Annual Report 2015 - affinislamic.com.my Rep… · Affin Islamic Bank Berhad (709506-V) | Annual Report 2015 ... Malaysia from 1995 until ... He is also the Chairman of Boustead Heavy

Annual Report 2015

COVER RATIONALE

Identifying and converting potential can be challenging, especially in volatile markets.

It requires conviction, discipline and a focus on the long term.

At AFFIN ISLAMIC, we understand the value of potential.

With expertise across a wide array of disciplines, backed by our focus on results,

we constantly think ahead and strive to anticipate change before it happens.

This forward thinking approach helps our customers look to the future with confidence.

TABLE OF CONTENTS

FINANCIAL STATEMENTS

25 Financial Statements

ORGANISATION

02 Corporate Information

03 Corporate Structure

04 Board of Directors

05 Profile of Board of Directors

09 Management Team

10 Shariah Committee Members

11 Profile of Shariah Committee Members

EXECUTIVE SUMMARY

14 Chairman’s Statement

17 CEO’s Performance Review

20 Corporate Diary

22 Financial Highlights

OTHER INFORMATION

23 Network of Branches

24 Notice of Annual General Meeting

OUR VISION

AFFIN ISLAMIC to play a significant role in the

ever expanding Islamic banking world by providing

innovative Shariah Compliant financial solutions and

services, which will establish itself as a “PREMIER

LOCAL AND INTERNATIONAL ISLAMIC FINANCIAL

INSTITUTION”.

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CORPORATE

INFORMATION

Chairman

YBhg. Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)

(Non-Independent Non-Executive Director)

Directors

YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin


YBhg. Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli

Bin Mohd Nor (Bersara)


YBhg. Tan Sri Dato’ Seri Mohamed Jawhar

(Independent Non-Executive Director)

En. Mohd Suffian Bin Haji Haron


YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman


Assoc. Prof. Dr. Said Bouheraoua


BOARD OF DIRECTORS

NAME

Affin Islamic Bank

Berhad

(Co. No.: 709506-V)

REGISTERED

OFFICE

17th Floor

Menara AFFIN

80, Jalan Raja Chulan

50200 Kuala Lumpur

Tel.: 03-2055 9000

Fax: 03-2026 1415

DATE OF

INCORPORATION

13 September 2005

AUTHORISED SHARE

CAPITAL

No. of shares

1,000,000,000

Par value

RM1.00

Total

RM1,000,000,000

PRINCIPAL

ACTIVITIES

Affin Islamic Bank

Berhad is principally

involved in the carrying

out of Islamic banking

and finance related

services. The Bank

has two (2) associate

companies which

are principally

engaged in property

management services.

ISSUED AND PAID-UP

SHARE CAPITAL

No. of shares

460,000,002

Par value

RM1.00

Total

RM460,000,002

CHIEF EXECUTIVE

OFFICER

En. Kamarul Ariffin Bin

Mohd Jamil

(Resigned w.e.f.

31.3.2015)

En. Nazlee Bin Khalifah

(Appointed w.e.f.

3.6.2015)

SUBSTANTIAL

SHAREHOLDER

No. of shares

Affin Bank Berhad

460,000,002

SECRETARY

Nimma Safira Binti

Khalid

EXTERNAL AUDITORS

PricewaterhouseCoopers

(AF 1146)

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CORPORATE STRUCTURE

as at 31 December 2015

1 Dormant companies – inactive but company currently holding asset.2 Associate companies.3 Companies where application to strike-off has been filed by the Bank.

OTHERS

AFFIN HOLDINGS BERHAD

AFFIN Bank BerhadAFFIN Islamic Bank Berhad

Lembaga Tabung Angkatan Tentera

AXA AFFIN Life Insurance Berhad

AXA AFFIN General Insurance Berhad

AFFIN MoneyBrokers Sdn Bhd

AFFIN-ACF Holdings Sdn Bhd

AFFIN Hwang Investment Bank Berhad

AFFIN Investment Berhad

(formerly known as AFFIN Investment Bank Berhad)

AFFIN-i Nadayu Sdn Bhd 2

(jointly owned by AFFIN Islamic Bank Berhad and Jurus Positif Sdn Bhd with a 50:50 ownership)

Boustead Holdings Berhad Bank of East Asia Limited

AFFIN Hwang Nominees

(Tempatan) Sdn Bhd

AFFIN Hwang Futures

Sdn Bhd

AFFIN Hwang Nominees

(Asing) Sdn Bhd

AFFIN Nominees

(Tempatan) Sdn Bhd

AFFIN Hwang Asset Management

Berhad

AFFIN Nominees

(Asing) Sdn Bhd

Asian Islamic Investment

Management Sdn Bhd

AFFIN Capital Services Berhad

(formerly known as AFFIN Fund Management Berhad)

PAB Properties Sdn Bhd

ABB Trustee Berhad 2

(80% held by Directors of AFFIN Bank Berhad in trust for AFFIN Bank Berhad)

AFFIN Futures Sdn Bhd 1

ABB IT & Services Sdn Bhd 1

BSNCB Nominees (Tempatan) Sdn Bhd 1

AFFIN Recoveries Berhad 1

ABB Nominee (Tempatan) Sdn Bhd AFFIN-ACF Nominees (Tempatan) Sdn Bhd 3

AFFIN Factors Sdn Bhd 1

ABB Nominee (Asing) Sdn Bhd 1

PAB Property Development Sdn Bhd 3

BSNC Nominees (Tempatan) Sdn Bhd 3

59.98%

20.69%

100%

100%

100%

51%

34.5%

100%

100%

100% 100%

100% 100%

70% 100%

100%

100%

100%

100% 100%

100%

100% 100%

100%

100%

100%

100%

100%

100%

100%

50%

23.52% 20.51%

35.28%

KL South Development Sdn Bhd 2

(jointly owned by AFFIN Islamic Bank Berhad and Albatha Bukit Kiara Holdings Sdn Bhd with a 30:70 ownership)

30%

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BOARD OF

DIRECTORS

YBHG. LAKSAMANA MADYA TAN SRI

DATO’ SERI AHMAD RAMLI

BIN MOHD NOR (BERSARA)

Non-Independent Non-Executive Director

YBHG. TAN SRI DATO’ SRI ABDUL

AZIZ BIN ABDUL RAHMAN

Independent Non-Executive Director

ASSOC. PROF. DR. SAID

BOUHERAOUA


YBHG. JEN. TAN SRI DATO’ SERI

ISMAIL BIN HAJI OMAR (BERSARA)

Chairman/Non-Independent

Non-Executive Director

EN. MOHD SUFFIAN

BIN HAJI HARON


YBHG. TAN SRI DATO’ SERI LODIN

BIN WOK KAMARUDDIN


YBHG. TAN SRI DATO’ SERI

MOHAMED JAWHAR


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PROFILE OF

DIRECTORS

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

Chairman / Non-Independent Non-Executive Director

YBHG. TAN SRI DATO’ SERI LODIN BIN WOK KAMARUDDIN


Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara), aged 74, was appointed as Director and Chairman

of AFFIN ISLAMIC on 1 April 2006.

He was formerly Chief Defence Forces (CDF) Malaysia from 1995 until his retirement in 1998,

after 38 years of military service. He graduated from the Royal Military Academy, Sandhurst, United

Kingdom in 1961 and subsequently attended professional and management development courses at

several institutions including the Land Forces Command and Staff College, Canada; the United Nations

International Peace Academy, Vienna; the National Defence College, India and the National Institute of

Public Administration (INTAN), Malaysia.

His military service saw Key Command and Staff appointments at all levels of the Armed Forces. As CDF,

his responsibilities included key roles in Malaysia’s Regional and International Defence Relations.

He was the Chairman of Affin Holdings Berhad and Affin-ACF Finance Berhad from 1999, prior to joining

AFFINBANK. He currently holds directorships in AFFINBANK, ABB Trustee Berhad, EP Engineering Sdn

Bhd and Global Medical Alliance Sdn Bhd.

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) attended all 11 scheduled monthly Board Meetings

and all 3 Special Board Meetings held during the financial year ended 31 December 2015.

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin, aged 66, was reappointed to the Board of Directors of

AFFIN ISLAMIC on 4 October 2010. He was appointed as the Managing Director of Affin Holdings Berhad

in February 1991 and redesignated as Deputy Chairman on 1 July 2008.

He has extensive experience in managing a provident fund and in the establishment, restructuring and

management of various business interests ranging from plantation, trading, financial services, property

development to oil and gas, pharmaceuticals and shipbuilding.

Tan Sri Dato’ Seri Lodin is the Chief Executive of LTAT and the Deputy Chairman/Group Managing

Director of Boustead Holdings Berhad. Prior to joining LTAT, he was the General Manager of Perbadanan

Kemajuan Bukit Fraser for 9 years.

He is also the Chairman of Boustead Heavy Industries Corporation Berhad, Boustead Naval Shipyard Sdn

Bhd, Pharmaniaga Berhad and Boustead Petroleum Marketing Sdn Bhd. He sits on the Board of The

University of Nottingham in Malaysia, Minority Shareholder Watchdog Group, FIDE Forum, AFFINBANK,

Affin Hwang Investment Bank Berhad, AXA Affin Life Insurance Berhad and Boustead Plantations Berhad.

Tan Sri Dato’ Seri Lodin graduated from the University of Toledo, Ohio, USA with a Bachelor of Business

Administration and a Master of Business Administration. Among the many awards he received todate

include the Chevalier De La Legion D’Honneur from the French Government, the Malaysian Outstanding

Entrepreneurship Award, the Degree of Doctor of Laws (honoris causa) (LLD) from the University of

Nottingham, United Kingdom, the UiTM Alumnus of the Year 2010 Award and The BrandLaureate Most

Eminent Brand ICON Leadership Award 2012 by Asia Pacific Brands Foundation. He is also a Chartered

Banker, AICB.

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin attended all 11 scheduled monthly Board Meetings and all

3 Special Board Meetings held during the financial year ended 31 December 2015.

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YBHG. LAKSAMANA MADYA TAN SRI DATO’ SERI AHMAD RAMLI BIN MOHD NOR (BERSARA)


YBHG. TAN SRI DATO’ SERI MOHAMED JAWHAR


Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor, aged 71, was appointed to the Board of Directors of AFFIN

ISLAMIC on 1 July 2006.

He graduated from the Brittania Royal Naval College Dartmouth, United Kingdom in 1965, the Indonesia

Naval Staff College in 1976, the United States Naval War College and Naval Post-Graduate School

Monterey in 1981. He also holds a Masters Degree in Public Administration from the Harvard University,

United States of America. He was in the Malaysian Navy and retired as Chief of Royal Malaysian Navy

in 1999.

Presently he is the Executive Deputy Chairman / Managing Director of Boustead Heavy Industries

Corporation Berhad. He is also the Board member of Favelle Favco Berhad.

Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor attended 10 out of 11 scheduled monthly Board Meetings

and all 3 Special Board Meetings held during the financial year ended 31 December 2015.

Tan Sri Dato’ Seri Mohamed Jawhar, aged 71, was appointed to the Board of Directors of AFFIN ISLAMIC

on 1 July 2006.

His other positions include: Independent Non-Executive Director, AFFINBANK; Non-Executive Chairman, New

Straits Times Press (Malaysia) Berhad; Member of Securities Commission Malaysia; Member, Operations

Review Panel, Malaysian Anti-Corruption Commission; Distinguished Fellow, Institute of Diplomacy and

Foreign Relations (IDFR); Distinguished Fellow, Malaysian Institute of Defence and Security (MiDAS);

Fellow, Institute of Public Security of Malaysia (IPSOM), Ministry of Home Affairs; Board Member, Institute

of Advanced Islamic Studies (IAIS); and Member, Laureate Advisory Board, INTI International University and

Colleges. He is also the Expert and Eminent Person from Malaysia for the ASEAN Regional Forum (ARF).

He was also Co-Chair, Network of East Asia Think-tanks (NEAT) 2005-2006; Chairman, Malaysian

National Committee, Pacific Economic Cooperation Council (PECC) 2006-2010; and Co-Chair, Council

for Security Cooperation in the Asia Pacific (CSCAP) 2007-2009.

He served with the government for over 20 years before he joined Institute of Strategic

& International Studies (ISIS) Malaysia as Deputy Director-General in 1990. He was

appointed Director-General in March 1997 and later as Chairman and CEO in 2006. He

was appointed Chairman ISIS Malaysia on 9 January 2010 relinquished the position on

8 January 2015.

During his government service, his positions include Director-General, Department of National Unity;

Under-Secretary, Ministry of Home Affairs; Director (Analysis) Research Division, Prime Minister’s

Department; and Principal Assistant Secretary, National Security Council. He also served as Counselor in

the Malaysian Embassies in Indonesia and Thailand.

Tan Sri Dato’ Seri Mohamed Jawhar attended all 11 scheduled monthly Board Meetings and all 3 Special

Board Meetings held during the financial year ended 31 December 2015.

PROFILE OF

DIRECTORS

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EN. MOHD SUFFIAN BIN HAJI HARON


YBHG. TAN SRI DATO’ SRI ABDUL AZIZ BIN ABDUL RAHMAN


En. Mohd Suffian Bin Haji Haron, aged 70, was appointed to the Board of Directors of AFFIN ISLAMIC on

1 July 2006

He graduated from the University of Malaya (1970) with a Bachelor of Economics and holds a Master of

Business Administration from University of Oregon (USA) in 1976.

He started his career as a Diplomatic and Administrative Officer, attached to the Prime Minister’s

Department and the Ministry of Public Enterprises. Whilst at the Prime Minister’s Department, he was

also assigned as the Assistant to the Special Economic Adviser to the Government. He served the Board of

Directors of Fraser’s Hill Development Corporation, the State Development Corporations of Perak, Pahang

and Terengganu as well as the Board of Directors of Bank Pembangunan Malaysia Berhad, Kompleks

Kewangan Malaysia Berhad, HICOM and the Council of Majlis Amanah Rakyat (MARA). After thirteen

years of service, he left the Government Service to serve a GLC involved in international business, after

which he ventured on his own to be the Managing Director of Insurance Broking Company. Amongst his

other involvements after that were in the securities industry and asset management activities. He has

also served as a Director of Hitachi Sales (Malaysia) Sdn Bhd, Meiden Electric Engineering Sdn Bhd, Far

East Computers (India) and Affin Discount Berhad. He also brings with him vast experience in general

trading, power generation and transmission, aircraft maintenance as well as the oil and gas services

sectors.

Presently he is a Board member of AFFINBANK, ABB Trustee Berhad, L.K & Associates Sdn Bhd and

Pharmaniaga Berhad.

En. Mohd Suffian Bin Haji Haron attended all 11 scheduled monthly Board Meetings and all 3 Special

Board Meetings held during the financial year ended 31 December 2015.

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman, aged 69, was appointed to the Board of Directors of AFFIN

ISLAMIC on 1 November 2011.

He graduated with a Bachelor of Commerce from University of New South Wales, Sydney, Australia. He is

a member of the Malaysian Institute of Certified Public Accountants (MICPA) and the Malaysian Institute

of Accountants (MIA).

He has served as Chairman and Board member of several government institutions, agencies and public

listed companies, both in Australia and Malaysia.

At the corporate level, he was with PricewaterhouseCoopers Sydney, Malaysia Airlines Berhad and

Managing Director of Bank Kerjasama Rakyat Malaysia Berhad before venturing into politics and public

service as the Pahang State Assemblyman, State Executive Councillor and Deputy Chief Minister of

Pahang. He was a Senator of Malaysian Parliament for a maximum period of two (2) terms.

Presently he is a Board member of the International Islamic University Malaysia.

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman attended 10 out of 11 scheduled monthly Board Meetings

and 2 out of 3 Special Board Meetings held during the financial year ended 31 December 2015.

PROFILE OF

DIRECTORS

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ASSOC. PROF. DR. SAID BOUHERAOUA


Assoc. Prof. Dr. Said Bouheraoua, aged 48, was appointed to the Board of Directors of AFFIN ISLAMIC

on 19 June 2014.

Dr. Said, an Algerian, obtained his Ph.D in Fiqh/Usul Fiqh (Shariah) from International Islamic University

Malaysia (IIUM) in 2002. He was also an Associate Professor at Department of Islamic Law, Ahmad

Ibrahim Kulliyyah of Laws, IIUM. He is currently a Senior Researcher at the International Shariah Research

Academy for Islamic Finance (ISRA) and the editor-in-chief of ISRA International Journal of Islamic

Finance.

Dr. Said has throughout his career as Lecturer/Researcher published several books and articles in

international referred journals. He has also presented papers in international conferences and conducted

training sessions in Islamic finance in Malaysia and abroad.

Assoc. Prof. Dr. Said Bouheraoua attended 8 out of 11 scheduled monthly Board Meetings and all 3

Special Board Meetings held during the financial year ended 31 December 2015

PROFILE OF

DIRECTORS

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MANAGEMENT

TEAM

EN. MOHD RUSLEE BIN OMAR

Head, Strategic Business Alliances

EN. MOHD FAIZ BIN RAHIM

Head, Shariah Supervisory

EN. MOHD FIZAR BIN MOHIDIN

Head, Islamic TreasuryPN. JOZAIMAH BINTI JOHAN ALI

Head, Strategic Management

EN. FERDAUS TOH BIN ABDULLAHDeputy Chief Executive Officer

PN. RADZIAH BINTI AHMAD

Head, Islamic Consumer & Bancatakaful

EN. KAMARUL ARIFFIN BIN MOHD JAMIL

Chief Executive Officer(Resigned w.e.f 31.3.2015)

EN. NAZLEE BIN KHALIFAH

Chief Executive Officer(Appointed w.e.f. 3.6.2015)

PN. ZURINA AYU BINTI SAMSUDIN

Head, Product Development

EN. HAZLAN BIN HASANHead, Investment & Structured Finance

CIK NORAZLINDA BINTI MOHD FADZIL

Head, Promotion & Marketing Communications

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SHARIAH

COMMITTEE MEMBERS

ASSOCIATE PROFESSOR

DR. SAID BOUHERAOUA

ASSOCIATE PROFESSOR

DR. ZULKIFLI HASAN

USTAZ AHMAD

ALFISYAHRIN JAMILIN

ASSOCIATE PROFESSOR

DR. AHMAD AZAM OTHMAN

USTAZ MOHAMMAD

MAHBUBI ALI

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PROFILE OF SHARIAH

COMMITTEE MEMBERS

ASSOCIATE PROFESSOR DR. SAID BOUHERAOUA

ASSOCIATE PROFESSOR DR. AHMAD AZAM OTHMAN

Associate Professor Dr. Said Bouheraoua was appointed as a Director of AFFIN ISLAMIC on 19 June

2014. Dr. Said, an Algerian, obtained a Bachelor in Fiqh and Usul Fiqh from the University of Algiers

in 1991, Master of Quran and Sunnah in 1998 and Ph.D in Fiqh/Usul Fiqh (Shariah) from International

Islamic University Malaysia (IIUM) in 2002. He was also an Associate Professor at Department of Islamic

Law, Ahmad Ibrahim Kulliyyah of Laws, IIUM. He is currently a Senior Researcher at the International

Shariah Research Academy for Islamic Finance (ISRA), and is the editor-in-chief of ISRA International

Journal of Islamic Finance. Dr. Said has throughout his career as Lecturer/ Researcher published four

books, five chapters in books and several articles in international referred journals. He has also presented

several papers in international conferences and conducted several training sessions in Islamic finance

in Malaysia and abroad.

Dr. Ahmad Azam Othman is currently an Associate Professor at Islamic Law Department, Ahmad

Ibrahim Kulliyyah of Laws (AIKOL), International Islamic University Malaysia (IIUM). He was the Director

of Harun M. Hashim Law Centre, AIKOL, IIUM and the Head of Islamic Law Department, AIKOL, IIUM. His

specialised areas are Islamic Law of Property, Obligations, Transactions, Personal Bankruptcy, Banking

and Takaful as well as comparative laws. He has vast experience in teaching for postgraduate as well

as undergraduate courses. He is also an internal examiner and supervisor to a number of PhD Theses

and Master Dissertation in various areas including Islamic Banking, Islamic Microfinance, Islamic Capital

Market, Takaful and Waqf. Dr. Ahmad Azam Othman holds a PhD from University of Wales, UK. In addition,

he holds a Master of Comparative Laws from IIUM where he also obtained his LLB (Bachelor of Laws) and

LLB.S (Bachelor of Shariah) as his first degree.

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PROFILE OF SHARIAH

COMMITTEE MEMBERS

USTAZ MOHAMMAD MAHBUBI ALI

Mohammad Mahbubi Ali was a researcher at the International Shari’ah Research Academy for Islamic

Finance (ISRA). During his stint in ISRA, he had contributed to numerous ISRA’s research publications,

mainly involving in Central Bank of Malaysia’s Shari’ah Standards. Currently, he serves as a Shariah

consultant for ZICO Shariah Advisory, Shariah/research consultant for ISRA and ISRA Consultancy Sdn

Bhd, associate consultant for IIFIN Consulting Sdn Bhd, and associate trainer for Amanie Academy Centre

of Excellence. He was also a lecturer at University of Kuala Lumpur and Unitar International University. In

his young age, he has managed to contribute extensively in Islamic Finance through his regular writings

featured in the Islamic Finance News (IFN), Business Islamica, The General Council for Islamic Banks

and Financial Institutions (CIBAFI), Epicentre and many others. He has published numerous articles in

international and local referred academic journals, written several book chapters and presented a number

of papers in various international conferences. His paper entitled: “A Framework of Income Purification

for Islamic Financial Institutions,” co-authored with Dato’ Dr. Asyraf Wajdi Dusuki and Lokmanulhakim

Hussain, was conferred best paper presentation in Sharia Economics Conference, University of Hannover,

Germany, 2013. He received a bachelor degree in Shari’ah Business and Finance from Islamic Business

School, Tazkia Indonesia and Chartered Islamic Finance Professional (CIFP) from INCEIF, The Global

University in Islamic Finance, Malaysia. He is a PhD candidate in Islamic Banking and Finance from the

Institute of Islamic Banking and Finance, International Islamic University Malaysia (IIUM).

ASSOCIATE PROFESSOR DR. ZULKIFLI HASAN

Dr. Zulkifli Hasan is an Associate Professor at the Faculty of Syariah and Law, Universiti Sains Islam Malaysia

(USIM). He has vast experiences in applied banking and finance including takaful and these include as

an advocate and solicitor, in-house counsel for Bank Muamalat Malaysia Berhad, member of Rules and

Regulations Working Committee for Association of Islamic Banking Institutions Malaysia and member

of corporate governance working committee for Awqaf South Africa. He also underwent internship at

Hawkamah, the Institute for Corporate Governance, Dubai International Financial Centre whereby he was

involved in developing corporate governance guidelines for Islamic Financial Institutions in the Middle

East and North Africa (MENA) as well as in the Task Force on Environmental, Social and Governance (ESG)

which led towards development of the S&P/ Hawkamah Pan Arab ESG Index. His articles and books have

been published in reputable academic journals and publishers and he has presented numerous papers

in various conferences both local and abroad. His book entitled ‘Shari’ah Governance in Islamic Bank’

published by the Edinburgh University Press won the MAPIM Best Publication in the category of social

science. In 2013, he represented Malaysia in the prestigious Young Muslim Intellectuals in Southeast

Asia Programme in Japan organized by Japan Foundation. He has been selected as a recipient of a 2014

grant to conduct scholarly research at Fordham University, New York, United States of America by the J.

William Fulbright Foreign Scholarship Board through the Fulbright US-ASEAN Visiting Scholars Initiative.

Dr. Zulkifli Hasan holds a PhD in Islamic Finance from Durham University, UK. Besides this, he holds a

Master of Comparative Laws from International Islamic University of Malaysia where he also obtained his

LLB (Bachelor of Laws) and LLB.S (Bachelor of Shariah) as his first degree. His research interest include

corporate and Shari’ah governance and regulation in Islamic finance.

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PROFILE OF SHARIAH

COMMITTEE MEMBERS

USTAZ AHMAD ALFISYAHRIN JAMILIN

(Appointed w. e. f.1 September 2015)

Ahmad Alfisyahrin Jamilin is currently the Head of Shariah at First Gulf Bank, United Arab Emirates.

He was previously the Chief Shariah Officer at Al Rajhi Bank Malaysia and Shariah Counsel at HSBC

(Amanah) Middle East based in Dubai, United Arab Emirates. Alfisyahrin came with a colorful experience

in his career where he was a Vice President in Global Markets and Structured Investment for Al Rajhi

Bank Malaysia and a Shariah specialist for Sukuk and syndication for Global HSBC Amanah while he

holds a Bachelor in Shariah (honours) from the Islamic University of Madinah, Saudi Arabia.

Alfisyahrin practiced Islamic banking and finance in multiple areas such as front-liner, product structurer

and developer, Shariah specialist and documentation expert. He used to be the originator, transactor and

developer for Sukuk and Treasury products and transactions, and had experience in the conversion of

conventional bank to Islamic. Apart from that, he undertake corporate financial advisory for specialized

or non-vanilla requirements in the areas which include general corporate finance, structured finance,

capital management, contract finance and project finance, managing global Shariah affairs in the global

Islamic banking presence including but not limited to United Arab Emirates, Bahrain, Qatar, Saudi Arabia,

United States of America, United Kingdom, Mauritius, Bangladesh, Malaysia, Indonesia, Brunei and

Singapore. He also has experience in establishing and managing Shariah division and fund custodial and

administrative services by providing Shariah advisory, equity screening, audit and purification process.

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CHAIRMAN’S

STATEMENT

DEAR SHAREHOLDERS,

It gives me pleasure to present the financial and operational highlights of

AFFIN ISLAMIC, given the Bank’s very encouraging performance within

a challenging economic environment that faces the financial industry in

Malaysia.

The Board of Directors is committed to ensure the Bank continues to grow

from strength to strength, building on its fundamentals in order to ensure its

long-term sustainability and steady returns to stakeholders. Since the Bank

was established in 2006, we have kept a keen eye on its progress and been

pleased not only by its financial scorecard but also with increasing market

awareness of the brand and its reputation as an Islamic bank that keeps

innovating to introduce Shariah compliant products that appeal to the various

segments of the market.

We are also committed to play our role in advancing Islamic banking

more generally within the local financial landscape. In 2015, we made a

quantum leap in this direction when AFFIN ISLAMIC joined forces with five

other Islamic banking institutions to form a consortium offering an Islamic

Account Platform (IAP). Through the IAP, we will be presenting investment

opportunities in local businesses and entrepreneurs that have been risk-

assessed by the participating banks. We also see the IAP as presenting a new

medium to facilitate greater public-private partnerships in financing strategic

ventures within specific industries. It is also envisaged for IAP to be eventually

positioned to facilitate fund intermediation across borders.

