arbm financial statement fye 2013 - al rajhi bank · nik hassan was appointed to the board on 12...

AL RAJHI BANKING AND INVESTMENT CORPORATION (MALAYSIA) BHD.(Incorporated in Malaysia)Company No. 719057-X

FINANCIAL STATEMENTS FOR THE FINANCIALYEAR ENDED 31 DECEMBER 2013

Registered Office

Ground Floor, East BlockWisma Selangor Dredging142-B Jalan Ampang50450 Kuala Lumpur

YEAR ENDED 31 DECEMBER 2013


Contents Page

Statement Of Directors’ Responsibility In Respect Of The Audited Financial Statements 1

Performance Overview 2

Statement of Corporate Governance 2 - 14

Directors' Report 15 - 21

Statement by Directors 22

Statutory Declaration 23

Report of Shariah Board 24 - 25

Independent Auditors' Report 26 - 27

Statement of Financial Position 28

Statement of Comprehensive Income 29

Statement of Changes in Equity 30

Statement of Cash Flows 31 - 32

Summary of Significant Accounting Policies 33 - 55

Notes to the Financial Statements 56 - 131


STATEMENT OF DIRECTORS’ RESPONSIBILITYIN RESPECT OF THE AUDITED FINANCIAL STATEMENTS

� considered the applicable approved accounting standards in Malaysia;�

� made judgments and estimates that are prudent and reasonable; and�

The directors are responsible for ensuring that the annual audited financial statements of theGroup and of the Bank are drawn up in accordance with the requirements of the MalaysianFinancial Reporting Standards issued by the Malaysian Accounting Standards Board, therequirements of the Companies Act, 1965, Bank Negara Malaysia’s Guidelines and the IslamicFinancial Services Act 2013.

The directors are also responsible for ensuring that the annual audited financial statements of theGroup and of the Bank are prepared with reasonable accuracy from the accounting records of theGroup and of the Bank so as to give a true and fair view of the financial position of the Group andof the Bank as at 31 December 2013, and of their financial performance and cash flows for theyear then ended.

In preparing the annual audited financial statements, the directors have:

The directors also have a general responsibility for taking reasonable steps to safeguard theassets of the Group and the Bank to prevent and detect fraud and other irregularities.

prepared the financial statements on a going concern basis as the directors have areasonable expectation, having made enquiries, that the Group and the Bank haveadequate resources to continue in operational existence for the foreseeable future.

adopted and consistently applied appropriate accounting policies;

1

AL RAJHI BANKING AND INVESTMENT CORPORATION (MALAYSIA BHD.(Incorporated in Malaysia)Company No. 719057-X

PERFORMANCE OVERVIEW 2013

STATEMENT OF CORPORATE GOVERNANCE

BOARD OF DIRECTORS

(i) Board Composition and Its Roles and Responsibilities

The Board of Directors of the Bank (“the Board”) recognises the importance of corporategovernance as set out in the Malaysian Code on Corporate Governance (“the Code”) indischarging its responsibilities to enhance shareholders’ value and safeguard the interests ofother stakeholders towards enhancing business prosperity and corporate accountability. This alsomeans inculcating a culture that seeks to balance conformance requirements with the need todeliver long term strategic success through performance, predicated on entrepreneurship, controland ownership, without comprising personal or corporate ethics and integrity.

At the date of this report, the Board consists of five (5) Directors of which include three (3)independent non-executive Directors. The non-executive Directors do not engage in the dayto day management of the Bank and do not participate in any business dealings and are notinvolved in any other relationship with the Bank. This ensures that the independent non-executive Directors remain free from conflict of interest and facilitate them to carry out theirroles and responsibilities. The appointment of non-executive Directors facilitates theexercise of independent evaluation in Board deliberations and decision-making, and thusproviding the check and balance in the Board.

The Board is responsible for the overall corporate governance, including its strategicdirection, establishing goals for management and monitoring the achievement of thesegoals. The roles and responsibility of the Chairman and the Chief Executive Officer is clearlyseparated, which is consistent with the principles of the Revised BNM/GP1-i to institute anappropriate balance of power and authority. The Chairman is responsible for ensuring theeffectiveness of the Board as well as representing the Board to the Shareholder.

2013 marked an improvement year for the Bank. Building on a much stable platform, the Banklaunched its transformation programme and its 5 Years Business Plan as a blueprint for the Bankto chart its strategic direction moving forward. Key strategic initiatives were drawn andimplemented to achieve sustainable growth at the same strengthening corporate governance.

In the year under review, gross financing asset grew by 11% to RM4.9 billion (2012: RM4.4billion) and profit before taxation continue to improve at RM5.8 million (2012: RM4.1 million). Thepositive financial results indicate that the Bank is moving towards the right direction in accordancewith its plan.

2


STATEMENT OF CORPORATE GOVERNANCE (Continued)

BOARD OF DIRECTORS (Continued)

(i) Board Composition and Its Roles and Responsibilities (Continued)

(ii) Board of Directors' Profile

The Directors' profiles are as follows:

Syed Maqbul QuaderChairman, Independent Non-executive Director

Suliman Abdulaziz AzzabinNon- independent Non-executive Director

The Directors, with their different backgrounds and specialisations, collectively bring withthem a wide range of experience and expertise. The Chief Executive Officer is responsiblefor implementing the policies and decisions of the Board, overseeing the operations as wellas coordinating the development and implementation of business and corporate strategies.The independent non-executive Directors bring an independent judgment to the decisionmaking of the Board and provide a review and challenge on the performance of themanagement.

As a principle of good governance, all Directors are subject to re-election at regularintervals.The Bank’s Articles of Association also provide for the retirement of Directors byrotation and, under Bank Negara Malaysia’s guidelines, all appointment and re-appointmentof Directors have to be approved by Bank Negara Malaysia.

Syed Maqbul Quader was appointed to the Board as of 1 August 2013. He holds a Bachelorof Commerce from Dhaka University. A senior banker having served for over 40 years in thebanking industry, he was Vice President of The Chase Manhattan Bank NA, in London andBahrain, and was the Group Chief Risk Officer of Qatar Islamic Bank, Doha. He wasformerly the General Manager of Corporate Banking, Al Rajhi Bank in Saudi Arabia.

He has vast experience in the area of corporate banking, risk and investment and portfoliomanagement. His expertise lies in managing startup projects, having been involved inestablishing amongst others, the Corporate Banking Group at Al Rajhi Bank in Saudi Arabiaand also the Offshore Banking Unit of Chase Manhattan Bank in Bahrain.

Suliman has over fifteen years of wide range of experiences in accounting, credit, risk,corporate and policy formulation. He started off his career as a senior accountant at theSaudi Basic Industrial Corporation in Riyadh and is currently the Chief Executive Officer ofAl Rajhi Bank, Saudi Arabia.

3




(ii) Board of Directors' Profile (Continued)

Suliman Abdulaziz Azzabin (Continued)Non- independent Non-executive Director (Continued)

Waleed Abdullah Al-MogbelNon- independent Non-executive Director

Dato' Dr Nik Norzrul Thani Bin Nik Hassan ThaniIndependent Non-executive Director

Nik Hassan Bin Nik Mohd AminIndependent Non-executive Director

Waleed Abdullah Al-Mogbel was appointed to the Board as of 1 June 2012. He is alsocurrently the Chief Financial Officer (CFO) of Al Rajhi Bank Saudi Arabia.

Based in Riyadh, Waleed has been with Al Rajhi Bank since 1998 and has since thendelved into a range of financial positions within the bank. Prior to commencing his currentposition as the CFO, he was the Head of Budgeting & Management Reporting, with astuteknowledge in Accounting, Finance and Auditing.

Waleed holds a BA in Accounting from King Saud University, a M Sc in Accounting andFinance from the University of Southampton and a Ph.D. in Accounting and Auditing fromCardiff University.

Dato' Dr Nik Norzul Thani was appointed as a Board member of the Bank with effect from 20December 2006. Dato' Dr Nik advises clients on a wide range of legal matters covering arange of banking advisory aspects, including Islamic Finance and is currently the Presidentof Zaid Ibrahim & Co., a law firm. Besides being a board member for several other localcompanies, Dato' Dr Nik also has several books and articles to his credit.

Nik Hassan was appointed to the Board on 12 January 2012. He is an alumnus of UniversityMalaya where he graduated with a Bachelor in Economics. He started his banking career in1971 with a local commercial bank and has spent more than thirty five years in the bankingand financial services sector.

He holds a Bachelor of Administrative Science in Accounting from the King Saud University,Saudi Arabia and a Master in Risk Management from the Southampton University, UnitedKingdom and was appointed as a director of the Bank with effect from 15 June 2011.

4




(ii) Board of Directors' Profile (Continued)

Nik Hassan Bin Nik Mohd Amin (Continued)Independent Non-executive Director (Continued)

(iii) Board Meetings

Syed Maqbul QuaderChairman, Independent Non-executive Director(Appointed on 01 August 2013)Suliman Abdulaziz AzzabinNon- independent Non-executive Director

Waleed Abdullah Al-MogbelNon- independent Non-executive DirectorDato' Dr Nik Norzrul Thani Bin Nik Hassan ThaniIndependent Non-executive DirectorNik Hassan Bin Nik Mohd AminIndependent Non-executive DirectorAbdullah Sulaiman Al RajhiChairman (Resigned on 22 September 2013)Dato' Majid Bin MohamadIndependent Non-executive Director (Resigned on 01 August 2013)

3/6

Board meetings for the ensuing financial year are scheduled in advance before end of thecurrent financial year to facilitate the Directors to plan and organise the next year’s Boardmeetings into their respective schedules.

For the financial year 2013, six (6) Board meetings were held and attendances by Directorsat the board meetings were as follows:

Member

6/6

No of meetingsattended / held

6/6

6/6

6/6

2/6

3/6

Having worked in various senior capacities with the local commercial bank, Nik Hassan hasgained invaluable hands on experience in commercial banking, stock broking, factoring andmerchant banking.

5




(iii) Board Meetings (Continued)

(iv) Board Committee

Nik Hassan Bin Nik Mohd Amin - ChairmanIndependent Non-executive DirectorWaleed Abdullah Al-MogbelNon- independent Non-executive DirectorDato' Dr Nik Norzrul Thani Bin Nik Hassan ThaniIndependent Non-executive DirectorDato' Majid Bin Mohamad Independent Non-executive Director (Resigned on 01 August 2013)

3/4

3/4

3/4

At the Board meetings, the Board reviews various management reports on the businessperformance of the Bank and the minutes of meetings of the Board Committees are tabledfor review by members of the Board.

Members of the Board shall deliberate and in the process evaluate the potential risks andviability of business propositions and corporate proposals that have significant impact on thebank’s business or on its financial position.

Board meetings are governed by a structured format agenda and the agenda for each Boardmeeting and papers relating to the agenda items are forwarded to all Directors in advanceprior to the scheduled Board meetings for their perusal.

Minutes of every Board meeting are circulated to all the Directors for their perusal prior toconfirmation of the minutes at the following Board meeting.

Board Committees were established to assist the Board in the running of the Bank. Thefollowing Board Committees with their specific terms of reference and functions are asfollows:

Audit Committee

The composition of the Audit Committee and the attendance by members at the BoardCommittee meetings held in 2013 are as follows:

Member No of meetingsattended / held

4/4

6




(iv) Board Committee (Continued)

Audit Committee (Continued)

Risk Management Committee

Nik Hassan Nik Mohd Amin - ChairmanIndependent Non-executive DirectorSyed Maqbul QuaderChairman, Independent Non-executive Director(Appointed on 01 August 2013)Suliman Abdulaziz AzzabinNon- independent Non-executive DirectorWaleed Abdullah Al-MogbelNon- independent Non-executive DirectorDato' Dr Nik Norzrul Thani Bin Nik Hassan Thani Independent Non-executive DirectorDato' Majid Bin MohamadIndependent Non-executive Director(Resigned on 01 August 2013)

6/6

attended / held

The primary function of the Audit Committee is to assist the Board in discharging itsresponsibilities by providing independent oversight of the Bank’s financial reporting, theinternal control system, the effectiveness of internal audit function and risk managementsystem. The Audit Committee also provides, by way of regular meetings, a line ofcommunication between the Board, the internal and external auditors.

6/6

3/6

6/6

3/6

The composition of the Risk Management Committee and the attendance by members at theBoard Committee meetings held in 2013 are as follows:

Member No of meetings

6/6

The objectives of the Risk Management Committee are to establish a forum for deliberationand consideration of risks which the Bank is exposed to in relation to its strategic directionand objectives while overseeing to ensure that the risk management systems, policies andprocedures are in place and functioning.

7





Nominating Committee

Dato' Dr Nik Norzrul Thani Bin Nik Hassan Thani - ChairmanIndependent Non-executive DirectorSyed Maqbul QuaderChairman, Independent Non-executive Director(Appointed on 04 September 2013)Suliman Abdul Aziz AzzabinNon- independent Executive DirectorWaleed Abdullah Al-MogbelNon- independent Non-executive Director(Appointed on 22 September 2013)Nik Hassan Bin Nik Mohd AminIndependent Non-executive DirectorAbdullah Sulaiman Al Rajhi Non- independent Non-executive Director(Resigned on 22 September 2013)Dato' Majid Bin Mohamad Independent Non-executive Director(Resigned on 01 August 2013)

1/6

No of meetingsMember

The composition of the Nominating Committee and the attendance by members at the BoardCommittee meetings held in 2013 are as follows:

attended / held6/6

1/6

6/6

The responsibilities of the nominating committee is to provide a formal and transparentprocedure for the appointment of Directors and the Chief Executive Officer as well as theassessment of the effectiveness of individual Directors, Board as a whole and performanceof Chief Executive Officer and senior management officers.

6/6

3/6

3/6

8





Remuneration Committee

Dato' Dr Nik Norzrul Thani Bin Nik Hassan Thani - ChairmanIndependent Non-executive Director

Syed Maqbul QuaderChairman, Independent Non-executive Director (Appointed on 22 September 2013)

Suliman AzzabinNon-independent Non-executive Director

Nik Hassan Bin Nik Mohd AminIndependent Non-executive Director(Appointed on 22 September 2013)

Abdullah Sulaiman Al Rajhi Non- independent Non-executive Director(Resigned on 22 September 2013)

INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES

0/1

1/1

Member

0/1

1/1

The composition of the Remuneration Committee and the attendance by members at theBoard Committee meetings held in 2013 are as follows:

No of meetingsattended / held

1/1

The responsibilities of the Remuneration Committee is to provide for a formal andtransparent procedure for developing the remuneration policy for Directors, Chief ExecutiveOfficer and senior management officers and ensuring that the compensation is competitiveand consistent with the Islamic Bank’s culture, objective and strategy.

The Malaysian Code on Corporate Governance and Bank Negara Malaysia's Guidelines onCorporate Governance requires Banks to maintain a sound system of internal controls tosafeguard shareholders' investments and the Bank's assets.

9




INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES (Continued)

Responsibility of the Board

Key Internal Control Elements

(i) Clear Line of Responsibilities

(ii) Risk Management Framework

The Bank has in place an on-going internal control processes for identifying, evaluating,managing and reporting on the significant risks that may affect the achievement of its businessobjectives throughout the financial year under review. The key internal controls elements in theprocess are described below:

The management of the Bank is primarily delegated to the Chief Executive Officer and itsManagement Committee, whose responsibilities are set by the Board. The managementassists the Board in the implementation of the policies and procedures on risk and control byidentifying and assessing the risks faced, and in the design, operation and monitoring ofsuitable internal controls to mitigate and control these risks.

Risk Management Division is established to assist the Board in the development of generalrisk policies and procedures, monitor and evaluate material risks that may arise from theBank's business activities. The Board with the assistance of the Risk Management Division,has established an enterprise-wide risk management framework that details a holistic riskmanagement governance structure for risk management which balances risks and returns,as well as integrated risk management processes for credit risk, market risk, liquidity riskand operational risk.

The Board recognises the importance of maintaining a sound system of internal control tosafeguard shareholders' investments and the Bank's assets. The Board is also responsible forthe Bank's system of internal controls and its effectiveness. It includes reviewing adequacy andintegrity of controls relating to financial, operational, risk management and compliance withapplicable laws and regulations.

The system is designed to manage the Bank's risks within an acceptable risk profile and theBoard acknowledges that the system, by its nature, can only provide reasonable assurance andnot absolute assurance against material misstatement of management and financial informationand records or against financial losses or fraud.

10



INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES (Continued)

Key Internal Control Elements (Continued)

(iii) Internal Audit Activities

(iv) Annual Business Plan

(v) Management Reporting

(vi) Policies and Procedures

RISK MANAGEMENT

Audited information according to MFRS 7 and MFRS 101

Risk management disclosures provided in line with the requirements of the Malaysian FinancialReporting Standard ("MFRS") 7 Financial Instruments: Disclosures, and disclosures on capitalmanagement as required by MFRS 101 Presentation of Financial Statements (Revised) formpart of the financial statements audited by the Bank's independent auditors Ernst & Young. Thisinformation (the audited texts and tables) is marked by a bar on the left-hand side throughout thisreport and incorporated by cross-reference into the financial statements of this report.

On-going reviews of the internal control system are carried out by the internal auditor to testcontrol effectiveness in the Bank. Results of such reviews are reported to the AuditCommittee. The internal audit activities revolve primarily on areas of priority as identified byrisk analysis and in accordance with the annual internal audit plans as approved by the AuditCommittee.

A detailed budgeting process is established requiring all key business units in the Bank toprepare budgets annually which are discussed and approved by the Board. Regularreporting on actual performance against approved budgets is in place and significantvariances shall be followed up by the management and to be reported to the Board.

There are policies, procedures and authority limits imposed on the management in respectof the day-to-day operations. Compliance with internal controls and the relevant laws andregulations are also set out in operations manuals, guidelines and directives which areupdated from time to time.

The Board also receives and reviews reports from the management on a regular basis inensuring the effectiveness of the Bank's daily operations and that the Bank's operations arein accordance with the established goals.

11



RISK MANAGEMENT (Continued)

Overall Risk Management Framework

Risk Management Governance Structure and Processes

(a)

(b) Understanding the nature and key risk profile of the Bank;

(c) Estimating the adequacy or liquidity contingency planning; and

(d) Assessing the effectiveness of risk mitigates which are already established.

Stress test and scenario analysis serves as an important risk management tool as part of theBank's risk assessment process and is used to assess the financial risks and managementcapability of the Bank to continue to operate effectively under different stressed scenarios. Thestress test and scenario analysis will assist the Bank in the following:

Evaluating the optimal capitalisation level for the Bank to weather extreme bankingscenarios;

Risk management plays a substantial role in the governance of the Bank as the bank recognisesthe diversity and complexity of banking operations and the exposure to various kinds of risksmainly on credit risk, market risk, liquidity risk and operational risk.

