national bank of abu dhabi malaysia berhad · pdf filemalaysia’s (“bnm”)...

Company No.

965488-H

NATIONAL BANK OF ABU DHABI MALAYSIA BERHAD

(Incorporated in Malaysia)

BASEL II: PILLAR 3 DISCLOSURE

AS AT 30 JUNE 2016

National Bank of Abu Dhabi Malaysia Berhad

(Company No. 965488-H)

Incorporated in Malaysia

Basel II: Pillar 3 Disclosure as at 30th June 2016

Page | 2

1. OVERVIEW

The Pillar 3 Disclosures attached herewith is governed under the Bank Negara

Malaysia’s (“BNM”) Risk-Weighted Capital Adequacy Framework (“RWCAF”) –

Disclosure Requirements (“Pillar 3”), which is the equivalent of that issued by the Basel

Committee on Banking Supervision entitled “International Convergence of Capital

Measurement and Capital Standards”(commonly referred to as Basel II).

This Pillar 3 Disclosures are to be read in conjunction with the Unaudited Financial

Statements as of 30 June 2016.

2. SCOPE OF APPLICATION

The Pillar 3 Disclosures relates to National Bank of Abu Dhabi Malaysia Berhad (“the

Bank”) only. The Bank does not have any subsidiary or associated company as at 30 June

2016.

The Bank adopts the Standardised Approach in determining the capital requirements for

credit risk and market risk and applied the Basic Indicator Approach for operational

risk.

3. CAPITAL MANAGEMENT

The Bank’s capital management approach is driven by its desire to maintain appropriate

capital base and maintain adequate buffer in support of its business development and to

meet BNM regulatory capital requirements at all times. As such, implications on the

Bank’s capital position are taken into account by the Board and senior management prior

to implementing major business decisions in order to preserve the Bank’s overall capital

requirements.

Capital Plan

The Bank’s Capital Plan is drawn up annually in conjunction with the financial

budgeting exercise and approved by the Board for implementation at the beginning of

each financial year. The Capital Plan takes into account, inter alia, the Bank’s strategic

objectives and business plans, regulatory capital requirements, views of key stakeholders

such as the parent company, regulators, development on BNM capital guidelines,

available supply of capital and capital raising options and performance of business

sectors.





Page | 3

ALCO is responsible for the on-going assessment of the demand and usage of capital.

Capital Contingency Plan

In addition to the Capital Plan, the Bank has in place a documented and approved

Capital Contingency Plan (“CCP”), which is updated and approved biennially. The Plan

is intended to ensure that capital is managed effectively in the event of a capital crisis.

The CCP is an extension of the Capital Plan. The CCP provides a comprehensive

approach to the management and restoration of capital in the unlikely event of a capital

crisis by:

Establishing policies and procedures for capital contingency planning;

Establishing governance for capital contingency planning;

Providing early warning signals and establish monitoring and escalation process;

and

Establishing strategies and action plans to ensure that capital is managed promptly.

In order to ensure healthy capital levels at all times, the minimum capital requirements

and capital adequacy ratios are monitored actively by the senior management and

relevant committees on a monthly basis. Appropriate trigger points are established

based on the minimum capital requirements and capital adequacy ratios computed in

accordance with BNM guidelines in order to facilitate reporting, monitoring and

escalation, decision-making and action planning.

Circumstances that could lead to deficiencies in capital position include, amongst others,

economic environment, market conditions and financial conditions. In this regard,

appropriate strategies and action plans have been developed so that, in the unlikely

event of a capital crisis, the Bank will be prepared to deal with the event promptly and

restore capital back to healthy levels.





Page | 4

Capital Structure

The components of the Bank’s capital structure are as follows:

30.06.2016

RM ‘000

31.12.2015

RM ‘000

CET 1 / Tier 1 Capital

Paid-Up Share Capital 411,700 330,000

Retained earnings 554 554

Other Reserve (1,588) (2,463)

Total CET1 / Tier 1 Capital before regulatory adjustments 410,666 328,091

Less: Regulatory Adjustments

- Hedging reserve 297 34

- Deferred tax assets (2,732) (767)

Total CET1 / Tier 1 Capital after regulatory adjustments 408,231 327,358

Tier 2 Capital

Allowance for Collective Assessment Impairment 3,929 4,165

Total Capital 412,160 331,523

Regulatory Capital Requirements

With effect from 1 January 2013, the Bank’s capital adequacy ratios have been computed

based on BNM’s Capital Adequacy Framework (Capital Components and Risk-

Weighted Assets). The capital adequacy ratios of the Bank are as follows:

30.06.2016 31.12.2015

Common Equity Tier 1 (“CET 1”) Capital Ratio 77.694% 59.338%

Tier 1 Capital Ratio 77.694% 59.338%

Total Capital Ratio 78.442% 60.093%

Implementation of Basel III

Under BNM’s Capital Adequacy Framework, banking institutions are required to

maintain higher minimum quantity and quality of capital but the requirements will be

subject to a series of transitional arrangements, phase-in over a period of time,

commencing 2016 and to be fully effective by 2019.

