Directors Report for the year ended 31 December 2007 The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Bank for the year ended 31 December 2007. PRINCIPAL ACTIVITIES The Group and the Bank are principally engaged in banking and related financial services that also include Islamic Banking business whilst the principal activities of the subsidiaries are stated in Note 13 to the financial statements. There has been no significant change in the nature of these activities during the financial year. RESULTS RM 000 Profit before taxation 748,518 Taxation (157,117) Profit after taxation 591,401 RESERVES AND PROVISIONS There were no material transfers to or from reserves and provisions during the year under review except as disclosed in the financial statements. DIVIDENDS There were no dividends paid since the end of the previous financial year. The Directors are not proposing any final dividend for the financial year ended 31 December 2007. BAD AND DOUBTFUL DEBTS AND FINANCING Before the financial statements of the Group and of the Bank were made out, the Directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and financing and the making of provisions for doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and adequate provisions made for bad and doubtful debts and financing. At the date of this report, the Directors are not aware of any circumstances, which would render the amount written off for bad debts and financing, or the amount of the provision for doubtful debts and financing, in the financial statements of the Group and of the Bank inadequate to any substantial extent. CURRENT ASSETS Before the financial statements of the Group and of the Bank were made out, the Directors took reasonable steps to ascertain that any current assets, other than debts and financing, which were unlikely to be realized in the ordinary course of business at their values, as shown in the accounting records of the Group and of the Bank, have been written down to an 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 the current assets in the financial statements of the Group and 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 in the financial statements of the Group and of the Bank misleading or inappropriate. CONTINGENT AND OTHER LIABILITIES At the date of this report there does not exist: (a) any charge on the assets of the Group or of the Bank which has arisen since the end of the financial year which secures the liabilities of any other person, or (b) any contingent liability in respect of the Group or of the Bank that has arisen since the end of the financial year other than those incurred in the ordinary course of business. No contingent or other liability of the Group and 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 Group and of the Bank to meet their 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 Group and of 34 Citibank Berhad 2007
Directors Report for the year ended 31 December 2007 Number of options over ordinary shares of USD1 each At 1.1.2007 / Date At of appointment Granted Exercised 31.12.2007 Stock Option Plan in Citigroup Inc. Sanjeev Nanavati 10,1 1 3 - - 10,1 1 3 Piyush Gupta 79,308 - - 79,308 Lim Sim Seng 89,442-15,156 74,286 Kenneth Francis Fagan 68,407-10,036 58,37 1 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 a benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements or the fixed salary of a full time employee of the Bank) by reason of a contract made by the Bank or a related company 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. There were no arrangements during and at the end of the financial year which had the object 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 apart from the Directors above who were granted options to subscribe for shares in the ultimate holding company under various stock incentive and purchase schemes where the price and terms are as determined by the said scheme. AUDITORS The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment. Signed on behalf of the Board in accordance with a resolution of the Directors: Sanjeev Nanavati Dato Syed Sidi Idid Bin Syed Abdullah Idid Kuala Lumpur, Date: 28 February 2008 OPTIONS GRANTED OVER UNISSUED SHARES No options were granted to any person to take up unissued shares of the Bank during the year. 36 Citibank Berhad 2007
Statement of Directors for the year ended 31 December 2007 STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 In the opinion of the Directors, the financial statements set out on pages 40 to 98 are drawn up in accordance with the provisions of the Companies Act, 1965 and applicable approved Financial Reporting Standards issued by the Malaysian Accounting Standards Board as modified by Bank Negara Malaysia Guidelines so as to give a true and fair view of the state of affairs of the Group and of the Bank as at 31 December 2007 and of the results of their operations and cash flows for the year ended on that date. Signed on behalf of the Board in accordance with a resolution of the Directors: Sanjeev Nanavati Dato Syed Sidi Idid Bin Syed Abdullah Idid Kuala Lumpur, Date: 28 February 2008 Citibank Berhad 2007 37
