Flourishing on a Firm Foundation - Affin Bank · PAB & BSN Commercial Bank (M) Berhad. 1994 1999...

Flourishing on a Firm FoundationAnnual Report 2011 / Abridged Version

OUR VISIONA Premier Partner for Financial Growth and Innovative Services.

OUR MISSIONTo provide innovative financial solutions and services to targetcustomers in order to generate profits and create value for ourshareholders and other stakeholders.

In so doing, we provide opportunities for employees to contributeand excel; and be competitive in providing our solutions andservices to our valued customers.

We shall conduct our business with integrity and professionalism incompliance with good corporate governance principles andpractices.

COVER RATIONALEThe cover design features the theme--Flourishing On A FirmFoundation--to emphasize the stability of our organization.The graphic illustration of a fast-growing tree appears onthe cover, and it is firmly anchored by roots that reach deepdown into the ground.

Similarly, our expansion is based on an extremely solidfoundation. The white expanse on the cover symbolizes ourintegrity, while the blue portion represents the bright futurethat lies ahead of us.

TABLE OFCONTENTS

2 Corporate Milestone 4 Corporate Structure

5 Corporate Information 6 Board of Directors 8 Profile of Directors

12 Management Team 14 Management Team Profiles

18 Chairman’s Statement 22 Performance Review

25 Financial Highlights 26 Corporate Diary

28 Statement of Corporate Governance 36 Statement on Internal Control

39 Audit & Examination Committee 41 Network of Branches

46 Notice of Annual General Meeting

47 Financial Statements

23 OCTOBER• Incorporation of Perwira

Habib Bank MalaysiaBerhad (PHB).

• Emergence of AffinHoldings Berhad asbiggest shareholder ofPHB.

1975

1992

21 APRIL• Became Perwira Affin Bank

Berhad (PAB) from PerwiraHabib Bank MalaysiaBerhad (PHB) since AFFINHoldings has 100% of PAB.

5 APRIL• Signing of MoU between

PAB & BSN CommercialBank (M) Berhad.

1994 19

99

CORPORATEMILESTONE

2 Annual Report 2011

25 APRIL• Change name of Perwira

Affin Bank Berhad (PAB) toAffin Bank Berhad(AFFINBANK).

30 AUGUST• Merger of PAB & BSN

Commercial Bank (M)Berhad signed, paving formation of newAFFINBANK.

JANUARY• AFFINBANK commenced

operations with 110branches nationwide.

2000

2001

JUNE• Merger with Affin-ACF

Finance Berhad.

• Introduction to the newlogo and tagline - ‘BankingWithout Barriers’

1 APRIL• Affin Islamic Bank Berhad

(AFFIN ISLAMIC)commenced its operations.

2005

2006

AFFIN BANK BERHAD (25046-T) 3

LEMBAGA TABUNG ANGKATAN TENTERA

OTHERS

Affin Investment BankBerhad100%

100%Affin Capital Sdn. Bhd.

20.69%

23.52%

20.46%

35.33%

Lembaga TabungAngkatan Tentera

Boustead Holdings Berhad

Bank of East Asia Limited*

Affin Holdings Berhad

100%

Affin Money BrokersSdn. Bhd.

100%Affin-ADB Sdn. Bhd.

100%Affin-ACF Holdings Sdn. Bhd.

100%

Affin-ACF CapitalSdn. Bhd.

100%

BSNCB Nominees (Tempatan)Sdn. Bhd.

100%Affin Recoveries Berhad

100%

BSN Merchant Nominees (Asing)Sdn. Bhd.

100%

BSNC Nominees (Tempatan)Sdn. Bhd.

Affin Islamic Bank Berhad100%

100%

ABB Asset Management(M) Berhad

100% (strike-off w.e.f. 6.9.2012)

BSN Merchant Nominees(Tempatan) Sdn. Bhd.

100%Affin Fund Management Berhad

100%

Merchant Nominees(Tempatan) Sdn. Bhd.

67%

Classic PrecisionSdn. Bhd.

100%

Affin Nominees(Tempatan) Sdn. Bhd.

100%

Merchant Nominees(Asing) Sdn. Bhd.

100%

Affin Nominees(Asing) Sdn. Bhd.

51%

AXA Affin Life InsuranceBerhad

33.6%

AXA Affin General InsuranceBerhad

100%Affin Bank Berhad

20%UBB Trustee (Malaysia) Berhad

100%

AFFIN-ACF Nominees(Tempatan) Sdn. Bhd.

***

***

1

1

50%

AFFIN-i Nadayu Sdn. Bhd.(formerly known as AFFIN-i Goodyear Sdn Bhd)

##

#1

#

#

#1

#1

100%ABB IT & Services Sdn Bhd.#

#

100%

ABB Nominee (Tempatan)Sdn. Bhd.

100%

Affin FuturesSdn. Bhd.

100%

PAB Property Development Sdn. Bhd.

100%PAB Properties Sdn Bhd

100%ABB Trustee Berhad

100%

ABB Nominee (Asing) Sdn Bhd

100%

PAB Property Management Services Sdn. Bhd.

100%

ABB Venture Capital Sdn Bhd.

#1

#

#

#1

#1

**

Affin Factors Sdn Bhd


CORPORATE STRUCTURE

# Dormant# # AFFIN-i Nadayu Sdn Bhd is jointly owned by

Affin Islamic Bank Berhad and Jurus PositifSdn Bhd with a 50-50 ownership

** 80% held by Directors of Affin Bank Berhadin trust for Affin Bank Berhad

*** Associates1. In members’ voluntary

winding-up


CORPORATEINFORMATION

NAME

Affin Bank Berhad (Co. No.: 25046-T)

DATE OF INCORPORATION

23 October 1975

PRINCIPAL ACTIVITIES

Affin Bank Berhad is principally involved in the carrying out ofbanking and finance related services. The Bank has seventeen(17) subsidiary companies and three (3) associate companieswhich are principally engaged in property managementservices, nominees services, trustees management servicesand factoring services.

BOARD OF DIRECTORS

ChairmanYBhg. Jen Tan Sri Dato' Seri Ismail bin Hj. Omar (Bersara)(Non-Independent Non-Executive Director)

DirectorsYBhg. Dato’ Zulkiflee Abbas bin Abdul Hamid(Non-Independent Executive Director)(Resigned as Director w.e.f. 1.11.2011)

YBhg. Tan Sri Dato’ Lodin bin Wok Kamaruddin(Non-Independent Non-Executive Director)

YM. Dr. Raja Abdul Malek bin Raja Jallaludin(Independent Non-Executive Director)

YBhg. Laksamana Madya Tan Sri Dato’ Seri Ahmad Ramli bin Mohd Nor (Bersara)(Non-Independent Non-Executive Director)(Resigned as Director w.e.f. 30.9.2011)

YBhg. Dato Sri Abdul Aziz bin Abdul Rahman(Independent Non-Executive Director)

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

Mr. Brian David Li Man-Bun(Alternate Director to Mr. Aubrey Li Kwok-Sing)(Resigned as Alternate Director w.e.f. 18.4.2011)

Mr. Gary Cheng Shui Hee(Alternate Director to Mr. Aubrey Li Kwok-Sing)(Appointed as Alternate Director w.e.f. 18.4.2011)

Mr. Stephen Charles Li(Non-Independent Non-Executive Director)(Resigned as Director w.e.f. 16.8.2011)

Mr. Eric Koh Thong Hau(Alternate Director to Mr. Stephen Charles Li)(Resigned as Alternate Director w.e.f. 1.1.2011)

Mr. Lee Chor Kee(Alternate Director to Mr. Stephen Charles Li)(Appointed as Alternate Director w.e.f. 18.4.2011

and resigned as Alternate Director w.e.f. 16.8.2011)

Encik Mohd Suffian bin Haji Haron(Independent Non-Executive Director)

YBhg. Tan Sri Dato’ Seri Mohamed Jawhar bin Hassan(Independent Non-Executive Director)(Appointed as Director w.e.f. 1.11.2011)

Managing Director/Chief Executive OfficerYBhg. Dato' Zulkiflee Abbas bin Abdul Hamid

SECRETARIES

Nimma Safira binti KhalidAzizah binti Shukor (Resigned as Joint-Company Secretaryw.e.f. 12.1.2012)

REGISTERED OFFICE

17th Floor, Menara AFFIN, 80, Jalan Raja Chulan, 50200 Kuala Lumpur.Tel.: 03-2055 9000 Fax.: 03-2026 1415

AUTHORISED SHARE CAPITAL

No. of shares2,000,000,000Par valueRM1.00TotalRM2,000,000,000

ISSUED AND PAID-UP SHARE CAPITAL

No. of shares1,439,285,382Par valueRM1.00TotalRM1,439,285,382

SUBSTANTIAL SHAREHOLDER

No. of sharesAffin Holdings Berhad 1,439,285,382

EXTERNAL AUDITORS

PricewaterhouseCoopers (AF 1146)


BOARD OF DIRECTORS

1. YBHG. JEN. TAN SRI DATO’ SERI ISMAIL BIN HAJIOMAR (BERSARA)ChairmanNon-Independent Non-Executive Director

2. YBHG. DATO’ ZULKIFLEE ABBAS BIN ABDUL HAMIDManaging Director/ Chief Executive Officer

3. YBHG. DATO’ SRI ABDUL AZIZ BIN ABDUL RAHMANIndependent Non-Executive Director

4. YM. DR. RAJA ABDUL MALEK BIN RAJAJALLALUDINIndependent Non-Executive Director

5. YBHG. LAKSAMANA MADYA TAN SRI DATO’ SERIAHMAD RAMLI BIN MOHD NOR (BERSARA)Non-Independent Non-Executive Director

from left to right:


6. MR. AUBREY LI KWOK-SINGNon-Independent Non-Executive Director

7. MR. STEPHEN CHARLES LINon-Independent Non-Executive Director

8. EN. MOHD. SUFFIAN BIN HAJI HARONIndependent Non-Executive Director

9. YBHG. TAN SRI DATO’ SERI MOHAMED JAWHARBIN HASSANIndependent Non-Executive Director

10. YBHG. TAN SRI DATO' LODIN BIN WOKKAMARUDDINNon-Independent Non-Executive Director

from left to right:

YBHG. JEN. TAN SRI DATO’ SERI ISMAIL BIN HJ. OMAR(BERSARA)Chairman / Non-Independent Non-Executive Director

Jen. Tan Sri Dato' Seri Ismail bin Hj. Omar (Bersara), aged 71,was appointed as a Director and Chairman of AFFINBANK on 21 May 2002.

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

His military service saw Key Command and Staff appointments atall levels of the Armed Forces. As CDF, his responsibilitiesincluded key roles in Malaysia’s Regional and InternationalDefence Relations.

Tan Sri was Chairman of Affin Holdings Berhad and Affin-ACFFinance from 1999 prior to joining AFFINBANK. He currently holdsdirectorships in Affin Islamic Bank Berhad, ABB Trustee, EPEngineering Sdn Bhd and Global Medical Alliance Sdn Bhd.

Tan Sri Ismail displays strong board chair leadership as he sets theBoard’s tone, direction and culture. Tan Sri Ismail creates theappropriate environment to allow for full engagement by allmembers of the Board for effective Board discussions anddecision making. Tan Sri Ismail possesses a high level ofleadership experience to lead effective Board oversight function.

Jen. Tan Sri Ismail bin Hj Omar attended all 17 Board Meetingsheld during the year ended 31 December 2011.

YBHG. DATO’ ZULKIFLEE ABBAS BIN ABDUL HAMIDManaging Director / Chief Executive Officer

Dato’ Zulkiflee Abbas bin Abdul Hamid aged 55, was appointedthe Managing Director/Chief Executive Officer on 1 April 2009.

Prior to joining AFFINBANK, Dato’ Zulkiflee Abbas was the ChiefCredit Officer in one of Malaysia’s leading banks where he alsoserved in various positions in the bank’s subsidiaries including asa board member. He graduated with a Master in BusinessAdministration from the Southern Illinois University, United Statesof America. Dato’ Zulkiflee Abbas joined AFFINBANK in March2005 as Director, Enterprise Banking. He was later made theDirector of Business in 2007 and subsequently the ExecutiveDirector, Banking in 2008 before assuming his current position.

Dato’ Zulkiflee Abbas has more than 30 years of extensiveexperience in the banking sector. He posseses the necessaryknowledge and professional competence in the conduct of thelicensed institution’s business.

Dato’ Zulkiflee Abbas bin Abdul Hamid attended all 17 Board Meetings held during the financial year ended 31 December 2011.

PROFILE OF DIRECTORS


YBHG. TAN SRI DATO' LODIN BIN WOK KAMARUDDINNon-Independent Non-Executive Director

Tan Sri Dato' Lodin bin Wok Kamaruddin, aged 63, was re-appointed to the Board of Directors of AFFINBANK on 4 October 2010. He was appointed as the Managing Director ofAffin Holdings Berhad in February 1991 and redesignated asDeputy Chairman on 1 July 2008.

Tan Sri Dato’ Lodin has vast business and managementexperience pursuant to his various positions held in LembagaTabung Angkatan Tentera (“LTAT”) Group of Companies. He is theChief Executive of LTAT and the Deputy Chairman / GroupManaging Director of Boustead Holdings Berhad. Prior to joiningLTAT, he was the General Manager of Perbadanan KemajuanBukit Fraser for 9 years. Tan Sri Lodin is also the Chairman ofBoustead Heavy Industries Corporation Berhad, Boustead NavalShipyard Sdn Bhd, Boustead Petroleum Marketing Sdn Bhd,Boustead REIT Managers Sdn Bhd, Johan Ceramics Berhad and1Malaysia Development Berhad and also sits on the Boards ofUAC Berhad, The University of Nottingham in Malaysia Sdn Bhd,Minority Shareholder Watchdog Group, Atlas Hall Sdn Bhd, AffinIslamic Bank Berhad, Affin Investment Bank Berhad and AXA Affin Life Insurance Berhad.

He graduated from the University of Toledo, Ohio, USA with aBachelor of Business Administration and a Master of BusinessAdministration Degree.

Tan Sri Dato’ Lodin attended all 17 Board Meetings held duringthe financial year ended 31 December 2011

YM. DR. RAJA ABDUL MALEK BIN RAJA JALLALUDINIndependent Non-Executive Director

Dr. Raja Abdul Malek bin Raja Jallaludin, aged 66, was appointedto the Board of Directors of AFFINBANK on 29 January 1991.

He graduated as a doctor from the University of Malaya in 1972and, early in his career, worked at the General Hospital, KualaLumpur and the Faculty of Medicine, UKM. In late 1975, he wentinto private medical practice and became a senior partner of Drs. Catterall, Khoo, Raja Malek & Partners until 2003 when heresigned from the firm. Professionally he is widely experienced andhad served in various peer and academic activities. Amongstothers, he had been a clinical tutor in the Faculty of Medicine,UMMC; been a member of the Ethical Committee of the MalaysianMedical Council, MOH; was the Chairman of Council Academy ofFamily Physicians, Malaysia.

Dr. Raja Abdul Malek also has vast experience in thepharmaceutical world and had actively been involved since 1984.He had been the Medical Director (Malaysia-Singapore) for ParkeDavis-Warner Lambert from 1984-2000, and had remained brieflyso too with Pfizer Malaysia when these two Incorporations merged in 2001. In 2003, Dr. Raja Abdul Malek joinedHOE/Pharmaceuticals/HOEPharma Holdings Bhd as the Directorof Medical and Scientific Affairs and holds this position to this day.

His other directorship in public and private companies include ABBTrustee Berhad. He is also a member of the Advisory Panel of StemLifeBerhad and Hartamanis Holding Sdn. Bhd.

Notwithstanding his tenure of 20 years with AFFINBANK, Dr. RajaAbdul Malek continues to demonstrate independence of judgmentand objectivity in both his actions and thoughts.

Dr. Raja Abdul Malek possesses certain personal qualities suchas incisiveness which brings diversity and different perspective inBoard decision-making that could further balance and strengthenthe Board as a whole.

Dr. Raja Abdul Malek bin Raja Jallaludin attended all 17 BoardMeetings held during the financial year ended 31 December 2011.

Profile Of Directors(cont’d)



YBHG. LAKSAMANA MADYA TAN SRI DATO’ SERI AHMADRAMLI BIN MOHD NOR (BERSARA)Non-Independent Non-Executive Director

Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor, aged 68, wasappointed to the Board of Directors of AFFINBANK on 21 May 2002.He resigned as Director with effect from 30 September 2011.

Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor sits on the Board ofAffin Islamic Bank Berhad.

Tan Sri Dato’ Seri Ahmad Ramli during his tenure attended all 14 Board Meetings held for the period January to September2011.

YBHG. DATO' SRI ABDUL AZIZ BIN ABDUL RAHMANIndependent Non-Executive Director

Dato' Sri Abdul Aziz bin Abdul Rahman, aged 66, was appointedto the Board of Directors of AFFINBANK on 28 January 2003.

Dato’ Sri Abdul Aziz graduated with a Bachelor of Commercefrom University of New South Wales, Sydney, Australia. He ismember 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 severalgovernment institutions, agencies and public listed companies,both in Australia and Malaysia.

At the corporate level he was with Price Waterhouse & Co.Sydney, Malaysia Airlines and Managing Director of Bank RakyatBhd before venturing into politics and public service as thePahang State Assemblyman, State Executive Councillor andDeputy Chief Minister of Pahang. He was a Senator of MalaysianParliament for a maximum period of two (2) terms.

Presently he is a Board member of Affin Islamic Bank Berhad, theInternational Islamic University Malaysia, University MalaysiaPahang and their associated holding companies.

Dato’ Sri Abdul Aziz’s expertise and knowledge carries across abroad spectrum relating to finance and accounting. His standing inthe community contributes effectively to his role as an IndependentDirector particularly in meeting various stakeholders expectation.

Dato' Sri Abdul Aziz bin Abdul Rahman attended 16 out of 17 Board Meetings held during the financial year ended 31 December 2011.

MR. AUBREY LI KWOK-SING Non-Independent Non-Executive Director

Mr. Aubrey Li Kwok-Sing, aged 62, was appointed to theBoard of Directors of AFFINBANK on 17 March 2008. He is aDirector of The Bank of East Asia, Limited and Chairman ofMCL Partners Limited.

Mr. Aubrey Li possesses extensive experience in investmentbanking, merchant banking and capital markets. He is also aDirector of Café de Coral Holdings Limited, China EverbrightInternational Limited, Kunlun Energy Limited, KowloonDevelopment Co. Ltd, Pokfulam Development CompanyLimited, Tai Ping Carpets International Limited, AtlantisInvestment Management (Ireland) Limited and Dalton Capital(Guernsey) Limited.

Mr. Aubrey Li brings in related knowledge and experience inthe banking fields, business development and strategy whichare considered to be a value in achieving AFFINBANK’sbusiness objectives.

Mr. Aubrey Li Kwok-Sing attended 6 out of the 17 BoardMeetings held during the financial year ended 31 December2011.

Mr. Aubrey Li’s Alternate Director, Mr Gary Cheng, appointedwith effect from 18 April 2011 and had during his tenureattended 5 out of 10 Board Meetings held for the period Aprilto December 2011.



MR. STEPHEN CHARLES LINon-Independent Non-Executive Director

Mr. Stephen Charles Li, aged 52, was appointed to the Board ofDirectors of AFFINBANK on 17 March 2008. Mr. Li is a Director ofThe Bank of East Asia, Limited. He resigned as Director with effectfrom 16 August 2011.

Mr. Stephen Charles Li during his tenure attended 5 out of 12Board Meetings held for the period January to August 2011.

Mr. Stephen Charles Li’s Alternate Director, Mr. Lee Chor Kee,appointed with effect from 18 April 2011, had during his tenureattended 1 out of 6 Board Meetings held for the period April toAugust 2011. Mr. Lee resigned as Alternate Director with effectfrom 16 August 2011.

EN. MOHD SUFFIAN BIN HAJI HARONIndependent Non-Executive Director

Encik Mohd Suffian bin Haji Haron aged 66, was appointed to theBoard of Directors of AFFINBANK on 15 August 2009.

He graduated with a Bachelor of Economics from University ofMalaya (1970) and holds a Master of Business Administrationfrom University of Oregon in the United States (1976).

His current directorships in public companies include, Affin IslamicBank Berhad, L.K. & Associates Sdn Bhd, Idaman PharmaManufacturing Sdn Bhd and Pharmaniaga Berhad.

Encik Mohd Suffian brings a diverse professional experience tothe Board. His background provides the necessary independenceto the Board and add value by drawing on his experience andcontributing to the Board’s decision-making process.

Encik Mohd Suffian attended 16 out of the 17 Board Meetingsheld in the financial year ended 31 December 2011.

YBHG. TAN SRI DATO’ SERI MOHAMED JAWHAR BIN HASSANIndependent Non-Executive Director

Tan Sri Dato’ Seri Mohamed Jawhar, aged 68, was appointed asa Director 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 forSecurity Cooperation in the Asia Pacific (CSCAP); and Member,International Advisory Board, East West Center, USA. He is alsoExpert and Eminent Person for the ASEAN Regional Forum (ARF).

He was also Co-Chair, Network of East Asia Think-tanks (NEAT)2005-2006; Chairman, Malaysian National Committee, PacificEconomic 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 asDeputy Director-General in 1990, Director-General in March 1997 andwas subsequently appointed Chairman and CEO in 2006. He wasappointed Chairman ISIS Malaysia on 9 January 2010.

His positions in government included Director-General,Department of National Unity; Under-Secretary, Ministry of HomeAffairs; Director (Analysis) Research Division, Prime Minister’sDepartment; and Principal Assistant Secretary, National SecurityCouncil. He also served as Counselor in the Malaysian Embassiesin Indonesia and Thailand.

His appropriate leadership skills and vast experience are useful tothe Board to gain a wider and forward looking perspective ondecision making.

Tan Sri Dato’ Seri Jawhar during his tenure attended 1 out of 2 BoardMeetings held for the period November to December 2011.


MANAGEMENT TEAM

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EN. KAMARUL ARIFFIN MOHD JAMIL Chief Executive Officer, Affin Islamic BankBerhad

Kamarul Ariffin Mohd Jamil is the ChiefExecutive Officer of Affin Islamic BankBerhad (AFFIN ISLAMIC) since 2006.

He joined AFFINBANK in 2003 as Head,Corporate Strategy Division and in 2005was appointed as Head, Islamic BankingDivision.

His appointment to his current positionwas in 2006 when AFFIN ISLAMIC wasincorporated as a wholly-ownedsubsidiary of AFFINBANK.

Prior to AFFINBANK, Kamarul held variouspositions in Pengurusan DanahartaNasional Berhad, namely Head ofManaging Director's Office and SpecialAssistant to Managing Director between1999 to 2003.

Kamarul graduated from the University ofCambridge in 1992 with a Bachelor of Arts(Economics).

EN. SHARIFFUDIN MOHAMADExecutive Director, Operations

Shariffudin Mohamad is the ExecutiveDirector, Operations of AFFINBANK.

He joined AFFINBANK as the Director,Operations in August 2007 and wasappointed to his present position effective1 November 2009.

While he was the Director, Operations, hewas also the Chief Corporate Strategistand Chief Human Resource Officer.

Currently, he oversees the OperationsDivision encompassing BranchOperations, Information Technology,Property and Logistics, Strategic andSupport Services including CustomerFulfillment, Legal and CorporateCommunications.

He brings with him over two decades ofbanking experience with a well-knowninternational financial institution and itsacclaimed global outsourcing outfit.

He graduated with a Bachelor in Financeand a Master in Business Administrationfrom Southern Illinois University, UnitedStates of America.

YBHG. DATO' ZULKIFLEE ABBAS BINABDUL HAMIDManaging Director/ Chief Executive Officer

Dato’ Zulkiflee Abbas bin Abdul Hamid, 55years old, currently holds the position ofManaging Director/ Chief Executive Officerof AFFINBANK since 1 April 2009.

He joined AFFINBANK in March 2005 asDirector, Enterprise Banking and later onwas made Executive Director, Bankingbefore assuming his current position.

Dato’ Zulkiflee has been in the bankingindustry for almost 30 years. He started ina local leading bank, working his way upthrough various ranks and responsibitiesat home and abroad. He left in 2005 whilehe was the Chief Credit Officer.

Under his current portfolio, Dato’ Zulkifleealso holds directorships in Affin InvestmentBank Berhad and Affin Islamic BankBerhad

Dato’ Zulkiflee holds a Masters in BusinessAdministration from Southern IllinoisUniversity, United States of America, thesame university of which he obtained hisBachelor of Science (Marketing).

MANAGEMENT TEAMPROFILES


EN. AMIRUDIN ABDUL HALIMDirector, Business Banking

Amirudin Abdul Halim joined AFFINBANKas Director, Business Banking in July2009.

He brings with him over 20 years ofbanking experience across many fieldswithin the industry from credit control,branch operations, business andconsumer banking to corporate services.

Amirudin served in several seniorcapacities during his long-term tenure witha local leading bank and broughtrecognition to the bank in 2007 when itreceived The Asian Banker's 'Excellencein Retail Financial Services for AutomobileLending'.

He graduated with a Bachelor of Artsdegree in Finance from St. LouisUniversity, United States of America.

He has attended various programmes byStamford University, Wharton BusinessSchool, Washington University and AsianInstitute of Management, Philippines.

EN. IDRIS ABD. HAMIDDirector, Consumer Banking

Idris Abd Hamid has over 30 years ofexperience in the banking and financeindustry. His career with AFFINBANKbegan in 1994 when he was the GeneralManager for Affin Finance Berhad and hewas later made Deputy Chief ExecutiveOfficer for AFFIN-ACF Finance Berhadfrom 2000 to 2005.

Prior to joining AFFINBANK, Idris heldvarious positions at Arab-MalaysianFinance (currently known as AmBank)from 1984 to 1994 as Branch Manager,Assistant Manager Corporate Loans andHead of Consumer Loans Division. Hegraduated from the University of NorthernColorado and Southern Illinois University,USA with Masters in BusinessAdministration and Bachelor of Science inFinance respectively.

MR. TAN KOK TOONDirector, Treasury

Tan Kok Toon (KT) completed his Bachelorof Science (Hons) in Mathematics fromUniversiti Malaya in 1987.

He joined AFFINBANK as Head ofTreasury in October 2004 and isresponsible for managing all aspects ofTreasury Division across the Group whichincludes Affin Islamic Bank Berhad andAffin Investment Bank Berhad. He is thecurrent Honorary Secretary, PersatuanPasaran Kewangan Malaysia (AssociationCambiste Internationale) and theChairman to its Seminar and EducationCommittee.

Prior to AFFINBANK, KT worked in one ofthe largest banks in Malaysia. For morethan 18 years, he served in variouscapacities of Treasury operations, such asTreasury Manager with the Bank’s NewYork branch and as Treasury BusinessAdvisor to turnaround a business projectin the Philippines. KT is also the presidentof Kelab Sukan dan Rekreasi AFFINBANK.

Management Team Profiles(cont’d)


MR. EE KOK SIN Chief Financial Officer

Ee Kok Sin began his career in 1982 as aTrainee Accountant with a firm ofChartered Accountants in London. He hasextensive experience in auditing, treasuryfunctions, financial accounting, financialmanagement and information technology.

Prior to his appointment at AFFINBANK,he was the General Manager, Finance &Services of Pengurusan DanahartaNasional Berhad. He is a Fellow Memberof the Association of the CharteredCertified Accountants (FCCA) and amember of The Malaysian Institute ofCertified Public Accountants (MICPA) andMalaysian Institute of Accountants (MIA).

MR. KASINATHAN T. KASIPILLAIGroup Chief Risk Officer

Kasinathan holds a Masters in BusinessAdministration from the University of Bath,UK and is a Certified Risk Professionalawarded by Bank Administration Institute,Chicago, USA. He is also an AssociateFellow of Institute of Bankers Malaysia.This is in recognition of his pioneering workin developing the Certified CreditProfessional (CCP) certification. He continues to serve as an activemember of CCP Examination Committeeto this day. He has over 30 years of localand overseas banking experienceparticularly in the area of RiskManagement. He comes from a foreignbank background having earlier worked inthe risk function of that bank in a numberof countries including London, Singapore,Hong Kong, Mumbai and Jakarta.

PN. KHATIMAH MAHADIGroup Chief Internal Auditor

Khatimah Mahadi has 30 years ofexperience in Internal Auditing including 23years in financial services with CitibankBerhad, a development bank and afinance company. In addition, she also hada stint with a local bank, LembagaPasaran dan Perlesenan Getah andAuditing/Consulting Firm Hanafiah, Raslan& Mohamad. She was also the Director ofCompliance and Country Internal AuditHead when she was with Citibank Berhad.



YBHG. DATO' MOHAMAD ASLAM KHAN GULAM HASSANChief Recovery Specialist

Dato' Mohamad Aslam Khan holds aBachelor's Degree in BusinessAdministration with honours. He joinedAFFINBANK in 1996 as the GeneralManager of Commercial Banking Divisionand was later appointed the Head ofSpecial Asset Management. He has heldvarious positions domestically andinternationally both in the business andbusiness support divisions. Dato' Aslamhas over 35 years of banking experience.

Prior to AFFINBANK, he held variouspositions at Maybank for 21 years. His lastposition there was the General Manager ofMaybank in New York. He also had a five-year stint with the former Oriental Bank asthe General Manager, Enterprise BankingDivision.

PN. NOR ROZITA NORDINChief Human Resource Officer

Puan Nor Rozita Nordin was appointed asChief Human Resource Officer ofAFFINBANK on 1 May 2011.

Prior to that, she was the Executive Vice-President and Head of Group HumanResource at EON Bank Group (whichcomprises EON Bank Berhad, EONCapIslamic Bank Berhad and MIMBInvestment Bank Berhad).

She has more than 28 years of extensiveworking experience in Human ResourceDevelopment and Customer RelationsStrategy from various industries (Banking& Finance, Shared Services, AutomotiveRetail and Manufacturing, Insurance andHealthcare). She has served strategic rolesin the areas of Performance and HumanCapital Development, Compensation andBenefits, Manpower Planning andRecruitment, Industrial Relations,Employee Engagement, CustomerRelationship Management and Analytics,Contact Centre Management and TargetMarketing, both in national andmultinational corporations.

She holds a Master of Sciencedegree, Bachelor of Science(Education) and Bachelor of Arts(Linguistics) degrees from SouthernIllinois University at Carbondale, USA.

EN. NAZLEE KHALIFAHChief Corporate Starategist

Nazlee Khalifah was appointed to the postof Chief Corporate Strategist in April 2011.

Prior to the appointment, he served asHead, Business Strategy & Support,Business Banking since joining the Bankin February 2009. Before joiningAFFINBANK in February 2009, he wasemployed in various capacity in Maybankespecially in Planning and StrategicManagement. He holds a Bachelor ofBusiness Administration majoring inAccounting and Finance from SimonFraser University, Vancouver, Canada.




CHAIRMAN’SSTATEMENT

Dear Shareholders,

On behalf of the Board of Directors, I am pleased to present theAnnual Report and Audited Financial Statements of Affin BankBerhad (AFFINBANK) for the financial year ended 31 December 2011.

Despite the challenging market environment in 2011, I am pleased to report that we havechalked up another profitable year, with a profit before taxation and zakat attributable toshareholders that grew impressively by 17.5% to RM613.1 million from RM521.9 million.

AFFINBANK’s success can be attributed to the Bank’s transformation effort throughvarious activities such as branch expansion, relocation, product innovation, aggressivemarketing, prudent lending policies, strong risk management practice and efficientcustomer services.

During the year, we continued to grow organically in Malaysia. We embarked on a reformprogramme by relocating four branches to more vibrant commercial vicinities and opened6 new branches, which has contributed to the growth and profitability of the Bank.

We also invested on human capital i.e. training and developing of existing staff as well asnew recruitment. We introduced new products and campaigns and improved ourcustomer touchpoints to ensure excellent and efficient customer service. At the sametime, we continued to improve on our risk management practices to be abreast with theprevailing economic climate.

The Bank’s lending activities remained focused on consumer financing and small mediumenterprises. During the year the Bank’s total gross loan grew by 14.2%, with hirepurchase, home mortgage segment and SME financing contributing to the growth. Thisloan growth is equally matched with a strong growth in customer deposits. The Bankrecorded an increase of 18.0% in its customer deposit portfolio, which subsequentlyincreased the Bank’s total deposit portfolio from 19.7% in 2010 to 23.5% in 2011.

The Bank’s asset quality remained resilient and is reflected by the lower net impairedloan from 2.02% in 2010 to 1.31% in 2011.

Our strong financial performance has enabled us to recommend a final tax exemptdividend of 5 sen per share for the year under review. Together with the interimsingle-tier dividend of 7 sen paid on 28 December 2011, the total dividend payoutfor the 2011 financial year would amount to 12 sen per share or RM172.7 million.

+17.5% Profit Before Taxation & Zakat

Chairman’s Statement(cont’d)


+14.2%Loan Growth


As the Bank continues to forge ahead in our business operations and growth, we havenot forgotten our role as a corporate citizen. We continued to participate in ourstakeholders’ activities by sponsoring the annual ‘Hari Pahlawan’ and contributing to theArmed Forces for its ‘Bungkusan Hari Raya’ and its Yayasan Warisan Perajurit to fund itseducation activities for the Armed Forces personnel and children. The Bank also tookpart in a school programme called ‘Young Voices for Conservation’ with TrEES (TreatEvery Environment Special Sdn Bhd), a non-government organization. 15 primary and secondary schools within Klang Valley and Putrajaya took part in this uniqueconservation community programme with the Forestry Department of Selangor and the Selangor Water Management Agency as partners and approved by the Ministry of Education.

The Bank also continued to be the sole official Bank at the 2011 LIMA, held every twoyears in Langkawi to demonstrate its continuous commitment to its stakeholders and insupport of national interest. It also took part in The GLC Open Day which served as anavenue to educate the public on the roles and contributions of government-linkedcompanies (GLC) in the economy.

Looking ahead, the year 2012 is going to be quite challenging for the Malaysian bankingindustry. Although the prospects for the global economy in the months ahead areuncertain, we remain optimistic about economic prospects in Asia.

Building on the momentum created in 2011, the Bank’s main focus will be to furtherleverage on its strengths by cross selling and customising products in order to achievesustainable business growth. The Bank’s business is expected to remain strong despiteintense competition amid further liberalisation, consolidation and regulatory changes inyear 2012.

The Bank will also continue to seek improvements in our customer services, providequicker turnaround time via better process efficiency and actively manage our operatingcosts to maintain profitability. With our strong balance sheet and capital position, theBank is confident that we will be able to meet all the challenges and opportunities aheadin order to serve and provide continued support to our valued customers.


+18.0%Customer Deposits Growth



On behalf of the Board, I would like to thank our shareholders, customers and businesspartners for their continuing support. My appreciation goes to all staff and managementfor their dedicated services and for delivering a commendable performance for thecurrent year. Our growth over the past year is a direct result of the dedication, passionand hard work of our people – a team which is now over 3,200 strong. Finally, I wish tothank all my fellow Board Members for their wise counsel and contributions.

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


PERFORMANCEREVIEW

Affin Bank Berhad (AFFINBANK) reported profit before taxation andzakat of RM613.1 million for the financial year ended 31 December2011, an increase of 17.5% from RM521.9 million in 2010.

AFFIN BANK BERHAD (25046-T) 23AFFIN BANK BERHAD (25046-T) 23

Profit after taxation and zakat increased by 15.4% to RM440.0 million for the year ended31 December 2011, compared with RM381.2 million the year before.

The stronger performance was attributable to the successfulness of its mid to long-termstrategies coming to fruition, focusing on organic growth which included marketingexpansion activities and human capital development.

Notwithstanding the intense competition in the banking industry and the difficult businessenvironment in 2011, the Bank continuously improvised on its reach and servicestowards its customers by strengthening its internal and external resources. The Bank had embarked on a reform programme by diagnosing business developmentdifficulties at existing branches and relocating 4 of them to more vibrant commercialvicinities. The relocated branches were Sandakan, Ampang New Village, Johor Bahruand Sungai Petani.

A total of 6 new branches at new growth areas were also opened to improve the Bank’spresence in the market. The new branches are located in Meru, Klang; Gemas; Jitra;Kulim; Prince Commercial Centre, Kuching and Mutiara Rini, Johor. This has ultimatelycontributed to the overall growth and profitability of the Bank which has a total of 97branches as of year-end.

The year under review also saw the launch of new products and campaigns including thesecond wave of its highly successful nationwide savings campaign dubbed ‘O.M.G It’sBack!’ that targeted new, existing conventional and Shariah compliant savings, currentand fixed deposit account holders.

The Bank also launched a new insurance product called ‘OMG Home Protector’ whichprotects the contents of the houses or homes in collaboration with AXA Affin. Similarly,the collaboration also cut across to its hire purchase division when it made public its‘Affin HP Life’, an insurance coverage that not only covers the life of the insurer but thatof the remaining outstanding balance of the loan on the insurer’s vehicle.

In addition, AFFINBANK's Islamic banking subsidiary Affin Islamic Bank Berhad hadlaunched its flexible home and business property financing campaign called 'Let's TalkMM'. The financing products offered under this campaign is based on the globallyaccepted Islamic concept of ‘diminishing partnership’ called Musharakah Mutanaqisah.

During the year, the Bank’s net interest income rose by 3.2% to RM774.8 million fromRM751.0 million recorded in 2010. Islamic banking income increased by 11.9% toRM198.9 million from RM177.8 million the year before.

-10.9%Total Impaired Loans Improved

2.85%Gross Impaired Ratio

+15.4%Profit After Taxation and Zakat


Earnings per share increased by 15.5% to 30.6 sen per share from 26.5 sen per shareduring the year under review.

During the year, the Bank’s total assets rose by RM7.1 billion to RM49.2 billion, comparedwith RM42.1 billion in 2010.

Deposits from customers increased 18.0% to RM36.5 billion from RM31.0 billionrecorded the year before. Of this total, fixed deposits remained as the biggest contributorin the year under review contributing RM22.3 billion, an increase of 11.4% from RM20.0billion in 2010.

Even with the growth in financing, the Bank’s impaired loans continued to improve. Totalimpaired loan improved 10.9% to RM865.7 million for the year under review, comparedwith RM971.1 million a year ago due to the Bank’s better credit underwriting standards,asset portfolio and risk management. Gross impaired ratio is at 2.85% as compared to3.66% in 2010.

