FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDING 31 DECEMBER PDF Free Download

FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2008 Registered Office Ground Floor, East Block Wisma Selangor Dredging 142-B Jalan Ampang 50450 Kuala Lumpur 1

Contents Directors Report 3 Statement by Directors 17 Statutory Declaration 18 Report of the Auditors 19 Report of Shariah Committee 21 Balance Sheets 22 Income Statements 23 Statements of Changes in Equity 24 Cash Flow Statements 25 Summary of Significant Accounting Policies 26 Notes to the Financial Statements 36 2

DIRECTORS REPORT The Directors hereby submit their report together with the audited financial statements of the Bank for the financial year ended 31 December 2008. PRINCIPAL ACTIVITIES The Bank is principally engaged in Islamic Banking business and the provision of related financial business under the Islamic Banking Act, 1983. There have been no significant changes to these principal activities during the financial year. FINANCIAL RESULTS Net loss for the financial year 59,708 DIVIDENDS No dividends has been paid or declared by the Bank since the end of the previous financial year. The Directors do not recommend the payment of any dividend for the current financial year. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year except as disclosed in the financial statements. DIRECTORS OF THE COMPANY The Directors who have held office during the year since the date of the last report are as follows: Abdullah Sulaiman Al Rajhi Saeed Mohammed Al Ghamdi Dato Dr Nik Norzrul Thani Bin Nik Hassan Thani Ahmed Baqar Rehman Dato Mohd Sallehuddin Bin Othman (appointed on 10 April 2008) Mohd Daruis Bin Zainuddin (resigned on 11 April 2008) According to the register of Directors shareholding, none of the Directors holding office at 31 December 2008 held any shares in the Bank during the financial year. 3

DIRECTORS REPORT (cont d) DIRECTORS BENEFITS Since the end of the previous financial year, no Director of the Bank has received nor become entitled to receive any benefit (other than directors remuneration as disclosed in Note 22 to the financial statements) 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 that year, did there subsist any arrangements to which the Bank is a party whereby Directors might acquire benefits by means of the acquisition of shares in, or debentures of, the Bank or any other body corporate. ISSUE OF SHARES There is no change to the issued and paid-up capital during the financial year. BAD AND DOUBTFUL FINANCING Before the financial statements of the Bank were made out, the Directors took reasonable steps to ascertain that proper actions had been taken in relation to the writing off of bad financing and the making of allowance for doubtful financing and have satisfied themselves that there were no known bad financing 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 any amount to be written off for bad financing or the amount of the allowance for bad and 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 ensure that any current assets, other than debts and financing, which were unlikely to realise their value as shown in the accounting records in the ordinary course of business, had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the 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 methods of valuation of assets or liabilities of the Bank misleading or inappropriate. 4

DIRECTORS REPORT (cont d) CONTINGENT AND OTHER LIABILITIES At the date of this report, there does not exist: i) any charge on the assets of the Bank which has arisen since the end of the financial year and which secures the liabilities of any other person; or ii) any contingent liability in respect of the Bank that has arisen since the end of the financial year other than in the ordinary course of the banking business. No contingent liability or other liability of the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Bank to meet its obligations as and when they fall due CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Bank, which would render any amount stated in the financial statements misleading. ITEMS OF UNUSUAL NATURE The results of the operations of the Bank for the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Bank for the current financial year in which this report is made. PERFORMANCE OVERVIEW 2008 For the year ended 31 December 2008, the Bank registered a pre-tax loss of RM63.937 million with total assets of the Bank increased from RM2.541 billion to RM4.799 billion as at 31 December 2008. The Bank has expanded its suite of products and services to ensure greater accessibility and convenience to the customers. It is also gearing towards business scale and increasing businesses. With the launching of the Investment Bank, the Bank will now have the full universal offerings of a Bank and aims to be a key player in the Islamic Banking industry in Malaysia. 5

