Danajamin Nasional Berhad€¦ · Batik is not only the creation of a unique national design...

Danajamin Nasional Berhad

Level 18, Menara Allianz Sentral203, Jalan Tun Sambanthan

Kuala Lumpur Sentral50470 Kuala Lumpur

T • +603 2265 0800 F • +603 2265 0900E • [email protected]

AN ENDURING HERITAGE

Annual Report 2017

www.danajamin.com

Danajam

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As the nation’s first Financial Guarantee Insurer, Danajamin is committed to provide financial guarantees for bonds/sukuk issuances to financially viable Malaysian companies to enable access to the Corporate Bond market. Our mission is to build confidence and to enhance the efficiency of capital allocation in the Corporate Bond market.

How to Achieve our Mission

• Promoting a work culture which emphasises on professionalism, integrity, teamwork, innovation and diversity;

• Implementing a robust and consistent standard in credit underwriting and risk management;

• Providing our customers access to the Corporate Bond market at a reasonable cost;

• Working with viable companies that are transparent, creditworthy, trustworthy, and practise good corporate governance;

• Exercising care in financial management to preserve our capital and maintain our AAA rating; and

• Generating a fair level of return to our shareholders.

OUR MISSIONMalaysia is a multi-ethnic nation blessed with a rich diversity of ethnicity and cultures. These threads of diversity, multi-culturism and inclusivity are infused into the social fabric of the nation. The iconic Batik with its wealth of colours and designs reflecting the luxuriant flora and fauna in the natural environment is evocative of the magnificent tapestry of Malaysia’s rich cultural heritage.

The art of Batik-making is a timeless legacy that is passed down from each generation to the next. It involves the delicate and repeated process of waxing, dying and boiling of the fabric. To produce the patterns desired, the process has to happen in a precise order along the order of the colours utilised. The painstaking Batik-making process is symbolic to the precision that Danajamin employs in our role to groom the companies that we guarantee to move forward and emerge as significant participants in the Malaysian Corporate Bond market.

The aesthetic and cultural value of Batik is preserved and now depicted in various types of clothing, art, craft and decor displaying the versatility of this enduring fabric. Over time this versatile fabric has evolved from a humble item of clothing to a fabric of choice for national attire. The intensity of the Malaysian Batik is not only the creation of a unique national design identity but also the innovation in its production process and marketing. Likewise, the variety in the applications of the Batik technique and the innovative process represents the diversity in ratings and the innovation that Danajamin brings to the market – a selection of issuers with different ratings to meet the various investors’ needs.

Similar to the Batik’s iconic positioning, as a national icon Danajamin continues to bring value to the nation’s economic agenda and maintains its role as a catalyst to further develop the Corporate Bond market.

Nation’s First and OnlyFinancial Guarantee Insurer

what’s inside

Danajamin was established in May 2009 to be a catalyst to stimulate and further develop the Malaysian Corporate Bond market by providing financial guarantee insurance for bonds/sukuk issuances to financially viable Malaysian companies and enable access to the Corporate Bond market. Danajamin is regulated and supervised by Bank Negara Malaysia under the Financial Services Act 2013.

Danajamin is jointly owned by Minister of Finance Incorporated (50%) and Credit Guarantee Corporation Malaysia Berhad (50%), rated AAA by both RAM Rating Services Berhad and Malaysian Rating Corporation Berhad. Danajamin is currently tax exempted.

For the past 8 years, Danajamin has brought 33 clients across diversified sectors to the Corporate Bond market, amounting to RM9.3 billion total issuance with market impact of RM20.3 billion.

C O R P O R A T E C O R E V A L U E S

Passion Clarity Care Responsibility

01 Who We Are & What We Do 02 What We Offer 04 2017 Key Highlights 06 Key Milestones07 Our Awards and Accolades 10 Chairman’s Statement

14 Statement from the Managing Director/Chief Executive Officer 18 Corporate Structure and Framework19 Our Clients 20 5-Year Financial Highlights 21 Our Strengths 23 Risk Management Framework

25 Capital Management 27 Liquidity Management 28 Rating by External Rating Agencies32 Board of Directors 34 Directors’ Profiles 40 Senior Management’s Profiles 45 Organisation Chart

46 Our Divisions 47 Statement on Corporate Governance 62 Statement on Risk Management & Internal Controls66 Our Commitment to Corporate Social Responsibility 74 Media Highlights 78 Statutory Financial Statements

PROFILE MARKET POSITIONING

WHO WE ARE & WHAT WE DO

GUARANTEE FEEAIMS

Danajamin provides financial guarantee, a form of credit enhancement, to bonds/sukuk. With Danajamin’s guarantee, the bonds/sukuk will be automatically rated to AAA, the highest rating accorded to bonds/sukuk.

The rating reflects the irrevocable and unconditional financial guarantee extended by Danajamin. With the improved rating, issuers will be more assured of a successful bonds/sukuk issuance. Investors, on the other hand, will have an opportunity to invest in AAA-rated papers that are guaranteed by Danajamin. Investors also have the assurance that Danajamin will in accordance with the terms of the financial guarantee, pay the principal and up to one coupon/profit, should the issuer fail to do so.

For this, bond/sukuk issuers will pay a guarantee fee to Danajamin in return for Danajamin’s guarantee. The guarantee fee is calculated based on a percentage of the nominal value of each guaranteed issuance (plus one coupon/profit payment), and is payable annually in advance.

The general structure of the financial guarantee facility provided by Danajamin is shown in the diagram below:

• Facilitate a wider range of credit-worthy companies to raise

capital via the Corporate Bond market

• Encourage emerging/mid-tier corporates issuers to raise

capital via the Corporate Bond market

• Provide availability of long-term capital for a wider range

of companies

Guarantee fee is calculated based on a percentage of the nominal value of each insured issuance and is payable annually in advance

Guarantees bonds/sukuk issued

Funding requirements

Pays coupon/profit& principal

Coupon/profit& principal

Provision of Guarantee Facility for bonds/sukuk issuance. The rating reflects irrevocable and unconditional guarantee provided by Danajamin

Invests

Payment of Guarantee Fee

Payment of coupon/profit and principal on behalf of issuer within 10 business days, should issuer fail to do so

AAA creditenhancement

DANAJAMINNASIONAL BERHAD

ISSUERS INVESTORS

AAA-RATED

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DANAJAMIN’S FINANCIAL GUARANTEES

WHAT WE OFFER

To obtain Danajamin’s Financial Guarantee Insurance (FGI) or Kafalah, companies may approach Danajamin directly or via licensed Financial Institutions (FI). The following is a general guide of a typical process companies undergo to issue bonds/sukuk guaranteed by Danajamin.

ISSUANCE PROCESS

• Receives indicative Issue Rating from Rating Agency• Financial Advisor lodges application to Securities Commission

• Finalisation & execution of legal documentation• Compliance with conditions precedent• Issuance of FG

DECISION TO ISSUE DANAJAMIN GUARANTEED BONDS/SUKUK

ISSUANCE OF GUARANTEED BONDS/SUKUK

APPROVAL/APPLICATION

DOCUMENTATION/EXECUTION

• Evaluate transaction/project• Structures principal terms &

conditions of FG/Kafalah• Approval & issuance of FG/Kafalah

offer letter

DANAJAMIN

• Client appoints Financial Advisor, Rating Agency & other advisers for fundraising

• Structures principal terms & conditions of Bonds/Sukuk

MOBILISATION

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NET GUARANTEE AMOUNT

RM5.42billion

NEW ISSUANCE

RM952million

GROSS GUARANTEE AMOUNT

RM6.27 billion

SHAREHOLDER’S EQUITY

NET EARNED PREMIUMS

RM81.8 million

INVESTMENT INCOME

RM71.7million

PROFIT BEFORE TAX

RM114.2 million

RM1.68billion

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FINANCIAL HIGHLIGHTS

2017 KEY HIGHLIGHTS

DEVELOPEDKedah’s Immigration, Customs, Quarantine and Security Complex to house offices and operations on

30hectare land

ASSISTEDin developingUiTM’s medical academic centre under the Project Finance Initiative programme

ENHANCEDtransportation infrastructure by developing a 24.4 km three lane dual carriageway expressway that connects Sri Petaling at the southern Klang Valley and Ulu Klang.

DEVELOPEDaward-winning SkyAwani seriesunder the RUMAWIP programme for first time home buyers

Issued a

RM500 millionsubordinated Sukuk to help Danajamin meets its developmental mandate of bringing financially viable Malaysian companies into the Corporate Bond market.

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2017 KEY HIGHLIGHTS

BUSINESS HIGHLIGHTS

15 MayEstablishment of Danajamin.

30 JuneDanajamin issues its underwriting policy which serves as a guideline in evaluating applications for financial guarantee insurance.

29 JuneIssuance of the first DanajaminGuaranteed Bonds. Issuer: Syarikat Kapasi Sdn Bhd.

23 JulyIssuance of the first Danajamin Guaranteed Sukuk. Issuer: LBS Bina Sdn Bhd

31 JulyDanajamin executes its first guarantee for a structured transaction.Issuer: Mecuro Properties Sdn Bhd

1 AprilDanajamin hits RM6 billion for total guarantee provided.

30 SeptemberDanajamin signs strategiccollaboration agreement with Credit Guarantee and Investment Facility to unlock the potential of Corporate Bond market.

2 JuneDanajamin executes its firstco-guarantee transaction withMaybank Islamic Berhad.Issuer: Ranhill Capital Sdn Bhd(Formerly known as Ranhill Power Sdn Bhd).

17 JuneDanajamin executes its firststandalone & guaranteed transaction.Issuer: Ranhill Powertron II Sdn Bhd

8 DecemberDanajamin partners Maybank andOCBC for its first syndicatedguarantee transaction.Issuer: Silver Sparrow Sdn Bhd

20092010

2013

2014

27 AprilThe first bonds guaranteed by Danajamin were fully redeemed.Issuer: 1 Warisan Sdn Bhd

28 AugustDanajamin executes a 21-year programme transaction – the longest tenure to date.Issuer: West Coast Expressway Sdn Bhd

8 DecemberInaugural asset-backed securitisation transaction through a RM450 million sukuk ijarah programme.Issuer: Purple Boulevard Berhad

28 AprilDanajamin guarantees its largest issuance and fronting with a AAA-rated bank – RM635 million.Issuer: Perdana Petroleum Berhad

5 DecemberQuill Retail Malls Sdn Bhd fully redeemed its RM260 million FGI facility. This marks Danajamin’s 7th full redemption to date.

31 DecemberDanajamin hits market impact of RM15.2 billion.

29 AugustDanajamin achieves two “firsts” by applying a “drop-off” guarantee structure for a “live” bond programme which had been established by the issuer in 2013.Issuer: Northern Gateway Infrastructure Sdn Bhd

6 OctoberDanajamin issues Tier-2 Subordinated Sukuk amounting to RM500 million as part of its Capital Management Plan.

23 OctoberDanajamin co-guarantees the issuance of RM639 million Senior Sukuk Murabahah for the development of a new teaching hospital and medical academic centre.Issuer: TRIplc Medical Sdn Bhd

8 DecemberDanajamin guarantees its first credit enhancement facility to support the Islamic Medium Term Notes issued by a property developer backed by progress billings of its first affordable housing project.Issuer: SkyWorld Capital Berhad

2015

2016

2011

2012

2017

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KEY MILESTONES

ISLAMIC FINANCE NEWS (IFN) DEALS OF THE YEAR 2017RM500 million Tier 2 Subordinated Sukuk MurabahahCommodity Murabahah Deal of the Year

ISLAMIC FINANCE NEWS (IFN) DEALS OF THE YEAR 2015Purple Boulevard Sukuk Ijarah ProgrammeIjarah Deal of the Year

ISLAMIC FINANCE NEWS (IFN) DEALS OF THE YEAR 2015Purple Boulevard Sukuk Ijarah ProgrammeReal Estate Deal of the Year

THE TRIPLE A ASSET AWARDS 2015Purple Boulevard Sukuk Ijarah ProgrammeBest Securitisation Sukuk

RAM LEAGUE AWARDS 2015Purple Boulevard Sukuk Ijarah ProgrammeStructured Finance Landmark Deal

RAM LEAGUE AWARDS 2015RM350 million bond programme by West Coast Expressway Sdn BhdProject Finance Benchmark Deal

BPAM BOND MARKET AWARDS 2016Danajamin Nasional BerhadSpecial Award

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OUR AWARDS AND ACCOLADES

Experience & Expertise

The ancient form of making batik fabrics is a

time-intensive process that dates back

centuries. A fascinating and engaging process,

it requires a high level of technical expertise.

We will use our experience and expertise to

catalyse the further development of the

domestic Corporate Bond market.

Dear Valued Stakeholders,

Itgives me great pleasure to present Danajamin’s 2017 Annual Report.

Danajamin Nasional Berhad – a government-linked entity, was established in May 2009 as

one of the Malaysian Government’s responses to the impact of the global financial crisis on the nation’s economy. The strategic responses include diversification of offerings in the Corporate Bond market, the specific facilitation of access to the marketplace for emerging and under-served corporates, and to support implementation of various government initiatives under the Economic Transformation Programme (ETP).

In executing our developmental mandate, our role is to first be a catalyst by providing financial guarantee insurance for bonds and Sukuk issuances to under-served but viable Malaysian emerging corporates. This also broadens the scope of Malaysia’s Corporate Bond market by providing alternative avenues for issuers and investors to meet both their funding and investment needs. At the second stage, we seek to complement the roles played by other developmental and commercial financial institutions by actively encouraging our issuers to migrate to the mainstream banking sector once they are able to demonstrate a lower risk profile.

Whilst still a nascent financial institution of less than ten years in operation, Danajamin has, to date guaranteed 33 Malaysian corporations – including 20 first-time issuers, with a total guarantee size of RM9.3 billion. The total market impact – through risk-sharing collaboration with partner banks, stood at RM20.3 billion.

Consistent with our role as a catalyst, I am further delighted to report that out of our 33 clients to date 20 issuers have demonstrated their viability and redeemed their bonds and Sukuk totalling RM3.1 billion – with eight issuers who redeemed in full. These issuers were from 12 diverse sectors spanning Oil and Gas, Infrastructure and Property Development.

During the year under review, we experienced zero default. This is the result of the very deliberate strategy to instil a very strong credit culture as the foundation for future growth – from origination, evaluation, structuring, pre-disbursements and post-disbursements account management. Though we would caution that this may not be sustainable, given our developmental role, we have put in place a very strong infrastructure for managing problematic accounts and dealing with the expected eventuality of some defaults. We therefore believe that we have accomplished measurable success in fulfilling both our developmental and commercial objectives and at the same time being financially self-sustaining.

Danajamin’s total assets currently stand at RM2.737 billion and shareholders’ equity at RM1.680 billion. During the year, we have also raised RM500 million Sukuk Commodity Murabahah sub-debt as part of our capital management initiatives. Given the confidence, support and trust that our shareholders had accorded us I am privileged to announce a 10% dividend pending the approval of the shareholders at the Annual General Meeting.

Dato’ Mohammed Hussein – Chairman

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CHAIRMAN’S STATEMENT

KEY MESSAGES

DELIVERING ON OUR POTENTIALIn 2017, the Malaysian economy exceeded expectations with a growth rate of 5.8% on the back of strengthening domestic demand and an escalation in exports. Stronger domestic demand due to the government’s pro-growth policies had resulted in the economy’s 5.6% expansion in the first quarter of 2017. This growth trend continued in the second half of 2017 when the current account surplus jumped to RM12.52 billion in the third quarter from RM7.24 billion in the same quarter in 2016. It was the largest current account surplus recorded since the second quarter of 2014.

The third quarter growth of 6.2% was one of the highest in the Asian region – as all major sectors of the economy expanded. The fourth quarter also expanded by stronger-than-expected 5.9% - the best in the past three years – a marked increase from 2016’s 4.2%. This solid growth momentum is expected to continue and spill over into 2018.

The nation’s sound economic performance resulted in the International Monetary Fund upgrading its outlook on Malaysia’s GDP growth from 4.5% to as high as 6%, while the World Bank revised its full-year forecast from 4.4% to 5.8%. The Ringgit also strengthened by 4.1 during the fourth quarter of 2017.

2017’s brisk pace of growth over the past four quarters manifested in the significant progress experienced on the domestic front. For the year under review there was robust issuance of Malaysia’s corporate bonds that were driven by a healthy pipeline of issuance from various sectors. This remarkable pace was augmented by both sub-segments of the Corporate Bond market – quasi-government and private, which posted double digit year-on-year growth rates of 46.1% and 45.6% respectively. The positive performance of the Corporate Bond market boded well for Danajamin given the recovery in the Malaysian economy in tandem with the progress in global growth.

As at 31 December 2017, Danajamin successfully facilitated a total of RM20.3 billion worth of bonds and Sukuk through our risk-sharing collaboration with partner banks. Since our establishment in 2009 we have managed a total guarantee size of RM9.3 billion.

A RISK MANAGEMENT CULTURE FOR SUSTAINABILITYAs the nation’s first and only financial guarantee insurer, Danajamin’s mandate is to encourage market diversity and to instil market confidence in lower-rated investment papers. Notwithstanding our developmental role, our capacity to

undertake calculated risks for the under-served market segment is supported by rigorous credit evaluation that stems from a strong credit and risk management culture. This risk management culture constitutes our foundation for long-term sustainability.

As such, we take a rigorous holistic approach in our assessment of potential issuers. These encompass credit and viability evaluation, structuring of the financial package, deliberations at the credit approval stage, ensuring that the facility documentation properly reflect the approved financial terms, thorough account management – post-issuance, to ensure adherence to the financing terms thus allowing early alerts of potential problems and appropriate remedial management in managing the quality of our portfolio.

Towards managing our overall risk management, we have entered into risk-sharing structures with other financial institutions. For financial year 2017, Danajamin has risk-shared approximately RM23 millions of its guarantee issued.

ADVANCING WITH INNOVATIONIn line with Danajamin’s mandate, we are continually mindful that innovation is the key to create rating diversity and consequently instil market confidence in lower-rated investment papers. I am gratified that the facilities we had provided in 2017 had assisted emerging corporates to deliver their business objectives.

Our issuances for 2017 include a RM340 million guarantee for Northern Gateway Infrastructure Sdn. Bhd. where Danajamin secured two ‘firsts’ – by applying a ‘drop-off’ guarantee structure after the construction had been completed thus guaranteeing the construction risk for an existing bond programme that had been established by the issuer in 2013. Additionally, Danajamin co-guaranteed the issuance of an RM639 million Senior Sukuk Murabahah for TRIplc Medical Sdn. Bhd. – the developer of a new teaching hospital and medical academic centre. We also provided an RM500 million guarantee to part finance the Sungai Besi-Ulu Klang Expressway (SUKE) 24.4km expressway project for Projek Lintasan Sungai Besi-Ulu Klang Sdn. Bhd. and Danajamin’s first credit enhancement facility valued at RM41 million to support Islamic Medium Term Notes issued by SkyWorld Capital Berhad – a developer of an affordable housing project in Kuala Lumpur.

OUR PATH TO EXCELLENCEOur reputation as a responsible market catalyst is our value proposition. We acknowledge that a key element of a good reputation is the building and cultivation of relationships with our key stakeholders to gain their trust in dealing with us.

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Danajamin’s continuing commitment to best industry practices is essential to maintain the confidence of our stakeholders. Our success becomes more meaningful when acknowledged and recognised by our peers. These acknowledgements contribute to augment our reputation. During the year under review, Danajamin is honoured to have received the Islamic Finance News’ Deals of the Year 2017 for Commodity Murabahah Deal of the Year, for Danajamin’s RM500 million Subordinated Sukuk Murabahah issuance in October.

In executing our mandate, it is imperative that our employees are congruent with our emphasis on good governance and our commitment to be a responsible market participant. We, therefore invest heavily in talent management and provide adequate opportunities to our staff to acquire and enhance their career-advancing and job-related competencies to the level required by Danajamin. Our human resource aspiration is that our employees embody Danajamin’s values of Passion, Clarity, Care and Responsibility.

Our corporate social responsibility (CSR) is also aligned to our mandate to contribute to Malaysia’s future. Recognising that youth is a major component of our future, our flagship social responsibility programme, Danajamin100 – Building Leaders of Tomorrow – is focused on the development of Malaysia’s youth through a leadership enrichment programme. This programme aims to instil core values, leadership skills and strong work ethics among youths. For the past four years, we selected thirty students per year, who go through a rigorous training three times a year over a two-year period during their school holidays. Danajamin works with the PINTAR Foundation to manage the programme. During the year under review the Selection Camp for Batch 4 students from Melaka and Negeri Sembilan were held in October 2017, and they recently attended their second camp in March 2018. Since 2014, 120 students have been the beneficiaries of Danajamin100. Our hope is they will contribute to the pool of Malaysia’s future leaders.

In 2016, we initiated our first charity run – the Danajamin Mighty 7 Run, as part of our effort to give back to the community. Building on our previous success, we have organised the Danajamin Mighty Run 2017, with the inclusion of two running categories: the 5km Fun Run and the 10km Competitive Run. The event on 28 August 2017 held at the Centrus, Cyberjaya, drew participation from 1,000 running enthusiasts. We were delighted that the event raised RM50,000.00 which was donated to the National Autism Society of Malaysia (NASOM) – an NGO which Danajamin had been supporting for the past four years.

(more information on Danajamin’s CSR initiatives can be found on pages 66 to 73)

MOVING FORWARDMoving forward, our priorities would centre around two key themes – to facilitate access to the Corporate Bond market by viable but underserved corporates, and contribute to the depth and breadth of Malaysia’s Corporate Bond market and bring to market diversity in ratings to meet various investor needs.

To achieve this, we will continue to offer our services to facilitate viable companies access funds through Malaysia’s Corporate Bond market. We will make this possible with more innovative guarantee products. This necessitates changes in the way we do things and provide opportunities for our staff to be more energised. It is important therefore that we continue to invest in talent management. It is equally important that our pool of committed staff respond to these opportunities to enhance their career-building competencies. We have done reasonably well but we still have a lot of work to do.

On behalf of the Board of Directors, I take this opportunity to convey our utmost gratitude to our shareholders, investment bank partners and investors for their unwavering support and trust. We are grateful to our issuers and clients who are dedicated in meeting their commitments and in doing so they have contributed to generate sustainable growth for Malaysia’s economic and business landscape.

With this also, I acknowledge the valued support of Bank Negara Malaysia for being supportive of our continual efforts for the implementation of our initiatives.

Before I conclude, I wish to inform all the stakeholders that five (5) members of the Board of Directors; namely Encik Abdul Kadir Md Kassim, Dato’ Albert Yeoh Beow Tit, Encik Philip Tan Puay Koon, Datuk Ahmad Badri Mohd Zahir and myself will be retiring from the Board in May & June 2018, after having served the full term of nine (9) years since the inception of Danajamin in 2009. On their behalf, I want to say that it has been an honour and privilege to have been given this opportunity to steer Danajamin in its first nine years of operation, and put in place what we think is a strong foundation for Danajamin to leverage on to achieve further success in the future. We want to thank our fellow members of the board for their substantive contribution and cooperation, and also to record our appreciation to Management and staff of Danajamin for their dedication and commitment. We wish all of you further success.

Thank you.

Dato’ Mohammed HusseinChairman 20

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CHAIRMAN’S STATEMENT

Dear Stakeholders,

This is our second annual report published since the company’s establishment eight years ago and I would like to share with you our accomplishments during this past financial year.

This publication features the Batik – Malaysia’s iconic fabric that is synonymous with the rich tapestry of our diverse cultures, as our theme. The enduring heritage of the Batik’s cornucopia of colours, designs and texture that is preserved in fabrics, decor and art is represented in the diversity in ratings, issuers and investors that Danajamin brings to the Corporate Bond market. Batik-making, an intricate traditional craft that requires creativity, skill, attention to detail and patience, symbolises the discernment we exercise in the way we operate our business.

Danajamin Nasional Berhad, Malaysia’s first and only financial guarantee insurer, was established to ensure that non-AAA rated financially-viable companies can access the Corporate Bond market for their long-term financing needs despite inability to gain access to the Corporate Bond market. As an institution established upon a developmental mandate our aim is to assist worthy companies based in Malaysia to acquire or build assets and grow their business so that they may contribute meaningfully to the nation’s economy. Danajamin’s establishment was driven by the need to shore up confidence in the Corporate Bond market during the 2007/2008 financial crisis. At the same time, the goal was to help financially-viable companies that had been given less focus by commercial banks to tap financing through the Corporate Bond market.

Since inception the company had been accorded ‘AAA’ by both RAM Rating Services Berhad (RAM) and the Malaysia Rating Corporation Berhad (MARC). Our well-balanced portfolio, meticulous credit evaluation and thorough monitoring post-issuance have continually contributed to our recognition and acknowledgement by these rating agencies. We remain steadfast in ensuring that our system and processes is commercially-oriented and we strive to deliver results that comply with the rating agencies’ thorough assessment and expectations as well as manage client/investor needs.

From the time we entered the market in 2009 Danajamin had successfully provided guarantee for RM9.3 billion bond/Sukuk programmes issued by 33 companies across diversified sectors and brought about a market impact of RM20.3 billion through our risk-sharing collaboration with partner banks. These 12 diverse sectors include Oil and Gas, Infrastructure and Property development. Given the company’s developmental mandate to facilitate the development of Malaysia’s Corporate Bond market with a diversity of products, Danajamin is well-positioned to stimulate sustainable economic growth.