Statutory Declaration DECLARATION PURSUANT TO SECTION 1 69(1 6) OF THE COMPANIES ACT, 1 965 I, Tang Wan Chee, being the officer primarily responsible for the financial management of Citibank Berhad, do solemnly, and sincerely declare that, to the best of my knowledge and belief, the financial statements set out on pages 40 to 98 are 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. Subscribed and solemnly declared by the above named in Kuala Lumpur on 28 February 2008. Tang Wan Chee Before me: Commission for Oath 38 Citibank Berhad 2007
Auditor s Report to the members of Citibank Berhad We have audited the financial statements set out on pages 40 to 98. The preparation of the financial statements is the responsibility of the Bank s Directors. It is our responsibility to form an independent opinion, based on our audit, on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report. We conducted our audit in accordance with approved Standards on Auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well as evaluating the overall financial statements presentation. We believe our audit provides a reasonable basis for our opinion. The audit reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment made under sub-section (3) of Section 174 of the Act. KPMG Firm Number: AF 0758 Chartered Accountants Kuala Lumpur, Date: 28 February 2008 Khaw Hock Hoe Partner Approval Number: 2229/04/08(J) In our opinion: (a) the financial statements are properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable approved Financial Reporting Standards issued by the Malaysian Accounting Standards Board as modified by Bank Negara Malaysia Guidelines so as to give a true and fair view of: i) the state of affairs of the Group and of the Bank at 31 December 2007 and the results of their operations and cash flows for the year ended on that date; and ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements of the Group and of the Bank; and (b) the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the Bank and the subsidiaries have been properly kept in accordance with the provisions of the said Act. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Bank s financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. Citibank Berhad 2007 39
Balance Sheets at 31 December 2007 ASSETS Group Bank Note Cash and short term funds 3 16,744,282 5,528,088 16,744,262 5,528,068 Deposits and placements with banks and other financial institutions 4 1,595,176 2,272,748 1,595,176 2,272,748 Securities purchased under resale agreement 445,469 1,356,875 445,469 1,356,875 Securities held-for-trading 5 1,352,741 2,269,457 1,352,741 2,269,457 Securities available-for-sale 6 2,897,591 4,639,224 2,897,591 4,639,224 Securities held-to-maturity 7 7,499 7,499 7,499 7,499 Loans, advances and financing 8 20,504,213 20,357,791 20,504,213 20,357,791 Other assets 10 1,234,322 994,106 1,234,322 994,106 Statutory deposits with Bank Negara Malaysia 11 845,408 719,641 845,408 719,641 Deferred tax assets 12 48,334 43,517 48,334 43,517 Investments in subsidiary companies 13 - - 20 20 Property, plant and equipment 14 72,227 76,971 72,227 76,971 TOTAL ASSETS 45,747,262 38,265,917 45,747,262 38,265,917 LIABILITIES AND SHAREHOLDERS FUNDS Deposits from customers 15 28,865,054 24,582,009 28,865,054 24,582,009 Deposits and placements of banks and other financial institutions 16 11,105,095 4,540,370 11,105,095 4,540,370 Obligations on securities sold under repurchase agreements - 3,578,573-3,578,573 Bills and acceptances payable 97,054 354,854 97,054 354,854 Recourse obligations on loans sold to Cagamas 423,529 748,797 423,529 748,797 Other liabilities 17 2,340,106 2,122,928 2,340,106 2,122,928 Subordinated loan 18 400,000 400,000 400,000 400,000 TOTAL LIABILITIES 43,230,838 36,327,531 43,230,838 36,327,531 SHARE CAPITAL 19 121,697 121,697 121,697 121,697 RESERVES 20 2,394,727 1,816,689 2,394,727 1,816,689 SHAREHOLDERS FUNDS 2,516,424 1,938,386 2,516,424 1,938,386 TOTAL LIABILITIES AND SHAREHOLDERS FUNDS 45,747,262 38,265,917 45,747,262 38,265,917 COMMITMENTS AND CONTINGENCIES 30 98,410,076 90,851,542 98,410,076 90,851,542 The notes on pages 45 to 98 are an integral part of these financial statements. 40 Citibank Berhad 2007
Income Statement for the year ended 31 December 2007 Note Revenue 2(b) 2,737,649 2,484,493 Interest income 22 2,340,926 1,972,858 Interest expense 23 (1,151,500) (900,546) Net interest income 1,189,426 1,072,312 Net Islamic banking operating income 36(s) 43,545 30,250 Other operating income 24 353,178 481,385 Operating income 1,586,149 1,583,947 Other operating expenses 25 (692,829) (721,626) Profit before provision 893,320 862,321 Allowance for losses on loans and financing 26 (144,802) (127,140) Profit before taxation 748,518 735,181 Taxation 27 (157,1 1 7 ) (131,640) Profit after taxation 591,401 603,541 Earnings per share - basic (sen) 28 486 496 The notes on pages 45 to 98 are an integral part of these financial statements. Citibank Berhad 2007 41