The Bank recognises the importance of an effective risk management and control measures toensure the Bank's corporate value, sustained profitability and continued enhancement ofshareholder value.

A risk conscious corporate culture and pre-emptive actions of employees are also crucial for aneffective risk management. The risk conscious corporate culture is met through communication,training, policies, procedures and organisational structures, roles and responsibilities.

The Bank has established within its risk management framework a holistic risk managementgovernance structure for risk management which balances risks and returns, as well asintegrated risk management processes for credit risk, market risk, liquidity risk and operationalrisk. The risk management governance structure provides clear accountabilities andresponsibilities for risk management processes throughout the organisation at the Board level, atthe Executive Management level and at the business unit and support unit level. The riskmanagement processes encompass four broad processes, namely risk identification, riskassessment and measurement, risk control and mitigation and risk monitoring.

12




Credit Risk Management

Market Risk Management

Operational Risk Management

Credit risk is defined as the risk of potential losses arising from a customer default or deteriorationof the credit standing of a customer with whom the Bank has entered transactions into.

The Bank establishes policies and procedures for credit origination, scoring, rating, approval,monitoring, collection and recovery. Credit approval authorities are delegated to committees andindividuals in accordance to the risk appetite of the Board. Regular analysis and reporting of riskprofile covering credit exposure, movements of non-performing financings ("NPFs"),concentration of credit exposure, adequacy of specific provision for NPFs and capital adequacy isupdated to the Management, the Risk Management Committee and the Board.

Market risk is defined as the risk that could incur losses due to changes in the value of assets andliabilities (including off-balance sheet items) caused by fluctuations in the market risk factors suchas profit rates and foreign exchange rates. Meanwhile, liquidity risk is defined as the risk of lossesarising from funding difficulties to raise the necessary funds, or when it is forced to obtain funds atmuch higher rates than usual.

The Bank establishes policies and procedures for monitoring, reporting and control of market andliquidity risks including setting appropriate management trigger and exposure limits andperforming regular stress testing. The Asset and Liability Committee (“ALCO”) is established tomonitor, deliberate and make decision on matters related to funding, liquidity as well as asset andliability mismatch risks management. The Bank manages its liquidity in compliance to BNM’s NewLiquidity Framework. Regular analysis and reporting of market and liquidity risks profile isupdated to the Management, the Risk Management Committee and the Board.

Operational risk is defined as the risk of loss, whether direct or indirect, to which the Bank isexposed due to inadequacy or failure of processes, procedures, systems or controls and externalevents. Operational risk, in some form, exists in each of the Bank’s business and supportactivities and can result in direct and indirect financial loss, regulatory sanctions, customerdissatisfaction and damage to the Bank’s reputation.

The management of operational risk is an important priority for the Bank. To mitigate suchoperational risks, the Bank has developed an operational risk program and essentialmethodologies that enables identification, measurement, monitoring and reporting of inherent andemerging operational risks.

13




Operational Risk Management (Continued)

CAPITAL ADEQUACY FRAMEWORK INITIATIVES

(a) Credit Risk Charge - Standardised Approach(b) Market Risk Charge - Standardised Approach(c) Operational Risk Charge - Basic Indicator Approach

The Bank is developing framework for Internal Capital Adequacy and Assessment process("ICAAP"). The ICAAP goes one step further in ensuring that the Bank has in place a structuredprocess for assessing the adequacy of its internal capital levels relative to its risk profile andappetite that covers all material risks beyond those specified in Pillar 1.

In line with the Basel II Pillar 1 on minimum capital requirement, the Bank has implemented theCapital Adequacy Framework for Islamic Bank ("CAFIB") issued by Bank Negara Malaysia("BNM") by adopting the following approaches:

The day-to-day management of operational risk exposures is through the development andmaintenance of comprehensive internal controls and procedures based on segregation of duties,independent checks, segmented system access control and multi-tier authorisation processes. Anincident reporting process is also established to capture and analyse frauds and control lapses.

A periodic self-risk and control assessment is established for business and support units to pre-emptively identify risks and evaluate control effectiveness. Action plans are developed for thecontrol issues identified.

14


DIRECTORS' REPORT

PRINCIPAL ACTIVITIES

FINANCIAL RESULTS Group and

BankRM'000

Net profit for the financial year 3,147

DIVIDEND

DIRECTORS OF THE BANK

Syed Maqbul Quader (Appointed on 1 August 2013)Dato' Dr Nik Norzrul Thani Bin Nik Hassan ThaniSuliman Abdulaziz AzzabinNik Hassan Bin Nik Mohd AminWaleed Abdullah Al-MogbelAbdullah Sulaiman Al Rajhi (Resigned on 22 September 2013)Dato' Majid Bin Mohamad (Resigned on 1 August 2013)

The Directors hereby submit their report together with the audited financial statements of theGroup and of the Bank for the financial year ended 31 December 2013.

The Bank is principally engaged in Islamic Banking business and the provision of related financialbusiness under the Islamic Financial Services Act 2013.

The principal activity of the subsidiary is disclosed in Note 12 to the financial statements.

There have been no significant changes to these principal activities during the financial year.

No dividend has been paid or declared by the Bank since the end of the previous financial year.

The Directors do not recommend the payment of any dividend for the current financial year.

The names of the directors of the Bank in office since the date of the last report and at the date ofthis report are as follows:

There were no material transfers to or from reserves or provisions or allowances during the year other than those disclosed in the Notes 9 and Notes 25 and statement of changes in equity of the financial statements.

15


DIRECTORS REPORT (Continued)

DIRECTORS OF THE BANK (Continued)

DIRECTORS' BENEFITS

ISSUE OF SHARES

BAD AND DOUBTFUL FINANCING

Since the end of the previous financial year, no Director of the Bank has received nor becomeentitled to receive any benefit (other than directors’ remuneration as disclosed in Note 29 of thefinancial statements or amount of emoluments received or due and receivable by the directorsfrom or fixed salaries of full time employees of related corporations) by reason of a contract madeby the Bank or a related corporation with the Director or with a firm of which the Director is amember, or with a company in which the Director has a substantial financial interest.

Neither at the end of the financial year, nor at any time during that year, did there subsist anyarrangements to which the Bank or its subsidiary is a party whereby Directors might acquirebenefits by means of the acquisition of shares in, or debentures of, the Bank or any other bodycorporate.

There were no changes to the authorised issued and paid-up capital of the Bank during thefinancial year.

According to the register of Directors’ shareholding, none of the Directors holding office at 31December 2013 held any shares in the Bank or its related corporations during the financial year.

COMPLIANCE WITH BANK NEGARA MALAYSIA’S GUIDELINES ON FINANCIALREPORTING

In the preparation of the financial statements of the Group and the Bank, the directors have takenreasonable steps to ensure that Bank Negara Malaysia’s Guidelines on financial reporting havebeen complied with, including those as set out in the Guidelines on Financial Reporting forIslamic Banking Institutions and the Guidelines on Classification and Impairment Provisions forLoans/Financing.

Before the financial statements of the Group and of the Bank were made out, the Directors tookreasonable steps to ascertain that proper actions had been taken in relation to the writing off ofbad financing and other debts and the making of allowance for doubtful financing and other debtsand have satisfied themselves that all bad financing and other debts have been written-off andthat adequate allowance had been made for doubtful financing and other debts.

16



BAD AND DOUBTFUL FINANCING (CONT'D.)

CURRENT ASSETS

VALUATION METHODS

CONTINGENT AND OTHER LIABILITIES

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

i)

ii)

Before the financial statements of the Group and of the Bank were made out, the Directors tookreasonable steps to ensure that any current assets which were unlikely to realise their values asshown in the accounting records in the ordinary course of business, had been written down to anamount which they might be expected so to realise.

At the date of this report, the Directors are not aware of any circumstances which would renderthe values attributed to the current assets in the financial statements of the Group and of theBank misleading.

At the date of this report, the Directors are not aware of any circumstances which have arisenwhich render adherence to the existing methods of valuation of assets or liabilities of the Groupand of the Bank misleading or inappropriate.

any charge on the assets of the Group and of the Bank which has arisen since the end of thefinancial year and which secures the liabilities of any other person; or

any contingent liability in respect of the Group and of the Bank that has arisen since the endof the financial year other than in the ordinary course of the banking business.

At the date of this report, the Directors are not aware of any circumstances which would renderthe amount written-off for bad financing or the amount of the allowance for bad and doubtfulfinancing in the financial statements of the Group and of the Bank, inadequate to any substantialextent.

No contingent liability or other liability of the Group and of the Bank has become enforceable, oris likely to become enforceable within the period of twelve months after the end of the financialyear which, in the opinion of the Directors, will or may substantially affect the ability of the Groupand of the Bank to meet its obligations as and when they fall due.

17



CHANGE OF CIRCUMSTANCES

ITEMS OF UNUSUAL NATURE

BUSINESS PLAN AND OUTLOOK FOR 2014

(a) Shariah Board Profiles

The profiles of the Shariah Board members are as follows:

Associate Prof. Dr Saleh Abdullah Al LheidanChairman

The results of the operations of the Group and of the Bank for the financial year were not, in theopinion of the Directors, substantially affected by any item, transaction or event of a material andunusual nature.

There has not arisen in the interval between the end of the financial year and the date of thisreport any item, transaction or event of a material and unusual nature likely, in the opinion of theDirectors, to affect substantially the results of the operations of the Group and of the Bank for thecurrent financial year in which this report is made.

2014 will be a challenging year for the banking sector with greater competition in both retail andcorporate sector and tighter regulatory environment. Nevertheless, the Bank is geared to face the challenge, drafting a more precise strategy to grow the business selectively targeting new marketsegments at the same time continue to strengthen its governance.

The Shariah Board's main duty and responsibility is to oversee the Bank's activities andoperations, investments and prudent development to ensure compliance with Shariah principles.Shariah Board reports to the Board of Directors.

At the date of this report, the Directors are not aware of any circumstances not otherwise dealtwith in this report or the financial statements of the Group and of the Bank, which would renderany amount stated in the financial statements misleading.

Dr Salleh holds a PhD and a Masters Degree in Comparative Fiqh (Islamic Law) from ImamMohammed bin Saud Islamic University in Riyadh, Saudi Arabia.

DISCLOSURE OF SHARIAH BOARD

18



(a) Shariah Board Profiles (Continued)

Associate Prof. Dr Saleh Abdullah Al Lheidan (Continued)Chairman (Continued)

Dr Azman Mohd NoorDeputy Chairman

Dr Azman has been sitting on the Shariah Board of Al Rajhi Bank Malaysia since 2006.

Dr Mohammed Hael Ghilan Al- MadhagiMember

(b) Shariah Board and Its Roles and Responsibilities

The duties and responsibilities of the Shariah Board amongst others are as follows:

(i)

(ii)

(iii)

To endorse the Shariah Compliance Manual. The manual specifies the manner in whicha submission or request for advice be made to Shariah Board, the conduct of theShariah Board's meeting and the manner of compliance with any Shariah decision;

To ensure that the Bank complies with Shariah principle in all aspect and to decideconsequential action upon any violation;

He is currently a senior shariah consultant at Al Rajhi Bank, Saudi Arabia and is involved indeveloping banking products in accordance to Shariah. He has been invited to talk inseminars and was a main speaker at the symposium held by the Journal of Islamic Bankingin collaboration with the Islamic World Organisation for Economy and Finance.

To advise the Board of Directors on Shariah matters in order to ensure that the businessoperations of the Bank comply with the Shariah principles at all times;

Dr Salleh is presently the General Manager for the Shariah Group of Al Rajhi Bank, SaudiArabia. At the same time he serves as the Secretariat and also a member of the ShariahBoard of Al Rajhi Bank, Saudi Arabia. He currently sits as the Chairman of the Shariah Boardof Al Rajhi Bank Malaysia since 2007.

Dr Azman bin Mohd Noor holds a PhD in Islamic Studies from the University of Edinburgh,United Kingdom. He also has Masters Degree from the International Islamic University,Malaysia and a graduate of Islamic University of Madinah, Saudi Arabia.

Dr Hael holds a PhD in Feqah "Islamic Jurisprudence" from the Saud Islamic University,College of Syaria Islamic Law in Riyadh.

19



DISCLOSURE OF SHARIAH BOARD (Continued)

(b) Shariah Board and Its Roles and Responsibilities (Continued)

(iv)

(a)

(b)

(v)

(vi)

(a)

(b)

(vii)

SIGNIFICANT EVENTS

There were no significant events to report during the financial year ended 31 December 2013.

SUBSEQUENT EVENTS

where the Bank makes reference to the Shariah Advisory Council ("SAC") of BankNegara Malaysia for advice; and

To ensure that the products of the Bank comply with Shariah principles in all aspects,the Shariah Board must endorse the following;

To provide written Shariah opinion and to record any opinion given under the followingcircumstances:

There were no material events subsequent to the statement of the financial position date thatrequire disclosure or adjustments to the financial statements.

To provide assistance to related parties such as legal counsel, auditor or consultant onShariah matters so that compliance with Shariah principles can be assured completely;

the terms and conditions contained in the proposal form, contract, agreement orother legal documentation used in executing the transactions; and

the product manual, marketing advertisements, sales illustrations and brochuresused to describe the product.

To advise on matters to be referred to the SAC for matters which have not beenresolved or endorsed. The Shariah Board is also expected to assist the SAC on anymatters referred by the Bank.

where the Bank submits applications to Bank Negara Malaysia for new productsapproval in accordance with guidelines on product approval issued by Bank NegaraMalaysia.

20



AUDITORS

The auditors, Ernst & Young, have expressed their willingness to continue in office.

SYED MAQBUL QUADER NIK HASSAN BIN NIK MOHD AMINCHAIRMAN DIRECTOR

Kuala Lumpur, Malaysia

Signed on behalf of the Board in accordance with a resolution of the directors dated 31 March2014.

21


STATEMENT BY DIRECTORS

PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965

SYED MAQBUL QUADER NIK HASSAN BIN NIK MOHD AMINCHAIRMAN DIRECTOR

Kuala Lumpur, Malaysia

We, Syed Maqbul Quader and Nik Hassan Bin Nik Mohd Amin, being two of the directors of Al-Rajhi Banking & Investment Corporation (Malaysia) Bhd., do hereby state that, in the opinion ofthe directors, the accompanying financial statements set out on pages 28 to 131 are drawn up inaccordance with Malaysian Financial Reporting Standards, International Financial ReportingStandards and the requirements of the Companies Act, 1965 in Malaysia so as to give a true andfair view of the financial position of the Group and of the Bank as at 31 December 2013 and of theresults and the cash flows of the Group and the Bank for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors dated 31 March 2014.

22


STATUTORY DECLARATION

PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965

ADEL ABALKHAIL

Before me,

I, Adel Abalkhail, being the officer primarily responsible for the financial management of Al-RajhiBanking & Investment Corporation (Malaysia) Bhd., do solemnly and sincerely declare that theaccompanying financial statements set out on pages 28 to 131 are in my opinion correct, and Imake this solemn declaration conscientiously believing the same to be true and by virtue of theprovisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed Adel Abalkhail at Kuala Lumpur on 31 March 2014.

23

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Note 2013 2012RM'000 RM'000

Group and Bank

ASSETS

Cash and short-term funds 4 455,387 1,458,642 Hedging financial instruments 5 1,788 460 Securities held-for-trading 6 4,792 4,985 Securities available-for-sale 7 - 233,830 Securities held-to-maturity 8 1,035,903 286,190 Financing and advances 9 4,784,898 4,289,864 Other assets 10 41,099 186,278 Statutory deposit with Bank Negara Malaysia 11 194,268 154,154 Investment properties 13 105,000 105,000 Property and equipment 14 18,453 25,565 Intangible assets 15 35,203 39,386 Deferred tax assets 16 77,845 80,443 Total Assets 6,754,636 6,864,797

LIABILITIES AND SHAREHOLDER'S EQUITY

LiabilitiesDeposits from customers 17 4,401,696 4,550,550 Deposits and placements of banks and other financial institutions 18 1,581,452 1,378,432 Hedging financial instruments 5 610 1,133 Bills and acceptances payable 12,541 162,344 Other liabilities 19 42,408 59,528 Total Liabilities 6,038,707 6,151,987

Shareholder's equityShare capital 20 1,000,000 1,000,000 Reserves 21 (284,071) (287,190) Total Shareholder's Equity 715,929 712,810

Total Liabilities and Shareholder's Equity 6,754,636 6,864,797

COMMITMENTS AND CONTINGENCIES 33 2,021,372 1,788,355

CAPITAL ADEQUACY 37CET 1 / Core capital ratio 13.04% 11.87%Risk-weighted capital ratio 14.43% 13.46%

STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2013

The accompanying notes form an integral part of the financial statements.

28

AL RAJHI BANKING AND INVESTMENT CORPORATION (MALAYSIA) BHD. (Incorporated in Malaysia)Company No. 719057-X

Note 2013 2012RM'000 RM'000

Revenue 22 337,429 334,524

Income derived from investment of depositors' funds and others 23 300,693 297,102

Income derived from investment of shareholder's funds 24 36,736 37,422

Allowance for impairment on financing 25 (15,796) (50,787)

Other expenses directly attributable to the investment of the depositors' funds (25) (674)

Write-back of impairment loss on securities - 39,884

Total distributable income 321,608 322,947

Income attributable to depositors 26 (155,019) (154,425)

166,589 168,522

Personnel expenses 27 (69,048) (73,384) Other overheads and expenditures 28 (91,788) (91,053)

Profit before zakat and taxation 5,753 4,085

Zakat - -Taxation 30 (2,606) 9,743 Net profit for the financial year 3,147 13,828

Other comprehensive income:

- Securities available-for-sale, net of tax (26) 26 - Transfer to Wakalah reserve (2) (56) Total comprehensive income for the financial year 3,119 13,798

Basic / diluted earnings per share (sen) 31 0.31 1.38

Group and Bank


STATEMENT OF COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013

Items that may be reclassified to profit or loss in subsequent periods:

29

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30


Note 2013 2012RM'000 RM'000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before zakat and taxation 5,753 4,085

Adjustments for:Depreciation of property and equipment 28 8,390 9,200Amortisation of intangible assets 28 11,825 12,652Allowance for impairment on financing 25 20,396 54,363Bad debts on financing - Written off 25 86 281Write-back of impairment loss on securities - (39,884)Unrealised loss / (gain) on revaluation of securities held-for-trading / investment properties 24 193 (1,259)Unrealised loss / (gain) from foreign exchange translations 5,338 (1,552)Operating cashflow before workings capital changes 51,981 37,886

(Increase) / decrease in Operating AssetsHedging financial instruments (6,666) 1,435Financing and advances (515,517) (673,293)Other assets 145,179 423,222Statutory deposit with Bank Negara Malaysia (40,114) 16,124

Increase / (decrease) in Operating LiabilitiesDeposits from customers (148,854) 780,818Deposits and placements of banks and other financial institutions 203,020 (193,543)Hedging financial instruments (523) 1,133Bills and acceptances payable (149,803) 146,288Other liabilities (17,147) 20,079Net cash (used in) / generated from operating activities (478,444) 560,149

STATEMENT OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013

Group and Bank

31


Note 2013 2012RM'000 RM'000

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment 14 (1,278) (4,917)Purchase of intangible asset 15 (7,642) (11,295)Securities available-for-sale 233,822 (233,830)Securities held-to-maturity (749,713) -Net cash used in investing activities (524,811) (250,042)

NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS (1,003,255) 310,107

Cash and cash equivalents as at 1 January 1,458,642 1,148,535

CASH AND CASH EQUIVALENTS AS AT 31 DECEMBER 4 455,387 1,458,642


STATEMENT OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013 (CONTINUED)

Group and Bank

32


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013

1. PRINCIPAL ACTIVITIES AND GENERAL INFORMATION

2.

