Affin Hwang Investment Bank Berhad · Affin Hwang Investment Bank Berhad (Incorporated in Malaysia)...

Company No: 14389-U

Affin Hwang Investment Bank Berhad(Incorporated in Malaysia)

Reports and financial statements

for the financial year ended 31 December 2016

Company No: 14389-U


Reports and financial statements


Contents

Page(s)

Directors' report 1 - 40

Statements of financial position 41

Income statements 42

Statements of comprehensive income 43

Statements of changes in equity 44 - 45

Statements of cash flows 46 - 48

Summary of significant accounting policies 49 - 68

Notes to the financial statements 69 - 171

Statement by Directors 172

Statutory declaration 172

Independent auditors' report 173 - 175

Company No: 14389-U


Directors' report


Principal activities

Financial results

The Group The Bank

RM'000 RM'000

Profit before zakat and taxation 131,011 88,894

Zakat (1,224) (929)

Profit before taxation 129,787 87,965

Taxation (26,597) (15,107)

Net profit for the financial year 103,190 72,858

Dividends

RM'000

In respect of the financial year ended 31 December 2015:

Final dividend of 0.390 sen gross per share paid on 28 March 2016 3,042

In respect of the financial year ended 31 December 2016:

Interim dividend of 2.308 sen gross per share paid on 30 November 2016 18,000

The Directors of Affin Hwang Investment Bank Berhad ("the Bank") hereby submit their report together

with the audited financial statements of the Group and the Bank for the financial year ended 31 December

2016.

Dividends on ordinary shares paid or declared by the Company since 31 December 2015 are as follows:

The Directors now recommend the payment of a final dividend of 1.385 sen gross per share amounting to

RM10,800,000 for the financial year ended 31 December 2016, which is subject to approval of the

shareholder at the forthcoming Annual General Meeting of the Bank.

The principal activities of the Bank are in investment banking, stockbroking activities, dealing in options and

futures and related financial services.

The principal activities of the subsidiaries are asset management, management of unit trust funds and

private retirement schemes, Islamic fund management and provision of nominee services.

There were no significant changes in the nature of these activities during the financial year.

1

Company No: 14389-U


Directors' report

for the financial year ended 31 December 2016 (continued)

Reserves and provisions

Statutory information on the financial statements

(a)

(b)

At the date of this report, the Directors are not aware of any circumstances:

(a)

(b)

(c)

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.

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 allowance

had been made for doubtful debts and financing; and

to ensure that any current assets, other than debts and financings, which were likely to be realised

in the ordinary course of business and their values as shown in the accounting records of the Group

and the Bank have been writtten down to an amount which they might be expected so to realise.

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 of the Bank

inadequate to any substantial extent; or

which would render the values attributed to the current assets in the financial statements of the

Group and the Bank misleading; or

which have arisen which render adherence to the existing methods of valuation of assets or liabilities

of the Group's and the Bank's financial statements misleading or inappropriate.

2

Company No: 14389-U


Directors' report


Statutory information on the financial statements (continued)

At the date of this report, there does not exist:

(a)

(b)

In the opinion of the Directors:

(a)

(b)

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

any contingent liabilities 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 Directors, will or may substantially affect the ability of the Group and the Bank to meet their

obligations when they fall due.

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.

the results of the operations of the Group and the Bank for the financial year were not,

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 to affect substantially the

results of the operations of the Group and the Bank for the current financial year in which this

report is made.

3

Company No: 14389-U


Directors' report


Directors

Gen Tan Sri Yaacob bin Mohd Zain (R)

(Chairman, Non-Independent Non-Executive Director)

Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad

(Non-Independent Non-Executive Director)

(Redesignated to Non-Independent Non-Executive Director w.e.f 1 May 2016)

Tan Sri Dato' Seri Lodin bin Wok Kamaruddin


Stephen Charles Li


Lee Chor Kee (Ceased Directorship w.e.f 30 November 2016)

(Alternate Director to Stephen Charles Li)

Abd Malik bin A Rahman

(Independent Non-Executive Director)

Lim Hun Soon @ David Lim


Maj. Gen. Dato' Zulkiflee bin Mazlan (R) (Appointed w.e.f 4 January 2016)


Datuk Noor Azian binti Shaari (Appointed w.e.f 4 October 2016)


The Directors of the Bank who have held office since the date of the last report and at the date of this

report are as follows:

In accordance with Article 80 of the Bank’s Articles of Association, Maj. Gen. Dato' Zulkiflee bin

Mazlan (R) and Datuk Noor Azian binti Shaari retire at the forthcoming Annual General Meeting and being

eligible, offer themselves for re-election.

In accordance with Section 129(6) of the Companies Act, 1965, Gen Tan Sri Yaacob bin Mohd Zain (R) and

Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad retire and offer themselves for re-appointment at the

forthcoming Annual General Meeting.

In accordance with Article 75 of the Bank’s Articles of Association, Mr Stephen Charles Li retires at the

forthcoming Annual General Meeting and being eligible, offers himself for re-election.

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Company No: 14389-U


Directors' report


Responsibility statement by Board of Directors

Directors' interest

As at As at

1.1.2016 Bought Sold 31.12.2016

AFFIN Holdings Berhad

Tan Sri Dato' Seri Lodin bin Wok

Kamaruddin 1,051,328 - - 1,051,328

Abd Malik bin A Rahman - 10,000 - 10,000

^ shares held in trust by nominees companies.

Number of ordinary shares of RM1.00 each

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 2016 and

of the financial results and cash flows of the Group and of the Bank for the financial year then ended.

The Directors have also taken the necessary steps to ensure that appropriate systems are in place for the

assets of the Group and 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 172 of the

financial statements.

According to the Register of Directors’ shareholdings, the interests of Directors in office at the end of the

financial year in shares, warrants, and options over shares in the related companies are as follows:

^

5

Company No: 14389-U


Directors' report


Directors' interest (continued)

As at As at

1.1.2016 Bought Sold 31.12.2016

Boustead Holdings Berhad


Kamaruddin 28,192,758 27,065,047 3,000,000 52,257,805

Abd Malik bin A Rahman 1,000 12,850 - 13,850

Abd Malik bin A Rahman - 6,580 - 6,580

Boustead Heavy Industries

Corporation Berhad


Kamaruddin 2,000,000 - - 2,000,000

Abd Malik bin A Rahman 3,000 - - 3,000


As at As at

1.1.2016 Bought Sold 31.12.2016

Boustead Petroleum Sdn Bhd


Kamaruddin 5,916,465 - - 5,916,465

Pharmaniaga Berhad


Kamaruddin 12,500,148 - - 12,500,148

*

** indirect shares

***

^ shares held in trust by nominees companies.

Number of ordinary shares of 50 sen each


*

**

**

^

**

***

shares held in trust by nominees companies amounted to 39,385,805, shares held under own name

amounted to 12,872,000.


amounted to 6,165,265.

6

Company No: 14389-U


Directors' report


Directors' interest (continued)

As at As at

1.1.2016 Bought Sold 31.12.2016

Boustead Plantations Berhad


Kamaruddin 31,381,600 - 3,544,800 27,836,800

^^

As at As at

1.1.2016 Bought Sold 31.12.2016

Boustead Plantations Berhad


Abd Malik bin A Rahman** 2,000 - - 2,000

** indirect shares

Number of ordinary shares of 50 sen each


Other than the above, the Directors in office at the end of the financial year did not have any other interest in

the shares, warrants and option over shares of the Bank and its related companies during the financial year.

^^


amounted to 440,000.

7

Company No: 14389-U


Directors' report


Directors' benefits

Corporate Governance

1 Board of Directors Responsibility and Oversight

amend/replace with AHIB's

The profile of the Board of Directors has been published in the Bank's website.

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.

Since the end of the previous financial year, no Director of the Bank has received or become entitled to

receive a benefit (other than Directors’ remuneration as disclosed in 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.

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 period. The

Bank is also required to comply with BNM’s Guidelines on Corporate Governance for Licensed Institutions.

The Board of Directors currently comprises eight (8) Non-Executive Directors four (4) of whom are

Independent Non-Executive Directors and four (4) are Non-Independent Non-Executive Directors.

The Board, with a wide range of experience and knowledge, has been instrumental in the formulation

and crafting of the Bank’s vision and its strategic business direction.

During the financial year, the Board met eleven (11) times 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.

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Company No: 14389-U


Directors' report


Corporate Governance (continued)

1

Directors Total meetings attended

Gen Tan Sri Yaacob bin Mohd Zain (R) 11 out of 11

(Chairman, Non-Independent Non-Executive Director)

Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad 9 out of 11


Tan Sri Dato' Seri Lodin bin Wok Kamaruddin 11 out of 11


Stephen Charles Li 9 out of 11


Abd Malik bin A Rahman 11 out of 11


Lim Hun Soon @ David Lim 11 out of 11


Maj. Gen. Dato' Zulkiflee bin Mazlan (R) 11 out of 11


Datuk Noor Azian binti Shaari 4 out of 4

(Independent Non-Executive Director) (Appointed w.e.f 4 October 2016)

(Appointed w.e.f 4 January 2016)

Board of Directors Responsibility and Oversight (continued)

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

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Company No: 14389-U


Directors' report



1 Board of Directors Responsibility and Oversight (continued)

(i) The Board's Role and Responsibilities

The Board is overall responsible over the Bank’s capital management as follows:-

a)

b)

c)

The Board assumes the following specific duties:

a)

b)

c)

d)

The Board is charged with leading and guiding the Bank in an effective and responsible manner.

Each Director has a legal duty to act in the best interest of the Bank. The Directors, collectively

and individually, are aware of their responsibilities to shareholder(s) and stakeholders for the

manner in which the affairs of the Bank are managed. The Board sets the Bank’s values and

standards and ensures that its obligations to its shareholder(s) and stakeholders are understood and

met.

The Board understands that the responsibility for good Corporate Governance rests with them and

therefore strives to follow the principles and best practices of Corporate Governance.

The Company complies with the various regulatory requirements and guidelines issued by Bank

Negara Malaysia, Securities Commission, Bursa Malaysia Securities Berhad and Companies

Commission of Malaysia.

The Board meets in person no less than once every two (2) months to facilitate the discharge of

their responsibilities. Members of Management who are not Directors may be invited to attend and

speak at meetings on matters relating to their sphere of responsibility. Directors must attend at

least 75% of the Board meetings held in each financial year.

Duties of the Board include establishing the corporate vision and mission, as well as the

philosophy of the Bank, setting aims of Management and monitoring the performance of

Management.

Approving the capital plan as part of budget;

Approving significant capital raising and repayment; and

Reviewing and note quarterly summarised monitoring reports on capital adequacy.

Establishing and reviewing the strategic direction of the Bank;

Overseeing and evaluating the conduct of the Bank’s business;

Ensuring that the Bank establishes comprehensive risk management policies, processes and

infrastructure, to manage the various types of risks;

Setting corporate values and clear lines of responsibility and accountability that are

communicated throughout the organisation;

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Company No: 14389-U


Directors' report




(i) The Board's Role and Responsibilities (continued)

e)

f)

g)

h)

i)

The Board reserves full decision-making powers on the following matters:

a) Conflict of interest issues relating to substantial shareholder or a Director;

b) Material acquisitions and disposition of assets not in the ordinary course of business;

c) Investment in capital projects;

d) Authority levels;

e) Treasury policies;

f) Risk management policies ; and

g) Key human resourse issues.

Ensuring that there is a managed and effective process to select and appoint key senior

management officers that are qualified, professional and competent to administer the affairs of

the Bank, approving succession planning policy and monitoring senior management’s

performance on an ongoing basis;

Reviewing the adequacy of the internal control policy;

The Board has established written procedures determining issues which require decision of the

Board and which issues can be delegated to Board Committees or Management.

The Board has established a procedure whereby the Directors, collectively or individually, may

seek independent professional advice in furtherance of their duties at the Bank’s expense.

Establishing procedure to avoid self-serving practices and conflicts of interest including

dealings of any form with related entities;

Establishing and ensuring the effective functioning of various board committees; and

Discharging and performing its duties and responsibilities pertaining to anti-money laundering

and counter terrorism financing as provided in guidelines, circulars or directives issued by Bank

Negara Malaysia and other regulators.

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Company No: 14389-U


Directors' report




(ii)

(a)

(b)

Members Total meetings attended


(Independent Non-Executive Director)(appointed as Chaiman w.e.f

1 May 2016)







Maj. Gen. Dato' Zulkiflee Bin Mazlan (R) 4 out of 4


(Appointed as a member w.e.f 27 January 2016)

Nominating and Remuneration Committee ("NRC")

The NRC is chaired by an Independent Non-Executive Director, with the following objectives:

To provide a formal and transparent procedure for the appointment of all new Directors and

Chief Executive Officer ("CEO") as well as assessment of effectiveness of individual directors,

board as a whole and performance of CEO and key senior management officers; and

To provide a formal and transparent procedure for developing remuneration policy for Directors,

CEO and key senior management officers and ensuring that compensation is competitive and

consistent with the Bank’s culture, objectives and strategy.

The NRC, which comprises five (5) Board members and is scheduled to meet at least on a quarterly

basis, met five (5) times during the financial year. The composition of the NRC and the number of

meetings attended by each member are as follows:

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Company No: 14389-U


Directors' report




(ii)

The NRC is responsible for:

Nominating and Remuneration Committee ("NRC") (continued)

Establishing minimum requirements and criteria for the Board i.e. required mix of skills,

experience, qualification and other core competencies required of a director. The NRC is also

responsible for establishing the minimum requirements for the CEO. The requirements and

criteria should be approved by the Board of Directors.

Recommending and assessing the nominees for directorship (including assessing Directors for re-

appointment, before an application for approval is submitted to BNM), Board committee members

as well as nominees for the CEO. The actual decision as to who shall be nominated should be the

responsibility of the Board of Directors.

Overseeing the overall composition of the Board, in terms of the appropriate size and skills, and

the balance between Executive Directors, Non-Executive Directors and Independent Non-

Executive Directors through annual review and make recommendations to the Board with regard

to any changes.

Identifying and nominating, for the approval of the Board, nominees to fill Board vacancies as and

when they arise.

Recommending to the Board the removal of a Director or CEO from the Board/Management if the

Director/CEO is ineffective, errant and negligent in discharging his responsibilities.

Establishing a mechanism for the formal assessment on the effectiveness of the Board as a whole

and the contribution of the Board’s various committees and the performance of the CEO and

other key senior management officers. Annual assessment should be based on an objective

performance criteria. Such performance criteria should be approved by the Board of Directors.

Ensuring that all Directors receive an appropriate continuous training programme in order for the

Directors to keep abreast with the latest developments in the industry.

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Company No: 14389-U


Directors' report




(ii)

The NRC is responsible for: (continued)


Overseeing the appointment, management succession planning and performance evaluation of

key senior management officers.

Recommending to the Board the removal of key senior management officers if they are

ineffective, errant and negligent in discharging their responsibilities.

Assessing on an annual basis, that the Directors and key senior management officers are not

disqualified under Section 59(1) of Financial Services Act , 2013.

Make recommendations to the Board concerning the re-election by shareholders of any Directors

under the retirement by rotation provisions in the Articles of Association of the Bank.

Recommending a framework of remuneration for Directors, CEO and key senior management

officers for the full Board’s approval. The remuneration framework should support the Bank’s

culture, objectives and strategy and should reflect the responsibility and commitment, which goes

with Board membership and responsibilities of the CEO and senior management officers. There

should be a balance in determining the remuneration package, which should be sufficient to

attract and retain Directors of calibre, and yet not excessive to the extent the Bank’s funds are

used to subsidise the excessive remuneration packages. The framework should cover all aspects

of remuneration including Directors’ fees, salaries, allowances, bonuses, options and benefits-in-

kind.

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Company No: 14389-U


Directors' report




(ii)

The NRC is responsible for: (continued)

Recommending specific remuneration packages for Executive Directors and the CEO. The

remuneration package should be structured such that it is competitive and consistent with the

Bank’s culture, objectives and strategy. Salary scales drawn up should be within the scope of the

general business policy and not be dependant on short-term performance to avoid incentives for

excessive risk-taking. As for Non-Executive Directors and Independent Non-Executive Directors,

the level of remuneration should be linked to their level of responsibilities undertaken and

contribution to the effective functioning of the Board.

Determining and making recommendations to the Board the policy for and the scope of service

agreement of key senior management officers, termination payments and compensation

commitments, and ensure the legality of the foregoing. The NRC shall also ensure that the

compensation is competitive and consistent with the Bank's culture, objectives and strategies.

Reviewing on an annual basis, the remuneration packages of the Directors, CEO and key senior

management officers.

Disclosure in the Directors' Report of the Bank's Annual Report about its activities; the

membership of the committee, number of committee meetings and attendance over the course of

the year and statement on the committee's assessment on the mix of skills, experience and other

qualities of directors.

The NRC is not delegated with decision-making powers but reports its recommendation to the Board

of Directors for decision.


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Company No: 14389-U


Directors' report




(iii) Board Risk Management Committee ("BRMC")



(Chairman, Independent Non-Executive Director)





BRMC is chaired by an Independent Non-Executive Director was established to ensure that the risk

management policies and framework adequately protect the Bank against all relevant risks comprising

credit risk, market risk, liquidity risk and operational risk which includes legal risk, regulatory risk,

human resource risk and anti-money laundering and counter financing of terrorism ("AML/CFT") risk.

The BRMC is responsible for:

Overseeing and evaluating risk management policies and guidelines in respect of credit,

ALCO/Treasury and operational risks, including anti-money laundering and counter financing of

terrorism ("AML/CFT") risks. The BRMC shall ensure that the risk management policies and

framework adequately protect the Bank against all risks, including operational risk, legal risk,

regulatory risk, human resource risk and AML/CFT risks.

Deliberating on proposals pertaining to risk policies and framework, and recommend to the full

Board for final approval. The BRMC shall not be an approving authority on matters other than risk

policies and framework.

Overseeing and reviewing reports in respect of the Bank’s exposure to credit, ALCO/Treasury and

operational risks respectively.

The BRMC, which currently comprises three (3) Board members and scheduled to meet at least on a

quarterly basis, met eight (8) times during the financial year. The composition of the BRMC and the

number of meetings attended by each member are as follows:

Ensuring that adequate and robust risk management policies and framework are in place to address

business and operational risks.

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Company No: 14389-U


Directors' report




(iii) Board Risk Management Committee ("BRMC") (continued)

The BRMC is responsible for: (continued)

a)

b)

(iv) Board Audit Committee ("BAC")


Lim Hun Soon @ David Lim 4 out of 4

(Chairman, Independent Non-Executive Director)



Maj. Gen. Dato' Zulkiflee bin Mazlan (R) 3 out of 3



Oversee the Bank’s capital management to ensure its effectiveness which include:-

Ensure that adequate AML/CFT policies and framework are in place in the Bank to protect the

Bank against the risks of money laundering and terrorism financing.

Evaluate and make recommendations to the Board on risk management issues, the level of risk

exposure and appropriate risk mitigants in relation to credit transactions and exposures with

connected parties, on a quarterly basis.

Review capital management standards and policies, capital plan and summary capital adequacy

and allocation reports; and

Approve the mandate of ALCO to manage the Bank’s capital.

The BAC currently comprises three (3) members, of whom two (2) are Independent Non-Executive

Directors and is scheduled to meet at least four (4) times annually.

The BAC met four (4) times during the financial year.

The composition of the BAC and the number of meetings attended by each member are as follows:

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Company No: 14389-U


Directors' report




(iv) Board Audit Committee ("BAC") (continued)

The primary responsibilities of the BAC are as follows:

Oversee the effectiveness of Internal Audit Function:-

a)

b)

c)

d)

e)

f)

Review the effectiveness of internal audit function, the internal controls and risk management

processes including the scope of the internal audit, audit programme, functions and resources of

the internal audit and that it has the necessary authority to carry out its work, the internal audit

findings, and recommend action to be taken by management. The reports of internal auditors and

the BAC should not be subject to the clearance of the Board of Directors. The effectiveness and

performance of internal audit function are assessed against its achievement, benchmarking against

best practices or other considerations.

Ensure that the accounts are prepared in a timely, fair, transparent and in an accurate

manner/reliable with frequent reviews of the adequacy of provisions against contingencies and

impaired loans. Review the balance sheet and income statement for submission to the Board of

Directors and ensure the prompt publication of annual accounts.

Ensure that prior to publication of the annual report, a complete review is done to comply with the

regulatory listing requirements.

Appoint Chief Internal Auditor ("CIA"), evaluate performance including his transfer and

dismissal if warranted.

Ensure oversight on the adequacy of resources and remuneration of internal auditors.

Review and approve the audit scope, procedures and frequency.

Review key audit reports and ensure that senior management is taking necessary corrective

actions in a timely manner to address control weaknesses, non-compliance with laws,

regulatory requirements, policies and other problems identified by Internal Audit and other

control functions.

Noting significant disagreements between the Chief Internal Auditor and the rest of the senior

management team, irrespective of whether these have been resolved, in order to identify any

impact, the disagreements may have on the audit process or findings.

Establish a mechanism to assess the performance and effectiveness of Internal Audit function.

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The primary responsibilities of the BAC are as follows: (continued)

External Auditors:

a)

b)

c)

d)

e)

f)

g)

Select and recommend external auditors for appointment by the Board each year. Review with

the external auditors, the scope of their 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;

Assessment on the long relationship and risk of familiarity threats;

Review the audit fees of external auditors;

Recommend removal of external auditors;

Monitoring and assessing the independence of external auditor including approving the

provision of non-audit services by external auditor;

Maintain regular, timely, open and honest communication with the external auditor and

requiring the external auditor to report to BAC on significant matters.

Have direct communication channels with external auditor and meet them without the presence

of management at least annually; and

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Company No: 14389-U


Directors' report






Review the year-end financial statements before submission to the Board, focusing on:

a) going concern assumption;

b) compliance with accounting standards and other legal and regulatory requirements;

c) any changes in accounting policies and practices;

d) significant adjustments, issues and unusual events arising from the audit; and

e) major judgemental areas.

Ensure and senior management act upon findings and recommendations timely on the interim and

final external audit. In this regard, also discuss on any other matters in the absence of management,

where necessary.

Review the external auditors' management letter and management's response.

Monitor related party transactions and conflict of interest situation that may arise within the Bank

including any transactions, procedure or course of conduct that raises questions on management

integrity. Escalate to the Board on such transactions.

Review the accuracy and adequacy of the Chairman's statement in the directors' report, corporate

governance disclosures, interim financial reports and preliminary announcements in relation to the

preparation of financial statements.

Appoint another independent party with knowledge of Internal Audit to conduct review on

effectiveness of IA's function, if necessary. It can either be peers from within the Bank or an

external party.

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Company No: 14389-U


Directors' report






a)

b)

c)

d)

e)

f)

Review and monitor compliance with the Board's conflicts of interest policy, focusing on:

a)

b)

c)

d)

Assignments, Roles and Responsibilities;

Bank or Financial Institution including regulators or external auditors has the right to audit/

access their records, audit plan, and working papers and etc;

Commitment from external experts that adequate resources will be assigned;

Authority to vary on changes of terms of engagement;

Assurance that independence and objectivity of the audit is not compromised if the Bank's

external auditors is engaged; and

The regulatory requirements on outsourcing are to be complied with.

Identification of circumstances which constitute or may give rise to conflicts of interest;

Clear processes for directors to keep the Board informed on changes in circumstances which

may give rise to a conflict of interest;

Maintenance of records on each Director's conflict of interest; and

Addressing any non-compliances with the policy.

Islamic Operations - sought advice from Shariah Advisory on Shariah related matters to ensure

compliance with Shariah principles.

Approve the engagement and appointment of external experts where Internal Audit lacks the

expertise and experiences.

BAC will review and ensure that such engagement includes these terms:

Review of third-party opinions on the design and effectiveness of the Bank's internal control

framework.

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(v) Board Credit Review Committee ("BCRC")



(Non-Independent Non-Executive Director)(Appointed as Chairman w.e.f

27 January 2016)



Maj. Gen. Dato' Zulkiflee Bin Mazlan (R) 10 out of 10



The BCRC was established to assist the functions of the Board in respect of its inherent authority over

the debt and underwriting proposals which are considered by the Group Managenent Loan Committee

("GMLC").

The BCRC shall operate in accordance with the powers and authority delegated to it by the Board as

follows:

To consider whether to reject a debt or underwriting proposal or modify the terms of the debt or

underwriting proposal which are under the GMLC's term of reference;

To consider and if deemed fit, to approve any request to grant waivers and exemptions from

complying with the Bank’s Risk Management Policies and Discretionary Authorities, related

policies and operations manuals;

Generally to ensure that the GMLC's has discharged its responsibilities in a proper manner; and

Non-veto proposals shall be submitted to the BCRC for notification.

The BCRC scheduled to meet on a monthly basis, comprises three (3) members of the Board, met ten

(10) times during the financial year. The composition of the BCRC and the number of meetings attended

by each member are as follows:

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(vi) Investment Committee ("IC")

The roles and responsibilities of the IC are as follows:

(i)

(ii)

(iii)

(iv)



(Chairman, Non-Independent Non-Executive

Director)

Datuk Maimoonah bt Mohamed Hussain 9 out of 11

(Group Managing Director)

Mr. Keong Si Hark 11 out of 11

(Managing Director, Securities)

En Kamarul Ariffin bin Mohd Jamil 11 out of 11

(Group Chief Executive Officer,

AFFIN Holdings Berhad)

The IC was dissolved on 26 January 2017.

The IC was established to oversee the Bank's investment in shares. IC shall be responsible for the

formulation of the investment strategies and guidelines, evaluate and approve acquisitions or disposals

of share investments.

to monitor all investments of the Bank and make decisions in accordance with the authority

limits;

to record all investment decisions made and inform the Board accordingly;

to formulate and review share investment and proprietary trading strategies, policies and

procedures; and

to appoint one (1) or more dealer(s) to execute trades in accordance with the strategies, policies

and decisions of the IC.