Along with enhanced governance in the Islamic banking sector, we believe

that Islamic financial institutions in general are better positioned to meet the

requirements of the market. AFFIN ISLAMIC in particular has been focusing

intently on fulfilling both the investment and financing needs of our growing

customer base.

As a result, I am pleased to share that the Bank has grown our assets by

5.2%, increased our profit before zakat and taxation (PBZT) by 28.1% to

RM117.4 million, and our earnings per share to 23.5 sen compared to 18.5

sen in 2014.

In addition to increasing our shareholder value in financial terms, the Bank has

also been working assiduously to grow our market reputation and integrate

ourselves more fully into local communities via a series of community outreach

programmes and zakat (business tithes) contributions. These initiatives are

undertaken not out of a sense of obligation but because we truly believe that,

by giving back to the communities that surround us, we are building our brand

thus increasing the intrinsic and long-term value of the Bank.

In 2015, AFFIN ISLAMIC contributed a total of RM5.5 million in zakat to

different causes and sectors of the under-served population. We contributed

a total of RM1.5 million to the six state zakat centres, while also channelling

RM4.0 million in direct contributions to deserving individuals and charitable

organisations. Of this sum, RM2.6 million went towards helping the poor

and needy to provide for themselves. A total of RM478,842 was channelled

towards knowledge cause (Fisabilillah), inclusive of Muallaf activities. Among

our Muallaf contributions were RM60,000 to Multiracial Reverted Muslim

(MRM) and RM25,000 to Interactive Da’wah Training to assist newly converted

Muslims. On our educational aid, AFFIN ISLAMIC contributed RM250,000 to

support deserving students pursuing tertiary education at local institutions

of higher learning such as Universiti Teknologi MARA (UiTM), Universiti

JEN. TAN SRI DATO’ SERI ISMAIL

BIN HAJI. OMAR (BERSARA)

Chairman

RM117.4million

PROFIT BEFORE

ZAKAT AND TAXATION

(PBZT) RM13.4billion

TOTAL ASSETS

“Our total assets grew 5.2% to RM13.4 billion

and profit before zakat and taxation (PBZT)

increased by 28.1% to RM117.4 million.”

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Contribution to Tabung Zakat Angkatan Tentera Malaysia.

Contibution from AFFIN Barakah Charity Account-i to PDK Kasih Autisma.

name a few. To help eligible recipients to settle their debts, the Bank disbursed

RM45,212.43 under Gharimin. Meanwhile, we also contributed RM75,000

towards Riqab (rehabilitation of Aqidah), which included RM50,000 to Pusat

Jagaan Remaja Puteri Raudhatus Sakinah.

In addition, we contributed RM700,000 to Tabung Zakat Angkatan Tentera

Malaysia, which manages funds to be allocated to deserving members of the

armed forces.

Besides our zakat contribution, through the AFFIN Barakah Charity Account-i,

AFFIN ISLAMIC donated RM18,360 to Yayasan Kanser Malaysia (YKM) for

the purchase of basic medical needs and equipment for poor patients; and

RM20,000 to Pemulihan Dalam Komuniti (PDK) Kasih Templer Autisma to

assist children with autism and other special needs.

We launched the AFFIN Barakah Charity Account-i as a Mudharabah savings

account in 2013 to facilitate charitable donations by depositors. Via the

account, customers pledge to donate a certain percentage of their monthly

earned investment profit to a worthy cause.

We also support corporate responsibility initiatives together with our parent

company, AFFINBANK. Every year, we join forces to hold a ‘Majlis Berbuka

Puasa Bersama Anak-anak Yatim’, at AFFINBANK’s Head Office to bring

cheer to orphans. This year, about 160 children from three orphanages in

the Klang Valley were invited to a ‘buka puasa’ (breaking of fast) dinner which

was attended by Senior Management from both banks during the month of

Ramadhan. We also presented the children with a token of ‘duit raya’ to add

to the occasion.

In addition, we jointly sponsored Utusan Melayu’s Tutor Pull-out Programme

under which specially prepared Tutor Pull-out were distributed to primary and

secondary school students, to supplement their normal curriculum learning

materials.

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Zakat presentation to Management & Science University (MSU).

Presentation of Zakat to Pusat Jagaan Remaja Puteri Raudhatus Sakinah.

Ultimately, we function to serve the needs of the nation. This is reflected

not only in our corporate responsibility initiatives but also in the emphasis

we place on providing our customers with products that truly meet their

needs. I’m pleased to share that in January 2016, as part of a Group

Strategic Transformation Programme, we are conducting a thorough review

of our position within the Islamic finance industry, assessing segments of

the population that we are ideally suited to serve, and plan strategically to

deliver products that will add value to these target markets. In addition, we are

building on our customer service to further enhance our customer experience.

The idea is ensure we keep relevant to a rapidly changing marketplace and

become a ‘dream bank’ not only for our customers but also our employees.

Our employees, after all, are our most valued assets. I would like to take this

opportunity to thank them, on behalf of the Board of Directors, for their hard

work and commitment to the Bank. I would also like to acknowledge our

Management for their able leadership which has seen the Bank grow over

the years. Finally, I would like to express my sincerest appreciation to all other

stakeholders from the regulators to our business partners, shareholders and

customers for their continued support. We value all your contributions, which

have helped us achieve all our successes to date, and are committed to keep

growing so we can attain even greater heights in the Islamic banking space

in the years to come.

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

Chairman

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PERFORMANCE REVIEW


Chief Executive Officer

GROWTH IN

NET

FINANCING

28.5%GROWTH IN PROFIT

BEFORE ZAKAT AND

TAXATION

28.1%

The year 2015 was challenging for the banking

sector in Malaysia - both Islamic and conventional

- due to a bearish capital market and decline of

our currency which, combined with an increase

in US interest rates, led to capital outflow. This

necessitated conscious efforts to increase

our capital adequacy, hence competition and

increased cost for deposits.

Despite the narrowing net profit margin (NPM) and challenging environment,

however, AFFIN ISLAMIC continued to grow our overall financing and assets

as compared to the previous year while increasing our profit before zakat and

taxation (PBZT) by 28.1% to RM117.4 million year-on-year, exceeding the

2015 target by 16.7%.

This has been the result of conscientious efforts to strengthen the Bank at

our core – building its fundamentals while strengthening our relationships

with retail and commercial customers. We have continued to identify and

segmentalise our key markets, and invest in products that are relevant and

provide extra value to them.

FINANCIAL RESULTS

In defiance of the challenging environment, the Bank’s performance for the

year ended 31 December 2015 was extremely encouraging, with positive

results in all key financial parameters. AFFIN ISLAMIC achieved a total

financing growth of 28.5% and experienced an increase in net financing,

advances & other financing to RM9.2 billion with our net impaired financing

ratio stable at 1.1%.

The bank’s deposit portfolio continued to grow, surpassing the RM10.0 billion

mark, as a result of various collaborations with our parent, AFFINBANK. These

included promotions such as the AFFIN Best Deposit Campaign, Merdeka

Combo Campaign and Year End Bonanza 2015. Together, these enabled AFFIN

ISLAMIC to end the year with total assets of RM13.4 billion, an expansion by

5.2% from the previous financial year.

In an increasingly competitive environment, it is more important than ever to

operate at a high level of efficiency, and I am pleased to say that constant

efforts towards this end have had a positive effect on our balance sheet. By

managing our operating costs effectively, AFFIN ISLAMIC managed to improve

our cost to income ratio from 55.48% in 2014 to 47.61%. This played a part

in the increase in PBZT as reported above, and a 27.3% increase in profit

after zakat and taxation from RM66.6 million to RM84.8 million.

BUSINESS INITIATIVES

We continued to explore different market segments in order to better

understand consumers’ characteristics, needs and how we can better serve

them.

Our marketing efforts were concentrated on channels that appeal to an

increasingly more tech-savvy and ‘connected’ population via various online

and social media interaction. During the year, we organised competitions on

social media such as ‘Create Your Own Version of Raya Song’ and ‘Guess

for an iPad’. Supplementing on our online efforts, we extended our reach to

consumers belonging to Gen Y via more direct approach, such as presenting

a talk geared specifically towards first-time home buyers during Prospek

Hartanah.

These targeted efforts were supplemented by mass advertising in order to

increase brand visibility among the public. We ran a nationwide advertisement

campaign using digital displays at Giant hypermarkets, while also promoting

Ar-Rahnu and AFFIN ISLAMIC Impian Haji, a Term Deposit-i campaign, on

digital screens at selected locations.

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Ground breaking ceremony of Kompleks At-Tijarah AFFIN-UiTM.

Additionally, we created more awareness of our Term Deposit-i by advertising

it on a highly visible billboard in Petaling Jaya. Other products were advertised

in the New Straits Times daily and i-Property, Prospek Hartanah and Solusi

magazines. The Bank collaborated with strategic business partners such as

MARA, Management & Science University (MSU) and Universiti Teknologi

MARA to organise events and create awareness on Islamic banking.

2015 also saw AFFIN ISLAMIC work with other Islamic banking institutions

to raise the bar of Islamic financial services in the country, enabling Islamic

banks to become financial intermediaries. In October, the Bank, along with

five others chosen by Bank Negara Malaysia, set up a consortium - Raeed

Holdings Sdn Bhd - to offer a Shariah compliant Investment Account Platform

(IAP) providing investors the opportunity to fund businesses, corporates, new

growth industries as well as entrepreneurs with viable projects.

The IAP is an exciting development as it marks the first cooperation among

Islamic banks to create a new Shariah compliant investment avenue with

attractive returns. The initiative is particularly beneficial to investors who

do not have dedicated risk assessment resources, as this function will be

overseen by the sponsoring banks. IAP will also be positioned to facilitate

more public-private partnerships in financing strategic ventures within

specific industries. Through the IAP, government agencies can identify viable

ventures to invest in and create opportunities for the private sector to partially

fund them. It is also envisaged for IAP to be eventually positioned to facilitated

fund intermediation across borders.

The fact that AFFIN ISLAMIC was chosen by BNM to be part of this IAP

speaks volumes of our credibility and integrity, which are qualities that we will

continue to uphold as we serve our valued customers.

During the year, we also strengthened our position in the community via

various contributions. Key among these were a RM4.5 million contributed

to help build Kompleks At-Tijarah UiTM; and RM18,360 to Yayasan Kanser

Malaysia (YKM). The amount channelled to YKM was partly derived from our

AFFIN Barakah Charity Account-i, through which customers pledge a certain

percentage of their monthly profits to charity. This year, RM20,000 from this

savings account was also channelled towards Pemulihan Dalam Komuniti

(PDK) Kasih Templer Autisma, which cares for children with autism and other

special needs.

OUTLOOK & PROSPECTS

The year 2016 is going to be challenging for the banking industry, given the

expected slowdown in both global and local economies. We expect intense

competition for market share and more stringent regulatory requirement,

therefore; it is essential for banks to manage the envolving of customer

behaviours and expectations.

In response, AFFIN ISLAMIC together with our parent, AFFINBANK, are

embarking on a comprehensive Strategic Transformation Programme that will

analyze our position in the industry to capture greater growth, profitability and

sustainability.

In 2016, we continue to invest in new product capabilities and infrastructure

to seize opportunities offered by new affluent segments. Together, we will

step up efforts to enhance our efficiency and productivity to establish a high-

performance culture by integrating strategic functions of AFFIN ISLAMIC with

AFFINBANK for greater operational effectiveness and optimal utilization of

resources.

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Distributing ‘duit raya’ to orphans from selected orphanages.

The bank will continue to safeguard strong asset quality, pursuing disciplined

risk management framework, while maintaining best practices in corporate

governance and adhering to the regulators’ capital and liquidity requirements.

The launch of IAP with our partner banks will elevate our role in the expanding

Islamic banking world. We will continue to launch innovative Shariah-based

financial solutions and services to strengthen AFFIN ISLAMIC’s position as a

premier local and international Islamic financial institution.

ACKNOWLEDGEMENTS

The Bank is at an exciting juncture in our onward journey. We have achieved

much over the years, and in 2015, for which I would like to thank our various

stakeholders - from our customers to our partners and investors as well as to

our Board of Directors, Management Team and Shariah Committee members.

To everyone who has contributed to AFFIN ISLAMIC, thank you for your

support. Let us continue to work together for even better performance and

results in the future.


Chief Executive Officer

Launching of Kompleks At-Tijarah AFFIN-UiTM.

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FEBPusat Zakat Perak

Contribution of RM364,800 to Pusat Zakat Perak

was presented by Encik Kamarul Ariffin, Chief

Executive Officer of AFFIN ISLAMIC during Corporate

Zakat Presentation Ceremony which was graced

by Duli Yang Maha Mulia Paduka Seri Sultan

Nazrin Muizzuddin Shah, the Sultan of Perak. The

ceremony was witnessed by Menteri Besar Perak,

Dato’ Seri Dr. Zambry Abdul Kadir.

JAN Zakat contribution to Pusat Zakat Melaka

AFFIN ISLAMIC contributed RM364,800 of its Zakat

funds to eligible Asnaf of Pusat Zakat Melaka. The

mock cheque was presented by Ustaz Mohd Faiz

Rahim, Head of Shariah Supervisory to Yang Dipertua

Negeri Melaka, Tun Mohd Khalil Yaakob during

Sambutan Maulidur Rasul held at Bukit Falah, Melaka.

JANWakaf Desa Fahmi

A total of RM350,000 was contributed to Wakaf

Desa Fahmi, a centre that offers accommodation to

hardcore poor, homeless, neglected Muslims and

tahfiz students. The mock cheque was presented

by Deputy CEO AFFIN ISLAMIC, En. Ferdaus Toh

Abdullah to Dr. Kamarolzaman Hajar, founder of

Wakaf Desa Fahmi.

MARYayasan Kanser Malaysia

Yayasan Kanser Malaysia, a non-profit organisation

received donation of RM18,360.49. The amount

was raised from customers’ dividends through

AFFIN Barakah Charity Account-i, which provides

customers the option to donate a certain percentage

of their monthly earned Hibah (profit/dividend)

to a worthy cause.

APRIslamic Relief Malaysia

A mock cheque of RM15,000 zakat contribution

was presented by Ustaz Helmi Afizal Zainal from

Zakat Management to En. Zairulshahfuddin Zainal

Abidin, Country Director of Islamic Relief Malaysia

in a ceremony held at Bangi, Selangor. Islamic Relief

Malaysia is a Non-Government Organisation (NGO)

that provides humanitarian aid in Asia Pacific region.

JULZakat contribution to Management and

Science University (MSU)

Management and Science University (MSU) received

a total of RM100,000 to assist Asnaf students

and RM30,000 for MSU Mobile Clinic.The zakat

contribution was presented by Deputy Chief Executive

Officer of AFFIN ISLAMIC, En. Ferdaus Toh Abdullah

to President of MSU, Prof. Tan Sri Dato’ Wira Dr. Mohd

Shukri Ab. Yajid.

OCTPusat Jagaan Bakti Cahaya Hati

AFFIN ISLAMIC spreads cheer and happiness to

45 children of Pusat Jagaan Bakti Cahaya Hati

(PJBCH). The centre is a welfare home for orphans

and underprivileged children. The mock cheque was

presented by Head of Shariah Supervisory AFFIN

ISLAMIC, Ustaz Mohd Faiz Rahim, to Puan Hajah

Wahyuning, founder of PJBCH in Rawang, Selangor.

NOVMSU Islamic Finance Conference 2015

AFFIN ISLAMIC presented a seminar entitled Islamic

Finance: Maturing Towards Sustainable Talent at MSU

Islamic Finance Conference 2015. The event was

attended by 800 students from universities around

Selangor and KL.

NOVMajlis Pelancaran Tabung Pendidikan

Kanak-kanak PDK Kasih Autisma

Ninety autistic and disabled children of PDK Kasih

Templer Autisma, a community rehabilitation

centre for autistic and disabled children received a

contribution amounting to RM20,000 from AFFIN

Barakah Charity Account-i. The mock cheque was

presented by Chief Executive Officer of AFFIN ISLAMIC,

En. Nazlee Khalifah and Deputy Chief Executive

Officer, En. Ferdaus Toh Abdullah to Dato’ Saiful

Bahri Abdul Hadi, Chairman of PDK Kasih Autisma at

Putrajaya Lake Club.

JUNGround breaking ceremony of Kompleks

At-Tijarah AFFIN-UiTM

The ground breaking ceremony of Kompleks

At-Tijarah AFFIN UiTM which was funded by

AFFINBANK & AFFIN ISLAMIC was held at UiTM

Puncak Alam campus on 11 June. The ceremonious

event was graced by Chairman of AFFINBANK

& AFFIN ISLAMIC, YBhg. Jen. Tan Sri Dato’ Seri

Ismail Hj. Omar (Bersara), Managing Director/

CEO of AFFINBANK, En. Kamarul Ariffin Mohd

Jamil, Chief Executive Officer of AFFIN ISLAMIC,

En. Nazlee Khalifah, Deputy Chief Executive Officer of

AFFIN ISLAMIC, En. Ferdaus Toh Abdullah, and Vice

Chancellor of Universiti Teknologi Mara, YBhg. Tan

Sri Dato’ Sri Prof. Ir. Dr. Sahol Hamid Abu Bakar. The

first in UiTM, the complex of Islamic Centre consists

of four components which are ‘Rukhsah’, Food &

Beverages, Da’wah and Medical & Health.

JULInternational Islamic University Malaysia

(IIUM) Hijrah Grand Iftar

In the month of Ramadhan, AFFIN ISLAMIC presented

zakat contribution amounting RM100,000 to

deserving students of International Islamic University

Malaysia (IIUM). The mock cheque was presented by

En. Nazlee Khalifah, Chief Executive Officer of Affin

Islamic Bank Berhad to, The Honourable Tan Sri Dato’

Seri Utama Dr. Rais Yatim, Advisor to the Government

of Malaysia and President of IIUM in a Hijrah Grand

Iftar held at IIUM Gombak.

JUL Majlis Penyampaian Sumbangan Angkatan

Tentera Malaysia (ATM)

AFFIN ISLAMIC contributed zakat funds amounting

to RM700,000 to ‘Tabung Zakat Angkatan Tentera

Malaysia’. The zakat contribution was presented by

AFFIN ISLAMIC Independent Non-Executive Director,

YBhg. Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman,

to Minister of Defence, YB Datuk Seri Hishammuddin

Tun Hussein during Majlis Penyampaian Sumbangan

Hari Raya Aidilfitri held at Ministry of Defence,

Kuala Lumpur.

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FINANCIAL HIGHLIGHTS

Earnings Per Share (EPS)Sen

Profit Before Zakat And TaxationRM’million

Total AssetsRM’billion

Net Financing, Advances & Other FinancingRM’billion

Deposits From CustomersRM’billion

Shareholders’ EquityRM’million

AFFIN ISLAMIC’s EPS for the financial year ended 31 December

2015 stood at 23.5 sen compared to 18.5 sen the year before

with an increase of 27.0%.

‘15 23.5

‘14 18.5

‘13 16.4

‘12 25.8

AFFIN ISLAMIC achieved profit before zakat and taxation of

RM117.4 million for the year ended 31 December 2015 with

an increase of 28.1% compared with RM91.7 million in 2014.

‘15 117.4

‘14 91.7

‘13 87.3

‘12 106.4

AFFIN ISLAMIC’s financial position as at 31 December 2015

continued to remain strong with total assets of RM13.4 billion,

an increase of 5.2% compared with RM12.7 billion as at

31 December 2014.

‘15 13.4

‘14 12.7

‘13 12.3

‘12 11.7

AFFIN ISLAMIC’s net financing, advances and financing grew by

28.5% to RM9.2 billion compared to RM7.2 billion in 2014.

‘15 9.2

‘14 7.2

‘13 6.0

‘12 5.1

Total deposits increased by 1.3% year-on-year to RM10.0 billion

as at 31 December 2015 compared to RM9.9 billion in the year

before.

‘15 10.0

‘14 9.9

‘13 9.3

‘12 9.0

Total shareholders’ equity of AFFIN ISLAMIC is RM954.8 million

as at 31 December 2015 with an increase of 23.7% compared

to RM772.1 million in 2014.

‘15 954.8

‘14 772.1

‘13 704.4

‘12 655.0

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NETWORKOF BRANCHES

WILAYAH PERSEKUTUAN

1. Fraser

20-G & 20-1,Jalan Metro Pudu,Fraser Business Park,55100 Kuala Lumpur.Tel : 03-9222 8877Fax : 03-9222 9877

SELANGOR

1. Bangi

No.175 & 177 Ground Floor,Jalan 8/1, Seksyen 8,43650 Bandar Baru Bangi, Selangor.Tel : 03-8925 7333Fax : 03-8927 4815

2. MSU Shah Alam

Management & Science University,2nd Floor, University Drive,Persiaran Olahraga, Section 13,40100 Shah Alam, Selangor.Tel : 03-5510 0425Fax : 03-5510 0563

3. SS2

161-163,Jalan SS2/24,47300 Petaling Jaya, Selangor.Tel : 03-7874 3513Fax : 03-7874 3480

NEGERI SEMBILAN

1. Senawang

No. 312-G & 312-1,Jalan Bandar Senawang 17,Pusat Bandar Senawang,70450 Seremban, Negeri Sembilan.Tel : 06-675 7066Fax : 06-675 7188

JOHOR

1. Taman Molek

No. 23, 23-01, 23-02,Jalan Molek 1/29,Taman Molek,81100 Johor Bahru, Johor.Tel : 07-351 9522Fax : 07-357 9522

PULAU PINANG

1. Juru Auto-City

No. 1813A,Jalan Perusahaan, Auto-City,North-South Highway,Juru Interchange,13600 Prai, Pulau Pinang.Tel : 04-507 7422Fax : 04-507 6522 / 0522

KEDAH

1. Jitra

No. 17, Jalan Tengku Maheran 2,Taman Tengku Maheran, Fasa 4,06000 Jitra, Kedah.Tel : 04-919 0888Fax : 04-919 0380

TERENGGANU

1. Kuala Terengganu

63 & 63-A,Jalan Sultan Ismail,20200 Kuala Terengganu, Terengganu.Tel : 09-622 3725Fax : 09-623 6496

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NOTICE OF

ANNUAL GENERAL MEETING

AGENDA

1. To receive the Statutory Statements of Accounts for the year ended 31 December 2015 together with the

Directors’ and Auditors’ Reports thereon.

2. To re-elect Assoc. Prof. Dr. Said Bouheraoua who retire pursuant to Article 68 of the Company’s Articles of

Association and who, being eligible, offer himselves for re-election.

3. To consider and if thought fit, to pass the following resolutions in accordance with Section 129(6) of the

Companies Act, 1965:

(a) That YBhg. Jen. Tan Sri Dato’ Seri Ismail bin Haji Omar (Bersara), retiring in accordance with Section 129(6)

of the Companies Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until

the conclusion of the next Annual General Meeting.

(b) That YBhg. Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli bin Mohd Nor (Bersara), retiring in

accordance with Section 129(6) of the Companies Act, 1965, be and is hereby re-appointed as a Director

of the Company to hold office until the conclusion of the next Annual General Meeting.

(c) That En. Mohd Suffian bin Haji Haron, retiring in accordance with Section 129(6) of the Companies Act,

1965, be and is hereby re-appointed as a Director of the Company to hold office until the conclusion of the

next Annual General Meeting

(d) That YBhg. Tan Sri Dato’ Seri Mohamed Jawhar, retiring in accordance with Section 129(6) of the Companies

Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until the conclusion

of the next Annual General Meeting.

(e) That YBhg. Tan Sri Dato’ Sri Abdul Aziz bin Abdul Rahman, retiring in accordance with Section 129(6) of

the Companies Act, 1965, be and is hereby re-appointed as a Director of the Company to hold office until

the conclusion of the next Annual General Meeting.

4. To approve the payment of Directors’ fees and Committees’ fees for financial year ended 31 December 2015.

5. To re-appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2016 and

to authorise the Directors to fix their remuneration.

6. To transact any other ordinary business of the Company.

BY ORDER OF THE BOARD

NIMMA SAFIRA BINTI KHALID

Secretary

NOTE:

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

member of the Company.

The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or, if the appointor is a

corporation, either under the seal or in some other manner approved by Directors.

The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such

power or authority shall be deposited at the Company’s registered office at the 17th Floor, Menara Affin, 80, Jalan Raja Chulan, 50200 Kuala Lumpur,

at least forty-eight (48) hours before the time appointed for holding the Meeting or adjourned Meeting as the case may be otherwise the person so

named shall not be entitled to vote in respect thereof.

2. Reference is made to Recommendation 3.2 and 3.3 of the Malaysian Code on Corporate Governance 2012 which states that the tenure of an

Independent Director should not exceed a cumulative term of nine (9) years.

Tan Sri Dato’ Seri Mohamed Jawhar and En. Mohd Suffian bin Haji Haron have served on the Board as Independent Non-Executive Directors for a

cumulative term exceeding nine (9) years, however, they remain independent as they are free from any business or other relationship, which could

interfere with the exercise of independent judgement or the ability to act in the best interest of the Company. The Nominating Committee and the

Board have determined at the annual assessment carried out that Tan Sri Dato’ Seri Mohamed Jawhar and En. Mohd Suffian bin Haji Haron remain

independent in mind and character. They participate actively in the Board as well as Board Committees’ deliberations and decision making.

NOTICE IS HEREBY

GIVEN THAT THE 10TH

ANNUAL GENERAL

MEETING OF

AFFIN ISLAMIC

BANK BERHAD

WILL BE HELD AT THE

BOARD ROOM,

19TH FLOOR,

MENARA AFFIN,

80, JALAN RAJA

CHULAN, 50200

KUALA LUMPUR ON

TUESDAY,

22 MARCH 2016

AT 8.30 A.M. FOR

THE TRANSACTION

OF THE FOLLOWING

BUSINESSES:-

FINANCIAL STATEMENTS26 Directors’ Report

38 Statements of Financial Position

39 Income Statements

40 Statements of Comprehensive Income

41 Statements of Changes in Equity

43 Statements of Cash Flows

45 Summary of Significant Accounting Policies

58 Notes to the Financial Statements

128 Statement by Directors

128 Statutory Declaration

129 Independent Auditors’ Report

130 Shariah Committee’s Report

132 Basel II Pillar 3 Disclosures

26

DIRECTORS’ REPORTfor the financial year ended 31 December 2015

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The Directors hereby submit their report together with the audited financial statements of the Bank for the financial year ended 31 December 2015.

PRINCIPAL ACTIVITIES

The principal activities of the Bank are Islamic banking business and the provision of related financial services. There were no significant changes in these activities during the financial year.

FINANCIAL RESULTS

Economic Entity

and The Bank

RM’000

Profit before zakat and taxation 117,375

Zakat (3,779)

Profit before taxation 113,596

Taxation (28,811)

Net profit for the financial year 84,785

DIVIDENDS

No dividends have been paid by the Bank in respect of the financial year ended 31 December 2014 and 2015.

