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Annual Report 2008
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49
Negeri Sembilan Perak Teluk Intan
11, Medan Sri Intan, Jalan Sekolah
Nilai Ipoh 36000 Teluk Intan, Perak
5733 & 5734, Jalan TS 2/1 No 1 & 3, Ground & First Floor Tel : 05-621 0130 / 0131 / 0133
Taman Semarak Phase II Persiaran Greentown 9 Fax : 05-621 0128
71800 Nilai, Negeri Sembilan Greentown Business Centre
Tel : 06-799 4114 / 5836 / 5837 30450 Ipoh, Perak Perlis
Fax : 06-799 5115 Tel : 05-255 0980 / 0987
Fax : 05-255 0976 Kangar
Port Dickson A2, Taman Pengkalan Asam
3 & 4, Jalan Aman Ipoh Garden Jalan Alor Setar-Kangar
Kawasan Penambakan Laut No 27A-27A1 01000 Kangar, Perlis
71000 Port Dickson Jalan Sultan Azlan Shah Utara Tel : 04-977 8669 / 8670 / 8672
Negeri Sembilan 31400 Ipoh, Perak Fax : 04-977 8566
Tel : 06-647 3950 / 3951 / 3955 Tel : 05-549 7277 / 7266
Fax : 06-647 4776 Fax : 05-549 7299 Pulau Pinang
Seremban Lumut Bayan Baru
No 175, Jalan Dato’ Bandar Tunggal Ground Floor, 124 & 126, Jalan Mayang Pasir
70000 Seremban, Negeri Sembilan Kompleks Mutiara Armada Taman Sri Tunas
Tel : 06-762 9651 / 9652 / 9653 Jalan Nakhoda, Pengkalan TLDM 11950 Bayan Baru
Fax : 06-763 6125 32100 Lumut, Perak Pulau Pinang
Tel : 05-683 5051 / 5066 Tel : 0 4-644 7593 / 7643 /
Pahang Fax : 05-683 5579
3815 / 4171
Jengka Sitiawan Fax : 04-645 2709
Nadi Kota No 11 & 12, Taman Sitiawan 1
26400 Bandar Jengka, Pahang Jalan Lumut Butterworth
Tel : 09-466 2233 / 2253 32000 Sitiawan, Perak 55-57, Jalan Selat, Taman Selat
Fax : 09-466 2422 Tel : 05-692 1328 / 8401 / P.O.Box 165, Off Jalan Bagan Luar
12000 Butterworth
Kuantan 691 7516 / 3486 Pulau Pinang
1, Jalan Tun Ismail, P.O.Box 354 Fax : 05-691 7339 Tel : 04-333 1372 / 3177
25740 Kuantan, Pahang Fax : 04-332 3299
Tel : 09-515 7146 / 7166 / 7642 Taiping
Fax : 09-513 4027 Ground Floor, 157, Jalan Kota Fettes Park
34000 Taiping, Perak 96-G-32, Jalan Fettes
Mentakab Tel : 05-806 6816 / 5534 / 807 9067 Prima Tanjung Business Centre
70, Jalan Temerloh (Operations) Tanjung Tokong
28400 Mentakab, Pahang Tel : 05-808 9020 / 8507 (HPC / Credit) 11200 Pulau Pinang
Tel : 09-278 4487 / 2201 / Fax : 05-808 9903 Tel : 04-899 9069
Fax : 04-899 0767
277 2969 / 8517
Fax : 09-277 6654
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Annual Report 2008
Network of Branches
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network of branches (cont.)
Jalan Macalister Sabah Kuching
No 104C, 104D & 104E Lot 247 & 248, Section 49, KTLD
Jalan Macalister Jalan Gaya, Kota Kinabalu Jalan Tuanku Abdul Rahman
10400 Pulau Pinang No. 86, Jalan Gaya 93100 Kuching, Sarawak
Tel : 04-229 1495 88000 Kota Kinabalu, Sabah Tel : 082-245 888 / 256 896 /
Fax : 04-226 1530 Tel : 088-230 213 / 233 232
422 909 / 589 / 598
Kepala Batas Sadong Jaya Complex, Fax : 082-257 366
Lot 1317 & 1318, Lorong Malinja Kota Kinabalu
Taman Sepakat, Off Jalan Butterworth Lot 19 & 20, Block K Miri
13200 Kepala Batas, Seberang Prai Utara Sadong Jaya Complex Lot 2387 & 2388, Block A4
Pulau Pinang Jalan Ikan Juara 3, Karamunsing Jalan Boulevard 1A
Tel : 04-575 1824 / 1853 / 1902 88300 Kota Kinabalu, Sabah Boulevard Commercial Center
Fax : 04-575 1975 Tel : 088-264 410 / 413 / 261 515 KM 3, Jalan Miri-Pujut
Fax : 088-261 414 98000 Miri, Sarawak
Prai Tel : 085-437 442 / 443 / 445
No 2, Tingkat Kikik 7 Sandakan Fax : 085-437 297
Taman Inderawasi, 13600 Prai Lot 49, Bandar Pasaraya
Pulau Pinang Miles 4, Jalan Utara Sibu
Tel : 04-397 8534 / 8535 / 399 3900 90000 Sandakan, Sabah No. 3, Raminway, 96000 Sibu, Sarawak
Fax : 04-397 9243 Tel : 089-212 752 / 753 / 732 / 762 / 768 Tel : 084-325 926 / 943 /
Fax : 089-212 644
Seberang Jaya 340 929 / 341 266 / 299
No 10, Jalan Todak Satu Tawau Fax : 084-311 488 / 325 960
Pusat Bandar Seberang Jaya TB 281, 282 & 283, Jalan Haji Karim
13700 Prai, Pulau Pinang Town Extension II, P.O. Box 630 Terengganu
Tel : 04-399 5881 91008 Tawau, Sabah
Fax : 04-399 2881 Tel : 089-778 197 / 198 Kemaman
Fax : 089-762 199 K711-713, Wisma IKY Naga
Wisma Pelaut Jalan Sulaimani
1A, Light Street, Wisma Pelaut Sarawak 24000 Kemaman, Terengganu
10200 Pulau Pinang Tel : 09-858 1744 / 2544 / 6572 / 3980
Tel : 04-263 6633 / 2121 / 4373 / Bintulu Fax : 09-859 1572
261 2494 Sub Lot 13, Off Lot 3299
Fax : 04-261 9801 Parkcity Commerce Square Kemaman Supply Base
97000 Bintulu, Sarawak Ground Floor
Tel : 086-314 248 / 249 / 261 Admin Building Block B
Fax : 086-314 206 Kemaman Supply Base
24007 Kemaman, Terengganu
Tel : 09-863 1297 / 1303
Fax : 09-863 1295
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Network of Branches
51
Wilayah Persekutuan Pulau Pinang
HEAD OFFICE Juru Business Centre
15th Floor, Menara AFFIN No. 1813A, Jalan Perusahaan
80, Jalan Raja Chulan Auto-City North-South Highway
50200 Kuala Lumpur Juru Interchange
Tel : 03-2055 9000 13600 Prai, Pulau Pinang
Fax : 03-2026 6405 Direct Line : 0 4-507 1522
Tel : 04-507 7522 (Pilot)
Fraser Business Centre Fax : 04-507 6522
20-G & 20-1, Jalan Metro Pudu
Fraser Business Park Terengganu
55100 Kuala Lumpur
Tel : 03-9222 8877 Kuala Terengganu
Fax : 03-9222 9877 Business Centre
63 & 63A, Jalan Sultan Ismail
Selangor 20200 Kuala Terengganu
Terengganu
SS2 Business Centre Tel : 09-622 3725 / 3825 / 3925
161-163, Jalan SS 2/24 Fax : 09-623 6496
47300 Petaling Jaya, Selangor
Tel : 03-7874 3513
Fax : 03-7874 3480
Johor
Taman Molek Business Centre
No. 23, 23-01, 23-02
Jalan Molek 1/29 Taman Molek
81100 Johor Bahru, Johor
Tel : 07-351 9522 (4 Lines)
Fax : 07-357 9522
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17th Floor, Menara AFFIN
80 Jalan Raja Chulan
50200 Kuala Lumpur
M A L AYS I A .
T +603 2055 9000
F +603 2026 1415
www.affinbank.com.my
soaring to new heights
financial statements
Annual Report 2008
affinbank
Annual Report 2008
Financial Statements
financial statements
2 Directors’ Report
22 Balance Sheets
24 Income Statements
25 Statement of Changes in Equity
27 Cash Flow Statements
30 Summary of Significant Accounting Policies
43 Notes to the Financial Statements
124 Statements by Directors
124 Statutory Declaration
1 25 Independent Auditors’ Report
affinbank
Annual Report 2008
Directors’ Report
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial
year ended 31 December 2008.
PRINCIPAL ACTIVITIES
The principal activities of the Bank during the financial year are banking and related financial services. The principal activities of the
subsidiaries are Islamic banking business, factoring of credit facilities, property management services, nominee and trustee services.
Islamic banking business refers generally to the acceptance of deposits and granting of financing under the Shariah principles.
There were no significant changes in the nature of these activities during the financial year.
FINANCIAL RESULTS
The Group The Bank
RM’000 RM’000
Profit before taxation and zakat 454,628 409,553
Taxation and zakat (123,316) (109,617)
Net profit for the financial year 331,312 299,936
DIVIDENDS
The dividends on ordinary shares paid or declared by the Bank since 31 December 2007 were as follows:
In respect of the financial year ended 31 December 2007 as shown in the directors’ report for that financial year:
RM’000
Final gross dividend of 2.96 sen per share, less income tax of 26% paid on 18 March 2008 31,526
In respect of the financial year ended 31 December 2008:
Interim gross dividend of 5.0 sen per share, less income tax of 26% paid on 3 December 2008 53,254
The Directors now recommend the payment of a final gross dividend of 2.0 sen per share, less income tax of 25%, amounting to
RM21,589,281 which is subject to the approval of members at the forthcoming Annual General Meeting of the Bank.
affinbank
Annual Report 2008
Directors’ Report
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
RESERVES AND PROVISIONS
All material transfers to or from reserves or provisions during the financial year are shown in the financial statements.
BAD AND DOUBTFUL DEBTS AND FINANCING
Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that
proper action had been taken in relation to the writing off of bad debts and financing and the making of allowance for bad and
doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and adequate
allowances made for doubtful debts and financing.
At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad debts
and financing, or the amount of the allowance for doubtful debts and financing, in the financial statements of the Group and the
Bank inadequate to any substantial extent.