The IC is scheduled to meet on a bi-monthly basis, comprises four (4) members and met eleven (11)

times during the financial year. The composition of the IC and the number of meetings attended by

each member are as follows:-

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(vii) Directors’ Training

The Nominating & Remuneration Committee oversees the training needs of the Directors. The NRC

shall ensure that the Directors spend sufficient time to update their knowledge and enhance their skills

through appropriate continuing education programmes and life-long learning in order to keep the

Directors abreast with the dynamic and complex business environment as well as new statutory and

regulatory requirements.

All new Directors are required to attend the Directors Orientation Programme to familiarise themselves

with the Group’s organisation structure, business and the financial industry. A formalised orientation

programme has been developed and the relevant Heads of Departments/Divisions will brief the new

members of the Board on the functions and areas of responsibility of their respective

department/divisions. This serves to provide them with a platform in establishing effective channel of

communication and interaction with Senior Management as well as to ensure that the Director

understand:-

(a) their roles and responsibilities;

(b) the nature of the Group’s business;

(c) overview of risks on the Group’s business and the risk management strategy; and

(d) legal requirements and compliance controls.

All Directors appointed to the Board are required to complete the Financial Institutions Directors’

Education training (FIDE) organized by BNM within one year from the date of appointment. Whilst

The Securities Commission (SC) has on 1 April 2015 revised its Licensing Handbook which stipulated

the requirement for director to attend the CMDP and the timeline to complete the programme. All

existing directors appointed prior to 1 May 2015 must complete the programme by 31 October 2016,

which is 18 months from the commencement of the programme on 1 May 2015. New directors, on the

contrary, are required to complete the programme within six (6) months from the date of their

appointment.

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(vii) Directors’ Training (continued)

The development and training programmes attended by the Directors during the financial year ended

31 December 2016 are as follows:

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Company No: 14389-U


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31 December 2016 are as follows:(continued)

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Company No: 14389-U


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3.

(continued)



27

Company No: 14389-U


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5.

(continued)



28

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29

Company No: 14389-U


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2 Internal Control Framework

(i)

The Board recognises the importance of maintaining a sound system of internal controls and risk

management practices. The Board affirms its overall responsibility of the Bank's system of internal

controls, which includes the establishment of appropriate control environment and risk management

framework.

The Bank's system of internal controls involves all management and personnel from each business

and support unit. The Board is responsible for determining key strategies and policies for significant

risks and control issues, whilst functional managers of the Bank are responsible for the effective

implementation of the Board's policies by designing, operating, monitoring and managing risks and

control processes.

The Board meets regularly to review the Bank's financial and business performance, oversee the

conduct of the Banks' business as well as to ensure the effectiveness and adequacy of internal control

systems are in place.

The Bank's organisation structure sets out clearly defined lines of job responsibilities and delegation

of authority to ensure effective communciation of risk control objectives as well as establishment of

authority and accountability and control processes. The Bank's internal control framework

encompasses the following:

Internal audit and control activities

In accordance with Bank Negara Malaysia’s Guidelines on Internal Audit Functions, Internal Audit

("IA") conducts continuous reviews on auditable areas within the Bank. The reviews conducted by IA

are focused on areas of significant risks and the effectiveness of internal control in accordance to the

audit plan approved by the BAC. The risks highlighted on the respective auditable areas as well as

recommendations made by IA are addressed at the BAC. The BAC also conduct annual reviews on

the adequacy of internal audit function, scope of work, resources and budget of IA.

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2 Internal Control Framework (continued)

(i) Internal audit and control activities (continued)

IA consists of Operational Audit, IS Audit, Credit Review, Compliance and Investigation. Audit

activities include these key components:

Conduct audit on all auditable entities covering the processes, services, products, systems and

provide an independent assessment to the Board of Directors, BAC and Management that

appropriate control environment is maintained with clear authority and responsibility with

sufficient staff and resources to carry out control responsibilities.

Perform risk assessments to identify risks and evaluate actions taken to provide reasonable

assurance that procedures and controls exist to contain those risks.

Maintain strong control activities including documented processes and systems, incorporating

adequate controls to produce accurate financial data and provide for the safeguarding of assets,

and a documented review of reported results.

Monitor controls, including procedues to verify that controls are in place and functioning, follow

up on corrective action on control finding until its full resolution.

Based on IA's review, identification and assessment of risk, testing and evaluation of controls, IA will

provide an opinion on the adequacy and effectiveness of internal controls maintained by each entity.

Ensure effective information flows and communication, including:

- training and the dissemination of standards and requirements;

- an information system to produce and convey complete, accurate and timely data including

financial data; and

- the upward communication of trends, developments and emerging issues.

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(ii) Risk Management

Board Risk Management Committee ("BRMC")

Risk Assessment

Risk Governance Structure

The 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 Bank has an established comprehensive and robust risk management framework and internal

control system in tandem with the complexity and diversity of the investment banking activities

undertaken by the Bank. On-going initiatives and periodic reviews are undertaken by the Risk

Management Department ("RMD") at the Bank to enhance the risk management policies,

infrastructure and framework to ensure that credit, market and operational risks associated with the

Bank's business activities are adequately identified and mitigated.

RMD is functionally independent of the business divisions and is primarily responsible in

identifying, measuring, monitoring, evaluating and controlling credit, market and operational risks

of the Bank.

The Bank’s comprehensive risk management framework and internal control system are pivotal

and instrumental towards achieving the corporate objective of maximising profitability and returns

to shareholders whilst ensuring prudential management of the associated risks.

The risk management process is reviewed regularly by Board Risk Management Committee

("BRMC") to ensure the risk management policies and framework are adequate to protect the Bank

against all relevant risks comprising credit risk, market risk, liquidity risk and operational risk.

BRMC has been established and their responsibilities, amongst others, include overseeing the

effective implementation of the Bank's Risk Management framework.

Risk assessment is in place to provide the process for the identification of the Bank's material

risks, from the perspective of impact on the Bank's financial standing and reputation.

Consistent and well-accepted methodologies of risk measurement introduced to access Liquidity,

Asset and Liability Management and other relevant risk metrices.

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(ii) Risk Management (continued)

Risk Governance Policies and Procedures

Whistle Blowing Policy

Operational Risk Management

This policy provides avenue for employees to report actual and suspected malpractice, misconduct

and violations of the Bank's policies in a safe and confidential manner.

The process is facililtated by RMD and a Risk Control Self Assessment ("RCSA") has been

implemented to enable management to identify and assess the risks under their areas of

supervision and control on a continual basis.This serves as a trigger point to determine Key Risk

Indicators ("KRIs") to adopt and monitor opearational exposures.

The Operational Risk Management Unit ("ORMU") plays a centralised function for operational risk

management within the RMD and it is independent of any other functions within the Bank. Exception

reports are produced on a regular basis, highlighting material operational risk related issues to Compliance

and Risk Oversight Committee ("CROC") and BRMC as well as Group Operational Risk Management

Committee ("GORMC") for risk monitoring and appropriate level of management decision making.

Relevant trainings relating to Operational Risk such as Business Continuity Plan are being provided by

RMD.

Concerns and breaches, if any, will be escalated to the Group Managing Director and BRMC. The

same will then be escalated to the Board.

Risk Management policies and procedures are reviewed and updated regularly to ensure relevance

to the current business needs and current/applicable regulatory requirements.

The policies and procedures which were revised in 2016 are the Trading Book and Banking Book

Policy Statement, the Trading Book and Banking Book Administration Guidelines, Market Risk

Controls Policy, Stockbroking Risk Framework and the Annual Credit Plan.

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(iii) Compliance

Compliance Framework

Policies and Procedures

Training

Compliance Programme

Anti-Money Laundering /Counter Financing Terrorism (AML/CFT)

The Bank has in place an independent compliance function. The compliance main function is to

advice, monitor and educate the business and support units to comply and act in accordance with

laws, regulations and guidelines. In line with good governance, Compliance, Legal and Corporate

Services ("CLCS") Department reports independently to the Board Risk Management Committee

("BRMC").

The CLCS's departmental policy and operational manual sets out the guiding principles for the

sound management of compliance risk within the Bank. It also sets out, amongst others, the roles

and responsibilities of the Board and Senior Management and establishment of an independent

compliance function.

Policies and procedures are reviewed on a periodic basis or as and when required to reflect current

practices and the applicable legal/regulatory requirements. The policies and procedures which

were revised in 2016 are the CLCS Department Policy and Operational Manual, Disclosure of

Customer Information - Policy and Operational Procedures and Internal Guidelines On Conflict of

Interest and Chinese Wall.

Relevant trainings on identified focus areas are regularly conducted by CLCS to create

compliance awareness amongst the staff and to assist the business and support units to better

understand the effect and applications of the regulatory as well as internal requirements.

An Annual Compliance Programme is drawn up, tabled and approved by BRMC. Compliance

reviews are performed regularly by CLCS to assess adherence to the existing and new regulatory

requirements as well as internal policies and procedures. Any deviations or breaches are reported

to CROC and BRMC for deliberation.

The Bank has in place an AML/CFT Framework comprising policies, procedures and processes

which are duly approved by the Board (policy section) and by BRMC (operational and procedural

section).

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Company No: 14389-U


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(iv) Escalation Process

(v) Policies/Procedures including Empowerment and Approving Authority Policies

Empowerment and Approving Authority Policies

(vi) Financial Performance Review

Policies and Procedures covering all functions have been developed throughout the Bank and

approvals have been obtained from the relevant committees and Board. The policies and

procedures are updated periodically to incorporate changes to systems, work environment and

guidelines issued by regulators.

There is a clearly defined framework and empowerment approved by the Board. Limits of

Approving Authority for key aspects of the businesses provides a sound framework of authority

and accountability within the Bank and facilitates proper corporate decision making at the

appropriate level in the Bank's hierarchy. The delegation of limits is subject to periodic reviews as

to its implementation and continuing suitability in meeting the business objectives and operational

needs.

The Group Finance Department ("GFD") regularly provides comprehensive information to the

Board and BAC on key financial reports, key variances and analysis of financial data of the Bank

and Group. The GFD ensures maintenance of proper accounting records and the reliability of the

financial information is in accordance with the approved standards and in compliance with the

regulatory and statutory requirements.

The channels of communication and procedures have been established for reporting immediately

to the Board and appropriate levels of management on any significant control failings or

weaknesses that are identified together with details of corrective action being undertaken.

Corrective Action Tracking on resolution of issues/findings highlighted by external audit, internal

audit, regulators, if any, have also been escalated to the relevant Management Committees, BAC

and Board.

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Company No: 14389-U


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(vii) Business and Capital Plan Including Budget

The internal capital target is set on a yearly basis.

(viii) Human Resources

The annual business plan and financial budget of the Bank is tabled and approved by the Board.

The variances between the actual and targeted results are presented to the Board on a periodic

basis to allow for timely responses and corrective actions to be taken to mitigate risks.

A structured framework and processes with regard to capital expenditure and revenue is in place

and is reviewed annually.

The Bank acknowledges that people development is critical in ensuring that employees have the

right competencies, skills and knowledge to conduct the tasks they are entrusted with, and must able to

exercise sound judgment when fulfilling those responsibilities. This is line with the objective set under

the Bank’s COE and COC.

The HR Policies and Procedures are in place and provide clarity in all aspects of human resource

management in the Bank. Periodically, the policies and procedures are reviewed to ensure they remain

relevant and appropriate controls are in place to manage operational risks. Changes, if any, are

communicated to all employees via HR Avenue (“the HR System”).

Human Resource has in place various initiatives and training programs to address the human capital

requirement, including knowledge management and mandatory programmes. The Bank has in place

online performance-based appraisal system (ePMS) to evaluate and compensate/reward its employees

accordingly. Staff performance assessment is conducted annually which is based on KPIs.

The recruitment process including screening process, which include the fit and proper assessment is in

place.

The e-learning facilities provides staff the freedom of time and space to learn and update their

knowledge at their convenience while meeting the Bank’s needs for its employees, who are spread

across geographical areas, to be competent in key areas.

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Company No: 14389-U


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3 Remuneration System

The remuneration policy is structured in order to provide the Bank to retain, reward and motivate staff

which is required for sustainable success by ensuring a fair, transparent and equitable remuneration

based on:-

(i) Individual job requirements, responsibilities, qualifications and experience

(ii) The Bank’s performance

(iii) Performance/contribution of the individual staff based on the KPIs.

The Bank’s remuneration mix is aligned with the FSI remuneration mix of fixed and performance

linked variable pay. Individual performance pay is measured through a structured and transparent

performance appraisal process vide the ePMS.

It is the Bank’s basic compensation philosophy to provide a competitive level of total compensation to

attract and retain qualified and competent staff. The Bank’s variable remuneration policy will be

driven primarily by a performance-based culture that aligns staff interests with those of the

shareholders of the Bank. These elements support the achievement of our objectives through

balancing rewards for both short-term results and long-term sustainable performance. Our strategy is

designed to share our success, and to align employees’ incentives with our risk framework and risk

outcomes.

The quality and long-term commitment of all of our employees is fundamental to our success. We

therefore aim to attract, retain and motivate the very best people who are committed to maintaining a

career with the Bank, and who will perform their role in the long-term interests of our shareholders.

The Bank’s remuneration system comprises the following key elements:

(i) Fixed pay

(ii) Benefits

(iii) Variable pay (short term incentive plan and Long term incentive plan)

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3 Remuneration System (continued)

(i)

(ii)

(iii)

(i)

(ii)

(iii)

(iv)

(v)

(a)

(b)

The remuneration of senior management and other material risk takers must be approved by the board

annually and the Bank will maintain and regularly review the list of officers who fall within the

definition of Senior Management and other material risk takers.

The Bank has 19 Senior Officers (who are also material risk takers) comprising Group Managing

Director, Group Chief Operating Officer, Managing Directors of Businesses, Group Chief's and

Chief's of Support Units and Head of Business Units. Other material risk takers primarily is the Chief

Credit Officer of the Bank.

The Bank will ensure transparency in accordance with the BNM CG, by the disclosure of

remuneration policies and information on paid remuneration to regulators, through the Annual

Financial Statement.

remuneration is adjusted to account for all types of risk, and determined by both quantitative

measures and qualitative judgement;

the size of the bonus pool is linked to the overall performance of the Bank;

incentive payments are linked to the contribution of the individual and business unit to the

overall performance of the Bank;

bonuses are not guaranteed, except in the context of sign-on bonuses; and

for members of senior management and other material risk takers:-

a portion of remuneration consists of variable remuneration to be paid on the basis of

individual, business-unit and Bank-wide measures that adequately assess performance; and

The Bank will ensure that overall remuneration system for the Bank (as per the BNM CG guidelines)

shall:-

be subject to board’s active oversight to ensure that the system operates as intended;

be in line with the business and risk strategies, corporate values and long-term interests of the

financial institution; and

promote prudent risk-taking behaviour and encourage individuals to act in

the interests of the financial institution as a whole, taking into account the interests of its

customers; and be designed and implemented with input from the control functions and the

board risk management committee to ensure that risk exposures and risk outcomes are

adequately considered.

the variable portion of remuneration increases along with the individual’s level of

accountability.

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3 Remuneration System (continued)

Business outlook for 2017

The Group remains cautiously optimistic of the business prospects for 2017. Malaysia's real GDP growth is

expected to improve to 4.0% - 5.0% in 2017 from an estimated growth of 4.2% in 2016. The business

environment will nevertheless continue to be clouded by uncertainties from the Brexit event, China growth

normalisation and tensions in the U.S. politics. Further growth in Stockbroking business is also expected

from the strategic alliances with leading securities houses in Japan, Thailand and Indonesia. The asset

management business will continue to capitalise on the growth potential in the retail and high net worth

business categories to further increase its assests under administration and clientele.

Analysis of the total remuneration awards for the Group Managing Director and each Director of the

Bank for the financial year are disclosed in Note 31 to the financial statements.

Analysis of remuneration for senior management and other material risk takers of the Bank for the

financial year are disclosed in Note 32 to the financial statements.

The Remuneration system is reviewed by the NRC and approved by the BOD. There are no findings

in relation to material changes made during the financial year.

The annual KPIs for officers in control functions is tabled to the NRC and the Board, as this will

determine the compensation payout. This is to ensure and safeguard the independence and authority

of individuals engaged in control functions of which remuneration shall be paid based on the

achievement of the control functions' KPIs (as set out in the Remuneration Policy and System).

Remuneration: Remunerations to be paid to senior management, other material risk takers and other

staff are compatible with the Bank’s ethical values, internal balance and strategic targets.

Remunerations of all staff are defined by taking into consideration the responsibilities they assume.

On an annual basis, the Management is required to table to the NRC and the Board, the performance

metrics (Financial, Business and Non Financial metrices) to determine the variable pay and

remuneration. In the event the performance metrics are weak, the NRC and the Board shall

deliberate and decide on the variable payout. Criteria for determination of weak performance is based

on the performance rating falling under "below expectation" as set out in the Bank's performance

rating scale.

Remunerations based on performance: Performance measurements related to the concerned periods

are taken into consideration when determining the variable pay. Payment amounts based on the

performance and principally the variable pay is not guaranteed in advance.

39

Company No: 14389-U


Statements of financial position

as at 31 December 2016

31.12.2016 31.12.2015 31.12.2016 31.12.2015

(restated) (restated)

Note RM'000 RM'000 RM'000 RM'000

Assets

Cash and short-term funds 2 601,468 462,004 265,442 244,732

Deposits and placements with banks and

other financial institutions 3 20,637 145,474 20,637 145,474

Financial assets held-for-trading 4 326,302 273,302 299,982 264,657

Financial investments available-for-sale 5 4,847,957 4,008,065 4,825,864 3,958,666

Financial investments held-to-maturity 6 33,563 78,651 33,563 78,651

Loans, advances and financing 7 1,079,130 1,240,693 1,079,130 1,240,693

Trade receivables 8 527,905 550,093 434,801 481,617

Derivative financial assets 9 122,088 119,991 122,088 119,991

Other assets 10 107,559 112,541 104,533 106,957

Statutory deposits with Bank Negara

Malaysia 11 177,740 177,850 177,740 177,850

Amounts due from subsidiaries 12 - - 2,780 24,004

Investment in subsidiaries 13 - - 121,217 121,217

Tax recoverable 29,566 27,289 29,393 27,196

Deferred tax assets 14 10,727 12,741 6,291 7,770

Property and equipment 15 34,797 26,544 23,603 21,646

Intangible assets 16 323,090 326,240 316,645 320,046

Total assets 8,242,529 7,561,478 7,863,709 7,341,167

Liabilities and equity

Deposits from customers 17 5,002,565 4,314,040 5,002,565 4,314,040

Deposits and placements of banks

and other financial institutions 18 484,561 749,852 484,561 749,852

Obligations on securities sold under

repurchase agreements 19 145,878 - 145,878 -

Trade payables 20 724,497 642,321 419,197 470,090

Derivative financial liabilities 21 150,291 141,891 150,291 141,891

Amount due to a related company 396 689 - -

Other liabilities 22 212,433 235,765 153,029 185,249

Provision for taxation 60 1,747 - -

Total liabilities 6,720,681 6,086,305 6,355,521 5,861,122

Share capital 23 780,000 780,000 780,000 780,000

Reserves 24 700,476 659,346 728,188 700,045

1,480,476 1,439,346 1,508,188 1,480,045

Non-controlling interest 41,372 35,827 - -

Total equity 1,521,848 1,475,173 1,508,188 1,480,045

Total liabilities and equity 8,242,529 7,561,478 7,863,709 7,341,167

Commitments and contingencies 36 4,568,820 5,793,810 4,568,820 5,793,810

The Group The Bank

The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an

integral part of these financial statements.

41

Company No: 14389-U


Income statements


31.12.2016 31.12.2015 31.12.2016 31.12.2015


Note RM'000 RM'000 RM'000 RM'000

Interest income 25 274,015 262,390 272,751 258,524

Interest expense 26 (190,327) (184,476) (190,327) (184,500)

Net interest income 83,688 77,914 82,424 74,024

Other operating income 27 465,446 431,196 216,057 207,413

Net income 549,134 509,110 298,481 281,437

Other operating expenses 28 (417,505) (425,201) (208,969) (240,776)

Operating profit before allowances 131,629 83,909 89,512 40,661

Write-back/(allowances) for loans, advances

and financing and receivables 29 5,281 (1,391) 5,281 (1,391)

Allowances of impairment losses on securities 30 (5,899) (13,455) (5,899) (13,455)

Profit before zakat and taxation 131,011 69,063 88,894 25,815

Zakat (1,224) (1,074) (929) (929)

Profit before taxation 129,787 67,989 87,965 24,886

Taxation 33 (26,597) (20,354) (15,107) (4,732)

Net profit after zakat and taxation 103,190 47,635 72,858 20,154

Attributable to:

Equity holders of the Bank 85,705 33,051 72,858 20,154

Non-controlling interest 17,485 14,584 - -

103,190 47,635 72,858 20,154

Earnings per share (sen) :

Basic/Fully diluted 34 10.99 4.24 9.34 2.58

The Group The Bank



42

Company No: 14389-U


Statements of comprehensive income


31.12.2016 31.12.2015 31.12.2016 31.12.2015


Note RM'000 RM'000 RM'000 RM'000

Net profit after zakat and taxation 103,190 47,635 72,858 20,154

Other comprehensive income:

Items that may be reclassified subsequently

to profit or loss

Net fair value change in financial investments

available-for-sale (874) (6,062) (1,074) (5,775)

Net gain transferred to profit or loss on disposal

of financial investments available-for-sale (30,076) (20,777) (30,076) (20,777)

Net transfer to profit or loss on impairment

of financial instruments available-for-sale - 15,176 - 15,176

Deferred tax on financial investments

available-for-sale 14 7,477 2,801 7,477 2,801

Other comprehensive expense

for the financial year, net of tax (23,473) (8,862) (23,673) (8,575)

Total comprehensive income for the

financial year 79,717 38,773 49,185 11,579

Attributable to:

Equity holders of the Bank 62,172 24,275 49,185 11,579

Non-controlling interests 17,545 14,498 - -

79,717 38,773 49,185 11,579

The Group The Bank



43

Company No: 14389-U


Statement of changes in equity


<-------------------- Attributable to equity holders of the Bank --------------------------->

Available-for-sale Non-

Share Share Statutory Regulatory revaluation Retained controlling Total

capital premium reserve reserves reserves profits Sub-total interests equity

The Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

At 1 January 2016

As previously reported 780,000 219,800 214,915 5,594 (14,831) 233,868 1,439,346 35,827 1,475,173

Prior year adjustment (Note 47) - - - - 11,534 (11,534) - - -

As restated 780,000 219,800 214,915 5,594 (3,297) 222,334 1,439,346 35,827 1,475,173

Comprehensive income:

Net profit for the financial year - - - - - 85,705 85,705 17,485 103,190

Other comprehensive income (net of tax)

-Financial investments available-for-sale - - - - (23,533) - (23,533) 60 (23,473)

Total comprehensive income/(loss) - - - - (23,533) 85,705 62,172 17,545 79,717

Transfer to statutory reserve - - 36,428 - - (36,428) - - -

Transfer to regulatory reserves - - - 4,073 - (4,073) - - -

Dividends paid - - - - - (21,042) (21,042) (12,000) (33,042)

At 31 December 2016 780,000 219,800 251,343 9,667 (26,830) 246,496 1,480,476 41,372 1,521,848

At 1 January 2015 780,000 219,800 199,071 3,556 5,479 207,165 1,415,071 30,329 1,445,400


Net profit for the financial year - - - - - 33,051 33,051 14,584 47,635


-Financial investments available-for-sale - - - - (8,776) - (8,776) (86) (8,862)

Total comprehensive income/(loss) - - - - (8,776) 33,051 24,275 14,498 38,773

Transfer to statutory reserve - - 15,844 - - (15,844) - - -

Transfer to regulatory reserves - - - 2,038 - (2,038) - - -

Dividends paid - - - - - - - (9,000) (9,000)

At 31 December 2015, restated 780,000 219,800 214,915 5,594 (3,297) 222,334 1,439,346 35,827 1,475,173

The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements.

44

Company No: 14389-U


Statement of changes in equity


Available-for-sale

Share Share Statutory Regulatory revaluation Retained Total

capital premium reserve reserves reserves profits equity

The Bank Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

At 1 January 2016

As previously reported 780,000 219,800 214,915 5,594 (14,762) 274,498 1,480,045

Prior year adjustment (Note 47) - - - - 11,534 (11,534) -

As restated 780,000 219,800 214,915 5,594 (3,228) 262,964 1,480,045


Net profit for the financial year - - - - - 72,858 72,858


-Financial investments available-for-sale - - - - (23,673) - (23,673)

Total comprehensive income/(loss) - - - - (23,673) 72,858 49,185

Transfer to statutory reserve - - 36,428 - - (36,428) -

Transfer to regulatory reserves - - - 4,073 - (4,073) -

Dividends paid 35 - - - - - (21,042) (21,042)

At 31 December 2016 780,000 219,800 251,343 9,667 (26,901) 274,279 1,508,188

At 1 January 2015 780,000 219,800 199,071 3,556 5,347 260,692 1,468,466


Net profit for the financial year - - - - - 20,154 20,154


-Financial investments available-for-sale - - - - (8,575) - (8,575)

Total comprehensive income/(loss) - - - - (8,575) 20,154 11,579

Transfer to statutory reserve - - 15,844 - - (15,844) -

Transfer to regulatory reserves - - - 2,038 - (2,038) -

At 31 December 2015, restated 780,000 219,800 214,915 5,594 (3,228) 262,964 1,480,045

<--------------- Attributable to equity holders of the Bank ------------------>

The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of these financial statements.

