Banking is About - Affin Bank Reports... · Banking is About... ... He is also the Chairman of Boustead Heavy industries Corporation Berhad, ... Malaysia Airlines and Managing Director

AFFIN BANK BERHAD (25046-T)

Annual Report 2012

Banking is

About...

Banking is About...At AffinBAnk, we remove the boundaries within the processes of banking and focus on customer centricity. We reach out to our customers, improve relationships with them and ensure that each one of them feels privileged and has the best of service from us. We set ourselves apart in this industry through a concerted effort to understanding our customers, listening to them, then delivering the most appropriate financial solutions. Simply put, banking is about you and your continued satisfied relationship with us.

Corporate informationCorporate Structure

Board of Directors & MD/CEOProfile of DirectorsManagement Team

Management Team ProfilesChairman’s Statement

Performance Reviewfinancial Highlights

Corporate DiaryStatement of Corporate Governance

Statement on internal ControlAudit & Examination Committee

network of Branchesnotice of Annual General Meeting

financial Statements

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Contents

... Banking Without Barriers™

• Creativity

• Discip

line

• Integrity

• Hum

ility

• Carin

gOur Vision

Our Mission

A Premier Partner for financial Growth and innovative Services.

To provide innovative financial solutions and services to target customers in order to generate profits and create value for our shareholders and other stakeholders.

in so doing, we provide opportunities for employees to contribute and excel; and be competitive in providing our solutions and services to our valued customers.

We shall conduct our business with integrity and professionalism in compliance with good corporate governance principles and practices.

• Creativity

• Discip

line

• Integrity

• Hum

ility

• Carin

g

We are passionate in all that we do. A passion to achieve more, be better and to have that focused discipline to be able to carry forth a service that our customers deserve and require.

Banking is about being passionate

• Creativity

• Integrity

• Hum

ility

• Carin

g

Banking is about adding values

It’s not just about numbers, nor a focus on the bottom line only. Our belief is in delivering a trust that is self evident in the way we service each of our customers...a genuine courtesy and respect which comes from a desire to deliver more.

• Creativity

• Hum

ility

• Carin

g

Banking is about bringing smiles

We understand that when we are able to consistently provide financial solutions for our customers, when they know they can trust a bank that delivers more for them – that’s when we are truly satisfied that we have fulfilled our goals.

• Creativity

• Carin

g

Banking is about being thoughtful

It’s a genuine care for our customers that truly makes a difference – listening to them, understanding them and finally delivering our promises – now that’s a bank that goes beyond barriers.

• Creativity

Banking is about being imaginative

No two financial challenges are ever the same. It requires a deep understanding of the situation and innovative solutions. At AFFINBANK, we look beyond the standard to provide financial solutions to our many customers.

Affin BAnk BERHAD (25046-T) 12 Annual Report 2012

CORPORATE INFORMATION

NAME

Affin Bank Berhad (25046-T)

DATE OF INCORPORATION

23 October 1975

PRINCIPAL ACTIVITIES

Affin Bank Berhad is principally involved in the carrying out of banking and finance related services. The Bank has sixteen (16) subsidiary companies and three (3) associate companies which are principally engaged in property management, nominee, trustee and factoring services.

BOARD OF DIRECTORS

ChairmanYBhg. Jen Tan Sri Dato’ Seri ismail bin Haji Omar (Bersara)(Non-Independent Non-Executive Director)

DirectorsYBhg. Tan Sri Dato’ Seri Lodin bin Wok kamaruddin(Non-Independent Non-Executive Director)

YM. Dr. Raja Abdul Malek bin Raja Jallaludin(Independent Non-Executive Director)

YBhg. Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman(Independent Non-Executive Director)

Mr. Aubrey Li kwok-Sing(Non-Independent Non-Executive Director)

Mr. Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing)

En. Mohd Suffian bin Haji Haron (Independent Non-Executive Director)

YBhg. Tan Sri Dato’ Seri Mohamed Jawhar(Independent Non-Executive Director)

MANAgINg DIRECTOR/CHIEF ExECuTIVE OFFICER

YBhg. Dato’ Zulkiflee Abbas bin Abdul Hamid

SECRETARY

nimma Safira binti khalid

REgISTERED OFFICE

17th floor, Menara Affin,80, Jalan Raja Chulan,50200 kuala Lumpur.Tel.: 03-2055 9000fax.: 03-2026 1415

AuTHORISED SHARE CAPITAL

No of shares2,000,000,000Par valueRM1.00TotalRM2,000,000,000

ISSuED AND PAID-uP SHARE CAPITAL

No of shares1,518,336,765Par valueRM1.00TotalRM1,518,336,765

SuBSTANTIAL SHAREHOLDER

No of sharesAffin Holdings Berhad - 1,518,336,765

ExTERNAL AuDITORS

PricewaterhouseCoopers (Af 1146)

Affin BAnk BERHAD (25046-T)13Annual Report 2012

CORPORATE STRuCTuRE

AS AT 31 DECEMBER 2012

1 Dormant 2 Associate3 Companies where application to strike-off have been filed by the Bank.

OTHERS

AFFIN HOLDINgS BERHAD

AFFIN Bank Berhad

AFFIN Islamic Bank Berhad

Lembaga Tabung Angkatan Tentera

AFFIN Capital Sdn Bhd

AxA AFFIN Life Insurance Berhad

AxA AFFIN general Insurance Berhad

AFFIN-ADB Sdn Bhd

AFFIN MoneyBrokers Sdn Bhd

AFFIN-ACF Holdings Sdn Bhd

AFFIN Investment Bank Berhad

AFFIN-ACF Capital Sdn Bhd

AFFIN-i Nadayu Sdn Bhd 2

(formerly known as AFFIN-i Goodyear Sdn Bhd)(jointly owned by Affin islamic Bank Berhad and Jurus Positif Sdn Bhd with a 50 : 50 ownership)

AFFIN Fund Management Berhad

Merchant Nominees (Tempatan) Sdn Bhd

Classic Precision Sdn Bhd

AFFIN Nominees (Tempatan) Sdn Bhd

AFFIN Nominees (Asing)Sdn Bhd

Boustead Holdings Berhad Bank of East Asia Limited

100%

51%

33.6%

100%

100%

100%

PAB Properties Sdn Bhd

ABB Trustee Berhad 2

AFFIN Futures Sdn Bhd 1

ABB IT & Services Sdn Bhd 1

BSNCB Nominees (Tempatan)Sdn Bhd 1

AFFIN Recoveries Berhad 1

100%

100%

20%

100%

100%

100%

100%

100%

100%

ABB Nominee (Tempatan) Sdn Bhd

AFFIN-ACF Nominees (Tempatan) Sdn Bhd 1,3

AFFIN Factors Sdn Bhd 1

ABB Nominee (Asing) Sdn Bhd 1

PAB Property Management Services Sdn Bhd 1,3

PAB Property Development Sdn Bhd 1,3

ABB Venture Capital Sdn Bhd 1,3

ABB Asset Management (M) Berhad 1,3

BSNC Nominees (Tempatan) Sdn Bhd 1,3

BSN Merchant Nominees (Asing)Sdn Bhd 1,3

uBB Trustee (Malaysia) Berhad 2

100%

100%

100%

100%

100%

100%

100%

20%

100%

100%

100%

50%

100%

100%

67%

100%

100%

100%

35.19%

60.75% 20.69% 23.52% 20.60%


1. YBhg. Jen. Tan Sri Dato’ Seri ismail bin Haji Omar (Bersara) Chairman Non-Independent Non-Executive Director

2. YBhg. Dato’ Zulkiflee Abbas bin Abdul Hamid Managing Director/Chief Executive Officer

Left to right :

3. YBhg. Tan Sri Dato’ Seri Lodin bin Wok kamaruddin Non-Independent Non-Executive Director

4. YM. Dr. Raja Abdul Malek bin Raja Jallaludin Independent Non-Executive Director

BOARD OF DIRECTORS & MD/CEO


Left to right :

5. YBhg. Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman Independent Non-Executive Director

6. Mr. Aubrey Li kwok-Sing Non-Independent Non-Executive Director

7. En. Mohd Suffian bin Haji Haron Independent Non-Executive Director

8. YBhg. Tan Sri Dato’ Seri Mohamed Jawhar Independent Non-Executive Director

BOARD OF DIRECTORS & MD/CEO


PROFILE OF DIRECTORS

YBHg. JEN. TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA)

Chairman / Non-Independent Non-Executive Director

Jen. Tan Sri Dato’ Seri ismail bin Haji Omar (Bersara), aged 71, was appointed as a Director and Chairman of AffinBAnk on 21 May 2002.

He was formerly Chief Defence forces (CDf) Malaysia from 1995 until his retirement in 1998, after 38 years of military service. He graduated from Royal Military Academy, Sandhurst, United kingdom in 1961 and subsequently attended professional and management development courses at several institutions including The Land forces Command and Staff College, Canada; the United nation international Peace Academy, Vienna; the national Defence College, india and inTAn Malaysia.

His military service saw key Command and Staff appointments at all levels of the Armed forces. As CDf, his responsibilities included key roles in Malaysia’s Regional and international Defence Relations.

He was the Chairman of Affin Holdings Berhad and Affin-ACf finance Berhad from 1999 prior to joining AffinBAnk. He currently holds directorships in Affin islamic Bank Berhad, ABB Trustee Berhad, EP Engineering Sdn Bhd and Global Medical Alliance Sdn Bhd.

Jen. Tan Sri Dato’ Seri ismail bin Haji Omar (Bersara) attended all 13 Board Meetings held during the financial year ended 31 December 2012.

YBHg. TAN SRI DATO’ SERI LODIN BIN WOk kAMARuDDIN

Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin bin Wok kamaruddin, aged 63, was re-appointed to the Board of Directors of AffinBAnk on 4 October 2010. He was appointed as the Managing Director of Affin Holdings Berhad in february 1991 and redesignated as Deputy Chairman on 1 July 2008.

He has extensive experience in managing a provident fund and in the establishment, restructuring and management of various business interest ranging from plantation, trading, financial services, property development, oil and gas, pharmaceuticals to shipbuilding. He is the Chief Executive of LTAT and the Deputy Chairman / Group Managing Director of Boustead Holdings Berhad. Prior to joining LTAT, he was the General Manager of Perbadanan kemajuan Bukit fraser for 9 years.

He is also the Chairman of Boustead Heavy industries Corporation Berhad, Boustead naval Shipyard Sdn Bhd, Boustead Petroleum Marketing Sdn Bhd, Boustead REiT Managers Sdn Bhd, Johan Ceramics Berhad and 1Malaysia Development Berhad and also sits on the Board of UAC Berhad, The University of nottingham in Malaysia Sdn Bhd, Minority Shareholder Watchdog Group, Atlas Hall Sdn Bhd, Affin islamic Bank Berhad, Affin investment Bank Berhad and AXA Affin Life insurance Berhad.

He graduated from the University of Toledo, Ohio, USA with a Bachelor of Business Administration and a Master of Business Administration Degree. Among the many awards Tan Sri Dato’ Seri Lodin received to-date include the Chevalier De La Legion D’Honneur from the french Government, the Malaysian Outstanding Entrepreneurship Award, the Degree of Laws honoris causa from the University of nottingham, United kingdom, the UiTM Alumnus of the Year 2010 Award and The BrandLaureate Most Eminent Brand iCOn Leadership Award 2012 by Asia Pacific Brands foundation.

Tan Sri Dato’ Seri Lodin bin Wok kamaruddin attended all 13 Board Meetings held during the financial year ended 31 December 2012.



YBHg. TAN SRI DATO’ SRI ABDuL AZIZ BIN ABDuL RAHMAN

Independent Non-Executive Director

Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman, aged 66, was appointed to the Board of Directors of AffinBAnk on 28 January 2003.

He graduated with a Bachelor of Commerce from University of new South Wales, Sydney, Australia. He is a member of the Malaysian institute of Certified Public Accountants (MiCPA) and the Malaysian institute of Accountants (MiA).

He has served as Chairman and Board member of several government institutions, agencies and public listed companies, both in Australia and Malaysia.

At the corporate level he was with Price Waterhouse & Co. Sydney, Malaysia Airlines and Managing Director of Bank Rakyat Bhd before venturing into politics and public service as the Pahang State Assemblyman, State Executive Councillor and Deputy Chief Minister of Pahang. He was a Senator of Malaysian Parliament for a maximum period of two (2) terms.

Presently he is the Board member of Affin islamic Bank Berhad, the international islamic University Malaysia and University Malaysia Pahang.

Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman attended 12 out of 13 Board Meetings held during the financial year ended 31 December 2012.

YM. DR. RAJA ABDuL MALEk BIN RAJA JALLALuDIN


Dr. Raja Abdul Malek bin Raja Jallaludin, aged 67, was appointed to the Board of Directors of AffinBAnk on 29 January 1991.

He graduated as a doctor from the University of Malaya in 1972 and, early in his career, worked at the General Hospital, kuala Lumpur and the faculty of Medicine, UkM. in late 1975, he went into private medical practice and became a senior partner of Drs. Catterall, khoo, Raja Malek & Partners until 2003 when he resigned from the firm. Professionally he is widely experienced and has served in various peer and academic activities. Amongst others, he had been a clinical tutor in the faculty of Medicine, UMMC; been a member of the Ethical Committee of the Malaysian Medical Council, MOH; was the Chairman of Council Academy of family Physicians, Malaysia.

He also has vast experience in the pharmaceutical world and had actively been involved since 1984. He had been the Medical Director (Malaysia-Singapore) for Parke Davis-Warner Lambert from 1984-2000, and had remained briefly so too with Pfizer Malaysia when these two incorporations merged in 2001. in 2003, Dr. Raja Abdul Malek joined HOE/Pharmaceuticals/HOEPharma Holdings Bhd as the Director of Medical and Scientific Affairs and holds this position to this day.

Presently he is the Board member of ABB Trustee Berhad and also a member of the Advisory Panel of StemLife Berhad.

Dr. Raja Abdul Malek bin Raja Jallaludin attended 12 out of 13 Board Meetings held during the financial year ended 31 December 2012.



MR. AuBREY LI kWOk-SINg

Non-Independent Non-Executive Director

Mr. Aubrey Li kwok-Sing, aged 62, was appointed to the Board of Directors of AffinBAnk on 17 March 2008. He is a Director of The Bank of East Asia, Limited and Chairman of MCL Partners Limited.

He possesses extensive experience in investment banking, merchant banking and capital markets. Presently he is the Board member of Café de Coral Holdings Limited, China Everbright international Limited, kunlun Energy Limited, kowloon Development Co. Ltd, Pokfulam Development Company Limited, Tai Ping Carpets international Limited and Dalton Capital (Guernsey) Limited.

Mr. Aubrey Li kwok-Sing attended 7 out of the 13 Board Meetings held during the financial year ended 31 December 2012.

Mr. Aubrey Li kwok-Sing’s Alternate Director, Mr. Gary Cheng Shui Hee was appointed on 18 April 2011. He attended 5 out of the 13 Board Meetings held during the financial year ended 31 December 2012.

EN. MOHD SuFFIAN BIN HAJI HARON


En. Mohd Suffian bin Haji Haron, aged 67, was appointed to the Board of Directors of AffinBAnk on 15 August 2009.

He graduated with a Bachelor of Economics from University of Malaya (1970) and holds a Master of Business Administration from University of Oregon in the United States (1976).

Presently he is the Board member of Affin islamic Bank Berhad, L.k. & Associates Sdn Bhd and Pharmaniaga Berhad.

En. Mohd Suffian bin Haji Haron attended all 13 Board Meetings held in the financial year ended 31 December 2012.



YBHg. TAN SRI DATO’ SERI MOHAMED JAWHAR


Tan Sri Dato’ Seri Mohamed Jawhar, aged 68, was appointed as a Director of AffinBAnk on 1 november 2011.

His other positions include: independent non-Executive Director, Affin islamic Bank Berhad; Chairman iSiS Malaysia, non-Executive Chairman, new Straits Times Press (Malaysia) Berhad; Member of Securities Commission Malaysia; Member, Advisory Board, Malaysian Anti-Corruption Commission; Distinguished fellow, institute of Diplomacy and foreign Relations (iDfR); Board Member, institute of Advanced islamic Studies (iAiS); Chairman, Malaysian national Committee of the Council for Security Cooperation in the Asia Pacific (CSCAP); and Member, international Advisory Board, East West Center, USA. He is also the Expert and Eminent Person for the ASEAn Regional forum (ARf).

He was also Co-Chair, network of East Asia Think-tanks (nEAT) 2005-2006; Chairman, Malaysian national Committee, Pacific Economic Cooperation Council (PECC) 2006-2010; and Co-Chair, Council for Security Cooperation in the Asia Pacific (CSCSP) 2007-2009.

He served with the government before he joined iSiS Malaysia as Deputy Director-General in 1990. He was appointed Director-General in March 1997 and was subsequently appointed Chairman and CEO in 2006. He was appointed Chairman iSiS Malaysia on 9 January 2010.

His positions while in government included Director-General, Department of national Unity; Under-Secretary, Ministry of Home Affairs; Director (Analysis) Research Division, Prime Minister’s Department; and Principal Assistant Secretary, national Security Council. He also served as Counselor in the Malaysian Embassies in indonesia and Thailand.

Tan Sri Dato’ Seri Mohamed Jawhar during his tenure attended 12 out of 13 Board Meetings held during the financial year ended 31 December 2012.


MANAgEMENT TEAM

YBhg. Dato’ Zulkiflee Abbas Bin Abdul HamidManaging Director / Chief Executive Officer

En. Amirudin Abdul HalimDirector, Business Banking

En. kamarul Ariffin Mohd Jamil Chief Executive Officer, Affin Islamic Bank

En. idris Abd. HamidDirector, Consumer Banking

En. Shariffudin Mohamad Executive Director, Operations

Mr. Tan kok ToonDirector, Treasury


MANAgEMENT TEAM

Mr. Ee kok SinChief Financial Officer

YBhg. Dato’ Mohammad Aslam khan Gulam HassanChief Recovery Specialist (Resigned w.e.f. 31.10.2012)

Mr. kasinathan T.kasipillai Group Chief Risk Officer

Pn. nor Rozita nordinChief Human Resource Officer

Pn. khatimah MahadiGroup Chief Internal Auditor

En. nazlee khalifahChief Corporate Strategist


YBHg. DATO’ ZuLkIFLEE ABBAS BIN ABDuL HAMID

Managing Director/ Chief Executive Officer

Dato’ Zulkiflee Abbas bin Abdul Hamid is currently Managing Director/ Chief Executive Officer of Affin Bank Berhad, a position held since April 2009. Dato’ Zulkiflee also holds the mandate to drive Affin Banking Group’s strategic and development agenda for all entities within the group.

Dato’ Zulkiflee joined AffinBAnk on 1 March 2005 as Director of Enterprise Banking. Subsequently in 2008, Dato’ Zulkiflee was appointed as Executive Director of Banking, which encompassed both Business and Consumer Banking.

Dato’ Zulkiflee carries with him more than 30 years of banking experience, both locally in Malaysia and internationally in London and new York. Dato’ Zulkiflee has assumed pivotal roles in banking, which include Regional Manager, Chief Credit Officer, and Global Head of Enterprise Banking, amongst others.

Dato’ Zulkiflee holds a Master in Business Administration (1981) and a Bachelor of Science degree in Marketing (1979), both from Southern illinois University.

EN. kAMARuL ARIFFIN MOHD JAMIL

Chief Executive Officer, Affin Islamic Bank

En. kamarul Ariffin Mohd Jamil joined Affin Bank Berhad in 2003 as Head, Corporate Strategy Division. in 2005, kamarul was appointed as Head, islamic Banking Division. With the establishment of Affin islamic Bank, kamarul was appointed as its Chief Executive Officer.

Prior to AffinBAnk, kamarul held various positions at Pengurusan Danaharta nasional Berhad, Trenergy Malaysia Berhad and Shell Malaysia Trading Sdn Bhd in various capacities including business development, and strategic planning.

kamarul graduated from the University of Cambridge in 1992 with a Bachelor of Arts in Economics.

EN. SHARIFFuDIN MOHAMAD

Executive Director, Operations

En. Shariffudin Mohamad joined Affin in 2007 as Director of Operations and was appointed as Executive Director, Operations in 2009.

Shariffudin has 25 years local and overseas experience in banking. His hands-on experience covers Branch Operations, Trade finance, Corporate Banking, Corporate Relationship Management, Credit Operations, Cash Management and Securities Services. His last position was Head, Project Management Services (Technology & Operations) in a leading foreign bank and its local outsourcing subsidiary.

Shariffudin graduated from Southern illinois University, with a Master in Business Administration (1981) and a Bachelor of Science degree in finance (1980).

MANAgEMENT TEAM PROFILES


EN. IDRIS ABD. HAMID

Director, Consumer Banking

En. idris Abd Hamid is currently Director of Consumer Banking, a position he has held since May 2009.

idris began his career with Affin Bank Berhad in 1994 as General Manager of Affin finance Berhad. He was appointed as Deputy Chief Executive Officer for Affin-ACf finance Berhad from 2000 to 2005.

idris has over 30 years of experience in the banking industry, which includes exposure as Branch Manager, and in Corporate and Consumer Loans management.

idris graduated with a Master in Business Administration from the University of northern Colorado in 1984.


EN. AMIRuDIN ABDuL HALIM

Director, Business Banking

En. Amirudin Abdul Halim joined Affin Bank Berhad as Director, Business Banking in July 2009.

Prior to AffinBAnk, Amirudin was at Malayan Banking Group (Maybank) for more than 21 years where he gained extensive banking experience in Branch Operations, Credit Control, Business Banking, Retail Marketing, Consumer Banking and Corporate Services.

He has served in several senior strategic roles at Maybank, including Deputy Head of Business Banking Division, Head of Mortgage & Automobile financing and as the Deputy Chief Executive Officer of Mayban fortis Berhad (a member of the Maybank Group of Companies).

Amirudin graduated with a Bachelor of Arts degree in finance from St. Louis University in 1986.

MR. TAN kOk TOON

Director, Treasury

Mr. Tan kok Toon joined Affin Bank Berhad as its Head of Treasury in October 2004 and is responsible for managing all aspects of Treasury Division. He is currently the Honorary Secretary of Persatuan Pasaran kewangan Malaysia (Association Cambiste internationale) and Chair to the Seminar and Education Committee.

Prior to AffinBAnk, Tan was with one of the largest banks in Malaysia. Tan has more than 20 years banking experience, particularly in Treasury operations. He has served as Treasury Manager with the new York branch, and was Treasury Business Advisor to turnaround a business project in the Philippines.

Tan graduated from University Malaya in 1987 with a Bachelor of Science degree (honours) in Mathematics.


PN. kHATIMAH MAHADI

Group Chief Internal Auditor

Pn. khatimah Mahadi joined Affin Bank Berhad as Chief internal Auditor in 2004. khatimah has more than 30 years of experience in internal Auditing.

She has led the Audit and Compliance function in a number of financial institutions which include Bank Simpanan nasional, Citibank Berhad, Malaysia Credit finance, UAB/Bank of Commerce.

khatimah graduated with a Diploma in Accountancy from UiTM in 1978.


MR. kASINATHAN T.kASIPILLAI

Group Chief Risk Officer

Mr. kasinathan T. kasipillai joined Affin Bank Berhad in 2005 as its Chief Risk Officer. kasinathan has more than 35 years of local and overseas banking experience particularly in the areas of Risk Management. He comes from a foreign bank background working in the risk function serving in a number of countries including London, Singapore, Hong kong, Mumbai and Jakarta.

kasinathan holds a Masters in Business Administration from the University of Bath, Uk and is a Certified Risk Professional awarded by Bank Administration institute, Chicago, USA.

kasinathan is also an Associate fellow of institute of Bankers Malaysia, and continues to serve as an active member of CCP Examination Committee.

MR. EE kOk SIN

Chief Financial Officer

Mr. Ee kok Sin joined Affin Bank Berhad in 2005 as the Chief financial Officer. Prior to his appointment at AffinBAnk, Ee was the General Manager of finance & Services at Pengurusan Danaharta nasional Berhad.

Ee began his career in 1982 as a Trainee Accountant with a firm of Chartered Accountants in London. He has extensive experience in auditing, treasury functions, financial accounting, financial management and information technology.

Ee is a fellow Member of the Association of the Chartered Certified Accountants (ACCA) and a member of The Malaysian institute of Certified Public Accountants (MiCPA) and Malaysian institute of Accountants (MiA).


PN. NOR ROZITA NORDIN

Chief Human Resource Officer

Pn. nor Rozita nordin was appointed as Chief Human Resource Officer of Affin Bank Berhad in May 2011. Prior to joining AffinBAnk, Rozita was Executive Vice-President and Head of Group Human Resources at EOn Bank Group.

Rozita has more than 30 years’ experience in Human Resource Development and Customer Relations Strategy, in various industries which include banking, oil and gas, manufacturing, retail, and shared services. Rozita has taken on strategic and operational roles, both locally and abroad.

Rozita graduated from Southern illinois University with a Master of Science degree in 1984, a Bachelor of Science in Education and a Bachelor of Arts degree in Linguistics, both in 1982.

EN. NAZLEE kHALIFAH

Chief Corporate Strategist

En. nazlee khalifah joined Affin Bank Berhad in february 2009 as Head of Business Strategy and Support, Business Banking Division. Subsequently, in April 2011, nazlee was appointed as Chief Corporate Strategist.

nazlee has more than 20 years’ experience in the banking industry. Prior to joining AffinBAnk, nazlee was with Maybank for 17 years in various capacities, mostly in Strategic Management positions.

nazlee graduated from Simon fraser University in Vancouver in 1991, with a Bachelor degree in Business Administration, majoring in Accounting and finance.



CHAIRMAN’S STATEMENT

Dear Shareholders,

On behalf of the Board of Directors, I am pleased to present the Annual Report and Financial Statements for Affin Bank Berhad for the financial year ended 31 December 2012.



During the year under review, Affin Bank Berhad (“AffinBAnk” or “the Bank”) registered another year of strong growth in revenue and earnings. The Bank recorded a profit before zakat and taxation of RM703.2 million, which is a growth of 14.7% compared to the previous financial year. The Bank also registered robust growth in loans, advances and deposits.

Throughout 2012, we continued to diligently focus on growing the Bank’s business and market presence. We launched new marketing campaigns, expanded our branch network and further improved on customer service levels by enhancing operational efficiency and productivity. The Bank also increased its investment in operational capabilities to support long-term business growth, particularly in Talent Management and information Technology (iT).

in line with this improvement, the Board is recommending a final dividend of 6 sen per share, subject to shareholders’ approval at the Annual General Meeting (AGM). Together with the interim dividend of 9 sen per share paid, the total dividend payout will amount to 15 sen per share or RM227.8 million, representing a record payment.

Aside from financial performance, AffinBAnk also saw healthy organic growth in its business operations.

We successfully opened three new branches to bring our network strength to 100 nationwide. Expanding our network is vital for further building our market presence and to tap growing opportunities, particularly in serving the retail and SME segments in which we already have a strong positioning.

Our O.M.G marketing campaign, O.M.G The Trilogy, now in its third year, has proven to be most successful in growing our deposits portfolio. The campaign was one of the key success factors towards the significant growth in the Bank’s customers and deposits.

internally, we focused on comprehensive human capital development and talent recruitment strategies to attract top industry talent and to retain our high performing employees. We also emphasised on the improvement of our working and organisational culture.

+14.7%Profit Before

Zakat & Taxation

+12.2%Loan Growth



+12.9%Customer

Deposits Growth

The Bank continued with its implementation of a structured talent and leadership development program aimed at effective succession planning and strengthening the performance of operational teams via further refinement of core functional competencies.

information Technology (iT) continues to be a key enabler for the Bank. iT is viewed as a key strategy in empowering the Bank to deliver its unique proposition and offerings faster, more conveniently and with greater customer satisfaction.

Besides ensuring sound financial achievements, the Bank also measures its success on other initiatives to reinforce the positive image of our brand. 2012 was also a year where AffinBAnk made a bigger contribution to Corporate Social Responsibility (CSR) initiatives.

for the second consecutive year, the Bank participated as the main sponsor for the Treat Every Environment Special (TrEES) programme. Rallying to the call to help protect the environment, over

500 students from 42 secondary schools came together to help reduce environmental problems. These students are all participants in “Young Voices for Conservation”, an environment education programme organised by TrEES in partnership with AffinBAnk. The TrEES programme is supported by the Ministry of Education and has been a successful CSR initiative in educating the community amongst the younger segment.

As a further support to schools, AffinBAnk sponsored the “Step Up” – niE Pullout for Primary Schools (organised by The Star Publications) to promote English amongst primary students. Under niE, The Star newspapers will be distributed to selected schools for students years four, five and Six. The objective of this program is to contribute to the community by helping students explore a more creative and innovative way of learning through the use of newspapers.

Reaching out to the poor, we supported BHPetrol’s initiative of the production and airing of a TV programme called ‘Di Celah-Celah kehidupan’ on



RTM1. The programme depicts real life stories of people who face poverty, who are disabled and old age in need of care and attention. Besides donating cash to the recipients, the Bank became the channel where the public can send their donations.

As in previous years, the Bank’s Educ-Aid (Scholarship Programme) is in its 9th year, awarding The Examination Excellence Award to students of Bank employees who excelled in their PMR and SPM examinations. This year, AffinBAnk awarded the Examination Excellence Award to 70 PMR and SPM achievers. The Bank also continued to provide scholarships to the employees’ children for their tertiary education, with a value of up to RM15,000 per year for each scholarship, up to a maximum of RM75,000 per scholar.

Other CSR activities for the year include our annual partnership with the national Blood Centre. A blood donation drive was held in AffinBAnk’s headquarters, where the Bank’s employees took the time to donate blood in between their work schedules. We also sent a team of five runners to The Bursa Edge Rat Race and donated to a fund which will benefit 26 charitable organisations around Malaysia. As in previous years, we continued to support the annual “Hari Pahlawan” or Warriors Day.

Going forward, whilst we expect the upcoming financial year to present many challenges, we also see opportunities ahead. The global economy is expected to remain sluggish and the domestic environment is also expected to be impacted. further market liberalisation, new entrants and competing products will result in a more competitive environment.

However, we believe that AffinBAnk will continue to perform well in 2013.

Given the Bank’s sound fundamentals, our growing market presence and the continued improvement in efficiency and productivity, AffinBAnk is in a solid position to deliver another year of growth and progress.

in 2013, the Bank will be focusing on industries or sectors with high growth potentials. As we explore new collaboration and market opportunities, we will further tap the retail and SME segment, where we have already established our brand and solutions.

With more Entry Point Projects expected to be rolled out as part of the Economic Transformation Programme (ETP), we look forward to playing a role in the financing of these projects, particularly in key growth sectors such as healthcare, education and construction.

On behalf of the Board, i wish to express my sincere appreciation to our shareholders and business partners for their continued vote of confidence and support.

i wish to also take the opportunity to record our thanks to the senior management and our employees for their dedication, commitment and tireless effort during the year under review. Their contribution has been a key driver in our continued growth and success. Last but not least, i wish to say thank you to my fellow Board members for their counsel and stewardship in what has been a year of progress for AffinBAnk.

Jen. Tan Sri Dato’ Seri ismail bin Hj. Omar (Bersara)Chairman


AffinBAnk’s profit after zakat and taxation grew by 19.4% from RM440.0 million in 2011 to RM525.3 million in 2012. Total Assets reached RM52.1 billion in 2012, which is a growth of 5.8% compared to RM49.2 billion in the previous financial year.

The Bank also successfully achieved its target of double digit loans growth for 2012. During the year, gross loans and advances grew by 12.2%. Return-on-Equity (ROE) after tax was 14.1% while Cost-to-income ratio was recorded at 45.2%. The Bank also continued to grow its total deposit portfolio by 12.9% in 2012 from RM36.5 billion in 2011 to RM41.3 billion in 2012.

PERFORMANCE REVIEW

+5.8%Total Assets

+19.4%Profit After

Zakat & Taxation

For the year under review, AFFINBANK recorded a profit before zakat and taxation of RM703.2 million, which is a growth of 14.7% compared to 2011. The Bank has been registering consistent growth in revenue and earnings for more than 5 years and the profit before zakat and taxation this year is at an all-time high.

net interest income was recorded at RM788.7 million compared to RM784.9 million in 2011. islamic banking income grew by 14.8% to RM216.8 million from RM188.8 million in the previous year.

The Bank’s growth was tempered with fiscal prudence in ensuring that asset quality was not compromised in the pursuit of loans growth. Asset quality remained resilient with a lower net impaired loan ratio of 1.1% in 2012 compared to 1.3% in 2011. Operational Highlights in line with growing the Bank’s presence in key population areas, AffinBAnk opened three new branches in Selangor – Bangi, klang and Cyberjaya. This brings our branch network strength to 100 nationwide.

The move to launch new branches is aimed to increase our brand visibility, improve our accessibility to customers and to establish a credible presence in key population areas that offer exciting growth potential. The goal is to provide AffinBAnk products and services in locations which are within easy reach and convenient in fast expanding towns and communities.


As customers’ financial needs evolve and grow in sophistication, they would require new and comprehensive offerings. By being closer to these target groups, AffinBAnk can offer its financial solutions to them and ultimately tap this market segment effectively.

The most significant of these new AffinBAnk branches is the Bandar Bukit Tinggi (klang) operation. This is the Bank’s fourth ‘all under one roof’ branch, offering a complete portfolio of financial services and solutions, targeting the business community from the busy Port klang area and a prominent shopping centre.

The Bandar Bukit Tinggi Branch offers financial services from both AffinBAnk and Affin investment Bank Berhad.

in addition to these new branches, three other branches were relocated to Ara Damansara, Puchong and Muar while 15 additional off-site ATMs were installed for easier accessibility and customer convenience.

Building on the success of the O.M.G. deposit campaigns from previous years (O.M.G and O.M.G It’s Back!), AffinBAnk launched O.M.G The Trilogy from July to December 2012.

The campaign targeted new and existing conventional and islamic Savings, Current and fixed Deposit Account holders while encouraging customers to save more with the Bank. With the O.M.G campaign and other marketing promotions, the Bank recorded a healthy growth in deposits in 2012.

The campaign also created plenty of excitement and brand awareness for the Bank. The attractive prizes offered proved to be a major enticement in attracting and retaining customers.

PERFORMANCE REVIEW

45.2%Cost To

income Ratio

13.65%Risk Weighted

Capital Ratio

14.1%Return On

Equity

in collaboration with Permodalan nasional Berhad (PnB), AffinBAnk also launched its 24-hour, online ASnB Top-Up facility on 31 May 2012. AffinBAnk is one of only four banks in Malaysia to offer online additional ASnB funds subscription and only the second bank to provide a 24-hour service facility.

This is in line with the Bank’s objective of leveraging on digital technology to take customer service to a new level, to make banking as easy as possible for customers, while offering new services and initiatives that provide them with better access to a wider spectrum of online transaction options. AffinBAnk is also empowering investors to manage their own investment portfolio.

Through the 24-hour top up service, the Bank is also fulfilling its mandate of encouraging Malaysians to participate in the corporate sectors and equities market.

As in previous years, the focus on iT has continued to yield results – enabling the Bank to work faster and more effectively with improved turnaround time and security, better customer service levels, facilitation of more strategic decision-making and other benefits. One of the two areas where this was evident in 2012 was the launch of a new Loan Origination System to enable faster turnaround time in processing of loans applications. The other was the enhancement to the Retail internet Banking and Corporate internet Banking systems to improve the functional capabilities for customers’ convenience during online transactions.

A robust risk management framework is in place to balance the expected competitive market environment with business growth strategies.


PERFORMANCE REVIEW

Besides stringent loan monitoring processes, a Special Early Alert Committee was formed to track the loan portfolio of the Bank. There are also credit clinics and other credit related talks to inculcate a risk awareness culture amongst the employees of the Bank.

Recognised for Excellence

2012 also saw AffinBAnk garnering several awards. These include the Top 30 Most Valuable Brands by the Association of Accredited Advertising Agents (4As) and the Best of Malaysia Service to Care Champion in the category of Conventional Bank with assets less than USD20 billion.

The latter was awarded by MarkPlus insight in conjunction with the Philip kotler and the Christopher Lovelock Centre for Services Marketing. This Award is given in recognition of best performers and companies with best practices in customer service and customer care in the ASEAn region.

During the inaugural Service to Care Award in 2011, AffinBAnk was also awarded the Malaysia Service To Care Champion for Customer Satisfaction (Category: Conventional Bank with assets below USD20 billion).

These recognitions in customer service excellence re-enforces the Bank’s commitment to continuously improve our service levels and our relationships with customers. We wish to thank all our customers for their endearing support.

HR and Talent Management

During the year, AffinBAnk continued to focus on the development of its human capital. This was achieved through a structured talent and leadership development program, which emphasises on succession planning and enhancing team performance via development of functional competencies.

The Leadership Development Program (LDP) is implemented at all levels from junior to senior management to inculcate new mindsets and behavioural capabilities in view of developing potential leaders to undertake greater roles and responsibilities within the Bank.

in nurturing young talent, the Affin Management Training Programme (AMP) continued to be an effective tool in developing our human capital pool and identifying the future leaders of the Bank.

Prospects & Outlook

Moving into 2013, the Bank’s robust financial position together with new emerging market opportunities present bright prospects going forward.

in growing its business, AffinBAnk will continue to emphasise key business drivers such as growing its loans and advances as well as customer deposits. The Bank waits in much anticipation for its 101st branch opening, which will be a major milestone. in addition, the success of the O.M.G campaigns will be built on further to grow AffinBAnk’s presence in the market. This will be supported by more innovative product offerings that appeal to the retail and commercial segments.


FINANCIAL HIgHLIgHTS

AffinBAnk’s EPS for the financial year ended 31 December 2012 stood at 35.0 sen compared to 30.6 sen the year before.

35.0

26.5

30.6

23.0

22.1

1210 1108 0970

3.2

521.

9

613.

1

454.

6

425.

1

1210 1108 09

52.1

42.1

49.2

33.0

35.6

1210 1108 09

33.5

26.0

29.7

19.5

22.0

1210 1108 09

41.3

31.0

36.5

25.2

26.4

1210 1108 09

4.1

3.3

3.6

2.7

3.0

1210 1108 09

Earnings Per Share (EPS)(Sen)

Profit Before Zakat And Taxation (RM’million)

Total Assets(RM’billion)

AffinBAnk’s net loans, advances and financing grew by 12.77% to RM33.5 billion compared with RM29.7 billion in 2011, as economic activities and demand for credit gathered momentum during the year under review.

Net Loans, Advances & Financing(RM’billion)

Deposits From Customers(RM’billion)

Shareholders’ Equity (RM’billion)

AffinBAnk achieved profit before zakat and taxation of RM703.2 million, a commendable 14.7% rise for the year ended 31 December 2012, compared to RM613.1 million in 2011. AffinBAnk’s profit after zakat and taxation also rose by 19.4% to RM525.3 million for the year ended 31 December 2012.

AffinBAnk’s financial position as at 31 December 2012 continued to remain strong with total assets of RM52.1 billion, an increase of 5.8% compared with RM49.2billion as at 31 December 2011.

Total deposits increased by 12.9% year-on-year to RM41.3 billion as at 31 December 2012, in correspondence to AffinBAnk’s loan growth.

Total shareholders’ equity of AffinBAnk increased by 14.36% to RM4.1 billion from RM3.6 billion the year before.


CORPORATE DIARY

18 January 2012

AffinBAnk holds its OMG It’s Back! prize giving ceremony, where Suzi Zuliana Zalekan won a Volkswagen Golf GTi and RM300,000 cash deposit. Second prize winner, Mardziiah Mansor drove away a Toyota Prius and RM120,000 whereas third prize winner Liew Yen fui took home a Perodua Myvi and RM60,000.

20 March 2012

AffinBAnk hosts ‘An Evening of Splendour’ as a form of appreciation towards its top valued corporate and consumer clients.

16 March 2012

AffinBAnk sponsors RM70,000 for Lembaga Tabung Haji’s “Wirid Terpilih untuk Dhuyufurrahman”, a book to be distributed to pilgrims during their stay at the Holy land.

21 May 2012

AffinBAnk and Affin inVESTMEnT officially and jointly opens its doors, offering an ‘all under one roof’ branch of financial services and solutions to the growing 80,000 residents of Bandar Baru Bukit Tinggi.

16 April 2012

Partnering with the national Blood Centre, AffinBAnk holds a blood donation drive to encourage a joint effort between its staff and customers in meeting their roles as conscious citizens and humanitarians.

24 April 2012

AffinBAnk sponsors RM100,000 to Majlis Bekas Wakil Rakyat Malaysia (MUBARAk) to support the launch of the book, “100 Wira negara”. it is a form of recognition and appreciation for the heroes and icons in various fields and institutions that had great impact on national development.


CORPORATE DIARY

31 May 2012

in collaboration with Permodalan nasional

Berhad (PnB), AffinBAnk officially launches its new 24-hour online service – Amanah Saham nasional Berhad (ASnB) funds Additional Top Up via its website affinOnline.com, placing AffinBAnk amongst the four main banks in Malaysia to provide this service to the public.

June – November 2012

Rallying to the call to help protect the environment, over 500 students from 42 secondary schools come together to help reduce environmental problems at their schools. These students are all participants in “Young Voices for Conservation”, an environment programme by Treat Every Environment Special (TrEES) in partnership with AffinBAnk.

3 August 2012

160 orphans and 30 new Muslim converts from the klang Valley area enjoy a hearty ‘buka puasa’ feast at AffinBAnk’s headquarters, Menara Affin. The board of directors, management staff, AffinBAnk and Affin iSLAMiC employees get to know the orphans and newly converts on a more personal level.

3 November 2012

AffinBAnk holds a colourful come-one-and-come-all ‘Jom Karnival’ for its newly opened 100th branch in Cyberjaya.

4 June 2012

in a bid to support deserving youths in achieving their dreams, AffinBAnk rewards the Examination Excellence Award to a total of 70 PMR and SPM achievers, as well as award scholarships to deserving students to pursue their tertiary education.