CURRENT ASSETS
Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that
any current assets, other than debts and financing, which were unlikely to realise in the ordinary course of business, their values as
shown in the accounting records of the Group and the Bank, have been written down to an amount which they might be expected
to realise.
At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current
assets in the financial statements of the Group and the Bank misleading.
VALUATION METHODS
At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the
existing methods of valuation of assets or liabilities in the Group’s and the Bank’s financial statements misleading or inappropriate.
CONTINGENT AND OTHER LIABILITIES
At the date of this report there does not exist:
(a) any charge on the assets of the Group or the Bank which has arisen since the end of the financial year which secures the
liabilities of any other person; or
(b) any contingent liability in respect of the Group or the Bank that has arisen since the end of the financial year other than in the
ordinary course of banking business or activities of the Group.
No contingent or other liability of the Group or the Bank has become enforceable, or is likely to become enforceable within the
period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the
ability of the Group or the Bank to meet their obligation as and when they fall due.
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Annual Report 2008
Directors’ Report
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CHANGE OF CIRCUMSTANCES
At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial
statements of the Group and the Bank that would render any amount stated in the financial statements misleading.
ITEMS OF AN UNUSUAL NATURE
The results of the operations of the Group and the Bank during the financial year were not, in the opinion of the Directors,
substantially affected by any item, transaction or event of a material and unusual nature.
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event
of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the
Group or the Bank for the current financial year in which this report is made.
SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR
Significant event during the financial year is as disclosed in Note 46 to the financial statements.
SUBSEQUENT EVENTS
There were no material events subsequent to the balance sheet date that require disclosure or adjustments to the financial
statements.
affinbank
Annual Report 2008
Directors’ Report
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
DIRECTORS
The Directors of the Bank who have held office during the period since the date of the last report are:
Gen Tan Sri Dato’ Seri Ismail bin Haji Omar (Rtd)
Chairman/Non-Independent Non-Executive Director
Dato’ Sri Abdul Hamidy bin Abdul Hafiz (Managing Director/Chief Executive Officer)
Non-Independent Executive Director
Tan Sri Dato’ Lodin bin Wok Kamaruddin
Non-Independent Non-Executive Director
(Directorship from 1 January 2008 to 29 March 2008)
Dr Raja Abdul Malek bin Raja Jallaludin
Independent Non-Executive Director
Vice Admiral Dato’ Seri Ahmad Ramli bin Mohd Nor (Rtd)
Non-Independent Non-Executive Director
Datuk Razman Md. Hashim bin Che Din Md. Hashim
Independent Non-Executive Director
Dato’ Dr. Lee Chee Kuon
Independent Non-Executive Director
Dato’ Sri Abdul Aziz bin Abdul Rahman
Independent Non-Executive Director
Mr Aubrey Li Kwok-Sing
Non-Independent Non-Executive Director
(Appointed as Director w.e.f 17 March 2008)
Mr Brian Li Man-Bun
Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing)
(Appointed as Director w.e.f 22 May 2008)
Mr Stephen Charles Li
Non-Independent Non-Executive Director
(Appointed as Director w.e.f 17 March 2008)
Mr Eric Koh Thong Hau
Non-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li)
(Appointed as Director w.e.f 17 March 2008)
affinbank
Annual Report 2008
Directors’ Report
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
DIRECTORS’ INTERESTS
According to the register of Directors’ shareholdings, the interest of Directors in office at the end of the financial year in shares,
warrants and options of related companies are as follows:
Ordinary shares of RM1 each
As at As at
1.1.2008 Bought Sold 31.12.2008
AFFIN Holdings Berhad 8,714* 800,000 – 808,714*
7,000 – – 7,000
Tan Sri Dato’ Lodin bin Wok Kamaruddin – 200,000
Dato’ Dr. Lee Chee Kuon – 200,000
Dato’ Sri Abdul Hamidy bin Abdul Hafiz
Boustead Heavy Industries Corporation Berhad 2,000,000 – – 2,000,000
Tan Sri Dato’ Lodin bin Wok Kamaruddin
Boustead Petroleum Sdn Berhad 5,466,465 – – 5,466,465
Tan Sri Dato’ Lodin bin Wok Kamaruddin
Al-Hadharah Boustead REIT 200,000 – – 200,000
Tan Sri Dato’ Lodin bin Wok Kamaruddin
*Shares held in trust by nominee company
affinbank
Annual Report 2008
Directors’ Report
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
DIRECTORS’ INTERESTS (continued)
Number of warrants 2000/2010
As at As at
1.1.2008 Bought Sold 31.12.2008
AFFIN Holdings Berhad 1,500 – – 1,500
1,214 – – 1,214
Tan Sri Dato’ Lodin bin Wok Kamaruddin
Dato’ Dr. Lee Chee Kuon
Each warrant of the holding company (‘AFFIN Warrants 2000/2005’) entitles the registered holder to subscribe one new ordinary
share of RM1.00 each in AFFIN Holdings Berhad at any time from the date of issue of 8 July 2000 at the exercise price of RM3.10
per share. The original exercise period of the AFFIN Warrants 2000/2005 was to expire on 7 July 2005. During the financial year
2005, the AFFIN Warrants 2000/2005 was extended for another five years and will expire on 7 July 2010 (‘AFFIN Warrants
2000/2010’).
Options over ordinary shares of RM1 each
As at As at
1.1.2008 Granted Exercised 31.12.2008
AFFIN Holdings Berhad 800,000** – 800,000 –
Tan Sri Dato’ Lodin bin Wok Kamaruddin
** This option was granted by the holding company, AFFIN Holdings Berhad under its Employees’ Share Option Scheme at the
option price of RM1.41 per share and has been exercised in full before the expiry date (i.e.13 February 2008).
Ordinary shares of RM10 each; RM5 uncalled
As at As at
1.1.2008 Bought Transferred 31.12.2008
ABB Trustee Berhad*** 20,000 – – 20,000
20,000 – – 20,000
Gen Tan Sri Dato’ Seri Ismail bin Haji Omar (Rtd) 20,000 – – 20,000
Dr Raja Abdul Malek bin Raja Jallaludin 20,000 – – 20,000
Vice Admiral Dato’ Seri Ahmad Ramli bin Mohd Nor (Rtd)
Datuk Razman Md. Hashim bin Che Din Md. Hashim
***Shares held in trust for the Bank
affinbank
Annual Report 2008
Directors’ Report
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
DIRECTORS’ INTERESTS (continued)
Ordinary shares of 50 sen each
As at As at
1.1.2008 Bought Sold 31.12.2008
Boustead Holdings Berhad 21,695,000 – 1,879,000 19,816,000
Tan Sri Dato’ Lodin bin Wok Kamaruddin
Options over ordinary shares of 50 sen each
As at As at
1.1.2008 Granted Expired 31.12.2008
Boustead Holdings Berhad 5,912,699@ – 5,912,699 –
Tan Sri Dato’ Lodin bin Wok Kamaruddin
@ This is an option granted by Lembaga Tabung Angkatan Tentera (‘LTAT’) to acquire 29,912,699 Boustead Holdings Berhad shares
from LTAT at RM1.70 per share, expired on 14 November 2008.
Other than the above, the Directors in office at the end of the financial year did not have any other interest in shares, warrants and
options over shares in the Bank or its related corporations during the financial year.
DIRECTORS’ BENEFITS
During and at the end of the financial year, no other arrangements subsisted to which the Bank or any of its subsidiaries is a party
with the object or objects of enabling Directors of the Bank or any of its subsidiaries to acquire benefits by means of the acquisition
of shares in, or debenture of, the Bank or any other body corporate, except for the share options granted to Directors of the Bank
by AFFIN Holdings Berhad, Boustead Holdings Berhad and Lembaga Tabung Angkatan Tentera.
Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than
the fees and other emoluments shown in Note 31 to the financial statements) by reason of a contract made by the Bank or by a
related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial financial
interest except that certain Directors received remuneration as directors/executives of related corporations, share options granted
to Directors of the Bank pursuant to the holding company’s Employee Share Option Scheme and share options granted by the
ultimate holding corporate body and Boustead Holdings Berhad.
affinbank
Annual Report 2008
Directors’ Report
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE
The Board of Directors is committed to ensure the highest standards of corporate governance throughout the organisation with the
objectives of safeguarding the interests of all stakeholders and enhancing the shareholders’ value and financial performance of the
Bank. The Board considers that it has applied the Best Practices as set out in the Malaysian Code of Corporate Governance
throughout the financial year. The Bank is also required to comply with BNM’s Guidelines on Directorship in the banking institutions
(‘BNM/GP1’).
(i) Board of Directors Responsibility and Oversight
The Board of Directors
The direction and control of the Bank rest firmly with the Board as it effectively assumes the overall responsibility for corporate
governance, strategic direction, formulation of policies and overseeing the investments and operations of the Bank. The Board
exercises independent oversight on the management and bears the overall accountability for the performance of the Bank and
compliance with the principle of good governance.
There is a clear division of responsibility between the Chairman and the Chief Executive Officer to ensure that there is a balance
of power and authority. The Board is responsible for reviewing and approving the longer-term strategic plans of the Bank as
well as the business strategies. It is also responsible for identifying the principal risks and implementation of appropriate
systems to manage those risks as well as reviewing the adequacy and integrity of the Bank’s internal control systems,
management information systems, including systems for compliance with applicable laws, regulations and guidelines.
Whilst, the Management Committee, headed by the Chief Executive Officer, is responsible for the implementation of the
strategies and internal control as well as monitoring performance. The Committee is also a forum to deliberate issues pertaining
to the Bank’s business, strategic initiatives, risk management, manpower development, supporting technology platform and
business processes.
The Board Meetings
The Board meets on a monthly basis, to review the Bank’s financial and business performance, to oversee the conduct of the
Bank’s business as well as to ensure that adequate internal control systems are in place. The Board met 11 times during the
financial year.
Board Balance
The Board of Directors comprises of Managing Director/Chief Executive Officer and ten Non-Executive Directors. There are
four Independent Non-Executive Directors, six Non-Independent Non-Executive Directors and one Non-Independent Executive
Director. The Board of Directors meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly
separated from the role of the Managing Director/Chief Executive Officer.
In 2008, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of
prominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areas
particularly in banking.
