cimb investment

CIMB Investment Bank Berhad (18417-M)

Annual Report 2008

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Contents001 Corporate Profile

002 Corporate Information

004 Chairman’s Message

010 Board of Directors

012 Board of Directors’ Profiles

018 Statement on Corporate Governance

033 Audit Committee Report

039 Statement on Internal Control

046 Risk Management

052 Notable Deals

057 Notable Achievements

061 Snapshot of Corporate Events

063 Financial Statements

177 Corporate Directory

Corporate Profile

CIMB INVESTMENT BANK BERhAd

CIMB Investment Bank is the investment banking arm of CIMB Group and has served the investment banking needs of Malaysian corporations for over 3 decades.

With its regional offices in Malaysia, Singapore, Indonesia, Hong Kong, Thailand, the UK and the US, CIMB Investment Bank is well placed to serve its clients in Malaysia as well as regionally.Constantly at Malaysia’s forefront in corporate advisory as well as equity and debt capital markets, it has been named Best Investment Bank in Malaysia by various respected financial publications, among them, Euromoney, The Asset and Finance Asia.


001Annual Report 2008

Annual Report 2008002


Corporate Information

BOARD OF DIRECTORS

Dato’ Hamzah BakarChairmanIndependent Non-Executive Director

Dato’ Sri Nazir RazakDeputy ChairmanNon-Independent Non-Executive Director

Dato’ Charon Wardini MokhzaniExecutive Director

Dato’ Zainal Abidin PutihIndependent Non-Executive Director

Zahardin OmardinIndependent Non-Executive Director

Nicholas R H BloyNon-Independent Non-Executive Director

AUDIT COMMITTEE

Dato’ Zainal Abidin PutihChairman

Dato’ Hamzah BakarMember

Datuk Dr Syed Muhamad Syed Abdul KadirMember

Tan Sri G K Rama IyerMember

NOMINATION AND REMUNERATION COMMITTEE

Tan Sri Dato’ Seri Haidar Mohamed Nor Chairman

Dato’ Hamzah BakarMember

Dato’ Zainal Abidin PutihMember

Datuk Dr Syed Muhamad Syed Abdul KadirMember

Dato’ Robert Cheim Dau MengMember

BOARD RISK COMMITTEE

Dato’ Hamzah BakarChairman

Dato’ Sri Nazir RazakMember

Dato’ Zainal Abidin PutihMember

Zahardin OmardinMember

Nicholas R H BloyMember



Corporate Information

COMPANY SECRETARY

Datin Rossaya Mohd Nashir(LS 0007591)

REGISTERED OFFICE

5th Floor, Bangunan CIMBJalan SemantanDamansara Heights50490 Kuala LumpurTel : 603 2093 0379Fax : 603 2093 9688

www.ib.cimb.com

DATE OF INCORPORATION

Incorporated in Kuala Lumpur,Malaysia on 24 April 1974 as a public company (Co. No. 18417-M) under the Companies Act, 1965

PRINCIPAL BANKER

CIMB Bank Berhad6 Jalan Tun PerakPO Box 1075350050 Kuala Lumpur

AUDITORS

PricewaterhouseCoopersLevel 10, 1 Sentral, Jalan TraversKuala Lumpur SentralPO Box 1019250706 Kuala Lumpur

GROUP MANAGEMENT COMMITTEE

Dato’ Sri Nazir RazakGroup Managing Director/Chief Executive Officer

Dato’ Mohd Shukri HussinExecutive Director, BCHB

Dato’ Charon Wardini MokhzaniDeputy Chief Executive Officer,Corporate and Investment Banking Dr Gan Wee BengDeputy Chief Executive Officer,Group Risk Management Lee Kok KwanDeputy Chief Executive Officer,Group Treasury and Investments Dato’ Robert Cheim Dau MengAdviser, Corporate and InvestmentBanking Kenny KimGroup Chief Financial OfficerGroup Strategy and Finance

Tunku Dato’ Ahmad BurhanuddinGroup Customer Care andManagement Support

Badlisyah Abdul GhaniIslamic Banking

GROUP MANAGEMENT COMMITTEE (CONTINUED)

Peter EnglandRetail Banking

Sulaiman Mohd TahirConsumer Sales and Distribution

Tan Leng HockBusiness Banking

Abdul Karim Md LassimAuto Finance

Jean Yap Yoke YuenDirect Banking and Cards

Raja Noorma OthmanGroup Asset Management

Iswaraan SuppiahGroup Information and Operations

Hamidah NaziadinGroup Corporate Resources

Peter MillerGroup Insurance

Ahmad Shazli KamarulzamanGroup Special Asset Management

Lim Tiang SiewGroup Chief Internal Auditor



Chairman’s MessageCIMB Investment Bank Berhad (18417-M)



CIMB Investment Bank continued to dominate the ringgit capital markets in 2008, advising the lion’s share of domestic and cross-border mergers and acquisitions (M&As) as well as numerous equity/equity-linked and debt capital market transactions. For our efforts, we were named Investment Bank of the Year for Malaysia by Finance Asia, our eighth straight win. Despite the global financial crisis, which sapped liquidity, unnerved investors and shrank transaction volumes in capital markets worldwide, CIMB Investment Bank posted a net profit of RM113.4 million for the financial year ended 31 December 2008 and continues to maintain a very healthy balance sheet. While net profit declined 47.1% from the previous year, it was nonetheless a respectable performance in comparison with many of our global peers.

Chairman’s Message





Dear Shareholders,

The year 2008 was a challenging year for investment banking but I am proud to report that CIMB Investment Bank remained profitable, retained its leadership position and made significant strides regionally.

ACCELERATED GROWTH

CIMB Investment Bank topped the domestic M&A league table with an estimated market share of 35% by deal value and advised RM5.7 billion worth of equity issues. A host of large, innovative and pioneering deals resulted in CIMB Investment Bank, once again, winning numerous investment banking awards from various international finance publications including Asiamoney, Euromoney, Finance Asia, The Asset, Alpha Southeast Asia and IFR Asia. Several of our more notable M&A and equity/equity-linked transactions include:

• Telekom Malaysia Berhad’s demerger, which involved its fixed-line, broadband and mobile businesses, and which was one of the largest demerger exercises in the region last year;

• Abu Dhabi Commercial Bank’s strategic investment in RHB Capital Berhad, which to date, is the largest investment by a Middle East strategic investor in a Malaysian financial institution;


• Magnum Corporation Berhad’s privatisation, which was undertaken jointly by Multi-Purpose Holdings Berhad and CVC Capital Partners, a leading global private equity firm;

• UEM World Berhad’s multifaceted restructuring and M&A transaction;

• The merger of media companies Sin Chew Media Corporation Berhad, Nanyang Press Holdings Berhad and Media Chinese International Ltd, and the dual primary listing of the merged entity on Bursa Malaysia and the Hong Kong Stock Exchange;

• Khazanah Nasional Berhad’s exchangeable sukuk, which was the first-ever issuance of a zero periodic payment Islamic exchangeable sukuk in the international markets; and

• The listing of the MyETF Dow Jones Islamic Market Malaysia exchange traded fund on Bursa Malaysia.

CIMB Investment Bank also originated numerous debt and Islamic capital market transactions, including PLUS Expressways Berhad’s Islamic Medium Term Notes programme, Syarikat Prasarana Nasional Berhad’s government guaranteed Sukuk Ijarah, and even ringgit issuances for foreign entities including Islamic Development Bank and The Export-Import Bank of Korea.

Operating EnvironmentThe year began on a positive note as the Kuala Lumpur Composite Index (KLCI) broke the 1,500-point barrier in January. At the time, the Malaysian stock market was favoured by foreign investors, becoming one of the region’s best-performing bourses in the first few weeks of 2008. However, the good run ended soon after, as a series of de-rating catalysts affected the market, including the unexpected results of the general election in March and the global credit crunch.



In 2008, the KLCI lost 568 points or a hefty 39%, but still managed to outperform many of the regional indices, due in part to Malaysia frequently being a “lower-beta” market when compared to many other Asian bourses. Other factors that dragged the market lower in 2008 include weaker consumer sentiment and corporate earnings downgrades. Consumer confidence was dealt a big blow by the massive energy price hikes in June and July, when petrol prices surged 41% and electricity tariffs rose by between 18% and 26%. The resulting escalation in operating costs, combined with slower domestic and global demand, caused corporate earnings for Malaysian-listed companies to contract by an estimated 9% in 2008. While earnings downgrades occurred across the board, they were, as expected, most pronounced in cyclical sectors such as plantations, construction and property.

On the economic front, Malaysia’s real gross domestic product (GDP) grew by 7.1% in the first half of 2008, fuelled by a combination of domestic demand and robust export growth, which benefited from strong commodity prices. However the pace of growth moderated in the second half of the year as softer external demand, which was exacerbated by the global credit crunch, weakened trade activities. Domestic conditions also displayed weakening signs. Real GDP growth eased to 4.7% in the third quarter of 2008 and subsequently fell to 0.1% in the fourth quarter of 2008, taking the full year growth to 4.6%. The downturn in loan indicators provided further signals of slowing private


expenditures. Consumer spending softened to 6.7% in the second half of 2008, from 10.3% in the first half of the year, while capital investment over the same period reversed to a contraction of 3.4% from a growth of 5.8%. With inflation concerns for 2009 taking a backseat, Bank Negara Malaysia cut interest rates for the first time in over five years - by 25 basis points to 3.25% in November 2008 - to support growth and avert an economic downturn.

Financial PerformanceThe decline in the equity and debt capital markets, especially in the second half of the year, took their toll on CIMB Investment Bank’s earnings. For the financial year ended 31 December 2008, CIMB Investment Bank posted a net profit of RM113.4 million, representing a 47.1% fall from the RM214.5 million earned in the previous year. Still, I am pleased to report that our proven expertise in advisory services stood us in good stead in these trying times. Profits from advisory and related fees grew a commendable 11.7% to RM91.9 million. Our equity-related business however, suffered the brunt of the slowdown with income falling to RM26.1 million, a fraction of the previous year’s income of RM125.5 million. In 2008, CIMB Investment Bank distributed net dividends of RM225 million, representing a gross dividend of RM304.05 per share. The board also recommended the distribution of net preference dividends totaling RM70 million, representing a gross preference dividend of RM93.33 per share on one million redeemable preference shares of one sen each.

PERFORMANCE BY BUSINESS DIvISIONS

Corporate FinanceGlobal uncertainty and tighter credit were not conducive conditions for fund-raising and M&As, especially in the second half of 2008. The volume of M&A transactions in Malaysia shrank considerably, with only RM103.0 billion worth of M&A deals announced in 2008, a notable decline from the RM123.6 billion in deal value recorded in 2007. CIMB Investment Bank continued to capture the largest market share, advising on 29 deals (exceeding RM50 million) representing 35% of the year’s deals by value. We topped the domestic M&A league table, well ahead of our nearest competitor, which had an estimated market share of 17.7%.

The market saw RM14.5 billion worth of equity and equity-linked issues (excluding private placements and special issues) in 2008, a 12.7% drop from the RM16.6 billion issued in 2007.

Once again, CIMB Investment Bank led the market by advising on RM5.7 billion worth of equity/equity-linked issues. New listings or initial public offerings (IPOs) fell considerably, more than halving in value from the previous year. Only 23 IPOs with a total issue size of RM1.2 billion made it to market in 2008, against the 27 IPOs that were made in 2007 with a total issue size of RM2.7 billion.




Equities I am pleased to report that despite weak equity market conditions, CIMB Investment Bank successfully completed some notable transactions in 2008. These include Khazanah Nasional’s USD550 million exchangeable sukuk issue, the USD129 million share placement for Hong Kong-listed Parkson Retail Group, the IPO and listing of Key Asic on the MESDAQ market and a RM203 million rights issue for Wah Seong Corporation. Meanwhile, the equity capital markets division broke new ground in Islamic finance when it completed the IPO and listing of the MyETF exchange traded fund (ETF) on Bursa Malaysia in January 2008. MyETF is the first Shariah-compliant ETF to be listed in Asia and represents another milestone in Malaysia’s quest to become an international Islamic finance centre. CIMB Investment Bank continued to dominate the equity derivatives market in Malaysia in 2008, with the issuance of 41 call warrants, 13 of which were issued on foreign shares and equity indices.

Private Banking The private banking division weathered the sharp plunge in equity values relatively well. Its assets under management at the end of 2008 was RM3.9 billion, only 11% down from the previous year, thanks to a wider range of products and services and a growing clientele that continually poured their assets into the bank throughout the year. Business growth was encouraging, with the number of financial advisors rising 17% while the client base increased 19% during the year. The expanded range of private banking products and services now boasts overseas equities trading, a

greater variety of equity and foreign exchange derivative products and an exclusive discretionary fixed income fund. Early in the year, private banking advised its clients to reduce their exposure to equities. This not only helped shield the value of their managed assets from the effects of plunging stock markets, the clients’ growing interest in products like fixed income, foreign exchange derivatives and discretionary funds helped offset the large drop in volumes experienced by the equities and unit trust business. I am especially proud of the fact that this year, private banking fully utilised the resources offered by the group’s universal banking structure to roll out customised retail banking products and services for its clients. The response was encouraging to say the least, yielding strong growth in both deposits and loans for the group. In recognition of its efforts in 2008, private banking won two awards from respected industry publications:Best Private Bank in Malaysia from Finance Asia and Best Private Wealth Management House in Malaysia from Alpha Southeast Asia.

Retail Equities The global financial crisis made 2008 a volatile year for the retail equities division. Investors shied away from stock markets worldwide while on home ground, the value of shares traded on Bursa Malaysia shrank by 46%. As a result, the division saw its turnover and income fall by 60% and 62% respectively, over the year. In the face of these challenging conditions, the division doubled its efforts to reach out to retail investors in Malaysia by adding six share trading centres and extending its CIMB Bank branch broking centres to 28 nationwide.

A full-fledged stock broking centre was set up in Melaka (operational 19 January 2009), adding to the four existing stock broking offices in Kuala Lumpur, Penang, Kota Kinabalu and Kuching. This widened network offers individual investors better access to its share broking and investment-related services.

To encourage trading, the division teamed up with the group’s consumer bank, CIMB Bank in March 2008 and launched Clicks Trader, CIMB Bank’s online share trading service which charges a flat brokerage fee of only RM8.88 per order. In January 2009,Clicks Trader investors received further incentive in the form of zero brokerage fees for their transactions over a specified period.

Outlook for 2009 We believe 2009 will be a year of two different halves, the first half being much more difficult than the second one. Factors that are expected to drive the market lower in the first half include weak global economies and Malaysia’s relatively expensive valuations. Based on the six major bear markets that occurred over the last three decades, it took an average of 15 to 17 months for each bear market to bottom out. This suggests that the KLCI may reach its trough in the second quarter of 2009. On the macroeconomic front, the global financial crisis will affect Malaysia most in the form of falling exports and industrial output. The economic uncertainty worldwide will increase unemployment and weaken demand domestically.

Our economic research team believes that against this backdrop, the Malaysian economy is set to contract




slightly in 2009 from a growth of 4.6% in the year before. The manufacturing sector will contract in 2009, causing growth in the services sector to experience a sharp pullback. The construction sector will remain in growth mode while growth in the agriculture and mining sectors will continue to contract due to lower prices.

The economy is expected to recover and show moderate growth in late 2009, assuming the manufacturing sector registers a smaller drop and fiscal spending has a stronger impact. As export income slows and labour market conditions worsen, private consumption and investment will also moderate, though the latter may be partly offset by increased public expenditure.

Bank Negara Malaysia has already reduced lending rates twice in 2009 - a drastic 75 bps cut in the overnight policy rate in January and another 50 bps cut in February - as targeted fiscal action is needed to stimulate the domestic economy.

Hence, some positive macroeconomic factors are expected to emerge in mid-2009, after the market digests the brunt of first quarter earnings results in May, which are expected to disappoint. By the middle of the year, investors will begin focusing on prospects ahead, namely the possibility of gradual economic recovery in early 2010. Further, the market may get a boost after the appointment of the country’s new prime minister in March; a similar smooth transition of power in 2003 caused Bursa Malaysia to rally, climbing over 40%.

ACKNOWLEDGEMENTS

In spite of the challenging environment, CIMB Investment Bank managed to report a healthy profit for the year. In this regard, and on behalf of my fellow directors, I would like to say that we are privileged to have such dedicated and skilled management and staff in these trying times. Their tremendous efforts kept the bank profitable and at the top of its game in 2008, and are a great source of comfort and assurance as we face the challenges of 2009.

Of course, it would not have been possible to build Malaysia’s foremost investment bank without the loyal support of our shareholders, clients, partners, colleagues across CIMB Group and friends. Thanks to all of you, we are well positioned to pursue our vision of becoming the most valued investment bank in Southeast Asia.

Finally, I would like to thank my fellow directors for their foresight and guidance during this volatile year. It has been a pleasure to serve alongside such dynamic and insightful minds and I look forward to another year of hard work, great progress and much success.

Thank you.

Dato’ Hamzah BakarChairman



Board of DirectorsCIMB Investment Bank Berhad (18417-M)

From left to right:Dato’ Charon Wardini MokhzaniDato’ Zainal Abidin PutihDato’ Sri Nazir Razak




Board of Directors


From left to right:Dato’ Hamzah Bakar

Zahardin OmardinNicholas R H Bloy




Board of Directors’ Profiles

DATO’ HAMZAH BAKAR

Dato’ Hamzah Bakar, a Malaysian, aged 65, was appointed an Independent Non-Executive Director of the Bank on 26 September 2000 and elected its Chairman on 28 June 2006. He is Chairman of the Board Risk Committee and a member of the Audit Committee and the Nomination and Remuneration Committee. He also sits on the Board of Bumiputra-Commerce Holdings Berhad (BCHB) and CIMB Group.

Presently, he is Chairman of SapuraCrest Petroleum Berhad and a Director of Scomi Group Berhad. He served for 20 years in various senior management and Board positions

in Petroliam Nasional Berhad (Petronas), including Senior Vice President for Refining and Marketing, Senior Vice President for Corporate Planning and Development and Main Board Director. Prior to Petronas, he was a Director of the Economic Planning Unit in the Prime Minister’s Department.

He holds a Bachelor of Science (Hons) degree in Economics from the Queen’s University of Belfast, Northern Ireland and a Master of Arts degree in Public Policy and Administration, with Development Economics, from the University of Wisconsin, United States of America.

He does not have any family relationship with other directors and/or major shareholders of the Company nor does he have any conflict of interest with the Bank. He has not been convicted of any offence within the past ten years.

Dato’ Hamzah attended 13 of the 14 Board meetings held in 2008.




DATO’ SRI NAZIR RAZAK

Dato’ Sri Nazir Razak, a Malaysian, aged 42, was appointed a Non-Independent Executive Director on 15 November 1996 and re-designated to Non-Independent Non-Executive Director on 1 July 2006. Dato’ Sri Nazir was elected Deputy Chairman on 20 March 2007. He is presently the Group Managing Director/Chief Executive Officer of BCHB and CIMB Group and is also a Director and Deputy Chairman of CIMB Bank and CIMB Islamic.

Dato’ Sri Nazir graduated from the University of Bristol with a Bachelor of Science (Hons) degree and obtained a Master of Philosophy from the University of Cambridge. He joined Commerce International Merchant Bankers Berhad’s (now known as CIMB Investment Bank) corporate advisory department in 1989 and managed various fund raising, privatisation, listing and corporate restructuring exercises. In 1993 he transferred to the bank’s stockbroking arm where he rose to the position of Executive Director. He moved back to CIMB Investment Bank as Deputy Chief Executive on 1 June 1996 and became Chief Executive on 1 June 1999. He assumed the position of Group Managing Director/Chief Executive Officer of BCHB Group on 7 November 2006.

Dato’ Sri Nazir is a member of the National Economic Council, the Employees Provident Fund’s Investment Panel, the Securities Commission’s Capital Market Advisory Council, Bursa Malaysia’s Securities Market Consultative Panel, the MasterCard Asia/Pacific Regional Advisory Board and the Asia Business Council. He holds directorships in Multimedia Development Corporation and Malaysian Electronic Payment System (1997) Sdn Bhd. He is an Executive Committee member of the Malaysia International Islamic Financial Centre. He is also a trustee of both the Rahah Foundation and the Pride Foundation.

Dato’ Sri Nazir was the winner of Malaysia’s CEO of the Year Award 2004 organised by Business Times and American Express Global Corporate Services. In 2005, he was named one of the “25 Stars of Asia” by BusinessWeek magazine and one of the World Economic Forum’s Young Global Leaders. In 2006 and 2007, Asiamoney listed him among the top 100 most powerful and influential people in business and finance in the Asia-Pacific region. In 2006, Dato’ Sri Nazir was named one of Asia’s 50 most influential figures of the last decade (1996-2006) by Finance Asia magazine. In 2008, Institutional Investor ranked Dato’ Sri Nazir second in its Asia’s Best CEO (Bank) survey.

He does not have any family relationship with other directors and/or major shareholders of the Company nor does he have any conflict of interest with the Company. He has not been convicted of any offence within the past ten years.

Dato’ Sri Nazir attended 13 of the 14 Board meetings held in 2008.




DATO’ CHARON WARDINI MOKHZANI

Dato’ Charon Wardini Mokhzani, a Malaysian, aged 45, became an Executive Director on 2 May 2006. He is also the Deputy Chief Executive Officer, Corporate and Investment Banking, CIMB Group, having been the Bank’s Deputy Chief Executive since 1 August 2004. He heads the Corporate and Investment Banking Division and co-heads the Corporate Client Solutions Division of the Group. He is the Chairman of CIMB-Principal Asset Management Berhad and CIMB-Mapletree Management Sdn Bhd and a Director of CIMB-GK Pte Ltd and CIMB Bank (L) Limited.

He is a council member of the Malaysia Investment Banking Association and the Institute of Bankers Malaysia and a director of Akademi IBBM Sdn Bhd. He is also a director of Cagamas Holdings Berhad and a member of the Board of the Yayasan Tuanku Syed Putra Perlis.

Prior to joining the Bank, he was Managing Partner of Zaid Ibrahim & Co., Malaysia’s largest law firm, as well as an Independent Director of CIMB Berhad when it was first listed until July 2003. Before that, he worked in corporate finance at Rashid Hussain Securities Sdn Bhd and as an advocate and solicitor with Shearn Delamore & Co. International legal publications have recognised him as having been one of the leading corporate and finance lawyers in Malaysia.

Dato’ Charon was educated at the Malay College Kuala Kangsar and Bloxham School, England and read Philosophy, Politics and Economics at Balliol College, University of Oxford (BA Hons) and Law at the School of Oriental and African Studies, University of London (LLB Hons). He is a barrister of the Middle Temple and an advocate and solicitor of the High Court of Malaya.

He does not have any family relationship with other directors and/or major shareholders of the Bank nor does he have any conflict of interest with the Bank. He has not been convicted of any offence within the past ten years.

Dato’ Charon attended all 14 the Board Meetings held in 2008.




DATO’ ZAINAL ABIDIN PUTIH

Dato’ Zainal Abidin Putih, a Malaysian, aged 63, was appointed as an Independent Non-Executive Director of the Bank on 30 June 2004. He is the Chairman of the Audit Committee and a member of the Nomination and Remuneration Committee and the Board Risk Committee.

Dato’ Zainal also sits on the Boards of BCHB, CIMB Group, and CIMB Bank.

Dato’ Zainal has extensive experience in audit, management consulting and taxation, having been involved as a practising accountant throughout his career. He was the Chairman of Pengurusan Danaharta Nasional Berhad up to 31 December 2005.

He is currently the Chairman of the Malaysian Accounting Standards Board and sits on the Boards of Esso Malaysia Berhad and Tenaga Nasional Berhad, both public listed companies. Dato’ Zainal is also the Chairman of Mobile Money International Sdn Bhd and holds directorships in a number of private companies. He is also a Trustee of the National Heart Institute Foundation.

He was an Adviser with Ernst & Young Malaysia until his retirement on 31 December 2004 and was formerly the Country Managing Partner of Hanafiah Raslan and Mohamad which merged with Arthur Andersen in 1990. He is also a Past President of the Malaysian Institute of Certified Public Accountants and previously served as a member of the Malaysian Communication and Multimedia Commission. He was previously a member of the Investment Panel of the Employees Provident Fund. He qualified as a Chartered Accountant from the Institute of Chartered Accountants in England and Wales and is a member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants.

He does not have any family relationship with other directors and/or major shareholders of the Company nor does he have any conflict of interest with the Company. He has not been convicted of any offence within the past ten years.

Dato’ Zainal attended all the 14 Board meetings held in 2008.



ZAHARDIN OMARDIN

Zahardin Omardin, a Malaysian, aged 64, was appointed an Independent Non-Executive Director of the Bank on 5 May 2004. He also sits on the Board of CIMB (L) Limited.

He is presently a Partner of Messrs. Chew Kar Meng, Zahardin & Partners and has previously served on the Boards of various companies including Rakyat First Merchant Bankers Berhad. He was formerly the Head of Legal and Secretarial Department/Company Secretary of British American Tobacco (M) Berhad. He qualified as a Barrister-at-Law from the Inns of Court School of Law, United Kingdom in 1973. Upon graduation, he worked

at The Royal Courts of Justice and the Tax Office in London, after which he returned to Malaysia to practise law.


He attended 13 of the 14 Board Meetings held in 2008.





NICHOLAS R H BLOY

Nicholas R H Bloy, a British national, aged 46, was appointed a Non-Independent Non-Executive Director of the Bank on 1 February 2001.

He is a Co-Founder and Managing Partner of Navis Capital Partner Limited, a firm managing private equity funds in the Asian region. He was previously an International Director/Partner with The Boston Consulting Group International Incorporated in Asia, prior to which he worked with Bain & Co in London. He holds a Bachelor of Arts (Hons) degree from the University College, London and a Masters in Business Administration degree from INSEAD.


He attended 9 of the 14 Board Meetings held in 2008.



Statement on Corporate Governance

The Bank has always recognised the importance of sound corporate governance standards and practices as a safeguard in balancing the Bank’s risk-taking activities and business prudence. The Board of Directors (Board) is fully supportive of the Bank’s initiatives and has given full commitment to ensure the adoption of high standards of governance in all aspects of the Bank’s business.

The governance framework adopted by the Bank is based on the principles and best practices recommended by the Malaysian Code on Corporate Governance (Revised 2007) (the Code). As a financial services provider, the Bank is also guided by the Bank Negara Malaysia Guidelines on Corporate Governance for Licensed Institutions (Revised BNM/GP1) as well as international best practices. The Bank’s Corporate Governance practices are also entrenched in its brand values: Value Creation, Enabling People and Integrity.

This Statement on Corporate Governance serves to outline how the Bank has applied the principles and best practices set out in the Code and the Revised BNM/GP1.

BOARD OF DIRECTORS

The Board and Board Balance

The structure and composition of the Board comply with the requirements of the Code, Revised BNM/GP1 and in particular the “Green Book on Enhancing Board Effectiveness” (Green Book) as part of the Government Linked Companies (GLC) Transformation Programme initiated by the Putrajaya Committee on GLC High Performance framework.

The Board comprises 6 members, with 1 Executive Director, 2 Non-Independent Non-Executive Directors and 3 Independent Non-Executive Directors. The Independent Non-Executive Directors constitute 50% of the Board composition, ensuring the required check and balance for making the Board independent, able and competent in discharging its duties and responsibilities.

The Board is led by the Chairman, Dato’ Hamzah Bakar, who is an Independent Non-Executive Director. Dato’ Hamzah is a distinguished figure in the corporate sector, particularly in the oil and gas industry, having served for 20 years in various senior management and board positions in Petroliam Nasional Berhad (Petronas). Prior to joining Petronas, he served in the Economic Planning Unit (EPU) of the Prime Minister’s Department for 12 years.

Dato’ Sri Nazir Razak, the Deputy Chairman, is also the Group Managing Director/Chief Executive Officer (Group MD/CEO) of the Bumiputra-Commerce Holdings Berhad Group (BCHB/the Group). He is a dynamic and prominent banker with numerous awards and accolades conferred upon him for his vast contributions towards the Group as well as the financial sector in Malaysia.

Dato’ Charon Wardini Mokhzani, the Executive Director (ED) of the Bank, has been with the Group since August 2004. He assumed the position of the ED on 2 May 2006 and is recognised as one of the leading corporate and finance lawyers in Malaysia. He leads and oversees the development and implementation of strategies and policies approved by the Board to build the Corporate and Investment banking business, both domestically and internationally. As ED, he keeps the Board fully informed and updated of all important aspects of the Bank’s operations.

The Directors of the Bank have met the criteria for appointment of Directors as set out by the Revised BNM/GP1. All Independent Directors act independently from Management, of mind and in appearance, and do not participate in any business transaction that may impair their independent judgment and decision-making. Both the Board size and composition also meet the recommendations of the GLC Green Book and serves as a foundation for an effective and high performing Board to lead and control the Bank.

Brief backgrounds of each Director are presented on pages 012 to 017 of the Annual Report.




Directors’ Code of Ethics

The Code of Ethics as set out in the BNM Guidelines on the Code of Conduct for Directors, Officers and Employees in the Banking Industry (BNM/GP7), the Companies Act 1965 and the Code of Ethics for Company Directors issued by the Companies Commission of Malaysia are constantly adhered to by the Directors of the Bank. Amongst others, a Director must act with utmost good faith towards the company in any transaction and act honestly and responsibly in the exercise of his powers in discharging his duties.

Duties and Responsibilities of the Board

The Board is the ultimate decision-making body of the Bank, except with respect to matters reserved for shareholders. It acts as an advisor to Management and defines and enforces standards of accountability, all with a view to enabling Management to execute its responsibilities effectively.

The Board’s principal responsibilities include:

• To provide clear objectives and policies within which senior executives of the Bank are to operate.• To ensure that there are adequate controls and systems in place to facilitate the implementation of the Bank’s

policies.• To monitor Management’s success in implementing the approved strategies, plans and budget.• To understand the principal risks of all aspects of the business in which the Bank is engaged in and ensure that

systems are in place to effectively monitor and manage these risks with a view to the long-term viability and success of the Bank.

• To monitor and assess development which may affect the Bank’s strategic plans.• To review the adequacy and the integrity of the Bank’s internal control systems and management information systems,

including systems for compliance with applicable laws, regulations, rules, directives and guidelines.• To monitor market and liquidity risks, the quality of the Bank’s exposure and changes in the Bank’s resources.• To avoid conflicts of interest and ensure disclosure of possible conflicts of interest.• To uphold and observe banking and relevant laws, rulings and regulations.

Matters that are reserved for the Board include, amongst others, the following:

• To approve strategic/business plans and annual budget.• To approve new investments, divestments, mergers and acquisitions, including the establishment of subsidiaries,

joint ventures or strategic alliances both locally and abroad.• To approve the acquisition and disposal of assets of the Bank.• To approve annual financial statements and quarterly results.• To approve appointment of new Directors, CEO and other senior management positions based on recommendations

of the Nomination and Remuneration Committee of BCHB.• To approve the Bank’s credit transactions and exposure with connected parties in line with BNM/GP6 Guidelines on

Credit Transactions and Exposures with Connected Parties.

The duties and responsibilities of the Chairman and the ED are distinct and separate. The Chairman leads and oversees the Board and presides at all meetings of the Board. The Chairman facilitates the flow of information between Management and the Board, and in consultation with Management, sets the agenda for each Board meeting. The ED leads the Bank’s management and is accountable to the Board and ultimately to shareholders. The ED is primarily responsible for the day-to-day operations of the Bank’s business, strategic planning, budgeting, financial reporting, compliance with regulations and risk management.




Appointments to the Boards

The appointment and re-appointment of Directors in the Bank are under the purview of the Nomimation and Remuneration Committee of BCHB, which is responsible for assessing and recommending the nomination of Directors to the respective Boards of the Group. This process is undertaken through a comprehensive evaluation of the skills, knowledge and experience of the Directors before a recommendation for the nomination to the respective Boards is made. The proposed appointment and re-appointment of Directors are submitted to BNM for final approval.

Re-appointment and Re-election of Directors

In accordance with the Bank’s Articles of Association, one-third of the Directors shall retire from office at each Annual General Meeting (AGM) and are eligible to offer themselves for re-election. The proposal for the re-appointment and re-election are recommended to the Nomination and Remuneration Committee for approval prior to the shareholders’ approval at the AGM. New Directors appointed by the Board in each financial year are subject to re-election by the shareholders at the next AGM following their appointments.

Number of Directorships

In accordance with the Revised BNM/GP1, Directors do not hold more than 10 directorships in listed companies and not more than 15 in non-listed companies. The Directors of the Bank further comply with the GLC Green Book which caps directorships in listed companies to 5 and non-listed companies to 10. The ED also complies with the Revised BNM/GP1 requirements, which limit his directorships to not more than 5 in the Group. The list of directorships of Directors is submitted and confirmed by each Director and is presented to the Board on a quarterly basis.

Meetings and Supply of Information to the Board

The Board is kept abreast with various information on the business of the Bank through monthly Board meetings as well as the dissemination of pertinent reports. Board Meetings are conducted based on a structured agenda. The Board meets to discuss and determine the strategic business direction and is apprised of the financial performance of the Bank. In addition, various reports from Board Committees are presented for the Board’s information by the respective Committees’ Chairmen. At the end of every quarter, the Board reviews and approves the Bank’s quarterly results, reviews Directors’ training programmes and Directors’ disclosures of directorships and shareholdings. Urgent or important business issues that affect the Bank are deliberated and approved as and when required via Special Meetings. All deliberations at Board meetings, including dissenting views, are duly minuted as true records of the proceedings. The draft minutes are circulated to the Directors for their review and comments prior to finalisation. Once confirmed, the minutes are signed by the Chairman of the meeting in accordance with the provision of Section 156 of the Companies Act, 1965.

In line with the GLC Green Book, the Board meeting papers are targeted for dissemination to the Directors at least 7 days prior to Board meetings to facilitate the Directors in discharging their duties effectively.

At the Board meetings, the ED provides comprehensive explanation of significant issues relating to the Bank’s business together with updates on the Bank’s financial performance. The Chairman of the Audit Committee provides a summary of the audit reports deliberated at Audit Committee meetings for the Board’s notation. Significant audit findings by the Group Internal Audit Division are also escalated to the Board. In addition, the Head of Group Compliance reports the status of legal and regulatory compliance for all the business and support functions in the Bank, while the Head of Group Risk Management briefs the Board on the risk positions of the various activities undertaken by the Bank. Any Director who has interest in any proposal or transaction recommended by Management is duty bound to declare his interest and abstains from deliberation and decision of the proposal. This process is duly recorded in the minutes of the proceedings.



Information on the Bank is fully accessible by all Directors through the management team and the Company Secretary. Members of senior management are occasionally invited to attend Board meetings to present proposals relating to their respective businesses and operations, while the Company Secretary serves and advises the Board on matters relating to the affairs of the Board, including changes in statutory and regulatory requirements, compliance with requirements on training, quorum and attendance at Board meetings.

