PILLAR 3 DISCLOSURES - Affin Hwang...

Company No: 14389-U

Affin Hwang Investment Bank Berhad(formerly known as HwangDBS Investment Bank Berhad)(Incorporated in Malaysia)

PILLAR 3 DISCLOSURES

for the financial period ended 31 December 2014

Affin Hwang Investment Bank Berhad(formerly known as HwangDBS Investment Bank Berhad)

(Incorporated in Malaysia)


Glossary

Terms Descriptions

AFS Available-for-Sale

Basel II Basel II Capital Accord

Basel III Basel III Capital Accord

BNM Bank Negara Malaysia

BOD Board of Directors

BRMC Board Risk Management Committee

CEO Chief Executive Officer

BCRC Board Credit Review Committee

CIS Collective Investment Scheme

CMD Credit Management Department

CSA Credit Support Annex

DOA Delegation of Authority

ECAIs External Credit Assessment Institutions

AHIB Affin Hwang Investment Bank Berhad or the Bank

ICAAP Internal Capital Adequacy Assessment Process

IRRBB Interest rate risk in banking book

ISDA International Swap and Derivative Association

KRI Key Risk Indicator

LDC Loss Data Collection

NPSP New Products and Services Process

ORM Operational Risk Management

ORMU Operational Risk Management Unit

RCSA Risk and Control Self-Assessment

RMD Risk Management Department

CROC Compliance and Risk Oversight Committee

RWCAF Risk Weighted Capital Adequacy Framework

VaR Value-at-Risk

1




OVERVIEW

Bank Negara Malaysia (BNM) Risk Weighted Capital Adequacy Framework (RWCAF)

(Basel II) Disclosure Requirements (Pillar 3) aims to improve the transparency of financial

institution activities and risks, which is a key element of an effectively supervised financial

system.

Pillar 3 Disclosures is governed by Affin Hwang Investment Bank Berhad (the Bank)

Disclosure Policy on Bank Negara Malaysia Risk Weighted Capital Adequacy Framework -

Pillar 3 and Capital Adequacy Framework (Capital Components) issued by BNM, which

spells out the guidelines in determining the contents (including materiality, appropriateness

and confidentiality), frequency, medium, location of public disclosures, as well as internal

controls over the disclosure verification process.

The following disclosure information is based on 31 December 2014 financial period end

data and has been independently reviewed by the Internal Audit Department. However,

where data is equivalent to that included in the Banks audited financial statements, such

data has been subjected to review by the Bank's external auditor during the formal review

and verification process.

The Pillar 3 Disclosures is published on the Banks corporate website, which can be found

at http://www.affinhwang.com.

2




1 SCOPE OF APPLICATION

2 CAPITAL MANAGEMENT

i)

ii)

During the financial year, the Groups subsidiaries (excluded from the consolidation for regulatory risk

reporting) did not report any capital deficiencies.

The principal activities of the subsidiaries are asset management, management of unit trust funds and private

retirement schemes, Islamic fund management, dealing in options and futures and provision of nominee

The Bank's objectives when managing capital are to comply with:

The minimum capital requirement of 8% under Bank Negara Malaysias Risk-Weighted Capital Adequacy

The Board-approved Internal Capital Adequacy Assessment Process ("ICAAP"), which amongst others:

The Pillar 3 Disclosures attached herewith relates to the Bank and its subsidiaries (the Group). This Pillar 3

Disclosures is published for the financial period ended 31 December 2014, with comparative information for

both the Bank and the Group for the financial period ended 31 July 2013.

For financial reporting purposes, the basis for consolidation of the Bank and the Group financial statements is

in accordance to the Malaysian Financial Reporting Standards.

The basis for accounting consolidation is defined as per Note B to the financial statements of the Bank. Further

information on the Banks consolidated entities is referenced in Note 13 to the Banks financial statements.

The principal activities of the Bank are in investment banking, stockbroking activities and related financial

During the financial year, the Group did not experience any restrictions or impediments in the distribution of

dividends, transfer of funds or regulatory capital.

To safeguard the Bank's ability to continue as a going concern so that it can continue to provide

returns to the shareholders and benefits for other stakeholders; and

To maintain a strong capital base to support the development of its business.

3

(formerly known as HwangDBS Investment Bank Berhad)



2.1 Capital Adequacy Ratios

Credit risk (Standardised Approach) Market risk (Standardised Approach) Operational risk (Basic Indicator Approach)

The capital adequacy ratios of the Group consist of total capital and risk-weighted assets derived from

consolidated balances of the Bank and its subsidiary companies (including non-financial subsidiaries) for

regulatory capital reporting at consolidated level.

The Group and the Bank have adopted the following approaches to assess its regulatory capital

requirements under BNM RWCAF Pillar 1:

With effect from 1 January 2013, the regulatory capital ratios as well as the level of these ratios of which

the Bank is required to operate are computed in accordance with Bank Negara Malaysia's revised Risk-

Weighted Capital Adequacy Framework: Standardised Approach for Credit Risk and Market Risk, and

Basic Indicator Approach for Operational Risk (Basel III) and Capital Adequacy framework (capital

components).