The minimum regulatory capital adequacy ratios, as required by under BNM's Capital

Adequacy Framework (Capital Components) issued on 13th October 2015, which

includes transitional arrangements for year 2015 and 2016, are set out as follows:





Page | 5

2016 2015

Min CET 1 4.5% 4.5%

Min CET 1 + Conservation Buffer 5.125% 4.5%

Min Tier 1 6.0% 6.0%

Min Tier 1 + Conservation Buffer 6.625% 6.0%

Total Capital 8.0% 8.0%

Total Capital + Conservation Buffer 8.625% 8.0%

The Bank is poised to continue to remain healthy above the minimum capital

requirements. With active capital management, capital ratios will be maintained

comfortably well above the minimum as required by BNM.

Disclosure on Capital Adequacy under the Standardised Approach

Bank

30 June 2016

Exposure Class

Gross

Exposures

Net

Exposures

Risk

Weighted

Assets

Minimum

Capital

Requirements

at 8%

RM ‘000 RM ‘000 RM ‘000 RM ‘000

a) Credit Risk (Standardised Approach)

On-Balance Sheet Exposures

Sovereigns / Central Banks 262,845 262,845 42,459 3,397

Banks, DFIs & MDBs 240,068 240,068 48,014 3,841

Corporates 292,544 292,544 284,452 22,756

Others 9,523 9,523 9,153 732

Total On-Balance Sheet Exposures 804,980 804,980 384,077 30,726

Off-Balance Sheet Exposures

OTC Derivatives 8,538 8,538 1,708 137

Off balance sheet exposures other than OTC

derivatives 89,306 89,306 61,113 4,889

Total Off Balance Sheet Exposures 97,844 97,844 62,821 5,026

Total On and Off-Balance Sheet Exposures 446,898 35,752

b) Large Exposures Risk Requirement - - - -

c) Market Risk (Standardised Approach) 9,013 721

Foreign Currency Risk (Net Long Position)

d) Operational Risk (Basic Indicator Approach) 69,525 5,562

Total RWA & Capital Requirements 525,436 42,035





Page | 6

Bank

31 December 2015

Exposure Class

Gross

Exposures

Net

Exposures

Risk

Weighted

Assets

Minimum

Capital

Requirements

at 8%

RM ‘000 RM ‘000 RM ‘000 RM ‘000

a) Credit Risk (Standardised Approach)

On-Balance Sheet Exposures

Sovereigns / Central Banks 232,806 232,806 44,235 3,539

Banks, DFIs & MDBs 347,180 347,180 69,436 5,555

Corporates 313,731 313,731 305,344 24,428

Others 7,863 7,863 7,436 595

Total On-Balance Sheet Exposures 901,580 901,580 426,451 34,117

Off-Balance Sheet Exposures

OTC Derivatives 11,618 11,618 2,324 186

Off balance sheet exposures other than OTC

derivatives 90,301 90,301 64,512 5,161

Total Off Balance Sheet Exposures 101,919 101,919 66,836 5,347

Total On and Off-Balance Sheet Exposures 1,003,499 1,003,499 493,287 39,464

b) Large Exposures Risk Requirement - - - -

c) Market Risk (Standardised Approach)

Foreign Currency Risk (Net Long Position) 1,804 144

d) Operational Risk (Basic Indicator Approach) 56,591 4,527

Total RWA & Capital Requirements 551,682 44,135





Page | 7

4. RISK MANAGEMENT

The Bank adopts the parent company, NBAD PJSC (“the Group”) Risk Management

Framework. The Framework is practiced consistently across the Group’s global

operations, to support the Group’s strategic objectives and business plans. Risk

management is integrated in the business process through:

A clear governance structure, with framework of risk ownership, accountability,

standards and policy;

Alignment of risk strategy and business objectives, and integration of risk appetite

and risk-adjusted return on capital (“RAROC”) into business planning and capital

management;

Embedding risk culture as the foundation upon which a enterprise-wide risk

management framework is built on; and

Independent and integrated risk function.

Risk Governance

Ultimate responsibility for the effective management of risk rests with the Board of

Directors. The Board delegates authority for the management of risk to several

committees, in particular:

Board Risk Management Committee (“BRMC”) is chaired by an independent non-

executive director. It is responsible to oversee the Bank's risk management policies,

systems, practices and procedures to ensure effectiveness of risk identification,

management and compliance with risk-related internal guidelines and regulatory

requirements.

Board Audit Committee (“BAC”) is chaired by an independent non-executive

director. It is responsible to oversee the integrity of the financial statements,

preparation of the consolidated accounts including changes to accounting policies

and practices and adherence to disclosure rules, overseeing relationship with

external auditors, overseeing internal audit, ensuring adequacy of financial controls

and internal control.

At the management level, acting through the delegated authority by the Board, the Bank

has put in place various management committees to ensure oversight of key risk areas.

Risk Management Committee (“RMC”) is responsible for the risk management and

control of all risk, except those for which ALCO have direct responsibilities. The

RMC is also responsible for the establishment of all risk policies and procedures.