Statement Of Changes In Equity for the year ended 31 December 2007 Non-Distributable Distributable Share Share Statutory Other Retained Total Capital Premium Reserve Reserve Profits Reserves Total GROUP AND BANK RM 000 At 1 January 2006 121,697 380,303 121,697 (7,375) 700,558 1,195,183 1,316,880 Net profit for the year - - - - 603,541 603,541 603,541 Unrealised net gain on revaluation of securities available-for-sale - - - 17,965-17,965 17,965 At 31 December 2006/ 1 January 2007 121,697 380,303 121,697 10,590 1,304,099 1,816,689 1,938,386 Net profit for the year - - - - 591,401 591,401 591,401 Unrealised net loss on revaluation of securities available-for-sale - - - (13,363) - (13,363) (13,363) At 31 December 2007 121,697 380,303 121,697 (2,773) 1,895,500 2,394,727 2,516,424 Note 19 Note 20 The notes on pages 45 to 98 are an integral part of these financial statements. 42 Citibank Berhad 2007
Cash Flow Statements for the year ended 31 December 2007 Cash Flows from operating activities Profit before taxation 748,518 735,181 Adjustments for: Amortisation of premium less accretion of discount of securities available-for-sale (10, 261) 34,708 Allowance for bad and doubtful debts (net of write-back) 144,802 127,140 (Reversal of)/provision for profit equalisation reserve (14,473) 9,1 7 1 Depreciation 28,564 29,199 Dividends from unquoted investment securities (25) (25) Unrealised losses from revaluation of securities heldfor-trading 229,264 12,972 Gain from disposal of securities available-for-sale (38,168) (22,800) (Gain)/Loss on disposal of property, plant and equipment (142) 339 Property, plant and equipment written off 23 425 Operating profit before changes in operating assets 1,088,102 926,310 Changes in working capital: Deposits and placements with banks and other financial institutions 677,572 (193,145) Securities purchased under resale agreements 911,406 (179,666) Securities held-for-trading 687,452 (908,582) Loans, advances and financing (291,224) (1,516,395) Other assets (240,216) (317,420) Statutory deposit with Bank Negara Malaysia (125,767) (114,055) Deposits from customers 4,283,045 2,459,509 Deposits and placements of banks and other financial institutions 6,564,725 (1,392,292) Obligations on securities sold under repurchase agreements (3,578,573) (501,009) Bills and acceptances payable (257,800) 31,718 Recourse obligations on loans sold to Cagamas (325,268) (401,347) Other liabilities 299,316 477,209 Cash generated from/(used in) operating activities 8,604,668 (2,555,475) Income taxes paid (224,455) (223,567) Net cash generated from/(used in) operating activities 9,468,315 (1,852,732) Citibank Berhad 2007 43
Cash Flow Statements for the year ended 31 December 2007 (continued) Cash flows from investing activities Dividend from investment securities 25 25 Purchase of property, plant and equipment (26,285) (25,367) Proceeds from disposal of property, plant and equipment 2,584 3,305 Purchase of securities available-for-sale (8,329,548) (4,442,416) Proceeds from disposal of securities held-to-maturity - 240,000 Proceeds from disposal of securities available-for-sale 10,101,103 3,347,966 Net cash from/(used in) investing activities 1,747,879 (876,487) Net increase/(decrease) in cash and cash equivalents 11,216,194 (2,729,219) Cash and cash equivalents at 1 January 5,528,088 8,257,307 Cash and cash equivalents at 31 December (Note 3) 16,744,282 5,528,088 The notes on pages 45 to 98 are an integral part of these financial statements. 44 Citibank Berhad 2007
Citibank Berhad is a public limited liability company, incorporated and domiciled in Malaysia. The address of both its principal place of business and registered office of the Bank is as follows: 45th Floor, Menara Citibank 165 Jalan Ampang 50450 Kuala Lumpur The consolidated financial statements of the Bank as at and for the year ended 31 December 2007 comprise the Bank and its subsidiaries (together referred to as the Group). The Bank is principally engaged in banking and related financial services that also include Islamic banking business whilst the principal activities of the subsidiaries are as stated in Note 13 to the financial statements. The immediate and ultimate holding companies during the financial year are Citibank Overseas Investment Corporation and Citigroup Inc. respectively. Both companies are incorporated in United States of America. The financial statements were approved by the Board of Directors on 28 February 2008. 1 BASIS OF PREPARATION a) Statement of compliance The financial statements of the Group and of the Bank have been prepared in accordance with applicable approved Financial Reporting Standards (FRS) issued by the Malaysian Accounting Standards Board (MASB) as modified by Bank Negara Malaysia Guidelines, accounting principles generally accepted in Malaysia and the provisions of the Companies Act, 1965. The financial statements also incorporate those activities relating to Islamic banking which have been undertaken by the Bank. Islamic banking refers generally to the acceptance of deposits and granting of financing under the Shariah principles. The accounting policies adopted by the Group and the Bank is consistent with those adopted in the previous years except for the adoption of the new and revised FRSs issued by MASB that are effective for the financial period beginning on 1 January 2007 as follows: FRS 117, Leases FRS 119, Employee Benefits FRS 124, Related Party Disclosures The MASB has also issued the following FRSs and Interpretations that are effective for annual