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banking on

growth
a n n u a l r e p o r t 2 0 1 3

AFFIN BANK BERHAD (25046-T)


our
vision
A Premier Partner for Financial Growth and Innovative Services.

our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.

In so doing, we provide opportunities for employees to contribute and


excel; and be competitive in providing our solutions and services to our
valued customers.

We shall conduct our business with integrity and professionalism in


compliance with good corporate governance, principles and practices.
RELATIONSHIPS
PERFORMANCES
CAPABILITIES

At AFFINBANK, we take tremendous pride in all that we do, paying


attention to detail to ensure quality and value for our customers and
stakeholders alike. Keeping abreast of the changes and continuously
growing - this is the guiding principle behind the way the Bank
operates so that we may deliver beyond expectations.
Growing
Relationships
We understand that life comes with ups and
downs. That’s why, no matter what the issue
is, the customer comes first and we listen and
welcome their feedback. This ensures our
standards improve in measurable ways that
continue to nurture our relationships – which is
the core and backbone of our corporate culture.

our
vision
A Premier Partner for Financial Growth and
Innovative Services.

our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.

In so doing, we provide opportunities for employees to contribute and


excel; and be competitive in providing our solutions and services to our
valued customers.

We shall conduct our business with integrity and professionalism in


compliance with good corporate governance principles and practices.
RELATIONSHIPS excellent teamwork
PERFORMANCES CAPABILITIES
Growing
performanceS
Our commitment to cultivate performance drives us to place great diligence in developing the Bank’s
business and market presence. We believe in taking a proactive role and making prudent business
decisions when we implement new initiatives, launch fresh marketing campaigns and expand our
branch network. This creates a strong sustainability in our performance.

our
vision
A Premier Partner for Financial Growth and
Innovative Services.

our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.

In so doing, we provide opportunities for employees to contribute and


excel; and be competitive in providing our solutions and services to our
valued customers.

We shall conduct our business with integrity and professionalism in


compliance with good corporate governance principles and practices.
PERFORMANCES CAPABILITIES
our
vision
A Premier Partner for Financial Growth and
Innovative Services.

our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.

In so doing, we provide opportunities for employees to contribute and


excel; and be competitive in providing our solutions and services to our
valued customers.

We shall conduct our business with integrity and professionalism in


compliance with good corporate governance principles and practices.
Growing
capabilitIES
We believe that our aptitude and expertise grow when we foster a shared corporate vision and value
within our team. This creates coherence in our ability to provide unparalleled service to our customers
and meet their needs above and beyond. We take pride in instilling the power of teamwork within our
corporate culture and this in itself, allows us to craft innovative financial solutions and services.

CAPABILITIES
our
vision
A Premier Partner for Financial Growth and
Innovative Services.

our
mission
To provide innovative financial solutions and services to target customers
in order to generate profits and create value for our shareholders and other
stakeholders.

In so doing, we provide opportunities for employees to contribute and


excel; and be competitive in providing our solutions and services to our
valued customers.

We shall conduct our business with integrity and professionalism in


compliance with good corporate governance principles and practices.
contents
10 Corporate Information

11 Corporate Structure

12 Board of Directors

13 Profile of Directors

17 Management Team

18 Management Team Profiles


22 Chairman’s Statement
26 Performance Review
29 Financial Highlights
30 Corporate Diary
32 Statement on Corporate Governance
40 Statement on Risk Management & Internal Control
43 Audit & Examination Committee
45 Network of Branches
50 Notice of Annual General Meeting
51 Financial Statements
Corporate
Information

NAME BOARD OF DIRECTORS REGISTERED OFFICE

Affin Bank Berhad (Co. No.: 25046-T) Chairman 17th Floor, Menara AFFIN,
YBhg. Jen Tan Sri Dato’ Seri Ismail 80, Jalan Raja Chulan,
Bin Hj. Omar (Bersara) 50200 Kuala Lumpur.
DATE OF INCORPORATION (Non-Independent Non-Executive Director) Tel.: 03-2055 9000
Fax.: 03-2026 1415
23 October 1975 Directors
YBhg. Tan Sri Dato’ Seri Lodin
Bin Wok Kamaruddin AUTHORISED SHARE CAPITAL
PRINCIPAL ACTIVITIES (Non-Independent Non-Executive Director)
No of shares
Affin Bank Berhad is principally involved YM. Dr. Raja Abdul Malek 2,000,000,000
in the carrying out of banking and Bin Raja Jallaludin Par value
finance related services. The Bank (Independent Non-Executive Director) RM1.00
has twelve (12) subsidiary companies Total
and three (3) associate companies YBhg. Tan Sri Dato’ Sri Abdul Aziz RM2,000,000,000
which are principally engaged in Bin Abdul Rahman
property management, nominee/ trustee (Independent Non-Executive Director)
management and factoring services. ISSUED AND PAID-UP
Mr. Aubrey Li Kwok-Sing SHARE CAPITAL
(Non-Independent Non-Executive Director)
No of shares
Mr. Gary Cheng Shui Hee 1,518,336,765
(Alternate Director to Mr. Aubrey Li Kwok-Sing) Par value
RM1.00
En. Mohd Suffian Bin Hj. Haron Total
(Independent Non-Executive Director) RM1,518,336,765

YBhg. Tan Sri Dato’ Seri Mohamed


Jawhar SUBSTANTIAL SHAREHOLDER
(Independent Non-Executive Director)
No of shares
Affin Holdings Berhad - 1,518,336,765
Managing Director/
Chief Executive Officer
EXTERNAL AUDITORS
YBhg. Dato’ Zulkiflee Abbas
Bin Abdul Hamid PricewaterhouseCoopers (AF 1146)

SECRETARY

Nimma Safira Binti Khalid

10 AFFIN BANK BERHAD (25046-T) Annual Report 2013


CORPORATE
structure
as at 31 December 2013

58.69%
4

Lembaga Tabung Angkatan Tentera

35.18%
OTHERS
Boustead Holdings Berhad Bank of East Asia Limited

20.69% 23.52% 20.61%

Affin Holdings berhad


100%

Affin Bank Berhad 100%


30%
100% Affin Islamic Bank Berhad
KL South Development Sdn Bhd 2
(formerly known as Grand Duplex Sdn Bhd)
Affin Capital Sdn Bhd
(jointly owned by AFFIN Islamic Bank Berhad and Albatha

50% Bukit Kiara Holdings Sdn Bhd with a 30:70 ownership)

100% AFFIN-i Nadayu Sdn Bhd 2


(formerly known as AFFIN-i Goodyear Sdn Bhd)
Affin MoneyBrokers Sdn Bhd (jointly owned by AFFIN Islamic Bank Berhad and
Jurus Positif Sdn Bhd with a 50 : 50 ownership)

100% 100% 100%


Affin-ACF Holdings Sdn Bhd ABB Nominee (Tempatan) Sdn Bhd AFFIN-ACF Nominees (Tempatan) Sdn Bhd 3

100% 100% 100%


Affin-ACF Capital Sdn Bhd PAB Properties Sdn Bhd PAB Property Development Sdn Bhd 3

100% 100% 100%


Affin Investment Bank Berhad Affin Recoveries Berhad BSNC Nominees (Tempatan) Sdn Bhd 3

100% 20%
Affin Fund Management Berhad ABB Trustee Berhad 2
(80% held by Directors of Affin Bank Berhad
100% in trust for Affin Bank Berhad)
Merchant Nominees (Tempatan)
Sdn Bhd
100%
AFFIN Factors Sdn Bhd 1
67%
Classic Precision Sdn Bhd
100%
100% ABB Nominee (Asing) Sdn Bhd 1
Affin Nominees (Tempatan) Sdn
Bhd 100%
Affin Futures Sdn Bhd 1
100%
Affin Nominees (Asing) Sdn Bhd
100%
ABB IT & Services Sdn Bhd 3
51%
Axa Affin Life Insurance Berhad 100%
BSNCB Nominees (Tempatan)
Sdn Bhd 3
33.6%
Axa Affin General Insurance Berhad

1 Dormant - company inactive but currently holding asset.


2 Associate.
3 Companies where application to strike-off has been filed by the Bank.
4 58.69% reperesents the shareholding of LTAT in Boustead Holdings Berhad
as at 31 December 2013.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 11


BOARD OF
DIRECTORS

From left to right:


YBhg. Tan Sri Dato’ Seri Lodin YBhg. Jen. Tan Sri Dato’ Seri Ismail YM. Dr. Raja Abdul Malek
Bin Wok Kamaruddin Bin Haji Omar (Bersara) Bin Raja Jallaludin
Non-Independent Non-Executive Director Chairman Independent Non-Executive Director
Non-Independent Non-Executive Director

From left to right:


Mr. Aubrey Li Kwok-Sing YBhg. Tan Sri Dato’ Sri Abdul En. Mohd Suffian Bin YBhg. Tan Sri Dato’ Seri
Non-Independent Non-Executive Aziz Bin Abdul Rahman Hj. Haron Mohamed Jawhar
Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director

12 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Profile OF
TORS

YBhg. Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Chairman / Non-Independent Non-Executive Director

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara), aged 72, was appointed as the Director
and Chairman of AFFINBANK on 21 May 2002.

He was formerly the Chief of Defence Force (CDF) of Malaysia from 1995 until his retirement in
1998, after 38 years of military service. He graduated from Royal Military Academy, Sandhurst,
United Kingdom in 1961 and subsequently attended professional and management development
courses at several institutions including The Land Forces Command and Staff College, Canada;
the United Nation International Peace Academy, Vienna; the National Defence College, India and
INTAN Malaysia.

His military service saw Key Command and Staff appointments at all levels of the Armed Forces.
As CDF, his responsibilities included key roles in Malaysia’s Regional and International Defence
Relations.

He was the Chairman of Affin Holdings Berhad and Affin-ACF Finance Berhad from 1999 prior to
joining AFFINBANK. He currently holds directorships in Affin Islamic Bank Berhad, ABB Trustee
Berhad, EP Engineering Sdn Bhd and Global Medical Alliance Sdn Bhd.

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) attended all 14 Board Meetings held during
the financial year ended 31 December 2013.

YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin


Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin, aged 64, was reappointed to the Board of
Directors of AFFINBANK on 4 October 2010. He was appointed as the Managing Director of
Affin Holdings Berhad in February 1991 and redesignated as Deputy Chairman on 1 July 2008.

He has extensive experience in managing a provident fund and in the establishment,


restructuring and management of various business interests ranging from plantation, trading,
financial services, property development to oil and gas, pharmaceuticals and shipbuilding. He
is the Chief Executive of LTAT and the Deputy Chairman / Group Managing Director of Boustead
Holdings Berhad. Prior to joining LTAT, he was the General Manager of Perbadanan Kemajuan
Bukit Fraser for 9 years.

He is also the Chairman of Boustead Heavy Industries Corporation Berhad, Boustead Naval
Shipyard Sdn Bhd, Pharmaniaga Berhad, Boustead Petroleum Marketing Sdn Bhd, Boustead
REIT Managers Sdn Bhd and 1Malaysia Development Berhad. He sits on the Board of The
University of Nottingham in Malaysia Sdn Bhd, Minority Shareholder Watchdog Group, FIDE
Forum, Atlas Hall Sdn Bhd, Affin Islamic Bank Berhad, Affin Investment Bank Berhad, AXA Affin
Life Insurance Berhad and Boustead Plantations Berhad.

He graduated from the University of Toledo, Ohio, USA with a Bachelor of Business Administration
and a Master of Business Administration. Among the many awards Tan Sri Dato’ Seri Lodin
received to-date include the Chevalier De La Legion D’Honneur from the French Government,
the Malaysian Outstanding Entrepreneurship Award, the Degree of Laws honoris causa from
the University of Nottingham, United Kingdom, the UiTM Alumnus of the Year 2010 Award and
The BrandLaureate Most Eminent Brand ICON Leadership Award 2012 by Asia Pacific Brands
Foundation.

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin attended all 14 Board Meetings held during the
financial year ended 31 December 2013.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 13


profile OF DIRECTORS

YM. Dr. Raja Abdul Malek Bin Raja Jallaludin


Independent Non-Executive Director

Dr. Raja Abdul Malek Bin Raja Jallaludin, aged 68, was appointed to the Board of Directors of
AFFINBANK on 29 January 1991.

He graduated as a doctor from the University of Malaya in 1972 and, early in his career, worked
at the General Hospital, Kuala Lumpur and the Faculty of Medicine, UKM. In late 1975, he went
into private medical practice and became a senior partner of Drs. Catterall, Khoo, Raja Malek &
Partners until 2003 when he resigned from the firm. Professionally he is widely experienced and
has served in various peer and academic activities. Amongst others, he had been a clinical tutor
in the Faculty of Medicine, University Malaya; been a member of the Ethical Committee of the
Malaysian Medical Council, MOH; was the Chairman of Council Academy of Family Physicians,
Malaysia.

He also has vast experience in the pharmaceutical world and had actively been involved
since 1984. He had been the Medical Director (Malaysia-Singapore) for Parke Davis-Warner
Lambert from 1984-2000, and had remained briefly so too with Pfizer Malaysia when these two
Incorporations merged in 2001. In 2003, Dr. Raja Abdul Malek joined HOE Pharmaceuticals as
the Director of Medical and Scientific Affairs and holds this position to this day.

Presently he is also on the Board of ABB Trustee Berhad, StemLife Berhad and Boustead
Plantations Berhad.

Dr. Raja Abdul Malek Bin Raja Jallaludin attended all 14 Board Meetings held during the financial
year ended 31 December 2013.

YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman
Independent Non-Executive Director

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman, aged 67, was appointed to the Board of Directors
of AFFINBANK on 28 January 2003.

He graduated with a Bachelor of Commerce from University of New South Wales, Sydney,
Australia. He is a member of the Malaysian Institute of Certified Public Accountants (MICPA) and
the Malaysian Institute of Accountants (MIA).

He has served as Chairman and Board member of several government institutions, agencies and
public listed companies, both in Australia and Malaysia.

At the corporate level he was with PricewaterhouseCoopers, Malaysia Airlines and Managing
Director of Bank Rakyat Bhd before venturing into politics and public service as the Pahang
State Assemblyman, State Executive Councillor and Deputy Chief Minister of Pahang. He was a
Senator of Malaysian Parliament for a maximum period of two (2) terms.

Presently he is a Board member of Affin Islamic Bank Berhad, the International Islamic University
Malaysia and University Malaysia Pahang.

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman attended all 14 Board Meetings held during the
financial year ended 31 December 2013.

14 AFFIN BANK BERHAD (25046-T) Annual Report 2013


profile OF DIRECTORS

Mr. Aubrey Li Kwok-Sing


Non-Independent Non-Executive Director

Mr. Aubrey Li Kwok-Sing, aged 63, was appointed to the Board of Directors of AFFINBANK on
17 March 2008. He is a Director of The Bank of East Asia, Limited and Chairman of MCL Partners
Limited.

He possesses extensive experience in investment banking, merchant banking and capital


markets. Presently he is a Board member of Café de Coral Holdings Limited, China Everbright
International Limited, Kunlun Energy Limited, Kowloon Development Co. Ltd, Pokfulam
Development Company Limited and Tai Ping Carpets International Limited.

Mr. Aubrey Li Kwok-Sing attended 4 out of 14 Board Meetings held during the financial year
ended 31 December 2013.

Mr. Aubrey Li Kwok-Sing’s Alternate Director, Mr. Gary Cheng Shui Hee was appointed on 18
April 2011. He attended 7 out of 14 Board Meetings held during the financial year ended 31
December 2013.

En. Mohd Suffian Bin Haji Haron


Independent Non-Executive Director

En. Mohd Suffian Bin Haji Haron, aged 68, was appointed to the Board of Directors of
AFFINBANK on 15 August 2009.

He graduated with a Bachelor of Economics from University of Malaya (1970) and holds a Master
of Business Administration from University of Oregon (USA) in 1976.

He started his career as a Diplomatic and Administrative Officer, attached to the Prime Minister’s
Department, and after thirteen years, left the Government Service to be the General Manager,
International Business of a Government-Linked Company and after six years left for the Private
Sector. He brings with him vast experience in the financial services sector which include asset
management and insurance-related services, general trading, power/energy the oil and gas
services sectors.

Presently he is a Board member of Affin Islamic Bank Berhad, L.K. & Associates Sdn Bhd and
Pharmaniaga Berhad.

En. Mohd Suffian Bin Haji Haron attended all 14 Board Meetings held during the financial year
ended 31 December 2013.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 15


profile OF DIRECTORS

YBhg. Tan Sri Dato’ Seri Mohamed Jawhar


Independent Non-Executive Director

Tan Sri Dato’ Seri Mohamed Jawhar, aged 69, was appointed to the Board of Directors of
AFFINBANK on 1 November 2011.

His other positions include: Independent Non-Executive Director, Affin Islamic Bank Berhad;
Chairman ISIS Malaysia, Non-Executive Chairman, New Straits Times Press (Malaysia) Berhad;
Member of Securities Commission Malaysia; Member, Advisory Board, Malaysian Anti-Corruption
Commission; Distinguished Fellow, Institute of Diplomacy and Foreign Relations (IDFR); Board
Member, Institute of Advanced Islamic Studies (IAIS); Chairman, Malaysian National Committee
of the Council for Security Cooperation in the Asia Pacific (CSCAP); and Member, International
Advisory Board, East West Center, USA. He is also the Expert and Eminent Person for the ASEAN
Regional Forum (ARF).

He was also the Co-Chair, Network of East Asia Think-tanks (NEAT) 2005-2006; Chairman,
Malaysian National Committee, Pacific Economic Cooperation Council (PECC) 2006-2010; and
Co-Chair, Council for Security Cooperation in the Asia Pacific (CSCSP) 2007-2009.

He served with the government before he joined ISIS Malaysia as Deputy Director-General in
1990. He was appointed Director-General in March 1997 and was subsequently appointed
Chairman and CEO in 2006. He was appointed Chairman ISIS Malaysia on 9 January 2010.

His positions while in government included Director-General, Department of National Unity;


Under-Secretary, Ministry of Home Affairs; Director (Analysis) Research Division, Prime Minister’s
Department; and Principal Assistant Secretary, National Security Council. He also served as
Counselor in the Malaysian Embassies in Indonesia and Thailand.

Tan Sri Dato’ Seri Mohamed Jawhar attended 13 out of 14 Board Meetings held during the
financial year ended 31 December 2013.

16 AFFIN BANK BERHAD (25046-T) Annual Report 2013


MANAGEMENT
TEAM

YBhg. Dato’ Zulkiflee Abbas En. Kamarul Ariffin Bin En. Shariffudin Bin Mohamad En. Amirudin Bin Abdul Halim
Bin Abdul Hamid Mohd Jamil Executive Director, Operations Director, Business Banking
Managing Director / Chief Executive Chief Executive Officer,
Officer Affin Islamic Bank

Mr. Ee Kok Sin Mr. Tan Kok Toon Mr. Kasinathan T.Kasipillai Pn. Khatimah Binti Mahadi
Chief Financial Officer Director, Treasury Group Chief Risk Officer Group Chief Internal Auditor

Pn. Nor Rozita Binti Nordin En. Nazlee Bin Khalifah En. Idris Bin Abd Hamid
Chief Human Resource Officer Chief Corporate Strategist Director, Consumer Banking

Pn. Nimma Safira Binti Khalid Mr. Ramanathan Rajoo


Head, Legal & Secretarial Head, Finance

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 17


MANAGEMENT
TEAM profileS

YBhg. Dato’ Zulkiflee Abbas Bin Abdul Hamid


Managing Director / Chief Executive Officer

Dato’ Zulkiflee Abbas Bin Abdul Hamid is the Managing Director/ Chief Executive Officer of Affin
Bank Berhad, a position held since April 2009. Dato’ Zulkiflee also holds the mandate to drive
Affin Banking Group’s strategic and developmental agenda for all entities within the group. Dato’
Zulkiflee joined AFFINBANK on 1 March 2005 as Director of Enterprise Banking. Subsequently in
2008, Dato’ Zulkiflee was appointed as Executive Director of Banking, which encompassed both
Business and Consumer Banking. Dato’ Zulkiflee carries with him more than 30 years of banking
experience, both locally in Malaysia and internationally in London and New York. Dato’ Zulkiflee
has assumed pivotal roles in banking, which include Regional Manager, Chief Credit Officer, and
Global Head of Enterprise Banking, amongst others. Dato’ Zulkiflee holds a Master in Business
Administration (1981) and a Bachelor of Science degree in Marketing (1979), both from Southern
Illinois University.

En. Kamarul Ariffin Bin Mohd Jamil


Chief Executive Officer, Affin Islamic Bank

En. Kamarul Ariffin Bin Mohd Jamil joined Affin Bank Berhad in 2003 as Head, Corporate
Strategy Division. In 2005, Kamarul was appointed as Head, Islamic Banking Division. With the
establishment of Affin Islamic Bank, Kamarul was appointed as its Chief Executive Officer. Prior
to AFFINBANK, Kamarul held various positions at Pengurusan Danaharta Nasional Berhad,
Trenergy Malaysia Berhad and Shell Malaysia Trading Sdn Bhd in various capacities including
business development, and strategic planning. Kamarul graduated from the University of
Cambridge in 1992 with a Bachelor of Arts in Economics.

En. Shariffudin Bin Mohamad


Executive Director, Operations & Strategic Services

En. Shariffudin Bin Mohamad joined Affin Bank Berhad in 2007 as Director of Operations and was
appointed as Executive Director, Operations in 2009. Shariffudin has 25 years local and overseas
experience in banking. His hands-on experience covers Branch Operations, Trade Finance,
Corporate Banking, Corporate Relationship Management, Credit Operations, Cash Management
and Securities Services. His last position was Head, Project Management Services (Technology &
Operations) in a leading foreign bank and its local outsourcing subsidiary. Shariffudin graduated
from Southern illinois University, with a Master in Business Administration (1981) and a Bachelor
of Science degree in Finance (1980).

18 AFFIN BANK BERHAD (25046-T) Annual Report 2013


MANAGEMENT TEAM profileS

En. Amirudin Bin Abdul Halim


Director, Business Banking

En. Amirudin Bin Abdul Halim joined Affin Bank Berhad as Director, Business Banking in July
2009. Prior to AFFINBANK, Amirudin was at a leading local bank for more than 21 years where he
gained extensive banking experience in Branch Operations, Credit Control, Business Banking,
Retail Marketing, Consumer Banking and Corporate Services. He has served in several senior
strategic roles, including Deputy Head of Business Banking Division, Head of Mortgage and
Automobile Financing and as the Deputy Chief Executive Officer of a subsidiary of a leading local
bank. Amirudin graduated with a Bachelor of Arts degree in Finance from St. Louis University in
1986.

Mr. Ee Kok Sin


Chief Financial Officer

Mr. Ee Kok Sin joined Affin Bank Berhad in 2005 as the Chief Financial Officer. Prior to his
appointment at AFFINBANK, Ee was the General Manager of Finance & Services at Pengurusan
Danaharta Nasional Berhad. Ee began his career in 1982 as a Trainee Accountant with a firm of
Chartered Accountants in London. He has extensive experience in auditing, treasury functions,
financial accounting, financial management and information technology. Ee is a fellow Member of
the Association of the Chartered Certified Accountants (ACCA) and a member of The Malaysian
Institute of Certified Public Accountants (MICPA) and Malaysian Institute of Accountants (MIA).

Mr. Tan Kok Toon


Director, Treasury

Mr. Tan Kok Toon joined Affin Bank Berhad as its Head of Treasury in October 2004 and is
responsible for managing all aspects of Treasury Division. He is currently the Honorary Secretary
of Persatuan Pasaran Kewangan Malaysia (Association Cambiste Internationale) and Chair to
the Seminar and Education Committee. Prior to AFFINBANK, Tan was with a leading bank in
Malaysia. Tan has more than 20 years banking experience, particularly in Treasury Operations. He
has served as Treasury Manager with the New York Branch, and was Treasury Business Advisor
to turn around a business project in the Philippines. Tan graduated from University Malaya in
1987 with a Bachelor of Science degree (honours) in Mathematics.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 19


MANAGEMENT TEAM profileS

Mr. Kasinathan T.Kasipillai


Group Chief Risk Officer

Mr. Kasinathan T. Kasipillai joined Affin Bank Berhad in 2005 as its Chief Risk Officer. Kasinathan
has more than 35 years of local and overseas banking experience particularly in the areas of Risk
Management. He comes from a foreign bank background working in the risk function serving in a
number of countries including London, Singapore, Hong Kong, Mumbai and Jakarta. Kasinathan
holds a Masters in Business Administration from the University of Bath, UK and is a Certified
Risk Professional awarded by Bank Administration Institute, Chicago, USA. Kasinathan is also an
Associate Fellow of Institute of Bankers Malaysia, and continues to serve as an active member
of CCP Examination Committee.

Pn. Khatimah Binti Mahadi


Group Chief Internal Auditor

Pn. Khatimah Binti Mahadi joined Affin Bank Berhad as Chief internal Auditor in 2004. Khatimah
has more than 30 years of experience in Internal Auditing. She has led the Audit and Compliance
function in a number of large local and foreign financial institutions. Khatimah graduated with a
Diploma in Accountancy from UITM in 1978.

Pn. Nor Rozita Binti Nordin


Chief Human Resource Officer

Pn. Nor Rozita Binti Nordin was appointed as Chief Human Resource Officer of Affin Bank
Berhad in May 2011. Prior to joining AFFINBANK, Rozita was Executive Vice-President and Head
of Group Human Resources at a local banking group. Rozita has more than 30 years’ experience
in Human Resource Development and Customer Relations Strategy, in various industries which
include banking, oil and gas, manufacturing, retail, and shared services. Rozita has taken on
strategic and operational roles, both locally and abroad. Rozita graduated from Southern illinois
University with a Master of Science degree in 1984, a Bachelor of Science in Education and a
Bachelor of Arts degree in Linguistics, both in 1982.

20 AFFIN BANK BERHAD (25046-T) Annual Report 2013


MANAGEMENT TEAM profileS

En. Nazlee Bin Khalifah


Chief Corporate Strategist

En. Nazlee Bin Khalifah joined Affin Bank Berhad in February 2009 as Head of Business Strategy
and Support, Business Banking Division. Subsequently, in April 2011, Nazlee was appointed as
Chief Corporate Strategist. Nazlee has more than 20 years’ experience in the banking industry.
Prior to joining AFFINBANK, Nazlee was with a leading local bank for 17 years in various
capacities, mostly in Strategic Management positions. Nazlee graduated from Simon Fraser
University in Vancouver in 1991, with a Bachelor degree in Business Administration, majoring in
Accounting and Finance.

En. Idris Bin Abd Hamid


Director, Consumer Banking

En. Idris Bin Abd Hamid is the Director of Consumer Banking, a position he has held since May
2009. Idris began his career with Affin Bank Berhad in 1994 as General Manager of Affin Finance
Berhad. He was appointed as Deputy Chief Executive Officer for Affin-ACF Finance Berhad from
2000 to 2005. Idris has over 30 years of experience in the banking industry, which includes
exposure as Branch Manager, and in Corporate and Consumer Loans Management. Idris
graduated with a Master in Business Administration from the University of Northern Colorado
in 1984.

Puan Nimma Safira Binti Khalid


Head, Legal & Secretarial

Puan Nimma Safira Binti Khalid is the Head, Legal & Secretarial/Company Secretary of Affin Bank
Berhad, a position she has held since 2005. Nimma joined AFFINBANK in 2001 as Manager, Legal
& Secretarial. She was subsequently assigned to the President/CEO’s office as the Executive
Assistant from 2003 to 2005. Nimma started her career of 20 years as an Advocate & Solicitor of
the High Court of Malaya in 1994. She then moved in-house as Legal Officer/Company Secretary
of a commercial bank from 1995 to 2000. Nimma graduated with Bachelor of Laws in 1992 and
Bachelor of Laws (Shariah) in 1993; both from the International Islamic University, Malaysia.

Mr. Ramanathan Rajoo


Head, Finance

Ramanathan Rajoo began his career in 1988 as an audit trainee with Coopers & Lybrand before
joining Affin Bank Berhad in 1991. He has held various positions within the Finance Division
before being appointed to his current position in 2003. He has more than 25 years of extensive
working experience in auditing, financial accounting and financial management. He holds a
Master degree from University Putra Malaysia, Bachelor of Accounting degree from the National
University of Malaysia and Certified Credit Professional from Institute Bank Bank Malaysia. He
is a member of the Certified Practising Accountants, Australia (CPA) and Malaysian Institute of
Accountants (MIA).

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 21


Chairman’s
STATEMENT


In 2013, the Bank registered
an 8.4% increase in its profit
before zakat and taxation,
which amounted to
RM762.2 million.

Jen. Tan Sri Dato’ Seri Ismail Bin Hj. Omar (Bersara)
Chairman

22 AFFIN BANK BERHAD (25046-T) Annual Report 2013


CHAIRMAN’S STATEMENT

Dear Shareholders,

I am pleased to report that AFFINBANK Social Responsibility (CSR) is something Muslim converts from Pertubuhan
registered another year of robust growth that we place great importance on and Kebajikan Islam Malaysia (PERKIM).
in the financial year 2013. Although the Bank reinforced its commitment to This is an annual event where the Board
the general consensus was that 2013 society and their well-being through of Directors and senior management of
proved to be a competitive operating various donations, outreach programs the Bank will attend to host the dinner
environment for the banking industry as a and educational initiatives. and get to know the orphans and other
whole, AFFINBANK remained focused in guests on a more personal level. Besides
developing our strengths and continued In 2013, two Blood Donation Drives dinner, the guests were delighted to
to perform well. were organized at AFFINBANK’s Head receive “Duit Raya” to add to the festive
Office where over 300 staff volunteered celebration mood.
For the year under review, AFFINBANK and donated blood. This CSR initiative
continued to record a steady increase provides a platform for the Bank’s staff Being a part of the LTAT (Lembaga Tabung
in revenues and earnings. In 2013, the to participate and instills the culture and Angkatan Tentera), which is a corporation
Bank registered an 8.4% increase in its spirit of caring within the workplace. with the key objective of providing
profit before zakat and taxation, which maximum returns to non-pensionable
amounted to RM762.2 million. During the various festivities throughout members of the Armed Forces as well
the year, AFFINBANK reached out to the as other welfare benefits to members of
This year, we launched several new community through various activities. In the Armed Forces as a whole, the Bank
products, services and campaigns that conjunction with Chinese New Year this channels many of its CSR activities
boosted our revenue. AFFINBANK’s year, AFFINBANK visited the Ampang to the same cause. In 2013, several
business operations and market Old Folks Home, where residents were contributions were made by the Bank
presence also continued to thrive as a treated to lunch, money packets (“ang for the welfare of the Malaysian Armed
result of these new initiatives with growth pow”) and donation of a variety of Forces, i.e. RM160,000 sponsorship to
in deposits by 11.7% while loans and dry food. During Ramadan, the Bank the communication activities of Tabung
advances grew by 8.0%. organised a scrumptious “Buka Puasa” Hari Pahlawan; RM100,000 worth of Hari
dinner for approximately 130 orphans Raya gift packages to the Welfare Fund
The Bank continued to place its brand from selected orphanages and 30 new of the Malaysian Armed Forces; and our
in the market and enhance accessibility yearly contribution of RM1 million to the
by expanding our network of branches.
Three new branches were opened in 2013
and as at December 2013, AFFINBANK
has 103 branches nationwide in Malaysia
to serve our customers better.

Risk Management, Operational and IT


improvements continued throughout
the year as these initiatives are crucial
in supporting the business. New Human
Capital Development initiatives were
carried out to ensure the Bank has a
team of professionals with the correct
skill sets and the right experiences to
serve our customers.

The pride of AFFINBANK stems not only


from our fiscal achievements and success
but is also based on what we give back Contribution of RM100,000 worth of Hari Raya gift packages to the Welfare Fund of the Malaysian
towards the community. Our Corporate Armed Forces.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 23


CHAIRMAN’S STATEMENT

Yayasan Warisan Perajurit, a foundation


established with LTAT to raise funds
to provide scholarships and education
assistance to the children of retired
Malaysian Armed Forces and those
currently in service.

Our educational initiatives this year not


only brought about new endeavours but
also continued with existing projects
from previous years. A new CSR initiative
in 2013 was AFFINBANK’s sponsorship
of RM50,000 worth of sports equipment
to selected schools, in support of the
“1Murid 1Sukan” policy, implemented
by the Sports Division in the Ministry of
Education. This program aims to provide
deserving students with the opportunity
to further develop their talent and
potential, and gain higher achievements
Sponsorship of sports equipment to selected schools in support of the “1Murid 1Sukan” policy.
in sports.

AFFINBANK also continued to During the year under review,


sponsor the TrEES “Young Voices for AFFINBANK and AFFIN ISLAMIC
Conservation” Programme for the 3rd collaborated to provide RM20,000 worth
Year, a program that educates the young of essential items for the flood victims in
on environment conservation. The Bank Kuantan. The Bank decided to extend a
also finds this program to be effective helping hand to aid these victims who
in developing youths to be more “well suffered great losses. With the help of
rounded” individuals with multiple skills the Malaysian Armed Forces, the goods
in the future. were distributed to the evacuees at all
flood relief centres in Kuantan, Pahang. Majlis Berbuka Puasa with orphans and new Muslim
This year, the Bank once again presented converts at Menara Affin.
awards to 107 deserving students via The Bank continues to remain optimistic
the Affin Education Excellence Award. for the year ahead, as we target to grow in
Our Affin Education Excellence Award our core business and remain competitive
is in its 10th year, and as of last year, a in the industry. New products/services
total of RM1.5 million in cash awards and initiatives will be launched so that we
had been presented to more than 500 can enhance our proposition to existing
deserving students. customers, and acquire new business
relationship. We will reinforce the Bank’s
We continued to sponsor and support branding presence by increasing our
BHPetrol’s TV Programme on RTM1 network of branches and improving
called “Di Celah-Celah Kehidupan” that existing branches. All these will be made AFFINBANK sponsors TrEES Programme for the 3rd
features selected Malaysians who are in possible with a team focused towards consecutive year.
need of help and assistance. AFFINBANK
achieving one common corporate
provided a convenient platform for cash
objective.
donations sent by the public to the
recipients, who also received RM1,000
each from the Bank.

24 AFFIN BANK BERHAD (25046-T) Annual Report 2013


CHAIRMAN’S STATEMENT

Colouring contest winners at Jom Karnival, Lahad Datu Branch.

8.4%
profit before zakat
& taxation growth

103 Malaysia
branches nationwide in

Chinese New Year visit to Ampang Old Folks Home. New branch at Danga Bay, Johor.

At this juncture, I would like to extend my deep appreciation to the Board of Directors,
Management team and every staff at AFFINBANK. It is your dedication and hard work
that has produced the results we have achieved thus far. I would also like to urge
the Management team and staff to continue relying on the enduring power of great
teamwork to achieve our corporate goals.

I encourage each staff to always exhibit prudence and professionalism when working
with our customers, and become the embodiment of a responsible banker. The Bank’s
Corporate Values will dictate our actions at work so that we are continually delivering
great service and meeting the needs of our customers by truly providing “Banking
without Barriers”.

Jen. Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Chairman

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 25


PERFORMANCE
REVIEW

Over the last six years, AFFINBANK


has been reporting steady growth
in revenues and earnings. The Bank
recorded a string of profits and
increased returns in several areas.
In 2013, this trend continued with a
profit before zakat and taxation of
RM762.2 million, which is an 8.4% 13.8%
increase from the year before. return-on-equity
(ROE after tax)

Our profit after zakat and taxation this Business Initiatives

8.0%
year escalated by 8.5% to RM569.8
million, from RM525.3 million in 2012. AFFINBANK started the year with
AFFINBANK’s total assets achieved the Chinese New Year Triple Fortune
a growth of 8.3% to RM56.4 billion, Promotion, a deposit campaign that
compared to RM52.1 billion in the allowed customers to enjoy higher gross loans/advances
growth
previous financial year. Our Return-on- interest rates on their deposits and a
Equity (ROE) after tax was recorded at chance to win a limited edition gold
13.8%, while the Cost-to-Income ratio plated art.

11.7%
improved to 44.5% from 45.2%.
The AFFIN Junior Saver (a children’s
The Bank’s total deposits continued to savings account) was re-launched this
flourish in 2013 with an increase of 11.7% year with a new look and savings contest
to RM46.1 billion, compared to RM41.3 for young account holders to win cool total deposits growth
billion in 2012. Net interest income also IT gadgets and cash prizes. The fourth
grew to RM813.1 million from RM788.7 OMG campaign, called “The Invasion of
million recorded in 2012, while gross the OMG”, was launched in April 2013
loans and advances added by 8.0% and generated double-digit growth in
in 2013. AFFINBANK succeeded in retail deposits, and over 100,000 new
maintaining asset quality with a lower accounts compared to previous years.
net impaired loan ratio of 0.9% in 2013,
compared to 1.1% in 2012. During the AFFINBANK partnered with AXA Affin
year under review, the Bank continued to Life Insurance to provide a high interest
remain vigilant to the economic signals. rate of up to 5.0% for a 12-month
The emphasis is on pro-active account Fixed Deposit placement with AXA’s life
management to ensure that our assets insurance plan, called the Smart Income
remain healthy. Saver (SIS). This FD-SIS Combo Plan
allowed customers to enjoy the benefit
of insurance protection with high interest Re-launch of AFFIN Junior Saver for young
rate and guaranteed cash income. account holders.

26 AFFIN BANK BERHAD (25046-T) Annual Report 2013


PERFORMANCE REVIEW

Another product bundling initiative was


the “Spend, Save & Win” campaign that
was packaged to reward customers
with a combined product holding of
deposit accounts, debit and credit cards.
Customers who maintain a minimum
average balance in their deposit
accounts, as well as those who spend on
their debit and credit card, were rewarded
with monthly prizes and a Grand Prize of
a KIA Rio 1.4SX.

High-end auto financing and mortgage


continued to be key components of our
loan growth this year. During the year
under review, our online banking platform
was successfully upgraded, whilst we
targeted new merchants, implemented a
more efficient cash management service,
and improved our transaction banking
facilities for SME customers.
Grand Prize winners for “The Invasion of the OMG” campaign.
AFFINBANK also jointly organized
the “Experience IBG” road show with
Bank Negara Malaysia, the Association As always, IT and Operational Process We are also proud to announce that
of Banks in Malaysia (ABM), and the initiatives were implemented within AFFINBANK is one of the premier banks
Association of Islamic Banking Institutions the year to boost our progress and in the industry to have increased
Malaysia (AIBIM). This 6-month road development. To enhance our loan frequency in the payment processing
show (October 2013 until March 2014) capturing and processes across all of IBG transactions. This will result in
will cover 12 major towns nationwide and businesses, we launched the Phase 2 faster IBG payments and also encourage
aims to create awareness among small enhancement to the Loan Origination customers to frequently use this mode of
businesses about online banking and the System. The Bank also recalibrated the payment. We are pleased to do our part
convenience of Interbank GIRO (IBG). Consumer Credit Score Card System to support the BNM’s initiative to promote
to improve our asset quality and the electronic fund transfer payments.
Operational Highlights predictive capability of credit scoring.
Risk Management Initiatives
One of the key tactical moves to enhance During the year, AFFINBANK
our branding image in 2013 was through implemented a New Statistical Reporting In 2013, we applied several key
network expansion. Three new branches System (NSRS) with a standardised measures to facilitate AFFINBANK’s risk
were opened in key strategic locations reporting framework and infrastructure management initiatives. As we adhered
in Kota Kemuning (Selangor), Danga for data submission. We moved in to the BNM’s guideline on Risk-Weighted
Bay (Johor) and Lahad Datu (Sabah) this direction to support Bank Negara Capital Adequacy Framework - Internal
to enhance our visibility in these vital Malaysia’s (BNM) initiative to improve Capital Adequacy Assessment Process
locations and to improve accessibility statistical reporting by financial (Pillar 2), the Group maintained a robust
of the Bank for our customers. We institutions and data management. There ICAAP Framework to assess capital
also relocated our Kuantan branch to is much relevance and benefit to this adequacy.
a brand new premise with the intention new system of reporting as it increases
of providing better customer service timeliness and enhances the integrity of
through a modern interior and enhanced the statistics.
infrastructure.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 27


PERFORMANCE REVIEW

At the start of the year, the Bank the Institute of Bankers Malaysia (IBBM) This year, we further extended our
embarked on Basel III, which introduced to enrol and sponsor our staff into The focus on developing strong talents
new capital rules that included leverage Chartered Banker Program. This is a and leadership among our employees.
ratio and liquidity standards, with recognized professional certification Various training programs were
phased-in arrangements. We are enroute that addresses vital areas of finance and conducted throughout 2013 on sectors
to full compliance by 2019. To date, the banking, and will prove to be a significant such as branch operations, marketing/
Bank has fulfilled the quarterly reporting advantage for our staff. This initiative account relationship management and
requirement to BNM for the current is part of the Bank’s “Upward Mobility soft-skills development, including online
Observation Period (starting June 2012), Program: Empowering Employees to learning program covering subjects in
with regard to our leverage and liquidity Grow” to equip staff to become leaders areas on risk management and Islamic
positions. at the forefront of the banking and finance banking.
industry. It will also undoubtedly provide
We have also been conducting periodic them with the recognition necessary to Outlook and Prospects
industry studies and portfolio reviews fulfil their role in the Bank.
on the economic and regulatory Building on 2013 performance, we
environment. In light of this, Group The Affin Management Programme have set a few goals for 2014. We are
Risk Management (GRM) closely tracks (AMP) recruited our 8th batch of AMP projecting a loans growth between 8% to
unfolding events and adopts appropriate trainees this year. This program is part of 10% and targeting deposits growth of a
measures to protect the Bank’s risk the Bank’s Human Capital Development minimum of 10%. AFFINBANK has also
position. To further strengthen our risk Plan and the Young Talent Management set a target for key ratios to be at par or
culture, GRM conducted several internal Programme, which aims to develop and above the industry average. The Bank
risk programs in 2013 to enhance the support the banking career of young will continue to enhance its customer
knowledge and skill sets of our officers. talents through engaging activities and touch point by expanding its network
competency programs. To-date, a total of branches, Business Loans Centres
These included workshops that are of 118 trainees have participated in this as well as off-branch ATMs. We are also
relevant to credit and operational risk program. continuously exploring potential Merger
management, credit clinics focusing on & Acquisition (M&A) opportunity, both
live case studies and assessments for Throughout 2013, the Bank also domestic and abroad, to expand our
Internal Certification in all three key areas participated in the Skim Latihan 1Malaysia presence.
of risk - Credit, Operations and Market. (SL1M) program, which was established
by the Economic Planning Unit (EPU)
The Bank was steadfast in managing of Prime Minister’s Department in 2011.
and monitoring our loan, and credit One of the reasons that AFFINBANK is
portfolios more efficiently in 2013. We committed to this program is its ability to
made certain that our focus was on increase the employability of Malaysian
booking quality assets. AFFINBANK has graduates, particularly those from rural
adopted prudent underwriting standards, areas and low-income families. Through
maintained a proactive approach to this initiative, young graduates possess
account management, and employed a higher potential to secure employment
strict control and monitoring of all through extensive classroom and on-the-
account portfolios. job training. AFFINBANK was recognised
by the Minister in the Prime Minister’s
Human Resources Development Department, Dato’ Seri Wahid Omar,
for its exemplary contribution to the
Our Human Resources division also program.
implemented several key initiatives in
2013 for human capital development.
In May 2013, a Memorandum of
Understanding (MoU) was signed with

28 AFFIN BANK BERHAD (25046-T) Annual Report 2013


FINANCIAL
HIGHLIGHTS

Earnings Per Share (EPS) Profit Before Zakat And Total Assets
(Sen) Taxation (RM’million) (RM’billion)

22.1 26.5 30.6 35.0 37.5 425.1 521.9 613.1 703.2 762.2 35.6 42.1 49.2 52.1 56.4

09 10 11 12 13 09 10 11 12 13 09 10 11 12 13

AFFINBANK’s EPS for the financial year AFFINBANK achieved profit before zakat AFFINBANK’s financial position as at
ended 31 December 2013 stood at and taxation of RM762.2 million, an 8.4% 31 December 2013 continued to remain
37.5 sen compared to 35.0 sen the year rise for the year ended 31 December strong with total assets of RM56.4 billion,
before. 2013, compared to RM703.2 million in an increase of 8.3% compared with
2012. AFFINBANK’s profit after zakat and RM52.1 billion as at 31 December 2012.
taxation also rose by 8.5% to RM569.8
million for the year ended 31 December
2013.

Net Loans, Advances & Deposits From Customers Shareholders’ Equity


Financing (RM’billion) (RM’billion) (RM’billion)

22.0 26.0 29.7 33.5 36.2 26.4 31.0 36.5 41.3 46.1 3.0 3.3 3.6 4.1 4.4

09 10 11 12 13 09 10 11 12 13 09 10 11 12 13

AFFINBANK’s net loans, advances and Total deposits increased by 11.7% Total shareholders’ equity of AFFINBANK
financing grew by 8.2% to RM36.2 billion year-on-year to RM46.1 billion as at 31 is RM4.4 billion as at 31 December 2013
compared to RM33.5 billion in 2012. December 2013 compared to RM41.3 compared to RM4.1 billion in 2012.
billion in the year before.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 29


CORPORATE
DIARY

8 January 2013 18 February 2013 26 March 2013

The “OMG The Trilogy” Prize Giving CNY CSR Activity – Visit to Ampang Langkawi International Maritime and
Ceremony Old Folks Home Aerospace Exhibition
The winner of the “OMG The Trilogy” AFFINBANK visited and brought cheers AFFINBANK sponsored the Langkawi
deposit campaign walked away with gold to senior residents at the Ampang Old International Maritime and Aerospace
worth RM333,888. Folks Home during the Chinese New Exhibition as the Official Bank & Foreign
Year celebration. Exchange Counter.

17 April 2013 30 May 2013 3 June 2013

Personalised Banking Cocktail Event The Chartered Bankers Programme Affin Education Excellence
2013 MOU Signing Ceremony with IBBM Award 2013
Valued customers of the Bank were In a bid to develop top notch bankers, The Bank presented cash rewards to 107
rewarded with an evening of great food the Bank signed a MOU with IBBM to students who excel in SPM and PMR
and entertainment at this yearly event. sponsor and enroll its employees for the exams.
Chartered Bankers Programme.

30 AFFIN BANK BERHAD (25046-T) Annual Report 2013


CORPORATE DIARY

23 June 2013 19 July 2013 20 August 2013

Kuantan Branch Opening officiated Majlis Berbuka Puasa Bersama Anak- AFFIN Banking Group Hari Raya
by KDYMM Sultan Pahang Anak Yatim & Saudara-Saudari Baru Open House
Kuantan Branch relocated to a brand new 160 orphans and new Muslim converts AFFIN Banking Group management and
premise and the new office was officially were treated to a “Buka Puasa” dinner at staff came together as one entity to host
opened by KDYMM Sultan Pahang. the Bank’s head office at Menara Affin. customers and business partners to a
scrumptious dinner to celebrate the Hari
Raya.

23 September 2013 31 October 2013 12 November 2013

New Branch Opening and Jom Sponsorship of Sports Equipment to TREES “Young Voices for
Karnival Schools Conservation”
As part of its expansion plans, the Bank In support of the “1Murid 1Sukan” Policy, AFFINBANK sponsors the TREES “Young
opened three (3) new branches in 2013, AFFINBANK sponsored RM50,000 worth Voices for Conservation” Programme
i.e. Kota Kemuning (Selangor), Danga of sports equipment to selected schools where students are guided to implement
Bay (Johor) and Lahad Datu (Sabah). in Malaysia. environment protection projects in their
schools. Winning teams are rewarded
with cash prizes at the end of the project.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 31


Statement on
Corporate Governance

The Board of Directors of AFFINBANK (“Board”) and Management seek to embrace high standards and principles of Corporate
Governance in all areas of its business; towards enhancing business prosperity and corporate accountability, having the ultimate
objective of safeguarding shareholder’s value and interests of the stakeholders.

The Board and Management are fully committed and constantly strive in ensuring AFFFINBANK operates in accordance to the
Financial Services Act 2013 and Islamic Financial Services Act 2013 (FSA/IFSA), Malaysian Code of Corporate Governance 2012
(MCCG 2012), Bank Negara Malaysia (BNM) Guidelines on Corporate Governance for Licensed Institutions (Revised BNM/GP1)
and other relevant regulations. The Board and Management place great importance on the safety and soundness of AFFINBANK
as a financial institution; where risks and business prudence are appropriately balanced. Throughout 2013 and to-date, AFFINBANK
continues to conduct its business with integrity and exercises high level of transparency and objectivity.