45

Company No: 14389-U


Statements of cash flows


31.12.2016 31.12.2015 31.12.2016 31.12.2015


RM'000 RM'000 RM'000 RM'000

CASH FLOWS FROM OPERATING

ACTIVITIES

Profit before taxation 129,787 67,989 87,965 24,886

Adjustments for items not involving the movement of

cash and cash equivalents:

Interest income:

- financial assets held-for-trading (20,394) (11,629) (20,394) (11,629)

- financial investments available-for-sale (174,292) (152,854) (174,292) (152,854)

- financial investments held-to-maturity (2,800) (9,318) (2,800) (9,318)

Accretion of discounts less amortisation of premium 3,439 2,873 3,439 2,873

Dividend income:

- financial assets held-for-trading (614) (1,780) (614) (1,580)


Dividend income from subsidiaries - - (28,000) (21,000)

Gain on disposal of property and equipment (199) (385) (96) (263)

Gain arising from disposal/redemption of:

- derivative instruments - (20) - (20)

- financial assets held-for-trading (26,048) (27,739) (26,048) (28,549)


Property and equipment written off 1,057 98 157 73

Intangible assets written off 17 6 - -

Depreciation of property and equipment 8,262 5,763 5,949 3,544

Amortisation of intangible assets 2,065 1,463 1,134 675

Unrealised (gain)/loss on:

- derivative instruments 4,673 10,132 4,673 10,132

- financial assets held-for-trading (5,215) (195) (3,650) (106)

Write-back on allowance for impairment:

- financial investments held-to-maturity - (1,554) - (1,554)

- financial investments available-for-sale 5,899 15,009 5,899 15,009

Net of (write-back)/allowance for collective impairment (6,100) 422 (6,100) 422

Net allowance for individual impairment 915 927 915 927

Gain on winding up of a subsidiary - - - (21)

Net allowance for bad and doubtful debt on other debtors 373 365 373 365

Zakat 1,224 1,074 929 929

Bad debt written off 2 - 2 -

Unrealised exchange gain (3,843) (28,785) (3,859) (30,616)

Operating loss before changes in working capital (120,660) (165,841) (190,468) (231,369)

The Group The Bank

The accounting policies on pages 49 to 68 and the notes to the financial statements on pages 69 to 171 form an integral part of

these financial statements.

46

Company No: 14389-U




31.12.2016 31.12.2015 31.12.2016 31.12.2015


RM'000 RM'000 RM'000 RM'000

(Increase)/Decrease in operating assets

Loan, advances and financing 167,651 (206,295) 167,651 (206,295)

Deposits & placements with banks & other financial

institutions 124,837 100,099 124,837 100,099

Statutory deposits with Bank Negara Malaysia 110 (42,850) 110 (42,850)

Trade receivables 21,290 (122,309) 45,917 (102,609)

Other assets 4,605 (51,293) 2,048 (47,841)

Intercompany balances - - 21,224 (7,954)

Derivative financial assets (2,911) (17,360) (2,911) (17,360)

Financial assets held-for-trading (857) (199,100) 15,253 (198,917)

314,725 (539,108) 374,129 (523,727)

Increase/(Decrease) in operating liabilities

Deposit from customers 688,525 709,880 688,525 669,667

Deposits and placements of banks and other financial

institutions (265,291) (111,763) (265,291) (111,763)

Obligations on securities sold under repurchase agreements 145,878 - 145,878 -

Trade payables 82,176 60,340 (50,893) 106,807

Amount due to related company (293) 504 - -

Derivative financial liabilities 8,399 52,812 8,399 52,812

Other liabilities (21,750) 26,771 (30,552) 36,230

637,644 738,544 496,066 753,753

Cash generated from operating activities 831,709 33,595 679,727 (1,343)

Tax paid (21,069) (34,709) (8,349) (16,337)

Zakat paid (1,286) (1,163) (1,060) (1,013)

NET CASH GENERATED FROM/(USED 809,354 (2,277) 670,318 (18,693)

IN) OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of property and equipment 209 502 105 270

Purchase of property and equipment (13,836) (18,385) (4,326) (16,350)

Purchase of intangible assets (2,678) (6,903) (1,479) (5,949)

Interest received:


- financial investments held-to-maturity 2,800 9,318 2,800 9,318

Net cash outflow from investment of

financial investments available-for-sale (856,441) (435,755) (886,077) (429,052)

Proceeds on redemption of

financial investments held-to-maturity 44,823 99,021 44,823 99,021

Cash consideration for merger of businessess - 3,467 - 3,467

Dividend income received from:

- subsidiary - - 28,000 21,000


NET CASH USED IN INVESTING

ACTIVITIES (635,314) (182,029) (627,032) (153,641)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid (21,042) - (21,042) -

Dividends paid to non-controlling interest (12,000) (9,000) - -

NET CASH USED IN FINANCING ACTIVITIES (33,042) (9,000) (21,042) -

The BankThe Group



47

Company No: 14389-U




31.12.2016 31.12.2015 31.12.2016 31.12.2015


RM'000 RM'000 RM'000 RM'000

NET INCREASE/(DECREASE) IN CASH AND

CASH EQUIVALENTS 140,998 (193,306) 22,244 (172,334)

CASH AND CASH EQUIVALENTS

AT BEGINNING OF THE FINANCIAL YEAR 413,380 606,686 196,108 368,442

CASH AND CASH EQUIVALENTS

AS AT END OF THE FINANCIAL YEAR 554,378 413,380 218,352 196,108

ANALYSIS OF CASH AND CASH EQUIVALENTS

Cash and short-term funds 601,468 462,004 265,442 244,732

Amount held on behalf of commissioned dealer's

representatives (47,090) (48,624) (47,090) (48,624)

Cash and cash equivalents 554,378 413,380 218,352 196,108



The BankThe Group

48

Company No: 14389-U


Summary of significant accounting policies


A Basis of preparation

(a)

Amendments to MFRS 11 'Joint arrangements' - Accounting for acquisition of interests in joint operations

Amendments to MFRS 101 'Presentation of financial statements' - Disclosure initiative

Amendments to MFRS 127 'Equity method in separate financial statements'

Amendments to MFRS 10, 12 & 128 'Investment entities – Applying the consolidation exception'

Annual Improvements to MFRS 2012 – 2014 Cycle

Standards, amendments to published standards and interpretations that are effective and applicable to

the Group and the Bank

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.

The financial statements of the Group and the Bank have been prepared in accordance with the Malaysian Financial

Reporting Standards ("MFRS"), International Financial Reporting Standards ("IFRS"), and the requirements of the

Companies Act, 1965 in Malaysia.

The financial statements have been prepared under the historical cost convention, as modified by the revaluation of

available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) at fair

value through profit or loss.

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 financial year. It also requires Directors to exercise their judgment in the process of applying the Group and

the Bank’s accounting policies. Although these estimates and judgments 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 48.

The Group and the Bank have applied the following amendments for the first time for the financial year

beginning on 1 January 2016 :

The adoption of the above improvements and amendments did not have any impact on the current or any

prior financial year and are not likely to affect future periods.

Standards and amendments to published standards that are applicable to the Group and the Bank but

49

Company No: 14389-U




A Basis of preparation (continued)

(b)



not yet effective

MFRS 9 'Financial Instruments' (effective from 1 January 2018) will replace MFRS 139 "Financial

Instruments: Recognition and Measurement".

MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three

primary measurement categories for financial assets: amortised cost, fair value through profit or loss

and fair value through other comprehensive income ("OCI"). The basis of classification depends on the

entity's business model and the cash flow characteristics of the financial asset. Investments in equity

instruments are always measured at fair value through profit or loss with an irrevocable option at

inception to present changes in fair value in OCI (provided the instrument is not held for trading). A

debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash

flows and the cash flows represent principal and interest.

For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost

accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is

that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change

due to an entity’s own credit risk is recorded in other comprehensive income rather than the profit or

loss, unless this creates an accounting mismatch.

MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss

impairment model used in MFRS 139. The expected credit loss model is forward-looking and

eliminates the need for a trigger event to have occurred before credit losses are recognised.

A number of new standards and amendments to standards and interpretations are effective for financial year

beginning after 1 January 2017. None of these is expected to have a significant effect on the consolidated

financial statements of the Group and the Bank, except the following:

Amendments to MFRS 107 'Statement of Cash Flows – Disclosure Initiative' (effective from 1 January

2017) introduce an additional disclosure on changes in liabilities arising from financing activities.

Amendments to MFRS 112 'Income Taxes - Recognition of Deferred Tax Assets for Unrealised

Losses' (effective from 1 January 2017) clarify the requirements for recognising deferred tax assets on

unrealised losses arising from deductible temporary difference on asset carried at fair value.

In addition, in evaluating whether an entity will have sufficient taxable profits in future periods against

which deductible temporary differences can be utilised, the amendments require an entity to compare

the deductible temporary differences with future taxable profits that excludes tax deductions resulting

from the reversal of those temporary differences.

The amendments shall be applied retrospectively.

50

Company No: 14389-U





(b)

Identify contracts with customers;

Identify the separate performance obligations;

Determine the transaction price of the contract;

Allocate the transaction price to each of the separate performance obligations; and

Recognise the revenue as each performance obligation is satisfied.

MFRS 15 'Revenue from contracts with customers' (effective from 1 January 2018) replaces MFRS 118

'Revenue' and MFRS 111 'Construction contracts' and related interpretations. The core principle in

MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the

customer in an amount that reflects the consideration to which the entity expects to be entitled in

exchange for those goods or services.

Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has

the ability to direct the use of and obtain the benefits from the goods or services.

A new five-step process is applied before revenue can be recognised:


not yet effective (continued)

A number of new standards and amendments to standards and interpretations are effective for financial year

beginning after 1 January 2017. None of these is expected to have a significant effect on the consolidated

financial statements of the Group, except the following set out below: (continued)

Key provisions of the new standard are as follows:

Any bundled goods or services that are distinct must be separately recognised, and any discounts or

rebates on the contract price must generally be allocated to the separate elements;

If the consideration varies (such as for incentives, rebates, performance fees, royalties, success of an

outcome etc), minimum amounts of revenue must be recognised if they are not at significant risk of

reversal;

The point at which revenue is able to be recognised may shift: some revenue which is currently

recognised at a point in time at the end of a contract may have to be recognised over the contract term

and vice versa;

There are new specific rules on licenses, warranties, non-refundable upfront fees, and consignment

arrangements, to name a few; and

As with any new standard, there are also increased disclosures.

MFRS 16 'Leases' (effective from 1 January 2019) supersedes MFRS 117 'Leases' and the related

interpretations.

Under MFRS 16, a lease is a contract (or part of a contract) that conveys the right to control the use of an

identified asset for a period of time in exchange for consideration.

MFRS 16 eliminates the classification of leases by the lessee as either finance leases (on balance sheet)

or operating leases (off balance sheet). MFRS 16 requires a lessee to recognise a ''right-of-use'' of the

underlying asset and a lease liability reflecting future lease payments for most leases.

The right-of-use asset is depreciated in accordance with the principle in MFRS 116 'Property, Plant and

Equipment' and the lease liability is accreted over time with interest expense recognised in the income

statement.

For lessors, MFRS 16 retains most of the requirements in MFRS 117. Lessors continue to classify all

leases as either operating leases or finance leases and account for them differently.

51

Company No: 14389-U





(b)

B Consolidation

(a) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group

controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with

the entity and has the ability to affect those returns through its power to direct the relevant activities of the

entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are

deconsolidated from the date that control ceases.

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 and fair

value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and

contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at

their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on

an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share

of the recognised amounts of acquiree’s identifiable net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the

acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable

net assets acquired is recognised as goodwill. If the total of consideration transferred, non-controlling interest

recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary

acquired in the case of a bargain purchase, the difference is recognised directly in the profit or loss. Refer to

accounting policy Note D on goodwill.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the carrying value of the acquirer's previously held equity

interest in the acquiree is re-measured to fair value at the acquisition date, any gains or losses arising from

such re-measurement are recognised in the 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 in the profit or loss. Contingent consideration that is classified as

equity is not remeasured, and its subsequent settlement is accounted for within equity.

The Group applies predecessor accounting to account for business combinations under common control.

Under predecessor accounting, assets and liabilities acquired are not restated to their respective fair values.

They are recognised at the carrying amounts from the consolidated financial statements of the ultimate

holding company of the Group and adjusted to conform with the accounting policies adopted by 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 recognised as an adjustment to equity. No

additional goodwill is recognised.


not yet effective (continued)

The Group and the Bank will apply these standards when effective. The adoption of the above standards,

amendments to published standards and interpretations to existing standards are not expected to have any

significant impact on the financial statements of the Group and the Bank except for MFRS 9. The financial

effect of the adoption of MFRS 9 is still being assessed by the Group and the Bank.

52

Company No: 14389-U




B Consolidation (continued)

(a) Subsidiaries (continued)

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

(c) Disposal of subsidiaries

(d) Investments in subsidiaries

Transactions with non-controlling interests that do not result in loss of control are accounted for as

transactions with equity owners of the Group. A change in ownership interest results in an adjustment

between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests

in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any

consideration paid or received is recognised in equity attributable to owners of the Group.

When the Group ceases to consolidate because of a loss of control, any retained interest in the entity is

remeasured to its fair value with the change in carrying amount recognised in the profit or loss. This fair value

becomes 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 the profit or loss.

Gains or losses on the disposal of subsidiaries include the carrying amount of goodwill relating to the

subsidiaries sold.

In the Bank’s separate financial statements, investments in subsidiaries are carried at cost less accumulated

impairment losses. On disposal of investments in subsidiaries, the difference between disposal proceeds and

the carrying amounts of the investments are recognised in the profit or loss.

The amounts due from subsidiaries of which the Bank does not expect repayment in the foreseeable future are

considered as part of the Bank’s investments in the subsidiaries.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are

eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of

the transferred asset.

Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the

policies adopted by the Group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated

income statement, statement of comprehensive income, statement of changes in equity and statement of

financial position respectively.

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.

53

Company No: 14389-U




C Property and equipment

Renovations 5 to 10 years

Office equipment and furniture 5 years

Motor vehicles 5 years

Computer equipment 5 years

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

D Intangible assets

(a) Goodwill

Property and equipment are initially stated at cost, net of the amount of goods and services tax (GST), except

where the amount of GST incurred is not recoverable from the government. When the amount of GST incurred is

not recoverable from the government, the GST is recognised as part of the cost of acquisition of the property,

plant and equipment.

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if

any. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any

cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of

operating in the manner intended by management. Cost also includes borrowing costs that are directly attributable

to the acquisition, construction or production of a qualifying asset.

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 recognised as expenses in the profit or loss during the financial period in which they are

incurred.

Residual values and useful lives of assets are reviewed, and adjusted if appropriate, at the end of each reporting

period.

At the end of the reporting period, the Group and the Bank assess whether there is any indication of

impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. A

write down is made if the carrying amount exceeds the recoverable amount. Refer to accounting policy Note

E on impairment of non-financial assets.

Goodwill arises from a business combination and represents the excess of the aggregate of fair value of

consideration transferred, the amount of any non-controlling interest in the acquiree and fair value of any

previous equity interest in the acquiree over the fair value of the net identifiable assets acquired and liabilities

assumed on the acquisition date. If the fair value of consideration transferred, the amount of non-controlling

interest and the fair value of previously held interest in the acquiree are less than the fair value of the net

identifiable assets of the acquiree, the resulting gain is recognised in the profit or loss.

Goodwill is carried at cost less accumulated impairment loss. Goodwill is not amortised but it is tested for

impairment annually or more frequently if events or changes in circumstances indicates that it might be

impaired. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to

each of the cash generating units ("CGUs"), or groups of CGUs, that is expected to benefit from the synergies

of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level

within the entity at which the goodwill is monitored for internal management purposes. Goodwill is

monitored at the operating segment level.

54

Company No: 14389-U




D Intangible assets (continued)

(a) Goodwill (continued)

(b) Computer software

(c) Merchant bank license

E Impairment of non-financial assets

Costs associated with maintaining computer software programmes are recognised as an expense as incurred.

Development costs that are directly attributable to the design and testing of identifiable and unique software

controlled by the Group and the Bank are recognised as intangible assets when the following criteria are met:

(i) it is technically feasible to complete the software product so that it will be available for use;

(ii) management intends to complete the software product and use or sell it;

(iii) there is an ability to use or sell the software product;

(iv) it can be demonstrated how the software product will generate probable future economic benefits;

(v) adequate technical, financial and other resources to complete the development and to use or sell

the software product are available; and

(vi) the expenditure attributable to the software product during its development can be reliably

measured.

Directly attributable costs that are capitalised as part of the software product include the software

development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent

period.

Computer software development costs recognised as assets are amortised from the point at which the asset is

ready for use over their estimated useful lives, which does not exceed 5 years.

The merchant bank license represents contribution by the Bank to the Government of Malaysia for a license

to carry on merchant banking business and is considered to have an indefinite useful life, which is not

amortised and is assessed for impairment annually.

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 of disposal 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 which are largely independent of the cash inflows from other assets or group of assets

("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 profit or loss unless it reverses a previous revaluation in which case it is

charged to the revaluation surplus. Impairment losses on goodwill are not reversed. In respect of other assets, any

subsequent increase in recoverable amount is recognised in the profit or loss unless it reverses an impairment loss

on a revalued asset in which case it is taken to revaluation surplus reserve.

The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use

and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not

subsequently reversed.

55

Company No: 14389-U




F Financial assets

(a) Classification

(i) Financial assets at fair value through profit or loss ("FVTPL")

(ii) Loans and receivables

(iii) Financial investments available-for-sale

(iv) Financial investments held-to-maturity

(b) Recognition and initial measurement

The Group and the Bank classify its financial assets in the following categories: at fair value through profit or

loss, loans and receivables, available-for-sale and held-to-maturity. The classification depends on the purpose

for which the financial assets were acquired. Management determines the classification at initial recognition,

and in the case of assets classified as held-to-maturity, re-evaluates this designation at the end of each

reporting period.

Financial assets held-for-trading are categorised as financial assets at FVTPL. Financial assets at fair

value through profit or loss are acquired principally for the purpose of selling in the short term.

Derivatives are also categorised as held for trading unless they are designated and effective as hedging

instruments. Refer to accounting policy Note J, on derivative financial instruments and hedging

accounting.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are

not quoted in an active market.

Financial investments available-for-sale are non-derivatives that are either designated in this category or

not classified in any of the other categories.

Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable

payments and fixed maturities that the Group’s and the Bank’s management have the positive intention

and ability to hold to maturity. If the Group and the Bank were to sell other than an insignificant amount

of held-to-maturity financial assets, the whole category would be tainted and reclassified as available-

for-sale.

Regular purchases and sales of financial assets are recognised on the settlement date, the date that an asset is

delivered to or by the Group and the Bank.

Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to the

acquisition of the financial assets for all financial assets not carried at fair value through profit or loss.

Financial assets carried at fair value through profit or loss are initially recognised at fair value, and

transaction costs are expensed in profit or loss.

56

Company No: 14389-U




F Financial assets (continued)

(c) Subsequent measurement – gains and losses

(d) De-recognition

(e) Reclassification of financial assets

Financial investments available-for-sale and financial assets at FVTPL are subsequently carried at fair value.

Loans and receivables and held-to-maturity financial assets are subsequently carried at amortised cost using

the effective interest/profit method.

Changes in the fair values of financial assets at FVTPL, including the effects of currency translation, interest

and dividend income are recognised in the profit or loss in the period in which the changes arise.

Changes in the fair value financial investments available-for-sale are recognised in other comprehensive

income, except for impairment losses (Note G Impairment of financial assets) and foreign exchange gains and

losses on monetary assets (Note M).

Interest and dividend income on financial investments available-for-sale are recognised separately in the

profit or loss. Interest on financial investments available-for-sale debt securities are calculated using the

effective interest/ profit method is recognised in profit or loss. Dividend income on available-for-sale equity

instruments are recognised in the profit or loss when the Group's and the Bank’s right to receive payments is

established.

Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or

have been transferred and the Group and the Bank have transferred substantially all risks and rewards of

ownership.

Loans and receivables that are factored out to banks and other financial institutions with recourse to the

Group and the Bank are not derecognised until the recourse period has expired and the risks and rewards of

the receivables have been fully transferred. The corresponding cash received from the financial institutions is

recorded as borrowings.

When financial invesment available-for-sale are sold, the accumulated fair value adjustments recognised in

other comprehensive income are reclassified to income statement.

The Group and the Bank may choose to reclassify a non-derivative trading financial asset out of the held-for-

trading category if the financial asset is no longer held for the purpose of selling it in the near term. Financial

assets other than loans and receivables are permitted to be reclassified out of the held for trading category

only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near

term. In addition, the Group and the Bank may choose to reclassify financial assets that would meet the

definition of loans and receivables out of the held-for-trading or available-for-sale categories if the Group and

the Bank have the intention and ability to hold these financial assets for the foreseeable future or until

maturity at the date of reclassification.

Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or

amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification

date are subsequently made. Effective interest / profit rates for financial assets reclassified to loans and

receivables and held-to-maturity categories are determined at the reclassification date. Further increases in

estimates of cash flows adjust the effective interest / profit rates prospectively.

57

Company No: 14389-U




G Impairment of financial assets

(a) Assets carried at amortised cost

measurable decrease in estimated future cash flow than was originally envisaged; and

significant deterioration in issuer's credit rating;

breach of trading accounts terms and conditions;

contract of dealer.

past due contractual payments;

significant financial difficulties of the borrower;

probability of bankruptcy or other financial re-organisation;

default of related borrower;

The Group and the Bank assess at the end of the reporting period whether there is objective evidence that a

financial asset or group of financial assets is impaired. A financial asset or a group of financial assets 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 asset (a ‘loss event’) and that loss event

(or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets

that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing

significant financial difficulty, default or delinquency in interest or principal payments, the probability that

they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a

measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions

that correlate with defaults.

The criteria that the Group and the Bank use to determine that there is objective evidence of an impairment

loss include among others:

The amount of the loss is measured as the difference between the asset’s carrying amount and the present

value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at

the financial asset’s original effective interest / profit rate. The asset’s carrying amount of the asset is reduced

and the amount of the loss is recognised in the profit or loss. If ‘loans and receivables’ or a ‘held-to-maturity

investment’ has a variable interest / profit rate, the discount rate for measuring any impairment loss is the

current effective interest / profit rate determined under the contract.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised (such as an improvement in the

debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the profit or

loss.

When an asset is uncollectible, it is written off against the related allowance account. Such assets are written

off after all the necessary procedures have been completed and the amount of the loss has been determined.

For loans, advances and financing, the Group and the Bank first assess whether objective evidence of

impairment exists individually for loans, advances and financing that are individually significant, and

individually or collectively for loans, advances and financing that are not individually significant. If the

Group and the Bank determine that no objective evidence of impairment exists for individually assessed

loans, advances and financing, whether significant or not, it includes the asset in a group of loans, advances

and financing with similar credit risk characteristics and collectively assesses them for impairment.

58

Company No: 14389-U




G Impairment of financial assets (continued)

(a) Assets carried at amortised cost (continued)

(i) Individual impairment allowance

(ii) Collective impairment allowance

Loans, advances and financing 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, advances and financing 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, advances and financing 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.

Based on the Guideline on Classification and Impairment Provisions for Loans/Financing, banking

institutions are required to maintain, in aggregate collective impairment provisions and regulatory reserves

of no less than 1.2% of total outstanding loans/financing (excluding loans, advances and financing with an

explicit guarantee from the Federal Government of Malaysia), net of individual impairment provisions.

As at reporting date, the Group and the Bank have maintained the collective impairment provisions and

regulatory reserves of no less than 1.2% in the books.

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Company No: 14389-U




G Impairment of financial assets (continued)

(b) Assets classified as available-for-sale

H Financial liabilities

(a) Financial liabilities at FVTPL

The Group and the Bank assess at the end of the reporting period whether there is objective evidence that a

financial asset or a group of financial assets is impaired.

For debt securities, the Group and the Bank use criteria and measurement of impairment loss applicable for

‘assets carried at amortised cost’ above. If, in a subsequent period, the fair value of a debt instrument classified

as available for sale increases and the increase can be objectively related to an event occurring after the

impairment loss was recognised in the profit or loss, the impairment loss is reversed through the profit or loss.

In the case of equity securities classified as available-for-sale, in addition to the criteria for ‘assets carried at

amortised cost’ above, a significant or prolonged decline in the fair value of the security below its cost is also

considered as an indicator that the assets are impaired. If any such evidence exists for available-for-sale

financial assets, the cumulative loss that had been recognised directly in equity is removed from equity and

recognised in the profit or loss. The amount of cumulative loss reclassified to profit or loss is the difference

between the acquisition cost and the current fair value, less any impairment loss on that financial asset

previously recognised in the profit or loss. Impairment losses recognised in the profit or loss on equity

instruments classified as available-for-sale are not reversed through profit or loss in subsequent periods.

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the

increase can be objectively related to an event occurring after the impairment loss was recognised in the profit

or loss, the impairment loss is reversed through profit or loss in subsequent periods.

All financial liabilities including derivative financial instruments have to be recognised in the statements 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 initially recognised at fair value plus transaction costs for all financial liabilities not carried

at fair value through profit or loss ("FVTPL").

This category comprises two sub-categories: financial liabilities classified as held-for-trading and financial

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

The Group and the Bank do not have any non-derivative financial liabilities designated at fair value through

profit or loss.

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 statements of financial position as 'Derivative financial

liabilities' when their fair values are negative.

Financial liabilities classified as held-for-trading are initially recognised at fair value, and transaction costs

are expensed in the profit or loss.

Gains and losses arising from changes in fair value of financial liabilities classified as held-for-trading are

included in the the profit or loss.