2.1 BASIS OF PREPARATION

The financial statements of the Group and the Bank have been prepared under thehistorical cost convention (unless otherwise indicated) and in accordance withMalaysian Financial Reporting Standards (“MFRS”), International Financial ReportingStandards (“IFRS”) and requirements of the Companies Act, 1965.

The financial statements have been prepared under the historical cost convention, asmodified by the revaluation of land and buildings, available-for-sale financial assets,and financial assets and financial liabilities (including derivative instruments) at fairvalue through profit or loss.

The Bank is principally engaged in Islamic banking business which refers generally to theacceptance of deposits and granting of financing under the principles of Shariah as well asthe provision of related financial services. The principal activities of the subsidiary are set outin Note 12.

There have been no significant changes to these principal activities during the financial year.

The Bank is a licensed Islamic Bank under the Islamic Financial Services Act 2013,incorporated and domiciled in Malaysia. The registered office of the Bank is located at theGround Floor, East Block, Wisma Selangor Dredging, 142-B Jalan Ampang, 50450 KualaLumpur.

The holding company of the Bank is Al Rajhi Banking and Investment Corporation, SaudiJoint Stock Company, a public limited liability company, incorporated in Riyadh on 23 June1987. The registered office is located at PO Box 28, Riyadh 11411, Kingdom of SaudiArabia.

As at 31 December 2013, the Bank has 24 (2012: 24) branches and has 523 (2012: 548) fulltime employees at the end of the financial year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently in the preparation ofthese financial statements to all periods presented in these financial statements.

33


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013 (Continued)

2.

2.1 BASIS OF PREPARATION (Continued)

Amendments to MFRS contained in the documents entitled "Annual Improvements2009-2011 Cycle

MFRS 3 Business Combinations (IFRS 3 Business Combinations issued by IASB in March 2004)

MFRS 10 Consolidated Financial StatementsMFRS 11 Joint ArrangementsMFRS 12 Disclosure of interests in Other EntitiesMFRS 13 Fair Value MeasurementMFRS 119 Employee Benefits (As amended by IASB in June 2011)MFRS 127 Separate Financial Statements (As amended by IASB in May 2011)MFRS 128 Investment in Associate and Joint Ventures (As amended by IASB in

May 2011)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The preparation of financial statements in conformity with MFRS requires the usecertain critical accounting estimates and assumption that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilities at the date ofthe financial statement and the reported amount of revenues and expenses during thereported period. It also requires Directors to exercise their judgment in the process ofapplying the Group and the Bank’s accounting policies. Although these estimates arebased on the Directors’ best knowledge of current events and actions, actual resultsmay differ. The areas involving a higher degree of judgment or complexity, or areaswhere assumptions and estimates are significant to the financial statements aredisclosed in Note 3.

The financial statemenst are presented in Ringgit Malaysia ("RM") and all values arerounded to the nearest thousand (RM'000) except otherwise indicated.

Certain qualitative disclosure under MFRS 7 Financial Instruments: Disclosures aboutthe nature and extent of risks and disclosures on capital management as required byMFRS 101 Presentation of Financial Statements (Revised) have been included in theaudited parts of the "Risk Management" section in the Statement of CorporateGovernance.

The accounting policies adopted are consistent with those of the previous financial yearexcept for the adoption of the following MFRS, Amendments to MFRS, IC Interpretationand Technical Release:

34



2.


MFRS 127 Consolidated and Separate Financial Statements (IAS 27 Consolidatedand Separate Financial Statements as revised by IASB in December 2003)

IC Interpretation 20 Stripping Costs in the Production Phase of a Surface MineAmendments to MFRS 7: Disclosures – Offsetting Financial Assets and Financial

LiabilitiesAmendments to MFRS 1: First-time Adoption of Malaysian Financial Reporting

Standards - Government LoansAmendments to MFRS 10: Consolidated Financial Statements: Transition GuidanceAmendments to MFRS 11: Joint Arrangements: Transition GuidanceAmendments to MFRS 12: Disclosure of Interests in Other Entities: Transition

GuidancePresentation of Items of Other Comprehensive Income (Amendments to MFRS 101)

MFRS 13 Fair Value Measurement

The amendments to MFRS 101 introduce a grouping of items presented in othercomprehensive income. Items that will be reclassified ("recycled") to profit or loss at afuture point in time (eg. Net loss or gain on AFS financial assets) have to be presentedseparately from items that will not be reclassfied (eg. Revaluation of land andbuildings). The amendments affect presentation only and have no impact on theGroup's and the Bank's financial position or performance.


Adoption of the above standards and interpretations did not have any effect on thefinancial performance or position of the Group and the Company except as discussedbelow:

Amendments to MFRS 101: Presentation of Items of Other ComprehensiveIncome

MFRS 13 establishes a single source of guidance under MFRS for all fair valuemeasurements. MFRS 13 does not change when an entity is required to use fair value,but rather provides guidance on how to measure fair value under MFRS. MFRS 13defines fair value as an exit price. As a result of the guidance in MFRS 13, the Groupre-assessed its policies for measuring fair values. IFRS 13 also requires additionaldisclosures.

Application of MFRS 13 has not materially impacted the fair value measurements of theGroup and the Bank. Additional disclosures where required, are provided in theindividual notes relating to the assets and liabilities whose fair values were determined.Fair value hierarchy is provided in Note 40.

35



2.


Standards issued but not yet effective

MFRSs, Amendments to MFRSs and Interpretations

Effective for the financial period beginning on or after 1 January 2014:

Amendments to MFRS 132: Offsetting Financial Assets and Financial Liabilities Amendments to MFRS 10, MFRS 12 and MFS 127: Investment Entities Amendments to MFRS 136: Recoverable Amount Disclosures for Non-Financial

Assets Amendments to MFRS 139: Novation of Derivatives and Continuation of

Hedge Accounting IC interpretation 21: Levies

Effective for the financial period beginning on or after 1 July 2014:

Amendments to MFRS 119: Defined Benefits Plans: Employee Contributions Annual improvements to MFRSs 2010 - 2012 cycle Annual improvements to MFRSs 2011 - 2013 cycle

MFRS 9 Financial Instruments (IFRS 9 issued by IASB in November 2009) MFRS 9 Financial Instruments (IFRS 9 issued by IASB in October 2010) MFRS 9 Financial Instruments: Hedge Accounting and amendments to MFRS 9, MFRS 7 and MFRS 139

The effective date of the following standards have been deferred to a date to beannounced by the Malaysian Accounting Standards Board ("MASB"):

The standards and interpretations that are issued but not yet effective up to the date ofissuance of the Group’s and the Bank's financial statements are disclosed below. TheGroup and the Bank intend to adopt these standards, if applicable, when they becomeeffective.


36



2.


• Amendments to MFRS 10, MFRS 12 and MFRS 127: Investment Entities

• Amendments to MFRS 132 Offsetting Financial Assets and Financial Liabilities

These amendments are effective for annual periods beginning on or after 1January 2014 provide an exception to the consolidation requirement for entitiesthat meet the definition of an investment entity under MFRS 10. The exception toconsolidation requires investment entities to account for subsidiaries at fair valuethrough profit or loss. It is not expected that this amendment would be relevant tothe Group, since none of the entities in the Group would qualify to be aninvestment entity under MFRS 10.

Effective for financial periods beginning on or after 1 January 2014

The amendments also clarify the application of the MFRS 132 offsetting criteria tosettlement systems (such as central clearing house systems) which apply grosssettlement mechanisms that are not simultaneous. Offsetting on the grounds ofsimultaneous settlement is particularly relevant for the Group and the Bank as towhere it engages in large numbers of sale and repurchase transactions. Currently,transactions settled through clearing systems are, in most cases, deemed toachieve simultaneous settlement. While many settlement systems are expected tomeet the new criteria, some may not. Any changes in offsetting are expected toimpact leverage ratios, regulatory capital requirements, etc. As the impact of theadoption depends on the Bank’s examination of the operational proceduresapplied by the central clearing houses and settlement systems it deals with todetermine if they meet the new criteria, it is not practical to quantify the effects.These amendments become effective for annual periods beginning on or after 1January 2014.

These amendments clarify the meaning of “currently has a legally enforceableright to set-off”. It will be necessary to assess the impact to the Group and theBank by reviewing settlement procedures and legal documentation to ensure thatoffsetting is still possible in cases where it has been achieved in the past. Incertain cases, offsetting may no longer be achieved. In other cases, contracts mayhave to be renegotiated. The requirement that the right of set-off be available forall counterparties to the netting agreement may prove to be a challenge forcontracts where only one party has the right to offset in the event of default.


37



2.


•

•

•

Assets

The amendment clarifies that recoverable amount (determined based on fair valueless costs of disposal) is required to be disclosed only when an impairment loss isrecognised or reversed. In addition, there are new disclosure requirements aboutfair value measurement when impairment or reversal of impairment is recognised.These amendments become effective for annual periods beginning on or after 1January 2014.

MFRS 9 reflects the first phase of work on the replacement of MFRS 139 andapplies to classification and measurement of financial assets and financialliabilities as defined in MFRS 139. The standard was initially effective for annualperiods beginning on or after 1 January 2013, but Amendments to MFRS 9:Mandatory Effective Date of MFRS 9 and Transition Disclosures , issued in March2012, moved the mandatory effective date to 1 January 2015. Subsequently, on14 February 2014, it was announced that the new effective date will be decidedwhen the project is closer to completion. The adoption of the first phase of MFRS9 will have an effect on the classification and measurement of the Group’sfinancial assets, but will not have an impact on classification and measurements ofthe Group’s financial liabilities. The Group will quantify the effect in conjunctionwith the other phases, when the final standard including all phases is issued.

MFRS 9, Financial Instruments (2009)

These amendments provide relief from discontinuing hedge accounting whennovation of a derivative designated as a hedging instrument meets certain criteria.These amendments are effective for annual periods beginning on or after 1January 2014. The Group has not novated its derivatives during the currentperiod. However, these amendments would be considered for future novations.

Amendments to MFRS 139: Novation of Derivatives and Continuation of HedgeAccounting

Amendments to MFRS 136: Recoverable Amount Disclosures for Non-Financial


38



2.

2.2 SUBSIDIARIES AND BASIS OF CONSOLIDATION

(a)

•

•

•

••••

All of the above will be accounted for from the date when control is lost.

The consolidated financial statements comprise the financial statements of theBank and its subsidiaries as at 31 December 2013. The financial statements of the Bank’s subsidiaries are prepared for the same reporting date as the Bank, usingconsistent accounting policies to like transactions and events in similarcircumstances.

Subsidiaries are consolidated from the date of acquisition, being the date on whichthe Bank obtains control and continue to be consolidated until the date that suchcontrol ceases. In preparing the consolidated financial statements, intra-groupbalances, income and expenses and unrealised gain and losses resulting fromintra-group transactions are eliminated in full.

Non-controlling interests (“NCI”) represent the portion of profit or loss and netassets in subsidiaries not owned, directly or indirectly by the Bank. NCI arepresented separately in the consolidated income statements and statements ofcomprehensive income and within equity in the consolidated statement of financialposition, but separate from parent shareholders’ equity. Total comprehensiveincome is allocated against the interest of NCI, even if this results in a deficitbalance. Acquisition of NCI are accounted for using the parent entity extensionmethod, whereby the difference between the consideration and the fair value ofthe share of the net assets acquired is recognised as equity.

Recognises the fair value of the consideration received;Recognises the fair value of any investment retained in the former subsidiary;Recognises any surplus or deficit in the profit or loss; and


A change in the ownership interest of a subsidiary, without loss of control, isaccounted for as an equity transaction. If the Group loses control over asubsidiary, it:

Derecognises the assets (including goodwill) and liabilities of the subsidiary attheir carrying amounts;Derecognises the carrying amount of any non-controlling interest in the formersubsidiary;

Reclassifies the parent’s share of components previously recognised in othercomprehensive income to profit or loss or retained earnings, if required inaccordance with other MFRSs.

Basis of consolidation

Derecognises the cumulative foreign exchange translation differencesrecorded in equity;

39



2.

2.2 SUBSIDIARIES AND BASIS OF CONSOLIDATION (Continued)

(b)

•

••

•••


The contractual arrangement with the other vote holders of the investee

The Group re-assesses whether or not it controls an investee if facts andcircumstances indicate that there are changes to one or more of the threeelements of control.

In the Bank's separate financial statements, investment in subsidiaries is stated atcost less impairment losses. On disposal of such investment, the differencebetween the net disposal proceeds and their carrying amount is included in profitor loss.

Rights arising from other contractual arrangementsThe Group’s voting rights and potential voting rights

Exposure, or rights, to variable returns from its involvement with the investee, The ability to use its power over the investee to affect its returns

Subsidiaries are entities over which the Group is exposed, or has rights, tovariable returns from its involvement with the investee and has the ability to affectthose returns through its power over the investee. Specifically, the Group controlsan investee if and only if the Group has:

Investment in subsidiaries

Power over the investee (i.e. existing rights that give it the current ability todirect the relevant activities of the investee)

When the Group has less than a majority of the voting or similar rights of aninvestee, the Group considers all relevant facts and circumstances in assessingwhether it has power over an investee, including:

40



2.

2.3

(a)


FINANCIAL INSTRUMENTS

Financial assets

Financial instruments are recognised as assets or liabilities when the Group or theBank becomes a party to the contractual provisions of the financial instruments. Theaccounting policies on recognition and measurement of financial instruments aredisclosed as follows:

A financial asset is de-recognised when the contractual rights to the cash flowsfrom the financial asset expire or the financial asset is transferred to another partyall risks and rewards of ownership. On de-recognition of a financial asset, thedifference between carrying amount and the sum of the consideration received(including any new asset obtained less any new liability assumed) and anycumulative gain or loss that had been recognised in equity is recognised in profitor loss.

Financial assets and liabilities are offset and the net amount reported in thefinancial statement when there is a legally enforceable right to offset therecognised amounts and there is an intention to settle on a net basis or realise theasset and settle the liability simultaneously.

The Group and the Bank classify their financial assets in the following categories:at fair value through profit or loss, financing and advances and held-to-maturity.The classification depends on the purpose for which the financial assets wereacquired. Management determines the classification at initial recognition.

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 for allfinancial assets not carried at fair value through profit or loss. Financial assetscarried at fair value through profit or loss is initially recognised at fair value andtransaction costs are expensed in profit or loss.

41



2.

2.3

(a)

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

(ii) Financing and advances

(iii)

Financial assets (continued)

FINANCIAL INSTRUMENTS (Continued)

Financial assets held-to-maturity are non-derivative financial assets with fixedor determinable payments and fixed maturities that the Group’s managementhas the positive intention and ability to hold to maturity.

Financial assets held-to-maturity are subsequently carried at amortised costusing the effective profit method less accumulated impairment loss. Any gainor loss is recognised in profit and loss when the securities are de-recognisedor impaired and through the amortisation process.

If the Group and the Bank sold or reclassified more than an insignificantamount of the securities held-to-maturity portfolio before maturity, the entirecategory would be tainted and reclassified as securities available-for-sale atfair value. The difference between the carrying value and fair value at the dateof reclassification is recognised directly in equity.


Financial assets held-to-maturity

Financial assets at fair value through profit or loss consist of investment insecurities held-for-trading and hedging financial instruments. Securities held-for-trading are acquired or incurred principally for the purpose of selling orrepurchasing it in the near term.

Financial assets at fair value through profit or loss are stated at fair value.Changes in fair value of financial assets at fair value through profit or loss,including the effects of currency translation, profit and dividend income arerecognised in profit or loss in the period in which the changes arise.

Financing and advances are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market.

Financing and advances are subsequently carried at amortised cost using theeffective profit method. Gains and losses are recognised in profit or loss whenthe financing and advances are derecognised or impaired, and through theamortisation process.

42



2.

2.3

(a)

(iii)

(iv) Financial assets available-for-sale

(b)

Financial liabilities measured at amortised cost:

•

•

•

Deposits from customers, deposits and placements of banks and financialinstitutions are stated at placement values.

Financial liabilities measured at amortised cost are deposits from banks orcustomers and bills and acceptances payable.

Financial assets at available-for-sale are investment that are not classified asfair value through profit or loss, held-to-maturity or loans and receivables andmeasured at fair value. Any gain or loss arising from a change in fair value,net of income tax, is recognised in other comprehensive income, except forimpairment losses and foreign exchange gains and losses and profitcalculated using the effective profit method are recognised in profit or loss.Until the financial assets at available-for-sale are derecognised or impaired, atwhich time the cumulative gains or losses previously recognised in othercomprehensive income shall be transferred to profit and loss.


FINANCIAL INSTRUMENTS (Continued)

Financial assets (continued)

Income payables are now classified into the respective category of financialliabilities.

Income receivables are now classified into the respective category of financialassets.

The Group’s and the Bank’s holding in financial liabilities is in financial liabilities atamortised cost. Financial liabilities are initially recognised at fair value plustransaction costs and subsequently at the amortised cost using the effective profitmethod. The Group and the Bank do not have any financial liabilities classified atfair value through profit or loss. Financial liabilities are de-recognised whenextinguished.

Financial liabilities

Financial assets held-to-maturity (Continued)

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

43



2.

2.4

10%20%20%20%

Computer equipment and intangible assets

Property and equipment are stated at cost less accumulated depreciation andaccumulated impairment losses, if any. Cost includes expenditure that is directlyattributable to the acquisition of the asset and any other costs directly attributable tobringing the asset to working conditions for its intended use.

Any item of property and equipment is derecognised upon disposal or when no futureeconomic benefits are expected from its use or disposal. Gains and losses ondisposals are determined by comparing the proceeds with the carrying amount and areincluded in profit or loss.