Assets and Liability Management Committee (“ALCO”) is responsible for the

management of capital, and compliance with, risk policies and limits relating to the

managing of the balance sheet, capital adequacy, liquidity risk and market risk.





Page | 8

The Bank’s Risk Governance Approach has been structured to comply with BNM

Guideline on Risk Governance issued on 1st March 2013 and aligned with those

established at the Group.

Risk Management Approach

The Bank adopts the Group’s three lines of defence risk management approach.

The first line of defence is that all employees are required to ensure the effective

management of risks within the scope of their direct organizational responsibilities.

The second line of defence comprises the Risk Control Owners, supported by their

respective control functions. Risk Control Owners are responsible for ensuring that

the risks within the scope of their responsibilities remain within appetite. The second

line is independent of the origination, trading and sales functions, is to ensure that

the necessary balance and perspective is brought to risk/return decisions.

The third line of defence comprises the independent assurance provided by the

internal audit (“IA”) function which has no responsibilities for any of the activities it

examines. IA provides independent assurance of the effectiveness of the

management’s control of its own business activities (first line) and of the processes

maintained by the Risk Control Functions (the second line). As a result, IA provides

assurance that the overall system of control effectiveness is working as required

within the Risk Management Framework.

Risk Appetite

The Bank has in place a documented and approved Risk Appetite Statement, which is

updated and approved annually. The Risk Appetite Statement is the Bank’s articulation

of the amount of risk that the Bank is willing to take in the pursuit of its strategic and/or

business objectives. The Risk Appetite Statement is defined in terms of Risk Appetite

Parameters, which are circumscribed by self-imposed constraints and tolerance levels

around them. These constraints are limits and triggers to avoid adverse outcomes which

would be out of line with internal and external expectations, and may lead to

unexpected losses of a scale that would be detrimental to the stability of the relevant

business units or of the Bank as a whole.

The Bank’s Risk Appetite Statement is aligned with those established at the Group.





Page | 9

5. CREDIT RISK

Credit risk is the risk that a customer or counterparty to a financial asset fails to meet its

contractual obligations and causes the Bank to incur a financial loss. It arises principally

from the Bank’s loans and advances, due from banks and financial institutions including

reverse repo, off balance sheet contingent liabilities and non-trading debt investments

and certain other assets. The items that not subjected to credit risk such as cash in hand,

collective allowance provision, prepaid expenses, fixed assets and deferred tax assets

will be excluded in the following tables under this section.

Management of Credit Risk

The Credit Risk Management Framework includes policies and procedures to monitor

and manage these risks. The Bank adopts the Group’s approach of credit risk

management. This includes:

Establishment of authorization structure and limits for the approval and renewal of

credit facilities;

Reviewing and assessing credit exposures in accordance with authorization structure

and limits, prior to facilities being committed to customers. Review and renewal of

facilities are subject to the same process;

Diversification of lending and investment activities;

Limiting concentrations of exposure to industry sectors, geographic locations and

counterparties; and

Reviewing compliance, on an ongoing basis, with agreed exposure limits relating to

counterparties, industries and countries and reviewing limits in accordance with risk

management strategy and market trends.

The Bank adopts the Group’s internal risk rating system to assess the credit quality of

borrowers and counterparties. Each counterparty is assigned a rating, including

classified accounts that are either Watch List or Non-Performing. The internal risk rating

system plays a significant role in efficient use of credit risk measurement and

management including:

Risk based pricing and determination of RAROC;

Risk based monitoring (frequency and intensity of monitoring); and

Determining risk based delegation of powers at various sanction authority levels.





Page | 10

Credit Risk Monitoring

The Bank adopts the Group’s approach of credit risk monitoring:

a) Monitoring of risk quality (Obligor level): Periodic review of credit is based on the

internal rating grades. More frequent reviews are made for the weaker credits and

less frequent reviews for the superior credits.

b) Monitoring of risk quality (Portfolio Level): Existing portfolios are monitored based

on the economic sectors, industry, geography, ratings and business lines. These

portfolio reports are prepared monthly and the senior management is informed on

the same.

c) Monitoring of past dues on principal and interest: Past due accounts (if any) are

reported monthly to the senior management. Measures to realize such past dues are

initiated with stringent follow up thereafter.

d) Monitoring of excess over limits: The monitoring reports are submitted to the senior

management and processes are initiated to realize and regularize such excesses.

e) Monitoring of potential loss accounts (Watch List): This category comprises accounts

where either contractual principal or interest are past due or when the accounts show

weakness in the borrower’s financial position and creditworthiness, and requires

more than normal attention. Such weakness is specifically monitored to ensure that

the quality of the asset does not further deteriorate.

f) Collateral management: The Bank has in place system of controls, reviews and

approvals to ensure effective collateral management. This includes minimum loan to

value requirement for each facility, specific collateral requirement for lending

specific portfolio, margin calls for treasury products and ensuring legal

enforceability of contracts including perfection of security interests.