10 July 2012

AffinBAnk sponsors The Star’s Step-Up niE, a pullout for primary schools, distributed to selected schools and caters specifically for students year four, five and Six. The objective of this program is to contribute to the community by helping students explore a more creative and innovative way of learning through the use of newspapers.


The Board of Directors of AffinBAnk (“Board”) and Management appreciate the importance of adopting high standards of Corporate Governance in all areas of its business towards enhancing business prosperity and corporate accountability with the ultimate objective of safeguarding the interest of shareholder’s value. The Board takes cognizance of the Malaysian Code on Corporate Governance 2012 (MCCG 2012) issued by the Securities Commission Malaysia. The Board and Management are fully committed and constantly strive to ensure that the MCCG 2012 and Bank negara Malaysia (BnM) Guidelines on Corporate Governance for Licensed institutions (Revised BnM/GP1) are adopted and practised throughout the group. This is important so as to ensure that AffinBAnk is managed safely and soundly; where risks and business prudence are appropriately balanced so as to maximize shareholder’s return and to protect the interests of all stakeholders. Throughout 2012 and to date, AffinBAnk continues to conduct its business with integrity and exercises a high level of transparency and objectivity.

The Board and Management are fully committed in ensuring employees adhere closely to BnM’s Guidelines (BnM/GP7) on Code of Ethics (“COE”), which aims at instilling the five values namely discipline, integrity, humility, caring and creativity in AffinBAnk and its employees. The Board and Management set high ethical business standards and practices for business conduct and the code of behaviour for employees to adhere to. in addition to the COE, all Directors are also required to observe the Directors’ COE. The responsibility for implementation of COE policies and guidelines rests primarily with Management, oversights by the Audit & Examination Committee. Good Corporate Governance is the foundation of the culture and business practices of AffinBAnk.

The following statements set out the commitment of AffinBAnk in applying good Corporate Governance principles and the extent of compliance with the recommended best practices.

1. BOARD OF DIRECTORS

The Board is committed in establishing and enhancing shareholder’s value in the long term. The Board is pleased to report that, to its best efforts and knowledge, has complied with the principles and the best practices of the Code throughout the financial year under review.

The Board of AffinBAnk has a balance composition with a strong independent element. it consists of representatives

from the private sector with suitable qualifications fulfilling the fit and proper criteria, a mixture of different skills, competencies, experience and personalities. Directors’ profiles which appear on pages 16 to 19 reflect clearly the depth and diversity in expertise and perspective to lead AffinBAnk as well as to allow for an independent and objective analysis of major issues.

Board’s Responsibilities

The Board acknowledges its roles and responsibilities for the overall performance of AffinBAnk.

The Board’s responsibilities remain within the framework of BnM Guidelines and AffinBAnk’s Board Policy Manual. The Board also exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility for determining AffinBAnk’s general policies and strategies for the short, medium and long term, approving business plans, including targets and budgets, and approving major strategic decisions.

STATEMENT OFCORPORATE gOVERNANCE


in carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operate under approved terms of reference, to assist the Board in discharging its duties. The Board Committees report on the outcome of their meetings to the Board and any further deliberation is made at Board level, if required. Reports and deliberations are incorporated into the Minutes of the Board meetings. The various Committees are listed below:-

Board Remuneration Committee (“BRC”)

The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors, Managing Director/Chief Executive Officer and key senior management personnel. BRC is to ensure that compensation is competitive and consistent with AffinBAnk’s culture, objectives and strategies. BRC obtains advice from experts in compensation and benefits, both internally and externally.

Board Nominating Committee (“BNC”)

The BnC is responsible for providing a formal and transparent procedure for the appointment of Directors and Managing Director/Chief Executive Officer and key senior management personnel. BnC assesses the effectiveness of individual Director, the Board as a whole and the performance of the Managing Director/Chief Executive Officer and key senior management personnel.

Board Risk Management Committee (“BRMC”)

The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational, legal and other risks and to ensure that the risk management process is in place and functioning.

Board Loan Review and Recovery Committee (“BLRRC”)

The BLRRC is responsible in providing critical review of loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee.

Audit & Examination Committee (“AEC”)

The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems and oversees the work of the internal and external auditors.

Board Composition and Balance

The Board consist of seven (7) non-Executive Directors with one (1) Alternate Director; four (4) are independent non-Executive Directors and three (3) are non-independent non-Executive Directors. All Directors met the criteria set by the BnM guidelines.

Board meetings are presided by a non-independent non-Executive Chairman whose role is clearly separated from the role of the Managing Director/Chief Executive Officer. The Chairman is responsible for ensuring the effectiveness and smooth functioning of the Board, the governance structure, independence and inculcate a positive culture in the Board.

The Board comprises Directors who, as a group, provides a mixture of core competencies such as finance, accounting, business, management, marketing, information technology and investment management, which are essential for the effective functioning and discharging of responsibilities by the Board.

The Managing Director/Chief Executive Officer is responsible for the overall day-to-day business affairs of AffinBAnk while providing strong leadership in the implementation of Board decisions.

STATEMENT OF CORPORATE gOVERNANCE



AffinBAnk’s Board composition possesses a strong element of independence by having majority independent Directors. Although all the Directors have an equal responsibility for the Group’s business directions and operations, the role of these independent non-Executive Directors are particularly important in ensuring that the strategies proposed by the management are fully discussed and evaluated, having considered the long term interests of AffinBAnk’s objectives. no individual or small group of individuals dominates the Board’s decision making process.

Independence and Conflict of Interest

it is the Directors’ responsibility to declare whether they have a potential or actual interest in any transaction of AffinBAnk. Where issues involve conflict of interest, the interested Directors abstained from discussing or voting on the matter.

Appointments and Re-election to the Board in 2012, BnM approved the re-appointment of two (2) independent non-Executive Directors. in accordance with the

Company’s Memorandum and Articles of Association, one-third (1/3) of the Directors, or, if their number is not three (3) or a multiple of three (3), the number nearest to one-third (1/3), shall retire from office at each Annual General Meeting and they may offer themselves for re-election.

Directors’ Training

All newly appointed non-Executive Directors are furnished by AffinBAnk with copies of the BnM Guidelines, the Banking and financial institutions Act 1989 and other relevant legislation governing the banking industry to facilitate their understanding and requirements of banking business. All Directors have attended various training programmes organised internally as well as externally by the relevant authorities such as BnM, Securities Commission (“SC”) and Companies Commission of Malaysia (“CCM”). in addition, the members of the Board keep abreast with the relevant developments in business, banking and finance industry as well as new regulatory requirements on a continuous basis via various conferences, seminars and training programmes organised within the Group and by other external organisers. The development and training programmes attended by the Directors during the financial year ended 31 December 2012 are set out below.

Director Trainer/Organiser Course Title Date

Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara)

1. inCEif/iQRA(MARA) Seminar Wakaf : Penjana Pembangunan

14 february 2012

2. Asian World Summit Sdn Bhd 4th Annual Corporate Governance Summit

5 March 2012 &6 March 2012

3. fleming Gulf india Ltd 2nd Annual World islamic finance Conference 2012, London Uk

27 March 2012 &28 March 2012

4. Malaysian institute of Defence & Security

Putrajaya forum 2012 – Enhancing Multilateralism for Regional Defence and Security

17 April 2012 to 19 April 2012

5. Affin Holdings Berhad Half Day Talk by Messrs PricewaterhouseCoopers (a) Basel iii (b) PWC Banking Banana Skin Survey (c) Accounting and Other Regulatory Updates (d) future Trend in Banking

2 May 2012

6. iCLif iCLif Leading Voices – Creating Cross-Border Champions Program by fons Trompenaars

10 May 2012



7. fiDE Official Launch of fiDE forum 2012 and Talk by Mr Youssef A nasr “Corporate Governance…. Should i Take it Seriously?”

12 June 2012

8. Affin investment Bank Berhad Politics & Business: The Malaysian Connection

28 June 2012

9. Affin Holdings Berhad Half Day forum on islamic Banking by Assoc. Prof Dr Asyraf Wajdi and Assoc. Prof Dr Said Bouhrouea

5 September 2012

10. Affin Holdings Berhad Half Day Talk on “Rebuilding Trust in the financial Sector” by John Zinkin

8 October 2012

11. fiDE Breakfast Talk on Global Consumer Banking Survey 2012 – “The Customer Takes Control” by Ernst & Young

9 October 2012

Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin


2 May 2012

2. fiDE Official Launch of fiDE forum 2012 and Talk by Mr Youssef A nasr “Corporate Governance…. Should i Take it Seriously?”

12 June 2012

3. Affin investment Bank Berhad Politics & Business: The Malaysian Connection

28 June 2012

4. fiDE/iCLif fiDE forum – Breakfast Talk on “Human Capital Management in the Boardroom”

14 August 2012


5 September 2012


8 October 2012

7. fELCRA Berhad Delivered Corporate Talk on “Diversification for future Sustainability: Boustead Holdings Berhad Experience” Senior Management and Officers of fELCRA Berhad

19 December 2012




Dr. Raja Abdul Malek bin Raja Jallaludin


2 May 2012


5 September 2012

3. fiDE The nomination/ Remuneration Committee Program

13 September 2012 &14 September 2012


8 October 2012

Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman

1. fleming Gulf india 2nd Annual World islamic finance Conference 2012, London Uk

27 March 2012 &28 March 2012


2 May 2012

3. fiDE/iCLif iCLif Leading Voices – Creating Cross-Border Champions Program by fons Trompenaars

10 May 2012

4. fiDE/iCLif fiDE Elective Program: iCAAP Program

2 July 2012 &3 July 2012


5 September 2012


8 October 2012

Mr. Aubrey Li Kwok-Sing 1. Towers Watson

Latest Trends in Executive Compensation, Hong kong

3 february 2012

2. PricewaterhouseCoopers Board Effectiveness : What Works Best, Hong kong

8 february 2012

3. kPMG What’s around the corner in 2012, Hong kong

15 March 2012

4. PricewaterhouseCoopers Board Effectiveness: factors for the Long-term Strategy in the financial Services industry (also relevant to other industries),Hong kong

20 June 2012

5. kPMG 1. Corporate Governance• The draft revised UK CG Code• 10 CG Themes for 2012• Whistleblowing• Crisis Management

2. Regulatory Changes3. Audit Committee focus areas4. Anti-Money laundering and

fraud Hong kong

25 June 2012





6. Hk institute of Directors/ kowloon Development

Update on Hk Listing Rules and Corporate Governance Code, Hong kong

19 September 2012

7. Hk institute of Directors Bank Board effectiveness in light of the financial Crisis, Hong kong

22 September 2012

8. Hk institute of Directors internal Control, Hong kong 11 October 2012


Anti-Money Laundering, Hong kong

31 October 2012

10. Mr. Gavin nesbitt, Deacon/ BEA

new Statutory Regime for Disclosure of inside information, Hong kong

22 november 2012

11. Deloitte inED Workshop The regulator’s View of inEDs, Hong kong

29 november 2012

12. kPMG inED forum The Audit Committee agenda; information Governance; Taxation update; financial reporting preview; Legal Developments, Hong kong

10 December 2012

13. PricewaterhouseCoopers / Café de Coral Holdings

Corporate Governance, Hong kong 11 December 2012

14. Mayer JSM/CdC, Hong kong

Disclosure of inside information 11 December 2012


How to run effective meetings, Hong kong

12 December 2012

Mr. Gary Cheng Shui Hee(Alternate Director Mr. Aubrey Li Kwok-Sing)

1. fiDE/iCLif Leadership & Governance

fiDE Core Program 2012 Group 1 – Mr Gary Cheng Shui Hee

19 March 2012 (Module 1)18 June 2012 to 21 June 2012 (Module 2)

En. Mohd Suffian bin Haji Haron


2 May 2012


5 September 2012


8 October 2012

Tan Sri Dato’ Seri Mohamed Jawhar bin Hassan


2 May 2012


5 September 2012


8 October 2012



Meeting and Supply of Information to the Board

Board meetings for each financial year are scheduled in advance to enable the Directors to plan their schedules.

The Board meets on a scheduled basis at least eleven (11) times a year. Additional meetings are convened when necessary to review progress reports on AffinBAnk’s financial performance, approved strategies, business plans and significant policies as well as to consider business and other proposals which require the Board’s approval. for financial year ended 31 December 2012, thirteen (13) Board meetings were held. Meetings are usually held at the Bank’s Board Room at 19th floor, Menara Affin, 80, Jalan Raja Chulan, 50200 kuala Lumpur.

Board meetings are conducted in accordance to a planned agenda. Board Members are provided with the agenda together with relevant documents and information in a form and of an appropriate quality in advance of each Board meeting. This is to facilitate the Directors to peruse the Board papers and seek clarifications that may require from the Management or the Company Secretary well ahead of the meeting date. Urgent papers may be presented for tabling at the Board meetings under supplemental agenda.

The Board monitors AffinBAnk’s performance by reviewing the monthly Management Report, which provides a comprehensive review and analysis of AffinBAnk’s operational and financial issues. in addition, the Minutes of the various Board Committees and Management Committee meetings and other issues are also tabled and considered by the Board.

Procedures are in place for Directors to seek independent professional advice at AffinBAnk’s expense. AffinBAnk

also provides the Board full access to necessary materials and relevant information including the services of the Company Secretary in order for the Board to fulfill their duties and specific responsibilities.

2. DIRECTORS’ REMuNERATION

Composition

AffinBAnk acknowledges the importance of attracting and retaining the right calibre of Directors with the necessary skills, qualifications and experience for effective Board oversight of AffinBAnk’s business activities and affairs.

The make-up of the Managing Director/Chief Executive Officer’s remuneration remained unchanged consisting of salary, allowances, bonus and other customary benefits as appropriate. Any salary review, takes into account market rates and the performance of the individual and of AffinBAnk.

non-executive Directors’ emoluments consist of three components – an annual fee as a Board member, an allowance

for attendance of meetings and a committee fee. The Directors’ fees, allowances and committee fees are those recommended by the Board and in line with Affin Holdings group of companies.

Directors’ emoluments are disclosed in the relevant note to the financial statements as an aggregate sum, in conformance to the relevant legislation.

3. SHAREHOLDER

AffinBAnk is a wholly owned subsidiary of Affin Holdings Berhad, a company listed on Bursa Malaysia Securities Berhad.

4. ANNuAL gENERAL MEETINg (“AgM”) The Annual Report and financial statements for the year ended 31 December 2011 were tabled at the 36th AGM on 21

March 2012. Likewise the Annual Report and financial statements for the year ended 31 December 2012 will be tabled at the 37th AGM on Monday, 25 March 2013.


STATEMENT ONINTERNAL CONTROL

INTERNAL CONTROL

AffinBAnk has a well-established and fully operational risk management and internal control system. The Statement on internal Control, which is set out in the Annual Report provides an overview on the risk management process/framework as well as on how the internal control system has been designed to manage risks and avert failures. AffinBAnk continues to enhance its system of internal control and risk management, in order to better quantify its compliance with the Code.

The Board has overall responsibility for maintaining the proper management and protection of AffinBAnk’s interests by ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control, and by seeking regular assurance on their effectiveness. The Board also recognizes that risks cannot be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk on material errors, fraud or losses occurring.

The Audit & Examination Committee has an oversight responsibility for the adequacy and integrity of the internal control system. Reliance is placed on the results of independent audits performed primarily by Group internal auditors, the outcome of statutory audits on financial statements conducted by external auditors and on representations by Management based on their control self-assessment on all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board members for notation and discussion.

AffinBAnk has an established Group internal Audit Division which reports functionally to the Audit & Examination Committee and administratively to the Managing Director/ Chief Executive Officer. The division is responsible for conducting independent audits in accordance with the approved annual internal Audit Plan.

RELATIONSHIP WITH AuDITORS

A professional and transparent relationship continues to exist between the Board/Audit & Examination Committee and the external auditors. The Audit Committee is authorized to communicate directly with both the external and Group internal auditors. A full Audit Committee report outlining its role in relation to the Auditors is also set out in the Annual Report. in addition, the external auditors meet with the Board at least once a year when the annual audited financial statements are presented to the Board.

ASSuRANCE

The Board through the Audit & Examination Committee has satisfactorily performed its oversight role in ensuring there is a sound internal control system and regular review on the adequacy and integrity of the system. Assurance on the effectiveness of risk management, control and governance process is obtained from the Management and Auditors (internal and external).

BnM auditors, Group internal auditors and external auditors conduct independent audits on AffinBAnk’s business operations, support activities and financial records and statements respectively to derive an opinion on the adequacy and integrity of AffinBAnk’s overall internal control framework.

finally, with the benefit of the above assurances and the external auditor’s comments incorporated in their audit report to the financial statements for the financial year ended 31 December 2012, the Board is able to conclude that AffinBAnk conducts its business prudently and in line with good governance practices.


STATEMENT ON INTERNAL CONTROL

Responsibility

The Board acknowledges overall responsibility for AffinBAnk Group’s system of internal controls and its effectiveness. The system of internal controls encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations, policies and guidelines.

However, the system of internal controls is designed to manage rather than eliminate the risks of failure to achieve the goals and objectives of the Group. Therefore, it can only provide a reasonable and not absolute assurance against material misstatement of management and financial information, or against financial losses or fraud.

The Board has an established process for identifying, evaluating, managing and reporting all significant risks that may impact the achievement of business goals and objectives of the Group. The system of internal controls is dynamic and updated from time to time to meet the changes in regulatory guidelines and business environment. This process is regularly reviewed by the Board through its Board Risk Management Committee (BRMC) and Audit and Examination Committee (AEC).

The Board is of the view that the system of internal controls in place for the year under review is sound and sufficient to safeguard the investment of the shareholders, the interest of the customers and regulators, and the assets of the Group.

The management assists the Board in implementing the policies approved by the Board, implementing risk and control procedures, and developing, operating and monitoring internal controls to mitigate and control identified risks.

key Internal Control Processes

The key processes put in place to assist the Board in reviewing the adequacy and integrity of the system of internal controls include the following:

• Relevant Board committees are established with specific responsibilities delegated by the Board to deliberate on matters within the respective scope of responsibility. The committees are guided by written terms of reference and their minutes of meetings are tabled to the Board.

• The BRMC assists the Board in its supervisory role concerning the overall management of risk in the Bank. It has responsibility for reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelines and portfolio management reports including risk exposure information.

• The Board Loan Review and Recovery Committee (BLRRC) critically reviews loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by Group Risk Management and if found necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee (GMLC). BLRRC also reviews the non performing loan reports presented by the Management.

• Group Management Committee (GMCM), comprising the senior management team, assists the Board in managing day-to-day operations and ensure its effectiveness. GMCM formulates tactical plans and business strategies, monitors the Bank’s overall performance and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.

• The Group Management Loan Committee (GMLC) is established within senior management to approve complex and larger loans and workout recovery proposals beyond the delegated authority of the concerned individual senior management personnel of the Bank. The other committees comprising senior management include Asset & Liability Management Committee (ALCO) which manages market and liquidity risks and Group Operational Risk Management Committee (GORMC) which manages operational risk.


• A detailed budgeting process is in place with annual business plans and budgets prepared by the business divisions, reviewed by the GMCM and approved by the Board. The actual business performances are monitored against the approved targets and budgets of each business division by GMCM on a monthly basis.

• The business plan is supported by an annual credit plan, prepared by Group Risk Management and approved by BRMC. The credit plan sets out the prevailing risk appetite and provides credit strategies and lending guidelines for the development and management of new and existing customer relationships.

• Policies and procedures for key processes are documented and regularly updated to ensure relevance and compliance with internal controls, directives, laws and regulations. To enhance risk culture and awareness, road shows are undertaken by Group Risk Management across the Bank.

• Proper guidelines for the hiring and termination of employees, staff training programs and performance appraisals are established and other relevant procedures in place to ensure staff are adequately trained and equipped to carry out their responsibilities competently.

• An integrated risk management framework is in place. The risk management function operates in an independent capacity and is a part of the Bank’s senior management structure which works closely as a team in managing risks to enhance stakeholders’ value. its responsibilities extend to cover market, liquidity, credit and operational risks. The risk management function reports to BRMC.

STATEMENT ON INTERNAL CONTROL


AuDIT ANDExAMINATION COMMITTEE

TERMS OF REFERENCE OF THE AuDIT AND ExAMINATION COMMITTEE

Size and Composition

The Committee shall consist of at least three (3) members, appointed by the Board from amongst the independent non-executive Directors of the Bank.

Meetings

Meetings shall be held at a frequency to be decided by the Audit and Examination Committee. At the request of the Group Chief internal Auditor, the Chairman shall convene a meeting to consider any matters that they may wish to bring to the attention of the Directors or shareholders. A quorum shall consist of at least two (2) members. The Group Chief internal Auditor shall be the Secretary to the Audit and Examination Committee.

YBhg. Dato’ Sri Abdul Aziz bin Abdul RahmanAEC Chairman

YM. Dr. Raja Abdul Malek bin Raja JallaludinMember

YBhg. Tan Sri Dato’ Seri Mohamed Jawhar bin HassanMember

Associate Professor Dr. Asyraf Wajdi bin Dato’ DusukiMember


Authority

The Committee shall have unlimited access to all records, information and documents relevant to its activities, to the Group internal Audit and External Auditors and to senior management of the Bank and its subsidiaries. The Group internal Auditors and External Auditors shall have free access to the Audit and Examination Committee and be allowed to attend and to be heard at the Committee meetings. The Committee is authorised by the Board to obtain outside and independent professional advice as and when it is considered necessary.

Duties and Responsibilities

The duties and responsibilities of the Audit and Examination Committee are:

1. To review AffinBAnk’s financial statements and to ensure compliance with disclosure requirements and any adjustments as suggested by the External Auditors, prior to submission to the Board.

2. To review the reports of the Group internal Auditor, the External Auditors, Bank negara Malaysia examiners or any other relevant parties and decide on actions to be taken on relevant issues raised in the reports.

3. To review with the External Auditors the scope of their audit plan, the system of internal accounting controls, the audit reports, the assistance given by the management and its staff to the auditors, and any findings and action to be taken.

4. To make recommendation to the Board on the appointment of External Auditors.

5. To review the effectiveness and performance of the Group internal Audit functions from time to time.

6. To review and approve the annual audit plan and budget for Group internal Audit, which sets out the audit objectives, auditable areas, scope of coverage, frequency of audit and duration of each audit assignment.

7. To ensure that Group internal Audit has adequate resources and support services to carry out its functions.

8. To review the overall performance of the Group Chief internal Auditor, including the remuneration package.

9. To review any significant related party transactions that may arise within the Bank’s group or associate companies and report to the Board any areas of concern.

10. To escalate to the Board via minutes of meetings or special reports on any exception identified.

11. To carry out such other responsibilities as may be delegated by the Board from time to time.

AuDIT AND ExAMINATION COMMITTEE


NETWORk OFBRANCHES

WILAYAH PERSEkuTuAN

1. Bangsar no. 4 & 6, Jalan Telawi 3, Bangsar Baru, 59100 kuala Lumpur. Tel : 03-2283 5025 fax : 03-2283 5028

2. Bangunan getah Asli Tingkat Bawah, 148, Jalan Ampang, 50450 kuala Lumpur. Tel : 03-2162 8770 fax : 03-2162 8587

3. Batu Cantonment no. 840 & 842, Batu 4 3/4, Jalan ipoh, 51200 kuala Lumpur. Tel : 03-6258 7370 fax : 03-6251 8214

4. Central Ground & Mezzanine floor, Menara Affin, 80, Jalan Raja Chulan, P.O.Box 12744, 50788 kuala Lumpur. Tel : 03-2055 2222 fax : 03-2070 7592

5. Jalan Bunus 133, Jalan Bunus, Off Jalan Masjid india, 50100 kuala Lumpur. Tel : 03-2693 4686 fax : 03-2691 3207

6. Jalan Ipoh 468-11 & 468-11B, Batu 3, Jalan ipoh, 51200 kuala Lumpur. Tel : 03-4042 5554 fax : 03-4042 4912

7. LTAT Ground floor, Bangunan LTAT, Jalan Bukit Bintang, 55100 kuala Lumpur. Tel : 03-2142 6311 fax : 03-2148 0586

8. Selayang 81-85, Jalan 2/3A, Pusat Bandar Utara, kM 12, Jalan ipoh, 68100 Batu Caves, kuala Lumpur. Tel : 03-6137 2053 fax : 03-6138 7122

9. Seri Petaling 10-12, Jalan Raden Tengah, Bandar Baru Seri Petaling, 57000 kuala Lumpur. Tel : 03-9058 5600 fax : 03-9058 8513

10. Setapak 159 & 161, Jalan Genting kelang, P.O.Box 202, 53300 Setapak, kuala Lumpur. Tel : 03-4023 0455 fax : 03-4021 3921

11. Taman Maluri 250 & 252, Jalan Mahkota, Taman Maluri, 55100 kuala Lumpur. Tel : 03-9282 7250 fax : 03-9283 4380

12. Taman Midah 38 & 40, Jalan Midah 1, Taman Midah, Cheras, 56000 kuala Lumpur. Tel : 03-9130 0366 fax : 03-9131 7024

13. Taman Tun Dr. Ismail 47 & 49, Jalan Tun Mohd fuad 3, Taman Tun Dr. ismail, 60000 kuala Lumpur. Tel : 03-7727 9080 fax : 03-7727 9543

14. Wangsa Maju no. 2 & 4, Jalan 1/27f, kuala Lumpur Sub-Urban Centre, Wangsa Maju, 53300 kuala Lumpur. Tel : 03-4143 2814 fax : 03-4143 3095

15. Wisma Pertahanan G.05, Tingkat Bawah, Wisma Pertahanan, kementerian Pertahanan Malaysia, Jalan Padang Tembak, 50634 kuala Lumpur. Tel : 03-2698 7912 fax : 03-2698 6071

WILAYAH PERSEkuTuAN PuTRAJAYA

1. Putrajaya Jabatan Akauntan negara, kompleks kementerian kewangan, no. 1, Persiaran Perdana, Presint 2, 62594 Putrajaya, Wilayah Persekutuan. Tel : 03-8888 3814 fax : 03-8889 2082

WILAYAH PERSEkuTuAN LABuAN (OFFSHORE)

1. Labuan Offshore Unit 3 (J), Level 3, Main Office Tower, financial Park Labuan, Jalan Merdeka, 87000 federal Territory Labuan. Tel : 087-411 931 fax : 087-411 973


NETWORk OF BRANCHES

SELANgOR

1. Ampang Jaya no. 11 & 11A, Jalan Mamanda 7/1, Ampang Point, 68000 Ampang, Selangor. Tel : 03-4257 6802 fax : 03-4257 8636

2. Ampang New Village no. 21G & 23G Jalan Wawasan 2/2 Bandar Baru Ampang 68000 Ampang, Selangor. Tel : 03-4296 2311 fax : 03-4296 2206

3. Ara Damansara Unit B-G-07 & B-G-08 Block B, no. 2 Jalan PJU 1A/7A Ara Damansara 47301 Petaling Jaya, Selangor Tel : 03-7847 3177 fax : 03-7847 2677

4. Bandar Bukit Tinggi, klang no 77 & 79, Jalan Batu nilam 5, Bandar Bukit Tinggi, 41200 klang, Selangor. Tel : 03-3323 2822 fax : 03-3323 2858

5. Cyberjaya P1-13, Shaftsbury Square Lot no. 2350, Cyber 6 Persiaran Multimedia 63000 Cyberjaya, Selangor Tel : 03-8318 1944 fax : 03-8318 1934

6. Jalan Meru, klang no. 40, Pelangi Avenue, Jalan kelicap 42A/kU1, klang Bandar Di Raja, 41050 klang, Selangor. Tel : 03-3341 5237 fax : 03-3341 5427

7. kajang 2 & 3, Jalan Saga, Taman Sri Saga, Off Jalan Sg. Chua, 43000 kajang, Selangor. Tel : 03-8737 7435 fax : 03-8737 7433

8. kepong 6, Jalan 54, Desa Jaya, 52100 kepong, Selangor. Tel : 03-6276 4942 fax : 03-6276 6375

9. kinrara no. 1, Jalan Tk1/11A, Taman kinrara, Section 1, Batu 7 1/2, Jalan Puchong, 47100 Puchong, Selangor. Tel : 03-8070 3403 fax : 03-8075 8159

10. klang utara no. 29 & 31, Jalan Tiara 3, Bandar Baru klang, 41150 klang, Selangor. Tel : 03-3342 1585 fax : 03-3342 1719

11. kompleks PkNS Lot G17-20, Ground floor, kompleks PknS, 40000 Shah Alam, Selangor. Tel : 03-5510 5200 fax : 03-5510 8200

12. kota Warisan no. 48, Jalan Warisan Megah 1/4, 43900 Sepang, Selangor. Tel : 03-8706 6300 fax : 03-8706 6599

13. PJ State no. 38 & 40, Jalan Yong Shook Lin, 46050 Petaling Jaya, Selangor. Tel : 03-7955 0032 fax : 03-7954 0012

14. Port klang no. 1, Jalan Berangan, 42000 Port klang, Selangor. Tel : 03-3168 8366 fax : 03-3167 2784

15. Puchong J-03-G, Blok J, Setiawalk Persiaran Wawasan Pusat Bandar Puchong 47160 Puchong, Selangor. Tel : 03-5882 2880 fax : 03-5882 2881

16. Rawang no. 33G & 35G, Jln 1B, fortune Avenue, 48000 Rawang, Selangor. Tel : 03-6091 3322 fax : 03-6091 3344


NETWORk OF BRANCHES

17. Sea Park 20-22, Jalan 21/12, Sea Park, 46300 Petaling Jaya, Selangor. Tel : 03-7875 6514 fax : 03-7876 6020

18. Seri kembangan 36, Jalan PSk 3, Pusat Perdagangan Seri kembangan, 43300 Seri kembangan, Selangor. Tel : 03-8945 6429 fax : 03-8945 6442

19. Subang Jaya 7 & 9, Jalan SS 15/8A, 47500 Petaling Jaya, Selangor. Tel : 03-5634 8043 fax : 03-5634 8040

20. The Curve Lot G32 & 126, Ground & first floor, The Curve Shopping Complex, Jalan PJU 7/8, Mutiara Damansara, 47820 Petaling Jaya, Selangor. Tel : 03-7726 7258 fax : 03-7727 8912

21. uiTM Universiti Teknologi MARA, Tingkat 2, Menara UiTM, 40450 Shah Alam, Selangor. Tel : 03-5519 2377 fax : 03-5510 5580

22. uSJ Taipan 8A & 8B, Jalan USJ 10/1J, 47610 UEP Subang Jaya, Petaling Jaya, Selangor. Tel : 03-8023 7271 fax : 03-8023 9161

NEgERI SEMBILAN

1. gemas no. 1 & 2, Ground floor Laman niaga Pernama kem Syed Sirajuddin 73400 Gemas negeri Sembilan Tel : 07-948 3622 fax : 07-948 5022

2. Nilai 5733 & 5734, Jalan TS 2/1, Taman Semarak Phase ii, 71800 nilai, negeri Sembilan. Tel : 06-799 4114 fax : 06-799 5115

3. Port Dickson 3 & 4, Jalan Mahajaya, P.D. Centre Point, 71000 Port Dickson, negeri Sembilan. Tel : 06-647 3950 fax : 06-647 4776

4. Seremban no. 175, Jalan Dato' Bandar Tunggal, 70000 Seremban, negeri Sembilan. Tel : 06-762 9651 fax : 06-763 6125

MELAkA

1. Bukit Baru no. 7 & 8, Jalan DR1, Delima Point, Taman Delima Raya, 75150 Melaka. Tel : 06-232 1386 fax : 06-232 1579

2. Melaka Raya 200 & 201, Taman Melaka Raya, Off Jalan Parameswara, 75000 Melaka. Tel : 06-283 5500 fax : 06-284 6618

JOHOR

1. Ayer Hitam no. 765, Jalan Batu Pahat, 86100 Ayer Hitam, Johor. Tel : 07-758 1100 fax : 07-758 1001

2. Batu Pahat no. 3 & 4, Jalan Merah, Taman Bukit Pasir, 83000 Batu Pahat, Johor. Tel : 07-433 4210 fax : 07-433 3246

3. Johor Bahru no. 24 & 25 Jalan kebun Teh 1 kebun Teh Commercial City 80250 Johor Bahru Johor Tel : 07-221 2403 fax : 07-221 2462


4. Johor Jaya 130 & 132, Jalan Ros Merah 2/17, Taman Johor Jaya, 81100 Johor Bahru, Johor. Tel : 07-351 8602 fax : 07-351 4122

5. kluang 503, Jalan Mersing, 86000 kluang, Johor. Tel : 07-772 4736 fax : 07-772 4486

6. kulai 13 & 14, Jalan Raya, Taman Sri kulai Baru, Batu 21, 81000 kulai, Johor. Tel : 07-663 9799 fax : 07-663 9800

7. Muar no. 30A & 30A-1 Jalan Arab 84000 Muar Johor Tel : 06-953 2384 fax : 06-953 3489

8. Mutiara Rini no. 28 & 30 Jalan Utama 45 Taman Mutiara Rini 81300, Skudai Johor. Tel : 07-557 0900 fax : 07-557 1244

9. Permas Jaya 23 & 25, Jalan Permas 10/2, Bandar Baru Permas Jaya, 81750 Johor Bahru, Johor. Tel : 07-386 3703 fax : 07-386 5061

10. Segamat no. 1, Ground floor, Jalan nagasari 23, Bandar Segamat Baru, 85000 Segamat, Johor. Tel : 07-943 1378 fax : 07-943 1373

11. Tampoi 49 & 51, Jalan Sri Perkasa 2/1, Taman Tampoi Utara, 81200 Tampoi, Johor Bahru, Johor. Tel : 07-241 4946 fax : 07-241 4953

PERAk

1. Ipoh no. 1 & 3, Ground & first floor, Persiaran Greentown 9, Greentown Business Centre, 30450 ipoh, Perak. Tel : 05-255 0980 fax : 05-255 0976

2. Ipoh garden no. 27A-27A1, Jalan Sultan Azlan Shah Utara, 31400 ipoh, Perak. Tel : 05-549 7277 fax : 05-549 7299

3. Lumut Tingkat Bawah, kompleks Mutiara Armada, Jalan nakhoda, Pengkalan TLDM, 32100 Lumut, Perak. Tel : 05-683 5051 fax : 05-683 5579

4. Sitiawan no. 11 & 12, Taman Sitiawan 1, Jalan Lumut, 32000 Sitiawan, Perak. Tel : 05-692 8401 fax : 05-691 7339

5. Taiping no. 40 & 42, Jalan Tupai, 34000 Taiping, Perak. Tel : 05-806 6816 fax : 05-808 0432

6. Teluk Intan 11, Medan Sri intan, Jalan Sekolah, 36000 Teluk intan, Perak. Tel : 05-621 0130 fax : 05-621 0128

PuLAu PINANg

1. Bayan Baru 124 & 126, Jalan Mayang Pasir, Taman Sri Tunas, 11950 Bayan Baru, Pulau Pinang. Tel : 04-644 7593 fax : 04-645 2709

2. Butterworth 55-57, Jalan Selat, Taman Selat, P.O.Box 165, Off Jalan Bagan Luar, 12000 Butterworth, Pulau Pinang. Tel : 04-333 1372 fax : 04-332 3299

NETWORk OF BRANCHES


3. Fettes Park 98-G-32, Jalan fettes, Prima Tanjung Business Centre, Tanjung Tokong, 11200 Pulau Pinang. Tel : 04-899 9069 fax : 04-899 0767

4. Jalan Macalister no. 104C, 104D & 104E, Jalan Macalister, 10400 Pulau Pinang. Tel : 04-229 1495 fax : 04-226 1530

5. kepala Batas Lot 1317 & 1318, Lorong Malinja, Taman Sepakat, Off Jalan Butterworth, 13200 kepala Batas, Seberang Prai Utara, Pulau Pinang. Tel : 04-575 1824 fax : 04-575 1975

6. Prai no. 2, Tingkat kikik 7, Taman inderawasi, 13600 Prai, Pulau Pinang. Tel : 04-399 3900 fax : 04-397 9243

7. Seberang Jaya no. 10, Jalan Todak Satu, Pusat Bandar Seberang Jaya, 13700 Prai, Pulau Pinang. Tel : 04-399 5881 fax : 04-399 2881

8. Wisma Pelaut 1A, Light Street, Wisma Pelaut, 10200 Pulau Pinang. Tel : 04-263 6633 fax : 04-261 9801

kEDAH

1. Alor Setar no. 147 & 148, Susuran Sultan Abdul Hamid 8, kompleks Sultan Abdul Hamid, fasa 2 Persiaran Sultan Abdul Hamid, 05050 Alor Setar, kedah. Tel : 04-772 1477 fax : 04-771 4796

2. kulim no. 13 & 14, Jalan kLC Satu (1) kulim Landmark Central, 09000 kulim, kedah Darul Aman Tel : 04-495 5566 fax : 04-490 4717

3. Langkawi 149-151, Persiaran Bunga Raya, Langkawi Mall, 07000 kuah, Langkawi, kedah. Tel : 04-966 4426 fax : 04-966 4717

4. Sungai Petani no. 55, Jalan Perdana Heights, 2/2 Perdana Heights 08000 Sungai Petani, kedah Tel : 04-422 0831 fax : 04-422 6675

TERENggANu

1. kemaman k711-713, Wisma ikY naga, Jalan Sulaimani, 24000 kemaman, Terengganu. Tel : 09-858 1744 fax : 09-859 1572

2. kemaman Supply Base Ground floor, Admin Building Block B, kemaman Supply Base, 24007 kemaman, Terengganu. Tel : 09-863 1297 fax : 09-863 1295

kELANTAN

1. Jeli no. A1 & A2, Blok A, Bandar Baru Bukit Bunga, 11700 Bukit Bunga, Tanah Merah, kelantan. Tel : 09-946 8955 fax : 09-946 8954

2. kota Bharu 13788H & 3788i, Seksyen 13, Jalan Sultan ibrahim, 15050 kota Bharu, kelantan. Tel : 09-744 5688 fax : 09-744 2202

PAHANg

1. Jengka nadi kota, 26400 Bandar Jengka, Pahang. Tel : 09-466 2233 fax : 09-466 2422

2. kuantan 1, Jalan Tun ismail, P.O.Box 354, 25740 kuantan, Pahang. Tel : 09-515 7146 fax : 09-513 4027

NETWORk OF BRANCHES


NETWORk OF BRANCHES

3. Mentakab 70, Jalan Temerloh, 28400 Mentakab, Pahang. Tel : 09-278 4487 fax : 09-277 6654

4. Temerloh 9, Ground floor, Jalan Ahmad Shah, 28000 Temerloh, Pahang. Tel : 09-296 8811 fax : 09-296 8800

PERLIS

1. kangar A2, Taman Pengkalan Asam, Jalan Alor Setar-kangar, 01000 kangar, Perlis. Tel : 04-977 8669 fax : 04-977 8566

SABAH

1. Jalan gaya, kota kinabalu no. 86, Jalan Gaya, 88000 kota kinabalu, Sabah. Tel : 088-230 213 fax : 088-212 476

2. kota kinabalu Lot 19 & 20, Block k, Sadong Jaya Complex, Jalan ikan Juara 3, karamunsing, 88300 kota kinabalu, Sabah. Tel : 088-264 410 fax : 088-261 414

3. Sandakan Lot no. 163 & 164, Block 18, Prima Square, Batu 4, Jalan Utara, 90000 Sandakan, Sabah. Tel : 089-224 577 fax : 089-224 566

4. Tawau TB 281, 282 & 283, Jalan Haji karim, Town Extension ii, P.O. Box 630, 91008 Tawau, Sabah. Tel : 089-778 197 fax : 089-762 199

SARAWAk

1. Bintulu Sub Lot 13, Off Lot 3299, Parkcity Commerce Square, 97000 Bintulu, Sarawak. Tel : 086-314 248 fax : 086-314 206

2. kuching Lot 247 & 248, Section 49, kTLD, Jalan Tuanku Abdul Rahman, 93100 kuching, Sarawak Tel : 082-422 909 fax : 082-257 366

3. Miri Lot 2387 & 2388, Block A4, Jalan Boulevard 1A, Boulevard Commercial Center, kM 3, Jalan Miri-Pujut, 98000 Miri, Sarawak. Tel : 085-437 442 fax : 085-437 297

4. Prince Commercial Centre no. 1&2, Jalan Penrissen Batu 7, kota Sentosa, 93250 kuching, Sarawak. Tel : 082-613 466 fax : 082-629 466

5. Sibu no. 91 & 93, Jalan kampung nyabor, 96000 Sibu, Sarawak. Tel : 084-325 926 fax : 084-325 960

nOTiCE iS HEREBY GiVEn THAT THE 37TH ANNUAL GENERAL MEETING Of AFFIN BANK BERHAD WiLL BE HELD AT THE BOARD ROOM, 19TH fLOOR, MEnARA Affin, 80, JALAn RAJA CHULAn, 50200 kUALA LUMPUR On MONDAy, 25 MARCH 2013 AT 9.30 A.M. fOR THE TRAnSACTiOn Of THE fOLLOWinG BUSinESS:-

Agenda:1. To receive the Statutory Statements of Accounts for the year ended 31 December 2012 together with the Directors’ and

Auditors’ Reports thereon. 2. To declare a final single tier dividend of 6 Sen amounting to RM91,100,000.00 for the financial year ended 31 December

2012. 3. To re-elect the following Directors who retire pursuant to Article 91(a) of the Articles of Association and who, being eligible,

offer themselves for re-election:-

(a) YBhg. Tan Sri Dato’ Seri Lodin bin Wok kamaruddin (b) En. Mohd Suffian bin Haji Haron 4. To consider and if thought fit, to pass the following resolutions in accordance with Section 129(6) of the Companies Act,

1965:-

(a) “That pursuant to Section 129(6) of the Companies Act, 1965, YBhg. Jen Tan Sri Dato’ Seri ismail bin Haji Omar (Bersara) be and is hereby re-appointed as Director of the Company to hold office until the next Annual General Meeting”.