4




The Group

As at 31 December 2014Gross

exposures

Net

exposures

Risk Weighted

Assets

Capital

requirements

(i) Credit risk RM000 RM000 RM000 RM000

Exposure Class

On-Balance Sheet Exposures

Sovereigns/Central Banks 1,280,136 1,280,136 1,419 114

Banks, Development Financial

Institutions ("DFIs") & Multilateral

Development Banks ("MDBs")1,461,310 1,461,310 370,062 29,605

Insurance Companies, Securities

Firms & Fund Managers

3,457 3,457 3,457 277

Corporates 2,860,093 2,813,610 1,677,664 134,213

Regulatory Retail 152,242 136,279 135,089 10,807

Other Assets 472,481 472,481 433,683 34,695

Defaulted Exposures 11,918 11,918 10,795 864

Total for on-balance sheet

exposures6,241,637 6,179,191 2,632,169 210,575

Off-Balance Sheet Exposures

Over-the-counter (OTC) derivatives 182,562 182,562 102,769 8,222

Off-balance sheet exposures other than

OTC or Credit Derivatives 203,504 203,504 203,504 16,280

Total for off-balance sheet

exposures 386,066 386,066 306,273 24,502

Total credit risk exposures 6,627,703 6,565,257 2,938,442 235,077

- - - -

(iii) Market riskNet

exposures

Risk Weighted

Assets

Capital

requirements

RM000 RM000 RM000

Long Position Short Position

RM'000 RM'000

Interest rate risk 3,399,673 3,406,288 (6,615) 88,027 7,042

Foreign currency risk 2,372,154 2,382,192 (10,038) 25,338 2,027

Equity risk 26,188 - 26,188 66,270 5,302

Option - - - 17,124 1,370

Total market risk exposures 5,798,015 5,788,480 9,535 196,759 15,741

(iv) Operational risk Risk Weighted

Assets

Capital

requirements

RM000 RM000

Operational risk 427,786 34,223

3,562,987 285,041

The following table depicts the risk weighted assets (RWA) and regulatory capital requirements:

Table 1: Risk-Weighted Assets and Capital Requirements

(ii) Large exposures risk requirements

Gross exposures

RM000

Total risk-weighted assets and capital requirements

5




The Bank

As at 31 December 2014Gross

exposures

Net

exposures

Risk Weighted

Assets

Capital

requirements


Exposure Class


Sovereigns/Central Banks 1,280,079 1,280,079 1,419 114



Development Banks ("MDBs") 1,196,980 1,196,980 305,129 24,410



3,457 3,457 3,457 277

Corporates 2,859,510 2,813,027 1,677,080 134,166


Other Assets 386,989 386,989 352,736 28,219

Defaulted Exposures 11,918 11,918 10,795 864 Total for on-balance sheet

exposures 5,891,175 5,828,729 2,485,705 198,857


182,562 182,562 102,769 8,222

OTC or Credit Derivatives 203,504 203,504 203,504 16,280 Total for off-balance sheet

exposures 386,066 386,066 306,273 24,502


- - - -


exposures

Risk Weighted

Assets

Capital

requirements

RM000 RM000 RM000


RM'000 RM'000

Interest rate risk 3,399,673 3,406,288 (6,615) 88,027 7,042

Foreign currency risk 2,350,192 2,382,192 (32,000) 34,625 2,770

Equity risk 18,903 - 18,903 51,701 4,136

Option - - - 17,124 1,370

Total market risk exposures 5,768,768 5,788,480 (19,712) 191,477 15,318


Assets

Capital

requirements

RM000 RM000


3,309,268 264,742

RM000


Table 1: Risk-Weighted Assets and Capital Requirements (Continued)

Over-the-counter (OTC) derivatives



Gross exposures

6




The Group

As at 31 July 2013Gross

exposures

Net

exposures

Risk Weighted

Assets

Capital

requirements


Exposure Class


Sovereigns/Central Banks 546,013 546,013 1,370 110

Public Sector Entities - - - -





Firms & Fund Managers 9,425 9,243 9,243 739

Corporates 1,325,988 1,325,895 903,432 72,275


Other Assets 360,724 360,999 291,145 23,292

Securitisation 20,540 20,540 4,108 329

Defaulted Exposures 405 405 86 7 Total for on-balance sheet

exposures 3,515,517 3,515,517 1,747,090 139,768


Over-the-counter (OTC) derivatives 149,551 149,551 69,953 5,596 Off-balance sheet exposures other than


Defaulted Exposures - - - -

Total for off-balance sheet

exposures 203,424 203,424 123,826 9,906


- - - -


exposures

Risk Weighted

Assets

Capital

requirements

RM000 RM000 RM000


RM'000 RM'000

Interest rate risk 2,752,685 2,743,030 9,655 65,017 5,201

Foreign currency risk 1,905,213 1,870,321 34,892 39,574 3,166

Equity risk 23,746 - 23,746 63,700 5,096

Option - - - - -



Assets

Capital

requirements

RM000 RM000


2,344,230 187,539



Gross exposures

RM000


7




The Bank

As at 31 July 2013Gross

exposures

Net

exposures

Risk Weighted

Assets

Capital

requirements


Exposure Class


Sovereigns/Central Banks 546,013 546,013 1,370 110

Public Sector Entities - - - -





Firms & Fund Managers 9,243 9,243 9,243 739

Corporates 1,325,895 1,325,895 903,432 72,274


Other Assets 360,556 360,556 291,150 23,292

Securitisation 20,540 20,540 4,108 329

Defaulted Exposures 405 405 86 7 Total for on-balance sheet

exposures 3,510,329 3,510,329 1,745,902 139,672


149,551 149,551 69,953 5,596


Defaulted Exposures - - - - Total for off-balance sheet

exposures 203,424 203,424 123,826 9,906


- - - -


exposures

Risk Weighted

Assets

Capital

requirements

RM000 RM000 RM000


RM'000 RM'000

Interest rate risk 2,752,685 2,743,030 9,655 65,017 5,201

Foreign currency risk 1,905,213 1,870,321 34,892 39,574 3,166

Equity risk 23,746 - 23,746 63,700 5,096

Option - - - - -



Assets

Capital

requirements

RM000 RM000


2,336,908 186,952 Total risk-weighted assets and capital requirements


Over-the-counter (OTC) derivatives



Gross exposures

RM000

8




2.2 Capital Structure

CET 1 Capital

Additional Tier 1 Capital

Tier 2 Capital

For regulatory purposes, capital is categorised into Common Equity Tier 1 ("CET 1") Capital, Additional

Tier 1 Capital and Tier 2 Capital which are described below:

CET 1 Capital /Tier I Capital (Basel III) include ordinary paid-up share capital, share premium, statutory

reserves, audited retained profit, unrealised gains on AFS instruments and exclude regulatory

adjustments namely goodwill, intangible assets, 55% of unrealised gains on AFS instruments and

investment in subsidiaries.