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Annual Report 2008
Directors’ Report
10
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(i) Board of Directors Responsibility and Oversight (continued)
Board Balance (continued)
The composition of the Board and the number of meetings attended by each director are as follows:
Name of Directors Total Meetings Attended
1. Gen Tan Sri Dato’ Seri Ismail bin Haji Omar (Rtd) 11 out of 11
Chairman/Non-Independent Non-Executive Director
2. Dato’ Sri Abdul Hamidy bin Abdul Hafiz 11 out of 11
Managing Director/Chief Executive Officer
Non-Independent Executive Director
3. Tan Sri Dato’ Lodin bin Wok Kamaruddin 3 out of 3*
Non-Independent Non-Executive Director
(Directorship from 1 January 2008 to 29 March 2008)
4. Dr Raja Abdul Malek bin Raja Jallaludin 9 out of 11
Independent Non-Executive Director
5. Vice Admiral Dato’ Seri Ahmad Ramli bin Mohd Nor (Rtd) 11 out of 11
Non-Independent Non-Executive Director
6. Datuk Razman Md. Hashim bin Che Din Md. Hashim 9 out of 11
Independent Non-Executive Director
7. Dato’ Dr. Lee Chee Kuon 10 out of 11
Independent Non-Executive Director
8. Dato’ Sri Abdul Aziz bin Abdul Rahman 11 out of 11
Independent Non-Executive Director
9. Mr Aubrey Li Kwok-Sing 6 out of 9^
Non-Independent Non-Executive Director (Appointed as Director w.e.f 17 March 2008)
10. Mr Brian Li Man-Bun 0 out of 7^
Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing)
(Appointed as Director w.e.f 22 May 2008)
11. Mr Stephen Charles Li 4 out of 9^
Non-Independent Non-Executive Director (Appointed as Director w.e.f 17 March 2008)
12. Mr Eric Koh Thong Hau 5 out of 9^
Non-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li)
(Appointed as Director w.e.f 17 March 2008)
* Number of meetings up to date of expiring of directorship tenure.
^ Number of meetings since date of appointment.
affinbank
Annual Report 2008
Directors’ Report
11
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(i) Board of Directors Responsibility and Oversight (continued)
Board Committees
(a) Nominating Committee
Nominating Committee was established to provide a formal and transparent procedure for the appointment of Directors
and Managing Director/Chief Executive Officer. The committee also assesses the effectiveness of the Board as a whole,
contribution of each Director, contribution of the Board’s various committees and the performance of Managing Director/
Chief Executive Officer and key senior management officers.
During the financial year ended 31 December 2008, a total of 4 meetings were held. The Nominating Committee comprises
the following members and the details of attendance of each member at the Nominating Committee meetings held during
the financial year are as follows:
Composition of the Nominating Committee Attendance at the
Committee meetings
1. Dato’ Dr. Lee Chee Kuon 4 out of 4
Chairman/Independent Non-Executive Director
2. Vice Admiral Dato’ Seri Ahmad Ramli bin Mohd Nor (Rtd) 4 out of 4
Member/Non-Independent Non-Executive Director
3. Tan Sri Dato’ Lodin bin Wok Kamaruddin 1 out of 1*
Member/Non-Independent Non-Executive Director
(Directorship from 1 January 2008 to 29 March 2008)
4. Datuk Razman Md. Hashim bin Che Din Md. Hashim 3 out of 4
Member/Independent Non-Executive Director
5. Dato’ Sri Abdul Aziz bin Abdul Rahman 4 out of 4
Member/Independent Non-Executive Director
6. Dato’ Sri Abdul Hamidy bin Abdul Hafiz 4 out of 4
Member/Non-Independent Executive Director
* Number of meetings up to date of expiring of directorship tenure.
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Annual Report 2008
Directors’ Report
12
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(i) Board of Directors Responsibility and Oversight (continued)
Board Committees (continued)
(b) Remuneration Committee
Remuneration Committee was established to evaluate and recommend a framework of remuneration for Directors, the
Chief Executive Officer and key senior management officers that is competitive and consistent with the Bank’s culture,
objectives and strategy.
During the financial year ended 31 December 2008, a total of 8 meetings were held. The Remuneration Committee
comprises the following members and the details of attendance of each member at the Remuneration Committee meetings
held during the financial year are as follows:
Composition of the Remuneration Committee Attendance at the
Committee meetings
1. Dr Raja Abdul Malek bin Raja Jallaludin 7 out of 8
Chairman/Independent Non-Executive Director
2. Tan Sri Dato’ Lodin bin Wok Kamaruddin 2 out of 2*
Member/Non-Independent Non-Executive Director
(Directorship from 1 January 2008 to 29 March 2008)
3. Dato’ Dr. Lee Chee Kuon 7 out of 8
Member/Independent Non-Executive Director
4. Vice Admiral Dato’ Seri Ahmad Ramli bin Mohd Nor (Rtd) 8 out of 8
Member/Non-Independent Non-Executive Director
* Number of meetings up to date of expiring of directorship tenure.
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Annual Report 2008
Directors’ Report
13
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(i) Board of Directors Responsibility and Oversight (continued)
Board Committees (continued)
(c) Shariah Committee
The Bank’s business activities are subject to Shariah compliance and conformation by the Shariah Committee. The Shariah
Committee is formed as legislated under Section 3(5)(b) of the Islamic Banking Act, 1983 and as per Guidelines on the
Governance of Shariah Committee for the Islamic Financial Institutions (‘BNM/GPS-i’).
The duties and responsibility of the Shariah Committee are as follows:
(i) To advise the Board on Shariah matters in order to ensure that the business operations of the Bank comply with the
Shariah principles at all times;
(ii) To endorse and validate relevant documentations of the Bank’s products to ensure that the products comply with
Shariah principles; and
(iii) To advice the Bank on matters to be referred to the Shariah Advisory Council.
The Shariah Committee was established in December 1995. During the year, a total of 15 meetings were held. The Shariah
Committee comprises the following members and the details of attendance of each member at the Shariah Committee
meetings held are as follows:
Composition of the Shariah Committee Attendance at the
Committee meetings
1. Prof Madya Dr. Hailani bin Muji Tahir 12 out of 15
Chairman
2. Maj Jen Dato’ Haji Jamil Khir bin Baharom 11 out of 15
Member
3. Prof Madya Dr. Md Khalil bin Ruslan 13 out of 15
Member
4. Dr. Asyraf Wajdi Dato’ Dusuki 10 out of 11*
Member (appointed on 25 April 2008)
5. Prof Madya Said Bouheraoua 10 out of 11*
Member (appointed on 25 April 2008)
* Number of meetings since date of appointment.
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Annual Report 2008
Directors’ Report
14
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(ii) Risk Management
The Risk Management function, operating in an independent capacity, is part of the Bank’s senior management structure which
works closely as a team in managing risks to enhance stakeholders’ value.
The Risk Management function provides support to the Board Risk Management Committee (‘BRMC’). Committees namely
Board Loan Recovery Committee (‘BLRC’), Management Loan Committee (‘MLC’), Asset and Liability Management Committee
(‘ALCO’) and Operational Risk Management Committee assist the BRMC in managing credit, liquidity and operational risk
respectively.
Responsibilities of these committees include:
(i) risk identification
(ii) risk assessment and measurement
(iii) risk control and migration
(iv) risk monitoring
(a) Board Risk Management Committee (‘BRMC’)
The main function of Board Risk Management Committee is to assist the Board in its supervisory role in the management
of risk in the Bank. It has responsibility for approving and reviewing the credit risk strategy, credit risk framework and credit
policies of the Bank.
BRMC was established to provide oversight and management of all risks in the Bank. The Committee also ensures that
the procedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively.
The Bank’s risk management framework is set out in Note 2 to the financial statements.
The BRMC meetings for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended
31 December 2008, a total of 5 meetings were held. The BRMC comprises the following members and details of attendance
of each member at the BRMC meetings held during the financial year are as follows:
Composition of the Board Risk Management Committee Attendance at the
Committee meetings
1. Datuk Razman Md. Hashim bin Che Din Md. Hashim 5 out of 5
Chairman/Independent Non-Executive Director
2. Dato’ Dr. Lee Chee Kuon 5 out of 5
Member/Independent Non-Executive Director
3. Dr Raja Abdul Malek bin Raja Jallaludin 5 out of 5
Member/Independent Non-Executive Director
4. Dato’ Sri Abdul Aziz bin Abdul Rahman 3 out of 5
Member/Independent Non-Executive Director
5. Mohd Suffian bin Hj. Haron 5 out of 5
Member/Independent Non-Executive Director (Representative from AFFIN Islamic Bank Berhad)
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Annual Report 2008
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15
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(ii) Risk Management (continued)
(b) Board Loan Review and Recovery Committee (‘BLRC’)
Board Loan Review and Recovery Committee critically reviews loans and other credit facilities with higher risk implications,
after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found
necessary, exercise the power to veto loan applications that have been accepted by the Management Loan Committee.
The Committee is also responsible to review on the non-performing loans presented by Management.
During the financial year ended 31 December 2008, a total of 15 meetings were held. The BLRC comprises the following
members and details of attendance of each member at the BLRC meetings held during the financial year are as follows:
Composition of the Board Loan Review and Recovery Committee Attendance at the
Committee meetings
1. Gen Tan Sri Dato’ Seri Ismail bin Haji Omar (Rtd) 15 out of 15
Chairman/Non-Independent Non-Executive Director
2. Tan Sri Dato’ Lodin bin Wok Kamaruddin 5 out of 5*
Member/Non-Independent Non-Executive Director
(Directorship from 1 January 2008 to 29 March 2008)
3. Vice Admiral Dato’ Seri Ahmad Ramli bin Mohd Nor (Rtd) 12 out of 15
Member/Non-Independent Non-Executive Director
4. Datuk Razman Md. Hashim bin Che Din Md. Hashim 13 out of 15
Member/Independent Non-Executive Director
* Number of meetings up to date of expiring of directorship tenure.
Management Loan Committee (‘MLC’)
Management Loan Committee approves complex and larger loans and workout/recovery proposals beyond the delegated
authority of the concerned individual senior management personnel of the Bank.
Individual approvers
For the delegated authority, a dual sign-off approval system is in place, independent of business imperatives.
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Annual Report 2008
Directors’ Report
16
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(ii) Risk Management (continued)
(c) Asset and Liability Management Committee (‘ALCO’)
Responsibilities of these committees include:
(i) Manage the asset liability of the Bank through coordination of the Bank’s overall planning process including strategic
planning, budgeting and asset liability management process;
(ii) Direct the Bank’s overall acquisition and allocation of Funds;
(iii) Prudently manage the Bank’s interest rate exposure;
(iv) Determine the overall Balance Sheet strategy and ensuring policy compliance;
(v) Determine the type and scope of derivative activities, approve individual derivative transactions as well as control over
the level of exposure in derivatives; and
(vi) Review of market risks in Bank’s trading portfolios.