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

RESERVES AND PROVISIONS

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

BAD AND DOUBTFUL FINANCING

Before the financial statements of the Bank were made out, the Directors took reasonable steps to ascertain that actions had been taken in relation to the writing off of bad financing and the making of allowances for doubtful financing, and have satisfied themselves that all known bad financing had been written off and adequate allowances had been made for bad and doubtful financing.

At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad financing, or the amount of the allowance for doubtful financing in the financial statements of the Bank, inadequate to any substantial extent.

CURRENT ASSETS

Before the financial statements of the Bank were made out, the Directors took reasonable steps to ascertain that any current assets, other than financing, which were unlikely to be realised in the ordinary course of business, their values as shown in the accounting records of the Bank have been written down to an amount which they might expected so to realise.

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

VALUATION METHODS

At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities in the Bank’s financial statements misleading or inappropriate.

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CONTINGENT AND OTHER LIABILITIES

At the date of this report there does not exist:

(a) any charge on the assets of the Bank which has arisen since the end of the financial year which secures the liabilities of any other person; or

(b) any contingent liability in respect of the Bank that has arisen since the end of the financial year other than those in the ordinary course of banking business or activities of the Bank.

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

CHANGE OF CIRCUMSTANCES

At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Bank, that would render any amount stated in the financial statements misleading.

ITEMS OF AN UNUSUAL NATURE

The results of the operations of the Bank during the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature.

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

SIGNIFICANT EVENT DURING THE FINANCIAL YEAR

There is no significant event during the financial year.

SUBSEQUENT EVENTS

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

DIRECTORS

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

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)Chairman/ Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok KamaruddinNon-Independent Non-Executive Director

Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor (Bersara)Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Mohamed JawharIndependent Non-Executive Director

En. Mohd Suffian Bin Haji HaronIndependent Non-Executive Director

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul RahmanIndependent Non-Executive Director

Associate Professor Dr. Said BouheraouaNon-Independent Non-Executive Director

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RESPONSIBILITY STATEMENT BY BOARD OF DIRECTORS

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

It is the responsibility of the Directors to ensure that the financial reporting of the Bank present a true and fair view of the state of affairs of the Bank as at 31 December 2015 and of the financial results and cash flows of the Bank for the financial year then ended.

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

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

The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 128 of the financial statements.

DIRECTORS’ INTERESTS

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

Ordinary shares of RM1 each

As at As at

1.1.2015 Bought Sold 31.12.2015

AFFIN Holdings Berhad

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin *1,051,328 - - *1,051,328

Boustead Heavy Industries Corporation Berhad

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin *2,000,000 - - *2,000,000

Boustead Petroleum Sdn Bhd

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 5,916,465 - - 5,916,465

* Shares held in trust by nominee company

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DIRECTORS’ INTERESTS

Ordinary shares of RM10 each; RM5 uncalled

As at As at

1.1.2015 Bought Sold 31.12.2015

ABB Trustee Berhad**

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 20,000 - - 20,000

** Shares held in trust in AFFIN Bank Berhad

Ordinary shares of 50 sen each

As at As at

1.1.2015 Bought Sold 31.12.2015

Boustead Holdings Berhad^


Pharmaniaga Berhad^^


Boustead Plantation Berhad^^^


^ Shares held in trust by nominee company - 25,992,758 Shares held under own name - 2,200,000

^^ Shares held in trust by nominee company - 3,117,311 Shares held under own name - 9,382,837

^^^ Shares held in trust by nominee company - 30,941,600 Shares held under own name - 440,000

Other than the above, the Directors in office at the end of the financial year did not have any other interest in shares, warrants and options over shares in the Bank or its related corporations during the financial year.

DIRECTORS’ BENEFITS

Neither at the end of the financial year, nor at any time during the financial year, did there subsist any arrangement to which the Bank is a party with the object or objects of enabling Directors of the Bank to acquire benefits by means of the acquisition of shares in, or debenture of, the Bank or any other body corporate.

Since the date of incorporation, no Director of the Bank has received or become entitled to receive a benefit (other than the fees and other emoluments shown in Note 28 to the financial statements) by reason of a contract made by the Bank or a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial financial interest.

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CORPORATE GOVERNANCE

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

(i) Board of Directors Responsibility and Oversight

The Board of Directors

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

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

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

The Board Meetings

Throughout the financial year, 14 Board meetings were held. All Directors have complied with the minimum number of attendances for Board meetings as stipulated by Bank Negara Malaysia. All Directors review Board papers or reports providing updates on operational, financial and corporate developments prior to the Board meetings. These papers and reports are circulated prior to the meeting to enable the Directors to obtain further explanations and having sufficient time to deliberate on the issues and make decisions during the meeting.

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

Board Balance

Currently the Board has seven members, comprising three Non-Independent Non-Executive Directors (including the Chairman) and four Independent Non-Executive Directors. The Board of Directors meetings are presided by Non-Independent Non-Executive Chairman whose role is clearly separated from the role of CEO. The composition of the Board and the number of meetings attended by each Director are as follows:

Directors Total Meetings Attended

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 14 / 14

Chairman/ Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 14 / 14

Member/ Non-Independent Non-Executive Director

Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor (Bersara) 13 / 14


Tan Sri Dato’ Seri Mohamed Jawhar 14 / 14

Member/ Independent Non-Executive Director

En. Mohd Suffian Bin Haji Haron 14 / 14


Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 12 / 14


Associate Professor Dr. Said Bouheraoua 11 / 14


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Board Committees

The Board is assisted by three committees with specific terms of reference. This enables the committees to focus on areas or issues of critical importance to the operations of Bank. Compositions, functions and terms of reference of these committees are highlighted below:

Nomination Committee

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

There were 6 meetings held during the financial year ended 31 December 2015. The Nomination Committee comprises the following members:

Members Total Meetings Attended

En. Mohd Suffian Bin Haji Haron 6 / 6

Chairman/ Independent Non-Executive Director









Remuneration Committee

The Remuneration Committee was established to evaluate and recommend to the Board the framework of remuneration and the remuneration package for Directors, CEO and key senior management officers. The Board is ultimately responsible for the approval of the remuneration package. The Committee is guided by the need to ‘attract and retain’ and at the same time link the rewards to clearly articulate corporate and individual performance parameters.

There were 4 meetings held during the financial year ended 31 December 2015. The Remuneration Committee comprises the following members:



Chairman/ Independent Non-Executive Director





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Board Committees (continued)

Shariah Committee

The Bank’s business activities are subject to Shariah compliance and conformation by the Shariah Committee. The Shariah Committee is formed as legislated under the Islamic Financial Services Act, 2013 and as per Shariah Governance Framework for Islamic Financial Institutions.

The main duties and responsibility of the Shariah Committee among others follows:

times;

During the financial year ended 31 December 2015, a total of 11 meetings were held. The Shariah Committee comprises the following members and the details of attendance of each member at the Shariah Committee meetings held during the financial year are as follows:



Chairman

Associate Professor Dr. Ahmad Azam Bin Othman 11 / 11

Member

Associate Professor Dr. Zulkifli Bin Hasan 11 / 11

Member

Ustaz Mohammad Mahbubi Ali 11 / 11

Member

Ustaz Ahmad Alfisyahrin Bin Jamilin 3 / 3

Member

(Appointment w.e.f. 1.9.2015)

Dr. Yasmin Hanani Binti Mohd Safian 4 / 5

Member

(Resigned w.e.f. 1.4.2015)

(ii) Group Risk Management

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

Responsibilities of these committees include:

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(ii) Group Risk Management (continued)

Board Risk Management Committee (‘BRMC’)

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

The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively. The Bank’s risk management framework is set out in Note 33 to the the financial statements.

The BRMC meeting for the Bank were jointly held with AFFIN Bank Berhad and the following Director of the Bank sits in the meeting:

Member Total Meetings Attended



Board Loan Review and Recovery Committee (‘BLRRC’)

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

The BLRRC meeting for the Bank were jointly held with AFFIN Bank Berhad and the following Director of the Bank sits in the meeting:

Member Total Meetings Attended



Management Committee (‘MCM’)

MCM comprising the senior management team chaired by AFFIN Bank Berhad’s Managing Director/Chief Eecutive Officer (MD/CEO), assists the Board in managing the day-to-day operations. MCM formulates tactical plans and business strategies, monitors the Bank’s overall performance, and ensures that the activities are carried out in accordance with corporate objectives, strategies, policies and annual business plan and budget.

Group Management Loan Committee (‘GMLC’)

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

Individual Approvers

Credit authority is delegated based on skills, experience and track record of the officer assuming an approver’s position. Delegation of credit authority is subject to credit checks to ensure approvers have a clean disciplinary record and not be in a financially embarrassed position.

Asset and Liability Management Committee (‘ALCO’)

ALCO comprising the senior management team chaired by the CEO of AFFIN Islamic Bank manages the Bank’s asset and liability position as well as oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory basis.

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(ii) Group Risk Management (continued)

Group Operational Risk Management Committee (‘GORMC’)

GORMC comprising the senior management team chaired by AFFIN Bank Berhad’s MD/CEO, manages the Bank’s Operational Risk by reviewing and ensuring appropriate operational risk programme, process and framework are implemented in the Bank so as to reduce the original capital charge and manage operational risk losses to an acceptable level.

Group Early Alert Committee (‘GEAC’)

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

(iii) Internal Audit and Internal Control Activities

Relationship with the Auditors

The Bank has established appropriate relationship with both internal and external auditors in conducting the audit function of the Bank.

Internal Controls

The Board acknowledges its overall responsibility for maintaining a sound system of internal control to safeguard shareholders’ investments, Bank’s assets, and the need to review the adequacy and integrity of those systems regularly.

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

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

independent assessment to the Board of Directors, AEC and Management Committee that appropriate control environment is maintained with clear authority and responsibility with sufficient staff and resources to carry out control responsibilities.

exist to contain those risks.

data and provide for the safeguarding of assets, and a documented review of reported results.

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

till its full resolution.

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

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

Audit and Examination Committee (‘AEC’)

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

and obligations; and

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

that the assets are properly managed and safeguarded.

The AEC meetings for the Bank were jointly held with AFFIN Bank Berhad during the financial year ended 31 December 2015 and the following Independent Non-Executive Directors of the Bank sit in the meeting:



Chairman / Independent Non-Executive Director



(iv) Management Reports

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

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

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

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BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 AND FUTURE OUTLOOK

The year 2015 was challenging for the banking sector in Malaysia due to soften economic environment. Despite the challenges, AFFIN ISLAMIC (‘The Bank’) recorded a profit before zakat and tax of RM117.4 million for the financial year ended 31 December 2015, a higher growth of RM25.7 million or 28.1% over the corresponding financial year. Total net income closed at RM231.8 million, a growth of 9.5% year-on-year, driven by the growth in both fund and fee based revenue with enlargement of financing assets. Additionally, the Bank continues to maintain a strong capital position with Total Capital ratio of 14.415% and Common Equity Tier 1 ratio at 13.203% as at 31 December 2015. Business Outlook For 2016

2016 is going to be a tough year for the banking industry where it is projected to be affected by the negative consumer sentiment and moderation in household demand. BNM maintain the OPR at current level at 3.25% as it weigh the risks to economic growth and inflation rate. At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity.

Slower financing growth and narrowing net profit margins is expected in 2016 with potential stress on the asset quality. The Bank is targeting on increasing its consumer deposits base by continuously to source for cheap deposits, namely from demand and saving deposits. Thru enhancing our products and services and supporting Government initiatives on new economic measure, we will continue to support business activities of small medium sized enterprises (‘SME’) segment.

Moving forward, the Bank is continuously enhancing its domestic reach while continuously exploring new opportunities beyond Malaysian shore. The development of Affin Bank Group’s digital banking and transactional banking capabilities within is expected to further enhance our business proposition to our customer.

RATING BY EXTERNAL RATING AGENCIES

The Bank was not rated by any external rating agencies during the financial year.

ZAKAT OBLIGATIONS

The Bank did not pay zakat on behalf of its depositors.

HOLDING COMPANY, PENULTIMATE AND ULTIMATE HOLDING CORPORATE BODY

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

AUDITORS

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

Signed on behalf of the Board of Directors in accordance with their resolution dated 3 March 2016.

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

Chairman

En. Mohd Suffian Bin Haji Haron

Director

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STATEMENTS OF FINANCIAL POSITIONas at 31 December 2015

Economic Entity The Bank

2015 2014 2015 2014

Note RM’000 RM’000 RM’000 RM’000

ASSETS

Cash and short-term funds 2 1,918,570 3,333,472 1,918,570 3,333,472

Deposits and placements with banks and other financial institutions 3 35,034 - 35,034 -

Derivatives financial assets 4 132 12 132 12

Financial investments available-for-sale 5 1,475,373 1,532,500 1,475,373 1,532,500

Financial investments held-to-maturity 6 76,283 82,754 76,283 82,754

Financing, advances and other financing 7 9,201,909 7,163,621 9,201,909 7,163,621

Other assets 9 3,759 48,315 3,759 48,315

Amount due from holding company 10 367,172 242,058 367,172 242,058

Amount due from joint ventures 11 39,936 14,855 39,936 14,855

Deferred tax assets 12 3,598 2,900 3,598 2,900

Statutory deposits with Bank Negara Malaysia 13 259,600 298,000 259,600 298,000

Investment in joint ventures 14 - - 650 650

Property and equipment 15 2,613 3,261 2,613 3,261

Intangible assets 16 426 891 426 891

TOTAL ASSETS 13,384,405 12,722,639 13,385,055 12,723,289

LIABILITIES AND EQUITY

Deposits from customers 17 10,001,695 9,870,394 10,001,695 9,870,394

Deposits and placements of banks and other financial institutions 18 2,372,710 2,045,720 2,372,710 2,045,720

Derivatives financial liabilities 19 1,035 34 1,035 34

Other liabilities 20 44,119 30,358 44,119 30,358

Provision for taxation 10,031 4,071 10,031 4,071

TOTAL LIABILITIES 12,429,590 11,950,577 12,429,590 11,950,577

Share capital 21 460,000 360,000 460,000 360,000

Reserves 22 494,815 412,062 495,465 412,712

TOTAL EQUITY 954,815 772,062 955,465 772,712

TOTAL LIABILITIES AND EQUITY 13,384,405 12,722,639 13,385,055 12,723,289

COMMITMENTS AND CONTINGENCIES 32 2,499,754 2,112,921 2,499,754 2,112,921

The accounting policies on pages 45 to 57 and the notes on pages 58 to 127 form an integral part of these financial statements.

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INCOME STATEMENTSfor the financial year ended 31 December 2015


2015 2014 2015 2014

Note RM’000 RM’000 RM’000 RM’000

Income derived from investment of depositors’ funds and others 23 556,537 472,996 556,537 472,996

Income derived from investment of shareholders’ funds 24 39,773 33,586 39,773 33,586

Allowances for impairment losses on financing, advances and other financing 25 (8,512) (3,725) (8,512) (3,725)

Allowances for impairment losses on securities - (550) - (550)

Total distributable income 587,798 502,307 587,798 502,307

Income attributable to the depositors 26 (356,017) (290,628) (356,017) (290,628)

Total net income 231,781 211,679 231,781 211,679

Other operating expenses 27 (114,406) (120,023) (114,406) (120,023)

Profit before zakat and taxation 117,375 91,656 117,375 91,656

Zakat (3,779) (4,772) (3,779) (4,772)

Profit before taxation 113,596 86,884 113,596 86,884

Taxation 29 (28,811) (20,288) (28,811) (20,288)

Net profit after zakat and taxation 84,785 66,596 84,785 66,596

Attributable to:

Equity holders of the Bank 84,785 66,596 84,785 66,596

Earnings per share (sen):

- Basic 30 23.5 18.5 23.5 18.5


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STATEMENTS OF OF COMPREHENSIVE INCOMEfor the financial year ended 31 December 2015


2015 2014 2015 2014

Note RM’000 RM’000 RM’000 RM’000

Profit after zakat and taxation 84,785 66,596 84,785 66,596

Other comprehensive income:

Items that may be reclassified subsequently to profit and loss:

Net fair value change in financial investments available-for-sale (2,674) 1,381 (2,674) 1,381

Deferred tax on financial investments available-for-sale 12 642 (332) 642 (332)

Other comprehensive (expense)/income for the financial year, net of tax

(2,032) 1,049 (2,032) 1,049

Total comprehensive income for the year 82,753 67,645 82,753 67,645

Attributable to equity holders of the Bank:

- Total comprehensive income 82,753 67,645 82,753 67,645


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STATEMENTS OF CHANGES IN EQUITYfor the financial year ended 31 December 2015

Attributable to Equity Holders of the Bank

Share

capital

RM’000

Statutory

reserves

RM’000

AFS

revaluation

reserves

RM’000

Regulatory

reserves

RM’000

Retained

profits

RM’000

Total

RM’000 Economic Entity

At 1 January 2015 360,000 206,324 (5,876) 49,020 162,594 772,062

Net profit for the financial year - - - - 84,785 84,785

Other comprehensive income (net of tax)

- Financial investments available-for-sale - - (2,032) - - (2,032)

Total comprehensive income - - (2,032) - 84,785 82,753

Issued during the financial year 100,000 - - - - 100,000

Transfer to statutory reserves/regulatory reserves - 42,393 - 9,380 (51,773) -

At 31 December 2015 460,000 248,717 (7,908) 58,400 195,606 954,815

At 1 January 2014 360,000 173,026 (6,925) - 178,316 704,417



- Financial investments available-for-sale - - 1,049 - - 1,049

Total comprehensive income - - 1,049 - 66,596 67,645


At 31 December 2014 360,000 206,324 (5,876) 49,020 162,594 772,062

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STATEMENTS OF CHANGES IN EQUITYfor the financial year ended 31 December 2015

Non-Distributable Distributable

AFS

revaluation

reserves

RM’000

Share

capital

RM’000

Statutory

reserves

RM’000

Regulatory

reserves

RM’000

Retained

profits

RM’000

Total

RM’000 The Bank

At 1 January 2015 360,000 206,324 (5,876) 49,020 163,244 772,712



- Financial investments available-for-sale - - (2,032) - - (2,032)

Total comprehensive income - - (2,032) - 84,785 82,753

Issued during the financial year 100,000 - - - - 100,000


At 31 December 2015 460,000 248,717 (7,908) 58,400 196,256 955,465

At 1 January 2014 360,000 173,026 (6,925) - 178,966 705,067



- Financial investments available-for-sale - - 1,049 - - 1,049

Total comprehensive income - - 1,049 - 66,596 67,645


At 31 December 2014 360,000 206,324 (5,876) 49,020 163,244 772,712


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STATEMENTS OF CASH FLOWSfor the financial year ended 31 December 2015


2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 113,596 86,884 113,596 86,884

Adjustments for items not involving the movement of cash and cash equivalents:

Finance income and hibah from:

- financial investments available-for-sale (49,589) (46,602) (49,589) (46,602)

- financial investments held-to-maturity (5,597) (5,822) (5,597) (5,822)

Accretion of discount less amortisation of premium:


Gain on sale/redemption:


Gain on unrealised foreign exchange 882 47 882 47

Allowance for impairment loss:

- financial investments available-for-sale - 550 - 550

Depreciation of property and equipment 1,033 945 1,033 945

Property and equipment written-off 8 4 8 4

Gain on sale of property and equipment - (118) - (118)

Amortisation of intangible assets 465 775 465 775

Net individual impairment 3,512 (2,273) 3,512 (2,273)

Net collective impairment 5,959 6,383 5,959 6,383

Bad debt on financing written-off 7 10 7 10

Zakat 3,779 4,772 3,779 4,772

Operating profit before changes in working capital 64,143 38,118 64,143 38,118

(Increase)/decrease in operating assets:

Deposits and placements with banks and other financial institutions (35,034) 120,016 (35,034) 120,016

Financing, advances and other financing (2,047,766) (1,118,865) (2,047,766) (1,118,865)

Other assets 42,231 (7,741) 42,231 (7,741)

Statutory deposits with Bank Negara Malaysia 38,400 (65,000) 38,400 (65,000)

Amount due from holding company (125,114) (60,115) (125,114) (60,115)

Amount due to subsidiaries - (242,058) - (242,058)

Amount due from joint ventures (25,081) (10,670) (25,081) (10,670)

Derivative financial instruments 882 22 882 22

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STATEMENTS OF CASH FLOWSfor the financial year ended 31 December 2015


2015 2014 2015 2014

RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES (continued)

Increase/(decrease) in operating liabilities:

Deposits from customers 131,301 579,850 131,301 579,850

Deposits and placements of banks and other financial institutions 326,990 (196,760) 326,990 (196,760)

Other liabilities 15,495 3,167 15,495 3,167

Cash used in operations (1,613,553) (960,036) (1,613,553) (960,036)

Zakat paid (5,511) (8,751) (5,511) (8,751)

Tax refund - 1,997 - 1,997

Tax paid (22,909) (20,517) (22,909) (20,517)

Net cash used in operating activities (1,641,973) (987,307) (1,641,973) (987,307)

CASH FLOWS FROM INVESTING ACTIVITIES

Finance income and hibah received from:

- financial investments available-for-sale 49,589 46,602 49,589 46,602

- financial investments held-to-maturity 5,597 5,822 5,597 5,822

Redemption of financial investments held-to-maturity 6,472 2,310 6,472 2,310

Net sale/(purchase) of financial investments available-for-sale 64,365 (241,108) 64,365 (241,108)

Proceed from disposal of property and equipment - 118 - 118

Purchase of property and equipment (408) (1,164) (408) (1,164)

Net cash generated from/(used in) investing activities 125,615 (187,420) 125,615 (187,420)

CASH FLOWS FROM FINANCING ACTIVITIES

Increase in share capital 100,000 - 100,000 -

Net cash generated from financing activities 100,000 - 100,000 -

Net decrease in cash and cash equivalents (1,416,358) (1,174,727) (1,416,358) (1,174,727)

Net increase in foreign exchange 1,456 1,898 1,456 1,898

Cash and cash equivalents at beginning of the financial year 3,333,472 4,506,301 3,333,472 4,506,301

CASH AND CASH EQUIVALENTS AT END OF

THE FINANCIAL YEAR (Note 2) 1,918,570 3,333,472 1,918,570 3,333,472


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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESfor the financial year ended 31 December 2015

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The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. These policies have been consistently applied to all the financial years presented, unless otherwise stated.

(A) BASIS OF PREPARATION

The financial statements of the Bank have been prepared in accordance with Malaysian Financial Reporting Standards (‘MFRS’), International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

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

The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires Directors to exercise their judgment in the process of applying the Bank’s accounting policies. Although these estimates and judgment are based on the Directors’ best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 38.

Standards, amendments to published standards and interpretations that are effective

The Bank has applied the following amendments for the first time for the financial year beginning on 1 January 2015:

The adoption of these amendments did not have any impact on the current or any prior year and are not likely to affect future periods.

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

effective

A number of new standards and amendments to standards and interpretations are effective for financial year beginning after 1 January 2016. None of these is expected to have a significant effect on the consolidated financial statements of the Bank, except the following set out below:

Combination’ when it acquires an interest in a joint operation that constitutes a business. The amendments are applicable to both the acquisition of the initial interest in a joint operation and the acquisition of additional interest in the same joint operation. However, a previously held interest is not re-measured when the acquisition of an additional interest in the same joint operation results in retaining joint control.

use of revenue-based methods to calculate the depreciation of an item of property, plant and equipment is not appropriate. This is because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.

The amendments to MFRS 138 also clarify that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption can be overcome only in the limited circumstances where the intangible asset is expressed as a measure of revenue or where it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

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

of classification depends on the entity’s business model and the cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and profit.

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(A) BASIS OF PREPARATION

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

effective (continued)

For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.

MFRS 9 introduces an expected credit loss model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised.

contracts’ and related interpretations. The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Bank will apply these standards when effective. The adoption of the above standards, amendments to published standards and interpretations to existing standards are not expected to have any significant impact on the financial statements of the Bank except for MFRS 9. The financial effect of adoption of MFRS 9 is still being assessed by the Bank.

(B) JOINT ARRANGEMENTS

Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position. Under the equity method, the investment in a joint venture is initially recognised at cost, and adjusted thereafter to recognise the Economic Entity’s share of the post-acquisition profits or losses of the joint venture in profit or loss, and the Economic Entity’s share of movements in other comprehensive income of the joint venture in other comprehensive income. Dividends received or receivable from a joint venture are recognised as a reduction in the carrying amount of the investment. When the Economic Entity’s share of losses in a joint venture equals or exceeds its interests in the joint venture, including any long-term interests that, in substance, form part of the Economic Entity’s net investment in the joint venture, the Economic Entity does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the joint venture.

The Economic Entity determines at each reporting date whether there is any objective evidence that the investment in the joint venture is impaired. An impairment loss is recognised for the amount by which the carrying amount of the joint venture exceeds its recoverable amount.

Unrealised gains on transactions between the Economic Entity and its joint ventures are eliminated to the extent of the Economic Entity’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Economic Entity.

When the Economic Entity ceases to equity account its joint venture because of a loss of joint control, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate or financial asset. In addition, any amount previously recognised in other comprehensive income in respect of the entity is accounted for as if the Economic Entity had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

If the ownership interest in a joint venture is reduced but joint control is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

Investment in joint ventures in separate financial statements

In the Bank’s separate financial statements, investment in joint ventures is stated at cost less accumulated impairment losses. On disposal of investment in joint ventures, the difference between disposal proceeds and the carrying amounts of the investments are recognised in profit or loss.

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(C) INTANGIBLE ASSETS

Computer software

Costs associated with maintaining computer software programmes are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

(i) it is technically feasible to complete the software product so that it will be available for use;(ii) management intends to complete the software product and use or sell it;(iii) there is an ability to use or sell the software product;(iv) it can be demonstrated how the software product will generate probable future economic benefits;(v) adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and(vi) the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Computer software development costs recognised as assets are amortised from the point at which the asset is ready for use over their estimated useful lives of five years.

(D) IMPAIRMENT ON NON-FINANCIAL ASSETS

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

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

The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Impairment losses on goodwill are not reversed. In respect of other assets, any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus reserve.

(E) RECOGNITION OF FINANCING INCOME AND EXPENSE

using the effective profit method.

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

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

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(E) RECOGNITION OF FINANCING INCOME AND EXPENSE

When a financing receivable is impaired, the Bank reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective profit rate of the instrument, and continues unwinding the discount as profit income. Profit income on impaired financing and receivables are recognised using the original effective profit rate.

(F) RECOGNITION OF FEES AND OTHER INCOME

Fees and commissions are recognised as income when all conditions precedent are fulfilled.

Guarantee fees which are material are recognised as income based on a time apportionment method.

Dividends are recognised when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence.

Net profit from financial assets held at fair value through profit or loss and financial instruments available-for-sale are recognised upon disposal of the assets, as the difference between net disposal proceeds and the carrying amount of the assets.

