Bank Islam Holding-financial-statement 2014.pdf

1

BIMB Holdings Berhad (Company No. 423858-X)

(Incorporated in Malaysia)

and its subsidiaries

Directors’ report for the financial year ended

31 December 2014

The Directors have pleasure in submitting their report and the audited financial statements of

the Group and of the Company for the financial year ended 31 December 2014.

Principal activities

The Company is principally engaged as an investment holding company with business

transacted in accordance with Islamic principles, whilst the principal activities of the

subsidiaries are as stated in Note 14 to the financial statements.

There has been no significant change in the nature of these activities during the financial

year.

Results Group

RM’000 Company

RM’000

Profit for the year attributable to:

Owners of the Company 532,329 127,088

Non-controlling interests 54,575 -

586,904 127,088

Reserves and provisions

There were no material transfers to or from reserves and provisions during the financial year

under review except as disclosed in the financial statements.

Issue of shares and debentures

There were no changes in the authorised, issued and paid-up capital of the Company during

the financial year.

There were no debentures issued during the financial year.

Options granted over unissued shares

No options were granted to any person to take up unissued shares of the Company during the

financial year.

2

Company No. 423858-X

Dividends

The amount of dividends paid by the Company since 31 December 2013 are as follows:

RM’000

In respect of the financial year ended 31 December 2013:

Final single tier dividend of 8.50% per ordinary share,

paid on 29 May 2014 126,948

In respect of the financial year ended 31 December 2014:

Interim single tier dividend of 14.70% per ordinary share,

declared on 25 November, ex-date on 12 December 2014,

and paid on 13 January 2015 219,545

_______

346,493

======

The directors do not recommend any final dividend to be paid for the year under review.

Impaired financing

Before the financial statements of the Group and of the Company were made out, the

Directors took reasonable steps to ascertain that proper actions had been taken in relation to

the writing off of bad financing and the making of impairment provisions for impaired

financing, and have satisfied themselves that all known bad financing have been written off

and adequate impairment provisions made for impaired financing.

At the date of this report, the Directors are not aware of any circumstances that would render

the amount written off for bad financing, or the amount of impairment provisions for

impaired financing in the financial statements of the Group and of the Company, inadequate

to any substantial extent.

Current assets

Before the financial statements of the Group and of the Company 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 at their values as shown

in the accounting records of the Group and of the Company have been written down to their

estimated realisable value.

At the date of this report, the Directors are not aware of any circumstances that would render

the values attributed to the current assets in the financial statements of the Group and of the

Company to be misleading.

Valuation methods

At the date of this report, the Directors are not aware of any circumstances which have arisen

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

the Group and of the Company to be misleading or inappropriate.

3


Contingent and other liabilities

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

(a) any charge on the assets of the Group and of the Company which has arisen since the

end of the financial year and which secures the liabilities of any other person, or

(b) any contingent liability in respect of the Group and of the Company that has arisen

since the end of the financial year other than those incurred in the ordinary course of the

business.

No contingent or other liability of any company in the Group has become enforceable, or is

likely to become enforceable within the period of twelve months after the end of the financial

year which, in the opinion of the Directors, will or may substantially affect the ability of the

Group and of the Company 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 that would render any amount stated in the

financial statements of the Group and of the Company misleading.

Items of an unusual nature

The results of the operations of the Group and of the Company for 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 to affect

substantially the results of the operations of the Group and of the Company for the current

financial year in which this report is made.

Significant events during the year

The significant events during the financial year are as disclosed in Note 49 to the financial

statements.

4


Directors

Directors who served since the date of the last report are:

Tan Sri Samsudin bin Osman

Tan Sri Ismail bin Adam

Tan Sri Ismee bin Ismail

Datuk Zaiton binti Mohd Hassan

Datuk Rozaida binti Omar

Rifina binti Md Ariff

Zahari @ Mohd Zin bin Idris

Salih Amaran bin Jamiaan

Dato’ Johan bin Abdullah (resigned as Non-Independent Executive Director w.e.f

15.01.2015 and appointed as Non-Independent Non-

Executive Director w.e.f 17.02.2015)

Directors’ interests in shares

The interests and deemed interests in the shares and options over shares of the Company and

of its related corporations (other than wholly-owned subsidiaries) of those who were

Directors at financial year end (including the interests of the spouses or children of the

Directors who themselves are not Directors of the Company) as recorded in the Register of

Directors’ shareholdings are as follows: Number of ordinary shares of RM1 each

At At

1 January 31 December

2014 Bought Sold 2014

Interest in the Company:

Salih Amaran bin Jamiaan

- others 14,000 3,000 - 17,000

___________________________________

14,000 3,000 - 17,000

================================

None of the other Directors holding office at 31 December 2014 had any interest in the shares

and options over shares of the Company and of its related corporations during the financial

year.

5


Directors’ benefits

Since the end of the previous financial year, no Director of the Company has received nor

become entitled to receive any benefit (other than benefits included in the aggregate amount

of emoluments received or due and receivable by the Directors as shown in the financial

statements or the fixed salary of a full time employee of the Company or of related

corporations) by reason of a contract made by the Company or a related corporation with the

Director or with a company of which the Director is a member, or with a firm in which the

Director has a substantial financial interest.

There was no arrangement during and at the end of the financial year which had the object of

enabling Directors of the Company to acquire benefits by means of the acquisition of shares

in or debentures of the Company or any other body corporate.

Auditors

The auditors, Messrs KPMG Desa Megat & Co., have indicated their willingness to accept

re-appointment.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

…………………………………


…………………………………

Dato’ Johan bin Abdullah

Kuala Lumpur,

Date: 31 March 2015

6




Statements of Financial Position as at 31 December 2014

Group Company

As at As at

31.12.2014 31.12.2013 31.12.2014 31.12.2013

Note RM’000 RM’000 RM’000 RM’000

Assets Cash and short-term funds 3 3,898,172 3,953,896 123,566 149,559

Deposits and placements with

financial institutions 4 721,324 701,302 - -

Financial assets held-for-trading 5 1,165,590 1,405,198 - -

Derivative financial assets 6 62,541 29,118 - -

Financial assets available-for-sale 7 13,815,889 16,536,010 18,559 17,860

Financial assets held-to-maturity 8 547,258 467,935 - -

Financing, advances and others 9 29,524,571 23,740,948 - -

Other assets 10 580,985 250,801 1,189 2,451

Takaful assets 11 811,051 753,089 - -

Statutory deposits with

Bank Negara Malaysia 12 1,335,000 1,297,100 - -

Current tax assets 41,872 9,448 510 45

Deferred tax assets 13 65,816 69,191 10 10

Investments in subsidiaries 14 - - 4,707,615 4,647,369

Investments in associates 15 1 1 1 1

Property, plant and equipment 16 446,933 436,578 1,431 2,058

Investment properties 17 11,506 16,721 - -

Assets classified as held for sale 18 1,696 7,209 - - ____________ ____________ ___________ ___________

Total assets 53,030,205 49,674,545 4,852,881 4,819,353

======== ======== ======= =======

7




Statements of Financial Position as at 31 December 2014

(continued)

Group Company

As at As at

31.12.2014 31.12.2013 31.12.2014 31.12.2013

Note RM’000 RM’000 RM’000 RM’000

Liabilities and equity Deposits from customers 19 40,678,379 36,924,367 - -

Deposits and placements of banks

and other financial institutions 20 300,000 1,529,975 - -

Derivative financial liabilities 6 32,407 13,565 - -

Bills and acceptances payable 127,524 170,598 - -

Other liabilities 21 1,195,304 774,566 221,541 12,025

Takaful liabilities 22 6,323,577 6,082,001 - -

Sukuk liabilities 23 1,133,256 1,089,935 1,133,256 1,089,935

Zakat and taxation 50,498 39,598 - - ____________ ____________ ___________ ___________

Total liabilities 49,840,945 46,624,605 1,354,797 1,101,960

------------- ------------- ------------ ------------

Equity Share capital 24 1,493,506 1,493,506 1,493,506 1,493,506

Reserves 25 1,455,531 1,316,831 2,004,578 2,223,887 ____________ ____________ ___________ ___________

Equity attributable to owners

of the Company 2,949,037 2,810,337 3,498,084 3,717,393

Non-controlling interests 240,223 239,603 - - ____________ ____________ ___________ ___________

Total equity 3,189,260 3,049,940 3,498,084 3,717,393

------------- ------------- ------------ ------------

Total liabilities and equity 53,030,205 49,674,545 4,852,881 4,819,353

======== ======== ======= =======

Commitments and contingencies 48 12,135,967 11,211,680 - -

======== ======== ======= =======

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

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and its subsidiaries 1

Statements of Profit or Loss and Other Comprehensive

Income for the financial year ended 31 December 2014

Group Company

2014 2013 2014 2013

Note RM’000 RM’000 RM’000 RM’000

Income derived from investment

of depositors’ funds 27 2,032,085 1,851,278 - -

Income derived from investment

of shareholders’ funds 28 392,585 405,059 207,727 283,574

Net income from Takaful business 29 542,803 553,058 - -

Reversal of/(Allowance for)

impairment on financing

and advances 30 (59,993) 15,009 - -

(Allowance for)/Reversal of

impairment on investments 31 2,978 (9,211) - -

Reversal of impairment on

other assets 710 5,570 - -

Direct expenses (17,966) (25,773) - - __________ __________ __________ __________

Total distributable income 2,893,202 2,794,990 207,727 283,574

Income attributable to depositors 32 (845,001) (772,801) - - __________ __________ __________ __________

Total net income 2,048,201 2,022,189 207,727 283,574

Personnel expenses 33 (599,052) (593,921) (7,745) (7,219)

Other overhead expenses 34 (565,543) (605,143) (4,350) (24,414) __________ __________ __________ __________

883,606 823,125 195,632 251,941

Finance cost (68,222) (3,349) (68,222) (3,349)

Share of results of associate

company, net of tax - (349) - - __________ __________ __________ __________

Profit before zakat and tax 815,384 819,427 127,410 248,592

Zakat (13,202) (14,108) - -

Tax expense 36 (215,278) (242,165) (322) (56,461) __________ __________ __________ __________

Profit for the year 586,904 563,154 127,088 192,131

======= ======= ======= =======

Attributable to:

Owners of the Company 532,329 279,327 127,088 192,131

Non-controlling interests 54,575 283,827 - - __________ __________ __________ __________


======= ======= ======= =======

Earnings per share (sen) 37 35.64 25.84

======= =======

Dividend per ordinary share-net (sen) 38 23.20 8.50

======= =======

9




Statements of Profit or Loss and Other Comprehensive

Income for the financial year ended 31 December 2014

(continued)

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000


======= ======= ======= =======

Other comprehensive income, net of tax

Items that may be reclassified

subsequently to profit or loss:

Currency translation differences

in respect of foreign operations (18,041) (27,843) - -

Fair value reserve:

Net change in fair value (7,198) (113,172) 699 571

Net amount transferred to profit or loss (24,553) (14,547) (603) (749)

________ ________ ________ ________

Other comprehensive income for

the year, net of tax (49,792) (155,562) 96 (178)

------------ ------------ ------------ ------------

Total comprehensive income for

the year 537,112 407,592 127,184 191,953

======= ======= ======= =======

Total comprehensive income

attributable to:

Owners of the Company 481,507 202,346 127,184 191,953

Non-controlling interests 55,605 205,246 - -

________ ________ ________ ________

Total comprehensive income

for the year 537,112 407,592 127,184 191,953

======= ======= ======= =======


10




Statements of Changes in Equity for the financial year ended 31 December 2014 Attributable to owners of the Company

Non-distributable Distributable

Retained Earnings/

Share Share Other (Accumulated Non-controlling Total

capital premium reserves Losses) Total interests equity

Group Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2013 1,066,790 603,630 428,433 (18,078) 2,080,775 1,747,615 3,828,390

Profit for the year - - - 279,327 279,327 283,827 563,154

Other comprehensive income

Currency translation differences in respect

of foreign operations - - (12,052) - (12,052) (15,791) (27,843)

Fair value reserve:

Net change in fair value - - (56,440) - (56,440) (56,732) (113,172)

Net amount reclassified to profit or loss - - (8,489) - (8,489) (6,058) (14,547)

Total comprehensive income for the year - - (76,981) 279,327 202,346 205,246 407,592

Transfer to statutory reserve - - 125,370 (125,370) - - -

Issue of shares and warrants 426,716 1,257,527 129,300 - 1,813,543 - 1,813,543

Share issue expense - (1,529) - - (1,529) - (1,529)

Dividends paid to shareholders 38 - - - (90,677) (90,677) - (90,677)

Dividends paid to non-controlling interests - - - - - (58,315) (58,315)

Disposal of interest in subsidiary - - - 4,406 4,406 3,551 7,957

Acquisition of interest in subsidiary - - (1,199,747) - (1,199,747) (1,659,290) (2,859,037)

Share-based payment transactions - - 1,220 - 1,220 796 2,016 _______________________________________________________________________________________

At 31 December 2013 1,493,506 1,859,628 (592,405) 49,608 2,810,337 239,603 3,049,940

================================================================= Note 24 Note 25.2


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Statements of Changes in Equity for the financial year ended 31 December 2014

(continued) Attributable to owners of the Company


Retained Earnings/

Share Share Other (Accumulated Non-controlling Total

capital premium reserves Losses) Total interests equity

Group Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2014 1,493,506 1,859,628 (592,405) 49,608 2,810,337 239,603 3,049,940

Profit for the year - - - 532,329 532,329 54,575 586,904

Other comprehensive income

Currency translation differences in

respect of foreign operations - - (21,906) - (21,906) 3,865 (18,041)

Fair value reserve:

Net change in fair value - - (5,609) - (5,609) (1,589) (7,198)

Net amount reclassified to profit or loss - - (23,307) - (23,307) (1,246) (24,553)

Total comprehensive income for the year - - (50,822) 532,329 481,507 55,605 537,112

Transfer to statutory reserve - - 254,517 (254,517) - - -

Dividends paid to shareholders 38 - - - (346,493) (346,493) - (346,493)

Dividends paid to non-controlling interests - - - - - (51,603) (51,603)

Disposal of interest in subsidiary - - - 1,807 1,807 694 2,501

Share-based payment transactions - - 2,903 - 2,903 1,911 4,814

Long Term Incentive Plan exercised - - (1,024) - (1,024) 1,024 -

Distributions to non-controlling interests - - - - - (7,011) (7,011)

_______________________________________________________________________________

At 31 December 2014 1,493,506 1,859,628 (386,831) (17,266) 2,949,037 240,223 3,189,260

=======================================================================

Note 24 Note 25.2


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Statements of Changes in Equity for the financial year

ended 31 December 2014 (continued) Attributable to owners of the Company


Share Share Warrant Fair value Retained Total

capital premium reserves reserves earnings equity

Company Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2013 1,066,790 603,630 - 133 133,550 1,804,103

Profit for the year - - - - 192,131 192,131

Other comprehensive

income

Fair value reserve:

Net change in fair value - - - 571 - 571

Net amount reclassified

to profit or loss - - - (749) - (749)

Total comprehensive

income for the year - - - (178) 192,131 191,953

Issue of shares and warrants 426,716 1,257,527 129,300 - - 1,813,543

Share issue expenses - (1,529) - - - (1,529)

Dividends paid to

shareholders 38 - - - - (90,677) (90,677)

_________________________________________________________

At 31 December 2013/

1 January 2014 1,493,506 1,859,628 129,300 (45) 235,004 3,717,393

Profit for the year - - - - 127,088 127,088

Other comprehensive

income

Fair value reserve:

Net change in fair value - - - 699 - 699

Net amount reclassified

to profit or loss - - - (603) - (603)

Total comprehensive

income for the year - - - 96 127,088 127,184

Dividends paid to

shareholders 38 - - - - (346,493) (346,493)

_________________________________________________________

At 31 December 2014 1,493,506 1,859,628 129,300 51 15,599 3,498,084

===================================================

Note 24


13




Statements of Cash Flows for the financial year ended

31 December 2014

Group Company 2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Cash flows from operating activities

Profit before zakat and tax 815,384 819,427 127,410 248,592

Adjustments for:

Depreciation 61,235 60,623 681 675

(Reversal)/impairment losses on financial

assets available-for-sale (106) 9,537 - -

Reversal of impairment losses

on financial assets held-to-maturity (2,872) (326) - -

Reversal of impairment on other assets (710) (5,570) - -

Collective assessment allowance 162,878 141,621 - -

Individual assessment allowance 34,055 79,103 - -

Dividends from securities (44,771) (51,705) (603) (749)

Dividends from subsidiaries - - (201,610) (270,285)

Loss/(Gain) on disposal of property,

plant and equipment 1,394 1,514 - (2)

Gain on disposal of investment properties (2,639) - - -

Gain on disposal of assets held for sale (169) 680 - -

Net loss/(gain) on sale of financial

assets held-for-trading 3,262 9,449 - -

Net gain on sale of financial assets

available-for-sale (66,628) (159,298) - -

Fair value gain on financial assets

held-for-trading (12,840) (12,725) - -

Share of losses of associate

companies - 349 - -

Net derivative losses/(gains) 2,370 (9,163) - -

Property, plant and equipment

write off 52 4,659 - -

Gain on disposal of interest in subsidiary - - (2,305) (6,900)

Loss on redemption on financial

assets held-to-maturity - 459 - -

Finance cost 68,222 3,349 68,222 3,349

________ ________ ________ _______

Operating profit/(loss) before working

capital changes 1,018,117 891,983 (8,205) (25,320)

------------ ------------ ------------ ----------

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31 December 2014 (continued)

Group Company 2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Operating profit/(loss) before working

capital changes 1,018,117 891,983 (8,205) (25,320)

Changes in working capital:


and other financial institutions (1,229,975) 669,697 - -

Financing of customers (5,980,556) (4,453,873) - -

Statutory deposits with Bank

Negara Malaysia (37,900) (237,200) - -

Other assets (422,556) (3,328) 1,262 7,996

Deposits from customers 3,754,012 4,545,367 - -

Other liabilities 464,055 416,803 (10,030) 10,567

Bills payable (43,074) (214,540) - -

________ ________ _______ _______

Cash generated (used in)/from operations (2,477,877) 1,614,909 (16,973) (6,757)

Zakat paid (13,745) (10,277) - -

Tax paid (231,920) (215,716) (787) -

Tax refund 341 2,804 - 2,714

________ ________ _______ _______

Net cash generated (used in)/from

operating activities (2,723,201) 1,391,720 (17,760) (4,043)

------------ ------------ ---------- ----------

Cash flows from investing activities

Net proceeds from disposal of securities 2,927,839 801,134 - -

Purchase of property, plant and

equipment (74,891) (47,066) (54) (144)

Proceeds from disposal of property,

plant and equipment 694 820 - 2

Proceeds from disposal of investment

properties 7,710 - - -

Proceeds from disposal of assets held

for sale 7,378 3,110 - -

Dividends from securities 44,771 51,705 - -

Dividends from subsidiaries - - 201,610 213,528

Disposal of investment in subsidiary 2,501 7,957 2,501 7,957

Acquisition of non-controlling interests - (2,859,037) - (2,859,037)

Subscription of ordinary shares pursuant to

Dividend Reinvestment Plan - - (60,442) (84,956)

________ ________ ________ ________

Net cash generated from/(used in)

investing activities 2,916,002 (2,041,377) 143,615 (2,722,650)

------------ ------------ ------------ ------------


15



31 December 2014 (continued)

Group Company 2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Cash flows from financing activities

Dividends paid by holding company (126,948) (90,677) (126,948) (90,677)

Dividends paid to non-controlling interests (51,603) (58,315) - -

Distributions non-controlling interests (7,011) - - -

Payment of coupon on Sukuk (24,900) - (24,900) -

Proceeds from share issues - 1,813,543 - 1,813,543

Share issue expenses - (1,529) - (1,529)

Proceeds from issuance of Islamic Securities

by Company - 1,086,586 - 1,086,586

________ ________ ________ _______

Net cash (used in)/generated from

financing activities (210,462) 2,749,608 (151,848) 2,807,923

------------ ------------ ------------ ----------

Net (decrease)/increase in cash and

cash equivalents (17,661) 2,099,951 (25,993) 81,230

Cash and cash equivalents at 1 January 4,655,198 2,583,090 149,559 68,329

Foreign exchange differences (18,041) (27,843) - -

________ ________ _______ _______

Cash and cash equivalents at 31 December 4,619,496 4,655,198 123,566 149,559

======= ======= ====== ======

Cash and cash equivalents comprise:

Cash and short-term funds 3,898,172 3,953,896 123,566 149,559

Deposits and placements with financial

institutions 721,324 701,302 - -

________ ________ _______ _______

4,619,496 4,655,198 123,566 149,559

======= ======= ====== ======


16




Notes to the financial statements

for the financial year ended 31 December 2014

1. Principal activities and general information

BIMB Holdings Berhad is a public limited liability company, incorporated and

domiciled in Malaysia and listed on the Main Market of Bursa Malaysia Securities

Berhad. The address of its registered office and principal place of business is as follows:

Registered office and principal place of business

31st Floor, Menara Bank Islam

No. 22, Jalan Perak

50450 Kuala Lumpur

The consolidated financial statements for the financial year ended 31 December 2014

comprise the Company and its subsidiaries (together referred to as the “Group”) and the

Group’s interest in an associate.

The Company is principally engaged in investment holding activities while the other

Group entities are primarily involved in Islamic banking business, managing family and

general takaful, and stock-broking businesses.

The ultimate holding corporation of the Company during the financial year is Lembaga

Tabung Haji (“LTH”), a statutory body established under the Tabung Haji Act 1995

(Act 535).

These financial statements were authorised for issue by the Board of Directors on 31

March 2015.

17


2. Summary of significant accounting policies

The accounting policies set out below have been applied consistently to all the periods

presented in these financial statements and have been applied consistently by Group

entities, unless otherwise stated.

2.1 Basis of preparation

(a) Statement of compliance

The financial statements of the Group and of the Company have been prepared in

accordance with Malaysian Financial Reporting Standards (“MFRS”),

International Financial Reporting Standards (“IFRS”), the requirements of the

Companies Act, 1965 in Malaysia.

The following are accounting standards, amendments and interpretations that have

been issued by the Malaysian Accounting Standards Board (“MASB”) but have

not been adopted by the Group and the Company:

MFRSs, Interpretations and Amendments effective for annual periods

beginning on or after 1 July 2014

Amendments to MFRS 1, First-time Adoption of Malaysian Financial

Reporting Standards (Annual Improvements 2011-2013 Cycle)

Amendments to MFRS 2, Share-based Payment (Annual Improvements 2010-

2012 Cycle)

Amendments to MFRS 3, Business Combinations (Annual Improvements

2010-2012 Cycle and 2011-2013 Cycle)

Amendments to MFRS 8, Operating Segments (Annual Improvements 2010-

2012 Cycle)

Amendments to MFRS 13, Fair Value Measurement (Annual Improvements

2010-2012 Cycle and 2011-2013 Cycle)

Amendments to MFRS 116, Property, Plant and Equipment (Annual

Improvements 2010-2012 Cycle)

Amendments to MFRS 119, Employee Benefits - Defined Benefits Plans:

Employee Contributions

Amendments to MFRS 124, Related Party Disclosures (Annual Improvements

2010-2012 Cycle)

Amendments to MFRS 138, Intangible Assets (Annual Improvements 2010-

2012 Cycle)

Amendments to MFRS 140, Investment Property (Annual Improvements

2011-2013 Cycle)

18


2. Summary of significant accounting policies (continued)

2.1 Basis of preparation (continued)

(a) Statement of compliance (continued)


beginning on or after 1 January 2016

Amendments to MFRS 5, Non-current Assets Held for Sale and Discontinued

Operations (Annual Improvements 2012-2014 Cycle)

Amendments to MFRS 7, Financial Instruments: Disclosures (Annual


Amendments to MFRS 10, Consolidated Financial Statements and MFRS

128, Investments in Associates and Joint Ventures – Sale or Contribution of

Assets between an Investor and its Associate or Joint Venture

Amendments to MFRS 10, Consolidated Financial Statements and MFRS 12,

Disclosure of Interests in Other Entities and MFRS 128, Investments in

Associates and Joint Ventures – Investment Entities: Applying the

Consolidation Exception

Amendments to MFRS 11, Joint Arrangements – Accounting for Acquisitions

of Interests in Joint Operations

MFRS 14, Regulatory Deferral Accounts

Amendments to MFRS 101, Presentation of Financial Statements –

Disclosure Initiative

Amendments to MFRS 116, Property, Plant and Equipment and MFRS 138,

Intangible Assets – Clarification of Acceptable Methods of Depreciation and

Amortisation

Amendments to MFRS 116, Property, Plant and Equipment and MFRS 141,

Agriculture – Agriculture: Bearer Plants

Amendments to MFRS 119, Employee Benefits (Annual Improvements 2012-

2014 Cycle)

Amendments to MFRS 127, Separate Financial Statements – Equity Method

in Separate Financial Statements

Amendments to MFRS 134, Interim Financial Reporting (Annual




MFRS 15, Revenue from Contracts with Customers



MFRS 9, Financial Instruments (2014)

19




(a) Statement of compliance (continued)

The Group and the Company plan to apply the abovementioned standards,

amendments and interpretations:

from the annual period beginning on 1 January 2015 for those accounting

standards, amendments or interpretation that are effective for annual periods

beginning on or after 1 July 2014, except for Amendments to MFRS 1 and

Amendments to MFRS 138 which are not applicable to the Group and the

Company.


standards, amendments or interpretations that are effective for annual periods

beginning on or after 1 January 2016, except for Amendments to MFRS 11

and MFRS 14 which are not applicable to the Group and the Company.



beginning on or after 1 January 2017.



beginning on or after 1 January 2018.

The initial application of the accounting standards, amendments or interpretations

are not expected to have any material financial impacts to the current period and

prior period financial statements of the Group and of the Company except as

mentioned below:

MFRS 15, Revenue from Contracts with Customers

MFRS 15 replaces the guidance in MFRS 111, Construction Contracts, MFRS

118, Revenue, IC Interpretation 13, Customer Loyalty Programmes, IC

Interpretation 15, Agreements for Construction of Real Estate, IC Interpretation

18, Transfers of Assets from Customers and IC Interpretation 131, Revenue -

Barter Transactions Involving Advertising Services.

The Group is currently assessing the financial impact that may arise from the

adoption of MFRS 15.

MFRS 9, Financial Instruments

MFRS 9 replaces the guidance in MFRS 139, Financial Instruments: Recognition

and Measurement on the classification and measurement of financial assets and

financial liabilities, and on hedge accounting.

The Group is currently assessing the financial impact that may arise from the

adoption of MFRS 9.

20




(b) Basis of measurement

The financial statements have been prepared on the historical cost basis other than

as disclosed in Note 2.

(c) Functional and presentation currency

These financial statements are presented in Ringgit Malaysia (“RM”), which is the

Group’s and the Company’s functional currency. All financial information

presented in RM has been rounded to the nearest thousand (RM’000), unless

otherwise stated.

(d) Use of estimates and judgements

The preparation of the financial statements in conformity with MFRSs requires

management to make judgements, estimates and assumptions that affect the

application of accounting policies and the reported amounts of assets, liabilities,

income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the

estimates are revised and in any future periods affected.

Significant areas of estimation, uncertainty and critical judgements used in

applying accounting policies that have significant effect in determining the

amount recognised in the financial statements are described in the following note:

Note 2.5 – Financial instruments: Determination of fair value

Note 2.10 – Impairment

Note 2.13 – General Takaful Fund

– Provision for outstanding claims

– Expense reserves

Note 2.14 – Family Takaful Fund

– Actuarial reserves

– Provision for outstanding claims

– Expenses reserves

Note 2.21 – Deferred tax assets

2.2 Basis of consolidation

(a) Subsidiaries

Subsidiaries are entities, including structured entities, controlled by the Company.

The financial statements of subsidiaries are included in the consolidated financial

statements from the date that control commences until the date that control ceases.

21



2.2 Basis of consolidation (continued)

(a) Subsidiaries (continued)

The Group controls an entity when it is exposed, or has rights, to variable returns

from its involvement with the entity and has the ability to affect those returns

through its power over the entity. Potential voting rights are considered when

assessing control only when such rights are substantive. The Group also considers

it has de facto power over an investee when, despite not having the majority of

voting rights, it has the current ability to direct the activities of the investee that

significantly affect the investee’s return.

Investments in subsidiaries are measured in the Company’s statement of financial

position at cost less any impairment losses, unless the investment is classified as

held for sale or distribution. The cost of investments includes transaction costs.

(b) Business combinations

Business combinations are accounted for using the acquisition method from the

acquisition date, which is the date on which control is transferred to the Group.

