT Highlights Perspectives Leadership Overview INTERNAL AUDIT ACTIVITIES REPORT The Internal Audit functions of BHB and its wholly-owned subsidiaries, namely Syarikat Al-Ijarah Sdn Bhd, BIMB Securities Sdn Bhd and BIMB Securities (Holdings) Sdn Bhd have been outsourced to the Internal Audit Department ( IAD ) of Bank Islam since December The IAD is led by the Chief Internal Auditor, Encik Mohamad Iran Moriff Mohd Shariff ( Encik Iran ). Encik Iran joined Bank Islam s IAD in June 2012 as the Deputy Chief Internal Auditor and was appointed as Bank Islam s Chief Internal Auditor in May Encik Iran is a Certified Public Accountant and a Fellow member of the ACCA. Encik Iran is also a Certified Internal Auditor for financial institution (CIA FIN). The Internal Audit function reports directly to the AEC of BHB and the abovesaid respective subsidiaries under the outsourcing arrangements. It is independent of the activities of its auditees. The primary responsibilities of the IAD are to undertake regular and systemic reviews of the risk management process, internal control and governance practices of BHB and Group in conformance with the International Professional Practices Framework and the Internal Audit Charter so as to provide reasonable assurance that the risk management process, internal controls and governance practices are operating satisfactorily and effectively and are in line with the Group s goals and objectives. The internal audit functions of Bank Islam and Takaful Malaysia are carried out by their respective internal audit divisions which reports to the AEC of the respective company. The AEC of BHB reviewed the adequacy and relevance of the scope, functions, resources, procedures, risk based internal audit plans and results of the internal audit processes, with the IAD, and that it has the necessary authority to carry out its works. It also reviewed and approved the Annual Internal Audit Plan, which include the audit scope, methodology and practices, timing and resources, assessment of risk, comparison of actual versus budgeted time spent on assignments and audit fee. Reviewed the internal audit activities (comprising internal control, risk management process and governance practices) carried out by the IAD and the audit report to ensure corrective action were taken by the Management in a timely manner to address the governance, risk and control issues reported. Risk based audit and governance reviews performed included accounts, regulatory, transparency and disclosure, information system risks, internal controls and operational risk management on contingency and disaster, and extent of the Company s compliance with the policies and procedures, amongst others. Accountability The summary of the activities of BHB s Internal Audit for the financial year ended 31 December 2016 were as follows: (i) Prepared the Annual Audit Plan for approval of the AEC. The Annual Audit Plan was developed based on assessment of the significant potential risk exposure of the auditable areas; (ii) Issued Audit Reports to the AEC and Management, identifying weaknesses and issues as well as highlighting recommendations for improvement. Such recommendations were acted upon by Management with agreed timelines; Financial Statements (iii) Followed up on the Management corrective actions on audit issues raised by the Internal Audit. Determined whether corrective actions taken had generally achieved the desired results; (iv) Reported to the AEC, review on the adequacy, appropriateness and compliance of risk management, internal controls and governance processes; (v) Reported to the AEC on the reliability, integrity and continuity of Technology and in compliance with the Company s Technology Policy together with the effectiveness and robustness of stress testing procedures and practices and the necessary back-up system to cover for contingencies and disaster; (vi) Reviewed the reliability (including accuracy and comprehensiveness), integrity and timeliness of regulatory reporting, accounting records, financial reports and management information; and (vii) Reviewed compliance with relevant legal, regulatory and internal policies as well as in compliance with Shariah rules and principles as determined by the Shariah Committee. This report is made in accordance with the resolution of the Board dated 23 March Shareholders 20 th AGM