Share capital is the issued and fully paid share capital and there is no obligation to pay a coupon or

dividend to the shareholders. Retained profits and statutory reserve are accumulated resources included

in shareholders funds in the Statement of Financial Position. The statutory reserve is maintained in

compliance with the provisions of section 47(2)(f) of the Financial Services Act, 2013 and BNM's

Guidelines on Capital Funds and is not distributable as cash dividends. Regulatory deductions include

the excess of Additional Tier 1 Capital or Tier 2 Capital deducted in CET 1 Capital (if any).

Tier 2 capital comprises of collective impairment assessment and certain regulatory deductions.

Regulatory deductions include investment in subsidiaries.

Additional Tier 1 capital comprises of non-controlling interest and certain regulatory deductions.

Regulatory deductions include the excess of Tier 2 Capital deducted in Additional Tier 1 Capital (if any).

9

Affin Hwang Investment Bank Berhad(formerly known as HwangDBS Investment Bank Berhad)(Incorporated in Malaysia)


Table 2: Constituents of Eligible Capital and Capital Adequacy Ratios

31.12.2014 31.07.2013 31.12.2014 31.07.2013

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

Common Equity Tier (CET) 1 Capital :

Paid-up share capital 780,000 500,000 780,000 500,000

Share premium 219,800 - 219,800 -

Statutory reserve 199,071 148,861 199,071 148,861

Retained profit 210,721 216,854 264,248 214,038

Unrealised gains on AFS instruments 5,479 3,564 5,347 3,564

1,415,071 869,279 1,468,466 866,463

Less : Regulatory adjustment

Goodwill and other Intangible assets (320,806) (162,502) (314,772) (162,502)

Investment in subsidiaries - - (124,563) -

Collective allowance reserve (3,556) - (3,556) -

55% of unrealised gains on AFS instruments (3,013) (1,960) (2,941) (1,960)

Deferred tax assets (10,836) (463) (5,990) (463)

1,076,860 704,354 1,016,644 701,538

Additional Tier 1 Capital

Non-controlling interests 3,000 208 - -

Tier 1 Capital 1,079,860 704,562 1,016,644 701,538

Tier 2 capital

Non-controlling interests - 49 - -

Collective allowance 12,557 5,476 12,557 5,476

Less : Regulatory adjustment

Investment in subsidiaries - - (12,557) (399)

Total Tier 2 capital 12,557 5,525 - 5,077

Total Capital 1,092,417 710,087 1,016,644 706,615

Proposed dividends - - - -

Capital Ratio

CET 1 capital ratio 30.224% 30.046% 30.721% 30.020%

Tier 1 capital ratio 30.308% 30.055% 30.721% 30.020%

Total capital ratio 30.660% 30.291% 30.721% 30.237%

CET 1 capital ratio (net of proposed dividends) 30.224% 30.046% 30.721% 30.020%

Tier 1 capital ratio (net of proposed dividends) 30.308% 30.055% 30.721% 30.020%

Total capital ratio (net of proposed dividends) 30.660% 30.291% 30.721% 30.237%

The Group The Bank

10




3 RISK MANAGEMENT

Risk Governance

Under the Credit Authority Framework approved by the Board, Group Management Loan Committee ("GMLC")

and Board Credit Review Committee (BCRC) is authorised to review and approve, reject or modify proposals

for credit and underwriting applications.

Internal Audit is responsible to provide reasonable assurance of effective and efficient operations of the

business or support units, and compliance with law and regulations, as well as with internal procedures and

guidelines.

RMD acts as an independent and neutral party in providing comprehensive and independent views of Bank-

wide risk of the Bank.

As a full-fledged investment bank, the Bank has established robust and comprehensive risk management

policies and framework, supported by Group Risk Management Framework and Policies based on best

practices, to ensure that the salient risk elements in the operations of the Bank are adequately managed and

mitigated. The Banks framework for the management of financial risks is congruent with the primary

corporate objective of creating and enhancing shareholders value, guided by a prudent and robust framework

of risk management methodologies and policies.

The Banks risk management policies and framework are reviewed periodically to ensure that they are

comprehensive in addressing the multi-faceted risks associated with the investment banking sector.

The Risk Management Department (RMD) is primarily responsible for the development and maintenance of

the risk management policies and framework of the Bank and supports the functions of Assets and Liabilities

Committee (ALCO), Compliance and Risk Oversight Committee ("CROC"), the Board Risk Management

Committee (BRMC) and the Board Credit Review Committee ("BCRC") as well as Group committees of the

Affin Banking Group.

Appropriate risk governance structure is cascaded throughout all level of the Bank which comprise of Board of

Directors ("Board"), relevant committees, business units and support units.

The Board is ultimately responsible for assuming the risks inherent in the Bank's business activities and

defining the policies for governing those activities. BRMC is responsible to support the Board in the oversight

of the Bank's risk management.