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Company No: 14389-U




H Financial liabilities (continued)

(b) Other liabilities measured at amortised cost

(c) De-recognition

I Offsetting financial instruments

J Derivative financial instruments and hedge accounting

K Trade receivables

Types Criteria for classification of accounts as impaired

Contra losses

Overdue purchase

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

Financial liabilities that are not classified as 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.

Financial assets and liabilities are offset and the net amount presented in the statements 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. The legally enforceable right must not be

contingent on future events and must be enforceable in the normal course of business and in the event of default,

insolvency or bankruptcy.

Derivatives are initially recognised at fair values on the date a derivative contract is entered into and are

subsequently remeasured at their fair values at the end of each reporting period. 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. Changes in the fair value of any derivative

instrument that does not qualify for hedge accounting are recognised immediately in the profit or loss.

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 accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging

instrument, and if so, the nature of the item being hedged.

As at 31 December 2016, the Group and the Bank have not designated any derivatives as hedging intruments.

In accordance with the Rules of Bursa Malaysia Securities Berhad ("Bursa Securities"), clients’ accounts are

classified as impaired accounts under the following circumstances:

When an account remains outstanding for 16 calendar days or more from the date of

contra transaction

When an account remains outstanding from T+5 market days onwards (non-margin

purchase) and T+9 market days onwards (discretionary financing)

Bad debts are written off when identified. Impairment allowances are made for balances due from clients which

are considered doubtful or which have been classified as impaired, after taking into consideration collateral held

by the Group and deposits of and amounts due to dealer representative in accordance with the Rules of Bursa

Securities.

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Company No: 14389-U




L Current and deferred income taxes

(a) Current tax

(b) Deferred tax

Tax expense for the period comprises current and deferred income tax. The income tax expense or credit for

the period is the tax payable on the current period’s taxable income based on the applicable income tax rate

for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary

differences and to unused tax losses. Tax is recognised in profit or loss, 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 in the countries where the Group’s subsidiaries 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.

Deferred tax is provided 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 liabilities are not recognised if they arise from the initial recognition of

goodwill. 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 is determined using tax rates (and tax laws) that have been enacted or substantively enacted by

the reporting period and are expected to apply when the related deferred tax assets is realised or the deferred

tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against

which the deductible temporary differences, unused tax losses or unutilised tax credits can be utilised.

Deferred tax liabilities are recognised for all taxable temporary differences associated with an investment in

subsidiaries, except where the timing of the reversal of the temporary difference can be controlled by the

Group and it is probable 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 a net basis.

62

Company No: 14389-U




M Foreign currency translations

(a) Functional and presentation currency

(b) Foreign currency transactions and balances

N Provisions

the Group and the Bank have a present legal or constructive obligation as a result of past events;

it is probable that an outflow of resources to settle the obligation will be required; and

a reliable estimate of the amount of obligation can be made.

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

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 financial

statements are presented in Ringgit Malaysia ("RM"), which is the Bank’s functional and presentation

currency.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at

the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses

resulting from the settlement of such transactions and from the translation at financial year-end exchange rates

of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss, except

when deferred in the statement of comprehensive income as qualifying cash flows 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, and other changes in the carrying amount are

recognised in other comprehensive income.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange

rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at

fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary financial

assets and liabilities such as equities held at fair value through profit or loss are recognised in the profit or loss

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 other comprehensive income.

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 management's best estimate 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.

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Company No: 14389-U




O Employee benefits

(a) Short-term employee benefits

(b) Defined contribution plan

(c) Share-based payments

P Zakat

Wages, salaries, paid annual leave and sick leave, bonuses, and non-monetary benefits that are expected to be

settled wholly within 12 months after the end of the period in which the employees render the related service

are recognised in respect of employees’ services up to the end of the reporting period and are measured at the

amounts expected to be paid when the liabilities are settled.

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 employees

benefits relating to employee service in the current and prior periods.

The Group’s contributions to defined contribution plans are charged to profit or loss in the period to which

they relate. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in

the future payments is available.

This represents business zakat payable by the Group in compliance with the principles of Shariah. The Bank

only pays zakat on its business and does not pay zakat on behalf of depositors.

Zakat provision is calculated based on 2.5% of net operating profit from management of Islamic funds approved

by the Shariah Supervisory Council.

The settlement method of the Bank’s stock option incentive scheme for key employees is dependent on an

uncertain future event which is outside the control of the Company or its employees. At each reporting date,

the Bank assesses the probability of the outcome of the uncertain future event in giving rise to a liability in

determining whether the stock option incentive scheme is treated as cash-settled or equity-settled. Only a

contingent liability exists if the contingency that triggers cash settlement is not probable. The stock option

incentive scheme should be treated as equity-settled unless cash settlement becomes probable.

An equity-settled share-based payment plan is where the Bank receives services from employees as

consideration for equity instruments (stock options) of the Bank. The fair value of the stock options granted in

exchange for services of the employees are recognised as an expense in the profit or loss over the vesting

periods of the grant with a corresponding increase in equity. The total amount to be expensed over the vesting

period is determined by reference to the fair value of the stock options granted, excluding the impact of any

nonmarket vesting conditions. Non-market vesting conditions are included in assumptions about the number

of options that are expected to vest. At each reporting date, the Bank revises its estimates of the number of

stock options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in

the profit or loss, with a corresponding adjustment to stock option reserve in equity.

A cash-settled share-based payment plan is initially recognised at the fair value of the liability at reporting

date and is recognised as an expense in the profit or loss over the vesting periods of the grant with a

corresponding increase in liability. The total amount to be expensed over the vesting period is determined by

reference to the fair value of the stock options granted, excluding the impact of any non-market vesting

conditions. Non-market vesting conditions are included in assumptions about the number of options that are

expected to vest. The Bank re-measures the fair value of the liability at each reporting date and at the date of

settlement, with any changes in fair value recognised in profit or loss. The Bank revises its estimate of the

number of stock options that are expected to vest. It recognises the impact of the revision of original

estimates, if any, in the profit or loss, with a corresponding adjustment to liability.

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Company No: 14389-U




Q Cash and cash equivalents

R Contingent liabilities and contingent assets

S Operating lease

T Recognition of interest and financing income and expense

For the purpose of the statement of cash flows, cash equivalents are held for the purpose of meeting short-term

cash commitments rather than for investment or other purposes. Cash and cash equivalents comprise cash on

hand, deposits held at call with financial institutions, other short term, highly liquid investments with original

maturities of 1 month or less that are readily convertible to known amounts of cash and which are subject to an

insignificant risk of changes in value.

The Group and the Bank do not recognise contingent assets and liabilities other than those arising from business

combination, but disclose its existence in the financial statements. A contingent liability is a possible obligation

that arises from past events where 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.

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 do not recognise contingent assets but discloses its existence where inflows of

economic benefits are probable, but not virtually certain.

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 profit or loss on the straight line basis over the lease period.

Initial direct cost incurred by the Group and the Bank in negotiating and arranging operating leases are

recognised in income statement when incurred.

Interest and financing income and expense for all interest bearing financial instruments measured at amortised

cost and interest bearing financial assets as held-for-trading and available-for-sale are recognised within "interest

income" and "interest expense" respectively in the income statement using the effective interest method.

The effective interest 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 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 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 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.

When a loan receivable is impaired, the Group and the Bank reduce the carrying amount to its recoverable

amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument,

and continues unwinding the discount as interest income. Interest income on impaired loan and receivable are

recognised using the original effective interest rate.

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Company No: 14389-U




U Recognition of fees and other income

V Finance guarantee contracts

Loan arrangement fees and commissions are recognised as income when all conditions precedent are fulfilled.

Corporate advisory fees are recognised as income on completion of each stage of the engagement and issuance

of invoice.

Portfolio management fees, commitment fees, guarantee fees, agency fees and are recognised as income based

on time apportionment.

Dividends are recognised when the shareholders' right to receive payment is established. This applies even if they

are paid out of acquisition profits. However, the investment may need to be tested for impairment as a

consequense.

Brokerage income is recognised when contracts are executed. Rollover fee is recognised upon the rollover of

specific contracts under share margin financing. Where debtors are classified as doubtful or bad, interest income

is suspended until it is realised on a cash basis.

Initial service charge and management fee are recognised as income on an accrual basis at the rates stated in the

prospectus of the respective unit trust funds. Distribution income from the unit trust funds is recognised on the

ex-distribution date.

Management fee for private mandates is recognised as income on an accrual basis at the rates stated in the

Investment Mandate Agreement of the respective private mandates.

Other income are recognised on an accrual basis.

Net profit from financial assets held-for-trading and financial investments available-for-sale are recognised upon

disposal of the securities, as the difference between net disposal proceeds and the carrying amount of the

securities.

Financial guarantee contracts are contracts that require the Group or the 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 liability is initially measured at fair value and 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 or the Bank

for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of

investment in subsidiaries.

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Company No: 14389-U




W Share capital

(a) Classification

(b) Share issue costs

(c) Dividend distribution

(d) Earnings Per Share

Ordinary shares are classified as equity. Other shares are classified as equity and/or liability according to the

economic substance of the particular instrument.

Incremental costs directly attributable to the issue of new shares or options are deducted against share

premium account.

Liability is recognised for the amount of any dividend declared, being appropriately authorised and no longer

at the discretion of the Group, on or before the end of the reporting period but not distributed at the end of the

reporting period.

Distributions to holders of an equity instrument is recognised directly in equity.

Basic earnings per share

Basic earnings per share is calculated by dividing:

i)

ii)

Diluted earnings per share

Diluted earnings per share adjusts the figures in the determination of basic earnings per share to take into

account:

i)

ii)

the profit attributable to owners of the Company, excluding any costs of servicing equity other than

ordinary shares; and

by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus

elements in ordinary shares issued during the year and excluding treasury shares.

the after income tax effect of interest and other financing costs associated with dilutive potential

ordinary shares, and

the weighted average number of additional ordinary shares that would have been outstanding

assuming the conversion of all dilutive potential ordinary shares.

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Company No: 14389-U




X Trust activities

Y Repurchase agreements

The Group and the Bank act as trustees in other fiduciary capabilities that result in holding or placing of assets on

behalf of individuals, trust and other institutions, These assets and income arising thereon are excluded from the

financial statements, as they are not assets of the Group and the Bank.

Securities purchased under resale agreements are securities within 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 statements 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 interest rate method.

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Company No: 14389-U


Notes to the financial statements


1 General information

2 Cash and short-term funds

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Cash and balances with banks

and other financial institutions 476,563 398,765 166,841 206,729

Money at call and deposit

placements maturing within one

month 124,905 63,239 98,601 38,003

601,468 462,004 265,442 244,732

3 Deposits and placements with banks and other financial institutions

31.12.2016 31.12.2015

RM'000 RM'000

Licensed banks 20,637 145,474

The Group The Bank

The Group and the Bank

The principal activities of the Bank are in investment banking, stockbroking activities, dealing in options and futures

and related financial services.

The principal activities of the subsidiaries are asset management, management of unit trust funds and private

retirement schemes, Islamic fund management and nominee services.

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.

The address of the registered office of the Bank is 27th Floor, Menara Boustead, 69, Jalan Raja Chulan, 50200 Kuala

Lumpur, Malaysia.

Inclusive in cash and short-term funds of the Group and the Bank are trust accounts maintained for dealer's

representatives amounting to RM47,090,000 (2015: RM48,624,000).

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Company No: 14389-U




4 Financial assets held-for-trading

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

At fair value

Quoted securities

Negotiable instruments of deposits 256,015 231,093 256,015 231,093

Shares, warrants and REITs (in Malaysia) 18,763 33,564 18,763 33,564

Unit trusts 4,864 8,645 - -

279,642 273,302 274,778 264,657

Unquoted securities

Corporate bonds and/or Sukuk in Malaysia 31,218 - 25,204 -

Corporate bonds and/or Sukuk outside Malaysia 15,442 - - -

46,660 - 25,204 -

Total financial assets held-for-trading 326,302 273,302 299,982 264,657

5 Financial investments available-for-sale

31.12.2016 31.12.2015 31.12.2016 31.12.2015


RM'000 RM'000 RM'000 RM'000

At fair value

Money market instruments

Malaysian government securities 228,087 19,895 228,087 19,895

Malaysian government islamic investment issues 288,667 675,049 288,667 675,049

Cagamas bonds 66,597 20,102 66,597 20,102

Sukuk perumahan kerajaan 79,286 97,695 79,286 97,695

Negotiable instruments of deposit - 80,036 - 80,036

662,637 892,777 662,637 892,777

Quoted securities

In Malaysia:

REITs 50,266 42,999 50,266 42,999

Unit trusts 190,278 240,850 169,171 192,437

Shares 32,134 22,046 32,134 22,046

Outside Malaysia:

REITs 78,540 48,864 78,540 48,864

Unquoted securities

Corporate bonds and/or Sukuk in Malaysia 3,527,166 2,605,743 3,526,180 2,604,757

Corporate bonds and/or Sukuk outside Malaysia 308,454 151,831 308,454 151,831

Shares in Malaysia 21,720 20,323 21,720 20,323

4,871,195 4,025,433 4,849,102 3,976,034

Allowance for impairment losses of securities (23,238) (17,368) (23,238) (17,368)

Total financial investments available-for-sale 4,847,957 4,008,065 4,825,864 3,958,666

The Group The Bank

The Group The Bank

70

Company No: 14389-U




5 Financial investments available-for-sale (continued)

31.12.2016 31.12.2015

(restated)

RM'000 RM'000

Movements in allowance for impairment losses of

financial investments available-for-sale

At beginning of financial year 17,368 41,414

Amount made during the financial year 5,899 15,176

Amount disposal (29) -

Amount written off - (39,055)

Amount written-back - (167)

At end of financial year 23,238 17,368

Included in financial investments available-for-sale are asset sold under repurchase agreements as follows:-

31.12.2016 31.12.2015

RM'000 RM'000

Malaysian government islamic investment issues 79,888 -

Sukuk perumahan kerajaan 69,431 -

149,319 -

6 Financial investments held-to-maturity

31.12.2016 31.12.2015

RM'000 RM'000

At amortised cost

Unquoted securities

Corporate bonds and/or Sukuk in Malaysia 25,471 78,651

Redeemable Secured Loan Stocks 15,042 -

40,513 78,651

Transfer from loan and advances (6,950) -

Total financial investments held-to-maturity 33,563 78,651

Movements in allowance for impairment losses of

financial investments held-to-maturity

At beginning of financial year - 1,554

Provision converted from loans, advances and financing 6,950 -

Amount written-back - (1,554)

At end of financial year 6,950 -




71

Company No: 14389-U




7 Loans, advances and financing

31.12.2016 31.12.2015

RM'000 RM'000

(i) By type

Term loans/financing:

- Syndicated term loans/financing 402,709 269,288

- Other term loans/financing 356,509 702,427

Revolving credits 53,589 46,573

Share margin financing 241,772 157,979

Receivables 40,490 91,377

Staff loans 5,560 7,582

Gross loans, advances and financing 1,100,629 1,275,226

Less: Allowances for impairment losses

- Individual allowance (18,176) (25,126)

- Collective allowance (3,323) (9,407)

(21,499) (34,533)

Total net loans, advances and financing 1,079,130 1,240,693

(ii) By type of customer

Domestic business enterprises:

- Small medium enterprises 49,307 66,375

- Others 773,207 937,887

Domestic non-bank financial institutions 20,148 -

Individuals 257,010 267,489

Foreign individuals 957 966

Foreign entities - 2,509

1,100,629 1,275,226

(iii) By interest rate sensitivity

Fixed rate

- Share margin financing 241,772 157,979

- Receivables 40,490 91,377

- Housing loans/financing 2,889 4,543

- Hire purchase receivables 2,655 2,968

- Other fixed rate loans/financing 71,764 66,486

Variable rate

- Cost plus 651,475 869,886

- BLR plus 25,026 13,127

- Other floating rate 64,558 68,860

1,100,629 1,275,226


72

Company No: 14389-U




7 Loans, advances and financing (continued)

31.12.2016 31.12.2015

RM'000 RM'000

(iv) By economic purpose

Purchase of securities 535,732 605,790

Purchase of landed properties of which

- Residential 17,122 22,950

- Non-residential 21,287 22,732

Working capital 200,855 223,231

Construction 65,100 136,798

Purchase of transport vehicles 62,173 71,385

Personal use 16 72

Merger and acquisition - 51,379

Others 198,344 140,889

1,100,629 1,275,226

(v) By economic sectors

Household 256,268 260,118

Real estate 182,237 229,125

Transport, storage and communication 150,632 206,920

Manufacturing 122,251 86,400

Finance, insurance and business services 77,382 113,811

Wholesale & retail trade and restaurants & hotels 64,133 115,121

Construction 61,804 55,213

Education, health and others 59,956 60,158

Mining and quarrying 54,214 66,722

Electricity, gas and water supply 20,013 70,794

Others 51,739 10,844

1,100,629 1,275,226

(vi) By geographical distribution

Wilayah Persekutuan 529,224 595,874

Selangor 414,086 546,660

Johor 70,923 108,004

Sarawak 39,424 6,687

Perak 28,272 2,106

Pulau Pinang 17,154 14,283

Sabah 471 420

Kedah 221 167

Negeri Sembilan 760 1,025

Melaka 94 -

1,100,629 1,275,226


73

Company No: 14389-U





31.12.2016 31.12.2015

RM'000 RM'000

(vii) By maturity structure

Maturing within one year 375,376 311,872

One year to three years 269,786 270,622

Three years to five years 260,001 236,969

Over five years 195,466 455,763

1,100,629 1,275,226

(viii) Movements of impaired loans, advances and financing


Classified as impaired during the financial year - 32,655

Amount converted to financial intruments held-to-maturity (15,000) -

Amount written off - (122)

Amount recovered (2,068) (286)


Ratio of gross impaired loans, advances and financing to gross loans,

advances and financing 4.48% 5.20%

(ix) Movements in allowance for impaired loans, advances and financing

Individual allowance


Allowance made during the financial year - 1,009

Amount written off - (122)

Provision converted to held-to-maturity (6,950) -


Collective allowance


Allowance made during the financial year 1,750 3,863

Amount written-back (7,834) (3,438)



74

Company No: 14389-U





31.12.2016 31.12.2015

RM'000 RM'000

(x) Impaired loans, advances and financing by economic purpose

Purchase of landed properties (non-residential) 21,287 22,732

Working capital 28,020 43,643

49,307 66,375

(xi) Impaired loans, advances and financing analysed by sector

Finance, insurance and business services 16,715 18,160

Real estate 14,264 14,264

Wholesale retail trade and restaurant and hotels 10,828 11,451

Manufacturing 7,500 22,500

49,307 66,375

(xii) Impaired loans, advances, and financing by geographical

distribution

Selangor 49,307 66,375

8 Trade receivables

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Management fees receivable on fund management 93,104 68,476 - -

Amounts due from clients:

- performing accounts 322,195 290,256 322,195 290,256

- impaired accounts 1,705 4,460 1,705 4,460

Amounts due from brokers 112,269 140,007 112,269 140,007

Amount due from Bursa Securities

Clearing Sdn. Bhd. - 51,033 - 51,033

529,273 554,232 436,169 485,756

Less: Allowance for bad and doubtful debts:

- individual allowance (1,368) (4,123) (1,368) (4,123)

- collective allowance - (16) - (16)

527,905 550,093 434,801 481,617


The Group The Bank

75

Company No: 14389-U




8 Trade receivables (continued)

Movement of impaired amounts due from clients:

31.12.2016 31.12.2015

RM'000 RM'000


Allowance made during the financial year 1,781 108

Amount recovered (866) (68)

Amount written off (3,670) -


Movements in the allowance for bad and doubtful debts:

31.12.2016 31.12.2015

RM'000 RM'000

Individual allowance


Allowance made during the financial year 1,781 108

Amount written-back (866) (68)




At beginning of financial year 16 19

Allowance made during the financial year - 31


At end of financial year - 16



76

Company No: 14389-U




9 Derivative financial assets

Contract/ Contract/

notional notional

amount Assets amount Assets

RM'000 RM'000 RM'000 RM'000

At fair value

Foreign exchange derivatives

- Currency forwards 904,245 55,413 920,658 63,365

- Currency swaps 420,367 11,928 1,269,778 9,500

- Cross currency interest rate swaps 188,579 53,472 169,600 45,783

1,513,191 120,813 2,360,036 118,648

Interest rate derivatives

- Interest rate swaps 260,000 1,275 150,000 1,343

1,773,191 122,088 2,510,036 119,991

10 Other assets

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Other debtors, deposits and prepayments 34,185 44,558 31,271 39,074

Collateral pledged for derivative transactions 76,561 75,771 76,561 75,771

Clearing guarantee fund (a) 1,725 1,139 1,725 1,139

Clearing fund (b) 1,000 1,000 1,000 1,000

Transferable membership 222 210 110 110

113,693 122,678 110,667 117,094

Less: allowance for bad and doubtful debts (c) (6,134) (10,137) (6,134) (10,137)

107,559 112,541 104,533 106,957

(a)

(b)

Interest-bearing contributions made by the Bank amounted to RM1,725,000 (2015: RM1,139,000) as a trading

clearing participant in accordance with the Rules of Bursa Malaysia Securities Clearing Sdn. Bhd. ("Bursa

Clearing") to a fund maintained by Bursa Clearing.

Interest-bearing contributions made by the Bank amounted to RM1,000,000 (2015: Futures broking subsidiary -

RM1,000,000) in accordance with the Business Rules of Bursa Malaysia Derivatives Clearing Berhad.

The Group The Bank


31.12.2016 31.12.2015

77

Company No: 14389-U




10 Other assets (continued)

(c) Movements in the allowance for bad and doubtful debts are as follows:

31.12.2016 31.12.2015

RM'000 RM'000


Allowance made during the financial year 898 365




11 Statutory deposits with Bank Negara Malaysia

12 Amounts due from subsidiaries

31.12.2016 31.12.2015

RM'000 RM'000

Amounts due from subsidiaries 2,780 24,004

The amount due from subsidiaries are unsecured, interest-free and repayable on demand.

13 Investment in subsidiaries

31.12.2016 31.12.2015

RM'000 RM'000

Unquoted shares at cost 121,217 132,120

Less: winding-up of subsidiaries - (10,903)

121,217 121,217

The Bank

The Bank


The non-interest bearing statutory deposits is maintained with Bank Negara Malaysia in compliance with Section

26(2)(c) of the Central Bank of Malaysia Act, 2009, the amount of which are determined as a set percentage of total

eligible liabilities.

78

Company No: 14389-U




13 Investment in subsidiaries (continued)

Name Principal activities 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Direct subsidiaries: % % % %

Affin Hwang Asset Asset management, 70 70 30 30

Management Berhad management of unit trust

("AHAM") & private retirement schemes

Affin Capital Services Investment holdings 70 70 30 30

Berhad*

AIIMAN Asset Islamic fund 70 70 30 30

Management Sdn. Bhd. management

(formerly known as

Asian Islamic Investment

Management Sdn. Bhd.)

(“AIIMAN”) *

Affin Hwang AIIMAN Islamic fund 71 - - -

Global Sukuk Fund ** management

Affin Hwang Nominees Nominee services 100 100 - -

(Asing) Sdn. Bhd.

Affin Hwang Nominees Nominee services 100 100 - -

(Tempatan) Sdn. Bhd.

AHC Global Sdn. Bhd.

(formerly known as Investment holdings 100 - - -

Classic Uptrend

Sdn. Bhd.)

AHC Associates Sdn. Bhd.

(formerly known as Investment holdings 100 - - -

Sole Delta Sdn. Bhd.)

* Direct subsidiaries of Affin Hwang Asset Management Berhad

** The Fund is a subsidiary consolidated in the Group as the Group controls the funds in accordance with

MFRS 10 'Consolidated Financial Statements'.

The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:

Percentage of equity held

Group Non-controlling interests

79

Company No: 14389-U




13 Investment in subsidiaries (continued)

Details of subsidiaries that have material non-controlling interests:

Proportion of ownership

interests and voting rights

held by non-controlling Profit allocated to non- Accummulated non-

Name of subsidiaries interest controlling interests controlling interests

31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015

% % RM'000 RM'000 RM'000 RM'000

Affin Hwang Asset

Management Berhad 30 30 17,485 14,584 41,372 35,826

31.12.2016 31.12.2015

RM'000 RM'000

Summarised financial position

Total assets 497,243 348,807

Total liabilities (359,335) (229,387)

Net assets 137,908 119,420

Equity attributable to owners of the Bank 96,536 83,593

NCI 41,372 35,826

Summarised financial results

Revenue 278,315 248,130

Profit before taxation 69,756 64,170

Taxation (11,471) (15,556)

Other comprehensive income 200 (288)

Total comprehensive income 58,485 48,326

Summarised cash flows

Net cash generated from operating activities 168,125 29,116

Net cash used in financing activities (40,000) (30,000)

Net cash generated from/(used in) investing activities 975 (5,620)

Net increase/(decrease) in cash & cash equivalents 129,100 (6,504)

Profit allocated to NCI of the Group 17,485 14,584

AHAM

On 20 September 2016, the Bank acquired the entire share capital of AHC Global Sdn. Bhd. (formerly known as

Classic Uptrend Sdn. Bhd.) and of AHC Associates Sdn. Bhd. (formerly known as Sole Delta Sdn. Bhd.), comprising 2

ordinary shares of RM1 each for cash consideration of RM2 respectively. The companies remain inactive as at end of

the financial year.

Set out below are the Group's subsidiaries that have material non-controlling interest ("NCI"):

Summarised financial information for each subsidiary that has non-controlling interest that are material to the Group is

set out below. The summarised financial information below represents amounts before inter-company eliminations.