For new acquisitions, the Group measures the cost of goodwill at the acquisition

date as:

The fair value of the consideration transferred; plus

The recognised amount of any non-controlling interest in the acquiree; plus

If the business combination is achieved in stages, the fair value of the existing

equity interest in the acquiree; less

The net recognised amount (generally fair value) of the identifiable assets

acquired and liabilities assumed

When the excess is negative, a bargain purchase gain is recognised immediately in

the profit or loss.

For each business combination, the Group elects whether it measures the non-

controlling interests in the acquiree either at fair value or at proportionate share of

the acquiree’s identifiable net assets at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity

securities, that the Group incurs in connection with a business combination are

expensed as incurred.

22




(c) Acquisition or disposal of non-controlling interest

The Group accounts for all changes in its ownership interest in subsidiary that do

not result in loss of control as equity transactions between the Group and its non-

controlling interest holders. Any difference between the Group’s share of net

assets before and after the change, and any consideration received or paid, is

adjusted to or against Group reserves.

(d) Acquisition from entities under common control

Business combinations arising from transfers of interest in entities that are under

the control of the shareholder that controls the Group are accounted for as if the

acquisition had occurred at the beginning of the earliest comparative period

presented or, if later, at the date that common control was established; for this

purpose comparatives are restated. The assets and liabilities acquired are

recognised at the carrying amounts recognised previously in the Group controlling

shareholder’s consolidated financial statements. The components of equity of the

acquired entities are added to the same components within Group equity and any

resulting gain/loss is recognised directly in equity.

(e) Loss of control

Upon the loss of control of a subsidiary, the Group derecognises the assets and

liabilities of the subsidiary, any non-controlling interests and the other

components of equity related to the subsidiary. Any surplus or deficit arising on

the loss of control is recognised in the profit or loss. If the Group retains any

interest in the previous subsidiary, then such interest is measured as fair value at

the date that control is lost. Subsequently, it is accounted for as an equity-

accounted investee or as a financial asset available-for-sale depending on the level

of influence retained.

(f) Associates

Associates are entities, including unincorporated entities, in which the Group has

significant influence, but not control, over the financial and operating policies.

Investments in associates are accounted for in the Group’s consolidated financial

statements using the equity method less any impairment losses. The cost of

investment includes transaction costs. The consolidated financial statements

include the Group’s share of the profit or loss and other comprehensive income of

the associates, after adjustments, if any, to align the accounting policies with those

of the Group, from the date that significant influence commences until the date

that significant influence ceases.

23




(f) Associates (continued)

When the Group’s share of losses exceeds its interest in an associate company,

the carrying amount of that interest including any long-term investments, is

reduced to zero, and the recognition of further losses is discontinued except to the

extent that the Group has an obligation or has made payments on behalf of the

associate.

When the Group ceases to have significant influence over an associate, any

retained interest in the former associate at the date when significant influence is

lost is measured at fair value and this amount is regarded as the initial carrying

amount of a financial asset. The difference between the fair value of any retained

interest plus proceeds from the interest disposed of and the carrying amount of the

investment at the date when equity method is discontinued is recognised in the

profit or loss.

When the Group’s interest in an associate decreases but does not result in a loss of

significant influence, any retained interest is not re-measured. Any gain or loss

arising from the decrease in interest is recognised in profit or loss. Any gains or

losses previously recognised in other comprehensive income are also reclassified

proportionately to profit or loss, if that gain or loss would be required to be

reclassified to profit or loss, on the disposal of the related assets or liabilities.

Investments in associates are measured in the Company’s statement of financial

position at cost less impairment losses, unless the investment is classified as held

for sale or distribution. The cost of investment includes transaction costs.

(g) Non-controlling interests

Non-controlling interests at the end of the reporting period, being the equity in a

subsidiary not attributable directly or indirectly to the equity holders of the

Company, are presented in the consolidated statement of financial position and

statement of changes in equity, within equity, separately from equity attributable

to the owners of the Company. Non-controlling interests in the results of the

Group is presented in the consolidated statement of profit or loss and other

comprehensive income as an allocation of the profit or loss and the

comprehensive income for the year between non-controlling interests and the

owners of the Company.

Losses applicable to the non-controlling interests in a subsidiary are allocated to

the non-controlling interests even if doing so causes the non-controlling interests

to have a deficit balance.

24




(h) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses

arising from intra-group transactions, are eliminated in preparing the consolidated

financial statements.

Unrealised gains arising from transactions with associates are eliminated against

the investment to the extent of the Group’s interest in the investees. Unrealised

losses are eliminated in the same way as unrealised gains, but only to the extent

that there is no evidence of impairment.

2.3 Foreign currency

(a) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional

currencies of Group entities at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the end of the

reporting period are retranslated to the functional currency at the exchange rate at

that date.

Non-monetary assets and liabilities denominated in foreign currencies are not

retranslated at the end of the reporting date, except for those that are measured at

fair value are retranslated to the functional currency at the exchange rate at the date

that the fair value was determined.

Foreign currency differences arising on retranslation are recognised in profit or

loss, except for differences arising on the retranslation of available-for-sale equity

instruments or a financial instrument designated as a hedge of currency risk, which

are recognised in other comprehensive income.

In the consolidated financial statements, when settlement of a monetary item

receivable from or payable to a foreign operation is neither planned nor likely to

occur in the foreseeable future, foreign exchange gains and losses arising from

such a monetary item are considered to form part of a net investment in a foreign

operation and are recognised in other comprehensive income, and are presented in

the foreign currency translation reserve (“FCTR”) in equity.

25



2.3 Foreign currency (continued)

(b) Operations denominated in functional currencies other than

Ringgit Malaysia

The assets and liabilities of operations denominated in functional currencies other

than RM, including fair value adjustments arising on acquisition, are translated to

RM at exchange rates at the end of the reporting period. The income and expenses

of foreign operations are translated to RM at exchange rates at the dates of the

transactions.

Foreign currency differences are recognised in other comprehensive income and

accumulated in the FCTR in equity. However, if the operation is a non-wholly-

owned subsidiary, then the relevant proportionate share of the translation

difference is allocated to the non-controlling interests. When a foreign operation

is disposed of such that control, significant influence or joint control is lost, the

cumulative amount in the FCTR related to that foreign operation is reclassified to

profit or loss as part of the profit or loss on disposal.

When the Group disposes of only part of its interest in a subsidiary that includes a

foreign operation, the relevant proportion of the cumulative amount is reattributed

to non-controlling interests. When the Group disposes of only part of its

investment in an associate or joint venture that includes a foreign operation while

retaining significant influence or joint control, the relevant proportion of the

cumulative amount is reclassified to profit or loss.

2.4 Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances and deposits with

banks and highly liquid investments which have an insignificant risk of changes

in fair value with original maturities of three months or less, and are used by the

Group and the Company in the management of their short term commitments. For

the purpose of the statement of cash flows, cash and cash equivalents are

presented net of bank overdrafts and pledged deposits.

2.5 Financial instruments

(a) Initial recognition and measurement

A financial asset or a financial liability is recognised in the statement of financial

position when, and only when, the Group or the Company becomes a party to the

contractual provisions of the instrument.

A financial instrument is recognised initially, at its fair value plus, in the case of a

financial instrument not at fair value through profit or loss, transaction costs that

are directly attributable to the acquisition or issue of the financial instrument.

26


2. Summary of significant accounting policies (continued) (b) 2.5 Financial instruments (continued)Financial instrument

categories and subsequent measurement

The Group and the Company categorise financial instruments as follows:

Financial assets

(i) Financial assets at fair value through profit or loss Fair value through profit or loss category comprises financial assets that are

held for trading, including derivatives (except for a derivative that is a

financial guarantee contract or a designated and effective hedging

instrument) or financial assets that are specifically designated into this

category upon initial recognition.

Derivatives that are linked to and must be settled by delivery of unquoted

equity instruments whose fair values cannot be reliably measured are

measured at cost.

Other financial assets categorised as fair value through profit or loss are

subsequently measured at their fair values with the gain or loss recognised

in profit or loss.

(ii) Held-to-maturity investments

Held-to-maturity investments category comprises Islamic debt instruments

that are quoted in an active market and the Group or the Company has the

positive intention and ability to hold them to maturity.

Financial assets categorised as held-to-maturity investments are

subsequently measured at amortised cost using the effective profit method.

Any sale or reclassification of more than an insignificant amount of

financial assets held-to-maturity not close to their maturity would result in

the reclassification of all financial assets held-to-maturity to financial assets

available-for-sale and the Group would be prevented from classifying any

financial assets as financial assets held-to-maturity for the current and

following two financial years.

(iii) Financing and receivables

Financing and receivables category comprises Islamic debt instruments that

are not quoted in an active market.

Financial assets categorised as financing and receivables are subsequently

measured at amortised cost using the effective profit method.

27



2.5 Financial instruments (continued)

(b) Financial instrument categories and subsequent measurement

(continued)

Financial assets (continued)

(iv) Available-for-sale financial assets

Available-for-sale category comprises investment in equity and Islamic debt

securities instruments that are not held for trading.

Investments in equity instruments that do not have a quoted market price in

an active market and whose fair value cannot be reliably measured are

measured at cost. Other financial assets categorised as available-for-sale are

subsequently measured at their fair values with the gain or loss recognised in

other comprehensive income, except for impairment losses, foreign

exchange gains and losses arising from monetary items and gains and losses

of hedged items attributable to hedge risks of fair value hedges which are

recognised in profit or loss. On derecognition, the cumulative gain or loss

recognised in other comprehensive income is reclassified from equity into

profit or loss. Profit income calculated for an Islamic debt instrument using

the effective profit method is recognised in profit or loss.

(v) Takaful receivables

Takaful receivables are recognised when due and measured on initial

recognition at the fair value of the consideration received or receivable.

Subsequent to initial recognition, takaful receivables are measured at

amortised cost, using the effective profit method.

All financial assets, except for those measured at fair value through profit or loss,

are subject to review for impairment (see Note 2.10).

Financial liabilities

All financial liabilities are initially measured at fair value and subsequently

measured at amortised cost other than those categorised as fair value through

profit or loss.

Fair value through profit or loss category comprises financial liabilities that are

derivatives (except for a derivative that is a financial guarantee contract or a

designated and effective hedging instrument) or financial liabilities that are

specifically designated into this category upon initial recognition.

28




(b) Financial instrument categories and subsequent measurement

(continued)

Financial liabilities (continued)

Derivatives that are linked to and must be settled by delivery of equity

instruments that do not have quoted price in an active market for identical

instruments whose fair value otherwise cannot be reliably measured are measured

at cost.

Other financial liabilities categorised as fair value through profit or loss are

subsequently measured at their fair values with the gain or loss recognised in

profit or loss.

(c) Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make

specified payments to reimburse the holder for a loss it incurs because a specified

debtor fails to make payment when due in accordance with the original or

modified terms of a debt instrument.

Fair value arising from financial guarantee contracts are classified as deferred

income and is amortised to profit or loss using a straight-line method over the

contractual period or, when there is no specified contractual period, recognised in

profit or loss upon discharge of the guarantee.

When settlement of a financial guarantee contract becomes probable, an estimate

of the obligation is made. If the carrying value of the financial guarantee contract

is lower than the obligation, the carrying value is adjusted to the obligation

amount and accounted for as provision.

(d) Regular way purchase or sale of financial assets

A regular way purchase or sale is a purchase or sale of a financial asset under a

contract whose terms require delivery of the asset within the time frame

established generally by regulation or convention in the marketplace concerned.

A regular way purchase or sale of financial assets is recognised and derecognised,

as applicable, using trade date accounting. Trade date accounting refers to:

(i) the recognition of an asset to be received and the liability to pay for it on the

trade date, and (ii) derecognition of an asset that is sold, recognition of any gain or loss on

disposal and the recognition of a receivable from the buyer for payment on the

trade date.

29




(e) Derecognition

A financial asset or part of it is derecognised when, and only when the contractual

rights to the cash flows from the financial asset expire or the financial asset is

transferred to another party without retaining control or substantially all risks and

rewards of the asset. On derecognition of a financial asset, the difference between

the carrying amount and the sum of the consideration received (including any new

asset obtained less any new liability assumed) and any cumulative gain or loss that

had been recognised in equity is recognised in the profit or loss.

A financial liability or a part of it is derecognised when, and only when, the

obligation specified in the contract is discharged or cancelled or expires.

On derecognition of a financial liability, the difference between the carrying

amount of the financial liability extinguished or transferred to another party and

the consideration paid, including any non-cash assets transferred or liabilities

assumed, is recognised in profit or loss.

2.6 Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated

depreciation and any accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the

asset and any other costs directly attributable to bringing the asset to working

condition for its intended use, and the costs of dismantling and removing the items

and restoring the site on which they are located. The cost of self-constructed assets

also includes the cost of materials and direct labour. For qualifying assets,

borrowing costs are capitalised in accordance with the accounting policy on

borrowing cost.

Purchased software that is integral to the functionality of the related equipment is

capitalised as part of that equipment.

The cost of property, plant and equipment recognised as a result of a business

combination is based on fair value at acquisition date. The fair value of property is

the estimated amount for which a property could be exchanged between

knowledgeable willing parties in an arm’s length transaction after proper

marketing wherein the parties had each acted knowledgeably, prudently and

without compulsion. The fair value of other items of property, plant and

equipment is based on the quoted market prices for similar items when available

and replacement cost when appropriate.

30



2.6 Property, plant and equipment (continued)

Recognition and measurement (continued)

When significant parts of an item of property, plant and equipment have different

useful lives, they are accounted for as separate items (major components) of

property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment is

determined by comparing the proceeds from disposal with the carrying amount of

property, plant and equipment and is recognised net within “other income” or

“other overhead expenses” respectively in the profit or loss.

Subsequent costs

The cost of replacing a component of an item of property, plant and equipment is

recognised in the carrying amount of the item if it is probable that the future

economic benefits embodied within the component will flow to the Group or the

Company, and its cost can be measured reliably. The carrying amount of the

replaced component is derecognised to profit or loss. The costs of the day-to-day

servicing of property, plant and equipment are recognised in profit or loss as

incurred.

Depreciation

Depreciation is based on the cost of an asset less its residual value. Significant

components of individual assets are assessed, and if a component has a useful life

that is different from the remainder of that asset, then that component is

depreciated separately.

Depreciation is recognised in profit or loss on a straight-line basis over the

estimated useful lives of each component of an item of property, plant and

equipment. Leased assets are depreciated over the shorter of the lease term and

their useful lives unless it is reasonably certain that the Group and the Company

will obtain ownership by the end of the lease term. Freehold land is not

depreciated. Property, plant and equipment under construction are not depreciated

until the assets are ready for their intended use.

The estimated useful lives for the current and comparative years are as follows:

Buildings 50 years

Building improvements and renovations 6 - 10 years

Furniture, fixtures and fittings 2 - 10 years

Office equipment 2 - 6 years

Motor vehicles 4 - 5 years

Computer equipment and software 2 - 7 years

Leasehold buildings 50 - 100 years

31



2.6 Property, plant and equipment (continued)

Depreciation (continued)

Depreciation methods, useful lives and residual values are reviewed at end of the

reporting period, and adjusted as appropriate.

2.7 Investment property

(i) Investment property carried at amortised costs

Investment properties are properties which are owned or held under a

leasehold interest to earn rental income or for capital appreciation or for both

but not for sale in the ordinary course of business, use in the production or

supply of services or for administrative purposes. These include land held

for a currently undetermined future use. Investment properties are stated at

cost less accumulated depreciation and impairment losses, consistent with

the accounting policy for property, plant and equipment as stated in

accounting policy Note 2.6.

Cost includes expenditure that is directly attributable to the acquisition of the

investment property.

Depreciation is charged to the profit or loss on a straight-line basis over the

estimated useful lives of 50 years for buildings. Freehold land is not

depreciated.

An investment property is derecognised on its disposal, or when it is

permanently withdrawn from use and no future economic benefit are

expected from its disposal. The difference between the net disposal proceeds

and the carrying amount is recognised in profit or loss in the period in which

the item is derecognised.

(ii) Reclassifications to/from investment property carried at amortised costs

When an item of property and equipment is transferred to investment

property following a change in its use, the carrying amount of the item is

reclassified to investment property as the Group adopts the cost model for

investment property.

2.8 Leased assets

(i) Finance lease

Leases in terms of which the Group assumes substantially all the risks and

rewards of ownership are classified as finance leases. Upon initial

recognition, the leased asset is measured at an amount equal to the lower of

its fair value and the present value of the minimum lease payments.

32



2.8 Leased assets

(ii) Finance lease (continued)

Subsequent to initial recognition, the asset is accounted for in accordance

with the accounting policy applicable to that asset.

Minimum lease payments made under finance leases are apportioned

between the finance expense and the reduction of the outstanding liability.

The finance expense is allocated to each period during the lease term so as

to produce a constant periodic profit rate on the remaining balance of the

liability. Contingent lease payments are accounted for by revising the

minimum lease payments over the remaining term of the lease when the

lease adjustment is confirmed.

Leasehold land which in substance is a finance lease is classified as

property, plant and equipment or as investment property if held to earn

rental income or for capital appreciation or for both.

(iii) Operating lease

Leases, where the Group or the Company does not assume substantially all

the risks and rewards of ownership are classified as operating leases and,

except for property interest held under operating lease, the leased assets are

not recognised on the statement of financial position.

Property interest held under an operating lease, which is held to earn rental

income or for capital appreciation or both, is classified as investment

property and measured using fair value model.

Payments made under operating leases are recognised in profit or loss on a

straight-line basis over the term of the lease. Lease incentives received are

recognised in profit or loss as an integral part of the total lease expense,

over the term of the lease. Contingent rentals are charged to profit or loss in

the reporting period in which they are incurred.

Leasehold land which in substance is an operating lease is classified as

prepaid lease payments.

2.9 Bills and other receivables

Bills and other receivables are stated at cost less any allowance for impairment.

33



2.10 Impairment

Financial assets

The Group and the Company assess at each reporting date whether there is objective

evidence that financing and receivables, financial assets held-to-maturity or financial

assets available-for-sale are impaired as a result of one or more events having an

impact on the estimated future cash flows of the asset. A financial asset or a group of

financial assets are impaired and impairment losses are incurred if, and only if, there

is objective evidence of impairment as a result of one or more events that occurred

after the initial recognition of the assets and prior to the statement of financial position

date (“a loss event”) and that loss event or events has an impact on the estimated

future cash flow of the financial asset or the group of financial assets as that can be

reliably estimated. Losses expected as a result of future events, no matter how likely,

are not recognised. For an investment in an equity instrument, a significant or

prolonged decline in the fair value below its cost is an objective evidence of

impairment. If any such objective evidence exists, then the impairment loss of the

financial assets is estimated.

(a) Financing, advances and others

For financing, advances and others, the criteria that is used to determine that

there is objective evidence of an impairment loss include:

i) significant financial difficulty of the issuer or obligor; or

ii) a breach of contract, such as default or delinquency in profit or principal

payments; or

iii) it becomes probable that the borrower will enter bankruptcy or other

financial reorganisation; or

iv) consecutive downgrade of two notches for external ratings.

Financing is classified as impaired when the principal or profit or both are past

due for three (3) months or more or where a financing is in arrears for less than

three (3) months, the financing exhibits indications of credit weakness.

For financing and receivables, the Group first assesses whether objective

evidence of impairment exists individually for financing and receivables that

are individually significant, and collectively for financing and receivables that

are not individually significant. If the Group determines that no objective

evidence of impairment exist for an individually assessed financing and

receivables, whether significant or not, it includes the assets in a group of

financing and receivables with similar credit risk characteristics and

collectively assesses them for impairment. Financing and receivables that are

individually assessed for impairment and for which an impairment loss is or

continues to be recognised are not included in the collective assessment for

impairment.

34



2.10 Impairment (continued)


(a) Financing, advances and others (continued) The amount of impairment loss is measured as the difference between the

asset’s carrying amount and the present value of estimated future cash flows

discounted at the asset’s original effective profit rate. The amount of the loss is

recognised using an allowance account and recognised in the profit or loss. The

estimation of the amount and timing of the future cash flows requires

management judgement. In estimating these cash flows, judgements are made

about the realisable value of the collateral pledged and the borrower financial

position. These estimations are based on assumptions and the actual results may

differ from these, hence resulting in changes to impairment losses recognised.

For the purposes of a collective evaluation of impairment, financing and

receivables are grouped on the basis of similar risk characteristics, taking into

account the asset type, industry, geographical location, collateral type, past-due

status and other relevant factors.

These characteristics are relevant to the estimation of future cash flows for

groups of such assets by being indicative of the counterparty’s ability to pay all

amounts due according to the contractual terms of the assets being evaluated.

Future cash flows for a group of financing and receivables that are collectively

evaluated for impairment are estimated on the basis of the contractual cash

flows of the assets in the group and historical loss experience for assets with

credit risk characteristics similar to those in the group. Historical loss

experience is adjusted based on current observable data to reflect the effects of

current conditions that did not affect the year on which the historical loss

experience is based and remove the effects of conditions in the historical year

that do not currently exist.

When a financing is uncollectable, it is written off against the related allowance

for impairment. Such financing are written off after all the necessary procedures

have been completed and the amount of the loss has been determined.

Subsequently recoveries of amounts previously written off are credited to the

profit or loss.

If, in a subsequent year, the amount of the impairment loss decreases and the

decrease can be related objectively to an event occurring after the impairment

was recognised, the previously recognised impairment loss is reversed by

adjusting the allowance for impairment account. The amount of reversal is

recognised in the profit or loss.

35





(b) Available-for-sale financial assets

In the case of available-for-sale equity securities, a significant or prolonged

decline in their fair value of the security below its cost is also considered in

determining whether impairment exists. Where such evidence exists, the

cumulative net loss that has been previously recognised directly in equity is

removed from equity and recognised in the profit or loss. In the case of debt

instruments classified as available-for-sale, impairment is assessed based on the

same criteria as all other financial assets. Reversals of impairment of debt

instruments are recognised in the other comprehensive income. Reversals of

impairment of equity shares are not recognised in the profit or loss, increases in

the fair value of equity shares after impairment are recognised directly in equity.

(c) Unquoted equity instruments

An impairment loss in respect of unquoted equity instrument that is carried

at cost is recognised in profit or loss and is measured as the difference

between the financial asset’s carrying amount and the present value of

estimated future cash flows discounted at the current market rate of return

for a similar financial asset.

(d) Takaful receivables

If there is objective evidence that the takaful receivable is impaired, the

Group reduces the carrying amount of the takaful receivable accordingly and

recognises that impairment loss in profit or loss. The Group gather the

objective evidence that a takaful receivable is impaired using the same

process adopted for financial assets carried at amortised cost. The

impairment loss is calculated under the same method used for those

financing, advances and others.

Other assets

The carrying amounts of other assets (except for deferred tax asset and investment

property measured at fair value and non-current assets classified as held for sale) are

reviewed at the end of each reporting period to determine whether there is any

indication of impairment. If any such indication exists, then the asset’s recoverable

amount is estimated.

The recoverable amount of an asset is the greater of its value in use and its fair value

less costs to sell. In assessing value in use, the estimated future cash flows are

discounted to their present value using a pre-tax discount rate that reflects current

market assessments of the time value of money and the risks specific to the asset.

36




Other assets

An impairment loss is recognised if the carrying amount of an asset exceeds its

estimated recoverable amount. Impairment losses are recognised in profit or loss.

Impairment losses recognised in prior periods are assessed at the end of each

reporting period for any indications that the loss has decreased or no longer exists. An

impairment loss is reversed if there has been a change in the estimates used to

determine the recoverable amount since the last impairment loss was recognised. An

impairment loss is reversed only to the extent that the asset’s carrying amount does

not exceed the carrying amount that would have been determined, net of depreciation

or amortisation, if no impairment loss had been recognised. Reversals of impairment

losses are credited to profit or loss in the financial year in which the reversals are

recognised.

2.11 Bills and acceptances payable

Bills and acceptances payable represents the Group’s own bills and acceptances

rediscounted and outstanding in the market.

2.12 Provisions

A provision is recognised if, as a result of a past event, the Group has a present

legal or constructive obligation that can be estimated reliably, and it is probable

that an outflow of economic benefits will be required to settle the obligation.

Provisions are determined by discounting the expected future cash flows at a pre-

tax rate that reflects current market assessments of the time value of money and

the risks specific to the liability. The unwinding of the discount is recognised as

finance cost.

2.13 General Takaful Fund

The General Takaful Fund is maintained in accordance with the Islamic Financial

Services Act 2013. Included in General Takaful Fund are funds arising from:

General Takaful; and

General retakaful funds

The General Takaful underwriting results are determined for each class of takaful

business after taking into account retakaful, unearned contributions, claims

incurred and administrative fees.

37



2.13 General Takaful Fund (continued)

Contribution income

Contributions are recognised in a financial period in respect of risks assumed

during that particular financial period based on the inception date. Inward treaty

retakaful contributions are recognised on the basis of periodic advices received

from ceding takaful operators.

Unearned contribution reserves

The Unearned Contribution Reserves (“UCR”) represent the portion of the net

contributions of takaful certificates written that relate to the unexpired periods of

the certificates at the end of the financial year.

In determining the UCR at the end of the reporting period, the method that most

accurately reflects the actual unearned contributions is used, as follows:

a) 1/365th method for all General Takaful business

b) 1/8th method for all classes of General Treaty Inward Retakaful business

Provision for outstanding claims

A liability for outstanding claims is recognised in respect of direct takaful

business. The amount of outstanding claims is the best estimate of the expenditure

required together with related expenses less recoveries, if any, to settle the present

obligation at the end of the reporting period. Any difference between the current

estimated cost and subsequent settlement is dealt with in the takaful statement of

comprehensive income of the Group and of the Company in the year in which the

settlement takes place.

Provision is also made for the cost of claims (together with related expenses) and

Incurred But Not Reported Claims (“IBNR”) at the end of the reporting period,

using a mathematical method of estimation by a qualified external actuary where

historical claims experience are used to project future claims. The provision

includes a risk margin for adverse deviation. As with all projections, there are

elements of uncertainty and the projected claims may be different from actual.

These uncertainties arise from changes in underlying risk, changes in spread of

risks, claims settlement pattern as well as uncertainties in the projection model

and underlying assumptions.

38



2.13 General Takaful Fund (continued)

Expense reserves

The expense reserve for mudharabah certificates is calculated based on best

estimate of the provision for unexpired expense risk (“UER”) and the provision of

risk margin for adverse deviation (“PRAD”). The expense reserve for wakalah

certificates refers to the higher of aggregate of the Unearned Wakalah Fee

(“UWF”) for all lines of business or best estimate of the provision for UER and

the PRAD at total fund level.

2.14 Family Takaful Fund

Included in family Takaful fund are funds arising from:

Family Takaful;

Group Family Takaful; and

Family retakaful funds.

The Family Takaful Fund is maintained in accordance with the requirements of

the Islamic Financial Services Act 2013 and includes the amounts attributable to

participants which represents the participants’ share of the underwriting surplus

and return on the investments, where applicable and are distributable in

accordance with the terms and conditions prescribed by the Group.

The surplus transfer from the Family Takaful Fund to the profit or loss is based on

the predetermined profit sharing ratio of the underwriting surplus and return on

investments.

Contribution income

Contribution is recognised as soon as the amount of the contribution can be

reliably measured. Initial contribution is recognised from inception date and

subsequent contribution is recognised when it is due. At the end of each financial

period, all due contributions are accounted for to the extent that they can be

reliably measured.

Investment-linked business

Investments of the investment-linked business are stated at closing market prices.

Any increase or decrease in value of these investments is taken into the

investment-linked business revenue accounts.

39



2.14 Family Takaful Fund (continued)

Actuarial reserves

Actuarial reserves comprise the Prospective Actuarial Valuation, Cash Flow

Projection Valuation and Unearned Contribution Valuation as explained below:

(a) Prospective Actuarial Valuation

For credit-related products, the liabilities of Family Takaful Fund shall be

valued based on the sum of present value of future benefits and any expected

future expenses payable from the takaful funds, less the present value of

future gross tabarru’ arising from the certificate, discounted at the

appropriate risk discount rate as defined in the valuation guidelines.

For a credit-related takaful certificate whose sustainability of tabarru'

deductions is dependant on the performance of Participants Investment Fund

(“PIF”), the calculation is subject to adjusting the future gross tabarru' cash

flow such that it is limited to the period where the PIF can sustain the

tabarru' and assuming that the takaful coverage is in force for the full

duration of the takaful contract.

(b) Cash Flow Projection Valuation

For products with PIF other than credit-related products, the liabilities shall

be valued by projecting future cash flows to ensure that all future obligations

can be met without recourse to additional finance or capital support at any

future time during the duration of the certificate. The cash flow projection

shall use a basis that is consistent with the requirements of the valuation

guidelines.

