IM - AmIslamic RM2.0 Sub Sukuk (23 Sept 2011) (clean...Sukuk Musharakah would constitute an excluded...

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IMPORTANT NOTICE AmIslamic Bank Berhad (“AmIslamic ”) has prepared this Information Memorandum (“IM”), which is being provided on a confidential basis to potential investors in relation to the issuance of subordinated Islamic Securities (“Subordinated Sukuk Musharakah ”) pursuant to a Subordinated Sukuk Musharakah issuance programme of up to RM2.0 billion in nominal value based on the Shariah principles of Musharakah (“Subordinated Sukuk Musharakah Programme ”). The Securities Commission (“SC”) has approved the issuance of the Subordinated Sukuk Musharakah vide its letter dated 22 September 2011 pursuant to Section 212 of the Capital Markets and Services Act, 2007, as amended from time to time (“CMSA”). Such approval shall not be taken to indicate that the SC recommends the subscription or purchase of the Subordinated Sukuk Musharakah. The Subordinated Sukuk Musharakah may not be issued, offered, sold, transferred or otherwise disposed of, directly or indirectly, nor may any document or other material in connection therewith including this IM be distributed, in Malaysia other than to persons, whether as principal or agent, at the point of issuance of the Subordinated Sukuk Musharakah, falls within one or more of the categories of persons to whom an offer or invitation to subscribe for or purchase the Subordinated Sukuk Musharakah would constitute an excluded issue, excluded offer or excluded invitation pursuant to Schedule 6 or Section 229(1)(b), or Schedule 7 or Section 230(1)(b), and Schedule 9 or Section 257(3) of the CMSA (subject to any law, order, regulation or official directive of Bank Negara Malaysia (“BNM”), the SC and/or any other regulatory authority from time to time), and after the point of issuance of the Subordinated Sukuk Musharakah, falls within one or more of the categories of persons to whom an offer or invitation to subscribe for or purchase the Subordinated Sukuk Musharakah would constitute an excluded offer or excluded invitation pursuant to Schedule 6 or Section 229(1)(b), and Schedule 9 or Section 257(3) of the CMSA (subject to any law, order, regulation or official directive of BNM, the SC and/or any other regulatory authority from time to time). It is a condition that the Subordinated Sukuk Musharakah Programme is assigned a rating of A1 by RAM Rating Services Berhad at the point of first issuance. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the rating agency. This IM may not be, in whole or in part, reproduced or used for any other purpose, or shown, given, copied to or filed with any other person including, without limitation, any government or regulatory authority except with the prior written consent of AmIslamic or as required under Malaysian laws, regulations or guidelines. The persons preparing this IM have made all enquiries as were reasonable in the circumstances and after making such enquiries have reasonable grounds to believe and do believe up to the time of the issue of this IM that the information herein is true and not misleading and there is no material omission therein. This IM or any document delivered under or in relation to the Subordinated Sukuk Musharakah Programme is not, and should not be construed as a recommendation by AmIslamic, AmInvestment Bank Berhad (“AmInvestment Bank ” or “Lead Arranger/Lead Manager ”) and/or any other party to subscribe for or purchase the Subordinated Sukuk Musharakah. Further, the information contained herein should not be read as a representation or warranty, express or implied, as to the merits of the Subordinated Sukuk Musharakah or the purchase thereof. This IM is not a substitute for, and should not be regarded as, an independent evaluation and analysis. Each recipient should perform and is deemed to have made his/its own independent investigation and analysis of AmIslamic, the Subordinated Sukuk Musharakah and all other relevant matters, including but not limited to the information and data set out in this IM, and each recipient should consult its own professional advisers. AmIslamic confirms that, to the best of its knowledge and belief: (a) this IM contains all information with respect to AmIslamic that is material in the context of the purpose for which this IM is issued, (b) the information and data contained in this IM are true, accurate and not misleading in all material respects, and (c) there is no material omission of any information and data from this IM.

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No representation, warranty or undertaking, express or implied, is given or assumed by the Lead Arranger/Lead Manager as to the authenticity, origin, validity, accuracy or completeness of such information and data or that the information or data remains unchanged in any respect after the relevant date shown in this IM. The Lead Arranger/Lead Manager have not accepted and will not accept any responsibility for the information and data contained in this IM or otherwise in relation to the Subordinated Sukuk Musharakah Programme and shall not be liable for any consequences of reliance on any of the information or data in this IM, except as provided by Malaysian laws. This IM has not been and will not be made to comply with the laws of any jurisdiction outside Malaysia (“Foreign Jurisdiction ”), and has not been and will not be lodged, registered or approved pursuant to or under any legislation of (or with or by any regulatory authority or other relevant body of) any Foreign Jurisdiction and it does not constitute an offer of, or an invitation to subscribe for or purchase the Subordinated Sukuk Musharakah or any other securities of any kind by any party in any Foreign Jurisdiction. This IM is not and is not intended to be a prospectus. By accepting delivery of this IM, each recipient agrees to the terms upon which this IM is provided to such recipient as set out in this IM, and further agrees and confirms that: (a) it will keep confidential all of such information and data contained in this IM, (b) it is lawful for the recipient to receive this IM and to subscribe for, purchase or in any other way to receive the Subordinated Sukuk Musharakah under all jurisdictions to which the recipient is subject, (c) it will comply with all the applicable laws in connection with such subscription, purchase or acceptance of the Subordinated Sukuk Musharakah, (d) AmIslamic and all other parties involved in the preparation of this IM and their respective directors, officers, employees, agents and professional advisers are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject to as a result of such subscription, purchase or acceptance of the Subordinated Sukuk Musharakah and they shall not have any responsibility or liability in the event that such subscription or acceptance of the Subordinated Sukuk Musharakah is or shall become unlawful, unenforceable, voidable or void, (e) it is aware that the Subordinated Sukuk Musharakah can only be transferred or otherwise disposed of in accordance with the relevant selling restrictions and all applicable laws, (f) it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of subscribing for or purchasing the Subordinated Sukuk Musharakah and is able and prepared to bear the economic and financial risks of investing in or holding the Subordinated Sukuk Musharakah, and (g) it, at the point of issuance of the Subordinated Sukuk Musharakah, falls within one or more of the categories of persons to whom an offer or invitation to subscribe for or purchase the Subordinated Sukuk Musharakah would constitute an excluded issue, excluded offer or excluded invitation pursuant to Schedule 6 or Section 229(1)(b), or Schedule 7 or Section 230(1)(b), and Schedule 9 or Section 257(3) of the CMSA (subject to any law, order, regulation or official directive of BNM, the SC and/or any other regulatory authority from time to time), and after the point of issuance of the Subordinated Sukuk Musharakah, falls within one or more of the categories of persons to whom an offer or invitation to subscribe for or purchase the Subordinated Sukuk Musharakah would constitute an excluded offer or excluded invitation pursuant to Schedule 6 or Section 229(1)(b), and Schedule 9 or Section 257(3) of the CMSA (subject to any law, order, regulation or official directive of BNM, the SC and/or any other regulatory authority from time to time). For the avoidance of doubt, this IM shall not constitute an offer or invitation to subscribe or purchase the Subordinated Sukuk Musharakah in relation to any recipient who does not fall within item (h) above. Each recipient is solely responsible for seeking all appropriate expert advice as to the laws of all jurisdictions to which it is subject at its own cost and expenses. Neither the delivery of this IM nor the offering, sale or delivery of any Subordinated Sukuk Musharakah shall in any circumstance imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Subordinated Sukuk Musharakah is correct as of any time subsequent to the date indicated in the document containing the same. The Lead Arranger/Lead Manager expressly does not undertake to advise any investor of the Subordinated Sukuk Musharakah of any information coming to their attention. The recipient of this IM or the potential investors should review, inter-alia, the most recently published documents incorporated by reference into this IM when deciding whether or not to purchase any Subordinated Sukuk Musharakah.