DIRECTORS REPORT (cont d) BUSINESS PLAN AND OUTLOOK FOR 2009 In 2009, the Bank has plans to further expand its footprint with openings of new branches and offsite banking facilities in other states in Malaysia to provide our customers with greater accessibility and convenience. The Bank is in talks with MEPS to gain access of their 7,000 ATM network across the country targeting to seal the deal in the near future. The corporate investment banking will play an even greater role by being the catalyst or intermediary for an ever increasing cross border transaction between Malaysia and Saudi and the South East Asian region. More innovative retail and corporate products are in the pipeline and targeted to be launched in 2009. The Bank has positioned itself well in the market thus far and will continue its growth momentum via marketing activities that meet and exceed the needs of their growing customer base. The Bank is confident that it has set the groundwork for such growth and will continue to propel it further in the coming years to come. STATEMENT OF CORPORATE GOVERNANCE The Board of Directors of the Bank ( the Board ) recognises the importance of corporate governance as set out in the Malaysian Code on Corporate Governance ( the Code ) in discharging its responsibilities to enhance shareholders value and safeguard the interests of other stakeholders towards enhancing business prosperity and corporate accountability. This also means inculcating a culture that seeks to balance conformance requirements with the need to deliver long term strategic success through performance, predicated on entrepreneurship, control and ownership, without comprising personal or corporate ethics and integrity. Although the Bank is not a listed company, the Board has endeavoured to apply the principles and comply with the relevant best practices of corporate governance as set out in the Code. The Bank is also required to comply with BNM s Guidelines on Directorship in the Banking Institutions ( BNM/GP1 ). BOARD OF DIRECTORS (i) Board Composition and Its Roles and Responsibilities At the date of this Annual Report, the Board comprises five (5) Directors, which includes two (2) independent non-executive Directors. The appointment of non-executive Directors facilitates the exercise of independent evaluation in Board deliberations and decision-making, and thus providing the check and balance in the Board. The Board is responsible for the overall corporate governance, including its strategic direction, establishing goals for management and monitoring the achievement of these goals. The roles of the Chairman and the Chief Executive Officer have always been separated, which is consistent with the principles of the Revised BNM/GP1 to institute an appropriate balance of power and authority. The Chairman is responsible for ensuring the effectiveness of the Board as well as representing the Board to the Shareholder. 6

DIRECTORS REPORT (cont d) BOARD OF DIRECTORS (cont d) (i) Board Composition and Its Roles and Responsibilities (cont d) The Directors, with their different backgrounds and specialisations, collectively bring with them a wide range of experience and expertise. The Chief Executive Officer is responsible for implementing the policies and decisions of the Board, overseeing the operations as well as coordinating the development and implementation of business and corporate strategies. The independent non-executive Directors bring an independent judgment to the decision making of the Board and provide a review and challenge on the performance of the management. As a principle of good governance, all Directors are subject to re-election at regular intervals. The Bank s Articles of Association also provide for the retirement of Directors by rotation and, under Bank Negara Malaysia s guidelines, all appointment and re-appointment of Directors have to be approved by Bank Negara Malaysia. (ii) Board of Directors Profile The Directors profiles are as follows: Abdullah Sulaiman Al Rajhi Chairman Abdullah Sulaiman Al Rajhi, in his capacity as the Chief Executive Officer of Al Rajhi Bank, Saudi Arabia also spearheads the development of the Malaysian Bank s operation as the Chairman. A member of the wellknown Al Rajhi family, upon completion of his Business studies, he had bolstered his academic achievements with training courses at the Wharton School in the United States of America and the Cranfield School of Management in United Kingdom. Abdullah Sulaiman had familiarised himself with various activities and levels of banking operations by assuming various senior responsibilities in the Bank. He is also an avid speaker and advocate Islamic banking principles by participating in many of regional and international financial forums in recent years. Saeed Mohammed Al Ghamdi Non- independent Non-executive Director Saeed Mohammed Al Ghamdi, is the deputy Chief Executive Officer of Al Rajhi Bank, Saudi Arabia. He joined the Al Rajhi Banking and Investment Corporate in 1998 as the Chief Information Officer, in charged of operational functions. After overseeing the IT, Operations and Retail divisions, he was appointed to his current position as Deputy CEO for AL Rajhi Bank, Saudi Arabia. Saeed Mohammed obtained his Bachelor of Science from the King Fahad University of Petroleum & Minerals, Saudi Arabia. Dato Dr Nik Norzrul Thani Bin Nik Hassan Thani Independent Non-executive Director Dato Dr Nik Norzul Thani was appointed as a Board member of the Bank with effect from 20 December 2006. Dato Dr. Nik advises clients on a wide range of legal matters covering a range of banking advisory aspects, including Islamic Finance and is currently attached to Zaid Ibrahim and Co. Besides being a board member for several other local companies, Dato Dr Nik also has several books and articles to his credit. 7