Net loans, advances and financing increased by 14.3% to RM29.7 billion from RM26.0billion the year before, mainly contributed by household loans, followed by real estate,transport, storage and communication.

The Bank is well capitalised with its risk weighted capital ratio at 11.91% and a corecapital ratio of 9.78%.

On 19 July 2011, RAM Rating Services Berhad has reaffirmed the Bank's longterm andshort-term financial institution ratings, at A1 and P1, respectively, with a stable outlook.

Moving into 2012, the Bank will continue its broad expansion plans and marketingactivities abide the uncertainties, globally and within the country. The continued economiccrises in Europe and US will affect those in the export industry and the ripple effect willbe felt but not significantly. The Economic Transformation Programme (ETP) by theMalaysian Government will ensure the growth of the economy domestically and therewill be many opportunities for the small and medium-sized businesses (SMEs) as well as its citizens.

The Bank is confident that it will continue to register growth next year with emphasis onits fee-base income while strengthening its core business areas with more improved andinnovative products and services.


11.91%Risk Weighted Capital Ratio

9.78%Core Capital Ratio


EARNINGS PER SHARE (EPS)(Sen)

(RM’million)(RM’billion)

30.6

2011

2010

2009

2008

2007

26.5 22.1 23.0 18.0

PROFIT BEFORE TAXATION AND ZAKAT (PBT)

613.1

2011

2010

2009

2008

2007

521.9 425.1 454.6 322.0

TOTAL ASSETS

49.2

2011

2010

2009

2008

2007

42.1 35.6 33.0 31.9

NET LOANS, ADVANCES & FINANCING(RM’billion)

(RM’billion) (RM’billion)

29.7

2011

2010

2009

2008

2007

26.0 22.0 19.5 16.8

DEPOSITS FROM CUSTOMERS

36.5

2011

2010

2009

2008

2007

31.0 26.4 25.2 23.5

SHAREHOLDERS’ EQUITY

3.6

2011

2010

2009

2008

2007

3.3 3.0 2.7 2.5

AFFINBANK’s EPS for the financial year

ended 31 December 2011 stood at

30.6 sen, compared to 26.5 sen the

year before.

AFFINBANK achieved PBT of RM613.1

million, a commendable 17.5% rise for

the year ended 31 December 2011,

compared to RM521.9 million in 2010.

AFFINBANK’s PAT also rose by 15.4%

to RM440.0 million for the year ended

31 December 2011.

AFFINBANK’s financial position as at

31 December 2011 continued to

remain strong with total assets of

RM49.2 billion, an increase of 17.1%

compared with RM42.1 billion as at

31 December 2010.

AFFINBANK’s net loans, advances and

financing grew by 14.3% to RM29.7

billion compared with RM26.0 billion in

2010, as economic activities and

demand for credit gathered momentum

during the year under review.

Total deposits increased by 18.0%

year-on-year to RM36.5 billion as at

31 December 2011, in correspondence

to AFFINBANK’s loan growth.

Total shareholders’ equity of

AFFINBANK increased by 8.7% to

RM3.6 billion from RM3.3 billion the

year before.

FINANCIALHIGHLIGHTS

AFFINBANK garners a depositgrowth of RM1.2 billion for itseight months Oh My Goshh!(O.M.G) deposit savingscampaign. Grand Prize WinnerLee Guan Seong takes homeRM500,000 in cash deposit,while the second prize ofRM200,000 cash deposit goesto Chen Bee Kheng and thirdprize winner Chong Chon Yuanreceives RM100,000. 20

May

201

1

AFFINBANK hosts ‘An EveningOf Mystique Gold’ as a form ofappreciation towards its topvalued corporate and consumer clients. 31

May

201

1

30 M

ay 2

011

AFFINBANK provides strongfinancial support for Treat EveryEnvironment Special Sdn Bhd(TrEES) Young Voices ForConservation schoolprogramme and educatesstudents on financialmanagement and budgeting. Ju

ne –

Nov

embe

r 201

1

AFFINBANK synergises effortswith the Bank of East Asia(BEA) to add value tocustomers and clients.Speakers from the Bank of EastAsia and experts in the fields ofbusiness and economyprimarily from East Asia touchon topics such as Updates onthe 12th Five-year PlanConference, Tax Issues in Chinaand Matters to Observe andUnderstand When Setting UpChina Enterprises. 16

Jun

e 20

11 Affin Banking Groupparticipates in the Government-Linked Companies (GLC) OpenDay, organized by KhazanahNasional which featuredmultiple activities such asexhibitions, forums and talks. 24

-26

June

201

1

AFFINBANK continues toreward deserving young talentsthrough the AFFINBANKExamination Excellence Awardand Scholarship Programme2011 which is well into itseighth year.

CORPORATEDIARY


9 A

ugus

t 201

1

In keeping with its annualtradition, AFFINBANK holds a‘buka puasa’ feast with 108orphans and 30 new Muslimconverts from the Klang Valleyarea. 19

Aug

ust 2

011

14 &

17

Aug

ust 2

011

Affin Banking Group (ABG)celebrated Hari Raya byopening its doors to corporateclients and peer companies atits first Hari Raya Open House,held at The Royale Chulan Hotel. 8

Sep

tem

ber 2

011

Partnering with the NationalBlood Centre, AFFINBANKerstake some time out from theirbusy schedules to help a goodcause at a blood donation driveheld at Menara Affin. 24

Oct

ober

201

1

AFFINBANK sponsors LIMA asthe sole official bank todemonstrate the Bank’scommitment to its stakeholdersand to strengthen rapport withthe community within thedefense industry. 6-

10 D

ecem

ber 2

011

Antitrust training for staff isconducted over a period of twodays to educate and enlightenAFFINBANKers on the AntiTrustAct and to embrace these new laws.

AFFINBANK holds true to itstradition to contribute cash andin-kind worth RM100,000 to theArmed Forces personnelserving overseas, in the spirit ofRamadhan month.


The Board of Directors of AFFINBANK (“Board”) and Management appreciate the importance of adopting high standards of CorporateGovernance in all areas of its business towards enhancing business prosperity and corporate accountability with the ultimate objectiveof safeguarding the interest of shareholder’s value. The Board and Management are fully committed and constantly strive to ensurethat the principles of the Malaysian Code on Corporate Governance (“Code”) and Bank Negara Malaysia (BNM) Guidelines on CorporateGovernance for Licensed Institutions (Revised BNM/GP1) are adopted and practised throughout the group. This is important so as toensure that AFFINBANK is managed safely and soundly where risks and business prudence are appropriately balanced so as tomaximize shareholder’s return and protect the interests of all stakeholders (it also enables the shareholder of AFFINBANK and thepublic to access and determine the standards of Corporate Governance). Throughout 2011 and to date, AFFINBANK continues toconduct its business with integrity and exercises a high level of transparency and objectivity.

The Board and Management are fully committed in ensuring employees adhere closely to BNM’s Guidelines (BNM/GP7) on Code ofEthics (“COE”), which aims at instilling the five values namely discipline, integrity, humility, caring and creativity in AFFINBANK and itsemployees. The Board and Management set high ethical business standards and practices for business conduct and the code ofbehaviour for employees to adhere to. In addition to the COE, all Directors are also required to observe the Directors’ COE.Responsibility for implementation of these policies and guidelines rests primarily with Management, with oversight by the Audit &Examination Committee. Good Corporate Governance is the foundation of the culture and business practices of AFFINBANK.

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

1. Board of Directors

The Board is committed in establishing and enhancing shareholder’s value in the long term. The Board is pleased to report thatthe Board has to its best efforts and knowledge complied with the principles and best practices of the Code throughout thefinancial year under review.

In 2011, AFFINBANK Board went through some changes in its membership. These changes however, have not affected theBoard’s performance. AFFINBANK continues to have a strong and experienced Board, befitting its aspiration to become a midsize Bank of prominence.

The Board of AFFINBANK has a balance composition with a strong independent element. It consists of representatives from theprivate sector with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a mixture of different skills,competencies, experience and personalities. Directors’ profiles which appear on pages 8 to 11 reflect clearly the depth anddiversity in expertise and perspective to lead AFFINBANK as well as allow for an independent and objective analysis of major issues.

Board’s Responsibilities

The Board acknowledges their roles and responsibilities for the overall performance of AFFINBANK. These ensure theboard functions objectively and effectively.

The Board’s responsibilities remain within the framework of BNM Guidelines and AFFINBANK’s Board Policy Manual. The Boardalso exercises great care to ensure that high ethical standards are upheld, and that the interests of stakeholders are notcompromised. These include responsibility for determining AFFINBANK’s general policies and strategies for the short, mediumand long term, approving business plans, including targets and budgets, and approving major strategic decisions. The terms ofreference of the Board Committees disclosed on page 39 of this Annual Report provide an outline of its roles and functions.

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

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 iscompetitive and consistent with AFFINBANK’s culture, objectives and strategies. The Committee obtains advice from expertsin compensation and benefits, both internally and externally.

STATEMENT OF CORPORATE GOVERNANCE


Board Nominating Committee (“BNC”)

• The BNC is responsible for providing a formal and transparent procedure for the appointment of Directors and ManagingDirector/Chief Executive Officer, assessing the effectiveness of individual Director, the Board as a whole and the performanceof 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, legaland other risks and to ensure that the risk management process is in place and functioning.

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, afterdue process of checking, analysis, review and recommendation by the Credit Risk Management function, and if foundnecessary, exercise the power to veto loan applications that have been approved by the Group Management LoanCommittee.

Audit & Examination Committee (“AEC”)

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

Board Composition and Balance

The Board composition is in compliance with the Revised BNM/GP1. The Board consists of seven (7) Non-Executive Directorswith one (1) Alternate Director; four (4) are Independent Non-Executive Directors and three (3) are Non-Independent Non-ExecutiveDirectors. All Directors met the criteria set by the BNM guidelines.

Board meetings are presided by a Non-Independent Non-Executive Chairman whose role is clearly separated from the role of theManaging Director/Chief Executive Officer. The Chairman is responsible for ensuring the effectiveness and smooth functioning ofthe Board, the governance structure, independence and inculcate a 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 functioningand discharging of responsibilities by the Board.

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

In 2011, the Board composition has been further strenghtened by having majority Independent Directors. Although all the Directorshave an equal responsibility for the Group’s business directions and operations, the role of these Independent Non-ExecutiveDirectors are particularly important in ensuring that the strategies proposed by the management are fully discussed and evaluated,having considered the long term interests of AFFINBANK’s objectives. No individual or small group of individuals dominate theBoard’s decision making process.

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 abstained from discussing or voting on the matter.

Appointments and Re-election to the Board

In 2011, BNM approved the re-appointment of six (6) Non-Independent Non-Executive Directors and two (2) appointments ofIndependent Non-Executive Directors. 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 retirefrom office at each Annual General Meeting and they may offer themselves for re-election.

Statement Of Corporate Governance(cont’d)




Directors’ Training

All newly appointed Non-Executive Directors are furnished by AFFINBANK with copies of the BNM Guidelines, the Banking andFinancial Institutions Act 1989 and other relevant legislation governing the banking industry to facilitate their understanding ofbanking business requirements. All Directors have attended various training programmes organised internally as well as externallyby the relevant authorities such as BNM, Securities Commission (“SC”) and Companies Commission of Malaysia (“CCM”). In addition, the members of the Board keep abreast with the relevant developments in business, banking and finance industryas well as new regulatory requirements on a continuous basis via various conferences, seminars and training programmesorganised within the Group and by other external organizers. The development and training programmes attended by the Directorsduring the financial year ended 31 December 2011 are set out below.

Director Course Title Trainer/Organiser Date

YBhg. Jen Tan Sri Dato’ 1. Regulator-Industry Bank Negara 7 March 2011Seri Ismail bin Haji Omar Dialogue Malaysia(Bersara)

2. Economic Outlook Affin Holdings 28 March 2011and Implication of BerhadFinancial andBanking Industries

3. Affin Holdings Berhad Talk Affin Holdings 26 July 2011“Economic Outlook of BerhadBanking Sector 2012/2013” by Dr Yeah Kim Leng

4. 8th Kuala Lumpur Kuala Lumpur 4 & 5 October 2011Islamic Finance Islamic FinanceForum 2011 (KLIFF)

5. Towards excellence Affin Holdings 27 October 2011in Corporate Board BerhadGovernance (inrelation to CorporateGovernanceBlueprint 2011)

6. BNM/OMFIF – First Asian Bank Negara 1 November 2011Central Banks Watchers MalaysiaConference “AsianPerspectives onWorld Finance”

7. BNM Islamic Finance Bank Negara 16 November 2011Master Class by Joseph MalaysiaDiVanna




YBhg. Dato’ Zulkiflee 1. Regulator-Industry Bank Negara 7 March 2011Abbas bin Abdul Hamid Dialogue Malaysia(Resigned as Director w.e.f. 1 November 2011) 2. Economic Outlook Affin Holdings 28 March 2011

and Implication of BerhadFinancial andBanking Industries


YM. Dr. Raja Abdul Malek 1. 2011 BNM Governor’s ICLIF (FIDE-BNM) 24 March 2011bin Raja Jallaludin address on the

Malaysian Economicand Panel discussion

2. Economic Outlook and Affin Holdings 28 March 2011Implication of BerhadFinancial and bankingIndustries

3. Banking Insights Bank Negara 8 & 9 April 2011(everything you Malaysiawanted to know about (FIDE/ICLIF)banking but didn’tdare ask)

4. Board IT Governance Bank Negara 12 & 13 April 2011and Risk Management Malaysia (FIDE/ICLIF)

5. The Nomination and BNM (FIDE) 18 & 19 July 2011Remuneration Committee Programme

6. Towards excellence in Affin Holdings 27 October 2011Corporate Board of BerhadGovernance (inrelation to CorporateGovernance Blueprint 2011)

YBhg. Laksamana Madya 1. Economic Outlook and Affin Holdings 28 March 2011Tan Sri Dato’ Seri Implication of BerhadAhmad Ramli bin Financial and bankingMohd Nor (Bersara) Industries(Resigned as Director w.e.f. 30 September 2011)




YBhg. Dato’ Sri 1. Economic Outlook and Affin Holdings 28 March 2011Abdul Aziz bin Implication of BerhadAbdul Rahman Financial and banking

Industries

2. Launch of PIDM Perbadanan 12 May 2011Annual Report 2010 Insuran Depositand Annual Dialogue Malaysia

3. Corporate Governance Bursa Malaysia 10 August 2011Blue Print Berhad

Mr. Aubrey Li 1. Directors Induction Affin Bank Berhad 3 August 2011Kwok-Sing & ProgrammeMr Gary Cheng ShuiHee (Alternaten Director to Mr Aubrey Li Kwok-Sing)

Mr. Stephen Charles Li 1. Directors Induction Affin Bank Berhad 3 August 2011(Resigned as Director w.e.f. Programme16 August 2011) andMr. Lee Chor Kee (AlternateDirector to Mr. StephenCharles Li) (Resigned asAlternate Director w.e.f.16 August 2011)

Encik Suffian bin 1. Economic Outlook and Affin Holdings 28 March 2011Haji Haron Implication of Berhad

Financial and bankingIndustries

2. Risk Management in Bank Negara 31 June 2011Islamic Finance Malaysia (FIDE)

3. Basel III: The impact Islamic Banking & 10 & 11 Octoberon Islamic Finance Finance Institute 2011(Part 2) (IBFIM)

4. Towards excellence in Affin Holdings 27 October 2011Corporate Board of BerhadGovernance (in relation to Corporate Governance Blueprint 2011)

YBhg. Tan Sri Dato’ 1. Economic Outlook and Affin Holdings 28 March 2011Seri Mohamed Implication of BerhadJawhar bin Hassan Financial and banking

Industries



Meeting and Supply of Information to the Board

Board meetings for each financial year are scheduled in advance before the end of the each financial year to enable the Directorsto plan accordingly and fit the year’s Board meetings into their respective schedules.

The Board meets on a scheduled basis at least twelve (12) times a year. Additional meetings are convened when necessary toreview progress reports on AFFINBANK’s financial performance, approve strategies, business plans and significant policies as wellas to consider business and other proposals which require the Board’s approval. For Financial year ended 31 December 2011,seventeen (17) Board meetings were held. Meetings are usually held at the Bank’s Board Room at 19th Floor, Menara Affin, 80 Jalan Raja Chulan, 50200 Kuala Lumpur.

Board meetings are conducted in accordance to a structured agenda. Board Members are provided with the structured agendatogether with the relevant documents and information in a form and of a quality appropriate in advance of each Board meeting.This is to facilitate the Directors to peruse the Board papers and seek clarifications that may require from the Management or theCompany Secretary well ahead of the meeting date. Urgent papers may be presented for tabling at the Board meetings undersupplemental agenda.

The Board monitors AFFINBANK’s performance by reviewing the monthly Management Report, which provides a comprehensivereview and analysis of AFFINBANK’s operational and financial issues. In addition, the Minutes of the various Board Committeesand Management Committee meetings and other issues are also tabled and considered by the Board.

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

2. Directors’ Remuneration

Composition

AFFINBANK acknowledges the importance of attracting and retaining the right calibre of Directors with 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 theperformance of the individual and of AFFINBANK.

Non-executive Directors’ emoluments consist of three components – an annual fee as a Board member, an allowance forattendance of meetings and a committee fee. The Directors’ fees, allowances and committee fees are those recommended bythe Board and in line with Affin Holdings group of companies.

Directors’ emoluments are disclosed in the relevant note to the financial statements as an aggregate sum, in conformance to therelevant 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 year ended December 2010 were tabled at the 35th AGM on 15 March 2011.Likewise the Annual Report and financial statements for year ended December 2011 will be tabled at the 36th AGM on 21 March 2012.

3. Accountability and Audit

Financial Reporting

AFFINBANK continues to subscribe to the philosophy of transparent, fair, reliable and easily understandable reporting tostakeholders. The Board upholds its responsibility by regularly providing updates on AFFINBANK’s performance through quarterlyannouncements, ad hoc press conferences, and briefings to the media throughout 2011.

The Board acknowledges and accepts full responsibility for the financial information contained in this Annual Report and by whichmeans it provides a balanced, clear and meaningful assessment of its financial position and prospects as presented here in thisAnnual Report and all other reports to the stakeholders, regulatory authorities and public.

Statement of Directors’ Responsibility for Preparing the Financial Statement

The Board is confident that the financial statements for the financial year ended 2011 gives a true and fair view of the state ofaffairs, the results and cash flow of AFFINBANK and the Group for the financial year. The Board also strives to ensure that financialreporting presents a true and fair assessment of AFFINBANK’s position and prospects. There is reasonable assurance thatAFFINBANK has maintained proper accounting records used and consistently applied appropriate accounting policies supportedby reasonable and prudent judgments and estimates, and prepared the financial statements in accordance to the provision ofthe Companies Act 1965, approved accounting standards in Malaysia and BNM Guidelines.

All published information on AFFINBANK is available at www.affinbank.com.my.

INTERNAL CONTROL

AFFINBANK has a well-established and fully operational risk management and internal control system. The Statement on InternalControl, which is set out in pages 36 through 38 of the Annual Report provides an overview on the risk managementprocess/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 compliancewith the Code.

The Board has overall responsibility for maintaining the proper management and protection of AFFINBANK’s interests by ensuringeffective 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 therisk of 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 internal auditors, the outcome of statutory auditson 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 Boardmembers for notation and discussion.

AFFINBANK has an established Internal Audit Division which reports functionally to the Audit & Examination Committee andadministratively to the Managing Director/Chief Executive Officer. The division is responsible for conducting independent auditsin accordance with the approved 2011 Internal Audit Plan.

RELATIONSHIP WITH AUDITORS

A professional and transparent relationship continues to exist between the Board/Audit & Examination Committee and the externalauditors. The Audit & Examination Committee is authorized to communicate directly with both the external and internal auditors.A full Audit & Examination Committee report outlining its role in relation to the Auditors is set out in page 39 to 40. 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 soundinternal control system and regular review on the adequacy and integrity of the system. Assurance on the effectiveness of riskmanagement, control and governance process is obtained from the Management and Auditors (internal and external).

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

Finally, with the benefit of the above assurances and the external auditor’s comments incorporated in their audit report on thefinancial statements for the financial year ended December 2011, the Board is able to conclude that AFFINBANK conducts itsbusiness prudently and in line with good governance practices.



INTERNAL CONTROL

AFFINBANK has a well-established and fully operational risk management and internal control system. The Statement on InternalControl, which is set out in pages 36 through 38 of the Annual Report provides an overview on the risk management process/frameworkas well as on how the internal control system has been designed to manage risks and avert failures. AFFINBANK continues to enhanceits 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 ensuringeffective implementation of the risk management policy and process, as well as adherence to a sound system of internal control, andby 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 of materialerrors, 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 auditson financial statements conducted by external auditors and on representations by Management based on their control self-assessmentof all areas of their responsibility.

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

AFFINBANK has an established Group Internal Audit Division which reports functionally to the Audit Examination Committee andadministratively to the Managing Director/Chief Executive Officer. The division is responsible for conducting independent audits inaccordance with the approved 2011 Internal Audit Plan.

RELATIONSHIP WITH AUDITORS

A professional and transparent relationship continues to exist between the Board/Audit & Examination Committee and the externalauditors. The Audit Committee is authorized to communicate directly with both the external and Group internal auditors . A full AuditCommittee report outlining its role in relation to the Auditors is set out in page 40. In addition, the external auditors meets with the Boardat 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 soundinternal control system and regular review on the adequacy and integrity of the system. Assurance on the effectiveness of riskmanagement, 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, supportactivities and financial records and statements respectively to derive an opinion on the adequacy and integrity of AFFINBANK’s overallinternal control framework.

Finally, with the benefit of the above assurances and the external auditor’s comments incorporated in their audit report on the financialstatements for the financial year ended 31 December 2011, the Board is able to conclude that AFFINBANK conducts its businessprudently and in line with good governance practices.


STATEMENT ON INTERNAL CONTROL


Statement On Internal Control(cont’d)

Responsibility

The Board acknowledges overall responsibility for AFFINBANK Group’s system of internal controls and its effectiveness. The systemof 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 andobjectives of the Group. Therefore, it can only provide a reasonable and not absolute assurance against material misstatement ofmanagement and financial information, or against financial losses or fraud.

The Board has an established process for identifying, evaluating, managing and reporting on all significant risks that may impact theachievement of business goals and objectives of the Group. The system of internal controls is dynamic and updated from time to timeto get the changes in regulatory guidelines and business environment. This process is regularly reviewed by the Board through itsBoard 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 theinvestment 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 includethe following:

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

* The BRMC assists the Board in its supervisory role concerning the overall management of risk in the Bank. It has responsibilityfor reviewing and approving all risk management policies and risk management methodologies. BRMC also reviews guidelinesand portfolio management reports including risk exposure information.

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

* Management Committee (MCM), comprising the senior management team, assists the Board in managing day-to-day operationsand ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors the Bank overall performance andensures that the activities are in accordance with corporate objectives, strategies, policies and annual business plan and budget.

* The Group Management Loan Committee (GMLC) is established within senior management to approve complex and larger loansand workout recovery proposals beyond the delegated authority of the concerned individual senior management personnel ofthe Bank. The other committees comprising senior management include Asset & Liability Management Committee (ALCO) whichmanages market and liquidity risks and Group Operational Risk Management Committee (GORMC) which manages operational risk.

* A detailed budgeting process is in place with annual business plans and budgets prepared by the business divisions, reviewedby the MCM and approved by the Board. The actual business performances are monitored against the approved targets andbudgets of each business division by MCM 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 andmanagement of new and existing customer relationships.

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

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

* An integrated risk management framework is in place. The risk management function operates in an independent capacity andis 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.

Statement On Internal Control(cont’d)


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 but not more than five (5)members, appointed by the Board from amongst the non-executive Directors of the Bank.

Meetings

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

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Audit and Examination Committee

Authority

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

NETWORK OF BRANCHES

WILAYAH PERSEKUTUAN

1. BangsarNo. 4 & 6,Jalan Telawi 3,Bangsar Baru,59100 Kuala Lumpur.Tel : 03-2283 5025Fax : 03-2283 5028

2. Bangunan Getah AsliTingkat Bawah,148, Jalan Ampang,50450 Kuala Lumpur.Tel : 03-2162 8770Fax : 03-2162 8587

3. Batu CantonmentNo. 840 & 842,Batu 4 3/4,Jalan Ipoh,51200 Kuala Lumpur.Tel : 03-6258 7370Fax : 03-6251 8214

4. CentralGround & Mezzanine Floor,Menara Affin,80, Jalan Raja Chulan,P.O.Box 12744,50788 Kuala Lumpur.Tel : 03-2055 2222 Fax : 03-2070 7592

5. Jalan Bunus133, Jalan Bunus,Off Jalan Masjid India,50100 Kuala Lumpur.Tel : 03-2693 4686 Fax : 03-2691 3207

6. Jalan Ipoh468-11 & 468-11B,Batu 3, Jalan Ipoh,51200 Kuala Lumpur.Tel : 03-4042 5554 Fax : 03-4042 4912

7. LTATGround Floor,Bangunan LTAT,Jalan Bukit Bintang,55100 Kuala Lumpur.Tel : 03-2142 6311Fax : 03-2148 0586

8. Selayang81-85, Jalan 2/3A,Pusat Bandar Utara,KM 12, Jalan Ipoh,68100 Batu Caves,Kuala Lumpur.Tel : 03-6137 2053Fax : 03-6138 7122

9. Seri Petaling10-12, Jalan Raden Tengah,Bandar Baru Seri Petaling,57000 Kuala Lumpur.Tel : 03-9058 5600Fax : 03-9058 8513

10. Setapak159 & 161, Jalan Genting Kelang,P.O.Box 202,53300 Setapak,Kuala Lumpur.Tel : 03-4023 0455Fax : 03-4021 3921

11. Taman Maluri250 & 252, Jalan Mahkota,Taman Maluri,55100 Kuala Lumpur.Tel : 03-9282 7250Fax : 03-9283 4380

12. Taman Midah38 & 40, Jalan Midah 1,Taman Midah, Cheras,56000 Kuala Lumpur.Tel : 03-9130 0366Fax : 03-9131 7024

13. Taman Tun Dr. Ismail47 & 49, Jalan Tun Mohd Fuad 3,Taman Tun Dr. Ismail,60000 Kuala Lumpur.Tel : 03-7727 9080 Fax : 03-7727 9543

14. Wangsa MajuNo. 2 & 4, Jalan 1/27F,Kuala Lumpur Sub-Urban Centre,Wangsa Maju,53300 Kuala Lumpur.Tel : 03-4143 2814Fax : 03-4143 3095

15. Wisma PertahananG.05, Tingkat Bawah,Wisma Pertahanan,Kementerian Pertahanan Malaysia,Jalan Padang Tembak,50634 Kuala Lumpur.Tel : 03-2698 7912Fax : 03-2698 6071

WILAYAH PERSEKUTUANPUTRAJAYA

1. PutrajayaJabatan Akauntan Negara,Kompleks Kementerian Kewangan,No. 1, Persiaran Perdana,Presint 2,62594 Putrajaya,Wilayah Persekutuan.Tel : 03-8888 3814Fax : 03-8889 2082

WILAYAH PERSEKUTUANLABUAN (OFFSHORE)

1. Labuan OffshoreUnit 3 (J), Level 3,Main Office Tower,Financial Park Labuan,Jalan Merdeka,87000 Federal Territory Labuan.Tel : 087-411 931Fax : 087-411 973

SELANGOR

1. Ampang JayaNo. 11 & 11A,Jalan Mamanda 7/1,Ampang Point,68000 Ampang,Selangor.Tel : 03-4257 6802Fax : 03-4257 8636

2. Ampang New VillageNo. 21G & 23GJalan Wawasan 2/2Bandar Baru Ampang68000 Ampang,Selangor.Tel : 03-4296 2311Fax : 03-4296 2206


Network Of Branches(cont’d)

9. Klang UtaraNo. 29 & 31,Jalan Tiara 3,Bandar Baru Klang,41150 Klang,Selangor.Tel : 03-3342 1585Fax : 03-3342 1719

10. Kompleks PKNSLot G17-20,Ground Floor,Kompleks PKNS,40000 Shah Alam,Selangor.Tel : 03-5510 5200Fax : 03-5510 8200

11. Kota WarisanNo. 48, Jalan Warisan Megah 1/4,43900 Sepang,Selangor.Tel : 03-8706 6300Fax : 03-8706 6599

12. PJ StateNo. 38 & 40,Jalan Yong Shook Lin,46050 Petaling Jaya,Selangor.Tel : 03-7955 0032Fax : 03-7954 0012

13. Port KlangNo. 1, Jalan Berangan,42000 Port Klang,Selangor.Tel : 03-3168 8366Fax : 03-3167 2784

14. PuchongNo. 16 & 18,Jalan Bandar 3,Pusat Bandar Puchong,47100 Puchong,Selangor.Tel : 03-5882 2880Fax : 03-5882 2881

15. RawangNo. 33G & 35G,Jln 1B, Fortune Avenue,48000 Rawang,Selangor.Tel : 03-6091 3322Fax : 03-6091 3344

16. Sea Park20-22, Jalan 21/12,Sea Park,46300 Petaling Jaya,Selangor.Tel : 03-7875 6514Fax : 03-7876 6020

17. Seri Kembangan36, Jalan PSK 3,Pusat Perdagangan Seri Kembangan,43300 Seri Kembangan,Selangor.Tel : 03-8945 6429Fax : 03-8945 6442

18. Subang Jaya7 & 9, Jalan SS 15/8A,47500 Petaling Jaya,Selangor.Tel : 03-5634 8043Fax : 03-5634 8040

19. The CurveLot G32 & 126,Ground & First Floor,The Curve Shopping Complex,Jalan PJU 7/8,Mutiara Damansara,47820 Petaling Jaya,Selangor.Tel : 03-7726 7258Fax : 03-7727 8912

20. UiTMUniversiti Teknologi MARA,Tingkat 2,Menara UiTM,40450 Shah Alam,Selangor.Tel : 03-5519 2377Fax : 03-5510 5580

21. USJ Taipan8A & 8B, Jalan USJ 10/1J,47610 UEP Subang Jaya,Petaling Jaya,Selangor.Tel : 03-8023 7271Fax : 03-8023 9161

3. Ara DamansaraUnit B-G-07 & B-G-08Block B, No. 2Jalan PJU 1A/7AAra Damansara47301 Petaling Jaya, SelangorTel : 03-7847 3177Fax : 03-7847 2677

4. Bandar Bukit Tinggi, KlangNo 77 & 79, Jalan Batu Nilam 5,Bandar Bukit Tinggi,41200 Klang, Selangor.Tel : 03-3323 2822 Fax : 03-3323 2858

5. Jalan Meru, KlangNo. 40, Pelangi Avenue,Jalan Kelicap 42A/KU1,Klang Bandar Di Raja,41050 Klang,Selangor.Tel : 03-3341 5237Fax : 03-3341 5427

6. Kajang2 & 3, Jalan Saga,Taman Sri Saga,Off Jalan Sg. Chua,43000 Kajang,Selangor.Tel : 03-8737 7435Fax : 03-8737 7433

7. Kepong6, Jalan 54,Desa Jaya,52100 Kepong,Selangor.Tel : 03-6276 4942Fax : 03-6276 6375

8. KinraraNo. 1, Jalan TK1/11A,Taman Kinrara, Section 1,Batu 7 1/2, Jalan Puchong,47100 Puchong,Selangor.Tel : 03-8070 3403Fax : 03-8075 8159



NEGERI SEMBILAN

1. GemasNo. 1 & 2, Ground FloorLaman Niaga PernamaKem Syed Sirajuddin73400 GemasNegeri SembilanTel : 07-948 3622Fax : 07-948 5022

2. Nilai5733 & 5734, Jalan TS 2/1,Taman Semarak Phase II,71800 Nilai,Negeri Sembilan.Tel : 06-799 4114Fax : 06-799 5115

3. Port Dickson3 & 4, Jalan Mahajaya,P.D. Centre Point,71000 Port Dickson,Negeri Sembilan.Tel : 06-647 3950Fax : 06-647 4776

4. SerembanNo. 175, Jalan Dato' Bandar Tunggal,70000 Seremban,Negeri Sembilan.Tel : 06-762 9651Fax : 06-763 6125

MELAKA

1. Bukit BaruNo. 7 & 8, Jalan DR1,Delima Point,Taman Delima Raya,75150 Melaka.Tel : 06-232 1386Fax : 06-232 1579

2. Melaka Raya200 & 201,Taman Melaka Raya,Off Jalan Parameswara,75000 Melaka.Tel : 06-283 5500Fax : 06-284 6618

JOHOR

1. Ayer HitamNo. 765, Jalan Batu Pahat, 86100 Ayer Hitam, Johor.Tel : 07-758 1100 Fax : 07-758 1001

2. Batu PahatNo. 3 & 4, Jalan Merah,Taman Bukit Pasir,83000 Batu Pahat,Johor.Tel : 07-433 4210 Fax : 07-433 3246

3. Johor BahruNo. 24 & 25Jalan Kebun Teh 1Kebun Teh Commercial City80250 Johor BahruJohorTel : 07-221 2403Fax : 07-221 2462

4. Johor Jaya130 & 132, Jalan Ros Merah 2/17,Taman Johor Jaya,81100 Johor Bahru,Johor.Tel : 07-351 8602Fax : 07-351 4122

5. Kluang503, Jalan Mersing,86000 Kluang,Johor.Tel : 07-772 4736Fax : 07-772 4486

6. Kulai13 & 14, Jalan Raya,Taman Sri Kulai Baru, Batu 21,81000 Kulai,Johor.Tel : 07-663 9799Fax : 07-663 9800

7. Muar1 Jalan Petrie,84000 Muar,Johor.Tel : 06-953 2384Fax : 06-953 3489

8. Mutiara RiniNo. 28 & 30Jalan Utama 45Taman Mutiara Rini81300, SkudaiJohor. Tel : 07-557 0900Fax : 07-557 1244

9. Permas Jaya23 & 25,Jalan Permas 10/2,Bandar Baru Permas Jaya,81750 Johor Bahru,Johor.Tel : 07-386 3703Fax : 07-386 5061

10. SegamatNo. 1, Ground Floor, Jalan Nagasari 23, Bandar Segamat Baru, 85000 Segamat, Johor.Tel : 07-943 1378Fax : 07-943 1373

11. Tampoi49 & 51,Jalan Sri Perkasa 2/1,Taman Tampoi Utara,81200 Tampoi, Johor Bahru,Johor.Tel : 07-241 4946Fax : 07-241 4953

PERAK

1. IpohNo. 1 & 3,Ground & First Floor,Persiaran Greentown 9,Greentown Business Centre,30450 Ipoh,Perak.Tel : 05-255 0980Fax : 05-255 0976

2. Ipoh GardenNo. 27A-27A1,Jalan Sultan Azlan Shah Utara,31400 Ipoh,Perak.Tel : 05-549 7277Fax : 05-549 7299



3. Fettes Park98-G-32,Jalan Fettes,Prima Tanjung Business Centre,Tanjung Tokong,11200 Pulau Pinang.Tel : 04-899 9069Fax : 04-899 0767

4. Jalan MacalisterNo. 104C, 104D & 104E,Jalan Macalister,10400 Pulau Pinang.Tel : 04-229 1495Fax : 04-226 1530

5. Kepala BatasLot 1317 & 1318,Lorong Malinja,Taman Sepakat,Off Jalan Butterworth,13200 Kepala Batas,Seberang Prai Utara,Pulau Pinang.Tel : 04-575 1824Fax : 04-575 1975

6. PraiNo. 2, Tingkat Kikik 7,Taman Inderawasi,13600 Pulau Pinang.Tel : 04-399 3900Fax : 04-397 9243

7. Seberang JayaNo. 10, Jalan Todak Satu,Pusat Bandar Seberang Jaya,13700 Prai,Pulau Pinang.Tel : 04-399 5881Fax : 04-399 2881

8. Wisma Pelaut1A, Light Street,Wisma Pelaut,10200 Pulau Pinang.Tel : 04-263 6633Fax : 04-261 9801

KEDAH

1. Alor SetarNo. 147 & 148,Susuran Sultan Abdul Hamid 8,Kompleks Sultan Abdul Hamid,Fasa 2 Persiaran Sultan Abdul Hamid,05050 Alor Setar,Kedah.Tel : 04-772 1477Fax : 04-771 4796

2. KulimNo. 13 & 14,Jalan KLC Satu (1)Kulim Landmark Central,09000 Kulim,Kedah Darul AmanTel : 04-495 5566Fax : 04-490 4717

3. Langkawi149-151,Persiaran Bunga Raya,Langkawi Mall,07000 Kuah,Langkawi,Kedah.Tel : 04-966 4426Fax : 04-966 4717

4. Sungai PetaniNo. 55, Jalan Perdana Heights,2/2 Perdana Heights08000 Sungai Petani, KedahTel : 04-422 0831Fax : 04-422 6675

TERENGGANU

1. KemamanK711-713,Wisma IKY Naga,Jalan Sulaimani,24000 Kemaman,Terengganu.Tel : 09-858 1744Fax : 09-859 1572

3. LumutTingkat Bawah,Kompleks Mutiara Armada,Jalan Nakhoda,Pengkalan TLDM,32100 Lumut,Perak.Tel : 05-683 5051Fax : 05-683 5579

4. SitiawanNo. 11 & 12, Taman Sitiawan 1,Jalan Lumut,32000 Sitiawan,Perak.Tel : 05-692 8401Fax : 05-691 7339

5. TaipingNo. 40 & 42,Jalan Tupai,34000 Taiping,Perak.Tel : 05-806 6816Fax : 05-808 0432

6. Teluk Intan11, Medan Sri Intan,Jalan Sekolah,36000 Teluk Intan,Perak.Tel : 05-621 0130Fax : 05-621 0128

PULAU PINANG

1. Bayan Baru124 & 126, Jalan Mayang Pasir,Taman Sri Tunas,11950 Bayan Baru,Pulau Pinang.Tel : 04-644 7593Fax : 04-645 2709

2. Butterworth55-57, Jalan Selat,Taman Selat,P.O.Box 165,Off Jalan Bagan Luar,12000 Butterworth,Pulau Pinang.Tel : 04-333 1372Fax : 04-332 3299



2. Kemaman Supply BaseGround Floor,Admin Building Block B,Kemaman Supply Base,24007 Kemaman,Terengganu.Tel : 09-863 1297Fax : 09-863 1295

KELANTAN

1. JeliNo. A1 & A2, Blok A,Bandar Baru Bukit Bunga,11700 Bukit Bunga,Tanah Merah,Kelantan.Tel : 09-946 8955Fax : 09-946 8954

2. Kota Bharu13788H & 3788I,Seksyen 13,Jalan Sultan Ibrahim,15050 Kota Bharu,Kelantan.Tel : 09-744 5688Fax : 09-744 2202

PAHANG

1. JengkaNadi Kota,26400 Bandar Jengka,Pahang.Tel : 09-466 2233Fax : 09-466 2422

2. Kuantan1, Jalan Tun Ismail,P.O.Box 354,25740 Kuantan,Pahang.Tel : 09-515 7146Fax : 09-513 4027

3. Mentakab70, Jalan Temerloh,28400 Mentakab,Pahang.Tel : 09-278 4487Fax : 09-277 6654

4. Temerloh9, Ground Floor,Jalan Ahmad Shah,28000 Temerloh,Pahang.Tel : 09-296 8811Fax : 09-296 8800

PERLIS

1. KangarA2, Taman Pengkalan Asam,Jalan Alor Setar-Kangar,01000 Kangar,Perlis.Tel : 04-977 8669Fax : 04-977 8566

SABAH

1. Jalan Gaya, Kota KinabaluNo. 86, Jalan Gaya, 88000 Kota Kinabalu, Sabah.Tel : 088-230 213 Fax : 088-212 476

2. Kota KinabaluLot 19 & 20, Block K,Sadong Jaya Complex,Jalan Ikan Juara 3,Karamunsing,88300 Kota Kinabalu,Sabah.Tel : 088-264 410Fax : 088-261 414

3. SandakanLot No. 163 & 164,Block 18, Prima Square,Batu 4, Jalan Utara,90000 Sandakan, Sabah.Tel : 089-224 577Fax : 089-224 566

4. TawauTB 281, 282 & 283,Jalan Haji Karim,Town Extension II,P.O. Box 630,91008 Tawau,Sabah.Tel : 089-778 197Fax : 089-762 199

SARAWAK

1. BintuluSub Lot 13,Off Lot 3299,Parkcity Commerce Square,97000 Bintulu,Sarawak.Tel : 086-314 248Fax : 086-314 206

2. KuchingLot 247 & 248,Section 49, KTLD,Jalan Tuanku Abdul Rahman,93100 Kuching,SarawakTel : 082-422 909 Fax : 082-257 366

3. MiriLot 2387 & 2388,Block A4,Jalan Boulevard 1A,Boulevard Commercial Center,KM 3, Jalan Miri-Pujut,98000 Miri,Sarawak.Tel : 085-437 442Fax : 085-437 297

4. Prince Commercial CentreNo. 1&2, Jalan Penrissen Batu 7,Kota Sentosa, 93250 Kuching,Sarawak.Tel : 082-613 466Fax : 082-612 088

5. SibuNo. 91 & 93,Jalan Kampung Nyabor,96000 Sibu,Sarawak.Tel : 084-325 926Fax : 084-325 960


NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT THE 36TH ANNUAL GENERALMEETING OF AFFIN BANK BERHAD WILL BE HELD AT THE BOARDROOM, 19TH FLOOR, MENARA AFFIN, 80, JALAN RAJA CHULAN,50200 KUALA LUMPUR ON 21st MARCH 2012 AT 5.30 P.M. FOR THETRANSACTION OF THE FOLLOWING BUSINESS:-

Agenda:

1. To receive the Statutory Statements of Accounts for the year ended 31 December 2011 together with the Directors' and Auditors'Reports thereon.