periods beginning after 1 January 2007 and that have not been applied in preparing these financial statements: FRSs / Interpretations Effective date FRS 107, Cash Flow Statements 1 July 2007 FRS 111, Construction Contracts 1 July 2007 FRS 112, Income Taxes 1 July 2007 FRS 118, Revenue 1 July 2007 FRS 120, Accounting for 1 July 2007 Government Grants and Disclosure of Government Assistance Amendment to FRS 121, 1 July 2007 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation FRS 134, Interim Financial 1 July 2007 Reporting FRS 137, Provisions, 1 July 2007 Contingent Liabilities and Contingent Assets FRS 139, Financial Instruments: To be announced Recognition and Measurement IC Interpretation 1, 1 July 2007 Changes in Existing Decommissioning, Restoration and Similar Liabilities IC Interpretation 2, Members 1 July 2007 Shares in Co-operative Entities and Similar Instruments IC Interpretation 5, 1 July 2007 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IC Interpretation 6, Liabilities 1 July 2007 arising from Participating in a Specific Market Waste Electrical and Electronic Equipment IC Interpretation 7, Applying 1 July 2007 the Restatement Approach under FRS 129, Financial Reporting in Hyperinflationary Economies IC Interpretation 8, 1 July 2007 Scope of FRS 2 The Group and the Bank plan to apply the rest of the abovementioned FRSs (except for FRS 111, FRS Citibank Berhad 2007 45
1. BASIS OF PREPARATION (CONTINUED) a) Statement of compliance (continued) 120, FRS 134, IC Interpretations 1, 2, 5, 6, 7, and 8 as explained below and FRS 139 which effective date has yet to be announced) for the annual period beginning on 1 January 2008. The initial application of the said FRSs are not expected to have any material impact on the financial statements of the Group and of the Bank. FRS 111, FRS 120, FRS 134, IC Interpretations 1, 2, 5, 6, 7 and 8 are not applicable to the Group and the Bank. Hence, no further disclosures are warranted. The impact of applying FRS 139 on the financial statements upon first adoption of this standard as required by paragraph 30(b) of FRS 108, Accounting Policies, Changes in Accounting Estimates and Errors is not disclosed by virtue of the exemption given in paragraph 103AB of FRS 139. b) Basis of measurement The financial statements have been prepared on the historical cost basis except for the following assets and liabilities as explained in their respective accounting policy notes: i) the measurement of the securities held-fortrading and securities available-for-sale at their fair values; and ii) the measurement of derivative financial instruments at fair values. c) Functional and presentation of currency The financial statements are presented in Ringgit Malaysia (RM), which is the Bank s functional currency. All financial information presented in RM has been rounded to the nearest thousand, unless otherwise stated. d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. There are no significant areas of estimation uncertainty and critical judgments in applying accounting policies that have significant effect on the amounts recognised in the financial statements other than those disclosed in the following notes: Note 2(e) - Allowance for bad and doubtful debts and financing Note 2(v) - Fair value estimation for derivative financial assets and liabilities Note 2(n) - Recognition of unutilised capital allowances Note 21 - Actuarial valuation for employee benefits Note 34(c) - Fair value estimation for securities held-for-trading and securities available-for-sale 2 SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to the periods presented in the financial statements, and have applied consistently by the Group and the Bank. a) Basis of consolidation i) Subsidiaries Subsidiaries are entities, including unincorporated entities, controlled by the Group. Control exists when the Group has the ability to exercise its power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Subsidiaries are consolidated using the purchase method of accounting. Under the purchase method of accounting, the financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. ii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. 46 Citibank Berhad 2007
b) Revenue Revenue comprises of gross interest income, commission and other income derived from banking operations. c) Income recognition Income is recognised on an accrual basis. Interest income on housing and term loans is recognised by reference to rest periods that are either daily or monthly. In line with the guidelines set by Bank Negara Malaysia and in accordance with the established practice of the Bank, where any advance is in arrears for more than three months after due date for loans and overdrafts, and where the instrument is due and unpaid one month after maturity date for trade bills, bankers acceptances and trust receipts, or where doubt as to the recoverability of an advance exists, the loans are classified as non-performing. The interest on the entire such advance is set-off against the accrued interest receivable account in the balance sheet and is recognised only in the year when it is recovered. The policy on suspension of interest is more stringent than Bank Negara Malaysia