DIRECTORS REPORT (cont d) BOARD OF DIRECTORS (cont d) (iii) Board of Directors Profile (cont d) Ahmed Baqar Rehman Non- independent Executive Director Ahmed Rehman was appointed as a Board member of the Bank on 27 th July 2007 and is the Chief Executive Officer of Al Rajhi Bank s Malaysian operations with effect from March 2006. Leading the Saudi financial giant s first foray into the international market, Ahmed was responsible for the set-up and launch of the Retail and Wholesale Islamic bank. With over two decades of experience in the financial sector, Ahmed has developed an in-depth knowledge and expertise in the banking industry. He held several multinational positions in a foreign international bank which includes overseeing markets such as Dubai, Pakistan, Middle East and Africa prior to his appointment at Al Rajhi Bank. Dato Mohd Sallehuddin Bin Othman Independent Non-executive Director Dato Mohd Sallehuddin was appointed as a Board member with effect from 10 April 2008. An accountant by profession and has extensive working experience and holds top position in large corporations. His last position was the Group Managing Director with Malaysian Industrial Development Finance Bhd where he was responsible for the implementation of strategies and plans. A member of the Malaysia Institute of Accountants and obtained his Masters from the University of London, United Kingdom. 8

DIRECTORS REPORT (cont d) BOARD OF DIRECTORS (cont d) (iii) Board Meetings During the financial year ended 31 December 2008, six (6) Board meetings were held and attendances by Directors at the board meetings were as follows: Board meeting Attendance by Directors Percentage dates Chairman Non-Independent Independent attendance (1 member) (2 members) (2 members) 20 th February 2008 a a a 100% 2 nd May 2008 a a a 100% 1 st July 2008 a a a 100% 27 th September 2008 a a a 100% 13 th November 2008 a a a 100% 16 th December 2008 - a a 80% At the Board meetings, the Board reviews various management reports on the business performance of the Bank and the minutes of meetings of the Board Committees were tabled for review by members of the Board. Members of the Board deliberate and in the process evaluate the potential risks and viability of business propositions and corporate proposals that have significant impact on the bank s business or on its financial position. Board meetings are governed by a structured format agenda and the agenda for each Board meeting and papers relating to the agenda items are forwarded to all Directors in advance prior to the scheduled Board meetings for their perusal. Minutes of every Board meeting were also circulated to all the Directors for their perusal prior to confirmation of the minutes at the following Board meeting 9

DIRECTORS REPORT (cont d) BOARD OF DIRECTORS (cont d) (iv) Board Committee Board Committees were established to assist the Board in the running of the Bank. The following Board Committees with their specific terms of reference and functions are as follows: Audit Committee The Audit Committee consists of two independent non-executive Directors and one non-independent non-executive Director. There were four (4) meetings held during the financial year. The members of the committee are as follows: Dato Dr Nik Norzrul Thani Bin Nik Hassan Thani - Member Saeed Mohammad Al Ghamdi - Member Dato Mohd Sallehuddin Bin Othman - Chairman (appointed on 10 April 2008) Mohd Daruis Bin Zainuddin - Chairman (resigned on 11 April 2008) The primary function of the Audit Committee is to assist the Board in discharging its responsibilities by providing independent oversight of the Bank s financial reporting, the internal control system, the effectiveness of internal audit function and risk management system. The Audit Committee also provides, by way of regular meetings, a line of communication between the Board, the internal and external auditors. Risk Management Committee The Risk Management Committee consists of two independent non-executive Directors and one nonindependent non-executive Director and had four (4) meetings during the financial year. The members of the committee are as follows: Dato Dr Nik Norzrul Thani Bin Nik Hassan Thani - Chairman Saeed Mohammad Al Ghamdi - Member Dato Mohd Sallehuddin Bin Othman - Member (appointed on 10 April 2008) Mohd Daruis Bin Zainuddin - Member (resigned on 11 April 2008) The objectives of the Risk Management Committee are to establish a forum for deliberation and consideration of risks which the Bank is exposed to in relation to its strategic direction and objectives while overseeing to ensure that the risk management systems, policies and procedures are in place and functioning. 10