BRMC is authorised by the Board in overseeing all risk-taking activities in the Bank. Its key responsibilities

involve reviewing and recommending risk management strategies, risk tolerance, new products, capital

allocation process; and assessing the adequacy of risk management policies, framework, infrastructure and

resources for implementation of risk strategies. For monitoring purpose, BRMC reviews periodic reports on risk

exposures, risk portfolio composition and risk management activities. These reports, prepared by RMD which

covers credit, market, liquidity and operational risks.

At management level, CROC and ALCO assist the BRMC and Board in their supervisory roles in the

management of credit, market, liquidity, and operational risks as well as assets and liabilities management of

the Bank. These two committees provide an executive forum for discussion and decision on all aspects of

credit, market, liquidity and operational risks; and assets and liabilities management matters.

11




Risk Measurement

Stress Testing

Risk Reporting and Monitoring

The risk measurement tools employed by the Bank are commonly used in market practices and commensurate

with the size and complexity of the Banks business operations.

The Bank has deployed stress testing in assessing the impact of stressed market conditions on its capital,

profit, liquidity and asset quality in accordance with the Group Stress Test Framework and Methodology.

Risk limits are reviewed on an annual basis or as and when required, to ensure their relevance with regards to

the risk taking activities of the Bank and current banking regulations.

Internal Audit acts as an independent party in performing an annual review of the Banks stress testing policy,

procedures and processes including the stress scenarios used to ensure the quality and effectiveness of the

programme.

The stress testing methodology covers a range of risks and business areas and there are two types of stress

testing currently in use:

Sensitivity Analysis, which moves a single risk factor by a magnitude of shock. This method can be

processed relatively quickly and can be used to form a first approximation and assessment of the impact.

Scenario Analysis, which contains simultaneous moves in a number of market risk factors (e.g. equity

prices, interest rates, foreign exchange rates and etc.). A stress test scenario analysis can be based on

historical scenario, hypothetical scenario, forward looking scenario and second round/spill-over effect.

Scenario analysis can be performed on a portfolio-driven approach or event-driven approach.

The stress testing is performed periodically in meeting both internal and regulatory external reporting

requirements.

The Banks risk appetite (i.e. risk tolerance) and business plans determine the amount of risk capital set aside

(i.e. risk capacity) to support its operational and market activities as well as capital allocation to respective

business units. This forms a basis in setting risk limits for business units.

RMD is responsible for the monitoring and timely reporting of risk exposures against the established risk limits.

Any breaches in risk limits are subject to the exception escalation procedures that aim to rectify any excesses

within practical time and within the specified authority level. There is a formal process for risk reporting to the

CEO, business units, relevant management/ board committee such as CROC, and BRMC as well as Group

Risk Management of Affin Bank Berhad to facilitate the making of informed decisions and strategies. BRMC

reviews and monitors any significant risk issues and reports to the Board.

Stress testing results are periodically reported to ALCO and BRMC to enable them to consider the implications

on the Banks overall business strategy, capital management, risk profile and to consider appropriate

corrective measures when necessary.

12




4 CREDIT RISK

Risk Governance

Credit Risk Identification and Measurement

(a) Corporate Credit and Financing

Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the

Banks underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk

undertaken. All corporate loans, underwritings and share margin financing applications above specified limits

are evaluated by Credit Management Department (CMD) and forwarded to the relevant approving authorities

based on the Credit Authority Framework approved by Board.

The corporate credits and financing accounts are reviewed by the Business Units on periodic basis and

independently commented by CMD to complement the risk identification, early warnings detection as well as in

ensuring creditability and financial performance of the corporate where applicable to protect the Banks position

in debt recovery. Remedial action is taken where evidence of deterioration exists.

A critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This

assists in the risk assessment and decision making process. The Bank adopts internal rating models to support

the assessment and quantification of credit risk as guided by the internal Credit Risk Grading Model. A number

of relevant risk factors such as competitive position, operating performance, cash flow strength and

management strength are taken into consideration when identify and analyse counterparty credit risk.

Credit risk refers to the potential risk of financial loss arising from defaults by counterparties in meeting their

obligations. The Bank's exposure to credit risks arises primarily from share trading, share margin financing,

corporate/inter-bank lending activities, bonds investment, foreign exchange trading, equity and debt

underwriting as well as from participation in securities settlements and payment transactions.

The management of credit risk is governed by a set of approved credit policies, guidelines, circulars and

procedures to ensure that the overall lending objectives achieved are in compliance with the internal and

regulatory requirements. The policies are subject to review by the BRMC, a sub-committee of the Board that

reviews the adequacy of the Banks risk policies and framework.

The Banks credit risk framework is further strengthened with an established credit authority framework for the

approval of new, restructured and review of loans, bond investments, debt and equity underwriting proposals.

The approving authorities are Chief Executive Officer, Underwriting Committee, Group Management Loan

Committee (GMLC) and Board Credit Review Committee (BCRC).

GMLC is established within senior management to approve complex and larger loans, bond investments, debt

underwriting as well as workout/recovery proposals beyond the delegated authority of the concerned individual

senior management personnel of Affin Hwang Investment Bank (AHIB). BCRC is established to assist the

functions of the Board in respect of its inherent authority over the credit and underwriting proposals which are

considered by the GMLC. BCRC reviews proposals that exceed specified limits and criteria, as well as to

consider whether to reject the proposal or modify the terms of the proposal.

13




(b) Stockbroking Brokerage

(c) Share Margin

Credit Risk Limit Control

Risk Reporting and Monitoring

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with

customers together with potential exposure from market movements.

Internal risk management reports are produced on a regular basis, providing information on credit related

issues to CROC and BRMC for risk monitoring and appropriate level of management decision making.

For stockbroking brokerage business, daily management and monitoring of credit risk associated with securities

brokerage is undertaken by Credit Control team to ensure compliance with approved policies and procedures of

the Bank and regulatory requirements.