(c) Unearned Contribution Valuation

For yearly renewable products or extensions shall be valued according to the

following: (i) For a certificate covering death or survival, the liabilities shall be

valued on an unexpired risk basis using a prospective estimate of expected future payments arising from future events covered as at the valuation date. These future payments shall include allowance for direct claims related expenses, direct investment-related expenses, cost of retakaful and expected future contribution refunds expected during the unexpired period.

(ii) For a certificate covering contingencies other than death or survival,

the net liability is the maximum of unexpired risk reserve or unearned

contribution reserve.

40



2.14 Family Takaful Fund (continued)

Provision for outstanding claims

Claims and provisions for claims arising on family and group family takaful

certificates, including settlement costs, are accounted for using the case basis

method and for this purpose the benefits payable under a family takaful certificate

are recognised as follows:

(a) Maturity or other policy benefit payments due on specified dates are

accounted for as claims payable on the due dates.

(b) Death, surrender and other benefits without due dates are treated as claims

payable on the date of receipt of intimation of death of the participant or

occurrence of contingency covered.

(c) For individual family, group health and medical business, provision is made

for the cost of claims (together with related expenses) and IBNR at the end

of the reporting period, using a mathematical method of estimation by a

qualified internal actuary where historical claims experience are used to

project future claims. The provision includes a risk margin for adverse

deviation. As with all projections, there are elements of uncertainty and the

projected claims may be different from actual. These uncertainties arise from

changes in underlying risk, changes in spread of risks, claim settlement

pattern as well as uncertainties in the projection model and underlying

assumptions.

Expense reserves

The expense reserves is reported as a liability in Shareholder’s Fund.

Expense reserves consists the followings:

(a) Expense liabilities

The method used to value expense liabilities shall be consistent with the

method used to value takaful liabilities of the corresponding family takaful

certificate (for example, for a long-term ordinary takaful certificate, the

valuation method for expense liabilities should also be long-term in nature).

(b) Deficiency Reserve for Skim Anuiti Takaful KWSP

In addition to the expense liabilities above, an additional requirement is also

complied as stipulated below:

If PIF is expected to be insufficient to meet future annuity certain benefit

and/or future life annuity tabarru', another provision shall be set aside that is

in line with requirement of the valuation guideline. Upon PIF insufficiency,

the Shareholders' Fund shall honour the annuity certain benefit payment to

participants as well as the tabarru' to Participant Risk Fund (“PRF”).

41



2.15 Product classification

The Family Takaful Fund and General Takaful Fund consist of certificate

contracts that transfer takaful risk.

Takaful contracts are those contracts that transfer significant takaful risk. A

takaful contract is a contract under which the fund has accepted significant takaful

risk from another party (the certificate holders) by agreeing to compensate the

participants if a specified uncertain future event (the takaful event) adversely

affects the participants. As a general guideline, to determine whether a contract

has significant takaful risk, benefits paid are compared with benefits payable if the

takaful event did not occur.

Investment contracts are those contracts that do not transfer significant insurance

risk. There are no contracts that are classified as investment contracts in the

Family and General Takaful Funds.

Once a contract has been classified as a takaful contract, it remains a takaful

contract for the remainder of its life-time, even if the takaful risk reduces

significantly during this period, unless all rights and obligations are extinguished

or expired.

Takaful contracts in the current portfolio are classified as being without

discretionary participation features (“DPF”) as it does not satisfy the criteria for

DPF. DPF is a contractual right to receive, as a supplement to guaranteed benefits,

additional benefits that are:

likely to be a significant portion of the total contractual benefits;

whose amount or timing is contractually at the discretion of the issuer; and

that are contractually based on the:

- performance of a specified pool of contracts or a specified type of contract;

- realised and/or unrealised investment returns on a specified pool of assets

held by the issuer; or

- the profit or loss of the company, fund or other entity that issues the

contract.

2.16 Retakaful

The fund cedes takaful risk in the normal course of business. Retakaful assets

represent balances receivable and recoverable from retakaful operators. Amounts

recoverable from retakaful operators are estimated in a manner consistent with the

outstanding claims provision or settled claims associated with the retakaful’s

certificates and are in accordance with the related retakaful contracts.

Ceded retakaful arrangements do not relieve the fund from its obligations to

participants. Contributions and claims are presented on a gross basis for both

ceded and assumed retakaful.

42



2.16 Retakaful (continued)

Retakaful assets are reviewed for impairment at each reporting date or more

frequently when an indication of impairment arises during the reporting period.

Impairment occurs when there is objective evidence as a result of an event that

occurred after initial recognition of the retakaful asset that the Family and General

Takaful Fund may not receive all outstanding amounts due under the terms of the

contract and the event has a reliably measurable impact on the amounts that the

Family and General Takaful Fund will receive from the retakaful operator. The

impairment loss is recorded in profit or loss.

Gains or losses on buying retakaful, if any, are recognised in profit or loss

immediately at the date of purchase and are not amortised.

The fund also assumes retakaful risk in the normal course of business for Family

Takaful and General Takaful contracts when applicable.

Contributions and claims on assumed retakaful are recognised as revenue or

expenses in the same manner as they would be if the retakaful were considered

direct business, taking into account the product classification of the retakaful

business. Retakaful liabilities represent balances due to retakaful operators.

Amounts payable are estimated in a manner consistent with the related retakaful

contract.

Retakaful assets or liabilities are derecognised when the contractual rights are

extinguished or expired or when the contract is transferred to another party.

Retakaful contracts that do not transfer significant takaful risk are accounted for

directly through the statement of financial position. These are deposit assets or

financial liabilities that are recognised based on the consideration paid or received

less any explicit identified contributions or fees to be retained by the retakaful

operators. Investment income on these contracts is accounted for using the

effective yield method when accrued.

2.17 Contingencies

Contingent liabilities

Where it is not probable that an outflow of economic benefits will be required, or

the amount cannot be estimated reliably, the obligation is not recognised in the

statements of financial position and is disclosed as a contingent liability, unless

the probability of outflow of economic benefits is remote. Possible obligations,

whose existence will only be confirmed by the occurrence or non-occurrence of

one or more future events, are also disclosed as contingent liabilities unless the

probability of outflow of economic benefits is remote.

43



2.17 Contingencies (continued)

Contingent assets

Where it is not possible that there is an inflow of economic benefits, or the amount

cannot be estimated reliably, the asset is not recognised in the statements of

financial position and is disclosed as a contingent asset, unless the probability of

inflow of economic benefits is remote. Possible obligations, whose existence will

only be confirmed by the occurrence or non-occurrence of one or more future

events, are also disclosed as contingent assets unless the probability of inflow of

economic benefits is remote.

2.18 Operating segments

An operating segment is a component of the Group that engages in business

activities from which it may earn revenue and incur expenses, including revenue

and expenses that relate to transactions with any of the Group’s other components.

All operating segment’s operating results are reviewed regularly by the chief

operating decision maker, which in this case is the Group Managing Director cum

Chief Executive Officer of the Group, to make decisions about resources to be

allocated to the segment and to assess its performance, and for which discrete

financial information is available.

2.19 Share capital

Ordinary shares

Ordinary shares are classified as equity in the statement of financial position. Cost

directly attributable to the issuance of new equity shares are taken to equity as a

deduction from the proceeds.

2.20 Recognition of income

Financing income – Banking business

Financing income is recognised in the profit or loss on an accrual basis using the

effective profit rate method. The effective profit rate is the rate that 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 instruments. When calculating the effective profit rate, the

Group has considered all contractual terms of the financial instruments but does

not consider future credit losses. The calculation includes all fees and transaction

costs integral to the effective profit rate, as well as premium or discounts.

44



2.20 Recognition of income (continued)

Financing income – Banking business (continued)

Income from a sale-based contract is recognised on effective profit rate basis over

the period of the contract based on the principal amounts outstanding whereas

income from Ijarah (lease-based contract) is recognised on effective profit rate

basis over the lease term.

Once a financial asset or a group of financial assets has been written down as a

result of an impairment loss, income is recognised using the profit rate used to

discount the future cash flows for the purpose of measuring the impairment loss.

Financing income – Takaful business

Income from financing are recognised on an accrual basis, except where financing

is considered impaired, i.e. where repayments are in arrears for more than 90 days,

in which case recognition of such income is suspended. Subsequent to suspension,

income is recognised on the receipt basis until all arrears have been paid.

Income is recognised on a time proportion basis that takes into account the

effective yield of the asset.

Wakalah fees

Wakalah fees are recognised as income or expenses by the respective funds based

on a predetermined percentage of gross contributions upon inception of

certificates. Wakalah surplus/(deficit) is arrived at after deducting commission and

management expenses against the Wakalah fees charged.

Fee and other income recognition

Financing arrangement, management and participation fees, underwriting

commissions and brokerage fees are recognised as income based on contractual

arrangements. Fees from advisory and corporate finance activities are recognised

net of service taxes and discounts on completion of each stage of the assignment.

Dividend income from subsidiary and associated companies and other investments

are recognised when the Group’s rights to receive payment is established.

2.21 Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred

tax are recognised in profit or loss except to the extent that it relates to items

recognised directly in equity or other comprehensive income.

45



2.21 Income tax (continued)

Current tax is the expected tax payable or receivable on the taxable income or loss

for the year, using tax rates enacted or substantively enacted by the end of the

reporting period, and any adjustment to tax payable in respect of previous

financial years.

Deferred tax is recognised using the liability method, providing for temporary

differences between the carrying amounts of assets and liabilities in the statement

of financial position and their tax bases. Deferred tax is not recognised for the

following temporary differences: the initial recognition of goodwill, the initial

recognition of assets or liabilities in a transaction that is not a business

combination and that affects neither, accounting nor taxable profit or loss.

Deferred tax is measured at the tax rates that are expected to be applied to the

temporary differences when they reverse, based on the laws that have been

enacted by the end of the reporting period.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to

offset current tax liabilities and assets, and they relate to income taxes levied by

the same tax authority on the same taxable entity, or on different tax entities, but

they intend to settle current tax assets and liabilities on a net basis or their tax

assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future

taxable profits will be available against which the temporary difference can be

utilised. Deferred tax assets are reviewed at the end of each reporting period and

are reduced to the extent that it is no longer probable that the related tax benefit

will be realised.

2.22 Zakat

This represents business zakat. It is an obligatory amount payable by the Group

and the Company to comply with the principles of Shariah.

2.23 Employee benefits

Short-term employee benefits

Short-term employee benefit obligations in respect of salaries, annual bonuses,

paid annual leave and sick leave are measured on an undiscounted basis and are

expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash

bonus or profit-sharing plans if the Group and the Company has a present legal or

constructive obligation to pay this amount as a result of past service provided by

the employee and the obligation can be estimated reliably.

46



2.23 Employee benefits (continued)

State plans

The Group’s and the Company’s contributions to the statutory pension funds are

charged to profit or loss in the financial year to which they relate. Once the

contributions have been paid, the Group and the Company have no further

payment obligations.

Share-based payment transactions

The grant date fair value of share-based payment granted to employees is

recognised as an employee expense, with a corresponding increase in equity, over

the period that the employees unconditionally become entitled to the awards.

The amount recognised as an expense is adjusted to reflect the number of awards

for which the related service and non-market vesting conditions are expected to be

met, such that the amount ultimately recognised as an expense is based on the

number of awards that meet the related service and non-market performance

conditions at the vesting date.

For share-based payment awards with non-vesting conditions, the grant date fair

value of the share-based payment is measured to reflect such conditions and there

is no true-up for differences between expected and actual outcomes.

The fair value of the employee share options is measured using Monte Carlo

Simulation. Measurement inputs include share price on measurement date,

exercise price of the instrument, expected volatility (based on weighted average

historic volatility adjusted for changes expected due to publicly available

information), expected dividends, and the risk-free profit rate (based on

government bonds). Service and non-market performance conditions attached to

the transactions are not taken into account in determining fair value.

2.24 Non-current assets held for sale

Non-current assets, or disposal group comprising assets and liabilities, that are

expected to be recovered primarily through sale rather than through continuing

use, are classified as held for sale.

Immediately before classification as held for sale, the assets, or components of a

disposal group, are remeasured in accordance with the Group’s accounting

policies. Thereafter generally the assets, or disposal group, are measured at the

lower of their carrying amount and fair value less cost to sell.

47



2.24 Non-current assets held for sale (continued)

Any impairment loss on a disposal group is first allocated to goodwill, and then to

remaining assets and liabilities on pro rata basis, except that no loss is allocated to

financial assets, deferred tax assets and investment property, which continue to be

measured in accordance with the Group’s accounting policies. Impairment losses

on initial classification as held for sale and subsequent gains or losses on

remeasurement are recognised in profit or loss. Gains are not recognised in excess

of any cumulative impairment loss.

Intangible assets and property and equipment once classified as held for sale are

not amortised or depreciated. In addition, equity accounting of equity-accounted

investees ceases once classified as held for sale.

2.25 Earnings per ordinary shares

The Group presents basic data for its ordinary shares (“EPS”).

Basic EPS is calculated by dividing the profit or loss attributable to ordinary

shareholders of the Company by the weighted average number of ordinary shares

outstanding during the period, adjusted for own shares held.

Diluted EPS is determined by adjusting the profit or loss attributable to ordinary

shareholders and the weighted average number of ordinary shares outstanding,

adjusted for own shares held, for the effects of all dilutive potential ordinary

shares, which comprise convertible notes and share options granted to employees.

2.26 Borrowing costs

Borrowing costs that are not directly attributable to the acquisition, construction or

production of a qualifying asset are recognised in profit or loss using the effective

profit method.

Borrowing costs directly attributable to the acquisition, construction or production

of qualifying assets, which are assets that necessarily take a substantial period of

time to get ready for their intended use or sale, are capitalised as part of the cost of

those assets.

The capitalisation of borrowing costs as part of the cost of a qualifying asset

commences when expenditure for the asset is being incurred, borrowing costs are

being incurred and activities that are necessary to prepare the asset for its intended

use or sale are in progress. Capitalisation of borrowing costs is suspended or

ceases when substantially all the activities necessary to prepare the qualifying

asset for its intended use or sale are interrupted or completed.

48



2.26 Borrowing costs (continued)

Investment income earned on the temporary investment of specific borrowings

pending their expenditure on qualifying assets is deducted from the borrowing

costs eligible for capitalisation.

2.27 Fair value measurements

Fair value of an asset or a liability, except for share-based payment and lease

transactions, is determined as the price that would be received to sell an asset or

paid to transfer a liability in an orderly transaction between market participants at

the measurement date. The measurement assumes that the transaction to sell the

asset or transfer the liability takes place either in the principal market or in the

absence of a principal market, in the most advantageous market.

For non-financial asset, the fair value measurement takes into account a market

participant's ability to generate economic benefits by using the asset in its highest

and best use or by selling it to another market participant that would use the asset

in its highest and best use.

When measuring the fair value of an asset or liability, the Group uses observable

market data as far as possible. Fair value are categorised into different levels in a

fair value hierarchy based on the input used in the valuation technique as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities that the Group can access at the measurement date.

Level 2: inputs other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly or indirectly.

Level 3: unobservable inputs for the asset or liability.

The Group recognises transfers between levels of the fair value hierarchy as of the

date of the event or change in circumstances that caused the transfers.

49


3. Cash and short-term funds

2014 2013

RM’000 RM’000

Group

Cash and balances with banks

and other financial institutions 796,588 600,969

Money at call and interbank

placements with remaining maturity

not exceeding one month 3,101,584 3,352,927

________ ________

3,898,172 3,953,896

======= =======

Company

Cash and balances with banks

and other financial institutions 123,566 149,559

________ ________

123,566 149,559

======= =======

4. Deposits and placements with financial institutions

Group

2014 2013

RM’000 RM’000

Licensed banks 715,238 688,324

Other financial institutions 6,086 12,978

________ ________

721,324 701,302

======= =======

50


5. Financial assets held-for-trading Group

2014 2013

RM’000 RM’000

At fair value:

Quoted securities in Malaysia

- Shares 66,725 51,239

Quoted securities outside Malaysia

- Shares 43,594 29,583

- Unit trusts 22,943 18,451

________ ________

133,262 99,273

------------ ------------

Unquoted securities in Malaysia

- Malaysian Government Investment Issues 50,767 726,353

- Bank Negara Negotiable Notes 394,808 178,058

- Islamic Debt Securities 205,492 328,751

- Negotiable Islamic Debt Certificates 279,628 -

Unquoted securities outside Malaysia


________ ________

1,032,328 1,305,925

------------ ------------

1,165,590 1,405,198

======= =======

51


6. Derivative financial assets/liabilities

The following tables summarise the contractual or underlying principal amounts of

derivatives financial instruments held at fair value through profit or loss and hedging

purposes. The principal or contractual amounts of these instruments reflect the volume

of transactions outstanding at financial position date, and do not represent amounts at

risk.

Trading derivative financial instruments are revalued on a gross position and the

unrealised gains or losses are reflected as derivative financial assets and liabilities

respectively.

Notional Fair value

Amount Assets Liabilities

Group RM’000 RM’000 RM’000

31.12.2014

Forward contracts 1,840,778 45,508 (28,798)

Profit rate swaps 1,187,694 17,018 (3,594)

Structured deposits 106,680 15 (15)

_____________________________

3,135,152 62,541 (32,407)

==========================

31.12.2013

Forward contracts 1,381,894 8,681 (6,594)

Profit rate swaps 1,311,481 19,855 (6,389)

Structured deposits 110,495 582 (582)

_____________________________

2,803,870 29,118 (13,565)

==========================

Khalid

Highlight

52


7. Financial assets available-for-sale Group

2014 2013

RM’000 RM’000

At fair value


- Unit trusts 208,161 148,399

- Shares 428,420 930,897

Quoted securities outside Malaysia

- Unit trusts 82,902 73,827

- Shares 14,747 542


_________ _________

735,403 1,158,799

------------- -------------

At fair value


- Malaysian Government Islamic Papers 241,466 455,731

- Malaysian Government Investment Issues 1,202,058 1,269,943

- Negotiable Islamic Debt Certificates - 447,825

- Islamic Debt Securities 11,452,570 12,868,937

- Shares 380 380

- Unit trusts 149,313 298,897


- Shares 38 36


- Islamic Development Bank Unit Trusts 1,647 1,647

_________ _________

13,048,877 15,344,741

------------- -------------

At cost


- Unquoted shares in Malaysia 24,450 23,456

Less: Accumulated impairment loss* (15,734) (14,740)

_________ _________

8,716 8,716

------------- -------------

Unquoted securities outside Malaysia - Unquoted shares outside Malaysia 22,893 23,754

------------- -------------

13,815,889 16,536,010

======== ========

* Movement in accumulated impairment loss due to translation differences.

Khalid

Highlight

Khalid

Sticky Note

unquoted means un-price

53


7. Financial assets available-for-sale (continued)

Company

2014 2013

RM’000 RM’000

At fair value


- Unit trusts 18,559 17,860

===== =====

8. Financial assets held-to-maturity Group

2014 2013

RM’000 RM’000


- Malaysian Government Islamic Papers 145,276 145,391


Less: Accumulated impairment loss (7,019) (7,125)



_______ _______

547,258 467,935

====== ======

54


9. Financing, advances and others

(a) By type and Shariah contract

Bai’ Ijarah Ijarah

Bithaman Bai Muntahiah Thumma

Group Ajil Murabahah Al-Inah At-Tawarruq Bit-Tamleek Al-Bai Istisna’ Ar-Rahnu Total

31 December 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At amortised cost Cash line - - 133,369 711,351 - - - - 844,720

Term financing

House financing 5,205,901 - - 3,869,009 - - 66,730 - 9,141,640

Syndicated financing 19,841 - 180,731 998,462 - 148,543 - - 1,347,577

Leasing financing - - - - 64,141 5,030 - - 69,171

Bridging financing - - - - - - 72,533 - 72,533

Personal financing - - 372,209 9,234,012 - - - - 9,606,221

Other term financing 3,137,330 403,814 21,576 3,717,813 - - 1,822 - 7,282,355

Staff financing 111,203 - 69 44,610 - - 18,466 - 174,348

Credit cards - - 89,635 346,003 - - - - 435,638

Trade bills discounted - 1,013,823 - - - - - - 1,013,823

Trust receipts - 33,398 - - - - - - 33,398

Pawn broking - - - - - - - 90,288 90,288

_________ _________ _________ _________ _________ _________ _________ ________ _________

8,474,275 1,451,035 797,589 18,921,260 64,141 153,573 159,551 90,288 30,111,712

======== ======== ======== ======== ======== ======== ======== =======

Allowance for impaired financing, advances and others

- collective assessment allowance (444,388)

- individual assessment allowance (142,753)

__________

Net financing, advances and others 29,524,571

=========

55


9. Financing, advances and others (continued)

(a) By type and Shariah contract (continued)

Bai’ Ijarah Ijarah

Bithaman Bai Muntahiah Thumma

Group Ajil Murabahah Al-Inah At-Tawarruq Bit-Tamleek Al-Bai Istisna’ Ar-Rahnu Total

31 December 2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At amortised cost

Cash line - - 175,923 573,323 - - - - 749,246

Term financing

House financing 5,442,107 - - 1,190,950 - - 67,995 - 6,701,052

Syndicated financing 30,874 - 193,387 475,200 - 33,216 - - 732,677

Leasing financing - - - - 57,931 159,750 - - 217,681

Bridging financing - - - - - - 40,052 - 40,052

Personal financing - - 734,250 7,597,961 - - - - 8,332,211

Other term financing 3,565,043 - 7,034 2,326,624 - - 1,884 - 5,900,585

Staff financing 124,320 - 708 25,736 - - 21,944 - 172,708

Credit cards - - 157,089 288,153 - - - - 445,242

Trade bills discounted - 805,381 14,107 - - - - - 819,488

Trust receipts - 35,957 - - - - - - 35,957

Pawn broking - - - - - - - 95,621 95,621

_________ _________ _________ _________ _________ _________ _________ ________ _________

9,162,344 841,338 1,282,498 12,477,947 57,931 192,966 131,875 95,621 24,242,520

======== ======== ======== ======== ======== ======== ======== =======


- collective assessment allowance (365,375)

- individual assessment allowance (136,197)

__________

Net financing, advances and others 23,740,948

=========

56



Group

2014 2013

RM’000 RM’000

(b) By type of customer

Domestic non-bank financial institutions 471,181 352,438

Domestic business enterprise 5,884,575 4,630,194

Small medium industries 658,763 631,069

Government and statutory bodies 292,201 200,885

Individuals 22,336,404 18,216,908

Other domestic entities 8,230 5,483

Foreign entities 460,358 205,543

_________ _________

30,111,712 24,242,520

======== ========

(c) By profit rate sensitivity

Fixed rate

House financing 1,563,643 1,512,408

Others 7,553,928 7,954,409

Floating rate

Others 20,994,141 14,775,703

_________ _________

30,111,712 24,242,520

======== ========

(d) By remaining contractual maturity

Maturity within one year 3,147,023 2,927,612

More than one year to three years 992,088 816,371

More than three years to five years 1,468,082 1,373,079

More than five years 24,504,519 19,125,458

_________ _________

30,111,712 24,242,520

======== ========

(e) By geographical distribution

Central Region 13,567,565 10,699,889

Eastern Region 5,037,536 4,455,488

Northern Region 4,722,950 3,928,233

Southern Region 4,411,954 3,191,397

East Malaysia Region 2,371,707 1,967,513

_________ _________

30,111,712 24,242,520

======== ========

Khalid

Sticky Note

LIUDITY RSK

57



Group

2014 2013

RM’000 RM’000

(f) By sector

Primary agriculture 331,524 243,148

Mining and quarrying 20,481 8,135

Manufacturing (including agro-based) 1,011,749 829,577

Electricity, gas and water 549,284 365,014

Wholesale & retail trade, and hotels

& restaurants 879,627 750,364

Construction 2,316,754 1,872,011

Real estate 693,563 517,731

Transport, storage and communications 563,955 236,616

Finance, insurance and business activities 924,120 850,283

Education, health and others 483,863 342,942

Household sectors 22,336,792 18,216,799

Other sectors - 9,900

_________ _________

30,111,712 24,242,520

======== ========

(g) Movement in impaired financing and advances (“impaired financing”) are

as follows:

Group

2014 2013

RM’000 RM’000

At 1 January 285,302 308,709

Classified as impaired during the year 438,837 440,665

Reclassified as not impaired during the year (194,739) (236,056)

Amount recovered (72,983) (71,626)

Amount written off (115,145) (160,388)

Exchange differences 3,267 3,998

________ _______

At 31 December 344,539 285,302

======= =======

Gross impaired financing as a percentage of

gross financing, advances and others 1.14% 1.18%

======= =======

58



Group

2014 2013

RM’000 RM’000

(h) Impaired financing by geographical distribution

Central Region 148,240 129,930

Eastern Region 44,509 28,106

Northern Region 30,618 52,873

Southern Region 13,307 13,702

East Malaysia Region 107,865 60,691

_______ _______

344,539 285,302

====== ======

(i) Impaired financing by sector

Primary agriculture 1,854 -

Manufacturing (including agro-based) 7,669 32,302

Electricity, gas and water 54 108

Wholesale & retail trade, and hotels

& restaurants 14,732 15,525

Construction 72,192 21,601

Transport, storage and communications 42,689 33,117

Finance, insurance and business activities 60,258 61,393

Education, health and others 590 -

Household sectors 144,501 121,226

Other sectors - 30

_______ _______

344,539 285,302

====== ======

(j) Movement of allowance for impaired financing

Group

2014 2013

RM’000 RM’000

Collective assessment allowance

At 1 January 365,375 313,334

Allowance made during the year 162,878 141,621


Exchange differences 551 793

_______ _______

At 31 December 444,388 365,375

====== ======

59



(j) Movement of allowance for impaired financing (continued)

Group

2014 2013

RM’000 RM’000

Individual assessment allowance

At 1 January 136,197 126,988

Allowance made during the year 34,055 79,103


Exchange differences 3,303 7

________ _______

At 31 December 142,753 136,197

======= =======

10. Other assets 2014 2013

Group RM’000 RM’000

Clients’ and dealers’ debit balances 179,229 47,879

Deposits and prepayments 42,781 43,173

Other financing 78,290 87,832

Other receivables 280,685 71,917

_______ _______

580,985 250,801

====== ======

Company

Amount due from subsidiaries 281 40

Deposits and prepayments 436 2,411

Income receivable 472 -

_______ _______

1,189 2,451

====== ======

Other financing of the Group are stated net of impairment allowances of RM1,713,000

(2013: RM1,927,000).

Amount due from subsidiaries are non trade in nature, not subject to financing charges

and has no fixed term of repayments.

60


11. Takaful assets Group

2014 2013

Note RM’000 RM’000

Retakaful assets:

- Claims liabilities 22(a)(i) 405,867 407,393

- Contribution liabilities 22(a)(ii) 69,949 80,200

- Actuarial liabilities 22(a)(iii) 206,644 148,340

_______ _______

682,460 635,933

---------- ----------

Takaful receivables

- Due contributions 95,074 88,353

- Due from retakaful/co-takaful 38,004 37,325

_______ _______

133,078 125,678

Less: Allowance for impaired receivables (4,487) (8,522)

_______ _______

128,591 117,156

---------- ----------

811,051 753,089

====== ======

Offsetting of financial assets and financial liabilities

There is no financial assets and liabilities that have been set off for presentation

purposes.

12. Statutory deposits with Bank Negara Malaysia

The non-interest bearing statutory deposits are maintained with Bank Negara Malaysia

(“BNM”) in compliance with Section 26(2)(c) of the Central Bank of Malaysia Act,

2009, the amount of which are determined as set percentages of total eligible liabilities.