DIRECTORS REPORT (cont d) (iv) Board Committee (cont d) Nominating Committee The Nominating Committee consists of two independent non-executive Directors and two nonindependent non-executive directors with three (3) meetings held during the financial year. The members of the committee are as follows: Dato Dr Nik Norzrul Thani Bin Nik Hassan Thani - Chairman Abdullah Sulaiman Al Rajhi - Member Saeed Mohammad Al Ghamdi - Member Dato Mohd Sallehuddin Bin Othman - Member (appointed on 10 April 2008) Mohd Daruis Bin Zainuddin - Member (resigned on 11 April 2008) The responsibilities of the nominating committee is to provide a formal and transparent procedure for the appointment of Directors and the Chief Executive Officer as well as the assessment of the effectiveness of individual Directors, Board as a whole and performance of Chief Executive Officer and senior management officers. Remuneration Committee The Remuneration Committee consists of one independent non-executive Director and two nonindependent non-executives Director. Three (3) meetings were held during the financial year. The members of the committee are as follows: Dato Dr Nik Norzrul Thani Bin Nik Hassan Thani Abdullah Sulaiman Al Rajhi Saeed Mohammad Al Ghamdi - Chairman - Member - Member The responsibilities of the Remuneration Committee is to provide for a formal and transparent procedure for developing the remuneration policy for Directors, Chief Executive Officer and senior management officers and ensuring that the compensation is competitive and consistent with the Islamic Bank s culture, objective and strategy. INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES The Malaysian Code on Corporate Governance and Bank Negara Malaysia s Guidelines on Corporate Governance requires Banks to maintain a sound system of internal controls to safeguard shareholders' investments and the Bank's assets. Responsibility of the Board The Board recognises the importance of maintaining a sound system of internal control to safeguard shareholders' investments and the Bank's assets. The Board is also responsible for the Bank s system of internal controls and its effectiveness. It includes reviewing adequacy and integrity of controls relating to financial, operational, risk management and compliance with applicable laws and regulations. The system is designed to manage the Bank s risks within an acceptable risk profile and the Board acknowledges that the system, by its nature, can only provide reasonable assurance and not absolute assurance against material misstatement of management and financial information and records or against financial losses or fraud. 11

DIRECTORS REPORT (cont d) INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES (Cont d) Key Internal Control Elements The Bank has in place an on-going internal control processes for identifying, evaluating, managing and reporting on the significant risks that may affect the achievement of its business objectives throughout the financial year under review. The key internal controls elements in the process are described below: (i) Clear Line of Responsibilities The management of the Bank is primarily delegated to the Chief Executive Officer and its Management Committee, whose responsibilities are set by the Board. The management assists the Board in the implementation of the policies and procedures on risk and control by identifying and assessing the risks faced, and in the design, operation and monitoring of suitable internal controls to mitigate and control these risks. (ii) Risk Management Framework Risk Management Division is established to assist the Board in the development of general risk policies and procedures, monitor and evaluate material risks that may arise from the Bank s business activities. The Board with the assistance of the Risk Management Division, has established an enterprise-wide risk management framework that details a holistic risk management governance structure for risk management which balances risks and returns, as well as integrated risk management processes for credit risk, market risk, liquidity risk and operational risk. (iii) Internal Audit Activities Ongoing reviews of the internal control system are carried out by the internal auditor to test control effectiveness in the Bank. Results of such reviews are reported to the Audit Committee. The internal audit activities revolve primarily on areas of priority as identified by risk analysis and in accordance with the annual internal audit plans as approved by the Audit Committee. (iv) Annual Business Plan A detailed budgeting process is established requiring all key business units in the Bank to prepare budgets annually which are discussed and approved by the Board. Regular reporting on actual performance against approved budgets is in place and significant variances shall be followed up by the management and to be reported to the Board. (v) Management Reporting The Board also receives and reviews reports from the management on a regular basis in ensuring the effectiveness of the Bank s daily operations and that the Bank s operations are in accordance with the established goals. (vi) Policies and Procedures There are policies, procedures and authority limits imposed on the management in respect of the day-today operations. Compliance with internal controls and the relevant laws and regulations are also set out in operations manuals, guidelines and directives which are updated from time to time. 12