80

Company No: 14389-U




14 Deferred tax assets

31.12.2016 31.12.2015 31.12.2016 31.12.2015


RM'000 RM'000 RM'000 RM'000

Deferred tax assets:

- to be recovered after more than 12 months 6,529 1,203 6,529 895

- to be recovered within 12 months 20,991 25,318 15,781 20,347

Deferred tax liabilities:

- to be recovered after more than 12 months (17,885) (13,112) (17,885) (12,804)

- to be recovered within 12 months 1,092 (668) 1,866 (668)

10,727 12,741 6,291 7,770

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-off current tax assets and

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 statements of financial position:

The Group The Bank

81

Company No: 14389-U


Notes to the financial statementsfor the financial year ended 31 December 2016 (continued)

14 Deferred tax assets (continued)

The movement in deferred tax assets and liabilities during the financial year are as follows:

Unutilised business

Foreign tax losses and

The Group Property Intangible Provision for exchange unabsorbed capital Financial

2016 Note and equipment assets other liabilities translation gain allowances losses instrument AFS Total

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

At beginning of financial year (2,410) (35) 18,320 (11,335) 7,182 1,019 12,741

(Charged)/credited to income statements 33 (384) 227 512 (2,664) (7,182) - (9,491)

Credited to equity - - - - - 7,477 7,477

At end of financial year (2,794) 192 18,832 (13,999) - 8,496 10,727

The Group

2015

At beginning of financial year (1,099) (258) 21,863 (7,888) - (1,782) 10,836

(Charged)/credited to income statements 33 (1,311) 223 (3,543) (3,447) 7,182 - (896)


At end of financial year (2,410) (35) 18,320 (11,335) 7,182 1,019 12,741

The Bank

2016

At beginning of financial year (1,491) (835) 13,041 (11,146) 7,182 1,019 7,770

(Charged)/credited to income statements 33 (102) 219 773 (2,664) (7,182) - (8,956)


At end of financial year (1,593) (616) 13,814 (13,810) - 8,496 6,291

The Bank

2015

At beginning of financial year (674) (255) 16,589 (7,888) - (1,782) 5,990

(Charged)/credited to income statements 33 (817) (580) (3,548) (3,258) 7,182 - (1,021)


At end of financial year (1,491) (835) 13,041 (11,146) 7,182 1,019 7,770

*# #^ ^^ *̂

82

Company No: 14389-U




15 Property and equipment

Office

equipment Motor Computer

The Group Renovations &furniture vehicles equipment Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000

Cost

At 1.01.2016 32,778 23,600 6,424 44,000 106,802

Additions 7,026 3,151 951 2,708 13,836

Disposals (1) (129) (930) (513) (1,573)

* Reclassification - - - 4,544 4,544

Write-offs (11,600) (7,114) - (4,747) (23,461)

At 31.12.2016 28,203 19,508 6,445 45,992 100,148

Accumulated depreciation

At 1.01.2016 18,383 20,077 4,819 36,979 80,258

Charge for the financial year 2,664 1,236 838 3,524 8,262

Disposals (1) (119) (930) (513) (1,563)

* Reclassification - - - 798 798

Write-offs (11,256) (6,451) - (4,697) (22,404)

At 31.12.2016 9,790 14,743 4,727 36,091 65,351

Net book value

At 31.12.2016 18,413 4,765 1,718 9,901 34,797

The Group

31.12.2015

Cost

At 1.01.2015 21,538 24,395 6,982 40,956 93,871

Additions 11,641 1,068 831 4,965 18,505

Disposals - (1,425) (1,389) (1,147) (3,961)

Write-offs (401) (438) - (774) (1,613)

At 31.12.2015 32,778 23,600 6,424 44,000 106,802


At 1.01.2015 17,019 20,738 5,319 36,779 79,855

Charge for the financial year 1,700 1,175 783 2,105 5,763

Disposals - (1,415) (1,283) (1,147) (3,845)

Write-offs (336) (421) - (758) (1,515)

At 31.12.2015 18,383 20,077 4,819 36,979 80,258

Net book value

At 31.12.2015 14,395 3,523 1,605 7,021 26,544

* Reclassification from Intangible assets

83

Company No: 14389-U




15 Property and equipment (continued)

Office

equipment Motor Computer

The Bank Renovations & furniture vehicles equipment Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000

Cost

At 1.01.2016 28,544 19,532 3,276 41,094 92,446

Additions 2,297 629 - 1,400 4,326

Disposals (1) (127) (463) (513) (1,104)

* Reclassification - - - 4,544 4,544

Write-offs (9,225) (4,852) - (4,707) (18,784)

At 31.12.2016 21,615 15,182 2,813 41,818 81,428


At 1.01.2016 15,185 17,673 2,944 34,998 70,800

Charge for the financial year 2,108 675 220 2,946 5,949

Disposals (1) (118) (463) (513) (1,095)

* Reclassification - - - 798 798

Write-offs (9,153) (4,799) - (4,675) (18,627)

At 31.12.2016 8,139 13,431 2,701 33,554 57,825

Net book value

At 31.12.2016 13,476 1,751 112 8,264 23,603

The Bank

31.12.2015

Cost

At 1.01.2015 17,274 20,376 4,080 37,856 79,586

Vested from AFFIN Futures 197 374 114 660 1,345

Additions 11,474 624 - 4,259 16,357

Disposals - (1,421) (918) (1,147) (3,486)

Write-offs (401) (421) - (534) (1,356)

At 31.12.2015 28,544 19,532 3,276 41,094 92,446


At 1.01.2015 14,190 18,566 3,477 34,554 70,787

Vested from AFFIN Futures 162 347 114 608 1,231

Charge for the financial year 1,169 587 271 1,517 3,544

Disposals - (1,414) (918) (1,147) (3,479)

Write-offs (336) (413) - (534) (1,283)

At 31.12.2015 15,185 17,673 2,944 34,998 70,800

Net book value

At 31.12.2015 13,359 1,859 332 6,096 21,646

* Reclassification from Intangible assets

84

Company No: 14389-U




16 Intangible assets

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Goodwill on consolidation (a) 264,011 264,011 260,409 260,409

Intangible assets (b):

- Merchant bank licence 52,500 52,500 52,500 52,500

- Computer software licence 6,579 9,729 3,736 7,137

323,090 326,240 316,645 320,046

(a) Goodwill on consolidation

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Cost

At beginning and end of financial year 284,211 284,211 280,609 280,609

Impairment losses


Net book value


The carrying amounts of goodwill allocated to the Group CGUs are as follows:

31.12.2016 31.12.2015 31.12.2016 31.12.2015

CGU RM'000 RM'000 RM'000 RM'000

Investment Banking 97,346 97,346 97,346 97,346

Stockbroking 163,063 163,063 163,063 163,063

Asset Management 3,602 3,602 - -

264,011 264,011 260,409 260,409

The Bank

The Group The Bank

The Group The Bank

The Group

85

Company No: 14389-U




16 Intangible assets (continued)

(a) Goodwill on consolidation (continued)

31.12.2016 31.12.2015 31.12.2016 31.12.2015

% % % %

Investment Banking 10.45 10.65 4.50 3.00

Stockbroking 10.45 10.65 4.50 3.00

Asset Management 10.45 10.65 4.50 3.00

Investment

banking

Stock-

broking

% %

Discount rate 12.81 12.46

Cash flow 71.07 72.25

Terminal growth rate 2.14 2.38

Discount rate Growth rate

The estimated terminal growth rates and discount rates used for value in use calculation are as follows:

The recoverable amount of the CGUs are determined based on value-in-use calculations using the cash

flow projections based on financial budgets or forecasts covering a five-year (2015: five-year) period. Cash

flows beyond the fifth-year period are assumed to grow at 4.50% (2015 : 3.00%) on perpetual basis for all

CGUs which is based on forecast Gross Domestic Product ("GDP") growth rate of Malaysia.

The cash flow projections are derived based on a number of key factors including the past performance and

the 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, at the date of

assessment of the CGUs.

Impairment was not required for goodwill arising from all the business segments. The impairment charge is

most sensitive to discount rate and management believes that any reasonable possible charge to the

assumptions applied is not likely to cause the recoverable amount of asset management segment to be lower

that its carrying amount.

For investment banking and stockbroking CGUs, the estimated recoverable amount will be equal to the

carrying value under the assumptions below :

86

Company No: 14389-U




16 Intangible assets (continued)

(b) Intangible assets

Merchant

The Group bank Computer

31.12.2016 licence software Total

RM'000 RM'000 RM'000

Cost

At 1.01.2016 52,500 25,934 78,434

Additions - 2,678 2,678

Reclassification * - (4,544) (4,544)

Write-offs - (143) (143)

At 31.12.2016 52,500 23,925 76,425

Accumulated amortisation

At 1.01.2016 - 16,205 16,205

Amortised during the financial year - 2,065 2,065

Reclassification * - (798) (798)

Write-offs - (126) (126)

At 31.12.2016 - 17,346 17,346

Net carrying value

At 31.12.2016 52,500 6,579 59,079

Merchant

The Group bank Computer


RM'000 RM'000 RM'000

Cost

At 1.01.2015 52,500 19,158 71,658

Additions - 6,903 6,903

Write-offs - (127) (127)

At 31.12.2015 52,500 25,934 78,434


At 1.01.2015 - 14,863 14,863


Write-offs - (121) (121)

At 31.12.2015 - 16,205 16,205

Net carrying value

At 31.12.2015 52,500 9,729 62,229

* Reclassification to computer equipment

87

Company No: 14389-U




16 (b) Intangible assets (continued)

Merchant

The Bank bank Computer


RM'000 RM'000 RM'000

Cost

At 1.01.2016 52,500 18,594 71,094

Additions - 1,479 1,479

Reclassification * - (4,544) (4,544)

Disposals - (111) (111)

At 31.12.2016 52,500 15,418 67,918


At 1.01.2016 - 11,457 11,457


Reclassification * - (798) (798)

Disposals - (111) (111)

At 31.12.2016 - 11,682 11,682

Net carrying value

At 31.12.2016 52,500 3,736 56,236

* Reclassification to computer equipment

88

Company No: 14389-U




16 (b) Intangible assets (continued)

Merchant

The Bank bank Computer


RM'000 RM'000 RM'000

Cost

At 1.01.2015 52,500 12,645 65,145

Additions - 5,949 5,949

At 31.12.2015 52,500 18,594 71,094


At 1.01.2015 - 10,782 10,782

Amortised during the financial year - 675 675

At 31.12.2015 - 11,457 11,457

Net carrying value

At 31.12.2015 52,500 7,137 59,637

17 Deposits from customers

31.12.2016 31.12.2015

RM'000 RM'000

(i) By type of deposit

Fixed deposits 3,550,924 2,930,883

Negotiable instrument of deposits 1,209,644 1,191,217

Other deposits 241,997 191,940

5,002,565 4,314,040


The merchant bank license is assessed for impairment on an annual basis together with the goodwill impairment

testing for the Investment Banking CGU as disclosed in Note 16(a).

89

Company No: 14389-U




17 Deposits from customers (continued)

(ii) By maturity structure

31.12.2016 31.12.2015

RM'000 RM'000

Due within six months 4,349,787 3,066,058

Six months to one year 551,035 238,849

One year to three years 101,743 1,009,133

5,002,565 4,314,040

(iii) By type of customer

Domestic non-banking financial institutions 2,043,552 1,278,851

Domestic banking institutions 1,209,258 1,190,461

Business enterprises 1,144,147 1,115,296

Government and statutory bodies 510,519 621,118

Individuals 69,333 74,779

Foreign entities 4,957 5,864

Other entities 20,799 27,671

5,002,565 4,314,040

18 Deposits and placements of banks and other financial institutions

31.12.2016 31.12.2015

RM'000 RM'000

Licensed banks 484,561 749,852

19 Obligations on securities sold under repurchase agreements

31.12.2016 31.12.2015

RM'000 RM'000

Financial investments available-for-sale 145,878 -

Maturity structure of deposits are as follows:




Obligations on securities sold under repurchase agreements are securities which the Bank has sold from its

investment 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 statements of financial position.

The financial assets sold under repurchase agreements as at end of the current financial year are from the financial

assets available-for-sale portfolio (2015: Nil).

90

Company No: 14389-U




20 Trade payables

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Amount due to unit trust funds 264,371 154,948 - -

Amount due to unit holders 40,869 17,213 - -

Amount due to external fund managers 60 70 - -

Amount due to clients 224,683 342,714 224,683 342,714

Amount due to brokers 165,360 127,376 165,360 127,376

Amount due to Bursa Securities Clearing Sdn. Bhd. 29,154 - 29,154 -

724,497 642,321 419,197 470,090

21 Derivatives financial liabilities

Contract/ Contract/

notional notional

amount Liabilities amount Liabilities

RM'000 RM'000 RM'000 RM'000

At fair value

Foreign exchange related contracts

- Currency forwards 170,697 2,409 1,169,815 4,478

- Currency swaps 1,228,794 75,681 1,060,532 73,912

- Cross currency interest rate swaps 309,089 71,354 333,356 63,501

1,708,580 149,444 2,563,703 141,891

Interest rate related contracts

- Interest rate swaps 410,000 847 - -

2,118,580 150,291 2,563,703 141,891

Trade payables include amount payable under outstanding contracts from the stock and share broking activities and

amounts due to unit trust funds and unit holders.

The credit terms of amounts due to unit trust funds and unit holders range from 1 to 10 days (2015: 1 to 10 days).

The credit terms of amount due to external fund managers range from 30 to 90 days (2015: 30 to 90 days).


31.12.2016 31.12.2015

The Group The Bank

91

Company No: 14389-U




22 Other liabilities

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Commissioned dealer's representatives trust balances 47,090 48,624 47,090 48,624

Collateral pledged for derivative transactions 8,761 12,109 8,761 12,109

Amounts payable to commissioned and salaried

dealer's representatives 22,174 22,457 22,174 22,457

Accrued employee benefit 50,726 49,063 25,415 25,440

Other creditors and accruals 83,682 103,512 49,589 76,619

212,433 235,765 153,029 185,249

23 Share capital

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000

Authorised

At beginning and end of the financial year 1,500,000 1,500,000 1,500,000 1,500,000

Issued and fully paid

At beginning and end of the financial year 780,000 780,000 780,000 780,000

The Group The Bank

Number of ordinary

shares of RM1.00 each The Bank

92

Company No: 14389-U




24 Reserves

31.12.2016 31.12.2015 31.12.2016 31.12.2015


RM'000 RM'000 RM'000 RM'000

Share premium 219,800 219,800 219,800 219,800

Statutory reserve (a) 251,343 214,915 251,343 214,915

Regulatory reserves (b) 9,667 5,594 9,667 5,594

Available-for-sale revaluation reserves (c) (26,830) (3,297) (26,901) (3,228)

453,980 437,012 453,909 437,081

Retained profits (d) 246,496 222,334 274,279 262,964

700,476 659,346 728,188 700,045

(a)

(b)

(c)

(d)

The Group The Bank

Pursuant to the Finance Act, 2007 which was gazetted on 28 November 2007, dividends paid, credited or

distributed to shareholders are not tax deductible by the Bank but are exempted from tax in the hands of the

shareholders ("single-tier dividends"). The unutilised Section 108 balance of the Bank has expired as at 31

December 2013. As at 31 December 2016, the Bank has sufficient tax exempt account balances to pay tax

exempt dividends of RM7,724,000 (2015: RM7,724,000) under Section 12 of the Income Tax (Amended Act

1999).

The available-for-sale revaluation reserves represent the unrealised gains or losses arising from a change in

the fair value of investments classified as financial investments available-for-sale. The gains or losses are

transferred to the income statement upon disposal or when the securities becomes impaired.

The Group and the Bank are required to maintain in aggregate collective impairment allowances and

regulatory reserves of no less than 1.2% of total outstanding loans, advances and financing, net of impairment

allowances.

The statutory reserve is maintained by the Bank in compliance with Section 47(2)(f) of the Financial Services

Act, 2013 and is not distributable as cash dividends.

93

Company No: 14389-U




25 Interest income

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Loans, advances and financing 66,006 66,175 66,006 66,175

Money at call and deposit placements

with financial institutions 11,076 19,037 9,812 15,171

Derivative instruments 3,133 5,588 3,133 5,588

Financial assets held-for-trading 20,394 11,629 20,394 11,629

Financial investments available-for-sale 174,292 152,854 174,292 152,854

Financial investments held-to-maturity 2,800 9,318 2,800 9,318

Others (247) 662 (247) 662

277,454 265,263 276,190 261,397

Net accretion of discounts less

amortisation of premiums (3,439) (2,873) (3,439) (2,873)

274,015 262,390 272,751 258,524

of which:

Interest income earned on impaired

loans, advances and financing 1,505 319 1,505 319

26 Interest expense

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Deposits from customers 171,143 167,295 171,143 167,295

Deposits and placements of banks and

other financial institutions 15,092 12,786 15,092 12,853

Derivative instruments 2,740 2,578 2,740 2,578

Others 1,352 1,817 1,352 1,774

190,327 184,476 190,327 184,500

The Group The Bank

The Group The Bank

94

Company No: 14389-U




27 Other operating income

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Fee income

Fee on loans, advances and financing 4,328 3,851 4,328 3,851

Corporate advisory fees 9,310 4,426 9,310 4,426

Guarantee fees 682 658 682 658

Underwriting commissions 4,445 6,423 1,332 5,258

Gross brokerage income 80,099 89,508 80,099 89,137

Portfolio management fees 184,766 171,357 - -

Initial service charge 84,356 67,893 - -

Agency fees 2,107 2,184 2,107 2,184

Arrangement fees 7,899 3,657 7,899 3,657

Others 4,197 3,109 3,955 2,336

382,189 353,066 109,712 111,507

Income from financial instruments

Gains arising on financial assets held-for-trading:

- net gain on disposal 26,048 27,739 26,048 28,549

- unrealised gain 5,215 195 3,650 106

- gross dividend income 614 1,780 614 1,580

Gains on derivatives instruments:

- net gain on disposal - 20 - 20

- unrealised loss (4,673) (10,132) (4,673) (10,132)

Gains arising on financial investments

available-for-sale:

- net gain on disposal 23,351 23,851 21,220 21,914

- gross dividend income 15,517 13,852 14,830 11,780

66,072 57,305 61,689 53,817

Other income

Realised foreign exchange gain/(loss) 11,222 (10,056) 11,260 (12,058)

Unrealised foreign exchange gain 3,843 28,785 3,859 30,616

Gain on disposal of property and equipment 199 385 96 263

Gain on winding up of a subsidiary - - - 21

Gross dividend income - subsidiaries - - 28,000 21,000

Others 1,921 1,711 1,441 2,247

17,185 20,825 44,656 42,089

465,446 431,196 216,057 207,413

The Group The Bank

95

Company No: 14389-U




28 Other operating expenses

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Personnel costs

Salaries, allowances and bonuses 151,930 172,166 101,903 126,403

Defined contribution plan 25,210 28,217 15,070 18,550

Other personnel costs 25,244 26,737 9,369 7,458

202,384 227,120 126,342 152,411

Establishment cost

Rental of premises 14,916 17,700 10,971 14,784

Equipment rental 1,610 1,896 192 294

Repair and maintenance 7,304 7,111 4,761 5,423

Amortisation of intangible assets 2,065 1,463 1,134 675

Depreciation of property and equipment 8,262 5,763 5,949 3,544

Electricity, water and sewerage 2,645 2,891 2,293 2,569

Insurance and indemnities 1,025 1,200 799 913

Others 256 267 256 267

38,083 38,291 26,355 28,469

Marketing expenses

Business promotion and advertisement 6,226 6,112 1,204 1,291

Entertainment 2,116 1,753 873 831

Travelling and accommodation 3,461 3,223 1,813 1,581

Dealers’ handling fees 8,108 11,444 8,108 11,444

Dealer’s representatives performance

incentive 5,434 6,137 5,434 6,126

Commission and referral fee expenses 98,736 77,903 595 321

Others 5,215 5,920 - -

129,296 112,492 18,027 21,594

The Group The Bank

96

Company No: 14389-U




28 Other operating expenses (continued)

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Administration and general expenses

Directors' remuneration (Note 31) 1,932 1,596 1,787 1,453

Telecommunication expenses 9,641 9,931 8,146 8,055

Auditors' remuneration 705 732 483 559

Professional fees 4,232 9,400 (68) 3,731

Intangible assets written off 17 6 - -

Property and equipment written off 1,057 98 157 73

Transaction levy 7,662 7,722 7,662 7,722

Subscription 7,915 6,064 7,577 5,913

Subsidies 3,167 2,980 3,167 2,980

Others 11,414 8,769 9,334 7,816

47,742 47,298 38,245 38,302

417,505 425,201 208,969 240,776

The expenditure includes the following statutory disclosure:

Directors’ remuneration (Note 31) 1,932 1,596 1,787 1,453

Auditors' remuneration:

(i) Statutory audit fees 503 495 376 387

(ii) Regulatory related fees 99 98 60 60

(iii) Non audit fees 103 139 47 112

- Tax fees 103 51 47 25

- Non audit fees - 88 - 87

The Group The Bank

97

Company No: 14389-U




29 Write-back/(Allowances) for losses on loans, advances and financing and receivables

31.12.2016 31.12.2015

RM'000 RM'000

Individual assessment allowance

- Made during the financial year (1,781) (1,117)

- Written-back during the financial year 866 68


- Made during the financial year (1,750) (3,894)

- Written-back during the financial year 7,850 3,472

Bad debts and financing

- Recovered 471 323

- Written off (2) -

Other debtors

- Written back during the financialperiod/ yearAllowances for losses (898) (365)

- Written-back during the financial year 525 122

5,281 (1,391)

30 Allowances for impairment losses on securities

31.12.2016 31.12.2015

(restated)

RM'000 RM'000

(Allowances)/Write-back for impairment losses :

- Financial investments available-for-sale (5,899) (15,009)

- Financial investments held-to-maturity - 1,554

(5,899) (13,455)



98

Company No: 14389-U




31 Managing Director's and Directors’ remuneration

The Managing Director and Directors of the Bank who have held office during the financial year are as follows:

Managing Director

Datuk Maimoonah bt Mohamed Hussain

Non-Executive Directors


Raja Tan Sri Dato' Seri Aman bin Raja Haji Ahmad


Stephen Charles Li

Lee Chor Kee (Ceased Directorship w.e.f 30 November 2016)



Maj. Gen. Dato' Zulkiflee bin Mazlan (R) (Appointed w.e.f 4 January 2016)

Datuk Noor Azian binti Shaari (Appointed w.e.f 4 October 2016)

The aggregate amount of remuneration for all Directors during the financial year are as follows:

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Managing Director

Fixed and non-deferred remuneration

- Salary and other remuneration 2,247 2,258 2,247 2,258

Variable and non-deferred remuneration

- Bonus 2,150 2,500 2,150 2,500

- Benefits-in-kind 58 58 58 58

4,455 4,816 4,455 4,816

Non-Executive Directors:

Fixed and non-deferred remuneration

- Fees 808 781 808 781

- Salary and other remuneration 1,093 783 948 640

- Benefits-in-kind 31 32 31 32

Total 1,932 1,596 1,787 1,453

Grand total 6,387 6,412 6,242 6,269

The Group The Bank

99

Company No: 14389-U




31 Managing Director's and Directors’ remuneration (continued)

Details of remuneration of the Group are as follows:

The Group

31.12.2016

Managing Director


Total



Raja Tan Sri Dato' Seri Aman

bin Raja Haji Ahmad


Stephen Charles Li

Lee Chor Kee



Datuk Noor Azian binti Shaari

Maj. Gen. Dato' Zulkiflee Mazlan ( R )

Total

Grand Total

* Other emoluments include allowances and EPF.

100

Company No: 14389-U





Details of remuneration of the Group are as follows:

The Group

31.12.2015

Managing Director


Total




bin Raja Haji Ahmad

Ariffin bin Alias


Stephen Charles Li

Lee Chor Kee



Total

Grand Total


101

Company No: 14389-U





The Bank

31.12.2016

Managing Director


Total




bin Raja Haji Ahmad


Stephen Charles Li

Lee Chor Kee



Datuk Noor Azian binti Shaari

Maj. Gen. Dato' Zulkiflee Mazlan ( R )

Total

Grand Total


Details of remuneration of the Bank are as follows:

102

Company No: 14389-U





The Bank

31.12.2015

Managing Director

Maimoonah bt Mohamed Hussain

Total




bin Raja Haji Ahmad

Ariffin bin Alias


Stephen Charles Li

Lee Chor Kee



Total

Grand Total


Details of remuneration of the Bank are as follows:

103

Company No: 14389-U




32 Significant related party transactions and balances

The identified related parties and their relationship with the Group and the Bank are as follows:

Related parties Relationship

Lembaga Tabung Angkatan Tentera

("LTAT")

AFFIN Holdings Berhad ("AHB") Holding company

Subsidiaries and associate of LTAT

Subsidiaries and associate of AHB as

disclosed in its financial statements

Subsidiaries of the Bank as disclosed in

Note 13 Subsidiaries

Key management personnel

- All Directors of the Bank and its key subsidiaries

-

Related parties of key management personnel

(deemed as related to the Bank)

Ultimate holding corporate body, which is Government-Linked

Investment Company ("GLIC") of the Government of Malaysia.

Subsidiaries and associate companies of the ultimate holding

corporate body

Subsidiaries and associate companies of the holding company

The key management personnel of the Group and the Bank consists

of:

Non-Executive Directors, Managing Director, Chief Operation

Officer, Chief Financial Officer and certain Heads of Department

Close family members and dependents of key management

personnel

Entities that are controlled or jointly controlled by, 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 are those persons having the authority and responsibilty for planning, directing and

controlling the activities of the Group and the Bank either directly or indirectly. Key management personnel

includes the Managing Director of the Bank in office during the financial year and the remuneration for the

financial year are disclosed in Note 31.