5. To approve Directors’ fees. 6. To re-appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2013 and to authorise

the Directors to fix their remuneration. 7. To transact any other ordinary business of the Company.

BY ORDER OF THE BOARD

NIMMA SAFIRA BINTI kHALIDSecretary

NOTE:A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote instead of him and the proxy need not be a member of the Company.

The instrument appointing a proxy shall be in writing under the hand of the appointor of his attorney duly authorised in writing or, if the appointor is a corporation, either under the seal or in some other manner approved by Directors.

The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority shall be deposited at the Company’s registered office at the 17th floor, Menara Affin, 80, Jalan Raja Chulan, 50200 kuala Lumpur, at least forty-eight (48) hours before the time appointed for holding the Meeting or adjourned Meeting as the case may be otherwise the person so named shall not be entitled to vote in respect thereof.

NOTICE OFANNuAL gENERAL MEETINg


Banking is

About...

Directors’ ReportStatements of Financial PositionIncome StatementsStatements of Comprehensive IncomeStatements of Changes in EquityStatements of Cash FlowsSummary of Significant Accounting PoliciesNotes to the Financial StatementsStatement by DirectorsStatutory DeclarationIndependent Auditors’ ReportBasel II Pillar 3 Disclosures

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Financial Statements

AFFIN BANK BERHAD (25046-T) 56 Annual Report 2012

AFFIN BANK BERHAD (25046-T)57Annual Report 2012

The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial year ended 31 December 2012.

PRINCIPAL ACTIVITIES

The principal activities of the Bank during the financial year are banking and related financial services. The principal activities of the subsidiaries are Islamic banking business, property management services, nominee and trustee services. Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles. There were no significant changes in the nature of these activities during the financial year.

FINANCIAL RESULTS

The Group The Bank RM'000 RM'000

Profit before zakat and taxation 703,229 595,555 Zakat and taxation (177,963) (145,251)

Net profit for the financial year 525,266 450,304

DIVIDENDS

The dividends on ordinary shares paid or declared by the Bank since 31 December 2011 were as follows:

In respect of the financial year ended 31 December 2011 as shown in the Directors’ report for that financial year: RM’000

Final tax exempt dividend of 5 sen per share paid on 26 March 2012 71,964

In respect of the financial year ended 31 December 2012 :-

Single-tier interim dividend of 9 sen per share paid on 24 December 2012 136,650 The Directors now recommend the payment of a final single-tier dividend of 6 sen per share amounting to RM91,100,206 which is subject to the approval of members at the forthcoming Annual General Meeting of the Bank.

RESERVES AND PROVISIONS

All material transfers to or from reserves or provisions during the financial year are shown in the financial statements and notes to the financial statements.

DIRECTORS’REPORT

for the financial year ended 31 December 2012


BAD AND DOUBTFUL DEBTS AND FINANCING

Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and financing and the making of allowance for bad and doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and adequate allowances made for 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 allowance for doubtful debts and financing, in the financial statements of the Group and the Bank inadequate to any substantial extent.

CURRENT ASSETS

Before the financial statements of the Group and 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 realise in the ordinary course of business, their values as shown in the accounting records of the Group and the Bank, have been written down to an amount which they might 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 Group and 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 Group’s and the Bank’s financial statements 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 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 the Bank that has arisen since the end of the financial year other than in the ordinary course of banking business or activities of the Group.

No contingent or other liability of the Group or 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 or the Bank to meet their obligation 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 the Bank that would render any amount stated in the financial statements misleading.

DIRECTORS’ REPORTfor the financial year ended 31 December 2012


ITEMS OF AN UNUSUAL NATURE

The results of the operations of the Group and the Bank during 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 Group or the Bank for the current financial year in which this report is made.

SIGNIFICANT EVENT DURING THE FINANCIAL YEAR There is no significant event during the financial year.

SUBSEQUENT EVENTS

There were no material events subsequent to the reporting date that require disclosure or adjustments to the financial statements.

DIRECTORS

The Directors of the Bank who have held office during the period since the date of the last report are:

Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara)Chairman / Non-Independent Non-Executive Tan Sri Dato’ Seri Lodin bin Wok KamaruddinNon-Independent Non-Executive Director Dr Raja Abdul Malek bin Raja JallaludinIndependent Non-Executive Director Tan Sri Dato’ Sri Abdul Aziz bin Abdul RahmanIndependent Non-Executive Director Tan Sri Dato’ Seri Mohamed JawharIndependent Non-Executive Director En. Mohd Suffian bin Haji HaronIndependent Non-Executive Director Mr Aubrey Li Kwok-Sing Non-Independent Non-Executive Director Mr Gary Cheng Shui Hee Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing)



RESPONSIBILITY STATEMENT BY BOARD OF DIRECTORS

In the course of preparing the annual financial statements of the Group and of the Bank, the Directors are collectively responsible in ensuring that these financial statements are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

It is the responsibility of the Directors to ensure that the financial reporting of the Group and of the Bank present a true and fair view of the state of affairs of the Group and of the Bank as at 31 December 2012 and of the financial results and cash flows of the Group and of the Bank for the financial year then ended.

The financial statements are prepared on the going concern basis and the Directors have ensured that proper accounting records are kept, applied the appropriate accounting policies on a consistent basis and made accounting estimates that are reasonable and fair so as to enable the preparation of the financial statements of the Group and of the Bank with reasonable accuracy.

The Directors have also taken the necessary steps to ensure that appropriate systems are in place for the assets of the Group and of the Bank to be properly safeguarded for the prevention and detection of fraud and other irregularities. The systems, by their nature, can only provide reasonable and not absolute assurance against material misstatements, whether due to fraud or error.

The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 205 of the financial statements.

DIRECTORS’ INTERESTS

According to the register of Directors’ shareholdings, the interest of Directors in office at the end of the financial year in shares, warrants and options of related companies are as follows:

Ordinary shares of RM1 each

As at As at 1.1.2012 Bought Sold 31.12.2012AFFIN Holdings Berhad Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin * 808,714 - - * 808,714 Boustead Heavy Industries Corporation Berhad Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 2,000,000 - - 2,000,000 Boustead Petroleum Sdn Berhad Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 5,916,465 - - 5,916,465 Al-Hadharah Boustead REIT Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 250,000 - - 250,000 * Shares held in trust by nominee company



DIRECTORS’ INTERESTS

Ordinary shares of RM1 each

As at As at 1.1.2012 Bought Sold 31.12.2012Pharmaniaga Berhad Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 3,184,538 ^ 2,700,266 202,918 5,681,886 ^ Part of shares acquired under BHB Divestment 2 on 10 January 2012 - 1,201,649 Bonus issue - 1:10 issued on 20 February 2012 - 438,617 Employee Share Award Scheme (credited on 12 June 2012) - 60,000 Divestment by Boustead Holdings Berhad through connected parties - 1,000,000

Ordinary shares of RM10 each; RM5 uncalled

As at As at 1.1.2012 Bought Transfer 31.12.2012ABB Trustee Berhad *** Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara) 20,000 - - 20,000 Dr Raja Abdul Malek bin Raja Jallaludin 20,000 - - 20,000 *** Shares held in trust for the Bank Ordinary shares of 50 sen each

As at As at 1.1.2012 Bought Sold 31.12.2012Boustead Holdings Berhad Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 26,011,599 + 2,601,159 420,000 28,192,758 + Bonus issue issued on 11 October 2012 Redeemable preference shares of RM1 each

As at As at 1.1.2012 Bought Sold 31.12.2012Boustead Petroleum Sdn Berhad Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 50 - - 50 Other than the above, the Directors in office at the end of the financial year did not have any other interest in shares, warrants and options over shares in the Bank or its related corporations during the financial year.

DIRECTORS’ BENEFITS

During and at the end of the financial year, no other arrangements subsisted to which the Bank or any of its subsidiaries is a party with the object or objects of enabling Directors of the Bank or any of its subsidiaries to acquire benefits by means of the acquisition of shares in, or debenture of, the Bank or any other body corporate, except for the share options granted to Directors of the Bank by AFFIN Holdings Berhad, Boustead Holdings Berhad and Lembaga Tabung Angkatan Tentera.

Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than the fees and other emoluments shown in the Note 31 to the financial statements) by reason of a contract made by the Bank or by a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial financial interest.



CORPORATE GOVERNANCE

The Board of Directors is committed to ensure the highest standards of corporate governance throughout the organisation with the objectives of safeguarding the interests of all stakeholders and enhancing the shareholders’ value and financial performance of the Bank. The Board considers that it has applied the Best Practices as set out in the Malaysian Code of Corporate Governance throughout the financial year. The Bank is also required to comply with BNM’s Guidelines on Directorship in the banking institutions (‘BNM/GP1’).

(i) Board of Directors Responsibility and Oversight

The Board of Directors

The direction and control of the Bank rest firmly with the Board as it effectively assumes the overall responsibility for corporate governance, strategic direction, formulation of policies and overseeing the investments and operations of the Bank. The Board exercises independent oversight on the management and bears the overall accountability for the performance of the Bank and compliance with the principle of good governance.

There is a clear division of responsibility between the Chairman and the Managing Director/Chief Executive Officer to ensure that there is a balance of power and authority. The Board is responsible for reviewing and approving the longer-term strategic plans of the Bank as well as the business strategies. It is also responsible for identifying the principal risks and implementation of appropriate systems to manage those risks as well as reviewing the adequacy and integrity of the Bank’s internal control systems, management information systems, including systems for compliance with applicable laws, regulations and guidelines.

Whilst, the Management Committee, headed by the Managing Director/Chief Executive Officer, is responsible for the implementation of the strategies and internal control as well as monitoring performance. The Committee is also a forum to deliberate issues pertaining to the Bank’s business, strategic initiatives, risk management, manpower development, supporting technology platform and business processes.

The Board Meetings

The Board meets on a monthly basis, to review the Bank’s financial and business performance, to oversee the conduct of the Bank’s business as well as to ensure that adequate internal control systems are in place. The Board met 13 times during the financial year.

Board Balance The Board of Directors comprises of seven Non-Executive Directors and one alternate Non-Executive Director. There are

four Independent Non-Executive Directors and four Non-Independent Non-Executive Directors. The Board of Directors meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the Managing Director/Chief Executive Officer.

In 2012, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of prominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areas particularly in banking.




(i) Board of Directors Responsibility and Oversight (continued)

The Board of Directors (continued)

The composition of the Board and the number of meetings attended by each director are as follows:

Total Meetings Directors Attended Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara) 13 / 13 Chairman / Non-Independent Non-Executive Director Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 13 / 13 Non-Independent Non-Executive Director Dr Raja Abdul Malek bin Raja Jallaludin 13 / 14 * Independent Non-Executive Director (* Attended AFFIN Islamic Board of Director meeting by invitation on 25 September 2012) Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman 12 / 13 Independent Non-Executive Director Tan Sri Dato’ Seri Mohamed Jawhar 12 / 13 Independent Non-Executive Director

En. Mohd Suffian bin Haji Haron 13 / 13

Independent Non-Executive Director Mr Aubrey Li Kwok-Sing 7 / 13 Non-Independent Non-Executive Director Mr Gary Cheng Shui Hee 5 / 13 Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing)

Board Committees Nomination Committee

Nomination Committee was established to provide a formal and transparent procedure for the appointment of Directors and Managing Director/Chief Executive Officer. The committee also assesses the effectiveness of the Board as a whole, contribution of each Director, contribution of the Board’s various committees and the performance of Managing Director/Chief Executive Officer and key senior management officers.





Board Committees (continued) Nomination Committee (continued)

During the financial year ended 31 December 2012, a total of 4 meetings were held. The Nomination Committee comprises the following members and the details of attendance of each member at the Nomination Committee meetings held during the financial year are as follows:

Total Meetings Members Attended En. Mohd Suffian bin Haji Haron 4 / 4 Chairman/Independent Non-Executive Director Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 3 / 3 Member/Non-Independent Non-Executive Director (Appointed as member w.e.f 13 January 2012) Dr Raja Abdul Malek bin Raja Jallaludin 3 / 4 Member/Independent Non-Executive Director Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman 4 / 4 Member/Independent Non-Executive Director Tan Sri Dato’ Seri Mohamed Jawhar 3 / 3 Member/Independent Non-Executive Director (Appointed as member w.e.f 13 January 2012)

Remuneration Committee

Remuneration Committee was established to evaluate and recommend a framework of remuneration for Directors, the Managing Director/ Chief Executive Officer and key senior management officers that is competitive and consistent with the Bank’s culture, objectives and strategy.

During the financial year ended 31 December 2012, a total of 4 meetings were held. The Remuneration Committee comprises the following members and the details of attendance of each member at the Remuneration Committee meetings held during the financial year are as follows:

Total Meetings Members Attended Dr Raja Abdul Malek bin Raja Jallaludin 4 / 4 Chairman/Independent Non-Executive Director Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 3 / 3 Member/Non-Independent Non-Executive Director (Appointed as member w.e.f 13 January 2012) En. Mohd Suffian bin Haji Haron 4 / 4 Member/Independent Non-Executive Director





Board Committees (continued) Shariah Committee

AFFIN Islamic Bank Berhad’s business activities are subject to Shariah compliance and conformation by the Shariah Committee. The Shariah Committee is formed as legislated under Section 3(5)(b) of the Islamic Banking Act, 1983 and as per Shariah Governance Framework for Islamic Financial Institutions.

The duties and responsibility of the Shariah Committee are as follows:

• ToadvisetheBoardonShariahmattersinordertoensurethatthebusinessoperationsoftheBankcomplywiththeShariah principles at all times;

• Toendorseandvalidate relevantdocumentationsof theBank’sproducts toensure that theproductscomplywithShariah principles; and

• ToadvisetheAFFINIslamicBankBerhadonmatterstobereferredtotheShariahAdvisoryCouncil.

The Shariah Committee was established in December 1995. During the year, a total of 12 meetings were held. The Shariah Committee comprises the following members and the details of attendance of each member at the Shariah Committee meetings held are as follows:

Total Meetings Members Attended Associate Professor Dr. Asyraf Wajdi bin Dato’ Dusuki 12 / 12 Chairman Associate Professor Dr. Said Bouheraoua 11 / 12 Member

Assistant Professor Dr. Ahmad Azam bin Othman 12 / 12 Member Dr. Yasmin Hanani binti Mohd Safian 12 / 12 Member Dr. Zulkifli bin Hasan 11 / 12 Member




(ii) Group Risk Management

The Group Risk Management function, operating in an independent capacity, is part of the Bank’s senior management structure which works closely as a team in managing risks to enhance stakeholders’ value.

The Group Risk Management function provides support to the Board Risk Management Committee (‘BRMC’). Committees namely Board Loan Review and Recovery Committee (‘BLRRC’), Management Committee (‘MCM’), Group Management Loan Committee (‘GMLC’), Asset and Liability Management Committee (‘ALCO’), Group Operational Risk Management Committee (‘GORMC’) and Early Alert Committee (‘EAC’) assist the BRMC in managing credit, market, liquidity and operational risks respectively.

Responsibilities of these committees include:• riskidentification• riskassessmentandmeasurement• riskcontrolandmigration• riskmonitoring

Board Risk Management Committee (‘BRMC’)

The main function of Board Risk Management Committee (‘BRMC’) is to assist the Board in its supervisory role in the management of risk in the Bank. It has responsibility for approving and reviewing all risk management policies and methodologies of the Bank. BRMC also reviews guidelines and portfolio management reports including risk exposure information.

BRMC provides oversight and management of all risks in the Bank. The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively. The Bank’s risk management framework is set out in Note 38 to the financial statements.

The BRMC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2012, a total of 6 meetings were held. The BRMC comprises the following members and details of attendance of each member at the BRMC meetings held during the financial year are as follows:

Total Meetings Members Attended Tan Sri Dato’ Seri Mohamed Jawhar 6 / 6 Chairman/Independent Non-Executive Director (Appointed as Chairman w.e.f 13 January 2012) Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman 6 / 6 Member/Independent Non-Executive Director Dr Raja Abdul Malek bin Raja Jallaludin 6 / 6 Member/Independent Non-Executive Director En. Mohd Suffian bin Haji Haron 5 / 6 Member/Independent Non-Executive Director

(Represent AFFIN Islamic Bank Berhad)




(ii) Group Risk Management (continued)

Board Loan Review and Recovery Committee (‘BLRRC’)

Board Loan Review and Recovery Committee (‘BLRRC’) critically reviews loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise the power to veto loan applications that have been accepted by the Group Management Loan Committee (‘GMLC’). The Committee is also responsible to review the impaired loans presented by Management.

The BLRRC meeting for the Bank were jointly held with AFFIN Islamic Bank and during the financial year ended 31 December 2012, a total of 12 meetings were held. The BLRRC comprises the following members and details of attendance of each member at the BLRRC meetings held during the financial year are as follows:

Total Meetings Members Attended Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara) 12 / 12 Chairman / Non-Independent Non-Executive Director Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin 11 / 11 Member/Non-Independent Non-Executive Director (Appointed as member w.e.f 13 January 2012) Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli bin Mohd Nor (Bersara) 12 / 12 Member/Non-Independent Non-Executive Director (Represent AFFIN Islamic Bank Berhad) En. Mohd Suffian bin Haji Haron 11 / 12 Member/Independent Non-Executive Director

Management Committee (‘MCM’)

MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day operations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank’s overall performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.

Group Management Loan Committee (‘GMLC’)

Group Management Loan Committee (‘GMLC’) approves complex and larger loans and workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel of the Bank.

Individual approvers

For the delegated authority, a dual sign-off approval system is in place, independent of business imperatives.




(ii) Group Risk Management (continued)

Asset and Liability Management Committee (‘ALCO’) ALCO’s responsibilities include:

• Managingtheassetand liabilityof theBankthroughcoordinationof theBank’soverallplanningprocess includingstrategic planning, budgeting and asset and liability management process;

• DirectingtheBank’soverallacquisitionandallocationoffunds;• PrudentlymanagingtheBank’sinterestrateexposure;• DeterminetheoverallBalanceSheetstrategyandensuringpolicycompliance;• Determinedthetypeandscopeofderivativeactivities,approveindividualderivativetransactionsaswellascontrol

over the level of exposure in derivatives; • ReviewingmarketrisksintheBank’stradingportfolios;• Managingtheeffectiveusageofeconomicandregulatorycapitalthroughouttheorganisation;• Reviewingandrecommendingthecapitalplanforapproval;• Approvingcapitalmanagementstandardsandpolicies,capitalraisingandrepaymenttransactions;• Reviewingquarterlycapitaladequacymonitoringreports;and• Reviewingandapprovingkeyassumptionsinherentineconomiccapitalmodelingandstress/scenariotests.

Group Operational Risk Management Committee (‘GORMC’)

Responsibilities of these committees include: • Toevaluateoperationalrisksissuesonescalatingimportance/strategicriskexposure;• ToreviewandrecommendonbroadoperationalrisksmanagementpoliciesbestpracticesforadoptionbytheBank’s

operating units;• Toreviewtheeffectivenessofbroadinternalcontrolsandmakingrecommendationonchangesifnecessary;• Toreview/approverecommendationonoperationalriskmanagementgroupssectionuptoaddressspecificissue;• Totaketheleadininculcatinganoperationalrisksawarenessculture;• Toapproveoperationalriskmanagementmethodologies/measurementstools;and• Toreviewandapprovethestrategicoperationalriskmanagementinitiatives/plansandtoendorseforBRMC’sapproval

if necessary.

Early Alert Committee (‘EAC’)

Early Alert Committee (‘EAC’) is established within senior management chaired by MD/CEO to monitor credit quality through monthly review of the Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts.

(iii) Internal Audit and Internal Control Activities

In accordance with Bank Negara Malaysia’s GP10 guidelines, the Group Internal Audit Division (‘GIA’) conducts continuous reviews on auditable areas within the Bank. The continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance to the audit plan approved by the Audit and Examination Committee (‘AEC’). The risk highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.




(iii) Internal Audit and Internal Control Activities (continued)

At present, GIA consists of Operational Audit, IS Audit, Credit Review, Investigation and Compliance. Audit activities include these key components:

• Conductauditonallauditableentities(HeadOffice,branchesandsubsidiaries)processes,services,products,systemand provide an independent assessment to the Board of Directors, AEC and Management that appropriate control environment is maintained with clear authority and responsibility with sufficient staff and resources to carry out control responsibilities.

• Performriskassessmentstoidentifyriskandevaluateactionstakentoprovidereasonableassurancethatproceduresand controls exist to contain those risks.

• Maintainstrongcontrolactivities includingdocumentedprocessesandsystem incorporatingadequatecontrols toproduce accurate financial data and provide for the safeguarding of assets, and a documented review of reported results.

• Ensureeffectiveinformationflowsandcommunication,including:- training and the dissemination of standards and requirements;- an information system to produce and convey complete, accurate and timely data including financial data;- the upward communication of trends, developments and emerging issues.

• Monitorcontrols, includingprocedures toverify thatcontrolsare inplaceand functioning, followuponcorrectiveaction on control finding until its full resolution.

Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on the effectiveness of internal controls maintained by each entity.

The AEC comprises members of the Bank’s Board of Directors whose primary function is to assist the Board of Directors in its supervision over:

• Thereliabilityandintegrityofaccountingpoliciesandfinancialreportinganddisclosurepractices;

• TheprovisionofadvicetotheBoardwithregardstothefinancialstatementsandbusinessriskstoenabletheBoardtofulfill its fiduciary duties and obligations; and

• Theestablishmentandmaintenanceofprocessestoensurethatthey:- are in compliance with all applicable laws, regulations and company policies; and- have adequately addressed the risk relating to internal controls and system, management of inherent and business

risks, and ensuring that the assets are properly managed and safeguarded.

The AEC is made up of at least three but not more than five members appointed by the Board of Directors from among its non-executive directors.




(iii) Internal Audit and Internal Control Activities (continued)

The AEC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December 2012, a total of 7 meetings were held. The Audit and Examination Committee comprises the following members and details of attendance of each member at the Audit and Examination Committee meetings held during the financial year are as follows:

Total Meetings Members Attended Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman 7 / 7 Chairman/Independent Non-Executive Director Tan Sri Dato’ Seri Mohamed Jawhar 7 / 7 Member/Independent Non-Executive Director (Represent AFFIN Islamic Bank Berhad) Dr Raja Abdul Malek bin Raja Jallaludin 6 / 7 Member/Independent Non-Executive Director Associate Professor Dr. Asyraf Wajdi bin Dato’ Dusuki 6 / 6 Member/Independent Non-Executive Director (Appointed as member w.e.f 13 January 2012 and representative from AFFIN Islamic Bank Berhad)

(iv) Management Reports

Before each Board meeting, Directors are provided with a complete set of board papers itemised in the agenda for Board’s review/approval and/or notation.

The Board monitors the Bank’s performance by reviewing the monthly Management Report, which provides a comprehensive review and analysis of the Bank’s operations and financial issues. In addition, the minutes of the Board Committees and Management Committees meetings and other issues are also tabled and considered by the Board.

Procedures are in place for Directors to seek both independent professional advice at the Bank’s expense and the advice and services of the Company Secretary in order to fulfill their duties and specific responsibilities.



BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

With the softening in China and India market, coupled with the prolonged economic slowdown in Europe and the United States, the last financial year proved to be another challenging period for the Bank and the country as a whole as domestic economy remained relatively flat supported by government spending.

Taking into account the economic environment and its impacts, the Bank throughout 2012 continues to strive for business growth and further strengthen its position in the industry. These objectives were realised through four main strategic measures: • Focusonpreservationofcapitalbyenhancingfeebasedincomeandmanagingassetquality.

• Continuouslyaimingforsustainablebusinessgrowth.

• Managingreturnonassets(‘ROA’)andcost-to-incomeratioeffectively–tobewithintheindustrystandard.

• Enhancingcustomerreachbyopeningupnewbranchesinnewgrowthareas,relocationsofexistingbranches,extendingATM network services as well as ensuring excellent customer service nationwide.

• Despitethechallengesfaced,theBankwasabletoregistersteadygrossloansgrowthof12.22%,positivegrowthofabout12.90%indeposits,whilenetimpairedloansratiostoodat1.11%,returnonequity(‘ROE’)at14.08%,ROAat1.04%,andcost-to-incomeratioat45.24%.Overall,theBank’skeyfinancialnumbersareverymuchwithintheindustrystandard.

BUSINESS OUTLOOK FOR 2013

The Bank is confident that the domestic economy still holds much opportunity for business growth and intends to pursue these opportunities prudently. The Bank will continue to ensure that loans portfolio is well managed through proactive account management.

Moving forward, the Bank will also continue to balance its exposure between business and consumer loans. Within business banking, focus will be given to SMEs and contract financing loans so as to diversify the risk as well as ensuring better return.

For consumer segment, focus will be on financing of new cars as well as mortgage loans in selected areas.

The Bank will also continue to leverage on Group synergy by exploring potential business opportunities with the Lembaga Tabung Angkatan Tentera (‘LTAT’) / Boustead Group of Companies



RATING BY EXTERNAL AGENCIES The Bank has been rated by the following external rating agency: Name of rating agency : RATING AGENCY MALAYSIA BERHAD Date of rating : 2 July 2012 Rating classifications : - Long term : A1 - Short term : P1

RAM has reaffirmed the Bank’s long-term and short-term financial institution ratings, at A1 and P1, respectively, with a stable outlook.

‘A’ rating is defined by RAM as being able to offer adequate safety for timely payment of interest and principal, and has adequate credit profile but possess one or more problem areas, giving rise to the possibility of future riskiness. Entities rated in this category have generally performed at industry average and are considered to be more vulnerable to changes in economic condition than those rated in the higher categories. The subscript 1 in this category indicates as higher end of its generic rating in the A category. A P1 rating is defined by RAM as obligations which are supported by superior ability with regards to timely payment of obligations.

ZAKAT

The Bank’s subsidiary, AFFIN Islamic Bank Berhad (‘AFFIN Islamic’) is obliged to pay zakat to comply with the principles of shariah. AFFIN Islamic does not pay zakat on behalf of its depositors.

HOLDING COMPANY AND ULTIMATE HOLDING CORPORATE BODY

The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera Act, 1973.

AUDITORS

The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.

In accordance with resolution of the Board of Directors dated 28 February 2013.

Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara) Chairman

En. Mohd Suffian bin Haji HaronDirector



STATEMENTS OFFINANCIAL POSITION

as at 31 December 2012

The Group The Bank 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

ASSETS Cash and short-term funds 2 7,648,904 9,879,366 8,640,457 3,633,842 5,527,439 6,108,452 Reverse repurchase agreements with financial institutions 20,057 - - 20,057 - - Deposits and placements with banks and other financial institutions 3 596,452 486,694 192,522 1,043,825 1,098,988 564,917 Financial assets held-for-trading 4 165,592 149,832 149,945 165,592 149,832 149,945 Derivative financial assets 5 68,872 49,901 54,981 68,872 49,901 54,981 Financial investments available-for-sale 6 7,640,654 6,698,418 5,804,417 5,658,161 5,214,533 4,455,472 Financial investments held-to-maturity 7 451,670 521,105 432,537 451,670 521,105 432,537 Loans, advances and financing 8 33,482,626 29,692,266 25,974,847 28,339,269 25,318,061 22,419,251 Other assets 9 293,658 166,543 186,461 227,790 116,690 184,582 Amount due from subsidiaries 10 - - - 153,949 356,897 185,271 Amount due from jointly controlled entity 2,745 2,745 2,745 - - - Tax recoverable 16 3,430 49,930 - - 46,072 Deferred tax assets 11 - - 4,291 - - - Statutory deposits with Bank Negara Malaysia 12 1,413,300 1,268,650 245,130 1,211,800 1,108,650 245,130 Investment in subsidiaries 13 - - - 387,389 287,389 287,429 Investment in jointly controlled entity 14 60 290 500 - - - Property and equipment 15 171,922 172,830 170,722 163,951 164,034 162,760 Intangible assets 16 148,452 156,133 154,436 149,887 156,771 156,868

TOTAL ASSETS 52,104,980 49,248,203 42,063,921 41,676,054 40,070,290 35,453,667

LIABILITIES AND EQUITY Deposits from customers 17 41,263,536 36,547,444 30,982,407 32,224,817 29,072,424 25,432,075 Deposits and placements of banks and other financial institutions 18 4,809,323 7,526,912 6,619,735 3,728,263 6,043,837 5,749,003 Derivative financial liabilities 19 59,663 97,399 70,195 59,663 97,399 70,195 Bills and acceptances payable 152,400 82,059 110,161 152,400 82,059 110,161 Recourse obligation on loans sold to Cagamas Berhad 20 413,549 428,459 288,891 413,549 428,459 288,891 Other liabilities 21 306,481 326,735 353,892 282,144 309,134 317,002 Amount due to subsidiaries 22 - - - 48,528 48,307 47,926 Provision for taxation 63,751 16,242 22 54,177 16,212 - Deferred tax liabilities 11 13,365 20,118 24,932 13,099 19,211 24,932 Subordinated term loan 23 904,960 601,850 300,682 904,960 601,850 300,682

TOTAL LIABILITIES 47,987,028 45,647,218 38,750,917 37,881,600 36,718,892 32,340,867 Share capital 24 1,518,337 1,439,285 1,439,285 1,518,337 1,439,285 1,439,285 Reserves 25 2,599,615 2,161,700 1,873,719 2,276,117 1,912,113 1,673,515

TOTAL EQUITY 4,117,952 3,600,985 3,313,004 3,794,454 3,351,398 3,112,800

TOTAL LIABILITIES AND EQUITY 52,104,980 49,248,203 42,063,921 41,676,054 40,070,290 35,453,667

COMMITMENTS AND CONTINGENCIES 37 18,981,323 19,919,985 18,844,780 17,411,381 18,030,311 16,821,892

The accounting policies on pages 81 to 99 and the notes on pages 100 to 204 form an integral part of these financial statements.


The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Note RM’000 RM’000 RM’000 RM’000

Interest income 26 1,984,900 1,795,662 2,012,937 1,816,728 Interest expense 27 (1,196,228) (1,020,847) (1,196,288) (1,020,882)

Net interest income 788,672 774,815 816,649 795,846 Net Islamic banking income 28 216,772 198,933 - -

1,005,444 973,748 816,649 795,846 Other operating income 29 257,063 186,884 255,890 185,407

Net income 1,262,507 1,160,632 1,072,539 981,253 Other operating expense 30 (571,158) (533,713) (473,673) (442,001)

Operating profit before allowances 691,349 626,919 598,866 539,252 Allowances for losses on loans, advances and financing 32 22,512 (12,699) 7,091 (1,936)Impairment losses on securities (10,402) (945) (10,402) (945)

703,459 613,275 595,555 536,371 Share of joint venture’s results (230) (210) - -

Profit before zakat and taxation 703,229 613,065 595,555 536,371 Zakat (6,064) (5,492) - - Taxation 34 (171,899) (167,570) (145,251) (147,875)

Net profit after zakat and taxation 525,266 440,003 450,304 388,496

Attributable to: Equity holders of the Bank 525,266 440,003 450,304 388,496

Earnings per share (sen): - Basic/fully diluted 35 35.0 30.6 30.0 27.0

INCOMESTATEMENTSfor the financial year ended 31 December 2012



The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 Note RM’000 RM’000 RM’000 RM’000

Profit after zakat and taxation 525,266 440,003 450,304 388,496 Other comprehensive income: Net fair value change in financial investments available-for-sale 733 27,622 1,822 30,420 Deferred tax on financial investments available-for-sale 11 (418) (6,930) (456) (7,604)

Other comprehensive income for the financial year, net of tax 315 20,692 1,366 22,816

Total comprehensive income for the financial year 525,581 460,695 451,670 411,312

Attributable to equity holders of the Bank: - Total comprehensive income 525,581 460,695 451,670 411,312

STATEMENTS OFCOMPREhENSIVE INCOME




Attributable to Equity Holders of the Bank

AFS Share Share Statutory revaluation Retained capital premium reserves reserves profits Total The Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2012 1,439,285 408,389 1,011,044 74,941 667,326 3,600,985 Comprehensive income: Net profit for the financial year - - - - 525,266 525,266 Other comprehensive income (net of tax) - Financial investments available-for-sale - - - 315 - 315

Total comprehensive income - - - 315 525,266 525,581

Issued during the financial year 79,052 120,948 - - - 200,000 Dividends paid (Note 36) - - - - (208,614) (208,614)Transfer to statutory reserves - - 149,607 - (149,607) -

At 31 December 2012 1,518,337 529,337 1,160,651 75,256 834,371 4,117,952

At 1 January 2011 1,439,285 408,389 888,910 54,249 522,171 3,313,004 Comprehensive income: Net profit for the financial year - - - - 440,003 440,003 Other comprehensive income (net of tax) - Financial investments available-for-sale - - - 20,692 - 20,692

Total comprehensive income - - - 20,692 440,003 460,695

Dividends paid (Note 36) - - - - (172,714) (172,714)Transfer to statutory reserves - - 122,134 - (122,134) -

At 31 December 2011 1,439,285 408,389 1,011,044 74,941 667,326 3,600,985

STATEMENTS OFChANGES IN EqUITyfor the financial year ended 31 December 2012



Non-distributable Distributable

AFS Share Share Statutory revaluation Retained capital premium reserves reserves profits Total The Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000



Issued during the financial year 79,052 120,948 - - - 200,000 Dividends paid (Note 36) - - - - (208,614) (208,614)Transfer to statutory reserves - - 112,576 - (112,576) -

At 31 December 2012 1,518,337 529,337 1,017,200 69,977 659,603 3,794,454



Dividends paid (Note 36) - - - - (172,714) (172,714)Transfer to statutory reserves - - 97,124 - (97,124) -

At 31 December 2011 1,439,285 408,389 904,624 68,611 530,489 3,351,398

STATEMENTS OF ChANGES IN EqUITyfor the financial year ended 31 December 2012



The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES Profit before zakat and taxation 703,229 613,065 595,555 536,371 Adjustments for items not involving the movement of cash and cash equivalents: Interest income: - financial assets held-for-trading (789) (50) (789) (50) - financial investments available-for-sale (183,906) (141,979) (183,758) (141,830) - financial investments held-to-maturity (23,912) (23,276) (23,912) (23,229)Dividend income: - financial investments available-for-sale (3,204) (23) (3,204) (23) - financial investments held-to-maturity - (9,705) - (9,705)Amortisation of premium less accretion of discount - financial investments available-for-sale (9,869) (20,568) (9,869) (20,568) - financial investments held-to-maturity (964) (901) (964) (901)Gain on sale: - financial assets held-for-trading (697) (546) (697) (546) - financial investments available-for-sale (20,634) (24,102) (19,870) (24,102) - financial investments held-to-maturity (19,011) (2,546) (19,011) (2,378)Unrealised loss/(gain) on revaluation - financial assets held-for-trading 188 9 188 9 - derivatives (12,925) 13,230 (12,925) 13,230 - foreign exchange (42,325) 17,878 (42,325) 17,878 Allowance for impairment loss - financial investments available-for-sale 812 945 812 945 - financial investments held-to-maturity 9,590 - 9,590 - Depreciation of property and equipment 17,784 18,872 16,579 17,853 Property and equipment written-off 179 423 178 414 Foreclosed properties - diminution in value 2,122 2,542 2,122 2,332 Gain on sale of property and equipment (1,098) (23) (1,093) (23)Amortisation of intangible assets 8,568 9,366 7,771 8,836 (Gain)/loss on sale of foreclosed properties (10,141) 272 (10,097) 272 Net individual impairment 69,497 103,338 66,845 99,682 Net collective impairment 6,672 67,662 24,242 59,788 Bad debt and financing written-off 7,784 15,956 7,702 15,791 Litigation loss arising from loans - 40,000 - 40,000 Interest expense - subordinated term loan 40,453 19,884 40,453 19,884 Subsidiary - diminution in value - - - 40 Share of joint venture’s results 230 210 - -

Operating profit before changes in working capital 537,633 699,933 443,523 609,970

STATEMENTS OFCASh FLOwSfor the financial year ended 31 December 2012



CASH FLOWS FROM OPERATING ACTIVITIES (continued)

(Increase)/decrease in operating assets: Reverse repurchase agreements with financial institutions (20,057) - (20,057) - Deposits and placements with banks and other financial institutions (109,758) (294,172) 55,163 (534,071)Financial assets held-for-trading (15,252) 650 (15,252) 650 Interest income from financial assets held-for-trading 789 50 789 50 Foreign exchange transaction (1,463) 35,547 (161) 36,381 Loans, advances and financing (3,874,313) (3,904,375) (3,119,997) (3,074,071)Other assets (98,483) (132,364) (82,270) (84,208)Derivative financial instruments (56,707) 32,284 (56,707) 32,284 Statutory deposits with Bank Negara Malaysia (144,650) (1,023,520) (103,150) (863,520)Amount due from subsidiaries - - 203,169 (171,245) Increase/(decrease) in operating liabilities: Deposits from customers 4,716,092 5,565,037 3,152,393 3,640,349 Deposits and placements of banks and other financial institutions (2,717,589) 907,177 (2,315,574) 294,834 Bills and acceptances payable 70,341 (28,102) 70,341 (28,102)Recourse obligation on loans sold to Cagamas Berhad (14,910) 139,568 (14,910) 139,568 Other liabilities (21,270) (66,342) (26,869) (46,765)

Cash (used in)/generated from operations (1,749,597) 1,931,371 (1,829,569) (47,896)Zakat paid (4,919) (5,203) (100) - Tax paid (128,138) (113,437) (113,845) (100,020)

Net cash (used in)/generated from operating activities (1,882,654) 1,812,731 (1,943,514) (147,916)

STATEMENTS OF CASh FLOwSfor the financial year ended 31 December 2012



CASH FLOWS FROM INVESTING ACTIVITIES Interest received: - financial investments available-for-sale 183,906 141,979 183,758 141,830 - financial investments held-to-maturity 23,912 23,276 23,912 23,229 Dividend income: - financial investments available-for-sale 3,204 23 3,204 23 - financial investments held-to-maturity - 9,705 - 9,705 Redemption of financial investments held-to-maturity net of purchase 79,820 (85,121) 79,820 (85,289)Net purchase of financial investments available-for-sale (911,810) (822,654) (412,881) (684,914)Proceeds from disposal of - property and equipment 4,091 2,166 3,441 2,166 - foreclosed properties 21,611 118,687 21,371 118,687 Purchase of property and equipment (20,616) (32,893) (19,480) (28,828)Purchase of intangible assets (458) (1,718) (458) (1,599)

Net cash used in investing activities (616,340) (646,550) (117,313) (504,990)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of shares 200,000 - 200,000 - Investment in subsidiary - - (100,000) - Interest payment on subordinated term loan (37,344) (18,716) (37,344) (18,716)Increase in subordinated term loan 300,000 300,000 300,000 300,000 Payment of dividend (208,614) (172,714) (208,614) (172,714)

Net cash generated from financing activities 254,042 108,570 154,042 108,570

Net (decrease)/increase in cash and cash equivalents (2,244,952) 1,274,751 (1,906,785) (544,336)Net increase/(decrease) in foreign exchange 14,490 (35,842) 13,188 (36,677)Cash and cash equivalents at beginning of the financial year 9,879,366 8,640,457 5,527,439 6,108,452

CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR (Note 2) 7,648,904 9,879,366 3,633,842 5,527,439

STATEMENTS OF CASh FLOwSfor the financial year ended 31 December 2012



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.

(A) BASIS OF PREPARATION

The financial statements of the Group and the Bank have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards (‘MFRS’), International Financial Reporting Standards and the requirements of the Companies Act 1965 in Malaysia. The financial statements incorporate those activities relating to Islamic banking business which have been undertaken by AFFIN Islamic Bank Berhad, a wholly owned subsidiary of the Bank. Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles.

The financial statements of the Group and the Bank for the financial year ended 31 December 2012 are the first set of financial statements prepared in accordance with the MFRS, including MFRS 1 “First-time adoption of MFRS”. The Group and the Bank’s first MFRS financial statements include at least three statements of financial position, two statements of comprehensive income, two separate income statements, two statements of cash flows and two statements of changes in equity and related notes, including comparative information. The Group and the Bank have consistently applied the same accounting policies in its opening MFRS statement of financial position at 1 January 201 1 (transition date) and throughout all years presented, as if these policies had always been in effect. There is no significant financial impact on the adoption of MFRS that requires restatement to the comparative figures in the financial statements.

The financial statements of the Group and the Bank have been prepared under the historical cost convention, unless otherwise indicated in this summary of significant accounting policies.

The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires Directors to exercise their judgment in the process of applying the Group and Bank’s accounting policies. Although these estimates and judgment are based on the Directors’ best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 44.

Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective

The Group and the Bank will apply the new standards, amendments to standards and interpretations in the following period:

(i) Financial year beginning on/after 1 January 2013

• MFRS10“Consolidatedfinancialstatements”(effectivefrom1January2013)changesthedefinitionofcontrol.An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. It establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and sets out the accounting requirements for the preparation of consolidated financial statements. It replaces all the guidance on control and consolidation in MFRS 127 “Consolidated and separate financial statements” and IC Interpretation 112“Consolidation–specialpurposeentities”.

AFFIN BANK BERHAD (25046-T) 82

SUMMARy OF SIGNIFICANT ACCOUNTING POLICIESfor the financial year ended 31 December 2012

Annual Report 2012

(A) BASIS OF PREPARATION (continued)

Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective (continued)

(i) Financial year beginning on/after 1 January 2013 (continued)

• MFRS 11 “Joint arrangements” (effective from 1 January 2013) requires a party to a joint arrangement todetermine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement, rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed.

• MFRS12“Disclosuresofinterestsinotherentities”(effectivefrom1January2013)setsouttherequireddisclosuresfor entities reporting under the two new standards, MFRS 10 and MFRS 11, and replaces the disclosure requirements currently found in MFRS 128 “Investments in associates”. It requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities.

• MFRS13 “Fair valuemeasurement” (effective from1January2013) aims to improveconsistencyand reducecomplexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across MFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards. The enhanced disclosure requirements are similar to those in MFRS 7 “Financial instruments: Disclosures”, but apply to all assets and liabilities measured at fair value, not just financial ones.