AFFINBANK specifies standard for fit and proper requirement for Directors as laid out under the FSA/IFSA. The Board and
Management are fully committed in ensuring employees adhere closely to BNM’s Guidelines (BNM/GP7) on Code of Ethics
(“COE”), which aims at instilling the five values namely discipline, integrity, humility, caring and creativity in AFFINBANK. The
Board and Management set high ethical business standards and practices for business conduct and the code of behaviour for
employees to adhere to. The Board believes in leadership by example, thus all Directors are guided by the Directors’ Code of
Ethics. The responsibility for implementation of COE policies and guidelines rests primarily with Management with oversight by
the Audit & Examination Committee.

The following statements set out the commitment of AFFINBANK in applying best principles of Corporate Governance and the
extent of compliance with the recommended practices.

BOARD OF DIRECTORS

The Board is committed in establishing long term sustainable value to the shareholders as well as the stakeholders. The Board
is pleased to report that, AFFINBANK has complied with the principles and recommendations of MCCG 2012 throughout the
financial year under review; save for the recommendation on the tenure of independent director which should not exceed nine (9)
years.

The Board composition of AFFINBANK comprises majority independent directors. It consists of representatives from the private
sector with suitable qualifications fulfilling the fit and proper criteria, a mixture of different skills, competencies, experience and
personalities. Directors’ profiles which appear on page 13 to 16 reflects clearly the depth and diversity in expertise and perspective
to lead AFFINBANK which allow for objective analysis of major issues.

Board Responsibilities

The Board acknowledges its roles and responsibilities for the overall performance of AFFINBANK.

The Board’s responsibilities remain within the framework of FSA/IFSA, BNM Policy Documents and AFFINBANK’s Board Policy
Manual. The Board exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are
not compromised. These include responsibility for determining AFFINBANK’s general policies and strategies for the short, medium
and long term, approving business plans, including targets and budgets, and approving major strategic decisions.

In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees, which operate under
approved terms of reference, to assist the Board in discharging its duties. The Board Committees report the outcome of their
meetings to the Board and any further deliberation is made at the Board level, if required. Reports and deliberations are incorporated
into the Minutes of the Board meetings. The various Board Committees are listed below:-

32 AFFIN BANK BERHAD (25046-T) Annual Report 2013


STATEMENT on CORPORATE GOVERNANCE

Board Remuneration Committee (“BRC”)

The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy for Directors,
Managing Director/Chief Executive Officer and key responsible persons. BRC is to ensure that compensation is competitive and
consistent with AFFINBANK’s culture and strategic objectives. BRC obtains advice from experts in compensation and benefits,
both internally and externally.

Board Nominating Committee (“BNC”)

The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and Managing Director/
Chief Executive Officer and key responsible persons. BNC assesses the effectiveness of individual Director, the Board as a whole
and the performance of the Managing Director/Chief Executive Officer as well as key responsible persons.

The BNC also reviews and recommends the process for successions planning for the Board, Managing Director/CEO and key
responsible persons; making recommendations to the Board as appropriate.

Board Risk Management Committee (“BRMC”)

The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational, legal and other
risks so as to ensure that the risk management process is adequately in place and function effectively.

Board Loan Review and Recovery Committee (“BLRRC”)

The BLRRC is responsible in providing critical review of loans and other credit facilities with higher risk implications, after due
process of checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary,
exercise the power to veto loan applications that have been approved by the Group Management Loan Committee.

Audit & Examination Committee (“AEC”)

The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems and
oversees the work of the internal and external auditors.

Board Composition and Balance

During the financial year under review, the Board comprises the following:

Type of Directors Composition Percentage (%)

Non-Independent Non-Executive Directors* 3/7 42.9


Independent Non-Executive Directors 4/7 57.1
* not inclusive of one (1) Alternate Non-Independent Non-Executive Director

The Board composition of AFFINBANK meets the recommendations of the MCCG 2012 which states that the Board must comprise
a majority of Independent Directors where the Chairman of the Board is not an Independent Director. All Directors fulfilled the fit
and proper criteria in accordance with the Standard issued by BNM.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 33


STATEMENT on CORPORATE GOVERNANCE

The Board adopts AFFIN Holdings Group policy that the maximum tenure for an Independent Director is 15 years until 2013.
Thereafter, the maximum tenure will be reduced to 12 years. Notwithstanding, the Nominating Committee determines on an annual
basis whether an Independent Director remains objective and is free from relationship or influence that could undermine his ability
to execute independent judgment.

The role of these Independent Non-Executive Directors are particularly important in ensuring that the strategies proposed by the
Management are fully deliberated and evaluated, in line with the long term objectives of AFFINBANK. No individual or small group
of individuals dominate the Board’s decision making process.

Board meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the
Managing Director/Chief Executive Officer. The Chairman is responsible for ensuring the effectiveness and smooth functioning
of the Board, the governance structure and the independence of the Board. The Chairman also inculcates positive culture in the
Board.

The Board comprises Directors who, as a group, provides a mixture of core competencies such as finance, accounting, business,
management, marketing, information technology and investment management, which are essential for the effective functioning
in discharging Board’s responsibilities.

The Managing Director/Chief Executive Officer is responsible for the overall day-to-day business affairs of AFFINBANK while
providing strong leadership in the implementation of Board decisions.

Independence and Conflict of Interest

It is the Directors’ responsibility to declare whether they have a potential or actual interest in any transaction of AFFINBANK. Where
issues involve conflict of interest, the interested Directors declared and abstained from discussing or voting on the matter. This is
important to mitigate risk arising from potential conflict of interest situation or undue influence from interested parties.

Appointments and Re-election to the Board

In 2013, BNM approved the re-appointment of one (1) Non-Independent Non-Executive Director. In accordance with the
Company’s Memorandum and Articles of Association, one-third (1/3) of the Directors, or, if their number is not three (3) or a
multiple of three (3), the number nearest to one-third (1/3), shall retire from office at each Annual General Meeting and they may
offer themselves for re-election.

Continuing Education

All newly appointed Non-Executive Directors are furnished by AFFINBANK with copies of the Financial Services Act 2013 (“FSA”),
Islamic Financial Services Act 2013 (“IFSA”) and other relevant legislation governing the banking industry to facilitate their
understanding and requirements of banking business. All Directors have attended various training programmes organised internally
as well as externally by the relevant authorities such as BNM, Securities Commission (“SC”) and Companies Commission of
Malaysia (“CCM”). All Directors are required to complete the Financial Institutions Directors’ Education training (“FIDE”) organised
by BNM within one year from the date of appointment. In addition, the members of the Board keep abreast with the relevant
developments in business, banking and finance industry as well as new regulatory requirements on a continuous basis through
various conferences, seminars and training programmes. The development and training programmes attended by the Directors
during the financial year ended 31 December 2013 are set out below.

34 AFFIN BANK BERHAD (25046-T) Annual Report 2013


STATEMENT on CORPORATE GOVERNANCE

YBhg. Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Trainer/Organiser Course Title Date
1. MICG Director Duties, Regulatory Updates, Governance for Directors of PLCs 29 January 2013
2013
2. Asian World Summit 5th Annual Corporate Governance Summit 2013 Conference 19 & 20 March 2013
3. MeLearn Global Corporate Governance Symposium 2013 - Corporate Governance in 9 & 10 April 2013
Vogue
4. Affin Holdings Berhad The new FSA 2013 and IFSA 2013 14 May 2013
5. FIDE Business Talk in conjunction with the 10th Islamic Financial Services 15 May 2013
Board Summit
6. ASLI The 17th Malaysian Banking Summit 2013 - Future Banking : Driving 23 & 24 July 2013
Growth, Prosperity and Transformation
7. FIDE FIDE luncheon & Forum : Managing Talent Board and Management Talk 1 October 2013
by Professor Dave Ulrich
8. Affin Holdings Berhad Half Day Talk on FSA 2013, Basel III and New Audit Opinion; Accounting 12 November 2013
and Other Regulatory Updates
9. FIDE Leadership Energy Summit Asia 2013 3 & 4 December
2013

YBhg. Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin


Trainer/Organiser Course Title Date
1. ICLIF Half day Seminar on FIDE Governance in Groups Program 5 April 2013
2. MeLearn Global Corporate Governance Symposium 2013 - Corporate Governance In 9 & 10 April 2013
Vogue
3. Affin Investment Bank Investors Conference “Standing At The Crossroads - Where To From 18 April 2013
Berhad Here”
4. Affin Holdings Berhad The New FSA 2013 and IFSA 2013 14 May 2013
5. Bursa Malaysia Half-Day Briefing on Advocacy Sessions On Corporate Disclosure For 20 June 2013
Directors
6. Affin Investment Bank Conference on Politics and Business - The Malaysian Connection 2 July 2013
Berhad
7. ASLI The 17th Malaysian Banking Summit 2013 - Future Banking : Driving 23 & 24 July 2013
Growth, Prosperity and Transformation
8. ICLIF 60-Minute with Mr Pradeep Pant, EVP and President Asia Pacific, 3 September 2013
Mondelez International Singapore
9. Bursa Malaysia Breakfast at The Kuala Lumpur Golf & Country with Board Chairman 11 September 2013
10. Affin Holdings Berhad Half Day Talk on FSA 2013, Basel III and New Audit Opinion; Accounting 12 November 2013
and Other Regulatory Updates
11. ICLIF in collaboration Board Chairman Series: The Role of The Board Chairman 14 November 2013
with Bursa Malaysia

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 35


STATEMENT on CORPORATE GOVERNANCE

YM. Dr. Raja Abdul Malek Bin Raja Jallaludin


Trainer/Organiser Course Title Date
1. MICG Director Duties, Regulatory Updates, Governance for Directors of PLCs 29 January 2013
2013
2. FIDE Forum Breakfast Talk on Personal Data Protection Act (PDPA) 2010 : Issues and 11 April 2013
Implications
3. MICG Director Duties, Business Ethics and Governance Seminar for Directors 27 June 2013
or PLCs 2013
4. MICG Inaugural Asean Corporate Governance Summit 2013 - Asean Economic 6 & 7 November
Community and Governance Issues 2013

5. Affin Holdings Berhad Half Day Talk on FSA 2013, Basel III and New Audit Opinion; Accounting 12 November 2013
and Other Regulatory Updates

YBhg. Tan Sri Dato‘ Sri Abdul Aziz Bin Abdul Rahman
Trainer/Organiser Course Title Date
1. MICG Director Duties, Regulatory Updates, Governance for Directors of PLCs 29 January 2013
2013
2. MeLearn Global Corporate Governance Symposium 2013 - Corporate Governance in 9 & 10 April 2013
Vouge
3. Affin Holdings Berhad The new FSA 2013 and ISFA 2013 14 May 2013
4. FIDE Breakfast Talk on Successful Corporate Banking - Focus on 27 June 2013
Fundamentals : A survey of Corporate Financial Executives
5. ASLI The 17th Malaysian Banking Summit 2013 - Future Banking : Driving 23 & 24 July 2013
Growth, Prosperity and Transformation
6. Islamic Financial IFSB-INCIEF Executive Forum : Towards strengthening Corporate and 26 & 27 August 2013
Services Board (IFSB) Shariah Governance in Islamic Banks
7. FIDE Mergers & Acquisition for Financial Institutions 19 & 20 September
2013
8. Affin Holdings Berhad Half Day Talk on FSA 2013, Basel III and New Audit Opinion; Accounting 12 November 2013
and Other Regulatory Updates
9. FIDE Human Capital Management in the Boardroom and C Suite - Board, 19 November 2013
Committee, Director and CEO Assessment

En. Mohd Suffian Bin Haji Haron


Trainer/Organiser Course Title Date
1. Affin Holdings Berhad Half Day Talk on FSA 2013, Basel III and New Audit Opinion; Accounting 12 November 2013
and Other Regulatory Updates

36 AFFIN BANK BERHAD (25046-T) Annual Report 2013


STATEMENT on CORPORATE GOVERNANCE

Mr. Aubrey Li Kwok-Sing & Mr. Gary Cheng Shui Hee (Alternate Director to Mr. Aubrey Li Kwok-Sing)
Trainer/Organiser Course Title Date
1. HKIoD, Hong Kong Company Performance Evaluation & Control for Directors 9 January 2013
2. HKIoD, Hong Kong Internal Control and Risk Management 30 January 2013
3. KPMG, Hong Kong KPMG Independent Non-Executive Directors Forum; Updated on Global 11 March 2013
Audit Committee Survey, Financing Reporting, Corporate Governance
themes and Tax developments
4. HKIoD, Hong Kong Perpetuating the Family Business through Succession Planning 24 April 2013
5. Mercer, Hong Kong Remuneration Committee Forum 26 June 2013
6. Deloitte, Hong Kong Deloitte Independent Non-Executive Directors Forum on Crisis 12 September 2013
Management
7. KMPG, Hong Kong KPMG Independent Non-Executive Directors Forum on Fraud and 16 September 2013
whistleblower, Tax update and Board effectiveness
8. HKIoD, Hong Kong Practical Aspects of Board Supervision for Authorised Institutions 10 October 2013
9. Deloitte, Hong Kong Deloitte INED Workshop on Accounting & auditing update for a smooth 19 November 2013
year-end reporting process
10. Mercer, Hong Kong Remuneration Committee Forum on Maintaining confidence and integrity 20 November 2013
in the Executive Pay System
11. HKIoD, Hong Kong How Boards and Directors can develop better peripheral vision 5 December 2013
12. KPMG, Hong Kong KPMG Independent Non-Executive Directors Forum on Financial 9 December 2013
reporting update, Future Audit reports, Tax update, Digital and
eCommerce and Competition Law

YBhg. Tan Sri Dato‘ Seri Mohamed Jawhar


Trainer/Organiser Course Title Date
1. MICG Director Duties, Regulatory Updates, Governance for Directors of PLCs 29 January 2013
2013
2. Institute of The IISS Fullerton Forum 17 to 19 February
International and 2013
Strategic Studies,
United Kingdom
3. ISIS Malaysian Foreign Policy Study Group - Strengthening Delivery 21 February 2013
Mechanism
4. Securities ASIC Annual Forum 2013 24 March 2013
Commission
5. Media Prima Berhad Training and Development by MPB - Leadership Series by Dr Pawan 1 April 2013
Agrawal, CEO Mumbai Dabbawalas
6. Affin Investment Bank Investors Conference “Standing At The Crossroads - Where To From 18 April 2013
Berhad Here”
7. The Association of AML/CFT Conference 2013 25 April 2013
Banks in Malaysia/
FIDE

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 37


STATEMENT on CORPORATE GOVERNANCE

YBhg. Tan Sri Dato‘ Seri Mohamed Jawhar


Trainer/Organiser Course Title Date
8. MSWG Special Dialogue & Presentation Session on ASEAN Corporate 13 June 2013
Governance Scorecard 2013
9. Media Prima Berhad MPB BOD Training - The Creative Economy - How People Make Money 20 June 2013
from Ideas by John Howkin
10. Affin Investment Conference on Politics and Business - The Malaysian Connection 2 July 2013
11. Media Prima Berhad MPB Private Session with Nick Vujicic. Title : “Living Life Without Limits” 20 August 2013
12. Malaysian High Merdeka Forum 2013 - Speaker “56 Years of Merdeka : Road to 2020; 12 September 2013
Commissioner, Aspiration of Malaysian Young Generation”
London
13. ISIS and Konrad 2nd Germany - Malaysia Security Dialogue Session 8 October 2013
Adenauer Stiftung
14. ISIS and APRC Dialogue on Diversity, Peace and Diplomacy 11 November 2013
15. Economic Research ERIA Conference - 2nd Workshop of ASEAN Beyond 2015 19 November 2013
Institute for ASEAN
and East Asia (“ERIA”)
and ISIS
16. ISIS ASEAN Australia NZ Dialogue 28 November 2013
17. MIDAS Midas TALK on “SOSMA 2012 : Its Implications of Defence and Security” 18 December 2013

ASLI - Asian Strategy & Leadership Institute


APRC - Asian Peace and Reconciliation Council
CSCAP - Council for Security Cooperation in the Asia Pacific
HKIoD - Hong Kong Institute of Directors/ Kowloon Development, Hong Kong
ISIS - Institute of Strategy & International Studies Malaysia
MICG - Malaysia Institute of Corporate Governance
MIDAS - Malaysia Institute of Defence Security
MSWG - Minority Shareholder Watchdog Group

Meeting and Supply of Information to the Board

Board meetings are scheduled in advance at the beginning of calendar year with additional meetings duly convened as and when
necessary to review progress reports on AFFINBANK’s financial performance, approved strategies, business plans and significant
policies as well as to consider business and other proposals which require the Board’s approval. For the financial year ended 31
December 2013, fourteen (14) Board meetings were held. Meetings are usually held at the Board Room at 19th Floor, Menara Affin,
80, Jalan Raja Chulan, 50200 Kuala Lumpur.

The Board has full and timely access to information with Board papers distributed in advance of meetings to enable the Directors
to obtain further explanation, where necessary, in order to be properly briefed prior to the meetings. The Board papers include the
minutes of previous Board meeting, minutes of meeting of Board Committees and reports relevant to the issues of the meetings
covering all related banking aspects such as financial, investment, information technology, operational, human resource and
regulatory compliance matters. The Managing Director/Chief Executive Officer keeps the Board informed, on timely basis, of all
material matters affecting AFFINBANK’s performance and major developments.

Members of the Senior Management are invited to attend the Board meetings to present and brief the Board on matters/reports
relating to their areas of responsibility as and when required.

38 AFFIN BANK BERHAD (25046-T) Annual Report 2013


STATEMENT on CORPORATE GOVERNANCE

All the Board members have unrestricted access to timely and accurate information and access to the advice and services of the
Company Secretary, who is responsible for ensuring that the Board meeting’s procedures are followed and that all applicable rules
and regulations are complied with.

Procedures are in place for Directors to seek independent professional advice at AFFINBANK’s expense. AFFINBANK also
provides the Board full access to necessary materials and relevant information including the services of the Company Secretary
in order for the Board to fulfill their duties and specific responsibilities.

DIRECTORS’ REMUNERATION

AFFINBANK acknowledges the importance of attracting and retaining Directors with high calibre having the necessary skills,
qualifications and experience for effective Board oversight of AFFINBANK’s business activities and affairs.

The make-up of the Managing Director/Chief Executive Officer’s remuneration remained unchanged consisting of salary,
allowances, bonus and other customary benefits as appropriate. Any salary review, takes into account market rates and the
performance of the individual and of AFFINBANK.

Non-executive Directors’ emoluments consist of three components – an annual fee as a Board member, an allowance for
attendance of meetings and a committee fee. A revision of Directors’ Fees was effected in 2013. The Remuneration Committee
is responsible in recommending the remuneration framework of the Directors as well as the remuneration package of Managing
Director/Chief Executive Officer and key responsible persons so as to ensure that AFFINBANK attracts, motivates and retains
the Directors and Senior Management needed to run it successfully. The remuneration of Directors is in line with AFFIN Holdings
Group’s overall practice on compensation and benefits. Managing Director/Chief Executive Officer does not participate in any
way in determining his individual remuneration. The Board as a whole determines the remuneration of Non-Executive Directors.

Directors’ emoluments are disclosed in the relevant note to the financial statements as an aggregate sum, in conformance to the
relevant legislation.

SHAREHOLDER

AFFINBANK is a wholly-owned subsidiary of Affin Holdings Berhad, a company listed on Bursa Malaysia Securities Berhad.

ANNUAL GENERAL MEETING (“AGM”)

The Annual Report and financial statements for the year ended 31 December 2012 were tabled at the 37th AGM on 25 March
2013. Likewise the Annual Report and financial statements for the year ended 31 December 2013 will be tabled at the 38th AGM
on Tuesday, 25 March 2014.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 39


Statement on
risk management &
INTERNAL CONTROL

INTERNAL CONTROL

AFFINBANK has a well-established and fully operational risk management and internal control system. The Statement on internal
Control, which is set out in the Annual Report provides an overview on the risk management process/framework as well as on how
the internal control system has been designed to manage risks and avert failures. AFFINBANK continues to enhance its system of
internal control and risk management, in order to better quantify its compliance with the Code.

The Board has overall responsibility for maintaining the proper management and protection of AFFINBANK’s interests by ensuring
effective implementation of the risk management policy and process, as well as adherence to a sound system of internal control,
and by seeking regular assurance on their effectiveness. The Board also recognizes that risks cannot be eliminated completely. As
such, the inherent system of internal control is designed to provide a reasonable though not absolute assurance against the risk
on material errors, fraud or losses occurring.

The Audit & Examination Committee has an oversight responsibility for the adequacy and integrity of the internal control system.
Reliance is placed on the results of independent audits performed primarily by Group internal auditors, the outcome of statutory
audits on financial statements conducted by external auditors and on representations by Management based on their control self-
assessment on all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Board
members for notation and discussion.

AFFINBANK has an established Group internal Audit Division which reports functionally to the Audit & Examination Committee and
administratively to the Managing Director/ Chief Executive Officer. The division is responsible for conducting independent audits
in accordance with the approved annual Internal Audit Plan.

RELATIONSHIP WITH AUDITORS

A professional and transparent relationship continues to exist between the Board/Audit & Examination Committee and the external
auditors. The Audit Committee is authorized to communicate directly with both the external and Group internal auditors. A full
Audit Committee report outlining its role in relation to the Auditors is also set out in the Annual Report. In addition, the external
auditors meet with the Board at least once a year when the annual audited financial statements are presented to the Board.

ASSURANCE

The Board through the Audit & Examination Committee has satisfactorily performed its oversight role in ensuring there is a sound
internal control system and regular review on the adequacy and integrity of the system. Assurance on the effectiveness of risk
management, control and governance process is obtained from the Management and Auditors (internal and external).

BNM auditors, Group internal auditors and external auditors conduct independent audits on AFFINBANK’s business operations,
support activities and financial records and statements respectively to derive an opinion on the adequacy and integrity of
AFFINBANK’s overall internal control framework.

Finally, with the benefit of the above assurances and the external auditor’s comments incorporated in their audit report to the
financial statements for the financial year ended 31 December 2013, the Board is able to conclude that AFFINBANK conducts its
business prudently and in line with good governance practice.

40 AFFIN BANK BERHAD (25046-T) Annual Report 2013


STATEMENT ON risk management &
INTERNAL CONTROL

Responsibility

The Board acknowledges overall responsibility for AFFINBANK Group’s system of internal controls and its effectiveness. The
system of internal controls encompasses controls relating to financial, operational, risk management and compliance with
applicable laws, regulations, policies and guidelines.

However, the system of internal controls is designed to manage rather than eliminate the risks of failure to achieve the goals and
objectives of the Group. Therefore, it can only provide a reasonable and not absolute assurance against material misstatement of
management and financial information, or against financial losses or fraud.

The Board has an established process for identifying, evaluating, managing and reporting all significant risks that may impact the
achievement of business goals and objectives of the Group. The system of internal controls is dynamic and updated from time
to time to meet the changes in regulatory guidelines and business environment. This process is regularly reviewed by the Board
through its Board Risk Management Committee (BRMC) and Audit and Examination Committee (AEC).

The Board is of the view that the system of internal controls in place for the year under review is sound and sufficient to safeguard
the investment of the shareholders, the interest of the customers and regulators, and the assets of the Group.

The management assists the Board in implementing the policies approved by the Board, implementing risk and control procedures,
and developing, operating and monitoring internal controls to mitigate and control identified risks.

Key Internal Control Processes

The key processes put in place to assist the Board in reviewing the adequacy and integrity of the system of internal controls
include the following:

• Relevant Board committees are established with specific responsibilities delegated by the Board to deliberate on matters within
the respective scope of responsibility. The committees are guided by written terms of reference and their minutes of meetings
are tabled to the Board.

• The BRMC assists the Board in its supervisory role concerning the overall management of risk in the Bank. it has responsibility
for reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelines
and portfolio management reports including risk exposure information.

• The Board Loan Review and Recovery Committee (BLRRC) critically reviews loans and other credit facilities with higher risk
implications, after due process of checking, analysis, review and recommendation by Group Risk Management and if found
necessary, exercise the power to veto loan applications that have been approved by the Group Management Loan Committee
(GMLC). BLRRC also reviews the non performing loan reports presented by the Management.

• Group Management Committee (GMCM), comprising the senior management team, assists the Board in managing day-to-
day operations and ensures its effectiveness. GMCM formulates tactical plans and business strategies, monitors the Bank’s
overall performance and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual
business plan and budget.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 41


STATEMENT ON risk management &
INTERNAL CONTROL

• The Group Management Loan Committee (GMLC) is established within senior management to approve complex and larger loans
and workout recovery proposals beyond the delegated authority of the concerned individual senior management personnel
of the Bank. The other committees comprising senior management include Asset & Liability Management Committee (ALCO)
which manages market and liquidity risks, Liquidity Management Committee (LMC) which is a sub-committee of the ALCO with
specific focus on liquidity matters, Group Operational Risk Management Committee (GORMC) which manages operational risk,
and Early Alert Committee (EAC) which monitors credit quality.

• A detailed budgeting process is in place with annual business plans and budgets prepared by the business divisions, reviewed
by the GMCM and approved by the Board. The actual business performances are monitored against the approved targets and
budgets of each business division by GMCM on a monthly basis.

• The business plan is supported by an annual credit plan, prepared by Group Risk Management and approved by BRMC. The
credit plan sets out the prevailing risk appetite and provides credit strategies and lending guidelines for the development and
management of new and existing customer relationships.

• Policies and procedures for key processes are documented and regularly updated to ensure relevance and compliance with
internal controls, directives, laws and regulations. To enhance risk culture and awareness, road shows are undertaken by Group
Risk Management across the Bank.

• Proper guidelines for the hiring and termination of employees, staff training programs and performance appraisals are established
and other relevant procedures in place to ensure staff are adequately trained and equipped to carry out their responsibilities
competently.

• An integrated risk management framework is in place. The risk management function operates in an independent capacity and
is a part of the Bank’s senior management structure which works closely as a team in managing risks to enhance stakeholders’
value. Its responsibilities extend to cover market, liquidity, credit and operational risks. The risk management function reports
to BRMC.

42 AFFIN BANK BERHAD (25046-T) Annual Report 2013


AUDIT AND EXAMINATION
COMMITTEE

TERMS OF REFERENCE OF THE AUDIT AND EXAMINATION COMMITTEE

Size and Composition

The Committee shall consist of at least three (3) members, appointed by the Board from amongst the independent non-executive
Directors of the Bank.

Meetings

Meetings shall be held at a frequency to be decided by the Audit and Examination Committee. At the request of the Group Chief
Internal Auditor, the Chairman shall convene a meeting to consider any matters that they may wish to bring to the attention of
the Directors or shareholders. A quorum shall consist of at least two (2) members. The Group Chief Internal Auditor shall be the
Secretary to the Audit and Examination Committee.

YBhg. Dato’ Sri Abdul Aziz YM. Dr. Raja Abdul Malek Bin YBhg. Tan Sri Dato’ Seri Associate Professor
Bin Abdul Rahman Raja Jallaludin Mohamed Jawhar Dr. Asyraf Wajdi Bin
AEC Chairman Member Member Dato’ Dusuki
Member

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 43


AUDIT AND EXAMINATION COMMITTEE

Authority

The Committee shall have unlimited access to all records, information and documents relevant to its activities, to the Group
Internal Audit and External Auditors and to senior management of the Bank and its subsidiaries. The Group Internal Auditors and
External Auditors shall have free access to the Audit and Examination Committee and be allowed to attend and to be heard at the
Committee meetings. The Committee is authorised by the Board to obtain outside and independent professional advice as and
when it is considered necessary.

Duties and Responsibilities

The duties and responsibilities of the Audit and Examination Committee are:

1. To review AFFINBANK’s financial statements and to ensure compliance with disclosure requirements and any adjustments as
suggested by the External Auditors, prior to submission to the Board.

2. To review the reports of the Group Internal Auditor, the External Auditors, Bank Negara Malaysia examiners or any other
relevant parties and decide on actions to be taken on relevant issues raised in the reports.

3. To review with the External Auditors the scope of their audit plan, the system of internal accounting controls, the audit reports,
the assistance given by the management and its staff to the auditors, and any findings and action to be taken.

4. To make recommendation to the Board on the appointment of External Auditors.

5. To review the effectiveness and performance of the Group Internal Audit functions from time to time.

6. To review and approve the annual audit plan and budget for Group Internal Audit, which sets out the audit objectives, auditable
areas, scope of coverage, frequency of audit and duration of each audit assignment.

7. To ensure that Group Internal Audit has adequate resources and support services to carry out its functions.

8. To review the overall performance of the Group Chief Internal Auditor, including the remuneration package.

9. To review any significant related party transactions that may arise within the Bank’s group or associate companies and report
to the Board any areas of concern.

10. To escalate to the Board via minutes of meetings or special reports on any exception identified.

11. To carry out such other responsibilities as may be delegated by the Board from time to time.

44 AFFIN BANK BERHAD (25046-T) Annual Report 2013


NETWORK OF
BRANCHES

WILAYAH PERSEKUTUAN 7. LTAT 14. Wangsa Maju


Ground Floor, No. 2 & 4, Jalan 1/27F,
1. Bangsar Bangunan LTAT, Kuala Lumpur Sub-Urban Centre,
No. 4 & 6, Jalan Bukit Bintang, Wangsa Maju,
Jalan Telawi 3, 55100 Kuala Lumpur. 53300 Kuala Lumpur.
Bangsar Baru, Tel : 03-2142 6311 Tel : 03-4143 2814
59100 Kuala Lumpur. Fax : 03-2148 0586 Fax : 03-4143 3095
Tel : 03-2283 5025
Fax : 03-2283 5028 8. Selayang 15. Wisma Pertahanan
81-85, Jalan 2/3A, G.05, Tingkat Bawah,
2. Bangunan Getah Asli Pusat Bandar Utara, Wisma Pertahanan,
Tingkat Bawah, KM 12, Jalan Ipoh, Kementerian Pertahanan Malaysia,
148, Jalan Ampang, 68100 Batu Caves, Jalan Padang Tembak,
50450 Kuala Lumpur. Kuala Lumpur. 50634 Kuala Lumpur.
Tel : 03-2162 8770 Tel : 03-6137 2053 Tel : 03-2698 7912
Fax : 03-2162 8587 Fax : 03-6138 7122 Fax : 03-2698 6071

3. Batu Cantonment 9. Seri Petaling WILAYAH PERSEKUTUAN


No. 840 & 842, 10-12, Jalan Raden Tengah, PUTRAJAYA
Batu 4 3/4, Bandar Baru Seri Petaling,
Jalan Ipoh, 57000 Kuala Lumpur. 1. Putrajaya
51200 Kuala Lumpur. Tel : 03-9058 5600 Jabatan Akauntan Negara,
Tel : 03-6258 7370 Fax : 03-9058 8513 Kompleks Kementerian Kewangan,
Fax : 03-6251 8214 No. 1, Persiaran Perdana,
10. Setapak Presint 2,
4. Central 159 & 161, Jalan Genting Kelang, 62594 Putrajaya,
Ground & Mezzanine Floor, P.O.Box 202, Wilayah Persekutuan.
80, Menara Affin, 53300 Setapak, Tel : 03-8888 3814
Jalan Raja Chulan, Kuala Lumpur. Fax : 03-8889 2082
P.O.Box 12744, Tel : 03-4023 0455
50788 Kuala Lumpur. Fax : 03-4021 3921 WILAYAH PERSEKUTUAN LABUAN
Tel : 03-2055 2222 (OFFSHORE)
Fax : 03-2070 7592 11. Taman Maluri
250 & 252, Jalan Mahkota, 1. Labuan Offshore
5. Jalan Bunus Taman Maluri, Unit 3 (J), Level 3,
133, Jalan Bunus, 55100 Kuala Lumpur. Main Office Tower,
Off Jalan Masjid India, Tel : 03-9282 7250 Financial Park Labuan,
50100 Kuala Lumpur. Fax : 03-9283 4380 Jalan Merdeka,
Tel : 03-2693 4686 87000 Federal Territory Labuan.
Fax : 03-2691 3207 12. Taman Midah Tel : 087-411 931
38 & 40, Jalan Midah 1, Fax : 087-411 973
6. Jalan Ipoh Taman Midah, Cheras,
468-11 & 468-11B, 56000 Kuala Lumpur. SELANGOR
Batu 3, Jalan Ipoh, Tel : 03-9130 0366
51200 Kuala Lumpur. Fax : 03-9131 7024 1. Ampang Jaya
Tel : 03-4042 5554 No. 11 & 11A,
Fax : 03-4042 4912 13. Taman Tun Dr. Ismail Jalan Mamanda 7/1,
47 & 49, Jalan Tun Mohd Fuad 3, Ampang Point,
Taman Tun Dr. Ismail, 68000 Ampang, Selangor.
60000 Kuala Lumpur. Tel : 03-4257 6802
Tel : 03-7727 9080 Fax : 03-4257 8636
Fax : 03-7727 9543

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 45


NETWORK OF BRANCHES

2. Ampang New Village 9. Kinrara 16. Rawang


No. 21G & 23G, No. 1, Jalan TK1/11A, No. 33G & 35G,
Jalan Wawasan 2/2, Taman Kinrara, Section 1, Jln 1B, Fortune Avenue,
Bandar Baru Ampang, Batu 7 1/2, Jalan Puchong, 48000 Rawang, Selangor.
68000 Ampang, Selangor. 47100 Puchong, Selangor. Tel : 03-6091 3322
Tel : 03-4296 2311 Tel : 03-8075 5682 Fax : 03-6091 3344
Fax : 03-4296 2206 Fax : 03-8075 8159
17. Sea Park
3. Ara Damansara 10. Klang Utara 20-22, Jalan 21/12, Sea Park,
Unit B-G-07 & B-G-08 Block B, No. 29 & 31, 46300 Petaling Jaya, Selangor.
No. 2 Jalan PJU 1A/7A, Jalan Tiara 3, Tel : 03-7875 6514
Ara Damansara, Bandar Baru Klang, Fax : 03-7876 6020
47301 Petaling Jaya, Selangor 41150 Klang, Selangor.
Tel : 03-7847 3177 Tel : 03-3342 1585 18. Seri Kembangan
Fax : 03-7847 2677 Fax : 03-3342 1719 36, Jalan PSK 3,
Pusat Perdagangan Seri
4. Bandar Bukit Tinggi 11. Kompleks PKNS Kembangan,
No 77 & 79, Jalan Batu Nilam 5, Lot G17-20, 43300 Seri Kembangan, Selangor.
Bandar Bukit Tinggi, Ground Floor, Tel : 03-8945 6429
41200 Klang, Selangor. Kompleks PKNS, Fax : 03-8945 6442
Tel : 03-3323 2822 40000 Shah Alam, Selangor. 03-8943 5306
Fax : 03-3323 2858 Tel : 03-5510 5200
Fax : 03-5510 8200 19. Subang Jaya
5. Cyberjaya 7 & 9, Jalan SS 15/8A,
P1-13, Shaftsbury Square, 12. Kota Warisan 47500 Subang Jaya, Selangor.
Lot No. 2350, Cyber 6, No. 48, Jalan Warisan Megah 1/4, Tel : 03-5634 8045
Persiaran Multimedia, 43900 Sepang, Selangor. Fax : 03-5634 8040
63000 Cyberjaya, Selangor. Tel : 03-8706 6300
Tel : 03-8318 1944 Fax : 03-8706 6599 20. The Curve
Fax : 03-8318 1934 Lot K-G32A-D & G32,
13. PJ State Ground Floor,
6. Jalan Meru, Klang No. 38 & 40, The Curve Shopping Complex,
No. 40, Pelangi Avenue, Jalan Yong Shook Lin, Jalan PJU 7/8,
Jalan Kelicap 42A/KU1, 46050 Petaling Jaya, Selangor. Mutiara Damansara,
Klang Bandar DiRaja, Tel : 03-7955 0032 47800 Petaling Jaya, Selangor.
41050 Klang, Selangor. Fax : 03-7954 0012 Tel : 03-7726 7258
Tel : 03-3341 5237 Fax : 03-7727 8912
Fax : 03-3341 5427 14. Port Klang
No. 1, Jalan Berangan, 21. UiTM
7. Kajang 42000 Port Klang, Selangor. Universiti Teknologi MARA,
2 & 3, Jalan Saga, Tel : 03-3168 8366 Tingkat 2,
Taman Sri Saga, Fax : 03-3167 2784 / 6432 Menara Sultan Abdul Aziz Shah,
Off Jalan Sg. Chua, 40450 Shah Alam, Selangor.
43000 Kajang, Selangor. 15. Puchong Tel : 03-5519 2377
Tel : 03-8737 7435 J-03-G, Block J, Setiawalk, Fax : 03-5510 5580
Fax : 03-8737 7433 Persiaran Wawasan,
Pusat Bandar Puchong, 22. USJ Taipan
8. Kepong 47160 Puchong, Selangor. 8A & 8B, Jalan USJ 10/1J,
6, Jalan 54, Desa Jaya, Tel : 03-5882 2880 47610 UEP Subang Jaya,
52100 Kepong, Selangor. Fax : 03-5882 2881 Petaling Jaya, Selangor.
Tel : 03-6276 4942 Tel : 03-8023 7271
Fax : 03-6276 6375 Fax : 03-8023 9161

46 AFFIN BANK BERHAD (25046-T) Annual Report 2013


NETWORK OF BRANCHES

23. Kota Kemuning 2. Melaka Raya 7. Kulai


No. 15-1 & 17-1 (GF), 200 & 201, 13 & 14, Jalan Raya,
No. 8 Jalan Anggerik Vanilla, Taman Melaka Raya, Taman Sri Kulai Baru, Batu 21,
BE 31/BE Kota Kemuning, Off Jalan Parameswara, 81000 Kulai, Johor.
Seksyen 31, 75000 Melaka. Tel : 07-663 9799
40460 Shah Alam, Selangor. Tel : 06-283 5500 Fax : 07-663 9800
Tel : 03-5120 1811
Fax : 06-284 6618
Fax : 03-5120 1588 8. Muar
No. 30A & 30A-1,
JOHOR
NEGERI SEMBILAN Jalan Arab,
84000 Muar, Johor.
1. Ayer Hitam Tel : 06-953 2384
1. Gemas
No. 1 & 2, Ground Floor, No. 765, Jalan Batu Pahat, Fax : 06-953 3489
Laman Niaga Pernama, 86100 Ayer Hitam, Johor.
Kem Syed Sirajuddin, Tel : 07-758 1100 9. Mutiara Rini
73400 Gemas, Negeri Sembilan. Fax : 07-758 1001 No. 28 & 30,
Tel : 07-948 3622 Jalan Utama 45,
Fax : 07-948 5022 2. Batu Pahat Taman Mutiara Rini,
No. 3 & 4, Jalan Merah, 81300, Skudai, Johor.
2. Nilai Taman Bukit Pasir, Tel : 07-557 0900
5733 & 5734, Jalan TS 2/1, 83000 Batu Pahat, Johor. Fax : 07-557 1244
Taman Semarak Phase II, Tel : 07-433 4210
71800 Nilai, Negeri Sembilan. Fax : 07-433 3246 10. Permas Jaya
Tel : 06-799 4114 23 & 25, Jalan Permas 10/2,
Fax : 06-799 5115 3. Danga Bay Bandar Baru Permas Jaya,
81750 Johor Bahru, Johor.
No. 17 & 18 Blok 6,
3. Port Dickson Tel : 07-386 3703
Danga Bay, Jalan Skudai,
3 & 4, Jalan Mahajaya, Fax : 07-386 5061
80200 Johor Bahru, Johor.
P.D. Centre Point,
71000 Port Dickson, Tel : 07-234 3842 11. Segamat
Negeri Sembilan. Fax : 07-234 8852 No. 1, Ground Floor,
Tel : 06-647 3950 Jalan Nagasari 23,
Fax : 06-647 4776 4. Johor Bahru Bandar Segamat Baru,
No. 24 & 25, 85000 Segamat, Johor.
4. Seremban Jalan Kebun Teh 1, Tel : 07-943 1378
No. 175, Jalan Dato' Bandar Kebun Teh Commercial City, Fax : 07-943 1373
Tunggal, 80250 Johor Bahru, Johor.
70000 Seremban, Tel : 07-221 2403 12. Tampoi
Negeri Sembilan. Fax : 07-221 2462 No. 49 & 51, Jalan Sri Perkasa 2/1,
Tel : 06-762 9651 Taman Tampoi Utara,
Fax : 06-763 6125 5. Johor Jaya 81200 Tampoi, Johor Bahru,
130 & 132, Jalan Ros Merah 2/17, Johor.
MELAKA Tel : 07-241 4946
Taman Johor Jaya,
Fax : 07-241 4953
81100 Johor Bahru, Johor.
1. Bukit Baru Tel : 07-351 8602
No. 7 & 8, Jalan DR1, Fax : 07-351 4122
Delima Point,
Taman Delima Raya, 6. Kluang
75150 Melaka. 503, Jalan Mersing,
Tel : 06-232 1386 86000 Kluang, Johor.
Fax : 06-232 1579 Tel : 07-772 4736
Fax : 07-772 4486

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 47


NETWORK OF BRANCHES

PERAK PULAU PINANG 7. Seberang Jaya


No. 10, Jalan Todak Satu,
1. Ipoh 1. Bayan Baru Pusat Bandar Seberang Jaya,
No. 1 & 3, 124 & 126, Jalan Mayang Pasir, 13700 Prai, Pulau Pinang.
Ground & First Floor, Taman Sri Tunas, Tel : 04-399 5881
Persiaran Greentown 9, 11950 Bayan Baru, Pulau Pinang. Fax : 04-399 2881
Greentown Business Centre, Tel : 04-644 7593
30450 Ipoh, Perak. Fax : 04-645 2709 8. Wisma Pelaut
Tel : 05-255 0980 1A, Light Street,
Fax : 05-255 0976 2. Butterworth Wisma Pelaut,
55-57, Jalan Selat, 10200 Pulau Pinang.
2. Ipoh Garden Taman Selat, Tel : 04-263 6633
No. 27A-27A1, P.O.Box 165, Fax : 04-261 9801
Jalan Sultan Azlan Shah Utara, Off Jalan Bagan Luar,
31400 Ipoh, Perak. 12000 Butterworth, Pulau Pinang. KEDAH
Tel : 05-549 7277 Tel : 04-333 1372
Fax : 05-549 7299 Fax : 04-332 3299 1. Alor Setar
No. 147 & 148,
3. Lumut 3. Fettes Park Susuran Sultan Abdul Hamid 8,
Ground Floor, No. 98-G-31 & 32, Kompleks Sultan Abdul Hamid,
Kompleks Mutiara Armada, Jalan Fettes, Fasa 2, Persiaran Sultan Abdul
Jalan Nakhoda, Prima Tanjung Business Centre, Hamid,
Pengkalan TLDM, Tanjung Tokong, 05050 Alor Setar, Kedah.
32100 Lumut, Perak. 11200 Pulau Pinang. Tel : 04-772 1477
Tel : 05-683 5051 Tel : 04-899 9069 Fax : 04-771 4796
Fax : 05-683 5579 Fax : 04-899 0767
2. Kulim
4. Sitiawan 4. Jalan Macalister No. 13 & 14,
No. 11 & 12, Taman Sitiawan 1, No. 104C, 104D & 104E, Jalan KLC Satu (1),
Jalan Lumut, Jalan Macalister, Kulim Landmark Central,
32000 Sitiawan, Perak. 10400 Pulau Pinang. 09000 Kulim, Kedah.
Tel : 05-692 8401 Tel : 04-229 1495 Tel : 04-495 5566
Fax : 05-691 7339 Fax : 04-226 1530 Fax : 04-490 4717

5. Taiping 5. Kepala Batas 3. Langkawi


No. 40 & 42, Lot 1317 & 1318, 149-151,
Jalan Tupai, Lorong Malinja, Taman Sepakat, Persiaran Bunga Raya,
34000 Taiping, Perak. Off Jalan Butterworth, Langkawi Mall,
Tel : 05-806 6816 13200 Kepala Batas, 07000 Kuah, Langkawi, Kedah.
Fax : 05-808 0432 Seberang Prai Utara, Tel : 04-966 4426
Pulau Pinang. Fax : 04-966 4717
6. Teluk Intan Tel : 04-575 1824
11, Medan Sri Intan, Fax : 04-575 1975 4. Sungai Petani
Jalan Sekolah, No. 55, Jalan Perdana Heights,
36000 Teluk Intan, Perak. 6. Prai 2/2, Perdana Heights,
Tel : 05-621 0130 No. 2, Tingkat Kikik 7, 08000 Sungai Petani, Kedah.
Fax : 05-621 0128 Taman Inderawasih, Tel : 04-421 1808
13600 Prai, Pulau Pinang. Fax : 04-422 6675
Tel : 04-397 8543
Fax : 04-397 9243

48 AFFIN BANK BERHAD (25046-T) Annual Report 2013


NETWORK OF BRANCHES

TERENGGANU 3. Mentakab 5. Tawau


70, Jalan Temerloh, TB. 281, 282 & 283,
1. Kemaman 28400 Mentakab, Pahang. Jalan Haji Karim,
K711-713, Tel : 09-278 4487 Town Extension II,
Wisma IKY Naga, Fax : 09-277 6654 P.O. Box 630,
Jalan Sulaimani, 91008 Tawau, Sabah.
24000 Kemaman, Terengganu. 4. Temerloh Tel : 089-778 197
Tel : 09-858 1744 No. 9, Ground Floor, Fax : 089-762 199
Fax : 09-859 1572 Jalan Ahmad Shah,
28000 Temerloh, Pahang. SARAWAK
2. Kemaman Supply Base Tel : 09-296 8811
Ground Floor, Fax : 09-296 8800 1. Bintulu
Admin Building Block B, Sub Lot 13,
Kemaman Supply Base, PERLIS Off Lot 3299,
24007 Kemaman, Terengganu. Parkcity Commerce Square,
Tel : 09-863 1297 1. Kangar 97000 Bintulu, Sarawak.
Fax : 09-863 1295 A2, Taman Pengkalan Asam, Tel : 086-314 248
Jalan Alor Setar-Kangar, Fax : 086-314 206
KELANTAN 01000 Kangar, Perlis.
Tel : 04-977 8669 2. Kuching
1. Jeli Fax : 04-977 8566 Lot 247 & 248,
No. A1 & A2, Blok A, Section 49, KTLD,
Bandar Baru Bukit Bunga, SABAH Jalan Tuanku Abdul Rahman,
11700 Bukit Bunga, 93100 Kuching, Sarawak.
Tanah Merah, Kelantan. 1. Jalan Gaya, Kota Kinabalu Tel : 082-245 888
Tel : 09-946 8955 No. 86, Jalan Gaya, Fax : 082-257 366
Fax : 09-946 8954 88000 Kota Kinabalu, Sabah.
Tel : 088-230 213 3. Miri
2. Kota Bharu Fax : 088-265 430 Lot 2387 & 2388, 1st Floor,
3788H & 3788I, Block A4, Jalan Boulevard 1A,
Seksyen 13, 2. Lahad Datu Boulevard Commercial Center,
Jalan Sultan Ibrahim, Ground Floor, Lot 1 & 2, KM 3, Jalan Miri-Pujut,
15050 Kota Bharu, Kelantan. Bandar Sri Perdana, Fasa 5 KM4, 98000 Miri, Sarawak.
Tel : 09-744 5688 Jalan Silam Bandar Sri Perdana, Tel : 085-437 442
Fax : 09-744 2202 91100 Lahad Datu, Sabah. Fax : 085-437 297
Tel : 089-865 733
PAHANG Fax : 089-865 735 4. Prince Commercial Centre
Ground Floor, No. 1 & 2,
1. Jengka 3. Kota Kinabalu Jalan Penrissen Batu 7,
Nadi Kota, Lot 19 & 20, Block K, Kota Sentosa,
26400 Bandar Jengka, Pahang. Sadong Jaya Complex, 93250 Kuching, Sarawak.
Tel : 09-466 2233 Jalan Ikan Juara 3, Karamunsing, Tel : 082-613 466
Fax : 09-466 2422 88300 Kota Kinabalu, Sabah. Fax : 082-629 466
Tel : 088-264 410
2. Kuantan Fax : 088-261 414 5. Sibu
G2-Ground Floor G2, No. 91 & 93,
Menara Zenith, Jalan Putra, 4. Sandakan Jalan Kampung Nyabor,
Square 6, Putra Square, Lot No. 163 & 164, 96000 Sibu, Sarawak.
25200 Kuantan, Pahang. Block 18, Jalan Prima Square, Tel : 084-325 926
Tel : 09-514 8584 Batu 4, Jalan Utara, Fax : 084-325 960
Fax : 09-514 8580 90000 Sandakan, Sabah.
Tel : 089-212 752
Fax : 089-212 644

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 49


NOTICE OF
ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT THE 38TH ANNUAL GENERAL MEETING OF AFFIN BANK BERHAD WILL BE
HELD AT THE BOARD ROOM, 19TH FLOOR, MENARA AFFIN, 80, JALAN RAJA CHULAN, 50200 KUALA LUMPUR
ON TUESDAY, 25 MARCH 2014 AT 9.00 A.M. FOR THE TRANSACTION OF THE FOLLOWING BUSINESS:-

Agenda:
1. To receive the Statutory Statements of Accounts for the year ended 31 December 2013 together with the Directors’ and
Auditors’ Reports thereon.