s revised Guideline on the suspension of Interest on Non-Performing Loans and Provision for Bad and Doubtful Debts, BNM/GP3 dated 23 September 1998 as amended by BNM/GP8 (Revised). d) Recognition of fees and other income Loan arrangement fees and commissions are recognised as income when all conditions precedent are fulfilled. Commitment fees and guarantee fees which are material are recognised as income based on time apportionment. Dividends from securities, if any, are recognised when the right to receive the payment is established. e) Allowance for bad and doubtful debts and financing Loans, advances and financing are stated at cost less any allowance for bad and doubtful debts and financing. Specific allowances are made for doubtful debts and financing which has been individually reviewed and specifically identified as bad or doubtful. A general allowance based on a percentage of the loan, advances and financing portfolio is also made to cover possible losses that are not specifically identified. An uncollectible loan and financing or portion of a loan and financing classified as bad is written off after taking into consideration the realisable value of collateral, if any, when in the judgment of the management, there is no prospect of recovery. The Bank s allowance for non-performing debts and financing is in conformity with the requirements of Bank Negara Malaysia s Guidelines on the suspension of Interest on Non- Performing Loans and Provision for Bad and Doubtful Debts, BNM/GP3 as amended by BNM/GP8 (Revised). f) Repurchase agreement Securities purchased under resale agreements are securities which the Bank had purchased with a commitment to resell at future dates. The commitment to resell the securities is reflected as an asset on the balance sheets. Conversely, obligations on securities sold under repurchase agreements are securities which the Bank has sold from its portfolio, with a commitment to repurchase at future dates. Such financing transactions and the obligations to repurchase the securities are reflected as a liability on the balance sheets. g) Securities The holding of the securities portfolio of the Group and of the Bank are recognised on the following categories and valuation methods: i) Securities held-for-trading Securities are classified as held-for-trading if they are acquired or incurred principally for the purpose of selling or repurchasing them in the near term, or they are part of a portfolio of identified securities that the Bank manages together and for which there is evidence of a recent actual pattern of short-term profittaking. Securities classified as held-for-trading are stated at fair value and any gains or losses arising from a change in the fair value are recognised in the income statement. ii) Securities held-to-maturity Securities held-to-maturity are securities with fixed or determinable payments and fixed Citibank Berhad 2007 47
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g) Securities (continued) ii) Securities held-to-maturity (continued) maturity that the Bank has the positive intention and ability to hold to maturity. Unquoted shares in organisations set up for socio-economic purposes and equity instruments received as a result of loan restructuring or loan conversion which do not have a quoted market price in an active market and whose fair value cannot be reliably measured, if any, are also classified as securities held-to-maturity. The securities held-to-maturity are measured at accreted/amortised cost based on the effective yield method. Amortisation of premium, accretion of discount and impairment loss as well as gain or loss arising from derecognition of securities held-tomaturity are recognised in income statement. iii) Securities available-for-sale Available-for-sale securities are securities that are not classified as held-for-trading or heldto-maturity, and are measured at fair value. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured will be stated at cost. Unrealised gains or losses arising from a change in the fair value of securities available-for-sale are recognised directly in equity, net of applicable taxes, except for impairment losses and foreign exchange gains and losses, which will be recognised in the income statement. h) Cash and cash equivalents Cash and cash equivalents consist of cash and bank balances and short term funds that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value, with original maturity within one month. i) Investment in subsidiary companies Subsidiary companies are companies in which the Bank controls the composition of its Board of Directors or holds more than half of its voting power, or holds more than half of its issued ordinary share capital. Investments in subsidiary companies are stated at cost less impairment losses, unless the investment is classified as held-for-sale (or included in a disposal group that is classified as held-for-sale). j) Property, plant and equipment and depreciation i) Recognition and measurement Property, plant and equipment are stated at cost less any accumulated depreciation and any accumulated impairment losses. ii) Cost includes expenditures that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to its location and working condition for its intended use, and the costs of dismantling and removing the assets and restoring the site on which they are located. When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment and depreciated separately. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other income or other operating expenses respectively in the income statement. Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and the Bank and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred. iii) Depreciation Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group and the Bank will obtain ownership by the end of the lease term. 48 Citibank Berhad 2007