• TherevisedMFRS127“Separatefinancialstatements”(effectivefrom1January2013)includestheprovisionson

separate financial statements that are left after the control provisions of MFRS 127 have been included in the new MFRS 10.

• TherevisedMFRS128“Investmentsinassociatesandjointventures”(effectivefrom1January2013)includestherequirements for joint ventures, as well as associates, to be equity accounted following the issue of MFRS 11.

• AmendmenttoMFRS101“Presentationof itemsofothercomprehensive income” (effectivefrom1July2012)requires entities to separate items presented in ‘other comprehensive income’ (‘OCI’) in the statement of comprehensive income into two groups, based on whether or not they may be recycled to profit or loss in the future. The amendments do not address which items are presented in OCI.

• Amendment to MFRS 7 “Financial instruments: Disclosures” (effective from 1 January 2013) requires moreextensive disclosures focusing on quantitative information about recognised financial instruments that are offset in the statement of financial position and those that are subject to master netting or similar arrangements irrespective of whether they are offset.

AFFIN BANK BERHAD (25046-T)83


Annual Report 2012

(A) BASIS OF PREPARATION (continued)

Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective (continued)

(ii) Financial year beginning on/after 1 January 2014

• AmendmenttoMFRS132“Financialinstruments:Presentation”(effectivefrom1January2014)doesnotchangethe current offsetting model in MFRS 132. It clarifies the meaning of ‘currently has a legally enforceable right of set-off’ that the right of set-off must be available today (not contingent on a future event) and legally enforceable for all counterparties in the normal course of business. It clarifies that some gross settlement mechanisms with features that are effectively equivalent to net settlement will satisfy the MFRS 132 offsetting criteria.

(iii) Financial year beginning on/after 1 January 2015

• MFRS9“Financialinstruments-classificationandmeasurementoffinancialassetsandfinancialliabilities”(effectivefrom 1 January 2015) replaces the multiple classification and measurement models in MFRS 139 with a single model that has only two classification categories: amortised cost and fair value. The basis of classification depends on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

The accounting and presentation for financial liabilities and for de-recognising financial instruments has been

relocated from MFRS 139, without change, except for financial liabilities that are designated at fair value through profit or loss (‘FVTPL’). Entities with financial liabilities designated at FVTPL recognise changes in the fair value due to changes in the liability’s credit risk directly in other comprehensive income (‘OCI’). There is no subsequent recycling of the amounts in OCI to profit or loss, but accumulated gains or losses may be transferred within equity.

The guidance in MFRS 139 on impairment of financial assets and hedge accounting continues to apply.

MFRS 7 requires disclosures on transition from MFRS 139 to MFRS 9.

The Group and the Bank will apply these standards when effective. The adoption standards, amendments to published standards and interpretations to existing standards do not have significant impact on the financial statements of the Group and the Bank except for enhanced disclosure.



Annual Report 2012

(B) CONSOLIDATION

The consolidated financial statements include the financial statements of the Bank, subsidiaries and a jointly controlled entity, made up to the end of the financial year.

(i) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Group applies predecessor accounting to account for business combinations under common control. Under the predecessor accounting, assets and liabilities acquired are not restated to their respective fair values but at the carrying amounts from the consolidated financial statements of the ultimate holding company of the Group and adjusted to ensure uniform accounting policies of the Group. The difference between any consideration given and the aggregate carrying amounts of the assets and liabilities (as of the date of the transaction) of the acquired entity is recorded as an adjustment to retained earnings. No additional goodwill is recognised.

The acquired entity’s results, assets and liabilities are consolidated from the date on which the business combination between entities under common control occurred. Consequently, the consolidated financial statements do not reflect the results of the acquired entity for the period before the transaction occurred. The corresponding amounts for the previous year are not restated.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with MFRS 139 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.



Annual Report 2012

(B) CONSOLIDATION (continued)

(ii) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of anyconsideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(iii) Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

(iv) Jointly controlled entities

Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of control by the Group with one or more parties where the strategic financial and operating decisions relating to the entities require unanimous consent of the parties sharing control.

The Group’s interest in jointly controlled entities is accounted for in the financial statements by the equity method of accounting. Equity accounting involves recognising the Group’s share of the post-acquisition results of jointly controlled entities in profit or loss and its share of post-acquisition changes of the investee’s reserves in other comprehensive income. The cumulative post-acquisition changes are adjusted against the cost of the investment and include goodwill on acquisition (net of accumulated impairment loss).

Where necessary, adjustments have been made to the financial statements of jointly controlled entities to ensure consistency of accounting policies with those of the Group.

(C) INVESTMENTS IN SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES

In the Bank’s separate financial statements, investments in subsidiaries and jointly controlled entities are carried at cost less accumulated impairment losses. On disposal of investments in subsidiaries and jointly controlled entities, the difference between disposal proceeds and carrying amounts of the investments are recognised in profit or loss.

(D) INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets at the date of acquisition.

Goodwill on acquisition of subsidiaries are included in the statement of financial position as intangible assets. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicated that the goodwill may be impaired. The amount retained in the consolidated financial statements is stated at cost less accumulated impairment losses. Impairment losses on goodwill (inclusive of impairment losses recognised in a previous interim period) are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.



Annual Report 2012

(D) INTANGIBLE ASSETS (continued)

Goodwill (continued)

Goodwill is allocated to cash-generating units (‘CGU’) for the purpose of impairment testing. The allocation is made to those CGUs that are expected to benefit from the synergies of the business combination in which goodwill arose identified according to operating segment.

Computer software

Acquired computer software are capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (five years). Computer software classified as intangible asset are stated at cost less accumulated amortisation and accumulated impairment losses, if any.

(E) IMPAIRMENT OF NON-FINANCIAL ASSETS

Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus.

(F) RECOGNITION OF INTEREST AND FINANCING INCOME AND EXPENSE

Interest and financing income and expense for all interest/profit-bearing financial instruments measured at amortised cost and interest/ profit bearing financial assets as held-for-trading and available-for-sale are recognised within “interest income”, “interest expense” and “net Islamic banking income” respectively in the income statement using the effective interest/profit method.

The effective interest/profit method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest and financing income or expense over the relevant period. The effective interest/profit rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest/profit rate, the Group and the Bank take into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses.

Interest or income on impaired financial assets is recognised using the rate of interest/profit used to discount the future cash flows for the purpose of measuring the impairment loss. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.



Annual Report 2012

(G) RECOGNITION OF FEES AND OTHER INCOME

Fees and commissions are recognised as income when all conditions precedent are fulfilled. Commitment fees for loans, advances and financing that are likely to be drawn down are deferred (together with related direct costs) and income which forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective interest/profit rate on the financial instrument.

Commitment fees and guarantee fees which are material are recognised as income based on a time apportionment method.

Dividends are recognised when the right to receive payment is established.

(H) FINANCIAL ASSETS

All financial assets which include derivative financial instruments have to be recognised in the statement of financial position and measured in accordance with their assigned category.

The Group and the Bank allocate financial assets to the following MFRS 139 categories: Loans, advances and financing; financial assets at fair value through profit or loss, financial investments available-for-sale;

and financial investments held-to-maturity. Management determines the classification of its financial instruments at initial recognition.

Loans, advances and financing

Loans, advances and financing are non-derivative financial assets with fixed or determinable payments that are not quoted in active market.

Loans, advances and financing are initially recognised at fair value which is the cash consideration to originate or purchase the loan including any transaction costs and measured subsequently at amortised cost using the effective interest rate method, less impairment allowance.

An uncollectible loan, advance and financing or portion of a loan, advance 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.

At each reporting date, the Group and the Bank assess whether there is objective evidence that a loan or group of loans is impaired. A loan or a group of loans is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the loan or group of loans that can be reliably estimated.

The criteria that the Group and the Bank use to determine that there is objective evidence of an impairment loss include among others:• pastduecontractualpayments;• significantfinancialdifficultiesofborrower;• probabilityofbankruptcyorotherfinancialre-organisation;and• defaultofrelatedborrower.

The estimated period between a loss occurring and its identification for credit cards is six months and for all other loans are twelve months.



Annual Report 2012

(H) FINANCIAL ASSETS (continued)

Loans, advances and financing (continued)

The Group and the Bank first assess whether objective evidence of impairment exists individually for loans that are individually significant, and individually or collectively for loans that are not individually significant. If the Group and the Bank determine that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the loan in a group of loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. Loans that are individually assessed for impairment and for which no impairment loss is required (over collateralised loans) are collectively assessed as a separate segment.

The amount of the loss is measured as the difference between the loan’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the loan’s original effective interest rate. The carrying amount of the loan is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such loans by being indicative of the borrowers’ ability to pay all amounts due according to the contractual terms of the loans being evaluated.

Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the loans in the Bank and historical loss experience for loans with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of loans should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Group and the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group and the Bank to reduce any differences between loss estimates and actual loss experience.

Change in accounting policy

Previously, the Group and the Bank applied the Amendment to FRS 139 “Financial instruments: recognition and measurement”, which included an additional transitional arrangement for financial sectors, whereby BNM may prescribed the use of an alternative basis for collective assessment of impairments on loans, advances and financing. This transitional arrangement is prescribed in BNM’s Guidelines on Classification and Impairment Provisions for Loans/Financing, whereby bankinginstitutionsarerequiredtomaintaincollectiveallowancesofatleast1.5%oftotaloutstandingloans/financing,netof individual impairment allowances under the transitional provisions in the guidelines.

With effect from 1 January 2012, BNM has removed the transitional provision for banking institutions on collective evaluation of loan impairment assessment and loan loss provisioning to comply with MFRS 139 requirements. Exposures not individually known to be impaired are placed into pools of similar assets with similar risk characteristics to be collectively assessed for losses that have been incurred but not identified yet. The required loan loss allowance is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current observable data.

There is no significant financial impact on the changes in accounting policy above.



Annual Report 2012


Rescheduled and restructured loans

Where a loan shows evidence of credit weaknesses, the Group and the Bank may seek to renegotiate the loan rather than to take possession of collateral. This may involve an extension of the payment arrangements via rescheduling or the renegotiation of new loan terms and conditions via restructuring. Management monitors the renegotiated loan to ensure that all the revised terms are met and that the repayments are made promptly for a continuous period. Where an impaired loan is renegotiated, the borrower must adhere to the revised and/or restructured repayment terms for a continuous period of six months before the loan is classified as non-impaired. These loans continue to be subjected to individual or collective impairment assessment.

Financial assets at fair value through profit or loss This category comprises two sub-categories: financial assets classified as held-for-trading and financial assets designated

by the Group and the Bank as at fair value through profit or loss upon initial recognition.

A financial asset is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as ‘Derivative financial assets’ when their fair values are positive. Financial assets held-for-trading consist of debt instruments, including money-market paper, traded corporate and bank loans, and equity instruments, as well as financial assets with embedded derivatives. They are recognised in the statement of financial position as ‘Financial assets held-for-trading’.

Financial instruments included in this category are recognised initially at fair value; transaction costs are taken directly to

the income statement. Financial assets at fair value through profit or loss are subsequently carried at fair value. Changes in fair values including the effects of currency translation, interest and dividend income are recognised in the income statement in the period in which the changes arise.

The Group and the Bank may designate certain financial assets upon initial recognition as at fair value through profit or loss (fair value option). This designation cannot subsequently be changed. The fair value option is only applied when the following conditions are met:

• theapplicationofthefairvalueoptionreducesoreliminatesanaccountingmismatchthatwouldotherwisearise;or

• the financial assets are part of a portfolio of financial instrumentswhich is riskmanaged and reported to seniormanagement on a fair value basis; or

• thefinancialassetsconsistsofdebthostandanembeddedderivativesthatmustbeseparated.

Financial assets for which the fair value option is applied are recognised in the statement of financial position as ‘Financial assets designated at fair value’. Fair value changes relating to financial assets designated at fair value through profit or loss are recognised in the income statement.

The Group and the Bank may choose to reclassify a non-derivative financial assets held-for-trading out of this category where:

• inrarecircumstances,itisnolongerheldforthepurposeofsellingorrepurchasinginthenearterm;or

• itisnolongerheldforpurposeoftrading,itwouldhavemetthedefinitionofaloanandreceivableoninitialclassificationand the Group and the Bank have the intention and ability to hold it for the foreseeable future or until maturity.



Annual Report 2012


Financial investments available-for-sale

Financial investments available-for-sale are non-derivative financial assets that are either designated in this category or not classified as loans and receivables, held-for-trading or held-to-maturity investments.

Financial instruments available-for-sale are initially recognised at fair value plus transaction costs and subsequently measured at fair value.

Investments in equity instruments where there is no quoted market price in an active market and whose fair value cannot be reliably measured, will be stated at cost.

Any gains or losses arising from the change in fair value adjustments are recognised directly in statement of comprehensive income except for impairment losses and foreign exchange gains or losses. When the financial asset is derecognised, the cumulative gains or loss previously recognised in statement of comprehensive income shall be transferred to the income statement.

A financial investments available-for-sale that would have met the definition of loans and receivables may only be transferred from the available-for-sale classification where the Group and the Bank have the intention and the ability to hold the asset for the foreseeable future or until maturity.

Impairment of financial investments available-for-sale is assessed when there is an objective evidence of impairment. Cumulative unrealised losses that had been recognised directly in equity shall be removed and recognised in income statement even though the securities have not been de-recognised. Impairment loss in addition to the above unrealised losses is also recognised in the income statement. Subsequent reversal of impairment on debt instrument in the income statement is allowed when the decrease in impairment can be related objectively to an event occurring after the impairment was recognised.

In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. Impairment losses recognised in the income statement on equity instruments shall not be reversed.

Financial investments held-to-maturity

Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group and the Bank have the positive intention and ability to hold to maturity.

Financial investments held-to-maturity are initially recognised at fair value plus transaction costs, and subsequently measured at amortised cost using the effective interest method.

Financial investments held-to-maturity are measured at amortised cost using the effective interest method. Gains or losses are recognised in income statement when the securities are derecognised or impaired and through the amortisation process.

If, as a result of a change in intention or ability, it is no longer appropriate to classify a financial investment as held-to-maturity, the Group and the Bank shall reclassify the investment as available-for-sale and remeasured at fair value, and the difference between its carrying amount and fair value shall be recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses.



Annual Report 2012


Financial investments held-to-maturity (continued)

Any sale or reclassification of a significant amount of financial investments held-to-maturity before maturity during the current financial year or last two preceding financial years will “taint” the entire category and result in the remaining financial investments held-to-maturity being reclassified to available-for-sale except for sales or reclassification that:

• aresoclosetomaturityorcalldatethatchangesinthemarketrateofinterestwouldnothavesignificanteffectonthefinancial asset’s fair value; or

• occuraftertheGroupandtheBankhavecollectedsubstantiallyallofthefinancialasset’soriginalprincipal;or

• areattributabletoanisolatedeventthatisbeyondtheGroupandtheBank’scontrolarenon-recurringandcouldnothave been reasonably anticipated by the Group and the Bank.

Impairment of financial investments held-to-maturity is assessed when there is an objective evidence of impairment. The impairment loss is measured as the difference between the financial investments’ carrying amount and the present value of estimated future cash flows discounted at the financial investments’ original effective interest rate. Subsequent reversal of impairment is allowed in the event of an objective decrease in impairment. Recognition of impairment losses and its reversal is made through the income statement.

Recognition

The Group and the Bank use settlement date accounting for regular way contracts when recording financial asset transactions. Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the statement of financial position as ‘Assets pledged as collateral’, if the transferee has the right to sell or repledge them.

De-recognition

Financial assets are de-recognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Group and the Bank tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent de-recognition).

(I) FINANCIAL LIABILITIES

All financial liabilities which include derivative financial instruments have to be recognised in the statement of financial position and measured in accordance with their assigned category.

The Group and the Bank’s holding in financial liabilities are in financial liabilities at fair value through profit or loss (including financial liabilities held-for-trading and those that designated at fair value) and financial liabilities at amortised cost. Financial liabilities are de-recognised when extinguished.

Financial liabilities at fair value through profit or loss

This category comprises two sub-categories: financial liabilities classified as held-for-trading, and financial liabilities designated by the Group and the Bank as at fair value through profit or loss upon initial recognition.



Annual Report 2012

(I) FINANCIAL LIABILITIES (continued)

Financial liabilities at fair value through profit or loss (continued)

A financial liability is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as ‘Derivative financial liabilities’ when their fair values are negative.

Gains and losses arising from changes in fair value of financial liabilities classified held-for-trading are included in the income statement.

Other liabilities measured at amortised cost

Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at amortised cost. All the financial liabilities except for derivative financial liabilities of the Group and the Bank are measured at amortised cost.

De-recognition

Financial liabilities are de-recognised when they have been redeemed or otherwise extinguished.

(J) OFFSETTING FINANCIAL INSTRUMENTS

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously.

(K) PROPERTY AND EQUIPMENT AND DEPRECIATION

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Freehold land is not depreciated as it has an infinite life. Other property and equipment are depreciated on the straight-line basis to write off the cost of the assets or their revalued amounts, to their residual values over their estimated useful lives, summarised as follows:

Buildings 50 years Leasehold buildings 50 years or over the remaining lease period, whichever is shorter Renovation and leasehold premises 5 years or the period of the lease, whichever is greater Office equipment and furniture 10 years Computer equipment and software 5 years Motor vehicles 5 years

Depreciation on capital work in progress commences when the assets are ready for their intended use.



Annual Report 2012

(K) PROPERTY AND EQUIPMENT AND DEPRECIATION (continued)

Residual value and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date.

At each reporting date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is recoverable. A write down is made if the carrying amount exceeds the recoverable amount. Any subsequent increase in the recoverable amount is recognised in the income statement (refer to accounting policy E on impairment of non-financial assets).

Gains and losses on disposal are determined by comparing proceeds with carrying amount and are recognised within other operating income in the income statement.

(L) LEASES

Accounting by lessee

Finance leases

Leases of property and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property and equipment acquired under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to the carrying amount of the leased assets and recognised as an expense in income statement over the lease term on the same basis as the lease expense.

Operating leases

Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on the straight-line basis over the lease period.

Initial direct costs incurred by the Group in negotiating and arranging operating leases are recognised in income statement when incurred.

Accounting by lessor

Finance leases

When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method so as to reflect a constant periodic rate of return.

Operating leases

When assets are leased out under an operating lease, the asset is included in the statement of financial position based on the nature of the asset. Lease income is recognised over the term of the lease on a straight-line basis.



Annual Report 2012

(M) FOREIGN CURRENCY TRANSLATIONS

Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Ringgit Malaysia, which is the Group and the Bank’s functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchanges rate prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

Changes in the fair value of monetary financial assets denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the financial asset and other changes in the carrying amount of the financial asset. Translation differences related to changes in the amortised cost are recognised in income statement, and other changes in the carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit and loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the fair value reserve in other comprehensive income.

(N) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING Derivatives are initially recognised at fair values on the date on which derivative contracts are entered into and are

subsequently remeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative.

The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e the fair value of the consideration given or received) unless fair value of the instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge); or (2) hedges of highly probable future cash flows attributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge). Hedge accounting is used for designated derivatives in this way provided certain criterias are met.

The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and an on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.



Annual Report 2012

(N) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (continued) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used, is amortised to income statement over the period to maturity. The adjustment to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income. The gain and loss relating to the ineffective portion is recognised immediately in the income statement.

Amounts accumulated in other comprehensive income are recycled to the income statement in the periods in which the hedged item will affect income statement (for example, when the forecast sale that is hedged take place).

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing at that time remains in other comprehensive income and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the income statement.

Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement.

Gains and losses on interest rate swaps, futures, forward and option contracts that qualify as hedges are deferred and amortised over the life of hedged assets or liabilities as adjustments to interest income or interest expense. Gains and losses on interest rate swaps, futures, forward and option contracts that do not qualify as hedges are recognised in the current financial year using the mark-to-market method and are included in the income statement.

(O) CURRENT AND DEFERRED INCOME TAXES

Current tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period where the Group’s subsidiaries and branch operate and generate taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. This liability is measured using the single best estimate of the most likely outcome.



Annual Report 2012

(O) CURRENT AND DEFERRED INCOME TAXES (continued) Deferred tax

Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised.

Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the end of the reporting date and are expected to apply when the related deferred tax assets is realised or the deferred tax liability is settled.

Deferred tax is recognised on temporary differences arising on investment in subsidiaries and jointly controlled entity except where the timing of the reversal of the temporary difference can be controlled by the Group and it is possible that the temporary difference will not reverse in the foreseeable future.

Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on net basis.

(P) ZAKAT

Zakat represents business zakat payable by the Group to comply with the principles of Shariah and as approved by the Shariah Committee. The Bank’s subsidiary, AFFIN Islamic Bank Berhad only pays zakat on its business and does not pay zakatonbehalfofdepositors.Zakatprovisioniscalculatedbasedon2.5775%ofthenetassetmethod.

(Q) CASH AND CASH EQUIVALENTS

Cash and cash equivalents consists of cash in hand, bank balances and deposits and placements maturing within one month which are held for the purpose of meeting short term commitments and are readily convertible to cash without significant risk of changes in value.

(R) FORECLOSED PROPERTIES

Foreclosed properties are stated at the lower of cost and net realisable value.

(S) CONTINGENT LIABILITIES AND CONTINGENT ASSETS

The Group and the Bank do not recognise a contingent liability but disclose its existence in the financial statements. A contingent liability is possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. However, contingent liabilities do not include financial guarantee contracts.



Annual Report 2012

(S) CONTINGENT LIABILITIES AND CONTINGENT ASSETS (continued)

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank. The Group and the Bank does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain.

(T) BILLS AND ACCEPTANCES PAYABLE

Bills and acceptances payable represent the Bank’s own bills and acceptances rediscounted and outstanding in the market.

(U) OTHER PROVISIONS

Provisions are recognised by the Group and the Bank when all of the following conditions have been met:

• theGroupandtheBankhasapresentlegalorconstructiveobligationasaresultofpastevents;

• itisprobablethatanoutflowofresourcestosettletheobligationwillberequired;and

• areliableestimateoftheamountofobligationcanbemade.

Where the Group and the Bank expect a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost expense.

(V) EMPLOYEE BENEFITS

Short-term employee benefits

Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group.

Defined contribution plan

The defined contribution plan is a pension plan under which the Group pays fixed contributions to the National Pension Scheme, the Employees’ Provident Fund (‘EPF’) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

The Group’s contribution to defined contribution plans are charged to the income statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations.



Annual Report 2012

(V) EMPLOYEE BENEFITS (continued)

Termination benefits

Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without any possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

(W) FINANCIAL GUARANTEE CONTRACTS Financial guarantee contracts are contracts that require the Group or Bank to make specified payments to reimburse the

holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised.

The liability is subsequently recognised at the higher of the amount determined in accordance with MFRS 137 “Provisions, contingent liabilities and contingent assets” and the amount initially recognised less cumulative amortisation, where appropriate.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Group for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries.

(X) SALE AND REPURCHASE AGREEMENTS

Securities purchased under resale agreements are securities which the Group and the Bank have purchased with a commitment to resell at future dates. The commitment to resell the securities is reflected as an asset on the statements of financial position.

Conversely, obligations on securities sold under repurchase agreements are securities which the Group and the Bank have sold from its portfolio, with a commitment to repurchase at future dates. Such financing and the obligation to repurchase the securities is reflected as a liability on the statement of financial position.

The difference between sale and repurchase price as well as purchase and resale price are amortised as interest income and interest expense respectively on an effective yield method.



Annual Report 2012

(Y) PROFIT EQUALISATION RESERVE (‘PER’)

Bank Negara Malaysia has issued its revised Guidelines on Profit Equalisation Reserve (‘PER’) and the implementation date of the guidelines take effect for financial year beginning 1 July 2011.

Beginning of the financial period, AFFIN Islamic Bank Berhad (‘AFFIN Islamic’) a wholly owned subsidiary of the Bank has adopted the revised Guidelines on PER and has apply in managing the Displaced Commercial Risk (‘DCR’) in accordance with Shariah principles. The PER is for Mudharabah accounts.

With these revised PER Guidelines, the release of PER shall be appropriated from both Investment Account Holder (‘IAH’) and AFFIN Islamic’s portion based on the contractual profit sharing ratio at the point of utilisation. The amount of PER shall be limited to the maximum of the either PER of the IAH or AFFIN Islamic depending on prevailing profit sharing ratio.

The IAH portion of the existing PER shall be classified as a liability and is recognised at cost. Subsequent apportionments will be recognised in the income statement. The eventual distribution of PER as profit distributable to the IAH will be treated as an outflow of funds due to the settlement of the obligation to the IAH.

The PER of the AFFIN Islamic shall be classified as a separate reserve in equity and subsequent apportionments from and distributions to retained earnings will be treated as a transfer between reserves.

The change in accounting policy is accounted for prospectively and there is no financial impact to the result of the Group.


1 GENERAL INFORMATION

The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank’s subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been no significant changes in these principal activities during the financial year.

The number of employees in the Group and the Bank as at 31 December 2012 was 3,342 (31.12.2011: 3,293, 1.1.2011: 3,113) and 3,122 (31.12.2011: 3,095, 1.1.2011: 2,933) employees respectively.

The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera Act, 1973.

The Bank is a limited liability company, incorporated and domiciled in Malaysia.

2 CASH AND SHORT-TERM FUNDS

The Group The Bank 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cash and bank balances with banks and other financial institutions 215,228 172,014 172,530 210,501 168,388 169,157 Money at call and deposit placements maturing within one month 7,433,676 9,707,352 8,467,927 3,423,341 5,359,051 5,939,295

7,648,904 9,879,366 8,640,457 3,633,842 5,527,439 6,108,452

3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS


Licensed banks 286,920 156,235 15,681 834,301 768,529 388,076 Licensed investment banks 209,524 330,459 176,841 209,524 330,459 176,841 Bank Negara Malaysia 100,008 - - - - -

596,452 486,694 192,522 1,043,825 1,098,988 564,917

4 FINANCIAL ASSETS HELD-FOR-TRADING


At fair value Bank Negara Malaysia Monetary Notes - 149,832 99,853 - 149,832 99,853 Negotiable Instruments of Deposit 150,276 - 50,092 150,276 - 50,092 Private debt securities in Malaysia 15,316 - - 15,316 - -

165,592 149,832 149,945 165,592 149,832 149,945

NOTES TO ThEFINANCIAL STATEMENTSfor the financial year ended 31 December 2012


NOTES TO ThE FINANCIAL STATEMENTSfor the financial year ended 31 December 2012

Annual Report 2012

5 DERIVATIVE FINANCIAL ASSETS

The Group and The Group and The Group and The Bank The Bank The Bank 31.12.2012 31.12.2011 1.1.2011 Contract/ Contract/ Contract/ notional notional notional amount Assets amount Assets amount Assets RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At fair value Foreign exchange derivatives: Currency forwards 601,636 9,504 246,307 2,433 240,549 2,381 Cross currency swaps 1,871,775 37,661 879,504 16,097 1,347,158 35,206 Interest rate derivatives: Interest rate swap 788,622 21,707 444,560 31,371 576,120 17,394

3,262,033 68,872 1,570,371 49,901 2,163,827 54,981

6 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE


At fair value Malaysian Government treasury bills - 39,421 166,566 - 39,421 137,730 Malaysian Government securities 5,070 430,728 763,701 5,070 430,728 763,701 Malaysian Government investment issues 1,879,076 2,611,724 1,410,778 1,004,366 1,915,445 674,170 BNM Sukuk - - 32,017 - - - Sukuk Perumahan Kerajaan 120,550 - - 120,550 - - Bank Negara Malaysia Monetary Notes 884,069 174,620 1,006,592 517,015 24,949 849,557 Negotiable Instruments of Deposit and Islamic Debt Certificates 752,059 802,322 141,072 752,059 802,322 141,072 Bankers’ acceptances and Islamic accepted bills 163,751 - 556,994 163,751 - 556,994 Khazanah Bonds/Sukuk 193,746 14,262 13,250 157,556 - -

3,998,321 4,073,077 4,090,970 2,720,367 3,212,865 3,123,224 Quoted securities: Shares in Malaysia 17,736 33,585 51,375 12,806 23,230 40,920 Private debt securities in Malaysia 4,173 2,167 2,167 4,173 2,167 2,167 Unquoted securities: Shares in Malaysia 135,595 105,902 93,173 135,526 105,833 93,101 Private debt securities - in Malaysia 3,067,124 1,935,129 1,266,117 2,365,334 1,315,135 899,797 - outside Malaysia 465,736 576,894 340,620 465,736 576,894 329,523

7,688,685 6,726,754 5,844,422 5,703,942 5,236,124 4,488,732 Allowance for impairment of securities (48,031) (28,336) (40,005) (45,781) (21,591) (33,260)

7,640,654 6,698,418 5,804,417 5,658,161 5,214,533 4,455,472



Annual Report 2012

7 FINANCIAL INVESTMENTS HELD-TO-MATURITY


At amortised cost Quoted securities: Private debt securities in Malaysia 31,781 34,623 38,123 31,781 34,623 38,123 Unquoted securities: Private debt securities in Malaysia 482,037 574,066 482,166 482,037 574,066 481,998

513,818 608,689 520,289 513,818 608,689 520,121 Allowance for impairment of securities (62,148) (87,584) (87,752) (62,148) (87,584) (87,584)

451,670 521,105 432,537 451,670 521,105 432,537

8 LOANS, ADVANCES AND FINANCING

The Group The Bank (i) By type 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Overdrafts 1,834,204 1,856,907 1,971,364 1,647,184 1,649,343 1,747,438 Term loans/financing - Housing loans/financing 5,176,283 4,544,089 3,885,327 3,664,322 3,273,275 2,831,771 - Hire purchase receivables 9,595,286 8,869,439 7,835,986 8,157,056 7,637,022 6,774,821 - Syndicated financing 1,410,697 1,409,858 1,371,964 1,150,704 1,265,396 1,254,969 - Business term loans/financing 11,198,302 9,980,935 7,784,898 9,740,164 8,633,582 6,850,106 Bills receivables 452,075 42,928 39,077 451,685 42,534 37,688 Trust receipts 435,425 374,449 266,050 406,979 340,869 222,092 Claims on customers under acceptances credits 1,040,695 694,365 659,074 907,118 602,521 601,137 Staff loans/financing (of which RM Nil to Directors) 143,138 147,691 151,146 132,239 138,821 143,110 Credit/charge cards 85,258 93,116 101,682 85,258 93,116 101,682 Revolving credits 2,640,078 2,286,027 2,476,644 2,455,344 2,153,483 2,334,181 Factoring 4,186 12,318 3,185 4,186 12,318 3,185

Gross loans, advances and financing 34,015,627 30,312,122 26,546,397 28,802,239 25,842,280 22,902,180 Less: Allowance for impairment - Individual (210,372) (168,257) (175,849) (175,277) (133,329) (139,709) - Collective (322,629) (451,599) (395,701) (287,693) (390,890) (343,220)

Total net loans, advances and financing 33,482,626 29,692,266 25,974,847 28,339,269 25,318,061 22,419,251

- Included in term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM413,549,000 (31.12.2011: RM428,459,000, 1.1.2011: RM288,891,000).

- Included in Group’s business term loans/financing as at reporting date is RM35.2 million (31.12.2011: RM23.3 million, 1.1.2011: RM13.5 million) of term financing disbursed by AFFIN Islamic Bank Bhd to jointly controlled entity, AFFIN-i Nadayu Sdn Bhd (fka AFFIN-i Goodyear Sdn Bhd).



Annual Report 2012

8 LOANS, ADVANCES AND FINANCING (continued)

The Group The Bank (ii) By maturity structure 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Maturing within one year 7,094,994 5,745,936 6,552,073 6,529,283 5,128,886 5,989,754 One year to three years 3,776,830 3,738,038 2,748,818 3,422,247 3,511,510 2,581,046 Three years to five years 7,027,289 5,386,223 4,411,920 6,256,576 4,689,710 3,906,606 Over five years 16,116,514 15,441,925 12,833,586 12,594,133 12,512,174 10,424,774

34,015,627 30,312,122 26,546,397 28,802,239 25,842,280 22,902,180

The Group The Bank (iii) By type of customer 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Domestic banking institutions 1,335 949 - 1,335 949 - Domestic non-banking institutions - Stockbroking companies 253 - 270 253 - 270 - Others 1,702,223 2,078,889 2,146,330 1,392,164 1,771,630 1,724,629 Domestic business enterprises - Small medium enterprises 5,159,162 7,573,762 6,789,502 4,731,171 6,989,064 6,311,415 - Others 12,236,170 7,257,740 5,785,703 10,909,570 6,409,423 5,265,662 Government and statutory bodies 117,523 65,487 75,394 95,861 49,642 75,394 Individuals 13,980,454 12,908,539 11,473,630 11,064,103 10,438,005 9,369,378 Other domestic entities 128,982 164,857 45,584 43,256 47,337 43,749 Foreign entities 689,525 261,899 229,984 564,526 136,230 111,683

34,015,627 30,312,122 26,546,397 28,802,239 25,842,280 22,902,180

The Group The Bank

(iv) By interest/profit rate sensitivity 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Fixed rate - Housing loans/financing 306,969 283,990 286,138 223,958 191,221 183,375 - Hire purchase receivables 9,595,286 8,869,438 7,834,034 8,157,056 7,637,022 6,773,029 - Other fixed rate loans/financing 4,238,013 4,482,642 3,934,311 3,575,916 3,887,802 3,400,299 Variable rate - BLR plus 13,680,021 11,271,790 10,210,602 11,284,216 9,225,843 8,596,943 - Cost plus 6,195,338 5,404,262 4,281,312 5,561,093 4,900,392 3,948,534

34,015,627 30,312,122 26,546,397 28,802,239 25,842,280 22,902,180



Annual Report 2012


The Group The Bank (v) By economic sectors 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Primary agriculture 541,309 489,126 482,204 456,231 402,511 385,200 Mining and quarrying 473,549 431,334 373,899 472,737 431,167 373,664 Manufacturing 2,652,586 2,272,033 1,790,610 2,431,936 2,051,720 1,660,682 Electricity, gas and water supply 465,812 160,641 194,137 442,841 159,825 193,273 Construction 2,996,080 2,433,031 2,367,389 2,565,423 2,108,657 2,027,689 Real estate 3,710,269 3,000,445 2,328,423 3,300,797 2,557,560 2,283,744 Wholesale & retail trade and restaurants & hotels 1,772,302 1,436,865 1,213,751 1,635,026 1,392,540 1,164,859 Transport, storage and communication 1,684,162 1,582,862 921,590 1,667,015 1,572,087 915,146 Finance, insurance and business services 4,198,676 4,266,707 4,396,591 3,711,166 3,833,101 3,809,129 Education, health and others 1,326,793 1,146,839 855,655 866,577 734,469 584,559 Household 14,123,648 13,039,953 11,579,272 11,183,065 10,549,125 9,461,991 Others 70,441 52,286 42,876 69,425 49,518 42,244

34,015,627 30,312,122 26,546,397 28,802,239 25,842,280 22,902,180

The Group The Bank

(vi) By economic purpose 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Purchase of securities 111,002 131,246 268,145 110,968 131,165 254,706 Purchase of transport vehicles 10,032,763 9,112,854 7,869,187 8,594,582 7,880,728 6,807,263 Purchase of landed property of which: - Residential 5,170,831 4,632,718 3,982,258 3,569,346 3,258,417 2,913,043 - Non-residential 4,738,255 3,791,366 2,637,636 3,872,481 3,042,970 2,211,785 Fixed assets other than land and building 330,383 326,549 339,184 264,500 276,513 329,088 Personal use 956,755 819,498 721,877 916,901 780,772 689,560 Credit card 85,258 93,116 101,682 85,258 93,116 101,682 Consumer durable 860 958 1,067 843 932 1,033 Construction 2,068,031 1,594,137 772,577 1,853,956 1,444,217 648,490 Merger and acquisition 419,051 98,651 4,867 419,051 98,651 4,867 Working capital 9,537,743 9,489,000 9,635,096 8,556,715 8,618,767 8,739,309 Others 564,695 222,029 212,821 557,638 216,032 201,354

34,015,627 30,312,122 26,546,397 28,802,239 25,842,280 22,902,180



Annual Report 2012


The Group The Bank (vii) By geographical distribution 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Perlis 84,463 56,604 27,648 75,126 53,590 25,762 Kedah 1,051,167 942,274 902,980 775,217 728,495 691,342 Pulau Pinang 1,665,271 1,525,797 1,271,331 1,574,914 1,424,482 1,176,306 Perak 1,037,353 917,610 853,633 787,392 719,023 689,294 Selangor 10,829,556 9,330,844 7,602,382 8,975,233 7,858,891 6,423,997 Wilayah Persekutuan 9,614,422 8,886,609 8,720,586 8,196,935 7,675,315 7,876,473 Negeri Sembilan 754,375 753,916 721,564 656,033 683,030 660,393 Melaka 767,272 696,178 663,856 711,588 656,132 623,077 Johor 2,815,016 2,631,232 2,027,324 2,633,855 2,456,572 1,889,371 Pahang 679,379 633,914 623,000 429,283 378,967 368,284 Terengganu 844,224 580,189 567,382 490,010 252,758 277,903 Kelantan 243,555 268,161 256,176 47,809 58,223 58,335 Sarawak 995,737 1,011,152 732,788 968,982 985,563 707,464 Sabah 1,533,859 1,272,938 1,173,362 1,480,515 1,211,948 1,137,077 Labuan 187,347 262,731 277,901 187,340 262,722 277,889 Outside Malaysia 912,631 541,973 124,484 812,007 436,569 19,213

34,015,627 30,312,122 26,546,397 28,802,239 25,842,280 22,902,180

The Group The Bank

(viii) Movements of impaired loans 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

At beginning of the financial year 865,662 971,123 693,318 818,522 Classified as impaired 535,712 535,462 468,672 422,487 Reclassified as non-impaired (375,518) (343,790) (295,513) (273,189) Amount recovered (123,546) (185,271) (102,162) (165,246) Amount written-off (149,116) (111,862) (140,912) (109,256)

At end of the financial year 753,194 865,662 623,403 693,318

Ratio of gross impaired loans, advances and financing to gross loans, advances and financing 2.21% 2.85% 2.16% 2.68%



Annual Report 2012


The Group The Bank (ix) Movements in allowance for impairment 31.12.2012 31.12.2011 31.12.2012 31.12.2011 on loans, advances and financing RM’000 RM’000 RM’000 RM’000

Individual impairment At beginning of the financial year 168,257 175,849 133,329 139,709 Provision for loan impairment 72,213 116,909 69,391 111,880 Amount recovered (2,716) (13,571) (2,546) (12,198) Amount written-off (13,362) (96,224) (13,362) (93,889) Unwinding of discount of allowance (14,020) (14,706) (11,535) (12,173)


Collective impairment At beginning of the financial year 451,599 395,701 390,890 343,220 Provision for loan impairment 6,672 67,662 24,242 59,788 Amount written-off (135,642) (12,118) (127,439) (12,118) Exchange differences - 354 - -


The Group The Bank (x) Impaired loans by economic 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 sectors RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Primary agriculture 7,482 7,855 11,937 7,482 7,810 11,874 Mining and quarrying 62 - 50 - - - Manufacturing 50,795 48,663 99,831 29,916 28,197 78,707 Electricity, gas and water supply 1,641 1,928 2,360 1,641 1,662 2,066 Construction 180,667 189,515 252,660 114,475 121,609 175,208 Real estate 3,797 4,159 8,263 3,797 4,159 8,263 Wholesale & retail trade and restaurants & hotels 27,246 34,519 48,103 23,746 32,299 45,555 Transport, storage and communication 7,212 5,086 4,633 7,155 5,086 4,633 Finance, insurance and business services 63,880 51,926 15,108 63,114 23,537 14,469 Education, health and others 4,107 8,547 8,301 4,107 8,510 8,301 Household 399,019 509,810 519,877 360,787 456,892 469,446 Others 7,286 3,654 - 7,183 3,557 -

753,194 865,662 971,123 623,403 693,318 818,522



Annual Report 2012


The Group The Bank (xi) Impaired loans by economic 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 purpose RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Purchase of securities 13,678 2,721 2,741 13,678 2,721 2,741 Purchase of transport vehicles 54,781 106,606 81,586 48,702 95,291 73,743 Purchase of landed property of which: - Residential 329,360 382,814 407,763 297,245 340,922 365,321 - Non-residential 26,575 34,354 44,744 26,015 33,850 44,119 Fixed assets other than land and building 5,063 17,758 3,633 5,063 17,758 3,185 Personal use 6,738 12,699 16,373 6,738 8,611 16,170 Credit card 508 499 636 508 499 636 Consumer durable 29 33 34 29 33 34 Construction 61,437 63,547 63,407 141 57 1,694 Working capital 243,861 243,112 349,989 214,224 192,157 310,666 Others 11,164 1,519 217 11,060 1,419 213

753,194 865,662 971,123 623,403 693,318 818,522

The Group The Bank (xii) Impaired loans by geographical 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 distribution RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Perlis 138 332 840 138 332 840 Kedah 24,622 24,835 40,612 23,397 23,834 39,228 Pulau Pinang 18,684 25,585 30,120 17,342 23,774 27,892 Perak 20,754 23,884 16,202 19,270 21,332 14,559 Selangor 344,927 407,273 426,852 300,176 360,343 382,454 Wilayah Persekutuan 142,238 122,787 185,642 136,283 110,570 173,975 Negeri Sembilan 31,248 39,790 37,483 28,873 37,609 35,466 Melaka 7,452 16,229 15,854 7,215 16,033 15,356 Johor 52,426 65,744 88,097 50,310 62,945 85,252 Pahang 10,058 11,840 17,013 7,097 8,122 13,368 Terengganu 3,681 5,776 8,009 1,994 3,156 6,529 Kelantan 4,153 7,193 6,171 1,778 2,707 3,011 Sarawak 5,741 7,694 6,614 5,154 7,456 6,387 Sabah 10,460 15,533 14,387 9,060 15,090 14,160 Labuan 21 15 45 21 15 45 Outside Malaysia 76,591 91,152 77,182 15,295 - -

753,194 865,662 971,123 623,403 693,318 818,522



Annual Report 2012

9 OTHER ASSETS

The Group The Bank 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Other debtors, deposits and prepayments 33,532 21,421 21,623 32,057 20,923 20,222 Cheque clearing accounts 233,351 104,755 4,160 170,137 56,775 4,077 Foreclosed properties (a) 26,745 40,337 160,648 25,566 38,962 160,253 Others 30 30 30 30 30 30

293,658 166,543 186,461 227,790 116,690 184,582

(a) Foreclosed properties


At beginning of the financial year 40,337 160,648 38,962 160,253 Amount arising during the financial year - 1,190 - - Disposal during the financial year (11,470) (118,959) (11,274) (118,959)

28,867 42,879 27,688 41,294 Foreclosed properties - diminution in value (2,122) (2,542) (2,122) (2,332)


10 AMOUNT DUE FROM SUBSIDIARIES

The Bank 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000

Advances to a subsidiary 153,296 355,535 183,541 Other receivables 653 1,362 1,730

153,949 356,897 185,271

The advances of RM153,296,000 (31.12.2011 : RM355,535,000, 1.1.2011 : RM183,541,000) to subsidiary are unsecured, bear interestat3.08%perannum(31.12.2011:3.02%,1.1.2011:2.62%)andhavenofixedtermsofrepayment.