61


13. Deferred tax assets

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Total

2014 2013 2014 2013 2014 2013

Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Property, plant and

equipment - 91 (23,342) (28,843) (23,342) (28,752)

Investment properties 654 640 - - 654 640

Unabsorbed capital

allowances 27,863 28,579 - - 27,863 28,579

Provisions 60,641 68,724 - - 60,641 68,724

______ ______ ______ ______ ______ ______

Tax assets/(liabilities) 89,158 98,034 (23,342) (28,843) 65,816 69,191

===== ===== ===== ===== ===== =====

Company

Tax assets 10 10 - - 10 10

===== ===== ===== ===== ===== =====

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

2014 2013

Group RM’000 RM’000

Unabsorbed capital allowances 28,047 27,518

Unutilised tax losses 7,158 7,158

Deductible temporary differences 653 (154)

______ ______

35,858 34,522

===== =====

62


13. Deferred tax assets (continued)

Movement in temporary differences during the year:

Recognised Effect of Recognised Effect of

Recognised in other movement As at Recognised in other movement

As at in profit comprehensive in exchange 31.12.2013 / in profit comprehensive in exchange As at

1.1.2013 or loss income rate 1.1.2014 or loss income rate 31.12.2014

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

Group

Property, plant and equipment (33,422) 4,527 146 (3) (28,752) 5,409 - 1 (23,342)

Investment properties 783 (143) - - 640 14 - - 654

Unabsorbed capital allowances 30,246 (1,667) - - 28,579 (716) - - 27,863

Provisions 58,223 11,934 (839) (594) 68,724 (10,603) 2,351 169 60,641

_________ _________ _________ _________ _________ _________ _________ _________ ________

Total assets 55,830 14,651 (693) (597) 69,191 (5,896) 2,351 170 65,816

======== ======== ======== ======== ======== ======== ======== ======== =======

Note 36 Note 36

63


14. Investments in subsidiaries Company

2014 2013

RM’000 RM’000

At cost

Quoted shares in Malaysia 99,053 99,249

Unquoted shares in Malaysia 4,608,562 4,548,120

________ ________

4,707,615 4,647,369

======= =======

Details of the subsidiaries are as follows:

Effective Ownership

Interest

2014 2013

Name of Company Principal activities % %

Bank Islam Malaysia Berhad Islamic banking business 100 100

Subsidiaries of Bank Islam Malaysia Berhad

BIMB Investment Management Managing Islamic Unit 100 100

Berhad Trust Funds

BIMB Foreign Currency Dormant (in the process of 100 100

Clearing Agency Sdn. Bhd. members voluntary liquidation)

Al-Wakalah Nominees Provide nominee services 100 100

(Tempatan) Sdn. Bhd.

Farihan Corporation Sdn. Bhd. Provide manpower for the

provision of Islamic pawn

broking services 100 100

Bank Islam Trust Company Provide services as Labuan 100 100

(Labuan) Ltd. registered trust company

Subsidiary of Bank Islam Trust Company (Labuan) Ltd.

BIMB Offshore Company Resident Corporate Secretary 100 100

Management Services and Director for Offshore

Sdn. Bhd. Companies

Syarikat Takaful Malaysia Family and General 60.31 60.50

Berhad Takaful business

64


14. Investments in subsidiaries (continued) Effective Ownership

Interest

2014 2013

Name of Company Principal activities % %

Subsidiaries of Syarikat Takaful Malaysia Berhad

ASEAN Retakaful Family and General 63.09 63.09

International (L) Ltd.** retakaful business

P.T. Syarikat Takaful Investment holding 56 56

Indonesia*#

Subsidiaries of P.T. Syarikat Takaful Indonesia

P.T. Asuransi Takaful Umum*# General Takaful business 64.70 64.70

P.T. Asuransi Takaful Family Takaful business 74.80 74.80

Keluarga*#

BIMB Securities (Holdings) Investment holding 100 100

Sdn. Bhd.

Subsidiary of BIMB Securities (Holdings) Sdn. Bhd.

BIMB Securities Sdn. Bhd. Stockbroking 100 100

Subsidiaries of BIMB Securities Sdn. Bhd

BIMSEC Asset Management Dormant - 100

Sdn. Bhd.***

BIMSEC Nominees Nominee services 100 100

(Tempatan) Sdn. Bhd.

BIMSEC Nominees Nominee services 100 100

(Asing) Sdn. Bhd.

Syarikat Al-Ijarah Sdn. Bhd. Leasing of assets 100 100

* Incorporated in Indonesia.

# Audited by a firm of auditors other than KPMG Desa Megat & Co.

** Members’ Voluntary Winding-up commenced on 21 May 2012. The subsidiary has

been consolidated based on management accounts.

*** The Company had been dissolved under the Companies Commission of Malaysia

on 16 July 2014.

65


14. Investments in subsidiaries (continued)

Non-controlling interests in subsidiaries The Group’s subsidiaries that have material non-controlling interests (“NCI”) are as

follows:

2014

Bank Syarikat

Islam Takaful

Malaysia Malaysia

Berhad Berhad Total

NCI percentage of ownership

interest and voting interest - 39.69%

Carrying amount of NCI (RM’000) - 240,223 240,223

Profit allocated to NCI (RM’000) - 55,605 55,605

Summarised financial information before intra-group elimination

Bank Syarikat

Islam Takaful

Malaysia Malaysia

Berhad Berhad

RM’000 RM’000

As at 31 December 2014

Assets - 7,164,788

Liabilities - (6,568,342) ____________ ____________

Net Assets - 596,446

======= =======

Year ended 31 December 2014

Revenue - 545,937

Profit for the year - 138,735

Total comprehensive income - 139,073

======= =======

Cash flows from operating activities - 170,111

Cash flows from investing activities - 387,206

Cash flows from financing activities - (137,340) ____________ ____________

Net increase in cash and cash - 419,977

equivalents ======= =======

Distributions to NCI - 7,011

======= =======

Dividends paid to NCI - 51,603

======= =======

66


14. Investments in subsidiaries (continued)

Non-controlling interests in subsidiaries (continued)

2013

Bank Syarikat

Islam Takaful

Malaysia Malaysia

Berhad Berhad Total

NCI percentage of ownership

interest and voting interest - 39.50%

Carrying amount of NCI (RM’000) - 239,603 239,603

Profit allocated to NCI (RM’000) 163,814 41,432 205,246

In December 2013, Bank Islam Malaysia Berhad became a wholly-owned subsidiary of

the Company, upon the completion of the acquisition of 49.0% equity interest in Bank

Islam Malaysia Berhad from Dubai Financial Group LLC and Lembaga Tabung Haji.

Summarised financial information before intra-group elimination

Bank Syarikat

Islam Takaful

Malaysia Malaysia

Berhad Berhad

RM’000 RM’000


Assets - 6,924,543

Liabilities - (6,334,644)

________ ________

Net Assets - 589,899

======= =======

Year ended 31 December 2013

Revenue 2,245,105 561,988

Profit for the year 485,726 134,380

Total comprehensive income 334,313 130,905

======= =======

Cash flows from operating activities 1,293,078 328,219

Cash flows from investing activities 874,375 (250,203)

Cash flows from financing activities (110,443) (84,665)

________ ________

Net increase/(decrease) in cash and cash 2,057,010 (6,649)

equivalents ======= =======

Dividends paid to NCI 24,997 33,338

======= =======

67


15. Investments in associates

Group and Company

2014 2013

RM’000 RM’000

At cost

Unquoted shares 5,019 5,019

Less:

- Accumulated impairment loss (5,018) (5,018)

_______ _______

1 1

====== ======

The principal activities of the associates and the interest of the Group are as follows:

Effective Interest

Place of 2014 2013

Name of Company Principal activities Incorporation % %

Islamic Banking and Finance Provides training and Malaysia 48 48

Institute Malaysia Sdn Bhd consultancy services

68


16. Property, plant and equipment Furniture, Computer

**Land fixtures equipment

and and Office Motor and

buildings fittings equipment vehicles software Total


Cost At 1 January 2013 274,840 220,182 79,434 3,957 381,272 959,685

Additions 7,786 12,247 5,847 465 20,721 47,066

Reclassifications (109) 73 (41) - 77 -

Disposals (2,579) (5,191) (2,276) (429) (3,044) (13,519)

Write off (1,837) (11,573) (12,667) (57) (2,503) (28,637)

Transfer from investment properties 5,267 - - - - 5,267

Transfer to asset held for sale (1,060) - - - - (1,060)

Exchange difference (2,045) (1,449) 50 (160) 141 (3,463)

__________________________________________________ ________

At 31 December 2013/1 January 2014 280,263 214,289 70,347 3,776 396,664 965,339

Additions 5,386 27,574 7,560 1,285 33,086 74,891

Reclassifications (2,035) 1,526 509 - - -

Disposals (3,709) (4,071) (2,560) (359) (23,180) (33,879)

Write off - (482) - - - (482)

Transfer to asset held for sale (1,750) - - - - (1,750)

CMDF Incentive - - - - (31) (31)

Exchange difference 495 422 21 54 15 1,007

__________________________________________________ ________

At 31 December 2014 278,650 239,258 75,877 4,756 406,554 1,005,095

============================================= =======

69


16. Property, plant and equipment (continued)

Furniture, Computer

**Land fixtures equipment

and and Office Motor and

buildings fittings equipment vehicles software Total


Depreciation At 1 January 2013 32,753 146,524 46,976 1,870 277,149 505,272

Depreciation for the year 6,191 17,294 8,926 704 27,232 60,347

Disposals (1,768) (4,193) (1,837) (356) (3,031) (11,185)

Write off (1,107) (8,477) (11,847) (57) (2,490) (23,978)

Transfer to asset held for sale (33) - - - - (33)

Exchange difference (504) (1,271) 49 (73) 137 (1,662)

__________________________________________________ ________


Depreciation for the year 6,128 14,910 8,420 743 30,876 61,077

Disposals (2,754) (3,133) (2,428) (323) (23,153) (31,791)

Write off - (430) - - - (430)

Transfer to asset held for sale (54) - - - - (54)

Exchange difference 167 375 20 25 12 599

__________________________________________________ ________

At 31 December 2014 39,019 161,599 48,279 2,533 306,732 558,162

============================================= =======

Carrying amounts

At 1 January 2013 242,087 73,658 32,458 2,087 104,123 454,413

============================================= =======

At 31 December 2013 244,731 64,412 28,080 1,688 97,667 436,578

============================================= =======

At 31 December 2014 239,631 77,659 27,598 2,223 99,822 446,933

============================================= =======

70


16. Property, plant and equipment (continued) Building

improvements

Freehold Freehold Leasehold Leasehold and

land building land building renovations Total

** Land and buildings - Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost At 1 January 2013 55,724 120,419 12,375 50,055 36,267 274,840

Additions - 2,748 - (49) 5,087 7,786

Reclassifications - - - - (109) (109)

Disposals - - - (621) (1,958) (2,579)

Write off - - - - (1,837) (1,837)

Transfer from investment properties - 5,267 - - - 5,267

Transfer to asset held for sale - - - (1,060) - (1,060)

Exchange difference (20) (22) - (2,010) 7 (2,045)

___________________________________________________ ________


Additions - 1,160 - - 4,226 5,386

Reclassifications - 3,326 - (3,326) (2,035) (2,035)

Disposals (220) (409) - - (3,080) (3,709)

Transfer from investment properties - - - - - -

Transfer to asset held for sale - - - (1,750) - (1,750)

Exchange difference - - - 494 1 495

____________________________________________________ ________

At 31 December 2014 55,484 132,489 12,375 41,733 36,569 278,650

=============================================== =======

71



Building

improvements

Freehold Freehold Leasehold Leasehold and

land building land building renovations Total

** Land and buildings - Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Depreciation At 1 January 2013 - 6,006 986 4,294 21,467 32,753

Depreciation for the year - 2,710 174 1,297 2,010 6,191

Disposals - - - (164) (1,604) (1,768)

Write off - - - - (1,107) (1,107)

Transfer to asset held for sale - - - (33) - (33)

Exchange difference - (4) - (507) 7 (504)

__________________________________________________ ________

At 31 December 2013/1 January 2014 - 8,712 1,160 4,887 20,773 35,532

Depreciation for the year - 2,612 174 1,143 2,199 6,128

Reclassifications - 142 - (142) - -

Disposals - (46) - - (2,708) (2,754)

Transfer to asset held for sale - - - (54) - (54)

Exchange difference - - - 166 1 167

____________________________________________________ ________

At 31 December 2014 - 11,420 1,334 6,000 20,265 39,019

=============================================== =======

Carrying amounts At 1 January 2013 55,724 114,413 11,389 45,761 14,800 242,087

============================================= =======

At 31 December 2013 55,704 119,700 11,215 41,428 16,684 244,731

============================================= =======

At 31 December 2014 55,484 121,069 11,041 35,733 16,304 239,631 ============================================= =======

72



Furniture, Office

fixtures equipment

and Motor and

fittings Renovation vehicles computer Total

Company RM’000 RM’000 RM’000 RM’000 RM’000

Cost

At 1 January 2013 1,110 1,346 415 452 3,323

Additions - - - 144 144

Reclassifications (14) - - 14 -

Disposals - - - (48) (48)

_______________________________________ _____


1 January 2014 1,096 1,346 415 562 3,419

Additions - - - 54 54

_______________________________________ _____

At 31 December 2014 1,096 1,346 415 616 3,473

=================================== =====

Depreciation

At 1 January 2013 254 149 69 262 734

Depreciation for the year 265 225 104 81 675

Reclassifications (6) - - 6 -

Disposals - - - (48) (48)

_______________________________________ _____


1 January 2014 513 374 173 301 1,361

Depreciation for the year 260 224 104 93 681

_______________________________________ _____

At 31 December 2014 773 598 277 394 2,042

=================================== =====

Carrying amounts At 1 January 2013 856 1,197 346 190 2,589 =================================== ===== At 31 December 2013 583 972 242 261 2,058 =================================== ===== At 31 December 2014 323 748 138 222 1,431 =================================== =====

73


17. Investment properties Freehold Freehold Leasehold Leasehold

land building land building Total

Group RM’000 RM’000 RM’000 RM’000 RM’000

Cost

At 1 January 2013 6,491 12,088 585 12,076 31,240

Reclassified to asset

held for sale - - - (6,938) (6,938)

Reclassified to property,

plant and equipment - (5,535) - - (5,535)

Exchange difference - - (88) (70) (158) _______________________________________________ _______

At 31 December 2013

/1 January 2014 6,491 6,553 497 5,068 18,609

Disposals - (4,720) - (488) (5,208)

Exchange difference - - - 18 18 _______________________________________________ _______

At 31 December 2014 6,491 1,833 497 4,598 13,419

=================================== =====

Depreciation

At 1 January 2013 - 1,178 - 926 2,104

Depreciation for the year - 137 - 139 276

Reclassified to asset

held for sale - - - (205) (205)

Reclassified to property,

plant and equipment - (268) - - (268)

Exchange difference - - (10) (9) (19) ______________________________________________ _______

At 31 December 2013

/ 1 January 2014 - 1,047 (10) 851 1,888

Depreciation for the year - 70 - 88 158

Disposals - (62) - (75) (137)

Exchange difference - - - 4 4 _______________________________________________ _______

At 31 December 2014 - 1,055 (10) 868 1,913 =================================== =====

Carrying amounts At 1 January 2013 6,491 10,910 585 11,150 29,136 =================================== ===== At 31 December 2013 6,491 5,506 507 4,217 16,721 =================================== =====

At 31 December 2014 6,491 778 507 3,730 11,506 =================================== =====

Investment properties comprise a number of commercial properties that are leased to

third parties. Each of the leases contains an initial non-cancellable period of 3 years.

Subsequent renewals are negotiated with the lessee and on average renewal periods of 3

years.

74


17. Investment properties (continued)

Fair value of the Group’s investment properties are categorised as follows:

Level 1 Level 2 Level 3 Total

2014 RM’000 RM’000 RM’000 RM’000

Freehold land and buildings - - 5,320 5,320

Leasehold land and buildings

with unexpired lease period of

more than 50 years - - 3,820 3,820



less than 50 years - - 2,782 2,782

_______ _______ _______ _______

- - 11,922 11,922

====== ====== ====== ======

2013

Freehold land and buildings - - 6,344 6,344



more than 50 years - - 8,655 8,655



less than 50 years - - 4,715 4,715

_______ _______ _______ _______

- - 19,714 19,714

====== ====== ====== ======

The following are amounts arising from investment properties that have been

recognised in profit or loss during the financial year:

Group

2014 2013

RM’000 RM’000

Rental income (net of direct operating expenses) 3,887 3,087

====== ======

18. Assets classified as held for sale Group

2014 2013

RM’000 RM’000

At 1 January 7,209 3,374

Settlement for asset held for sale (7,209) (3,925)

Transferred from property, plant and equipment 1,696 1,027

Transferred from investment properties - 6,733

_______ _______

At 31 December 1,696 7,209

====== ======

The carrying value of investment properties is the same as its carrying value before being

reclassified to current assets.

75


19. Deposits from customers

(a) By type of deposit

Group

2014 2013

RM’000 RM’000

Savings deposits 5,091,650 4,674,482

Wadiah 3,052,428 2,379,204

Mudharabah 2,039,222 2,295,278

Demand deposits

Wadiah 10,470,568 9,790,057

Term Deposit 25,029,432 22,371,806

Special Investment Accounts

Mudharabah 4,755,488 18,436,466

General Investment Accounts

Mudharabah 919,816 2,012,162

Term & Special term deposit-i

Tawarruq 17,895,591 -

Negotiable Islamic Debt Certificates (NIDC) 1,229,025 1,466,205

Waheed-i 134,453 358,516

Ziyad 95,059 98,457

Others 86,729 88,022 ______________ ______________

Total Deposits 40,678,379 36,924,367 ============ ============

(b) Maturity structure of term deposits are as follows:

Group

2014 2013

RM’000 RM’000

Due within six months 21,933,815 20,152,221

More than six months to one year 2,834,535 2,036,519

More than one year to three years 224,132 136,897

More than three years to five years 36,950 46,169 ______________ ______________

25,029,432 22,371,806 ============ ============

(c) By type of customer

Government and statutory bodies 7,022,205 8,069,129

Business enterprises 9,638,052 9,688,640

Individuals 5,565,494 5,124,757

Others 18,452,628 14,041,841 ______________ ______________

40,678,379 36,924,367 ============ ============

76


20. Deposits and placements of banks and other financial

institutions Group

2014 2013

RM’000 RM’000

Non-Mudharabah fund

Licensed banks - 1,538

Other financial institutions - 44,564

_______ _______

- 46,102

---------- ----------

Mudharabah fund

Licensed banks 280,000 1,298,873

Other financial institutions 20,000 185,000

________ ________

300,000 1,483,873

------------ ------------

300,000 1,529,975

======= =======

21. Other liabilities 2014 2013

RM’000 RM’000

Group

Accruals and other payables 805,461 724,208

Clients’ and dealers’ credit balances 170,298 50,358

Dividend payable 219,545 -

________ _______

1,195,304 774,566

======= ======

Company

Accruals and other payables 1,944 11,361

Amount due to subsidiaries 52 664

Dividend payable 219,545 -

_______ _______

221,541 12,025

====== ======

The amount due to subsidiaries is non-trade, unsecured, not subject to financing charge

and repayable on demand.

77


22. Takaful liabilities Group

2014 2013


Takaful contract liabilities 22(a) 6,120,133 5,875,051

Expense reserves 22(b) 142,127 131,522

Takaful payables 22(c), 41.5(b) 61,317 75,428

________ ________

6,323,577 6,082,001

======= =======

(a) Takaful contract liabilities

The takaful contract liabilities comprise the following:

Group

2014 2013


Provision for outstanding claims 22(a)(i) 808,491 861,274

Provision for unearned contributions 22(a)(ii) 290,899 296,425

Participants’ fund 22(a)(iii) 5,020,743 4,717,352

________ ________

6,120,133 5,875,051

======= =======

(i) Provision for outstanding claims

The provision for outstanding claims and its movements are further analysed

as follows:

2014

Gross Retakaful Net

Note RM’000 RM’000 RM’000

Family Takaful

Provision for claims reported

by participants 33,310 (3,352) 29,958

Provision for IBNR* 169,748 (49,805) 119,943

________ ________ ________

Provision for outstanding

claims 203,058 (53,157) 149,901

======= ======= =======

General Takaful


by participants 375,636 (259,623) 116,013


________ ________ ________


claims 605,433 (352,710) 252,723

======= ======= =======

Note 42(b)

78


22. Takaful liabilities (continued)

(a) Takaful contract liabilities (continued)

(i) Provision for outstanding claims (continued)

2014

Gross Retakaful Net


Group


by participants 41.5(b) 408,946 (262,975) 145,971


________ ________ ________


claims 808,491 (405,867) 402,624

======= ======= =======

Note 11

2013

Gross Retakaful Net


Family Takaful


by participants 40,150 (2,278) 37,872


________ ________ ________


claims 195,807 (35,123) 160,684

======= ======= =======

General Takaful


by participants 433,215 (291,300) 141,915


________ ________ ________


claims 665,467 (372,270) 293,197

======= ======= =======

Group


by participants 41.5(b) 473,365 (293,578) 179,787


________ ________ ________


claims 861,274 (407,393) 453,881

======= ======= =======

Note 11

* Incurred-but-not-reported (“IBNR”)

79




(i) Provision for outstanding claims (continued)

Movement of provision for outstanding claims:

Group

Gross Retakaful Net

RM’000 RM’000 RM’000

At 1 January 2013 733,074 (301,150) 431,924

Claims incurred during the year 918,583 (225,695) 692,888

Adjustment to claims incurred in

prior accident years (91,255) 74,157 (17,098)

Claims paid during the year (769,419) 79,843 (689,576)

Increase in IBNR 72,779 (37,408) 35,371

Effect of movement in exchange rates (2,488) 2,860 372

_______ _______ _______


1 January 2014 861,274 (407,393) 453,881

Claims incurred during the year 796,871 (135,998) 660,873

Adjustment to claims incurred in

prior accident years (66,989) 45,418 (21,571)

Claims paid during the year (796,785) 121,754 (675,031)

Increase in IBNR 11,636 (29,077) (17,441)

Effect of movement in exchange rates 2,484 (571) 1,913

_______ _______ ________

At 31 December 2014 808,491 (405,867) 402,624

====== ====== =======

(ii) Provision for unearned contributions

The provision for unearned contributions and its movements are further

analysed as follows:

Group

Gross Retakaful Net

RM’000 RM’000 RM’000

31.12.2014 290,899 (69,949) 220,950

====== ====== ======

Note 11

31.12.2013 296,425 (80,200) 216,225

====== ====== ======

Note 11

80




(ii) Provision for unearned contributions (continued)

Movement of provision for unearned contributions:

Group

Gross Retakaful Net

RM’000 RM’000 RM’000

At 1 January 2013 295,439 (72,297) 223,142

Contributions written during the year 428,406 (141,347) 287,059

Contributions earned during the year (424,992) 132,969 (292,023)

Effect of movement in exchange rates (2,428) 475 (1,953)

_______ _______ _______


1 January 2014 296,425 (80,200) 216,225

Contributions written during the year 451,319 (170,096) 281,223

Contributions earned during the year (457,441) 180,457 (276,984)

Effect of movement in exchange rates 596 (110) 486

_______ _______ _______

At 31 December 2014 290,899 (69,949) 220,950

====== ====== ======

(iii) Participants’ fund

Participants’ fund balance at end of the reporting period comprises the

following:

Group

Gross Retakaful Net

RM’000 RM’000 RM’000

31.12.2014

Actuarial liabilities 4,022,862 (206,644) 3,816,218

Unallocated surplus/accumulated surplus 923,020 - 923,020

AFS reserve (68,235) - (68,235)

Translation reserve 999 - 999

Net assets value attributable to unitholders 142,097 - 142,097

________ ________ ________

5,020,743 (206,644) 4,814,099

======= ======= =======

Note 11

31.12.2013

Actuarial liabilities 3,708,819 (148,340) 3,560,479

Unallocated surplus/accumulated surplus 897,061 - 897,061

AFS reserve 1,379 - 1,379

Translation reserve 1,129 - 1,129

Net assets value attributable to unitholders 108,964 - 108,964

________ ________ ________

4,717,352 (148,340) 4,569,012

======= ======= =======

Note 11

81




(iii) Participants’ fund (continued)

Group

2014 2013

Gross Retakaful Net Gross Retakaful Net


At 1 January 4,717,352 (148,340) 4,569,012 4,419,630 (63,856) 4,355,774

Net earned contributions 1,235,114 (65,737) 1,169,377 1,391,017 (51,952) 1,339,065

Investment income 221,114 - 221,114 211,900 - 211,900

Realised gains 42,009 - 42,009 132,936 - 132,936

Fair value gains 12,871 - 12,871 9,621 - 9,621

Other operating income 6,540 - 6,540 2,931 - 2,931

Net benefits and claims (696,349) 69,152 (627,197) (782,178) 63,696 (718,482)

Fees deducted (net) (321,367) - (321,367) (362,158) - (362,158)

Other operating expenses (24,625) - (24,625) (11,641) - (11,641)

Profit paid to participants (30,429) - (30,429) (31,639) - (31,639)

Increase in actuarial liabilities 58,295 (58,016) 279 38,482 (85,501) (47,019)

Profit attributable to the Takaful Operator (130,812) (3,414) (134,226) (145,792) (11,745) (157,537)

Excess payment transferred to participants (1,239) - (1,239) 3,236 - 3,236

Change in AFS reserve (69,613) - (69,613) (106,411) - (106,411)

Withholding tax (11,281) - (11,281) (4,030) - (4,030)

Effect of movement in exchange rates 13,163 (289) 12,874 (48,552) 1,018 (47,534)

_____________________________ _____________________________

At 31 December 5,020,743 (206,644) 4,814,099 4,717,352 (148,340) 4,569,012

========================== ==========================

82



(b) Expense reserves

Group

2014 2013

RM’000 RM’000

At 1 January 131,522 89,486

Provision for the year, net 10,415 42,770

Effect of movement in exchange rates 190 (734)

_______ _______

At 31 December 142,127 131,522

====== ======

(c) Takaful payables

Group

2014 2013

RM’000 RM’000

Due to retakaful companies 46,409 61,359

Due to Intermediaries/Participants 14,908 14,069

_______ _______

61,317 75,428

====== ======

23. Sukuk liabilities Group and Company

2014 2013

RM’000 RM’000

Sukuk liabilities 1,133,256 1,089,935

======= =======

The amount refers to the 10-year Islamic securities (“Sukuk”) of RM1.66 billion in

nominal value issued by the Company on 12 December 2013.

24. Share capital Group and Company

2014 2013

RM’000 RM’000

Authorised:

Ordinary shares of RM1 each 2,000,000 2,000,000

======= =======

Issued and fully paid:

Ordinary shares of RM1 each as at 1 January 2014 1,493,506 1,066,790

Issuance of shares via the renounceable rights - 426,716

Issuance of shares under conversion of warrants * - ____________ ____________

Ordinary shares of RM1 each as at 31 December 2014 1,493,506 1,493,506

======= =======

83


24. Share capital (continued)

(a) Ordinary shares

In December 2013, the Company increased its issued and paid-up share capital from

RM1,066,789,896 to RM1,493,505,854 via the renounceable rights issue of

426,715,958 new ordinary shares of RM1.00 each.

There is no change in the authorised and issued and fully paid shares of the

Company during the financial year.

(b) Warrants

On 11 December 2013, the Company issued 426,715,958 new ordinary shares of

RM1.00 each together with 426,715,958 free detachable warrants at an issue price

of RM4.25 per rights share on the basis of two (2) rights share together with two (2)

warrants for every five (5) existing shares. The warrants will expire at the end of ten

years from the date of issuance.

Warrants converted during the financial year resulted in 80 (2013: Nil) new ordinary

shares of RM1.00 each being issued.

As at 31 December 2014, 426,715,878 (2013: 426,715,958) warrants remained

unexercised.

25. Reserves

25.1 Share premium and reserves

Breakdown of share premium and reserves are as follows:

Group

2014 2013


Share premium 1,859,628 1,859,628

Other reserves 25.2 (386,831) (592,405)

(Accumulated losses)/Retained earnings (17,266) 49,608

________ ________

1,455,531 1,316,831

======= ======= Company

2014 2013

RM’000 RM’000

Share premium 1,859,628 1,859,628

Fair value reserves 51 (45)

Warrant reserves 129,300 129,300

Retained earnings 15,599 235,004

________ ________

2,004,578 2,223,887

======= =======

Khalid

Sticky Note

84


25. Reserves (continued)

25.2 Other reserves

Capital Statutory Warrant Acquisition Fair value Translation LTIP*

reserve reserve reserve Reserve reserve reserve reserve Total

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

At 1 January 2013 6,863 358,719 - - 69,176 (6,325) - 428,433

Foreign exchange translation differences - - - - - (12,052) - (12,052)

Fair value reserve:

Net change in fair value

-

-

-

-

(56,440)

-

-

(56,440)

Net amount reclassified to profit or loss - - - - (8,489) - - (8,489)

Transfer from current year profit - 125,370 - - - - - 125,370

Issuance of rights issue shares with warrants - - 129,300 - - - - 129,300

Acquisition of additional interest in subsidiary

from non – controlling interests - - - (1,199,747) - - - (1,199,747)

Share-based payment transactions - - - - - - 1,220 1,220

__________ ___________ __________ _________ __________ __________ _________ __________

At 31 December 2013/1 January 2014 6,863 484,089 129,300 (1,199,747) 4,247 (18,377) 1,220 (592,405)

Foreign exchange translation differences - - - - - (21,906) - (21,906)

Fair value reserve:

Net change in fair value

-

-

-

-

(5,609)

-

-

(5,609)

Net amount reclassified to profit or loss - - - - (23,307) - - (23,307)

Transfer from current year profit - 254,517 - - - - - 254,517

Share-based payment transactions - - - - - - 2,903 2,903

LTIP* exercised - - - - - - (1,024) (1,024)

__________ ___________ _________ _________ __________ __________ _________ __________

At 31 December 2014 6,863 738,606 129,300 (1,199,747) (24,669) (40,283) 3,099 (386,831)

========= ========== ======== ========= ========= ========= ======== =========

* Long Term Incentive Plan

Khalid

Sticky Note

waa lacagtii luntay weeye way khasartay

85


25. Reserves (continued)

25.2 Other reserves (continued)

Acquisition reserve The acquisition reserve is the difference between the consideration paid and the

49% equity interest in Bank Islam Malaysia Berhad acquired in December 2013.