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This IM includes certain historical information and reports thereon derived from sources believed to be reliable and other publicly available information. Such information and reports have been included solely for illustrative purposes. No representation or warranty is made as to the accuracy of any information and report thereon derived from such and other third party sources. This IM includes “forward looking statements”. These statements include, among other things, disclosure of AmIslamic’s business strategy and expectation concerning its position in the Malaysian economy, future operations, liquidity, financial position and settlement of indebtedness. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may affect actual outcomes, many of which are outside the control of AmIslamic. All these statements are based on assumptions made by AmIslamic that, although believed to be reasonable, are subject to risks and uncertainties that may cause actual events and the future results of AmIslamic to be materially different from that expected or indicated by such statements and no assurance is given that any of such statements will be realised. Therefore, the contingencies and inherent uncertainties underlying such information should be carefully considered by investors and the inclusion of a forward looking statement in this IM is not a representation or warranty by AmIslamic or any other person that the plans and objectives of AmIslamic will be achieved. Further, such parties are not under any obligation to update or revise such forward-looking statements to reflect any change in expectations or circumstances. Any difference in the expectations of AmIslamic and its actual performance may result in AmIslamic’s financial and operating performance and plans being materially different from those anticipated. The information in this IM supersedes all other information and materials previously supplied (if any) to the recipients. By taking possession of this IM, the recipients are acknowledging and agreeing and are deemed to have acknowledged and agreed that they will not rely on any previous information supplied. No person is authorised to give any information or data or to make any representation or warranty other than as contained in this IM and, if given or made, any such information, data, representation or warranty must not be relied upon as having been authorised by the Issuer, the Lead Arranger / Lead Manager or any other persons. All discrepancies (if any) in the tables included in this IM between the listed amounts and totals thereof are due to, and certain numbers appearing in this IM are shown, after rounding off. DOCUMENTS INCORPORATED BY REFERENCE All information and statements herein are subject to the detailed provisions of the respective agreements referred to herein and are qualified in their entirety by reference to such documents. ACKNOWLEDGEMENT AmIslamic hereby acknowledges that it has authorised the Lead Arranger/Lead Manager to circulate or distribute this IM on its behalf in respect of the Subordinated Sukuk Musharakah Programme to prospective investors and that no further evidence of authorisation is required. STATEMENTS OF DISCLAIMER – SECURITIES COMMISSION This IM will be lodged with the SC who takes no responsibility for its contents. Such lodgement shall not be taken to indicate that the SC recommends the Subordinated Sukuk Musharakah. The SC shall not be liable for any non-disclosure on the part of the Issuer and assumes no responsibility for the correctness of any statement, opinion or report contained in this IM. EACH ISSUE OF THE SUBORDINATED SUKUK MUSHARAKAH WILL CARRY DIFFERENT RISKS. INVESTORS MUST RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF AN INVESTMENT IN ANY ISSUE OF THE SUBORDINATED SUKUK MUSHARAKAH. IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR OWN LEGAL, FINANCIAL, SHARIAH AND OTHER ADVISERS BEFORE PURCHASING OR ACQUIRING THE SUBORDINATEDSUKUK MUSHARAKAH.

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For the purpose of this IM, unless otherwise indicated, the following definitions shall apply: Act : The Companies Act, 1965 or any statutory modification, amendment

or re-enactment thereof for the time being in force AMMB : AMMB Holdings Berhad (Company No. 223035-V) AMMB Group : AMMB and its subsidiaries AIGB : AmInvestment Group Berhad (Company No. 657000-X) AIGB Group : AIGB and its subsidiaries AmBank : AmBank (M) Berhad (8515-D) AmBank Group : AmBank and its subsidiaries Amcorp : Amcorp Group Berhad (Company No. 1166-T) AMFB : AMFB Holdings Berhad (Company No. 5493-X) AmIslamic or the Bank or the Issuer

: AmIslamic Bank Berhad (Company No. 295576-U)

AmInvestment Bank : AmInvestment Bank Berhad (23742-V) ANZ : Australia and New Zealand Banking Group Limited (Company No.

005 357 522) ANZ Funds : ANZ Funds Pty Ltd (Company No. 004 594 343), a wholly-owned

subsidiary of ANZ ATMs : Automated Teller Machines BAFIA : The Banking and Financial Institutions Act, 1989 or any statutory

modification, amendment or re-enactment thereof for the time being in force

BNM : Bank Negara Malaysia Board : Board of Directors of AmIslamic Bursa Securities : Bursa Malaysia Securities Berhad (Company No. 635998-W) CMSA : The Capital Markets and Services Act, 2007 or any statutory

modification, amendment or re-enactment thereof for the time being in force

EBCs : Electronic Banking Channels EGM : Extraordinary General Meeting FYE : Financial Year Ended IBA : The Islamic Banking Act, 1983 or any statutory modification,

amendment or re-enactment thereof for the time being in force IT : Information Technology

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NPF : Non-Performing Financing PBT : Profit before tax PIDM : Perbadanan Insurances Deposit Malaysia RAM Rating : RAM Rating Services Berhad (Company No. 763588-T) RM : Ringgit SC : The Securities Commission of Malaysia Senior Creditors : The depositors and all other creditors of the Issuer other than those

creditors whose claims are expressed to rank pari passu with or junior to the claims of the Subordinated Sukukholders

Subordinated Sukuk Musharakah

: Subordinated Sukuk Musharakah issued pursuant to the Subordinated Sukuk Musharakah Programme

Subordinated Sukukholders

: The holders of the Subordinated Sukuk Musharakah

Subordinated Sukuk Musharakah Programme

: Proposed Subordinated Sukuk Musharakah issuance programme of up to RM2.0 billion in nominal value based on the Shariah principles of Musharakah by AmIslamic

Share(s) : Ordinary share(s) of RM1.00 each in AmIslamic SMEs : Small Medium Enterprises Trust Deed : The trust deed entered or to be entered into between the Issuer

and the Trustee constituting the Subordinated Sukuk Musharakah Trustee : Pacific Trustees Berhad (Company No. 317001-A) TSAH : Tan Sri Azman Hashim All references to, “we”, “us”, “our” and any derivative thereof in this IM refer to AmIslamic.