(G) FINANCIAL ASSETS

Classification

The Bank classifies its financial assets in the following categories: at fair value through profit or loss, financing and receivables, available-for-sale and held-to-maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition and in the case of assets classified as held-to-maturity, re-evaluate this designation at the end of each reporting period.

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

Financial assets at fair value through profit or loss are financial assets held-for-trading. A financial asset is classified in this category if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term. Derivatives are also categorised as held for trading unless they are designated as hedges (see Note M).

The Bank has not elected to designate any financial assets at fair value through profit or loss.

(ii) Financing and receivables

Financing and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

(iii) Financial investments available-for-sale

Financial investments available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories.

(iv) Financial investments held-to-maturity

Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity. If the Bank were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available for sale.

Recognition and initial measurement

Regular purchases and sales of financial assets are recognised on the settlement date, the date that an asset is delivered to or by the Bank.

Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss.

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(G) FINANCIAL ASSETS

Subsequent measurement - gains and losses

Financial investments available-for-sale and financial assets at fair value through profit or loss are subsequently carried at fair value. Financing and receivables and held-to-maturity financial assets are subsequently carried at amortised cost using the effective profit method.

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

Changes in the fair value financial investments available-for-sale are recognised in other comprehensive income, except for impairment losses (see accounting policy Note H) and foreign exchange gains and losses on monetary assets (Note L).

Profit and dividend income on financial investments available-for-sale are recognised separately in income statements. Profit on financial investments available-for-sale calculated using the effective profit method is recognised in income statements. Dividend income on available-for-sale equity instruments are recognised in income statements when the Bank’s right to receive payments is established.

De-recognition

Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Bank has transferred substantially all risks and rewards of ownership.

Financing and receivables that are factored out to banks and other financial institutions with recourse to the Bank are not derecognised until the recourse period has expired and the risks and rewards of the receivables have been fully transferred. The corresponding cash received from the financial institutions is recorded as fundings.

When financial investments available-for-sale are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to profit or loss.

Reclassification of financial assets

The Bank may choose to reclassify a non-derivative trading financial asset out of the held-for-trading category if the financial asset is no longer held for the purpose of selling it in the near term. Financial assets other than financings and receivables are permitted to be reclassified out of the held-for-trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near term. In addition, the Bank may choose to reclassify financial assets that would meet the definition of financings and receivables out of the held-for-trading or available-for-sale categories if the Bank has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification.

Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Effective interest rates for financial assets reclassified to financing and receivables and held-to-maturity categories are determined at the reclassification date. Further increases in estimates of cash flows adjust the effective profit rates prospectively.

(H) IMPAIRMENT OF FINANCIAL ASSETS

Assets carried at amortised cost

The Bank assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

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Assets carried at amortised cost (continued)

The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include among others:

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective profit rate. The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in income statements. If ‘financing and receivables’ or a ‘held-to-maturity investment’ has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in income statements.

When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

For financing, advances and other financing, the Bank first assess whether objective evidence of impairment exists individually for financing, advances and other financing that are individually significant, and individually or collectively for financing, advances and other financing that are not individually significant. If the Bank determines that no objective evidence of impairment exists for individually assessed financing, advances and other financing, whether significant or not, it includes the asset in a group of financing, advances and other financing with similar credit risk characteristics and collectively assesses them for impairment.

(i) Individual impairment allowance

Financing, advances and other financing that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. Financing that are individually assessed for impairment and for which no impairment loss is required (over-collateralised financing) are collectively assessed as a separate segment.

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

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

(ii) Collective impairment allowance

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

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

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(ii) Collective impairment allowance (continued)

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

Based on the Guideline on Classification and Impairment Provisions for Financing, banking institutions are required to maintain, in aggregate collective impairment allowances and regulatory reserves of no less than 1.2% of total outstanding financing (excluding financing, advances and other financing with an explicit guarantee from the Federal Government of Malaysia), net of individual impairment provisions. Banking institutions are required to comply with the requirement by 31 December 2015.

As at reporting date, the Bank has maintained the collective impairment provisions and regulatory reserves of no less than 1.2% in the books.

Assets classified as available-for-sale

The Bank assesses at the end of the reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired.

For debt securities, the Bank assesses at each date of the statement of financial position whether there is any objective evidence that a financial investment or group of financial investments is impaired. The criteria the Bank uses to determine whether there is objective evidence of impairment include non-payment of coupon or principal redemption, significant financial difficulty of issuer or obligor and significant drop in rating. In the case of equity securities classified as available-for-sale, in addition to the criteria above, a significant or prolonged decline in the fair value of the security below its cost is also considered as an indicator that the assets are impaired.

If any such evidence exists for available-for-sale financial assets, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in income statements. The amount of cumulative loss reclassified to profit or loss is the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in income statements. Impairment losses recognised in income statements on equity instruments classified as available-for-sale are not reversed through income statements.

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in income statements, the impairment loss is reversed through income statements in subsequent periods.

(I) FINANCIAL LIABILITIES

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

The Bank’s holding in financial liabilities are in financial liabilities at fair value through profit or loss (including financial liabilities held-for-trading and those that designated at fair value) and financial liabilities at amortised cost. Financial liabilities are initially recognised at fair value plus transaction costs for all financial liabilities not carried at fair value through profit or loss.

Financial liabilities at fair value through profit or loss

This category comprises two sub-categories: financial liabilities classified as held-for-trading, and financial liabilities designated by the Bank as at fair value through profit or loss upon initial recognition. The Bank do not have any non-derivative financial liabilities designated at fair value through profit or loss.

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

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(I) FINANCIAL LIABILITIES

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

Financial liabilities classified as held-for-trading are initially recognised at fair value, and transaction costs are expensed in profit or loss. Gains and losses arising from changes in fair value of financial liabilities classified held-for-trading are included in the income statement.

Other liabilities measured at amortised cost

Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at amortised cost.

De-recognition

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

(J) OFFSETTING FINANCIAL INSTRUMENTS

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy.

(K) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of property and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Cost also include funding costs that are directly attributable to the acquisition, construction or production of a qualifying asset.

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

Property and equipment are depreciated on the straight-line basis to allocate the cost, to their residual values over their estimated useful lives summarised as follows:

Renovation 5 years or the period of the lease whichever is greaterOffice equipment and furniture 10 yearsComputer equipment and software 5 yearsMotor vehicles 5 years

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

The assets’ residual value and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

At the end of the reporting period, the Bank assesses whether there is any indication of impairment or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. A write-down is made if the carrying amount exceeds the recoverable amount.

(refer to accounting policy D on impairment of non-financial assets).

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

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(L) FOREIGN CURRENCY TRANSLATIONS

Functional and presentation currency

The financial statements are presented in Ringgit Malaysia, which is the Bank’s functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. However, exchange differences are deferred in other comprehensive income when they arose from qualifying cash flow or net investment hedge or are attributable to items that form part of the net investment in a foreign operation.

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

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit and loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in other comprehensive income.

(M) DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives are initially recognised at fair values on the date on which derivative contracts are entered into and are subsequently remeasured at their fair values at the end of each reporting period. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative.

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

The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

As at reporting date, the Bank has not designated any derivative as hedging instruments.

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

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(N) CURRENT AND DEFERRED INCOME TAXES

Current tax

Tax expense for the period comprises current and deferred income tax. The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Tax is recognised in income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Bank and jointly controlled entity operate and generate taxable income.

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

Deferred tax

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

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

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

Deferred tax liability is recognised for all temporary differences associated with investment in joint venture where the timing of the reversal of the temporary difference can be controlled by the Economic Entity and it is probable that the temporary difference will not reverse in the foreseeable future. Generally, the joint venturer is unable to control the reversal of the temporary difference for joint ventures. Only where there is an agreement in place that gives the joint venturer the ability to control the reversal of the temporary difference, a deferred tax liability is not rcognised.

Deferred income tax assets are recognised on deductible temporary differences arising from investment in joint arrangements only to the extent that it is probable the temporary difference will reverse in future and there is sufficient taxable profit available against which the deductible temporary difference can be utilised.

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

(O) ZAKAT

The Bank pays zakat based on 2.5775% of the prior year’s net asset method, to comply with the principles of Shariah and as approved by the Shariah Committee. The Bank does not pay zakat on behalf of the depositors.

(P) CASH AND CASH EQUIVALENTS

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

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(Q) FORECLOSED PROPERTIES

Foreclosed properties are stated at the lower of their carrying amount and fair value less cost to sell.

(R) CONTINGENT LIABILITIES AND CONTINGENT ASSETS

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

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

(S) BILLS AND ACCEPTANCES PAYABLE

Bills and acceptances payable, which are financial liabilities, represent the Bank’s own bills and acceptances rediscounted and outstanding in the market (see Note I).

(T) PROVISIONS

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

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

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

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

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(U) EMPLOYEE BENEFITS

Short-term employee benefits

Wages, salaries, paid annual leave and sick leave, bonuses, and non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled.

Defined contribution plan

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

The Bank’s contribution to defined contribution plans are charged to the income statement in the period to which they relate. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

Termination benefits

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

(V) FINANCIAL GUARANTEE CONTRACTS

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

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value

and the amount initially recognised less cumulative amortisation, where appropriate.

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

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

(W) RESTRICTED INVESTMENT ACCOUNTS (“RIA”)

These deposits are used to fund specific financing. The RIA is a contract based on Shariah concept of Mudharabah between two parties, i.e. investor and entrepreneur to finance a business venture where the investor provides capital and the business venture is managed solely by the entrepreneur. The profit of the business venture will be shared based on pre-agreed ratios with the Bank as Mudarib (manager or manager of funds), and losses shall be borne solely by capital provider.

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(X) SHARE CAPITAL

Classification

Ordinary shares are classified as equity. Other shares are classified as equity and/or liability according to the economic substance of the particular instrument.

Share issue costs

Incremental costs directly attributable to the issue of new shares or options are deducted against share premium account.

Dividend distribution

Liability is recognised for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Bank, on or before the end of the reporting period but not distributed at the end of the reporting period.

Distributions to holders of an equity instrument is recognised directly in equity.

Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing:

issued during the year and excluding treasury shares.

Diluted earnings per share

Diluted earnings per share adjusts the figures in the determination of basic earnings per share to take into account:

ordinary shares.

58

NOTES TO THE FINANCIAL STATEMENTSfor the financial year ended 31 December 2015

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1 GENERAL INFORMATION

The Bank, a wholly-owned subsidiary of AFFIN Bank Berhad, was incorporated on 13 September 2005 and commenced operations on 1 April 2006. The net assets of AFFIN Bank’s Islamic Division was transferred to AFFIN Islamic Bank on 1 April 2006.

The Bank is principally engaged in all aspects of Islamic banking and finance business and in the provision of related financial services in accordance with the Shariah principles.

The number of employees in the Bank at the end of financial year was 263 (2014: 249) employees.

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

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

2 CASH AND SHORT-TERM FUNDS

Economic Entity and The Bank

2015

RM’000

2014

RM’000

Cash and bank balances with banks and other financial institutions 7,605 7,039

Money at call and interbank placements with remaining maturity not exceeding one month 1,910,965 3,326,433

1,918,570 3,333,472

3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS


2015

RM’000

2014

RM’000

Other financial institutions 35,034 -

35,034 -

4 DERIVATIVE FINANCIAL ASSETS


2015 2014

Contract/

notional amount

RM’000

Assets

RM’000

Contract/

notional amount

RM’000

Assets

RM’000

At fair value

Foreign exchange derivatives

- Currency forwards 61,967 132 12,960 12

61,967 132 12,960 12

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5 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE


2015

RM’000

2014

RM’000

At fair value

Money market instruments:

Malaysian Government treasury bills - 25,004

Malaysian Government investment issues 613,857 501,536

Sukuk Perumahan Kerajaan 187,219 79,139

Bank Negara Malaysia Monetary Notes - 284,878

Khazanah Sukuk 165,280 120,169

966,356 1,010,726

Unquoted securities:

Shares in Malaysia 1,075 575

Private debt securities/sukuk in Malaysia 508,492 521,749

1,475,923 1,533,050

Allowance for impairment losses (550) (550)

1,475,373 1,532,500

Movement in allowance for impairment losses

At beginning of the financial year 550 -

Allowance made during the year - 550

At end of the financial year 550 550

6 FINANCIAL INVESTMENTS HELD-TO-MATURITY


2015

RM’000

2014

RM’000

At amortised cost

Unquoted securities:

Private debt securities/sukuk in Malaysia 76,283 82,754

76,283 82,754

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7 FINANCING, ADVANCES AND OTHER FINANCING

(i) By type


2015

RM’000

2014

RM’000

Cash line 314,426 203,963

Term financing

- House financing 2,096,258 1,832,181

- Hire purchase receivables 2,710,393 2,044,709

- Syndicated financing 490,723 262,031

- Business term financing 2,860,153 1,919,442

Bills receivables 36,637 12,189

Trust receipts 12,600 19,848

Claims on customers under acceptance credits 123,897 121,416

Staff financing (of which RM Nil to Directors) 9,536 9,629

Revolving credit 622,473 807,125

Gross financing, advances and other financing 9,277,096 7,232,533

Less:

Allowance for impairment losses

- Individual (38,516) (31,519)

- Collective (36,671) (37,393)

Total net financing, advances and other financing 9,201,909 7,163,621

* Inculded in business term financing as at reporting date is RM53.7 million (2014 : RM53.7 million) and RM63.9 million (2014 : RM62.9 million) of term financing disbursed by the Bank to joint venture with AFFIN-i Nadayu Sdn Bhd and KL South Development Sdn Bhd respectively.

(ii) By maturity structure


2015

RM’000

2014

RM’000

Maturing within one year 1,426,334 1,207,258

One year to three years 542,303 516,323

Three years to five years 927,366 935,083

Over five years 6,381,093 4,573,869

9,277,096 7,232,533

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61

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62

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(a) Movement in Restricted Investment Account

between AFFIN Islamic Bank Berhad and AFFIN Bank Berhad. AFFIN Bank Berhad is exposed to risks and rewards on RIA financing and will account for all the individual and collective impairment for bad and doubtful financing arising thereon.

Economic Entity

and The Bank

2015

RM’000

At beginning of the financial year -

Amount transferred from RPSIA on 25.6.15 695,588

New placement during the year 2,410,000

Redemption during the year (1,792,803)

Income transferred from RPSIA 2,366

Income from RIA Investment 34,705

Profit distributed to mudarib (33,830)

At end of the financial year 1,316,026

Investment assets:

Revolving credit 130,037

Other term financing 1,185,989

1,316,026

(b) Profit Sharing Ratio and Rate of Return

Investment account holder

Average profit

sharing ratio (%)

Average rate of

return (%)

Restricted investment accounts:

Six months to one year 98.00 4.96

One year to three years 96.00 4.88

Three years to five years 96.00 5.67

Over five years 95.00 5.20

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(iv) By type of customer


2015

RM’000

2014

RM’000

Domestic non-banking institutions

- Others 128,201 211,956

Domestic business enterprises

- Small medium enterprises 1,009,214 638,244

- Others 2,630,241 2,343,458

Government and statutory bodies 603,070 59,427

Individuals 4,731,527 3,850,269

Other domestic entities 25,785 4,192

Foreign entities 149,058 124,987

9,277,096 7,232,533

(v) By profit rate sensitivity


2015

RM’000

2014

RM’000

Fixed rate

- House financing 52,555 62,282

- Hire purchase receivables 2,710,393 2,044,708

- Other fixed rate financing 1,315,546 642,523

Variable rate

- BFR plus 3,786,002 3,091,739

- Cost plus 1,412,600 1,391,281

9,277,096 7,232,533

(vi) By economic sectors


2015

RM’000

2014

RM’000

Primary agriculture 278,908 267,052

Mining and quarrying 13,037 796

Manufacturing 225,820 234,966

Electricity, gas and water supply 57,371 53,113

Construction 554,160 579,112

Real estate 1,170,597 603,377

Wholesale & retail trade and restaurants & hotels 218,502 201,228

Transport, storage and communication 206,002 135,235

Finance, takaful/insurance and business services 566,877 753,653

Education, health & others 1,201,117 523,044

Household 4,761,002 3,877,834

Others 23,703 3,123

9,277,096 7,232,533

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(vii) By economic purpose


2015

RM’000

2014

RM’000

Purchase of securities 2,433 2,949

Purchase of transport vehicles 2,735,838 2,052,279

Purchase of landed property of which:

- Residential 2,175,552 1,843,107

- Non-residential 979,335 907,558

Fixed assets other than land and building 76,336 67,074

Personal use 36,495 34,883


Working capital 2,336,306 1,496,671

Others 133,056 144,689

9,277,096 7,232,533

(viii) By geographical distribution


2015

RM’000

2014

RM’000

Perlis 121,729 98,027

Kedah 559,401 424,678

Pulau Pinang 231,126 156,894

Perak 387,683 334,133

Selangor 3,078,014 2,602,144

Wilayah Persekutuan 2,882,646 1,925,410

Negeri Sembilan 330,752 220,038

Melaka 148,843 103,272

Johor 445,391 320,150

Pahang 293,827 274,964

Terengganu 418,636 399,613

Kelantan 161,609 167,266

Sarawak 69,266 24,109

Sabah 28,552 84,378

Labuan 56 70

Outside Malaysia 119,565 97,387

9,277,096 7,232,533

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8 IMPAIRED FINANCING

(i) Movements of impaired financing


2015

RM’000

2014

RM’000

At beginning of the financial year 129,157 131,630

Classified as impaired 108,375 90,964

Reclassified as non-impaired (67,897) (54,830)

Amount recovered (18,862) (34,076)

Amount written-off (9,065) (4,531)

At end of the financial year 141,708 129,157

Ratio of gross impaired financing, advances and other financing to gross financing, advances and other financing 1.53% 1.79%


RIA/RPSIA financing (1,316,026) (608,590)

7,961,070 6,623,943

Less:

- Individual impairment allowance (38,516) (31,519)

- Collective impairment allowance on impaired financing (12,921) (16,273)

Total net financing, advances and other financing 7,909,633 6,576,151

Net impaired financing, advances and other financing as a percentage of net financing, advances and other financing 1.14% 1.24%

(ii) Movements in allowance for impairment on financing


2015

RM’000

2014

RM’000

Individual impairment


Allowance made during the financial year 3,559 1,509

Amount recovered (47) (3,782)


Unwinding of income (628) (763)

Exchange differences 6,496 1,784


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(ii) Movements in allowance for impairment on financing (continued)


2015

RM’000

2014

RM’000

Collective impairment


Net allowance made during the financial year 5,959 6,383



As a percentage of gross financing, advances and other financing (excluding RIA financing) less individual assesment allowance 0.46% 0.57%

(iii) Impaired financing by economic sectors


2015

RM’000

2014

RM’000

Primary agriculture - 117

Manufacturing 348 2,703

Construction 388 70,279

Real estate 85,867 -

Wholesale & retail trade and restaurants & hotels 1,900 358

Transport, storage and communication 301 294

Finance, takaful/insurance and business services 111 626

Education, health & others 142 -

Household 52,651 54,780

141,708 129,157

(iv) Impaired financing by economic purpose


2015

RM’000

2014

RM’000

Purchase of transport vehicles 12,626 12,220

Purchase of landed property of which:

- Residential 39,463 42,081

- Non-residential 1,376 1,086

Personal use 495 480


Working capital 1,881 3,260

141,708 129,157

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(v) Impaired financing by geographical distribution


2015

RM’000

2014

RM’000

Perlis 41 252

Kedah 1,008 1,300

Pulau Pinang 1,525 1,996

Perak 3,922 4,037

Selangor 28,622 29,098

Wilayah Persekutuan 5,930 5,071


Melaka 482 175

Johor 2,078 2,699

Pahang 1,345 3,446

Terengganu 3,918 4,309

Kelantan 3,633 3,362

Sarawak 252 325

Sabah 366 189


141,708 129,157

9 OTHER ASSETS


2015

RM’000

2014

RM’000

Other debtors, deposits and prepayments 3,062 900

Cheque clearing accounts 302 47,020

Foreclosed properties (a) 395 395

3,759 48,315

(a) Foreclosed properties

At beginning/end of the financial year 395 395

10 AMOUNT DUE FROM HOLDING COMPANY


2015

RM’000

2014

RM’000

Advances to holding company 367,172 242,058

The advances to holding company are unsecured, bear no profit rate (2014: 0%) and payable on demand.

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11 AMOUNT DUE FROM JOINT VENTURES


2015

RM’000

2014

RM’000

Advances to joint ventures 39,936 14,855

The advances to joint ventures are unsecured, bear profit rate of 7.85% (2014: 7.74%) and payable on demand.

12 DEFERRED TAX

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts determined after appropriate offsetting, are shown in the statement of financial position:


2015

RM’000

2014

RM’000

Deferred tax assets 3,598 2,900

Deferred tax assets:

- settled more than 12 months - -

- settled within 12 months 3,967 3,425

Deferred tax liabilities:

- settled more than 12 months (206) (220)

- settled within 12 months (163) (305)

Deferred tax assets 3,598 2,900


Credited to income statement (Note 29) 56 272

Credited/(charged) to equity 642 (332)


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12 DEFERRED TAX

The movement in deferred tax assets and liabilities during the financial year are as follow:


2015

Property

and equipment

Intangible

assets

Provision for

other liabilities

Financial

instrument AFS Total

At beginning of the financial year (311) (214) 1,570 1,855 2,900

Credited/(charged) to income statements 44 112 (100) - 56

Credited to equity - - - 642 642

At end of the financial year (267) (102) 1,470 2,497 3,598

Economic Entity and The Bank2014

Property and equipment

Intangible assets

Provision for other liabilities

Financial instrument AFS Total

At beginning of the financial year (306) (400) 1,479 2,187 2,960

(Charged)/credited to income statements (5) 186 91 - 272

Charged to equity - - - (332) (332)

At end of the financial year (311) (214) 1,570 1,855 2,900

13 STATUTORY DEPOSITS WITH BANK NEGARA MALAYSIA

The statutory deposits are maintained with Bank Negara Malaysia in compliance with Section 26(2)(c) of the Central Bank of Malaysia Act 2009, the amounts of which are determined at set percentages of total eligible liabilities.

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14 INVESTMENT IN JOINT VENTURES


2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Unquoted shares at cost 650 650 650 650

Economic Entity’s share of post acquisition retained losses (650) (650) - -

- - 650 650

2015 2014

RM’000 RM’000

The summarised financial information of joint ventures are as follows:

Revenue 14,268 4,920

Loss after tax (268) (3,515)

Total assets 269,037 216,417

Total liabilities 275,307 222,420

Capital commitment for property and equipment - -

AFFIN-i KLSD

2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Net assets

At beginning of the financial year (2,714) (1,142) (4,732) (2,789)

Loss for the financial year (1,441) (1,572) 1,173 (1,943)

At end of the financial year (4,155) (2,714) (3,559) (4,732)

Issued and paid up share capital 1,000 1000 500 500

Profit in joint venture (%) 50 50 30 30

Profit in joint venture (RM’000) (2,078) (1,357) (1,068) (1,420)

Both the joint ventures’ principal activities are property development.

As the Bank’s share of cumulative losses of RM2.5 million (2014: RM2.1 million) as at 31 December 2015 has exceeded its profit in the joint ventures, the Bank does not recognise further losses in its Economic Entity financial statements.

Allowance for impairment of investment in joint ventures

The Bank determines at each reporting date whether there is any objective evidence that the investment in the joint ventures is impaired. When an objective evidence of impairment is identified, the investment in joint venture is tested for impairment. An impairment loss is recognised for the amount by which the carrying amount of the joint venture exceeds its recoverable amount. The recoverable amount is assessed based on the higher of the fair value less costs to sell and value in use.

For the financial year ended 31 December 2015, the recoverable amount is assessed using the value in use calculations based on the cash flow projections of the property development projects covering a period of 4 to 7 years based on actual historical sales, revised for current economic and property market conditions.

The cash flow projections are derived based on a number of key factors including past performance and management’s expectations of the property market developments. For financial year ended 31 December 2015, the value in use calculation was based on discount rate of 10%.

Impairment was not required for investment in joint ventures. The impairment charge is most sensitive to discount rate. If the discount rate increased to 11.31% or selling price reduced by 8.27%, the estimated recoverable amount will be equal to the carrying value.

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14 INVESTMENT IN JOINT VENTURES

AFFIN-i Nadayu Sdn Bhd (‘AFFIN-i’)

On 1 April 2008, the Bank and Jurus Positif Sdn Bhd, a subsidiary of Nadayu Properties Berhad, entered into a Musharakah Joint Venture Agreement under the Shariah principles (‘Musharakah Agreement’) to joint develop a land into a housing scheme at Bukit Gambir, Pulau Pinang.

The Musharakah Agreement also includes an arrangement whereby Jurus Positif Sdn Bhd may acquire the Bank’s shares upon the completion of the project at a mutually agreed price, unless both shareholders decide to continue the joint venture for subsequent projects.

Major strategic operation and financial decisions relating to the activities of AFFIN-i Nadayu Sdn Bhd requires unanimous consent by both joint venture parties. The Economic Entity’s interest in AFFIN-i Nadayu Sdn Bhd has been treated as investment in joint venture, which has been accounted for in the consolidated financial statements using the equity method of accounting.

KL South Development Sdn Bhd (‘KLSD’)

On 2 January 2013, the Bank entered into a Musharakah Joint Venture Agreement (‘Musharakah Agreement’) with Albatha Bukit Kiara Holdings Sdn

Kuala Lumpur.

Pursuant to the Musharakah Agreement, the Bank acquired 30% stake in the joint venture company namely KL South Development Sdn Bhd (‘KL South’) by way of subscription of 150,000 shares of RM1.00 each in KL South at par. The remaining stake of 70% in KL South is held by Albatha.

Under the Musharakah structure, the Bank would be the sole banker to KL South, providing financing using the Islamic concept such as Ijarah for the purchase of building and Istisna’ for the bridging financing.

Major strategic operation and financial decisions relating to the activities of KL South requires consent by both joint venture parties. The Bank’s interest in KL South has been treated as investment in joint venture, which has been accounted for in the consolidated financial statements using the equity method of accounting.

KL South has commenced operations and the project is scheduled for completion by mid 2016.