118 116 BIMB HOLDINGS BERHAD STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL INTRODUCTION Pursuant to Paragraph 15.26(b) of the Listing Requirements of Bursa Malaysia Securities Berhad, the Board of Directors ( Board ) is pleased to provide the following Risk Management and Internal Control Statement (the Statement ) which outlines the nature and scope of risk management and internal controls of the Group during the financial year ended 31 December For the purpose of disclosure, this Statement is guided by the Statement on Risk Management & Internal Control: Guidelines for Directors of Listed Issuers. The Board is committed and acknowledges its responsibility to oversee the system of risk management and internal controls within the Group including reviewing its adequacy, integrity and effectiveness to safeguard shareholders investments and the Group s assets. RESPONSIBILITY The Board recognises that a sound system of internal control and risk management practices are essential in ensuring good corporate governance. Such a system is designed to manage an acceptable risk profile rather than eliminate the risk of failure to achieve the business objectives of the BHB Group; and can only provide reasonable and not absolute assurance against material misstatement, fraud or loss. As a financial holding company ( FHC ), continuous enhancements are being made to the system of internal control in line with the Board s commitment to improve the Group s governance, risk management and internal control framework and control culture. The environment for the proper control of the Group s business operations is also in line with Bank Negara Malaysia s ( BNM ) regulatory framework. The Board has established appropriate controls and processes for identifying, evaluating, monitoring and managing significant risks that may affect the achievement of BHB Group s objectives. At BHB level, the internal control oversight responsibilities were initially carried out by the Audit & Examination Committee ( AEC ). In the 3rd quarter of 2016, the Group Board Risk Committee ( BRC ) was set-up for the purposes of overseeing the activities in the management of risks including credit, market, liquidity, operational, legal, Shariah and other risks associated to the businesses undertaken by the key operating subsidiaries within the Group. The BRC also performs an oversight function to ensure that the risk management framework within the Group is in place and functioning effectively. In respect of the key operating subsidiaries, in particular Bank Islam Malaysia Berhad ( Bank Islam ) and Syarikat Takaful Malaysia Berhad ( Takaful Malaysia ), the internal control oversight function is carried out by the respective subsidiaries BRC. At BIMB Securities Sdn Bhd ( BIMB Securities ), the risk management and internal control oversight function is carried out by its AEC. The risk management control structure and processes which have been instituted throughout the BHB Group are reviewed from time to time to cater for the changes in the business environment. BHB s AEC and BRC together with the respective AEC/BRC of the key operating subsidiaries regularly reviews and monitors the Management s approach and actions in addressing key risks at Company and subsidiaries level. It also provides the Board and the Management with the platform to anticipate and manage both the existing and potential risks, taking into consideration changing risk profile and risk appetite. This process has been in place and continued to be BHB Group s practice for the financial year under review and up to the date of approval of this Statement for inclusion in the Annual Report of the Company. The AEC of BHB receives quarterly reports relating to regulatory developments, compliance and operational deficiencies identified within the Company. The Management would identify the root cause of the deficiencies and take all steps necessary to correct the circumstances and conditions that had caused the deficiencies. This includes specific remediation plans and follow-up actions to ensure the deficiencies are addressed. The BHB s AEC also assists the Board to review the adequacy and effectiveness of the accounting system s internal control and ensures that appropriate methods and procedures are in place to obtain the level of assurance required by the Board. The minutes of the AEC and BRC are escalated to the Board for information.

119 ANNUAL REPORT th AGM Leadership Perspectives Overview In addition to the above, two (2) Management committees at group level namely: the Group Management Committee ( GMC ) and Group Risk Management Committee ( GRMC ) were established to assist the Board in managing the risk and internal control of the Group. Through these committees, the Management is also responsible to ensure that the relevant key operating subsidiaries have performed the following: Identify the risks relevant to the business, implementation of strategies and the achievement of its objectives; Implement regular risk management reporting, monitoring and review as part of its risk management framework; Identify changes to risks or emerging risks, take actions as appropriate, and promptly bring these to the attention of the Board; Discuss on the tolerance level for each of the operational business and ensuring that they are within accepted parameter by the relevant regulatory bodies; Implement the policies approved by the Board; and Report in a timely manner to the Board any changes to the risk and any corrective action taken. Assurance in relation to the above risk management and internal control are also obtained from the key operating subsidiaries confirming that their risk management and internal control are operating adequately and effectively, in all material aspects. Any material risk management and internal control deficiencies will be presented to the respective subsidiaries BRC/AEC and subsequently to the respective Board. Highlights KEY INTERNAL CONTROL STRUCTURE Key processes that the Board has established in reviewing the adequacy and effectiveness of the system of internal controls include the following: Risk Management Framework The Board has established an organisation structure and charter with clear defined lines of responsibility, authority limits and accountability in association with BHB Group s business and operational requirements in order to maintain a sound control environment. Accountability GMC Board of Directors BRC AEC Financial Statements Shareholders GRMC Internal Audit External Audit