There were 14 Board meetings held in 2008 and Directors’ attendance at meetings held in 2008 are as follows:

No. of Meetings

Directors Held Attended

Dato’ Hamzah Bakar 14 13Chairman/Independent Non-Executive Director

Dato’ Sri Nazir Razak 14 13Deputy Chairman/Non-Independent Non-Executive Director Dato’ Zainal Abidin Putih 14 14Independent Non-Executive Director Dato’ Charon Wardini Mokhzani 14 14Executive Director Nicholas R H Bloy 14 9Non-Independent Non-Executive Director Zahardin Omardin 14 13Independent Non-Executive Director

Board meetings are usually held at the Board Room, 10th Floor, Bangunan CIMB, Jalan Semantan, Damansara Heights, 50490 Kuala Lumpur.

Directors’ Training

Directors’ training is an ongoing process to enhance Directors’ knowledge on the latest developments and key challenges in the financial sector, both in Malaysia and globally. Directors are encouraged to attend training programmes as well as conferences and seminars which are organised internally and by external parties. Whenever required, specific training programmes are arranged for Directors to facilitate them in discharging their duties.

New Directors are introduced to the Bank’s and the Group’s businesses via an induction programme organised by Management. Heads of Divisions brief new Directors on their respective areas of responsibility to equip the Directors with the background knowledge of the Bank and the Group as well as provide them a platform to establish initial interaction with Management. On a yearly basis, the Directors are also invited to attend the Group’s Annual Management Dialogue where the senior management brainstorm and discuss the current trends and future direction of the Group.




Some of the programmes attended by the Directors in 2008 which were organised by the Group as well as other relevant bodies were as follows:

• BNM Financial Institutions Directors’ Education Programme• Corporate Governance: Roles and Responsibilities of Directors• Update on Corporate Governance Regulatory Framework and Current Issues: Effective Governance - the Way Forward• Institut Bank-Bank Malaysia (IBBM) Directors’ Programme: Economic Capital & Performance Management under

Basel II• IBBM Directors’ Programme: Derivatives - Effective or Costly?• IBBM Directors’ Programme: Compliance Management in a Banking Environment• Financial Reporting Framework Strategic Planning Workshop• Invest Malaysia 2008 Conference• International Accounting Standards Board Regional Meeting & Public Seminar - International Financial Reporting

Standard: A Global and Regional Perspective• The Futurist Forum 2008: Mindset - A Framework to Anticipate The Future• Khazanah Megatrends Forum: Shifting Sands - Threats & Opportunities• Khazanah Global Lectures: Building Tomorrow’s Minds Today• Roundtable Conference on the Islamic Bond Market in Thailand• World Standard Setters’ Conference• Workshop on Shariah and Legal Issues in Islamic Finance• 21st Asia Venture Capital Journal (AVCJ) Private Equity & Venture Forum, Hong Kong• The Second Asian Mergers & Acquisition (M&A) Conference 2009: How has the Asian M&A Landscape Changed

Since the Credit Crunch

Board Committees

In discharging its duties, the Board delegates specific responsibilities to various Board Committees. These Committees operate within clearly defined terms of reference. However, as the Bank’s business is organised functionally within the Group’s Universal Banking framework, the Group has adopted a combined oversight structure for several Board Committees in the Group. Apart from maximising Group synergy, this structure also ensures effectiveness in the oversight function at Group level. Reports of the respective Committees’ meetings are presented to the Board for information and where required, for further deliberation.

The Committees reporting to the Board are as follows:

• Audit Committee• Board Risk Committee• Nomination and Remuneration Committee• Compensation Review Committee• Shariah Committee

Audit Committee

Pursuant to BNM approval, the Bank leverages on the CIMB Group Audit Committee which resides at CIMB Bank. The CIMB Group Audit Committee provides an independent oversight function over the Bank’s financial reporting and internal control system.





All Audit Committee members are Independent Non-Executive Directors of the Group and are financially literate, in line with the requirements of the Code and BNM/GP1. Dato’ Zainal Abidin Putih, the Chairman of the Audit Committee, has been a practicing accountant throughout his career and has extensive experience in audit, management consulting and taxation. The performance of the Audit Committee is reviewed annually by the Nomination and Remuneration Committee to determine that the Audit Committee has discharged its duties in accordance with its terms of reference.

The Audit Committee met 23 times in 2008 and the attendance of the members are as follows:

No. of Meetings

Members Held Attended

Dato’ Zainal Abidin Putih - Chairman 23 23Independent Non-Executive Director of CIMB Bank and the Bank Dato’ Hamzah Bakar 23 21Independent Non-Executive Director of the Bank Datuk Dr Syed Muhamad Syed Abdul Kadir 23 23Independent Non-Executive Director of CIMB Bank and CIMB Islamic Bank Tan Sri G K Rama Iyer 23 23Independent Non-Executive Director of CIMB Bank

The Audit Committee Report and its activities for the financial year ended 31 December 2008 are set out under pages 033 to 038 of the Annual Report.

Board Risk Committee

The Board Risk Committee reports to the Board and consists solely of the Non-Executive Directors of the Bank.

The primary responsibility of the Board Risk Committee is to ensure that the integrated risk management functions within the Bank are effectively discharged. A total of 11 meetings were held in 2008 and the attendance of members are as follows:

No. of Meetings


Dato’ Hamzah Bakar - Chairman 11 10Independent Non-Executive Director of the Bank

Dato’ Sri Nazir Razak 11 10Deputy Chairman/Non-Independent Non-Executive Director of the Bank

Dato’ Zainal Abidin Putih 11 11Independent Non-Executive Director of the Bank

Zahardin Omardin 11 11Independent Non-Executive Director of the Bank

Nicholas R H Bloy 11 8Non-Independent Non-Executive Director of the Bank



The terms of reference of the Board Risk Committee are as follows:

• Reviewing and recommending risk management strategies, policies and risk tolerance for Board’s approval.• Reviewing and assessing adequacy of risk management policies and framework in identifying, measuring, monitoring

and controlling risk and the extent to which these are operating effectively.• Ensuring infrastructure, resources and systems are in place for risk management.• Reviewing management’s periodic reports on risk exposure, risk portfolio composition and risk management

activities.• Approving the appointment of members to the Group Risk, Market Risk, Credit Risk, Liquidity Risk and Operational

Risk Committees and determining their terms of references.• Approving global Capital-at-Risk limits and the authorities of Group Risk, Market Risk, Credit Risk, Liquidity Risk and

Operational Risk Committees’ policies to control risk.• Reviewing and approving proposals recommended by the Risk Committees including proposals on new products

and service offerings of the Group.• Providing strategic guidance and reviewing decisions made by the various Risk Committees.• Appointing external consultants, from time to time, to review and advise the Board Risk Committee on the risk

management matters.

Details of the Bank’s risk management framework are elaborated in pages 046 to 051 of this Annual Report.

Nomination and Remuneration Committee

Pursuant to BNM approval, the Board leverages on the Nomination and Remuneration Committee of BCHB, which is responsible for ensuring a consistent framework for the appointment of new Directors in the Group and that rewards and remuneration packages are commensurate with each of their expected responsibilities and contributions. It has established a formal and transparent procedure for the appointment of Directors, Board Committees, CEO and key senior management in the Group. A similar procedure has also been applied in developing the remuneration policy for Directors, CEO and key senior management.

Reports and recommendations of the Nomination and Remuneration Committee are escalated to the Board for approval or decision.

The Nomination and Remuneration Committee comprises of Non-Executive Directors of BCHB and is chaired by Tan Sri Dato’ Seri Haidar Mohamed Nor.




The members of the Nomination and Remuneration Committee and their attendance at meetings held in 2008 are as follows:

No. of Meetings


Tan Sri Dato’ Seri Haidar Mohamed Nor - Chairman 4 4Senior Independent Non-Executive Director of BCHB and CIMB Bank Dato’ Hamzah Bakar 4 4Independent Non-Executive Director of BCHB and the Bank Dato’ Zainal Abidin Putih 4 4Independent Non-Executive Director of BCHB, CIMB Bank and the Bank Datuk Dr Syed Muhamad Syed Abdul Kadir 4 4Independent Non-Executive Director of BCHB, CIMB Bank and CIMB Islamic Bank

Dato’ Robert Cheim Dau Meng 4 3Non-Independent Non-Executive Director of BCHB

The terms of reference of the Nomination and Remuneration Committee with regard to the nomination role are as follows:

• Establishing clear, formal and transparent procedures for the re-election and appointment of the Board. • Establishing minimum requirements for the Board, namely required mix of skills, experience, qualification and other core

competencies required of each director. The Nomination and Remuneration Committee is also responsible for establishing the minimum requirements for the CEO. The requirements and criteria should be approved by the full Board.

• Recommending and assessing the nominees for directorship, Board committee members as well as nominees for the CEO and ensuring compliance with section 56 of the Banking and Financial Institutions Act 1989 and section 23 of the Islamic Banking Act 1983 (for the banking subsidiaries) and the corresponding sections of the Insurance Act 1996 and the Takaful Act 1984 (for insurance and takaful subsidiaries). This includes assessing directors for reappointment, before an application for approval is submitted to BNM. The actual decision as to who shall be nominated should be the responsibility of the Board. Subsequent to the assessment, in the event where there are changes concerning a director that would affect his contribution and attendance to the Board, the Chairman shall request for a follow-up assessment on the director, as and when it is required.

• Overseeing the overall composition of the Boards and the Board committees in terms of the appropriate size and skills, and the balance between executive directors, non-executive directors and independent directors through annual reviews.

• Recommending to the Board for the removal of a director/CEO from the Board/management if the director/CEO is ineffective, errant and negligent in discharging his responsibilities.

• Establishing a mechanism for the formal assessment of the effectiveness of the Board as a whole and the contribution of each director to the effectiveness of the Board, the contribution of the Board’s various committees and the performance of the CEO and other key senior management officers. Annual assessment should be conducted based on an objective performance criterion. Such performance criteria should be approved by the full Board.

• Ensuring that all directors receive an appropriate continuous training programme in order to keep abreast with the latest development in the industry.

• Recommending to the Board the removal of key senior management officers if they are ineffective, errant and negligent in discharging their responsibilities.




• Overseeing the appointment, management succession planning and performance evaluation of key senior management officers.

• Whenever key expatriates at financial institutions are employed, to ensure there is in place a process for the transfer of expertise and skills from the expatriates to the staff of the financial institutions.

• Assessing on an annual basis that the directors and key senior management officers are not disqualified under section 56 of the Banking and Financial Institutions Act 1989 and/or section 23 of the Islamic Banking Act 1983 and the corresponding sections of the Insurance Act 1996 and the Takaful Act 1984.

• The nomination role of the Nomination and Remuneration Committee should not be delegated with decision-making powers but should report to the full Board for decision.

The terms of reference of the Nomination and Remuneration Committee with regard to the remuneration role are as follows:

• Recommending a framework of remuneration for directors, CEO and key senior management officers of the BCHB Group for the full Board’s approval. The remuneration framework should support the BCHB Group culture, objectives and strategy and should reflect the responsibility and commitment, which goes with board membership and responsibilities of the CEO and senior management officers. The framework should cover all aspects of remuneration including director’s fees, salaries, allowances, bonuses, options and benefits-in-kind.

• Recommending specific remuneration packages for the key senior management officers as defined under ‘Meeting’. The remuneration package should be structured such that it is competitive and consistent with the BCHB Group’s culture, objectives and strategy. Salary scales drawn up should be within the scope of the general business policy and not be dependent on short-term performance to avoid incentives for excessive risk taking. As for non-executive directors and independent directors, the level of remuneration should be linked to their level of responsibilities undertaken and contribution to the effective functioning of the Board. In addition, the remuneration of each Board member may differ based on their level of expertise, knowledge and experience.

• To recommend to the Board, performance-related assessment programmes to assess the effectiveness of the Boards, the Committees of the Board and individual directors on an annual basis.

• To recommend to the Board the appointment, and remuneration, of Shariah Committee members of the Islamic subsidiaries, and external advisors as advised and deemed necessary to fulfill its obligation and responsibilities. Annual/periodic reviews of the remuneration shall be conducted by the Nomination and Remuneration Committee if deemed necessary.

Following the regional expansion of the Group, the Nomination and Remuneration Committee had conducted a review of its terms of reference and recommended that its scope be expanded to include oversight over the nomination of Directors and CEOs of the Group’s entities in other regional jurisdictions.

The Nomination and Remuneration Committee also facilitates the Board in reviewing, on an annual basis, the effectiveness of the Board and Board Committees. The Group has adopted a process to evaluate the effectiveness of the Board and the Board Committees by conducting an annual Board Effectiveness Assessment (BEA) exercise. In line with the expanded scope of the Nomination and Remuneration Committee, the BEA was further enhanced to include the following 3 new sections:

• Shareholders• Accountability and Audit• Disclosure by the Company

The inclusion of these new sections provides a more comprehensive feedback by the Board and Board Committees to better enable the Nomination and Remuneration Committee in the evaluation of Directors’ performance. At the end of the BEA exercise, the Directors’ responses are collated and a summary of the findings is submitted to the Nomination and




Remunaration Committee for deliberation. A recommendation to the Board is made on whether a follow-up assessment is required, where necessary. The deliberations of the Nomination and Remunaration Committee on the findings of the BEA are duly minuted at the meetings of the Nomination and Remunaration Committee and the Boards respectively.

The enhanced BEA now also includes a process for the Nomination and Remunaration Committee to undertake individual assessment of Directors of the Bank who are eligible for re-appointment, prior to recommendations being made to BNM. This individual assessment process involves a set of questionnaires that measure the Directors’ performance in terms of knowledge, contribution of ideas, competency and integrity.

Separate assessments are conducted by the Nomination and Remunaration Committee on the ED of the Bank based on his pre-determined Key Performance Indicators (KPIs).

Compensation Review Committee

The Compensation Review Committee reports to the Board and assists the Board in ensuring that there is a common oversight of the employees’ remuneration and compensation paradigm. This covers provision and allocation of staff bonuses as well as salary increments and adjustments.

The members of the Compensation Review Committee and their attendance at meetings held in 2008 are as follows:

No. of Meetings


Dato’ Hamzah Bakar - Chairman 2 2Independent Non-Executive Director of the Bank Dato’ Zainal Abidin Putih 2 2Independent Non-Executive Director of the Bank Nicholas R H Bloy 2 1Non-Independent Non-Executive Director of the Bank Dato’ Robert Cheim Dau Meng 2 2Non-Independent Non-Executive Director of BCHB Dato’ Sri Nazir Razak 2 2Deputy Chairman/Non-Independent Non-Executive Director of the Bank

The terms of reference of the Compensation Review Committee are as follows:

• To oversee the remuneration packages for all employees in the BCHB Group (except Group MD/CEO and Executive Directors).

• To ensure that the remuneration packages are consistent with the Group’s objectives and strategies.• To ensure that the compensation framework is continually reviewed and benchmarked to best industry practice.• To recommend related staff remuneration packages to the respective Boards in the BCHB Group for approval.




Shariah Committee

Pursuant to BNM approval, the Islamic Banking business of the Bank leverages on the advise of the Shariah Committee of CIMB Islamic Bank.

In compliance with BNM’s Guidelines on the Governance of Shariah Committee for Islamic Financial Institutions (BNM/GPSi), the Shariah Committee ensures that the operations of the Islamic banking business are Shariah-compliant. In advising on such matters, the Shariah Committee ensures that the rulings on Islamic products and services comply with the judgements or the ijtihad of the relevant Shariah authorities, including the Shariah Advisory Council of BNM and Securities Commission in Malaysia and the Fatwa issued by Dewan Syariah Nasional - Majelis Ulama Indonesia and the Brunei State Mufti’s Office, wherever applicable. The Shariah Committee also takes into consideration Shariah Courts’ judgements and rulings published by the National and State Fatwa Councils.

The members of the Shariah Committee of CIMB Islamic Bank and their attendance at meetings held in 2008 are as follows:

No. of Meetings

Members Nationality Held Attended

Sheikh Professor Dr Mohammad Hashim Kamali - Chairman Canadian 5 3 Independent Non-Executive Director of CIMB Islamic Bank (Malaysian Permanent Resident) Sheikh Nedham Yaqoobi Bahraini 5 4

Sheikh Dr Haji Mohd Nai’m Haji Mokhtar Malaysian 5 4

Sheikh Associate Professor Dr Shafaai Musa Malaysian 5 5 Sheikh Dr Haji Zainudin Jaffar Malaysian 5 5 Sheikh Dr Yousef Abdullah Al Shubaily Saudi Arabian 1* 1(Appointed on 28 October 2008)

Note:

* Reflects the number of meetings held during the time the member held office.

Management Committees

The following Management committees have been established to assist senior management of the Group in managing the various business and support activities in the Group, of which the Bank is part of:

• Group Management Committee• Group Executive Committee• Group Human Resource Committee• Consumer Banking Committee• Balance Sheet Management Committee• Commitments Committee• Cost Management Committee• Crisis Management Committee• Disciplinary Committee




• Marketing and Communications Committee• IT Strategy Committee• Occupational Safety and Health Committee Regional Committees

• Regional Integration Committee• Regional Corporate Banking Committee• Regional Consumer Banking Committee• Regional Customer Care Committee• Regional Legal Committee• Regional Marketing and Communications Committee• Regional Private Banking Committee• Regional Special Asset Management Committee

DIRECTORS’ REMUNERATION

The level and make-up of remuneration

The level of remuneration of the Directors is sufficient to attract and retain Directors in the Bank. The Nomination and Remuneration Committee has established the remuneration framework of Directors and key senior management of the Bank. This includes fees and meeting allowances for Non-Executive Directors which are based on industry standards and set by reference to the responsibilities taken on by them. In order that it remains competitive and consistent with the culture, objective and strategy of the Group, the compensation framework of Non-Executive Directors are reviewed periodically to ensure that they remain market-competitive. The compensation package of the ED is based on KPIs that are linked to the Bank’s and the individual’s performance.

External advisors or consultants may be engaged by the Nomination and Remuneration Committee to advise on specific areas where necessary. Remuneration of the Directors in office during the financial year is also disclosed in the Group’s Financial Statements.

The aggregate remuneration paid to the Directors of the Bank in 2008 was as follows:

Salary and/or other Benefits- Fees remuneration in-kind Total RM’000 RM’000 RM’000 RM’000

Executive Directors Dato’ Charon Wardini Mokhzani - 2,269 47 2,316 Non-Executive Directors Dato’ Hamzah Bakar 36 195 24 255Dato’ Sri Nazir Razak - 5,028 97 5,125Dato’ Zainal Abidin Putih 24 67 - 91Nicholas R H Bloy 24 44 - 68Zahardin Omardin 24 63 - 87

108 5,397 121 5,626

Total 108 7,666 168 7,942




SHAREHOLDERS

Major developments within the Group are consistently communicated to shareholders and investors in a timely and accurate manner.

One of the important channels of communication to shareholders and investors is the Annual Report which contains comprehensive information of the Group. The contents of the Annual Report are consistently enhanced to reflect transparency and accountability in line with best corporate governance practices.

The AGM provides a forum for the Board and Senior Management to communicate with shareholders of the Group. At the AGM, the Group MD/CEO of BCHB conducts a brief presentation on the Group’s financial performance and prospects; and shareholders are given the opportunity to seek clarification on the Group’s performance and the Directors’ stewardship of the Group and the Bank.

Another form of communication for shareholders is through the Bank’s website, www.ib.cimb.com. The Bank’s website provides up-to-date information on financial results, and guides investors to direct queries on the Bank to the Investor Relations team. Information posted on the Bank’s website reinforce the Bank’s commitment to provide a true and fair view of the Bank’s operations.

The primary contacts for Investor Relations in the Bank and in the Group are:

Dato’ Sri Nazir Razak, Group MD/CEO, BCHBTel : 603 - 2084 8602Email : [email protected]

Dato’ Charon Wardini Mokhzani, EDTel : 603 - 2093 8601Email : [email protected]

Lee Kok Kwan, Deputy CEO, Group Treasury and Investments Tel : 603 - 2084 8828Email : [email protected]

Steven Tan Chek Chye, Investor RelationsTel : 603 - 2084 9696Email : [email protected]

ACCOUNTABILITY AND AUDIT

Financial Reporting

As required by the Companies Act, 1965 and the Banking and Financial Institutions Act, 1989, Financial Statements for each financial year are prepared in accordance with the Malaysian Accounting Standards Board’s (MASB) Approved Accounting Standards and the BNM Guidelines. The Financial Statements give a true and fair view of the state of affairs of the Bank as at 31 December 2008.




Appropriate accounting policies have been consistently applied in presenting the Financial Statements, supported by prudent judgement and estimates prepared on going concern basis. The Directors ensure that financial reporting presents a balanced and comprehensible assessment of the Bank’s financial position and prospects in all its reports to the shareholders, investment community and regulatory authorities. The Directors’ Statement of Responsibility for preparing the Financial Statements is prepared together with the Bank’s audited Financial Statements.

The Audit Committee assists the Board in overseeing the financial reporting process. The Bank’s quarterly, half-yearly and annual Financial Statements are reviewed by the Audit Committee and approved by the Board prior to submission to BNM within the stipulated time frame.

Statement of Directors’ Responsibility

In preparing the Financial Statements, the Directors have ensured that accounting standards approved by the MASB in Malaysia and the provisions of the Companies Act, 1965 have been complied with and reasonable and prudent judgements and estimates have been made. The Directors have also overall responsibilities for taking such steps as are reasonably open to them to safeguard the assets of the Bank and for the implementation and continued operation of adequate accountings and internal control systems for the prevention and detection of fraud and other irregularities.

The Board is satisfied that it has met its obligation to present a balanced and understandable assessment of the Bank’s position and prospects in the Directors’ Report as set out on pages 064 to 069 and the Financial Statements section of this Annual Report.

Internal Control

The Board has overall responsibility for maintaining sound internal control systems that cover financial controls, effective and efficient operations, compliance with law and regulations as well as risk management. The size and complexity of the Group necessitate the managing of a wide and diverse spectrum of risks. The nature of these risks means that events may occur which would give rise to unanticipated or unavoidable losses. The inherent system of internal controls is designed to provide a reasonable though not absolute assurance against the risk of material errors, fraud or losses occurring. The Statement on Internal Control which provides an overview of the state of internal control is set out on pages 039 to 045 of the Annual Report.

The persons overseeing Internal Control matters in the Bank and in the Group are:

Risk Management and Control:Dr Gan Wee Beng, Deputy CEO, Group Risk ManagementTel : 603 - 2084 2252Email : [email protected]

Internal Control:Lim Tiang Siew, Group Chief Internal AuditorTel : 603 - 2084 8677Email : [email protected]

Operational Control and Information Technology Security:Iswaraan Suppiah, Head, Group Information and OperationsTel : 603 - 2084 9276Email : [email protected]




Relationship with Auditors

The Bank’s internal audit function is performed in-house by the Group Internal Audit Division, which regularly audits the internal control practices and reports significant findings to the Audit Committee with recommended corrective actions. Management is responsible to ensure that corrective actions on reported weaknesses are undertaken within an appropriate time frame. A report of the Audit Committee and its terms of reference is included in pages 033 to 038 of this Annual Report.

The Board and the Audit Committee maintain a formal and appropriate relationship with the external auditors. In line with the Code, the Audit Committee convened 2 meetings with the external auditors in 2008 without the presence of Management. Apart from that, the external auditors were also invited to attend Audit Committee meetings. The Audit Committee reviews the independence of external auditors annually and ensures that other non-audit work are not in conflict with the functions of external auditors. The Audit Committee also ensures that there is a rotation of the Engagement Partner of the external auditors every 5 years.




Audit Committee Report

The CIMB Group Audit Committee is committed to its role of ensuring proper corporate governance practices and to provide oversight on CIMB Group’s financial reporting, risk management and internal control systems.

COMPOSITION

The Audit Committee was formed in July 2006 to consolidate the various Audit Committees within CIMB Group. The restructuring of the Audit Committee has been duly approved by Bank Negara Malaysia (“BNM”) and is in accordance with BNM/GP1 (Guidelines on Corporate Governance for Licensed Institution).

The Audit Committee comprises four (4) independent non-executive directors who represent the boards of all the Malaysian banks within the Group except for CIMB Bank (L) Limited. In 2008, a total of twenty three (23) Audit Committee meetings were held and all the Audit Committee members have met the minimum 75% attendance as per BNM guidelines.

Details of the Audit Committee membership and meetings held are as follows:

No. of Meetings


Dato’ Zainal Abidin Putih 23 23 Independent Non-Executive Director of CIMB Bank and CIMB Investment Bank

Tan Sri G K Rama Iyer 23 23 Independent Non-Executive Director of CIMB Bank

Dato’ Hamzah Bakar 23 21 Independent Non-Executive Director of CIMB Investment Bank

Datuk Dr Syed Muhamad Syed Abdul Kadir 23 23 Independent Non-Executive Director of CIMB Bank and CIMB Islamic Bank

The Chairman of the Committee, Dato’ Zainal Abidin Putih is a member of the Malaysian Institute of Accountants (MIA) and also meets the requirements of Section 15.10 (1) of the Listing Rules which requires at least one qualified accountant as a member of the Audit Committee.

The Chairman of the Audit Committee reports to the Board on all matters deliberated during the Audit Committee meetings. Minutes of each meeting are also distributed to each member of the Board.

AUTHORITY

The Audit Committee, in discharging its duties, shall have explicit authority to investigate any matter within its terms of reference, full access to and co-operation from management and full discretion to invite any director or executive officer to attend its meetings, and reasonable resources to enable it to discharge its functions properly. The Audit Committee shall have full and unrestricted access to information and be able to obtain independent professional advice, such expenses to be borne by the Group.




TERMS OF REFERENCE OF AUDIT COMMITTEE

• To review the effectiveness of internal controls, risk management processes and governance within CIMB Group and its subsidiaries, taking into account the requirements in revised Malaysian Code of Corporate Governance, Listing Requirements of Bursa Malaysia Securities Berhad, BNM/GP1 (Guidelines on Corporate Governance for Licensed Institution), BNM/GP1-i (Guidelines on Directorship in the Islamic Bank), BNM/GPIS1 (Guidelines on Management of IT Environment), BNM/GPi13 (Guidelines on Audit Committee and Internal Audit Department for Insurance Company), other relevant guidelines issued by regulators, including the effectiveness of management in discharging its duties.

• To perform the following in relation to Internal Audit functions:

a) To ensure the internal audit function is well placed to undertake review or investigation on behalf of the Audit Committee (AC), and be placed under the direct authority and supervision of the AC.

b) To review the internal audit scope, internal audit programme, internal audit findings and recommended actions to be taken by the Management. The reports of internal auditors and the AC are not subject to clearance of the Group Chief Executive.

c) To oversee the functions of the Internal Audit department and ensuring compliance with the BNM/GP10 (Guidelines on Minimum Audit Standards for Internal Auditors of Financial Institutions) and BNM/GPi13 (Guidelines on Audit Committee and Internal Audit Department for Insurance Company).

d) To review the competency and resources of the internal audit function and that it has the necessary authority to carry out its work.

e) To evaluate the performance and decide on the remuneration package of the internal auditors.f) To approve the appointment, transfer and dismissal of Chief Internal Auditor or senior staff members of the

internal audit function and to be informed of resignation of internal audit staff members and provide the resigning staff member an opportunity to submit his/her reasons for resigning.

• To review the effectiveness of External Auditors:

a) To consider the appointment of external auditors, the audit fee and question of resignation or dismissal.b) To review with the external auditors, the scope of their audit plan, the findings on system of internal accounting

controls (including management action) and the relevant audit reports. c) To assess objectivity, performance and independence of external auditors (e.g. by reviewing and assessing the

various relationships between the external auditors and the CIMB Group or any other entity).d) To approve the provision of non-audit services by the external auditors.e) To ensure that there are proper checks and balances in place so that the provision of non-audit services does not

interfere with the exercise of independent judgement of the auditors.f) To ensure that the accounts are prepared in a timely and accurate manner with frequent reviews of the adequacy

of provisions against contingencies and bad and doubtful debts.g) The AC shall meet with the external auditors at least twice a year without the presence of the CIMB Group and

its subsidiaries management or executive board members to discuss on key concerns and to obtain feedback.

• To review the audit findings, internal control and compliance issues identified/reported by the internal auditors, external auditors and regulatory auditors as the case may be and to ensure that appropriate and prompt remedial actions are taken, where appropriate, by management.

• To engage on a continuous basis with senior management, such as the chairman, the chief executive officer, the chief financial officer, the head of internal audit, the head of risk division and the external auditors in order to be kept informed of matters affecting the company.



• To convene meetings with external auditors, internal auditors or both, excluding the attendance of other directors and employees of the company and its subsidiaries, whenever deemed necessary.

• To review the Annual Financial Statements for submission to the Board of Directors of major entities within the CIMB Group and ensure prompt publication of annual accounts.

• To review the quarterly results of the financial statements, prior to the approval by the Board of Directors, focusing particularly on the following:

a) Deliberation on any changes in the accounting policy;b) Adoption of or implementation of any new accounting standards;c) Changes to legal or regulatory requirements; and d) Compliance with accounting standards and other legal or regulatory requirements.

• To review all related party transactions, as submitted by the Management that may arise within the CIMB Group and keep the Board informed of such transactions.

• To obtain external professional advice and to invite outsiders with relevant experience to be present where necessary.

• To review and deliberate reports from designated Compliance Officers of Exempt Dealer status entities.

INTERNAL AUDIT FUNCTION

• The Group Internal Audit Division (GIAD) is independent and reports directly to the Audit Committee (AC).

• GIAD supports the AC in discharging its responsibilities. GIAD conducts audits for the BCHB Group, except for CIMB Niaga which is supported by its own Internal Audit Department. However, in ensuring proper group audit oversight, CIMB Niaga’s internal audit department submits quarterly reports to GIAD, highlighting key audit issues and concerns.

• GIAD provides independent assurance on the adequacy and effectiveness of the internal control systems implemented by Management. An annual audit plan is developed based on assessment of risk priorities, exposures and strategies/goals of the Group.

• GIAD assists the Board, Audit Committee and Management in ensuring effective discharge of their responsibilities in establishing cost-effective controls, risk management and recommending measures to mitigate identified risks and to ensure proper governance.

• GIAD provides periodic reports to the Audit Committee, reporting on the outcomes of the audits conducted which highlight the effectiveness of the systems of internal control and significant risks. The Audit Committee reviews and evaluates the key concerns and issues raised by GIAD and ensure that appropriate and prompt remedial actions are taken by Management.

• GIAD also undertakes fraud investigation of the BCHB Group as and when requested by the Audit Committee.




SUMMARY OF ACTIvITIES

During the year under review, the Audit Committee carried out its duties as set out in the terms of reference. Key activities include:

• Reviewed and approved the annual audit plan, scope of work and resource requirement of the GIAD.

• Reviewed the external auditor’s audit plan, scope of work and results of the annual audit for the Group.

• Reviewed the internal control issues identified by the group internal auditors, external auditors and regulatory examiners, as well as Management’s response to the recommendations and the implementation of agreed action plans.

• Reviewed write-off proposals as presented by the Management and recommended them for the Board’s approval.

• Reviewed the annual audited financial statements of the Group with external auditors prior to submission to the Board of Directors and BNM for their approvals.

• Reviewed the proposals for non-audit services rendered by the external auditors.

• Initiated field visits to various CIMB Group business and operational units. The primary objectives of the visits are as follows:

a) To engage in dialogues and discuss the audit reports thoroughly, openly and professionally and to find ways of improving current operations.

b) To meet various management staff and to get first hand information on their operating environment and strategy.

c) To agree on action plans going forward.

• Initiated meetings with Head of Divisions, where heads presented their business plans, operational concerns and challenges and relevant Management action plans for the year.

• In compliance with the Code of Corporate Governance, the AC held several meetings with external auditors without Management’s presence to discuss key concerns and obtain feedback on the Group’s state of internal control.

• Considered and recommended to the Board the re-appointment of the external auditors and their audit fees.




TRAININGS ATTENDED

During the year, the members attended several trainings to keep abreast of latest developments. Some of the training courses attended are as follows:

No Members Date of Training Training Course 1. Dato’ Zainal Abidin Putih January 2008 • FRF Strategic Planning Workshop • 49th Anniversary Commemorative Lecture - Enhancing Confidence in the Capital Market

March 2008 • Corporate Governance Assessment

May 2008 • Dialogue on “Convergence to IFRS and the Roles of MASB”

June 2008 • Panelist: Live Audit Committee Simulation at the Asia Pacific Audit & Governance Summit

July 2008 • IASB Regional Standard-Setters Meeting & Public Seminar - IFRS • Breakfast Talk: “The Audit Committee’s Top 10 Best Practices”

August 2008 • The Futurist Forum 2008: “Mindset: A Framework to Anticipate The Future” • Khazanah Global Lectures: “Building Tomorrow’s Minds Today” by Dr A P J Abdul Kalam (former president of India)

September 2008 • World Standard Setters Conference

October 2008 • Public Forum on Convergence • Khazanah Megatrends Forum Shifting Sands: Threats & Opportunities • Convergence with IFRS by 2012

2. Tan Sri G K Rama Iyer March 2008 • 5th Khazanah Global Lectures Presentation by Mr Carlos Ghosn, President and CEO, Renault & Nissan Motor Corporation.

April 2008 • MIER 13th Corporate Briefing • IBBM - Directors’ Programme: Compliance Management in a Banking Environment




No Members Date of Training Training Course June 2008 • Transparency International Malaysia - CEO Forum: Transparency in Motion • PEM Seminar on Mid Term Review: 9th Malaysian Plan

July 2008 • MIER 23rd National Economic Briefing

August 2008 • Khazanah Global Lectures: “Building Tomorrow’s Minds Today” by Dr A P J Abdul Kalam

November 2008 • India Economic Summit 2008 • Professor Daniel Quinn Mills - Corporate Governance: Roles & Responsibilities of Directors

December 2008 • MIER National Outlook Conference 2009-2010

3. Dato’ Hamzah Bakar March 2008 • 5th Khazanah Global Lectures Presentation by Mr Carlos Ghosn, President and CEO, Renault & Nissan Motor Corporation

April 2008 • IBBM - Directors’ Programme: Derivatives - Effective or Costly?

May 2008 • IBBM - Directors’ & Senior Management Programme - Economic Capital & Performance Management under Basel II

4. Datuk Dr Syed Muhamad April 2008 • Update on Corporate Governance Regulatory Syed Abdul Kadir Framework and Current Issues “Effective Governance the Way Forward” • IBBM - Directors’ Programme Derivatives - Effective or Costly? • IBBM - Directors’ Programme: Compliance Management in a Banking Environment May 2008 • IBBM - Directors’ & Senior Management Programme - Economic Capital & Performance Management under Basel II

August 2008 • National Human Resources Masterplan at National Productivity Centre • Khazanah Global Lectures: “Building Tomorrow’s Minds Today” by Dr A P J Abdul Kalam (former President of India)




Statement on Internal Control

BOARD RESPONSIBILITY

The Board is responsible for the Group’s system of internal control which includes the establishment of an appropriate control environment framework as well as reviewing its adequacy and integrity. The system of internal control addresses the need for effective and efficient business operations, sound financial reporting and control procedures, and compliance with relevant laws and regulations. The Board also recognises that reviewing the Group’s system of internal control is a concerted and continuing process, designed to manage and appropriately mitigate the risk of failure in achieving business objectives. Accordingly, the Group’s system of internal control provides reasonable assurance against material misstatement and mismanagement.