104

Company No: 14389-U


Notes to the financial statements for the financial year ended 31 December 2016 (continued)

32 Significant related party transactions and balances (continued)

(a) Related parties transactions

31.12.2016 31.12.2015 31.12.2016 31.12.2015

The Group RM'000 RM'000 RM'000 RM'000

Income

Interest on fixed deposits & interbank placements - - 9,775 14,663

Interest on financial investments available-for-sale - - 4,916 6,011

Interest on loans, advances and financing - - 4,820 6,285

Unrealised loss on derivative instruments - - (278) (198)

Brokerage income 1,084 523 - 10

Rebate of management fees - - 381 -

Management fees income 251 207 1,533 1,149

Corporate advisory fees - 193 2,916 440

Agency fees - - 360 415

Arrangement fees - - 150 1,047

Other fee income - - 100 -

Realised gain on foreign exchange for derivatives instruments - - 272 -

1,335 923 24,945 29,822

Expenses

Rental of premises - - 7,313 7,236

Interest expense on derivatives - - 55 (304)

Interest expense on deposits 490 387 43,874 29,023

Travel services - - 423 1,029

Advisory fee expense - - 807 2,042

Management fees expense - - 1,442 -

Other expenses - - 1,687 722

490 387 55,601 39,748

Ultimate Holding Other Related

Corporate Body Companies

The Group and the Bank do not have any individual or collective significant transactions outside the ordinary course of business with the Government of

Malaysia and government related entities. In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are the other

significant related party transactions and balances.

105

Company No: 14389-U




(b) Related parties balances

31.12.2016 31.12.2015 31.12.2016 31.12.2015

The Group RM'000 RM'000 RM'000 RM'000

Amounts due to

Deposit from customers - - 1,241,432 1,298,085

Deposit and placements of banks and

other financial instituions - - 58,310 -

Other liabilities - - 474 850

Derivative liabilities - - 121 (2)

Trade payable - 121,792 524 -

- 121,792 1,300,861 1,298,933

Amounts due from

Interbank placement - - 10,000 40,000

Cash and short-term funds - - 78,264 123,761

Derivative assets - - - -

Loans, advances and financing - - 45,238 132,065

Refundable deposits - - 2,015 1,331

Trade receivable 76,721 10,893 318 -

Other assets - 193 823 -

Financial investments - - 203,906 381,706

76,721 11,086 340,564 678,863

Commitments and contingencies

Notional Amount of:

Direct credit substitutes - - 65,000 65,000

Interest rate related contracts - - 50,000 50,000

Irrevocable commitments to extend credit - - - 5,319

- - 115,000 120,319


Corporate Body Companies

106

Company No: 14389-U




(c) Related parties transactions

31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

The Bank

Income

Interest on fixed deposits & interbank placements - - - - 9,723 14,597

Interest on financial investments available-for-sale - - - - 4,916 6,011

Interest on loans, advances and financing - - - - 4,820 6,285

Unrealised loss on derivative instruments - - - - (278) (198)

Management fee income - - - - 10 -

Corporate advisory fees - 193 - - 2,916 440

Agency fees - - - - 360 415

Arrangement fees - - - - 150 1,047

Other fees income - - - - 12 -

Brokerage income 1,084 523 - - - 10

Realised gain on foreign exchange for derivatives instruments - - - - 272 -

Gross dividend income -subsidiaries - - 28,000 21,000 - -

Other income - - 269 - - -

1,084 716 28,269 21,000 22,901 28,607

Expenses

Rental of premises - - - - 5,310 7,192

Interest on derivatives - - - - 55 (304)

Interest expense on deposits 490 387 - 86 43,874 29,023

Travel services - - - - 423 524

Other expenses - - - - 174 242

490 387 - 86 49,836 36,677

Corporate Body Subsidiaries Companies


107

Company No: 14389-U




(d) Related parties balances

31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015

The Bank RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Amounts due to

Deposits from customers - - - - 1,241,432 1,298,085


and other financial institutions - - - - 58,310 -

Other liabilities - - - - 236 199

Derivative liabilities - - - - 121 (2)

Trade payable - 121,792 - - - -

- 121,792 - - 1,300,099 1,298,282

Amounts due from

Interbank placement - - - - 10,000 40,000

Cash and short-term funds - - - - 68,320 104,259

Loans, advances and financing - - - - 45,238 132,065

Refundable deposits - - - - 1,816 1,262

Intercompany balances - - 2,775 24,004 724 -

Trade receivable 76,653 10,893 - - - -

Financial investments - - - - 203,906 381,706

76,653 10,893 2,775 24,004 330,004 659,292

Commitments and contingencies

Direct credit substitutes - - - - 65,000 65,000

Interest rate related contracts - - - - 50,000 50,000

Irrevocable commitments to extend credit - - - - - 5,319

- - - - 115,000 120,319

Corporate Body Subsidiaries Companies


108

Company No : 14389-U





(e) Key management personnel compensation

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Short-term employee benefits:

- Salaries, allowances and commissions 11,283 6,010 10,284 4,445

- Bonuses 9,040 6,772 6,626 2,915

- Defined contribution plan 3,491 2,235 2,872 1,251

- Other employee benefits 1,063 636 1,039 535

- Benefit-in-kind 89 90 89 90

Other emoluments 1,093 783 948 640

Directors' fees 808 781 808 781

26,867 17,307 22,666 10,657

Loans to key management personnel:

31.12.2016 31.12.2015

RM'000 RM'000

As at end of financial year 588 155

Unrestricted Deferred

31.12.2016 RM'000 RM'000

Fixed Remuneration

- Cash-based 14,891 -

- Other 89 -

Variable Remuneration


Key management personnel are those persons having authority and responsibility for planning, directing and

controlling the activities of the Group and the Bank either directly or indirectly.

The remuneration of key management personnel of the Group and the Bank are as follows:

The Group The Bank

Included in the table above is the Managing Director's & Non-Executive Directors' remuneration as disclosed in

Note 31.

The total remuneration awards of key management personnel including other material risk takers of the Bank for

the financial year is as follows:


The Bank

109






(e) Key management personnel compensation (continued)

Unrestricted Deferred

31.12.2015 RM'000 RM'000

Fixed Remuneration


- Other 90 -

Variable Remuneration


33 Taxation

The Group

31.12.2016 31.12.2015 31.12.2016 31.12.2015


RM'000 RM'000 RM'000 RM'000

Malaysian income tax:

- Current financial year 18,535 14,255 6,151 -

- Deferred tax (Note 14) 9,491 896 8,956 1,021

28,026 15,151 15,107 1,021

(Over)/Under provision in prior years (1,429) 5,203 - 3,711

26,597 20,354 15,107 4,732

31.12.2016 31.12.2015 31.12.2016 31.12.2015


% % % %

Statutory tax rate in Malaysia 24.00 25.00 24.00 25.00

Tax effect in respect of:

- Non-allowable expenses 1.96 13.25 1.88 4.83

- Non-taxable income (5.19) (16.42) (9.93) (26.98)

- Impact of change in tax rate on deferred tax - 0.44 - 1.25

- (Over)/Under provision in prior

financial year (1.10) 7.66 - 14.91

- Other temporary differences not recognised

in prior financial year 0.82 - 1.22 -

Average effective tax rate 20.49 29.93 17.17 19.01

The Group The Bank

The Bank

The total remuneration awards of key management personnel including other material risk takers of the Bank for

the financial year is as follows: (continued)

The Bank

The number of key management personnel receiving variable remuneration during the financial year for Bank is

20 (2015 : 12).

The numeric reconciliation between the applicable statutory income tax rate to the effective income tax rate of the

110





34 Earnings per share

31.12.2016 31.12.2015 31.12.2016 31.12.2015


Net profit attributable to equity holders

(RM'000) 85,705 33,051 72,858 20,154

Weighted average number of ordinary shares

in issue ('000) 780,000 780,000 780,000 780,000

Basic earnings per share (sen) 10.99 4.24 9.34 2.58

35 Dividends

Amount of Amount of

Gross dividend tax exempt Gross dividend tax exempt

per share dividend per share dividend

sen RM'000 sen RM'000

Ordinary share:

- Final dividend for financial year ended

31.12.2015 0.390 3,042 - -

- Interim dividend 2.308 18,000 - -

2.698 21,042 - -

The Bank

The Group The Bank

31.12.2016 31.12.2015

The basic earnings per 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 by the weighted average number of ordinary shares in issue during the

financial year.

The Directors now recommend the payment of a final dividend of 1.385 sen (2015: 0.390 sen) gross per share

amounting to RM10,800,000 (2015: RM3,042,000) for the financial year ended 31 December 2016, which is subject

to approval of the shareholder at the forthcoming Annual General Meeting of the Bank.

Dividends recognised as distribution to ordinary equity holders of the Bank:

111





36 Commitments and contingencies

31.12.2016 31.12.2015

Principal Principal

amount amount

RM'000 RM'000

Direct credit substitutes* 110,050 98,850

Obligations under underwriting agreement 19,481 25,500

Irrevocable commitments to extend credit:

- maturity less than one year 179,115 192,609

- maturity more than one year 694 21

Interest rate related contracts**:

- less than one year 300,000 -

- one year to less than five years 370,000 150,000

Foreign exchange related contracts**:

- less than one year 3,001,759 4,087,984

- one year to less than five years 220,011 835,755

Any commitments that are unconditionally cancelled

at any time by the Bank without prior notice or that

effectively provide for automatic cancellation due to

deterioration in a borrower's creditworthiness 367,710 403,091

4,568,820 5,793,810

*

**


In the normal course of business, the Group and the Bank makes various commitments and incurs certain contingent

liabilities with legal recourse to its customers. No material losses are anticipated as a result of these transactions. The

principal amount of commitments and contingencies constitute the following:

Included in direct credit substitutes of the Group and the Bank are financial guarantee contracts of RM65

million, of which fair value at the time of issuance is zero.

The fair value of these derivatives have been recognised as "derivative financial assets" and "derivative financial

liabilities" in the statement of financial position and disclosed in Note 9 and 21 respectively to the financial

statements.

112





37 Capital commitments

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

In respect of property and equipment:

Authorised and contracted for 396 13,917 396 4,164

Authorised but not contracted for 10,269 - 8,760 -

10,665 13,917 9,156 4,164

38 Lease commitments

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

Year

Within one year 11,030 11,868 7,426 10,316

One to five years 3,429 9,074 1,044 8,026

39 Capital management

The Group The Bank

To maintain a strong capital base to support the development of its business.

The Group The Bank

Capital expenditure approved by Directors are not provided for in the financial statements amounted to approximately:

The Group and the Bank have lease commitments in respect of rented premises and hired equipment, all of which are

classified as operating lease. A summary of the future minimum lease payments under non-cancellable operating lease

commitments are as follows:

With effect from 1 January 2013, the total capital and capital adequacy ratios of the Group and the Bank are computed

in accordance with Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components) dated 28 November

2012.

The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic

Indicator Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s

Capital Adequacy Framework (Capital Components), the minimum capital adequacy requirement for Common Equity

Tier 1 Capital Ratio (‘‘CET 1’’) and Tier 1 Capital Ratio are 5.125% (2015: 4.50%) and 6.625% (2015: 6.00%)

respectively for financial year ended 31 December 2016. The minimum regulatory capital adequacy requirement

remains at 8.625% (2015: 8.00%) for total capital ratio.

The Group and the Bank’s objectives when managing capital are:

To comply with the capital requirements set by the regulators of the banking markets where the entities within the

Group and the Bank operates;

To safeguard the Group and the Bank’s ability to continue as a going concern so that it can continue to provide

returns for shareholders and benefits for other stakeholders; and

The Group and the Bank maintain a ratio of total regulatory capital to its risk-weighted assets (‘‘RWA’’) above a

minimum level agreed with the management which takes into account the risk profile of the Group and the Bank.

113





40 Capital adequacy

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000


Basel III

Common Equity Tier (CET) 1 Capital :

Paid-up share capital 780,000 780,000 780,000 780,000

Share premium 219,800 219,800 219,800 219,800

Statutory reserve 251,343 214,915 251,343 214,915

Retained profits 256,163 227,928 283,946 268,558

Unrealised loss on AFS instruments (26,830) (3,297) (26,901) (3,228)

1,480,476 1,439,346 1,508,188 1,480,045

Less : Other regulatory adjustment

Goodwill and other intangible assets (323,090) (326,240) (316,645) (320,046)

Investment in subsidiaries - - (108,692) (106,686)

Collective allowance reserve (9,667) (5,594) (9,667) (5,594)

Deferred tax assets (10,727) (12,741) (6,291) (7,770)

CET 1 Capital 1,136,992 1,094,771 1,066,893 1,039,949

Additional Tier 1 Capital

Qualifying non-controlling interests 3,000 3,000 - -

Total Tier 1 Capital 1,139,992 1,097,771 1,066,893 1,039,949

Tier 2 Capital

Collective impairment allowance # 12,525 14,531 12,525 14,531

Less : Regulatory adjustment

Investment in subsidiaries - - (12,525) (14,531)

Total Tier 2 Capital 12,525 14,531 - -

Total Capital 1,152,517 1,112,302 1,066,893 1,039,949

Proposed dividends 10,800 3,042 10,800 3,042

Capital Ratios

CET 1 Capital ratio 32.532% 30.481% 35.662% 32.153%

Tier 1 Capital ratio 32.618% 30.565% 35.662% 32.153%

Total Capital ratio 32.976% 30.969% 35.662% 32.153%

#

The Group The Bank

minimum level agreed with the management which takes into account the risk profile of the Group and the Bank.

The table below summarises the composition of regulatory capital and the ratios of the Group and the Bank for the

financial year ended 31 December 2016.

Qualifying collective impairment is restricted to allowances on the unimpaired portion of the loans, advances and

financing.

114





40 Capital adequacy (continued)

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000


CET 1 Capital ratio (net of proposed dividends) 32.223% 30.397% 35.301% 32.059%

Tier 1 Capital ratio (net of proposed dividends) 32.309% 30.480% 35.301% 32.059%

Total Capital ratio (net of proposed dividends) 32.667% 30.885% 35.301% 32.059%

Credit risk 2,601,028 2,739,271 2,400,616 2,589,933

Market risk 188,107 298,820 196,766 279,305

Operational risk 705,881 553,536 394,323 365,105

Total RWA 3,495,016 3,591,627 2,991,705 3,234,343

41 Employee share option incentive scheme

1.

2.

3.

4.

5.

6.

The Group The Bank

financing.

A subsidiary of the Bank, Affin Hwang Asset Management Berhad, has established and implemented a stock option

incentive scheme for its key employees. The subsidiary granted 250 options on the date of stock option agreement

dated 16 July 2015. The shareholders of the subsidiary have approved, and the subsidiary has adopted the scheme

which provides for key employees to be vested with options to purchase ordinary shares of the subsidiary.

The share option incentive scheme would provide the key employees with an appropriate incentive to encourage

them to continue in the employment of the subsidiary and to improve the growth and profitability of the subsidiary.

The main features of the share option scheme are, inter alia, as follows:

Eligible persons are key employees as defined by the stock option agreement.

The grant of the option is deemed to be incorporated in the terms of employment of the key employees with the

subsidiary and the key employees are not required to make any payment to the subsidiary for the grant of the

Options.

The share options will vest and become exercisable by the grantees in accordance with the stock option agreement

in tranches.

The share option scheme shall be in force until 1 June 2024. All remaining vested options which have not been

exercised will expire on the expiration date.

The share options granted have performance and/or service based vesting conditions. Generally, the share options

granted can be classified into four categories which are based on joining; time linked; performance linked and

bonus kicker.

In the event of an initial public offering is taking place on or before 1 June 2019, the share option incentive

scheme will be settled in shares. Otherwise, the subsidiary is required to settle in cash.

115





41 Employee share option incentive scheme (continued)

As at 1 January

2016Granted Exercised Expired

As at

December

2016

250 250 - - 500

250 250 - - 500

42 Subsequent event

43 Material Litigation

Movements in the number of share options awarded are as follows:

Grant date

16-Jul-16

The estimated fair value of each share option granted is between RM22.18 to RM28.36 per option.

The exercise price of the options is RM40.30 per share and the weighted average remaining contractual life is 9

years.

Total share-based payment expenses recognised in profit or loss during the financial year is amounted RM4.672

million (2015: Nil).

There are no material events subsequent to the end of the financial year other than the acquisition of entire share

capital of ABB Trustee Berhad ("ABBT") comprising 100,000 ordinary shares of RM10 each (of which RM5 is

uncalled), from Affin Bank Berhad for a total cash consideration of approximately RM630,000, based on the audited

net asset value of ABBT as at 31 December 2015, subject to further adjustment if any. The entire share capital of

ABBT is acquired by five shareholders in equal proportion, namely the Bank, Affin Hwang Nominees (Tempatan)

Sdn Bhd, Affin Hwang Nominees (Asing) Sdn Bhd, AHC Global Sdn Bhd (formerly known as Classic Uptrend Sdn

Bhd) and AHC Associates Sdn Bhd (formerly known as Sole Delta Sdn Bhd), each holding 20% equity interest in

ABBT. The acquisition exercise was completed on 25 January 2017.

A chargor of a piece of land (“the Land”) charged to the Bank as part of the collaterals for a syndicated facility

granted to a borrower by a consortium financial institutions, had filed a claim against the Bank on 9 June 2016 for

the sum of RM5,185,683.19 or in the alternative damages to be assessed, interests and costs, alleging that the Bank

as Security Agent had failed to perform its contractual and/or statutory obligations in relation to the application of the

sales proceeds of the Land and had wrongfully deducted the recovery and enforcement expenses, which included

expenses for other properties/securities from the surplus of the sales proceed of the Land. As Security Agent, the

consortium financial institutions will indemnify the Bank for the claim instituted against the Bank. On 15 November

2016, the Judge granted an order allowing the Bank’s application to transfer the proceedings to Kuala Lumpur High

Court and the case is now fixed for case management on 15 March 2017.

116





44 Financial risk management objectives and policies

A. Credit risk

As a full-fledged investment bank, the Bank has established robust and comprehensive risk

management policies and framework, based on best practices, to ensure that the salient risk

elements in the operations of the Bank are adequately managed and mitigated. The Bank’s

framework for the management of financial risks is congruent with the primary corporate

objective of creating and enhancing shareholders’ value, guided by a prudent and robust

framework of risk management methodologies and policies.

The Bank’s risk management policies and framework are reviewed periodically to ensure that

they are comprehensive in addressing the multi-faceted risks associated with the investment

banking sector.

The Group Risk Management ("GRM") at the group level is primarily responsible for the

development and maintenance of the risk management policies and framework of the Bank and

supports the functions of the Asset & Liability Committee ("ALCO"), the Board Risk

Management Committee ("BRMC") and the Board Credit Review Committee ("BCRC").

Credit risk is the potential risk of financial loss arising from defaults by counterparties in

meeting their obligations. The Bank's exposure to credit risks arises primarily from share

trading, share margin financing, corporate/inter-bank lending activities, bonds investment,

foreign exchange trading as well as equity and debt underwriting and from participation in

securities settlements and payment transactions.

The management of credit risk is governed by a set of approved credit policies, guidelines,

circulars and procedures to ensure that the overall lending objectives achieved are in

compliance with the internal and regulatory requirements. The risk management policies are

subject to review by the BRMC, a sub-committee of the Board that reviews the adequacy of the

Bank’s risk policies and framework. The Bank’s credit risk framework is further strengthened

with an established framework for the approval and review of proposals that comprises the

Group Management Loan Committee ("GMLC") and the Board Credit Review Committee

("BCRC"). The GMLC represents the approving authority for credit and underwriting

proposals, whilst the BCRC is the committee that reviews proposals that exceed specified limits

and criteria, as well as to consider whether to reject the proposal or modify the terms of the

proposal.

A number of relevant factors are taken into consideration in the identification and analysis of

counterparty credit risk. Each counterparty is assigned a credit rating under the Credit Risk

Grading Policy, which considers factors such as competitive position, operating performance,

cash flow strength and management strength.

117





44 Financial risk management objectives and policies (continued)

A. Credit risk (continued)

Credit risk measurement

Loans, advances and financing

Risk limit control and mitigation policies

-

-

Credit Related Commitments

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.

All corporate lending, underwritings and share margin financing applications are evaluated by

the Bank's credit management function and forwarded to the relevant approving authorities

based on the Authority Matrix approved by Board.

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, 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 derivatives due to potential exposure arising from market

movements, and loan books are managed on an aggregated basis as part of the overall lending

limits with customers.

Collateral

Charges over business assets, debentures, personal guarantee and corporate guarantee, sinking

fund account and shares; and

Charges over financial instruments such as marketable securities.

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 long-term commitments

generally have a greater degree of credit risk than short-term commitments.

118







Credit risk monitoring

Credit risk culture

Maximum exposure to credit risk

generally have a greater degree of credit risk than short-term commitments.

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 to 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 non-performing. As a rule,

Watchlist accounts are either worked up or worked out within a period of twelve months.

For financial assets recognised in the statements of financial position, the exposure to credit risk

equals their carrying amount. For financial guarantees granted, the maximum exposures to

credit risk is the maximum amount that the Group and the Bank would have to pay if the

guarantees were to be called upon. For loan commitments and other credit related

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.

The Bank recognises that learning is a continuous journey and is committed to enhancing the

knowledge and required skills set of its staff. It places strong emphasis on creating and

enhancing risk awareness in the organisation.

The Bank is supportive of credit officer in taking the Professional Credit Certification ("PCC")

programme offered by the Asian Institute Of Chartered Bankers ("AICB"). Upon attaining the

PCC certification, Credit officer is expected to demonstrate sound understanding of credit

process and competence to undertake credit roles and responsibility.

For effective and efficient staff learning, an E–Learning Program is implemented with an

online Learning Management System ("LMS"). The LMS provides staff with a progressive

self-learning alternative at their own pace.

119







Maximum exposure to credit risk (continued)

31.12.2016 31.12.2015

Maximum Maximum

credit risk credit risk

exposure exposure

RM'000 RM'000

Credit risk exposures of on-balance

sheet assets:

Cash and short-term funds&

601,417 461,960

Financial assets held-for-trading** 302,675 231,093

Financial investments available-for-sale#

4,498,257 3,650,351

Other assets* 101,283 101,158

5,503,632 4,444,562

Credit risk exposures of off-balance

sheet items:

Direct credit substitutes 110,050 98,850


Irrevocable commitments to extend credit 179,809 192,630

Any commitments that are unconditionally

cancelled at any time by the Bank without prior

noticed or that effectively provide for automatic

cancellation due to deterioration in a borrower's

creditworthiness 367,710 403,091

677,050 720,071

Total maximum credit risk exposure 6,180,682 5,164,633

The following have been excluded for the purpose of maximum credit risk exposure calculation : &

Cash on hand

** Investments in shares, unit trust, warrants and REITs

# Investments in quoted and unquoted shares, unit trust and REITs

* Prepayment

The exposure to credit risk of the Group and the Bank equals their carrying amount in the

statements of financial position as at reporting date, except for the following:

The Group

120








31.12.2016 31.12.2015

Maximum Maximum

credit risk credit risk

exposure exposure

RM'000 RM'000

Credit risk exposures of on-balance

sheet assets:

Cash and short-term funds&

265,393 244,690

Financial assets held-for-trading** 281,219 231,093

Financial investments available-for-sale#

4,497,271 3,649,365

Other assets* 99,100 96,481

5,142,983 4,221,629

Credit risk exposures of off-balance

sheet items:

Direct credit substitutes 110,050 98,850


Irrevocable commitments to extend credit 179,809 192,630

Any commitments that are unconditionally

cancelled at any time by the Bank without prior

noticed or that effectively provide for automatic

cancellation due to deterioration in a borrower's

creditworthiness 367,710 403,091

677,050 720,071

Total maximum credit risk exposure 5,820,033 4,941,700

The following have been excluded for the purpose of maximum credit risk exposure calculation : &

Cash on hand

** Investments in shares, unit trust, warrants and REITs

# Investments in quoted and unquoted shares and REITs

* Prepayment

The Bank

The exposure to credit risk of the Group and the Bank equals their carrying amount in the

statements of financial position as at reporting date, except for the following (continued):

121








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 reduced by collateral, credit enhancements and other actions

taken to mitigate the credit exposure.

The financial effect of collateral held for loans, advances and financing is 14.57% as at 31

December 2016 (2015: 26.80%). The financial effects of collateral for the other financial assets

are insignificant.

122






Credit risk concentrations

Deposit and

placements Financial Financial Financial

Cash and with banks and assets investments investments Loans, Derivative Total on- Commitments

short-term other financial held-for- available- held-to- advances and Trade financial Other balance and

The Group funds institutions trading for-sale maturity financing receivables assets assets sheet contingencies

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Agricultural - - - 88,488 - - - - 108 88,596 -

Mining and quarrying - - - 13,555 - 54,049 - - - 67,604 19,481

Manufacturing - - - 37,667 8,092 114,500 - - 569 160,828 65,000

Electricity, gas and water - - - 694,614 - 19,952 - - 1,328 715,894 10,000

Construction - - - 694,730 - 61,383 - - - 756,113 67,305

Real estate - - - 244,958 - 181,055 - - 1,154 427,167 54,117

Wholesale, retail trade, hotel & restaurant - - - 138,168 - 53,384 - - 268 191,820 27,200

Transport, storage and communication - - - 332,526 25,455 150,338 - - 730 509,049 -

Finance, insurance and business 601,292 20,637 277,471 896,554 - 77,069 82,318 122,087 87,201 2,164,629 -

Government and government agencies 125 - - 596,040 - - - - 713 596,878 -

Education, Health and Others - - - 529,975 - 59,880 - - 100 589,955 -

Purchase of securities - - - - - - 434,802 - - 434,802 -

Others - - 25,204 230,982 16 307,520 10,785 1 9,112 583,620 433,947

601,417 & 20,637 302,675 # 4,498,257 ## 33,563 1,079,130 527,905 122,088 101,283 * 7,286,955 677,050

& Excludes cash in hand of RM51,000

# Excludes investments in unit trust, shares, warrants and REITS amounting to RM23.63 million

## Excludes investments in unit trust, quoted and unquoted shares net of impairment allowance amounting to RM349.70 million

* Excludes prepayment amounting to RM6.27 million.