In addition, RMD reviews the overall stockbroking credit exposures and CMD assess/approve trading limit

proposals that exceed specified limits. The assessment is based on clients and/or dealers representatives risk

profiles, creditworthiness, past trading records and pledged collaterals.

Credit risk exposures are mitigated via preventive risk management measures in limiting the exposure in

accordance with the Bank's risk appetite as well as regular monitoring of credit exposures.

The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue

concentration of credit risk in its credit portfolio. The limits include single counterpartys groupings, connected

parties, broad property sector, geographical and industry segments. These risks are monitored regularly and

the limits reviewed annually to best reflect the bank portfolio strategy and market environment.

For share margin financing, all new margin applications as well as applications for additional facilities are

subject to credit review by the Margin Operations. It will be forwarded to CMD for independent credit evaluation

if the proposals exceed specified limits before recommending to the Approving Authorities. Credit risk

exposures associated with share-margin trading are reviewed and monitored closely on daily basis by

designated staff from Margin Operations, Credit Management and independently by RMD, who will review

amongst others, credit limit utilization, exposure to single security or client/ group of counterparty and equity

positions against collateral.

14




4.1 Distribution of Credit Exposures

(i)

Table 3: Gross Credit Exposures by Geographic Distribution

The Group

As at 31 December 2014 Malaysia Other Countries Total

Exposure Class RM'000 RM'000 RM'000


Sovereign / Central Banks 1,280,136 - 1,280,136

Banks, DFIs & MDBs 1,331,499 129,811 1,461,310



2,359 1,098 3,457

Corporates 2,602,161 257,932 2,860,093

Regulatory Retail 150,786 1,456 152,242

Other assets 435,114 37,367 472,481

Defaulted Exposures 11,918 - 11,918

Total for On-Balance Sheet Exposure 5,813,973 427,664 6,241,637

Off-Balance Sheet Exposure

OTC Derivatives 146,848 35,714 182,562

Non OTC Derivatives 203,504 - 203,504

Total Off-Balance Sheet Exposure 350,352 35,714 386,066

Total Gross Credit Exposures 6,164,325 463,378 6,627,703

The Bank

As at 31 December 2014 Malaysia Other Countries Total



Sovereign / Central Banks 1,280,079 - 1,280,079

Banks, DFIs & MDBs 1,067,169 129,811 1,196,980



2,359 1,098 3,457

Corporates 2,601,578 257,932 2,859,510


Other assets 349,622 37,367 386,989

Defaulted Exposures 11,918 - 11,918



OTC Derivatives 146,848 35,714 182,562




The following table depicts the geographical distribution of the Banks gross credit exposures, based

on the country of incorporation or residence:

15




Table 3: Gross Credit Exposures by Geographic Distribution (Continued)

The Group

As at 31 July 2013 Malaysia Other Countries Total



Sovereign / Central Banks 546,013 - 546,013

Banks, DFIs & MDBs 1,027,265 72,537 1,099,802


Firms & Fund Managers - 9,425 9,425

Corporates 913,400 412,588 1,325,988


Other assets 360,637 87 360,724

Securitisation 20,540 - 20,540

Defaulted Exposures 405 - 405



OTC Derivatives 100,323 49,228 149,551




The Bank

As at 31 July 2013 Malaysia Other Countries Total



Sovereign / Central Banks 546,013 - 546,013

Banks, DFIs & MDBs 1,022,520 72,537 1,095,057



- 9,243 9,243

Corporates 913,400 412,495 1,325,895


Other assets 360,476 80 360,556

Securitisation 20,540 - 20,540

Defaulted Exposures 405 - 405



OTC Derivatives 100,323 49,228 149,551




16




(ii) The following table depicts the Banks gross credit exposures by sector analysis or industrial distribution:

Table 4: Gross Credit Exposures by Sectorial Analysis or Industrial Distribution

The Group

As at 31 December 2014

Primary

Agriculture

Mining and

Quarrying

Manufacturing

(including Agro-

based)

Electricity,

Gas and

Water

Supply Construction

Wholesale

and Retail

Trade

Restaurants

and Hotels

Transport,

Storage and

Communication

Finance,

Insurance, Real

Estate and

Business

Activities

Education,

Health and

Others Household Others Total

Exposure class RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000


Sovereign/Central Banks - - - - - - - 15,435 143,149 45,701 - 1,075,851 1,280,136

Public Sector Entities - - - - - - - - - - - - -

Banks, DFSs & MDBs - - - - - - - - 1,461,310 - - - 1,461,310

Insurance Companies,

Securities Firms & Fund

Managers - - - - - - - - 3,457 - - - 3,457

Corporates 40,049 186,896 125,938 542,289 367,122 94,680 - 243,517 634,494 310,561 153,238 161,309 2,860,093

Regulatory Retail - - - - - - - - - - 152,242 - 152,242

Other assets 2,550 348 2,442 499 191 - - 554 362,127 - - 103,770 472,481

Securitisation - - - - - - - - - - - - -

Defaulted Exposures - - 8,735 - - 2,037 - - 9 - 626 511 11,918

Total for On-Balance Sheet

Exposure 42,599 187,244 137,115 542,788 367,313 96,717 - 259,506 2,604,546 356,262 306,106 1,341,441 6,241,637

Off Balance Sheet Exposure

OTC Derivatives - - - - 14 - - - 182,523 - - 25 182,562

Non OTC Derivatives - 3,000 8,000 720 51,850 1,884 - 115,000 5,163 4,600 5,287 8,000 203,504

Defaulted Exposures - - - - - - - - - - - - -

Total Off-Balance Sheet

Exposure - 3,000 8,000 720 51,864 1,884 - 115,000 187,686 4,600 5,287 8,025 386,066