120 118 BIMB HOLDINGS BERHAD STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL Risk management is considered an integral part of BHB Group s day-to-day operations to facilitate BHB in achieving its objectives as well as to protect its shareholders and stakeholders interest. In line with Recommendation 6.1 of the Malaysian Code on Corporate Governance ( MCCG 2012 ), risk management is embedded in the Group s key processes and monitored through a Risk Management Dashboard ( RMD ) report. The Group s key operating subsidiaries report their risks via RMD at their BRC six (6) times a year. For BIMB Securities, it reports its risks via the RMD at its AEC on quarterly basis. The key operating subsidiaries have respectively appointed a qualified risk officer who is responsible to monitor, assess and manage the risks associated with the business and operations of the subsidiaries. The RMD of the respective subsidiaries are tabled at the GRMC and where relevant subsequently tabled at BHB s BRC. Risk management practices are inculcated and embedded in the activities of the Group s key operating subsidiaries. These include the establishment of risk tolerance thresholds and Risk Appetite Statement that identifies, assesses and monitors the risks associated with the business of the subsidiaries. The BRC or the AEC (as the case may be) of the key operating subsidiaries will escalate and update their respective Board on any new regulatory or statutory requirement that could impact the internal control and the risk management principles, policies, procedures and practices of the Companies and its subsidiaries. Audit and Examination Committee The AEC of BHB reviews the adequacy of internal controls within the company based on the assessment performed by the internal auditors. Similarly the AEC of the key operating subsidiaries reviews relevant matters pertaining to its internal accounting controls on quarterly basis. In addition, the AEC of BHB and its key operating subsidiaries also review and assess the adequacy of the scope and effectiveness of the internal and external audit functions. For the external auditors, the AEC assess their independence and the quality of their resources. All significant findings by the internal auditors, external auditors and regulators are reported to the AEC for review and deliberation. The AEC reviews and ascertains that mitigation plans are implemented by Management to safeguard the interests of the Group and upkeep proper governance. The risk responses and internal controls that the Management has initiated are documented and recorded in the AEC s meeting minutes. Pursuant to Paragraph 15.17(f) of the Listing Requirements of Bursa Malaysia Securities Berhad, two (2) separate meetings with the external auditors were conducted with the AEC of BHB without the presence of any Management of the Company, to discuss on any issues relating to BHB Group during the financial year ended 31 December Board Risk Committee The Group BRC are kept informed by its subsidiaries on their risk management policy statement and framework including the strategies, policies, the risk tolerance levels, governance and reporting structure. At the key operating subsidiaries level, reviews and assessments were carried out on the adequacy of the risk management policies and framework in identifying, measuring, monitoring and controlling risks and the extent to which these risks are operating effectively. In addition, they would also review the adequacy of relevant policies at the subsidiaries in meeting the relevant regulatory requirements including capital plan, dividend policy, investment and financing policy, single customer limit, business continuity plan, etc.

121 ANNUAL REPORT Leadership Perspectives Highlights Overview Group Management Committee The GMC had been established to facilitate BHB in fulfilling its obligation as a FHC pursuant to the Islamic Financial Services Act The GMC serves as a platform to discuss strategic issues, strengthen coordination and create Group synergies in order to meet the Group s objectives and create shareholder s value. The Group Chief Executive Officer of BHB is the Chairman of the GMC whilst the members comprise of the Managing Director or CEO of the respective key operating subsidiaries. Group Risk Management Committee The GRMC has been established to identify and review the key risk areas of BHB Group. It ensures that an appropriate risk management system and internal controls are in place and functioning effectively. The GRMC is also responsible for assessing the adequacy of infrastructure, resources and systems for effective risk management, and where necessary to embark on the Group s initiative to share facilities, mobilise resources, etc. In addition, the GRMC reviews the subsidiaries risk management periodic reports presented by the key operating subsidiaries on risk exposure, risk portfolio composition and risk management activities six (6) times a year. The GRMC is chaired by the Group Chief Strategy Officer and the members consist of the Group Chief Financial Officer of BHB together with the Risk Officer of the key operating subsidiaries. Internal Audit The internal audit function of BHB and its subsidiaries (save for Takaful Malaysia) is carried out by the Internal Audit Division of Bank Islam. For Takaful Malaysia, the internal audit function is carried out by its own independent internal audit department. The Internal Audit assesses compliance with policies and procedures and the effectiveness of the Group s internal control systems. The Internal Audit undertakes regular reviews of BHB and its subsidiaries operations and business processes. It examines and evaluates the adequacy and efficiency of financial and operating controls, and highlights significant risks and non-compliance. Where applicable, the Internal Audit will provide recommendations to improve the management of risks, control and governance processes. The AEC regularly reviews the status of rectification actions on the findings or recommendations by the internal auditors. Further details on the internal audit activities are provided in BHB s AEC report. An audit is performed on all key divisions in BHB Group, providing the respective AEC an independent assurance on the operational, financial, compliance and risk related activities within the Group. The risk-based internal audit plan is approved by the AEC of the key operating subsidiaries on annual basis. All internal audit observations are highlighted in the internal audit reports and reviewed by the AEC. Shariah Advisory It is a fundamental requirement of an Islamic financial institution that its entire business practices and operations are based on Shariah rules and principles. Islamic finance derives its value proposition from the application of Shariah contracts in financial transactions that provide for different risks and return profiles. Adherence to Shariah principles under such distinct contracts preserves the validity and sanctity of any Islamic financial transactions. BHB is committed to upholding these principles via strict observance of the Shariah Governance Framework outlined by BNM. The Shariah advisory function of BHB and its subsidiaries (save for Takaful Malaysia and BIMB Securities) is carried out by the Shariah Supervisory Council of Bank Islam ( SSC ). For Takaful Malaysia and BIMB Securities, the Shariah advisory function is carried out by their own respective independent Shariah committee. One of the key responsibilities of the SSC/Shariah committees is to advise its respective Board on Shariah matters in relation to business operations, compliance with Shariah principles at all times, auditing the operational aspect of BHB and endorsing the zakat computation and distribution. Accountability Financial Statements Shareholders 20 th AGM