RISK MANAGEMENT AND CONTROL FRAMEWORK

The Board recognises that risk management is an integral part of the Group’s day-to-day operations and that the identification, assessment and management of risks will affect the achievement of the Group’s business objectives as well as protect shareholders’ value. In pursuing these objectives, the Group has adopted the Enterprise-wide Risk Management (EWRM) Framework to manage its risks and opportunities. The Board has also established the Board Risk Committee, with the primary responsibility of ensuring the effective functioning of the EWRM Framework.

The EWRM Framework involves an on-going process of identifying, evaluating, monitoring and managing the significant risks affecting the achievement of its business objectives. It provides the Board and the Management with a tool to anticipate and manage both the existing and potential risks, taking into consideration the changing risk profiles as dictated by changes in business and regulatory environment, the Group’s strategies and functional activities throughout the year.

INFORMATION TECHNOLOGY SECURITY

In 2008, the Group continued to improve its Information Architecture with efforts in prevention, detection and response against internal threats, such as misuse of privileges, leakage of confidential data and external threats, such as third-party phishing websites and continued threats from aggressive malware.

New and improved systems have been installed to closely monitor the usage of Information Technology (IT) resources for staff. The monitoring occurs at the desktop level, such as web-surfing monitoring and email transmissions, and also at server and network level, where additional logs are centrally collated and monitored for suspicious activity.

Externally, the Group has minimised the possibility of network-based attacks to the external email infrastructure, and the IT Department under the Group Information and Operations Division (GIOD-IT) has also commenced a project to allow a more comprehensive system for tracking of email communications based on its content. Significantly, we have also achieved WebTrust certification for both CIMB Clicks and CIMB Biz-Channel banking platforms.

The Group maintains a strong knowledge of and continues to refine its mitigation strategies against Information Technology threats by participating in specific forums on Information Security and industry dialogues such as the Internet Banking Task Force. These initiatives contribute towards a systematic methodology to ensure the confidentiality, integrity, availability and non-repudiation of information and Information Systems against current or any potential threats prevalent in the evolving and changing internet world. This enables the Group to retain its customer trust and maintain high rates of utilisation for the Group’s products and services.




In 2008, an IT Risk Framework was developed and is continually maintained to ensure that risks are correctly identified and the necessary remedial actions are in place.

KEY INTERNAL CONTROL PROCESSES

The key processes that the Board has established in reviewing the adequacy and integrity of the system of internal control, including compliance with applicable laws, regulations, rules, directives and guidelines, are as follows:

• Risk Committees

The Board has established various risk committees within the Group with distinct lines of responsibility and function, which are clearly defined in the terms of reference. These committees have the authority to examine matters within the scope and report pertinent issues and recommendations to the Board.

The Board Risk Committee determines the Group’s risk policy objectives and assumes responsibility on behalf of the Board for supervision of risk management. The Board Risk Committee reports directly to the Board of the Group. It oversees the EWRM Framework and provides strategic guidance and reviews decisions made by the various Risk Committees.

The day-to-day responsibility of risk management supervision and control is delegated to the Group Risk Committee, which reports directly to the Board Risk Committee. The Group Risk Committee comprising the Senior Management of the Group, performs the oversight function for capital allocation and overall management of risks, guided by the risk appetite defined by the Board.

The Group Risk Committee is supported by specialised sub-committees; namely, Credit Risk Committee, Liquidity Risk Committee, Market Risk Committee and Operational Risk Committee. Delegated by the Board, these committees meet weekly/monthly to review and deliberate on the risk exposure profile reports.

• Group Management Committee

The day-to-day operations of the Group is managed by the Group Chief Executive, who in turn is assisted by the Group Management Committee (GMC) which ensures that effective operations of the Group are conducted in accordance with corporate objectives, strategies, approved annual budget as well as policies and procedures. Policy guidelines and authority limits are imposed on the delegated members with regard to daily banking and financing operations, extension of credit, investments as well as acquisitions and disposals of assets.

The GMC members are principally responsible for the performance of their respective business divisions as well as overseeing the Group’s strategy, cross-divisional synergies, regulatory issues and other key matters within the Group.

• Internal Policies and Procedures

Clearly documented internal policies and procedures of all business units have been approved by the Board for application across the Group. Policies and procedures serve as a day-to-day operational guide to ensure compliance with internal controls and the applicable laws and regulations. Regular reviews and updates are performed to reflect changing risks or processes and internal control improvements while ensuring that documentation remains current.




• Performance Review

The Board receives and reviews regular reports from the management on key financial and operating statistics as well as legal and regulatory matters. Each business unit is subject to performance reviews in monthly GMC meetings. The performance of each business unit is assessed against the approved budgets and business objectives whilst explanation is provided for significant variances. The review also details fresh business proposals, achievements for the month and listing of defaulted accounts.

• Internal Audit

The Group Internal Audit Division (GIAD) provides independent assurance on the efficiency and effectiveness of the internal control systems implemented by Management. An annual audit plan is developed based on an assessment of risk priorities, exposures, and strategies and goals of the Group.

GIAD assists the Board and Audit Committee in the effective discharge of their responsibilities in establishing cost-effective controls, risk management, recommending measures to mitigate identified risks and ensuring proper governance. GIAD also investigates incidents of fraud, establishes the root cause and makes the necessary recommendation to the Audit Committee.

GIAD provides periodic reports to the Audit Committee, reporting on the outcome of the audits conducted which highlight the effectiveness of the system of internal control and significant risks. The Audit Committee reviews and evaluates the key concerns and issues raised by GIAD and ensures that appropriate and prompt remedial action is taken by Management.

The Audit Committee also conducts “on the ground” visits to all regions in Malaysia and overseas operation entities. This enables the Audit Committee to actively interact with the relevant management staff on the expectations of the Group with regards to compliance and internal controls.

• Institutional Integrity Unit

The Institutional Integrity Unit (IIU) was established as a unit within the Group Chief Executive’s Office to undertake investigations of complaints of irregularities and fraud perpetrated by staff as well as allegations of misconduct and unethical practices. The IIU also plays a consultative role in providing feedback on preventative measures and remedial action in enhancing organisational value. The establishment of this Unit is aimed at instilling in all staff an awareness of management’s non-tolerance of fraud, unethical practices and irregularities.

• Regional Compliance Framework

With the regional expansion, the Group has implemented the Group Compliance Policy and Procedures (Compliance P&P) and Conflict Management Policies (collectively referred to as the “P&Ps”) across the entities in the jurisdictions where the Group has had its presence since 2007. The Group had undertaken a review of the P&Ps in 2008 to ensure that the processes are current and reflect the changing financial environment. In line with the Group’s growth, relevant conflict management processes have also been put in place to manage potential conflict issues.

Pursuant to the Compliance P&P, appropriate governance has been established and compliance reports are submitted to the Board of the Group to ensure proper oversight.




• Group-Wide Chinese Wall Policy

The Group places high importance in ensuring that its Chinese Wall Policy is adhered to and kept updated. The Group-wide Chinese Wall Policy covers both the relevant Group committees and organisational structures which are most likely to be in possession of price-sensitive non-public information. The Policy, which is clearly communicated to the relevant departments and their affected staff, also sets out clear procedures to control the flow of such information within the Group to minimise the risk of any breach of the insider trading provisions under the Capital Markets and Services Act 2007 (the CMSA). These established arrangements provide our Group with a defence to the insider trading prohibition under the CMSA by managing in an integrated manner, the information flows arising from the convergence of various business practices.

• New Product Approval Policy and Procedures

New Product Approval Policy and Procedures is enforced for all new investment bank and consumer bank products, inclusive of both conventional and Islamic products. New products are products that are offered by the relevant banking entities of the Group for the first time or a combination of or variation to existing products which have material change in the risk profile, as determined by the Chief Risk Officer. Group Risk Management is tasked to coordinate the product approval process together with the product owners.

For the introduction of any new investment bank product that is offered by the Group for the first time, initial clearance is obtained from Group Risk Committee (GRC). Similarly, for new consumer bank products, initial clearance is sought from either GRC, Consumer Banking Committee (CBC) or Balance Sheet Management Committee (BSMC). Introduction of Islamic products will require the endorsement from the Shariah Committee.

The acceptance and sign-off of the relevant divisions or departments is obtained from Risk Management, Risk Monitoring, Operations, IT, Compliance, Legal, Finance, Audit and Consumer Sales & Distribution as well as other relevant divisions, where applicable.

Where necessary, the product should also be deliberated at the Operational Risk Committee (ORC) for matters that would impact the Group’s operations. On pricing issues for consumer bank products, approval from BSMC should also be sought. Final approval is obtained from GRC for investment bank products and ORC for consumer bank products.

The Group will continue to adopt appropriate risk assessment measures to ensure that the interest of all stakeholders are protected when new products are introduced.

• Exceptions Management Procedure

The Board has put in place an “Exceptions Management Procedure” formalising the reporting escalation process, when internal or external breaches are detected. This procedure advocates timely remedial measures and strengthens transparency and management oversight.

When an exception occurs, the Monitoring Officer alerts Risk Management & Analytics Department (RMA) providing relevant details such as date, description and type of the exception as well as identifies the parties involved. A copy of the e-mail will also be sent to the relevant Head of Department (HOD) involved and the originator of the exception. Within 24 hours of being informed of the exception, the originator(s) must provide a written explanation in the form of an Incident Report endorsed by the HOD, to the Monitoring Officer and RMA.

Exceptions are summarised and reported to the Group Risk Committee on a monthly basis.




• Code of Ethics

Upon joining the Group, new staff are required to acknowledge in writing, their acceptance and understanding of Bank Negara Malaysia (BNM)’s code of ethics. The importance of the code of ethics is emphasised during the Group’s Induction programme. Bi-annually,existing staff are required to sign off electronically via the Group’s intranet, acknowledging their observance to the code of ethics.

• Human Resources Policies and Procedures

The Human Resources (HR) policies and procedures are in place encompassing the full spectrum of human resources management such as the recruitment of new employees as well as separation of employees which includes resignation and termination of staff. The policies and procedures are constantly reviewed and any changes are communicated to the staff via e-mail or through memoranda. The policies are also readily available through the Group’s intranet where staff can easily access these policies at their convenience.

One of the challenging issues facing the Group is dealing with fraud cases involving employees. In this regard, staff are periodically reminded of the relevant policies via e-mail or memoranda. Several training initiatives such as AMLA sessions are also carried out regularly to further emphasise the Group’s view on non-tolerance to fraud. The same is also highlighted during the Group’s Induction programme for new employees. In instances where the Group is alerted of fraud cases, prompt investigation is conducted. Swift and stern action which could include dismissal of service and filing of civil suit for recovery of losses could be taken against the offenders. Such firm actions are taken in order to send a clear message to staff that the Group views fraud very seriously.

The Board affirms that a sound internal control framework is the foundation for efficient business operations within the Group. During the period, the Group has instituted numerous initiatives to strengthen its systems of internal control. These include:

• Basel II

BNM, on 17 September 2004, reiterated a two-phased approach for implementing the standards recommended by the Bank for International Settlements set out in “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (Basel II) in Malaysia. In the first phase, banking institutions are required to adopt the Standardised Approach for credit risk by the end of 2008. In the second phase, qualified banking institutions are allowed to migrate directly to the Internal Rating-Based approach (IRB Approach) by January 2010.

The Group has been making significant progress in its preparations and has undertaken various compliance and risk management projects towards satisfying the Basel II requirements across various risk categories. A Basel II Steering Committee chaired by the Group Chief Executive Officer, has been set up to oversee the implementation initiatives across the Group with the assistance of various sub-committees.

BNM had on 3 September 2007 approved our application for direct migration to the Internal Rating-Based approach. Regular meetings are held with BNM to ensure implementation initiatives are in line with their expectations.

• Business Continuity Management

Business Continuity Management (BCM) Department identifies all activities and operations that are critical to sustaining the Group’s business operations with the intention of ensuring that all associated operational risks are eliminated or minimised. The department manages the BCM activities for local operations, foreign subsidiaries and overseas branches.




Business Continuity Plans (BCP) were established for business as usual (BAU) mission-critical functions. Such plans are also extended to foreign subsidiaries and the overseas branches for adoption, with consideration given to meeting regulatory requirements in their respective jurisdictions.

Disaster Recovery Plans (DRP) have been established between BCM, GIOD-IT and the IT service providers. The banking entities within the Group have subscribed to various Disaster Recovery (DR) sites with internal resources or independent service providers, which serves as the IT-DR & BCP back-up sites. Alternate DR sites are currently available at Akademi CIMB Putra, Bangi Data Centre, Menara Southern Bank, Wisma AMGM, Menara Milenium, Kompakar CRC (M) Sdn Bhd, Menara Choy Fook Onn and Plaza Pantai to cater as alternate business sites should any of the primary sites be unavailable.

As an example, during the Semantan Landslide Crisis on 4 December 2008, a total of 12 alternate sites were mobilised and the BCM team with the assistance of others, successfully relocated approximately 795 staff from the two affected buildings in 3 days. This included the procurement of 250 new personal computers, relocation of servers from the 2 buildings to Menara Southern Bank, accomodating 135 personnel at the Hewlett Packard (M) Sdn Bhd (HP) Backup Site in Glenmarie and the setting up of 116 personal computers for affected employees at Bursa Malaysia Berhad. Critical operations resumed without any significant disruptions on 5 December 2008 and all other operations resumed on 9 December 2008.

In our effort to continuously improve the business continuity and standardise the BCM methodology for the Group, we had, in 2008 initiated the Business Impact Analysis and Risk Assessment project. This will ensure that the BCP and DRP are adequate and meet the business requirements.

• Control and Risk Self Assessment (CRSA)

The CRSA utilises a robust risk and control based methodology, to assist business divisions and support functions to identify, assess and profile its operational risk in a systematic and controlled manner. Deployment of CRSA is facilitated by the Operational Risk Unit and action plans are formulated by business lines, and operational support on specific control and risk concerns identified, to mitigate and manage identified risk.

To further enhance the consumer bank’s corporate governance, the Group has implemented a Self-Assessment Review Programme (ShARP) to include the consumer bank business, in particular, at the branch network, credit operations and backroom operations, in its effort to expand the coverage of these CRSA initiatives. The plan is to eventually extend the ShARP to cover other strategic business units within the Group. The program involves the concept of empowering the strategic business units as well as the product and process owners to continuously evaluate and provide assurance that it has appropriate controls in place to manage a broad range of risks, arising from day-to-day business activities.

ShARP also strongly complements approaches taken by the Group to adopt the “Risk-Based Supervisory Approach” by BNM in assessing significant activities that affect the stability and soundness of financial institutions. ShARP also creates an operational risk profile database that can be tapped into by internal audit, risk management and compliance functions within the Group to minimize duplication of efforts and resources whilst enhancing internal controls and compliance. The benefits of ShARP, amongst others, is to promote a risk and compliance conscious culture within the organisation, nurture common understanding and risk language throughout the Group, provide clearer definition of accountability for internal control and compliance, thus enhancing the assurance process.




• Loss Event Database and Key Risk Indicator

The Group has in place a Loss Event Database, which captures and tracks the actual and potential operational risk-related losses in the Group, as well as Key Risk Indicators reporting, which provides the Group with analysis of changes in risk trends and general risk profiles. Losses reported for the Loss Event Database and Key Risk Indicators are summarised and reported to the Operational Risk Committee on a regular basis.

• Compliance and Fraud Detection

In an effort to ensure that fraud is contained and minimised, the Group constantly monitors new trends and development on fraud to implement controls and detection tools. Training programmes are being introduced in forensic psychology and sociology from the fraud perspective and on the detection of forgeries.

The Group also has in place a Whistle Blowing Policy which is documented under the Protection Information Disclosure Policy section in the HR Policy Manual. The policy defines the rights of informants and the protection accorded to them. In addition, the channels of escalation are also documented to guide staff in directing their information to the appropriate designated officers.

• Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT)

The AML/CFT initiatives gained further momentum in 2008. The implementation of AML/CFT system was extended to include a nation-wide rollout to Islamic banking, Direct Banking and Cards, Auto Finance, Trade Finance and the stockbroking business. With this, additional users were therefore trained to utilise a system that enables an automated identification and tracking of possible money laundering and financing of terrorism activities. The recognition of this tracking system culminated in CIMB Bank being awarded the prestigious MIS IT Excellence Awards 2008 for the Best Knowledge Management category. AML/CFT training methodologies was another area which was given added boost with the introduction of enhanced E-Learning modules.

CONCLUSION

The Board is of the view that the present system of internal control is adequate for the Group to manage its risks and to achieve its business objectives. However, given the challenging environment that the Group operates in, the Board is committed to ensure that the Group continuously reviews its internal control systems to effectively protect stakeholders’ interests and safeguard the Group’s assets.



Risk Management

Risk management is an integral part of the Bank’s business. An effective risk management system is critical for the Bank to achieve continued profitability and sustainable growth in shareholder’s value, more so in today’s globalised, yet inter-linked financial and economic environment.

ENTERPRISE RISK MANAGEMENT AND CONTROL FRAMEWORK

CIMB Group employs the Enterprise Wide Risk Management (EWRM) framework to manage its risk and opportunity effectively. The EWRM framework involves an on-going process of identifying, evaluating, monitoring, managing and reporting significant risks affecting the Group, implemented through a number of committees established by the Board of Directors. The framework provides the Board and its management with a tool to anticipate and manage both the existing and potential risk, taking into consideration the changing risk profiles, as dictated by changes in business strategies and regulatory environment and functional activities throughout the year.

CIMB Group employs a Capital-at-Risk (CaR) framework as the common measure of risk across the Group. The CaR framework provides the basis of allocating economic capital within the Bank, to cushion against unexpected losses. CaR can be aggregated, thus allowing measurement of the Bank’s total risk. It also provides a yardstick for evaluating risk-return relationship in different lines of business. The CaR framework also enables measurement of return of risk-adjusted-capital, to compare profitability across different businesses and for performance measurement in the Bank.

CIMB Group performs a group wide stress test on a biannual basis to evaluate the financial impact on the Group in the event of projected adverse economic and financial situations. This process enables the Group to assess the sufficiency of its liquidity surplus and reserves, and whether it could continue to meet its minimum capital requirement under such scenario. Such group wide stress test allows management to gain a better understanding of how portfolios and investments are likely to react to changing economic conditions and how the Group can best prepare for and react to them. In addition, the Group performs ad-hoc stress tests on selected portfolio to evaluate its performance under a given stress scenario.

RISK MANAGEMENT ORGANISATION

At the apex of the Bank’s risk management structure is the Board Risk Committee (the BRC), which comprises exclusively of non-executive Directors of the Bank. In line with best practices, the BRC determines the risk policy objectives for the Bank, and assumes ultimate responsibility for risk management. The BRC also decides the yearly allocation of risk capital to support all risks taken by the Bank.

The day-to-day responsibility for risk management and control is delegated to the Group Risk Committee (the GRC). The GRC, comprises of senior management of CIMB Group, undertakes the oversight function for capital allocation and overall risk limits, in line with the risk appetite determined by the Board of Directors. The GRC is supported by four specialised sub-committees, namely the Market and International Risk Committee, the Credit Risk Committee, the Liquidity Risk Committee and the Operational Risk Committee, each addressing one of the following:

• Market risk, arising from changes in market prices from exposure to interest rates, currency exchange rate, credit spreads, equity and commodities prices;

• Credit risk, arising from losses due to obligor, counterparty or issuer failing to perform its contractual obligations to the Bank;



Risk Management

• Liquidity risk, arising from a bank’s inability to meet its present and future funding needs on a timely basis, from mismatches between the size of assets and liabilities or their maturities; and

• Operational risk, arising from internal processes which may result from inadequacies or failures in processes, controls or projects due to fraud, unauthorised activities, error, omission, inefficiency, systems failures or from external events.

The roles and responsibilities of the committees and sub-committees are set out in the chart below:

Group Risk Division (GRD)

The primary oversight body is the Group Risk Division, comprising of Group Risk Management (GRM) and Group Credit (GC), which are independent of business units and assist the Management and the various risk committees in monitoring and controlling the Group’s risk exposures.

The key responsibilities of GRD are to identify, analyse, monitor, review and report the principal risks to which the Bank is exposed. It also helps to create shareholder value through proper allocation of risk capital, development of risk-based pricing framework and facilitate development of new business and products.

• Review and recommend risk policies and strategies for approval

• Oversee entire EWRM and provide strategic guidance to various risk committees

BOARD OF DIRECTORS

BOARD RISK COMMITTEE

• Review and advise on risk policies and strategies

• Oversee management of risk, capital allocation and asset liability management

process across the Group

GROUP RISK COMMITTEE

Market and International Risk Committee (MIRC)

• Oversee exposures to market risks

• Evaluate and approve proposals for primary and secondary market deals for debt and equity instruments

Credit Risk Committee (CRC)

• Credit approval authority

• Assign and review the Inter-bank Limits, Sectorial Exposures, Global Counterparty Credit Limits and Global Country Limits

Liquidity Risk Committee(LRC)

• Oversee the Group’s overall liquidity management

• Ensure Group is able to meet its cash flow obligations in a timely and cost effective manner

Operational Risk Committee(ORC)

• Oversee issues relating to the operational risk and internal control environment

• Review and evaluate all Business Continuity Management (BCM)/ Disaster Recovery (DR) activities



Risk Management

GROUP RISK MANAGEMENT (GRM)

GRM monitors risk-taking activities, initiates and proposes risk policies, risk measurement methodologies, risk limits and risk capital allocation, performs independent review of loan assets quality and loan recovery plan, coordinates new products deployments and develops the risk-based product pricing framework for loan portfolios.

In propagating and ensuring compliance to the Market Risk framework, GRM reviews and analyses treasury trading strategy, positions and activities vis-à-vis changes in the financial market and performs mark-to-market as part of financial valuation. Further, GRM also conducts validation on the risk pricing parameters and models used.

GRM is also tasked with the co-ordination of the Group’s effort towards implementation of the Basel II framework in compliance with the International Covergence of Capital Measurement and Capital Standards prescribed by the Bank of International Settlements and as adopted by BNM. In this regard, GRM develops, implements and validates all internal rating and scoring models and closely monitors the usage of the rating and scoring systems to ensure relevance to current market conditions and integrity of the ratings.

On an annual basis, GRM proposes the global CaR limit to the GRC and BRC for approval. This limit is allocated by the GRC to the various businesses of the Group through MIRC and CRC. The appropriate market and credit allocations are given by the various business units to execute their business plans each year. GRC also ensures that the aggregate risk exposure does not exceed the global CaR limit approved by the BRC.

Group Credit (GC)

GC is authorized to approve applications for credit facilities of up to RM10 million extended to small and medium enterprises. Otherwise, GC carries out independent assessments of all credit risk related proposals originating from the various business units such as loans and advances, fixed income, derivatives, sales and trading, prior to submission to the CRC, the EXCO or Board for approval. GC also reviews the Bank’s holdings of all fixed income assets and recommends the internal ratings for CRC’s approval. GC is also responsible for tracking and analyzing loans which turn NPL within 1 year of approval.

KEY AREAS OF RISK MANAGEMENT

1. Credit Risk

Credit and counterparty risk is defined as the possibility of losses due to an obligor or market counterparty or issuer of securities failing to perform its contractual obligations to the Bank.

Credit risk arises primarily from lending activities through loans as well as commitments to support clients’ obligations to third parties, i.e. guarantees. In sales and trading activities, credit risk arises from the possibility that counterparties will not be able or willing to fulfil their obligation on transactions on or before settlement date. In derivatives activities, credit risk arises when counterparties to derivative contracts, such as interest rate swaps, are not able to or willing to fulfil their obligation to pay the Bank the positive fair value or receivable resulting from the execution of contract terms. Credit risk may also arise where the downgrading of an entity’s rating causes the fair value of the Bank’s investment in that entity’s financial instruments to fall.

Credit risk remains the most significant risk to which the Bank is exposed. The purpose of credit risk management is to keep credit risk exposure to an acceptable level vis-à-vis the capital, and to ensure the returns commensurate with risk.



Risk Management

All credit exposures are subjected to an internal rating, based on a combination of quantitative and qualitative criteria. Adherence to set credit limits is monitored daily by GRM, which combines all exposures for each counterparty, including off balance sheet items and potential exposure. Compliance to the Group-wide credit policy limits the exposure to any one counterparty or group, industry sector and rating classification.

Credit exposures are evaluated by CRC and are monitored against approved limits on a regular basis. Adherence to and compliance with single customer limit as well as assessing the quality of collateral are approaches adopted to address concentration risk to any large sector/ industry, or to a particular counterparty group or individual.

The result of severe disruption of the US sub-prime mortgage market were felt across the global financial market in 2008, and were reflected in wider credit spread, higher volatility, tighter liquidity and ultimately, the collapse of several large global investment banks. At the onset of the financial crisis, GC has conducted numerous reviews to scale down the Group’s exposure in several industries/sectors, countries and counterparties that are affected by the sub-prime and global financial crisis.

2. Market Risk

Market risk is defined as any fluctuation in the value of the portfolio resulting from changes in market prices, such as interest rates, currency exchange rates, credit spreads, equity prices and commodities prices.

Market risk results from trading activities that can arise from customer-related businesses or from proprietary positions. The Bank hedges the exposures to market risk by employing varied strategies, including the use of derivative instruments.

The Bank adopts various measures in its risk management process to manage market risk. An accurate and timely valuation of position is critical to providing the Bank with its current market exposure. GRM values the exposure using market price or a pricing model where appropriate.

The Bank also adopts a value-at-risk (VAR) approach in the measurement of market risk. Backtesting is performed to validate and reassess the accuracy of the existing VAR model. VAR is a statistical measure of the potential losses that could occur as a result of movements in market rates and prices over a specified time horizon within a given confidence level. Backtesting involves the comparison of the daily model-generated VAR forecast against the actual or hypothetical profit or loss data over the corresponding period.

Stress testing is conducted to capture the potential market risk exposures from an unexpected market movement. In formulating stress scenario, consideration is given to various aspects of the market; for example identification of areas where unexpected losses can occur and areas where historical correlation may no longer hold true.

Policies and procedures governing risk-taking translate limits and management triggers which complements the global CaR limit. Limits constitute the key mechanism to control allowable risk taking, and are regularly reviewed in the face of changing business needs, market conditions, and regulatory changes.

Risk Middle Office (RMO) within GRM undertakes monitoring and oversight process at Group Treasury and Equity Market & Derivatives trading floor, which includes reviewing and analyzing treasury trading strategy, positions and activities vis-à-vis changes in the financial market, monitoring limit usage, assessing limit adequacy, and verifying transaction prices.

Exposures to several of the Group’s global investment banking counterparties were reduced and further mitigated, hence containing losses due to the global financial crisis.



Risk Management

3. Liquidity Risk

Liquidity risk is defined as the risk to earnings or shareholders fund from the Group’s inability to meet its present and future (both anticipated and unanticipated) funding needs on a timely basis, arising from mismatches between the size or maturities of assets and liabilities.

CIMB Group’s liquidity risk management policy is to maintain hiqh quality and well diversified portfolios of liquid assets and sources of funds. Management action triggers have been established to alert management to potential and emerging liquidity pressures. The Group’s early warning system and contingency funding plans are in place to alert and enable management to act effectively and efficiently during a liquidity crisis and under adverse market conditions.

The Group’s liquidity risk management organization and its strong liquidity position helped the Group manage through the credit and liquidity turmoil that affected global financial markets in 2008. The Liquidity Risk Committee meets at least once a month to discuss the liquidity risk and funding profile and is chaired by the Head of Group Risk Division. The Asset Liability Management function, which is responsible for the independent monitoring of CIMB Group’s liquidity risk profile, worked closely with Group Treasury in intensifying its surveillance on market conditions and performed frequent stress testing on liquidity positions. Liquidity positions are monitored on a daily basis and complied with regulatory requirements for liquidity risk. The Group maintained large buffers of liquidity throughout 2008. As result, contingency funding plans were not required to be executed as there was sufficient liquidity to ensure safe and sound operations from a strategic, structural and tactical perspective.

4. Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events.

The existing Operational Risk Management Framework, which is revised periodically to cater for changing business conditions, is designed objectively to monitor and control operational risk effectively leading to a sound and stable operational environment within the Bank. All operational risks, both inherent and anticipated, are properly identified, captured, mitigated, monitored, and reported in a systematic and consistent manner. The Operational Risk Committee (ORC) has oversight responsibility for all operational activities conducted on a day-to-day basis.

The adoption of the Control Risk Self Assessment (CRSA) and the Self Assessment Review Project (ShARP) are part of the Group’s initiatives to ensure that operational risks within the processes in each business unit are properly identified, analyzed and mitigated on a periodic basis. Relevant Key Risk Indicators (KRI) is in use to track changes that may highlight new risk concerns and potential areas of weaknesses in operational control.

Each new or varied product and changes to the process flow are subjected to a rigorous risk review through sign-offs from the relevant support units where all critical risks are being identified and assessed independently from the risk takers or product owners.

CIMB continues to stress the importance of adhering to internal controls and established procedures to deter fraud and to minimize losses due to staff negligence. In order to demonstrate the seriousness of such offences, strict disciplinary actions are instituted against staff concerned.



Risk Management

5. Basel II Implementation

BNM has announced a two-phase approach for implementing the standards recommended by the Bank for International Settlements set out in “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (Basel II) in Malaysia. In the first phase, banking institutions will be required to adopt the Standardised Approach for credit risk by the end of 2008. In the second phase, qualified banking institutions will be allowed to migrate directly to the Internal Rating-Based approach (IRB Approach) by January 2010.

BNM has approved the Group’s application for direct migration to IRB. The approach for credit risk will be Advance IRB for retail exposure and Foundation IRB for corporate exposure. Operational risk will be based on Basic Indicator Approach and working towards Standarised Approach in 2010. Regular meetings are held with BNM to ensure implementation initiatives are in line with their expectations.

A Basel II Steering Committee chaired by the Group CEO has been set up to oversee the implementation initiatives across the Group with assistance of various sub-committees. Significant progress has been achieved in various workstreams, primarily, in rating models calibration and risk datamart.

The Bank employs an economic capital allocation framework, whereby capital is allocated to all business units. All major categories of risk are measured. This is in line with the Second Pillar of Basel II framework – Supervisory Review Process and also BNM’s Internal Capital Adequacy Assessment Process, which requires banks adopting IRB approach to develop a robust risk management framework (methodologies and process) to assess the adequacy of its internal economic capital in relation to the risk profile.

Ongoing efforts are in place to enhance the operational risk loss event reporting and data collection for the enlarged Group. Initiatives are being made to promote a web based application to ensure loss event incidents are being reported and captured on a timely basis and in an accurate manner. The integrated loss event database is crucial to prepare the Group to adopt a more advanced operational measurement model.



KEy M&A dEAlS - doMESTIC

Notable Deals

OCBC CAPITAL(MALAYSIA) SDN BHD

TELEKOM MALAYSIA BERHAD

Telekom Malaysia Berhad’s RM28 billion demerger of its fixed-line voice, data and broadband services, and its mobile businesses; the subsequent listing of TM International Berhad on Bursa Malaysia; and the acquisition by TM International Berhad from Khazanah Nasional Berhad of its equity interests in Sunshare Investments Ltd and PT Excelcomindo Pratama Tbk.

UEM WORLD BERHAD

UEM World Berhad’s RM1.7 billion restructuring and M&A transaction involving the restricted offer for sale of shares in its listed subsidiaries in Malaysia, the reorganisation of UEM Land Berhad, the dividend-in-specie of shares in UEM Land, the listing of UEM Land on Bursa Malaysia, and other related transactions.

KL-KUALA SELANGOR EXPRESSWAY BERHAD

KL-Kuala Selangor Expressway Berhad’s RM1.4 billion privatisation of the KL-Kuala Selangor Expressway, on a build, operate and transfer basis.

OCBC CAPITAL (MALAYSIA) SDN BHD

OCBC Capital (Malaysia) Sdn Bhd’s RM735 million conditional take-over of all voting shares in Pacificmas Berhad not already held by OCBC Capital (Malaysia).

DiGi.COM BERHAD

DiGi.Com Berhad’s RM685 million issuance of new ordinary shares in relation to the formation of an alliance involving DiGi.Com Berhad, TIME dotCom Berhad and their related companies, which included the transfer of the 3G spectrum assignment to a wholly-owned subsidiary of DiGi.Com Berhad.

KUALA LUMPUR KEPONG BERHAD

Kuala Lumpur Kepong Berhad’s RM241 million takeover of the remaining voting shares in Ladang Perbadanan-Fima Berhad not already held by Kuala Lumpur Kepong.

PLUS EXPRESSWAYS BERHAD

PLUS Expressways Berhad’s RM134 million acquisition of the entire issued and paid-up share capital of Konsortium Lebuhraya Butterworth-Kulim Sdn Bhd.



Notable Deals

KEY M&A DEALS - CROSS BORDER

MAJESTIC MASTERPIECE SDN BHD

MAGNUM HOLDINGS SDN BHD

Magnum Holdings Sdn Bhd’s RM4.9 billion privatisation of Magnum Corporation Berhad. This transaction was effectively a joint-privatisation by Multi-Purpose Holdings Berhad and CVC Capital Partners.

ABU DHABI COMMERCIAL BANK P.J.S.C

Abu Dhabi Commercial Bank P.J.S.C’s RM3.9 billion acquisition of 25% equity stake in RHB Capital Berhad from the Employees Provident Fund Board.

MAJESTIC MASTERPIECE SDN BHD

Majestic Masterpiece Sdn Bhd’s RM681 million takeover of the remaining shares in UBG Berhad not already held by Majestic Masterpiece.

BUMIPUTRA-COMMERCE HOLDINGS BERHAD

Bumiputra-Commerce Holdings Berhad’s RM4.1 billion (equivalent) merger of its indirect subsidiary, PT Bank Niaga Tbk and PT Bank Lippo Tbk, an indirect subsidiary of Khazanah Nasional Berhad.

BUMIPUTRA-COMMERCE HOLDINGS BERHAD

Bumiputra-Commerce Holdings Berhad’s RM1.4 billion (equivalent) acquisition of 42% of BankThai Public Company Limited from the Financial Institutions Development Fund.

FABER GROUP BERHAD

Faber Group Berhad’s USD68 million disposal of its 70% effective interest in a hotel business in Hanoi, Vietnam.



Notable Deals

KEY EQUITY & EQUITY-LINKED DEALS - DOMESTIC

MyETF DOW JONES ISLAMIC MARKET MALAYSIA TITANS

MyETF Dow Jones Islamic Market Malaysia Titans’ listing of 840 million units of this Shariah-compliant exchange traded fund on Bursa Malaysia.