(d) Operational Risk Management Committee
Responsibilities of these committees include:
(i) To evaluate operational risks issues on escalating importance/strategic risk exposure;
(ii) To review and recommend on broad operational risks management policies best practices for adoption by the Bank’s
operating units;
(iii) To review the effectiveness of broad internal controls and making recommendation on changes if necessary;
(iv) To review/approve recommendation on operational risk management groups section up to address specific issue;
(v) To take the lead in inculcating an operational risks awareness culture;
(vi) To approve operational risk management methodologies/measurements tools; and
(vii) To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC’s approval
if necessary.
(iii) Internal Audit and Internal Control Activities
In accordance with Bank Negara Malaysia’s GP10 guidelines, the Audit and Compliance Division (‘ACD’) conducts continuous
reviews on auditable areas within the Bank. The continuous reviews by ACD are focused on areas of significant risks and
effectiveness of internal control in accordance to the audit plan approved by the Audit and Examination Committee (‘AEC’). The
risks highlighted on the respective auditable areas as well as recommendations made by the ACD are addressed at AEC and
Management meetings on a monthly basis. The AEC also conducts annual reviews on the adequacy of internal audit function,
scope of work, resources and budget of ACD.
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Annual Report 2008
Directors’ Report
17
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(iii) Internal Audit and Internal Control Activities (continued)
At present, ACD consists of Operational Audit, IS Audit, Credit Review, Investigation and Compliance. Audit activities include
these key components:
(a) Conduct audit on all auditable entities (Head Office, branches and subsidiaries) processes, services, products, systems and
provide an independent assessment to the Board of Directors, AEC and Management that appropriate control environment
is maintained with clear authority and responsibility with sufficient staff and resources to carry out control responsibilities.
(b) Perform risk assessments to identify risk and evaluate actions taken to provide reasonable assurance that procedures and
controls exist to contain those risks.
(c) Maintain strong control activities including documented processes and systems incorporating adequate controls to
produce accurate financial data and provide for the safeguarding of assets, and a documented review of reported results.
(d) Ensure effective information flows and communication, including:
(i) Training and the dissemination of standards and requirements;
(ii) An information system to produce and convey complete, accurate and timely data including financial data;
(iii) The upward communication of trends, developments and emerging issues.
(e) Monitor controls, including procedures to verify that controls are in place and functioning, follow up on corrective action
on control finding until its full resolution.
Based on ACD’s review, identification and assessment of risk, testing and evaluation of controls, ACD will provide an opinion
on the effectiveness of internal controls maintained by each entity.
The AEC comprises members of the Bank’s Board of Directors whose primary function is to assist the Board of Directors in its
supervision over:
(i) The reliability and integrity of accounting policies and financial reporting and disclosure practices,
(ii) The provision of advice to the Board with regards to the financial statements and business risks to enable the Board to fulfil
its fiduciary duties and obligations, and
(iii) The establishment and maintenance of processes to ensure that they:
– are in compliance with all applicable laws, regulations and company policies; and
– have adequately addressed the risk relating to internal controls and system, management of inherent and business
risks, and ensuring that the assets are properly managed and safeguarded.
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Annual Report 2008
Directors’ Report
18
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
CORPORATE GOVERNANCE (continued)
(iii) Internal Audit and Internal Control Activities (continued)
The AEC is made up of at least three but not more than five members appointed by the Board of Directors from among its
non-executive directors.
The AEC meetings for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended
31 December 2008, a total of 10 meetings were held. The Audit and Examination Committee comprises the following members
and details of attendance of each member at the Audit and Examination Committee meetings held during the financial year are
as follows:
Composition of the Audit and Examination Committee Attendance at the
Committee meetings
1. Dato’ Sri Abdul Aziz bin Abdul Rahman 10 out of 10
Chairman/Independent Non-Executive Director
2. Dr Raja Abdul Malek bin Raja Jallaludin 8 out of 10
Member/Independent Non-Executive Director
3. Dato’ Dr. Lee Chee Kuon 8 out of 10
Member/Independent Non-Executive Director
4. Tan Sri Mohamed Jawhar 8 out of 10
Member/Independent Non-Executive Director
(Representative from AFFIN Islamic Bank Berhad)
(iv) Management Reports
Before each Board meeting, Directors are provided with a complete set of board papers itemised in the agenda for Board’s
review/approval and/or notation.
The Board monitors the Bank’s performance by reviewing the monthly Management Report, which provides a comprehensive
review and analysis of the Bank’s operations and financial issues. In addition, the minutes of the Board Committees and
Management Committees meetings and other issues are also tabled and considered by the Board.
Procedures are in place for Directors to seek both independent professional advice at the Bank’s expense and the advice and
services of the Company Secretary in order to fulfil their duties and specific responsibilities.
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Annual Report 2008
Directors’ Report
19
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2008 AND FUTURE OUTLOOK
For year 2008, Affin Bank continued with the implementation of its transformation plan, notwithstanding difficult economic
conditions in the second half of the financial year arising from the financial crisis afflicting the United States and Europe.
By focusing on efforts to strengthen its position as a mid-sized anchor financial institution, the Bank successfully achieved several
important milestones in 2008:
– In 2008, we are pleased to report a profit before tax of RM454.6 million (Group), RM409.6 million (Bank), the highest ever
achieved in the history of the Group and the Bank.
– Our long-term credit rating was upgraded one notch in October by Rating Agency Malaysia from A3 to A2 while our short-term
rating was reaffirmed at P1. This is a major achievement for the bank in view of present market uncertainties. It is our expressed
goal to further improve our financial position and achieve a double-A rating over the medium term.
– Our net NPL ratio has been reduced from 7.69% (Group), 8.38% (Bank) at the end of 2007 to 3.22% (Group), 3.49% (Bank).
This is a clear testimony to our efforts in curbing the Bank’s legacy NPL problem and more importantly, our new (non-legacy)
NPL level is low at less than 1%.
– In April 2008 Affin Islamic became the first domestic Islamic Bank in Malaysia to enter into a Musharakah Agreement with a
notable property developer in Pulau Pinang. The Musharakah was established via a special purpose vehicle in which both
Affin Islamic and the developer are joint partners. Under the agreement, the developer will be responsible for the construction
and sales of the property while Affin Islamic will provide the financing requirements, featuring a combination of hybrid Islamic
financing products. Musharakah is a partnership between two or more parties where each party contributes capital and shares
the profit of the venture based on a pre-agreed profit sharing ratio. This partnership allows us to earn blended returns where
for the same amount of exposure and risk, the Bank earns both equity and debt returns, while maintaining our risk position as
a creditor.
– In our continued effort to introduce various innovative products and services to our customers, the Bank successfully launched
our retail internet banking portal affinOnline.com in December 2008.
– The Bank had also won itself several industry accolades. In 2008, Affin Bank was ranked among the Top 30 Malaysia’s Most
Valuable Brands (MMVB) for the second year running, with an estimated brand value of RM237 million. In 2009, we will further
buttress this achievement with an acceleration of our brand building efforts.
– In May 2008, Affin Islamic successfully launched its Islamic debit MasterCard, the first in the Asia Pacific region.
– Affin Bank was recognised in the MasterCard Asia/Pacific Middle East and Africa Product Awards 2008 for Best Debit
Program for its Debit MasterCard. The Affin Bank Debit MasterCard is the first MasterCard debit card and the first debit card
with Touch ‘n Go auto reload facility in the country.
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Annual Report 2008
Directors’ Report
20
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2008 AND FUTURE OUTLOOK
(continued)
Moving forward, the bank remains committed to continuously provide quality and innovative products and services to meet the
needs and requirements of customers and clients. Although the Bank expects Year 2009 to be challenging in the face of economic
uncertainties, the banking sector remains robust and we are cautiously optimistic on the opportunities available.
The Bank takes a ‘business as usual’ approach and remains committed to the needs of its customers. Nevertheless, the bank will
continue to be vigilant and careful with its lending policies while at the same time, the Group continues with its strategy on
sustaining business growth, improving asset quality, enhancing operational efficiency and raising the quality of its human capital.
RATING BY EXTERNAL AGENCIES
The Bank has been rated by the following external rating agency:
Name of rating agency: RATING AGENCY MALAYSIA BERHAD
10 October 2008
Date of rating:
A2
Rating classifications: P1
– Long term:
– Short term:
RAM has upgraded the Bank’s long-term financial institution rating, from A3 to A2 with a stable outlook. Its short-term rating has
been reaffirmed at P1.
‘A’ rating is defined by RAM as being able to offer adequate safety for timely payment of interest and principal, and has adequate
credit profile but possess one or more problem areas, giving rise to the possibility of future riskiness. Entities rated in this category
have generally performed at industry average and are considered to be more vulnerable to changes in economic conditions than
those rated in the higher categories. The subscript 2 in this category indicates a mid-ranking in the A category. A P1 rating is
defined by RAM as obligations which are supported by superior ability with regards to timely payment of obligations.
ZAKAT
The Bank did not pay on behalf of its depositors or shareholders. The Bank only pays zakat on its business.
HOLDING COMPANY AND ULTIMATE HOLDING CORPORATE BODY
The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate
holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera
Act, 1973.
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Annual Report 2008
Directors’ Report
21
DIRECTORS’ REPORT
for the financial year ended 31 December 2008
AUDITORS
The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.
