Reports and Financial Statements for the financial year ended 31 December 2009
Reports and Financial Statements for the financial year ended 31 December 2009 Contents Pages 1 11 Statement by Directors 12 Statutory Declaration 12 Shariah Committee s Report 13 Independent Auditors Report 14 15 Balance Sheet 16 Income Statement 17 Statement of Changes in Equity 18 19 Cash Flow Statement 20 21 Summary of Significant Accounting Policies 22 48 Notes to the Financial Statements 49 108
for the financial year ended 31 December 2009 The Directors have pleasure in submitting their Report and the Audited Financial Statements of the Bank for the financial year ended 31 December 2009. Principal activities The principal activities of the Bank during the financial year are Islamic banking and finance business and the provision of related financial services. There was no significant change in the nature of these activities during the financial year. Financial results RM 000 Net profit after taxation and zakat 123,742 Dividends No dividends have been paid or declared by the Bank since the financial year ended 31 December 2008. The Directors do not recommend the payment of any dividend for the current financial year. Reserves, provisions and allowances There were no material transfers to or from reserves or provisions or allowances during the financial year other than those disclosed in the Financial Statements and notes to the Financial Statements. 1
Bad and doubtful financing Before the Financial Statements of the Bank were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad financing and the making of allowance for doubtful financing and satisfied themselves that all known bad financing had been written off and that adequate allowance had been made for doubtful financing. At the date of this Report, the Directors are not aware of any circumstances which would render the amounts written off for bad financing or the amount of the allowance for doubtful financing in the Financial Statements of the Bank inadequate to any substantial extent. Current assets Before the Financial Statements of the Bank were made out, the Directors took reasonable steps to ascertain that any current assets, other than financing, which were unlikely to be realised in the ordinary course of business, were shown in the accounting records of the Bank at the amount which they might be expected to realise. At the date of this Report, the Directors are not aware of any circumstances which would render the values attributed to current assets in the Financial Statements of the Bank misleading. Valuation methods At the date of this Report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Bank misleading or inappropriate. 2
Contingent and other liabilities At the date of this Report, there does not exist: (a) (b) any charge on the assets of the Bank which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Bank which has arisen since the end of the financial year other than in the ordinary course of banking business. No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Bank to meet their obligations when they fall due. Change of circumstances At the date of this Report, the Directors are not aware of any circumstances not otherwise dealt with in this Report or the Financial Statements of the Bank, that would render any amount stated in the Financial Statements misleading. Items of an unusual nature In the opinion of the Directors: (a) (b) the results of the Bank s operations for the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature; and there has not arisen in the interval between the end of the financial year and the date of this Report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Bank for the financial year in which this Report is made. 3
Directors The Directors who have held office during the period since the date of the last Report are as follows: Directors Datuk Dr. Syed Muhamad bin Syed Abdul Kadir Dato Sri Mohamed Nazir bin Abdul Razak Dato Mohd Shukri bin Hussin Dato Anwar bin Haji @ Aji Raja Shaharul Niza bin Raja Abdul Aziz Professor Dr. Mohammad Hashim Kamali Badlisyah bin Abdul Ghani In accordance with Article 83 of the Bank s Articles of Association, Dato' Mohd Shukri bin Hussin and Dato' Sri Mohamed Nazir bin Abdul Razak shall retire from the Board at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election. Directors interests in shares and share options According to the Register of Directors Shareholdings, the beneficial interests of the Directors who held office at the end of the financial year in the shares and share options of the ultimate holding company during the financial year are as follows: Ultimate holding company CIMB Group Holdings Berhad (formerly known as Bumiputra-Commerce Holdings Berhad Number of ordinary shares of RM1 each As at As at 1 January Acquired Disposed 31 December Direct interest Dato Sri Mohamed Nazir bin Abdul Razak^ 27,953,261 - (490,000) 27,463,261 Dato Mohd Shukri bin Hussin 300,112 - - 300,112 Badlisyah bin Abdul Ghani - 69,728 (69,728) - As at As at 1 January Acquired Disposed 31 December ^ Includes shareholding of spouse, details of which are as follows: Datin Azlina binti Abdul Aziz 4,000,000 - - 4,000,000 4