122 120 BIMB HOLDINGS BERHAD STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL OTHER KEY ELEMENTS OF INTERNAL CONTROL In addition to the policies and standard operating procedures and processes, BHB and its subsidiaries have adopted a Code of Ethics and a Whistle Blowing Policy. The latter serves as an avenue for employees to report actual or suspected malpractice, misconduct or violation of policies or regulations. The other key elements of the internal control systems are described below: Standard Operating Procedures Documented Standard Operating Procedures ( SOPs ) for all departments of BHB and its subsidiaries were approved by the respective Management. The SOPs serves as a day-to-day operational guide to ensure compliance with financial and operational controls as well as the applicable laws and regulations. All SOPs are reviewed and updated regularly to reflect current risks, new regulatory requirements and current operations. Human Resources Policies and Procedures The Human Resources policies and procedures of BHB and its subsidiaries encompasses areas of human resources management such as the recruitment of new employees based on fit and proper criteria, performance appraisals, training and development. Annual Business Plan and Budgeting Process The Group s budget is prepared based on the annual business plans of BHB s key operating subsidiaries. The budget and business plan are approved by the respective Board and subsequently endorsed by BHB s Board. Actual performances of the subsidiaries are reviewed against the targeted results on a quarterly basis allowing for timely response and corrective actions to be taken to ensure the business targets are met. The subsidiaries performances are assessed against the budget, business plans and relevant key financial indicators. Technology ( IT ) System IT is key in supporting the service efficiency and delivery systems of the Group. The IT Risk Framework was developed to ensure that risks are correctly identified and mitigated accordingly. Bank Islam and Takaful Malaysia have developed their IT policies to address issues of security and risk related to IT. The subsidiaries continue to upgrade their IT systems to enhance efficiency of their business operations and services. Performance Review The Board receives and reviews reports from the Management on the Group s financial and operational performance, risk management as well as legal and regulatory matters on a quarterly basis. The financial performance presented highlights the key financial indicators of which include amongst others the ratio on profitability, capital adequacy and asset quality. The actual performance of BHB and its key operating subsidiaries are assessed against approved budgets and business plans, key financial indicators as well as industry s benchmark. The assessment enables the Management to identify any significant deviations and gaps for remedial measures to be implemented where necessary.

123 ANNUAL REPORT Highlights Perspectives Leadership Accountability 20 th AGM Shareholders Financial Statements Overview ASSURANCE FROM MANAGEMENT The Board has received assurance from BHB s Group CEO and the Group Chief Financial Officer that the Group s risk management and internal control systems are operating adequately and effectively, in all material aspects, during the financial year under review and up to the date of this Statement. Taking into consideration the assurance from the Management and the input from the relevant assurance providers, the Board is of the view that the systems of risk management and internal control are performing satisfactorily and are adequate to safeguard the shareholders investments, customers interest and the Group s assets. The Group will continue to implement new measures to strengthen the internal control and risk management environment. REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS The external auditors have reviewed this Statement on Risk Management and Internal Control pursuant to the scope set out in the Recommended Practice Guide ( RPG ) 5 (Revised 2015), Guidance for Auditors on Engagements to Report on the Statement on Risk Management and Internal Control included in the Annual Report issued by the Malaysian Institute of Accountants ( MIA ) for inclusion in the Annual Report of the Group for the financial year ended 31 December Based on the review conducted, the external auditors have reported to the Board that nothing has come to their attention that cause them to believe that the statement intended to be included in the Annual Report of the Group, in all material respect: (a) has not been prepared in accordance with the disclosures required by Paragraphs 41 and 42 of the Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers; or (b) is factually inaccurate. RPG 5 (Revised 2015) does not require the external auditors to consider whether the Directors Statement on Risk Management and Internal Control covers all risks and controls, or to form an opinion on the adequacy and effectiveness of the Group s risk management and internal control system including the assessment and opinion by the Board and Management thereon. The auditors are also not required to consider whether the processes described to deal with material internal control aspects of any significant problems disclosed in the Annual Report will, in fact, remedy the problems. This statement is made in accordance with the resolution of the Board dated 23 March 2017.