Total Gross Credit Exposure 42,599 190,244 145,115 543,508 419,177 98,601 - 374,506 2,792,232 360,862 311,393 1,349,466 6,627,703

17




Table 4: Gross Credit Exposures by Sectorial Analysis or Industrial Distribution (Continued)

The Bank


Primary

Agriculture

Mining and

Quarrying

Manufacturing

(including Agro-

based)

Electricity,

Gas and

Water

Supply Construction

Wholesale

and Retail

Trade

Restaurants

and Hotels

Transport,

Storage and

Communication

Finance,

Insurance, Real

Estate and

Business

Activities

Education,

Health and




Sovereign/Central Banks - - - - - - - 15,435 143,092 45,701 - 1,075,851 1,280,079


Banks, DFSs & MDBs - - - - - - - - 1,196,980 - - - 1,196,980



Managers - - - - - - - - 3,457 - - - 3,457

Corporates 40,049 186,896 125,938 542,289 367,122 94,680 - 243,517 634,495 310,561 153,238 160,725 2,859,510


Other assets 2,550 348 2,442 385 191 - - 528 331,046 - - 49,499 386,989

Securitisation - - - - - - - - - - - - -

Defaulted Exposures - - 8,735 - - 2,037 - - 9 - 626 511 11,918


Exposure 42,599 187,244 137,115 542,674 367,313 96,717 - 259,480 2,309,079 356,262 306,106 1,286,586 5,891,175


OTC Derivatives - - - - 14 - - - 182,523 - - 25 182,562

Non OTC Derivatives - 3,000 8,000 720 51,850 1,884 - 115,000 5,163 4,600 5,287 8,000 203,504



Exposure - 3,000 8,000 720 51,864 1,884 - 115,000 187,686 4,600 5,287 8,025 386,066

Total Gross Credit Exposure 42,599 190,244 145,115 543,394 419,177 98,601 - 374,480 2,496,765 360,862 311,393 1,294,611 6,277,241

18





The Group

As at 31 July 2013

Primary

Agriculture

Mining and

Quarrying

Manufacturing

(including Agro-

based)

Electricity,

Gas and

Water

Supply Construction

Wholesale

and Retail

Trade

Restaurants

and Hotels

Transport,

Storage and

Communication

Finance,

Insurance, Real

Estate and

Business

Activities

Education,

Health and




Sovereign/Central Banks - - - - - - - - 185,640 - - 360,373 546,013


Banks, DFSs & MDBs - - - - - - - - 1,099,802 - - - 1,099,802



Managers - - - - - - - - 9,425 - - - 9,425

Corporates 12,508 183,951 91,865 257,458 71,497 129,854 147,224 62,114 231,212 77,772 - 60,533 1,325,988


Other assets - - - 477 - - - 239 284,781 - 10,540 64,687 360,724

Securitisation - - - - - - - - 20,540 - - - 20,540

Defaulted Exposures - - - - - - - - - - 405 - 405


Exposure 12,508 183,951 91,865 257,935 71,497 129,854 147,224 62,353 1,831,400 77,772 163,565 485,593 3,515,517


OTC Derivatives - - 31 - - - - - 149,520 - - - 149,551

Non OTC Derivatives - - 40,000 - - 8,488 5,385 - - - - - 53,873



Exposure - - 40,031 - - 8,488 5,385 - 149,520 - - - 203,424

Total Gross Credit Exposure 12,508 183,951 131,896 257,935 71,497 138,342 152,609 62,353 1,980,920 77,772 163,565 485,593 3,718,941

19





The Bank

As at 31 July 2013

Primary

Agriculture

Mining and

Quarrying

Manufacturing

(including Agro-

based)

Electricity,

Gas and

Water

Supply Construction

Wholesale

and Retail

Trade

Restaurants

and Hotels

Transport,

Storage and

Communication

Finance,

Insurance, Real

Estate and

Business

Activities

Education,

Health and




Sovereign/Central Banks - - - - - - - - 185,640 - - 360,373 546,013


Banks, DFSs & MDBs - - - - - - - - 1,095,057 - - - 1,095,057



Managers - - - - - - - - 9,243 - - - 9,243

Corporates 12,508 183,951 91,865 257,458 71,497 129,854 147,224 62,114 231,212 77,772 - 60,440 1,325,895


Other assets - - - 473 - - - 238 284,736 - 10,540 64,569 360,556

Securitisation - - - - - - - - 20,540 - - - 20,540

Defaulted Exposures - - - - - - - - - - 405 - 405


Exposure 12,508 183,951 91,865 257,931 71,497 129,854 147,224 62,352 1,826,428 77,772 163,565 485,382 3,510,329


OTC Derivatives - - 31 - - - - - 149,520 - - - 149,551

Non OTC Derivatives - - 40,000 - - 8,488 5,385 - - - - - 53,873



Exposure - - 40,031 - - 8,488 5,385 - 149,520 - - - 203,424

Total Gross Credit Exposure 12,508 183,951 131,896 257,931 71,497 138,342 152,609 62,352 1,975,948 77,772 163,565 485,382 3,713,753

20




(iii)