As a financial guarantee insurer, it is essential to ensure that the regulators and investors continue to have confidence in our capabilities and capacity. As such, we make no compromises in the identification, structuring and approving of viable new transactions while at the same time continually monitoring our existing portfolio. We are also cognisant on the need for sustainability through upholding the superior quality of our services and consistent delivery of our guarantees.

Mohamed Nazri Omar – Managing Director/Chief Executive Officer

S T A T E M E N T F R O M T H E

MANAGING DIRECTOR/ CHIEF EXECUTIVE OFFICER

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KEY MESSAGES

MANAGING DIRECTOR/ CHIEF EXECUTIVE OFFICER

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DELIVERING ON OUR COMMITMENTFor 2017, we continued our focus on strategic priorities set in 2016 as we set our sights on driving profitable growth regardless of market conditions. The main thrust of these priorities was to ensure market and investors’ confidence through diversity, financial inclusion, market development and responsibility to our investors. We accomplished this through the balance of our developmental mandate and commercial sustainability.

It is most heartening to share with you that, through our customised issuances we had succeeded in providing financial inclusion to emerging corporates or mid-tier corporations – companies with revenue between RM1 million to RM1 billion, who were not on the radar of the major lenders. Given the financial support extended to them these mid-tier companies are now poised to contribute productively to the nation’s economic development with job and business opportunities as well as world-class public amenities.

Our sub-debt issuances that have garnered significant support from the market demonstrated that our credit risk which were well-priced have gained traction. The inaugural issue of our sub-debt Sukuk Commodity Murabahah of RM500 million on 6 October 2017 was part of our capital management initiatives. We were most encouraged by the overwhelming support as it was over-subscribed by three times and we closed the offer at 4.8 times over-subscription. This was an indicator of investors’ confidence on Danajamin and as a result we were able to diversify our investor base. This issuance was significant as Danajamin was the first financial guarantee insurer in the world to issue a Sukuk as Tier 2 sub-debt. At the same time, we had successfully established that there are other sources of capital which investors can obtain from the market.

Our issuances in 2017 were underpinned by innovation so as to deliver diversity, financial inclusion and market development. Through these issuances we had contributed in no small part to the development of the Corporate Bond market and the nation’s economy. These key innovations include our first ‘drop-off’ structure that was applied to two transactions and our first credit enhancement facility via guarantee that was applied to an affordable housing project in Kuala Lumpur city.

For the first ‘drop-off’ transaction we guaranteed a 19-year RM340 million Medium Term Note Programme issued by Northern Gateway Infrastructure Sdn. Bhd. – a DRB Hicom subsidiary. This transaction was a significant milestone for Danajamin as it marked two key structural innovation – our guaranteed construction risk after the project had been completed on a bond that had been previously issued by the company in 2013. The company had been awarded a concession

by the Government for the development of the Immigration, Customs, Quarantine and Security complex at Bukit Kayu Hitam in Kedah. For this introductory transaction we partnered with Hong Leong Investment Bank Berhad who was the Principal Adviser/Lead Arranger and Lead Manager.

Our inaugural credit enhancement facility issuance was the first structured transaction in Malaysia to monetise progress billings of a property development project. Danajamin guaranteed a credit enhancement facility for Tranche 1 of the 12-year RM600 million Sukuk Musharakah Islamic Medium Term Note (IIMTN) programme issued by SkyWorld Capital Berhad – a sole-purpose vehicle wholly-owned by SkyWorld Development Sdn. Bhd. This first issuance was made against the progress billings of the SkyAwani 1 development project in Sentul, Kuala Lumpur – the group’s first affordable housing project under the Rumah Mampu Milik Wilayah Persekutuan programme. This guarantee was in line with our developmental objective of meeting the needs of the under-served mid-tier companies.

OUR MARKET DEVELOPMENT MILESTONESOur commitment to commercial sustainability is not limited to the development of the Corporate Bond market. We are also committed to contribute towards the nation’s economic development by supporting financially-viable companies in achieving their business and commercial objectives.

In October 2017, we collaborated with Bank Pembangunan Malaysia Berhad to co-guarantee the issuance of an 18-year RM639 million Senior Sukuk Murabahah by TRIplc Medical Sdn. Bhd. for the development of a new teaching hospital and medical academic centre. The funds raised from the issuance will be used primarily to part-finance the development cost of the project. Our involvement in this transaction marked Danajamin’s contribution towards the development of the nation’s health care sector.

In November 2017, Danajamin issued a guarantee to part-finance the Sungai Besi-Ulu Klang (SUKE) project – a 24.4km three-lane dual carriageway expressway that connects Sri Petaling at the southern tip of the Klang Valley to the northern part of the Klang Valley. The Projek Lintasan Sungai Besi-Ulu Klang Sdn. Bhd. guarantee is valued at RM500 million.

OUR PEOPLE – A VALUED ASSETAll our achievements for the past eight years would not have been possible if not for the commitment and dedication of a valuable asset – our people. Our talent has been our strongest driver and a key differentiator towards enhancing

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Danajamin’s profile in the financial market. As our work culture and internal business processes demand high-calibre professionals who operate as partners with our clients it is imperative that we give prominence to dedicated personnel who are willing to go that extra mile to achieve our objectives.

Since our establishment we have heavily invested in capacity-building and talent management as we want our people to have the necessary capabilities to excel in their service delivery – for the industry and their future. Our philosophy has always been about nurturing young, capable and diverse talent where we can invest in their future. We have been generous in our investment on our talent as we aim to be an employer of choice for our more than 90 employees.

As we are in a niche area of business, we will labour towards our aspiration to achieve the greatest impact in bringing market confidence to our clients and a fair level of returns to our shareholders. In line with our mission, we are committed to promoting a work culture that emphasises professionalism, integrity, teamwork, innovation and diversity. In relation to that we are cognisant that skilled and proficient talent are essential requisites.

As such, we have been equipping our people with training for leadership competency through pursuing courses at institutions such as INSEAD, NUS and ICLIF. We are confident that our investment in our talent and our work place has been most advantageous and had delivered a conducive culture of learning, sharing and pride in what we do.

LOOKING AHEADGoing forward, we want to continue to help financially-viable mid-tier companies gain access to the Corporate Bond market with the emphasis to develop rating diversity in the Corporate Bond market. We are most heartened that our corporate customers have achieved business success through our capability to arrange deals that worked for them. However, it is not just the success of the deals that drives us to excel and aspire to achieve greater heights. We are also driven by the greater benefits of economic and social development for the greater good.

It gives me immense pride to share that as a result of our implementation of a robust and consistent standard in credit under-writing and risk management as well as working with viable companies that are transparent, credit-worthy, trustworthy and practise good corporate governance we have succeeded in maintaining a balance of our developmental and commercial objectives thus maintaining our profitability and sustainability. The accomplishment of our development agenda with positive and sustainable returns had contributed to win the continual support of our shareholders.

Danajamin’s sustainability was built on trust and our ability to boost investor confidence. This foundation was further sustained by rating diversity and pricing transparency. Our focus on innovation during the year under review had delivered sustainable results and we achieved exemplary success in bringing back market confidence in lower-rated investment papers as we continue to work on identifying and assisting under-served corporations.

Internally, we are committed to strengthen the value of our AAA rating to sustain our stakeholders’ confidence and manage our portfolio with vigilance and vigour. It is most uplifting that our efforts to exercise care in financial management to preserve our capital and maintain our AAA rating have produced noteworthy results. In our relationship with our issuers we are committed to work with them to ensure that they meet their obligations and emerge as success stories. We are confident that our active management of our internal processes – identification, evaluation to put suitable structure in place and monitoring through governance tracking, would ensure that we continue to merit the prized AAA rating.

As we move into 2018, we will continue to focus on diversity, financial inclusion and market development to drive profitable growth for Danajamin and positive returns to our shareholders. We are conscious of the challenges that lay ahead but at the same time we are also excited on the prospects of the momentum that we have built thus far. The success that we have secured hitherto serves to inspire us to excel to greater heights and deliver on our developmental mandate with satisfactory results.

Before concluding, on behalf of the management and Danajamin’s employees, I would like to record my deepest appreciation for the support and encouragement given by members of the Board of Directors, our partners and investors. We are also gratified and privileged by the guidance received from the Ministry of Finance Malaysia, Bank Negara Malaysia, the Securities Commission Malaysia and other related regulatory authorities.

Thank you.

Mohamed Nazri OmarManaging Director/Chief Executive Officer

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STATEMENT FROM THE MANAGING DIRECTOR/CHIEF EXECUTIVE OFFICER

Financial Services Act 2013which provides the regulation and supervision of financial institutions, payment systems and other relevant entities and the oversight of the money market and foreign exchange market to promote financial stability and for related, consequential or incidental matters.

Insurance (Financial Guarantee Insurance) Regulations 2001which came into operation on 2 January 2001 to pave the way for the establishment of a financial guarantee insurer in Malaysia to support the development of the corporate bond market. It also prescribes the minimum paid-up capital and contingency reserves required to be maintained by a licensed financial guarantee insurer.

Danajamin Specific Regulations by Bank Negara Malaysiaserves to provide guidance on the establishment of internal policies and frameworks for Danajamin.


Minister ofFinance

Incorporated

Credit GuaranteeCorporation Malaysia

Berhad

50% 50%

OUR REGULATORY FRAMEWORK

OUR CORPORATE INFORMATION

Registered OfficeLevel 18, Menara Allianz Sentral 203, Jalan Tun Sambanthan Kuala Lumpur Sentral 50470 Kuala Lumpur Tel : +603 2265 0800 Fax : +603 2265 0900 Website : www.danajamin.com

Company Secretary Leny Azmalina Abdul Aziz(MAICSA 7043028)

Auditors Messrs. PricewaterhouseCoopers Level 10, 1 Sentral, Jalan Rakyat Kuala Lumpur Sentral 50470 Kuala Lumpur

Actuarial Services KPMG Actuarial Pty Ltd (Australia)

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CORPORATE STRUCTURE AND FRAMEWORK

TOTAL

33 CLIENTS10 CONVENTIONAL

15 ISLAMIC

8 FULLY REDEEMED

LEVERAGE RATIO

3.23x

FULLYREDEEMED

ISLAMIC

• Quill Retail Malls Sdn Bhd

• Berjaya City Sdn Bhd

• MRCB Sentral Properties Sdn Bhd

• LBS Bina Group Bhd

• Syarikat Kapasi Sdn Bhd

• Riverson Corporation Sdn Bhd

• 1 Warisan Sdn Bhd

• Symphony Life Berhad

• Chellam Plantations Sdn Bhd

• Perdana Petroleum Bhd

• Purple Boulevard Bhd

• West Coast Expressway Sdn Bhd

• Puncak Wangi Sdn Bhd

• N.U.R Power Sdn Bhd

• Mydin Mohd Holdings Bhd

• Poh Kong Holdings Bhd

• Senari Synergy Sdn Bhd

• Antara Steel Mills Sdn Bhd

• Ranhill Powertron II Sdn Bhd

• Ranhill Capital Sdn Bhd

• TSH Sukuk Musyarakah Sdn Bhd

• TRIplc Medical Sdn Bhd

• Project Lintasan Sg. Besi – Ulu Kelang (SUKE) Sdn Bhd

CONVENTIONAL• Berjaya Land Bhd

• Great Realty Sdn Bhd

• KMCOB Capital Bhd

• Impian Ekspresi Sdn Bhd

• Premier Merchandise Sdn Bhd

• Mercuro Properties Sdn Bhd

• Segi Astana Sdn Bhd

• Silver Sparrow Sdn Bhd

• TRIplc Ventures Sdn Bhd

• Northern Gateway Infrastructure Sdn Bhd

Our emphasis is mid-tier clients with revenue of between RM100.0 million – RM1 billion

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OUR CLIENTS

PROFIT BEFORE TAX(RM MILLION)

TOTAL ASSETS(RM MILLION)

NET EARNED PREMIUMS(RM MILLION)

SHAREHOLDERS’ EQUITY(RM MILLION)

INVESTMENT INCOME(RM MILLION)

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5-YEAR FINANCIAL HIGHLIGHTS

2013 2014 2015 2016 2017

44.752.2

57.764.0

71.7

2013 2014 2015 2016 2017

79.1

89.5 86.489.9

81.8

-9% +12%

+31%

2013 2014 2015 2016 2017

1,914.5 1,942.6 2,004.0 2,094.22,737.5

2013 2014 2015 2016 2017

103.4113.0

119.3125.5

114.2

-9%

2013 2014 2015 2016 2017

1,237.31,348.7

1,459.81,575.4

1,680.2

+7%

Danajamin’s resilient track record is founded on robust credit management and uncompromising governance. These safeguard the sustainability of Danajamin’s business, and enhance investors’ confidence. As part of Danajamin’s credit management and governance, due diligence is taken in evaluating and monitoring clients’ progress and performance.

Together, our Client Coverage Division, Client Management Division, as well as Risk Management Function have established an effective and sound credit evaluation and monitoring process.

• Management Underwriting Committee

• Board Underwriting Committee

• Business origination & initial credit evaluation

• Relationship management

• Independent credit assessment

• Concentration limits – single customer & sectoral

• Computes minimum pricing

• Annual review (minimum requirement)

• Determine account management and monitoring strategy

• Proceeds utilisation tracking & review

• Development/construction progress tracking & business/financial review

• Monitor & review (i) covenants; and (ii) build-up requirements• Joint site visits/discussions

with clients & independent consultants etc

Monitoring Loop

Client CoverageDivision

Risk ManagementFunction

Approvals Client ManagementDivision

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CREDIT EVALUATION & MONITORING

OUR STRENGTHS

Every new client relationship originates at Danajamin’s Client Coverage Division. The Client Coverage Division will then proceed with a preliminary credit evaluation process which involves:

• Conducting site visits to gain better understanding of client’s business operations and assets.

• Appointing subject matter experts to assess project technicalities, when deemed necessary.

• Utilising the Standard & Poor’s Credit Rating System to assess and rate clients.

• Creditworthiness checks with domestic and international financial databases.

• Compliance with Bank Negara Malaysia’s regulations and requirements such as Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 and Single Customer Limit.

• Performing analysis on industry, operations, financial performance and cashflow projections.

The credit proposal will be forwarded to Danajamin’s Risk Management Function for an independent credit assessment. The Risk Management Function monitors inherent risks across the client’s business profile while identifying emerging risks, and assessing credit profile.

Danajamin also has in place concentration limits based on internally established sectoral and single customer limits. The pricing based on the clients risk profile is also determined at this stage.

The credit proposal together with the risk management comments will then be tabled to the Management Underwriting Committee and subsequently to the Board Underwriting Committee for approval.

Upon approval, the Client Coverage Division will proceed with the documentation process up to point of issuance of the guarantee policy and the bonds/sukuk.

Post-issuance, the account is transferred over to the Client Management Division for continuous monitoring. The Client Management Division maintains constant contact and monitoring throughout the tenure of the guarantee, and acts as the interface for any client requests or issue resolution.

The Client Management Division team conducts close monitoring on the clients’ business and financial performance. This will include analysis of industry, operations, financial performance, review of cashflow projections, tracking of proceeds utilisation, development or construction progress, compliance with covenants and build-up requirements in relation to the issuance. Monitoring activities conducted will include site visits and discussions with clients, independent consultants, external solicitors, external auditors and monitoring accountants.

The Divisions meet regularly and report to the Management Underwriting Committee and Board Underwriting Committee on a monthly basis.

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OUR STRENGTHS

The diagram below illustrates the risk management framework currently in place at Danajamin.

01

02

05

04

03

Risk Identification

Risk Assessment

Risk Monitoring

Risk Acceptance

Risk Mitigation

Risk factors that may have a potential impact to Danajamin are identified and monitored in a key risk register. The key risk register is reviewed every once in two months for new potential risks.

Each risk factor identified will be assessed to determine the probability of occurrence and impact in terms of actual or estimated loss to Danajamin. The likelihood and financial impact rating for each of the

identified risk factors are determined and thereafter mapped to a gross risk map.

The identified risks will be monitored and any developments or changes will be reported immediately. Risk factors with high gross risk rating are closely monitored and presented in a Key Risk Indicator Dashboard together with the tracking of the Risk Appetite Statement to Management Risk Committee and Board Risk Committee once in two months.

All gross and residual risks will be tabled to the Management Risk Committee for recommendation and to the Board Risk Committee for approval.

Together, the Senior Management and the Chief Risk Officer will recommend the mitigation controls for each of the identified risks and will monitor the implementation of mitigation controls. Thereafter, the managed residual risk is mapped to a residual risk map.

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RISK MANAGEMENT FRAMEWORK

The Board of Directors is responsible for the setting of Danajamin’s risk appetite. It is a clear statement of the degree of risk Danajamin is willing (and able) to take in pursuit of our goals. The risk appetite is the very foundation of sound risk management. With this, risk management throughout the business will be carried out on certain foundations and with clear expectations.

Danajamin’s Board of Directors and Senior Management have established an enterprise wide approach to risk management. Danajamin employs both a top-down and a bottom-up process of risk identification.

From a top-down perspective, the Board of Directors, Board Risk Committee and Management Risk Committee have identified all risks that are large enough in aggregate to threaten Danajamin with financial distress in an adverse environment. The bottom-up process involves individual business units and functional areas conducting risk-control self-assessments designed to identify all material risks. This ongoing process seeks to identify all important risks, quantify them using a consistent approach, and then aggregate individual risk exposures across the entire organisation to produce a firm-wide risk profile.

The risks identified are classified in the following categories, as approved by the Board Risk Committee:

Every key risk identified and set out in Danajamin’s Key Risk Indicator, will be mapped into a risk map. The key risks are mapped based on the probability of it occurring and the impact that it poses to Danajamin. The identified final key risks, will then be mapped onto the gross risk map matrix according to the risk categories.

Generally, risks with high gross risk rating will be monitored and presented in a Key Risk Indicator Dashboard and tabled to the Risk Committees for monitoring purposes. For every risk in the dashboard, indicators are defined for every status i.e. green, amber and red with green being the desired status.

• STRATEGIC • CREDIT • MARKET • OPERATIONAL • INSURANCE • GOVERNANCE & REGULATORY

• LIQUIDITY • HUMAN CAPITAL • LEGAL • INFORMATION TECHNOLOGY

The key risks monitored in the Key Risk Indicator Dashboard includes:

• Sufficiency of premium reserves

• Probability of defaults

• Expected loss

• Adequacy of capital

• Liquidity risk

• Interest rate fluctuations

• Impairment of investments

• Timing of annual review

• Concentration exposure

• Maintenance of AAA rating

• Vacancies in key positions

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RISK MANAGEMENT FRAMEWORK

RISK IDENTIFICATION

RISK PROFILE

RISK APPETITE STATEMENT

Capital management is an on-going process of determining and maintaining adequate capital and ensuring that the quality of capital is appropriate to support Danajamin’s planned business operational activities. Capital is managed to maintain financial strength, absorb losses so as to withstand adverse economic conditions, allow for growth opportunities and meet other risk management and business objectives of Danajamin.

Recognising the importance of effective capital management, Danajamin maintains a strong and robust capital position with sufficient buffer to meet its guarantee obligations to investors as well as for regulatory requirement purposes. Effective 1 January 2015, Danajamin had adopted the Risk-Based Capital Framework for Insurers as prescribed by Bank Negara Malaysia.

Under the Risk-Based Capital Framework, Danajamin is required to maintain a capital adequacy level that commensurates with its risk profile. To-date, the Capital Adequacy Ratio of Danajamin is well in excess of 300%, well above the minimum capital requirement of 130% under the Risk-Based Capital Framework regulated by Bank Negara Malaysia.

Danajamin had also subsequently adopted the Internal Capital Adequacy Assessment Process Framework. Under this Framework, Danajamin ensures adequate capital to meet its capital requirements on an ongoing basis. The key elements supporting the Framework include Board and Senior Management oversight, comprehensive risk assessment, setting of individual target capital level and management action trigger levels, conducting periodic stress testing, having in place a robust and sound capital management plan as well as ongoing monitoring, monthly reporting and review of its capital position. The capital management plan was further developed and refined under the Framework to outline the approaches and principles under which Danajamin’s capital is monitored and managed, as well as the corrective management actions to be implemented should the various critical capital levels be breached. This is in line with the risk appetite statement established to outline Danajamin’s capacity to take on risks to achieve its business objectives while managing the expectations of key stakeholders.

Setting of Danajamin’s target capital level in accordance with risks associated with its current and projected financial positions on a 3-year rolling cycle.

A clearly defined and robust process for risk identification, assessment, monitoring and management.

Strong understanding of Danajamin’s overall risk profile and a clearly defined risk appetite statement that commensurates with its key short and long term risk drivers.

Clear strategy for managing capital levels, including under stressed scenarios.

Key features of the Internal Capital Adequacy Assessment Process include

The Internal Capital Adequacy Assessment Process forms part of Danajamin’s risk management framework for managing all risk exposures and is designed to reflect the size, nature and complexity of Danajamin’s operations, in a timely and effective manner.

As part of Danajamin’s comprehensive Capital Management plan and diversification initiative, Danajamin has also established a sukuk programme which provides an alternative to the company in sourcing additional capital.

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CAPITAL MANAGEMENT

Individual Target Capital Level

Danajamin’s capital assessment methodology ensures that it operates at capital levels well above the annually set Individual Target Capital Level and over a rolling capital planning horizon of at least three years. The assessment involves taking into account current and anticipated changes in Danajamin’s risk profile as reflected in its annual business planning strategy forecasting the potential impact on capital.

The Individual Target Capital Level reflects the overall risk tolerance and appetite set by the Board of Directors, based on Danajamin’s risk profile and risk management practices. Periodic Stress Testing which includes multi period stress testing is performed annually on a range of financial positions to assess the adequacy of the Individual Target Capital Level set. In accordance with Bank Negara Malaysia’s guidelines, the stress test scenarios are calibrated in line with the risk tolerance/appetite of Danajamin.

Capital Management Plan

Danajamin ensures that an appropriate level and quality of capital is maintained to commensurate with the extent of risks in the business via a robust capital management plan which is reviewed periodically and incorporates several levels of management action trigger to ensure its capital levels are restored to the appropriate levels. The maintenance of an adequate level of capital creates confidence in Danajamin’s financial strength and provides assurance to existing and prospective policyholders, investors, rating agencies and regulators.

The Capital Management Plan is designed to meet the following key objectives

– To satisfy regulatory capital at all times and maintain adequate buffer above regulatory capital levels

– To identify immediate action plans to be implemented to restore capital to the appropriate level

– To determine the Individual Target Capital Level and trigger level for further action

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CAPITAL MANAGEMENT

Liquidity refers to the ability of Danajamin to meet its obligations when required to do so.

Demands for funds can typically be met through Danajamin’s internal funds. However this can be a risk if the investments in the portfolio are illiquid.

Danajamin’s business model requires Danajamin to, from time to time, pay claims as and when the obligation arises. Hence liquidity management is a crucial function in ensuring that obligations are met on a timely manner. Liquidity demands are managed through a combination of investment and asset-liability management practices, which are monitored on an ongoing basis.

In line with that, Danajamin has a stringent Investment Policy and ensures that a significant amount of assets are kept in liquid instruments such as deposit, government securities and highly rated securities at all times. To gain further comfort, repurchase facilities with financial institutions are in place to provide additional liquidity lines when required.

As part of Danajamin’s internal liquidity monitoring and assessment, Danajamin has in place a Liquidity Framework to ensure that potential claims obligations can be met on an ongoing basis. The Framework uses the stress testing results similar to the Internal Capital Adequacy Assessment Process which is in line with Bank Negara Malaysia’s Guideline on Stress Testing as a basis to determine potential claim obligations and ensure that there is sufficient liquidity to meet these obligations. The Framework also further outlines the management actions required in the event that there is a shortfall.

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LIQUIDITY MANAGEMENT

Details of the ratings of the Company and its Islamic securities are as follows:

Rating Agency Date Rating/Classification Rating Received

RAM Rating Services Berhad (“RAM”)

23 August 2017 Long-term Insurer Financial Strength Rating

Short-term Insurer Financial Strength Rating

Outlook

RM2.0 billion Sukuk Murabahah Programme:– Senior Sukuk– Subordinated Sukuk

AAA

P1

Stable

AAA/Stable AA1/Stable

Malaysian Rating Corporation Berhad (“MARC”)

23 August 2017 Insurer Financial Strength Rating

Short-term Counterparty Credit Rating

Outlook

RM2.0 billion Sukuk Murabahah Programme: – Senior Sukuk– Subordinated Sukuk

AAA

MARC-1

Stable

AAAIS/Stable AA+IS/Stable

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RATING BY EXTERNAL RATING AGENCIES

DESCRIPTION OF THE RATINGS ACCORDED

RAM Rating Services Berhad

Long-term Insurer Financial Strength Rating

AAA A financial guarantee insurance company rated AAA has a superior capacity to meet its financial obligations to policy/contract holders. This is the highest long-term financial insurer strength rating assigned by RAM.

Short-term Insurer Financial Strength Rating

P1 A financial guarantee insurance company rated P1 has a strong capacity to meet its short-term financial obligations to policy/contract holders. This is the highest short-term insurer financial strength rating assigned by RAM.