RESORTS WORLD BHD

Resorts World Bhd’s RM522 million non-renounceable offer for sale by Resorts World Limited of 594 million ordinary shares in Genting International Public Limited Company to the entitled shareholders on a pro-rata basis.

WAH SEONG CORPORATION BERHAD

Wah Seong Corporation Berhad’s RM203 million Rights Issue of ordinary shares with free detachable warrants.

ADVANCE SYNERGY BERHAD

Advance Synergy Berhad’s RM177 million nominal value renounceable two-call rights issue of Irredeemable Convertible Unsecured Loan Stocks.

YTL CORPORATION BERHAD

YTL Corporation Berhad’s RM100 million renounceable restricted offer for sale of ordinary shares in YTL Power International Berhad to entitled shareholders of YTL Corporation.

KEY ASIC BERHAD

Key Asic Berhad’s RM81 million IPO and listing on the MESDAQ Market of Bursa Malaysia.

KHAzANAH NASIONAL BERHAD

Khazanah Nasional Berhad’s USD550.0 million Exchangeable Trust Certificates (Islamic Exchangeable Sukuk) issuance with concurrent USD129.0 million delta hedge placement.

MEDIA CHINESE INTERNATIONAL LIMITED

Media Chinese International Limited’s RM2.0 billion merger of Sin Chew Media Corporation Berhad, Nanyang Press Holdings Berhad and Media Chinese International Ltd and the subsequent first dual primary listing of the merged entity on Bursa Malaysia and the Hong Kong Stock Exchange.

KEY EQUITY & EQUITY-LINKED DEALS - CROSS BORDER



Notable Deals

KEY DEBT TRANSACTIONS - DOMESTIC

CIMB BANK BERHAD

CIMB Bank Berhad’s RM4.0 billion Non-Innovative Tier 1 Stapled Securities Issuance Programme, RM1.0 billion Innovative Tier 1 Capital Securities Issuance, and RM1.5 billion Tier 2 Subordinated Bonds.

PLUS EXPRESSWAYS BERHAD

PLUS Expressways Berhad’s RM4.0 billion Islamic Medium Term Notes (MTN) Programme.

SYARIKAT PRASARANA NASIONAL BERHAD

Syarikat Prasarana Nasional Berhad’s RM2.0 billion Government Guaranteed Sukuk Ijarah.

MALAYSIA DEBT VENTURES BERHAD

Malaysia Debt Ventures Berhad’s RM1.5 billion Islamic MTN Programme.

MRCB SOUTHERN LINK BERHAD

MRCB Southern Link Berhad’s RM1.1 billion Istisna’ Sukuk.

SABAH DEVELOPMENT BANK BERHAD

Sabah Development Bank Berhad’s RM500.0 million Commercial Papers (CP) Programme and RM1.0 billion MTN Programme with a combined limit of RM1.0 billion.

UMW TOYOTA CAPITAL SDN BHD

UMW Toyota Capital Sdn Bhd’s RM1.0 billion Islamic CP/MTN Programme.



Notable Deals

KEY DEBT TRANSACTIONS - DOMESTIC (Cont’d.)

KEY DEBT TRANSACTIONS - CROSS BORDER

GAMUDA BERHAD

Gamuda Berhad’s RM100.0 million Islamic CP Programme and RM800.0 million Islamic MTN Programme with a combined limit of RM800.0 million.

DIGI TELECOMMUNICATIONS SDN BHD

DiGi Telecommunications Sdn Bhd’s RM700.0 million CP/MTN Programme.

ISLAMIC DEVELOPMENT BANK

Islamic Development Bank’s RM1.0 billion Trust Certificate Issuance Programme.

NATIONAL AGRICULTURAL COOPERATIVE FEDERATION

National Agricultural Cooperative Federation’s RM3.3 billion MTN Programme.

INDUSTRIAL BANK OF KOREA

Industrial Bank of Korea’s RM3.0 billion Multi-currency Conventional/Islamic MTN Programme.

THE EXPORT-IMPORT BANK OF KOREA

The Export-Import Bank of Korea’s RM3.0 billion Multi-currency Conventional/Islamic MTN Programme.

WOORI BANK

Woori Bank’s RM1.0 billion MTN Programme.



Notable Achievements

2008 DEAL AWARDS• 2008 Country Deals of the Year Deal: Binariang’s RM12 billion (USD3.6 billion) multi-tranche bond• Best Deal of the Year for Malaysia Deal: Merger between Sime Darby Bhd, Kumpulan

Guthrie Bhd, Golden Hope and subsidiaries

BEST BANKS 2008 AWARDS• Best Domestic Equity House - Malaysia• Best Domestic Debt House - Malaysia

SUMMER AWARDS• Best Domestic Equity House - Malaysia• Best Domestic Debt House - Malaysia• Best Local Cash Management Bank - Malaysia (As voted by small-sized corporates)• Best Local Cash Management Bank - Malaysia (As voted by medium-sized corporates)• Best Local Cash Management Bank - Malaysia (As voted by large-sized corporates)• Best Domestic Provider In Malaysia for Local

Currency Products - Structured Interest-rate Products

BROKERS POLL FOR MALAYSIA AWARDS• Best for Overall Country Research• Best Research House Coverage (Strategy, Macroeconomics, Capital Goods, Consumer

Services, Food, Beverage & Tobacco, Utilities)

• Best for Roadshow and Company visits• Most Improved Brokerage in the last 12 Months• Best in Sales Trading• Best Execution• Best Overall Sales Service• Best Local Brokerage• Best Analyst (Terence Wong)

CASH MANAGEMENT POLL• Best Local Cash Management Bank - Malaysia

FX POLL• Best Domestic Provider of FX Service - Malaysia (As voted by corporates)• Best for Innovative FX Products & Structured Ideas

- Malaysia• Best FX Prime Broking Services - Malaysia

STRUCTURED PRODUCT POLL• Best Domestic Provider for Local Currency Products

- Structured Interest-Rate Products

COUNTRY AWARDS FOR ACHIEVEMENT 2008- DOMESTIC BANKING AWARDS• Best Investment Bank - Malaysia• Best Equity House - Malaysia• Best Bond House - Malaysia




COUNTRY AWARDS• Best Domestic Investment Bank• Best Equity House• Best Deal Deal: Issuance of USD550 million Islamic Exchangeable

Bonds, exchangeable into the shares in Parkson Retail Group Limited

2008 BEST OF BONDS AWARDS• 1st in Overall Malaysian Ringgit Government &

Corporate Bond Market• 1st in Malaysian Ringgit Corporate Bonds • 3rd in Malaysian Ringgit Government Bonds

TRIPLE A AWARDS FOR DERIVATIVES AND STRUCTURED PRODUCTS 2008• Best Derivatives House, Malaysia• Best Local Currency Structured Product

TRIPLE A AWARDS• Best Equity-linked Deal Deal: Issuance of USD550 million Khazanah Nasional

concurrent sukuk exchangeable and USD96.8 million equity placement into Parkson Retail Group

• Best Project Finance Project: RM1.26 billion MRCB Southern Link Berhad

NATIONAL MERGERS AND ACQUISITIONSAWARDS 2008• Deal Maker of the Year Deal: Merger of Sime Darby Bhd, Golden Hope

Plantations Bhd and Kumpulan Guthrie Bhd• Deal of the Year Deal: Merger of Sime Darby Bhd, Golden Hope

Plantations Bhd and Kumpulan Guthrie Bhd • Strategic Deal of the Year Deal: Merger of Sime Darby Bhd, Golden Hope

Plantations Bhd and Kumpulan Guthrie Bhd• Cross Border Deal of the Year Awarded for CIMB Investment Bank’s role in the

disposal of 49% of Commerce Life Assurance Berhad and Commerce Takaful Berhad to Aviva International Plc and disposal of 100% of Commerce Assurance Berhad to Allianz Malaysia Berhad






RAM LEAGUE AWARDS 2008• RAM Award of Distinction - Special Merit Award for

CIMB Investment Bank’s ability as the Malaysian Top Lead Manager in the Corporate Sukuk Market

• RAM Award of Distinction - Special Merit Award for CIMB Investment Bank’s ability as the Malaysian Top Lead Manager in the Corporate Bond Market

• RAM Lead Manager Award - Ist in terms of issue value

• RAM Lead Manager Award - Ist in terms of number of deals

• RAM Award of Distinction - Blueprint Awards for Malaysian Innovation of The Year

Deal: RM6.2 billion Senior & RM1.7 billion Cumulative Non-Convertible Junior Sukuk Musyarakah issued by Malakoff Corporation

• RAM Award of Distinction - Blueprint Awards for Outstanding Deal of The Year

Deal: RM22 billion Senior & RM3.02 billion Cumulative Non-Convertible Junior Sukuk Musyarakah issued by Binariang GSM Sdn Bhd

AWARDS FOR EXCELLENCE 2008• Best Investment Bank - Malaysia

BEST FINANCIAL INSTITUTION AWARDSIN SOUTHEAST ASIA 2008• Best Investment Bank - Malaysia• Best Equity House - Malaysia• Best Bond House - Malaysia

SOUTHEAST ASIA DEAL AWARDS 2008• Best Equity Linked Deal of the Year Deal: Khazanah’s USD550 million Exchangeable Sukuk• Best Cash Management Solution • Best Islamic Financing Deal of the Year Deal: Syarikat Prasarana Negara’s RM2.0 billion Sukuk

Ijarah, one of the largest bond issues of the year




IFR ASIA AWARDS 2008• Malaysia Capital Markets Deal Deal: Binariang GSM’s RM15.35 billion Islamic Issuance

“BEST OF THE BREEDS” ASIAN M&A 2008 AWARDS• Top Asian Investment Bank for Asia Ex-Japan M&A Deals

• Benchmark Deal of the Year 2008 Deal: The Export-Import Bank of Korea (KEXIM)

Conventional and/or Islamic Medium Term Notes Programme of up to RM3.0 billion in Ringgit Malaysia and/or Foreign Currencies

• Innovative Deal of the Year 2008 Deal: CIMB Bank Berhad Non-Innovative Tier 1 Stapled

Securities Programme of up to RM4.0 billion• No.1 in Conventional Bonds Issue Count 2008• No.1 in Conventional Bonds Issue Value 2008

ASIA RISK AWARDS FOR EXCELLENCE 2008• House of the Year, Malaysia: CIMB Group





Snapshot of Corporate Events

24 January 2008

From left: Patrick Tan, Ong Liang Heng, Kong Sooi Lin, Shamsun Anwar Bin Hussain, Lee Chin Tok and Chu Kok Wei at the Alpha Southeast Asia Awards ceremony.

Dato’ Sri Nazir Razak and Sung Tae Kim, CEO and President of Daewoo Securities, exchange documents after the signing of a strategic alliance agreement between CIMB Investment Bank and Daewoo Securities Co. Ltd.

19 February 2008

Kok Kong Chin speaking at The Second Annual Regional Capital Markets Conference 2008.

27 February 2008

CIMB wins nine awards at the RAM League Awards 2008. Representing CIMB were (from left) Lee Chin Tok, Badlisyah Abdul Ghani, Thomas Meow, Dato’ Sri Nazir Razak, Kong Sooi Lin, Nor Masliza Binti Sulaiman, Lee Kok Kwan and Winnie Sia.

14 March 2008



Dato’ Charon Wardini Mokhzani addressing the Hong Kong investment banking fraternity at the breakfast talk organised by the Hong Kong Securities Institute.

29 April 2008

Snapshot of Corporate Events

Dato’ Charon Wardini Mokhzani speaking to the investors at Plus Expressway Berhad’s issuance of the Sukuk Musyarakah Medium Term Notes Programme.

21 May 2008

Dato’ Shukri Hussin, President Commissioner of Bank Niaga, exchanges documents with Md Ali Md Dewal, President Commissioner of Bank Lippo to mark the launch of the Niaga-Lippo merger. The Deputy Prime Minister of Malaysia, Dato’ Sri Mohd Najib bin Tun Abdul Razak, and Managing Director of Khazanah Nasional Berhad, Tan Sri Azman Mokhtar, witnessed the ceremory.

2 June 2008

Dato’ Sri Nazir Razak and Khun Thongurai Linpiti, Head of Financial Institutions Development Fund, at the signing ceremony of CIMB Group’s acquisition of 42.13% stake in BankThai Public Company Ltd.

20 June 2008

Financial Statements

064 Directors’ Report

070 Statement by Directors

070 Statutory Declaration

071 Independent Auditors’ Report

073 Balance Sheets

074 Income Statements

075 Statements of Changes in Equity

079 Cash Flow Statements

082 Summary of Significant Accounting Policies

096 Notes to the Financial Statements



The Directors have pleasure in submitting their Report and the Audited Financial Statements of the Group and of CIMB Investment Bank Berhad (“the Bank”) for the financial year ended 31 December 2008.

PrinciPal activitiesThe principal activities of the Bank during the financial year are investment banking and the provision of related financial services. The principal activities of the subsidiaries during the financial year are set out in Note 12 to the Financial Statements. There was no significant change in the nature of these activities during the financial year.

Financial results

the Group the Bank rM’000 rM’000

Net profit after taxation and zakat 113,435 112,484

DiviDenDsThe dividends on redeemable preference shares paid or declared by the Bank since 31 December 2007 were as follows:

rM’000

In respect of the financial year ended 31 December 2007:Final gross dividend of 20,270.27 sen per redeemable preference share, less 26% income tax, paid on 7 May 2008 150,000

In respect of the financial year ended 31 December 2008:Interim gross dividend of 10,135.14 sen per redeemable preference share, less 26% income tax, paid on 25 August 2008 75,000

225,000

The Directors now recommend the payment of a final gross dividend of 9,333.33 sen per share on 1,000,000 redeemable preference shares of RM0.01 each, less 25% income tax, amounting to RM70,000,000 which, subject to the approval of members at the forthcoming Annual General Meeting of the Bank, will be paid on 27 March 2009 to shareholders registered on the Bank’s Register of Members at the close of business on 27 February 2009.

reserves, Provisions anD allowancesThere were no material transfers to or from reserves or provisions or allowances during the financial year other than those disclosed in the Financial Statements and Notes to the Financial Statements.

MoDiFieD ciMBB executive eMPloyees share oPtions scheMe (“eesos”)Prior to the CIMB Berhad (“CIMBB”) Restructuring and consistent with the fair treatment to all Executive Employees and continuance of the CIMBB EESOS, a trust was set up to subscribe for all the remaining CIMBB shares through an accelerated vesting of the unexercisable tranches under the CIMBB EESOS in 2005. The EESOS Trustee had opted for new shares in the ultimate holding company, Bumiputra-Commerce Holdings Berhad (“BCHB”), at the ratio of approximately 1.146 BCHB shares for one CIMBB share held pursuant to the CIMBB scheme.

The Modified EESOS has been disclosed accordingly in Note 43 to the Financial Statements.

Directors’ ReportFor the financial year ended 31 December 2008



BaD anD DouBtFul DeBts, anD FinancinGBefore the Financial Statements of the Group and of the Bank were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and financing and the making of allowance for doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and that adequate allowance had been made for doubtful debts and financing.

At the date of this Report, the Directors are not aware of any circumstances which would render the amounts written off for bad debts and financing, or the amount of the allowance for doubtful debts and financing in the Financial Statements of the Group and the Bank, inadequate to any substantial extent.

current assetsBefore the Financial Statements of the Group and of the Bank were made out, the Directors took reasonable steps to ascertain that any current assets, other than debts and financing, which were unlikely to realise in the ordinary course of business, their values as shown in the accounting records of the Group and the Bank had been written down to an amount which they might be expected so to realise.

At the date of this Report, the Directors are not aware of any circumstances which would render the values attributed to current assets in the Financial Statements of the Group and the Bank misleading.

valuation MethoDsAt the date of this Report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and the Bank misleading or inappropriate.

continGent anD other liaBilitiesAt the date of this Report, there does not exist:

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

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

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

chanGe oF circuMstancesAt 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 Group and of the Bank, that would render any amount stated in the Financial Statements misleading.





iteMs oF an unusual natureIn the opinion of the Directors:

(a) the results of the Group’s and the Bank’s operations for the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature other than those disclosed in Note 49 to the Financial Statements; and

(b) there has not arisen in the interval between the end of the financial year and the date of this Report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group or the Bank for the financial year in which this Report is made.

DirectorsThe names of the Directors of the Bank in office since the date of the last Report and at the date of this Report are:

Dato’ Hamzah bin BakarDato’ Sri Mohamed Nazir bin Abdul Razak Dato’ Zainal Abidin bin PutihNicholas Rupert Heylett BloyZahardin bin OmardinDato’ Charon Wardini bin Mokhzani

In accordance with Articles 75A and 75B of the Bank’s Articles of Association, Dato’ Sri Mohamed Nazir bin Abdul Razak and Zahardin bin Omardin retire from the Board at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election.

Directors’ interests in shares anD share oPtionsAccording to the Register of Directors’ Shareholdings, the beneficial interests of the Directors who held office at the end of the financial year, in the shares and share options of the holding and ultimate holding company during the financial year are as follows:

number of ordinary shares of rM1 each as at as at 1 January acquired Disposed 31 December

ultimate holding companyBumiputra-commerce holdings BerhadDato’ Sri Mohamed Nazir bin Abdul Razak* 28,053,261 350,000 (450,000) 27,953,261 Zahardin bin Omardin 9,146 - - 9,146 Dato’ Charon Wardini bin Mokhzani** 68,695 45,000 (50,000) 63,695 Dato’ Zainal Abidin bin Putih*** 15,000 40,000 - 55,000

* Include shareholding of spouse, details of which are follows:

as at as at 1 January acquired Disposed 31 December

Datin Sri Azlina binti Abdul Aziz 4,450,000 - (450,000) 4,000,000




Directors’ interests in shares anD share oPtions (continueD)** Include shareholding of spouse, details of which are follows:

number of ordinary shares of rM1 each as at as at 1 January acquired Disposed 31 December

Datin Saidah binti Rastam 5,038 - (5,000) 38

*** Include shareholding of spouse and children, details of which are follows:

as at as at 1 January acquired Disposed 31 December

Datin Jasmine binti Abdullah Heng 10,000 - - 10,000 Mohamad Ari Zulkarnian 5,000 - - 5,000

number of share options over ordinary shares of rM1 each granted under the executive employees share options scheme (“eesos 3”)

as at as at 1 January Granted exercised 31 December

ultimate holding companyBumiputra-commerce holdings BerhadDato’ Charon Wardini bin Mokhzani 706,375 - (45,000) 661,375

The options which were due to expire on 29 December 2008, have been extended to expire on 29 December 2009. The applicable option prices are as follows:

rM

Exercise price from 30 December 2007 to 29 December 2008 4.19Exercise price from 30 December 2008 to 29 December 2009 4.40

Other than as disclosed above, according to the Register of Directors’ Shareholdings, the Directors in the office at the end of the financial year did not hold any interest in shares, warrants, share options and debentures in the Bank or of its related corporations during the financial year.

Directors’ BeneFitsSince the end of the previous financial year, no Director of the Bank has received or become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by Directors shown in Note 35 to the Financial Statements or the fixed salary as a full time employee of the Bank) by reason of a contract made by the Bank 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.

Neither at the end of the financial year, nor at any time during the financial year, did there subsist any other arrangements to which the Bank is a party with the object or objects of enabling Directors of the Bank to acquire benefits by means of the acquisition of shares in, or debentures of, the Bank or any other body corporate other than share options of the ultimate holding company.




2008 Business Plan anD strateGyThe financial year ended 31 December 2008 was a challenging year both locally and globally. Although our underlying business performance was solid in the first half of the year, the deterioration in global credit markets has impacted our business and put pressure on the domestic market in the second half of the year. The performance in 2008 demonstrated the resilience of our business model and the Bank is well positioned going into the new financial year with a strong management team.

outlook For 2009The outlook is cautious going into the new financial year and the Bank will continue with its conservative stance until signs of improvement in economic conditions are evident. The Bank will remain vigilant given the potential impact of global market developments on Malaysia’s capital and equity markets in 2009 and will continue to focus on its growth strategy and expanding its market share in Malaysia and this region. Human capital development and talent management will continue to remain a key management agenda for the Bank to ensure that we have a high performing work force and culture to achieve our vision and delivering the best customer experience and long term shareholders’ value.

ratinGs By external ratinG aGenciesDetails of the ratings of the Bank and its debt securities are as follows:

rating agency Date rating classification rating received

Rating Agency Malaysia Berhad Jan-08 Long term AA2 Short term P1 Outlook Stable

Moody’s Investors Service Dec-08 Long term deposits A3 Short term deposits P1 Subordinated debt Baa1 Outlook Stable

Fitch Ratings Jun-08 Long term BBB+ Senior unsecured debt BBB+ Subordinated debt BBB Outlook Stable

Standard & Poor’s Sep-08 Long term BBB Short term A2 Subordinated debt BBB- Outlook Stable




shariah coMMitteeEffective 1 January 2007, with the integration of the Shariah Committees of CIMB Investment Bank Berhad and CIMB Islamic Bank Berhad (“CIMB Islamic”), all the Islamic banking businesses of the CIMB Group came under the purview of the CIMB Islamic Shariah Committee, which resides at CIMB Islamic.

As per BNM/GPS1 (Guideline on the Governance of Shariah Committee for Islamic Financial Institutions), the Shariah Committee advises the Group on the operations of its Islamic banking business to ensure that the Group is not involved in any elements or activities which are not approved under Shariah. In advising on such matters, the Shariah Committee also considers the views of the Shariah Council or Committees of relevant authorities like Bank Negara Malaysia and the Securities Commission on issues relating to the activities and operations of Islamic banking and financing.

Composition of the Shariah Committee:

1. Sheikh Professor Dr. Mohammad Hashim Kamali (Chairman)2. Sheikh Nedham Muhammad Seleh Yaqooby 3. Sheikh Dr. Haji Mohd Nai’m bin Haji Mokhtar 4. Sheikh Associate Professor Dr. Shafaai bin Musa5. Sheikh Dr. Haji Zainudin bin Jaffar 6. Sheikh Dr. Yousef Abdullah AlShubaily (appointed on 28 October 2008)

siGniFicant events DurinG the Financial yearSignificant events during the financial year are disclosed in Note 44 to the Financial Statements.

suBsequent events aFter the Financial year enDThere were no significant events after the financial year end.

holDinG anD ultiMate holDinG coMPaniesThe immediate holding company is CIMB Group Sdn Bhd and the Directors regard BCHB as the Bank’s ultimate holding company during the financial year. Both companies are incorporated in Malaysia.

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

Signed on behalf of the Board of Directors in accordance with their resolution.

Dato’ haMzah Bin BakarDirector

Dato’ charon warDini Bin MokhzaniDirector

Kuala Lumpur27 March 2009



Statement by DirectorsPursuant to Section 169(15) of the Companies Act, 1965

Statutory DeclarationPursuant to Section 169(16) of the Companies Act, 1965

We, Dato’ Hamzah bin Bakar and Dato’ Charon Wardini bin Mokhzani, being two of the Directors of CIMB Investment Bank Berhad, state that, in the opinion of the Directors, the Financial Statements set out on pages 073 to 176 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Bank as at 31 December 2008 and of the results and the cash flows of the Group and the Bank for the financial year ended on that date in accordance with the provisions of the Companies Act, 1965, MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities and Bank Negara Malaysia Guidelines.

Signed on behalf of the Board of Directors in accordance with their resolution.

Dato’ haMzah Bin BakarDirector

Dato’ charon warDini Bin MokhzaniDirector


I, Kim Kenny, being the officer primarily responsible for the financial management of CIMB Investment Bank Berhad, do solemnly and sincerely declare that, the Financial Statements set out on pages 073 to 176 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

kiM kenny

Subscribed and solemnly declared by the above named Kim Kenny at Kuala Lumpur before me, on 27 March 2009.

Commissioner for Oaths



Independent Auditors’ ReportTo the members of CIMB Investement Bank BerhadCompany No: 18417-M (Incorporated in Malaysia)

rePort on the Financial stateMentsWe have audited the Financial Statements of CIMB Investment Bank Berhad, which comprise the balance sheets as at 31 December 2008 of the Group and of the Bank, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 073 to 176.

Directors’ resPonsiBility For the Financial stateMentsThe Directors of the Bank are responsible for the preparation and fair presentation of these Financial Statements in accordance with the Companies Act, 1965, the MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities and Bank Negara Malaysia Guidelines. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

auDitors’ resPonsiBilityOur responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Financial Statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the Financial Statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Group’s and the Bank’s preparation and fair presentation of the Financial Statements 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 Group’s and the Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Financial Statements.

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

oPinionIn our opinion, the Financial Statements have been properly drawn up in accordance with the Companies Act, 1965, the MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities and Bank Negara Malaysia Guidelines so as to give a true and fair view of the financial position of the Group and of the Bank as of 31 December 2008 and of their financial performance and cash flows for the year then ended.



rePort on other leGal anD reGulatory requireMentsIn accordance with the requirements of the Companies Act, 1965, in Malaysia, we also report the following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

(b) We have considered the Financial Statements and the auditors’ reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note 12 to the Financial Statements.

(c) We are satisfied that the Financial Statements of the subsidiaries that have been consolidated with the Bank’s Financial Statements are in form and content appropriate and proper for the purposes of the preparation of the Financial Statements of the Group and we have received satisfactory information and explanations required by us for those purposes.

(d) The audit reports on the Financial Statements of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.

other MattersThis report is made solely to the members of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PricewaterhousecooPers sriDharan nair(No. AF: 1146) (No. 2656/05/10 (J))Chartered Accountants Chartered Accountant


Independent Auditors’ ReportTo the members of CIMB Investement Bank BerhadCompany No: 18417-M (Incorporated in Malaysia)



Balance SheetsAs at 31 December 2008

the Group the Bank

2008 2007 2008 2007 note rM’000 rM’000 rM’000 rM’000

assetsCash and short term funds 2 2,877,447 1,582,837 2,727,873 1,408,220 Securities purchased under resale agreements 287,184 20,559 287,184 20,559 Deposits and placements with banks and other financial institutions 3 201,224 305,548 200,100 304,442 Securities held for trading 4 676,555 168,337 676,555 168,337Available-for-sale securities 5 522,331 519,651 519,924 517,244 Held-to-maturity investments 6 346,450 330,700 346,450 330,700 Derivative financial instruments 7 126,185 210,050 126,185 210,050 Loans, advances and financing 8 50,083 348,404 50,083 348,404 Other assets 9 275,824 773,271 274,647 772,140 Deferred tax assets 10 11,396 - 11,262 - Tax recoverable 687 213 - - Statutory deposits with Bank Negara Malaysia 11 12,805 10,340 12,805 10,340 Investment in subsidiaries 12 - - 19,420 19,420 Investment in associates 13 4,169 - - - Property, plant and equipment 14 66,586 63,917 67,570 63,612 Prepaid lease payments 15 16,253 16,625 16,253 16,625 Goodwill on consolidation 16 964 964 - - Amount due from related companies 38 19,525 9,745 19,534 47,168

total assets 5,495,668 4,361,161 5,355,845 4,237,261

liabilitiesDeposits from customers 17 1,336,057 805,500 1,336,057 805,500 Deposits and placements of banks and other financial institutions 18 2,438,241 950,823 2,438,241 950,823 Derivative financial instruments 7 11,076 155,290 11,076 155,290 Other liabilities 19 663,809 1,252,571 534,082 1,096,459 Provision for taxation and zakat 20 40,892 51,404 39,440 51,328 Deferred tax liabilities 10 - 2,215 - 2,192 Other borrowings 21 7,000 - - - Long term borrowings 22 346,462 330,568 346,462 330,568 Amount due to related companies 38 3,557 43,424 15,266 86,607

total liabilities 4,847,094 3,591,795 4,720,624 3,478,767

capital and reserves attributable to equity holders of the BankShare capital 23 219,242 219,242 219,242 219,242 Redeemable preference shares 24 10 - 10 - Reserves 25 429,322 550,124 415,969 539,252

total equity 648,574 769,366 635,221 758,494

total equity and liabilities 5,495,668 4,361,161 5,355,845 4,237,261

commitments and contingenciesPrincipal 7 4,230,613 5,404,713 4,230,613 5,404,713 Credit equivalent 7 118,882 73,199 118,882 73,199



Income StatementsFor the financial year ended 31 December 2008

the Group the Bank

2008 2007 2008 2007 note rM’000 rM’000 rM’000 rM’000

Interest income 26 101,228 97,378 98,974 94,548 Interest expense 27 (72,450) (51,614) (72,074) (51,536)

Net interest income 28,778 45,764 26,900 43,012 Income from Islamic Banking operations 50 50,286 61,935 50,286 61,935 Write back of losses on loans, advances and financing 28 4,931 3,312 4,931 3,312 Write back of/(allowance for) other receivables (net) 1,761 (1,613) 2,208 (1,252)

85,756 109,398 84,325 107,007 Net fee and commission income 29 128,368 112,458 128,368 112,458 Dividend income 30 313 1,133 (4,071) 165,468 Net trading (loss)/income 31 (7,080) 36,988 (7,080) 36,988 (Loss)/gain arising from sale of available-for-sale securities 32 (1,805) 18,732 (507) 18,732 Income from asset management and securities services 11,795 17,036 11,795 17,036 Brokerage income 91,994 170,808 88,533 164,914 Other non-interest income 33 25,059 6,520 25,173 6,168

Non-interest income 248,644 363,675 242,211 521,764

Net income 334,400 473,073 326,536 628,771 Overheads 34 (185,206) (191,913) (180,869) (189,159)

149,194 281,160 145,667 439,612 Share of results of associates 13 689 - - -

Profit before taxation 149,883 281,160 145,667 439,612 Taxation 36 (36,448) (66,672) (33,183) (110,962)

net profit after taxation attributable to equity holders of the Bank 113,435 214,488 112,484 328,650

Dividend per share (sen)- Interim dividend of Nil sen per ordinary share (2007: 124.96 sen) less taxation 37 - 91.22 - 91.22 - Interim dividend of 10,135.14 sen per redeemable preference share (2007: Nil sen) less taxation 37 7,500.00 - 7,500.00 - - Final dividend of Nil sen per ordinary share (2007: 124.96 sen) less taxation 37 - 91.22 - 91.22 - Final dividend in respect of previous year of 20,270.27 sen per redeemable preference share (2007: Nil sen) less taxation 37 15,000.00 - 15,000.00 -



Statements of Changes in EquityFor the financial year ended 31 December 2008

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Cash Flow StatementsFor the financial year ended 31 December 2008

the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

operating activities Profit before taxation 149,883 281,160 145,667 439,612 Add/(less) adjustments: Write back of losses on loans, advances and financing (4,931) (3,312) (4,931) (3,312)Interest income on available-for-sale securities (28,095) (26,982) (28,095) (26,982)Interest income on held-to-maturity investments (16,869) (16,790) (16,869) (16,790)Interest expense on long term borrowings 17,060 21,114 16,684 18,733 Depreciation of property, plant and equipment 19,881 12,223 18,516 12,088 Amortisation of prepaid lease payments 372 372 372 372 (Write back of)/allowance for other receivables (1,761) 1,613 (2,208) 1,252 Accretion of discount less amortisation of premium (515) (552) (515) (552)Unrealised loss on securities held for trading 9,395 3,894 9,395 3,894 Unrealised loss on derivative financial instruments - 5,150 - 5,150 Gain on disposal of property, plant and equipment (431) (422) (431) (422)Loss/(gain) from sale of available-for-sale securities 1,805 (18,732) 507 (18,732)Gross dividends from subsidiaries - - 4,384 (164,335)Gross dividends from securities held for trading (313) (1,133) (313) (1,133)Unrealised foreign exchange loss/(gain) (5,411) 74 (5,641) 9 Share of results of associates (689) - - - ESOS expense 1,415 3,373 1,409 3,360

Cash flow from operating profit before changes in operating assets and liabilities 140,796 261,050 137,931 252,212

operating assets Securities purchased under resale agreements (266,625) 166,380 (266,625) 141,519 Deposits and placements with banks and other financial institutions 104,324 (253,764) 104,342 (262,142)Securities held for trading (517,099) (32,325) (517,099) (32,325)Derivative financial instruments (60,349) (59,910) (60,349) (59,910)Loans, advances and financing 303,254 194,462 303,254 194,462 Other assets 499,371 (208,829) 500,094 (210,508)Statutory deposits with Bank Negara Malaysia (2,465) (10,340) (2,465) (10,340)Amount due from related companies (9,780) 24,912 (9,780) 24,913 Amount due from immediate holding company - 112 - 112 Amount due from subsidiaries - - 37,414 (37,287)




the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

operating liabilities Deposits from customers 530,557 763,670 530,557 763,670 Deposits and placements of banks and other financial institutions 1,493,023 185,451 1,493,023 185,451 Other liabilities (570,176) 327,375 (543,673) 264,426 Amount due to ultimate holding company (1,065) 1,052 (1,065) 1,052 Amount due to holding company (100) 100 (100) 100 Amount due to related companies (42,082) 19,409 (42,060) 19,407 Amount due to subsidiaries - - (28,116) (80,647)

Cash from operating activities 1,601,584 1,378,805 1,635,283 1,154,165 Taxation paid (57,036) (41,450) (55,777) (39,917)

Net cash from operating activities 1,544,548 1,337,355 1,579,506 1,114,248

investing activities Dividends received from subsidiaries - - (3,200) 119,965 Dividends received from securities held for trading 255 827 255 922 Interest income received from available-for-sale securities 28,026 21,439 28,026 21,439 Interest income received from held-to-maturity investments 16,703 17,025 16,703 17,025 Net purchase of available-for-sale securities (19,304) (5,245) (19,226) (5,245)Purchase of property, plant and equipment (23,486) (32,551) (23,410) (32,413)Acquisition of associates (100) - - - Proceeds from disposal of property, plant and equipment 1,367 6,064 1,367 6,064

Net cash from investing activities 3,461 7,559 515 127,757

Financing activities Interest paid on long term borrowings (16,775) (35,994) (16,518) (35,994)Drawdown of other borrowings 17,000 - - - Repayment of other borrowings (10,000) - - - Dividends paid (225,000) (400,000) (225,000) (400,000)

Net cash used in financing activities (234,775) (435,994) (241,518) (435,994)



the Group the Bank

2008 2007 2008 2007 note rM’000 rM’000 rM’000 rM’000

net increase in cash and cash equivalents during the financial year 1,313,234 908,920 1,338,503 806,011 cash and cash equivalents at beginning of the financial year 1,356,930 448,451 1,182,313 376,632 effects of exchange rate changes 246 (441) 20 (330)

cash and cash equivalents at end of the financial year 2,670,410 1,356,930 2,520,836 1,182,313

cash and cash equivalents comprise the following:Cash and short term funds 2 2,877,447 1,582,837 2,727,873 1,408,220 Adjustment for monies held in trust: Clients’ trust and dealers’ representatives’ balances (193,698) (212,227) (193,698) (212,227) Remisiers’ balances (13,339) (13,680) (13,339) (13,680)

Cash and cash equivalents 2,670,410 1,356,930 2,520,836 1,182,313




Summary of Significant Accounting PoliciesFor the financial year ended 31 December 2008

The following accounting policies have been used consistently in dealing with items which are considered material in relation to the Financial Statements.

a Basis oF PreParation oF the Financial stateMentsThe Financial Statements of the Group and Bank are prepared under the historical cost convention, and modified by the revaluation of available-for-sale securities, securities held for trading and all derivative contracts.