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TABLE OF CONTENTS

1. EXECUTIVE SUMMARY .......................................................................................................................... 1

1.1 Background Information on AmIslamic _______________________________________________ 1

1.2 Description of the Transaction and Structure of the Subordinated Sukuk Musharakah Programme ______________________________________________________________________ 2

1.3 Details of Utilisation of Proceeds____________________________________________________ 6

1.4 Rating of the Subordinated Sukuk Musharakah Programme ____________________________ 6

1.5 Selling Restrictions _______________________________________________________________ 6

1.6 Approvals Required _______________________________________________________________ 7

1.7 Conflict of Interest and Appropriate Mitigating Measures _______________________________ 7

2. SUMMARY OF THE PRINCIPAL TERMS AND CONDITIONS OF THE SUBORDINATED SUKUK MUSHARAKAH PROGRAMME ............................................................................................................... 9

3. INVESTMENT CONSIDERATIONS ....................................................................................................... 27

3.1 Considerations Relating to the Malaysian Banking Industry ____________________________ 27

3.2 Considerations Relating to AmIslamic ______________________________________________ 28

3.3 Considerations Relating to the Subordinated Sukuk Musharakah _______________________ 32

3.4 Potential pressure on AmIslamic’s capital due to Basel III _____________________________ 34

3.5 Forward Looking Statements ______________________________________________________ 35

4. DESCRIPTION OF THE ISSUER ........................................................................................................... 36

4.1 History and Background Information on AmIslamic ___________________________________ 36

4.2 Business Overview ______________________________________________________________ 37

4.3 Australia and New Zealand Banking Group Limited (“ANZ”) ___________________________ 39

4.4 Corporate Information ____________________________________________________________ 41

4.5 Information on Directors and Senior Management ____________________________________ 42

4.6 AmIslamic’s Businesses __________________________________________________________ 48

4.7 Competitive Strengths ____________________________________________________________ 52

4.8 Strategy ________________________________________________________________________ 54

5. FINANCIAL AND OTHER MATERIAL INFORMATION ......................................................................... 56

5.1 Financial Highlights ______________________________________________________________ 56

5.2 Commentaries On Past Performance _______________________________________________ 60

5.3 Capitalisation and Indebtedness ___________________________________________________ 61

5.4 Funding ________________________________________________________________________ 62

5.5 Capital Adequacy ________________________________________________________________ 65

5.6 Asset Quality ___________________________________________________________________ 66

6. RISK MANAGEMENT FRAMEWORK ................................................................................................... 75

7. INDUSTRY OVERVIEW ......................................................................................................................... 78

7.1 Islamic Finance Developments ____________________________________________________ 78

7.2 Malaysia’s Banking Sector ________________________________________________________ 79

7.3 Prospects for 2011 ______________________________________________________________ 79

8. OTHER INFORMATION ......................................................................................................................... 80

8.1 Material Contracts _______________________________________________________________ 80

8.2 Material Litigation ________________________________________________________________ 80

8.3 Commitments and Contingent Liabilities ____________________________________________ 81

APPENDIX AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD 1 APRIL 2010 TO 31 MARCH 2011

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1. EXECUTIVE SUMMARY The executive summary is a summary of information on the Subordinated Sukuk Musharakah Programme. Investors should read and understand the whole IM prior to deciding whether or not to invest in the Subordinated Sukuk Musharakah. The executive summary should be read in conjunction with the full text of this IM.

1.1 Background Information on AmIslamic

AmIslamic is a public limited company incorporated under the Act on 14 April 1994. AmIslamic is a wholly-owned subsidiary of AMMB. AmIslamic was incorporated as Arab-Malaysian Bank Berhad to acquire the commercial banking business of the Malaysian branch of the Bank of America (Asia) Limited, then operating under the name of Security Pacific Asian Bank Limited, Kuala Lumpur Branch (“SPABL ”). On 1 August 1994, Arab-Malaysian Bank Berhad completed the acquisition of the business of SPABL and commenced operations as a locally incorporated commercial bank before changing its name to AmBank Berhad on 14 June 2002. On 1 June 2005, the banking business of AmBank Berhad was vested in AmFinance Berhad (now known as AmBank (M) Berhad) pursuant to the vesting order of the High Court of Malaya dated 18 May 2005 issued under section 50 of the BAFIA. Thereafter, AmBank Berhad surrendered its commercial banking licence to the Ministry of Finance and ceased to be a commercial banking institution. On 16 September 2005, AmBank Berhad was renamed AMBB Capital Berhad. On 21 February 2006, AMBB Capital Berhad was renamed AmIslamic Bank Berhad. On 1 May 2006, AmIslamic commenced operations as an Islamic banking institution under the IBA after AmBank transferred all of its Islamic banking and financial businesses to AmIslamic pursuant to the vesting order of the High Court of Malaya dated 18 April 2006 issued under section 50 of the BAFIA. AmIslamic provides a range of retail, commercial banking, corporate banking and Markets products and services which are Shariah-compliant in nature. On 28 February 2011, as part of AMMB Group's ongoing capital management strategy and an internal reorganisation exercise relating to the shareholding structure of AMMB’s banking subsidiaries, AMMB acquired the 100% equity interest held by AmBank in AmIslamic, resulting in AmIslamic becoming directly held by AMMB. As at 30 June 2011, the authorised share capital of AmIslamic is RM2,000,000,000 comprising 2,000,000,000 ordinary shares of RM1.00 each, of which 403,038,000 ordinary shares of RM1.00 each were issued and fully paid-up.

