“At Southern Bank Berhad, we are committed to customer service excellence in all markets we seek to serve, creating and

maximising value for all constituents.”

SOUTHERN BANK BERHAD (5303-W)

Contents

Notice of Annual General Meeting Board of Directors Corporate Information Corporate Structure Five Year Group Financial Highlights Management of the Bank Management of Subsidiary Companies Audit Committee Message to Shareholders Performance at a Glance Lending Directions Treasury Management IT Industry Leadership

2-3 4 4 5 6

Southern Bank as Change Catalyst Corporate Restructuring Channel Strategies Strategic Alliances: MIMOS and SCANS Subsidiary Companies of the Bank

31 32-34 35-37

38-39 40-42 43-45

7 Corporate Events 8 9 10-16 17 18-23 24-27 28-30 Financial Network Southern Bank Berhad Branches Subsidiary Companies of the Bank Financial Statements List of Bank Group’s Properties Analysis of Shareholdings Form of Proxy 46-47 48 49-102 103 104-105

2

SOUTHERN BANK BERHAD (5303-W)

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN THAT the Thirty-Seventh Annual General Meeting of Southern Bank Berhad will be held at Ballroom A, First Floor, Renaissance Kuala Lumpur Hotel, Corner of Jalan Sultan Ismail and Jalan Ampang, 50450 Kuala Lumpur on Wednesday, 16 June 1999, at 9.30 a.m. for the purpose of considering and, if thought fit, passing the following resolutions: 1. “That the Report of the Directors and the Accounts for the year ended 31 December 1998 of the Bank, together with the Report of the Auditors therein as presented be and are hereby received and adopted”. Resolution 1 “That the Directors’ remuneration of Ringgit One Million Seventy Thousand Eight Hundred And Forty Only (RM1,070,840) for the year ended 31 December 1998 be and is hereby approved”. Resolution 2 “That Dr Maisarah bte Abdullah who retires under Article 116 of the Bank’s Articles of Association be and is hereby re-elected as a Director of the Bank”. Resolution 3 (a) “That pursuant to Section 129(6) of the Companies Act, 1965, Mr Lim Pak Tow be re-appointed as a Director of the Bank to hold office until the conclusion of the next Annual General Meeting”. Resolution 4(a) “That pursuant to Section 129(6) of the Companies Act, 1965, Dato’ Dr Yahya bin Ismail be re-appointed as a Director of the Bank to hold office until the conclusion of the next Annual General Meeting”. Resolution 4(b)

2.

3.

4.

(b)

5.

“That a first and final dividend of 4.5 % gross in respect of the financial year ended 31 December 1998, payable to entitled shareholders of the Bank, based on the share capital of Ringgit Seven Hundred Ninteen Million Five Hundred Five Thousand Six Hundred Eighty Nine Only (RM719,505,689), be and is hereby approved. Resolution 5 “That Messrs Kassim Chan & Co., the retiring auditors, be and are hereby re-appointed auditors of the Bank to hold office until the conclusion of the next Annual General Meeting of the Bank at which Accounts are laid before the Bank, and that the Directors be authorised to fix their remuneration”. Resolution 6

6.

SOUTHERN BANK BERHAD (5303-W)

3

NOTICE

OF

CLOSURE

OF

BOOKS

NOTICE IS ALSO HEREBY GIVEN THAT the Transfer Books and Register of Members of the Company will be closed on 23 June 1999 and that duly completed transfers received by the Company’s Share Registrars, Panama Resources Sdn Bhd, No. 23, Jalan Sri Hartamas 7, Sri Hartamas, 50480 Kuala Lumpur up to 5.00 p.m. on 23 June 1999 will be registered before shareholders’ entitlement to the dividend is determined. If approved, the first and final dividend will be paid on 20 July 1999. A depositor shall qualify for entitlement to the dividend only in respect of: a. b. c. Shares deposited into the Depositor’s Securities Account on or before 12.30 p.m. on 21 June 1999 (in respect of shares which are exempted from mandatory deposit); Shares transferred to the Depositor’s Securities Account on or before 12.30 p.m. on 23 June 1999; Shares bought on the Kuala Lumpur Stock Exchange on a cum entitlement basis according to the Rules of the Kuala Lumpur Stock Exchange.

By Order Of The Board

Tan Ghee Kay Company Secretary Kuala Lumpur 1 June 1999

NOTES:

The rights of Foreigners to vote in respect of their deposited securities is subject to Section 41(1)(e) and Section 41(2) of the Securities Industry (Central Depositories) Act, 1991 and Securities Industry (Central Depositories) (Foreign Ownership) Regulations, 1996.The position of such Depositors in this regard will be determined based on the General Meeting Record of Depositors. Such Depositors, whose shares exceed the Company’s foreign shareholding limit of 30% as at the date of the General Meeting Record of Depositors, may attend the above Meeting but are not entitled to vote. Consequently, a proxy appointed by such Depositor who is not entitled to vote will also not be entitled to vote at the above Meeting. A member of the Company entitled to attend and vote at the above Meeting is entitled to appoint a proxy to vote on his behalf. A proxy need not be a member of the Company but shall be either an advocate, an approved company auditor or a person approved by the Registrar of Companies. The instrument appointing the proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or, if the appointor is a corporation, under its Common Seal. An instrument appointing a proxy executed in Malaysia need not be witnessed. The signature to an instrument appointing a proxy executed outside Malaysia shall be attested by a solicitor, notary public, consul or magistrate. Where a member appoints two proxies, the appointment shall be invalid unless he specifies the proportion of his holdings to be represented by each proxy. In the case of joint holdings, the signatures of all joint holders are required. The instrument appointing a proxy must be deposited at the Registered Office of the Company, 20th Floor, Wisma Genting, 28 Jalan Sultan Ismail, 50250 Kuala Lumpur not less than 48 hours before the time set for the Meeting and any adjournment thereof.

4

SOUTHERN BANK BERHAD (5303-W)

Corporate Information

BOARD

OF

DIRECTORS

Chairman YBhg Tan Sri Osman S Cassim
PSM., JSM., KMN.

Chief Executive Director YBhg Dato’ Tan Teong Hean
SIMP., DSAP., DIMP., FIBM.

Directors YBhg Dato’ Dr Yahya bin Ismail
DPCM., DPMJ., DPMP., KMN.

YBhg Dato’ Dr Salim Cassim
DPMT., DSM.

Lim Pak Tow Sim Kee Boon Dr Maisarah bte Abdullah

C O R P O R AT E

I N F O R M AT I O N

Secretary Tan Ghee Kay Auditors Kassim Chan & Co Public Accountants Level 19, Uptown 1 1, Jalan SS21/58 Damansara Uptown, 47400 Petaling Jaya Selangor, Malaysia Registrars Panama Resources Sdn Bhd 23, Jalan Sri Hartamas 7 Sri Hartamas 50480 Kuala Lumpur Tel: (03) 6511120 / 6515451 Fax: (03) 6513121 Registered Office Corporate Headquarters 20th Floor, Wisma Genting 28, Jalan Sultan Ismail 50250 Kuala Lumpur Tel: (03) 2637000 Fax: (03) 2320651 Web: http://www.sbbgroup.com.my E-mail: info@sbbgroup.com.my Listing Kuala Lumpur Stock Exchange Main Board

SOUTHERN BANK BERHAD (5303-W)

5

Corporate Structure

100% Southern Finance Company Berhad Core businesses amalgamated with the businesses of the Bank 100% SBB Unit Trust Management Bhd Unit Trust Services 100% SBB Asset Management Sdn Bhd Fund Management Services 100% SBBAM Nominees (Tempatan) Sdn Bhd Nominee Services for Locals 100% SBBAM Nominees (Asing) Sdn Bhd Nominee Services for Foreigners 100% S.B. Venture Capital Corporation Sdn Bhd Venture Capital 100% Southern Nominees (Asing) Sdn Bhd Nominee Services for Foreigners 100% Southern Nominees (Tempatan) Sdn Bhd Nominee Services for Locals 100% SBB Futures Sdn Bhd Dormant 100% S.B. Properties Sdn Bhd Property Management 100% Elite Constant Development Sdn Bhd Building Construction 100% SBB Capital Markets Sdn Bhd Investment in Capital Markets 70% SBB Securities Sdn Bhd Stockbroking 100% RC Nominees (Tempatan) Sdn Bhd Nominee Services for Locals 100% RC Nominees (Asing) Sdn Bhd Nominee Services for Foreigners 51% Investil - Investimentos Associados Limitada Investment Holding 60% Banco Austral S.A.R.L. Banking

6

SOUTHERN BANK BERHAD (5303-W)

Five Year Group Financial Highlights

1994 Results (RM’000) Profit before tax and zakat 95,809

1995

1996

1997

1998

111,202

173,725

122,201

78,489

Profit after tax, zakat and minority interests 60,018 68,489 108,184 83,430 37,186 …………………………………………………………………………………………………………………………… Balance Sheet (RM’000) Total assets (excluding contra) Net tangible assets Loans and advances Deposits from customers Paid-up capital 4,981,103 321,281 2,712,136 4,148,357 146,125 5,617,676 585,523 3,346,691 4,379,095 213,171 7,324,446 675,960 4,508,906 5,594,797 319,757 9,203,476 1,176,759 5,437,417 6,781,038 719,506 9,075,128 1,176,511 6,067,600 6,430,621 719,506

Shareholders’ funds 326,768 590,749 680,925 1,181,463 1,197,554 …………………………………………………………………………………………………………………………… Ratio : Dividend rate (Gross) Net tangible assets per RM1 share (RM) Net return on average shareholders’ funds Basic earnings per share (sen) Net return on average assets Loans and advances to deposits 12% 2.20 19.9% 18.3 1.4% 65.4% 12% 2.75 14.9% 15.2 1.3% 76.4% 12% 2.11 17.0% 22.6 1.7% 80.6% 10% 1.64 9.0% 17.4 1.0% 80.2% 4.5% 1.64 3.1% 5.2 0.4% 94.4%

SOUTHERN BANK BERHAD (5303-W)

7

Management of the Bank

Chief Executive Director Dato’ Tan Teong Hean Corporate Advisory Division – Secretariat / Legal Company Secretary / General Counsel Tan Ghee Kay Chief Executive Planning Group Manager, Special Projects (Special Assignments 1) Teh Beng Hooi Manager, Special Projects Seah Chong Leng Corporate Services & Information General Manager Nordin bin Yahaya Manager, Administration & Properties Lee Bee Suan Group Financial Control Division Chief Accountant Ng Gek Siu Group Finance Manager Yap Choi Foong Group Information Technology Senior Manager Tan Hui Khim Corporate Human Resources Deputy Manager Irene Loke Retail Banking General Manager Tengku Zaitun bt Tengku Mahadi Payment Systems General Manager Wong Pin Siong

Loans General Manager Chan Hon Thiam Corporate Banking General Manager, Local Corporate Chan Hon Thiam Manager, National Banking Winston Lai Tak Kong Manager, Loan Administration Rosalind Lee Eng Peng Consumer Banking Manager, Personal Banking Mohammad Tahir Haji Hashim International Banking Deputy Manager Lam Kam Wah Direct Banking Manager, Marketing & Product Development Helen Yeoh Manager, Credit & Risk Management Foo Meng Heng Enterprise Banking Manager Constance Goh Electronic Banking Manager Cheong Weng Seng Islamic Banking Division General Manager Nordin bin Yahaya Corporate Finance Manager Rodney Koh Ngiap Teik Internal Audit Chief Internal Auditor Selvarajah s/o Namasiwayam

8

SOUTHERN BANK BERHAD (5303-W)

Management of Subsidiary Companies

SBB Securities Sdn Bhd Chief Executive Officer James Lau Yew Kong

S.B. Properties Sdn Bhd General Manager Terry James Pilbeam Manager

SBB Asset Management Sdn Bhd Chief Executive Officer Pearl Wong

Lee Bee Suan

Southern Nominees (Tempatan) Sdn Bhd Southern Nominees (Asing) Sdn Bhd

SBB Unit Trust Management Berhad General Manager Geoff Stecyk

Company Secretary Tan Ghee Kay

Banco Austral S.A.R.L. S.B.Venture Capital Corporation Sdn Bhd Manager Eu Sim Wai Chief Executive Officer K Muganthan

SOUTHERN BANK BERHAD (5303-W)

9

Audit Committee

MEMBERS

The Audit Committee comprises the following directors: YBhg Tan Sri Osman S Cassim (Chairman) (Independent Non-executive Director) YBhg Dato’ Dr Yahya bin Ismail (Non-Executive Director) Mr Lim Pak Tow (Independent Non-executive Director)

MEETINGS

The Audit Committee meets on a quarterly basis or at more frequent intervals as required to carry out its duties.

DUTIES

The duties of the Audit Committee are: 1. To review: (a) with the auditor, the audit plan; (b) with the auditor, the auditor’s evaluation of the system of internal accounting controls; (c) with the auditor, the auditor’s audit report; (d) the assistance given by the Company’s officers to the auditors; (e) the scope and results of the internal audit procedures; (f) the balance sheet and profit and loss account of the Company and the consolidated balance sheet and profit and loss account, submitted to it by the Company, and thereafter to submit them to the Board of Directors of the Company; and

(g) any related party transactions that may arise within the Company or Group; 2. 3. To nominate a person or persons as auditors; (a) To review the Company’s financial condition, internal controls, as well as the perfor mance and findings of the Company’s internal audit department; and (b) To make recommendations pertaining to corrective actions, where appropriate; and 4. Such other functions as may be agreed to by the Audit Committee and the Board of Directors.

10

SOUTHERN BANK BERHAD (5303-W)

Message to

Shareholders
OVERVIEW

1998 was a difficult year, a time that brought wrenching change to the Malaysian financial services industry. After more than a decade of strong growth the full knock-on effects of the Asian economic turmoil made their impact on the domestic economy. It went into recession. The financial sector was subject to a number of shocks, chief amongst which were the non-performing loans (“NPLs”) of financial institutions. Net NPLs of the banking industry jumped to 13.2% in 1998 (97: 4.1%). Doubtless, rising NPLs accompany any economy in recession. They have a major impact on bank earnings. The government to counter negative economic growth introduced a number of monetary and fiscal responses. Key amongst the measures was a rapid lowering of the interest rates that saw a high of 11% in February of 1998 to 6% in December of 1998 to redress deflationary pressures and to spur lending in the financial system. These measures augur well for the year ahead. However, while they will bring significant longer-term gains, due to repricing rigidities, the immediate impact on earnings of the financial sector is unfavourable. Excess capacities became evident as branch networks and people built up in the preceding years of strong economic growth contributed to costs without matching revenue growth. Managing profitability never easy in a downturn, is even more difficult with the region in recession and in financial crisis.

SOUTHERN BANK BERHAD (5303-W)

11

TAN

SRI

OSMAN

S

CASSIM

D AT O ’

TAN

TEONG

HEAN

Chairman

Chief Executive Director

THE

BANK

Amidst these challenges, the Bank’s operating profit before provisions at RM210.6 million was up 20% from the previous year. Operating in a weakened economic environment, pre-tax profit after provisions at RM111.2 million was down 7%. Provisions during the year rose to RM99.4 million from RM55.2 million as net NPLs increased to 5.8 % from 2.8%. The financial results fully complied with Bank Negara Malaysia’s GP3 guidelines on loan classification and loan provisions. Adopting a conservative income recognition policy, however, a stricter three-month in arrears loan classification policy for NPLs was maintained at the Bank and also at the Group. Net NPLs of 5.8% at the Bank compares favorably with an industry’s average of 9.7% for commercial banks that adopt a three months in arrears loan classification and policy. The bank sold no loans to

Danaharta, the Special Purpose Vehicle established by the Government to acquire NPLs of Banks. After-tax profit of the Bank at RM 72.8 million fell 10% when compared to the period previously.

THE

GROUP

The Bank Group turned in a pre-tax profit of RM78.5 million, 36% lower than that of the previous year. After–tax profit attr ibutable to shareholders, at RM37.2 million was down 55% from a year ago.This lower net profit is due to higher loan losses and provisions, as well as a higher tax charge. Not all subsidiaries of the Group were profitable. Amongst the key subsidiaries, SBB Securities Sdn Bhd incurred a loss of RM19.9 million due to poor market conditions, reduced turnover and provisions for the diminution in value investments.

12

SOUTHERN BANK BERHAD (5303-W)

Southern Finance Company Berhad (“SFCB”) also reported a loss of RM12.9 million. This was due to rising NPLs, loan charge-offs, and provisions for loan losses. A three months in arrears loan classification policy was retained at SFCB, and on this basis, net NPLs of SFCB rose to 22% of total loans. A lower credit quality at SFCB is not unusual at this point of the economic cycle. This is because a finance subsidiary targets businesses with lower credit standings. On a Group basis, net NPLs rose to 8.4%. This compares favourably with an industry average of 13.2% for Financial Institutions with a three month NPL classification policy. SBB Futures Sdn Bhd having made losses since its start-up two years ago, was wound down during the year. On closure of this business, a non-recurring loss was reflected at the Group. SBB Unit Trust subsidiary incurred a loss of RM0.2 million. On the other hand all other subsidiaries were profitable: Investimentos Associados Limitada, the Mozambique Holding Company for Banco Austral RM11.4 million; S.B Properties RM4.4 million; SBB Asset Management RM1.2 million; S.B.Venture Capital RM0.5 million; and Southern Nominees (Tempatan) RM0.5 million. Drawing upon an inherent Balance Sheet strength and a strong and growing deposit base, loans advanced 18% for the Bank and 16% for the Group, from the period previously.This loan growth reflects our belief to stand solidly behind our customers when they are deserving of support. It also underscores our

strategy of taking market share at the bottom of the business cycle, and retrenching from markets when the cycle is in boom. It in no way represents a departure from our long-established earnings philosophy of Income Statement and Balance Sheet growth without sacrifice in asset quality. Today, the Bank is one of the best capitalized financial institutions in Malaysia and the region. At 18.8% the Bank’s Risk Weighted Capital Ratio (“RWCR”) is robust. Marginally lower from the previous year due to a higher loans base, it has with amalgamation of SFCB increased to 20.9%.This is well beyond the banking industry’s average of 11.8% and the minimum 8% as required under banking standards set by the Bank of International Settlements. The financial strength of the Bank was confirmed by rating agencies including the domestic rating agency, RAM which reaffirmed our A1 rating as well as Standard and Poor’s, the international rating agency which also maintained the Bank’s public information rating of BBpi.

FOCUSING

ON

CUSTOMER

SERVICES

So as to broaden our product menu, and better serve our customers, a number of new products and services were launched in 1998. Direct Access, launched the Easy Auto Pay system allowing all Direct Access customers to pay their bills to participating utilities such as Telekom Malaysia and others.

SOUTHERN BANK BERHAD (5303-W)

13

The nation’s first Platinum Mastercard was also launched by Direct Access. This high-end card product was aimed at providing customized services and increased privileges to discerning high net-worth individuals.The Maestro Debit Card was introduced to provide more convenience for cardholders on a worldwide basis. In another related development, in payment systems, the Jet Debit Card was launched to facilitate easy repayment by Jaring internet subscribers who maintain the Bank’s Max Plus SJM accounts. Customers of Malaysia’s major Internet Service Provider Jaring, may pay their subscription/renewal fees at any SBB branch. The Japanese Card Bureau or JCB card was also introduced to allow the Bank’s merchants and our Japanese customers a broader choice of payment card. Apart from debit cards, the Bank broadened its stable of niche credit cards targeting different consumer segments. An especially designed card product for women was relaunched with the Espre Mastercard while other cards such as, the Excel Mastercard, the Rotaform Gold Mastercard, the Sime Darby Travel Discovery Mastercard and the Sime Darby Travel Visa Corporate Card were designed to offer benefits to specialized groups of cardholders. Depositors were accorded a special focus in 1998. A wider range of deposit products, namely the Max Plus Savings Account, Max Plus Fixed Deposit and Max Plus Two in One Account were introduced to provide depositors with better returns and greater flexibility in their banking transactions.

Investing in cutting edge technology so as to continuously improve efficiency and effectiveness to better serve our customers is always a priority. In this regard, a number of initiatives were also introduced during the year. So as to raise productivity levels, the Auto-posting System was implemented to better handle voluminous crediting and debiting of accounts for customers. SPICK, a project initiated by BNM to process inward clearing of cheques using digital images to replace cheques, was extended to the rest of the country. Several security systems were implemented to improve on credit card and ATM transactions. These included a biometric ATM system to verify ATM cardholders which was tested in the KL Main branch for eventual bank-wide deployment.

SIGNIFICANT AND

EVENTS

ACTIVITIES

A number of special events and occasions during the year provided excellent opportunities to showcase our new products and profile our service capabilities.

IT

AND

ELECTRONIC

BANKING

Continuing a strategic emphasis in the area of Electronic Banking, the Bank participated in the INFOTECH Malaysia exhibition. This premier IT convention and forum was used to showcase the Bank’s IT products such as electronic commerce, PC Banking and Enterprise Banking.

14

SOUTHERN BANK BERHAD (5303-W)

N AT I O N A L AND

S AV I N G S

HOME-OWNERSHIP

I N I T I AT I V E S

The Personal Banking Division actively participated in property launches around the country during the recent Home Ownership Campaign, that resulted in improved sales. In support of a National effort to encourage savings, a special booth was set up by the Bank to promote deposits and Unit Trust products in conjunction with the ‘Art of Saving Competition and Art Bazaar’ organized by Bank Negara and the Association of Financial Institutions.

Closer to home, the Bank was among the 400 local and foreign companies that participated in the APEC International Trade Fair 1998. This major APEC event was held in Kuala Lumpur in conjunction with the meeting of the Heads of Governments and key business luminaries in the Asia Pacific Economies. It provided an unrivalled opportunity to raise the level of awareness of our business in these key markets.

EXCELLENCE

The bank’s leadership in the industry and the continuing effort to “shape up or ship out” has not gone unrecognized. 1998 saw a number of industry honours and recognition. Recognizing Southern Bank’s IT leadership in Malaysia and in the industry, the Chief Executive Director was appointed a member of the National Information Technology Council (NITC), advising the Government on the development of IT in Malaysia. Southern Bank was honoured as the first direct banking service provider in the nation to be accredited with the internationally acclaimed ISO 9002 certificate by the Standards and Industrial Research Institute of Malaysia (SIRIM). The ISO 9002 certification includes the processing of credit cards, unsecured facilities, property financing and share margin financing.

I N T E R N AT I O N A L

The second largest bank in the Republic of Mozambique, Banco Austral, adopted its present name in 1998 to signal a new beginning as a modern financial institution and market leader in Mozambique. The official launch of Banco Austral’s new corporate identity was witnessed last July in Maputo by His Excellency the President of the Republic of Mozambique, Joaquim Alberto Chissano together with the Right Honourable Prime Minister of Malaysia, YAB Dato’ Seri Dr. Mahathir Mohamad during his official state visit to Mozambique.

SOUTHERN BANK BERHAD (5303-W)

15

The ISO 9002 recognizes our management philosophy which emphasizes the provision of competitively priced and innovative products and quality customer service to provide a competitive edge in the financial sector.

