financial statements for the financial year ended 31 ... · finance and auditing. waleed holds a ba...

AL RAJHI BANKING AND INVESTMENT CORPORATION (MALAYSIA) BHD.(Incorporated in Malaysia)Company No. 719057-X

FINANCIAL STATEMENTS FOR THE FINANCIALYEAR ENDED 31 DECEMBER 2014

Registered Office

Ground Floor, East BlockWisma Selangor Dredging142-B Jalan Ampang50450 Kuala Lumpur


Contents Page

Statement Of Directors’ Responsibility In Respect Of The Audited Financial Statements 1

Performance Overview 2014 2

Statement of Corporate Governance 2 - 14

Directors' Report 15 - 21

Statement by Directors 22

Statutory Declaration 23

Report of Shariah Board 24 - 25

Independent Auditors' Report 26 - 27

Statement of Financial Position 28

Statement of Comprehensive Income 29

Statement of Changes in Equity 30

Statement of Cash Flows 31 - 32

Summary of Significant Accounting Policies 33 - 55

Notes to the Financial Statements 56 - 131


STATEMENT OF DIRECTORS’ RESPONSIBILITYIN RESPECT OF THE AUDITED FINANCIAL STATEMENTS

� considered the applicable approved accounting standards in Malaysia;�

� made judgments and estimates that are prudent and reasonable; and�

The directors are responsible for ensuring that the annual audited financial statements of theGroup and of the Bank are drawn up in accordance with the requirements of the MalaysianFinancial Reporting Standards issued by the Malaysian Accounting Standards Board,International Financial Reporting Standards issued by the International Accounting StandardsBoard, the requirements of the Companies Act, 1965, Bank Negara Malaysia’s Guidelines andthe Islamic Financial Services Act 2013.

The directors are also responsible for ensuring that the annual audited financial statements of theGroup and of the Bank are prepared with reasonable accuracy from the accounting records of theGroup and of the Bank so as to give a true and fair view of the financial position of the Group andof the Bank as at 31 December 2014, and of their financial performance and cash flows for theyear then ended.

In preparing the annual audited financial statements, the directors have:

The directors also have a general responsibility for taking reasonable steps to safeguard theassets of the Group and the Bank to prevent and detect fraud and other irregularities.

prepared the financial statements on a going concern basis as the directors have areasonable expectation, having made enquiries, that the Group and the Bank haveadequate resources to continue in operational existence for the foreseeable future.

adopted and consistently applied appropriate accounting policies;

1


PERFORMANCE OVERVIEW 2014

STATEMENT OF CORPORATE GOVERNANCE

BOARD OF DIRECTORS

(i) Board Composition and Its Roles and Responsibilities

2014 was a challenging year for the Bank amid the concerns over tighter regulatory environment,assets quality and unstable global economy. In charting its strategic direction, the Bank moved intoits second phase of its transformation programme where several key initiatives were executed tomaintain sustainable growth while at the same time strengthening corporate governance. Newtarget market segments were explored resulting in an improved portfolio base for the Bank.

In the year under review, gross financing asset maintained at RM4.9 billion and profit beforetaxation improved at RM10.0 million (2013: RM5.8 million) mainly from the austerity measuresdriven by the Bank. The Bank in November 2014 had issued a SAR250million nominal value ofSubordinated Sukuk under the Shariah principles of Mudharabah of which the Bank's holdingcompany in Kingdom Saudi Arabia is the sole investor of the sukuk which qualifies as a Tier-IIcapital of the Bank.

The Board of Directors of the Bank (“the Board”) recognises the importance of corporategovernance as set out in the Malaysian Code on Corporate Governance (“the Code”) indischarging its responsibilities to enhance shareholders’ value and safeguard the interests of otherstakeholders towards enhancing business prosperity and corporate accountability. This alsomeans inculcating a culture that seeks to balance conformance requirements with the need todeliver long term strategic success through performance, predicated on entrepreneurship, controland ownership, without compromising personal or corporate ethics and integrity.

At the date of this report, the Board consists of four (4) Directors which include two (2)independent non-executive Directors. The non-executive Directors shall not engage in theday to day management of the Bank and shall not participate in any business dealings andshall not involved in any other relationship with the Bank. This ensures that the independentnon-executive Directors remain free from conflict of interest and facilitates them to carry outtheir roles and responsibilities. The appointment of non-executive Directors facilitates theexercise of independent evaluation in Board deliberations and decision-making, and thusproviding the check and balance in the Board.

The Board is responsible for the overall corporate governance, including its strategicdirection, establishing goals for management and monitoring the achievement of these goals.The roles and responsibilities of the Chairman and the Chief Executive Officer are clearlyseparated, which is consistent with the principles of the Revised BNM/GP1-i to institute anappropriate balance of power and authority. The Chairman is responsible for ensuring theeffectiveness of the Board as well as representing the Board to the Shareholder.

2


STATEMENT OF CORPORATE GOVERNANCE (Continued)

BOARD OF DIRECTORS (Continued)

(i) Board Composition and Its Roles and Responsibilities (Continued)

(ii) Board of Directors' Profile

The Directors' profiles are as follows:

Syed Maqbul QuaderChairman, Independent Non-executive Director

Suliman Abdulaziz AzzabinNon- independent Non-executive Director

The Directors, with their different backgrounds and specialisations, collectively bring withthem a wide range of experience and expertise. The Chief Executive Officer is responsible forimplementing the policies and decisions of the Board, overseeing the operations as well ascoordinating the development and implementation of business and corporate strategies. Theindependent non-executive Directors bring an independent judgment to the decision makingof the Board and provide a review and challenge on the performance of the management.

As a principle of good governance, all Directors are subject to re-election at regularintervals.The Bank’s Articles of Association also provide for the retirement of Directors byrotation and, under Bank Negara Malaysia’s guidelines, all appointment and re-appointmentof Directors have to be approved by Bank Negara Malaysia ('BNM').

Syed Maqbul Quader was appointed to the Board as of 1 August 2013. He holds a Bachelorof Commerce from Dhaka University. A senior banker having served for over 40 years in thebanking industry, he was Vice President of The Chase Manhattan Bank NA, in London andBahrain, and was the Group Chief Risk Officer of Qatar Islamic Bank, Doha. He was formerlythe General Manager of Corporate Banking, Al Rajhi Bank in Saudi Arabia.

He has vast experience in the area of corporate banking, risk and investment and portfoliomanagement. His expertise lies in managing startup projects, having been involved inestablishing amongst others, the Corporate Banking Group at Al Rajhi Bank in Saudi Arabiaand also the Offshore Banking Unit of The Chase Manhattan Bank in Bahrain.

Suliman has over fifteen years of wide range of experiences in accounting, credit, risk,corporate and policy formulation. He started off his career as a senior accountant at theSaudi Basic Industrial Corporation in Riyadh and is currently the Chief Executive Officer of AlRajhi Bank, Saudi Arabia.

3




(ii) Board of Directors' Profile (Continued)

Suliman Abdulaziz Azzabin (Continued)Non- independent Non-executive Director (Continued)

Waleed Abdullah Al-MogbelNon- independent Non-executive Director

Datuk Dr Nik Norzrul Thani Bin Nik Hassan ThaniIndependent Non-executive Director

He holds a Bachelor of Administrative Science in Accounting from the King Saud University,Saudi Arabia and a Master in Risk Management from the Southampton University, UnitedKingdom and was appointed as a director of the Bank with effect from 15 June 2011.

Waleed Abdullah Al-Mogbel was appointed to the Board as of 1 June 2012. He is alsocurrently the Chief Operating Officer (COO) of Al Rajhi Bank Saudi Arabia.

Based in Riyadh, Waleed has been with Al Rajhi Bank since 1998 and has since then delvedinto a range of financial positions within the bank. Prior to commencing his current position asCOO, he was previously the Chief Financial Officer, with astute knowledge in Accounting,Finance and Auditing.

Waleed holds a BA in Accounting from King Saud University, a Master in Accounting andFinance from the University of Southampton and a Ph.D. in Accounting and Auditing fromCardiff University.

Datuk Dr Nik Norzul Thani was appointed as a Board member of the Bank with effect from 20December 2006. Datuk Dr Nik advises clients on a wide range of legal matters covering arange of banking advisory aspects, including Islamic Finance and is currently the President ofthe law firm, Zaid Ibrahim & Co.. Besides being a board member for several other localcompanies, Datuk Dr Nik also has several books and articles to his credit.

4




(iii) Board Meetings

Syed Maqbul QuaderChairman, Independent Non-executive DirectorSuliman Abdulaziz AzzabinNon- independent Non-executive Director

Waleed Abdullah Al-MogbelNon- independent Non-executive DirectorDatuk Dr Nik Norzrul Thani Bin Nik Hassan ThaniIndependent Non-executive DirectorNik Hassan Bin Nik Mohd AminIndependent Non-executive Director(Resigned on 01 July 2014)

4/6

6/6

3/6

At the Board meetings, the Board reviews various management reports on the businessperformance of the Bank and the minutes of meetings of the Board Committees are tabled for review by members of the Board.

Members of the Board shall deliberate and in the process evaluate the potential risks andviability of business propositions and corporate proposals that have significant impact on thebank’s business or on its financial position.

Board meetings are governed by a structured format agenda and the agenda for each Boardmeeting and papers relating to the agenda items are forwarded to all Directors in advanceprior to the scheduled Board meetings for their perusal.

Minutes of every Board meeting are circulated to all the Directors for their perusal prior toconfirmation of the minutes at the following Board meeting.

Board meetings for the ensuing financial year are scheduled in advance before end of thecurrent financial year to facilitate the Directors to plan and organise the next year’s Boardmeetings into their respective schedules.

For the financial year 2014, six (6) Board meetings were held and attendances by Directors atthe board meetings were as follows:

Member

6/6

No of meetingsattended / held

6/6

5




(iv) Board Committee

Datuk Dr Nik Norzrul Thani Bin Nik Hassan Thani -ChairmanIndependent Non-executive DirectorWaleed Abdullah Al-MogbelNon- independent Non-executive DirectorNik Hassan Bin Nik Mohd Amin - ChairmanIndependent Non-executive Director (Resigned on 01 July 2014)

4/5

5/5

Board Committees were established to assist the Board in the running of the Bank. Thefollowing are the Board Committees with their specific terms of reference and functions:

Audit Committee

The composition of the Audit Committee and the attendance by members at the BoardCommittee meetings held in 2014 are as follows:

Member No of meetings

The primary function of the Audit Committee is to assist the Board in discharging itsresponsibilities by providing independent oversight of the Bank’s financial reporting, theinternal control system, the effectiveness of internal audit function and risk managementsystem. The Audit Committee also provides, by way of regular meetings, a line ofcommunication between the Board, the internal and external auditors.

attended / held

3/5

6




(iv) Board Committee (Continued)

Risk Management Committee

Datuk Dr Nik Norzrul Thani Bin Nik Hassan Thani - ChairmanIndependent Non-executive DirectorSyed Maqbul QuaderChairman, Independent Non-executive DirectorSuliman Abdulaziz AzzabinNon- independent Non-executive DirectorWaleed Abdullah Al-MogbelNon- independent Non-executive DirectorNik Hassan Nik Mohd Amin - ChairmanIndependent Non-executive Director(Resigned on 01 July 2014)

3/6

The objective of the Risk Management Committee is to establish a forum for deliberation andconsideration of risks which the Bank is exposed to in relation to its strategic direction andobjectives while overseeing to ensure that the risk management systems, policies andprocedures are in place and functioning.

3/6

6/6

6/6attended / held

The composition of the Risk Management Committee and the attendance by members at theBoard Committee meetings held in 2014 are as follows:

Member

6/6

No of meetings

7





Nominating Committee

Datuk Dr Nik Norzrul Thani Bin Nik Hassan Thani - ChairmanIndependent Non-executive DirectorSyed Maqbul QuaderChairman, Independent Non-executive DirectorSuliman Abdulaziz AzzabinNon- independent Executive DirectorWaleed Abdullah Al-MogbelNon- independent Non-executive DirectorNik Hassan Bin Nik Mohd AminIndependent Non-executive Director(Resigned on 01 July 2014)

The responsibility of the nominating committee is to provide a formal and transparentprocedure for the appointment of Directors and the Chief Executive Officer as well as theassessment of the effectiveness of individual Directors, Board as a whole and performance ofChief Executive Officer and senior management officers.

1/3

Member

The composition of the Nominating Committee and the attendance by members at the BoardCommittee meetings held in 2014 are as follows:

attended / held3/3

3/3

3/3

3/3

No of meetings

8





Remuneration Committee

Datuk Dr Nik Norzrul Thani Bin Nik Hassan Thani - ChairmanIndependent Non-executive Director

Syed Maqbul QuaderChairman, Independent Non-executive Director

Suliman Abdulaziz AzzabinNon-independent Non-executive Director

Nik Hassan Bin Nik Mohd AminIndependent Non-executive Director(Resigned on 01 July 2014)

INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES

1/2

The responsibility of the Remuneration Committee is to provide for a formal and transparentprocedure for developing the remuneration policy for Directors, Chief Executive Officer andsenior management officers and ensuring that the compensation is competitive andconsistent with the Bank’s culture, objective and strategy.

The Malaysian Code on Corporate Governance and Bank Negara Malaysia's Guidelines onCorporate Governance require banks to maintain a sound system of internal controls to safeguardshareholders' investments and the banks' assets.

The composition of the Remuneration Committee and the attendance by members at theBoard Committee meetings held in 2014 are as follows:

No of meetingsattended / held

2/2

2/2

2/2

Member

9




INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES (Continued)

Responsibility of the Board

Key Internal Control Elements

(i) Clear Line of Responsibilities

(ii) Risk Management Framework

The Board recognises the importance of maintaining a sound system of internal control tosafeguard shareholder's investments and the Bank's assets. The Board is also responsible for theBank's system of internal controls and its effectiveness. It includes reviewing adequacy andintegrity of controls relating to financial, operational, risk management and compliance withapplicable laws and regulations.

The system is designed to manage the Bank's risks within an acceptable risk profile and the Boardacknowledges that the system, by its nature, can only provide reasonable assurance and notabsolute assurance against material misstatement of financial information and records or againstfinancial losses or fraud.

The Bank has in place an on-going internal control processes for identifying, evaluating, managingand reporting on the significant risks that may affect the achievement of its business objectivesthroughout the financial year under review. The key internal control elements in the processes aredescribed below:

The management of the Bank is primarily delegated to the Chief Executive Officer and itsManagement Committee, whose responsibilities are set by the Board. The managementassists the Board in the implementation of the policies and procedures on risk and control byidentifying and assessing the risks faced, and in the design, operation and monitoring ofsuitable internal controls to mitigate and control these risks.

Risk Management Division is established to assist the Board in the development of generalrisk policies and procedures, monitor and evaluate material risks that may arise from theBank's business activities. The Board with the assistance of the Risk Management Division,has established an enterprise-wide risk management framework that details a holistic riskmanagement governance structure for risk management which balances risks and returns, aswell as integrated risk management processes for credit risk, market risk, liquidity risk andoperational risk.

10



INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES (Continued)

Key Internal Control Elements (Continued)

(iii) Internal Audit Activities

(iv) Annual Business Plan

(v) Management Reporting

(vi) Policies and Procedures

RISK MANAGEMENT

There are policies, procedures and authority limits imposed on the management in respect ofthe day-to-day operations. Compliance with internal controls and the relevant laws andregulations are also set out in operations manuals, guidelines and directives which areupdated from time to time.

A detailed budgeting process is established requiring all key business units in the Bank toprepare budgets annually which are discussed and approved by the Board. Regular reportingon actual performance against approved budgets is in place and significant variances shallbe followed up by the management and to be reported to the Board.

Audited information according to MFRS 7 and MFRS 101

Risk management disclosures provided in line with the requirements of the Malaysian FinancialReporting Standard ("MFRS") 7 Financial Instruments: Disclosures, and disclosures on capitalmanagement as required by MFRS 101 Presentation of Financial Statements (Revised) form partof the financial statements audited by the Bank's independent auditors Ernst & Young. Thisinformation (the audited texts and tables) is marked by a bar on the left-hand side throughout thisreport and incorporated by cross-reference into the financial statements of this report.

The Board also receives and reviews reports from the management on a regular basis inensuring the effectiveness of the Bank's daily operations and that the Bank's operations arein accordance with the established goals.

On-going reviews of the internal control system are carried out by the internal auditor to testcontrol effectiveness in the Bank. Results of such reviews are reported to the AuditCommittee. The internal audit activities revolve primarily on areas of priority as identified byrisk analysis and in accordance with the annual internal audit plans as approved by the AuditCommittee.

11



RISK MANAGEMENT (Continued)

Overall Risk Management Framework

Risk Management Governance Structure and Processes

(a)

(b) Understanding the nature and key risk profile of the Bank;

(c) Estimating the adequacy or liquidity contingency planning; and

(d) Assessing the effectiveness of risk mitigation which are already established.

Risk management plays a substantial role in the governance of the Bank as the bank recognisesthe diversity and complexity of banking operations and the exposure to various kinds of risksmainly on credit risk, market risk, liquidity risk and operational risk.

The Bank recognises the importance of an effective risk management and control measures toensure the Bank's corporate value, sustained profitability and continued enhancement ofshareholder value.

A risk conscious corporate culture and pre-emptive actions of employees are also crucial for aneffective risk management. The risk conscious corporate culture is met through communication,training, policies, procedures and organisational structures, roles and responsibilities.

The Bank has established within its risk management framework a holistic risk managementgovernance structure for risk management which balances risks and returns, as well as integratedrisk management processes for credit risk, market risk, liquidity risk and operational risk. The riskmanagement governance structure provides clear accountabilities and responsibilities for riskmanagement processes throughout the organisation at the Board level, at the ExecutiveManagement level and at the business unit and support unit level. The risk managementprocesses encompass four broad processes, namely risk identification, risk assessment andmeasurement, risk control and mitigation and risk monitoring.

Stress test and scenario analysis serve as important risk management tools as part of the Bank'srisk assessment process and are used to assess the financial risks and management capability ofthe Bank to continue to operate effectively under different stressed scenarios. The stress test andscenario analysis will assist the Bank in the following:

Evaluating the optimal capitalisation level for the Bank to weather extreme banking scenarios;

12




Credit Risk Management

Market and Liquidity Risk Management

Operational Risk Management

Credit risk is defined as the risk of potential losses arising from a customer default or deteriorationof the credit standing of a customer with whom the Bank has entered transactions into.

The Bank establishes policies and procedures for credit origination, scoring, rating, approval,monitoring, collection and recovery. Credit approval authorities are delegated to committees andindividuals in accordance to the risk appetite of the Board. Regular analysis and reporting of riskprofile covering credit exposure, movements of non-performing financings ("NPFs"), concentrationof credit exposure, adequacy of specific provision for NPFs and capital adequacy is updated to theManagement, the Risk Management Committee and the Board.

Market risk is defined as the risk that could incur losses due to changes in the value of assets andliabilities (including off-balance sheet items) caused by fluctuations in the market risk factors suchas profit rates and foreign exchange rates. Meanwhile, liquidity risk is defined as the risk of lossesarising from funding difficulties to raise the necessary funds, or when it is forced to obtain funds atmuch higher rates than usual.

The Bank establishes policies and procedures for monitoring, reporting and control of market andliquidity risks including setting appropriate management trigger and exposure limits and performingregular stress testing. The Asset and Liability Committee (“ALCO”) is established to monitor,deliberate and make decision on matters related to funding, liquidity as well as asset and liabilitymismatch risks management. The Bank manages its liquidity in compliance to BNM’s NewLiquidity Framework. Regular analysis and reporting of market and liquidity risks profile is updatedto the Management, the Risk Management Committee and the Board.