In accordance with resolution of the Board of Directors dated 23 February 2009
Gen Tan Sri Dato’ Seri Ismail bin Haji Omar (Rtd)
Chairman
Dato’ Sri Abdul Hamidy bin Abdul Hafiz
Managing Director/Chief Executive Officer
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Annual Report 2008
Balance Sheets
22
BALANCE SHEETs
as at 31 December 2008
The Group The Bank
2008 2007 2008 2007
Note RM’000 RM’000 RM’000 RM’000
Assets
Cash and short-term funds 3 6,677,082 8,273,133 4,318,934 4,740,586
Deposits and placements with banks and 4 110,216 712,271 454,776 901,271
other financial institutions 138,844 54,856 138,844 54,856
4,188,013 3,114,716
Held-for-trading securities 5 563,013 4,021,798 556,141 3,242,879
19,516,255 393,337 17,054,062 387,040
Available-for-sale securities 6 598,936 550,844
16,848,690 15,100,333
Held-to-maturity securities 7 5,197 433,083 – 310,572
62,417 6,232 62,803 6,188
Loans, advances and financing 8 764,600 32,754 658,200 31,657
741,800 199,478 659,500
Other assets 9 – – 199,478
500 – – –
Tax recoverable – 256,192 210,256
– – –
Deferred tax assets 10 750 212,237 – 207,434
190,477 – 182,909 –
Statutory deposits with Bank Negara Malaysia 11 15,000 179,195 181,478
180,074 –
Investment in subsidiaries 12 31,909,386 182,575 26,233,528
33,011,374
Investment in jointly controlled entity 13 27,730,474
Amount due from subsidiaries 14
Amount due from jointly controlled entity
Property and equipment 15
Land held for sale 16
Intangible assets 17
TOTAL ASSETS
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Annual Report 2008
Balance Sheets
23
BALANCE SHEETs
as at 31 December 2008
The Group The Bank
2008 2007 2008 2007
Note RM’000 RM’000 RM’000 RM’000
LIABILITIES
Deposits from customers 18 25,227,789 23,475,926 20,979,568 19,780,674
Deposits and placements of banks and 19 3,820,887 4,401,791 2,922,042 2,528,068
other financial institutions 136,243 126,697 136,243 126,697
Bills and acceptances payable
Recourse obligation on loans sold to 20 11,088 361,510 11,088 361,510
Cagamas Berhad 557,013 528,716 520,712 505,938
Other liabilities 21 48,814 3,742 48,793 –
– – 31,886 21,300
Provision for taxation 2 4
– –
Amount due to subsidiaries 22 500,000 500,000 500,000 500,000
Deferred tax liabilities 10 30,301,836 29,398,386 25,150,332 23,824,187
Subordinated term loan 23
TOTAL LIABILITIES
EQUITY 24 1,439,285 1,439,285 1,439,285 1,439,285
Share capital 25 1,270,253 1,071,715 1,140,857 970,056
Reserves
2,709,538 2,511,000 2,580,142 2,409,341
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY 33,011,374 31,909,386 27,730,474 26,233,528
COMMITMENTS AND CONTINGENCIES 37 22,683,711 19,098,264 15,597,186 15,053,513
The accounting policies on pages 30 to 42 and the notes on pages 43 to 123 form an integral part of these financial statements.
affinbank
Annual Report 2008
Income Statements
24
INCOME STATEMENTS
for the financial year ended 31 December 2008
The Group The Bank
2008 2007 2008 2007
Note RM’000 RM’000 RM’000 RM’000
Interest income 26 1,457,341 1,471,480 1,469,954 1,484,254
(791,808) (849,217) (792,401) (849,517)
Interest expense 27 665,533 622,263 677,553 634,737
148,134 127,859 – –
Net interest income 813,667 750,122 677,553 634,737
201,974 194,267 241,824 223,225
Islamic Banking income 28 944,389 919,377 857,962
1,015,641 (469,155) (466,442) (452,943)
(491,806) 475,234 452,935 405,019
523,835
Other operating income 29 (141,859)
(52,502) –
Net income –
(11,951)
Other operating expenses 30 (16,705) 251,209
454,628 (70,350)
Operating profit (120,957)
–
Allowances for losses on loans, 32 (2,359) (141,781) (26,677)
advances and financing 501 – 180,859
331,312
Transfer from profit equalisation reserve (11,951) (16,705)
322,003 409,553
Impairment losses on securities (87,311) (109,617)
Profit before taxation and zakat (2,240) –
Taxation 34 232,452 299,936
Zakat
Net profit after taxation and zakat
Attributable to: 331,312 232,452 299,936 180,859
Equity holders of the Bank
Earnings per share 35 23.0 18.0 20.8 14.0
– basic/fully diluted (sen)
Dividend per share (net):* – 20.4 – 20.4
– special dividend of 28.0 sen less tax at 27% 3.7 – 3.7 –
– interim dividend of 5.0 sen less tax at 26% 2.2 – 2.2 –
– final dividend of 2.96 sen less tax at 26%
5.9 20.4 5.9 20.4
36
* Dividends recognised as distribution to equity holders during the financial year.
The accounting policies on pages 30 to 42 and the notes on pages 43 to 123 form an integral part of these financial statements.
affinbank
Annual Report 2008
Statement of Changes in Equity
25
STATEMENT of changes in equity
for the financial year ended 31 December 2008
Non-distributable Distributable
Investment
Share Share Statutory fluctuation Retained
profits Total
capital premium reserve reserve RM’000 RM’000
The Group RM’000 RM’000 RM’000 RM’000
At 1 January 2008 1,439,285 408,389 461,240 11,070 191,016 2,511,000
Net fair value change – – – (63,208) – (63,208)
in available-for-sale securities – – – 15,214 – 15,214
Deferred tax (Note 10)
Income and expense recognised – – – (47,994) – (47,994)
directly in equity – – – – 331,312 331,312
Net profit for the financial year
Total recognised income and – – – (47,994) 331,312 283,318
expense for the financial year – – 163,969 – (163,969) –
Transfer to statutory reserve – – –
Dividends paid – (84,780) (84,780)
1,439,285 408,389 (36,924)
At 31 December 2008 625,209 273,579 2,709,538
At 1 January 2007 1,290,283 293,657 351,090 5,793 332,448 2,273,271
Net fair value change – – – 5,880 – 5,880
in available-for-sale securities – – – (603) – (603)
Deferred tax (Note 10)
Income and expense recognised – – – 5,277 – 5,277
directly in equity – – – – 232,452 232,452
Net profit for the financial year
Total recognised income and – – – 5,277 232,452 237,729
expense for the financial year – – 110,150 – (110,150) –
Transfer to statutory reserve 149,002 114,732 –
Issued during the financial year – – – – – 263,734
Dividends paid – (263,734) (263,734)
1,439,285 408,389 11,070
At 31 December 2007 461,240 191,016 2,511,000
affinbank
Annual Report 2008
Statement of Changes in Equity
26
STATEMENT of changes in equity
for the financial year ended 31 December 2008
Non-distributable Distributable
Investment
Share Share Statutory fluctuation Retained
profits Total
capital premium reserve reserve RM’000 RM’000
The Bank RM’000 RM’000 RM’000 RM’000
At 1 January 2008 1,439,285 408,389 423,236 6,802 131,629 2,409,341
Net fair value change – – – (59,263) – (59,263)
in available-for-sale securities – – – 14,908 – 14,908
Deferred tax (Note 10)
Income and expense recognised – – – (44,355) – (44,355)
directly in equity – – – – 299,936 299,936
Net profit for the financial year
Total recognised income and – – – (44,355) 299,936 255,581
expense for the financial year – – 149,968 – (149,968) –
Transfer to statutory reserve – – –
Dividends paid – (84,780) (84,780)
1,439,285 408,389 (37,553)
At 31 December 2008 573,204 196,817 2,580,142
At 1 January 2007 1,290,283 293,657 332,806 4,323 304,934 2,226,003
Net fair value change – – – 3,270 – 3,270
in available-for-sale securities – – – (791) – (791)
Deferred tax (Note 10)
Income and expense recognised – – – 2,479 – 2,479
directly in equity – – – – 180,859 180,859
Net profit for the financial year
Total recognised income and – – – 2,479 180,859 183,338
expense for the financial year – – 90,430 – (90,430) –
Transfer to statutory reserve 149,002 114,732 –
Issued during the financial year – – – – – 263,734
Dividends paid – (263,734) (263,734)
1,439,285 408,389 6,802
At 31 December 2007 423,236 131,629 2,409,341
The accounting policies on pages 30 to 42 and the notes on pages 43 to 123 form an integral part of these financial statements.
affinbank
Annual Report 2008
Cash Flow Statements
27
CASH FLOW STATEMENTs
for the financial year ended 31 December 2008
The Group The Bank
2008 2007 2008 2007
RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM OPERATING ACTIVITIES 454,628 322,003 409,553 251,209
Profit before taxation (927) (263) (927) (263)
(76,544) (57,568) (76,544) (57,568)
Adjustments for items not involving the (18,168) (33,301) (18,105) (32,248)
movement of cash and cash equivalents:
Interest income from securities (212) (581) (212) (581)
– held-for-trading securities (4,394) (3,321) (4,394) (3,321)
– available-for-sale securities
– held-to-maturity securities (40,409) (29,557) (40,409) (29,557)
Dividend income from securities 24 10,336 24 10,336
– available-for-sale securities
– held-to-maturity securities (2,901) (4,417) (2,901) (4,417)
Amortisation of premium less accretion of discount (17,888) (20,911) (17,888) (19,684)
– available-for-sale securities (15,166) (15,166)
– held-to-maturity securities (6,726) (6,726)
Gain on sale from securities (189) (189)
– held-for-trading securities 29,217 388 29,217 388
– available-for-sale securities (59,080) 1,294 (40,719) 1,294
– held-to-maturity securities (60,552) (59,222)
Unrealised (gain)/loss on revaluation 16,705 16,705
– trading – 10,976 – 10,976
– derivatives 975 975
– foreign exchange 22,514 21,829
Allowance for impairment loss 845 21,227 816 21,074
– available-for-sale securities 558 1,152 558 1,152
– held-to-maturity securities
Depreciation of property and equipment (9,928) 11,836 (9,613) 11,836
Property and equipment written-off 17,737 (2,637) 17,245 (2,637)
Foreclosed properties – diminution in value 15,596 15,113
Gain on sale of property and equipment 465 457
Amortisation of intangible assets (2,883) 271 (2,883) 231
Lease rental – leasehold properties 248,804 (1,382) 232,630 (1,382)
Gain on sale of foreclosed properties 19,364 388,280 19,364 393,451
Net specific allowance for bad and doubtful debts and financing 31,309 23,783 20,595 23,783
Interest suspended 8,922 6,576 8,703
Charge of general allowance 4,041 –
Bad debt and financing written-off 602,403 547,746 3,894
597,518
OPERATING PROFIT BEFORE CHANGES IN WORKING CAPITAL 528,106
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Annual Report 2008
Cash Flow Statements
28
CASH FLOW STATEMENTs
for the financial year ended 31 December 2008
The Group The Bank
2008 2007 2008 2007
RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED)
(Increase)/decrease in operating assets: 602,055 (414,671) 446,495 (603,671)
Deposits and placements with banks (80,898) (6,276) (80,898) (6,276)
and other financial institutions 263 263
Held-for-trading securities 927 23,304 927 21,344
Interest income from held-for-trading securities 29,599 13,839
Foreign exchange transaction (2,975,963) (284,717) (2,235,021) 225,187
Loans, advances and financing (219,884) (234,765) (293,715) (121,867)
Other assets (22,800)
Statutory deposits with Bank Negara Malaysia (70,900) 1,300 (30,600)
Amount due from subsidiaries – – (35,350) 282,705
Amount due from jointly controlled entity (750) –
– –
Increase/(decrease) in operating liabilities: 1,751,863 883,335 1,198,894 7,934
Deposits from customers
Deposits and placements of banks (580,904) 3,078,429 393,974 1,505,156
and other financial institutions
Obligation on securities sold under – (1,218,497) – (1,222,397)
repurchase agreements 9,546 (154,480) 9,546 (130,791)
Bills and acceptances payable (350,422) (276,248) (350,422) (276,248)
Recourse obligation on loans sold to Cagamas Berhad 27,236 (66,816) 14,775 (19,641)
Other liablilities
Cash (used in)/generated from operations (1,207,992) 1,855,479 (367,910) 159,204
Tax paid (88,526) (38,437) (70,142) (18,321)
Zakat paid (1,299) – –
–
NET CASH (USED IN)/GENERATED FROM
OPERATING ACTIVITIES (1,297,817) 1,817,042 (438,052) 140,883
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Annual Report 2008
Cash Flow Statements
29
CASH FLOW STATEMENTs
for the financial year ended 31 December 2008
The Group The Bank
2008 2007 2008 2007
RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM INVESTING ACTIVITIES (500) – – –
Increase in investment in jointly controlled entity 76,544 57,568 76,544 57,568
Interest received from securities 18,168 33,301 18,105 32,248
– available-for-sale securities
– held-to-maturity securities 212 581 212 581
Dividend income from securities 4,394 3,321 4,394 3,321
– available-for-sale securities (154,533) 593,078 (153,958) 488,423
– held-to-maturity securities (187,833) (1,677,080) 110,489 (1,284,627)
Redemption of held-to-maturity securities net of purchase
Net (purchase)/sale of available-for-sale securities 17,495 7,124 32,034 7,124
Proceeds from disposal of 1,319 – 781 –
– property and equipment
– prepaid lease rental 23,498 6,190 23,498 6,190
– foreclosed properties (37,224) (30,457) (33,561) (30,272)
Purchase of property and equipment
Purchase of intangible assets (6,999) (1,833) (6,763) (1,833)
NET CASH (USED IN)/GENERATED FROM (245,459) (1,008,207) 71,775 (721,277)
INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES (84,780) – (84,780) –
Payment of dividend (84,780) – (84,780) –
NET CASH USED IN FINANCING ACTIVITIES
NET (DECREASE)/INCREASE IN CASH AND (1,628,056) 808,835 (451,057) (580,394)
CASH EQUIVALENTS 32,005 14,260 29,405 14,890
NET INCREASE IN FOREIGN EXCHANGE
CASH AND CASH EQUIVALENTS AT 8,273,133 7,450,038 4,740,586 5,306,090
BEGINNING OF THE FINANCIAL YEAR
CASH AND CASH EQUIVALENTS AT END OF 6,677,082 8,273,133 4,318,934 4,740,586
THE FINANCIAL YEAR
ANALYSIS OF CASH AND CASH EQUIVALENTS 6,677,082 8,273,133 4,318,934 4,740,586
Cash and short-term funds (Note 3)
The accounting policies on pages 30 to 42 and the notes on pages 43 to 123 form an integral part of these financial statements.