Sukuk Rating

AAA The Senior Sukuk is equated to Danajamin’s long-term Insurer Financial Strength rating. A sukuk rated AAA has superior safety for payment of financial obligations. This is the highest long-term Issue Rating assigned by RAM Ratings to a debt-based sukuk.

AA1 The Subordinated Sukuk is rated 1-notch below Danajamin’s Insurer Financial Strength rating of AAA to reflect the subordination of the securities to the Company’s senior unsecured obligations. A sukuk rated AA has safety for payment of financial obligations. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments.

Malaysian Rating Corporation Berhad

Insurer Financial Strength Rating

AAA An institution rated AAA has an exceptionally strong capacity to meet its financial commitments and exhibits a high degree of resilience to adverse developments in the economy, and in business and other external conditions. These institutions typically possess a strong balance sheet and superior earnings record.

Short-term Rating

MARC-1 An institution rated MARC-1 reflects the counterparty’s very strong capacity to meet its short-term obligations not exceeding a year under financial contracts. This is the highest short-term rating assigned by MARC.

Sukuk Rating

AAAIS The Senior Sukuk is equated to Danajamin’s long-term Insurer Financial Strength rating. Extremely strong ability to make payment on the instrument issued under the Islamic financing contract(s).

AAIS The Subordinated Sukuk is rated 1-notch below Danajamin’s Insurer Financial Strength rating of AAA to reflect the subordination of the securities to the Company’s senior unsecured obligations. Very strong ability to make payment on the instrument issued under the Islamic financing contract(s). Risk is slight with degree of certainty for timely payment marginally lower than for instruments accorded the highest rating.

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RATING BY EXTERNAL RATING AGENCIES

Innovative & Collaborative

The complex dyeing process creates beautiful,

intricate designs. Popular motifs are flowers

and plants. As well as fabrics, contemporary

batik is applied to numerous items such as

murals, wall hangings and scarves. We will

continue to collaborate with various industries

to offer a variety of innovative solutions to

create rating diversity and bring developmental

impact to the country.

From left to right

Ariffin Hew – Independent Non-Executive Director

Datuk Ahmad Badri Mohd Zahir – Non-Independent Non-Executive Director

Philip Tan Puay Koon – Independent Non-Executive Director

Dato’ Mohammed Hussein – Independent Non-Executive Chairman

Mohamed Nazri Omar – Managing Director/Chief Executive Officer

Abdul Kadir Md Kassim – Independent Non-Executive Director

Dato’ Albert Yeoh Beow Tit – Independent Non-Executive Director

Dato’ Azian Mohd Noh – Independent Non-Executive Director

Mohamed Rashdi Mohamed Ghazalli – Non-Independent Non-Executive Director

BOARD OF DIRECTORS

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COMPOSITION

1 Independent Non-Executive Chairman

5 Independent Non-Executive Director

2 Non-Independent Non-Executive Director

3 Managing Director/Chief Executive Director

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Dato’ Mohammed Hussein was appointed as an Independent Non-Executive Chairman on 5 August 2013. He is also the Chairman of Board Underwriting Committee as well as member of the Board Remuneration and Nomination Committee. Dato’ Mohammed Hussein has been a member of the Board since 2009, when he was first appointed as an Independent Non-Executive Director on 14 May 2009.

Dato’ Mohammed Hussein obtained a Bachelor of Commerce degree majoring in Accounting from the University of Newcastle, New South Wales, Australia. He is also an alumnus of the Advance Management Program, Harvard Business School, Boston, USA and attended several management programmes in Wharton Business School (Philadelphia, USA), IMD (Lausanne, Switzerland) and INSEAD (Fontainebleau, France).

Dato’ Mohammed Hussein is also a Fellow of the Asian Institute of Chartered Bankers.

Dato’ Mohammed Hussein served thirty-one years in the Maybank Group, holding various senior management positions including Head of Corporate Banking, Head of Commercial Banking, Head of Malaysian Operations, Managing Director of Maybank Investment Bank Berhad (formerly known as Aseambankers Malaysia Berhad) and Executive Director (Business Group). The last position held prior to his retirement on 30 January 2008 was Deputy President/Executive Director/Chief Financial Officer of Maybank Group.

Dato’ Mohammed Hussein also serves as Chairman of Gamuda Berhad, and is a Non-Executive Director of several private and public listed companies such as Hap Seng Consolidated Berhad, Bank of America Malaysia Berhad and Tasek Corporation Berhad. He is also a member of Corporate Debt Restructuring Committee established by BNM to facilitate the resolution and restructuring of major corporate debts.

Dato’ Mohammed Haji Che Hussein (“Dato’ Mohammed Hussein”)Independent Non-ExecutiveChairman

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DIRECTORS’ PROFILES

Philip Tan Puay Koon was appointed as an Independent Non-Executive Director of Danajamin on 14 May 2009. He also serves as a Chairman of Board Risk Committee, member of Board Audit Committee and Board Investment Committee.

Philip Tan holds a First Class Honours B.A. (CNAA) Degree in Business Studies (Accounting and Finance) from North-East London Polytechnic, U.K. and has attended the Oxford International Executive Programme and the Stanford-NUS Executive Programme. Philip Tan is also an Associate Fellow of the Asian Institute of Chartered Bankers.

Philip Tan has close to three decades of experience in the field of banking and finance, principally in the areas of treasury and risk management. He was formerly a Managing Director of Citigroup and the Chief Financial Officer of Emerging Market Sales and Trading, Asia-Pacific, based in Singapore. From 1999 to 2001, he served as the Country Treasurer and Financial Markets Head of Citibank Berhad and as a Director of Citibank Malaysia (L) Ltd. Prior to 1995, Philip Tan served fourteen years with the MUI Group of Companies in Malaysia, in various senior management positions in MUI Bank and MUI Finance.

Philip Tan currently serves on the Boards of Cagamas Berhad, MIDF Amanah Investment Bank Berhad, SP Setia Berhad and Citibank Berhad. He is also a member of Corporate Debt Restructuring Committee established by BNM.

Abdul Kadir Md KassimIndependent Non-Executive Director

Philip Tan Puay KoonIndependent Non-Executive Director

Abdul Kadir Md Kassim was appointed as an Independent Non-Executive Director of Danajamin on 14 May 2009. He is the Chairman of Board Remuneration and Nomination Committee, member of Board Audit Committee as well as Board Underwriting Committee.

Abdul Kadir holds a Bachelor of Laws (Honours) Degree from the University of Singapore and is the Senior Partner of Messrs Kadir, Andri & Partners.

Abdul Kadir sits on the Boards of various companies, namely, TIME dotcom Berhad, UEM Group Berhad, Cement Industries of Malaysia Berhad, Datuk Yaw Teck Seng Foundation and The Renong Group Scholarship Trust Fund. He is a member of the Corporate Debt Restructuring Committee which is established by Bank Negara Malaysia and the Financial Services Professional Board (FSPB), a board sponsored by Bank Negara Malaysia and the Securities Commission.

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Datuk Ahmad Badri Mohd Zahir was appointed as a Non-Independent Non-Executive Director of Danajamin on 25 June 2009. He is also a member of Board Remuneration and Nomination Committee, Board Investment Committee and Board Underwriting Committee.

Datuk Ahmad Badri holds a Masters in Business Administration from the University of Hull, United Kingdom.

Datuk Ahmad Badri is currently the Director of National Budget at the Ministry of Finance. He has served more than twenty years in the Ministry of Finance, holding several senior positions.

Datuk Ahmad Badri serves on the Boards of KL International Airport Berhad, DanaInfra Nasional Berhad, Perbadanan Kemajuan Negeri Selangor, Lembaga Pembiayaan Perumahan Sektor Awam and Bank Simpanan Nasional. He is also a member of Corporate Debt Restructuring Committee established by BNM and sits on the investment panels of KWSP and SOCSO.

Dato’ Albert Yeoh Beow TitIndependent Non-Executive Director

Datuk Ahmad BadriMohd ZahirNon-Independent Non-Executive Director

Dato’ Albert Yeoh Beow Tit was appointed as an Independent Non-Executive Director of Danajamin on 14 May 2009. He is also the Chairman of Board Audit Committee and a member of Board Remuneration and Nomination Committee as well as Board Underwriting Committee.

Dato’ Albert graduated with a Bachelor of Economics from Monash University, Australia and holds a Master of Science in Management from University of Salford, Manchester, England. He was also conferred a Fellowship from the Institute of Bankers Malaysia.

Prior to joining OCBC Bank (Malaysia) Berhad in March 1996, Dato’ Albert was a Director of Corporate Banking Group for Citibank Berhad. He held various senior management positions within the OCBC Group including as the CEO of OCBC Bank (Malaysia) Berhad, a position which he held until his retirement on 31 July 2008.

Dato’ Albert also sits on the Boards of Cagamas SRP Berhad, Cagamas MBS Berhad, Great Eastern Life Assurance (Malaysia) Berhad, Great Eastern General Insurance (Malaysia) Berhad and Alliance Investment Bank Berhad.

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Dato’ Azian Mohd Noh was appointed as an Independent Non-Executive Director of Danajamin on 25 June 2013. She is the Chairperson of Board Investment Committee and a member of the Board Audit Committee and Board Risk Committee.

She obtained her Bachelor’s Degree in Economics (Hons) majoring in Accounting from University of Malaya and a Masters in Business Administration from Universiti Kebangsaan Malaysia. She is also a member of the Malaysian Institute of Accountants. Dato’ Azian completed the Advanced Management Program at Harvard Business School, Harvard University, USA.

She served Kumpulan Wang Persaraan (Diperbadankan) (formerly known as Kumpulan Wang Amanah Pencen) for 15 years until its corporatisation. She also held senior management positions in various government entities in the fields of investment, finance and accounting.

Dato’ Azian previously sat on the Boards of Malakoff Corporation Berhad and Valuecap Sdn Bhd. She was also the Chairman of i-VCap Management Sdn Bhd prior to her retirement.

Dato’ Azian is currently a board member of Maybank Asset Management Group Berhad and Chairman of Maybank Islamic Asset Management Sdn. Bhd.

Ariffin HewIndependent Non-Executive Director

Dato’ Azian Mohd NohIndependent Non-Executive Director

Ariffin Hew was appointed as an Independent Non-Executive Director effective 25 October 2016. He is a member of the Board Underwriting Committee, the Board Risk Committee and the Board Audit Committee.

Ariffin holds a Bachelor of Economics (Honours) degree from the University of Malaya.

He has over twenty eight years of experience in the banking industry. He had held various board positions in insurance, discount house, securities companies and was also an Independent Director of Bank Pembangunan Malaysia Berhad until his resignation on 27 September 2014.

Throughout his career, he served in senior positions in major organisations including Malaysian Resources Corporation Berhad, the Bank Bumiputra Group and the RHB Group. He had also been tasked to lead various projects at both the domestic and international front. He actively contributes to the banking industry and is currently a member of the Small Debt Resolution Committee established by BNM.

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Mohamed Rashdi Mohamed Ghazalli was appointed as a Non-Independent Non-Executive Director of Danajamin on 8 September 2014. He is a member of Board Underwriting Committee, Board Investment Committee and Board Remuneration and Nomination Committee.

Mohamed Rashdi obtained a Bachelor of Science (Honours) degree in Computation from the University of Manchester Institute of Science and Technology, United Kingdom in 1979.

Mohamed Rashdi has extensive experience in industry and consulting. He initially worked in the telecommunications industry with Jabatan Telekom Malaysia before joining the Sapura Holdings Group in 1983 as a founder member of its Information Technology (“IT”) business. He moved into consulting in 1989, building a career with Coopers & Lybrand, IBM and PricewaterhouseCoopers (“PwC”) over a span of 20 years.

During his career, Mohamed Rashdi worked overseas with Telecoms Australia as well as Coopers & Lybrand in the United Kingdom. He was a Partner of PwC Consulting East Asia as well as IBM Consulting. His last position was as the IT and Consulting Advisor with PwC Malaysia focusing on capacity building, business development and quality assurance. As a consultant, he has led assignments in strategy and economics, business process improvement, information systems planning and large-scale project management across a number of industries such as government, telecommunications, oil and gas, transportation and utilities.

Mohamed Rashdi currently sits on the Boards of Malaysia Venture Capital Management Berhad, Sapura Energy Berhad and Tune Protect Group Berhad.

Mohamed Rashdi Mohamed GhazalliNon-Independent Non-Executive Director

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Mohamed Nazri OmarManaging Director/ Chief Executive Officer

Mohamed Nazri Omar was appointed as Managing Director/Chief Executive Officer of Danajamin on 1 May 2014. He was previously a Director, Client Coverage Division of Danajamin since 8 November 2011.

Mohamed Nazri holds a Bachelor of Arts Degree, majoring in Economics (Hons) and Government from Cornell University, USA.

Mohamed Nazri’s corporate career has been within the financial industry particularly in the corporate banking and capital markets. He began his career at Citibank Berhad and subsequently served in Macquarie Bank Limited and RHB Investment Bank Berhad (then known as RHB Sakura Merchant Bankers Berhad).

Before joining Danajamin, Mohamed Nazri served in several capacities at Kuwait Finance House (M) Bhd (“KFH”) including Director of Investment Banking and Head of Capital Markets and Advisory. Under these roles, he was responsible for the origination and structuring of Shariah compliant financing transactions as well as providing project finance advisory. As one of the pioneers at KFH, he was primarily involved in the setting up of the KFH’s Corporate and Investment Banking Division. On 1 May 2016, he was appointed as a member of the Investment Panel of Kumpulan Wang Persaraan (Diperbadankan).

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Prior to joining Danajamin, Amri last served as the Chief Financial Officer of RHB Islamic Bank Berhad. Amri also held the position of Vice President – Head of Finance Shared Services at RHB Bank Berhad where he was responsible for the banking group’s Statutory Management Reporting, Regulatory Reporting, Operations Accounting and Projects/Financial Information System.

Amri received his initial career experience as an external auditor with PricewaterhouseCoopers (PwC) where he worked in the Audit and Business Advisory Services department. During his 10-year stint with PwC, Amri also served in PwC London under a secondment programme.

Amri joined Danajamin in November 2011 as the Director of Finance and was later appointed as Director of Client Management Division before assuming his current role as Chief, Corporate and Investment Officer.

Amri is a Fellow Member of the Association of Chartered Certified Accountants (FCCA) and a member of the Malaysian Institute of Accountants (MIA).

Jason’s corporate career has been within the financial industry over the last 24 years. Prior to joining Danajamin, Jason served in HSBC Bank Malaysia Berhad for 12 years in various capacities in Risk Management including in the areas of financial analysis, corporate recovery, treasury credit risk, stress testing and corporate credit approvals. His last position in HSBC Bank was Senior Wholesale Credit Risk Manager.

Previously, he had also served in Perwira Affin Merchant Bank Berhad (currently known as Affin Investment Bank Berhad) and Arab-Malaysian Merchant Bank Berhad (currently known as AmInvestment Bank Berhad), where he was involved in factoring, corporate banking and debt capital markets work.

Prior to his appointment as Chief Risk Officer, he was the Director of Risk Management in Danajamin.

Jason is a Chartered Management Accountant and an Associate member (ACMA) of the Chartered Institute of Management Accountants (CIMA).

Amri SofianChief Corporate & Investment Officer

Jason GoayChief Risk Officer

SENIOR MANAGEMENT’S PROFILES

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Gerald brings with him 22 years of solid experience and proven banking track record covering Investment Banking, Corporate and Commercial Banking, Trade Finance and Recovery in various financial institutions including HSBC Bank Malaysia Berhad, Hong Leong Bank Berhad and Danaharta.

Prior to joining Danajamin, Gerald last served at AmInvestment Bank Berhad as one of the Large Corp Client Coverage Heads.

Gerald holds a Bachelor of Business (Banking & Finance) and Bachelor of Business (Management) from Monash University, Australia.

Gerald GohDirector of Client Coverage

Poorani started her career in KPMG Peat Marwick, Singapore as an external auditor. Subsequently, she returned to Malaysia and briefly served at Jerneh Asia Berhad. Prior to joining Danajamin, Poorani was the Chief Internal Auditor of ING Insurance Berhad, ING Employee Benefits Berhad and ING Funds Berhad. There she oversaw the management and operations of the internal audit operations and also supported other ING regional entities.

Poorani was the Director of Internal Audit of Danajamin since 2010 before assuming her current role in 2014.

Poorani holds a Bachelor of Commerce degree majoring in Accounting and Finance (First Class Honours) and a Masters in Commerce majoring in Accounting from the Lincoln University, New Zealand. She is a member of both the Institute of Chartered Accountants, New Zealand and the Malaysian Institute of Accountants (MIA). Additionally, she is a Certified Internal Auditor (CIA), Certified Risk Management Assessment (CRMA) and holds the Quality Assessment certifications by the Institute of Internal Auditors, United States.

Poorani RamachandranDirector of Finance

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Yee Tat’s career experience has been within the debt capital market covering areas such as credit risk, financial advisory and fund raising activities.

Yee Tat started his career as a trader in Arab-Malaysian Merchant Bank after which he joined Rating Agency Malaysia (RAM) where he gained close to 5 years of credit experience in the Infrastructure & Utilities Division and Industrial Products Division. He later left RAM to join a boutique financial advisory firm that specializes in financial advisory and fund-raising activities over the next 4 years; covering local and regional infrastructure projects such as toll roads and power plants before joining Danajamin in 2011.

His career in Danajamin began in the CEO’s office, before moving on as Associate Director of Risk Management Division. He was then transferred to the Client Management division where he is currently the Head of the Division.

Yee Tat holds a Bachelor of Business Administration degree majoring in Finance from Multimedia University.

Raevathi has 18 years of internal auditing experience. She commenced her career in Internal Audit, AmBank Group where she accumulated 15 years of experience in various areas of specialisation namely Shared Services, Commercial Banking and Regulatory Compliance. Raevathi was also actively involved in supervising and conducting the Bank-wide Anti-Money Laundering and Anti-Terrorism Financing review for regulatory purposes.

Raevathi holds a Bachelor of Arts (Hons) in Management (Finance Major, Economics Minor) from University Sains Malaysia, Pulau Pinang. She is a Certified Internal Auditor (CIA) and holds an Advanced Certification in Anti-Money Laundering and Anti-Terrorism Financing.

Wee Yee TatDirector of Client Management

Raevathi PathmanathanDirector of Internal Audit

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Roselaini brings with her 28 years of solid experience serving various industries such as banking, semiconductor, FMCG and consulting. She has extensive Human Resources expertise with her areas of specialisation in Compensation & Benefits, Talent Management and Organisational Development.

Prior to joining Danajamin, Roselaini served in the Hong Leong Bank since July 2012 as the Head of Human Resources. Roselaini has also served other financial institutions namely Kuwait Finance House, Standard Chartered Bank and Citibank.

Roselaini holds a Bachelor of Economics, majoring in Analytical Economics from University of Malaya.

Roselaini FaizDirector of Human Capital & Communications

Before joining Danajamin, Adrian served in AmInvestment Bank Berhad for 16 years in its key business divisions namely Debt Capital Markets, Corporate Finance and Corporate Banking. Adrian commenced his career in Corporate Banking, Arab-Malaysian Merchant Bank Berhad (currently known as AmInvestment Bank Berhad) accumulating 5 years of credit and debt related experience. He then served in Corporate Finance and was involved in primary (IPO) and secondary fund-raisings, mergers & acquisitions, and restructuring transactions. After 5 years in Corporate Finance, he joined Debt Capital Markets where he served for 6 years being involved in advising, structuring and implementing integrated financial solutions. Subsequently, Adrian joined Danajamin. Prior to his current appointment on 3 April 2017, Adrian was Director, Corporate Strategy managing the Corporate Strategy and Project Management Office (PMO) portfolios. At Danajamin, Adrian had also previously served in the CEO’s Office and managed the Investor Relations and Communications portfolios. Adrian holds a Bachelor of Arts in Business Organisation from Heriot-Watt University, Edinburgh, Scotland, UK. He is a Fellow Member of the Association of Chartered Certified Accountants (FCCA) and a member of the Malaysian Institute of Accountants (MIA).

Adrian TayDirector of Enterprise Risk Management & Compliance

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Junaidah brings with her 17 years of solid legal experience and has practiced in the areas of corporate, securities law and banking and finance law, with particular emphasis on capital market and corporate finance transactions. Apart from that, Junaidah also has significant experience in Islamic finance work and general corporate commercial work which include several highly publicised listing and fund-raising exercises.

Prior to joining Danajamin, Junaidah was a partner with Messrs Albar & Partners.

Junaidah holds a Bachelor of Laws with Honours from Bond University, Australia. She was admitted as an Advocate & Solicitor to the High Court of Malaya in June 2000 and as a solicitor to the Supreme Court of NSW, Australia in December 2003.

Joyce commenced her career as an external auditor with PricewaterhouseCoopers (PwC) for 6 years, where she provides audit and advisory services to clients in the financial services industry. She also served in RHB Bank Berhad as the Head of Statutory and Management Reporting and Hong Leong Financial Group as the Head of Finance and Operations.

Prior to assuming her current role, Joyce was the Deputy Director of Investment and had also previously covered the Finance and Capital Management portfolios.

Joyce holds a Master of Science in Corporate Risk Management with Distinction from University of Salford, Manchester, UK and Bachelor of Science in Applied Accounting from Oxford Brookes University, UK. She is a Fellow Member of the Association of Chartered Certified Accountants (FCCA).

Junaidah Abdul RahimDirector of Legal

Joyce TehDirector of Investment

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CHIEF EXECUTIVE

OFFICER

CORPORATE STRATEGY & PRODUCT DEVELOPMENT

CHIEF CORPORATE & INVESTMENT OFFICER CHIEF RISK OFFICER*

BOARD RISKCOMMITTEE

BOARD AUDITCOMMITTEE

Finance

CapitalManagement &

Reporting

InformationTechnology

Administration

Credit Risk

Audit

PortfolioRisk^

SpecialAssets^

Legal

CompanySecretarial

CreditAdministration

Human Capital

Communications

Enterprise Risk &Compliance

FINANCEDIVISION

CREDIT RISK

DIVISION

INTERNAL AUDIT DIVISION*

HUMAN CAPITAL & COMMUNICATIONS

DIVISION

ENTERPRISE RISK

MANAGEMENT &

COMPLIANCE

DIVISION

LEGALDIVISION

CLIENT COVERAGEDIVISION

Relationship Management

CLIENT MANAGEMENT

DIVISION

Account Management

INVESTMENTDIVISION

– Investment – Investor Relations

Note:* The Chief Risk Officer (CRO) and Internal Audit Division are independent and report directly to the Board Risk Committee and Board Audit Committee, respectively^ Portfolio Risk and Special Assets units are direct reports to the Chief Risk Officer

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ORGANISATION CHART

1. CLIENT COVERAGE DIVISIONThe role of the division is key in ensuring Danajamin’s business growth. The division forms the first touch point for origination of all guarantee transactions and client relationship management. All processes such as credit evaluation, credit approval and documentation leading up to the issuance are handled by the Relationship Managers.

2. CLIENT MANAGEMENT DIVISIONThe division primarily oversees the account monitoring post-issuance. Upon issuance of a Danajamin guaranteed bond/sukuk,the account is transferred from Client Coverage Division to Client Management Division for monitoring there after. The division is made up of analysts with both credit and banking background.

3. INVESTMENT DIVISIONThe division primarily oversees Danajamin’s investment activities and management of the Company’s funds to derive a reasonable return while preserving liquidity for any potential guarantee claim payout. Investment Division also provides a platform for investors communication and enhances investor relations through active engagement with the investors of Danajamin guaranteed bonds/sukuk.

4. LEGAL DIVISIONThe division is responsible for the legal, company secretarial and credit administration functions. The legal function supports Danajamin in all legal matters pertaining to Danajamin’s business and operations. The credit administration function monitors issuer-related matters such as covenant tracking, payments and such.

5. FINANCE DIVISIONThe division has four units under its umbrella: Finance, Capital Management & Reporting, Information Technology and Administration.

The Finance unit is responsible for financial reporting, payments and investment middle-office operations. The Capital Management & Reporting unit ensures adherence to regulatory capital management requirements, stakeholder management and reporting

(including among others regulators, shareholders and rating agencies) are in order while the Information Technology and Administration Units are support units providing technological and administrative support to ensure smooth operations in the organisation.

6. HUMAN CAPITAL & COMMUNICATIONS DIVISIONThe division is responsible for talent sourcing and hiring, talent development and benefits administration. Its capacity to attract, retain and develop employees ensures Danajamin’s long term success. The division also oversees the overall internal and external communication efforts to enhance Danajamin’s reputation and support its brand awareness initiatives.

7. INTERNAL AUDIT DIVISIONThe division assists the Board Audit Committee in discharging their duties and responsibilities by independently reviewing and reporting the adequacy and effectiveness of Danajamin’s risk management, internal controls and governance process. Internal Audit performs regular reviews of Danajamin’s operational processes and internal controls premised on a risk-based approach and the results are reported to the Board Audit Committee.

8. CREDIT RISK DIVISIONA division under the purview of the Chief Risk Officer managing credit risk through a set of stringent and comprehensive credit risk policies and guidelines. The Credit Risk Division provides independent assessments and ensures that all credit proposals are subject to a robust credit evaluation process.