Operational risk is defined as the risk of loss, whether direct or indirect, to which the Bank isexposed due to inadequacy or failure of processes, procedures, systems or controls and externalevents. Operational risk, in some form, exists in each of the Bank’s business and support activitiesand can result in direct and indirect financial loss, regulatory sanctions, customer dissatisfactionand damage to the Bank’s reputation.

The management of operational risk is an important priority for the Bank. To mitigate suchoperational risks, the Bank has developed an operational risk program and essentialmethodologies that enable identification, measurement, monitoring and reporting of inherent andemerging operational risks.

13




Operational Risk Management (Continued)

CAPITAL ADEQUACY FRAMEWORK INITIATIVES

(a) Credit Risk Charge - Standardised Approach(b) Market Risk Charge - Standardised Approach(c) Operational Risk Charge - Basic Indicator Approach

The Bank is developing framework for Internal Capital Adequacy and Assessment process("ICAAP"). The ICAAP goes one step further in ensuring that the Bank has in place a structuredprocess for assessing the adequacy of its internal capital levels relative to its risk profile andappetite that covers all material risks beyond those specified in Pillar 1.

In line with the Basel II Pillar 1 on minimum capital requirement, the Bank has implemented theCapital Adequacy Framework for Islamic Bank ("CAFIB") issued by BNM by adopting the followingapproaches:

The day-to-day management of operational risk exposures is through the development andmaintenance of comprehensive internal controls and procedures based on segregation of duties,independent checks, segmented system access control and multi-tier authorisation processes. Anincident reporting process is also established to capture and analyse frauds and control lapses.

A periodic self-risk and control assessment is established for business and support units to pre-emptively identify risks and evaluate control effectiveness. Action plans are developed for thecontrol issues identified.

14


DIRECTORS' REPORT

PRINCIPAL ACTIVITIES

FINANCIAL RESULTS Group and

BankRM'000

Net profit for the financial year 4,802

DIVIDEND

DIRECTORS OF THE BANK

Syed Maqbul QuaderDatuk Dr Nik Norzrul Thani Bin Nik Hassan ThaniSuliman Abdulaziz AzzabinWaleed Abdullah Al-MogbelNik Hassan Bin Nik Mohd Amin (Resigned on 01 July 2014)

The Directors hereby submit their report together with the audited financial statements of the Group andof the Bank for the financial year ended 31 December 2014.

The Bank is principally engaged in Islamic Banking business and the provision of related financialbusiness under the Islamic Financial Services Act 2013.

The principal activity of the subsidiary is disclosed in Note 12 to the financial statements.

There have been no significant changes to these principal activities during the financial year.

No dividend has been paid or declared by the Bank since the end of the previous financial year.

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

There were no material transfers to or from reserves or provisions or allowances during the year otherthan those disclosed in the Notes 9 and 26 and statement of changes in equity of the financialstatements.

The names of the directors of the Bank in office since the date of the last report and at the date of thisreport are as follows:

15


DIRECTORS REPORT (Continued)

DIRECTORS OF THE BANK (Continued)

DIRECTORS' BENEFITS

ISSUE OF SHARES

BAD AND DOUBTFUL FINANCING

There were no changes to the authorised issued and paid-up capital of the Bank during the financialyear.

According to the register of Directors’ shareholding, none of the Directors holding office at 31 December2014 held any shares in the Bank or its related corporations during the financial year.

COMPLIANCE WITH BANK NEGARA MALAYSIA’S GUIDELINES ON FINANCIAL REPORTING

In the preparation of the financial statements of the Group and the Bank, the Directors have takenreasonable steps to ensure that Bank Negara Malaysia’s expectations on financial reporting have beencomplied with, including those as set out in the Guidelines on Financial Reporting for Islamic BankingInstitutions and the Guidelines on Classification and Impairment Provisions for Loans/Financing.

Before the financial statements of the Group and of the Bank were made out, the Directors tookreasonable steps to ascertain that proper actions had been taken in relation to the writing off of badfinancing and other debts and the making of allowance for doubtful financing and other debts and havesatisfied themselves that all bad financing and other debts have been written-off and that adequateallowance had been made for doubtful financing and other debts.

Since the end of the previous financial year, no Director of the Bank has received nor become entitled toreceive any benefit (other than directors’ remuneration as disclosed in Note 30 of the financialstatements or amount of emoluments received or due and receivable by the directors from or fixedsalaries of full time employees of related corporations) by reason of a contract made by the Bank or arelated corporation with the Director or with a firm of which the Director is a member, or with a companyin which the Director has a substantial financial interest.

Neither at the end of the financial year, nor at any time during that year, did there subsist anyarrangements to which the Bank or its subsidiary is a party whereby Directors might acquire benefits bymeans of the acquisition of shares in, or debentures of, the Bank or any other body corporate.

16



BAD AND DOUBTFUL FINANCING (Continued)

CURRENT ASSETS

VALUATION METHODS

CONTINGENT AND OTHER LIABILITIES

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

i)

ii)

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

any charge on the assets of the Group and of the Bank which has arisen since the end of thefinancial year and which secures the liabilities of any other person; or

Before the financial statements of the Group and of the Bank were made out, the Directors tookreasonable steps to ensure that any current assets which were unlikely to realise their values as shownin the accounting records in the ordinary course of business, had been written down to an amount whichthey might be expected so to realise.

At the date of this report, the Directors are not aware of any circumstances which would render thevalues attributed to the current assets in the financial statements of the Group and of the Bankmisleading.

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

At the date of this report, the Directors are not aware of any circumstances which have arisen whichrender adherence to the existing methods of valuation of assets or liabilities of the Group and of theBank misleading or inappropriate.

any contingent liability in respect of the Group and of the Bank that has arisen since the end of thefinancial year other than in the ordinary course of the banking business.

17



CHANGE OF CIRCUMSTANCES

ITEMS OF UNUSUAL NATURE

BUSINESS PLAN AND OUTLOOK FOR 2015

(a) Shariah Board Profiles

The profiles of the Shariah Board members are as follows:

Associate Prof. Dr Saleh Abdullah Al LheidanChairman

At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with inthis report or the financial statements of the Group and of the Bank, which would render any amountstated in the financial statements misleading.

The Shariah Board's main duty and responsibility is to oversee the Bank's activities and operations,investments and prudent development to ensure compliance with Shariah principles. Shariah Boardreports to the Board of Directors.

The results of the operations of the Group and of the Bank for the financial year were not, in the opinionof the Directors, substantially affected by any item, transaction or event of a material and unusualnature.

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

Despite the current economic developments and Government’s financial position for 2015, the bankingindustry is hopeful that 2015 will bring better growth prospects. The strategies announced by theGovernment recently are proactive initiatives required in the challenging external developments andwould go a long way in assisting the financial industries to face the on-coming economic scenario.Barring the challenging times expected in 2015, the Bank is clear on its action plan to ride through thisperiod of market volatility.

DISCLOSURE OF SHARIAH BOARD

Dr Salleh holds a PhD and a Masters Degree in Comparative Fiqh (Islamic Law) from ImamMohammed bin Saud Islamic University in Riyadh, Saudi Arabia.

18



(a) Shariah Board Profiles (Continued)

Associate Prof. Dr Saleh Abdullah Al Lheidan (Continued)Chairman (Continued)

Dr Azman Mohd NoorDeputy Chairman

Dr Mohammed Hael Ghilan Al- MadhagiMember

Mr Luqmanulhakim Bin Hussain (Appointed on 01 September 2014)Member

As a researcher, his articles involve in researchers related to Islamic Finance and has presented numerous research papers at various seminars and conferences. He sits as a member of Shariah Board of Al Rajhi Bank Malaysia since 2014.

Apart from that, he also serves as Fatwa Fellow under Malaysian National Fatwa Council to respond to current issues on Islam through new media.

Dr Salleh is presently the General Manager for the Shariah Group of Al Rajhi Bank, Saudi Arabia.At the same time he serves as the Secretariat and also a member of the Shariah Board of Al RajhiBank, Saudi Arabia. He currently sits as the Chairman of the Shariah Board of Al Rajhi BankMalaysia since 2007.

Dr Azman bin Mohd Noor holds a PhD in Islamic Studies from the University of Edinburgh, UnitedKingdom. He also has Masters Degree from the International Islamic University, Malaysia and agraduate of Islamic University of Madinah, Saudi Arabia.

Dr Azman currently sits as a Deputy Chairman of Shariah Board at Al Rajhi Bank Malaysia.

DISCLOSURE OF SHARIAH BOARD (Continued)

Dr Hael holds a PhD in Feqah "Islamic Jurisprudence" from the Saud Islamic University, College ofSyaria Islamic Law in Riyadh.

He is currently a senior shariah consultant at Al Rajhi Bank, Saudi Arabia and is involved indeveloping banking products in accordance to Shariah. He has been invited to talk in seminars andwas a main speaker at the symposium held by the Journal of Islamic Banking in collaboration withthe Islamic World Organisation for Economy and Finance.

Mr Luqmanulhakim Bin Hussain currently serves as a researcher at International Shariah ResearchAcademy for Islamic Finance (ISRA). He obtained his first class honors in both Bachelor of Artsdegree in Shariah and a Master's degree in Fiqh from Islamic University of Medina, Kingdom ofSaudi Arabia.

19



(b) Shariah Board and Its Roles and Responsibilities

The duties and responsibilities of the Shariah Board amongst others are as follows:

(i)

(ii)

(iii)

(iv)

(a)

(b)

(v)

(vi)

(a)

(b)

(vii) To advise on matters to be referred to the SAC for matters which have not been resolved orendorsed. The Shariah Board is also expected to assist the SAC on any matters referred bythe Bank.

where the Bank submits applications to Bank Negara Malaysia for new products approvalin accordance with guidelines on product approval issued by Bank Negara Malaysia.

To endorse the Shariah Compliance Manual. The manual specifies the manner in which asubmission or request for advice be made to Shariah Board, the conduct of the ShariahBoard's meeting and the manner of compliance with any Shariah decision;

To ensure that the Bank complies with Shariah principle in all aspect and to decideconsequential action upon any violation;

To ensure that the products of the Bank comply with Shariah principles in all aspects, theShariah Board must endorse the following;

To advise the Board of Directors on Shariah matters in order to ensure that the businessoperations of the Bank comply with the Shariah principles at all times;

To provide written Shariah opinion and to record any opinion given under the followingcircumstances:

DISCLOSURE OF SHARIAH BOARD (Continued)

To provide assistance to related parties such as legal counsel, auditor or consultant on Shariahmatters so that compliance with Shariah principles can be assured completely;

the terms and conditions contained in the proposal form, contract, agreement or otherlegal documentation used in executing the transactions; and

the product manual, marketing advertisements, sales illustrations and brochures used todescribe the product.

where the Bank makes reference to the Shariah Advisory Council ("SAC") of Bank NegaraMalaysia for advice; and

20



SIGNIFICANT EVENTS

There were no significant events to report during the financial year ended 31 December 2014.

SUBSEQUENT EVENTS

AUDITORS

The auditors, Ernst & Young, have expressed their willingness to continue in office.

SYED MAQBUL QUADER DATUK DR NIK NORZRUL THANI BIN NIK HASSAN THANICHAIRMAN DIRECTOR

Kuala Lumpur, Malaysia

There were no material events subsequent to the statement of the financial position date that requiredisclosure or adjustments to the financial statements.

Signed on behalf of the Board in accordance with a resolution of the directors dated 19 March 2015.

21


STATEMENT BY DIRECTORS

PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965

SYED MAQBUL QUADER DATUK DR NIK NORZRUL THANI BIN NIK HASSAN THANICHAIRMAN DIRECTOR

Kuala Lumpur, Malaysia

We, Syed Maqbul Quader and Datuk Dr Nik Norzrul Thani bin Nik Hassan Thani, being two of thedirectors of Al-Rajhi Banking & Investment Corporation (Malaysia) Bhd., do hereby state that, inthe opinion of the directors, the accompanying financial statements set out on pages 28 to 131 aredrawn up in accordance with Malaysian Financial Reporting Standards, International FinancialReporting Standards and the requirements of the Companies Act, 1965 in Malaysia so as to give atrue and fair view of the financial position of the Group and of the Bank as at 31 December 2014and of the results and the cash flows of the Group and the Bank for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the directors dated 19 March 2015.

22


STATUTORY DECLARATION

PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965

ADEL ABALKHAIL

Before me,

I, Adel Abalkhail, being the officer primarily responsible for the financial management of Al-RajhiBanking & Investment Corporation (Malaysia) Bhd., do solemnly and sincerely declare that theaccompanying financial statements set out on pages 28 to 131 are in my opinion correct, and Imake this solemn declaration conscientiously believing the same to be true and by virtue of theprovisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed Adel Abalkhail at Kuala Lumpur on 19 March 2015.

23


REPORT OF SHARIAH BOARD

In the name of Allah, the most Beneficent, the most Merciful

Praises be to Allah, the Lord of the Worlds and peace and blessings be upon our ProphetMuhammad, and on his family and companions.

In compliance with the Guidelines on the Shariah Board of Al Rajhi Banking and InvestmentCorporation (Malaysia) Bhd we are required to submit the following report:

We have reviewed and approved the products and the contracts relating to the transactionsundertaken by Al Rajhi Banking and Investment Corporation (Malaysia) Bhd and itssubsidiaries (“the Group”) during the year ended 31 December 2014. We have alsoconducted our review to form an opinion as to whether Al Rajhi Banking and InvestmentCorporation (Malaysia) Bhd has complied with the Shariah rulings issued by us.

Al Rajhi Banking and Investment Corporation (Malaysia) Bhd’s Management is responsiblefor ensuring that the Bank conducts its business in accordance with Shariah rules andprinciples. It is our responsibility to form our independent opinion, based on our review of theoperations of Al Rajhi Banking and Investment Corporation (Malaysia) Bhd, and to report tooperations of Al Rajhi Banking and Investment Corporation (Malaysia) Bhd, and to report toyou.

We have assessed the work carried out by Shariah Supervision and Audit which includedexamining, on a test basis, various type of transaction, the relevant documentations andprocedures adopted by Al Rajhi Banking and Investment Corporation (Malaysia) Bhd.

We planned and performed our review so as to obtain all the information and explanationswhich we considered necessary in order to provide us with sufficient evidence to givereasonable assurance that the Al Rajhi Banking and Investment Corporation (Malaysia) Bhdhas not violated the Shariah rules and principles in all transactions that had been presentedto us.

24


REPORT OF SHARIAH BOARD (Continued)

In our opinion:

1.

2.

3.

On behalf of the Shariah Board,

We the undersigned, Assoc Prof Dr Saleh Abdullah S. Al Lheidan and Assoc Prof Dr AzmanMohd Noor, in our capacity as members of the Shariah Board of Al Rajhi Banking &Investment Corporation (Malaysia) Bhd., do hereby confirm on behalf of the Shariah Boardthat the operations of the Bank for the financial year ended 31 December 2014 have, ingeneral, been conducted in compliance with Shariah except some minor remarks which theBank is in the midst of rectification in line with the Shariah requirements.

the contracts, transactions and dealings entered into by the Al Rajhi Banking andInvestment Corporation (Malaysia) Bhd during the year ended 31 December 2014 thatwe have reviewed are in general comply with the Shariah principles;

the allocation of profit and charging of losses relating to investment accounts conform to the basis that had been approved by us in accordance with Shariah principles;

all earnings that have been realised from sources or by means prohibited by theShariah principles that we discovered have been considered for disposal to charitable

25

ASSOC PROF DR SALEH ABDULLAH ASSOC PROF DR AZMAN S. AL LHEIDAN MOHD NOORChairman Deputy Chairman

25


Note 2014 2013RM'000 RM'000

Group and Bank

ASSETS

Cash and short-term funds 4 358,672 455,387 Deposits and placements with banks and other financial institutions 5 233,115 - Hedging financial instruments 6 1,630 1,788Securities held-for-trading 7 5,099 4,792Securities held-to-maturity 8 1,426,084 1,035,903Financing and advances 9 4,774,809 4,784,898Other assets 10 32,758 41,099Statutory deposit with Bank Negara Malaysia 11 216,364 194,268Investment properties 13 105,000 105,000Property and equipment 14 13,051 18,453Intangible assets 15 31,706 35,203Deferred tax assets 16 72,645 77,845Total Assets 7,270,933 6,754,636

LIABILITIES AND SHAREHOLDER'S EQUITY

LiabilitiesDeposits from customers 17 5,477,854 4,401,696Deposits and placements of banks and other financial institutions 18 777,289 1,581,452Hedging financial instruments 6 685 610Bills and acceptances payable 12,551 12,541Other liabilities 19 48,940 42,408Subordinated Sukuk 20 232,883 - Total Liabilities 6,550,202 6,038,707

Shareholder's equityShare capital 21 1,000,000 1,000,000Reserves 22 (279,269) (284,071)Total Shareholder's Equity 720,731 715,929

Total Liabilities and Shareholder's Equity 7,270,933 6,754,6360 -

COMMITMENTS AND CONTINGENCIES 34 1,732,323 2,021,372

CAPITAL ADEQUACY 38CET 1 / Core capital ratio 13.832% 13.037%Risk-weighted capital ratio 20.167% 14.429%

STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2014

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

28


Note 2014 2013RM'000 RM'000

Revenue 23 356,226 339,229

Income derived from investment of depositors' funds and others 24 325,123 302,493

Income derived from investment of shareholder's funds 25 31,103 36,736

Allowance for impairment on financing 26 (13,956) (15,796)

Other expenses directly attributable to the investment of the depositors' funds (14) (25)

Total distributable income 342,256 323,408

Income attributable to depositors 27 (175,666) (155,019)

166,590 168,389

Personnel expenses 28 (68,326) (69,048)Other overheads and expenditures 29 (88,262) (93,588)

Profit before zakat and taxation 10,002 5,753

Zakat - -Taxation 31 (5,200) (2,606)Net profit for the financial year 4,802 3,147

Other comprehensive income:

- Securities available-for-sale, net of tax - (26) - Transfer to Wakalah reserve - (2) Total comprehensive income for the financial year 4,802 3,119

Basic / diluted earnings per share (sen) 32 0.48 0.31(58)

Group and Bank


STATEMENT OF COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014

Items that may be reclassified to profit or loss in subsequent periods:

29

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30


Note 2014 2013RM'000 RM'000

CASH FLOWS FROM OPERATING ACTIVITIES


Adjustments for:Depreciation of property and equipment 29 8,768 8,390Amortisation of intangible assets 29 11,670 11,825Allowance for impairment on financing 26 18,665 20,396Bad debts on financing - Written off 26 485 86Bad debts on financing - Recovered 26 (5,194) (4,686)Unrealised loss on revaluation of securities held-for-trading / investment properties 25 9 193Unrealised (gain)/loss from foreign exchange translations 25 (2,696) 5,338Operating cashflow before workings capital changes 41,709 47,295

(Increase) / decrease in Operating AssetsDeposits and placements with banks and other financial institutions (233,115) -Hedging financial instruments 2,854 (6,666)Financing and advances (3,867) (510,831) Other assets 8,341 145,179Statutory deposit with Bank Negara Malaysia (22,096) (40,114)

Increase / (decrease) in Operating LiabilitiesDeposits from customers 1,076,158 (148,854) Deposits and placements of banks and other financial institutions (804,088) 203,020Hedging financial instruments - (523)Bills and acceptances payable 10 (149,803) Other liabilities 6,216 (17,147)Net cash generated from/(used in) operating activities 72,122 (478,444)

STATEMENT OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014

Group and Bank

31


Note 2014 2013RM'000 RM'000

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment 14 (3,366) (1,278)Purchase of intangible asset 15 (8,173) (7,642)Securities held-for-trading - -Securities available-for-sale - 233,822Securities held-to-maturity (390,181) (749,713) Net cash used in investing activities (401,720) (524,811)

CASH FLOWS FROM FINANCING ACTIVITY

Issuance of Subordinated Sukuk 20 232,883 -Net cash generated from financing activities 232,883 -

NET DECREASE IN CASH AND SHORT-TERM FUNDS (96,715) (1,003,255)

Cash and short-term funds as at 1 January 455,387 1,458,642

CASH AND SHORT-TERM FUNDS AS AT 31 DECEMBER 4 358,672 455,387

0.00 -


STATEMENT OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 (CONTINUED)

Group and Bank

32


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014

1. PRINCIPAL ACTIVITIES AND GENERAL INFORMATION

2.