Annual Report 2012

11 DEFERRED TAX ASSETS / (LIABILITIES)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts determined after appropriate offsetting, are shown in the statement of financial position:


Deferred tax assets: - to be recovered after more than 12 months - - 5,221 - - - - to be recovered within 12 months - - (930) - - -

- - 4,291 - - -

Deferred tax liabilities: - to be recovered after more than 12 months (5,278) (6,099) (2,876) (4,468) (5,263) (2,876) - to be recovered within 12 months (8,087) (14,019) (22,056) (8,631) (13,948) (22,056)

(13,365) (20,118) (24,932) (13,099) (19,211) (24,932)


At beginning of the financial year (20,118) (20,641) (19,211) (24,932) (Charged)/credited to income statement (Note 34) 7,171 7,453 6,568 13,325

- property and equipment 185 (73) 112 (36) - intangible assets 1,920 (424) 1,721 24 - collective allowances (transitional provision) for bad and doubtful financing - (6,785) - (267) - provision for other liabilities 5,066 14,735 4,735 13,604

Charged to equity (418) (6,930) (456) (7,604)

At end of the financial year (13,365) (20,118) (13,099) (19,211)



Annual Report 2012

11 DEFERRED TAX ASSETS / (LIABILITIES) (continued)

The movements in deferred tax assets and liabilities during the financial year are as follows: The Group The Bank 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Subject to income tax Deferred tax assets (before offsetting) Collective allowances (transitional provision) for bad and doubtful financing - - 6,785 - - 267 Provision for other liabilities 19,813 14,747 12 18,351 13,616 12

19,813 14,747 6,797 18,351 13,616 279 Offsetting (19,813) (14,747) (2,506) (18,351) (13,616) (279)

Deferred tax assets (after offsetting) - - 4,291 - - -

Deferred tax liabilities (before offsetting) Property and equipment (5,228) (5,413) (5,340) (4,983) (5,095) (5,059) Intangible assets (3,756) (5,676) (5,252) (3,141) (4,862) (4,886) AFS revaluation reserves (24,194) (23,776) (16,846) (23,326) (22,870) (15,266)

(33,178) (34,865) (27,438) (31,450) (32,827) (25,211) Offsetting 19,813 14,747 2,506 18,351 13,616 279

Deferred tax liabilities (after offsetting) (13,365) (20,118) (24,932) (13,099) (19,211) (24,932)

The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as follows:


Tax losses 102,898 103,871 105,260 - - -

12 STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA

A non-interest bearing statutory deposit is maintained with Bank Negara Malaysia in compliance with requirements of Section 26(2)(c) of the Central Bank of Malaysia Act 2009, the amounts of which is determined at a set percentages of total eligible liabilities.



Annual Report 2012

13 INVESTMENT IN SUBSIDIARIES

The Bank 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000

Unquoted shares, at cost 419,557 319,557 319,557 Less: Allowance for impairment losses (32,168) (32,168) (32,128)

387,389 287,389 287,429

The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:

Percentage of equity held Name Principal Activities 31.12.2012 31.12.2011 1.1.2011 % % % AFFIN Islamic Bank Bhd Islamic banking business 100 100 100 PAB Properties Sdn Bhd Property management services 100 100 100 ABB Nominee (Tempatan) Sdn Bhd Share nominee services 100 100 100 ABB Nominee (Asing) Sdn Bhd Share nominee services 100 100 100 ABB Trustee Berhad * Trustee management services 100 100 100 AFFIN Factors Sdn Bhd Dormant 100 100 100 AFFIN Futures Sdn Bhd Dormant 100 100 100 PAB Property Management Services Sdn Bhd Dormant 100 100 100 PAB Property Development Sdn Bhd Dormant 100 100 100 ABB Venture Capital Sdn Bhd Dormant 100 100 100 ABB IT & Services Sdn Bhd Dormant 100 100 100 BSNCB Nominees (Tempatan) Sdn Bhd Dormant 100 100 100 BSNC Nominees (Tempatan) Sdn Bhd Dormant 100 100 100 ABB Asset Management (M) Bhd Dormant 100 100 100 AFFIN Recoveries Bhd Dormant 100 100 100 BSN Merchant Nominees (Tempatan) Sdn Bhd Dormant 100 100 100 BSN Merchant Nominees (Asing) Sdn Bhd Dormant 100 100 100 AFFIN-ACF Nominees (Tempatan) Sdn Bhd Dormant 100 100 100

* 80%heldbyDirectorsoftheBank,intrustfortheBank.



Annual Report 2012

14 INVESTMENT IN JOINTLY CONTROLLED ENTITY

The Group 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000

Unquoted shares, at cost 500 500 500 Group’s share of post acquisition retained losses (440) (210) -

60 290 500

The summarised financial information of jointly controlled entity are as follows:

Revenue 8 10 2 Loss after tax (460) (420) (89) Total assets 46,516 31,711 21,518 Total liabilities 46,396 31,132 20,619 Capital commitment for property and equipment - - -

The jointly controlled entity was incorporated on 1 April 2008 and the details are as follows:

Issued and paip up Percentage of equity held Name Principal Activities Share capital 31.12.2012 31.12.2011 1.1.2011 RM’000 % % % AFFIN-i Nadayu Sdn Bhd Land development project 1,000 50 50 50

On 1 April 2008, AFFIN Islamic Bank Berhad and Jurus Positif Sdn Bhd, a subsidiary of Mutiara Goodyear Development Berhad, entered into a joint venture agreement under the Shariah principles (‘Musharakah Agreement’) to develop a land into a housing scheme at Bukit Gambir, Pulau Pinang.

The agreement also includes an arrangement where Jurus Positif Sdn Bhd may acquire the Bank’s shares upon the completion of the project at a mutually agreed price, unless if both shareholders decide to continue the joint venture for subsequent projects.

Major strategic operation and financial decisions relating to the activities of AFFIN-i Nadayu (fka AFFIN-i Goodyear Sdn Bhd) requires unanimous consent by both joint venture parties. The Group’s interest in AFFIN-i Nadayu Sdn Bhd has been treated as investment in jointly controlled entity, which has been accounted for in the consolidated financial statements using the equity method of accounting.


15

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Dec

emb

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012



Annual Report 2012

16 INTANGIBLE ASSETS

Computer The Group Goodwill Software Total RM’000 RM’000 RM’000

Cost At 1 January 2012 133,430 120,072 253,502 Additions - 458 458 Reclassification from property and equipment (Note 15) - 429 429

At 31 December 2012 133,430 120,959 254,389

Less: Accumulated amortisation At 1 January 2012 - (97,369) (97,369) Amortised during the financial year - (8,568) (8,568)

At 31 December 2012 - (105,937) (105,937)

Net book value as at 31 December 2012 133,430 15,022 148,452

Cost At 1 January 2011 133,430 109,015 242,445 Additions - 1,718 1,718 Disposal - (4) (4) Write-off - (4) (4) Reclassification from property and equipment (Note 15) - 9,347 9,347

At 31 December 2011 133,430 120,072 253,502

Less: Accumulated amortisation At 1 January 2011 - (88,009) (88,009) Amortised during the financial year - (9,366) (9,366) Disposal - 3 3 Write-off - 3 3

At 31 December 2011 - (97,369) (97,369)




Annual Report 2012

16 INTANGIBLE ASSETS (continued)

Computer The Bank Goodwill Software Total RM’000 RM’000 RM’000

Cost At 1 January 2012 137,323 113,670 250,993 Additions - 458 458 Reclassification from property and equipment (Note 15) - 429 429

At 31 December 2012 137,323 114,557 251,880

Less: Accumulated amortisation At 1 January 2012 - (94,222) (94,222) Amortised during the financial year - (7,771) (7,771)

At 31 December 2012 - (101,993) (101,993)


Cost At 1 January 2011 137,323 104,937 242,260 Additions - 1,599 1,599 Disposal - (4) (4) Write-off - (4) (4) Reclassification from property and equipment (Note 15) - 7,142 7,142

At 31 December 2011 137,323 113,670 250,993

Less: Accumulated amortisation At 1 January 2011 - (85,392) (85,392) Amortised during the financial year - (8,836) (8,836) Disposal - 3 3 Write-off - 3 3

At 31 December 2011 - (94,222) (94,222)




Annual Report 2012

16 INTANGIBLE ASSETS (continued)

Goodwill

The carrying amount of the Bank’s goodwill has been allocated to the following business segments, which represent the Bank’s cash-generating units (‘CGUs’):

31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000

Enterprise banking 123,591 123,591 123,591 Consumer banking 13,732 13,732 13,732

137,323 137,323 137,323

Goodwill is allocated to the Bank’s CGU which are expected to benefit from the synergies of the acquisitions. For annual impairment testing purposes, the recoverable amount of the CGUs are determined based on value-in-use calculations using the cash flow projections based on the 2013 financial budgets approved by the Directors, covering a period of 5 years based on the historical Gross Domestic Product (‘GDP’) growth rate of Malaysia, revised for current economic conditions. The cash flow beyond the fifth year are projected based on the assumption that the Year 5 operating cash flow will be generated by the respective CGUs at a growthrateof5%(2011:5%,2010:5%)onperpetualbasis.

The cash flow projections are derived based on a number of key factors including past performance and management’s expectations of the market developments. The discount rates used are based on the pre-tax weighted average cost of capital plus an appropriate risk premium where applicable (‘WACC’), at the date of assessment of the CGUs.

31.12.2012 31.12.2012 31.12.2011 31.12.2011 1.1.2011 1.1.2011 Enterprise Consumer Enterprise Consumer Enterprise Consumer banking banking banking banking banking banking % % % % % %

Pre-tax discount rate 13.39 13.35 14.80 14.74 14.29 14.21

No impairment charge was required for goodwill arising from all the business segments. Management views that any reasonable possible change to the assumptions applied is not likely to cause the recoverable amount of all the business segments to be lower than its carrying amount.



Annual Report 2012

17 DEPOSITS FROM CUSTOMERS

The Group The Bank (i) By type of deposit 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Demand deposits 7,350,021 6,166,579 5,063,155 4,716,583 4,229,705 3,565,188 Savings deposits 1,710,748 1,526,891 1,400,535 1,377,258 1,223,359 1,142,332 Fixed deposits 25,204,503 22,313,675 20,037,784 19,965,844 18,021,753 16,885,793 Special investment deposits 833,132 822,914 642,171 - - - Money market deposits 859,141 528,435 707,411 859,141 528,435 707,411 Negotiable instruments of deposit (‘NID’) 5,305,991 5,188,950 3,131,351 5,305,991 5,069,172 3,131,351

41,263,536 36,547,444 30,982,407 32,224,817 29,072,424 25,432,075

The Group The Bank

(ii) Maturity structure of fixed 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 deposit and NID RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Due within six months 23,936,263 22,187,250 19,988,828 19,583,709 18,647,951 17,233,254 Six months to one year 6,318,076 5,018,157 3,133,020 5,443,400 4,208,729 2,740,853 One year to three years 54,835 95,977 24,167 43,608 33,205 20,856 Three years to five years 201,320 201,241 23,120 201,118 201,040 22,181

30,510,494 27,502,625 23,169,135 25,271,835 23,090,925 20,017,144

The Group The Bank

(iii) By type of customer 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Government and statutory bodies 7,226,690 6,793,344 4,769,914 4,285,101 3,600,922 2,969,799 Business enterprise 12,837,106 10,961,534 9,789,744 9,534,502 8,603,523 8,197,090 Individuals 8,974,563 6,763,627 5,027,100 8,129,294 6,157,670 4,591,770 Others 12,225,177 12,028,939 11,395,649 10,275,920 10,710,309 9,673,416

41,263,536 36,547,444 30,982,407 32,224,817 29,072,424 25,432,075

18 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS


RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Licensed banks 3,212,031 3,724,682 5,024,966 2,391,811 2,752,720 4,308,897 Licensed investment banks 549,029 1,754,811 439,546 490,508 1,704,745 423,868 Bank Negara Malaysia 612,055 794,523 308,497 612,055 794,427 308,497 Other financial institutions 436,208 1,252,896 846,726 233,889 791,945 707,741

4,809,323 7,526,912 6,619,735 3,728,263 6,043,837 5,749,003

Maturity structure of deposits Due within six months 4,806,995 7,524,234 6,550,733 3,725,935 6,041,159 5,680,001 Six months to one year 2,328 2,678 69,002 2,328 2,678 69,002

4,809,323 7,526,912 6,619,735 3,728,263 6,043,837 5,749,003



Annual Report 2012

19 DERIVATIVE FINANCIAL LIABILITIES

The Group and The Group and The Group and The Bank The Bank The Bank 31.12.2012 31.12.2011 1.1.2011 Contract/ Contract/ Contract/ notional notional notional amount Liabilities amount Liabilities amount Liabilities

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At fair value Foreign exchange derivatives: Currency forwards 340,155 2,870 466,576 6,313 487,922 19,025 Cross currency swaps 1,188,783 23,725 1,465,194 33,904 340,850 22,715 Interest rate derivatives: Interest rate swaps 1,695,980 33,068 1,950,455 57,182 919,193 28,455

3,224,918 59,663 3,882,225 97,399 1,747,965 70,195

20 RECOURSE OBLIGATION ON LOANS SOLD TO CAGAMAS BERHAD

In the normal course of banking operations, the Bank sells loans to Cagamas Berhad with recourse at values equivalent to the unpaid principal balances of loans and advances due from the borrowers.

The Bank is liable in respect of housing loans and hire purchase portfolio sold directly and indirectly to Cagamas Berhad, under the condition that the Bank undertakes to administer these loans on behalf of Cagamas Berhad and to buy back any loans which are regarded as defective based on an agreed prudential criteria. Such financing transactions and the obligations to buy back the loans are reflected as a liability on the statement of financial position.

21 OTHER LIABILITIES


RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Bank Negara Malaysia and Credit Guarantee Corporation Funding programmes 28,644 36,071 43,009 28,644 36,071 43,009 Margin and collateral deposits 82,131 72,793 65,191 79,099 72,133 62,552 Other creditors and accruals 181,884 206,888 188,983 161,318 190,513 172,182 Cheque clearing accounts - - 44,616 - - 27,706 Defined contribution plan (a) 13,593 10,754 11,968 12,877 10,211 11,448 Accrued employee benefits (b) 229 229 125 206 206 105

306,481 326,735 353,892 282,144 309,134 317,002

(a) The Group and the Bank contributes to the Employee Provident Fund (‘EPF’), the national defined contribution plan. Once the contributions have been paid, the Group and the Bank has no further payment obligations.

(b) This refers to the accruals for short-term employee benefits for leave entitlement. Under employment contract, employees earn their leave entitlement which they are entitled to carry forward and will lapse if not utilised in the following accounting period. Accruals are made for the estimated liability for unutilised annual leave.



Annual Report 2012

22 AMOUNT DUE TO SUBSIDIARIES

The amount due to subsidiaries is unsecured, interest-free and have no fixed terms of repayment.

23 SUBORDINATED TERM LOAN

On 10 March 2009, the Bank has taken the first 10 year subordinated loan amounting to RM300 million. The first subordinated loan was constituted by agreement date 6 March 2009 and were issued on 10 March 2009.

On 26 May 2011, the Bank has taken the second 10 year subordinated loan amounting to RM300 million. The second subordinated loan was constituted by agreement date 20 May 2011 and were issued on 26 May 2011.

On 16 January 2012, the Bank has taken the third 10 year subordinated loan amounting to RM300 million. The third subordinated loan was constituted by agreement date 3 January 2012 and were issued on 16 January 2012.

All the subordinated loans were taken with the Bank’s Holding Company.

The subordinated loans have a prepayment option on the first prepayment date or any interest payment date subsequent to the first prepayment date, giving the Bank the right, subject to Bank Negara Malaysia (‘BNM’) approval, to prepay the loans in whole or in part.

Interest on subordinated loans payable by quarterly.

Subordinated loan I

Value : RM300 million Interestrate : CostofFund(‘COF’)plus0.75%perannumforperiodofthirtysixmonthsfromtheissuedate,COFplus

1.75%perannumforthenexttwentyfourmonthsandthereafterCOFplus2.00%forthenext5years.

Subordinated loan II and Subordinated loan III

Value : RM300 million each Interestrate : CostofFund(‘COF’)plus1.00%perannumforthe10years.

COF refers to rate determined by the lender on an interest determination date falling within the interest duration.



Annual Report 2012

24 SHARE CAPITAL

Number of ordinary The Group and shares of RM1 each The Bank 31.12.2012 31.12.2011 1.1.2011 31.12.2012 31.12.2011 1.1.2011 ’000 ’000 ’000 RM’000 RM’000 RM’000

Authorised At beginning/end of the financial year 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000

Issued and fully paid At beginning of the financial year 1,439,285 1,439,285 1,439,285 1,439,285 1,439,285 1,439,285 Issued during the financial year 79,052 - - 79,052 - -

At end of the financial year 1,518,337 1,439,285 1,439,285 1,518,337 1,439,285 1,439,285

25 RESERVES


Retained profits 834,371 667,326 522,171 659,603 530,489 411,831 Share premium 529,337 408,389 408,389 529,337 408,389 408,389 AFS revaluation reserves 75,256 74,941 54,249 69,977 68,611 45,795 Statutory reserves 1,160,651 1,011,044 888,910 1,017,200 904,624 807,500

2,599,615 2,161,700 1,873,719 2,276,117 1,912,113 1,673,515

Statutory reserves At beginning of the financial year 1,011,044 888,910 789,221 904,624 807,500 720,824 Transfer from retained profits 149,607 122,134 99,689 112,576 97,124 86,676

At end of the financial year 1,160,651 1,011,044 888,910 1,017,200 904,624 807,500

(a) A single tier company tax was introduced effective 1 January 2008. Under this single tier system, tax on a company’s profits is a final tax, and dividends distributed to shareholders will be exempted from tax. Companies with Section 108 tax credit balance are given an option to elect to move to a single tier system immediately or allowed to use the Section 108 credit balance for the purpose of dividend distribution during a transitional period of 6 years until 31 December 2013.

The Bank has elected to use its Section 108 credit balance for the purpose of dividend distribution during a transitional period of 6 years until 31 December 2013. The Section 108 balance of the Bank as at 31 December 2007 will be frozen and can only be adjusted downwards for any tax discharged, remitted or refunded during the 6 years period.

As at 31 December 2012, the Bank has a tax credit balance of RM2,533,928 under Section 108 of the Income Tax Act, 1967 and tax exempt account balance of RM83,016,257 under Section 12 of the Income Tax (Amendment) Act 1999, subject to agreement by the Inland Revenue Board.

(b) The statutory reserves of the Group and the Bank are maintained in compliance with the provisions of the Banking and Financial Institutions Act, 1989 and are not distributable as cash dividends.

(c) AFS revaluation reserves represent the unrealised gains or losses arising from the change in fair value of investments classified as financial investment available-for-sale. The gains or losses are transferred in the income statement upon disposal or when the securities become impaired.



Annual Report 2012

26 INTEREST INCOME


Loans, advances and financing 1,523,683 1,388,531 1,523,683 1,388,531 Money at call and deposit placements with financial institutions 154,737 148,478 179,411 165,052 Reverse repurchase agreements with financial institutions 117 - 117 - Financial assets/investments - Held-for-trading 789 50 789 50 - Available-for-sale 183,906 141,979 183,758 141,830 - Held-to-maturity 23,912 23,276 23,912 23,229 Interest rate derivatives 86,923 71,879 86,923 71,879 Others - - 3,511 4,688

1,974,067 1,774,193 2,002,104 1,795,259 Amortisation of premium less accretion of discount 10,833 21,469 10,833 21,469

1,984,900 1,795,662 2,012,937 1,816,728

of which: Interest income earned on impaired loans, advances and financing 6,838 11,555 6,838 11,555

27 INTEREST EXPENSE The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Deposits and placements of banks and other financial institutions 145,722 114,418 145,748 114,419 Deposits from customers 894,694 788,840 894,728 788,874 Subordinated term loan 40,453 19,884 40,453 19,884 Loan sold to Cagamas Berhad 19,891 14,913 19,891 14,913 Interest rate derivatives 93,208 81,302 93,208 81,302 Others 2,260 1,490 2,260 1,490

1,196,228 1,020,847 1,196,288 1,020,882

28 NET ISLAMIC BANKING INCOME The Group 31.12.2012 31.12.2011 RM’000 RM’000

Income derived from investment of depositors’ funds and others 459,994 368,911 Income derived from investment of shareholders’ funds 23,650 20,852

Total distributable income 483,644 389,763 Income attributable to depositors (266,872) (190,830)

216,772 198,933



Annual Report 2012

29 OTHER OPERATING INCOME


Fee income Commission 13,918 13,329 13,918 13,329 Service charges and fees 63,999 51,987 63,999 51,987 Guarantee fees 22,567 25,017 22,567 25,017

100,484 90,333 100,484 90,333

Income from financial instruments Gain arising on financial assets held-for-trading: - net gain on disposal 697 546 697 546 - unrealised losses (188) (9) (188) (9)

509 537 509 537

Gains/(losses) on derivatives: - realised 2,711 2,600 2,711 2,600 - unrealised 12,925 (13,230) 12,925 (13,230)

15,636 (10,630) 15,636 (10,630)

Gain arising on financial investments available-for-sale: - net gain on disposal 20,634 24,102 19,870 24,102 - gross dividend income 3,204 23 3,204 23

23,838 24,125 23,074 24,125

Gain arising on financial investments held-to-maturity: - net gain on redemption 19,011 2,546 19,011 2,378 - gross dividend income - 9,705 - 9,705

19,011 12,251 19,011 12,083

Other income Foreign exchange gains/(losses): - realised 29,901 74,386 29,901 74,386 - unrealised 42,325 (17,878) 42,325 (17,878) Rental income 1,692 2,211 1,649 2,161 Gain on sale of property and equipment 1,098 23 1,093 23 Gain/(loss) on disposal of foreclosed properties 10,141 (272) 10,097 (272) Other non-operating income 12,428 11,798 12,111 10,539

97,585 70,268 97,176 68,959

257,063 186,884 255,890 185,407



Annual Report 2012

30 OTHER OPERATING EXPENSES


Personnel costs (a) 328,427 290,791 267,089 235,592 Establishment costs (b) 176,504 166,781 149,770 142,477 Marketing expenses (c) 16,392 17,266 14,145 14,555 Administrative and general expenses (d) 49,835 58,875 42,669 49,377

571,158 533,713 473,673 442,001

(a) Personnel costs The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Wages, salaries and bonuses 254,006 220,817 206,376 178,539 Defined contribution plan (‘EPF’) 41,433 36,003 33,675 29,352 Other personnel costs 32,988 33,971 27,038 27,701

328,427 290,791 267,089 235,592

(b) Establishment costs The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Rental of premises 20,750 20,222 17,249 16,995 Equipment rental 931 905 893 877 Repair and maintenance 32,068 27,757 27,318 23,540 Depreciation 17,784 18,872 16,579 17,853 Amortisation of intangible assets 8,568 9,366 7,771 8,836 IT Consultancy fees 60,972 57,272 52,931 49,799 Dataline rental 4,324 3,477 3,759 3,022 Security services 12,109 10,461 9,836 8,625 Electricity, water and sewerage 9,187 8,491 7,688 7,220 Insurance and indemnities 4,789 4,690 4,668 4,642 Other establishment costs 5,022 5,268 1,078 1,068

176,504 166,781 149,770 142,477



Annual Report 2012

30 OTHER OPERATING EXPENSES (continued)

(c) Marketing expenses The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Business promotion and advertisement 7,837 9,348 7,406 8,346 Entertainment 3,510 2,463 3,067 2,057 Traveling and accommodation 3,632 3,899 2,595 2,956 Other marketing expenses 1,413 1,556 1,077 1,196

16,392 17,266 14,145 14,555

(d) Administration and general expenses The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Telecommunication expenses 5,118 4,901 4,325 4,157 Auditors’ remuneration 1,327 1,479 981 1,025 Professional fees 5,265 13,954 4,146 10,262 Property and equipment written-off 179 423 178 414 Mail and courier charges 4,135 3,834 3,507 3,295 Stationery and consumables 8,975 9,423 6,820 7,224 Commissions expenses 4,204 4,451 3,984 4,190 Brokerage expenses 1,233 1,248 1,133 1,121 Directors’ fee and allowances 1,675 1,579 1,332 1,257 Donations 1,880 1,560 1,748 1,460 Settlement, clearing and bank charges 5,739 5,599 5,421 5,306 Stamp duties 3,102 3,085 3,098 3,083 Operational and litigation write-off expenses 2,995 648 2,950 648 Other administration and general expenses 4,008 6,691 3,046 5,935

49,835 58,875 42,669 49,377

The expenditure includes the following statutory disclosure: The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Directors’ remuneration (Note 31) 7,715 6,331 7,372 6,009 Rental of premises 20,750 20,222 17,249 16,995 Equipment rental 931 905 893 877 Auditors’ remuneration - statutory audit fees 847 787 669 619 - under provision prior year - 14 - 10 - audit related fees 352 264 228 168 - non audit fees 128 414 84 228 Depreciation of property and equipment 17,784 18,872 16,579 17,853 Amortisation of intangible assets 8,568 9,366 7,771 8,836 Property and equipment written-off 179 423 178 414



Annual Report 2012

31 CEO AND DIRECTORS’ REMUNERATION

The Directors of the Bank who have held office during the financial year are as follows: Managing Director/Chief Executive Officer Dato’ Zulkiflee Abbas bin Abdul Hamid Non-Executive Directors Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara) (Chairman) Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin Dr Raja Abdul Malek bin Raja Jallaludin Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman Tan Sri Dato’ Seri Mohamed Jawhar En. Mohd Suffian bin Haji Haron Mr Aubrey Li Kwok-Sing Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing)

The aggregate amount of remuneration for the Directors of the Bank for the financial year were as follows: The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Managing Director/Chief Executive Officer Salaries 1,825 1,431 1,825 1,431 Bonuses 3,150 2,471 3,150 2,471 Defined contribution plan (‘EPF’) 811 638 811 638 Other employee benefits 99 90 99 90 Benefits-in-kind 155 122 155 122 Non-Executive Directors Fees 1,648 1,554 1,305 1,232 Benefits-in-kind 27 25 27 25

Directors’ remuneration (Note 30) 7,715 6,331 7,372 6,009



Annual Report 2012

31 CEO AND DIRECTORS’ REMUNERATION (continued)

A summary of the total remuneration of the Directors, distinguishing between Executive and Non-Executive Directors.

Directors’ * Other Benefits- The Bank Salaries Bonuses Fees emoluments in-kind Total 31.12.2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Managing Director/ Chief Executive Officer Dato’ Zulkiflee Abbas bin Abdul Hamid 1,825 3,150 - 910 155 6,040

Total 1,825 3,150 - 910 155 6,040

Non-executive Directors Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara) - - 149 116 27 292 Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin - - 164 - - 164 Dr. Raja Abdul Malek bin Raja Jallaludin - - 204 - - 204 Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman - - 191 - - 191 Tan Sri Dato’ Seri Mohamed Jawhar - - 187 - - 187 En. Mohd Suffian bin Haji Haron - - 192 - - 192 Mr Aubrey Li Kwok-Sing - - 97 - - 97 Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing) - - 5 - - 5

Total - - 1,189 116 27 1,332

Grand total 1,825 3,150 1,189 1,026 182 7,372



Annual Report 2012

31 CEO AND DIRECTORS’ REMUNERATION (continued)

A summary of the total remuneration of the Directors, distinguishing between Executive and Non-Executive Directors.

Directors’ * Other Benefits- The Bank Salaries Bonuses Fees emoluments in-kind Total 31.12.2011 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Managing Director/ Chief Executive Officer Dato’ Zulkiflee Abbas bin Abdul Hamid 1,431 2,471 - 728 122 4,752

Total 1,431 2,471 - 728 122 4,752

Non-executive Directors Jen Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara) - - 168 96 25 289 Tan Sri Dato’ Seri Lodin bin Wok Kamaruddin - - 97 - - 97 Dr. Raja Abdul Malek bin Raja Jallaludin - - 202 - - 202 Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli bin Mohd Nor (Bersara) - - 125 - - 125 Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman - - 190 - - 190 Mr Aubrey Li Kwok-Sing - - 86 - - 86 Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing) - - 5 - - 5 Mr Stephen Charles Li - - 59 - - 59 Mr Lee Chor Kee (Alternate Director to Mr Stephen Charles Li) - - 1 - - 1 En. Mohd Suffian bin Haji Haron - - 189 - - 189 Tan Sri Dato’ Seri Mohamed Jawhar - - 14 - - 14

Total - - 1,136 96 25 1,257

Grand total 1,431 2,471 1,136 824 147 6,009

* Executive Director’s other emoluments include allowance and EPF



Annual Report 2012

32 ALLOWANCES FOR LOSSES ON LOANS, ADVANCES AND FINANCING


Individual impairment - made in the financial year 72,213 116,909 69,391 111,880 - written-back (2,716) (13,571) (2,546) (12,198) Collective impairment - made 6,672 67,662 24,242 59,788 Bad debts and financing - recovered (106,465) (214,257) (105,880) (213,325) - written-off 7,784 15,956 7,702 15,791 Litigation losses arising from loans - 40,000 - 40,000

(22,512) 12,699 (7,091) 1,936

33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

Related parties that have transactions and their relationship with the Bank are as follows:

Related parties Relationship Lembaga Tabung Angkatan Tentera (‘LTAT’) Ultimate holding corporate body, which is Government-Link Investment Company (‘GLIC’) of the Government of Malaysia AFFIN Holdings Berhad (‘AHB’) Holding company Subsidiaries and associates of LTAT Subsidiary and associate companies of the ultimate holding

corporate body Subsidiaries and associates of AHB as disclosed in its Subsidiary and associate companies of the holding companyfinancial statements Subsidiaries of AFFIN Bank Berhad as disclosed in Note 13 Subsidiaries Joint controlled entity as disclosed in Note 14 Joint controlled entity of subsidiary Votingsharesinbodycorporatenotlessthan15%ofvotes Otherrelatedcompanies Key management personnel The key management personnel of the Bank consist of: - Chief Executive Officer - Members of Senior Management team and the company

secretary Related parties of key management personnel (deemed as - Close family members and dependents of key managementrelated to the Bank) personnel - Entities that are controlled, jointly controlled or for which significant voting power in such entity resides with, directly

or indirectly by key management personnel or its close family members

Key management personnel includes the Chief Executive Officer of the Bank in office during the financial year and his remuneration for the financial year are disclosed in Note 33(b).


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Dec

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012



Annual Report 2012

33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)

(b) Key management personnel compensation

The remuneration of key management personnel of the Group and the Bank during the year are as follows:


Short-term employment benefits Salaries 7,748 7,009 7,166 6,427 Bonuses 10,768 10,182 10,013 9,154 Defined contribution plan (‘EPF’) 3,127 2,905 2,906 2,640 Other employee benefits 1,208 1,119 1,165 1,067 Benefits-in-kind 410 380 368 311

23,261 21,595 21,618 19,599

Included in the above table are Directors’ remuneration as disclosed in Note 31.

34 TAXATION

The Group The Bank 31.12.2012 31.12.2011 31.12.2012 31.12.2011

RM’000 RM’000 RM’000 RM’000

The taxation charge arising in Malaysia for the financial year Current tax 179,738 152,316 152,556 135,373 (Over)/under provision in prior year (668) 22,707 (737) 25,827 Deferred tax (Note 11) (7,171) (7,453) (6,568) (13,325)

Tax expense for the year 171,899 167,570 145,251 147,875


% % % %

Statutory tax rate in Malaysia 25.00 25.00 25.00 25.00 Tax effect in respect of: Non allowable expenses 0.25 2.04 0.28 2.29 Non taxable income (0.15) (0.44) (0.18) (0.46) Utilisation of previously unrecognised tax losses (0.03) (0.02) - - Effect of different tax rate (0.50) (0.94) (0.59) (1.08) Tax savings arising from income exempt from tax for International Currency Business Unit (‘ICBU’) (0.04) (0.18) - - Under accrual in prior years (0.10) 3.70 (0.12) 4.81 Recognition of deferred tax previously not recognised - (2.87) - (3.04) Zakat contribution - (0.07) - - Reversal of deferred taxation due to changes in tax treatment - 1.11 - 0.05

Average effective tax rate 24.43 27.33 24.39 27.57

Tax savings of the Group as a result of utilisation of tax losses brought forward from previous years from which the related credit is recognised during the financial year amounted to RM61,226 (31.12.2011: RM102,000).



Annual Report 2012

35 EARNINGS PER SHARE

The basic and fully diluted earnings per ordinary share for the Group and the Bank have been calculated based on the net profit attributable to equity holders of the Group and the Bank of RM525,266,000 (31.12.2011: RM440,003,000) and RM450,304,000 (31.12.2011: RM388,496,000) respectively. The weighted average number of shares in issue during the financial year of 1,499,330,000 (31.12.2011: 1,439,285,000) is used for the computation.

36 DIVIDENDS

Dividends declared or proposed for the financial year are as follows: The Group and The Bank The Group and The Bank 31.12.2012 31.12.2011 Amount Amount Dividend of Dividend of per share dividend per share dividend sen RM’000 sen RM’000

Ordinary shares Interim dividend paid 9.00 136,650 7.00 100,750 Proposed final dividend 6.00 91,100 5.00 71,964

Dividends in respect of the financial year 15.00 227,750 12.00 172,714

At the forthcoming Annual General Meeting, a single-tier final dividend in respect of the current financial year of 6 sen per share amounting to RM91,100,000 will be proposed for shareholder’s approval. These financial statements do not reflect this final dividend which will be accounted for in the shareholder’s equity as an appropriation of retained profits in the financial year ending 31 December 2013 when approved by the shareholder.

Dividends recognised as distribution to ordinary equity holders of the Bank:

The Group and The Bank The Group and The Bank 31.12.2012 31.12.2011 Amount Amount Dividend of Dividend of per share dividend per share dividend sen RM’000 sen RM’000

Ordinary shares Interim dividend 9.00 136,650 7.00 100,750 Final dividend 5.00 71,964 5.00 71,964

14.00 208,614 12.00 172,714


37

CO

MM

ITM

EN

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D C

ON

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GE

NC

IES

In

the

nor

mal

cou

rse

of b

usin

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the

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as

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ontin

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ist o

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37

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k Th

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ndin

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ks’ s

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ities

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o-st

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sact

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ecur

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g / b

orro

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g tra

nsac

tions

) 19

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edit

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mou

nt a

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sk-w

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ted

amou

nt is

arr

ived

at u

sing

the

cred

it co

nver

sion

fact

ors

as p

er B

ank

Neg

ara

Mal

aysi

a’s

revi

sed

Ris

k W

eigh

ted

Cap

ital A

dequ

acy

Fram

ewor

k (“

RW

CA

F”) a

nd C

apita

l Ade

quac

y fo

r Is

lam

ic B

anks

(“C

AFI

B”)

gui

delin

es.

# Th

e fa

ir va

lue

of th

ese

deriv

ativ

es h

ave

been

reco

gnis

ed a

s “d

eriv

ativ

e fin

anci

al a

sset

s” a

nd “

deriv

ativ

e fin

anci

al li

abili

ties”

in th

e st

atem

ent o

f fina

ncia

l pos

ition

and

dis

clos

ed in

Not

e 5

and

19

to th

e fin

anci

al s

tate

men

ts.

NO

TE

S T

O T

hE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

012



Annual Report 2012

37 COMMITMENTS AND CONTINGENCIES (continued)

The table below analyses the contractual or underlying principal amounts of derivative financial instruments held or issued. In addition, they also set out the corresponding gross positive credit equivalent of the derivative financial instruments.

The Group and The Group and The Group and The Bank The Bank The Bank 31.12.2012 31.12.2011 1.1.2011 Credit Credit Credit Principal equivalent Principal equivalent Principal equivalent amount amount amount amount amount amount RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Foreign exchange contracts Forward contracts 941,791 19,016 712,883 7,108 728,471 15,115 Swaps 3,060,558 96,059 2,344,698 47,690 1,688,008 55,384 Interest rate contracts Swaps 2,484,602 90,826 2,395,015 91,110 1,495,313 71,106

Foreign exchange related contracts and interest rate related contracts are subject to market risk and credit risk.

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and

contractual obligations to the Bank. Credit risk emanates mainly from loans, advances and financing, loan commitments arising from such lending activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures. Approval authorities are delegated to Senior Management and Group Management Loan Committee (‘GMLC’) to implement the credit policies and ensure sound credit granting standards.

An independent Group Risk Management (‘GRM’) function, headed by Group Chief Risk Officer (‘GCRO’), with direct reporting line to Board Risk Management Committee (‘BRMC’) is in place to ensure adherence to risk standards and discipline. Portfolio management risk reports are submitted regularly to BRMC.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.



Annual Report 2012

38 FINANCIAL RISK MANAGEMENT (continued)

(i) Credit risk (continued) Credit risk measurement


Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. The Bank has developed internal rating models to support the assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan origination.

Over-the-Counter (‘OTC’) Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).

Risk limit control and mitigation policies

The Bank employs various policies and practices to control and mitigate credit risk.

Lending limits

The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties, and geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers together with potential exposure from market movements.

Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

- mortgage over residential properties; - charges over commercial real estate or vehicles financed; - charges over business assets such as business premises, inventory and accounts receivable; and - charges over financial instruments such as marketable equities.

Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.



Annual Report 2012


(i) Credit risk (continued) Risk limit control and mitigation policies (continued)

Credit related commitments

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than short-term commitments.

Credit risk monitoring

Retail credits are actively monitored and managed on a portfolio basis by product type. A new collection management system has been implemented with a dedicated team in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.

Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality. Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Credit risk culture The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required skills set

of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

Foreffectiveandefficientstafflearning,theBankhasimplementedanE–LearningProgramwithanonlineLearningManagementSystem (‘LMS’). The LMS provides staff with a progressive self-learning alternative at own pace.

Group Risk Management implements an Internal Credit Certification (‘ICC’) Programme for both Business Banking and Consumer Credit.

The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of knowledge

and analytical skills required to make sound corporate and commercial loans to customers.

Maximum exposure to credit risk

For financial assets recognised on the statement of financial position, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group and the Bank would have to pay if guarantee were to be called upon. For loan commitments and other commitments, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers.

All financial assets of the Group and the Bank are subject to credit risk except for cash in hand, equity securities held as financial assets held-for-trading or financial investments available-for-sale, as well as non-financial assets.



Annual Report 2012


(i) Credit risk (continued) Maximum exposure to credit risk (continued)

The exposure to credit risk of the Group and the Bank equals their carrying amount in the statement of financial position as at reporting date, except for the followings:

The Group The Bank 31.12.2012 31.12.2012 31.12.2012 31.12.2012 Maximum Maximum Carrying Credit Carrying Credit Value Exposure Value Exposure RM’000 RM’000 RM’000 RM’000

Credit risk exposures of on-balance sheet assets: Cash and short-term funds 7,648,904 * 7,477,429 3,633,842 * 3,462,366 Financial investments available-for-sale 7,640,654 # 7,531,197 5,658,161 # 5,551,454 Other assets 293,658 @ 257,706 227,790 @ 192,354 Credit risk exposure of off-balance sheet items: Financial guarantees 2,592,629 ^ 1,519,079 2,453,189 ^ 1,444,672 Loan commitments and other credit related commitments 16,388,694 ^ 3,064,010 14,958,192 ^ 2,663,337

Total maximum credit risk exposure 34,564,539 19,849,421 26,931,174 13,314,183

The Group The Bank

31.12.2011 31.12.2011 31.12.2011 31.12.2011 Maximum Maximum Carrying Credit Carrying Credit Value Exposure Value Exposure RM’000 RM’000 RM’000 RM’000

Credit risk exposures of on-balance sheet assets: Cash and short-term funds 9,879,366 * 9,737,883 5,527,439 * 5,385,956 Financial investments available-for-sale 6,698,418 # 6,585,100 5,214,533 # 5,104,894 Other assets 166,543 @ 108,207 116,690 @ 59,056 Credit risk exposure of off-balance sheet items: Financial guarantees 2,762,407 ^ 1,574,653 2,604,847 ^ 1,491,822 Loan commitments and other credit related commitments 17,157,578 ^ 2,486,904 15,425,464 ^ 2,140,480




Annual Report 2012


(i) Credit risk (continued) Maximum exposure to credit risk (continued)

The Group The Bank 1.1.2011 1.1.2011 1.1.2011 1.1.2011 Maximum Maximum Carrying Credit Carrying Credit Value Exposure Value Exposure RM’000 RM’000 RM’000 RM’000

Credit risk exposures of on-balance sheet assets: Cash and short-term funds 8,640,457 * 8,534,879 6,108,452 * 6,002,874 Financial investments available-for-sale 5,804,417 # 5,697,708 4,455,472 # 4,352,544 Other assets 186,461 @ 8,607 184,582 @ 7,384 Credit risk exposure of off-balance sheet items: Financial guarantees 2,796,064 ^ 1,602,336 2,571,111 ^ 1,476,596 Loan commitments and other credit related commitments 16,048,716 ^ 506,978 14,250,781 ^ 369,681


The following have been excluded for the purpose of maximum credit risk exposure calculation:* cash in hand# investment in quoted and unquoted shares@ prepayment ^ amount stated at notional value

Whilst the Group and the Bank’s maximum exposure to credit risk is the carrying value of the assets, or in the case of off-balance sheet items, the amount guaranteed, committed or accepted, in most cases the likely exposure is far less due to collateral, credit enhancements and other actions taken to mitigate the credit exposure.