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1.2 Description of the Transaction and Structure of the Subordinated Sukuk Musharakah Programme The Issuer has the flexibility to issue Subordinated Sukuk Musharakah at any time during the tenor of the Subordinated Sukuk Musharakah Programme, provided that the outstanding aggregate nominal value of Subordinated Sukuk Musharakah shall not exceed the limit of RM2.0 billion at any one time. The Subordinated Sukuk Musharakah will qualify as Tier 2 capital of AmIslamic in compliance with BNM’s “Risk-Weighted Capital Adequacy Framework and Capital Adequacy Framework for Islamic Banks (General Requirements and Capital Components)” in calculating its Risk-Weighted Capital Ratio. Under the Subordinated Sukuk Musharakah Programme transaction, the investors (known as the “Subordinated Sukukholders ”) shall from time to time, form a partnership amongst themselves for the purpose of investing in the Shariah-compliant financial services business of AmIslamic (“Musharakah Venture ”). Each tranche of the Subordinated Sukuk Musharakah which comprises at least two Subordinated Sukukholders shall constitute a Musharakah Venture. Any profit derived from the Musharakah Venture will be distributed based on a ratio of capital contribution among the Subordinated Sukukholders and losses will also be shared based on the Sukukholders’ ratio of capital contribution. In relation to each Musharakah Venture AmIslamic shall issue Subordinated Sukuk Musharakah to the Subordinated Sukukholders, in consideration of their capital contribution in the Musharakah Venture (“Musharakah Capital ”). The Subordinated Sukuk Musharakah represents the Subordinated Sukukholders proportionate participation in the said Musharakah Venture. The Issuer shall declare a trust over the Trust Assets (as defined below), for the benefit of the Trustee (acting on behalf of the Subordinated Sukukholders). The Trust Assets shall be the Shariah-compliant financial services business of the Issuer (including the Profit Reserve Account (as defined in Section 2 of this IM)) (“Trust Assets ”). The Trustee (acting on behalf of the Subordinated Sukukholders) shall appoint the Issuer as its agent (the “Manager ”) to manage the Musharakah Venture on behalf of the Subordinated Sukukholders upon the terms and subject to the conditions contained in the management agreement entered or to be entered into between the Trustee and the Manager. The Subordinated Sukuk Musharakah shall entitle the Subordinated Sukukholders to a share in the income generated from the Musharakah Venture in proportion to each Subordinated Sukukholder’s respective contribution of the Musharakah Capital (“Periodic Payments(s) ”), which shall be distributed semi-annually (“Periodic Payment Date ”) to the Subordinated Sukukholders. For the avoidance of doubt, whenever a Periodic Payment is made on a particular scheduled Periodic Payment Date, such payment shall comprise the distributable income generated from the relevant Musharakah Venture (“Periodic Distribution(s)”) and Advance Profit Payment(s) (as defined in Section 2 of this IM), if any. The return expected (“Expected Return ”) by the Subordinated Sukukholders from each Musharakah Venture shall be the yield from the relevant tranche of the Subordinated Sukuk Musharakah up to (i) the respective maturity date of the Subordinated Sukuk Musharakah of such tranche (“Maturity Date ”) or (ii) the date of declaration of a Dissolution Event (as defined in Section 2 of this IM); or (iii) the date of Early Redemption (as defined in Section 2 of this IM) of such tranche, whichever is applicable. The Subordinated Sukukholders shall also agree upfront that they shall receive returns, if any, up to the Expected Return. Any amounts in excess of the Expected Return shall be credited by the Manager to a Profit Reserve Account which may be used to fund future payments of Periodic Payments. Any amount standing to the credit of the Profit Reserve Account on the Maturity Date or on the date of declaration of a Dissolution Event or the date

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of Early Redemption (collectively referred to as “Dissolution Date ”) will be due and payable to the Manager as an incentive fee for managing the Musharakah Venture. The Manager may at any time prior to the Dissolution Date utilise the amounts standing to the credit of the Profit Reserve Account with such amounts being treated as the advance incentive fee (“Advance Incentive Fee ”) so long as any amounts deducted from the Profit Reserve Account prior to the Dissolution Date are re-credited to fund any shortfall in the amount of the Periodic Payment(s). If, on any Periodic Payment Date, the income generated from the Trust Assets and any Advance Incentive Fee re-credited to the Profit Reserve Account are insufficient to meet the expected Periodic Payment(s) on any Periodic Payment Date in full, the Issuer shall make advance profit payments during the tenor of the Subordinated Sukuk Musharakah (“Advance Profit Payment ”) equal to such deficiency. For the avoidance of doubt, any Advance Profit Payment made by the Issuer shall be off-set against the Exercise Price (as defined in Section 2 of the IM). The Issuer (as “Obligor ”) shall also grant to the Trustee (acting on behalf of the Subordinated Sukukholders) a Purchase Undertaking under which the Obligor shall undertake to purchase the Trust Assets from the Trustee at the Exercise Price, subject always to the terms of Purchase Undertaking (as defined in Section 2 of the IM). There are only two (2) Dissolution Events prescribed under the terms of the Subordinated Sukuk Musharakah as follows:- (i) where a default is made in the payment of the principal or profits or any other amount

under the Subordinated Sukuk Musharakah and such inability continues for a period of 14 days; or

(ii) a court order is made or an effective resolution is passed for the winding up of

AmIslamic.

Where a Dissolution Event referred to in (i) above occurs or any other default in the performance of any condition, provision or covenant under the Subordinated Sukuk Musharakah Programme and/or the transaction documents, there is no right of acceleration of payment of the Subordinated Sukuk Musharakah accorded to the Trustee or the Subordinated Sukukholders in respect of default in the principal or profits or any other amount under the Subordinated Sukuk Musharakah, although proceedings may be instituted to enforce the payment obligations of AmIslamic under the Subordinated Sukuk Musharakah Programme or to wind up AmIslamic. Where a dissolution event referred to in (ii) above occurs, the Trustee may and shall, if directed to do so by the Subordinated Sukukholders, declare such Dissolution Event has occurred and pursuant to the Purchase Undertaking, accelerate payment of the outstanding principal together with accrued profit payment of the Subordinated Sukuk Musharakah. Upon the declaration of the Dissolution Event, the Trustee shall be entitled to institute such proceedings to dissolve the Musharakah Venture and the trusts conferring the undivided beneficial ownership of the Trust Assets. The Trustee shall enforce all payment obligations in relation to the Exercise Price pursuant to the Purchase Undertaking. In respect of each tranche of the Subordinated Sukuk Musharakah, upon exercise of the Purchase Undertaking and the payment of the Exercise Price, the relevant Musharakah Venture and declaration of trust will be dissolved and the Subordinated Sukuk Musharakah will be cancelled. The Subordinated Sukuk Musharakah (regardless of whichever tranche of Subordinated Sukuk Musharakah) shall at all times rank pari passu without discrimination, preference or priority amongst themselves and, subject to such exceptions as may from time to time exist under applicable laws and the transaction documents, rank as trust obligations of the Issuer

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in relation to, and represent beneficial ownership of the Subordinated Sukukholders in the Trust Assets. The obligations of the Issuer pursuant to the Purchase Undertaking in respect of the Subordinated Sukuk Musharakah shall constitute direct, unconditional and unsecured obligations of the Obligor, subordinated in right and priority of payment, to the extent and in the manner provided for in the Subordinated Sukuk Musharakah, to all deposits liabilities and other liabilities of the Issuer except liabilities of the Issuer which by their terms rank pari-passu in right and priority of payment with or which are subordinated to the Subordinated Sukuk Musharakah. The obligation of the Issuer pursuant to the Purchase Undertaking will, in the event of a winding-up or liquidation of the Issuer, be subordinated in rights of payments to the claims of Senior Creditors (as defined in Section 2 of this IM). The Subordinated Sukuk Musharakah will rank pari passu to all subordinated debt issued by the Issuer but senior to the share capital of the Issuer and such obligations of the Issuer that are expressed to rank pari passu with or junior to the claims of the Subordinated Sukukholders.