Table 5: Gross Credit Exposures by Residual Contractual Maturity Analysis

The Group

As at 31 December 2014 < 1 year > 1 - 5 years Over 5 years

No specific

maturity Total

Exposure class RM'000 RM'000 RM'000 RM'000 RM'000


Sovereign/Central Banks 168,247 737,999 229,972 143,918 1,280,136

Public Sector Entities - - - - -

Banks, DFIs & MDBs 1,038,372 392,814 30,124 - 1,461,310



Managers 3,457 - - - 3,457

Corporates 595,719 1,547,749 716,625 - 2,860,093

Regulatory Retail 152,242 - - - 152,242

Other assets 46,906 - - 425,575 472,481

Securitisation - - - - -

Defaulted Exposures 1,137 10,781 - - 11,918


Exposure 2,006,080 2,689,343 976,721 569,493 6,241,637


OTC Derivatives 84,690 97,872 - - 182,562

Non OTC Derivatives 203,219 285 - - 203,504

Defaulted Exposures - - - - -

Total Off-Balance Sheet Exposure 287,909 98,157 - - 386,066

Total Gross Credit Exposure 2,293,989 2,787,500 976,721 569,493 6,627,703

The following table depicts the Banks gross credit exposures analysed by residual contractual maturity

analysis:

21




Table 5: Gross Credit Exposures by Residual Contractual Maturity Analysis (Continued)

The Bank

As at 31 December 2014 < 1 year > 1 - 5 years Over 5 years

No specific

maturity Total



Sovereign/Central Banks 168,247 737,999 229,972 143,861 1,280,079


Banks, DFIs & MDBs 774,042 392,814 30,124 - 1,196,980



Managers 3,457 - - - 3,457

Corporates 595,136 1,547,749 716,625 - 2,859,510


Other assets 46,901 - - 340,088 386,989

Securitisation - - - - -

Defaulted Exposures 1,137 10,781 - - 11,918


Exposure 1,741,162 2,689,343 976,721 483,949 5,891,175


OTC Derivatives 84,690 97,872 - - 182,562

Non OTC Derivatives 203,219 285 - - 203,504


Total Off-Balance Sheet Exposure 287,909 98,157 - - 386,066


22





The Group

As at 31 July 2013 < 1 year > 1 - 5 years Over 5 years

No specific

maturity Total



Sovereign/Central Banks 141,979 338,284 - 65,750 546,013


Banks, DFIs & MDBs 1,029,108 70,694 - - 1,099,802



Managers 9,425 - - - 9,425

Corporates 248,916 854,962 222,110 - 1,325,988


Other assets 95,596 - - 265,128 360,724

Securitisation 10,181 10,359 - - 20,540

Defaulted Exposures - - - 405 405


Exposure 1,687,825 1,274,299 222,110 331,283 3,515,517


OTC Derivatives 49,632 99,919 - - 149,551

Non OTC Derivatives 13,873 - 40,000 - 53,873


Total Off-Balance Sheet Exposure 63,505 99,919 40,000 - 203,424


23





The Bank

As at 31 July 2013 < 1 year > 1 - 5 years Over 5 years

No specific

maturity Total



Sovereign/Central Banks 141,979 338,284 - 65,750 546,013


Banks, DFIs & MDBs 1,024,363 70,694 - - 1,095,057



Managers 9,243 - - - 9,243

Corporates 248,823 854,962 222,110 - 1,325,895


Other assets 95,580 - - 264,976 360,556

Securitisation 10,181 10,359 - - 20,540

Defaulted Exposures - - - 405 405


Exposure 1,682,789 1,274,299 222,110 331,131 3,510,329


OTC Derivatives 49,632 99,919 - - 149,551

Non OTC Derivatives 13,873 - 40,000 - 53,873


Total Off-Balance Sheet Exposure 63,505 99,919 40,000 - 203,424


24




4.2 Past Due And Impaired Loans, Advances And Financing

(i) Loans

(ii) Share Margin Financing

Loans are considered as past due once contractually agreed payments are due from the borrowers and not

settled. Whilst impairment means the Bank considers it probable that it will suffer a loss on a financial asset as

a result of issuers/borrowers inability to meet their commitments according to the contractual terms and the

absence of any alternative means of repayment of recovery.

Impaired exposures comprise of loans, advances and financing where individually identified impairment

allowance has been provided. Impairment allowances are provisions in the Statement of Financial Position as a

result of the charge against income statement for the incurred losses in loans, advances and financing. An

impairment allowance can be individually or collectively assessed.

The Bank will assess at each balance sheet date whether there is objective evidence that loans, advances and

financing are impaired. Regular reviews are also conducted to determine whether there is evidence of

impairment on individual assessment. The Bank recognises impairment losses as follows:

For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk

characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such

assets by being indicative of the debtors ability to pay all amounts due according to the contractual terms of the

assets being evaluated.

If in the subsequent period, the amount of impairment decreases, which can be objectively related to an event

occurring after the write down, the impairment loss is to be reversed and recognised in the income statement.

The reversal should not result in the carrying amount of the loans, advances and financing exceeding the

amortised cost at the date the impairment loss is reversed.

For individual impairment assessment, impairment loss is measured as the difference between the assets

carrying amount and its present values of estimated future cash flows discounted at the assets original

effective interest rate. The amount of impairment loss shall be recognised in the income statement. For

collateralised loans, the Bank will estimate future cash flows from the collateral or/and other sources of

repayment.

For individual impairment assessment, impairment loss is recognised when the equity ratio (collateral to

outstanding amounts) of the margin account falls below the threshold set by the Bank. Impairment loss is

measured as the difference between the assets carrying amount (net of collateral and interest-in-suspense)

and its present values of estimated future cash flows discounted at the assets original effective interest

rate. The amount of impairment loss shall be recognised in the income statement.

Pursuant to Paragraph 13 of the Guideline on Classification and Impairment Provisions for Loans/Financing,

Bank Negara Malaysia ('BNM') had issued a letter on 4 February 2014, which require banking institutions to

maintain, in aggregate collective impairment provisions and regulatory reserves of no less than 1.2% of total

outstanding loans/financing (excluding loans/financing with an explicit guarantee from the Federal Government

of Malaysia), net of individual impairment provisions. Banking institutions are required to comply with the

requirement by 31 December 2015.