Y2K

COMPLIANCE

Maintaining a Group wide effort to reduce cost, a Voluntary Separation Scheme (VSS) was introduced at SFCB with excellent results. Staff and personnel at SFCB were reduced by 60% through the VSS. This increased substantially restructuring charges in the current year, with adverse implication on profitability. Undoubtedly, however it will also result in substantial savings moving forward.

As our business is information and transaction intensive, IT is relied upon as a business enabler and used heavily in many critical areas including service delivery, decision-support, processing and others. In this regard, Y2K is a major issue that is mission critical. To ensure business continuity as we cross the third millennium, the Bank has long focused on Y2K issues. The Group will be fully Y2K compliant by June of 1999. The Bank is also working closely with its customers and business partners to ensure they are Y2K ready. The Bank and Group have completed the renovation, implementation and testing of all critical systems supporting the core businesses of the Bank Group. Contingency plans including business resumption are in place to ensure that the Bank Group’s operations will remain fail-safe at the critical dates.

DIVIDENDS

The Board of Southern Bank are pleased to recommend the payment of a first and final dividend of 4.5% (1997-10%) for the year ended 31 December 1998 for approval of the shareholders at the Bank’s 37th Annual General Meeting. This proposed dividend will absorb a net sum of RM23.3 million (unchanged from the previous year) which, if approved by shareholders will be paid to shareholders on the Register of Members at a date to be later announced.

MOVING

INTO

THE

FUTURE

A M A L G A M AT I O N SFCB’S

OF

BUSINESS

The amalgamation of SFCB with the Bank was completed in the Second Quarter of 1999. Continuing a strategy of restructur ing and rationalization of the Group, 40% of SFCB’s branches were closed so as to avoid Branch network duplication and overlaps.

With a solid foundation, and a past where the common thread is consistency in earnings and a prudential credit culture, the Bank and the Group are in an unr ivalled position to maximize opportunities that may arise in the markets. The amalgamation of SFCB and the Bank, besides strengthening a strong Risk Weighted Capital Ratio of 18.8% to 20.9%, will also allow customer access to a larger network of branches for their banking convenience. Following the amalgamation of SFCB, the Bank’s branch network will be increased to 72 branches in major cities and towns nationwide.

16

SOUTHERN BANK BERHAD (5303-W)

A milestone in the history of the Bank, is the upcoming relocation of its offices to its new Corporate Headquarters in Bukit Damansara, Kuala Lumpur. This new headquarters will house the main branch as well as the offices of the Bank and is expected to further reduce real estate and occupancy cost. With recovery well underway, the economy should show positive growth this year. Our strong balance sheet and a Capital Adequacy Ratio that is nearly three times that of the Bank of International Settlements Agreement of 8%, should provide excellent opportunities for the Bank to advance its franchise in markets where it has strengths. The economy has recovered, but NPLs are expected to rise due mainly to the lead-lag effects. However, NPLs are expected to remain around 10% net for the Group. The financial services industry is entering a phase of consolidation.The directors remain sensitive to market developments and regulatory initiatives for fewer but larger banks.The Bank’s exceptional balance sheet strength and its stature in the markets should ensure that the Bank Group emerges from this process in a position of leadership.

A P P R E C I AT I O N

To the men and women of Southern Bank Berhad, we thank them for their dedication and their efforts. We also thank our valued customers, shareholders, the authorities and business associates for their support during this challenging period.

Tan Sri Osman S Cassim Chairman

Dato’ Tan Teong Hean Chief Executive Director

Kuala Lumpur 12 April 1999

SOUTHERN BANK BERHAD (5303-W)

17

Performance at a Glance

’98 ’97 ’96 ’95 ’94 4,379,095 4,148,357 5,594,797 6,781,038

’98 ’97 ’96 ’95 ’94 3,346,691 2,712,136 4,508,906 5,437,417

’98 ’97 ’96 ’95 ’94 5,617,676 4,981,103 7,324,446 9,203,476

’98 ’97 ’96 ’95 ’94 326,768 680,925 590,749 1,181,463

’98 ’97 ’96 ’95 ’94 111,202 95,809 122,201 173,725

’98 ’97 ’96 ’95 ’94 321,281 675,960 585,523 1,176,759

18

SOUTHERN BANK BERHAD (5303-W)

Lending Directions

CREDIT

PLAN
6000

Further to Bank Negara Malaysia’s (“BNM”) guidelines on the, “Credit Plan” to moderate gross loans growth to 20% by March 1998 and 15% by the end of 1998, most banks tightened credit and loans growth started to shrink faster than expected. As at end September 1998, the banking industry’s gross loans growth stood at 4.5% and fell further to only 2.2% in the following month. Due to the sharp drop in loans growth, all banks were strongly advised by BNM in October 1998 to achieve a minimum gross loans growth of 8% for that year. Despite this, the banking industry failed to achieve the 8% growth target. However, as the Bank is financially strong with one of the highest Risk Weighted Capital Ratio (“R WCR”) in the banking industry (18.8% as at year-end 1998), there were no problems in meeting the growth target set by BNM. As a conscientious corporate citizen in heeding the Government’s call to revive the economy and with the concurrence of BNM, the Bank’s final loans growth figure stood at 18.0%. This was in line with our strategy to gain market share at the bottom end of the economic cycle so as to be well placed to take advantage of the enormous upside potential during the economic recovery of the country.

RM Million

4000

2000

0

2,220 1994

2,811 1995

3,712 1996

4,613 1997 1998

LOAN

PORTFOLIO

MIX

As illustrated in the pie-chart below, it is the Bank’s practice to lend prudently to a diverse range of businesses so as to avoid over-concentration of loans to a particular sector.

LOAN

ASSETS

Following the Bank’s Credit Plan, our gross loan assets grew to RM5.4 billion as at year-end 1998. Meanwhile, our approximate market share of good loans was 2% while our market share of bad loans was approximately 0.5%.

16% 15% 11% 10% 8% 8% 8%

Manufacturing Purchase of Residential Properties Purchase of Non-Residential Properties Construction Wholesale & Retail, Restaurants & Hotels Finance, Insurance & Business Services Personal Uses

6% 5% 5% 3% 2% 2% 1%

Purchase of Securities Real Estate Credit Cards Electricity, Gas & Water Supply Other Sectors Transport, Storage & Communication Agriculture, Hunting, Forestry & Fishing

SMART (M)

GLOVE SDN

INDUSTRIES

BHD

Located in Klang, it is a manufacturer and exporter of disposable gloves.We have been its banker since 1997.

SOUTHERN BANK BERHAD (5303-W)

19

HOUSING

LOANS

LOANS

TO

SMALL /

AND

MEDIUM

The Bank contributed to the Government’s effort to encourage affordable home ownership for each Malaysian family by meeting the interim Special Housing Loan quota set by BNM five months ahead of the period ended 31 March 1999. This achievement was attained owing to teamwork, speedy approval and the Bank’s IT driven processes and workflow. Throughout 1998, staff from our Personal Banking Division participated in various property development launches throughout the country, including the one month Home Ownership Campaign launched by our Prime Minister on 12 December 1998, to provide end-financing facilities to purchasers.

ENTERPRISES

INDUSTRIES

Small and Medium Enterprises / Industries were hit hard by the economic turmoil in 1998. This was further compounded by the difficulty in obtaining loans at reasonable rates. Since this sector was recognised as crucial to the nation’s economic recovery, this prompted the Government to allocate a fund of RM1.5 billion to Small and Medium Industries to enable banks to lend to this sector at reasonable rates. Bank Negara also allocated lending targets for banks to achieve with respect to Small and Medium Enterprises. Supporting the Government’s efforts, the Bank continued to lend to this important sector. The Bank was also the only commercial bank to participate in the 1998 APEC Trade Fair to enable entrepreneurs to have ‘first hand’ information on available financing.

AUDREY (M) SDN

I N T E R N AT I O N A L BHD

Audrey International, part of the Ng Tiong Seng Group of Companies, is a well known manufacturer of ladies lingerie for both the local and export markets.
CUSTOMER PROFILE

Ng Tiong Seng Group Southern Bank Berhad has been our principal banker for over 30 years, a few years after our shoe trading business was founded back in 1956.The unfailing support of Southern Bank Berhad through good and difficult times has contributed significantly towards the Group’s success which has grown from its modest beginnings as a shoe trading company to a diversified group of companies involved in the manufacturing of shoes and ladies lingerie, property development and investment, marketing and retailing with total assets exceeding RM100 million. We wish the Bank every success and hope the good relations can be further enhanced. Ng Tiong Seng Executive Chairman

20

SOUTHERN BANK BERHAD (5303-W)

THE

TEN

LARGEST OF

‘SINGLE THE BANK
200

CUSTOMERS’

As at year-end 1998, the Bank’s exposure to the ten largest ‘single customers’ (as defined under Section 61, Banking and Financial Institutions Act 1989 but excluding the Bank’s subsidiaries) amounted to RM1.25 billion. These ten largest ‘single customers’ have interests in a wide variety of business activities as represented by the following bar chart :-

180

160

140

Transport & Storage (0.5%) Mining & Quarrying (0.5%) Consumption Credit (0.6%) Hotel (0.8%) Purchase of Properties (1.1%) Timber & Forestry (1.2%) Real Estate (3.5%)

Wholesale & Retail Trade (7.6%) Electricity (9.2%) Manufacturing (12.0%) Construction (19.1%) Business Services (19.7%) Purchase of Securities (19.9%)

RM Million

Public Administration (0.4%)

Financial Services (4.0%)

120

100

80

60

40

20

0

(Each bar represents a “Single Customer”)

TENAGA

NASIONAL

BERHAD

Tenaga Nasional Berhad, responsible for transmission and distribution of electricity in Peninsular Malaysia has been banking with Southern Bank since 1996.

SOUTHERN BANK BERHAD (5303-W)

21

ASSET

QUALITY
12 10.5 10 8 7.3 5.8 6 4 2 0 Dec ’97 SBB Mar ’98 Jun ’98 Sept ’98 Dec ’98 Industry 3.2 2.8 4.9 5.2 7.2 5.8 9.7

Non-Performing Loans (“NPL”) The tight monetary policy initially adopted by the Government to combat the economic crisis led to a higher level of NPLs within the banking industry. However, through prudent lending and close monitoring of loan assets quality, the Bank was able to keep its 1998 NPL level below the industry average. The lower NPL level was achieved without any sale of NPLs to Danaharta. Banks who had sold their NPLs to Danaharta had been able to reduce their NPL ratio which is an indicator of asset quality. Selling banks would also be able to report a higher profit or a lower loss position. This is because the banks were allowed to amortize any shortfall on sale over a period of five years. On the contrary, if the NPLs were not sold to Danaharta, the banks would have had to write down the value of the NPL within one year. In addition, sale of NPLs to Danaharta would result in the reduction of total loan base, thus enabling selling banks to report a higher general provision ratio. In September 1998, BNM revised the NPL classification standard from 3 months to 6 months. Despite this, the Bank continues to adopt the more stringent 3 months classification standard. The Bank’s gross NPL increased from RM198 million as at year-end 1997 to RM518 million as at year end-1998 with a corresponding increase in net NPL ratio from 2.8% to 5.8%. However, the net NPL ratio would have been significantly reduced to 3.9% if the Bank had adopted the 6 months classification standard instead.

Net NPL Ratio Throughout 1998, the Bank’s net NPL ratio had always been below the industry’s ratio. As at year-end 1998, the Bank’s net NPL ratio was 5.8% as compared to the commercial banks’ average ratio of 9.7% (based on 3 months classification).

Ratio (%)

3000 2500 16.8

20

15

RM Million

2000 1500 1000 500 0 1,609 2,527 582 402 283 0 9.5 9.8 7.4 6.2 5 10

OD

TL

HL

TB

CARD
Default Ratio

Loan Assets

450 400 350 5.8 4.7 3.4 200 150 100 50 104 0 1994 1995 1996 1997 Net NPL Ratio 1998 97 103 136 324 2.6 2.8

8 7 6

RM Million

300 250

4 3 2 1 0

Net NPL Outstanding

Ratio (%)

5

Gross NPL Position by Product Groups The default ratio as at year-end 1998 for Overdrafts (“OD”),Term Loans (“TL”), Housing Loans (“HL”) and Trade Bills (“TB”) increased within the range of 2.4% to 6.0%. As for Credit Cards (“CARD”), default ratio increased from 8.3% to 16.8%. This was due mainly to the drop in the loans base for CARD.

Ratio (%)

22

SOUTHERN BANK BERHAD (5303-W)

Gross NPL Position by Sectors LOAN PURPOSE CODE LOAN ASSETS GROSS NPL DEFAULT % WITHIN SECTOR
%

DEFAULT % AGAINST LOAN ASSETS
%

RM Million

RM Million

Agriculture, Hunting, Forestry & Fishing Mining & Quarrying Manufacturing Electricity, Gas & Water Supply Construction Real Estate Purchase of Landed Property Residential Non-Residential Wholesale & Retail, Restaurants & Hotels Transport, Storage & Communication Finance, Insurance & Business Services Purchase of Securities Purchase of Transport Vehicles Personal Uses Credit Cards Other Sectors TOTAL

80 25 824 185 552 293 1,343 752 591 459 105 432 349 4 415 283 78 5,427

3 0 62 0 38 51 117 79 38 24 9 20 102 0 39 48 5 518

3.8 0.0 7.5 0.0 6.9 17.4 8.7 10.5 6.4 5.2 8.6 4.6 29.2 0.0 9.4 17.0 6.4

0.1 0.0 1.1 0.0 0.7 0.9 2.2 1.5 0.7 0.4 0.2 0.4 1.9 0.0 0.7 0.9 0.1 9.5

Developing a team of dedicated and motivated bank staff.

SOUTHERN BANK BERHAD (5303-W)

23

Quality of NPL Portfolio

38.2% Bad

25.1% Doubtful

Loan Loss Provision Ratio The Bank’s loan loss provision ratio, defined as a percentage of the total general provision, specific provision and interest-in-suspense against the gross NPL, is 53.4%. This ratio which is comparable to the commercial banks’ average ratio of 53.7%, reflects the Bank’s adoption of the 3 months classification standard and prudent provisioning policy. 1999 Outlook on NPL The various measures taken by the Government and Bank Negara Malaysia have eased access to capital and these have helped build investors’ confidence and put the economy on the road to recovery. Against this backdrop, we view 1999 with optimism and we expect the NPL level to moderate.

36.7% Sub-standard

Quality of NPL Portfolio NPLs which are in arrears for 3 months but less than 9 are classified as “Sub-standard”. NPLs which are in arrears for 9 months but less than 12 months, and for 12 months and above are classified as “Doubtful” and “Bad” respectively. Out of the total gross NPLs of RM518 million as at year-end 1998, 36.7% or RM190 million was classified as “Sub-standard”, 25.1% or RM130 million as “Doubtful”, and the remaining 38.2% or RM198 million as “Bad”.

Service excellence and product innovation to cater to the discerning needs of our customers.

24

SOUTHERN BANK BERHAD (5303-W)

Treasury Management

The International Banking Group (IBG) carries out the treasury function of the Bank under the guidance of the Asset and Liability Management Committee (ALCO). It is responsible for managing and mitigating the market risks that arise from the business activities of the Bank. Market risk is the exposure to an adverse change in the value of financial instruments caused by a change in market prices or rates.The major risks to which the Bank is exposed are liquidity risk, price risk, foreign exchange risk and interest rate risk. Liquidity risk is the risk that an institution will be unable to meet a financial commitment to a customer when commitment falls due. To be able to conduct its normal business activities, an institution needs to have continuous access to sufficient, reasonably priced funding. Price risk is the risk to earnings that arises from volatility in interest rates and foreign exchange rates which may have adverse impact. Foreign exchange risk arises from exposure to

fluctuations in exchange rates when assets and liabilities in the same currency are not of the same magnitude. Interest rate risks result primarily from differences in the maturity or repricing dates of assets and liabilities. Southern Bank’s risk management is guided by predefined risk management principles, including: 1. Formal definition of risk management guidelines; 2. Risk oversight by ALCO; 3. Utilisation of risk management systems, including daily mark-to-market analysis and portfolio stress testing. A key element in the Bank’s on-going process to effectively measure and manage interest rate risks is the utilisation of simulation models; both Interest Rate Sensitivity and Net Interest Income simulation.

Treasury: Providing professional services to help customers manage foreign exchange and interest rate risk.

SOUTHERN BANK BERHAD (5303-W)

25

ASSET

LIABILITY

MANAGEMENT

Risk management and oversight are governed by ALCO which approves a general risk mandate to oversee these activities. ALCO is made up of Senior Managers of all business departments, operating within Asset/Liability Management Policy with the following objectives: 1. Primary Objective To maintain a balance between risk and return. The focus is on identification, measurement and management of both risks and returns, ensuring that risks are maintained at known and acceptable levels. 2. Specific Objectives To manage and maintain in all manner consistent with the overall goals of the Bank: • • • • • • Asset Quality and credit risk within acceptable levels; Interest rate risk within acceptable levels; Liquidity sufficient to meet projected loan demand and deposit withdrawal; Capital adequacy at or above the required regulatory guidelines; Earnings and profitability at optimum levels; and Growth which is sound, profitable and balanced.

The Bank’s limits structure extends to desk-level activities and includes a listing of authorized instruments, maximum tenors, loss appetite and maximum holding depending on the type of instruments.The limit structure helps ensure alignment of corporate risk appetite with trading and investment risk-taking activities.

STRESS

TEST

Stress testing is done to capture the effects of worst-case market movements on a portfolio. It discloses the risk of the unlikely but plausible events in abnormal markets. The risks incorporated in typical stress tests include those of liquidity, correlation, prepayment speeds and term structures. Stress testing helps understand and communicate the risk profile of a complicated portfolio. The Bank’s stress tests are focused around changes in market rates and prices that result from pre-specified economic scenarios. Presently, the Bank performs the stress test on the Net Interest Income (NII), taking into consideration the various interest rate scenarios. Results from the stress test are thoroughly analysed and appropriate strategies derived and taken by the Bank to address the various scenarios.

ALCO’s responsibilities also include the measurement, monitoring, assessment and control of market risk throughout Southern Bank. These cover setting and overseeing risk limits, approving unique, non-standard transactions, evaluating and approving new products, developing risk measurement and capital allocation methodologies and portfolio stress tests.

KLANG SDN

M U LT I BHD

TERMINAL

Located in Port Klang, Klang Multi Terminal Sdn Bhd is the operator of Westport, the newest terminal in Port Klang.We have been its banker since 1995.

26

SOUTHERN BANK BERHAD (5303-W)

INTEREST

R AT E

SENSITIVITY

RM Million, as at 31 December 1998 Assets Cash and short-term funds Dealing and Investment Securities Gross Loans and Advances Loans sold to Cagamas Others Total Assets Liabilities and shareholders’ equity Customer deposits, borrowing, rediscounts and liabilities arising from Loans sold to Cagamas Subordinated bonds issued Others Total Liabilities and shareholders’ equity Interest rate sensitivity gap Cumulative interest rate sensitivity gap
Notes:

Maturity or repricing date of interest sensitive instruments Up to Above 3 to Over 12 3 months 12 months months

Interest Rate Sensitive

Total

67.7 384.1 4,576.2 5,028.1

55.7 552.0 131.1 738.8

581.7 764.0 1,345.7

221.7 82.3 204.2 565.5 1,073.7

345.1 1,600.1 5,675.5 565.5 8,186.3

3,894.3 3,894.3 1,133.8 1,133.8

1,676.3 1,676.3 (937.5) 196.3

76.9 300.0 376.9 968.8 1,165.1

769.6 1,469.2 2,238.8 (1,165.1) 0.0

6,417.1 300.0 1,469.2 8,186.3

1. Data relates to the Bank only and excludes positions of subsidiaries. 2. Assumptions made: a. b. Savings account deposits deemed to be repriced within 3 months; Credit card loans, housing loans under prescribed rate and staff loans deemed to reprice longer than 12 months.

NEW

LIQUIDITY

FRAMEWORK

800

RM Million

600

400

As announced by BNM in March 1998, one of the measures to be implemented under the stabilisation package was the review of the present liquidity framework. Under the old framework, financial institutions were required to hold liquid assets equivalent to a specified percentage of their eligible liabilities.
760.6 705.2 >3 mths-1 yr 0.0 >1 yr

200

0 Up to 3 mths

The New Liquidity Framework is to ensure that there is sufficient liquidity to meet the maturing liabilities obligations with maturing assets and also to sustain unexpected heavy withdrawals.

SOUTHERN BANK BERHAD (5303-W)

27

BNM conducted a six-month trial run of the New Liquidity Framework, which began in July 1998 in parallel to the existing liquidity framework. Effective 1999, banking institutions that are capable and ready to comply with the stringent requirements can switch over to the new framework. All banking institutions will be required to comply with the new framework by 1 January 2000. Beginning in 1999, Southern Bank Berhad was amongst the pioneer financial institutions that have adopted the New Liquidity Framework.

TREASURY

MANAGEMENT

SYSTEM

Against a backdrop of a highly competitive environment and the fact that market risks (comprising price and liquidity risks) are an inherent part of banking activities, IBG has upgraded its front office operations by acquiring the Treasury Management System. The system enables on-line deal inputs and counter party verifications, and to improve the Bank’s risk management culture to manage risks better from the front and backend treasury operations through interfacing to other critical treasury related systems.

NAGA

DDB

SDN

BHD

One of the top advertising agencies in Malaysia with the Enterprise 50 qualification.
CUSTOMER PROFILE

Naga DDB Sdn Bhd We have enjoyed tremendous support from Southern Bank since our incorporation in 1985. We strongly believe this partnership has helped us become one of the leading advertising agencies in Malaysia.The same support from Southern Bank has further helped us in being selected as an Enterprise 50 company. The Enterprise 50 award recognises the achievements of Malaysia’s 50 most enterprising home grown companies. We would like to share this award with the Bank. Lionel Koh General Manager

28

SOUTHERN BANK BERHAD (5303-W)

IT Industry Leadership

NITC

R E P R E S E N TAT I O N

YEAR

2000

COMPLIANCE

BY

MID

1999

In September, Chief Executive Director (CED) Dato’ Tan Teong Hean was appointed as the sole banker to the National Information Technology Council (NITC), reflecting Southen Bank’s leading position in the IT sector. The NITC acts as a think-tank at the highest level to advise the Gover nment on the development of IT in Malaysia. The NITC is chaired by the Prime Minister of Malaysia YAB Dato’ Seri Dr. Mahathir Mohamad and was established to spearhead Malaysia’s advancement into the Information Technology era in line with the objectives of the National IT Agenda and the Multi-Media Super Corridor.

All financial transactions, in the era of increasingly important computerised services rely on accurate dates and times. A bank’s date-sensitive systems must be able to differentiate between dates using “00” as year 2000 instead of the year 1900. Southern Bank has long been aware of the risk associated with the Y2K or Millennium Bug problems. As a result the Bank has placed significant emphasis on identifying and addressing the Year 2000 problems, completing the bulk of the conversion process in 1998 in order to achieve Y2K compliance status by June 1999. This will leave the rest of this year as a buffer for testing and fine tuning all systems, in order to ensure that all possible details of the Y2K problem have been considered and that all aspects have been completely verified.