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A diagrammatical structure of the Subordinated Sukuk Musharakah Programme transaction is as set out below:-

(1) The investors (hereinafter referred to as the “Subordinated Sukukholders”) shall from time to time, form a partnership amongst themselves to participate in the Issuer’s Islamic financial services business (“Musharakah Venture ”).

(2) & (3) The Issuer shall issue Subordinated Sukuk Musharakah to the Subordinated Sukukholders, in consideration of their capital contribution. The Subordinated Sukuk Musharakah represents the Subordinated Sukukholders’ proportionate participation in the said Musharakah Venture.

(4) The Issuer shall declare a trust over the Trust Assets for the benefit of the Trustee (acting on behalf of the Subordinated Sukukholders). The Trust Assets will comprise the Issuer’s Islamic financial services business and the Profit Reserve Account.

(5) The Trustee (acting on behalf of the Subordinated Sukukholders) shall appoint the Issuer as its agent (the “Manager ”) to manage the Musharakah Venture.

(6) Income generated from the Musharakah Venture will be shared and distributed periodically (as the case may be) amongst the Subordinated Sukukholders according to the ratio of their capital contribution. Any losses will also be shared amongst the Subordinated Sukukholders in proportion to their capital contribution.

(7) The Issuer (as the “Obligor ”) shall also grant to the Trustee (acting on behalf of the Subordinated Sukukholders) a Purchase Undertaking whereby the Obligor shall undertake to purchase the Trust Assets from the Trustee upon maturity of

(Investment in Shariah -compliant Trust Assets)

Musyarakah Venture

Investors(Sukukholders ) Capital

Periodic Distribution

Declares trust over the Trust Assets

Purchase Undertaking

Issuer/ Manager/ Obligor

Trustee

Appointment as Manager2

3

4

5

6

7

1

(Investment in Shariah -compliant Trust Assets)

Musharakah Venture

Investors(Subordinated Sukukholders

)

Issues Subordinated Sukuk Musharakah

Musharakah Capital

Periodic

Declares trust over the Trust Assets

Purchase Undertaking

Musharak ahAgreement

Issuer/ Manager/ Obligor

Trustee

Appointment as Manager2

3

4

5

6

7

1

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the Subordinated Sukuk Musharakah or the declaration of a Dissolution Event or upon Early Redemption.

The Subordinated Sukuk Musharakah Programme has a tenure of up to fifteen (15) years from the date of the first issuance under the Subordinated Sukuk Musharakah Programme. Under the Subordinated Sukuk Musharakah Programme, the Issuer may issue Subordinated Sukuk Musharakah with a tenure of not less than five (5) years and not more than fifteen (15) years from the issue date provided that the Subordinated Sukuk Musharakah mature at or prior to the expiry of the Subordinated Sukuk Musharakah Programme. The date of the first issuance under the Subordinated Sukuk Musharakah Programme shall not be later than two (2) years from the date of approval by the SC. The Subordinated Sukuk Musharakah may be issued at par, at a premium or at a discount and the issue price shall be determined prior to issuance. The Issuer shall have the option to redeem the Subordinated Sukuk Musharakah at the Exercise Price on any Periodic Payment Date on or after the 5th year from the issue date of such Subordinated Sukuk Musharakah (“Call Date ”), subject to the Redemption Conditions (as defined in Section 2 of this IM) being satisfied. Early Redemption may also be exercised at the option of the Issuer on the occurrence of regulatory redemption event or tax redemption event, in both cases, subject to the Redemption Conditions being satisfied. The expected profit rates of the Subordinated Sukuk Musharakah will be determined prior to each issuance and shall remain unchanged throughout their tenor.

The summary of the principal terms and conditions of the Subordinated Sukuk Musharakah

Programme is as set out in Section 2 of this IM.

1.3 Details of Utilisation of Proceeds

The proceeds of the issuance of the Subordinated Sukuk Musharakah shall be utilised for the Issuer’s Shariah-compliant general working capital requirements, which shall include refinancing of the outstanding sukuk under its existing RM400.0 million Subordinated Sukuk Musharakah (“Existing Subordinated Sukuk Musharakah ”); for funding the growth of the Issuer’s Islamic financial services business; and defraying the issuance expenses for the establishment of the Subordinated Sukuk Musharakah Programme.

1.4 Rating of the Subordinated Sukuk Musharakah Programme As at the date of this IM, RAM Ratings has assigned a long-term rating of A1 to the Subordinated Sukuk Musharakah Programme.

1.5 Selling Restrictions At issuance The Subordinated Sukuk Musharakah may not be offered, sold or delivered, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia other than to persons falling within Schedule 6 or Section 229(1)(b) or Schedule 7 or Section 230(1)(b), and Schedule 9 or Section 257(3) of the CMSA. After issuance The Subordinated Sukuk Musharakah may not be offered, sold or delivered, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia other than to persons falling within Schedule 6 or Section 229(1)(b) and Schedule 9 or Section 257(3) of the CMSA.

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1.6 Approvals Required

The Subordinated Sukuk Musharakah Programme has been approved by BNM and the SC vide their letters dated 28 July 2011 and 22 September 2011 respectively.

1.7 Conflict of Interest and Appropriate Mitigating Measures

AmInvestment Bank

Save as disclosed below, AmInvestment Bank is not aware of any circumstances that would give rise to a conflict of interest in its capacity as the Principal Adviser and Lead Arranger/Lead Manager and Facility Agent for the Subordinated Sukuk Musharakah Programme. AmInvestment Bank and AmIslamic are wholly-owned subsidiaries of AMMB. As such, AMMB, AmInvestment Bank and AmIslamic are deemed to be related corporations. Potential conflict of interest may arise on the part of AmInvestment Bank in terms of duties owed to potential investors on the one hand and its relationship with AmIslamic on the other. As mitigating measures and to address the potential conflict of interest set out above, the following measures have been taken: � the potential conflict of interest situation has been brought to the attention of the

Board and hence the Board is fully aware of the same. The Board has confirmed that having considered the above situation, they are agreeable to proceed with the appointment of AmInvestment Bank as the Principal Adviser and the Lead Arranger/Lead Manager and Facility Agent;

� Messrs. Adnan Sundra & Low acting as an external independent legal counsel for

AmInvestment Bank, has been appointed to conduct a legal due diligence inquiry on AmIslamic;

� Pacific Trustees Berhad has been appointed as trustee in respect of the

Subordinated Sukuk Musharakah Programme; and

� the Subordinated Sukuk will be issued by way of book-building and/or private placement and/or bought-deal whereby pricing of the Subordinated Sukuk will be market driven.