Subsequent costs are included in the asset’s carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that future economic benefitsassociated with the item will flow to the Group and the cost of the item can bemeasured reliably. The carrying amount of the replaced part is de-recognised. All otherrepairs and maintenance are charged to profit or loss during the financial year in whichthey are incurred.

Subsequent to recognition, property and equipment except for assets in progress arestated at cost less accumulated depreciation and any accumulated impairment losses,if any.

Assets in progress are not depreciated as these assets are not available for use.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriateat each statement of financial position date.

At each date of statement of financial position, the Bank assess whether there is anyindication of impairment. Where an indication of impairment exists, the carrying amountof the asset is written-down immediately to its recoverable amount. See accountingpolicy Note 2.9 (b) on impairment of non-financial assets.

PROPERTY AND EQUIPMENT

Depreciation of the property and equipment is calculated to write down the cost of theproperty and equipment on a straight line basis over the expected useful lives of theassets concerned. The principal annual rates of depreciation are as follows:

Motor vehicle

Renovations


Furniture & fittings and office equipment

44



2.

2.5

2.6

Investment properties, comprising principally land and office buildings, are held for longterm rental yields or for capital appreciation or both, and are not occupied by the Groupand the Bank.

Investment properties are stated at fair value, representing open-market valuedetermined annually by registered independent valuer having appropriate recognisedprofessional qualification. Fair value is based on active market prices, adjusted, ifnecessary, for any difference in the nature, location or condition of the specific asset. Ifthis information is not available, the Group and the Bank uses alternative valuationmethods such as recent prices of less active markets or discounted cash flowprojections. Changes in fair values are recorded in profit or loss in the year in whichthey arise.

On disposal of an investment property, or when it is permanently withdrawn from use orno future economic benefits are expected from its disposal, it shall be de-recognised.The difference between the net disposal proceeds and the carrying amount isrecognised in profit or loss in the period of the retirement or disposal.

Intangible assets acquired separately are measured on initial recognition at cost.Following initial recognition, intangible assets are carried at cost less accumulatedamortisation and any accumulated impairment losses. The useful lives of intangibleassets are assessed to be either finite or infinite. Intangible assets with finite lives areamortised on a straight-line basis over the estimated economics useful lives andassessed for impairment whenever there is an indication that the intangible asset maybe impaired. The amortisation period and the amortisation method for an intangibleasset with a finite useful life are reviewed at least at each statement of financialposition date.

Costs associated with maintaining computer software programmes are recognised asan expenses as incurred. Development costs that are directly attributable to the designand testing of identifiable and unique software products controlled by the Group andthe Bank are recognised as intangible assets when the following criteria are met:


INVESTMENT PROPERTIES

INTANGIBLE ASSETS

45



2.

2.6

(i)(ii)(iii)(iv)

(v)

(vi)

2.7 OTHER ASSETS

2.8 CASH AND CASH EQUIVALENTS


Adequate technical, financial and other resources to complete the developmentand to use or sell the software product are available; and

There is an ability to use or sell the software product;

The expenditure attributable to the software product during its development canbe reliably measured.

Other assets are carried at anticipated realisable values. Bad debts are written offwhen identified. An estimate is made for doubtful debts based on a review of alloutstanding amounts as at the reporting date.

Management intends to complete the software product and use or sell it;

It can be demonstrated how the software product will generate probable futureeconomic benefits;

Cash and cash equivalents consist of cash and bank balances and short term depositswith remaining maturities of less than one month.

Direct attributable costs that can be capitalised as part of the software product includesoftware development employee costs and appropriate portion of relevant overheads.

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

Computer software development costs are amortised over their finite useful lives of fiveyears.

It is technically feasible to complete the software product so that it will be available

INTANGIBLE ASSETS (Continued)

46



2.

2.9 IMPAIRMENT

(a)

Financing and advances are impaired when:

i.

ii.

iii.


where the principal or profit or both is past due for more than 90 days or 3months;

The Group and the Bank assesses whether objective evidence of impairmentexists individually for financing and advances which are individually significant,and individually or collectively for financing which are not individually significant. Ifit is determined that no impairment is required for individually assessed financingand advances, the financing and advances are included in a group of financingand advances with similar credit risk characteristics and collectively assessed forimpairment.

An impairment loss in respect of securities held-to-maturity is recognised in profitor loss and is measured as the difference between the assets’s carrying amountand the present value of estimated cash flows of the asset discounted at itsoriginal effective profit rate on initial recognition. The carrying amount of securitiesheld-to-maturity is reduced either directly or through the use of an allowanceaccount.

where the amount is past due for 3 months or less, the financing exhibitscertain credit weaknesses;

where repayments are scheduled on intervals of 3 months or longer, the financing is classified as impaired as soon as a default occurs, unless it does not exhibit any weakness; and

All financial assets (except for financial assets categorised as fair value throughprofit or loss and investment in subsidiaries) are assessed at each reporting datewhether there is objective evidence of impairment as a result of one or moreevents having an impact on the estimated future cash flows of the asset. Lossesexpected as a result of future events, no matter how likely, are not recognised. Foran equity instrument, a significant or prolonged decline in the fair value below itscost is an objective evidence of impairment.

Financial assets

47



2.

2.9 IMPAIRMENT (Continued)

(a)

Financing and advances are impaired when: (Continued)

iv.

Financial assets (Continued)


To determine whether there is objective evidence that an impairment loss hasbeen incurred, the Group and the Bank consider factors such as significantfinancial difficulties of the customer and default or significant delay in repayments.

If there is objective evidence that an impairment loss has been incurred, theamount of the loss is measured as the difference between the financing andadvances carrying amount and the present value of the estimated cash flowsdiscounted at the original effective profit rate of financing and advances. Thecarrying amount of the financing and advances is reduced through the use of anallowance account and the amount of the loss is recognised in the profit or loss.

rescheduled and restructured facilities can only be reclassified as non-impaired when repayments based on the revised or restructured terms havebeen observed continuously for a minimum period of six months.

The Group and the Bank address impairment of financing and advances via eitherindividually assessed allowance or collectively assessed allowance.

Individual Assessment

The Group and the Bank determine the allowance appropriate for each individualsignificant financing and advances on an individual basis. The allowances areestablished based primarily on estimates of the realisable value of the collateral tosecure the financing and advances and are measured as the difference betweenthe carrying amount of the financing and advances and the present value of theexpected future cash flows discounted at original effective profit rate of thefinancing and advances. All other financing and advances that have beenindividually evaluated, but not considered to be individually impaired are assessedcollectively for impairment.

48



2.


(a)

(b)

When a financing is uncollectible, it is written off against the related allowance forfinancing impairment. Such financing are written off after all the necessaryprocedures have been completed and the amount of the loss has beendetermined.

If, in a subsequent period, the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after the impairmentwas recognised, the previously recognised impairment loss is reversed byadjusting the allowance account. The amount of the reversal is recognised in theincome statement in impairment charge for credit loss.

Collective Assessment

Non-financial assets that have an indefinite useful life are not subject toamortisation and are tested annually for impairment. Non-financial assets that aresubject to amortisation are reviewed for impairment whenever events or changesin circumstances indicate that the carrying amount may not be recoverable. Forthe purposes of assessing impairment, assets are grouped at the lowest levels forwhich there is separately identifiable cash flow (cash generating units).

The recoverable amount is the higher of a non-financial asset’s fair value lesscosts to sell and value in use. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risksspecific to the asset. An impairment loss is recognised for the amount by whichthe carrying amount of the non-financial asset exceeds its recoverable amount.Non-financial assets that suffered impairment are reviewed for possible reversal ofthe impairment at each reporting date.

Under MFRS 139, collective assessment is performed on financing which are notindividually significant based on the incurred loss approach. Financing which areindividually assessed and where there is no objective evidence of impairment arealso included in the group of financing for collective assessment. These financingare pooled into groups with similar credit risk characteristics and based on thehistorical loss experience for such assets and collectively assessed forimpairment.


Financial assets (Continued)

Non-financial assets

49



2.


(b)

2.10 PROVISIONS

Provisions are recognised when all of the following conditions have been met:

(a)

(b) It is probable that an outflow of reserves will be required to settle the obligation;and

(c) A reliable estimate of the amount can be made

2.11 OTHER LIABILITIES

2.12 EMPLOYEE BENEFITS

(a)

Provisions are reviewed at each balance sheet date and adjusted to reflect the currentbest estimate. Where the effect of the time value of money is material, the amount ofthe provision is the present value of the expenditure expected to be required to settlethe obligation.

Other liabilities are stated at cost which is the fair value of the consideration expectedto be paid in future for the goods and services received.

Short term employee benefits

Wages, salaries, bonuses, paid annual leave and non-monetary benefits areaccrued in the period in which the associated services are rendered by employeesof the Group and the Bank.

A provision is recognised for the amount expected to be paid under short termcash bonus or profit-sharing plans if the bank has a present legal or constructiveobligation to pay this amount as a result of past service provided by the employeeand the obligation can be estimated reliably.


The Group and the Bank has a present legal and constructive obligation as aresult of past events;

Non-financial assets (Continued)

The impairment loss is charged to the income statement. Any subsequentincrease in recoverable amount is recognised in the profit or loss.

50



2.

2.12 EMPLOYEE BENEFITS (Continued)

(b) Defined contribution plans

2.13 INCOME TAX

(a) Current tax

(b) Deferred tax

Deferred tax is determined using tax rate (and tax laws) that have been enacted orsubstantially enacted by the balance sheet date and are expected to apply whenthe related deferred tax asset is realised or deferred tax liability is settled.

Current tax assets and liabilities are measured at the amount expected to berecovered from or paid to the taxation authorities. The tax rates and tax laws usedto compute the amount are those that are enacted or substantively enacted by thereporting date.

Current taxes are recognised in profit or loss except to the extent that the taxrelates to items recognised outside profit or loss, either in other comprehensiveincome or directly in equity.


A defined contribution plan is a pension plan under which the Bank pays fixedcontributions to the national pension scheme, Employees’ Provident Fund (“EPF”).The Group and the Bank’s contributions to defined contribution plans are chargedto the income statement in the period to which they relate. Once the contributionshave been paid, the Bank has no further payment obligations.

Deferred income tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets or liabilities and the carryingamount of the asset or liability as reported in the financial statements. It reflectsthe manner in which the Group and the Bank expects to recover the carrying valueof the asset or settle the carrying value of the liability.

A deferred tax asset is recognised only to the extent that it is probable that futuretaxable profits will be available against which the deductible temporary differencescan be utilised.

51



2.

2.13 INCOME TAX (Continued)

(b) Deferred tax (Continued)

2.14 ZAKAT

2.15 FOREIGN CURRENCY TRANSLATION

(a)

(b)

Zakat represents business zakat payable by the Bank to comply with the principles ofShariah and as approved by the Shariah Advisory Council. The Bank only pays zakaton its business and does not pay zakat on behalf of depositors or shareholders. Thezakat provision is borne by the Bank’s Holding Company.


Functional and presentation currency

The financial statements of each of the Group’s and the Bank’s entities aremeasured using the currency of the primary economic environment in which theentity operates (“the functional currency”). The consolidated financial statementsare presented in Ringgit Malaysia, which is the Group’s functional andpresentation currency.

Transactions and balances

In preparing the financial statements of the Group and the Bank, transactions incurrencies other than the Group's functional currency (foreign currencies) arerecorded in the functional currencies using the exchange rates prevailing at thedates of the transactions. At each reporting date, monetary items denominated inforeign currencies are translated at the rates prevailing on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies aretranslated at the rates prevailing on the date when the fair value was determined.Non-monetary items that are measured in terms of historical cost in a foreigncurrency are not translated.

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

52



2.

2.15 FOREIGN CURRENCY TRANSLATION (Continued)

(b) Transactions and balances (Continued)

2.16 CONTINGENT LIABILITIES AND ASSETS

2.17 INCOME RECOGNITION

The Group and the Bank does not recognise a contingent liability but discloses itsexistence in the financial statements. A contingent liability is a possible obligation thatarises 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 andthe Bank or a present obligation that is not recognised because it is not probable thatan outflow of resources will be required to settle the obligation. A contingent liabilityalso arises in the extremely rare case where there is a liability that cannot berecognised because it cannot be measured reliably.

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

Foreign exchange gains and losses resulting from the settlement of suchtransaction and from translation at year-end exchange rates of monetary assetsand liabilities denominated in foreign currencies are recognised in profit or loss.

Finance income is recognised using the effective profit method (EPR). The EPR is therate that exactly discounts estimated future cash receipts through the expected life ofthe financing or, when appropriate, a shorter period to the net carrying amount of thefinancing.

Financing income on financing assets is recognised either on a monthly rest basis orconstant rate of return basis.

Customer’s account are classified as impaired where repayments are in arrears formore than 3 months from the first day of default for financing.


53



2.

2.17 INCOME RECOGNITION (Continued)

2.18 OPERATING LEASE

3.

(i)


Financing arrangement, management and participation fees, underwriting commissionsand brokerage fees are recognised as income based on contractual arrangements.Income from banking services is recognised as and when the related services arerendered. Fees from advisory and corporate finance activities are recognised net ofservice taxes and discounts on completion of each stage of the assignment. Other feesand commission on services and facilities extended to customers are recognised oninception of such transactions.

Income from Ijarah rental and sukuk is recognised based on contractual agreement.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements involved making certain estimates, assumptionsand judgments that affect the accounting policies applied and reported amounts of assets,liabilities, income and expenses. Actual results may differ from these estimates. Estimatesand underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognised in the financial statements in the period in which the estimate isrevised and in any future periods affected. Significant areas of estimation, uncertainty andcritical judgements used in applying accounting policies that have significant effect on theamount recognised in the financial statements include the following:

Under the operating lease, the Group and the Bank act as a lessee. The operatinglease payments are accounted for on a straight-line basis over the lease term andincluded in "Other overheads and expenditures".

Allowance for impairment on financing and advances

The Group and the Bank makes allowance for losses based on an objective evidenceof an impairment arising. Whilst management’s judgment is guided by the relevantBNM guidelines, judgment is made about the future and other key factors in respect ofthe recovery of the financing and advances. Amongst factors considered are theGroup’s and the Bank’s aggregate exposure to the borrower, the net realisable value ofthe underlying collateral value, the viability of the customer’s business model and thecapacity to generate sufficient cash flow to service debt obligations and the aggregateamount and ranking of all other creditor claims. The actual amount of the future cashflows and their timing may differ from the estimates used by management andconsequently may caused actual losses to differ from the impairment made.

54



3.

(i) Allowance for impairment on financing and advances (Continued)

(ii)

(iii)

(iv) Deferred taxes

Deferred tax assets are measured and recognised based on the tax rates that areexpected to apply in the period when the asset is realised. Estimates are made as tothe amount of taxable profits in these periods which will enable the deferred tax assetsto be realised.

Significant judgment is required in estimating the provision for income taxes. There aremany transactions and interpretations of tax law for which the final outcome will not beestablished until some time later. Liabilities for taxation are recognised based onestimates of whether additional taxes will be payable. The estimation process includesseeking advice on tax treatments where appropriate. Where the final liability fortaxation is different from the amounts that were intially recorded, the differences willaffect the income tax and deferred tax provisions in the period in which the estimate isrevised or the final liability is established.

Financing and advances that have been assessed individually but for which noimpairment is required and all individually insignificant loans, advances and financingare then assessed collectively, in groups of assets with similar credit riskcharacteristics, to determine whether provision should be made due to incurred lossevents for which there is objective evidence but whose effects of which are not yetevident. The collective assessment takes account of data from the financing andadvances (such as credit quality, levels of arrears, credit utilisation, loan to collateralratios etc.) and judgments on the effect of concentrations of risks (such as theperformance of different individual groups).

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (Continued)

Impairment assessment of securities

The Group and the Bank assessed whether there is objective evidence of impairmenton securities at each reporting date. If there is objective evidence that an impairmentloss has been incurred, the amount of the loss is measured as the difference betweenthe carrying amount and the present value of the estimated cash flows discounted atthe original effective yield at the securities held-to-maturity.

Valuation of investment properties

The measurement of the fair value for investment properties is arrived at by referenceto market evidence of transaction prices and physical inspection of the properties andis performed by a professional independent valuer.