RON

SENG BHD

PA P E R

PRODUCTS

SDN

A manufacturer of corrugated carton boxes and related products. Our banking relationship was started together with the establishment of the business in 1978.

Forerunner in the IT Industry

SOUTHERN BANK BERHAD (5303-W)

29

Under the aegis of Bank Negara, the Bank during 1998 completed the renovation, testing and implementation of the mainframe systems, as well as all the critical systems supporting the core banking business. An audit by Bank Negara in 1998 placed the Bank in the highest satisfactory Y2K preparedness category. The Bank has been conducting final testing with external partners like VISA, MasterCard and MEPS and is completing “marginal” items such as personal computers and non IT systems like the telephone exchange systems or fax machines. The Bank has initiated measures to ensure that customers, business partners and service providers areY2K compliant. Necessary contingency plans have been implemented to ensure that all Bank operations will run smoothly on critical dates such as January 1 or February 29, 2000.

The Board has been regularly briefed and consulted on the Banks Y2K progress in compliance with the Bank Negara guidelines. Training kits have been made available to assist Managers in briefing Bank staff and Y2K leaflets have been distributed to customers. Southern Bank can be considered in the top preparedness category in terms of Millennium Compliance in Malaysia. Accordingly the Bank’s clients can enjoy absolute confidence that all their financial records will remain intact and that the Year 2000 challenge will not disrupt any business process vital to the Bank’s operations or customer requirements.

ALL

THE

BANK’S

CORE

SYSTEMS

ARE

Y2K

COMPLIANT

Credit Cards

General Ledger

Teller Workstations Payroll Loans Mainframe Automated Teller Machines Fixed Assets

Interbank Clearing

Deposits

Enterprise Banking

Direct Access Call Centre

30

SOUTHERN BANK BERHAD (5303-W)

IT

DRIVEN

PRODUCTIVITY

GAINS

The Bank has always positioned itself as one of the key movers in Malaysia in the early adoption of emerging technologies. In line with this approach, the Bank tested the Biometric ATM using finger-scanning to verify the ATM cardholders.This technology offers greater security in verifying the cardholders.The Biometric data is stored on a chip card during the initial “personalised process” and verification entails checking the present image against the stored image. The Bank completed the implementation of the Autoposting System which has the ability to handle voluminous crediting and debiting of accounts for customers. SPICK, a project initiated by Bank Negara Malaysia to process inward clearing of cheques using digital images instead of paper cheque, was extended throughout the country. Treasury System was also upgraded in December 1998 to improve productivity and efficiency. In order to tighten up protection against credit card fraud, a sophisticated Account Activity Monitoring System was implemented. Other major implementations for the year include Recurring Payment System and Change-Off Accounts System which greatly improved efficiency in monitoring credit card accounts.

With technology the Bank was able to develop new payment products to meet the changing needs of the latest demands of the customers. The Corporate Card and Platinum Card were developed and launched in August 1998 with many high valued features. The technology for the Maestro Debit Card was put in place in February 1998 to provide more convenience for the cardholders to pay at checkout counters worldwide, in addition to cash withdrawal via ATM. Enhancements were made to the Enterprise Banking System to include the convenience of printing Letters of Guarantee and Letters of Credit, and broadcasting news and information via customers’ own computer systems. The Bank after pioneering the first implementation of a Secure Electronic Transmission (SET) system in 1997 upgraded this version to a higher security level in 1998. The Bank provided assistance to its sister institution, Banco Austral in Mozambique to computerise banking operations. In 1998, the Bank successfully implemented Savings Account, Current Account, Fixed Deposit Account and Loans Systems for Banco Austral.

OSK

SECURITIES

BERHAD

OSK Securities has been in the industry for over 14 years and has become one of the largest stockbroking houses in Malaysia.The banking relationship with this customer dates back to 1985.

SOUTHERN BANK BERHAD (5303-W)

31

Southern Bank as Change Catalyst

The CED, Dato Tan Teong Hean through his participation as a speaker, panellist and moderator, represented the Bank in the following fora in Kuala Lumpur covering issues ranging from Information Technology and Finance to the National Economic Recovery: At the NITC InfoTech Malaysia 1998 Conference, a premier conference on information technology on the “Impact of E-Commerce on the Financial Sector.” At the Multimedia Asia (MMA) Conference and Exhibition 1998 on “Developing Multimedia Content Industry in MSC: Challenges and Opportunities”. This International event was the largest and most specialised multimedia conference and exhibition in Asia in 1998. At the CEO Forum organised by Business Week in October 1998, a bankers perspective on “Corporate Responses to the Financial Crisis : Managing the New Economic Reality” together with other international speakers on the Panel that included CEOs from diverse sectors ranging from airline and hotel industries to trading and investment. At an international conference on “Managing the Asia Financial Crisis” on “Malaysia’s Road to Recovery: the Key Tasks Ahead”, which included distinguished speakers such as the Second Finance Minister,YB Datuk Mustapa Mohamed.

32

SOUTHERN BANK BERHAD (5303-W)

Corporate Restructuring

LEANER

AND

F L AT T E R

Flattening the organisations is not a mere buzz by word in the Bank Group. It has happened and it is still happening. Delayering, launched four years back, way before the July 1997 regional downturn, has already benefited the Bank Group’s operations. We are now much leaner. Along with the above phenomenon, the multi-tasking culture has grown and spread out beyond the top-most layers.

It is this re-engineering of people resources that will drive the Group well into the next millennium and we are proud of what we have accomplished so far.

CLOSURE

OF

SBB

FUTURES

SBB Futures having made losses since start-up two years ago wound down in 1998. Its closure in August which resulted in all employees leaving the Bank Group resulted in substantial savings in personnel, operational and office costs.

KIM

SWEE

LOONG SDN BHD

DEVELOPMENT

As the developer of Temerluh Industrial Park, it has been banking with us since 1992. However, the bank has been supporting its palm oil business under Kim Swee Loong Sdn Bhd since 1985.
CUSTOMER PROFILE

Kim Swee Loong Development Sdn Bhd We would like to take this opportunity to express our appreciation to the Bank whose support had been invaluable in helping us grow from our beginnings in palm oil plantations to the developer of the successful Temerluh Industrial Park. Lee Kim Seng Executive Chairman Kong Foo Leong Executive Director

Islamic Banking: Alternative banking services to cater to the changing needs of the community.

SOUTHERN BANK BERHAD (5303-W)

33

A M A L G A M AT I O N AND A 72 FINANCE BRANCH

OF

BANK

C O M PA N Y: NETWORK

The amalgamation of the business of Southern Finance Company Berhad (“SFCB”) and the Bank was completed April 12, 1999. The customers of SFCB now have access to an enlarged branch network of 72 as well as the Bank’s expanding non-branch delivery channels.A merger of eleven finance branches with the Bank’s branches arising from close proximity was necessary to allow for a more efficient management of human resources and other infrastructure leaving sixteen finance branches to be converted to bank units. There will be a tangible benefit to the Bank from the amalgamation scheme in terms of the expansion of assets and liabilities which is expected to register an increase of RM1.0 billion from the exercise. Cost-savings are also to be reaped in other areas amounting to no less than RM3.2 million in the first post-amalgamation year and RM6.4 million in the second year.

SFCB offered all its employees a Voluntary Separation Scheme (“VSS”) to address the excess in human resources at branch and Corporate HQ arising from the branch network rationalisation and duplication of functions at HQ.With its in-built elements of fairness and competitive characteristics, the scheme was favourably received resulting in a 60% reduction in staff force after the implementation of the VSS Scheme. Thus, from a total staff number of 295,118 will be joining the Bank upon amalgamation as the number of staff have been reduced by 177. The staff who will be joining the Bank will be retrained and this process of skill enhancement will also serve the best interest of the staff as they acquire multi-skills. As not to inconvenience the customers of SFCB as the Bank winds down the hire purchase (HP) portfolio, a Hire Purchase Centre is being set up as a one-stop centre to interface with branches on all HP matters. The Bank, nevertheless, will continue to serve all markets in which SFCB has built up a distinct franchise.

COMPUTER

FORMS BERHAD

(MALAYSIA)

CFM is involved in the printing and distribution of computer forms, stock forms and specialised forms and has been banking with us since 1996.

34

SOUTHERN BANK BERHAD (5303-W)

C O R P O R AT E

R E L O C AT I O N S AV I N G S

TO

G E N E R AT E

The Bank will be relocating from its downtown location on Jalan Sultan Ismail to its new corporate headquarters at Plaza Damansara, Damansara Heights in 1999. In view of the rapid price escalations for prime office space within the Golden Triangle during the property boom of the mid 1990s the Bank made a decision to reduce its long-term overhead costs by building its own office space in the suburb of Damansara Heights, strategically located between Kuala Lumpur City Centre and Petaling Jaya/Shah Alam and easily accessible to Putra Jaya and Cyberjaya. Its close proximity and accessibility to the major highways such as the Lebuhraya Damansara-Puchong and the Middle Ring Road, has brought about the speedy success of Damansara Heights as an up and coming major commercial hub away from the city centre. There are presently about 20 large commercial buildings in Damansara Heights as more offices relocate to the suburbs in view of the lower rentals and easier accessibility away from the traffic congestion in the city centre. The new building with net lettable space of 170,000 sq. ft., comprises seven levels of office and retail space and four levels of carparks. It will accommodate 70% of HQ and will satisfy the need for prime space requirement of the Banks front liners. It will include a new state of the art bank branch with smart offices and biometric security systems. The remaining 30% of the office space for support and back offices will stay at premises with relatively lower priced rentals to be more cost effective.

Purchase of additional space for these offices will be considered when funding cost and pricing of office space return to a more reasonable level. In the meantime the Bank will be benefiting from considerable savings by no longer paying premium rental rates for its corporate office while retaining the bank branch in Wisma Genting for the convenience of customers.

BETTER

C O S T- T O - I N C O M E

R AT I O

Reaping the benefits on our bankwide cost cutting measures, the Bank’s cost-to-income ratio improved to 43% from 48% previously. At the Group, cost-to-income ratio increased to 59% from 51% a year ago. The increase was due to the first year consolidation of the Mozambican subsidiary’s overhead expenses which amounted to RM74.2 million (the Mozambican subsidiary’s results were equity accounted for in 1997). Excluding these expenses, the adjusted cost-to-income ratio of the Malaysian operation will be marginally higher at 52%. Moreover, included in the Bank and the Group’s overhead cost are non-recurring expenses such as personnel costs for employees who left with no replacement totalling nearly RM8.0 million. Adjusted for all the above, the Bank and the Group’s cost-to-income ratio would be even lower at 42% and 51% respectively.

Model of the Bank’s new headquarters.

SOUTHERN BANK BERHAD (5303-W)

35

Channel Strategies

DIRECT

ACCESS:

BILL

P AY M E N T

SERVICE

As the concept was developed ‘in-house’, the cost for the entire campaign was kept to a minimum. In a special Bonus Promotion (BP) tied in with this campaign, bonus points were given to customers who signed up for this facility during promotion period. Executed as a direct mail effort, the EAP-BP mail-out was sent to the entire customer base. Additionally, this promotion was supported by the internal telephone message-on-hold service. Customers were encouraged to sign-up during this promotion period as they would be eligible for free bonus points which will be credited into their Direct Access credit card account.

Easy Auto Pay (EAP) marked the introduction of Direct Access’ bill payment service. EAP is available to all Direct Access’ valued customers where they can now conveniently pay their bills to a variety of participating Direct Access billers. This is in line with the Bank’s commitment of extending convenience to its base and adding more value to the way they bank. In a successful three month campaign initiated by the Bank, four organisations were designated as participating Direct Access billers. They are Telekom Malaysia Berhad (TMB), Petaling Jaya Municipal Council (MPPJ), Shah Alam Municipal Council (MPSA) and Klang Municipal Council (MPK).

LION

ELECTRONICS (M) SDN BHD

ENTERPRISE

A subsidiary of Paracorp Bhd which is listed on the Main Board of KLSE, it manufactures transformers and coils for the electronic and telecommunication industry. Lion has been banking with us since 1994.

Telephone Banking: An alternative to conventional banking.

36

SOUTHERN BANK BERHAD (5303-W)

The EAP list is still growing as the bank continually builds relationships with other organisations. The number of participating billers or organisations have since increased and Direct Access is now poised to embark on its next EAP campaign.

ENTERPRISE

BANKING: FOR

A

DIVISION

recognised alternative delivery channels. It is becoming widely accepted among an increasing number of corporate member managers who use it on a daily basis to gain up-to-date real-time information on their accounts. The uptake by corporates has been very good, and the 1998 target has been exceeded. Transaction throughput, which was zero in January 1998, exceeded RM1.5 billion by the end of 1998. Customer service is a major consideration of the service provided and EBD has been pleased with many favorable comments from our clients in 1998. As part of the continuous improvement of customer service, we have had two major upgrades of the software. These have improved the system and have enhanced the services provided to the customers.

S P E C I A L LY

BUSINESS

Information Technology (IT) plays a growing integral and important role in making business operations across boundaries and between other businesses seamless. Enterprise Banking Division (EBD) has been at the forefront of enhancing the perception that Southern Bank is an IT driven bank. EBD is now one of the Bank’s

KUOK

BROTHERS

SDN

BHD

The company is an investment holding company involved in commodities, industrial products, property, trading and hotels. Our banking relationship started in 1998.

Enterprise Banking: Convenience at the touch of a button.

SOUTHERN BANK BERHAD (5303-W)

37

At the APEC Conference, the Bank’s electronic banking was on display with the Enterprise Banking System one of the featured systems. EBD, as part of the Bank, participated in the ITX ’98 (IT Exhibition). At the AGM, the Bank’s IT products were also showcased. EBD has continued to forge ahead in IT area, with an upgrading of its IT services. The EBD system is Y2K compliant. It uses the latest technology available. Also, nodes have been set up across the country where users can access EBD through a local call. The customers of EBD range from SMIs to large corporations. Industries range from manufacturing, hi-tech companies, construction, financial services, medical, hotels, services, trading and shipping. EBD expects to continue to forge inroads into these and other industries in 1999, as well as providing a complete banking solution for our customers.

SOUTHERN IMPACT

BANK’S ON A

WEBSITE: PUBLIC

WIDER

Southern Bank’s corporate website (http://www. sbbgroup.com.my) launched in 1995, posts information on the Bank’s banking products and services, corporate information and current news. The website was redesigned in 1998 with a friendlier look. Pages were reconfigured for easier reading. Interactive forms and search engines were added to assist users to find information more quickly. The web site is popular with an average of 6500 user/ visitors every month generating more than 1.6 millions hits in 1998. Malaysians make up 43% of the traffic with 57% of the visitors originating from foreign countries. In 1998, Southern Bank began disseminating its 1997 Annual Report via the web site and CD-ROM. This has proven to be popular with our IT-savvy shareholders. The Annual Report was downloaded on an average of 190 times per month during 1998. In this way the Bank was able to save publishing costs as well as demonstrating ecological sensitivity. The website is maintained and operated within the Bank by IT staff who also host the website for Southern Unit Trust Sdn. Bhd. (http://www.sbbut.com.my).

SCB

DEVELOPMENT

BERHAD

A subsidiary of Boustead Holdings Bhd, both companies are listed on the Main Board of KLSE. SCB’s principal businesses are to cultivate and process oil palm and natural rubber as well as investment holding. SCB started its banking relationship with us in 1998.

38

SOUTHERN BANK BERHAD (5303-W)

Strategic Alliances: MIMOS and SCANS

In order to stay competitive in the future Southern Bank is striking strategic alliance with partners that will add value to stakeholders – customers, shareholders and staff. Strategic partners with diverse core competencies can assist Southern Bank compete in a market where the traditional role of banking is blurring.The cross-selling opportunities and value-added services are among the benefits that can be derived from these strategic alliances. A good example of a Southern Bank alliance partner is MIMOS Berhad. MIMOS Berhad started Malaysia’s first Internet Service Provider, JARING. Backed by its technically superior network and personnel, JARING is the choice of many Malaysians and corporations for its innovative and excellent services. The management teams of Southern Bank and MIMOS share the same vision of providing excellent products and services to an increasingly technology-literate population in Malaysia. The strategic alliance between Southern Bank and MIMOS has brought immediate benefit to both organisations. JARING subscribers can now pay through automatic payment arrangements using credit cards. MIMOS is using Southern Banks Enterprise Banking service that allows transactions and fund management of its accounts electronically.

In December 1998, Southern Bank and MIMOS extended their strategic alliance further by launching the JET Debit Card. The JET Debit cardholders will earn free Internet hours based on their Southern Bank savings or current account balances, in addition to other debit card benefits. Another example of an alliance is the Banks relationship with the Securities Clearing Automated Network Services or SCANS as it is better known. SCANS is a subsidiary of the KLSE and is the clearing house for member companies of the KLSE i.e. Securities Companies. Southern Bank is one of the select approved clearing banks for SCANS. This strategic alliance has benefited all parties. SCANS now gets payments from the Securities Companies on a real-time basis by means of the Banks Enterprise Banking System. As the system identifies who has paid, together with the date, time and message, SCANS can not only control its cash position, but can also better manage its relationship with the Securities Companies. The Securities Companies use the branch network where their customers can walk in and make payment. Through the Enterprise banking System, they can immediately identify which customer has paid them. This SBB/SCANS alliance has thus increased efficiency, reduced costs and has made another contribution towards the paperless office.

The Jet Debit Card: Malaysia’s first debit card for the banking, shopping and net surfing convenience of our customers.

SOUTHERN BANK BERHAD (5303-W)

39

THE

NEW

STRAITS (M) BHD

TIMES

PRESS

The New Straits Times was first published in 1845. Over the last 154 years, the company became a major publisher and began banking with Southern Bank in 1998.

MELAKA

TONG OF

BEE C O M PA N I E S

GROUP (“MTB

GROUP”)

MTB Group is one of the oldest and largest family owned businesses in Melaka.With its core business of oil palm and rubber, the Group has diversified into property development, manufacturing, hotels and real estate.

CUSTOMER

PROFILE

Melaka Tong Bee Group Our banking relationship with Southern Bank Berhad was established in 1970 and Southern Bank has been one of our principal bankers since then.We are grateful to Southern Bank for its continued support and are confident that we will be business partners for many more years to come. Datuk Yeo Kian Yam Chairman Yang Chien Chu Managing Director

40

SOUTHERN BANK BERHAD (5303-W)

Subsidiary Companies of the Bank

On the operating front, SBB Securities managed to increase its market share from 2.1% in 1998 to 2.7%. The higher market share is reflective of the overall increase in SBB Securities’ client base. In line with the difficult trading environment, SBB Securities has taken several measures to ensure continued cost competitiveness.These include monitoring operating cost and expenditure, credit and client trading limits and staff levels. Appropriate risk management measures have also been implemented in line with controls undertaken by the authorities to enhance transparency and efficiency in the market.

SOUTHERN

NOMINEES SDN BHD

( T E M PATA N )

Trading activities at SBB Securities.
SOUTHERN (ASING) SBB SECURITIES SDN BHD NOMINEES SDN BHD

SBB Securities, which is the Bank’s stockbroking arm is based in Ipoh and has been a member company of the Kuala Lumpur Stock Exchange for more than 15 years. SBB Securities provides a wide range of stockbroking services and this includes in-house research as well as domestic and foreign custodian and nominees services through its subsidiaries. During the year, SBB Securities successfully participated in various readiness tests and mock runs carried out by the Malaysian Exchange of Securities Dealing and Automated Quotation (“MESDAQ”). SBB Securities has also been admitted as a member of MESDAQ and is ready to participate as an inaugural member of the exchange when it commences trading. During the year, further investments were made to enhance the use of information technology in trading. The capabilities of the in-house real-time market information dissemination system were refined and expanded to facilitate on-line broking and other areas of client service.

Southern Nominees (Tempatan) and Southern Nominees (Asing) were set up to provide nominee services for both Malaysian and foreigners. The companies are authorised direct members of Malaysian Central Depository Sdn Bhd and ensure speedy and confidential handling of nominee services in scripless form.

SBB

ASSET BHD

MANAGEMENT (“SBBAM”)

SDN

SBBAM, a wholly owned subsidiary of the Bank undertakes investment management services under its Fund Manager’s Licence issued in accordance with Securities Industry Act 1983. The Company began operations in 1992 and is currently a fully integrated fund management company with functions ranging from formulating investment strategy to administrative record keeping and custody of scrips. The fund managers are long experienced in handling a wide cross section of long-term institutional funds such as pension funds, insurance funds, foundations, statutory funds and corporate funds. In addition, SBBAM also manages the unit trust funds launched by the Bank.

SOUTHERN BANK BERHAD (5303-W)

41

In the last six years, SBBAM has consistently achieved above-average performance by adopting a long-term approach to investment and avoiding excessive short-term speculation. The company adopts a combination of ‘top-down’ and ‘bottom-up’ approaches by examining both macro-economic factors and micro aspects of the investment in question to minimise exposure to undue risks. 1998 was a tough year for fund managers. It was the second year where the stock market was severely affected by the crisis. For SBBAM, it was a hectic year with many changes taking place such as new Government policies, trading amidst unsettling market conditions and coping with a severe economic recession in the country. To successfully adapt to the changing circumstances, SBBAM undertook tactical changes to its investment policies throughout the year in order to emerge from this current crisis stronger than ever.

S.B.

PROPERTIES

SDN

BHD

(“S.B.

PROPERTIES”)

S.B. Properties is the wholly owned subsidiary of the Bank responsible for management of the Bank group’s properties in Malaysia. For the year ended 31 December 1998 profit before tax was RM4,414,720.56 an increase of 97.4% over the previous year’s profit before tax of RM2,236,771.97. This substantial increase was achieved mainly by the extension of its project management services to Banco Austral as well as through its subsidiary Elite Constant Development Sdn Bhd which undertook construction contracts for Banco Austral, the Bank’s subsidiary company in Mozambique. During 1998 the Company made major headway with the development and construction of the Bank’s headquarters in Plaza Damansara, Bukit Damansara, Kuala Lumpur.

SB

VENTURE SDN BHD

C A P I TA L (“SBVCC”)

C O R P O R AT I O N SBB UNIT TRUST BERHAD

SBVCC is another wholly owned subsidiary of the Bank and is principally involved in providing venture capital to companies with good growth potential. Investments are usually made in growing and emerging companies with proprietary products, production processes or services operating in niche markets which may not need to be profitable currently but must have turnaround potential. The participation of risk capital could be in any of the following categories :• • Development Financing - investment in new business and development of new products. Intermediate Financing - investment in existing business to support growth through internal expansion or acquisitions. Secondary Purchases - acquisition of issued shares from existing shareholders of established businesses.

MANAGEMENT

SBB Unit Trust Management Berhad or better known as Southern Unit Trust (“SUT”) is wholly owned by the Bank and was incorporated in 1995. SUT is the manager for the SBB Premium Capital Fund and the SBB Retirement Balanced Fund and was the first unit trust company in Malaysia to be accredited with the ISO 9002 certification. In 1998, SUT also launched a new programme designed for children’s future education called the SBB Total Education Plan. The SBB Total Education Plan will allow for realistic monthly savings, insurance protection and inflation protected investment. SUT is responsible for the day-to-day management and administration of the various Funds in accordance with the provisions of the Trust Deed. The main duties of SUT include maintaining a register of unitholders, arranging the sale and repurchase of units, valuing the investments, keeping proper records of the Funds and reporting to Unitholders.