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15 PROPERTY AND EQUIPMENT


2015

Renovation

RM’000

Office

equipment

and

furniture

RM’000

Computer

equipment

and

software

RM’000

Motor

vehicles

RM’000

Total

RM’000

Cost

At beginning of the financial year 3,429 2,334 2,362 496 8,621

Additions 87 22 299 - 408

Write-off (5) (14) - - (19)

Reclassification from/(to) holdings company - 1 (179) - (178)

At end of the financial year 3,511 2,343 2,482 496 8,832

Accumulated depreciation


Charge for the financial year 418 231 285 99 1,033

Write-off (5) (6) - - (11)

Reclassification from/(to) holdings company - - (163) - (163)


Net book value at end of the financial year 718 1,081 566 248 2,613


RenovationRM’000

Officeequipment

andfurnitureRM’000

Computerequipment

and software

RM’000

MotorvehiclesRM’000

TotalRM’000

Cost


Additions 567 342 255 - 1,164

Disposals - - - (458) (458)

Write-off (2) (16) - - (18)


Accumulated depreciation

At beginning of the financial year 2,005 829 1,545 508 4,887

Charge for the financial year 376 221 249 99 945

Disposal - - - (458) (458)

Write-off (1) (13) - - (14)


Net book value at end of the financial year 1,049 1,297 568 347 3,261

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16 INTANGIBLE ASSETS

Computer software


2015

RM’000

2014

RM’000

Cost

At beginning/end of the financial year 6,402 6,402

Less: Accumulated amortisation


Charge for the financial year 465 775


Net book value at end of the financial year 426 891

17 DEPOSITS FROM CUSTOMERS

(i) By type of deposit


2015

RM’000

2014

RM’000

Non-Mudharabah

Demand deposits 2,435,998 2,664,058

Savings deposits 412,394 395,338

Negotiable islamic debt certificate (‘NIDC’) - 249,412

Murabahah term deposits 6,413,389 5,190,631

Commodity Murabahah 630,118 1,030,814

Mudharabah

General investment deposits 109,796 340,141

10,001,695 9,870,394

(ii) Maturity structure of Murabahah term deposits, general investment deposits and NIDC


2015

RM’000

2014

RM’000

Due within six months 4,781,599 4,569,492

Six months to one year 1,630,224 973,791

One year to three years 111,216 236,252

Three years to five years 146 649

6,523,185 5,780,184

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17 DEPOSITS FROM CUSTOMERS

(iii) By type of customer


2015

RM’000

2014

RM’000

Government and statutory bodies 2,945,481 3,399,344

Business enterprises 4,004,165 3,777,844

Individuals 1,278,221 1,192,904

Domestic banking institutions 814 249,413

Domestic non-banking financial institutions 1,313,150 976,957

Foreign entities 64,584 60,455

Others entities 395,280 213,477

10,001,695 9,870,394

18 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS


2015

RM’000

2014

RM’000

Mudharabah

Licensed banks (*) 1,967,535 1,446,838

Other financial institutions 405,175 598,882

2,372,710 2,045,720

Maturity structure of deposits

Due within six months 1,558,905 1,710,730

Six months to one year 202,205 -

One year to three years - 228,787

Three years to five years 100,375 106,203

Over five years 511,225 -

2,372,710 2,045,720

* Inclusive of Restricted Investment Account-i (‘RIA-i’) placed by the parent amounting to RM1,331.3 million. These investments are used to fund certain specific financing. The RIA-i is a contract based on the Mudharabah principle between two parties to finance a financing where the investor (i.e.’AFFIN BANK’) solely provides capital and the business venture is managed solely by the enterpreneur (i.e. ‘AFFIN Islamic’). The profit of the business venture is shared between both parties based on pre-agreed ratio. Losses shall be borned by the investor.

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19 DERIVATIVE FINANCIAL LIABILITIES


2015 2014

Contract/

notional amount

RM’000

Liabilities

RM’000

Contract/

notional amount

RM’000

Liabilities

RM’000

At fair value

Foreign exchange derivatives

- Currency forwards 160,810 1,035 11,072 34

160,810 1,035 11,072 34

20 OTHER LIABILITIES


2015

RM’000

2014

RM’000

Margin and collateral deposits 13,000 10,996

Other creditors and accruals 5,370 7,211

Cheque clearing accounts 13,621 -

Sundry creditors 8,292 7,383

Provision for zakat 2,307 4,040

Defined contribution plan (a) 1,143 702

Accrued employee benefits (b) 23 23

Charity funds (c) 363 3

44,119 30,358

(a) Defined contribution plan

The Bank contributes to the Employee Provident Fund (‘EPF’), the national defined contribution plan. Once the contributions have been paid, the Bank has no further payment obligations.

(b) Accrued employee benefits

This refers to the accruals for short-term employee benefits for leave entitlement. Under employment contract, employees earn their leave entitlement which they are entitled to carry forward and will lapse if not utilised in the following accounting period. Accruals are made for the estimated liability for unutilised annual leave.

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20 OTHER LIABILITIES

(c) Charity funds


2015

RM’000

2014

RM’000

Sources and uses of charity funds

At beginning of the financial year 3 43

Sources of charity funds

- Non-Islamic/prohibited income 360 1

Uses of charity funds

- Contribution to medical aid - 16

- Contribution to education - 15

- Contribution to non profit organisation - 10

- 41


The source of charity fund comes from purification of fees income earned from use of debit card at certain merchants that involve mixed of Shariah compliant and non-Shariah compliant products and services. The charity fund was channeled to a number of charitable or public purposes for example centre of disabled children, association for less fortunate ex-government servants and module development for Islamic financial learning program.

The Bank does not charge gharamah for its financing facilities.

21 SHARE CAPITAL

Number of ordinary

shares of RM 1 each Economic Entity and The Bank

2015

‘000

2014

‘000

2015

RM ‘000

2014

RM ‘000

Authorised

At beginning/end of the financial year 1,000,000 1,000,000 1,000,000 1,000,000

Issued and fully paid

At beginning/end of the financial year 360,000 360,000 360,000 360,000

Issued during the financial year 100,000 - 100,000 -

At end of the financial year 460,000 360,000 460,000 360,000

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22 RESERVES


2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Retained profits 195,606 162,594 196,256 163,244

AFS revaluation reserves (7,908) (5,876) (7,908) (5,876)

Statutory reserves 248,717 206,324 248,717 206,324

Regulatory reserves 58,400 49,020 58,400 49,020

494,815 412,062 495,465 412,712

Statutory reserves

At beginning of the financial year 206,324 173,026 206,324 173,026

Transfer from retained profits 42,393 33,298 42,393 33,298

At end of the financial year 248,717 206,324 248,717 206,324

(a) As at 31 December 2015, the Bank has tax exempt account balance of RM13,322,724 (2014: RM11,869,772) under Section 12 of the Income Tax (Amendment) Act 1999, subject to agreement by the Inland Revenue Board.

(b) The statutory reserves of the Bank are maintained in compliance with Section 57(2)(f) of the Islamic Financial Services Act 2013 and is not distributable as cash dividends.

(c) AFS revaluation reserves represent the unrealised gains or losses arising from the change in fair value of investments classified as financial investment available-for-sale. The gains or losses are transferred to the income statement upon disposal or when the securities become impaired. The depositors’ portion of net unrealised gains or losses on ‘Available-for-sale’ at the end of financial year is net unrealised losses of RM9,711,083 (2014: net unrealised losses of RM7,217,763).

(d) The Bank is required to maintain in aggregate collective impairment allowances and regulatory reserves of no less than 1.2% of total outstanding financing, advances and other financing, net of individual impairment allowances.

23 INCOME DERIVED FROM INVESTMENT OF DEPOSITORS’ FUNDS AND OTHERS


2015

RM’000

2014

RM’000

Income derived from investment of:

- General investment deposits (a) 356,462 302,102

- Other deposits (b) 200,075 170,894

556,537 472,996

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a) Income derived from investment of general investment deposits


2015

RM’000

2014

RM’000

Finance income and hibah

Financing, advances and other financing 249,153 199,330

Financial investments available-for-sale 29,643 27,791

Financial investments held-to-maturity 3,346 3,472

Money at call and deposits with financial institutions 49,017 53,556

331,159 284,149

Accretion of discount less amortisation of premium 4,591 3,698

Total finance income and hibah 335,750 287,847

Other operating income

Fee income:

Commission 1,143 946

Service charges and fees 3,257 3,589

Guarantee fees 1,286 1,156

5,686 5,691

Income from financial instruments:

Gain on sale of financial investments available-for-sale 1,334 737

1,334 737

Other income:

Foreign exchange profit

- realised 12,221 6,468

- unrealised (527) (28)

Other non-operating income 1,998 1,387

13,692 7,827

Total income derived from investment of general investment deposits 356,462 302,102

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b) Income derived from investment of other deposits


2015

RM’000

2014

RM’000




Financial investments held-to-maturity 1,878 1,964

Money at call and deposits with financial institution 27,512 30,296

185,873 160,738

Accretion of discount less amortisation of premium 2,577 2,092



Fee income:

Commission 642 535

Service charges and fees 1,828 2,030

Guarantee fees 721 654

3,191 3,219


Gain on sale of financial investments available-for-sale 749 417

749 417

Other income:


- realised 6,860 3,659


Other non-operating income 1,121 785

7,685 4,428

Total income derived from investment of other deposits 200,075 170,894

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24 INCOME DERIVED FROM INVESTMENT OF SHAREHOLDERS’ FUNDS


2015

RM’000

2014

RM’000




Financial investments held-to-maturity 373 386

Money at call and deposits with financial institutions 5,469 5,954

36,950 31,591

Accretion of discount less amortisation of premium 512 411



Fee income:

Commission 128 105

Service charges and fees 363 399

Guarantee fees 143 129

634 633


Gain on sale of financial investments available-for-sale 149 82

149 82

Other income:


- realised 1,364 719


Other non-operating income 223 153

1,528 869

Total income derived from investment of shareholders’ funds 39,773 33,586

25 ALLOWANCES FOR IMPAIRMENT LOSSES ON FINANCING, ADVANCES AND OTHER FINANCING


2015

RM’000

2014

RM’000


- made during the financial year 3,559 1,509

- written-back (47) (3,782)


- net allowance made during the financial year 5,959 6,383

Bad debts on financing:

- recovered (966) (395)

- written-off 7 10

8,512 3,725

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26 INCOME ATTRIBUTABLE TO THE DEPOSITORS


2015

RM’000

2014

RM’000

Deposits from customers- mudharabah 4,252 79,254 - non-mudharabah 262,684 153,708 Deposits and placement of banks and other financial institutions- mudharabah 89,081 57,275 Others - 391

356,017 290,628

27 OTHER OPERATING EXPENSES


2015

RM’000

2014

RM’000

Personnel costs (a) 71,067 75,340 Establishment costs (b) 31,073 32,596 Marketing expenses (c) 2,287 2,772 Administrative and general expenses (d) 9,979 9,315

114,406 120,023

(a) Personnel costs


2015

RM’000

2014

RM’000

Wages, salaries and bonuses 54,457 59,099 Defined contribution plan (‘EPF’) 9,117 9,629 Other personnel costs 7,493 6,612

71,067 75,340

(b) Establishment costs


2015 2014

RM’000 RM’000

Rental of premises 4,604 4,904 Equipment rental 87 60 Repair and maintenance 5,503 5,667 Depreciation of property and equipment 1,033 945 Amortisation of intangible assets 465 775 IT consultancy fees 8,953 9,757 Dataline rental 949 724 Security services 3,151 3,785 Electricity, water and sewerage 1,578 1,920 Licence fees 366 214 Insurance/takaful and indemnities 1,459 517 Other establishment costs 2,925 3,328

31,073 32,596

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27 OTHER OPERATING EXPENSES

(c) Marketing expenses


2015 2014

RM’000 RM’000

Business promotion and advertisement 769 1,020 Entertainment 285 425 Traveling and accommodation 773 838 Other marketing expenses 460 489 2,287 2,772

(d) Administration and general expenses


2015 2014

RM’000 RM’000

Telecommunication expenses 846 1,168 Auditors’ remuneration 251 454 Professional fees 1,052 1,017 Property and equipment written-off 7 4 Mail and courier charges 502 717 Stationery and consumables 2,294 2,435 Commissions expenses 537 259 Brokerage expenses 1,205 688 Directors’ fees and allowances 1,263 1,299 Donations 113 232 Settlement, clearing and bank charges 813 572 Stamp duties 3 4 Operational and litigation write-off expenses 20 - GST Input tax-non recoverable 1,030 - Other administration and general expenses 43 466

9,979 9,315

The expenditure includes the following statutory disclosures:


2015 2014

RM’000 RM’000

Directors’ remuneration (Note 28) Auditors’ remuneration 2,676 2,901- statutory audit fees 158 159- over provision prior year (12) -

- audit related fees 146 146

- non-audit fees 15 149- over provision prior year (56) -

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28 CEO, DIRECTORS AND SHARIAH COMMITTEE MEMBERS’ REMUNERATION

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

CEO

Kamarul Ariffin Bin Mohd Jamil(Resigned w.e.f. 31.3.2015)

Nazlee Bin Khalifah(Appointment w.e.f. 3.6.2015)

Non-Executive Directors

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) (Chairman)Tan Sri Dato’ Seri Lodin Bin Wok KamaruddinLaksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor (Bersara)Tan Sri Dato’ Seri Mohamed JawharEn. Mohd Suffian Bin Haji HaronTan Sri Dato’ Sri Abdul Aziz Bin Abdul RahmanAssociate Professor Dr. Said Bouheraoua

The aggregate amount of remuneration for the CEOs, Directors and Shariah Committee members of the Bank for the financial year are as follows:


2015

RM’000

2014

RM’000

CEO

Salaries 421 645

Bonuses 709 678

Defined contribution plan (‘EPF’) 191 218

Other employee benefits 79 43

Benefits-in-kind 13 88


Fees 1,176 1,117


Shariah Committee fees

Shariah fees 83 110

Directors’ remuneration (Note 27) 2,676 2,901

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28 CEO, DIRECTORS AND SHARIAH COMMITTEE MEMBERS’ REMUNERATION

A summary of the total remuneration of the CEO and Directors, distinguishing between Executive and Non-Executive Directors.


2015

Salaries

RM’000

Bonuses

RM’000

Directors’

Fees

RM’000

* Other

emoluments

RM’000

Benefits-

in-kind

RM’000

Shariah

Fees

RM’000

Total

RM’000

CEO

Kamarul Ariffin Bin Mohd Jamil 165 673 - 146 10 - 994

Nazlee Bin Khalifah 256 36 - 124 3 - 419

Total 421 709 - 270 13 - 1,413


Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) - - 152 - - - 152

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin - - 157 - - - 157

Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor (Bersara) - - 187 - 2 - 189

Tan Sri Dato’ Seri Mohamed Jawhar - - 160 - - - 160

En. Mohd Suffian Bin Haji Haron - - 143 - - - 143

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman - - 215 - 2 - 217

Associate Professor Dr. Said Bouheraoua - - 162 - - 83 245

Total - - 1,176 - 4 83 1,263

Grand Total 421 709 1,176 270 17 83 2,676


SalariesRM’000

BonusesRM’000

Directors’Fees

RM’000

* Otheremoluments

RM’000

Benefits-in-kind

RM’000

Shariah Fees

RM’000Total

RM’000

CEOKamarul Ariffin Bin Mohd Jamil 645 678 - 261 88 - 1,672Total 645 678 - 261 88 - 1,672

Non-executive DirectorsJen. Tan Sri Dato’ Seri Ismail Bin

Haji Omar (Bersara) - - 151 - - - 151Tan Sri Dato’ Seri Lodin Bin Wok

Kamaruddin - - 160 - - - 160Laksamana Madya Tan Sri Dato’ Seri Ahmad

Ramli Bin Mohd Nor (Bersara) - - 189 - 2 - 191Tan Sri Dato’ Seri Mohamed Jawhar - - 162 - - - 162En. Mohd Suffian Bin Haji Haron - - 148 - - - 148Dr. Asyraf Wajdi Bin Dato’ Dusuki - - 68 - - 34 102Associate Professor Dr. Said Bouheraoua - - 94 - - 76 170Tan Sri Dato’ Sri Abdul Aziz Bin

Abdul Rahman - - 145 - - - 145Total - - 1,117 - 2 110 1,229

Grand Total 645 678 1,117 261 90 110 2,901

* Executive Director’s other emoluments include allowance and EPF

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29 TAXATION


2015

RM’000

2014

RM’000

Malaysian income tax

Current tax 28,364 22,407

Under/(over) provision in prior year 503 (1,847)

Deferred tax (Note12) (56) (272)

28,811 20,288

Numerical reconciliation between the average effective tax rate and the Malaysia tax rate:

% %

Malaysian tax rate 25.00 25.00

Tax effect of :Non-allowable expense 0.11 1.52Non taxable income (0.35) (0.64)Tax saving arising from income exempt from tax for International Currency Business Unit (ICBU) (0.41) (0.42)Prior year deferred tax is not recognised, now recognised (0.23) -Under/(over) provision in prior years 0.43 (2.13)Change in tax - 0.02Average effective tax rate 24.55 23.35

30 EARNINGS PER SHARE

The basic earnings per ordinary share for the Economic Entity and the Bank have been calculated based on the net profit attributable to ordinary equity holders of the Economic Entity and the Bank of RM84,785,000 (2014: RM66,596,000). The weighted average number of shares in issue during the financial year of 360,548,000 (2014: 360,000,000) is used for the computation.

31 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

Related parties Relationships

Lembaga Tabung Angkatan Tentera (‘LTAT’) Ultimate holding corporate body, which is Government-Link Investment Company (‘GLIC’) of the Government of Malaysia

AFFIN Holdings Berhad (‘AHB’) Penultimate holding company

AFFIN Bank Berhad (‘ABB’) Holding company

Subsidiaries and associates of LTAT Subsidiary and associate companies of the ultimate holding corporate body

Subsidiaries and associates of AHB as disclosed in its financial statements Subsidiary and associate companies of the penultimate holding company

Subsidiaries of ABB as disclosed in its financial statements Subsidiary companies of the holding company

Joint ventures as disclosed in Note 14 Joint ventures with AFFIN Islamic Bank Berhad

Key management personnel The key management personnel of the Bank consist of:- Directors- Chief Executive Officer- Member of Senior Management team

Related parties of key management personnel (deemed as related to the Bank)

- Close family members and dependents of key management personnel- Entities that are controlled, jointly controlled or for which significant

voting power in such entity resides with, directly or indirectly by key management personnel or its close family members

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Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the Bank either directly or indirectly.

The Bank do not have any individually or collectively significant transactions outside the ordinary course of business with the Government of Malaysia and government related entities. In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions and balances.

(a) Related parties transactions and balances


Ultimate holding

corporate body

Penultimate

holding company

Holding

companies

2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Income

Income on deposits and placement with banks and other financial institutions - - - - - 36

- - - - - 36

Expenditure

Profit paid on Murabahah term deposit (TD) - 6 - - - -

Profit paid on deposits and placement of banks and other financial institutions - - - - 1,256 487

Profit paid on RIA/RPSIA - - - - 47,846 27,917

Other expenditure - - - - 73,305 81,851

- 6 - - 122,407 110,255


Other related

companies

Companies in which

certain Directors have

substantial interest

Key management

personnel

2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Income

Income on financing, advances and other financing 6,589 7,048 - - 16 -

6,589 7,048 - - 16 -

Expenditure

Profit paid on Murabahah term deposit (TD) 5,377 6,057 - - - -

Profit paid on general investment deposits (GIA) 8 8 - - 115 74

Profit paid on Commodity murabahah 3,485 1,524 - - - -

Profit paid on special investment deposits (SIA) - 1,400 - - - -

Other expenditure 104 71 - - - -

8,974 9,060 - - 115 74

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(a) Related parties transactions and balances (continued)

Ultimate holding

corporate body

Penultimate

holding company

Holding

companies


2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Amount due from

Intercompany balances - - - - 367,172 242,058

- - - - 367,172 242,058

Amount due to

Demand and saving deposits 1,172 1,602 - - - -

Special investment deposits (SIA) - - - - - 826,689

Deposits and placement of banks and other financial institutions - - - - 84,001 68,741

PSIA/RPSIA/RIA - - - - 1,331,318 -

1,172 1,602 - - 1,415,319 895,430

Commitment - - - - - -

Other related

companies

Companies in which

certain Directors have

substantial interest

Key management

personnel


2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Amount due from

Income on financing,advances and other financing 448,742 433,480 - - 374 -

Intercompany balances 39,936 14,855 - - - -

488,678 448,335 - - 374 -

Amount due to

Demand and saving deposits 24,045 20,025 596 144 2,627 1,863

Murabahah term deposit (TD) 204,905 187,940 - - 5,325 -

General investment deposits (GIA) 261 253 - - - 2,894

Commodity Murabahah 99,544 - - - - -

328,755 208,218 596 144 7,952 4,757

Commitments and contingencies 47,212 67,065 - - - -

No impairment allowances were required at the Bank in 2015 and 2014 for financing, advances and other financing made to key management personnel.

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(b) Key management personnel compensation


2015

RM’000

2014

RM’000

Directors’ fees and allowances

Fees 1,176 1,117


Shariah fees 83 110

1,263 1,229

Short-term employment benefits

Salaries 631 645

Bonuses 739 678

Defined contribution plan (‘EPF’) 237 218

Other employee benefits 133 43


1,753 1,672

Included in the above table is CEO and directors’ remuneration as disclosed in Note 28.

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32 COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions. These commitments and contingencies are not secured over the assets of the Bank.

The commitments and contingencies consist of:


Principal

amount

2015

RM’000

Principal

amount

2014

RM’000

Direct credit substitutes (*) 9,383 9,936

Transaction-related contingent items (*) 147,960 152,164

Short-term self-liquidating trade related contingencies 368,567 401,519

Irrevocable commitments to extend credit:

- maturity less than one year 1,387,337 1,212,792

- maturity more than one year 348,409 312,478

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 customer’s creditworthiness 15,321 -

Foreign exchange related contracts (#):

- less than one year 222,777 24,032

- one year to less than five years - -

- five year and above - -

2,499,754 2,112,921

* Included in direct credit substitutes as above are financial guarantee contracts of RM9.4 million at the Bank (2014: RM9.9 million), of which fair value at the time of issuance is zero.

of financial position and disclosed in Note 4 and 19 to the financial statements.

33 FINANCIAL RISK MANAGEMENT

(i) Credit risk

Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and contractual obligations to the Bank. Credit risk emanates mainly from financing, advances and other financing, financing commitments arising from such financing activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures. Approval authorities are delegated to Senior Management and Group Management Loan Committee (‘GMLC’) to implement the credit policies and ensure sound credit granting standards.

An independent Group Risk Management (‘GRM’) function, headed by Group Chief Risk Officer (‘GCRO’) with direct reporting line to Board Risk Management Committee (‘BRMC’) is in place to ensure adherence to risk standards and discipline. Portfolio management risk reports are submitted regularly to BRMC.

Financing guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.

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(i) Credit risk (continued)

Credit risk measurement

Financing, advances and other financing

Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s underwriting criteria and the ability of the Bank to make a return commensurate with the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. The Bank has developed internal rating models to support the assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess the risks associated with the credit applications. The scorecards are used as a decision support tool at financing origination.

Over-the-Counter (‘OTC’) Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure Method, computation of credit equivalent exposure for profit rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).

Risk limit control and mitigation policies

The Bank employs various policies and practices to control and mitigate credit risk.

Financing limits

The Bank establishes internal limits and related financing guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, large exposures, connected parties, and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on market and economic conditions when considered appropriate.

The credit risk exposure for derivative and financing books is managed as part of the overall financing limits with customers together with potential exposure from market movements.

Collateral

Credits are established against customer’s capacity to pay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:-

- mortgage over residential properties;- charges over commercial real estate or vehicles financed;- charges over business assets such as business premises, inventory and accounts receivable; and- charges over financial instruments such as marketable securities.

Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct financing.

Credit Related Commitments

Commitment to extend credit represents unutilised portion of approved credit in the form of financing, guarantees or letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than short-term commitments.

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Credit risk monitoring

Retail credits are actively monitored and managed on a portfolio basis by product type. A collection management system is in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updated information. This is to ensure that the credit grades remain appropriate and any signs of weaknesses or deterioration in the credit quality are detected. Remedial action is taken where evidence of deterioration emanates.

Early Alert Process is in place to pro-actively identify, report and manage deteriorating credit quality. Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Maximum exposure to credit risk

For financial assets recognised on the statement of financial position, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Bank would have to pay if the guarantee was to be called upon. For financing commitments and other credit related commitments, the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers.

All financial assets of the Bank are subject to credit risk except for cash in hand, equity securities held as financial assets held-for-trading or financial investments available-for-sale, as well as non-financial assets.

The exposure to credit risk of the Bank equals their carrying amount in the statement of financial position as at reporting date, except for the followings:


2015 2015

Carrying Value

RM’000

Maximum

Credit Exposure

RM’000

Credit risk exposures of on-balance sheet assets:

Cash and short-term funds 1,918,570 1,918,570

Financial investments available-for-sale # 1,475,373 1,474,848

Other assets 3,759 3,045

Credit risk exposure of off-balance sheet items:

Financial guarantees ^ 9,383 9,383

Financing commitments and other credit related commitments ^ 2,267,594 599,365

Total maximum credit risk exposure 5,674,679 4,005,211

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Maximum exposure to credit risk (continued)


2014 2014

Carrying Value

RM’000

Maximum Credit Exposure

RM’000

Credit risk exposures of on-balance sheet assets:

Cash and short-term funds 3,333,472 3,333,472

Financial investments available-for-sale # 1,532,500 1,532,475


Credit risk exposure of off-balance sheet items:

Financial guarantees ^ 9,936 9,936

Financing commitments and other credit related commitments ^ 2,078,953 555,183

Total maximum credit risk exposure 7,003,176 5,478,490

The following have been excluded for the purpose of maximum credit risk exposure calculation:# investment in quoted and unquoted shares^ amount stated at notional value

Whilst the Bank’s maximum exposure to credit risk is the carrying value of the assets, or in the case of off-balance sheet items, the amount guaranteed, committed or accepted, in most cases the likely exposure is far less due to collateral, credit enhancements and other actions taken to mitigate the credit exposure.

The financial effect of collateral held for financing, advances and other financing of the Bank is 74% (2014: 72%). The financial effects of collateral for the other financial assets are insignificant.