2.1 BASIS OF PREPARATION

The financial statements of the Group and the Bank have been prepared under the historicalcost convention (unless otherwise indicated) and in accordance with Malaysian FinancialReporting Standards (“MFRS”), International Financial Reporting Standards (“IFRS”) andrequirements of the Companies Act, 1965.

The financial statements have been prepared under the historical cost convention, except thatland and buildings, available-for-sale financial assets, and financial assets and financialliabilities (including derivative instruments) at fair value through profit or loss are presented atfair value.

The Bank is principally engaged in Islamic banking business which refers generally to theacceptance of deposits and granting of financing under the principles of Shariah as well as theprovision of related financial services. The principal activities of the subsidiary are set out in Note 12.

There have been no significant changes to these principal activities during the financial year.

The Bank is a licensed Islamic Bank under the Islamic Financial Services Act 2013, incorporated anddomiciled in Malaysia. The registered office of the Bank is located at the Ground Floor, East Block,Wisma Selangor Dredging, 142-B Jalan Ampang, 50450 Kuala Lumpur.

The holding company of the Bank is Al Rajhi Banking and Investment Corporation, Saudi Joint StockCompany, a public limited liability company, incorporated in Riyadh on 23 June 1987. The registeredoffice is located at PO Box 28, Riyadh 11411, Kingdom of Saudi Arabia.

As at 31 December 2014, the Bank has 24 (2013: 24) branches and has 495 (2013: 523) full timeemployees at the end of the financial year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently in the preparation of thesefinancial statements to all periods presented in these financial statements.

33


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 (Continued)

2.

2.1 BASIS OF PREPARATION (Continued)

Amendments to MFRS 132: Offsetting Financial Assets and Financial Liabilities

Amendments to MFRS 10, MFRS 12 and MFRS 127: Investment Entities

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The preparation of financial statements in conformity with MFRS requires the use of certaincritical accounting estimates and assumption that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date of the financialstatement and the reported amount of revenues and expenses during the reported period. Italso requires Directors to exercise their judgment in the process of applying the Group and theBank’s accounting policies. Although these estimates are based on the Directors’ bestknowledge of current events and actions, actual results may differ. The areas involving ahigher degree of judgment or complexity, or areas where assumptions and estimates aresignificant to the financial statements are disclosed in Note 3.

The financial statements are presented in Ringgit Malaysia ("RM") and all values are roundedto the nearest thousand (RM'000) except otherwise indicated.

Certain qualitative disclosures under MFRS 7 Financial Instruments: Disclosures about thenature and extent of risks and disclosures on capital management as required by MFRS 101Presentation of Financial Statements (Revised) have been included in the audited parts ofthe "Risk Management" section in the Statement of Corporate Governance.

These amendments clarify the meaning of ’currently has a legally enforceable right to set-off’and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify foroffsetting and is applied retrospectively. These amendments have been properly consideredand applied by the Group and the Bank.

The accounting policies adopted are consistent with those of the previous financial year exceptfor the adoption of the following MFRS, Amendments to MFRS, IC Interpretation and TechnicalRelease:

These amendments provide an exception to the consolidation requirement for entities thatmeet the definition of an investment entity under MFRS 10 Consolidated Financial Statementsand must be applied retrospectively, subject to certain transition relief. The exception toconsolidation requires investment entities to account for subsidiaries at fair value through profitor loss. These amendments have no impact on the Group and the Bank, since none of theentities in the Group qualifies to be an investment entity under MFRS 10.

34



2.


Amendments to MFRS 136: Recoverable Amount Disclosures for Non-Financial Assets

Amendments to MFRS 139: Novation of Derivatives and Continuation of Hedge Accounting

Standards issued but not yet effective

IC Interpretation 21 clarifies that an entity recognises a liability for a levy when the activity thattriggers payment, as identified by the relevant legislation, occurs. For a levy that is triggeredupon reaching a minimum threshold, the interpretation clarifies that no liability should beanticipated before the specified minimum threshold is reached. Retrospective application isrequired for IC Interpretation 21. This interpretation has no impact on the Group and the Bank.

The standards and interpretations that are issued but not yet effective up to the date ofissuance of the Group’s and the Bank's financial statements are disclosed below. The Groupand the Bank intend to adopt these standards, if applicable, when they become effective.

These amendments provide relief from discontinuing hedge accounting when novation of aderivative designated as a hedging instrument meets certain criteria and retrospectiveapplication is required. These amendments have no impact on the Group and the Bank as theGroup and the Bank has not novated its derivatives during the current or prior periods.


The amendment clarifies that recoverable amount (determined based on fair value less costsof disposal) is required to be disclosed only when an impairment loss is recognised orreversed. In addition, there are new disclosure requirements about fair value measurementwhen impairment or reversal of impairment is recognised. These amendments have no impacton the Group and the Bank, since no impairment or reversal of impairment has beenrecognised for the non-financial assets of the Group and the Bank.

IC Interpretation 21: Levies

35



2.


MFRSs, Amendments to MFRSs and Interpretations

Amendments to MFRS 119: Defined Benefit Plans: Employee Contribution 1 July 2014 " Annual Improvements 2010 - 2012 cycle" 1 July 2014Amendments to MFRS contained in the documents entitled " Annual Improvements 2011 - 2013 cycle" 1 July 2014Amendments to MFRS 3: Business Combination 1 July 2014Amendments to MFRS 8: Operating Segments 1 July 2014Amendments to MFRS 13: Fair Value Measurement 1 July 2014Amendments to MFRS 116: Property, Plant and Equipment 1 July 2014Amendments to MFRS 124: Related party disclosures 1 July 2014MFRS 138: Intangible Asset 1 July 2014MFRS 11: Accounting for acquisitions in Joint Operations 1 January 2016Amendments to MFRS 127: Equity Method in Separate Financial Statements 1 January 2016Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2016Amendments to MFRSs contained in the document entitled “Annual Improvements to MFRSs 2012–2014 Cycle” 1 January 2016MFRS 14: Regulatory Deferral Accounts 1 January 2016Amendments to MFRS 116 and MFRS 138: Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016Amendments to MFRS 116 and MFRS 141: Agriculture: Bearer Plants 1 January 2016MFRS 15: Revenue from Contracts with Customers 1 January 2017MFRS 9: Financial Instruments (IFRS 9 Financial Instruments as issued by IASB in July 2014) 1 January 2018

Amendments to MFRS 119: Defined Benefit Plans: Employee Contributions

Effective for financial period beginning on or after

MFRS 19 requires an entity to consider contributions from employees or third parties whenaccounting for defined benefit plans. Where the contributions are linked to service, they shouldbe attributed to periods of service as a negative benefit. These amendments clarify that, if theamount of the contributions is independent of the number of years of service, an entity ispermitted to recognise such contributions as a reduction in the service cost in the period inwhich the service is rendered, instead of allocating the contributions to the periods of service.This amendment is effective for annual periods beginning on or after 1 July 2014. It is notexpected that this amendment would be relevant to the Group and the Bank, since none of theentities within the Group and the Bank has defined benefit plans with contributions fromemployees or third parties.


The Group and the Bank plan to apply the abovementioned standards when they become effective:

36



2.


MFRS 9: Financial Instruments (IFRS 9 Financial Instruments as issued by IASB in July 2014)

MFRS 3 Business Combinations

MFRS 8 Operating Segments

The amendments are applied retrospectively and clarifies that:

-

-

MFRS 116 Property, Plant and Equipment and MFRS 138 Intangible Assets

The amendment is applied retrospectively and clarifies in MFRS 116 and MFRS 138 that theasset may be revalued by reference to observable data on either the gross or the net carryingamount. In addition, the accumulated depreciation or amortisation is the difference betweenthe gross and carrying amounts of the asset.

An entity must disclose the judgements made by management in applying the aggregationcriteria in paragraph 12 of IFRS 8, including a brief description of operating segments thathave been aggregated and the economic characteristics (e.g., sales and gross margins)used to assess whether the segments are ‘similar’;

The reconciliation of segment assets to total assets is only required to be disclosed if thereconciliation is reported to the chief operating decision maker, similar to the requireddisclosure for segment liabilities.

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflectsall phases of the financial instruments project and replaces IAS 39 Financial Instruments:Recognition and Measurement and all previous versions of IFRS 9. The standard introducesnew requirements for classification and measurement, impairment, and hedge accounting.IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with earlyapplication permitted. Retrospective application is required, but comparative information is notcompulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) ispermitted if the date of initial application is before 1 February 2015. The adoption of IFRS 9 willhave an effect on the classification and measurement of the Group’s and the Bank's financialassets, but no impact on the classification and measurement of the Group’s and the Bank'sfinancial liabilities.


The amendment is applied prospectively and clarifies that all contingent considerationarrangements classified as liabilities (or assets) arising from a business combination should besubsequently measured at fair value through profit or loss whether or not they fall within thescope of IFRS 9 (or IAS 39, as applicable).

37



2.


Amendments to MFRS 124: Related party disclosures

MFRS 13 Fair Value Measurement

MFRS 15 Revenue from Contracts with Customers

Amendments to MFRS 116 and MFRS 138: Clarification of Acceptable Methods of Depreciation and Amortisation

The amendments clarify the principle in MFRS 116 and MFRS 138 that revenue reflects apattern of economic benefits that are generated from operating a business (of which the assetis part) rather than the economic benefits that are consumed through use of the asset. As aresult, a revenue-based method cannot be used to depreciate property, plant and equipmentand may only be used in very limited circumstances to amortise intangible assets. Theamendments are effective prospectively for annual periods beginning on or after 1 January2016, with early adoption permitted. These amendments are not expected to have any impactto the Group and the Bank given that the Group and the Bank has not used a revenue-basedmethod to depreciate its non-current assets.


The amendment is applied retrospectively and clarifies that a management entity (an entitythat provides key management personnel services) is a related party subject to the relatedparty disclosures. In addition, an entity that uses a management entity is required to disclosethe expenses incurred for management services.

The amendment is applied prospectively and clarifies that the portfolio exception in MFRS 13can be applied not only to financial assets and financial liabilities, but also to other contractswithin the scope of MFRS 9.

MFRS 15 was issued in May 2014 and establishes a new five-step model that will apply torevenue arising from contracts with customers. Under MFRS 15 revenue is recognised at anamount that reflects the consideration to which an entity expects to be entitled in exchange fortransferring goods or services to a customer. The principles in IFRS 15 provide a morestructured approach to measuring and recognising revenue. The new revenue standard isapplicable to all entities and will supersede all current revenue recognition requirements underMFRS. Either a full or modified retrospective application is required for annual periodsbeginning on or after 1 January 2017 with early adoption permitted. The Group is currentlyassessing the impact of MFRS 15 and plans to adopt the new standard on the requiredeffective date.

38



2.

2.2 SUBSIDIARIES AND BASIS OF CONSOLIDATION

(a)

•

•

•

••••

All of the above will be accounted for from the date when control is lost.

The consolidated financial statements comprise the financial statements of the Bank andits subsidiaries as at 31 December 2014. The financial statements of the Bank’ssubsidiaries are prepared for the same reporting date as the Bank, using consistentaccounting policies to like transactions and events in similar circumstances.

Subsidiaries are consolidated from the date of acquisition, being the date on which theBank obtains control and continue to be consolidated until the date that such controlceases. In preparing the consolidated financial statements, intra-group balances, incomeand expenses and unrealised gain and losses resulting from intra-group transactions areeliminated in full.

Recognises the fair value of the consideration received;Recognises the fair value of any investment retained in the former subsidiary;Recognises any surplus or deficit in the profit or loss; and

Derecognises the carrying amount of any non-controlling interest in the formersubsidiary;

Reclassifies the parent’s share of components previously recognised in othercomprehensive income to profit or loss or retained earnings, if required in accordancewith other MFRSs.


A change in the ownership interest of a subsidiary, without loss of control, is accountedfor as an equity transaction. If the Group loses control over a subsidiary, it:

Derecognises the assets (including goodwill) and liabilities of the subsidiary at theircarrying amounts;

Basis of consolidation

Non-controlling interests (“NCI”) represent the portion of profit or loss and net assets insubsidiaries not owned, directly or indirectly by the Bank. NCI are presented separately inthe consolidated income statements and statements of comprehensive income and withinequity in the consolidated statement of financial position, but separate from parentshareholders’ equity. Total comprehensive income is allocated against the interest of NCI,even if this results in a deficit balance. Acquisition of NCI are accounted for using theparent entity extension method, whereby the difference between the consideration andthe fair value of the share of the net assets acquired is recognised as equity.

Derecognises the cumulative foreign exchange translation differences recorded inequity;

39



2.

2.2 SUBSIDIARIES AND BASIS OF CONSOLIDATION (Continued)

(b)

•

••

•••

The contractual arrangement with the other vote holders of the investee

Exposure, or rights, to variable returns from its involvement with the investee, and

Subsidiaries are entities over which the Group is exposed, or has rights, to variablereturns from its involvement with the investee and has the ability to affect those returnsthrough its power over the investee. Specifically, the Group controls an investee if andonly if the Group has:


When the Group has less than a majority of the voting or similar rights of an investee, theGroup considers all relevant facts and circumstances in assessing whether it has powerover an investee, including:

In the Bank's separate financial statements, investment in subsidiaries is stated at costless impairment losses. On disposal of such investment, the difference between the netdisposal proceeds and their carrying amount is included in profit or loss.

Investment in subsidiaries

Rights arising from other contractual arrangementsThe Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstancesindicate that there are changes to one or more of the three elements of control.

Power over the investee (i.e. existing rights that give it the current ability to direct therelevant activities of the investee)

The ability to use its power over the investee to affect its returns

40



2.

2.3

(a)

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

Financial assets at fair value through profit or loss consist of investment in securities held-for-trading and hedging financial instruments. Securities held-for-trading and hedgingfinancial instruments are acquired or incurred principally for the purpose of selling orrepurchasing it in the near term.

Financial assets at fair value through profit or loss are stated at fair value. Changes in fairvalue of financial assets at fair value through profit or loss, including the effects ofcurrency translation, profit and dividend income are recognised in profit or loss in theperiod in which the changes arise.

Financial assets


FINANCIAL INSTRUMENTS

A financial asset is de-recognised when the contractual rights to the cash flows from thefinancial asset expire or the financial asset is transferred to another party all risks andrewards of ownership. On de-recognition of a financial asset, the difference betweencarrying amount and the sum of the consideration received (including any new assetobtained less any new liability assumed) and any cumulative gain or loss that had beenrecognised in equity is recognised in profit or loss.

Financial assets and liabilities are offset and the net amount reported in the financialstatement when there is a legally enforceable right to offset the recognised amounts andthere is an intention to settle on a net basis or realise the asset and settle the liabilitysimultaneously.

The Group and the Bank classify their financial assets in the following categories: at fairvalue through profit or loss, available-for-sale, financing and advances and held-to-maturity. The classification depends on the purpose for which the financial assets wereacquired. Management determines the classification at initial recognition.

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

Financial assets are initially recognised at fair value plus transaction costs for all financialassets not carried at fair value through profit or loss. Financial assets carried at fair valuethrough profit or loss is initially recognised at fair value and transaction costs areexpensed in profit or loss.

Financial instruments are recognised as assets or liabilities when the Group or the Bankbecomes a party to the contractual provisions of the financial instruments. The accountingpolicies on recognition and measurement of financial instruments are disclosed as follows:

41



2.

2.3

(a)

(ii) Financing and advances

(iii)

(iv) Financial assets available-for-sale

Financing and advances are non-derivative financial assets with fixed or determinablepayments that are not quoted in an active market.

Financing and advances consist of murabahah and qard contracts. These contractsare initially recognised at fair value, including direct and incremental transactionscosts, and subsequently measured at amortised cost using the effective profitmethod. These contracts are stated net of unearned income and any amounts writtenoff and/or impaired. Gains and losses are recognised in profit or loss when thefinancing and advances are derecognised or impaired, and through the amortisationprocess.

Income receivables are now classified into the respective category of financial assets.

Financial assets held-to-maturity

FINANCIAL INSTRUMENTS (Continued)

Financial assets at available-for-sale are investment that are not classified as fairvalue through profit or loss, held-to-maturity or financings and advances andmeasured at fair value. Any gain or loss arising from a change in fair value, net ofincome tax, is recognised in other comprehensive income, except for impairmentlosses and foreign exchange gains and losses and profit calculated using theeffective profit method that are recognised in profit or loss. When the financial assetsat available-for-sale are derecognised or impaired, the cumulative gains or lossespreviously recognised in other comprehensive income shall be transferred to profitand loss.

Financial assets (Continued)


Financial assets held-to-maturity are non-derivative financial assets with fixed ordeterminable payments and fixed maturities that the Group’s management has thepositive intention and ability to hold to maturity.

Financial assets held-to-maturity are subsequently carried at amortised cost using theeffective profit method less accumulated impairment loss. Any gain or loss isrecognised in profit and loss when the securities are de-recognised or impaired andthrough the amortisation process.

If the Group and the Bank sold or reclassified more than an insignificant amount ofthe securities held-to-maturity portfolio before maturity, the entire category would betainted and reclassified as securities available-for-sale at fair value. The differencebetween the carrying value and fair value at the date of reclassification is recogniseddirectly in equity.

42



2.

2.3

(b)

Financial liabilities measured at amortised cost:

•

•

•

2.4

Financial liabilities measured at amortised cost are deposits from banks or customers,subordinated sukuk and bills and acceptances payable.


FINANCIAL INSTRUMENTS (Continued)

Property and equipment are stated at cost less accumulated depreciation and accumulatedimpairment losses, if any. Cost includes expenditure that is directly attributable to theacquisition of the asset and any other costs directly attributable to bringing the asset toworking conditions for its intended use.

Any item of property and equipment is derecognised upon disposal or when no futureeconomic benefits are expected from its use or upon disposal. Gains and losses on disposalsare determined by comparing the proceeds with the carrying amount and are included in profitor loss.

Subsequent costs are included in the asset’s carrying amount or recognised as a separateasset, as appropriate, only when it is probable that future economic benefits associated withthe item will flow to the Group and the cost of the item can be measured reliably. The carryingamount of the replaced part is de-recognised. All other repairs and maintenance are chargedto profit or loss during the financial year in which they are incurred.

Subsequent to recognition, property and equipment except for assets in progress are stated atcost less accumulated depreciation and any accumulated impairment losses, if any.

The Group’s and the Bank’s holding in financial liabilities is in financial liabilities atamortised cost. Financial liabilities are initially recognised at fair value plus transactioncosts and subsequently at the amortised cost using the effective profit method. With theexception of hedging financial instruments, the Group and the Bank do not have anyfinancial liabilities classified at fair value through profit or loss. Financial liabilities are de-recognised when extinguished.

Income payables are now classified into the respective category of financial liabilities.

Financial liabilities

Bills and acceptances payable represent the Bank’s own bills and acceptancesrediscounted and outstanding in the market.

PROPERTY AND EQUIPMENT

Deposits from customers, deposits and placements of banks and financial institutionsare stated at placement values.

43



2.

2.4

10%20%20%20%

2.5

Depreciation of the property and equipment is calculated to write down the cost of the propertyand equipment on a straight line basis over the expected useful lives of the assets concerned.The principal annual rates of depreciation are as follows:

Assets in progress are not depreciated as these assets are not available for use.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate at eachstatement of financial position date.