2. To declare a final single tier dividend of 6 Sen amounting to RM91,100,205.90 for the financial year ended 31 December
2013.

3 To re-elect the following Directors who retire pursuant to Article 91(a) of the Articles of Association and who, being eligible,
offer themselves for re-election:-

(a) YBhg. Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman
(b) YBhg. Tan Sri Dato’ Seri Mohamed Jawhar

4. To consider and if thought fit, to pass the following resolutions in accordance with Section 129(6) of the Companies Act,
1965:-

(a) “That pursuant to Section 129(6) of the Companies Act, 1965, YBhg. Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar
(Bersara) be and is hereby re-appointed as Director of the Company to hold office until the next Annual General
Meeting.”

5. To approve Directors’ fees and Committees’ fees for 2013.

6. To re-appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2014 and to authorise
the Directors to fix their remuneration.

7. To transact any other ordinary business of the Company.

BY ORDER OF THE BOARD

NIMMA SAFIRA Binti KHALID


Secretary

NOTE:
1. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote instead of him and the proxy need not be a member of the
Company.
The instrument appointing a 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,
either under the seal or in some other manner approved by Directors.
The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority
shall be deposited at the Company’s registered office at the 17th Floor, Menara Affin, 80, Jalan Raja Chulan, 50200 Kuala Lumpur, at least forty-eight (48) hours
before the time appointed for holding the Meeting or adjourned Meeting as the case may be otherwise the person so named shall not be entitled to vote in respect
thereof.

2. Reference is made to Recommendation 3.2 of the Malaysian Code on Corporate Governance 2012 which states that the tenure of an Independent Director should
not exceed a cumulative term of nine (9) years.
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman has served on the Board as an Independent Non-Executive Director for a period exceeding nine (9) years. He remains
independent as he is free from any business or other relationship, which could interfere with the exercise of independent judgement or the ability to act in the best
interest of the Bank. The Nominating Committee and the Board have determined that Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman remains independent in mind
and character as well as objective in decision making process of the Board.

50 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Financial
Statements
52 Directors’ Report
68 Statements of Financial Position
69 Income Statements
70 Statements of Comprehensive Income
71 Statements of Changes in Equity
73 Statements of Cash Flows
76 Summary of Significant Accounting Policies
94 Notes to the Financial Statements
194 Statement by Directors
194 Statutory Declaration
195 Independent Auditors’ Report
197 Basel II Pillar 3 Disclosures

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 51


DIRECTORS’
REPORT
for the financial year ended 31 December 2013

The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial
year ended 31 December 2013.

PRINCIPAL ACTIVITIES

The principal activities of the Bank during the financial year are banking and related financial services. The principal activities of
the subsidiaries are Islamic banking business, property management services, nominee and trustee services. Islamic banking
business refers generally to the acceptance of deposits and granting of financing under the Shariah principles. There were no
significant changes in the nature of these activities during the financial year.

FINANCIAL RESULTS
The Group The Bank
RM’000 RM’000

Profit before zakat and taxation 762,212 672,529


Zakat (8,583) -
Profit before taxation 753,629 672,529
Taxation (183,807) (163,930)
Net profit for the financial year 569,822 508,599

DIVIDENDS

The dividends on ordinary shares paid or declared by the Bank since 31 December 2012 were as follows:

In respect of the financial year ended 31 December 2012 as shown in the Directors’ report for that financial year:
RM’000

Final single-tier dividend of 6 sen per share paid on 30 April 2013 91,100

In respect of the financial year ended 31 December 2013:

Single-tier interim dividend of 10 sen per share paid on 24 December 2013 151,834

The Directors now recommend the payment of a final single-tier dividend of 6 sen per share amounting to RM91,100,206 which
is subject to the approval of members at the forthcoming Annual General Meeting of the Bank.

RESERVES AND PROVISIONS

All material transfers to or from reserves or provisions during the financial year are shown in the financial statements and notes to
the financial statements.

52 AFFIN BANK BERHAD (25046-T) Annual Report 2013


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

BAD AND DOUBTFUL DEBTS AND FINANCING

Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that
proper action had been taken in relation to the writing off of bad debts and financing and the making of allowance for bad and
doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and adequate
allowances made for doubtful debts and financing.

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

CURRENT ASSETS

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

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

VALUATION METHODS

At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the
existing methods of valuation of assets or liabilities in the Group’s and the Bank’s financial statements misleading or inappropriate.

CONTINGENT AND OTHER LIABILITIES

At the date of this report there does not exist:

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

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

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

CHANGE OF CIRCUMSTANCES

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

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 53


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

ITEMS OF AN UNUSUAL NATURE

The results of the operations of the Group and the Bank during the financial year were not, in the opinion of the Directors,
substantially affected by any item, transaction or event of a material and unusual nature.

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

SIGNIFICANT EVENT DURING THE FINANCIAL YEAR

There is no significant event during the financial year.

SUBSEQUENT EVENTS

There were no material events subsequent to the reporting date that require disclosure or adjustments to the financial statements.

DIRECTORS

The Directors of the Bank who have held office during the period since the date of the last report are:

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Chairman / Non-Independent Non-Executive

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin


Non-Independent Non-Executive Director

Dr Raja Abdul Malek Bin Raja Jallaludin


Independent Non-Executive Director

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman


Independent Non-Executive Director

Tan Sri Dato’ Seri Mohamed Jawhar


Independent Non-Executive Director

En. Mohd Suffian Bin Haji Haron


Independent Non-Executive Director

Mr Aubrey Li Kwok-Sing
Non-Independent Non-Executive Director

Mr Gary Cheng Shui Hee


Non-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing)

54 AFFIN BANK BERHAD (25046-T) Annual Report 2013


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

RESPONSIBILITY STATEMENT BY BOARD OF DIRECTORS

In the course of preparing the annual financial statements of the Group and of the Bank, the Directors are collectively responsible in
ensuring that these financial statements are drawn up in accordance with Malaysian Financial Reporting Standards, International
Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.

It is the responsibility of the Directors to ensure that the financial reporting of the Group and of the Bank present a true and fair
view of the state of affairs of the Group and of the Bank as at 31 December 2013 and of the financial results and cash flows of the
Group and of the Bank for the financial year then ended.

The financial statements are prepared on the going concern basis and the Directors have ensured that proper accounting records
are kept, applied the appropriate accounting policies on a consistent basis and made accounting estimates that are reasonable
and fair so as to enable the preparation of the financial statements of the Group and of the Bank with reasonable accuracy.

The Directors have also taken the necessary steps to ensure that appropriate systems are in place for the assets of the Group and
of the Bank to be properly safeguarded for the prevention and detection of fraud and other irregularities. The systems, by their
nature, can only provide reasonable and not absolute assurance against material misstatements, whether due to fraud or error.

The Statement by Directors pursuant to Section 169 of the Companies Act, 1965 is set out on page 194 of the financial statements.

DIRECTORS’ INTERESTS

According to the register of Directors’ shareholdings, the interest of Directors in office at the end of the financial year in shares,
warrants and options of related companies are as follows:

Ordinary shares of RM1 each


As at As at
1.1.2013 Bought Sold 31.12.2013
AFFIN Holdings Berhad
Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin * 808,714 - - * 808,714

Boustead Heavy Industries Corporation Berhad


Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin * 2,000,000 - - * 2,000,000

Boustead Petroleum Sdn Berhad


Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 5,916,465 - - 5,916,465

Al-Hadharah Boustead REIT


Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin * 250,000 - - * 250,000

* Shares held in trust by nominee company

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 55


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

DIRECTORS’ INTERESTS

Ordinary shares of 50 sen each


As at As at
1.1.2013 Bought Sold 31.12.2013
Pharmaniaga Berhad
Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 5,681,886 ^ 6,818,262 - 12,500,148

^ Share split on the basis of one (1) bonus share for every ten (10) subdivided shares held on 4 June 2013.
Bonus issue on 4 June 2013.

Ordinary shares of RM10 each; RM5 uncalled


As at As at
1.1.2013 Bought Transfer 31.12.2013
ABB Trustee Berhad ***
Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 20,000 - - 20,000
Dr Raja Abdul Malek Bin Raja Jallaludin 20,000 - - 20,000

*** Shares held in trust for the Bank

Ordinary shares of 50 sen each


As at As at
1.1.2013 Bought Sold 31.12.2013
Boustead Holdings Berhad
Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 28,192,758 - - 28,192,758

Redeemable preference shares of RM1 each


As at As at
1.1.2013 Bought Sold 31.12.2013
Boustead Petroleum Sdn Berhad
Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 50 - 50 -

Other than the above, the Directors in office at the end of the financial year did not have any other interest in shares, warrants and
options over shares in the Bank or its related corporations during the financial year.

56 AFFIN BANK BERHAD (25046-T) Annual Report 2013


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

DIRECTORS’ BENEFITS

During and at the end of the financial year, no other arrangements subsisted to which the Bank or any of its subsidiaries is a party
with the object or objects of enabling Directors of the Bank or any of its subsidiaries to acquire benefits by means of the acquisition
of shares in, or debenture of, the Bank or any other body corporate, except for the share options granted to Directors of the Bank
by AFFIN Holdings Berhad, Boustead Holdings Berhad and Lembaga Tabung Angkatan Tentera.

Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive a benefit (other than
the fees and other emoluments shown in the Note 31 to the financial statements) by reason of a contract made by the Bank or
by a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial
financial interest.

CORPORATE GOVERNANCE

The Board of Directors is committed to ensure the highest standards of corporate governance throughout the organisation with
the objectives of safeguarding the interests of all stakeholders and enhancing the shareholders’ value and financial performance
of the Bank. The Board considers that it has applied the Best Practices as set out in the Malaysian Code of Corporate Governance
throughout the financial year. The Bank is also required to comply with BNM’s Guidelines on Directorship in the banking institutions
(‘BNM/GP1’).

(i) Board of Directors Responsibility and Oversight

The Board of Directors

The direction and control of the Bank rest firmly with the Board as it effectively assumes the overall responsibility for corporate
governance, strategic direction, formulation of policies and overseeing the investments and operations of the Bank. The
Board exercises independent oversight on the management and bears the overall accountability for the performance of the
Bank and compliance with the principle of good governance.

There is a clear division of responsibility between the Chairman and the Managing Director/Chief Executive Officer to ensure
that there is a balance of power and authority. The Board is responsible for reviewing and approving the longer-term strategic
plans of the Bank as well as the business strategies. It is also responsible for identifying the principal risks and implementation
of appropriate systems to manage those risks as well as reviewing the adequacy and integrity of the Bank’s internal control
systems, management information systems, including systems for compliance with applicable laws, regulations and
guidelines.

Whilst, the Management Committee, headed by the Managing Director/Chief Executive Officer, is responsible for the
implementation of the strategies and internal control as well as monitoring performance. The Committee is also a forum
to deliberate issues pertaining to the Bank’s business, strategic initiatives, risk management, manpower development,
supporting technology platform and business processes.

The Board Meetings

The Board meets on a monthly basis, to review the Bank’s financial and business performance, to oversee the conduct of the
Bank’s business as well as to ensure that adequate internal control systems are in place. The Board met 14 times during the
financial year.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 57


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

CORPORATE GOVERNANCE

(i) Board of Directors Responsibility and Oversight (continued)

Board Balance

The Board of Directors comprises of seven Non-Executive Directors and one alternate Non-Executive Director. There are four
Independent Non-Executive Directors and four Non-Independent Non-Executive Directors. The Board of Directors meetings
are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of the Managing
Director/Chief Executive Officer.

In 2013, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank of
prominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areas
particularly in banking.

The composition of the Board and the number of meetings attended by each director are as follows:

Directors Total Meetings Attended

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 14 / 14
Chairman / Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 14 / 14


Member / Non-Independent Non-Executive Director

Dr Raja Abdul Malek Bin Raja Jallaludin 14 / 14


Member / Independent Non-Executive Director

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 14 / 14


Member / Independent Non-Executive Director

Tan Sri Dato’ Seri Mohamed Jawhar 13 / 14


Member / Independent Non-Executive Director

En. Mohd Suffian Bin Haji Haron 14 / 14


Member / Independent Non-Executive Director

Mr Aubrey Li Kwok-Sing 4 / 14
Member / Non-Independent Non-Executive Director

Mr Gary Cheng Shui Hee 7 / 14


Member / Non-Independent Non-Executive Director
(Alternate Director to Mr Aubrey Li Kwok-Sing)

58 AFFIN BANK BERHAD (25046-T) Annual Report 2013


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

CORPORATE GOVERNANCE

(i) Board of Directors Responsibility and Oversight (continued)

Board Committees

Nomination Committee

Nominating Committee was established to provide a formal and transparent procedure for the appointment of Directors
and Managing Director/Chief Executive Officer. The committee also assesses the effectiveness of the Board as a whole,
contribution of each Director, contribution of the Board’s various committees and the performance of Managing Director/Chief
Executive Officer and key senior management officers.

During the financial year ended 31 December 2013, a total of 6 meetings were held. The Nominating Committee comprises
the following members and the details of attendance of each member at the Nominating Committee meetings held during the
financial year are as follows:

Members Total Meetings Attended

En. Mohd Suffian Bin Haji Haron 6/6


Chairman / Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 6/6


Member / Non-Independent Non-Executive Director

Dr Raja Abdul Malek Bin Raja Jallaludin 6/6


Member / Independent Non-Executive Director

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 6/6
Member / Independent Non-Executive Director

Tan Sri Dato’ Seri Mohamed Jawhar 6/6


Member / Independent Non-Executive Director

Remuneration Committee

Remuneration Committee was established to evaluate and recommend a framework of remuneration for Directors, the Chief
Executive Officer and key senior management officers that is competitive and consistent with the Bank’s culture, objectives
and strategy.

During the financial year ended 31 December 2013, a total of 4 meetings were held. The Remuneration Committee comprises
the following members and the details of attendance of each member at the Remuneration Committee meetings held during
the financial year are as follows:

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 59


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

CORPORATE GOVERNANCE

(i) Board of Directors Responsibility and Oversight (continued)

Board Committees (continued)

Remuneration Committee (continued)

Members Total Meetings Attended

Dr Raja Abdul Malek Bin Raja Jallaludin 4/4


Chairman / Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 4/4


Member / Non-Independent Non-Executive Director

En. Mohd Suffian Bin Haji Haron 4/4


Member / Independent Non-Executive Director

Shariah Committee

AFFIN Islamic Bank Berhad’s business activities are subject to Shariah compliance and conformation by the Shariah
Committee. The Shariah Committee is formed as legislated under the Islamic Financial Services Act 2013 and as per Shariah
Governance Framework for Islamic Financial Institutions.

The duties and responsibilities of the Shariah Committee include the following:

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

• To endorse and validate relevant documentations of the Bank’s products to ensure that the products comply with Shariah
principles; and

• To advise the AFFIN Islamic Bank Berhad on matters to be referred to the Shariah Advisory Council.

The Shariah Committee was established in December 1995. During the year, a total of 21 meetings were held. The Shariah
Committee comprises the following members and the details of attendance of each member at the Shariah Committee
meetings held are as follows:

Members Total Meetings Attended

Dr. Asyraf Wajdi Bin Dato’ Dusuki 21 / 21


Chairman

Associate Professor Dr. Said Bouheraoua 16 / 21


Member

Assistant Professor Dr. Ahmad Azam Bin Othman 21 / 21


Member

Dr. Yasmin Hanani Binti Mohd Safian 16 / 21


Member

Dr. Zulkifli Bin Hasan 16 / 21


Member

60 AFFIN BANK BERHAD (25046-T) Annual Report 2013


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

CORPORATE GOVERNANCE

(ii) Group Risk Management

The Group Risk Management function, operating in an independent capacity, is part of the Bank’s senior management
structure which works closely as a team in managing risks to enhance stakeholders’ value.

The Group Risk Management function provides support to the Board Risk Management Committee (‘BRMC’). Committees
namely Board Loan Review and Recovery Committee (‘BLRRC’), Management Committee (‘MCM’), Group Management
Loan Committee (‘GMLC’), Asset and Liability Management Committee (‘ALCO’), Liquidity Management Committee (‘LMC’),
Group Operational Risk Management Committee (‘GORMC’) and Early Alert Committee (‘EAC’) assist the BRMC in managing
credit, market, liquidity and operational risks respectively.

Responsibilities of these committees include:


• risk identification
• risk assessment and measurement
• risk control and mitigation
• risk monitoring

Board Risk Management Committee (‘BRMC’)

The main function of Board Risk Management Committee (‘BRMC’) is to assist the Board in its supervisory role in the
management of risk in the Bank. It has responsibility for approving and reviewing all risk management policies and
methodologies of the Bank. BRMC also reviews guidelines and portfolio management reports including risk exposure
information.

BRMC provides oversight and management of all risks in the Bank. The Committee also ensures that the procedures and
framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively. The Bank’s risk
management framework is set out in Note 38 to the financial statements.

The BRMC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31
December 2013, a total of 5 meetings were held. The BRMC comprises the following members and details of attendance of
each member at the BRMC meetings held during the financial year are as follows:

Members Total Meetings Attended



Tan Sri Dato’ Seri Mohamed Jawhar 5/5
Chairman / Independent Non-Executive Director

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 5/5
Member / Independent Non-Executive Director

Dr Raja Abdul Malek Bin Raja Jallaludin 5/5


Member / Independent Non-Executive Director

En. Mohd Suffian Bin Haji Haron 5/5


Member / Independent Non-Executive Director

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 61


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

CORPORATE GOVERNANCE

(ii) Group Risk Management

Board Loan Review and Recovery Committee (‘BLRRC’)

Board Loan Review and Recovery Committee (‘BLRRC’) critically reviews loans and other credit facilities with higher risk
implications, after due process of checking, analysis, review and recommendation by the Credit Risk Management function,
and if found necessary, exercise the power to veto loan applications that have been accepted by the Group Management
Loan Committee (‘GMLC’). The Committee is also responsible to review the impaired loans presented by Management.

The BLRRC meeting for the Bank were jointly held with AFFIN Islamic Bank and during the financial year ended 31 December
2013, a total of 12 meetings were held. The BLRRC comprises the following members and details of attendance of each
member at the BLRRC meetings held during the financial year are as follows:

Members Total Meetings Attended

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) 12 / 12
Chairman / Non-Independent Non-Executive Director

Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin 12 / 12


Member / Non-Independent Non-Executive Director

Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli Bin Mohd Nor (Bersara) 12 / 12
Member / Non-Independent Non-Executive Director
(Represent AFFIN Islamic Bank Berhad)

En. Mohd Suffian Bin Haji Haron 12 / 12


Member / Independent Non-Executive Director

Management Committee (‘MCM’)

MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day
operations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank’s overall
performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annual
business plan and budget.

Group Management Loan Committee (‘GMLC’)

Group Management Loan Committee (‘GMLC’) approves complex and larger loans and workout/recovery proposals beyond
the delegated authority of the concerned individual senior management personnel of the Bank.

62 AFFIN BANK BERHAD (25046-T) Annual Report 2013


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

CORPORATE GOVERNANCE

(ii) Group Risk Management (continued)

Individual Approvers

Credit authority is delegated based on skills, experience and track record of the officer assuming an approver’s position.
Delegation of credit authority is subject to credit checks to ensure approvers have a clean disciplinary record and not be in a
financially embarrassed position.

Asset and Liability Management Committee (‘ALCO’)

ALCO comprising the senior management team chaired by the MD/CEO, manages the Bank’s asset liability position and
oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and regulatory
basis.

Liquidity Management Committee (‘LMC’)

LMC is a sub-committee of the ALCO and its role is to augment the functions of the ALCO by directing its focus specifically
to liquidity issues.

Group Operational Risk Management Committee (‘GORMC’)

Responsibilities of the committees include:

• To evaluate operational risks issues of escalating importance/strategic risk exposure;


• To review and recommend on broad operational risks management policies/best practices for adoption by the Bank’s
operating units;
• To review the effectiveness of broad internal controls and making recommendation/approve on changes, if necessary;
• To review/approve recommendation of operational risk management groups set up to address specific area;
• To take the lead in inculcating an operational risks awareness culture;
• To approve operational risk management methodologies/measurements tools;
• To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC’s approval
if necessary; and
• To update BRMC on loss events and relevant key issues that may adversely impact core processes, system defects and
any changes to critical business or system related processes.

Early Alert Committee (‘EAC’)

Early Alert Committee (‘EAC’) is established within senior management to monitor credit quality through monthly review of
the Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these
accounts.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 63


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

CORPORATE GOVERNANCE

(iii) Internal Audit and Internal Control Activities

In accordance with Bank Negara Malaysia’s GP10 guidelines, the Group Internal Audit Division (‘GIA’) conducts continuous
reviews on auditable areas within the Bank. The continuous reviews by GIA are focused on areas of significant risks and
effectiveness of internal control in accordance to the audit plan approved by the Audit and Examination Committee (‘AEC’).
The risk highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC and
Management meetings on bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function,
scope of work, resources and budget of GIA.

At present, GIA consists of Operational Audit, IS Audit, Credit Review, Investigation and Compliance. Audit activities include
these key components:

• Conduct audit on all auditable entities (Head Office, branches and subsidiaries) processes, services, products, system
and provide an independent assessment to the Board of Directors, AEC and Management that appropriate control
environment is maintained with clear authority and responsibility with sufficient staff and resources to carry out control
responsibilities.

• Perform risk assessments to identify risk and evaluate actions taken to provide reasonable assurance that procedures
and controls exist to contain those risks.

• Maintain strong control activities including documented processes and system incorporating adequate controls to
produce accurate financial data and provide for the safeguarding of assets, and a documented review of reported results.

• Ensure effective information flows and communication, including:


- training and the dissemination of standards and requirements;
- an information system to produce and convey complete, accurate and timely data including financial data;
- the upward communication of trends, developments and emerging issues.

• Monitor controls, including procedures to verify that controls are in place and functioning, follow up on corrective action
on control finding until its full resolution.

Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an opinion on
the effectiveness of internal controls maintained by each entity.

Audit and Examination Committee (‘AEC’)

The AEC comprises members of the Bank’s Board of Directors whose primary function is to assist the Board of Directors in
its supervision over:

• The reliability and integrity of accounting policies and financial reporting and disclosure practices;

• The provision of advice to the Board with regards to the financial statements and business risks to enable the Board to
fulfill its fiduciary duties and obligations; and

64 AFFIN BANK BERHAD (25046-T) Annual Report 2013


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

CORPORATE GOVERNANCE

(iii) Internal Audit and Internal Control Activities (continued)

Audit and Examination Committee (‘AEC’) (continued)

• The establishment and maintenance of processes to ensure that they:


- are in compliance with all applicable laws, regulations and company policies; and
- have adequately addressed the risk relating to internal controls and system, management of inherent and business
risks, and ensuring that the assets are properly managed and safeguarded.

The AEC is made up of at least three but not more than five members appointed by the Board of Directors from among its
non-executive directors.

The AEC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31
December 2013, a total of 7 meetings were held. The Audit and Examination Committee comprises the following members
and details of attendance of each member at the Audit and Examination Committee meetings held during the financial year
are as follows:

Members Total Meetings Attended

Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman 7/7
Chairman / Independent Non-Executive Director

Tan Sri Dato’ Seri Mohamed Jawhar 7/7


Member / Independent Non-Executive Director

Dr Raja Abdul Malek Bin Raja Jallaludin 7/7


Member / Independent Non-Executive Director

Dr. Asyraf Wajdi Bin Dato’ Dusuki 6/7


Member / Independent Non-Executive Director
(Represent AFFIN Islamic Bank Berhad)

(iv) Management Reports

Before each Board meeting, Directors are provided with a complete set of board papers itemised in the agenda for Board’s
review/approval and/or notation.

The Board monitors the Bank’s performance by reviewing the monthly Management Report, which provides a comprehensive
review and analysis of the Bank’s operations and financial issues. In addition, the minutes of the Board Committees and
Management Committees meetings and other issues are also tabled and considered by the Board.

Procedures are in place for Directors to seek both independent professional advice at the Bank’s expense and the advice and
services of the Company Secretary in order to fulfill their duties and specific responsibilities.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 65


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013

2013 was a challenging year for the AFFIN Bank Berhad. To address the issue of household debt level, Bank Negara Malaysia
(‘BNM’) had strengthened the existing measures on responsible lending guidelines by issuing more stringent guidelines in July
2013. These measures contributed to further softening of loans growth for the industry as a whole, and especially in the consumer
segment.

Despite these challenges, the Group remained resilient in the market, registering profit before tax growth of 8.4%, deposits growth
of 11.7% and growth of net loans and advances of 8.2 %.Our key financial ratios are within the industry average.

The Bank managed to register the performance through preservation of asset quality using proactive account management and
effective early detection of potential problematic assets.

Management will continue to remain prudent to ensure business sustainability and profitability growth. The bank is also continuously
seeking out for new growth opportunities.

BUSINESS OUTLOOK FOR 2014

Going into 2014, the Bank will be focusing on controlled loans growth and effective balance sheet management in order to
achieve financial year-ended 2014 business targets. Amid increasing competition, margin continues to come under pressure to the
banking industry due to the impact of potential hike in Overnight Policy Rate (‘OPR’). In view of this scenario, net interest margin
is expected to be dampened further. As such, more emphasis will be given on increasing our fee based income.

Business opportunities from Economic Transformation Plan (‘ETP’) projects are expected to be more significant for the Bank in the
coming year and will give positive impact to our business banking sector as a result of stronger collaboration on secondary project
financing between its major shareholders, the Lembaga Tabung Angkatan Tentera (‘LTAT’) and the Boustead Group of companies
as well as our existing/established customers.

For consumer segments, higher end auto financing and mortgage will remain as our main drivers for loan growth. The ensure
income sustainability, the bank will also emphasis on cross selling of its products such as cards, unit trust, insurance business and
promoting new banking products particularly in treasury, forex and wealth management.

With continued focus on productivity improvement and customer service enhancement from all our staff, we are optimistic in our
outlook for 2014.

66 AFFIN BANK BERHAD (25046-T) Annual Report 2013


DIRECTORS’ REPORT
for the financial year ended 31 December 2013

RATING BY EXTERNAL AGENCIES

The Bank has been rated by the following external rating agency:

Name of rating agency: RATING AGENCY MALAYSIA BERHAD (‘RAM’)


Date of rating: 23 July 2013
Rating classifications:
- Long term: A1
- Short term: P1

RAM has reaffirmed the Bank’s long-term and short-term financial institution ratings, at A1 and P1, respectively, with a stable outlook.

‘A’ rating is defined by RAM as being able to offer adequate safety for timely payment of interest and principal, and has adequate
credit profile but possess one or more problem areas, giving rise to the possibility of future riskiness. Entities rated in this category
have generally performed at industry average and are considered to be more vulnerable to changes in economic condition than
those rated in the higher categories. The subscript 1 in this category indicates as higher end of its generic rating in the A category.
A P1 rating is defined by RAM as obligations which are supported by superior ability with regards to timely payment of obligations.

ZAKAT

The Bank’s subsidiary, AFFIN Islamic Bank Berhad (‘AFFIN ISLAMIC’) is obliged to pay zakat to comply with the principles of
shariah. AFFIN Islamic does not pay zakat on behalf of its depositors.

HOLDING COMPANY AND ULTIMATE HOLDING CORPORATE BODY

The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the ultimate
holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung Angkatan Tentera
Act, 1973.

AUDITORS

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

In accordance with resolution of the Board of Directors dated 26 February 2014.

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara)
Chairman

En. Mohd Suffian Bin Haji Haron


Director

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 67


STATEMENTS OF
FINANCIAL
as at 31 December 2013
POSITION

The Group The Bank


2013 2012 2013 2012
Note RM’000 RM’000 RM’000 RM’000

ASSETS
Cash and short-term funds 2 9,401,701 7,648,904 4,987,696 3,633,842
Reverse and repurchase agreements with
financial institutions - 20,057 - 20,057
Deposits and placements with banks and
other financial institutions 3 482,597 596,452 1,106,756 1,043,825
Financial assets held-for-trading 4 149,544 165,592 149,544 165,592
Derivative financial assets 5 56,274 68,872 56,274 68,872
Financial investments available-for-sale 6 7,614,537 7,640,654 6,331,414 5,658,161
Financial investments held-to-maturity 7 500,336 451,670 415,271 451,670
Loans, advances and financing 8 36,227,785 33,482,626 30,178,910 28,339,269
Other assets 9 220,097 293,658 176,555 227,790
Amount due from subsidiaries 10 - - 60,723 153,949
Amount due from jointly controlled entity 4,185 2,745 - -
Tax recoverable 17 16 - -
Deferred tax assets 11 9,945 - 6,985 -
Statutory deposits with
Bank Negara Malaysia 12 1,459,350 1,413,300 1,226,350 1,211,800
Investment in subsidiaries 13 - - 389,088 387,389
Investment in jointly controlled entity 14 - 60 - -
Property and equipment 15 158,740 171,922 150,803 163,951
Intangible assets 16 152,005 148,452 154,232 149,887
TOTAL ASSETS 56,437,113 52,104,980 45,390,601 41,676,054

LIABILITIES AND EQUITY


Deposits from customers 17 46,088,082 41,263,536 36,800,728 32,224,817
Deposits and placements of banks and
other financial institutions 18 4,065,544 4,809,323 2,659,535 3,728,263
Derivative financial liabilities 19 94,522 59,663 94,522 59,663
Bills and acceptances payable 90,208 152,400 90,208 152,400
Recourse obligation on loans
sold to Cagamas Berhad 20 397,790 413,549 397,790 413,549
Other liabilities 21 391,977 306,481 359,837 282,144
Amount due to subsidiaries 22 - - 53,559 48,528
Provision for taxation 36,402 63,751 34,351 54,177
Deferred tax liabilities 11 - 13,365 - 13,099
Subordinated term loan 23 904,964 904,960 904,964 904,960
TOTAL LIABILITIES 52,069,489 47,987,028 41,395,494 37,881,600

Share capital 24 1,518,337 1,518,337 1,518,337 1,518,337


Reserves 25 2,849,287 2,599,615 2,476,770 2,276,117
TOTAL EQUITY 4,367,624 4,117,952 3,995,107 3,794,454
TOTAL LIABILITIES AND EQUITY 56,437,113 52,104,980 45,390,601 41,676,054

COMMITMENTS AND CONTINGENCIES 37 21,863,606 18,981,323 20,196,417 17,411,381

The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.

68 AFFIN BANK BERHAD (25046-T) Annual Report 2013


INCOME
STATEMENTS
for the financial year ended 31 December 2013

The Group The Bank


2013 2012 2013 2012
Note RM’000 RM’000 RM’000 RM’000

Interest income 26 2,121,127 1,984,900 2,150,845 2,012,937


Interest expense 27 (1,308,068) (1,196,228) (1,308,113) (1,196,288)
Net interest income 813,059 788,672 842,732 816,649
Net Islamic banking income 28 220,745 216,772 - -
1,033,804 1,005,444 842,732 816,649
Other operating income 29 237,366 257,063 234,862 255,890
Net income 1,271,170 1,262,507 1,077,594 1,072,539
Other operating expense 30 (565,186) (571,158) (461,133) (473,673)
Operating profit before allowances 705,984 691,349 616,461 598,866
Allowances for losses on loans, advances and financing 32 56,937 22,512 56,567 7,091
Impairment losses on securities (499) (10,402) (499) (10,402)
762,422 703,459 672,529 595,555
Share of joint venture’s results (210) (230) - -
Profit before zakat and taxation 762,212 703,229 672,529 595,555
Zakat (8,583) (6,064) - -
Profit before taxation 753,629 697,165 672,529 595,555
Taxation 34 (183,807) (171,899) (163,930) (145,251)
Net profit after zakat and taxation 569,822 525,266 508,599 450,304

Attributable to:
Equity holders of the Bank 569,822 525,266 508,599 450,304

Earnings per share (sen):


- Basic/fully diluted 35 37.5 35.0 33.5 30.0

The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 69


STATEMENTS OF
Comprehensive Income
for the financial year ended 31 December 2013

The Group The Bank


2013 2012 2013 2012
Note RM’000 RM’000 RM’000 RM’000

Profit after zakat and taxation 569,822 525,266 508,599 450,304

Other comprehensive income:


Items that may be reclassified subsequently to
profit and loss:
Net fair value change in financial investments
available-for-sale (102,027) 733 (86,770) 1,822
Deferred tax on financial investments available-for-sale 11 24,811 (418) 21,758 (456)
Other comprehensive income for the financial year,
net of tax (77,216) 315 (65,012) 1,366
Total comprehensive income for the financial year 492,606 525,581 443,587 451,670

Attributable to equity holders of the Bank:


- Total comprehensive income 492,606 525,581 443,587 451,670

The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.

70 AFFIN BANK BERHAD (25046-T) Annual Report 2013


STATEMENTS OF
changes in equity
for the financial year ended 31 December 2013

Attributable to Equity Holders of the Bank


AFS
Share Share Statutory revaluation Retained
capital premium reserves reserves profits Total
The Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2013 1,518,337 529,337 1,160,651 75,256 834,371 4,117,952

Comprehensive income:
Net profit for the financial year - - - - 569,822 569,822

Other comprehensive income (net of tax)


- Financial investments available-for-sale - - - (77,216) - (77,216)
Total comprehensive income - - - (77,216) 569,822 492,606

Dividends paid (Note 36) - - - - (242,934) (242,934)


Transfer to statutory reserves - - 156,725 - (156,725) -
At 31 December 2013 1,518,337 529,337 1,317,376 (1,960) 1,004,534 4,367,624

At 1 January 2012 1,439,285 408,389 1,011,044 74,941 667,326 3,600,985

Comprehensive income:
Net profit for the financial year - - - - 525,266 525,266

Other comprehensive income (net of tax)


- Financial investments available-for-sale - - - 315 - 315
Total comprehensive income - - - 315 525,266 525,581

Issued during the financial year 79,052 120,948 - - - 200,000


Dividends paid (Note 36) - - - - (208,614) (208,614)
Transfer to statutory reserves - - 149,607 - (149,607) -
At 31 December 2012 1,518,337 529,337 1,160,651 75,256 834,371 4,117,952

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 71


statement of changes in equity
for the financial year ended 31 December 2013

Non-distributable Distributable
AFS
Share Share Statutory revaluation Retained
capital premium reserves reserves profits Total
The Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2013 1,518,337 529,337 1,017,200 69,977 659,603 3,794,454

Comprehensive income:
Net profit for the financial year - - - - 508,599 508,599

Other comprehensive income (net of tax)


- Financial investments available-for-sale - - - (65,012) - (65,012)
Total comprehensive income - - - (65,012) 508,599 443,587

Dividends paid (Note 36) - - - - (242,934) (242,934)


Transfer to statutory reserves - - 127,150 - (127,150) -
At 31 December 2013 1,518,337 529,337 1,144,350 4,965 798,118 3,995,107

At 1 January 2012 1,439,285 408,389 904,624 68,611 530,489 3,351,398

Comprehensive income:
Net profit for the financial year - - - - 450,304 450,304

Other comprehensive income (net of tax)


- Financial investments available-for-sale - - - 1,366 - 1,366
Total comprehensive income - - - 1,366 450,304 451,670

Issued during the financial year 79,052 120,948 - - - 200,000


Dividends paid (Note 36) - - - - (208,614) (208,614)
Transfer to statutory reserves - - 112,576 - (112,576) -
At 31 December 2012 1,518,337 529,337 1,017,200 69,977 659,603 3,794,454

The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.

72 AFFIN BANK BERHAD (25046-T) Annual Report 2013


STATEMENTS OF
cash flows
for the financial year ended 31 December 2013

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 753,629 697,165 672,529 595,555


Adjustments for items not involving the movement
of cash and cash equivalents:

Interest income:
- financial assets held-for-trading (160) (789) (160) (789)
- financial investments available-for-sale (202,084) (183,906) (201,936) (183,758)
- financial investments held-to-maturity (19,984) (23,912) (19,984) (23,912)
Dividend income:
- financial investments available-for-sale (4,058) (3,204) (4,058) (3,204)
Amortisation of premium less accretion of discount
- financial investments available-for-sale (12,004) (9,869) (12,004) (9,869)
- financial investments held-to-maturity (1,024) (964) (1,024) (964)
Gain on sale:
- financial assets held-for-trading (366) (697) (366) (697)
- financial investments available-for-sale (22,369) (20,634) (18,894) (19,870)
- financial investments held-to-maturity (6,144) (19,011) (6,144) (19,011)
Unrealised (gain)/loss on revaluation
- financial assets held-for-trading (455) 188 (455) 188
- derivatives (5,282) (12,925) (5,282) (12,925)
- foreign exchange 54,118 (42,325) 54,118 (42,325)
Allowance for impairment loss
- financial investments available-for-sale 499 812 499 812
- financial investments held-to-maturity - 9,590 - 9,590
Depreciation of property and equipment 16,019 17,784 15,166 16,579
Property and equipment written-off 91 179 91 178
Foreclosed properties - diminution in value - 2,122 - 2,122
Gain on sale of property and equipment (3,910) (1,098) (3,910) (1,093)
Amortisation of intangible assets 7,989 8,568 7,197 7,771
Gain on sale of foreclosed properties (11,041) (10,141) (11,041) (10,097)
Net individual impairment 43,872 69,497 43,615 66,845
Net collective impairment 15,253 6,672 15,011 24,242
Bad debt and financing written-off 4,583 7,784 4,509 7,702
Interest expense - subordinated term loan 41,473 40,453 41,473 40,453
Zakat 8,583 6,064 - -
Subsidiary - diminution in value - - (1,707) -
Share of joint venture’s results 210 230 - -
Operating profit before changes in working capital 657,438 537,633 567,243 443,523

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 73


Statements of cash flows
for the financial year ended 31 December 2013

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES (continued)

Decrease/(increase) in operating assets:

Reverse repurchase agreements with financial institutions 20,057 (20,057) 20,057 (20,057)
Deposits and placements with banks and other financial institutions 113,855 (109,758) (62,931) 55,163
Financial assets held-for-trading 16,869 (15,252) 16,869 (15,252)
Interest income from financial assets held-for-trading 160 789 160 789
Foreign exchange transaction (29,935) (1,463) (30,378) (161)
Loans, advances and financing (2,808,867) (3,874,313) (1,902,776) (3,119,997)
Other assets 48,145 (98,483) 27,551 (82,270)
Derivative financial instruments 47,457 (56,707) 47,457 (56,707)
Statutory deposits with Bank Negara Malaysia (46,050) (144,650) (14,550) (103,150)
Amount due from subsidiaries - - 98,257 203,169
Amount due from jointly controlled entity (1,440) - - -

Increase/(decrease) in operating liabilities:

Deposits from customers 4,824,546 4,716,092 4,575,911 3,152,393


Deposits and placements of banks and other financial institutions (743,779) (2,717,589) (1,068,728) (2,315,574)
Bills and acceptances payable (62,192) 70,341 (62,192) 70,341
Recourse obligation on loans sold to Cagamas Berhad (15,759) (14,910) (15,759) (14,910)
Other liabilities 86,746 (21,270) 78,172 (26,869)
Cash generated from/(used in) operations 2,107,251 (1,749,597) 2,274,363 (1,829,569)
Tax refund 510 - 480 -
Zakat paid (7,616) (4,919) - (100)
Tax paid (210,386) (128,138) (182,778) (113,845)
Net cash generated from/(used in) operating activities 1,889,759 (1,882,654) 2,092,065 (1,943,514)

74 AFFIN BANK BERHAD (25046-T) Annual Report 2013


statements of cash flows
for the financial year ended 31 December 2013

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in subsidiaries - - 9 -
Investment in associate 30 - 30 -
Investment in joint controlled entity (150) - - -
Interest received:
- financial investments available-for-sale 202,084 183,906 201,936 183,758
- financial investments held-to-maturity 19,984 23,912 19,984 23,912
Dividend income:
- financial investments available-for-sale 4,058 3,204 4,058 3,204
Redemption of financial investments held-to-maturity net of purchase (41,497) 79,820 43,568 79,820
Net purchase of financial investments available-for-sale (42,036) (911,810) (729,623) (412,881)
Proceeds from disposal of
- property and equipment 7,377 4,091 7,377 3,441
- foreclosed properties 21,961 21,611 21,961 21,371
Purchase of property and equipment (17,443) (20,616) (16,624) (19,480)
Purchase of intangible assets (1,236) (458) (1,236) (458)
Net cash generated from/(used in) investing activities 153,132 (616,340) (448,560) (117,313)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of shares - 200,000 - 200,000


Investment in subsidiary - - - (100,000)
Interest payment on subordinated term loan (41,469) (37,344) (41,469) (37,344)
Increase in subordinated term loan - 300,000 - 300,000
Payment of dividend (242,934) (208,614) (242,934) (208,614)
Net cash (used in)/generated from financing activities (284,403) 254,042 (284,403) 154,042

Net increase/(decrease) in cash and cash equivalents 1,758,488 (2,244,952) 1,359,102 (1,906,785)
Net (decrease)/increase in foreign exchange (5,691) 14,490 (5,248) 13,188
Cash and cash equivalents at beginning of the financial year 7,648,904 9,879,366 3,633,842 5,527,439
CASH AND CASH EQUIVALENTS AT
END OF THE FINANCIAL YEAR (Note 2) 9,401,701 7,648,904 4,987,696 3,633,842

The accounting policies on pages 76 to 93 and the notes on pages 94 to 193 form an integral part of these financial statements.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 75


summary of significant
accounting policies
for the financial year ended 31 December 2013

The following accounting policies have been used consistently in dealing with items which are considered material in relation to the
financial statements. These policies have been consistently applied to all the financial years presented, unless otherwise stated.

(A) BASIS OF PREPARATION

The financial statements of the Group and the Bank have been prepared in accordance with the provisions of the Malaysian
Financial Reporting Standards (‘MFRS’), International Financial Reporting Standards and the requirements of the Companies
Act 1965 in Malaysia. The financial statements incorporate those activities relating to Islamic banking business which have
been undertaken by AFFIN Islamic Bank Berhad, a wholly owned subsidiary of the Bank. Islamic banking business refers
generally to the acceptance of deposits and granting of financing under the Shariah principles.

The financial statements of the Group and the Bank have been prepared under the historical cost convention, unless otherwise
indicated in this summary of significant accounting policies.

The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also
requires Directors to exercise their judgment in the process of applying the Group and Bank’s accounting policies. Although
these estimates and judgment are based on the Directors’ best knowledge of current events and actions, actual results
may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are
significant to the financial statements are disclosed in Note 44.

Standards and amendments to published standards that are effective and applicable to the Group and the Bank

The new accounting standards and amendments to published standards that are effective and applicable to the Group and
the Bank for the financial year beginning 1 January 2013 are as follows:

• MFRS 10 “Consolidated financial statements”

• MFRS 11 “Joint arrangements”

• MFRS 12 “Disclosures of interests in other entities”

• MFRS 13 “Fair value measurement”

• Revised MFRS 127 “Separate financial statements”

• Revised MFRS 128 “Investments in associates and joint ventures”

• MFRS 3 “Business Combinations” (IFRS 3 Business Combinations issued by IASB in March 2004)

• Amendment to MFRS 7 “Financial instruments: Disclosures – offsetting financial assets and financial liabilities”

• Amendment to MFRS 101 “Presentations of items of other comprehensive income”

• Amendment to MFRS 119 “Employee benefits”

• Amendment to MFRS 134 “Interim financial reporting”

• Amendments to MFRS 10, MFRS 11 and MFRS 12 “Consolidated financial statements, joint arrangements and disclosure
of interests in other entities: Transition Guidance”

76 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(A) BASIS OF PREPARATION

Standards and amendments to published standards that are effective and applicable to the Group and the Bank
(continued)

• Annual improvements 2009-2011 Cycle

o MFRS 1 “First-time Adoption of Malaysian Financial Reporting Standards” - Repeated application of MFRS 1 and
borrowing costs

o MFRS 101 “Presentation of Financial Statements” - Clarification of the requirements for comparative information

o MFRS 116 “Property, Plant and Equipment” - Classification of servicing equipment

o MFRS 132 “Financial Instruments: Presentation” - Tax effect of distribution to holders of equity instruments

o MFRS 134 “Interim Financial Reporting” - Interim financial reporting and segment information for total assets and
liabilities

The adoption of the new accounting standards, amendments and improvements to published standards did not have material
impact on the financial statements of the Group and the Bank.

Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Group and the Bank but not yet effective

The Group and the Bank will apply these standards, amendments to published standards from:

(i) Financial year beginning on/after 1 January 2014

• Amendment to MFRS 132 “Financial instruments: Presentation” (effective from 1 January 2014) does not change
the current offsetting model in MFRS 132. It clarifies the meaning of ‘currently has a legally enforceable right of set-
off’ that the right of set-off must be available today (not contingent on a future event) and legally enforceable for all
counterparties in the normal course of business. It clarifies that some gross settlement mechanisms with features
that are effectively equivalent to net settlement will satisfy the MFRS 132 offsetting criteria.

• Amendments to MFRS 10, MFRS 12 and MFRS 127 (effective 1 January 2014) introduce an exception to consolidation
of investment entities. Investment entities are entities whose business purpose is to invest funds solely for returns from
capital appreciation, investment income or both and evaluate the performance of its investments on fair value basis.
The amendments require investment entities to measure particular subsidiaries at fair value instead of consolidating
them.

• Amendment to MFRS 136, ‘Impairment of Assets’ (effective 1 January 2014) clarify that disclosure of recoverable
amount is required for an asset or cash generating unit when an impairment loss has been recognised or reversed
during the period. When the recoverable amount of impaired assets is based on fair value less costs of disposal,
additional information about fair value measurement is required. This amendment removes the unintended
requirement to disclose the recoverable amount for a cash-generating unit (containing goodwill or indefinite lived
intangible assets) when no impairment loss has been recognised or reversed during the period.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 77


summary of significant accounting policies
for the financial year ended 31 December 2013

(A) BASIS OF PREPARATION

Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Group and the Bank but not yet effective (continued)

(i) Financial year beginning on/after 1 January 2014 (continued)

• Amendment to MFRS 139 “Financial Instruments: Recognition and Measurement’ - Novation of Derivatives and
Continuation of Hedge Accounting (effective 1 January 2014) provides relief from discontinuing hedge accounting
in a situation where a derivative (which has been designated as a hedging instrument) is novated to effect clearing
with a central counterparty as a result of laws or regulation, subject to meeting the following criteria - the parties to
the hedging instrument agree that the central counterparty replaces the original counterparty, other changes to the
hedging instrument are limited to those that are necessary to effect replacement of the counterparty.

(ii) Financial year beginning on/after 1 January 2017

• MFRS 9 “Financial instruments - classification and measurement of financial assets and financial liabilities” (effective
from 1 January 2017) replaces the parts of MFRS 139 that relate to the classification and measurement of financial
instruments. MFRS 9 requires financial assets to be classified into two measurement categories: those measured as
at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification
depends on the entity’s business model for managing its financial instruments and the contractual cash flow
characteristics of the instrument.

For financial liabilities, the standard retains most of the MFRS 139 requirements. The main change is that, in case
where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit
risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting
mismatch.

The financial effect of adoption of MFRS 9 is still being assessed by the Group and the Bank.

The Group and the Bank will apply these standards when effective. The adoption standards, amendments to published
standards and interpretations to existing standards do not have significant impact on the financial statements of the
Group and the Bank except for MFRS 9.

(B) CONSOLIDATION

The consolidated financial statements include the financial statements of the Bank, subsidiaries and a jointly controlled entity,
made up to the end of the financial year.

(i) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity.

78 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(B) CONSOLIDATION

(i) Subsidiaries (continued)

The Group applies the acquisition method to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset
or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.

The Group applies predecessor accounting to account for business combinations under common control. Under the
predecessor accounting, assets and liabilities acquired are not restated to their respective fair values but at the carrying
amounts from the consolidated financial statements of the ultimate holding company of the Group and adjusted to ensure
uniform accounting policies of the Group. The difference between any consideration given and the aggregate carrying
amounts of the assets and liabilities (as of the date of the transaction) of the acquired entity is recorded as an adjustment
to retained earnings. No additional goodwill is recognised.

The acquired entity’s results, assets and liabilities are consolidated from the date on which the business combination
between entities under common control occurred. Consequently, the consolidated financial statements do not reflect the
results of the acquired entity for the period before the transaction occurred. The corresponding amounts for the previous
year are not restated.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity
interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance
with MFRS 139 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is
classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-
date fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired
is recorded as goodwill. If the total of the consideration, non-controlling interest recognised previously held interest
measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the
difference is recognised directly in the income statement.

Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated.
Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the
Group.

(ii) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions –
that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration
paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or
losses on disposals to non-controlling interests are also recorded in equity.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 79


summary of significant accounting policies
for the financial year ended 31 December 2013

(B) CONSOLIDATION

(iii) Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when
control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount
for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In
addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as
if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised
in other comprehensive income are reclassified to profit or loss.