The Financial Statements of the Group and the Bank have been prepared in accordance with the Financial Reporting Standards, MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities, Bank Negara Malaysia (“BNM”) Guidelines, Shariah requirements and the provisions of the Companies Act, 1965.

The Financial Statements incorporate those activities relating to Skim Perbankan Islam (“SPI”) which have been undertaken by the Bank. SPI refers generally to the acceptance of deposits and dealing in Islamic Securities under Shariah principles.

BNM has granted indulgence to the Group and the Bank and other local banks in Malaysia from complying with the requirements on the impairment of loans under the revised ‘Guideline on Financial Reporting for Licensed Institutions’ (“BNM/GP8”). Paragraph 4, Appendix A of the revised BNM/GP8 requires the impaired loans to be measured at their estimated recoverable amount. This requirement is principally similar to the requirement under FRS 139 - Financial Instruments: Recognition and Measurement. In view of the deferment of the implementation of FRS 139 in Malaysia, the Group and the Bank and other local banks in Malaysia will be deemed to be in compliance with the requirement on the impairment of loans under the revised BNM/GP8 if the allowance for non-performing loans, advances and financing is computed based on BNM’s guidelines on the ‘Classification of Non-Performing Loans and Provision for Substandard, Bad and Doubtful Debts’ (“BNM/GP3”) requirements.

The preparation of Financial Statements in conformity with the provisions of the Companies Act, 1965, Financial Reporting Standards and Bank Negara Malaysia Guidelines requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements, and the reported amounts of income and expenses during the reported period. It also requires Directors to exercise their judgement in the process of applying the Group and the Bank’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.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Statements, are disclosed in Note 44.

(a) standards, amendments to published standards and interpretations that are effective and applicable to the Group and BankThe new accounting standards, amendments to published standards and interpretations that are effective and applicable to the Group and the Bank for the financial year ended 31 December 2008 are as follows:

• Amendment to FRS 121 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operations • Amendment to FRS 112 Income Taxes • Amendment to FRS 107 Cash Flow Statements• Amendment to FRS 118 Revenue• Amendment to FRS 137 Provisions, Contingent Liabilities and Contingent Assets• Amendment to FRS138 Intangible Assets• IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities• IC Interpretation 2 Members’ Shares in Co-operative Entities and Similar Instruments• IC Interpretation 8 Scope of FRS 2




a Basis oF PreParation oF the Financial stateMents (continueD)(a) standards, amendments to published standards and interpretations that are effective and applicable to the

Group and Bank (continued)All changes in accounting policies have been made in accordance with the transition provisions in the respective standards, amendments to published standards and interpretations. All standards, amendments and interpretations adopted by the Group and the Bank require retrospective application.

The adoption of the new accounting standards, amendments to published standards and interpretations did not have a material impact on the Financial Statements of the Group and Bank.

(b) standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effectiveThe new and revised standards, amendments to published standards and interpretations that are applicable to the Group but which the Group and the Bank have not early adopted, are as follows:

• FRS 8 Operating Segments (effective for accounting periods beginning on or after 1 July 2009). This new standard establishes principles for measurement and disclosure of reportable and operating segments in the separate and consolidated financial statements of an entity. The Group and the Bank will apply this standard when effective.

• FRS 139 Financial Instruments: Recognition and Measurement (effective for accounting periods beginning on or after 1 January 2010). This new standard establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. Hedge accounting is permitted only under strict circumstances. The Group and the Bank will apply this standard when effective.

• However, with effect from 1 January 2005, the revised BNM/GP8 has adopted certain FRS 139 principles in recognising and measuring financial assets, financial liabilities, derivative financial instruments and hedge accounting. The relevant accounting policies are set out in Notes E, F and I to the Financial Statements.

• FRS 4 Insurance Contracts (effective for accounting periods beginning on or after 1 January 2010). This new standard establishes principles for recognising and measuring insurance contracts including reinsurance contracts. The Group and the Bank will apply this standard when effective.

• FRS 7 Financial Instruments: Disclosures (effective for accounting periods beginning on or after 1 January 2010). This new standard establishes disclosure requirements for financial instruments. Qualitative and quantitative information about exposure to risks arising from financial instruments are required. The Group and the Bank will apply this standard when effective.

• IC Interpretation 9 Reassessment of Embedded Derivatives (effective for accounting periods beginning on or after 1 January 2010). This new standard requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is disallowed unless changes to the terms of contract significantly modify the cash flows of the original contract. The Group and the Bank will apply this standard when effective.

• IC Interpretation 10 Interim Financial Reporting and Impairment (effective for accounting periods beginning on or after 1 January 2010). This new standard disallows reversal of impairment losses recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. The Group and the Bank will apply this standard when effective.




B econoMic entities in the GrouP(a) subsidiaries

The Bank treats as subsidiaries those corporations, partnerships or other entities (including special purpose entities) in which the Bank has the power to exercise control over the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Bank controls another entity.

Investment in subsidiaries is stated at cost less accumulated impairment losses. Where there is an indication of impairment, the carrying amount of the investment is assessed. A write down is made if the carrying amount exceeds its recoverable amount.

External costs directly attributable to an acquisition, other than the cost of issuing shares and other capital instruments, are included as part of the cost of acquisition.

The consolidated Financial Statements include the audited Financial Statements of the Bank and all its subsidiaries made up to the end of the financial year.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and de-consolidated from the date that control ceases. Subsidiaries are consolidated using the purchase method of accounting, except for business combinations involving entities or businesses under common control with agreement dates on/after 1 January 2006, which are accounted for using the pooling-of-interests method.

Under the purchase method of accounting, the results of subsidiaries acquired or disposed of during the year are included from the date of acquisition up to the date of disposal. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired at the date of acquisition is reflected as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Minority interests represents that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent. It is measured at the minorities’ share of the fair value of the subsidiaries’ identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’ equity since that date.

The Directors note that business combinations involving entities or businesses under common control are outside the scope of FRS 3 - ‘Business Combinations’ and that there is no guidance elsewhere in FRS covering such transactions. FRS contain specific guidance to be followed where a transaction falls outside the scope of FRS. This guidance is included in paragraphs 10 to 12 of FRS 108 - ‘Accounting Policies, Changes in Accounting Estimates and Errors’. This requires, inter alia, that where FRS does not include guidance for a particular issue, the Directors may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards. In this regard, it is noted that the United States Financial Accounting Standards Board (‘FASB’) has issued an accounting standard covering business combinations (‘FAS 141’) that is similar in a number of respects to FRS 3.




B econoMic entities in the GrouP (continueD)(a) subsidiaries (continued)

In contrast to FRS 3, FAS 141 does include, as an Appendix, limited accounting guidance for transactions under common control which, as with FRS 3, are outside the scope of that accounting standard. The guidance contained in FAS 141 indicates that a form of accounting that is similar to pooling-of-interests method, which was previously set out in Accounting Principles Board (‘APB’) Opinion No. 16, may be used when accounting for transactions under common control.

Having considered the requirements of FRS 108, and the guidance included within FAS 141, the Directors consider appropriate to use a form of accounting which is similar to pooling-of-interests when dealing with business combinations involving entities or businesses under common control.

Under the pooling-of-interests method of accounting, the results of entities or businesses under common control are presented as if the merger had been effected throughout the current and previous years. The assets and liabilities combined are accounted for based on the carrying amounts from the perspective of the common control shareholder at the date of transfer. On consolidation, the cost of the merger is cancelled with the values of the shares received. Any resulting credit difference is classified as equity and regarded as a non-distributable reserve. Any resulting debit difference is adjusted against any suitable reserve. Any share premium, capital redemption reserve and any other reserves which are attributable to share capital of the merged enterprises, to the extent that they have not been cancelled by a debit difference, are reclassified and presented as movement in other capital reserve.

All material transactions and balances between group companies are eliminated and the consolidated Financial Statements reflect external transactions only. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Where more than one exchange transaction is involved, any adjustment to the fair values of the subsidiary’s identifiable assets, liabilities and contingent liabilities relating to previously held interests of the Group is accounted for as a revaluation.

The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group’s share of its net assets as of the date of disposal, including the cumulative amount of any exchange differences that relate to the subsidiary, and is recognised in the consolidated income statement.

(b) investment in associatesThe Group treats as associates, corporations, partnerships or other entities in which the Group exercises significant influence, but which it does not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Significant influence is the power to participate in the financial and operating policy decisions of the associates but not the power to exercise control over those policies.

Investments in associates are stated at cost adjusted for goodwill identified on acquisition less accumulated impairment losses. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down to its recoverable amount.

Investments in associates are accounted for in the consolidated Financial Statements by the equity method of accounting.




B econoMic entities in the GrouP (continueD)(b) investment in associates (continued)

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the consolidated income statement, and its share of post-acquisition movements in reserves is recognised in the consolidated balance sheet. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

c recoGnition oF ProFit incoMe anD interest incoMeInterest income on financial assets is recognised on an accrual basis. Interest income on housing and term loans is recognised by reference to rest periods which are either daily, monthly or yearly. Accretion of discount and amortisation of premium for securities are recognised on an effective yield basis.

Where an account is classified as non-performing, interest accrued and recognised as income prior to the date the loans are classified as non-performing is reversed out of income and set off against the accrued interest receivable amount in the balance sheet. Subsequently, the interest earned on non-performing loans is recognised as income on a cash basis instead of being accrued and suspended at the same time as prescribed previously. Customers’ accounts are classified as non-performing where repayments are in arrears for 3 months or more from the first day of default for loans and overdrafts.

The Bank’s policy on recognition of interest income on loans and advances is in conformity with BNM/GP3 and the revised BNM/GP8.

Income from Islamic banking business is recognised on an accrual basis in accordance with the principles of Shariah.

D recoGnition oF Fees anD other incoMeFees from advisory and corporate finance activities are recognised as income based on completion of each stage of the engagement and issuance of invoice.

Loans, advances and financing, and debt securities arrangement fees, management and participation fees, underwriting commissions, acceptance and placement fees are recognised as income when all conditions precedent are fulfilled.

Portfolio management fees and income from asset management and securities services are recognised as income based on the time apportionment method.

Brokerage fees are recognised as income based on inception of such transactions.

Dividends from subsidiaries and available-for-sale securities are recognised when the right to receive payment is established.

e securitiesThe Group and the Bank classify the securities portfolio into the following categories: securities held for trading, available-for-sale securities and held-to-maturity investments. Management determines the classification of securities at initial recognition.

(i) securities held for tradingThis category comprises securities held for trading and those designated at fair value through profit or loss at inception. Securities are classified into this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges.




e securities (continueD)(ii) available-for-sale securities

Available-for-sale securities are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

(iii) held-to-maturity investments Held-to-maturity investments are non-derivative instruments with fixed or determinable payments and fixed maturities that the Group and the Bank’s management have the positive intent and ability to hold to maturity. If the Group or the Bank sell other than an insignificant amount of held-to-maturity investments, the entire category will be tainted and reclassified as available-for-sale securities.

Securities are initially recognised at fair value plus transaction costs for all securities not carried at fair value through profit and loss and securities not held for trading. Securities are derecognised when the rights to receive cash flows from the securities have expired or where the Group or the Company have transferred substantially all risks and rewards of ownership.

Securities held for trading and available-for-sale securities are subsequently carried at fair value, except for investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured in which case the investments are stated at cost. Gains and losses arising from changes in the fair value of the securities held for trading category are included in the income statement in the period which they arise. Gains and losses arising from changes in fair value of available-for-sale securities are recognised directly in equity, until the securities are derecognised or impaired at which time the cumulative gains or loss previously recognised in equity are recognised in the income statement.

Held-to-maturity investments are subsequently measured at amortised cost using the effective interest method. Gains or losses arising from the derecognition or impairment of the securities is recognised in the income statement.

Interest from securities held for trading, available-for-sale securities and held-to-maturity investments is calculated using the effective interest method and is recognised in the income statement. Dividends from available-for sale and held for trading equity investments are recognised in the income statement when the events right to receive payment is established.

The fair values of quoted securities in active markets are based on market prices. If the market for an instrument is not active and for unquoted securities, the Group and the Bank establish fair value by using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants.

F Derivative Financial instruMents anD heDGe accountinG Derivatives are initially recognised at fair value on the date of which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of any derivatives that do not qualify for hedge accounting are recognised immediately in the income statement.

The best evidence of fair value of a derivative at initial recognition is the transaction price (ie. the fair value of the consideration given or received) unless the fair value of the instrument is evidenced by comparison with other observable current market transactions in the same instrument (ie. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group and the Bank recognise profits immediately.




F Derivative Financial instruMents anD heDGe accountinG (continueD)The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group and the Bank designate certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge) or (2) hedges of highly probable future cash flows attributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge) or (3) hedges of a net investment in a foreign operation (net investment hedge). Hedge accounting is used for derivatives designated in this way provided certain criterias are met.

At the inception of the transaction, the Group and the Bank document the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group and the Bank also documents their assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

(1) FairvaluehedgeChanges in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest or profit method is used is amortised to the income statement over the period to maturity. The adjustment to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security.

(2) CashflowhedgeThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain and loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled to the income statement in the periods in which the hedged item affects the income statement.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

(3) NetinvestmenthedgeHedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

Gains and losses accumulated in the equity are included in the income statement when the foreign operation is partially disposed or sold.

(4) DerivativesthatdonotqualityforhedgeaccountingCertain derivative instruments do not quality for hedge accounting. Changes in the fair value of derivative instruments that do not quality for hedge accounting are recognised immediately in the income statement.




G loans, aDvances, FinancinG anD other receivaBlesLoans, advances, financing and other receivables include staff loans and amounts due from clients arising from the sharebroking arm of the Bank. They are carried at the recoverable amount represented by the gross value of the outstanding balance adjusted for allowance for bad and doubtful debts and unearned income.

h allowance For BaD anD DouBtFul DeBts anD FinancinGSpecific allowances are made for doubtful debts which have been individually reviewed and specifically identified as bad or doubtful.

A general allowance based on a percentage of the loan portfolio is also made to cover possible losses which are not specifically identified, at the balance sheet date.

Any uncollectible loan or portion of a loan classified as bad is written off after taking into consideration the realisable value of collateral, if any, when in the judgement of the Directors, there is no prospect of recovery.

The Group and the Bank’s allowances for non-performing loans and financing is in conformity with the requirements of Bank Negara Malaysia’s “Guidelines on the Classification of Non-Performing Loans and Provision for Substandard, Bad and Doubtful Debts, BNM/GP3”, Revised BNM/GP8 as well as requirements for allowance for losses on loans and financing under Rule 1104 of Bursa Malaysia Securities Berhad.

i iMPairMent oF securities PortFolioThe Group and the Bank assess at, each balance sheet date, whether there is objective evidence that the securities are impaired. A security or a group of securities is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the securities (a ‘loss event’) and that loss event has an impact on the estimated future cash flows of the securities that can be reliably estimated.

(i) securities carried at amortised costIf there is an objective evidence that an impairment loss on held-to-maturity instruments held at amortised cost has been incurred, the amount of loss is measured as the difference between the securities’ carrying amount and the present value of estimated future cash flows discounted at the securities’ original effective interest rate. The carrying amount of the securities is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement.

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, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.

(ii) securities carried at fair valueIn the case of equity instruments classified as available-for-sale securities, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If there is objective evidence that an impairment loss on available-for-sale securities has been incurred, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the securities previously recognised in income statement – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale securities increases and the increase can be related objectively to an event occurring after the impairment was recognised in the income statement, the impairment loss is reversed through the income statement.




J sale anD rePurchase aGreeMentsSecurities purchased under resale agreements are securities which the Group and the Bank have purchased with a commitment to resell at future dates. The commitment to resell the securities is reflected as an asset on the balance sheet.

Conversely, obligations on securities sold under repurchase agreements are securities which the Group and the Bank had sold from its portfolio, with a commitment to repurchase at future dates. Such financing transactions and the obligation to repurchase the securities are reflected as a liability on the balance sheet.

The difference between sale and repurchase price as well as purchase and resale price is treated as interest and accrued over the life of the resale or repurchase agreement using the effective yield method.

k intanGiBles(a) Goodwill

Goodwill represents the excess of the cost of acquisition of subsidiaries and jointly controlled entities and associates over the fair value of the Group’s share of the identifiable assets at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose. The Group allocates goodwill to each business segment (see Note 16).

Goodwill on acquisitions of associates and jointly controlled entities respectively are included in investments in associates and jointly controlled entities. Such goodwill is tested for impairment as part of the overall balance.

Under the current applicable approved accounting standards for business combinations, FRS 3 – Business Combinations which applies to the accounting for business combinations for which the agreement date is on or after 1 January 2006, the provisions of the standard are applied prospectively and no retrospective changes in respect of accounting for business combinations prior to 1 January 2006 have been made. Under FRS 3, previously recognised negative goodwill (if any) has been derecognised with a corresponding adjustment to the opening balances of retained earnings.

(b) other intangible assetsOther intangible assets include computer software. Other intangible assets are initially recognised when they are separable or arise from contractual or other legal rights, the cost can be measured reliably and, in the case of intangible assets not acquired in a business combination, where it is probable that future economic benefits attributable to the assets will flow from their use. The value of intangible assets which are acquired in a business combination is generally determined using income approach methodologies and replacement cost. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Intangible assets that have an indefinite useful life, or are not yet ready for use, are tested for impairment annually. This impairment test may be performed at any time during the year, provided it is performed at the same time every year. An intangible asset recognised during the current period is tested before the end of the current year.

Intangible assets that have a finite useful life are stated at cost less amortisation and accumulated impairment losses and are amortised over their estimated useful lives.




l ProPerty, Plant anD equiPMentProperty, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are 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 Group and the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated to write off the cost of the fixed assets on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates are:

Building on leasehold land 50 years or over the balance period of the lease, whichever is shorterOffice equipment and furniture 3 to 10 years- mobile phones 3 years- office equipment 5 years- furniture and fixtures 10 yearsComputer equipment and software 3 yearsRenovation 5 years or over the period of the tenancy, whichever is shorterMotor vehicles 5 years

Depreciation on assets under construction commences when the assets are ready for their intended use.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Property, plant and equipment are reviewed for impairment at each balance sheet date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount. The impairment loss is charged to the income statement. Any subsequent increase in recoverable amount is recognised in the income statement.

Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in non-interest income.

M lonG terM BorrowinGsLong term borrowings comprise mainly negotiable certificates of deposits and subordinated notes issued by the Bank with remaining maturity of more than one year. These long term borrowings are initially recognised at cost, being the issue proceeds received, net of transaction costs incurred. In subsequent periods, long term borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the long term borrowings. The Bank engages in long term borrowings for the purpose of hedging its interest rate, liquidity and foreign exchange positions. The interest expense is recognised on an accrual basis and charged to the income statement.

n currency translations(a) Functional and presentation currency

Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated Financial Statements are presented in Ringgit Malaysia, which is the Bank’s functional and presentation currency.




n currency translations (continueD)(b) Foreign currency transactions and balances

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 the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

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

Translation differences on non-monetary financial assets and liabilities, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the available-for-sale reserve in equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(c) Group companiesThe results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet;

• income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

• all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.




o incoMe anD DeFerreD taxesCurrent tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and includes all taxes based upon the taxable profits.

Deferred income tax is recognised in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Deferred income tax is recognised on temporary differences arising on investments in subsidiaries, associates and joint ventures except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax related to fair value re-measurement of available-for-sale securities, which are charged or credited directly to equity, is also credited or charged directly to equity and is subsequently recognised in the income statement together with the deferred gain or loss.

Deferred income tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

P zakatThis represents business zakat which is a contribution payable by the Bank to comply with the principles of Shariah. Zakat provision is calculated based on ‘Adjusted Growth’ method, at 2.5% for individual Bumiputra shareholders of the ultimate holding company.

q ProvisionsProvisions are recognised by the Group and the Bank when all of the following conditions have been met:

(i) the Group and the Bank have a present legal or constructive obligation as a result of past events:(ii) it is probable that an outflow of resources to settle the obligation will be required; and(iii) a reliable estimate of the amount of obligation can be made.

Where the Group and the Bank expect a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses.

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

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




r eMPloyee BeneFits(i) short term employee benefits

The Group and the Bank recognise a liability and an expense for bonuses. The Group and the Bank recognise a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

Wages, salaries, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group and Bank.

(ii) Post employment benefit - defined contribution plansA defined contribution plan is a pension plan under which the Group and the Bank pay fixed contributions into a fund and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees’ benefits relating to employee service in the current and prior periods.

The Group and the Bank contribute to the national defined contribution plan (the Employees’ Provident Fund) on a mandatory basis and the amounts contributed to the plan are charged to the income statement in the financial year to which they relate. Once the contributions have been paid, the Group and the Bank have no further payment obligations.

(iii) share-based compensationThe ultimate holding company of the Bank and the Group operate an equity-settled, share-based compensation plan for the employees of the Bank and the Group under the Modified EESOS and Modified CEO option. Employee services received in exchange for the grant of the share options are recognised as an expense in the income statement over the vesting periods of the grant with a corresponding increase in equity.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the share options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of share options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

As allowed in the transitional provisions for FRS 2, the Bank and the Group have elected not to apply FRS 2 to those equity settled share options which were granted:

(i) Before 31 December 2004(ii) After 31 December 2004 but had vested before 1 January 2006.

FRS 2 only applies to transactions involving a transfer of equity instruments between shareholders and option holders, hence entitlements based on ordinary shares of the ultimate holding company granted under the Management Equity Scheme (‘MES’) is out of the scope of FRS 2.

s assets PurchaseD unDer lease(i) operating lease

LeaseholdlandLeasehold land that normally has an indefinite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted as prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided.




t cash anD cash equivalentsCash and cash equivalents comprise cash in hand, bank balances and deposit placements maturing less than one month, held for the purpose of meeting short term commitments and that are readily convertible into known amounts of cash without significant risk of changes in value.

u seGMent rePortinGSegment reporting is presented for enhanced assessment of the Group’s risks and returns. A business segment is a group of assets and operations engaged in providing products or services that are subject to risk and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those components.

Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expense, segment assets and segment liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment.

v share caPital(a) classification

Ordinary shares and non-redeemable preference shares with discretionary dividends are classified as equity. Other shares are classified as equity and/or liability according to the economic substance of the particular instrument. Distributions to holders of a financial instrument, classified as an equity instrument, are charged directly to equity.

(b) share issue costsIncremental external costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(c) DividendsDividends on cumulative redeemable preference shares are recognised as a liability and expressed on an accrual basis. Dividends on ordinary shares are recognised as a liability when the shareholders’ right to receive the dividend is established.




Notes to the Financial StatementsFor the financial year ended 31 December 2008

1 General inForMationThe principal activities of the Bank are investment banking and the provision of related financial services. The principal activities of its subsidiaries during the financial year are set out in Note 12 to the Financial Statements. There was no significant change in the nature of these activities during the financial year.

The immediate holding company is CIMB Group Sdn Bhd and the Directors regard Bumiputra-Commerce Holdings Berhad (“BCHB”) as the Bank’s ultimate holding company during the financial year. Both companies are incorporated in Malaysia.

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

The address of the registered office and the principal place of business of the Bank is:

5th FloorBangunan CIMBJalan SemantanDamansara Heights50490 Kuala Lumpur

2 cash anD short terM FunDs the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Cash and balances with banks and other financial institutions 133,245 122,944 60,312 73,177 Money at call and deposit placements maturing within one month 2,744,202 1,459,893 2,667,561 1,335,043

2,877,447 1,582,837 2,727,873 1,408,220

Included in cash and short term funds of the Group and the Bank are trust accounts maintained in trust for clients and dealer representatives amounting to RM193,698,000 (2007: RM212,227,000) and remisiers amounting to RM13,339,000 (2007: RM13,680,000).

3 DePosits anD PlaceMents with Banks anD other Financial institutions the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Licensed banks 201,224 172,268 200,100 172,162 Other financial institutions - 133,280 - 132,280

201,224 305,548 200,100 304,442

Included in deposits and placements with financial institutions are RM200,100,000 (2007: RM172,162,000) maintained with a related licensed bank in Malaysia.




4 securities helD For traDinG the Group and the Bank

2008 2007 rM’000 rM’000

Money market instruments: unquoted Negotiable instruments of deposits 620,364 -

quoted securities: in Malaysia Shares 3,987 27,189 Warrants 445 792

4,432 27,981 unquoted securities: in Malaysia Private and Islamic debt securities 51,759 140,356

676,555 168,337

Included in securities held for trading are securities amounting to RM Nil (2007: RM11,823,000) invested by asset management companies on behalf of the Group and the Bank respectively.

5 availaBle-For-sale securities the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Money market instruments: unquoted Commercial papers - 4,923 - 4,923

unquoted securities: in Malaysia Shares 2,200 2,200 - - Private debt securities 519,924 512,321 519,924 512,321

522,124 514,521 519,924 512,321 outside Malaysia Shares 207 207 - -

522,331 519,651 519,924 517,244

Securities amounting to RM519,924,000 (2007: RM512,321,000) were invested by asset management companies on behalf of the Group and the Bank respectively.




6 helD-to-Maturity investMents

the Group and the Bank

2008 2007 rM’000 rM’000

unquoted securities: in Malaysia Subordinated debt 346,450 330,700

7 Derivative Financial instruMents, coMMitMents anD continGencies(i) Derivative financial instruments

The following tables summarise the contractual or underlying principal amounts of derivative financial instruments held at fair value through the income statement. The principal or contractual amounts of these instruments reflect the volume of transactions outstanding at balance sheet date, and do not represent amounts at risk.

Trading derivative financial instruments are revalued on a gross position basis and the unrealised gains or losses are reflected in “Derivative Financial Instruments” Assets and Liabilities respectively.

the Group and the Bank

Principal Fair values amount assets liabilities rM’000 rM’000 rM’000

at 31 December 2008 held for trading purposes Interest rate derivativesInterest rate swaps 2,386,260 115,213 (104)

Equity derivativesEquity options 1,797,494 10,972 (10,972)

Total derivative assets/(liabilities) 4,183,754 126,185 (11,076)

at 31 December 2007 held for trading purposes Interest rate derivativesInterest rate swaps 1,471,000 58,301 (3,541)

Equity derivativesEquity options 3,816,735 151,749 (151,749)

Total derivative assets/(liabilities) 5,287,735 210,050 (155,290)




7 Derivative Financial instruMents, coMMitMents anD continGencies (continueD)(ii) commitments and contingencies

In the normal course of business, the Group and the Bank enter into various commitments and incur certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions and hence, they are not provided for in the Financial Statements.

These commitments and contingencies are not secured over the assets of the Group and the Bank.

The commitments and contingencies constitute the following:

2008 2007 risk risk credit weighted credit weighted Principal equivalent amount Principal equivalent amountthe Group and the Bank rM’000 rM’000 rM’000 rM’000 rM’000 rM’000

credit risk related instrumentsObligations under underwriting agreements - - - 114,798 57,399 15,760 Irrevocable commitments to extend credit:- Maturity exceeding one year 1,859 930 465 2,180 1,090 545 Forward assets purchases 25,000 2 1 - - - Forward assets sold 20,000 - - - - -

46,859 932 466 116,978 58,489 16,305 Derivative related instrumentsInterest/profit rate related contracts:- Less than one year - - - 100,000 1,000 200 - One year to less than five years 2,386,260 68,461 13,692 1,371,000 13,710 2,742 Equity related contracts:- Less than one year 566,737 340 68 - - - - One year to less than five years 1,230,757 49,149 9,830 3,816,735 * - -

4,183,754 117,950 23,590 5,287,735 14,710 2,942

4,230,613 118,882 24,056 5,404,713 73,199 19,247

* The principal amount which was previously reported as RM23,766,012 has been restated in the current year to show only exposure to external parties.

There was no impact to the fair values, credit equivalents and risk weighted amounts stated in the previous year.

Credit risk related instrumentsObligationsunderunderwritingagreements arise from underwriting agreements relating to the issue of securities, whereby the Group is obliged to subscribe or purchase the securities in the event the securities are not taken up when issued.

Irrevocablecommitmentstoextendcredit include all obligations on the part of the Group to provide funding facilities.




7 Derivative Financial instruMents, coMMitMents anD continGencies (continueD)(ii) commitments and contingencies (continued)

Derivative related instrumentsThe Group utilises the following financial instruments for both trading and hedging purposes:

interest/profit rate related contractsInterest rate futures are agreements to buy or sell standard quantity of placements at an agreed rate of interest on a standard future date.

Interest rate swaps involve the exchange of interest obligations with a counterparty for a specified period without exchanging the underlying principal.

Interestratecaps andfloors give the buyer the ability to fix the maximum or minimum rate of interest. There is no facility to deposit or drawdown funds, instead the writer pays to the buyer the amount by which the market rate exceeds or is less than the cap rate or the floor rate respectively.

equity related contractsEquityfutures are exchange-traded agreements to buy and sell standard quantity of a basket of equities in the form of published indices, at an agreed price on a standard future date.

Equityoptions oblige the option writer to pay to the buyer the amount by which the market index exceeds the agreed strike rate.

credit equivalentThe above transactions are categorised and credit equivalents calculated under BNM guidelines for the risk based measurement of capital adequacy. The credit equivalent amounts are a measure of the potential loss to the Group in the event of possible non-performance by a counterparty.

The credit equivalent exposure from obligations under underwriting agreements is 50% of the face value. As for irrevocable commitment to extend credit, the credit equivalent exposure for commitments with maturity exceeding one year is 50%, while commitments with an original maturity of up to one year, or which can be unconditionally cancelled at any one time is 0%.

The Group is not exposed to credit risk for the full face value of their interest rate related contingencies, but only to the potential cost of replacing the contracts if the counterparty defaults. The credit equivalent exposure is calculated using the current exposure method and is disclosed for each product class. This amount is based on the summation of two elements, that are the replacement costs (obtained by marked-to-market) of all contracts including the netting of unrealised gains and losses on derivatives contracts under bilateral netting arrangements and the amount of potential future exposure calculated by applying given “add-on” factors to the principal value of each contract.




8 loans, aDvances anD FinancinG the Group and the Bank

2008 2007 rM’000 rM’000

(i) By type Revolving credits - 300,337 Staff loans of which RM291,513 (2007:RM 318,000) are to Directors 49,733 52,221 Other loans 1,438 1,865

Gross loans, advances and financing 51,171 354,423 Allowance for bad and doubtful debts: - Specific (218) - - General (870) (6,019)

Net loans, advances and financing 50,083 348,404

(ii) the maturity structure of loans, advances and financing is as follows: Within one year 397 300,413 One year to less than three years 1,221 1,211 Three years to less than five years 5,432 4,926 Five years and more 44,121 47,873

51,171 354,423

(iii) By type of customers Domestic business enterprises - Others - 300,337 Individuals 51,171 54,086

51,171 354,423

(iv) By interest /profit rate sensitivity Fixed rate - Other fixed rate loan/financing 51,171 354,423

(v) By economic purpose: Personal use 2 7 Purchase of residential landed property 39,616 41,042 Purchase of non-residential landed property 626 663 Purchase of securities 1 1 Purchase of transport vehicles 10,926 12,373 Working capital - 300,337

51,171 354,423




8 loans, aDvances anD FinancinG (continueD) the Group and the Bank

2008 2007 rM’000 rM’000

(vi) non-performing loans, advances and financing by sector Purchase of residential landed property 302 277 Purchase of transport vehicles 156 -

Gross non-performing loans, advances and financing 458 277

(vii) Movements in the non-performing loans, advances and financing are as follows:

At 1 January 277 277 Classified as non-performing during the financial year 262 - Amount written back in respect of recoveries/reclassification (81) -

At 31 December 458 277 Specific allowance (218) -

Net non-performing loans 240 277

Ratio of net non-performing loans, advances and financing to gross loans, advances and financing net of specific allowance 0.47% 0.08%

(viii) Movements in the allowance for bad and doubtful debts accounts are as follows:General allowanceAt 1 January 6,019 9,331 Amount written back to income statement (5,149) (3,312)

At 31 December 870 6,019

As % of gross loans, advances and financing less specific allowance 1.71% 1.70%

specific allowanceAt 1 January - - Allowance made during the financial year 218 -

At 31 December 218 -




9 other assets the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Interest and dividend receivable 12,803 6,019 12,794 5,984 Due from brokers and clients net of allowance for doubtful debts of RM10,235,000 (2007: RM12,634,000) 229,154 698,107 229,038 698,107 Other debtors, deposits and prepayments net of allowance for doubtful debts of RM11,768,000 (2007: RM14,201,000) 33,867 69,145 32,815 68,049

275,824 773,271 274,647 772,140

10 DeFerreD taxation

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

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Deferred taxation (net) 11,396 (2,215) 11,262 (2,192)

The gross movement on the deferred income tax account is as follows: the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

At 1 January (2,215) (3,555) (2,192) (3,515)(Charged)/credited to income statement (Note 36)- Loans, advances and financing (1,350) (895) (1,351) (895)- Excess of capital allowance over depreciation 74 (284) 74 (284)- Available-for-sale securities - 2,316 - 2,316 - Other temporary differences 7,306 186 7,150 186

6,030 1,323 5,873 1,323 Transferred to equity: - Revaluation reserve - available-for-sale securities 7,581 17 7,581 -

At 31 December 11,396 (2,215) 11,262 (2,192)




10 DeFerreD taxation (continueD) the Group the Bank 2008 2007 2008 2007

rM’000 rM’000 rM’000 rM’000

Deferred tax assets (before offsetting) Loans, advances and financing 274 1,625 274 1,625 Revaluation reserve - available-for-sale securities 5,727 - 5,727 - Other temporary differences 8,563 1,273 8,424 1,273

14,564 2,898 14,425 2,898 Offsetting (3,168) (2,898) (3,163) (2,898)

Deferred tax assets (after offsetting) 11,396 - 11,262 -

Deferred tax liabilities (before offsetting)Property, plant and equipment (3,168) (3,249) (3,163) (3,236)Revaluation reserve – available-for-sale securities - (1,854) - (1,854)Other temporary differences - (10) - -

(3,168) (5,113) (3,163) (5,090)Offsetting 3,168 2,898 3,163 2,898

Deferred tax liabilities (after offsetting) - (2,215) - (2,192)

Deferred tax assets and liabilities have been calculated to take into account the effect of a change in the Malaysian statutory tax rate from 27% to 26% and 25% for assessment years 2008 and 2009 respectively.

11 statutory DePosits with Bank neGara Malaysia

The non-interest bearing statutory deposits are maintained with Bank Negara Malaysia in compliance with Section 37(1)(c) of the Central Bank of Malaysia Act, 1958 (revised 1994), the amounts of which are determined at set percentages of total eligible liabilities.