At each date of statement of financial position, the Bank assess whether there is any indication of impairment. Where an indication of impairment exists, the carrying amount of the asset iswritten-down immediately to its recoverable amount. See accounting policy Note 2.9 (b) onimpairment of non-financial assets.

Motor vehicle

INVESTMENT PROPERTIES

Investment properties, comprising principally land and office buildings, are held for long termrental yields or for capital appreciation or both, and are not occupied by the Group and theBank.

Investment properties are stated at fair value, representing open-market value determinedannually by registered independent valuer having appropriate recognised professionalqualification. Fair value is based on active market prices, adjusted, if necessary, for anydifference in the nature, location or condition of the specific asset. If this information is notavailable, the Group and the Bank uses alternative valuation methods such as recent prices ofless active markets or discounted cash flow projections. Changes in fair values are recorded inprofit or loss in the year in which they arise.

On disposal of an investment property, or when it is permanently withdrawn from use or nofuture economic benefits are expected from its disposal, it shall be de-recognised. Thedifference between the net disposal proceeds and the carrying amount is recognised in profitor loss in the period of the retirement or upon disposal.


PROPERTY AND EQUIPMENT (Continued)

Furniture & fittings and office equipment

Computer equipment and intangible assetsRenovations

44



2.

2.6

(i)

(ii)(iii)(iv)

(v)

(vi)

There is an ability to use or sell the software product;It can be demonstrated how the software product will generate probable future economicbenefits;

Intangible assets acquired separately are measured on initial recognition at cost. Followinginitial recognition, intangible assets are carried at cost less accumulated amortisation and anyaccumulated impairment losses. The useful lives of intangible assets are assessed to be eitherfinite or infinite. Intangible assets with finite lives are amortised on a straight-line basis over theestimated economic useful lives and assessed for impairment whenever there is an indicationthat the intangible assets may be impaired. The amortisation period and the amortisationmethod for an intangible asset with a finite useful life are reviewed at least at each statementof financial position date.

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

It is technically feasible to complete the software product so that it will be available for use;

INTANGIBLE ASSETS

The expenditure attributable to the software product during its development can bereliably measured.

Management intends to complete the software product and use or sell it;

Direct attributable costs that can be capitalised as part of the software product includesoftware development employee costs and appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as expensesas incurred.

Computer software development costs are amortised over their finite useful lives of five years.


Adequate technical, financial and other resources to complete the development and touse or sell the software product are available; and

45



2.

2.7 OTHER ASSETS

2.8 CASH AND SHORT TERM FUNDS

2.9 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

2.10 IMPAIRMENT

(a)

Other assets are carried at anticipated realisable values. Bad debts are written off whenidentified. An estimate is made for doubtful debts based on a review of all outstandingamounts as at the reporting date.

Deposits and placements with banks and other financial institutions consist of placement withoriginal/remaining maturities more than one month from the date of acquisition or placement.

An impairment loss in respect of securities held-to-maturity is recognised in profit or lossand is measured as the difference between the assets’s carrying amount and the presentvalue of estimated cash flows of the asset discounted at its original effective profit rate oninitial recognition. The carrying amount of securities held-to-maturity is reduced eitherdirectly or through the use of an allowance account.

Financial assets

Cash and short term funds consist of cash and bank balances and short term deposits withoriginal/remaining maturities of less than one month from the date of acquisition or placement.

The Group and the Bank assess whether objective evidence of impairment existsindividually for financing and advances which are individually significant, and individuallyor collectively for financing which are not individually significant. If it is determined that noimpairment is required for individually assessed financing and advances, the financingand advances are included in a group of financing and advances with similar credit riskcharacteristics and collectively assessed for impairment.


All financial assets (except for financial assets categorised as fair value through profit orloss and investment in subsidiaries) are assessed at each reporting date whether there isobjective evidence of impairment as a result of one or more events having an impact onthe estimated future cash flows of the asset. Losses expected as a result of future events,no matter how likely, are not recognised. For an equity instrument, a significant orprolonged decline in the fair value below its cost is an objective evidence of impairment.

46



2.

2.10 IMPAIRMENT (Continued)

(a)

Financing and advances are impaired when:

i.

ii.

iii.

iv.


the amount is past due for 3 months or less, the financing exhibits certain creditweaknesses;

The Group and the Bank address impairment of financing and advances via eitherindividually assessed allowance or collectively assessed allowance.

Individual Assessment

The Group and the Bank determine the allowance appropriate for each individualsignificant financing and advances on an individual basis. The allowances are establishedbased primarily on estimates of the realisable value of the collateral to secure thefinancing and advances and are measured as the difference between the carryingamount of the financing and advances and the present value of the expected future cashflows discounted at original effective profit rate of the financing and advances. All otherfinancing and advances that have been individually evaluated, but not considered to beindividually impaired are assessed collectively for impairment.

To determine whether there is objective evidence that an impairment loss has beenincurred, the Group and the Bank consider factors such as significant financial difficultiesof the customer and default or significant delay in repayments.

If there is objective evidence that an impairment loss has been incurred, the amount ofthe loss is measured as the difference between the financing and advances carryingamount and the present value of the estimated cash flows discounted at the originaleffective profit rate of financing and advances. The carrying amount of the financing andadvances is reduced through the use of an allowance account and the amount of the lossis recognised in the profit or loss.

rescheduled and restructured facilities can only be reclassified as non-impaired whenrepayments based on the revised or restructured terms have been observedcontinuously for a minimum period of six months.

repayments are scheduled on intervals of 3 months or longer, the financing is classified as impaired as soon as a default occurs, unless it does not exhibit any weakness; and

the principal or profit or both is past due for more than 90 days or 3 months;


47



2.


(a)

(b)


Under MFRS 139, collective assessment is performed on financing and advances whichare not individually significant based on the incurred loss approach. Financing andadvances which are individually assessed and where there is no objective evidence ofimpairment are also included in the group of financing and advances for collectiveassessment. These financing and advances are pooled into groups with similar credit riskcharacteristics and based on the historical loss experience for such assets andcollectively assessed for impairment.


Non-financial assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment. Non-financial assets that are subject to amortisationare reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable. For the purposes of assessing impairment,assets are grouped at the lowest levels for which there is separately identifiable cash flow(cash generating units).

The recoverable amount is the higher of a non-financial asset’s fair value less costs tosell and value in use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset. Animpairment loss is recognised for the amount by which the carrying amount of the non-financial asset exceeds its recoverable amount. Non-financial assets that sufferedimpairment are reviewed for possible reversal of the impairment at each reporting date.

Non-financial assets

When a financing and advances are uncollectible, they are written off against the relatedallowance for impairment. Such financing and advances are written off after all thenecessary procedures have been completed and the amount of the loss has beendetermined.

If, in a subsequent period, the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after the impairment wasrecognised, the previously recognised impairment loss is reversed by adjusting theallowance account. The amount of the reversal is recognised in the income statement inimpairment charge for credit loss.

Collective Assessment

48



2.


(b)

2.11 PROVISIONS

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

(a)

(b) It is probable that an outflow of reserves will be required to settle the obligation;and

(c) A reliable estimate of the amount can be made.

2.12 OTHER LIABILITIES

2.13 EMPLOYEE BENEFITS

(a)

Provisions are reviewed at each balance sheet date and adjusted to reflect the current bestestimate. Where the effect of the time value of money is material, the amount of the provisionis the present value of the expenditure expected to be required to settle the obligation.

Non-financial assets (Continued)


Other liabilities are stated at cost which is the fair value of the consideration expected to bepaid in future for the goods and services received.

Short term employee benefits

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

A provision is recognised for the amount expected to be paid under short term cashbonus or profit-sharing plans if the bank has a present legal or constructive obligation topay this amount as a result of past service provided by the employee and the obligationcan be estimated reliably.

The Group and the Bank has a present legal and constructive obligation as a result ofpast events;

The impairment loss is charged to the income statement. Any subsequent increase inrecoverable amount is recognised in the profit or loss.

49



2.

2.13 EMPLOYEE BENEFITS (Continued)

(b) Defined contribution plans

2.14 INCOME TAX

(a) Current tax

(b) Deferred tax

Deferred tax is determined using tax rate (and tax laws) that have been enacted orsubstantially enacted by the balance sheet date and are expected to apply when therelated deferred tax asset is realised or deferred tax liability is settled.

A defined contribution plan is a pension plan under which the Bank pays fixedcontributions to the national pension scheme, Employees’ Provident Fund (“EPF”). TheGroup and the Bank’s contributions to defined contribution plans are charged to theincome statement in the period to which they relate. Once the contributions have beenpaid, the Bank has no further payment obligations.

Deferred income tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets or liabilities and the carrying amountof the asset or liability as reported in the financial statements. It reflects the manner inwhich the Group and the Bank expects to recover the carrying value of the asset or settlethe carrying value of the liability.


Current tax assets and liabilities are measured at the amount expected to be recoveredfrom or paid to the taxation authorities. The tax rates and tax laws used to compute theamount are those that are enacted or substantively enacted by the reporting date.

Current taxes are recognised in profit or loss except to the extent that the tax relates toitems recognised outside profit or loss, either in other comprehensive income or directly inequity.

A deferred tax asset is recognised only to the extent that it is probable that future taxableprofits will be available against which the deductible temporary differences can be utilised.

50



2.

2.14 INCOME TAX (Continued)

(b) Deferred tax (Continued)

2.15 ZAKAT

2.16 FOREIGN CURRENCY TRANSLATION

(a)

(b)

Foreign exchange gains and losses resulting from the settlement of such transaction andfrom translation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in profit or loss.

Transactions and balances

In preparing the financial statements of the Group and the Bank, transactions incurrencies other than the Group's functional currency (foreign currencies) are recorded inthe functional currencies using the exchange rates prevailing at the dates of thetransactions. At each reporting date, monetary items denominated in foreign currenciesare translated at the rates prevailing on the reporting date. Non-monetary items carried atfair value that are denominated in foreign currencies are translated at the rates prevailingon the date when the fair value was determined. Non-monetary items that are measuredin terms of historical cost in a foreign currency are not translated.

Deferred and income tax assets and liabilities are offset when there is a legallyenforceable right to offset current tax assets against current tax liabilities and when thedeferred income tax assets and liabilities relate to taxes levied by the same taxationauthority on either the taxable entity or different taxable entities where there is anintention to settle the balances on a net basis.

Zakat represents business zakat payable by the Bank to comply with the principles of Shariahand as approved by the Shariah Advisory Council. The Bank only pays zakat on its businessand does not pay zakat on behalf of depositors or shareholders. The zakat provision is borneby the Bank’s Holding Company.


Functional and presentation currency

The financial statements of each of the Group’s and the Bank’s entities are measuredusing the currency of the primary economic environment in which the entity operates (“thefunctional currency”). The consolidated financial statements are presented in RinggitMalaysia, which is the Group’s functional and presentation currency.

51



2.

2.17 CONTINGENT LIABILITIES AND ASSETS

2.18 EQUITY

2.19 INCOME RECOGNITION

The Group and the Bank does not recognise a contingent liability but discloses its existence inthe financial statements. A contingent liability is a possible obligation that arises from pastevents whose existence will be confirmed by the occurrence or non-occurrence of one or moreuncertain future events beyond the control of the Group and the Bank or a present obligationthat is not recognised because it is not probable that an outflow of resources will be required tosettle the obligation. A contingent liability also arises in the extremely rare case where there isa liability that cannot be recognised because it cannot be measured reliably.

A contingent asset is a possible asset that arises from past events whose existence will beconfirmed by the occurrence or non-occurrences of one or more uncertain future eventsbeyond the control of the Group and the Bank. The Group and the Bank does not recognisecontingent assets but discloses its existence where inflows of economic benefits are probable,but not virtually certain.

Share capital is measured at par value for all ordinary shares issued and outstanding.


Income from financing and receivables are recognised in the income statement using theeffective profit method. The effective profit rate ("EPR") is the rate that discounts the estimatedfuture cash payments and receipts through the expected life of the financial asset or liability tothe carrying amount of the financial asset. The calculation of EPR includes all contractualterms of the financial instrument and includes any fees or incremental costs that are directlyattributable to the instrument and are an integral part of the EPR.

MurabahahMurabahah income is recognised on EPR basis over the period of the contract based on theprincipal amounts outstanding.

52



2.

2.19 INCOME RECOGNITION (Continued)

2.20 OPERATING LEASE

2.21 EXPENSES

3.

Customer’s account are classified as impaired where repayments are in arrears for more than3 months from the first day of default for financing.

Financing arrangement, management and participation fees, underwriting commissions andbrokerage fees are recognised as income based on contractual arrangements. Income frombanking services is recognised as and when the related services are rendered. Fees fromadvisory and corporate finance activities are recognised net of service taxes and discounts oncompletion of each stage of the assignment. Other fees and commission on services andfacilities extended to customers are recognised on inception of such transactions.

Income from Ijarah rental and sukuk is recognised based on contractual agreement.


CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements involved making certain estimates, assumptions andjudgments that affect the accounting policies applied and reported amounts of assets, liabilities,income and expenses. Actual results may differ from these estimates. Estimates and underlyingassumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised inthe financial statements in the period in which the estimate is revised and in any future periodsaffected. Significant areas of estimation, uncertainty and critical judgements used in applyingaccounting policies that have significant effect on the amount recognised in the financial statementsinclude the following:

Under the operating lease, the Group and the Bank act as a lessee. The operating leasepayments are accounted for on a straight-line basis over the lease term and included in "Otheroverheads and expenditures".

Expenses are recognized when it is probable that the decrease in future economic benefitsrelated to that decrease in asset or an increase in liability has occurred and that the decreasein economic benefits can be measured reliably. Expenses that may arise in the course ofregular activities of the Group and the Bank include among others the operating expenses onthe Group and the Bank's operations.

53



3.

(i)

(ii)

(iii)

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (Continued)

Allowance for impairment on financing and advances

The Group and the Bank makes allowance for losses based on an objective evidence of animpairment arising. Whilst management’s judgment is guided by the relevant BNM guidelines,judgment is made about the future and other key factors in respect of the recovery of thefinancing and advances. Amongst factors considered are the Group’s and the Bank’saggregate exposure to the borrower, the net realisable value of the underlying collateral value,the viability of the customer’s business model and the capacity to generate sufficient cash flowto service debt obligations and the aggregate amount and ranking of all other creditor claims.The actual amount of the future cash flows and their timing may differ from the estimates usedby management and consequently may cause actual losses to differ from the impairmentmade.

Financing and advances that have been assessed individually but for which no impairment isrequired and all individually insignificant financing and advances are then assessedcollectively, in groups of assets with similar credit risk characteristics, to determine whetherprovision should be made due to incurred loss events for which there is objective evidence butwhose effects of which are not yet evident. The collective assessment takes account of datafrom the financing and advances (such as credit quality, levels of arrears, credit utilisation,financing to collateral ratios etc.) and judgments on the effect of concentrations of risks (suchas the performance of different individual groups).

Impairment assessment of securities

The Group and the Bank assessed whether there is objective evidence of impairment onsecurities at each reporting date. If there is objective evidence that an impairment loss hasbeen incurred, the amount of the loss is measured as the difference between the carryingamount and the present value of the estimated cash flows discounted at the original effectiveyield of the securities held-to-maturity.

Valuation of investment properties

The measurement of the fair value for investment properties is arrived at by reference tomarket evidence of transaction prices and physical inspection of the properties and isperformed by a professional independent valuer.

54



3.

(iv) Deferred taxes

Deferred tax assets are measured and recognised based on the tax rates that are expected toapply in the period when the asset is realised. Estimates are made as to the amount of taxableprofits in these periods which will enable the deferred tax assets to be realised.

Significant judgment is required in estimating the provision for income taxes. There are manytransactions and interpretations of tax law for which the final outcome will not be establisheduntil some time later. Liabilities for taxation are recognised based on estimates of whetheradditional taxes will be payable. The estimation process includes seeking advice on taxtreatments where appropriate. Where the final liability for taxation is different from the amountsthat were intially recorded, the differences will affect the income tax and deferred taxprovisions in the period in which the estimate is revised or the final liability is established.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS (Continued)

55


NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2014

4. CASH AND SHORT TERM FUNDS

2014 2013RM'000 RM'000

Cash and bank balances with banks and other financial institutions 53,269 106,192Money at call and deposit placements with licensed banks with contractual maturity of less than one month 305,403 349,195

358,672 455,387

5. DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

2014 2013RM'000 RM'000

Foreign financial institutions 233,115 -

6. HEDGING FINANCIAL INSTRUMENTS

NotionalAmount Assets Liabilities

RM'000 RM'000 RM'000Group and Bank

2014Foreign currency forward contracts 38,398 1,630 685

2013Foreign currency forward contracts 74,790 1,788 610

7. SECURITIES HELD-FOR-TRADING

2014 2013RM'000 RM'000

At fair valueQuoted securities:Unit Trust 5,099 4,792

- -

Group and Bank

Fair Value

Group and Bank

Group and Bank

56


NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2014 (Continued)

8. SECURITIES HELD-TO-MATURITY

2014 2013RM'000 RM'000

At amortised costUnquoted :Islamic government securities in Malaysia 1,418,459 1,014,320 Islamic private debt securities in Malaysia 7,625 21,583

1,426,084 1,035,903 - -

9. FINANCING AND ADVANCES

(a) Financing and advances analysed by types and Shariah contracts are as follows:

Bai’ Total netBithaman financing and

Ajil Qard advancesRM'000 RM'000 RM'000

At amortised costTerm Financing:Corporate financing 2,762,340 - 2,762,340 Personal financing 749,463 - 749,463 Home financing 1,179,749 - 1,179,749 SME financing 86,297 - 86,297 Vehicle financing 86,142 - 86,142 Shop-house financing 38,443 - 38,443 Charge cards - 2,086 2,086 Gross financing and advances 4,902,434 2,086 4,904,520

Less: Impairment allowance - Collective assessment (86,569) - Individual assessment (43,142) Total net financing and advances 4,774,809

-

Group and Bank

Group and Bank2014

57



9. FINANCING AND ADVANCES (Continued)

(a) Financing and advances analysed by types and Shariah contracts are as follows: (Continued)

Bai’ Total netBithaman financing and

Ajil Qard advancesRM'000 RM'000 RM'000

At amortised costTerm Financing:Corporate financing 2,769,228 - 2,769,228 Personal financing 838,482 - 838,482 Home financing 1,094,437 - 1,094,437 SME financing 107,416 - 107,416 Vehicle financing 76,662 - 76,662 Shop-house financing 37,279 - 37,279 Charge cards - 2,216 2,216 Gross financing and advances 4,923,504 2,216 4,925,720

Less: Impairment allowance - Collective assessment (96,781) - Individual assessment (44,041) Total net financing and advances 4,784,898

-(b) Financing and advances analysed by type of customers are as follows

2014 2013RM'000 RM'000

Domestic non-bank financial institutions 163,384 264,049 Domestic business enterprise 1,148,660 1,004,978 Individuals 2,022,625 2,016,064 Foreign entities 1,569,851 1,640,629

4,904,520 4,925,720 - -

Group and Bank

Group and Bank2013

58




(c) Financing and advances analysed by profit rate sensitivity are as follows:

2014 2013RM'000 RM'000

Fixed rate: Corporate financing 1,253,219 1,260,468 Personal financing 749,463 838,482 SME financing 86,297 107,416 Home financing 18,402 22,382 Vehicle financing 86,142 76,662 Charge card 2,086 2,216 Shop-house financing 1,074 1,167

Variable rate: Home financing 1,161,347 1,072,055 Shop-house financing 37,369 36,112 Corporate financing 1,509,121 1,508,760

4,904,520 4,925,720 - -

(d) Financing and advances analysed by maturity structure are as follows

2014 2013RM'000 RM'000

Due within three months 471,687 531,779 More than three months to one year 351,243 430,626 More than one year to five years 2,082,619 1,886,315 More than five years 1,998,971 2,077,000