Directors interests in shares and share options (Continued) Number of share options over ordinary shares of RM1 each under the Executive Employees Share Options Scheme ( EESOS 4 ) As at As at 1 January Granted Exercised 31 December Ultimate holding company CIMB Group Holdings Berhad (formerly known as Bumiputra-Commerce Holdings Berhad Badlisyah bin Abdul Ghani 69,728 - (69,728) - The options had expired on 29 December 2009, and the applicable option price from 30 December 2008 to 29 December 2009 was RM4.84. None of the other Directors who held office at the end of the financial year had any interests in the shares or options over ordinary shares of the ultimate holding company and related companies during the financial year. 5
Directors benefits Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by Directors shown in Note 30 to the Financial Statements or the fixed salary as a full time employees of the Bank) by reason of a contract made by the Bank or a related corporation with the Director or with a firm of which the Director is a member or with a company in which the Director has a substantial financial interest. Neither at the end of the financial year, nor at any time during the financial year, did there subsist any other arrangements to which the Bank is a party with the object or objects of enabling Directors of the Bank to acquire benefits by means of the acquisition of shares in, or debentures of, the Bank or any other body corporate other than share options of the ultimate holding company. 2009 Business Plan And Strategy CIMB Group s main theme for 2009 was Regional Universal Banking. The key emphasis was to strengthen the foundation in the pursuit of building a truly regional franchise. In tandem with this theme, ( CIMB Islamic or the Bank ) focused on two main areas namely: (a) (b) To enhance and strengthen the Dual Leverage Banking Model in Malaysia. To provide support and export Islamic Banking expertise into the regional businesses where CIMB Group is focusing on. A key priority for the year was to enhance operations. On the capital management front, CIMB Islamic Bank listed its inaugural sub-debt through a Tier-2 Junior Sukuk Programme of up to RM 2.0 billion in nominal value on Bursa Malaysia. This exercise is intended to strengthen our balance sheet position. To further strengthen the Dual Leverage Banking Model, training on Islamic Banking products and concepts was extensively conducted throughout the year for our front-liners in Consumer Sales and Distribution. From a governance perspective, during the year, a Shariah Compliance Framework was established. This is an enterprise-wide Shariah management plan that will further strengthen Shariah compliance mechanism within the CIMB Group. The Bank has formulated our own Shariah Compliance Policy and General Procedures Manual (the Shariah Manual ). 6
2009 Business Plan and Strategy (Continued) We have witnessed stellar growth in the consumer and retail banking space. Growth has been very strong in the mortgage, auto-finance and micro-credit segments. A significant accolade bestowed during the year was the Best Islamic Retail Bank by CPI Financial of Dubai. It is a testament to our unique operating model and the continuous introduction of innovative and revolutionary Shariah compliant products such as the Flexi Home Financing-i. During the year, we sought to seek further diversification in income contribution between retail and wholesale. The emphasis was on building the portfolio of quality financing assets whilst maintaining a low non-performing financing ratio. On the deposits side, there was continued emphasis on issuance of new innovative Shariah compliant products such as the Greater China and Commodities Income Protected Fund. In Investment Banking, working together with our sister companies within the CIMB Group, we continued to retain the leading position in Islamic Investment Banking both domestically and globally. The landmark deal for the year was the USD 1.5 billion Petronas Sukuk Emas issuance. This was the largest US denominated issuance in Asia Ex-Japan for the year. The USD3.3 billion IPO of Maxis Malaysia was the Best Islamic IPO of the year. On the asset management front, CIMB Standard secured a Blue Ocean coup by securing the mandate to manage a new USD 500 million Islamic Infrastructure Fund sponsored jointly by the Asian Development Bank and Islamic Development Bank. The regionalisation agenda gathered pace as the Group Islamic Business Division which undertakes the business via CIMB Islamic as the flagship franchise moves to stage 2 of the Regional Operating Model. This effectively places the Islamic banking franchise in all legal entities and divisions within the Group via the Dual Banking Leverage Model. In Indonesia, there was the merger of Niaga Syariah and Lippo Salam to become CIMB Niaga Syariah. Indonesia is a critical market in our regionalisation agenda. The focus will be on rebuilding the Islamic consumer business in Indonesia. Islamic consumer banking will also be introduced in Singapore. Going forward, we want to enhance the Islamic investment banking and asset management in Indonesia and Singapore. Regional Shariah harmonization is also important from both a governance and integration perspective. 7