9. ENTERPRISE RISK MANAGEMENT & COMPLIANCE DIVISIONThe Enterprise Risk Management & Compliance Division comes under the purview of the Chief Risk Officer. The division is responsible for ensuring that a robust risk management framework is in place to manage and minimise risks within Danajamin and compliance to all relevant policies and regulations applicable to Danajamin.

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OUR DIVISIONS

INTRODUCTIONThe Company is the nation’s first Financial Guarantee Insurer, licensed under the Financial Services Act, 2013 (“FSA”) (previously under the Insurance Act, 1996) regulated and supervised by Bank Negara Malaysia (“BNM”). The Company does not have any subsidiary and the Company is not a subsidiary of another corporation.

As a licensed entity, the Company adopts management practices that are consistent with the principles of the policy document issued by BNM on Corporate Governance (BNM/RH/PD029-9) (“BNM Guidelines”). Through the Company’s policies and procedures as well as periodic audit reviews, the Board of Directors of Danajamin Nasional Berhad (“Board”) ensures that good governance is practised throughout the Company in all aspect of its business dealings, and that integrity and transparency are displayed with the objective of safeguarding shareholders’ investments and ultimately enhancing shareholders’ value. The Board is convinced that by doing so, will undoubtedly contribute towards the betterment of the Company’s overall performance.

BOARD RESPONSIBILITIES AND OVERSIGHTThe Board acknowledges its overall responsibilities and is committed in ensuring that the highest standards of corporate governance are applied in all aspects of the Company’s operations pursuant to the regulations.

BOARD COMPOSITION AND BALANCEThe Board comprises of nine Members; one Independent Non-Executive Chairman, five Independent Non-Executive Directors, two Non-Independent Non-Executive Directors and one Managing Director/Chief Executive Officer (“MD/CEO”).

Diversity in the Board’s composition is essential to facilitate good decision making as this enables different insights and perspectives to be harnessed. The Board comprises of members with various professional backgrounds including from the fields of legal, information technology as well as accounting and finance, all of whom bring in-depth and diverse experiences, expertise and perspectives to the Company’s operations.

Collectively, the Board brings a wide spectrum of business acumen, skills and perspectives necessary for the decision making process. The diversity and depth of knowledge offered by the Board reflect the commitment of the Company to ensure effective leadership and control of the Company.

The Independent Non-Executive Directors provide unbiased and independent views in ensuring that the strategies proposed by the Management are fully deliberated and examined.

With its diversity of skills, the Board has been able to provide clear and effective collective leadership to the Company. This has also brought an independent judgement to the Company’s strategy and performance so as to ensure that the highest standards of conduct of integrity are always at the core of the Company.

A brief profile of each Director is presented on pages 34 to 39 of this annual report.

BOARD OF DIRECTORS’ MEETINGSThe Board meets at least once in every two months during the financial year and also at other times as and when Board meetings are required.

Board meetings and Board Committee meetings are scheduled in advance before the commencement of the new financial year to enable the Directors to plan and accommodate the year’s meetings into their schedules. The Board requires all members to devote sufficient time to effectively discharge their duties and to endeavour to attend meetings to the best of their ability.

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STATEMENT ON CORPORATE GOVERNANCE

Special Board meetings and Special Board Committee meetings are convened between the scheduled meetings to consider urgent proposals or matters that require expeditious decisions or deliberations by the Board and/or the Board Committees.

Agenda and Management Papers are distributed in advance for all Board and Board Committees to have sufficient time for appropriate review to facilitate full discussion at the meetings. Agendas of meetings that include, amongst others, minutes of meetings, comprehensive management reports, project or investment proposals and supporting documents, are targeted for dissemination to the respective members at least five working days prior to the dates of the meetings. However, Management Papers that are deemed urgent may still be submitted to the Company Secretary to be tabled at the meeting subject to the approval of the Chairman.

All issues raised, discussions, deliberations, decisions and conclusions, including dissenting views made at Board and Board Committee meetings along with clear actions to be taken by responsible parties, are recorded in the minutes of meetings. Where the Board is considering a matter in which a Director has an interest, the relevant Director must immediately disclose the nature of his/her interest and abstain from participating in any discussion or decision-making on the subject matter.

The Board is constantly advised and updated on statutory and regulatory requirements pertaining to its duties and responsibilities. As and when the need arises, the Board is also provided with reports, information papers and relevant trainings, where necessary, to ensure it is appraised on key business, operational, corporate, legal, regulatory and industry matters.

Whenever necessary, senior management and/or external advisors are invited to attend Board and Board Committee meetings to provide clarification on agenda items so as to enable the Board and/or the Board Committees to arrive at a considered and informed decision.

The Board has full and unrestricted access to all information pertaining to the Company’s business and affairs through the senior management and the Company Secretary to enable it to discharge its duties effectively.

The Board has adopted a schedule of matters specially reserved for its approval which include, amongst others, reviewing and approving the following:

• Strategic/business plans and annual budget;

• New investments, divestments, mergers and acquisitions, corporate restructuring including the establishment of subsidiaries, joint ventures or strategic alliances both locally and abroad where the sum or cost is considered significant or material;

• Annual financial statements;

• Appointment of new Directors, MD/CEO and Company Secretary;

• Material related party transactions; and

• Any form of borrowing or fund raising exercise.

In line with the regulatory requirements of BNM policy document on Corporate Governance on the tenure limit, none of the Directors of the Company has reached the nine years limit considering the Company was only incorporated in 2009.

During the financial year ended 31 December 2017, the Board met ten times, comprising seven scheduled and three special meetings to deliberate and consider a variety of significant matters that required its guidance and approval. All Directors have attended at least 75% of the total Board meetings held during the financial year.

Details of attendance of each Director during the financial year ended 31 December 2017 are as follow:

Name of Directors

Number of Meetings and

AttendancePercentage

of Attendance

Dato’ Mohammed Hussein 10/10 100%

Abdul Kadir Md Kassim 10/10 100%

Dato’ Albert Yeoh Beow Tit 10/10 100%

Philip Tan Puay Koon 10/10 100%

Datuk Ahmad Badri Mohd Zahir 8/10 80%

Dato’ Azian Mohd Noh 9/10 90%

Mohamed Rashdi Mohamed Ghazalli 10/10 100%

Ariffin Hew 10/10 100%

Mohamed Nazri Omar 10/10 100%

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ROLES AND RESPONSIBILITIES OF THE CHAIRMAN AND THE MD/CEOThe roles of both the Chairman and the MD/CEO are clearly separated with the positions being held by two different individuals to ensure that an appropriate balance of role and authority is maintained.

The duties and responsibilities of the Chairman and MD/CEO are distinct and separate to ensure a balance of power and authority towards the establishment of an effective Board.

Chairman

The Chairman is responsible to ensure the smooth and effective functioning of the Board and the governance structure, inculcate positive culture in the Board, provide avenues for all Directors to participate openly in the discussion, provide leadership to the Board and is responsible for the development needs of the Board. He continues to demonstrate the highest standards of corporate governance practices and ensures that these practices are regularly communicated to the stakeholders.

The Chairman’s main responsibility is to ensure effective conduct of the Board through the execution of the following key roles:

(i) To ensure appropriate procedures are in place to govern the Board’s operation and conduct;

(ii) To manage Board meetings in order to achieve robust decision-making by ensuring that accurate, timely and clear information are provided to all Directors, avenues are provided for all Directors to participate openly in discussions and that dissenting views can be freely expressed and discussed; and

(iii) To facilitate the flow of information between the Board and Management.

MD/CEO

The MD/CEO has the overall responsibilities for the implementation and execution of the Company’s strategic goals as determined by the Board as well as to manage and oversee the day-to-day operations to ensure the smooth and effective running of the Company. He is responsible for the Company’s operational, business units and support services, organisational effectiveness and implementation of Board policies, directives, strategies and decisions. He is also responsible for ensuring high management competency as well as the emplacement of an effective management succession plan to sustain continuity of operations. The MD/CEO, by virtue of his position as a Board member, also acts as an intermediary between the Board and the senior management.

BOARD COMMITTEESThe Board has established several Board Committees which operate within its respective clearly defined Terms of Reference to assist the Board in executing its duties and responsibilities. Although the Board may delegate certain duties to the Board Committees, it remains ultimately responsible for the decisions of the Committees.

The Board Committees established are as follows:

1. Board Remuneration and Nomination Committee (“BRNC”);

2. Board Audit Committee (“BAC”);

3. Board Risk Committee (“BRC”);

4. Board Underwriting Committee (“BUC”); and

5. Board Investment Committee (“BIC”).

Pursuant to Section 12.3 of the BNM Guidelines, each of the BRNC, BAC and BRC must comply with the following:

(i) have at least three directors;

(ii) have a majority of independent directors;

(iii) be chaired by an independent director; and

(iv) comprise directors who have the skills, knowledge and experience relevant to the responsibilities of the Board Committee.

The functions and Terms of Reference of the Board Committees are clearly defined as follows:

1. Board Remuneration and Nomination Committee

Composition

The Board Remuneration and Nomination Committee (“BRNC”) consists of the following three Independent Non-Executive Directors and two Non-Independent Non-Executive Directors:

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Members

(i) Abdul Kadir Md Kassim (Chairman) (appointed as Chairman w.e.f. 1 March 2017)

(ii) Dato’ Mohammed Hussein (Chairman from 1 January 2017 to 28 February 2017. Ceased as Chairman w.e.f. 1 March 2017)

(iii) Dato’ Albert Yeoh Beow Tit

(iv) Datuk Ahmad Badri Mohd Zahir

(v) Encik Mohamed Rashdi Mohamed Ghazalli (appointed as a new member w.e.f. 1 March 2017)

Meetings

Meetings are held at least once every financial quarter. In the financial year ended 31 December 2017, the BRNC met seven times, comprising of four scheduled meetings and three special meetings.

The details of attendance of each Member at the BRNC meeting during the financial year ended 31 December 2017 are as follow:

Name of Directors



of Attendance

Abdul Kadir Md Kassim(appointed as Chairman w.e.f. 1 March 2017)

7/7 100%

Dato’ Mohammed Hussein(Chairman from 1 January 2017 to 28 February 2017.Ceased as Chairman w.e.f. 1 March 2017)

7/7 100%



Mohamed Rashdi Mohamed Ghazalli(appointed as a new member w.e.f. 1 March 2017)

5/5 100%

Objectives

(i) To ensure that the Board has the appropriate balance and size, and the required mix of skills, experience and other core competencies.

(ii) To ensure the Company can attract and retain high calibre executives needed to run and manage the Company successfully.

Quorum

A majority of the members at any one time.

Voting

By majority, with casting vote to Chairman.

Duties and responsibilities

a. To review and recommend to the Board the compensation and benefits package and salary scale and terms and conditions for all levels of employees of the Company.

b. To review and recommend to the Board the basis for the annual bonus and salary increment for all levels of employees of the Company.

c. To consider and recommend suitable persons for appointment as Directors and MD/CEO and Head of Functions.

d. To review and recommend to the Board the compensation and benefits package and the terms and conditions of service of the MD/CEO and Head of Functions.

e. To review and recommend to the Board the remuneration for Non-Executive Directors of the Company.

f. To review and approve the recruitment and remuneration package of Head of Divisions if the package exceeds the limits set by the Scheme of Service.

g. To annually review performance of the MD/CEO, Heads of Functions and Heads of Divisions.

h. To assess the effectiveness of the Board, the Committees of the Board and each individual Director.

i. To consider and recommend measures to upgrade the effectiveness of the Board and Committees of the Board.

j. To annually review the required mix of skills and experience and other qualities, including core competencies, which Non-Executive Directors should bring to the Board.

k. To consider and recommend solutions on issues of conflict of interest affecting Directors.

l. To approve the appointments of all Heads of Divisions excluding the Head of Division of Internal Audit and Chief Risk Officer.

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2. Board Audit Committee

Composition

The Board Audit Committee (“BAC”) consists of the following five Independent Non-Executive Directors:

Members

(i) Dato’ Albert Yeoh Beow Tit (Chairman)

(ii) Philip Tan Puay Koon

(iii) Dato’ Azian Mohd Noh

(iv) Abdul Kadir Md Kassim (appointed as a new member w.e.f. 1 March 2017)

(v) Ariffin Hew (appointed as a new member w.e.f. 1 March 2017)

Meetings

Meetings are held at least once every financial quarter. In the financial year ended 31 December 2017, the BAC met a total of six times, comprising five scheduled meetings and one special meeting. Two meetings were held in the presence of the External Auditors without the Management.

The details of attendance of each Member at the BAC meeting during the financial year ended 31 December 2017 are as follows:

Name of Directors



of Attendance



Dato’ Azian Mohd Noh 6/6 100%

Abdul Kadir Md Kassim(appointed as a new member w.e.f. 1 March 2017) 4/4 100%

Ariffin Hew(appointed as a new member w.e.f. 1 March 2017) 4/4 100%

Quorum

Quorum shall be at least two-third of members at any one time.


a. To review the Company’s financial statements for submission to the Board and ensure compliance with disclosure requirements and any adjustments as suggested by the Auditors.

b. To review reports of the Internal Auditors, External Auditors, BNM Examiners and any other relevant parties, including obligatory reports to the BNM on matters covered under the FSA.

c. To ensure the independence and effectiveness of the Internal Audit functions and its compliance with BNM’s Guidelines.

d. To review the appropriateness of the risk assessment methodology employed including compliance with BNM’s Risk Governance Policy and adequacy of the Company’s internal controls.

e. To be responsible for the appointment of the External Auditors and assessing the Auditors’ objectivity, performance and independence.

f. To review with the External Auditors the scope of the audit plan, the financial statements, changes in accounting policies and principles, compliance with laws and accounting standards, material variances or fluctuations, validity of going concern assumptions, system of internal accounting controls and any other relevant findings or concerns raised by the External Auditors.

g. To make recommendations to the Board on the appointment of External Auditors.

h. To meet with the External Auditors without the presence of management at least once per annum.

i. To review and approve the annual audit plan and budget for the Internal Audit functions.

j. To be directly responsible for the appointment, role and performance of the Head of Internal Audit functions and his or her remuneration scheme; to ensure the adequacy of resources for the carrying out of the Internal Audit functions.

k. To report to the Board via minutes of meetings or special report on the findings of its meetings/activities.

l. To carry out such other responsibilities as may be delegated by the Board from time to time.

m. To ensure compliance with BNM Guidelines, as may be amended from time to time.

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3. Board Risk Committee

Composition

The Board Risk Committee (“BRC”) comprises at least three members comprising Non-Executive Directors, of which not more than one member is also a member of the Board Underwriting Committee. As at 31 December 2017, the BRC consists of the following three Independent Non-Executive Directors:

Members

(i) Philip Tan Puay Koon (appointed as Chairman w.e.f. 1 March 2017)

(ii) Dato’ Azian Mohd Noh (Chairman from 1 January 2017 to 28 February 2017.

Ceased as Chairman w.e.f. 1 March 2017)

(iii) Ariffin Hew (appointed as a new member w.e.f. 1 March 2017)

(iv) Mohamed Rashdi Mohamed Ghazalli (resigned w.e.f. 1 March 2017)

Meetings

Meetings are held at least six times during the financial year. In the financial year 2017, the BRC met six times as scheduled.

The details of attendance of each Member at the BRC meeting during the financial year ended 31 December 2017 are as follows:

Name of Directors



of Attendance

Philip Tan Puay Koon(appointed as a Chairman w.e.f. 1 March 2017)

6/6 100%

Dato’ Azian Mohd Noh(Chairman from 1 January 2017 to 28 February 2017. Ceased as Chairman w.e.f. 1 March 2017)

6/6 100%

Ariffin Hew(appointed as a new member w.e.f. 1 March 2017)

5/5 100%

Mohamed Rashdi Mohamed Ghazalli(resigned w.e.f. 1 March 2017)

1/1 100%

Objective

To ensure the risk management functions and practices of the Company are conducted and discharged effectively to ensure management and mitigation of key risks.

Quorum


Voting



a. To review the risk-taking strategies and risk management policies of the Company.

b. To review the overall risk profile of the Company, including market risks and credit risks within the portfolio.

c. To set the risk appetite appropriate for the Company.

d. To review and approve the appointment, remuneration and dismissal of the Chief Risk Officer.

e. To review and approve Key Performance Indicators (“KPIs”) and undertake performance assessment for Chief Risk Officer.

f. To review the performance of the risk management function of the Company and ensure compliance with the Risk Governance Policy.

g. To approve contingency plans for dealing with potential high-impact risk events.

h. To ensure a culture of risk-awareness and risk-mitigation in the Company.

Joint BAC and BRC

The Joint BAC and BRC shall comprise members from BAC and BRC. The Joint BAC and BRC ensures effective exchange of information between BAC and BRC members so as to enable effective coverage of all risk, including emerging risk issues that could have an impact on the institution’s risk appetite and business plans. In the financial year 2017, the Joint BAC and BRC met two times and among the matters reviewed and discussed were business emerging risks and the overall Risk Management and Internal Audit Plans of the Company in order to promote alignment on the oversight function of BAC and BRC.

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4. Board Underwriting Committee

Composition

The Board Underwriting Committee (“BUC”) comprises of at least six members, all of whom must be Non-Executive Directors and the majority of the members shall be independent Directors. As at 31 December 2017, the BUC consists of the following four Independent Non-Executive Directors and two Non-Independent Non-Executive Directors:

Members

(i) Dato’ Mohammed Hussein (Chairman)

(ii) Abdul Kadir Md Kassim

(iii) Datuk Ahmad Badri Mohd Zahir

(iv) Dato’ Albert Yeoh Beow Tit

(v) Mohamed Rashdi Mohamed Ghazalli

(vi) Ariffin Hew

Meetings

Meetings are held at least once a month. In the financial year 2017, the BUC met fifteen times; twelve scheduled meetings and three special meetings.

The details of attendance of each Member at the BUC meeting during the financial year ended 31 December 2017 are as follows:

Name of Directors



of Attendance

Dato’ Mohammed Hussein 15/15 100%

Abdul Kadir Md Kassim 15/15 100%

Datuk Ahmad Badri Mohd Zahir

15/15 100%


Mohamed Rashdi Mohamed Ghazalli

15/15 100%

Ariffin Hew 15/15 100%

Objective

To review and endorse (with power to veto) underwriting proposals approved by the Management Underwriting Committee (“MUC”).

Quorum


Voting



a. To review and, if appropriate, endorse underwriting proposals that have been approved by the MUC.

b. Where an underwriting proposal has been approved by the MUC and the BUC disagrees with the proposal, to exercise the power of veto.

c. To review and monitor reports on the underwriting performance of the Company.

d. To approve acceleration of redemption recommended by the MUC and thereafter, the decision to accelerate be tabled to the Board for notification.

e. To approve any exception to the guidelines on Refinancing.

5. Board Investment Committee

Composition

The Board Investment Committee (“BIC”) comprises at least three members, all of whom must be Non-Executive Directors and the majority of the members shall be independent Directors. As at 31 December 2017, the BIC consists of the following two Independent Non-Executive Directors and two Non-Independent Non-Executive Directors:

Members

(i) Dato’ Azian Mohd Noh (appointed as Chairman w.e.f. 1 March 2017)

(ii) Philip Tan Puay Koon

(iii) Datuk Ahmad Badri Mohd Zahir

(iv) Mohamed Rashdi Mohamed Ghazalli (appointed as a new member w.e.f. 1 March 2017)

(v) Abdul Kadir Md Kassim (Chairman) (resigned as Chairman and member w.e.f. 1 March 2017)

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Meetings

Meetings are held at least four times each financial year, on a quarterly basis, and from time to time, for the deliberations of specific investment proposals. In the financial year 2017, the BIC met four times as scheduled.

The details of attendance of each Member at the BIC meeting during the financial year ended 31 December 2017 are as follows:

Name of Directors



of Attendance

Dato’ Azian Mohd Noh(appointed as Chairman w.e.f. 1 March 2017) 4/4 100%



Mohamed Rashdi Mohamed Ghazalli(appointed as a new member w.e.f. 1 March 2017) 3/3 100%

Abdul Kadir Md Kassim(resigned as Chairman and member w.e.f. 1 March 2017) 1/1 100%

Objective

To ensure the Company invests and manages its capital resources in a professional and prudent manner, achieves the targeted returns while assuming an appropriate level of risk, maintain a sufficient level of liquidity for claim events and maintain conformity with all regulatory requirements.

Quorum


Voting



a. To review and, if appropriate, approve proposals for all investments and divestments of assets other than short-term deposits, short-term money market instruments and low risk assets that are more than RM25 million.

b. To review the performance of the portfolio of capital resources.

c. To determine from time to time the asset allocation target for the portfolio of capital resources.

TRAINING AND EDUCATION PROVIDED TO THE BOARDDuring the financial year, the Directors attended the following training programmes:

Director Training attended Description of training

Dato’ MohammedHussein

1. Companies Act 2016 By Messrs Wong & Partners

• New Companies Act 2016.

2. International Financial Reporting Standard 17

By Messrs PricewaterhouseCoopers

• Update on International Financial Reporting Standard 17.

3. The 1st International Colloquium On Islamic Banking And Islamic Finance (ICICBIF)

• Narrowing the gaps of the views of experts in IB/IF industry.

• Better understanding of the views and opinions of reputable scholars in the field.

• Bringing together the scattered research products in a unified manner.

• Producing a simple mathematical integrated model of IB/IF.

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Dato’ MohammedHussein (Cont’d.)

4. Fintech: Opportunities For The Financial Services Industry In Malaysia

• The current status and approach in Fintech adoption among FIs in Malaysia.

• The opportunities for FI-Fintech collaboration given the regulatory flexibilities to leverage Fintech in serving the needs of the business and economy.

• Key areas and issues that Boards should be focusing on in order to strategically lead the FI in FI-Fintech collaboration.

5. Global Banking Conference – China’s Banking Industry-Opportunities For Growth

• To gain an in-depth understanding of the Chinese Banking industry – opportunities, threats, financial policies, reforms and risks to support cross-border transactions or expansion plans.

Abdul Kadir Md Kassim




2. Boardroom Effectiveness • Maximise directors’ effectiveness and the effectiveness of their boards.

• Enhance Board composition, processes and relationships.

• Explore best practices of boardroom behaviour.

• Expanding decision making capabilities.• Improving organisations’ overall effectiveness.

3. The Global Transformation Forum • Create a global platform for sharing of best practices, methodologies and success/challenges in operationalising transformation.

• Promote transnational collaboration.

4. Strategic Planning For Boards • Shape the strategic planning process.• Establish the framework for ongoing

monitoring.• Setting strategic goals and objectives for

organisations.• Work closely with the senior management

to agree on the strategy.• Drive better performance in organisations.

5. Down The Rabbit Hole of Leadership • Learn about the dark and light sides of leadership.

• Obta in a better understanding of organisational culture and change.

• Learn how to create high performance team.

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Dato’ Albert YeohBeow Tit






3. Fintech: Opportunities For The Financial Services Industry In Malaysia

• The current status and approach in Fintech adoption among FIs in Malaysia.

• The opportunities for FI-Fintech collaboration given the regulatory flexibilities to leverage Fintech in serving the needs of the business and economy.

• Key areas and issues that Boards should be focusing on in order to strategically lead the FI in FI-Fintech collaboration.

Philip Tan Puay Koon 1. Companies Act 2016 By Messrs Wong & Partners







4. Cryptocurrency And Blockchain Technology

• Key issues and challenges as well as opportunities and threats of cryptocurrencies and blockchain technology.

• Possible strategy for business models.

5. 2nd Securities Commission Fide Forum Dialogue: Leveraging Technology For Growth

• Enhance access to financing: the progress of equity crowdfunding (ECF) and peer-to-peer financing (P2P) in Malaysia thus far.

• Increase investor participation: Robo-advisory and Digital Investment Management Framework introduced in May 2017.

• Emerging Technologies: Artificial Intelligence for Capital Markets.

6. International Foundations Of Directorship (IFOD) 2017

• Understand the role and responsibilities of a director in an international context.

• Work more effectively with board to drive positive performance outcomes.

• Identify and mitigate the risks faced by international directors and multi-national companies.

• Enrich the contribution make to board and organisation.

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Datuk Ahmad Badri Mohd Zahir

1 Companies Act 2016 By Messrs Wong & Partners





Dato’ Azian Mohd Noh 1. Companies Act 2016 By Messrs Wong & Partners





Mohamed Rashdi Mohamed Ghazalli






3. Cryptocurrency And Blockchain Technology

• Key issues and challenges as well as opportunities and threats of cryptocurrencies and blockchain technology.

• Possible strategies for business models.


• Enhance access to financing: the progress of equity crowdfunding and peer-to-peer financing in Malaysia thus far.



5. 3rd Securities Commission Fide Forum Dialogue: Leveraging Technology For Growth




Ariffin Hew 1. Companies Act 2016 By Messrs Wong & Partners







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Ariffin Hew (Cont’d.) 4. Cyber Fraud For Board • An appreciation for how cyber-crime is impacting business today.

• Understanding of the cyber-fraud risks faced by company.

• Gaining insight on the best cyber-fraud risk management practice and how to ensure it is implemented in organisations through the risk management process.

• Access to the Omni-risk tool for Financial Crime Governance.

• Holistic cyber-fraud risk management review audit process.





6. 2017 International Association Of Insurance Supervisors Annual Conference

• To explore the future of the IAIS and the global supervisory landscape given current and emerging trends, risks and opportunities within the insurance sector.