42

SOUTHERN BANK BERHAD (5303-W)

BANCO

AUSTRAL

– IN MOZAMBIQUE

SOUTHERN

BANK

Southern Bank Berhad, in September 1997, through its 51% owned subsidiary, Investimentos Associados Limitada, a holding company incorporated in the Republic of Mozambique, acquired 60% of Banco Austral, S.A.R.L. (formerly Banco Popular de Desenvolvimento S.A.R.L). In February 1998, Banco Austral, S.A.R.L. assumed its present name, reflecting the transformation of the Bank into a modern financial institution and a leader in the financial services industry contributing positively to the development of the economy. Banco Austral, one of six licensed banks in Mozambique, has moved to the forefront of the industry during 1998. The Bank has led the way by being the first commercial bank in Mozambique to substantially lower its interest rates and to introduce a Prime Rate, in an initiative to reduce interest rates in Mozambique in order to achieve sustainable economic growth in the country. Banco Austral is among the leading banks in Mozambique. With its extensive branch network of 131 branches strategically located throughout the country, it has one of the widest reaches of any bank in terms of distribution and provides a full range of financial products and services. In line with the core strategies of Southern Bank Berhad to utilise cutting edge banking technology, Banco Austral has embarked on an intensive program of retail transformation and to computerise its delivery channels to provide on-line efficient and effective delivery. Given the buoyant growth of the economy in Mozambique, Banco Austral is well positioned to become the market leader and to set the highest standard of banking in Mozambique. The official launch of the new image of Banco Austral S.A.R.L. took place in July in Maputo, Mozambique. The event was presided over by the Prime Minister of Malaysia, YAB Dato’ Seri Dr Mahathir Mohamad and the President of the Republic of Mozambique, His Excellency Mr Joaquim Alberto Chissano.

The newly renovated banking hall at Banco Austral.

Official Launch of the new logo for Banco Austral.

SOUTHERN BANK BERHAD (5303-W)

43

Corporate Events

Easy Auto Pay (EAP) marked the introduction of Direct Access’s bill payment service for its customers to pay their bills to participating billers such as Telekom Malaysia and Petaling Jaya Municipal Council. Chairman,Tan Sri Osman S Cassim officially launched Total Education Plan, Southern Unit Trust’s education trust account that offers a fine-tuned balance of investment and protection for a child’s long-term education plan and his/her future. Southern Bank was a co-sponsor of the Harvard Project for Asian and International Relations held at the Putra World Trade Centre. Over 200 students from the world’s top universities such as Harvard, Oxford, Yale and Malaysian universities joined leading politicians, corporate leaders and renowned scholars to exchange perspectives on critical issues in the international arena.

Banco Austral, our first overseas subsidiary.

FEBRUARY

Banco Popular de Desenvolvimento S.A.R.L., Southern Bank’s subsidiary in Mozambique was transformed into Banco Austral, S.A.R.L.

JUNE

MARCH

Southern Bank installed the first batch of 25 units of new generation Autobank ATMs.

In conjunction with its 36th Annual General Meeting, Southern Bank held a special exhibition of its industry-leading IT products and services to shareholders and the public at Hotel Istana in Kuala Lumpur. Southern Unit Trust issued its Master Prospectus for the SBB Premium Capital Fund and Retirement Balanced Fund, designed as a friendly, interactive facility explaining to investors the current schemes, strategies and management skills of the two Funds in one package. The Retail Banking Group launched the new range of Max Plus Savings, Max Plus Fixed Deposit and Max Plus Two-In-One, a combination of savings and deposit accounts. The Bank’s Butterworth branch commenced branch broking operations. Sales of the KL’98 Commonwealth Games Commemorative RM50 Polymer Notes took off at the Bank’s branches and by the end of the sales campaign in November 1999, a total of 21,315 pieces were sold.

APRIL

Southern Bank displayed its forte in applying state-of-the-art information technology for the benefit and convenience of customers at the annual Infotech Malaysia held at Putra World Trade Centre in Kuala Lumpur. It showcased the high-tech advantage of the Bank’s successful Direct Access and Enterprise Banking services for individuals and corporates.


MAY

Direct Access became the first direct banking service provider in the country to be accredited with the internationally acclaimed ISO 9002 certificate from the Standards and Industrial Research Institute of Malaysia.

44

SOUTHERN BANK BERHAD (5303-W)

The Bank contributed RM 35,000 as an official co-sponsor of the Petronas Jet Sports Racing Programme.

Chief Executive Director, Dato’ Tan Teong Hean represented the Bank in signing the MOU to mark the Islamic Banking Division’s success in offering Bridging Financing under the Special Scheme for Low and Medium Cost Houses, funded by Bank Negara Malaysia, totalling RM30.0 million to Bukit Cerakah Development Sdn. Bhd. for its project in Puncak Alam, Selangor. SBB Card Centre teamed up with Rotary Foundation of Malaysia to launch the Rotafom Gold MasterCard, an affinity programme especially for Rotary Club members, in which the first year annual fee, part of subsequent years’ annual fee and a percentage cardholders’ spending are contributed to the Rotary Club.

At the launching of E.Excel MasterCard.

J U LY

SBB Card Centre launched its Espré MasterCard specially designed for women, with its affinity partner, Extra Excel (M) Sdn. Bhd., the E. Excel MasterCard. At a ceremony held in conjunction with the Malaysian Pr ime Minister’s state visit to Mozambique, Banco Austral S.A.R.L. officially launched its new logo and corporate identity in Maputo. The launch of the Rotafom Gold MasterCard.

AUGUST

Direct Access introduced the country’s first platinum credit card, the Direct Access Platinum Mastercard. Platinum card membership comes with an unprecedented range of services world wide and will be offered to a select group of existing and potential customers.

SEPTEMBER

The Bank made a contribution of RM50,000 to the Bangsar Carnival in support of the Commonwealth Games in Kuala Lumpur. The Bank launched its new Autokad with debit card features.

SOUTHERN BANK BERHAD (5303-W)

45

NOVEMBER

Kuala Lumpur played host to the third Asia Pacific Economic Co-operation or APEC forum. At the APEC International Trade Fair ’98 held in conjunction with the forum at MINES, Southern Bank, the sole banking institution to participate, manifested its top-of-the-league Corporate Banking Services, SBB Direct PC Banking, SBB Enterprise Banking, SBB E-Commerce and Retail Banking.

SBB Card Centre, in association with Sime Darby Travel, launched card programmes for travellers: the Sime Darby Travel Discovery MasterCard for individuals and the Sime Darby Travel Visa Corporate Card for corporations. Card members also get to enjoy loyalty programmes of Sime Darby.

Launching of the Sime Darby Discovery MasterCard and Travel Visa Corporate Card. The Southern Bank Exhibit at the APEC International Trade Fair.

DECEMBER

Southern Bank launched its JET Debit Card for Jaring subscribers who are SBB Max Plus SJM accounts holders. The Bank’s first biometric Autobank ATM facility debuts as a pilot project at Kuala Lumpur Main Branch at Wisma Genting. The Bank’s Retail Banking Group participated in the “Art of Saving” Competition and Art Bazaar organised by Bank Negara Malaysia and Associations of Financial Institutions and took the opportunity to promote the Bank’s deposit and unit trust products at the three-day event held at Bank Negara Malaysia.

YB Dato’ Seri Rafidah Aziz, Minister of International Trade, trying out the SBB Enterprise Banking System.

46

SOUTHERN BANK BERHAD (5303-W)

Financial

Network

Southern Bank Berhad Branches

W I L AYA H PERSEKUTUAN

Kuala Lumpur Main Ground Floor, Wisma Genting 28, Jalan Sultan Ismail 50250 Kuala Lumpur Tel: (03) 2637000 Fax: (03) 2016320 Telex: MA 31023 SOBANK Bangsar 19, Lorong Ara Kiri 1 Taman Lucky, Bangsar 59100 Kuala Lumpur Tel: (03) 2542344/2777 Fax: (03) 2531913 Bukit Tunku J2 & K1 Taman Tunku Bt. Tunku, 50480 Kuala Lumpur Tel: (03) 6514188 Fax: (03) 6513328 Jalan Hang Lekiu 49, Jalan Hang Lekiu 50100 Kuala Lumpur Tel: (03) 2300222 Fax: (03) 2011748 Jalan Imbi 43, Jalan Barat, Off Jalan Imbi 55100 Kuala Lumpur Tel: (03) 2446496 Fax: (03) 2451329 Jalan Kuchai Lama 5, Jalan 2/116B Kuchai Entrepreneurs’ Park Off Jalan Kuchai Lama 58200 Kuala Lumpur Tel: (03) 7808442/7817935 Fax: (03) 7804286 Jalan Pudu 317-319, Jalan Pudu 55100 Kuala Lumpur Tel: (03) 2222552/4222 Fax: (03) 2217688 Jalan Raja Laut 338, Jalan Raja Laut 50350 Kuala Lumpur Tel: (03) 4425888 Fax: (03) 4434909 Jalan Sentul 704 & 706, Jalan Sentul 51000 Kuala Lumpur Tel: (03) 4412418 Fax: (03) 4433787 Jalan Sultan 59, Jalan Sultan 50000 Kuala Lumpur Tel: (03) 2322653/2654 Fax: (03) 2325758

Jinjang 6055, Jalan Jambu Gajus Jinjang Selatan 52000 Kuala Lumpur Tel: (03) 6278222 Fax: (03) 6270179 Kampung Pandan 63 & 65, Jalan Kampung Pandan Kampung Pandan 55100 Kuala Lumpur Tel: (03) 9840355 Fax: (03) 9828043 Kepong 47, Jalan 3/34A Kepong Entrepreneurs’ Park 52100 Kuala Lumpur Tel: (03) 6221242/2245 Fax: (03) 6214122 Taman Connaught 197 & 199, Jalan Sarjana Taman Connaught, Cheras 56000 Kuala Lumpur Tel: (03) 9316466 Fax: (03) 9326392 Taman Sri Rampai 21 & 23, Jalan 46A/26 Taman Sri Rampai, Setapak 53300 Kuala Lumpur Tel: (03) 4121013 Fax: (03) 4124959 Taman Tun Dr Ismail 1, Jalan 2/71,Taman Tun Dr Ismail 60000 Kuala Lumpur Tel: (03) 7183688 Fax: (03) 7190878
JOHOR

Skudai 48, Jalan Hang Tuah 4 Taman Skudai Baru, 81300 Skudai Tel: (07) 5589688 Fax: (07) 5583803 Tampoi 24 & 26, Jalan Padi 1 Bandar Baru UDA, Tampoi 81200 Johor Bahru Tel: (07) 2379655 Fax: (07) 2379653
KELANTAN

Seremban 111 & 113, Jalan Yam Tuan 70000 Seremban Tel: (06) 7610588 Fax: (06) 7610590 Telex: MA 63977 SOBANK
PAHANG

Bentong 87, Jalan Loke Yew, 28700 Bentong Tel: (09) 2225866/2966 Fax: (09) 2226113 Kuantan 34-40, Jalan Telok Sisek 25050 Kuantan Tel: (09) 5554488 Fax: (09) 5551927 Telex: MA 50171 SOBANK Ringlet 31, Main Road 39200 Ringlet Tel: (05) 4956866/6877 Fax: (05) 4957096
PERAK

Kota Bahru 3764-5, Jalan Temenggong 15000 Kota Bahru Tel: (09) 7483942 Fax: (09) 7483623 Telex: MA 53252 SOBANK
KEDAH

Alor Setar 1564, Jalan Kota, 05000 Alor Setar Tel: (04) 7319522 Fax: (04) 7318058 Telex: MA 42271 SOBANK Kulim 32, Jalan Raya, 09000 Kulim Tel: (04) 4905237/5545 Fax: (04) 4900805
MELAKA

Bagan Serai 266, Main Rd, 34300 Bagan Serai Tel: (05) 7212711/2712 Fax: (05) 7213911 Kampar 99 & 101, Jalan Gopeng 31900 Kampar Tel: (05) 4651155 Fax: (05) 4651854 Telex: MA 44255 SOBANK Langkap 3104 C & D, Jalan Kampar 36700 Langkap Tel: (05) 6591249 Fax: (05) 6592313 Telex: MA 44291 SOBANK Menglembu 31 & 33, Jalan Lee Ming Hin 31450 Menglembu Tel: (05) 2813655 Fax: (05) 2826416 Persiaran Greenhill 54, Persiaran Greenhill Greentown, 30450 Ipoh Tel: (05) 2415745/5736 Fax: (05) 2537893 Tasik 613 & 615, Jalan Tasik Taman Sri Tasik 31400 Ipoh Tel: (05) 5465622 Fax: (05) 5460632

Air Keroh 36 & 37, Lorong Setia 1 Air Keroh Heights, 75450 Melaka Tel: (06) 2322188 Fax: (06) 2322190 Melaka 110, Jalan Bendahara, 75100 Melaka Tel: (06) 2828655 Fax: (06) 2848986 Telex: MA 62884 SOBANK
NEGERI SEMBILAN

Bukit Gambir 167, Jalan Besar 84800 Bukit Gambir, Muar Tel: (06) 9762488 Fax: (06) 9762606 Johor Bahru 2-8, Jalan Abiad Taman Tebrau Jaya 80400 Johor Bahru Tel: (07) 3327577 Fax: (07) 3317750 Telex: MA 60274 SOBANK Johor Jaya 2 & 4, Jalan Dedap 20 Taman Johor Jaya 81100 Johor Bahru Tel: (07) 3548666 Fax: (07) 3548669 Senai 18, Jalan Belimbing, 81400 Senai Tel: (07) 5992188 Fax: (07) 5994855

Bahau 27, Jalan Raja Muda Serting 72100 Bahau Tel: (06) 4543960/3950 Fax: (06) 4545780 Lukut Lot 3110, Jalan Besar Lukut, 71010 Port Dickson Tel: (06) 6511944 Fax: (06) 6511858 Nilai 5724, Ground Floor Jalan TS2/1D, Taman Semarak, 71800 Nilai Tel: (06) 7995934/5935 Fax: (06) 7995933

2 1 7 1 1 7 3

SOUTHERN BANK BERHAD (5303-W)

47

2

PENINSULAR MALAYSIA

16

EAST

19 4 2 6 1

MALAYSIA

Number of Branches

Ipoh 45, Jalan Tun Sambanthan 30000 Ipoh Tel: (05) 2412166 Fax: (05) 2535962 Telex: MA 44361 SOBANK
PULAU PINANG

SABAH

Kota Kinabalu Lot No. 62 & 63 Inanam Commercial Centre 88450 Kota Kinabalu Tel: (088) 439731 Fax: (088) 439709 Telex: MA 81394 SOBANK Sandakan Blok B, Lot No. 2, Bandar Ramai-Ramai, Jalan Leila 90000 Sandakan Tel: (089) 218366 Fax: (089) 210175 Telex: MA 82855 SOBANK
SARAWAK

Jalan Gasing 111 & 113, Jalan Gasing 46000 Petaling Jaya Tel: (03) 7578918 Fax: (03) 7586422 Jalan Klang Lama 14 & 16, Jalan MJ/7 Medan Maju Jaya, Batu 7 Jalan Klang Lama 46000 Petaling Jaya Tel: (03) 7936929 Fax: (03) 7936927 Kelana Jaya 12, Jalan SS6/3, Kelana Jaya 47301 Petaling Jaya Tel: (03) 7031448 Fax: (03) 7037153 Pelabuhan Klang 55-59, Jalan Cungah 42000 Pelabuhan Klang Tel: (03) 3681515 Fax: (03) 3684021 Telex: MA 39685 SOBANK Puchong No. 12 & 13, Jalan Kenari 1 Bandar Puchong Jaya 471000 Puchong Tel: (03) 4325008 Fax: (03) 4325009 Rawang 49, Jalan Maxwell, 48000 Rawang Tel: (03) 6912771/2775 Fax: (03) 6912844 Seksyen 14 24, Jalan 14/14, Seksyen 14 46100 Petaling Jaya Tel: (03) 7560902 Fax: (03) 7573872 Seksyen 17 933, Jalan 17/38, Seksyen 17 46400 Petaling Jaya Tel: (03) 7553343 Fax: (03) 7568567 Selayang 14, Jalan Sri Selayang Taman Sri Selayang 68100 Batu Caves Tel: (03) 6897655 Fax: (03) 6862102

Seri Kembangan 26368, Jalan College 43300 Seri Kembangan Tel: (03) 9485052/5085 Fax: (03) 9424236 Shah Alam 1, Jalan Wau A 11/A, Seksyen 11 40100 Shah Alam Tel: (03) 5500633 Fax: (03) 5506701 Subang Jaya 40 & 42, Jalan SS15/4D Subang Jaya, 47500 Petaling Jaya Tel: (03) 7340919 Fax: (03) 7352555 Sungai Buloh 386, Jalan 1A/3 Bandar Baru Sungai Buloh 47000 Sungai Buloh Tel: (03) 6561386 Fax: (03) 6561589 Sungai Chua (Kajang) 3, Taman Cahaya Sungai Chua, 43000 Kajang Tel: (03) 8335711 Fax: (03) 8369031 Taman Intan (Klang) 49 & 51, Jalan Batai Laut Taman Intan, 41300 Klang Tel: (03) 3421272 Fax: (03) 3424832
TERENGGANU

Bayan Lepas 1223-4, Jalan Raya 11900 Bayan Lepas Tel: (04) 6436001 Fax: (04) 6448426 Telex: MA 40611 SOBANK Butterworth 4992-3, Jalan New Ferry 12100 Butterworth Tel: (04) 3332875 Fax: (04) 3221408 Jalan Dato Keramat 29-B Jalan Dato Keramat 10150 Pulau Pinang Tel: (04) 2273880/2263768 Fax: (04) 2266620 Nibong Tebal 2904, High Street 14300 Nibong Tebal Tel: (04) 5933235/3236 Fax: (04) 5934800 Pulau Pinang 21, Lebuh Pantai 10300 Pulau Pinang Tel: (04) 2624351 Fax: (04) 2618100 Telex: MA 40188 SOBANK Seberang Jaya D20-638, Gerbang Tuna Seberang Jaya, 13700 Perai Tel: (04) 3906401 Fax: (04) 3901157 Tanjung Bungah 1, Jalan Concord 13 11200 Tanjung Bungah Tel: (04) 8990144 Fax: (04) 8991812

Kuching No. 10, Lot 543, Bangunan Cheema Jalan Tun Ahmad Zaidi Adruce 93400 Kuching Tel: (082) 429661 Fax: (082) 429678 Telex: MA 70363 SOBANK
SELANGOR

Ampang 16 & 17, Jalan Besar 68000 Ampang Tel: (03) 4910533 Fax: (03) 4934399 Bandar Sunway 23, Jalan PJS 11/28B Bandar Sunway 46150 Petaling Jaya Tel: (03) 7377607 Fax: (03) 7377613 Cheras 1 & 3, Jalan PCR I Kawasan Perniagaan Cheras Raya Off Jalan Balakong, Batu 11 Cheras, 43200 Cheras Tel: (03) 9068382 Fax: (03) 9068395 Dengkil 195, Jalan Besar 43800 Dengkil Tel: (03) 8186899 Fax: (03) 8187670

Kuala Terengganu 104A-B, Jalan Sultan Ismail 20200 Kuala Terengganu Tel: (09) 6223188 Fax: (09) 6229058 Telex: MA 51367 SOBANK
W I L AYA H PERSEKUTUAN LABUAN

Labuan Lot 15, Jalan Melati Off Jalan Tun Mustapha 87007 Wilayah Persekutuan Labuan Tel: (087) 414532 Fax: (087) 415525 Telex: MA 85098 SOBANK

48

SOUTHERN BANK BERHAD (5303-W)

Financial

Network

Subsidiary Companies of the Bank

SOUTHERN BANK BERHAD Corporate Headquarters 20th Floor, Wisma Genting 28, Jalan Sultan Ismail 50250 Kuala Lumpur Tel: (03) 2637000 Fax: (03) 2320651 Web: http://www.sbbgroup.com.my SBB SECURITIES SDN BHD 51-53, Persiaran Greenhill 30450 Ipoh, Perak Tel: (05) 2530888 Fax: (05) 2537666 Telex: MA44150 SBBSEC SBB ASSET MANAGEMENT SDN BHD 17th Floor (Old Wing), Wisma Genting 28, Jalan Sultan Ismail 50250 Kuala Lumpur Tel: (03) 2628823 Fax: (03) 2016881 S.B.VENTURE CAPITAL CORPORATION SDN BHD 4th Floor (New Wing), Wisma Genting 28, Jalan Sultan Ismail 50250 Kuala Lumpur Tel: (03) 2641148 Fax: (03) 2647800 S.B. PROPERTIES SDN BHD 1, Jalan Ampang 50450 Kuala Lumpur Tel: (03) 2389000 Fax: (03) 2329702

ELITE CONSTANT DEVELOPMENT SDN BHD 1, Jalan Ampang 50450 Kuala Lumpur Tel: (03) 2389000 Fax: (03) 2329702 SOUTHERN NOMINEES (TEMPATAN) SDN BHD SOUTHERN NOMINEES (ASING) SDN BHD 20 th Floor, Wisma Genting 28, Jalan Sultan Ismail 50250 Kuala Lumpur Tel: (03) 2637000 Fax: (03) 2320651 SBB UNIT TRUST MANAGEMENT BHD 10 th Floor, Wisma Perdana Jalan Dungun Damansara Heights 50490 Kuala Lumpur Tel: (03) 2542288 Fax: (03) 2540605/0684 SBB CAPITAL MARKETS SDN BHD 16th Floor, Wisma Genting 28, Jalan Sultan Ismail 50250 Kuala Lumpur Tel: (03) 2093737 Fax: (03) 2642190 BANCO AUSTRAL S.A.R.L. 1184 Av. 25 de Selimbro Maputo Republic of Mozambique Tel: 2581-428125/7 Fax: 2581-424122

SOUTHERN BANK BERHAD (5303-W)

49

Financial Statements

Directors’ Report Balance Sheets Profit and Loss Accounts Consolidated Cash Flow Statement Notes to the Accounts Statement by Directors Statutory Declaration Report of the Auditors to the Members of Southern Bank Berhad

50-55 56 57 58-59 60-100 101 101

102

98

50

SOUTHERN BANK BERHAD (5303-W)

Directors’ Report

The directors have pleasure in submitting their report and the audited accounts of the Bank and of the Group for the financial year ended 31 December 1998.

PRINCIPAL

ACTIVITIES

The Bank is principally engaged in all aspects of the banking business and the provision of related services, which also include Islamic banking services. The principal activities of the Bank’s subsidiary companies are stated in Note 10 to the accounts. Other than as indicated in Note 10 to the accounts, there have been no significant changes in the nature of the activities of the Bank and of the Group during the financial year.