Thefinancialeffectofcollateralheld for loans,advancesandfinancingof theGroupandtheBankare68%(31.12.2011:63%,1.1.2011:59%)and66%(31.12.2011:62%,1.1.2011:58%)respectively.Thefinancialeffectsofcollateralfortheotherfinancial assets are insignificant.


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012



Annual Report 2012


(i) Credit risk (continued) Collaterals

The main types of collateral obtained by the Group and the Bank are as follows: - for personal housing loans, mortgages over residential properties; - for commercial property loans, charges over the properties being financed; - for hire purchase, charges over the vehicles or plant and machineries financed; and - for other loans, charges over business assets such as premises, inventories, trade receivables or deposits.

Total loans, advances and financing - credit quality

All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired” and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with months-in-arrears more than 90 days or with impairment allowances.

Distribution of loans, advances and financing by credit quality


Neither past due nor impaired (a) 30,688,227 26,803,010 22,362,063 26,047,661 22,916,350 19,340,931 Past due but not impaired (b) 2,574,206 2,643,450 3,213,211 2,131,175 2,232,612 2,742,727 Impaired (c) 753,194 865,662 971,123 623,403 693,318 818,522

Gross loans, advances and financing 34,015,627 30,312,122 26,546,397 28,802,239 25,842,280 22,902,180 less: Allowance for impairment -Individual (210,372) (168,257) (175,849) (175,277) (133,329) (139,709) -Collective (322,629) (451,599) (395,701) (287,693) (390,890) (343,220)

Net loans, advances and financing 33,482,626 29,692,266 25,974,847 28,339,269 25,318,061 22,419,251

Past due but not impaired includes accounts within grace period of the Group and the Bank amounting to RM1.0 billion (31.12.2011: RM0.9 billion, 1.1.2011: RM1.2 billion) and RM0.9 billion (31.12.2011: RM0.8 billion, 1.1.2011: RM1.1 billion) respectively.



Annual Report 2012


(i) Credit risk (continued) Total loans, advances and financing - credit quality (continued)

(a) Loans neither past due nor impaired

Analysis of loans, advances and financing that are neither past due nor impaired analysed based on the Group and the Bank’s internal credit grading system is as follows:


Quality classification Satisfactory 25,511,726 22,345,076 18,598,272 21,390,139 18,817,505 15,964,665 Special mention 5,176,501 4,457,934 3,763,791 4,657,522 4,098,845 3,376,266

30,688,227 26,803,010 22,362,063 26,047,661 22,916,350 19,340,931

Quality classification definitions

Satisfactory: Exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or levels of expected loss.

Special mention: Exposures require varying degrees of special attention and default risk is of greater concern.

(b) Loans past due but not impaired

Certain loans, advances and financing are past due but not impaired as the collateral values of these loans are in excess of the principal and profit outstanding. Allowances for these loans may have been set aside on a portfolio basis. The Bank’s loans, advances and financing which are past due but not impaired are as follows:


Past due up to 30 days 1,390,570 1,338,561 1,730,084 1,188,938 1,190,391 1,542,944 Past due 30-60 days 813,727 900,300 996,340 653,476 716,992 849,976 Past due 60-90 days 369,909 404,589 486,787 288,761 325,229 349,807

2,574,206 2,643,450 3,213,211 2,131,175 2,232,612 2,742,727



Annual Report 2012


(i) Credit risk (continued) Total loans, advances and financing - credit quality (continued)

(c) Loans impaired


Analysis of impaired assets: Gross impaired loans 753,194 865,662 971,123 623,403 693,318 818,522

Individually impaired loans 127,376 114,330 439,997 56,521 38,938 329,510

Collateral and other credit enhancements obtained

During the year, the Bank obtained assets by taking possession of collateral held as security or calling upon other credit enhancements as follows:

The Group and The Bank 31.12.2012 31.12.2011 1.1.2011 RM’000 RM’000 RM’000 Carrying Carrying Carrying amount amount amount

Nature of assets: Condominium - 1,190 - Vacant industrial land - - 1,370

Foreclosed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. The carrying amount of foreclosed properties held by the Group and the Bank as at reporting date has been classified as Other assets as disclosed in Note 9.

Private debt securities, treasury bills and derivatives

Private debt securities, treasury bills and other eligible bills included in financial assets held-for-trading and financial investments available-for-sale are measured on a fair value basis. The fair value will reflect the credit risk of the issuer.

Most listed and some unlisted securities are rated by external rating agencies. The Group and the Bank mainly uses external credit ratings provided by RAM, MARC, Standard & Poors’ or Moody’s.

The table below presents an analysis of debt securities, treasury bills and other eligible bills by rating agency.



Annual Report 2012


(i) Credit risk (continued) Private debt securities, treasury bills and derivatives (continued)

Lower The Group AAA AA- to AA+ A- to A+ than A- Unrated * Impaired Total 31.12.2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets held-for- trading Private debt securities - - - 15,316 150,276 - 165,592 Financial investments available-for-sale Malaysian Government securities - - - - 5,070 - 5,070 Malaysian Government investment issues - - - - 1,879,076 - 1,879,076 Bank Negara Malaysia Monetary Notes - - - - 884,069 - 884,069 Others 120,550 - - - 1,109,556 - 1,230,106 Quoted and unquoted Shares in Malaysia - - - 2,239 99,740 7,477 109,456 Private debt securities 2,648,049 483,237 302,619 65,426 33,530 16 3,532,877 Financial investments held-to-maturity Private debt securities - - - - 366,120 85,550 451,670

2,768,599 483,237 302,619 82,981 4,527,437 93,043 8,257,916


Financial assets held-for- trading Bank Negara Malaysia Monetary Notes - - - - 149,832 - 149,832 Financial investments available-for-sale Malaysian Government treasury bills - - - - 39,421 - 39,421 Malaysian Government securities - - - - 430,728 - 430,728 Malaysian Government investment issues - - - - 2,611,724 - 2,611,724 Bank Negara Malaysia Monetary Notes - - - - 174,620 - 174,620 Others - - - - 816,584 - 816,584 Quoted and unquoted Shares in Malaysia - - - 2,932 106,060 4,326 113,318 Private debt securities 1,652,387 314,696 284,915 178,545 81,480 - 2,512,023 Financial investments held-to-maturity Private debt securities - - 27,361 - 393,991 99,753 521,105

1,652,387 314,696 312,276 181,477 4,804,440 104,079 7,369,355

* Net of allowance for impairment. Collateral is not generally obtained directly from the issuers of debt securities. Certain debt securities may be collateralised by

specifically identified assets that would be obtainable in the event of default.



Annual Report 2012




Financial assets held-for- trading Bank Negara Malaysia Monetary Notes - - - - 99,853 - 99,853 Negotiable Instruments of Deposit - - - - 50,092 - 50,092 Financial investments available-for-sale Malaysian Government treasury bills - - - - 166,566 - 166,566 Malaysian Government securities - - - - 763,701 - 763,701 Malaysian Government investment issues - - - - 1,410,778 - 1,410,778 BNM Sukuk - - - - 32,017 - 32,017 Bank Negara Malaysia Monetary Notes - - - - 1,006,592 - 1,006,592 Others - - - - 711,316 - 711,316 Quoted and unquoted Shares in Malaysia - - - 2,666 93,173 10,870 106,709 Private debt securities 721,113 290,820 460,107 104,526 30,172 - 1,606,738 Financial investments held-to-maturity Private debt securities - - 27,361 - 295,708 109,468 432,537

721,113 290,820 487,468 107,192 4,659,968 120,338 6,386,899





Annual Report 2012



Lower The Bank AAA AA- to AA+ A- to A+ than A- Unrated * Impaired Total 31.12.2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets held-for- trading Private debt securities - - - 15,316 150,276 - 165,592 Financial investments available-for-sale Malaysian Government securities - - - - 5,070 - 5,070 Malaysian Government investment issues - - - - 1,004,366 - 1,004,366 Bank Negara Malaysia Monetary Notes - - - - 517,015 - 517,015 Others 120,550 - - - 1,073,366 - 1,193,916 Quoted and unquoted Shares in Malaysia - - - - 99,672 7,036 106,708 Private debt securities 1,956,609 472,886 302,619 65,426 33,530 16 2,831,086 Financial investments held-to-maturity Private debt securities - - - - 366,120 85,550 451,670

2,077,159 472,886 302,619 80,742 3,249,415 92,602 6,275,423


Financial assets held- for-trading Bank Negara Malaysia Monetary Notes - - - - 149,832 - 149,832 Financial investments available-for-sale Malaysian Government treasury bills - - - - 39,421 - 39,421 Malaysian Government securities - - - - 430,728 - 430,728 Malaysian Government investment issues - - - - 1,915,445 - 1,915,445 Bank Negara Malaysia Monetary Notes - - - - 24,949 - 24,949 Others - - - - 802,322 - 802,322 Quoted and unquoted Shares in Malaysia - - - - 105,991 3,648 109,639 Private debt securities 1,057,484 289,605 284,915 178,545 81,480 - 1,892,029 Financial investments held-to-maturity Private debt securities - - 27,361 - 393,991 99,753 521,105

1,057,484 289,605 312,276 178,545 3,944,159 103,401 5,885,470





Annual Report 2012




Financial assets held-for- trading Bank Negara Malaysia Monetary Notes - - - - 99,853 - 99,853 Negotiable Instruments of Deposit - - - - 50,092 - 50,092 Financial investments available-for-sale Malaysian Government treasury bills - - - - 137,730 - 137,730 Malaysian Government securities - - - - 763,701 - 763,701 Malaysian Government investment issues - - - - 674,170 - 674,170 Bank Negara Malaysia Monetary Notes - - - - 849,557 - 849,557 Others - - - - 698,066 - 698,066 Quoted and unquoted Shares in Malaysia - - - - 93,101 9,827 102,928 Private debt securities 398,527 247,086 460,107 93,428 30,172 - 1,229,320 Financial investments held-to-maturity Private debt securities - - 27,361 - 295,708 109,468 432,537

398,527 247,086 487,468 93,428 3,692,150 119,295 5,037,954





Annual Report 2012


(ii) Market risk Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market factors such

as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from its trading and investment activities. The Bank’s market risk management objective is to ensure that market risk is appropriately identified, measured, controlled, managed and reported.

The Bank’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’ requirements and proprietary positions.

The Bank’s market risk management control strategy is established based on its risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis.

Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-Risk (‘VaR’) Limits.

The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various rates scenarios. The potential long term effects of the Bank’s overall exposure is also tracked by assessing the impact on economic value of equity (‘EVE’).

The Bank’s interest rate risk is managed through Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) limits.

In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under abnormal market conditions.

The Bank’s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.



Annual Report 2012


(ii) Market risk (continued) Value at risk (‘VaR’)

Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange rates that could affect values of financial instruments.

The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks. Under this methodology, a matrix of historical volatilities and correlations is computed from the past 100 business days’ market data. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio.

The table below sets out a summary of the Bank’s VaR profile by financial instrument types for the trading portfolio:

Average for the The Group and The Bank Balance financial year Minimum Maximum 31.12.2012 RM’000 RM’000 RM’000 RM’000

Instruments FX swap 634 906 604 1,468 FX spot (Metro Desk) 34 144 9 672 Government securities - - - 4 Private debt securities 60 48 - 329 Average for the The Group and The Bank Balance financial year Minimum Maximum 31.12.2011 RM’000 RM’000 RM’000 RM’000

Instruments FX swap 773 261 73 938 Government securities 4 - - 7 Average for the The Group and The Bank Balance financial year Minimum Maximum 1.1.2011 RM’000 RM’000 RM’000 RM’000

Instruments FX swap 201 241 134 437 Government securities - 1 - 11 Private debt securities - 1 - 18



Annual Report 2012


(ii) Market risk (continued) Other risk measures

• Mark-to-market Mark-to-market valuation tracks the current market value of the outstanding financial instruments.

• Stresstesting Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market movements.

Stress tests measure the changes in values arising from extreme movements in interest rates and foreign exchange rates based on past experience and simulated stress scenarios.

• Sensitivity/DollarDuration Sensitivity/DollarDurationmeasuresthechangeinvalueofaportfolioresultingfroma0.01%increaseininterestrates.

This measure identifies the Bank’s interest rate exposures that are most vulnerable to interest rate changes and facilitates the implementation of hedging strategies.

Net interest income sensitivity

The table below shows the pre-tax net interest income sensitivity for the financial assets and financial liabilities held at reporting date. The sensitivity has been measured using the Repricing Gap Simulation methodology based on 100 basis points parallel shifts in the interest rate.

The Group The Bank 31.12.2012 31.12.2012 31.12.2012 31.12.2012 +100 -100 +100 -100 basis point basis point basis point basis point RM million RM million RM million RM million

Impact on net interest income (3.8) 3.8 (16.8) 16.8 As percentage of net interest income -0.4% 0.4% -2.1% 2.1%


Impact on net interest income (13.9) 13.9 (20.7) 20.7 Aspercentageofnetinterestincome -1.4% 1.4% -2.6% 2.6%


Impact on net interest income (25.7) 25.7 (21.2) 21.2 Aspercentageofnetinterestincome -2.8% 2.8% -2.8% 2.8%



Annual Report 2012


(ii) Market risk (continued) Foreign exchange risk sensitivity analysis

Open position

Ringgit Impact of Malaysia 1% fall in US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1 % fall in exchange The Group amount amount US Dollar rate 31.12.2012 ‘000 ‘000 ‘000 ‘000

US Dollar 769 2,352 2,329 (24) Others (4,384) (13,409) (13,275) 134

The impact on the outstanding foreign exchange position as at 31 December 2012 for a one percent change in USD exchange rate from 3.0590 to 3.0284 was an increase of RM111,000.

Open position

Ringgit Impact of Malaysia 1%fallin US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1%fallin exchange The Group amount amount US Dollar rate 31.12.2011 ‘000 ‘000 ‘000 ‘000

US Dollar (79) (250) (247) 3 Others (2,024) (6,432) (6,367) 65

The impact on the outstanding foreign exchange position as at 31 December 2011 for a one percent change in USD exchange rate from 3.1770 to 3.1452 was an increase of RM68,000.

Open position

Ringgit Impact of Malaysia 1%fallin US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1%fallin exchange The Group amount amount US Dollar rate 1.1.2011 ‘000 ‘000 ‘000 ‘000

US Dollar (4,453) (13,730) (13,592) 138 Others (1,290) (3,977) (3,936) 41 The impact on the outstanding foreign exchange position as at 31 December 2010 for a one percent change in USD exchange

rate from 3.0835 to 3.0527 was a decrease of about RM179,000.



Annual Report 2012


(ii) Market risk (continued) Foreign exchange risk sensitivity analysis (continued)

Open position

Ringgit Impact of Malaysia 1% fall in US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1 % fall in exchange The Bank amount amount US Dollar rate 31.12.2012 ‘000 ‘000 ‘000 ‘000

US Dollar 186 570 564 (6) Others (3,967) (12,134) (12,013) 121

The impact on the outstanding foreign exchange position as at 31 December 2012 for a one percent change in USD exchange rate from 3.0590 to 3.0284 was a decrease of RM116,000.

Open position

Ringgit Impact of Malaysia 1%fallin US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1%fallin exchange The Bank amount amount US Dollar rate 31.12.2011 ‘000 ‘000 ‘000 ‘000

US Dollar 9,166 29,120 28,829 (291) Others (1,656) (5,260) (5,208) 52

The impact on the outstanding foreign exchange position as at 31 December 2011 for a one percent change in USD exchange rate from 3.1770 to 3.1452 was a decrease of RM239,000.

Open position

Ringgit Impact of Malaysia 1%fallin US Ringgit equivalent US Dollar Malaysia amount for Dollar equivalent equivalent 1%fallin exchange The Bank amount amount US Dollar rate 1.1.2011 ‘000 ‘000 ‘000 ‘000

US Dollar (5,944) (18,329) (18,145) 184 Others (984) (3,034) (3,003) 31 The impact on the outstanding foreign exchange position as at 31 December 2010 for a one percent change in USD exchange

rate from 3.0835 to 3.0527 was a decrease of about RM215,000.



Annual Report 2012


(ii) Market risk (continued) Foreign exchange risk

The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Limits are set on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The table summarises the Bank’s exposure to foreign currency exchange rate risk at reporting date. Included in the table are the Bank’s financial instruments at carrying amounts, categorised by currency.

United Great States Britain Australian Japanese The Group Euro Dollar Pound Dollar Yen Others Total 31.12.2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets Cash and short-term funds 6,724 132,764 2,170 229 972 25,761 168,620 Deposits and placements with banks and other financial institutions - 129,692 - 79,833 - - 209,525 Financial assets held-for- trading - 15,316 - - - - 15,316 Derivative financial assets - 1,811 - 1,155 - 231 3,197 Financial investments available-for-sale - 220,664 - 144,654 - 100,418 465,736 Loans, advances and financing 185 1,598,937 98,514 - 1,114 1,871 1,700,621 Other assets - 487 - - - - 487

Total financial assets 6,909 2,099,671 100,684 225,871 2,086 128,281 2,563,502

Liabilities Deposits from customers 110,212 173,009 7,337 8,996 170 6,153 305,877 Deposits and placements of banks and other financial institutions - 612,055 - 8,873 - - 620,928 Derivative financial liabilities - 6,940 - 596 - 2,457 9,993 Other liabilities - 6,583 - 265 - - 6,848

Total financial liabilities 110,212 798,587 7,337 18,730 170 8,610 943,646

Net on-balance sheet financial position (103,303) 1,301,084 93,347 207,141 1,916 119,671 1,619,856 Off balance sheet credit commitments 540,691 520,180 1,107 29,513 1,933 17,375 1,110,799



Annual Report 2012


(ii) Market risk (continued) Foreign exchange risk (continued)


Assets Cash and short-term funds 87,801 382,752 2,692 32,630 982 22,997 529,854 Deposits and placements with banks and other financial institutions - 292,241 - 81,085 32,085 - 405,411 Derivative financial assets - 2,166 25 1,098 - 183 3,472 Financial investments available-for-sale - 162,885 49,736 251,818 32,584 79,872 576,895 Loans, advances and financing 338 1,035,041 97,872 - 473 1,619 1,135,343 Other assets - 48 - - - - 48


Liabilities Deposits from customers 149,869 125,418 9,643 16,251 96 3,269 304,546 Deposits and placements of banks and other financial institutions - 1,100,023 - 5,670 - - 1,105,693 Derivative financial liabilities - 9,036 1,315 947 - 1,213 12,511 Other liabilities - 2,589 - 70 - - 2,659

Total financial liabilities 149,869 1,237,066 10,958 22,938 96 4,482 1,425,409

Net on-balance sheet financial position (61,730) 638,067 139,367 343,693 66,028 100,189 1,225,614 Off balance sheet credit commitments 633,166 1,380,515 31,477 - 287,601 23,668 2,356,427



Annual Report 2012


(ii) Market risk (continued) Foreign exchange risk


Assets Cash and short-term funds 3,205 163,867 2,058 2,049 3,114 33,399 207,692 Deposits and placements with banks and other financial institutions - 147,276 - 15,685 29,604 7 192,572 Derivative financial assets - 1,988 20 96 - 1,522 3,626 Financial investments available-for-sale - 194,100 46,893 39,823 29,633 30,184 340,633 Loans, advances and financing 271 747,822 113 - 356 1,147 749,709


Liabilities Deposits from customers 7,660 208,383 8,488 9,973 25,619 4,155 264,278 Deposits and placements of banks and other financial institutions - 505,887 - 4,166 - - 510,053 Derivative financial liabilities - 8,478 3,410 98 - 374 12,360 Other liabilities - 3,748 - 34 - 67 3,849

Total financial liabilities 7,660 726,496 11,898 14,271 25,619 4,596 790,540

Net on-balance sheet financial position (4,184) 528,557 37,186 43,382 37,088 61,663 703,692 Off balance sheet credit commitments 1,093,230 2,051,238 65,866 25,235 328,457 68,370 3,632,396



Annual Report 2012



United Great States Britain Australian Japanese The Bank Euro Dollar Pound Dollar Yen Others Total 31.12.2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets Cash and short-term funds 5,365 191,827 1,791 17 742 25,492 225,234 Deposits and placements with banks and other financial institutions - 170,921 - 79,833 - - 250,754 Financial assets held-for- trading - 15,316 - - - - 15,316 Derivative financial assets - 1,811 - 1,155 - 231 3,197 Financial investments available-for-sale - 220,664 - 144,654 - 100,418 465,736 Loans, advances and financing 185 1,434,581 98,514 - 1,114 1,871 1,536,265 Other assets - 487 - - - - 487


Liabilities Deposits from customers 109,047 172,765 7,330 8,996 167 6,153 304,458 Deposits and placements of banks and other financial institutions - 612,055 - 8,873 - - 620,928 Derivative financial liabilities - 6,940 - 596 - 2,457 9,993 Other liabilities - 6,661 - 265 - - 6,926

Total financial liabilities 109,047 798,421 7,330 18,730 167 8,610 942,305

Net on-balance sheet financial position (103,497) 1,237,186 92,975 206,929 1,689 119,402 1,554,684 Off balance sheet credit commitments 376,929 462,694 26,842 1,107 1,933 7,839 877,344



Annual Report 2012




Assets Cash and short-term funds 87,316 444,788 2,049 31,233 902 22,639 588,927 Deposits and placements with banks and other financial institutions - 334,268 - 81,085 32,085 - 447,438 Derivative financial assets - 2,166 25 1,098 - 183 3,472 Financial investments available-for-sale - 162,885 49,736 251,818 32,584 79,872 576,895 Loans, advances and financing 338 875,511 97,872 - 473 1,619 975,813 Other assets - 48 - - - - 48


Liabilities Deposits from customers 149,264 125,351 9,636 16,251 96 3,269 303,867 Deposits and placements of banks and other financial institutions - 1,065,071 - 4,491 - - 1,069,562 Derivative financial liabilities - 9,036 1,315 947 - 1,213 12,511 Other liabilities - 2,589 - 70 - - 2,659

Total financial liabilities 149,264 1,202,047 10,951 21,759 96 4,482 1,388,599

Net on-balance sheet financial position (61,610) 617,619 138,731 343,475 65,948 99,831 1,203,994 Off balance sheet credit commitments 417,394 363,709 26,965 - 287,601 7,067 1,102,736



Annual Report 2012




Assets Cash and short-term funds 2,988 239,581 1,899 1,765 2,969 33,163 282,365 Deposits and placements with banks and other financial institutions - 184,274 - 15,685 29,604 - 229,563 Derivative financial assets - 1,988 20 96 - 1,543 3,647 Financial investments available-for-sale - 183,003 46,893 39,823 29,633 30,170 329,522 Loans, advances and financing 271 589,867 113 - 356 1,147 591,754


Liabilities Deposits from customers 7,564 208,324 8,485 9,973 25,619 4,155 264,120 Deposits and placements of banks and other financial institutions - 505,862 - 4,166 - - 510,028 Derivative financial liabilities - 8,478 3,410 98 - 374 12,360 Other liabilities - 3,748 - 34 - 67 3,849

Total financial liabilities 7,564 726,412 11,895 14,271 25,619 4,596 790,357

Net on-balance sheet financial position (4,305) 472,301 37,030 43,098 36,943 61,427 646,494 Off balance sheet credit commitments 1,093,230 2,051,238 65,866 25,235 328,457 68,370 3,632,396

Interest/profit rate risk

Sensitivity to interest rates arises from mismatches in the interest rate characteristics of the assets and their corresponding liability funding. One of the major causes of these mismatches is timing differences in the repricing of the assets and liabilities. These mismatches are actively managed as part of the overall interest rate risk management process which is conducted in accordance with Group policy guidelines.

The following table represents the Group’s and the Bank’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates as at reporting date.


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18,5

09)

(8,5

06,3

18)

9,5

88,2

36

4,6

25,5

89

(4,8

51,4

15)

154

,231

(2)

Oth

er li

abili

ties

incl

ude

prov

isio

n fo

r ta

xatio

n, d

efer

red

tax

liabi

litie

s an

d ot

her

liabi

litie

s.(3

) Th

e of

f-ba

lanc

e sh

eet g

ap re

pres

ents

the

net n

otio

nal a

mou

nts

of a

ll in

tere

st r

ate

sens

itive

der

ivat

ive

finan

cial

inst

rum

ents

.

NO

TE

S T

O T

hE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

012


38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

ntin

ued

)

(ii)

Mar

ket

risk

(co

ntin

ued

)

Inte

rest

/pro

fit

rate

ris

k (c

ont

inue

d)

Non

-tra

ding

boo

k

Non

-

in

tere

st /

E

ffect

ive

U

p to

1

>1-

3 >

3-12

>

1-5

Ove

r 5

profi

t Tr

adin

g

inte

rest

Th

e G

roup

m

onth

m

onth

s m

onth

s ye

ars

year

s se

nsiti

ve

book

To

tal

rate

31

.12.20

11

RM’000

RM’000

RM’000

RM’000

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%

A

sset

s

Cas

h an

d s

hort

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m fu

nds

9,6

95,2

00

-

-

-

-

184

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-

9

,879

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2

.86

D

epos

its a

nd p

lace

men

ts w

ith b

anks

an

d ot

her

finan

cial

inst

itutio

ns

95,

609

2

82,5

99

15,

032

9

0,00

0

-

3,4

54

-

486

,694

3

.55

Fi

nanc

ial a

sset

s he

ld-f

or-t

radi

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-

-

-

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-

149

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1

49,8

32

3.0

1

Der

ivat

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ets

-

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18,

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1,37

1

49,

901

Fina

ncia

l inv

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ents

ava

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29,

952

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98

376

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5

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7

14,7

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163

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-

6

,698

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4

.11

Fi

nanc

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nves

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urity

2

04,7

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-

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186

1

63,6

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fina

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- no

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paire

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1

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75,6

42

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6,9

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72

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20,9

69

(451

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) *

-

28,

994,

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4.94

- im

paire

d

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697

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697

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Oth

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(1)

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1,7

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21

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1,7

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21

To

tal a

sset

s 2

6,96

6,07

3

1,8

11,6

39

2,7

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32

12,

337,

103

2

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2

,487

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1

81,2

03

49,

248,

203

*

The

nega

tive

bala

nce

repr

esen

ts c

olle

ctiv

e al

low

ance

for

loan

s, a

dvan

ces

and

finan

cing

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Net

of i

ndiv

idua

l allo

wan

ce.

(1)

Oth

ers

incl

ude

prop

erty

and

equ

ipm

ent,

inta

ngib

le a

sset

s, s

tatu

tory

dep

osits

with

BN

M, t

ax r

ecov

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efer

red

tax

asse

ts, o

ther

ass

ets,

inve

stm

ent

in jo

intly

co

ntro

lled

entit

y an

d am

ount

due

from

join

tly c

ontr

olle

d en

tity.

NO

TE

S T

O T

hE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

012


38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

ntin

ued

)

(ii)

Mar

ket

risk

(co

ntin

ued

)

Inte

rest

/pro

fit

rate

ris

k (c

ont

inue

d)

Non

-tra

ding

boo

k

Non

-

in

tere

st /

E

ffect

ive

U

p to

1

>1-

3 >

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>

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Ove

r 5

profi

t Tr

adin

g

inte

rest

Th

e G

roup

m

onth

m

onth

s m

onth

s ye

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year

s se

nsiti

ve

book

To

tal

rate

31

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11

RM’000

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Li

abili

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D

epos

its fr

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mer

s 1

5,52

8,25

5

10,1

49,4

92

7,9

35,6

74

296

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-

2

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-

3

6,54

7,44

4

3.2

0

Dep

osits

and

pla

cem

ents

of b

anks

an

d ot

her

finan

cial

inst

itutio

ns

4,5

20,7

32

2,7

31,1

95

261

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-

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1

3,77

5

-

7,5

26,9

12

3.1

3

Der

ivat

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finan

cial

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-

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4

0,21

7

57,

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9

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9

B

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-

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82,

059

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9

R

ecou

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s so

ld

to C

agam

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erha

d -

-

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4

25,1

33

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3,3

26

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428

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4

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S

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dina

ted

term

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6

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00

-

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1,8

50

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601

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O

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3

63,0

95

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363

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To

tal l

iab

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s 2

0,64

8,98

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12,8

80,6

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8,1

96,8

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721

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7,18

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45,

647,

218

E

quity

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0,64

8,98

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5

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49,

248,

203

O

n-b

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heet

inte

rest

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sitiv

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ap

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) 6

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To

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6

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2

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(2)

Oth

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abili

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incl

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prov

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r ta

xatio

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efer

red

tax

liabi

litie

s an

d ot

her

liabi

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s.

(3)

The

off-

bala

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shee

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repr

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e ne

t not

iona

l am

ount

s of

all

inte

rest

rat

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nsiti

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stru

men

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NO

TE

S T

O T

hE

FIN

AN

CIA

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TATE

ME

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for

the

finan

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31

Dec

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38

FIN

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k (c

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in

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Ove

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g

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rest

Th

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m

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book

To

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rate

1.1.20

11

RM’000

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ash

and

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fund

s 8,

457,

033

-

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18

3,42

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-

8,64

0,45

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2.76

D

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and

oth

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nanc

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29,5

97

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Fina

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held

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-

92

14

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Der

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45,2

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Fina

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93

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2,46

6,71

4

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4

2,48

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3

(395

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25,1

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73

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Oth

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814,

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To

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301,

851

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167,

757

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2,

889,

197

1,

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15

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6

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21

*

The

nega

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nce

repr

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ts c

olle

ctiv

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low

ance

for

loan

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dvan

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finan

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N

et o

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llow

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ther

s in

clud

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oper

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nd e

quip

men

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tang

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ass

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sta

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ith B

NM

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rec

over

able

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x as

sets

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er a

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vest

men

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NO

TE

S T

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FIN

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TATE

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for

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31

Dec

emb

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012


38

FIN

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Inte

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k (c

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Non

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ffect

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Ove

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m

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year

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nsiti

ve

book

To

tal

rate

1.1.20

11

RM’000

RM’000

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RM’000

RM’000

RM’000

RM’000

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Li

abili

ties

D

epos

its fr

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mer

s 1

5,37

5,66

0

7,8

73,4

38

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21,6

01

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979

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2

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3

0,98

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2.9

9

Dep

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d ot

her

finan

cial

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ns

3,0

99,5

47

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14

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186

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1

4,38

8

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6,6

19,7

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2.8

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Der

ivat

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cial

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ilitie

s -

-

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-

-

5

2,74

7

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448

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5

B

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ble

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110

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61

R

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s so

ld

to C

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2

86,3

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2,5

21

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288

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5

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S

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din

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term

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3

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00

-

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682

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3

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82

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2

Oth

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(2)

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378

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78,8

46

To

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8,77

5,20

7

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O

ff-ba

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299

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To

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def

erre

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x lia

bilit

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othe

r lia

bilit

ies.

(3

) Th

e of

f-ba

lanc

e sh

eet g

ap re

pres

ents

the

net n

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nal a

mou

nts

of a

ll in

tere

st r

ate

sens

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der

ivat

ive

finan

cial

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rum

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.

NO

TE

S T

O T

hE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

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ded

31

Dec

emb

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012


38

FIN

AN

CIA

L R

ISK

MA

NA

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ME

NT

(co

ntin

ued

)

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Mar

ket

risk

(co

ntin

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Inte

rest

/pro

fit

rate

ris

k (c

ont

inue

d)

No

n-tr

adin

g b

oo

k

No

n-

inte

rest

/

Eff

ectiv

e

Up

to

1

>1-3

>3

-12

>1-5

O

ver

5 p

rofi

t Tr

adin

g

in

tere

st

The

Ban

k m

ont

h m

ont

hs

mo

nths

ye

ars

year

s se

nsiti

ve

bo

ok

Tota

l ra

te

31.1

2.20

12

RM

’000

R

M’0

00

RM

’000

R

M’0

00

RM

’000

R

M’0

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’000

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%

A

sset

s

Cas

h an

d sh

ort-

term

fund

s 3,

420,

615

-

-

-

-

21

3,22

7

-

3,63

3,84

2

2.89

Rev

erse

rep

urch

ase

agre

emen

ts w

ith

finan

cial

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ns

-

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19,9

39

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-

118

-

20

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3.

07

D

epos

its a

nd p

lace

men

ts w

ith b

anks

an

d ot

her

finan

cial

inst

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ns

80,0

00

646,

200

49

,037

19

7,21

0

46,6

27

24,7

51

-

1,04

3,82

5

3.76

Fina

ncia

l ass

ets

held

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ding

-

-

-

-

-

-

16

5,59

2

165,

592

3.

09

D

eriv

ativ

e fin

anci

al a

sset

s -

-

-

-

-

47

,165

21

,707

68

,872

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

353,

932

58

5,50

6

320,

505

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Fina

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atur

ity

197,

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Loan

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ance

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# N

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s in

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ank

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31

Dec

emb

er 2

012


38

FIN

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31.1

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31

Dec

emb

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The

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Net

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incl

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prop

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eq

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Li

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Dec

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38

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ther

s in

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quip

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sta

tuto

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Neg

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ount

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Dec

emb

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FIN

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Annual Report 2012


(iii) Liquidity risk Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its obligations

when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

To measure and manage net funding requirements, the Bank adopts BNM’s New Liquidity Framework (‘NLF’). The NLF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The NLF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding sources.

The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. Liquidity risk is tracked using internal and external qualitative and quantitative indicators. The Bank also conducts liquidity stress tests to gauge the Bank’s resilience in the event of a liquidity crisis. In addition, the Bank has in place the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis and emergencies.

The BRMC is responsible for the Bank’s liquidity policy although the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly of the liquidity situation in the Bank.



Annual Report 2012


(iii) Liquidity risk (continued) Liquidity risk disclosure table which is based on contractual undiscounted cash flow

The table below provides analysis of cash flow payables for financial liabilities based on remaining contractual maturities on undiscounted basis. The balances in the table below do not agree directly to the balances reported in the statement of financial position as the table incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments.

Up to 1 >1-3 >3-12 >1-5 Over 5 The Group month months months years years Total 31.12.2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 18,859,710 10,235,637 12,239,649 281,525 - 41,616,521 Deposits and placements of banks and other financial institutions 2,325,773 2,483,628 11,972 - - 4,821,373 Bills and acceptances payable 152,400 - - - - 152,400 Recourse obligation on loans sold to Cagamas Berhad 3,165 5,525 26,109 422,077 - 456,876 Other liabilities 306,481 - - - - 306,481 Subordinated term loan 3,509 6,678 31,124 168,215 1,016,039 1,225,565

21,651,038 12,731,468 12,308,854 871,817 1,016,039 48,579,216

31.12.2011 Deposits from customers 18,055,925 10,231,233 8,167,287 301,839 - 36,756,284 Deposits and placements of banks and other financial institutions 4,538,018 2,783,990 270,956 - - 7,592,964 Bills and acceptances payable 82,059 - - - - 82,059 Recourse obligation on loans sold to Cagamas Berhad 3,172 5,545 26,189 456,743 - 491,649 Other liabilities 326,735 - - - - 326,735 Subordinated term loan 2,148 4,338 21,314 115,350 692,392 835,542

23,008,057 13,025,106 8,485,746 873,932 692,392 46,085,233

1.1.2011 Deposits from customers 17,777,935 7,961,633 5,350,976 53,387 - 31,143,931 Deposits and placements of banks and other financial institutions 3,246,960 3,457,775 69,925 - - 6,774,660 Bills and acceptances payable 110,161 - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad 3,226 3,106 19,021 310,879 - 336,232 Other liabilities 353,892 - - - - 353,892 Subordinated term loan 961 1,828 8,521 58,072 348,068 417,450

21,493,135 11,424,342 5,448,443 422,338 348,068 39,136,326



Annual Report 2012


(iii) Liquidity risk (continued) Liquidity risk disclosure table which is based on contractual undiscounted cash flow: (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5 The Bank month months months years years Total 31.12.2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 13,589,500 8,468,130 10,199,495 269,592 - 32,526,717 Deposits and placements of banks and other financial institutions 1,258,789 2,469,056 11,794 - - 3,739,639 Bills and acceptances payable 152,400 - - - - 152,400 Recourse obligation on loans sold to Cagamas Berhad 3,165 5,525 26,109 422,077 - 456,876 Other liabilities 282,144 - - - - 282,144 Amount due to subsidiaries 48,528 - - - - 48,528 Subordinated term loan 3,509 6,678 31,124 168,215 1,016,039 1,225,565

15,338,035 10,949,389 10,268,522 859,884 1,016,039 38,431,869

31.12.2011 Deposits from customers 13,880,079 8,371,341 6,750,489 238,879 - 29,240,788 Deposits and placements of banks and other financial institutions 3,379,595 2,457,466 270,956 - - 6,108,017 Bills and acceptances payable 82,059 - - - - 82,059 Recourse obligation on loans sold to Cagamas Berhad 3,172 5,545 26,189 456,743 - 491,649 Other liabilities 309,134 - - - - 309,134 Amount due to subsidiaries 48,307 - - - - 48,307 Subordinated term loan 2,148 4,338 21,314 115,350 692,392 835,542

17,704,494 10,838,690 7,068,948 810,972 692,392 37,115,496

1.1.2011 Deposits from customers 14,389,942 6,625,256 4,497,396 48,678 - 25,561,272 Deposits and placements of banks and other financial institutions 2,487,096 3,206,620 69,925 - - 5,763,641 Bills and acceptances payable 110,161 - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad 3,226 3,106 19,021 310,879 - 336,232 Other liabilities 317,002 - - - - 317,002 Amount due to subsidiaries 47,926 - - - - 47,926 Subordinated term loan 961 1,828 8,521 58,072 348,068 417,450

17,356,314 9,836,810 4,594,863 417,629 348,068 32,553,684



Annual Report 2012


(iii) Liquidity risk (continued) Derivative financial liabilities

Derivative financial liabilities based on contractual undiscounted cash flow:

Up to 1 >1-3 >3-12 >1-5 Over 5 The Group and The Bank month months months years years Total 31.12.2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Derivatives settled on net basis Interest rate derivatives (1,374) (1,986) (5,662) (13,565) 2,062 (20,525)

Derivatives settled on gross basis Foreign exchange derivatives: Outflow (523,356) (648,351) (352,435) (126,927) - (1,651,069) Inflow 522,534 643,932 347,851 124,546 - 1,638,863

(822) (4,419) (4,584) (2,381) - (12,206)

31.12.2011 Derivatives settled on net basis Interest rate derivatives (1,232) (2,249) (11,130) (36,067) (9,918) (60,596)

Derivatives settled on gross basis Foreign exchange derivatives: Outflow (769,225) (414,998) (769,504) (102,284) - (2,056,011) Inflow 768,365 411,915 766,701 99,207 - 2,046,188

(860) (3,083) (2,803) (3,077) - (9,823)

1.1.2011 Derivatives settled on net basis Interest rate derivatives (1,098) (1,353) (9,658) (33,596) (12,799) (58,504)

Derivatives settled on gross basis Foreign exchange derivatives: Outflow (278,479) (207,640) (229,901) (237,332) - (953,352) Inflow 278,466 205,907 229,397 226,938 - 940,708

(13) (1,733) (504) (10,394) - (12,644)

Liquidity risk for assets and liabilities based on remaining contractual maturities

The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counter-guarantees are important factors in assessing the liquidity of the Group and the Bank. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities.



Annual Report 2012


(iii) Liquidity risk (continued) Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Maturities of assets and liabilities of the Group and the Bank by remaining contractual maturities profile are as follows:


Assets Cash and short-term funds 7,648,904 - - - - 7,648,904 Reverse repurchase agreements with financial institutions - - 20,057 - - 20,057 Deposits and placements with banks and other financial institutions - 440,905 18,705 61,186 75,656 596,452 Financial assets held-for-trading 165,592 - - - - 165,592 Derivative financial assets 11,209 26,370 18,534 6,693 6,066 68,872 Financial investments available-for-sale 461,116 711,629 796,643 3,350,026 2,321,240 7,640,654 Financial investments held-to-maturity 88,623 1,076 16,000 148,634 197,337 451,670 Loans, advances and financing 1,872,459 1,673,483 1,586,057 10,804,209 17,546,418 33,482,626 Other assets 251,776 - 9,622 5,215 27,045 293,658 Amount due from jointly controlled entity 2,745 - - - - 2,745 Other non-financial assets (1) 1,413,300 - 16 - 320,434 1,733,750

11,915,724 2,853,463 2,465,634 14,375,963 20,494,196 52,104,980

Liabilities Deposits from customers 18,846,259 10,175,444 11,985,784 256,049 - 41,263,536 Deposits and placements of banks and other financial institutions 2,324,410 2,473,276 11,637 - - 4,809,323 Derivative financial liabilities 9,769 19,817 8,655 17,247 4,175 59,663 Bills and acceptances payable 152,400 - - - - 152,400 Recourse obligation on loans sold to Cagamas Berhad 1,364 1,840 - 410,345 - 413,549 Subordinated term loan 2,755 2,205 - - 900,000 904,960 Other liabilities 306,481 - - - - 306,481 Other non-financial liabilities (2) - - 63,751 - 13,365 77,116

21,643,438 12,672,582 12,069,827 683,641 917,540 47,987,028

On balance sheet gap (9,727,714) (9,819,119) (9,604,193) 13,692,322 19,576,656 4,117,952 Off balance sheet credit commitments - - (12,020,705) - - (12,020,705) Derivatives 143,621 331,915 1,041,996 126,594 - 1,644,126

Net maturity mismatch (9,584,093) (9,487,204) (20,582,902) 13,818,916 19,576,656 (6,258,627)

(1) Other non-financial assets include amount due from jointly controlled entity, tax recoverable, statutory deposits with BNM,

investment in jointly controlled entity, property and equipment and intangible assets.