2. To declare a final tax exempted dividend of 5 Sen amounting to RM71,964,269.00 for the financial year ended 31 December 2011.

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

(a) YBhg. Dato’ Sri Abdul Aziz bin Abdul Rahman(b) Mr. Aubrey Li Kwok-Sing

4. To re-elect YBhg. Tan Sri Dato’ Seri Mohamed Jawhar bin Hassan who retires in accordance with Article 91(e) of the Company’sArticle of Association and who being eligible, offers himself for re-election.

5. 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”.

6. To appoint Messrs PricewaterhouseCoopers as Auditors for the financial year ending 31 December 2012 and to authorise theDirectors to fix their remuneration

7. To approve Directors’ fees and Committees fees for 2011.

8. To transact any other ordinary business.

BY ORDER OF THE BOARD

NIMMA SAFIRA KHALIDSecretary

NOTE:

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 of 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.


FINANCIALSTATEMENTS

48 Directors' Report 64 Statements of Financial Position

65 Income Statements 66 Statements of Comprehensive Income

67 Statement of Changes in Equity 69 Statements of Cash Flows

72 Summary of Significant Accounting Policies

90 Notes to the Financial Statements 181 Statement by Directors

181 Statutory Declaration 182 Independent Auditors' Report

184 Basel II Pillar 3 Disclosures


The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial yearended 31 December 2011.

PRINCIPAL ACTIVITIES

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

FINANCIAL RESULTS

The Group The BankRM'000 RM'000

Profit before taxation and zakat 613,065 536,371Taxation and zakat (173,062) (147,875)

Net profit for the financial year 440,003 388,496

DIVIDENDS

The dividends on ordinary shares paid or declared by the Bank since 31 December 2010 were as follows:

In respect of the financial year ended 31 December 2010 as shown in the Directors' report for that financial year:

RM'000

Final tax exempt dividend of 5 sen per share paid on 16 March 2011 71,964

In respect of the financial year ended 31 December 2011 :-

Single-tier interim dividend of 7 sen per share paid on 28 December 2011 100,750

The Directors now recommend the payment of a final tax exempt dividend of 5 sen per share amounting to RM71,964,269 which issubject 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 thefinancial statements.

BAD AND DOUBTFUL DEBTS AND FINANCING

Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that properaction had been taken in relation to the writing off of bad debts and financing and the making of allowance for bad and doubtful debtsand financing, and satisfied themselves that all known bad debts and financing had been written off and adequate allowances madefor 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 debtsand financing, or the amount of the allowance for doubtful debts and financing, in the financial statements of the Group and the Bankinadequate to any substantial extent.

DIRECTORS’ REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011


CURRENT ASSETS

Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that anycurrent assets, other than debts and financing, which were unlikely to realise in the ordinary course of business, their values as shownin 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 currentassets 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 existingmethods 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 liabilitiesof 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 theordinary 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 enforecable within the periodof twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability ofthe 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 financialstatements of the Group and the Bank that would render any amount stated in the financial statements misleading.

ITEMS OF AN UNUSUAL NATURE

The results of the operations of the Group and the Bank during the financial year were not, in the opinion of the Directors, substantiallyaffected 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 amaterial and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Group orthe 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

The subsequent event to the reporting date is disclosed in Note 45.



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

Dato' Zulkiflee Abbas bin Abdul Hamid (Managing Director/Chief Executive Officer)Non-Independent Executive Director(Resigned as Director w.e.f 1 November 2011)

Tan Sri Dato' Lodin bin Wok KamaruddinNon-Independent Non-Executive Director

Dr Raja Abdul Malek bin Raja JallaludinIndependent Non-Executive Director

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara)Non-Independent Non-Executive Director(Resigned as Director w.e.f 30 September 2011)

Dato' Sri Abdul Aziz bin Abdul RahmanIndependent Non-Executive Director

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

Mr Brian Li Man-BunNon-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing)(Resigned as Alternate Director w.e.f 18 April 2011)

Mr Gary Cheng Shui HeeNon-Independent Non-Executive Director (Alternate Director to Mr Aubrey Li Kwok-Sing)(Appointed as Alternate Director w.e.f 18 April 2011)

Mr Stephen Charles LiNon-Independent Non-Executive Director(Resigned as Director w.e.f 16 August 2011)

Mr Eric Koh Thong HauNon-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li)(Resigned as Alternate Director w.e.f 1 January 2011)

Mr Lee Chor KeeNon-Independent Non-Executive Director (Alternate Director to Mr Stephen Charles Li)(Appointed as Alternate Director w.e.f 18 April 2011 and resigned as Alternate Director w.e.f 16 August 2011)

En. Mohd Suffian bin Haji HaronIndependent Non-Executive Director

Tan Sri Dato' Seri Mohamed JawharIndependent Non-Executive Director(Appointed as Director w.e.f 1 November 2011)




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 inensuring that these financial statements are drawn up in accordance with MASB Approved Accounting Standards in Malaysia forEntities Other than Private Entities, Bank Negara Malaysia Guidelines and the provisions of the Companies Act, 1965.

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 ofthe state of affairs of the Group and of the Bank as at 31 December 2011 and of the financial results and cash flows of the Group andof 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 arekept, applied the appropriate accounting policies on a consistent basis and made accounting estimates that are reasonable and fairso 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 ofthe 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 181 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, warrantsand options of related companies are as follows:

Ordinary shares of RM1 each

As at As at 1.1.2011 Bought Sold 31.12.2011

AFFIN Holdings BerhadTan Sri Dato' Lodin bin Wok Kamaruddin *808,714 - - *808,714

Boustead Heavy Industries Corporation BerhadTan Sri Dato' Lodin bin Wok Kamaruddin 2,000,000 - - 2,000,000

Boustead Petroleum Sdn BerhadTan Sri Dato' Lodin bin Wok Kamaruddin 5,916,465 - - 5,916,465

Al-Hadharah Boustead REITTan Sri Dato' Lodin bin Wok Kamaruddin 250,000 - - 250,000

Pharmaniaga BerhadTan Sri Dato' Lodin bin Wok Kamaruddin - 3,184,538^ - 3,184,538

* Shares held in trust by nominee company ^ Acquisition of shares arising from Boustead Holdings Berhad ('BHB') Dividend in Specie of RM452,273 and subscription of

entitlement of Restricted Offer of RM1,083,814 on 28 October 2011 and 28 December 2011 respectively. On 29 December 2011,shares acquired under BHB Divestment 2 of RM1,648,351.


DIRECTORS' INTERESTS (continued)

Ordinary shares of RM10 each; RM5 uncalled

As at As at1.1.2011 Bought Transfer 31.12.2011

ABB Trustee Berhad ***Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) 20,000 - - 20,000Dr 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 at1.1.2011 Bought Sold 31.12.2011

Boustead Holdings BerhadTan Sri Dato' Lodin bin Wok Kamaruddin 26,122,599 - 111,000 26,011,599

Redeemable preference shares of RM1 each

As at As at1.1.2011 Bought Sold 31.12.2011

Boustead Petroleum Sdn BerhadTan Sri Dato' 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 andoptions over shares in the Bank or its related corporations during the financial year.

DIRECTORS' BENEFITS

During and at the end of the financial year, no other arrangements subsisted to which the Bank or any of its subsidiaries is a party withthe object or objects of enabling Directors of the Bank or any of its subsidiaries to acquire benefits by means of the acquisition of sharesin, or debenture of, the Bank or any other body corporate, except for the share options granted to directors of the Bank by AFFINHoldings 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 thanthe fees and other emoluments shown in the Note 31 to the financial statements) by reason of a contract made by the Bank or by arelated 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 theobjectives 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 thefinancial 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 corporategovernance, strategic direction, formulation of policies and overseeing the investments and operations of the Bank. The Boardexercises independent oversight on the management and bears the overall accountability for the performance of the Bank andcompliance 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 thatthere is a balance of power and authority. The Board is responsible for reviewing and approving the longer-term strategic plansof the Bank as well as the business strategies. It is also responsible for identifying the principal risks and implementation ofappropriate 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 theimplementation of the strategies and internal control as well as monitoring performance. The Committee is also a forum todeliberate issues pertaining to the Bank's business, strategic initiatives, risk management, manpower development, supportingtechnology 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 theBank's business as well as to ensure that adequate internal control systems are in place. The Board met 17 times during thefinancial year.

Board Balance

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

In 2011, the Bank continues to have a strong and experienced Board, befitting its aspiration to become a mid size Bank ofprominence. It consists of representatives from the private sector with suitable qualifications and experience in relevant areasparticularly in banking.



CORPORATE GOVERNANCE (continued)

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

Board Balance (continued)

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

Directors Total Meetings Attended

Jen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) 17 / 17Chairman / Non-Independent Non-Executive Director

Dato' Zulkiflee Abbas bin Abdul Hamid 15 / 15Managing Director/Chief Executive OfficerNon-Independent Executive Director(Resigned as Director w.e.f 1 November 2011)

Tan Sri Dato' Lodin bin Wok Kamaruddin 17 / 17Non-Independent Non-Executive Director

Dr Raja Abdul Malek bin Raja Jallaludin 17 / 17Independent Non-Executive Director

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 14 / 14Non-Independent Non-Executive Director(Resigned as Director w.e.f 30 September 2011)

Dato' Sri Abdul Aziz bin Abdul Rahman 16 / 17Independent Non-Executive Director

Mr Aubrey Li Kwok-Sing 6 / 17Non-Independent Non-Executive Director

Mr Brian Li Man-Bun 0 / 7Non-Independent Non-Executive Director(Alternate Director to Mr Aubrey Li Kwok-Sing)(Resigned as Alternate Director w.e.f 18 April 2011)

Mr Gary Cheng Shui Hee 5 / 10Non-Independent Non-Executive Director(Alternate Director to Mr Aubrey Li Kwok-Sing)(Appointed as Alternate Director w.e.f 18 April 2011)

Mr Stephen Charles Li 6 / 12Non-Independent Non-Executive Director(Resigned as Director w.e.f 16 August 2011)

Mr Eric Koh Thong Hau 0 / 0Non-Independent Non-Executive Director(Alternate Director to Mr Stephen Charles Li)(Resigned as Alternate Director w.e.f 1 January 2011)

Mr Lee Chor Kee 1 / 5Non-Independent Non-Executive Director(Alternate Director to Mr Stephen Charles Li)(Appointed as Alternate Director w.e.f 18 April 2011 and resigned as Alternate Director w.e.f 16 August 2011)





Board Balance (continued)

Directors Total Meetings Attended

En. Mohd Suffian bin Haji Haron 16 / 17Independent Non-Executive Director

Tan Sri Dato' Seri Mohamed Jawhar 2 / 3 *Independent Non-Executive Director(* Attended AFFIN Bank's Special Board Meeting by invitation on 12 May 2011)(Appointed as Director w.e.f 1 November 2011)

Board Committees

Nomination Committee

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

During the financial year ended 31 December 2011, a total of 5 meetings were held. The Nominating Committee comprises thefollowing members and the details of attendance of each member at the Nominating Committee meetings held during the financialyear are as follows:

Members Total Meetings Attended

En. Mohd Suffian bin Haji Haron 5 / 5Chairman/Independent Non-Executive Director

Dato' Zulkiflee Abbas bin Abdul Hamid 4 / 4Member/Non-Independent Executive Director(Resigned as Director w.e.f 1 November 2011)

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 3 / 3Member/Non-Independent Non-Executive Director(Resigned as Director w.e.f 30 September 2011)

Dato' Sri Abdul Aziz bin Abdul Rahman 4 / 5Member/Independent Non-Executive Director

Dr Raja Abdul Malek bin Raja Jallaludin 5 / 5Member/Independent Non-Executive Director





Board Committees (continued)

Remuneration Committee

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

During the financial year ended 31 December 2011, a total of 6 meetings were held. The Remuneration Committee comprisesthe following members and the details of attendance of each member at the Remuneration Committee meetings held during thefinancial year are as follows:


Dr Raja Abdul Malek bin Raja Jallaludin 6 / 6Chairman/Independent Non-Executive Director

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 4 / 4Member/Non-Independent Non-Executive Director(Resigned as Director w.e.f 30 September 2011)

En. Mohd Suffian bin Haji Haron 6 / 6Member/Independent Non-Executive Director

Tan Sri Dato' Seri Mohamed Jawhar 1 / 1*Member/Independent Non-Executive Director(*Attended AFFIN Bank's Special Board Remuneration meeting by invitation on 22 April 2011)(Appointed as Director w.e.f 1 November 2011)

Shariah Committee

The Bank's business activities are subject to Shariah compliance and conformation by the Shariah Committee. The ShariahCommittee is formed as legislated under Section 3(5)(b) of the Islamic Banking Act, 1983 and as per Shariah GovernanceFramework for Islamic Financial Institutions.

The duties and responsibility of the Shariah Committee are as follows:

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

• To endorse and validate relevant documentations of the Bank's products to ensure that the products comply with Shariahprinciples; and

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





Board Committees (continued)

Shariah Committee (continued)

The Shariah Committee was established in December 1995. During the year, a total of 8 meetings were held. The ShariahCommittee comprises the following members and the details of attendance of each member at the Shariah Committee meetingsheld are as follows:


Associate Professor Dr. Asyraf Wajdi bin Dato' Dusuki 8 / 8Chairman

Associate Professor Dr. Said Bouheraoua 8 / 8Member

Associate Professor Dr. Md Khalil bin Ruslan 6 / 6Member(Resigned as member w.e.f 1 October 2011)

Assistant Professor Dr. Ahmad Azam bin Othman 2 / 2Member(Appointed as member w.e.f 1 October 2011)

Dr. Yasmin Hanani binti Mohd Safian 1 / 2Member(Appointed as member w.e.f 1 October 2011)

Dr. Zulkifli bin Hasan 2 / 2Member(Appointed as member w.e.f 1 October 2011)

(ii) Risk Management

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

The Risk Management function provides support to the Board Risk Management Committee ('BRMC'). Committees namelyBoard Loan Recovery Committee ('BLRC'), Management Loan Committee ('MLC'), Asset and Liability Management Committee('ALCO') and Operational Risk Management Committee assist the BRMC in managing credit, liquidity and operational riskrespectively.

Responsibilities of these committees include:

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




(ii) Risk Management (continued)

Board Risk Management Committee ('BRMC')

The main function of Board Risk Management Committee is to assist the Board in its supervisory role in the management of riskin the Bank. It has responsibility for approving and reviewing the credit risk strategy, credit risk framework and credit policies ofthe Bank.

BRMC was established to provide oversight and management of all risks in the Bank. The Committee also ensures that theprocedures and framework in relation to identifying, measuring, monitoring and controlling risk are operating effectively. TheBank'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 31December 2011, a total of 4 meetings were held. The BRMC comprises the following members and details of attendance of eachmember at the BRMC meetings held during the financial year are as follows:


Dato' Sri Abdul Aziz bin Abdul Rahman 4 / 4Chairman/Independent Non-Executive Director


En. Mohd Suffian bin Haji Haron 3 / 4Member/Independent Non-Executive Director(Representative from AFFIN Islamic Bank Berhad)

Board Loan Review and Recovery Committee ('BLRC')

Board Loan Review Committee critically reviews loans and other credit facilities with higher risk implications, after due processof checking, analysis, review and recommendation by the Credit Risk Management function, and if found necessary, exercise thepower to veto loan applications that have been accepted by the Management Loan Committee. The Committee is also responsibleto review on the impaired loans presented by Management.

The BLRC meeting for the Bank were jointly held with AFFIN Islamic Bank and during the financial year ended 31 December 2011,a total of 14 meetings were held. The BLRC comprises the following members and details of attendance of each member at theBLRC meetings held during the financial year are as follows:


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

Laksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) 14 / 14Member/Non-Independent Non-Executive Director(Resigned as Director w.e.f 30 September 2011)(Represent AFFIN Islamic Bank Berhad w.e.f 6 October 2011)

En. Mohd Suffian bin Haji Haron 14 / 14Member/Independent Non-Executive Director(Represent AFFIN Islamic Bank Berhad w.e.f 1 January 2011 to 8 September 2011)




(ii) Risk Management (continued)

Management Loan Committee ('MLC')

Management Loan Committee approves complex and larger loans and workout/recovery proposals beyond the delegatedauthority of the concerned individual senior management personnel of the Bank.

Individual approvers

For the delegated authority, a dual sign-off approval system is in place, independent of business imperatives.

Asset and Liability Management Committee ('ALCO')

ALCO's responsibilities include:

• Managing the asset and liability of the Bank through coordination of the Bank's overall planning process including strategicplanning, budgeting and asset and liability management process;

• Directing the Bank's overall acquisition and allocation of funds;• Prudently managing the Bank's interest rate exposure;• Determine the overall Balance Sheet strategy and ensuring policy compliance;• Determined the type and scope of derivative activities, approve individual derivative transactions as well as control over the

level of exposure in derivatives;• Reviewing market risks in the Bank's trading portfolios;• Managing the effective usage of economic and regulatory capital throughout the organisation;• Reviewing and recommending the capital plan for approval;• Approving capital management standards and policies, capital raising and repayment transactions;• Reviewing quarterly capital adequacy monitoring reports; and• Reviewing and approving key assumptions inherent in economic capital modeling and stress/scenario tests.

Operational Risk Management Committee

Responsibilities of these committees include:

• To evaluate operational risks issues on 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 on changes if necessary;• To review/approve recommendation on operational risk management groups section up to address specific issue;• To take the lead in inculcating an operational risks awareness culture;• To approve operational risk management methodologies/measurements tools; and• To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC's approval if

necessary.




(iii) Internal Audit and Internal Control Activities

In accordance with Bank Negara Malaysia's GP10 guidelines, the Group Internal Audit Division ('GIA') conducts continuousreviews on auditable areas within the Bank. The continuous reviews by GIA are focused on areas of significant risks andeffectiveness of internal control in accordance to the audit plan approved by the Audit and Examination Committee ('AEC'). Therisk highlighted on the respective auditable areas as well as recommendation made by the GIA are addressed at AEC andManagement 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 thesekey components:

• Conduct audit on all auditable entities (Head Office, branches and subsidiaries) processes, services, products, system andprovide an independent assessment to the Board of Directors, AEC and Management that appropriate control environmentis 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 andcontrols exist to contain those risks.

• Maintain strong control activities including documented processes and system incorporating adequate controls to produceaccurate 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 oncontrol finding until its full resolution.

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

The AEC comprises members of the Bank's Board of Directors whose primary function is to assist the Board of Directors in itssupervision 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 fulfillits fiduciary duties and obligations, and

• 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.




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

The AEC meeting for the Bank were jointly held with AFFIN Islamic Bank Berhad and during the financial year ended 31 December2011, a total of 10 meetings were held. The Audit and Examination Committee comprises the following members and details ofattendance of each member at the Audit and Examination Committee meetings held during the financial year are as follows:


Dato' Sri Abdul Aziz bin Abdul Rahman 10 / 10Chairman/Independent Non-Executive Director


Tan Sri Dato' Seri Mohamed Jawhar 10 / 10Member/Independent Non-Executive Director(Representative from AFFIN Islamic Bank Berhad)

(iv) Management Reports

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

The Board monitors the Bank's performance by reviewing the monthly Management Report, which provides a comprehensivereview and analysis of the Bank's operations and financial issues. In addition, the minutes of the Board Committees andManagement 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 andservices of the Company Secretary in order to fulfil their duties and specific responsibilities.

BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

Notwithstanding the intense competition in the banking industry and the difficult business environment in 2011, the Bank madecontinuous efforts to build on its core business and internal resource capability. In terms of profitability, the Bank’s performance hasbecome more resilient as it continued to strengthen its funding structure, liquidity position and capitalisation level. One of the Bank’smain emphasis was also on expansion. The Bank embarked on a rebuilding programme by diagnosing business development problemsat existing branches and relocating a number of branches to more vibrant commercial vicinities. New branches were also opened toimprove the Bank’s presence in the market. This has ultimately contributed to the overall growth and profitability of the Bank.

The Bank was able to ensure sustainable business growth through:

• Aggressive branch expansion and relocation programs which optimised branch networks further develop the deposits businesssector especially the retail segment

• Human capital restructuring and development• Product innovations and campaigns• Improving customer touchpoints to ensure excellent & efficient customer service• Continuous improvement on risk management practices to be abreast with prevailing economic climate.

The Bank’s lending activities remained focused on consumer financing and small medium enterprises ('SME'). During the year theBank’s total gross loan grew by 14.19% with hire purchase and home mortgage segment and SME financing increasing by 65.8%.This loan growth is equally matched with a strong growth in customer deposits. The Bank recorded an increase of 12.6% in its customerdeposits portfolio (excluding NID), increasing its consumer deposits base from 19.7% in 2010 to 23.5% in 2011.



BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011(continued)

The Group’s asset quality remained resilient despite a more stringent classification of impaired loans under FRS139. The strong assetquality is reflected by the lower net impaired loan from 2.02% in 2010 to 1.31% in 2011.

Overall for 2011, the Group’s success can be attributed to the Group’s transformation effort through various activities such as branchexpansion, relocation, product innovation, aggressive marketing, prudent lending policies, strong risk management practice and efficientcustomer services.

BUSINESS OUTLOOK FOR 2012

Building on the momentum created in 2011, the Bank’s main focus will be to further leverage on AFFIN Banking Group ('ABG') strengthsby cross selling and customising products in order to achieve sustainable business growth. The Group’s business is expected toremain strong despite intense competition amid further liberalisation, consolidation and regulatory changes in year 2012.

For Consumer Banking, the Bank will continue to aggressively market for consumer deposit through campaigns as well as new productlaunches targeting selective clientele. On a broader perspective, the Bank will look at how it grows its loans and advances by diggingdeeper into identifying market segments and enhancing existing clientele portfolios. Focus will be on cost capital and growing SMEloans as well as pushing its fee income base.

RATING BY EXTERNAL AGENCIES

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

Name of rating agency: RATING AGENCY MALAYSIA BERHAD Date of rating: 19 July 2011Rating 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 creditprofile but possess one or more problem areas, giving rise to the possibility of future riskiness. Entities rated in this category havegenerally performed at industry average and are considered to be more vulnerable to changes in economic condition than those ratedin the higher categories. The subscript 1 in this category indicates as higher end of its generic rating in the A category. A P1 rating isdefined 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 the shareholders or 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 holdingcorporate 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 28 February 2012.

JEN TAN SRI DATO' SERI ISMAIL BIN HAJI OMAR (BERSARA) Chairman

EN. MOHD SUFFIAN BIN HAJI HARONDirector



The Group The Bank2011 2010 2011 2010

Note RM'000 RM'000 RM'000 RM'000

ASSETSCash and short-term funds 2 9,879,366 8,640,457 5,527,439 6,108,452Deposits and placements with banks and

other financial institutions 3 486,694 192,522 1,098,988 564,917Financial assets held-for-trading 4 149,832 149,945 149,832 149,945Financial investments available-for-sale 5 6,698,418 5,804,417 5,214,533 4,455,472Financial investments held-to-maturity 6 521,105 432,537 521,105 432,537Loans, advances and financing 7 29,692,266 25,974,847 25,318,061 22,419,251Other assets 8 166,543 186,461 116,690 184,582Derivative financial assets 9 49,901 54,981 49,901 54,981Tax recoverable 3,430 49,930 - 46,072Deferred tax assets 10 - 4,291 - -Statutory deposits with Bank Negara Malaysia 11 1,268,650 245,130 1,108,650 245,130Investment in subsidiaries 12 - - 287,389 287,429Investment in jointly controlled entity 13 290 500 - -Amount due from subsidiaries 14 - - 356,897 185,271Amount due from jointly controlled entity 2,745 2,745 - -Property and equipment 15 172,830 170,722 164,034 162,760Intangible assets 16 156,133 154,436 156,771 156,868

TOTAL ASSETS 49,248,203 42,063,921 40,070,290 35,453,667

LIABILITIES AND EQUITYDeposits from customers 17 36,547,444 30,982,407 29,072,424 25,432,075Deposits and placements of banks and

other financial institutions 18 7,526,912 6,619,735 6,043,837 5,749,003Bills and acceptances payable 82,059 110,161 82,059 110,161Recourse obligation on loans

sold to Cagamas Berhad 19 428,459 288,891 428,459 288,891Other liabilities 20 326,735 353,892 309,134 317,002Derivative financial liabilities 21 97,399 70,195 97,399 70,195Provision for taxation 16,242 22 16,212 -Amount due to subsidiaries 22 - - 48,307 47,926Deferred tax liabilities 10 20,118 24,932 19,211 24,932Subordinated term loan 23 601,850 300,682 601,850 300,682

TOTAL LIABILITIES 45,647,218 38,750,917 36,718,892 32,340,867

Share capital 24 1,439,285 1,439,285 1,439,285 1,439,285Reserves 25 2,161,700 1,873,719 1,912,113 1,673,515

TOTAL EQUITY 3,600,985 3,313,004 3,351,398 3,112,800

TOTAL LIABILITIES AND EQUITY 49,248,203 42,063,921 40,070,290 35,453,667

COMMITMENTS AND CONTINGENCIES 37 19,919,985 18,844,780 18,030,311 16,821,892

STATEMENTS OF FINANCIAL POSITIONAS AT 31 DECEMBER 2011

The accounting policies on pages 72 to 89 and the notes on pages 90 to 180 form an integral part of these financial statements.


INCOME STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011



Note RM'000 RM'000 RM'000 RM'000

Interest income 26 1,795,662 1,511,835 1,816,728 1,523,568Interest expense 27 (1,020,847) (760,848) (1,020,882) (760,881)

Net interest income 774,815 750,987 795,846 762,687Islamic Banking income 28 198,933 177,783 - -

973,748 928,770 795,846 762,687Other operating income 29 186,884 227,351 185,407 226,904

Net income 1,160,632 1,156,121 981,253 989,591Other operating expense 30 (533,713) (530,911) (442,001) (440,145)

Operating profit before allowances 626,919 625,210 539,252 549,446Allowances for losses on loans,

advances and financing 32 (12,699) (95,394) (1,936) (66,740)Impairment losses on securities (945) (7,912) (945) (7,912)

613,275 521,904 536,371 474,794Share of joint venture's results (210) - - -

Profit before taxation and zakat 613,065 521,904 536,371 474,794Taxation 34 (167,570) (136,041) (147,875) (128,089)Zakat (5,492) (4,626) - -

Net profit after taxation and zakat 440,003 381,237 388,496 346,705

Attributable to:Equity holders of the Bank 440,003 381,237 388,496 346,705

Earnings per share (sen)- Basic/fully diluted 35 30.6 26.5 27.0 24.1



Note RM'000 RM'000 RM'000 RM'000

Profit after taxation and zakat 440,003 381,237 388,496 346,705

Other comprehensive income:Net fair value change in financial

investments available-for-sale 27,622 16,474 30,420 11,334Deferred tax on financial investments

available-for-sale 10 (6,930) (4,115) (7,604) (2,834)

Other comprehensive income for thefinancial year, net of tax 20,692 12,359 22,816 8,500

Total comprehensive income for the financial year 460,695 393,596 411,312 355,205

Attributable to equity holders of the Bank:- Total comprehensive income 460,695 393,596 411,312 355,205

STATEMENTS OF COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011



Attributable to Equity Holders of the Bank

AFSShare Share Statutory revaluation Retained

capital premium reserves reserves profits TotalThe Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

At 1 January 2011 1,439,285 408,389 888,910 54,249 522,171 3,313,004Comprehensive income:Net profit for the financial year - - - - 440,003 440,003Other comprehensive income - - - 20,692 - 20,692

Total comprehensive income - - - 20,692 440,003 460,695

Dividend paid (Note 36) - - - - (172,714) (172,714)Transfer to statutory reserves - - 122,134 - (122,134) -

At 31 December 2011 1,439,285 408,389 1,011,044 74,941 667,326 3,600,985




At 31 December 2010 1,439,285 408,389 888,910 54,249 522,171 3,313,004

STATEMENT OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011


STATEMENT OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

Non-distributable Distributable

AFSShare Share Statutory revaluation Retained

capital premium reserves reserves profits TotalThe Bank RM'000 RM'000 RM'000 RM'000 RM'000 RM'000




At 31 December 2011 1,439,285 408,389 904,624 68,611 530,489 3,351,398




At 31 December 2010 1,439,285 408,389 807,500 45,795 411,831 3,112,800



STATEMENTS OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011


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

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation and zakat 613,065 521,904 536,371 474,794Adjustments for items not involving the movement

of cash and cash equivalents:

Interest income:- financial assets held-for-trading (50) (311) (50) (311)- financial investments available-for-sale (141,979) (116,495) (141,830) (116,347)- financial investments held-to-maturity (23,276) (15,522) (23,229) (15,522)Dividend income:- financial investments available-for-sale (23) (8) (23) (8)- financial investments held-to-maturity (9,705) (2,901) (9,705) (2,901)Amortisation of premium less accretion of discount- financial investments available-for-sale (20,568) (30,938) (20,568) (30,938)- financial investments held-to-maturity (901) (664) (901) (664)Gain on sale:- financial assets held-for-trading (546) (1,217) (546) (1,217)- financial investments available-for-sale (24,102) (23,733) (24,102) (23,635)- financial investments held-to-maturity (2,546) (2,053) (2,378) (2,053)Unrealised loss/(gain) on revaluation- financial assets held-for-trading 9 (137) 9 (137)- derivatives 13,230 (6,303) 13,230 (6,303)- foreign exchange 17,878 9,549 17,878 9,549Allowance for impairment loss- financial investments available-for-sale 945 4,012 945 4,012- financial investments held-to-maturity - 3,900 - 3,900Depreciation of property and equipment 18,872 20,071 17,853 19,297Property and equipment written-off 423 514 414 513Foreclosed properties - diminution in value 2,542 2,440 2,332 2,422Gain on sale of property and equipment (23) (219) (23) (219)Amortisation of intangible assets 9,366 16,474 8,836 15,658Loss/(gain) on sale of foreclosed properties 272 (6,330) 272 (6,330)Net individual impairment 103,338 177,354 99,682 161,938Net collective impairment 67,662 (3,044) 59,788 (16,409)Bad debt and financing written-off 15,956 15,810 15,791 15,628Litigation loss arising from loans 40,000 78,000 40,000 78,000Interest expense - subordinated term loan 19,884 10,633 19,884 10,633Subsidiary - diminution in value - - 40 -Share of joint venture's results 210 - - -

Operating profit before changes in working capital 699,933 650,786 609,970 573,350



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

CASH FLOWS FROM OPERATING ACTIVITIES (continued)

(Increase)/decrease in operating assets:

Deposits and placements with banks andother financial institutions (294,172) (49,393) (534,071) 62,189

Financial assets held-for-trading 650 1,609 650 1,609Interest income from financial assets held-for-trading 50 311 50 311Foreign exchange transaction 35,547 (48,511) 36,381 (48,921)Loans, advances and financing (3,904,375) (4,148,877) (3,074,071) (3,450,614)Other assets (132,364) 167,702 (84,208) 142,513Derivative financial instruments 32,284 (2,982) 32,284 (2,982)Statutory deposits with Bank Negara Malaysia (1,023,520) (25,530) (863,520) (25,530)Amount due from subsidiaries - - (171,245) 46,210Amount due from jointly controlled entity - (1,688) - -

Increase/(decrease) in operating liabilities:

Deposits from customers 5,565,037 4,449,487 3,640,349 3,534,208Deposits and placements of banks and

other financial institutions 907,177 1,584,726 294,834 1,216,567Bills and acceptances payable (28,102) 15,896 (28,102) 15,896Recourse obligation on loans sold to Cagamas Berhad 139,568 (10,943) 139,568 (10,943)Other liablilities (66,342) (33,551) (46,765) (51,542)

Cash generated from operations 1,931,371 2,549,042 (47,896) 2,002,321Tax paid (113,437) (138,418) (100,020) (118,028)Zakat paid (5,203) (3,493) - -

Net cash generated from/(used in) operating activities 1,812,731 2,407,131 (147,916) 1,884,293




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

CASH FLOWS FROM INVESTING ACTIVITIES

Interest received:- financial investments available-for-sale 141,979 116,495 141,830 116,347- financial investments held-to-maturity 23,276 15,522 23,229 15,522Dividend income:- financial investments available-for-sale 23 8 23 8- financial investments held-to-maturity 9,705 2,901 9,705 2,901Redemption of financial investments

held-to-maturity net of purchase (85,121) 22,946 (85,289) 22,946Net (purchase)/sale of financial investments

available-for-sale (822,654) 14,528 (684,914) (37,701)Proceeds from disposal of- property and equipment 2,166 2,480 2,166 2,480- foreclosed properties 118,687 24,941 118,687 24,941Purchase of property and equipment (32,893) (9,608) (28,828) (9,482)Purchase of intangible assets (1,718) (1,043) (1,599) (1,043)

Net cash (used in)/generated from investing activities (646,550) 189,170 (504,990) 136,919

CASH FLOWS FROM FINANCING ACTIVITIES

Interest payment on subordinated term loan (18,716) (10,495) (18,716) (10,495)Increase in subordinated term loan 300,000 - 300,000 -Payment of dividend (172,714) (110,973) (172,714) (110,973)

Net cash generated from/(used in) financing activities 108,570 (121,468) 108,570 (121,468)

Net increase/(decrease) in cash and cash equivalents 1,274,751 2,474,833 (544,336) 1,899,744Net (decrease)/increase in foreign exchange (35,842) 27,843 (36,677) 28,252Cash and cash equivalents at beginning of the financial year 8,640,457 6,137,781 6,108,452 4,180,456

CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR (Note 2) 9,879,366 8,640,457 5,527,439 6,108,452




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

(A) BASIS OF PREPARATION

The financial statements of the Group and the Bank have been prepared in accordance with Malaysian Accounting StandardsBoard ('MASB') Approved Accounting Standards in Malaysia for Entities Other Than Private Entities, Bank Negara Malaysia('BNM') Guidelines and the provisions of the Companies Act, 1965. The financial statements incorporate those activities relatingto 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 otherwiseindicated in this summary of significant accounting policies.

The preparation of financial statements in conformity with MASB Approved Accounting Standards in Malaysia for Entities OtherThan Private Entities and BNM Guidelines requires the use of certain critical accounting estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenue and expenses during the reported period. It also requires Directors to exercisejudgment in the process of applying the Bank's accounting policies. Although these estimates are based on the Directors' bestknowledge 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 thefinancial statements are disclosed in Note 44.