(iv) Jointly controlled entities

The Group’s interest in jointly controlled entities are accounted for in the financial statements by the equity method of
accounting. Under the equity method of accounting, interests in jointly controlled entities are initially recognised at cost
and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in other
comprehensive income. When the Group’s share of losses in a jointly controlled entities equals or exceeds its interests
in the jointly controlled entities (which includes any long-term interests that, in substance, form part of the Group’s net
investment in the jointly controlled entities), the Group does not recognise further losses, unless it has incurred obligations
or made payments on behalf of the jointly controlled entities.

(C) INVESTMENTS IN SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES



In the Bank’s separate financial statements, investments in subsidiaries and jointly controlled entities are carried at cost less
accumulated impairment losses. On disposal of investments in subsidiaries and jointly controlled entities, the difference
between disposal proceeds and carrying amounts of the investments are recognised in profit or loss.

(D) INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets
at the date of acquisition.

Goodwill on acquisition of subsidiaries are included in the statement of financial position as intangible assets. Goodwill is
tested for impairment annually or more frequently if events or changes in circumstances indicated that the goodwill may be
impaired. The amount retained in the consolidated financial statements is stated at cost less accumulated impairment losses.
Impairment losses on goodwill (inclusive of impairment losses recognised in a previous interim period) are not reversed. Gains
and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units (‘CGU’) for the purpose of impairment testing. The allocation is made to those
CGUs that are expected to benefit from the synergies of the business combination in which goodwill arose identified according
to operating segment.

Computer software

Acquired computer software are capitalised on the basis of the cost incurred to acquire and bring to use the specific software.
These costs are amortised over their estimated useful lives (five years). Computer software classified as intangible asset are
stated at cost less accumulated amortisation and accumulated impairment losses, if any.

80 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(E) IMPAIRMENT OF NON-FINANCIAL ASSETS

Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating
units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment
at each reporting date.

The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged
to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it
reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus.

(F) RECOGNITION OF INTEREST AND FINANCING INCOME AND EXPENSE

Interest and financing income and expense for all interest/profit-bearing financial instruments measured at amortised cost
and interest/profit bearing financial assets as held-for-trading and available-for-sale are recognised within “interest income”,
“interest expense” and “net Islamic banking income” respectively in the income statement using the effective interest/profit
method.

The effective interest/profit method is a method of calculating the amortised cost of a financial asset or a financial liability and
of allocating the interest and financing income or expense over the relevant period. The effective interest/profit rate is the rate
that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or,
when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the
effective interest/profit rate, the Group and the Bank take into account all contractual terms of the financial instrument and
includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective
interest rate, but not future credit losses.

Interest or income on impaired financial assets is recognised using the rate of interest/profit used to discount the future cash
flows for the purpose of measuring the impairment loss. A financial asset or a group of financial assets is deemed to be
impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the
initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future
cash flows of the financial asset or the group of financial assets that can be reliably estimated.

(G) RECOGNITION OF FEES AND OTHER INCOME

Fees and commissions are recognised as income when all conditions precedent are fulfilled. Commitment fees for loans,
advances and financing that are likely to be drawn down are deferred (together with related direct costs) and income which
forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective
interest/profit rate on the financial instrument.

Commitment fees and guarantee fees which are material are recognised as income based on a time apportionment method.

Dividends are recognised when the right to receive payment is established.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 81


summary of significant accounting policies
for the financial year ended 31 December 2013

(H) FINANCIAL ASSETS

All financial assets which include derivative financial instruments have to be recognised in the statement of financial position
and measured in accordance with their assigned category.

The Group and the Bank allocate financial assets in the following MFRS 139 categories:
Loans, advances and financing, financial assets at fair value through profit or loss, financial investments available-for-sale;
and financial investments held-to-maturity. Management determines the classification of its financial instruments at initial
recognition.

Loans, advances and financing

Loans, advances and financing are non-derivative financial assets with fixed or determinable payments that are not quoted in
active market.

Loans, advances and financing are initially recognised at fair value which is the cash consideration to originate or purchase the
loan including any transaction costs and measured subsequently at amortised cost using the effective interest rate method,
less impairment allowance.

An uncollectible loan, advance and financing or portion of a loan, advance and financing classified as bad is written off
after taking into consideration the realisable value of collateral, if any, when in the judgment of the management, there is no
prospect of recovery.

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

The criteria that the Group and the Bank use to determine that there is objective evidence of an impairment loss include
among others:

• past due contractual payments;


• significant financial difficulties of borrower;
• probability of bankruptcy or other financial re-organisation; and
• default of related borrower.

The estimated period between a loss occurring and its identification for credit cards is six months and for all other loans are
twelve months.

The Group and the Bank first assess whether objective evidence of impairment exists individually for loans that are individually
significant, and individually or collectively for loans that are not individually significant. If the Group and the Bank determine
that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the
loan in a group of loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are
individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a
collective assessment of impairment. Loans that are individually assessed for impairment and for which no impairment loss is
required (over collateralised loans) are collectively assessed as a separate segment.

The amount of the loss is measured as the difference between the loan’s carrying amount and the present value of estimated
future cash flows (excluding future credit losses that have not been incurred) discounted at the loan’s original effective interest
rate. The carrying amount of the loan is reduced through the use of an allowance account and the amount of the loss is
recognised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss
is the current effective interest rate determined under the contract.

82 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(H) FINANCIAL ASSETS

Loans, advances and financing (continued)



The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that may
result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics.
Those characteristics are relevant to the estimation of future cash flows for groups of such loans by being indicative of the
borrowers’ ability to pay all amounts due according to the contractual terms of the loans being evaluated.

Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual
cash flows of the loans in the Bank and historical loss experience for loans with credit risk characteristics similar to those in the
Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions
that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the
historical period that do not currently exist.

Estimates of changes in future cash flows for groups of loans should reflect and be directionally consistent with changes
in related observable data from period to period (for example, changes in unemployment rates, property prices, payment
status, or other factors indicative of changes in the probability of losses in the Group and the Bank and their magnitude). The
methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group and the Bank to
reduce any differences between loss estimates and actual loss experience.

Rescheduled and restructured loans

Where a loan shows evidence of credit weaknesses, the Group and the Bank may seek to renegotiate the loan rather than to
take possession of collateral. This may involve an extension of the payment arrangements via rescheduling or the renegotiation
of new loan terms and conditions via restructuring. Management monitors the renegotiated loan to ensure that all the revised
terms are met and that the repayments are made promptly for a continuous period. Where an impaired loan is renegotiated,
the borrower must adhere to the revised and/or restructured repayment terms for a continuous period of six months before the
loan is classified as non-impaired. These loans continue to be subjected to individual or collective impairment assessment.

Financial assets at fair value through profit or loss

This category comprises two sub-categories: financial assets classified as held-for-trading and financial assets designated by
the Group and the Bank as at fair value through profit or loss upon initial recognition.

A financial asset is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing
it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there
is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless
they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as
‘Derivative financial assets’ when their fair values are positive. Financial assets held-for-trading consist of debt instruments,
including money-market paper, traded corporate and bank loans, and equity instruments, as well as financial assets with
embedded derivatives. They are recognised in the statement of financial position as ‘Financial assets held-for-trading’.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 83


summary of significant accounting policies
for the financial year ended 31 December 2013

(H) FINANCIAL ASSETS

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

Financial instruments included in this category are recognised initially at fair value; transaction costs are taken directly to the
income statement. Financial assets at fair value through profit or loss are subsequently carried at fair value. Changes in fair
values including the effects of currency translation, interest and dividend income are recognised in the income statement in
the period in which the changes arise.

The Group and the Bank may designate certain financial assets upon initial recognition as at fair value through profit or loss
(fair value option). This designation cannot subsequently be changed. The fair value option is only applied when the following
conditions are met:

• the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise; or

• the financial assets are part of a portfolio of financial instruments which is risk managed and reported to senior management
on a fair value basis; or

• the financial assets consists of debt host and an embedded derivatives that must be separated.

Financial assets for which the fair value option is applied are recognised in the statement of financial position as ‘Financial
assets designated at fair value’. Fair value changes relating to financial assets designated at fair value through profit or loss
are recognised in the income statement.

The Group and the Bank may choose to reclassify a non-derivative financial assets held-for-trading out of this category where:

• in rare circumstances, it is no longer held for the purpose of selling or repurchasing in the near term; or

• it is no longer held for purpose of trading, it would have met the definition of a loan and receivable on initial classification
and the Group and the Bank have the intention and ability to hold it for the foreseeable future or until maturity.

Financial investments available-for-sale

Financial investments available-for-sale are non-derivative financial assets that are either designated in this category or not
classified as loans and receivables, held-for-trading or held-to-maturity investments.

Financial instruments available-for-sale are initially recognised at fair value plus transaction costs and subsequently measured
at fair value.

Investments in equity instruments where there is no quoted market price in an active market and whose fair value cannot be
reliably measured, will be stated at cost.

Any gains or losses arising from the change in fair value adjustments are recognised directly in statement of comprehensive
income except for impairment losses and foreign exchange gains or losses. When the financial asset is derecognised, the
cumulative gains or loss previously recognised in statement of comprehensive income shall be transferred to the income
statement.

A financial investments available-for-sale that would have met the definition of loans and receivables may only be transferred
from the available-for-sale classification where the Group and the Bank have the intention and the ability to hold the asset for
the foreseeable future or until maturity.

84 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(H) FINANCIAL ASSETS

Financial investments available-for-sale (continued)

Impairment of financial investments available-for-sale is assessed when there is an objective evidence of impairment.
Cumulative unrealised losses that had been recognised directly in equity shall be removed and recognised in income
statement even though the securities have not been de-recognised. Impairment loss in addition to the above unrealised
losses is also recognised in the income statement. Subsequent reversal of impairment on debt instrument in the income
statement is allowed when the decrease in impairment can be related objectively to an event occurring after the impairment
was recognised.

For debt securities, the Group set the criteria similar to assets carried at amortised cost.

In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the
security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. Impairment
losses recognised in the income statement on equity instruments shall not be reversed.

Financial investments held-to-maturity

Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed
maturity that the Group and the Bank have the positive intention and ability to hold to maturity.

Financial investments held-to-maturity are initially recognised at fair value plus transaction costs, and subsequently measured
at amortised cost using the effective interest method.

Financial investments held-to-maturity are measured at amortised cost using the effective interest method. Gains or losses
are recognised in income statement when the securities are derecognised or impaired and through the amortisation process.

If, as a result of a change in intention or ability, it is no longer appropriate to classify a financial investment as held-to-maturity,
the Group and the Bank shall reclassify the investment as available-for-sale and remeasured at fair value, and the difference
between its carrying amount and fair value shall be recognised in other comprehensive income, except for impairment losses
and foreign exchange gains and losses.

Any sale or reclassification of a significant amount of financial investments held-to-maturity before maturity during the
current financial year or last two preceding financial years will “taint” the entire category and result in the remaining financial
investments held-to-maturity being reclassified to available-for-sale except for sales or reclassification that:

• are so close to maturity or call date that changes in the market rate of interest would not have significant effect on the
financial asset’s fair value; or

• occur after the Group and the Bank have collected substantially all of the financial asset’s original principal; or

• are attributable to an isolated event that is beyond the Group and the Bank’s control are non-recurring and could not have
been reasonably anticipated by the Group and the Bank.

Impairment of financial investments held-to-maturity is assessed when there is an objective evidence of impairment. The
impairment loss is measured as the difference between the financial investments’ carrying amount and the present value of
estimated future cash flows discounted at the financial investments’ original effective interest rate. Subsequent reversal of
impairment is allowed in the event of an objective decrease in impairment. Recognition of impairment losses and its reversal
is made through the income statement.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 85


summary of significant accounting policies
for the financial year ended 31 December 2013

(H) FINANCIAL ASSETS

Recognition

The Group and the Bank use settlement date accounting for regular way contracts when recording financial asset transactions.
Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the statement of
financial position as ‘Assets pledged as collateral’, if the transferee has the right to sell or repledge them.

De-recognition

Financial assets are de-recognised when the contractual rights to receive the cash flows from these assets have ceased
to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also
transferred (that is, if substantially all the risks and rewards have not been transferred, the Group and the Bank tests control
to ensure that continuing involvement on the basis of any retained powers of control does not prevent de-recognition).

(I) FINANCIAL LIABILITIES

All financial liabilities which include derivative financial instruments have to be recognised in the statement of financial position
and measured in accordance with their assigned category.

The Group and the Bank’s holding in financial liabilities are in financial liabilities at fair value through profit or loss (including
financial liabilities held-for-trading and those that designated at fair value) and financial liabilities at amortised cost. Financial
liabilities are de-recognised when extinguished.

Financial liabilities at fair value through profit or loss

This category comprises two sub-categories: financial liabilities classified as held-for-trading, and financial liabilities designated
by the Group and the Bank as at fair value through profit or loss upon initial recognition.

A financial liability is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing
it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there
is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless
they are designated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as
‘Derivative financial liabilities’ when their fair values are negative.

Gains and losses arising from changes in fair value of financial liabilities classified held-for-trading are included in the income
statement.

Other liabilities measured at amortised cost

Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at
amortised cost. All the financial liabilities except for derivative financial liabilities of the Group and the Bank are measured at
amortised cost.

De-recognition

Financial liabilities are de-recognised when they have been redeemed or otherwise extinguished.

86 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(J) OFFSETTING FINANCIAL INSTRUMENTS

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a
legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets
and settle the liability simultaneously.

(K) PROPERTY AND EQUIPMENT AND DEPRECIATION

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the items.

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

Freehold land is not depreciated as it has an infinite life. Other property and equipment are depreciated on the straight-line
basis to write off the cost of the assets or their revalued amounts, to their residual values over their estimated useful lives,
summarised as follows:

Buildings 50 years
Leasehold buildings 50 years or over the remaining lease period, whichever is shorter
Renovation and leasehold premises 5 years or the period of the lease whichever is greater
Office equipment and furniture 10 years
Computer equipment and software 5 years
Motor vehicles 5 years

Depreciation on capital work in progress commences when the assets are ready for their intended use.

Residual value and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date.

At each reporting date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis
is performed to assess whether the carrying amount of the asset is recoverable. A write down is made if the carrying amount
exceeds the recoverable amount. Any subsequent increase in the recoverable amount is recognised in the income statement
(refer to accounting policy E on impairment of non-financial assets).

Gains and losses on disposal are determined by comparing proceeds with carrying amount and are recognised within other
operating income in the income statement.

(L) LEASES

Accounting by lessee

Finance leases

Leases of property and equipment where the Group assumes substantially all the benefits and risks of ownership are classified
as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased
property and the present value of the minimum lease payments.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 87


summary of significant accounting policies
for the financial year ended 31 December 2013

(L) LEASES

Accounting by lessee (continued)

Finance leases (continued)

Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate on the
finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The
interest element of the finance charge is charged to the income statement over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period. Property and equipment acquired under
finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to the carrying amount of
the leased assets and recognised as an expense in income statement over the lease term on the same basis as the lease
expense.

Operating leases

Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the
income statement on the straight-line basis over the lease period.

Initial direct costs incurred by the Group in negotiating and arranging operating leases are recognised in income statement
when incurred.

Accounting by lessor

Finance leases

When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The
difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.
Lease income is recognised over the term of the lease using the net investment method so as to reflect a constant periodic
rate of return.

Operating leases

When assets are leased out under an operating lease, the asset is included in the statement of financial position based on the
nature of the asset. Lease income is recognised over the term of the lease on a straight-line basis.

(M) FOREIGN CURRENCY TRANSLATIONS

Functional and presentation currency

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

88 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(M) FOREIGN CURRENCY TRANSLATIONS

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchanges rate prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in
the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

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

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

(N) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

Derivatives are initially recognised at fair values on the date on which derivative contracts are entered into and are subsequently
remeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market
transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All
derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative.

The best evidence of fair value of a derivative at initial recognition is the transaction price (i.e the fair value of the consideration
given or received) unless fair value of the instrument is evidenced by comparison with other observable current market
transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose
variables include only data from observable markets.

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

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

Fair value hedge

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

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

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 89


summary of significant accounting policies
for the financial year ended 31 December 2013

(N) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recognised in other comprehensive income. The gain and loss relating to the ineffective portion is recognised immediately in
the income statement.

Amounts accumulated in other comprehensive income are recycled to the income statement in the periods in which the
hedged item will affect income statement (for example, when the forecast sale that is hedged take place).

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

Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that
does not qualify for hedge accounting are recognised immediately in the income statement.

Gains and losses on interest rate swaps, futures, forward and option contracts that qualify as hedges are deferred and
amortised over the life of hedged assets or liabilities as adjustments to interest income or interest expense. Gains and losses
on interest rate swaps, futures, forward and option contracts that do not qualify as hedges are recognised in the current
financial year using the mark-to-market method and are included in the income statement.

(O) CURRENT AND DEFERRED INCOME TAXES

Current tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in income statement, except to the
extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also
recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the
reporting period where the Group’s subsidiaries and branch operate and generate taxable income.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation
is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities. This liability is measured using the single best estimate of the most likely outcome.

Deferred tax

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

90 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(O) CURRENT AND DEFERRED INCOME TAXES

Deferred tax (continued)

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences or unused tax losses can be utilised.

Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the end of the
reporting date and are expected to apply when the related deferred tax assets is realised or the deferred tax liability is settled.

Deferred tax is recognised on temporary differences arising on investment in subsidiaries and jointly controlled entity except
where the timing of the reversal of the temporary difference can be controlled by the Group and it is possible that the
temporary difference will not reverse in the foreseeable future.

Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation
authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on net basis.

(P) ZAKAT

Zakat represents business zakat payable by the Group to comply with the principles of Shariah and as approved by the
Shariah Committee. The Bank’s subsidiary, AFFIN Islamic Bank Berhad only pays zakat on its business and does not pay
zakat on behalf of depositors. Zakat provision is calculated based on 2.5775% of the prior year’s net asset method.

(Q) CASH AND CASH EQUIVALENTS

Cash and cash equivalents consists of cash in hand, bank balances and deposits and placements maturing within one month
which are held for the purpose of meeting short term commitments and are readily convertible to cash without significant risk
of changes in value.

(R) FORECLOSED PROPERTIES

Foreclosed properties are stated at the lower of cost and net realisable value.

(S) CONTINGENT LIABILITIES AND CONTINGENT ASSETS

The Group and the Bank do not recognise a contingent liability but disclose its existence in the financial statements. A
contingent liability is possible obligation that arises from past events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain future events beyond the control of the Group and the Bank or a present obligation
that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A
contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot
be measured reliably. However, contingent liabilities do not include financial guarantee contracts.

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

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 91


summary of significant accounting policies
for the financial year ended 31 December 2013

(T ) BILLS AND ACCEPTANCES PAYABLE

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

(U) OTHER PROVISIONS

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

• the Group and the Bank has a present legal or constructive obligation as a result of past events;

• it is probable that an outflow of resources to settle the obligation will be required; and

• a reliable estimate of the amount of obligation can be made.

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

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

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

(V) EMPLOYEE BENEFITS

Short-term employee benefits

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

Defined contribution plan

The defined contribution plan is a pension plan under which the Group pays fixed contributions to the National Pension
Scheme, the Employees’ Provident Fund (‘EPF’) and will have no legal or constructive obligations to pay further contributions
if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior
periods.

The Group’s contribution to defined contribution plans are charged to the income statement in the period to which they relate.
Once the contributions have been paid, the Group has no further payment obligations.

Termination benefits

Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination
benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed
formal plan without any possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage
voluntary redundancy.

92 AFFIN BANK BERHAD (25046-T) Annual Report 2013


summary of significant accounting policies
for the financial year ended 31 December 2013

(W) FINANCIAL GUARANTEE CONTRACTS

Financial guarantee contracts are contracts that require the Group or Bank to make specified payments to reimburse the
holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt
instrument. Such financial guarantees are given to financial institutions and other bodies on behalf of customers to secure
loans, overdrafts and other banking facilities.

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The fair value of a
financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms and the value of
the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised.

The liability is subsequently recognised at the higher of the amount determined in accordance with MFRS 137 “Provisions,
contingent liabilities and contingent assets” and the amount initially recognised less cumulative amortisation, where
appropriate.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the
contractual payments under the debt instrument and the payments that would be required without the guarantee, or the
estimated amount that would be payable to a third party for assuming the obligations.

Where financial guarantees in relation to loans or payables of subsidiaries are provided by the Group for no compensation,
the fair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries.

(X) SALE AND REPURCHASE AGREEMENTS

Securities purchased under resale agreements are securities which the Group and the Bank have purchased with a commitment
to resell at future dates. The commitment to resell the securities is reflected as an asset on the statements of financial position.

Conversely, obligations on securities sold under repurchase agreements are securities which the Group and the Bank have
sold from its portfolio, with a commitment to repurchase at future dates. Such financing and the obligation to repurchase the
securities is reflected as a liability on the statement of financial position.

The difference between sale and repurchase price as well as purchase and resale price are amortised as interest income and
interest expense respectively on an effective yield method.

(Y) PROFIT EQUALISATION RESERVE (‘PER’)

AFFIN Islamic Bank Berhad (‘AFFIN Islamic’) a wholly owned and subsidiary of the Bank has adopted the revised Guidelines
on PER and has apply in managing the Displaced Commercial Risk (‘DCR’) in accordance with Shariah principles. The PER is
for Mudharabah accounts/deposit products.

Under the PER Guidelines, the release of PER shall be appropriated from both Investment Account Holder (‘IAH’) and AFFIN
Islamic’s portion based on the contractual profit sharing ratio at the point of utilisation. The amount of PER shall be limited to
the maximum of the either PER of the IAH or AFFIN Islamic depending on prevailing profit sharing ratio.

The IAH portion of the existing PER shall be classified as a liability and is recognised at cost. Subsequent apportionments will
be recognised in the income statement. The eventual distribution of PER as profit distributable to the IAH will be treated as
an outflow of funds due to the settlement of the obligation to the IAH.

The PER of the AFFIN Islamic shall be classified as a separate reserve in equity and subsequent apportionments from and
distributions to retained earnings will be treated as a transfer between reserves.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 93


notes to the
financial statements
for the financial year ended 31 December 2013

1 GENERAL INFORMATION

The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank’s
subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been
no significant changes in these principal activities during the financial year.

The number of employees in the Group and the Bank as at 31 December 2013 was 3,417 (2012: 3,342) and 3,187 (2012:
3,122) employees respectively.

The holding company of the Bank is AFFIN Holdings Berhad, a public listed company incorporated in Malaysia and the
ultimate holding corporate body is Lembaga Tabung Angkatan Tentera, a statutory body incorporated under the Tabung
Angkatan Tentera Act, 1973.

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

2 CASH AND SHORT-TERM FUNDS

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Cash and bank balances with banks


and other financial institutions 207,501 215,228 202,529 210,501
Money at call and deposit placements
maturing within one month 9,194,200 7,433,676 4,785,167 3,423,341
9,401,701 7,648,904 4,987,696 3,633,842

3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Licensed banks 359,040 286,920 983,199 834,301


Licensed investment banks 123,557 209,524 123,557 209,524
Bank Negara Malaysia - 100,008 - -
482,597 596,452 1,106,756 1,043,825

94 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

4 FINANCIAL ASSETS HELD-FOR-TRADING

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

At fair value
Bank Negara Malaysia Monetary Notes 149,544 - 149,544 -
Negotiable Instruments of Deposit - 150,276 - 150,276
Private debt securities in Malaysia - 15,316 - 15,316
149,544 165,592 149,544 165,592

5 DERIVATIVE FINANCIAL ASSETS

The Group and The Bank The Group and The Bank
2013 2012
Contract/ Contract/
notional notional
amount Assets amount Assets
RM’000 RM’000 RM’000 RM’000

At fair value
Foreign exchange derivatives:
Currency forwards 312,991 6,979 601,636 9,504
Cross currency swaps 1,230,649 19,660 1,871,775 37,661

Interest rate derivatives:


Interest rate swaps 1,920,713 29,635 788,622 21,707
3,464,353 56,274 3,262,033 68,872

By maturity structure of positive fair value

The Group and The Bank


2013 2012
RM’000 RM’000

Maturing within one year 28,717 43,345


One year to three years 7,320 12,848
Three years to five years 5,597 4,427
Over five years 14,640 8,252
56,274 68,872

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 95


notes to the financial statements
for the financial year ended 31 December 2013

6 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

At fair value
Malaysian Government securities - 5,070 - 5,070
Malaysian Government investment issues 1,759,211 1,879,076 1,142,371 1,004,366
Sukuk Perumahan Kerajaan 337,661 120,550 269,361 120,550
Bank Negara Malaysia Monetary Notes 629,674 884,069 571,160 517,015
Negotiable Instruments of Deposit and
Islamic Debt Certificates 882,314 752,059 882,314 752,059
Bankers’ acceptances and Islamic
accepted bills 196,522 163,751 196,522 163,751
Khazanah Bonds/Sukuk 237,441 193,746 207,756 157,556
4,042,823 3,998,321 3,269,484 2,720,367

Quoted securities:
Shares in Malaysia 13,604 17,736 13,122 12,806
Private debt securities in Malaysia 2,167 4,173 2,167 4,173

Unquoted securities:
Shares in Malaysia 148,155 135,595 148,086 135,526
Private debt securities
- in Malaysia 2,947,839 3,067,124 2,438,124 2,365,334
- outside Malaysia 504,721 465,736 504,721 465,736
7,659,309 7,688,685 6,375,704 5,703,942

Allowance for impairment of securities (44,772) (48,031) (44,290) (45,781)


7,614,537 7,640,654 6,331,414 5,658,161

Movement in allowance for financial investments


available-for-sale

At beginning of the financial year 48,031 28,335 45,781 21,591


Allowance made during the year 499 812 499 812
Written-off of allowance for impairment loss (3,758) (9,900) (1,990) (4,924)
Transfer from financial investments held-to-maturity - 28,784 - 28,784
Transfer to subsidiary - - - (482)
At end of the financial year 44,772 48,031 44,290 45,781

96 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

7 FINANCIAL INVESTMENTS HELD-TO-MATURITY

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

At amortised cost
Quoted securities:
Private debt securities in Malaysia 31,781 31,781 31,781 31,781

Unquoted securities:
Private debt securities in Malaysia 524,919 482,037 439,854 482,037
556,700 513,818 471,635 513,818
Allowance for impairment of securities (56,364) (62,148) (56,364) (62,148)
500,336 451,670 415,271 451,670

Movement in allowance for financial investments


held-to-maturity

At beginning of the financial year 62,148 87,584 62,148 87,584


Allowance made during the year - 9,590 - 9,590
Written-off of allowance for impairment loss (5,784) (6,242) (5,784) (6,242)
Transfer to financial investments available-for-sale - (28,784) - (28,784)
At end of the financial year 56,364 62,148 56,364 62,148

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 97


notes to the financial statements
for the financial year ended 31 December 2013

8 LOANS, ADVANCES AND FINANCING

(i) By type

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Overdrafts 1,752,882 1,834,204 1,569,936 1,647,184


Term loans/financing
- Housing loans/financing 5,510,534 5,176,283 3,797,843 3,664,322
- Hire purchase receivables 10,524,044 9,595,286 8,728,354 8,157,056
- Syndicated financing 1,520,412 1,410,697 1,252,340 1,150,704
- Business term loans/financing 12,540,363 11,198,302 10,929,608 9,740,164
Bills receivables 318,677 452,075 286,417 451,685
Trust receipts 435,591 435,425 409,889 406,979
Claims on customers under
acceptances credits 986,666 1,040,695 919,192 907,118
Staff loans/financing (of which
RM Nil to Directors) 138,769 143,138 127,888 132,239
Credit/charge cards 82,137 85,258 82,137 85,258
Revolving credits 2,934,652 2,640,078 2,523,945 2,455,344
Factoring 7,073 4,186 7,073 4,186
Gross loans, advances and financing 36,751,800 34,015,627 30,634,622 28,802,239
Less:
Allowance for impairment
- Individual (223,701) (210,372) (189,117) (175,277)
- Collective (300,314) (322,629) (266,595) (287,693)
Total net loans, advances and financing 36,227,785 33,482,626 30,178,910 28,339,269

- Included in term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM397,790,000 (2012:
RM413,549,000).
- Included in Group’s business term loans/financing as at reporting date is RM47.4 million (2012: RM35.2 million) of term
financing disbursed by AFFIN Islamic Bank Bhd to jointly controlled entity, AFFIN-i Nadayu Sdn Bhd.

98 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

8 LOANS, ADVANCES AND FINANCING

(ii) By maturity structure

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Maturing within one year 7,183,104 7,094,994 6,433,997 6,529,283


One year to three years 4,955,354 3,776,830 4,394,607 3,422,247
Three years to five years 6,498,822 7,027,289 5,727,883 6,256,576
Over five years 18,114,520 16,116,514 14,078,135 12,594,133
36,751,800 34,015,627 30,634,622 28,802,239

(iii) By type of customer

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Domestic banking institutions - 1,335 - 1,335


Domestic non-banking institutions
- Stockbroking companies 241 253 241 253
- Others 1,622,525 1,702,223 1,449,099 1,392,164
Domestic business enterprises
- Small medium enterprises 5,900,985 5,159,162 5,421,258 4,731,171
- Others 13,234,095 12,236,170 11,649,365 10,909,570
Government and statutory bodies 162,591 117,523 108,756 95,861
Individuals 14,939,353 13,980,454 11,475,917 11,064,103
Other domestic entities 251,166 128,982 8,567 43,256
Foreign entities 640,844 689,525 521,419 564,526
36,751,800 34,015,627 30,634,622 28,802,239

(iv) By interest/profit rate sensitivity

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Fixed rate
- Housing loans/financing 309,977 306,969 237,886 223,958
- Hire purchase receivables 10,524,043 9,595,286 8,728,354 8,157,056
- Other fixed rate loans/financing 4,178,246 4,238,013 3,556,430 3,575,916
Variable rate
- BLR plus 14,098,831 13,680,021 11,458,345 11,284,216
- Cost plus 7,640,703 6,195,338 6,653,607 5,561,093
36,751,800 34,015,627 30,634,622 28,802,239

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 99


notes to the financial statements
for the financial year ended 31 December 2013

8 LOANS, ADVANCES AND FINANCING

(v) By economic sectors

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Primary agriculture 478,281 541,309 470,268 456,231


Mining and quarrying 649,621 473,549 648,488 472,737
Manufacturing 2,516,273 2,652,586 2,297,207 2,431,936
Electricity, gas and water supply 290,994 465,812 253,405 442,841
Construction 3,277,346 2,996,080 2,772,575 2,565,423
Real estate 4,623,807 3,710,269 4,192,630 3,300,797
Wholesale & retail trade and restaurants & hotels 2,140,392 1,772,302 1,993,533 1,635,026
Transport, storage and communication 1,965,627 1,684,162 1,858,700 1,667,015
Finance, insurance and business services 4,360,854 4,198,676 3,837,340 3,711,166
Education, health and others 1,358,801 1,326,793 711,807 866,577
Household 15,082,264 14,123,648 11,593,915 11,183,065
Others 7,540 70,441 4,754 69,425
36,751,800 34,015,627 30,634,622 28,802,239

(vi) By economic purpose

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Purchase of securities 326,463 111,002 326,450 110,968


Purchase of transport vehicles 11,232,452 10,032,763 9,438,264 8,594,582
Purchase of landed property of which:
- Residential 5,948,524 5,170,831 4,219,088 3,569,346
- Non-residential 5,009,095 4,738,255 4,161,066 3,872,481
Fixed assets other than land and building 238,059 330,383 158,411 264,500
Personal use 933,727 956,755 899,671 916,901
Credit card 82,137 85,258 82,137 85,258
Consumer durable 868 860 860 843
Construction 1,996,832 2,068,031 1,417,340 1,853,956
Merger and acquisition 312,667 419,051 312,667 419,051
Working capital 9,945,383 9,537,743 8,928,713 8,556,715
Others 725,593 564,695 689,955 557,638
36,751,800 34,015,627 30,634,622 28,802,239

100 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

8 LOANS, ADVANCES AND FINANCING

(vii) By geographical distribution

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Perlis 85,125 84,463 33,470 75,126


Kedah 1,088,305 1,051,167 754,925 775,217
Pulau Pinang 1,825,875 1,665,271 1,698,009 1,574,914
Perak 1,163,213 1,037,353 848,478 787,392
Selangor 11,281,264 10,829,556 9,140,199 8,975,233
Wilayah Persekutuan 10,529,110 9,614,422 8,901,544 8,196,935
Negeri Sembilan 813,316 754,375 676,394 656,033
Melaka 869,233 767,272 782,055 711,588
Johor 3,207,965 2,815,016 2,946,869 2,633,855
Pahang 755,143 679,379 504,854 429,283
Terengganu 989,295 844,224 609,267 490,010
Kelantan 244,022 243,555 49,906 47,809
Sarawak 1,117,347 995,737 1,088,646 968,982
Sabah 1,692,677 1,533,859 1,604,644 1,480,515
Labuan 553,770 187,347 553,682 187,340
Outside Malaysia 536,140 912,631 441,680 812,007
36,751,800 34,015,627 30,634,622 28,802,239

(viii) Movements of impaired loans

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

At beginning of the financial year 753,194 865,662 623,403 693,318


Classified as impaired 432,629 535,712 363,583 468,672
Reclassified as non-impaired (298,268) (375,518) (252,304) (295,513)
Amount recovered (130,527) (123,546) (110,745) (102,162)
Amount written-off (50,843) (149,116) (49,382) (140,912)
At end of the financial year 706,185 753,194 574,555 623,403

Ratio of gross impaired loans, advances and


financing to gross loans, advances and financing 1.92% 2.21% 1.88% 2.16%

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 101


notes to the financial statements
for the financial year ended 31 December 2013

8 LOANS, ADVANCES AND FINANCING

(ix) Movements in allowance for impairment on loans, advances and financing

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Individual impairment

At beginning of the financial year 210,372 168,257 175,277 133,329


Provision for loan impairment 47,903 72,213 47,213 69,391
Amount recovered (4,031) (2,716) (3,598) (2,546)
Amount written-off (12,974) (13,362) (12,974) (13,362)
Unwinding of discount of allowance (17,825) (14,020) (16,780) (11,535)
Exchange differences 256 - (21) -
At end of the financial year 223,701 210,372 189,117 175,277

Collective impairment

At beginning of the financial year 322,629 451,599 287,693 390,890


Provision for loan impairment 15,253 6,672 15,011 24,242
Amount written-off (37,568) (135,642) (36,109) (127,439)
At end of the financial year 300,314 322,629 266,595 287,693

(x) Impaired loans by economic sectors

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Primary agriculture 6,335 7,482 6,222 7,482


Mining and quarrying - 62 - -
Manufacturing 40,414 50,795 18,373 29,916
Electricity, gas and water supply 118 1,641 118 1,641
Construction 193,447 180,667 127,471 114,475
Real estate 190 3,797 190 3,797
Wholesale & retail trade and restaurants & hotels 31,222 27,246 29,213 23,746
Transport, storage and communication 9,542 7,212 9,477 7,155
Finance, insurance and business services 60,065 63,880 59,483 63,114
Education, health and others 1,868 4,107 1,868 4,107
Household 362,984 399,019 322,140 360,787
Others - 7,286 - 7,183
706,185 753,194 574,555 623,403

102 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

8 LOANS, ADVANCES AND FINANCING

(xi) Impaired loans by economic purpose

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Purchase of securities 11,641 13,678 11,641 13,678


Purchase of transport vehicles 75,350 54,781 66,780 48,702
Purchase of landed property of which:
- Residential 272,103 329,360 241,357 297,245
- Non-residential 23,707 26,575 21,762 26,015
Fixed assets other than land and building 282 5,063 282 5,063
Personal use 7,937 6,738 7,742 6,738
Credit card 476 508 476 508
Consumer durable 14 29 14 29
Construction 65,797 61,437 141 141
Working capital 234,766 243,861 210,248 214,224
Others 14,112 11,164 14,112 11,060
706,185 753,194 574,555 623,403

(xii) Impaired loans by geographical distribution

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Perlis 472 138 460 138


Kedah 23,005 24,622 21,182 23,397
Pulau Pinang 18,781 18,684 17,309 17,342
Perak 14,081 20,754 11,015 19,270
Selangor 318,270 344,927 276,443 300,176
Wilayah Persekutuan 117,805 142,238 114,492 136,283
Negeri Sembilan 28,827 31,248 26,196 28,873
Melaka 8,368 7,452 8,011 7,215
Johor 46,552 52,426 43,939 50,310
Pahang 12,038 10,058 8,670 7,097
Terengganu 5,465 3,681 2,985 1,994
Kelantan 4,124 4,153 1,803 1,778
Sarawak 6,290 5,741 5,794 5,154
Sabah 11,298 10,460 11,100 9,060
Labuan - 21 - 21
Outside Malaysia 90,809 76,591 25,156 15,295
706,185 753,194 574,555 623,403

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 103


notes to the financial statements
for the financial year ended 31 December 2013

9 OTHER ASSETS

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Other debtors, deposits and prepayments 35,131 33,532 34,288 32,057


Cheque clearing accounts 169,141 233,351 127,621 170,137
Foreclosed properties (a) 15,825 26,745 14,646 25,566
Others - 30 - 30
220,097 293,658 176,555 227,790

(a) Foreclosed properties

At beginning of the financial year 26,745 40,337 25,566 38,962


Disposal during the financial year (10,920) (11,470) (10,920) (11,274)
15,825 28,867 14,646 27,688
Foreclosed properties - diminution in value - (2,122) - (2,122)
At end of the financial year 15,825 26,745 14,646 25,566

10 AMOUNT DUE FROM SUBSIDIARIES

The Bank
2013 2012
RM’000 RM’000

Advances to a subsidiary 60,115 153,296


Other receivables 608 653
60,723 153,949

The advances of RM60,115,000 (2012: RM153,296,000) to subsidiary are unsecured, bear interest at 3.00% per annum
(2012: 3.08%) and have no fixed terms of repayment.

104 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

11 DEFERRED TAX ASSETS / (LIABILITIES)

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

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Deferred tax assets:


- to be recovered after more than 12 months (5,531) - (5,263) -
- to be recovered within 12 months 15,476 - 12,248 -
9,945 - 6,985 -

Deferred tax liabilities:


- to be recovered after more than 12 months - (5,278) - (4,468)
- to be recovered within 12 months - (8,087) - (8,631)
- (13,365) - (13,099)

At beginning of the financial year (13,365) (20,118) (13,099) (19,211)


(Charged)/credited to income statement (Note 34) (1,501) 7,171 (1,674) 6,568
- property and equipment 471 185 532 112
- intangible assets (703) 1,920 (917) 1,721
- provision for other liabilities (1,269) 5,066 (1,289) 4,735

Charged to equity 24,811 (418) 21,758 (456)


At end of the financial year 9,945 (13,365) 6,985 (13,099)

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 105


notes to the financial statements
for the financial year ended 31 December 2013

11 DEFERRED TAX ASSETS / (LIABILITIES)

The movements in deferred tax assets and liabilities during the financial year are as follows:

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Subject to income tax


Deferred tax assets (before offsetting)
AFS revaluation reserves 2,187 - - -
Provision for other liabilities 18,543 19,813 17,062 18,351
20,730 19,813 17,062 18,351
Offsetting (10,785) (19,813) (10,077) (18,351)
Deferred tax assets (after offsetting) 9,945 - 6,985 -

Deferred tax liabilities (before offsetting)


Property and equipment (4,759) (5,228) (4,451) (4,983)
Intangible assets (4,458) (3,756) (4,058) (3,141)
AFS revaluation reserves (1,568) (24,194) (1,568) (23,326)
(10,785) (33,178) (10,077) (31,450)
Offsetting 10,785 19,813 10,077 18,351
Deferred tax liabilities (after offsetting) - (13,365) - (13,099)

The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as
follows:

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Tax losses 99,209 102,898 - -

12 STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA

A non-interest bearing statutory deposit is maintained with Bank Negara Malaysia in compliance with requirements of
Section 26(2)(c) of the Central Bank of Malaysia Act 2009, the amounts of which is determined at a set percentages of total
eligible liabilities.

13 INVESTMENT IN SUBSIDIARIES

The Bank
2013 2012
RM’000 RM’000

Unquoted shares, at cost 419,549 419,557


Less: Allowance for impairment losses (30,461) (32,168)
389,088 387,389

106 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

13 INVESTMENT IN SUBSIDIARIES

The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:

Percentage of equity held


Name Principal Activities 2013 2012
% %

AFFIN Islamic Bank Bhd Islamic banking business 100 100


PAB Properties Sdn Bhd Property management services 100 100
ABB Nominee (Tempatan) Sdn Bhd Share nominee services 100 100
ABB Nominee (Asing) Sdn Bhd Share nominee services 100 100
ABB Trustee Berhad * Trustee management services 100 100
AFFIN Factors Sdn Bhd Dormant 100 100
AFFIN Futures Sdn Bhd Dormant 100 100
PAB Property Management Services Sdn Bhd Dormant 100 100
PAB Property Development Sdn Bhd Dormant 100 100
ABB Venture Capital Sdn Bhd Dormant 100 100
ABB IT & Services Sdn Bhd Dormant 100 100
BSNCB Nominees (Tempatan) Sdn Bhd Dormant 100 100
BSNC Nominees (Tempatan) Sdn Bhd Dormant 100 100
AFFIN Recoveries Bhd Dormant 100 100
BSN Merchant Nominees (Asing) Sdn Bhd Dormant 100 100
AFFIN-ACF Nominees (Tempatan) Sdn Bhd Dormant 100 100
BSN Merchant Nominees (Tempatan) Sdn Bhd - - -
ABB Asset Management (M) Bhd - - 100

* 80% held by Directors of the Bank, in trust for the Bank.

The Bank has received resolution to dissolve the followings:


- BSN Merchant Nominees (Tempatan) Sdn Bhd on 23 March 2012 and
- ABB Asset Management (M) Bhd on 22 November 2013.

14 INVESTMENT IN JOINTLY CONTROLLED ENTITY

The Group
2013 2012
RM’000 RM’000

Unquoted shares at cost 650 500


Group’s share of post acquisition retained losses (650) (440)
- 60

The summarised financial information of jointly controlled entity are as follows:


Revenue 16,781 8
Loss after tax (3,050) (460)
Total assets 181,084 46,516
Total liabilities 183,572 46,396
Capital commitment for property and equipment - -

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 107


notes to the financial statements
for the financial year ended 31 December 2013

14 INVESTMENT IN JOINTLY CONTROLLED ENTITY

AFFIN-i Nadayu Sdn Bhd

The jointly controlled entity was incorporated on 1 April 2008 and the details are as follows:

Issued and Percentage of


paid up equity held
share capital 2013 2012
Name Principal activities RM’000 % %

AFFIN-i Nadayu Sdn Bhd Land development project 1,000 50 50

On 1 April 2008, AFFIN Islamic Bank Berhad and Jurus Positif Sdn Bhd, a subsidiary of Nadayu Properties Berhad (fka
Mutiara Goodyear Development Berhad), entered into a joint venture agreement under the Shariah principles (‘Musharakah
Agreement’) to develop a land into a housing scheme at Bukit Gambir, Pulau Pinang.

The agreement also includes an arrangement where Jurus Positif Sdn Bhd may acquire the Bank’s shares upon the
completion of the project at a mutually agreed price, unless if both shareholders decide to continue the joint venture for
subsequent projects.

Major strategic operation and financial decisions relating to the activities of AFFIN-i Nadayu requires unanimous consent by
both joint venture parties. The Group’s interest in AFFIN-i Nadayu Sdn Bhd has been treated as investment in jointly controlled
entity, which has been accounted for in the consolidated financial statements using the equity method of accounting.

KL South Development Sdn Bhd

On 2 January 2013, AFFIN Islamic Bank Berhad (‘AiBB’) entered into a Musharakah Joint Venture Agreement (‘JV Agreement’)
with Albatha Bukit Kiara Holdings Sdn Bhd (‘Albatha’), a subsidiary of Bukit Kiara Capital Sdn Bhd, to joint develop a
property project namely “VERVE Suites KL South” at Jalan Klang Lama, Kuala Lumpur.

Pursuant to the JV agreement, AiBB acquired 30% stake in the joint venture company namely KL South Development Sdn
Bhd (‘KL South’)(formerly known as Grand Duplex Sdn Bhd) by way of subscription of 150,000 shares of RM1.00 each in KL
South at par. The remaining stake of 70% in KL South is held by Albatha.

Under the Musharakah structure, AiBB would be the sole banker to KL South, providing financing using the Islamic concept
such as Ijarah for the purchase of building and Istisna’ for the bridging financing.

Major strategic operation and financial decisions relating to the activities of KL South requires consent by both joint venture
parties. The Group’s interest in KL South has been treated as investment in jointly controlled entity, which has been accounted
for in the consolidated financial statements using the equity method of accounting.

KL South has commenced operations and the project is scheduled for completion by mid 2016.