R E S U LT S

The Bank RM’000 Profit before taxation and zakat Taxation Zakat Profit after taxation and zakat Minority interests Net profit after minority interests Transfer to statutory reserve Retained profit brought forward Profit available for distribution Proposed dividend of 4.5% less tax Retained profit carried forward 111,229 (38,429) (14) 72,786 – 72,786 (36,394) 89,895 126,287 (23,312) 102,975

The Group RM’000 78,489 (42,627) (14) 35,848 1,338 37,186 (36,394) 112,665 113,457 (23,312) 90,145

DIVIDENDS

Since the end of the previous financial year, the Bank paid a final dividend of 10% less tax in respect of the previous financial year and dealt with in the previous directors’ report amounting to RM23,024,182 on the issued and fully paid-up ordinary shares of the Bank that ranked for dividend for that year. The directors now recommend a first and final dividend of 4.5% less tax in respect of the current financial year totalling RM23,311,984 on the issued and fully paid-up ordinary shares of the Bank.

RESERVES

AND

PROVISIONS

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

SOUTHERN BANK BERHAD (5303-W)

51

Directors’ Report

(Cont’d.)

ISSUE

OF

SHARES

AND

DEBENTURES

The Bank has not issued any new shares or debentures during the financial year.

SHARE

OPTION

During the financial year, the Bank has not issued any options to any parties to take up unissued shares of the Bank. No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Bank. As at the end of the financial year, there were no unissued shares of the Bank under options.

BAD

AND

DOUBTFUL

DEBTS

AND

FINANCING

Before the accounts of the Bank and of the Group were made out, the directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and financing and the making of provision for doubtful debts and financing, and had satisfied themselves that all known bad debts and financing had been written off and that adequate provisions had been made for bad and 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 provision for bad and doubtful debts and financing, in the accounts of the Bank and of the Group inadequate to any substantial extent.
CURRENT ASSETS

Before the accounts of the Bank and of the Group were made out, the directors took reasonable steps to ascertain that any current assets, other than debts and financing, which were unlikely to realise their value as shown in the accounting records of the Bank and of the Group in the ordinary course of business 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 accounts of the Bank and of the Group misleading.
VA L U AT I O N 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 accounts of the Bank and of the Group misleading or inappropriate.

52

SOUTHERN BANK BERHAD (5303-W)

Directors’ Report

(Cont’d.)

CONTINGENT

AND

OTHER

LIABILITIES

At the date of this report, there does not exist: (a) (b) any charge on the assets of the Bank and of the Group which has arisen since the end of the financial year which secures the liabilities of any other person; or any contingent liability in respect of the Bank and of the Group which has arisen since the end of the financial year other than those arising in the ordinary course of banking business.

No contingent or other liability of the Bank and of the Group has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Bank and of the Group to meet their obligations as and when they fall due.
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 accounts, that would render any amount stated in the accounts of the Bank and of the Group misleading.
ITEMS OF AN UNUSUAL N AT U R E

The results of operations of the Bank and of the Group for 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. Other than the uncertainties resulting from the economic slowdown, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of operations of the Bank and of the Group for the financial year in which this report is made.
DIRECTORS AND THEIR INTERESTS IN SHARES

The names of the directors of the Bank in office since the date of the last report and at the date of this report are: YBhg Tan Sri Osman S Cassim (Chairman) YBhg Dato’ Tan Teong Hean (Chief Executive Director) YBhg Dato’ Dr. Yahya bin Ismail YBhg Dato’ Dr. Mohammad Abdus Salim bin Cassim Sim Kee Boon Lim Pak Tow Dr. Maisarah bte Abdullah Dr. Maisarah bte Abdullah retires by rotation under Article 116 of the Bank’s Articles of Association and, being eligible, offers herself for re-election. YBhg Dato’ Dr. Yahya bin Ismail and Mr Lim Pak Tow retire pursuant to Section 129 of the Companies Act, 1965 and resolutions will be proposed for their re-appointment as directors under the provision of Section 129 (6) of the said Act to hold office until the next Annual General Meeting of the Bank.

SOUTHERN BANK BERHAD (5303-W)

53

Directors’ Report

(Cont’d.)

According to the Register of Directors’ Shareholdings maintained by the Bank in accordance with Section 134 of the Companies Act, 1965, the directors’ beneficial interests in the shares and warrants of the Bank and its related corporations are as follows: Number of ordinary shares of RM1 each As at 1.1.1998 YBhg Tan Sri Osman S Cassim (Chairman) YBhg Dato’ Tan Teong Hean (Chief Executive Director) – direct – indirect – direct – indirect 14,391,000 – 2,664,685 272,036,231 8,248,762 1,119,310 Additions – – – 917,000 – – Disposals – – – 37,280,000 – – As at 31.12.1998 14,391,000 – 2,664,685 235,673,231 8,248,762 1,119,310

YBhg Dato’ Dr. Yahya bin Ismail – direct – indirect YBhg Dato’ Dr. Mohammad Abdus Salim bin Cassim

– direct – indirect – direct – indirect

33,742,062 225,111,076 55,579 96,761

– – – 10,000

– 37,280,000 – –

33,742,062 187,831,076 55,579 106,761

Lim Pak Tow

By virtue of their shareholdings in the Bank, the above directors are deemed to have beneficial interest in the shares of its subsidiary companies. Number of warrants As at 1.1.1998 YBhg Tan Sri Osman S Cassim (Chairman) YBhg Dato’ Tan Teong Hean (Chief Executive Director) – direct – indirect – direct – indirect 2,782,260 – 515,169 53,591,065 2,149,933 324,595 Additions – – – – – – Disposals – – – – 502,077 – As at 31.12.1998 2,782,260 – 515,169 53,591,065 1,647,856 324,595

YBhg Dato’ Dr. Yahya bin Ismail – direct – indirect YBhg Dato’ Dr. Mohammad Abdus Salim bin Cassim

– direct – indirect – direct – indirect

6,954,997 42,870,494 10,744 44,524

– – – 7,000

– – – –

6,954,997 42,870,494 10,744 51,524

Lim Pak Tow

Each warrant entitles the holder to subscribe for one new ordinary share of RM1 each in the Bank at any time during the exercise period. The exercise period is from 18 June 1997 to 17 June 2001.

54

SOUTHERN BANK BERHAD (5303-W)

Directors’ Report

(Cont’d.)

DIRECTORS’

BENEFITS

Since the end of the previous financial year, none of the directors of the Bank has received or become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by directors shown in the accounts, or the fixed salary of a full-time employee of the Bank) by reason of a contract made by the Bank or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest. Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangements to which the Bank was a party whereby directors might acquire benefits by means of the acquisition of shares in, or debenture of, the Bank or any other body corporate.
SIGNIFICANT EVENTS

During the financial year, (i) the Bank transferred its 30.6% equity interest in its then associated company, Banco Austral S.A.R.L. (formerly known as Banco Popular de Desenvolvimento), a bank incorporated in the Republic of Mozambique, to Investil – Investimentos Associados Limitada (IIAL), a private company incorporated in the Republic of Mozambique, in return for 51% interest in the capital of IIAL. In addition to the shares transferred from the Bank, Invester S.A.R.L. also transferred its shareholding in Banco Austral S.A.R.L. of 29.4% to IIAL. Consequently, IIAL has a total of 60% equity interest in Banco Austral S.A.R.L.. Banco Austral S.A.R.L. became an indirect subsidiary company of the Bank and its accounts are consolidated with the accounts of the Bank for the current financial year. (ii) The Bank obtained the approvals from Bank Negara Malaysia and other relevant authorities for the proposed amalgamation of the finance business of the Bank’s wholly-owned subsidiary company, Southern Finance Company Berhad (SFCB), with that of the Bank. The Bank also obtained a court vesting order for the takeover by the Bank of all assets and liabilities of SFCB pursuant to the amalgamation. The amalgamation is expected to be completed by 11 April 1999.
AUDITORS

The auditors, Messrs. Kassim Chan & Co., have indicated their willingness to continue in office.
BUSINESS S T R AT E G Y AND OUTLOOK

During the year, a further contraction in the domestic economy led to an easing of interest rates to address deflationary pressures. The Group responded by focussing on the better cost management which led to lower expenses. In a continuing drive to raise productivity, with the amalgamation of its business, 11 branches of the finance subsidiary were closed-down. Staff level was also reduced substantially through a voluntary separation scheme.

SOUTHERN BANK BERHAD (5303-W)

55

Directors’ Report

(Cont’d.)

Leveraging on the strength of the Bank’s balance sheet and management, on a selective basis, the Bank expanded its business in the markets where it has a niche. The Group’s loan growth, at 15.8% reflects its belief that its balance sheet growth should not be at the expense of asset quality. Looking ahead, we will continue to focus on the cost discipline, better operation efficiency and improved risk management. Our solid business franchise, a superior risk weighted capital ratio of 19.85%, and the depth of management, positions the Group strategically to take advantage of opportunities amidst crises and to gain significantly as the economy recovers.
YEAR 2000 COMPLIANCE

The Bank has completed the renovation and implementation of the critical systems supporting the core banking business including Branch Teller System, Deposit System, Loans System, General Ledger System, ATM System, Funds Transfer System and Credit Card System. The Bank is in the midst of renovating the marginal or less critical systems. The Bank is also conducting testing with external parties like VISA, MasterCard and MEPS. We expect all the systems to be fully Y2K compliant by June 1999. The Bank has initiated actions to ensure that customers, business partners and service providers are Y2K compliant. The necessary contingency plans have also been developed to ensure that operations will run smoothly on the critical dates. To date, progress of our compliance efforts remains on schedule and the Bank is confident that the Y2K issue will not disrupt business processes which are vital to its operations.

Signed on behalf of the Board in accordance with a resolution of the directors,

YBhg TAN SRI OSMAN S CASSIM Chairman

YBhg DATO’ TAN TEONG HEAN Chief Executive Director Kuala Lumpur 31 March 1999

56

SOUTHERN BANK BERHAD (5303-W)

Balance Sheets
as at 31 December 1998

The Bank Note ASSETS Cash and short-term funds Securities purchased under resale agreements Deposits and placements with financial institutions Dealing securities Investment securities Loans, advances and financing Other assets Statutory deposits with Bank Negara Malaysia Investment in subsidiary companies Investment in associated company Fixed assets Goodwill on consolidation TOTAL ASSETS 1998 RM’000 1997 RM’000

The Group 1998 RM’000 1997 RM’000

3

222,415 –

534,022 – 123,816 292,941 1,260,385 4,472,723 172,757 725,170 229,520 14,001 73,545 – 7,898,880

222,806 5,692 98,366 160,220 1,653,395 6,067,600 356,687 215,149 – – 274,170 21,043 9,075,128

622,696 651 179,052 313,082 1,421,292 5,437,417 236,738 841,250 – 17,019 129,575 4,704 9,203,476

4 5 6 7 8 9 10 11 12

78,897 156,478 1,497,037 5,150,571 227,264 185,829 250,307 – 70,849 – 7,839,647

LIABILITIES AND SHAREHOLDERS’ FUNDS Deposits from customers Deposits and placements of banks and other financial institutions Obligation on securities sold under repurchase agreements Bills and acceptances payable Other liabilities 5.5% Redeemable unsecured subordinated bonds TOTAL LIABILITIES MINORITY INTERESTS Share capital Reserves SHAREHOLDERS’ FUNDS TOTAL LIABILITIES AND SHAREHOLDERS’ FUNDS COMMITMENTS AND CONTINGENCIES 17 18 13 14 4,876,188 631,228 306,050 346,099 218,981 300,000 6,678,546 – 719,506 441,595 1,161,101 4,604,636 1,111,746 181,730 327,921 262,243 300,000 6,788,276 – 719,506 391,098 1,110,604 5,727,669 702,952 386,190 353,258 362,055 300,000 7,832,124 45,450 719,506 478,048 1,197,554 5,245,104 1,535,934 266,548 327,621 318,809 300,000 7,994,016 27,997 719,506 461,957 1,181,463

15 16

7,839,647

7,898,880

9,075,128

9,203,476

29

4,932,239

6,177,521

5,255,664

6,372,591

The accompanying notes form an integral part of the Accounts.

SOUTHERN BANK BERHAD (5303-W)

57

Profit and Loss Accounts
for the year ended 31 December 1998

The Bank Note Interest income Interest expense Net interest income SPI income 19 20 1998 RM’000 746,322 (456,008) 290,314 2,012 292,326 Loan and financing loss and provision 21 (99,390) 192,936 74,208 (54) 267,090 (155,861) 111,229 Share in results of associated company Profit before taxation and zakat Taxation Zakat Profit after taxation and zakat Minority interests Net profit after minority interests Transfer to statutory reserves Retained profit brought forward Profit available for distribution Proposed dividend of 4.5% (1997: 10%) less tax Retained profit carried forward Earnings per share (sen) – Basic 18 28 – 111,229 (38,429) (14) 72,786 – 72,786 (36,394) 89,895 126,287 (23,312) 102,975 1997 RM’000 633,547 (379,165) 254,382 315 254,697 (55,217) 199,480 80,273 – 279,753 (159,707) 120,046 – 120,046 (39,452) – 80,594 – 80,594 (40,297) 72,620 112,917 (23,022) 89,895

The Group 1998 RM’000 894,913 (537,911) 357,002 2,012 359,014 (120,812) 238,202 128,064 (54) 366,212 (287,723) 78,489 – 78,489 (42,627) (14) 35,848 1,338 37,186 (36,394) 112,665 113,457 (23,312) 90,145 1997 RM’000 769,532 (455,362) 314,170 315 314,485 (73,725) 240,760 87,445 – 328,205 (206,979) 121,226 975 122,201 (41,230) – 80,971 2,459 83,430 (47,557) 99,814 135,687 (23,022) 112,665

35

Non-interest income Provision for commitments and contingencies Net income Overhead expense

22

23

26

18

5.2

17.4

The accompanying notes form an integral part of the Accounts.

58

SOUTHERN BANK BERHAD (5303-W)

Consolidated Cash Flow Statement
for the year ended 31 December 1998

1998 RM’000 CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation and minority interests Adjustments for investing and financing items and items not involving the movement of cash and cash equivalents: Depreciation of fixed assets Net gain/loss on disposal of fixed assets Fixed assets written off Interest income from investment securities Loan and financing loss and provision Amortisation of premium/(accretion of discount) – net Amortisation of goodwill Share of profit retained in associated company Net (gain)/loss from sale of investment securities (Write back)/Provision for diminution in value of investment securities Dividend income Provision for diminution in value of dealing securities Operating profit before working capital changes Decrease in deposits and placements with financial institutions (Increase)/decrease in dealing securities Increase in loans, advances and financing Increase in other assets (Increase)/decrease in statutory deposits with Bank Negara Malaysia Increase in deposits from customers Increase/(decrease) in deposits and placements of banks and other financial institutions Increase in obligations on securities sold under repurchase agreements Increase in bills and acceptance payable Increase/(decrease) in other liabilities Cash generated from/(used in) operations Income taxes paid Net cash generated from/(used in) operating activities CASH FLOW FROM INVESTING ACTIVITIES Purchase of investment securities Purchase of fixed assets Proceeds from disposal of fixed assets Dividend received Proceeds from sale of investment securities Purchase of shares in associated company Interest received from investment securities Acquisition of subsidiary company net of cash and cash equivalents acquired Net cash used in investing activities (2,262,315) (61,486) 271 1,665 2,081,383 – 102,115 34,136 (104,231) 78,489

1997 RM’000

122,201

24,538 124 490 (103,141) 136,989 (2,988) 975 – (1,998) (3,838) (2,287) 292 127,645 203,322 118,693 (584,145) (19,548) 626,101 59,706 (838,355) 119,642 12,408 (49,466) (223,997) (45,749) (269,746)

16,552 (837) 285 (56,608) 88,438 1,155 261 (975) 7,375 14,445 (1,861) 12,083 202,514 460,317 (94,073) (1,018,670) (38,574) (267,338) 462,832 723,409 172,617 2,235 18,384 623,653 (58,195) 565,458

(1,227,657) (46,878) 1,608 1,361 586,891 (14,001) 50,088 – (648,588)

SOUTHERN BANK BERHAD (5303-W)

59

Consolidated Cash Flow Statement
for the year ended 31

(Cont’d.)
1998

December

1998 RM’000 CASH FLOW FROM FINANCING ACTIVITIES Share issue expenses Proceeds from shares issued to minority shareholders of a subsidiary company Net proceeds from issue of shares Dividend paid to shareholders Dividend paid to minority shareholders of a subsidiary company Net cash generated from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Currency translation difference Cash and cash equivalents at 31 December ANALYSIS OF CASH AND CASH EQUIVALENTS Cash and short-term funds (Note 3) 222,806 1998 RM’000 ANALYSIS OF NET ASSETS OF SUBSIDIARY COMPANY ACQUIRED DURING THE FINANCIAL YEAR Cash and short-term funds Deposits and placement with financial institutions Investment securities Loans, advances and financing Other assets Fixed assets Deposits from customers Deposits and placement of banks and other financial institutions Bills and acceptances payable Other liabilities Net assets acquired Goodwill on consolidation Minority interests Purchase consideration Satisfied by reclassification from investment in associated company Satisfied by cash Cash and cash equivalents acquired Net cash from acquisition of subsidiary company
The accompanying Notes form an integral part of the Accounts.

1997 RM’000

– – – (23,024) – (23,024) (397,001) 622,696 (2,889) 222,806

(2,543) 15,000 443,786 (17,906) (3,067) 435,270 352,140 270,556 – 622,696

622,696

34,136 139,480 11,448 199,947 99,307 118,565 (461,949) (5,870) (14,452) (104,585) 16,027 17,315 (16,323) 17,019 (17,019) – 34,136 34,136

60

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

1.

BASIS

OF

P R E PA R AT I O N

The financial statements of the Bank and of the Group have been prepared in compliance with the Companies Act, 1965, modified to comply with the Principles of Syariah, the applicable approved accounting standards of Malaysian Accounting Standards Board and BNM/GP8: Guidelines on the Specimen Financial Statements for the Banking Industry.
2. SIGNIFICANT ACCOUNTING POLICIES

(a)

Accounting Convention The accounts of the Bank and of the Group have been prepared under the historical cost convention.

(b)

Basis of Consolidation The consolidated accounts of the Group comprise the audited accounts of the Bank and all its subsidiary companies listed under Note 10, made up to 31 December. All significant intercompany transactions and balances have been eliminated on consolidation.

(c)

Income Recognition Interest on loans and advances and commitment fees are recognised on an accrual basis. Interest from hirepurchase, block discounting and leasing transactions is recognised on the ‘sum-of-the-digits’ method. Where a customer account is classified as non-performing, recognition of interest income is suspended until it is realised on a cash basis. Customers’ accounts of the Bank and its finance subsidiary company are classified as non-performing where repayments are in arrears for 3 months or more for all loans and advances and overdrafts and 1 month after maturity date for trade bills, bankers’ acceptances and trust receipt. This policy of classifying non-performing accounts is more stringent than the requirement of Bank Negara Malaysia guidelines, BNM/GP3 (Revised 1998) “Guidelines on Classification of Non-performing Loans and Provision for Bad and Doubtful Debts and Financing”, which require that accounts be classified as non-performing where repayments are in arrears for 6 months or more for all loans and advances and overdrafts. Customers’ accounts of the foreign bank subsidiary company, Banco Austral S.A.R.L. (formerly known as Banco Popular de Desenvolvimento), are classified as non-performing where repayments are in arrears for 1 month or more for all loans and advances in accordance with the rules of the Bank of Mozambique. Interest income on non-performing loans and advances is recognised on a cash basis except for loans to the Government of Mozambique and loans secured on real estate which is accrued. In previous financial year, trade bills, bankers’ acceptances and trust receipt were classified as non-performing 14 days after their maturity dates. Loan arrangement fees, commissions, guarantee fees and dividends from investment securities are recognised on a cash basis. Income from Islamic banking (SPI) is recognised on a cash basis in accordance with the Syariah principles.

SOUTHERN BANK BERHAD (5303-W)

61

Notes to the Accounts
31

(Cont’d.)
1998

December

2.

SIGNIFICANT

ACCOUNTING

POLICIES

(CONT’D.)

(d)

Provision for Bad and Doubtful Debts and Financing Specific provisions are made for doubtful debts and financing which have been individually reviewed and specifically identified as bad or doubtful. A general provision based on a percentage of the loan and financing portfolio is also made to cover possible losses which are not specifically identified. An uncollectible loan and financing or portion of a loan 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.

(e)

Repurchase Agreements Securities purchased under resale agreements are securities which the Group has purchased with a commitment to resell at future dates. The commitment to resell the securities is reflected as an asset on the balance sheet. Conversely, obligation on securities sold under repurchase agreements are securities which the Group has sold from its portfolio, with a commitment to repurchase at future dates. Such financing transactions and the obligation to repurchase the securities are reflected as a liability on the balance sheet.

(f)

Dealing Securities Dealing securities are marketable securities that are acquired and held with the intention of resale in the short-term and are stated at the lower of cost and market value. Transfers, if any, between dealing and investment securities are made at the lower of cost and market value.

(g)

Investment Securities Investment securities are securities that are acquired and held for yield or capital growth or to meet minimum liquid assets requirement pursuant to Section 38 of the Banking and Financial Institutions Act, 1989, and are usually held to maturity. Malaysian Government securities, Malaysian Government investment issues, Cagamas and Danamodal bonds, other Government securities and Bank Guaranteed Private Debt Securities held for investment are stated at cost adjusted for amortisation of premium or accretion of discount to maturity date. Other Private Debt Securities are valued at the lower of cost and market value. Long-term investments in quoted shares are stated at cost less provision for diminution in value. Provision is made for any permanent diminution in value of such investments as determined on an individual basis. Transfers, if any, between investment and dealing securities are made at the lower of carrying value and market value.

(h)

Investment in Subsidiary Companies A subsidiary company is a company in which the Bank controls the composition of its board of directors or more than half of its voting power, or holds more than half of its issued ordinary share capital. Investment in subsidiary companies is stated at cost in the accounts of the Bank and a provision for diminution in value is made when the directors consider that there is a permanent diminution in the value of such investment.

62

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

2.

SIGNIFICANT

ACCOUNTING

POLICIES

(CONT’D.)

(i)

Investment in Associated Company An associated company is a company in which the Group has a long term equity interest of between 20% to 50% and where the Group is in a position to exercise significant influence in its management. Investment in associated company is stated at cost less provision for diminution in value of investment of a permanent nature, if any, in the Bank’s financial statements. In the consolidated financial statements, the results of associated company is accounted for under the equity method based on management accounts whereby the Group’s share of post acquisition profits less losses of associated company is included in the consolidated profit and loss account and the Group’s interest in the associated company is stated at cost plus adjustments to reflect changes in the Group’s share of the net assets of the associated company in the consolidated balance sheet.

(j)

Depreciation Freehold land is not depreciated. Leasehold land is depreciated on a straight-line basis over the period of the lease. Other fixed assets are depreciated on a straight-line basis over their estimated useful lives. The principal annual rates are:Buildings Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 2.5% 10.0% – 20.0% 10.0% – 50.0% 20.0%

(k)

Assets Under Lease Assets under lease which in substance transfer the risks and benefits of ownership of the assets are capitalised under fixed assets. The assets and the corresponding lease obligations are recorded at the lower of present value of the minimum lease payments or the fair value of the leased assets at the beginning of the lease term. Such leased assets are subject to depreciation consistent with that for depreciable assets which are owned. Leases which do not meet such criteria are classified as operating leases and the related rentals are charged to profit and loss account as incurred.