Mohamed Nazri Omar 1. Module 3: Leadership Excellence through Awareness and Practice – Singapore

• Leadership at the organisat ional , interpersonal and intrapersonal levels.

2. Embrace Paradoxes • Sharing a framework to address contradictory challenges (i.e. short term-long term, cost savings-innovation and empowerment-control).

3. Global Emerging Markets Regulatory Conference 2017

• Raising the Standards on Governance and Conduct.

• Changing Market Structures and Implications to Regional Markets.

• Fintech – Role of Regulation with Market Innovation.

4. The Global Transformation Forum • Engagement and sharing of experience and best practices with influential, global leaders on how to drive transformation.

5. IFN Forum Asia 2017 • Capital raising and Banking Day – investment opportunities, Fintech, funds industry outlook, future of human capital, innovative ideas etc.

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Mohamed Nazri Omar (Cont’d.)

6. Corporate Governance for Development Financial Institutions

• Engaging key stakeholders.• Insights sharing on financial accounting and

operational aspects of DFIs.• Effective management oversight on the

implementation of strategies and risk mitigation actions.

7 . Team Dynamics Workshop • Gaining deeper insights about Danajamin management team’s profile vis-à-vis to strengths, potential challenges, motivations and development gaps.

8. International Association of Insurance Supervisors Annual Conference 2017

• Future of the IAIS and the Global Supervisory Landscape.

9. World Islamic Economic Forum (WIEF) 2017

• Invited as one of the panelists for WIEF 2017 with the topic “Infrastructure Funding” under complementary programme.

• A special panel session which aims to promote awareness on Shariah-compliant capital market solutions to fund infrastructure specifically targeted toward infrastructure development in Sarawak.

10. World Islamic Banking Conference (WIBC) 2017

• Invited as one of the panelists for WIBC 2017 with the topic “Dynamic Capital Markets – Sukuk vs Bonds”.

• WIBC 2017 theme “Drivers of Economic Growth & Risks: Policymakers & Regulators”, underscores the need for increased leadership by the stewards of the global financial system to help navigate the world economies through turbulent and uncertain times.

REMUNERATION STRATEGY

Board

The Board is mindful in ensuring that the level of Directors’ remuneration is comparable in order to attract and retain high caliber executives with the necessary skills and experience to lead and manage the Company successfully.

In its effort to ensure that remuneration levels commensurate with the responsibilities, risks and time commitment of the Board/Board Committees for effective management and operations of the Company, the Company’s common reference, sets out the general principles for the remuneration of Non-Executive Directors (“NEDs”) as follows:

(a) Reflection of the responsibilities and different contribution levels of individual NEDs in terms of intensity of work time commitment and effort;

(b) Recognition of the different roles played by individual NEDs (e.g. as Chairman of the Board or Board Committees);

(c) Based on the NEDs’ roles and contributions and should not be differentiated based on knowledge and experience;

(d) Sufficiently competitive to attract and retain the right calibre of talents;

(e) Remuneration levels should not compromise a NED’s independence; and

(f) May reflect the complexity size and business of the Licensed Financial Institutions (“LFIs”).

The remuneration also takes into consideration industry practices. The remuneration of all Directors is also reviewed by the Board as a whole to ensure that it is aligned to the market and to the Directors’ duties and responsibilities. 20

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The shareholders of the Company had, at its Eighth Annual General Meeting held on 22 June 2017, approved the NEDs’ fees of RM936,000 for the financial year ended 31 December 2017.

As at 31 December 2017, the remuneration of the Board and Board Committee are as follows:

Chairman Member

Directors’ fees per month*

Board RM33,000 RM6,000

Meeting Allowance per sitting**

Board RM7,500 RM5,000

Board Committee RM6,000 RM4,000

* as approved by the shareholders in June 2017** up to 31 December 2017

The remuneration package of the NEDs comprises the following:

(a) Directors’ fees

The NEDs are entitled to annual Directors’ fees which are fixed and payable monthly. The annual Directors’ fees are subject to the approval of the shareholders at the Annual General Meeting of the Company.

(b) Meeting attendance allowance

The NEDs who sit on Board Committee are entitled for monthly allowances for every attendance of the Board Committee meeting.

(c) Benefits-in-kind

Benefits are accorded to the Chairman of the Company consisting of, amongst others, provision of a driver and petrol allowance.

No bonuses were paid to the NEDs during the financial year ended 31 December 2017.

The details of Directors’ Remuneration are set out in Note 21(b) to the financial statements.

MD/CEO

The Board, through BRNC, annually reviews the performance of the MD/CEO as a prelude to determining his annual remuneration, bonus and other benefits. In discharging the duty, BRNC evaluates the performance of the MD/CEO against the objectives set by the Board, thereby linking their remuneration to performance.

The basic salary of the MD/CEO is fixed for the duration of his contract. The Company operates a bonus scheme for all employees including its MD/CEO. Bonus payable to the MD/CEO is reviewed by the BRNC and approved by the Board. The MD/CEO is not entitled to fees.

Company

The Company’s continued success depends on the commitment of our people to embrace and live our values, the commitment of the company to fulfil its people promise of a competitive total rewards program, a competitive yet collegial working environment and the opportunity to grow alongside our company.

Recognising the importance of having the right people with the right skills at all times, the Company’s remuneration strategy has been put in place to attract, reward and retain high calibre and talented employees with relevant experience.

Our remuneration strategy serves to achieve the following imperatives:

• Ensure alignment to the long-term interest and business strategies of the Company, its stated Core Value whilst promoting a risk prudent culture;

• Recognises divisions and individuals that contribute in making the organisation more competitive, efficient and sustainable against pre-agreed expectations; and

• Ensure market relevance.

Our remuneration framework is made up of the following components:

a. Basic salary – a core component where a job is priced against market. Internally, the job is sized taking into account, amongst others, the level of responsibility and role complexity; and

b. Annual performance bonus – a variable and discretionary pay component that is based on the overall performance of the Company and individual.

Our fixed remuneration is defined by the salary scale that differentiates between job levels. Positions in Danajamin are matched to job levels based on factors such as knowledge, role’s impact, levels of accountability etc. To ensure market relevance, the salary band is benchmarked against relevant financial institutions.

The variable remuneration is paid through the annual performance bonus which is discretionary. It is determined based on performance delivered for the financial year at Company and individual level. The variable remuneration is fully cash-based.

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The remuneration framework is applicable to all employees of the Company across levels and functions, with oversight by the Board. All matters pertaining to design and review of job grade, salary scale, the overall annual performance bonus and the overall increment to the base salary are to be recommended by the BRNC and approved by the Board.

To ensure independence of officers in control functions comprising of the Chief Risk Officer and Head of Internal Audit, these positions report directly to the BRC and BAC respectively. The said Board Committees undertake the decision on appointment, KPIs setting and performance review of the said role. The Board will have the oversight for decisions on overall rewards and remuneration.

The Company deems the senior management team and key officers as Material Risk Takers. They are as follows:

1. Key Responsible Person (“KRPs”) comprising of the senior management team vis-a-vis the BNM Guideline on Fit and Proper Criteria (12 positions).

2. Mission Critical Position comprising of positions that are directly involved in contributing to revenue, managing of key risks and executing Company’s strategic objectives (10 positions).

The Performance Management System (“PMS”) is the foundation of our remuneration framework, whereby it emphasises the following:

• Alignment of deliverables against Danajamin’s long-term interest, business strategy and immediate years Corporate KPI;

• Disincentivises behaviours that contradict Danajamin’s Core Values;

• Reinforces expected individual roles and accountabilities; and

• Promotes risk-taking that is consistent with our risk appetite.

The above imperatives are embedded in the various stages of Performance Management cycle from performance planning to performance review.

To ensure that the Company continues to deliver its mandate and achieve its business imperatives, performance planning and performance review for the MD/CEO and senior management team is subject to deliberation and recommendation by BRNC prior to escalation for approval by the Board.

The Corporate Scorecard incorporates the following:

1. Financial metrics such as Profit Before Tax;

2. Client-centric metrics such as innovation in product application, investor base, issuer diversity and issuance;

3. Operational metrics such as speed-to-market; and

4. People metrics such as culture and engagement and implementation of competency framework.

These are later embedded into individual scorecard of senior management members based on their respective functional role.

The Corporate Scorecard also includes risk-based metrics i.e. risk sharing and portfolio quality. Similar to the other metrics, these metrics are cascaded into the individual scorecard of relevant members of senior management.

During the annual performance review exercise, the overall achievement of Corporate Scorecard will be assessed and deliberated by Board. The achievement will have direct bearing to the size of overall Company’s bonus pool.

Individual performance rating will be calibrated through a moderation exercise that reviews the relative performance of employees of the same job grade. The final rating derived from the moderation exercise is translated into bonus quantum guided by a bonus matrix.

In line with the practice of high performance organisations, poor performers will not be accorded any bonus payment. The Performance Improvement Plan (“PIP”) provides structure to managers to ensure that related employees are given sufficient opportunities to succeed while holding them accountable for past performance.

To continuously ensure that the remuneration package remains competitive in the market, the Company has also participated in an industry-wide market survey.

Indemnifying Directors and Officers

The total amount of insurance premium paid for the directors and officers of the Company for the financial year ended 31 December 2017 was RM100,000.

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The Board is primarily responsible to ensure that the Company maintains an adequate system of internal controls, and that there is an effective and efficient operations and risk management policies to ensure compliance with the relevant laws and regulations.

The Company has in place formal policies which govern the management and control of financial and non-financial risks. The adoption of these policies enables a consistent approach to the management of risks throughout the Company while the Board and senior management are committed to maintain a risk-conscious culture in the Company.

ENTERPRISE RISK MANAGEMENT (“ERM”) FRAMEWORKOne of the building blocks used to identify and evaluate significant risks is the ERM Framework which was implemented in early 2010 and is continuously enhanced to reflect best practices. The Framework establishes systematic monitoring and reporting requirements of each division within the Company, and is aimed at embedding sound risk management culture within the Company to ensure that the Company continues to expand its business with the right risk management culture, discipline and practices.

In 2016, the ERM framework was further strengthened to streamline and redefine key risks relevant to the business with clear identification of root causes, accountability/ownership of the risks and mitigating controls and for alignment with the industry’s best practices as well. As part of this initiative, members of the Board and senior management were also re-trained on risk awareness. The enhancement also included automation of the enterprise risk reporting and sign off process to promote accountability and enable senior management to provide assurance to the Board on the adequacy and effectiveness of the risk management and internal control system as well as improve operational efficiency.

CREDIT RISK MANAGEMENTCredit Risk Management is guided by comprehensive credit policies which are complemented by stringent underwriting standards and procedures. All proposals are subject to a robust credit evaluation process and a two-tier approval process namely the Management and Board Committees. Apart for annual reviews, Management is kept appraised on the level of credit risk for each individual obligor on a monthly basis.

The frequency and depth of reporting provides pre-emptive opportunities to manage credit risk in a timely manner.

COMPLIANCE FRAMEWORKThe Company strives to operate within its compliance principles which is driven down by the Board and senior management to all staff to foster a strong compliance culture in the Company and the way we do business. The Company is governed by the FSA, Companies Act 2016, BNM licensing conditions and regulatory requirements and guidelines as well as other relevant and applicable Acts and standards issued by regulators to the Company. The Compliance Framework also establishes a systematic monitoring and reporting requirements for the Chief Compliance Officers along with the Board, BRC, senior management and staff to understand, comply and manage compliance risks in the Company.

Since the enhancement of the monitoring and reporting process in 2016 to promote accountability, senior management has been providing assurance to the Board on the adequacy and effectiveness of the compliance risk management as well as to improve operational efficiency.

The ERM & Compliance Division performs regular reviews of the Company’s internal control framework on a continuous basis.

RISK GOVERNANCE AND OVERSIGHTThe Management Risk Committee (“MRC”) is responsible to oversee the risk management functions and practices of the Company, while the BRC oversees management of key risk areas by the senior management to ensure that the risk management framework and processes are functioning effectively.

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STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROLS

KEY POLICIES AND PROCEDURESPolicies and procedures are established in the Company to manage the day-to-day operations, and are communicated and made available to all staff. The policies and procedures are reviewed and updated regularly to ensure they remain relevant to the current business environment and in compliance with the current/applicable laws and regulations. These policies and procedures are then approved by the Board to formalise their application within the Company.

These cover key areas of risks such as:

• Financial Guarantee Insurance (FGI) operations • Credit Risk Management• Portfolio Risk Management• Investments• Internal Capital Adequacy Assessment and Stress Testing• Information Technology• Anti-money laundering and countering the financing of

terrorism• Related party transactions• Outsourcing• Business Continuity Management• ERM and Compliance

INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIESThe Company has an in-house Internal Audit functions which is guided by its Audit Charter and reports to the BAC. Its primary role is to assist the BAC in the discharge of their duties and responsibilities by independently reviewing and reporting on the adequacy and effectiveness of the Company’s risk management, internal control and governance processes.

The Internal Auditors perform regular reviews of the Company’s operational processes and system of internal controls. Auditable units of priority and frequency of review are determined by adopting a risk-based approach, and leveraging on the Company’s risk management framework. The annual internal audit plan is reviewed and approved by the BAC. Results of the audits conducted by the Internal Auditors are reported to the BAC. While the Management is responsible to ensure that corrective actions on reported observations are taken within the stated time frame, the Internal Audit functions will monitor and update the BAC on the extent to which the corrective actions have been implemented.

The BAC holds regular meetings to deliberate on findings and recommendations for improvement highlighted by both the Internal and External Auditors as well as regulatory authorities on the state of the Company’s internal control system. The minutes of the BAC meetings are subsequently tabled to the Board for notation. In addition to audit assignments, the Internal Audit functions participates on a consultative basis in projects, the development of new systems and information technology related initiatives.

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STATEMENT ON RISK MANAGEMENT & INTERNAL CONTROLS

Support & Commitment

The complicated process of batik making is

believed to cultivate virtues, as it reflects the

characteristics of diligence, carefulness and

patience. These are all values that we cultivate

in order to provide value to our clients, partners

and our people.

FOCUSED ONGROWING POTENTIALWe want to reach out and provide avenues for youths

to discover their hidden potential and ultimately,

produce well-rounded leaders who are able to

improve the social and economic well-being of our

country. It is very rewarding, to see their development

– from being shy and unsure of themselves to the

confident young leaders they are today – and it shows

how impactful our CSR efforts are in enriching our

future leaders’ skills and personalities.

Mohamed Nazri OmarManaging Director/Chief Executive Officer, Danajamin

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OUR COMMITMENT TO CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility is an integral part of Danajamin’s culture; we believe that in our efforts to develop Malaysia’s Corporate Bond market, it must be balanced by efforts to improve our local community. Towards this end, we set up the Danajamin Corporate Social Responsibility Council in 2012, empowering a team of staff members with the responsibility of spearheading, formulating and executing Danajamin’s Corporate Social Responsibility policy and programmes, under the guidance of our Chief Executive Officer. This ensures that our Corporate Social Responsibility policy is formulated in a more disciplined approach, and that the Corporate Social Responsibility programmes implemented are strategic, sustainable and in line with our corporate culture.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES 2017

MARCH APRIL MAY AUGUST SEPTEMBER OCTOBER

21 MarchDanajamin100

Smart Learning Camp (Batch 3)

3 MayDJ Run Challenge Kick Off

5 MayDJ Bond-ing Challenge: Game 1

8 MayDanajamin100 Graduation Ceremony (Batch 2)

16 MayDJ CSR Health Screening

31 MayDanajamin100 Study Excellence Camp (Batch 3)

6 OctoberDanajamin Staff Getaway

23 OctoberDanajamin100 Outward Bound School

Camp (Batch 4)

28 OctoberDanajamin CSR Pertiwi Soup Kitchen

Volunteering

12 SeptemberDJ Bond-ing Game 3

23 SeptemberDanajamin100 Selection Camp

(Batch 4)

8 AprilCharity Movie

Screening of Smurfs: The Lost Village

26 AugustDanajamin Mighty Run

and DJ Bond-ing Challenge: Game 2

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In 2014, Danajamin launched its flagship Corporate Social Responsibility programme, Danajamin100. It is a leadership enhancement programme aimed at developing future leaders, which is critical to ensure the sustainability of our nation’s development, particularly our journey to achieve a developed country status. Danajamin again partnered with PINTAR Foundation to manage and monitor the programme under its PINTAR Consultancy Service. As at 31 December 2017, there are two batches of students currently undergoing our Programme, while another two batches of students have successfully completed the programme and have gone to pursue their tertiary education in universities across the country.

We have identified Education as a cause that closely ties in with Danajamin’s corporate culture and mission, and supports the goals of Malaysia’s Education Blueprint 2013-2025. The main thrust of our Corporate Social Responsibility is ensuring every child receives equal rights to quality education, improving the quality of learning and advancing transformative education that provides children with the understanding that they need to contribute positively as global citizens. By putting education first, we seek to develop human potential and in turn a stronger and more sustainable society.

Within Malaysia we are mindful that there are less privileged children who lack access to educational opportunities that can enhance and further develop their potential with skills that will allow them to thrive in life and work. Education plays a central role in any country’s pursuit to embrace differences – a shared set of experiences and economic growth and national development.

Danajamin strategically invests in Corporate Social Responsibility programmes and events that meet its vision of building the potential of our nation’s youth through education and skill building and adequately prepare young Malaysians for the opportunity to improve their lives to meet the challenges of the 21st century. This fortifies Danajamin’s holistic focus on nurturing capabilities and helping advance a better future.

We have collaborated with PINTAR Foundation in its PINTAR School Adoption Programme with the objective of raising academic performance of the students, particularly Year 6 students through various educational key initiatives. In 2012, Danajamin adopted SK Petaling (1), a primary school in Jalan Klang Lama under the purview of PINTAR Foundation. In 2016, SK Petaling (1) graduated PINTAR Foundation’s School Adoption Programme and have become self-sufficient in the organising and funding of their academic and after school programmes.

NO BATCH 1 BATCH 2 BATCH 3 BATCH 4

1 SMK Munshi Abdullah, Selangor

SMK Chenderiang, Perak

SMK Ketereh,Kelantan

SMK Seri Kota, Melaka

2 SMK Gombak Setia, Selangor

SMKA Baling, Kedah

SMK Kuala Balah,Kelantan

SMK Jasin, Melaka

3 SMK Pulau Indah,Selangor

SMK Ayer Hangat, Kedah

SMK Long Ghafar 2,Kelantan

SMK Hang Kasturi, Melaka

4 SMK Juasseh, Negeri Sembilan

SMK Sungai Aceh, Pulau Pinang

SMK Padang Enggang,Kelantan

SMK Kompleks KLIA, Negeri Sembilan

5 SMRA Repah, Negeri Sembilan

SMK Hutchings, Pulau Pinang

SMK Sungai Petai,Kelantan

SMK Desa Cempaka, Negeri Sembilan

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DANAJAMIN MIGHTY RUN 2017Subsequent to Danajamin’s pilot charity run “Danajamin Mighty7 Run” held in 2016, Danajamin Nasional Berhad decided to make a stronger comeback by introducing a bigger and bolder version of the Danajamin Mighty Run 2017 by including 2 running categories; 5km Fun Run and 10km Competitive Run. A whopping 1,000 participants braved the rain at Centrus, Cyberjaya on the 28 of August 2017 and played their part in contributing to the same worthy cause as last year.

Similarly to last year, Danajamin Mighty Run is part of Danajamin’s effort to give back to the society whereby proceeds from the run were contributed to The National Autism Society of Malaysia (NASOM), an NGO which Danajamin has been supporting for the past 4 years.

The charity run continues to receive positive support from community minded organisations and individuals including participation of corporate figures, parents of/and autistic children, as well as, the general public of all ages. For 2017, the event managed to raise a whopping RM 50,000.00 for NASOM. In the spirit of SEA Games/KL 2017, ex-national athletes Jeffrey Ong and Farah Begum Abdullah were there as guests of honour and to flag-off the 5km Fun Run and 10km Competitive Run respectively.

According to Mohamed Nazri Omar, Managing Director/Chief Executive Officer of Danajamin, “Not many people understand the challenges faced by those who are directly and indirectly affected with autism, be it the parents or the child themselves, as they sometimes struggle to have access to resources and assistance. As the organizer for the second year running and supporter of autism awareness and the National Autism Society of Malaysia (NASOM) for the last 4 years, we are enthusiastic to again be championing a worthy cause and place Danajamin Mighty Run in the Malaysian running calendar. We believe that with increased awareness, more people will learn about autism, understand it better and provide assistance in facilitating early intervention programmes.”

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“We are very humbled with the overwhelming support from our corporate partners, clients, friends, families and members of the public during the first year of organising the event. I trust that our clients, partners and the public at large share the same aspiration to help those in need by fulfilling our social obligations. Hence, this year, we hope that with the added awareness on the run, we can attract more participants to raise funds for NASOM and help the less fortunate across all ages and races. We are excited to see the outcome and benefits that the run will bring to NASOM,” added Mohamed Nazri.

Just a little bit of background on the initiative, Danajamin started working with NASOM since 2012, and was inspired to help and provide opportunities for this group of overlooked children. As this was also in line with our passion to ensure better access to quality education for all, Danajamin staff began to support The National Autism Society of Malaysia’s cause by helping to set up the Early Intervention Centre in Setapak, Kuala Lumpur. This was followed by other small scale projects to help provide a more comfortable and conducive environment for the children across various centres. The National Autism Society of Malaysia has 19 centres nationwide which provide a variety of programmes for close to 500 students ranging from 3 years to 30 years of age.

In 2016, Danajamin Mighty7 Run raised RM30,225.00 which was donated to The National Autism Society of Malaysia’s Vocational Centre in Bandar Puteri, Klang to further enhance and improve its existing facilities and ambience, and provide a safer and more conducive learning environment for children and young adults with autism to learn core skills such as food preparation, baking and painting. More importantly, the Danajamin Mighty7 Run provided a spotlight on The National Autism Society of Malaysia’s objectives and increased awareness of the organisation’s needs to friends within the corporate world and the general public. Through similar events in the future, Danajamin aims to continue its collaboration with The National Autism Society of Malaysia and help to further elevate awareness on autism within Malaysian society while providing further support to The National Autism Society of Malaysia centres throughout as and when required.

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DANAJAMIN100 – BUILDING LEADERS OF TOMORROW Danajamin100 is a leadership enhancement programme established in 2014 and seeded by Danajamin’s core focus on growing potential. It is a well-designed and holistic programme aimed at nurturing talented secondary students and cultivate future leaders who will sustain Malaysia’s growth and advancement. The three-year programme is conducted in collaboration with the existing PINTAR school programme and provides long term, sustained mentorship and guidance that can have a significant impact to the student’s future.

• OBS Camp (Year 1) A five-day camp at the Outward Bound School in Lumut, Perak that is designed to test both their physical and mental capacity, as well as hone their teamwork skills.

• Smart Learning Camp (Year 2) A camp structured to equip the students with skills that would help them in their SPM examinations.

Selected Form 4 students from PINTAR schools are inducted into Danajamin100 programme. Apart from academic and extra co-curricular performance, students must exhibit values such as passion, clarity of thought, care and responsibility – qualities that can pave a brighter future and contribute to the nation’s talent pool of future leaders.

The selected students will participate in the following camps:

a. OBS Camp (Year 1)

A five-day camp at the Outward Bound School in Lumut, Perak that is designed to test both their physical and mental capacity, as well as hone their teamwork skills.

b. Smart Learning Camp (Year 2)

A camp structured to equip students with studying tips and techniques that would help them in their SPM examinations.

c. Study Excellence Camp (Year 2)

A camp that brings together top teachers from various schools to provide the students with unique insights on how to study for the core subjects of SPM.

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d. Leadership Camp (Year 2)

The camp prepares the students for higher learning as well as equips them with soft skills in communication and time management through fun-filled activities related to leadership. The students are also given the chance to meet and listen to accomplished leaders from the corporate world as they share their life’s journey.

e. Career Camp (Year 3)

The Career Camp focuses on competencies related to interpersonal communication, public speaking and personal development. The camp highlights the challenges faced by young graduates and provides ways to manage the situation should it happen to them, stresses on developing each student’s own strength and potential to communicate effectively, polish their public speaking skills as well as building confidence to express their views and ideas. In addition, the students undergo a career aptitude assessment and are taught on areas such as career planning and decision making.

Through these leadership and character development programmes, Danajamin100 provides students with pragmatic experience and opportunities to discover their strengths and passions, hone their leadership skills and sharpen their critical thinking skills; towards producing outstanding principled and broad-minded students who will go on to be strong leaders in their chosen fields.

Four batches of students have participated in the programme to date with the first batch graduating on 11 April 2016 and the second batch on 8 May 2017. Both the third and fourth batches of students are still undergoing the programme. Completion for Batch 3 and Batch 4 students are targeted for 2018 and 2019 respectively.

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TESTIMONIALS FROM PAST PARTICIPANTS

Farah Nur Arina Baharudin, 20 (Batch 1 Danajamin100 student)

I am a third year Electronics Engineering student in Multimedia

University, Melaka and about to complete my diploma.

Danajamin100 programme had changed me a lot – in so many different ways. Prior to this programme, I was a very shy girl, so shy that nobody could hear me speak. Now, I am confident to talk in front of others, thanks to the exposure the leadership programme gave me. I am a lot more positive these days. I need all the good vibes in the world as l am currently running a high-impact project for secondary school students with my V6 team – and Danajamin100 had inspired me to run these events for the students.