Warrant reserve The warrant reserve arose from the Company’s issuance of 426,715,958 free

detachable warrants on 11 December 2013.

Capital reserve The capital reserve arose out of the issuance of bonus issue in a subsidiary of

RM6,863,000.

Share premium

Share premium comprises the premium paid on subscription of shares in the

Company over and above the par value of the shares.

Translation reserve The translation reserve comprises all foreign currency differences arising from the

translation of the financial statements of foreign operations.

Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of

available-for-sale financial assets recognised in other comprehensive income until

the investments are derecognised or impaired.

Statutory reserve

The statutory reserve is maintained in compliance with Section 57(2)(f) of the

Islamic Financial Service Act, 2013 and is not distributable as cash dividends.

Long Term Incentive Plan (“LTIP”) reserve The LTIP reserve comprises the cumulative value of employee services received

for the issue of Restricted Share Plan and Performance Share Plan in Takaful

Malaysia. When the LTIP is exercised, the amount from the LTIP reserve is

transferred to share premium. When the LTIP expires, the amount from the LTIP

reserve is transferred to retained earnings. LTIP is disclosed in Note 26.

86


26. Employee benefits

Share-based payments arrangement

At the Extraordinary General Meeting of Syarikat Takaful Malaysia Berhad (“Takaful

Malaysia”) a subsidiary of the Company, held on 24 July 2013, the shareholders

approved the establishment of a Long Term Incentive Plan (“LTIP”), which comprises a

Restricted Share Plan (“RSP”) and a Performance Share Plan (“PSP”), of not more than

10% of issued and paid-up share capital of Takaful Malaysia (excluding treasury shares)

to eligible employees and executive directors of Takaful Malaysia. The LTIP was

effected on 20 August 2013 following the submission of the By-Laws for the LTIP to

Bursa Malaysia Securities Berhad, the receipt of all required approvals and the

compliance with the requirements pertaining to the LTIP.

The salient features of the LTIP are, inter alia, as follows:

i) The RSP is a restricted share plan for selected key employees and the executive

directors of Takaful Malaysia and its subsidiaries (collectively known as “Takaful

Malaysia Group”). The RSP Grant is intended as a one-off grant, subject to the

discretion of the Long-term Incentive Plan Committee (“LTIP Committee”) for

future grants, to retain key employees for the development, growth and success of

Takaful Malaysia Group. The RSP will be vested to the RSP Grantees at no

consideration over a period of up to three (3) years pro-rata which may include

additional holding periods for each vesting as determined by the LTIP Committee,

whereby selected employees will be assessed based on, amongst others, the

individual performance and achievement, which may include but are not limited to,

profit after zakat and taxation and/or other financial measures as may be relevant, in

accordance with terms and conditions stipulated and determined by the LTIP

Committee in its discretion. The LTIP Committee is a committee established by the

Board to implement and administer the LTIP in accordance with the LTIP By-Laws.

ii) The PSP is a performance share plan for selected key employees and the executive

directors of Takaful Malaysia Group. The PSP Grant is an annual grant to incentivise

key employees for the long-term success and growth of Takaful Malaysia Group as

well as shareholders’ value enhancement. The PSP will be vested to the RSP

Grantees at no consideration over a period of up to three (3) years cliff vesting

schedule whereby selected employees will be assessed based on, amongst others, the

total shareholders' return, which is the improvement in stock price including

dividends paid, and the long-term financial performance of Takaful Malaysia over a

period of three (3) financial years, or such other period of time should the LTIP

Committee choose to do so, in accordance with terms and conditions stipulated and

determined by the LTIP Committee in its discretion.

iii) Eligible employees are those executives (including executive directors) of Takaful

Malaysia Group (other than subsidiaries which are dormant) who have attained the

age of 18 years; entered into a full-time or fixed-term contract of employment with

and is on the payroll of a company within the Takaful Malaysia Group; have not

served notice of resignation or received notice of termination on the date of the offer;

whose service/employment have been confirmed in writing; and have fulfilled other

eligibility criteria which has been determined by the LTIP Committee at its sole and

absolute discretion from time to time.

87


26. Employee benefits (continued)

The salient features of the LTIP are, inter alia, as follows (continued):

iv) The total number of Takaful Malaysia Shares to be offered to any one of the

employees and/or to be vested in any one of the grantees shall not be more than

10% of the Takaful Malaysia Shares made available under the LTIP and shall not

either singly or collectively through persons connected with the said employee,

holds 20% or more of the Takaful Malaysia’s issued and paid up share capital.

v) The maximum number of Takaful Malaysia Shares to be allotted and issued under

LTIP shall not be more than in aggregate 10% of the issued and paid-up ordinary

share capital of Takaful Malaysia at any point in time during the duration of the

LTIP.

vi) The LTIP shall be in force for a period of ten (10) years from the effective date of

implementation of the LTIP.

vii) The new Takaful Malaysia Shares to be allotted and issued pursuant to the LTIP

shall, upon allotment and issuance, rank pari passu in all respects with the then

existing issued Takaful Malaysia Shares and shall be entitled to any rights,

dividends, allotments and/or distributions attached thereto and/or which may be

declared, made or paid to Takaful Malaysia’s shareholders, provided that the

relevant allotment date of such new shares is before the record date (as defined in

the LTIP By-Laws) for any right, allotment or distribution.

viii) If the LTIP Committee so decides (but not otherwise), in the event of any alteration

in the capital structure of Takaful Malaysia’s during the duration of the LTIP, such

corresponding alterations (if any) may be made in the number of unvested Takaful

Malaysia Shares and/or the method and/or manner in the vesting of the Takaful

Malaysia Shares comprised in a grant.

During the year, the number of the shares in Takaful Malaysia granted are as follows:

Restricted Performance

Shares Shares

Number Number

of of

shares shares Total

('000) ('000) ('000)

At 1 January 2013 - - -

Granted during the year 607 724 1,331

_______ _______ _______

Outstanding at 31 December 2013/1 January 2014 607 724 1,331

Granted during the year - 460 460

Exercised during the year (189) - (189)

Forfeited during the year (39) (111) (150)

_______ _______ _______

Outstanding at 31 December 2014 379 1,073 1,452

====== ====== ======

88


26. Employee benefits (continued)

During the financial year, 189,500 shares in Takaful Malaysia were vested. The weighted

average share price at the date of exercise for the year was RM8.96 (2013: Nil).

The fair value in Takaful Malaysia services received in return for Restricted Shares and

Performance Shares granted are based on the fair value of Restricted Shares and

Performance Shares granted respectively, measured using Monte Carlo Simulation, with

the following inputs:

Restricted Performance

Shares Shares

Fair value and assumption 2014 2013 2014 2013

Fair value at grant date (RM) 7.194 7.194 10.533 6.996

======= ======= ======= =======

Weighted average share price (RM) 7.194 7.194 10.533 6.996

Share price at grant date (RM) 7.755 7.755 12.580 7.755

Expected volatility 31.19% to

(weighted average volatility) 34.30% 34.30% 34.30% 34.30%

Option life

(expected weighted average life) 3 3 3 3

0.0384 to

Expected dividends (RM) 0.0384 0.0384 0.0431 0.0384

Risk-free profit rate (based on 3.30% to 3.30% to 3.43% to 3.43%

Malaysian government bonds) 3.52% 3.52% 3.52%

======= ======= ======= =======

Value of employee services received for issue of Takaful Malaysia shares

Group

2014 2013

RM’000 RM’000

Expense recognised as share-based payments

Shares granted in 2013

- Restricted shares 2,327 1,148

- Performance shares 2,017 868 ____________ ____________

4,344 2,016 ____________ ____________

Shares granted in 2014

- Performance shares 470 - ____________ ____________

4,814 2,016

======= =======

89


27. Income derived from investment of depositors’ funds

Group

2014 2013

RM’000 RM’000 Income derived from investment of:

(i) General investment deposits 114,634 118,442

(ii) Other deposits 1,917,451 1,732,836

________ ________

2,032,085 1,851,278

======= =======

(i) Income derived from investment of general investment deposits

Group

2014 2013

RM’000 RM’000

Financing income and hibah

Financing, advances and others 89,451 86,619

Financial assets:

- Held-for-trading 2,399 1,903

- Available-for-sale 19,152 24,173

- Held-to-maturity 286 652

Money at call and deposit with financial institutions 2,138 4,211

_______ _______

113,426 117,558

---------- ----------

Other dealing income Net loss from sale of financial assets

held-for-trading (192) (594)

Net gain on revaluation of financial assets

held-for-trading 173 596

_______ _______

(19) 2

---------- ----------

Other operating income

Net gain from sale of financial assets available-for-sale 1,227 911

Loss on redemption of financial assets held-to-maturity - (29)

_______ _______

1,227 882

---------- ----------

114,634 118,442

====== ======

of which

Financing income earned on impaired financing 1,409 1,696

====== ======

90


27. Income derived from investment of depositors’ funds

(continued)

(ii) Income derived from investment of other deposits

Group

2014 2013

RM’000 RM’000

Financing income and hibah Financing, advances and others 1,498,013 1,267,866

Financial assets:

- Held-for-trading 39,970 27,903

- Available-for-sale 318,176 353,419

- Held-to-maturity 4,961 9,495

Money at call and deposits with financial institutions 36,171 61,476

________ ________

1,897,291 1,720,159

------------ ------------

Other dealing income

Net loss from sale of financial assets

held-for-trading (3,172) (8,948)

Net gain on revaluation of financial assets

held-for-trading 2,558 8,554

________ ________

(614) (394)

------------ ------------


Net gain from sale of financial assets available-for-sale 20,774 13,501

Loss on redemption of financial assets held-to-maturity - (430)

________ ________

20,774 13,071

------------ ------------

1,917,451 1,732,836

======= =======

of which

Financing income earned on impaired financing 23,612 24,744

======= =======

91


28. Income derived from investment of shareholders’ funds

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Financing income and hibah Financing, advances and others 6,133 4,429 - -

Financial assets available-for-sale 119,197 103,988 - -

Money at call and deposits with

financial institutions 7,342 15,919 3,178 5,634

_______ _______ _______ _______

132,672 124,336 3,178 5,634

----------- ---------- ---------- ----------

Other dealing income

Net gain from foreign exchange

transactions 95,443 83,797 - -

Net gain from sale of financial

assets held-for-trading 102 93 - -

Net gain on revaluation of financial

assets held-for-trading 295 - - -

Net derivatives (loss)/gain (2,370) 9,163 - -

_______ _______ _______ _______

93,470 93,053 - -

----------- ---------- ---------- ----------


Net loss from sale of financial assets

available-for-sale (316) - - -

Reversal of allowance for doubtful debts - 201 - -

Gross dividend income from securities:

- Quoted in Malaysia 309 6 - -

- Unit trust in Malaysia 616 768 603 749

- Unit trust outside Malaysia 16 - - -

- Unquoted in Malaysia 2,619 6,458 - -

Gross dividend income from

subsidiary companies - - 201,610 270,285

Fees and commission 161,454 178,632 - -

Net (loss)/gain on disposal of

property, plant and equipment (1,394) (1,514) - 2

Net gain on disposal of shares in

subsidiary - - 2,305 6,900

Rental income 2,923 2,770 - -

Others 216 349 31 4

________ ________ _______ _______

166,443 187,670 204,549 277,940

------------ ------------ ----------- -----------

392,585 405,059 207,727 283,574

======= ======= ====== ======

92


29. Net income from Takaful business

Group

2014 2013


Net earned contributions

Gross earned contributions 1,415,806 1,523,388

Contribution ceded to retakaful (246,194) (184,921)

________ ________

29(a) 1,169,612 1,338,467

________ ________

Other income

Administration income 40,524 30,954

Investment income 240,317 230,061

Realised gains and losses 47,544 144,072

Fair value gains and losses 11,701 3,575

Other operating income 9,581 6,593

_______ _______

349,667 415,255

---------- ----------

Net benefits and claims

Gross benefits and claims paid (796,785) (769,419)

Claims receded to retakaful 121,754 79,843

Gross change to contract liabilities 55,267 (130,688)

Change to contract liabilities ceded to takaful (2,097) 109,103

_______ _______

29(b) (621,861) (711,161)

---------- ----------

Expense reserves (10,415) (42,770)

---------- ----------

Income from takaful business 887,003 999,791

Profits attributable to participants/takaful operator (344,200) (446,733)

_______ _______

Net income from takaful business 542,803 553,058

====== ======

93


29. Net income from Takaful business (continued)

(a) Net earned contributions

Group

2014 2013

RM’000 RM’000

Gross contributions 1,409,614 1,480,301

Change in actuarial reserves/unearned

contributions reserves 6,192 43,087

________ ________

Gross earned contributions 1,415,806 1,523,388

------------ ------------

Retakaful (235,833) (193,299)

Change in actuarial reserves/unearned

contributions reserve (10,361) 8,378

________ ________

Net earned contributions 1,169,612 1,338,467

======= =======

(b) Net benefits and claims

Group

2014 2013

RM’000 RM’000

Gross benefits/claims paid (796,785) (769,419)

Retakaful recoveries 121,754 79,843

________ ________

Net benefits/claims paid (675,031) (689,576)

----------- -----------

Gross change in contract liabilities:

At 31 December (808,491) (861,274)

Less:

At 1 January (861,274) (733,074)

Effect of movement in exchange rates 2,484 (2,488)

----------- -----------

55,267 (130,688)

----------- -----------

Change in contract liabilities ceded to retakaful companies:

At 31 December 405,867 407,393

Less:

At 1 January 407,393 301,150

Effect of movement in exchange rates (571) 2,860

________ ________

(2,097) 109,103

----------- -----------

(621,861) (711,161)

======= =======

94


30. Allowance for/(Reversal of) impairment on financing and

advances

Group

2014 2013

RM’000 RM’000


- collective assessment allowance 162,878 141,621

- individual assessment allowance 34,055 79,103

Bad debts and financing recovered (136,940) (235,733)

_______ _______

59,993 (15,009)

====== ======

31. (Reversal of)/Allowance for impairment on investments

Group

2014 2013 RM’000 RM’000

Financial assets:

- available-for-sale (2,872) 9,537

- held-to-maturity (106) (326)

______ ______

(2,978) 9,211

===== =====

32. Income attributable to depositors Group

2014 2013

RM’000 RM’000 Deposits from customers

- Mudharabah Fund 594,380 593,296

- Non-Mudharabah Fund 227,159 155,773

Deposits and placements of banks and

other financial institutions

- Mudharabah Fund 23,155 19,237

- Non-Mudharabah Fund 307 4,495

_______ _______

845,001 772,801

====== ======

Khalid

Sticky Note

waa kuwaa lo yidho ee lacagta hore u bixin wayahayaa

95


33. Personnel expenses

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Salaries and wages 460,097 452,974 3,302 3,260

Employees’ Provident Fund 56,417 56,129 456 432

Directors’ remuneration 22,427 20,370 3,535 3,072

Others 60,111 64,448 452 455

_______ _______ _______ _______

599,052 593,921 7,745 7,219

====== ====== ====== ======

(a) Aggregate remuneration of Directors of the Group and the Company

categorised into appropriate components are as follows:

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Directors of the Company

Executive Director:

Fees and allowances 355 284 - -

Salaries, bonuses and EPF

contributions 2,202 1,907 2,202 1,907

Benefits-in-kind 191 77 90 54

______ ______ ______ ______

2,748 2,268 2,292 1,961

Non-Executive Directors:

Fees and allowances 2,206 2,065 992 957

Benefits-in-kind 532 346 251 154

______ ______ ______ ______

Total 5,486 4,679 3,535 3,072

===== ===== ===== =====

Directors of the subsidiary companies

Executive Directors:

Salaries, bonuses and EPF

contributions 13,913 13,195 - -

Benefits-in-kind 474 477 - -

______ ______ ______ ______

14,387 13,672 - -

--------- --------- --------- ----------

Non-Executive Directors:

Fees and allowances 2,181 1,773 - -

Benefits-in-kind 373 246 - -

______ ______ ______ ______

Total 16,941 15,691 - -

===== ===== ===== =====

96


33. Personnel expenses (continued)

(a) Aggregate remuneration of Directors of the Group and the Company

categorised into appropriate components are as follows (continued):

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Grand Total 22,427 20,370 3,535 3,072

===== ===== ===== =====

Total (excluding benefits

-in-kind) 20,857 19,224 3,194 2,864

===== ===== ===== =====

(b) Shariah Supervisory Council 731 603 - -

===== ===== ===== =====

34. Other overhead expenses Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Promotion 177,287 200,393 333 275

Establishment 220,135 207,546 1,994 1,869

General expenses 168,121 197,204 2,023 22,270

_______ _______ _______ _______

565,543 605,143 4,350 24,414

====== ====== ====== ======

Included in other overhead expenses are:

Auditors’ remuneration

- Statutory audit - KPMG 1,239 1,361 115 97

- Other auditors 100 121 - -

- Other services - KPMG 694 360 17 360

Depreciation of property,

plant and equipment 61,077 60,347 681 675

Depreciation of investment

properties 158 276 - -

Rental of properties 53,734 51,907 882 852


write off 52 4,659 - -

Rental of equipment 5,890 5,384 100 99

====== ====== ====== ======

97


35. Key management personnel

Key management personnel are defined as those persons having authority and

responsibility for planning, directing and controlling the activities of the Group either

directly or indirectly. The key management personnel include all the Directors of the

Group, and certain senior management members of the Group.

The compensation for key management personnel other than Directors’ remuneration

are as follows:

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Other key management personnel:

- Short-term employee benefits 45,837 43,381 1,218 1,210

- Benefits-in-kind 656 681 52 54

______ ______ ______ ______

46,493 44,062 1,270 1,264

===== ===== ===== =====

36. Tax expense

Major components of tax expense

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Malaysian income tax:

Current year 228,447 254,306 705 56,711

(Over)/Under provision in prior years (19,065) 2,510 (383) (250)

_______ _______ _______ _______

209,382 256,816 322 56,461

---------- ---------- ---------- ----------

Deferred tax expense:

Origination and reversal of

temporary differences (2,008) (8,802) - -

Under/(Over) provision in prior years 7,904 (5,849) - -

_______ _______ _______ _______

5,896 (14,651) - -

---------- ---------- ---------- ----------

215,278 242,165 322 56,461

====== ====== ====== ======

98


36. Tax expense (continued)

A reconciliation of effective tax expense for the Group and Company are as follows:

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Profit before tax 815,384 819,427 127,410 248,592

====== ====== ====== ======

Income tax calculated using

Malaysian tax rate of 25%

(2013: 25%) 203,846 204,857 31,853 62,148

Non-deductible expenses 30,584 44,142 19,982 7,252

Non-taxable income (7,767) (3,495) (51,130) (12,689)

Deferred tax assets not recognised (224) - - -

_______ _______ _______ _______

226,439 245,504 705 56,711

(Over)/Under provision in

prior years (19,065) 2,510 (383) (250)

Under/(Over) provision of deferred tax 7,904 (5,849) - -

_______ _______ _______ _______

Tax expense 215,278 242,165 322 56,461

====== ====== ====== ======

Recognised in other comprehensive

income:

Deferred tax expense

Provisions 2,351 839 - -

Property, plant and equipment - (146) - -

_______ _______ _______ _______

2,351 693 - -

====== ====== ====== ======

Based on the recent amendments of Section 60AA of the Income Tax Act 1967 (ITA),

the wakalah fee received by Shareholders’ fund from Family Business is not subjected

to income tax. Accordingly, commission and management expenses incurred by

Shareholders’ fund in relation to Family Business are disallowed as deductible

expenses. The amended Section 60AA of ITA will be effective for year of assessment

2015 onwards.

99


37. Earnings per share

Basic earnings per ordinary share

The calculation of basic earnings per ordinary share at 31 December 2014 was based on

the profit attributable to owners of the Company and the weighted average number of

ordinary shares in issue during the year:

Group

2014 2013

RM’000 RM’000

Profit attributable to owners of the Company 532,329 279,327

====== ======

Group

2014 2013

’000 ’000

Weighted average number of ordinary shares 1,493,506 1,080,819

======= =======

Group

2014 2013

Sen Sen

Basic earnings per ordinary share 35.64 25.84

===== =====

Diluted earnings per share

The Group have no dilution in their earnings per ordinary share as the warrants are

currently out-of-money in view that the exercise price for each warrant is higher than

the closing market price of the Company’s shares as at 31 December 2014.

100


38. Dividends

Dividends recognised by the Company:

Sen Total

per share amount Date of

2014 RM’000 payment

Final 2013 ordinary 8.50 126,948 29 May 2014

Interim 2014 ordinary 14.70 219,545 13 January 2015

______ _______

Total amount 23.20 346,493

===== ======

2013

Final 2012 ordinary 5.00 53,339 17 June 2013

First interim 2013 ordinary 3.50 37,338 21 October 2013

______ _______

Total amount 8.50 90,677

===== ======

The Directors do not recommend any final dividend to be paid for the year under

review.

101


39. Related party transactions

Parties are considered to be related if one party has the ability to control the other party

or exercise significant influence over the other party in making financial or operational

decisions, or where the parties are subject to common control or common significant

influence. Related parties may be individuals or other entities.

The Group or the Company has a related party relationship with its subsidiaries (see

Note 14), associates (see Note 15) and holding corporation of the Company.

(a) The significant related party transactions of the Group and the Company, other

than key management personnel compensation, are as follows:

Group Company

transactions for transactions for

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Holding Company

Gain/(Loss) on forex transaction 95 (11,263) - -

Profit attributable on deposits placed 84,996 108,750 - -

Rental of premises paid 21,608 20,128 - -

Brokerage income 3,292 3,678 - -

Contribution income for

Family Takaful 5,823 - - -

Contribution income for

General Takaful 2,675 2,677 - -

Claims paid for Family Takaful 985 - - -

Claims paid for General Takaful 718 1,726 - -

Other rental 292 227 - -

Office rental received 17 - - -

Fees and commission received 1 6 - -

Commission paid for Takaful 56 - - -

====== ====== ====== ======

Subsidiaries

Income receivable on deposits placed - - 3,220 3,056

Office rental paid - - 929 845

Others - - 20 17

Contribution paid for General Takaful - - 17 15

Contribution paid for Family Takaful - - 81 -

Claims receivable for General Takaful - - 187 -

====== ====== ====== ======

Other related companies

Income received from financing,

advances and others 12 1,279 - -

Net gain on forex transaction 1,086 563 - -

Profit attributable on deposits placed 5,986 4,818 - -

Fees and commission received 27 60 - -

Office rental paid 421 - - -

====== ====== ====== ======

102


39. Related party transactions (continued)

(b) The significant outstanding balances of the Group and the Company with related

party, are as follows:

Group Company

Net balance Net balance

outstanding as at outstanding as at

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Holding company

Amount due from

Others - 30 - -

Amount due to

Demand and investment

deposits 2,639,396 4,308,191 - -

Profit payable to investment

deposit 3,347 1,851 - -

Commitment and

contingencies 187 127 - -

Sukuk liabilities 1,133,256 1,089,935 1,133,256 1,089,935

======= ======= ======= =======

Subsidiaries

Amount due from

Current account and

investment deposits - - 123,834 147,106


deposit - - 472 86

Others - - 271 -

Amount due to

Others - - 52 664

====== ====== ====== ======

Other related companies

Amount due from

Financing, advances and

others 205 77,448 - -

Amount due to

Demand and investment

deposits 618,454 200,846 - -

Commitment and contingencies 3,478 5,726 - -


deposit 247 204 - -

====== ====== ====== ======

103


40. Capital adequacy

The Total Capital Ratio computation consists of the capital adequacy ratios of Bank

Islam Malaysia Berhad and its subsidiaries (“Bank Islam” or “the Bank”).

The Company is not required to maintain any capital adequacy ratios.

Capital Adequacy Ratios

Total capital and capital adequacy ratios of the Bank have been computed based on

BNM’s Capital Adequacy Framework for Islamic Banks (Capital Components and

Risk-Weighted Assets) issued on 28 November 2012. The minimum regulatory capital

adequacy ratios requirement for Common Equity Tier I (“CET I”) capital ratio, Tier I

capital ratio and total capital ratio are 4.0%, 5.5% and 8.0% respectively for year 2014.

The Bank has adopted the Standardised Approach for Credit Risk and Market Risk and

the Basic Indicator Approach for Operational Risk.

The capital adequacy ratios of Bank Islam are set out below:

2014 2013

% %

Common Equity Tier I (CET I) Capital Ratio 12.240 12.964

Total Tier 1 Capital Ratio 12.240 12.964

Total Capital Ratio 13.355 14.056

The components of CET I, Tier I and Tier II capital of Bank Islam:

2014 2013

RM’000 RM’000

Tier I capital

Paid-up share capital # 2,319,907 2,298,165

Share premium 90,981 52,281

Retained earnings 388,923 253,822

Other reserves 929,779 722,567

Less: Deferred tax assets (31,220) (24,613) ____________ ____________

Total CET I and Tier I Capital 3,698,370 3,302,222 ____________ ____________

Collective assessment allowance ^ 336,850 278,155 ____________ ____________

Total Tier II Capital 336,850 278,155 ____________ ____________

Total Capital 4,035,220 3,580,377

======= =======

^ Collective assessment allowance on non-impaired financing subject to

maximum of 1.25% of total credit risk-weighted assets.