4,904,520 4,925,720 - -

(e) Financing and advances analysed by geographical distribution are as follows:

2014 2013RM'000 RM'000

Malaysia 3,367,791 3,365,818 Saudi Arabia 1,509,121 1,508,760 Other Countries 27,608 51,142

4,904,520 4,925,720 - -

Group and Bank

Group and Bank

Group and Bank

59




(f) Financing and advances analysed by economic purpose are as follows:

2014 2013RM'000 RM'000

Purchase of securities 1,571,317 1,508,760 Working capital 1,087,655 1,211,892 Purchase of property - residential property 1,191,375 1,107,268 Personal use 749,463 838,482 Purchase of commercial complex 131,256 86,391 Purchase of vehicles 86,142 76,662 Others 39,437 49,931 Purchase of shop-house 38,443 39,899 Construction 5,962 1,969 Charge card 2,086 2,216 Purchase of industrial buildings and factories 1,384 2,250

4,904,520 4,925,720 - -

(g) Financing and advances analysed by sectors are as follows:

2014 2013RM'000 RM'000

Household 2,055,803 2,049,075 Telecommunication 1,508,979 1,508,760 Wholesale & Retail trade 263,184 389,611 Manufacturing 316,478 304,304 Finance intermediation 230,516 285,975 Construction 303,623 148,776 Real estate, renting and business activities 130,586 113,147 Transportation 54,596 64,346 Electricity, gas and water supply 34,893 52,842 Agriculture, hunting and related service activities 3,484 4,153

1,384 2,251 Other business 827 2,233 Forestry, logging and related services activities 167 247

4,904,520 4,925,720 -

Group and Bank

Fishing, Operation of Fish Hatcheries, Fish Farms

Group and Bank

60




(h) Movements in impaired financing and advances

2014 2013RM'000 RM'000

At 1 January 101,374 106,236 Impaired during the financial year 121,621 106,131 Reclassified as non impaired (39,002) (19,641) Recoveries (79,119) (61,392) Write-off (29,776) (29,960) At 31 December (Note 37 c(vi)) 75,098 101,374

-

0.66% 1.17%

(i) Movements in the allowances for impaired financing and advances

2014 2013RM'000 RM'000

Collective assessment allowance

At 1 January 96,781 121,000 Allowance made during the financial year (Note 26(b)) 16,135 2,040 Amount written off (26,347) (26,259) Closing balance (Note 37 c(vi)) 86,569 96,781

- -

1.78% 1.98%

Individual assessment allowance

At 1 January 44,041 29,386 Allowance made during the financial year (Note 26(a)) 3,247 22,638 Amount recovered during the financial year (Note 26(a)) (717) (4,282) Amount written off (3,429) (3,701) Closing balance (Note 37 c(vi)) 43,142 44,041

- -

As % of total gross financing and advances less individual impairment allowances

Ratio of net impaired financing and advances to gross financing and advances less individual impairment allowances

Included in amount classified as impaired during the financial year is profit accrued onimpaired financing of RM101,350,235 (2013: RM63,737,000).

Group and Bank

Group and Bank

61




(j) Impaired financing analysed by geographical distribution are as follows:

2014 2013RM'000 RM'000

Malaysia 75,098 101,374 75,098 101,374

- -(k) Impaired financing analysed by economic purpose are as follows:

2014 2013RM'000 RM'000

Working capital 41,553 48,560 Purchase of properties - residential 17,945 33,357 Personal use 14,086 18,472 Purchase of shophouse 820 484 Charge card 218 329 Purchase of transport vehicles 476 172

75,098 101,374 - -

(l) Impaired financing analysed by sector are as follows:

2014 2013RM'000 RM'000

Household 33,545 52,814 Manufacturing 36,223 42,578 Wholesale & retail trade 5,205 5,611 Real estate, renting and business activities 71 89 Construction 54 55 Other business - 227

75,098 101,374 - -

Group and Bank

Group and Bank

Group and Bank

62



10. OTHER ASSETS

2014 2013RM'000 RM'000

Other debtors and deposits 29,425 37,819Sundry deposits 3,333 3,280

32,758 41,099

11. STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA

12. INVESTMENT IN SUBSIDIARY

Country of Principalincorporation activity 2014 2013

Al Rajhi Nominee Malaysia Nominee 100% 100% (Tempatan) Sdn Bhd services

*

Effective interest

Group and Bank

The non-profit bearing statutory deposit is maintained with Bank Negara Malaysia in compliancewith Section 26(2) (c) of the Central Bank of Malaysia Act 2009, the amount of which isdetermined as set percentages to total eligible liabilities.

The subsidiary was incorporated with a paid-up share capital of RM2. The income and

Name

13. INVESTMENT PROPERTIES

2014 2013RM'000 RM'000

At fair value

At 31 December 105,000 105,000

Group and Bank

expenses of the subsidiary are borne by the Bank. The auditors' remuneration borne by theBank is RM2,000 (2013: RM2,000).

63



13. INVESTMENT PROPERTIES (Continued)

The following amounts have been reflected in the income statement:

2014 2013RM'000 RM'000

Rental income derived from investment properties 4,083 6,817Direct operating expenses (241) (316)Profit arising from investment properties carried at fair value 3,842 6,501

The fair value hierarchy disclosures for investment properties have been provided in Note 41.

The Group has no restrictions on the realisability of its investment properties and no contractualobligations to either purchase, construct or develop investment properties or for repairs,maintenance and enhancements.

Group and Bank

As at 31 December 2014 and 2013, the fair values of the properties are based on valuationcarried out by an independent qualified valuer, Raine & Horne using the Comparison Method ofValuation approach. This method of valuation seeks to determine the value of the propertiesbeing valued by comparing and adopting as a yardstick recent transactions and sale evidencesinvolving other similar properties in the vicinity.

The Group's investment properties consist of one hundred and twenty eight (128) units ofstratified shop and office lots known as I-City at Shah Alam, Selangor, Malaysia.

The Group and the Bank have determined that the highest and best use of the investmentproperty is its current use.

64

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67



16. DEFERRED TAX

2014 2013RM'000 RM'000

At 1 January 77,845 80,443 Recognised in profit/loss (Note 31) (5,200) (2,606) Transfer from equity - 8 At 31 December 72,645 77,845

2014 2013Group and Bank RM'000 RM'000

Deferred tax assets 79,660 88,220 Deferred tax liabilities (7,015) (10,375)

72,645 77,845 -

Deferred tax liabilities:

Excess of capital Securitiesallowances over Investment available-

depreciation properties for-sale TotalRM'000 RM'000 RM'000 RM'000

At 1 Jan 2014 (9,875) (500) - (10,375)Recognised in profit/loss 3,360 - - 3,360At 31 Dec 2014 (6,515) (500) - (7,015)

At 1 Jan 2013 (9,873) (2,501) (8) (12,382) Recognised in profit/loss (2) 2,001 8 2,007 At 31 Dec 2013 (9,875) (500) - (10,375)

Group and Bank

The movements in deferred tax assets and liabilities during the financial year comprise thefollowing:

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-offcurrent tax assets against current tax liabilities and when the deferred taxes relate to the sameauthority. The following amounts are presented after appropriate offsetting in the statement offinancial position:

Group and Bank

68



16. DEFERRED TAX (Continued)

Deferred tax assets:Unutilised

losses &unabsorbed

capitalProvisions allowances Total

RM'000 RM'000 RM'000Group and Bank

At 1 Jan 2014 3,356 84,864 88,220Recognised in profit/loss 730 (9,290) (8,560)At 31 Dec 2014 4,086 75,574 79,660

At 1 Jan 2013 6,274 86,551 92,825Recognised in profit/loss (2,918) (1,687) (4,605)At 31 Dec 2013 3,356 84,864 88,220

Unutilised tax losses and unabsorbed capital allowance

2014 2013RM'000 RM'000

At the reporting date, the Group and the Bank has recognised deferred tax asset on the followingtemporary differences:

Group and Bank

Unutilised tax losses 231,982 232,166Unabsorbed capital allowances 81,073 118,220

313,055 350,386

The deferred tax assets have been recognised as at 31 December 2014 as the directors are ofthe view that it is probable for the Bank to realise the deferred tax asset.

In evaluating the ability to realise the deferred tax assets, the Bank relies principally onforecasted taxable income using historical and projected future operating results and the reversalof existing temporary differences within a medium term horizon.

69



17. DEPOSITS FROM CUSTOMERS

(i) By type of deposit

2014 2013RM'000 RM'000

Savings depositsQard 52,150 41,860Mudarabah 127,400 127,525

Demand depositsQard 456,456 370,500Mudarabah 473,975 407,186

Term depositCommodity Murabahah 2,449,228 1,983,257

General investment accountMudarabah 53,922 72,255Wakalah 1,864,015 1,398,182

Other deposits 708 9315,477,854 4,401,696

- - (ii) By type of customer

2014 2013RM'000 RM'000

Business enterprises 1,573,634 1,523,153Government and statutory bodies 1,280,875 705,992Individuals 293,589 283,948Others 2,329,756 1,888,603

5,477,854 4,401,696- -

(iii) By maturity structure

2014 2013RM'000 RM'000

Due within three months 4,100,609 3,182,922More than three months to one year 1,377,245 1,218,644More than one year to five years - 130

5,477,854 4,401,696- -

Group and Bank

Group and Bank

Group and Bank

70



18. DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

2014 2013RM'000 RM'000

Non-Mudharabah FundsLicensed Islamic banks 446,169 517,608Licensed financial institutions 331,120 1,063,844

777,289 1,581,452- -

19. OTHER LIABILITIES

Note2014 2013

RM'000 RM'000

Other accruals and payables 45,073 40,808 Amount due to holding company (Note 33(b)) (i) 3,783 1,563 Purification by Shariah (ii) 84 37

48,940 42,408 - -

(i)

(ii) Sources of funds for purification by Shariah:

2014 2013RM'000 RM'000

Sources of funds for purifiication:As at 1 January 37 131 Transferred from other liabilities 47 36 Total sources of funds during the year 84 167

Uses of funds for purification: - Charity purposes - (130)Undistributed funds for purification by Shariah 84 37

- -

Group and Bank

Group and Bank

Amount due to holding company is unsecured, profit-free and repayable on demand.

Group and Bank

71



20. SUBORDINATED SUKUK

2014 2013RM'000 RM'000

Subordinated Sukuk (Note33(b)) 232,883 -

21. SHARE CAPITAL

2014 2013RM'000 RM'000

Authorised: Ordinary shares of RM1.00 each 1 January / 31 December 1,000,000 1,000,000

Issued and fully paid: Ordinary shares of RM1.00 each 1 January / 31 December 1,000,000 1,000,000

Group and Bank

The Sukuk is unsecured and the proceeds shall be utilised for the investment in Shariah compliantmoney market placements with banks in Kingdom of Saudi Arabia and other approved middle easterncountries. The profit sharing ratio between the Bank and its holding company is 80:20, respectively.

On 10 November 2014, the Bank issued SAR250.0 million nominal value of Subordinated Sukuk ("theSukuk") under the Shariah principle of Mudharabah to its holding company. The Sukuk shall have atenure of not less than 5 years and not more than 7 years from the issue date.The Bank may redeemthe Sukuk at an Optional Redemption Date which is on any date after the fifth (5th) year from theissue date of the Sukuk.

There were no changes to the authorised, issued and paid-up capital of the Bank during the financial year.

The Sukuk Programme qualifies as Tier-II capital of the Issuer as per BNM's Risk-Weighted CapitalAdequacy Framework for Islamic Banks.The Sukuk issued under the Sukuk Programme will bebased on the Shariah principles of Mudharabah (profit sharing) and Al-Wakalah (contract of agency).

72



22. RESERVES

Note2014 2013

RM'000 RM'000Non-distributable:Statutory reserve (i) 3,975 1,574 Accumulated losses (283,244) (285,645)

(279,269) (284,071)- -

The nature and purpose of the reserve is as follows:

(i) Statutory reserve

Movements of the statutory reserve are as follows:

Group and Bank2014 2013

RM'000 RM'000

At 1 January 1,574 - Profit for the financial year 2,401 1,574 At 31 December 3,975 1,574

23. REVENUE

24. INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS AND OTHERS - -

2014 2013RM'000 RM'000

Income derived from investment of:(i) General investment deposits 2,476 4,021 (ii) Other deposits 322,647 298,472

325,123 302,493 - -

Group and Bank

Revenue of the Group and the Bank comprises financing income, fee and commission incomeand other income as derived from the banking operations.

Group and Bank

The statutory reserve is maintained in compliance with Capital Funds for Islamic Banksissued on 1 July 2013 and is not distributable as cash dividends.

73



24. INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS AND OTHERS (Continued

(i) Income derived from investment of general investment deposits

2014 2013RM'000 RM'000

Finance income and hibahFinancing and advances 2,430 3,839 Money at call and deposit with financial institutions 46 182 Total finance income and hibah 2,476 4,021

- - (ii) Income derived from investment of other deposits

2014 2013RM'000 RM'000

Finance income and hibahFinancing and advances 265,817 257,251 Securities held-to-maturity 51,919 20,523 Securities available-for-sale - 3,859 Money at call and deposit with financial institutions 4,324 11,181

322,060 292,814 Accretion of discount 587 5,658

322,647 298,472

- -

Group and Bank

Group and Bank

74



25. INCOME DERIVED FROM INVESTMENT OF SHAREHOLDERS' FUNDS

2014 2013RM'000 RM'000

Finance income and hibahMoney at call and deposit with financial institutions 752 2,093Total finance income and hibah 752 2,093

Other operating income - Net gain/(loss) from foreign exchange translations

-Realised 6,672 13,331-Unrealised 2,696 (5,338)

- Rental income 4,084 6,817 - Realised gain on gold 2,187 3,916 - Unrealised loss on revaluation of securities

held-for-trading (9) (193) - Others 351 276

Other income - Service charges 6,669 8,272 - Commission received 7,701 7,562

31,103 36,736

26. ALLOWANCE FOR IMPAIRMENT ON FINANCING

2014 2013RM'000 RM'000

Impaired financing and advances:(a) Individual assessment allowance

- provided during the financial year (Note 9(i)) 3,247 22,638 - written back during the financial year (Note 9(i)) (717) (4,282)

(b) Collective assessment allowance- provided during the financial year (Note 9(i)) 16,135 2,040

18,665 20,396(c) Bad debts on financing

- recovered (5,194) (4,686)- written off 485 86

13,956 15,796

Group and Bank

Group and Bank

75



27. INCOME ATTRIBUTABLE TO DEPOSITORS

2014 2013RM'000 RM'000

Deposits from customers- Non-Mudharabah 101,343 106,355 - Mudharabah 8,094 5,142 - Wakalah 49,680 32,656

159,117 144,153 Deposits and placements of banks and other financial institutions- Non-Mudharabah 16,549 10,866

175,666 155,019 - -

28. PERSONNEL EXPENSES

2014 2013RM'000 RM'000

Salaries and wages 41,588 42,737 Statutory contributions 7,804 9,254 Allowance and bonuses 13,542 12,078 Others 5,392 4,979

68,326 69,048

Group and Bank

Group and Bank

76



29. OTHER OVERHEADS AND EXPENDITURES

2014 2013RM'000 RM'000

Marketing Advertisement and publicity 9,117 10,282

Establishment Office rental 9,100 9,433 Depreciation of property and equipment 8,768 8,390 Amortisation of intangible assets 11,670 11,825 Electronic data processing expenses 11,964 23,086 Premises 5,068 4,167 Others 553 458

General expenses Auditors' remuneration Statutory audit:

- Ernst & Young Malaysia 157 150 Regulatory related services:

- Ernst & Young Malaysia 95 95 Other services:

- Ernst & Young Malaysia 97 135 Takaful and insurance 932 775 Professional fees 7,441 4,560 Security Service Charges 3,900 3,092 Communication 1,645 1,867 Transaction and outsourcing fees 7,238 8,682 Fraud and operational losses 3,307 307 Printing and stationeries 835 1,691 Entertainment 564 1,013 Shariah expenses 774 1,059 Others 5,037 2,521

88,262 93,588

Group and Bank

77



30. CEO, DIRECTORS AND SHARIAH BOARD MEMBERS' REMUNERATION

2014 2013RM'000 RM'000

Chief Executive Officer Salary and other remuneration including meeting allowances 815 832

815 832Non-Executive Directors Fees 222 261 Other remuneration 109 149

331 410Shariah Board Members Fees 774 1,058Grand total 1,920 2,300

2014 2013

Chief Executive Officer:RM800,000 to RM1,100,000 1 1

1 1

Group and Bank

The number of Directors of the Bank whose total remuneration during the financial year fallswithin the following bands is analysed below:

Number of DirectorsGroup and Bank

Non-Executive Directors:RM35,000 to RM50,000 - 1RM50,001 to RM100,000 2 1RM100,001 to RM150,000 1 2

3 4

4 531. TAXATION

2014 2013RM'000 RM'000

Tax expense for the financial year: - Malaysian income tax - -

Deferred tax: - Relating to origination of temporary differences 2,631 3,688 - Under/(over) provision in prior year 2,569 (1,082)

5,200 2,606

Group and Bank

78



31. TAXATION (Continued)

2014 2013RM'000 RM'000


Income tax using Malaysian tax rate of 25% (2013: 25%) 2,500 1,438Tax effects from:- expense not deductible for tax purposes 765 1,095- reduction in Malaysian income tax rate 40 2,489- income not subjected to tax (674) (1,334)- Over/(under) provision in previous years 2,569 (1,082)

5,200 2,606

32. BASIC / DILUTED EARNINGS PER SHARE

2014 2013

The basic and diluted earnings per ordinary share is calculated by dividing the Group’s profit aftertaxation for the financial year by the weighted average number of ordinary shares outstandingduring the financial year.

A reconciliation of income tax expense applicable to profit before tax at the statutory income taxrate to income tax expense at the effective income tax rate of the Bank are as follows:

Group and Bank

2014 2013RM'000 RM'000

Net profit for the financial year (RM'000) 4,802 3,147Average shares issued during the year ('000) 1,000,000 1,000,000Basic profit per share (sen) 0.48 0.31

- -There were no dilutive potential ordinary shares at the end of the financial year.

(5,200) -33. SIGNIFICANT RELATED PARTY BALANCES AND TRANSACTIONS

(a) Related parties and relationships

Parties are considered to be related if one party has the ability to control the other party orexercise significant influence over the other party in making financial or operationaldecisions, or if one other party controls both.

79



33. SIGNIFICANT RELATED PARTY BALANCES AND TRANSACTIONS (Continued)

(a) Related parties and relationships (Continued)

The related parties and their relationships with the Bank are as follows:

(i) Al Rajhi Banking and Holding company.Investment Corporation,Saudi Joint Stock Company,Kingdom of Saudi Arabia

(ii) Key Management Personnel Defined as those persons having authority andresponsibility for planning, directing andcontrolling the activities of the Bank eitherdirectly or indirectly. The key managementpersonnel of the Bank includes all Directors ofthe Bank and the Management Committeemembers of the Bank.

Relationship

The Directors are of the opinion that all transactions below have been entered into in thenormal course of business and have been established on terms and conditions that are notmaterially different from those obtained in transactions with unrelated parties.