108 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013
15 PROPERTY AND EQUIPMENT

Buildings Buildings Office Computer


<-Leasehold land-> on on equipment equipment Capital
Freehold 50 years Less than freehold leasehold and and Motor work in
The Group land or more 50 years land land Renovation furniture software vehicles progress Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost
At 1 January 2013 21,126 12,862 5,380 29,950 89,069 110,842 57,561 68,775 3,609 7,839 407,013
Additions - - - - - 5,146 2,438 1,785 2,077 5,997 17,443
Disposals (1,450) - - (3,147) - (1,238) (1) - (332) - (6,168)
Write-off - - - - - (755) (572) - - - (1,327)
Reclassification - - - - - 89 1 - - (11,138) (11,048)

At 31 December 2013 19,676 12,862 5,380 26,803 89,069 114,084 59,427 70,560 5,354 2,698 405,913

Accumulated depreciation and


impairment losses
At 1 January 2013 140 2,034 1,572 12,962 23,371 94,065 38,232 59,630 3,085 - 235,091
Charge for the financial year - 112 121 442 1,789 6,449 3,256 3,407 443 - 16,019
Disposal - - - (1,131) - (1,238) (1) - (331) - (2,701)
Write-off - - - - - (750) (486) - - - (1,236)

At 31 December 2013 140 2,146 1,693 12,273 25,160 98,526 41,001 63,037 3,197 - 247,173

Net book value as at


31 December 2013 19,536 10,716 3,687 14,530 63,909 15,558 18,426 7,523 2,157 2,698 158,740

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 109


notes to the financial statements
for the financial year ended 31 December 2013
15 PROPERTY AND EQUIPMENT

Buildings Buildings Office Computer


<-Leasehold land-> on on equipment equipment Capital
Freehold 50 years Less than freehold leasehold and and Motor work in
The Group land or more 50 years land land Renovation furniture software vehicles progress Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost

110 AFFIN BANK BERHAD (25046-T) Annual Report 2013


At 1 January 2012 22,811 12,862 5,380 32,013 89,069 105,357 54,448 67,617 3,963 1,865 395,385
Additions - - - - - 6,936 3,915 3,337 25 6,403 20,616
Disposals (1,685) - - (2,063) - (637) (189) - (379) - (4,953)
Write-off - - - - - (814) (613) (2,179) - - (3,606)
Reclassification - - - - - - - - - (429) (429)

At 31 December 2012 21,126 12,862 5,380 29,950 89,069 110,842 57,561 68,775 3,609 7,839 407,013

Accumulated depreciation and


impairment losses
At 1 January 2012 - 1,923 1,452 13,266 21,582 88,056 35,667 57,509 3,100 - 222,555
Charge for the financial year - 111 120 498 1,789 7,417 3,192 4,293 364 - 17,784
Disposal - - - (802) - (607) (172) - (379) - (1,960)
Write-off - - - - - (801) (455) (2,172) - - (3,428)
Reclassification 140 - - - - - - - - - 140

At 31 December 2012 140 2,034 1,572 12,962 23,371 94,065 38,232 59,630 3,085 - 235,091

Net book value as at


31 December 2012 20,986 10,828 3,808 16,988 65,698 16,777 19,329 9,145 524 7,839 171,922
notes to the financial statements
for the financial year ended 31 December 2013
15 PROPERTY AND EQUIPMENT

Buildings Buildings Office Computer


<-Leasehold land-> on on equipment equipment Capital
Freehold 50 years Less than freehold leasehold and and Motor work in
The Bank land or more 50 years land land Renovation furniture software vehicles progress Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost
At 1 January 2013 18,618 10,972 5,380 28,651 88,161 107,089 55,482 66,364 3,148 7,839 391,704
Additions - - - - - 4,999 2,367 1,680 1,581 5,997 16,624
Disposals (1,450) - - (3,147) - (1,238) (1) - (332) - (6,168)
Write-off - - - - - (755) (571) - - - (1,326)
Reclassification - - - - - 89 3 - - (11,138) (11,046)

At 31 December 2013 17,168 10,972 5,380 25,504 88,161 110,184 57,280 68,044 4,397 2,698 389,788

Accumulated depreciation and


impairment losses
At 1 January 2013 - 1,800 1,572 12,196 22,850 91,329 37,456 57,911 2,639 - 227,753
Charge for the financial year - 103 121 416 1,771 6,144 3,062 3,171 378 - 15,166
Disposal - - - (1,131) - (1,238) (1) - (331) - (2,701)
Write-off - - - - - (750) (485) - - - (1,235)
Reclassification - - - - - - 2 - - - 2

At 31 December 2013 - 1,903 1,693 11,481 24,621 95,485 40,034 61,082 2,686 - 238,985

Net book value as at


31 December 2013 17,168 9,069 3,687 14,023 63,540 14,699 17,246 6,962 1,711 2,698 150,803

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 111


notes to the financial statements
for the financial year ended 31 December 2013
15 PROPERTY AND EQUIPMENT

Buildings Buildings Office Computer


<-Leasehold land-> on on equipment equipment Capital
Freehold 50 years Less than freehold leasehold and and Motor work in
The Bank land or more 50 years land land Renovation furniture software vehicles progress Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost

112 AFFIN BANK BERHAD (25046-T) Annual Report 2013


At 1 January 2012 19,814 10,972 5,380 30,377 88,161 102,094 52,800 65,324 3,501 1,865 380,288
Additions - - - - - 6,447 3,482 3,123 25 6,403 19,480
Disposals (1,196) - - (1,726) - (638) (188) - (378) - (4,126)
Write-off - - - - - (814) (613) (2,039) - - (3,466)
Reclassification - - - - - - 1 (44) - (429) (472)

At 31 December 2012 18,618 10,972 5,380 28,651 88,161 107,089 55,482 66,364 3,148 7,839 391,704

Accumulated depreciation and


impairment losses
At 1 January 2012 - 1,696 1,452 12,344 21,080 85,834 35,069 56,034 2,745 - 216,254
Charge for the financial year - 104 120 472 1,770 6,903 3,013 3,924 273 - 16,579
Disposal - - - (620) - (607) (172) - (379) - (1,778)
Write-off - - - - - (801) (455) (2,032) - - (3,288)
Reclassification - - - - - - 1 (15) - - (14)

At 31 December 2012 - 1,800 1,572 12,196 22,850 91,329 37,456 57,911 2,639 - 227,753

Net book value as at


31 December 2012 18,618 9,172 3,808 16,455 65,311 15,760 18,026 8,453 509 7,839 163,951
notes to the financial statements
for the financial year ended 31 December 2013

16 INTANGIBLE ASSETS

Computer
Goodwill Software Total
The Group RM’000 RM’000 RM’000

Cost
At 1 January 2013 133,430 120,959 254,389
Additions - 1,236 1,236
Write-off - (9) (9)
Reclassification from property and equipment (Note 15) - 11,048 11,048
Adjustment - (742) (742)
At 31 December 2013 133,430 132,492 265,922

Less: Accumulated amortisation


At 1 January 2013 - (105,937) (105,937)
Amortised during the financial year - (7,989) (7,989)
Write-off - 9 9
At 31 December 2013 - (113,917) (113,917)

Net book value as at 31 December 2013 133,430 18,575 152,005

Cost
At 1 January 2012 133,430 120,072 253,502
Additions - 458 458
Reclassification from property and equipment (Note 15) - 429 429
At 31 December 2012 133,430 120,959 254,389

Less: Accumulated amortisation


At 1 January 2012 - (97,369) (97,369)
Amortised during the financial year - (8,568) (8,568)
At 31 December 2012 - (105,937) (105,937)

Net book value as at 31 December 2012 133,430 15,022 148,452

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 113


notes to the financial statements
for the financial year ended 31 December 2013

16 INTANGIBLE ASSETS

Computer
Goodwill Software Total
The Bank RM’000 RM’000 RM’000

Cost
At 1 January 2013 137,323 114,557 251,880
Additions - 1,236 1,236
Write-off - (9) (9)
Reclassification from property and equipment (Note 15) - 11,048 11,048
Adjustment - (742) (742)
At 31 December 2013 137,323 126,090 263,413

Less: Accumulated amortisation


At 1 January 2013 - (101,993) (101,993)
Amortised during the financial year - (7,197) (7,197)
Write-off - 9 9
At 31 December 2013 - (109,181) (109,181)

Net book value as at 31 December 2013 137,323 16,909 154,232

Cost
At 1 January 2012 137,323 113,670 250,993
Additions - 458 458
Reclassification from property and equipment (Note 15) - 429 429
At 31 December 2012 137,323 114,557 251,880

Less: Accumulated amortisation


At 1 January 2012 - (94,222) (94,222)
Amortised during the financial year - (7,771) (7,771)
At 31 December 2012 - (101,993) (101,993)

Net book value as at 31 December 2012 137,323 12,564 149,887

114 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

16 INTANGIBLE ASSETS

Goodwill

The carrying amount of the Bank’s goodwill has been allocated to the following business segments, which represent the
Bank’s cash-generating units (‘CGUs’):

2013 2012
RM’000 RM’000

Enterprise banking 123,591 123,591


Consumer banking 13,732 13,732
137,323 137,323

Goodwill is allocated to the Bank’s CGU which are expected to benefit from the synergies of the acquisitions. For annual
impairment testing purposes, the recoverable amount of the CGUs are determined based on value-in-use calculations using
the cash flow projections based on the 2013 financial budgets approved by the Directors, covering a period of 5 years based
on the historical Gross Domestic Product (‘GDP’) growth rate of Malaysia, revised for current economic conditions. The cash
flow beyond the fifth year are projected based on the assumption that the Year 5 operating cash flow will be generated by
the respective CGUs at a growth rate of 5% (2012: 5%) on perpetual basis.

The cash flow projections are derived based on a number of key factors including past performance and management’s
expectations of the market developments. The discount rates used are based on the pre-tax weighted average cost of
capital plus an appropriate risk premium where applicable (‘WACC’), at the date of assessment of the CGUs.

2013 2013 2012 2012


Enterprise Consumer Enterprise Consumer
banking banking banking banking
% % % %

Pre-tax discount rate 9.90 9.82 13.39 13.35

No impairment charge was required for goodwill arising from all the business segments. Management views that any
reasonable possible change to the assumptions applied is not likely to cause the recoverable amount of all the business
segments to be lower than its carrying amount.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 115


notes to the financial statements
for the financial year ended 31 December 2013

17 DEPOSITS FROM CUSTOMERS

The Group The Bank


(i) By type of deposit 2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Demand deposits 8,202,749 7,350,021 5,449,295 4,716,583


Savings deposits 2,004,242 1,710,748 1,639,656 1,377,258
Fixed deposits 27,693,589 25,204,503 22,098,467 19,965,844
Special investment deposits 574,192 833,132 - -
Money market deposits 1,050,233 859,141 1,050,233 859,141
Negotiable instruments of deposit (‘NID’) 6,563,077 5,305,991 6,563,077 5,305,991
46,088,082 41,263,536 36,800,728 32,224,817

The Group The Bank


(ii) Maturity structure of fixed deposits and NID 2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Due within six months 27,809,157 23,936,263 23,574,338 19,583,709


Six months to one year 6,287,140 6,318,076 4,929,588 5,443,400
One year to three years 118,705 54,835 116,227 43,608
Three years to five years 31,344 201,320 31,071 201,118
Five years and above 10,320 - 10,320 -
34,256,666 30,510,494 28,661,544 25,271,835

The Group The Bank


(iii) By type of customer 2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Government and statutory bodies 8,747,406 7,226,690 5,438,276 4,285,101


Business enterprise 14,007,892 12,837,106 10,327,724 9,534,502
Individuals 11,660,423 8,974,563 10,603,679 8,129,294
Others 11,672,361 12,225,177 10,431,049 10,275,920
46,088,082 41,263,536 36,800,728 32,224,817

116 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

18 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Licensed banks 3,042,849 3,212,031 1,847,213 2,391,811


Licensed investment banks 597,792 549,029 567,761 490,508
Bank Negara Malaysia - 612,055 - 612,055
Other financial institutions 424,903 436,208 244,561 233,889
4,065,544 4,809,323 2,659,535 3,728,263

Maturity structure of deposits


Due within six months 4,057,599 4,806,995 2,651,590 3,725,935
Six months to one year 7,945 2,328 7,945 2,328
4,065,544 4,809,323 2,659,535 3,728,263

19 DERIVATIVE FINANCIAL LIABILITIES

The Group and the Bank The Group and the Bank
2013 2012
Contract/ Contract/
notional notional
amount Liabilities amount Liabilities
RM’000 RM’000 RM’000 RM’000

At fair value
Foreign exchange derivatives:
Currency forwards 498,726 5,099 340,155 2,870
Cross currency swaps 2,284,085 51,018 1,188,783 23,725

Interest rate derivatives:


Interest rate swaps 2,033,725 38,405 1,695,980 33,068
4,816,536 94,522 3,224,918 59,663

The Group and The Bank


2013 2012

By maturity structure of negative fair value


Maturing within one year 41,852 23,852
One year to three years 19,701 24,779
Three years to five years 12,361 4,584
Over five years 20,608 6,448
94,522 59,663

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 117


notes to the financial statements
for the financial year ended 31 December 2013

20 RECOURSE OBLIGATION ON LOANS SOLD TO CAGAMAS BERHAD

In the normal course of banking operations, the Bank sells loans to Cagamas Berhad with recourse at values equivalent to
the unpaid principal balances of loans and advances due from the borrowers.

The Bank is liable in respect of housing loans and hire purchase portfolio sold directly and indirectly to Cagamas Berhad,
under the condition that the Bank undertakes to administer these loans on behalf of Cagamas Berhad and to buy back
any loans which are regarded as defective based on an agreed prudential criteria. Such financing transactions and the
obligations to buy back the loans are reflected as a liability on the statement of financial position.

21 OTHER LIABILITIES

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Bank Negara Malaysia and Credit


Guarantee Corporation Funding programmes 27,897 28,644 27,897 28,644
Margin and collateral deposits 108,258 82,131 103,428 79,099
Other creditors and accruals 241,775 181,884 215,199 161,318
Defined contribution plan (a) 13,818 13,593 13,107 12,877
Accrued employee benefits (b) 229 229 206 206
391,977 306,481 359,837 282,144

(a) The Group and the Bank contributes to the Employee Provident Fund (‘EPF’), the national defined contribution plan.
Once the contributions have been paid, the Group and the Bank has no further payment obligations.

(b) This refers to the accruals for short-term employee benefits for leave entitlement. Under employment contract,
employees earn their leave entitlement which they are entitled to carry forward and will lapse if not utilised in the
following accounting period. Accruals are made for the estimated liability for unutilised annual leave.

22 AMOUNT DUE TO SUBSIDIARIES

The amount due to subsidiaries is unsecured, interest-free and have no fixed terms of repayment.

118 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

23 SUBORDINATED TERM LOAN

On 10 March 2009, the Bank has taken the first 10 year subordinated loan amounting to RM300 million. The first subordinated
loan was constituted by agreement date 6 March 2009 and were issued on 10 March 2009.

On 26 May 2011, the Bank has taken the second 10 year subordinated loan amounting to RM300 million. The second
subordinated loan was constituted by agreement date 20 May 2011 and were issued on 26 May 2011.

On 16 January 2012, the Bank has taken the third 10 year subordinated loan amounting to RM300 million. The third
subordinated loan was constituted by agreement date 3 January 2012 and were issued on 16 January 2012.

All the subordinated loans were taken with the Bank’s Holding Company.

The subordinated loans have a prepayment option on the first prepayment date or any interest payment date subsequent to
the first prepayment date, giving the Bank the right, subject to Bank Negara Malaysia (‘BNM’) approval, to prepay the loans
in whole or in part.

Interest on subordinated loans payable by quarterly.

Subordinated loan I

Value : RM300 million

Interest rate : Cost of Fund (‘COF’) plus 0.75% per annum for period of thirty six months from the issue date, COF plus
1.75% per annum for the next twenty four months and thereafter COF plus 2.00% for the next 5 years.

The subordinated loan I will be fully prepaid on 10 March 2014.

Subordinated loan II and Subordinated loan III

Value : RM300 million each

Interest rate : Cost of Fund (‘COF’) plus 1.00% per annum for the 10 years.

COF refers to rate determined by the lender on an interest determination date falling within the interest duration.

24 SHARE CAPITAL

Number of ordinary
shares of RM1 each The Group and The Bank
2013 2012 2013 2012
‘000 ‘000 RM’000 RM’000

Authorised
At beginning/end of the financial year 2,000,000 2,000,000 2,000,000 2,000,000

Issued and fully paid


At beginning of the financial year 1,518,337 1,439,285 1,518,337 1,439,285
Issued during the financial year - 79,052 - 79,052
At end of the financial year 1,518,337 1,518,337 1,518,337 1,518,337

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 119


notes to the financial statements
for the financial year ended 31 December 2013

25 RESERVES

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Retained profits 1,004,534 834,371 798,118 659,603


Share premium 529,337 529,337 529,337 529,337
AFS revaluation reserves (1,960) 75,256 4,965 69,977
Statutory reserves 1,317,376 1,160,651 1,144,350 1,017,200
2,849,287 2,599,615 2,476,770 2,276,117

Statutory reserves
At beginning of the financial year 1,160,651 1,011,044 1,017,200 904,624
Transfer from retained profits 156,725 149,607 127,150 112,576
At end of the financial year 1,317,376 1,160,651 1,144,350 1,017,200

(a) A single tier company tax was introduced effective 1 January 2008. Under this single tier system, tax on a company’s
profits is a final tax, and dividends distributed to shareholders will be exempted from tax. Companies with Section 108
tax credit balance are given an option to elect to move to a single tier system immediately or allowed to use the Section
108 credit balance for the purpose of dividend distribution during a transitional period of 6 years until 31 December
2013.

The Bank has elected to use its Section 108 credit balance for the purpose of dividend distribution during a transitional
period of 6 years until 31 December 2013. The Section 108 balance of the Bank as at 31 December 2007 will be frozen
and can only be adjusted downwards for any tax discharged, remitted or refunded during the 6 years period.

As at 31 December 2013, the Bank has a tax credit balance of RM2,469,704 (2012: RM2,533,928) under Section 108
of the Income Tax Act, 1967 and tax exempt account balance of RM10,931,988 (2012: 83,016,257) under Section 12
of the Income Tax (Amendment) Act 1999, subject to agreement by the Inland Revenue Board.

(b) The statutory reserves of the Group and the Bank are maintained in compliance with the provisions of the Financial
Services Act 2013 and Islamic Financial Services Act 2013 and are not distributable as cash dividends.

(c) AFS revaluation reserves represent the unrealised gains or losses arising from the change in fair value of investments
classified as financial investment available-for-sale. The gains or losses are transferred in the income statement upon
disposal or when the securities become impaired.

120 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

26 INTEREST INCOME

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Loans, advances and financing 1,612,728 1,523,683 1,612,728 1,523,683


Money at call and deposit placements
with financial institutions 178,906 154,737 204,769 179,411
Reverse repurchase agreements with financial institutions 234 117 234 117
Financial assets/investments
- Held-for-trading 160 789 160 789
- Available-for-sale 202,084 183,906 201,936 183,758
- Held-to-maturity 19,984 23,912 19,984 23,912
Interest rate derivatives 94,003 86,923 94,003 86,923
Others - - 4,003 3,511
2,108,099 1,974,067 2,137,817 2,002,104
Amortisation of premium less
accretion of discount 13,028 10,833 13,028 10,833
2,121,127 1,984,900 2,150,845 2,012,937

of which:
Interest income earned on impaired loans,
advances and financing 10,957 6,838 10,957 6,838

27 INTEREST EXPENSE

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Deposits and placements of banks


and other financial institutions 119,487 145,722 119,498 145,748
Deposits from customers 1,025,610 894,694 1,025,644 894,728
Subordinated term loan 41,473 40,453 41,473 40,453
Loan sold to Cagamas Berhad 19,164 19,891 19,164 19,891
Interest rate derivatives 99,226 93,208 99,226 93,208
Others 3,108 2,260 3,108 2,260
1,308,068 1,196,228 1,308,113 1,196,288

28 NET ISLAMIC BANKING INCOME

The Group
2013 2012
RM’000 RM’000

Income derived from investment of depositors’ funds and others 428,386 459,994
Income derived from investment of shareholders’ funds 29,781 23,650
Total distributable income 458,167 483,644
Income attributable to depositors (237,422) (266,872)
220,745 216,772

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 121


notes to the financial statements
for the financial year ended 31 December 2013

29 OTHER OPERATING INCOME

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Fee income
Commission 14,046 13,918 14,046 13,918
Service charges and fees 62,785 63,999 62,785 63,999
Guarantee fees 20,615 22,567 20,615 22,567
97,446 100,484 97,446 100,484

Income from financial instruments


Gain arising on financial assets held-for-trading:
- net gain on disposal 366 697 366 697
- unrealised gains/(losses) 455 (188) 455 (188)
821 509 821 509

Gains on derivatives:
- realised 3,156 2,711 3,156 2,711
- unrealised 5,282 12,925 5,282 12,925
8,438 15,636 8,438 15,636

Gain arising on financial investments available-for-sale:


- net gain on disposal 22,369 20,634 18,894 19,870
- gross dividend income 4,058 3,204 4,058 3,204
26,427 23,838 22,952 23,074

Gain arising on financial investments held-to-maturity:


- net gain on redemption 6,144 19,011 6,144 19,011
6,144 19,011 6,144 19,011

Other income
Foreign exchange gains/(losses):
- realised 121,093 29,901 121,093 29,901
- unrealised (54,118) 42,325 (54,118) 42,325
Rental income 1,673 1,692 1,631 1,649
Gain on sale of property and equipment 3,910 1,098 3,910 1,093
Gain on disposal of foreclosed properties 11,041 10,141 11,041 10,097
Other non-operating income 14,491 12,428 13,797 12,111
Subsidiaries - diminution in value written back - - 1,707 -
98,090 97,585 99,061 97,176

237,366 257,063 234,862 255,890

122 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

30 OTHER OPERATING EXPENSES

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Personnel costs (a) 335,200 328,427 269,727 267,089


Establishment costs (b) 169,429 176,504 142,300 149,770
Marketing expenses (c) 16,485 16,392 13,332 14,145
Administrative and general expenses (d) 44,072 49,835 35,774 42,669
565,186 571,158 461,133 473,673

(a) Personnel costs

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Wages, salaries and bonuses 259,313 254,006 208,440 206,376


Defined contribution plan (‘EPF’) 42,198 41,433 33,929 33,675
Other personnel costs 33,689 32,988 27,358 27,038
335,200 328,427 269,727 267,089

(b) Establishment costs

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Rental of premises 21,496 20,750 17,723 17,249


Equipment rental 898 931 782 893
Repair and maintenance 26,337 32,068 21,942 27,318
Depreciation 16,019 17,784 15,166 16,579
Amortisation of intangible assets 7,989 8,568 7,197 7,771
IT Consultancy fees 61,893 60,972 53,231 52,931
Dataline rental 3,890 4,324 3,372 3,759
Security services 13,566 12,109 10,899 9,836
Electricity, water and sewerage 9,566 9,187 7,994 7,688
Insurance and indemnities 3,853 4,789 3,731 4,668
Other establishment costs 3,922 5,022 263 1,078
169,429 176,504 142,300 149,770

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 123


notes to the financial statements
for the financial year ended 31 December 2013

30 OTHER OPERATING EXPENSES

(c) Marketing expenses

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Business promotion and advertisement 7,860 7,837 6,660 7,406


Entertainment 2,628 3,510 2,244 3,067
Traveling and accommodation 4,494 3,632 3,328 2,595
Other marketing expenses 1,503 1,413 1,100 1,077
16,485 16,392 13,332 14,145

(d) Administration and general expenses

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Telecommunication expenses 5,558 5,118 4,655 4,325


Auditors’ remuneration 1,433 1,327 1,036 981
Professional fees 6,142 5,265 5,154 4,146
Property and equipment written-off 91 179 91 178
Mail and courier charges 2,777 4,135 2,310 3,507
Stationery and consumables 8,902 8,975 6,566 6,820
Commissions expenses 3,215 4,204 2,996 3,984
Brokerage expenses 1,368 1,233 1,242 1,133
Directors’ fees and allowances 1,873 1,675 1,480 1,332
Donations 1,706 1,880 1,619 1,748
Settlement, clearing and bank charges 7,131 5,739 6,779 5,421
Stamp duties 198 3,102 196 3,098
Other administration and general expenses 3,678 7,003 1,650 5,996
44,072 49,835 35,774 42,669

The expenditure includes the following statutory disclosure:

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Directors’ remuneration (Note 31) 8,281 7,715 7,888 7,372


Rental of premises 21,496 20,750 17,723 17,249
Equipment rental 898 931 782 893
Auditors’ remuneration
- statutory audit fees 847 847 682 669
- under provision prior year 3 - - -
- audit related fees 465 352 297 228
- non audit fees 118 128 57 84
Depreciation of property and equipment 16,019 17,784 15,166 16,579
Amortisation of intangible assets 7,989 8,568 7,197 7,771
Property and equipment written-off 91 179 91 178

124 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

31 CEO AND DIRECTORS’ REMUNERATION

The Directors of the Bank who have held office during the financial year are as follows:

Managing Director/Chief Executive Officer

Dato’ Zulkiflee Abbas Bin Abdul Hamid

Non-Executive Directors

Jen Tan Sri Dato’ Seri Ismail Bin Haji Omar (Bersara) (Chairman)
Tan Sri Dato’ Seri Lodin Bin Wok Kamaruddin
Dr Raja Abdul Malek Bin Raja Jallaludin
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul Rahman
Tan Sri Dato’ Seri Mohamed Jawhar
En. Mohd Suffian Bin Haji Haron
Mr Aubrey Li Kwok-Sing
Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing)

The aggregate amount of remuneration for the Directors of the Bank for the financial year were as follows:

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Managing Director/Chief Executive Officer


Salaries 1,935 1,825 1,935 1,825
Bonuses 3,315 3,150 3,315 3,150
Defined contribution plan (‘EPF’) 907 811 907 811
Other employee benefits 99 99 99 99
Benefits-in-kind 152 155 152 155

Non-Executive Directors
Fees 1,844 1,648 1,451 1,305
Benefits-in-kind 29 27 29 27
Directors’ remuneration (Note 30) 8,281 7,715 7,888 7,372

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 125


notes to the financial statements
for the financial year ended 31 December 2013

31 CEO AND DIRECTORS’ REMUNERATION

A summary of the total remuneration of the Directors, distinguishing between Executive and Non-Executive Directors.

Directors’ * Other Benefits-


The Bank Salaries Bonuses Fees emoluments in-kind Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Managing Director/
Chief Executive Officer
Dato’ Zulkiflee Abbas Bin Abdul Hamid 1,935 3,315 - 1,006 152 6,408

Total 1,935 3,315 - 1,006 152 6,408

Non-executive Directors
Jen Tan Sri Dato’ Seri Ismail Bin Haji
Omar (Bersara) - - 188 96 29 313
Tan Sri Dato’ Seri Lodin Bin Wok
Kamaruddin - - 188 - - 188
Dr. Raja Abdul Malek Bin Raja Jallaludin - - 226 - - 226
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul
Rahman - - 212 - - 212
Tan Sri Dato’ Seri Mohamed Jawhar - - 208 - - 208
En. Mohd Suffian Bin Haji Haron - - 214 - - 214
Mr Aubrey Li Kwok-Sing - - 112 - - 112
Mr Gary Cheng Shui Hee (Alternate
Director to Mr Aubrey Li Kwok-Sing) - - 7 - - 7

Total - - 1,355 96 29 1,480

Grand total 1,935 3,315 1,355 1,102 181 7,888

* Executive Director’s other emoluments include allowance and EPF

126 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

31 CEO AND DIRECTORS’ REMUNERATION

Directors’ * Other Benefits-


The Bank Salaries Bonuses Fees emoluments in-kind Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Managing Director/
Chief Executive Officer
Dato’ Zulkiflee Abbas Bin Abdul Hamid 1,825 3,150 - 910 155 6,040

Total 1,825 3,150 - 910 155 6,040

Non-executive Directors
Jen Tan Sri Dato’ Seri Ismail Bin Haji
Omar (Bersara) - - 149 116 27 292
Tan Sri Dato’ Seri Lodin Bin Wok
Kamaruddin - - 164 - - 164
Dr. Raja Abdul Malek Bin Raja Jallaludin - - 204 - - 204
Tan Sri Dato’ Sri Abdul Aziz Bin Abdul
Rahman - - 191 - - 191
Tan Sri Dato’ Seri Mohamed Jawhar - - 187 - - 187
En. Mohd Suffian Bin Haji Haron - - 192 - - 192
Mr Aubrey Li Kwok-Sing - - 97 - - 97
Mr Gary Cheng Shui Hee (Alternate
Director to Mr Aubrey Li Kwok-Sing) - - 5 - - 5

Total - - 1,189 116 27 1,332

Grand total 1,825 3,150 1,189 1,026 182 7,372

* Executive Director’s other emoluments include allowance and EPF

32 ALLOWANCES FOR LOSSES ON LOANS, ADVANCES AND FINANCING

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Individual impairment
- made in the financial year 47,903 72,213 47,213 69,391
- written-back (4,031) (2,716) (3,598) (2,546)
Collective impairment
- made in the financial year 15,253 6,672 15,011 24,242
Bad debts and financing
- recovered (120,645) (106,465) (119,702) (105,880)
- written-off 4,583 7,784 4,509 7,702
(56,937) (22,512) (56,567) (7,091)

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 127


notes to the financial statements
for the financial year ended 31 December 2013

33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

Related parties Relationships

Lembaga Tabung Angkatan Tentera (‘LTAT’) Ultimate holding corporate body, which is
Government-Link Investment Company (‘GLIC’) of
the Government of Malaysia

AFFIN Holdings Berhad (‘AHB’) Holding company

Subsidiaries and associates of LTAT Subsidiary and associate companies of the ultimate holding
corporate body

Subsidiaries and associates of AHB as disclosed in Subsidiary and associate companies of the holding company
its financial statements

Subsidiaries of AFFIN Bank Berhad as disclosed in Subsidiary


Note 13

Joint controlled entity as disclosed in Note 14 Joint controlled entity of subsidiary

Voting shares in body corporate not less than 15% Other related companies
of votes

Key management personnel The key management personnel of the Bank consist of:
- Chief Executive Officer
- Members of Senior Management team and the company
secretary

Related parties of key management personnel - Close family members and dependents of key management
(deemed as related to the Bank) personnel
- Entities that are controlled, jointly controlled or for which
significant voting power in such entity resides with, directly
or indirectly by key management personnel or its close family
members

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling
the activities of the Group and the Bank either directly or indirectly. Key management personnel includes the Chief Executive
Officer of the Bank in office during the financial year and his remuneration for the financial year are disclosed in Note 33(b).

128 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013
33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

The Group and the Bank do not have any individually or collectively significant transactions with the Government of Malaysia and government related
entities. In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party
transactions and balances.

(a) Related parties transactions and balances

Companies in which certain


Ultimate holding Holding Other related Directors have Key Management
corporate body company companies substantial interest Personnel
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Income
Interest on private
debt securities - - - - 27,296 25,217 - - - -
Interest on loans,
advances and financing - - - - 41,151 42,567 - - 81 55
Interest on deposits and
placements with banks
and other financial
institutions - - - - 8,401 12,254 - - - -
Other income - - - - 7,590 7,003 - - - -
- - - - 84,438 87,041 - - 81 55

Expenditure
Interest on fixed deposits 5,448 3,873 5,989 6,143 11,325 10,532 - - 242 166
Interest on negotiable
instruments of deposit - - - - 838 13 - - - -
Interest on deposits and
placements of banks
and other financial
institutions - - - - 9,165 15,839 - - - -
Interest on special
investment account 1 - - - 1,565 1,759 - - - -
Interest on money
market deposits 9,911 7,620 93 61 2,004 2,901 - - - -
Brokerage fees - - - - 431 532 - - - -
Rental 239 301 - - 11,426 11,467 - - - -
Others - 5 41,473 40,453 5,877 4,875 638 - - -
15,599 11,799 47,555 46,657 42,631 47,918 638 - 242 166

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 129


notes to the financial statements
for the financial year ended 31 December 2013

33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

(a) Related parties transactions and balances (continued)

Ultimate holding Holding Other related


corporate body company companies
2013 2012 2013 2012 2013 2012
Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due from


Private debt securities - - - - 782,076 712,519
Loans, advances and financing - - - - 1,334,698 1,493,059
Deposits and placement with banks and
other financial institutions - - 3,852 3,791 213,447 501,932
Intercompany balances - - - - 4,185 2,745
Security deposits - - - - 2,992 2,992
- - 3,852 3,791 2,337,398 2,713,247

Amount due to
Demand and fixed deposits 361,574 643,575 136,512 133,987 804,111 738,807
Negotiable instruments of deposit - - - - 120,656 -
Deposits and placement of banks and
other financial institutions - - 904,964 904,960 211,042 409,437
Special investment account - - - - 68,726 9,366
Money market deposits 399,838 162,269 300 400 129,938 75,000
761,412 805,844 1,041,776 1,039,347 1,334,473 1,232,610

Commitment - - - - 1,668,959 1,858,637

Companies in which certain


Directors have Key Management
substantial interest Personnel
2013 2012 2013 2012
Group RM’000 RM’000 RM’000 RM’000

Amount due from


Loans, advances and financing - - 2,812 2,771
- - 2,812 2,771

Amount due to
Demand and fixed deposits 45 13 17,125 15,061
45 13 17,125 15,061

Commitment - - - -

130 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013
33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

(a) Related parties transactions and balances (continued)

Companies which certain


Ultimate holding Holding Other related Directors have Key Management
corporate body company Subsidiaries companies substantial interest Personnel
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Income
Interest on special
investment account - - - - 25,311 24,175 - - - - - -
Interest on private debt
securities - - - - - - 27,296 25,217 - - - -
Interest on loans,
advances and financing - - - - - - 38,336 40,764 - - 81 55
Interest on deposits and
placements with banks
and other financial
institutions - - - - 576 525 5,552 8,441 - - - -
Other income - - - - 71,745 68,020 7,590 7,003 - - - -

- - - - 97,632 92,720 78,774 81,425 - - 81 55

Expenditure
Interest on fixed deposits 5,371 3,873 5,989 6,143 35 34 9,754 9,286 - - 202 151
Interest on negotiable
instruments of deposit - - - - - - 838 13 - - - -
Interest on deposits and
placements of banks
and other financial
institutions - - - - 14 - 9,165 15,839 - - - -
Interest on money
market deposits 9,911 7,620 93 61 - - 2,004 2,901 - - - -
Brokerage fees - - - - - - 431 532 - - - -
Rental 239 301 - - 407 386 11,426 11,467 - - - -
Others - 5 41,473 40,453 - - 5,738 4,637 638 - - -

15,521 11,799 47,555 46,657 456 420 39,356 44,675 638 - 202 151

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 131


notes to the financial statements
for the financial year ended 31 December 2013

33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

(a) Related parties transactions and balances (continued)

Ultimate holding Holding


corporate body company Subsidiaries
2013 2012 2013 2012 2013 2012
Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due from


Special investment account - - - - 715,807 656,230
Deposits and placements with banks
and other financial institutions - - 3,852 3,791 93,945 102,434
Intercompany balances - - - - 60,723 153,902
- - 3,852 3,791 870,475 912,566

Amount due to
Demand and fixed deposits 315,251 642,838 136,517 133,987 3,724 3,542
Deposits and placement of banks
and other financial institutions - - 904,964 904,960 26,720 -
Money market deposits 399,838 162,269 300 400 - -
Intercompany balances - - - - 53,559 48,481
715,089 805,107 1,041,781 1,039,347 84,003 52,023

Commitment - - - - - 350

Company which certain


Other related Directors have Key Management
companies substantial interest Personnel
2013 2012 2013 2012 2013 2012
Bank RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Amount due from


Private debt securities 782,076 712,519 - - - -
Loans, advances and financing 1,235,568 1,456,936 - - 2,812 2,221
Deposits and placement of banks
and other financial institutions 213,447 301,439 - - - -
Security deposits 2,992 2,992 - - - -
2,234,083 2,473,886 - - 2,812 2,221

Amount due to
Demand and fixed deposits 741,369 655,405 - - 13,967 12,760
Negotiable instruments of deposit 120,656 - - - - -
Deposits and placement of banks
and other financial institutions 211,042 409,437 - - - -
Money market deposits 129,938 75,000 - - - -
1,203,005 1,139,842 - - 13,967 12,760

Commitment 1,550,779 1,778,238 - - - -

132 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

(b) Key management personnel compensation

The remuneration of key management personnel of the Group and the Bank during the year are as follows:

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Short-term employment benefits


Salaries 7,681 7,748 7,081 7,166
Bonuses 10,852 10,768 10,072 10,013
Defined contribution plan (‘EPF’) 3,177 3,127 2,949 2,906
Other employee benefits 1,168 1,208 1,125 1,165
Benefits-in-kind 483 410 442 368
23,361 23,261 21,669 21,618

Included in the above table are Directors’ remuneration as disclosed in Note 31.

34 TAXATION

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

The taxation charge arising in


Malaysia for the financial year

Current tax 180,425 179,738 159,936 152,556


Under/(over) provision in prior year 1,881 (668) 2,320 (737)
Deferred tax (Note 11) 1,501 (7,171) 1,674 (6,568)
Tax expense for the year 183,807 171,899 163,930 145,251

The Group The Bank


2013 2012 2013 2012
% % % %

Statutory tax rate in Malaysia 25.00 25.00 25.00 25.00


Tax effect in respect of:
Non allowable expenses 0.22 0.25 0.23 0.28
Non taxable income (0.18) (0.15) (0.27) (0.18)
Utilisation of previously unrecognised tax losses (0.12) (0.03) - -
Effect of different tax rate (0.85) (0.50) (0.97) (0.59)
Tax savings arising from income exempt from tax for
International Currency Business Unit (‘ICBU’) (0.17) (0.04) - -
Under accrual in prior years 0.25 (0.10) 0.34 (0.12)
Zakat contribution (0.09) - - -
Change in tax rate 0.05 - 0.05 -
Average effective tax rate 24.11 24.43 24.38 24.39

Tax savings of the Group as a result of utilisation of tax losses brought forward from previous years from which the
related credit is recognised during the financial year amounted to RM922,320 (2012: RM61,226).

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 133


notes to the financial statements
for the financial year ended 31 December 2013

35 EARNINGS PER SHARE

The basic and fully diluted earnings per ordinary share for the Group and the Bank have been calculated based on
the net profit attributable to equity holders of the Group and the Bank of RM568,822,000 (2012: RM525,266,000) and
RM508,599,000 (2012: RM450,304,000) respectively. The weighted average number of shares in issue during the financial
year of 1,518,337,000 (2012: 1,499,330,000) is used for the computation.

36 DIVIDENDS

Dividends declared or proposed for the financial years are as follows:

The Group and The Bank The Group and The Bank
2013 2012
Dividend Amount of Dividend Amount of
per share dividend per share dividend
sen RM’000 sen RM’000

Ordinary shares
Interim dividend paid 10.00 151,834 9.00 136,650
Proposed final dividend (*) 6.00 91,100 6.00 91,100
Dividends in respect of the financial year 16.00 242,934 15.00 227,750

* At the forthcoming Annual General Meeting, a single-tier final dividend in respect of the current financial year of 6 sen
per share amounting to RM91,100,206 will be proposed for shareholder’s approval. These financial statements do not
reflect this final dividend which will be accounted for in the shareholder’s equity as an appropriation of retained profits
in the financial year ending 31 December 2014 when approved by the shareholder.

Dividends recognised as distribution to ordinary equity holders of the Bank:

The Group and The Bank The Group and The Bank
2013 2012
Dividend Amount of Dividend Amount of
per share dividend per share dividend
sen RM’000 sen RM’000

Ordinary shares
Interim dividend 10.00 151,834 9.00 136,650
Final dividend 6.00 91,100 5.00 71,964
16.00 242,934 14.00 208,614

134 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013
37 COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Group and the Bank make various commitments and incurs certain contingent liabilities with legal recourse to their
customers. No material losses are anticipated as a result of these transactions.

The commitments and contingencies consist of:

The Group The Group


2013 2012
Positive Positive
fair value Credit Risk- fair value Credit Risk-
Principal of derivative equivalent weighted Principal of derivative equivalent weighted
amount contracts amount* amount* amount contracts amount* amount*
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Direct credit substitutes 1,410,611 - 1,410,611 1,418,056 445,529 - 445,529 430,042


Transaction-related
contingent items 1,974,804 - 987,402 864,908 2,147,100 - 1,073,550 924,690
Short-term self-liquidating
trade-related contingencies 573,412 - 114,683 82,976 453,772 - 90,754 54,644
Irrevocable commitments
to extend credit: 9,444,689 - 2,543,324 2,162,029 9,236,929 - 2,709,195 2,407,626
- maturity less than one year 7,263,403 - 1,452,681 1,169,480 6,364,231 - 1,272,846 1,065,707
- maturity more than one year 2,181,286 - 1,090,643 992,549 2,872,698 - 1,436,349 1,341,919
Lending of banks’ securities or
the posting of securities as
collateral by banks,including
instances where these arise out
of repo-style transactions. (i.e.
repurchase / reverse repurchase
and securities lending / borrowing
transactions) - - - - 19,939 - 19,939 -
Foreign exchange related
contracts (#): 4,326,451 26,639 146,851 58,070 4,002,348 47,165 115,075 35,869
- less than one year 3,636,267 24,125 73,219 33,250 3,750,554 42,781 97,948 29,439
- one year to less than five years 594,154 2,514 57,307 16,657 251,794 4,384 17,127 6,430
- more than five years 96,030 - 16,325 8,163 - - - -
Interest rate related contracts (#): 3,954,438 29,635 121,516 44,879 2,484,603 21,707 90,826 33,144
- less than one year 809,068 4,592 2,271 820 107,156 563 122 49
- one year to less than five years 2,442,222 10,637 53,133 15,745 1,834,299 12,892 39,217 11,073
- more than five years 703,148 14,406 66,112 28,314 543,148 8,252 51,487 22,022
Unutilised credit card lines 179,201 - 35,840 26,839 191,103 - 38,221 28,693
21,863,606 56,274 5,360,227 4,657,757 18,981,323 68,872 4,583,089 3,914,708

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 135


notes to the financial statements
for the financial year ended 31 December 2013
37 COMMITMENTS AND CONTINGENCIES

The Bank The Bank


2013 2012
Positive Positive
fair value Credit Risk- fair value Credit Risk-
Principal of derivative equivalent weighted Principal of derivative equivalent weighted
amount contracts amount* amount* amount contracts amount* amount*
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

136 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Direct credit substitutes 1,402,157 - 1,402,157 1,411,181 436,156 - 436,156 422,310
Transaction-related
contingent items 1,849,237 - 924,619 804,191 2,017,033 - 1,008,516 861,316
Short-term self-liquidating
trade-relatedcontingencies 353,020 - 70,604 69,871 216,573 - 43,315 43,109
Irrevocable commitments
to extend credit: 8,131,913 - 2,180,381 1,852,810 8,043,626 - 2,355,961 2,092,567
- maturity less than one year 6,285,251 - 1,257,050 1,012,054 5,552,840 - 1,110,568 925,939
- maturity more than one year 1,846,662 - 923,331 840,756 2,490,786 - 1,245,393 1,166,628
Lending of banks’ securities or
the posting of securities as
collateral by banks,including
instances where these arise out
of repo-style transactions. (i.e.
repurchase / reverse repurchase
and securities lending / borrowing
transactions) - - - - 19,939 - 19,939 -
Foreign exchange related
contracts (#): 4,326,451 26,639 146,851 58,070 4,002,348 47,165 115,075 35,869
- less than one year 3,636,267 24,125 73,219 33,250 3,750,554 42,781 97,948 29,439
- one year to less than five years 594,154 2,514 57,307 16,657 251,794 4,384 17,127 6,430
- more than five years 96,030 - 16,325 8,163 - - - -
Interest rate related contracts (#): 3,954,438 29,635 121,516 44,879 2,484,603 21,707 90,826 33,144
- less than one year 809,068 4,592 2,271 820 107,156 563 122 49
- one year to less than five years 2,442,222 10,637 53,133 15,745 1,834,299 12,892 39,217 11,073
- more than five years 703,148 14,406 66,112 28,314 543,148 8,252 51,487 22,022
Unutilised credit card lines 179,201 - 35,840 26,839 191,103 - 38,221 28,693

20,196,417 56,274 4,881,968 4,267,841 17,411,381 68,872 4,108,009 3,517,008

* The credit equivalent amount and risk-weighted amount is arrived at using the credit conversion factors as per Bank Negara Malaysia’s revised Risk Weighted Capital
Adequacy Framework (“RWCAF”) and Capital Adequacy for Islamic Banks (“CAFIB”) guidelines.

# The fair value of these derivatives have been recognised as “derivative financial assets” and “derivative financial liabilities” in the statement of financial position and
disclosed in Note 5 and 19 to the financial statements.
notes to the financial statements
for the financial year ended 31 December 2013

37 COMMITMENTS AND CONTINGENCIES

The table below analyses the contractual or underlying principal amounts of derivative financial instruments held or issued.
In addition, they also set out the corresponding gross positive credit equivalent of the derivative financial instruments.

The Group and The Bank The Group and The Bank
2013 2012
Credit Credit
Principal equivalent Principal equivalent
amount amount amount amount
RM’000 RM’000 RM’000 RM’000

Foreign exchange contracts


Forward contracts 811,717 13,829 941,791 19,016
Swaps 3,514,734 133,022 3,060,558 96,059

Interest rate contracts


Swaps 3,954,438 121,516 2,484,602 90,826

Foreign exchange related contracts and interest rate related contracts are subject to market risk and credit risk.

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk

Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the
financial and contractual obligations to the Bank. Credit risk emanates mainly from loans, advances and financing,
loan commitments arising from such lending activities, as well as through financial transactions with counterparties
including interbank money market activities, derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures.
Approval authorities are delegated to Senior Management and Group Management Loan Committee (‘GMLC’) to
implement the credit policies and ensure sound credit granting standards.

An independent Group Risk Management (‘GRM’) function, headed by Group Chief Risk Officer (‘GCRO’), with direct
reporting line to Board Risk Management Committee (‘BRMC’) is in place to ensure adherence to risk standards and
discipline. Portfolio management risk reports are submitted regularly to BRMC.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses
are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual
Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 137


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Credit risk measurement

Loans, advances and financing

Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s
underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A
critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in
the risk assessment and decision making process. The Bank has developed internal rating models to support the
assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to
assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan
origination.

Over-the-Counter (‘OTC’) Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure
method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived
from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and
the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to
maturity).

Risk limit control and mitigation policies

The Bank employs various policies and practices to control and mitigate credit risk.

Lending limits

The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue
concentration of credit risk in its credit portfolio. The limits include single customer groupings, large exposures,
connected parties, and geographical and industry segments. These risks are monitored regularly and the limits
reviewed annually or sooner depending on changing market and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers
together with potential exposure from market movements.

138 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Risk limit control and mitigation policies (continued)

Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral
may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

- mortgage over residential properties;


- charges over commercial real estate or vehicles financed;
- charges over business assets such as business premises, inventory and accounts receivable; and
- charges over financial instruments such as marketable equities.

Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they
relate and therefore carry less risk than a direct loan.

Credit related commitments

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees
or letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total
unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most
commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a
greater degree of credit risk than short-term commitments.

Credit risk monitoring

Retail credits are actively monitored and managed on a portfolio basis by product type. A collection management
system in place to promptly identify, monitor and manage delinquent accounts at early stages of delinquency.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 139


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk monitoring (continued)

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against
updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses
or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.

Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality.
Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning
impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Active portfolio monitoring enables the Bank to understand the overall risk profile and identify any adverse trends or
areas of risk concentrations affecting asset quality so that appropriate actions are adopted to manage and mitigate
risks.

Credit risk culture

The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required
skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

For effective and efficient staff learning, an E–Learning Program is implemented with an online Learning Management
System (‘LMS’). The LMS provides staff with a progressive self-learning alternative at own pace.

Group Risk Management implements an Internal Credit Certification (‘ICC’) Programme for both Business Banking and
Consumer Credit.

The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of
knowledge and analytical skills required to make sound corporate and commercial loans to customers.

Maximum exposure to credit risk

For financial assets recognised on the statement of financial position, the exposure to credit risk equals their carrying
amount. For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group
and the Bank would have to pay if guarantee were to be called upon. For loan commitments and other commitments,
the maximum exposure to credit risk is the full amount of the undrawn credit facilities granted to customers.

All financial assets of the Group and the Bank are subject to credit risk except for cash in hand, equity securities held
as financial assets held-for-trading or financial investments available-for-sale, as well as non-financial assets.

140 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Maximum exposure to credit risk (continued)

The exposure to credit risk of the Group and the Bank equals their carrying amount in the statement of financial position
as at reporting date, except for the followings:

The Group The Bank


2013 2013 2013 2013
Maximum Maximum
Carrying Credit Carrying Credit
Value Exposure Value Exposure
RM’000 RM’000 RM’000 RM’000

Credit risk exposures of on-balance sheet assets:


Cash and short-term funds 9,401,701 * 9,234,368 4,987,696 * 4,820,362
Financial investments available-for-sale 7,614,537 # 7,495,386 6,331,414 # 6,212,331
Other assets 220,097 @ 191,679 176,555 @ 148,663

Credit risk exposure of off-balance sheet items:


Financial guarantees 3,385,415 ^ 2,398,013 3,251,394 ^ 2,326,776
Loan commitments and other credit related commitments 18,478,191 ^ 2,962,214 16,945,023 ^ 2,555,192
Total maximum credit risk exposure 39,099,941 22,281,660 31,692,082 16,063,324

The Group The Bank


2012 2012 2012 2012
Maximum Maximum
Carrying Credit Carrying Credit
Value Exposure Value Exposure
RM’000 RM’000 RM’000 RM’000

Credit risk exposures of on-balance sheet assets:


Cash and short-term funds 7,648,904 * 7,477,429 3,633,842 * 3,462,366
Financial investments available-for-sale 7,640,654 # 7,531,197 5,658,161 # 5,551,454
Other assets 293,658 @ 257,706 227,790 @ 192,354

Credit risk exposure of off-balance sheet items:


Financial guarantees 2,592,629 ^ 1,519,079 2,453,189 ^ 1,444,672
Loan commitments and other credit related commitments 16,388,694 ^ 3,064,010 14,958,192 ^ 2,663,337
Total maximum credit risk exposure 34,564,539 19,849,421 26,931,174 13,314,183

The following have been excluded for the purpose of maximum credit risk exposure calculation:
* cash in hand
# investment in quoted and unquoted shares
@ prepayment
^ amount stated at notional value

Whilst the Group and the Bank’s maximum exposure to credit risk is the carrying value of the assets, or in the case of off-
balance sheet items, the amount guaranteed, committed or accepted, in most cases the likely exposure is far less due to
collateral, credit enhancements and other actions taken to mitigate the credit exposure.

The financial effect of collateral held for loans, advances and financing of the Group and the Bank are 68% (2012: 68%)
and 66% (2012: 66%) respectively. The financial effects of collateral for the other financial assets are insignificant.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 141


notes to the financial statements
for the financial year ended 31 December 2013
38 financial risk management

(i) Credit risk (continued)

Credit risk concentrations

Credit risk is the risk of financial loss from the failure of customers to meet their obligations. Exposure to credit risk is managed through portfolio management.
The credit portfolio’s risk profiles and exposures are reviewed and monitored regularly to ensure that an acceptable level of risk diversification is maintained.
Exposure to credit risk is also managed in part by obtaining collateral security and corporate and personal guarantees.

The credit risk concentrations of the Group and the Bank, by industry concentration, are set out in the following tables:

142 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Reverse Deposits and
Repurchase placements Financial
agreements with banks assets Financial Financial Loans, On
Cash and with and other held- Derivative investments investments advances balance Commitments
short-term financial financial for- financial available- held-to- and Other sheet and
The Group funds institutions institutions trading assets for-sale maturity financing (*) assets total Contingencies
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Agriculture - - - - 78 - - 475,721 - 475,799 98,279


Mining and
quarrying - - - - - - - 649,621 - 649,621 121,024
Manufacturing - - - - 2,446 130,969 120,058 2,500,348 - 2,753,821 560,016
Electricity, gas
and water supply - - - - 308 163,109 - 290,994 - 454,411 11,466
Construction - - - - - 74,578 195,105 3,144,160 - 3,413,843 1,084,501
Real estate - - - - - 41,345 1,525 4,623,807 - 4,666,677 414,212
Transport, storage
and
communication - - - - - 55,259 - 1,961,669 - 2,016,928 206,701
Finance, insurance
and business
services 1,274,635 - 482,597 - 53,351 4,243,037 159,741 4,323,226 - 10,536,587 738,753
Government and
government
agencies 7,959,733 - - 149,544 - 2,741,712 - 117,523 - 10,968,512 158,639
Wholesale & retail
trade and
restaurants
& hotels - - - - 91 45,377 23,907 2,133,369 - 2,202,744 1,189,593
Others - - - - - - - 16,307,661 191,679 16,499,340 777,043

Total assets 9,234,368 - 482,597 149,544 56,274 7,495,386 500,336 36,528,099 191,679 54,638,283 5,360,227

* Not inclusive of collective allowance amounting to RM300 million.

Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Credit risk concentrations (continued)

Reverse Deposits and


Repurchase placements Financial
agreements with banks assets Financial Financial Loans, On
Cash and with and other held- Derivative investments investments advances balance Commitments
short-term financial financial for- financial available- held-to- and Other sheet and
The Group funds institutions institutions trading assets for-sale maturity financing (*) assets total Contingencies
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Agriculture - - - - 13 - - 539,616 - 539,629 74,359


Mining and
quarrying - - - - 481 - - 473,549 - 474,030 30,460
Manufacturing - - - - 770 14,538 157,579 2,635,371 - 2,808,258 628,604
Electricity, gas
and water supply - - - - 28 149,613 - 464,233 - 613,874 18,763
Construction - - - - - 66,039 200,410 2,876,413 - 3,142,862 1,264,474
Real estate - - - - - 9,982 - 3,707,749 - 3,717,731 592,892
Transport, storage
and
communication - - - - - 55,178 73,641 1,680,704 - 1,809,523 229,966
Finance, insurance
and business
services 759,536 - 496,444 165,592 67,425 4,236,881 - 4,160,207 520 9,886,605 842,624
Government and
government
agencies 6,717,893 20,057 100,008 - - 2,904,092 - 117,523 - 9,859,573 137,225
Wholesale & retail
trade and
restaurants &
hotels - - - - 155 94,874 20,040 1,765,174 - 1,880,243 280,869
Others - - - - - - - 15,384,716 257,186 15,641,902 482,853

Total assets 7,477,429 20,057 596,452 165,592 68,872 7,531,197 451,670 33,805,255 257,706 50,374,230 4,583,089

* Not inclusive of collective allowance amounting to RM323 million.

Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 143


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Credit risk concentrations (continued)

Reverse Deposits and


Repurchase placements Financial
agreements with banks assets Financial Financial Loans, On
Cash and with and other held- Derivative investments investments advances balance Commitments

144 AFFIN BANK BERHAD (25046-T) Annual Report 2013


short-term financial financial for- financial available- held-to- and Other sheet and
The Bank funds institutions institutions trading assets for-sale maturity financing (*) assets total Contingencies
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Agriculture - - - - 78 - - 467,708 - 467,786 93,023


Mining and
quarrying - - - - - - - 648,488 - 648,488 121,024
Manufacturing - - - - 2,446 62,502 120,058 2,287,155 - 2,472,161 532,165
Electricity, gas
and water supply - - - - 308 163,109 - 253,405 - 416,822 11,466
Construction - - - - - 74,578 195,105 2,666,179 - 2,935,862 908,297
Real estate - - - - - 41,345 1,525 4,192,630 - 4,235,500 384,572
Transport, storage
and
communication - - - - - 55,259 - 1,854,742 - 1,910,001 194,400
Finance, insurance
and business
services 1,115,964 - 1,106,756 - 53,351 3,782,377 74,676 3,799,712 - 9,932,836 700,246
Government and
government
agencies 3,704,398 - - 149,544 - 1,998,057 - 95,861 - 5,947,860 78,011
Wholesale & retail
trade and
restaurants &
hotels - - - - 91 35,104 23,907 1,988,323 - 2,047,425 1,163,720
Others - - - - - - - 12,191,301 148,663 12,339,964 695,044

Total assets 4,820,362 - 1,106,756 149,544 56,274 6,212,331 415,271 30,445,504 148,663 43,354,705 4,881,968

* Not inclusive of collective allowance amounting to RM267 million.

Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Credit risk concentrations (continued)

Reverse Deposits and


Repurchase placements Financial
agreements with banks assets Financial Financial Loans, On
Cash and with and other held- Derivative investments investments advances balance Commitments
short-term financial financial for- financial available- held-to- and Other sheet and
The Bank funds institutions institutions trading assets for-sale maturity financing (*) assets total Contingencies
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Agriculture - - - - 13 - - 454,538 - 454,551 71,742


Mining and
quarrying - - - - 481 - - 472,737 - 473,218 30,460
Manufacturing - - - - 770 14,538 157,579 2,421,160 - 2,594,047 592,157
Electricity, gas
and water supply - - - - 28 149,613 - 441,262 - 590,903 18,763
Construction - - - - - 50,642 200,410 2,472,518 - 2,723,570 1,082,510
Real estate - - - - - 9,982 - 3,298,277 - 3,308,259 580,265
Transport, storage
and
communication - - - - - 55,178 73,641 1,663,557 - 1,792,376 223,856
Finance, insurance
and business
services 435,596 - 1,043,825 165,592 67,425 3,524,648 - 3,672,697 - 8,909,783 792,322
Government and
government
agencies 3,026,770 20,057 - - - 1,662,329 - 95,861 - 4,805,017 54,670
Wholesale & retail
trade and
restaurants &
hotels - - - - 155 84,524 20,040 1,629,756 - 1,734,475 260,197
Others - - - - - - - 12,004,599 192,354 12,196,953 401,067

Total assets 3,462,366 20,057 1,043,825 165,592 68,872 5,551,454 451,670 28,626,962 192,354 39,583,152 4,108,009

* Not inclusive of collective allowance amounting to RM288 million.

Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 37.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 145


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Collaterals

The main types of collateral obtained by the Group and the Bank are as follows:
- for personal housing loans, mortgages over residential properties;
- for commercial property loans, charges over the properties being financed;
- for hire purchase, charges over the vehicles or plant and machineries financed; and
- for other loans, charges over business assets such as premises, inventories, trade receivables or deposits.

Total loans, advances and financing - credit quality

All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired”
and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with
months-in-arrears more than 3 months (i.e. 90 days) or with impairment allowances.

Distribution of loans, advances and financing by credit quality

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Neither past due nor impaired (a) 33,612,968 30,688,227 28,026,769 26,047,661
Past due but not impaired (b) 2,432,647 2,574,206 2,033,298 2,131,175
Impaired (c) 706,185 753,194 574,555 623,403
Gross loans, advances and financing 36,751,800 34,015,627 30,634,622 28,802,239
less: Allowance for impairment
- Individual (223,701) (210,372) (189,117) (175,277)
- Collective (300,314) (322,629) (266,595) (287,693)
Net loans, advances and financing 36,227,785 33,482,626 30,178,910 28,339,269

Past due but not impaired includes accounts within grace period of the Group and the Bank amounting to RM1.0
billion (2012: RM1.0 billion) and RM0.9 billion (2012: RM0.9 billion) respectively.

146 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Total loans, advances and financing - credit quality (continued)

(a) Loans neither past due nor impaired

Analysis of loans, advances and financing that are neither past due nor impaired analysed based on the Group
and the Bank’s internal credit grading system is as follows:

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Quality classification

Satisfactory 30,400,612 27,497,521 25,143,738 23,278,395


Special mention 3,212,356 3,190,706 2,883,031 2,769,266
33,612,968 30,688,227 28,026,769 26,047,661

Quality classification definitions

Satisfactory: Exposures demonstrate a strong capacity to meet financial commitments, with negligible or low
probability of default and/or levels of expected loss.

Special mention: Exposures require varying degrees of special attention and default risk is of greater concern.

(b) Loans past due but not impaired

Certain loans, advances and financing are past due but not impaired as the collateral values of these loans are in
excess of the principal and profit outstanding. Allowances for these loans may have been set aside on a portfolio
basis. The Bank’s loans, advances and financing which are past due but not impaired are as follows:

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Past due up to 30 days 1,312,337 1,390,570 1,165,696 1,188,938


Past due 30-60 days 767,638 813,727 595,137 653,476
Past due 60-90 days 352,672 369,909 272,465 288,761
2,432,647 2,574,206 2,033,298 2,131,175

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 147


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Total loans, advances and financing - credit quality (continued)

(c) Loans impaired

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Analysis of impaired assets:

Gross impaired loans 706,185 753,194 574,555 623,403

Individually impaired loans 122,532 127,376 50,399 56,521

Collateral and other credit enhancements obtained

During the year, the Bank has not obtained any assets by taking possession of collateral held as security or
calling upon other credit enhancements.

Private debt securities, treasury bills and derivatives

Private debt securities, treasury bills and other eligible bills included in financial assets held-for-trading and
financial investments available-for-sale are measured on a fair value basis. The fair value will reflect the credit risk
of the issuer.

Most listed and some unlisted securities are rated by external rating agencies. The Group and the Bank mainly
uses external credit ratings provided by RAM, MARC, Standard & Poors’ or Moody’s.

The table below presents an analysis of debt securities, treasury bills and other eligible bills by rating agency.

148 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Private debt securities, treasury bills and derivatives (continued)

The Group AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets held-for-trading


Bank Negara Malaysia Monetary Notes - - - - 149,544 - 149,544
Financial investments available-for-sale
Malaysian Government investment issues - - - - 1,759,211 - 1,759,211
Bank Negara Malaysia Monetary Notes - - - - 629,674 - 629,674
Sukuk Perumahan Kerajaan 337,661 - - - - - 337,661
Others - - - - 1,316,277 - 1,316,277
Private debt securities 2,243,479 697,306 404,425 59,070 48,281 - 3,452,561
Financial investments held-to-maturity
Private debt securities - - - - 432,429 67,907 500,336
2,581,140 697,306 404,425 59,070 4,335,416 67,907 8,145,264

The Group AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets held-for-trading


Negotiable Instruments of Deposit - - - - 150,276 - 150,276
Private debt securities - - - 15,316 - - 15,316
Financial investments available-for-sale
Malaysian Government securities - - - - 5,070 - 5,070
Malaysian Government investment issues - - - - 1,879,076 - 1,879,076
Bank Negara Malaysia Monetary Notes - - - - 884,069 - 884,069
Sukuk Perumahan Kerajaan 120,550 - - - - - 120,550
Others - - - - 1,109,556 - 1,109,556
Private debt securities 2,648,049 483,237 302,619 65,426 33,530 16 3,532,877
Financial investments held-to-maturity
Private debt securities - - - - 366,120 85,550 451,670
2,768,599 483,237 302,619 80,742 4,427,697 85,566 8,148,460

* Net of allowance for impairment

Collateral is not generally obtained directly from the issuers of debt securities. Certain debt securities may be collateralised by specifically identified assets that would
be obtainable in the event of default.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 149


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(i) Credit risk (continued)

Private debt securities, treasury bills and derivatives (continued)

The Bank AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets held-for-trading

150 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Bank Negara Malaysia Monetary Notes - - - - 149,544 - 149,544
Financial investments available-for-sale
Malaysian Government investment issues - - - - 1,142,371 - 1,142,371
Bank Negara Malaysia Monetary Notes - - - - 571,160 - 571,160
Sukuk Perumahan Kerajaan 269,361 - - - - - 269,361
Others - - - - 1,286,592 - 1,286,592
Private debt securities 1,744,037 687,033 404,425 59,070 48,281 - 2,942,846
Financial investments held-to-maturity
Private debt securities - - - - 347,364 67,907 415,271
2,013,398 687,033 404,425 59,070 3,545,312 67,907 6,777,145

The Bank AAA AA- to AA+ A- to A+ Lower than A- Unrated * Impaired Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Financial assets held-for-trading


Negotiable Instruments of Deposit - - - - 150,276 - 150,276
Private debt securities - - - 15,316 - - 15,316
Financial investments available-for-sale
Malaysian Government securities - - - - 5,070 - 5,070
Malaysian Government investment issues - - - - 1,004,366 - 1,004,366
Bank Negara Malaysia Monetary Notes - - - - 517,015 - 517,015
Sukuk Perumahan Kerajaan 120,550 - - - - - 120,550
Others - - - - 1,073,366 - 1,073,366
Private debt securities 1,956,609 472,886 302,619 65,426 33,530 16 2,831,086
Financial investments held-to-maturity
Private debt securities - - - - 366,120 85,550 451,670
2,077,159 472,886 302,619 80,742 3,149,743 85,566 6,618,715

* Net of allowance for impairment

Collateral is not generally obtained directly from the issuers of debt securities. Certain debt securities may be collateralised by specifically identified assets that would
be obtainable in the event of default.
notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(ii) Market risk

Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market factors
such as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from
its trading and investment activities. The Bank’s market risk management objective is to ensure that market risk is
appropriately identified, measured, controlled, managed and reported.

The Bank’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate
risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The
Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the change
in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’ requirements
and proprietary positions.

The Bank’s market risk management control strategy is established based on its risk appetite, market liquidity and
business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis.

Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-
Risk (‘VaR’) Limits.

The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate
sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various
rates scenarios. The potential long term effects of the Bank’s overall exposure is also tracked by assessing the impact
on economic value of equity (‘EVE’).

The Bank’s interest rate risk is managed through Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) limits.

In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under
abnormal market conditions.

The Bank’s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 151


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Value-at-Risk (‘VaR’)

Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a
trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign
exchange rates that could affect values of financial instruments.

The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a
statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks. Under
this methodology, a matrix of historical volatilities and correlations is computed from the past 100 business days’
market data. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio.

The table below sets out a summary of the Bank’s VaR profile by financial instrument types for the trading portfolio:

Average
for the
The Group and The Bank Balance fi
nancial year Minimum Maximum
2013 RM’000 RM’000 RM’000 RM’000

Instruments
FX swap 713 607 252 1,375
FX spot (Metro Desk) 88 150 6 678
Government securities 2 - - 2
Private debt securities - - - 60

Average
for the
The Group and The Bank Balance financial year Minimum Maximum
2012 RM’000 RM’000 RM’000 RM’000

Instruments
FX swap 634 906 604 1,468
FX spot (Metro Desk) 34 144 9 672
Government securities - - - 4
Private debt securities 60 48 - 329

152 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Other risk measures

• Mark-to-market
Mark-to-market valuation tracks the current market value of the outstanding financial instruments.

• Stress testing
Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market
movements. Stress tests measure the changes in values arising from extreme movements in interest rates and
foreign exchange rates based on past experience and simulated stress scenarios.

• Sensitivity/Dollar Duration
Sensitivity/Dollar Duration measures the change in value of a portfolio resulting from a 0.001% increase in interest
rates. This measure identifies the Bank’s interest rate exposures that are most vulnerable to interest rate changes
and facilitates the implementation of hedging strategies.

Net interest income sensitivity

The table below shows the pre-tax net interest income sensitivity for the financial assets and financial liabilities held
at reporting date. The sensitivity has been measured using the Repricing Gap Simulation methodology based on 100
basis points parallel shifts in the interest rate.

The Group The Bank


2013 2013 2013 2013
+100 -100 +100 -100
basis point basis point basis point basis point
RM million RM million RM million RM million

Impact on net interest income (18.5) 18.5 (21.5) 21.5


As percentage of net interest income -1.8% 1.8% -2.6% 2.6%

The Group The Bank


2012 2012 2012 2012
+100 -100 +100 -100
basis point basis point basis point basis point
RM million RM million RM million RM million

Impact on net interest income (3.8) 3.8 (16.8) 16.8


As percentage of net interest income -0.4% 0.4% -2.1% 2.1%

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 153


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Foreign exchange risk sensitivity analysis

Open position
Ringgit Impact of
Malaysia 1% fall in
US Ringgit equivalent US
Dollar Malaysia amount for Dollar
equivalent equivalent 1 % fall in exchange
The Group amount amount US Dollar rate
2013 ‘000 ‘000 ‘000 ‘000

US Dollar (304) (997) (987) 10


Others (4,217) (13,821) (13,683) 138

The impact on the outstanding foreign exchange position as at 31 December 2013 for a one percent change in USD
exchange rate from 3.2775 to 3.2447 was an increase of RM148,185.

Open position
Ringgit Impact of
Malaysia 1% fall in
US Ringgit equivalent US
Dollar Malaysia amount for Dollar
equivalent equivalent 1 % fall in exchange
The Group amount amount US Dollar rate
2012 ‘000 ‘000 ‘000 ‘000

US Dollar 769 2,352 2,329 (24)


Others (4,384) (13,409) (13,275) 134

The impact on the outstanding foreign exchange position as at 31 December 2012 for a one percent change in USD
exchange rate from 3.0590 to 3.0284 was an increase of RM111,000.

154 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Foreign exchange risk sensitivity analysis (continued)

Open position
Ringgit Impact of
Malaysia 1% fall in
US Ringgit equivalent US
Dollar Malaysia amount for Dollar
equivalent equivalent 1 % fall in exchange
The Bank amount amount US Dollar rate
2013 ‘000 ‘000 ‘000 ‘000

US Dollar (1,394) (4,568) (4,522) 46


Others (3,197) (10,480) (10,375) 105

The impact on the outstanding foreign exchange position as at 31 December 2013 for a one percent change in USD
exchange rate from 3.2775 to 3.2447 was an increase of RM150,477.

Open position
Ringgit Impact of
Malaysia 1% fall in
US Ringgit equivalent US
Dollar Malaysia amount for Dollar
equivalent equivalent 1 % fall in exchange
The Bank amount amount US Dollar rate
2012 ‘000 ‘000 ‘000 ‘000

US Dollar 186 570 564 (6)


Others (3,967) (12,134) (12,013) 121

The impact on the outstanding foreign exchange position as at 31 December 2012 for a one percent change in USD
exchange rate from 3.0590 to 3.0284 was an increase of RM116,000.

Foreign exchange risk

The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial
position and cash flows. Limits are set on the level of exposure by currency and in aggregate for both overnight
and intra-day positions, which are monitored daily. The table summarises the Bank’s exposure to foreign currency
exchange rate risk at reporting date. Included in the table are the Bank’s financial instruments at carrying amounts,
categorised by currency.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 155


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Foreign exchange risk (continued)

United Great
States Britain Australian Japanese
The Group Euro Dollar Pound Dollar Yen Others Total

156 AFFIN BANK BERHAD (25046-T) Annual Report 2013


2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets
Cash and short-term funds 7,594 245,259 4,637 16 1,399 31,534 290,439
Deposits and placements with banks
and other financial institutions - 67,299 - 29,289 - 26,969 123,557
Derivative financial assets - 1,121 - - - 213 1,334
Financial investments available-for-sale 46,552 254,631 - 56,450 - 147,088 504,721
Loans, advances and financing 207 1,294,883 107,860 - 422 264,128 1,667,500
Other assets - 892 - - - 928 1,820
Total financial assets 54,353 1,864,085 112,497 85,755 1,821 470,860 2,589,371

Liabilities
Deposits from customers 77,562 221,478 14,962 6,010 9,839 16,520 346,371
Deposits and placements of banks
and other financial institutions - - - 11,319 - 45 11,364
Derivative financial liabilities - 4,597 - - - 1,077 5,674
Other liabilities - 2,904 - - - - 2,904
Total financial liabilities 77,562 228,979 14,962 17,329 9,839 17,642 366,313

Net on-balance sheet financial position (23,209) 1,635,106 97,535 68,426 (8,018) 453,218 2,223,058
Off balance sheet credit commitments 285,323 3,679,237 57,795 87,955 9,932 54,566 4,174,808
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Foreign exchange risk (continued)

United Great
States Britain Australian Japanese
The Group Euro Dollar Pound Dollar Yen Others Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets
Cash and short-term funds 6,724 132,764 2,170 229 972 25,761 168,620
Deposits and placements with banks
and other financial institutions - 129,692 - 79,833 - - 209,525
Financial assets held-for-trading - 15,316 - - - - 15,316
Derivative financial assets - 1,811 - 1,155 - 231 3,197
Financial investments available-for-sale - 220,664 - 144,654 - 100,418 465,736
Loans, advances and financing 185 1,598,937 98,514 - 1,114 1,871 1,700,621
Other assets - 487 - - - - 487
Total financial assets 6,909 2,099,671 100,684 225,871 2,086 128,281 2,563,502

Liabilities
Deposits from customers 110,212 173,009 7,337 8,996 170 6,153 305,877
Deposits and placements of banks
and other financial institutions - 612,055 - 8,873 - - 620,928
Derivative financial liabilities - 6,940 - 596 - 2,457 9,993
Other liabilities - 6,583 - 265 - - 6,848
Total financial liabilities 110,212 798,587 7,337 18,730 170 8,610 943,646

Net on-balance sheet financial position (103,303) 1,301,084 93,347 207,141 1,916 119,671 1,619,856
Off balance sheet credit commitments 689,007 1,927,908 39,134 131,679 47,591 455,321 3,290,640

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 157


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Foreign exchange risk (continued)

United Great
States Britain Australian Japanese
The Bank Euro Dollar Pound Dollar Yen Others Total

158 AFFIN BANK BERHAD (25046-T) Annual Report 2013


2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets
Cash and short-term funds 6,089 310,064 4,381 16 1,355 30,691 352,596
Deposits and placements with banks
and other financial institutions - 95,667 - 29,289 - 26,969 151,925
Derivative financial assets - 1,121 - - - 213 1,334
Financial investments available-for-sale 46,552 254,631 - 56,450 - 147,088 504,721
Loans, advances and financing 207 1,158,914 107,860 - 422 264,129 1,531,532
Other assets - 892 - - - 928 1,820
Total financial assets 52,848 1,821,289 112,241 85,755 1,777 470,018 2,543,928

Liabilities
Deposits from customers 77,544 220,879 14,955 6,003 9,835 16,519 345,735
Deposits and placements of banks
and other financial institutions - 26,720 - 12,046 - 45 38,811
Derivative financial liabilities - 4,597 - - - 1,077 5,674
Other liabilities - 2,987 - - - - 2,987
Total financial liabilities 77,544 255,183 14,955 18,049 9,835 17,641 393,207

Net on-balance sheet financial position (24,696) 1,566,106 97,286 67,706 (8,058) 452,377 2,150,721
Off balance sheet credit commitments 231,559 3,521,399 56,676 87,955 10,195 54,258 3,962,042
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Foreign exchange risk (continued)

United Great
States Britain Australian Japanese
The Bank Euro Dollar Pound Dollar Yen Others Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets
Cash and short-term funds 5,365 191,827 1,791 17 742 25,492 225,234
Deposits and placements with banks
and other financial institutions - 170,921 - 79,833 - - 250,754
Financial assets held-for-trading - 15,316 - - - - 15,316
Derivative financial assets - 1,811 - 1,155 - 231 3,197
Financial investments available-for-sale - 220,664 - 144,654 - 100,418 465,736
Loans, advances and financing 185 1,434,581 98,514 - 1,114 1,871 1,536,265
Other assets - 487 - - - - 487
Total financial assets 5,550 2,035,607 100,305 225,659 1,856 128,012 2,496,989

Liabilities
Deposits from customers 109,047 172,765 7,330 8,996 167 6,153 304,458
Deposits and placements of banks
and other financial institutions - 612,055 - 8,873 - - 620,928
Derivative financial liabilities - 6,940 - 596 - 2,457 9,993
Other liabilities - 6,661 - 265 - - 6,926
Total financial liabilities 109,047 798,421 7,330 18,730 167 8,610 942,305

Net on-balance sheet financial position (103,497) 1,237,186 92,975 206,929 1,689 119,402 1,554,684
Off balance sheet credit commitments 525,244 1,870,422 36,464 131,679 47,591 445,785 3,057,185

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 159


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Interest/profit rate risk

Sensitivity to interest rates arises from mismatches in the interest rate characteristics of the assets and their corresponding liability funding. One of
the major causes of these mismatches is timing differences in the repricing of the assets and liabilities. These mismatches are actively managed
as part of the overall interest rate risk management process which is conducted in accordance with Group policy guidelines.

160 AFFIN BANK BERHAD (25046-T) Annual Report 2013


The following table represents the Group’s and the Bank’s assets and liabilities at carrying amounts, categorised by the earlier of contractual
repricing or maturity dates as at reporting date.

Non-trading book

Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Group month months months years years sensitive book Total rate
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Assets
Cash and short-term funds 9,178,632 - - - - 223,069 - 9,401,701 2.99
Deposits and placements with bank
and other financial institutions 90,000 286,741 101,437 - - 4,419 - 482,597 4.20
Financial assets held-for-trading - - - - - - 149,544 149,544 2.94
Derivative financial assets - - - - - 26,639 29,635 56,274
Financial investments available-for-sale 210,041 767,998 1,318,762 3,056,311 2,087,340 174,085 - 7,614,537 3.82
Financial investment held-to-maturity 1,525 268,102 85,000 73,658 - 72,051 - 500,336 4.69
Loans, advances and financing
- non-impaired 19,430,962 2,113,869 3,518,151 8,648,969 2,333,664 (300,314) * - 35,745,301 5.37
- impaired - - - - - 482,484 # - 482,484
Others (1) - - - - - 2,004,339 - 2,004,339

Total assets 28,911,160 3,436,710 5,023,350 11,778,938 4,421,004 2,686,772 179,179 56,437,113

* The negative balance represents collective allowance for loans, advances and financing.
# Net of individual allowance.
(1) Others include property and equipment, intangible assets, statutory deposits with BNM, tax recoverable, deferred tax assets, other assets and amount due from
jointly controlled entity.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Interest/profit rate risk (continued)

Non-trading book

Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Group month months months years years sensitive book Total rate
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Liabilities
Deposits from customers 18,347,659 9,935,597 14,499,590 119,512 - 3,185,724 - 4
6,088,082 3.20
Deposits and placements of banks
and other financial institutions 2,263,614 1,517,415 274,925 - - 9,590 - 4,065,544 3.18
Derivative financial liabilities - - - - - 56,116 38,406 94,522
Bills and acceptances payable - - - - - 90,208 - 90,208
Recourse obligation on loans sold
to Cagamas Berhad - - - 394,708 - 3,082 - 397,790 4.77
Subordinated term loan 900,000 - - - - 4,964 - 904,964 4.59
Other liabilities (2) - - - - - 428,379 - 428,379

Total liabilities 21,511,273 11,453,012 14,774,515 514,220 - 3,778,063 38,406 5


2,069,489

Equity - - - - - 4,367,624 - 4,367,624

Total liabilities and equity 21,511,273 11,453,012 14,774,515 514,220 - 8,145,687 38,406 56,437,113

On-balance sheet interest sensitivity gap 7,399,887 (8,016,302) (9,751,165) 11,264,718 4,421,004 (5,458,915) 140,773
Off-balance sheet interest sensitivity gap (3) 274,205 1,576,740 (642,495) (1,502,538) 294,088 - -

Total interest sensitivity gap 7,674,092 (6,439,562) (10,393,660) 9,762,180 4,715,092 (5,458,915) 140,773

(2) Other liabilities include provision for taxation and other liabilities.
(3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 161


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Interest/profit rate risk (continued)

Non-trading book
Non-
interest / Effective

162 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Group month months months years years sensitive book Total rate
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Assets
Cash and short-term funds 7,427,433 - - - - 221,471 - 7,648,904 2.95
Reverse repurchase agreements with
financial institutions - - 19,939 - - 118 - 20,057 3.07
Deposits and placements with banks
and other financial institutions 80,000 513,931 - - - 2,521 - 596,452 3.76
Financial assets held-for-trading - - - - - - 165,592 165,592 3.09
Derivative financial assets - - - - - 47,165 21,707 68,872
Financial investments available-for-sale 485,983 794,694 701,194 3,206,109 2,294,827 157,847 - 7,640,654 3.61
Financial investment held-to-maturity 197,337 92,000 - 72,634 - 89,699 - 451,670 4.27
Loans, advances and financing
- non-impaired 17,571,338 2,625,107 2,746,329 8,123,871 2,195,788 (322,629) * - 32,939,804 5.48
- impaired - - - - - 542,822 # - 542,822
Others (1) - - - - - 2,030,153 - 2,030,153

Total assets 25,762,091 4,025,732 3,467,462 11,402,614 4,490,615 2,769,167 187,299 5


2,104,980

* The negative balance represents collective allowance for loans, advances and financing.
# Net of individual allowance.
(1) Others include property and equipment, intangible assets, statutory deposits with BNM, tax recoverable, other assets, investment in jointly controlled entity
and amount due from jointly controlled entity.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Interest/profit rate risk (continued)

Non-trading book

Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Group month months months years years sensitive book Total rate
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Liabilities
Deposits from customers 16,137,700 10,080,985 11,870,486 255,720 - 2,918,645 - 41,263,536 3.16
Deposits and placements of banks
and other financial institutions 2,318,559 2,466,046 11,489 - - 13,229 - 4,809,323 2.74
Derivative financial liabilities - - - - - 26,595 33,068 59,663
Bills and acceptances payable - - - - - 152,400 - 152,400
Recourse obligation on loans sold
to Cagamas Berhad - - - 410,345 - 3,204 - 413,549 4.77
Subordinated term loan 900,000 - - - - 4,960 - 904,960 4.52
Other liabilities (2) - - - - - 383,597 - 383,597

Total liabilities 19,356,259 12,547,031 11,881,975 666,065 - 3,502,630 33,068 4


7,987,028

Equity - - - - - 4,117,952 - 4,117,952

Total liabilities and equity 19,356,259 12,547,031 11,881,975 666,065 - 7,620,582 33,068 5
2,104,980

On-balance sheet interest sensitivity gap 6,405,832 (8,521,299) (8,414,513) 1


0,736,549 4,490,615 (4,851,415) 154,231
Off-balance sheet interest sensitivity gap (3) 502,354 602,790 (91,805) (1,148,313) 134,974 - -

Total interest sensitivity gap 6,908,186 (7,918,509) (8,506,318) 9,588,236 4,625,589 (4,851,415) 154,231

(2) Other liabilities include provision for taxation, deferred tax liabilities and other liabilities.
(3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 163


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Interest/profit rate risk (continued)

Non-trading book

Non-
interest / Effective

164 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Bank month months months years years sensitive book Total rate
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Assets
Cash and short-term funds 4,777,182 - - - - 210,514 - 4,987,696 2.88
Deposits and placements with banks
and other financial institutions 90,000 520,155 163,679 197,210 100,000 35,712 - 1,106,756 4.20
Financial assets held-for-trading - - - - - - 149,544 149,544 2.94
Derivative financial assets - - - - - 26,639 29,635 56,274
Financial investments available-for-sale 210,041 702,959 904,603 2,466,357 1,884,482 162,972 - 6,331,414 3.82
Financial investment held-to-maturity 1,525 268,101 - 73,658 - 71,987 - 415,271 4.16
Loans, advances and financing
- non-impaired 16,143,542 1,904,549 3,003,968 7,313,314 1,694,694 (266,595) * - 29,793,472 5.41
- impaired - - - - - 385,438 # - 385,438
Others (1) - - - - - 2,104,013 - 2,104,013
Amount due from subsidiaries 60,115 - - - - 608 - 60,723 3.00

Total assets 21,282,405 3,395,764 4,072,250 10,050,539 3,679,176 2,731,288 179,179 4


5,390,601

* The negative balance represents collective allowance for loans, advances and financing.
# Net of individual allowance.
(1) Others include property and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, deferred tax assets, investment in subsidiaries and
other assets.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Interest/profit rate risk (continued)

Non-trading book

Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Bank month months months years years sensitive book Total rate
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Liabilities
Deposits from customers 13,043,316 8,579,819 11,940,823 116,771 - 3,119,999 - 36,800,728 3.33
Deposits and placements of banks
and other financial institutions 955,762 1,517,415 179,392 - - 6,966 - 2,659,535 3.19
Derivative financial liabilities - - - - - 56,116 38,406 94,522
Bills and acceptances payable - - - - - 90,208 - 90,208 -
Recourse obligation on loans sold
to Cagamas Berhad - - - 394,708 - 3,082 - 397,790 4.77
Subordinated term loan 900,000 - - - - 4,964 - 904,964 4.59
Other liabilities (2) - - - - - 394,188 - 394,188
Amount due to subsidiaries - - - - - 53,559 - 53,559

Total liabilities 14,899,078 10,097,234 12,120,215 511,479 - 3,729,082 38,406 4


1,395,494

Equity - - - - - 3,995,107 - 3,995,107

Total liabilities and equity 14,899,078 10,097,234 12,120,215 511,479 - 7,724,189 38,406 4
5,390,601

On-balance sheet interest sensitivity gap 6,383,327 (6,701,470) (8,047,965) 9,539,060 3,679,176 (4,992,901) 140,773
Off-balance sheet interest sensitivity gap (3) 274,205 1,576,740 (642,495) (1,502,538) 294,088 - -

Total interest sensitivity gap 6,657,532 (5,124,730) (8,690,460) 8,036,522 3,973,264 (4,992,901) 140,773

(2) Other liabilities include provision for taxation and other liabilities.
(3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 165


notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Interest/profit rate risk (continued)

Non-trading book

Non-
interest / Effective

166 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Bank month months months years years sensitive book Total rate
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Assets
Cash and short-term funds 3,420,615 - - - - 213,227 - 3,633,842 2.89
Reverse repurchase agreements with
financial institutions - - 19,939 - - 118 - 20,057 3.07
Deposits and placements with banks
and other financial institutions 80,000 646,200 49,037 197,210 46,627 24,751 - 1,043,825 3.76
Financial assets held-for-trading - - - - - - 165,592 165,592 3.09
Derivative financial assets - - - - - 47,165 21,707 68,872
Financial investments available-for-sale 353,932 585,506 320,505 2,346,475 1,911,552 140,191 - 5,658,161 3.67
Financial investment held-to-maturity 197,337 92,000 - 72,634 - 89,699 - 451,670 4.27
Loans, advances and financing
- non-impaired 14,782,179 2,466,733 2,334,730 7,016,986 1,578,208 (287,693) * - 27,891,143 5.50
- impaired - - - - - 448,126 # - 448,126
Others (1) - - - - - 2,140,817 - 2,140,817
Amount due from subsidiaries 153,296 - - - - 653 - 153,949 3.08

Total assets 18,987,359 3,790,439 2,724,211 9,633,305 3,536,387 2,817,054 187,299 4


1,676,054

* The negative balance represents collective allowance for loans, advances and financing.
# Net of individual allowance.
(1) Others include property and equipment, intangible assets, statutory deposits with Bank Negara Malaysia, investment in subsidiaries and other assets.
notes to the financial statements
for the financial year ended 31 December 2013
38 FINANCIAL RISK MANAGEMENT

(ii) Market risk (continued)

Interest/profit rate risk (continued)

Non-trading book

Non-
interest / Effective
Up to 1 >1-3 >3-12 >1-5 Over 5 profit Trading interest
The Bank month months months years years sensitive book Total rate
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 %

Liabilities
Deposits from customers 10,885,801 8,348,808 9,894,452 244,355 - 2,851,401 - 32,224,817 3.29
Deposits and placements of banks
and other financial institutions 1,252,267 2,451,800 11,489 - - 12,707 - 3,728,263 2.74
Derivative financial liabilities - - - - - 26,595 33,068 59,663
Bills and acceptances payable - - - - - 152,400 - 152,400 -
Recourse obligation on loans sold
to Cagamas Berhad - - - 410,345 - 3,204 - 413,549 4.77
Subordinated term loan 900,000 - - - - 4,960 - 904,960 4.52
Other liabilities (2) - - - - - 349,420 - 349,420
Amount due to subsidiaries - - - - - 48,528 - 48,528

Total liabilities 13,038,068 10,800,608 9,905,941 654,700 - 3,449,215 33,068 3


7,881,600

Equity - - - - - 3,794,454 - 3,794,454

Total liabilities and equity 13,038,068 10,800,608 9,905,941 654,700 - 7,243,669 33,068 41,676,054

On-balance sheet interest sensitivity gap 5,949,291 (7,010,169) (7,181,730) 8,978,605 3,536,387 (4,426,615) 154,231
Off-balance sheet interest sensitivity gap (3) 502,354 602,790 (91,805) (1,148,313) 134,974 - -

Total interest sensitivity gap 6,451,645 (6,407,379) (7,273,535) 7,830,292 3,671,361 (4,426,615) 154,231

(2) Other liabilities include provision for taxation, other liabilities and deferred tax liabilities.
(3) The off-balance sheet gap represents the net notional amounts of all interest rate sensitive derivative financial instruments.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 167


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk

Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its
obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding
sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to
liquidate assets quickly and with minimal loss in value.

To measure and manage net funding requirements, the Bank adopts BNM’s New Liquidity Framework (‘NLF’).
The NLF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and
off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets.
The NLF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular
funding sources.

The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management.
Liquidity risk is tracked using internal and external qualitative and quantitative indicators. The Bank also conducts
liquidity stress tests to gauge the Bank’s resilience in the event of a liquidity crisis. In addition, the Bank has in place
the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The document
encompasses strategies, decision-making authorities, and courses of action to be taken in the event of liquidity crisis
and emergencies.

The liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long
term foreign currency funding and adhering to the guiding principles for foreign currency assets creations.

Basel III Liquidity Standards

The Basel Committee developed the Liquidity Coverage Ratio (‘LCR’) and Net Stable Funding Ratio (‘NSFR’) with the
goal of strengthening the resilience of the banking systems. The LCR and NSFR are tracked monthly to assess the
short term and long term liquidity risk profile of the Bank.

The BRMC is responsible for the Bank’s liquidity policy although the strategic management of liquidity has been
delegated to the ALCO. The BRMC is informed regularly of the liquidity situation in the Bank.

168 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk disclosure table which is based on contractual undiscounted cash flow

The table below provides analysis of cash flow payables for financial liabilities based on remaining contractual
maturities on undiscounted basis. The balances in the table below do not agree directly to the balances reported in the
statement of financial position as the table incorporates all contractual cash flows, on an undiscounted basis, relating
to both principal and interest payments.

Up to 1 >1-3 >3-12 >1-5 Over 5


The Group month months months years years Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 21,271,311 10,109,260 14,896,910 167,547 11,033 46,456,061


Deposits and placements of banks
and other financial institutions 2,361,576 1,527,301 279,061 - - 4,167,938
Bills and acceptances payable 90,208 - - - - 90,208
Recourse obligation on loans sold to
Cagamas Berhad 2,791 5,312 263,436 150,442 - 421,981
Other liabilities 391,977 - - - - 391,977
Subordinated term loan 3,526 305,835 19,777 105,072 671,474 1,105,684
24,121,389 11,947,708 15,459,184 423,061 682,507 52,633,849

Up to 1 >1-3 >3-12 >1-5 Over 5


The Group month months months years years Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 18,859,710 10,235,637 12,239,649 281,525 - 41,616,521
Deposits and placements of banks
and other financial institutions 2,325,773 2,483,628 11,972 - - 4,821,373
Bills and acceptances payable 152,400 - - - - 152,400
Recourse obligation on loans sold to
Cagamas Berhad 3,165 5,525 26,109 422,077 - 456,876
Other liabilities 306,481 - - - - 306,481
Subordinated term loan 3,509 6,678 31,124 168,215 1,016,039 1,225,565
21,651,038 12,731,468 12,308,854 871,817 1,016,039 48,579,216

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 169


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk disclosure table which is based on contractual undiscounted cash flow (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Bank month months months years years Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 15,956,114 8,722,130 12,255,551 164,593 11,033 37,109,421


Deposits and placements of banks
and other financial institutions 958,535 1,527,301 182,527 - - 2,668,363
Bills and acceptances payable 90,208 - - - - 90,208
Recourse obligation on loans sold to
Cagamas Berhad 2,791 5,312 263,436 150,442 - 421,981
Other liabilities 359,836 - - - - 359,836
Amount due to subsidiaries 53,559 - - - - 53,559
Subordinated term loan 3,526 305,835 19,777 105,072 671,474 1,105,684
17,424,569 10,560,578 12,721,291 420,107 682,507 41,809,052

Up to 1 >1-3 >3-12 >1-5 Over 5


The Bank month months months years years Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Deposits from customers 13,589,500 8,468,130 10,199,495 269,592 - 32,526,717
Deposits and placements of banks
and other financial institutions 1,258,789 2,469,056 11,794 - - 3,739,639
Bills and acceptances payable 152,400 - - - - 152,400
Recourse obligation on loans sold to
Cagamas Berhad 3,165 5,525 26,109 422,077 - 456,876
Other liabilities 282,144 - - - - 282,144
Amount due to subsidiaries 48,528 - - - - 48,528
Subordinated term loan 3,509 6,678 31,124 168,215 1,016,039 1,225,565
15,338,035 10,949,389 10,268,522 859,884 1,016,039 38,431,869

170 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Derivative financial liabilities

Derivative financial liabilities based on contractual undiscounted cash flow:

Up to 1 >1-3 >3-12 >1-5 Over 5


The Group and The Bank month months months years years Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Derivatives settled on net basis


Interest rate derivatives (1,204) (1,472) (3,275) 2,242 6,142 2,433

Derivatives settled on gross basis
Foreign exchange derivatives:
Outflow (509,833) (674,028) (911,963) (594,154) (96,030) (2,786,008)
Inflow 509,931 673,695 909,002 594,154 96,030 2,782,812
98 (333) (2,961) - - (3,196)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Group and The Bank month months months years years Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Derivatives settled on net basis
Interest rate derivatives (1,374) (1,986) (5,662) (13,565) 2,062 (20,525)

Derivatives settled on gross basis
Foreign exchange derivatives:
Outflow (523,356) (648,351) (352,435) (126,927) - (1,651,069)
Inflow 522,534 643,932 347,851 124,546 - 1,638,863
(822) (4,419) (4,584) (2,381) - (12,206)

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 171


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk for assets and liabilities based on remaining contractual maturities

The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities,
commitments and counter-guarantees are important factors in assessing the liquidity of the Group and the Bank.
The table below provides analysis of assets and liabilities into relevant maturity tenures based on remaining contractual
maturities.

Maturities of assets and liabilities of the Group and the Bank by remaining contractual maturities profile are as follows:

Up to 1 >1-3 >3-12 >1-5 Over 5


The Group month months months years years Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets
Cash and short-term funds 9,401,701 - - - - 9,401,701
Deposits and placements with banks
and other financial institutions - 201,906 41,668 197,738 41,285 482,597
Financial assets held-for-trading 149,544 - - - - 149,544
Derivative financial assets 8,965 22,884 8,136 4,566 11,723 56,274
Financial investments available-for-sale 190,150 797,941 1,450,706 3,088,400 2,087,340 7,614,537
Financial investments held-to-maturity 70,913 1,075 16,064 149,826 262,458 500,336
Loans, advances and financing 1,631,991 1,489,733 1,994,497 7,855,233 23,256,331 36,227,785
Other assets 186,368 - 12,277 5,341 16,111 220,097
Amount due from jointly
controlled entity 4,185 - - - - 4,185
Other non-financial assets (1) 1,469,294 - 17 - 310,746 1,780,057
13,113,111 2,513,539 3,523,365 11,301,104 25,985,994 56,437,113

(1) Other non-financial assets include deferred tax assets, tax recoverable, statutory deposits with BNM, property
and equipment and intangible assets.

172 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Group month months months years years Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Liabilities
Deposits from customers 21,256,343 10,056,459 14,615,566 149,714 10,000 46,088,082
Deposits and placements of banks
and other financial institutions 2,268,127 1,521,311 276,106 - - 4,065,544
Derivative financial liabilities 9,234 22,725 20,786 23,847 17,930 94,522
Bills and acceptances payable 90,208 - - - - 90,208
Recourse obligation on loans
sold to Cagamas Berhad 1,297 1,786 123,243 271,464 - 397,790
Subordinated term loan 2,756 302,208 - - 600,000 904,964
Other liabilities 391,977 - - - - 391,977
Other non-financial liabilities (2) - - 36,402 - - 36,402
24,019,942 11,904,489 15,072,103 445,025 627,930 52,069,489

On balance sheet gap (10,906,831) (9,390,950) (11,548,738) 10,856,079 25,358,064 4,367,624


Off balance sheet credit
commitments (1,420,166) - (11,589,139) - - (13,009,305)
Derivatives 226,284 901,165 389,163 690,184 - 2,206,796
Net maturity mismatch (12,100,713) (8,489,785) (22,748,714) 11,546,263 25,358,064 (6,434,885)

(2) Other non-financial liabilities include provision for taxation.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 173


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Group month months months years years Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets
Cash and short-term funds 7,648,904 - - - - 7,648,904
Reverse repurchase agreements with
financial institutions - - 20,057 - - 20,057
Deposits and placements with banks
and other financial institutions - 440,905 18,705 61,186 75,656 596,452
Financial assets held-for-trading 165,592 - - - - 165,592
Derivative financial assets 11,209 26,370 18,534 6,693 6,066 68,872
Financial investments available-for-sale 461,116 711,629 796,643 3,350,026 2,321,240 7,640,654
Financial investments held-to-maturity 88,623 1,076 16,000 148,634 197,337 451,670
Loans, advances and financing 1,872,459 1,673,483 1,586,057 10,804,209 17,546,418 33,482,626
Other assets 251,776 - 9,622 5,215 27,045 293,658
Amount due from jointly
controlled entity 2,745 - - - - 2,745
Other non-financial assets (1) 1,413,300 - 16 - 320,434 1,733,750
11,915,724 2,853,463 2,465,634 14,375,963 20,494,196 52,104,980

(1) Other non-financial assets include tax recoverable, statutory deposits with BNM, investment in jointly controlled
entity, p
roperty and equipment and intangible assets.

174 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Group month months months years years Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Liabilities
Deposits from customers 18,846,259 10,175,444 11,985,784 256,049 - 41,263,536
Deposits and placements of banks
and other financial institutions 2,324,410 2,473,276 11,637 - - 4,809,323
Derivative financial liabilities 9,769 19,817 8,655 17,247 4,175 59,663
Bills and acceptances payable 152,400 - - - - 152,400
Recourse obligation on loans sold to
Cagamas Berhad 1,364 1,840 - 410,345 - 413,549
Subordinated term loan 2,755 2,205 - - 900,000 904,960
Other liabilities 306,481 - - - - 306,481
Other non-financial liabilities (2) - - 63,751 - 13,365 77,116
21,643,438 12,672,582 12,069,827 683,641 917,540 47,987,028

On balance sheet gap (9,727,714) (9,819,119) (9,604,193) 13,692,322 19,576,656 4,117,952
Off balance sheet credit
commitments - - (12,020,705) - - (12,020,705)
Derivatives 143,621 331,915 1,041,996 126,594 - 1,644,126
Net maturity mismatch (9,584,093) (9,487,204) (20,582,902) 13,818,916 19,576,656 (6,258,627)

(2) Other non-financial liabilities include provision for taxation and deferred tax liabilities.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 175


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Bank month months months years years Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets
Cash and short-term funds 4,987,696 - - - - 4,987,696
Deposits and placements with banks
and other financial institutions - 441,606 104,090 417,622 143,438 1,106,756
Financial assets held-for-trading 149,544 - - - - 149,544
Derivative financial assets 8,965 22,884 8,136 4,566 11,723 56,274
Financial investments available-for-sale 189,331 724,763 1,034,393 2,498,445 1,884,482 6,331,414
Financial investments held-to-maturity 70,912 1,075 16,000 133,658 193,626 415,271
Loans, advances and financing 1,444,624 1,366,165 1,754,008 6,437,263 19,176,850 30,178,910
Other assets 143,359 - 12,166 5,341 15,689 176,555
Amount due from subsidiaries 60,723 - - - - 60,723
Other non-financial assets (1) 1,233,335 - - - 694,123 1,927,458
8,288,489 2,556,493 2,928,793 9,496,895 22,119,931 45,390,601

(1) Other non-financial assets include statutory deposits with BNM, investment in subsidiaries, deferred tax assets,
property and equipment and intangible assets.

176 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Bank month months months years years Total
2013 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Liabilities
Deposits from customers 15,944,196 8,676,352 12,023,218 146,962 10,000 36,800,728
Deposits and placements of banks
and other financial institutions 957,882 1,521,311 180,342 - - 2,659,535
Derivative financial liabilities 9,234 22,725 20,786 23,847 17,930 94,522
Bills and acceptances payable 90,208 - - - - 90,208
Recourse obligation on loans sold to
Cagamas Berhad 1,297 1,786 123,243 271,464 - 397,790
Subordinated term loan 2,756 302,208 - - 600,000 904,964
Other liabilities 359,837 - - - - 359,837
Amount due to subsidiaries 53,559 - - - - 53,559
Other non-financial liabilities (2) - - 34,351 - - 34,351
17,418,969 10,524,382 12,381,940 442,273 627,930 41,395,494

On balance sheet gap (9,130,480) (7,967,889) (9,453,147) 9,054,622 21,492,001 3,995,107
Off balance sheet credit
commitments (1,259,138) - (10,303,371) - - (11,562,509)
Derivatives 226,284 901,165 389,163 690,184 - 2,206,796
Net maturity mismatch (10,163,334) (7,066,724) (19,367,355) 9,744,806 21,492,001 (5,360,606)

(2) Other non-financial liabilities include provision for taxation.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 177


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Bank month months months years years Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Assets
Cash and short-term funds 3,633,842 - - - - 3,633,842
Reverse repurchase agreements with
financial institutions - - 20,057 - - 20,057
Deposits and placements with banks
and other financial institutions - 579,475 67,851 272,166 124,333 1,043,825
Financial assets held-for-trading 165,592 - - - - 165,592
Derivative financial assets 11,209 26,370 18,534 6,693 6,066 68,872
Financial investments available-for-sale 328,225 490,350 411,229 2,490,392 1,937,965 5,658,161
Financial investments held-to-maturity 88,623 1,076 16,000 148,634 197,337 451,670
Loans, advances and financing 1,784,693 1,581,005 1,397,768 9,756,008 13,819,795 28,339,269
Other assets 186,437 - 9,514 5,215 26,624 227,790
Amount due from subsidiaries 153,949 - - - - 153,949
Other non-financial assets (1) 1,211,800 - - - 701,227 1,913,027
7,564,370 2,678,276 1,940,953 12,679,108 16,813,347 41,676,054

(1) Other non-financial assets include statutory deposits with BNM, investment in subsidiaries, property and
equipment and intangible assets.