104


40. Capital adequacy (continued)

The breakdown of risk-weighted assets by each major risk category is as follows:

2014 2013

RM’000 RM’000

Credit risk 26,947,994 22,252,433

Market risk 542,910 761,777

Operational risk 2,724,074 2,457,803 _____________ _____________

30,214,978 25,472,013

======== ========

105



The off-balance sheet and counterparties credit risk for Bank Islam is as

follows:

Positive Fair

Value of Credit Risk

31 December 2014 Principal Derivative Equivalent Weighted

Amount Contracts Amount Asset

Nature of item RM’000 RM’000 RM’000 RM’000

Credit related exposures

Direct credit substitutes 360,433 - 360,433 355,715

Assets sold with recourse 2 - 2 2

Transaction related contingent items 1,026,265 - 513,132 451,601

Short term self-liquidating trade

related contingencies 236,874 - 47,375 45,832

Other commitments, such as formal

standby facilities and credit lines,

with an original maturity of:

- not exceeding one year 6,165 - 1,233 1,215

- exceeding one year 942,851 - 471,425 378,793

Unutilised credit card lines 1,023,337 - 204,668 153,502

Any commitments that are

unconditionally cancelled at any

time by the bank without prior

notice or that effectively provide

for automatic cancellation due

to deterioration in a borrower’s

creditworthiness 5,404,888 - - -

_________ ________ ________ ________ 9,000,815 - 1,598,268 1,386,660 -------------- ------------ ------------ ------------ Derivative Financial Instruments Foreign exchange related contracts

- less than one year 1,840,778 45,508 65,406 36,492

Profit rate related contracts

- less than one year 300,000 348 308 62

- one year to less than five years 600,000 12,278 20,153 4,031

- five years and above 287,694 4,392 12,996 12,996

Equity related contracts

- one year to less than five years 106,680 15 6,401 3,200

_________ ________ ________ ________ 3,135,152 62,541 105,264 56,781 -------------- ------------ ------------ ------------ Total 12,135,967 62,541 1,703,532 1,443,441 ======== ======= ======= =======

106



The off-balance sheet and counterparties credit risk for Bank Islam is as follows

(continued):

Positive Fair

Value of Credit Risk

31 December 2013 Principal Derivative Equivalent Weighted

Amount Contracts Amount Asset

Nature of item RM’000 RM’000 RM’000 RM’000

Credit related exposures

Direct credit substitutes 319,032 - 319,032 312,160

Assets sold with recourse 2 - 2 2

Transaction related contingent items 877,246 - 438,623 386,730

Short term self-liquidating trade

related contingencies 278,297 - 55,659 54,695


standby facilities and credit lines,

with an original maturity of:

- not exceeding one year 1,714 - 343 327

- exceeding one year 823,818 - 411,909 338,294

Unutilised credit card lines 991,097 - 198,219 148,665

Any commitments that are

unconditionally cancelled at any

time by the bank without prior

notice or that effectively provide

for automatic cancellation due

to deterioration in a borrower’s

creditworthiness 5,116,604 - - -

_________ ________ ________ ________ 8,407,810 - 1,423,787 1,240,873 -------------- ------------ ------------ ------------ Derivative Financial Instruments Foreign exchange related contracts

- less than one year 1,381,894 8,681 18,546 10,290


- less than one year 100,000 695 250 50

- one year to less than five years 500,000 2,705 9,000 1,800

- five years and above 711,481 16,455 35,660 19,660

Equity related contracts

- one year to less than five years 110,495 582 8,840 4,420

_________ ________ ________ ________ 2,803,870 29,118 72,296 36,220 -------------- ------------ ------------ ------------ Total 11,211,680 29,118 1,496,083 1,277,093 ======== ======= ======= =======

107


41. Financial Risk Management policies

41.1 Categories of financial instruments

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

(a) Financing, advances and receivables (“F&R”)

(b) Fair value through profit or loss (“FVTPL”)

(c) Financial assets available-for-sale (“AFS”)

(d) Financial assets held-to-maturity (“HTM”)

(e) Financial liabilities measured at amortised cost (“FL”)

Group

31 December 2014

RM’000

Carrying

amount F&R/(FL) FVTPL AFS HTM Derivatives

Financial assets

Cash, balances and placements

with banks 4,619,496 4,619,496 - - - -

Financial assets held-for-trading 1,165,590 - 1,165,590 - - -

Derivative financial assets 62,541 - - - - 62,541

Financial assets available-for-sale 13,815,889 - - 13,815,889 - -

Financial assets held-to-maturity 547,258 - - - 547,258 -

Financing, advances and others 29,524,571 29,524,571 - - - -

Takaful assets 811,051 811,051 - - - -


Negara Malaysia 1,335,000 1,335,000 - - - -

Other assets 538,204 538,204 - - - -

52,419,600 36,828,322 1,165,590 13,815,889 547,258 62,541


Deposits from customers (40,678,379) (40,678,379) - - - -


and other financial institutions (300,000) (300,000) - - - -

Derivative financial liabilities (32,407) - - - - (32,407)

Bills and acceptance payable (127,524) (127,524) - - - -

Other liabilities (1,195,304) (1,195,304) - - - -

Takaful liabilities (61,317) (61,317) - - - -

Sukuk liabilities (1,133,256) (1,133,256) - - - -

(43,528,187) (43,495,780) - - - (32,407)

31 December 2013

RM’000

Carrying

amo

unt F&R/(FL) FVTPL AFS HTM Derivatives

Financial assets


with banks 4,655,198 4,655,198 - - - -

Financial assets held-for-trading 1,405,198 - 1,405,198 - - -

Derivative financial assets 29,118 - - - - 29,118

Financial assets available-for-sale 16,536,010 - - 16,536,010 - -

Financial assets held-to-maturity 467,935 - - - 467,935 -

Financing, advances and others 23,740,948 23,740,948 - - - -

Takaful assets 753,089 753,089 - - - -


Negara Malaysia 1,297,100 1,297,100 - - - -

Other assets 207,628 207,628 - - - -

49,092,224 30,653,963 1,405,198 16,536,010 467,935 29,118


Deposits from customers (36,924,367) (36,924,367) - - - -


and other financial institutions (1,529,975) (1,529,975) - - - -

Derivative financial liabilities (13,565) - - - - (13,565)

Bills and acceptance payable (170,598) (170,598) - - - -

Other liabilities (774,566) (774,566) - - - -

Takaful liabilities (75,428) (75,428) - - - -

Sukuk liabilities (1,089,935) (1,089,935) - - - -

(40,578,434) (40,564,869) - - - (13,565)

108


41. Financial Risk Management policies (continued)

41.1 Categories of financial instruments (continued)

41.2 Financial risk management

The Group has exposure to the following risks from its use of financial instruments:

Credit risk

Market risk

Liquidity risk

Operational risk

The Group’s exposures to the above risks are mainly attributed to its main operating

subsidiaries, Bank Islam and Takaful Malaysia. The Company’s exposure to these risks

is not presented separately as it is not material to the Group.

41.3 Credit risk

Credit risk is the risk of a financial loss to the Group if a customer or counterparty to a

financial instrument fails to meet its contractual obligations. The Group’s exposure to

credit risk arises principally from its financing, advances and others and investment

securities. The Company’s exposure to credit risk arises principally from investment

securities.

Company

31 December 2014

RM’000

Carrying


Financial assets


with banks 123,566 123,566 - - - -

Financial assets available-for-sale 18,559 - - 18,559 - -

Other assets 753 753 - - - -

142,878 124,319 - 18,559 - -


Other liabilities 221,541 221,541 - - - -

Sukuk liabilities 1,133,256 1,133,256 - - - -

1,354,797 1,354,797 - - - -

31 December 2013

RM’000

Carrying


Financial assets


with banks 149,559 149,559 - - - -

Financial assets available-for-sale 17,860 - - 17,860 - -

Other assets 40 40 - - - -

167,459 149,599 - 17,860 - -


Other liabilities 12,025 12,025 - - - -

Sukuk liabilities 1,089,935 1,089,935 - - - -

1,101,960 1,101,960 - - - -

109



41.3 Credit risk (continued)

(a) Banking

Bank Islam’s credit risk arises from all transactions that could lead to actual,

contingent or potential claims against any party, borrower or obligor. The types of

credit risks that the Bank considers to be material includes: Default Risk, Pre-

Settlement Risk, Counterparty Risk, Credit Concentration Risk, Residual/Credit

Mitigation Risk and Migration Risk.

Credit risk governance

The management of credit risk is principally carried out by using sets of policies

and guidelines approved by Bank Islam’s Board Risk Committee (“BRC”), guided

by the Risk Appetite Statement approved by Bank Islam’s Board of Directors.

The Bank’s Management Risk Control Committee (“MRCC”) is responsible

under the authority delegated by the Bank’s BRC for managing credit risk at

strategic level. The Bank’s MRCC reviews the Bank’s credit risk frameworks and

guidelines, aligns credit risk management with business strategies and planning,

reviews credit profile of the credit portfolios and recommends necessary actions to

ensure that the credit risk remains within established risk tolerance level.

The Bank’s credit risk management governance includes the establishment of

comprehensive credit risk policies, guidelines and procedures which documents

the Bank’s financing standards, discretionary powers for financing approval,

credit risk ratings methodologies and models, acceptable collaterals and valuation,

and the review, rehabilitation and restructuring of problematic and delinquent

financing.

Management of Credit Risk

The management of credit risk is being performed by two distinct departments

within the Bank’s Risk Management Department (“RMD”), Credit Analysis and

Credit Risk Management and two departments outside of the RMD domain,

namely, Credit Administration and Credit Recovery. The combined objectives are,

amongst others:

To build a high quality credit portfolio in line with the Bank’s overall

strategy and risk appetite;

To ensure that the Bank is compensated for the risk taken,

balancing/optimising the risk /return relationship;

To develop an increasing ability to recognise, measure and avoid or mitigate

potential credit risk problem areas; and

To conform with statutory, regulatory and internal credit requirements.

110




(a) Banking (continued)

Management of Credit Risk (continued)

The Bank monitors its credit exposures either on a portfolio basis or individual

basis through annual reviews. Credit risk is proactively monitored through a set of

early warning signals that could trigger immediate reviews of (certain part of) the

portfolio. The affected portfolio or financing is placed on a watch list to enforce

close monitoring and prevent financing from turning impaired and to increase

chances of full recovery.

A comprehensive limit structure is in place to ensure that risks taken are within

the risk appetite as set by the Bank’s Board and to avoid credit risk contagion to a

single customer, sector, product, Shariah contract, etc.

Credit risk arising from dealing and investing activities are managed by the

establishment of limits which includes counter parties limits and permissible

acquisition of private entities’ instruments, subject to specified minimum rating

threshold. Furthermore, the dealing and investing activities are monitored by an

independent middle office unit.

(b) Takaful

Credit risk is the potential financial loss resulting from the failure of a customer,

an intermediary or counterparty to settle its financial and contractual obligations

to the Takaful Malaysia Group as and when they fall due.

The Takaful Malaysia Group’s portfolio of Islamic debt securities, and to a lesser

extent short-term and other investments, are subject to credit risk. This risk is

defined as the potential loss resulting from adverse changes in a borrower’s ability

to repay the debt. The Takaful Malaysia Group’s objective is to earn competitive

relative returns by investing in a diversified portfolio of securities.

Management has an investment credit risk policy in place. Limits are established

to manage credit quality and concentration risk.

Takaful Malaysia has takaful and other receivables and investment securities

balances that are subject to credit risk. To mitigate the risk of the counterparties

not paying the amount due, Takaful Malaysia has established certain business and

financial guidelines for brokers/retakaful approval, incorporating ratings by major

agencies where applicable and considering currently available market information.

111




(b) Takaful (continued)

Takaful Malaysia also periodically review the financial stability of

brokers/retakaful companies from public and other sources and the settlement

trend of amounts due from these parties.

Cash and deposits are generally placed with banks and financial institutions

licensed under the Financial Services Act 2013 and Islamic Financial Services

Act 2013 which are regulated by Bank Negara Malaysia.

Maximum exposure to credit risk

The following table presents the Group’s maximum exposure to credit risk of on-

balance sheet and off-balance sheet financial instruments, without taking into account

of any collateral held or other credit enhancements. For on-balance sheet assets, the

exposure to credit risk equals their carrying amount. For contingent liabilities, the

maximum exposure to credit risk is the maximum amount that the Group would have to

pay if the obligations of the instruments issued are called upon. For credit

commitments, the maximum exposure to credit risk is the full amount of the undrawn

credit facilities granted to customers.

Group

2014 2013

RM’000 RM’000

Cash and short-term funds 3,898,172 3,953,896

Deposits and placements with banks and

other financial institutions 721,324 701,302

Financial assets held-for-trading (excluding

shares, unit trusts and investment funds) 1,032,328 1,305,925

Derivative financial assets 62,541 29,118

Financial assets available-for-sale (excluding

shares, unit trusts and investment funds) 12,898,672 15,048,915

Financial assets held-to-maturity 547,258 467,935

Financing, advances and others 29,524,571 23,740,948

Other assets (net of prepayments) 538,204 207,628

Takaful assets 811,051 753,089

Statutory deposits with Bank Negara Malaysia 1,335,000 1,297,100

_________ _________

Sub-total 51,369,121 47,505,856 -------------- -------------- Credit related obligation:

Credit commitments 9,000,815 8,407,810 _________ _________

Sub-total 9,000,815 8,407,810 -------------- -------------- Total credit exposures 60,369,936 55,913,666 ======== ========

112


41. Financial risk management policies (continued)


(i) Credit quality of gross financing and advances

Gross financing and advances of the main subsidiary, Bank Islam, are classified as

follows:

Neither past due nor impaired financing

Financing for which the borrower has not missed a contractual payment (profit

or principal) when contractually due and is not impaired as there is no

objective evidence of impairment.

Past due but not impaired financing

Financing for which its contractual profit or principal payments are past due,

but the Group believes that impairment is not appropriate on the basis of the

level of collateral available and/or the stage of collection amounts owed to the

Group.

Impaired financing

Financing is classified as impaired when the principal or profit or both are past

due for three months or more, or where a financing is in arrears for less than three

months, but the financing exhibits indications of significant credit weakness.

The table below summarises the credit quality of the Group’s gross financing

according to the above classifications.

Group

2014 2013

RM’000 RM’000

Financing, advances and others

Neither past due nor impaired

- Excellent to good 23,196,518 18,909,824

- Satisfactory 5,741,808 4,249,300

- Fair 407,727 368,334

_________ _________

29,346,053 23,527,458

Past due but not impaired 421,120 429,760

Impaired 344,539 285,302

_________ _________

30,111,712 24,242,520

Allowance for impaired financing,

advances and others

- collective assessment allowance (444,388) (365,375)

- individual assessment allowance (142,753) (136,197)

_________ __________

29,524,571 23,740,948

======== =========

113




(i) Credit quality of gross financing and advances (continued)

For management of credit risk, the Bank applies an internal credit risk rating for its

neither past due nor impaired financing which is defined as follows:

Excellent to Good: Sound financial position with no difficulty in meeting its

obligations.

Satisfactory: Adequate safety of meeting its obligations but more time is

required to meet its obligation in full.

Fair: High risks on payment obligations. Financial performance may continue

to deteriorate.

The age analysis of financing and advance past-due but not impaired as at the end

of the reporting period was as follows:

Group

2014 2013

RM’000 RM’000

By aging

Month-in-arrears 1 274,624 294,267

Month-in-arrears 2 146,496 135,493

_________ _________

421,120 429,760

======== ========

114




(ii) Credit quality of takaful receivables

The table below summarises the credit quality of the Group’s Takaful receivable:

Group

2014 2013

RM’000 RM’000

Takaful receivables

Neither past due nor impaired 116,097 101,441

Past due but not impaired 12,494 15,715

Impaired 4,487 8,522 _________ _________

133,078 125,678

Allowance for impairment (4,487) (8,522) _________ _________

128,591 117,156 ======== ========

The age analysis of takaful receivables past-due but not impaired as at the end of

the reporting period based on days past-due was as follows:

Group

2014 2013

RM’000 RM’000

Days past-due

1-30 days 1,620 2,306

31-60 days 662 785

61-90 days 1,556 480

91-180 days 2,653 3,035

> 180 days 6,003 9,109 _________ _________

12,494 15,715 ======== ========

Impairment loss of takaful receivables

A reconciliation of the allowance for impairment losses for takaful receivables

was as follows:

RM’000

At 1 January 2013 10,883

Writeback of impairment loss (2,361) _________

At 31 December 2013/1 January 2014 8,522

Writeback of impairment loss (4,245)

Allowance for impaired debts 220

Effect of movement in exchange rates (10) _________

At 31 December 2014 4,487 ========

115




(iii) Credit quality of investments’ portfolio Investments’ portfolio (excluding equity securities, unit trusts and investment

units in closed end funds) of the Group by external party rating are as follows:

Financial Financial Financial

assets assets assets

held-for- Derivative available held-to-

trading assets -for-sale maturity Total

Group RM’000 RM’000 RM’000 RM’000 RM’000


AAA 68,648 - 3,928,609 157,513 4,154,770

AA 280,913 - 2,631,022 3,849 2,915,784

A 68,517 - 142,605 5,588 216,710

Below A - - 20,347 - 20,347

Unrated 36,204 - 229,875 235,032 501,111

Sovereign 541,028 - 5,946,214 145,276 6,632,518

Unit-linked 37,018 - - - 37,018

Financial institution - 57,078 - - 57,078

Corporate - 5,463 - - 5,463

_________ _________ _________ _________ _________

1,032,328 62,541 12,898,672 547,258 14,540,799

======== ======== ======== ======== ========


AAA 175,428 - 4,527,435 99,419 4,802,282

AA 103,489 - 3,414,274 33,955 3,551,718

A 11,745 - 59,984 7,157 78,886

Below A - - 6,807 351 7,158

Unrated 20,781 - 236,455 181,662 438,898

Sovereign 958,694 - 6,803,960 145,391 7,908,045

Unit-linked 35,788 - - - 35,788

Financial institution - 21,350 - - 21,350

Corporate - 7,768 - - 7,768

_________ _________ _________ _________ _________

1,305,925 29,118 15,048,915 467,935 16,851,893

======== ======== ======== ======== ========

116



41.4 Market risk

Overview

All the Group’s businesses are subject to the risk that market prices and rates will

move, resulting in profit or losses to the Group. Furthermore, significant or sudden

movements in rates could affect the Group’s liquidity/funding position. The Group is

exposed to the following main market risk factors:

Rate of Return or Profit Rate/Yield Risk: the potential impact on the Group’s

profitability caused by changes in the market rate of return, either due to general

market movements or due to issuer/borrower specific causes;

Foreign Exchange Risk: the impact of exchange rate movements on the Group’s

currency positions;

Equity Investment Risk: the profitability impact on the Group’s equity positions

or investments caused by changes in equity prices or values;

Commodity Inventory Risk: the risk of loss due to movements in commodity

prices.

The objective of the Group’s market risk management is to manage and control market

risk exposures in order to optimise return on risk while maintaining a market risk

profile consistent with the Group’s approved risk appetite.

The key features of the Group’s market risk management practices and policies are

represented by the Banking and Takaful segments.

(a) Banking

Bank Islam separates exposures to market risk into either trading or non-trading

portfolios. Trading portfolios include those positions arising from market making,

proprietary position taking and other marked-to-market positions so designated as

per the approved Trading Book Policy Statements. Non-trading portfolios

primarily arise from the re-pricing mismatches of the Bank’s customer driven

assets and liabilities and from the Bank’s investment of its surplus funds.

Market risk governance

The management of market risk is principally carried out by using risk limits

approved by the Bank’s BRC, guided by the Risk Appetite Statement approved by

the Board of Directors of the Bank.

The Asset and Liability Management Committee (“ALCO”) is responsible under

the authority delegated by the Bank’s BRC for managing market risk at strategic

level.

117



41.4 Market risk (continued)


Management of market risk

Bank Islam’s market risk exposures are managed by its Treasury. The aim is to

ensure that all market risks are consolidated at Treasury, which has the necessary

skills, tools, management and governance to manage such risks professionally.

Limits are set for portfolios, products and risk types, with market liquidity and

credit quality being the principal factors in determining the level of limits set.

The Bank’s Market Risk Management Department (“MRMD”) is an independent

risk control function, responsible for ensuring efficient implementation of market

risk management policies. The Bank’s MRMD is also responsible for developing

market risk management guidelines, measurement techniques, behavioural

assumptions and limit setting methodologies. Any excesses against the prescribed

limits are reported immediately to the Senior Management. Strict escalation

procedures are documented and approved by the Bank’s BRC. In addition, the

market risk exposures and limits are regularly reported to the Bank’s ALCO and

BRC.

Other controls to ensure market risk exposures remain within tolerable levels

include stress testing, rigorous new product approval procedures and a list of

permissible instruments that can be traded. Stress test results are produced

monthly to determine the impact of changes in profit rates, foreign exchange rates

and other risk factors on the profitability, capital adequacy and liquidity of the

respective operating subsidiaries. The stress test provides the Bank’s Management

and the BRC with an assessment of the financial impact of identified extreme

events on the market risk exposures of the respective businesses.

(i) Profit rate risk

The table below summarises the Bank’s exposure to profit rate risk. The

table indicates average profit rates at the reporting date and the period in

which the financial instruments reprice or mature, whichever is earlier.

118





(i) Profit rate risk (continued)

Non trading book

Non Effective

Bank Islam Up to 1 >1-3 >3-12 1-5 Over 5 profit Trading profit

month months months years years sensitive book Total rate

As at 31 December 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Assets


with banks 2,391,792 104,108 - - - 773,453 - 3,269,353 2.40

Financial assets held-for-trading - - - - - - 921,629 921,629 3.80

Derivative financial assets - - - - - - 62,541 62,541 1.99

Financial assets available-for-sale 56,394 124,169 1,799,758 5,396,262 2,860,080 - - 10,236,663 4.14

Financial assets held-to-maturity - - - - 60,752 - - 60,752 8.44


- non-impaired 1,048,140 1,210,137 777,261 2,318,746 24,412,889 - - 29,767,173 6.01

- impaired net of allowances * - - - - - (242,602) - (242,602)

Other assets - - - - - 1,745,173 - 1,745,173

_________ _________ _________ _________ _________ _________ _________ _________

Total assets 3,496,326 1,438,414 2,577,019 7,715,008 27,333,721 2,276,024 984,170 45,820,682

======== ======== ======== ======== ======== ======== ======== ========

Note 47

* This is arrived at after deducting collective assessment allowance and individual assessment allowance from the outstanding gross impaired

financing.

119






Non trading book

Non Effective




Liabilities

Deposits from customers 18,070,797 4,317,866 2,852,504 55,698 - 15,713,467 - 41,010,332 2.19

Deposits and placements of

banks and other financial

institutions 200,000 100,000 - - - - - 300,000 2.99

Derivative financial liabilities - - - - - - 32,407 32,407 1.03

Bills and acceptance payable - - - - - 127,524 - 127,524

Other liabilities - - - - - 620,829 - 620,829

_________ _________ _________ _________ _________ _________ _________ _________

Total liabilities 18,270,797 4,417,866 2,852,504 55,698 - 16,461,820 32,407 42,091,092

------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Note 47

Equity

Equity attributable to equity

holders of the Bank - - - - - 3,729,590 - 3,729,590

_________ _________ _________ _________ _________ _________ _________ _________

Total equity - - - - - 3,729,590 - 3,729,590

------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Total liabilities and share-

holders’ equity of the Bank 18,270,797 4,417,866 2,852,504 55,698 - 20,191,410 32,407 45,820,682

======== ======== ======== ======== ======== ======== ======== ========

120






Non trading book

Non

Bank Islam Up to 1 >1-3 >3-12 1-5 Over 5 profit Trading

month months months years years sensitive book Total

As at 31 December 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

On-balance sheet profit

sensitivity gap (14,774,471) (2,979,452) (275,485) 7,659,310 27,333,721 (17,915,386) 951,763 -

Off-balance sheet profit

sensitivity gap (profit rate

swaps) 300,000 300,000 - (600,000) - - - -

_________ _________ _________ _________ _________ _________ _________ _________

Total profit sensitivity gap (14,474,471) (2,679,452) (275,485) 7,059,310 27,333,721 (17,915,386) 951,763 -

======== ======== ======== ======== ======== ======== ======== ========

121






Non trading book

Non Effective




Assets


with banks 2,984,281 130,491 18 - - 616,133 - 3,730,923 2.26

Financial assets held-for-trading - - - - - - 1,216,895 1,216,895 2.51

Derivative financial assets - - - - - - 29,118 29,118 1.04

Financial assets available-for-sale 291,837 978,243 1,979,158 5,727,754 3,439,929 - - 12,416,921 3.96

Financial assets held-to-maturity - - - - 63,327 - - 63,327 9.06


- non-impaired 1,014,025 1,125,266 580,605 2,130,053 19,107,269 - - 23,957,218 6.25

- impaired net of allowances * - - - - - (216,270) - (216,270)

Other assets - - - - - 1,613,239 - 1,613,239

_________ _________ _________ _________ _________ _________ _________ _________

Total assets 4,290,143 2,234,000 2,559,781 7,857,807 22,610,525 2,013,102 1,246,013 42,811,371

======== ======== ======== ======== ======== ======== ======== ========

Note 47

* This is arrived at after deducting collective assessment allowance and individual assessment allowance from the outstanding gross impaired

financing.

122






Non trading book

Non Effective




Liabilities

Deposits from customers 17,553,433 2,771,729 2,093,107 175,956 154 14,650,623 - 37,245,002 2.16

Deposits and placements of

banks and other financial

institutions 1,314,564 151,538 63,873 - - - - 1,529,975 2.20

Derivative financial liabilities - - - - - - 13,565 13,565 0.48

Bills and acceptance payable 20,421 4,855 - - - 145,322 - 170,598 3.45

Other liabilities - - - - - 525,396 - 525,396

_________ _________ _________ _________ _________ _________ _________ _________

Total liabilities 18,888,418 2,928,122 2,156,980 175,956 154 15,321,341 13,565 39,484,536

------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Note 47

Equity

Equity attributable to equity

holders of the Bank - - - - - 3,326,835 - 3,326,835

_________ _________ _________ _________ _________ _________ _________ _________

Total equity - - - - - 3,326,835 - 3,326,835

------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Total liabilities and share-

holders’ equity of the Bank 18,888,418 2,928,122 2,156,980 175,956 154 18,648,176 13,565 42,811,371

======== ======== ======== ======== ======== ======== ======== ========

123






Non trading book

Non

Bank Islam Up to 1 >1-3 >3-12 1-5 Over 5 profit Trading

month months months years years sensitive book Total

As at 31 December 2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

On-balance sheet profit

sensitivity gap (14,598,275) (694,122) 402,801 7,681,851 22,610,371 (16,635,074) 1,232,448 -

Off-balance sheet profit

sensitivity gap (profit rate

swaps) 400,000 600,000 (100,000) (500,000) (400,000) - - -

_________ _________ _________ _________ _________ _________ _________ _________

Total profit sensitivity gap (14,198,275) (94,122) 302,801 7,181,851 22,210,371 (16,635,074) 1,232,448 -

======== ======== ======== ======== ======== ======== ======== ========

124





(ii) Profit rate risk in the non-trading portfolio

Profit rate risk in the non-trading portfolio is managed and controlled using

measurement known as economic value of equity (“EVE”) and earnings-at-

risk (“EaR”). EVE and EaR limits are approved by the Bank’s BRC and

independently monitored monthly by the Bank’s MRMD. Exposures and

limits are regularly discussed and reported to the Bank’s ALCO and BRC.

The Bank manages market risk in non-trading portfolios by monitoring the

sensitivity of projected EaR and EVE under varying profit rate scenarios

(simulation modelling). For simulation modelling, a combination of

standard scenarios and non-standard scenarios relevant to the local market

are used. The standard scenarios monitored monthly include a 100 and 200

basis points parallel fall or rise in profit rates and historical simulation of

past events. The scenarios assume no management action. Hence, they do

not incorporate actions that would be taken by the Bank’s Treasury to

mitigate the impact of the profit rate risk. In reality, depending on the view

on future market movements, the Bank’s Treasury would proactively seek to

change the profit rate exposure profile to minimise losses and to optimize

net revenues. The nature of the hedging and risk mitigation strategies

corresponds to the market instruments available. These strategies range from

the use of derivative financial instruments, such as profit rate swaps, to more

intricate hedging strategies to address inordinate profit rate risk exposures.

The table below shows the projected sensitivity at the Bank’s level to a 100

basis points parallel shift to profit rates across all maturities applied on the

Bank’s profit rate sensitivity gap as at reporting date.

2014 2013

-100bps +100bps -100bps +100bps

Increase/(Decrease)

RM’million

Bank Islam

Impact on EaR (22.45) 22.45 (51.45) 51.45

Impact on EVE (397.43) 397.43 (521.44) 521.44

====== ====== ===== =====

Note: EVE and EaR as at 31 December 2013 were reinstated in line with the

change in methodology from behavioural method to BNM contractual

method as approved by the Special BRC 01/2014 on 30 June 2014.

125





(ii) Profit rate risk in the non-trading portfolio (continued)

Other controls to contain profit rate risk in the non-trading portfolio include

stress testing and applying sensitivity limits to the available-for-sale

financial assets. Sensitivity is measured by the present value of a 1 basis

point change (“PV01”) and is independently monitored by the Bank’s

MRMD on a daily basis against limits approved by the BRC. PV01

exposures and limits are regularly discussed and reported to the Bank’s

ALCO and BRC.

(iii) Market risk in the trading portfolio

Market risk in the trading portfolio is monitored and controlled using Value-

at-Risk (“VaR”). VaR limit is approved by the Bank’s BRC and

independently monitored daily by MRMD. Exposures and limits are

regularly discussed and reported to the Bank’s ALCO and BRC.

A summary of the VaR position of the Bank’s trading portfolios at the

reporting date is as follows:

As at 1.1.2014 to 31.12.2014

31.12.2014 Average Maximum Minimum

Bank Islam RM’million RM’million RM’million RM’million

Profit rate risk 0.67 1.62 2.83 0.63

Foreign exchange risk 0.11 0.22 2.08 0.01

Overall 0.78 1.84 4.71 0.68

====== ======= ======= ======

As at 1.1.2013 to 31.12.2013

31.12.2013 Average Maximum Minimum

Bank Islam RM’million RM’million RM’million RM’million

Profit rate risk 1.48 1.64 3.33 0.43

Foreign exchange risk 0.78 0.26 1.06 0.01

Overall 2.26 1.90 3.64 0.55

====== ======= ======= ======

126





(iii) Market risk in the Trading Portfolio (continued)

Value-at-Risk

VaR is a technique that estimates the potential losses that could occur on

risk positions as a result of movements in market rates and prices over a

specified time horizon and to a given level of confidence. The VaR models

used by Bank Islam are based on historical simulation. These models derive

plausible future scenarios from past series of recorded market rates and

prices, taking into account inter-relationships between different markets and

rates such as profit rates and foreign exchange rates.

The historical simulation models used by the Bank incorporate the following

features:

potential market movements are calculated with reference to data from

the past four years;

historical market rates and prices are calculated with reference to foreign

exchange rates and profit rates;

VaR is calculated to a 99 per cent confidence level and for a one-day

holding period. The nature of the VaR models means that an increase in

observed market volatility will lead to an increase in VaR without any

changes in the underlying positions; and

The dataset is updated on weekly basis.

Statistically, the Bank would expect to see losses in excess of VaR only 1

per cent of the time over a one-year period. The actual number of excesses

over this period can therefore be used to gauge how well the models are

performing.