I hope Danajamin100 students will learn the values that was taught in the programme, so we can all start to contribute to others. We must know that our knowledge and skills are not for us to keep it ourselves but to share it with all. I hope the future Danajamin100 students will be successful now and the future, a good person and kind to others.

Muhammad Iqmal Ahmad Saifuddin, 20 (Batch 1 Danajamin100 student)

I am currently undertaking my diploma course in Information

Technology at Multimedia University Melaka and I would like to thank Danajamin because the Danajamin100 Leadership Camp I attended had helped me a lot, especially after SPM.

They taught me how to develop my level of confidence, teach me how to be organised and also help me to improve my communication skills. When it comes to presentation for assignment or project, I applied all the knowledge that I have learnt throughout the camp.

As a result, I managed to do well for my presentations, be more confident even – despite my average level of English. I am hoping that this camp will help future students to be more clear with what they want to do after SPM so they would be well prepared.

Anis Diana Anuar, 20 (Tokoh Danajamin100, Batch 1)

I am currently studying TESL for my degree in teaching at IPG Batu Lintang, Sarawak campus and loving every second of it, thanks to Danajamin100 Leadership Programme. The programme had helped me in many areas more than I could ever imagine – from social skills to physical fitness, and everything else in between. The programme made me a more confident person, especially

when it comes to sharing my opinion with others. The programme had made me realise that there are more dreams and goals to achieve in life, and if we put our hearts and minds to it, we can achieve our goal in no time.

My hopes and dreams for future Danajamin100 students – I hope the programme inspire them as much as how it had inspired me. If you focus hard enough, you can apply what was learnt during the programme into our everyday life. Pay close attention and make sure you have fun.

As the Tokoh Danajamin100 from Batch 1, I would say that this programme had helped me gain recognition from others. Being in the programme is an added advantage, and we must make full use of the opportunity to be the best version of yourself. That, is one thing that Danajamin100 Leadership Programme had taught me.

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MEDIA HIGHLIGHTS

Strength & Diversity

Batik, an art form that has stood the test of

time is a flourishing cottage industry that has

contributed to the economy of the nation. We

are a strong and stable institution, and we are

here to help companies in Malaysia bring value

to the country and progress through the years.

79 Directors’ Report

83 Statement by Directors

83 Statutory Declaration

84 Independent Auditors’ Report

FINANCIAL STATEMENTS

87 Statement of Financial Position

88 Statement of Comprehensive Income

89 Statement of Changes in Equity

90 Statement of Cash Flows

91 Notes to the Financial Statements

STATUTORY FINANCIAL STATEMENTS

The Directors submit herewith their report together with the audited financial statements of the Company for the financial year ended 31 December 2017.

PRINCIPAL ACTIVITY

The Company is principally engaged in providing financial guarantee insurance.

There were no significant changes in the nature of the principal activity during the financial year.

RESULTS

RM’000

Net profit for the financial year 114,188

There were no material transfers to or from reserves or provisions during the financial year other than disclosed in the financial statements.

In the opinion of the Directors, the results of the operations of the Company during the financial year were not substantially affected by any items, transaction or event of a material and unusual nature.

DIVIDENDS

The dividends paid by the Company since 31 December 2016 were as follows:

RM’000

In respect of the financial year ended 31 December 2016:

– single-tier final dividend of 1.26 sen paid on 3 July 2017 12,600

At the forthcoming Annual General Meeting, a final dividend in respect of the current financial year of RM11,400,000 will be proposed for shareholders’ approval. These financial statements do not reflect this final dividend which will be accounted for in the shareholders’ equity as an appropriation of retained profits in the financial year ending 31 December 2018 when approved by shareholders.

ISSUE OF SHARE CAPITAL

There were no issue of new ordinary shares during the financial year.

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DIRECTORS’ REPORT

DIRECTORS

The Directors of the Company in office during the financial year and during the period commencing from the end of the financial year and ending on the date of this report are as follows:

Dato’ Mohammed Haji Che HusseinAbdul Kadir Md KassimDato’ Albert Yeoh Beow TitPhilip Tan Puay KoonDatuk Ahmad Badri Mohd ZahirDato’ Azian Mohd NohMohamed Rashdi Mohamed GhazalliAriffin Hew @ Hew Siak TowMohamed Nazri Omar

Pursuant to Article 63 of the Company’s Articles of Association (“Articles”), one third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest one third, shall retire from office at the Annual General Meeting of the Company except for the Managing Director (“MD”)/Chief Executive Officer (“CEO”) who in accordance with Article 91 of the Company’s Articles shall not be subject to such retirement by rotation. At the Eighth Annual General Meeting of the Company held on 22 June 2017, Encik Abdul Kadir Md Kassim and Encik Philip Tan Puay Koon, who retired from office pursuant to Article 63 of the Company’s Articles and being eligible for re-election, were re-elected as Directors of the Company, while Tn. Hj. Ariffin Hew, who retired from office pursuant to Article 68 of the Company’s Articles and being eligible for re-appointment, was re-appointed as a Director of the Company.

Mohamed Rashdi Mohamed Ghazalli ceased to be the Nominee Director of Credit Guarantee Corporation Malaysia Berhad on 1 November 2017.

DIRECTORS’ BENEFITS AND INTERESTS

During and at the end of the financial year, no arrangement subsisted to which the Company is a party, being arrangements with the object or objects of enabling the Directors of the Company to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate.

Since the end of the previous financial year, no Director has received or become entitled to receive any benefits (other than Directors’ remuneration, allowances and benefits-in-kind as disclosed in Note 21 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest.

According to the register of Directors’ shareholdings, none of the Directors in office as at the end of the financial year had any interest in shares in, or debentures of, the Company or its related corporations during the financial year.

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OTHER STATUTORY INFORMATION

(a) Before the financial statements of the Company were made out, the Directors took reasonable steps:

(i) to ascertain that proper actions have been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and satisfied themselves that all known bad debts have been written off and adequate allowance had been made for doubtful debts; and

(ii) to ensure that any current assets which were unlikely to realise in the ordinary course of business, their values as shown in the accounting records of the Company had been written down to an amount which they might be expected so to realise.

(b) At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Company which would render:

(i) the amount written off for bad debts or the amount of allowance for doubtful debts in the financial statements of the Company inadequate to any substantial extent; and

(ii) the values attributed to current assets in the financial statements of the Company misleading.

(c) At the date of this report, the Directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Company misleading or inappropriate.

(d) At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Company which would render any amount stated in the financial statements misleading.

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

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

(ii) any contingent liability of the Company which has arisen since the end of the financial year other than those arising in the normal course of business of the Company.

(f) In the opinion of the Directors:

(i) no contingent or other liability of the Company has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Company to meet their obligations as and when they fall due; and

(ii) for the purpose of this section, contingent or other liabilities do not include liabilities arising from contracts of financial guarantee insurance underwritten in the ordinary course of business of the Company.

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DIRECTORS’ REPORT

SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

There has not been any significant event during the financial year, and there is no significant adjusting event after the date of the statement of financial position up to the date when the financial statements are authorised for issue.

SUBSEQUENT EVENTS AFTER THE FINANCIAL YEAR

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

AUDITORS

The details of Auditors’ Remuneration are set out in Note 21(c) to the financial statements.

The auditors, PricewaterhouseCoopers PLT (LLP0014401-LCA & AF 1146), have expressed their willingness to continue in office.

PricewaterhouseCoopers PLT (LLP0014401-LCA & AF 1146) was registered on 2 January 2018 and with effect from that date, PricewaterhouseCoopers (AF 1146), a conventional partnership was converted to a limited liability partnership.

Signed on behalf of the Board in accordance with a resolution of the Board of Directors dated 26 March 2018.

DATO’ MOHAMMED HAJI CHE HUSSEIN MOHAMED NAZRI OMARNon-Executive Chairman Managing Director/Chief Executive Officer

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We, Dato’ Mohammed Haji Che Hussein and Mohamed Nazri Omar, being two of the Directors of Danajamin Nasional Berhad, state that, in the opinion of the Directors, the financial statements set out on pages 87 to 133 are drawn up so as to give a true and fair view of the financial position of the Company as at 31 December 2017 and of its financial performance and cash flows for the financial year ended on that date in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the provisions of the Companies Act 2016.

Signed on behalf of the Board in accordance with a resolution of the Board of Directors dated 26 March 2018.

DATO’ MOHAMMED HAJI CHE HUSSEIN MOHAMED NAZRI OMARNon-Executive Chairman Managing Director/Chief Executive Officer

Kuala Lumpur

I, Poorani Ramachandran, being the officer primarily responsible for the financial management of Danajamin Nasional Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 87 to 133 are in my opinion correct and I make this solemn declaration conscientiously believing the same to be true by virtue of the provisions of the Statutory Declarations Act 1960.

POORANI RAMACHANDRAN

Subscribed and solemnly declared by the abovenamed Poorani Ramachandran at Kuala Lumpur in the Federal Territory on 26 March 2018.

Before me,

COMMISSIONER FOR OATHS

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PURSUANT TO SECTION 251(2) OF THE COMPANIES ACT 2016

PURSUANT TO SECTION 251(1) OF THE COMPANIES ACT 2016

STATEMENT BY DIRECTORS

STATUTORY DECLARATION

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Our opinion

In our opinion, the financial statements of Danajamin Nasional Berhad (“the Company”) give a true and fair view of the financial position of the Company as at 31 December 2017, and of its financial performance and its cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia.

What we have audited

We have audited the financial statements of the Company, which comprise the statement of financial position as at 31 December 2017, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the financial year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 87 to 133.

Basis for opinion

We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the “Auditors’ responsibilities for the audit of the financial statements” section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence and other ethical responsibilities

We are independent of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code.

Information other than the financial statements and auditors’ report thereon

The Directors of the Company are responsible for the other information. The other information comprises Directors’ Report, but does not include the financial statements of the Company and our auditors’ report thereon.

Our opinion on the financial statements of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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TO THE MEMBERS OF DANAJAMIN NASIONAL BERHAD(Incorporated in Malaysia) (Company No: 854686 K)

INDEPENDENT AUDITORS’ REPORT

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

Responsibilities of the Directors for the financial statements

The Directors of the Company are responsible for the preparation of the financial statements of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements of the Company that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements of the Company, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

(a) Identify and assess the risks of material misstatement of the financial statements of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

(b) Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.

(c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

(d) Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

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REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

Auditors’ responsibilities for the audit of the financial statements (continued)

(e) Evaluate the overall presentation, structure and content of the financial statements of the Company, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

OTHER MATTERS

This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS PLT SOO HOO KHOON YEANLLP0014401-LCA & AF 1146 2682/10/2019(J)Chartered Accountants Chartered Accountant

Kuala Lumpur26 March 2018

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Note2017

RM’0002016

RM’000

ASSETS

Property, plant and equipment 4 3,027 3,787Intangible assets 5 1,540 382Available-for-sale securities 6 715,376 626,690Deposits and placements with licensed banks 7 1,522,960 990,875Insurance receivables 8 456,634 422,910Reinsurance assets 9 21,230 31,121Tax recoverable 11,985 11,985Other assets 10 1,212 1,353Cash and cash equivalents 3,537 5,082

TOTAL ASSETS 2,737,501 2,094,185

LIABILITIES AND EQUITY

Premium liabilities 11 525,830 482,499Insurance payables 12 15,891 23,439Other liabilities 13 9,890 12,815Subordinated Sukuk 14 505,721 –

TOTAL LIABILITIES 1,057,332 518,753

Share capital 15 1,000,000 1,000,000Retained earnings 16 647,728 549,054Contingency reserve 17 29,432 26,518Available-for-sale fair value reserve 3,009 (140)

TOTAL EQUITY 1,680,169 1,575,432

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,737,501 2,094,185

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

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AS AT 31 DECEMBER 2017

STATEMENT OF FINANCIAL POSITION

Note2017

RM’0002016

RM’000

Gross earned premiums 18(a) 93,110 98,214Premiums ceded to reinsurance 18(b) (11,292) (8,336)

Net earned premiums 81,818 89,878Investment income 19 71,744 64,022Other operating income 20 5,290 8,689

158,852 162,589Management expenses 21 (38,943) (37,075)Finance cost – Sukuk profit (5,721) –

Profit before taxation 114,188 125,514Taxation 22 – –

Net profit for the financial year 114,188 125,514

Other comprehensive income:

Items that may be subsequently reclassified to profit or loss:

Available-for-sale fair value reserve:Net gain arising during the financial year 3,762 3,921Net gain transferred to profit or loss upon disposal (613) (1,905)

Other comprehensive income for the financial year, net of tax 3,149 2,016

Total comprehensive income for the financial year 117,337 127,530

Basic earnings per share (sen) 23 11.42 12.55


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FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017

STATEMENT OF COMPREHENSIVE INCOME

Non-Distributable Distributable

Sharecapital

RM’000

AFSfair value reserve

RM’000

ContingencyreserveRM’000

Retainedearnings

RM’000Total

RM’000

At 1 January 2017 1,000,000 (140) 26,518 549,054 1,575,432Net profit for the financial year – – – 114,188 114,188Dividend paid for the financial year ended

31 December 2016 – – – (12,600) (12,600)Available-for-sale (“AFS”) fair value reserve:

Net gain arising during the financial year – 3,762 – – 3,762Net gain transferred to profit or loss

upon disposal – (613) – – (613)Transfer to contingency reserve – – 2,914 (2,914) –

At 31 December 2017 1,000,000 3,009 29,432 647,728 1,680,169

At 1 January 2016 1,000,000 (2,156) 26,255 435,703 1,459,802Net profit for the financial year – – – 125,514 125,514Dividend paid for the financial year ended

31 December 2015 – – – (11,900) (11,900)Available-for-sale (“AFS”) fair value reserve:

Net gain arising during the financial year – 3,921 – – 3,921Net gain transferred to profit or loss

upon disposal – (1,905) – – (1,905)Transfer to contingency reserve – – 263 (263) –

At 31 December 2016 1,000,000 (140) 26,518 549,054 1,575,432


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STATEMENT OF CHANGES IN EQUITY

2017RM’000

2016RM’000

CASH FLOWS FROM OPERATING ACTIVITIESProfit before taxation 114,188 125,514

Adjustments for:Depreciation of property, plant and equipment 1,527 1,402Amortisation of intangible assets 322 282Net gain from disposal of AFS securities (454) (1,257)Net amortisation of premiums for AFS securities 286 190Interest income (72,030) (64,212)Finance cost – Sukuk profit 5,721 –

49,560 61,919Purchase of AFS securities (179,603) (200,569)Proceeds from disposal of AFS securities 69,811 223,591Proceeds from maturity of AFS securities 25,000 –Increase in deposits and placements with licensed banks (533,635) (125,855)Investment income received 73,003 55,145(Increase)/decrease in insurance receivables (33,724) 40,259Decrease/(increase) in reinsurance assets 9,891 (18,437)Decrease in other assets 141 258Increase/(decrease) in premium liabilities 43,331 (40,815)(Decrease)/increase in insurance payables (7,548) 13,959(Decrease)/increase in other liabilities (2,888) 1,458Income tax refunded – 1,000

Net cash (outflows)/inflows from operating activities (486,661) 11,913

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (798) (543)Purchase of intangible assets (1,486) (297)

Net cash outflows from investing activities (2,284) (840)

CASH FLOWS FROM FINANCING ACTIVITIESDividends paid (12,600) (11,900)Proceeds from issuance of Subordinated Sukuk 500,000 –

Net cash inflows/(outflows) from financing activities 487,400 (11,900)

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,545) (827)CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 5,082 5,909

CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 3,537 5,082

Cash and cash equivalents comprise:Cash and bank balances 3,537 5,082


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STATEMENT OF CASH FLOWS

1 GENERAL INFORMATION

Danajamin Nasional Berhad (“the Company”) is a public limited liability company, incorporated and domiciled in Malaysia.

The Company is principally engaged in providing financial guarantee insurance (“FGI”). There were no significant changes in the nature of the principal activity during the financial year.

The address of the registered office and the principal place of business of the Company are Level 18, Menara Allianz Sentral, No. 203, Jalan Tun Sambanthan, Kuala Lumpur Sentral 50470 Kuala Lumpur, Malaysia.

The financial statements were authorised for issue in accordance with a resolution of the Board of Directors on 26 March 2018.

2 ACCOUNTING POLICIES

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

2.1 Basis of preparation

The financial statements of the Company have been prepared under the historical cost convention unless otherwise indicated in the summary of significant accounting policies below. The financial statements of the Company have been prepared in accordance to Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act 2016 in Malaysia.

The financial statements are presented in Ringgit Malaysia (“RM”) and rounded to the nearest thousand (RM’000) unless otherwise stated.

The preparation of financial statements in conformity with the MFRS requires the use of certain accounting estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported financial year. It also requires the Directors to exercise their judgement in the process of applying the Company’s accounting policies. Although these estimates and judgement are based on the Directors’ best knowledge of current events and actions, actual results may differ from those estimates.

Critical accounting estimates and assumptions used that are significant to the financial statements and areas involving a higher degree of judgement and complexity are disclosed in Note 3.

(a) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Company and are effective:

On 1 January 2017, the Company adopted the following standard mandatory for financial year beginning on or after 1 January 2017:

• Amendments to MFRS 107 “Statement of Cash Flows – Disclosure Initiative”

• Amendments to MFRS 112 “Income Taxes – Recognition of Deferred Tax Assets for Unrealised Losses”

• Annual Improvements to MFRS 12 “Disclosures of Interests in Other Entities”

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NOTES TO THE FINANCIAL STATEMENTS

2 ACCOUNTING POLICIES (CONTINUED)

2.1 Basis of preparation (continued)

The adoption of Amendments to MFRS 107 has required additional disclosure of changes in liabilities arising from financing activities.

The adoption of the above standard does not give rise to any material impact to the Company’s accounting policies other than enhanced disclosures to the financial statements.

(b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Company but not yet effective:

(i) Financial year beginning on/after 1 January 2018

• Amendments to MFRS 4 Applying MFRS 9 “Financial Instruments” with MFRS 4 “Insurance Contracts”

The amendments allow entities to avoid temporary volatility in profit or loss that might result from adopting MFRS 9 “Financial Instruments” before the forthcoming new insurance contracts standard. This is because certain financial assets have to be measured at fair value through profit or loss under MFRS 9; whereas, under MFRS 4 “Insurance Contracts”, the related liabilities from insurance contracts are often measured on amortised cost basis.

The amendments provide 2 different approaches for entities: (i) a temporary exemption from MFRS 9 for entities that meet specific requirements; and (ii) the overlay approach. Both approaches are optional.

The temporary exemption enables eligible entities to defer the implementation date of MFRS 9 for annual periods beginning before 1 January 2021 at the latest. An entity may apply the temporary exemption from MFRS 9 if its activities are predominantly connected with insurance, whilst the overlay approach allows an entity to adjust profit or loss for eligible financial assets by removing any accounting volatility to other comprehensive income that may arise from applying MFRS 9.

An entity can apply the temporary exemption from MFRS 9 from annual periods beginning on or after 1 January 2018. An entity may start applying the overlay approach when it applies MFRS 9 for the first time.

The Company’s business activity is predominately insurance and hence, qualifies for the temporary exemption approach. Consequently, management has decided to apply the temporary exemption from MFRS 9 from its annual period beginning 1 January 2018, and will adopt MFRS 9 for its annual period beginning 1 January 2021.

• MFRS 9 “Financial Instruments”

MFRS 9 will replace MFRS 139 “Financial Instruments: Recognition and Measurement”. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income (“OCI”). The basis of classification depends on the entity’s business model and the cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest.

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(b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Company but not yet effective: (continued)

(i) Financial year beginning on/after 1 January 2018 (continued)

• MFRS 9 “Financial Instruments” (continued)

For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main changes are:

• For financial liabilities classified as FVTPL, the fair value changes due to own credit risk should be recognised directly to OCI. There is no subsequent recycling to profit or loss.

• When a financial liability measured at amortised cost is modified without this resulting in derecognition, a gain or loss, being the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate, should be recognised immediately in profit or loss.

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

• MFRS 15 “Revenue from Contracts with Customer”

MFRS 15 replaces MFRS 118 “Revenue” and MFRS 111 “Construction Contracts” and related interpretations. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability to direct the use of and obtain the benefits from the goods or services.

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

• Identify contracts with customers;

• Identify the separate performance obligations;

• Determine the transaction price of the contract;

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

• Recognise the revenue as each performance obligation is satisfied.20

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(ii) Financial year beginning on/after 1 January 2019

• Annual improvements to MFRS 3 “Business Combinations”, MFRS 11 “Joint Arrangements”, MFRS 112 “Income Taxes” and MFRS 123 “Borrowing Costs”

• MFRS 16 “Leases”

MFRS 16 supersedes MFRS 117 “Leases” and the related interpretations.

Under MFRS 16, a lease is a contract (or part of a contract) that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

MFRS 16 eliminates the classification of leases by the lessee as either finance leases (on balance sheet) or operating leases (off balance sheet). MFRS 16 requires a lessee to recognise a “right-of-use” of the underlying asset and a lease liability reflecting future lease payments for most leases.

The right-of-use asset is depreciated in accordance with the principle in MFRS 116 “Property, Plant and Equipment” and the lease liability is accreted over time with interest expense recognised in profit or loss.

For lessors, MFRS 16 retains most of the requirements in MFRS 117. Lessors continue to classify all leases as either operating leases or finance leases and account for them differently.

The adoption of the new standards, amendments to published standards and interpretations to existing standards are not expected to have a material impact on the financial results of the Company, except that the Company is in the process of reviewing the requirements of MFRS 9 and expects this process to be completed prior to the effective date of 1 January 2021.

(iii) Financial year beginning on/after 1 January 2021

• MFRS 17 “Insurance Contracts”

MFRS 17 applies to insurance contracts issued, to all reinsurance contracts and to investment contracts with discretionary participating features if an entity also issues insurance contracts. For fixed-fee service contracts whose primary purpose is the provision of services, an entity has an accounting policy choice to account for them in accordance with either MFRS 17 or MFRS 15 “Revenue”. An entity is allowed to account financial guarantee contracts in accordance with MFRS 17 if the entity has asserted explicitly that it regarded them as insurance contracts.

Insurance contracts, (other than reinsurance) where the entity is the policyholder are not within the scope of MFRS 17.

Embedded derivatives and distinct investment and service components should be ‘unbundled’ and accounted for separately in accordance with the related MFRSs. Voluntary unbundling of other components is prohibited.

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(iii) Financial year beginning on/after 1 January 2021 (continued)

• MFRS 17 “Insurance Contracts” (continued)

MFRS 17 requires a current measurement model where estimates are remeasured at each reporting period. The measurement is based on the building blocks of discounted, probability-weighted cash flows, a risk adjustment and a contractual service margin (“CSM”) representing the unearned profit of the contract. An entity has a policy choice to recognise the impact of changes in discount rates and other assumptions that related to financial risks either in profit or loss or in other comprehensive income.

Alternative measurement models are provided for the different insurance coverages:

(a) Simplified Premium Allocation Approach if the insurance coverage period is a year or less.

(b) Variable Fee Approach should be applied for insurance contracts that specify a link between payments to the policyholder and the returns on the underlying items.

The requirements of MFRS 17 align the presentation of revenue with other industries. Revenue is allocated to the periods in proportion to the value of the expected coverage and other services that the insurer provides in the period, and claims are presented when incurred. Investment components are excluded from revenue and claims.

Insurers are required to disclose information about amounts, judgements and risks arising from insurance contracts.

The Company has not fully assessed the impact of MFRS 17 on its financial statements, and will complete this process prior to the effective date of 1 January 2021.

2.2 Summary of significant accounting policies

(a) Property, plant and equipment and depreciation

Property, plant and equipment are initially stated at cost and subsequently stated at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the items.

Subsequent expenditure is included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.

Repairs and maintenance are charged to the profit or loss during the financial year in which they are incurred.

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2.2 Summary of significant accounting policies (continued)

(a) Property, plant and equipment and depreciation (continued)

Depreciation of property, plant and equipment is computed on a straight-line basis over the following estimated useful life:

Motor vehicles 60 monthsRenovation 60 monthsComputer hardware 30 monthsFurniture and fittings 60 monthsOffice equipment 60 months

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

At the end of the reporting period, the Company assesses whether there is any indication of impairment. If such indications exist, the carrying amount is written down to its recoverable amount. Refer to accounting policy Note 2.2(d)(iv) on impairment of non-financial assets.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any, and the net carrying amount is recognised in profit or loss.

(b) Intangible assets and amortisation

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised, and expenditure is reflected in profit or loss in the financial year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised on a straight line basis over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at each financial year-end.

Computer software are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Computer software are amortised on a straight line basis over their estimated useful lives of thirty (30) months.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

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(c) Investments and financial assets

(i) Available-for-sale (“AFS”)

AFS securities are investments that are not classified as held-for-trading or held-to-maturity or loan and receivables. They are initially recognised at fair value and subsequently measured at fair value. Interest from the AFS securities, calculated using the effective yield method, is recognised in profit or loss, while dividends on AFS instruments are recognised in profit or loss when the Company’s right to receive payment is established.