(2) Other non-financial liabilities include provision for taxation and deferred tax liabilities.



Annual Report 2012




Assets Cash and short-term funds 9,879,366 - - - - 9,879,366 Deposits and placements with banks and other financial institutions - 295,957 15,055 175,682 - 486,694 Financial assets held-for-trading 149,832 - - - - 149,832 Derivative financial assets 11,735 10,901 7,197 5,764 14,304 49,901 Financial investments available-for-sale 43,077 285,947 494,712 5,159,961 714,721 6,698,418 Financial investments held-to-maturity 103,220 1,085 51,547 163,670 201,583 521,105 Loans, advances and financing 1,716,500 754,064 1,101,768 9,032,933 17,087,001 29,692,266 Other assets 109,808 - 10,757 5,530 40,448 166,543 Amount due from jointly controlled entity 2,745 - - - - 2,745 Other non-financial assets (1) 1,268,650 - 3,430 - 329,253 1,601,333

13,284,933 1,347,954 1,684,466 14,543,540 18,387,310 49,248,203

Liabilities Deposits from customers 18,029,962 10,219,880 8,000,490 297,112 - 36,547,444 Deposits and placements of banks and other financial institutions 4,529,892 2,734,472 262,548 - - 7,526,912 Derivative financial liabilities 20,130 16,716 15,200 29,042 16,311 97,399 Bills and acceptances payable 82,059 - - - - 82,059 Recourse obligation on loans sold to Cagamas Berhad 1,426 1,900 - 425,133 - 428,459 Subordinated term loan - 1,850 - - 600,000 601,850 Other liabilities 326,735 - - - - 326,735 Other non-financial liabilities (2) - - 16,242 - 20,118 36,360

22,990,204 12,974,818 8,294,480 751,287 636,429 45,647,218

On balance sheet gap (9,705,271) (11,626,864) (6,610,014) 13,792,253 17,750,881 3,600,985 Off balance sheet credit commitments - - (13,493,662) - - (13,493,662) Derivatives 573,777 195,782 490,331 (30,000) - 1,229,890


(1) Other non-financial assets include amount due from jointly controlled entity, tax recoverable, statutory deposits with

BNM, investment in jointly controlled entity, property and equipment and intangible assets.




Annual Report 2012




Assets Cash and short-term funds 8,640,457 - - - - 8,640,457 Deposits and placements with banks and other financial institutions - 112,441 30,456 49,625 - 192,522 Derivative financial assets 12,856 15,994 5,818 13,234 7,079 54,981 Financial assets held-for-trading 149,945 - - - - 149,945 Financial investments available-for-sale 417,534 953,069 771,114 3,260,546 402,154 5,804,417 Financial investments held-to-maturity 1,310 111,113 361 113,955 205,798 432,537 Loans, advances and financing 2,461,290 801,140 1,449,564 7,451,949 13,810,904 25,974,847 Other assets 8,740 - 10,930 5,127 161,664 186,461 Amount due from jointly controlled entity 2,745 - - - - 2,745 Other non-financial assets (1) 245,130 - 49,930 - 329,949 625,009

11,940,007 1,993,757 2,318,173 10,894,436 14,917,548 42,063,921

Liabilities Deposits from customers 17,745,408 7,921,331 5,268,381 47,287 - 30,982,407 Deposits and placements of banks and other financial institutions 3,105,954 3,444,779 69,002 - - 6,619,735 Derivative financial liabilities 7,861 14,877 15,372 25,164 6,921 70,195 Bills and acceptances payable 110,161 - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad 1,488 1,033 - 286,370 - 288,891 Subordinated term loan - 682 - - 300,000 300,682 Other liabilities 353,892 - - - - 353,892 Other non-financial liabilities (2) - - 22 - 24,932 24,954

21,324,764 11,382,702 5,352,777 358,821 331,853 38,750,917

On balance sheet gap (9,384,757) (9,388,945) (3,034,604) 10,535,615 14,585,695 3,313,004 Off balance sheet credit commitments - - (13,700,237) - - (13,700,237) Derivatives 318,479 67,119 195,759 (30,000) - 551,357


(1) Other non-financial assets include tax recoverable, statutory deposits with BNM, deferred tax assets, investment in jointly

controlled entity, property and equipment and intangible assets.




Annual Report 2012




Assets Cash and short-term funds 3,633,842 - - - - 3,633,842 Reverse repurchase agreements with financial institutions - - 20,057 - - 20,057 Deposits and placements with banks and other financial institutions - 579,475 67,851 272,166 124,333 1,043,825 Financial assets held-for-trading 165,592 - - - - 165,592 Derivative financial assets 11,209 26,370 18,534 6,693 6,066 68,872 Financial investments available-for-sale 328,225 490,350 411,229 2,490,392 1,937,965 5,658,161 Financial investments held-to-maturity 88,623 1,076 16,000 148,634 197,337 451,670 Loans, advances and financing 1,784,693 1,581,005 1,397,768 9,756,008 13,819,795 28,339,269 Other assets 186,437 - 9,514 5,215 26,624 227,790 Amount due from subsidiaries 153,949 - - - - 153,949 Other non-financial assets (1) 1,211,800 - - - 701,227 1,913,027

7,564,370 2,678,276 1,940,953 12,679,108 16,813,347 41,676,054

Liabilities Deposits from customers 13,579,032 8,419,079 9,982,086 244,620 - 32,224,817 Deposits and placements of banks and other financial institutions 1,257,846 2,458,780 11,637 - - 3,728,263 Derivative financial liabilities 9,769 19,817 8,655 17,247 4,175 59,663 Bills and acceptances payable 152,400 - - - - 152,400 Recourse obligation on loans sold to Cagamas Berhad 1,364 1,840 - 410,345 - 413,549 Subordinated term loan 2,755 2,205 - - 900,000 904,960 Other liabilities 282,144 - - - - 282,144 Amount due to subsidiaries 48,528 - - - - 48,528 Other non-financial liabilities (2) - - 54,177 - 13,099 67,276

15,333,838 10,901,721 10,056,555 672,212 917,274 37,881,600

On balance sheet gap (7,769,468) (8,223,445) (8,115,602) 12,006,896 15,896,073 3,794,454 Off balance sheet credit commitments - - (10,687,961) - - (10,687,961) Derivatives 143,621 331,915 1,041,996 126,594 - 1,644,126


(1) Other non-financial assets include statutory deposits with BNM, investment in subsidiaries, property and equipment and

intangible assets.




Annual Report 2012




Assets Cash and short-term funds 5,527,439 - - - - 5,527,439 Deposits and placements with banks and other financial institutions - 671,105 24,879 377,735 25,269 1,098,988 Financial assets held-for-trading 149,832 - - - - 149,832 Derivative financial assets 11,735 10,901 7,197 5,764 14,304 49,901 Financial investments available-for-sale 42,107 228,072 318,907 4,152,676 472,771 5,214,533 Financial investments held-to-maturity 103,220 1,085 51,547 163,670 201,583 521,105 Loans, advances and financing 1,706,446 665,560 893,175 8,147,363 13,905,517 25,318,061 Other assets 60,727 - 10,578 5,351 40,034 116,690 Amount due from subsidiaries 356,897 - - - - 356,897 Other non-financial assets (1) 1,108,650 - - - 608,194 1,716,844

9,067,053 1,576,723 1,306,283 12,852,559 15,267,672 40,070,290

Liabilities Deposits from customers 13,873,564 8,360,595 6,604,125 234,140 - 29,072,424 Deposits and placements of banks and other financial institutions 3,372,324 2,408,965 262,548 - - 6,043,837 Derivative financial liabilities 20,130 16,716 15,200 29,042 16,311 97,399 Bills and acceptances payable 82,059 - - - - 82,059 Recourse obligation on loans sold to Cagamas Berhad 1,426 1,900 - 425,133 - 428,459 Subordinated term loan - 1,850 - - 600,000 601,850 Other liabilities 309,134 - - - - 309,134 Amount due to subsidiaries 48,307 - - - - 48,307 Other non-financial liabilities (2) - - 16,212 - 19,211 35,423

17,706,944 10,790,026 6,898,085 688,315 635,522 36,718,892

On balance sheet gap (8,639,891) (9,213,303) (5,591,802) 12,164,244 14,632,150 3,351,398 Off balance sheet credit commitments - - (11,949,889) - - (11,949,889) Derivatives 573,777 195,782 490,331 (30,000) - 1,229,890


(1) Other non-financial assets include amount due from subsidiaries, statutory deposits with BNM, investment in subsidiaries,

property and equipment and intangible assets.




Annual Report 2012




Assets Cash and short-term funds 6,108,452 - - - - 6,108,452 Deposits and placements with banks and other financial institutions - 442,636 63,405 58,876 - 564,917 Financial assets held-for-trading 149,945 - - - - 149,945 Derivative financial assets 12,856 15,994 5,818 13,234 7,079 54,981 Financial investments available-for-sale 349,930 749,785 759,570 2,246,981 349,206 4,455,472 Financial investments held-to-maturity 1,310 111,113 361 113,955 205,798 432,537 Loans, advances and financing 2,350,996 683,992 1,275,452 6,795,876 11,312,935 22,419,251 Other assets 7,514 - 10,830 4,983 161,255 184,582 Amount due from subsidiaries 185,271 - - - - 185,271 Other non-financial assets (1) 245,130 - 46,072 - 607,057 898,259

9,411,404 2,003,520 2,161,508 9,233,905 12,643,330 35,453,667

Liabilities Deposits from customers 14,359,545 6,594,536 4,434,957 43,037 - 25,432,075 Deposits and placements of banks and other financial institutions 2,485,557 3,194,444 69,002 - - 5,749,003 Derivative financial liabilities 7,861 14,877 15,372 25,164 6,921 70,195 Bills and acceptances payable 110,161 - - - - 110,161 Recourse obligation on loans sold to Cagamas Berhad 1,488 1,033 - 286,370 - 288,891 Subordinated term loan - 682 - - 300,000 300,682 Other liabilities 317,002 - - - - 317,002 Amount due to subsidiaries 47,926 - - - - 47,926 Deferred tax liabilities - - - - 24,932 24,932

17,329,540 9,805,572 4,519,331 354,571 331,853 32,340,867

On balance sheet gap (7,918,136) (7,802,052) (2,357,823) 8,879,334 12,311,477 3,112,800 Off balance sheet credit commitments - - (12,245,520) - - (12,245,520) Derivatives 318,479 67,119 195,759 (30,000) - 551,357


(1) Other non-financial assets include amount due from subsidiaries, statutory deposits with BNM, investment in subsidiaries, property and equipment and intangible assets.



Annual Report 2012


(iv) Operational risk management Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure

or technology or events which are beyond the bank’s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.

The Bank manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit’s business activities, the market in which it is operating and regulatory requirement in force.

The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. The capitalrequirementiscalculatedbytaking15%ofBank’saverageannualgrossincomeoverthepreviousthreeyears.

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process.

The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk Management Committee and Board Risk Management Committee. Appropriate remedial actions are reviewed for effectiveness and implemented to minimize the recurrence of such events.

As a matter of requirement, all Operational Risk Coordinators must satisfy an internal operational risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators.

(v) Fair value of financial instruments

Financial instruments comprise financial assets, financial liabilities and also off balance sheet financial instruments. The fair value of a financial instrument is the amount at which the instruments could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents estimates of fair values as at reporting date.

Quoted market prices, when available, are used as the measure of fair values. For financial instruments, without quoted market prices, fair values are estimated using net present value or other valuation techniques. These techniques involve a certain degree of uncertainty depending on the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in these assumptions could materially affect these estimates and the resulting fair value.

Fair value information for non-financial assets and liabilities are excluded as they do not fall within the scope of MFRS 132 which requires fair values to be disclosed. This includes property and equipment, statutory deposits with Bank Negara Malaysia, investment in subsidiaries, other assets, tax recoverable, deferred tax and intangible assets.



Annual Report 2012


(v) Fair value of financial instruments (continued)

The fair values of the financial assets and financial liabilities of the Group and the Bank approximated to their respective carrying value as at reporting date, except for the following:

The Group The Bank 31.12.2012 31.12.2012

Carrying Fair Carrying Fair value value value value RM’000 RM’000 RM’000 RM’000

Financial assets Financial investments held-to-maturity 451,670 441,716 451,670 441,716 Loans, advances and financing 33,482,626 33,185,614 28,339,269 28,087,568

33,934,296 33,627,330 28,790,939 28,529,284

Financial liabilities Deposits from customers 41,263,536 41,258,201 32,224,817 32,220,530 Recourse obligation on loans sold to Cagamas Berhad 413,549 426,331 413,549 426,331

41,677,085 41,684,532 32,638,366 32,646,861




30,213,371 29,910,638 25,839,166 25,593,803


36,975,903 36,995,219 29,500,883 29,520,995




26,407,384 26,156,425 22,851,788 22,665,620


31,271,298 31,275,016 25,720,966 25,727,791



Annual Report 2012


(v) Fair value of financial instruments (continued) The fair values of derivative financial instruments at the reporting date are as follows:

The Group and the Bank The Group and the Bank The Group and the Bank 31.12.2012 31.12.2011 1.1.2011

Underlying Underlying Underlying Notional Asset Liability Notional Asset Liability Notional Asset Liability RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Foreign exchange contracts - forward contracts 941,791 9,504 2,870 712,883 2,433 6,313 728,471 2,381 19,025 - swaps 3,060,558 37,661 23,725 2,344,698 16,097 33,904 1,688,008 35,206 22,715 Interest rate contracts - swaps 2,484,602 21,707 33,068 2,395,015 31,371 57,182 1,495,313 17,394 28,455

The derivative financial instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuation in market interest rates or foreign exchange rates relative to their terms. The extent to which instruments are favorable or unfavorable and the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

The fair value estimates were determined by application of the methodologies and assumptions described below.

Short-term funds and placements with banks and other financial institutions

For short-term funds and placements with banks and other financial institutions with maturity of less than six months, the carrying amount is a reasonable estimate of fair value.

For amounts with maturities of six months or more, fair values have been estimated by reference to current rates at which similar deposits and placements would be made to banks with similar credit ratings and maturities.

Financial assets held-for-trading, financial investments available-for-sale and held-to-maturity

The fair values of financial assets held-for-trading, financial investments available-for-sale and financial investments held-to-maturity are reasonable estimates based on quoted market prices. In the absence of such quoted prices, the fair values are based on the expected cash flows of the instruments discounted by indicative market yields for the similar instruments as at reporting date or the audited net tangible asset of the invested company.


Loans, advances and financing of the Group comprise of floating rate loans and fixed rate loans. For performing floating rate loans, the carrying amount is a reasonable estimate of their fair values.

The fair values of performing fixed rate loans are arrived at using the discounted cash flows based on the prevailing market rates of loans and advances with similar credit ratings and maturities.

The fair values of impaired loans and advances, whether fixed or floating are represented by their carrying values, net of individual and collective allowances, being the reasonable estimate of recoverable amount.

Other assets and liabilities

The carrying value less any estimated allowance for financial assets and liabilities included in other assets and other liabilities are assumed to approximate their fair values as these items are not materially sensitive to the shift in market interest rates.



Annual Report 2012


(v) Fair value of financial instruments (continued) Deposits from customers, banks and other financial institutions, bills and acceptances payable

The carrying values of deposits and liabilities with maturities of six months or less are assumed to be reasonable estimates of their fair values. Where the remaining maturities of deposits and liabilities are above six months, their estimated fair values are arrived at using the discounted cash flows based on prevailing market rates currently offered for similar remaining maturities.

The estimated fair value of deposits with no stated maturity, which include non-interest bearing deposits, approximates carrying amount which represents the amount repayable on demand.

Recourse obligation on loans sold to Cagamas Berhad

For floating rate loans sold to Cagamas Berhad, the carrying value is generally a reasonable estimate of their fair values.

The fair values of fixed rate loans sold to Cagamas Berhad are arrived at using the discounted cash flow methodology at prevailing market rates of similarly profiled loans.

Subordinated term loan

For fixed rate borrowings, the estimate of fair value is based on discounted cash flow model using prevailing lending rates for borrowings with similar risks and remaining term to maturity.

For floating rate borrowings, the carrying value is generally a reasonable estimate of their fair values.

Derivative financial instruments

The fair value of exchange rate and interest rate contracts is the estimated amount the Group would receive or pay to terminate the contracts at the reporting date.

Fair value measurements

The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy: (a) Level 1 - quoted price (unadjusted) in active markets for identical assets and liabilities;

(b) Level 2 - inputs other than quoted price included within level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e.derived from prices); and

(c) Level 3 - inputs for the asset and liability that are not based on observable market data (unobservable inputs).



Annual Report 2012



Fair value measurements (continued) The Group Level 1 Level 2 Level 3 Total 31.12.2012 RM’000 RM’000 RM’000 RM’000

Assets Financial assets held-for-trading - 165,592 - 165,592 Financial investments available-for-sale * - Private debt securities - 3,532,861 - 3,532,861 - Equity securities 3,030 - 106,444 109,474 - Other financial assets - 3,998,319 - 3,998,319 Derivative financial assets - 68,872 - 68,872 Liabilities Derivative financial liabilities - 59,663 - 59,663 The Group Level 1 Level 2 Level 3 Total 31.12.2011 RM’000 RM’000 RM’000 RM’000

Assets Financial assets held-for-trading - 149,832 - 149,832 Financial investments available-for-sale * - Private debt securities - 2,512,024 - 2,512,024 - Equity securities 7,454 - 105,864 113,318 - Other financial assets - 4,073,076 - 4,073,076 Derivative financial assets - 49,901 - 49,901 Liabilities Derivative financial liabilities - 97,399 - 97,399 The Group Level 1 Level 2 Level 3 Total 1.1.2011 RM’000 RM’000 RM’000 RM’000

Assets Financial assets held-for-trading - 149,945 - 149,945 Financial investments available-for-sale * - Private debt securities - 1,606,737 - 1,606,737 - Equity securities 13,536 - 93,173 106,709 - Other financial assets - 4,090,971 - 4,090,971 Derivative financial assets - 54,981 - 54,981 Liabilities Derivative financial liabilities - 70,195 - 70,195



Annual Report 2012



Fair value measurements (continued) The Bank Level 1 Level 2 Level 3 Total 31.12.2012 RM’000 RM’000 RM’000 RM’000

Assets Financial assets held-for-trading - 165,592 - 165,592 Financial investments available-for-sale * - Private debt securities - 2,831,071 - 2,831,071 - Equity securities 349 - 106,375 106,724 - Other financial assets - 2,720,366 - 2,720,366 Derivative financial assets - 68,872 - 68,872 Liabilities Derivative financial liabilities - 59,663 - 59,663 The Bank Level 1 Level 2 Level 3 Total 31.12.2011 RM’000 RM’000 RM’000 RM’000

Assets Financial assets held-for-trading - 149,832 - 149,832 Financial investments available-for-sale * - Private debt securities - 1,892,031 - 1,892,031 - Equity securities 3,844 - 105,795 109,639 - Other financial assets - 3,212,863 - 3,212,863 Derivative financial assets - 49,901 - 49,901 Liabilities Derivative financial liabilities - 97,399 - 97,399 The Bank Level 1 Level 2 Level 3 Total 1.1.2011 RM’000 RM’000 RM’000 RM’000

Assets Financial assets held-for-trading - 149,945 - 149,945 Financial investments available-for-sale * - Private debt securities - 1,229,320 - 1,229,320 - Equity securities 9,827 - 93,101 102,928 - Other financial assets - 3,123,224 - 3,123,224 Derivative financial assets - 54,981 - 54,981 Liabilities Derivative financial liabilities - 70,195 - 70,195 * Net of allowance for impairment.



Annual Report 2012


(v) Fair value of financial instruments (continued) Fair value measurements (continued)

Financial instruments that are valued using quoted prices in active market are classified as Level 1 of the valuation hierarchy. These would include listed equities which are actively traded.

Where fair value is determined using quoted prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high. These would include corporate private debt securities, corporate notes and most of the Group’s OTC derivatives.

The Group and the Bank classify financial instruments as Level 3 when there is reliance on unobservable inputs to the valuation model attributing to a significant contribution to the instrument value. Valuation reserves or pricing adjustments where applicable will be used to converge to fair value.

The Group and the Bank may also use valuation models or discounted cash flow technique to determine the fair value.

Most of the OTC derivatives are priced using valuation models. Where derivative products have been established in the markets for some time, the Group and the Bank use models that are widely accepted by the industry.

The valuation techniques and inputs used generally depend on the contractual terms and the risks inherent in the instrument as well as the availability of pricing information in the market. Principal techniques used include discounted cash flows, and other appropriate valuation models. OTC derivatives which are valued using unobservable inputs that are supported by little or no market activity which are significant to the fair value of the assets or liabilities are classified as Level 3.

The following table present the changes in Level 3 instruments for the financial year ended:


Opening 105,864 93,173 25,279 105,795 93,101 24,704 New 527 - - 527 - - Profit/(loss) - 200 - - 200 - Sales - (300) - - (300) - AFS revaluation reserves 53 12,829 67,894 53 12,832 68,397 Allowance for impairment - (38) - - (38) -

Closing 106,444 105,864 93,173 106,375 105,795 93,101

Effect of changes in significant unobservable assumptions to reasonably possible alternatives

As at reporting date, financial instruments measured with valuation techniques using significant unobservable inputs (Level 3) mainly include unquoted shares held for socio economic purposes.

In estimating its significance, the Group and the Bank used an approach that is currently based on methodologies used for fair value adjustments. These adjustments reflects the values that the Group and the Bank estimate are appropriate to adjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies used can be a statistical or other relevant approved techniques.



Annual Report 2012

39 LEASE COMMITMENTS

The Bank has lease commitments in respect of rented premises and hired equipment, all of which are classified as operating leases. A summary of the non-cancelable long-term commitments, net of sub-leases are as follows:

The Group and The Bank 31.12.2012 31.12.2011 RM’000 RM’000

Within one year 19,931 19,573 One year to five years 8,310 20,487 40 CAPITAL AND OPERATING COMMITMENTS

Capital commitments

Capital expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:


Authorised and contracted for 2,864 12,261

2,864 12,261

Analysed as follows: Property and equipment 2,864 12,261

Operating commitments

Operating expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:


Authorised and contracted for 266,106 266,202



Annual Report 2012

41 CAPITAL MANAGEMENT

The Group and the Bank’s objectives when managing capital are:

• TocomplywiththecapitalrequirementssetbytheregulatorsofthebankingmarketswheretheentitieswithintheGroupandtheBank operates;

• TosafeguardtheGroupandtheBank’sabilitytocontinueasagoingconcernsothat itcancontinuetoprovidereturnsfor

shareholders and benefits for other stakeholders; and • Tomaintainastrongcapitalbasetosupportthedevelopmentofitsbusiness.

The Group and the Bank maintain a ratio of total regulatory capital to its risk-weighted assets above a minimum level agreed with the

management which takes into account the risk profile of the Group and the Bank.

The table in Note 42 below summarises the composition of regulatory capital and the ratios of the Group and the Bank for the financial year ended 31 December 2012.

42 CAPITAL ADEQUACY

The capital adequacy ratios are as follows:

The Group # The Bank Basel II Basel II Basel II Basel II 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Tier I capital Paid-up share capital 1,518,337 1,439,285 1,518,337 1,439,285 Share premium 529,337 408,389 529,337 408,389 Retained profits 808,553 642,638 659,603 530,489 Statutory reserves 1,160,651 1,011,044 1,017,200 904,624

4,016,878 3,501,356 3,724,477 3,282,787 Less: Goodwill (137,323) (137,323) (137,323) (137,323) Deferred tax assets * (10,827) (3,658) (10,227) (3,659)

Total Tier I capital 3,868,728 3,360,375 3,576,927 3,141,805



Annual Report 2012

42 CAPITAL ADEQUACY (continued)

The Group # The Bank Basel II Basel II Basel II Basel II 31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Tier II capital Subordinated term loan 900,000 600,000 900,000 600,000 Collective impairment @ 152,350 182,269 128,568 138,227

Total Tier II capital 1,052,350 782,269 1,028,568 738,227

Total capital 4,921,078 4,142,644 4,605,495 3,880,032

Less: Investment in capital instruments of other banking institutions (10,034) (40,257) (10,034) (40,257) Investment in subsidiaries (27,389) (27,389) (387,389) (287,389)

Capital base 4,883,655 4,074,998 4,208,072 3,552,386

Core capital ratio 11.02% 10.00% 11.59% 10.64% Risk-weighted capital ratio 13.91% 12.12% 13.64% 12.03% Core capital ratio (net of proposed dividends) 10.76% 9.78% 11.30% 10.39% Risk-weighted capital ratio (net of proposed dividends)^ 13.65% 11.91% 13.34% 11.78% Risk-weighted assets for: Credit risk 32,659,779 31,344,231 28,731,138 27,608,268 Market risk 260,620 133,160 258,838 102,489 Operational risk 2,187,846 2,135,976 1,864,563 1,828,940

Total risk-weighted assets 35,108,245 33,613,367 30,854,539 29,539,697

* Deferred tax assets exclude deferred tax arising from AFS revaluation reserves. # The Group comprises the Bank and the Bank’s subsidiary, AFFIN Islamic Bank Berhad. @ Qualifying collective impairment is restricted to allowances on unimpaired portion of the loans, advances and financing. ^ Net proposed dividends of RM91,100,000 (31.12.2011: RM71,964,000).

The Group and the Bank implemented the Basel II - Risk-Weighted Assets Computation under the Risk-Weighted Capital Adequacy Framework with effect from 1 January 2008. The Group and the Bank have adopted the Standardised Approach for credit risk and market risk and Basic Indicator Approach for operational risk computation.

Pursuant to Bank Negara Malaysia’s circular, ‘Recognition of Deferred Tax Asset (‘DTA’) and Treatment of DTA for RWCR Purposes’ dated 8 August 2003, deferred tax income/(expenses) is excluded from the calculation of Tier I capital and DTA is excluded from the calculation of risk-weighted assets.



Annual Report 2012

43 LITIGATIONS AGAINST THE BANK

(a) A syndicate of lenders, including AFFIN Bank Berhad (the ‘Bank’), had granted facilities of RM62.5 million (the ‘Facilities’) to a borrower to, inter alia, finance a development project. At borrower’s request, the Facilities were restructured in 1999 but in July 2000, continued drawdown under the restructured Facilities was refused as borrower had failed to comply with conditions precedent for such drawdown. The lenders and borrower negotiated to resolve the default and the Facilities were restructured again in 2003. Further financing was also granted in 2004 and the Project was completed with certificate of fitness in January 2005.

Subsequent to the completion of the project, borrower brought a claim against the lead banker, as the agent of the syndicate lenders, for loss and damage arising from alleged breach of duty and obligations owed by the lead banker to the borrower in relation to various actions taken or omitted to be taken in disbursements and transactions under the Facilities. The lead banker filed an action against the borrower and its guarantor of the Facilities, for recovery of the amounts outstanding under the Facilities.

The 2 actions were consolidated and heard together at full trial. On 6 May 2009, the High Court granted judgment in favour of borrower against the lead banker, as an agent of the lenders, and dismissed the lenders’ action for recovery of the Facilities. The judgment against the lead banker included a sum of RM115.5 million to be paid, as well as further damages to be assessed and an immediate release of all security granted by the borrower and its guarantors for the Facilities. The award of damages of RM115.5 million was made despite parties’ agreement that the trial proceed only on issue of liability and no evidence of damage/loss was produced. If the judgment of 6 May 2009 is maintained, lead banker will seek contribution from the lenders, including the Bank. The Bank’s share is about RM34.65 million.

The lead banker and agent appealed to the Court of Appeal against the High Court decision. An effort at mediation on 9 March 2012 failed as the parties could not come to a settlement. Hearing dates were then fixed for the appeal. The appeal has been argued twice before the Court of Appeal i.e. on 3 August 2012 and 9 November 2012. The hearing was continued on 23 January 2013 and 31 January 2013 and the Court of Appeal reserved its decision to a date to be fixed later.

The solicitors for the lead banker and the lenders have expressed the view that the lead banker and the lenders have a more than even chance of success in their appeal against the Judgment.

(b) Other than above, there are various legal suits against the Bank in respect of claims and counter claims of approximately RM73.8 million (31.12.2011: RM42.8 million). Based on legal advice, the Directors are of the opinion that no provision for damages need to be made in the financial statements, as the probability of adverse adjudication against the Bank is remote.

44 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The Group and the Bank make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. To enhance the information content of the estimates, certain variables that are anticipated to have material impact to the Group’s and the Bank’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Allowance for losses on loans, advances and financing

The accounting estimates and judgments related to the impairment of loans and provision for off-balance sheet positions is a critical accounting estimate for because the underlying assumptions used for both the individually and collectively assessed impairment can change from period to period and may significantly affect the Group and the Bank’s results of operations.



Annual Report 2012

44 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued)

Allowance for losses on loans, advances and financing (continued)

In assessing assets for impairment, management judgment is required. The determination of the impairment allowance required for loans which are deemed to be individually significant often requires the use of considerable management judgment concerning such matters as local economic conditions, the financial performance of the counterparty and the value of any collateral held, for which there may not be a readily accessible market. The actual amount of the future cash flows and their timing may differ from the estimates used by management and consequently may cause actual losses to differ from the reported allowances.

The impairment allowance for portfolios of smaller-balance homogenous loans, such as those to individuals and small business customers of the private and retail business, and for those loans which are individually significant but for which no objective evidence of impairment exists, is determined on a collective basis. The collective impairment allowance is calculated on a portfolio basis using statistical models which incorporate numerous estimates and judgments, and therefore is subject to estimation uncertainty. The Group and the Bank perform a regular review of the models and underlying data and assumptions as far as possible to reflect the current economic circumstances. The probability of default, loss given defaults, and loss identification period, amongst other things, are all taken into account during this review.

Estimated impairment of goodwill

The Group performs an impairment review on an annual basis to ensure that the carrying value of the goodwill does not exceed its recoverable amounts from cash generating units to which the goodwill is allocated. The recoverable amount represents the present value of the estimated future cash flows expected to arise from continuing operations. Therefore, in arriving at the recoverable amount, management exercise judgment in estimating the future cash flows, growth rate and discount rate.

45 CREDIT EXPOSURES ARISING FROM TRANSACTIONS WITH CONNECTED PARTIES

The following credit exposures are based on Bank Negara Malaysia’s revised Guidelines on Credit Transaction and Exposures with Connected Parties, which are effective 1 January 2008. (i) The aggregate value of outstanding credit exposures with connected parties (RM’000) 3,414,505(ii) The percentage of outstanding credit exposures to connected parties as a proportion of total credit exposures 8%(iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default Nil

46 APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 28 February 2013.


STATEMENT By DIRECTORS

PURSUANT TO SECTION 169 (15) OF THE COMPANIES ACT, 1965

STATUTORy DECLARATION

PURSUANT TO SECTION 169 (16) OF THE COMPANIES ACT, 1965

We, JEN TAN SRI DATO' SERI ISMAIL BIN HAJI OMAR (BERSARA) and EN. MOHD SUFFIAN BIN HAJI HARON, two of the Directors of AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 73 to 204 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Bank as at 31 December 2012 and of the results and cash flows of the Group and the Bank for the financial year ended on the date in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

In accordance with a resolution of the Board of Directors dated 28 February 2013.

JEN TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA)Chairman

EN. MOHD SUFFIAN BIN HAJI HARONDirector

I, EE KOK SIN, the officer of AFFIN BANK BERHAD primarily responsible for the financial management of the Group and the Bank, do solemnly and sincerely declare that, in my opinion, the accompanying financial statements set out on pages 73 to 204, are correct and I make this solemn declaration conscientiously believing the same to be true, by virtue of the provisions of the Statutory Declarations Act, 1960.

EE KOK SIN

Subscribed and solemnly declared by the abovenamed EE KOK SIN at Kuala Lumpur in Malaysia on 28 February 2013, before me.

Commissioner for Oaths


INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF AFFIN BANK BERHAD(Incorporated in Malaysia)

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of AFFIN Bank Berhad on pages 73 to 204 which comprise the statements of financial position as at 31 December 2012 of the Group and of the Bank, and the statements of income, comprehensive income, changes in equity and cash flows of the Group and of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on Notes 1 to 45.

Directors’ Responsibility for the Financial Statements

The directors of the Bank are responsible for the preparation of financial statements that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965, and for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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 judgement, 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 entity’s preparation of financial statements that give a true and fair view 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 entity’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.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements have been properly drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and of the Bank as of 31 December 2012 and of their financial performance and cash flows for the year then ended.


INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF AFFIN BANK BERHAD

(Incorporated in Malaysia)

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank and its subsidiaries have been properly kept in accordance with the provisions of the Act.

b) 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 financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes.

c) The audit reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.

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 SOO HOO KHOON YEAN (No. AF : 1146) (No. 2682/10/13 (J))Chartered Accountants Chartered Accountant

Kuala Lumpur, Malaysia28 February 2013


1. Introduction 1.1 Background 1.2 Scope of Application

2. Risk Governance Structure 2.1 Overview 2.2 Board Committees 2.3 Management Committees 2.4 Group Risk Management Function 2.5 Internal Audit and Internal Control Activities

3. Capital 3.1 Capital Structure 3.2 Capital Adequacy

4. Risk Management Objectives and Policies

5. Credit Risk 5.1 Credit Risk Management Objectives and Policies 5.2 Application of Standardised Approach for Credit Risk 5.3 Credit Risk Measurement 5.4 Risk Limit Control and Mitigation Policies 5.5 Credit Risk Monitoring 5.6 Impairment Provisioning 5.7 Credit Risk Culture

6. Market Risk 6.1 Market Risk Management Objectives and Policies 6.2 Application of Standardised Approach for Credit Risk 6.3 Market Risk Measurement, Control and Monitoring 6.4 Value-at-Risk (‘VaR’) 6.5 Foreign Exchange Risk 7. Liquidity Risk 7.1 Liquidity Risk Management Objectives and Policies 7.2 Liquidity Risk Measurement, Control and Monitoring

8. Operational Risk 8.1 Operational Risk Management Objectives and Policies 8.2 Application of Basic Indicator Approach for Operational Risk 8.3 Operational Risk Measurement, Control and Monitoring 8.4 Operational Risk Culture

9. Shariah Compliance

Appendices

209209

209210211213213

214215

215

215216216217218218224

224224224225225

225225

226226226226

227

228

BASEL II Pillar 3 Disclosures



BASEL II PILLAR 3 DISCLOSURES


1 Introduction

1.1 Background

AFFIN Bank Berhad ('ABB') adopted Basel II in January 2008 in line with the directive from Bank Negara Malaysia ('BNM'). The Basel II framework is structured around three fundamental Pillars.

- Pillar 1 defines the minimum capital requirement to ensure that financial institutions hold sufficient capital to cover their exposure to credit, market and operational risks.

- Pillar 2 requires financial institutions to have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.

- Pillar 3 requires financial institutions to establish and implement an appropriate disclosure policy that promotes transparency regarding their risk management practices and capital adequacy positions.

ABB elected to adopt the following approaches under Pillar 1 requirements:

- Standardised Approach for Credit Risk- Basic Indicator Approach for Operational Risk- Standardised Approach for Market Risk

1.2 Scope of Application

This document contains the disclosure requirements under Pillar 3 for ABB for the year ended 31 December 2012. The disclosures are made in line with the Pillar 3 disclosure requirements under the Basel II framework as laid out by BNM.

The disclosures should be read in conjunction with ABB’s 2012 Annual Report for the year ended 31 December 2012.

The Group’s capital requirements are generally based on the principles of consolidation adopted in the preparation of its financial statements. The Group’s consolidated entities comprises the Bank and the Bank’s subsidiary, AFFIN Islamic Bank Berhad.

2 Risk Governance Structure

2.1 Overview

The Board of Directors of ABB is ultimately responsible for the overall performance of ABB. The Board’s responsibilities remain within the framework of BNM Guidelines. The Board also exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility for determining ABB’s general policies and strategies for the short, medium and long term, approving business plans, including targets and budgets, and approving major strategic decisions.

The Board has overall responsibility for maintaining the proper management and protection of ABB’s interests by ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control, and by seeking regular assurance on their effectiveness. The Board also recognises that risks cannot be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk of material errors, fraud or losses occurring. The system of internal controls encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations, policies and guidelines.


BASEL II PILLAR 3 DISCLOSURESfor the financial year ended 31 December 2012


2.1 Overview (continued)

The terms of reference of the Board Committees as disclosed in the Annual Report provide an outline of its role and functions. In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operated under approved terms of reference, to assist the Board in discharging their duties. The Chairmen of the various Committees report on the outcome of their Committee meetings to the Board and any further deliberation is made at Board level, if required. These reports and deliberations are incorporated into the Minutes of the Board meetings. The Board meets on a monthly basis.

The Board of ABB has a balance composition with a strong independent element. It consists of representatives from the private sector with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a mixture of different skills, competencies, experience and personalities.

2.2 Board Committees

Board Remuneration Committee (‘BRC’)

The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors, Managing Director/Chief Executive Officer and key senior management officers and ensuring that compensation is competitive and consistent with ABB’s culture, objectives and strategy.

The Committee obtains advice from experts in compensation and benefits, both internally and externally.

Board Nominating Committee (‘BNC’)

The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and Managing Director/Chief Executive Officer, assessing the effectiveness of individual Directors, the Board as a whole and the performance of the Managing Director/Chief Executive Officer and key senior management personnel.

Board Risk Management Committee (‘BRMC’)

The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational, legal and other risks and to ensure that the risk management process is in place and functioning.

It has responsibility for reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelines and portfolio management reports including risk exposure information.

The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively.

Board Loan Review and Recovery Committee (‘BLRRC’)

The BLRRC is responsible in providing critical review of loans and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee. BLRRC also reviews the impaired loans reports presented by the Management.




2.2 Board Committees (continued)

Audit and Examination Committee (‘AEC’)

The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems and oversees the work of the internal and external auditors.

Reliance is placed on the results of independent audits performed primarily by internal auditors, the outcome of statutory audits on financial statements conducted by external auditors and on representations by Management based on their control self-assessment of all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board members for notation and discussion. ABB has an established Group Internal Audit Division (GIA) which reports functionally to the Audit Committee and administratively to the Managing Director/Chief Executive Officer.

Shariah Committee

ABB’s business activities are subject to Shariah compliance and conformation by the Shariah Committee. The Shariah Committee is formed as legislated under Section 3(5)(b) of the Islamic Banking Act, 1983 and as per Shariah Governance Framework for Islamic Financial Institutions.

The duties and responsibility of the Shariah Committee are as follows:

(i) To advise the Board on Shariah matters in order to ensure that the business operations of ABB comply with the Shariah principles at all times;

(ii) To endorse and validate relevant documentations of ABB’s products to ensure that the product comply with Shariah principles; and

(iii) To advise ABB on matters to be referred to the Shariah Advisory Council.

2.3 Management Committees

Management Committee (‘MCM’)

MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day operations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors ABB’s overall performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.

Group Management Loan Committee (‘GMLC’)

GMLC is established within senior management chaired by the MD/CEO to approve complex and larger loans and workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel of ABB.



2.3 Management Committees (continued)

Asset and Liability Management Committee (‘ALCO’)

ALCO’s responsibilities include:

(i) Managing the asset liability of ABB through coordination of the overall planning process including strategic planning, budgeting and asset liability management process;

(ii) Directing ABB’s overall acquisition and allocation of funds;

(iii) Prudently managing ABB’s interest rate exposure;

(iv) Determine the overall Balance Sheet strategy and ensuring policy compliance;

(v) Determined the type and scope of derivative activities, approve individual derivative transactions as well as control over the level of exposure in derivative;

(vi) Reviewing of market risks in ABB’s trading portfolios;

(vii) Managing the effective usage of economic and regulatory capital throughout the organisation;

(viii) Reviewing and recommending the capital plan for approval;

(ix) Approving capital management standards and policies, capital raising and repayment transactions;

(x) Reviewing quarterly capital adequacy monitoring reports; and

(xi) Reviewing and approving key assumptions inherent in economic capital modeling and stress/scenario tests.

Group Operational Risk Management Committee (‘GORMC’)

GORMC is established within senior management by MD/CEO to deliberate and to manage operational risks. Its responsibilities include:

(i) To evaluate operational risks issues on escalating importance/strategic risk exposure;

(ii) To review and recommend on broad operational risks management policies best practices for adoption by ABB’s operating units;

(iii) To review the effectiveness of broad internal controls and making recommendation on changes if necessary;

(iv) To review/approve recommendation on operational risk management groups section up to address specific issue;

(v) To take the lead in inculcating an operational risks awareness culture;

(vi) To approve operational risk management methodologies/measurements tools; and

(vii) To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC’s approval if necessary.




2.3 Management Committees (continued)

Early Alert Committee (‘EAC’)

EAC is established within senior management chaired by the MD/CEO to monitor credit quality through monthly review of the Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts.

2.4 Group Risk Management Function

An integrated risk management framework is in place. The Group Risk Management (‘GRM’) function, headed by Group Chief Risk Officer (‘GCRO’) and operating in an independent capacity, is part of ABB’s senior management structure which works closely as a team in managing risks to enhance stakeholders’ value.

GRM reports to BRMC. Committees namely BLRRC, MCM, GMLC, ALCO, GORMC and EAC assist BRMC in managing credit, market, liquidity and operational risks. The responsibilities of these Committees include risk identification, risk assessment and measurement, risk control and mitigation; and risk monitoring.

2.5 Internal Audit and Internal Control Activities

In accordance with BNM’s GP10 guidelines, GIA conducts continuous reviews on auditable areas within ABB. The continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance to the audit plan approved by the AEC.

Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on the effectiveness of internal controls maintained by each entity. The risks highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.