55


NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2013

4. CASH AND SHORT TERM FUNDS

2013 2012RM'000 RM'000

Cash and bank balances with banks and other financial institutions 106,192 4,056 Money at call and deposit placements maturing within one month 349,195 1,454,586

455,387 1,458,642

5. HEDGING FINANCIAL INSTRUMENTS

NotionalAmount Assets LiabilitiesRM'000 RM'000 RM'000

Group and Bank

2013Foreign currency forward contracts 74,790 1,788 610 Total 74,790 1,788 610

2012Foreign currency forward contracts 129,550 460 1,133 Total 129,550 460 1,133

6. SECURITIES HELD-FOR-TRADING

2013 2012RM'000 RM'000

At fair valueQuoted securities:Unit Trust 4,792 4,985

7. SECURITIES AVAILABLE-FOR-SALE

2013 2012RM'000 RM'000

At fair valueBank Negara Malaysia Sukuk - 233,830

Fair Value

Group and Bank

Group and Bank

Group and Bank

56


NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2013 (Continued)

8. SECURITIES HELD-TO-MATURITY

2013 2012RM'000 RM'000

At amortised costUnquoted :Islamic government securities in Malaysia 1,014,320 - Islamic private debt securities in Malaysia 21,583 286,190

1,035,903 286,190

9. FINANCING AND ADVANCES

(a) Financing and advances analysed by types and Shariah contracts are as follows:

Bai’ Total netBithaman financing and

Ajil Qard advancesRM'000 RM'000 RM'000

At amortised costTerm Financing:Corporate financing 2,769,228 - 2,769,228 Personal financing 838,482 - 838,482 Home financing 1,094,437 - 1,094,437 SME financing 107,416 - 107,416 Vehicle financing 76,662 - 76,662 Shop-house financing 37,279 - 37,279 Charge cards - 2,216 2,216 Gross financing and advances 4,923,504 2,216 4,925,720

Less: Impairment allowance - Collective assessment (96,781) - Individual assessment (44,041) Total net financing and advances 4,784,898

Group and Bank2013

Group and Bank

57



9. FINANCING AND ADVANCES (Continued)

(a) Financing and advances analysed by types and Shariah contracts are as follows: (Continued)

Bai’ Total netBithaman financing and

Ajil Qard advancesRM'000 RM'000 RM'000

At amortised costTerm Financing:Corporate financing 2,547,593 - 2,547,593 Personal financing 996,862 - 996,862 Home financing 723,109 - 723,109 SME financing 114,795 - 114,795 Vehicle financing 31,167 - 31,167 Shop-house financing 23,961 - 23,961 Charge cards - 2,763 2,763 Gross financing and advances 4,437,487 2,763 4,440,250

Less: Impairment allowance - Collective assessment (121,000) - Individual assessment (29,386) Total net financing and advances 4,289,864

(b) Financing and advances analysed by type of customers are as follows:

2013 2012RM'000 RM'000

Domestic non-bank financial institutions 264,049 184,870 Domestic business enterprise 1,004,978 902,407 Individuals 2,016,064 1,742,134 Foreign entities 1,640,629 1,610,839

4,925,720 4,440,250

Group and Bank

Group and Bank2012

58




(c) Financing and advances analysed by profit rate sensitivity are as follows:

2013 2012RM'000 RM'000

Fixed rate: Corporate financing 1,260,468 1,038,533 Personal financing 838,482 996,862 SME financing 107,416 114,795 Home financing 22,382 26,675 Vehicle financing 76,662 31,167 Charge card 2,216 2,763 Shop-house financing 1,167 1,199

Variable rate: Home financing 1,072,055 696,434 Shop-house financing 36,112 22,762 Corporate financing 1,508,760 1,509,060

4,925,720 4,440,250

(d) Financing and advances analysed by maturity structure are as follows:

2013 2012RM'000 RM'000

Due within three months 531,779 547,796 More than three months to one year 430,626 193,937 More than one year to five years 1,886,315 1,974,480 More than five years 2,077,000 1,724,037

4,925,720 4,440,250

(e) Financing and advances analysed by geographical distribution are as follows:

2013 2012RM'000 RM'000

Malaysia 3,365,818 2,901,186 Saudi Arabia 1,508,760 1,509,060 Other Countries 51,142 30,004

4,925,720 4,440,250

Group and Bank

Group and Bank

Group and Bank

59




(f) Financing and advances analysed by economic purpose are as follows:

2013 2012RM'000 RM'000

Purchase of securities 1,508,760 1,509,060 Working capital 1,211,892 1,093,286 Purchase of property - residential property 1,107,268 726,018 Personal use 838,482 996,861 Purchase of commercial complex 86,391 -Purchase of vehicles 76,662 31,167 Others 49,931 50,850 Purchase of shop-house 39,899 26,809 Purchase of industrial buildings and factories 2,250 - Charge card 2,216 2,763 Construction 1,969 3,436

4,925,720 4,440,250

(g) Financing and advances analysed by sectors are as follows:

2013 2012RM'000 RM'000

Household 2,049,075 1,777,862 Telecommunication 1,508,760 1,515,273 Wholesale & Retail trade 389,611 356,934 Manufacturing 304,304 295,479 Finance intermediation 285,975 184,870 Transportation 64,346 106,510 Construction 148,776 103,279 Real estate, renting and business activities 113,147 60,066 Electricity, gas and water supply 52,842 30,003 Agriculture, hunting and related service activities 4,153 4,788

2,251 - Other business 2,233 4,773 Forestry, logging and related services activities 247 327 Hotel & restaurant - 86

4,925,720 4,440,250

Group and Bank

Group and Bank

Fishing, Operation of Fish Hatcheries, Fish Farms

60




(h) Movements in impaired financing and advances

2013 2012RM'000 RM'000

At 1 January 106,236 145,415 Impaired during the financial year 106,131 117,821 Reclassified as non impaired (19,641) (10,025) Recoveries (61,624) (43,011) Write-off (29,728) (103,964)

101,374 106,236

1.17% 1.74%

(i) Movements in the allowances for impaired financing and advances

2013 2012RM'000 RM'000

Collective assessment allowance

At 1 January 121,000 139,893 Allowance made during the financial year (Note 25(b)) 2,040 29,420 Amount written off (26,259) (48,313) Closing balance 96,781 121,000

1.98% 2.74%

Individual assessment allowance

At 1 January 29,386 57,700 Allowance made during the financial year (Note 25(a)) 22,638 26,133 Amount recovered during the financial year (Note 25(a)) (4,282) (1,190) Amount written off (3,701) (53,257) Closing balance 44,041 29,386

Included in amount classsified as impaired during the financial year is profit accrued onimpaired financing of RM63,737,000 (2012: RM67,994,000).

Group and Bank

Group and Bank

As % of total gross financing and advances less individual impairment allowances

Ratio of net impaired financing and advances to gross financing and advances less individual impairment allowances

61




(j) Impaired financing analysed by geographical distribution are as follows:

2013 2012RM'000 RM'000

Malaysia 101,374 106,236 101,374 106,236

(k) Impaired financing analysed by economic purpose are as follows:

2013 2012RM'000 RM'000

Working capital 48,560 45,623 Purchase of properties - residential 33,357 32,173 Personal use 18,472 28,020 Purchase of shophouse 484 - Charge card 329 404 Purchase of transport vehicles 172 16

101,374 106,236

(l) Impaired financing analysed by sector are as follows:

2013 2012RM'000 RM'000

Household 52,814 60,613 Manufacturing 42,578 31,771 Wholesale & retail trade 5,611 11,458 Other business 227 1,260 Real estate, renting and business activities 89 457 Construction 55 55 Transportation - 622

101,374 106,236

Group and Bank

Group and Bank

Group and Bank

62



10. OTHER ASSETS

2013 2012RM'000 RM'000

Other debtors and deposits 37,819 182,991 Sundry deposits 3,280 3,287

41,099 186,278

11. STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA

12. INVESTMENT IN SUBSIDIARY

Country of Principalincorporation activity 2013 2012

Al Rajhi Nominee Malaysia Nominee 100% 100% (Tempatan) Sdn Bhd services

*

13. INVESTMENT PROPERTIES

2013 2012RM'000 RM'000

At fair value

At 1 January 105,000 104,000 Gain from fair value adjustments - 1,000 At 31 December 105,000 105,000

Name

Group and Bank

Effective interest

Group and Bank

The non-interest bearing statutory deposit is maintained with Bank Negara Malaysia incompliance with Section 26(2) (c) of the Central Bank of Malaysia Act 2009, the amount ofwhich is determined as set percentages to total eligible liabilities.

The subsidiary was incorporated with a paid-up share capital of RM2. The income andexpenses of the subsidiary are borne by the Bank. The auditors' remuneration borne bythe Bank is RM2,000 (2012: RM2,000).

63



13. INVESTMENT PROPERTIES (Continued)

The following amounts have been reflected in the income statement:

2013 2012RM'000 RM'000

Rental income derived from investment properties 6,817 6,982 Direct operating expenses (243) (238) Profit arising from investment properties carried at fair value 6,574 6,744

The Group and the Bank have determined that the highest and best use of the investmentproperty is its current use.

Group and Bank

As at 31 December 2013 and 2012, the fair values of the properties are based on valuationcarried out by an independent qualified valuer, Raine & Horne using the Comparison Methodof Valuation approach. This method of valuation seeks to determine the value of theproperties being valued by comparing and adopting as a yardstick recent transactions andsale evidences involving other similar properties in the vicinity.

The Group's investment properties consist of one hundred and twenty eight (128) units ofstratified shop and office lots known as I-City at Shah Alam, Selangor, Malaysia.

The fair value hierarchy disclosures for investment properties have been provided in Note40.

The Group has no restrictions on the realisability of its investment properties and nocontractual obligations to either purchase, construct or develop investment properties or forrepairs, maintenance and enhancements.

64

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2013 67



16. DEFERRED TAX

2013 2012RM'000 RM'000

At 1 January 80,443 70,708 Transfer to/(from) income statement (Note 30) (2,606) 9,743 Transfer from/(to) equity 8 (8) At 31 December 77,845 80,443

2013 2012Group and Bank RM'000 RM'000

Deferred tax assets 77,845 80,443 Deferred tax liabilities - -

77,845 80,443

Deferred tax liabilities:

Excess of capital Securitiesallowances over Investment avilable-

depreciation properties for-sale TotalRM'000 RM'000 RM'000 RM'000

At 1 Jan 2013 (9,818) (500) (8) (10,326) Transfer to income statement (58) - 8 (50) At 31 Dec 2013 (9,876) (500) - (10,376)

At 1 Jan 2012 (7,932) (1,177) - (9,109) Transfer to income statement (1,941) (1,324) (8) (3,273) At 31 Dec 2012 (9,873) (2,501) (8) (12,382)

Group and Bank

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-offcurrent tax assets against current tax liabilities and when the deferred taxes relate to thesame authority. The following amounts are presented after appropriate offsetting in thestatement of financial position:

Group and Bank

The movements in deferred tax assets and liabilities during the financial year comprise thefollowing:

68



16. DEFERRED TAX (Continued)

Deferred tax assets:Unutilised

losses &unabsorbed

capitalProvisions allowances Total

RM'000 RM'000 RM'000Group and Bank

At 1 Jan 2013 4,659 87,191 91,850 Transfer (to) / from income statement (1,303) (2,326) (3,629) At 31 Dec 2013 3,356 84,865 88,221

At 1 Jan 2012 - 79,817 79,817 Transfer from income statement 6,274 6,734 13,008 At 31 Dec 2012 6,274 86,551 92,825

Unutilised tax losses and unabsorbed capital allowance

2013 2012RM'000 RM'000

Unutilised tax losses 221,240 229,764 Unabsorbed capital allowances 118,220 116,440

339,460 346,204

At the reporting date, the Group and the Bank has recognised deferred tax asset on thefollowing temporary difference:

The deferred tax assets have been recognised as at 31 December 2013 as the directors areof the view that it is probable for the Bank to realise the deferred tax asset.

In evaluating the ability to realise the deferred tax assets, the Bank relies principally onforecasted taxable income using historical and projected future operating results and thereversal of existing temporary differences within a five to six years horizon.

Group and Bank

69



17. DEPOSITS FROM CUSTOMERS

(i) By type of deposit

2013 2012RM'000 RM'000

Savings depositsQard 41,860 40,670 Mudarabah 127,525 112,767

Demand depositsQard 370,500 372,388 Mudarabah 407,186 190,035

Term depositCommodity Murabahah 1,983,257 2,815,812

General investment accountMudarabah 72,255 102,641 Wakalah 1,398,182 913,520

Other deposits 931 2,717 4,401,696 4,550,550

(ii) By type of customer

2013 2012RM'000 RM'000

Business enterprises 1,523,153 1,154,496 Government and statutory bodies 705,992 454,601 Individuals 283,948 278,481 Others 1,888,603 2,662,972

4,401,696 4,550,550

(iii) By maturity structure

2013 2012RM'000 RM'000

Due within three months 3,182,922 2,799,317 More than three months to one year 1,218,644 1,751,132 More than one year to five years 130 101

4,401,696 4,550,550

Group and Bank

Group and Bank

Group and Bank

70



18. DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

2013 2012RM'000 RM'000

Non-Mudharabah FundsLicensed Islamic banks 517,608 484,546 Licensed financial institutions 1,063,844 893,886

1,581,452 1,378,432

19. OTHER LIABILITIES

Note2013 2012

RM'000 RM'000

Other accruals and payables 40,808 58,540 Amount due to holding company 1,563 857 Purification by Shariah (i) 37 131

42,408 59,528

(i) Sources of funds for purification by Shariah:

2013 2012RM'000 RM'000

Sources of funds for purifiication:As at 1 Janaury 131 846 Transferred from other liabilities 36 - Total sources of funds during the year 167 846

Uses of funds for purification: - Charity purposes (130) (715)Undistributed funds for purification by Shariah 37 131

Group and Bank

Group and Bank

Group and Bank

71



20. SHARE CAPITAL

2013 2012RM'000 RM'000

Authorised: Ordinary shares of RM1.00 each 1 January / 31 December 1,000,000 1,000,000

Issued and fully paid: Ordinary shares of RM1.00 each 1 January / 31 December 1,000,000 1,000,000

21. RESERVES

Note2013 2012

RM'000 RM'000Non-distributable:Statutory reserve (i) 1,574 - Available-for-sale reserve (ii) - 26

1,574 26 Accumulated losses (285,645) (287,216)

(284,071) (287,190)

The nature and purpose of each category of reserve are as follows:

(i) Statutory reserve

(ii) Available-for-sale reserve

There were no changes to the authorised issued and paid-up capital of the Bank during thefinancial year.

Group and Bank

The statutory reserve is maintained in compliance with Capital Funds for Islamic Banksissued on 1 July 2013 and is not distributable as cash dividends.

This reserve represents the difference between fair value of the securities and theircosts determined as at the statements of financial position date, excluding the amountrelating to impaired securities.

72



21. RESERVES (Continued)

(ii) Available-for-sale reserve (continued)

Movements of the available-for-sale reserve are as follows:

2013 2012RM'000 RM'000

At 1 January 26 - Net unrealised gain on securities available-for-sale - 26 Transfer to profit or loss upon disposal (26) - At 31 December - 26

22. REVENUE

23. INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS AND OTHERS

2013 2012RM'000 RM'000

Income derived from investment of:(i) General investment deposits 3,998 5,043 (ii) Other deposits 296,695 292,059

300,693 297,102

(i) Income derived from investment of general investment deposits

2013 2012RM'000 RM'000

Finance income and hibahFinancing and advances 3,816 4,588 Money at call and deposit with financial institutions 182 455 Total finance income and hibah 3,998 5,043

Revenue of the Group and the Bank comprises financing income, fee and commissionincome and other income as derived from the banking operations.

Group and Bank

Group and Bank

Group and Bank

73



23.

(ii) Income derived from investment of other deposits

2013 2012RM'000 RM'000

Finance income and hibahFinancing and advances 255,474 243,775 Securities held-to-maturity 20,523 8,096 Securities available-for-sale 3,859 3,237 Money at call and deposit with financial institutions 11,181 20,235

291,037 275,343 Accretion of discount 5,658 16,716

296,695 292,059

24. INCOME DERIVED FROM INVESTMENT OF SHAREHOLDERS' FUNDS

2013 2012RM'000 RM'000

Finance income and hibahMoney at call and deposit with financial institutions 2,093 3,930 Total finance income and hibah 2,093 3,930

Other operating income - Gain from foreign exchange translations 7,993 8,039 - Rental income 6,817 6,982 - Realised gain on gold 3,916 3,386 - Unrealised gain on revaluation of investment

properties - 1,000 - Unrealised (loss) / gain on revaluation of securities

held-for-trading (193) 259 - Others 276 199

Other income - Service charges 8,272 8,229 - Commission received 7,562 5,398

36,736 37,422

Group and Bank

Group and Bank

INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS AND OTHERS(continued)

74



25. ALLOWANCE FOR IMPAIRMENT ON FINANCING

2013 2012RM'000 RM'000

Impaired financing and advances:(a) Individual assessment allowance

- provided during the financial year (Note 9(i)) 22,638 26,133 - written back during the financial year (Note 9(i)) (4,282) (1,190)

(b) Collective assessment allowance- provided during the financial year (Note 9(i)) 2,040 29,420

(c) Bad debts on financing- recovered (4,686) (3,857) - written off 86 281

15,796 50,787

26. INCOME ATTRIBUTABLE TO DEPOSITORS

2013 2012RM'000 RM'000

Deposits from customers- Non-Mudharabah 139,011 137,636 - Mudharabah 5,142 4,448

144,153 142,084 Deposits and placements of banks and other financial institutions- Non-Mudharabah 10,866 12,341

155,019 154,425

27. PERSONNEL EXPENSES

2013 2012RM'000 RM'000

Salaries and wages 42,737 42,581 Statutory contributions 9,254 9,918 Allowance and bonuses 12,078 14,204 Others 4,979 6,681

69,048 73,384

Group and Bank

Group and Bank

Group and Bank

75



28. OTHER OVERHEADS AND EXPENDITURES

2013 2012RM'000 RM'000

Marketing Advertisement and publicity 10,282 10,538

Establishment Office rental 9,433 8,557 Depreciation of property and equipment 8,390 9,200 Amortisation of intangible assets 11,825 12,652 Electronic data processing expenses 23,086 21,313 Premises 4,167 4,472 Others 458 403

General expenses Auditors' remuneration Statutory audit:

- Ernst & Young Malaysia 150 - - Other auditors - 112

Regulatory related services:- Ernst & Young Malaysia 95 - - Other auditors - 120

Other services:- Ernst & Young Malaysia 135 - - Other auditors - 97

Takaful and insurance 775 587 Professional fees 4,560 4,503 Security Service Charges 3,092 2,787 Communication 1,867 2,159 Transaction and outsourcing fees 6,882 6,149 Printing and stationeries 1,691 2,003 Entertainment 1,013 1,465 Shariah expenses 1,059 729 Others 2,828 3,207

91,788 91,053

Group and Bank

76



29. CEO, DIRECTORS AND SHARIAH BOARD MEMBERS' REMUNERATION

2013 2012RM'000 RM'000

Chief Executive Officer Salary and other remuneration including benefits-in-kind 832 1,118

832 1,118 Non-Executive Directors Fees 410 372

1,242 1,490 Shariah Board Members 1,058 692

2,300 2,182

2013 2012

Chief Executive Officer:RM800,000 to RM1,100,000 1 1

1 1

Non-Executive Directors:RM35,000 to RM50,000 1 - RM50,001 to RM100,000 1 1 RM100,001 to RM150,000 2 2

4 3

5 4

30. TAXATION

2013 2012RM'000 RM'000

Tax expense for the financial year: - Malaysian income tax - -

Deferred tax: - Relating to origination of temporary differences (Note 16) 2,606 (9,743)

2,606 (9,743)

Group and Bank

Group and Bank

The number of Directors of the Bank whose total remuneration during the financial year fallswithin the following bands is analysed below:

Number of DirectorsGroup and Bank

77



30. TAXATION (Continued)

2013 2012RM'000 RM'000

Profit / (loss) before zakat and taxation 5,753 4,085

Income tax using Malaysian tax rate of 25% (2012: 25%) 1,438 1,021 Tax effects from:- expense not deductible for tax purposes 1,095 1,262 - reduction in Malaysian income tax rate 2,489 - - income not subjected to tax (1,334) (388) - Recognition of previously unrecognised tax losses - (11,631) - (Under) / over provision in previous years (1,082) (7)

2,606 (9,743)

31. BASIC / DILUTED EARNINGS PER SHARE

2013 2012RM'000 RM'000

Net profit for the financial year (RM'000) 3,147 13,828 Average shares issued during the year ('000) 1,000,000 1,000,000 Basic profit per share (sen) 0.31 1.38

32. SIGNIFICANT RELATED PARTY BALANCES AND TRANSACTIONS

(a) Related parties and relationships

A reconciliation of income tax expense applicable to profit before tax at the statutory incometax rate to income tax expense at the effective income tax rate of the Bank are as follows:

Group and Bank

The basic and diluted earnings per ordinary share is calculated by dividing the Group's profitafter taxation for the financial year by the weighted average number of ordinary sharesoutstanding during the financial year.

Parties are considered to be related if one party has the ability to control the other partyor exercise significant influence over the other party in making financial or operationaldecisions, or if one other party controls both.