Except for impairment losses, any gains or losses arising from changes in the fair value adjustments are recognised directly in other comprehensive income (i.e. AFS fair value reserve).

When the AFS security is derecognised, the cumulative fair value gains or losses previously recognised in other comprehensive income are transferred to profit or loss as net realised gains or losses on AFS security.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Company’s loans and receivables comprise deposits and placements with licensed banks, other assets and cash and cash equivalents in the statement of financial position.

These financial assets are initially recognised at fair value. After initial measurement, loans and receivables are measured at amortised cost, using the effective yield method, less allowance for impairment. Gains and losses are recognised in profit or loss when the financial assets are derecognised or impaired, as well as through the amortisation process.

(d) Impairment of assets

(i) Impairment of financial assets carried at amortised cost

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

Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in profit or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

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

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(d) Impairment of assets (continued)

(i) Impairment of financial assets carried at amortised cost (continued)

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

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

(ii) Impairment of financial assets carried at cost

If there is objective evidence that an impairment loss on securities carried at cost (e.g. equity instruments or which there is no active market or whose fair value cannot be reliably measured) has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for similar securities. Such impairment losses shall not be reversed.

(iii) Impairment of financial assets carried at fair value

In the case of AFS securities, a significant or prolonged decline in the fair value of the financial asset below its cost is considered in determining whether the assets are impaired. If any such evidence exists for AFS securities, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the financial asset previously recognised in profit or loss, is removed from other comprehensive income and recognised in profit or loss.

If, in subsequent periods, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment was recognised in profit or loss, that portion of impairment loss will be reversed in profit or loss. Impairment losses previously recognised in profit or loss for an investment in an equity instrument classified as AFS will not be reversed through profit or loss.

(iv) Impairment of non-financial assets

The Company assesses at each reporting date or more frequently if events or changes in circumstances indicate that the carrying value may be impaired, whether there is an indication that a non-financial asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and the value in use. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired and is written down to its recoverable amount. Impairment losses are charged to profit or loss immediately.

A subsequent increase in the recoverable amount of an asset is treated as reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in profit or loss immediately.

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(e) Fair value of financial instruments

Fair value is defined as the price that would be received to sell as asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value for investments traded in an active market is based on quoted market price at the end of the reporting date. Where current market prices are not available, the price of the most recent transaction may be used provided that there has not been significant change in economic circumstances since the time of the transaction. If conditions have changed, the price will be adjusted to reflect the change in conditions by reference to current prices for similar financial instruments.

If the market for the investments is not active, fair value may be established by using a valuation technique, which includes but is not limited to using recent arm’s length market transactions between knowledgeable, willing parties, if available, references to the current fair value for of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. A valuation technique should, where possible, incorporate observable market data about market conditions and other factors that are likely to affect the investments’ fair value.

(f) Guarantee fee and security

The Company provides financial guarantee insurance over bond and sukuk issuances by companies incorporated in Malaysia.

Bond issuers will pay a guarantee fee to Danajamin in return for the Company’s guarantee to cover the outstanding principal and one coupon payment due to bondholders upon a default. The guarantee fee is calculated based on a percentage of the nominal value of the outstanding guaranteed bonds in issue and is paid annually in advance.

The Company mitigates the risks associated with its provision of financial guarantee insurance by:

• Securing its exposures against tangible security to be provided by the obligor;

• Establishing designated accounts with specific disbursement conditions which are controlled by Facility/Security Agents; and

• Imposing various financial and non-financial covenants on the obligor in ensuring financial discipline.

The Company is also able to impose additional conditions as it deems fit upon the occurrence of a breach in covenant or a material adverse event.

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(g) Financial guarantee insurance results

The financial guarantee insurance results are determined after taking into account commissions, unearned premiums and claims incurred.

Gross premiums

Gross premiums are recognised in a financial year in respect of risks assumed during the financial year. No insurers licensed under the FSA effective since 30 June 2013 (previously under the Insurance Act, 1996) are allowed to accept reinsurance of the Company’s FGI risks.

Unearned premium reserve

Unearned premium reserve (“UPR”) in respect of FGI policy is determined as an amount calculated on the basis that the premiums written are earned in proportion with the expiration of the exposure. This method is applied consistently to premiums, reduced by the percentage of accounted gross direct commission expenses to corresponding premiums.

Claim liabilities

Claims liabilities relate to the FGI’s obligation, whether contractual or otherwise, to make future payments in relation to all claims that have been incurred as at the valuation date, with appropriate allowance for direct and indirect claims-related expenses that the FGI expects to incur when settling these claims. Upon receipt of a notice of claim, the FGI is obligated to make relevant payments of interest and principal, to investors, in respect of a guaranteed debt obligation. The amount of this obligation, including allowance for appropriate related expenses the FGI expects to incur when paying the interest and principal, determines the claim liabilities.

(h) Reinsurance

The Company cedes insurance risk in the normal course of business for some of its financial guarantees. Reinsurance assets represent balances due from companies where the insurance risks are ceded. Amounts recoverable from reinsurers are in accordance with the related reinsurance contracts.

Ceded reinsurance arrangement does not relieve the Company from its obligation to bondholders. Premiums are presented on a gross basis for ceded reinsurance.

Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting financial year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Company may not receive all outstanding amounts due to the terms of the contract and the event has a reliably measurable impact on the amounts that the Company will receive from the reinsurer. The impairment loss is recorded in profit or loss.

(i) Premium receivables

Premium receivables are recognised when risks are assumed (including instalment premiums) and measured on initial recognition at the fair value of the consideration received or receivable.

If there is objective evidence that the premium receivable is impaired, the Company reduces the carrying amount of the premium receivable accordingly and recognises that impairment loss in profit or loss. The Company gathers the objective evidence that a premium receivable is impaired using the process as described in Note 2.2(d).

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(j) Fee receivables

Fee receivables are amounts due from obligors for services rendered in the ordinary course of business. Fee receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment.

(k) Financial guarantee insurance liabilities

FGI liabilities are recognised when contracts are entered into and premiums are charged. The FGI liabilities refer to the claims and premium liabilities of the Company’s business, associated with the uncertainty of claims and unexpired risks (with respect to unexpired FGI policies), resulting from the risks of increased claims losses and under-estimation of premiums.

The value of the FGI liabilities is the aggregate of the values of the premium liabilities and the claim liabilities.

Premium liabilities

Premium liabilities refer to the greater of:

• The aggregate of the unearned premium reserve (“UPR”); and

• The best estimate value of the unexpired risk reserve (“URR”) at the valuation date and a provision of risk margin for adverse deviation (“PRAD”). The URR is the reserve required to cover for future claims and associated expenses that are expected to emerge during the unexpired period of the FGI guarantee. It is an estimate of the future obligations of the FGI taking into account the likelihood and amount of the interest and principal that the FGI expects to pay in the event of a default of an obligation with allowance for expenses, including overheads and any cost of reinsurance expected to be incurred during the unexpired period in administering these policies and settling the relevant claims, and the timing of the payments.

Valuation of financial guarantee insurance liabilities shall provide for reserves at a specified level of adequacy with explicit prudential margins. In particular, the liability valuation should aim to secure an overall level of sufficiency of reserves at the 75% confidence level. To secure this level of adequacy, the Company calculates the best estimate value of its FGI liabilities and apply a PRAD.

Claims liabilities

Claims liabilities relate to expired periods of exposure and earned premiums. Claim liabilities are obligations, whether contractual or otherwise, to make future payments in relation to all claims that have been incurred as at the valuation date, with appropriate allowance for expected claims-related expenses.

The claims liability consists of two reserves. These being:

• A reported but not admitted (“RBNA”) claims reserve, which is the reserve held in respect of claims notified to the Company which the Company has not accepted; and

• An incurred but not reported (“IBNR”) claims reserve, which is the reserve held in respect of defaults that have occurred, but where the Company has not been notified of the default.

The financial positions of the companies insured are monitored on an ongoing basis and any default would be highlighted immediately.

Details on the methodologies and assumptions in the valuation of FGI liabilities are outlined in Note 3.

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(k) Financial guarantee insurance liabilities (continued)

Contingency reserve

As a FGI, the Company is required to establish and maintain a contingency reserve as a buffer against the risk of excessive losses occurring during adverse economic cycles, in the manner prescribed in paragraph 44(6) of Insurance (FGI) Regulations 2001 issued by BNM. The provision of this contingency reserve is shown via a movement/transfer within the Statement of Changes in Equity.

(l) Other revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.

Guarantee related fees are recognised upon performance of services in accordance with the terms and conditions in the Letter of offer or agreement.

Interest income is recognised using the effective interest method. The effective interest rate is the rate that discounts estimated future cash receipts through the expected life of the financial instrument. The calculation includes significant fees and transaction costs that are integral to the effective interest rate, as well as premiums or discounts.

Dividend income is recognised when the shareholders’ right to receive payment is established.

Gains or losses arising on disposal of financial assets are credited or charged to profit or loss.

(m) Operating leases

Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on the straight line basis over the lease period.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the financial year in which termination takes place.

(n) Income taxes

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

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

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(n) Income taxes (continued)

Deferred tax is provided on a temporary difference at the date of statement of financial position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except:

(i) Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit not taxable profit or loss; and

(ii) In respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

(i) Where the deferred tax assets relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

(ii) In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each date of statement of financial position and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liabilities is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax is recognised as income or an expense and included in profit or loss for the financial year, except when it arises from a transaction which is recognised directly in equity, the deferred tax is also recognised in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

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(o) Employee benefits

(i) Short term benefits

Wages, salaries, paid annual leave and sick leave, bonuses, social security contributions and non-monetary benefits are recognised as expense in the financial year in which the associated services are rendered by employees of the Company.

(ii) Defined contribution plan

As required by law, the Company makes contribution to the Employees’ Provident Fund (“EPF”), a defined contribution plan. The Company’s contributions to the EPF are charged to profit or loss in the financial year to which they relate. Once contributions have been made, the Company has no further payment obligations.

(p) Cash and cash equivalents

For the purposes of statement of cash flow, cash and cash equivalents consist of cash and bank balances, excluding deposits and placements with licensed banks which are held for investment purpose.

(q) Deferred income

Interest/profit received upfront from the deposits and placements with licensed banks are presented as deferred income and recognised in profit or loss on straight line basis over the useful lives of the deposits and placements made.

(r) Insurance payables and other liabilities

Insurance payables and other liabilities are recognised when due and measured on initial recognition at fair value less directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective yield method.

(s) Provisions for liabilities

Provisions for liabilities are recognised when the Company have a present legal or constructive obligation, as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of obligation can be made.

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

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

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Where the effect of the time value is material, the amount of the provision is the present value of the expenditure expected to settle the obligation.

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(t) Share capital

(i) Classification

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

(ii) Share issue cost

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(iii) Dividend distribution

Distributions to holders of an equity instrument is debited directly to equity, net of any related income tax benefit. The corresponding liability is recognised in the period in which the shareholders’ right to receive the dividends are established or the dividends are declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the reporting period but not distributed at the end of the reporting period.

(u) Contingent liabilities and contingent assets

The Company does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be estimated reliably.

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

(v) Foreign currency transactions and balances

Items included in the financial statements are measured using the currency of the primary economic environment in which the Company operates (the “functional currency”). The financial statements are presented in Ringgit Malaysia, which is the Company’s functional and presentation currency.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

(w) Subordinated Sukuk and finance cost

Subordinated Sukuk is recognised initially at fair value, net of transaction costs incurred. Subordinated Sukuk is subsequently carried at amortised cost; any difference between initial recognised amount and the nominal value is recognised in profit or loss over the period of the Sukuk using the effective profit method.

Finance cost on the Subordinated Sukuk (i.e. Sukuk profit) is recognised in profit or loss in the period in which it is incurred. 20

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3 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

In the application of the Company’s accounting policies, which are described in Note 2, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.

The key assumptions concerning the future and other key sources if estimation uncertainty at the reporting date, that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year as discussed below.

Valuation of financial guarantee insurance liabilities

The Company is subject to BNM’s Guidelines in valuing its FGI liabilities that is further described in Note 2.2(k).

The FGI liabilities comprise:

• The best estimate value of the claim liabilities;

• The best estimate value of the premium liabilities; and

• The PRAD for each of the above best estimate values.

The best estimate value should reflect the statistical central estimate of the underlying distribution of the FGI liabilities. The statistical central estimate is equal to the mean of reasonable expected outcomes.

The calculation of the best estimate claims liabilities and premium liabilities are subject to considerations of materiality.

(i) Best estimates of claim liabilities

The claims liability consists of two reserves; reported but not admitted (“RBNA”) claims reserve and an incurred but not reported (“IBNR”) claims reserve as described in Note 2.2(k).

The RBNA reserve is calculated by determining the reserve for each reported claim and then aggregating the individual reserves. The reserve in respect of each reported claim is determined by calculating the best estimate of future payments net of expected future recoveries, allowing for claims related expenses.

(ii) Best estimates of premium liabilities

Premium liabilities relate to unexpired periods of exposure and unearned premiums. The best estimate premium liabilities amount is the higher of:

• the unearned premium reserve (“UPR”); and

• the best estimate value of the unexpired risk reserve (“URR”) at the valuation date plus the PRAD for unexpired risks.

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3 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (CONTINUED)

(ii) Best estimates of premium liabilities (continued)


(i) Methodology

• The UPR established reflect premiums received to date, plus future premiums receivable under the FGI policies issued at the valuation date.

• The UPR reserve is amortised over the term of the FGI policies.

• A premium receivable is established in respect of future premiums receivable under the FGI policies issued at the valuation date.

(ii) Assumptions

• The claims profile of the portfolio is approximately uniform over the contract term.

Unexpired risk reserve

(i) Methodology

• The URR is calculated using a stochastic credit reserving model.

• For each FGI policy, a transition matrix is used to randomly simulate changes in the credit ratings of the issuer on a yearly basis.

• The probability of the issuer defaulting over a one year period is assigned based on the risk rating of the issuer.

• The model then randomly simulates on the issuer defaulting in the remaining term of the issuance using the risk ratings and the corresponding probabilities of default.

• The loss incurred is randomly simulated should the issuer default and the present value is determined.

• The steps are repeated for each FGI policy and the present value of future defaults for each FGI policy is accumulated to determine the portfolio losses.

• The simulation is repeated 10,000 times to construct a distribution of portfolio losses and the average outcome is calculated to determine the URR.

The best estimate URR reflects the aggregate value of expected claim on each FGI policy over the period from the valuation date until the expiry of that policy.

(ii) Assumptions

The following assumptions have been adopted:

• Multiple FGI policies can be issued under the one FGI facility agreement.

• The calculation of URR does not allow for FGI policies that are expected to be issued in the future.

• Correlation between the bond issuer ratings is allowed for using an Asset Value Model approach.

• The recovery rate is assumed to be described by the Beta distribution.

• Correlation between the recovery rates on the different FGI facilities is not allowed.

• The model assumes the average recovery rate is partially sensitive to the level of security provided.

• The allowance for policy administration expenses is made outside the model. The policy administration allowance is determined by multiplying the policy administration expense assumption by the UPR.

• Claim handling expenses are implicitly allowed via the recovery rate assumption adopted.

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3 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (CONTINUED)

(iii) Best estimate of the provision of risk margin for adverse deviation (“PRAD”)

(i) Methodology

• PRAD is determined for claims liability and the URR separately and added together to form the total PRAD.

• The claims liability PRAD depends on nature of claims notified. There has not been any claims to date.

• The URR PRAD is determined using the distribution of portfolio losses calculated by the credit risk reserving model and has been set at the 75% confidence level.

• The approach for determining the URR PRAD will be reviewed as the size of the FGI portfolio grows. Volatility in the PRAD as a percentage of the best estimate is expected at this stage in operations.

(ii) Assumptions

• The PRAD calculation does not allow for future FGI policies signed at the valuation date.

(iv) Reinsurance

The FGI liabilities is determined gross of reinsurance, with a reinsurance asset held on the statement of financial position of the Company.

(i) Methodology

• The methodology for determining is consistent with that adopted for the FGI liabilities.

(ii) Assumptions

• No adjustment is made to the reinsurance asset to reflect the risk of the reinsurer defaulting as it is not considered material to the Company’s operations.

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4 PROPERTY, PLANT AND EQUIPMENT

MotorvehiclesRM’000

RenovationRM’000

Computer hardware

RM’000

Furnitureand

fittingsRM’000

Officeequipment

RM’000Total

RM’000

CostAt 1 January 2017 5 2,435 2,436 1,344 609 6,829Additions – – 722 51 25 798Disposals/write-offs – – (192) – – (192)

At 31 December 2017 5 2,435 2,966 1,395 634 7,435

Accumulated depreciationAt 1 January 2017 5 649 1,548 609 231 3,042Charge for the financial year – 477 737 207 106 1,527Charge borne by a related party – 10 15 4 2 31Disposals/write-offs – – (192) – – (192)

At 31 December 2017 5 1,136 2,108 820 339 4,408

Net book value at 31 December 2017 – 1,299 858 575 295 3,027

CostAt 1 January 2016 5 2,435 2,164 1,444 600 6,648Additions – – 503 15 25 543Disposals/write-offs – – (231) (115) (16) (362)

At 31 December 2016 5 2,435 2,436 1,344 609 6,829

Accumulated depreciationAt 1 January 2016 5 162 1,140 522 144 1,973Charge for the financial year – 477 626 198 101 1,402Charge borne by a related party – 10 13 4 2 29Disposals/write-offs – – (231) (115) (16) (362)

At 31 December 2016 5 649 1,548 609 231 3,042

Net book value at 31 December 2016 – 1,786 888 735 378 3,787

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5 INTANGIBLE ASSETS

2017RM’000

2016RM’000

Computer software

CostAt 1 January 4,454 4,163Additions 1,486 297Write-offs (158) (6)

At 31 December 5,782 4,454

Accumulated amortisationAt 1 January 4,072 3,790Amortisation for the financial year 322 282Amortisation borne by a related party 6 6Write-offs (158) (6)

At 31 December 4,242 4,072

Net book value at 31 December 1,540 382

6 AVAILABLE-FOR-SALE SECURITIES

2017RM’000

2016RM’000

At fair value

Unquoted in Malaysia:Malaysian Government Securities (“MGS”) 30,470 50,015Government Investment Issues (“GII”) 214,582 243,630Corporate debt securities 470,324 333,045

715,376 626,690

Mature within 12 months 92,226 31,783Mature after 12 months 623,150 594,907

715,376 626,690

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6 AVAILABLE-FOR-SALE SECURITIES (CONTINUED)

Fair value hierarchy

The fair value analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

• Level 1 : Quoted prices (unadjusted) in active markets for identical assets or liabilities.

• 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).

• Level 3 : Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Recurring fair value measurements

The available-for-sale securities, which are under Level 2 of the fair value hierarchy, are measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions and for which pricing is obtained via pricing agencies and other service provider. Where prices have not been determined in an active market, instruments with fair values are based on broker quotes.

7 DEPOSITS AND PLACEMENTS WITH LICENSED BANKS

The deposits and placements are maturing within 12 months, and the carrying amounts approximate the fair values due to the relatively short-term maturity of these balances.

8 INSURANCE RECEIVABLES

2017RM’000

2016RM’000

Premium receivables 456,134 421,410Fee receivables 500 1,500

456,634 422,910

Receivable within 12 months 87,256 81,154Receivable after 12 months 369,378 341,756

456,634 422,910

Gross/net amount of recognised financial assets presented in the statement of financial position 456,634 422,910

There are no financial liabilities subject to an enforceable master netting arrangement or similar agreement and financial instruments received as collateral as at 31 December 2017 (2016: Nil).

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9 REINSURANCE ASSETS

2017RM’000

2016RM’000

Reinsurance assets 21,230 31,121

Receivable within 12 months 9,017 11,178Receivable after 12 months 12,213 19,943

21,230 31,121

10 OTHER ASSETS

2017RM’000

2016RM’000

Deposits 573 570Prepayments 599 570Other receivables 40 213

1,212 1,353

The balances are receivable within 12 months, and the carrying amounts approximate the fair values due to the relatively short-term maturity of these balances.

11 PREMIUM LIABILITIES

NoteGross

RM’000Reinsurance

RM’000Net

RM’000


At 1 January 2017 482,499 (31,121) 451,378Premiums written during the financial year 18 136,441 (1,401) 135,040Premiums earned during the financial year 18 (93,110) 11,292 (81,818)

At 31 December 2017 525,830 (21,230) 504,600

Payable within 12 months 9,528 (9,017) 511Payable after 12 months 516,302 (12,213) 504,089

525,830 (21,230) 504,600

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11 PREMIUM LIABILITIES (CONTINUED)

NoteGross

RM’000Reinsurance

RM’000Net

RM’000


At 1 January 2016 523,314 (12,684) 510,630Premiums written during the financial year 18 57,399 (26,773) 30,626Premiums earned during the financial year 18 (98,214) 8,336 (89,878)

At 31 December 2016 482,499 (31,121) 451,378

Payable within 12 months 9,430 (11,178) (1,748)Payable after 12 months 473,069 (19,943) 453,126

482,499 (31,121) 451,378

12 INSURANCE PAYABLES

2017RM’000

2016RM’000

Reinsurance premiums payable 15,891 23,439

Payable within 12 months 8,355 9,022Payable after 12 months 7,536 14,417

15,891 23,439

Gross/net amount of recognised financial liabilities presented in the statement of financial position 15,891 23,439

There are no financial assets subject to an enforceable master netting arrangement or similar agreement and financial instruments received as collateral as at 31 December 2017 (2016: Nil).

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13 OTHER LIABILITIES

2017RM’000

2016RM’000

Provision for unutilised leave 161 140Provision for loan interest subsidy 126 116Provision for audit fees 194 189Provision for bonus and related EPF 5,154 7,618Amount due to a related party 69 21Accrued expenses 1,744 1,488Deferred income 1,455 2,199Other payables 987 1,044

9,890 12,815

The amount due to a related party is unsecured, interest-free and has no fixed terms of repayment. The balances are payable within 12 months, and the carrying amounts approximate the fair values due to the relatively short-term maturity of these balances.

14 SUBORDINATED SUKUK

On 6 October 2017, the Company issued Subordinated Sukuk Murabahah of RM500 million which is a part of a Sukuk Programme of up to RM2.0 billion for the issuance of Senior and Subordinated Sukuk Murabahah.

The Subordinated Sukuk has a tenure of 10 years, with a callable option made available from year 5 onwards. The Subordinated Sukuk, which will be redeemed at its nominal value upon maturity, is subordinated unsecured obligations of the Company.

Principal Maturity date Profit rate Profit payment

RM500 million 6 October 2027 4.80% per annum Accrued and payable semi-annually in arrears

2017RM’000

2016RM’000

Due within 12 months 5,721 –Due after 12 months 500,000 –

505,721 –

Fair value 500,975 –

The estimated fair value is generally based on quoted and observable market prices at the date of the statement of financial position and is within Level 2 of the fair value hierarchy.

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14 SUBORDINATED SUKUK (CONTINUED)

At1 January

2017RM’000

CashflowsRM’000

Non-cashcharges/

Profit expenseRM’000

At31 December

2017RM’000

Subordinated Sukuk – 500,000 – 500,000Profit expense payable – – 5,721 5,721

– 500,000 5,721 505,721

15 SHARE CAPITAL

2017RM’000

2016RM’000

Authorised:

Ordinary shares of RM1 each:At the beginning and end of financial year – 1,000,000

Issued and fully paid up:

At 1 January – ordinary shares of RM1 each/At 31 December – ordinary shares with no par value (2016: par value of RM1 each) 1,000,000 1,000,000

The new Companies Act 2016 which came into operation on 31 January 2017, abolished the concept of authorised share capital and par value of share capital.

In addition to the above issued and fully paid up share capital, there is an additional RM1,000,000,000 capital on call from the Government of Malaysia.

16 RETAINED EARNINGS

Under the single-tier tax system which came into effect from the year of assessment 2008 onwards, companies are not required to have tax credits under Section 108 of the Income Tax Act, 1967 for dividend payment purposes. Dividends paid under this system are tax exempt in the hands of shareholders.

The Company may distribute single-tier dividends to its shareholders out of its retained earnings. Pursuant to Section 51(1) of the Financial Services Act 2013, the Company is required to obtain BNM’s written approval prior to declaring or paying any dividends, Pursuant to the RBC Framework, the Company shall not pay dividends if its Capital Adequacy Ratio position is less than its internal capital level of if the payment of dividend would impair its Capital Adequacy Ratio position to below its internal target.

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17 CONTINGENCY RESERVE

2017RM’000

2016RM’000

Contingency reserve 29,432 26,518

Pursuant to paragraph 44(6) of Insurance (Financial Guarantee Insurance) Regulatory 2001, the Company is required to maintain contingency reserves in respect of every policy which is in force at the end of the financial year, computed based on a prescribed formula.