Although a valuable guide to risk, VaR should always be viewed in the

context of its limitations. For example:

The use of historical data as a proxy for estimating future events may not

encompass all potential events, particularly those which are extreme in

nature;

The use of a 1-day holding period assumes that all positions can be

liquidated or hedged in one day. This may not fully reflect the market

risk arising at times of severe illiquidity, when a 1-day holding period

may be insufficient to liquidate or hedge all positions fully;

The use of a 99 per cent confidence level, by definition, does not take

into account losses that might occur beyond this level of confidence;

VaR is calculated on the basis of exposures outstanding at the close of

business and therefore does not necessarily reflect intra-day exposures;

and

VaR is unlikely to reflect the loss potential on exposures that might arise

under significant market movements.

127





(iii) Market risk in the Trading Portfolio (continued)

Value-at-Risk (continued)

The Bank recognises these limitations by augmenting the VaR limits with

other limits such as maximum loss limits, position limits and PV01 limits

structures. These limits are approved by the Bank’s BRC and independently

monitored daily by the Bank’s MRMD. Exposures and limits are regularly

discussed and reported to the Bank’s ALCO and BRC.

Other controls to contain market risk at an acceptable level are through

stress testing, rigorous new product approval processes and a list of

permissible instruments to be traded. Stress tests are produced monthly to

determine the impact of changes in profit rates, foreign exchange rates and

other main economic indicators on the Bank’s profitability, capital adequacy

and liquidity. The stress-testing provides the Bank’s Management and BRC

with an assessment of the financial impact of identified extreme events on

the market risk exposures of the Bank.

(iv) Foreign exchange risk

Trading positions

In addition to VaR and stress testing, the Bank controls the foreign exchange

risk within the trading portfolio by limiting the open exposure to individual

currencies, and on an aggregate basis.

Overall (trading and non-trading positions)

The Bank controls the overall foreign exchange risk by limiting the open

exposure to non-Ringgit positions on an aggregate basis.

Foreign exchange limits are approved by the Bank’s BRC and

independently monitored daily by the Bank’s MRMD. Exposures and limits

are regularly discussed and reported to the Bank’s ALCO and BRC.

Sensitivity Analysis

Considering that other risk variables remain constant, the foreign currency

revaluation sensitivity for the Group as at reporting date is summarised as

follows:

2014 2013

-1% +1% -1% +1% Depreciation Appreciation Depreciation Appreciation

Bank Islam RM’000 RM’000 RM’000 RM’000

US Dollar (4,855) 4,855 8,604 (8,604)

Euro 5,268 (5,268) 6,306 (6,306)

Others 861 (861) (148) 148

128




(b) Takaful

The key features of Takaful Malaysia’s market risk management practices and

policies are as follows:

- A group-wide market risk policy setting out the evaluation and determination

of components of market risk for the Takaful Malaysia Group. Compliance

with the policy is monitored and reported monthly to Takaful Malaysia’s Risk

Management Committee (“RMC”) and exposures and breaches are reported

as soon as practicable.

- Set asset allocation, portfolio limit structure and diversification benchmark to

ensure that assets back specific contract liabilities and that assets are held to

deliver income and gains for certificate holders in line with terms of the

respective contracts expectations of policies. Takaful Malaysia’s policies on

asset allocation, portfolio limit structure and diversification benchmark have

been set in line with Takaful Malaysia’s risk management policy after taking

cognisance of the regulatory requirements in respect of maintenance of assets

and solvency.

Takaful Malaysia also issue unit-linked investment policies. In the unit-linked

business, the certificate holders bear investment risk on the assets held in the unit-

linked funds as the certificate benefits are directly linked to value of the assets in

the funds. Takaful Malaysia’s exposure to market risk on this business is limited

to the extent that income arising from asset management charges is based on the

value of the assets in the funds.

(i) Profit yield risk

Profit yield risk is the risk that the value or future cash flows of a financial

instrument will fluctuate because of changes in market profit yield.

Floating rate/yield instruments expose Takaful to cash flow risk, whereas

fixed rate/yield instruments expose Takaful to fair value risk.

Takaful Malaysia’s profit risk policy requires its Management to manage

the risk by maintaining an appropriate mix of variable and fixed rate/yield

instruments. The policy also requires Takaful management to manage the

maturities of profit-bearing financial assets and liabilities. Floating

rate/yield instruments will be re-priced at intervals of not more than one (1)

year. Profit on fixed rate/yield instruments is priced at inception of the

financial instrument and is fixed until maturity.

129





(i) Profit yield risk (continued)

The profit yield profile of the Takaful Malaysia Group and its subsidiaries’

significant profit-bearing financial instruments, based on carrying amounts

as at the end of the reporting period is as follows:

Takaful

Takaful Family General Malaysia

Operator Takaful Takaful Group

Fixed rate instruments RM’000 RM’000 RM’000 RM’000

2014

AFS financial assets 258,447 2,090,635 349,413 2,698,495

FVTPL financial assets 3,236 112,553 - 115,789

HTM financial assets 2,248 442,979 41,279 486,506

Financing and receivables 246,802 1,081,406 177,653 1,505,861

________ ________ ________ ________

510,733 3,727,573 568,345 4,806,651

======= ======= ======= =======

2013

AFS financial assets 250,115 2,043,811 375,414 2,669,340

FVTPL financial assets 4,041 84,989 - 89,030

HTM financial assets 1,965 366,741 35,902 404,608

Financing and receivables 194,337 694,446 104,501 993,284

________ ________ ________ ________

450,458 3,189,987 515,817 4,156,262

======= ======= ======= =======

130





(i) Profit yield risk (continued)

Takaful Malaysia has no significant concentration of profit yield risk.

A change of 50 basis points in profit rates at the end of the reporting period

would have increased/(decreased) other comprehensive income/equity,

Family and General Takaful participants’ fund by the amounts shown

below. The analysis assumes that all other variables remain constant.

Impact on Impact on Impact on

profit Impact on operating Participants’

Change in before tax equity* surplus fund

variables RM’000 RM’000 RM’000 RM’000

2014

AFS financial assets +50bps - (8,020) - (168,963)

FVTPL financial assets +50bps 10 10 (8) (8)

10 (8,010) (8) (168,971)

AFS financial assets -50bps - 8,790 - 147,429

FVTPL financial assets -50bps (10) (10) 4 4

(10) 8,780 4 147,433

2013

AFS financial assets +50bps - (8,351) - (135,002)

FVTPL financial assets +50bps 11 11 (325) (325)

11 (8,340) (325) (135,327)

AFS financial assets -50bps - 10,603 - 179,063

FVTPL financial assets -50bps (11) (11) 368 368

(11) 10,592 368 179,431

* Impact on equity reflects adjustments for tax, when applicable.

131





(ii) Other price risk

Equity price risk is the risk that the fair value of future cash flows of a

financial instrument will fluctuate because of changes in market prices

(other than those arising from profit yield risk or currency risk), whether

those changes are caused by factors specific to the individual financial

instrument or its issuer or factors affecting similar financial instruments

traded in the market.

Takaful’s equity price risk exposure relates to financial assets whose values

will fluctuate as a result of changes in market prices (excluding those

investment securities held for the account of unit-linked business).

Takaful’s price risk policy requires it to manage such risks by setting and

monitoring objectives and constraints on investments, diversification plans,

limits on investments in each country, sector, market and issuer, having

regard also to such limits stipulated by BNM. Takaful and its subsidiaries

comply with BNM stipulated limits during the financial year and has no

significant concentration of price risk.

Equity price risk sensitivity analysis

The analysis below is performed for reasonably possible movements in key

variables with all other variables held constant, showing the impact on

OCI/Equity for Takaful Operator, and showing the impact on operating

surplus/participants’ fund for Investment-linked Fund, and participants’

fund for Family Takaful Fund and General Takaful Fund accordingly. The

correlation of variables will have a significant effect in determining the

ultimate impact on price risk, but to demonstrate the impact due to changes

in variables, variables had to be changed on individual basis. It should be

noted that movements in these variables are non-linear.





2014

Market price +15bps 8 7,820 8,136 88,747

Market price -15bps (8) (7,820) (8,136) (88,747)

132





(ii) Other price risk (continued)

Equity price risk sensitivity analysis (continued)





2013

Market price +15bps (39) 13,045 5,736 147,610

Market price -15bps 39 (13,045) (5,736) (147,610)

* Impact on equity reflects adjustments for tax, when applicable.

(iii) Foreign exchange risk

Takaful Malaysia’s primary transactions are carried out in Ringgit Malaysia

(“RM”) and its exposure to foreign exchange risk arises principally with

respect to Indonesia Rupiah (“Rp”) and US Dollar (“USD”).

As Takaful Malaysia’s business is conducted primarily in Malaysia, the

Takaful Malaysia Group and its subsidiaries’ financial assets are also

primarily maintained in Malaysia as required under the Islamic Financial

Services Act 2013, and hence, primarily denominated in the same currency

(the local RM) as its takaful and investment contract liabilities. Accordingly,

the main foreign exchange risk from recognised assets and liabilities arises

from transactions other than those in which takaful and investment contract

liabilities are expected to be settled.

As Takaful Malaysia’s main foreign exchange risk from recognised assets

and liabilities arises from retakaful transactions for which the balances are

expected to be settled and realised in less than a year, the impact arising

from sensitivity in foreign exchange rates is deemed minimal as Takaful

Malaysia has no significant concentration of foreign currency risk.

Takaful Malaysia’s exposure to currency risk is immaterial in the context of

the financial statements and hence, sensitivity analysis is not presented.

133



41.5 Liquidity risk

Overview

Liquidity risk is the risk that the Group does not have sufficient financial resources to

meet its obligations when they fall due, or might have to fund these obligations at

excessive cost. This risk can arise from mismatches in the timing of cash flows.

Funding risk arises when the necessary liquidity to fund illiquid asset positions cannot

be obtained at the expected terms when required.

The management reviews both Banking and Takaful business’ liquidity risk separately

due to the different nature of both businesses.

(a) Banking

In respect of Bank Islam, the Bank maintains a diversified and stable funding base

comprising core retail, commercial, corporate customer deposits and institutional

balances. This is augmented by wholesale funding and portfolios of highly liquid

assets.

The objective of the Bank’s liquidity and funding management is to ensure that all

foreseeable funding commitments and deposit withdrawals can be met when due

and that wholesale market access remains accessible and cost effective.

Current accounts and savings deposits payable on demand or at short notice form

a significant part of the Bank’s funding, and the Bank places considerable

importance on maintaining their stability. For deposits, stability depends upon

preserving depositors’ confidence in the Bank and the Bank’s capital strength and

liquidity, and on competitive and transparent pricing.

The management of liquidity and funding is primarily carried out in accordance

with the BNM Liquidity Framework, practices and limits, and triggers approved

by the Bank’s BRC and ALCO. These limits and triggers vary to take account of

the depth and liquidity of the local market in which the Bank operates. The Bank

maintains a strong liquidity position and manages the liquidity profile of its

assets, liabilities and commitments to ensure that cash flows are appropriately

balanced and all obligations are met when due.

134



41.5 Liquidity risk (continued)


The Bank’s liquidity and funding management process includes:

Daily projection of cash flows and ensuring that the Bank has sufficient

liquidity surplus and reserves to sustain a sudden liquidity shock;

Projecting cash flows and considering the level of liquid assets necessary in

relation thereto;

Maintain liabilities of appropriate term relative to the asset base;

Maintain a diverse range of funding sources with adequate back-up facilities;

Monitor depositors’ concentration in order to avoid undue reliance on large

individual depositors and ensure a satisfactory overall funding mix; and

Manage the maturities and diversify funding liabilities across products and

counterparties.

Liquidity and funding risk governance

The management of liquidity and funding risk is principally undertaken using risk

limit mandates approved by the Bank’s BRC and management action triggers

assigned by the Bank’s ALCO.

The Bank’s ALCO is responsible under the authority delegated by the Bank’s

BRC for managing liquidity and funding risk at strategic level.

Management of liquidity and funding risk

All liquidity risk exposures are managed by the Bank’s Treasury. The aim is to

ensure that liquidity and funding risk are consolidated at the Bank’s Treasury,

which has the necessary skills, tools, management and governance to manage

such risks professionally. Limits and triggers are set to meet the following

objectives:

Sufficient liquidity surplus and reserves to sustain a sudden liquidity shock;

Cash flows are relatively diversified across all maturities;

Deposit base is not overly concentrated to a relatively small number of

depositors;

Sufficient borrowing capacity in the Interbank market and highly liquid

financial assets to back it up; and

Not over-extending financing activities relative to the deposit base.

135





Management of liquidity and funding risk (continued)

The Bank’s MRMD is the independent risk control function and is responsible

for ensuring efficient implementation of liquidity and funding risk management

policies. It is also responsible for developing the Bank’s liquidity and funding

risk management guidelines, measurement techniques, behavioural assumptions

and limit setting methodologies. Any excess against the prescribed limits and

triggers are reported immediately to the Bank’s Senior Management. Strict

escalation procedures are documented and approved by the Bank’s BRC, with

proper authorities to ratify or approve the excess in place. In addition, the

market risk exposures and limits are regularly reported to the Bank’s ALCO and

BRC.

Another control to ensure that liquidity and funding risk exposures remain within

tolerable levels includes stress testing. Stress testing and scenario analysis are

important tools in the Bank’s liquidity management framework. This will also

include an assessment of asset liquidity under various stress scenarios. Stress test

results are produced monthly to determine the impact of a sudden liquidity shock.

The stress-testing provides the Bank’s Management and BRC with an assessment

of the financial impact of identified extreme events on the liquidity and funding

risk exposures of the Bank.

A final key control feature of the Bank’s liquidity and funding risk management

are the approved and documented liquidity and funding contingency plans. These

plans identify early indicators of stress conditions and describe actions to be taken

in the event of difficulties arising from systemic or other crisis while minimising

adverse long-term implications to the Bank.

136





Maturity analysis

The table below summarises the Bank’s assets and liabilities based on remaining contractual maturities.

On Up to >1 to 3 >3 to 6 >6 to 12 Over

demand 1 month months months months 1 year Total

As at 31 December 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets

Cash, balances and placements with banks 773,453 2,391,792 104,108 - - - 3,269,353

Securities portfolio - 490,709 259,457 730,579 1,229,869 8,508,430 11,219,044

Derivatives financial assets - 4,323 8,250 26,970 6,328 16,670 62,541

Financing and advances - 1,048,140 1,210,137 509,343 267,918 26,489,033 29,524,571

Other assets - - - - - 1,745,173 1,745,173

_________ _________ _________ _________ _________ _________ _________

Total assets 773,453 3,934,964 1,581,952 1,266,892 1,504,115 36,759,306 45,820,682

------------- ------------- ------------- ------------- ------------- ------------- -------------

Note 47

Liabilities

Deposits from customers 15,713,467 18,070,797 4,317,866 1,860,673 991,831 55,698 41,010,332

Deposits and placements of banks and other

financial institutions - 200,000 100,000 - - - 300,000

Derivative financial liabilities - 2,108 17,720 4,310 4,985 3,284 32,407

Other liabilities - - - - - 748,353 748,353

_________ _________ _________ _________ _________ _________ _________

Total liabilities 15,713,467 18,272,905 4,435,586 1,864,983 996,816 807,335 42,091,092

------------- ------------- ------------- ------------- ------------- ------------- -------------

Note 47

137





Maturity analysis (continued) On Up to >1 to 3 >3 to 6 >6 to 12 Over



Equity

Equity attributable to equity holders of the Bank - - - - - 3,729,590 3,729,590

_________ _________ _________ _________ _________ _________ _________

On Balance Sheet Net liquidity gap (14,940,014) (14,337,941) (2,853,634) (598,091) 507,299 32,222,381 -

Commitments and contingencies 2,410,036 1,676,783 1,434,560 1,434,375 2,372,617 2,807,596 12,135,967

_________ _________ _________ _________ _________ _________ _________

Net liquidity gap (17,350,050) (16,014,724) (4,288,194) (2,032,466) (1,865,318) 29,414,785 (12,135,967)

======== ======== ======== ======== ======== ======== ========

138





Maturity analysis (continued)

On Up to >1 to 3 >3 to 6 >6 to 12 Over



Assets

Cash, balances and placements with banks 616,133 2,984,281 130,491 13 5 - 3,730,923

Securities portfolio - 291,837 1,338,465 967,987 1,342,489 9,756,365 13,697,143

Derivatives financial assets - 8,374 3,828 (200) (259) 17,375 29,118

Financing and advances - 1,014,025 1,125,266 224,711 355,894 21,021,052 23,740,948

Other assets - - - - - 1,613,239 1,613,239

_________ _________ _________ _________ _________ _________ _________

Total assets 616,133 4,298,517 2,598,050 1,192,511 1,698,129 32,408,031 42,811,371

-------------- -------------- -------------- -------------- -------------- -------------- --------------

Note 47

Liabilities

Deposits from customers 14,650,623 17,553,433 2,771,729 1,531,244 561,863 176,110 37,245,002

Deposits and placements of banks and other

financial institutions - 1,314,564 151,538 32,755 31,118 - 1,529,975

Derivative financial liabilities - 6,915 4,368 91 24 2,167 13,565

Other liabilities - - - - - 695,994 695,994

_________ _________ _________ _________ _________ _________ _________

Total liabilities 14,650,623 18,874,912 2,927,635 1,564,090 593,005 874,271 39,484,536

-------------- -------------- -------------- -------------- -------------- -------------- --------------

Note 47

139





Maturity analysis (continued) On Up to >1 to 3 >3 to 6 >6 to 12 Over



Equity

Equity attributable to equity holders of the Bank - - - - - 3,326,835 3,326,835

_________ _________ _________ _________ _________ _________ _________

On Balance Sheet Net liquidity gap (14,034,490) (14,576,395) (329,585) (371,579) 1,105,124 28,206,925 -

Commitments and contingencies 2,186,831 2,011,842 1,358,059 873,122 1,898,539 2,883,287 11,211,680

_________ _________ _________ _________ _________ _________ _________

Net liquidity gap (16,221,321) (16,588,237) (1,687,644) (1,244,701) (793,415) 25,323,638 (11,211,680)

======== ======== ======== ======== ======== ======== ========

140



41.5 Liquidity risk (continued) (a) Banking (continued) Maturity analysis (continued) Contractual maturity of financial liabilities on an undiscounted basis

The table below present the cash flows payable by the Bank under financial liabilities by remaining contractual maturities at the end of

the reporting period. The amount disclosed in the table are the contractual undiscounted cash flows: Up to >1 to 3 >3 to 6 >6 to 12 Over

1 month months months months 1 year Total

As at 31 December 2014 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial Liabilities

Deposit from customers 33,747,231 4,287,385 1,939,086 1,020,742 59,025 41,053,469

Deposit from placements of banks and other financial institutions 200,425 100,409 - - - 300,834

Derivatives financial liabilities 4,925 18,202 4,310 4,985 15 32,437

Forward contract 2,123 17,410 4,310 4,985 - 28,828

Islamic Profit Rate Swap 2,802 792 - - - 3,594

Structured deposits - - - - 15 15

Bills and acceptance payable 127,524 - - - - 127,524

Other liabilities 579,259 - - - - 579,259

_________ _________ _________ _________ _________ _________

34,659,364 4,405,996 1,943,396 1,025,727 59,040 42,093,523

======== ======== ======== ======== ======== =========

Commitments and Contingencies

Direct credit substitutes 37,603 81,510 56,237 123,881 61,202 360,433

Transaction related contingent items 114,274 74,499 89,310 248,546 499,636 1,026,265

Short term self liquidating trade related contingencies 158,699 32,308 - 3,117 42,750 236,874

_________ _________ _________ _________ _________ _________

310,576 188,317 145,547 375,544 603,588 1,623,572

======== ======== ======== ======== ======== ========

141



41.5 Liquidity risk (continued) (a) Banking (continued) Maturity analysis (continued) Contractual maturity of financial liabilities on an undiscounted basis (continued) Up to >1 to 3 >3 to 6 >6 to 12 Over

1 month months months months 1 year Total

As at 31 December 2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial Liabilities

Deposit from customers 32,200,635 2,789,081 1,568,999 590,880 164,023 37,313,618

Deposit from placements of banks and other financial institutions 1,315,794 152,164 32,875 31,254 - 1,532,087

Derivatives financial liabilities 6,919 4,332 93 (43) 2,756 14,057

Forward contract 3,208 3,347 39 - - 6,594

Islamic Profit Rate Swap 3,711 985 54 (43) 2,174 6,881

Structured deposits - - - - 582 582

Bills and acceptance payable 166,018 4,927 - - - 170,945

Other liabilities 14,115 - - - - 14,115

_________ _________ _________ _________ _________ _________

33,703,481 2,950,504 1,601,967 622,091 166,779 39,044,822

======== ======== ======== ======== ======== ========

Commitments and Contingencies

Direct credit substitutes 32,471 55,936 58,809 131,843 39,973 319,032

Transaction related contingent items 91,115 52,355 125,681 148,373 459,722 877,246

Short term self liquidating trade related contingencies 124,675 23,240 25,662 51,935 44,396 269,908

_________ _________ _________ _________ _________ _________

248,261 131,531 210,152 332,151 544,091 1,466,186

======== ======== ======== ======== ======== ========

142




(b) Takaful

The following policies and procedures are in place to mitigate exposure to

liquidity risk at Takaful Malaysia level:-

Wide liquidity risk policy setting out the evaluation and determination of the

components of liquidity risk. Compliance with the policy is monitored and

reported monthly and exposures and breaches are reported to the Risk

Management Committee as soon as practicable. The policy is regularly

reviewed for pertinence and for changes in the risk environment.

Setting up guidelines on asset allocations, portfolio limit structures and

maturity profiles of assets, in order to ensure sufficient funding is available to

meet takaful contracts obligations.

Setting up contingency funding plans which specify minimum proportions of

funds to meet emergency calls as well as specifying events that would trigger

such plans.

The Takaful's catastrophe excess-of-loss retakaful contract contains clauses

permitting the immediate drawdown of funds to meet claims payments should

claims events exceed certain amount.

Maturity analysis

The table below summarises the maturity profile of the financial liabilities of the

Takaful Malaysia Group based on remaining undiscounted contractual

obligations, including profit payable.

For takaful contract liabilities, maturity profiles are determined based on

estimated timing of net cash outflows from the recognised takaful liabilities.

Investment-linked liabilities are repayable or transferable on demand and are

included in the "up to a year" column.

143





Maturity analysis (continued) Carrying Up to >1 to 3 >3 to 5 More than No

value a year* years years 5 years maturity Total

Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

2014 Provision for outstanding claims 22(a)(i) 408,946 169,739 130,679 106,229 2,299 - 408,946

Takaful payables 22 61,317 61,153 164 - - - 61,317

Other payables 216,471 200,440 13,067 137 2,827 - 216,471

_______ _______ _______ _______ _______ _______ _______

686,734 431,332 143,910 106,366 5,126 - 686,734

====== ====== ====== ====== ====== ====== ======

2013 Provision for outstanding claims 22(a)(i) 473,365 202,498 151,911 101,253 17,703 - 473,365

Takaful payables 22 75,428 74,692 736 - - - 75,428

Other payables 227,876 223,486 2,012 251 2,127 - 227,876

_______ _______ _______ _______ _______ _______ _______

776,669 500,676 154,659 101,504 19,830 - 776,669

====== ====== ====== ====== ====== ====== ======

* Expected utilisation or settlement is within 12 months from the reporting date.

144


42. Takaful risk management

(a) Family Takaful Fund

The Family Takaful contracts consist of:

(i) Family Takaful non-investment-linked contracts

The Family Takaful non-investment-linked contracts are mainly credit

related takaful products, group takaful schemes, yearly renewable individual

ordinary medical plans, regular contribution individual ordinary plans and

annuity plans. The main product types are Mortgage Reducing Term

Takaful (MRTT), Group Credit Takaful, Group Term Takaful and Group

Medical Takaful.

(ii) Family Takaful investment-linked contracts

The Family Takaful investment-linked contracts are mainly made up of

regular contribution investment-linked products. The main products are

Takaful myInvest and Takaful myGenLife.

The key coverage for the Family Takaful contracts

The key coverage for the Family Takaful contracts are death, total and permanent

disability, hospital and surgical benefits, personal accident benefits, daily

hospitalisation cash allowance benefits, dread disease benefits, waiver of

contribution benefits and survival benefits (for annuity).

Concentration of Family Takaful risk

The following gives details of Takaful Malaysia Group’s concentration of risks

based on outstanding actuarial reserves by main product categories:

Group

Gross Retakaful Net


2014

Term 874,389 (101,692) 772,697

Endowment 1,358,507 (18) 1,358,489

Mortgage 1,466,686 (104,934) 1,361,752

Annuity 323,280 - 323,280

________ ________ ________

Total Family actuarial liabilities 22(a)(iii) 4,022,862 (206,644) 3,816,218

======= ======= =======

145


42. Takaful risk management (continued)

(a) Family Takaful Fund (continued)

Group

Gross Retakaful Net


2013

Term 824,558 (77,821) 746,737

Endowment 1,367,608 - 1,367,608

Mortgage 1,187,668 (70,519) 1,117,149

Annuity 328,985 - 328,985

________ ________ ________

Total Family actuarial liabilities 22(a)(iii) 3,708,819 (148,340) 3,560,479

======= ======= =======

Key assumptions

Reserves for all plans were valued on a basis that the Appointed Actuary

considers adequate and appropriate, and in-line with the valuation basis set out

by BNM in respect of the Guidelines on Valuation Basis for Liabilities of Family

Takaful Business (BNM/RH/GL 004-20) and Risk-Based Capital Framework for

Takaful Operator.

The key assumptions to which the estimation of actuarial liabilities is particularly

sensitive to the followings:

- Mortality and morbidity rates

This is significant for contracts with significant coverage for death, total

permanent disability and critical illness and the increase in the mortality or

morbidity rates would have direct impact on the liability.

- Discount rate

As the liabilities represents the present value of future cash outflow, a

reduction in discount rate would have an increasing impact on the liabilities

and vice-versa.

- Surrender rate

This is only applicable to long-term products, where when the rate is reduced

(products with PIF) or increased (products without PIF), the impact is an

increase of the liability.

146



(a) Family Takaful Fund (continued)

Sensitivities

A summary of key assumptions used for sensitivity analysis is as below:

Group

Mortality and

Morbidity Discount Surrernder

rates rate rate

2014

Endowment +10%(i) -1% -20%

Mortgage +10%(i) -1% -20%

Investment-linked +10%(i) -1% -20%

2013

Endowment +10%(i) -1% -20%

Mortgage +10%(i) -1% -20%

Investment-linked +10%(i) -1% -20%

(i) 10% Industry mortality and morbidity experience tables M8388 and M9903

The analysis below is performed for reasonable possible movements in each of

the key assumptions, with all other assumptions held constant, showing the

impact on gross and net liabilities, and unallocated surplus. The assumptions of

correlation will have a significant effect in determining the ultimate claims

liabilities. However, in order to demonstrate the impact arising from changes in

assumptions, these assumptions had to be changed on an individual basis. It

should also be noted that movement in these assumptions are non-linear.

Sensitivity information will also vary according to the current economic

assumptions.

Group


Change in gross net unallocated

assumptions liabilities liabilities surplus

RM’000 RM’000 RM’000

2014

Mortality / morbidity rate +10% 196,164 136,580 (136,580)

Discount rate -1% 183,304 161,481 (161,481)

Surrender rate -20% 58,568 44,264 (44,264)

======= ======= ======= =======

2013

Mortality / morbidity rate +10% 180,259 135,607 (135,607)

Discount rate -1% 146,481 130,140 (130,140)

Surrender rate -20% 49,629 42,032 (42,032)

======= ======= ======= =======

147



(b) General Takaful Fund

The General Takaful contracts consist of fire, motor, personal accident,

workmen’s compensation and employers’ liability, liabilities and engineering and

others.

Concentration of General Takaful risk

The table below sets out the concentration of General Takaful gross contribution

by type of business.

Group

Gross Retakaful Net


2014

Fire 163,537 (82,606) 80,931

Motor 208,649 (64,912) 143,737

Marine 5,733 (3,320) 2,413

Miscellaneous 73,400 (19,258) 54,142

________ _______ ________

Gross contribution 22(a)(ii) 451,319 (170,096) 281,223

======= ======= =======

2013

Fire 154,544 (80,917) 73,627

Motor 187,435 (30,647) 156,788

Marine 5,134 (2,796) 2,338

Miscellaneous 81,293 (26,987) 54,306

________ _______ ________

Gross contribution 22(a)(ii) 428,406 (141,347) 287,059

======= ======= =======

Key assumptions

The provision for Takaful liabilities is in accordance with the valuation methods

set out by BNM in respect of the Guidelines on Valuation Basis for Liabilities of

General Takaful Business (BNM/RH/GL 004-21) and Risk-Based Capital

Framework for Takaful Operator. The key assumptions underlying the estimation

of liabilities is that the Takaful Malaysia Group’s future claims development will

follow a similar pattern to past claims development experience, including

average claim cost, average claim frequency and business mix for each accident

year.