12 investMent in suBsiDiaries the Bank 2008 2007

rM’000 rM’000

Unquoted shares, at cost 19,420 19,420




12 investMent in suBsiDiaries (continueD)The subsidiaries of the Bank are as follows: Percentage of equity held through the Bank’s directly by the subsidiary Bank company

2008 2007 2008 2007 Paid up capitalname of subsidiary Principal activities % % % % as at 31.12.2008

CIMB Holdings Sdn Bhd Investment holding 100 100 - - RM10,370,000CIMB Securities (Hong Kong) Limited* (Incorporated in Hong Kong) Dormant - - 100 100 HK$5,000,000CIMBS Sdn Bhd Dormant - - 100 100 RM2CIMSEC Nominees (Tempatan) Sdn Bhd Nominee services 100 100 - - RM10,000CIMSEC Nominees (Asing) Sdn Bhd Nominee services 100 100 - - RM10,000CIMSEC Nominees Sdn Bhd Nominee services 100 100 - - RM10,000CIMB Futures Sdn Bhd Futures broking 100 100 - - RM9,000,000CIMB Nominees (Tempatan) Sdn Bhd Nominee services 100 100 - - RM10,000CIMB Nominees (Asing) Sdn Bhd Nominee services 100 100 - - RM10,000CIMB Discount House Berhad Dormant 100 100 - - RM2

* Audited by other member firms of PricewaterhouseCoopers International Limited which is separate and independent legal entities from

PricewaterhouseCoopers Malaysia.

13 investMent in associate the Group 2008 2007

rM’000 rM’000

Unquoted shares, at cost 4,169 -

the Group 2008 2007

rM’000 rM’000

Share of net assets other than premium of associates 1,992 -Premium on acquisition 2,177 -

4,169 -




13 investMent in associate (continueD)The Group’s share of income and expenses of associates is as follows : the Group 2008 2007

rM’000 rM’000

Income 2,178 -Expenses (1,171) -

Profit before taxation 1,007 -Taxation (318) -

Profit for the financial year 689 -

The Group’s share of the assets and liabilities of the associates is as follows :

the Group 2008 2007

rM’000 rM’000

Non-current assets 107 -Current assets 2,665 -Current liabilities (780) -

Net assets 1,992 -

Percentage of equity held through the Bank’s directly by the subsidiary Bank company

2008 2007 2008 2007 Paid up capitalname of associates Principal activities % % % % as at 31.12.2008

CIMB Trustee Berhad Trustee services - - 20 - RM500,000BHLB Trustee Berhad Trustee services - - 20 - RM1,7500,000




14 ProPerty, Plant anD equiPMent

Bulding on office computer leasehold equipment equipment land-50 years and and Motor or more furniture software* vehicles renovation total rM’000 rM’000 rM’000 rM’000 rM’000 rM’000

the Group 2008

cost At 1 January 7,135 24,608 26,289 42,956 9,280 110,268 Additions - 1,176 7,388 10,901 4,021 23,486 Disposals - (30) (11) (2,539) (167) (2,747)

At 31 December 7,135 25,754 33,666 51,318 13,134 131,007

accumulated depreciation At 1 January 763 15,408 16,422 12,939 819 46,351 Charge for the financial year 143 3,232 5,865 8,766 1,875 19,881 Disposals - (21) (8) (1,782) - (1,811)

At 31 December 906 18,619 22,279 19,923 2,694 64,421

net book value as at 31 December 6,229 7,135 11,387 31,395 10,440 66,586

2007

cost At 1 January 7,135 10,401 31,056 30,554 6,034 85,180 Additions - 2,626 6,994 14,566 8,365 32,551 Disposals - (8) (124) (2,164) (5,788) (8,084)Reclassification - 11,589 (11,637) - 669 621

At 31 December 7,135 24,608 26,289 42,956 9,280 110,268

accumulated depreciation At 1 January 620 1,007 23,141 11,077 105 35,950 Charge for the financial year 143 3,047 4,989 3,330 714 12,223 Disposals - (6) (124) (1,477) - (1,607)Reclassification - 11,360 (11,584) 9 - (215)

At 31 December 763 15,408 16,422 12,939 819 46,351


* Computer software are mostly integral to the systems of the Bank and Group and accordingly have not been reclassified as intangibles under FRS 138: Intangible Assets. The impact of applying FRS 138 on the non-integral software is immaterial and has not been adjusted in the Financial Statements.




14 ProPerty, Plant anD equiPMent (continueD)


the Bank2008

cost At 1 January 7,135 24,311 26,025 42,956 8,950 109,377 Additions - 1,167 7,321 10,901 4,021 23,410 Disposal - (30) (11) (2,539) (167) (2,747)

7,135 25,448 33,335 51,318 12,804 130,040

accumulated depreciation

At 1 January 762 15,210 16,205 12,939 649 45,765 Charge for the financial year 143 3,196 5,831 7,537 1,809 18,516 Disposal - (21) (8) (1,782) - (1,811)

905 18,385 22,028 18,694 2,458 62,470


* Computer software are mostly integral to the systems of the Bank and Group and accordingly have not been reclassified as intangibles under FRS 138:

Intangible Assets. The impact of applying FRS 138 on the non-integral software is immaterial and has not been adjusted in the Financial Statements.




14 ProPerty, Plant anD equiPMent (continueD)


the Bank2007

cost At 1 January 7,135 9,936 30,753 30,554 5,788 84,166 Additions - 2,621 6,944 14,566 8,282 32,413 Disposal - (8) (124) (2,164) (5,788) (8,084)Reclassification/adjustment - 11,762 (11,548) - 668 882

7,135 24,311 26,025 42,956 8,950 109,377

accumulated depreciation

At 1 January 619 659 22,873 11,086 - 35,237 Charge for the financial year 143 3,000 4,966 3,330 649 12,088 Disposal - (6) (124) (1,477) - (1,607)Reclassification/adjustment - 11,557 (11,510) - - 47

762 15,210 16,205 12,939 649 45,765


* Computer software are mostly integral to the systems of the Bank and Group and accordingly have not been reclassified as intangibles under FRS 138:

Intangible Assets. The impact of applying FRS 138 on the non-integral software is immaterial and has not been adjusted in the Financial Statements.




15 PrePaiD lease PayMents

the Group and the bank leasehold land - 50 years or more rM’000

2008 cost At 1 January/31 December 18,609

accumulated depreciation At 1 January 1,984 Amortisation for the financial year 372

2,356

Net book value as at 31 December 16,253

2007costAt 1 January/31 December 18,609

accumulated depreciation At 1 January 1,612 Amortisation for the financial year 372

1,984

Net book value as at 31 December 16,625

16 GooDwill on consoliDation the Group 2008 2007

rM’000 rM’000

At 1 January/31 December 964 964

allocation of goodwill to cash-generating unitsGoodwill has been allocated to the following cash-generating-units (“CGUs”). These CGUs do not carry any intangible assets with indefinite useful lives:

acquisition cGu rM’000

CIMBS Sdn. Bhd. Stock-broking 964




16 GooDwill on consoliDation (continueD)Goodwill is tied to the stock-broking business of the Group, originally arising from the acquisition of CIMBS Sdn Bhd, the net assets and business of the operations, for which, have been transferred to the Bank.

impairment test for goodwillThe recoverable amount of CGUs is determined based on the higher of value-in-use and fair value less cost to sell calculations. These calculations use pre-tax cash flow projections based on the 2009 financial budgets approved by management, projected for 5 years based on the average to year historical Gross Domestic Product (“GDP”) growth of the country covering a five year period, revised for current economic conditions. Cash flows beyond the five-year period are extrapolated using an estimated growth rate of 5.0% (2007: 5.6%). The discount rate used is 9.80% (2007: 8.43%) which reflects the specific risks relating to the CGUs.

17 DePosits FroM custoMers the Group and the Bank

2008 2007 rM’000 rM’000

Negotiable instruments of deposits 1,188,130 730,500 Others 147,927 75,000

1,336,057 805,500

(i) the maturity structure of negotiable instruments of deposits One year to less than three years 914,650 730,500 Three years to less than five years 273,480 -

1,188,130 730,500

(ii) By type of customers: - Local government and statutory authorities 78,500 83,500 - Business enterprises 197,927 145,000 - Individuals 1,059,630 577,000

1,336,057 805,500

18 DePosits anD PlaceMents oF Banks anD other Financial institutions the Group and the Bank

2008 2007 rM’000 rM’000

Licensed banks 2,059,888 769,293 Other financial institutions 378,353 181,530

2,438,241 950,823




19 other liaBilities the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Interest and dividend payable 6,887 12,156 6,665 11,980 Due to brokers and clients 545,153 1,062,628 419,383 925,302 Liabilities on quoted securities 445 792 445 792 Others 111,324 176,995 107,589 158,385

663,809 1,252,571 534,082 1,096,459

Liabilities on quoted securities comprise an equity based financial instrument issued by the Bank on the securities of third party corporations. The securities derive their values based on the price of the underlying third party corporation securities. These securities do not meet the definition of derivative financial liabilities. As such, the securities are classified in other liabilities and are measured at fair value through the income statement under a special exemption granted by BNM, dated 9 August 2007.

20 Provision For taxation anD zakat the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Taxation 40,892 51,399 39,440 51,323 Zakat - 5 - 5

40,892 51,404 39,440 51,328

21 other BorrowinGs the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Subordinated loan 7,000 - - -

On 4 March 2008 and 7 November 2008, a subsidiary of the Bank had issued RM4 million and RM3 million in aggregate principal amounts of Subordinated Loan (“the Loan”) to the Bank’s immediate holding company, CIMBG Sdn Bhd. The debt bears interest at the rate of 5% per annum and has a repayment term of 3 years subject to approval of Bursa Malaysia Derivatives Berhad.




22 lonG terM BorrowinGs the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Subordinated notes 346,462 330,568 346,462 330,568

On 15 April 2004, the Bank issued USD100 million in aggregate principal amount of Subordinated Notes (“the Notes”) due 2014 callable with step-up in 2009. The Notes bear interest at the rate of 5% per annum from, and including 15 April 2004 to, but excluding 15 April 2009 and, thereafter, at a rate per annum equal to the US Treasury Rate Plus 3.7%. The interest is payable semi-annually in arrears on 15 April and 15 October in each year, commencing on 15 October 2004. The Notes were issued at a price of 99.843 per cent of the principal amount of the Notes. The Notes will, subject to the prior written approval of BNM, be redeemable in whole but not in part, at the option of the Bank in the event of certain changes affecting taxation in Malaysia at any time at their principal amount plus accrued interest.

The Notes constitute liabilities of the Bank, and are subordinated in right of payment to the deposit liabilities of the Bank in accordance with the terms and conditions of the issue.

23 share caPital the Group and the Bank

2008 2007 rM’000 rM’000

authorised ordinary shares of rM1 each At 1 January/31 December 500,000 500,000

issued and fully paid ordinary shares of rM1 each At 1 January/31 December 219,242 219,242

24 reDeeMaBle PreFerence shares the Group and the Bank

2008 2007 rM’000 rM’000

authorised redeemable preference shares of rM0.01 each At 1 January - - Created during the financial year 10 -

At 31 December 10 -

issued and fully paid redeemable preference shares of rM0.01 each At 1 January - - Created during the financial year 10 -

At 31 December 10 -




24 reDeeMaBle PreFerence shares (continueD)On 30 January 2008, the Bank had allotted and issued 1,000,000 Redeemable Preference Shares (“RPS”) of RM0.01 each to its ultimate holding company Bumiputra-Commerce Holdings Berhad at an issue price of RM0.01 sen per share.

The main features of the RPS are as follows:

(i) The RPS do not carry any fixed dividends

(ii) The RPS will rank superior to ordinary shares in the event of winding up or liquidation of the Bank

(iii) The RPS rank pari passu in all aspects among themselves

(iv) The RPS carry no right to vote at any general meeting of the ordinary shareholders of the Bank

(v) The RPS are not convertible to ordinary shares of the Bank

(vi) The RPS may only be redeemed subject to BNM’s approval at the option of the Bank (but not the holder) at anytime from the issue date

25 reserves(i) Included in the Group’s and the Bank’s reserves are statutory reserves of RM293,577,000 (2007: RM293,577,000),

maintained in compliance with Section 36 of the Banking And Financial Institutions Act, 1989. These statutory reserves are not distributable by way of dividends.

(ii) Pursuant to the Finance Act, 2007 which was gazetted on 28 December 2007, dividends paid, credited or distributed to shareholders are not tax deductible by the Bank, but is exempted from tax in the hands of the shareholders (“single tier system”). During the year, the Bank has utilised the credit in the Section 108 balance to distribute dividend payments to its shareholders as allowed by the transitional provision under the Finance Act, 2007. As at 31 December 2008, the Bank has sufficient credit in the Section 108 balance to pay franked dividends out of its entire retained earnings.

(iii) Revaluation reserve – available-for-sale securities the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

at 1 January (6,312) 9,975 (5,014) 11,273 Net (loss)/gain from changes in fair value (20,254) 2,428 (20,254) 2,445 Net loss/(gain) transferred to income statement on disposal 1,805 (18,732) 507 (18,732) Deferred taxation 7,581 17 7,581 -

Net change in available-for-sale securities (10,868) (16,287) (12,166) (16,287)

at 31 December (17,180) (6,312) (17,180) (5,014)




25 reserves (continueD)(iv) Options reserve - employee share option scheme

The share options granted to Directors and employees of the Group are that of the Bank’s ultimate holding company, BCHB. The terms of the share options granted are disclosed in Note 43.

Movements in the number of share options outstanding and their related weighted average exercise prices for share options scoped in under FRS 2, are as follows:

2008 2007

average average exercise exercise price options price options rM/share (units ‘000) rM/share (units ‘000)

At start of financial year 4.73 14,173 4.61 14,200 Arising from modification of EESOS 2 & 3 3.90 8,143 - - Forfeited 4.59 (117) 4.22 (27)Exercised 3.95 (6,753) - -

At end of financial year 4.65 15,446 4.73 14,173

On 26 September 2008, the Board of Directors had approved the extension of the expiry date from 29 December 2008 to 29 December 2009 for EESOS 2 and EESOS 3 which were previously not in scope under FRS 2. The extension of the expiry date of these options is deemed as a modification in the terms of the share option scheme and as such FRS 2 is applicable for the current financial year onwards.

Out of the outstanding options, all 15,446,213 units (2007: 4,229,298 units) of options were exercisable. The weighted average share price during the period was RM9.66 (2007: RM10.72) per share.

The options outstanding at year end had exercise prices ranging from RM4.05 to RM4.84 (2007: RM4.39 to RM4.84), and a weighted average remaining contractual life of 1 year (2007: 2 years).

The weighted average fair value of options granted under EESOS 2, EESOS 3 and Tranche 4 of EESOS 4, which are deemed as an equity-settled payment under FRS 2- Share-based Payment, determined using the Trinomial valuation model was RM3.84, RM3.53 and RM1.50 per option respectively. The significant inputs into the model were as follows:

eesos 2 eesos 3 eesos 4

valuation assumptions: - expected volatility 41.00% 41.00% 28.45%- expected dividend yield 3.23% 3.23% 2.04%- expected option life 1 year 1 year 5 years Weighted average share price at grant date RM7.75 RM7.75 RM4.40 Weighted average risk-free interest rate 3.55% 3.55% 3.49%

The volatility measured at the standard deviation on daily share price returns is based on prices over the last 1 year from grant date.




26 interest incoMe the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Loans, advances and financing - interest income other than recoveries 7,193 21,158 7,193 21,158 - recoveries from non-performing loans 10 - 10 - Money at call and deposit placements with banks and other financial institutions 31,404 20,503 31,182 20,095 Securities purchased under resale agreements 8,023 2,534 5,991 112 Securities held for trading 3,032 4,799 3,032 4,799 Available-for-sale securities 28,095 26,982 28,095 26,982 Held-to-maturity investments 16,869 16,790 16,869 16,790 Others 6,087 4,060 6,087 4,060

100,713 96,826 98,459 93,996 Amortisation of premium less accretion of discount 515 552 515 552

101,228 97,378 98,974 94,548

27 interest exPense the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Deposits and placements of banks and other financial institutions 36,313 28,953 36,313 28,953 Deposits from customers 12,984 4,305 12,984 4,305 Obligations on securities sold under repurchase agreements - 26 - 26 Negotiable certificates of deposits 1,932 672 1,932 672 Subordinated notes 16,846 16,353 16,846 16,353 Others 4,375 1,305 3,999 1,227

72,450 51,614 72,074 51,536




28 write Back oF losses on loans, aDvances anD FinancinG the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

allowance for bad and doubtful debts on loans, advances and financing : (a) specific allowance - made in the financial year (218) - (218) - (b) General allowance - written back in the financial year 5,149 3,312 5,149 3,312

4,931 3,312 4,931 3,312

29 net Fee anD coMMission incoMe the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Fees on loans, advances and financing 2,770 222 2,770 222 Portfolio management fees 10,177 6,363 10,177 6,363 Advisory and arrangement fees 85,341 56,439 85,341 56,439 Guarantee fees - 149 - 149 Underwriting commissions 1,256 19,660 1,256 19,660 Placement fees 9,152 20,342 9,152 20,342 Other fee income 19,672 9,283 19,672 9,283

128,368 112,458 128,368 112,458

30 DiviDenD incoMe the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Securities held for trading 313 1,133 313 1,133 Subsidiaries - - (4,384) 164,335

313 1,133 (4,071) 165,468

The dividend loss from subsidiary in 2008 for the Bank arose from over-declaration of dividends by the Bank’s subsidiary, CIMB Holdings Sdn Bhd in 2007. The dividend declaration was subsequently revised in 2008. Hence, the Bank has reversed the over-recognition of the dividends in 2008 resulting in a dividend loss.




31 net traDinG (loss)/incoMe the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Gain arising from trading in securities held for trading - realised gain 1,952 40,882 1,952 40,882 - unrealised loss (9,395) (3,894) (9,395) (3,894)Gain arising from trading in derivative financial instruments - realised gain 363 5,150 363 5,150 - unrealised loss - (5,150) - (5,150)

(7,080) 36,988 (7,080) 36,988

32 (loss)/Gain arisinG FroM sale oF availaBle-For-sale securities the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

(Loss)/gain from sale of available-for-sale securities (1,805) 18,732 (507) 18,732

33 other non-interest incoMe the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Foreign exchange gain/(loss) - unrealised 5,411 (74) 5,641 (9)- realised 506 417 505 - Gain on disposal of property, plant and equipment 431 422 431 422 Gain on disposal of CIMB Discount House Berhad licence 8,750 - 8,750 - Other non-operating income 9,961 5,755 9,846 5,755

25,059 6,520 25,173 6,168




34 overheaDs the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Personnel costs - Salaries, allowances and bonuses 92,300 88,970 90,856 87,536 - EPF 11,538 9,942 11,399 9,839 - ESOS expense 1,415 3,373 1,409 3,360 - Training fees 395 3,051 391 3,644 - Overtime, meal and transport claims 608 2,092 607 1,377 - Others 8,829 7,549 8,733 7,578

115,085 114,977 113,395 113,334

establishment costs - Depreciation of property, plant and equipment 19,881 12,223 18,516 12,088 - Amortisation of prepaid lease payment 372 372 372 372 - Rental 9,240 5,705 8,419 5,197 - Others 8,850 5,562 8,807 5,506

38,343 23,862 36,114 23,163

Marketing expenses - Advertisement 4,759 3,794 4,753 3,772 - Entertainment expenses 3,967 4,077 3,948 4,077 - Promotional expenses and public relations 160 1,805 159 1,805 - Others 4,087 3,845 4,070 3,736

12,973 13,521 12,930 13,390

administration and general expenses - Legal and professional fees 4,845 4,860 4,804 4,812 - Communication 1,885 3,570 1,809 3,477 - Printing and stationery 2,209 3,405 2,188 3,405 - Licensing fee, exchange fee and levies 3,808 10,416 3,808 10,416 - Donations 71 6,207 71 6,207 - Administrative vehicle, travelling and insurance expenses 3,154 5,205 3,139 5,205 - Others 2,833 5,890 2,611 5,750

18,805 39,553 18,430 39,272

Total overhead expenses 185,206 191,913 180,869 189,159




34 overheaDs (continueD) the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

The above expenditure includes the following disclosures: Directors’ remuneration (Note 35) 8,106 14,826 7,942 14,826 Rental of premises 6,377 3,971 5,556 3,463 Hire of equipment 2,863 1,734 2,863 1,734 Auditors’ remuneration - Statutory audit (PwC Malaysia) 138 181 110 130 - Statutory audit (other firms) 17 17 17 17 - Half year review 30 30 30 30 - Tax and taxation services 20 32 20 16

Included in the overhead expenses are support costs (including Group CEO’s office) amounting to RM116 million (2007: RM76 million) which were incurred on behalf of CIMB Bank Berhad (“CIMB Bank”) and recovered therefrom during the financial year based on certain agreed methods such as Capital-at-Risk, head count, actual costs, revenue and time incurred by the relevant personnel.

35 Directors’ reMunerationThe Directors of the Bank in office during the financial year were as follows:

Non-Executive DirectorsDato’ Hamzah bin BakarDato’ Sri Mohamed Nazir bin Abdul RazakDato’ Zainal Abidin bin PutihNicholas Rupert Heylett BloyZahardin bin Omardin

Executive DirectorDato’ Charon Wardini bin Mokhzani

the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Executive Director and Group CEO - Salary and other remuneration 2,892 2,782 2,803 2,782 - Bonus 4,561 11,160 4,494 11,160 - Benefits-in-kind 152 375 144 375

Non-executive Directors - Fees and other remuneration 501 509 501 509

8,106 14,826 7,942 14,826




35 Directors’ reMuneration (continueD)The functions and responsibilities of the Chief Executive Officer (‘CEO’) were carried out by Dato’ Sri Mohamed Nazir bin Abdul Razak. The salary, other remuneration, bonus (in respect of 2008 payable in 2009) and benefits-in-kind totalling RM5,124,691 (2007: RM11,135,921) for the CEO was paid by the Bank.

Part of the CEO’s remuneration together with other support costs incurred on behalf of CIMB Bank were recovered from CIMB Bank based on certain methods which have been agreed by both parties (refer to Note 34).

Consistent with the practice for certain key personnel, the bonus for 2008 will be paid in tranches, spread over 2009. In addition, the final tranche will only be paid out in the third quarter of 2009, after certain key financial performance indicators for the Group has been met. A similar condition is also imposed on the 2008 bonus of certain key personnel.

The Directors’ remuneration is broadly categorised into the following bands:

2008 2007 non-executive executive non-executive executive Directors Directors* Directors Directors*

the Group RM50,001 to RM100,000 3 - 3 - RM100,001 to RM500,000 1 1 1 - RM1,000,001 to RM1,500,000 - - - - RM1,500,001 to RM2,000,000 - - - - RM2,000,001 to RM2,500,000 - 1 - 1 RM5,000,001 to RM5,500,000 1 - - - RM9,000,001 to RM9,500,000 - - - 1

the Bank RM50,001 to RM100,000 3 - 3 - RM100,001 to RM500,000 1 - 1 - RM1,000,001 to RM1,500,000 - - - - RM1,500,001 to RM2,000,000 - - - - RM2,000,001 to RM2,500,000 - 1 - 1 RM5,000,001 to RM5,500,000 1 - - - RM9,000,001 to RM9,500,000 - - - 1

* Includes the remuneration of Dato’ Sri Mohamed Nazir bin Abdul Razak, who was re-designated as non-executive Director on 30 June 2007.




36 taxation(i) Tax expense for the financial year the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Current tax - Malaysian income tax 42,439 65,259 39,056 109,639 Foreign tax 39 90 - - Deferred tax (note 10) (6,030) 1,323 (5,873) 1,323

36,448 66,672 33,183 110,962

Current tax - Current year 42,478 65,349 39,056 109,639 Deferred tax - Origination and reversal of temporary differences (6,030) 1,323 (5,873) 1,323

36,448 66,672 33,183 110,962

(ii) Numerical reconciliation of income tax expenseThe explanation on the relationship between tax expense and profit before taxation is as follows:

the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Profit before taxation 149,883 281,160 145,667 439,612

Tax calculated at a tax rate of 26% (2007: 27%) 38,970 75,913 37,873 118,695 Income not subject to tax (9,440) (15,260) (9,439) (13,674)Expenses not deductible for tax purposes 7,546 6,786 5,371 6,786 Over provision in prior years (387) - (387) - Effects of different tax rates (241) (767) (235) (845)

Tax expense 36,448 66,672 33,183 110,962




37 DiviDenDs

2008 2007 rM’000 rM’000

Final gross dividend of 20,270.27 sen per redeemable preference share, less 26% income tax, paid on 7 May 2008 150,000 - Interim gross dividend of 10,135.14 sen per redeemable preference share, less 26% income tax, paid on 25 August 2008 75,000 - Final gross dividend of 124.96 sen per ordinary share, less 27% income tax, paid on 25 May 2007 - 200,000 Interim gross dividend of 124.96 sen per ordinary share, less 27% income tax, paid on 27 August 2007 - 200,000

225,000 400,000

The gross and net dividends declared per share for each financial year are as follows:

2008 2007 amount amount of of Gross per net per dividend Gross per net per dividend share share net of tax share share net of tax sen sen rM’000 sen sen rM’000

Final dividend paid 20,270.27 15,000.00 150,000 124.96 91.22 200,000 Interim dividend paid 10,135.14 7,500.00 75,000 124.96 91.22 200,000

30,405.41 22,500.00 225,000 249.92 182.44 400,000

The final dividend of 20,270.27 sen per redeemable preference share, less income tax at 26%, amounting to RM150,000,000 in respect of the financial year ended 31 December 2007 was paid to BCHB on 7 May 2008.

An interim dividend of 10,135.4 sen per redeemable preference share, less income tax at 26%, amounting to RM75,000,000 for the financial year ended 31 December 2008 was paid to BCHB on 25 August 2008.

The Directors now recommend the payment of a final gross dividend of 9,333.33 sen per share on 1,000,000 redeemable preference shares of RM0.01 each, less 25% income tax, amounting to RM70,000,000 which, subject to the approval of members at the forthcoming Annual General Meeting of the Bank, will be paid on 27 March 2009 to shareholders registered on the Bank’s Register of Members at the close of business on 27 February 2009.




38 aMount Due FroM/(to) relateD coMPanies the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Amount due from: - subsidiaries - - 9 37,423 - related companies 19,525 9,745 19,525 9,745

19,525 9,745 19,534 47,168

Amount due to: - subsidiaries - - (15,069) (43,185)- related companies (3,368) (42,070) (8) (42,068)- immediate holding company - (100) - (100)- ultimate holding company (189) (1,254) (189) (1,254)

(3,557) (43,424) (15,266) (86,607)

The amounts due from/(to) related companies are unsecured, interest free and recallable on demand.

39 siGniFicant relateD Party transactions anD Balances(a) related parties and relationship

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

The related parties of, and their relationship with the Group, are as follows:

Related parties RelationshipBumiputra-Commerce Holdings Berhad (“BCHB”) Ultimate holding companyCIMB Group Sdn Bhd (“CIMBG”) Immediate holding companyCIMB Berhad (“CIMBB”) Subsidiary of ultimate holding companySubsidiaries of CIMBG as disclosed in its financial statements Subsidiaries of immediate holding companySubsidiaries of the Bank as disclosed in Note 12 SubsidiariesCommerce Capital (Labuan) Ltd. Subsidiary of ultimate holding companyCommerce Asset Realty Sdn. Bhd. Subsidiary of ultimate holding companyCommerce Asset Nominees Sdn. Bhd. Subsidiary of ultimate holding companyCommerce MGI Sdn. Bhd. Subsidiary of ultimate holding companyCommerce Volantia Sdn. Bhd. Subsidiary of ultimate holding companyPT Commerce Kapital Subsidiary of immediate holding companyRangkaian Segar Sdn. Bhd. Associate of ultimate holding companyKey management personnel Refer to next page




39 siGniFicant relateD Party transactions anD Balances (continueD)(a) related parties and relationship (continued)

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the Group and the Bank either directly or indirectly. The key management personnel of the Group and the Bank include all the Directors of the Bank and employees of the Group who make certain critical decisions in relation to the strategic direction of the Group.

(b) related party transactionsA number of banking transactions are entered into with related parties in the normal course of business. These include loans, deposits, securities and derivative transactions. These transactions were carried out on commercial terms and at market rates.

In addition to related party disclosures mentioned elsewhere in the Financial Statements, set out below are other significant related party transactions.

ultimate immediate other key holding holding related management company company companies personnel rM’000 rM’000 rM’000 rM’000

2008 sales: Malaysian Government securities - - 5,071 - Private debt securities - - 1,843,344 - Commercial paper - - 594,375 -

- - 2,442,790 -

Purchases: Malaysian Government securities - - 35,969 - Malaysian Government investment certificates - - 14,994 - Cagamas bonds - - 190,000 - Commercial paper 984,898 - 261,168 - Private debt securities 350,000 - 3,530,364 -

1,334,898 - 4,032,495 -

2008 income: Fee income - - 534 23 Interest income - - 58,416 11

- - 58,950 34

expenditure: Interest expense - - 37,844 56




39 siGniFicant relateD Party transactions anD Balances (continueD)(b) related party transactions (continued)


2007 sales: Malaysian Government securities - - 10,115 - Cagamas bonds - - 717,000 - Sub debt bonds and NIDs - - 3,151 - Private debt securities - - 4,950,336 - Commercial paper - - 414,969 -

- - 6,095,571 -

Purchases: Malaysian Government securities - - 69,949 - Private debt securities 350,000 - 320,331 - Commercial paper 1,576,900 - 1,196,528 -

1,926,900 - 1,586,808 -

2007 income: Fee income - - 3,676 366 Interest income - - 32,623 13

- - 36,299 379

expenditure: Interest expense - - 30,122 140

Key management compensation

2008 2007 rM’000 rM’000

Salaries and other short term employee benefits 16,991 43,336 Other long term benefits - 2,142

16,991 45,478

unit unit

Share options balance of ultimate holding company 7,613,407 11,635,000

Included in the above table are Directors’ remuneration which are disclosed in Note 35. The share options granted are on the same terms and additions as those offered to other employees of the Group and the Bank as disclosed in Note 43.




39 siGniFicant relateD Party transactions anD Balances (continueD)(c) related party balances

Other related party balances, other than those carried out in the ordinary course of banking transactions, represent advances to and from related parties as well as expenses paid on behalf for and by related parties. These balances are unsecured, carry no interest rate and are repayable on demand.

In addition to related party disclosures mentioned elsewhere in the Financial Statements, set out below are other significant related party balances.


2008amount due from:Cash and balances with banks and other financial institutions - - 2,045,569 - Deposits and placements with banks and other financial institutions - - 200,000 - Loans, advances and financing - - - 292 Interest receivable - - 5,366 -

- - 2,250,935 292

amount due to:Deposits and placements of banks and other financial institutions - - 2,059,888 27,521 Interest payable - - 1,169 724

- - 2,061,057 28,245

Principalinterest rate contracts:Swaps - - 1,193,130 -




39 siGniFicant relateD Party transactions anD Balances (continueD)(c) related party balances (continued)


2007 amount due from: Cash and balances with banks and other financial institutions - - 68 - Money at call and deposit placements maturing within one month - - 427,315 - Loans, advances and financing - 300,000 - 318 Deposits and placements with banks and other financial institutions - - 282,280 - Interest receivable - - 4,556 -

- 300,000 714,219 318

amount due to: Deposits and placements of banks and other financial institutions - - 719,293 22,982 Interest payable - - 989 300

- - 720,282 23,282

Principal interest rate contracts: Swaps - - 735,500 -

(d) credit transactions and exposures with connected parties

Pursuant to the Guidelines On Credit Transactions and Expenses with Connected Parties issued by BNM, the aggregate value of outstanding credit exposures of the Bank with connected parties amounted to RM430,761,000 as at 31 December 2008, representing 24.8% of the total outstanding credit exposures of the Bank. There are no credit exposures with connected parties which are non-performing or in default as at 31 December 2008.




40 caPital coMMitMentsCapital expenditure not provided for in the Financial Statements are as follows: the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000

Authorised and contracted for 24,756 - 24,756 - Authorised but not contracted for - 59,065 - 59,065

24,756 59,065 24,756 59,065

The capital commitments are attributed to: - projects 16,405 - 16,405 - - fixed assets 8,351 59,065 8,351 59,065

24,756 59,065 24,756 59,065

41 lease coMMitMentsThe Group and the Bank have lease commitments in respect of rented premises which are classified as operating leases. A summary of the non-cancellable long-term commitments representing minimum rentals which the Group and the Bank are obliged to pay is as follows: the Group the Bank

2008 2007 2008 2007 rM’000 rM’000 rM’000 rM’000 Not later than one year 10,637 5,429 10,637 5,368 Later than one year and not later than five years 28,216 6,899 28,216 6,796

38,853 12,328 38,853 12,164

42 caPital aDequacyThe capital adequacy ratios of the Bank’s banking operations are as follows:

2008 2007 rM’000 rM’000

Tier-1 capital 629,641 748,040 Eligible Tier-2 capital 1,105 6,019

Total capital 630,746 754,059 Less: Investment in subsidiaries (19,420) (19,420)

Capital base before proposed dividend 611,326 734,639 Less: Proposed dividends (70,000) (150,000)

Capital base after proposed dividend 541,326 584,639




42 caPital aDequacy (continueD)The capital adequacy ratios of the Bank’s banking operations are as follows: (Continued)

2008 2007 rM’000 rM’000

capital ratios Before deducting proposed dividends:Core capital ratio 40.15% 30.09%Risk-weighted capital ratio 40.15% 30.09% After deducting proposed dividends:Core capital ratio 35.56% 23.95%Risk-weighted capital ratio 35.56% 23.95%

Components of Tier-1 and Tier-2 capital are as follows:

2008 2007 rM’000 rM’000

tier-1 capital Paid up share capital 219,242 219,242 Share premium 33,489 33,489 Retained profit 89,498 201,394 Other reserves 292,947 293,577

635,176 747,702 Deferred tax (assets)/liabilities (5,535) 338

Total Tier-1 capital 629,641 748,040

tier-2 capital General allowance for bad and doubtful debts 1,095 6,019 Cumulative preference shares 10 -

Total Tier-2 capital 1,105 6,019

Total capital 630,746 754,059 Less: Investment in subsidiaries and holding of other banking institutions capital (19,420) (19,420)

Total capital base 611,326 734,639




42 caPital aDequacy (continueD)Breakdown of risk-weighted assets in the various categories of risk-weights:

2008 2007 Principal risk weighted Principal risk weighted rM’000 rM’000 rM’000 rM’000

0% 590,951 - 80,732 - 10% - - - - 20% 2,731,019 546,204 1,811,600 362,320 50% 40,967 20,484 42,518 21,259 100% 694,746 694,746 1,725,236 1,725,236

4,057,683 1,261,434 3,660,086 2,108,815

Counterparty risk requirement 5 5,404

Total risk weighted assets equivalent for credit risk 1,261,439 2,114,219 Total risk weighted assets equivalent for market risk 261,009 327,066

1,522,448 2,441,285

Pursuant to Bank Negara Malaysia’s circular, ‘Recognition of Deferred Tax Asset (‘DTA’) and Treatment of DTA for RWCR Purposes’ dated 8 August 2006, deferred tax income/(expenses) are excluded from the calculation of Tier 1 Capital and DTA is excluded from the calculation of risk-weighted assets.