Concentration Risk

Credit concentration risk refers to the level of exposure to any individual or related

group of customers, specific industry or sector, country or geographical locations. The

first level of protection against concentration risk is through country and industry

thresholds limits.

a) Single Name Concentration

Single name concentration is monitored on an individual basis with the top

exposures being reported on a daily basis. The Bank abides by BNM Single

Counterparty Exposure Limit (“SCEL”). The SCEL represents a non-risk adjusted

back-stop measure to ensure that exposures to a single counterparty and persons

connected to it shall not exceed 25 percent of the Bank’s Total Capital.





Page | 11

b) Sector Concentration

The Bank adopts the Group’s measures to diversify the exposures to various sectors.

The Group monitors industry to ensure portfolio diversification and employs

lending guidelines in conjunction with close portfolio monitoring for vulnerable

portfolios prone to systemic downturns. The following table presents the Bank’s

gross credit exposures of financial assets analysed by the economic sector:

Bank

30 June 2016

Exposure Class

Government

and Central

Bank

Financial

Services

Corporate Total

RM ‘000 RM ‘000 RM ‘000 RM ‘000

On Balance Sheet Exposures

Cash and Short-Term Funds 254 64,980 - 65,234

Investment Securities 214,576 175,036 8,055 397,667

Loans and Advances 43,658 4,356 279,367 327,381

Derivatives Financial Assets 12 - - 12

Other Assets (Net of Prepayment) 83 6,500 313 6,895

Total On Balance Sheet Exposures 258,583 250,871 287,735 797,189

Commitments and Contingencies 6,304 179,282 254,529 440,115

Total Credit Exposures 264,887 430,153 542,264 1,237,304

Bank

31 December 2015

Exposure Class

Government

and Central

Bank

Financial

Services

Corporate Total

RM ‘000 RM ‘000 RM ‘000 RM ‘000


Cash and Short-Term Funds 266 206,032 - 206,298


Loans and Advances 47,127 - 299,982 347,110

Derivatives Financial Assets - 1,358 - 1,358

Other Assets (Net of Prepayment) 474 3,381 - 3,855








Page | 12

c) Geographic Concentration

Although the Bank is domiciled in Malaysia, the Bank is part of the Group’s strategy

to facilitate client transactions within Asia and across the West-East Corridor, which

will facilitate, inter alia, connecting targeted Malaysian corporates with its targeted

counterparts in the Group’s global network. This exposes the Bank to legal, transfer

and sovereign risk. Exposures against these limits are monitored periodically to

ensure compliance. The following tables present the Bank’s gross credit exposures of

financial assets analysed by the geographical location on where the credit risk

resides:

Bank

30 June 2016

Exposure Class

Malaysia Other

Countries

Total

RM ‘000 RM ‘000 RM ‘000


Cash and Short-Term Funds 15,260 49,974 65,234

Investment Securities 397,667 - 397,667

Loans and Advances 247,216 80,165 327,381

Derivatives Financial Assets 12 - 12

Other Assets (Net of Prepayment) 6,895 - 6,895

Total On Balance Sheet Exposures 667,050 130,139 797,189

Commitments and Contingencies 134,639 305,476 440,115

Total Credit Exposures 801,689 435,615 1,237,304

Bank

31 December 2015

Exposure Class

Malaysia Other

Countries

Total

RM ‘000 RM ‘000 RM ‘000


Cash and Short-Term Funds 153,401 52,897 206,298

Investment Securities 335,744 - 335,744

Loans and Advances 187,106 160,004 347,110

Derivatives Financial Assets - 1,358 1,358

Other Assets (Net of Prepayment) 3,855 - 3,855

Total On Balance Sheet Exposures 680,106 214,259 894,365

Commitments and Contingencies 196,780 192,905 389,685

Total Credit Exposures 876,866 407,164 1,284,050





Page | 13

d) Residual Contractual Maturity Concentration

The following tables present the Bank’s gross credit exposures of financial assets

analysed by the residual contractual maturity breakdown:

Bank

30 June 2016

Exposure Class

Up to one

year

One to five

years

Over five

years

Total

RM ‘000 RM ‘000 RM ‘000 RM ‘000


Cash and Short-Term Funds 65,234 - - 65,234


Loans and Advances 116,229 211,152 - 327,381

Derivatives Financial Assets 12 - - 12

Other Assets (Net of Prepayment) - - 6,895 6,895




Bank

31 December 2015

Exposure Class

Up to one

year

One to five

years

Over five

years

Total

RM ‘000 RM ‘000 RM ‘000 RM ‘000


Cash and Short-Term Funds 206,298 - - 206,298


Loans and Advances 153,288 76,205 117,617 347,110

Derivatives Financial Assets - - 1,358 1,358

Other Assets (Net of Prepayment) - - 3,855 3,855








Page | 14

Credit Risk Policy

Credit risk policies are an integral part of the Bank’s risk management framework.

Policies govern all activities related to credit appraisal and underwriting. Business

segments specific policies and procedures are established to manage the risks that are

unique to their operations.