Related parties

(b) Significant related party transactions and balances are as follows:Key

Holding management2014 company personnel

RM'000 RM'000Amount due from - Financing and advances - 152 - Deposits placements 121,662 -

Amount due to- Current accounts - i - 151- Savings account - i - 35- Wakalah investment - 523- Deposits placement 83,444 -- Inter-company billings (Note 19 (i)) 3,783 --Subordinated Sukuk (Note 20) 232,883 --Dividend payable 46 -

Corporate Guarantee 1,508,445 -

80



33. SIGNIFICANT RELATED PARTY BALANCES AND TRANSACTIONS (Continued

KeyHolding management

company personnel2014 (continued) RM'000 RM'000

Profit income from- Financing and advances - 833 - Deposits placements 35 -

Income attributable to depositors- Deposits placements 773 - - Dividend on Subordinated Sukuk 46 -

Short-term employee benefits- Salary and other remuneration - 5,041

2013

Amount due from - Financing and advances - 51,177

Amount due to- Current accounts - i - 222 - Savings account - i - 228 - Inter-company billings (Note 19(i)) 1,563 -

Corporate Guarantee 1,508,445 -

Profit income from- Financing and advances - 691 - Deposits placements 173 -

Income attributable to depositors- Deposits placements 5,011 -

Short-term employee benefits- Salary and other remuneration - 5,894

The corporate guarantee above is issued by the holding company to the Bank. Thecorporate guarantee provides security coverage for a corporate financing originated by theBank for a company incorporated in Kingdom of Saudi Arabia.

The total key management personnel compensation includes Chief ExecutiveOfficer/Managing Director's remuneration of which details are disclosed in Note 30.

81

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575

-

-

M

isce

llane

ous

37

,605

495

495

74,0

06

1,

305

1,

305

1,73

2,32

3

55

7,93

0

507,

271

2,

021,

372

710,

922

65

2,05

5

-

-

2014

2013

The

com

mitm

ents

and

con

tinge

ncie

s an

d th

e re

late

d ris

k-w

eigh

ted

expo

sure

s of

the

Gro

up a

s at

the

end

of fi

nanc

ial y

ear a

re a

s fo

llow

s:

The

Cre

dit

Equ

ival

ent

and

Ris

kW

eigh

ted

for

the

Ban

kar

eco

mpu

ted

inac

cord

ance

with

BN

M's

Cap

italA

dequ

acy

Fram

ewor

kfo

rIs

lam

icB

anks

(CA

FIB

): S

tand

ardi

sed

App

roac

h fo

r Cre

dit a

nd M

arke

t Ris

k, a

nd B

asic

Indi

cato

r App

roac

h fo

r Ope

ratio

nal R

isk

(Bas

el II

) res

pect

ivel

y.

Inth

eno

rmal

cour

seof

busi

ness

,the

Gro

upm

ade

vario

usco

mm

itmen

tsan

din

curr

edce

rtain

cont

inge

ntlia

bilit

ies

with

lega

lrec

ours

eto

thei

rcu

stom

ers.

No

mat

eria

l los

ses

are

antic

ipat

ed a

s a

resu

lt of

thes

e tra

nsac

tions

.

82



35. CAPITAL COMMITMENTS

2014 2013RM'000 RM'000

Authorised and contracted for: Property and equipment - 6,636

36.

2014 2013

Outstanding credit exposures with connected parties (RM'000) 6,460 60,810

Percentage of outstanding credit exposures to connected parties as proportion of capital base 0.7% 8.5%

Percentage of outstanding credit exposures to connected parties as proportion of total outstanding credit exposures 0.1% 0.8%

Percentage of outstanding credit exposures with connected parties which is non-performing or in default 0.0% 0.0%

Based on these guidelines, a connected party refers to the following:

(i) Directors of the Bank and their close relatives;

(ii) Controlling shareholders' and their close relatives;

(iii)

(iv)

Capital expenditure pertaining to the Group and the Bank as approved by Directors but not providedfor in the financial statements is as follows:

Group and Bank

CREDIT EXPOSURE ARISING FROM CREDIT TRANSACTIONS WITH CONNECTED PARTIES

The disclosure on Credit Transactions and Exposures with Connected Parties above is presented inaccordance with paragraph 9.1 of Bank Negara Malaysia’s revised Guidelines on Credit Transactionsand Exposures with Connected Parties.

Executive officer, being member of management having authority and responsibility for planning,directing and/or controlling the activities of the Bank, and his close relatives;

Officers who are responsible for or have the authority to appraise and/or approve credittransactions or review the status of existing credit transactions, either as a member of acommittee or individually, and their close relatives;

83



36.

Based on these guidelines, a connected party refers to the following: (Continued)

(v)

(vi) Any person for whom the persons listed in (i) to (iv) above is a guarantor; and

(vii) Subsidiary of or an entity controlled by the Bank and its connected parties.

37. FINANCIAL RISK MANAGEMENT

(a) Overview

(b) Financial instrument by category

The table below provide an analysis of financial instruments categorised as follows:

i. Financing and receivables (FR);ii. Securities held-to-maturity (HTM);iii. Securities held-for-trading (HFT);iv. Securities available-for-sale (AFS);v. Other financial liabilities (Other FL).

CREDIT EXPOSURE ARISING FROM CREDIT TRANSACTIONS WITH CONNECTED PARTIES(Continued)

Firms, partnerships, companies or legal entities which control, or are controlled by any personlisted in (i) to (iv) above, or in which they have an interest, as a director, partner, executive officer,agent or guarantor, and their subsidiaries or entities controlled by them;

Credit transactions and exposures to connected parties as disclosed above includes the extension ofcredit facilities and/or off-balance sheet credit exposures such as guarantees, trade-related facilitiesand loan commitments. It also includes holdings of equities and private debt securities issued by theconnected parties.

The credit transaction with connected parties above are all transacted on arm’s length basis and onterms and conditions no more favourable than those entered into with other counterparties with similarcircumstances and credit worthiness. Due care has been taken to ensure that the credit worthiness ofthe connected party is not less than that normally required of other persons.

The Group’s risk management practice seeks to ensure that adequate financial resources areavailable for the development of the Group’s businesses whilst managing its key areas of credit,market, liquidity and operational risks.

The Group’s overall risk management framework, including the risk governance and the riskmanagement process are set out in the Risk Management section in the Directors Report.

84

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d )

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(b)

Fina

ncia

l ins

trum

ent b

y ca

tego

ry (C

ontin

ued)

Car

ryin

gO

ther

amou

ntFR

HFT

AFS

HTM

FLR

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00G

roup

and

Ban

k20

14

Fina

ncia

l Ass

ets

Cas

h an

d sh

ort t

erm

fund

s35

8,67

235

8,67

2-

-

-

-

D

epos

its a

nd p

lace

men

ts w

ith b

anks

and

oth

er

fina

ncia

l ins

titut

ions

233,

115

233,

115

-

-

-

-

Hed

ging

fina

ncia

l ins

trum

ents

1,63

01,

630

-

-

-

-

Fina

ncin

g an

d ad

vanc

es4,

774,

809

4,77

4,80

9-

-

-

-

S

ecur

ities

hel

d-to

-mat

urity

1,42

6,08

4-

-

-

1,

426,

084

-

Sec

uriti

es h

eld-

for-

tradi

ng5,

099

-

5,09

9

-

-

-

Sec

uriti

es a

vaila

ble-

for-

sale

-

-

-

-

-

-

Oth

er a

sset

s32

,758

32,7

58

-

-

-

-

6,

832,

167

5,40

0,98

4

5,

099

-

1,

426,

084

-

Fina

ncia

l Lia

bilit

ies

Dep

osits

from

cus

tom

ers

5,47

7,85

4-

-

-

-

5,

477,

854

Dep

osits

and

pla

cem

ents

of b

anks

and

othe

r fin

anci

al in

stitu

tions

777,

289

-

-

-

-

777,

289

Hed

ging

fina

ncia

l ins

trum

ents

685

-

-

-

-

685

Bill

s an

d ac

cept

ance

s pa

yabl

e12

,551

-

-

-

-

12,5

51O

ther

liab

ilitie

s48

,940

-

-

-

-

48,9

40S

ubor

dina

ted

Suk

uk23

2,88

3-

-

-

-

23

2,88

36,

550,

202

-

-

-

-

6,55

0,20

285

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d )

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(b)

Fina

ncia

l ins

trum

ent b

y ca

tego

ry (C

ontin

ued)

Car

ryin

gO

ther

amou

ntFR

HFT

AFS

HTM

FLR

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00G

roup

and

Ban

k20

13

Fina

ncia

l Ass

ets

Cas

h an

d sh

ort t

erm

fund

s45

5,38

7

455,

387

-

-

-

-

H

edgi

ng fi

nanc

ial i

nstru

men

ts1,

788

1,78

8

-

-

-

-

Fina

ncin

g an

d ad

vanc

es4,

784,

898

4,78

4,89

8

-

-

-

-

S

ecur

ities

hel

d-to

-mat

urity

1,03

5,90

3

-

-

-

1,

035,

903

-

Sec

uriti

es h

eld-

for-

tradi

ng4,

792

-

4,79

2

-

-

-

Sec

uriti

es a

vaila

ble-

for-

sale

-

-

-

-

-

-

Oth

er a

sset

s41

,099

41,0

99

-

-

-

-

6,

323,

867

5,28

3,17

2

4,

792

-

1,

035,

903

-

Fina

ncia

l Lia

bilit

ies

Dep

osits

from

cus

tom

ers

4,40

1,69

6

-

-

-

-

4,

401,

696

Dep

osits

and

pla

cem

ents

of b

anks

and

othe

r fin

anci

al in

stitu

tions

1,58

1,45

2

-

-

-

-

1,

581,

452

Hed

ging

fina

ncia

l ins

trum

ents

610

-

-

-

-

61

0

B

ills

and

acce

ptan

ces

paya

ble

12,5

41

-

-

-

-

12

,541

Oth

er li

abili

ties

42,4

08

-

-

-

-

42

,408

6,03

8,70

7

-

-

-

-

6,

038,

707

86



37. FINANCIAL RISK MANAGEMENT (Continued)

(c) Credit Risk Management

(i) Credit Risk management overview

(ii) Maximum exposure to credit risk

The maximum exposure to credit risk at the statement of financial position date is theamount on the statement of financial position as well as off balance sheet financialinstruments, without taking into account of any collateral held or credit enhancements. Forcontingent liabilities, the maximum exposure to credit risk is the maximum that the Bankwould have to pay if the obligations of the instruments issued are called upon. For creditcommitments, the maximum exposure to credit risk is the full amount of the undrawn creditfacilities granted to customers.

Credit risk is the potential loss of revenue as a result of defaults by borrowers orcounterparties through the Group’s and the Bank’s lending, hedging, trading and investingactivities. The primary exposure to credit risk arises through its financing and advances aswell as financial transactions with counterparties including interbank money market activitiesand debt securities. The amount of credit exposure is represented by the carrying amountsof the assets in the statement of financial position.

The management of credit risk is governed by credit policies and guidelines documenting the lending standards, discretionary power for financing approval, credit risk rating, collateral andvaluation, review, and restructuring of problematic and delinquent financing. Themanagement of counterparties are guided by counterparty limit, counterparty ratings, tenureand types of permissible transactions and these are subject to regular review.

87




(c) Credit Risk Management (Continued)

(ii) Maximum exposure to credit risk (Continued)

2014 2013RM'000 RM'000

Group and Bank

Credit risk exposure relating to on-balance sheet assets:Cash and short term funds 358,672 455,387 Deposits and placements with banks and other and other financial institutions 233,115 - Hedging financial instruments 1,630 1,788 Securities held-for-trading 5,099 4,792 Securities held-to-maturity 1,426,084 1,035,903Financing and advances 4,774,809 4,784,898Other assets 7,961 9,943

6,807,370 6,292,711

Credit risk exposure of off-balance sheet items:Commitment and contingencies 1,732,323 2,021,372

Total maximum credit risk exposure 8,539,693 8,314,083

(iii) Credit Risk Concentration

Group and Bank

The financial effect of collateral (quantification of the extent to which collateral and othercredit enhancements mitigate credit risk) held for financing and advances as at 31December 2014 for the Bank is 35.1% (2013: 27.3%). The financial effect of collateral heldfor the other financial assets is not significant.

A concentration of credit risk exists when a number of counterparties are engaged in similaractivities and have similar economic characteristics that would cause their ability to meetcontractual obligations to be similarly affected by changes in economic and other conditions.The Group analysed the credit risk concentration by industry and geographic segments inwhich the customer is engaged.

The table below shows the maximum exposure to credit risk of the Group and the Bank:

88

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(c)

Cre

dit R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Cre

dit R

isk

Con

cent

ratio

n (C

ontin

ued)

(a)

Cre

dit R

isk

- Cre

dit R

isk

Con

cent

ratio

n - B

y In

dust

ry A

naly

sis

(Con

tinue

d)

Agr

icul

tura

l,m

anuf

actu

ring,

Tran

spor

t,ut

ility

,te

le-

rese

arch

&co

mm

unic

atio

n,de

velo

pmen

t,ed

ucat

ion

who

lesa

le &

Gov

ernm

ent

and

othe

rre

tail

trad

e,C

onst

ruct

ion

Mot

orO

ther

and

Cen

tral

Fina

ncia

lbu

sine

ssho

tel a

ndan

d R

eal

Res

iden

tial

vehi

cle

cons

umer

Ban

ksse

rvic

esse

rvic

esre

stau

rant

esta

tem

ortg

ages

finan

cing

finan

cing

Tota

lG

roup

and

Ban

kR

M'0

00R

M'0

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M'0

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M'0

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M'0

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M'0

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M'0

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201 4

Sho

rt te

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nds

36

358,

636

-

-

-

-

-

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35

8,67

2

D

epos

its a

nd p

lace

men

ts w

ith b

anks

and

oth

er fi

nanc

ial i

nstit

utio

ns-

233,

115

-

-

-

-

-

-

23

3,11

5

H

edgi

ng fi

nanc

ial

in

stru

men

ts-

440

1,19

0

-

-

-

-

-

1,63

0

Sec

uriti

es h

eld-

for-

tradi

ng-

5,09

9

-

-

-

-

-

-

5,

099

S

ecur

ities

hel

d-to

-mat

urity

1,01

5,16

8

403,

290

-

7,

626

-

-

-

-

1,42

6,08

4N

et fi

nanc

ing

and

adva

nces

-

23

0,51

6

1,

564,

401

61

9,59

0

43

4,20

9

1,

164,

007

84,9

34

67

7,15

2

4,

774,

809

Oth

er a

sset

s-

-

7,

961

-

-

-

-

-

7,

961

To

tal

1,01

5,20

4

1,

231,

096

1,57

3,55

262

7,21

6

434,

209

1,

164,

007

84

,934

67

7,15

2

6,80

7,37

0

89

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(iii)

Cre

dit R

isk

Con

cent

ratio

n (C

ontin

ued)

(a)

Cre

dit R

isk

- Cre

dit R

isk

Con

cent

ratio

n - B

y In

dust

ry A

naly

sis

(Con

tinue

d)

Agr

icul

tura

l,m

anuf

actu

ring,

Tran

spor

t,ut

ility

,te

le-

rese

arch

&co

mm

unic

atio

n,de

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pmen

t,ed

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ion

who

lesa

le &

Gov

ernm

ent

and

othe

rre

tail

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e,C

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ruct

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Mot

orO

ther

and

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tral

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ncia

lbu

sine

ssho

tel a

ndan

d R

eal

Res

iden

tial

vehi

cle

cons

umer

Ban

ksse

rvic

esse

rvic

esre

stau

rant

esta

tem

ortg

ages

finan

cing

finan

cing

Tota

lG

roup

and

Ban

kR

M'0

00R

M'0

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M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

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M'0

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M'0

00

2013

Sho

rt te

rm fu

nds

34,3

15

421,

072

-

-

-

-

-

-

45

5,38

7

H

edgi

ng fi

nanc

ial

-

-

-

-

-

-

-

-

inst

rum

ents

-

-

1,78

8

-

-

-

-

-

1,78

8

Sec

uriti

es h

eld-

for-

tradi

ng-

4,79

2

-

-

-

-

-

-

4,

792

S

ecur

ities

hel

d-to

-mat

urity

610,

945

403,

375

-

21

,583

-

-

-

-

1,

035,

903

Net

fina

ncin

g an

d ad

vanc

es-

285,

975

1,57

5,33

9

750,

909

261,

922

1,07

5,64

8

75

,511

759,

594

4,78

4,89

8O

ther

ass

ets

-

-

9,94

3

-

-

-

-

-

9,94

3

Tota

l64

5,26

0

1,11

5,21

41,

587,

070

772,

492

26

1,92

2

1,07

5,64

8

75,5

11

759,

594

6,

292,

711

90





(iii) Credit Risk Concentration (Continued)

(b) Credit Risk - Credit Risk Concentration - By Geographical Analysis

OtherMalaysia Saudi Arabia countries Total

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

Group and Bank

2014Cash and short term funds 184,878 127,359 46,435 358,672 Deposits and placements with banks and other financial institutions - - 233,115 233,115 Hedging financial instruments 1,630 - - 1,630 Securities held-for-trading 5,099 - - 5,099 Securities held-to-maturity 1,426,084 - - 1,426,084Net financing and advances 3,238,080 1,509,121 27,608 4,774,809Statutory deposits with BNM 216,364 - - 216,364 Other assets 7,961 - - 7,961 Total 5,080,096 1,636,480 307,158 7,023,734

Group and Bank

2013Cash and short term funds 409,496 21,459 24,432 455,387 Hedging financial instruments 1,788 - - 1,788 Securities held-for-trading 4,792 - - 4,792 Securities held-to-maturity 1,035,903 - - 1,035,903Net financing and advances 3,224,996 1,508,760 51,142 4,784,898Statutory deposits with BNM 194,268 - - 194,268 Other assets 9,943 - - 9,943 Total 4,881,186 1,530,219 75,574 6,486,979

91





(iv) Collateral

• for personal housing financing : mortgages over residential properties

• for commercial property financing : charges over the properties being financed

• for vehicle financing : charges over the vehicles financed• for other financing : charges over business assets such as

premises, inventories, trade receivables or deposits

(v) Credit quality of financial assets

- neither past due nor impaired - past due but not impaired - impaired

The main types of collateral obtained by the Group and the Bank to mitigate credit risk areas follows:

There are no assets held by the Bank as at 31 December 2014 as a result of takingpossession of collaterals held as securities.

Repossessed properties are made available for sale in an orderly fashion, with the proceedsused to reduce or repay the outstanding indebtedness. The Bank generally does not occupythe premises repossessed for its business use.

For the purposes of disclosure relating to MFRS 7, all financial assets are categorized intothe following:

The Bank assesses credit quality of financing and advances using internal rating techniquestailored to the various categories of products and counterparties. These techniques havebeen developed internally and combine statistical analysis with credit officers' judgment.

92





(v) Credit quality of financial assets (Continued)

Internal ratings Description

- Investment grade

- Non-Investment grade

- AAA to AA3- A1 to A3- Baa1 to Baa3- P1 to P3- Non rated

Strong(est) credit quality which associated withgeneral standards of investment grade as perdefined by international rating agency such asStandard and Poor's (S&P), Moody's, Fitch, andJapan Credit Rating Agency (JCR).

Weaker credit quality which associated withgeneral standards of non-investment grade asper defined by international rating agency suchas Standard and Poor's (S&P), Moody's, Fitch,and Japan Credit Rating Agency (JCR).