(l)

Bills and Acceptances Payable Bills and acceptances payable represent the Bank’s own bills and acceptances rediscounted and outstanding in the market.

(m) Forward Exchange Contracts Unmatured forward exchange contracts are stated at their original contracted forward rates applicable to the respective dates of maturity and unrealised losses and gains are taken up in the profit and loss account for the year on a time-apportionment basis over the individual life of the contracts. (n) Interest Rate Swaps and Futures Contracts The Bank uses interest rate swaps and futures contracts in its trading account activities and in an overall interest rate risk management.

SOUTHERN BANK BERHAD (5303-W)

63

Notes to the Accounts
31

(Cont’d.)
1998

December

2.

SIGNIFICANT

ACCOUNTING

POLICIES

(CONT’D.)

Interest income or interest expense associated with interest rate swaps that qualify as hedges is recognised over the life of the swap agreement as a component of interest income or interest expense. Gains and losses on interest rate futures contracts that qualify as hedges are generally deferred and amortised over the life of the hedged assets or liabilities as adjustments to interest income or interest expense. Gains and losses on interest rate swaps and futures contracts that do not qualify as hedges are recognised in the current year using the mark-to-market method, and are included in the net result from dealing securities. (o) Currency Translations Individual foreign currency assets and liabilities are stated in the balance sheet at spot rate of exchange which closely approximate those ruling at the balance sheet date. Transactions in foreign currencies are translated at rates prevailing on transaction dates. Exchange gains and losses are recognised in the profit and loss account in the year they arise. For the purpose of consolidation, the financial statements of associated/subsidiary company expressed in foreign currency are translated into Ringgit Malaysia at the rates of exchange ruling at the balance sheet date. Gains or losses arising on translation into Ringgit Malaysia are taken up in the exchange fluctuation reserve. Translation losses in excess of amount in the exchange fluctuation reserve, if any, is taken up in the profit and loss account. (p) Deferred Taxation Provision for deferred taxation using the ‘liability’ method is made in respect of all material timing differences between profit as reported for accounting and taxation purposes to the extent where it is probable that a liability for taxation will crystallise in the foreseeable future. Timing differences which give rise to net deferred tax benefits are generally not recognised except for the tax effects which arise from the difference in the recognition of amortisation of premiums, unrealised loss on securities and interest income suspended for tax and accounting purposes. (q) Goodwill Goodwill arising on consolidation represents the excess of the purchase price over the fair value of the net assets of the subsidiary company at the date of acquisition and is amortised over twenty-five years in compliance with the recommendation of Malaysian Accounting Standard No. 6,“Accounting For Goodwill”. (r) Deferred Asset Deferred asset of a subsidiary company is reduced annually by an amount computed in accordance with the guidelines of the rescue scheme sponsored by Bank Negara Malaysia (see Note 8), and is based on net loans recoveries and income arising from utilisation of long-term deposits placed by Bank Negara Malaysia as provided for under the said scheme. This amount was fully amortised to the profit and loss account during the financial year. (s) Cash and Cash Equivalents Cash equivalents are short-term, highly liquid investments which are readily convertible to cash with insignificant risk of changes in value.

64

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

3.

CASH

AND

S H O RT- T E R M

FUNDS

The Bank 1998 RM’000 Cash and balances with banks and other financial institutions Money at call and deposit placements maturing within one month 1997 RM’000

The Group 1998 RM’000 1997 RM’000

81,985 140,430 222,415

128,572 405,450 534,022

110,152 112,654 222,806

135,084 487,612 622,696

4.

DEPOSITS

AND

PLACEMENTS

WITH

FINANCIAL

INSTITUTIONS

The Bank 1998 RM’000 Licensed banks Licensed finance companies Other financial institutions – 51,558 27,339 78,897 1997 RM’000 66,521 32,595 24,700 123,816

The Group 1998 RM’000 69,786 500 28,080 98,366 1997 RM’000 67,732 86,620 24,700 179,052

5.

DEALING

SECURITIES

The Bank 1998 RM’000 Money market instruments: Malaysian Government securities Cagamas bonds and notes Bankers’ acceptances and Islamic accepted bills 62,081 – 94,397 156,478 Quoted securities in Malaysia: Quoted shares and unit trusts – 156,478 Market value of quoted securities: Malaysian Government securities Cagamas bonds and notes Quoted shares and unit trusts in Malaysia 63,197 – – 63,197 24,058 9,863 – 33,921 24,058 9,863 259,020 292,941 – 292,941 1997 RM’000

The Group 1998 RM’000 1997 RM’000

62,081 – 95,954 158,035 2,185 160,220

24,058 9,863 274,592 308,513 4,569 313,082

63,197 – 3,185 66,382

24,058 9,863 5,569 39,490

SOUTHERN BANK BERHAD (5303-W)

65

Notes to the Accounts
31

(Cont’d.)
1998

December

6.

INVESTMENT

SECURITIES

The Bank 1998 RM’000 Money market instruments: Malaysian Government securities Cagamas bonds and notes Negotiable instruments of deposits KLIA’s Islamic Primary Notes Private debt securities Danamodal bonds 273,062 205,324 795,132 30,528 10,437 96,587 1,411,070 Quoted shares: In Malaysia Outside Malaysia Unquoted shares: In Malaysia Outside Malaysia 25,774 52,706 154,064 257,783 733,973 30,528 10,464 – 1,186,812 21,092 50,432 1997 RM’000

The Group 1998 RM’000 1997 RM’000

334,424 215,325 807,132 30,513 10,437 108,806 1,506,637 72,400 52,706

219,491 278,807 773,973 30,513 10,464 – 1,313,248 67,398 50,432

3,885 – 1,493,435

3,885 – 1,262,221 (1,836)

12,302 25,962 1,670,007 3,602

12,302 – 1,443,380 (1,836)

Amortisation of premium less accretion of discount Provision for diminution in value of investment securities: Quoted shares Unquoted shares

3,602

– – 1,497,037

– – 1,260,385

(12,294) (7,920) 1,653,395

(14,445) (5,807) 1,421,292

The Bank 1998 RM’000 (i) Market value of quoted securities: Malaysian Government securities Cagamas bonds and notes KLIA’s Islamic Primary Notes Private debt securities Shares quoted in Malaysia Shares quoted outside Malaysia Danamodal bonds 282,242 208,492 25,603 10,838 20,297 77,350 100,874 725,696 148,208 256,292 32,100 10,260 21,339 74,033 – 542,232 1997 RM’000

The Group 1998 RM’000 1997 RM’000

343,947 218,492 25,603 10,838 50,046 77,350 113,129 839,405

211,437 277,292 32,100 10,260 51,356 74,033 – 656,478

66

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

6.

INVESTMENT

SECURITIES

(CONT’D.)

The Bank 1998 RM’000 (ii) The maturity structure of money market instruments held for investments are as follows: Maturing within one year One year to three years Three years to five years Over five years 934,097 198,258 118,388 160,327 1,411,070 886,419 156,481 23,831 120,081 1,186,812 1997 RM’000

The Group 1998 RM’000 1997 RM’000

966,302 242,006 135,376 162,953 1,506,637

951,066 180,057 52,363 129,762 1,313,248

7.

LOANS,

ADVANCES

AND

FINANCING

The Bank 1998 RM’000 Overdrafts Term loans – Fixed rate – Floating rate Lease receivables Hire-purchase Credit/charge cards receivables Bills receivable Trust receipts Claims on customers under acceptance credits Staff loans Other loans 1,609,496 3,108,992 939,524 2,169,468 – – 283,046 58,557 18,022 325,394 40,044 744 5,444,295 (17,117) 5,427,178 1997 RM’000 1,431,428 2,421,237 240,664 2,180,573 – – 311,862 82,039 19,524 306,456 35,871 6,755 4,615,172 (7,383) 4,607,789

The Group 1998 RM’000 1,650,634 3,734,341 1,053,955 2,680,386 11,846 364,354 297,595 58,557 18,022 325,394 64,179 52,671 6,577,593 (66,959) 6,510,634 1997 RM’000 1,427,165 2,455,942 287,515 2,168,427 16,925 558,367 331,226 82,039 19,524 306,456 39,555 490,071 5,727,270 (104,994) 5,622,276

Unearned interest and income Gross loans, advances and financing Provision for bad and doubtful debts and financing – Specific – General Interest-in-suspense/income-in-suspense Net loans, advances and financing

(123,045) (82,749) (70,813) 5,150,571

(40,591) (73,026) (21,449) 4,472,723

(208,606) (99,239) (135,189) 6,067,600

(59,829) (87,945) (37,085) 5,437,417

SOUTHERN BANK BERHAD (5303-W)

67

Notes to the Accounts
31

(Cont’d.)
1998

December

7.

LOANS,

A D VA N C E S

AND

FINANCING

(CONT’D.)

Included under provision for bad and doubtful debts and financing, and interest-in-suspense of the Group in 1997 is an amount of RM0.12 million and RM0.31 million respectively which relates to loans and advances of Eu Finance Berhad taken over in 1990 by the finance subsidiary company under a rescue scheme sponsored by Bank Negara Malaysia. Specific provision for doubtful debts and financing is made by the Bank and its finance subsidiary company for non-performing accounts in compliance with Bank Negara Malaysia’s guidelines, BNM/GP3 (Revised 1998), “Guidelines on Classifications of Non-performing Loans and Provision for Bad and Doubtful Debts and Financing”, generally as follows: (a) (b) (c) at 20% of the estimated uncollateralised portion of the accounts which are in arrears for 6 months but less than 9 months; at 50% of the estimated uncollateralised portion of the accounts which are in arrears for 9 months but less than 12 months; and at 100% of the estimated uncollateralised portion of the accounts which are in arrears for 12 months and above

In previous financial year, the specific provision was made for non-performing accounts at 50% of the estimated uncollateralised portion of the accounts in arrears for 6 months but less than 12 months, and at 100% of the estimated uncollateralised portion of the accounts in arrears for 12 months and above. Specific provision for doubtful debts is made by the foreign bank subsidiary company, Banco Austral S.A.R.L. (formerly known as Banco Popular de Desenvolvimento) in accordance with the rules of Bank of Mozambique calculated on a percentage basis depending on the period the accounts are past due. (i) The maturity structure of loans, advances and financing are as follows: The Bank 1998 RM’000 Within one year One year to three years Three years to five years Over five years 3,455,822 227,755 229,909 1,513,692 5,427,178 1997 RM’000 2,802,838 199,994 297,792 1,307,165 4,607,789 The Group 1998 RM’000 3,850,716 511,384 453,031 1,695,503 6,510,634 1997 RM’000 3,051,577 463,976 631,189 1,475,534 5,622,276

68

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

7.

LOANS,

ADVANCES

AND

FINANCING

(CONT’D.)

(ii)

Loans, advances and financing analysed by their economic purposes are as follows: The Bank 1998 RM’000 Agriculture Mining and quarrying Manufacturing Electricity, gas and water Construction Real estate Purchase of landed properties (of which: i. Residential ii. Non-residential) 80,420 24,842 823,905 184,961 552,225 293,267 1,342,799 752,063 590,736 458,957 105,137 431,428 349,231 3,646 698,385 77,975 5,427,178 1997 RM’000 55,879 21,704 615,905 61,821 499,975 290,016 1,169,731 629,692 540,039 445,865 78,662 172,412 331,213 3,893 764,756 95,957 4,607,789 The Group 1998 RM’000 181,866 30,740 916,800 185,358 626,956 434,860 1,474,462 851,939 622,523 516,387 120,084 385,980 458,561 223,273 803,820 151,487 6,510,634 1997 RM’000 67,771 28,282 674,182 62,254 573,888 423,501 1,284,932 718,400 566,532 469,744 89,857 159,176 490,071 296,569 879,609 122,440 5,622,276

General commerce Transport, storage and communication Finance, insurance and business services Purchase of securities Purchase of transport vehicles Consumption credit Others

(iii)

Movements in non-performing loans and financing including interest receivables (NPL) are as follows: The Bank 1998 RM’000 Balance as at 1 January Non-performing during the year (gross) Recoveries NPL reclassified as performing Amount written-off NPL of subsidiary company acquired during the year Currency translation difference Adjustment Balance as at 31 December % of NPL to total loans 197,737 772,252 (89,496) (333,113) (29,538) – – – 517,842 5.8 1997 RM’000 151,288 249,891 (121,921) (45,446) (36,533) – – 458 197,737 2.8 The Group 1998 RM’000 356,524 1,019,663 (155,285) (333,113) (119,024) 135,099 (11,432) – 892,432 8.4 1997 RM’000 249,057 358,156 (156,528) (46,156) (48,463) – – 458 356,524 4.4

SOUTHERN BANK BERHAD (5303-W)

69

Notes to the Accounts
31

(Cont’d.)
1998

December

7.

LOANS,

A D VA N C E S

AND

FINANCING

(CONT’D.)

(iv)

Movements in provision for bad and doubtful debts and financing and interest-in-suspense accounts are as follows: The Bank The Group 1998 RM’000 General provision (GP) Balance as at 1 January Provisions made during the year Amount written-back during the year GP of subsidiary company acquired during the year Currency translation difference Balance as at 31 December % of total loans less SP and IIS Specific provision (SP) Balance as at 1 January Provisions made during the year Amount written-back in respect of recoveries Amount written-off SP of subsidiary company acquired during the year Currency translation difference Balance as at 31 December Interest-in-suspense (IIS) Balance as at 1 January Provisions made during the year Amount written-back in respect of recoveries Amount written-off IIS of subsidiary company acquired during the year Currency translation difference Balance as at 31 December 21,449 91,736 (35,354) (7,018) – – 70,813 26,062 26,116 (13,570) (17,159) – – 21,449 37,085 147,348 (51,920) (26,716) 32,109 (2,717) 135,189 40,241 43,166 (25,023) (21,299) – – 37,085 40,591 140,767 (36,094) (22,219) – – 123,045 22,512 45,239 (8,068) (19,092) – – 40,591 59,829 307,115 (174,401) (33,006) 53,606 (4,537) 208,606 34,118 64,730 (12,137) (26,882) – – 59,829 73,026 9,723 – – – 82,749 1.5 42,608 30,418 – – – 73,026 1.5 87,945 9,005 (2,639) 5,383 (455) 99,239 1.5 52,100 35,845 – – – 87,945 1.5 1997 RM’000 1998 RM’000 1997 RM’000

70

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

8.

OTHER

ASSETS

The Bank 1998 RM’000 Other debtors, deposits and prepayments Deferred asset – net Foreclosed properties – net of provision for diminution in value 226,987 – 277 227,264 1997 RM’000 172,479 – 278 172,757

The Group 1998 RM’000 356,049 – 638 356,687 1997 RM’000 225,998 9,288 1,452 236,738

The Deferred Asset net of recoveries of RM75.4 million (1997: RM66.1 million) represents the net consideration incurred by the finance subsidiary company relating to the takeover in 1990 of business operations, assets and liabilities of Eu Finance Berhad (a finance company) pursuant to a Rescue Scheme of Arrangement sponsored by Bank Negara Malaysia.This amount has been fully amortised to the profit and loss account during the financial year.
9. S TAT U T O RY DEPOSITS WITH BANK NEGARA M A L AY S I A

The non-interest bearing statutory deposits are maintained with Bank Negara Malaysia in compliance with Section 37(1) (c) of the Central Bank of Malaysia Ordinance 1958 (Revised – 1994), the amounts of which are determined at set percentages of total eligible liabilities.
10. INVESTMENT IN SUBSIDIARY COMPANIES

The Bank 1998 RM’000 Unquoted shares at cost Less: Provision for diminution in value 253,076 (2,769) 250,307 1997 RM’000 229,520 – 229,520

During the financial year, SBB Futures Sdn. Bhd. (SBBF), a subsidiary company of the Bank, ceased operations effective 1 September 1998. A provision for diminution in value of investment in SBBF has been made in the accounts of the Bank.

SOUTHERN BANK BERHAD (5303-W)

71

Notes to the Accounts
31

(Cont’d.)
1998

December

10.

INVESTMENT

IN

SUBSIDIARY

C O M PA N I E S

(CONT’D.)

The subsidiary companies of the Bank, all of which are incorporated in Malaysia except as stated otherwise, are as follows: Effective Percentage of Equity Direct Subsidiary Companies Southern Finance Company Berhad Southern Nominees (Tempatan) Sdn. Bhd. Southern Nominees (Asing) Sdn. Bhd. S.B. Properties Sdn. Bhd. S.B. Venture Capital Corporation Sdn. Bhd. SBB Asset Management Sdn. Bhd. SBB Capital Markets Sdn. Bhd. SBB Unit Trust Management Berhad SBB Futures Sdn. Bhd. Investil – Investimentos Associados Limitada* (incorporated in the Republic of Mozambique) Indirect Subsidiary Companies SBB Securities Sdn. Bhd. RC Nominees (Tempatan) Sdn. Bhd. RC Nominees (Asing) Sdn. Bhd. Stockbroking Providing nominee services (local) Providing nominee services (foreign) – Dormant 70 70 70 100 100 100 30.6 70 70 70 100 100 100 – Principal Activities Accepting deposits and advancing loans Providing nominee services (local) Providing nominee services (foreign) – Dormant Property ownership and management Providing risk capital Investment and asset management Investment holding Sale and management of unit trusts Trading in futures and options – Dormant Investment holding 1998 % 100 100 100 100 100 100 100 100 100 51 1997 % 100 100 100 100 100 100 100 100 100 –

SBBAM Nominees (Tempatan) Sdn. Bhd. Providing nominee services (local) SBBAM Nominees (Asing) Sdn. Bhd. Elite Constant Development Sdn. Bhd. Banco Austral S.A.R.L. (formerly known as Banco Popular de Desenvolvimento)* (incorporated in the Republic of Mozambique) Providing nominee services (foreign) Building construction Banking business

* The accounts of these subsidiary companies were audited by auditors other than the auditors of the Bank.

72

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

10.

INVESTMENT

IN

SUBSIDIARY

COMPANIES

(CONT’D.)

The auditors’ report on the accounts of Banco Austral S.A.R.L., a company incorporated in the Republic of Mozambique, was qualified as follows: (a) the auditors were unable to determine the fairness of, or adjustments, if any, that is necessary for the following: (i) (ii) a deposit of RM22.5 million (Mts73,025 million) which could not be reconciled to the amount of RM27.4 million (Mts89,000 million) reported by the central bank of Mozambique; and an inter-branch account balance of RM13.1 million (Mts42,644 million), of which about RM8.3 million was cleared in January 1999; and

(b)

an overstatement of profit resulting from the deferment of provision for doubtful loans amounting to approximately RM25.3 million (Mts81,973 million) which is to be charged to the profit and loss accounts of Banco Austral S.A.R.L. over four years. The said deferred provision however has been adjusted for in the consolidated accounts of the Group.

During the financial year, the Bank transferred its 30.6% equity interest in its then associated company, Banco Austral S.A.R.L. (formerly known as Banco Popular de Desenvolvimento), a bank incorporated in the Republic of Mozambique to Investil – Investimentos Associados Limitada (IIAL), a private company incorporated in the Republic of Mozambique, in return for 51% interest in the capital of IIAL. In addition to the shares transferred from the Bank, Invester S.A.R.L. also transferred its shareholding in Banco Austral S.A.R.L. of 29.4% to IIAL. Consequently, IIAL has a total of 60% equity interest in Banco Austral S.A.R.L.. Banco Austral S.A.R.L. became an indirect subsidiary company of the Bank and its accounts are consolidated with the accounts of the Bank for the current financial year.
11. INVESTMENT IN A S S O C I AT E D COMPANY

The Bank 1998 RM’000 Share of net assets at date of acquisition Premium on acquisition Cost of investment Gain on foreign exchange Share of post acquisition profit before tax Share of taxation – – – – – – – 1997 RM’000 7,450 6,551 14,001 – – – 14,001

The Group 1998 RM’000 – – – – – – – 1997 RM’000 7,450 6,551 14,001 2,482 975 (439) 17,019

SOUTHERN BANK BERHAD (5303-W)

73

Notes to the Accounts
31

(Cont’d.)
1998

December

11.

INVESTMENT

IN

A S S O C I AT E D

C O M PA N Y

(CONT’D.)

The associated company of the Bank in 1997 is Banco Austral S.A.R.L. (formerly known as Banco Popular de Desenvolvimento), a bank incorporated in the Republic of Mozambique, in which the Bank has a 30.6% equity interest. During the financial year, the Bank acquired a 51% interest in Investil – Investimentos Associados Limitada (IIAL), a private company incorporated in the Republic of Mozambique, following the transfer of its equity interest in Banco Austral S.A.R.L. as explained in Note 10. Also during the financial year, Banco Austral S.A.R.L. became a 60% owned subsidiary company of IIAL and therefore an indirect subsidiary company of the Bank.
12. FIXED ASSETS

Balance As At 1 January RM’000 The Bank 1998 Cost Freehold land and buildings Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 1,515

Additions RM’000

Disposals RM’000

Write-off RM’000

Balance As At 31 December RM’000

1,515

34,719 86,358 8,668 131,260

1,236 11,988 20 13,244

(8) (409) (150) (567)

(577) (2,002) (2) (2,581)

35,370 95,935 8,536 141,356

Accumulated Depreciation Freehold land and buildings Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 395 17,695 37,212 2,413 57,715 20 2,931 11,097 1,698 15,746 – (3) (301) (145) (449) – (533) (1,971) (1) (2,505) 415 20,090 46,037 3,965 70,507

74

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

12.

FIXED

ASSETS

(CONT’D.)

Balance As At 1 January RM’000 The Bank 1997 Cost Freehold land and buildings Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 1,515

Additions RM’000

Disposals RM’000

Write-off RM’000

Balance As At 31 December RM’000

1,515

31,363 66,703 5,418 104,999

4,654 19,826 4,821 29,301

(32) (19) (1,571) (1,622)

(1,266) (152) – (1,418)

34,719 86,358 8,668 131,260

Accumulated Depreciation Freehold land and buildings Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 375 16,241 28,618 2,443 47,677 20 2,647 8,751 1,190 12,608 – (22) (12) (1,220) (1,254) – (1,171) (145) – (1,316) 1998 RM’000 Net Book Value Freehold land and buildings Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 1,100 15,280 49,898 4,571 70,849 1,120 17,024 49,146 6,255 73,545 395 17,695 37,212 2,413 57,715 1997 RM’000

SOUTHERN BANK BERHAD (5303-W)

75

Notes to the Accounts
31

(Cont’d.)
1998

December

12.

FIXED

ASSETS

(CONT’D.)