The Bank has in place a documented and approved Credit Policy Manual (“CPM”),

which is updated and approved annually. The CPM governs the credit risk activities and

has been aligned with the Group’s CPM. In addition to the CPM, the Bank has also in

place the following documented and approved policy documents, which governs the

Bank’s credit risk policies:

a) Single Counterparty Exposure Policy;

b) Credit Transactions and Exposures with Connected Parties Policy;

c) Risk Appetite Statement; and

d) Business Underwriting Standards for Corporates and Financial Institutions.

Disclosure for Portfolios under the Basel II Standardised Approach

For BNM regulatory reporting purposes, the Bank refers to the credit ratings assigned by

credit rating agencies in its calculation of credit risk weighted assets. The External Credit

Assessment Institutions ("ECAI") ratings accorded to the following counterparty

exposure classes are used in the calculation of risk weighted assets for capital adequacy

purposes:

Sovereigns and Central Bank;

Banks, Multi-Lateral Development Banks (“MDB”) and Development Financial

Institutions (“DFI”): and

Corporates.

Assessments provided by approved ECAI are mapped to credit quality steps as

prescribed by BNM. Where a counterparty or exposure is rated by more than one ECAI,

the second highest rating is used to determine the risk weight.

The following is a summary of the rules governing the assignment of risk weights under

the Standardised Approach. Each exposure must be assigned to one of the five credit

quality rating categories defined in the tables below.





Page | 15

Sovereigns and Central Banks

Rating Category S&P Moody’s Fitch Risk Weight

1 AAA to AA- Aaa to Aa3 AAA to AA- 0%

2 A+ to A- A1 to A3 A+ to A- 20%

3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- 50%

4 BB+ to B- Ba1 to B3 BB+ to B- 100%

5 CCC+ to D Caa1 to C CCC+ to D 150%

Unrated - - - 100%

Banks, MDBs and DFIs

Rat

ing

Cat

ego

ry

S&P Moody’s Fitch RAM MARC Risk

Weight

Risk

Weight

(original

maturity

of 6

months

or less)

Risk

Weight

(original

maturity

of 3

months

or less)

1 AAA to

AA-

Aaa to

Aa3

AAA to

AA-

AAA to

AA3

AAA to

AA- 20% 20%

20%

2 A+ to A- A1 to A3 A+ to A- A1 to A3 A+ to A- 50% 20%

3 BBB+ to

BBB-

Baa1 to

Baa3

BBB+ to

BBB-

BBB1 to

BBB3

BBB+ to

BBB- 50% 20%

4 BB+ to

B-

Ba1 to

B3

BB+ to

B-

BB1 to

B3

BB+ to

B- 100% 50%

5 CCC+ to

D

Caa1 to

C

CCC+ to

D C1 to D C+ to D 150% 150%

Unrated - - - - - 50% 50%

Corporates

Rat

ing

Cat

ego

ry

S&P Moody’s Fitch RAM MARC Risk

Weight

1 AAA to AA- Aaa to Aa3 AAA to AA- AAA to AA3 AAA to AA- 20%

2 A+ to A- A1 to A3 A+ to A- A1 to A3 A+ to A- 50%

3 BBB+ to BB- Baa1 to Ba3 BBB+ to BB- BBB1 to BB3 BBB+ to BB- 100%

4 B+ to D B1 to C B+ to D B1 to D B+ to D 150%

Unrated - - - - - 100%





Page | 16

The following tables present the on- and off balance sheet credit exposures:

Bank

Exposure

Class

RM ‘000

Rating of Sovereigns and Central Banks by Approved ECAI

S&P AAA to

AA- A+ to A-

BBB+ to

BBB- BB+ to B-

CCC+ to

D Unrated

Moody’s Aaa to

Aa3 A1 to A3

Baa1 to

Baa3 Ba1 to B3 Caa1 to C Unrated

Fitch AAA to

AA- A+ to A-

BBB+ to

BBB- BB+ to B-

CCC+ to

D Unrated

30 June 2016 - 214,830 43,658 - - -

31 December 2015 - 182,391 47,127 - - -

Bank

Exposure

Class

RM ‘000

Rating of Banks, DFIs and MDBs by Approved ECAI

S&P AAA to

AA- A+ to A-

BBB+ to

BBB- BB+ to B-

CCC+ to

D Unrated

Moody’s Aaa to

Aa3 A1 to A3

Baa1 to

Baa3 Ba1 to B3 Caa1 to C Unrated

Fitch AAA to

AA- A+ to A-

BBB+ to

BBB- BB+ to B-

CCC+ to

D Unrated

RAM AAA to

AA3 A1 to A3

BBB1 to

BBB3 BB1 to B3 C1 to D Unrated

MARC AAA to

AA- A+ to A-

BBB+ to

BBB- BB+ to B- C+ to D Unrated

30 June 2016 234,994 - - - - 4,367

31 December 2015 247,569 98,162 - - - 328

Bank

Exposure

Class

RM ‘000

Rating of Corporates by Approved ECAI

S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated

Moody’s Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Unrated

Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated

RAM AAA to AA3 A1 to A3 BBB1 to BB3 B1 to D Unrated

MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated

30 June 2016 5,011 - 8,055 0 279,366

31 December 2015 5,010 8,585 - - 299,982





Page | 17

a) Credit Risk Exposures

The following tables set out the analysis of risk weights under the Standardised

Approach:

Bank

30 Jun 2016

Supervisory

Risk Weight

Sovereigns

and

Central

Banks

Banks, MDBs

and DFIs

Corporates Other

Assets

Total

Exposure

after Credit

Risk

Mitigation

Total

Risk

Weighted

Assets

RM ‘000 RM ‘000 RM ‘000 RM ‘000 RM ‘000 RM ‘000

0% 119,686 - - 371 120,057 -

20% 103,150 252,847 5,011 - 361,008 72,202

50% 44,985 699 48,442 - 94,126 47,063

100% - - 318,481 9,152 327,633 327,633

Total 267,821 253,546 371,934 9,523 902,824 446,898

RWA 43,123 50,919 343,704 9,152 446,898

Average RW 16.1% 20.1% 92.4% 96.1% 49.5%

Bank

31 Dec 2015

Supervisory

Risk Weight

Sovereigns

and

Central

Banks

Banks, MDBs

and DFIs

Corporates Other

Assets

Total

Exposure

after Credit

Risk

Mitigation

Total

Risk

Weighted

Assets

RM ‘000 RM ‘000 RM ‘000 RM ‘000 RM ‘000 RM ‘000

0% 82,321 - - 428 82,749 -

20% 103,358 362,751 5,042 - 471,151 94,230

50% 49,120 333 51,632 - 101,085 50,543

100% - - 341,078 7,436 348,514 348,514

Total 234,799 363,084 397,752 7,864 1003,499 493,287

RWA 45,232 72,717 367,902 7,436 493,287

Average RW 19.3% 20.0% 92.5% 94.6% 49.2%





Page | 18

b) Credit Quality of the Gross Loans and Advances

The following tables set out the analysis of the credit quality of the Gross Loans

and Advances.

30.06.2016

RM ‘000

31.12.2015

RM ‘000

Neither past due nor impaired 327,381 347,110

Past due but not impaired, comprise:

Less than 30 days - -

Impaired - -

Gross Loans and Advances 327,381 347,110

Less: Allowance for Impaired Loans and Advances

Individual Assessment Allowance - -

Collective Assessment Allowance (3,929) (4,165)

Net Loans and Advances 323,452 342,945

Gross Impaired Loans as a percentage of Gross Loans 0.0% 0.0%

Collective Assessment Allowance Ratio 1.2% 1.2%

Past due but not impaired are accounts where either contractual principal or

interest are past due or when the accounts show some potential weakness in the

borrower's financial position and creditworthiness, and requires more than

normal attention. The Bank did not have any past due but not impaired accounts

as of 30 June 2016.

The following tables set out the analysis of the outstanding balances, which were

past due but not impaired by sector and geographic distribution respectively:

Bank

By Sector

30.06.2016

RM ‘000

31.12.2015

RM ‘000

Finance, insurance real estate and business activities - -

Bank

By Geographic Distribution

30.06.2016

RM ‘000

31.12.2015

RM ‘000

Other Countries - -

Impaired loans and advances are financial assets for which the Bank determines

that it is probable that it will be unable to collect all principal and interest due

according to the contractual terms of the loan agreement. The Bank did not have

any impaired loans as of 30 June 2016.





Page | 19

c) Off Balance Sheet Exposures and Counterparty Credit Risk

Counterparty credit risk is the risk that the counterparty to a transaction could

default before the final settlement of the transaction's cash flows. Such

transactions relate to contracts for financial instruments including derivative

contracts and unsettled securities. The following table presents the Bank’s off-

balance sheet exposure and counterparty credit risk.

Bank

30 June 2016

Exposure Class

Principal

Amount

Positive

Fair Value

of

Derivatives

Contracts

Credit

Equivalent

Amount

Risk

Weighted

Assets

RM ‘000 RM ‘000 RM ‘000 RM ‘000

Transaction related contingent items 68,164 34,082 30,340

Short Term Self Liquidating trade

related contingencies 9,586 1,917 1,917

Forward asset purchases 3,649 3,649 -

Foreign Exchange related contracts

Less than 1 year

60,661

12

-

-

Other commitments, such as formal

standby credit facilities and credit

lines, with an original maturity of:

Up to one year 40,275 8,055 8,055

Over one year 83,205 41,603 20,801

Any commitments that are

unconditionally cancelled at any

time by the bank without prior

notice or that effectively provide for

automatic cancellation due to

deterioration in a borrower's

creditworthiness

65,832 - -

Interest / profit rate related contracts

Less than 1 year

One year to less than 5 years

Over 5 years 108,743 - 8,538 1,708

Total 440,115 12 97,844 62,821





Page | 20

Bank

31 December 2015

Exposure Class

Principal

Amount

Positive

Fair Value

of

Derivatives

Contracts

Credit

Equivalent

Amount

Risk

Weighted

Assets

RM ‘000 RM ‘000 RM ‘000 RM ‘000

Transaction related contingent items 73,688 36,844 33,514

Short Term Self Liquidating trade

related contingencies 10,390 2,078 2,078

Forward asset purchases - - -

Foreign Exchange related contracts

Less than 1 year - - -

Other commitments, such as formal

standby credit facilities and credit

lines, with an original maturity of:

Up to one year 32,306 6,461 6,461

Over one year 89,836 44,918 22,459

Any commitments that are

unconditionally cancelled at any

time by the bank without prior

notice or that effectively provide for

automatic cancellation due to

deterioration in a borrower's

creditworthiness

67,567 - -

Interest rate related contracts

Less than 1 year

One year to less than 5 years

Over 5 years 115,898 1,358 11,618 2,324

Total 389,685 1,358 101,919 66,836





Page | 21

MARKET RISK

Market risk is the risk that the Bank’s income and / or value of its financial instruments

will fluctuate adversely because of changes in market factors such as interest rates

foreign exchange rates, equities, commodities and options prices.

The Bank segregates all its positions, which can be either in Trading Book or Banking

Book.

Trading Book

Trading Book refers to financial instruments held either with trading intent or to hedge

other elements of the Trading Book. Positions held with trading intent are those held

intentionally for short-term resale and/or with the intent of benefiting from actual or

expected short-term price movements or to lock in arbitrage profits. These positions may

include for example, proprietary positions, positions arising from client servicing and

market making. The Bank does not have any Trading Book positions due to proprietary

trading and market making activities.

All Trading Book positions arising from client servicing are fully hedged and are

subjected to net open position limits. The Bank’s Trading Book positions consist entirely

of foreign exchange instruments. The financial impact of 1 percent movement for each

foreign currency exposure would result in a post-tax profit/loss of RM 37,399 (31

December 2015: RM 22,380) to the Bank.

The Bank does not have any interest rate risk exposure in the Trading Book.

Banking Book

The Banking Book exposure is defined as all other exposures that are not defined as

Trading Book positions. This will include both on and off-balance sheet positions.

Financial instruments held under the Banking Book are considered as investment

positions.

Currently, the Bank’s exposure to interest rate risk in the banking book is not significant.

Nevertheless, the Bank is monitoring and reporting its exposure on regular basis using

the Dollar Value 01 (“DV01”), which is being supported by a comprehensive limits

structure e.g. Investment Securities Position, Investment Securities Tenor Limit,

Investment Securities PV01 Limit, etc., as articulated in the documented and approved

Asset and Liability Management Policy, which is updated and approved biennially.





Page | 22

The impact to the Bank’s interest rate sensitive assets and liabilities in Banking Book to a

25 basis points movement in benchmark interest rates shall be RM 1.52 million (31

December 2015: RM 0.08 million).





Page | 23

6. LIQUIDITY RISK

Liquidity risk is defined as the risk that the Bank is unable to meet its financial

obligations as and when they fall due or that it can only do so at an excessive cost.

The Bank has in place a documented and approved Asset and Liability Management

Policy, which is updated and approved biennially. In the Policy, it is the Bank’s intention

that the following are met:

To maintain adequate liquidity at all times and for all currencies;

To meet all obligations, to repay depositors and to fulfil commitments to provide

loans and advances, in the normal course of business;

To avoid having to liquidate assets or to raise funds at unfavourable terms;

The liquidity risk position are reviewed periodically and managed within approved

liquidity risk parameters; and

The liquidity risk limits and Management Action Triggers to be monitored and

reported periodically.

The Bank manages and mitigates the risk of its liquidity risk through a set of liquidity

risk limits, including the regulatory Liquidity Coverage Ratio. Other liquidity risk

measurement methods and risk mitigation tools that are place are the traditional loan-to-

deposit ratio and structural liquidity gap limits.

The Bank has in place a documented and approved Contingency Funding Plan, which is

updated and approved annually. The Plan is the process whereby one or more pre-

determined trigger events that could cause a liquidity crisis are triggered and describes

the actions to be taken to manage the highly potential adverse funding liquidity events

and restore the Bank to business-as-usual.

Implementation of Basel III

On 31 March 2015, BNM issued a guideline on Liquidity Coverage Ratio (“LCR”), which

is intended to further strengthen the existing liquidity standards for banking institutions

in Malaysia.

The LCR is a quantitative requirement which seeks to ensure that banking institutions

hold sufficient high-quality liquid assets to withstand an acute liquidity stress scenario

over a 30-day horizon. The LCR requirements will be subject to a series of transitional

arrangements, phase-in over a period of time, commencing from 1st June 2015 and to be

fully effective by 1st January 2019.





Page | 24

The minimum LCR, as required by under BNM Guideline on the LCR, which includes

transitional arrangements for year 2016 to 2019, are set out as follows:

1st Jan 2016 2017 2018 2019

Minimum LCR All Currencies 70% 80% 90% 100%

Minimum LCR MYR only 70% 80% 90% 100%

The Bank is poised to continue to remain healthy above the minimum LCR requirement.

With active liquidity management, the LCR will be maintained comfortably well above

the minimum as required by BNM. The Bank’s All Currencies and RM LCR as at 30th

June 2016 stood at 332.37 percent and 1751.15 percent.