178 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iii) Liquidity risk (continued)

Liquidity risk for assets and liabilities based on remaining contractual maturities (continued)

Up to 1 >1-3 >3-12 >1-5 Over 5


The Bank month months months years years Total
2012 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Liabilities
Deposits from customers 13,579,032 8,419,079 9,982,086 244,620 - 32,224,817
Deposits and placements of banks
and other financial institutions 1,257,846 2,458,780 11,637 - - 3,728,263
Derivative financial liabilities 9,769 19,817 8,655 17,247 4,175 59,663
Bills and acceptances payable 152,400 - - - - 152,400
Recourse obligation on loans sold to
Cagamas Berhad 1,364 1,840 - 410,345 - 413,549
Subordinated term loan 2,755 2,205 - - 900,000 904,960
Other liabilities 282,144 - - - - 282,144
Amount due to subsidiaries 48,528 - - - - 48,528
Other non-financial liabilities (2) - - 54,177 - 13,099 67,276
15,333,838 10,901,721 10,056,555 672,212 917,274 37,881,600

On balance sheet gap (7,769,468) (8,223,445) (8,115,602) 12,006,896 15,896,073 3,794,454
Off balance sheet credit commitments - - (10,687,961) - - (10,687,961)
Derivatives 143,621 331,915 1,041,996 126,594 - 1,644,126
Net maturity mismatch (7,625,847) (7,891,530) (17,761,567) 12,133,490 15,896,073 (5,249,381)

(2) Other non-financial liabilities include provision for taxation and deferred tax liabilities.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 179


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(iv) Operational risk management

Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people,
infrastructure or technology or events which are beyond the bank’s immediate control which have an operational
impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.

The Bank manages operational risk through a control based environment in which policies and procedures are
formulated after taking into account individual unit’s business activities, the market in which it is operating and
regulatory requirement in force.

The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational
risk. The capital requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous
three years.

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix.
Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up
procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by
periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational
Risk Management process.

The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk
Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are
reviewed for effectiveness and implemented to minimize the recurrence of such events.

As a matter of requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including
anti-money laundering/counter financing of terrorism and business continuity management) Certification Program.
These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to
measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training
and development activities for the coordinators.

180 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(v) Fair value of financial instruments

Financial instruments comprise financial assets, financial liabilities and also off balance sheet financial instruments.
The fair value of a financial instrument is the amount at which the instruments could be exchanged or settled between
knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents estimates
of fair values as at reporting date.

Fair value information for non-financial assets and liabilities are excluded as they do not fall within the scope of MFRS
132 which requires fair values to be disclosed. This includes property and equipment, statutory deposits with Bank
Negara Malaysia, investment in subsidiaries, other assets, tax recoverable, deferred tax and intangible assets.

The fair values of the financial assets and financial liabilities of the Group and the Bank approximated to their respective
carrying value as at reporting date, except for the following:

The Group The Bank


2013 2013
Carrying Fair Carrying Fair
value value value value
RM’000 RM’000 RM’000 RM’000

Financial assets
Deposits and placement with bank and
other financial institutions 482,597 509,644 1,106,756 1,142,272
Financial investments held-to-maturity 500,336 491,129 415,271 409,049
Loans, advances and financing 36,227,785 35,935,141 30,178,910 29,916,913
37,210,718 36,935,914 31,700,937 31,468,234

Financial liabilities
Deposits from customers 46,088,082 46,080,076 36,800,728 36,795,136
Deposit and placement of bank and
other financial institutions 4,065,544 4,066,031 2,659,535 2,660,006
Recourse obligation on loans sold to Cagamas Berhad 397,790 406,113 397,790 406,113
50,551,416 50,552,220 39,858,053 39,861,255

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 181


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(v) Fair value of financial instruments (continued)

The Group The Bank


2012 2012
Carrying Fair Carrying Fair
value value value value
RM’000 RM’000 RM’000 RM’000

Financial assets
Deposits and placements with banks and
other financial institutions 596,452 626,914 1,043,825 1,085,003
Financial investments held-to-maturity 451,670 441,716 451,670 441,716
Loans, advances and financing 33,482,626 33,185,614 28,339,269 28,087,568
34,530,748 34,254,244 29,834,764 29,614,287

Financial liabilities
Deposits from customers 41,263,536 41,261,007 32,224,817 32,222,524
Deposit and placement of banks and
financial institutions 4,809,323 4,816,360 3,728,263 3,735,300
Recourse obligation on loans sold to Cagamas Berhad 413,549 426,331 413,549 426,331
46,486,408 46,503,698 36,366,629 36,384,155

The fair values of derivative financial instruments at the reporting date are as follows:


The Group and the Bank The Group and the Bank
2013 2012
Underlying Underlying
notional Asset Liability notional Asset Liability
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Foreign exchange contracts


- forward contracts 811,717 6,979 5,099 941,791 9,504 2,870
- swaps 3,514,734 19,660 51,018 3,060,558 37,661 23,725

Interest rate contracts


- swaps 3,954,438 29,635 38,405 2,484,602 21,707 33,068

182 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(v) Fair value of financial instruments (continued)

The derivative financial instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuation in
market interest rates or foreign exchange rates relative to their terms. The extent to which instruments are favorable
or unfavorable and the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from
time to time.

The following tables analyse within the fair value hierarchy the Group’s and the Bank’s assets and liabilities not
measured at fair value at 31 December 2013 but for which fair value is disclosed:

Level 1 Level 2 Level 3 Total


RM’000 RM’000 RM’000 RM’000

The Group
2013
Financial Assets
Deposits and placements with banks and
other financial institutions - 509,644 - 509,644
Financial investments held-to-maturity - 491,129 - 491,129
Loans, advances and financing - 35,935,141 - 35,935,141

Financial Liabilities
Deposits from customers - 46,080,076 - 46,080,076
Deposits and placements of banks and
other financial institutions - 4,066,031 - 4,066,031
Recourse obligation on loans
sold to Cagamas Berhad - 406,113 - 406,113

Level 1 Level 2 Level 3 Total


RM’000 RM’000 RM’000 RM’000

The Group
2012
Financial Assets
Deposits and placements with banks and
other financial institutions - 626,914 - 626,914
Financial investments held-to-maturity - 441,716 - 441,716
Loans, advances and financing - 33,185,614 - 33,185,614

Financial Liabilities
Deposits from customers - 41,261,007 - 41,261,007
Deposits and placements of banks and
other financial institutions - 4,816,360 - 4,816,360
Recourse obligation on loans
sold to Cagamas Berhad - 426,331 - 426,331

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 183


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(v) Fair value of financial instruments (continued)

Level 1 Level 2 Level 3 Total


RM’000 RM’000 RM’000 RM’000

The Bank
2013
Financial Assets
Deposits and placements with banks and
other financial institutions - 1,142,272 - 1,142,272
Financial investments held-to-maturity - 409,049 - 409,049
Loans, advances and financing - 29,916,913 - 29,916,913

Financial Liabilities
Deposits from customers - 36,795,136 - 36,795,136
Deposits and placements of banks and
other financial institutions - 2,660,006 - 2,660,006
Recourse obligation on loans
sold to Cagamas Berhad - 406,113 - 406,113

Level 1 Level 2 Level 3 Total


RM’000 RM’000 RM’000 RM’000

The Bank
2012
Financial Assets
Deposits and placements with banks and
other financial institutions - 1,085,003 - 1,085,003
Financial investments held-to-maturity - 441,716 - 441,716
Loans, advances and financing - 28,087,568 - 28,087,568

Financial Liabilities
Deposits from customers - 32,222,524 - 32,222,524
Deposits and placements of banks and
other financial institutions - 3,735,300 - 3,735,300
Recourse obligation on loans
sold to Cagamas Berhad - 426,331 - 426,331

The fair value estimates were determined by application of the methodologies and assumptions described below.

Short-term funds and placements with banks and other financial institutions

For short-term funds and placements with banks and other financial institutions with maturity of less than six months,
the carrying amount is a reasonable estimate of fair value.

For amounts with maturities of six months or more, fair values have been estimated by reference to current rates at
which similar deposits and placements would be made to banks with similar credit ratings and maturities.

184 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(v) Fair value of financial instruments (continued)

Financial assets held-for-trading, financial investments available-for-sale and held-to-maturity

The fair values of financial assets held-for-trading, financial investments available-for-sale and financial investments
held-to-maturity are reasonable estimates based on quoted market prices. In the absence of such quoted prices, the
fair values are based on the expected cash flows of the instruments discounted by indicative market yields for the
similar instruments as at reporting date or the audited net tangible asset of the invested company.

Loans, advances and financing

Loans, advances and financing of the Group comprise of floating rate loans and fixed rate loans. For performing
floating rate loans, the carrying amount is a reasonable estimate of their fair values.

The fair values of performing fixed rate loans are arrived at using the discounted cash flows based on the prevailing
market rates of loans and advances with similar credit ratings and maturities.

The fair values of impaired loans and advances, whether fixed or floating are represented by their carrying values, net
of individual and collective allowances, being the reasonable estimate of recoverable amount.

Other assets and liabilities

The carrying value less any estimated allowance for financial assets and liabilities included in other assets and other
liabilities are assumed to approximate their fair values as these items are not materially sensitive to the shift in market
interest rates.

Deposits from customers, banks and other financial institutions, bills and acceptances payable

The carrying values of deposits and liabilities with maturities of six months or less are assumed to be reasonable
estimates of their fair values. Where the remaining maturities of deposits and liabilities are above six months, their
estimated fair values are arrived at using the discounted cash flows based on prevailing market rates currently offered
for similar remaining maturities.

The estimated fair value of deposits with no stated maturity, which include non-interest bearing deposits, approximates
carrying amount which represents the amount repayable on demand.

Recourse obligation on loans sold to Cagamas Berhad

For floating rate loans sold to Cagamas Berhad, the carrying value is generally a reasonable estimate of their fair
values.

The fair values of fixed rate loans sold to Cagamas Berhad are arrived at using the discounted cash flow methodology
at prevailing market rates of similarly profiled loans.

Subordinated term loan

For fixed rate borrowings, the estimate of fair value is based on discounted cash flow model using prevailing lending
rates for borrowings with similar risks and remaining term to maturity.

For floating rate borrowings, the carrying value is generally a reasonable estimate of their fair values.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 185


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(v) Fair value of financial instruments (continued)

Derivative financial instruments

The fair value of exchange rate and interest rate contracts is the estimated amount the Group would receive or pay to
terminate the contracts at the reporting date.

Fair value measurements

The following table presents assets and liabilities measured at fair value and classified by level of the following fair
value measurement hierarchy:

(a) Level 1 - quoted price (unadjusted) in active markets for identical assets and liabilities;

(b) Level 2 - inputs other than quoted price included within level 1 that are observable for the assets or liability, either
directly (i.e. as prices) or indirectly (i.e.derived from prices); and

(c) Level 3 - inputs for the asset and liability that are not based on observable market data (unobservable inputs).

Level 1 Level 2 Level 3 (#) Total


RM’000 RM’000 RM’000 RM’000

The Group
2013
Assets
Financial assets held-for-trading - 149,544 - 149,544
Financial investments available-for-sale *
- Private debt securities - 3,452,561 - 3,452,561
- Equity securities 150 - 119,003 119,153
- Other financial assets - 4,042,823 - 4,042,823
Derivative financial assets - 56,274 - 56,274

Liabilities
Derivative financial liabilities - 94,522 - 94,522

Level 1 Level 2 Level 3 (#) Total


RM’000 RM’000 RM’000 RM’000

The Group
2012
Assets
Financial assets held-for-trading - 165,592 - 165,592
Financial investments available-for-sale *
- Private debt securities - 3,532,861 - 3,532,861
- Equity securities 3,030 - 106,444 109,474
- Other financial assets - 3,998,319 - 3,998,319
Derivative financial assets - 68,872 - 68,872

Liabilities
Derivative financial liabilities - 59,663 - 59,663

186 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(v) Fair value of financial instruments (continued)

Fair value measurements (continued)

Level 1 Level 2 Level 3 (#) Total


RM’000 RM’000 RM’000 RM’000

The Bank
2013
Assets
Financial assets held-for-trading - 149,544 - 149,544
Financial investments available-for-sale *
- Private debt securities - 2,942,846 - 2,942,846
- Equity securities 150 - 118,934 119,084
- Other financial assets - 3,269,484 - 3,269,484
Derivative financial assets - 56,274 - 56,274

Liabilities
Derivative financial liabilities - 94,522 - 94,522

Level 1 Level 2 Level 3 (#) Total


RM’000 RM’000 RM’000 RM’000

The Bank
2012
Assets
Financial assets held-for-trading - 165,592 - 165,592
Financial investments available-for-sale *
- Private debt securities - 2,831,071 - 2,831,071
- Equity securities 349 - 106,375 106,724
- Other financial assets - 2,720,366 - 2,720,366
Derivative financial assets - 68,872 - 68,872

Liabilities
Derivative financial liabilities - 59,663 - 59,663

* Net of allowance for impairment.

# The Bank has determined that the net asset value of unquoted equity securities represents fair value at the
financial year ended 31 December 2013, therefore there is no unobservable input used for these financial
investments classified as Level 3.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 187


notes to the financial statements
for the financial year ended 31 December 2013

38 FINANCIAL RISK MANAGEMENT

(v) Fair value of financial instruments (continued)

Fair value measurements (continued)

Financial instruments that are valued using quoted prices in active market are classified as Level 1 of the valuation
hierarchy. These would include listed equities which are actively traded.

Where fair value is determined using quoted prices in less active markets or quoted prices for similar assets and
liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available,
the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market
parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation
techniques employ only observable market data and so reliability of the fair value measurement is high. These would
include corporate private debt securities, corporate notes and most of the Group’s OTC derivatives.

The Group and the Bank classify financial instruments as Level 3 when there is reliance on unobservable inputs
to the valuation model attributing to a significant contribution to the instrument value. Valuation reserves or pricing
adjustments where applicable will be used to converge to fair value.

The Group and the Bank may also use valuation models or discounted cash flow technique to determine the fair value.

Most of the OTC derivatives are priced using valuation models. Where derivative products have been established in
the markets for some time, the Group and the Bank use models that are widely accepted by the industry.

The valuation techniques and inputs used generally depend on the contractual terms and the risks inherent in the
instrument as well as the availability of pricing information in the market. Principal techniques used include discounted
cash flows, and other appropriate valuation models. OTC derivatives which are valued using unobservable inputs that
are supported by little or no market activity which are significant to the fair value of the assets or liabilities are classified
as Level 3.

The following table present the changes in Level 3 instruments for the financial year ended:

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Opening 106,444 105,864 106,375 105,795


New - 527 - 527
AFS revaluation reserves 12,559 53 12,559 53
Closing 119,003 106,444 118,934 106,375

Effect of changes in significant unobservable assumptions to reasonably possible alternatives

As at reporting date, financial instruments measured with valuation techniques using significant unobservable inputs
(Level 3) mainly include unquoted shares held for socio economic purposes.

In estimating its significance, the Group and the Bank used an approach that is currently based on methodologies
used for fair value adjustments. These adjustments reflects the values that the Group and the Bank estimate are
appropriate to adjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies
used can be a statistical or other relevant approved techniques.

188 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

39 LEASE COMMITMENTS

The Bank has lease commitments in respect of rented premises and hired equipment, all of which are classified as operating
leases. A summary of the non-cancelable long-term commitments, net of sub-leases are as follows:

The Group and The Bank


2013 2012
RM’000 RM’000

Within one year 10,612 19,931


One year to five years 7,224 8,310

40 CAPITAL AND OPERATING COMMITMENTS

Capital commitments

Capital expenditure approved by the Directors but not provided for int the financial statements amounted to approximately:

The Group and The Bank


2013 2012
RM’000 RM’000

Authorised and contracted for 7,541 2,864


7,541 2,864
Analysed as follows:
Property and equipment 7,541 2,864

Operating commitments

Operating expenditure approved by the Directors but not provided for int the financial statements amounted to approximately:

The Group and The Bank


2013 2012
RM’000 RM’000

Authorised and contracted for 201,823 266,106

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 189


notes to the financial statements
for the financial year ended 31 December 2013

41 CAPITAL MANAGEMENT

With effect from 1 January 2013, the total capital and capital adequacy ratios of the Group and the Bank are computed in
accordance with Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components) dated 28 November 2012.

The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic Indicator
Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s Capital Adequacy
Framework (Capital Components), the minimum capital adequacy requirement for Common Equity Tier 1 Capital Ratio
(‘CET 1’) and Tier 1 Capital Ratio are 3.5% and 4.5% respectively for year 2013. The minimum regulatory capital adequacy
requirement remains at 8.0% (2012: 8.0%) for total capital ratio.

The Group and the Bank’s objectives when managing capital are:

• To comply with the capital requirements set by the regulators of the banking markets where the entities within the
Group and the Bank operates;

• To safeguard the Group and the Bank’s ability to continue as a going concern so that it can continue to provide returns
for shareholders and benefits for other stakeholders; and

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

The Group and the Bank maintain a ratio of total regulatory capital to its risk-weighted assets above a minimum level agreed
with the management which takes into account the risk profile of the Group and the Bank.

The table in Note 42 below summarises the composition of regulatory capital and the ratios of the Group and the Bank for
the financial year ended 31 December 2013.

42 CAPITAL ADEQUACY

The capital adequacy ratios are as follows:

The Group The Bank


Basel II Basel II Basel II Basel II
2013 ## 2012 # 2013 2012
RM’000 RM’000 RM’000 RM’000

Paid-up share capital 1,518,337 1,518,337 1,518,337 1,518,337


Share premium 529,337 529,337 529,337 529,337
Statutory reserves 1,317,376 1,160,651 1,144,350 1,017,200
Retained profits 1,004,534 808,553 798,118 659,603
Unrealised gains and losses on AFS (2,579) - 6,533 -
4,367,005 4,016,878 3,996,675 3,724,477
Less:
Goodwill (133,430) (137,323) (137,323) (137,323)
Deferred tax assets * (9,326) (10,827) (8,553) (10,227)
55% of cumulative unrealised gains of AFS - - (3,593) -
CET1 capital 4,224,249 3,868,728 3,847,206 3,576,927
Tier I capital 4,224,249 3,868,728 3,847,206 3,576,927

190 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

42 CAPITAL ADEQUACY

The capital adequacy ratios are as follows:

The Group The Bank


Basel II Basel II Basel II Basel II
2013 ## 2012 # 2013 2012
RM’000 RM’000 RM’000 RM’000

Subordinated term loan 810,000 900,000 810,000 900,000


Collective impairment @ 143,572 152,350 123,103 128,568
Less:
Investment in subsidiaries/associates/
jointly controlled entity (650) - (389,088) -
Tier II capital 952,922 1,052,350 544,015 1,028,568
Less:
Investment in capital instruments
of other banking institutions - (10,034) - (10,034)
Investment in subsidiaries - (27,389) - (387,389)
Total capital/Capital base 5,177,171 4,883,655 4,391,221 4,208,072

CET1 capital ratio 10.811% - 11.279% -


Tier 1 capital ratio/Core capital ratio 10.811% 11.020% 11.279% 11.590%
Total capital ratio/Risk-weighted capital ratio 13.250% 13.910% 12.874% 13.640%

CET1 capital ratio (net of proposed dividends) ^ 10.578% - 11.012% -


Tier 1 capital ratio/Core capital ratio
(net of proposed dividends) ^ 10.578% 10.760% 11.012% 11.300%
Total capital ratio/Risk-weighted capital ratio
(net of proposed dividends) ^ 13.017% 13.650% 12.607% 13.340%

Risk-weighted assets for:


Credit risk 36,529,227 32,659,779 31,911,266 28,731,138
Market risk 299,677 260,620 296,107 258,838
Operational risk 2,243,503 2,187,846 1,902,412 1,864,563
Total risk-weighted assets 39,072,407 35,108,245 34,109,785 30,854,539

* Deferred tax assets exclude deferred tax arising from AFS revaluation reserves.
@ Qualifying collective impairment is restricted to allowances on unimpaired portion of the loans, advances and financing.
# The Group comprises the Bank and the Bank’s subsidiary, AFFIN Islamic Bank Berhad.
## The Group comprises the Bank and all the Bank’s financial and non-financial subsidiaries.
^ Net proposed dividends of RM91,100,000 (2012: RM91,100,000).

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 191


notes to the financial statements
for the financial year ended 31 December 2013

43 LITIGATIONS AGAINST THE BANK

(a) A syndicate of lenders, including AFFIN Bank Berhad (the ‘Bank’), had granted facilities of RM62.5 million (the ‘Facilities’)
to a borrower to, inter alia, finance a development project. At borrower’s request, the Facilities were restructured in
1999 but in July 2000, continued drawdown under the restructured Facilities was refused as borrower had failed to
comply with conditions precedent for such drawdown. The lenders and borrower negotiated to resolve the default
and the Facilities were restructured again in 2003. Further financing was also granted in 2004 and the Project was
completed with certificate of fitness in January 2005.

Subsequent to the completion of the project, borrower brought a claim against the lead banker, as the agent of the
syndicate lenders, for loss and damage arising from alleged breach of duty and obligations owed by the lead banker
to the borrower in relation to various actions taken or omitted to be taken in disbursements and transactions under the
Facilities. The lead banker filed an action against the borrower and its guarantor of the Facilities, for recovery of the
amounts outstanding under the Facilities.

The 2 actions were consolidated and heard together at full trial. On 6 May 2009, the High Court granted judgment in
favour of borrower against the lead banker, as an agent of the lenders, and dismissed the lenders’ action for recovery
of the Facilities. The judgment against the lead banker included a sum of RM115.5 million to be paid, as well as further
damages to be assessed and an immediate release of all security granted by the borrower and its guarantors for the
Facilities. The award of damages of RM115.5 million was made despite parties’ agreement that the trial proceed only
on issue of liability and no evidence of damage/loss was produced. If the judgment of 6 May 2009 is maintained, lead
banker will seek contribution from the lenders, including the Bank. The Bank’s share is about RM34.65 million.

The lead banker and agent appealed to the Court of Appeal against the High Court decision. An effort at mediation on
9 March 2012 failed as the parties could not come to a settlement. Hearing dates were then fixed for the appeal. The
appeal has been argued twice before the Court of Appeal i.e. on 3 August 2012 and 9 November 2012. The hearing
was continued on 23 January 2013 and 31 January 2013 and decision was given on 27 September 2013 wherein
the Court of Appeal allowed the appeal and set aside the High Court Judgment. The Court of Appeal also entered
judgment against the borrower for the amount outstanding under the Facilities. The borrower applied for leave to the
Federal Court.

The borrower obtained a limited order of stay from the Court the Appeal on 22 November 2013 whereby the enforcement
of money judgment obtained by the lenders under Court of Appeal decision was stayed pending disposal of the
Federal Court appeal application. However the right of the Receiver & Manager to enter into the premises was not
stayed but the borrower continued to resist the Receiver & Manager (R & M) appointed by the lenders.

The borrower filed an application to stay the R & M from doing their job but the lenders counterclaimed to restrain the
borrower’s directors, officers and solicitors from dealing with the charged assets and the right to continue with the R &
M. Hearing proceeded on 13 January 2014.

Decision will be given on 29 January 2014.

The solicitors for the lead banker and the lenders have expressed the view that the lead banker and the lenders have
a more than even chance of success in defending the leave application.

(b) Other than above, there are various legal suits against the Bank in respect of claims and counter claims of approximately
RM117.6 million (2012: RM73.8 million). Based on legal advice, the Directors are of the opinion that no provision for
damages need to be made in the financial statements, as the probability of adverse adjudication against the Bank is
remote.

192 AFFIN BANK BERHAD (25046-T) Annual Report 2013


notes to the financial statements
for the financial year ended 31 December 2013

44 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The Group and the Bank make estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. To enhance the information content of the estimates, certain variables that
are anticipated to have material impact to the Group’s and the Bank’s results and financial position are tested for sensitivity
to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Allowance for losses on loans, advances and financing

The accounting estimates and judgments related to the impairment of loans and provision for off-balance sheet positions is a
critical accounting estimate for because the underlying assumptions used for both the individually and collectively assessed
impairment can change from period to period and may significantly affect the Group and the Bank’s results of operations.

In assessing assets for impairment, management judgment is required. The determination of the impairment allowance
required for loans which are deemed to be individually significant often requires the use of considerable management
judgment concerning such matters as local economic conditions, the financial performance of the counterparty and the
value of any collateral held, for which there may not be a readily accessible market. The actual amount of the future cash
flows and their timing may differ from the estimates used by management and consequently may cause actual losses to
differ from the reported allowances.

The impairment allowance for portfolios of smaller-balance homogenous loans, such as those to individuals and small
business customers of the private and retail business, and for those loans which are individually significant but for which
no objective evidence of impairment exists, is determined on a collective basis. The collective impairment allowance is
calculated on a portfolio basis using statistical models which incorporate numerous estimates and judgments, and therefore
is subject to estimation uncertainty. The Group and the Bank perform a regular review of the models and underlying data and
assumptions as far as possible to reflect the current economic circumstances. The probability of default, loss given defaults,
and loss identification period, amongst other things, are all taken into account during this review.

Estimated impairment of goodwill

The Group performs an impairment review on an annual basis to ensure that the carrying value of the goodwill does not
exceed its recoverable amounts from cash generating units to which the goodwill is allocated. The recoverable amount
represents the present value of the estimated future cash flows expected to arise from continuing operations. Therefore,
in arriving at the recoverable amount, management exercise judgment in estimating the future cash flows, growth rate and
discount rate.

45 CREDIT EXPOSURES ARISING FROM TRANSACTIONS WITH CONNECTED PARTIES

The following credit exposures are based on Bank Negara Malaysia’s revised Guidelines on Credit Transaction and Exposures
with Connected Parties, which are effective 1 January 2008.

(i) The aggregate value of outstanding credit exposures with connected parties (RM’000) 3,013,895
(ii) The percentage of outstanding credit exposures to connected parties as a proportion of total
credit exposures 6%
(iii) The percentage of outstanding credit exposures with connected parties which is impaired or in default Nil

46 APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 26
February 2014.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 193


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

We, JEN TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA) and EN. MOHD SUFFIAN BIN HAJI HARON, two of the
Directors of AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on
pages 68 to 193 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Bank as at 31 December
2013 and of the results and cash flows of the Group and the Bank for the financial year ended on the date in accordance with
Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies
Act, 1965 in Malaysia.

In accordance with a resolution of the Board of Directors dated 26 February 2014.

JEN TAN SRI DATO’ SERI ISMAIL BIN HAJI OMAR (BERSARA)
Chairman

EN. MOHD SUFFIAN BIN HAJI HARON


Director

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

I, EE KOK SIN, the officer of AFFIN BANK BERHAD primarily responsible for the financial management of the Group and the
Bank, do solemnly and sincerely declare that, in my opinion, the accompanying financial statements set out on pages 68 to 193,
are correct and I make this solemn declaration conscientiously believing the same to be true, by virtue of the provisions of the
Statutory Declarations Act, 1960.

EE KOK SIN

Subscribed and solemnly declared by the abovenamed EE KOK SIN at Kuala Lumpur in Malaysia on 26 February 2014, before me.

Commissioner for Oaths

194 AFFIN BANK BERHAD (25046-T) Annual Report 2013


INDEPENDENT
AUDITORS’ REPORT
TO THE MEMBERS OF AFFIN BANK BERHAD
(Incorporated in Malaysia)

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of AFFIN Bank Berhad on pages 68 to 193 which comprise the statements of financial
position as at 31 December 2013 of the Group and of the Bank, and the statements of income, comprehensive income, changes
in equity and cash flows of the Group and of the Bank for the year then ended, and a summary of significant accounting policies
and other explanatory notes, as set out on Notes 1 to 45.

Directors’ Responsibility for the Financial Statements

The directors of the Bank are responsible for the preparation of financial statements that give a true and fair view in accordance
with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965, and for
such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.

Auditors’ Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the
directors, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion, the financial statements have been properly drawn up in accordance with Malaysian Financial Reporting Standards,
International Financial Reporting Standards and the Companies Act, 1965 so as to give a true and fair view of the financial position
of the Group and of the Bank as of 31 December 2013 and of their financial performance and cash flows for the year then ended.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 195


INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF AFFIN BANK BERHAD
(Incorporated in Malaysia)

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

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

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

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

OTHER MATTERS

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

PRICEWATERHOUSECOOPERS SOO HOO KHOON YEAN


(No. AF : 1146) (No. 2682/10/15 (J))
Chartered Accountants Chartered Accountant

Kuala Lumpur, Malaysia


26 February 2014

196 AFFIN BANK BERHAD (25046-T) Annual Report 2013


BASEL II
Pillar 3 Disclosures

198 1. Introduction
198 1.1 Background
198 1.2 Scope of Application

198 2. Risk Governance Structure


198 2.1 Overview
199 2.2 Board Committees
200 2.3 Management Committees
202 2.4 Group Risk Management Function
202 2.5 Internal Audit and Internal Control Activities

202 3. Capital
202 3.1 Internal Capital Adequacy Assessment Process (‘ICAAP’)
202 3.2 Capital Structure
204 3.3 Capital Adequacy

204 4. Risk Management Objectives and Policies

204 5. Credit Risk


204 5.1 Credit Risk Management Objectives and Policies
205 5.2 Application of Standardised Approach for Credit Risk
205 5.3 Credit Risk Measurement
206 5.4 Risk Limit Control and Mitigation Policies
207 5.5 Credit Risk Monitoring
207 5.6 Impairment Provisioning
213 5.7 Credit Risk Culture

213 6. Market Risk


213 6.1 Market Risk Management Objectives and Policies
213 6.2 Application of Standardised Approach for Market Risk
214 6.3 Market Risk Measurement, Control and Monitoring
214 6.4 Value-at-Risk (‘VaR’)
215 6.5 Foreign Exchange Risk

215 7. Liquidity Risk


215 7.1 Liquidity Risk Management Objectives and Policies
215 7.2 Liquidity Risk Measurement, Control and Monitoring

216 8. Operational Risk


216 8.1 Operational Risk Management Objectives and Policies
216 8.2 Application of Basic Indicator Approach for Operational Risk
216 8.3 Operational Risk Measurement, Control and Monitoring
216 8.4 Operational Risk Culture

217 9. Shariah Compliance

218 Appendices

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 197


BASEL II
PILLAR 3 DISCLOSURES
for the financial year ended 31 December 2013

1 Introduction

1.1 Background

AFFIN Bank Berhad (‘the Bank’) adopted Basel II in January 2008 in line with the directive from Bank Negara Malaysia
(‘BNM’). The Basel II framework is structured around three fundamental Pillars.

- Pillar 1 defines the minimum capital requirement to ensure that financial institutions hold sufficient capital to cover their
exposure to credit, market and operational risks.

- Pillar 2 requires financial institutions to have a process for assessing their overall capital adequacy in relation to their risk
profile and a strategy for maintaining their capital levels.

- Pillar 3 requires financial institutions to establish and implement an appropriate disclosure policy that promotes
transparency regarding their risk management practices and capital adequacy positions.

The Bank elected to adopt the following approaches under Pillar 1 requirements:

- Standardised Approach for Credit Risk


- Basic Indicator Approach for Operational Risk
- Standardised Approach for Market Risk

1.2 Scope of Application

This document contains the disclosure requirements under Pillar 3 for the Bank for the year ended 31 December 2013. The
disclosures are made in line with the Pillar 3 disclosure requirements under the Basel II framework as laid out by BNM.

The disclosures should be read in conjunction with the Bank’s 2013 Annual Report for the year ended 31 December 2013.

The Group’s capital requirements are generally based on the principles of consolidation adopted in the preparation of its
financial statements. The Group’s consolidated entities comprises the Bank and the Bank’s subsidiary, AFFIN Islamic Bank
Berhad.

2 Risk Governance Structure

2.1 Overview

The Board of Directors of the Bank is ultimately responsible for the overall performance of the Bank. The Board’s
responsibilities remain within the framework of BNM Guidelines. The Board also exercises great care to ensure that high
ethical standards are upheld, and that the interests of stakeholders are not compromised. These include responsibility
for determining the Bank’s general policies and strategies for the short, medium and long term, approving business plans,
including targets and budgets, and approving major strategic decisions.

The Board has overall responsibility for maintaining the proper management and protection of the Bank’s interests by
ensuring effective implementation of the risk management policy and process, as well as adherence to a sound system
of internal control, and by seeking regular assurance on their effectiveness. The Board also recognises that risks cannot
be eliminated completely. As such, the inherent system of internal control is designed to provide a reasonable though
not absolute assurance against the risk of material errors, fraud or losses occurring. The system of internal controls
encompasses controls relating to financial, operational, risk management and compliance with applicable laws, regulations,
policies and guidelines.

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2 Risk Governance Structure

2.1 Overview (continued)

The terms of reference of the Board Committees as disclosed in the Annual Report provide an outline of its role and
functions. In carrying out its functions, the Board has delegated specific responsibilities to other Board Committees,
which operate under approved terms of reference, to assist the Board in discharging their duties. The Chairmen of
the various Committees report on the outcome of their Committee meetings to the Board and any further deliberation
is made at Board level, if required. These reports and deliberations are incorporated into the Minutes of the Board
meetings. The Board meets on a monthly basis.

The Board of the Bank has a balance composition with a strong independent element. It consists of representatives
from the private sector with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a
mixture of different skills, competencies, experience and personalities.

2.2 Board Committees

Board Remuneration Committee (‘BRC’)

The BRC is responsible for providing a formal and transparent procedure for developing the remuneration policy
for Directors, Managing Director/Chief Executive Officer and key senior management officers and ensuring that
compensation is competitive and consistent with the Bank’s culture, objectives and strategy.

The Committee obtains advice from experts in compensation and benefits, both internally and externally.

Board Nominating Committee (‘BNC’)

The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and
Managing Director/Chief Executive Officer, assessing the effectiveness of individual Directors, the Board as a whole
and the performance of the Managing Director/Chief Executive Officer and key senior management personnel.

Board Risk Management Committee (‘BRMC’)

The BRMC is responsible for overseeing management’s activities in managing credit, market, liquidity, operational,
legal and other risks and to ensure that the risk management process is in place and functioning.

It has responsibility for reviewing and approving all risk management policies and risk management methodologies.
BRMC also reviews guidelines and portfolio management reports including risk exposure information.

The Committee also ensures that the procedures and framework in relation to identifying, measuring, monitoring and
controlling risk are operating effectively.

Board Loan Review and Recovery Committee (‘BLRRC’)

The BLRRC is responsible in providing critical review of loans and other credit facilities with higher risk implications,
after due process of checking, analysis, review and recommendation by the Credit Risk Management function, and if
found necessary, exercise the power to veto loan applications that have been approved by the Group Management
Loan Committee (‘GMLC’). BLRRC also reviews the impaired loans reports presented by the Management.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 199


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for the financial year ended 31 December 2013

2 Risk Governance Structure

2.2 Board Committees (continued)

Audit and Examination Committee (‘AEC’)

The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems
and oversees the work of the internal and external auditors.

Reliance is placed on the results of independent audits performed primarily by internal auditors, the outcome of
statutory audits on financial statements conducted by external auditors and on representations by Management based
on their control self-assessment of all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to
Board members for notation and discussion. The Bank has an established Group Internal Audit Division (GIA) which
reports functionally to the Audit Committee and administratively to the Managing Director/Chief Executive Officer.

Shariah Committee

AFFIN Islamic Bank Berhad’s business activities are subject to Shariah compliance and conformation by the Shariah
Committee. The Shariah Committee is formed as legislated under the Islamic Financial Services Act 2013 and as per
Shariah Governance Framework for Islamic Financial Institutions.

The duties and responsibility of the Shariah Committee are as follows:

(i) To advise the Board on Shariah matters in order to ensure that the business operations of the Bank comply with
the Shariah principles at all times;

(ii) To endorse and validate relevant documentations of the Bank’s products to ensure that the products comply with
Shariah principles; and

(iii) To advise the AFFIN Islamic Bank Berhad on matters to be referred to the Shariah Advisory Council.

2.3 Management Committees

Management Committee (‘MCM’)

MCM comprising the senior management team chaired by the MD/CEO, assists the Board in managing the day-to-day
operations and ensures its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank’s
overall performance, and ensures that the activities are in accordance with corporate objectives, strategies, policies
and annual business plan and budget.

Group Management Loan Committee (‘GMLC’)

GMLC is established within senior management chaired by the MD/CEO to approve complex and larger loans and
workout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel
of the Bank.

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2 Risk Governance Structure

2.3 Management Committees (continued)

Asset and Liability Management Committee (‘ALCO’)

ALCO comprising the senior management team chaired by the MD/CEO, manages the Bank’s asset liability position
and oversees the Bank’s capital management to ensure that the Bank is adequately capitalised on an economic and
regulatory basis.

Liquidity Management Committee (‘LMC’)

LMC is a sub-committee of the ALCO and its role is to augment the functions of the ALCO by directing its focus
specifically to liquidity issues.

Group Operational Risk Management Committee (‘GORMC’)

GORMC is established within senior management chaired by MD/CEO to deliberate and manage operational risks. Its
responsibilities include:

(i) To evaluate operational risks issues of escalating importance/strategic risk exposure;

(ii) To review and recommend on broad operational risks management policies/best practices for adoption by the
Bank’s operating units;

(iii) To review the effectiveness of broad internal controls and making recommendation/approve on changes, if
necessary;

(iv) To review/approve recommendation of operational risk management groups set up to address specific area;

(v) To take the lead in inculcating an operational risks awareness culture;

(vi) To approve operational risk management methodologies/measurements tools;

(vii) To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC’s
approval if necessary; and

(viii) To update BRMC on loss events and relevant key issues that may adversely impact core processes, system
defects and any changes to critical business or system related processes.

Early Alert Committee (‘EAC’)

EAC is established within senior management to monitor credit quality through monthly review of the Early Alert,
Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 201


BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013

2 Risk Governance Structure

2.4 Group Risk Management Function

An integrated risk management framework is in place. The Group Risk Management (‘GRM’) function, headed by
Group Chief Risk Officer (‘GCRO’) and operating in an independent capacity, is part of the Bank’s senior management
structure which works closely as a team in managing risks to enhance stakeholders’ value.

GRM reports to BRMC. Committees namely BLRRC, MCM, GMLC, ALCO, LMC, GORMC and EAC assist BRMC
in managing credit, market, liquidity and operational risks. The responsibilities of these Committees include risk
identification, risk assessment and measurement, risk control and mitigation; and risk monitoring.

2.5 Internal Audit and Internal Control Activities

In accordance with BNM’s GP10 guidelines, GIA conducts continuous reviews on auditable areas within the Bank. The
continuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance
to the audit plan approved by the AEC.

Based on GIA’s review, identification and assessment of risk, testing and evaluation of controls, GIA will provide an
opinion on the effectiveness of internal controls maintained by each entity. The risks highlighted on the respective
auditable areas as well as recommendation made by the GIA are addressed at AEC and Management meetings on
bi-monthly basis. The AEC also conduct annual reviews on the adequacy of internal audit function, scope of work,
resources and budget of GIA.

3 Capital Management

3.1 Internal Capital Adequacy Assessment Process (‘ICAAP’)

In line with the BNM guideline on Risk-Weighted Capital Adequacy Framework - Internal Capital Adequacy Assessment
Process (Pillar 2), the Bank has put in place the ICAAP Framework to assess the capital adequacy to ensure the level of
capital maintained by the Bank is adequate at all times, taking into consideration the Bank’s risk profile and business
strategies.

The Bank’s capital management approach is focused on maintaining an appropriate level of capital to meet its business
needs and regulatory requirements as capital adequacy and risk management are closely aligned. The Bank operates
within an agreed risk appetite whilst optimising the use of shareholders’ funds to deliver sustainable returns.

3.2 Capital Structure

With effect from 1 January 2013, the total capital and capital adequacy ratios of the Group and the Bank are computed
in accordance with Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components) dated 28 November
2012.

The Group and the Bank are currently adopting Standardised Approach for Credit Risk and Market Risk, the Basic
Indicator Approach for Operational Risk. In line with the transitional arrangements under the Bank Negara Malaysia’s
Capital Adequacy Framework (Capital Components), the minimum capital adequacy requirement for Common Equity
Tier 1 Capital Ratio (‘CET 1’) and Tier 1 Capital Ratio are 3.5% and 4.5% respectively for year 2013. The minimum
regulatory capital adequacy requirement remains at 8.0% (2012: 8.0%) for total capital ratio.

The following table sets forth details on the capital resources and capital adequacy ratios for the Group and the Bank
as at 31 December 2013.

202 AFFIN BANK BERHAD (25046-T) Annual Report 2013


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3 Capital Management

3.2 Capital Structure (continued)

The Group The Bank


2013 2012 2013 2012
RM’000 RM’000 RM’000 RM’000

Paid-up share capital 1,518,337 1,518,337 1,518,337 1,518,337


Share premium 529,337 529,337 529,337 529,337
Statutory reserves 1,317,376 1,160,651 1,144,350 1,017,200
Retained profits 1,004,534 808,553 798,118 659,603
Unrealised gains and losses on AFS (2,579) - 6,533 -
4,367,005 4,016,878 3,996,675 3,724,477
Less:
Goodwill (133,430) (137,323) (137,323) (137,323)
Deferred tax assets (9,326) (10,827) (8,553) (10,227)
55% of cumulative unrealised gains of AFS - - (3,593) -
CET1 capital 4,224,249 3,868,728 3,847,206 3,576,927
Tier I capital 4,224,249 3,868,728 3,847,206 3,576,927

Subordinated term loan 810,000 900,000 810,000 900,000


Collective impairment 143,572 152,350 123,103 128,568
Less:
Investment in subsidiaries/associates/
jointly controlled entity (650) - (389,088) -
Tier II capital 952,922 1,052,350 544,015 1,028,568
Less:
Investment in capital instruments
of other banking institutions - (10,034) - (10,034)
Investment in subsidiaries - (27,389) - (387,389)
Total capital/Capital base 5,177,171 4,883,655 4,391,221 4,208,072

CET1 capital ratio 10.811% - 11.279% -


Tier 1 capital ratio/Core capital ratio 10.811% 11.020% 11.279% 11.590%
Total capital ratio/Risk-weighted capital ratio 13.250% 13.910% 12.874% 13.640%

CET1 capital ratio


(net of proposed dividends) 10.578% - 11.012% -
Tier 1 capital ratio/Core capital ratio
(net of proposed dividends) 10.578% 10.760% 11.012% 11.300%
Total capital ratio/Risk-weighted capital ratio
(net of proposed dividends) 13.017% 13.650% 12.607% 13.340%

Risk-weighted assets for:


Credit risk 36,529,227 32,659,779 31,911,266 28,731,138
Market risk 299,677 260,620 296,107 258,838
Operational risk 2,243,503 2,187,846 1,902,412 1,864,563
Total risk-weighted assets 39,072,407 35,108,245 34,109,785 30,854,539

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 203


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for the financial year ended 31 December 2013

3 Capital Management

3.3 Capital Adequacy

The Group and the Bank have in place an internal limit for its CET1 capital ratio, Tier I capital ratio and Total capital ratio,
which is guided by the need to maintain a prudent relationship between available capital and the risks of its underlying
businesses. The capital management process is monitored by senior management through periodic reviews.

Refer to Appendix I.

4 Risk Management Objectives and Policies

The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank’s
subsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been
no significant changes in these principal activities during the financial year.

The Bank’s business activities involve the analysis, measurement, acceptance, and management of risks but it operates
within well defined risk acceptance criteria covering customer segments, industries and products. The Bank does not enter
into risk it cannot administer, book, monitor or value, or deal with persons of questionable integrity.

The Bank’s risk management policies are established to identify all the key risks, assess and measure these risks, control
and mitigate these risks, and manage and monitor the risk positions.

The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and best
practice in risk management processes. The Bank’s aim is to achieve an appropriate balance between risk and return and
minimise any potential adverse effects.

The key business risks to which the Bank is exposed are credit risk, liquidity risk, market risk and operational risk.

5 Credit Risk

5.1 Credit Risk Management Objectives and Policies

Credit risk is the potential financial loss resulting from the failure of the customer or counterparty to settle the financial
and contractual obligations to the Bank. Credit risk emanates mainly from loans and advances, loan commitments
arising from such lending activities, as well as through financial transactions with counterparties including interbank
money market activities, derivative instruments used for hedging and debt securities.

The management of credit risk in the Bank is governed by a set of approved credit policies, guidelines and procedures.
Approval authorities are delegated to Senior Management and GMLC to implement the credit policies and ensure
sound credit granting standards.

An independent GRM function, headed by Group Chief Risk Officer (‘GCRO’) with direct reporting line to BRMC is in
place to ensure adherence to risk standards and discipline.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses
are governed by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Annual
Credit Plan. The Annual Credit Plan is reviewed at least annually and approved by the BRMC.

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5 Credit Risk

5.2 Application of Standardised Approach for Credit Risk

The Bank uses the following External Credit Assessment Institutions (‘ECAIs’) to determine the risk weights for the
rated credit exposures:-

• RAM Rating Services Berhad


• Malaysian Rating Corporation Berhad
• Standard & Poor’s Rating Services
• Moody’s Investors Service
• Fitch Ratings

The external ratings of the ECAIs are used to determine the risk weights of the following types of exposure: sovereigns,
banks, public sector entities and corporates.

The mapping of the rating categories of different ECAIs to the risk weights is in accordance with the guidelines provided
by BNM. In cases where there is no issuer or issue rating, the exposures are treated as unrated and accorded a risk
weight appropriate for unrated exposure in the respective category.

The external ratings are updated in the core banking system, and extracted and matched by the risk system according
to the above rules to determine the appropriate risk weights.

Refer to Appendix II and Appendices III (i) to III (ii).

5.3 Credit Risk Measurement

Loans, advances and financing

Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’s
underwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A
critical element in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in
the risk assessment and decision making process. The Bank has developed internal rating models to support the
assessment and quantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to
assess the risks associated with the credit application. The scorecards are used as a decision support tool at loan
origination.

Over-the-Counter (‘OTC’) Derivatives

The OTC Derivatives credit exposure is computed using the Current Exposure Method. Under the Current Exposure
Method, computation of credit equivalent exposure for interest rate and exchange rate related contracts is derived
from the summation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and
the potential future exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to
maturity).

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5 Credit Risk

5.4 Risk Limit Control and Mitigation Policies

The Bank employs various policies and practices to control and mitigate credit risk.

Lending limits

The Bank establishes internal limits and related lending guidelines to manage large exposures and avoid undue
concentration of credit risk in its credit portfolio. The limits include single customer groupings, connected parties, and
geographical and industry segments. These risks are monitored regularly and the limits reviewed annually or sooner
depending on changing market and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customers
together with potential exposure from market movements.

Collateral

Credits are established against borrower’s capacity to repay rather than rely solely on security. However, collateral
may be taken to mitigate credit risk. The main collateral types accepted and given value by the Bank are:

• Mortgages over residential properties;


• Charges over commercial real estate or vehicles financed;
• Charges over business assets such as business premises, inventory and account receivables; and
• Charges over financial instruments such as marketable securities

In order to be recognised as security, all items pledged must have value and the Bank must have physical control and/
or legal title thereto, together with the necessary documentation to enable the Bank to realise the asset without the
co-operation of the asset owner. Other items, such as personal or corporate guarantees, may be taken for comfort
but will not be treated as security for approval purposes. Valuations are updated on a regular basis.

Prior to acceptance of any item as security, verification must be done to ensure that the security exists and an accurate
and up-to-date valuation can be placed upon it. A pre-facility disbursement site visit must be undertaken in respect of
landed security of significant value. Where third parties are used to undertake a valuation they must be taken from a
list of approved valuers.

All assets which provide security to the Bank must be adequately insured with an insurer from the list of approved
insurers.

The security documentation process is centralised in an independent Security Documentation Section at Head Office.
The Bank adopts standardised Letter of Offer and Legal Documents. Variations/amendments require the approval from
the relevant approving authority in the Bank.

Documentary and commercial letters of credit are collateralised by the underlying shipments of goods to which they
relate and therefore carry less risk than a direct loan.