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The following tables analyse the Group and the Bank’s financial assets and

commitments and contingencies by industry concentration as at the reporting date:

123






Credit risk concentrations (continued)

Deposit and




The Group funds institutions trading for-sale maturity financing receivables assets assets sheet contingencies


Agricultural - - - 62,004 - - - - 1,269 63,273 -

Mining and quarrying - - - 22,869 - 66,181 - - - 89,050 -

Manufacturing - - - 31,373 10,950 37,500 - - 628 80,451 70,319


Construction - - - 381,317 - 192,266 - 8 1,503 575,094 67,305

Real estate - - - 239,706 - 88,426 - - 2,123 330,255 70,635

Wholesale, retail trade, hotel & restaurant - - - 60,255 - 103,640 - - 3,184 167,079 -

Transport, storage and communication - - - 357,198 26,922 170,314 - - 990 555,424 419

Finance, insurance and business 461,859 145,474 231,093 975,764 40,763 182,112 54,990 119,983 80,195 2,292,233 50,000

Government and government agencies 101 - - 792,639 - - - - - 792,740 -

Education, Health and Others - - - 187,518 - 59,822 - - 32 247,372 31,884


Others - - - 112,109 16 270,127 13,486 - 9,923 405,661 403,412

461,960 & 145,474 231,093 # 3,650,351 ## 78,651 1,240,693 550,093 119,991 101,158 * 6,579,464 720,071


# Excludes investments in unit trust, shares, warrants and REITS amounting to RM42.2 million




commitments and contingencies by industry concentration as at the reporting date (continued):

124







Deposit and




The Bank funds institutions trading for-sale maturity financing receivables assets assets sheet contingencies


Agricultural - - - 88,488 - - - - 108 88,596 -

Mining and quarrying - - - 13,555 - 54,049 - - - 67,604 19,481

Manufacturing - - - 37,667 8,092 114,500 - - 569 160,828 65,000


Construction - - - 694,730 - 61,383 - - - 756,113 67,305

Real estate - - - 244,958 - 181,055 - - 1,154 427,167 54,117

Wholesale, retail trade, hotel & restaurant - - - 138,168 - 53,384 - - 268 191,820 27,200

Transport, storage and communication - - - 332,526 25,455 150,338 - - 702 509,021 -

Finance, insurance and business 265,268 20,637 256,015 895,568 - 77,069 - 122,087 86,823 1,723,467 -

Government and government agencies 125 - - 596,040 - - - - 713 596,878 -

Education, Health and Others - - - 529,975 - 59,880 - - 100 589,955 -


Others - - 25,204 230,982 16 307,520 - 1 7,466 571,189 433,947

265,393 & 20,637 281,219 # 4,497,271 ## 33,563 1,079,130 434,801 122,088 99,100 * 6,833,202 677,050


# Excludes investments in shares, warrants and REITS amounting to RM18.76 million





125







Deposit and




The Bank funds institutions trading for-sale maturity financing receivables assets assets sheet contingencies


Agricultural - - - 62,004 - - - - 1,269 63,273 -

Mining and quarrying - - - 22,869 - 66,181 - - - 89,050 -

Manufacturing - - - 31,373 10,950 37,500 - - 628 80,451 70,319


Construction - - - 381,317 - 192,266 - 8 1,503 575,094 67,305

Real estate - - - 239,706 - 88,426 - - 2,123 330,255 70,635

Wholesale, retail trade, hotel & restaurant - - - 60,255 - 103,640 - - 3,184 167,079 -

Transport, storage and communication - - - 357,198 26,922 170,314 - - 961 555,395 419

Finance, insurance and business 244,589 145,474 231,093 974,778 40,763 182,112 - 119,983 80,045 2,018,837 50,000

Government and government agencies 101 - - 792,639 - - - - - 792,740 -

Education, Health and Others - - - 187,518 - 59,822 - - 32 247,372 31,884


Others - - - 112,109 16 270,127 - - 5,538 387,790 403,412

244,690 & 145,474 231,093 # 3,649,365 ## 78,651 1,240,693 481,617 119,991 96,481 * 6,288,055 720,071


# Excludes investments in shares, warrants and REITS amounting to RM33.6 million





126







-

-

Total loans, advances and financing - credit quality

31.12.2015

RM'000

Distribution of loans, advances and financing by credit quality:

Carrying amount of loans, advances and financing by credit quality:

- Neither past due nor impaired 1,051,115 1,170,262

- Past due but not impaired 207 38,589

- Impaired 49,307 66,375

Gross loans, advances and financing 1,100,629 1,275,226

Less: Allowances for impairment

- Individual (18,176) (25,126)

- Collective (3,323) (9,407)

(21,499) (34,533)

Net loans, advances and financing 1,079,130 1,240,693

Description of collateral held as security and other credit enhancement for loans, advances and

financing.

The main types of collateral obtained by the Group and the Bank are as follows:


For corporate loans, charges over the business assets such as premises, equipment and fixed deposits; and

For share margin financing charges over marketable securities.

31.12.2016

RM'000

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 3 months (i.e. 90 days) or with impaired allowances.

127







Total loans, advances and financing - credit quality (continued)

(a) Loans neither past due nor impaired

31.12.2015

RM'000

Quality classification

Satisfactory 1,170,262

Special mention - -

Quality classification definitions:

i) Satisfactory

-

-

ii)

(b) Loans past due but not impaired

31.12.2015

RM'000

Past due up to 30 days 207 38,589

Past due 30-60 days - -

Past due 60-90 days - -

207 38,589


31.12.2016

RM'000

RM'000


31.12.2016

1,051,115

Analysis of loans and advances that are neither past due nor impaired analysed based on the Group and the

Bank's internal grading system are as follows:

For corporate loans mean exposures demonstrate a strong capacity to meet financial commitments,

with negligible or low probability of default and/or levels of expected loss.

For share margin financing means accounts that are not impaired/due.

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:

Special mention - Exposures require varying degrees of special attention and default risk is of greater

concern.

128







Total loans, advances and financing - credit quality (continued)

(c) Loans that are individually determined to be impaired as at reporting date:

31.12.2015

RM'000

Analysis of impaired loans:

Gross individually assessed loans, advances and financing 49,307 66,375

Less: individual impairment (18,176) (25,126)

Net individually assessed impaired loans 31,131 41,249

Collateral and other credit enhancements obtained

The Group

31.12.2016

Neither past

due nor Total gross

impaired Impaired amount

RM'000 RM'000 RM'000

Cash and short-term funds 601,417 - 601,417

Trade receivables 527,568 1,705 529,273

Other assets 101,283 6,134 107,417

Deposits and placements with banks and other FIs 20,637 - 20,637

Total 1,250,905 7,839 1,258,744

Less: Impairment allowances - (7,502) (7,502)

Total net amount 1,250,905 337 1,251,242

Other financial assets of the Group and the Bank are summarised as follows:

31.12.2016


RM'000

During the financial year, the Bank has not obtained any assets by taking possession of collateral held as

security or calling upon other credit enhancements. There is no repossessed collateral as at the reporting date.

Other financial assets

129







The Group

31.12.2015

Neither past due nor Total gross


RM'000 RM'000 RM'000



Other assets 101,158 10,137 111,295


Total 1,258,364 14,597 1,272,961


Total net amount 1,258,364 321 1,258,685

The Bank

31.12.2016

Neither past due nor Total gross


RM'000 RM'000 RM'000



Other assets 99,100 6,134 105,234


Total 819,594 7,839 827,433


Total net amount 819,594 337 819,931

The Bank

31.12.2015



Other assets 96,481 10,137 106,618


Total 967,941 14,597 982,538


Total net amount 967,941 321 968,262

Other financial assets (continued)

Other financial assets of the Group and the Bank are summarised as follows (continued):

130







Private debts securities, treasury bills and derivatives

The Group Sovereign AAA AA- to AA+ A- to A+ Lower than A- Unrated Impaired* Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Cash and short-term funds 126 396,683 168,309 513 - 35,786 - 601,417

Deposits and placements with banks and other financial institutions - 10,000 10,637 - - - - 20,637

Financial assets held-for-trading

- Negotiable instruments of deposits - - 55,946 200,069 - - - 256,015

- Private debt securitiesCorporate bonds and/or sukuk in Malaysia - - 25,204 4,234 - 1,780 - 31,218

- Private debt securitiesCorporate bonds and/or sukuk outside Malaysia - - - 3,903 5,864 5,675 - 15,442

Financial investments available-for-sale:

- Malaysian government securities 228,087 - - - - - - 228,087

- Malaysian government islamic investment issue 288,667 - - - - - - 288,667

- Private debt securitiesCorporate bonds and/or sukuk in/outside Malaysia 1,882,426 824,890 802,466 117,392 68,479 139,967 3,835,620

- Sukuk Perumahan Kerajaan 79,286 - - - - - - 79,286

- Cagamas bonds - 66,597 - - - - - 66,597

Financial investments held-to-maturity

- Private debt securitiesCorporate bonds and/or sukuk in Malaysia - - - - - 25,471 8,092 33,563

Derivative financial assets - 6,785 12,628 47,257 - 55,418 - 122,088

2,478,592 1,304,955 1,075,190 373,368 74,343 264,097 8,092 5,578,637

* Net of allowance for impairment.

Private debts 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 financial investments are rated by external rating agencies. The Group and the Bank mainly uses external credit ratings provided by RAM, MARC or Moody's.

The table below presents an analysis of debts securities, credit quality of cash & short funds, deposit and placements of bank and other financial institutions and derivative financial assets. Cash and short

term funds exclude cash in hand, securities include financial assets held-for-trading, financial investment available-for-sale and financial investment held-to-maturity.

Collateral is not generally obtained directly from the issues of debt securities. Certain debt securities may be collaterised by specifically identified assets that would be obtainable in the event of default.

131







Private debts securities, treasury bills and derivatives (continued)

The Group Sovereign AAA AA- to AA+ A- to A+ Lower than A- Unrated Total

31.12.2015 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Cash and short-term funds 100 240,612 207,803 488 - 12,957 461,960

Deposits and placements with banks and other financial institutions - 65,474 40,000 - 40,000 - 145,474

Financial assets held-for-trading -

- Negotiable instruments of deposits - - 231,093 - - - 231,093


- Malaysian government securities 19,895 - - - - - 19,895


- Malaysian government islamic investment issue 675,049 - - - - - 675,049

- Private debt securitiesCorporate bonds and/or sukuk in/outside Malaysia 486,284 788,809 745,640 142,736 - 594,105 2,757,574

- Sukuk Perumahan Kerajaan 97,695 - - - - - 97,695

- Cagamas bonds - 20,102 - - - - 20,102


- Private debt securitiesCorporate bonds and/or sukuk in Malaysia - - - 10,330 - 68,321 78,651

Derivative financial assets - 2,629 10,690 43,392 - 63,280 119,991

1,279,023 1,117,626 1,315,262 196,946 40,000 738,663 4,687,520

The table below presents an analysis of debts securities, credit quality of cash & short funds, deposit and placements of bank and other financial institutions and derivative financial

assets. Cash and short term funds exclude cash on hand, securities include financial assets held-for-trading, financial investment available-for-sale and financial investment held-to-

maturity. (continued)

Collateral is not generally obtained directly from the issues of debt securities. Certain debt securities may be collaterised by specifically identified assets that would be obtainable in the

event of default.

132








The Bank Sovereign AAA AA- to AA+ A- to A+ Lower than A- Unrated Impaired* Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Cash and short-term funds 125 76,757 161,071 513 - 26,927 - 265,393

Deposits and placements with banks and other financial institutions - 10,000 10,637 - - - - 20,637


- Negotiable instruments of deposits - - 55,946 200,069 - - - 256,015

- Private debt securitiesCorporate bonds and/or sukuk in Malaysia - - 25,204 - - - - 25,204




- Private debt securitiesCorporate bonds and/or sukuk in/outside Malaysia 1,882,426 823,904 802,466 117,392 68,479 139,967 3,834,634

- Sukuk Perumahan Kerajaan 79,286 - - - - - - 79,286

- Cagamas bonds - 66,597 - - - - - 66,597


- Private debt securitiesCorporate bonds and/or sukuk in Malaysia - - - - - 25,471 8,092 33,563

Derivative financial assets - 6,785 12,628 47,257 - 55,418 - 122,088

2,478,591 984,043 1,067,952 365,231 68,479 247,783 8,092 5,220,171

* Net of allowance for impairment.

The table below presents an analysis of debts securities, credit quality of cash & short funds, deposit and placements of bank and other financial institutions and derivative financial assets. Cash and short

term funds exclude cash on hand, securities include financial assets held-for-trading, financial investment available-for-sale and financial investment held-to-maturity. (continued)

Collateral is not generally obtained directly from the issues of debt securities. Certain debt securities may be collaterised by specifically identified assets that would be obtainable in the event of default.

133








The Bank Sovereign AAA AA- to AA+ A- to A+ Lower than A- Unrated Total

31.12.2015 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Cash and short-term funds 100 52,293 178,852 488 - 12,957 244,690

Deposits and placements with banks and other financial institutions - 65,474 40,000 - 40,000 - 145,474







- Private debt securitiesCorporate bonds and/or sukuk in/outside Malaysia 486,284 787,823 745,640 142,736 594,105 2,756,588

- Sukuk Perumahan Kerajaan 97,695 - - - - - 97,695

- Cagamas bonds - 20,102 - - - - 20,102


- Private debt securitiesCorporate bonds and/or sukuk in Malaysia - - - 10,330 - 68,321 78,651

Derivative financial assets - 2,629 10,690 43,392 - 63,280 119,991

1,279,023 928,321 1,286,311 196,946 40,000 738,663 3,959,109

Collateral is not generally obtained directly from the issues of debt securities. Certain debt securities may be collaterised by specifically identified assets that would be obtainable in the

event of default.

The table below presents an analysis of debts securities, credit quality of cash & short funds, deposit and placements of bank and other financial institutions and derivative financial

assets. Cash and short term funds exclude cash on hand, securities include financial assets held-for-trading, financial investment available-for-sale and financial investment held-to-

maturity. (continued)

134






B. Market risk

Market Risk Measurement

Value-at-risk ("VaR")

VaR is a statistical measure of potential portfolio market value loss resulting from changes in market variables such

as foreign exchange rates and interest rates, over a given holding period, measured at a specific confidence level.

The Variance-Covariance Parametric methodology is adopted to compute the potential portfolio market value loss

amount. This is a statistically defined, probability-based approach that uses volatilities and correlations to quantify

market risks. Under this methodology, a matrix of historical volatilities and correlations is derived. VaR is then

computed by applying these volatilities and correlations to the outstanding trading portfolio.

Market risk is the risk of losses to the Bank’s positions in financial instruments that are adversely affected by

movements in market risk factors such as interest rates, foreign exchange rates, equity prices or commodity prices.

The Bank's primary market risk exposures are in the trading and investment portfolios. The Bank’s risk management

process involves the identification and measurement, mitigation and control, monitoring and testing as well as

reporting and review of risk.

The Bank manages market risk through a comprehensive set of market risk controls. Key risk governance

committees such as the Asset & Liability Committee ("ALCO") and the Board Risk Management Committee

("BRMC") establish and monitor controls with oversight by the Board of Directors. Market risk controls are

established to ensure that the Bank's market risk profile remains within the boundaries of the Bank's risk appetite.

The Bank employs several key risk metric for monitoring market risk such as Value-at-Risk ("VaR"), instrument

specific sensitivities, loss limiting thresholds and position size caps.

The Bank’s market risk is primarily concentrated in interest rate risk in the Banking Book ("IRRBB") arising from

differences in the repricing mismatch between rate sensitive assets and liabilities. The Bank monitors and assess the

IRRBB exposures through the short-term Net Interest Income ("NII") sensitivity and changes in the Economic Value

of Equity ("EVE").

In addition to assessing market risk under normal market scenarios, the Bank also conducts periodical stress testing

to anticipate potential losses under stressed scenarios.

135






B. Market risk (continued)

Average for

the financial

Balance year Minimum

The Bank RM RM RM

31.12.2016

Instruments

FX Related Contracts 69,962 93,207 525 440,431

Bonds 50,184 179,941 2,709 849,920

Average for

the financial

Balance year Minimum

The Bank RM RM RM

31.12.2015

Instruments

FX Related Contracts 84,438 70,246 - 307,580

Bonds 66,295 77,699 - 591,011

Other Risk Measures

i) Mark-to-Market

ii) Stress Testing

iii) Sensitivity

Value-at-Risk (VaR)

The table below sets out a summary of the Bank’s VaR profile by financial instrument types for the trading portfolio.

Maximum

RM

Value-at-Risk (VaR)

Maximum

RM

Mark-to-market valuation tracks the current market value of the outstanding financial instruments.

Stress tests are conducted to attempt to quantify potential market risk losses arising from low probability

abnormal market movements. Stress tests measure the changes in values arising from extreme movements in

relevant market risk factors based on past experience and simulated stress scenarios.

Sensitivities are measures that quantify the change in value of a portfolio of financial instruments resulting

from a unit change in the relevant market risk factors. Sensitivities are used as measures of vulnerability to

market risk factor movements and are also used to facilitate the implementation of risk controls and hedging

strategies.

136







Net interest income sensitivity

+100 -100 +100

basis point basis point basis point

RM million RM million RM million

Impact on profit after taxation (35.37) 35.37 (21.10) 21.10

Impact on equity 196.66 (196.66) (126.72) 142.35

Foreign exchange risk sensitivity analysis

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

+ 1%

Australian Dollar 59 35 44 13

New Zealand Dollar 115 17 115 17

United States Dollar (3,081) (446) (3,267) (472)

Singapore Dollar 1,065 (16) 1,048 (28)

Others (228) 24 (228) (2)

31.12.2016 31.12.2015 31.12.2016 31.12.2015

RM'000 RM'000 RM'000 RM'000

- 1%

Australian Dollar (59) (35) (44) (13)

New Zealand Dollar (115) (17) (115) - (17)

United States Dollar 3,081 446 3,267 472

Singapore Dollar (1,065) 16 (1,048) 28

Others 228 (24) 228 2

The Bank

31.12.2016 31.12.2015

-100

basis point

RM million

The Group The Bank

The Group The Bank

The information below shows the 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 following table sets out the analysis of the exposures to access the impact of a 1% change in the exchange rates

to the profit.

137







Foreign exchange risk

The Group

31.12.2016

Assets

Cash and short-term funds


Financial investments available-

for-sale


Trade receivables


Liabilities

Deposits from customers


and other financial institutions

Trade payables

Other financial liabilities

Net on-balance sheet financial

position

Off balance sheet commitments

The Group and the Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on

its financial position and cash flows. Controls are imposed 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 Group and the Bank's

exposure to foreign currency exchange rate risk at reporting date. Included in the table are the Group and the Bank's

financial instruments at carrying amounts, categorised by currency.

138







Foreign exchange risk (continued)

The Group

31.12.2015

Assets



Financial investments available-

for-sale


Trade receivables


Liabilities




Trade payables


Net on-balance sheet financial

position


139







Foreign exchange risk (continued)

The Bank

31.12.2016

Assets


Financial investments available-for-sale


Trade receivables


Liabilities




Trade payables


Net on-balance sheet financial position


The Bank

31.12.2015

Assets


Financial investments available-for-sale


Trade receivables


Liabilities




Trade payables


Net on-balance sheet financial position


140






C. Interest rate risk

Up to 1 – 3 3 – 12 1 – 5 Over Non-interest Trading

The Group 1 month months months years 5 years sensitive book Total

31.12.2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets

Cash and short-term funds 291,695 - - - - 309,773 - 601,468


other financial institutions - - - 20,000 - 637 - 20,637

Securities:

- Financial assets held-for-trading - - - - - - 326,302 326,302

- Financial investments available-for-sale 17,007 37,040 246,086 1,434,625 2,710,850 402,349 + - 4,847,957

- Financial investments held-to-maturity - - 2,120 22,235 9,146 62 - 33,563

Loans, advances and financing:

- Performing 726,439 278,978 40,535 2,313 3,057 (3,323) ^ - 1,047,999

- Impaired loans - - - - - 31,131 - 31,131

Derivative financial assets 122,088 122,088

Other assets (1)

76,561 - - - - 558,903 - 635,464


Malaysia - - - - - 177,740 - 177,740

Total assets 1,111,702 316,018 288,741 1,479,173 2,723,053 1,477,272 448,390 7,844,349

+ Included in financial investments available-for-sale is impairment on securities of RM23.2 million.

^ The negative balance represents collective impairment allowance for loans, advances and financing.

(1) Other assets include trade receivables and other assets.

<------------------------------------Non-trading book ----------------------------------->

Sensitivity to interest rates arises from repricing mismatch between interest rate sensitive assets and liabilities. 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 the

applicable policies.

The following table represents the Group's and the Bank's assets and liabilities of carrying amount, categorised by the earlier of contractual repricing or maturity date as at reporting date.

141






C. Interest rate risk (continued)




Liabilities

Deposits from customers 2,436,998 1,691,569 740,030 100,000 - 33,968 - 5,002,565

Deposits and placement of banks and

other financial institution 483,162 - - - - 1,399 - 484,561

Obligations on securities sold under repurchase agreements 95,981 49,000 - - - 897 - 145,878

Trade payables - - - - - 724,497 - 724,497

Derivative financial liabilities - - - - - - 150,291 150,291

Other liabilities (2)

8,762 - - - - 204,067 - 212,829

Total liabilities 3,024,903 1,740,569 740,030 100,000 - 964,828 150,291 6,720,621

Net interest sensitivity gap (1,913,201) (1,424,551) (451,289) 1,379,173 2,723,053

(2) Other liabilities include other liabilities and amount due to related company.

<------------------------------------Non-trading book ----------------------------------->

142










Assets

Cash and short-term funds 270,312 - - - - 191,692 - 462,004



Securities:





- Performing 727,448 335,411 135,131 2,616 4,510 (5,672) ^ - 1,199,444

- Impaired loans - - - - - 41,249 - 41,249

Derivative financial assets - - - - - - 119,991 119,991

Other assets (1)

75,772 - - - - 586,862 - 662,634


Malaysia - - - - - 177,850 - 177,850

Total assets 1,103,534 343,422 392,076 1,810,711 1,735,781 1,389,847 393,293 7,168,664



(1) Other assets include trade receivables and other assets.

<------------------------------------Non-trading book ----------------------------------->

143










Liabilities

Deposits from customers 1,865,764 813,759 595,543 1,000,000 - 38,974 - 4,314,040


other financial institution 749,475 - - - - 377 - 749,852

Trade payables - - - - - 642,321 - 642,321


Other liabilities (2)

12,109 - - - - 224,345 - 236,454

Total liabilities 2,627,348 813,759 595,543 1,000,000 - 906,017 141,891 6,084,558

Net interest sensitivity gap (1,523,814) (470,337) (203,467) 810,711 1,735,781

(2) Other liabilities include other liabilities and amount due to related company.

<------------------------------------Non-trading book ----------------------------------->

144








The Bank 1 month months months years 5 years sensitive book Total


Assets

Cash and short-term funds 265,391 - - - - 51 - 265,442



Securities:





- Performing 726,439 278,978 40,535 2,313 3,057 (3,323) ^ - 1,047,999

- Impaired loans - - - - - 31,131 - 31,131


Other assets (1)

76,561 - - - - 465,553 - 542,114


Malaysia - - - - - 177,740 - 177,740

Total assets 1,085,397 316,018 288,741 1,479,173 2,722,062 1,053,099 422,070 7,366,560



(1) Other assets include trade receivables, other assets and amount due from subsidiaries.

<------------------------------------Non-trading book ----------------------------------->

145










Liabilities

Deposits from customers 2,436,998 1,691,569 740,030 100,000 - 33,968 - 5,002,565


other financial institution 483,162 - - - - 1,399 - 484,561

Obligations on securities sold under repurchase agreements 95,981 49,000 - - - 897 - 145,878

Trade payables - - - - - 419,197 - 419,197


Other liabilities 8,762 - - - - 144,267 - 153,029

Total liabilities 3,024,903 1,740,569 740,030 100,000 - 599,728 150,291 6,355,521

Net interest sensitivity gap (1,939,506) (1,424,551) (451,289) 1,379,173 2,722,062

<------------------------------------Non-trading book ----------------------------------->

146










Assets

Cash and short-term funds 244,690 - - - - 42 - 244,732



Securities:





- Performing 727,448 335,411 135,131 2,616 4,510 (5,672) ^ - 1,199,444

- Impaired loans - - - - - 41,249 - 41,249


Other assets (1)

75,772 - - - - 536,806 - 612,578


Malaysia - - - - - 177,850 - 177,850

Total assets 1,077,912 343,422 392,076 1,810,711 1,735,781 1,098,742 384,648 6,843,292



(1) Other assets include trade receivables, other assets and amount due from subsidiaries.