Notwithstanding the aforementioned, AmInvestment Bank, in relation to all its appointed roles in respect of the Subordinated Sukuk Musharakah Programme, has considered the factors involved and believes that objectivity and independence in carrying out its role has been/will be maintained at all times for the following reasons:

� AmInvestment Bank is a licensed investment bank and its appointment as the

Principal Adviser and Lead Arranger/Lead Manager and Facility Agent in respect of the Subordinated Sukuk Musharakah Programme is in the ordinary course of its business; and

� The conduct of AmInvestment Bank is regulated strictly by BAFIA and CMSA, and

AmInvestment Bank has in place its own internal policies, controls and checks with regard to transactions involving its related corporations.

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Messrs Adnan Sundra & Low After making enquiries as were reasonable in the circumstances, Messrs Adnan Sundra & Low has confirmed that it is not aware of any circumstances that would give rise to a conflict of interest or potential conflict of interest situation in its capacity as the solicitors in relation to the Subordinated Sukuk Musharakah Programme. Pacific Trustees Berhad After making enquiries as were reasonable in the circumstances, Pacific Trustees Berhad has confirmed that it is not aware of any circumstances that would give rise to a conflict of interest or potential conflict of interest situation in its capacity as the trustee in relation to the Subordinated Sukuk Musharakah Programme.


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2. SUMMARY OF THE PRINCIPAL TERMS AND CONDITIONS OF THE SUBORDINATED

SUKUK MUSHARAKAH PROGRAMME Words and expressions used and defined in this section shall, in the event of inconsistency with the definitions section of this IM, only be applicable for this section. Note: This section is an extraction from the submission made to the SC for approval for the issuance of the Subordinated Sukuk which was approved by the SC vide its letter dated 22 September 2011.

BACKGROUND INFORMATION 1. Issuer

(i) Name AmIslamic Bank Berhad (“AmIslamic ”)

(ii) Address 22nd Floor, Bangunan AmBank Group

No. 55, Jalan Raja Chulan 50200 Kuala Lumpur

(iii) Business registr ation no.

295576-U

(iv) Date and place of incorporation

Incorporation date: 14 April 1994. Place of incorporation: Malaysia

(v) Date of listing

Not listed on any exchange

(vi) Status Resident-controlled company. Note: Although foreign shareholders may hold more than 50% equity in AMMB Holdings Berhad (“AMMB”), AmIslamic is deemed a resident-controlled company by virtue of the composition of its Board of Directors and management.

(vii) Principal activities AmIslamic provides a range of retail, commercial banking, corporate banking and treasury products and services that are Shariah-compliant in nature.

(viii) Board of directors (as at 30 June 2011)

Name of Directors Nationality

Tan Sri Azman Hashim (“TSAH”) Malaysian Tun Mohammed Hanif bin Omar Malaysian Tan Sri Datuk Clifford Francis Herbert

Malaysian

Dato’ Gan Nyap Liou @ Gan Nyap Liow

Malaysian

Dato’ Dr Mahani binti Zainal Abidin Malaysian Cheah Tek Kuang Malaysian Ashok Ramamurthy Australian

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(ix) Structure of shareholdings and names of shareholders or, in the case of a public company, names of all substantial shareholders (as at 30 June 2011)

AmIslamic is a wholly-owned subsidiary of AMMB. The substantial shareholders of AmIslamic as at 30 June 2011 are as follows:

Name No. of AHB shares / % Direct Indirect

AMMB 403,038,000 / 100%

TSAH - 403,038,000* / 100%

Amcorp Group Berhad

- 403,038,000* / 100%

Clear Goal Sdn Bhd

- 403,038,000* / 100%

ANZ Funds Pty Ltd - 403,038,000*\/ 100%

Australia and New Zealand Banking Group Limited

- 403,038,000* / 100%

Note: * Deemed interested by virtue of his/its interests

arising from his/its substantial interests in AMMB

(x) Authorised and paid -up capital (as at 30 June 2011)

Authorised share capital RM2,000,000,000 comprising 2,000,000,000 ordinary shares of RM1.00 each Paid-up share capital RM403,038,000 comprising 403,038,000 ordinary shares of RM1.00 each

2. PRINCIPAL TERMS AND CONDITIONS

(a) Names of parties involved in the proposed transaction

(i) Principal adviser AmInvestment Bank Berhad (“AmInvestment Bank ”)

(ii) Lead arranger AmInvestment Bank

(iii) Co-arranger Not applicable

(iv) Solicitor Messrs Adnan Sundra & Low

(v) Financial adviser Not applicable

(vi) Technical adviser Not applicable

(vii) Trustee Pacific Trustees Berhad

(viii) Guarantor Not applicable

(ix) Valuer Not applicable

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(x) Facility agent AmInvestment Bank

(xi) Primary subscriber (under a bought deal arrangement) and amount subscribed

At least two (2) Primary Subscribers to be determined prior to the issuance in respect of issuance on a bought-deal basis. Primary Subscribers are not applicable for issuance via book building or direct placement. Notwithstanding the mode of issuance, there must be at least two (2) investors at the point of each issuance to form the Musharakah Venture (as defined below).

(xii) Underwriter and amount underwritten

Not applicable

(xiii) Shariah adviser Dr Mohd Daud Bakar

(xiv) Central depository Bank Negara Malaysia (“BNM”)

(xv) Paying agent BNM

(xvi) Reporting accountant

Not applicable

(xvii) Calculation agent

Not applicable

(xviii) Others (please specify)

Lead Manager(s) AmInvestment Bank and/or other financial institutions to be appointed (if any) Rating Agency RAM Rating Services Berhad (“RAM Ratings”)

(xix) Roles undertaken by AmIslamic in respect of the Musharakah transaction

- Issuer As the Issuer of the Subordinated Sukuk Musharakah (as defined hereinafter).

- Manager As the Manager who will manage the Musharakah Venture for the benefit of the Sukukholders upon the issuance of the Subordinated Sukuk Musharakah.

As the Obligor, who undertakes to purchase the Trust Assets (as defined herein) from the Trustee at the Exercise Price (as defined herein).

(b) Facility description (including the description of Islamic principle)

A subordinated Islamic securities (“Subordinated Sukuk Musharakah ”) issuance programme based on the Shariah principles of Musharakah (“Subordinated Sukuk Musharakah Programme ”). The Subordinated Sukuk Musharakah will qualify as Tier 2 capital of AmIslamic in compliance with BNM’s “Risk-Weighted Capital Adequacy Framework and Capital Adequacy Framework for Islamic Banks (General Requirements and Capital Components)” in calculating its Risk-Weighted Capital Ratio. Under this transaction, the investors (known as the “Sukukholders ”) shall from time to time, form a

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partnership amongst themselves for the purpose of investing in the Shariah-compliant financial services business of AmIslamic (“Musharakah Venture ”). Each tranche of the Subordinated Sukuk Musharakah which comprises at least two (2) Sukukholders shall constitute a Musharakah Venture. Any profit derived from the Musharakah Venture will be distributed based on the ratio of capital contribution among the Sukukholders and losses will also be shared based on the Sukukholders’ ratio of capital contribution.