78



32. SIGNIFICANT RELATED PARTY BALANCES AND TRANSACTIONS (Continued)

(a) Related parties and relationships (Continued)

The related party and their relationship with the Bank are as follows:

(i) Al Rajhi Banking and Holding company.Investment Corporation,Saudi Joint Stock Company,Kingdom of Saudi Arabia

(ii) Key Management Personnel

(b) Significant related party transactions and balances are as follows:Key

Holding management2013 company personnel

RM'000 RM'000Amount due from - Financing and advances - 51,177 - Deposits placements - - Amount due to- Current accounts - i - 222 - Savings account - i - 228 - Deposits placements - - - Inter-company billings 1,563 -

Corporate Guarantee 1,508,445 -

The Directors are of the opinion that all transactions below have been entered into in thenormal course of business and have been established on terms and conditions that arenot materially different from those obtained in transactions with unrelated parties.

Defined as those persons having authorityand responsibility for planning, directingand controlling the activities of the Bankeither directly or indirectly. The keymanagement personnel of the Bankincludes all Directors of the Bank and theManagement Committee members of theBank.

Related party Relationship

79



32. SIGNIFICANT RELATED PARTY BALANCES AND TRANSACTIONS (Continued)

KeyHolding management

company personnel2013 (continued) RM'000 RM'000

Profit income from- Financing and advances - 691 - Deposits placements - -

Income attributable to depositors- Deposits placements - -

Short-term employee benefits- Salary and other remuneration - 5,894

2012

Amount due from - Financing and advances - 1,400 - Deposits placements 611,576 - Amount due to- Current accounts - i - 190 - Savings account - i - 135 - Deposits placements 658,229 - - Inter-company billings 857 -

Corporate Guarantee 1,508,445 -

Profit income from- Financing and advances - 31 - Deposits placements 1,231 -

Income attributable to depositors- Deposits placements 2,060 -

Short-term employee benefits- Salary and other remuneration - 7,608

The total key management personnel compensation includes Chief ExecutiveOfficer/Managing Director's remuneration of which details are disclosed in Note 29.

The corporate guarantee above is issued by the holding company to the Bank. Thecorporate guarantee provides security coverage for a corporate financing originated bythe Bank for a company incorporated in Kingdom of Saudi Arabia.

80

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ial y

ear a

re a

s fo

llow

s:

The

Cre

dit

Equ

ival

ent

and

Ris

kW

eigh

ted

for

the

Ban

kar

eco

mpu

ted

inac

cord

ance

with

BN

M's

Cap

italA

dequ

acy

Fram

ewor

kfo

rIs

lam

icB

anks

(CA

FIB

): S

tand

ardi

sed

App

roac

h fo

r Cre

dit a

nd M

arke

t Ris

k, a

nd B

asic

Indi

cato

r App

roac

h fo

r Ope

ratio

nal R

isk

(Bas

el II

) res

pect

ivel

y.

Inth

eno

rmal

cour

seof

busi

ness

,the

Gro

upm

ade

vario

usco

mm

itmen

tsan

din

curr

edce

rtain

cont

inge

ntlia

bilit

ies

with

lega

lrec

ours

eto

thei

rcu

stom

ers.

No

mat

eria

l los

ses

are

antic

ipat

ed a

s a

resu

lt of

thes

e tra

nsac

tions

.

81



34. CAPITAL COMMITMENTS

2013 2012RM'000 RM'000

Authorised and contracted for: Property and equipment 6,636 8,846

35.

2013 2012

Outstanding credit exposures with connected parties (RM'000) 60,810 5,830

Percentage of outstanding credit exposures to connected parties as proportion of capital base 8.5% 0.8%

Percentage of outstanding credit exposures to connected parties as proportion of total outstanding credit exposures 0.8% 0.1%

Based on these guidelines, a connected party refers to the following:

(i) Directors of the Bank and their close relatives;

(ii) Controlling shareholders' and their close relatives;

(iii)

(iv) Officers who are responsible for or have the authority to appraise and/or approve credittransactions or review the status of existing credit transactions, either as a member of acommittee or individually, and their close relatives;

Capital expenditure pertaining to the Group and the Bank as approved by Directors but notprovided for in the financial statements is as follows:

Group and Bank

CREDIT EXPOSURE ARISING FROM CREDIT TRANSACTIONS WITH CONNECTEDPARTIES

The disclosure on Credit Transactions and Exposures with Connected Parties above ispresented in accordance with para 9.1 of Bank Negara Malaysia’s revised Guidelines onCredit Transactions and Exposures with Connected Parties.

Executive officer, being member of management having authority and responsibility forplanning, directing and/or controlling the activities of the Bank, and his close relatives;

82



35.

Based on these guidelines, a connected party refers to the following: (Continued)

(v)

(vi) Any person for whom the persons listed in (i) to (iv) above is a guarantor; and

(vii) Subsidiary of or an entity controlled by the Bank and its connected parties.

36. FINANCIAL RISK MANAGEMENT

(a) Overview

(b) Financial instrument by category

The table below provide an analysis of financial instruments categorised as follows:

i. Financing and receivables (FR);ii. Securities held-to-maturity (HTM);iii. Securities held-for-trading (HFT);iv. Securities available-for-sale (AFS);v. Other financial liabilities (Other FL).

CREDIT EXPOSURE ARISING FROM CREDIT TRANSACTIONS WITH CONNECTEDPARTIES (Continued)

Firms, partnerships, companies or legal entities which control, or are controlled by anyperson listed in (i) to (iv) above, or in which they have an interest, as a director, partner,executive officer, agent or guarantor, and their subsidiaries or entities controlled by them;

Credit transactions and exposures to connected parties as disclosed above includes theextension of credit facilities and/or off-balance sheet credit exposures such as guarantees,trade-related facilities and loan commitments. It also includes holdings of equities and privatedebt securities issued by the connected parties.

The credit transaction with connected parties above are all transacted on arm’s length basisand on terms and conditions no more favourable than those entered into with othercounterparties with similar circumstances and credit worthiness. Due care has been taken toensure that the credit worthiness of the connected party is not less than that normally requiredof other persons.

The Group’s risk management practice seeks to ensure that adequate financial resourcesare available for the development of the Group’s businesses whilst managing its keyareas of credit, market, liquidity and operational risks.

The Group’s overall risk management framework, including the risk governance and therisk management process are set out in the Risk Management section in the DirectorsReport.

83

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(b)

Fina

ncia

l ins

trum

ent b

y ca

tego

ry (C

ontin

ued)

Car

ryin

gO

ther

amou

ntFR

HFT

AFS

HTM

FLR

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00G

roup

and

Ban

k20

13

Fina

ncia

l Ass

ets

Cas

h an

d sh

ort t

erm

fund

s45

5,38

7

45

5,38

7

-

-

-

-

H

edgi

ng fi

nanc

ial i

nstru

men

ts1,

788

1,

788

-

-

-

-

Fina

ncin

g an

d ad

vanc

es4,

784,

898

4,78

4,89

8

-

-

-

-

Sec

uriti

es h

eld-

to-m

atur

ity1,

035,

903

-

-

-

1,03

5,90

3-

S

ecur

ities

hel

d-fo

r-tra

ding

4,79

2

-

4,79

2

-

-

-

S

ecur

ities

ava

ilabl

e-fo

r-sa

le-

-

-

-

-

-

O

ther

ass

ets

41,0

99

41,0

99

-

-

-

-

6,32

3,86

75,

283,

172

4,79

2-

1,03

5,90

3

-

Fina

ncia

l Lia

bilit

ies

Dep

osits

from

cus

tom

ers

4,40

1,69

6-

-

-

-

4,40

1,69

6

D

epos

its a

nd p

lace

men

ts o

f ban

ks a

nd

ot

her f

inan

cial

inst

itutio

ns1,

581,

452

-

-

-

-

1,

581,

452

Hed

ging

fina

ncia

l ins

trum

ents

610

-

-

-

-

61

0

B

ills

and

acce

ptan

ces

paya

ble

12,5

41

-

-

-

-

12

,541

Oth

er li

abili

ties

42,4

08

-

-

-

-

42

,408

6,03

8,70

7-

-

--

6,03

8,70

7

84

AL

RA

JHI B

AN

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G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

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013

(Con

tinue

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36.

FIN

AN

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L R

ISK

MA

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ENT

(Con

tinue

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(b)

Fina

ncia

l ins

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y ca

tego

ry (C

ontin

ued)

Car

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amou

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HFT

AFS

HTM

FLR

M'0

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M'0

00R

M'0

00R

M'0

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M'0

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M'0

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roup

and

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Cas

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1,45

8,64

2

-

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-

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ging

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ncia

l ins

trum

ents

460

460

-

-

-

-

Fi

nanc

ing

and

adva

nces

4,28

9,86

44,

289,

864

-

-

-

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S

ecur

ities

hel

d-to

-mat

urity

286,

190

-

-

-

286,

190

-

Sec

uriti

es h

eld-

for-

tradi

ng4,

985

-

4,

985

-

-

-

Sec

uriti

es a

vaila

ble-

for-

sale

233,

830

-

-

233,

830

-

-

Oth

er a

sset

s18

6,27

8

18

6,27

8

-

-

-

-

6,

460,

249

5,93

5,24

44,

985

233,

830

286,

190

-

Fina

ncia

l Lia

bilit

ies

Dep

osits

from

cus

tom

ers

4,55

0,55

0-

-

-

-

4,55

0,55

0

D

epos

its a

nd p

lace

men

ts o

f ban

ks a

nd

ot

her f

inan

cial

inst

itutio

ns1,

378,

432

-

-

-

-

1,

378,

432

Bill

s an

d ac

cept

ance

s pa

yabl

e16

2,34

4

-

-

-

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162,

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O

ther

liab

ilitie

s59

,528

-

-

-

-

59,5

28

6,

150,

854

-

--

-

6,

150,

854

85



36. FINANCIAL RISK MANAGEMENT (Continued)

(c) Credit Risk Management

(i) Credit Risk management overview

(ii) Maximum exposure to credit risk

Credit risk is the potential loss of revenue as a result of defaults by borrowers orcounterparties through the Group’s and the Bank’s lending, hedging, trading andinvesting activities. The primary exposure to credit risk arises through its financingand advances as well as financial transactions with counterparties includinginterbank money market activities and debt securities. The amount of creditexposure is represented by the carrying amounts of the assets in the statement offinancial position.

The management of credit risk is governed by credit policies and guidelinesdocumenting the lending standards, discretionary power for financing approval,credit risk rating, collateral and valuation, review, and restructuring of problematicand delinquent financing. The management of counterparties are guided bycounterparty limit, counterparty ratings, tenure and types of permissible transactionsand these are subject to regular review.

The maximum exposure to credit risk at the statement of financial position is theamount on the statement of financial position as well as off balance sheet financialinstruments, without taking into account of any collateral held or creditenhancements. For contingent liabilities, the maximum exposure to credit risk is themaximum that the Bank would have to pay if the obligations of the instrumentsissued are called upon. For credit commitments, the maximum exposure to creditrisk is the full amount of the undrawn credit facilities granted to customers.

86




(c) Credit Risk Management (Continued)

(ii) Maximum exposure to credit risk (Continued)

2013 2012RM'000 RM'000

Group and Bank

Credit risk exposure relating to on-balance sheet assets:Cash and short term funds 455,387 1,458,642 Hedging financial instruments 1,788 460 Securities held-for-trading 4,792 4,985 Securities available-for-sale - 233,830 Securities held-to-maturity 1,035,903 286,190 Financing and advances 4,784,898 4,289,864 Other assets 9,943 12,489

6,292,711 6,286,460

Credit risk exposure of off-balance sheet items:Commitment and contingencies 2,021,372 1,788,355

Total maximum credit risk exposure 8,314,083 8,074,815

(iii) Credit Risk Concentration

A concentration of credit risk exists when a number of counterparties are engagedin similar activities and have similar economic characteristics that would cause theirability to meet contractual obligations to be similarly affected by changes ineconomic and other conditions. The Group analysed the credit risk concentration byindustry segments and geographic in which the customer is engaged.

The table below shows the maximum exposure to credit risk of the Group and the Bank:

Group and Bank

The financial effect of collateral (quantification of the extent to which collateral andother credit enhancements mitigate credit risk) held for financing and advances asat 31 December 2013 for the Bank is 27.3% (2012: 21.6%). The financial effect ofcollateral held for the other financial assets is not significant.

87

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

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tinue

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ISK

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who

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and

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cons

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tem

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M'0

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S

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S

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ava

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Sec

uriti

es h

eld-

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atur

ity61

0,94

540

3,37

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21

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-

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1,03

5,90

3G

ross

fina

ncin

g

and

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nces

-

285,

975

1,57

5,33

9

75

0,90

9

26

1,92

2

1,

094,

437

76,6

62

88

0,47

6

4,

925,

720

Oth

er a

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9,94

3

-

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-

-

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9,94

3

Tota

l64

5,26

0

1,11

5,21

41,

587,

070

772,

492

261,

922

1,09

4,43

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88

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6

6,

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533

88

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RA

JHI B

AN

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G A

ND

INVE

STM

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CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

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in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

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DEC

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M'0

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M'0

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M'0

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2012

Sho

rt te

rm fu

nds

262,

826

1,

195,

816

-

-

-

-

-

-

1,45

8,64

2H

edgi

ng fi

nanc

ial i

nstru

men

ts-

-

460

-

-

-

-

-

460

Sec

uriti

es h

eld-

for-

tradi

ng-

4,

985

-

-

-

-

-

-

4,98

5

Sec

uriti

es a

vaila

ble-

for-

sale

-

233,

830

-

-

-

-

-

-

23

3,83

0

S

ecur

ities

hel

d-to

-mat

urity

-

253,

185

-

33,0

05

-

-

-

-

28

6,19

0

G

ross

fina

ncin

g

and

adva

nces

-

184,

870

1,62

6,55

6

68

7,61

6

16

3,34

5

72

3,10

9

31,1

67

1,

023,

587

4,44

0,25

0O

ther

ass

ets

-

-

12

,489

-

-

-

-

-

12

,489

To

tal

262,

826

1,

872,

686

1,63

9,50

572

0,62

116

3,34

572

3,10

931

,167

1,

023,

587

6,

436,

846

89





(iii) Credit Risk Concentration (Continued)

(b) Credit Risk - Credit Risk Concentration - By Geographical Analysis

OtherMalaysia Saudi Arabia countries Total

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

Group and Bank

2013Cash and short term funds 409,496 21,459 24,432 455,387 Hedging financial instruments 1,788 - - 1,788 Securities held-for-trading 4,792 - - 4,792 Securities available-for-sale - - - - Securities held-to-maturity 1,035,903 1,035,903 Gross financing and advances 3,365,818 1,508,760 51,142 4,925,720 Other assets 9,943 - - 9,943 Total 4,827,740 1,530,219 75,574 6,433,533

Group and Bank

2012Cash and short term funds 755,758 639,197 63,687 1,458,642 Hedging financial instruments 460 - - 460 Securities held-for-trading 4,985 - - 4,985 Securities available-for-sale 233,830 - - 233,830 Securities held-to-maturity 286,190 - - 286,190 Gross financing and advances 2,901,186 1,509,060 30,004 4,440,250 Other assets 12,489 - - 12,489 Total 4,194,898 2,148,257 93,691 6,436,846

90





(iv) Collateral

• for personal housing financing : mortgages over residential properties

• for commercial property financing : charges over the properties being financed

• for vehicle financing : charges over the vehicles financed• for other financing : charges over business assets such as

premises, inventories, trade receivables or deposits

(v) Credit quality of financial assets

- neither past due nor impaired - past due but not impaired - impaired

The main types of collateral obtained by the Group and the Bank to mitigate creditrisk are as follows:

There are no assets held by the Bank as at 31 December 2013 as a result of takingpossession of collaterals held as securities.

Repossessed properties are made available for sale in an orderly fashion, with theproceeds used to reduced or repay the outstanding indebtedness. The Bankgenerally does not occupy the premises repossessed for its business use.

For the purposes of disclosure relating to MFRS 7, all financial assets arecategorized into the following:

The Bank assesses credit quality of financing and advances using internal ratingtechniques tailored to the various categories of products and counterparties. Thesetechniques have been developed internally and combine statistical analysis withcredit officers' judgment.

91





(v) Credit quality of financial assets (Continued)

Internal ratings Description

- Investment grade

- Non-Investment grade

- AAA to AA3- A1 to A3- Baa1 to Baa3- P1 to P3- Non rated

Strong(est) credit quality which associated withgeneral standards of investment grade as perdefined by international rating agency such asStandard and Poor's (S&P), Moody's, Fitch, andJapan Credit Rating Agency (JCR).

Weaker credit quality which associated withgeneral standards of non-investment grade asper defined by international rating agency suchas Standard and Poor's (S&P), Moody's, Fitch,and Japan Credit Rating Agency (JCR).