NO

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for

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2015

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33

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AN

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2,2

00

3

,04

5

5,3

55

,24

5

52

,80

9

Tota

l a

ssets

1,9

18

,57

0

35

,03

4

13

2

1,4

74

,84

8

76

,28

3

9,2

01

,90

9

3,0

45

1

2,7

09

,82

1

60

8,7

48

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

r en

ded

31 D

ecem

ber

2015

95

Affi

n Is

lam

ic B

an

k B

erh

ad (709506-V

) | An

nu

al R

ep

ort 2

0153

3

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

Cre

dit

ris

k (

co

nti

nu

ed

)

Cre

dit

ris

k c

on

cen

tra

tio

n (

co

nti

nu

ed

)

Econ

omic

Ent

ity a

nd T

he B

ank

2014

Cash

and

shor

t-te

rmfu

nds

RM’0

00

Deriv

ativ

es fi

nanc

ial a

sset

sRM

’000

Fina

ncia

lin

vest

men

tsav

aila

ble-

for-

sale

RM’0

00

Fina

ncia

lin

vest

men

tshe

ld-t

o-m

atur

ityse

curit

ies

RM’0

00

Fina

ncin

g,ad

vanc

esan

d ot

her

fina

ncin

gRM

’000

Othe

ras

sets

RM’0

00

Onba

lanc

esh

eet

tota

lRM

’000

Com

mitm

ents

and

cont

inge

ncie

sRM

’000

Agric

ultu

re -

-

-

-

2

66,6

72

-

266

,672

6

,780

Min

ing

and

quar

ryin

g -

-

-

-

7

92

-

792

-

Man

ufac

turin

g -

-

-

-

2

31,4

42

-

231

,442

7

9,74

2

Elec

trici

ty, g

as a

nd w

ater

sup

ply

-

-

-

-

52,

959

-

52,

959

-

Cons

truct

ion

-

-

-

-

548

,663

-

5

48,6

63

156

,035

Real

est

ate

-

-

-

-

602

,275

-

6

02,2

75

30,

804

Tran

spor

t, st

orag

e an

d co

mm

unic

atio

n -

-

5

4,48

9 -

1

34,6

98

-

189

,187

3

0,56

1

Fina

nce,

taka

ful/i

nsur

ance

and

bus

ines

s se

rvic

es 4

86,0

87

10

303

,519

8

2,75

4 7

51,5

07

-

1,6

23,8

77

22,

956

Gove

rnm

ent a

nd g

over

nmen

t age

ncie

s 2

,847

,385

-

1

,164

,251

-

5

9,17

6 -

4

,070

,812

1

46,3

85

Who

lesa

le &

reta

il tra

de a

nd re

stau

rant

s &

hote

ls -

2

1

0,21

6 -

2

00,4

30

-

210

,648

1

4,21

3

Othe

rs -

-

-

-

4

,315

,007

4

7,42

4 4

,362

,431

7

7,64

3

Tota

l ass

ets

3,3

33,4

72

12

1,5

32,4

75

82,

754

7,1

63,6

21

47,

424

12,

159,

758

565

,119

96


Affi

n I

sla

mic

Ba

nk

Berh

ad (7

0950

6-V

) | A

nn

ua

l R

ep

ort

2015



Collaterals

The main types of collateral obtained by the Bank are as follows:- for personal house financing, mortgages over residential properties;- for commercial property financing, charges over the properties being financed;- for hire purchase facilities, charges over the vehicles or plant and machineries financed; and- for other financing, charges over business assets such as premises, inventories, trade receivables or deposits.

Total financing, advances and other financing - credit quality

Past due financing refer to financing that are overdue by one day or more. Impaired financing are financing with months-in-arrears more than 3 months (i.e 90 days) or with impairment allowances.

Distribution of financing, advances and other financing by credit quality


2015

RM’000

2014

RM’000

Neither past due nor impaired (a) 8,607,759 6,622,943

Past due but not impaired (b) 527,629 480,433

Impaired (c) 141,708 129,157


less: Allowance for impairment

- Individual (38,516) (31,519)

- Collective (36,671) (37,393)

Net financing, advances and other financing 9,201,909 7,163,621

(a) Financing neither past due nor impaired

Analysis of financing, advances and other financing that are neither past due nor impaired analysed based on the Bank’s internal credit grading system is as follows:


2015

RM’000

2014

RM’000

Quality classification

Satisfactory 8,571,615 6,622,745

Special mention 36,144 198

8,607,759 6,622,943

Quality classification definitions

Satisfactory: Exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or levels of expected loss.

Special mention: Exposures require varying degrees of special attention and default risk is of greater concern which are under the monitoring of early alert and watchlist committee.

97


Affi

n Is

lam

ic B

an

k B

erh

ad (709506-V

) | An

nu

al R

ep

ort 2

015



Total financing, advances and other financing - credit quality (continued)

(b) Financing past due but not impaired

Certain financing, advances and other financing are past due but not impaired as the collateral values of these financing are in excess of the principal and profit outstanding. Allowances for these financing may have been set aside on a portfolio basis. The Bank’s financing, advances and other financing which are past due but not impaired are as follows:


2015

RM’000

2014

RM’000

Past due up to 30 days 241,430 211,939

Past due 31-60 days 212,980 193,658

Past due 61-90 days 73,219 74,836

527,629 480,433

(c) Financing impaired


2015

RM’000

2014

RM’000

Analysis of impaired assets:

Gross impaired financing 141,708 129,157

Individually impaired financing 102,199 82,962

Collateral and other credit enhancements obtained

During the year, the Bank has obtained the following assets by taking possession of collateral held as security or calling upon other credit enhancements.


2015

RM’000

2014

RM’000

Nature of assets

Industrial and residential properties 395 395

Deposits and short-term funds, private debt securities/sukuk, treasury bills and derivatives - credit quality

Private debt securities/sukuk, treasury bills and other eligible bills included in financial assets held-for-trading and financial investments available-for-sale are measured on a fair value basis. The fair value will reflect the credit risk of the issuer.

Most listed and some unlisted securities are rated by external rating agencies. The Bank mainly uses external credit ratings provided by RAM, MARC, Standard & Poor’s or Moody’s.

The table below presents the deposits and short-term funds, private debt securities/ sukuk, treasury bills and other eligible bills that neither past due nor impaired and impaired, analysed by rating.

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

r en

ded

31 D

ecem

ber

2015

98

Affi

n I

sla

mic

Ba

nk

Berh

ad (7

0950

6-V

) | A

nn

ua

l R

ep

ort

2015

33

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(i)

Cre

dit

ris

k (

co

nti

nu

ed

)

The

tabl

e be

low

pre

sent

s th

e de

posi

ts a

nd s

hort-

term

fund

s, p

rivat

e de

bt s

ecur

ities

, tre

asur

y bi

lls a

nd o

ther

elig

ible

bill

s th

at n

eith

er p

ast d

ue n

or im

paire

d an

d im

paire

d, a

naly

sed

by ra

ting:

Eco

no

mic

En

tity

an

d T

he B

an

k

20

15

So

vere

ign

RM

’00

0

AA

A

RM

’00

0

AA

- to

AA

+

RM

’00

0

A-

to A

+

RM

’00

0

Un

rate

d

RM

’00

0

Tota

l

RM

’00

0

Shor

t-te

rm fu

nds

1,9

11

,07

0

-

26

1

7,2

39

-

1

,91

8,5

70

Depo

sits

and

pla

cem

ents

with

ban

ks a

nd o

ther

fina

ncia

l in

stitu

tions

-

-

35

,03

4

-

-

35

,03

4

Deriv

ativ

e fin

anci

al a

sset

s -

-

1

32

-

-

1

32

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

leM

alay

sian

Gov

ernm

ent i

nves

tmen

t iss

ues

61

3,8

57

-

-

-

-

6

13

,85

7

Suku

k Pe

rum

ahan

Ker

ajaa

n 1

87

,21

9

-

-

-

-

18

7,2

19

Khaz

anah

Suk

uk 1

65

,28

0

-

-

-

-

16

5,2

80

Priv

ate

debt

sec

uriti

es 1

25

,13

1

31

2,0

01

71

,36

0 -

-

5

08

,49

2

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

Pr

ivat

e de

bt s

ecur

ities

-

-

-

-

76

,28

3

76

,28

3

3,0

02

,55

7

31

2,0

01

10

6,7

87

7,2

39

7

6,2

83

3

,50

4,8

67

Econ

omic

Ent

ity a

nd T

he B

ank

2014

Sove

reig

nRM

’000

AAA

RM’0

00AA

- to

AA+

RM’0

00A-

to A

+RM

’000

Unra

ted

RM’0

00To

tal

RM’0

00

Shor

t-te

rm fu

nds

2,8

47,3

86

280

,024

2

02,2

58

3,8

04

-

3,3

33,4

72

Deriv

ativ

e fin

anci

al a

sset

s -

-

1

0 -

2

1

2 Fi

nanc

ial i

nves

tmen

ts a

vaila

ble-

for-

sale

Mal

aysi

an G

over

nmen

t tre

asur

y bi

lls 2

5,00

4 -

-

-

-

2

5,00

4 M

alay

sian

Gov

ernm

ent i

nves

tmen

t iss

ues

501

,536

-

-

-

-

5

01,5

36

Suku

k Pe

rum

ahan

Ker

ajaa

n 7

9,13

9 -

-

-

-

7

9,13

9 Ba

nk N

egar

a M

alay

sia

Mon

etar

y No

tes

284

,878

-

-

-

-

2

84,8

78

Khaz

anah

Suk

uk 1

20,1

69

-

-

-

-

120

,169

Pr

ivat

e de

bt s

ecur

ities

153

,526

2

73,2

19

95,

004

-

-

521

,749

Fi

nanc

ial i

nves

tmen

ts h

eld-

to-m

atur

ity

Pr

ivat

e de

bt s

ecur

ities

-

-

-

-

82,

754

82,

754

4,01

1,63

855

3,24

329

7,27

23,

804

82,7

564,

948,

713

Colla

tera

l is

not g

ener

ally

obt

aine

d di

rect

ly fr

om th

e is

suer

s of

deb

t sec

uriti

es. C

erta

in d

ebt s

ecur

ities

may

be

colla

tera

lised

by

spec

ifica

lly id

entifi

ed a

sset

s th

at w

ould

be

obta

inab

le in

the

even

t of

def

ault.

Depo

sits

and

sho

rt-te

rm fu

nds,

priv

ate

debt

sec

uriti

es, t

reas

ury

bills

and

der

ivat

ives

whi

ch a

re p

ast d

ue b

ut n

ot im

paire

d is

not

sig

nific

ant.

99


Affi

n Is

lam

ic B

an

k B

erh

ad (709506-V

) | An

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al R

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ort 2

015



Other financial assets - credit quality

Other financial assets of the Bank is neither past due nor impaired are summarised as below:


2015

RM’000

2014

RM’000

Short-term funds 1,918,570 3,333,472

Deposits and placements with banks and other financial institutions 35,034 -


Amount due from holding company 367,172 242,058

Amount due from joint ventures 39,936 14,855

Other financial assets that are past due but not impaired or impaired are not significant.

(ii) Market risk

Market risk is the potential loss arising from movements in market variables such as profit rates and foreign exchange rates. The exposure to market risk results largely from profit rate and foreign exchange rate risks.

The market risk management framework encompasses the following approaches:

Risk control parameters are established based on risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These parameters are reviewed at least annually.

Market risk stemming from the Trading book is primarily controlled through the imposition of Stop-loss and Value-at-Risk (‘VaR’) Risk Control Parameters.

Profit rate risk is quantified by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. Based on the repricing mismatch, Earnings-at-Risk (‘EaR’) or Net Profit Margin (‘NPM’) simulation is conducted to assess the variation in short term earnings.

In addition, the potential long term impact arising from the Bank’s exposures is also tracked by assessing the impact on Economic Value of Equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’).

Periodic stress tests are conducted to quantify market risk arising from abnormal market movements.

Value-at-Risk (‘VaR’)

Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a Trading portfolio. It measures the risk of losses arising from potential adverse movements in profit rates and foreign exchange rates that could affect values of financial instruments.

The Bank adopts Historical Pricing Simulation Method (‘HPS’) to compute potential loss or Value-at-Risk (‘VaR’) amount. The HPS Method uses the relative change of historical prices to estimate future potential changes in the market value of outstanding positions. The Bank currently adopts 250 simulated business days for its HPS VaR computation. After applying these price changes to the outstanding portfolios, 250 simulated market values for the portfolio are generated and the change in the day-to-day market value is taken as simulated Profit & Loss (‘P&L’) for the portfolio. Since VaR calculates the worst expected loss over a given day horizon and confidence level under normal market condition, the 250 simulated values are sorted from the lowest to the highest simulated P&L. The VaR focuses on the tail of the distribution (i.e the loss figures) at the 99th percentile.

100


Affi

n I

sla

mic

Ba

nk

Berh

ad (7

0950

6-V

) | A

nn

ua

l R

ep

ort

2015


(ii) Market risk (continued)

Other risk measures

(i) Mark-to-Market valuation tracks the current market value of the outstanding financial instruments.

(ii) Stress tests are conducted to attempt to quantify market risk arising from abnormal market movements. Stress tests measure the changes in values arising from extreme movements in profit rates and foreign exchange rates based on past experience and simulated stress scenarios.

Profit rate sensitivity

The table below shows the sensitivity for the financial assets and financial liabilities held as at reporting date.

(i) Impact on profit after tax is measured using Repricing Gap Simulation methodology based on 100 basis points parallel shifts in profit rate.

(ii) Impact in equity represents the changes in fair values of fixed income instruments held in available-for-sale portfolio arising from the shift in the profit rate.


2015

+100

basis point

RM million

-100

basis point

RM million

Impact on profit after tax (13.9) 13.9

Impact on equity 45.2 (48.1)


+100 basis point RM million

-100 basis point RM million

Impact on profit after tax 7.5 (7.5)

Impact on equity (30.6) 32.2

101


Affi

n Is

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ic B

an

k B

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ad (709506-V

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ort 2

015


(ii) Market risk (continued)

Foreign exchange risk sensitivity analysis

An analysis of the exposure to assess the impact of a one per cent change in exchange rate to the profit after tax are as follows:


2015

RM’000

2014

RM’000

+1%

Euro 370 343

United States Dollar 2,034 1,823

Great Britain Pound 131 10

Australian Dollar 6 12

Others 1,029 1,003

3,570 3,191

-1%

Euro (370) (343)

United States Dollar (2,034) (1,823)

Great Britain Pound (131) (10)

Australian Dollar (6) (12)

Others (1,029) (1,003)

(3,570) (3,191)

Foreign exchange risk

The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Thresholds are set on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The following table summarises the Bank’s exposure to foreign currency exchange rate risk as at reporting date. Included in the table are the Bank’s financial instruments at carrying amounts, categorised by currency.

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

r en

ded

31 D

ecem

ber

2015

102

Affi

n I

sla

mic

Ba

nk

Berh

ad (7

0950

6-V

) | A

nn

ua

l R

ep

ort

2015

33

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii)

M

ark

et

risk

(co

nti

nu

ed

)

Fo

reig

n e

xch

an

ge r

isk

Eco

no

mic

En

tity

an

d T

he B

an

k

20

15

Eu

ro

RM

’00

0

Un

ited

Sta

tes

Do

lla

r

RM

’00

0

Gre

at

Bri

tain

Po

un

d

RM

’00

0

Au

str

ali

an

Do

lla

r

RM

’00

0

Ja

pa

nese

Yen

RM

’00

0

Oth

ers

RM

’00

0

Tota

l

RM

’00

0

Assets

Cash

and

sho

rt-te

rm fu

nds

1,2

34

2

,82

8

1,8

83

2

61

(1

77

)1

,47

27

,50

1

Deriv

ativ

e fin

anci

al a

sset

s -

1

20

-

-

-

1

12

1

Fina

ncin

g, a

dvan

ces

and

othe

r fina

ncin

g -

8

4,4

44

-

-

-

-

8

4,4

44

Tota

l fi

na

ncia

l a

ssets

1,2

34

8

7,3

92

1

,88

3

26

1 (

17

7)

1,4

73

9

2,0

66

Lia

bil

itie

s

Depo

sits

from

cus

tom

ers

9,3

59

1

2,7

84

7

4

5

2,5

92

24

,75

1

Depo

sits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial i

nstit

utio

ns -

8

4,0

01

-

-

-

-

8

4,0

01

Deriv

ativ

e fin

anci

al li

abili

ties

27

5

76

4

4

-

-

-

64

7

Tota

l fi

na

ncia

l li

ab

ilit

ies

9,3

86

97

,36

1 5

1

4

5

2,5

92

10

9,3

99

Net o

n-ba

lanc

e sh

eet fi

nanc

ial p

ositi

on (

8,1

52

) (

9,9

69

) 1

,83

2

25

7 (

18

2)

(1,1

19

) (

17

,33

3)

Off b

alan

ce s

heet

com

mitm

ents

57

,43

2

28

1,1

88

1

5,6

54

5

96

9

33

13

7,5

83

49

3,3

86

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

r en

ded

31 D

ecem

ber

2015

103

Affi

n Is

lam

ic B

an

k B

erh

ad (709506-V

) | An

nu

al R

ep

ort 2

0153

3

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii)

M

ark

et

risk

(co

nti

nu

ed

)

Fo

reig

n e

xch

an

ge r

isk

(co

nti

nu

ed

)

Econ

omic

Ent

ity a

nd T

he B

ank

2014

Euro

RM’0

00

Unite

d S

tate

sDo

llar

RM’0

00

Grea

tBr

itain

Poun

dRM

’000

Aust

ralia

nDo

llar

RM’0

00

Japa

nese

Ye

nRM

’000

Othe

rsRM

’000

Tota

lRM

’000

Asse

ts

Cash

and

sho

rt-te

rm fu

nds

581

2

,997

8

08

492

4

09

758

6

,045

Deriv

ativ

e fin

anci

al a

sset

s -

5

-

-

-

-

5

Fina

ncin

g, a

dvan

ces

and

othe

r fina

ncin

g -

1

45,9

71

-

-

-

-

145

,971

Tota

l fina

ncia

l ass

ets

581

1

48,9

73

808

4

92

409

7

58

152

,021

Liab

ilitie

s

Depo

sits

from

cus

tom

ers

17

112

1

0 7

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-

1,0

35

1

,03

5

Othe

r lia

bilit

ies

-

-

-

-

-

44

,11

9 -

4

4,1

19

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l li

ab

ilit

ies

5,7

21

,50

5

2,6

32

,63

8

3,2

23

,79

8

21

0,3

16

5

00

,00

0

13

0,2

67

1,0

35

1

2,4

19

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9

Net

pro

fit

sen

sit

ivit

y g

ap

81

6,1

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(

2,2

68

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5)

(2

,24

1,5

48

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1

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43

NO

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FIN

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L S

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ME

NTS

for

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cial

yea

r en

ded

31 D

ecem

ber

2015

110

Affi

n I

sla

mic

Ba

nk

Berh

ad (7

0950

6-V

) | A

nn

ua

l R

ep

ort

2015

33

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii)

M

ark

et

risk

(co

nti

nu

ed

)

Pro

fit

rate

ris

k (

co

nti

nu

ed

)

The

Bank

2014

Non-

tradi

ng b

ook

Up to

1m

onth

RM’0

00

>1-

3m

onth

sRM

’000

>3-

12m

onth

sRM

’000

>1-

5ye

ars

RM’0

00

Over

5ye

ars

RM’0

00

Non-

profi

tse

nsiti

veRM

’000

Trad

ing

book

RM’0

00To

tal

RM’0

00

Asse

ts

Cash

and

sho

rt-te

rm fu

nds

3,3

25,0

00

-

-

-

-

8,4

72

-

3,3

33,4

72

Deriv

ativ

e fin

anci

al a

sset

s -

-

-

-

-

-

1

2 1

2

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le -

1

39,2

26

321

,338

7

69,7

62

293

,194

8

,980

-

1

,532

,500

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

-

-

82,

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-

-

64

-

82,

754

Fina

ncin

g, a

dvan

ces

and

othe

r fina

ncin

g

- no

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paire

d 4

,040

,481

2

38,3

22

621

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1

,502

,265

7

01,2

45

(37,

393)

* -

7

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,983

- im

paire

d -

-

-

-

-

9

7,63

8 #

-

97,

638

Othe

rs (1

) -

-

-

-

-

6

2,77

5 -

6

2,77

5

Amou

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om h

oldi

ng c

ompa

ny -

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-

-

-

2

42,0

58

-

242

,058

Stat

utor

y de

posi

ts w

ith B

ank

Nega

ra M

alay

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-

-

-

-

-

298

,000

-

2

98,0

00

Tota

l ass

ets

7,3

65,4

81

377

,548

1

,025

,091

2

,272

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9

94,4

39

680

,594

1

2 1

2,71

5,19

2

* Th

e ne

gativ

e ba

lanc

e re

pres

ents

col

lect

ive

impa

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wan

ce fo

r fina

ncin

g, a

dvan

ces

and

othe

r fina

ncin

g.#

Net o

f ind

ivid

ual i

mpa

irmen

t allo

wan

ce.

(1)

Othe

rs in

clud

e ot

her a

sset

s an

d am

ount

due

from

join

t ven

ture

s.

NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TATE

ME

NTS

for

the

finan

cial

yea

r en

ded

31 D

ecem

ber

2015

111

Affi

n Is

lam

ic B

an

k B

erh

ad (709506-V

) | An

nu

al R

ep

ort 2

0153

3

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(ii)

M

ark

et

risk

(co

nti

nu

ed

)

Pro

fit

rate

ris

k (

co

nti

nu

ed

)

The

Bank

2014

Non-

tradi

ng b

ook

Up to

1m

onth

RM’0

00

>1-

3m

onth

sRM

’000

>3-

12m

onth

sRM

’000

>1-

5ye

ars

RM’0

00

Over

5ye

ars

RM’0

00

Non-

profi

tse

nsiti

veRM

’000

Trad

ing

book

RM’0

00To

tal

RM’0

00

Liab

ilitie

s

Depo

sits

from

cus

tom

ers

5,7

74,6

82

1,7

59,6

43

2,0

46,5

85

236

,363

-

5

3,12

1 -

9

,870

,394

Depo

sits

and

pla

cem

ents

of b

anks

and

oth

er

finan

cial

inst

itutio

ns

873

,909

5

15,1

64

311

,786

2

97,2

10

-

47,

651

-

2,0

45,7

20

Deriv

ativ

e fin

anci

al li

abili

ties

-

-

-

-

-

-

34

34

Othe

r lia

bilit

ies

-

-

-

-

-

30,

358

-

30,

358

Tota

l lia

bilit

ies

6,6

48,5

91

2,2

74,8

07

2,3

58,3

71

533

,573

-

1

31,1

30

34

11,

946,

506

Net p

rofit

sen

sitiv

ity g

ap 7

16,8

90

(1,8

97,2

59)

(1,3

33,2

80)

1,7

38,4

54

994

,439

112


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(iii) Liquidity risk

Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

Liquidity risk management is managed on Group basis. The objective of liquidity risk management is to ensure that there are sufficient funds to meet contractual and regulatory obligations without incurring unacceptable losses as well as to undertake new transactions. The Group’s liquidity management process involves establishing liquidity risk management policies and thresholds, liquidity risk thresholds monitoring, stress testing and establishing contingency funding plans. These building blocks of liquidity risk management are subject to regular reviews to ensure relevance in the context of prevailing market conditions.

Liquidity risk monitoring is premised on BNM’s Liquidity Coverage Ratio (‘LCR’) final standards as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’).

The LCR is a quantitative requirement which seeks to ensure that the Bank holds sufficient high-quality liquid assets (‘HQLA’) to withstand an acute liquidity stress scenario over a 30-day horizon.

Long term liquidity risk profile is assessed via NSFR which promotes resilience over a longer time horizon for the Bank to fund its activities with more stable sources of funding on an ongoing basis.

The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. Liquidity risk is tracked using internal and external qualitative and quantitative indicators. Liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long term foreign currency funding and adhering to the internal guiding principles for foreign currency assets creations.

The Bank also conducts liquidity stress test to assess the Bank’s resilience to withstand short term liquidity shocks over a 30-day horizon. A Contingency Funding Plan is in place to alert and enable Management to act effectively and efficiently in handling liquidity disruption. The document encompasses early warning system, strategies, decision-making authorities, and courses of actions to be taken in the event of liquidity crisis and emergencies.

Basel III Liquidity Standards

The Basel Committee has developed two minimum standards for funding liquidity to achieve two separate but complementary objectives:

survive a significant stress scenario lasting for one month.

ongoing basis.

The LCR and NSFR are tracked to assess the short term and long term liquidity risk profile of the Bank, in line with BNM’s Liquidity Coverage Ratio (‘LCR’) final standards issued on 31st March 2015 as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’) and Leverage Ratio (‘LR’) issued on 7th August 2015.

The BRMC is responsible for the Bank’s liquidity policy and the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly on the liquidity position of the Bank.

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(iii) Liquidity risk (continued)

Liquidity risk disclosure table which is based on contractual undiscounted cash flow

The table below provides analysis of cash flow payables for financial liabilities based on remaining contractual maturities on undiscounted basis. The balances in the table below do not agree directly to the balances reported in the statement of financial position as the table incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and profit payments.


2015

Up to 1

month

RM’000

>1-3

months

RM’000

>3-12

months

RM’000

>1-5

years

RM’000

Over 5

years

RM’000

Total

RM’000

Deposits from customers 5,097,116 1,794,130 3,092,531 117,444 - 10,101,221

Deposits and placements of banks and other financial institutions 641,964 882,012 248,440 115,683 713,148 2,601,247

Other liabilities 44,119 - - - - 44,119

5,783,199 2,676,142 3,340,971 233,127 713,148 12,746,587


Up to 1month

RM’000

> 1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000


Deposits and placements of banks and other financial institutions 876,956 524,466 316,529 366,666 - 2,084,617


6,702,618 2,311,262 2,426,140 616,357 - 12,056,377

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Derivative financial liabilities

Derivative financial liabilities based on contractual undiscounted cash flow:


2015

Up to 1

month

RM’000

>1-3

months

RM’000

>3-12

months

RM’000

>1-5

years

RM’000

Over 5

years

RM’000

Total

RM’000

Derivatives settled on gross basis

Foreign exchange derivatives:

Outflow (137,476) (1,067) (22,327) - - (160,870)

Inflow 137,416 1,067 22,327 - - 160,810

(60) - - - - (60)


Up to 1month

RM’000

> 1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Derivatives settled on gross basis

Foreign exchange derivatives:

Outflow (11,079) - - - - (11,079)

Inflow 11,072 - - - - 11,072

(7) - - - - (7)

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Liquidity risk for assets and liabilities based on remaining contractual maturities

The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counter-guarantees are important factors in assessing the liquidity of the Bank. The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual maturities.

Maturities of assets and liabilities of the Bank by remaining contractual maturities profile are as follows:

Economic Entity

2015

Up to 1

month

RM’000

>1-3

months

RM’000

>3-12

months

RM’000

>1-5

years

RM’000

Over 5

years

RM’000

Total

RM’000

Assets

Cash and short-term funds 1,918,570 - - - - 1,918,570

Deposits and placements with banks and other financial institutions

- 35,034 - - - 35,034

Derivative financial assets 21 - 111 - - 132

Financial investments available-for-sale 7,470 9,737 114,005 602,369 741,792 1,475,373

Financial investments held-to-maturity - - 4,218 32,336 39,729 76,283

Financing, advances and other financing 457,867 199,371 360,801 1,449,970 6,733,900 9,201,909

Other assets 2,244 499 315 278 423 3,759

Amount due from holding company 367,172 - - - - 367,172

Amount due from joint ventures 39,936 - - - - 39,936

Statutory deposits with Bank Negara Malaysia 259,600 - - - - 259,600

Other non-financial assets (1) 3,598 - - - 3,039 6,637

3,056,478 244,641 479,450 2,084,953 7,518,883 13,384,405

Liabilities



Derivative financial liabilities 726 9 300 - - 1,035


Provision for taxation - - 10,031 - - 10,031

5,780,219 2,650,239 3,276,171 222,961 500,000 12,429,590

Net liquidity gap (2,723,741) (2,405,598) (2,796,721) 1,861,992 7,018,883

(1) Other non-financial assets include deferred tax assets, property and equipment and intangible assets.