AmIslamic shall issue Subordinated Sukuk Musharakah to the Sukukholders, in consideration of their capital contribution (“Musharakah Capital ”). The Subordinated Sukuk Musharakah represents the Sukukholders’ proportionate participation in the said Musharakah Venture. The Issuer shall declare trust over the Trust Assets (as defined herein), which shall be the Shariah-compliant financial services business of the Issuer (including the Profit Reserve Account (as defined)) (“Trust Assets ”), for the benefit of the Trustee (acting for the Sukukholders). The Trustee (acting on behalf of the Sukukholders) shall appoint the Issuer as its agent (the “Manager ”) to manage the Musharakah Venture on behalf of the Sukukholders upon the terms and subject to the conditions therein contained. The Subordinated Sukuk Musharakah shall entitle the Sukukholders to a share in the income generated from the Musharakah Venture in proportion to each Sukukholder’s respective contribution of the Musharakah Capital (“Periodic Payment(s) ”), which shall be distributed semi-annually (“Periodic Payment Date”) to the Sukukholders. For the avoidance of doubt, whenever a Periodic Payment is made on a particular scheduled Periodic Payment Date, such payment shall comprise the distributable income generated from the relevant Musharakah Venture (“Periodic Distribution(s) ”) and Advance Profit Payment(s) (as defined below), if any. The return expected (“Expected Return ”) by the Sukukholders from each Musharakah Venture shall be the yield from the relevant tranche of the Subordinated Sukuk Musharakah up to (i) the respective maturity date of the Subordinated Sukuk Musharakah of such tranche (“Maturity Date ”); or (ii) the date of declaration of a Dissolution Event (as defined herein); or (iii) the date of Early Redemption (as defined herein) of such tranche, whichever is applicable. The Sukukholders shall also agree upfront that they shall receive return, if any, up to the Expected Return. Any amounts in excess of the Expected Return shall be credited by the Manager to a Profit Reserve Account which may be used to fund future payments of Periodic Payments. Any amount standing to the credit of the

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Profit Reserve Account on the Maturity Dates or on the date of declaration of a Dissolution Event or the date of Early Redemption (collectively referred to as “Dissolution Date ”) will be due and payable to the Manager as an incentive fee for managing the Musharakah Venture. The Manager may at any time prior to the Dissolution Date utilise the amounts standing to the credit of the Profit Reserve Account with such amounts being treated as the advance incentive fee (“Advance Incentive Fee ”) so long as any amounts deducted from the Profit Reserve Account prior to the Dissolution Date are re-credited to fund any shortfall in the amounts of the Periodic Payments. If, on any Periodic Payment Date, the income generated from the Trust Assets and any Advance Incentive Fee re-credited to the Profit Reserve Account are insufficient to meet the expected Periodic Payment(s) on any Periodic Payment Date in full, the Issuer shall make advance profit payments during the tenor of the Subordinated Sukuk Musharakah (“Advance Profit Payment ”) equal to such deficiency. For the avoidance of doubt, any Advance Profit Payment made by the Issuer shall be off-set against the Exercise Price (as defined herein). The Issuer (as “Obligor ”) shall also grant to the Trustee (acting on behalf of the Sukukholders) a Purchase Undertaking whereby the Obligor shall undertake to purchase the Trust Assets from the Trustee at the Exercise Price on the respective maturity dates of the Subordinated Sukuk Musharakah, or on the declaration of a Dissolution Event or upon Early Redemption, whichever is earlier. Please refer to item 2(v)(iii) for details of the Purchase Undertaking. In respect of each tranche, upon exercise of the Purchase Undertaking and the payment of the Exercise Price, the relevant Musharakah Venture and declaration of trust will be dissolved and the Subordinated Sukuk Musharakah will be cancelled.

(c) Issue/programme size Issue Size Up to RM2.0 billion in nominal value. The aggregate outstanding nominal value of the Subordinated Sukuk Musharakah issued under the Subordinated Sukuk Musharakah Programme at any point in time shall not exceed RM2.0 billion. Issue Price Issued at par, at a premium or at a discount at an issue price to be determined prior to issuance. The issue price shall be calculated in accordance with MyClear Rules and Procedures (as defined below).

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(d) Tenure of issue/sukuk programme (or facility)

Tenure of the Subordinated Sukuk Musharakah Programme Up to fifteen (15) years from the date of the first issuance under the Subordinated Sukuk Musharakah Programme. Tenure of the Subordinated Sukuk Musharakah The Subordinated Sukuk Musharakah shall have a tenure of not less than five (5) years and not more than fifteen (15) years from the issue date (“Maturity Date ”), provided that the Subordinated Sukuk Musharakah mature at or prior to the expiry of the Subordinated Sukuk Musharakah Programme. Call Option: The Issuer shall have the option to redeem the Subordinated Sukuk Musharakah at par on the Call Date (as defined below). Call Date is defined as “any Periodic Payment Date on or after the 5th year, prior to the Maturity Date”.

(e) Availability period of sukuk programme (or facility)

The Subordinated Sukuk Musharakah Programme shall be available commencing on the date of fulfilment of the conditions precedent set out in the programme agreement and ending on the date falling fifteen (15) years after the date of the first issuance under the Subordinated Sukuk Musharakah Programme. The date of the first issuance under the Subordinated Sukuk Musharakah Programme shall not be later than two (2) years from the date of approval by the Securities Commission (“SC”).

(f) Profit/coupon/rental rate The expected profit rates of the Subordinated Sukuk Musharakah will be determined prior to each issuance. The expected profit rate herein shall be applicable throughout the tenor of each tranche of the Subordinated Sukuk Musharakah.

(g) Profit/coupon/rental payment frequency

The Periodic Payment(s) shall be made on semi-annual basis with the last Periodic Payment to be made on the Maturity Date or upon the redemption of the Subordinated Sukuk Musharakah, whichever is the earlier.

(h) Profit/coupon/rental payment basis

Actual days/ 365 days

(i) Security/collateral (if any)

Unsecured.

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(j) Details on utilisation of proceeds by issuer/obligor. If proceeds are to be utilised for project or capital expenditure, description of the project or capital expenditure, where applicable

The proceeds of the Subordinated Sukuk Musharakah shall be utilised for the Issuer’s Shariah-compliant general working capital requirements, which shall include refinancing the outstanding Sukuk under its existing RM400.0 Million Subordinated Sukuk Musharakah; funding the growth of its Islamic financial services business; and defraying the issuance expenses for the establishment of the proposed Subordinated Sukuk Musharakah Programme.