Balance As At 1 January RM’000 The Group 1998 Cost Freehold land and buildings Leasehold land and buildings – less than 50 years – 50 years or more Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 32,950

Additions RM’000

Disposals RM’000

Write-off RM’000

Acquisition RM’000

Currency Translation Difference RM’000

Balance As At 31 December RM’000

35,528

(281)

101,603

(8,598)

161,202

2,152 7,827

– 1

– –

– –

– –

– –

2,152 7,828

49,929 97,292 13,968 204,118

7,837 16,825 1,295 61,486

(15) (714) (273) (1,002)

(1,073) (2,092) (2) (3,448)

16,759 5,658 12,180 136,200

(1,418) (479) (1,031) (11,526)

72,019 116,490 26,137 385,828

Accumulated Depreciation Freehold land and buildings Leasehold land and buildings – less than 50 years – 50 years or more Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 1,258 1,779 – – 7,688 (650) 10,075

735 923

56 143

– –

– –

– –

– –

791 1,066

24,360 43,325 3,942 74,543

5,455 13,746 3,359 24,538

(7) (449) (153) (609)

(915) (2,042) (1) (2,958)

5,131 1,528 3,288 17,635

(433) (130) (278) (1,491)

33,591 55,978 10,157 111,658

76

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

12.

FIXED

ASSETS

(CONT’D.)

Balance As At 1 January RM’000 The Group 1997 Cost Freehold land and buildings Leasehold land and buildings – less than 50 years – 50 years or more Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles

Additions RM’000

Disposals RM’000

Write-off RM’000

Acquisition RM’000

Currency Translation Difference RM’000

Balance As At 31 December RM’000

21,695

11,255

32,950

2,152 7,818

– 9

– –

– –

– –

– –

2,152 7,827

44,876 76,292 8,751 161,584

6,777 21,282 7,555 46,878

(57) (19) (2,289) (2,365)

(1,667) (263) (49) (1,979)

– – – –

– – – –

49,929 97,292 13,968 204,118

Accumulated Depreciation Freehold land and buildings Leasehold land and buildings – less than 50 years – 50 years or more Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles 1,167 91 – – – – 1,258

679 779

56 144

– –

– –

– –

– –

735 923

21,510 33,508 3,636 61,279

4,318 10,042 1,901 16,552

(31) (12) (1,551) (1,594)

(1,437) (213) (44) (1,694)

– – – –

– – – – 1998 RM’000

24,360 43,325 3,942 74,543 1997 RM’000 31,692 1,417 6,904 25,569 53,967 10,026 129,575

Net Book Value Freehold land and buildings Leasehold land and buildings – less than 50 years – 50 years or more Office equipment, furniture, fittings and renovations Computer equipment and software Motor vehicles

151,127 1,361 6,762 38,428 60,512 15,980 274,170

SOUTHERN BANK BERHAD (5303-W)

77

Notes to the Accounts
31

(Cont’d.)
1998

December

13.

DEPOSITS

FROM

CUSTOMERS

The Bank 1998 RM’000 Demand deposits Savings deposits Fixed deposits Negotiable instruments of deposits Others 734,386 327,103 2,423,524 1,389,800 1,375 4,876,188 (i) 1997 RM’000 702,172 365,969 2,715,281 819,800 1,414 4,604,636

The Group 1998 RM’000 1,085,595 355,894 2,810,635 1,461,100 14,445 5,727,669 1997 RM’000 701,360 396,155 3,190,523 955,450 1,616 5,245,104

The maturity structure of fixed deposits and negotiable instruments of deposits are as follows: Due within six months Six months to one year One year to three years Three years to five years 3,431,165 346,064 35,985 110 3,813,324 3,092,857 372,008 69,435 781 3,535,081 3,778,982 432,941 56,391 3,421 4,271,735 3,488,575 572,449 83,365 1,584 4,145,973

(ii)

The deposits are sourced from the following customers: Business enterprises Individuals Others 1,585,311 2,398,066 892,811 4,876,188 1,107,162 2,474,227 1,023,247 4,604,636 1,825,855 2,958,336 943,478 5,727,669 1,238,765 2,869,216 1,137,123 5,245,104

14.

DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

The Bank 1998 RM’000 Licensed banks Licensed finance companies Other financial institutions 230,918 33,350 366,960 631,228 1997 RM’000 778,099 31,481 302,166 1,111,746

The Group 1998 RM’000 276,046 68,350 358,556 702,952 1997 RM’000 982,099 76,757 477,078 1,535,934

78

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

15.

OTHER

LIABILITIES

The Bank 1998 RM’000 Proposed dividend Taxation payable Zakat payable Deferred taxation (Note 27) Obligations under finance lease Provision for commitment and contingencies* Other liabilities 23,312 40,273 14 13,404 – 54 141,924 218,981 1997 RM’000 23,022 35,100 – 13,969 – – 190,152 262,243

The Group 1998 RM’000 23,312 46,605 14 10,568 525 54 280,977 362,055 1997 RM’000 23,022 49,332 – 12,544 579 – 233,332 318,809

* Movements in provision for commitment and contingencies are as follows: The Bank 1998 RM’000 Balance as at 1 January Provision made during the year Amount written-back in respect of recoveries Balance as at 31 December – 272 (218) 54 1997 RM’000 – – – – The Group 1998 RM’000 – 272 (218) 54 1997 RM’000 – – – –

16.

5.5%

REDEEMABLE

UNSECURED

S U B O R D I N AT E D

BONDS

1996

2001

Pursuant to a trust deed dated 13 June 1996, the Bank issued RM300 million nominal value 5.5% redeemable unsecured subordinated bonds 1996 – 2001 with 53,292,750 detachable warrants at 100% of the nominal value of the bonds to a primary subscriber on a bought deal basis. The detachable warrants were offered for sale by the primary subscriber to the shareholders of the Bank at an offer price of RM0.767 per warrant on the basis of one warrant for every four ordinary shares held in the Bank. The salient features of the bonds are as follows: (a) (b) The bonds bear interest at a fixed coupon rate of 5.5% per annum based on the nominal amount of the bonds. The interest is payable annually in arrears. The bonds constitute direct, unsecured and unconditional obligations of the Bank and between the bondholders rank pari passu without any preference or priority amongst themselves and with all other present and future obligations of the Bank. Unless previously redeemed, cancelled or purchased by the Bank, the bonds will be redeemed at 100% of their nominal value together with the interest accrued on the maturity date of 17 June 2001. The bonds will not be listed on the Kuala Lumpur Stock Exchange (KLSE) or any other Stock Exchange. The bonds are not convertible into any form of securities in the Bank.

(c) (d) (e)

SOUTHERN BANK BERHAD (5303-W)

79

Notes to the Accounts
31

(Cont’d.)
1998

December

16.

5 . 5 % R E D E E M A B L E U N S E C U R E D S U B O R D I N AT E D B O N D S 1 9 9 6 – 2 0 0 1 ( C O N T ’ D . )

The bonds qualify as Tier-2 capital for the purpose of determining the Capital Adequacy Ratio of the Bank and is subordinated to all other general creditors. The salient features of the warrants are as follows: (a) Each warrant carries the right to subscribe for one new ordinary share of RM1 each in the Bank at the subscription price of RM5.70, payable in cash at anytime within the subscription period commencing from the first anniversary date of issue of the warrants and expiring on 17 June 2001, being a period of 4 years from the date of issue of the rights to allotment of the warrants. After the expiry of the subscription period, any subscription rights represented by the warrants which have not been exercised and delivered to the Registrar will lapse and every such warrant will cease thereafter to be valid for any purposes. The warrants are listed and quoted on the Kuala Lumpur Stock Exchange with effect from 2 September 1996.

(b)

(c)

Consequential to the Bank’s bonus issue in December 1996 of 106,585,500 new ordinary shares of RM1 each, the number of warrants in issue were adjusted from 53,292,750 to 79,939,125 warrants and the subscription price for the Bank’s ordinary shares of RM1 each was adjusted from RM5.70 to RM3.80 per share, in accordance with condition 3A(ii) of the Second Schedule of the Deed Poll. Also, consequential to the Bank’s bonus issue in November 1997 of 159,890,153 new ordinary shares of RM1 each and the rights issue in December 1997 of 239,835,230 new ordinary shares of RM1 each, the number of warrants in issue were further adjusted from 79,939,125 to 139,423,286 warrants, after taking into account warrants already exercised, and the subscription price was adjusted from RM3.80 to RM2.18 per share, in accordance with condition 3A(ii) and (iv) of the Second Schedule of the Deed Poll. The movements in the number of warrants during the financial year are as follows: The Bank 1998 Balance of units as at 1 January Additions during the year Exercised during the year Balance of units as at 31 December 139,423,286 – – 139,423,286 1997 79,939,125 59,507,967 (23,806) 139,423,286

80

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

17.

SHARE

CAPITAL

The Bank 1998 RM’000 Authorised: Balance as at 1 January Created during the year Balance as at 31 December Issued and fully paid: Balance as at 1 January Bonus issue 1:2 Rights issue 1:2 at RM1.85 per share Shares issued by virtue of exercise of warrants Balance as at 31 December 719,506 – – – 719,506 319,757 159,890 239,835 24 719,506 2,000,000 – 2,000,000 500,000 1,500,000 2,000,000 1997 RM’000

During the financial year, no warrants were exercised to subscribe for new ordinary shares of RM1.00 each of the Bank.
18. RESERVES

The Bank 1998 RM’000 Share Premium Statutory Reserve Capital Reserve Exchange Fluctuation Reserve Other Reserve Retained Profit 201,419 137,201 – – – 102,975 441,595 Share Premium Balance as at 1 January Capitalisation for bonus issue Arising from rights issue Share issue expenses Provision for share issue expenses no longer required Balance as at 31 December 200,396 – – – 1,023 201,419 39,664 (39,539) 203,927 (3,656) – 200,396 1997 RM’000 200,396 100,807 – – – 89,895 391,098

The Group 1998 RM’000 201,419 169,294 16,000 104 1,086 90,145 478,048 1997 RM’000 200,396 132,896 16,000 – – 112,665 461,957

200,396 – – – 1,023 201,419

39,664 (39,539) 203,927 (3,656) – 200,396

SOUTHERN BANK BERHAD (5303-W)

81

Notes to the Accounts
31

(Cont’d.)
1998

December

18.

RESERVES

(CONT’D.)

The Bank 1998 RM’000 Statutory Reserve Balance as at 1 January Capitalisation for bonus issue Acquisition Transfer from profit and loss account Balance as at 31 December 100,807 – – 36,394 137,201 180,861 (120,351) – 40,297 100,807 1997 RM’000

The Group 1998 RM’000 1997 RM’000

132,896 – 4 36,394 169,294

205,690 (120,351) – 47,557 132,896

The Bank 1998 RM’000 Capital Reserve Balance as at 1 January Balance as at 31 December – – The Bank 1998 RM’000 Exchange Fluctuation Reserve Balance as at 1 January Translation of foreign susbidiary company Balance as at 31 December – – – The Bank 1998 RM’000 Other Reserve Balance as at 1 January Movement during the year Balance as at 31 December – – – – – – 1997 RM’000 – – – 1997 RM’000 – – 1997 RM’000

The Group 1998 RM’000 1997 RM’000

16,000 16,000

16,000 16,000

The Group 1998 RM’000 1997 RM’000

– 104 104 The Group 1998 RM’000

– – –

1997 RM’000

– 1,086 1,086

– – –

82

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

19.

INTEREST

INCOME

The Bank 1998 RM’000 Loans and advances Money at call and deposit placements with financial institutions Dealing securities Investment securities Others Accretion of discount/(amortisation of premium) – net Net interest suspended 672,261 20,211 17,736 83,145 5,772 799,125 3,579 (56,382) 746,322 1997 RM’000 529,395 47,453 20,838 47,535 1,265 646,486 (393) (12,546) 633,547

The Group 1998 RM’000 840,156 15,548 18,976 103,141 9,532 987,353 2,988 (95,428) 894,913 1997 RM’000 647,871 56,354 23,448 56,608 4,549 788,830 (1,155) (18,143) 769,532

20.

INTEREST

EXPENSE

The Bank 1998 RM’000 Deposits and placements of banks and other financial institutions Deposits from other customers Others 1997 RM’000

The Group 1998 RM’000 1997 RM’000

47,242 336,941 71,825 456,008

69,816 259,666 49,683 379,165

56,600 389,146 92,165 537,911

78,204 302,888 74,270 455,362

21.

LOAN

AND

FINANCING

LOSS

AND

PROVISION

The Bank 1998 RM’000 Provision for bad and doubtful debts and financing: – specific provision (net) – general provision (net) Bad debts – written-off – recovered 1997 RM’000

The Group 1998 RM’000 1997 RM’000

104,673 9,723 492 (15,498) 99,390

37,171 30,418 869 (13,241) 55,217

130,623 6,366 492 (16,669) 120,812

52,593 35,845 869 (15,582) 73,725

SOUTHERN BANK BERHAD (5303-W)

83

Notes to the Accounts
31

(Cont’d.)
1998

December

22.

NON-INTEREST

INCOME

The Bank 1998 RM’000 Fee income: Commissions Service charges and fees Guarantee fee Other fee income 6,349 9,636 3,042 29,432 48,459 Investment income: Net profit/(loss) from dealing securities Gain/(loss) on sale of investment securities Gross dividends from: Malaysia: Investment securities Dealing securities Subsidiary companies Outside Malaysia: Investment securities 1,604 1,339 (2,705) (8,442) 7,294 15,548 3,359 36,667 62,868 1997 RM’000

The Group 1998 RM’000 1997 RM’000

35,273 19,905 4,934 29,228 89,340

36,079 24,691 3,359 36,085 100,214

1,423 1,998

(15,306) (7,375)

444 – 4,968

272 387 11,446

685 540 –

355 693 –

1,062 9,417

813 1,771

1,062 5,708

813 (20,820)

Provision for diminution in value of investment securities Write-back of provision for diminution in value of investment securities

– – 9,417

– – 1,771

– 3,838 9,546

(14,445) – (35,265)

Other income: Foreign exchange gain Rental income Gain on disposal of fixed assets Net profit/(loss) on sale of unit trusts Gain on disposal of foreclosed properties Other operating income

8,572 257 46 – 11 7,446 16,332 74,208

7,285 295 750 – 143 7,161 15,634 80,273

19,911 765 56 (304) 241 8,509 29,178 128,064

7,286 718 904 5,836 356 7,396 22,496 87,445

84

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

23.

OVERHEAD

EXPENSE

The Bank 1998 RM’000 Personnel costs Establishment costs Marketing expenses Administration and general expenses 66,024 49,588 7,608 32,641 155,861 The above expenditure includes the following: The Bank 1998 RM’000 Directors’ emoluments (Note 25) – Bank – Subsidiary companies Rental of premises Hire of equipment Lease rental Auditors’ remuneration – Statutory audit – Over provision in prior years – Special audit Provision for diminution in value of investment in subsidiary company Depreciation of fixed assets (Note 12) Amortisation of goodwill Loss on disposal of fixed assets Fixed assets written-off 1997 RM’000 1997 RM’000 75,392 46,951 10,807 26,557 159,707

The Group 1998 RM’000 136,403 66,755 12,059 72,506 287,723 1997 RM’000 95,537 55,665 20,506 35,271 206,979

The Group 1998 RM’000 1997 RM’000

1,071 – 14,200 251 6,701 195 – – 2,769 15,746 – 79 76

1,075 – 13,896 276 8,637 195 (15) – – 12,608 – 32 102

1,071 1,293 16,037 317 6,705 488 – 2 – 24,538 975 180 490

1,075 1,703 15,996 465 8,641 290 (12) – – 16,552 261 67 285

SOUTHERN BANK BERHAD (5303-W)

85

Notes to the Accounts
31

(Cont’d.)
1998

December

24.

SIGNIFICANT

R E L AT E D

COMPANY

TRANSACTIONS

AND

BALANCES

Subsidiary Companies 1998 RM’000 Income Interest on fixed deposit Interest on advances Dividend income Management fees Others 6,669 12,698 4,968 2,390 897 27,622 Expenditure Interest on fixed deposit Interest on advances Management fees Rental of premises and equipment Others 1,082 5,866 753 13,483 1,510 22,694 Amount due from Deposits and placements Loans and advances Negotiable instruments of deposits Others 142,394 68,262 70,000 33,387 314,043 Amount due to Deposits and borrowings Others 67,273 3,427 70,700 54,500 510 55,010 32,595 9,603 35,000 29,309 106,507 1,566 2,999 465 12,790 1,857 19,677 3,055 4,248 11,446 1,300 1,047 21,096 1997 RM’000

86

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

25.

DIRECTORS’

EMOLUMENTS

The Bank 1998 RM’000 The aggregate emoluments of the directors are: Fees Other emoluments: Executive directors – Bank – Subsidiary companies Non-executive directors 280 280 1997 RM’000

The Group 1998 RM’000 1997 RM’000

591

585

767 – 24 1,071

767 – 28 1,075

767 16 990 2,364

767 – 1,426 2,778

The estimated cash value of benefits-in-kind received but not included in the above amounted to RM67,200 (1997: RM68,007).
26. TA X AT I O N

The charge for taxation, which is based on the profit for the year, comprises: The Bank 1998 RM’000 Malaysian income tax @ 28% Overseas taxation Transfer (from)/to deferred taxation (Note 27) Under/(Over) provision in respect of prior years Share in taxation of associated company 38,620 – (565) 374 – 38,429 1997 RM’000 35,100 – 6,782 (2,430) – 39,452 The Group 1998 RM’000 40,701 3,983 (1,976) (81) – 42,627 1997 RM’000 43,081 – 4,265 (6,555) 439 41,230

The tax charge for the Bank and the Group reflects an effective tax rate which is higher than the statutory income tax rate as certain charges and provisions are not considered deductible for tax purposes.

SOUTHERN BANK BERHAD (5303-W)

87

Notes to the Accounts
31

(Cont’d.)
1998

December

27.

DEFERRED

TA X AT I O N

The Bank 1998 RM’000 Balance as at 1 January Transfer (to)/from profit and loss account (Note 26) Balance as at 31 December The deferred taxation is in respect of the following: Timing differences between depreciation and corresponding capital allowances on fixed assets Other short-term timing differences Deferred assets 13,969 (565) 13,404 1997 RM’000 7,187 6,782 13,969

The Group 1998 RM’000 12,544 (1,976) 10,568 1997 RM’000 8,279 4,265 12,544

14,209 (805) – 13,404

12,883 1,086 – 13,969

15,328 (4,744) – 10,584

13,609 1,367 (2,432) 12,544

Net deferred tax benefit not recognised in the account: Timing differences on interest-in-suspense Timing differences between depreciation and corresponding capital allowances on fixed assets Other short-term timing differences – – (4,348) –

– – –

– – –

555 169 (3,624)

– – –

28.

EARNINGS

PER

SHARE

(EPS)

The basic earnings per share have been calculated based on the Group’s profit after taxation and minority interests of RM37.2 million (1997: RM83.4 million) and on the number of 719,505,689 (1997: on the weighted average of 480,308,496) ordinary shares of RM1 each in issue during the financial year. The fully diluted earnings per share are not shown for 1998 as there is an anti-dilution on the earnings per share, after taking into account the assumed conversion of the outstanding warrants during the financial year. The fully diluted earnings per share are not shown for 1997 as the dilution on the earnings per share after taking into account of the assumed conversion of the outstanding warrants during the financial year is immaterial.

88

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

29.

COMMITMENTS

AND

CONTINGENCIES

In the normal course of business, the Bank and its finance subsidiary company make various commitments and incur certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions. Risk-weighted exposure as at 31 December is as follows: 1998 Principal Amount RM’000 The Bank Direct credit substitutes Certain transaction-related contingent items Short-term self-liquidating traderelated contingencies Housing loans sold directly and indirectly to Cagamas Berhad Irrevocable commitments to extend credit: – maturity exceeding one year – maturity not exceeding one year Foreign exchange related contracts – less than one year Interest rate related contracts – one year to less than five years Miscellaneous commitments and contingencies 109,474 111,424 24,613 352,211 478,469 3,468,052 288,709 50,000 49,287 4,932,239 109,474 55,712 4,923 352,211 239,235 – 35,615 1,000 9,857 808,027 93,937 167,389 65,994 324,858 675,040 3,762,530 1,057,201 – 30,572 6,177,521 93,937 83,695 13,199 324,858 337,520 – 119,537 – 6,114 978,860 Credit Equivalent Amount RM’000 Principal Amount RM’000 1997 Credit Equivalent Amount RM’000

SOUTHERN BANK BERHAD (5303-W)

89

Notes to the Accounts
31

(Cont’d.)
1998

December

29.

COMMITMENTS

AND

CONTINGENCIES

(CONT’D.)

1998 Principal Amount RM’000 The Group Direct credit substitutes Certain transaction-related contingent items Short-term self-liquidating traderelated contingencies Housing loans sold directly and indirectly to Cagamas Berhad Irrevocable commitments toextend credit: – maturity exceeding one year – maturity not exceeding one year Foreign exchange related contracts – less than one year Interest rate related contracts – one year to less than five years Miscellaneous commitments and contingencies 110,961 116,424 42,325 394,720 529,445 3,528,443 288,709 50,000 194,637 5,255,664 110,961 58,212 8,465 394,720 264,661 – 35,615 1,000 38,927 912,561 95,599 167,389 65,994 339,498 849,242 3,767,096 1,057,201 – 30,572 6,372,591 Credit Equivalent Amount RM’000 Principal Amount RM’000

1997 Credit Equivalent Amount RM’000

95,599 83,695 13,199 339,498 424,621 – 119,537 – 6,114 1,082,263

Housing loans sold to Cagamas Berhad are administered by the Bank and its finance subsidiary company. The Bank and its finance subsidiary company are committed to buy back any loans which are regarded as delinquent. Foreign exchange and interest rate related contracts are subject to market risk and credit risk: Market Risk Market risk is the potential change in value caused by movement in market rates or prices. The contractual amounts stated above provide only a measure of involvement in these types of transactions and do not represent the amounts subject to market risk. Exposure to market risk may be reduced through off-setting on and offbalance sheet positions. As at the end of 1998, the amount of contracts which were not hedged and, hence, exposed to market risk was RM0.7 million (1997: RM23.7 million). Credit Risk Credit risk arises from the possibility that a counterparty may be unable to meet the terms of a contract in which the Bank has a gain position. As at the end of 1998, the amounts of credit risk, measured in term of the cost to replace the profitable contracts, was RM37.4 million (1997: RM86.4 million).This amount will increase or decrease over the life of the contracts, mainly as a function of maturity dates and market rates or prices. The stockbroking subsidiary company, SBB Securities Sdn. Bhd., is contingently liable for an unsecured guarantee of RM5 million (1997: RM5 million) given to a local bank in respect of standby credit facilities extended to SCANS.

90

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

30.

LEASE

COMMITMENTS

Non-cancellable long-term operating lease commitments of the Bank and of the Group in respect of rental of premises and equipment are as follows: The Bank The Group 1998 RM’000 Expiry of operating lease: Within one year Between one and two years After two years 529 265 101 6,621 446 337 10,608 1,924 557 21,230 11,994 2,526 1997 RM’000 1998 RM’000 1997 RM’000

31.

CAPITAL

COMMITMENTS

Capital expenditure approved by the directors but not provided for in the accounts are as follows: The Bank 1998 RM’000 Capital expenditure: Contracted for Authorised but not contracted for 1,053 199 3,909 500 40,293 3,718 40,379 500 1997 RM’000 The Group 1998 RM’000 1997 RM’000

32.