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

The new accounting standards, amendments and improvements to published standards and interpretations that are effective forthe Group and the Bank’s financial year beginning on or after 1 January 2011 are as follows:

• Revised FRS 1 “First-time adoption of financial reporting standards”

• Revised FRS 3 "Business combinations"

• Revised FRS 127 "Consolidated and separate financial statements"

• Amendment to FRS 7 "Financial instruments: Disclosures - improving disclosures about financial instruments"

• Amendments to FRS 1 "First-time adoption of financial reporting standards"

• Amendment to FRS 132 "Financial instruments: Presentation – Classification of rights issues"

• IC Interpretation 4 "Determining whether an arrangement contains a lease"

• IC Interpretation 17 "Distribution of non-cash assets to owners"

• Improvements to FRSs (2010)

The adoption of the above revised accounting standards, amendments and improvements to the published standards andinterpretations did not have any significant impact to the results of the Group and the Bank.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011


(A) BASIS OF PREPARATION (continued)

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

The Group and the Bank will apply the new standards, amendments to standards and interpretations in the following period:

(i) Financial year beginning on/after 1 January 2012

In the next financial year, the Group will be adopting the new IFRS-compliant framework, Malaysian Financial ReportingStandards ('MFRS'). MFRS 1 "First-time adoption of MFRS" provides for certain optional exemptions and certain mandatoryexceptions for first-time MFRS adopters.

• MFRS 139 "Financial instruments: recognition and measurement" - Bank Negara Malaysia has removed the transitionalprovision for banking institutions on loan impairment assessment and provisioning to comply with the MFRS 139requirements

• The revised MFRS 124 "Related party disclosures" (effective from 1 January 2012) removes the exemption to disclosetransactions between government-related entities and the government, and all other government-related entities. Thefollowing new disclosures are now required for government related entities:

- the name of the government and the nature of their relationship;- the nature and amount of each individually significant transactions; and- the extent of any collectively significant transactions, qualitatively or quantitatively.

• IC Interpretation 19 "Extinguishing financial liabilities with equity instruments" (effective from 1 July 2011) providesclarification when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees toaccept the entity’s shares or other equity instruments to settle the financial liability fully or partially. A gain or loss, beingthe difference between the carrying value of the financial liability and the fair value of the equity instruments issued, shallbe recognised in income statement. Entities are no longer permitted to reclassify the carrying value of the existingfinancial liability into equity with no gain or loss recognised in income statement.

(ii) Financial year beginning on/after 1 January 2013

• MFRS 9 "Financial instruments - classification and measurement of financial assets and financial liabilities" (effectivefrom 1 January 2015) replaces the multiple classification and measurement models in MFRS 139 with a single modelthat has only two classification categories: amortised cost and fair value. The basis of classification depends on theentity’s business model for managing the financial assets and the contractual cash flow characteristics of the financialasset.

The accounting and presentation for financial liabilities and for de-recognising financial instruments has been relocatedfrom MFRS 139, without change, except for financial liabilities that are designated at fair value through profit or loss('FVTPL'). Entities with financial liabilities designated at FVTPL recognise changes in the fair value due to changes inthe liability’s credit risk directly in other comprehensive income ('OCI'). There is no subsequent recycling of the amountsin OCI to profit or loss, but accumulated gains or losses may be transferred within equity.

The guidance in MFRS 139 on impairment of financial assets and hedge accounting continues to apply.



(A) BASIS OF PREPARATION (continued)

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

(ii) Financial year beginning on/after 1 January 2013 (continued)

• MFRS 10 "Consolidated financial statements" (effective from 1 January 2013) changes the definition of control. Aninvestor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investeeand has the ability to affect those returns through its power over the investee. It establishes control as the basis fordetermining which entities are consolidated in the consolidated financial statements and sets out the accountingrequirements for the preparation of consolidated financial statements. It replaces all the guidance on control andconsolidation in MFRS 127 "Consolidated and separate financial statements" and IC Interpretation 112 "Consolidation– special purpose entities".

• MFRS 11 "Joint arrangements" (effective from 1 January 2013) requires a party to a joint arrangement to determinethe type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement,rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operationsarise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accountsfor its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights tothe net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint venturesis no longer allowed.

• MFRS 12 "Disclosures of interests in other entities" (effective from 1 January 2013) sets out the required disclosuresfor entities reporting under the two new standards, MFRS 10 and MFRS 11, and replaces the disclosure requirementscurrently found in MFRS 128 "Investments in associates". It requires entities to disclose information that helps financialstatement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries,associates, joint arrangements and unconsolidated structured entities.

• MFRS 13 "Fair value measurement" (effective from 1 January 2013) aims to improve consistency and reducecomplexity by providing a precise definition of fair value and a single source of fair value measurement and disclosurerequirements for use across MFRSs. The requirements do not extend the use of fair value accounting but provideguidance on how it should be applied where its use is already required or permitted by other standards. The enhanceddisclosure requirements are similar to those in MFRS 7 "Financial instruments: Disclosures", but apply to all assets andliabilities measured at fair value, not just financial ones.

• The revised MFRS 127 "Separate financial statements" (effective from 1 January 2013) includes the provisions onseparate financial statements that are left after the control provisions of MFRS 127 have been included in the newMFRS 10.

• The revised MFRS 128 "Investments in associates and joint ventures" (effective from 1 January 2013) includes therequirements for joint ventures, as well as associates, to be equity accounted following the issue of MFRS 11.

• Amendment to MFRS 7 "Financial instruments: Disclosures on transfers of financial assets" (effective from 1 July 2011)promotes transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposuresrelating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly thoseinvolving securitisation of financial assets.

• Amendment to MFRS 101 "Financial statement presentation" (effective from 1 July 2012) requires entities to separateitems presented in 'other comprehensive income' ('OCI') in the statement of comprehensive income into two groups,based on whether or not they may be recycled to income statement in the future. The amendments do not addresswhich items are presented in OCI.

The Group and the Bank will apply these standards when effective.



(B) ECONOMIC ENTITIES IN THE GROUP

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

Subsidiaries

Subsidiaries are all those corporations or other entities over which the Group has power to govern the financial and operatingpolicies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potentialvoting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are consolidated using the acquisition method of accounting except for certain business combinations which wereaccounted for using the predecessor basis of accounting as follows:

• subsidiaries that were consolidated prior to 1 April 2002 in accordance with Malaysian Accounting Standard 2 "Accountingfor Acquisitions and Mergers", the generally accepted accounting principles prevailing at that time

• business combinations consolidated on/after 1 April 2002 but with agreement dates before 1 January 2006 that meet theconditions of a merger as set out in MASB 21 "Business Combinations"

• internal group reorganisations, as defined in MASB 21, consolidated on/after 1 April 2002 but with agreement dates before1 January 2006 where:

- the ultimate shareholders remain the same, and the rights of each such shareholder, relative to the others, areunchanged; and

- the minorities' share of net assets of the Group is not altered by the transfer

• combinations involving entities or businesses under common control with agreement dates on/after 1 January 2006.

The Group has taken advantage of the transitional provision provided by MASB 21, FRS 3 and FRS 3 (revised) to apply theseStandards prospectively. Accordingly, business combinations entered into prior to the respective effective dates have not beenrestated to comply with these Standards.

Under the acquisition method of accounting, subsidiaries are fully consolidated from the date on which control is transferred tothe Group and are de-consolidated from the date that control ceases.

The consideration transferred for acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred andthe equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting froma contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired andliabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisitiondate.

In a business combination achieved in stages, the previously held equity interest in the acquiree is re-measured at its acquisitiondate fair value and the resulting gain or loss is recognised in income statement.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-datefair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assetsacquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargainpurchase, the gain is recognised in income statement. Refer to accounting policy Note (C) on goodwill.



(B) ECONOMIC ENTITIES IN THE GROUP (continued)

Subsidiaries (continued)

Change in accounting policy

The Group has changed its accounting policy on business combinations when it adopted the revised FRS 3 "Businesscombinations" and FRS 127 "Consolidated and separate financial statements".

Previously, contingent consideration in a business combination was recognised when it is probable that payment will be made.Acquisition-related costs were included as part of the cost of business combination. Any adjustment to the fair values of thesubsidiary’s identifiable assets, liabilities and contingent liabilities relating to previously held interests of the Group was accountedfor as a revaluation.

The Group has applied the new policies prospectively to transactions occurring on or after 1 January 2011. As a consequence,no adjustments were necessary to any of the amounts previously recognised in the financial statements.

The adoption of the new policies has no impact on the results of the Group as there is no business combination during the year.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealisedlosses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries havebeen changed where necessary, to ensure consistency with the policies adopted by the Group.

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

Changes in ownership interests

When the Group ceases to have control or joint control, any retained interest in the entity is remeasured to its fair value with thechange in carrying amount recognised in income statement. This fair value is its fair value on initial recognition as a financial assetin accordance with FRS 139. Any amounts previously recognised in other comprehensive income in respect of that entity areaccounted for as if the Group had directly disposed of the related assets or liabilities.

Change in accounting policy

The Group has changed its accounting policy prospectively for transactions occurring on or after 1 January 2011 for transactionsinvolving the loss of control or joint control when it adopted the revised FRS 127 "Consolidated and Separate FinancialStatements". The revisions to FRS 127 contained consequential amendments to FRS 131 "Interests in Joint Ventures".

Previously when the Group ceased to have control or joint control over an entity, the carrying amount of the investment at thedate control or joint control ceased became its cost on initial measurement as a financial asset in accordance with FRS 139.

The adoption of the new policy has no impact on the results of the Group as there is no transactions involving the loss of controlor joint control during the year.



(B) ECONOMIC ENTITIES IN THE GROUP (continued)

Jointly controlled entity

Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of controlby the Group with one or more parties where the strategic financial and operating decisions relating to the entities requireunanimous consent of the parties sharing control.

Investment in jointly controlled entities are accounted for in the consolidated financial statements using the equity method ofaccounting and are initially recognised at cost. The Group's investment in jointly controlled entities includes goodwill identified onacquisition, net of any accumulated impairment loss.

The Group's share of the post-acquisition profits or losses of the jointly controlled entities are recognised in the income statement,and its share of the post-acquisition movements in reserves are recognised in other comprehensive income. The cummulativepost-acquisition movements are adjusted against the carrying amount of the investment.

When the Group's share of losses in a jointly controlled entities equals or exceeds its interest in the jointly controlled entity,including any other unsecured receivables, the Group's interest is reduced to nil and recognition of further losses is discontinuedexcept to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the jointlycontrolled entity.

Unrealised gains on transactions between the Group and its jointly controlled entity are eliminated to the extent of the Group'sinterest in the jointly controlled entity; unrealised losses are also eliminated unless the transaction provides evidence on impairmentof the asset transferred. Where neccessary, adjustments have been made to the financial statements of jointly controlled entitiesto ensure consistency of accounting policies with those of the Group.

Investment in subsidiaries and jointly controlled entity

In the Bank's separate financial statements, the investment in subsidiaries and jointly controlled entity is stated at cost lessaccumulated impairment losses. At each reporting date, the Bank assesses whether there is any indication of impairment. If suchindication exist, an analysis is performed to assess whether the carrying amount of the investment is fully recoverable. A write-down is made if the carrying amount exceeds the recoverable amount. Any subsequent increase in recoverable amount isrecognised in the income statement (refer to accounting policy D for impairment of non-financial assets).

On disposal of investment in subsidiaries and jointly controlled entity, the difference between disposal proceed and the carryingamounts of the investments are recognised in profit or loss.

(C) INTANGIBLE ASSET

Goodwill

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

Goodwill on acquisition of subsidiaries are included in the statement of financial position as intangible assets. Goodwill is testedfor 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. Impairmentlosses on goodwill (inclusive of impairment losses recognised in a previous interim period) are not reversed. Gains and losses onthe 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 thoseCGUs that are expected to benefit from the synergies of the business combination in which goodwill arose identified accordingto operating segment.



(C) INTANGIBLE ASSET (continued)

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 arestated at cost less accumulated amortisation and accumulated impairment losses, if any.

Costs associated with developing or maintaining computer software programmes are recognised as an expense when incurred.Costs that are directly associated with identifiable and unique software products controlled by the Group, and that will probablygenerate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include softwaredevelopment employee costs and appropriate portion of relevant overhead.

(D) IMPAIRMENT OF NON-FINANCIAL ASSETS

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

An impairment loss is recognised for the amount by which the assets's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessingimpairment, 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 eachreporting date.

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

(E) RECOGNITION OF INTEREST / FINANCING INCOME

Financial assets classified as held-to-maturity and loans and receivables are measured at amortised cost using effective interestmethod. Interest income is recognised using effective interest rates ('EIR'), which is the rate that exactly discounts estimatedfuture cash receipts through the expected life of the loan or, when appropriate, a shorter period to the net carrying amount of the loan.

When a loan is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flowdiscounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.Interest income on impaired financing is recognised using the original effective interest rate.

Islamic financing income is recognised on an accrual basis in accordance with the Shariah principles and Guidelines on FinancialReporting for Licensed Islamic Banks ('BNM/GP8-i'). Al-Ijarah Thumma Al-Bai' ('AITAB') financing income recognised using theeffective income rates method over the lease terms, whilst Al-Bai' Bithaman Ajil ('BBA'), Al-Murabahah, Al-Istisna' and Bai'-Inahfinancing income is recognised on a monthly basis over the period of the financing contracts, based on an agreed profit at theinception of such contracts.

Interest income from securities portfolio is recognised on an accrual basis using the effective interest method. The interest incomeincludes coupons earned/accrued and accretion/amortisation of discount/premium on these securities.



(F) RECOGNITION OF FEES, OTHER INCOME AND INTEREST EXPENSE

Loan arrangement fees and commissions are recognised as income when all conditions precedent are fulfilled.

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

Dividends from subsidiaries are recognised when the shareholders' right to receive payment is established.

Dividends from securities portfolio are recognised when received.

Fees and other profit from Islamic banking business are recognised on an accrual basis in accordance with the principles of Shariah.

Interest expense and attributable profit payable on deposits and borrowings are recognised on an accrual basis.

(G) FINANCIAL ASSETS

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

The Group and the Bank allocates financial assets to the following FRS 139 categories: loans, advances and financing; financialassets 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 theloan including any transaction costs and measured subsequently at amortised cost using the effective interest rate method, lessimpairment allowance.

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

At each reporting date, the Group and the Bank assess whether there is objective evidence that a loan or group of loans isimpaired. A loan or a group of loans is impaired and impairment losses are incurred only if there is objective evidence of impairmentas 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 amongothers:

• past due contractual payments;• significant financial difficulties of borrower;• probability of bankruptcy or other financial re-organisation;• default of related borrower.



(G) FINANCIAL ASSETS (continued)

Loans, advances and financing (continued)

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

The Group and the Bank first assess whether objective evidence of impairment exists individually for loans that are individuallysignificant, and individually or collectively for loans that are not individually significant. If the Group and the Bank determine thatno objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the loan in agroup of loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are individuallyassessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collectiveassessment 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 futurecash flows (excluding future credit losses that have not been incurred) discounted at the loan’s original effective interest rate. Thecarrying amount of the loan is reduced through the use of an allowance account and the amount of the loss is recognised in theincome statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effectiveinterest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that mayresult 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. Thosecharacteristics 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 contractualcash flows of the loans in the Bank and historical loss experience for loans with credit risk characteristics similar to those in theBank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions thatdid not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historicalperiod 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 relatedobservable data from period to period (for example, changes in unemployment rates, property prices, payment status, or otherfactors indicative of changes in the probability of losses in the Group and the Bank and their magnitude). The methodology andassumptions used for estimating future cash flows are reviewed regularly by the Group and the Bank to reduce any differencesbetween loss estimates and actual loss experience.

The collective assessment is also subject to the transitional arrangement prescribed in BNM's guidelines on Classification andImpairment Provisions for Loans/Financing issued on 17 December 2010.




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 theGroup 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 itin the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there isevidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-fortrading unless they aredesignated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as 'Derivativefinancial 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'.

Financial instruments included in this category are recognised intially at fair value; transaction costs are taken directly to theincome statement. Gains and lossess arising from changes in fair value are included directly in the income statement.

The Group and the Bank may designate certain financial assets upon initial recognition as at fair value through profit or loss (fairvalue option). This designation cannot subsequently be changed. The fair value option is only applied when the following conditionsare 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 assetsdesignated at fair value'. Fair value changes relating to financial assets designated at fair value through profit or loss are recognisedin 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 notclassified as held-for-trading or held-to-maturity investments.

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

Any gains or losses arising from the change in fair value adjustments are recognised directly in statement of comprehensiveincome except for impairment losses and foreign exchange gains or losses. When the financial asset is derecognised, thecumulative 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 fromthe available-for-sale classification where the Group and the Bank have the intention and the ability to hold the asset for theforeseeable future or until maturity.




Financial investments available-for-sale (continued)

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

In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the securitybelow its cost is objective evidence of impairment resulting in the recognition of an impairment loss. Impairment losses recognisedin 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 maturitythat the Group and the Bank have the positive intention and ability to hold to maturity.

Financial investments held-to-maturity are measured at amortised cost using the effective interest method. Gains or losses arerecognised 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 calssify a financial investment as held-to-maturity, theGroup and the Bank shall reclassify the investment as available-for-sale and remeasured at fair value, and the difference betweenits carrying amount and fair value shall be recognised in other comprehensive income, except for impairment losses and foreignexchange gains and losses.

Any sale or reclassification of a significant amount of financial investments held-to-maturity before maturity during the currentfinancial year or last two preceding financial years will “taint” the entire category and result in the remaining financial investmentsheld-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 thefinancial asset's fair value;

• 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 ofestimated future cash flows discounted at the financial investments' original effective interest rate. Subsequent reversal ofimpairment is allowed in the event of an objective decrease in impairment. Recognition of impairment losses and its reversal ismade through the income statement.

Recognition

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

De-recognition

Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to existor 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 risk and rewards have not been transferred, the Group and the Bank tests control to ensure thatcontinuing involvement on the basis of any retained powers of control does not prevent the de-recognition).



(H) FINANCIAL LIABILITIES

All financial liabilities which include derivative financial instruments have to be recognised in the statement of financial position andmeasured 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 financialliabilities held-for-trading and those that designated at fair value) and financial liabilities at amortised cost. Financial liabilities arederecognised 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 designatedby 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 repurchasingit in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there isevidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held-for-trading unless they aredesignated and effective as hedging instruments. Derivatives are recognised in the statement of financial position as 'Derivativefinancial 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 incomestatement.

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 amortisedcost. All the 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.

(I) OFFSETTING FINANCIAL INSTRUMENTS

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

(J) PROPERTY AND EQUIPMENT AND DEPRECIATION

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includesexpenditure 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 isprobable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measuredreliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the incomestatement during the financial period in which they are incurred.



(J) PROPERTY AND EQUIPMENT AND DEPRECIATION (continued)

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

Buildings 50 yearsLeasehold buildings Over the remaining lease periodRenovation and leasehold premises 5 years or the period of the lease whichever is greaterOffice equipment and furniture 10 yearsComputer equipment and software 5 yearsMotor 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 analysisis performed to assess whether the carrying amount of the asset is recoverable. A write down is made if the carrying amountexceeds the recoverable amount. Any subsequent increase in the recoverable amount is recognised in the income statement (referto accounting policy D on impairment of non-financial assets).

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

(K) LEASES

Accounting by lessee

Finance leases

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

Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate on the financebalance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interestelement of the finance charge is charged to the income statement over the lease period so as to produce a constant periodicrate of interest on the remaining balance of the liability for each period. Property and equipment acquired under finance leasesare 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 leasedassets and recognised as an expense in income statement over the lease term on the same basis as the lease expense.



(K) LEASES (continued)

Accounting by lessee (continued)

Operating leases

Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified asoperating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to theincome 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 whenincurred.

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. Thedifference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Leaseincome 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 thenature of the asset. Lease income is recognised over the term of the lease on a straight-line basis.

(L) 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 economicenvironment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in RinggitMalaysia, which is the Group and the Bank’s functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchanges rate prevailing at the dates of thetransactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation atyear-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the incomestatement, 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 analysedbetween translation differences resulting from changes in the amortised cost of the financial asset and other changes in thecarrying amount of the financial asset. Translation differences related to changes in the amortised cost are recognised in incomestatement, 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 equitiesclassified as available-for-sale are included in the fair value reserve in other comprehensive income.



(M) 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 subsequentlyremeasured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent markettransactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. Allderivatives 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 considerationgiven or received) unless fair value of the instrument is evidenced by comparison with other observable current market transactionsin the same instrument (i.e without modification or repackaging) or based on a valuation technique whose variables include onlydata from observable markets. When such evidence exists, the Group and the Bank recognise profits immediately.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedginginstrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of thefair value of recognised assets or liabilities or firm commitments (fair value hedge); or (2) hedges of highly probable future cashflows attributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge). Hedge accounting is used fordesignated 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, aswell as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents itsassessment, both at hedge inception and an on-going basis, of whether the derivatives that are used in hedging transactions arehighly 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 whichthe effective interest method is used, is amortised to income statement over the period to maturity. The adjustment to the carryingamount of a hedged equity security remains in retained earnings until the disposal of the equity security.

Cash flow hedge

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

Amounts accumulated in other comprehensive income are recycled to the income statement in the periods in which the hedgeditem 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 cumulativegain or loss existing at that time remains in other comprehensive income and is recognised when the forecast transaction isultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cummulative gainor 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 doesnot 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 amortisedover the life of hedged assets or liabilities as adjustments to interest income or interest expense. Gains and losses on interest rateswaps, futures, forward and option contracts that do not qualify as hedges are recognised in the current financial year using themark-to-market method and are included in the income statement.



(N) 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 extentthat it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised inother 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 thereporting 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 issubject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the taxauthorities. 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 toassets and liabilities for tax purposes and their carrying amounts in the financial statements. However, deferred tax is notaccounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that atthe time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductibletemporary 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 thereporting 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 exceptwhere the timing of the reversal of the temporary difference can be controlled by the Group and it is possible that the temporarydifference 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 againstcurrent tax liabilities and when the deferred income tax assets and liabilities relate to taxes levied by the same taxation authorityon either the taxable entity or different taxable entities where there is an intention to settle the balances on net basis.

(O) ZAKAT

Zakat represents business zakat payable by the Group to comply with the principles of Shariah and as approved by the ShariahCommittee. The Bank's subsidiary, AFFIN Islamic Bank Berhad only pays zakat on its business and does not pay zakat on behalfof depositors or shareholders. Zakat provision is calculated based on 2.5% of the net asset method.

(P) CASH AND CASH EQUIVALENTS

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

(Q) FORECLOSED PROPERTIES

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



(R) CONTINGENT LIABILITIES AND CONTINGENT ASSETS

The Group and the Bank does not recognise a contingent liability but discloses its existence in the financial statements. Acontingent 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 isnot recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liabilityalso 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 doesnot recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain.

(S) BILLS AND ACCEPTANCES PAYABLE

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

(T) 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 reimbursementis recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for futureoperating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined byconsidering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to anyone 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-taxrate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase inthe provision due to passage of time is recognised as finance cost expense.

(U) 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 theassociated services are rendered by employees of the Group.



(U) EMPLOYEE BENEFITS (continued)

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 funddoes 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 orwhenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefitswhen it is demonstrably committed to either terminate the employment of current employees according to a detailed formal planwithout any possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntaryredundancy.

(V) FINANCIAL GUARANTEE CONTRACT

Financial guarantee contracts are contracts that require the Group or Bank to make specified payments to reimburse the holderfor a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debtinstrument. 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 financialguarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms and the value of the premiumagreed 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 FRS 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 contractualpayments under the debt instrument and the payments that would be required without the guarantee, or the estimated amountthat 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, thefair values are accounted for as contributions and recognised as part of the cost of investment in subsidiaries.



1 GENERAL INFORMATION

The Bank is principally engaged in all aspects of banking and related financial services. The principal activities of the Bank'ssubsidiaries are Islamic banking business, property management services, nominee and trustee services. There have been nosignificant changes in these principal activities during the financial year.

The number of employees in the Group and the Bank as at 31 December 2011 was 3,293 (2010: 3,113) and 3,095 (2010: 2,933)employees respectively.

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

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

2 CASH AND SHORT-TERM FUNDS


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

Cash and bank balances with banksand other financial institutions 172,014 172,530 168,388 169,157

Money at call and deposit placementsmaturing within one month 9,707,352 8,467,927 5,359,051 5,939,295

9,879,366 8,640,457 5,527,439 6,108,452

3 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS


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

Licensed banks 156,235 15,681 768,529 388,076Licensed investment banks 330,459 176,841 330,459 176,841

486,694 192,522 1,098,988 564,917

4 FINANCIAL ASSETS HELD-FOR-TRADING


RM'000 RM'000 RM'000 RM'000At fair valueBank Negara Malaysia Monetary Notes 149,832 99,853 149,832 99,853Negotiable Instruments of Deposit - 50,092 - 50,092

149,832 149,945 149,832 149,945

NOTES TO THE FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011



5 FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE


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

At fair valueMalaysian Government treasury bills 39,421 166,566 39,421 137,730Malaysian Government securities 430,728 763,701 430,728 763,701Malaysian Government investment issues 2,611,724 1,410,778 1,915,445 674,170BNM Sukuk - 32,017 - -Bank Negara Malaysia Monetary Notes 174,620 1,006,592 24,949 849,557Negotiable Instruments of Deposit and

Islamic Debt Certificates 802,322 141,072 802,322 141,072Bankers' acceptances and Islamic accepted bills - 556,994 - 556,994Khazanah bonds 14,262 13,250 - -

4,073,077 4,090,970 3,212,865 3,123,224Quoted securities:Shares in Malaysia 33,585 51,375 23,230 40,920Private debt securities in Malaysia 2,167 2,167 2,167 2,167

Unquoted securities:Shares in Malaysia 105,902 93,173 105,833 93,101Private debt securities- in Malaysia 1,935,129 1,266,117 1,315,135 899,797- outside Malaysia 576,894 340,620 576,894 329,523

6,726,754 5,844,422 5,236,124 4,488,732Allowance for impairment of securities (28,336) (40,005) (21,591) (33,260)

6,698,418 5,804,417 5,214,533 4,455,472

6 FINANCIAL INVESTMENTS HELD-TO-MATURITY


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

At amortised costQuoted securities:Private debt securities in Malaysia 34,623 38,123 34,623 38,123

Unquoted securities:Private debt securities in Malaysia 574,066 482,166 574,066 481,998

608,689 520,289 608,689 520,121Allowance for impairment of securities (87,584) (87,752) (87,584) (87,584)

521,105 432,537 521,105 432,537


7 LOANS, ADVANCES AND FINANCING


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

(i) By type

Overdrafts 1,856,907 1,971,364 1,649,343 1,747,438Term loans/financing- Housing loans/financing 4,544,089 3,885,327 3,273,275 2,831,771- Hire purchase receivables 8,869,439 7,835,986 7,637,022 6,774,821- Syndicated financing 1,409,858 1,371,964 1,265,396 1,254,969- Other term loans/financing 9,980,935 7,784,898 8,633,582 6,850,106Bills receivables 42,928 39,077 42,534 37,688Trust receipts 374,449 266,050 340,869 222,092Claims on customers under acceptances credits 694,365 659,074 602,521 601,137Staff loans/financing (of which RM Nil to Directors) 147,691 151,146 138,821 143,110Credit/charge cards 93,116 101,682 93,116 101,682Revolving credits 2,286,027 2,476,644 2,153,483 2,334,181Factoring 12,318 3,185 12,318 3,185

Gross loans, advances and financing 30,312,122 26,546,397 25,842,280 22,902,180Less:Allowance for impairment- Individual (168,257) (175,849) (133,329) (139,709)- Collective (451,599) (395,701) (390,890) (343,220)

Total net loans, advances and financing 29,692,266 25,974,847 25,318,061 22,419,251

- Included in term loans are housing loans sold to Cagamas Berhad with recourse amounting to RM428,459,000 (2010: RM288,891,000).

- Included in Group's other term loan/financing as at reporting date is RM23.3 million (2010: RM13.5 million) of termfinancing disbursed by AFFIN Islamic Bank Bhd to jointly controlled entity, AFFIN-i Goodyear Sdn Bhd.

(ii) By maturity structure


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

Maturing within one year 5,745,936 6,552,073 5,128,886 5,989,754One year to three years 3,738,038 2,748,818 3,511,510 2,581,046Three years to five years 5,386,223 4,411,920 4,689,710 3,906,606Over five years 15,441,925 12,833,586 12,512,174 10,424,774

30,312,122 26,546,397 25,842,280 22,902,180



7 LOANS, ADVANCES AND FINANCING (continued)


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

(iii) By type of customer

Domestic banking Institutions 949 - 949 -Domestic non-banking institutions- Stockbroking companies - 270 - 270- Others 2,078,889 2,146,330 1,771,630 1,724,629Domestic business enterprises- Small medium enterprises 7,573,762 6,789,502 6,989,064 6,311,415- Others 7,257,740 5,785,703 6,409,423 5,265,662Government and statutory bodies 65,487 75,394 49,642 75,394Individuals 12,908,539 11,473,630 10,438,005 9,369,378Other domestic entities 164,857 45,584 47,337 43,749Foreign entities 261,899 229,984 136,230 111,683

30,312,122 26,546,397 25,842,280 22,902,180

(iv) By interest/profit rate sensitivity

Fixed rate- Housing loans/financing 283,990 286,138 191,221 183,375- Hire purchase receivables 8,869,438 7,834,034 7,637,022 6,773,029- Other fixed rate loans/financing 4,482,642 3,934,311 3,887,802 3,400,299Variable rate- BLR plus 11,271,790 10,210,602 9,225,843 8,596,943- Cost plus 5,404,262 4,281,312 4,900,392 3,948,534

30,312,122 26,546,397 25,842,280 22,902,180

(v) By economic sectors

Primary agriculture 489,126 482,204 402,511 385,200Mining and quarrying 431,334 373,899 431,167 373,664Manufacturing 2,272,033 1,790,610 2,051,720 1,660,682Electricity, gas and water supply 160,641 194,137 159,825 193,273Construction 2,433,031 2,367,389 2,108,657 2,027,689Real estate 3,000,445 2,328,423 2,557,560 2,283,744Wholesale & retail trade andrestaurants & hotels 1,436,865 1,213,751 1,392,540 1,164,859

Transport, storage and communication 1,582,862 921,590 1,572,087 915,146Finance, insurance and business services 4,266,707 4,396,591 3,833,101 3,809,129Education, health and others 1,146,839 855,655 734,469 584,559Household 13,039,953 11,579,272 10,549,125 9,461,991Others 52,286 42,876 49,518 42,244

30,312,122 26,546,397 25,842,280 22,902,180





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

(vi) By economic purpose

Purchase of securities 131,246 268,145 131,165 254,706Purchase of transport vehicles 9,112,854 7,869,187 7,880,728 6,807,263Purchase of landed property of which:- Residential 4,632,718 3,982,258 3,258,417 2,913,043- Non-residential 3,791,366 2,637,636 3,042,970 2,211,785Fixed assets other than land and building 326,549 339,184 276,513 329,088Personal use 819,498 721,877 780,772 689,560Credit card 93,116 101,682 93,116 101,682Consumer durable 958 1,067 932 1,033Construction 1,594,137 772,577 1,444,217 648,490Merger and acquisition 98,651 4,867 98,651 4,867Working capital 9,489,000 9,635,096 8,618,767 8,739,309Others 222,029 212,821 216,032 201,354

30,312,122 26,546,397 25,842,280 22,902,180

(vii) By geographical distribution

Perlis 56,604 27,648 53,590 25,762Kedah 942,274 902,980 728,495 691,342Pulau Pinang 1,525,797 1,271,331 1,424,482 1,176,306Perak 917,610 853,633 719,023 689,294Selangor 9,330,844 7,602,382 7,858,891 6,423,997Wilayah Persekutuan 8,886,609 8,720,586 7,675,315 7,876,473Negeri Sembilan 753,916 721,564 683,030 660,393Melaka 696,178 663,856 656,132 623,077Johor 2,631,232 2,027,324 2,456,572 1,889,371Pahang 633,914 623,000 378,967 368,284Terengganu 580,189 567,382 252,758 277,903Kelantan 268,161 256,176 58,223 58,335Sarawak 1,011,152 732,788 985,563 707,464Sabah 1,272,938 1,173,362 1,211,948 1,137,077Labuan 262,731 277,901 262,722 277,889Outside Malaysia 541,973 124,484 436,569 19,213

30,312,122 26,546,397 25,842,280 22,902,180





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

(viii) Movements of impaired loans

At beginning of the financial year 971,123 1,039,783 818,522 908,943Classified as impaired 535,462 689,486 422,487 596,797Reclassified as non-impaired (343,790) (313,791) (273,189) (271,704)Amount recovered (185,271) (221,338) (165,246) (198,624)Amount written-off (111,862) (223,017) (109,256) (216,890)

At end of the financial year 865,662 971,123 693,318 818,522

Ratio of gross impaired loans, advancesand financing to gross loans, advances and financing 2.85% 3.66% 2.68% 3.57%

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

Individual impairmentAt beginning of the financial year 175,849 175,953 139,709 152,725Provision for loan impairment 116,909 198,023 111,880 172,716Amount recovered (13,571) (20,669) (12,198) (10,778)Amount written-off (96,224) (170,906) (93,889) (169,730)Unwinding of discount of allowance (14,706) (6,552) (12,173) (5,224)


Collective impairmentAt beginning of the financial year 395,701 449,893 343,220 405,968Provision for loan impairment/(recovered) 67,662 (3,044) 59,788 (16,409)Amount written-off (12,118) (49,850) (12,118) (46,339)Exchange differences 354 (1,298) - -


(x) Impaired loans by economic sectors

Primary agriculture 7,855 11,937 7,810 11,874Mining and quarrying - 50 - -Manufacturing 48,663 99,831 28,197 78,707Electricity, gas and water supply 1,928 2,360 1,662 2,066Construction 189,515 252,660 121,609 175,208Real estate 4,159 8,263 4,159 8,263Wholesale & retail trade and restaurants & hotels 34,519 48,103 32,299 45,555Transport, storage and communication 5,086 4,633 5,086 4,633Finance, insurance and business services 51,926 15,108 23,537 14,469Education, health and others 8,547 8,301 8,510 8,301Household 509,810 519,877 456,892 469,446Others 3,654 - 3,557 -

865,662 971,123 693,318 818,522





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

(xi) Impaired loans by economic purpose

Purchase of securities 2,721 2,741 2,721 2,741Purchase of transport vehicles 106,606 81,586 95,291 73,743Purchase of landed property of which:- Residential 382,814 407,763 340,922 365,321- Non-residential 34,354 44,744 33,850 44,119Fixed assets other than land and building 17,758 3,633 17,758 3,185Personal use 12,699 16,373 8,611 16,170Credit card 499 636 499 636Consumer durable 33 34 33 34Construction 63,547 63,407 57 1,694Working capital 243,112 349,989 192,157 310,666Others 1,519 217 1,419 213

865,662 971,123 693,318 818,522

(xii) Impaired loans by geographical distribution

Perlis 332 840 332 840Kedah 24,835 40,612 23,834 39,228Pulau Pinang 25,585 30,120 23,774 27,892Perak 23,884 16,202 21,332 14,559Selangor 407,273 426,852 360,343 382,454Wilayah Persekutuan 122,787 185,642 110,570 173,975Negeri Sembilan 39,790 37,483 37,609 35,466Melaka 16,229 15,854 16,033 15,356Johor 65,744 88,097 62,945 85,252Pahang 11,840 17,013 8,122 13,368Terengganu 5,776 8,009 3,156 6,529Kelantan 7,193 6,171 2,707 3,011Sarawak 7,694 6,614 7,456 6,387Sabah 15,533 14,387 15,090 14,160Labuan 15 45 15 45Outside Malaysia 91,152 77,182 - -

865,662 971,123 693,318 818,522



8 OTHER ASSETS


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

Other debtors, deposits and prepayments 21,421 21,623 20,923 20,222Clearing accounts 104,755 4,160 56,775 4,077Foreclosed properties (a) 40,337 160,648 38,962 160,253Others 30 30 30 30

166,543 186,461 116,690 184,582

(a) Foreclosed properties

At beginning of the financial year 160,648 180,329 160,253 179,916Amount arising during the financial year 1,190 1,370 - 1,370Disposal during the financial year (118,959) (18,611) (118,959) (18,611)

42,879 163,088 41,294 162,675Foreclosed properties - diminution in value (2,542) (2,440) (2,332) (2,422)


9 DERIVATIVE FINANCIAL ASSETS

The Group and The Bank The Group and The Bank2011 2010

Contract/ Contract/notional notionalamount Assets amount AssetsRM'000 RM'000 RM'000 RM'000

At fair valueForeign exchange derivatives:Currency forwards 246,307 2,433 240,549 2,381Cross currency swaps 879,504 16,097 1,347,158 35,206

Interest rate derivatives:Interest rate swap 444,560 31,371 576,120 17,394

1,570,371 49,901 2,163,827 54,981



10 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 currenttax liabilities and when the deferred taxes relate to the same tax authority. The following amounts determined after appropriateoffsetting, are shown in the statement of financial position:


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

Deferred tax assets:- to be recovered after more than 12 months - 5,221 - -- to be recovered within 12 months - (930) - -

- 4,291 - -

Deferred tax liabilities:- to be recovered after more than 12 months (6,099) (2,876) (5,263) (2,876)- to be recovered within 12 months (14,019) (22,056) (13,948) (22,056)

(20,118) (24,932) (19,211) (24,932)

At beginning of the financial year (20,641) 33,665 (24,932) 35,121

(Charged)/credited to income statement (Note 34) 7,453 (50,191) 13,325 (57,219)

- property and equipment (73) 913 (36) 844- intangible assets (424) 2,908 24 3,092- general allowance on bad and doubtful debts - (83,767) - (72,750)- collective allowances (transitional provision) for bad

and doubtful financing (6,785) 6,785 (267) 267- revaluation gain on forex - 13,507 - 11,879- revaluation gain on derivatives - 2,929 - 2,929- others 14,735 6,534 13,604 (3,480)

Charged to equity (6,930) (4,115) (7,604) (2,834)

At end of the financial year (20,118) (20,641) (19,211) (24,932)



10 DEFERRED TAX ASSETS / (LIABILITIES) (continued)

The movements in deferred tax assets and liabilities during the financial year are as follows:


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

Subject to income taxDeferred tax assets (before offsetting)Collective allowances (transitional provision) for

bad and doubtful financing - 6,785 - 267Others 14,747 12 13,616 12

14,747 6,797 13,616 279Offsetting (14,747) (2,506) (13,616) (279)

Deferred tax assets (after offsetting) - 4,291 - -

Deferred tax liabilities (before offsetting)Property and equipment (5,413) (5,340) (5,095) (5,059)Intangible assets (5,676) (5,252) (4,862) (4,886)AFS revaluation reserves (23,776) (16,846) (22,870) (15,266)

(34,865) (27,438) (32,827) (25,211)Offsetting 14,747 2,506 13,616 279

Deferred tax liabilities (after offsetting) (20,118) (24,932) (19,211) (24,932)

The amount of unused tax losses for which no deferred tax asset is recognised in the statement of financial position are as follows:

Tax losses 103,871 105,260 - -

11 STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA

A non-interest bearing statutory deposit is maintained with Bank Negara Malaysia in compliance with requirements of Section26(2)(c) of the Central Bank of Malaysia Act 2009, the amounts of which is determined at a set percentages of total eligible liabilities.