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Annual Report 2008
Summary of Significant Accounting Policies
30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
The following accounting policies have been used consistently in dealing with items which are considered material in relation to the
financial statements. These policies have been consistently applied to all the financial years presented, unless otherwise stated.
A) BASIS OF PREPARATION
The financial statements of the Group and the Bank have been prepared in accordance with Malaysian Accounting Standards
Board (‘MASB’) Approved Accounting Standards in Malaysia for Entities Other Than Private Entities, Bank Negara Malaysia
(‘BNM’) Guidelines, Shariah requirements and the provisions of the Companies Act, 1965. The financial statements incorporate
those activities relating to Islamic banking business which have been undertaken by AFFIN Islamic Bank Berhad, a wholly
owned subsidiary of the Bank. Islamic banking business refers generally to the acceptance of deposits and granting of financing
under the Shariah principles.
The financial statements of the Group and the Bank have been prepared under the historical cost convention, unless otherwise
indicated in this summary of significant accounting policies.
The preparation of financial statements in conformity with MASB Approved Accounting Standards in Malaysia for Entities Other
Than Private Entities and BNM Guidelines requires the use of certain critical accounting estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reported period. It also requires Directors to
exercise judgement in the process of applying the Bank’s accounting policies. Although these estimates are based on the
Directors’ best knowledge of current events and actions, actual results may differ.
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to
the financial statements are disclosed in Note 45.
(a) Standards and amendments to the published standards that are applicable and effective to the Group
The revision to the published standards effective for the Group’s and the Bank’s financial periods beginning 1 January 2008
are as follows:
– FRS 107 Cash Flow Statements
– FRS 112 Income Taxes
– FRS 118 Revenue
– FRS 134 Interim Financial Reporting
– FRS 137 Provisions, Contingent Liabilities and Contingent Assets
The revised FRS 112 Income Taxes removes the requirements that prohibit recognition of deferred tax on unutilised
reinvestment allowances or other allowances in excess of capital allowances. The adoption of this standard does not have
any significant financial impact on the results of the Group and Bank.
Other revised standards have no significant changes compared to the original standards:
– FRS 107 Cash Flow Statements
– FRS 118 Revenue
– FRS 134 Interim Financial Reporting
– FRS 137 Provisions, Contingent Liabilities and Contingent Assets
The adoption of these revised standards did not have a material impact on the financial statements of the Group and the
Bank.
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Annual Report 2008
Summary of Significant Accounting Policies
31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
A) BASIS OF PREPARATION (continued)
(b) Standards, amendments to existing standards and interpretations that are effective in 2008 but not relevant to
the Group
The following standards, amendments and interpretations to the published standards are mandatory for accounting
periods beginning on or after 1 January 2008 but they are not relevant to the Group’s operations:
– FRS 111 Construction Contracts
– FRS 120 Accounting for Government Grants and Disclosure of Government Assistant
– Amendments to FRS 121 The Effects of Changes in Foreign Exchange Rates – Net Investment in a Foreign Operations
– IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities
– IC Interpretation 2 Members’ Shares in Co-operative Entities and Similar Instruments
– IC Interpretation 5 Rights to Interests arising from Decommission, Restoration and Environmental Rehabilitation Funds
– IC Interpretation 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment
– IC Interpretation 7 Applying the Restatement Approach under FRS 129 Financial Reporting in Hyperinflationary Economies
– IC Interpretation 8 Scope of FRS 2
(c) Standards, amendments to the published standards and interpretations to the existing standards that are not
yet effective and have not been early adopted
The new standards and IC Interpretations that are applicable to the Group, but which the Group has not early adopted,
are as follows:
– FRS 8 Operating Segments (effective for accounting periods beginning on or after 1 July 2009). FRS 8 replaces FRS
114 2004 Segment Reporting. The new standard requires a ‘management approach’, under which segment information
is presented on the same basis as that used for internal reporting purposes. The Group will apply this standard when
effective.
– IC Interpretation 9 Reassessment of Embedded Derivatives (effective for accounting periods beginning on or after
1 January 2010). IC Interpretation 9 requires an entity to assess whether an embedded derivative is required to be
separated from the host contract and accounted for as a derivative when the entity first becomes a party to the
contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly
modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required.
The Group will apply this standard when effective.
– IC Interpretation 10 Interim Financial Reporting and Impairment (effective for annual period beginning on or after
1 January 2010). IC Interpretation 10 prohibits the impairment losses recognised in an interim period on goodwill and
investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet
date. The Group will apply this standard when effective.
– The following standards will be effective for annual period beginning on or after 1 January 2010. The Group will apply
these standards from when effective. The Group has applied the transitional provision in the respective standards which
exempts entities from disclosing the possible impact arising from the initial application of the standard on the financial
statements of the Group and Company:
– FRS 139 Financial Instruments: Recognition and Measurement
– FRS 7 Financial Instruments: Disclosures
Nevertheless, the accounting policies of the Group incorporate revised BNM/GP8 which include selected principles of
FRS 139. The Group will apply these standards when effective.
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Annual Report 2008
Summary of Significant Accounting Policies
32
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
B) ECONOMIC ENTITIES IN THE GROUP
The consolidated financial statements include the financial statements of the company, subsidiaries and jointly controlled
entities, made up to the end of the financial year.
(a) Subsidiaries
Subsidiaries are all those corporations, partnerships, or other entities in which the Group has power to exercise control
over the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding
of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group and de-consolidated from the
date that control ceases. The Group uses the purchase method of accounting to account for the acquisition of subsidiaries.
The cost of an acquisition is measured as fair value of the assets given, equity instruments issued and liabilities incurred
or assumed at the date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost
of acquisition over the fair value of the Group’s share of identifiable net assets acquired at the date of acquisition is
reflected as goodwill (refer to accounting policy Note C on goodwill). If the cost of acquisition is less than the fair value of
the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated.
Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies
of subsidiaries have been changed where necessary, to ensure consistency with the policies adopted by the Group.
The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group’s share of its
net assets as of the date of disposal including the cumulative amount of any exchange differences that relate to the
subsidiary is recognised in the consolidated income statement.
(b) Jointly controlled entity
Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing
of control by the Group with one or more parties where the strategic financial and operating decisions relating to the
entities require unanimous consent of the parties sharing control.
Investment in jointly controlled entities are accounted for in the consolidated financial statements using the equity method
of accounting and are initially recognised at cost.
The Group’s share of the post-acquisition profits or losses of the jointly controlled entities are recognised in the income
statement, and its share of the post-acquisition movements in reserves are recognised in reserves. The cummulative post-
acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in
a jointly controlled entities equals or exceeds its interest in the jointly controlled entity, including any other unsecured
receivables, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that
the Group has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entity.
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Annual Report 2008
Summary of Significant Accounting Policies
33
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
B) ECONOMIC ENTITIES IN THE GROUP (continued)
(b) Jointly controlled entity (continued)
Where necessary, adjustments have been made to the financial statements of jointly controlled entities to ensure consistency
of accounting policies with those of the Group.
Dilution gains and losses in jointly controlled entities are recognised in the income statement.
For incremental interest in a jointly controlled entity, the date of acquisition is purchase date at each stage and goodwill is
calculated at each purchase date based on the fair value of assets and liabilities identified. There is no “step up to fair
value” of net assets of previously acquired stake and the share of profits and equity movements for the previously acquired
stake is recorded directly through equity.