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Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Economic Entity2014

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Assets


Derivative financial assets 10 2 - - - 12

Financial investments available-for-sale 281 144,985 324,278 769,762 293,194 1,532,500

Financial investments held-to-maturity - - 64 26,331 56,359 82,754


Other assets 47,416 - 476 - 423 48,315





4,472,123 296,801 634,300 2,157,327 5,162,088 12,722,639

Liabilities



Derivative financial liabilities 34 - - - - 34



6,698,557 2,295,770 2,384,358 571,892 - 11,950,577


(1) Other non-financial assets include deferred tax assets, property and equipment and intangible assets.

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The Bank

2015

Up to 1

month

RM’000

>1-3

months

RM’000

>3-12

months

RM’000

>1-5

years

RM’000

Over 5

years

RM’000

Total

RM’000

Assets


Deposits and placements with banks and other financial institutions - 35,034 - - - 35,034

Derivative financial assets 21 - 111 - - 132

Financial investments available-for-sale 7,470 9,737 114,005 602,369 741,792 1,475,373

Financial investments held-to-maturity - - 4,218 32,336 39,729 76,283


Other assets 2,244 499 315 278 423 3,759





3,056,478 244,641 479,450 2,084,953 7,519,533 13,385,055

Liabilities



Derivative financial liabilities 726 9 300 - - 1,035



5,780,219 2,650,239 3,276,171 222,961 500,000 12,429,590


(1) Other non-financial assets include deferred tax assets, investment in joint ventures, property and equipment and intangible assets.

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The Bank2014

Up to 1month

RM’000

>1-3monthsRM’000

>3-12monthsRM’000

>1-5years

RM’000

Over 5years

RM’000Total

RM’000

Assets


Derivative financial assets 10 2 - - - 12

Financial investments available-for-sale 281 144,985 324,278 769,762 293,194 1,532,500

Financial investments held-to-maturity - - 64 26,331 56,359 82,754


Other assets 47,416 - 476 - 423 48,315





4,472,123 296,801 634,300 2,157,327 5,162,738 12,723,289

Liabilities



Derivative financial liabilities 34 - - - - 34



6,698,557 2,295,770 2,384,358 571,892 - 11,950,577


(1) Other non-financial assets include deferred tax assets, investment in joint ventures, property and equipment and intangible assets.

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(iv) Operational risk management

Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the Bank’s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.

The Bank manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit’s business activities, the market in which it is operating and regulatory requirement in force.

The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. The capital requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous three years.

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process.

The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are reviewed for effectiveness and implemented to minimize the recurrence of such events.

As an internal requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators.

(v) Fair value financial assets and liabilities

Fair value is defined as the price that would be received to sell as an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Bank measure fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are not based on observable market data.

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

Where fair value is determined using unquoted market prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Bank then determines fair value based upon valuation techniques that use as inputs, market parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high.

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the input or other analytical techniques.

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(v) Fair value financial assets and liabilities (continued)

This category includes unquoted shares held for socio economic reasons. Fair values for shares held for socio economic reasons are based on the net tangible assets of the affected companies. The Bank’s exposures to financial instruments classified as Level 3 comprised a small number of financial instruments which constitute an insignificant component of the Bank’s portfolio of financial instruments. Hence, changing one or more of the inputs to reasonable alternative assumptions would not change the value significantly for the financial assets in Level 3 of the fair value hierarchy.

The Bank recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. Transfers between fair value hierarchy primarily due to change in the leval of trading activity, change in observable market activity related to an input, reassessment of available pricing information and change in the significance of the unobservable input. There were no transfers between Level 1, 2 and 3 of the fair value hierarchy during the financial year (2014: RM25,000).

The following table presents assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy:


2015

Level 1

RM’000

Level 2

RM’000

Level 3

RM’000

Total

RM’000

Assets

Derivative financial assets - 132 - 132

Financial investments available for sale *

- Money market instruments - 966,356 - 966,356

- Equity securities - - 525 525

- Private debt securities/sukuk - 508,492 - 508,492

- 1,474,980 525 1,475,505

Liabilities

Derivative financial liabilities - 1,035 - 1,035

- 1,035 - 1,035


Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

Assets

Derivative financial assets - 12 - 12

Financial investments available for sale *

- Money market instruments - 1,010,726 - 1,010,726

- Equity securities - - 25 25

- Private debt securities/sukuk - 521,749 - 521,749

- 1,532,487 25 1,532,512

Liabilities

Derivative financial liabilities - 34 - 34

- 34 - 34

* Net of allowance for impairment.

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The following table present the changes in Level 3 instruments for the financial year ended:


2015

RM’000

2014

RM’000

At beginning of the financial year 25 69

Purchases 500 -

Total gains recognised in other comprehensive income - 506

Allowance for impairment losses - (550)


Effect of changes in significant unobservable assumptions to reasonably possible alternatives

As at reporting date, financial instruments measured with valuation techniques using significant unobservable inputs (Level 3) mainly include unquoted shares held for socio economic purposes.

Qualitative information about the fair value measurements using significant unobservable inputs (Level 3):


Inter-relationship

between significant

unobservable inputs and

fair value measurement

Fair value assets

2015

RM’000

2014

RM’000

Valuation

techniques

Unobservable

inputs

Financial investments available-

for-sale Net tangible assets

Net tangible assets

Higher net tangible assetsresults in higher fair valueUnquoted shares 525 25

In estimating its significance, the Bank used an approach that is currently based on methodologies used for fair value adjustments. These adjustments reflects the values that the Bank estimate is appropriate to adjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies used can be a statistical or other relevant approved techniques.

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Effect of changes in significant unobservable assumptions to reasonably possible alternatives (continued)

The following tables analyse within the fair value hierarchy the Bank’s assets and liabilities not measured at fair value at 31 December 2015 but for which fair value is disclosed:


2015

Carrying

value

RM’000

Fair value

Level 1

RM’000

Level 2

RM’000

Level 3

RM’000

Total

RM’000

Financial assets

Financial investments held-to-maturity 76,283 - 75,011 - 75,011

Financing, advances and other financing 9,201,909 - 9,162,987 - 9,162,987

9,278,192 - 9,237,998 - 9,237,998

Financial liabilities

Deposits from customers 10,001,695 - 10,006,995 - 10,006,995

Deposits and placements of banks and other financial institutions 2,372,710 - 2,397,992 - 2,397,992

12,374,405 - 12,404,987 - 12,404,987


Carryingvalue

RM’000

Fair value

Level 1RM’000

Level 2 RM’000

Level 3 RM’000

Total RM’000

Financial assets

Financial investments held-to-maturity 82,754 - 81,066 - 81,066

Financing, advances and other financing 7,163,621 - 7,129,708 - 7,129,708

7,246,375 - 7,210,774 - 7,210,774


Deposits from customers 9,870,394 - 9,872,154 - 9,872,154

Deposits and placements of banks and other financial institutions 2,045,720 - 2,043,653 - 2,043,653

11,916,114 - 11,915,807 - 11,915,807

Other than as disclosed above, the total fair value of each financial assets and liabilities presented on the statements of financial position as at reporting date of the Bank approximates the total carrying amount.

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The fair value estimates were determined by application of the methodologies and assumptions described below.

Short-term funds and placements with banks and other financial institutions

For short-term funds and placements with banks and other financial institutions with maturity of less than six months, the carrying amount is a reasonable estimate of fair value.

For amounts with maturities of six months or more, fair values have been estimated by reference to current rates at which similar deposits and placements would be made with similar credit ratings and maturities.

Financial investments held-to-maturity

The fair values of financial investments held-to-maturity are reasonable estimates based on quoted market prices. In the absence of such quoted prices, the fair values are based on the expected cash flows of the instruments discounted by indicative market yields for the similar instruments as at reporting date or the audited net tangible asset of the invested company.


Financing, advances and other financing of the Bank comprise of floating rate financing and fixed rate financing. For performing floating rate financing, the carrying amount is a reasonable estimate of their fair values.

The fair values of performing fixed rate financing are arrived at using the discounted cash flows based on the prevailing market rates of financing, advances and other financing with similar credit ratings and maturities.

The fair values of impaired financing, advances and other financing whether fixed or floating are represented by their carrying values, net of individual and collective allowances, being the reasonable estimate of recoverable amount.

Other assets and liabilities

The carrying value less any estimated allowance for financial assets and liabilities included in other assets and other liabilities are assumed to approximate their fair values as these items are not materially sensitive to the shift in market profit rates.

Deposits from customers, banks and other financial institutions and bills and acceptances payable

The carrying values of deposits and liabilities with maturities of six months or less are assumed to be reasonable estimates of their fair values. Where the remaining maturities of deposits and liabilities are above six months, their estimated fair values are arrived at using the discounted cash flows based on prevailing market rates currently offered for similar remaining maturities.

The estimated fair value of deposits with no stated maturity, which include non-profit bearing deposits, approximates carrying amount which represents the amount payable on demand.

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34 OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

statements of financial position only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. The following table shows the impact of netting arrangement on:

arrangements or similar agreements, but do not qualify for statements of financial position netting.

The table identifies the amounts that have been offset in the statements of financial position and also those amounts that are covered by enforeable netting arrangements (offsetting arrangements and financial collateral) but do not qualify for netting under the requirements of MFRS 132 described above.

strategies are employed in addition to netting and collateral arrangements.

Related amount not offset

Derivative financial assets and liabilities

The ‘Financial instruments’ column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the ISDA Master Agreement or derivative exchange or clearing counterparty agreements, whereby all outstanding transactions with the same counterparty can be offset and close-out netting applied across all outstanding transaction covered by the agreements if an event of default or other predetermined events occur.

Financial collateral refers to cash and non-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by

enabling the collateral to be realised in an event of default or if other predetermined events occur.


2015

Effects of offsetting on the statements of

financial position Related amounts not offset

Gross

amount

RM’000

Amount

offset

RM’000

Net amount

reported on

statement

of financial

position

RM’000

Financial

instruments

RM’000

Financial

collateral

RM’000

Net

amount

RM’000

Financial assets

Derivative financial assets 132 - 132 (126) - 6

Total assets 132 - 132 (126) - 6


Derivative financial liabilities 1,035 - 1,035 (126) - 909

Total liabilities 1,035 - 1,035 (126) - 909

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34 OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES


Effects of offsetting on the statements of financial position Related amounts not offset

GrossamountRM’000

Amount offset

RM’000

Net amount reported on

statement of financial

position RM’000

Financialinstruments

RM’000

Financial collateral

RM’000

Net amount RM’000

Financial assets

Derivative financial assets 12 - 12 (10) - 2

Total assets 12 - 12 (10) - 2


Derivative financial liabilities 34 - 34 (10) - 24

Total liabilities 34 - 34 (10) - 24

35 LEASE COMMITMENTS

The Bank has lease commitments in respect of rented premises and hired equipment, all of which are classified as operating leases. A summary of the future minimum lease payments under non-cancelable operating leases commitments are as follows:


2015

RM’000

2014

RM’000

Within one year 689 783

One year to five years 249 550

36 CAPITAL MANAGEMENT

With effect from 1 January 2013, the total capital and capital adequacy ratios of the Bank are computed in accordance with Bank Negara Malaysia’s Capital Adequacy Framework for Islamic Banks (Capital Components) dated 28 November 2012.

The Bank is currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic Indicator Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s Capital Adequacy Framework for Islamic Banks (Capital Components), the minimum capital adequacy requirement for Common Equity Tier 1 Capital ratio (‘CET 1’) and Tier 1 Capital ratio are 4.5% and 6.0% respectively for year 2015. The minimum regulatory capital adequacy requirement remains at 8.0% (2014 : 8.0%) for Total Capital ratio.

The Bank has adopted and to comply with the Guidelines and are subject to the transition arrangements as set out by BNM.

The Bank’s objectives when managing capital are:

stakeholders; and

The Bank maintains a ratio of total regulatory capital to its risk-weighted assets above a minimum level agreed with the management which takes into account the risk profile of the Bank.

The table in Note 37 below summarises the composition of regulatory capital and the ratios of the Bank for the financial year ended 31 December 2015.

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37 CAPITAL ADEQUACY


2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Paid-up share capital 460,000 360,000 460,000 360,000



Unrealised gains and losses on AFS (10,405) (7,730) (10,405) (7,730)

893,918 721,188 894,568 721,838

Less:

Goodwill and other intangibles (426) (891) (426) (891)

Deferred tax assets (3,598) (2,900) (3,598) (2,900)

Investment in joint ventures - - (260) (130)

CET 1 capital 889,894 717,397 890,284 717,917

Tier I capital 889,894 717,397 890,284 717,917

Collective impairment @ 23,750 21,120 23,750 21,120

Regulatory adjustments 58,400 49,020 58,400 49,020

Less:


Tier II capital 82,150 70,140 81,760 69,620

Total capital 972,044 787,537 972,044 787,537

CET 1 capital ratio 13.197% 12.456% 13.203% 12.465%

Tier 1 capital ratio 13.197% 12.456% 13.203% 12.465%

Total capital ratio 14.415% 13.674% 14.415% 13.674%

CET 1 capital ratio (net of proposed dividends) 13.197% 12.456% 13.203% 12.465%

Tier 1 capital ratio (net of proposed dividends) 13.197% 12.456% 13.203% 12.465%

Total capital ratio (net of proposed dividends) 14.415% 13.674% 14.415% 13.674%

Risk-weighted assets for:

Credit risk 6,336,026 5,390,103 6,336,026 5,390,103

Market risk 3,650 2,590 3,650 2,590

Operational risk 403,377 366,578 403,377 366,578

Total risk-weighted assets 6,743,053 5,759,271 6,743,053 5,759,271

@ Qualifying collective impairment is restricted to allowances on unimpaired portion of the financing, advances and other financing.

In accordance with BNM’s Guidelines on Investment Account, the credit and market risk weighted on the assets funded by the RIA are excluded from calculation of capital adequacy. As at 31 December 2015, RIA assets excluded from Total Capital ratio calculation amounted to RM1,316,026,354 (2014: RM608,590,486).

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38 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The Bank makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. To enhance the information content of the estimates, certain variables that are anticipated to have material impact to the Bank’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Allowance for impairment losses on financing, advances and other financing

The accounting estimates and judgments related to the impairment of financing and provision for off-balance sheet positions is a critical accounting estimate because the underlying assumptions used for both the individually and collectively assessed impairment can change from period to period and may significantly affect the Bank’s results of operations.

In assessing assets for impairment, management judgment is required. The determination of the impairment allowance required for financing which are deemed to be individually significant often requires the use of considerable management judgment concerning such matters as local economic conditions, the financial performance of the counterparty and the value of any collateral held, for which there may not be a readily accessible market. The actual amount of the future cash flows and their timing may differ from the estimates used by management and consequently may cause actual losses to differ from the reported allowances.

The impairment allowance for portfolios of smaller balance homogenous financing, such as those to individuals and small business customers of the private and retail business, and for those financing which are individually significant but for which no objective evidence of impairment exists, is determined on a collective basis. The collective impairment allowance is calculated on a portfolio basis using statistical models which incorporate numerous estimates and judgments, and therefore is subject to estimation uncertainty. The Bank performs a regular review of the models and underlying data and assumptions as far as possible to reflect the current economic circumstances. The probability of default, loss given defaults, and loss identification period, amongst other things, are all taken into account during this review.

Allowance for impairment of investment in joint ventures

Investment in joint ventures are reviewed for impairment annually or whenever events or changes in cirsumstances indicate that the carrying value may not be recoverable. Significant judgment in the estimation of the present value of future cash flows generated by joint ventures, which invloves uncertainties and are significantly affected by assumptions used and judgments made regarding estimates of future cash flows and discount rates. Changes in assumptions could significantly affect the results of the Economy Entity’s test for impairment of investments.

39 CREDIT EXPOSURES ARISING FROM TRANSACTIONS WITH CONNECTED PARTIES

The following credit exposures are based on Bank Negara Malaysia’s revised Guidelines on Credit Transaction and Exposures with Connected Parties, which are effective 1 January 2008.

The Bank

2015 2014

(i) The aggregate value of outstanding credit exposures with connected parties (RM’000) 415,939 452,616

(ii) The percentage of outstanding credit exposures to connected parties as a proportion of total credit exposures 3% 5%

(iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default

Nil Nil

40 APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 3 March 2016.

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We, JEN. TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA) and EN. MOHD SUFFIAN BIN HAJI HARON, two of the Directors of AFFIN ISLAMIC BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 38 to 127 are drawn up so as to give a true and fair view of the state of affairs of the Economic Entity and the Bank as at 31 December 2015 and of the results and cash flows of the Economic Entity and the Bank for the financial year ended on the date in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 1965, in Malaysia.

Signed on behalf of the Board of Directors in accordance with their resolution dated 3 March 2016.

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

Chairman

EN. MOHD SUFFIAN BIN HAJI HARON

Director

I, RAMANATHAN RAJOO, the officer of AFFIN ISLAMIC BANK BERHAD primarily responsible for the financial management of the Economic Entity and the Bank, do solemnly and sincerely declare that in my opinion, the accompanying financial statements set out on pages 38 to 127 are correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

RAMANATHAN RAJOO

Subscribed and solemnly declared by the abovenamed RAMANATHAN RAJOO at Kuala Lumpur in Malaysia on 3 March 2016, before me.

Commissioner for Oaths

STATEMENT BY DIRECTORSPURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965

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

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INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF AFFIN ISLAMIC BANK BERHAD (Incorporated in Malaysia)

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of AFFIN Islamic Bank Berhad on pages 38 to 127 which comprise the statements of financial position as at 31 December 2015 of the Economic Entity and of the Bank, and the statements of income, comprehensive income, changes in equity and cash flows of the Economic Entity and of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on Notes 1 to 39.

Directors’ Responsibility for the Financial Statements

The directors of the Bank are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The directors are also responsible for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Economic Entity and of the Bank as of 31 December 2015 and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report that, in our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank have been properly kept in accordance with the provisions of the Act.

OTHER MATTERS

This report is made solely to the member of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS SOO HOO KHOON YEAN

(No. AF : 1146) (No. 2682/10/17 (J))

Chartered Accountants Chartered Accountant

Kuala Lumpur, Malaysia3 March 2016

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SHARIAH COMMITTEE’S REPORT

In the name of Allah, the Most Beneficent, the Most Merciful

Praise be to Allah, the Lord of the Worlds, and peace and blessings upon our Prophet Muhammad and on his scion and companions

In compliance with the Shariah Governance Framework, Financial Reporting for Islamic Banking Institutions and other relevant guidelines issued by Bank Negara Malaysia, we are required to submit the following report:

We have reviewed the principles and the contracts relating to the transactions and applications offered by AFFIN Islamic Bank Berhad (‘the Bank’) during the period ended 31 December 2015. We have also conducted our review to form an opinion as to whether the Bank has complied with the Shariah principles and with the Shariah rulings issued by the Shariah Advisory Council of Bank Negara Malaysia, as well as Shariah decisions made by us.

The management of the Bank is responsible for ensuring that the financial institution conducts its business in accordance with Shariah principles. It is our responsibility to form an independent opinion, based on the review work carried out by Shariah review and Shariah audit of the Bank and to report to you.

We have assessed the work carried out by Shariah review and Shariah audit which included examining, on a test basis, each type of transaction, the relevant documentation and procedures adopted by the Bank.

We planned and performed our review so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Bank has not violated the Shariah principles.

Interactive sessions and discussions has been conducted with senior management to enhance understanding on Islamic finance with periodic training for staff in order to provide adequate knowledge and competence in undertaking tasks for the business of the Bank.

In our opinion:

1. the contracts, transactions and dealings entered into by the Bank during the year ended 31 December 2015 that we have reviewed are in compliance with the Shariah principles;

2. the allocation of profit and incurrence of losses relating to investment accounts conform to the basis that had been approved by us in accordance with Shariah principles;

3. all earnings that have been realised from sources or by means prohibited by the Shariah principles have been considered for refund or disposal to charitable causes. The total of the earnings for financial year end 31 December 2015 is RM363,945.67 which comprises of refund and charity amount.

The amount is due to cases of early settlement charge imposed on Hire Purchase-i accounts settled upon maturity date and earning of debit card charged at certain merchants that involve mixed of Shariah compliant and Shariah non-compliant products and services. All the processes related to the Shariah non-compliant events have been improved and control measures have been put in place in terms of communication, awareness as well as IT system control.

4. the Shariah non-compliance events discovered were involved the following areas:a. Home Financing-i: a case of absence of customer’s ownership share which the ownership share has been obtained and documented

accordingly; as well as few cases of fire insurance coverage being procured which have been renewed under takaful,b. Hire Purchase-i (HP-i): few cases of erroneous early settlement charges imposed which have been refunded,c. Tawarruq trading process: a case of trading operation not following the standard process in which ratification from customer has been

obtained.

5. the calculation of zakat is in compliance with Shariah principles. The zakat fund has distributed through a various channels i.e. States Zakat Collection Centre, non-government organisation and individuals under asnaf categories of poor, needy, amil, riqab, gharimin and fisabilillah.

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SHARIAH COMMITTEE’S REPORT

We, the members of the Shariah Committee of AFFIN ISLAMIC BANK BERHAD, do hereby confirm that the operations of the Bank for the year ended 31 December 2015 have been conducted in conformity with the Shariah principles.

Chairman of the Shariah Committee:

Associate Professor Dr. Said Bouheraoua

Shariah Committee:

Associate Professor Dr. Ahmad Azam Bin Othman

Shariah Committee:

Associate Professor Dr. Zulkifli Bin Hasan

Shariah Committee:

Ustaz Mohammad Mahbubi Ali

Shariah Committee:

Ustaz Ahmad Alfisyahrin Bin Jamilin

Kuala Lumpur, Malaysia3 March 2016

BASEL II PILLAR 3 DISCLOSURES

1. Introduction

1.1 Background 1.2 Scope of Application

2. Risk Governance Structure

2.1 Overview 2.2 Board Committees 2.3 Management Committees 2.4 Group Risk Management Function 2.5 Internal Audit and Internal Control Activities

3. Capital Management

3.1 Internal Capital Adequacy Assessment Process (‘ICAAP’) 3.2 Capital Structure 3.3 Capital Adequacy

4. Risk Management Objectives and Policies

5. Credit Risk

5.1 Credit Risk Management Objectives and Policies 5.2 Application of Standardised Approach for Credit Risk 5.3 Credit Risk Measurement 5.4 Risk Limit Control and Mitigation Policies 5.5 Credit Risk Monitoring 5.6 Impairment Provisioning 6. Market Risk

6.1 Market Risk Management Objectives and Policies 6.2 Application of Standardised Approach for Market Risk 6.3 Market Risk Measurement, Control and Monitoring 6.4 Value-at-Risk (‘VaR’) 6.5 Foreign Exchange Risk

7. Liquidity Risk

7.1 Liquidity Risk Management Objectives and Policies 7.2 Liquidity Risk Measurement, Control and Monitoring 8. Operational Risk

8.1 Operational Risk Management Objectives and Policies 8.2 Application of Basic Indicator Approach for Operational Risk 8.3 Operational Risk Measurement, Control and Monitoring 8.4 Certification

9. Shariah Compliance

Appendices

133133133

133133134135135136

136136136138

138

138138139139139140141

145145145145146146

146146147

147147147148148

148

149

133

BASEL II PILLAR 3 DISCLOSURESas at 31 December 2015

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1 Introduction

1.1 Background

AFFIN Islamic Bank Berhad (‘the Bank’) adopts Basel II since January 2008 in line with the directive from Bank Negara Malaysia (‘BNM’). The Basel II framework is structured around three fundamental Pillars.

- Pillar 1 defines the minimum capital requirement to ensure that financial institutions hold sufficient capital to cover their exposure to credit, market and operational risks.

- Pillar 2 requires financial institutions to have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.

- Pillar 3 requires financial institutions to establish and implement an appropriate disclosure policy that promotes transparency regarding their risk management practices and capital adequacy positions.

The Bank elected to adopt the following approaches under Pillar 1 requirements:

- Standardised Approach for Credit Risk- Basic Indicator Approach for Operational Risk- Standardised Approach for Market Risk

1.2 Scope of Application

This document contains the disclosure requirements under Pillar 3 for the Bank for the year ended 31 December 2015. The disclosures are made in line with the Pillar 3 disclosure requirements under the Basel II framework as laid out by BNM.

The disclosures should be read in conjunction with the Bank’s 2015 Annual Report for the year ended 31 December 2015.

2 Risk Governance Structure

2.1 Overview

The Board of Directors of the Bank is ultimately responsible for the overall performance of the Bank. The Board’s responsibilities are congruent with the framework of BNM Guidelines. The Board also exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility for determining the Bank’s general policies and strategies for the short, medium and long term, approving business plans, including targets and budgets, and approving major strategic decisions.

The Board has overall responsibility for maintaining the proper management and protection of the Bank’s interests by ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control. The Board also recognises that risks cannot be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk of material errors, fraud or losses occurring. The system of internal controls encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations, policies and guidelines.

The terms of reference of the Board Committees as disclosed in the Annual Report provide an outline of their respective roles and functions. In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operate under approved terms of reference, to assist the Board in discharging their duties. The Chairmen of the various Committees report on the outcome of their Committee meetings to the Board and any further deliberation is made at Board level, if required. These reports and deliberations are incorporated into the Minutes of the Board meetings. The Board meets on a monthly basis.

The Board of the Bank has a balanced composition with a strong independent element. It consists of members with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a mixture of different skills, competencies and experience.

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2.2 Board Committees

Board Remuneration Committee (‘BRC’)

The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors, Chief Executive Officer (CEO) and key senior management officers and ensuring that compensation is competitive and consistent with the Bank’s culture, objectives and strategy.

The Committee obtains advice from experts in compensation and benefits, both internally and externally.

Board Nominating Committee (‘BNC’)

The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and CEO, assessing the effectiveness of individual Directors, the Board as a whole and the performance of the CEO as well as key senior management personnel.

Board Risk Management Committee (‘BRMC’)

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

It has responsibility for approving and reviewing risk management policies and also reviews guidelines and portfolio management reports including risk exposure information.

The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively.

Board Loan Review and Recovery Committee (‘BLRRC’)

The BLRRC is responsible for providing critical review of financing and other credit facilities with higher risk implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise the power to veto financing applications that have been approved by the Group Management Loan Committee (‘GMLC’). BLRRC also reviews the impaired financing reports presented by the Management.