DIRECTORS REPORT (cont d) RISK MANAGEMENT Risk management plays a substantial role in the governance of the Bank as the bank recognises the diversity and complexity of banking operations and the exposure to various kinds of risks mainly on credit risk, market risk and operational risk. The Bank recognises the importance of an effective risk management and control measures to ensure the Bank s corporate value, sustained profitability and continued enhancement of shareholder value. A risk conscious corporate culture and pre-emptive actions of employees are also crucial for an effective risk management. The risk conscious corporate culture is met through communication, training, policies, procedures and organisational structures, roles and responsibilities. Overall Risk management Framework Risk Management Governance Structure and Processes The Bank has established within its risk management framework a holistic risk management governance structure for risk management which balances risks and returns, as well as integrated risk management processes for credit risk, market risk, liquidity risk and operational risk. The risk management governance structure provides clear accountabilities and responsibilities for risk management processes throughout the organisation at the Board level, at the Executive Management level and at the business unit and support unit level. The risk management processes encompass four broad processes, namely risk identification, risk assessment and measurement, risk control and mitigation and risk monitoring. Credit Risk Management Credit risk is defined as the risk of potential losses arising from a customer default or deterioration of the credit standing of a customer with whom the Bank has entered transactions into. The Bank establishes policies and procedures for credit origination, scoring, rating, approval, monitoring, collection and recovery. Credit approval authorities are delegated to committees and individuals in accordance to the risk appetite of the Board. Regular analysis and reporting of risk profile covering credit exposure, movements of non-performing financings ( NPFs ), concentration of credit exposure, adequacy of specific provision for NPFs and capital adequacy is updated to the Management, the Risk Management Committee and the Board. Market Risk Management Market risk is defined as the risk that could incur losses due to changes in the value of assets and liabilities (including off-balance sheet items) caused by fluctuations in the market risk factors such as profit rates and foreign exchange rates. Meanwhile, liquidity risk is defined as the risk of losses arising from funding difficulties to raise the necessary funds, or when it is forced to obtain funds at much higher rates than usual. The Bank establishes policies and procedures for monitoring, reporting and control of market and liquidity risks including setting appropriate management trigger and exposure limits and performing regular stress testing. The Asset and Liability Committee ( ALCO ) is established to monitor, deliberate and make decision on matters related to funding, liquidity as well as asset and liability mismatch risks management. The Bank manages its liquidity in compliance to BNM s New Liquidity Framework. Regular analysis and reporting of market and liquidity risks profile is updated to the Management, the Risk Management Committee and the Board. 13

DIRECTORS REPORT (cont d) RISK MANAGEMENT (Cont d) Operational Risk Management Operational risk is defined as the risk of loss, whether direct or indirect, to which the Bank is exposed due to inadequacy or failure of processes, procedures, systems or controls and external events. Operational risk, in some form, exists in each of the Bank s business and support activities and can result in direct and indirect financial loss, regulatory sanctions, customer dissatisfaction and damage to the Bank s reputation. The management of operational risk is an important priority for the Bank. To mitigate such operational risks, the Bank has developed an operational risk program and essential methodologies that enables identification, measurement, monitoring and reporting of inherent and emerging operational risks. The day to day management of operational risk exposures is through the development and maintenance of comprehensive internal controls and procedures based on segregation of duties, independent checks, segmented system access control and multi-tier authorisation processes. An incident reporting process is also established to capture and analyse frauds and control lapses. A periodic self-risk and control assessment is established for business and support units to pre-emptively identify risks and evaluate control effectiveness. Action plans are developed for the control issues identified. In addition, the Bank is in the progress of establishing the Business Continuity Plan ( BCP ) to ensure that critical operations are not interrupted so that critical business processes continue with minimal adverse impact on customers, staff and products and services. BCP constitutes an essential component of the Bank s risk management process by providing a controlled response to potential operational risks that could have a significant impact on the Bank s critical processes and revenue streams. The Bank s business continuity plan is to maintain continuous operational viability in the event of natural disasters, systems failures and other types of emergencies. Regular analysis and reporting of operational risk profile is updated to the Management, the Risk Management Committee and the Board. DISCLOSURE OF SHARIAH COMMITTEE The Bank s business activities are subject to Shariah compliance and confirmation by the Shariah Committee consisting of four members appointed by the Board of Directors as follows: Dr. Salleh Abdullah S. Allheidan Burhanuddin Lukman Dr. Azman Mohd Noor Dr. Ashraf Md. Hashim - Chairman - Deputy Chairman - Member - Member The duties and responsibilities of the Shariah Committee amongst others are as follows: (i) (ii) To advise the Board of Directors on Shariah matters in order to ensure that the business operations of the Bank comply with the Shariah principles at all times; To endorse the Shariah Compliance Manual. The manual specifies the manner in which a submission or request for advice be made to Shariah Committee, the conduct of the Shariah Committee s meeting and the manner of compliance with any Shariah decision; 14