124 122 BIMB HOLDINGS BERHAD ADDITIONAL COMPLIANCE INFORMATION 1. SHARE BUYBACKS BHB did not purchase any of its own shares during the financial year ended 31 December OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES BHB, on 11 December 2013 had issued 426,715,958 Free Detachable Warrants pursuant to the Renounceable Rights Issue of 426,715,958 new ordinary shares of RM1.00 each in BHB in respect of the financial year ended 31 December Details of the warrant holdings are set out on pages 296 to 298 of the Annual Report. BHB did not issue any options, warrants or convertible securities in respect of the financial year ended 31 December AMERICAN DEPOSITORY RECEIPT (ADR) OR GLOBAL DEPOSITORY RECEIPT (GDR) BHB did not sponsor any ADR or GDR programme in the financial year ended 31 December NON-AUDIT FEES The amount of non-audit fees paid/payable by BHB to its external auditors and their affiliated companies for the financial year ended 31 December 2016 is set out on page 102 of the Annual Report. 5. PROFIT GUARANTEE BHB did not give out any profit guarantee during the financial year under review. 6. LIST OF PROPERTIES The list of BHB s properties is set out on pages 286 to 292 of the Annual Report. 7. MATERIAL CONTRACTS INVOLVING DIRECTORS AND MAJOR SHAREHOLDERS Save as disclosed below and the related party transactions disclosed in Note 43 on page 222 of the Financial Statements, no other material contract entered into by BHB or its subsidiary companies involving Directors and/or major shareholders interest was still subsisting at the end of the financial year or entered into since the end of the previous financial year. (a) A Deed Poll dated 25 October 2013 was executed by BHB constituting the issuance of 426,715,958 Free Detachable Warrants pursuant to the Renounceable Rights Issue of 426,715,958 new ordinary shares of RM1.00 each in BHB together with 426,715,958 Free Detachable Warrants. 8. IMPOSITION OF SANCTIONS AND/OR PENALTIES There were no public sanctions and/or penalties imposed on the Company or its subsidiaries, Directors or Management arising from any significant breach of rules/guidelines/legislations by the relevant regulatory bodies during the financial year under review. 9. VARIATION ON RESULTS There was no variation in results (differing by 10% or more) from any profit estimated forecast or projection of unaudited results announced.

125 ANNUAL REPORT Leadership Perspectives Highlights Accountability Financial Statements Shareholders 20 th AGM Overview 10. GENERAL MANDATE BHB Group had at the last Annual General Meeting obtained a general mandate from its shareholders to allow BHB and/or its subsidiaries, in their normal course of business, to enter into recurrent transactions of a revenue or trading nature with related parties ( RRPTs ) which are necessary for its day-to-day operations, on terms not more favourable to the related party than those available in the general public and not to the detriment of the minority shareholders. The RRPTs Mandate is valid until the conclusion of the forthcoming Annual General Meeting of the Company. The Board proposes to seek the renewal of the existing RRPTs Mandate at the forthcoming 20 th Annual General Meeting of the Company which will be held on 17 May 2017 at a.m. This Mandate, if approved by shareholders, will be valid until the conclusion of the next Annual General Meeting of the Company in the year NATURE OF TRANSACTIONS RELATED PARTY/ PRINCIPAL ACTIVITIES INTERESTED DIRECTOR AND/ OR MAJOR SHAREHOLDERS¹ ACTUAL VALUE TRANSACTED FROM 1 JUNE 2016 (BEING THE DATE OF THE LAST AGM) TO 31 MARCH 2017² RM 000 ³Rental of office premises payable by Bank Islam to TH. Lembaga Tabung Haji ( TH ) TH is principally involved in providing pilgrimage management services, saving and depository services, investment holding and rental of buildings. Interested major shareholder TH is a major shareholder of BHB with 53.12% shareholding. Interested Directors (1) Datuk Rozaida Omar and Puan Rifina Md Ariff are nominee directors of TH in BHB. They have no direct/indirect shareholding in TH and BHB. (2) Datuk Zaiton Mohd Hassan, Encik Mohd Zin Idris and Puan Noraini Che Dan are Directors of Bank Islam and they are also Directors of BHB. They have no direct/indirect shareholding in Bank Islam and BHB. (3) Dato Sri Zukri Samat, the Group Chief Executive Officer of BHB is also the Managing Director of Bank Islam. Dato Sri Zukri Samat has no direct/indirect shareholding in BHB and Bank Islam. 19,121