The credit quality of financial assets other than financing and advances aredetermined based on the ratings of counterparties as defined by Moody’s orequivalent ratings of other international rating agencies as defined below:

92





(vi) Credit quality of financial assets - gross financing and advances

2013 2012RM'000 RM'000

Neither past due nor impaired 4,604,535 4,171,805 Past due but not impaired 219,811 162,209 Impaired 101,374 106,236 Gross financing and advances 4,925,720 4,440,250 Less: Collective impairment allowance (96,781) (121,000)

Individual impairment allowance (44,041) (29,386) Net financing and advances 4,784,898 4,289,864

2013 2012RM'000 RM'000

Current 4,604,535 4,171,805 Past due 1-30 days 155,316 100,834 Past due 31-90 days 64,495 61,375 Past due more than 90 days 101,374 106,236

4,925,720 4,440,250 Collective impairment (96,781) (121,000) Individual impairments (44,041) (29,386) Net financing and advances 4,784,898 4,289,864

Group and Bank

The ageing of financing and advances as at the end of the financial year are asfollows:

Group and Bank

93





(vii)

FinancialHedging assets/

Short term financial investments Otherfunds instruments portfolios assets

RM'000 RM'000 RM'000 RM'0002013Neither past due nor impaired 455,387 1,788 1,035,903 9,943

455,387 1,788 1,035,903 9,943

2012Neither past due nor impaired 1,458,642 460 525,005 12,489

1,458,642 460 525,005 12,489

(a) Analysed by rating agency designation are as follows:

FinancialCash and Hedging assets/

Short term financial investments Otherfunds instruments portfolios assets

RM'000 RM'000 RM'000 RM'0002013AAA to A- 434,621 - 1,014,320 - BBB+ to B- 20,096 - - - Unrated 670 1,788 26,375 9,943

455,387 1,788 1,040,695 9,943

2012AAA to A- 1,456,046 - 487,015 - BBB+ to B- 1,793 - - - Unrated 803 460 37,990 12,489

1,458,642 460 525,005 12,489

Credit quality of financial assets - securities portfolio and other financial assets

94





(viii) Credit quality of impaired financial assets

(a) Impaired financial assets analysed by geographic purpose are as follows:

Financialassets/

Financing & investmentsadvances portfolios Total

RM'000 RM'000 RM'000

2013Malaysia 101,374 - 101,374

101,374 - 101,374

2012Malaysia 106,236 - 106,236

106,236 - 106,236

(b) Impaired financial assets analysed by industry sector are as follows:

Financialassets/


RM'000 RM'000 RM'000

2013Household 52,814 - 52,814 Construction 55 - 55 Manufacturing 42,578 - 42,578 Wholesale & retail trade 5,611 - 5,611 Other business 227 - 227 Real estate, renting and business activities 89 - 89

101,374 - 101,374

95





(viii) Credit quality of impaired financial assets

(b)

Financialassets/


RM'000 RM'000 RM'000

2012Household 60,613 - 60,613 Construction 55 - 55 Manufacturing 31,771 - 31,771 Wholesale & retail trade 11,458 - 11,458 Other business 1,260 - 1,260 Transportation 622 - 622 Real estate, renting and business activities 457 - 457

106,236 - 106,236

(ix) Reconciliation of allowance

2013 2012RM'000 RM'000

At 1 January - as previously stated 150,386 154,262 - effect of adoption of MFRS 139 - 43,331 At 1 January, restated 150,386 197,593 Impairment loss recognised 24,678 55,553 Impairment loss reversed (4,282) (1,190) Impairment written-off (29,960) (101,570) At 31 December 140,822 150,386

The movements in the allowance for impairment losses of financing and advancesduring the financial year are as follows:

Group and Bank

Impaired financial assets analysed by industry sector are as follows:(Continued)

96




(d) Market Risk Management

(i) Profit rate sensitivity analysis

Impact on Impact onprofit after Impact on profit after Impact on

tax equity tax equityRM'000 RM'000 RM'000 RM'000

Group and Bank

+ 25 basis points 109 109 6 6 - 25 basis (109) (109) (6) (6) points

+ 50 basis points 217 217 11 11 - 50 basis (217) (217) (11) (11) points

(ii) Foreign currency sensitivity analysis

Impact on Impact onprofit after Impact on profit after Impact on

tax equity tax equityRM'000 RM'000 RM'000 RM'000

Group and Bank

+5% 1,002 1,002 825 825 - 5% (1,002) (1,002) (825) (825)

2013 2012

Market risk sensitivity assessment is based on the changes in key variables; such asprofit rates while all other variables remain unchanged. The sensitivity factors used areassumptions based on parallel shifts in the key variables and the impact on the re-pricedmismatches of assets and liabilities position of the bank as at 31 December 2013.

2013 2012

The foreign currency sensitivity represents the effect of the appreciation ordepreciation of the foreign currency rates on the consolidated currency position,while other variables remain constant.

97

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

ate

Ris

k

Up

to 1

> 1

-3>

3 - 1

21

- 5N

on-p

rofit

Trad

ing

Effe

ctiv

em

onth

mon

ths

mon

ths

year

s>

5 ye

ars

sens

itive

book

Tota

lpr

ofit

rate

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

%G

roup

and

Ban

k

2013

Ass

ets

Cas

h an

d sh

ort t

erm

fund

s34

9,13

3

-

-

-

-

106,

254

-

455,

387

3.39

Hed

ging

fina

ncia

l ins

trum

ents

-

-

-

-

-

-

1,

788

1,78

8

-

S

ecur

ities

hel

d-fo

r-tra

ding

-

-

-

-

-

-

4,

792

4,79

2

-

S

ecur

ities

ava

ilabl

e-fo

r-sa

le-

-

-

-

-

-

-

-

-

Sec

uriti

es h

eld-

to-m

atur

ity-

-

21

,583

-

99

9,28

4

15

,036

-

1,

035,

903

3.

67

Fi

nanc

ing

and

adva

nces

- per

form

ing

1,28

7,47

7

267,

096

1,93

6,03

5

359,

982

94

4,28

9

29

,467

-

4,

824,

346

- Non

per

form

ing(1

)-

-

-

-

-

(3

9,44

8)

-

(39,

448)

Oth

er a

sset

s(2)

-

-

-

-

-

471,

868

-

471,

868

-

To

tal a

sset

s1,

636,

610

267,

096

1,95

7,61

835

9,98

21,

943,

573

583,

177

6,58

0

6,

754,

636

The

Gro

upis

expo

sed

tova

rious

risks

asso

ciat

edw

ithth

eef

fect

sof

fluct

uatio

nsin

the

prev

ailin

gle

vels

ofyi

eld/

prof

itra

teon

itsfin

anci

alpo

sitio

n.Th

era

teof

retu

rnris

kis

the

pote

ntia

lim

pact

ofm

arke

tfa

ctor

saf

fect

ing

rate

son

retu

rns

inco

mpa

rison

with

the

expe

cted

rate

sof

retu

rnfo

rin

vest

men

tacc

ount

hold

ers.

Yie

ld/p

rofit

rate

ism

onito

red

and

man

aged

byth

eA

LCO

topr

otec

tthe

inco

me

ofits

oper

atio

ns.T

heas

sets

and

liabi

litie

s at

car

ryin

g am

ount

are

cat

egor

ised

by

the

earli

er o

f the

nex

t con

tract

ual r

epric

ing

date

s an

d m

atur

ity d

ates

as

follo

ws:

5.49

98

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

ate

Ris

k (C

ontin

ued)

Up

to 1

> 1

-3>

3 - 1

21

- 5N

on-p

rofit

Trad

ing

Effe

ctiv

em

onth

mon

ths

mon

ths

year

s>

5 ye

ars

sens

itive

book

Tota

lpr

ofit

rate

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

%

Gro

up a

nd B

ank

(Con

tinue

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2013

(Con

tinue

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Liab

ilitie

s D

epos

its fr

om c

usto

mer

s1,

666,

302

1,

160,

761

1,

211,

609

13

0

-

36

2,89

4

-

4,

401,

696

2.

45

D

epos

its a

nd p

lace

men

ts

of

ban

ks a

nd o

ther

fina

ncia

l

inst

itutio

ns36

6,37

8

83

0,00

0

37

0,34

4

-

-

14,7

30

-

1,58

1,45

2

3.36

Hed

ging

fina

ncia

l ins

trum

ents

-

-

-

-

-

-

61

0

610

-

B

ills

and

acce

ptan

ce

pa

yabl

e-

-

-

-

-

12

,541

-

12

,541

-

Oth

er li

abili

ties

-

-

-

-

-

42,4

08

-

42,4

08

-

To

tal l

iabi

litie

s2,

032,

680

1,99

0,76

1

1,58

1,95

313

0

-

432,

573

610

6,

038,

707

Sha

reho

lder

s' fu

nd-

-

-

-

-

71

5,92

9

-

71

5,92

9

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tal l

iabi

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s an

d

shar

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ders

' fun

d2,

032,

680

1,99

0,76

1

1,58

1,95

313

0

-

1,14

8,50

2

610

6,

754,

636

99

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

ate

Ris

k (C

ontin

ued)

Up

to 1

> 1

-3>

3 - 1

21

- 5N

on-p

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Trad

ing

mon

thm

onth

sm

onth

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> 5

year

sse

nsiti

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okR

M'0

00R

M'0

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M'0

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M'0

00R

M'0

00R

M'0

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M'0

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Gro

up a

nd B

ank

(Con

tinue

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2013

(Con

tinue

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On-

bala

nce

shee

t pro

fit

se

nsiti

vity

gap

(396

,070

)

(1,7

23,6

65)

37

5,66

5

35

9,85

2

1,94

3,57

3

(565

,325

)

5,

970

Off-

bala

nce

shee

t pro

fit

se

nsiti

vity

gap

-

-

-

-

-

2,02

1,37

2

-

Tota

l pro

fit

se

nsiti

vity

gap

(396

,070

)

(1,7

23,6

65)

375,

665

35

9,85

21,

943,

573

1,45

6,04

7

5,97

0

Not

e:

(1)

(2)

Oth

er a

sset

s in

clud

e pr

oper

ty a

nd e

quip

men

t, de

ferr

ed ta

x as

sets

and

sta

tuto

ry d

epos

its w

ith B

ank

Neg

ara

Mal

aysi

a.

This

is a

rriv

ed a

t afte

r ded

uctin

g th

e co

llect

ive

and

indi

vidu

al im

pairm

ent a

llow

ance

from

the

outs

tand

ing

gros

s no

n pe

rform

ing

finan

cing

.

100

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

ate

Ris

k (C

ontin

ued)

Up

to 1

> 1

-3>

3 - 1

21

- 5N

on-p

rofit

Trad

ing

Effe

ctiv

em

onth

mon

ths

mon

ths

year

s>

5 ye

ars

sens

itive

book

Tota

lpr

ofit

rate

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

%G

roup

and

Ban

k

2012

Ass

ets

Cas

h an

d sh

ort t

erm

fund

s1,

454,

198

-

-

-

-

4,44

4

-

1,

458,

642

2.

57

H

edgi

ng fi

nanc

ial i

nstru

men

ts-

-

-

-

-

46

0

-

460

-

S

ecur

ities

hel

d-fo

r-tra

ding

-

-

-

-

-

-

4,

985

4,98

5

-

S

ecur

ities

Ava

ilabl

e-fo

r-sa

le-

-

23

0,58

8

-

-

3,24

2

-

23

3,83

0

3.

69

S

ecur

ities

hel

d-to

-mat

urity

-

33

,005

25

0,00

0

-

-

3,18

5

-

28

6,19

0

2.

97

Fi

nanc

ing

and

adva

nces

- per

form

ing

956,

496

227,

886

1,69

9,37

5

437,

486

97

9,13

3

33

,638

-

4,

334,

014

- Non

per

form

ing(1

)-

-

-

-

-

(4

4,15

0)

-

(44,

150)

Oth

er a

sset

s(2)

-

-

-

-

-

590,

826

-

590,

826

-

To

tal a

sset

s2,

410,

694

260,

891

2,17

9,96

343

7,48

697

9,13

3

591,

645

4,98

5

6,

864,

797

6.15

101

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

ate

Ris

k (C

ontin

ued)

Up

to 1

> 1

-3>

3 - 1

21

- 5N

on-p

rofit

Trad

ing

Effe

ctiv

em

onth

mon

ths

mon

ths

year

s>

5 ye

ars

sens

itive

book

Tota

lpr

ofit

rate

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

%

Gro

up a

nd B

ank

(Con

tinue

d)

2012

(Con

tinue

d)

Liab

ilitie

s D

epos

its fr

om c

usto

mer

s1,

330,

465

1,

167,

755

1,

743,

891

10

1

-

30

8,33

8

-

4,

550,

550

2.

73

D

epos

its a

nd p

lace

men

ts

of

ban

ks a

nd o

ther

fina

ncia

l

inst

itutio

ns71

5,00

0

56

4,03

3

90

,000

-

-

9,39

9

-

1,

378,

432

3.

29

H

edgi

ng fi

nanc

ial i

nstru

men

ts-

-

-

-

-

-

1,13

3

1,

133

-

Bill

s an

d ac

cept

ance

pay

able

-

-

-

-

-

162,

344

-

162,

344

-

O

ther

liab

ilitie

s-

-

-

-

-

59

,528

-

59

,528

-

Tota

l lia

bilit

ies

2,04

5,46

51,

731,

788

1,

833,

891

101

-

53

9,60

9

1,

133

6,15

1,98

7

Sha

reho

lder

s' fu

nd-

-

-

-

-

71

2,81

0

-

71

2,81

0

To

tal l

iabi

litie

s an

d

shar

ehol

ders

' fun

d2,

045,

465

1,73

1,78

8

1,83

3,89

110

1

-

1,25

2,41

9

1,13

3

6,

864,

797

102

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

ate

Ris

k (C

ontin

ued)

Up

to 1

> 1

-3>

3 - 1

21

- 5N

on-p

rofit

Trad

ing

mon

thm

onth

sm

onth

sye

ars

> 5

year

sse

nsiti

vebo

okR

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00

Gro

up a

nd B

ank

(Con

tinue

d)

2012

(Con

tinue

d)

On-

bala

nce

shee

t pro

fit

se

nsiti

vity

gap

392,

563

(1,3

97,1

07)

37

4,28

7

43

7,38

5

979,

133

(791

,246

)

4,

985

Off-

bala

nce

shee

t pro

fit

se

nsiti

vity

gap

-

-

-

-

-

1,78

8,35

5

-

Tota

l pro

fit

se

nsiti

vity

gap

392,

563

(1

,397

,107

)37

4,28

7

437,

385

979,

133

99

7,10

9

4,

985

Not

e:

(1)

(2)

Oth

er a

sset

s in

clud

e pr

oper

ty a

nd e

quip

men

t, de

ferr

ed ta

x as

sets

and

sta

tuto

ry d

epos

its w

ith B

ank

Neg

ara

Mal

aysi

a.

This

is a

rriv

ed a

t afte

r ded

uctin

g th

e co

llect

ive

and

indi

vidu

al im

pairm

ent a

llow

ance

from

the

outs

tand

ing

gros

s no

n pe

rform

ing

finan

cing

.

103




(e) Operational Risk Management

(f) Liquidity Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes,people and systems or from external events. This risk is managed through establishedoperational risk management processes, proper monitoring and reporting of the businessunits’ adherence to established risk policies, procedures and limits by independentcontrol and support units, and oversight provided by the management and the Board.

The operational risk management processes encompass appropriate documentation ofprocesses and procedures within the framework of system of internal controls, regulardisaster recovery and business continuity planning and simulations, self-compliance auditand internal audit.

Liquidity risk relates to the ability of the Group and of the Bank to maintain sufficient liquidassets to meet financial commitments and obligations when they fall due at a reasonablecost. The Assets and Liabilities Management Committee is the primary party responsiblefor liquidity management based on guidelines approved by the Risk ManagementCommittee. The management of the liquidity risk is aligned to the New LiquidityFramework issued by Bank Negara Malaysia supplemented by liquidity risk managementcontrol and limits and a liquidity stress testing program. Liquidity limits are set for cashflow mismatches. In addition, liquidity trigger limits and concentration ratios are in placeto serve as liquidity early warning indicators.

104

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

The

tabl

e be

low

ana

lyse

s as

sets

and

liab

ilitie

s ba

sed

on th

e re

mai

ning

beh

avio

ural

mat

urity

:

Up

to 7

> 7

days

->

1 - 3

> 3

- 6>

6 - 1

2da

ys1

mon

thm

onth

sm

onth

sm

onth

s>

1 ye

arTo

tal

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Gro

up a

nd B

ank

2013

Ass

ets

Cas

h an

d sh

ort t

erm

fund

s40

6,21

6

49,1

71

-

-

-

-

455,

387

Hed

ging

fina

ncia

l ins

trum

ents

1,13

6

622

30

-

-

-

1,78

8

S

ecur

ities

hel

d-fo

r-tra

ding

4,79

2

-

-

-

-

-

4,

792

Sec

uriti

es a

vaila

ble-

for-

sale

-

-

-

-

-

-

-

Sec

uriti

es h

eld-

to-m

atur

ity-

-

21

,583

-

-

1,01

4,32

0

1,03

5,90

3Fi

nanc

ing

and

adva

nces

108,

703

18

1,33

5

230,

908

16

9,64

0

262,

647

3,

831,

665

4,

784,

898

Sta

tuto

ry d

epos

its w

ith

B

ank

Neg

ara

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aysi

a19

4,26

8

-

-

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-

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19

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ther

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ets

16,1

00

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5

59

2

1,

214

2,

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25

6,90

8

27

7,60

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sset

s73

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5

231,

623

25

3,11

3

170,

854

26

4,93

8

5,10

2,89

3

6,75

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6

105

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

Up

to 7

> 7

days

->

1 - 3

> 3

- 6>

6 - 1

2da

ys1

mon

thm

onth

sm

onth

sm

onth

s>

1 ye

arTo

tal

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'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Gro

up a

nd B

ank

(Con

tinue

d)

2013

(Con

tinue

d)Li

abili

ties

Dep

osits

from

cus

tom

ers

326,

930

1,

112,

241

1,28

0,20

4

88

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0

560,

867

23

7,66

4

4,

401,

696

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osits

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pla

cem

ents

of b

anks

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24

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8,42

9

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47

7,07

4

-

-

1,

581,

452

Hed

ging

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ncia

l ins

trum

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80

36

6

16

4

-

-

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610

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ills

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acce

ptan

ce p

ayab

le12

,541

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-

-

-

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12

,541

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ther

liab

ilitie

s28

,059

239

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70

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540

-

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08

Tota

l lia

bilit

ies

417,

734

1,

431,

275

2,02

7,76

3

1,

363,

404

560,

867

23

7,66

4

6,

038,

707

Sha

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-

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-

-

71

5,92

9

71

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417,

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2,02

7,76

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363,

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560,

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95

3,59

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6,

754,

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Net

mat

urity

mis

mat

ch31

3,48

1

(1,1

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52)

(1

,774

,650

)

(1,1

92,5

50)

(2

95,9

29)

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0

106

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

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ENT

(Con

tinue

d)

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Liqu

idity

Ris

k (C

ontin

ued)

Up

to 7

> 7

days

->

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mon

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'000

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ets

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h an

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194,

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82

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0

58

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2,63

8

6,86

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7

107

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

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ISK

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ENT

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k (C

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tal

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abili

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345,

000

91

1,34

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550

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cem

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of b

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20

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1

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582

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-

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378,

432

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ncia

l ins

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-

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pay

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162,

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9

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mat

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mat

ch51

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995

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73,9

31)

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2,55

3

108

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

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ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

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to 7

> 7

days

->

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- 6>

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ys1

mon

thm

onth

sm

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sm

onth

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tal

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1,

286,

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-

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1,

591,

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70

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-

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08

To

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litie

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3,20

6

1,43

3,64

62,

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558

1,37

5,50

757

3,75

824

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9

6,05

6,73

4

The

follo

win

gta

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pres

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the

cash

outfl

ows

fort

heG

roup

'sfin

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allia

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byre

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ning

cont

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atur

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onun

disc

ount

edba

sis.

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bala

nces

inth

eta

ble

belo

ww

illno

tag

ree

toth

eba

lanc

esre

porte

din

the

stat

emen

tsof

finan

cial

posi

tion

asth

eta

ble

inco

rpor

ates

all

cont

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ual c

ash

flow

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n an

und

isco

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d ba

sis,

rela

ting

to b

oth

prin

cipa

l and

pro

fit p

aym

ents

.

109

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

36.