DIRECTORS REPORT (cont d) DISCLOSURE OF SHARIAH COMMITTEE (cont d) (iii) (iv) To ensure that the Bank complies with Shariah principle in all aspect and to decide consequential action upon any violation; To ensure that the products of the Bank comply with Shariah principles in all aspects, the Shariah Committee must endorse the following; (a) (b) the terms and conditions contained in the proposal form, contract, agreement or other legal documentation used in executing the transactions; and the product manual, marketing advertisements, sales illustrations and brochures used to describe the product. (v) (vi) To provide assistance to related parties such as legal counsel, auditor or consultant on Shariah matters so that compliance with Shariah principles can be assured completely; To provide written Shariah opinion and to record any opinion given under the following circumstances: (a) (b) where the Bank makes reference to the Shariah Advisory Council ( SAC ) of Bank Negara Malaysia for advice; and where the Bank submits applications to Bank Negara Malaysia for new products approval in accordance with guidelines on product approval issued by Bank Negara Malaysia. (vii) To advise on matters to be referred to the SAC for matters which have not been resolved or endorsed. The Shariah is also expected to assist the SAC on any matters referred by the Bank. The Shariah Committee is also planning to set up a Shariah Compliance Unit. Currently, the compliance work is carried out by the Secretariat to the Shariah Committee. SIGNIFICANT EVENTS There were no significant events during the financial year ended 31 December 2008. SUBSEQUENT EVENTS Subsequent to the financial year end, the Bank increased its authorised as well as its issued and paid-up ordinary share capital from RM600,000,000 as at 31 December 2008 to RM1,000,000,000 as at 4 February 2009 by way of an issuance of 400,000,000 additional ordinary shares of RM1.00 at an issue price of RM1.00 per ordinary share for cash. The new ordinary shares issued were for working capital purposes and rank pari passu in all respects with the existing ordinary shares of the Bank. 15

AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. In accordance with a resolution of the Board of Directors dated 29 May 2009 AHMED BAQAR REHMAN DIRECTOR DATO MOHD SALLEHUDDIN BIN OTHMAN DIRECTOR Kuala Lumpur 29 May 2009 16

STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 We, Ahmed Baqar Rehman and Dato Mohd Sallehuddin Bin Othman, being two of the Directors of Al Rajhi Banking & Investment Corporation (Malaysia) Bhd, state that, in the opinion of the Directors, the financial statements set out on pages 22 to 63 are drawn up so as to give a true and fair view of the state of affairs of the Bank as at 31 December 2008 and of the results and cash flows of the Bank for the financial year then ended, in accordance with the provisions of the Companies Act, 1965, MASB Approved Accounting Standards in Malaysia for entities other than private entities and Bank Negara Malaysia Guidelines. Signed on behalf of the Board of Directors in accordance with their resolution dated 29 May 2009 AHMED BAQAR REHMAN DIRECTOR DATO MOHD SALLEHUDDIN BIN OTHMAN DIRECTOR Kuala Lumpur 29 May 2009 17

STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 I, Kevin Soo Weng Kong, being the officer primarily responsible for the financial management of Al Rajhi Banking & Investment Corporation (Malaysia) Bhd, do solemnly and sincerely declare that the accompanying financial statements of the Bank as set out on pages 22 to 63 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960. KEVIN SOO WENG KONG Subscribed and solemnly declared by the abovenamed, Kevin Soo Weng Kong, at Kuala Lumpur on 29 May 2009 Before me: 18

INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF AL RAJHI BANKING & INVESTMENT CORPORATION (MALAYSIA) BHD REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of Al Rajhi Banking & Investment Corporation (M) Berhad, which comprise the balance sheet as at 31 December 2008, and the income statement, statement of changes in equity and cash flow statement of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 22 to 63. Directors Responsibility for the Financial Statements The Directors of the Bank are responsible for the preparation and fair presentation of these financial statements in accordance with the Companies Act, 1965, the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Bank Negara Malaysia Guidelines. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Bank s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. Opinion In our opinion, the financial statements have been properly drawn up in accordance with the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Bank Negara Malaysia Guidelines so as to give a true and fair view of the financial position of the Bank as of 31 December 2008 and of its financial performance and cash flows for the year then ended. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act 1965 in Malaysia, we also report that, in our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank have been properly kept in accordance with the provisions of the Act. 19

REPORT ON THE FINANCIAL STATEMENTS (cont d) Other matters This report is made solely to the member of the Bank, as a body, in accordance with Section 174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS (No AF: 1146) Chartered Accountants MOHAMMAD FAIZ BIN MOHAMMAD AZMI (No. 2025/03/10 (J)) Chartered Accountants Kuala Lumpur, 29 May 2009 20