Page | 25

7. OPERATIONAL RISK

Operational risk is identified as the risk of losses (direct, indirect and near misses)

resulting from inadequate or failed internal processes, human behaviour, systems, or

from external events. While legal and technology risk are considered to be a part of

operational risk, strategic and reputation risks are excluded, and are handled separately.

Legal risk includes, but is not limited to fines, penalties or punitive damages resulting

from supervisory actions, or from private settlements.

Operational risks arise across all businesses in the Bank. The primary responsibility to

ensure that risks are managed and monitored resides with the businesses within the

Bank. Bank’s businesses are supported by Risk Management Department as “second line

of defence” to ensure robust risk management. Further, there are reviews conducted by

Internal Audit as the “third line of defence”.

The Bank adopts the Group’s Operational Risk Framework (“Framework”). This

Framework consisting of policies and procedures to assess risks: to identify, assess,

monitor, control, report and to manage incidents i.e. to notify, identify and rectify

incidents. This includes a unique and effective process of assessing associated risks and

approving residual risks of new and / or significant change initiatives within the Bank

and an Internal Loss Data Collection Process. The Internal Loss Data Collected is

reconciled with the General Ledger. The Framework also provides the interrelation with

other risk categories. Where appropriate, risk is mitigated by way of insurance.

The Bank’s objective is to manage operational risk so as to balance the avoidance of

financial losses resulting from operational risk events and any damage to the Bank’s

reputation. The Bank is continually improving its operating environment that will

ensure the businesses to operate in an environment to be creative and be enabled.

To further strengthen the Bank’s outsourcing arrangements with third parties, the Bank

has in place a documented and approved Outsourcing Policy, which is updated and

approved biennially. The Policy is targeted to meet the following main objectives:

To outline the criteria of outsourcing operational functions and process flow

involved in outsourcing;

To provide a guiding principle that needs to be taken into consideration to identify

issues associated with each outsourcing arrangement;

To address some factors that needs to be considered upon renewal of outsourcing

service contract; and

To ensure that the implementation of outsourcing is in line with BNM and Group

requirements.





Page | 26

The Bank adopts the Group’s Information Security Policies and requirements are

intended to conform to internationally accepted IT Governance standards. More

specifically, IT security is governed by explicit security related policies based on

international standards such as ISO27001.

The Bank’s Internal Audit function conducts continuous audits and reviews of the

Bank’s critical functions and compliance to the regulatory requirements. Audit reports

are circulated once every quarter. In addition, the Group Internal Audit conducts

periodic audits and reviews so as to provide assurance to the Management on the

compliance with corporate policies and guidelines.

The Bank’s objective is to manage operational risk so as to balance the avoidance of

financial losses resulting from operational risk events and any damage to the Bank’s

reputation. The Bank is continually improving its operating environment that will

ensure the businesses to operate in an environment to be creative and be enabled.





Page | 27

8. BUSINESS CONTINUITY MANAGEMENT

Business Continuity Management (“BCM”) is a management process that identifies

potential impacts that threaten an organization and provides a framework for building

resilience and the capability for an effective response which safeguards its reputation

along with the interests of its key stake holders and customers. BCM is responsible for

assuring operational resilience to the Bank’s key business activities under adverse

circumstances.

Governance

Risk Management Committee is responsible for providing oversight and strategy for

Bank’s BCM and IT Service Continuity Management. The Committee gathers inputs

from business and enablement functions from within the Bank to aid in decision making

and setting priorities to ensure success of business continuity in the Bank.

Framework and Processes

The Bank adopts the Group’s BCM Framework, which is aligned to ISO22313:2012

Societal Security – BCM Systems Guidance; the key steps are:

Identify key activities (and their dependencies) essential to ensure the delivery of the

Group’s services;

Identify and define time frames for the recovery of those key activities;

Establish cost effective strategies and solutions to achieve the recovery time frames of

the key activities; and

Validate the selected solutions and conduct an annualize awareness campaign.

The Bank conducts annual business impact analysis to identify their critical business

processes and recovery time objectives. For IT Service Continuity, the Group conducts a

programme of tests, which range from component level to fail over for a business day.

In addition, the Bank maintains a dedicated local IT and business operations contingency

site to minimise uninterrupted banking operations. In 2016, the Bank enhanced its

business continuity and IT resilience capability with new data centre, disaster recovery

centre and a dedicated alternate workspace, to support business growth and increasing

business demands.

Crisis Management

The Bank has in place a comprehensive, documented and approved Crisis Management

Operational Plan and Business Continuity Plan, which are updated and approved

annually.





Page | 28

CHIEF EXECUTIVE OFFICER'S ATTESTATION

I, Susan Yuen Su Min, being the Chief Executive Officer of National Bank of Abu Dhabi

Malaysia Berhad, hereby state that, the Pillar 3 Disclosures are to my knowledge and

opinion is correct and have been prepared in accordance to requirements stipulated in Bank

Negara Malaysia Capital Adequacy Framework - Disclosure Requirements (Pillar 3)

guidelines.

………………………………………

SUSAN YUEN SU MIN

CHIEF EXECUTIVE OFFICER Xth August 2016

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