Effective 1 October 2008, the following approaches have been adopted for the computation of risk weighted assets:• Adoption of bilateral netting as provided under the Standardised Approach Framework which involves the weighting of net

claims rather than gross claims with the same counterparties arising out of the full range of forwards, swaps, options and similar derivative contracts.

• Irrevocable commitments to extend credit (undrawn loans) have been revised to include only those undrawn loans whereby all conditions precedent have been met.

43 eMPloyee BeneFitsModified executive employees share options scheme (“eesos”)The share options granted to Directors and employees of the Group are that of the Bank’s ultimate holding company, Bumiputra-Commerce Holdings Berhad (“BCHB”). The Employee Share Option Scheme (“ESOS 2005/2009”) was granted on 11 March 2005 and is governed by the by-laws approved by BCHB shareholders on 8 September 2005. However, pursuant to the CIMBB Restructuring, the existing ESOS 2005/2009 was absorbed by a trust, set up to subscribe for all the remaining CIMBB shares through an accelerated vesting of the unexercisable tranches under the ESOS 2005/2009.

The exercise price under the EESOS is the average of the mean market quotation of the shares of the Company as quoted in the Daily Official List issued by the Bursa Malaysia Securities Berhad for the five market days preceding the offer date, or the par value of the shares of the Company of RM1, whichever is the higher.

Options granted are vested across different exercise periods on 11 March 2005, 30 December 2006, 30 December 2007, 30 December 2008 and will expire on 29 December 2009. The Group has no legal or constructive obligation to repurchase or settle the options in cash.




43 eMPloyee BeneFits (continueD)Modified executive employees share options scheme (“eesos”) (continued)The main features of the EESOS are as follows:

• The total number of ordinary shares issued by BCHB under the EESOS shall not exceed 10% of the total issued and paid-up ordinary shares of the Company

• The subscription price of EESOS options shall be the higher of the weighted average market price of the BCHB’s shares for the five market days immediately preceding the date at which the EESOS options are granted to the employees, and the par value of the shares of the BCHB.

• In the event of capital distribution, the subscription price and/or the number of new shares of BCHB may be adjusted in such a manner as the Board of BCHB in their discretion deem fair and reasonable.

• The share options shall not carry any rights to vote at any general meeting of BCHB. The share option holders shall not be entitled to any dividends, rights or other entitlement on his unexercised share options.

• Option holders are required to remain in the Group’s employment till the respective vesting dates for the relevant amount of options to vest in the hands of the holder.

• For the purpose of the Modified EESOS, a total of 41,014,009 share options with adjusted option price were offered to the Eligible Executives being the date of listing and quotation of the shares issued by BCHB. The total shares options are categorised as follows:

(i) Modified EESOS 1 4,675,000 share options were offered at an option price of RM1.27 per share option, which have expired as at 29

December 2007;

(ii) Modified EESOS 2 16,021,459 share options were offered at an option price of RM3.49 per share option with expiry date on 29 December

2008. The expiry date was subsequently extended to 29 December 2009;

(iii) Modified EESOS 3 1,051,875 share options were offered at an option price of RM3.80 per share option with expiry date on 29 December

2008. The expiry date was subsequently extended to 29 December 2009; and

(iv) Modified EESOS 4 19,265,675 share options were offered at an option price of RM4.18 per share option with expiry date on 29 December

2009.

The option price above was adjusted using the ratio approximately 1.146 BCHB shares for one CIMBB shares from the original option prices.




43 eMPloyee BeneFits (continueD)Modified executive employee share option scheme (“eesos”) (continued)Movements in the number of share options outstanding and their related weighted average exercise prices, for share options scoped in under FRS 2, are as follows:

2008 2007 rM/share (units ‘000) rM/share (units ‘000)

At start of financial year* 3.90 8,143 3.33 20,088 Arising from modification of EESOS 2 & 3 3.90 (8,143) - - Forfeited - - 4.39 (1,131)Exercised - - 3.30 (10,814)

At end of financial year - - 3.90 8,143

The weighted average share price during the period, should the options have been exercised on a regular basis throughout the period was RMNil (2007: RM10.72) per share.

The options outstanding at year end had exercise price of RM Nil (2007: RM3.86 to RM4.61), and a weighted average remaining contractual life of 0 years (2007: 2 years).

* Pursuant to the CIMBB Restructuring in 2006, all CIMBB share options have been converted to BCHB share options on the ratio of 1 : 1.146.

The BCHB share options have been classified as balances at the start of the financial year as the option holders retain the right to exercise the

options during the conversion period.

Management equity scheme (“Mes”)Entitlements on equity instruments of BCHB, with an exercise price of RM3.48 per share (share price: RM8.45), were granted to eligible senior management of the CIMB Investment Bank as part of the performance linked compensation scheme by a substantial shareholder of BCHB. The scheme was initially launched in 1 March 2004 at BCHB level and in November 2007, both the Nomination and Remuneration Committee of BCHB approved amendments to the terms which provides for the inclusion of the senior management of CIMB Group in the MES.

The eligibility for participation in the scheme shall be at the discretion of the Nomination and Remuneration Committee of BCHB. Entitlements of eligible members of senior management are non-assignable and non-transferable whereby the Nomination and Remuneration Committee of BCHB administers the scheme on behalf of the substantial shareholder. The options granted vest in proportions across various exercise periods.

In December 2008, the substantial shareholder of BCHB had approved the extension of the MES scheme from 28 February 2009 to 28 February 2012. The MES will continue to be in force till 28 February 2012 after which the voting rights of unexercised balances will remain with the substantial shareholder of BCHB.

Number of entitlements granted during the financial year is 3,350,000 (2007: 13,925,000) units and number of entitlements outstanding as at year end is 10,058,000 (2007: 13,723,000) units.

All entitlements have the same reference price, which is at RM3.48 each. The weighted average remaining contractual life is 3.2 years.




44 siGniFicant event DurinG the Financial yearOn 30 January 2008, the Bank issued 1,000,000 Redeemable Preference Shares of nominal value RM0.01 each to CIMB Group Sdn Bhd at an issue price of RM0.01 each, which was approved via an Extraordinary General Meeting. The Redeemable Preference Shares was subsequently transferred to Bumiputra-Commerce Holdings Berhad.

45 critical accountinG estiMates anD JuDGeMents in aPPlyinG accountinG PoliciesThe Group and the Bank make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Group’s and the Bank’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are outlined below:

(a) Fair value of financial instrumentsFinancial instruments are either priced with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using financial markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and these values are discounted back to a present value. These models use as their basis independently sourced market parameters including, for example, interest rate yields curves, equities and commodities prices, options volatilities and currency rates. Most market parameters are either directly observable or are implied from instrument prices.

The process of calculating fair value on illiquid instruments or from a valuation model may require estimation of certain pricing parameters, assumptions or model characteristics. These estimates are calibrated against industry standards, economic models and observed transaction prices. Changes in these estimates and assumptions about these factors could affect the reported fair value of financial instruments.

(b) Impairment of available-for-sale securities and held-to-maturity securitiesThe Group and the Bank follow the guidance of the Revised BNM/GP8 in determining when an investment is impaired. This determination requires significant judgment. The Group and the Bank evaluate, among other factors, the duration and extent to which the fair value of the investment is less than cost; and the financial health and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financial cash flow.

(c) Income taxesSignificant judgment is required in determining the capital allowances and deductibility of certain expenses during the estimation of the provision for income taxes. There are many transactions and calculations for which ultimate tax determination is uncertain during the ordinary course of business. The Group and the Bank recognise liabilities for anticipated tax audit issues based on estimates or whether additional tax will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred taxation positions in the period in which the determination is made.




45 critical accountinG estiMates anD JuDGeMents in aPPlyinG accountinG Policies (continueD)(d) Goodwill impairment

The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in Note K of the Summary of Significant Group Accounting Policies.

The first step of the impairment review process requires the identification of independent operating units, dividing the Group’s business into the various business segments. The goodwill is then allocated to these various business segments. The first element of this allocation is based on the areas of the business expected to benefit from the synergies derived from the acquisition. The second element reflects the allocation of the net assets acquired and the difference between the consideration paid for those net assets and their fair value. This allocation is reviewed following business reorganisation. The carrying value of the business segment, including the allocated goodwill, is compared to its fair value to determine whether any impairment exists. Detailed calculations may need to be carried out taking into consideration changes in market in which a business operates. In the absence of readily available market data, this calculation is usually based upon discounting expected pre-tax cash flows at the Group’s and the Bank’s cost of capital, which requires exercise of judgment.

Changes to the assumptions used by management, particularly the discount rate and the terminal growth rate, may significantly affect the results of the impairment.

46 seGMent rePortinGThe Group is divided into five major business lines - Financial advisory, underwriting and other fees, Debt related, Equity related, Investments and securities services and Others. The business lines are the basis on which the Group reports its primary segment information.

Financialadvisory,underwritingandotherfees mainly comprise fees derived from structured financial solutions, origination of capital market products including debt and equity, mergers and acquisitions, secondary offerings, asset backed securities, debt restructurings, corporate advisory, Islamic capital market products and project advisory. In addition, this segment also includes underwriting of primary equities and debt products.

Debtrelated mainly comprises proprietary trading and market making in the secondary market for debt, debt related derivatives and structured products. It also invests in proprietary capital.

Equityrelatedmainly comprises institutional and retail broking business for securities listed on the Exchange. It also includes income from trading and investing in domestic and regional equities market.

Investmentsandsecuritiesservices mainly comprise annuity income derived from fund management, agency and securities services.

Others mainly comprise income derived from Islamic Banking operations undertaken by the Group.




46 seGMent rePortinG (continueD)The following table presents an analysis of the Group’s results and balance sheet positions by business segments:

Financial investments advisory, and underwriting Debt equity securities and other fees related related services others total rM’000 rM’000 rM’000 rM’000 rM’000 rM’000

the Group2008 External net interest income - 28,778 - - - 28,778 Non interest income: - Fee income 114,583 3,790 - 9,995 - 128,368 - Net trading loss - (4,579) (2,501) - - (7,080)- Loss arising from sale of available-for-sale securities - (1,805) - - - (1,805)- Brokerage income - - 88,704 3,290 - 91,994 - Income from assets management and securities services - - - 11,795 - 11,795 Other income 776 49,510 313 - 25,059 75,658 Operating income (exclude allowances) 115,359 75,694 86,516 25,080 25,059 327,708

Segment result 91,947 15,458 26,094 3,970 24,206 161,675 Unallocated costs (12,481) * Share of results of associates 689

Profit before taxation 149,883 Taxation and zakat (36,448)

net profit for the financial year after minority interest 113,435

Segment assets 15,782 5,124,522 275,253 18,514 58,646 5,492,717 Unallocated assets 2,951

total assets 5,495,668

Segment liabilities 1,766 4,135,248 600,533 3,480 97,323 4,838,350 Unallocated liabilities 8,744

total liabilities 4,847,094

other segment itemsIncurred capital expenditure:- addition of property, plant and equipment 4,848 8,400 4,236 6,002 - 23,486 Depreciation of property, plant and equipment (4,104) (7,110) (3,586) (5,081) - (19,881)Amortisation of prepaid lease payments - - - - (372) (372)Amortisation of premium less accretion - 515 - - - 515 Allowances for losses on loans, advances and financing - 4,931 - - - 4,931 Allowance for other receivables 1,761 - - - - 1,761




46 seGMent rePortinG (continueD)The following table presents an analysis of the Group’s results and balance sheet positions by business segments: (Continued)

Financial investments advisory, and underwriting Debt equity securities and other fees related related services others total rM’000 rM’000 rM’000 rM’000 rM’000 rM’000

the Group2007External net interest income - 45,764 - - - 45,764 Non interest income: - Fee income 112,458 - - - - 112,458 - Net trading income - 31,116 5,872 - - 36,988 - Gain arising from sale of available-for-sale securities - 18,732 - - - 18,732 - Brokerage income - - 170,808 - - 170,808 - Income from assets management and securities services - - - 17,036 - 17,036 Other income - - 1,133 - 68,455 69,588 Operating income (exclude allowances) 112,458 95,612 177,813 17,036 68,455 471,374

Segment result 82,330 21,796 125,549 4,425 58,615 292,715 Unallocated costs (11,555)*

Profit before taxation 281,160 Taxation and zakat (66,672)

net profit for the financial year after minority interest 214,488

Segment assets 36,101 3,332,011 911,970 2,463 68,966 4,351,511 Unallocated assets 9,650

total assets 4,361,161

Segment liabilities 2,517 2,102,532 1,184,320 12,310 - 3,301,679 Unallocated liabilities 290,116

total liabilities 3,591,795

other segment items Incurred capital expenditure: - addition of property, plant and equipment 4,441 15,012 8,258 4,505 335 32,551 Depreciation of property, plant and equipment (1,668) (5,637) (3,101) (1,691) (126) (12,223)Amortisation of prepaid lease payments - - - - (372) (372)Accretion of discount less amortisation of premium - 552 - - - 552 Allowances for losses on loans, advances and financing - 3,312 - - - 3,312 Allowance for other receivables (1,613) - - - - (1,613)

* The unallocated costs refer to expenditure arising from the Chief Executive Officer’s office and the Corporate Client Solutions Department which are related to

the Group as a whole, hence they are not directly allocated to respective segments.




46 seGMent rePortinG (continueD)The reconciliation for total segments operating income to the net income in the consolidated Financial Statements are as follows:

2008 2007 rM’000 rM’000

Operating income (excluding allowance) 327,708 471,374 Less:Write back of losses on loans, advances and financing 4,931 3,312 Write back of/(allowance for) other receivables (net) 1,761 (1,613)

Net income 334,400 473,073

The Group’s activities are predominantly carried out in Malaysia, with the Malaysian market contributing approximately 99% of the gross operating income and the total segment assets in Malaysia approximately 99% of total assets of the Group. Accordingly, no information on the Group’s operations by geographical segments has been provided.

47 risk ManaGeMent anD use oF Financial instruMentsThe Group is a full service investment banking group that offers an extensive range of on and off-balance sheet financial instruments.

a Financial risk management objectives and policiesRisk management is an integral part of CIMB Group’s business and activities. The extent to which the Group is able to identify, assess, monitor and manage each of the various types of risk is critical to its soundness and profitability. The Group has reviewed its risk management processes against the backdrop of its functional transformation into a full-fledged transaction-based investment bank. In the process, the Group has rationalised the overlaps between the risk management tasks assumed by individual business units with that of the centralised risk oversight function. The Group’s risk management is applied on an enterprise-wide basis, ensuring a consistent approach across the Group, as well as ensuring continuous evaluation. The risk management of the Group is independent of the Group’s operating units and reports to the Board of the Bank on a regular basis. New businesses, products, activities and entry into new markets are not embarked upon, unless approved by the Group Risk Committee.

Generally, the objectives of the Group’s integrated risk management framework are to:• identify the various exposures and operational requirements;• establish the policies and procedures to measure, monitor, manage and report these exposures, and to ensure that they are within the Group’s risk profile as approved by the Board of the Bank; and• set out the appropriate responsibilities and structures required in the risk management process.

(i) an integrated risk management and control frameworkCIMB Group adopts an enterprise-wide risk management framework (‘EWRM’) to manage its risks, which is implemented by a number of committees. The EWRM framework involves the on-going process of identifying, assessing, managing and reporting significant risks that may affect the achievement of its business objectives. This robust methodology equips the Board of the Bank and the management with a comprehensive tool-kit to anticipate and manage both existing and potential risks, taking into consideration changes in the risk profile experienced in the industry and within the Group.




47 risk ManaGeMent anD use oF Financial instruMents (continueD)a Financial risk management objectives and policies (continued)

(i) an integrated risk management and control framework (continued)The Bank employs a Capital-at-Risk (‘CaR’) framework as a common measure of risk within CIMB Group. The CaR framework focuses on economic capital needed in CIMB Group to cushion against unexpected losses. CaR can be aggregated, thus allowing measurement of CIMB Group’s total risk, and it provides a basis for risk-return consideration, and hence limits for risk-taking can be computed and put in place. Risk capital is allocated to business units that utilise CIMB Group’s balance sheet. The CaR framework also forms the basis of return on risk-adjusted-capital, which is used by CIMB Group to compare profitability across different businesses and for performance measurement.

(ii) role of senior managementIn line with best practices in corporate governance, the Board Risk Committee determines the risk policy objectives for CIMB Group, and assumes ultimate responsibility for risk management. The Board Risk Committee also establishes yearly allocation of risk capital to support all risks undertaken by the Group. The day-to-day responsibility for risk management and control however, is delegated to the Group Risk Committee, which reports directly to the Board Risk Committee. Sub-committees delegated from the Group Risk Committee are also in place to manage and control specific risk areas.

These sub-committees have been delegated specific responsibilities which are clearly defined in each of their terms of references. These committees have their specific scope of coverage and report to the Board of the Bank with their recommendations. The Board Risk Committee, reports directly to the Board of CIMB, and oversees the entire EWRM as well as provides strategic guidance and review decisions made by the various risk committees. The Group Risk Committee, comprising senior management of CIMB Group, undertakes the oversight function for capital allocation and overall risk limits, guided by the risk appetite defined by the Board of the Bank. The Group Risk Committee is further supported by four (4) specialised sub-committees, namely Market Risk Committee, Credit Risk Committee, Liquidity Risk Committee and Operational Risk Committee.

The roles and responsibilities of the committees and sub-committees are as follows:

Board Risk Committee (‘BRC’)• Reviews and approves risk policies and strategies, and new products• Oversees entire risk management function

Group Risk Committee (‘GRC’)• Reviews and advises on risk policies and strategies• Oversees management of risk, capital allocation and asset liability management process across CIMB Group

Credit Risk Committee (‘CRC’)• Credit approval authority • Oversees counterparty, industry sector, product exposures and sets credit support standards

Market and International Risk Committee (‘MIRC’)• Oversees exposure to market risks• Approves proprietary trading activities and investments or underwriting arrangements with defined limits

Liquidity Risk Committee (‘LRC’)• Reviews trends in the Group’s overall liquidity risk profile

Operational Risk Committee (‘ORC’)• Oversees issues relating to the CIMB Group’s operational risk and internal control environment





key activitiesCIMB Group’s EWRM process rests with a number of management committees. The purpose of each committee is to identify, analyse, monitor and review the principal risks to which the Group is exposed. Essentially, these are:

• market risk – arising from changes in market prices such as interest rates, exchange rates and share prices;• credit risk – relating to the quality of counterparties with whom the Group deals with, as well as their potential for defaults;• liquidity risk – relating to the funding of the Group’s activities; and• operational risk – relating to actual and potential losses arising from a breakdown in controls, and the implementation

of safeguards to ensure the proper functioning of people, systems and facilities. This includes legal and regulatory issues, and the need to ensure that all work undertaken by the Group meets the strictest standards of legislation and documentation.

The primary oversight body is the Group Risk Management (‘GRM’), which comprises the Risk Management and Analytics (‘RMA’), Risk Middle Office (‘RMO’), Credit Rating and Analytics (‘CRA’), Credit Risk Management (‘CRM’) and Business Credit Management (‘BCM’), which are independent of the Group’s business units. Group Risk Management assists senior Management and the various risk committees in monitoring, reporting and controlling the Group’s risk exposures and is the secretariat of the various committees.

the roles of GrMThe key responsibilities of GRM are to identify, analyse, monitor, review and report the principal risks to which the Group is exposed. It also helps to create shareholder value through proper allocation of risk capital, development of risk-based pricing framework and facilitate development of new business and products.

RMA monitors risk-taking activities, initiates and proposes risk policies, risk measurement methodologies, risk limits and risk capital allocation. This is in order to aggregate and control credit, market and operational risks across the enterprise. RMA also performs independent review of loan assets quality and loan recovery plan, independent valuation of the trading portfolios and develops the risk-based product pricing framework for loan portfolios. RMO aims to champion the Market Risk framework and ensures that Risk Committee’s directives are carried out. Key responsibilities include reviewing and analysing treasury trading strategy, positions and activities vis-à-vis changes in the financial market. Other functions include coordinating new products, monitoring limits usage and assessing limits adequacy, performing mark-to-market as part of financial valuation and maintaining partnership with Global Treasury.

CRA focuses on the development of credit rating models and credit scorecard cards. The responsibilities include monitoring the performance of rating models and scorecard and performing model back testing. CRA is also responsible for the Project Management Office for Basel II implementation.

CRM carries out independent assessment of all credit risk related proposals originating from the various business units such as loans and advances, fixed income, derivatives, sales and trading, prior to submission to the Credit Risk Committee (“CRC”), EXCO, or Board for approval. CRM also reviews the Group’s holdings of all fixed income assets and recommends the internal ratings for CRC’s approval. CRM is the secretariat for CRC.

BCM approves all types of credit extension up to a limit of RM5million per application (subject to total Group exposure not exceeding RM25million). BCM also provides guidance and feedback to those involved in credit initiation, and is responsible for tracking and analysing loans which turn NPL within one (1) year of approval.

On an annual basis, RMA proposes the global CaR limit to GRC and BRC for approval. This limit is allocated by the GRC to the various businesses of the CIMB Group through MIRC and CRC. The appropriate market and credit allocations are given by the various business units to execute their business plans each year. GRC also ensures that the CIMB Group’s aggregate risk exposure does not exceed the global CaR limit approved by the BRC.





Market riskMarket risk is defined as any fluctuation in value of a portfolio, resulting from changes in market prices and market parameters, such as interest rates, exchange rates and share prices.

Market risk can arise either from customer-related businesses or from proprietary positions, due to the Group’s trading activities. The Group makes markets in debt securities as well as in interest rate and currency derivative instruments, while equity proprietary activities are carried out by the Group itself, its broking arm and offshore subsidiary. In general, the Group hedges its trading positions by employing a variety of strategies, including the use of derivative instruments.

The Group manages market risk through risk limits set by the GRC. GRC is assisted by MIRC, whose role amongst others, is to oversee the Group’s exposure to market risk and to evaluate trading, investment and underwriting proposals within defined limits. The utilisation of market risk limits is reviewed on a daily basis by RMA, which employs statistical methods to measure and monitor risks associated with the Group’s trading activities. RMA, together with the RMO, also provides independent valuation of portfolios and generates daily and weekly risk position reports for the information of the GRC.

The Group has adopted a Value-at-Risk (‘VaR’) approach in the measurement of market risk. VaR is a statistical measure of the potential losses that could occur due to movements in market rates and prices over a specified time horizon within a given confidence level. Duration-weighted gap VaR and various other multi-factor models are also employed to assess market risk.

credit riskCredit and counterparty risk is defined as the possibility of losses due to an unexpected default or a deterioration of creditworthiness of a business partner.

Credit risk arises in many of the Group’s business activities. In lending activities, it occurs primarily through loans as well as commitments to support clients’ obligations to third parties, i.e. guarantees. In sales and trading activities, credit risk arises as a result of the possibility that the Group’s counterparties will not be able or willing to fulfil their obligation on transactions on or before settlement date. In derivatives activities, credit risk arises when counterparties to derivatives contracts, such as interest rate swaps, are obligated to pay the Group the positive fair value or receivable, resulting from the execution of contract terms.

CRC ensures that the risk exposures undertaken match the risk appetite of the Group, and that proper authorisation procedure are followed. Problematic exposures identified by the business units and management are carefully monitored and proactive measures taken, to minimise any potential loss to the Group.

Potential credit exposures are evaluated by CRC and are monitored against approved limits on a regular basis. The mitigation of credit risk exposures adopted by CIMB Group includes restricting concentration of risks to any one large sector or industry, or to a particular counterparty group or individual, the application of single customer limit, as well as assessing quality of collateral.

The Group also enters into master agreements that provide for close-out and settlement netting with counterparties, whenever possible. A master agreement that governs all transactions between two parties, creates the greatest legal certainty that credit exposure will be netted. It enables the netting of outstanding obligations upon termination of outstanding transactions if an event of default occurs.





credit risk (continued)The extent to which the Group’s overall exposure to credit risk is reduced through a master netting arrangement may change substantially within a short period following the balance sheet date because the exposure is affected by each transaction subject to the agreement.

The Bank has issued a board-approved Credit Risk Policy Guide, which outlines risk limits, risk pricing, and credit risk rating and measurement, reporting and management information system. Key business unit’s policies and procedures have been documented and approved by the Board for application across the Bank. Regular reviews and updates are performed to ensure that the documentation is current.

The Bank has established an internal rating system for corporate and business loans that enables credit officers to categorise the credit risk of individual credit, assists them in making informed decisions on approval and pricing of loans. Additionally, it assists in tracking and monitoring loans on a portfolio basis. For retail exposures, which are defined as large homogeneous portfolios of low values, where the incremental risk of any exposure is small, a credit scoring system is employed.

liquidity riskLiquidity risk is defined as the risk of the Group being unable to fulfil its current or future payment obligations in full and at the due date. The LRC, whose main role is to oversee the overall liquidity management of the Group, ensures compliance with the liquidity framework prescribed by BNM, and reviews periodically the assumptions of the liquidity risk management framework.

The Group’s liquidity risk management focuses on avoiding over dependence on volatile sources of funding, diversification of sources of funds, and maintenance of sufficient liquid assets. To ensure the Group is able to cover all payment obligations on due dates as part of the liquidity management process, RMA prepares liquidity analysis in line with BNM’s liquidity framework. In addition, management action triggers are set to provide early warning on emerging liquidity pressures. The Group has also developed a contingency funding plan to deal with extreme liquidity crisis situations.

In summary, methods employed in managing liquidity risks by the Group are aimed at providing early warning signals on liquidity pressure as well as the severity of potential exposures.

operational riskOperational risk includes risks arising from internal processes of an organisation. These may result from inadequacies or failures in processes and controls or in projects, fraud, unauthorised activities, error, omission, inefficiency, systems failure or from external events. Operational risks are less direct than credit and market risks, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes and complexity. In order to mitigate these risks, the Group has established and maintained an effective internal control environment, which incorporates various control mechanisms at different levels throughout the organisation. These control mechanisms are designed to better ensure compliance of policies and procedures and that the Group’s various businesses are operating within established corporate policies and limits. ORC has an oversight responsibility for all operational and other matters that affect the Group’s day-to-day activities. ORC also reviews the operating policies and procedures for new products and businesses, to ensure that the supporting infrastructure is in place prior to business launching, as well as conducting investigations on any malfunctions to determine the root causes and following up with remedial measures.




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s ex

posu

res

to in

tere

st ra

te ri

sks.

Inc

lude

d in

the

tabl

e ar

e th

e G

roup

’s a

nd th

e B

ank’

s as

sets

an

d lia

bilit

ies

at th

eir f

ull c

arry

ing

amou

nts,

cat

egor

ised

by

the

earli

er o

f con

trac

tual

repr

icin

g or

mat

urity

dat

es.

The

off-

bala

nce

shee

t gap

repr

esen

ts

the

net n

otio

nal a

mou

nts

of a

ll in

tere

st r

ate

sens

itive

der

ivat

ive

finan

cial

inst

rum

ents

. A

s in

tere

st r

ates

and

yie

ld c

urve

s ch

ange

ove

r tim

e, th

e G

roup

an

d th

e B

ank

may

be

expo

sed

to a

loss

in e

arni

ngs

due

to th

e ef

fect

s of

inte

rest

rate

s on

the

stru

ctur

e of

the

bala

nce

shee

t. S

ensi

tivity

to in

tere

st ra

tes

aris

es fr

om m

ism

atch

es in

the

repr

icin

g da

tes,

cas

h flo

ws

and

othe

r cha

ract

eris

tics

of th

e as

sets

and

thei

r cor

resp

ondi

ng li

abilit

y fu

ndin

g.

t

he G

roup

no

n-tr

adin

g b

oo

k

no

n-

u

p t

o 1

>

1 -

3

> 3

- 1

2

> 1

- 5

o

ver

5

inte

rest

t

rad

ing

m

ont

h m

ont

hs

mo

nths

ye

ars

year

s se

nsit

ive

bo

ok

tota

l

r

M’0

00

rM

’000

r

M’0

00

rM

’000

r

M’0

00

rM

’000

r

M’0

00

rM

’000

2008

ass

ets

Cas

h an

d sh

ort t

erm

fund

s

2,8

16,6

69

-

-

-

-

60,

778

-

2

,877

,447

Sec

uriti

es p

urch

ased

un

der r

esal

e ag

reem

ents

1

77,3

08

109

,876

-

-

-

-

-

2

87,1

84

Dep

osits

and

pla

cem

ents

w

ith b

anks

and

oth

er

fin

anci

al in

stitu

tions

1

,047

2

00,0

47

-

100

-

3

0

-

201

,224

Sec

uriti

es h

eld

for

trad

ing

-

-

-

-

-

6

,259

6

70,2

96

676

,555

Ava

ilabl

e-fo

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le s

ecur

ities

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5,32

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d-to

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men

ts

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3

46,4

50

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ivat

ive

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cial

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stru

men

ts

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-

-

-

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126

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Loan

s, a

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anci

ng

-

262

1

31

6,4

82

42,

967

2

41

-

50,

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Oth

er a

sset

s*

-

-

-

-

-

408

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-

4

08,2

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tota

l ass

ets

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,000

,167

3

10,1

85

361

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2

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283

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4

88,8

96

785

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5

,495

,668

* O

ther

ass

ets

incl

ude

defe

rred

tax

ass

ets,

tax

rec

over

able

, am

ount

due

from

rel

ated

com

pani

es, s

tatu

tory

dep

osits

with

Ban

k N

egar

a M

alay

sia,

inve

stm

ent

in a

ssoc

iate

s, p

rope

rty,

pla

nt

and

equi

pmen

t, pr

epai

d le

ase

paym

ents

and

goo

dwill

on c

onso

lidat

ion.




47

ris

k M

an

aG

eM

en

t a

nD

us

e o

F Fi

na

nc

ial

ins

tr

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en

ts

(co

nt

inu

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)

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inte

rest

rat

e ri

sk (c

ont

inue

d)

t

he G

roup

no

n-tr

adin

g b

oo

k

no

n-

u

p t

o 1

>

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3

> 3

- 1

2

> 1

- 5

o

ver

5

inte

rest

t

rad

ing

m

ont

h m

ont

hs

mo

nths

ye

ars

year

s se

nsit

ive

bo

ok

tota

l

r

M’0

00

rM

’000

r

M’0

00

rM

’000

r

M’0

00

rM

’000

r

M’0

00

rM

’000

2008

liab

iliti

es

Dep

osits

from

cus

tom

ers

1

22,6

02

25,

325

-

1

,188

,130

-

-

-

1

,336

,057

Dep

osits

and

pla

cem

ents

of

ban

ks a

nd o

ther

fin

anci

al in

stitu

tions

2

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,241

-

-

5

,000

-

-

-

2

,438

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Der

ivat

ive

finan

cial

in

stru

men

ts

-

-

-

-

-

10,

972

1

04

11,

076

Long

term

bor

row

ings

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-

3

46,4

62

-

-

-

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346

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Oth

er b

orro

win

gs

-

-

-

7,0

00

-

-

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7,0

00

Oth

er li

abilit

ies#

-

-

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-

7

08,2

58

-

708

,258

tota

l lia

bili

ties

2

,555

,843

2

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5

346

,462

1

,200

,130

-

7

19,2

30

104

4

,847

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tota

l int

eres

t sen

sitiv

ity g

ap

444

,324

2

84,8

60

15,

439

(9

35,0

20)

283

,900

(2

30,3

34)

785

,405

# O

ther

liab

ilitie

s in

clud

e am

ount

due

to u

ltim

ate

hold

ing

com

pany

and

rela

ted

com

pani

es a

nd p

rovi

sion

for

taxa

tion

and

zaka

t.




47

ris

k M

an

aG

eM

en

t a

nD

us

e o

F Fi

na

nc

ial

ins

tr

uM

en

ts

(co

nt

inu

eD

)

B

inte

rest

rat

e ri

sk (c

ont

inue

d)

t

he B

ank

n

on-

trad

ing

bo

ok

n

on-

up

to

1

> 1

- 3

>

3 -

12

>

1 -

5

ove

r 5

in

tere

st

tra

din

g

mo

nth

mo

nths

m

ont

hs

year

s ye

ars

sens

itiv

e b

oo

k to

tal

rM

’000

r

M’0

00

rM

’000

r

M’0

00

rM

’000

r

M’0

00

rM

’000

r

M’0

00

2008

ass

ets

Cas

h an

d sh

ort t

erm

fund

s

2,6

67,5

61

-

-

-

-

60,

312

-

2

,727

,873

Sec

uriti

es p

urch

ased

un

der r

esal

e ag

reem

ents

1

77,3

08

109

,876

-

-

-

-

-

2

87,1

84

Dep

osits

and

pla

cem

ents

w

ith b

anks

and

oth

er

fin

anci

al in

stitu

tions

-

2

00,0

00

-

100

-

-

-

2

00,1

00

Sec

uriti

es h

eld

for

trad

ing

-

-

-

-

-

6

,259

6

70,2

96

676

,555

Ava

ilabl

e-fo

r-sal

e se

curit

ies

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-

1

5,32

0

258

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40,9

33

-

-

519

,924

Hel

d-to

-mat

urity

in

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men

ts

-

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346

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-

-

-

-

3

46,4

50

Der

ivat

ive

finan

cial

in

stru

men

ts

-

-

-

-

-

10,

972

1

15,2

13

126

,185

Loan

s, a

dvan

ces

an

d fin

anci

ng

-

262

1

31

6,4

82

42,

967

2

41

-

50,

083

Oth

er a

sset

s*

-

-

-

-

-

-

421

,491

4

21,4

91

tota

l ass

ets

2

,850

,012

3

10,1

38

361

,901

2

65,1

10

283

,900

7

7,78

4

1,2

07,0

00

5,3

55,8

45

* O

ther

ass

ets

incl

ude

defe

rred

tax

ass

ets,

sta

tuto

ry d

epos

its w

ith B

ank

Neg

ara

Mal

aysi

a, a

mou

nt d

ue fr

om s

ubsi

diar

ies

and

rela

ted

com

pani

es, i

nves

tmen

t in

sub

sidi

arie

s, p

repa

id le

ase

paym

ents

and

pro

pert

y, p

lant

and

equ

ipm

ent.