The estimated useful lives for the current and comparative periods are as follows: building 40 years - 50 years installations 8 years - 14 years furniture and equipment 2 years - 10 years Depreciation methods, useful lives and residual values are reassessed at the balance sheet date. k) Assets under lease i) Finance lease Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of present value of the minimum lease payments or the fair value of the leased assets at the beginning of the lease terms. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Such leased assets are subject to depreciation consistent with that for depreciable assets, which are owned. an integral part of the total lease expense, over the term of the lease. l) Bills and acceptances payable Bills and acceptances payable represent the Bank s own bills and acceptances rediscounted and outstanding in the market. m) Foreign currency Transactions in foreign currencies are translated to the respective functional currencies of the Group entities and of the Bank at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the middle market rates of exchange, which closely approximate those ruling at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statement. ii) Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. Operating lease Other leases are operating leases and, the leased assets are not recognised on the Group s and the Bank s balance sheets. Leasehold land that normally has an indefinite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for as prepaid lease payments. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised as The closing rates used in translation are as follows: RM RM 1USD 3.3065 3.5235 1AUD 2.9106 2.7896 1NZD 2.5668 2.4881 1SGD 2.3000 2.2993 100YEN 2.9508 2.9622 1GBP 6.6004 6.9223 1EUR 4.8627 4.6405 n) Tax expense Tax expense comprises current and deferred tax. Tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided, using the liability method, on temporary differences arising Citibank Berhad 2007 49
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) n) Tax expense (continued) between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Temporary differences are not recognised for the initial recognition of assets or liabilities that at the time of the transaction affects neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner or realisation of settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax liability is recognised for all taxable temporary differences. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. o) Employees benefits i) Short-term benefits Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group. ii) Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increases their entitlement to future compensated absences, and short-term non-accumulating compensated absences such as sick leave are recognised when the absence occur. Defined contribution plan As required by law, companies in Malaysia make contributions to the Employees Provident Fund ( EPF ). Such contributions are recognised as an expense in the income statements as incurred. In addition to the contribution requirement by law, the Bank is contributing additional amounts for those employees under defined contribution plan. The contribution is made to Citibank Malaysia Staff Retirement Plan ( the Plan ) and is recognised as an expense in the income statement as incurred. iii) Defined benefit plan The Bank and certain related companies contribute to the Citibank Malaysia Staff Retirement Plan ( the Plan ) for eligible officers. Contributions are made based on an external actuarial report to the Plan, which is a defined benefit scheme, and is funded to the extent permitted by tax allowable Bank contributions. The amount recognised in the balance sheets represents the present value of the defined benefit obligations adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and reduced by the fair value of the plan assets. The benefit is calculated using the Projected Unit Credit Method in order to determine its present value. Any asset resulting from this calculation is limited to the net total of any unrecognised actuarial losses and past service costs, and the present value to any economic benefits in the form of refunds or reductions in future contributions to the fund. Amortisation of unrecognised gains or losses are included as a component of the annual expense for a year if, as of the beginning of the year, that cumulative net unrecognised gains or losses exceeds 10% of the greater of the Plan liability or value of Plan assets. If amortisation is required, the amortisation is that excess divided by the expected average remaining working lives of the employees participating in the Plan. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefit vests immediately, the expense is recognised in the income statements. iv) Share-based compensation The Bank participates in equity-settled and cash-settled share based compensation plan for the employees that is offered by the ultimate holding company, Citigroup Inc.. The fair value of the services received in exchange for the grant of the options is recognised as an expense in the income statements over the vesting periods of the grant. 50 Citibank Berhad 2007