The credit quality of financial assets other than financing and advances are determinedbased on the ratings of counterparties as defined by Moody’s or equivalent ratings of otherinternational rating agencies as defined below:

93





(vi) Credit quality of financial assets - net financing and advances

2014 2013RM'000 RM'000

Neither past due nor impaired 4,610,415 4,604,535Past due but not impaired 219,007 219,811 Impaired (Note 9 (h)) 75,098 101,374 Gross financing and advances 4,904,520 4,925,720Less: Collective impairment allowance (Note 9 (i)) (86,569) (96,781)

Individual impairment allowance (Note 9 (i)) (43,142) (44,041) Net financing and advances 4,774,809 4,784,898

2014 2013RM'000 RM'000

Current 4,610,415 4,604,535Past due 1-30 days 146,799 155,316 Past due 31-90 days 72,208 64,495 Past due more than 90 days (Note 9 (h)) 75,098 101,374

4,904,520 4,925,720Collective impairment (Note 9 (i)) (86,569) (96,781) Individual impairments (Note 9 (i)) (43,142) (44,041) Net financing and advances 4,774,809 4,784,898

Group and Bank

Group and Bank

The ageing of financing and advances as at the end of the financial year are as follows:

94





(vii)

Deposits and - - - - placement of Financial

banks and Hedging assets/ StatutoryShort term other fin. financial investments deposit Other

funds institutions instruments portfolios with BNM assetsRM'000 RM'000 RM'000 RM'000 RM'000 RM'000

2014Neither past due nor impaired 358,672 233,115 1,630 1,426,084 216,364 7,961

358,672 233,115 1,630 1,426,084 216,364 7,961

2013Neither past due nor impaired 455,387 - 1,788 1,035,903 194,268 9,943

455,387 - 1,788 1,035,903 194,268 9,943 #REF! #REF! #REF! #REF! #REF! #REF!

(a) Analysed by rating agency designation are as follows:

Deposits and - - - - placement of Financial

banks and Hedging assets/ StatutoryShort term other fin. financial investments deposit Other

funds institutions instruments portfolios with BNM assetsRM'000 RM'000 RM'000 RM'000 RM'000 RM'000

2014AAA to A- 285,189 - - 1,418,459 - - BBB+ to B- 36,391 - - - - - Unrated 37,092 233,115 1,630 12,725 216,364 7,961

358,672 233,115 1,630 1,431,184 216,364 7,961

2013AAA to A- 434,621 - - 1,014,320 - - BBB+ to B- 20,096 - - - - - Unrated 670 - 1,788 26,375 194,268 9,943

455,387 - 1,788 1,040,695 194,268 9,943

Credit quality of financial assets - securities portfolio and other financial assets

95





(viii) Credit quality of impaired financial assets

(a) Impaired financial assets analysed by geographic purpose are as follows:

Financialassets/

Financing & investmentsadvances portfolios Total

RM'000 RM'000 RM'000

2014Malaysia 75,098 - 75,098

75,098 - 75,098

2013Malaysia 101,374 - 101,374

101,374 - 101,374

(b) Impaired financial assets analysed by industry sector are as follows:

Financialassets/


RM'000 RM'000 RM'000

2014Household 33,545 - 33,545 Construction 54 - 54 Manufacturing 36,223 - 36,223 Wholesale & retail trade 5,205 - 5,205 Other business - - - Real estate, renting and business activities 71 - 71

75,098 - 75,098

96





(viii) Credit quality of impaired financial assets

(b)

Financialassets/


RM'000 RM'000 RM'000

2013Household 52,814 - 52,814 Construction 55 - 55 Manufacturing 42,578 - 42,578 Wholesale & retail trade 5,611 - 5,611 Other business 227 - 227 Real estate, renting and business activities 89 - 89

101,374 - 101,374

(ix) Reconciliation of allowance

2014 2013RM'000 RM'000

At 1 January 140,822 150,386 Adjustment on impairment loss recognised during the year 2,624 - Impairment loss recognised during the year 16,758 24,678 Impairment loss reversed (717) (4,282) Impairment written-off (29,776) (29,960) At 31 December 129,711 140,822

Impaired financial assets analysed by industry sector are as follows:(Continued)

The movements in the allowance for impairment losses of financing and advances duringthe financial year are as follows:

Group and Bank

97




(d) Market Risk Management

(i) Profit rate sensitivity analysis

Impact on Impact onprofit after Impact on profit after Impact on

tax equity tax equityRM'000 RM'000 RM'000 RM'000

Group and Bank

+ 100 basis points (8,392) (104,179) (9,295) (108,434) - 100 basis 8,392 104,179 9,295 108,434 points

(ii) Foreign currency sensitivity analysis

Impact on Impact onprofit after Impact on profit after Impact on

tax equity tax equityRM'000 RM'000 RM'000 RM'000

Group and Bank

+5% 157 157 1,002 1,002 - 5% (157) (157) (1,002) (1,002)

Market risk sensitivity assessment is based on the changes in key variables; such as profit rateswhile all other variables remain unchanged. The sensitivity factors used are assumptions basedon parallel shifts in the key variables and the impact on the re-priced mismatches of assets andliabilities position of the bank as at 31 December 2014.

2014 2013

The foreign currency sensitivity represents the effect of the appreciation or depreciation ofthe foreign currency rates on the consolidated currency position, while other variablesremain constant.

2014 2013

98

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

ate

Ris

k

Ave

rag e

Up

to 1

> 1

-3>

3 - 1

21

- 5N

on-p

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Trad

ing

effe

ctiv

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onth

mon

ths

mon

ths

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s>

5 ye

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sens

itive

boo k

Tota

lpr

ofit

rate

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

%G

roup

and

Ban

k

2014

Ass

ets

Cas

h an

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s30

5,30

5-

-

-

-

53,3

67-

35

8,67

21.

09

Hed

ging

fina

ncia

l ins

trum

ents

-

-

-

-

-

-

1,

630

1,63

0-

-

130,

410

10

2,46

6-

-

239

-

233,

115

1.10

Sec

uriti

es h

eld-

for-

tradi

ng-

-

-

-

-

-

5,09

95,

099

-

Sec

uriti

es a

vaila

ble-

for-

sale

-

-

-

-

-

-

-

-

-

S

ecur

ities

hel

d-to

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urity

-

7,62

6

-

-

1,

399,

198

19,2

60-

1,

426,

084

3.98

Fi

nanc

ing

and

adva

nces

- per

form

ing

1,40

5,40

319

9,76

61,

856,

685

559,

291

785,

067

23,2

10-

4,

829,

422

- Non

per

form

ing(1

)-

-

-

-

-

(54,

613)

-

(5

4,61

3)

Oth

er a

sset

s(2)

-

-

-

-

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47

1,52

4-

47

1,52

4-

To

tal a

sset

s1,

710,

708

337,

802

1,95

9,15

155

9,29

12,

184,

265

512,

987

6,72

97,

270,

933

0.17

The

Gro

upis

expo

sed

tova

rious

risks

asso

ciat

edw

ithth

eef

fect

sof

fluct

uatio

nsin

the

prev

ailin

gle

vels

ofyi

eld/

prof

itra

teon

itsfin

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sitio

n.Th

era

teof

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the

pote

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lim

pact

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affe

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onre

turn

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com

paris

onw

ithth

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ofre

turn

fori

nves

tmen

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hold

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Yie

ld/p

rofit

rate

ism

onito

red

and

man

aged

byth

eA

LCO

topr

otec

tthe

inco

me

ofits

oper

atio

ns.T

heas

sets

and

liabi

litie

sat

carr

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amou

ntar

eca

tego

rised

by th

e ea

rlier

of t

he n

ext c

ontra

ctua

l rep

ricin

g da

tes

and

mat

urity

dat

es a

s fo

llow

s:

5.50

Dep

osit

and

plac

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t with

ot

her F

I / In

stitu

tions

99

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

ate

Ris

k (C

ontin

ued)

Ave

rag e

Up

to 1

> 1

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3 - 1

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on-p

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Trad

ing

effe

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onth

mon

ths

mon

ths

year

s>

5 ye

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sens

itive

book

Tota

lpr

ofit

rate

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

%

Gro

up a

nd B

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(Con

tinue

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2014

(Con

tinue

d)

Liab

ilitie

s D

epos

its fr

om c

usto

mer

s1,

995,

249

1,57

6,15

7

1,

364,

254

-

-

54

2,19

4

-

5,47

7,85

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90

Dep

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and

pla

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anks

and

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nanc

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380,

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36

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-

-

2,28

9

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77

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3.89

H

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men

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685

68

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Bill

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-

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12

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O

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-

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48,9

40

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48

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-

Sub

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-

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23

2,88

3

-

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232,

883

To

tal l

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s2,

375,

249

1,

941,

157

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-

232,

883

605,

974

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6,

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202

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720,

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2,37

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23

2,88

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326,

705

68

5

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3

100

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STM

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CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

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MA

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(Con

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ket R

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Man

agem

ent (

Con

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(iii)

Pro

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and

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t afte

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pairm

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from

the

outs

tand

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gros

s no

n pe

rform

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finan

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.

101

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

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(Con

tinue

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(d)

Mar

ket R

isk

Man

agem

ent (

Con

tinue

d)

(iii)

Pro

fit R

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k (C

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3 - 1

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- 5N

on-p

rofit

Trad

ing

effe

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mon

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mon

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year

s>

5 ye

ars

sens

itive

book

Tota

lpr

ofit

rate

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

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roup

and

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k

2013

Ass

ets

Cas

h an

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s34

9,13

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-

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455,

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50

Hed

ging

fina

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l ins

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-

--

-

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1,78

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uriti

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4,79

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792

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Sec

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es A

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ities

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21,5

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67

Fina

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g an

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-

-

-

-

-

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1,28

7,47

7

26

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6

1,93

6,03

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35

9,98

2

94

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9

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-

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1,86

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471,

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To

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636,

610

26

7,09

6

1,95

7,61

8

359,

982

1,

943,

573

58

3,17

7

6,

580

6,75

4,63

6

5.49

102

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ENT

CO

RPO

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TIO

N (M

ALA

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D.

(Inco

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alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

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(Con

tinue

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37.

FIN

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Tota

lpr

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RM

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Liab

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TIO

N (M

ALA

YSIA

) BH

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alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

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se

nsiti

vity

gap

(396

,070

)

(1,7

23,6

65)

375,

665

35

9,85

2

1,

943,

573

(565

,325

)

5,

970

Off-

bala

nce

shee

t pro

fit

se

nsiti

vity

gap

-

-

-

-

-

2,

021,

372

-

Tota

l pro

fit

se

nsiti

vity

ga p

(396

,070

)

(1

,723

,665

)

375,

665

359,

852

1,

943,

573

1,

456,

047

5,

970

Not

e:

(1)

(2)

Oth

er a

sset

s in

clud

e pr

oper

ty a

nd e

quip

men

t, de

ferr

ed ta

x as

sets

and

sta

tuto

ry d

epos

its w

ith B

ank

Neg

ara

Mal

aysi

a.

This

is a

rriv

ed a

t afte

r ded

uctin

g th

e co

llect

ive

and

indi

vidu

al im

pairm

ent a

llow

ance

from

the

outs

tand

ing

gros

s no

n pe

rform

ing

finan

cing

.

104




(e) Operational Risk Management

(f) Liquidity Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, peopleand systems or from external events. This risk is managed through established operational riskmanagement processes, proper monitoring and reporting of the business units’ adherence toestablished risk policies, procedures and limits by independent control and support units, andoversight provided by the management and the Board.

The operational risk management processes encompass appropriate documentation of processesand procedures within the framework of system of internal controls, regular disaster recovery andbusiness continuity planning and simulations, self-compliance audit and internal audit.

Liquidity risk relates to the ability of the Group and of the Bank to maintain sufficient liquid assetsto meet financial commitments and obligations when they fall due at a reasonable cost. TheAssets and Liabilities Management Committee is the primary party responsible for liquiditymanagement based on guidelines approved by the Risk Management Committee. Themanagement of the liquidity risk is aligned to the New Liquidity Framework issued by Bank Negara Malaysia supplemented by liquidity risk management control and limits and a liquidity stresstesting program. Liquidity limits are set for cash flow mismatches. In addition, liquidity trigger limitsand concentration ratios are in place to serve as liquidity early warning indicators.

105

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

The

tabl

e be

low

ana

lyse

s as

sets

and

liab

ilitie

s ba

sed

on th

e re

mai

ning

beh

avio

ural

mat

urity

:

Up

to 7

> 7

days

->

1 - 3

> 3

- 6>

6 - 1

2da

ys1

mon

thm

onth

sm

onth

sm

onth

s>

1 ye

arTo

tal

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Gro

up a

nd B

ank

2014

Ass

ets

Cas

h an

d sh

ort t

erm

fund

s14

7,04

6

211,

626

-

-

-

-

35

8,67

2H

edgi

ng fi

nanc

ial i

nstru

men

ts1,

191

21

7

22

2

-

-

-

1,

630

Dep

osits

and

pla

cem

ents

of b

anks

and

oth

er fi

nanc

ial

-

-

-

139,

835

93

,280

-

233,

115

Sec

uriti

es h

eld-

for-

tradi

ng5,

099

-

-

-

-

-

5,

099

Sec

uriti

es a

vaila

ble-

for-

sale

-

-

-

-

-

-

-S

ecur

ities

hel

d-to

-mat

urity

-

7,62

6

-

-

1,39

9,19

8

19

,260

1,42

6,08

4Fi

nanc

ing

and

adva

nces

173,

582

86

,724

200,

969

14

1,37

9

209,

993

3,

962,

162

4,77

4,80

9S

tatu

tory

dep

osits

with

Ban

k N

egar

a M

alay

sia

216,

364

-

-

-

-

-

21

6,36

4O

ther

ass

ets

31,1

73

28

6

2,

297

1,

252

2,

286

21

7,86

6

255,

160

Tota

l ass

ets

574,

455

306,

479

203,

488

282,

466

1,70

4,75

74,

199,

288

7,27

0,93

3

106

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

Up

to 7

> 7

days

->

1 - 3

> 3

- 6>

6 - 1

2da

ys1

mon

thm

onth

sm

onth

sm

onth

s>

1 ye

arTo

tal

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Gro

up a

nd B

ank

(Con

tinue

d)

2014

(Con

tinue

d)Li

abili

ties

Dep

osits

from

cus

tom

ers

643,

139

1,

116,

792

1,68

6,30

9

86

4,92

4

640,

216

52

6,47

4

5,47

7,85

4 D

epos

its a

nd p

lace

men

ts

of

ban

ks a

nd o

ther

fina

ncia

l

inst

itutio

ns12

0,59

2

260,

761

36

5,85

8

30,0

78

-

-

77

7,28

9H

edgi

ng fi

nanc

ial i

nstru

men

ts-

-

-

68

5

-

-

68

5B

ills

and

acce

ptan

ce p

ayab

le12

,551

-

-

-

-

-

12,5

51O

ther

liab

ilitie

s15

,994

-

4,44

8

28,4

98

-

-

48

,940

Sub

ordi

nate

d S

ukuk

-

-

-

-

-

232,

883

23

2,88

3To

tal l

iabi

litie

s79

2,27

61,

377,

553

2,05

6,61

592

4,18

564

0,21

675

9,35

76,

550,

202

Sha

reho

lder

s' fu

nd-

-

-

-

-

72

0,73

1

720,

731

Tota

l lia

bilit

ies

and

sh

areh

olde

rs' f

und

792,

276

1,

377,

553

2,05

6,61

5

92

4,18

5

640,

216

1,

480,

088

7,27

0,93

3

Net

mat

urity

mis

mat

ch(2

17,8

21)

(1,0

71,0

74)

(1

,853

,127

)

(641

,719

)

1,

064,

541

2,71

9,20

0

107

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

Up

to 7

> 7

days

->

1 - 3

> 3

- 6>

6 - 1

2da

ys1

mon

thm

onth

sm

onth

sm

onth

s>

1 ye

arTo

tal

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Gro

up a

nd B

ank

2013

Ass

ets

Cas

h an

d sh

ort t

erm

fund

s40

6,21

6

49,1

71

-

-

-

-

45

5,38

7H

edgi

ng fi

nanc

ial i

nstru

men

ts1,

136

62

2

30

-

-

-

1,78

8S

ecur

ities

hel

d-fo

r-tra

ding

4,79

2

-

-

-

-

-

4,79

2S

ecur

ities

ava

ilabl

e-fo

r-sa

le-

-

-

-

-

-

-

Sec

uriti

es h

eld-

to-m

atur

ity-

-

21

,583

-

-

1,01

4,32

0

1,

035,

903

Fina

ncin

g an

d ad

vanc

es10

8,70

3

181,

335

23

0,90

8

169,

640

26

2,64

7

3,83

1,66

5

4,

784,

898

Sta

tuto

ry d

epos

its w

ith

-

-

-

-

-

-

Ban

k N

egar

a M

alay

sia

194,

268

-

-

-

-

-

19

4,26

8O

ther

ass

ets

16,1

00

49

5

59

2

1,

214

2,

291

25

6,90

8

277,

600

Tota

l ass

ets

731,

215

23

1,62

3

253,

113

17

0,85

4

264,

938

5,

102,

893

6,75

4,63

6 -

108

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d)

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

Up

to 7

> 7

days

->

1 - 3

> 3

- 6>

6 - 1

2da

ys1

mon

thm

onth

sm

onth

sm

onth

s>

1 ye

arTo

tal

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Gro

up a

nd B

ank

(Con

tinue

d)

2013

(Con

tinue

d)Li

abili

ties

Dep

osits

from

cus

tom

ers

326,

930

1,

112,

241

1,28

0,20

4

88

3,79

0

560,

867

23

7,66

4

4,40

1,69

6 D

epos

its a

nd p

lace

men

ts

-

-

-

-

-

-

of b

anks

and

oth

er fi

nanc

ial

-

-

-

-

-

-

inst

itutio

ns50

,124

318,

429

73

5,82

5

477,

074

-

-

1,

581,

452

Hed

ging

fina

ncia

l ins

trum

ents

80

36

6

16

4

-

-

-

61

0B

ills

and

acce

ptan

ce p

ayab

le12

,541

-

-

-

-

-

12,5

41O

ther

liab

ilitie

s28

,059

239

11,5

70

2,

540

-

-

42

,408

Tota

l lia

bilit

ies

417,

734

1,

431,

275

2,02

7,76

3

1,

363,

404

560,

867

23

7,66

4

6,03

8,70

7

Sha

reho

lder

s' fu

nd-

-

-

-

-

71

5,92

9

715,

929

Tota

l lia

bilit

ies

and

sh

areh

olde

rs' f

und

417,

734

1,

431,

275

2,02

7,76

3

1,

363,

404

560,

867

95

3,59

3

6,75

4,63

6

Net

mat

urity

mis

mat

ch31

3,48

1

(1,1

99,6

52)

(1

,774

,650

)

(1,1

92,5

50)

(2

95,9

29)

4,14

9,30

0

109

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d )

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

Up

to 7

> 7

days

->

1 - 3

> 3

- 6>

6 - 1

2da

ys1

mon

thm

onth

sm

onth

sm

onth

s>

1 ye

a rTo

tal

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Gro

up a

nd B

ank

2014

Liab

ilitie

sD

epos

its fr

om c

usto

mer

s64

3,49

7

1,11

8,74

2

1,

696,

011

875,

650

65

4,04

4

50

0,20

0

5,48

8,14

4D

epos

its a

nd p

lace

men

ts

of b

anks

and

oth

er

fin

anci

al in

stitu

tions

120,

668

26

1,30

7

368,

262

30

,502

-

-

78

0,73

9H

edgi

ng fi

nanc

ial i

nstru

men

t s-

-

-

68

5

-

-

68

5B

ills

and

acce

ptan

ce p

ayab

le12

,551

-

-

-

-

-

12

,551

Oth

er li

abili

ties

15,9

94

-

4,

448

28,4

98

-

-

48,9

40S

ubro

dina

ted

Suk

uk-

-

-

-

-

232,

883

23

2,88

3To

tal l

iabi

litie

s79

2,71

0

1,38

0,04

9

2,

068,

721

935,

335

65

4,04

4

73

3,08

3

6,56

3,94

2

The

follo

win

gta

ble

pres

ents

the

cash

outfl

ows

for

the

Gro

up's

finan

cial

liabi

litie

sby

rem

aini

ngco

ntra

ctua

lmat

uriti

eson

undi

scou

nted

basi

s.Th

eba

lanc

esin

the

tabl

ebe

low

will

not

agre

eto

the

bala

nces

repo

rted

inth

est

atem

ents

offin

anci

alpo

sitio

nas

the

tabl

ein

corp

orat

es a

ll co

ntra

ctua

l cas

h flo

ws,

on

an u

ndis

coun

ted

basi

s, re

latin

g to

bot

h pr

inci

pal a

nd p

rofit

pay

men

ts.