12 INVESTMENT IN SUBSIDIARIES

The Bank2011 2010

RM'000 RM'000

Unquoted shares, at cost 319,557 319,557Less: Allowance for impairment losses (32,168) (32,128)

287,389 287,429

The subsidiaries of the Bank, all of which are incorporated in Malaysia, are as follows:

Percentage of equity held2011 2010

Name Principal Activities % %

AFFIN Islamic Bank Bhd Islamic banking business 100 100PAB Properties Sdn Bhd Property management services 100 100ABB Nominee (Tempatan) Sdn Bhd Share nominee services 100 100ABB Nominee (Asing) Sdn Bhd Share nominee services 100 100ABB Trustee Berhad* Trustee management services 100 100AFFIN Factors Sdn Bhd Dormant 100 100AFFIN Futures Sdn Bhd Dormant 100 100PAB Property Management Services Sdn Bhd Dormant 100 100PAB Property Development Sdn Bhd Dormant 100 100ABB Venture Capital Sdn Bhd Dormant 100 100ABB IT & Services Sdn Bhd Dormant 100 100BSNCB Nominees (Tempatan) Sdn Bhd Dormant 100 100BSNC Nominees (Tempatan) Sdn Bhd Dormant 100 100ABB Asset Management (M) Bhd Dormant 100 100AFFIN Recoveries Bhd Dormant 100 100BSN Merchant Nominees (Tempatan) Sdn Bhd Dormant 100 100BSN Merchant Nominees (Asing) Sdn Bhd Dormant 100 100AFFIN-ACF Nominees (Tempatan) Sdn Bhd Dormant 100 100

* 80% held by Directors of the Bank, in trust for the Bank.



13 INVESTMENT IN JOINTLY CONTROLLED ENTITY

The Group2011 2010

RM'000 RM'000

Unquoted shares at cost 500 500Group's share of post acquisition retained losses (210) -

290 500

The Group did not account for the share of post acquisition retained losses in 2010 as it is immaterial and has not commencedthe development of land.

The summarised financial information of jointly controlled entity are as follows:

Revenue 10 2Loss after tax (420) (89)Total assets 31,711 21,518Total liabilities 31,132 20,619

The jointly controlled entity was incorporated on 1 April 2008 and the details are as follows:

Issued and Percentage ofpaid up equity held

Name Principal activities share capital 2011 2010RM'000 % %

AFFIN-i Goodyear 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 Mutiara Goodyear Development Berhad,entered into a joint venture agreement under the Shariah principles ('Musharakah Agreement') to develop a land into a housingscheme at Bukit Gambir, Pulau Pinang.

The agreement also includes an arrangement where Jurus Positif Sdn Bhd may acquire the Bank's shares upon the completionof 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 Goodyear Sdn Bhd requires unanimousconsent by both joint venture parties. The Group's interest in AFFIN-i Goodyear Sdn Bhd has been treated as investment injointly controlled entity, which has been accounted for in the consolidated financial statements using the equity method of accounting.

14 AMOUNT DUE FROM SUBSIDIARIES

The Bank2011 2010

RM'000 RM'000

Advances to a subsidiary 355,535 183,541Other receivables 1,362 1,730

356,897 185,271

The advances of RM355,535,000 (2010: RM183,541,000) to subsidiary is unsecured, bear interest at 3.02% per annum (2010:2.62%) and have no fixed terms of repayment.



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47)

At 3

1 D

ecem

ber

2011

22

,811

12

,862

5,

380

32,0

13

89,0

69

105,

357

54,4

48

67,6

17

3,96

3 1,

865

395,

385

Acc

um

ula

ted

dep

reci

atio

n

and

imp

airm

ent

loss

esA

t 1 J

anua

ry 2

011

- 1,

811

1,33

2 13

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19

,793

83

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33

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53

,693

2,

765

- 20

9,72

3C

harg

e fo

r th

e fin

anci

al y

ear

- 11

2 12

0 53

5 1,

789

6,88

4 3,

059

6,02

6 34

7 -

18,8

72D

ispo

sal

- -

- (5

42)

- (7

99)

(183

) -

(12)

-

(1,5

36)

Writ

e-of

f -

- -

- -

(1,1

81)

(1,1

13)

(2,2

10)

- -

(4,5

04)

At 3

1 D

ecem

ber

2011

-

1,92

3 1,

452

13,2

66

21,5

82

88,0

56

35,6

67

57,5

09

3,10

0 -

222,

555

Net

bo

ok

valu

e as

at

31 D

ecem

ber

201

1 22

,811

10

,939

3,

928

18,7

47

67,4

87

17,3

01

18,7

81

10,1

08

863

1,86

5 17

2,83

0


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

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EN

DE

D 3

1 D

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R 2

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PE

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NT

(co

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Ren

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00R

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tA

t 1 J

anua

ry 2

010

25,0

87

13,4

70

5,69

4 33

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89

,549

94

,540

50

,241

62

,414

3,

457

2,25

1 38

0,18

3A

dditi

ons

- -

- -

- 1,

653

1,35

8 2,

601

437

3,55

9 9,

608

Dis

posa

ls

(800

) (6

08)

(314

) (2

69)

(480

) (1

54)

(47)

-

(317

) -

(2,9

89)

Writ

e-of

f -

- -

- -

(52)

(1

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) (5

54)

(14)

-

(2,2

68)

Rec

lass

ifica

tion

- -

- -

- 53

87

(3

6)

- (1

04)

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ansf

er to

inta

ngib

le a

sset

s (N

ote

16)

- -

- -

- -

- -

- (4

,089

) (4

,089

)

At 3

1 D

ecem

ber

2010

24

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12

,862

5,

380

33,2

11

89,0

69

96,0

40

49,9

91

64,4

25

3,56

3 1,

617

380,

445

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umul

ated

dep

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atio

n an

d im

pairm

ent l

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sA

t 1 J

anua

ry 2

010

- 1,

757

1,22

7 12

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18

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77

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32

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46

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2,

779

- 19

2,42

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e fo

r th

e fin

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al y

ear

- 11

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2 55

2 1,

789

6,01

1 3,

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8,09

1 31

7 -

20,0

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- (5

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(17)

(8

9)

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-

(317

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(728

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rite-

off

- -

- -

- (3

6)

(1,5

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(484

) (1

4)

- (2

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ecla

ssifi

catio

n -

- -

--

- 5

(5)

- -

-

At 3

1 D

ecem

ber

2010

-

1,81

1 1,

332

13,2

73

19,7

93

83,1

52

33,9

04

53,6

93

2,76

5 -

209,

723

Net

boo

k va

lue

as a

t 31

Dec

embe

r 20

10

24,2

87

11,0

51

4,04

8 19

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69

,276

12

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16

,087

10

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79

8 1,

617

170,

722


NO

TE

S T

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FIN

AN

CIA

L S

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62

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7 36

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- -

- -

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6 41

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- (1

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- -

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- (1

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) (1

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- (4

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catio

n -

- -

- -

207

1,03

5 60

7 -

(8,9

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(7,1

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At 3

1 D

ecem

ber

2011

19

,814

10

,972

5,38

0 30

,377

88

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2,09

4 52

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65

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3,

501

1,86

5 38

0,28

8

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um

ula

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dep

reci

atio

n

and

imp

airm

ent

loss

esA

t 1 J

anua

ry 2

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- 1,

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- 20

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al y

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- 10

3 12

0 50

2 1,

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6 2,

907

5,70

8 25

6 -

17,8

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- (5

42)

- (7

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(12)

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(1,5

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- -

- -

(1,1

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(2,1

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Rec

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ifica

tion

- -

- -

- -

(2)

- -

- (2

)

At 3

1 D

ecem

ber

2011

-

1,69

6 1,

452

12,3

44

21,0

80

85,8

34

35,0

69

56,0

34

2,74

5 -

216,

254

Net

bo

ok

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at

31 D

ecem

ber

201

1 19

,814

9,27

6 3,

928

18,0

33

67,0

81

16,2

60

17,7

31

9,29

0 75

6 1,

865

164,

034


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TE

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AN

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11,5

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,153

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,103

60

,782

2,

995

701

365,

583

Add

ition

s -

- -

- -

1,64

7 1,

338

2,50

1 43

7 3,

559

9,48

2D

ispo

sals

(8

00)

(608

) (3

14)

(269

) (4

80)

(154

) (4

7)

- (3

17)

- (2

,989

)W

rite-

off

- -

- -

- (5

2)

(1,6

48)

(550

) (1

4)

- (2

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ecla

ssifi

catio

n -

- -

- -

54

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(36)

-

(105

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Tran

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to in

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ible

ass

ets

(Not

e 16

) -

- -

- -

- -

- -

(2,5

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(2,5

38)

Tran

sfer

to s

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diar

y -

--

- -

- (3

) (1

02)

- -

(105

)

At 3

1 D

ecem

ber

2010

21

,290

10

,972

5,

380

31,5

75

88,1

6193

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48

,830

62

,595

3,

101

1,61

7 36

7,16

9

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umul

ated

dep

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atio

n an

d im

pairm

ent l

osse

sA

t 1 J

anua

ry 2

010

- 1,

547

1,22

7 11

,954

17

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75

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32

,023

45

,156

2,

606

- 18

7,88

5C

harg

e fo

r th

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al y

ear

- 10

3 12

2 51

9 1,

771

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1 2,

978

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7 22

6 -

19,2

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ispo

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- (5

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(17)

(8

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-

(317

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(728

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rite-

off

- -

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- (3

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) (1

4)

- (2

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ansf

er to

sub

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ary

- -

- -

- -

4 (6

) -

- (2

)

At 3

1 D

ecem

ber

2010

-

1,59

3 1,

332

12,3

84

19,3

09

81,3

28

33,4

57

52,5

05

2,50

1 -

204,

409

Net

boo

k va

lue

as a

t 31

Dec

embe

r 20

10

21,2

90

9,37

9 4,

048

19,1

91

68,8

52

12,3

20

15,3

73

10,0

90

600

1,61

7 16

2,76

0


16 INTANGIBLE ASSETS

ComputerGoodwill Software Total

The Group RM'000 RM'000 RM'000

CostAt 1 January 2011 133,430 109,015 242,445Additions - 1,718 1,718Disposal - (4) (4)Write-off - (4) (4)Reclassification from property and equipment (Note 15) - 9,347 9,347

At 31 December 2011 133,430 120,072 253,502

Less: Accumulated amortisationAt 1 January 2011 - (88,009) (88,009)Amortised during the financial year - (9,366) (9,366)Disposal - 3 3Write-off - 3 3

At 31 December 2011 - (97,369) (97,369)

Net book value as at 31 December 2011 133,430 22,703 156,133

CostAt 1 January 2010 133,430 104,501 237,931Additions - 1,043 1,043Write-off - (618) (618)Reclassification from property and equipment (Note 15) - 4,089 4,089

At 31 December 2010 133,430 109,015 242,445

Less: Accumulated amortisationAt 1 January 2010 - (71,861) (71,861)Amortised during the financial year - (16,474) (16,474)Write-off - 326 326

At 31 December 2010 - (88,009) (88,009)




16 INTANGIBLE ASSETS (continued)

ComputerGoodwill Software Total

The Bank RM'000 RM'000 RM'000

CostAt 1 January 2011 137,323 104,937 242,260Additions - 1,599 1,599Disposal - (4) (4)Write-off - (4) (4)Reclassification from property and equipment (Note 15) - 7,142 7,142

At 31 December 2011 137,323 113,670 250,993

Less: Accumulated amortisationAt 1 January 2011 - (85,392) (85,392)Amortised during the financial year - (8,836) (8,836)Disposal - 3 3Write-off - 3 3

At 31 December 2011 - (94,222) (94,222)


CostAt 1 January 2010 137,323 101,973 239,296Additions - 1,043 1,043Write-off - (618) (618)Reclassification from property and equipment (Note 15) - 2,539 2,539

At 31 December 2010 137,323 104,937 242,260

Less: Accumulated amortisationAt 1 January 2010 - (70,060) (70,060)Amortised during the financial year - (15,658) (15,658)Write-off - 326 326

At 31 December 2010 - (85,392) (85,392)




16 INTANGIBLE ASSETS (continued)

Goodwill

The carrying amount of the Bank's goodwill have been allocated to the following business segments, which represents the Bank'scash-generating units ('CGUs'):

2011 2010RM'000 RM'000

Enterprise banking 123,591 123,591Consumer banking 13,732 13,732

137,323 137,323

Goodwill is allocated to the Bank's CGU which are expected to benefits from the synergies of the acquisitions. For annualimpairment testing purposes, the recoverable amount of the CGUs are determined based on value-in-use calculations using thecash flow projections based on the 2012 financial budgets approved by the Directors, covering a period of 5 years. The cash flowbeyond the fifth year are projected based on the assumption that the Year 5 operating cash flow will be generated by the respectiveCGUs at a growth rate of 5% (2010: 5%) on perpetual basis.

The cash flow projections are derived based on a number of key factors including past performance and management’sexpectations of the market developments. The discount rates used are based on the pre-tax weighted average cost of capitalplus an appropriate risk premium where applicable ('WACC'), at the date of assessment of the CGUs.

2011 2011 2010 2010Enterprise Consumer Enterprise Consumer

banking banking banking banking% % % %

Pre-tax discount rate 14.80 14.74 14.29 14.21

No impairment charge was required for goodwill arising from all the business segments. Management views that any reasonablepossible change to the assumptions applied is not likely to cause the recoverable amount of all the business segments to be lowerthan its carrying amount.

17 DEPOSITS FROM CUSTOMERS


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

(i) By type of deposit

Demand deposits 6,166,579 5,063,155 4,229,705 3,565,188Savings deposits 1,526,891 1,400,535 1,223,359 1,142,332Fixed deposits 22,313,675 20,037,784 18,021,753 16,885,793Special investment deposits 822,914 642,171 - -Money market deposits 528,435 707,411 528,435 707,411Negotiable instruments of deposit ('NID') 5,188,950 3,131,351 5,069,172 3,131,351

36,547,444 30,982,407 29,072,424 25,432,075



17 DEPOSITS FROM CUSTOMERS (continued)


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

(ii) Maturity structure of fixed deposit and NID

Due within six months 22,187,250 19,988,828 18,647,951 17,233,254Six months to one year 5,018,157 3,133,020 4,208,729 2,740,853One year to three years 95,977 24,167 33,205 20,856Three years to five years 201,241 23,120 201,040 22,181

27,502,625 23,169,135 23,090,925 20,017,144

(iii) By type of customer

Government and statutory bodies 6,793,344 4,769,914 3,600,922 2,969,799Business enterprise 10,961,534 9,789,744 8,603,523 8,197,090Individuals 6,763,627 5,027,100 6,157,670 4,591,770Others 12,028,939 11,395,649 10,710,309 9,673,416

36,547,444 30,982,407 29,072,424 25,432,075

18 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS


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

Licensed banks 3,724,682 5,024,966 2,752,720 4,308,897Licensed investment banks 1,754,811 439,546 1,704,745 423,868Bank Negara Malaysia 794,523 308,497 794,427 308,497Other financial institutions 1,252,896 846,726 791,945 707,741

7,526,912 6,619,735 6,043,837 5,749,003

Maturity structure of depositsDue within six months 7,524,234 6,550,733 6,041,159 5,680,001Six months to one year 2,678 69,002 2,678 69,002

7,526,912 6,619,735 6,043,837 5,749,003

19 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 theunpaid 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, underthe condition that the Bank undertakes to administer these loans on behalf of Cagamas Berhad and to buy back any loans whichare regarded as defective based on an agreed prudential criteria. Such financing transactions and the obligations to buy backthe loans are reflected as a liability on the statement of financial position.



20 OTHER LIABILITIES


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

Bank Negara Malaysia and CreditGuarantee Corporation Funding programmes 36,071 43,009 36,071 43,009

Margin and collateral deposits 72,793 65,191 72,133 62,552Sundry creditors 206,888 188,983 190,513 172,182Clearing accounts - 44,616 - 27,706Defined contribution plan (a) 10,754 11,968 10,211 11,448Accrued employee benefits (b) 229 125 206 105

326,735 353,892 309,134 317,002

(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, employeesearn their leave entitlement which they are entitled to carry forward and will lapse if not utilised in the following accountingperiod. Accruals are made for the estimated liability for unutilised annual leave.

21 DERIVATIVE FINANCIAL LIABILITIES


Contract/ Contract/notional notionalamount Liabilities amount LiabilitiesRM'000 RM'000 RM'000 RM'000

At fair valueForeign exchange derivatives:Currency forwards 466,576 6,313 487,922 19,025Cross currency swaps 1,465,194 33,904 340,850 22,715

Interest rate derivatives:Interest rate swap 1,950,455 57,182 919,193 28,455

3,882,225 97,399 1,747,965 70,195

22 AMOUNT DUE TO SUBSIDIARIES

The amount due to subsidiaries is unsecured, interest-free and have no fixed terms of repayment.



23 SUBORDINATED TERM LOAN

On 10 March 2009, the Bank has taken the first 10 year subordinated loan amounting to RM300 million. The first subordinatedloan was constituted by Trust Deed dated 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 secondsubordinated loan was constituted by Trust Deed dated 20 May 2011 and were issued on 26 May 2011.

Both 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 thefirst prepayment date, giving the Bank the right, subject to Bank Negara Malaysia ('BNM') approval, to prepay the loans in wholeor 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 plus1.75% per annum for the next twenty four months and thereafter COF plus 2.00% for the next 5 years.

Subordinated loan II

Value : RM300 million

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 ordinaryshares of RM1 each The Group and The Bank2011 2010 2011 2010

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

AuthorisedAt beginning/end of the financial year 2,000,000 2,000,000 2,000,000 2,000,000

Issued and fully paidAt beginning/end of the financial year 1,439,285 1,439,285 1,439,285 1,439,285



25 RESERVES


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

Retained profits 667,326 522,171 530,489 411,831Share premium 408,389 408,389 408,389 408,389AFS revaluation reserves 74,941 54,249 68,611 45,795Statutory reserves 1,011,044 888,910 904,624 807,500

2,161,700 1,873,719 1,912,113 1,673,515

Statutory reservesAt beginning of the financial year 888,910 789,221 807,500 720,824Transfer from retained profits 122,134 99,689 97,124 86,676

At end of the financial year 1,011,044 888,910 904,624 807,500

(a) A single tier company tax was introduced effective 1 January 2008. Under this single tier system, tax on a company’s profitsis a final tax, and dividends distributed to shareholders will be exempted from tax. Companies with Section 108 tax creditbalance are given an option to elect to move to a single tier system immediately or allowed to use the Section 108 creditbalance 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 periodof 6 years until 31 December 2013. The Section 108 balance of the Bank as at 31 December 2007 will be frozen and canonly be adjusted downwards for any tax discharged, remitted or refunded during the 6 years period.

As at 31 December 2011, the Bank has a tax credit balance of RM2,533,928 under Section 108 of the Income Tax Act,1967 and tax exempt account balance of RM82,896,257 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 Banking andFinancial Institutions Act, 1989 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 investmentsclassified as financial investment available-for-sale. The gains or losses are transferred in the income statement upon disposalor when the securities become impaired.



26 INTEREST INCOME


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

Loans, advances and financing 1,388,531 1,190,417 1,388,531 1,190,417Money at call and deposit placements

with financial institutions 148,478 108,787 165,052 117,260Financial assets/investments- Held-for-trading 50 311 50 311- Available-for-sale 141,979 116,495 141,830 116,347- Held-to-maturity 23,276 15,522 23,229 15,522Interest rate derivatives 71,879 48,701 71,879 48,701Others - - 4,688 3,408

1,774,193 1,480,233 1,795,259 1,491,966Amortisation of premium less accretion of discount 21,469 31,602 21,469 31,602

1,795,662 1,511,835 1,816,728 1,523,568

of which:Interest income earned on impaired loans,

advances and financing 11,555 (382) 11,555 (382)

27 INTEREST EXPENSE


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

Deposits and placements of banksand other financial institutions 114,418 110,572 114,419 110,579

Deposits from customers 788,840 552,448 788,874 552,474Subordinated term loan 19,884 10,633 19,884 10,633Loan sold to Cagamas Berhad 14,913 14,559 14,913 14,559Interest rate derivatives 81,302 66,152 81,302 66,152Others 1,490 6,484 1,490 6,484

1,020,847 760,848 1,020,882 760,881



28 ISLAMIC BANKING INCOME

The Group2011 2010

RM'000 RM'000

Income derived from investment of depositors' funds and others 368,911 287,402Income derived from investment of shareholders' funds 20,852 18,052

Total distributable income 389,763 305,454Income attributable to depositors (190,830) (127,671)

198,933 177,783

29 OTHER OPERATING INCOME


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

Fee incomeCommission 13,329 12,421 13,329 12,421Service charges and fees 51,987 47,815 51,987 47,815Guarantee fees 25,017 27,392 25,017 27,392

90,333 87,628 90,333 87,628

Income from financial instrumentsGain arising on financial assets held-for-trading:- net gain on disposal 546 1,217 546 1,217- unrealised (losses)/gains (9) 137 (9) 137

537 1,354 537 1,354

Gains/(losses) on derivatives:- realised 2,600 1,089 2,600 1,089- unrealised (13,230) 6,303 (13,230) 6,303

(10,630) 7,392 (10,630) 7,392



29 OTHER OPERATING INCOME (continued)


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

Income from financial instruments (continued)Gain arising on financial investments available-for-sale:- net gain on disposal 24,102 23,733 24,102 23,635- gross dividend income 23 8 23 8

24,125 23,741 24,125 23,643

Gain arising on financial investments held-to-maturity:- net gain on redemption 2,546 2,053 2,378 2,053- gross dividend income 9,705 2,901 9,705 2,901

12,251 4,954 12,083 4,954

Other incomeForeign exchange gains/(losses):- realised 74,386 82,790 74,386 82,791- unrealised (17,878) (9,549) (17,878) (9,549)Rental income 2,211 1,834 2,161 1,780Gain on sale of property and equipment 23 219 23 219(Loss)/Gain on disposal of foreclosed properties (272) 6,330 (272) 6,330Other non-operating income 11,798 20,658 10,539 20,362

70,268 102,282 68,959 101,933

186,884 227,351 185,407 226,904

30 OTHER OPERATING EXPENSES


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

Personnel costs (a) 290,791 295,053 235,592 240,585Establishment costs (b) 166,781 167,973 142,477 143,342Marketing expenses (c) 17,266 11,553 14,555 9,633Administrative and general expenses (d) 58,875 56,332 49,377 46,585

533,713 530,911 442,001 440,145



30 OTHER OPERATING EXPENSES (continued)

(a) Personnel costs


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

Wages, salaries and bonuses 220,817 228,427 178,539 186,516Defined contribution plan ('EPF') 36,003 35,770 29,352 29,223Other personnel costs 33,971 30,856 27,701 24,846

290,791 295,053 235,592 240,585

(b) Establishment costs


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

Rental of premises 20,222 18,985 16,995 15,980 Equipment rental 905 741 877 718Repair and maintenance 27,757 24,849 23,540 21,061Depreciation 18,872 20,071 17,853 19,297Amortisation of intangible assets 9,366 16,474 8,836 15,658IT Consultancy fees 57,272 54,659 49,799 47,348Dataline rental 3,477 5,014 3,022 4,313 Security services 10,461 9,228 8,625 7,679Electricity, water and sewerage 8,491 8,118 7,220 6,858Other establishment costs 9,958 9,834 5,710 4,430

166,781 167,973 142,477 143,342

(c) Marketing expenses


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

Business promotion and advertisement 9,348 4,701 8,346 4,330Entertainment 2,463 2,048 2,057 1,819Travelling and accommodation 3,899 3,511 2,956 2,490Other marketing expenses 1,556 1,293 1,196 994

17,266 11,553 14,555 9,633



30 OTHER OPERATING EXPENSES (continued)

(d) Administration and general expenses


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

Telecommunication expenses 4,901 4,665 4,157 3,965Auditors' remuneration 1,479 2,180 1,025 1,859Professional fees 13,954 21,958 10,262 16,739Property and equipment written off 423 514 414 513Mail and courier charges 3,834 4,456 3,295 3,798Stationery and consumables 9,423 6,897 7,224 5,360Other administration and general expenses 24,861 15,662 23,000 14,351

58,875 56,332 49,377 46,585

The expenditure includes the following statutory disclosure:

Directors' remuneration (Note 31) 6,331 5,320 6,009 5,477Rental of premises 20,222 18,985 16,995 15,980Equipment rental 905 741 877 718Auditors' remuneration- statutory audit fees 795 707 619 569- (over)/under provision prior year (4) 12 - -- audit related fees 133 264 88 168- non audit fees 555 1,197 318 1,122Depreciation of property and equipment 18,872 20,071 17,853 19,297Amortisation of intangible assets 9,366 16,474 8,836 15,658Property and equipment written off 423 514 414 513

31 CEO AND DIRECTORS' REMUNERATION

The Directors of the Bank who have held office during the financial year are as follows:

Executive DirectorDato' Zulkiflee Abbas bin Abdul Hamid (Resigned as Director w.e.f 1 November 2011)

Non-Executive DirectorsJen Tan Sri Dato' Seri Ismail bin Haji Omar (Bersara) (Chairman)Tan Sri Dato' Lodin bin Wok KamaruddinDr Raja Abdul Malek bin Raja JallaludinLaksamana Madya Tan Sri Dato' Seri Ahmad Ramli bin Mohd Nor (Bersara) (Resigned as Director w.e.f 30 September 2011)Dato' Sri Abdul Aziz bin Abdul RahmanMr Aubrey Li Kwok-SingMr Brian Li Man-Bun (Alternate Director to Mr Aubrey Li Kwok-Sing) (Resigned as Alternate Director w.e.f 18 April 2011)Mr Gary Cheng Shui Hee (Alternate Director to Mr Aubrey Li Kwok-Sing) (Appointed as Alternate Director w.e.f 18 April 2011)Mr Stephen Charles Li (Resigned as Director w.e.f 16 August 2011)



31 CEO AND DIRECTORS' REMUNERATION (continued)

Non-Executive Directors (continued)

Mr Eric Koh Thong Hau (Alternate Director to Mr Stephen Charles Li) (Resigned as Alternate Director w.e.f 1 January 2011)Mr Lee Chor Kee (Alternate Director to Mr Stephen Charles Li)(Appointed as Alternate Director w.e.f 18 April 2011 and resigned as Alternate Director w.e.f 16 August 2011)En. Mohd Suffian bin Haji HaronTan Sri Dato' Seri Mohamed Jawhar (Appointed as Director w.e.f 1 November 2011)

The aggregate amount of remuneration for the Directors of the Bank for the financial year were as follows:


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

Executive DirectorSalaries 1,431 1,260 1,431 1,260Bonuses 2,471 2,236 2,471 2,236Defined contribution plan ('EPF') 638 569 638 569Other employee benefits 90 62 90 62Benefits-in-kind 122 98 122 98

Non-Executive DirectorsFees 1,554 1,069 1,232 1,226Benefits-in-kind 25 26 25 26

Directors' remuneration (Note 30) 6,331 5,320 6,009 5,477

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 Total2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Executive Director/CEODato' Zulkiflee Abbas bin Abdul Hamid 1,431 2,471 - 728 122 4,752

1,431 2,471 - 728 122 4,752

Non-executive DirectorsJen Tan Sri Dato' Seri Ismail bin Haji Omar

(Bersara) - - 168 96 25 289Tan Sri Dato' Lodin bin Wok Kamaruddin - - 97 - - 97Dr. Raja Abdul Malek bin Raja Jallaludin - - 202 - - 202Laksamana Madya Tan Sri Dato' Seri

Ahmad Ramli bin Mohd Nor (Bersara) - - 125 - - 125Dato' Sri Abdul Aziz bin Abdul Rahman - - 190 - - 190Mr Aubrey Li Kwok-Sing - - 86 - - 86Mr Gary Cheng Shui Hee (Alternate Director

to Mr Aubrey Li Kwok-Sing ) - - 5 - - 5Mr Stephen Charles Li - - 59 - - 59Mr Lee Chor Kee (Alternate Director

to Mr Stephen Charles Li ) - - 1 - - 1En. Mohd Suffian bin Haji Haron - - 189 - - 189Tan Sri Dato' Seri Mohamed Jawhar - - 14 - - 14

- - 1,136 96 25 1,257

Total 1,431 2,471 1,136 824 147 6,009



31 CEO AND DIRECTORS' REMUNERATION (continued)

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 Total2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Executive Director/CEODato' Zulkiflee Abbas bin Abdul Hamid 1,260 2,236 - 631 98 4,225

1,260 2,236 - 631 98 4,225

Non-executive DirectorsJen Tan Sri Dato' Seri Ismail bin Haji Omar

(Bersara) - - 169 96 26 291Tan Sri Dato' Lodin bin Wok Kamaruddin - - 22 - - 22Dr. Raja Abdul Malek bin Raja Jallaludin - - 202 - - 202Laksamana Madya Tan Sri Dato' SeriAhmad Ramli bin Mohd Nor (Bersara) - - 163 - - 163

Dato' Sri Abdul Aziz bin Abdul Rahman - - 192 - - 192Mr Aubrey Li Kwok-Sing - - 91 - - 91Mr Brian Li Man-Bun (Alternate Director

to Mr Aubrey Li Kwok-Sing ) - - - - - -Mr Stephen Charles Li - - 88 - - 88Mr Eric Koh Thong Hau (Alternate Director

to Mr Stephen Charles Li ) - - 10 - - 10En. Mohd Suffian bin Haji Haron - - 193 - - 193

- - 1,130 96 26 1,252

Total 1,260 2,236 1,130 727 124 5,477

* Executive Director’s Other emoluments include allowance and EPF

32 ALLOWANCES FOR LOSSES ON LOANS, ADVANCES AND FINANCING


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

Individual impairment- made in the financial year 116,909 198,023 111,880 172,716- written-back (13,571) (20,669) (12,198) (10,778)Collective impairment- made/(written-back) 67,662 (3,044) 59,788 (16,409)Bad debts and financing- recovered (214,257) (172,726) (213,325) (172,417)- written-off 15,956 15,810 15,791 15,628Litigation losses arising from loans 40,000 78,000 40,000 78,000

12,699 95,394 1,936 66,740



33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

Related parties that have transactions and their relationship with the Bank are as follows:

Related parties Relationship

Lembaga Tabung Angkatan Tentera ('LTAT') Ultimate holding corporate body

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 its Subsidiary and associate companies of the holding companyfinancial statements

Subsidiaries of AFFIN Bank Berhad as disclosed in Note 12 Subsidiaries

Joint controlled entity as disclosed in Note 13 Joint controlled entity of subsidiary

Voting shares in body corporate not less than 15% of votes Other related companies

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 (deemed as - Close family members and dependents of key managementrelated to the Bank) personnel

- Entities that are controlled, jointly controlled or significantlyinfluenced by, or for which significant voting power in suchentity resides with, directly or indirectly by key managementpersonnel or its close family members

Key management personnel includes the Chief Executive Officer of the Bank in office during the year and his remuneration forthe financial year end are disclosed in Note 33(b).



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and

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33 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)

(b) Key management personnel compensation

The remuneration of key management personnel of the Group and the Bank during the year are as follows:


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

Short-term employment benefitsSalaries 7,009 6,618 6,427 5,706Bonuses 10,182 8,695 9,154 7,683Defined contribution plan ('EPF') 2,905 2,594 2,640 2,265Other employee benefits 1,119 1,038 1,067 890Benefits-in-kind 380 445 311 383

21,595 19,390 19,599 16,927

Included in the above table are Directors' remuneration as disclosed in Note 31.

34 TAXATION


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

The taxation charge arising inMalaysia for the financial year

Current tax 152,316 66,627 135,373 56,599Under provision in prior year 22,707 19,223 25,827 14,271Deferred tax (Note 10) (7,453) 50,191 (13,325) 57,219

Tax expense for the year 167,570 136,041 147,875 128,089


% % % %

Statutory tax rate in Malaysia 25.00 25.00 25.00 25.00Tax effect in respect of:Non allowable expenses 2.04 1.94 2.29 2.10Non taxable income (0.44) (0.17) (0.46) (0.18)Utilisation of previously

unrecognised tax losses (0.02) (0.01) - -Effect of different tax rate (0.94) (0.51) (1.08) (0.56)Tax savings arising from income exempt

from tax for International CurrencyBusiness Unit (ICBU) (0.18) 0.54 - -

Under accrual in prior years 3.70 3.68 4.81 3.01Recognition of deferred tax previously not recognised (2.87) - (3.04) -Others 1.04 (4.40) 0.05 (2.39)

Average effective tax rate 27.33 26.07 27.57 26.98

Tax savings of the Group as a result of utilisation of tax losses brought forward from previous years from which the related creditis recognised during the financial year amounted to RM102,000 (2010: RM62,000)



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 profitattributable to equity holders of the Group and the Bank of RM440,003,000 (2010: RM381,237,000) and RM388,496,000 (2010: RM346,705,000) respectively. The weighted average number of shares in issue during the financial year of 1,439,285,000 (2010: 1,439,285,000) is used for the computation.

36 DIVIDEND

Dividends declared or proposed for the financial year are as follows:


Dividend Amount of Dividend Amount ofper share dividend per share dividend

sen RM'000 sen RM'000

Ordinary sharesInterim dividend paid 7.00 100,750 5.28 57,000Proposed final dividend 5.00 71,964 5.00 71,964

Dividends in respect of the financial year 12.00 172,714 10.28 128,964

At the forthcoming Annual General Meeting, a final tax exempt dividend in respect of the current financial year of 5 sen per shareamounting to RM71,964,000 will be proposed for shareholder's approval. These financial statements do not reflect this finaldividend which will be accounted for in the shareholder's equity as an appropriation of retained profits in the financial year ending31 December 2011 when approved by the shareholder.

Dividends recognised as distribution to ordinary equity holders of the Bank:


Dividend Amount of Dividend Amount ofper share dividend per share dividend

sen RM'000 sen RM'000

Ordinary sharesInterim dividend 7.00 100,750 5.28 57,000Final dividend 5.00 71,964 5.00 53,973

12.00 172,714 10.28 110,973



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r Is

lam

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anks

("C

AFI

B")

gui

delin

es.


37 COMMITMENTS AND CONTINGENCIES (continued)

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.


Credit CreditPrincipal equivalent Principal equivalent

amount amount amount amountRMʼ000 RM'000 RM’000 RM'000

Foreign exchange contractsForward contracts 712,883 7,108 728,471 15,115Swaps 2,344,698 47,690 1,688,008 55,384

Interest rate contractsSwaps 2,395,015 91,110 1,495,313 71,106

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 andcontractual obligations to the Bank. Credit risk emanates mainly from loans, advances and financing, loan commitmentsarising from such lending activities, as well as through financial transactions with counterparties including interbank moneymarket activities, derivative instruments used for hedging and debt securities.

The management of credit in the Bank is governed by a set of credit policies approved by the Board of Directors. Approvalauthorities are delegated to Senior Management and Group Management Loan Committee ('GMLC') to implement thecredit policies and ensure sound credit granting standards.

An independent Group Risk Management ('GRM') function with a 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 submittedregularly to BRMC.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses aregoverned by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Credit Plan. TheCredit Plan is reviewed at least annually and approved by the BRMC.



38 FINANCIAL RISK MANAGEMENT (continued)

(i) Credit Risk (continued)

Credit Risk measurement


Credit evaluation is the process of analysing the creditworthiness of the prospective customer against the Bank’sunderwriting criteria and the ability of the Bank to make a return commensurate to the level of risk undertaken. A criticalelement in the evaluation process is the assignment of a credit risk grade to the counterparty. This assists in the riskassessment and decision making process. The Bank has developed internal rating models to support the assessment andquantification of credit risk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess therisks 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 thesummation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potentialfuture 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 concentrationof credit risk in its credit portfolio. The limits include single customer groupings, connected parties, and geographical andindustry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changingmarket and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customerstogether 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 betaken 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.





Risk limit control and mitigation policies (continued)

Financing covenants (for credit related commitments and loans books)

The primary purpose of these instruments is to ensure that funds are available to a customer when required. Guaranteesand standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit arecollateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or letters ofcredit. 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 creditare 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 greaterdegree 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 new collection managementsystem has been implemented with a dedicated team in place to promptly identify, monitor and manage delinquent accountsat early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updatedinformation. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses or deteriorationin 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 turningimpaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Credit Risk culture

The Bank recognises that learning is a continuous journey and is committed to enhance the knowledge and required skillsset 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 LearningManagement System ('LMS'). The LMS provides staff with a progressive self-learning alternative at own pace.

Group Risk Management commenced an Internal Credit Certification ('ICC') Programme for both Business Banking andConsumer Credit in July 2009 and August 2009 respectively. In October 2010, the Bank introduced ICC-Market Risk withthe Diagnostic Assessment conducted through the LMS.

The aim of the ICCs is to assist the core credit related group of personnel in the Bank achieve a minimum level of knowledgeand analytical skills required to make sound corporate and commercial loans to customers. It is envisaged that the core creditrelated group of personnel would all be certified within 2 to 3 years.





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 theBank would have to pay if guarantee were to be called upon. For loan commitments and other commitments, the maximumexposure 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 asfinancial assets held-for-trading or financial investments available-forsale, as well as non-financial assets.