206 AFFIN BANK BERHAD (25046-T) Annual Report 2013


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5 Credit Risk

5.4 Risk Limit Control and Mitigation Policies (continued)

Credit related commitments

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or
letters of credit. In terms of credit risk, the Bank is potentially exposed to loss in an amount equal to the total
unutilised commitments. However, the potential amount of loss is less than the total unutilised commitments, as most
commitments to extend credit are contingent upon customers maintaining specific minimum credit standards.

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a
greater degree of credit risk than short-term commitments.

Refer to Appendix IV (a) to (b).

5.5 Credit Risk Monitoring

Retail credits are actively monitored and managed on a portfolio basis by product type. A new collection management
system has been implemented with a dedicated team in place to promptly identify, monitor and manage delinquent
accounts at early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against
updated information. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses
or deterioration in the credit quality. Remedial action is taken where evidence of deterioration exists.

Early Alert Process is in place as part of a means to pro-actively identify, report and manage deteriorating credit quality.
Watchlist accounts are closely reviewed and monitored with corrective measures initiated to prevent them from turning
impaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Active portfolio monitoring enables the Bank to understand the overall risk profile and identify any adverse trends or
areas of risk concentrations affecting asset quality so that appropriate actions are adopted to manage and mitigate
risks.

5.6 Impairment Provisioning

Individual impairment provisioning

Significant loans, with or without past due status, are subject to individual assessment for impairment when an
evidence of impairment surfaces or at the very least once annually during the annual review process.

If impaired, the amount of loss is measured as the difference between the asset’s carrying value and the present value
of estimated future cash flows discounted at the financial assets original effective interest rate. The level of impairment
allowance on significant loans is reviewed regularly, at least quarterly or more often when circumstances require.

Significant loans that are deemed not impaired after individual assessment are included in a group of loans with similar
characteristics and collectively assessed for impairment.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 207


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for the financial year ended 31 December 2013

5 Credit Risk

5.6 Impairment Provisioning (continued)

Collective impairment provisioning

All loans are grouped in respective business segments according to similar credit risk characteristics and is generally
based on industry, asset or collateral type, credit grade and past due status grouped based on business segments.

Portfolio provisioning is determined for each segment based on its respective loss probabilities and other information
relevant to estimation of the future cash flows of each segment.

Collective provisioning is applicable to all loans not covered under individual assessment as well as significant loans
that are deemed not impaired after individual assessment.

Total loans, advances and financing - credit quality

All loans, advances and financing are categorised into “neither past due nor impaired”, “past due but not impaired”
and “impaired”. Past due loans refer to loans that are overdue by one day or more. Impaired loans are loans with
months-in-arrears more than 90 days or with impaired allowances.

208 AFFIN BANK BERHAD (25046-T) Annual Report 2013


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5 Credit Risk

5.6 Impairment Provisioning (continued)

Analysed by economic sectors

The Group The Bank


2013 2012 2013 2012
Past due loans RM’000 RM’000 RM’000 RM’000

Primary agriculture 23,698 17,525 23,032 16,932


Mining and quarrying 3,005 1,467 2,838 1,380
Manufacturing 26,317 38,863 24,935 36,083
Electricity, gas and water supply 606 1,094 476 814
Construction 108,384 180,112 100,862 171,863
Real estate 205,295 48,489 202,051 48,152
Wholesale & retail trade and restaurants & hotels 70,751 109,314 65,734 105,261
Transport, storage and communication 51,635 36,623 49,356 33,732
Finance, insurance and business services 131,672 113,557 129,518 54,880
Education, health and others 18,530 14,714 16,543 13,702
Household 1,792,753 2,012,448 1,417,953 1,648,376
2,432,646 2,574,206 2,033,298 2,131,175

The Group The Bank


2013 2012 2013 2012
Individual impairment RM’000 RM’000 RM’000 RM’000

Primary agriculture 2,560 1,693 2,560 1,693


Manufacturing 15,925 17,215 10,052 10,776
Electricity, gas and water supply - 1,579 - 1,579
Construction 133,186 119,668 106,396 92,906
Real estate - 2,520 - 2,520
Wholesale & retail trade and restaurants & hotels 7,023 7,128 5,210 5,270
Transport, storage and communication 3,958 3,458 3,958 3,458
Finance, insurance and business services 37,628 38,469 37,628 38,469
Education, health and others - 1,961 - 1,961
Household 23,421 16,681 23,313 16,645
223,701 210,372 189,117 175,277

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for the financial year ended 31 December 2013

5 Credit Risk

5.6 Impairment Provisioning (continued)

Analysed by economic sectors (continued)

The Group The Bank


2013 2012 2013 2012
Individual impairment charged RM’000 RM’000 RM’000 RM’000

Primary agriculture 1,116 148 1,116 148


Manufacturing 7,892 9,834 7,708 9,080
Electricity, gas and water supply 4 566 4 566
Construction 19,610 14,852 19,447 14,548
Real estate 555 1,184 555 1,184
Wholesale & retail trade and restaurants & hotels 3,656 7,221 3,463 5,810
Transport, storage and communication 797 3,459 797 3,459
Finance, insurance and business services 1,163 12,484 1,163 12,445
Education, health and others - 1,934 - 1,934
Household 13,110 20,531 12,960 20,217
47,903 72,213 47,213 69,391

The Group The Bank


2013 2012 2013 2012
Individual impairment written-off RM’000 RM’000 RM’000 RM’000

Manufacturing 3,620 1,267 3,620 1,267


Electricity, gas and water supply 1,119 - 1,119 -
Construction 2,582 11,708 2,582 11,708
Wholesale & retail trade and restaurants & hotels 1,005 - 1,005 -
Finance, insurance and business services 4,648 - 4,648 -
Household - 387 - 387
12,974 13,362 12,974 13,362

210 AFFIN BANK BERHAD (25046-T) Annual Report 2013


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5 Credit Risk

5.6 Impairment Provisioning (continued)

Analysed by economic sectors (continued)

The Group The Bank


2013 2012 2013 2012
Collective impairment RM’000 RM’000 RM’000 RM’000

Primary agriculture 2,809 2,023 2,686 1,770


Mining and quarrying 1,345 1,212 1,340 1,145
Manufacturing 15,100 20,703 13,886 19,199
Electricity, gas and water supply 594 1,079 485 989
Construction 31,761 26,823 29,800 22,067
Real estate 14,164 13,642 13,161 12,956
Wholesale & retail trade and restaurants & hotels 14,151 12,963 13,419 12,289
Transport, storage and communication 7,762 7,752 7,499 7,635
Finance, insurance and business services 14,564 20,117 13,172 18,407
Education, health and others 5,269 6,512 3,802 4,882
Household 192,795 209,803 167,345 186,354
300,314 322,629 266,595 287,693


Analysed by geographical area

The Group The Bank


2013 2012 2013 2012
Past due loans RM’000 RM’000 RM’000 RM’000

Perlis 4,680 2,796 4,143 2,444


Kedah 101,606 92,913 86,965 80,764
Pulau Pinang 93,554 95,871 81,663 86,512
Perak 115,654 123,800 67,837 80,204
Selangor 585,105 763,976 454,868 626,238
Wilayah Persekutuan 389,532 412,547 352,379 327,428
Negeri Sembilan 98,615 101,629 84,127 90,454
Melaka 106,888 108,788 101,945 105,254
Johor 353,076 298,352 333,469 278,385
Pahang 65,105 66,331 43,859 43,867
Terengganu 59,488 58,771 8,303 8,890
Kelantan 40,919 46,197 4,535 4,898
Sarawak 142,309 142,183 139,579 139,396
Sabah 275,810 260,000 269,326 256,395
Labuan 59 52 54 46
Outside Malaysia 246 - 246 -
2,432,646 2,574,206 2,033,298 2,131,175

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 211


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for the financial year ended 31 December 2013

5 Credit Risk

5.6 Impairment Provisioning (continued)

Analysed by geographical area (continued)

The Group The Bank


2013 2012 2013 2012
Individual impairment RM’000 RM’000 RM’000 RM’000

Kedah 6,114 7,048 6,114 7,048


Pulau Pinang 1,332 138 1,332 138
Perak - 3,466 - 3,466
Selangor 114,281 103,321 107,167 102,058
Wilayah Persekutuan 39,442 42,631 38,762 41,949
Negeri Sembilan 2,560 1,693 2,560 1,693
Johor 15,051 8,014 15,051 8,014
Pahang 3,396 9,602 3,396 3,163
Terengganu 1,733 - 1,733 -
Kelantan 18 18 18 18
Sabah 82 279 - -
Outside Malaysia 39,692 34,162 12,984 7,730
223,701 210,372 189,117 175,277

The Group The Bank


2013 2012 2013 2012
Collective impairment RM’000 RM’000 RM’000 RM’000

Perlis 487 570 320 532


Kedah 12,289 12,605 11,140 11,577
Pulau Pinang 11,565 14,554 10,744 13,868
Perak 12,545 10,935 9,562 9,168
Selangor 111,368 132,888 99,103 119,064
Wilayah Persekutuan 51,989 64,974 46,335 56,720
Negeri Sembilan 14,345 14,804 12,942 13,715
Melaka 8,337 7,163 8,006 6,851
Johor 28,347 29,309 26,828 27,847
Pahang 6,729 5,442 5,425 4,213
Terengganu 14,818 5,564 12,094 3,514
Kelantan 3,517 3,298 898 844
Sarawak 8,236 7,167 7,928 6,753
Sabah 14,598 12,631 14,126 12,302
Labuan 1,144 725 1,144 725
300,314 322,629 266,595 287,693

212 AFFIN BANK BERHAD (25046-T) Annual Report 2013


BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013

5 Credit Risk

5.7 Credit Risk Culture

The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required
skills set of its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

For effective and efficient staff learning, the Bank has implemented an E–Learning Program with an online Learning
Management System (‘LMS’). The LMS provides staff with a progressive self-learning alternative at own pace.

GRM implements an Internal Credit Certification (‘ICC’) Programme for both Business Banking and Consumer Credit.

The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of
knowledge and analytical skills required to make sound corporate and commercial loans to customers.

6 Market Risk

6.1 Market Risk Management Objectives and Policies

Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market factors
such as interest rates, foreign exchange rates and changes in volatility. The Bank is exposed to market risks from
its trading and investment activities. The Bank’s market risk management objective is to ensure that market risk is
appropriately identified, measured, controlled, managed and reported.

The Bank’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate
risk arises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives.
The Bank is also exposed to basis risk when there is a mismatch between the change in price of a hedge and the
change in price of the assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’
requirements and proprietary positions.

6.2 Application of Standardised Approach for Market Risk

The Bank adopts the Standardised Approach for the purpose of calculating the capital requirement for market risk.

Refer to Appendix I.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 213


BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013

6 Market Risk

6.3 Market Risk Measurement, Control and Monitoring

The Bank’s market risk management control strategy is established based on its risk appetite, market liquidity and
business strategies as well as macroeconomic conditions. These limits are reviewed at least on an annual basis.

Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-
at-Risk (‘VaR’) Limits.

The Bank quantifies interest rate risk by analysing the repricing mismatch between the rate sensitive assets and rate
sensitive liabilities. It also conducts Net Interest Income simulations to assess the variation in earnings under various
rates scenarios. The potential long term effects of the Bank’s overall exposure is also tracked by assessing the impact
on economic value of equity (‘EVE’).

The Bank’s interest rate risk is managed through Earnings-at-Risk (‘EaR’) and Economic Value-at-Risk (‘EVaR’) limits.

In addition, the Bank conducts periodic stress test of its respective business portfolios to ascertain market risk under
abnormal market conditions.

The Bank’s Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.

6.4 Value-at-Risk (‘VaR’)

Value-at-Risk (‘VaR’) is used to compute the maximum potential loss amount over a specified holding period of a
Trading portfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign
exchange rates that could affect values of financial instruments.

The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a
statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks. Under
this methodology, a matrix of historical volatilities and correlations is computed from the past 100 business days’
market data. VaR is then computed by applying these volatilities and correlations to the outstanding trading portfolio.

Other risk measures include the following:

(i) Mark-to-Market valuation tracks the current market value of the outstanding financial instruments.

(ii) Stress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market
movements. Stress tests measure the changes in values arising from extreme movements in interest rates and
foreign exchange rates based on past experience and simulated stress scenarios.

(iii) Sensitivity/Dollar Duration is an additional measure of interest rate risk that is computed on a daily basis. It
measures the change in value of a portfolio resulting from a 0.01% increase in interest rates. This measure
identifies the Bank interest rate exposures that are most vulnerable to interest rate changes and it facilitates the
implementation of hedging strategies.

214 AFFIN BANK BERHAD (25046-T) Annual Report 2013


BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013

6 Market Risk

6.5 Foreign Exchange Risk

The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its
financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both
overnight and intra-day positions, which are monitored daily.

7 Liquidity Risk

7.1 Liquidity Risk Management Objectives and Policies

Liquidity risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its
obligations when they fall due. Liquidity risk includes the inability to manage sudden decreases or changes in funding
sources. Liquidity risk also arises from the failure to recognise changes in market conditions that affect the ability to
liquidate assets quickly and with minimal loss in value.

7.2 Liquidity Risk Measurement, Control and Monitoring

To measure and manage net funding requirements, the Bank adopts BNM’s New Liquidity Framework (‘NLF’). The
NLF ascertains the liquidity condition based on the contractual and behavioural cash-flow of assets, liabilities and off-
balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The
NLF is also supported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding
sources.

The Bank employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. The
risk is measured monthly using internal and external qualitative and quantitative liquidity risk indicators. The Bank
also conducts liquidity stress tests to gauge ABB’s resilience in the event of a funding crisis. In addition, the Bank has
in place the Contingency Funding Plan, which provides a systematic approach in handling liquidity disruption. The
document encompasses strategies, decision-making authorities, and courses of action to be taken in the event of
liquidity crisis and emergencies.

The liquidity positions in the major currencies are being closely monitored by tracking the availability of medium to long
term foreign currency funding and adhering to the guiding principles for foreign currency assets creations.

Basel III Liquidity Standards

The Basel Committee developed the Liquidity Coverage Ratio (‘LCR’) and Net Stable Funding Ratio (‘NSFR’) with the
goal of strengthening the resilience of the banking systems. The LCR and NSFR are tracked monthly to assess the
short term and long term liquidity risk profile of the Bank.

BRMC is responsible for the Bank’s liquidity policy although the strategic management of liquidity has been delegated
to ALCO. The BRMC is informed regularly of the liquidity situation in the Bank.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 215


BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013

8 Operational Risk

8.1 Operational Risk Management Objectives and Policies

Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people,
infrastructure or technology or events which are beyond the bank’s immediate control which have an operational
impact, including natural disaster, fraudulent activities and money laundering/financing of terrorism.

The Bank manages operational risk through a control based environment in which policies and procedures are
formulated after taking into account individual unit’s business activities, the market in which it is operating and
regulatory requirement in force.

8.2 Application of Basic Indicator Approach for Operational Risk

The Bank adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational
risk. The capital requirement is calculated by taking 15% of the Bank’s average annual gross income over the previous
three years.

8.3 Operational Risk Measurement, Control and Monitoring

Risk is identified through the use of assessment tools and measured using threshold/limits mapped against risk matrix.
Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-up
procedures and contingency plans, including disaster recovery and business continuity plans. This is supported by
periodic reviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational
Risk Management process.

The Bank gathers, analyses and reports operational risk loss and ‘near miss’ events to Group Operational Risk
Management Committee and Board Risk Management Committee. Appropriate preventive and remedial actions are
reviewed for effectiveness and implemented to minimize the recurrence of such events.

8.4 Operational Risk Culture

As a matter of requirement, all Operational Risk Coordinators must satisfy an Internal Operational Risk (including
anti-money laundering/counter financing of terrorism and business continuity management) Certification Program.
These coordinators will first go through an on-line self learning exercise before attempting on-line assessments to
measure their skills and knowledge level. This will enable Group Risk Management to prescribe appropriate training
and development activities for the coordinators.

216 AFFIN BANK BERHAD (25046-T) Annual Report 2013


BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013

9 Shariah Compliance

Shariah compliance is the fundamental of Islamic banking and finance. It gives legitimacy to the practices and business
operations of the Islamic financial institutions (‘IFIs’) concerned. Comprehensive compliance with Shariah principles would
also boosts confidence of shareholders and public that all the practices and activities by the IFIs are in compliance with the
Shariah principles at all times.

Shariah Governance Framework for Islamic Financial Institutions (the ‘Framework’) issued by Bank Negara Malaysia becomes
the main reference to oversee the Shariah governance process within AFFIN Islamic Bank Berhad. In order to comply with
all the requirements in the Framework, Board of Directors of the Bank are very committed to ensure among others all the
required Shariah compliance and research functions include Shariah Risk Management, Shariah Review, Shariah Research
and Shariah Audit are properly established to effectively perform its respective functions.

Continuous training programs are provided to Shariah Committee members to equip them with better understanding and
exposure on banking operations and to Board of Directors, management members and staff for fundamental and advanced
knowledge on Shariah and Islamic commercial law matters.

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 217


Appendix I
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
The Group and the Bank have adopted Basel II - Risk Weighted Assets computation under the BNM’s Risk-Weighted Capital Adequacy Framework with effect from 1 January
2008. The Group and the Bank have adopted the Standardised Approach for credit risk and market risk, and Basic Indicator Approach for operation risk computation.

The following information concerning the Group and the Bank’s risk exposures are disclosed as accompanying information to the annual report, and does not form part of the
audited accounts.

Disclosure on Capital Adequacy under the Standardised Approach (RM’000)

Group
2013

218 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Total Risk Minimum
Gross Net Weighted Capital
Exposures /EAD Exposures / Risk Weighted Assets after Requirements
Exposure Class before CRM EAD after CRM Assets Effects of PSIA at 8%
1 CREDIT RISK
On Balance Sheet Exposures
Corporates 21,462,063 20,621,684 17,186,171 17,186,171 1,374,894
Regulatory Retail 11,713,244 11,609,274 8,710,981 8,710,981 696,877
Other Assets 2,317,711 2,317,711 434,250 434,250 34,740
Sovereigns/Central Banks 10,907,154 10,907,154 - - -
Public Sector Entities 34,424 30,344 6,069 6,069 486
Banks, Development Financial Institutions & MDBs 3,591,180 3,591,180 1,107,499 1,107,499 88,600
Insurance Companies, Securities Firms & Fund Managers 504,303 504,303 465,598 465,598 37,248
Residential Mortgages 4,428,276 4,412,291 1,778,721 1,778,721 142,298
Higher Risk Assets 294,509 294,122 441,183 441,183 35,294
Equity Exposure 24,057 24,057 24,057 24,057 1,925
Defaulted Exposures 1,273,511 1,243,940 1,716,941 1,716,941 137,356
Total for On-Balance Sheet Exposures 56,550,432 55,556,060 31,871,470 31,871,470 2,549,718

Off Balance Sheet Exposures


Off Balance Sheet Exposures other than OTC derivatives or
credit derivatives 5,235,993 5,044,178 4,474,930 4,474,930 357,994
Defaulted Exposures 123,834 121,935 182,827 182,827 14,626
Total for Off-Balance Sheet Exposures 5,359,827 5,166,113 4,657,757 4,657,757 372,620

Total for On and Off-Balance Sheet Exposures 61,910,259 60,722,173 36,529,227 36,529,227 2,922,338

2 MARKET RISK Long Position Short Position


Interest Rate Risk 5,236,771 4,512,369 724,402 278,703 - 22,296
Foreign Currency Risk 16,556 17,404 (848) 20,974 - 1,678
3 OPERATIONAL RISK
Operational Risk 2,243,503 179,480

Total RWA and Capital Requirements 39,072,407 36,529,227 3,125,792

OTC “Over The Counter”


PSIA “Profit Sharing Investment Account”
Appendix I
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
Disclosure on Capital Adequacy under the Standardised Approach (RM’000)

Group
2012

Total Risk Minimum


Gross Net Weighted Capital
Exposures /EAD Exposures /EAD Risk Weighted Assets after Requirements
Exposure Class before CRM after CRM Assets Effects of PSIA at 8%
1 CREDIT RISK
On Balance Sheet Exposures
Corporates 19,752,745 17,713,218 15,286,599 15,286,599 1,222,928
Regulatory Retail 11,063,690 10,967,217 8,230,560 8,230,560 658,445
Other Assets 2,116,942 2,116,942 224,483 224,483 17,958
Sovereigns/Central Banks 9,718,232 9,718,232 - - -
Banks, Development Financial Institutions & MDBs 3,986,505 3,850,682 1,311,600 1,311,600 104,928
Insurance Companies, Securities Firms & Fund Managers 474,785 459,648 459,648 459,648 36,772
Residential Mortgages 3,772,100 3,764,366 1,567,219 1,567,219 125,378
Higher Risk Assets 399,250 398,479 597,718 597,718 47,817
Equity Exposure 20,388 20,388 20,388 20,388 1,631
Defaulted Exposures 830,776 818,768 1,046,864 1,046,864 83,749
Total for On-Balance Sheet Exposures 52,135,413 49,827,940 28,745,079 28,745,079 2,299,606

Off Balance Sheet Exposures


Off Balance Sheet Exposures other than OTC derivatives or
credit derivatives 4,500,860 4,326,152 3,792,166 3,792,166 303,373
Defaulted Exposures 82,230 81,763 122,534 122,534 9,803
Total for Off-Balance Sheet Exposures 4,583,090 4,407,915 3,914,700 3,914,700 313,176

Total for On and Off-Balance Sheet Exposures 56,718,503 54,235,855 32,659,779 32,659,779 2,612,782

2 MARKET RISK Long Position Short Position


Interest Rate Risk 4,321,601 4,169,823 151,778 246,086 - 19,687
Foreign Currency Risk 14,534 12,098 2,436 14,534 - 1,163
3 OPERATIONAL RISK
Operational Risk 2,187,846 175,028

Total RWA and Capital Requirements 35,108,245 32,659,779 2,808,660

OTC “Over The Counter”


PSIA “Profit Sharing Investment Account”

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 219


Appendix I
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
Disclosure on Capital Adequacy under the Standardised Approach (RM’000)

Bank
2013

Total Risk Minimum


Gross Net Weighted Capital
Exposures /EAD Exposures / Risk Weighted Assets after Requirements
Exposure Class before CRM EAD after CRM Assets Effects of PSIA at 8%
1 CREDIT RISK

220 AFFIN BANK BERHAD (25046-T) Annual Report 2013


On Balance Sheet Exposures
Corporates 19,071,729 18,305,396 15,317,142 15,317,142 1,225,371
Regulatory Retail 9,765,977 9,667,736 7,254,620 7,254,620 580,369
Other Assets 2,063,713 2,063,713 411,610 411,610 32,929
Sovereigns/Central Banks 5,891,212 5,891,212 - - -
Public Sector Entities 34,424 30,344 6,069 6,069 486
Banks, Development Financial Institutions & MDBs 3,381,310 3,381,310 1,122,157 1,122,157 89,772
Insurance Companies, Securities Firms & Fund Managers 394,054 394,054 370,388 370,388 29,631
Residential Mortgages 2,849,626 2,841,197 1,101,714 1,101,714 88,137
Higher Risk Assets 273,390 273,016 409,524 409,524 32,762
Equity Exposure 24,057 24,057 24,057 24,057 1,925
Defaulted Exposures 1,196,163 1,166,603 1,626,144 1,626,144 130,092
Total for On-Balance Sheet Exposures 44,945,655 44,038,638 27,643,425 27,643,425 2,211,474

Off Balance Sheet Exposures


Off Balance Sheet Exposures other than OTC derivatives or
credit derivatives 4,758,428 4,582,963 4,086,054 4,086,054 326,884
Defaulted Exposures 123,140 121,241 181,787 181,787 14,543
Total for Off-Balance Sheet Exposures 4,881,568 4,704,204 4,267,841 4,267,841 341,427

Total for On and Off-Balance Sheet Exposures 49,827,223 48,742,842 31,911,266 31,911,266 2,552,901

2 MARKET RISK Long Position Short Position


Interest Rate Risk 5,236,771 4,512,369 724,402 278,703 - 22,296
Foreign Currency Risk 12,986 17,404 (4,418) 17,404 - 1,392
3 OPERATIONAL RISK
Operational Risk 1,902,412 152,193

Total RWA and Capital Requirements 34,109,785 31,911,266 2,728,782

OTC “Over The Counter”


PSIA “Profit Sharing Investment Account”
Appendix I
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
Disclosure on Capital Adequacy under the Standardised Approach (RM’000)

Bank
2012

Total Risk Minimum


Gross Net Weighted Capital
Exposures /EAD Exposures /EAD Risk Weighted Assets after Requirements
Exposure Class before CRM after CRM Assets Effects of PSIA at 8%
1 CREDIT RISK
On Balance Sheet Exposures
Corporates 17,509,673 15,769,100 13,750,174 13,750,174 1,100,014
Regulatory Retail 9,264,210 9,174,953 6,883,763 6,883,763 550,701
Other Assets 2,148,363 2,148,363 401,300 401,300 32,104
Sovereigns/Central Banks 4,696,832 4,696,832 - - -
Banks, Development Financial Institutions & MDBs 3,411,784 3,295,677 1,200,599 1,200,599 96,048
Insurance Companies, Securities Firms & Fund Managers 364,499 364,499 364,499 364,499 29,160
Residential Mortgages 2,656,967 2,651,702 1,109,732 1,109,732 88,779
Higher Risk Assets 367,791 367,036 550,554 550,554 44,044
Equity Exposure 20,388 20,388 20,388 20,388 1,631
Defaulted Exposures 735,747 723,757 933,130 933,130 74,650
Total for On-Balance Sheet Exposures 41,176,254 39,212,307 25,214,139 25,214,139 2,017,131

Off Balance Sheet Exposures


Off Balance Sheet Exposures other than OTC derivatives or
credit derivatives 4,026,461 3,861,516 3,395,489 3,395,489 271,639
Defaulted Exposures 81,548 81,081 121,510 121,510 9,721
Total for Off-Balance Sheet Exposures 4,108,009 3,942,597 3,516,999 3,516,999 281,360

Total for On and Off-Balance Sheet Exposures 45,284,263 43,154,904 28,731,138 28,731,138 2,298,491

2 MARKET RISK Long Position Short Position


Interest Rate Risk 4,321,601 4,169,823 151,778 246,086 - 19,687
Foreign Currency Risk 12,752 12,098 654 12,752 - 1,020
3 OPERATIONAL RISK
Operational Risk 1,864,563 149,165

Total RWA and Capital Requirements 30,854,539 28,731,138 2,468,363

OTC “Over The Counter”


PSIA “Profit Sharing Investment Account”

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 221


BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013

Appendix I

Disclosure on Capital Adequacy under the Standardised Approach

Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The
Bank’s Capital-at-Risk (‘CaR’) is defined as the amount of the Bank’s capital that is exposed to the risk of unexpected losses
arising particularly from movements in interest and foreign exchange rates. A CaR Limit is set as a management trigger to ensure
that the Bank’s exposure to such movements do not compromise the Bank’s capital adequacy. The Bank is currently adopting
BNM’s Standardised Approach for the computation of market risk capital charges. The market risk capital charges addresses
among others, capital requirement for market risk which includes the interest rate risk pertaining to the Bank’s exposure in the
trading book as well as foreign exchange risk in the trading and banking books.

The computation of market risk capital charge covers the following outstanding financial instruments:

a) Foreign Exchange
b) Interest Rate Swap (‘IRS’)
c) Cross Currency Swap (‘CCS’)
d) Fixed Income Instruments (i.e. Private Debt and Government Securities)

222 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Appendix II
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM’000)

Group
2013

Exposures after Netting and Credit Risk Mitigation

Insurance Total
Companies, Exposure
Sovereigns Banks, Securities Higher Specialised after Netting Total Risk
Risk & Central MDBs and Firms & Fund Regulatory Residential Risk Other Financing / & Credit Risk Weighted
Weights Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Investment Securitisation Equity Mitigation Assets

0% 10,973,025 - 34,314 15,039 1,135,377 - - - 1,810,859 - - - 13,968,614 -


10% - - - - - - - - - - - - - -
20% 38,677 31,954 2,508,494 29,583 2,531,860 1,715 - - 90,753 - - - 5,233,036 1,046,607
35% - - - - - - 3,676,431 - - - - - 3,676,431 1,286,751
50% - - 1,531,449 - 641,063 757 481,539 - - - - - 2,654,808 1,327,404
75% - - - - - 12,027,148 26,692 - - - - - 12,053,840 9,040,380
90% - - - - - - - - - - - - - -
100% - - 15,819 498,017 20,335,468 50,336 406,723 3,640 416,100 - - 24,057 21,750,160 21,750,160
110% - - - - - - - - - - - - - -
125% - - - - - - - - - - - - - -
135% - - - - - - - - - - - - - -
150% - - - - 791,707 216,164 74,565 302,847 - - - - 1,385,283 2,077,925
270% - - - - - - - - - - - - - -
350% - - - - - - - - - - - - - -
400% - - - - - - - - - - - - - -
625% - - - - - - - - - - - - - -
938% - - - - - - - - - - - - - -
1250% - - - - - - - - - - - - - -

Average - - -
Risk Weight
Deduction
from - - - - - - - - - - - - -
Capital
Base

PSE “Public Sector Entities”


MDB “Multilateral Development Banks”
FDI “Financial Development Institutions”

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 223


Appendix II
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM’000)

Group
2012

Exposures after Netting and Credit Risk Mitigation

Insurance Total
Companies, Exposure
Sovereigns Banks, Securities Higher Specialised after Netting Total Risk
Risk & Central MDBs and Firms & Fund Regulatory Residential Risk Other Financing / & Credit Risk Weighted

224 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Weights Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Investment Securitisation Equity Mitigation Assets

0% 9,769,753 - - - - - - - 1,833,914 - - - 11,603,667 -


10% - - - - - - - - - - - - - -
20% 44,881 1,600 2,332,100 - 2,455,663 1,961 - - 75,210 - - - 4,911,415 982,283
35% - - - - - - 2,880,566 - - - - - 2,880,566 1,008,198
50% - - 1,943,852 - 1,005,918 1,482 631,643 - - - - - 3,582,895 1,791,448
75% - - - - - 11,431,933 45,277 - - - - - 11,477,210 8,607,908
90% - - - - - - - - - - - - - -
100% - - 1,262 524,232 17,559,379 44,563 442,946 3,078 204,574 - - 20,388 18,800,422 18,800,422
110% - - - - - - - - - - - - - -
125% - - - - - - - - - - - - - -
135% - - - - - - - - - - - - - -
150% - 32,547 - - 239,701 208,830 72,699 422,658 3,245 - - - 979,680 1,469,520
270% - - - - - - - - - - - - - -
350% - - - - - - - - - - - - - -
400% - - - - - - - - - - - - - -
625% - - - - - - - - - - - - - -
938% - - - - - - - - - - - - - -
1250% - - - - - - - - - - - - - -

Average - - -
Risk Weight
Deduction
from - - 10.034 - - - - - - - - - 10,034
Capital
Base

PSE “Public Sector Entities”


MDB “Multilateral Development Banks”
FDI “Financial Development Institutions”
Appendix II
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM’000)

Bank
2013

Exposures after Netting and Credit Risk Mitigation

Insurance Total
Companies, Exposure
Sovereigns Banks, Securities Higher Specialised after Netting Total Risk
Risk & Central MDBs and Firms & Fund Regulatory Residential Risk Other Financing / & Credit Risk Weighted
Weights Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Investment Securitisation Equity Mitigation Assets

0% 5,952,212 - 15,152 - 941,848 - - - 1,534,725 - - - 8,443,937 -


10% - - - - - - - - - - - - - -
20% - 31,954 2,138,299 29,583 2,201,186 1,715 - - 146,721 - - - 4,549,458 909,892
35% - - - - - - 2,457,225 - - - - - 2,457,225 860,029
50% - - 1,705,649 - 625,906 757 277,171 - - - - - 2,609,483 1,304,741
75% - - - - - 10,027,146 20,574 - - - - - 10,047,720 7,535,790
90% - - - - - - - - - - - - - -
100% - - 15,819 382,880 18,209,564 47,448 237,959 3,435 382,267 - - 24,057 19,303,429 19,303,429
110% - - - - - - - - - - - - - -
125% - - - - - - - - - - - - - -
135% - - - - - - - - - - - - - -
150% - - - - 790,105 198,396 62,192 280,897 - - - - 1,331,590 1,997,385
270% - - - - - - - - - - - - - -
350% - - - - - - - - - - - - - -
400% - - - - - - - - - - - - - -
625% - - - - - - - - - - - - - -
938% - - - - - - - - - - - - - -
1250% - - - - - - - - - - - - - -

Average
Risk Weight
Deduction
from - - - - - - - - - - - - -
Capital
Base

PSE “Public Sector Entities”


MDB “Multilateral Development Banks”
FDI “Financial Development Institutions”

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 225


Appendix II
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013

Disclosure on Credit Risk: Disclosures on Risk Weights under the Standardised Approach (RM’000)

Bank
2012

Exposures after Netting and Credit Risk Mitigation

Insurance Total

226 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Companies, Exposure
Sovereigns Banks, Securities Higher Specialised after Netting Total Risk
Risk & Central MDBs and Firms & Fund Regulatory Residential Risk Other Financing / & Credit Risk Weighted
Weights Banks PSEs FDIs Managers Corporates Retail Mortgages Assets Assets Investment Securitisation Equity Mitigation Assets

0% 4,745,271 - - - - - - - 1,567,931 - - - 6,313,202 -


10% - - - - - - - - - - - - - -
20% - 1,600 1,773,982 - 1,979,904 1,961 - - 223,915 - - - 3,981,362 796,272
35% - - - - - - 2,040,579 - - - - - 2,040,579 714,203
50% - - 1,943,852 - 930,185 1,482 416,596 - - - - - 3,292,115 1,646,057
75% - - - - - 9,579,545 33,810 - - - - - 9,613,355 7,210,017
90% - - - - - - - - - - - - - -
100% - - 1,262 390,150 15,841,238 39,046 362,219 2,874 356,517 - - 20,388 17,013,694 17,013,694
110% - - - - - - - - - - - - - -
125% - - - - - - - - - - - - - -
135% - - - - - - - - - - - - - -
150% - 32,547 - - 239,134 188,171 62,522 378,223 - - - - 900,597 1,350,895
270% - - - - - - - - - - - - - -
350% - - - - - - - - - - - - - -
400% - - - - - - - - - - - - - -
625% - - - - - - - - - - - - - -
938% - - - - - - - - - - - - - -
1250% - - - - - - - - - - - - - -

Average
Risk Weight
Deduction
from - - 10.034 - - - - - - - - - 10,034
Capital
Base

PSE “Public Sector Entities”


MDB “Multilateral Development Banks”
FDI “Financial Development Institutions”
Appendix III
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
(i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM’000)

Group
2013

Ratings of Corporate by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
RAM AAA to AA3 A to A3 BBB1 to BB3 B to D Unrated
MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
On and Off-Balance-Sheet Exposures

Credit Exposures (using Corporate Risk Weights)


Public Sector Entities (applicable for entities
risk weighted based on their external ratings as
corporates) - - - - 36,049
Insurance Cos, Securities Firms & Fund Managers - - - - 543,311
Corporates 636,022 549,081 250 - 25,280,661
Total 636,022 549,081 250 - 25,860,021

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 227


Appendix III
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
(i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM’000)

Group
2012

Ratings of Corporate by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
RAM AAA to AA3 A to A3 BBB1 to BB3 B to D Unrated

228 AFFIN BANK BERHAD (25046-T) Annual Report 2013


MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
On and Off-Balance-Sheet Exposures

Credit Exposures (using Corporate Risk Weights)


Public Sector Entities (applicable for entities
risk weighted based on their external ratings as
corporates) - - - - 39,656
Insurance Cos, Securities Firms & Fund Managers - - - - 540,221
Corporates 566,555 835,800 - - 22,048,962
Total 566,555 835,800 - - 22,628,839
Appendix III
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
(i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM’000)

Bank
2013

Ratings of Corporate by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
RAM AAA to AA3 A to A3 BBB1 to BB3 B to D Unrated
MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
On and Off-Balance-Sheet Exposures

Credit Exposures (using Corporate Risk Weights)


Public Sector Entities (applicable for entities
risk weighted based on their external ratings as
corporates) - - - - 36,049
Insurance Cos, Securities Firms & Fund Managers - - - - 412,462
Corporates 613,923 534,081 250 - 22,563,126
Total 613,923 534,081 250 - 23,011,637

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 229


Appendix III
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
(i) Disclosures on Rated Exposures according to Ratings by ECAIs (RM’000)

Bank
2012

Ratings of Corporate by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
RAM AAA to AA3 A to A3 BBB1 to BB3 B to D Unrated

230 AFFIN BANK BERHAD (25046-T) Annual Report 2013


MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated
On and Off-Balance-Sheet Exposures

Credit Exposures (using Corporate Risk Weights)


Public Sector Entities (applicable for entities
risk weighted based on their external ratings as
corporates) - - - - 39,656
Insurance Cos, Securities Firms & Fund Managers - - - - 390,337
Corporates 544,539 794,811 - - 19,535,243
Total 544,539 794,811 - - 19,965,236
Appendix III
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
(ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM’000)

Group
2013

Ratings of Sovereigns and Central Banks by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures
Sovereigns and Central Banks - 11,011,702 - - - -

Total - 11,011,702 - - - -

Ratings of Banking Institutions by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class RAM AAA to AA3- A1 to A3 BBB1+ to BB1 to B3 C1+ to D Unrated
BBB3
MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures
Banks, MDBs and FDIs 1,563,194 163,635 35,795 21,739 - 2,481,713

Total 1,563,194 163,635 35,795 21,739 - 2,481,713

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 231


Appendix III
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
(ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM’000)

Group
2012

Ratings of Sovereigns and Central Banks by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated

232 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures
Sovereigns and Central Banks - 9,814,633 - - - -

Total - 9,814,633 - - - -

Ratings of Banking Institutions by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class
RAM AAA to AA3- A1 to A3 BBB1+ to BBB3 BB1 to B3 C1+ to D Unrated
MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures
Banks, MDBs and FDIs 856,257 146,818 23,125 16,428 - 3,370,408

Total 856,257 146,818 23,125 16,428 - 3,370,408


Appendix III
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
(ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM’000)

Bank
2013

Ratings of Sovereigns and Central Banks by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures
Sovereigns and Central Banks - 5,952,212 - - - -

Total - 5,952,212 - - - -

Ratings of Banking Institutions by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class RAM AAA to AA3- A1 to A3 BBB1+ to BB1 to B3 C1+ to D Unrated
BBB3
MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures
Banks, MDBs and FDIs 1,499,708 136,926 35,795 21,739 - 2,180,752

Total 1,499,708 136,926 35,795 21,739 - 2,180,752

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 233


Appendix III
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
(ii) Disclosures on Rated Exposures according to Ratings by ECAIs (RM’000)

Bank
2012

Ratings of Sovereigns and Central Banks by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated

234 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures
Sovereigns and Central Banks - 4,745,271 - - - -

Total - 4,745,271 - - - -

Ratings of Banking Institutions by Approved ECAIs


Moodys Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Unrated
S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated
Exposure Class
RAM AAA to AA3- A1 to A3 BBB1+ to BBB3 BB1 to B3 C1+ to D Unrated
MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Unrated
Rating &
Investment Inc AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Unrated
On and Off-Balance-Sheet Exposures
Banks, MDBs and FDIs 853,143 146,818 23,125 16,428 - 2,795,688

Total 853,143 146,818 23,125 16,428 - 2,795,688


Appendix IV
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
a) Disclosures on Credit Risk Mitigation (RM’000)

Group
2013

Exposures Exposures Exposures


Covered by Covered by Covered by
Exposure Class Exposures Guarantees Eligible Other
before /Credit Financial Eligible
CRM Derivatives Collateral Collateral
Credit Risk
On-Balance Sheet Exposures
Sovereigns/Central Banks 10,907,154 - - -
Public Sector Entities 34,424 - 4,094 -
Banks, Development Financial Institutions & MDBs 3,591,180 - - -
Insurance Cos, Securities Firms & Fund Managers 504,303 - 673 -
Corporates 21,462,063 131,752 998,947 -
Regulatory Retail 11,713,244 1,567 136,127 -
Residential Mortgages 4,428,276 - 15,988 -
Higher Risk Assets 294,509 - 387 -
Other Assets 2,317,711 - - -
Equity Exposure 24,057 - - -
Defaulted Exposures 1,273,511 149 31,470 -
Total for On-Balance Sheet Exposures 56,550,432 133,468 1,187,686 -

Off-Balance Sheet Exposures


Off-Balance Sheet exposures other than OTC derivatives or credit derivatives 5,235,993 - - -
Defaulted Exposures 123,834 - - -
Total for Off-Balance Sheet Exposures 5,359,827 - - -
Total On and Off-Balance Sheet Exposures 61,910,259 133,468 1,187,686 -

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 235


Appendix IV
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
a) Disclosures on Credit Risk Mitigation (RM’000)

Group
2012

Exposures Exposures Exposures


Covered by Covered by Covered by
Exposure Class Exposures Guarantees Eligible Other
before /Credit Financial Eligible
CRM Derivatives Collateral Collateral

236 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Credit Risk
On-Balance Sheet Exposures
Sovereigns/Central Banks 9,718,232 - - -
Banks, Development Financial Institutions & MDBs 3,986,505 - - -
Insurance Cos, Securities Firms & Fund Managers 474,785 - 859 -
Corporates 19,752,745 236,800 1,088,080 -
Regulatory Retail 11,063,690 1,454 125,480 -
Residential Mortgages 3,772,100 - 7,734 -
Higher Risk Assets 399,250 - 774 -
Other Assets 2,116,942 - - -
Equity Exposure 20,388 - - -
Defaulted Exposures 830,776 574 12,475 -
Total for On-Balance Sheet Exposures 52,135,413 238,828 1,235,402 -

Off-Balance Sheet Exposures


Off-Balance Sheet exposures other than OTC derivatives or credit derivatives 4,500,860 - - -
Defaulted Exposures 82,230 - - -
Total for Off-Balance Sheet Exposures 4,583,090 - - -
Total On and Off-Balance Sheet Exposures 56,718,503 238,828 1,235,402 -
Appendix IV
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
a) Disclosures on Credit Risk Mitigation (RM’000)

Bank
2013

Exposures Exposures Exposures


Covered by Covered by Covered by
Exposure Class Exposures Guarantees Eligible Other
before /Credit Financial Eligible
CRM Derivatives Collateral Collateral
Credit Risk
On-Balance Sheet Exposures
Sovereigns/Central Banks 5,891,212 - - -
Public Sector Entities 34,424 - 4,094 -
Banks, Development Financial Institutions & MDBs 3,381,310 - - -
Insurance Cos, Securities Firms & Fund Managers 394,054 - - -
Corporates 19,071,729 128,552 911,180 -
Regulatory Retail 9,765,977 1,567 128,442 -
Residential Mortgages 2,849,626 - 8,430 -
Higher Risk Assets 273,390 - 375 -
Other Assets 2,063,713 - - -
Equity Exposure 24,057 - - -
Defaulted Exposures 1,196,163 149 31,459 -
Total for On-Balance Sheet Exposures 44,945,655 130,268 1,083,980 -

Off-Balance Sheet Exposures


Off-Balance Sheet exposures other than OTC derivatives or credit derivatives 4,758,428 - - -
Defaulted Exposures 123,140 - - -
Total for Off-Balance Sheet Exposures 4,881,568 - - -
Total On and Off-Balance Sheet Exposures 49,827,223 130,268 1,083,980 -

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 237


Appendix IV
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
a) Disclosures on Credit Risk Mitigation (RM’000)

Bank
2012

Exposures Exposures Exposures


Covered by Covered by Covered by
Exposure Class Exposures Guarantees Eligible Other
before /Credit Financial Eligible
CRM Derivatives Collateral Collateral

238 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Credit Risk
On-Balance Sheet Exposures
Sovereigns/Central Banks 4,696,832 - - -
Banks, Development Financial Institutions & MDBs 3,411,784 - - -
Insurance Cos, Securities Firms & Fund Managers 364,499 - 186 -
Corporates 17,509,673 233,600 993,861 -
Regulatory Retail 9,264,210 1,454 116,735 -
Residential Mortgages 2,656,967 - 5,266 -
Higher Risk Assets 367,791 - 757 -
Other Assets 2,148,363 - - -
Equity Exposure 20,388 - - -
Defaulted Exposures 735,747 574 12,457 -
Total for On-Balance Sheet Exposures 41,176,254 235,628 1,129,262 -

Off-Balance Sheet Exposures


Off-Balance Sheet exposures other than OTC derivatives or credit derivatives 4,026,461 - - -
Defaulted Exposures 81,548 - - -
Total for Off-Balance Sheet Exposures 4,108,009 - - -
Total On and Off-Balance Sheet Exposures 45,284,263 235,628 1,129,262 -
Appendix IV
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM’000)

Counterparty Credit Risk is the risk that the counterparty to a transaction could default before the final settlement of the transaction’s cashflows. An economic loss could
occur if the transactions with the counterparty has a positive economic value for the Bank at the time of default.

In contrast to the exposure to credit risk through a loan, where the exposure to credit risk is unilateral and only the lending bank faces the risk of loss, Counterparty Credit
Risk creates a bilateral risk of loss where the market value for many types of transactions can be positive or negative to either counterparty.

In respect of off-balance sheet items, the credit risk inherent in each off-balance sheet instrument is translated into an on-balance sheet exposure equivalent (credit
equivalent) by multiplying the nominal principal amount with a credit conversion factor (‘CCF’) as prescribed by the Standardised Approach under the Risk Weighted Capital
Adequacy Framework. The resulting amount is then weighted against the risk weight of the counterparty. In addition, counterparty risk weights for over-the-counter (‘OTC’)
derivative transactions will be determined based on the external rating of the counterparty and will not be subject to any specific ceiling.

Group
2013

Principle Positive Fair Credit


Amount Value of Equivalent Risk Weighted
Description
Derivative Amount Amount
Contracts
Direct Credit Substitutes 1,410,611 1,410,611 1,418,056
Transaction related contingent Items 1,974,804 987,402 864,908
Short Term Self Liquidating trade related contingencies 573,412 114,683 82,976
Foreign exchange related contracts
One year or less 3,636,267 24,125 73,219 33,250
Over one year to five years 594,154 2,514 57,307 16,657
Over five years 96,030 - 16,325 8,163
Interest/Profit rate related contracts
One year or less 809,068 4,592 2,271 820
Over one year to five years 2,442,222 10,637 53,133 15,745
Over five years 703,148 14,406 66,112 28,314
Other commitments, such as formal standby facilities and credit lines, with an original
maturity of over one year 2,181,286 1,090,643 992,549
Other commitments, such as formal standby facilities and credit lines, with an original
maturity of up to one year 7,263,403 1,452,681 1,169,480
Unutilised credit card lines 179,201 35,840 26,839
Total 21,863,606 56,274 5,360,227 4,657,757

Annual Report 2013 AFFIN BANK BERHAD (25046-T) 239


Appendix IV
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM’000)

Group
2012

Positive Fair
Principle Amount Value of Credit Equivalent Risk Weighted
Description
Derivative Amount Amount
Contracts
Direct Credit Substitutes 445,529 445,529 430,042

240 AFFIN BANK BERHAD (25046-T) Annual Report 2013


Transaction related contingent Items 2,147,100 1,073,550 924,690
Short Term Self Liquidating trade related contingencies 453,772 90,754 54,644
Lending of banks’ securities or the posting of securities as collateral by banks, including
instances where these arise out of repo-style transactions. (i.e. repurchase / reverse
repurchase and securities lending / borrowing transactions. 19,939 - 19,939 -
Foreign exchange related contracts
One year or less 3,750,554 42,781 97,948 29,439
Over one year to five years 251,794 4,384 17,127 6,430
Interest/Profit rate related contracts
One year or less 107,156 563 122 49
Over one year to five years 1,834,299 12,892 39,217 11,073
Over five years 543,148 8,252 51,487 22,022
Other commitments, such as formal standby facilities and credit lines, with an original
maturity of over one year 2,872,698 1,436,349 1,341,919
Other commitments, such as formal standby facilities and credit lines, with an original
maturity of up to one year 6,364,231 1,272,846 1,065,707
Unutilised credit card lines 191,103 38,221 28,693
Total 18,981,323 68,872 4,583,089 3,914,708
Appendix IV
BASEL II Pillar 3 Disclosures
for the financial year ended 31 December 2013
b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM’000)

Bank
2013

Principle Positive Fair Credit


Amount Value of Equivalent Risk Weighted
Description
Derivative Amount Amount
Contracts
Direct Credit Substitutes 1,402,157 1,402,157 1,411,181
Transaction related contingent Items 1,849,237 924,619 804,191
Short Term Self Liquidating trade related contingencies 353,020 70,604 69,871
Foreign exchange related contracts
One year or less 3,636,267 24,125 73,219 33,250
Over one year to five years 594,154 2,514 57,307 16,657