CAPITAL

ADEQUACY

The capital adequacy ratios of the Bank are as follows: The Bank 1998 RM’000 Tier-1 capital Paid-up share capital Share premium Other reserves Total Tier-1 capital Tier-2 capital Subordinated bonds General provision for bad and doubtful debts and financing Total Tier-2 capital 120,000 82,749 202,749 180,000 73,026 253,026 719,506 201,419 240,176 1,161,101 719,506 200,396 190,806 1,110,708 1997 RM’000

SOUTHERN BANK BERHAD (5303-W)

91

Notes to the Accounts
31

(Cont’d.)
1998

December

32.

C A P I TA L

ADEQUACY

(CONT’D.)

The Bank 1998 RM’000 Total capital Less: Investment in subsidiary companies Holding of other banking institutions’ capital Total Capital base Capital Ratios: Core capital ratio Risk-weighted capital ratio Breakdown of risk-weighted assets in the various categories of risk-weights: 0% 10% 20% 50% 100% 993,656 210,668 1,380,408 1,113,250 4,786,619 1,293,980 372,104 1,610,201 1,095,170 4,356,466 18.83% 18.83% 20.34% 20.34% 1,363,850 (250,307) (51,456) (301,763) 1,062,087 1997 RM’000 1,363,734 (229,520) (63,184) (292,704) 1,071,030

33.

SEGMENT

A N A LY S I S

The analysis by activity of the Group’s operations for the year ended 31 December are as follows: Operating Revenue RM’000 Profit Before Taxation RM’000 Assets Employed RM’000

By Activity 1998 Banking Finance Share broking and fund management Others

908,517 119,521 22,700 24,531 1,075,269 (58,184) 1,017,085

122,626 (12,924) (20,049) (1,790) 87,863 (9,374) 78,489

8,413,062 802,713 120,171 60,564 9,396,510 (321,382) 9,075,128

Consolidation adjustments

92

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

33.

SEGMENT

A N A LY S I S

(CONT’D.)

By Activity 1997 Banking Finance Share broking and fund management Others

Operating Revenue RM’000

Profit Before Taxation RM’000

Assets Employed RM’000

714,135 136,574 38,728 31,345 920,782 (52,955) 867,827

121,021 15,019 (2,204) 10,565 144,401 (22,200) 122,201

7,899,416 1,450,724 221,564 58,295 9,629,999 (426,523) 9,203,476

Consolidation adjustments

By Geographical Location 1998 Malaysia Overseas 931,110 85,975 1,017,085 1997 Malaysia Overseas 867,827 – 867,827 121,226 975 122,201 9,186,457 17,019 9,203,476 67,806 10,683 78,489 8,482,516 592,612 9,075,128

34.

C O M PA R AT I V E S

Certain accounts in 1997 have been reclassified to conform with their presentation in 1998, which is in compliance with Bank Negara Malaysia’s guidelines on the presentation of financial statements.

SOUTHERN BANK BERHAD (5303-W)

93

Notes to the Accounts
31

(Cont’d.)
1998

December

35.

ISLAMIC

BANKING

SCHEME

(SPI)

The state of affairs as at 31 December 1998 and the results for the year ended on that date under SPI of the Bank which are incorporated in the accounts of the Bank and of the Group are as follows: BALANCE SHEET AS AT 31 DECEMBER 1998 The Bank and The Group Note ASSETS Cash and short-term funds Dealing securities Loans, advances and financing Fixed assets Other assets Deposits with Bank Negara Malaysia TOTAL ASSETS LIABILITIES AND ISLAMIC BANKING FUNDS Deposits from customers vi Deposits and placements of banks and other financial institutions vii Other liabilities viii TOTAL LIABILITIES ISLAMIC BANKING FUND TOTAL LIABILITIES AND ISLAMIC BANKING FUNDS COMMITMENTS AND CONTINGENCIES xiii ix 50,504 37,534 691 88,729 28,361 117,090 25,002 18,059 3,104 109 21,272 4,996 26,268 845 i ii iii iv v 8,702 94,397 11,064 103 383 2,441 117,090 21,415 1,416 1,552 100 1,013 772 26,268 1998 RM’000 1997 RM’000

94

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

35.

ISLAMIC

BANKING

SCHEME

(SPI)

(CONT’D.)

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 1998 The Bank and The Group Note Income Loans and financing loss and provision Net income Overhead expense Profit/(Loss) before taxation and zakat Taxation Zakat Profit/(Loss) after taxation and zakat Accumulated loss brought forward Accumulated loss carried forward x xi 1998 RM’000 2,012 (144) 1,868 (1,300) 568 (200) (14) 354 (550) (196) 1997 RM’000 315 (24) 291 (612) (321) – – (321) (229) (550)

xii

NOTES TO THE ISLAMIC BANKING SCHEME FINANCIAL STATEMENTS i. Cash and Short-Term Funds The Bank and The Group 1998 RM’000 Cash and balances with banks and other financial institutions Money at call and deposit placements maturing within one month 3,701 5,001 8,702 ii. Dealing Securities The Bank and The Group 1998 RM’000 Money market instruments: Islamic accepted bills 94,397 1,416 1997 RM’000 1997 RM’000 1,336 20,079 21,415

SOUTHERN BANK BERHAD (5303-W)

95

Notes to the Accounts
31

(Cont’d.)
1998

December

35.

ISLAMIC

BANKING

SCHEME

(SPI)

(CONT’D.)

iii.

Loans, Advances and Financing The Bank and The Group 1998 RM’000 Term financing Staff loans Unearned income Gross loans, advances and financing General provision for bad and doubtful debts and financing Net loans, advances and financing Loans, advances and financing analysed by concepts are as follows: The Bank and The Group 1998 RM’000 Al-Bai’ Bithaman Ajil The maturity structure of loans, advances and financing are as follows: The Bank and The Group 1998 RM’000 Maturing within one year Over five years 15 11,217 11,232 Loans, advances and financing analysed by their economic purposes are as follows: The Bank and The Group 1998 RM’000 Construction Housing Consumption credits 8 11,217 7 11,232 1997 RM’000 – 1,576 – 1,576 1997 RM’000 – 1,576 1,576 11,232 1997 RM’000 1,576 24,417 7 (13,192) 11,232 (168) 11,064 1997 RM’000 3,788 – (2,212) 1,576 (24) 1,552

96

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

35.

ISLAMIC

BANKING

SCHEME

(SPI)

(CONT’D.)

Movements in the provision for bad and doubtful debts and financing are as follows: The Bank and The Group 1998 RM’000 General Provision Balance as at 1 January Provisions made during the year Balance as at 31 December iv. Fixed Assets Balance As At 1 January RM’000 Additions Adjustment* RM’000 RM’000 Balance As At 31 December RM’000 24 144 168 – 24 24 1997 RM’000

The Bank and The Group Cost 1998 Office equipment, furniture, fittings and renovations Computer equipment and software

98 17 115

– 19 19

(3) – (3)

95 36 131

Accumulated Depreciation Office equipment, furniture, fittings and renovations Computer equipment and software 12 3 15 * Prior year’s adjustment Cost 1997 Office equipment, furniture, fittings and renovations Computer equipment and software 112 14 126 9 7 16 (23) (4) (27) 98 17 115 10 3 13 – – – 22 6 28

SOUTHERN BANK BERHAD (5303-W)

97

Notes to the Accounts
31

(Cont’d.)
1998

December

35.

ISLAMIC

BANKING

SCHEME

(SPI)

(CONT’D.)

The Bank and The Group Accumulated Depreciation Office equipment, furniture, fittings and renovations Computer equipment and software

Balance As At 1 January RM’000

Additions RM’000

Adjustment* RM’000

Balance As At 31 December RM’000

3 1 4

10 2 12

(1) (1)

12 3 15

Net Book Value 1998 RM’000 Office equipment, furniture, fittings and renovations Computer equipment and software 1997 RM’000

73 30 103

86 14 100

v.

Other Assets The Bank and The Group 1998 RM’000 Other debtors, deposits and prepayments 383 1997 RM’000 1,013

vi.

Deposits From Customers The Bank and The Group 1998 RM’000 Demand deposits Saving deposits General investment deposits Total deposits 27,033 6,902 16,569 50,504 1997 RM’000 12,219 3,742 2,098 18,059

98

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

35.

ISLAMIC

BANKING

SCHEME

(SPI)

(CONT’D.)

Maturity structure of investment deposits are as follows: The Bank and The Group 1998 RM’000 Due within six months Six months to one year 15,606 963 16,569 The deposits are sourced from the following customers: The Bank and The Group 1998 RM’000 Business enterprises Individuals Others 13,810 20,617 16,077 50,504 vii. Deposits and Placements of Banks and Other Financial Institutions The Bank and The Group 1998 RM’000 Licensed banks Other financial institutions 29,031 8,503 37,534 viii. Other Liabilities The Bank and The Group 1998 RM’000 Taxation Zakat Other liabilities 200 14 477 691 1997 RM’000 – – 109 109 1997 RM’000 3,000 104 3,104 1997 RM’000 6,476 9,895 1,688 18,059 1997 RM’000 2,098 – 2,098

SOUTHERN BANK BERHAD (5303-W)

99

Notes to the Accounts
31

(Cont’d.)
1998

December

35.

ISLAMIC

BANKING

SCHEME

(SPI)

(CONT’D.)

ix.

Islamic Banking Fund (IBF) The Bank and The Group 1998 RM’000 Funds allocated from Head Office Accumulated losses 28,557 (196) 28,361 1997 RM’000 5,546 (550) 4,996

x.

Income The Bank and The Group 1998 RM’000 Income derived from investment of depositors’ funds Income attributable to depositors – other customers – banks and financial institutions Income attributable to Bank Other SPI income 2,862 (1,013) (70) 231 2 2,012 1997 RM’000 427 (194) – 80 2 315

Details of the income derived from investment of depositors’ funds and funds allocated from Head Office are as follows: 1998 1997 Depositors’ Funds RM’000 Income from financing Investment income: Net profit from dealing securities 660 IBF RM’000 53 Depositors’ Funds RM’000 14 IBF RM’000 3

2,200 2,200

178 178

413 413

74 74

Fee income: Service charges and fees

2 2

– –

– –

– –

Other income: Other non-operating income

– – 2,862

– – 231

– – 427

3 3 80

100

SOUTHERN BANK BERHAD (5303-W)

Notes to the Accounts
31 December 1998

(Cont’d.)

35.

ISLAMIC

BANKING

SCHEME

(SPI)

(CONT’D.)

xi.

Loans and Financing Loss and Provisions The Bank and The Group 1998 RM’000 General provision for bad and doubtful debts and financing 144 1997 RM’000 24

xii.

Overhead Expense The Bank and The Group 1998 RM’000 Personnel costs Establishment costs Marketing expenses Administration and general expenses 508 143 74 575 1,300 1997 RM’000 193 127 251 41 612

xiii. Commitments and Contingencies In the normal course of business, the Bank makes various and incurs certain contingent liabilities with legal recourse to its customers. No material losses are anticipated as a result of these transactions. The commitments and contingencies constitute the following: 1998 Principal Amount RM’000 Credit Equivalent Amount RM’000 Principal Amount RM’000 1997 Credit Equivalent Amount RM’000

The Bank and The Group Irrevocable commitments to extend credits: – maturity exceeding one year

25,002

12,501

845

423

36.

CREDIT

R AT I N G

On 20 July 1998, the rating of the Bank and its RM300 million 5.5% Redeemable Unsecured Subordinated Bonds (1996/2001) were reaffirmed by Rating Agency Malaysia Berhad as follows: July 1998 Long-term rating Short-term rating Rating for RM300 million 5.5% Redeemable Unsecured Subordinated Bonds 1996/2001 A1 P1 A2 July 1997 A1 P1 A2

SOUTHERN BANK BERHAD (5303-W)

101

Statement by Directors

The directors of SOUTHERN BANK BERHAD state that, in their opinion, the accounts set out on pages 56 to 100 are drawn up in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia so as to give a true and fair view of the state of affairs of the Bank and of the Group at 31 December 1998 and of the results of the Bank and of the Group and the cash flows of the Group for the year ended on that date.

Signed in accordance with a resolution of the directors,

YBhg TAN SRI OSMAN S CASSIM Chairman

YBhg DATO’ TAN TEONG HEAN Chief Executive Director

Kuala Lumpur 31 March 1999

Statutory Declaration
I, NG GEK SIU, being the officer primarily responsible for the financial management of SOUTHERN BANK BERHAD, do solemnly and sincerely declare that the accounts set out on pages 56 to 100 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed NG GEK SIU, at KUALA LUMPUR this 31st day of March 1999.

) ) ) )

Before me,

Commissioner for Oaths Kuala Lumpur

102

SOUTHERN BANK BERHAD (5303-W)

Report of the Auditors to the Members of Southern Bank Berhad

We have audited the accompanying balance sheets as of 31 December 1998, the related profit and loss accounts and consolidated cash flow statement, together with the notes thereto, for the year then ended. These accounts are the responsibility of the Bank’s directors. Our responsibility is to express an opinion on these accounts based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall accounts presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the abovementioned accounts are properly drawn up in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia so as to give a true and fair view of: (i) (ii) the state of affairs of the Bank and of the Group as of 31 December 1998 and of the results of the Bank and of the Group and the cash flows of the Group for the year ended on that date; and the matters required by Section 169 of the Act to be dealt with in the accounts and consolidated accounts; and

(b)

the accounting and other records and the registers required by the Act to be kept by the Bank and by the subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

We have considered the accounts and the auditors’ reports of the subsidiary companies of which we have not acted as auditors as indicated in Note 10 to the accounts, being accounts that have been included in the consolidated accounts. We are satisfied that the accounts of the subsidiary companies that have been consolidated with the accounts of the Bank are in form and content appropriate and proper for the purposes of the preparation of the consolidated accounts, and we have received satisfactory information and explanations as required by us for these purposes. The auditors’ reports on the accounts of the subsidiary companies were not subject to any qualification except as indicated in Note 10 to the accounts and did not include any comment made under sub-section 3 of Section 174 of the Act.

KASSIM CHAN & CO AF0080 Public Accountants

TAN BUN POO 1304/5/00(J/PH) Partner Kuala Lumpur 31 March 1999

SOUTHERN BANK BERHAD (5303-W)

103

List of Bank Group’s Properties
As at 31 April 1999

Location

Description

Existing Use

Land Area (Sq. Meters)

Tenure

No. of Years

Expiry Date

Age of Building (Years)

Net Book Value (RM)

Kedah No. 1564, Jalan Kota, 0500 Alor Setar Melaka No. 110, Jalan Bendahara, 75100 Melaka Negeri Sembilan No. 111 & 113, Jalan Yam Tuan, 70000 Seremban Perak No. 33, Jalan Lee Ming Hin, 31450 Menglembu Lot Nos. 2673 & 2674 Main Road, 36700 Langkap No. 99 & 101, Jalan Gopeng, 31900 Kampar No. 613 & 615, Jalan Tasik, 31400 Ipoh Pulau Pinang No. 33 & 33B, Lebuh Pantai & No. 9 Pengkalan Weld, 10300 Penang No. 21, Lebuh Pantai, 10300 Penang Lot 636-640, Block D 20, Gerbang Tuna, Seberang Jaya, 13700 Perai Selangor No. 14, Jalan Sri Selayang, Taman Sri Selayang, 68100 Batu Caves No. 40 & 42, Jalan SS15/4D, Subang Jaya, 47500 Petaling Jaya No. 12, Jalan SS6/3 Kelana Jaya, 47301 Petaling Jaya Wilayah Persekutuan No. 13, Jalan Barat, Off Jalan Imbi, 55100 Kuala Lumpur No. 43, Jalan Barat, Off Jalan Imbi, 55100 Kuala Lumpur Lot 50574, Geran 12753, Bukit Damansara, Mukim Kuala Lumpur Tanjung Bungah Block 21 & 22 Prima Tanjung, Town of Tanjung Tokong, Pulau Pinang 2 Units 4 Storey Shop-CumOffice – 209 Freehold – – Building 1,451,075.26 Under Construction 2 Storey Building 4 1/2 Storey Building Land Tenanted Branch & Tenanted – 163 374 4166 Leasehold Leasehold Freehold 99 99 – 30/3/2025 30/1/2073 – 71 21 325,239.18 3,672,828.15 4 Storey Building 4 Storey Building 4 Storey Building Branch 334 Freehold – – 13 1,554,065.44 2 Storey Building 5 1/2 Storey Building 2 Storey Building Tenanted 3418 Freehold – – 61 2,750,454.00 2 1/2 Storey Building 2 Storey Building 2 Storey Building 2 Storey Building Branch Branch Branch Branch 180 298 446 286 Freehold Leasehold Freehold Leasehold – 99 – 88 – 18/8/2085 – 11/3/2079 12 9 74 13 175,988.19 394,174.71 366,065.11 191,004.41 5 Storey Building Branch & Tenanted 357 Freehold – – 1 2,297,008.27 2 Storey Building Branch 1335 Freehold – – 71 1,444,197.80 4 1/2 Storey Building Branch & Tenanted 393 Leasehold 60 25/11/2023 16 1,036,911.55

Branch & Tenanted Branch & Tenanted

929 393

Freehold Leasehold

– 99

– 28/8/2082

34 12

1,099,963.11 451,988.65

Branch & Tenanted Branch & Tenanted

327

Freehold

13

1,289,497.16

186

Leasehold

99

13

479,457.55

Building 10,575,721.95 Under Construction

104

SOUTHERN BANK BERHAD (5303-W)

Analysis of Shareholdings
As at 30 April 1999

DISTRIBUTION

OF

SHAREHOLDINGS

Size of Shareholdings 1 - 499 500 - 5,000 5,001 - 10,000 10,001 – 100,000 100,001 - 1,000,000 1,000,001 and above Total

No. of Shareholders 609 8,238 1,794 1,852 175 47 12,715

% of Total Shareholders 4.79 64.79 14.11 14.56 1.38 0.37 100.00

No. of Shares 109,619 20,206,475 13,677,127 47,763,798 48,672,269 589,076,401 719,505,689

% of Issued Share Capital 0.02 2.81 1.90 6.64 6.76 81.87 100.00

TWENTY

LARGEST

SHAREHOLDERS

AS

PER

REGISTER

OF

MEMBERS

Shareholding No. of Shares % of Total 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Total Aseam Malaysia Nominees (Tempatan) Sdn Bhd Keppel TatLee Bank Limited Multi-Purpose Bank Nominees (Tempatan) Sdn Bhd Mazal Sdn Bhd Amalan Istimewa Sdn Bhd Citicorp Nominees (Asing) Sdn Bhd KLCS Asset Management Sdn Bhd Malaysia Focus Investment Fund Limited Malaysia Nominees (Tempatan) Sendirian Berhad Southern Nominees (Tempatan) Sdn Bhd Mayfair Finance Corp. The Central Depository (PTE) Limited Asia Life (M) Berhad Public Nominees (Tempatan) Sdn Bhd Malaysia Nominees (Tempatan) Sendirian Berhad The Asia Insurance Company Limited Capital Properties Berhad Employees Provident Fund Board Glenmarie Estates Sdn Berhad Kenanga Nominees (Tempatan) Sdn Bhd 82,807,083 71,948,252 50,727,966 43,736,230 36,891,249 35,977,601 35,280,000 33,776,420 24,952,584 20,394,022 20,000,000 13,106,483 10,339,020 10,000,000 8,344,612 7,209,312 6,867,000 6,211,500 6,181,000 5,466,656 530,216,990 11.51 10.00 7.05 6.08 5.13 5.00 4.90 4.69 3.47 2.84 2.78 1.82 1.44 1.39 1.16 1.00 0.95 0.86 0.86 0.76 73.69

SOUTHERN BANK BERHAD (5303-W)

105

SUBSTANTIAL AS PER

SHAREHOLDERS OF SUBSTANTIAL SHAREHOLDERS

REGISTER

Beneficially Interested Killinghall (Malaysia) Bhd Ramuda Sdn Bhd Dato’ Tan Teong Hean Dato’ Dr Mohammad Abdus Salim S Cassim Keppel Bank of Singapore Limited KI Investment (HK) Limited Amalan Istimewa Sdn Bhd Mazal Sdn Bhd Altima, Inc. Malaysian Focus Investment Fund Limited Mayfair Finance Corp Tan Sri Osman S Cassim 192,430,655 103,431 2,664,685 33,742,062 71,948,252 35,977,601 47,842,155 43,736,230 35,280,000 33,776,420 20,000,000 14,391,000

Deemed Interested 193,143,645 241,089,231 193,247,076 -

% of Total 26.74 26.86 33.88 31.55 10.00 5.00 6.65 6.08 4.90 4.69 2.78 2.00

SOUTHERN BANK BERHAD (5303-W) (Incorporated in Malaysia)

No. of Shares Held
37th

Form of Proxy
Annual General Meeting

I/We
( FULL NAME IN BLOCK LETTERS)

NRIC No.

of
(ADDRESS)

being a member of SOUTHERN BANK BERHAD hereby appoint the Chairman of the Meeting* or
(FULL NAME)

of
(ADDRESS)

or failing him,
(FULL NAME)

of
(ADDRESS)

as my/our proxy, to vote for me/us on my/our behalf at the 37th Annual General Meeting of the Bank, to be held on 16 June 1999, and at any adjournment thereof. Resolutions 1 2 3 4 Description of Resolutions Adoption of Reports and Accounts Directors Remuneration Re-election of Dr Maisarah bte Abdullah in accordance with the Bank’s Articles of Association Re-appointment of Directors in compliance with Section 129(6) of the Companies Act, 1965 (a) Mr Lim Pak Tow (b) YBhg Dato’ Dr Yahya bin Ismail Declaration of Dividend Appointment of Auditors For Against

5 6

Please indicate with an “X” in the spaces how you wish your votes to be cast. If you do not indicate how you wish your proxy to vote on any Resolution, the proxy will vote as he thinks fit, or, at his discretion, abstain from voting. Dated this day of , 1999.

Witness

Signature or Common Seal of Member

* Delete the words “Chairman of the Meeting” if you wish to appoint some other person(s) to be your proxy. Notes: A member of the Bank entitled to attend and vote at the above Meeting is entitled to appoint a proxy to vote on his behalf. A proxy need
not be a member of the Bank but shall be either an advocate, an approved company auditor or a person approved by the Registrar of Companies.The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or, if the appointor is a corporation, under its Common Seal. An instrument appointing a proxy executed in Malaysia need not be witnessed. The signature to an instrument appointing a proxy executed outside Malaysia shall be attested by a solicitor, notary public, consul or magistrate. Where a member appoints two proxies, the appointment shall be invalid unless he specifies the proportion of his holdings to be represented by each proxy. In the case of joint holdings, the signatures of all joint holders are required. The instrument appointing a proxy must be deposited at the Registered Office of the Bank, 20 th Floor, Wisma Genting, 28 Jalan Sultan Ismail, 50250 Kuala Lumpur not less than 48 hours before the time set for the Meeting and at any adjournment thereof.

Fold here

Stamp

Southern Bank Berhad 20th Floor, Wisma Genting 28, Jalan Sultan Ismail 50250 Kuala Lumpur

Fold here