Audit and Examination Committee (‘AEC’)

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

Reliance is placed on the results of independent audits performed primarily by internal auditors, the outcome of statutory audits on financial statements conducted by external auditors and on representations by Management based on their control self-assessment of all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board members for notation and discussion. The Bank has an established Group Internal Audit Division (‘GIA’) which reports functionally to the Audit Committee and administratively to the MD/CEO of AFFIN Bank Berhad.

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2.2 Board Committees (continued)

Shariah Committee

The Shariah Committee is formed as legislated under the Islamic Financial Services Act 2013 and as per Shariah Governance Framework for Islamic Financial Institutions.

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

(i) To advise the Board on Shariah matters to ensure that the business operations of the Bank comply with the Shariah principles at all times;

(ii) To endorse and validate relevant documentation of the Bank’s products to ensure that the products comply with Shariah principles; and

(iii) To advise the Bank on matters to be referred to the Shariah Advisory Council.

2.3 Management Committees

Management Committee (‘MCM’)

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

Group Management Loan Committee (‘GMLC’)

GMLC is established within senior management chaired by the AFFIN Bank Berhad’s MD/CEO to approve complex and larger financing as well as workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel of the Bank.

Asset and Liability Management Committee (‘ALCO’)

ALCO comprising the senior management team chaired by the CEO of AFFIN Islamic Bank, manages the Bank’s asset and liability position as well as oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory basis.

Group Operational Risk Management Committee (‘GORMC’)

GORMC comprising the senior management team chaired by AFFIN Bank Berhad’s MD/CEO, manages the Bank’s Operational Risk by reviewing and ensuring appropriate operational risk programme, process and framework are implemented in the Bank so as to reduce the original capital charge and manage operational risk losses to an acceptable level.

Group Early Alert Committee (‘GEAC’)

GEAC is established within senior management to monitor credit quality through monthly review of the Early Alert, Watchlist and Exit Accounts as well as review the actions taken to address emerging risks and issues in these accounts.

2.4 Group Risk Management Function

An integrated risk management framework is in place. The Group Risk Management (‘GRM’) function, headed by Group Chief Risk Officer (‘GCRO’) and operating in an independent capacity, is part of the Bank’s senior management structure which works closely as a team in managing risks to enhance stakeholders’ value.

GRM reports to BRMC. Committees namely BLRRC, MCM, GMLC, ALCO, GORMC and GEAC assist BRMC in managing credit, market, liquidity and operational risks. The responsibilities of these Committees include risk identification, risk assessment and measurement, risk control and mitigation; and risk monitoring.

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2.5 Internal Audit and Internal Control Activities

In accordance with BNM’s Guidelines on Corporate Governance for Licensed Islamic Banks, GIA conducts continuous reviews on auditable areas within the Bank. The reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance with the audit plan approved by the AEC.

Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on the effectiveness of internal controls maintained by each entity. The risks highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. The AEC also conducts annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.

3 Capital Management

3.1 Internal Capital Adequacy Assessment Process (‘ICAAP’)

In line with the BNM guideline on Risk-Weighted Capital Adequacy Framework - Internal Capital Adequacy Assessment Process (Pillar 2), the Bank has put in place the ICAAP Framework to assess the capital adequacy to ensure that the level of capital maintained by the Bank is adequate at all times, taking into consideration the Bank’s risk profile and business strategies.

The Bank’s capital management approach is focused on maintaining an appropriate level of capital to meet its business needs and regulatory requirements as capital adequacy and risk management are closely aligned. The Bank operates within an agreed risk appetite whilst optimising the use of shareholders’ funds to deliver sustainable returns.

3.2 Capital Structure

With effect from 1 January 2013, the total capital and capital adequacy ratios of the Bank is computed in accordance with Bank Negara Malaysia’s Capital Adequacy Framework for Islamic Banks (Capital Components).

The Bank is currently adopting Standardised Approach for Credit Risk and Market Risk and the Basic Indicator Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s Capital Adequacy Framework for Islamic Banks (Capital Components), the minimum capital adequacy requirement for Common Equity Tier 1 Capital ratio (‘CET 1’) and Tier 1 Capital ratio are 4.5% and 6.0% respectively for year 2015. The minimum regulatory capital adequacy requirement remains at 8.0% (2014 : 8.0%) for Total Capital ratio.

The following table sets forth further details on the capital resources and capital adequacy ratios for the Bank as at 31 December 2015.

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3.2 Capital Structure (continued)


2015

RM’000

2014

RM’000

2015

RM’000

2014

RM’000

Paid-up share capital 460,000 360,000 460,000 360,000



Unrealised gains and losses on AFS (10,405) (7,730) (10,405) (7,730)

893,918 721,188 894,568 721,838

Less:

Goodwill and other intangibles (426) (891) (426) (891)

Deferred tax assets (3,598) (2,900) (3,598) (2,900)


CET 1 capital 889,894 717,397 890,284 717,917

Tier I capital 889,894 717,397 890,284 717,917

Collective impairment 23,750 21,120 23,750 21,120

Regulatory adjustments 58,400 49,020 58,400 49,020

Less:


Tier II capital 82,150 70,140 81,760 69,620

Total capital 972,044 787,537 972,044 787,537

CET 1 capital ratio 13.197% 12.456% 13.203% 12.465%

Tier 1 capital ratio 13.197% 12.456% 13.203% 12.465%

Total capital ratio 14.415% 13.674% 14.415% 13.674%

CET 1 capital ratio (net of proposed dividends) 13.197% 12.456% 13.203% 12.465%

Tier 1 capital ratio (net of proposed dividends) 13.197% 12.456% 13.203% 12.465%

Total capital ratio (net of proposed dividends) 14.415% 13.674% 14.415% 13.674%

Risk-weighted assets for:

Credit risk 6,336,026 5,390,103 6,336,026 5,390,103

Market risk 3,650 2,590 3,650 2,590

Operational risk 403,377 366,578 403,377 366,578

Total risk-weighted assets 6,743,053 5,759,271 6,743,053 5,759,271

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3.3 Capital Adequacy

The Bank’s has in place an internal limit for its CET1 capital ratio, Tier I capital ratio and Total capital ratio, which is guided by the need to maintain a prudent relationship between available capital and the risks of its underlying businesses. The capital management process is monitored by senior management through periodic reviews.

Refer to Appendix I

4 Risk Management Objectives and Policies

The Bank is principally engaged in all aspects of banking and related financial services. There have been no significant changes in these principal activities during the financial year.

The Bank’s business activities involve the analysis, measurement, acceptance, and management of risks and which operates within well defined risk acceptance criteria covering customer segments, industries and products. The Bank does not enter into risk it cannot administer, book, monitor or value, or deal with persons of questionable integrity.

The Bank’s risk management policies are established to identify, assess, measure, control and mitigate all key risks, as well as manage and monitor the risk positions.

The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and best practice in risk management processes. The Bank’s aim is to achieve an appropriate balance between risk and return as well as minimise any potential adverse effects.

The key business risks to which the Bank is exposed to are credit risk, liquidity risk, market risk and operational risk.

5 Credit Risk

5.1 Credit Risk Management Objectives and Policies

Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and contractual obligations to the Bank. Credit risk emanates mainly from financing, advances and other financing, financing commitments arising from such financing activities, as well as through financial transactions with counterparties including interbank money market activities, derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures. Approval authorities are delegated to Senior Management and GMLC to implement the credit policies and ensure sound credit granting standards.

An independent GRM function, headed by Group Chief Risk Officer (‘GCRO’) with direct reporting line to BRMC is in place to ensure adherence to risk standards and discipline.

Financing guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.

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5 Credit Risk

5.2 Application of Standardised Approach for Credit Risk

The Bank uses the following External Credit Assessment Institutions (‘ECAIs’) to determine the risk weights for the rated credit exposures:-

The external ratings of the ECAIs are used to determine the risk weights of the following types of exposure: sovereigns, banks, public sector entities and corporates.

The mapping of the rating categories of different ECAIs to the risk weights is in accordance with BNM guidelines. In cases where there is no issuer or issue rating, the exposures are treated as unrated and accorded a risk weight appropriate for unrated exposure in the respective category.

Refer to Appendix II and Appendices III (i) to III (ii).

5.3 Credit Risk Measurement


Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s underwriting criteria and the ability of the Bank to make a return commensurate with the level of risk undertaken. A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment and decision making process. The Bank has developed internal rating models to support the assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess the risks associated with the credit application. The scorecards are used as a decision support tool at financing origination.

Over-the-Counter (‘OTC’) Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure Method, computation of credit equivalent exposure for profit rate and exchange rate related contracts is derived from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).

5.4 Risk Limit Control and Mitigation Policies

The Bank employs various policies and practices to control and mitigate credit risk.

Financing limits

The Bank establishes internal limits and related financing guidelines to manage large exposures and avoid undue concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on market and economic conditions.

The credit risk exposure for derivative and financing books is managed as part of the overall financing limits with customers together with potential exposure from market movements.

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5 Credit Risk

5.4 Risk Limit Control and Mitigation Policies (continued)

Collateral

Credits are established against customer’s capacity to pay rather than rely solely on security. However, collateral may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

Credit related commitments

Commitment to extend credit represents unutilised portion of approved credit in the form of financing, guarantees or letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than short-term commitments.

Refer to Appendix IV (a) to (b).

5.5 Credit Risk Monitoring

Retail credits are actively monitored and managed on a portfolio basis by product type. A collection management system is in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updated information. This is to ensure that the credit grades remain appropriate and any signs of weaknesses or deterioration in the credit quality are detected. Remedial action is taken where evidence of deterioration emanates.

Early Alert Process is in place to pro-actively identify, report and manage deteriorating credit quality. Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Active portfolio monitoring enables the Bank to understand the overall risk profile and identify any adverse trends or areas of risk concentrations affecting asset quality so that appropriate actions are adopted to manage and mitigate risks.

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5 Credit Risk

5.6 Impairment Provisioning

Individual impairment provisioning

Significant financing, with or without past due status, are subject to individual assessment for impairment when evidence of impairment surfaces or at the very least once annually during the annual review process.

If impaired, the amount of loss is measured as the difference between the asset’s carrying value and the present value of estimated future cash flows discounted at the financial assets original effective profit rate. The level of impairment allowance on significant financing is reviewed regularly, at least quarterly or more often when circumstances require.

Significant financing that are deemed not impaired after individual assessment are included in a group of financing with similar characteristics and collectively assessed for impairment.

Collective impairment provisioning

All financing are grouped in respective business segments according to similar credit risk characteristics and is generally based on industry, asset or collateral type, credit grade and past due status grouped based on business segments.

Portfolio provisioning is determined for each segment based on its respective loss probabilities and other information relevant to estimation of the future cash flows of each segment.

Collective provisioning is applicable to all financing not covered under individual assessment as well as significant financing that are deemed not impaired after individual assessment.

Total financing, advances and other financing - credit quality

Past due financing refer to financing that are overdue by one day or more. Impaired financing are financing with months-in-arrears more than 90 days or with impaired allowances.

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5 Credit Risk

5.6 Impairment Provisioning (continued)

Analysed by economic sectors


Past due financing

2015

RM’000

2014

RM’000

Primary agriculture 865 594

Mining and quarrying 220 200


Electricity, gas and water supply 643 512


Real estate 1,015 27,588

Wholesale & retail trade and restaurants & hotels 6,309 4,388

Transport, storage and communication 2,409 3,224


Education, health and others 18,405 10,133

Household 466,515 421,481

527,629 482,543



2015

RM’000

2014

RM’000

Manufacturing - 2,358

Construction - 28,493

Real estate 34,988 -

Wholesale & retail trade and restaurants & hotels 1,077 -

Household 2,451 668

38,516 31,519


Individual impairment charged

2015

RM’000

2014

RM’000

Manufacturing 25 45

Wholesale & retail trade and restaurants & hotels 1,162 -

Household 2,373 1,463

3,560 1,508


2015 2014

Individual impairment written-off RM’000 RM’000

Manufacturing 2,383 -

Wholesale & retail trade and restaurants & hotels - 1,813

2,383 1,813

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Analysed by economic sectors (continued)



2015

RM’000

2014

RM’000

Primary agriculture 302 380

Mining and quarrying 39 4


Electricity, gas and water supply 166 154


Real estate 1,641 1,102

Wholesale & retail trade and restaurants & hotels 887 798

Transport, storage and communication 850 537


Education, health and others 2,437 1,479

Household 25,664 27,671

36,671 37,393

Analysed by geographical area


Past due financing

2015

RM’000

2014

RM’000

Perlis 844 704

Kedah 42,401 24,286

Pulau Pinang 14,685 12,375

Perak 56,804 51,982

Selangor 154,251 145,077



Melaka 12,874 8,688

Johor 32,084 26,568

Pahang 21,444 23,077


Kelantan 25,727 39,262

Sarawak 2,841 2,050

Sabah 5,491 6,813

Outside Malaysia - 27,274

527,629 482,543

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5 Credit Risk


Analysed by geographical area (continued)



2015

RM’000

2014

RM’000

Selangor 2,423 3,000

Wilayah Persekutuan 1,105 26


38,516 31,519



2015

RM’000

2014

RM’000

Perlis 409 420

Kedah 1,886 1,337

Pulau Pinang 948 844

Perak 3,709 3,799

Selangor 11,784 12,569



Melaka 501 325

Johor 1,759 1,602

Pahang 1,522 1,537


Kelantan 3,091 3,305

Sarawak 272 271

Sabah 277 404

Outside Malaysia 60 56

36,671 37,393

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6 Market Risk

6.1 Market Risk Management Objectives and Policies

Market risk is the potential loss arising from movements in market variables such as profit rates and foreign exchange rates. The exposure to market risk results largely from profit rate and foreign exchange rate risks. The market risk management framework encompasses the following approaches:

conditions. These parameters are reviewed at least annually.

Control Parameters.

on the repricing mismatch, Earnings-at-Risk (‘EaR’) or Net Interest Income (‘NII’) simulation is conducted to assess the variation in short term earnings.

of Equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’).

6.2 Application of Standardised Approach for Market Risk

The Bank adopts the Standardised Approach for the purpose of calculating the capital requirement for market risk.

Refer Appendix I.

6.3 Market Risk Measurement, Control and Monitoring

The Bank’s market risk management control parameters are established based on its risk appetite, market liquidity and business strategies as well as macroeconomic conditions. These parameters are reviewed at least on an annual basis.

Market risk arising from the Bank’s Trading book is primarily controlled through the imposition of Stop-loss and Value-at-Risk (‘VaR’) risk control parameters.

The Bank quantifies profit rate risk by analysing the repricing mismatch between the rate sensitive assets and rate sensitive liabilities. Based on the repricing mismatch, Net Profit Income simulation is conducted to assess the variation in short-term earnings. The potential long term impact of the Bank’s exposures is also tracked by assessing the impact on economic value of equity (‘EVE’), also known as Economic Value-at-Risk (‘EVaR’).

Thresholds are set for Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) respectively.

In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under abnormal market conditions.

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6 Market Risk

6.4 Value-at-Risk (‘VaR’)

Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a Trading portfolio. It measures the risk of losses arising from potential adverse movements in profit rates and foreign exchange rates that could affect values of financial instruments.

The Bank adopts Historical Pricing Simulation Method (‘HPS’) to compute potential loss or Value-at-Risk (‘VaR’) amount. The HPS Method uses the relative change of historical prices to estimate future potential changes in the market value of outstanding positions. The Bank currently adopts 250 simulated business days for its HPS VaR computation. After applying these price changes to the outstanding portfolios, 250 simulated market values for the portfolio are generated and the change in the day-to-day market value is taken as simulated Profit & Loss (‘P&L’) for the portfolio. Since VaR calculates the worst expected loss over a given day horizon and confidence level under normal market condition, the 250 simulated values are sorted from the lowest to the highest simulated P&L. The VaR focuses on the tail of the distribution (i.e the loss figures) at the 99th percentile.

Other risk measures include the following:

(i) Mark-to-Market valuation tracks the current market value of the outstanding financial instruments.

(ii) Stress tests are conducted to quantify market risk arising from abnormal market movements. Stress tests measure the changes in values arising from extreme movements in profit rates and foreign exchange rates based on past experience and simulated stress scenarios.

6.5 Foreign Exchange Risk

The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Thresholds are set on the level of exposure by currency as well as in aggregate for both overnight and intra-day positions and these are monitored daily.

7 Liquidity Risk

7.1 Liquidity Risk Management Objectives and Policies

Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

Liquidity risk management is managed on Group basis. The objective of liquidity risk management is to ensure that there are sufficient funds to meet contractual and regulatory obligations without incurring unacceptable losses as well as to undertake new transactions. The Group’s liquidity management process involves establishing liquidity risk management policies and thresholds, liquidity risk thresholds monitoring, stress testing and establishing contingency funding plans. These building blocks of liquidity risk management are subject to regular reviews to ensure relevance in the context of prevailing market conditions.

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7 Liquidity Risk

7.2 Liquidity Risk Measurement, Control and Monitoring

Liquidity risk monitoring is premised on BNM’s Liquidity Coverage Ratio (‘LCR’) final standards as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’).

The LCR is a quantitative requirement which seeks to ensure that the Bank holds sufficient high-quality liquid assets (‘HQLA’) to withstand an acute liquidity stress scenario over a 30-day horizon. Long term liquidity risk profile is assessed via NSFR which promotes resilience over a longer time horizon for the Bank to fund its activities with more stable sources of funding on an ongoing basis.

The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. Liquidity risk is tracked using internal and external qualitative and quantitative indicators. Liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long term foreign currency funding and adhering to the internal guiding principles for foreign currency assets creations.

The Bank also conducts liquidity stress test to assess the Bank’s resilience to withstand short term liquidity shocks over a 30-day horizon. A Contingency Funding Plan is in place to alert and enable Management to act effectively and efficiently in handling liquidity disruption. The document encompasses early warning system, strategies, decision-making authorities, and courses of actions to be taken in the event of liquidity crisis and emergencies.

Basel III Liquidity Standards

The Basel Committee has developed two minimum standards for funding liquidity to achieve two separate but complementary objectives:

survive a significant stress scenario lasting for one month.

ongoing basis.

The LCR and NSFR are tracked to assess the short term and long term liquidity risk profile of the Bank, in line with BNM’s Liquidity Coverage Ratio (‘LCR’) final standards issued on 31st March 2015 as well as BNM’s revised Basel III Observation Period reporting for Net Stable Funding Ratio (‘NSFR’) and Leverage Ratio (‘LR’) issued on 7th August 2015.

The BRMC is responsible for the Bank’s liquidity policy and the strategic management of liquidity has been delegated to the ALCO. The BRMC is informed regularly on the liquidity position of the Bank.

8 Operational Risk

8.1 Operational Risk Management Objectives and Policies

Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructure or technology or events which are beyond the bank’s immediate control which have an operational impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.

The Bank manages operational risk through a control based environment in which policies and procedures are formulated after taking into account individual unit’s business activities, the market in which it is operating and regulatory requirement in force.

8.2 Application of Basic Indicator Approach for Operational Risk

The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. The capital requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous three years.

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8.3 Operational Risk Reasurement, Control and Monitoring

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational Risk Management process.

The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk Management Process and Board Risk Management Committee. Appropriate preventive and remedial actions are reviewed for effectiveness and implemented to minimize the recurrence of such events.

8.4 Certification

As an internal requirement, all Operational Risk Coordinators must satisfy an internal operational risk (including anti-money laundering/counter financing of terrorism and business continuity management) Certification Program. These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities for the coordinators.

9 Shariah Compliance

Shariah compliance is the fundamental of Islamic banking and finance. It gives legitimacy to the practices and business operations of the Islamic financial institutions (‘IFIs’) concerned. Comprehensive compliance with Shariah principles would also boosts confidence of shareholders and public that all the practices and activities by the IFIs are in compliance with the Shariah principles at all times.

Shariah Governance Framework for Islamic Financial Institutions (the ‘Framework’) issued by Bank Negara Malaysia becomes the main reference to oversee the Shariah governance process within the Bank. In order to comply with all the requirements in the Framework, Board of Directors of the Bank are very committed to ensure among others all the required Shariah compliance and research functions include Shariah Risk Management, Shariah Review, Shariah Research and Shariah Audit are properly established to effectively perform its respective functions.

Continuous training programs are provided to Shariah Committee members to equip them with better understanding and exposure on banking operations and to Board of Directors, management members and staff for fundamental and advanced knowledge on Shariah and Islamic commercial law matters.

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L I

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Appe

ndix

I

151


Affi

n Is

lam

ic B

an

k B

erh

ad (709506-V

) | An

nu

al R

ep

ort 2

015

Disclosure on Capital Adequacy under the Standardised Approach (continued)

Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The Bank’s Capital-at-Risk (‘CaR’) is defined as the amount of the Bank’s capital that is exposed to the risk of unexpected losses arising particularly from movements in profit rates and foreign exchange rates. A CaR reference threshold is set as a management trigger to ensure that the Bank’s capital adequacy is not impinged upon in the event of adverse market movements. The Bank currently adopts BNM’s Standardised Approach for the computation of market risk capital charges. The market risk capital charge addresses among others, capital requirement for market risk which includes the profit rate risk in the Bank’s Trading Book as well as foreign exchange risk in the Trading and Banking Books.

The computation of market risk capital charge covers the following outstanding financial instruments:

a) Foreign Exchange b) Islamic Profit Rate Swap c) Islamic Cross Currency Profit Rate Swap d) Fixed Income Instruments (i.e. Private Debt and Government Securities)

The Bank’s Trading Book Policy Statement stipulates the policies and procedures for including or excluding exposures from the Trading Book for the purpose of calculating regulatory market risk capital.

152

BA

SE

L I

I P

ILLA

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DIS

CLO

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Appe

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153

BA

SE

L I

I P

ILLA

R 3

DIS

CLO

SU

RE

Sas

at 3

1 D

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2015

Affi

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Appe

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154

BA

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L I

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ILLA

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DIS

CLO

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Sas

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Affi

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r one

yea

r 3

12,4

78

156

,239

1

41,5

98

Shor

t Ter

m S

elf L

iqui

datin

g tra

de re

late

d co

ntin

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ies

401

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8

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4 2

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6

Othe

r com

mitm

ents

, suc

h as

form

al s

tand

by fa

cilit

ies

and

cred

it lin

es, w

ith a

n or

igin

al m

atur

ity o

f up

to o

ne y

ear

1,1

81,1

40

236

,228

1

50,3

77

Any

com

mitm

ents

that

are

unc

ondi

tiona

lly c

ance

lled

at a

ny ti

me

by th

e ba

nk w

ithou

t prio

r not

ice

or th

at e

ffect

ivel

y pr

ovid

e fo

r aut

omat

ic c

ance

llatio

n du

e to

det

erio

ratio

n in

a c

usto

mer

’s c

redi

twor

thin

ess

31,

652

-

-

Fore

ign

exch

ange

rela

ted

cont

ract

s

-less

than

one

yea

r 2

4,03

2 1

2 2

3 1

2

Tota

l 2

,112

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1

2 5

58,8

12

400

,552

Appe

ndix

IV

161

BA

SE

L I

I P

ILLA

R 3

DIS

CLO

SU

RE

Sas

at 3

1 D

ecem

ber

2015

Affi

n Is

lam

ic B

an

k B

erh

ad (709506-V

) | An

nu

al R

ep

ort 2

015c

) D

iscl

osu

res o

n M

ark

et

Ris

k -

Pro

fit

Ra

te R

isk

/Ra

te o

f R

etu

rn R

isk

in

th

e B

an

kin

g B

oo

k

Pr

ofit r

ate

risk

is th

e cu

rren

t and

pro

spec

tive

impa

ct to

the

Bank

’s fi

nanc

ial c

ondi

tion

due

to a

dver

se c

hang

es in

the

profi

t rat

es to

whi

ch th

e st

atem

ent o

f fina

ncia

l pos

ition

is e

xpos

ed. T

he o

bjec

tive

of p

rofit

rat

e ris

k m

anag

emen

t is

to a

chie

ve a

sta

ble

and

sust

aina

ble

net p

rofit

inco

me

from

the

pers

pect

ives

of (

1) e

arni

ngs

in th

e ne

xt 1

2 m

onth

s, a

nd (2

) eco

nom

ic v

alue

.

(1)

Next

12

mon

ths’

Ear

ning

s -

Profi

t rat

e ris

k fro

m th

e ea

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ersp

ectiv

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the

impa

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ased

on

chan

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to th

e ne

t pro

fit in

com

e (‘N

PI’)

over

the

next

12

mon

ths.

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s ris

k is

mea

sure

d th

roug

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nsiti

vity

ana

lysi

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clud

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appl

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n in

stan

tane

ous

100

basi

s po

int p

aral

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hock

in p

rofit

rate

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ross

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yiel

d cu

rve.

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Econ

omic

Val

ue -

Mea

surin

g th

e ch

ange

in th

e ec

onom

ic v

alue

of e

quity

(‘EV

E’) i

s an

ass

essm

ent o

f the

long

term

impa

ct to

the

Bank

’s c

apita

l. Th

is is

ass

esse

d th

roug

h th

e ap

plic

atio

n of

rele

vant

dur

atio

n fa

ctor

s to

ca

ptur

e th

e ne

t eco

nom

ic v

alue

impa

ct o

ver t

he lo

ng te

rm o

r tot

al li

fe o

f all

bala

nce

shee

t ass

ets

and

liabi

litie

s to

adv

erse

cha

nges

in p

rofit

rate

s.

Typ

e o

f C

urr

en

cy (

RM

mil

lio

n)

Eco

no

mic

En

tity

an

d T

he B

an

kEc

onom

ic E

ntity

and

The

Ban

k

20

15

20

15

2014

2014

Imp

act

on

Po

sit

ion

s

(10

0 b

asis

po

ints

) P

ara

llel

Sh

ift

Impa

ct o

n Po

sitio

ns(1

00 b

asis

poi

nts)

Par

alle

l Shi

ft

Incre

ase/(

Decl

ine)

in E

arn

ing

s

Incre

ase/(

Decl

ine)

in E

co

no

mic

Va

lue

Incr

ease

/(Dec

line)

in

Ear

ning

sIn

crea

se/(D

eclin

e)in

Eco

nom

ic V

alue

Ring

git M

alay

sia

(1

7.8

) 7

3.0

1

0.6

44.

8

US D

olla

r (

0.6

) -

(0

.4)

-

Othe

rs (*

) (

0.1

) -

-

-

Tota

l (

18

.5)

73

.0

10.

2 4

4.8

* Ot

hers

com

pris

e of

SGD

, JPY

, EUR

, AUD

and

GBP

cur

renc

ies

whe

re th

e am

ount

of e

ach

curr

ency

is re

lativ

ely

smal

l.

Appe

ndix

IV

AFFIN ISLAMIC BANK BERHAD (709506-V)

17th Floor, Menara AFFIN, 80, Jalan Raja Chulan,50200 Kuala LumpurT : 03 2055 9000F : 03 2026 1415www.affinislamic.com.my

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