The exposure to credit risk of the Group and the Bank equals their carrying amount in the statement of financial position asat reporting date, except for the followings:


Maximum MaximumCarrying Credit Carrying Credit

Value Exposure Value ExposureRMʼ000 RM'000 RMʼ000 RM'000

Credit risk exposures of on-balance sheet assets:Cash and short-term funds *9,879,366 9,737,883 *5,527,439 5,385,956Financial investments available-for-sale #6,698,418 6,585,100 #5,214,533 5,104,894Other assets 166,543 108,207 116,690 59,056

Credit risk exposure of off-balance sheet items:Financial guarantees ^2,762,407 1,574,653 ^2,604,847 1,491,822Loan commitments and other credit related commitments ^17,157,578 2,486,904 ^15,425,464 2,140,480

Total maximum credit risk exposure 36,664,312 20,492,747 28,888,973 14,182,208


Maximum MaximumCarrying Credit Carrying Credit

Value Exposure Value ExposureRM’000 RM'000 RM’000 RM'000

Credit risk exposures of on-balance sheet assets:Cash and short-term funds *8,640,457 8,534,879 *6,108,452 6,002,874Financial investments available-for-sale #5,804,417 5,697,708 #4,455,472 4,352,544Other assets 186,461 8,607 184,582 7,384

Credit risk exposure of off-balance sheet items:Financial guarantees ^2,796,064 1,602,338 ^2,571,111 1,476,596Loan commitments and other credit related commitments ^16,048,716 506,976 ^14,250,781 369,681

Total maximum credit risk exposure 33,476,115 16,350,508 27,570,398 12,209,079

* including cash in hand# including equity securities^ 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 tocollateral, 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 63% (2010: 59%) and62% (2010: 58%) respectively. The financial effects of collateral for the other financial assets are insignificant.



NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(i)

Cre

dit

Ris

k (c

on

tin

ued

)

Cre

dit

ris

k co

nce

ntr

atio

ns

Cre

dit

risk

is t

he r

isk

of fi

nanc

ial l

oss

from

the

failu

re o

f cus

tom

ers

to m

eet

thei

r ob

ligat

ions

. Exp

osur

e to

cre

dit

risk

is m

anag

ed t

hrou

gh p

ortfo

lio m

anag

emen

t. Th

e cr

edit

port

folio

's r

isk

prof

iles

and

expo

sure

s ar

e re

view

ed a

nd m

onito

red

regu

larly

to e

nsur

e th

at a

n ac

cept

able

leve

l of r

isk

dive

rsifi

catio

n is

mai

ntai

ned.

Exp

osur

e to

cre

dit r

isk

isal

so m

anag

ed in

par

t by

obta

inin

g co

llate

ral s

ecur

ity a

nd c

orpo

rate

and

per

sona

l gua

rant

ees.

The

cred

it ris

k co

ncen

trat

ions

of t

he G

roup

and

the

Ban

k, b

y in

dust

ry c

once

ntra

tion,

are

set

out

in th

e fo

llow

ing

tabl

es:

Dep

osi

ts a

nd

pla

cem

ents

Fin

anci

alw

ith

ban

ksas

sets

Fin

anci

alF

inan

cial

On

Cas

h a

nd

and

oth

erh

eld

-in

vest

men

tsin

vest

men

tsL

oan

s,D

eriv

ativ

eb

alan

ceC

om

mit

men

tssh

ort

-ter

mfi

nan

cial

for-

avai

lab

le-

hel

d-t

o-

adva

nce

s an

dO

ther

fin

anci

alsh

eet

and

Th

e G

rou

pfu

nd

sin

stit

uti

on

str

adin

gfo

r-sa

lem

atu

rity

fin

anci

ng*

asse

tsas

sets

tota

lco

nti

ng

enci

es20

11R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00

Agr

icul

ture

-

- -

- -

486,

--77

6 -

462

487,

238

42,6

45M

inin

g an

d qu

arry

ing

- -

- -

- 43

1,33

4 -

- 43

1,33

4 37

,417

Man

ufac

turin

g -

- -

- 17

9,28

2 2,

261,

321

- 1,

232

2,44

1,83

5 65

4,64

2E

lect

ricity

, gas

and

wat

er s

uppl

y-

- -

145,

796

- 15

9,61

1 -

- 30

5,40

7 28

9C

onst

ruct

ion

- -

- -

204,

721

2,30

6,99

8 -

10

2,51

1,72

9 98

9,05

0R

eal e

stat

e -

- -

- -

2,99

8,57

5 -

- 2,

998,

575

369,

397

Tran

spor

t, st

orag

e an

d co

mm

unic

atio

n -

- -

55,5

14

72,6

87

1,58

2,86

2 -

238

1,71

1,30

1 15

4,94

4Fi

nanc

e, in

sura

nce

and

busi

ness

ser

vice

s 71

8,52

2 48

6,69

4 14

9,83

2 3,

117,

024

27,3

62

4,24

4,10

3 57

0 47

,643

8,

791,

750

687,

259

Gov

ernm

ent a

ndgo

vern

men

t age

ncie

s 9,

019,

361

- -

3,25

6,49

3 16

,186

61

,386

-

- 12

,353

,426

11

9,73

1W

hole

sale

& re

tail

trad

e an

dre

stau

rant

s &

hot

els

- -

- 10

,273

20

,537

1,

435,

434

- 31

6 1,

466,

560

509,

842

Oth

ers

- -

- -

330

14,1

75,4

65

107,

637

- 14

,283

,432

49

6,34

1

Tota

l ass

ets

9,73

7,88

3 48

6,69

4 14

9,83

2 6,

585,

100

521,

105

30,1

43,8

65

108,

207

49,9

01

47,7

82,5

87

4,06

1,55

7

* N

ot in

clus

ive

of c

olle

ctiv

e al

low

ance

am

ount

ing

to R

M45

0 m

illion

.

Ris

k co

ncen

trat

ions

for

com

mitm

ents

and

con

tinge

ncie

s ar

e ba

sed

on th

e cr

edit

equi

vale

nt b

alan

ces

in N

ote

37.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(i)

Cre

dit

Ris

k (c

on

tin

ued

)

Cre

dit

ris

k co

nce

ntr

atio

ns

(co

nti

nu

ed)

Dep

osits

and

plac

emen

tsFi

nanc

ial

with

ban

ksas

sets

Fina

ncia

lFi

nanc

ial

On

Cas

h an

dan

d ot

her

held

-in

vest

men

tsin

vest

men

tsLo

ans,

Der

ivat

ive

bala

nce

Com

mitm

ents

shor

t-te

rmfin

anci

alfo

r-av

aila

ble-

held

-to-

adva

nces

and

Oth

erfin

anci

alsh

eet

and

The

Gro

upfu

nds

inst

itutio

nstr

adin

gfo

r-sa

lem

atur

ityfin

anci

ng*

asse

tsas

sets

tota

lco

ntin

genc

ies

2010

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Agr

icul

ture

- -

- -

- 47

6,42

5 -

3 47

6,42

831

,535

Min

ing

and

quar

ryin

g-

- -

- -

373,

899

- 24

4 37

4,14

3 1,

053

Man

ufac

turin

g -

- -

20,5

30

157,

515

1,74

3,30

8 -

838

1,92

2,19

1 20

7,36

1E

lect

ricity

, gas

and

wat

er s

uppl

y-

- -

93,7

33

- 19

2,95

3 -

13

286,

699

57C

onst

ruct

ion

- -

- -

207,

108

2,27

4,98

1 -

154

2,48

2,24

3 65

2,61

0R

eal e

stat

e -

- -

- -

2,32

3,15

5 -

- 2,

323,

155

185,

829

Tran

spor

t, st

orag

e an

d co

mm

unic

atio

n -

- -

30,2

22

- 92

1,59

0-

107

951,

919

26,2

31Fi

nanc

e, in

sura

nce

and

busi

ness

ser

vice

s 24

7,13

2 19

2,52

2 14

9,94

5 2,

173,

568

27,3

61

4,34

6,67

0 -

52,6

34

7,18

9,83

2 24

1,83

2G

over

nmen

t and

go

vern

men

t age

ncie

s 8,

287,

747

- -

3,37

9,65

5 16

,186

75

,394

-

- 11

,758

,982

13

5,82

5W

hole

sale

& re

tail

trad

e an

dre

stau

rant

s &

hot

els

- -

- -

24,0

37

1,19

8,62

9 -

836

1,22

3,50

2 14

0,17

2O

ther

s -

- -

- 33

0 12

,443

,544

8,

607

152

12,4

52,6

33

486,

808

Tota

l ass

ets

8,53

4,87

9 19

2,52

2 14

9,94

5 5,

697,

708

432,

537

26,3

70,5

48

8,60

7 54

,981

41

,441

,727

2,

109,

313

*Not

incl

usiv

e of

col

lect

ive

allo

wan

ce a

mou

ntin

g to

RM

396

milli

on.

Ris

k co

ncen

trat

ions

for

com

mitm

ents

and

con

tinge

ncie

s ar

e ba

sed

on th

e cr

edit

equi

vale

nt b

alan

ces

in N

ote

37.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(i)

Cre

dit

Ris

k (c

on

tin

ued

)

Cre

dit

ris

k co

nce

ntr

atio

ns

(co

nti

nu

ed)

Dep

osi

ts a

nd

pla

cem

ents

Fin

anci

alw

ith

ban

ksas

sets

Fin

anci

alF

inan

cial

On

Cas

h a

nd

and

oth

erh

eld

-in

vest

men

tsin

vest

men

tsL

oan

s,D

eriv

ativ

eb

alan

ceC

om

mit

men

tssh

ort

-ter

mfi

nan

cial

for-

avai

lab

le-

hel

d-t

o-

adva

nce

s an

dO

ther

fin

anci

alsh

eet

and

Th

e B

ank

fun

ds

inst

itu

tio

ns

trad

ing

for-

sale

mat

uri

tyfi

nan

cin

g*

asse

tsas

sets

tota

lco

nti

ng

enci

es20

11R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00

Agr

icul

ture

-

- -

- -

400,

161

- 46

2 40

0,62

3 40

,030

Min

ing

and

quar

ryin

g -

- -

- -

431,

167

- -

431,

167

37,4

17M

anuf

actu

ring

- -

- -

179,

282

2,04

7,85

1 -

1,23

2 2,

228,

365

620,

567

Ele

ctric

ity, g

as a

nd w

ater

sup

ply

- -

- 14

5,79

6 -

158,

795

- -

304,

591

289

Con

stru

ctio

n -

- -

- 20

4,72

1 2,

009,

056

- 10

2,

213,

787

868,

661

Rea

l est

ate

- -

- -

- 2,

555,

690

- -

2,55

5,69

0 34

5,38

4Tr

ansp

ort,

stor

age

and

com

mun

icat

ion

- -

- 4,

890

72,6

87

1,57

2,08

7 -

238

1,64

9,90

2 13

8,19

6Fi

nanc

e, in

sura

nce

and

busi

ness

ser

vice

s 66

8,86

3 1,

098,

988

149,

832

2,54

3,66

5 27

,362

3,

810,

888

- 47

,643

8,

347,

241

608,

711

Gov

ernm

ent a

nd

gove

rnm

ent a

genc

ies

4,71

7,09

3 -

- 2,

410,

543

16,1

86

55,8

02

- -

7,19

9,62

4 39

,651

Who

lesa

le &

reta

il tr

ade

and

rest

aura

nts

& h

otel

s -

- -

- 20

,537

1,

392,

298

- 31

6 1,

413,

151

482,

819

Oth

ers

- -

- -

330

11,2

75,1

56

59,0

56

- 11

,334

,542

45

0,57

7

Tota

l ass

ets

5,38

5,95

6 1,

098,

988

149,

832

5,10

4,89

4 52

1,10

5 25

,708

,951

59

,056

49

,901

38

,078

,683

3,

632,

302

*Not

incl

usiv

e of

col

lect

ive

allo

wan

ce a

mou

ntin

g to

RM

391

milli

on.

Ris

k co

ncen

trat

ions

for

com

mitm

ents

and

con

tinge

ncie

s ar

e ba

sed

on th

e cr

edit

equi

vale

nt b

alan

ces

in N

ote

37.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(i)

Cre

dit

Ris

k (c

on

tin

ued

)

Cre

dit

ris

k co

nce

ntr

atio

ns

(co

nti

nu

ed)

Dep

osits

and

plac

emen

tsFi

nanc

ial

with

ban

ksas

sets

Fina

ncia

lFi

nanc

ial

On

Cas

h an

dan

d ot

her

held

-in

vest

men

tsin

vest

men

tsLo

ans,

Der

ivat

ive

bala

nce

Com

mitm

ents

shor

t-te

rmfin

anci

alfo

r-av

aila

ble-

held

-to-

adva

nces

and

Oth

erfin

anci

alsh

eet

and

The

Ban

kfu

nds

inst

itutio

nstr

adin

gfo

r-sa

lem

atur

ityfin

anci

ng*

asse

tsas

sets

tota

lco

ntin

genc

ies

2010

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

R

M'0

00R

M'0

00R

M'0

00R

M'0

00

Agr

icul

ture

--

- -

- 37

9,42

1 -

337

9,42

4 6,

267

Min

ing

and

quar

ryin

g -

- -

- -

373,

664

- 24

4 37

3,90

8 1,

032

Man

ufac

turin

g-

- -

20,5

30

157,

515

1,62

0,57

7 -

838

1,79

9,46

0 20

3,87

4E

lect

ricity

, gas

and

wat

er s

uppl

y-

- -

93,7

33

- 19

2,08

9 -

13

285,

835

57C

onst

ruct

ion

- -

- -

207,

108

1,96

2,66

7 -

154

2,16

9,92

9 59

0,49

5R

eal e

stat

e-

- -

- -

2,27

8,47

6 -

- 2,

278,

476

185,

829

Tran

spor

t, st

orag

e an

d co

mm

unic

atio

n -

- -

5,06

2 -

915,

146

- 10

7 92

0,31

5 26

,231

Fina

nce,

insu

ranc

e an

d bu

sine

ss s

ervi

ces

321,

806

564,

917

149,

945

1,80

8,06

0 27

,361

3,

759,

208

- 52

,634

6,

683,

931

209,

594

Gov

ernm

ent a

nd

gove

rnm

ent a

genc

ies

5,68

1,06

8 -

- 2,

425,

159

16,1

86

75,3

94

- -

8,19

7,80

7 3,

859

Who

lesa

le &

reta

il tr

ade

and

rest

aura

nts

& h

otel

s-

- -

- 24

,037

1,

150,

259

- 83

6 1,

175,

132

136,

037

Oth

ers

- -

- -

330

10,0

55,5

70

7,38

4 15

2 10

,063

,436

48

3,00

2

Tota

l ass

ets

6,00

2,87

4 56

4,91

7 14

9,94

5 4,

352,

544

432,

537

22,7

62,4

71

7,38

4 54

,981

34

,327

,653

1,

846,

277

*Not

incl

usiv

e of

col

lect

ive

allo

wan

ce a

mou

ntin

g to

RM

343

milli

on.

Ris

k co

ncen

trat

ions

for

com

mitm

ents

and

con

tinge

ncie

s ar

e ba

sed

on th

e cr

edit

equi

vale

nt b

alan

ces

in N

ote

37.




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 90 days or with impairment allowances.

Distribution of loans, advances and financing by credit quality


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

Neither past due nor impaired (a) 26,803,010 22,362,063 22,916,350 19,340,931Past due but not impaired (b) 2,643,450 3,213,211 2,232,612 2,742,727Impaired (c) 865,662 971,123 693,318 818,522

Gross loans, advances and financing 30,312,122 26,546,397 25,842,280 22,902,180less: Allowance for impairment

-Individual (168,257) (175,849) (133,329) (139,709)-Collective (451,599) (395,701) (390,890) (343,220)

Net loans, advances and financing 29,692,266 25,974,847 25,318,061 22,419,251

Past due but not impaired includes accounts within grace period of the Group and the Bank amounting to RM0.9 billion(2010: RM1.2 billion) and RM0.8 billion (2010: RM1.1 billion) respectively.

(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 andthe Bank’s internal credit grading system is as follows:


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

Quality classification

Satisfactory 22,345,076 18,598,272 18,817,505 15,964,665Special mention 4,457,934 3,763,791 4,098,845 3,376,266

26,803,010 22,362,063 22,916,350 19,340,931




Total loans, advances and financing - credit quality (continued)

(a) Loans neither past due nor impaired (continued)

Quality classification definitions

Satisfactory: Exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probabilityof 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 inexcess of the principal and profit outstanding. Allowances for these loans may have been set aside on a portfoliobasis. The Bank’s loans, advances and financing which are past due but not impaired are as follows:


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

Past due up to 30 days 1,338,561 1,730,084 1,190,391 1,542,944Past due 30-60 days 900,300 996,340 716,992 849,976Past due 60-90 days 404,589 486,787 325,229 349,807

2,643,450 3,213,211 2,232,612 2,742,727

c) Loans impaired


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

Analysis of individually impaired assets:

Gross impaired loans 865,662 971,123 693,318 818,522

Individually impaired loans 114,330 439,997 38,938 329,510






Collateral and other credit enhancements obtained

During the year, the Bank obtained assets by taking possession of collateral held as security or calling upon other creditenhancements as follows:

The Group and The Bank2011 2010

RM'000 RM'000Carrying amount

Nature of assets:Condominium 1,190 -Vacant industrial land - 1,370

Foreclosed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness.The carrying amount of foreclosed properties held by the Group and the Bank as at reporting date has been classifiedas Other assets as disclosed in Note 8.

Private debt securities, treasury bills and derivatives

Private debt securities, treasury bills and other eligible bills included in financial assets held-for-trading and financialinvestments 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 usesexternal 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.



NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(i)

Cre

dit

ris

k (c

on

tin

ued

)

Pri

vate

deb

t se

curi

ties

, tre

asu

ry b

ills

and

der

ivat

ives

(co

nti

nu

ed)

Th

e G

rou

pA

AA

AA

- to

AA

+A

- to

A+

Lo

wer

th

an A

-U

nra

ted

*Im

pai

red

Tota

l20

11R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00

Fina

ncia

l ass

ets

held

-for

-tra

ding

Ban

k N

egar

a M

alay

sia

Mon

etar

y N

otes

-

--

- 14

9,83

2-

149,

832

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

leM

alay

sian

Gov

ernm

ent t

reas

ury

bills

-

- -

- 39

,421

-

39,4

21M

alay

sian

Gov

ernm

ent s

ecur

ities

- -

- -

430,

728

- 43

0,72

8M

alay

sian

Gov

ernm

ent i

nves

tmen

t iss

ues

- -

- -

2,61

1,72

4 -

2,61

1,72

4B

ank

Neg

ara

Mal

aysi

a M

onet

ary

Not

es

- -

- -

174,

620

- 17

4,62

0O

ther

s -

--

- 81

6,58

4 -

816,

584

Quo

ted

and

unqu

oted

Sha

res

in M

alay

sia

- -

- -

108,

992

4,32

611

3,31

8P

rivat

e de

bt s

ecur

ities

1,

652,

387

314,

696

284,

915

178,

545

81,4

80-

2,51

2,02

3Fi

nanc

ial i

nves

tmen

ts h

eld-

to-m

atur

ityP

rivat

e de

bt s

ecur

ities

-

- 27

,361

-

393,

991

99,7

5352

1,10

5

1,65

2,38

7 31

4,69

6 31

2,27

6 17

8,54

5 4,

807,

372

104,

079

7,36

9,35

5

The

Gro

upA

AA

AA

- to

AA

+A

- to

A+

Low

er th

an A

-U

nrat

ed*Im

paire

dTo

tal

2010

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Fina

ncia

l ass

ets

held

-for

-tra

ding

Ban

k N

egar

a M

alay

sia

Mon

etar

y N

otes

-

- -

- 99

,853

-

99,8

53N

egot

iabl

e In

stru

men

ts o

f Dep

osit

- -

- -

50,0

92

- 50

,092

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

leM

alay

sian

Gov

ernm

ent t

reas

ury

bills

-

- -

- 16

6,56

6 -

166,

566

Mal

aysi

an G

over

nmen

t sec

uriti

es

- -

- -

763,

701

- 76

3,70

1M

alay

sian

Gov

ernm

ent i

nves

tmen

t iss

ues

- -

- -

1,41

0,77

8 -

1,41

0,77

8B

NM

Suk

uk

- -

- -

32,0

17

- 32

,017

Ban

k N

egar

a M

alay

sia

Mon

etar

y N

otes

-

- -

- 1,

006,

592

- 1,

006,

592

Oth

ers

- -

- -

711,

316

- 71

1,31

6Q

uote

d an

d un

quot

ed S

hare

s in

Mal

aysi

a -

- -

- 95

,839

10

,870

106,

709

Priv

ate

debt

sec

uriti

es

721,

113

290,

820

460,

107

104,

526

30,1

72

-1,

606,

738

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

Priv

ate

debt

sec

uriti

es

- -

27,3

61

- 29

5,70

8 10

9,46

843

2,53

7

721,

113

290,

820

487,

468

104,

526

4,66

2,63

4 12

0,33

86,

386,

899

*Net

of a

llow

ance

for

impa

irmen

t

Col

late

ral i

s no

t gen

eral

ly o

btai

ned

dire

ctly

from

the

issu

ers

of d

ebt s

ecur

ities

. Cer

tain

deb

t sec

uriti

es m

ay b

e co

llate

ralis

ed b

y sp

ecifi

cally

iden

tifie

d as

sets

that

wou

ld b

e ob

tain

able

in th

e ev

ent

of d

efau

lt.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(i)

Cre

dit

ris

k (c

on

tin

ued

)

Pri

vate

deb

t se

curi

ties

, tre

asu

ry b

ills

and

der

ivat

ives

(co

nti

nu

ed)

Th

e B

ank

AA

AA

A-

to A

A+

A-

to A

+L

ow

er t

han

A-

Un

rate

d*I

mp

aire

dTo

tal

2011

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Fina

ncia

l ass

ets

held

-for

-tra

ding

Ban

k N

egar

a M

alay

sia

Mon

etar

y N

otes

-

- -

- 14

9,83

2 -

149,

832

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

leM

alay

sian

Gov

ernm

ent t

reas

ury

bills

-

- -

- 39

,421

-

39,4

21M

alay

sian

Gov

ernm

ent s

ecur

ities

-

- -

- 43

0,72

8 -

430,

728

Mal

aysi

an G

over

nmen

t inv

estm

ent i

ssue

s -

- -

- 1,

915,

445

- 1,

915,

445

Ban

k N

egar

a M

alay

sia

Mon

etar

y N

otes

-

- -

- 24

,949

-

24,9

49O

ther

s -

- -

- 80

2,32

2 -

802,

322

Quo

ted

and

unqu

oted

Sha

res

in M

alay

sia

- -

- -

105,

991

3,64

810

9,63

9P

rivat

e de

bt s

ecur

ities

1,

057,

484

289,

605

284,

915

178,

545

81,4

80

-1,

892,

029

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

Priv

ate

debt

sec

uriti

es

- -

27,3

61-

393,

991

99,7

5352

1,10

5

1,05

7,48

4 28

9,60

5 31

2,27

6 17

8,54

5 3,

944,

159

103,

401

5,88

5,47

0

The

Ban

kA

AA

AA

- to

AA

+A

- to

A+

Low

er th

an A

-U

nrat

ed*Im

paire

dTo

tal

2010

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Fina

ncia

l ass

ets

held

-for

-tra

ding

Ban

k N

egar

a M

alay

sia

Mon

etar

y N

otes

-

- -

- 99

,853

-

99,8

53N

egot

iabl

e In

stru

men

ts o

f Dep

osit

- -

- -

50,0

92

- 50

,092

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

leM

alay

sian

Gov

ernm

ent t

reas

ury

bills

-

- -

- 13

7,73

0 -

137,

730

Mal

aysi

an G

over

nmen

t sec

uriti

es

- -

- -

763,

701

- 76

3,70

1M

alay

sian

Gov

ernm

ent i

nves

tmen

t iss

ues

- -

- -

674,

170

- 67

4,17

0B

ank

Neg

ara

Mal

aysi

a M

onet

ary

Not

es

- -

- -

849,

557

- 84

9,55

7O

ther

s-

- -

- 69

8,06

6 -

698,

066

Quo

ted

and

unqu

oted

Sha

res

in M

alay

sia

- -

- -

93,1

019,

827

102,

928

Priv

ate

debt

sec

uriti

es

398,

527

247,

086

460,

107

93,4

28

30,1

72

- 1,

229,

320

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

Priv

ate

debt

sec

uriti

es

- -

27,3

61

- 29

5,70

8 10

9,46

843

2,53

7

398,

527

247,

086

487,

468

93,4

28

3,69

2,15

0 11

9,29

5 5,

037,

954

*Net

of a

llow

ance

for

impa

irmen

t

Col

late

ral i

s no

t gen

eral

ly o

btai

ned

dire

ctly

from

the

issu

ers

of d

ebt s

ecur

ities

. Cer

tain

deb

t sec

uriti

es m

ay b

e co

llate

ralis

ed b

y sp

ecifi

cally

iden

tifie

d as

sets

that

wou

ld b

e ob

tain

able

in th

e ev

ent

of d

efau

lt.


(ii) Market risk

Market risk is defined as the risk of losses to the Bank’s portfolio positions arising from movements in market prices. 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 riskarises mainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. The Bank isalso exposed to basis risk when there is a mismatch between the change in price of a hedge and the change in price ofthe assets it hedges. Foreign exchange rate risk arises from unhedged positions of customers’ requirements and proprietaryposition.

Market risk arising from the Bank’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-Risk(VaR) Limits which are approved by both the Asset Liability Management Committee ('ALCO') and Board Risk ManagementCommittee ('BRMC') in accordance with the Bank's risk appetite. These limits are set and reviewed regularly having regardto a number of factors, including liquidity and the Bank's business strategy.

For non-trading book, the Bank quantifies the interest rate risk by analysing the repricing mismatch between the rate sensitiveassets and rate sensitive liabilities. The Bank also performs Net Interest Income simulation to assess the variation in earningsunder various rates scenarios.

The non-trading book’s interest rate risk is managed through limits set over time buckets together with an Overall RiskTolerance Limit.

In addition, the Bank conducts periodic stress test of its respective 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.

Value at risk ('VaR')

Value-at-Risk ('VaR') is used to compute the maximum potential loss amount over a specified holding period of a tradingportfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange ratesthat could affect values of financial instruments.

The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a statisticallydefined, 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 thencomputed 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:

AverageThe Group and The Bank Balance for the year Minimum Maximum2011 RM'000 RM'000 RM'000 RM'000

InstrumentsFX swap 773 261 73 938Government securities 4 - - 7

AverageThe Group and The Bank Balance for the year Minimum Maximum2010 RM'000 RM'000 RM'000 RM'000

InstrumentsFX swap 201 241 134 437Government securities - 1 - 11Private debt securities - 1 - 18





(ii) Market risk (continued)

Other Risk Measures

• Mark-to-marketMark-to-market valuation tracks the current market value of the outstanding financial instruments.

• Stress testingStress tests are conducted to attempt to quantify market risk arising from low probability, abnormal market movements.The stress test measure the change in value arising from range of extreme movements in the interest rates and foreignexchange rates based on past experience and simulated stress scenarios.

• Sensitivity/Dollar DurationSensitivity/Dollar Duration measures the change in value of a portfolio resulting from a 0.01% increase in interest rates.This measure identifies the Bank’s interest rate exposures that are most vulnerable to interest rate changes andfacilitates the implementation of hedging strategies.

Net interest income sensitivity

The table below shows the pre-tax net interest income sensitivity for the non-trading financial assets and financial liabilitiesheld 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 Bank2011 2011 2011 2011+100 -100 +100 -100

basis point basis point basis point basis pointRM million RM million RM million RM million

Impact on net interest income (13.9) 13.9 (20.7) 20.7As percentage of net interest income -1.4% 1.4% -2.6% 2.6%

The Group The Bank2010 2010 2010 2010+100 -100 +100 -100

basis point basis point basis point basis pointRM million RM million RM million RM million

Impact on net interest income (25.7) 25.7 (21.2) 21.2As percentage of net interest income -2.8% 2.8% -2.8% 2.8%




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 2011 '000 '000 '000 '000

US Dollar (79) (250) (247) 2Others (2,024) (6,432) (6,367) 64

The impact on the outstanding foreign exchange position as at 31 December 2011 for a one percent change in USD exchange rate from 3.1770 to 3.1452 was an increase of about RM66,815.

Open position



equivalent equivalent 1% fall in exchange The Group amount amount US Dollar rate 2010 '000 '000 '000 '000

US Dollar (4,453) (13,730) (13,592) (137)Others (1,290) (3,977) (3,936) (39)

The impact on the outstanding foreign exchange position as at 31 December 2010 for a one percent change in USD exchange rate from 3.0835 to 3.0527 was a decrease of about RM176,000.






Foreign exchange risk sensitivity analysis (continued)

Open position



equivalent equivalent 1% fall in exchange The Bank amount amount US Dollar rate 2011 '000 '000 '000 '000

US Dollar 9,166 29,120 28,829 (291)Others (1,656) (5,260) (5,208) 53


Open position



equivalent equivalent 1% fall in exchange The Bank amount amount US Dollar rate 2010 '000 '000 '000 '000

US Dollar (5,944) (18,329) (18,145) (183)Others (984) (3,034) (3,003) (30)


Foreign exchange risk

The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial positionand cash flows. Limits are set on the level of exposure by currency and in aggregate for both overnight and intra-daypositions, which are monitored daily. The table summarises the Bank's exposure to foreign currency exchange rate risk atreporting date. Included in the table are the Bank's financial instruments at carrying amounts, categorised by currency.



NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(ii)

M

arke

t ri

sk (

con

tin

ued

)

Fo

reig

n e

xch

ang

e ri

sk (

con

tin

ued

)

Un

ited

Gre

atS

tate

sB

rita

inA

ust

ralia

nJa

pan

ese

Th

e G

rou

pE

uro

Do

llar

Po

un

dD

olla

rY

enO

ther

sTo

tal

2011

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Ass

ets

Cas

h an

d sh

ort-

term

fund

s 87

,801

38

2,75

2 2,

692

32,6

30

982

22,9

97

529,

854

Dep

osits

and

pla

cem

ents

with

ban

ks

and

othe

r fin

anci

al in

stitu

tions

-

292,

241

- 81

,085

32

,085

-

405,

411

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

- 16

2,88

5 49

,736

25

1,81

8 32

,584

79

,872

57

6,89

5Lo

ans,

adv

ance

s an

d fin

anci

ng

338

1,03

5,04

1 97

,872

-

473

1,61

9 1,

135,

343

Oth

er a

sset

s -

48

- -

- -

48D

eriv

ativ

e fin

anci

al a

sset

s -

2,16

6 25

1,

098

- 18

3 3,

472

Tota

l fin

anci

al a

sset

s88

,139

1,

875,

133

150,

325

366,

631

66,1

24

104,

671

2,65

1,02

3

Lia

bili

ties

Dep

osits

from

cus

tom

ers

149,

869

125,

418

9,64

3 16

,251

96

3,

269

304,

546

Dep

osits

and

pla

cem

ents

of b

anks

and

othe

r fin

anci

al in

stitu

tions

-

1,10

0,02

3 -

5,67

0 -

- 1,

105,

693

Oth

er li

abilit

ies

- 2,

589

- 70

-

- 2,

659

Der

ivat

ive

finan

cial

liab

ilitie

s -

9,03

6 1,

315

947

- 1,

213

12,5

11

Tota

l fin

anci

al li

abili

ties

149,

869

1,23

7,06

6 10

,958

22

,938

96

4,

482

1,42

5,40

9

Net

on-

bala

nce

shee

t fin

anci

al p

ositi

on(6

1,73

0)

638,

067

139,

367

343,

693

66,0

28

100,

189

1,22

5,61

4O

ff ba

lanc

e sh

eet c

redi

t com

mitm

ents

63

3,16

6 1,

380,

515

31,4

77

- 28

7,60

1 23

,668

2,

356,

427


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

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Ass

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Dep

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Up

to 1

>1-

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Cas

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Dep

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Tota

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Up

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Dep

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Up

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Ass

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Cas

h an

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s 5,

933,

150

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175,

302

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108,

452

2.70

Dep

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finan

cial

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29,5

97

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664

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5,38

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564,

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Fina

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92

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2.81

Fina

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nti

nu

ed)

(ii)

M

arke

t ri

sk (

con

tin

ued

)

Inte

rest

/pro

fit

rate

ris

k (c

on

tin

ued

)

Non

-tra

ding

boo

k

Non

inte

rest

/E

ffect

ive

Up

to 1

>1-

3>

3-12

>1-

5O

ver

5pr

ofit

Trad

ing

inte

rest

The

Ban

km

onth

mon

ths

mon

ths

year

sye

ars

sens

itive

book

Tota

lra

te20

10R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00%

Liab

ilitie

sD

epos

its fr

om c

usto

mer

s 12

,147

,517

6,

553,

954

4,37

6,92

0 42

,754

-

2,31

0,93

0 -

25,4

32,0

75

3.02

Dep

osits

and

pla

cem

ents

of b

anks

and

othe

r fin

anci

al in

stitu

tions

2,

479,

622

3,18

7,61

4 68

,186

-

- 13

,581

-

5,74

9,00

3 2.

86B

ills a

nd a

ccep

tanc

es p

ayab

le

- -

- -

- 11

0,16

1 -

110,

161

Rec

ours

e ob

ligat

ion

on lo

ans

sold

to C

agam

as B

erha

d -

- -

286,

370

- 2,

521

- 28

8,89

1 5.

00S

ubor

dina

ted

term

loan

30

0,00

0 -

- -

- 68

2 -

300,

682

3.52

Oth

er li

abilit

ies

(2)

- -

- -

- 34

1,93

4 -

341,

934

Der

ivat

ive

finan

cial

liab

ilitie

s -

- -

- -

52,7

47

17,4

48

70,1

95A

mou

nt d

ue to

sub

sidi

arie

s -

- -

- -

47,9

26

- 47

,926

Tota

l lia

bilit

ies

14,9

27,1

39

9,74

1,56

8 4,

445,

106

329,

124

- 2,

880,

482

17,4

48

32,3

40,8

67

Equ

ity

- -

- -

- 3,

112,

800

- 3,

112,

800

Tota

l lia

bilit

ies

and

equi

ty

14,9

27,1

39

9,74

1,56

8 4,

445,

106

329,

124

- 5,

993,

282

17,4

48

35,4

53,6

67

On-

bala

nce

shee

t int

eres

t sen

sitiv

ity g

ap

1,87

0,47

4 (7

,422

,256

) (1

,580

,598

) 8,

746,

995

2,37

2,76

2(4

,129

,525

) 14

2,14

8O

ff-ba

lanc

e sh

eet i

nter

est s

ensi

tivity

gap

(3)

299,

637

455,

305

(5,1

93)

(704

,458

) (4

5,29

1)

- -

Tota

l int

eres

t sen

sitiv

ity g

ap

2,17

0,11

1 (6

,966

,951

) (1

,585

,791

) 8,

042,

537

2,32

7,47

1 (4

,129

,525

) 14

2,14

8

(2)

Oth

er li

abilit

ies

incl

ude

othe

r lia

bilit

ies

and

defe

rred

tax

liabi

litie

s.(3

) Th

e of

f-ba

lanc

e sh

eet g

ap re

pres

ents

the

net n

otio

nal a

mou

nts

of a

ll in

tere

st r

ate

sens

itive

der

ivat

ive

finan

cial

inst

rum

ents

.



(iii) Liquidity Risk

Liquidity risk is the risk of incurring additional cost to generate cash to cover the required funding shortfall in the trading andbanking book. Liquidity risk arises from the Bank's funding activities and the management of its assets.

To measure and manage net funding requirements, the Bank adopts BNM's New Liquidity Framework ('NLF'). The NLF ascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off-balance sheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The NLFis 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. Liquidityrisk is tracked using internal and external qualitative and quantitative indicators. The Bank also conducts liquidity stresstests to gauge the Bank’s resilience in the event of a liquidity crisis. In addition, the Bank has in place the ContingencyFunding 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 BRMC is responsible for the Bank's liquidity policy although the strategic management of liquidity has been delegatedto the ALCO. The BRMC is informed regularly of the liquidity situation in the Bank.

Liquidity risk disclosure table which is based on contractual undiscounted cash flow:

Up to 1 >1-3 >3-12 >1-5 Over 5The Group month months months years years Total2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Deposits from customers 18,060,100 10,230,464 8,163,881 301,839 - 36,756,284Deposits and placements of banks

and other financial institutions 4,538,018 2,783,990 270,956 235,100 - 7,828,064Bills and acceptances payable 82,059 - - - - 82,059Recourse obligation on loans sold to

Cagamas Berhad 3,172 5,545 26,189 456,743 - 491,649Other liabilities 326,735 - - - - 326,735Subordinated term loan 2,148 4,338 21,314 115,350 692,392 835,542

23,012,232 13,024,337 8,482,340 1,109,032 692,392 46,320,333

Up to 1 >1-3 >3-12 >1-5 Over 5The Group month months months years years Total2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000


and other financial institutions 3,253,752 3,473,483 72,122 - - 6,799,357Bills and acceptances payable 110,161 - - - - 110,161Recourse obligation on loans sold to

Cagamas Berhad 3,226 3,106 19,021 310,879 - 336,232Other liabilities 353,892 - - - - 353,892Subordinated term loan 961 1,828 8,521 58,072 348,068 417,450

21,493,135 11,424,342 5,448,443 422,338 348,068 39,136,326




(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 5The Bank month months months years years Total2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000


and other financial institutions 3,379,595 2,457,466 270,956 235,100 - 6,343,117Bills and acceptances payable 82,059 - - - - 82,059Recourse obligation on loans sold to

Cagamas Berhad 3,172 5,545 26,189 456,743 - 491,649Other liabilities 309,134 - - - - 309,134Amount due to subsidiaries 48,307 - - - - 48,307Subordinated term loan 2,148 4,338 21,314 115,350 692,392 835,542

17,708,669 10,837,921 7,065,542 1,046,072 692,392 37,350,596

Up to 1 >1-3 >3-12 >1-5 Over 5The Bank month months months years years Total2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000


and other financial institutions 2,493,320 3,222,177 71,720 - - 5,787,217Bills and acceptances payable 110,161 - - - - 110,161Recourse obligation on loans sold to

Cagamas Berhad 3,226 3,106 19,021 310,879 - 336,232Other liabilities 317,002 - - - - 317,002Amount due to subsidiaries 47,926 - - - - 47,926Subordinated term loan 961 1,828 8,521 58,072 348,068 417,450

17,356,314 9,836,810 4,594,863 417,629 348,068 32,553,684



(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 5The Group and The Bank month months months years years Total2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Derivatives settled on net basisInterest rate derivatives (1,264) (2,920) (3,604) (12,051) (1,416) (21,255)

Derivatives settled on gross basisForeign exchange derivatives:Outflow (1,368,790) (763,020) (860,055) (70,000) - (3,061,865)Inflow 1,367,630 760,402 859,550 70,000 - 3,057,582

(1,160) (2,618) (505) - - (4,283)

Up to 1 >1-3 >3-12 >1-5 Over 5The Group and The Bank month months months years years Total2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Derivatives settled on net basisInterest rate derivatives (1,098) (1,353) (9,658) (33,596) (12,799) (58,504)

Derivatives settled on gross basisForeign exchange derivatives:Outflow (278,479) (207,640) (229,901) (115,560) - (831,580) Inflow 278,466 205,907 229,397 115,560 - 829,330

(13) (1,733) (504) - - (2,250)




NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(iii)

L

iqu

idit

y R

isk

(co

nti

nu

ed)

Liq

uid

ity

risk

fo

r as

sets

an

d li

abili

ties

bas

ed o

n r

emai

nin

g c

on

trac

tual

mat

uri

ties

The

mat

uriti

es o

f on-

bala

nce

shee

t ass

ets

and

liabi

litie

s as

wel

l as

othe

r off-

bala

nce

shee

t ass

ets

and

liabi

litie

s, c

omm

itmen

ts a

nd c

ount

er-g

uara

ntee

s ar

e im

port

ant f

acto

rsin

ass

essi

ng t

he l

iqui

dity

of

the

Gro

up a

nd t

he B

ank.