REPORT OF SHARIAH COMMITTEE In the name of Allah, the most Beneficent, the most Merciful Praised be to Allah, the Lord of the Worlds and peace and blessings be upon our Prophet Muhammad, and on his family and companions السلام عليكم ورحمة االله وبرآاته We the undersigned, Dr Salleh Abdullah S. Al Lheidan and Burhanuddin Lukman, in our capacity as members of the Shariah Committee of Al Rajhi Banking & Investment Corporation (Malaysia) Bhd, do hereby confirm on behalf of the members of the Shariah Committee that the operations of the Bank for the financial year ended 31 December 2008 have, in general, been conducted in compliance with Shariah. However, it has become clear to the Shariah Committee the presence of irregularities which must be rectified. The Shariah Committee has communicated to the Bank of the said irregularities and the Bank is in the midst of rectifying these irregularities. On behalf of the Shariah Committee, DR SALLEH ABDULLAH S. AL LHEIDAN Chairman BURHANUDDIN LUKMAN Deputy Chairman 21

ASSETS BALANCE SHEET AS AT 31 DECEMBER 2008 Note Cash and short-term funds 2 1,529,945 540,054 Financing and advances 3 2,860,348 1,866,779 Securities held-to-maturity 4 79,721 - Other assets 5 17,912 16,039 Statutory deposits with Bank Negara Malaysia 6 98,193 3,180 Investment properties 7 95,000 - Property and equipment 8 68,478 73,673 Intangible assets 9 26,445 22,180 Deferred tax assets 10 23,319 19,090 Total Assets 4,799,361 2,540,995 LIABILITIES AND SHAREHOLDER S EQUITY Liabilities Deposits from customers 11 4,247,141 2,073,832 Deposits and placements of banks and other financial institutions 12 120,000 - Bills and acceptances payable 9,807 5,247 Other liabilities 13 54,039 33,834 Total Liabilities 4,430,987 2,112,913 Shareholder s equity Share capital 14 600,000 600,000 Reserves (231,626) (171,918) Total Shareholder s Equity 368,374 428,082 Total Liabilities and Shareholder s Equity 4,799,361 2,540,995 COMMITMENTS AND CONTINGENCIES 27 735,160 248,929 CAPITAL ADEQUACY 29 Core capital ratio 11.71% 24.02% Risk-weighted capital ratio 13.19% 25.69% The accompanying notes are an integral part of these financial statements. 22

INCOME STATEMENT FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2008 Note Operating Revenue 15 180,974 36,282 Income derived from investment of depositors funds and others 16 156,049 23,775 Income derived from investment of shareholders funds 17 24,925 12,507 Allowance for losses on financing 18 (23,874) (30,101) Other expenses directly attributable to the investment of the depositors funds (7,544) (4,085) Total distributable income 149,556 2,096 Income attributable to depositors 19 (100,400) (16,680) Total net income 49,156 (14,584) Personnel expenses 20 (53,028) (44,970) Other overheads and expenditures 21 (60,065) (46,668) Loss before zakat and taxation (63,937) (106,222) Zakat - - Taxation 23 4,229 9,417 Net loss for the financial year (59,708) (96,805) Basic loss per share (sen) 24 (9.95) (26.27) The accompanying notes are an integral part of these financial statements. 23

STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2008 Distributable Share Statutory Accumulated Capital Reserve losses Total At 1 January 2008 600,000 - (171,918) 428,082 Transfer to statutory reserves - - - - Net loss for the financial year - - (59,708) (59,708) At 31 December 2008 600,000 - (231,626) 368,374 Distributable Share Statutory Accumulated Capital Reserve losses Total At 1 January 2007 300,000 - (75,113) 224,887 Issue of share capital 300,000 - - 300,000 Transfer to statutory reserves - - - - Net loss for the financial year - - (96,805) (96,805) At 31 December 2007 600,000 - (171,918) 428,082 The accompanying notes are an integral part of these financial statements. 24

CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2008 CASH FLOWS FROM OPERATING ACTIVITIES Note Loss before zakat and taxation (63,937) (106,222) Adjustments for: Depreciation of property and equipment 14,364 12,552 Amortisation of intangible assets 7,232 4,563 Allowance for losses on financing 23,874 30,101 Net income suspended (967) - (19,434) (59,006) Increase in Operating Assets Deposits and placements with other financial institutions - 173,000 Financing and advances (1,016,476) (1,894,472) Other assets (1,873) (12,742) Statutory deposits with Bank Negara Malaysia (95,013) (3,180) Increase in Operating Liabilities Deposits from customers 2,173,309 2,031,970 Deposits and placements of banks and other 120,000 - financial institutions Bills and acceptances payable 4,560 4,600 Other liabilities 20,205 9,853 Net cash generated from operating activities 1,185,278 250,023 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities held-to-maturity (79,721) - Purchase of investment property (95,000) - Purchase of property and equipment (9,169) (34,920) Purchase of intangible asset (11,497) (10,308) Net cash used in investing activities (195,387) (45,228) CASH FLOWS FROM FINANCING ACTIVITES Issuance of ordinary shares - 300,000 Net cash from financing activities - 300,000 NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AS AT 1 JANUARY CASH AND CASH EQUIVALENTS AS AT 31 DECEMBER 2 989,891 504,795 540,054 35,259 1,529,945 540,054 The accompanying notes are an integral part of these financial statements. 25