FIN

AN

CIA

L R

ISK

MA

NA

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ENT

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tinue

d)

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idity

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k (C

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l ins

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ills

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-

-

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er li

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ties

21,9

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11

,307

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13,6

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0

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,462

60

,528

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l lia

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602,

455

1,

567,

022

1,77

5,66

383

9,73

6

1,08

1,85

0

342,

368

6,

209,

094

110




(g) Capital Management Policy

• Enhance our economic capital management;• Refine risk based pricing methods for the products and services; and• Improve asset quality across the businesses of the Group.

37. CAPITAL ADEQUACY

The Group has adopted Bank Negara Malaysia's Capital Adequacy Framework for IslamicBanks ("CAFIB") guidelines to further improve capital adequacy assessment; enhance riskmanagement processes, measurements and management capabilities; as well as to promotethorough and transparent reporting.

Capital risk is defined as the risk that the Group has insufficient capital to provide asufficient resource to absorb predetermined levels of losses or that the capital structure isinefficient.

Capital risk appetite is set by the Board and reported through various metrics that enablethe Group to manage capital constraints and shareholder expectations. The Assets andLiabilities Management Committee regularly revise performance against risk appetite.

A capital exposure arises where the Group has insufficient regulatory capital resources tosupport its strategic objectives and plans, and to meet external shareholder requirementsand expectations. The Group’s capital management policy is focused on optimising valuefor shareholders.

Capital Management and Basel II

The infrastructure implementation that has been completed has already yieldedsignificant benefits to the Group and puts the businesses on an advanced footing to:

The Group continues to develop sustainable capabilities for continuous improvements inthe use and adoption of the advanced approaches of the Basel II capital accord. TheBank had obtained BNM’s approval to apply the Standardised Approach for Credit Risk.

111



37. CAPITAL ADEQUACY (Continued)

(a) The capital adequacy ratios are as follows:2013 2012

RM'000 RM'000Group and Bank

CET 1/ Tier I capitalPaid-up share capital 1,000,000 1,000,000 Accumulated losses (284,071) (287,190)

715,929 712,810 Less: Deferred tax (77,845) (80,443) Total Tier-1 capital 638,084 632,367

Tier-II capital68,133 84,627

Total Tier-II capital 68,133 84,627

Capital base 706,217 716,994

CET 1 / Core capital ratio 13.04% 11.87%Risk-weighted capital ratio 14.43% 13.46%

In addition, the Bank has also provided detailed Capital Adequacy disclosures as per therequirements stipulated in Bank Negara Malaysia CAFIB - Disclosures Requirements (Pillar 3)guidelines.

For the purpose of the computation of capital adequacy ratios, the Group has adopted theStandardised Approach for Credit Risk and Market Risk, and the Basic Indicator Approach forOperational Risk. The definition and classification of the counterparty, exposure and assettypes applied for the purpose of Capital Adequacy's reports are as per the Bank NegaraMalaysia's CAFIB.

Collective impairment for impairment loss on non-impaired financing

112




(b)

Group and Bank Risk2013 Gross Net weighted Capital

exposures exposures assets requirementsExposure Class RM'000 RM'000 RM'000 RM'000

Credit RiskOn-Balance Sheet ExposuresSovereigns/Central Banks 1,242,904 1,242,904 - - Banks, Development Financial Institutions ("DFIs") & MDBs 378,611 378,611 75,722 6,058 Corporate 2,816,768 2,800,371 2,341,549 187,324 Regulatory Retail 948,869 945,983 709,487 56,759 Residential Real Estate (RRE) Financing 1,060,302 1,060,302 562,755 45,020 Other assets 63,895 63,895 21,583 1,727 Defaulted Exposures 31,040 30,969 33,607 2,689 Total for On-Balance Sheet Exposures 6,542,389 6,523,035 3,744,703 299,577

Off-Balance Sheet ExposuresOff-balance sheet exposures other than OTC derivatives or credit derivatives 710,922 710,922 652,055 52,165 Total for Off-Balance Sheet Exposures 710,922 710,922 652,055 52,165

Total On and Off-Balance Sheet Exposures 7,253,311 7,233,957 4,396,758 351,742

Large Exposures Risk Requirement - - - -

Long ShortMarket Risk position positionForeign Currency Risk 138,684 - 138,684 11,095

Operational Risk - - 359,027 28,722 Total RWA and Capital Requirements 4,894,469 391,559

The breakdown of risk-weighted assets ("RWA") by exposures in each major riskcategory for the current financial year are as follows:

113




(b)

Group and Bank Risk2012 Gross Net weighted Capital

exposures exposures assets requirementsExposure Class RM'000 RM'000 RM'000 RM'000

Credit RiskOn-Balance Sheet ExposuresSovereigns/Central Banks 738,061 738,061 - - Banks, DFIs & MDBs 1,449,001 1,449,001 289,800 23,184 Corporate 2,601,560 2,588,798 2,211,533 176,923 Regulatory Retail 1,066,237 1,061,174 795,881 63,670 Residential Real Estate (RRE) Financing 685,457 685,457 324,004 25,920 Other assets 559,768 559,768 520,317 41,625 Defaulted Exposures 50,220 50,015 63,673 5,094 Total for On-Balance Sheet Exposures 7,150,304 7,132,274 4,205,208 336,416

Off-Balance Sheet ExposuresOff-balance sheet exposures other than OTC derivatives or credit derivatives 671,246 671,246 594,686 47,575 Total for Off-Balance Sheet Exposures 671,246 671,246 594,686 47,575

Total On and Off-Balance Sheet Exposures 7,821,550 7,803,520 4,799,894 383,991

Large Exposures Risk Requirement - - - -

Long ShortMarket Risk position positionForeign Currency Risk 131,215 - 131,215 10,497

Operational Risk - - 396,343 31,707 Total RWA and Capital Requirements 5,327,452 426,195

The breakdown of risk-weighted assets ("RWA") by exposures in each major riskcategory for the current financial year are as follows: (continued)

114

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

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CO

RPO

RA

TIO

N (M

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YSIA

) BH

D.

(Inco

rpor

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in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

013

(Con

tinue

d)

37.

CA

PITA

L A

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(c)

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1,99

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50%

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-

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3,80

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75%

-

-

1,50

8,76

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1,03

1,84

630

9,17

3

-

-

2,84

9,77

9

2,

137,

334

100%

-

-

1,62

8,73

8

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68,5

23

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21,5

83

1,71

8,84

4

1,

718,

844

150%

-

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-

-

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-

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tal

1,24

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381,

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3,

282,

572

1,

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846

1,20

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6

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63,8

95

7,20

2,98

8

4,

363,

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-

5,

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-

-

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-

5,

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2,95

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-

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-

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13,8

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13,8

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15

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73

1

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11,1

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16

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7,

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3,

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464

1,

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95

7,23

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396,

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115

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G A

ND

INVE

STM

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CO

RPO

RA

TIO

N (M

ALA

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rpor

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alay

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Com

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No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

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1,

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-

1,

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25

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736,

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-

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9

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116




(d) The breakdown of risk-weighted assets by risk-weights are as follows:

Group and Bank Risk-2013 Principal weighted

RM'000 RM'000

0% 1,285,216 - 20% 411,999 82,400 35% 293,350 105,623 50% 649,700 321,900 75% 2,849,779 2,137,334 100% 1,732,738 1,732,738

11,175 16,763 Risk-weighted assets for credit risk 7,233,957 4,396,758 Large exposure risk-weighted assets for equity holdings - Risk-weighted assets for market risk 138,684 Risk-weighted assets for operational risk 359,027 Total risk-weighted assets 4,894,469

2012

0% 777,512 - 20% 1,454,407 290,881 35% 293,062 102,572 50% 321,290 160,646 75% 2,908,729 2,181,547 100% 2,017,061 2,017,061

31,459 47,188 Risk-weighted assets for credit risk 7,803,520 4,799,894 Large exposure risk-weighted assets for equity holdings - Risk-weighted assets for market risk 131,215 Risk-weighted assets for operational risk 396,343 Total risk-weighted assets 5,327,452

150%

150%

117

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

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in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

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TS –

31

DEC

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719

057-

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719

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1,

926

2,

021,

372

710,

922

652,

055

1,78

8,35

567

1,24

659

4,68

6

2012

2013

121



38. SEGMENTAL INFORMATION

(i) Retail Operations

(ii) Treasury and Capital Market Operations

(iii) Corporate Investment Banking

The treasury and capital market operations are involved in proprietary trading in treasuryrelated products and services such as foreign exchange, money market operations andsecurities trading. Income from customer trading is reflected under Retail Operations.

Corporate Investment Banking operations provide a full range of financial services tocorporate customers as well as small and medium sized enterprises. The products andservices offered include long and short term financing such as working capital financing,asset financing, project financing as well as trade financing.

Segmental reporting by the Bank was prepared in accordance with MFRS 8 ‘OperatingSegments’ (‘MFRS 8’). Following the management approach of MFRS 8, operating segmentsare reported in a manner consistent with the internal reporting provided to the chief operationdecision-maker. The chief operating decision-maker is the person or group that allocatesresources to and assesses the performance of the operating segments of an entity.

All inter-segment transactions are conducted on an arm’s length basis and on normalcommercial terms not more favourable than those generally available to the public.

The business segment results are prepared based on the Bank’s internal managementreporting, which reflect the organisation’s management structure. Internal allocation of costshas been used in preparing the segmental reporting.

The Bank’s business segment can be organised into the following main segments reflectingthe Bank’s internal reporting structure: The Bank comprises the following main businesssegments:

Retail operations focus on providing product and services to individual customers andsmall and medium-sized enterprises. The products and services offered to customersinclude credit facilities, charge cards, remittance services, deposit collection andinvestment products.

122



38. SEGMENTAL INFORMATION (Continued)

Treasury & CorporateRetail money investment

banking market banking TotalBank RM'000 RM'000 RM'000 RM'000

2013Total revenue 149,781 47,826 139,822 337,429

ResultSegment result 120,448 31,024 15,142 166,614 Unallocated corporate expenses (160,861) Profit before zakat and taxation 5,753 Zakat and taxation (2,606) Net loss for the financial year 3,147Other comprehensive income: - Securities available-for-sale (26) - Wakalah transfer to reserve (2) Total comprehensive income for the financial year 3,119

Other informationSegment assets 2,118,934 609,044 2,708,362 5,436,340 Unallocated corporate assets 1,318,296 Total assets 6,754,636

Segment liabilities 2,418,439 3,565,319 - 5,983,758 Unallocated corporate liabilities 54,949 Total liabilities 6,038,707

Other segment itemsCapital expenditure 3,858 43 - 3,901 Unallocated capital expenditure 5,019

8,920

Depreciation 8,371 211 1,003 9,585 Unallocated depreciation 10,630

20,215

Other non-cash (income)/expenses (8,465) - 24,262 15,797

123



38. SEGMENTAL INFORMATION (Continued)

Treasury & CorporateRetail money investment

banking market banking TotalBank RM'000 RM'000 RM'000 RM'000

2012Total revenue 153,989 45,900 134,635 334,524

ResultSegment result 71,975 71,384 25,837 169,196 Unallocated corporate expenses (165,111) Profit before zakat and taxation 4,085 Zakat and taxation 9,743 Net loss for the financial year 13,828Other comprehensive income: - Securities available-for-sale 26 - Wakalah transfer to reserve (56) Total comprehensive income for the financial year 13,798

Other informationSegment assets 1,818,336 1,573,793 2,510,988 5,903,117 Unallocated corporate assets 961,680 Total assets 6,864,797

Segment liabilities 1,734,738 4,195,376 - 5,930,114 Unallocated corporate liabilities 221,873 Total liabilities 6,151,987

Other segment itemsCapital expenditure 4,391 286 1,284 5,961 Unallocated capital expenditure 10,251

16,212

Depreciation 8,473 115 1,187 9,775 Unallocated depreciation 12,078

21,853

Other non-cash (income)/expenses 41,367 (39,885) 9,420 10,902

124



39. LEASE COMMITMENTS

2013 2012Group and Bank RM'000 RM'000

Within one year 1,558 1,682 One year to less than five years 195 728

1,753 2,410

40. FAIR VALUE MEASUREMENTS

(a) Assets and liabilities measured at fair value

Determination of fair value and the fair value hierarchy

Level 1 -

Level 2 -

Level 3 -

The Group and the Bank have lease commitments in respect of rented premises andequipment on hire, all of which are classified as operating leases. A summary of the non-cancellable long-term commitments is as follows:

Fair value is the amount at which an asset could be exchanged or a liability settled,between knowledgeable and willing parties in an arm’s length transaction.

The Group and the Bank classify their assets and libilities which are measured at fairvalue according to the following hierarchy, reflecting the significance of inputs used inmaking the fair value measurements:

Valuation techniques using significant unobservable inputs: inputs used arenot based on observable market data and the unobservable inputs have asignificant impact on the valuation of the financial instruments and non-financial assets.

Quoted market prices: quoted prices (unadjusted) in active markets foridentical assets and liabilities;

Valuation techniques based on observable inputs: inputs other than quoted

prices included within Level 1 that are observable for the instrument, whether

directly (i.e. prices) or indirectly (i.e. derived from prices), are used; and

125



40. FAIR VALUE MEASUREMENTS (Continued)

(a) Assets and liabilities measured at fair value (Continued)

Determination of fair value and the fair value hierarchy (Continued)

Group and Bank

Level 1 Level 2 Level 3 TotalRM'000 RM'000 RM'000 RM'000

Assets measured at fair value:

Financial assets held-for-trading - Quoted securities (Unit trust) 4,792 - - 4,792

Investment properties - 105,000 - 105,000

2013

Assets and liabilities are classified as Level 1 if their value is observable in an activemarket. Such instruments are valued by reference to unadjusted quoted prices foridentical assets or liabilities in active markets where the quoted prices is readily available,and the price represents actual and regularly occurring market transactions. An activemarket is one in which transactions occur with sufficient volume and frequency to providepricing information on an on-going basis. These would include actively traded listedequities and actively exchange-traded derivatives.

Where fair value is determined using unquoted market prices in less active markets orquoted prices for similar assets and liabilities, such instruments are generally classifiedas Level 2. In cases where quoted prices are generally not available, the Bank thendetermines fair value based upon valuation techniques that use as inputs, marketparameters including but not limited to yield curves, volatilities and foreign exchangerates. The majority of valuation techniques employ only observable market data and soreliability of the fair value measurement is high. These would include certain governmentsukuks and corporate sukuk, financing, derivatives and investment properties.

Assets and liabilities are classified as Level 3 if their valuation incorporates significantinputs that are not based on observable market data (unobservable inputs). Such inputsare generally determined based on observable inputs of a similar nature, historicalobservations on the level of the input or other analytical techniques.

The Group and the Bank does not have any financial instruments classified as Level 3.

The following table provides the fair value measurement hierarchy of the Group's andBank's assets and liabilities.

126






Group and Bank


Assets for which fair values are disclosed (Note 40 (b)):

Financing and advances - 2,809,003 1,600,062 4,409,065Securities held-to-maturity - 757,098 - 757,098

Liabilities for which fair values are disclosed (Note 40 (b)):

Deposits from customers - 4,393,078 - 4,393,078

There have been no transfer between Level 1 and Level 2 during the period.

The valuation date for all is 31 December 2013 except for investment property which wason 26 December 2013.

The fair value of financing and advances that are valued at level 3 is estimated bydiscounting the estimated future cash flows at a discount rate between 2.0% to 19.5%.

2013

127






Group and Bank


Assets measured at fair value:

Financial assets held-for-trading - Quoted securities (Unit trust) 4,985 - - 4,985

Financial investments available-for-sale - Bank Negara Malaysia Sukuk 233,830 - - 233,830

Investment properties - 105,000 - 105,000

Assets for which fair values are disclosed (Note 40 (b)):

Financing and advances - 2,606,558 1,135,862 3,742,420Securities held-to-maturity - 280,766 - 280,766

Liabilities for which fair values are disclosed (Note 40 (b)):

Deposits from customers - 4,550,546 - 4,550,546

There have been no transfer between Level 1 and Level 2 during the period.

2012

The following table provides the fair value measurement hierarchy of the Group's andBank's assets and liabilities. (Continued)

The valuation date for all is 31 December 2012 except for investment property which wason 10 December 2012.

128




(b) Financial assets and liabilities not carried at fair value

Carrying Fair Carrying Fairvalue value value value

RM'000 RM'000 RM'000 RM'000Financial assetsFinancing and advances 4,784,898 4,409,065 4,289,864 3,742,420 Securities held-to-maturity 1,035,903 757,098 286,190 280,766

Financial liabilitiesDeposits from customers 4,401,696 4,393,078 4,550,550 4,550,546

(i)

(ii) Financial investments held-to-maturity

The following methods and assumptions are used to estimate the fair value of each classof financial instruments:

For cash and short term funds and hedging financial instruments with maturities ofless than six months, the carrying value is a reasonable estimate of fair value. Fordeposits and placements with maturities six months and above, estimated fair valueis based on discounted cash flows using prevailing money market profit rates atwhich similar deposits and placements would be made with financial institutions ofsimilar credit risk and remaining period to maturity.

The estimated fair value is generally based on quoted and observable market price.The fair value of securities that are not treated in an active market are determinedusing valuation techniques which include net present value and discounted cashflow models based on assumptions of market conditions existing at the reportingdate.

Cash and short-term funds and hedging financial instruments

The following table summarises the carrying amounts and the estimated fair values ofthose financial assets not presented on the Group's balance sheet at their fair value.

2013 2012

129



40. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

(b) Financial assets and liabilities not carried at fair value (Continued)

(iii) Financing and advances

(iv) Other assets and liabilities

(v) Deposits from customers

(vi) Deposits from banks and bills and acceptances payable

42. COMPARATIVES

(i)

(ii) The compartive figures were audited by other audit firm than Ernst & Young.

Certain comparatives figures have been reclassed to conform with current year'spresentation; and

For floating rate financing and advances, the carrying value is generally areasonable estimate of fair value.

For fixed rate financing and advances, the fair values are estimated by discountingthe estimated future cash flows using prevailing market rates of financing withsimilar credit risk and maturities.

The carrying value less any estimated impairment allowance for financial assetsand liabilities included in "other assets and liabilities" are assumed to approximatetheir fair values as these items are not materially sensitive to the shift in marketprofit rates.

The fair values of deposits with remaining maturity of less than one year areestimated to approximate their carrying amounts. The fair values of deposits withremaining maturity of more than one year are estimated using discounted cashflows based on market rates for similar deposits from customers.

The fair values of these financial instruments with remaining maturity of less thanone year approximate their carrying amounts due to the relatively short maturity ofthe financial instruments.

The fair values of impaired fixed rates financing and advances are represented bytheir carrying value, net of individual impairment being the expected recoverableamount.

130



43. APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution by theBoard of Directors dated 31 March 2014.

131

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