47

ris

k M

an

aG

eM

en

t a

nD

us

e o

F Fi

na

nc

ial

ins

tr

uM

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ts

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nt

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)

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rat

e ri

sk (c

ont

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ank

n

on-

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ing

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ok

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on-

up

to

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> 1

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>

3 -

12

>

1 -

5

ove

r 5

in

tere

st

tra

din

g

mo

nth

mo

nths

m

ont

hs

year

s ye

ars

sens

itiv

e b

oo

k to

tal

rM

’000

r

M’0

00

rM

’000

r

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00

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00

2008

liab

iliti

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Dep

osits

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cus

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ers

1

22,6

01

25,

325

-

1

,188

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-

1

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osits

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cem

ents

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ks a

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ther

fin

anci

al in

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tions

2

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ivat

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cial

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stru

men

ts

-

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-

-

-

10,

972

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076

Oth

er li

abilit

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#

-

-

-

-

-

588

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-

5

88,7

88

Long

term

bor

row

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3

46,4

62

-

-

-

-

346

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tota

l lia

bili

ties

2

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2

5,32

5

346

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1

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5

99,7

60

104

4

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tota

l int

eres

t

se

nsit

ivit

y g

ap

294

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2

84,8

13

15,

439

(9

28,0

21)

283

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(5

21,9

76)

1,2

06,8

96

# O

ther

liab

ilitie

s in

clud

e am

ount

due

to u

ltim

ate

hold

ing

com

pany

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sidi

arie

s an

d re

late

d co

mpa

nies

and

pro

visi

on fo

r ta

xatio

n an

d za

kat.




47

ris

k M

an

aG

eM

en

t a

nD

us

e o

F Fi

na

nc

ial

ins

tr

uM

en

ts

(co

nt

inu

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)

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inte

rest

rat

e ri

sk (c

ont

inue

d)

t

he G

roup

no

n-tr

adin

g b

oo

k

no

n-

u

p t

o 1

>

1 -

3

> 3

- 1

2

> 1

- 5

o

ver

5

inte

rest

t

rad

ing

m

ont

h m

ont

hs

mo

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ye

ars

year

s se

nsit

ive

bo

ok

tota

l

r

M’0

00

rM

’000

r

M’0

00

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’000

r

M’0

00

rM

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M’0

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’000

2007

ass

ets

Cas

h an

d sh

ort t

erm

fund

s 1

,503

,597

-

-

-

-

7

9,24

0

-

1,5

82,8

37

Sec

uriti

es p

urch

ased

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le a

gree

men

ts

20,

559

-

-

-

-

-

-

2

0,55

9

Dep

osits

and

pla

cem

ents

w

ith b

anks

and

oth

er

fin

anci

al in

stitu

tions

2

1,82

8

282

,350

1

,116

2

54

-

-

-

305

,548

Sec

uriti

es h

eld

for

trad

ing

-

-

-

-

-

6

,536

1

61,8

01

168

,337

Ava

ilabl

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le s

ecur

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5

,005

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1

5,08

1

198

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2

98,7

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2,4

07

-

519

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3

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ivat

ive

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stru

men

ts

-

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s, a

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ng

2

300

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875

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75,0

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tota

l ass

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5

82,6

87

16,

271

5

35,5

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2

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61

* O

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ude

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reco

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ount

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ated

com

pani

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utor

y de

posi

ts w

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ank

Neg

ara

Mal

aysi

a, p

rope

rty,

pla

nt a

nd e

quip

men

t, pr

epai

d le

ase

paym

ents

and

good

will

on c

onso

lidat

ion.




47

ris

k M

an

aG

eM

en

t a

nD

us

e o

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na

nc

ial

ins

tr

uM

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inte

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t

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ing

m

ont

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ont

hs

mo

nths

ye

ars

year

s se

nsit

ive

bo

ok

tota

l

r

M’0

00

rM

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00

rM

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r

M’0

00

rM

’000

r

M’0

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’000

2007

liab

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osits

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osits

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ents

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7

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132

,280

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5,0

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950

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Der

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men

ts

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-

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Long

term

bor

row

ings

-

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3

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68

-

-

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330

,568

Oth

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abilit

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3

5

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-

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tota

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bili

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8

46,7

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132

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-

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l int

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se

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704

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4

50,3

69

(25,

559)

(5

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56)

340

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216

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# O

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s in

clud

e am

ount

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ltim

ate

hold

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com

pany

, im

med

iate

hol

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com

pany

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rela

ted

com

pani

es, p

rovi

sion

for

taxa

tion

and

zaka

t and

def

erre

d ta

x lia

bilit

ies.




47

ris

k M

an

aG

eM

en

t a

nD

us

e o

F Fi

na

nc

ial

ins

tr

uM

en

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ont

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ank

n

on-

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to

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3 -

12

>

1 -

5

ove

r 5

in

tere

st

tra

din

g

mo

nth

mo

nths

m

ont

hs

year

s ye

ars

sens

itiv

e b

oo

k to

tal

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M’0

00

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2007

ass

ets

Cas

h an

d sh

ort t

erm

fund

s

1,3

35,0

43

-

-

-

-

73,

177

-

1

,408

,220

Sec

uriti

es p

urch

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reem

ents

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0,55

9

-

-

-

-

-

-

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559

Dep

osits

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ents

w

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anci

al in

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tions

2

0,79

2

282

,280

1

,116

2

54

-

-

-

304

,442

Sec

uriti

es h

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diar

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paid

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e pa

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ts,

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47

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ount

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x lia

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ual r

epric

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date

s m

ay d

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from

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trac

tual

dat

es a

s co

ntra

ctua

l ter

ms

do n

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flect

the

actu

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ehav

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l pat

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s of

ass

ets

and

liabi

litie

s.

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ets

and

liabi

litie

s ar

e as

sum

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o be

hel

d un

til t

he e

arlie

r of

con

trac

tual

rep

ricin

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mat

urity

dat

es.

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Ban

k us

es t

his

cont

ract

ual r

epric

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info

rmat

ion

as a

bas

e, w

hich

is th

en a

ltere

d to

inco

rpor

ate

cons

umer

beh

avio

ur, i

n m

anag

ing

its in

tere

st r

ate

risk.




47 risk ManaGeMent anD use oF Financial instruMents (continueD)

B interest rate risk (continued)The tables below summarises the effective average interest rate by major currencies for each class of financial asset and financial liability. The calculation of effective average interest rate excludes non-interest bearing financial assets and financial

liabilities. the Group 2008 2007 Myr usD eur sGD Myr usD eur sGD

% % % % % % % %

Financial assets Cash and short term funds 2.91 1.08 2.00 - 3.18 4.95 4.70 2.13 Securities purchased under resale agreements 2.84 - - - 3.33 - - -Deposits and placements with banks and other financial institutions 2.04 - - - 3.51 5.15 - -Securities held for trading 3.74 - - - 4.60 - - - Available-for-sale securities 4.86 - - - 4.91 - - - Held-to-maturity investments - 5.00 - - - 5.00 - - Loans, advances and financing 3.96 - - - 4.83 - - - Other assets – due from brokers and clients 10.00 - - - 10.00 - - -

Financial liabilities Deposits from customers 3.12 - - - 3.34 - - - Deposits and placements of banks and other financial institutions 3.28 1.09 - - 3.32 5.15 - - Other borrowings 5.00 - - - - - - - Long term borrowings - 5.04 - - - 5.04 - -




47 risk ManaGeMent anD use oF Financial instruMents (continueD)B interest rate risk (continued)

the Bank 2008 2007 Myr usD eur sGD Myr usD eur sGD

% % % % % % % %

Financial assets Cash and short term funds 2.97 1.08 2.00 - 3.23 4.95 4.70 2.13 Securities purchased under resale agreements 2.84 - - - 3.33 - - -Deposits and placements with banks and other financial institutions 2.04 - - - 3.52 5.15 - -Securities held for trading 3.74 - - - 4.60 - - - Available-for-sale securities 4.86 - - - 4.91 - - - Held-to-maturity investments - 5.00 - - - 5.00 - - Loans, advances and financing 3.96 - - - 4.83 - - - Other assets – due from brokers and clients 10.00 - - - 10.00 - - -

Financial liabilities Deposits from customers 3.12 - - - 3.34 - - - Deposits and placements of banks and other financial institutions 3.28 1.09 - - 3.32 5.15 - -Long term borrowings - 5.04 - - - 5.04 - -




47

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48 Fair value oF Financial instruMentsFinancial instruments comprise financial assets, financial liabilities and off-balance sheet financial instruments. Fair value is the amount at which a financial asset could be exchanged or a financial liability settled, between knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents the estimates of fair values as at the balance sheet date.

Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates.

Fair value information for non-financial assets and liabilities is excluded as it does not fall within the scope of FRS 132 - Financial Instruments: Disclosure and Presentation which requires the fair value information to be disclosed. These include investment in subsidiaries and associates, property, plant and equipment, prepaid lease payments and deferred tax assets.

A range of methodologies and assumptions has been used in deriving the fair values of the Group’s and the Bank’s financial instruments at balance sheet date. The total fair value of each category of financial instrument is not materially different from the total carrying value, except for the following financial assets and liabilities: the Group 2008 2007 carrying Fair carrying Fair amount value amount value rM’000 rM’000 rM’000 rM’000

Financial assetsHeld-to-maturity investments 346,450 346,753 330,700 332,106

Total 346,450 346,753 330,700 332,106

Financial liabilitiesDeposits from customers 1,336,057 1,341,430 805,500 795,537 Long term borrowings 346,462 346,782 330,568 335,798

Total 1,682,519 1,688,212 1,136,068 1,131,335

the Bank 2008 2007 carrying Fair carrying Fair amount value amount value rM’000 rM’000 rM’000 rM’000

Financial assetsHeld-to-maturity investments 346,450 346,753 330,700 332,106

Total 346,450 346,753 330,700 332,106

Financial liabilitiesDeposits from customers 1,336,057 1,341,430 805,500 795,537 Long term borrowings 346,462 346,782 330,568 335,798

Total 1,682,519 1,688,212 1,136,068 1,131,335




48 Fair value oF Financial instruMents (continueD)The fair values of derivative financial instruments at the balance sheet date are as stated in Note 7 to the Financial Statements.

The derivative financial instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest or profit rates or foreign exchange rates relative to their terms. The extent to which instruments are favourable or unfavourable and the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

The fair values are based on the following methodologies and assumptions:

securities purchased under resale agreementsThe fair values of securities purchased under resale agreements with maturities of less than six months approximate the carrying values. For securities purchased under resale agreements with maturities of six months and above, the estimated fair values are based on discounted cash flows using market rates for the remaining term to maturity.

Deposits and placements with banks and other financial institutionsFor deposits and placements with banks and other financial institutions with maturities of less than six months, the carrying value is a reasonable estimate of fair value. For deposits and placements with maturities of six months and above, the estimated fair values are based on discounted cash flows using prevailing money market interest rates at which similar deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity.

securities held for trading and available-for-sale securitiesThe estimated fair value is generally based on quoted and observable market prices. Where there is no ready market in certain securities, fair values have been estimated by reference to market indicative yields or net tangible asset backing of the investee.

loans, advances and financingFor floating rate loans, the carrying value is generally a reasonable estimate of fair value.

For fixed rate loans, the fair value is estimated by discounting the estimated future cash flows using the prevailing market rates of loans with similar credit risks and maturities.

The fair values of impaired floating and fixed rate loans are represented by their carrying value, net of specific allowance and interest-in-suspense, being the expected recoverable amount.

Deposits from customersFor deposits from customers with maturities of less than six months, the carrying amounts are a reasonable estimate of their fair value. For deposits with maturities of six months or more, the fair values are estimated using discounted cash flows based on prevailing market rates for similar deposits from customers.

Deposits and placements of banks and other financial institutionsThe estimated fair values of deposits and placements of banks and other financial institutions with maturities of less than six months approximate the carrying values. For deposits and placements with maturities of six months or more, the fair values are estimated based on discounted cash flows using prevailing money market interest rates for deposits and placements with similar remaining period to maturities.




48 Fair value oF Financial instruMents (continueD)BorrowingsThe estimated fair values of borrowings with maturity of less than six months approximate the carrying values. For borrowings with maturities of six months or more, the fair values are estimated based on discounted cash flows using prevailing market rates for borrowings with similar risks profile.

Foreign exchange rate, interest rate and equity contractsThe fair values of foreign exchange rate, interest rate and equity contracts are the estimated amounts the Group would receive or pay to terminate the contracts at the balance sheet date.

49 Business coMBinations(a) acquisitions that took place during the financial year

(i) acquisition of ciMB trustee BerhadOn 1 January 2008, CIMB Holdings Berhad, a wholly-owned subsidiary of CIMB Investment Bank Berhad, acquired 20% equity interest in CIMB Trustee Berhad for a consideration of RM100,000.

The share of net assets arising from the acquisition of CIMB Trustee Berhad is as follows:

acquiree’s carrying amount at date of acquisition rM’000

assetsCash and short-term funds 1,137Deposits and placements with banks and other financial institutions 5,828Statutory deposits with Bank Negara Malaysia 100Other assets 17Taxation recoverable 53Property, plant and equipment 423

total assets 7,558

liabilitiesDeposits from customers 882Other liabilities 724Amount owing to related companies 2,113

total liabilities 3,719

net assets 3,839

share of net assets acquired 768Discount on acquisition (668)

Purchase consideration 100

The acquisition was satisfied via cash balances and the investment is equity accounted in the financial statements of the Group as an associate. The share of results for the financial year amounted to RM261,665.




49 Business coMBinations (continueD)(a) acquisitions that took place during the financial year (continued)

(ii) acquisition of BhlB trustee BerhadOn 1 January 2008, CIMB Holdings Berhad, a wholly-owned subsidiary of CIMB Investment Bank Berhad, acquired 20% equity interest in BHLB Trustee Berhad for a consideration of RM3,380,252.

The share of net assets arising from the acquisition of BHLB Trustee Berhad is as follows:

acquiree’s carrying amount at date of acquisition rM’000

assetsCash and short-term funds 230Deposits and placements with banks and other financial institutions 2,189Other assets 1,324Taxation recoverable 2Property, plant and equipment 1,169Amount due from related companies 1

total assets 4,915

liabilitiesOther liabilities 1,180Deferred tax liabilities 82

total libilities 1,262

net assets 3,653

share of net assets acquired 731Premium on acquisition 2,649

Purchase consideration 3,380

The acquisition was satisfied via intercompany balances and the investment is equity accounted in the financial statements of the Group as an associate. The share of results for the financial year amounted to RM427,378.

There were no acquisitions in the financial year ended 31 December 2007.




50 the oPerations oF islaMic BankinGthe Bank’s islamic Banking balance sheet as at 31 December 2008

2008 2007 note rM’000 rM’000

assetsCash and short term funds (a) 416,427 816,375 Deposits and placements with banks and other financial institutions (b) 200,000 - Securities held for trading (c) 620,364 50,002 Derivative financial instruments (d) 120,910 58,301 Other assets (e) 7,868 15,024 Property, plant and equipment (f) 554 812 Amount due from related companies (g) 1,091 1,494

total assets 1,367,214 942,008

liabilities and islamic Banking capital fundsDeposits from customers (h) 1,163,130 680,500 Deposits and placements of banks and other financial institutions (i) 7,500 101,730 Derivative financial instruments (d) 5,801 3,541 Provision for taxation and zakat (j) 37,139 25,066 Other liabilities (k) 1,974 7,374 Amount due to related companies (g) - 6,500

total liabilities 1,215,544 824,711 Islamic Banking capital funds 55,000 55,000 Reserves 96,670 62,297 total islamic Banking capital funds 151,670 117,297

total liabilities and islamic Banking capital funds 1,367,214 942,008

commitments and contingenciesPrincipal (d) 4,133,754 1,371,000 Credit equivalent (d) 117,596 13,710

the Bank’s islamic Banking income statement for the financial year ended 31 December 2008

2008 2007 note rM’000 rM’000

Income derived from investment of depositors’ funds and others (l) 3,066 4,104 Income derived from investment of shareholders’ funds (m) 81,519 71,800 Provision for other receivables (209) -Transfer to profit equalisation reserve - 796 Other expenses directly attributable to the investment of the depositors and shareholders’ funds (19) (4)

total attributable income 84,357 76,696 Income attributable to the depositors (n) (34,071) (14,761)

total net income 50,286 61,935 Personnel expenses (o) (534) (965)Other overheads and expenditures (p) (3,302) (3,708)

Profit before taxation and zakat 46,450 57,262 Taxation (q) (12,077) (14,743)

Profit after taxation and zakat 34,373 42,519




50 the oPerations oF islaMic BankinG (continueD)the Bank’s islamic Banking statement of changes in equity for the financial year ended 31 December 2008

islamic Banking statutory retained capital fund reserve profits total rM’000 rM’000 rM’000 rM’000

Balance as at 1 January 2008 55,000 1,336 60,961 117,297 Net profit for the financial year after taxation and zakat - - 34,373 34,373

Balance as at 31 December 2008 55,000 1,336 95,334 151,670

Balance as at 1 January 2007 55,000 1,336 18,442 74,778 Net profit for the financial year after taxation and zakat - - 42,519 42,519

Balance as at 31 December 2007 55,000 1,336 60,961 117,297

cash flow statement for the financial year ended 31 December 2008 the Bank 2008 2007 note rM’000 rM’000

cash flows from operating activitiesProfit before taxation and zakat 46,450 57,262 Add/(less) adjustments:Transfer to profit equalisation reserve - (796)Net unrealised gain on revaluation of securities held for trading (374) - Provision for other receivables 209 - Net unrealised gain on revaluation of derivatives (24,160) (54,759)Accretion of discount or less amortisation of premium (3) 2 Depreciation of property, plant and equipment 262 421

Cash flow from operating profit before changes in operating assets and liabilities 22,384 2,130

(increase)/decrease in operating assetsDeposits and placements with banks and other financial institutions (200,000) 288,000 Securities held for trading (569,986) (40,226)Derivative financial instruments (36,189) (6)Amount due from related companies 403 66,281 Other assets 6,944 (13,921)Amount due from holding company - (607)




50 the oPerations oF islaMic BankinG (continueD)cash flow statement for the financial year ended 31 December 2008 (continued) the Bank 2008 2007 note rM’000 rM’000

increase/(decrease) in operating liabilitiesDeposits from customers 482,630 638,670 Deposits and placements of banks and other financial institutions (94,230) (98,270)Amount due to related companies (6,500) (27,733)Other liabilities (5,400) 2,521

Net cash (used in)/from operating activities (399,944) 816,839

cash flows from investing activitiesPurchase of property, plant and equipment (4) (1,233)

Net cash used in financing activities (4) (1,233)

net (decrease)/increase in cash and cash equivalents during the financial year (399,948) 815,606 cash and cash equivalents at beginning of the financial year 816,375 769

cash and cash equivalents at end of the financial year (a) 416,427 816,375

the Bank 2008 2007 rM’000 rM’000

(a) cash and short term fundsCash and balances with banks and other financial institutions 127 375 Money at call and deposit placements maturing within one month 416,300 816,000

416,427 816,375

(b) Deposits and placements with banks and other financial institutionsGeneral investment funds:Licensed banks 200,000 -

(c) securities held for tradingMoney market instruments:Negotiable instruments of deposits 620,364 - Sukuk Bank Negara Malaysia - 50,002

620,364 50,002




50 the oPerations oF islaMic BankinG (continueD)(d) Derivative financial instruments, commitments and contingencies

(i) Derivative financial instrumentsThe following tables summarise the contractual or underlying principal amounts of derivative financial instruments held at fair value through income statement. The principal or contractual amounts of these instruments reflect the volume of transactions outstanding at balance sheet date, and do not represent amounts at risk.

Trading derivative financial instruments are revalued on a gross position basis and the unrealised gains or losses are reflected in “”Derivative Financial Instruments”” Assets and Liabilities respectively.

the Bank Fair values Principal amount assets liabilities rM’000 rM’000 rM’000

at 31 December 2008held for trading purposesIslamic profit rate derivativesIslamic profit rate swaps 2,336,260 115,109 - Equity options 1,797,494 5,801 (5,801)

4,133,754 120,910 (5,801)

at 31 December 2007held for trading purposesIslamic profit rate derivativesIslamic profit rate swaps 1,371,000 58,301 (3,541)

(ii) commitments and contingenciesIn the normal course of business, the Group and the Bank enter into various commitments and incur certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions and hence, they are not provided for in the Financial Statements.

These commitments and contingencies are not secured over the assets of the Group and the Bank, except for certain securities held for trading being pledged as credit support assets for certain over-the-counter derivative contracts.




50 the oPerations oF islaMic BankinG (continueD)(d) Derivative financial instruments, commitments and contingencies (continued)

(ii) commitments and contingencies (continued)The commitments and contingencies constitute the following:

2008 2007 risk risk

credit weighted credit weighted Principal equivalent amount Principal equivalent amountthe Bank rM’000 rM’000 rM’000 rM’000 rM’000 rM’000

Profit rate related contracts:- One year to less than five years 2,336,260 68,107 13,621 1,371,000 13,710 2,742 Equity related contracts:- Less than one year 1,797,494 49,489 9,898 - - - 4,133,754 117,596 23,519 1,371,000 13,710 2,742

(e) other assets the Bank 2008 2007 rM’000 rM’000

Dividend receivables 7,674 1,202 Other debtors, deposits and prepayments 194 13,822

7,868 15,024

(f) Property, plant and equipment

office computer equipment equipment and and Motor furniture software vehicles renovation total rM’000 rM’000 rM’000 rM’000 rM’000

the Bank2008costAt 1 January 312 109 119 693 1,233 Additions 4 - - - 4

At 31 December 316 109 119 693 1,237

accumulated depreciationAt 1 January 119 66 40 196 421 Charge for the financial year 63 36 24 139 262

At 31 December 182 102 64 335 683

net book value as at 31 December 134 7 55 358 554




50 the oPerations oF islaMic BankinG (continueD)(f) Property, plant and equipment (continued)

office computer equipment equipment and and Motor furniture software vehicles renovation total rM’000 rM’000 rM’000 rM’000 rM’000

the Bank2007costAt 1 January - - - - - Additions 312 109 119 693 1,233

At 31 December 312 109 119 693 1,233

accumulated depreciationAt 1 January - - - - - Charge for the financial year 119 66 40 196 421

At 31 December 119 66 40 196 421

net book value as at 31 December 193 43 79 497 812

(g) amount due from/(to) related companies the Bank 2008 2007 rM’000 rM’000

(i) Amount due from: - Holding company - 607 - Related companies 1,091 887

1,091 1,494

(ii) Amount due to: - Related companies - (6,500)

(h) Deposits from customers the Bank 2008 2007 rM’000 rM’000

non-Mudharabah fund:Fixed rate deposits 1,163,130 680,500

(i) Maturity structure of fixed rate deposits is as follows: - One year to less than three years 889,650 680,500 - Three years to less than five years 273,480 -

1,163,130 680,500




50 the oPerations oF islaMic BankinG (continueD) the Bank 2008 2007 rM’000 rM’000

(h) Deposits from customers (continued)(ii) The deposits are sourced from the following customers - Government and statutory bodies 78,500 83,500 - Business enterprises 25,000 20,000 - Individual 1,059,630 577,000

1,163,130 680,500

(i) Deposits and placements of banks and other financial institutions

Mudharabah fund: Licensed banks 2,500 54,900 Other financial institutions 5,000 46,830

7,500 101,730

(j) Provision for taxation and zakat Taxation 37,139 25,061 Zakat - 5

37,139 25,066

(k) other liabilitiesDividend payable 1,244 7,237 Profit equalisation reserve - - Other liabilities 730 137

1,974 7,374

Profit equalisation reserveAt 1 January - 796 Amount written back during the financial year - (796)

At 31 December - -

(l) income derived from investment of depositors’ fundsIncome derived from investment of:(i) General investment deposits 3,066 4,104

(i) income derived from investment of general investment deposits Finance income and hibah: Securities held for trading 841 821 Money at call and deposits and placements with financial institutions 1,944 3,285

2,785 4,106 Accretion of discount less amortisation of premium 1 (2)

2,786 4,104

other operating incomeNet gain from sale of securities held for trading 8 - Net unrealised gain on revaluation of securities held for trading 272 -

280 -

3,066 4,104





(m) income derived from investment of shareholders’ fundsFinance income and hibah:Securities held for trading 8,881 771 Money at call and deposits and placements with financial institutions 27,170 13,929

36,051 14,700

Accretion of discounts less amortisation of premium 2 -

36,053 14,700

other dealing income:Net gain from sale of securities held for trading 9 - Net unrealised gain on revaluation of securities held for trading 102 - Unrealised gain on revaluation of derivatives 24,160 54,759 Net realised gain on derivatives 36,488 11,242 Shariah compliant option premium (16,078) (49,988)

44,681 16,013

Fee and commission income:Advisory fees 763 489 Arrangement fees 13 40,645

776 41,134

other income:Others 9 (47)

81,519 71,800

All unrestricted funds received from the Bank’s deposits are co-mingled into a single pool of funds under general investment deposits. Restricted funds categorised under specific investment deposits are managed separately, where the utilisation of the funds is identified and matched with specific funds. Islamic income or profit generated from the general investment and specific investment deposits’ funds are allocated to various categories of depositors by using the weighted average rate of return method effective 1 October 2007 (previously, annualised rate of return).





(n) income attributable to depositorsDeposits from customers- Non-Mudharabah Fund 32,728 13,037 Deposits and placements of banks and other financial institutions- Mudharabah Fund 1,343 1,723 - Non-Mudharabah Fund - 1

34,071 14,761

For the placement of funds by external parties under Mudharabah placement, the depositors shall only be entitled to the profit sharing of the Islamic income earned from Fund Based Income and Trading Income as the depositors are not investing in the Fee Based Islamic business except underwriting and guarantee fees. Under a typical Mudharabah Placement Agreement, it shall be clearly spelt out to the depositors on the above agreement.

The Group distributes Islamic income or profit derived from depositors’ funds based on a pre-determined ratio in the case of Mudharabah, and on a ratio determined at the discretion of the Group in the case of Non-Mudharabah. The profit or income distribution rate is arrived based on the framework of the rate of return issued by BNM.

Where an account is classified as non-performing, recognition of profit or income is suspended until it is realised on a cash basis. Customers’ accounts are classified as non-performing when payments are in arrears for 3 months or more from first day of default for financing and after 3 months from maturity date. the Bank 2008 2007 rM’000 rM’000

(o) Personnel costs- Salaries, allowances and bonuses 499 862 - EPF 24 71 - Others 11 32

534 965

(p) overhead expensesestablishment costs- Rental 269 302 - Others 387 292

656 594

Marketing expenses- Advertisement 99 502 - Others 1,554 1,645

1,653 2,147

administration and general expenses- Legal and professional fees 206 37 - Communication 134 183 - Others 653 747

993 967

3,302 3,708

Included in overheads are fees paid to the Shariah Committee members amounting to RM298,568 (2007: RM307,053).




50 the oPerations oF islaMic BankinG (continueD)(q) taxation

(i) tax expense for the financial year the Bank 2008 2007 rM’000 rM’000

Current year tax - Malaysian income tax 12,077 14,743

(ii) numerical reconciliation of income tax expense The explanation on the relationship between tax expense and profit before taxation is as follows:

the Bank 2008 2007 rM’000 rM’000

Profit before taxation 46,450 57,262

Tax calculated at tax rate of 26% (2007: 27%) 12,077 15,461 Income not taxable for tax purposes - (718)

Tax expense 12,077 14,743

(r) capital adequacy ratioThe capital adequacy ratios of the Bank’s Islamic Banking operation arising from the Bank are as follows:

2008 2007 rM’000 rM’000

Tier-1 capital 151,670 117,297

Total capital base 151,670 117,297

capital ratiosCore capital ratio 88.79% 63.18%Risk-weighted capital ratio 88.79% 63.18%

Components of Tier-1 and Tier-2 capital are as follows:

2008 2007 rM’000 rM’000

tier-1 capitalIslamic Banking capital fund 55,000 55,000 Reserves 96,670 62,297

Total Tier-1 capital/capital base 151,670 117,297




50 the oPerations oF islaMic BankinG (continueD)(r) capital adequacy ratio (continued) Breakdown of risk-weighted assets in the various categories of risk-weights:

2008 2007 credit credit Principal equivalent Principal equivalent rM’000 rM’000 rM’000 rM’000

0% 316,087 - 70,251 - 20% 420,455 84,091 760,364 152,073 100% 1,018 1,018 14,634 14,634

Total risk-weighted equivalents for credit risk 737,560 85,109 845,249 166,707 Total risk-weighted equivalents for market risk 85,711 18,948

Total risk-weighted assets 170,820 185,655

Pursuant to Bank Negara Malaysia’s circular, “Recognition of Deferred Tax Asset (‘DTA’) and Treatment of DTA for RWCR Purposes” dated 8 August 2006, deferred tax income/(expenses) is excluded from the calculation of Tier 1 capital and DTA is excluded from the calculation of risk-weighted assets.

Effective 1 October 2008, the following approaches have been adopted for the computation of risk weighted assets:• Adoption of bilateral netting as provided under the Standardised Approach Framework which involves the weighting of

net claims rather than gross claims with the same counterparties arising out of the full range of forwards, swaps, options and similar derivative contracts.

• Irrevocable commitments to extend credit (undrawn financing) have been revised to include only those undrawn financing whereby all conditions precedent have been met

(s) related party transactions and balances(i) Related parties and relationships

The related parties of, and their relationship with the Bank, is disclosed in Note 38.

(ii) Significant related party transactions and balancesA number of banking transactions are entered into with related parties in the normal course of business. These significant related party transactions were carried out on commercial terms (i.e. terms and conditions obtainable in transactions with unrelated parties) and at market rates unless otherwise stated.




50 the oPerations oF islaMic BankinG (continueD)(s) related party transactions and balances (continued)

2008 2008 2007 ultimate other other holding related related company companies companies rM’000 rM’000 rM’000

sales:Cagamas bonds - - 202,000 Islamic private debt securities - 1,308,170 3,199,607

- 1,308,170 3,401,607

Purchases:Malaysian Government investment certificates - 14,994 - Islamic private debt securities 350,000 - 5,086

350,000 14,994 5,086

income:Dividend income - 11,291 521

expenses:Dividend expense - 1,186 212

amount due from:Interbank lending - 200,300 126,000 Profit receivable - 928 6

- 201,228 126,006

amount due to:Interbank borrowing - 2,500 4,900

Principal Profit rate related contracts: Swaps - 1,168,130 685,500




50

th

e o

Pe

ra

tio

ns

oF

isla

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nk

inG

(co

nt

inu

eD

)(t

) P

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te r

isk

The

tabl

es b

elow

sum

mar

ises

the

Ban

k’s

expo

sure

to p

rofit

rat

e ris

ks. I

nclu

ded

in th

e ta

ble

are

asse

ts a

nd li

abilit

ies

of th

e B

ank’

s Is

lam

ic B

anki

ng

oper

atio

ns a

t the

ir ca

rryi

ng v

alue

cat

egor

ised

by

the

earli

er o

f mat

urity

or

repr

icin

g.

the

Ban

k

n

on-t

radi

ng b

ook

up

to 1

>1

– 3

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o

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on-p

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ears

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ok

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r

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00

rM

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00

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2008

ass

ets

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h an

d sh

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s

416

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416

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its a

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ts w

ith b

anks

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d ot

her fi

nanc

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tions

-

200

,000

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ritie

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ld fo

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ty, p

lant

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ent

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54

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ount

due

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l ass

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73




50

th

e o

Pe

ra

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ns

oF

isla

Mic

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nk

inG

(co

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)(t

) P

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isk

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ued

)Th

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bles

bel

ow s

umm

aris

es th

e B

ank’

s ex

posu

re to

pro

fit r

ate

risks

. Inc

lude

d in

the

tabl

e ar

e as

sets

and

liab

ilitie

s of

the

Ban

k’s

Isla

mic

Ban

king

op

erat

ions

at t

heir

carr

ying

val

ue c

ateg

oris

ed b

y th

e ea

rlier

of m

atur

ity o

r re

pric

ing.

the

Ban

k

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2007

ass

ets

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fund

s

816

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-

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curit

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0,00

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002

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men

ts

-

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301

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er a

sset

s

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-

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4 Pr

oper

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ipm

ent

-

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12

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812

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ount

due

from

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ted

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pani

es

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tota

l ass

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Dep

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l inst

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761

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(4

1,83

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(685

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) -

(2

1,23

5)

104

,762




50 the oPerations oF islaMic BankinG (continueD)(u) Fair value of financial instruments

The fair value of financial assets, financial liabilities and off-balance sheet financial instruments of the Bank approximate their carrying values at each balance sheet date presented.

(v) Maturities of assetsThe tables below summarises the Bank’s effective average profit rate for each class of financial asset and financial liability. The calculation of effective average profit rate excludes non-profit bearing financial assets and financial liabilities. the Bank 2008 2007 Myr Myr % %

Financial assetsCash and short term funds 3.33 3.47 Deposits and placements with banks and other financial institutions 3.64 - Securities held for trading 3.58 3.55

Financial liabilitiesDeposits from customers 3.08 3.32 Deposits and placements of banks and other financial institutions 3.12 3.52

(w) credit riskThe following table sets out the credit risk concentrations of the Bank by classes of financial assets: the Bank short term funds and placements with banks securities Derivative on- commitments and other financial held for financial other balance and institutions trading instruments assets sheet total contingencies rM’000 rM’000 rM’000 rM’000 rM’000 rM’000

2008Manufacturing - - - 21 21 - General commerce - - - 37 37 - Transport, storage and communication - - - 2 2 - Finance, insurance and business services 300,427 620,364 120,910 7,729 1,049,430 117,596 Government and government agencies 316,000 - - 57 316,057 - Others - - - 22 22 -

Total 616,427 620,364 120,910 7,868 1,365,569 117,596




50 the oPerations oF islaMic BankinG (continueD)(w) credit risk (continued)

The following table sets out the credit risk concentrations of the Bank by classes of financial assets:

the Bank short term funds and placements with banks securities Derivative on- commitments and other financial held for financial other balance and institutions trading instruments assets sheet total contingencies rM’000 rM’000 rM’000 rM’000 rM’000 rM’000

2007Agriculture - - - 180 180 - Electricity, gas and water - - - 12 12 - Construction - - - 15 15 - General commerce - - - 16 16 - Transport, storage and communication - - - 13,202 13,202 - Finance, insurance and business services 746,320 - 58,301 540 805,161 13,710 Government and government agencies 70,055 50,002 - 944 121,001 - Others - - - 115 115 -

Total 816,375 50,002 58,301 15,024 939,702 13,710

51 coMParatives(a) restatement of comparatives

Certain comparatives were restated to conform with the current financial year’s presentation. There was no impact to the financial performance and ratios in relation to the financial year ended 31 December 2007. The restatements are as follows:

as previously reported reclassification as restated rM ‘000 rM ‘000 rM ‘000

GroupBalance SheetCash and short term funds 1,240,259 342,578 1,582,837 Securities purchased under resale agreements 145,409 (124,850) 20,559 Deposits and placements with banks and other financial institutions 523,276 (217,728) 305,548

BankBalance SheetCash and short term funds 1,190,492 217,728 1,408,220 Deposits and placements with banks and other financial institutions 522,170 (217,728) 304,442

The reclassification is in relation to short term placements, maturing within one month, which were previously classified as deposits and placements with banks and other financial institutions and securities purchased under resale agreements.

52 authorisation For issue oF Financial stateMentsThe Financial Statements have been authorised for issue in accordance with a resolution of the Board of Directors.

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