126 124 BIMB HOLDINGS BERHAD ADDITIONAL COMPLIANCE INFORMATION NATURE OF TRANSACTIONS RELATED PARTY/ PRINCIPAL ACTIVITIES INTERESTED DIRECTOR AND/ OR MAJOR SHAREHOLDERS¹ ACTUAL VALUE TRANSACTED FROM 1 JUNE 2016 (BEING THE DATE OF THE LAST AGM) TO 31 MARCH 2017² RM 000 ³Rental of office premises payable by Bank Islam to Takaful Malaysia. Syarikat Takaful Malaysia Berhad ( Takaful Malaysia ) Takaful Malaysia is principally involved in family and general takaful business. Interested Directors (1) Datuk Rozaida Omar and Encik Mohd Tarmidzi Ahmad Nordin are Directors of Takaful Malaysia and they are also Directors of BHB. They have no direct/ indirect shareholding in Takaful Malaysia and BHB. (2) Datuk Zaiton Mohd Hassan, Encik Mohd Zin Idris and Puan Noraini Che Dan are Directors of Bank Islam and they are also Directors of BHB. They have no direct/indirect shareholding in Bank Islam and BHB. (3) Dato Sri Zukri Samat, the Group Chief Executive Officer of BHB is also the Managing Director of Bank Islam. Dato Sri Zukri Samat has no direct/indirect shareholding in BHB and Bank Islam. 2,076 There is no amount due and owing to BHB by its related parties pursuant to the RRPTs. Notes: ¹ The direct and indirect shareholdings of the related parties in BHB above are set out in Section 6 of the Circular to Shareholders dated 25 April ² The last practicable date before printing of the Circular is 31 March ³ The rental sum of the properties was arrived at or estimated based on the ongoing or expected market rate at the time the tenancy agreement was or to be executed. Details of the rental of office premises are set out in the Circular to Shareholders dated 25 April 2017.

127 ANNUAL REPORT STATEMENT ON DIRECTORS RESPONSIBILITY Overview This statement is prepared pursuant to the Companies Act, 2016 and the Listing Requirements of Bursa Securities. The Directors are required to prepare financial statements which give a true and fair view of the state of affairs of the Group and the Company as at the end of each financial year and of their cash flows for that year then ended. In preparing the financial statements for the year ended 31 December 2016, the Directors have: Leadership adopted suitable accounting policies and applied them consistently; made judgments and estimates that are reasonable and prudent; ensured applicable Financial Reporting Standards have been followed; and Perspectives 20 th AGM Shareholders Financial Statements Accountability Highlights prepared the financial statements on a going concern basis. The Board has the overall responsibility to take all steps as are reasonably necessary to safeguard the assets of the Group to prevent and detect fraud and other irregularities. This statement is made in accordance with a resolution of the Board dated 23 March 2017.

128 upholding social responsibilities

129 FINANCING ADVANCES & OTHERS We believe the state of the community and environment we operate in have direct consequences to the health of our business. Due to this, we are guided in all operations and business decision not only by financial % TOTAL: RM39.2 decisions but also by the impact of our actions on our stakeholders be they our customers, partners, employees or the community at large. Our ability to identify and contribute to social, ethical and environmental developments is instrumental to our ongoing progress as a holistic organisation and responsible corporate citizen. BILLION 5

130

131 FINANCIAL STATEMENTS 130 Directors Report 137 Statements of Financial Position 139 Statements of Profit or Loss and Other Comprehensive Income 141 Statements of Changes in Equity 144 Statements of Cash Flows 146 Notes to the Financial Statements 277 Statement by Directors 278 Statutory Declaration 279 Independent Auditor s Report