p) Foreclosed properties Foreclosed properties are those acquired in full or partial satisfaction of debts, are stated at cost less accumulated impairment losses. q) Provisions A provision is recognised when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation (legal or constructive) as a result of a past event and a reliable estimate can be made of the amount. r) Deposits from customers and deposits and placements of banks and financial institutions Deposits from customers are stated at placement values and adjusted for accrued interest. Deposits and placements of banks and financial institutions are stated at placement values. s) Impairment of assets The carrying amount of the Group s and Bank s assets, except for financial assets (other than securities available-for-sale and securities heldto-maturity) and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset to which it belongs exceeds its recoverable amount. Impairment losses are recognised in the income statement. The policies on impairment of assets are summarised as follows: i) Securities available-for-sale Impairment losses on securities available-forsale are recognised by transferring the differences between the amortised acquisition cost and current fair value from equity to income statement, even though the securities have not been derecognised. The cumulative impairment loss is measured as the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in the income statement. Impairment losses on investments in equity instruments classified as available-for-sale recognised are not reversed subsequent to its ii) recognition. Reversals of impairment losses on debt instruments classified as available-forsale are recognised in the income statement if the increase in fair value can be objectively related to an event occurring after the recognition of the impairment loss in the income statement. Securities held-to-maturity For securities carried at amortised cost in which there is objective evidence of impairment, impairment loss is measured as the difference between the securities carrying amount and the present value of the estimated future cash flows discounted at the securities original effective interest rate. The amount of the impairment loss is recognised in the income statement. Subsequent reversals in the impairment loss is recognised when the decrease can be objectively related to an event occurring after the impairment was recognised, to the extent that the securities carrying amount does not exceed its amortised cost if no impairment had been recognised. The reversal is recognised in the income statement. For securities carried at cost, impairment loss is measured as the difference between the securities carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for similar securities. The amount of impairment loss is recognised in the income statement and such impairment losses are not reversed subsequent to its recognition. iii) Other assets For other assets when indication of impairment exists, these assets are subject to impairment review. The recoverable amount is the greater of the asset s net selling price and its value in use. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s Citibank Berhad 2007 51
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) s) Impairment of assets (continued) iii) Other assets (continued) carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised. The reversal is recognised in the income statement. t) Recourse obligation on loans sold to Cagamas These represent the proceeds received from housing loans (excluding Islamic financing) sold directly to Cagamas Berhad with recourse to the Bank. Under this arrangement, the Bank undertake to administer the loans on behalf of Cagamas Berhad and to buy back any loans which are regarded as defective based on prudential criteria. u) Profit equalisation reserves ( PER ) PER is the amount appropriated out of the total Islamic banking gross income in order to maintain a certain level of return to depositors which is as stipulated by Bank Negara Malaysia Circular on The Framework of the Rate of Return. PER is deducted from the total Islamic banking gross income in deriving the net distributable gross income. The amount appropriated is shared by the depositors and the Group or the Bank. v) Derivative financial instruments and hedge accounting Derivatives are recognised at fair value upon inception in the balance sheets, and are subsequently remeasured at fair value. Financial derivatives are classified as assets when