Performance overview The Bank recorded a profit before taxation and zakat of RM170.5 million in 2009, an increase of 74.7% from RM97.6 million profits recorded in the previous financial year. Earnings per share were at 22.50 sen compared to 13.33 sen for 2008. Shareholders funds rose from RM745.4 million to RM871.1 million. Return on equity was 15.31% compared to 10.34% in the prior financial year. The Bank has achieved a satisfactory performance for the year under review despite the unfavorable market conditions due to aggressive marketing efforts and distinct product offerings. Total overhead expenditures for the financial year ended 31 December 2009 were RM215.2 million (2008: RM121.8 million), of which 45.4% relates to personnel costs (2008: 38.8%). Total assets rose by RM8.6 billion to RM27.3 billion from RM18.7 billion in 2008, mainly from corporate financing, hire purchase, personal financing and short term treasury placements. Total non-performing financing increased to RM240.7 million at end of 2009 from RM201.5 million at end of 2008. The Bank s general allowance during the financial year stood at RM158.0 million compared to RM75.6 million in 2008 due to the increase in total financing assets. Meanwhile, specific allowance was at RM143.0 million against RM99.4 million as of 31 December 2008. As at 31 December 2009, the Bank s Risk-Weighted Capital ratio was 11.34% (2008: 11.69%). Outlook for 2010 The economic recovery is well underway evident from clearer signs of improvement in both external and domestic demand conditions. There is clear evidence of a pick-up in manufacturing and turning inventory cycle. Nevertheless, the recent crisis in Dubai has shown that the full impact of the financial crisis may not have totally unraveled. We must brace ourselves for the possibility of nasty surprises. The capital markets will bounce back with a vengeance. Despite the fact that Sukuk issuance came to a halt in first half of 2009, all signs point to a significant increase by the second half of 2010. The expectation is for sovereign, quasi-sovereign and corporate bodies to tap the market. Malaysia will remain at the helm of Sukuk issuance. 8
Outlook for 2010 (Continued) There has been a significant turnaround in domestic consumer spending supported by the stimulus package introduced. Residential investments for instance rebounded strongly by double digits in the third quarter of 2009 compared to a negative scenario in the second quarter of 2009. This augurs well for our domestic consumer banking business. Indonesia has benefited from resilient domestic demand and stronger consumption as well as resumption of investment will underpin growth in 2010. Singapore will rely on a significant rebound in exports to drive growth. For our Islamic consumer banking business, the timing is right to penetrate and establish a significant presence in both regional markets. Rating by External Rating Agencies Details of the ratings of the Bank and its debt securities are as follows: Rating Agency Date accorded Rating classification Rating received Malaysian Rating Corporation June-09 Long term AA+ Berhad ('MARC') Short term outlook MARC-1 Stable MARC has assigned a rating of AAIS to the Bank s Tier-2 Junior Sukuk Programme. The rating is positioned one notch lower than the long term rating as it reflects the subordinated portion of the Junior Sukuk relative to the Bank s deposits as well as senior unsecured debt. 9
Shariah Committee Effective 1 January 2007, with the integration of CIMB Investment Bank s Shariah Committee and the Bank s Shariah Committee, all the Islamic banking businesses of the CIMB Group came under the purview of the CIMB Islamic Shariah Committee, which resides at the Bank. As per BNM/GPS1 (Guideline on the Governance of Shariah Committee for Islamic Financial Institution), the Shariah Committee advises the Bank on the operations of its Islamic banking business to ensure that the Bank is not involved in any elements/activities which are not permissible under Shariah. In advising on such matters, the Shariah Committee also considers the views of the Shariah Advisory Council/Committees of relevant authorities like Bank Negara Malaysia and the Securities Commission on issues relating to the activities and operations of Islamic banking and finance. Composition of the Shariah Committee: 1. Sheikh Professor Dr. Mohammad Hashim Kamali (Chairman) 2. Sheikh Nedham Muhammad Seleh Yaqooby 3. Sheikh Dr. Haji Mohd Nai m bin Haji Mokhtar 4. Sheikh Associate Professor Dr. Shafaai bin Musa 5. Sheikh Dr. Yousef Abdullah AlShubaily 6. The late Sheikh Dr. Haji Zainudin bin Jaffar (until 25 October 2009) Zakat obligations The Bank pays business zakat in line with the principles of Shariah. Significant events during the financial year Significant events during the financial year are disclosed in Note 40 to the Financial Statements. Subsequent events after the financial year There were no significant events after the financial year. 10
Holding and ultimate holding company The holding company is CIMB Bank Berhad, a licensed bank incorporated in Malaysia. The Directors regard CIMB Group Holdings Berhad (formerly known as Bumiputra- Commerce Holdings Berhad), a quoted company incorporated in Malaysia, as the ultimate holding company. Auditors The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. Signed on behalf of the Board of Directors in accordance with their resolution. Datuk Dr. Syed Muhamad bin Syed Abdul Kadir Director Badlisyah bin Abdul Ghani Director Kuala Lumpur 11