<------------------------------------Non-trading book ----------------------------------->

147










Liabilities

Deposits from customers 1,865,764 813,759 595,543 1,000,000 - 38,974 - 4,314,040


other financial institution 749,475 - - - - 377 - 749,852

Trade payables - - - - - 470,090 - 470,090


Other liabilities 12,109 - - - - 173,140 - 185,249

Total liabilities 2,627,348 813,759 595,543 1,000,000 - 682,581 141,891 5,861,122

Net interest sensitivity gap (1,549,436) (470,337) (203,467) 810,711 1,735,781

<------------------------------------Non-trading book ----------------------------------->

148




for the financial year to 31 December 2016 (continued)


D. Liquidity risk

Basel III Liquidity Standards

Up to 1 >1-3 >3-12 >1-5 Over 5

The Group month months months years years Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Liabilities

Deposits from customers 2,449,183 1,718,511 766,572 107,584 - 5,041,850


and other financial institutions 485,095 - - - - 485,095


repurchase agreements 96,750 49,398 - - - 146,148

Trade payable 724,497 - - - - 724,497

Amount due to related company 396 - - - - 396

Other liabilities 97,781 17,336 95,372 1,944 - 212,433

3,853,702 1,785,245 861,944 109,528 - 6,610,419

Up to 1 >1-3 >3-12 >1-5 Over 5

The Group month months months years years Total

31.12.2015 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Liabilities

Deposits from customers 1,881,880 783,502 660,021 1,068,370 - 4,393,773



Trade payable 642,321 - - - - 642,321

Amount due to related company 689 - - - - 689

Other liabilities 91,114 38,428 105,457 766 - 235,765

3,366,220 821,930 765,478 1,069,136 - 6,022,764

Liquidity risk disclosure table which is based on contractual undiscounted cash flow

The information 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

information incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments.

The Basel Committee developed the Liquidity Coverage Ratio ("LCR") and Net Stable Funding Ratio ("NSFR") with the goal of strengthening

the resilience of the banking systems. The LCR and NSFR are tracked monthly to assess the short term and long term liquidity risk profile of

the Bank.

ALCO is responsible for the day-today strategic management of the Bank's liquidity and reporting of the Bank's liquidity position to the

BRMC on a periodical basis.

149






D. Liquidity risk (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5

The Bank month months months years years Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Liabilities

Deposits from customers 2,449,183 1,718,511 766,572 107,584 - 5,041,850




repurchase agreements 96,750 49,398 - - - 146,148

Trade payable 419,197 - - - - 419,197

Other liabilities 75,662 17,336 58,087 1,944 - 153,029

3,525,887 1,785,245 824,659 109,528 - 6,245,319

Up to 1 >1-3 >3-12 >1-5 Over 5

The Bank month months months years years Total

31.12.2015 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Liabilities

Deposits from customers 1,881,880 783,502 660,021 1,068,370 - 4,393,773



Trade payable 470,090 - - - - 470,090

Other liabilities 89,599 17,407 77,477 766 - 185,249

3,191,785 800,909 737,498 1,069,136 - 5,799,328

The information 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 information

incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments. (continued)

Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued)

150




for the financial period ended to 31 December 2016 (continued)



Derivative financial liabilities

Derivative financial liabilities based on contractual undiscounted cash flow:

Derivatives settled on a net basis

Up to 1 >1-3 >3-12 >1-5 Over 5

month months months years years Total

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000


31.12.2016

Interest rate derivatives - (19) 213 622 - 816


31.12.2015

Interest rate derivatives - - - - - -

Derivatives settled on a gross basis

Up to 1 >1-3 >3-12 >1-5 Over 5

month months months years years Total

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000


31.12.2016

Foreign exchange derivatives:

Outflow 582,275 412,316 726,230 116,013 - 1,836,834

Inflow (571,333) (403,282) (606,588) (110,585) - (1,691,788)

10,942 9,034 119,642 5,428 - 145,046


31.12.2015

Foreign exchange derivatives:

Outflow 1,538,530 168,128 408,581 571,651 - 2,686,890

Inflow (1,532,842) (161,202) (377,485) (480,784) - (2,552,313)

5,688 6,926 31,096 90,867 - 134,577

151







Liquidity risk for assets and liabilities based on remaining contractual maturities

Up to 1 >1-3 >3-12 >1-5 Over 5 No specific

The Group month months months years years maturity Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Assets

Cash and short-term funds 601,468 - - - - - 601,468

Deposits and placements with banks

and other financial institutions - - - 20,637 - - 20,637

- Financial assets held-for-trading - - 256,016 35,872 10,788 23,626 326,302

- Financial investments available

-for-sale 17,324 37,667 247,767 1,420,882 2,693,074 431,243 4,847,957

- Financial investments held-to

-maturity - - 2,122 22,288 9,153 - 33,563

Loans, advances and financing 244,755 20,169 64,260 520,044 229,902 - 1,079,130

Trade receivables 527,905 - - - - - 527,905

Derivative financial assets 13,595 14,732 85,642 8,119 - - 122,088

Other assets 7,936 2,552 34,922 42,201 3,573 16,375 107,559

Statutory deposits with Bank

Negara Malaysia 177,740 - - - - - 177,740

Other non-financial assets (1) - - - - - 398,180 398,180

Total Assets 1,590,723 75,120 690,729 2,070,043 2,946,490 869,424 8,242,529

Liabilities

Deposits from customers 2,446,711 1,707,983 746,128 101,743 - - 5,002,565


and other financial institutions 484,561 - - - - - 484,561

Obligations on securities sold

under repurchase agreements 96,640 49,238 - - - - 145,878

Trade payables 724,497 - - - - - 724,497

Derivative financial liabilities 11,249 9,711 121,387 7,944 - - 150,291

Other liabilities 97,781 17,336 95,372 1,944 - - 212,433

Other non-financial liabilities (2) - - - - - 456 456

Total Liabilities 3,861,439 1,784,268 962,887 111,631 - 456 6,720,681

Net liquidity gap (2,270,716) (1,709,148) (272,158) 1,958,412 2,946,490 868,968 1,521,848

(1)

(2)

Other non-financial assets includes deferred tax assets, tax recoverable, property and equipment and intangible assets.

Other non-financial liabilities includes provision for taxation and amount due to related party.

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 Bank. The table below provides analysis of assets and liabilities into relevant

maturity tenures based on remaining contractual maturities:

152







Liquidity risk for assets and liabilities based on remaining contractual maturities


The Group month months months years years maturity Total

31.12.2015 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Assets




- Financial assets held-for-trading 8,645 5,114 225,979 - - 33,564 273,302


-for-sale 79,945 8,113 235,247 1,639,778 1,735,681 309,301 4,008,065


-maturity - - 22,748 41,855 14,032 16 78,651


Trade receivables 544,099 5,994 - - - - 550,093


Other assets 7,332 - 13,845 91,264 100 - 112,541


Negara Malaysia 177,850 - - - - - 177,850


Total Assets 1,444,931 41,739 626,941 2,644,147 2,068,025 735,695 7,561,478

Liabilities

Deposits from customers 1,879,876 778,704 646,326 1,009,134 - - 4,314,040



Trade payables 642,321 - - - - - 642,321


Other liabilities 91,114 38,428 105,457 766 - - 235,765

Other non-financial liabilities (2) - - 2,436 - - - 2,436

Total Liabilities 3,369,099 823,918 786,855 1,106,433 - - 6,086,305

Net liquidity gap (1,924,168) (782,179) (159,914) 1,537,714 2,068,025 735,695 1,475,173

(1)

(2)

Other non-financial assets includes deferred tax assets, tax recoverable, property and equipment and intangible assets.

Other non-financial liabilities includes amount due to related company and provision for taxation.



maturity tenures based on remaining contractual maturities: (continued)

153







Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)


The Bank month months months years years maturity Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Assets




Securities:

- Financial assets held-for-trading - - 256,016 25,204 - 18,762 299,982


-for-sale 17,324 37,667 247,767 1,420,882 2,692,084 410,140 4,825,864


-maturity - - 2,122 22,288 9,153 - 33,563


Trade receivables 434,801 - - - - 434,801

Amount due from subsidiaries - - - - - 2,780 2,780

Other assets 7,686 2,552 34,922 41,600 3,461 14,312 104,533



Negara Malaysia 177,740 - - - - - 177,740


Total Assets 1,161,343 75,120 690,729 2,058,774 2,934,600 943,143 7,863,709

Liabilities

Deposits from customers 2,446,711 1,707,983 746,128 101,743 - - 5,002,565



Obligations on securities sold

under repurchase agreements 96,640 49,238 145,878

Trade payables 419,197 - - - - - 419,197


Other liabilities 75,662 17,336 58,087 1,944 - - 153,029

Total Liabilities 3,534,020 1,784,268 925,602 111,631 - - 6,355,521

Net liquidity gap (2,372,677) (1,709,148) (234,873) 1,947,143 2,934,600 943,143 1,508,188

(1)




Other non-financial assets includes deferred tax assets, tax recoverable, property and equipment, intangible assets and investment in

subsidiaries.

154







Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)


The Bank month months months years years maturity Total

31.12.2015 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Assets




Securities:

- Financial assets held-for-trading - 5,114 225,979 - - 33,564 264,657


-for-sale 30,546 8,113 235,247 1,639,778 1,735,681 309,301 3,958,666


-maturity - - 22,748 41,855 14,032 16 78,651


Trade receivables 481,617 - - - - - 481,617

Amount due from subsidiaries - - - 24,004 - - 24,004

Other assets 6,481 - 12,939 87,537 - - 106,957



Negara Malaysia 177,850 - - - - - 177,850


Total Assets 1,106,282 35,745 626,035 2,664,424 2,067,925 840,756 7,341,167

Liabilities

Deposits from customers 1,879,876 778,704 646,326 1,009,134 - - 4,314,040



Trade payables 470,090 - - - - - 470,090


Other liabilities 89,599 17,407 77,477 766 - - 185,249

Total Liabilities 3,195,353 802,897 756,439 1,106,433 - - 5,861,122

Net liquidity gap (2,089,071) (767,152) (130,404) 1,557,991 2,067,925 840,756 1,480,045

(1) Other non-financial assets includes deferred tax assets, tax recoverable, property and equipment, intangible assets and investment in

subsidiaries.




155






E. Operational risk management

F. Compliance and legal risk

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 disasters, 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 they are operating and the regulatory requirements in force.

The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. The capital

requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous three years.

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against a 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 the Group Operational Risk Management Committee and

the Board Risk Management Committee. Appropriate preventive and remedial actions are reviewed for effectiveness and implemented to

minimise 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.

Compliance risk refers to risk arising from breaches of applicable laws and regulatory requirements governing the operations of the Bank and

also internal policies and procedures approved by the management and the Board of Directors. Legal risks are risks arising from non-compliance

with legal obligations and risks of legal rights assumed to be not wholly enforceable, and includes the inherent risks from deficient drafting of

contractual and public documents and/or inadequate management of litigation matters.

As a full-fledged investment bank, the Bank is subject to various legal/ regulatory requirements and statutory obligations at the entity level and

also for the various business segments and services offered and these legal/regulatory requirements include the Financial Services Act, 2013,

Capital Markets & Services Act 2007, Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001, Rules

of Bursa Malaysia Securities Berhad, Rules of Bursa Malaysia Derivatives Berhad, as well as circulars and guidelines issued by the regulators

from time to time.

The Compliance, Legal and Corporate Services ("CLCS") Department reports directly to the Board Risk Management Committee ("BRMC").

The compliance and legal risk management policies of the Bank are subject to the review of BRMC. Periodic reports on the state of compliance

and legal risks in the Bank are also submitted to BRMC to assist BRMC in monitoring of the same.

The general scope of work of the CLCS Department is to monitor compliance risks emanating from such statutory requirements, rules, circulars

and guidelines as well as to advise the Bank on all legal matters including, but not limited to, reviewing and/or drafting legal documents for the

Bank, monitoring and advising on litigation matters and rendering of legal advice to the Bank.

156

Company No: 14389-U



for the financial year ended to 31 December 2016 (continued)

45 Fair value of financial instruments

Level 2:

Level 3:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date.

The Group and the Bank measure fair values using the following fair value hierarchy that reflects the

significance of the inputs used in making the measurements:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Quoted prices for identical or similar instruments in markets that are not active; and model-derived

valuations in which inputs other than quoted prices included within Level 1 that are observable for the

asset or liability, either directly or indirectly.

Valuations derived from valuation techniques in which one or more significant inputs are not based on

observable market data.

In addition, fair value information for non-financial assets and liabilities is excluded as they do not fall within

the scope of MFRS 132 'Financial Instruments - Disclosure and Presentation' which requires the fair value

information to be disclosed. These include property and equipment, investment in subsidiaries, deferred

taxation assets, provision for taxation.

Financial instruments are classified as Level 1 if their value is observable in an active market. Such

instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active

markets where the quoted prices is readily available, and the price represents actual and regularly occurring

market transactions. An active market is one in which transactions occur with sufficient volume and frequency

to provide pricing information on an on-going basis. These would include actively traded listed equities and

actively exchange-traded derivatives.

Where fair value is determined using unquoted market 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.

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not

based on observable market data (unobservable inputs). Such inputs are generally determined based on

observable inputs of a similar nature, historical observations on the level of the input or other analytical

techniques.

This category includes unquoted shares held for socio economic reasons. Fair values for shares held for socio

economic reasons are based on the net tangible assets of the affected companies. The Group's and the Bank's

exposure to financial instruments classified as Level 3 comprised a small number of financial instruments

which constitute an insignificant component of the Group’s and the Bank's portfolio of financial instruments.

Hence, changing one or more of the inputs to reasonable alternative assumptions would not change the value

significantly for the financial assets in Level 3 of the fair value hierarchy.

The Group and the Bank recognise transfers between levels of the fair value hierarchy at the end of the

reporting period during which the transfer has occurred. Transfers between fair value hierarchy primarily due

to change in the leval of trading activity, change in observable market activity related to an input, reassessment

of available pricing information and change in the significance of the unobservable input. There were no

transfers between Level 1, 2 and 3 of the fair value hierarchy during the financial year (2015: Nil).

157

Company No: 14389-U




45 Fair value of financial instruments (continued)

The Group Level 1 Level 2 Level 3 Total

31.12.2016 RM'000 RM'000 RM'000 RM'000

Assets


- Corporate bonds or sukuk - 46,660 - 46,660

- Other financial assets - 256,015 - 256,015

- Equity securities 23,627 - - 23,627

Financial investments available-for-sale *

- Corporate bonds or sukuk - 3,835,620 - 3,835,620


- Equity securities 330,172 - 19,528 349,700

Derivative financial assets - 122,088 - 122,088

Total 353,799 4,923,020 19,528 5,296,347

Liabilities

Derivative financial liabilities - 150,291 - 150,291

Total - 150,291 - 150,291

The Bank

31.12.2016

Assets


- Corporate bonds or sukuk - 25,204 - 25,204








Total 327,828 4,900,578 19,528 5,247,934

Liabilities


Total - 150,291 - 150,291

* Net of allowance for impairment

The following table presents assets and liabilities measured at fair value and classified by level of the

following fair value measurement hierarchy:

158

Company No: 14389-U





The Group Level 1 Level 2 Level 3 Total

31.12.2015 RM'000 RM'000 RM'000 RM'000

Assets









Total 381,792 4,001,435 18,131 4,401,358

Liabilities


Total - 141,891 - 141,891

The Bank

31.12.2015

Assets









Total 324,734 4,000,449 18,131 4,343,314

Liabilities


Total - 141,891 - 141,891

* Net of allowance for impairment

The following table presents assets and liabilities measured at fair value and classified by level of the

following fair value measurement hierarchy (continued):

159

Company No: 14389-U






31.12.2016 31.12.2015

RM'000 RM'000


Total gains recognised in other

comprehensive income 1,397 1,323


Effect of changes in significant unobservable assumptions to reasonably possible alternatives


Inter-relationship

between significant

unobservable inputs and

Description fair value measurement

Financial investments

available-for-sale

Higher net tangible assets

Unquoted shares results in higher fair value

The following table presents the changes in Level 3 instruments for the financial year ended:

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.

Qualitative information about the fair value measurements using significant unobservable inputs (Level 3):

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.

160

Company No: 14389-U





Carrying

The Group and the Bank amount Level 1 Level 2 Level 3 Total

31.12.2016 RM'000 RM'000 RM'000 RM'000 RM'000

Financial Assets

Financial investment held-to-

maturity 33,563 - 32,619 - 32,619

Loans, advances and financing 1,079,130 - 1,080,228 - 1,080,228

Financial Liabilities

Deposits from customers 5,002,565 - 5,005,345 - 5,005,345


31.12.2015

Financial Assets

Financial investment held-to-

maturity 78,651 - 78,651 - 78,651

Loans, advances and financing 1,240,693 - 1,238,068 - 1,238,068

Financial Liabilities

Deposits from customers 4,314,040 - 4,315,364 - 4,315,364

Fair Value

The following tables analyse within the fair value hierarchy of the Group's and the Bank's assets and liabilities

not measured at fair value as at reporting date but for which fair value is disclosed:

161

Company No: 14389-U





Short-term funds and placements with banks and other financial institutions


Other than as disclosed above, the total fair value of each financial assets and liabilities presented on the

statements of financial position as at reporting date of the Group and the Bank approximates the total carrying

amount.

The fair value estimates were determined by application of the methodologies and assumptions described

below.

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.

The fair values of 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.

162

Company No: 14389-U






Other assets and liabilities

Deposits from customers, deposits and placements of banks and other financial institutions

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, advances and financing with similar credit ratings and maturities.

The fair values of impaired loans, advances and financing, whether fixed or floating are represented by their

carrying values, net of individual and collective allowances, being the reasonable estimate of recoverable

amount.

The fair values of impaired loans and advances are represented by their carrying values, net of individual

allowance, being the expected recoverable amount.

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.

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.

163

Company No: 14389-U





-

-

Derivative financial assets and liabilities

Offsetting financial assets and financial liabilities

In accordance with MFRS 132 'Financial Instruments: Presentation', the Group and the Bank report financial

assets and financial liabilities on a net basis on the statements of financial position only if there is a legally

enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the

asset and settle the liability simultaneously. The following table shows the impact of netting arrangement on:

All financial assets and liabilities that are reported net on statements of financial position; and

All derivative financial instruments and reverse repurchase and repurchased agreements and other similar

secured lending and borrowing agreements that are subject to enforceable master netting arrangements or

similar agreements, but do not qualify for statements of financial position netting.

The table identifies the amounts that have been offset in the statements of financial position and also those

amounts that are covered by enforceable netting arrangements (offsetting arrangements and financial collateral)

but do not qualify for netting under the requirements of MFRS 132 described above.

The "Net amounts" presented below are not intended to represent the Group's and the Bank's actual exposure to

credit risk, as a variety of credit mitigation strategies are employed in addition to netting and collateral

arrangements.

The 'Financial instruments' column identifies financial assets and liabilities that are subject to set off under

netting agreements, such as the ISDA Master Agreement or derivative exchange or clearing counterparty

agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out

netting applied across all outstanding transaction covered by the agreements if an event of default or other

predetermined events occur.

Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net

exposure between counterparties by enabling the collateral to be realised in an event of default or if other

predetermined events occur.

164

Company No: 14389-U




46 Offsetting financial assets and financial liabilities

Gross amounts

of recognised Net amounts

financial of financial

Gross liabilities in the assets

amounts of statement presented Financial

recognised of financial in the Financial collateral Net

financial assets position balance sheet instruments received amount

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000


31.12.2016

Financial assets

Trade receivables

- Amount due from Bursa Securities Clearing Sdn Bhd 582,294 (582,294) - - - -

Derivative financial assets 122,088 - 122,088 (73,906) - 48,182

Total 704,382 (582,294) 122,088 (73,906) - 48,182

Financial liabilities

Trade payables

- Amount due to Bursa Securities Clearing Sdn Bhd 611,448 (582,294) 29,154 - - 29,154

Derivative financial liabilities 150,291 - 150,291 (73,906) (76,385) -

Total 761,739 (582,294) 179,445 (73,906) (76,385) 29,154

Related amount not set off

in the balance sheet

165

Company No: 14389-U




46 Offsetting financial assets and financial liabilities (continued)

Gross amounts

of recognised Net amounts

financial of financial

Gross liabilities in the assets

amounts of statement presented Financial

recognised of financial in the Financial collateral Net

financial assets position balance sheet instruments received amount

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000


31.12.2015

Financial assets

Trade receivables

- Amount due from Bursa Securities Clearing Sdn Bhd 593,363 (542,330) 51,033 - - 51,033

Derivative financial assets 119,991 - 119,991 (80,050) - 39,941

Total 713,354 (542,330) 171,024 (80,050) - 90,974

Financial liabilities

Trade payables

- Amount due to Bursa Securities Clearing Sdn Bhd 542,330 (542,330) - - - -

Derivative financial liabilities 141,891 - 141,891 (80,050) (61,841) -

Total 684,221 (542,330) 141,891 (80,050) (61,841) -

Related amount not set off

in the balance sheet

166





47 Prior year adjustment

The Group

Income statement for the financial year ended 31 December 2015

As previously Prior year

reported adjustment As restated

RM'000 RM'000 RM'000

Write-back/(allowances) of impairment

losses on securities 1,721 (15,176) (13,455)

Profit before zakat and taxation 84,239 (15,176) 69,063

Profit before taxation 83,165 (15,176) 67,989

Taxation (23,996) 3,642 (20,354)

Net profit after zakat and taxation 59,169 (11,534) 47,635

Profit attributable to:

Equity holder of the Bank 44,585 (11,534) 33,051

Earnings per share (sen):

Basic/fully diluted 5.72 (1.48) 4.24

Statement of comprehensive income for the financial year ended 31 December 2015


reported adjustment As restatedRM'000 RM'000 RM'000


Impairment loss transferred to profit or loss

on financial investments available-for-sale - 15,176 15,176


available-for-sale 6,443 (3,642) 2,801

Other comprehensive expense for the

financial year, net of tax (20,396) 11,534 (8,862)

During the financial year, the Group and the Bank have effected a prior year adjustment to the 31 December

2015 financial statements to account for the impairment of available-for-sale ("AFS") financial investments

arising from significant or prolonged decline in the fair value of the equity securities below its cost based on the

technical guidance provided under FRSIC Consensus 14 Impairment of Investment in Equity Instruments

Categorised as Available-for-Sale Financial Asset due to ‘Significant or Prolonged’ Decline in Fair Value. The

adjustment resulted in a debit of RM11,534,000 to retained profits.

The impact of the prior year adjustments on the financial statements of the Group and Bank are as follows:

167





47 Prior year adjustment (continued)

The Group

Statement of changes in equity for the financial year ended 31 December 2015



Available-for-sale revaluation reserves (14,831) 11,534 (3,297)

Retained profits 233,868 (11,534) 222,334

Statement of cash flows for the financial year ended 31 December 2015



RM'000 RM'000 RM'000


Adjustments for items not involving the movement of cash and cash equivalents:

Allowance/(Write-back) on allowance for impairment:

- financial investments available-for-sale (167) 15,176 15,009

The Bank

Income statement for the financial year ended 31 December 2015



RM'000 RM'000 RM'000

Write-back/(allowances) of impairment

losses on securities 1,721 (15,176) (13,455)

Profit before zakat and taxation 40,991 (15,176) 25,815


Taxation (8,374) 3,642 (4,732)


Profit attributable to:

Equity holder of the Bank 31,688 (11,534) 20,154

Earnings per share (sen):

Basic/fully diluted 4.06 (1.48) 2.58

The impact of the prior year adjustments on the financial statements of the Group and Bank are as follows

(continued):

168





47 Prior year adjustment (continued)

The Bank

Statement of comprehensive income for the financial year ended 31 December 2015

As previously Prior yearreported adjustment As restatedRM'000 RM'000 RM'000


Impairment loss transferred to profit or loss

on financial investments available-for-sale - 15,176 15,176


available-for-sale 6,443 (3,642) 2,801

Other comprehensive expense for the

financial year, net of tax (20,109) 11,534 (8,575)

Statement of changes in equity for the financial year ended 31 December 2015



Available-for-sale revaluation reserves (14,762) 11,534 (3,228)

Retained profits 274,498 (11,534) 262,964

Statement of cash flows for the financial year ended 31 December 2015



RM'000 RM'000 RM'000


Adjustments for items not involving the movement of cash and cash equivalents:

Allowance/(write-back) on allowance for impairment:

- financial investments available-for-sale (167) 15,176 15,009

The impact of the prior year adjustments on the financial statements of the Group and Bank are as follows

(continued):

169





48 Critical accounting estimates and judgments

Allowance for impairment losses on loans, advances and financing

Estimated impairment on goodwill

The accounting estimates and judgments related to the impairment of loans and provision for off-balance sheet

positions is a critical accounting estimate 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’s and

the Bank's results of operations.

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 matters such 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 margin and broking

clients, 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 future cash flows on contractual basis and historical loss experience which incorporate numerous

estimates and judgments, and therefore is subject to estimation uncertainty. The Group and the Bank perform

regular review of the basis and underlying data and assumptions to best reflect the current economic

circumstances.

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.

The recoverable amounts of the stockbroking business, investment banking and assets and fund management

(the cash-generating units to which goodwill are allocated) were determined based on discounted cash flow

valuation model. The calculations require the use of estimates as set out in Note 16 to the financial statements.

170





49 Credit exposures arising from transactions with connected parties

31.12.2016 31.12.2015

i)

485,038 697,775

ii)

11.01% 13.67%

iii)

- -

50

51 Approval of financial statements

The following credit exposure are based on Bank Negara Malaysia's revised Guidelines on Credit

Transaction and Exposures with Connected Parties, which are effective 1 January 2008:


The financial statements have been approved for issue in accordance with a resolution of the Board of

Directors on 8 March 2017.

The aggregate value of outstanding credit exposures with connected

parties (RM'000)

The percentage of outstanding credit exposures to connected parties

as a proportion of credit exposures

The percentage of outstanding credit exposures with connected

which is non-performing or in default.

Client trust accounts

As at 31 December 2016, cash held in trust for the clients by the Group and the Bank amounted to

RM431,445,000 (2015: RM463,616,000). These amounts are not recognised in the financial statements as they

are held by the Group and the Bank in its fiduciary capacity.

171

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