110

AL

RA

JHI B

AN

KIN

G A

ND

INVE

STM

ENT

CO

RPO

RA

TIO

N (M

ALA

YSIA

) BH

D.

(Inco

rpor

ated

in M

alay

sia)

Com

pany

No.

719

057-

X

NO

TES

TO T

HE

FIN

AN

CIA

L ST

ATE

MEN

TS –

31

DEC

EMB

ER 2

014

(Con

tinue

d )

37.

FIN

AN

CIA

L R

ISK

MA

NA

GEM

ENT

(Con

tinue

d)

(f)

Liqu

idity

Ris

k (C

ontin

ued)

Up

to 7

> 7

days

->

1 - 3

> 3

- 6>

6 - 1

2da

ys1

mon

thm

onth

sm

onth

sm

onth

s>

1 ye

a rTo

tal

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Gro

up a

nd B

ank

2013

Liab

ilitie

sD

epos

its fr

om c

usto

mer

s30

2,37

6

1,11

4,00

7

1,

286,

058

890,

881

57

3,75

8

24

3,05

9

4,41

0,13

9

D

epos

its a

nd p

lace

men

ts-

-

-

-

-

-

of

ban

ks a

nd o

ther

-

-

-

-

-

-

fin

anci

al in

stitu

tions

50,1

50

31

9,03

4

739,

766

48

2,08

6

-

-

1,

591,

036

Hed

ging

fina

ncia

l ins

trum

ent s

80

36

6

164

-

-

-

610

B

ills

and

acce

ptan

ce p

ayab

le12

,541

-

-

-

-

-

12

,541

Oth

er li

abili

ties

28,0

59

23

9

11,5

70

2,

540

-

-

42

,408

Tota

l lia

bilit

ies

393,

206

1,

433,

646

2,03

7,55

8

1,

375,

507

573,

758

243,

059

6,

056,

734

111




(g) Capital Management Policy

• Enhance our economic capital management;• Refine risk based pricing methods for the products and services; and• Improve asset quality across the businesses of the Group.

38. CAPITAL ADEQUACY

The Group continues to develop sustainable capabilities for continuous improvements in the useand adoption of the advanced approaches of the Basel II capital accord. The Bank had obtainedBNM’s approval to apply the Standardised Approach for Credit Risk.

Capital risk is defined as the risk that the Group has insufficient capital to provide a sufficientresource to absorb predetermined levels of losses or that the capital structure is inefficient.

Capital risk appetite is set by the Board and reported through various metrics that enable theGroup to manage capital constraints and shareholder expectations. The Assets and LiabilitiesManagement Committee regularly revise performance against risk appetite.

A capital exposure arises where the Group has insufficient regulatory capital resources to supportits strategic objectives and plans, and to meet external shareholder requirements andexpectations. The Group’s capital management policy is focused on optimising value forshareholders.

Capital Management and Basel II

The infrastructure implementation that has been completed has already yielded significantbenefits to the Group and puts the businesses on an advanced footing to:

The Group has adopted Bank Negara Malaysia's Capital Adequacy Framework for Islamic Banks("CAFIB") guidelines to further improve capital adequacy assessment; enhance risk managementprocesses, measurements and management capabilities; as well as to promote thorough andtransparent reporting.

112



38. CAPITAL ADEQUACY (Continued)

(a) The capital adequacy ratios are as follows:2014 2013

RM'000 RM'000Group and Bank

CET 1/ Tier I capitalPaid-up share capital 1,000,000 1,000,000Accumulated losses (279,269) (284,071)

720,731 715,929Less: Deferred tax (72,645) (77,845)Total Tier-I capital 648,086 638,084

Tier-II capital63,909 68,133

232,883 - Total Tier-II capital 296,792 68,133

Capital base 944,878 706,217

CET 1 / Core capital ratio 13.832% 13.037%Risk-weighted capital ratio 20.167% 14.429%

Subordinated Sukuk

In addition, the Bank has also provided detailed Capital Adequacy disclosures as per the requirementsstipulated in Bank Negara Malaysia CAFIB - Disclosures Requirements (Pillar 3) guidelines.

For the purpose of the computation of capital adequacy ratios, the Group has adopted theStandardised Approach for Credit Risk and Market Risk, and the Basic Indicator Approach forOperational Risk. The definition and classification of the counterparty, exposure and asset typesapplied for the purpose of Capital Adequacy's reports are as per the Bank Negara Malaysia's CAFIB.

Collective impairment for impairment loss on non-impairedfinancing

113




(b)

Group and Bank Risk2014 Gross Net weighted Capital

exposures exposures assets requirementsExposure Class RM'000 RM'000 RM'000 RM'000

Credit RiskOn-Balance Sheet ExposuresSovereigns/Central Banks 1,634,858 1,634,858 - - Banks, Development Financial Institutions ("DFIs") & MDBs 555,711 555,711 111,142 8,891Corporate 2,798,795 2,785,280 2,347,538 187,803Regulatory Retail 871,638 870,303 652,727 52,218Residential Real Estate (RRE) Financing 1,161,337 1,161,337 587,818 47,025Other assets 43,233 43,233 7,626 610Defaulted Exposures 10,733 10,733 12,666 1,013Total for On-Balance Sheet Exposures 7,076,305 7,061,455 3,719,517 297,560

Off-Balance Sheet ExposuresOff-balance sheet exposures other than OTC derivatives or credit derivatives 557,930 557,930 507,271 40,582 Total for Off-Balance Sheet Exposures 557,930 557,930 507,271 40,582

Total On and Off-Balance Sheet Exposures 7,634,235 7,619,385 4,226,788 338,142

Large Exposures Risk Requirement - - - -

Long ShortMarket Risk position positionForeign Currency Risk 119,562 - 119,562 9,565

Operational Risk - - 338,971 27,118 Total RWA and Capital Requirements 4,685,321 374,825

The breakdown of risk-weighted assets ("RWA") by exposures in each major risk category for thecurrent financial year are as follows:

114




(b)

Group and Bank Risk2013 Gross Net weighted Capital

exposures exposures assets requirementsExposure Class RM'000 RM'000 RM'000 RM'000

Credit RiskOn-Balance Sheet ExposuresSovereigns/Central Banks 1,242,904 1,242,904 - - Banks, DFIs & MDBs 378,611 378,611 75,722 6,058 Corporate 2,816,768 2,800,371 2,341,549 187,324 Regulatory Retail 948,869 945,983 709,487 56,759 Residential Real Estate (RRE) Financing 1,060,302 1,060,302 562,755 45,020 Other assets 63,895 63,895 21,583 1,727 Defaulted Exposures 31,040 30,969 33,607 2,689 Total for On-Balance Sheet Exposures 6,542,389 6,523,035 3,744,703 299,577

Off-Balance Sheet ExposuresOff-balance sheet exposures other than OTC derivatives or credit derivatives 710,922 710,922 652,055 52,165 Total for Off-Balance Sheet Exposures 710,922 710,922 652,055 52,165

Total On and Off-Balance Sheet Exposures 7,253,311 7,233,957 4,396,758 351,742

Large Exposures Risk Requirement - - - -

Long ShortMarket Risk position positionForeign Currency Risk 138,684 - 138,684 11,095

Operational Risk - - 359,027 28,722 Total RWA and Capital Requirements 4,894,469 391,559

The breakdown of risk-weighted assets ("RWA") by exposures in each major risk category for thecurrent financial year are as follows: (continued)

115

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JHI B

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INVE

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CO

RPO

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N (M

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Com

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No.

719

057-

X

NO

TES

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CIA

L ST

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DEC

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117




(d) The breakdown of risk-weighted assets by risk-weights are as follows:

Group and Bank Risk-2014 Principal weighted

RM'000 RM'000

0% 1,670,465 - 20% 633,207 126,641 35% 338,719 118,552 50% 634,617 317,309 75% 2,720,092 2,040,068100% 1,618,418 1,618,417

3,867 5,801 Risk-weighted assets for credit risk 7,619,385 4,226,788Large exposure risk-weighted assets for equity holdings - Risk-weighted assets for market risk 119,562 Risk-weighted assets for operational risk 338,971 Total risk-weighted assets 4,685,321

2013

0% 1,285,216 - 20% 411,999 82,400 35% 299,250 105,623 50% 643,800 321,900 75% 2,849,779 2,137,334100% 1,732,738 1,732,738

11,175 16,763 Risk-weighted assets for credit risk 7,233,957 4,396,758Large exposure risk-weighted assets for equity holdings - Risk-weighted assets for market risk 138,684 Risk-weighted assets for operational risk 359,027 Total risk-weighted assets 4,894,469

150%

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2014

122



39. SEGMENTAL INFORMATION

(i) Retail Banking

(ii) Treasury and Money Market

(iii) Corporate Investment Banking

Segmental reporting by the Bank was prepared in accordance with MFRS 8 ‘Operating Segments’(‘MFRS 8’). Following the management approach of MFRS 8, operating segments are reported in amanner consistent with the internal reporting provided to the chief operation decision-maker. The chiefoperating decision-maker is the person or group that allocates resources to and assesses theperformance of the operating segments of an entity.

All inter-segment transactions are conducted on an arm’s length basis and on normal commercialterms not more favourable than those generally available to the public.

The business segment results are prepared based on the Bank’s internal management reporting,which reflect the organisation’s management structure. Internal allocation of costs has been used inpreparing the segmental reporting.

The Bank’s business segment can be organised into the following main segments reflecting theBank’s internal reporting structure. The Bank comprises the following main business segments:

Retail banking focus on providing product and services to individual customers and small andmedium-sized enterprises. These products and services offered to customers include creditfacilities, charge cards, remittance services, deposit collection and investment products.

The treasury and money market are involved in proprietary trading in treasury related productsand services such as foreign exchange, money market operations and securities trading. Incomefrom customer trading is reflected under Retail Operations.

Corporate Investment Banking operations provide a full range of financial services to corporatecustomers as well as small and medium sized enterprises. The products and services offeredinclude long and short term financing such as working capital financing, asset financing, projectfinancing as well as trade financing.

123



39. SEGMENTAL INFORMATION (Continued)

Treasury & CorporateRetail money investment

banking market banking TotalBank RM'000 RM'000 RM'000 RM'000

2014Total revenue 192,416 133,787 30,024 356,226

ResultSegment result 59,438 76,013 28,529 163,980 Unallocated corporate expenses (153,978) Profit before zakat and taxation 10,002 Zakat and taxation (5,200) Net profit for the financial year 4,802Other comprehensive income: - Securities available-for-sale - - Wakalah transfer to reserve - Total comprehensive income for the financial year 4,802

Other informationSegment assets 1,961,972 540,864 3,081,754 5,584,590Unallocated corporate assets 1,686,343Total assets 7,270,933

Segment liabilities 2,916,142 3,339,001 - 6,255,143Unallocated corporate liabilities 295,059 Total liabilities 6,550,202

Other segment itemsCapital expenditure 2,758 61 190 3,009 Unallocated capital expenditure 8,530

11,539

Depreciation and amortisation 7,209 238 971 8,418 Unallocated depreciation and amortisation 12,019

20,438

Other non-cash (income)/expenses 15,086 - 1,494 16,580

124



39. SEGMENTAL INFORMATION (Continued)

Treasury & CorporateRetail money investment

banking market banking TotalBank RM'000 RM'000 RM'000 RM'000

2013Total revenue 149,781 47,826 141,622 339,229

ResultSegment result 120,448 31,024 15,142 166,614 Unallocated corporate expenses (160,861) Profit before zakat and taxation 5,753 Zakat and taxation (2,606) Net profit for the financial year 3,147Other comprehensive income: - Securities available-for-sale (26) - Wakalah transfer to reserve (2) Total comprehensive income for the financial year 3,119

Other informationSegment assets 2,118,934 609,044 2,708,362 5,436,340Unallocated corporate assets 1,318,296Total assets 6,754,636

Segment liabilities 2,418,439 3,565,319 - 5,983,758Unallocated corporate liabilities 54,949 Total liabilities 6,038,707

Other segment itemsCapital expenditure 3,858 43 - 3,901 Unallocated capital expenditure 5,019

8,920

Depreciation and amortisation 8,371 211 1,003 9,585 Unallocated depreciation and amortisation 10,630

20,215

Other non-cash (income)/expenses (8,465) - 24,262 15,797

125



40. LEASE COMMITMENTS

2014 2013Group and Bank RM'000 RM'000

Within one year 1,693 1,789 One year to less than five years 3,442 5,087

5,135 6,876

41. FAIR VALUE MEASUREMENTS

(a) Assets and liabilities measured at fair value

Determination of fair value and the fair value hierarchy

Level 1 -

Level 2 -

Level 3 -

Quoted market prices: quoted prices (unadjusted) in active markets foridentical assets and liabilities;

Valuation techniques based on observable inputs: inputs other than quoted

prices included within Level 1 that are observable for the instrument, whether

directly (i.e. prices) or indirectly (i.e. derived from prices), are used; and

Fair value is the amount at which an asset could be exchanged or a liability settled, betweenknowledgeable and willing parties in an arm’s length transaction.

The Group and the Bank classify their assets and libilities which are measured at fair valueaccording to the following hierarchy, reflecting the significance of inputs used in making the fairvalue measurements:

The Group and the Bank have lease commitments in respect of rented premises and equipment onhire, all of which are classified as operating leases. A summary of the non-cancellable long-term leasecommitments is as follows:

Valuation techniques using significant unobservable inputs: inputs used arenot based on observable market data and the unobservable inputs have asignificant impact on the valuation of the financial instruments and non-financial assets.

126



41. FAIR VALUE MEASUREMENTS (Continued)

(a) Assets and liabilities measured at fair value (Continued)

Determination of fair value and the fair value hierarchy (Continued)

Group and Bank

Level 1 Level 2 Level 3 TotalRM'000 RM'000 RM'000 RM'000

Assets measured at fair value:

Hedging financial instruments - 1,630 - 1,630Financial assets held-for-trading - Quoted securities (Unit trust) 5,099 - - 5,099Investment properties - 105,000 - 105,000

Liabilities measured at fair value:

Hedging financial instruments - 685 - 685

The following table provides the fair value measurement hierarchy of the Group's and Bank'sassets and liabilities.

2014

Assets and liabilities are classified as Level 1 if their values are observable in an active market.Such instruments are valued by reference to unadjusted quoted prices for identical assets orliabilities in active markets where the quoted prices are readily available, and the prices representactual and regularly occurring market transactions. An active market is one in which transactionsoccur with sufficient volume and frequency to provide pricing information on an on-going basis.These would include actively traded listed equities and actively exchange-traded derivatives.

Where fair value is determined using unquoted market prices in less active markets or quotedprices for similar assets and liabilities, such instruments are generally classified as Level 2. Incases where quoted prices are generally not available, the Bank then determines fair value basedupon valuation techniques that use as inputs, market parameters including but not limited toyield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ

Assets and liabilities are classified as Level 3 if their valuation incorporates significant inputs thatare not based on observable market data (unobservable inputs). Such inputs are generallydetermined based on observable inputs of a similar nature, historical observations on the level ofthe input or other analytical techniques.

The Group and the Bank does not have any financial instruments classified as Level 3.

127






Group and Bank


Assets for which fair values are disclosed (Note 41 (b)):

Deposit and placement with banks and other financial institutions - 232,412 - 232,412 Financing and advances - 2,784,436 1,669,924 4,454,360Securities held-to-maturity - 1,421,873 - 1,421,873

Liabilities for which fair values are disclosed (Note 41 (b)):

Deposits from customers - 5,470,911 - 5,470,911Deposits and placements of banks and other financial institutions - 773,908 - 773,908

There have been no transfer between Level 1 and Level 2 during the period.

2014

The valuation date for financial assets and liabilities is 31 December 2014.

The fair value of financing and advances that are valued at level 3 is estimated by discounting theestimated future cash flows at a discount rate between 3.0% to 16.4%. (2013: 2.0% to 19.5%)

128






Group and Bank


Assets measured at fair value:

Hedging financial instruments - 1,788 - 1,788Financial assets held-for-trading - Quoted securities (Unit trust) 4,792 - - 4,792Investment properties - 105,000 - 105,000

Liabilities measured at fair value:

Hedging financial instruments - 610 - 610

Assets for which fair values are disclosed (Note 41 (b)):

Deposit and placement with banks and other financial institutions - - - - Financing and advances - 3,273,203 1,135,862 4,409,065Securities held-to-maturity - 757,098 - 757,098

Liabilities for which fair values are disclosed (Note 41 (b)):

Deposit and placement of banks and other financial institutions - - - - Deposits from customers - 4,393,078 - 4,393,078

There have been no transfer between Level 1 and Level 2 during the period.

2013

The following table provides the fair value measurement hierarchy of the Group's and Bank'sassets and liabilities. (Continued)

The valuation date for financial assets and liabilities is 31 December 2013.

129




(b) Financial assets and liabilities not carried at fair value

Carrying Fair Carrying Fairvalue value value value

RM'000 RM'000 RM'000 RM'000Financial assets

Deposit and placement with banks and other financial institutions 233,114 232,412 - - Financing and advances 4,774,809 4,454,360 4,784,898 4,409,065Securities held-to-maturity 1,426,084 1,421,873 1,035,903 757,098

Financial liabilities

Deposit and placement of banks and other financial institutions 775,000 773,908 1,566,722 1,571,959Deposits from customers 5,477,854 5,470,911 4,401,696 4,393,078

(i)

(ii) Financial investments held-to-maturity

The following table summarises the carrying amounts and the estimated fair values of thosefinancial assets and liabilities not presented on the Group's balance sheet at their fair value.

2014 2013

The following methods and assumptions are used to estimate the fair value of each class offinancial instruments:

For cash and short term funds and and deposits and placements with maturities of less thansix months, the carrying value is a reasonable estimate of fair value. For deposits andplacements with maturities six months and above, estimated fair value is based ondiscounted cash flows using prevailing money market profit rates at which similar depositsand placements would be made with financial institutions of similar credit risk and remainingperiod to maturity.

The estimated fair value is generally based on quoted and observable market price. The fairvalue of securities that are not traded in an active market are determined using valuationtechniques which include net present value and discounted cash flow models based onassumptions of market conditions existing at the reporting date.

Cash and short-term funds and deposits and placements

130



41. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

(b) Financial assets and liabilities not carried at fair value (Continued)

(iii) Financing and advances

(iv) Other assets and liabilities

(v) Deposits from customers

(vi) Deposits from banks and bills and acceptances payable

42. COMPARATIVES

43. APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution by the Board ofDirectors dated 19 March 2015.

For floating rate financing and advances, the carrying value is generally a reasonableestimate of fair value.

For fixed rate financing and advances, the fair values are estimated by discounting theestimated future cash flows using prevailing market rates of financing with similar credit riskand maturities.

Certain comparatives figures have been reclassed to conform with current year's presentation.

The carrying value less any estimated impairment allowance for financial assets andliabilities included in "other assets and liabilities" are assumed to approximate their fairvalues as these items are not materially sensitive to the shift in market profit rates.

The fair values of deposits with remaining maturity of less than one year are estimated toapproximate their carrying amounts. The fair values of deposits with remaining maturity ofmore than one year are estimated using discounted cash flows based on market rates forsimilar deposits from customers.

The fair values of these financial instruments with remaining maturity of less than one yearapproximate their carrying amounts due to the relatively short maturity of the financialinstruments.

The fair values of impaired fixed rates financing and advances are represented by theircarrying value, net of individual impairment being the expected recoverable amount.

131

financial statements for the financial year ended 31 ... · finance and auditing. waleed holds a ba...

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