In the Group’s financial statements, the investment in subsidiaries and jointly controlled entity is stated at cost less impairment
losses. At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indication exists,
an analysis is performed to assess whether the carrying amount of the investment is fully recoverable. A write-down is made if
the carrying amount exceeds the recoverable amount. Any subsequent increase in recoverable amount is recognised in the
income statement (refer to accounting policy D for impairment of non-financial assets).
C) INTANGIBLE ASSET
(a) Goodwill
Goodwill represents the excess of the cost of acquisition of subsidiaries, jointly controlled entities and associated company
over the fair value of the Group’s share of the identifiable net assets at the date of acquisition.
Goodwill on acquisition of subsidiaries are included in the balance sheet as intangible assets. Goodwill is tested for
impairment annually or more frequently if events or changes in circumstances indicated that the goodwill may be impaired.
The amount retained in the consolidated financial statements is stated at cost less accumulated impairment losses.
Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount
of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units (‘CGU’) for the purpose of impairment testing. The allocation is made to
those CGUs that are expected to benefit from the synergies of the business combination in which goodwill arose. The
Bank allocates its goodwill between the enterprise and consumer banking segments.
(b) Computer software
Acquired computer software are capitalised on the basis of the cost incurred to acquire and bring to use the specific
software. These costs are amortised over their estimated useful lives (five years). Computer software classified as intangible
asset are stated at cost less accumulated amortisation and accumulated impairment losses, if any.
Costs associated with developing or maintaining computer software programmes are recognised as an expense when
incurred. Costs that are directly associated with identifiable and unique software products controlled by the Group, and
that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets.
Direct costs include software development employee costs and appropriate portion of relevant overhead.
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Annual Report 2008
Summary of Significant Accounting Policies
34
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
D) IMPAIRMENT ON NON-FINANCIAL ASSETS
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the assets’ carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating
units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment
at each reporting date.
The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged
to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it
reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus.
E) RECOGNITION ON INTEREST/FINANCING INCOME
Interest income and financing income are recognised on an accrual basis. Interest income on hire purchase is recognised using
the “sum-of-digits” method, so as to produce a constant periodic rate of interest.
Interest accrued and recognised as income prior to the date the loans are classified as non-performing shall be reversed out
of income by debiting the interest income in the income statement and crediting the accrued interest receivable account in the
balance sheet. Thereafter, interest earned on non-performing loans shall recognised as income on a cash basis.
Customers’ accounts are generally classified as non-performing when repayments are in arrears for three months or more from
first day of default for loans and financing and overdrafts, and after three months or more from maturity date for trade bills, trust
receipts, bankers’ acceptances and other instruments of similar nature.
Islamic financing income is recognised on an accrual basis in accordance with the Shariah principles and Guidelines on
Financial Reporting for Licensed Islamic Banks (‘BNM/GP8-i’). Al-Ijarah Thumma Al-Bai’ (‘AITAB’) financing income recognised
using the “sum-of-digit” method over the lease terms, whilst Al-Bai’ Bithaman Ajil (‘BBA’), Al-Murabahah, Al-Istisna’ and Bai’-
Inah financing income is recognised on a monthly basis over the period of the financing contracts, based on an agreed profit
at the inception of such contracts.
Interest income from securities portfolio is recognised on an accrual basis using the effective interest method. The interest
income includes coupons earned/accrued and accretion/amortisation of discount/premium on these securities.
F) RECOGNITION OF FEES AND OTHER INCOME
Loan arrangement fees and commissions are recognised as income when all conditions precedent are fulfilled.
Commitment fees and guarantee fees which are material are recognised as income based on time apportionment.
Dividends from subsidiaries are recognised when the shareholders’ right to receive payment is established.
Dividends from securities portfolio are recognised when received.
Fees and other profit from Islamic banking business are recognised on an accrual basis in accordance with the principles of
Shariah.
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Annual Report 2008
Summary of Significant Accounting Policies
35
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
G) INTEREST, FINANCING AND RELATED EXPENSE RECOGNITION
Interest expense and attributable profit payable on deposits and borrowings are recognised on an accrual basis.
Dealers’ handling fees on hire purchase are charged to income statement in the period when they are incurred in accordance
with Bank Negara Malaysia circular dated 8 August 2003.
H) LOANS, ADVANCES AND FINANCING
Loans, advances and financing are recognised when cash is advanced to the borrowers.
Specific allowance are made for doubtful debts and financing based on management’s evaluation of the collectibility and the
status of the loans, advances and financing and their related underlying securities.
A general allowance based on a percentage of the loans, advances and financing portfolio is also made to cover possible
losses which are not specifically identified.
An uncollectible loan, advances and financing or portion of a loan, advance and financing classified as bad is written off after
taking into consideration the realisable value of collateral, if any, when in the judgement of the management, there is no
prospect of recovery.
The policy on allowances for losses on loans, advances and financing is generally more stringent than that laid down in revised
BNM Guidelines on the Classification of Non-Performing Loans and Provision for Substandard, Bad and Doubtful Debts
(‘BNM/GP3’).
In addition, Bank Negara Malaysia has granted indulgence to the Group and the Bank from complying with the requirement on
the measurement of impaired credit facilities at their estimated recoverable amounts using present value of estimated future
cash flows discounted at original effective interest rate under the revised BNM/GP3.
I) FINANCIAL LIABILITIES
All non-trading financial liabilities are initially recognised at fair value, being the consideration received at transaction date.
J) SECURITIES PORTFOLIO
The Group and the Bank classify securities portfolio into held-for-trading securities, available-for-sale securities and held-to-
maturity securities. Classification of the securities is determined at initial recognition.
Securities are initially recognised at fair value. Securities are derecognised when the rights to receive cash flows from the
securities have expired or when the Group or the Bank has transferred substantially all risks and rewards of ownership.
Subsequent measurement for each type of securities is as follows:
(a) Held-for-trading securities
Securities are classified as held-for-trading if they are acquired or incurred principally for the purpose of selling or
repurchasing it in the near term or they are part of a portfolio of identified securities that are managed together and for
which there is evidence of a recent actual pattern of short-term profit-taking.
Held-for-trading securities are stated at fair value. Any unrealised gain or loss arising from the change in fair value or arising
from sale of such securities are recognised in the income statement.
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Annual Report 2008
Summary of Significant Accounting Policies
36
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
J) SECURITIES PORTFOLIO (continued)
(b) Available-for-sale securities
Available-for-sale securities are non-derivative financial assets that are either designated in this category or not classified
as held-for-trading or held-to-maturity investments.
Investments in equity instruments where there is no quoted market price in an active market and whose fair value cannot
be reliably measured, will be stated at cost.
Any gains or losses arising from the change in fair value adjustments are recognised directly in equity through the statement
of changes in equity except for impairment losses and foreign exchange gains or losses. When the financial asset is
derecognised, the cumulative gains or losses previously in equity shall be transferred to the income statement.
Impairment of available-for-sale securities is assessed when there is an objective evidence of impairment. Cumulative
unrealised losses that had been recognised directly in equity shall be removed and recognised in income statement even
though the securities have not been derecognised. Impairment loss in addition to the above unrealised losses is also
recognised in the income statement. Subsequent reversal of impairment on debt instrument in the income statement is
allowed when the decrease in impairment can be related objectively to an event occurring after the impairment was
recognised.
Impairment losses recognised in income statement for an investment in an equity instrument shall not be reversed.
(c) Held-to-maturity securities
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity
that the Bank has the positive intention and ability to hold to maturity, as well as those instruments allowed by BNM. In
accordance with Guidelines on Financial Reporting for Licensed Institutions (‘revised BNM/GP8’) issued by Bank Negara
Malaysia on 5 October 2004, the following instruments may be classified as held-to-maturity investments and measured
at cost:
(i) equity securities held as investment in organisations which are set up for socio-economic reasons; and
(ii) equity instruments received as a result of loan restructuring or loan conversion, where there is no quoted market price
in an active market and whose fair value cannot be reliably measured.
Held-to-maturity securities are measured at amortised cost using the effective interest method. Gains or losses are
recognised in income statement when the securities are derecognised or impaired and through the amortisation process.
Any sale or reclassification of a significant amount of held-to-maturity securities before maturity during the current financial
year or last two preceding financial years will “taint” the entire category and result in the remaining held-to-maturity
securities being reclassified to available-for-sale. However, the “tainting” rules will not apply under the conditions stated in
revised BNM/GP8 and provided that prior approval from the Board of Directors is obtained.
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Annual Report 2008
Summary of Significant Accounting Policies
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
J) SECURITIES PORTFOLIO (continued)
(c) Held-to-maturity securities (continued)
Impairment of held-to-maturity securities is assessed when there is an objective evidence of impairment, at the following basis:
(i) Securities carried out at amortised cost
The impairment loss is measured as the difference between the securities’ carrying amount and the present value of
estimated future cash flows discounted at the Bank’s original effective interest rate. Subsequent reversal of impairment
is allowed in the event of an objective decrease in impairment. Recognition of impairment losses and its reversal is
made through the income statement.
(ii) Securities carried at cost
The impairment loss is measured as the difference between the securities’ carrying amount and the present value of
estimated future cash flows discounted at the current market rate of return for similar securities. Such impairment
losses shall not be reversed.
K) PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to
the income statement during the financial period in which they are incurred.
Freehold land is not depreciated as it has an infinite life. Other property and equipment are depreciated on the straight line basis
to write off the cost of the assets or their revalued amounts, to their residual values over their estimated useful lives, summarised
as follows:
Buildings 50 years
Leasehold buildings Over the remaining lease period
Renovation and leasehold premises 5 years or the period of the lease whichever is greater
Office equipment and furniture 10 years
Computer equipment and software 5 years
Motor vehicles 5 years
Residual value and useful lives of assets are reviewed, and adjusted if appropriate, at each balance sheet date.
At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an
analysis is performed to assess whether the carrying amount of the asset is recoverable. A write down is made if the carrying
amount exceeds the recoverable amount. Any subsequent increase in the recoverable amount is recognised in the income
statement (refer to accounting policy D on impairment of non-financial assets).
Gains and losses on disposal are determined by comparing proceeds with carrying amount and are recognised within other
operating income in the income statement.
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Annual Report 2008
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
L) LAND HELD FOR SALE
Land held for sale is stated at cost less accumulated impairment losses. Where an indication of impairment exists, an analysis
is performed to assess whether the carrying amount of the land is fully recoverable. A write down is made if the carrying
amount exceeds the recoverable amount. Any subsequent increase in recoverable amount is recognised in the income
statement.
M) LEASES
Accounting by lessee
(i) Finance leases
Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership
are classified as finance leases.
Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the
present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges
so as to achieve a periodic constant rate on the finance balance outstanding. The corresponding rental obligations, net of
finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statement
over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each
period.
Property and equipment acquired under finance leases are depreciated over the shorter of the estimated useful life of the
asset and the lease term.
(ii) Operating leases
Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged
to the income statement on the straight line basis over the lease period.
The land and buildings elements of a leasehold land and buildings are considered separately for the purpose of lease
classification. The minimum lease payments (including any lump-sum upfront payments) are allocated between the land
and buildings elements in proportion to the relative fair values of the leasehold interests in the land element and buildings
element of the lease at the inception of the lease.
Leasehold land that normally has indefinite economic life and title is not expected to pass to the lessee by the end of the
lease term is treated as an operating lease. The minimum lease payments of leasehold land is accounted as prepaid lease
rentals classified in ‘other assets’ and are amortised on straight line basis over the lease term. The Group and the Bank’s
leasehold lands are amortised over the period of the respective leases that range from 60 to 999 years.
N) FOREIGN CURRENCY TRANSLATIONS
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are
presented in Ringgit Malaysia, which is the Bank’s functional and presentation currency.
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Annual Report 2008
Summary of Significant Accounting Policies
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
N) FOREIGN CURRENCY TRANSLATIONS (continued)
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment
hedges.
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed
between translation differences resulting from changes in the amortised cost of the security and other changes in the
carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in income,
and other changes in the carrying amount are recognised in equity.
Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss.
Translation differences on non-monetary financial assets are recognised in income as part of fair value gain or loss.
Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the
fair value reserve in equity.
O) INCOME TAX
(a) Current tax
Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include
all taxes based upon the taxable profits for the financial year.
(b) Deferred tax
Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed
to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is
not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences or unused tax losses can be utilised.
Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the balance
sheet date and are expected to apply when the related deferred tax assets is realised or the deferred tax liability is settled.
Deferred tax is recognised on temporary differences arising principally from depreciation of property and equipment,
amortisation of intangible assets, general allowances for loans, advances and financing, unrealised gains/(losses) on
revaluation of securities, foreign exchange and derivatives, provision for other liabilities and unused tax losses carried
forward.
Deferred tax related to fair value re-measurement of available-for-sale securities, which are charged or credited directly to
equity and is subsequently recognised in the income statement together with the deferred gain or loss.
affinbank
Annual Report 2008
Summary of Significant Accounting Policies
40
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
P) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
Derivatives are initially recognised at fair values on the date on which derivative contracts are entered into and are subsequently
remeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market
transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All
derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative.
The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e the fair value of the consideration
given or received) unless fair value of the instrument is evidenced by comparison with other observable current market
transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose variables
include only data from observable markets. When such evidence exists, the Group and the Bank recognise profits immediately.
The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of
the fair value of recognised assets or liabilities or firm commitments (fair value hedge); or (2) hedges of highly probable future
cash flows attributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge). Hedge accounting is
used for designated derivatives in this way provided certain criterias are met.
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items,
as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents
its assessment, both at hedge inception and an on-going basis, of whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or cash flows of hedged items.
(a) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged
risk.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item
for which the effective interest method is used, is amortised to income statement over the period to maturity. The adjustment
to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security.
(b) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in equity. The gain and loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled to the income statement in the periods in which the hedged item will affect
income statement (for example, when the forecast sale that is hedged take place).
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing at that time remains in equity and is recognised when the forecast transaction is ultimately
recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or
loss that was reported in equity is immediately transferred to the income statement.
affinbank
Annual Report 2008
Summary of Significant Accounting Policies
41
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
P) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (continued)
(c) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument
that does not qualify for hedge accounting are recognised immediately in the income statement.
Gains and losses on interest rate swaps, futures, forward and option contracts that qualify as hedges are deferred and
amortised over the life of hedged assets or liabilities as adjustments to interest income or interest expense. Gains and losses
on interest rate swaps, futures, forward and option contracts that do not qualify as hedges are recognised in the current
financial year using the mark-to-market method and are included in the income statement.
Q) OTHER PROVISIONS
Provisions are recognised by the Group and the Bank when all of the following conditions have been met:
(i) the Group and the Bank have a present legal or constructive obligation as a result of past events;
(ii) it is probable that an outflow of resources to settle the obligation will be required; and
(iii) a reliable estimate of the amount of obligation can be made.
R) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand, bank balances and deposits and placements maturing within one month
which are held for the purpose of meeting short term commitments and are readily convertible to cash without significant risk
of changes in value.
S) ZAKAT
Zakat represents business zakat payable by the Bank to comply with the principles of Shariah and as approved by the Shariah
Supervisory Council. The Bank’s subsidiary, Affin Islamic Bank Berhad only pays zakat on its business and does not pay
zakat on behalf of depositors or shareholders. Zakat provision is calculated based on 2.5% of the net asset method.
T) FORECLOSED PROPERTIES
Foreclosed properties are stated at the lower of cost and net realisable value.
U) EMPLOYEE BENEFITS
(a) Short term employee benefits
Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which
the associated services are rendered by employees of the Group.
(b) Defined contribution plan
The defined contribution plan is a pension plan under which the Group pays fixed contributions to the National Pension Scheme,
the Employees’ Provident Fund (‘EPF’) and will have no legal or constructive obligations to pay further contributions if the fund
does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
The Group’s contribution to defined contribution plans are charged to the income statement in the period to which they
relate. Once the contributions have been paid, the Group has no further payment obligations.
affinbank
Annual Report 2008
Summary of Significant Accounting Policies
42
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2008
U) EMPLOYEE BENEFITS (continued)
(c) Termination benefits
Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination
benefits when it is demonstrably committed to either terminate the employment of current employees according to a
detailed formal plan without any possibility of withdrawal or to provide termination benefits as a result of an offer made to
encourage voluntary redundancy.
V) CONTINGENT LIABILITIES AND CONTINGENT ASSETS
The Group and the Bank does not recognise a contingent liability but discloses its existence in the financial statements. A
contingent liability is possible obligation that arises from past events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank or a present obligation
that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A
contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot
be measured reliably.
A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank. The Group and the
Bank does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but
not virtually certain.
W) SEGMENT REPORTING
Segment reporting is presented for enhanced assessment of the Group’s risks and returns. A business segment is a group of
assets and operations engaged in providing products or services that are subject to risks and returns that are different from
those of other business segments.
Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that
are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment.
Segment revenue, expense, assets and liabilities are determined before intra-group balances and intra-group transactions are
eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are
between group enterprises within a single segment.
affinbank
Annual Report 2008
Notes to the Financial Statements
43
NOTES TO THE FINANCIAL STATEMENTS
for the financial year ended 31 December 2008
1) GENERAL INFORMATION
The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank’s
subsidiaries are Islamic banking business, factoring of credit facilities, property management services, nominee and trustee
services. There have been no significant changes in these principal activities during the financial year.
The number of employees in the Group and the Bank as at 31 December 2008 was 3,058 (2007: 3,134) and 2,891 (2007:
3,011) employees respectively.
The holding company of the Bank is Affin Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate
holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan
Tentera Act, 1973.
The Bank is a limited liability company, incorporated and domiciled in Malaysia.
2) FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Market Risk
Market risk is defined as the risk to the Bank’s financial condition resulting from adverse price or volatility moves in the Bank’s
portfolio. The Bank is mainly exposed to interest rate risk and foreign exchange rate risk. The interest rate risk arises mainly
from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The Bank is also exposed to
basis risk, when the pricing characteristics of two instruments change at different times or by different amounts. Foreign
exchange rate risk arises from unhedged positions arising from customers’ requirements and proprietary positions.
For the trading portfolios, market risk is measured and managed daily by the Market Risk Management Department, which is
part of the Group Risk Management Division.
Market risk is primarily controlled through the imposition of Cut-loss, Value-at-Risk (VaR) i.e. potential loss amount and Net
Open Position Limits which are approved by the Asset Liability Management Committee (‘ALCO’) in accordance with the
Bank’s risk appetite. These limits are set and reviewed regularly according to a number of factors, including the trading liquidity
of the instruments and the Bank’s business strategy. In addition, the Bank also conducts periodic stress testing analysis of its
respective portfolios to ascertain the market risk under abnormal market conditions.
For the asset liability mismatch position in the Balance Sheet, the Bank employs a software to measure the risk. The risk is
measured monthly using Net Interest Income simulations involving various interest rate scenarios managed through limits
overtime-buckets and an Overall Risk Tolerance Limit approved by ALCO.
The Bank’s management, ALCO and Board Risk Management Committee (‘BRMC’) are regularly kept informed of the risk
profile and performance of the trading portfolios.
The market risk management infrastructure is adequate for the Bank’s present scale of operations, exposures and business
range.
affinbank
Annual Report 2008
Notes to the Financial Statements
44
NOTES TO THE FINANCIAL STATEMENTS
for the financial year ended 31 December 2008
2) FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Credit Risk
Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial and
contractual obligation to the Bank. Credit risk arises mainly from our lending activities.
The management of credit in the Bank is governed by a set of credit policies approved by the Board of Directors. Approval
authorities are delegated to the Management Loan Committee to approve large and higher risk loans in order to ensure sound
credit granting standards.
A credit scoring solution using statistically developed application scorecards for consumer mass market products was
successfully deployed in 2008. The scorecard is applied during credit evaluation to assess the risks associated with a loan
application.
A credit risk grading system is implemented for corporate and business loans. The grading is based on credit worthiness of the
borrower, i.e. the ability to service and repay debt obligations based on the borrower’s current condition, with regard to its
management capacity and its market position. The credit risk grading system is being revised to make it more robust and risk
sensitive. The Basel II compliant project is on target for completion during the first half of 2009.
Liquidity Risk
Liquidity risk is the risk of loss due to failure to access funds at reasonable cost to fund the Bank’s operations and meet its
liabilities as and when they fall due. Liquidity risk arises from the Bank’s general on-going funding activities and the management
of its assets.
To measure and manage net funding requirements, the Bank adopts BNM’s New Liquidity Framework (‘NLF’). The NLF
ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off-balance sheet
commitments, taking into consideration the realisable cash value of the eligible liquefiable assets.
The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. The risk is
measured monthly using internal and external qualitative and quantitative liquidity risk indicators. In addition, the Bank has in
place the Contingency Funding Plan to deal with extreme liquidity crisis and emergencies.
The BRMC is responsible for the Bank’s liquidity policy although the strategic management of liquidity has been delegated to
the ALCO. The BRMC is however, informed regularly of the liquidity situation in the Bank.
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Laporan Kewangan Affin Bank 2008
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