The

tab

le b

elow

pro

vide

s an

alys

is o

f as

sets

and

lia

bilit

ies

into

rel

evan

t m

atur

ity t

enur

es b

ased

on

rem

aini

ng

cont

ract

ual m

atur

ities

.

Up

to

3>3

-6>6

-12

>1-3

>3-5

Ove

r 5

Th

e G

rou

pm

on

ths

mo

nth

sm

on

ths

year

sye

ars

year

sTo

tal

2011

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Ass

ets

Cas

h an

d sh

ort-

term

fund

s 9,

879,

366

- -

- -

- 9,

879,

366

Dep

osits

and

pla

cem

ents

with

ban

ksan

d ot

her

finan

cial

inst

itutio

ns

295,

957

15,0

55

- 19

,446

15

6,23

6 -

486,

694

Fina

ncia

l ass

ets

held

-for

-tra

ding

14

9,83

2 -

- -

- -

149,

832

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

329,

024

180,

193

314,

519

3,72

0,05

8 1,

439,

903

714,

721

6,69

8,41

8Fi

nanc

ial i

nves

tmen

ts h

eld-

to-m

atur

ity

101,

167

361

51,1

86

163,

670

- 20

4,72

1 52

1,10

5Lo

ans,

adv

ance

s an

d fin

anci

ng

2,41

3,15

1 67

0,96

1 43

0,80

7 3,

689,

505

5,34

3,42

8 17

,144

,414

29

,692

,266

Oth

er a

sset

s 10

9,80

8 -

10,7

57

5,53

0 -

40,4

48

166,

543

Der

ivat

ive

finan

cial

ass

ets

22,6

36

2,77

0 4,

427

3,79

1 1,

973

14,3

04

49,9

01A

mou

nt d

ue fr

om jo

intly

con

trol

led

entit

y 2,

745

- -

- -

- 2,

745

Oth

er n

on-f

inan

cial

ass

ets

(1)

1,26

8,65

0 -

3,43

0 -

- 32

9,25

3 1,

601,

333

14,5

72,3

36

869,

340

815,

126

7,60

2,00

0 6,

941,

540

18,4

47,8

61

49,2

48,2

03

(1)

Oth

er n

on-f

inan

cial

ass

ets

incl

ude

tax

reco

vera

ble,

sta

tuto

ry d

epos

its w

ith B

NM

, def

erre

d ta

x as

sets

, inv

estm

ent i

n jo

intly

con

trol

led

entit

y, p

rope

rty

and

equi

pmen

t and

inta

ngib

le a

sset

s.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(iii)

L

iqu

idit

y R

isk

(co

nti

nu

ed)

Liq

uid

ity

risk

fo

r as

sets

an

d li

abili

ties

bas

ed o

n r

emai

nin

g c

on

trac

tual

mat

uri

ties

(co

nti

nu

ed)

Up

to

3>3

-6>6

-12

>1-3

>3-5

Ove

r 5

Th

e G

rou

pm

on

ths

mo

nth

sm

on

ths

year

sye

ars

year

sTo

tal

2011

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

RM

'000

Lia

bili

ties

Dep

osits

from

cus

tom

ers

28,2

53,2

48

2,96

0,29

0 5,

036,

794

297,

101

11

- 36

,547

,444

Dep

osits

and

pla

cem

ents

of b

anks

and

othe

r fin

anci

al in

stitu

tions

7,

264,

364

259,

870

2,67

8 -

- -

7,52

6,91

2B

ills a

nd a

ccep

tanc

es p

ayab

le

82,0

59

- -

- -

- 82

,059

Rec

ours

e ob

ligat

ion

on lo

ans

sold

toC

agam

as B

erha

d 3,

326

- -

275,

133

150,

000

- 42

8,45

9S

ubor

dina

ted

term

loan

1,

850

- -

- -

600,

000

601,

850

Oth

er li

abilit

ies

326,

735

- -

- -

- 32

6,73

5D

eriv

ativ

e fin

anci

al li

abilit

ies

36,8

46

10,8

55

4,34

5 18

,317

10

,725

16

,311

97

,399

Oth

er n

on-f

inan

cial

liab

ilitie

s (2

)-

- 16

,242

-

- 20

,118

36

,360

35,9

68,4

28

3,23

1,01

5 5,

060,

059

590,

551

160,

736

636,

429

45,6

47,2

18

On

bala

nce

shee

t gap

(2

1,39

6,09

2)

(2,3

61,6

75)

(4,2

44,9

33)

7,01

1,44

9 6,

780,

804

17,8

11,4

32

3,60

0,98

5O

ff ba

lanc

e sh

eet c

redi

t com

mitm

ents

-

- 13

,493

,662

-

- -

13,4

93,6

62D

eriv

ativ

es

769,

559

490,

736

(405

) (3

0,00

0)

- -

1,22

9,89

0

Net

mat

urity

mis

mat

ch

(20,

626,

533)

(1

,870

,939

) 9,

248,

324

6,98

1,44

9 6,

780,

804

17,8

11,4

32

18,3

24,5

37

(2)

Oth

er n

on-f

inan

cial

liab

ilitie

s in

clud

e pr

ovis

ion

for

taxa

tion

and

defe

rred

tax

liabi

litie

s.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(iii)

L

iqu

idit

y R

isk

(co

nti

nu

ed)

Liq

uid

ity

risk

fo

r as

sets

an

d li

abili

ties

bas

ed o

n r

emai

nin

g c

on

trac

tual

mat

uri

ties

(co

nti

nu

ed)

Up

to 3

>3-

6>

6-12

>1-

3>

3-5

Ove

r 5

The

Gro

upm

onth

sm

onth

sm

onth

sye

ars

year

sye

ars

Tota

l20

10R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00

Ass

ets

Cas

h an

d sh

ort-

term

fund

s 8,

640,

457

- -

- -

- 8,

640,

457

Dep

osits

and

pla

cem

ents

with

ban

ksan

d ot

her

finan

cial

inst

itutio

ns

112,

441

14,7

76

15,6

80

- 49

,625

-

192,

522

Fina

ncia

l ass

ets

held

-for

-tra

ding

14

9,94

5 -

- -

- -

149,

945

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

1,37

0,60

3 58

7,08

7 18

4,02

7 2,

168,

054

1,09

2,49

2 40

2,15

4 5,

804,

417

Fina

ncia

l inv

estm

ents

hel

d-to

-mat

urity

11

1,11

3 36

1 -

113,

955

- 20

7,10

8 43

2,53

7Lo

ans,

adv

ance

s an

d fin

anci

ng

3,17

4,35

4 66

8,78

9 78

0,77

5 3,

085,

018

4,36

6,93

1 13

,898

,980

25

,974

,847

Oth

er a

sset

s 8,

740

- 10

,930

5,

127

- 16

1,66

4 18

6,46

1D

eriv

ativ

e fin

anci

al a

sset

s 28

,850

5,

709

109

10,6

92

2,54

2 7,

079

54,9

81A

mou

nt d

ue fr

om jo

intly

con

trol

led

entit

y 2,

745

- -

- -

- 2,

745

Oth

er n

on-f

inan

cial

ass

ets

(1)

245,

130

- 49

,930

-

- 32

9,94

9 62

5,00

9

13,8

44,3

78

1,27

6,72

2 1,

041,

451

5,38

2,84

6 5,

511,

590

15,0

06,9

34

42,0

63,9

21

(1)

Oth

er n

on-f

inan

cial

ass

ets

incl

ude

stat

utor

y de

posi

ts w

ith B

NM

, def

erre

d ta

x as

sets

, inv

estm

ent i

n jo

intly

con

trolle

d en

tity,

pro

pert

y an

d eq

uipm

ent a

nd in

tang

ible

ass

ets.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(iii)

L

iqu

idit

y R

isk

(co

nti

nu

ed)

Liq

uid

ity

risk

fo

r as

sets

an

d li

abili

ties

bas

ed o

n r

emai

nin

g c

on

trac

tual

mat

uri

ties

(co

nti

nu

ed)

Up

to 3

>3-

6>

6-12

>1-

3>

3-5

Ove

r 5

The

Gro

upm

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Liab

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om c

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,684

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2,

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3,21

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0 24

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23

,119

-

30,9

82,4

07D

epos

its a

nd p

lace

men

ts o

f ban

ksan

d ot

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finan

cial

inst

itutio

ns

6,55

0,73

3 -

69,0

02

- -

- 6,

619,

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Bills

and

acc

epta

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pay

able

11

0,16

1 -

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110,

161

Rec

ours

e ob

ligat

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on lo

ans

sold

toC

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as B

erha

d 2,

521

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- 28

6,37

0 -

288,

891

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ordi

nate

d te

rm lo

an

682

- -

- -

300,

000

300,

682

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er li

abilit

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353,

892

- -

- -

- 35

3,89

2D

eriv

ativ

e fin

anci

al li

abilit

ies

22,7

38

14,7

70

602

17,8

28

7,33

6 6,

921

70,1

95O

ther

non

-fin

anci

al li

abilit

ies

(2)

- -

22

- -

24,9

32

24,9

54

32,7

25,2

05

2,04

7,93

2 3,

287,

106

41,9

96

316,

825

331,

853

38,7

50,9

17

On

bala

nce

shee

t gap

(18,

880,

827)

(7

71,2

10)

(2,2

45,6

55)

5,34

0,85

0 5,

194,

765

14,6

75,0

81

3,31

3,00

4O

ff ba

lanc

e sh

eet c

redi

t com

mitm

ents

-

- 13

,700

,237

-

- -

13,7

00,2

37D

eriv

ativ

es

385,

598

218,

885

(23,

126)

(3

0,00

0)

- -

551,

357

Net

mat

urity

mis

mat

ch

(18,

495,

229)

(552

,325

) 11

,431

,456

5,

310,

850

5,19

4,76

5 14

,675

,081

17

,564

,598

(2)

Oth

er n

on-f

inan

cial

liab

ilitie

s in

clud

e pr

ovis

ion

for

taxa

tion

and

defe

rred

tax

liabi

litie

s.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(iii)

L

iqu

idit

y R

isk

(co

nti

nu

ed)

Liq

uid

ity

risk

fo

r as

sets

an

d li

abili

ties

bas

ed o

n r

emai

nin

g c

on

trac

tual

mat

uri

ties

(co

nti

nu

ed)

Up

to

3>3

-6>6

-12

>1-3

>3-5

Ove

r 5

Th

e B

ank

mo

nth

sm

on

ths

mo

nth

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ars

year

sye

ars

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l20

11R

M'0

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Ass

ets

Cas

h an

d sh

ort-

term

fund

s 5,

527,

439

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527,

439

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osits

and

pla

cem

ents

with

ban

ksan

d ot

her

finan

cial

inst

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ns

671,

105

24,8

79

- 19

,446

35

8,28

9 25

,269

1,

098,

988

Fina

ncia

l ass

ets

held

-for

-tra

ding

14

9,83

2 -

- -

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149,

832

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

270,

179

63,0

31

255,

876

3,06

9,17

5 1,

083,

501

472,

771

5,21

4,53

3Fi

nanc

ial i

nves

tmen

ts h

eld-

to-m

atur

ity

101,

167

361

51,1

86

163,

670

- 20

4,72

1 52

1,10

5Lo

ans,

adv

ance

s an

d fin

anci

ng

2,31

7,89

2 51

4,84

4 37

8,33

1 3,

468,

025

4,67

9,33

8 13

,959

,631

25

,318

,061

Oth

er a

sset

s 60

,727

-

10,5

78

5,35

1 -

40,0

34

116,

690

Der

ivat

ive

finan

cial

ass

ets

22,6

36

2,77

0 4,

427

3,79

1 1,

973

14,3

04

49,9

01A

mou

nt d

ue fr

om s

ubsi

diar

ies

356,

897

- -

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- 35

6,89

7O

ther

non

-fin

anci

al a

sset

s (1

) 1,

108,

650

- -

- -

608,

194

1,71

6,84

4

10,5

86,5

24

605,

885

700,

398

6,72

9,45

8 6,

123,

101

15,3

24,9

24

40,0

70,2

90

(1)

Oth

er n

on-f

inan

cial

ass

ets

incl

ude

stat

utor

y de

posi

ts w

ith B

NM

, inv

estm

ent i

n su

bsid

iarie

s, p

rope

rty

and

equi

pmen

t and

inta

ngib

le a

sset

s.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

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NT

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nti

nu

ed)

(iii)

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iqu

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y R

isk

(co

nti

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ed)

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uid

ity

risk

fo

r as

sets

an

d li

abili

ties

bas

ed o

n r

emai

nin

g c

on

trac

tual

mat

uri

ties

(co

nti

nu

ed)

Up

to

3>3

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-12

>1-3

>3-5

Ove

r 5

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e B

ank

mo

nth

sm

on

ths

mo

nth

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ars

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ties

Dep

osits

from

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tom

ers

22,2

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0 4,

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9 -

29,0

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24D

epos

its a

nd p

lace

men

ts o

f ban

ksan

d ot

her

finan

cial

inst

itutio

ns

5,78

1,28

9 25

9,87

0 2,

678

- -

- 6,

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837

Bills

and

acc

epta

nces

pay

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82

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-

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82,0

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ecou

rse

oblig

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n on

loan

s so

ld to

Cag

amas

Ber

had

3,32

6 -

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5,13

3 15

0,00

0 -

428,

459

Sub

ordi

nate

d te

rm lo

an

1,85

0 -

- -

- 60

0,00

0 60

1,85

0O

ther

liab

ilitie

s 30

9,13

4 -

- -

- -

309,

134

Der

ivat

ive

finan

cial

liab

ilitie

s 36

,846

10

,855

4,

345

18,3

17

10,7

25

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11

97,3

99A

mou

nt d

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sub

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s 48

,307

-

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07O

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non

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al li

abilit

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(2)

- -

16,2

12

- -

19,2

1135

,423

28,5

00,3

76

2,64

7,01

5 4,

247,

664

527,

581

160,

734

635,

522

36,7

18,8

92

On

bala

nce

shee

t gap

(1

7,91

3,85

2)

(2,0

41,1

30)

(3,5

47,2

66)

6,20

1,87

7 5,

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02

3,35

1,39

8O

ff ba

lanc

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eet c

redi

t com

mitm

ents

-

- 11

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,889

-

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11,9

49,8

89D

eriv

ativ

es

769,

559

490,

736

(405

) (3

0,00

0)

- -

1,22

9,89

0

Net

mat

uri

ty m

ism

atch

(17,

144,

293)

(1

,550

,394

) 8,

402,

218

6,17

1,87

7 5,

962,

367

14,6

89,4

02

16,5

31,1

77

(2)

Oth

er n

on-f

inan

cial

liab

ilitie

s in

clud

e pr

ovis

ion

for

taxa

tion

and

defe

rred

tax

liabi

litie

s.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(iii)

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iqu

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y R

isk

(co

nti

nu

ed)

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uid

ity

risk

fo

r as

sets

an

d li

abili

ties

bas

ed o

n r

emai

nin

g c

on

trac

tual

mat

uri

ties

(co

nti

nu

ed)

Up

to 3

>3-

6>

6-12

>1-

3>

3-5

Ove

r 5

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km

onth

sm

onth

sm

onth

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ars

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ars

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l20

10R

M'0

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Ass

ets

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h an

d sh

ort-

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s 6,

108,

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Dep

osits

and

pla

cem

ents

with

ban

ksan

d ot

her

finan

cial

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itutio

ns

442,

636

47,7

25

15,6

80

- 58

,876

-

564,

917

Fina

ncia

l ass

ets

held

-for

-tra

ding

14

9,94

5 -

- -

- -

149,

945

Fina

ncia

l inv

estm

ents

ava

ilabl

e-fo

r-sa

le

1,09

9,71

5 58

5,52

0 17

4,05

0 1,

496,

103

750,

878

349,

206

4,45

5,47

2Fi

nanc

ial i

nves

tmen

ts h

eld-

to-m

atur

ity

111,

113

361

- 11

3,95

5 -

207,

108

432,

537

Loan

s, a

dvan

ces

and

finan

cing

2,

950,

236

526,

876

748,

576

2,92

2,55

6 3,

873,

320

11,3

97,6

87

22,4

19,2

51O

ther

ass

ets

7,51

4 -

10,8

30

4,98

3 -

161,

255

184,

582

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ivat

ive

finan

cial

ass

ets

28,8

50

5,70

9 10

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542

7,07

9 54

,981

Am

ount

due

from

sub

sidi

arie

s 18

5,27

1 -

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185,

271

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er n

on-f

inan

cial

ass

ets

(1)

245,

130

- 46

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-

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7,05

7 89

8,25

9

11,3

28,8

62

1,16

6,19

1 99

5,31

7 4,

548,

289

4,68

5,61

6 12

,729

,392

35

,453

,667

(1)

Oth

er n

on-f

inan

cial

ass

ets

incl

ude

tax

reco

vera

ble,

sta

tuto

ry d

epos

its w

ith B

NM

, inv

estm

ent i

n su

bsid

iarie

s, p

rope

rty

and

equi

pmen

t and

inta

ngib

le a

sset

s.


NO

TE

S T

O T

HE

FIN

AN

CIA

L S

TAT

EM

EN

TS

FOR

TH

E F

INA

NC

IAL

YE

AR

EN

DE

D 3

1 D

EC

EM

BE

R 2

011

38

FIN

AN

CIA

L R

ISK

MA

NA

GE

ME

NT

(co

nti

nu

ed)

(iii)

L

iqu

idit

y R

isk

(co

nti

nu

ed)

Liq

uid

ity

risk

fo

r as

sets

an

d li

abili

ties

bas

ed o

n r

emai

nin

g c

on

trac

tual

mat

uri

ties

(co

nti

nu

ed)

Up

to 3

>3-

6>

6-12

>1-

3>

3-5

Ove

r 5

The

Ban

km

onth

sm

onth

sm

onth

sye

ars

year

sye

ars

Tota

l20

10R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00R

M'0

00

Liab

ilitie

sD

epos

its fr

om c

usto

mer

s 20

,971

,820

1,

599,

874

2,81

7,34

4 20

,857

22

,180

-

25,4

32,0

75D

epos

its a

nd p

lace

men

ts o

f ban

ksan

d ot

her

finan

cial

inst

itutio

ns

5,68

0,00

1 -

69,0

02

- -

- 5,

749,

003

Bills

and

acc

epta

nces

pay

able

11

0,16

1 -

- -

- -

110,

161

Rec

ours

e ob

ligat

ion

on lo

ans

sold

toC

agam

as B

erha

d 2,

521

- -

- 28

6,37

0 -

288,

891

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ordi

nate

d te

rm lo

an

682

- -

- -

300,

000

300,

682

Oth

er li

abilit

ies

317,

002

- -

- -

- 31

7,00

2D

eriv

ativ

e fin

anci

al li

abilit

ies

22,7

38

14,7

70

602

17,8

28

7,33

6 6,

921

70,1

95A

mou

nt d

ue to

sub

sidi

arie

s 47

,926

-

- -

- -

47,9

26D

efer

red

tax

liabi

litie

s -

- -

- -

24,9

32

24,9

32

27,1

52,8

51

1,61

4,64

4 2,

886,

948

38,6

85

315,

886

331,

853

32,3

40,8

67

On

bala

nce

shee

t gap

(1

5,82

3,98

9)

(448

,453

) (1

,891

,631

) 4,

509,

604

4,36

9,73

0 12

,397

,539

3,

112,

800

Off

bala

nce

shee

t cre

dit c

omm

itmen

ts

- -

12,2

45,5

20

- -

- 12

,245

,520

Der

ivat

ives

38

5,59

8 21

8,88

5 (2

3,12

6)

(30,

000)

-

- 55

1,35

7

Net

mat

urity

mis

mat

ch

(15,

438,

391)

(229

,568

) 10

,330

,763

4,

479,

604

4,36

9,73

0 12

,397

,539

15

,909

,677



(iv) Operational Risk Management

Operational risk is the risk of loss arising from inadequate or failed internal processes, action on or by people, infrastructureor technology or events which are beyond the Bank’s immediate control which have an operational impact, including naturaldisaster, fraudulent activities and money laundering.

The Bank manages operational risk through a control based environment in which policies and procedures are formulatedafter taking into account individual unit’s business activities, the market in which it is operating and regulatory requirementin force. Risk is identified through the use of assessment tools and measured using threshold/limits mapped against riskmatrix. Monitoring and control procedures include the use of key control standards, independent tracking of risk, back-upprocedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodicreviews undertaken by Group Internal Audit to ensure adequacy and effectiveness of the Group Operational RiskManagement process.

The Bank gathers, analyses and reports operational risk loss and 'near miss' events to Group Operational Risk ManagementCommittee and Board Risk Management Committee. Appropriate remedial actions are reviewed for effectiveness andimplemented to minimise the recurrence of similar risk events.

As a matter of requirement, all Operational Risk Coordinators must satisfy an internal operational risk (including anti-moneylaundering/counter financing of terrorism and business continuity management) Certification Program. These coordinatorswill first go through an online self learning exercise before attempting on-line assessments to measure their skills andknowledge level. This will enable Group Risk Management to prescribe appropriate training and development activities forthe coordinators.

(v) Fair value of financial instruments

Financial instruments comprise financial assets, financial liabilities and also off balance sheet financial instruments. The fairvalue of a financial instrument is the amount at which the instruments could be exchanged or settled between knowledgeableand willing parties in an arm’s length transaction. The information presented herein represents estimates of fair values as atreporting date.

Quoted market prices, when available, are used as the measure of fair values. For financial instruments, without quotedmarket prices, fair values are estimated using net present value or other valuation techniques. These techniques involve acertain degree of uncertainty depending on the assumptions used and judgments made regarding risk characteristics ofvarious financial instruments, discount rates, estimates of future cash flows, future expected loss experience and otherfactors. Changes in these assumptions could materially affect these estimates and the resulting fair value.

Fair value information for non-financial assets and liabilities are excluded as they do not fall within the scope of FRS 132 whichrequires 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.



(v) Fair value of financial instruments (continued)

The fair values of the financial assets and financial liabilities of the Group and the Bank approximated to their respectivecarrying value as at reporting date, except for the following:

The Group The Bank2011 2011

Carrying Fair Carrying Fairvalue value value value

RMʼ000 RM'000 RMʼ000 RM'000

Financial assetsFinancial investments held-to-maturity 521,105 717,476 521,105 717,476Loans, advances and financing 29,692,266 30,116,855 25,318,061 25,585,624

30,213,371 30,834,331 25,839,166 26,303,100

Financial liabilitiesDeposits from customers 36,547,444 36,544,839 29,072,424 29,070,615Recourse obligation on loans sold to Cagamas Berhad 428,459 450,380 428,459 450,380

36,975,903 36,995,219 29,500,883 29,520,995

The Group The Bank2010 2010

Carrying Fair Carrying Fairvalue value value value

RM’000 RM'000 RM’000 RM'000

Financial assetsFinancial investments held-to-maturity 432,537 648,319 432,537 648,319Loans, advances and financing 25,974,847 26,270,051 22,419,251 22,690,852

26,407,384 26,918,370 22,851,788 23,339,171

Financial liabilitiesDeposits from customers 30,982,407 30,971,746 25,432,075 25,424,521Recourse obligation on loans sold to Cagamas Berhad 288,891 303,270 288,891 303,270

31,271,298 31,275,016 25,720,966 25,727,791






The fair values of derivative financial instruments at the reporting date are as follows:

The Group and the Bank The Group and the Bank2011 2010

Underlying Underlyingnotional Asset Liability notional Asset LiabilityRM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Foreign exchange contractsforward contracts 712,883 2,433 6,313 728,471 2,381 19,025- swaps 2,344,698 16,097 33,904 1,688,008 35,206 22,715

Interest rate contractsswaps 2,395,015 31,371 57,182 1,495,313 17,394 28,455

The derivative financial instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuation in marketinterest rates or foreign exchange rates relative to their terms. The extent to which instruments are favorable or unfavorableand the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

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, thecarrying 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 whichsimilar deposits and placements would be made to banks with similar credit ratings and maturities.

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 arebased on the expected cash flows of the instruments discounted by indicative market yields for the similar instruments asat reporting date or the audited net tangible asset of the invested company.


Loans, advances and financing of the Group comprise of floating rate loans and fixed rate loans. For performing floating rateloans, 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 marketrates 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 ofindividual 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 liabilitiesare 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 estimatesof their fair values. Where the remaining maturities of deposits and liabilities are above six months, their estimated fair valuesare arrived at using the discounted cash flows based on prevailing market rates currently offered for similar remainingmaturities.

The estimated fair value of deposits with no stated maturity, which include non-interest bearing deposits, approximatescarrying 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 atprevailing 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 ratesfor 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.

Derivative financial instruments

The fair value of exchange rate and interest rate contracts is the estimated amount the Group would receive or pay toterminate 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 valuemeasurement heirarchy:

(a) Level 1 - quoted price (unadjusted) in active markets for identical assets and liabilities;

(b) Level 2 - inputs other than quaoted price included within level 1 that are observable for the assets or liability, eitherdirectly (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).

The Group Level 1 Level 2 Level 3 Total2011 RMʼ000 RM'000 RMʼ000 RM'000

AssetsFinancial assets held-for-trading - 149,832 - 149,832Financial investments available-for-sale*- Private debt securities - 2,512,024 - 2,512,024- Equity securities 7,454 - 105,864 113,318- Other financial assets - 4,073,076 - 4,073,076Derivative financial assets - 49,901 - 49,901

LiabilitiesDerivative financial liabilities - 97,399 - 97,399

The Group Level 1 Level 2 Level 3 Total2010 RM’000 RM'000 RM’000 RM'000






Fair value measurements (continued)

The Bank Level 1 Level 2 Level 3 Total2011 RMʼ000 RM'000 RMʼ000 RM'000



The Bank Level 1 Level 2 Level 3 Total2010 RM’000 RM'000 RM’000 RM'000



* Net of allowance for impairment

Financial instruments that are valued using quoted prices in active market are classified as Level 1 of the valuation hierarcy.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 andthe Bank then determine fair value based upon valuation techniques that use as inputs, market parameters inclusing butnot limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observablemarket 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 thevaluation model attributing to a significant contribution to the instrument value. Valuation reserves or pricing adjustmentswhere applicable will be used to converge to fair value.






Fair value measurements (continued)

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 themarkets 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 instrumentas well as the availability of pricing information in the market. Principal techniques used include discounted cash flows, andother appropriate valuation models. OTC derivatives which are valued using unobservable inputs that are supported by littleor 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:


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

Opening 93,173 25,279 93,101 24,704Profit/(loss) 200 - 200 -Sales (300) - (300) -AFS revaluationn reserves 12,829 67,894 12,832 68,397Allowance for impairment (38) - (38) -

Closing 105,864 93,173 105,795 93,101

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 forfair value adjustments. These adjustments reflects the values that the Group and the Bank estimate are appropriate toadjust from the valuations produced to reflect for uncertainties in the inputs used. The methodologies used can be astatistical or other relevant approved techniques.

39 LEASE COMMITMENTS

The Bank has lease comitments 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 subleases are as follows:


RMʼ000 RM'000

Within one year 20,956 19,771One year to five years 83,824 79,084


40 CAPITAL AND OPERATING COMMITMENTS

Capital commitments

Capital expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:


RMʼ000 RM'000

Authorised and contracted for 12,261 4,163Authorised but not contracted for - -

12,261 4,163

Analysed as follows:Property and equipment 12,261 4,163

Operating commitments

Operating expenditure approved by the Directors but not provided for in the financial statements amounted to approximately:


RMʼ000 RM'000

Authorised and contracted for 266,202 320,852

41 CAPITAL MANAGEMENT

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 Groupand 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 forshareholders 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 withthe 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 theyear ended 31 December 2011.




42 CAPITAL ADEQUACY

The capital adequacy ratios are as follows:

The Group The BankBasel II Basel II Basel II Basel II

2011 2010 2011 2010RM'000 RM'000 RM'000 RM'000

Tier I capitalPaid-up share capital 1,439,285 1,439,285 1,439,285 1,439,285Share premium 408,389 408,389 408,389 408,389Retained profits 642,638 499,179 530,489 411,831Statutory reserve 1,011,044 888,910 904,624 807,500

3,501,356 3,235,763 3,282,787 3,067,005Less:Goodwill (137,323) (137,323) (137,323) (137,323)Deferred tax assets * (3,658) - (3,659) -

Total Tier I capital 3,360,375 3,098,440 3,141,805 2,929,682

Tier II capitalSubordinated term loan 600,000 300,000 600,000 300,000Collective impairment @ 182,269 153,538 138,227 111,304

Total Tier II capital 782,269 453,538 738,227 411,304

Total capital 4,142,644 3,551,978 3,880,032 3,340,986

Less:Investment in capital instruments of other banking institutions (40,257) (39,858) (40,257) (39,858)Investment in subsidiaries (27,389) (27,429) (287,389) (287,429)

Capital base 4,074,998 3,484,691 3,552,386 3,013,699

Core capital ratio 10.00% 11.51% 10.64% 12.35%Risk-weighted capital ratio 12.12% 12.94% 12.03% 12.71%Core capital ratio (net of proposed dividends) ^ 9.78% 11.24% 10.39% 12.05%Risk-weighted capital ratio (net of proposed dividends) ^ 11.91% 12.67% 11.78% 12.40%

Risk-weighted assets for:Credit risk 31,344,231 24,768,236 27,608,268 21,849,466Market risk 133,160 96,572 102,489 91,973Operational risk 2,135,976 2,062,578 1,828,940 1,776,655

Total risk-weighted assets 33,613,367 26,927,386 29,539,697 23,718,094

* Deferred tax assets exclude deferred tax arising from AFS revaluation reserves. # The Group comprises the Bank and the Bank's subsidiary, AFFIN Islamic Bank Berhad. @ Qualifying collective impairment is restricted to allowances on unimpaired portion of the loans, advances and financing. ^ Net proposed dividends of RM71,964,000 (2010: RM71,964,000).

#


42 CAPITAL ADEQUACY (continued)

The Group and the Bank implemented the Basel II - Risk-Weighted Assets Computation under the Risk-Weighted CapitalAdequacy Framework with effect from 1 January 2008. The Group and the Bank have adopted the Standardised Approach forcredit risk and market risk and Basic Indicator Approach for operational risk computation.

Pursuant to Bank Negara Malaysia’s circular, ‘Recognition of Deferred Tax Asset ('DTA') and Treatment of DTA for RWCRPurposes’ dated 8 August 2003, deferred tax income/(expenses) is excluded from the calculation of Tier I capital and DTA isexcluded from the calculation of risk-weighted assets.

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 1999but in July 2000, continued drawdown under the restructured Facilities was refused as borrower had failed to comply withconditions precedent for such drawdown. The lenders and borrower negotiated to resolve the default and the Facilitieswere restructured again in 2003. Further financing was also granted in 2004 and the Project was completed with certificateof fitness in January 2005.

Subsequent to the completion of the project, borrower brought a claim against the lead banker, as the agent of the syndicatelenders, for loss and damage arising from alleged breach of duty and obligations owed by the lead banker to the borrowerin relation to various actions taken or omitted to be taken in disbursements and transactions under the Facilities. The leadbanker filed an action against the borrower and its guarantor of the Facilities, for recovery of the amounts outstanding underthe Facilities.

The 2 actions were consolidated and heard together at full trial. On 6 May 2009, the High Court granted judgment in favourof borrower against the lead banker, as an agent of the lenders, and dismissed the lenders’ action for recovery of theFacilities. The judgment against the lead banker included a sum of RM115.5 million to be paid, as well as further damagesto be assessed and an immediate release of all security granted by the borrower and its guarantors for the Facilities. Theaward of damages of RM115.5 million was made despite parties’ agreement that the trial proceed only on issue of liabilityand no evidence of damage/loss was produced. If the judgment of 6 May 2009 is maintained, lead banker will seekcontribution from the lenders, including the Bank.

The lead banker and the lenders have appealed to the Court of Appeal against the said High Court decision of 6 May 2009and the appeal is fixed for hearing on 10 February 2012. On 10 February 2012, the defendant has proposed for the hearingto go through Court Mediation. The lead banker and the lenders have agreed to the proposal and the Court of Appeal hasfixed 9 March 2012 for the Court Mediation to hear the case.

The solicitors for the lead banker and the lenders have expressed the view that the lead banker and the lenders have a morethan even chance of success in their appeal against the Judgment.

(b) Other than above, there are various legal suits against the Bank in respect of claims and counter claims of approximatelyRM42.8 million (2010: RM86.3 million). Based on legal advice, the Directors are of the opinion that no provision for damagesneed to be made in the financial statements, as the probability of adverse adjudication against the Bank is remote.




44 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The Group and the Bank makes estimates and assumptions concerning the future. The resulting accounting estimates will, bydefinition, seldom equal the related actual results. To enhance the information content of the estimates, certain variables that areanticipated to have material impact to the Group’s and the Bank’s results and financial position are tested for sensitivity to changesin the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to thecarrying 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 acritical accounting estimate for because the underlying assumptions used for both the individually and collectively assessedimpairment 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 requiredfor loans which are deemed to be individually significant often requires the use of considerable management judgment concerningsuch 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 differfrom 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 businesscustomers of the private and retail business, and for those loans which are individually significant but for which no objectiveevidence of impairment exists, is determined on a collective basis. The collective impairment allowance is calculated on a portfoliobasis using statistical models which incorporate numerous estimates and judgments, and therefore is subject to estimationuncertainty. The Group and the Bank perform a regular review of the models and underlying data and assumptions as far aspossible to reflect the current economic circumstances. The probability of default, loss given defaults, and loss identificationperiod, 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 exceedits recoverable amounts from cash generating units to which the goodwill is allocated. The recoverable amount represents thepresent value of the estimated future cash flows expected to arise from continuing operations. Therefore, in arriving at therecoverable amount, management exercise judgment in estimating the future cash flows, growth rate and discount rate.

45 SUBSEQUENT EVENT

On 18 January 2012, the Bank will take on its third 10 year subordinated loan amounting to RM300 million.

The subordinated loan will be 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 thefirst prepayment date, giving the Bank the right, subject to Bank Negara Malaysia ('BNM') approval, to prepay the loans in wholeor in part.

Interest on subordinated loans payable by quarterly.

The nominal value and interest rate of the subordinated loan payable semi-annually are as follows:

Value : RM300 millionInterest 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.


46 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 Exposureswith Connected Parties, which are effective 1 January 2008.

(i) The aggregate value of outstanding credit exposures with connected parties (RM'000) 2,412,021(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

47 APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 28 February 2012.




We, JEN TAN SRI DATO' SERI ISMAIL BIN HAJI OMAR (BERSARA) and EN. MOHD SUFFIAN BIN HAJI HARON, two of the Directorsof AFFIN BANK BERHAD, state that, in the opinion of the Directors, the accompanying financial statements set out on pages 64 to180 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 2011 and ofthe results and cash flows of the Group and the Bank for the financial year ended on the date in accordance with the provisions of theCompanies Act, 1965, MASB Approved Accounting Standards for Entities Other Than Private Entities and Bank Negara Malaysia Guidelines.

In accordance with a resolution of the Board of Directors dated 28 February 2012.

JEN TAN SRI DATO' SERI ISMAIL BIN HAJI OMAR (BERSARA)Chairman

EN. MOHD SUFFIAN BIN HAJI HARONDirector

STATUTORY DECLARATIONPURSUANT 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, dosolemnly and sincerely declare that, in my opinion, the accompanying financial statements set out on pages 64 to 180, are correct andI make this solemn declaration conscientiously believing the same to be true, by virtue of the provisions of the Statutory DeclarationsAct, 1960.

EE KOK SIN

Subscribed and solemnly declared by the abovenamed EE KOK SIN at Kuala Lumpur in Malaysia on 28 February 2012, before me.

Commissioner for Oaths

STATEMENT BY DIRECTORSPURSUANT TO SECTION 169 (15) OF THE COMPANIES ACT, 1965

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of AFFIN Bank Berhad, which comprise the statements of financial position as at 31 December2011 of the Group and the Bank, and the statements of income, comprehensive income, changes in equity and cash flows of the Groupand the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out onpages 64 to 180.

Directorsʼ 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 withMASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank Negara Malaysia Guidelines and theCompanies Act, 1965, and for such internal controls as the Directors determine are necessary to enable the preparation of financialstatements that are free from material misstatements, whether due to fraud or error.

Auditorsʼ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordancewith approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan andperform 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. Theprocedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements,whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Bank’s preparation of thefinancial statements that give a true and fair value in order to design audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well asevaluating 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 MASB Approved Accounting Standards inMalaysia for Entities Other than Private Entities, Bank Negara Malaysia Guidelines and the Companies Act, 1965 so as to give a trueand fair view of the financial position of the Group and the Bank as of 31 December 2011 and of their financial performance and cashflows for the year then ended.


INDEPENDENT AUDITORS' REPORTTO THE MEMBER 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 subsidiarieshave 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 statementsare in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group andwe have received satisfactory information and explanations required by us for those purposes.

c) Our audit reports on the financial statements of the subsidiaries did not contain any qualification or any adverse comment madeunder Section 174(3) of the Act.