18 NET EARNED PREMIUMS

Note2017

RM’0002016

RM’000

(a) Gross earned premiums

Gross written premium (i) 136,441 57,399Change in gross unearned premium reserve (43,331) 40,815

93,110 98,214

(b) Premiums ceded to reinsurance

Gross written premium ceded (1,401) (26,773)Change in ceded unearned premium reserve (9,891) 18,437

(11,292) (8,336)

Net earned premiums 81,818 89,878

(i) Gross written premium

Gross written premium during the financial year 142,480 68,552Reversal of premium due to early redemption (6,039) (11,153)

136,441 57,399

19 INVESTMENT INCOME

2017RM’000

2016RM’000

Interest income from AFS securities 28,387 19,578Interest income from deposits and placements with licensed banks 43,643 44,634Amortisation of premiums (286) (190)

71,744 64,022

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20 OTHER OPERATING INCOME

2017RM’000

2016RM’000

Net gain from disposal of AFS securities 454 1,257Guarantee related fees 4,649 7,409Other income 187 23

5,290 8,689

21 MANAGEMENT EXPENSES

Note2017

RM’0002016

RM’000

Staff costs 21(a) 23,973 26,843Directors’ remuneration 21(b) 2,234 2,109Auditors’ remuneration 21(c) 209 244Depreciation of property, plant and equipment 4 1,527 1,402Amortisation of intangible assets 5 322 282Rental of office 1,742 1,745Repairs and maintenance 716 620Postage, telephone and telefax 179 169Printing and stationery 255 119Professional fees 4,067 1,162Other expenses 3,719 2,380

38,943 37,075

(a) Staff costs

Salaries and bonus 15,409 18,514SOCSO contributions 76 70EPF contributions 2,750 3,272Training expenses 1,291 1,122Other benefits (inclusive of interest subsidy and unutilised leave) 4,447 3,865

23,973 26,843

Included in staff costs are the remuneration, including benefits-in-kind, attributable to the CEO of the Company during the financial year which amounted to RM1,325,000 (2016: RM1,198,000).

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21 MANAGEMENT EXPENSES (CONTINUED)

(b) Directors’ remuneration

The details of remuneration of the Managing Director/Chief Executive Officer and Directors during the financial year are as follows:

Salary andother

remunerationRM’000

Benefits-in-kindRM’000

BonusRM’000

TotalRM’000

2017

Managing Director/Chief Executive OfficerMohamed Nazri Omar 1,043 7 275 1,325

2016

Managing Director/Chief Executive OfficerMohamed Nazri Omar 918 7 273 1,198

FeesRM’000


Otherremuneration

RM’000Total

RM’000

2017

Non-Executive DirectorsDato’ Mohammed Haji Che Hussein 679 7 – 686Abdul Kadir Md Kassim 246 – – 246Dato’ Albert Yeoh Beow Tit 254 – – 254Philip Tan Puay Koon 201 – – 201Datuk Ahmad Badri Mohd Zahir 204 – – 204Dato’ Azian Mohd Noh 199 – – 199Mohamed Rashdi Mohamed Ghazalli 222 – – 222Ariffin Hew 222 – – 222

2,227 7 – 2,234

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21 MANAGEMENT EXPENSES (CONTINUED)

(b) Directors’ remuneration (continued)

FeesRM’000


Otherremuneration

RM’000Total

RM’000

2016

Non-Executive DirectorsDato’ Mohammed Haji Che Hussein 681 7 – 688Abdul Kadir Md Kassim 238 – – 238Dato’ Albert Yeoh Beow Tit 258 – – 258Philip Tan Puay Koon 187 – – 187Datuk Ahmad Badri Mohd Zahir 195 – – 195Dato’ Azian Mohd Noh 193 – – 193Mohamed Rashdi Mohamed Ghazalli 212 – – 212Ariffin Hew (appointed w.e.f. 25 October 2016) 35 – – 35Cheah Tek Kuang (resigned w.e.f. 19 May 2016) 103 – – 103

2,102 7 – 2,109

(c) Auditors’ remuneration

The details of the auditors’ remuneration during the financial year are as follows:

2017RM’000

2016RM’000

Statutory audit 194 189Non-audit services 15 55

209 244

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22 TAXATION

The Company is exempted from income tax at the statutory level, except for dividend income pursuant to Section 127(3A) of the Income Tax Act, 1967. The exemption is granted for extended for another five years effective from years of assessment 2014 to 2018.

A reconciliation of income tax expenses applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate is as follows:

2017RM’000

2016RM’000

Profit before tax 114,188 125,514

Taxation at Malaysian statutory tax rate of 24% 27,405 30,123Tax effects of:

Statutory income exempted from tax (27,946) (31,227)Expenses not deductible 541 1,104

Tax expense for the financial year – –

23 EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net profit for the financial year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the financial year:

2017RM’000

2016RM’000

Net profit for the financial year 114,188 125,514Weighted average number of shares in issue 1,000,000 1,000,000

Basic earnings per share (sen) 11.42 12.55

There has been no other transactions involving ordinary shares between the reporting date and the date of completion of these financial statements.

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24 OPERATING LEASE COMMITMENTS

The Company (as lessee) has entered into non-cancellable operating lease commitments. These leases have remaining non-cancellable lease terms of between less than 1 year and 3 years.

The future minimum lease payments under non-cancellable operating leases contracted for as at the reporting date but not recognised as payables, are as follows:

2017RM’000

2016RM’000

Not later than 1 year 938 1,910Later than 1 year and not later than 3 years – 938

938 2,848

25 CAPITAL COMMITMENTS

2017RM’000

2016RM’000

Capital expenditureApproved and contracted for:

Property, plant and equipment 34 –Intangible assets – computer software 511 201

545 201

Approved but not contracted for:Property, plant and equipment 200 200Intangible assets – computer software 200 200

400 400

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26 FINANCIAL GUARANTEE PORTFOLIO

The financial guarantee contracts outstanding and approved underwriting limit based on sector is tabulated as follows:

2017 2016Guaranteed

amountRM’000

FacilityamountRM’000

GuaranteedamountRM’000

FacilityamountRM’000

SectorAgriculture 200,000 200,000 50,000 200,000Airports and ports 400,000 400,000 440,000 440,000Power 735,000 735,000 735,000 735,000Education 200,000 200,000 220,000 220,000Consumer products 865,000 865,000 865,000 940,000Water 430,000 430,000 430,000 430,000Oil and gas 890,000 930,000 1,000,000 1,045,000Real estate 905,000 971,000 1,004,000 984,000Industrial products 60,000 60,000 120,000 120,000Property development 300,000 300,000 450,000 530,000Toll and highways 480,000 850,000 350,000 350,000Construction & building materials 659,500 659,500 – –

6,124,500 6,600,500 5,664,000 5,994,000

27 SIGNIFICANT RELATED PARTY DISCLOSURES

The related parties of, and their relationship with the Company, are as follows:

Related parties Relationship

Credit Guarantee Corporation Malaysia Berhad ShareholderMinister of Finance (Incorporated) ShareholderBank Negara Malaysia Related party of shareholderKey management personnel The key management personnel of the Company consists of

the CEO and senior management

Key management personnel are those people defined as having authority and responsibility for planning, directing and controlling the activities of the Company, either directly or indirectly.

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27 SIGNIFICANT RELATED PARTY DISCLOSURES (CONTINUED)

In addition to the transactions detailed elsewhere in the financial statements, the Company had the following transactions and balances with related parties during the financial year:

(a) Significant related party balances

Note2017

RM’0002016

RM’000

Other liabilities Amount due to a related party 13 69 21

(b) Key management personnel’s remuneration

2017RM’000

2016RM’000

Salaries and benefits 5,762 5,506Employer’s EPF contributions 947 902

6,709 6,408

28 REGULATORY CAPITAL REQUIREMENT

The Risk-Based Capital (“RBC”) Framework as prescribed by Bank Negara Malaysia (“BNM”) came into effect on 1 January 2015. Under the prescribed RBC Framework, the Company needs to maintain a capital adequacy level that commensurate with the risk profiles. The Company is required to maintain a minimum Capital Adequacy Ratio (“CAR”) of 130%. The Company has been in compliance with the said requirement.

The capital structure of the Company as at 31 December 2017, as prescribed under the RBC Framework is shown below:

2017RM’000

2016RM’000

Tier 1 CapitalPaid-up share capital 1,000,000 1,000,000Retained earnings 647,728 549,054

1,647,728 1,549,054

Tier 2 CapitalContingency reserve 29,432 26,518Available-for-sale fair value reserve 3,009 (140)Subordinated Sukuk 500,000 –Other Tier 2 capital instruments 30,650 –

563,091 26,378

Total capital available 2,210,819 1,575,432

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29 ENTERPRISE RISK MANAGEMENT (“ERM”) FRAMEWORK

The Risk Management framework is to ensure that the Company operates within the risk appetite set by the Board, and to ensure that managing risk becomes an integral part of the Company’s risk culture. The Risk Management Division spearheads the development and implementation of the Risk Management framework for the Company with input from the respective divisions.

(a) Capital Management Framework

The Company is governed under the Risk-Based Capital Framework as prescribed by BNM effective 1 January 2015. The Company’s capital management policy is to maintain a strong capital position with sufficient buffer to meet its guaranteed obligations and regulatory requirements through the Internal Capital Adequacy Assessment Process developed according to industry practices. The Company is also governed by the capital requirements as measured by the local rating agencies to maintain its “AAA(fg)” rating, and works closely with the local rating agencies on the capital requirements to ensure that the rating is maintained.

(b) Governance Framework

The Board Risk Committee provides the oversight on the risk management initiatives. In managing the Company’s risk management framework, the following Management Committees comprising the CEO and key members of the senior management team are being instituted:

• Management Committee (“MC”)

• Management Investment Committee (“MIC”)

• Information Technology Steering Committee (“ITSC”)

• Management Underwriting Committee (“MUC”)

• Management Risk Committee (“MRC”)

The MC is responsible for providing leadership, direction and strategic oversight with regard to all matters of the Company. The MIC is responsible for the Company’s investment decisions and managing the Company’s balance sheet position through reviewing and formulating investment framework, liquidity management and to ensure compliance against the Company’s Investment Policy. The ITSC is responsible for matters relating information technology covering all areas ranging from system requirements, resources and security. The MRC is responsible to oversee all risk management functions and practices of the Company. The MC, MIC and ITSC report to the Board of Directors while MUC and MRC reports directly to the Board Underwriting Committee and Board Risk Committee respectively. The MUC oversees the credit risk aspects by evaluating the risk profile of all underwriting proposals and ensuring rewards commensurate with any risk taken.

(c) Regulatory Framework

The Company is governed by the FSA as well as guidelines from BNM. All the Company’s policies are approved by the BRC and other Board Committees and endorsed by the Board.

(d) Credit Risk

Credit risk is the potential loss arising from claims on the financial guarantee insurance covers provided by the Company resulting from the defaults by obligors or counterparties in meeting their contractual obligations on a timely basis. Credit risk arises not only from obligors but also from investments in corporate bond undertaken by the Company. In mitigating this credit risk, the Company has instituted a set of credit and investment policies governing the underwriting and investment criteria and a robust credit evaluation and approval process.

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29 ENTERPRISE RISK MANAGEMENT (“ERM”) FRAMEWORK (CONTINUED)

(d) Credit Risk (continued)

The credit risk objectives of the Company are set by the Board, and are implemented and monitored within a structured approval process, including adherence to credit policies, maximum group exposure limits, maximum industry limits and portfolio monitoring.

The credit risk management framework exists to provide a structured and disciplined process to support these objectives. The integrity of the credit risk function is maintained by the independence of the credit chain and is supported by comprehensive risk analysis and monitoring process.

(e) Operational risk

The Company manages operational risk via the establishment and implementation of procedures for each respective divisions approved by the CEO. These respective divisions’ procedures are subjected to Internal Audit, who will evaluate and improve the effectiveness of risk management, control and governance process. On a continuous basis, ERM & Compliance Division monitors operational risks via risk and controls self-assessment reviews and other ad-hoc reviews.

30 INSURANCE RISK

Sensitivity analysis

Sensitivity analysis to the best estimate URR by the parameters as at 31 December 2017 are computed based on the following key assumptions:

Change in assumptions

Impact ongross URR

RM’000

Impact ongross/netpremiumliabilities*

RM’000

Impacton profit

before taxand equity*

RM’000

31 December 2017

Improve in credit rating by 1 grade (68,900) – –Worsen in credit rating by 1 grade 85,100 – –Increase in recovery rate by 5% (28,300) – –Decrease in recovery rate by 5% 31,300 – –

31 December 2016

Improve in credit rating by 1 grade (46,900) – –Worsen in credit rating by 1 grade 67,500 – –Increase in recovery rate by 5% (27,700) – –Decrease in recovery rate by 5% 26,200 – –

* There is no impact on the gross/net premium liabilities, profit before tax and equity as the aggregate gross UPR as at 31 December 2017 of RM525.8 million (2016: RM482.5 million) is higher than the gross URR with the key sensitivity analysis factors listed above.

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31 FINANCIAL RISKS

Financial risk management objectives and policies

The financial risks which the Company is exposed to are credit risk, liquidity risk and market risk. The Company carried out its financial risk management through internal control procedures, standard operating procedures, investment strategy and adherence to all rules and regulations as stipulated by the guidelines for investments issued by BNM.

(a) Credit risk

Credit exposure

The table below shows the maximum exposure to credit risk.

2017RM’000

2016RM’000

Available-for-sale securities:Malaysian Government Securities 30,470 50,015Government Investment Issues 214,582 243,630Corporate debt securities 470,324 333,045

Deposits and placements with licensed banks 1,522,960 990,875Insurance receivables 456,634 422,910Reinsurance assets 21,230 31,121Other assets 613 783Cash and cash equivalents 3,537 5,082

2,720,350 2,077,461

Credit exposure by credit rating

The table below provides information regarding the credit risk exposure of the Company by classifying assets according to the Company’s credit ratings of counterparties.

Neither past-due nor impaired

2017RM’000

2016RM’000

Available-for-sale securities:Malaysian Government Securities 30,470 50,015Government Investment Issues 214,582 243,630Corporate debt securities 470,324 333,045

Deposits and placements with licensed banks 1,522,960 990,875Insurance receivables 456,634 422,910Reinsurance assets 21,230 31,121Other assets 613 783Cash and cash equivalents 3,537 5,082

2,720,350 2,077,461

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31 FINANCIAL RISKS (CONTINUED)

(a) Credit risk (continued)

Credit exposure by credit rating (continued)

The table below provides information regarding the credit exposure of the Company by classifying assets according to the latest available Rating Agency of Malaysia’s (“RAM”) credit ratings of counterparties. AAA is the highest possible rating.

Weightedaverage

%AAA

RM’000AA1

RM’000AA2

RM’000AA3

RM’000A1

RM’000A2

RM’000

Governmentguaranteed

RM’000 UnratedRM’000

TotalRM’000

31 December 2017Available-for-sale

securities:Malaysian Government

Securities 4.22 – – – – – – 30,470 – 30,470Government

Investment Issues 3.97 – – – – – – 214,582 – 214,582Corporate debt

securities 4.02 234,926 101,443 – – – – 133,955 – 470,324Deposits and

placements with licensed banks 4.19 635,108 – 324,000 288,328 140,769 100,211 – 34,544 1,522,960

Insurance receivables 456,634 – – – – – – – 456,634Reinsurance assets 10,114 – 5,434 – 766 4,916 – – 21,230Other assets – – – – – – – 613 613Cash and cash

equivalents 444 – 654 2,439 – – – – 3,537

1,337,226 101,443 330,088 290,767 141,535 105,127 379,007 35,157 2,720,350

31 December 2016Available-for-sale

securities:Malaysian Government

Securities 4.22 – – – – – – 50,015 – 50,015Government

Investment Issues 3.97 – – – – – – 243,630 – 243,630Corporate debt

securities 4.02 215,600 35,250 – – – – 82,195 – 333,045Deposits and

placements with licensed banks 4.19 240,764 3,343 297,990 174,725 160,967 100,116 – 12,970 990,875

Insurance receivables 422,910 – – – – – – – 422,910Reinsurance assets 14,576 – 8,289 – 907 7,349 – – 31,121Other assets – – – – – – – 783 783Cash and cash

equivalents 3,969 – 298 815 – – – – 5,082

897,819 38,593 306,577 175,540 161,874 107,465 375,840 13,753 2,077,461

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(a) Credit risk (continued)

Collateral

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and the valuation parameters. Credit risk is also mitigated by entering into collateral agreements. Management monitors the market value of the collateral, requests additional collateral when needed and performs impairment valuation, when applicable.

Market valueNature of collateral

2017RM’000

2016RM’000

Commercial land 856,011 892,660Industrial land 65,180 346,080Oil palm plantation/agricultural land 686,400 686,400Commercial property 1,114,536 870,715Industrial property 92,690 92,690Plant and machinery 1,557,000 1,557,000Quoted shares 1,026,116 1,004,353Special assets 935,040 935,040

6,332,973 6,384,938

(b) Liquidity risk

Liquidity risk arises when the Company does not have the availability of funds to honour all cash outflow commitments as they fall due.

The Company’s funds shall be managed and invested with prudence. The tenor of investments chosen shall always take into consideration the timing and size of any potential claim liabilities and adjusted for the liquidity requirements of the Company at all times. The Company’s portfolio of investments shall always conform to the limits and regulations as may be determined by BNM for financial guarantee insurers from time to time.

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(b) Liquidity risk (continued)

Maturity profiles

The table below summarises the maturity profile of the financial assets and financial liabilities of the Company based on remaining contractual obligations, including interest/profit payable and receivable. Reinsurance assets and premium liabilities have been excluded from the analysis as they are not contractual obligations.

Carryingvalue

RM’000

Up to ayear

RM’000

> 1 year to3 yearsRM’000

> 3 years to5 yearsRM’000

> 5 yearsRM’000

TotalRM’000

31 December 2017Available-for-sale securities:

Malaysian Government Securities 30,470 1,112 2,224 11,808 20,348 35,492

Government Investment Issues 214,582 8,329 55,939 120,449 65,010 249,727

Corporate debt securities 470,324 104,980 154,680 145,059 160,034 564,753Deposits and placements with

licensed banks 1,522,960 1,552,644 – – – 1,552,644Insurance receivables 456,634 87,256 134,201 80,237 154,940 456,634Other assets 613 613 – – – 613Cash and cash equivalents 3,537 3,537 – – – 3,537

2,699,120 1,758,471 347,044 357,553 400,332 2,863,400

Insurance payables 15,891 8,355 6,891 645 – 15,891Other liabilities 8,435 8,435 – – – 8,435Subordinated Sukuk 505,721 24,132 47,934 547,934 – 620,000

530,047 40,922 54,825 548,579 – 644,326

31 December 2016Available-for-sale securities:

Malaysian Government Securities 50,015 1,872 3,744 13,744 42,564 61,924

Government Investment Issues 243,630 9,301 18,602 162,660 95,609 286,172

Corporate debt securities 333,045 38,900 145,820 86,298 117,568 388,586Deposits and placements with

licensed banks 990,875 1,002,249 – – – 1,002,249Insurance receivables 422,910 81,154 122,276 79,992 139,488 422,910Other assets 783 783 – – – 783Cash and cash equivalents 5,082 5,082 – – – 5,082

2,046,340 1,139,341 290,442 342,694 395,229 2,167,706

Insurance payables 23,439 9,022 10,999 3,418 – 23,439Other liabilities 10,616 10,616 – – – 10,616

34,055 19,638 10,999 3,418 – 34,055

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(c) Market risk

(i) Interest rate risk

Interest rate risk is the potential for financial loss arising from changes in interest rates.

Investment decisions shall always take into consideration the appropriate and prevailing risk adjusted returns available in the marketplace. The focus on maximising returns shall always be bounded by a tempered approach to risk that is acceptable for the Company’s funds. There shall be no over concentration of investments in single counterparties, and there shall be appropriate investment diversification across industries to mitigate these risks.

The following tables provide the sensitivity analysis, showing the impact on the profit before tax and equity given the change in variables.

Impact onprofit

before tax Impact on equity

Change in variable RM’000

Up to ayear

RM’000

> 1 year to 3 yearsRM’000

> 3 yearsto 5 years

RM’000> 5 years

RM’000Total

RM’000

31 December 2017+25 basis points – (131) (805) (2,255) (3,533) (6,725)-25 basis points – 133 818 2,286 3,617 6,854+50 basis points – (263) (1,608) (4,489) (6,991) (13,351)-50 basis points – 266 1,637 4,595 7,315 13,813

31 December 2016+25 basis points – (33) (682) (2,083) (3,099) (5,897)-25 basis points – 32 692 2,105 3,163 5,992+50 basis points – (65) (1,363) (4,143) (6,147) (11,718)-50 basis points – 65 1,385 4,233 6,381 12,064

(ii) Foreign currency risk

The Company is currently not exposed to any currency risk as all transactions were transacted in Ringgit Malaysia denominated currency.

(iii) Price risk

The Company is currently not exposed to any equity and properties, and hence not affected by price risk.

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(d) Underwriting risk

Underwriting risk arises when the accumulated guarantee premiums charged are insufficient to cover the cost of claims arising from the Issuer’s underwritten commitment.

In minimising the underwriting risk, the Company’s portfolio is spread over a diversified mix of businesses, and the Company observes specific guidelines governing the prudential limits on exposure to a single company/group and to an industry or business sector. Besides, the Company adopts a risk-based pricing model developed according to the principles of its premium pricing policy, ensuring that the premium fee charged is adequate to cover the underlying risk costs. Underwriting risk is managed by the Risk Management function together with other divisions, primarily the Client Coverage Division which is in charge of the initial underwriting process and the Client Management Division that undertakes the continuous surveillance process on all obligors.

(e) Operational risk

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

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

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32 INSURANCE FUNDS

The Company’s activities are organised by funds and segregated into Shareholders’ Fund and Insurance Fund in accordance with the FSA.

The Company’s statement of financial position and statement of comprehensive income have been further analysed by Shareholders’ Fund and Insurance Fund.

Statement of Financial Position

Shareholders’ Fund Insurance Fund Total

2017 2016 2017 2016 2017 2016RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

ASSETSProperty, plant and equipment – – 3,027 3,787 3,027 3,787Intangible assets – – 1,540 382 1,540 382Available-for-sale securities – – 715,376 626,690 715,376 626,690

Malaysian Government Securities – – 30,470 50,015 30,470 50,015Government Investment Issues – – 214,582 243,630 214,582 243,630Corporate debt securities – – 470,324 333,045 470,324 333,045

Deposits and placements with licensed banks – – 1,522,960 990,875 1,522,960 990,875Insurance receivables – – 456,634 422,910 456,634 422,910Reinsurance assets – – 21,230 31,121 21,230 31,121Tax recoverable – – 11,985 11,985 11,985 11,985Other assets – – 1,212 1,353 1,212 1,353Cash and cash equivalents – – 3,537 5,082 3,537 5,082

TOTAL ASSETS – – 2,737,501 2,094,185 2,737,501 2,094,185

LIABILITIES AND EQUITYPremium liabilities – – 525,830 482,499 525,830 482,499Insurance payables – – 15,891 23,439 15,891 23,439Other liabilities – – 9,890 12,815 9,890 12,815Subordinated Sukuk 505,721 – – – 505,721 –Amount due (from)/to Shareholders’/Insurance

funds (2,182,881) (1,575,572) 2,182,881 1,575,572 – –

TOTAL LIABILITIES (1,677,160) (1,575,572) 2,734,492 2,094,325 1,057,332 518,753

Share capital 1,000,000 1,000,000 – – 1,000,000 1,000,000Retained earnings 647,728 549,054 – – 647,728 549,054Contingency reserve 29,432 26,518 – – 29,432 26,518Available-for-sale fair value reserve – – 3,009 (140) 3,009 (140)

TOTAL EQUITY 1,677,160 1,575,572 3,009 (140) 1,680,169 1,575,432

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY – – 2,737,501 2,094,185 2,737,501 2,094,185

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32 INSURANCE FUNDS (CONTINUED)

Statement of Comprehensive Income


2017 2016 2017 2016 2017 2016RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Gross earned premiums – – 93,110 98,214 93,110 98,214Premiums ceded to reinsurance – – (11,292) (8,336) (11,292) (8,336)

Net earned premiums – – 81,818 89,878 81,818 89,878Investment income – – 71,744 64,022 71,744 64,022Other operating income – – 5,290 8,689 5,290 8,689

– – 158,852 162,589 158,852 162,589Management expenses (4,197) (2,614) (34,746) (34,461) (38,943) (37,075)Finance cost – Sukuk profit (5,721) – – – (5,721) –

Profit before taxation (9,918) (2,614) 124,106 128,128 114,188 125,514Taxation – – – – – –

Net (loss)/profit for the financial year (9,918) (2,614) 124,106 128,128 114,188 125,514

Other comprehensive income/(loss):

Items that may be subsequently reclassified to profit or loss:

Available-for-sale fair value reserve:Net gain arising during the financial year – – 3,762 3,921 3,762 3,921Net gain transfer to profit or loss upon

disposal – – (613) (1,905) (613) (1,905)

Other comprehensive income for the financial year, net of tax – – 3,149 2,016 3,149 2,016

Total comprehensive (loss)/income for the financial year (9,918) (2,614) 127,255 130,144 117,337 127,530

Information on Cash Flows by Funds


2017 2016 2017 2016 2017 2016RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cash flows from:Operating activities (487,400) 11,900 739 13 (486,661) 11,913Investing activities – – (2,284) (840) (2,284) (840)Financing activities 487,400 (11,900) – – 487,400 (11,900)

Net decrease in cash and cash equivalents – – (1,545) (827) (1,545) (827)At beginning of the financial year – – 5,082 5,909 5,082 5,909

At end of the financial year – – 3,537 5,082 3,537 5,082 2017

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