Additional qualitative judgements are used to assess the extent to which past

trends may not apply in the future, for example, isolated occurrences, changes in

market factors such as public attitude to claiming, economic conditions, as well

as internal factors such as portfolio mix, underwriting policy, policy conditions

and claims handling procedures.

148



(b) General Takaful Fund (continued)

Key assumptions (continued)

Other key circumstances affecting the reliability of assumptions include delays in

settlement and changes in foreign currency rates.

Sensitivities

The General Takaful claim liabilities are sensitive to the above key assumptions

and any changes to these assumptions may have impact on the liabilities and

operating surplus of the General Takaful Fund significantly. It is not possible to

quantify the sensitivity of certain assumptions, such as, legislative changes or

uncertainty in the estimation process.

The analysis below is performed for reasonable possible movements in each of

the key assumptions, with all other assumptions held constant, showing the

impact on gross and net liabilities and operating surplus. The assumptions of

correlation will have a significant effect in determining the ultimate claims

liabilities. However, in order to demonstrate the impact arising from changes in

assumptions, these assumptions had to be changed on an individual basis. It

should also be noted that movement in these assumptions are non-linear.

The key assumptions to which the estimation of actuarial liabilities is particularly

sensitive to the followings:

- Fire loss ratio for latest accident year

This is significant as Fire portfolio forms the largest composition under

general business. A change in loss ratio estimate will have an impact on the

liabilities significantly.

- Motor Act loss ratio for latest accident year

Motor Act business is long term in nature, and would take years before

experiencing claim incidents. A significant impact may result if the ultimate

experience differs from current estimation.

- Average claim cost

Reserves are based on the assumption that historical average claim cost is

reflective of the potential future experience. A change in average cost will

have an impact on future liabilities.

- Average claim frequency

Reserves are based on the assumption that historical average claim number

in each accident year is reflective of the potential future experience. A

change in average number of claims will have an impact on future liabilities.

149




Sensitivities (continued)

- Average claim settlement period

Reserves are based on the assumption that claim settlement period is

expected to be stable over the years. A change in claim handling practice

will have an impact on claim cost and future liabilities.

The summary of changes in key assumptions and the impact to the gross and net

claim liabilities, and the operating surplus, are shown below:

Group


Change in gross net unallocated

assumptions liabilities liabilities surplus

RM’000 RM’000 RM’000

2014

Fire loss ratio for AY 2014 +10% 15,709 6,386 (6,386)

Motor Act loss ratio for

AY 2014 +10% 3,247 2,919 (2,919)

Average claim cost +10% 60,263 28,415 (28,415)

Average claim frequency +10% 33,179 20,960 (20,960)

Average claim Increase by

settlement period 6 months 12,523 8,181 (8,181)

======= ======= =======

2013

Fire loss ratio for AY 2013 +10% 14,351 5,884 (5,884)

Motor Act loss ratio for

AY 2013 +10% 2,783 2,478 (2,478)

Average claim cost +10% 58,903 28,075 (28,075)

Average claim frequency +10% 31,943 20,651 (20,651)

Average claim Increase by

settlement period 6 months 11,675 7,541 (7,541)

======= ======= =======

Claims development table

The following tables show the estimate of cumulative incurred claims, including

both claims notified and IBNR for each successive accident year at the end of

reporting period, together with cumulative payments to-date.

In determining the provisions for claims, Takaful Malaysia Group takes into

consideration the probability and magnitude of future experience being more

adverse than expected, and exercises a degree of caution in setting aside reserves

when there is considerable uncertainty.

150




Claims development table (continued)

In general, the uncertainty associated with the ultimate claims experience in an

accident year is greatest when the accident year is at an early stage of

development and the margin required in order to assure confidence in the

adequacy of provision is relatively at its highest. As claims develop and the

ultimate cost of claims becomes more certain, the level of margin to be

maintained should be relatively lower.

151




Gross General Takaful contract liabilities for 2014 (Group): Before 2007 2008 2009 2010 2011 2012 2013 2014 Total

Accident year RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At end of accident year 363,421 211,719 151,643 256,026 252,127 235,113 348,058 272,807

One year later 308,462 163,964 159,147 325,009 256,803 226,965 322,024 -

Two years later 269,303 170,990 202,227 314,734 237,588 195,807 - -

Three years later 261,723 194,484 186,882 289,971 216,253 - - -

Four years later 258,296 182,666 172,266 261,764 - - - -

Five years later 257,029 165,483 159,098 - - - - -

Six years later 250,354 161,903 - - - - - -

Seven years later 245,275 - - - - - - -

Current estimate of

cumulative claims incurred 245,275 161,903 159,098 261,764 216,253 195,807 322,024 272,807 1,834,931

At end of accident year (63,455) (50,291) (71,393) (101,724) (58,326) (51,497) (56,640) (64,682)

One year later (179,619) (109,315) (132,370) (174,690) (132,258) (113,394) (130,366) -

Two years later (204,297) (142,410) (146,646) (205,770) (164,490) (147,379) - -

Three years later (219,658) (152,230) (153,005) (221,959) (179,202) - - -

Four years later (227,646) (156,264) (155,143) (230,198) - - - -

Five years later (233,071) (157,581) (155,984) - - - - -

Six years later (234,596) (158,663) - - - - - -

Seven years later (238,380) - - - - - - -

Cumulative payments to-date (238,380) (158,663) (155,984) (230,198) (179,202) (147,379) (130,366) (64,682) (1,304,854)

Gross General Takaful contract liabilities 6,895 3,240 3,114 31,566 37,051 48,428 191,658 208,125 530,077

======== ======== ======== ======== ======== ======== ======= =======

Additional risk margin 79,439

Effect of movement in exchange rates (4,083) ___________

Gross General Takaful contract liabilities per Takaful Malaysia financial position (Note 22(a)(i)) 605,433

=======

152




Net General Takaful contract liabilities for 2014 (Group): Before 2007 2008 2009 2010 2011 2012 2013 2014 Total

Accident year RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At end of accident year 106,409 102,188 107,014 211,276 179,670 169,228 156,615 156,941

One year later 118,800 86,706 109,700 214,389 183,927 169,004 143,677 -

Two years later 117,551 92,132 115,733 203,874 179,313 152,765 - -

Three years later 119,607 98,093 107,449 197,585 168,629 - - -

Four years later 115,828 96,590 104,480 185,014 - - - -

Five years later 121,362 93,306 100,610 - - - - -

Six years later 120,143 90,836 - - - - - -

Seven years later 123,160 - - - - - - -

Current estimate of

cumulative claims incurred 123,160 90,836 100,610 185,014 168,629 152,765 143,677 156,941 1,121,632

At end of accident year (47,717) (33,040) (44,099) (84,167) (53,570) (47,769) (48,340) (47,835)

One year later (85,148) (60,702) (79,458) (143,180) (119,794) (101,619) (94,643) -

Two years later (94,843) (74,740) (92,171) (158,560) (144,833) (122,291) - -

Three years later (102,483) (84,233) (97,214) (171,555) (152,714) - - -

Four years later (107,236) (87,523) (98,469) (175,176) - - - -

Five years later (114,486) (88,292) (98,930) - - - - -

Six years later (114,787) (88,685) - - - - - -

Seven years later (118,094) - - - - - - -

Cumulative payments to-date (118,094) (88,685) (98,930) (175,176) (152,714) (122,291) (94,643) (47,835) (898,368)

Net General Takaful contract liabilities 5,066 2,151 1,680 9,838 15,915 30,474 49,034 109,106 223,264

======== ======== ======== ======== ======== ======== ======= =======

Additional risk margin 30,046

Effect of movement in exchange rates (587) ___________

Net General Takaful contract liabilities per Takaful Malaysia financial position (Note 22(a)(i)) 252,723

=======

153


43. Fair value of financial instruments

Financial instruments comprise financial assets, financial liabilities and off-balance

sheet instruments. Fair value is the amount at which the financial assets could be

exchanged or a financial liability settled, between knowledgeable and willing parties in

an arm’s length transaction. The information presented herein represents the estimates

of fair values as at the financial position date.

Quoted and observable market prices, where available, are used as the measure of fair

values of the financial instruments. Where such quoted and observable market prices

are not available, fair values are estimated based on a range of methodologies and

assumptions regarding risk characteristics of various financial instruments, discount

rates, estimates of future cash flows and other factors. Changes in the assumptions

could materially affect these estimates and the corresponding fair values.

Fair value information for non-financial assets and liabilities are excluded as they do

not fall within the scope of MFRS 7, “Financial Instruments: Disclosure and

Presentation” which requires the fair value information to be disclosed.

The fair values are based on the following methodologies and assumptions:

Cash and short term funds and deposits and placements with banks and other

financial institutions

For cash and short term funds and deposits and placements with financial instruments

with maturities of less than six months, the carrying value is a reasonable estimate of

fair values. For deposits and placements with maturities six months and above, the

estimated fair values are based on discounted cash flows using prevailing money

market profit rates at which similar deposits and placements would be made with

financial instruments of similar credit risk and remaining year to maturity.

Financial assets held-for-trading and financial assets available-for-sale

The estimated fair values are generally based on quoted and observable market prices.

Where there is no ready market in certain securities, fair values have been estimated by

reference to market indicative yields or net tangible asset backing of the investee.

Non-market observable inputs also includes valuation technique based on assumptions

that are neither supported by prices from observable current market transactions in the

same instrument nor are they based on available market data. The main asset class in

this category are unquoted equity securities.


Their fair value is estimated by discounting the estimated future cash flows using the

prevailing market rates of financings with similar credit risks and maturities. The fair

values are represented by their carrying value, net of specific allowance and income-in-

suspense, being the recoverable amount.

154


43. Fair value of financial instruments (continued)

Deposits from customers

The fair values of deposits are deemed to approximate their carrying amounts as rate of

returns are determined at the end of their holding periods based on the profit generated

from the assets invested.

Deposits and placements of banks and other financial institutions

The estimated fair values of deposits and placements of banks and other financial

institutions with maturities of less than six months approximate the carrying values.

For deposits and placements with maturities of six months or more, the fair values are

estimated based on discounted cash flows using prevailing money market profit rates

for deposits and placements with similar remaining year to maturities.

Bills and acceptance payable

The estimated fair values of bills and acceptance payables with maturity of less than six

months approximate their carrying values. For bills and acceptance payable with

maturities of six months or more, the fair values are estimated based on discounted cash

flows using prevailing market rates for borrowings with similar risks profile.

Investment properties The fair values are based on market values, being the estimated amount for which a

property could be exchanged on the date of the valuation between a willing buyer and a

willing seller in an arm’s length transaction after proper marketing wherein the parties

had each acted knowledgeably.

Fair value hierarchy

MFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to

those valuation techniques adopted are observable or unobservable. Observable inputs

reflect market data obtained from independent sources and unobservable inputs reflect

the Group’s assumptions. The fair value hierarchy is as follows:

Level 1 – Quoted price (unadjusted) in active markets for the identical assets or

liabilities. This level includes listed equity securities and debt instruments.

Level 2 – Inputs other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e.

derived from prices). This level includes profit rates swap and structured debt. The

sources of input parameters include Bank Negara Malaysia (“BNM”) indicative

yields or counterparty credit risk.

There has been no transfer between Level 1 and 2 Fair values during the financial

year.

Level 3 – Inputs for asset or liability that are not based on observable market data

(unobservable inputs). This level includes equity instruments and debt instruments

with significant unobservable components.

155



Fair value information

The table below analyses financial instruments carried at fair value and those not carried at fair value for which fair value is disclosed, together with

their fair values and carrying amounts shown in the statement of financial position.

2014 Fair value of financial instruments

carried at fair value

Fair value of financial instruments

not carried at fair value

Group Total Carrying

RM’000 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total fair value Amount

Financial assets

Financial assets held-for-trading 229,805 921,629 - 1,151,434 - - - - 1,151,434 1,165,590

Derivative financial assets - 62,541 - 62,541 - - - - 62,541 62,541

Financial assets available-for-sale 650,677 12,992,952 153,933 13,797,562 - - 32,066 32,066 13,829,628 13,815,889

Financial assets held-to-maturity - - - - 21,089 466,896 60,752 548,737 548,737 547,258

Financing, advances and others - - - - - - 29,527,807 29,527,807 29,527,807 29,524,571

Total assets 880,482 13,977,122 153,933 15,011,537 21,089 466,896 29,620,625 30,108,610 45,120,147 45,115,849


Derivative financial liabilities - 32,407 - 32,407 - - - - 32,407 32,407

Sukuk liabilities - - - - - - 1,133,256 1,133,256 1,133,256 1,133,256

Total liabilities - 32,407 - 32,407 - - 1,133,256 1,133,256 1,165,663 1,165,663

2014

Company

Financial assets

Financial assets available-for-sale 18,559 - - 18,559 - - - - 18,559 18,559

Total assets 18,559 - - 18,559 - - - - 18,559 18,559



Total liabilities - - - - - - 1,133,256 1,133,256 1,133,256 1,133,256

156



Fair value information (continued)

2013 Fair value of financial instruments

carried at fair value

Fair value of financial instruments

not carried at fair value

Group Total Carrying

RM’000 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total fair value Amount

Financial assets

Financial assets held-for-trading 172,036 1,233,162 - 1,405,198 - - - - 1,405,198 1,405,198

Derivative financial assets - 29,118 - 29,118 - - - - 29,118 29,118

Financial assets available-for-sale 1,083,423 15,116,18

4

303,517 16,503,12

4

- - 34,481 34,481 16,537,605 16,536,010

Financial assets held-to-maturity - - - - 10,451 392,470 85,318 488,239 488,239 467,935

Financing, advances and others - - - - - - 24,040,73

3

24,040,73

3

24,040,733 23,740,948

Total assets 1,255,459 16,378,46

4

303,517 17,937,44

0

10,451 392,470 24,160,53

2

24,563,45

3

42,500,893 42,179,209


Derivative financial liabilities - 13,565 - 13,565 - - - - 13,565 13,565


Total liabilities - 13,565 - 13,565 - - 1,089,935 1,089,935 1,103,500 1,103,500

2013

Company

Financial assets

Financial assets available-for-sale 17,860 - - 17,860 - - - - 17,860 17,860

Total assets 17,860 - - 17,860 - - - - 17,860 17,860



Total liabilities - - - - - - 1,089,935 1,089,935 1,089,935 1,089,935

157



The following table presents the changes in Level 3 instruments for the financial year

ended 31 December 2014 for the Group:

2014 2013

RM’000 RM’000

Financial assets held-for-trading At 1 January - 59,662

Redemption - (588)

Settlement - (60,288)

Fair value gains/(losses) - 1,214

_______ _______

At 31 December - -

====== ======

2014 2013

RM’000 RM’000

Financial assets available-for-sale At 1 January 303,517 305,204

Maturity (159,474) -

Gains 9,890 13,493

Settlement - (5,643)

Impairment - (9,537)

_______ _______

At 31 December 153,933 303,517

====== ======

The following table shows the valuation techniques used in the determination of fair

values within Level 3, as well as the key unobservable inputs used in the valuation

models. (a) Financial instruments carried at fair value

Type

Valuation technique

Significant

unobservable

inputs

Inter-relationship

between significant

unobservable inputs and

fair value measurement Financial

assets

available-

for-sale

Valued at cost less

impairment

Not

applicable

Not applicable

Institutional

trust

account

Discounted cash flows

using market profit rate for

a similar instrument at the

measurement date

4.58% The estimated fair value

would increase (decrease)

if the discount rate were

(lower) higher.

158



(a) Financial instruments carried at fair value (continued)

Valuation processes applied by the Group for Level 3 fair value

The Group has an established control framework in respect to the measurement of fair

value of financial instruments. This includes a valuation team that has overall

responsibility for overseeing all significant fair value measurements, including Level 3

fair values, and reports directly to the Chief Financial Officer. The valuation team

regularly reviews significant unobservable inputs and valuation adjustments.

Sensitivity analysis for Level 3

Change in Impact on Impact on Impact on

variables profit Impact on operating Participants’

before tax equity surplus fund

RM’000 RM’000 RM’000 RM’000

2014

Market price +1% - (611) - (1,142)

Market price -1% - 633 - 1,175

2013

Market price +1% - (707) - (2,496)

Market price -1% - 733 - 2,565

(b) Financial instruments not carried at fair value

The following methods and assumptions are used to estimate the fair values of the

following classes of financial instruments:

(i) Financial investments held-to-maturity (“HTM”)

The fair values of securities that are actively traded is determined by quoted

bid prices. For non-actively traded securities, the fair values are valued at

cost less impairment or estimated using discounted cash flows analysis.

Where discounted cash flows technique is used, the estimated future cash

flows are discounted using applicable prevailing market or indicative rates

of similar instruments at the reporting date.

(ii) Financing and advances

The fair values of variable rate financing are estimated to approximate their

carrying values. For fixed rate financing, the fair values are estimated based

on expected future cash flows of contractual instalment payments, discounted

at applicable and prevailing rates at reporting date offered for similar

facilities to new borrowers with similar credit profiles. In respect of impaired

financing, the fair values are deemed to approximate the carrying values

which are net of impairment allowances.

159


44. Capital commitments Group

2014 2013

RM’000 RM’000


Contracted but not provided for in the

financial statements 62,834 49,521

Approved but not contracted for and

not provided 20,427 31,179

_______ _______

83,261 80,700

====== ======

45. Lease commitments

Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

Group

2014 2013

RM’000 RM’000 Within one year 46,857 47,262

Between one and five years 131,153 132,770

More than five years 304,209 323,942

_______ _______

482,219 503,974

====== ======

Leases as lessor

The Group leases out its investment properties (see Note 17). The future minimum

lease receivables under non-cancellable leases are as follows:

Group

2014 2013

RM’000 RM’000 Within one year 7,003 6,520

Between one and five years 8,519 4,818

_______ _______

15,522 11,338

====== ======

160


46. Capital management

The Group’s objectives when managing capital is to maintain a strong capital base and

safeguard the Group’s ability to continue as a going concern, so as to maintain investor,

creditor and market confidence and to sustain future development of the business. The

Directors monitor the adequacy of capital on an ongoing basis.

There were no changes in the Group’s approach to capital management during the

financial year.

Under the Listing Requirement of Bursa Malaysia Practice Note No. 17/2005, the

Company is required to maintain a consolidated shareholders’ equity equal to or not

less than the 25 percent of the issued and paid-up capital (excluding treasury shares)

and such shareholders’ equity is not less than RM40 million. The Company has

complied with this requirement.

The capital requirements in respect of Bank Islam Malaysia Berhad, Syarikat Takaful

Malaysia Berhad and BIMB Securities Sdn Bhd are subject to regulatory requirements

from Bank Negara Malaysia and Bursa Malaysia Berhad.

47. Operating segment information

Performance is measured based on segment profit/(loss) before zakat and taxation, as

included in the internal management reports that are reviewed by the Group Managing

Director/Chief Executive Officer. Segment profit/(loss) before zakat and taxation is

used to measure performance as management believes that such information is the most

relevant in evaluating segmental results relative to other entities that operate within

these industries. In the preceding year, performance was measured based on segmental

results from operating activities and included items directly attributable to a segment as

well as those that could be allocated on a reasonable basis.

The Group operates predominantly in Malaysia and accordingly, information by

geographical location on the Group’s operation is not presented.

Segment information is presented in respect of the Group’s main business segment.

Business segments

The Group comprises of the following main business segments:

Banking Islamic banking and provision of related services.

Takaful Underwriting of family and general Islamic insurance (“Takaful”).

Others Investment holding, currency trading, ijarah financing, stockbroking and

unit trust.

161


47. Operating segment information (continued)

Banking Takaful Others Elimination Consolidated

2014 RM’000 RM’000 RM’000 RM’000 RM’000

Business segments

Segment result

Revenue from external customers 2,413,748 542,803 10,922 - 2,967,473

Inter-segment revenue 23,078 2,708 212,564 (238,350) -

___________________________________________________

Total revenue 2,436,826 545,511 223,486 (238,350) 2,967,473

=============================================

Net income from operations (before allowance for

impairment on financing and other assets) 1,585,700 545,511 223,486 (232,225) 2,122,472

Operating overheads (826,644) (357,487) (26,230) 27,800 (1,182,561)

___________________________________________________

Operating results 759,056 188,024 197,256 (204,425) 939,911

Allowance for impairment on financing and advance (59,993) - - - (59,993)

Reversal of impairment on other assets 3,688 - - - 3,688

Finance cost - - (68,222) - (68,222)

___________________________________________________

Profit before zakat and taxation 702,751 188,024 129,034 (204,425) 815,384

=============================================

Segment assets 45,820,682 7,127,028 5,190,914 (5,108,419) 53,030,205

=============================================

Segment liabilities 42,091,092 6,545,264 1,527,373 (322,784) 49,840,945

=============================================

Note 41.4 (a)(i),

41.5(a)

162


47. Operating segment information (continued) Banking Takaful Others Elimination Consolidated

2013 RM’000 RM’000 RM’000 RM’000 RM’000

Business segments

Segment result

Revenue from external customers 2,244,205 553,058 12,132 - 2,809,395

Inter-segment revenue 900 2,644 285,642 (289,186) -

___________________________________________________

Total revenue 2,245,105 555,702 297,774 (289,186) 2,809,395

=============================================

Net income from operations (before allowance for

impairment on financing and other assets) 1,465,640 555,702 297,774 (282,522) 2,036,594

Operating overheads (799,376) (382,017) (42,916) (528) (1,224,837)

___________________________________________________

Operating results 666,264 173,685 254,858 (283,050) 811,757

Reversal of impairment on financing 15,009 - - - 15,009

Allowance for impairment on investment (9,211) - - - (9,211)

Reversal of impairment on other assets 5,570 - - - 5,570

Finance cost - - (3,349) - (3,349)

Share in the results of associate company (349) - - - (349)

___________________________________________________

Profit before zakat and taxation 677,283 173,685 251,509 (283,050) 819,427

=============================================

Segment assets 42,811,371 6,893,085 5,093,767 (5,123,678) 49,674,545

=============================================

Segment liabilities 39,484,536 6,316,044 1,209,750 (385,725) 46,624,605

=============================================

Note 41.4 (a)(i),

41.5(a)

163


48. Commitments and contingencies

In the normal course of business, the Group makes various commitments and incur

certain contingent liabilities with legal recourse to their customers. No material losses

are anticipated as a result of these transactions. These exclude all contracts cleared in

the normal course of the takaful business.

Group

2014 2013

RM’000 RM’000

Credit-related Exposures

Direct credit substitutes 360,433 319,032

Assets sold with recourse 2 2

Transaction related contingent items 1,026,265 877,246


standby facilities and credit lines, with

an original maturity of:

- not exceeding one year 6,165 1,714

- exceeding one year 942,851 823,818

Short term self liquidating trade related contingencies 236,874 278,297

Unutilised credit card lines 1,023,337 991,097

Any commitments that are unconditionally

cancelled at any time by the bank without

prior notice or that effectively provide for

automatic cancellation due to deterioration

in a borrower’s creditworthiness 5,404,888 5,116,604

9,000,815 8,407,810

Derivative Financial Instruments

Foreign exchange related contracts

Less than one year 1,840,778 1,381,894


Less than one year 300,000 100,000

One year to less than five years 600,000 500,000

5 years and above 287,694 711,481 Equity related contracts

One year to less than five years 106,680 110,495

3,135,152 2,803,870

12,135,967 11,211,680

164


49. Significant events during the financial year

On 25 November 2014, the Board of Directors of BIMB Holdings Berhad (“BHB”)

(“Board”) had declared an interim single tier dividend of 14.7% per ordinary share of

RM1.00 each in BHB (“BHB Share”) for the financial year ending 31 December 2014

(“Interim Dividend”) to be paid on 13 January 2015.

From the total dividend amount paid of RM219.5 million on 13 January 2015,

approximately 17.7% or RM38.9 million was distributed as cash dividend whilst the

remaining 82.3% amounting to RM180.6 million was reinvested to subscribe for

48,703,800 new ordinary shares of RM1.00 at RM3.71 each via the Dividend

Reinvestment Plan.

165


50. Supplementary information on the breakdown of realised and

unrealised profits or losses

The breakdown of the accumulated losses of the Group and of the Company as at 31

December, into realised and unrealised profits or losses, pursuant to Paragraphs 2.06

and 2.23 of Bursa Malaysia Main Market Listing Requirements, are as follows:

Group Company

2014 2013 2014 2013

RM’000 RM’000 RM’000 RM’000

Total retained earnings of the Company


- realised 761,071 850,447 15,589 234,994

- unrealised 53,510 38,833 10 10

________ ________ ________ ________

814,581 889,280 15,599 235,004

Less: Consolidation adjustments (831,847) (839,672) - -

________ ________ ________ ________

Total (accumulated losses)/ retained earnings (17,266) 49,608 15,599 235,004

======= ======= ======= =======

The determination of realised and unrealised profits is based on the Guidance of Special

Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context

of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements,

issued by Malaysian Institute of Accountants on 20 December 2010.

166



Statement by Directors pursuant to

Section 169(15) of the Companies Act, 1965

In the opinion of the Directors, the financial statements set out on pages 6 to 164 are drawn

up in accordance with Malaysian Financial Reporting Standards (“MFRS”), International

Financial Reporting Standards (“IFRS”), and the requirements of the Companies Act, 1965 in

Malaysia, and Shariah requirements so as to give a true and fair view of the financial position

of the Group and of the Company as of 31 December 2014 and their financial performance

and cash flows for the financial years then ended.

In the opinion of the Directors, the information set out in Note 50 on page 165 to the financial

statements has been compiled in accordance with the Guidance on Special Matter No.1,

Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures

Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian

Institute of Accountants, and presented based on the format prescribed by Bursa Malaysia

Securities Berhad.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

……………………………………


……………………………………

Dato’ Johan bin Abdullah

Kuala Lumpur,

Date: 31 March 2015

167



Statutory declaration pursuant to

Section 169(16) of the Companies Act, 1965

I, Mohamad Azlan Mohamad Alam, the officer primarily responsible for the financial

management of BIMB Holdings Berhad, do solemnly and sincerely declare that the financial

statements set out on pages 6 to 165 are, to the best of my knowledge and belief, 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.

Subscribed and solemnly declared by the above named in Kuala Lumpur on 31 March 2015.

……………………………………..

Mohamad Azlan Mohamad Alam

Before me:

168

Independent auditors’ report to the members of



Report on the Financial Statements

We have audited the financial statements of BIMB Holdings Berhad, which comprise the

statements of financial position as at 31 December 2014 of the Group and of the Company,

and the statements of profit or loss and other comprehensive income, changes in equity and

cash flows of the Group and of the Company for the year then ended, and a summary of

significant accounting policies and other explanatory information, as set out on pages 6 to

164.

Directors’ Responsibility for the Financial Statements

The Directors of the Company 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 is 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 judgment,

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.

169


Opinion

In our opinion, the financial statements give a true and fair view of the financial position of

the Group and of the Company as of 31 December 2014 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

the following:

a) In our opinion, the accounting and other records and the registers required by the Act to

be kept by the Company and its subsidiaries of which we have acted as auditors have

been properly kept in accordance with the provisions of the Act.

b) We have considered the accounts and the auditors’ reports of all the subsidiaries of which

we have not acted as auditors, which are indicated in Note 14 to the financial statements.

c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the

Company’s financial statements are in form and content appropriate and proper for the

purposes of the preparation of the financial statements of the Group and we have received

satisfactory information and explanations required by us for those purposes.

d) The audit reports on the accounts of the subsidiaries did not contain any qualification or

any adverse comment made under Section 174(3) of the Act.

Other Reporting Responsibilities

Our audit was made for the purpose of forming an opinion on the financial statements taken

as a whole. The information set out in Note 50 on page 165 to the financial statements has

been compiled by the Company as required by the Bursa Malaysia Securities Berhad Listing

Requirements and is not required by the Malaysian Financial Reporting Standards or

International Financial Reporting Standards. We have extended our audit procedures to report

on the process of compilation of such information. In our opinion, the information has been

properly compiled, in all material respects, in accordance with the Guidance on Special

Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of

Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by

the Malaysian Institute of Accountants and presented based on the format prescribed by

Bursa Malaysia Securities Berhad.

170


Other Matters

This report is made solely to the members of the Company, 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.

KPMG Desa Megat & Co. Ow Peng Li

Firm Number: AF 0759 Approval Number: 2666/09/15(J)

Chartered Accountants Chartered Accountant

Petaling Jaya,

Date: 31 March 2015




Reports and financial statements

for the financial year

ended 31 December 2014

Documents

Bank Islam Holding-financial-statement 2014.pdf