OTHER MATTERS

This report is made solely to the member of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 inMalaysia 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. 2682/10/13 (J) )Chartered Accountants Chartered Accountant

Kuala Lumpur, Malaysia28 February 2012

INDEPENDENT AUDITORS' REPORTTO THE MEMBER OF AFFIN BANK BERHAD

(Incorporated In Malaysia)


Table of Contents

Page

1. Introduction1.1 Background 1851.2 Scope of Application 185

2. Risk Governance Structure2.1 Overview 1852.2 Board Committees 1862.3 Management Committees 1872.4 Group Risk Management Function 1882.5 Internal Audit and Internal Control Activities 188

3. Capital3.1 Capital Structure 1893.2 Capital Adequacy 189

4. Risk Management Objectives and Policies 190

5. Credit Risk5.1 Credit Risk Management Objectives and Policies 1905.2 Application of Standardised Approach for Credit Risk 1905.3 Credit Risk Measurement 1915.4 Risk Limit Control and Mitigation Policies 1915.5 Credit Risk Monitoring 1935.6 Impairment Provisioning 1935.7 Credit Risk Culture 198

6. Market Risk6.1 Market Risk Management Objectives and Policies 1986.2 Application of Standardised Approach for Credit Risk 1986.3 Market Risk Measurement, Control and Monitoring 1986.4 Value-At-Risk ('VaR') 1996.5 Foreign Exchange Risk 1996.6 Market Risk Culture 199

7. Liquidity Risk7.1 Liquidity Risk Management Objectives and Policies 1997.2 Liquidity Risk Measurement, Control and Monitoring 199

8. Operational Risk8.1 Operational Risk Management Objectives and Policies 2008.2 Application of Basic Indicator Approach for Operational Risk 2008.3 Operational Risk Measurement, Control and Monitoring 2008.4 Operational Risk Culture 200

9. Shariah Compliance 200

Appendices 201

BASEL II PILLAR 3 DISCLOSURESFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011


1 Introduction

1.1 Background

AFFIN Bank Berhad ('ABB') 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 theirexposure to credit, market and operational risks.

- Pillar 2 requires financial institutions to have a process for assessing their overall capital adequacy in relation to theirrisk profile and a strategy for maintaining their capital levels.

- Pillar 3 requires financial institutions to establish and implement an appropriate disclosure policy that promotestransparency regarding their risk management practices and capital adequacy positions.

ABB 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 ABB for the year ended 31 December 2011. Thedisclosures 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 ABB’s 2011 Annual Report for the year ended 31 December 2011.

The Group’s capital requirements are generally based on the principles of consolidation adopted in the preparation of itsfinancial statements. The Group’s consolidated entities comprises the Bank and the Bank’s subsidiary, AFFIN Islamic BankBerhad.

2 Risk Governance Structure

2.1 Overview

The Board of Directors of ABB is ultimately responsible for the overall performance of ABB. The Board’s responsibilitiesremain within the framework of BNM Guidelines. The Board also exercises great care to ensure that high ethical standardsare upheld, and that the interests of stakeholders are not compromised. These include responsibility for determining ABB’sgeneral policies and strategies for the short, medium and long term, approving business plans, including targets andbudgets, and approving major strategic decisions.

The Board has overall responsibility for maintaining the proper management and protection of ABB’s interests by ensuringeffective implementation of the risk management policy and process, as well as adherence to a sound system of internalcontrol, and by seeking regular assurance on their effectiveness. The Board also recognises that risks cannot be eliminatedcompletely. As such, the inherent system of internal control is designed to provide a reasonable though not absoluteassurance against the risk of material errors, fraud or losses occurring. The system of internal controls encompasses controlsrelating to financial, operational, risk management and compliance with applicable laws, regulations, policies and guidelines.

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 operatedunder approved terms of reference, to assist the Board in discharging their duties. The Chairmen of the various Committeesreport on the outcome of their Committee meetings to the Board and any further deliberation is made at Board level, ifrequired. These reports and deliberations are incorporated into the Minutes of the Board meetings. The Board meets on amonthly basis.

The Board of ABB has a balance composition with a strong independent element. It consists of representatives from theprivate sector with suitable qualifications fulfilling the fit and proper criteria as required by BNM/GP1, a mixture of differentskills, competencies, experience and personalities.



2 Risk governance structure (continued)

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 iscompetitive and consistent with ABB’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 ManagingDirector/Chief Executive Officer, assessing the effectiveness of individual Directors, the Board as a whole and theperformance 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, legaland 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. BRMCalso 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 andcontrolling 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, afterdue process of checking, analysis, review and recommendation by the Credit Risk Management function, and if foundnecessary, exercise the power to veto loan applications that have been approved by the Group Management LoanCommittee. BLRRC also reviews the impaired loans reports presented by the Management.

Audit and Examination Committee ('AEC')

The AEC is responsible for providing oversight on reviewing the adequacy and integrity of the internal control systems andoversees 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 statutoryaudits on financial statements conducted by external auditors and on representations by Management based on their controlself-assessment of all areas of their responsibility.

Minutes of Audit & Examination Committee meetings, which provide a summary of the proceedings, are circulated to Boardmembers for notation and discussion. ABB has an established Group Internal Audit Division (GIA) which reports functionallyto the Audit Committee and administratively to the Managing Director/Chief Executive Officer.

Shariah Committee

ABB's business activities are subject to Shariah compliance and conformation by the Shariah Committee. The ShariahCommittee is formed as legislated under Section 3(5)(b) of the Islamic Banking Act, 1983 and as per Shariah GovernanceFramework 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 ABB comply with the Shariahprinciples at all times;

(ii) To endorse and validate relevant documentations of ABB's products to ensure that the product comply with Shariahprinciples; and

(iii) To advise ABB on matters to be referred to the Shariah Advisory Council.



2 Risk governance structure (continued)

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-dayoperations and ensure its effectiveness. MCM formulates tactical plans and business strategies, monitors ABB’s overallperformance, and ensures that the activities are in accordance with corporate objectives, strategies, policies and annualbusiness 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 andworkout/recovery proposals beyond the delegated authority of the concerned individual senior management personnel ofABB.

Asset and Liability Management Committee ('ALCO')

ALCO's responsibilities include:

(i) Managing the asset liability of ABB through coordination of the overall planning process including strategic planning,budgeting and asset liability management process;

(ii) Directing ABB's overall acquisition and allocation of funds;

(iii) Prudently managing ABB's interest rate exposure;

(iv) Determine the overall Balance Sheet strategy and ensuring policy compliance;

(v) Determined the type and scope of derivative activities, approve individual derivative transactions as well as control overthe level of exposure in derivative

(vi) Reviewing of market risks in ABB's trading portfolios;

(vii) Managing the effective usage of economic and regulatory capital throughout the organisation;

(viii) Reviewing and recommending the capital plan for approval;

(ix) Approving capital management standards and policies, capital raising and repayment transactions;

(x) Reviewing quarterly capital adequacy monitoring reports; and

(xi) Reviewing and approving key assumptions inherent in economic capital modeling and stress/scenario tests.



2 Risk Governance Structure (continued)

2.3 Management Committees (continued)

Group Operational Risk Management Committee ('GORMC')

GORMC is established within senior management to manage operational risks. Its responsibilities include:

(i) To evaluate operational risks issues on escalating importance/strategic risk exposure;

(ii) To review and recommend on broad operational risks management policies best practices for adoption by ABB'soperating units;

(iii) To review the effectiveness of broad internal controls and making recommendation on changes if necessary;

(iv) To review/approve recommendation on operational risk management groups section up to address specific issue;

(v) To take the lead in inculcating an operational risks awareness culture;

(vi) To approve operational risk management methodologies/measurements tools; and

(vii) To review and approve the strategic operational risk management initiatives/plans and to endorse for BRMC's approvalif necessary.

Early Alert Committee ('EAC')

EAC is established within senior management chaired by the MD/CEO to monitor credit quality through monthly review ofthe Early Alert, Watchlist and Exit Accounts and review the actions taken to address the emerging risks and issues in these accounts.

2.4 Group Risk Management Function

An integrated risk management framework is in place. The Group Risk Management ('GRM') function, headed by GroupChief Risk Officer ('GCRO') and operating in an independent capacity, is part of ABB's senior management structure whichworks closely as a team in managing risks to enhance stakeholders' value.

GRM reports to BRMC. Committees namely BLRRC, GMLC, ALCO and GORMC assist BRMC in managing credit, liquidityand operational risk. 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 ABB. Thecontinuous reviews by GIA are focused on areas of significant risks and effectiveness of internal control in accordance tothe 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 opinionon the effectiveness of internal controls maintained by each entity. The risks highlighted on the respective auditable areasas well as recommendation made by the GIA are addressed at AEC and Management meetings on bi-monthly basis. TheAEC also conduct annual reviews on the adequacy of internal audit function, scope of work, resources and budget of GIA.



3 Capital

3.1 Capital Structure

The following table sets forth details on the capital resources and capital adequacy ratios for the Group as at 31 December2011. The Group’s Core capital ratio ('CCR') and Risk-weighted capital ratio ('RWCR') as at 31 December 2011 were abovethe BNM minimum requirements of 4.0% and 8.0% respectively.


Tier I capital RM'000 RM'000 RM'000 RM'000

Paid-up share capital 1,439,285 1,439,285 1,439,285 1,439,285Share premium 408,389 408,389 408,389 408,389Retained profits 642,638 499,179 530,489 411,831Statutory reserves 1,011,044 888,910 904,624 807,500

3,501,356 3,235,763 3,282,787 3,067,005

Less:Goodwill (137,323) (137,323) (137,323) (137,323)Deferred tax assets (3,658) - (3,659) -

Total Tier I capital 3,360,375 3,098,440 3,141,805 2,929,682

Tier II capital

Subordinated term loan 600,000 300,000 600,000 300,000Collective impairment 182,269 153,538 138,227 111,304

Total Tier II capital 782,269 453,538 738,227 411,304

Less:Investment in capital instruments

of other banking institutions (40,257) (39,858) (40,257) (39,858)Investment in subsidiaries (27,389) (27,429) (287,389) (287,429)

Capital base 4,074,998 3,484,691 3,552,386 3,013,699

Core capital ratio 10.00% 11.51% 10.64% 12.35%Risk-weighted capital ratio 12.12% 12.94% 12.03% 12.71%Core capital ratio (net of proposed dividends) 9.78% 11.24% 10.39% 12.05%Risk-weighted capital ratio (net of proposed dividends) 11.91% 12.67% 11.78% 12.40%

Risk-weighted assets for:Credit risk 31,344,231 24,768,236 27,608,268 21,849,466Market risk 133,160 96,572 102,489 91,973Operational risk 2,135,976 2,062,578 1,828,940 1,776,655

Total risk-weighted assets 33,613,367 26,927,386 29,539,697 23,718,094

3.2 Capital Adequacy

The Group's has in place an internal limit for its CCR and RWCR, which is guided by the need to maintain a prudentrelationship between available capital and the risks of its underlying businesses. The capital management process ismonitored by managements through periodic reviews.

Refer to Appendix I.



4 Risk Management Objectives and Policies

ABB is principally engaged in all aspects of banking and related financial services. The principal activities of ABB's subsidiariesare Islamic banking business, property management services, nominee and trustee services. There have been no significantchanges in these principal activities during the financial year.

ABB’s business activities involve the analysis, measurement, acceptance, and management of risks but it operates within welldefined risk acceptance criteria covering customer segments, industries and products. ABB does not enter into risk it cannotadminister, book, monitor or value, or deal with persons of questionable integrity.

ABB’s risk management policies are established to identify all the key risks, assess and measure these risks, control and mitigatethese risks, and manage and monitor the risk positions.

ABB regularly reviews its risk management policies and systems to reflect changes in markets, products and best practice in riskmanagement processes. ABB’s aim is to achieve an appropriate balance between risk and return and minimise any potentialadverse effects.

The key business risks to which ABB 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 andcontractual obligations to ABB. Credit risk emanates mainly from loans and advances, loan commitments arising from suchlending 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 in ABB is governed by a set of credit policies approved by the Board of Directors. Approvalauthorities are delegated to Senior Management and GMLC to implement the credit policies and ensure sound creditgranting standards.

An independent GRM function with a direct reporting line to BRMC is in place to ensure adherence to risk standards anddiscipline.

Lending guidelines and credit strategies are formulated and incorporated in the Annual Credit Plan. New businesses aregoverned by the risk acceptance criteria and customer qualifying criteria/fitness standards prescribed in the Credit Plan. The Credit Plan is reviewed as least annually and approved by the BRMC.

5.2 Application of Standardised Approach for Credit Risk

ABB uses the following 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



5 Credit Risk (continued)

5.2 Application of Standardised Approach for Credit Risk (continued)

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 byBNM. In cases where there is no issuer or issue rating, the exposures are treated as unrated and accorded a risk weightappropriate 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 tothe above rules to determine the appropriate risk weights.

Refer to Appendix II and Appendices III (i) to III (ii).

5.3 Credit Risk Measurement


Credit evaluation is the process of analysing the creditworthiness of the prospective customer against ABB’s underwritingcriteria and the ability of ABB to make a return commensurate to the level of risk undertaken. A critical element in theevaluation process is the assignment of a credit risk grade to the counterparty. This assists in the risk assessment anddecision making process. ABB has developed internal rating models to support the assessment and quantification of creditrisk.

For consumer mass market products, statistically developed application scorecards are used by the Business to assess therisks 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 thesummation of the two elements; the replacement costs (obtained by marking-to-market) of all contracts and the potentialfuture exposure of outstanding contracts (Add On charges depending on the specific remaining tenor to maturity).

5.4 Risk Limit Control and Mitigation Policies

ABB employs various policies and practices to control and mitigate credit risk.

Lending limits

ABB establishes internal limits and related lending guidelines to manage large exposures and avoid undue concentration ofcredit risk in its credit portfolio. The limits include single customer groupings, connected parties, and geographical andindustry segments. These risks are monitored regularly and the limits reviewed annually or sooner depending on changingmarket and economic conditions.

The credit risk exposure for derivative and loan books is managed as part of the overall lending limits with customerstogether with potential exposure from market movements.




5.4 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 betaken to mitigate credit risk. The main collateral types accepted and given value by ABB 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 ABB must have physical control and/or legaltitle thereto, together with the necessary documentation to enable ABB to realise the asset without the co-operation of theasset owner. Other items, such as personal or corporate guarantees, may be taken for comfort but will not be treated assecurity 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 andup-to-date valuation can be placed upon it. A pre-facility disbursement site visit must be undertaken in respect of landedsecurity of significant value. Where third parties are used to undertake a valuation they must be taken from a list of approvedvaluers.

All assets which provide security to ABB 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. ABBadopts standardised Letter of Offer and Legal Documents. Variations/amendments require the approval from the relevantapproving authority in the Bank.

Financial covenants (for credit related commitments and loan books)

The primary purpose of these instruments is to ensure that funds are available to a customer when required. Guaranteesand standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit arecollateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitment to extend credit represents unutilised portion of approved credit in the form of loans, guarantees or letters ofcredit. In terms of credit risk, ABB 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 creditare contingent upon customers maintaining specific minimum credit standards.

ABB monitors the term to maturity of credit commitments because longer-term commitments generally have a greaterdegree 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 managementsystem has been implemented with a dedicated team in place to promptly identify, monitor and manage delinquent accountsat early stages of delinquency.

Corporate credits and large individual accounts are reviewed by the Business Units at least once a year against updatedinformation. This is to ensure that the credit grades remain appropriate and detect any signs of weaknesses or deteriorationin 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 turningimpaired. As a rule, watchlist accounts are either worked up or worked out within a period of twelve months.

Portfolio management risk reports are submitted regularly to EAC and BRMC.

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 ofimpairment 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 ofestimated future cash flows discounted at the financial assets original effective interest rate. The level of impairment allowanceon 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 similarcharacteristics and collectively assessed for impairment.

Collective impairment provisioning

All loans are grouped in respective business segments according to similar credit risk characteristics and is generally basedon 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 relevantto 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 aredeemed 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.




5.6 Impairment Provisioning (continued)

Analysed by economic sector


Past due loans RM'000 RM'000 RM'000 RM'000

Primary agriculture 15,363 25,065 15,022 25,000Mining and quarrying 1,063 1,034 1,000 1,034Manufacturing 34,755 55,979 33,733 53,530Electricity, gas and water supply 1,253 1,701 1,190 1,580Construction 148,750 195,354 116,430 132,596Real estate 31,084 183,208 31,084 181,164Wholesale & retail trade and restaurants & hotels 74,168 69,846 71,508 63,909Transport, storage and communication 39,594 58,578 37,872 57,658Finance, insurance and business services 65,535 271,344 63,957 222,654Education, health and others 107,549 130,868 106,456 130,467Household 2,115,554 2,220,092 1,745,578 1,872,993Others - 142 - 142

2,634,668 3,213,211 2,223,830 2,742,727


Individual impairment RM'000 RM'000 RM'000 RM'000

Primary agriculture 2,350 5,778 2,349 5,778Manufacturing 10,712 47,302 3,869 40,105Electricity, gas and water supply 1,030 1,184 1,030 1,184Construction 126,033 92,408 99,601 65,022Real estate 1,870 1,900 1,870 1,900Wholesale & retail trade and restaurants & hotels 1,431 15,122 242 14,600Finance, insurance and business services 22,604 3,368 22,213 3,368Education, health and others 45 8,786 45 7,752Household 2,182 - 2,110 -

168,257 175,848 133,329 139,709





Analysed by economic sector (continued)


Individual impairment charged RM'000 RM'000 RM'000 RM'000

Primary agriculture 665 6,039 665 6,039Mining and quarrying - 1,046 - 1,046Manufacturing 4,793 45,226 3,377 43,262Electricity, gas and water supply 48 1,191 48 1,191Construction 82,192 98,539 80,311 75,814Real estate 926 2,075 926 2,075Wholesale & retail trade and restaurants & hotels 3,919 15,588 3,088 15,066Transport, storage and communication - 6,599 - 6,599Finance, insurance and business services 22,948 3,789 22,557 3,789Education, health and others 55 17,931 55 17,835Household 1,363 - 853 -

116,909 198,023 111,880 172,716


Individual impairment written-off RM'000 RM'000 RM'000 RM'000

Primary agriculture 3,666 - 3,666 -Mining and quarrying - 1,046 - 1,046Manufacturing 34,778 2,677 34,330 1,502Construction 45,116 71,454 43,227 71,454Real estate 13 7,157 13 7,157Wholesale & retail trade and restaurants & hotels 10,049 5,271 10,049 5,271Transport, storage and communication - 6,549 - 6,549Finance, insurance and business services 2,368 63,076 2,368 63,076Education, health and others - 13,675 - 13,675Household 235 - 235 -

96,225 170,905 93,888 169,730





Analysed by economic sector (continued)


Collective impairment RM'000 RM'000 RM'000 RM'000

Primary agriculture 2,223 2,877 1,796 2,642Mining and quarrying 801 1,350 797 1,337Manufacturing 19,175 28,455 17,093 27,135Electricity, gas and water supply 561 716 521 678Construction 22,194 18,408 18,148 16,102Real estate 12,271 8,258 10,456 8,035Wholesale & retail trade and restaurants & hotels 12,996 12,352 12,662 11,932Transport, storage and communication 8,413 5,406 8,312 5,380Finance, insurance and business services 17,298 15,591 14,845 13,891Education, health and others 6,611 6,658 4,376 5,517Household 349,056 268,318 301,884 249,333Others - 27,312 - 1,238

451,599 395,701 390,890 343,220

Analysed by geographical area


Past due loans RM'000 RM'000 RM'000 RM'000

Perlis 2,136 1,613 1,876 1,271Kedah 121,774 150,752 85,200 89,000Pulau Pinang 101,470 126,917 92,451 118,361Perak 131,475 145,745 91,731 108,697Selangor 715,453 909,378 597,053 795,447Wilayah Persekutuan 392,363 654,069 354,355 578,597Negeri Sembilan 110,914 123,082 101,609 111,816Melaka 136,583 134,772 132,924 131,112Johor 271,243 320,955 251,586 299,750Pahang 111,174 98,030 85,555 71,358Terengganu 68,159 65,665 14,527 14,879Kelantan 53,775 56,413 5,571 7,026Sarawak 149,629 148,198 146,454 144,516Sabah 268,520 277,149 262,938 270,436Labuan - 269 - 257Outside Malaysia - 204 - 204

2,634,668 3,213,211 2,223,830 2,742,727





Analysed by geographical area (continued)


Individual impairment RM'000 RM'000 RM'000 RM'000

Kedah 1,283 6,394 1,283 6,394Pulau Pinang 858 646 858 640Perak 2,404 2,084 2,404 2,084Selangor 95,843 68,011 95,842 60,293Wilayah Persekutuan 30,858 28,525 29,597 54,881Negeri Sembilan 2,349 2,127 2,349 2,127Melaka - 777 - 777Johor 930 2,778 930 2,778Pahang 6,843 5,968 - 5,968Terengganu - 2,613 - 2,613Kelantan 66 1,154 66 1,154Outside Malaysia 26,823 27,386 - -

168,257 148,463 133,329 139,709


Collective impairment RM'000 RM'000 RM'000 RM'000

Perlis 438 312 418 303Kedah 20,780 11,156 17,603 9,581Pulau Pinang 19,788 12,111 18,211 11,227Perak 16,412 13,267 12,870 12,138Selangor 179,768 128,479 155,598 91,650Wilayah Persekutuan 80,214 154,491 71,426 150,545Negeri Sembilan 25,262 8,937 23,530 8,103Melaka 12,629 9,198 12,156 8,889Johor 44,068 26,892 41,487 25,460Pahang 10,711 6,658 7,699 5,266Terengganu 6,757 4,105 2,992 2,767Kelantan 7,655 3,129 1,129 734Sarawak 10,683 6,079 10,253 5,930Sabah 16,434 9,895 15,518 9,635Labuan - 992 - 992

451,599 395,701 390,890 343,220




5.7 Credit Risk Culture

ABB recognises that learning is a continuous journey and is committed to enhance the knowledge and required skills setof its staff. It places strong emphasis in creating and enhancing risk awareness in the organisation.

For effective and efficient staff learning, ABB has implemented an E–Learning Program with an online Learning ManagementSystem ('LMS'). The LMS provides staff with a progressive self-learning alternative at own pace.

GRM commenced an Internal Credit Certification ('ICC') Programme for both Business Banking and Consumer Credit in July2009 and August 2009 respectively.

The aim of the ICCs is to assist the core credit related group of personnel in ABB achieve a minimum level of knowledgeand analytical skills required to make sound corporate and commercial loans to customers. It is envisaged that the core creditrelated group of personnel would all be certified within 2 to 3 years.

6 Market Risk

6.1 Market Risk Management Objectives and Policies

Market risk is defined as the risk of losses to ABB’s portfolio positions arising from movements in market prices. ABB’smarket risk management objective is to ensure that market risk is appropriately identified, measured, controlled, managedand reported.

ABB’s exposure to market risk stems primarily from interest rate risk and foreign exchange rate risk. Interest rate risk arisesmainly from differences in timing between the maturities or repricing of assets, liabilities and derivatives. ABB is also exposedto basis risk when there is a mismatch between the change in price of a hedge and the change in price of the assets ithedges. Foreign exchange rate risk arises from unhedged positions of customers' requirements and proprietary positions.

6.2 Application of Standardised Approach for Market Risk

ABB adopts the Standardised Approach for the purpose of calculating the capital requirement for market risk.

Refer to Appendix 1.

6.3 Market Risk Measurement, Control and Monitoring

Market risk arising from ABB’s trading book is primarily controlled through the imposition of Cut-loss and Value-at-Risk('VaR') Limits which are approved by both ALCO and BRMC in accordance with ABB's risk appetite. These limits are setand reviewed regularly having regard to a number of factors, including liquidity and ABB's business strategy.

For non-trading book, ABB quantifies the interest rate risk by analysing the repricing mismatch between the rate sensitiveassets and rate sensitive liabilities. ABB also performs Net Interest Income simulation to assess the variation in earnings undervarious rates scenarios.

The non-trading book’s interest rate risk is managed through limits set over time buckets together with an Overall RiskTolerance Limit.

In addition, ABB conducts periodic stress test of its respective portfolios to ascertain market risk under abnormal marketconditions.

ABB's Management, ALCO and BRMC are regularly kept informed of its risk profile and positions.



6 Market Risk (continued)

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 Tradingportfolio. It measures the risk of losses arising from potential adverse movements in interest rates and foreign exchange ratesthat could affect values of financial instruments.

The Variance-Covariance Parametric methodology is adopted to compute the potential loss amount. This is a statisticallydefined, 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 thencomputed 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.The stress test measure the change in value arising from range of extreme movements in the interest rates and foreignexchange 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 measuresthe change in value of a portfolio resulting from a 0.01% increase in interest rates. This measure identifies ABB interestrate exposures that are most vulnerable to interest rate changes and it facilitates the implementation of hedging strategies.

6.5 Foreign Exchange Risk

ABB takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial positionand 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.

6.6 Market Risk Culture

In October 2010, ABB introduced ICC-Market Risk with the Diagnostic Assessment conducted through the LMS.

7 Liquidity Risk

7.1 Liquidity Risk Management Objectives and Policies

Liquidity risk is the risk of loss due to failure to access funds at reasonable cost to fund ABB's operations and meet itsliabilities when they fall due. Liquidity risk arises from ABB's funding activities and the management of its assets.

7.2 Liquidity Risk Measurement, Control and Monitoring

To measure and manage net funding requirements, ABB adopts BNM's New Liquidity Framework ('NLF'). The NLFascertains the liquidity condition based on the contractual and behavioral cash-flow of assets, liabilities and off-balancesheet commitments, taking into consideration the realisable cash value of the eligible liquefiable assets. The NLF is alsosupported by indicative ratios on the Bank’s funding structure to monitor the reliance on particular funding sources.

ABB employs liquidity risk indicators as an early alert of any structural change for liquidity risk management. The risk ismeasured monthly using internal and external qualitative and quantitative liquidity risk indicators. ABB also conducts liquiditystress tests to gauge ABB’s resilience in the event of a funding crisis. In addition, the Bank has in place the ContingencyFunding 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.

BRMC is responsible for ABB'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 ABB.



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, infrastructureor technology or events which are beyond the bank’s immediate control which have an operational impact, including naturaldisaster, fraudulent activities and money laundering.

ABB manages operational risk through a control based environment in which policies and procedures are formulated aftertaking 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

ABB adopts the Basic Indicator Approach for the purpose of calculating the capital requirement for operational risk. Thecapital requirement is calculated by taking 15% of ABB’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-upprocedures and contingency plans, including disaster recovery and business continuity plans. This is supported by periodicreviews undertaken by GIA to ensure adequacy and effectiveness of the Group Operational Risk Management process.

ABB gathers and reports operational risk loss and 'near miss' events to GORMC and BRMC. Appropriate remedial actionsare reviewed and implemented to minimise 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-moneylaundering/counter financing of terrorism and business continuity management) Certification Program. These coordinatorswill first go through an on-line self learning exercise before attempting on-line assessments to measure their skills andknowledge level. This will enable GRM to prescribe appropriate training and development activities for the coordinators.

9 Shariah Compliance

Shariah compliance is the fundamental of Islamic banking and finance. It gives legitimacy to the practices and business operationsof the Islamic financial institutions ('IFIs') concerned. Comprehensive compliance with Shariah principles would also boostsconfidence of shareholders and public that all the practices and activities by the IFIs are in compliance with the Shariah principlesat all times.

Shariah Governance Framework for Islamic Financial Institutions (the 'Framework') issued by Bank Negara Malaysia becomes themain reference to oversee the Shariah governance process within AFFIN Islamic Bank Berhad. In order to comply with all therequirements in the Framework, Board of Directors of the Bank are very committed to ensure among others all the requiredShariah compliance and research functions include Shariah Risk Management Control, Shariah Review, Shariah Research andShariah Audit are properly established to undertake its respective functions. Equally important to it, the existence of ShariahCommittee with qualified members that regularly provides the Bank with Shariah advice and guidance has further strengthenedthe Shariah governance process within the Bank.



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011


Disclosure on Capital Adequacy under the Standardised Approach (continued)

Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The Bank’sCapital-at-Risk ('CaR') is defined as the amount of the Bank’s capital that is exposed to the risk of unexpected losses arising particularlyfrom movements in interest and foreign exchange rates. A CaR Limit is set as a management trigger to ensure that the Bank’s exposureto such movements do not compromise the Bank’s capital adequacy. The Bank is currently adopting BNM’s Standardised Approachfor the computation of market risk capital charges. The market risk capital charges addresses among others, capital requirement formarket risk which includes the interest rate risk pertaining to the Bank’s exposure in the trading book as well as foreign exchange riskin the trading and banking books.

The computation of market risk capital charge covers the following outstanding financial instruments:

a) Foreign Exchangeb) Interest Rate Swap ('IRS')c) Cross Currency Swap ('CCS')d) Fixed Income Instruments (i.e. Private Debt and Government Securities)

APPENDIX I BASEL II PILLAR 3 DISCLOSURESFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011


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a) Disclosures on Credit Risk Mitigation (RM'000)

The Group2011

Exposures Exposures Exposures Exposuresbefore Covered by Covered by Covered by

Exposure Class CRM Guarantees/ Eligible OtherCredit Financial Eligible

Derivatives Collateral Collateral

Credit RiskOn-Balance Sheet ExposuresSovereigns/Central Banks 12,388,534 - - -Banks, Development Financial Institutions & MDBs 3,310,875 - - -Insurance Cos, Securities Firms & Fund Managers 480,308 - - -Corporates 15,705,514 240,138 961,640 -Regulatory Retail 9,983,406 1,125 134,071 -Residential Mortgages 3,547,045 - 4,809 -Higher Risk Assets 401,279 - 533 -Other Assets 2,017,818 - - -Equity Exposure 21,286 - - -Defaulted Exposures 2,265,022 587 40,349 -

Total for On-Balance Sheet Exposures 50,121,087 241,850 1,141,402 -

Off-Balance Sheet ExposuresOff-Balance Sheet exposures other

than OTC derivatives or credit derivatives 3,746,630 - - -Defaulted Exposures 314,927 - - -

Total for Off-Balance Sheet Exposures 4,061,557 - - -

Total On and Off-Balance Sheet Exposures 54,182,644 241,850 1,141,402 -


APPENDIX IV


a) Disclosures on Credit Risk Mitigation (RM'000) (continued)

The Group2010




Credit RiskOn-Balance Sheet ExposuresSovereigns/Central Banks 11,727,290 - - -Public Sector Entities 51,159 - 5,975 -Banks, Development Financial Institutions & MDBs 1,970,016 - - -Insurance Cos, Securities Firms & Fund Managers 95,362 - 2 -Corporates 14,018,930 242,210 901,322 -Regulatory Retail 9,990,439 518 111,915 -Residential Mortgages 1,980,809 - 1,869 -Higher Risk Assets 389,024 - 427 -Other Assets 1,007,575 - - -Defaulted Exposures 1,275,168 357 22,202 -


Off-Balance Sheet ExposuresOff-Balance Sheet exposures other than

OTC derivatives or credit derivatives 2,077,478 - - -Defaulted Exposures 31,835 - - -




APPENDIX IV



The Bank2011




Credit RiskOn-Balance Sheet ExposuresSovereigns/Central Banks 7,251,236 - - -Banks, Development Financial Institutions & MDBs 3,135,881 - - -Insurance Cos, Securities Firms & Fund Managers 369,693 - - -Corporates 13,814,948 236,938 880,469 -Regulatory Retail 8,680,704 1,125 128,713 -Residential Mortgages 2,437,678 - 2,503 -Higher Risk Assets 359,952 - 531 -Other Assets 2,278,319 - - -Equity Exposure 21,286 - - -Defaulted Exposures 2,049,518 587 40,214 -







APPENDIX IV



The Bank2010




Credit RiskOn-Balance Sheet ExposuresSovereigns/Central Banks 8,186,533 - - -Public Sector Entities 51,159 - 5,975 -Banks, Development Financial Institutions & MDBs 1,914,175 - - -Insurance Cos, Securities Firms & Fund Managers 306 - 2 -Corporates 12,540,053 242,210 824,732 -Regulatory Retail 8,055,493 518 104,288 -Residential Mortgages 1,859,507 - 1,526 -Higher Risk Assets 346,361 - 427 -Other Assets 1,286,037 - - -Defaulted Exposures 1,128,386 357 22,181 -

Total for On-Balance Sheet Exposures 35,368,010 243,085 959,131 -




Total On and Off-Balance Sheet Exposures 37,214,287 243,085 959,131 -

b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk

Counterparty Credit Risk is the risk that the counterparty to a transaction could default before the final settlement of thetransaction's cashflows. An economic loss could occur if the transactions with the counterparty has a positive economic valuefor 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 bankfaces the risk of loss, Counterparty Credit Risk creates a bilateral risk of loss where the market value for many types of transactionscan 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-balancesheet 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 thenweighted against the risk weight of the counterparty. In addition, counterparty risk weights for over-the-counter ('OTC') derivativetransactions will be determined based on the external rating of the counterparty and will not be subject to any specific ceiling.


APPENDIX IV

---------222 Annual Report 2011

b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM'000) (continued)

The Group2011

Positive FairValue of Credit Risk

Principal Derivative Equivalent WeightedDescription Amount Contracts Amount Amount

Direct credit substitutes 386,900 - 386,900 373,254Transaction related contingent items 2,375,506 - 1,187,753 1,129,992Short term self liquidating trade related contingencies 973,726 - 194,745 159,464Foreign exchange related contracts

One year or less 2,987,581 15,087 49,028 17,625Over one year to five years 70,000 2,168 5,770 1,985

Interest/Profit rate related contractsOne year or less 133,140 - 156 67Over one year to five years 1,787,852 3,596 47,055 12,427Over five years 474,023 14,304 43,899 10,295

Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 3,526,454 - 705,291 644,787

Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 7,015,300 - 1,403,060 1,113,216

Unutilised credit card lines 189,502 - 37,900 28,463

Total 19,919,984 35,155 4,061,557 3,491,575

The Group2010

Direct credit substitutes 408,608 - 408,608 299,520Transaction related contingent items 2,387,456 - 1,193,728 1,022,073Short term self liquidating trade related contingencies 1,232,752 - 246,551 140,554Foreign exchange related contracts


Interest/Profit rate related contractsOne year or less 93,784 - 14 3Over one year to five years 956,256 2,664 32,602 7,936Over five years 445,273 7,079 38,490 8,842

Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 4,247,549 - - -

Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 6,062,519 - - -


Total 18,844,780 46,155 2,109,313 1,596,123


APPENDIX IV


b) Disclosure on Off-Balance Sheet and Counterparty Credit Risk (RM'000) (continued)

The Bank2011

Positive FairValue of Credit Risk

Principal Derivative Equivalent WeightedDescription Amount Contracts Amount Amount

Direct credit substitutes 378,797 - 378,797 366,784Transaction related contingent items 2,226,050 - 1,113,025 1,060,529Short term self liquidating trade related contingencies 627,826 - 125,564 131,304Foreign exchange related contracts


Interest/Profit rate related contractsOne year or less 133,140 - 156 67Over one year to five years 1,787,852 3,596 47,055 12,427Over five years 474,023 14,304 43,899 10,295

Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 3,098,316 - 619,663 565,143

Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 6,057,224 - 1,211,445 956,882


Total 18,030,311 35,155 3,632,302 3,151,504

The Bank2010

Direct credit substitutes 382,080 - 382,080 280,656Transaction related contingent items 2,189,031 - 1,094,516 928,260Short term self liquidating trade related contingencies 546,276 - 109,255 109,027Foreign exchange related contracts


Interest/Profit rate related contractsOne year or less 93,784 - 14 3Over one year to five years 956,256 2,664 32,602 7,936Over five years 445,273 7,079 38,490 8,842

Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 3,837,655 - - -

Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 5,360,954 - - -


Total 16,821,892 46,155 1,846,277 1,451,919


APPENDIX IV


c) Disclosures on Market Risk - Interest Rate Risk/Rate of Return Risk in the Banking Book

Interest rate risk is the current and prospective impact to the Bank's financial condition due to adverse changes in the interestrates to which the balance sheet is exposed. The objective is to manage interest rate risk to achieve stable and sustainable netinterest income in the long term which impact can be viewed from the perspectives of (1) earnings in the next 12 months, and(2) economic value.

(1) Next 12 months' Earnings - Interest rate risk from the earnings perspective is the impact based on changes to the netinterest income over the next 12 months. This risk is measured monthly through sensitivity analysis including the applicationof an instantaneous 100 basis point parallel shock in interest rates across the yield curve. The prospective change to thenet interest income is measured using an Asset Liability Management simulation model which incorporates the assessmentof both existing and new business.

(2) Economic Value - Measuring the change in the economic value of equity is an assessment of the long term impact to theearnings potential. This is assessed through the application of relevant duration factors to capture the net economic valueimpact over the long term or total life of all balance sheet assets and liabilities to adverse changes in interest rates.

The above calculations do not take into account loan prepayments.

2011

The Group The Bank

Type of Currency Impact on Positions Impact on Positions(100 basis points) Parallel Shift (100 basis points) Parallel Shift

Increase/(Decline) Increase/(Decline) Increase/(Decline) Increase/(Decline)RM million in Earnings in Economic Value in Earnings in Economic Value

Ringgit Malaysia (20.0) 214.9 (28.0) 263.7US Dollar 3.8 1.9 5.0 2.0Great Britain Pound 0.8 0.1 0.8 0.1Australian Dollar 1.1 7.6 1.1 7.6Singapore Dollar 0.5 0.9 0.5 0.9Japanese Yen 0.4 0.2 0.4 0.2Others (*) (0.7) - (0.7) -

Total (14.1) 225.6 (20.9) 274.5

2010

Ringgit Malaysia (31.2) 311.4 (26.8) 328.1US Dollar 4.1 7.4 4.2 7.2Great Britain Pound 0.4 1.0 0.4 1.0Australian Dollar 0.4 0.8 0.4 0.8Singapore Dollar 0.3 2.2 0.3 2.2Japanese Yen 0.3 0.8 0.3 0.8Others (*) (0.1) - (0.1) -

Total (25.8) 323.6 (21.3) 340.1

* Others comprise of NZD, UER, HKD and AED currencies where the amount of each currency is relatively small.


APPENDIX IV

AFFIN BANK BERHAD (25046-T)

17th Floor, Menara AFFIN,80, Jalan Raja Chulan,50200 Kuala LumpurT: 03 2055 9000F: 03 2026 1415

www.affinbank.com.my

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