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2008 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. These policies have been consistently applied to all the financial years presented, unless otherwise stated. 1. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Bank have been prepared under the historical cost convention (unless otherwise indicated) and in accordance with Financial Reporting Standards ( FRS ), the Malaysian Accounting Standards Board ( MASB ) approved accounting standards in Malaysia for Entities Other Than Private Entities together with the directives and guidelines issued by Bank Negara Malaysia ( BNM ) and comply with the provisions of the Companies Act, 1965 and Shariah requirements. The preparation of financial statements in conformity with the provisions of the Companies Act 1965, FRS, the MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities and BNM s guidelines requires the use of estimates and assumption that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the year. It also requires directors to exercise their judgment in the process of applying the Bank s accounting policies. Although these estimates are based on the directors best knowledge of current events and actions, actual results may differ from those estimates. Critical accounting estimates and assumptions used that are significant to the financial statements, and areas involving a higher degree of judgment and complexity are disclosed in Section B. (a) Standards, amendments to published standards and interpretations to existing standards that are effective: During the financial year, the Bank adopted the following revised FRS issued by MASB that are relevant and effective for financial periods beginning 1 January 2008. The revised FRS that is relevant to the Bank are as follows: FRS 107 Cash Flow Statements FRS 112 Income Taxes FRS 118 Revenue FRS 121 The Effects of Changes in Foreign Exchange Rates FRS 134 Interim Financial Reporting FRS 137 Provisions, Contingent Liabilities and Contingent Assets The adoption of the above revised FRS does not have any significant financial impact on the results of the Bank. 26

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2008 (Cont d) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 1. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (Cont d) (b) The new accounting standards and interpretations to existing standards that are relevant and mandatory for the Bank for financial periods beginning 1 January 2009 or later periods, but which the Bank has not early adopted are as follows: Amendment to FRS 101: Presentation of Financial Statements Capital Disclosures (effective for accounting periods beginning on or after 1 January 2009). The amendment introduces disclosures about the level of an entity s capital and how the capital is managed. The amendment to FRS 101 will create additional disclosure requirements for the Bank s financial statements IC Interpretation 9 Reassessment of Embedded Derivatives (effective for accounting periods beginning on or after 1 January 2010). IC Interpretation 9 requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The adoption of IC 9 does not have any significant financial impact on the results of the Bank. IC Interpretation 10 Interim Financial Reporting and Impairment (effective for accounting periods beginning on or after 1 January 2010). IC Interpretation 10 prohibits the impairment losses recognised in an interim period on goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet date. The adoption of IC 10 does not have any significant financial impact on the results of the Bank. FRS 139 Financial Instruments: Recognition and Measurement (effective for accounting periods beginning on or after 1 January 2010). FRS139 establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. Hedge accounting is permitted only under strict circumstances. The Bank will apply this standard when effective. Nevertheless, the accounting policies of the Bank incorporate requirements of the Guidelines on Financial Reporting for Licensed Islamic Banks ('BNM/GP8i') which includes selected principles of FRS 139. FRS 8 Operating Segments (effective for accounting periods beginning on or after 1 January 2009). FRS 8 replaces FRS 114 2004 Segment Reporting. The new standard requires a management approach, under which segment information is presented on the same basis as that used for internal reporting purposes. The adoption of FRS 8 will require additional disclosure requirements in the Bank s financial statements. FRS 7 Financial Instruments: Disclosure (effective for accounting periods beginning on or after 1 January 2010). FRS 7 replaces the disclosures requirements currently in FRS 132: Financial Instruments: Disclosures and Presentation. FRS 7 requires disclosure of quantitative and qualitative information about exposure to risks arising from financial instruments, including minimum disclosures about credit risk, market risk and liquidity risk. The adoption of FRS 7 will require additional disclosure requirements in the Bank s financial statements. 27