3 Capital

3.1 Capital Structure

The following table sets forth details on the capital resources and capital adequacy ratios for the Group as at 31 December 2012. The Group’s Core capital ratio (‘CCR’) and Risk-weighted capital ratio (‘RWCR’) as at 31 December 2012wereabovetheBNMminimumrequirementsof4.0%and8.0%respectively.


RM’000 RM’000 RM’000 RM’000

Tier I capital Paid-up share capital 1,518,337 1,439,285 1,518,337 1,439,285 Share premium 529,337 408,389 529,337 408,389 Retained profits 808,553 642,638 659,603 530,489 Statutory reserves 1,160,651 1,011,044 1,017,200 904,624

4,016,878 3,501,356 3,724,477 3,282,787 Less: Goodwill (137,323) (137,323) (137,323) (137,323) Deferred tax assets (10,827) (3,658) (10,227) (3,659)

Total Tier I capital 3,868,728 3,360,375 3,576,927 3,141,805

Tier II capital Subordinated term loan 900,000 600,000 900,000 600,000 Collective impairment 152,350 182,269 128,568 138,227

Total Tier II capital 1,052,350 782,269 1,028,568 738,227 Less: Investment in capital instruments of other banking institutions (10,034) (40,257) (10,034) (40,257) Investment in subsidiaries (27,389) (27,389) (387,389) (287,389)

Capital base 4,883,655 4,074,998 4,208,072 3,552,386

Core capital ratio 11.02% 10.00% 11.59% 10.64% Risk-weighted capital ratio 13.91% 12.12% 13.64% 12.03% Core capital ratio (net of proposed dividends) 10.76% 9.78% 11.30% 10.39% Risk-weighted capital ratio (net of proposed dividends) 13.65% 11.91% 13.34% 11.78% Risk-weighted assets for: Credit risk 32,659,779 31,344,231 28,731,138 27,608,268 Market risk 260,620 133,160 258,838 102,489 Operational risk 2,187,846 2,135,976 1,864,563 1,828,940

Total risk-weighted assets 35,108,245 33,613,367 30,854,539 29,539,697



3 Capital

3.2 Capital Adequacy

The Group’s has in place an internal limit for its CCR and RWCR, which is guided by the need to maintain a prudent relationship between available capital and the risks of its underlying businesses. The capital management process is monitored by managements through periodic reviews.

Refer to Appendix I.

4 Risk Management Objectives and Policies

ABB is principally engaged in all aspects of banking and related financial services. The principal activities of ABB’s subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been no significant changes in these principal activities during the financial year.

ABB’s business activities involve the analysis, measurement, acceptance, and management of risks but it operates within well defined risk acceptance criteria covering customer segments, industries and products. ABB does not enter into risk it cannot administer, book, monitor or value, or deal with persons of questionable integrity.

ABB’s risk management policies are established to identify all the key risks, assess and measure these risks, control and mitigate these risks, and manage and monitor the risk positions.

ABB regularly reviews its risk management policies and systems to reflect changes in markets, products and best practice in risk management processes. ABB’s aim is to achieve an appropriate balance between risk and return and minimise any potential adverse effects.

The key business risks to which ABB is exposed are credit risk, liquidity risk, market risk and operational risk.

5 Credit Risk

5.1 Credit Risk Management Objectives and Policies

Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and contractual obligations to ABB. Credit risk emanates mainly from loans and advances, loan commitments arising from such lending activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities.

The management of credit risk in ABB is governed by a set of approved credit policies, guidelines and procedures. Approval authorities are delegated to Senior Management and GMLC to implement the credit policies and ensure sound credit granting standards.

An independent GRM function, headed by Group Chief Risk Officer (‘GCRO’) with direct reporting line to BRMC is in place to ensure adherence to risk standards and discipline.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.



5 Credit Risk

5.2 Application of Standardised Approach to Credit Risk

ABB uses the following ECAIs to determine the risk weights for the rated credit exposures:-

• RAMRatingServicesBerhad• MalaysianRatingCorporationBerhad• Standard&Poor’sRatingServices• Moody’sInvestorsService• FitchRatings

The external ratings of the ECAIs are used to determine the risk weights of the following types of exposure: sovereigns, banks, public sector entities and corporates.

The mapping of the rating categories of different ECAIs to the risk weights is in accordance with the guidelines provided by BNM. In cases where there is no issuer or issue rating, the exposures are treated as unrated and accorded a risk weight appropriate for unrated exposure in the respective category.

The external ratings are updated in the core banking system, and extracted and matched by the risk system according to the above rules to determine the appropriate risk weights.

Refer to Appendix II and Appendices III (i) to III (ii).

5.3 Credit Risk Measurement


Credit evaluation is the process of analysing the creditworthiness of the prospective customer against ABB’s underwriting criteria and the ability of ABB to make a return commensurate to the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. ABB has developed internal rating models to support the assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan origination.

Over-the-Counter (‘OTC’) Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure Method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).



5 Credit Risk

5.4 Risk Limit Control and Mitigation Policies

ABB employs various policies and practices to control and mitigate credit risk.

Lending limits

ABB establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties, and geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers together with potential exposure from market movements.

Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by ABB are:

• Mortgagesoverresidentialproperties;• Chargesovercommercialrealestateorvehiclesfinanced;• Chargesoverbusinessassetssuchasbusinesspremises,inventoryandaccountreceivables;and• Chargesoverfinancialinstrumentssuchasmarketablesecurities

In order to be recognised as security, all items pledged must have value and ABB must have physical control and/or legal title thereto, together with the necessary documentation to enable ABB to realise the asset without the co-operation of the asset owner. Other items, such as personal or corporate guarantees, may be taken for comfort but will not be treated as security for approval purposes. Valuations are updated on a regular basis.

Prior to acceptance of any item as security, verification must be done to ensure that the security exists and an accurate and up-to-date valuation can be placed upon it. A pre-facility disbursement site visit must be undertaken in respect of landed security of significant value. Where third parties are used to undertake a valuation they must be taken from a list of approved valuers.

All assets which provide security to ABB must be adequately insured with an insurer from the list of approved insurers.

The security documentation process is centralised in an independent Security Documentation Section at Head Office. ABB adopts standardised Letter of Offer and Legal Documents. Variations/amendments require the approval from the relevant approving authority in the Bank.

Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.



5 Credit Risk

5.4 Risk Limit Control and Mitigation Policies (continued)

Credit related commitments

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or letters of credit. In terms of credit risk, ABB is potentially exposed to loss in an amount equal to the total unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

ABB monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than short-term commitments.

Refer to Appendix IV (a) to (b).

5.5 Credit Risk Monitoring

Retail credits are actively monitored and managed on a portfolio basis by product type. A new collection management system has been implemented with a dedicated team in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.

Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality. Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Portfolio management risk reports are submitted regularly to EAC and BRMC.

5.6 Impairment Provisioning

Individual impairment provisioning

Significant loans, with or without past due status, are subject to individual assessment for impairment when an evidence of impairment surfaces or at the very least once annually during the annual review process.

If impaired, the amount of loss is measured as the difference between the asset’s carrying value and the present value

of estimated future cash flows discounted at the financial assets original effective interest rate. The level of impairment allowance on significant loans is reviewed regularly, at least quarterly or more often when circumstances require.

Significant loans that are deemed not impaired after individual assessment are included in a group of loans with similar characteristics and collectively assessed for impairment.



5 Credit Risk

5.6 Impairment Provisioning (continued)

Collective impairment provisioning

All loans are grouped in respective business segments according to similar credit risk characteristics and is generally based on industry, asset or collateral type, credit grade and past due status grouped based on business segments.

Portfolio provisioning is determined for each segment based on its respective loss probabilities and other information relevant to estimation of the future cash flows of each segment.

Collective provisioning is applicable to all loans not covered under individual assessment as well as significant loans that are deemed not impaired after individual assessment.

Total loans, advances and financing - credit quality

All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired” and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with months-in-arrears more than 90 days or with impaired allowances.



5 Credit Risk


Analysed by economic sectors


RM’000 RM’000 RM’000 RM’000

Past due loans Primary agriculture 17,525 15,363 16,932 15,022 Mining and quarrying 1,467 1,063 1,380 1,000 Manufacturing 38,863 34,755 36,083 33,733 Electricity, gas and water supply 1,094 1,253 814 1,190 Construction 180,112 148,750 171,863 116,430 Real estate 48,489 31,084 48,152 31,084 Wholesale & retail trade and restaurants & hotels 109,314 74,168 105,261 71,508 Transport, storage and communication 36,623 39,594 33,732 37,872 Finance, insurance and business services 113,557 65,535 54,880 63,957 Education, health and others 14,714 107,549 13,702 106,456 Household 2,012,448 2,115,554 1,648,376 1,745,578

2,574,206 2,634,668 2,131,175 2,223,830

The Group The Bank

31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Individual impairment

Primary agriculture 1,693 2,350 1,693 2,349 Manufacturing 17,215 10,712 10,776 3,869 Electricity, gas and water supply 1,579 1,030 1,579 1,030 Construction 119,668 126,033 92,906 99,601 Real estate 2,520 1,870 2,520 1,870 Wholesale & retail trade and restaurants & hotels 7,128 1,431 5,270 242 Transport, storage and communication 3,458 - 3,458 - Finance, insurance and business services 38,469 22,604 38,469 22,213 Education, health and others 1,961 45 1,961 45 Household 16,681 2,182 16,645 2,110

210,372 168,257 175,277 133,329



5 Credit Risk


Analysed by economic sectors (continued)


RM’000 RM’000 RM’000 RM’000

Individual impairment charged Primary agriculture 148 665 148 665 Manufacturing 9,834 4,793 9,080 3,377 Electricity, gas and water supply 566 48 566 48 Construction 14,852 82,192 14,548 80,311 Real estate 1,184 926 1,184 926 Wholesale & retail trade and restaurants & hotels 7,221 3,919 5,810 3,088 Transport, storage and communication 3,459 - 3,459 - Finance, insurance and business services 12,484 22,948 12,445 22,557 Education, health and others 1,934 55 1,934 55 Household 20,531 1,363 20,217 853

72,213 116,909 69,391 111,880

The Group The Bank

31.12.2012 31.12.2011 31.12.2012 31.12.2011 RM’000 RM’000 RM’000 RM’000

Individual impairment written-off

Primary agriculture - 3,666 - 3,666 Manufacturing 1,267 34,778 1,267 34,330 Construction 11,708 45,115 11,708 43,228 Real estate - 13 - 13 Wholesale & retail trade and restaurants & hotels - 10,049 - 10,049 Finance, insurance and business services - 2,368 - 2,368 Household 387 235 387 235

13,362 96,224 13,362 93,889



5 Credit Risk


Analysed by economic sectors (continued)


Collective impairment Primary agriculture 2,023 2,223 1,770 1,796 Mining and quarrying 1,212 801 1,145 797 Manufacturing 20,703 19,175 19,199 17,093 Electricity, gas and water supply 1,079 561 989 521 Construction 26,823 22,194 22,067 18,148 Real estate 13,642 12,271 12,956 10,456 Wholesale & retail trade and restaurants & hotels 12,963 12,996 12,289 12,662 Transport, storage and communication 7,752 8,413 7,635 8,312 Finance, insurance and business services 20,117 17,298 18,407 14,845 Education, health and others 6,512 6,611 4,882 4,376 Household 209,803 349,056 186,354 301,884

322,629 451,599 287,693 390,890

Analysed by geographical area


Past due loans

Perlis 2,796 2,136 2,444 1,876 Kedah 92,913 121,774 80,764 85,200 Pulau Pinang 95,871 101,470 86,512 92,451 Perak 123,800 131,475 80,204 91,731 Selangor 763,976 715,453 626,238 597,053 Wilayah Persekutuan 412,547 392,363 327,428 354,355 Negeri Sembilan 101,629 110,914 90,454 101,609 Melaka 108,788 136,583 105,254 132,924 Johor 298,352 271,243 278,385 251,586 Pahang 66,331 111,174 43,867 85,555 Terengganu 58,771 68,159 8,890 14,527 Kelantan 46,197 53,775 4,898 5,571 Sarawak 142,183 149,629 139,396 146,454 Sabah 260,000 268,520 256,395 262,938 Labuan 52 - 46 -

2,574,206 2,634,668 2,131,175 2,223,830



5 Credit Risk


Analysed by geographical area (continued)


Individual impairment Kedah 7,048 1,283 7,048 1,283 Pulau Pinang 138 858 138 858 Perak 3,466 2,404 3,466 2,404 Selangor 103,321 95,843 102,058 95,842 Wilayah Persekutuan 42,631 30,858 41,949 29,597 Negeri Sembilan 1,693 2,349 1,693 2,349 Johor 8,014 930 8,014 930 Pahang 9,602 6,843 3,163 - Kelantan 18 66 18 66 Sabah 279 - - - Outside Malaysia 34,162 26,823 7,730 -

210,372 168,257 175,277 133,329


Collective impairment Perlis 570 438 532 418 Kedah 12,605 20,780 11,577 17,603 Pulau Pinang 14,554 19,788 13,868 18,211 Perak 10,935 16,412 9,168 12,870 Selangor 132,888 179,768 119,064 155,598 Wilayah Persekutuan 64,974 80,214 56,720 71,426 Negeri Sembilan 14,804 25,262 13,715 23,530 Melaka 7,163 12,629 6,851 12,156 Johor 29,309 44,068 27,847 41,487 Pahang 5,442 10,711 4,213 7,699 Terengganu 5,564 6,757 3,514 2,992 Kelantan 3,298 7,655 844 1,129 Sarawak 7,167 10,683 6,753 10,253 Sabah 12,631 16,434 12,302 15,518 Labuan 725 - 725 -

322,629 451,599 287,693 390,890



5 Credit Risk

5.7 Credit Risk Culture

ABB recognises that learning is a continuous journey and is committed to enhance the knowledge and required skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

For effective and efficient staff learning, ABB has implemented an E–Learning Program with an online LearningManagement System (‘LMS’). The LMS provides staff with a progressive self-learning alternative at own pace.

GRM implements an Internal Credit Certification (‘ICC’) Programme for both Business Banking and Consumer Credit.

The aim of the ICCs is to assist the core credit related group of personnel in ABB achieve a minimum level of knowledge and analytical skills required to make sound corporate and commercial loans to customers.

6 Market Risk

6.1 Market Risk Management Objectives and Policies

Market risk is defined as the risk of losses to ABB’s portfolio positions arising from movements in market factors such as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from its trading and investment activities. ABB’s market risk management objective is to ensure that market risk is appropriately identified, measured, controlled, managed and reported.

ABB’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. ABB is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’ requirements and proprietary positions.

6.2 Application of Standardised Approach for Market Risk

ABB adopts the Standardised Approach for the purpose of calculating the capital requirement for market risk.

Refer to Appendix I.

6.3 Market Risk Measurement, Control and Monitoring

The Bank’s market risk management control strategy is established based on its risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis.

Market risk arising from ABB’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-Risk (‘VaR’) Limits.

ABB quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various rates scenarios. The potential long term effects of the Bank’s overall exposure is also tracked by assessing the impact on economic value of equity (‘EVE’).

The Bank’s interest rate risk is managed through Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) limits.

In addition, ABB conducts periodic stress test of its respective business portfolios to ascertain market risk under abnormal market conditions.

ABB’s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.



6 Market Risk

6.4 Value-at-Risk (‘VaR’)

Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a Trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange rates that could affect values of financial instruments.

The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks. Under this methodology, a matrix of historical volatilities and correlations is computed from the past 100 business days’ market data. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio.

Other risk measures include the following:

(i) Mark-to-Market valuation tracks the current market value of the outstanding financial instruments.

(ii) Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market movements. Stress tests measure the changes in values arising from extreme movements in interest rates and foreign exchange rates based on past experience and simulated stress scenarios.

(iii) Sensitivity/Dollar Duration is an additional measure of interest rate risk that is computed on a daily basis. It measuresthechangeinvalueofaportfolioresultingfroma0.01%increaseininterestrates.ThismeasureidentifiesABB interest rate exposures that are most vulnerable to interest rate changes and it facilitates the implementation of hedging strategies.

6.5 Foreign Exchange Risk

ABB takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily.

7 Liquidity Risk

7.1 Liquidity Risk Management Objectives and Policies

Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

7.2 Liquidity Risk Measurement, Control and Monitoring

To measure and manage net funding requirements, ABB adopts BNM’s New Liquidity Framework (‘NLF’). The NLF ascertains the liquidity condition based on the contractual and behavioural cash-flow of assets, liabilities and off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The NLF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding sources.



7 Liquidity Risk

7.2 Liquidity Risk Measurement, Control and Monitoring (continued)

ABB employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. The risk is measured monthly using internal and external qualitative and quantitative liquidity risk indicators. ABB also conducts liquidity stress tests to gauge ABB’s resilience in the event of a funding crisis. In addition, the Bank has in place the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis and emergencies.

BRMC is responsible for ABB’s liquidity policy although the strategic management of liquidity has been delegated to ALCO. The BRMC is informed regularly of the liquidity situation in the ABB.

8 Operational Risk

8.1 Operational Risk Management Objectives and Policies

Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the bank’s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.

ABB manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit’s business activities, the market in which it is operating and regulatory requirement in force.

8.2 Application of Basic Indicator Approach for Operational Risk

ABB adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. Thecapitalrequirementiscalculatedbytaking15%ofABB’saverageannualgrossincomeoverthepreviousthreeyears.

8.3 Operational Risk Measurement, Control and Monitoring

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process.

ABB gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are reviewed for effectiveness and implemented to minimize the recurrence of such events.

8.4 Operational Risk Culture

As a matter of requirement, all Operational Risk Coordinators must satisfy an internal operational risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators.



9 Shariah Compliance

Shariah compliance is the fundamental of Islamic banking and finance. It gives legitimacy to the practices and business operations of the Islamic financial institutions (‘IFIs’) concerned. Comprehensive compliance with Shariah principles would also boosts confidence of shareholders and public that all the practices and activities by the IFIs are in compliance with the Shariah principles at all times.

Shariah Governance Framework for Islamic Financial Institutions (the ‘Framework’) issued by Bank Negara Malaysia becomes the main reference to oversee the Shariah governance process within AFFIN Islamic Bank Berhad. In order to comply with all the requirements in the Framework, Board of Directors of the Bank are very committed to ensure among others all the required Shariah compliance and research functions include Shariah Risk Management, Shariah Review, Shariah Research and Shariah Audit are properly established to effectively perform its respective functions.

Continuous training programs are provided to Shariah Committee members to equip them with better understanding and exposure on banking operations and to Board of Directors, management members and staff for fundamental and advanced knowledge on Shariah and Islamic commercial law matters.



The Group and the Bank have adopted Basel II - Risk Weighted Assets computation under the BNM's Risk-Weighted Capital Adequacy Framework with effect from 1 January 2008. The Group and the Bank have adopted the Standardised Approach for credit risk and market risk, and Basic Indicator Approach for operation risk computation.

The following information concerning the Group and the Bank's risk exposures are disclosed as accompanying information to the annual report, and does not form part of the audited accounts.

Disclosure on Capital Adequacy under the Standardised Approach (RM’000)

Group 31.12.2012

Exposure Class

Gross Exposures/EAD before

CRM

Net Exposures/

EAD after CRM

Risk Weighted Assets

Total Risk Weighted

Assets after Effects of PSIA

Minimum Capital

Requirements at 8%

1 CREDIT RISK

On Balance Sheet Exposures

Corporates 19,752,745 17,713,218 15,286,599 15,286,599 1,222,928

Regulatory Retail 11,063,690 10,967,217 8,230,560 8,230,560 658,445

Other Assets 2,116,942 2,116,942 224,483 224,483 17,958

Sovereigns/Central Banks 9,718,232 9,718,232 - - -

Banks, Development Financial Institutions & MDBs

3,986,505 3,850,682 1,311,600 1,311,600 104,928

Insurance Companies, Securities Firms & Fund Managers

474,785 459,648 459,648 459,648 36,772

Residential Real Estate (RRE) Financing 3,772,100 3,764,366 1,567,219 1,567,219 125,378

Higher Risk Assets 399,250 398,479 597,718 597,718 47,817

Equity Exposure 20,388 20,388 20,388 20,388 1,631

Defaulted Exposures 830,776 818,768 1,046,864 1,046,864 83,749

Total for On-Balance Sheet Exposures 52,135,413 49,827,940 28,745,079 28,745,079 2,299,606

Off Balance Sheet Exposures

Off Balance Sheet Exposures other than OTC derivatives or credit derivatives

4,500,860 4,326,152 3,792,166 3,792,166 303,373

Defaulted Exposures 82,230 81,763 122,534 122,534 9,803

Total for Off-Balance Sheet Exposures 4,583,090 4,407,915 3,914,700 3,914,700 313,176

Total for On and Off-Balance Sheet Exposures 56,718,503 54,235,855 32,659,779 32,659,779 2,612,782

2 MARKET RISK Long Position Short Position

Interest Rate Risk 4,321,601 4,169,823 151,778 246,086 - 19,687

Foreign Currency Risk 14,534 12,098 2,436 14,534 - 1,163

3 OPERATIONAL RISK

Operational Risk 2,187,846 175,028

Total RWA and Capital Requirements 35,108,245 32,659,779 2,808,660

PSIA “Profit Sharing Investment Account” OTC “Over The Counter”

Appendix IBASEL II PILLAR 3 DISCLOSURESfor the financial year ended 31 December 2012


Disclosure on Capital Adequacy under the Standardised Approach (RM’000) (continued)

Group 31.12.2011

Exposure Class

Gross Exposures/EAD

before CRM Net Exposures/EAD after CRM


Total Risk Weighted


Minimum Capital

Requirements at8%

1 CREDIT RISK


Corporates 15,705,514 14,866,815 13,032,517 13,032,517 1,042,601


Other Assets 2,017,818 2,017,818 250,702 250,702 20,056



3,310,875 3,310,875 1,157,879 1,157,879 92,630


480,308 480,308 468,241 468,241 37,459



Equity Exposure 21,286 21,286 21,286 21,286 1,703

Defaulted Exposures 2,265,022 2,232,566 3,034,793 3,034,793 242,783




3,746,630 3,591,861 3,031,025 3,031,025 242,482






Foreign Currency Risk 31,367 31,651 (283) 60,746 - 4,860

3 OPERATIONAL RISK




Appendix I BASEL II PILLAR 3 DISCLOSURESfor the financial year ended 31 December 2012



Bank 31.12.2012

Exposure Class

Gross Exposures/EAD before

CRM

Net Exposures/

EAD after CRM


Total Risk Weighted


Minimum Capital

Requirements at 8%

1 CREDIT RISK


Corporates 17,509,673 15,769,100 13,750,174 13,750,174 1,100,014


Other Assets 2,148,363 2,148,363 401,300 401,300 32,104



3,411,784 3,295,677 1,200,599 1,200,599 96,048


364,499 364,499 364,499 364,499 29,160



Equity Exposure 20,388 20,388 20,388 20,388 1,631





4,026,461 3,861,516 3,395,489 3,395,489 271,639






Foreign Currency Risk 12,752 12,098 654 12,752 - 1,020

3 OPERATIONAL RISK




Appendix IBASEL II PILLAR 3 DISCLOSURESfor the financial year ended 31 December 2012



Bank 31.12.2011

Exposure Class

Gross Exposures/EAD

before CRM Net Exposures/EAD after CRM


Total Risk Weighted


Minimum Capital

Requirements at8%

1 CREDIT RISK


Corporates 13,814,948 13,051,434 11,685,047 11,685,047 934,804


Other Assets 2,278,319 2,278,319 468,235 468,235 37,459



3,135,881 3,135,881 1,122,880 1,122,880 89,830

Insurance Companies, Securities Firms & Fund Managers 369,693 369,693 369,693 369,693 29,575



Equity Exposure 21,286 21,286 21,286 21,286 1,703

Defaulted Exposures 2,049,518 2,017,076 2,754,759 2,754,759 220,381



Off Balance Sheet Exposures other than OTC derivatives or credit derivatives 3,321,998 3,174,387 2,697,711 2,697,711 215,817






Foreign Currency Risk 30,075 979 29,096 30,075 - 2,406

3 OPERATIONAL RISK




Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The Bank’s Capital-at-Risk (‘CaR’) is defined as the amount of the Bank’s capital that is exposed to the risk of unexpected losses arising particularly from movements in interest and foreign exchange rates. A CaR Limit is set as a management trigger to ensure that the Bank’s exposure to such movements do not compromise the Bank’s capital adequacy. The Bank is currently adopting BNM’s Standardised Approach for the computation of market risk capital charges. The market risk capital charges addresses among others, capital requirement for market risk which includes the interest rate risk pertaining to the Bank’s exposure in the trading book as well as foreign exchange risk in the trading and banking books.

The computation of market risk capital charge covers the following outstanding financial instruments:

a) Foreign Exchange b) Interest Rate Swap (‘IRS’)c) Cross Currency Swap (‘CCS’)d) Fixed Income Instruments (i.e. Private Debt and Government Securities)

Appendix I BASEL II PILLAR 3 DISCLOSURESfor the financial year ended 31 December 2012


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er A

sset

s 2

,278

,319

-

-

-

Eq

uity

Exp

osur

e 2

1,28

6 -

-

-

Def

aulte

d E

xpos

ures

2,0

49,5

18

587

4

0,21

4 -

Tota

l for

On-

Bal

ance

She

et E

xpos

ures

40,

399,

215

238

,650

1

,052

,430

-

Off-

Bal

ance

She

et E

xpos

ures

Off-

Bal

ance

She

et e

xpos

ures

oth

er t

han

OTC

der

ivat

ives

or

cred

it d

eriv

ativ

es 3

,321

,998

-

-

-

Def

aulte

d E

xpos

ures

310

,304

-

-

-

Tota

l for

Off-

Bal

ance

She

et E

xpos

ures

3,6

32,3

02

-

-

-

Tota

l On

and

Off-

Bal

ance

She

et E

xpos

ures

44,

031,

517

238

,650

1

,052

,430

-

Ap

pen

dix

IV


BA

SE

L II

PIL

LAR

3 D

ISC

LOS

UR

ES

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

012

Annual Report 2012

(b)

Dis

clo

sure

on

Off

-Bal

ance

She

et a

nd C

oun

terp

arty

Cre

dit

Ris

k (R

M’0

00)

C

ount

erp

arty

Cre

dit

Ris

k is

the

risk

that

the

coun

terp

arty

to a

tran

sact

ion

coul

d d

efau

lt b

efor

e th

e fin

al s

ettle

men

t of t

he tr

ansa

ctio

n’s

cash

flow

s. A

n ec

onom

ic

loss

cou

ld o

ccur

if t

he t

rans

actio

ns w

ith t

he c

ount

erp

arty

has

a p

ositi

ve e

cono

mic

val

ue fo

r th

e B

ank

at t

he t

ime

of d

efau

lt.

In

con

tras

t to

the

exp

osur

e to

cre

dit

risk

thro

ugh

a lo

an, w

here

the

exp

osur

e to

cre

dit

risk

is u

nila

tera

l and

onl

y th

e le

ndin

g b

ank

face

s th

e ris

k of

loss

, Cou

nter

par

ty

Cre

dit

Ris

k cr

eate

s a

bila

tera

l ris

k of

loss

whe

re t

he m

arke

t va

lue

for

man

y ty

pes

of t

rans

actio

ns c

an b

e p

ositi

ve o

r ne

gativ

e to

eith

er c

ount

erp

arty

.

In

resp

ect o

f off-

bal

ance

she

et it

ems,

the

cred

it ris

k in

here

nt in

eac

h of

f-b

alan

ce s

heet

inst

rum

ent i

s tr

ansl

ated

in to

an

on-b

alan

ce s

heet

exp

osur

e eq

uiva

lent

(c

red

it eq

uiva

lent

) by

mul

tiply

ing

the

nom

inal

prin

cip

al a

mou

nt w

ith a

cre

dit

conv

ersi

on fa

ctor

(‘C

CF’

) as

pre

scrib

ed b

y th

e S

tand

ard

ised

Ap

pro

ach

und

er t

he

Ris

k W

eigh

ted

Cap

ital A

deq

uacy

Fra

mew

ork.

The

resu

lting

am

ount

is th

en w

eigh

ted

aga

inst

the

risk

wei

ght o

f the

cou

nter

par

ty. I

n ad

diti

on, c

ount

erp

arty

ris

k w

eigh

ts fo

r ov

er-t

he-c

ount

er (‘

OTC

’) d

eriv

ativ

e tr

ansa

ctio

ns w

ill b

e d

eter

min

ed b

ased

on

the

exte

rnal

rat

ing

of th

e co

unte

rpar

ty a

nd w

ill n

ot b

e su

bje

ct to

any

sp

ecifi

c ce

iling

.

G

roup

31

.12.

2012

Des

crip

tio

nP

rinc

ipal

Am

oun

tP

osi

tive

Fai

r Va

lue

of

Der

ivat

ive

Co

ntra

cts

Cre

dit

Eq

uiva

lent

A

mo

unt

Ris

k W

eig

hted

A

mo

unt

Dire

ct C

red

it S

ubst

itute

s 4

45,5

29

445

,529

4

30,0

42

Tran

sact

ion

rela

ted

con

tinge

nt It

ems

2,1

47,1

00

1,0

73,5

50

924

,690

Sho

rt T

erm

Sel

f Liq

uid

atin

g tr

ade

rela

ted

con

tinge

ncie

s 4

53,7

72

90,

754

54,

644

Lend

ing

of b

anks

’ sec

uriti

es o

r th

e p

ostin

g of

sec

uriti

es a

s co

llate

ral b

y b

anks

,

incl

udin

g in

stan

ces

whe

re t

hese

aris

e ou

t of

rep

o-st

yle

tran

sact

ions

.

(i.e.

rep

urch

ase

/ re

vers

e re

pur

chas

e an

d s

ecur

ities

lend

ing

/ b

orro

win

g

tran

sact

ions

. 1

9,93

9 -

1

9,93

9 -

Fo

reig

n ex

chan

ge r

elat

ed c

ontr

acts

O

ne y

ear

or le

ss 3

,750

,554

4

2,78

1 9

7,94

8 2

9,43

9

O

ver

one

year

to

five

year

s 2

51,7

94

4,3

84

17,

127

6,4

30

Inte

rest

/Pro

fit r

ate

rela

ted

con

trac

ts

O

ne y

ear

or le

ss 1

07,1

56

563

1

22

49

O

ver

one

year

to

five

year

s 1

,834

,299

1

2,89

2 3

9,21

7 1

1,07

3

O

ver

five

year

s 5

43,1

48

8,2

52

51,

487

22,

022

Oth

er c

omm

itmen

ts, s

uch

as fo

rmal

sta

ndb

y fa

cilit

ies

and

cre

dit

lines

, with

an

or

igin

al m

atur

ity o

f ove

r on

e ye

ar 2

,872

,698

1

,436

,349

1

,341

,919

O

ther

com

mitm

ents

, suc

h as

form

al s

tand

by

faci

litie

s an

d c

red

it lin

es, w

ith a

n

orig

inal

mat

urity

of u

p t

o on

e ye

ar 6

,364

,231

1

,272

,846

1

,065

,707

U

nutil

ised

cre

dit

card

line

s 1

91,1

03

38,

221

28,

693

Tota

l 1

8,98

1,32

3 6

8,87

2 4

,583

,089

3

,914

,708

Ap

pen

dix

IV


BA

SE

L II

PIL

LAR

3 D

ISC

LOS

UR

ES

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

012

Annual Report 2012

(b)

Dis

clo

sure

on

Off

-Bal

ance

She

et a

nd C

oun

terp

arty

Cre

dit

Ris

k (R

M’0

00) (

cont

inue

d)

G

roup

31

.12.

2011

Des

crip

tion

Prin

cip

al A

mou

ntP

ositi

ve F

air

Valu

e of

Der

ivat

ive

Con

trac

ts

Cre

dit

Eq

uiva

lent

A

mou

ntR

isk

Wei

ghte

d

Am

ount

Dire

ct C

red

it S

ubst

itute

s 3

86,9

00

386

,900

3

73,2

54

Tran

sact

ion

rela

ted

con

tinge

nt It

ems

2,3

75,5

06

1,1

87,7

53

1,1

29,9

92

Sho

rt T

erm

Sel

f Liq

uid

atin

g tr

ade

rela

ted

con

tinge

ncie

s 9

73,7

27

194

,745

1

59,4

63

Fore

ign

exch

ange

rel

ated

con

trac

ts

O

ne y

ear

or le

ss 2

,987

,581

1

5,94

1 4

9,02

8 1

7,62

5

O

ver

one

year

to

five

year

s 7

0,00

0 2

,588

5

,770

1

,985

Inte

rest

/Pro

fit r

ate

rela

ted

con

trac

ts

O

ne y

ear

or le

ss 1

33,1

40

331

1

56

67

O

ver

one

year

to

five

year

s 1

,787

,852

1

4,06

3 4

7,05

5 1

2,42

7

O

ver

five

year

s 4

74,0

23

16,

978

43,

899

10,

295

Oth

er c

omm

itmen

ts, s

uch

as fo

rmal

sta

ndb

y fa

cilit

ies

and

cre

dit

lines

, with

an

or

igin

al m

atur

ity o

f ove

r on

e ye

ar 3

,526

,454

7

05,2

91

644

,786

Oth

er c

omm

itmen

ts, s

uch

as fo

rmal

sta

ndb

y fa

cilit

ies

and

cre

dit

lines

, with

an

or

igin

al m

atur

ity o

f up

to

one

year

7,0

15,3

00

1,4

03,0

60

1,1

13,2

17

Unu

tilis

ed c

red

it ca

rd li

nes

189

,502

3

7,90

0 2

8,46

3

Tota

l19

,919

,985

49,

901

4,0

61,5

57

3,4

91,5

74

Ap

pen

dix

IV


BA

SE

L II

PIL

LAR

3 D

ISC

LOS

UR

ES

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

012

Annual Report 2012

(b)

Dis

clo

sure

on

Off

-Bal

ance

She

et a

nd C

oun

terp

arty

Cre

dit

Ris

k (R

M’0

00) (

cont

inue

d)

B

ank

31

.12.

2012

Des

crip

tio

nP

rinc

ipal

Am

oun

tP

osi

tive

Fai

r Va

lue

of

Der

ivat

ive

Co

ntra

cts

Cre

dit

Eq

uiva

lent

A

mo

unt

Ris

k W

eig

hted

A

mo

unt

Dire

ct C

red

it S

ubst

itute

s 4

36,1

56

436

,156

4

22,3

10

Tran

sact

ion

rela

ted

con

tinge

nt It

ems

2,0

17,0

33

1,0

08,5

16

861

,316

Sho

rt T

erm

Sel

f Liq

uid

atin

g tr

ade

rela

ted

con

tinge

ncie

s 2

16,5

73

43,

315

43,

109

Lend

ing

of b

anks

’ sec

uriti

es o

r th

e p

ostin

g of

sec

uriti

es a

s co

llate

ral b

y b

anks

,

incl

udin

g in

stan

ces

whe

re t

hese

aris

e ou

t of

rep

o-st

yle

tran

sact

ions

. (i.e

.

rep

urch

ase

/ re

vers

e re

pur

chas

e an

d s

ecur

ities

lend

ing

/ b

orro

win

g tr

ansa

ctio

ns.)

19,

939

-

19,

939

-

Fore

ign

exch

ange

rel

ated

con

trac

ts

O

ne y

ear

or le

ss 3

,750

,554

4

2,78

1 9

7,94

8 2

9,43

9

O

ver

one

year

to

five

year

s 2

51,7

94

4,3

84

17,

127

6,4

30

Inte

rest

/Pro

fit r

ate

rela

ted

con

trac

ts

O

ne y

ear

or le

ss 1

07,1

56

563

1

22

49

O

ver

one

year

to

five

year

s 1

,834

,299

1

2,89

2 3

9,21

7 1

1,07

3

O

ver

five

year

s 5

43,1

48

8,2

52

51,

487

22,

022

Oth

er c

omm

itmen

ts, s

uch

as fo

rmal

sta

ndb

y fa

cilit

ies

and

cre

dit

lines

, with

an

or

igin

al m

atur

ity o

f ove

r on

e ye

ar 2

,490

,786

1

,245

,393

1

,166

,628

Oth

er c

omm

itmen

ts, s

uch

as fo

rmal

sta

ndb

y fa

cilit

ies

and

cre

dit

lines

, with

an

or

igin

al m

atur

ity o

f up

to

one

year

5,5

52,8

40

1,1

10,5

68

925

,939

Unu

tilis

ed c

red

it ca

rd li

nes

191

,103

3

8,22

1 2

8,69

3

Tota

l 1

7,41

1,38

1 6

8,87

2 4

,108

,009

3

,517

,008

Ap

pen

dix

IV


BA

SE

L II

PIL

LAR

3 D

ISC

LOS

UR

ES

for

the

finan

cial

yea

r en

ded

31

Dec

emb

er 2

012

Annual Report 2012

(b)

Dis

clo

sure

on

Off

-Bal

ance

She

et a

nd C

oun

terp

arty

Cre

dit

Ris

k (R

M’0

00) (

cont

inue

d)

B

ank

31

.12.

2011

Des

crip

tion

Pri

ncip

al A

mo

unt

Po

siti

ve F

air

Valu

e o

f D

eriv

ativ

e C

ont

ract

s

Cre

dit

Eq

uiva

lent

A

mo

unt

Ris

k W

eig

hted

A

mo

unt

Dire

ct C

red

it S

ubst

itute

s 3

78,7

97

378

,797

3

66,7

84

Tran

sact

ion

rela

ted

con

tinge

nt It

ems

2,2

26,0

50

1,1

13,0

25

1,0

60,5

29

Sho

rt T

erm

Sel

f Liq

uid

atin

g tr

ade

rela

ted

con

tinge

ncie

s 6

27,8

26

125

,564

1

31,3

04

Fore

ign

exch

ange

rel

ated

con

trac

ts

O

ne y

ear

or le

ss 2

,987

,581

1

5,94

1 4

9,02

8 1

7,62

5

O

ver

one

year

to

five

year

s 7

0,00

0 2

,588

5

,770

1

,985

Inte

rest

/Pro

fit r

ate

rela

ted

con

trac

ts

O

ne y

ear

or le

ss 1

33,1

40

331

1

56

67

O

ver

one

year

to

five

year

s 1

,787

,852

1

4,06

3 4

7,05

5 1

2,42

7

O

ver

five

year

s 4

74,0

23

16,

978

43,

899

10,

295

Oth

er c

omm

itmen

ts, s

uch

as fo

rmal

sta

ndb

y fa

cilit

ies

and

cre

dit

lines

, with

an

or

igin

al m

atur

ity o

f ove

r on

e ye

ar 3

,098

,316

6

19,6

63

565

,143

Oth

er c

omm

itmen

ts, s

uch

as fo

rmal

sta

ndb

y fa

cilit

ies

and

cre

dit

lines

, with

an

or

igin

al m

atur

ity o

f up

to

one

year

6,0

57,2

24

1,2

11,4

45

956

,882

Unu

tilis

ed c

red

it ca

rd li

nes

189

,502

3

7,90

0 2

8,46

3

Tota

l 1

8,03

0,31

1 4

9,90

1 3

,632

,302

3

,151

,504

Ap

pen

dix

IV


(c) Disclosures on Market Risk - Interest Rate Risk/Rate of Return Risk in the Banking Book

Interest rate risk is the current and prospective impact to the Bank’s financial condition due to adverse changes in the interest rates to which the balance sheet is exposed. The objective is to manage interest rate risk to achieve stable and sustainable net interest income in the long term which impact can be viewed from the perspectives of (1) earnings in the next 12 months, and (2) economic value.

(1) Next 12 months’ Earnings - Interest rate risk from the earnings perspective is the impact based on changes to the net interest income over the next 12 months. This risk is measured monthly through sensitivity analysis including the application of an instantaneous 100 basis point parallel shock in interest rates across the yield curve. The prospective change to the net interest income is measured using an Asset Liability Management simulation model which incorporates the assessment of both existing and new business.

(2) Economic Value - Measuring the change in the economic value of equity is an assessment of the long term impact to the earnings potential. This is assessed through the application of relevant duration factors to capture the net economic value impact over the long term or total life of all balance sheet assets and liabilities to adverse changes in interest rates.

The above calculations do not take into account loan prepayments.

31.12.2012

Type of Currency (RM million)

Group Bank

Impact on Positions(100 basis points) Parallel Shift


Increase/(Decline) in Earnings

Increase/(Decline) in Economic Value



Ringgit Malaysia (14.9) 439.4 (28.4) 352.6

US Dollar 8.8 6.4 9.3 6.5

Euro (1.0) - (1.1) -

Great Britain Pound 0.8 0.1 0.8 0.1

Australian Dollar 1.8 0.3 1.8 0.3

Singapore Dollar 0.7 0.6 0.7 0.7

Others (*) - - 0.1 -

Total (3.8) 446.8 (16.8) 360.2

* Others comprise of NZD, HKD and AED currencies where the amount of each currency is relatively small.

Appendix IVBASEL II PILLAR 3 DISCLOSURESfor the financial year ended 31 December 2012


(c) Disclosures on Market Risk - Interest Rate Risk/Rate of Return Risk in the Banking Book (continued)

31.12.2011

Type of Currency (RM million)

Group Bank







Ringgit Malaysia (20.0) 214.9 (28.0) 263.7

US Dollar 3.8 1.9 5.0 2.0

Great Britain Pound 0.8 0.1 0.8 0.1

Australian Dollar 1.1 7.6 1.1 7.6

Singapore Dollar 0.5 0.9 0.5 0.9

Japanese Yen 0.4 0.2 0.4 0.2

Others (*) (0.7) - (0.7) -

Total (14.1) 225.6 (20.9) 274.5

* Others comprise of NZD, EUR, HKD and AED currencies where the amount of each currency is relatively small.

Appendix IV BASEL II PILLAR 3 DISCLOSURESfor the financial year ended 31 December 2012

AFFIN BANK BERhAD (25046-T)

17th Floor, Menara AFFIN, 80, Jalan Raja Chulan, 50200 Kuala Lumpur

T : 03 2055 9000F : 03 2026 1415W : www.affinbank.com.my