As at reporting date, the Group and the Bank have maintained the collective impairment provisions and

regulatory reserves of no less than 1.2% in the books by transferring from retained profits to regulatory reserves

(Group and Bank: RM3.57 million).

25




(i)

Table 6: Past Due and Impaired Loans, Advances and Financing by Sectorial Analysis

The Group and The Bank


Impaired loans,

advances and

financing*

Individual

assessment

allowance

Collective

assessment

allowance

Total Impairment

Allowance for

Loans, Advances

and Financing

By Sector RM'000 RM'000 RM'000 RM'000

Primary Agriculture - - - -

Mining and Quarrying - - 371 371

Manufacturing (including Agro-based) 22,500 13,766 189 13,955

Electricity, Gas and Water Supply - - 1,035 1,035

Construction - - 1,024 1,024

Wholesale and Retail Trade 11,506 10,351 551 10,902

Restaurants and Hotels - - - -

Transport, Storage and Communication - - 584 584

Finance, Insurance, Real Estate and Business Activities - - 1,233 1,233

Education, Health and Others - - 1,278 1,278

Household 122 122 2,717 2,839

Others - - - -

Total 34,128 24,239 8,982 33,221

* Impaired and past due loans, advances and financing form a subset of gross credit exposures.

The sectorial analysis of past due and impaired loans, advances and financing and the individual and collective impairment

loan provisions by sectors are depicted below:

26




Table 6: Past Due and Impaired Loans, Advances and Financing by Sectorial Analysis (Continued)

The Group and The Bank

As at 31 July 2013

Impaired loans,

advances and

financing*

Individual

assessment

allowance

Collective

assessment

allowance

Total Impairment

Allowance for

Loans, Advances

and Financing

By Sector RM'000 RM'000 RM'000 RM'000

Primary Agriculture - - 28 28

Mining and Quarrying - - 276 276

Manufacturing (including Agro-based) - - 482 482

Electricity, Gas and Water Supply - - 1,361 1,361

Construction - - - -

Wholesale and Retail Trade - - 396 396

Restaurants and Hotels - - 399 399

Transport, Storage and Communication - - - -

Finance, Insurance, Real Estate and Business Activities - - 672 672

Education, Health and Others - - - -

Household - - 1,720 1,720

Others - - 142 142

Total - - 5,476 5,476


27




(ii)

Table 7: Past Due And Impaired Loans, Advances And Financing By Geographic Distribution

The Group and the Bank


Impaired loans,

advances and

financing*

Individual

Impairment

Provision on

impaired loans,

advances and

financing

Collective

assessment

allowance

Total

Impairment

Allowance for

Loans,

Advances and

Financing

By Geographic Distribution RM'000 RM'000 RM'000 RM'000

Malaysia 34,128 24,239 8,982 33,221

Other Countries - - - -

Total 34,128 24,239 8,982 33,221



As at 31 July 2013

Impaired loans,

advances and

financing*

Individual

Impairment

Provision on

impaired loans,

advances and

financing

Collective

assessment

allowance

Total

Impairment

Allowance for

Loans,

Advances and

Financing

By Geographic Distribution RM'000 RM'000 RM'000 RM'000

Malaysia - - 5,379 5,379

Other Countries - - 97 97

Total - - 5,476 5,476


The geographic analysis of past due and impaired loans, advances and financing and the individual and

collective impairment loan provisions by geographical distribution can be analysed as follows:

28




(iii) The table below depicts the movement of impairment provisions:

Table 8: Reconciliation of Changes In Loan Impairment Provisions

31.12.2014 31.07.2013

RM'000 RM'000

Individual Impairment Provision

As at beginning of the financial period/year - 3,550

Vested from AIBB 20,269 -

Allowance made during the financial period/year 3,970 -

Amount written off - (3,550)

Amount written back - -

As at financial year end 24,239 -

Collective Impairment Provision

As at beginning of the financial period/year 5,476 4,511

Vested from AIBB 7,388 -

Allowance made during the financial period/year - 1,779

Amount written back (3,882) (814)

As at financial year end 8,982 5,476

Direct Income Statement Impacts

Direct write offs - -

Direct recoveries 3,882 -


29




4.3 Credit Risk Assessment Under Standardised Approach

The Bank uses ratings assigned by the following ECAIs:

Standard & Poors Rating Services (S&P)

Moodys Investors Service (Moodys)

Fitch Ratings (Fitch)

RAM Rating Services Berhad (RAM)

Malaysian Rating Corporation Berhad (MARC)

These ratings are used in the calculation of the following exposure classes:

Sovereigns and Central Banks

Banking Institutions

Corporate

Insurance Companies, Securities Firms and Fund Managers

In the assessment of credit risk under the Standardised Approach, the Bank uses ratings assigned by

recognised External Credit Assessment Institutions (ECAIs) in determining risk weight for certain exposure

classes.

Each exposure class above must be assigned with rating if a rating issued by the recognised ECAIs is available

in order to determine the risk weight percentage. If more than one rating is available for a specific counterparty,

the selection criteria as set out under the Single and Multiple Assessment in BNM RWCAF are applied in

determining relevant risk weight for the capital calculation. Exposures cannot be assigned with a risk weight

that is lower than that of the sovereign risk of the country in which the asset is located. Where a rating is not

available, the Bank follows the provisions stipulated under BNM RWCAF and deems the exposures as unrated.

30




4.3 Credit Risk Assessment Under Standardised Approach

(i) Credit Exposure By Risk Weights

The following table depicts the credit risk exposure of the Bank by risk weight:

Table

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