the fair value is positive and as liabilities when their fair value is negative. The Bank enters into derivative transactions for trading and hedging purposes. Fair value changes for all financial derivatives are recognised in the income statement apart from derivative transactions that meet the specific criteria for hedge accounting of which the Group applies either cash flow or fair value hedge accounting, where applicable. At the time a financial instrument is designated as a hedge, the Group formally documents the relationship between the hedging instrument and the hedged item, including the nature of the risks to be hedged and the method used to assess hedge effectiveness. The Group has adopted fair value hedge accounting for its fixed rate certificates as well as certain fixed rate private debt securities investments. Fair value hedge Fair value hedges are hedges against exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment that is attributable to a particular risk and could affect profit or loss. For qualifying fair value hedges, the changes in the fair value of the hedging instrument and the hedged item relating to the hedged risks are recognised in the income statement. In the event the hedge no longer meets the criteria for the hedge accounting, the adjustment to the carrying amount of the hedged items is amortised to the income statement over the expected life of the hedged item. 3 CASH AND SHORT TERM FUNDS Group Bank Cash and balances with banks and other financial institutions 37,001 79,903 36,981 79,883 Money at call and deposit placements maturing within one month 16,707,281 5,448,185 16,707,281 5,448,185 16,744,282 5,528,088 16,744,262 5,528,068 52 Citibank Berhad 2007
4 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS Bank Negara Malaysia - 572,900 Licensed banks 1,595,176 1,699,848 1,595,176 2,272,748 5 SECURITIES HELD-FOR-TRADING At fair value Malaysian Government Treasury Bills 103,841 174,882 Malaysian Government Securities 591,498 676,657 Malaysian Government Investment Issues 64,630 134,818 Bank Negara Malaysia Bills/Notes 284,084 587,510 Cagamas notes/bonds 35,871 - Commercial paper - 24,201 Private debt securities 272,817 671,389 1,352,741 2,269,457 6 SECURITIES AVAILABLE-FOR-SALE At fair value Malaysian Government Treasury Bills/ Government Stock 2,156,074 2,967,500 Bank Negara Malaysia Bills 199,950 - Malaysian Government Investment Issues 208,169 100,496 Cagamas bonds - 580,542 Khazanah bonds 197,663 126,243 Private debt securities 102,215 429,224 Federal Home Loan Mortgage Corporation - 204,893 Yankee bonds/us bonds 33,520 230,326 2,897,591 4,639,224 7 SECURITIES HELD-TO-MATURITY At amortised cost Unquoted securities: Shares 7,499 7,499 There is no maturity structure for unquoted securities. Citibank Berhad 2007 53
8 LOANS, ADVANCES AND FINANCING i) By type Overdrafts 1,382,880 1,542,1 1 8 Term loans/financing - housing loans/financing 11,330,669 11,257,512 - hire purchase receivables 29,896 61,348 - lease receivables 20,054 53,366 - other term loans/financing 1,481,029 1,352,217 Bills receivable 440,139 646,771 Trust receipts 49,386 196,807 Claims on customers under acceptance credits 877,952 1,019,597 Staff loans 105,962 113,918 Credit cards receivables 4,157,262 3,636,754 Revolving credit 1,183,256 1,126,961 Other loans 171,841 62,397 21,230,326 21,069,766 Unearned interest and income (69,852) (82,239) Gross loans, advances and financing 21,160,474 20,987,527 Allowance for bad and doubtful debts and financing - General (314, 312) (310,010) - Specific (341,949) (319,726) Net loans, advances and financing 20,504,213 20,357,791 ii) By type of customer Domestic non-financial institutions - others 232,230 249,086 Domestic business enterprises - small and medium enterprise 603,600 584,304 - others 2,743,961 3,374,300 Individuals 17,548,554 16,744,499 Foreign entities 32,129 35,338 iii) By interest/profit rate sensitivity 21,160,474 20,987,527 Fixed rate Housing loans/financing 590,624 300,343 Hire purchase receivables 29,896 57,538 Other fixed rate loans/financing 7,485,674 7,546,461 Variable rate BLR plus 12,586,561 12,681,288 Cost plus 467,719 401,897 21,160,474 20,987,527 54 Citibank Berhad 2007
iv) By sector Primary agriculture 343,068 347,983 Mining and quarrying 4,567 14,897 Manufacturing (including agriculture based) 1,240,292 1,629,139 Electricity, gas and water 116,408 118,891 Construction 48,248 19,878 Wholesale, retail trade, restaurants and hotels 734,769 918,991 Transport, storage and communication 338,404 370,362 Finance, insurance, real estate and business services 535,297 383,080 Education, health and others 29,884 103,755 Household - consumption credit 4,903,991 4,122,301 - residential 11,956,871 11,855,545 - purchase of securities 218,644 241,059 - others 469,048 550,047 Other sectors 220,983 311,599 21,160,474 20,987,527 v) By purpose Purchase of securities 220,688 243,867 Purchase of landed property 12,480,829 12,388,813 Purchase of fixed assets excluding land and building 59,410 107,028 Personal use 776,465 487,809 Credit card 4,1 57,262 3,635,041 Construction 20,720 19,422 Working capital 3,418,433 3,792,386 Other purposes 26,667 313,1 61 21,160,474 20,987,527 Citibank Berhad 2007 55