(k) Sinking fund and designated accounts (if any)

Not applicable.

(l) Rating

(i) Credit rating (s) assigned

(ii) Name of rating agency

Initial long-term rating of A1 for the Subordinated Sukuk Musharakah Programme. RAM Ratings.

(m) Mode of issue The Subordinated Sukuk Musharakah may be issued via private placement on a best efforts basis (i.e. direct placement or bought-deal) and/or book-building on a best efforts basis without prospectus.

(n) Selling restriction, including tradability (ie. tradable or non-tradable)

The Subordinated Sukuk Musharakah are tradable. The selling restrictions are as follows: At issuance The Subordinated Sukuk Musharakah may not be offered, sold or delivered, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia other than to persons falling within Schedule 6 or Section 229(1)(b) or Schedule 7 or Section 230(1)(b), and Schedule 9 or Section 257(3) of the Capital Markets and Services Act, 2007 (“CMSA”). After issuance The Subordinated Sukuk Musharakah may not be offered, sold or delivered, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia other than to persons falling within Schedule 6 or Section 229(1)(b) and Schedule 9 or Section 257(3) of the CMSA.

(o) Listing status and types of listing

The Subordinated Sukuk Musharakah may be listed on Bursa Malaysia Securities Berhad under the Exempt Regime. The SC will be notified accordingly in the event of such listing.

(p) Other regulatory approvals required in relation to the issue, offer or invitation and whether or not obtained (please specify)

The Subordinated Sukuk Musharakah Programme is subject to the approval from BNM for the issuance and classification of the Subordinated Sukuk Musharakah as Tier 2 capital of the Issuer which has been obtained via BNM’s letter dated 28 July 2011.

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(q) Conditions precedent The availability of the Subordinated Sukuk Musharakah Programme shall be subject to conditions precedent including, but not limited to, the following:- a) Receipt of certified true copies of the Issuer’s

Memorandum and Articles of Association and board of directors’ resolutions authorising, amongst others, the execution of the transaction documents;

b) Receipt of a list of the Issuer’s authorised signatories and their respective specimen signatures;

c) Receipt of a report of the relevant winding-up search

or the relevant statutory declaration in relation thereto;

d) The Issuer shall have obtained the approval from

BNM for the Subordinated Sukuk Musharakah to be classified as Tier 2 capital issuance;

e) The Issuer shall have obtained the approval from

the SC for the Subordinated Sukuk Musharakah Programme;

f) The Issuer shall have received the endorsement

from the Shariah Adviser in respect of the Subordinated Sukuk Musharakah Programme;

g) All the transaction documents shall have been duly

executed and endorsed as exempted from stamp duty;

h) The Issuer shall have obtained a minimum long-

term rating of A1 from RAM Ratings at the point of first issuance;

i) Receipt of satisfactory legal opinion from solicitors

confirming (a) the validity, legality and enforceability of the transaction documents and any other relevant documents pertaining to the Subordinated Sukuk Musharakah Programme, and (b) that all the conditions precedent in relation to the Subordinated Sukuk Musharakah Programme have been fulfilled or waived, as the case maybe; and

j) Such other conditions precedent as may be advised

by the solicitors for the Lead Arranger.

(r) Representations and warranties

Representations and warranties typical and customary for a programme of this nature which shall include, but are not limited to, the following:- a) The Issuer is a company duly incorporated and

validly existing under the laws of Malaysia and it has the power and authority to carry on its business and to own its properties and assets;

b) The Issuer has the power and capacity to enter

into, exercise its rights and perform its obligations

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under the transaction documents;

c) The Issuer’s entry into, exercise of its rights under and performance of the transaction documents do not and will not violate any existing laws or agreements to which it is a party;

d) The transaction documents create valid and

binding obligations which are enforceable on and against the Issuer;

e) No litigation or arbitration is current or, to the

Issuer’s knowledge, is threatened, which if adversely determined would have a material adverse effect on the ability of the Issuer to comply with its obligations under the Subordinated Sukuk Musharakah Programme and/or the transaction documents;

f) No step has been taken by the Issuer, its creditors

or any of its shareholders or any other person on its behalf nor have any legal proceedings or applications been started or threatened under Section 176 of the Companies Act 1965;

g) The audited financial statements of the Issuer are

prepared in accordance with generally accepted accounting principles and standards in Malaysia and they give a true and fair view of the results of the Issuer’s operations for the period to which the financial statements are made up;

h) There has been no change in the business or

condition (financial or otherwise) of the Issuer or its subsidiaries since the date of its last audited financial statements which might have a material adverse effect on the ability of the Issuer to comply with its obligations under the Subordinated Sukuk Musharakah Programme and/or the transaction documents; and

i) Such other representations and warranties as

may be advised by the solicitors for the Lead Arranger including, but not limited to, the requirements under the Trust Deed Guidelines.

(s) Events of default (or

enforcement event, where applicable)

The Events of Default or Enforcement Events, each being an event which dissolves the Musharakah Venture (referred to herein as “Dissolution Events”) shall have the following meanings:-

(a) If the Issuer is unable to pay any principal or

profits or any other amount under the Subordinated Sukuk Musharakah and such inability continues for a period of 14 days, the Trustee may, subject to the terms of the Trust Deed, institute proceedings to enforce the payment obligations under the Subordinated Sukuk Musharakah Programme and may institute

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proceedings in Malaysia for the winding-up of the Issuer, provided that neither the Trustee nor any of the holders of the Subordinated Sukuk Musharakah shall have the right to accelerate payment of the Subordinated Sukuk Musharakah in the case of such default in the payment of amount owing under the Subordinated Sukuk Musharakah Programme or any default in the performance of any condition, provision or covenant under the Subordinated Sukuk Musharakah Programme and/or the transaction documents.

(b) If:

(i) a court or an agency or a regulatory

authority in Malaysia having jurisdiction in respect of the same shall have instituted any proceeding or entered a decree or an order for the appointment of a receiver or a liquidator in any insolvency, rehabilitation, readjustment of debt, marshalling of assets and liabilities, or similar arrangements involving the Issuer or all or substantially all of its property, or for the winding-up of or liquidation of its affairs and such proceeding, decree or order shall not have been vacated or shall have remained in force, undischarged or unstayed for a period of 60 days; or

(ii) the Issuer shall file a petition to take advantage of any insolvency statute (which for this purpose includes but is not limited to insolvency-related provisions in the Companies Act 1965),

then, upon the occurrence of any one of the events stipulated in paragraph (b) above, the Trustee may and shall, if directed to do so by the Sukukholders, declare such Dissolution Event has occurred and pursuant to the Purchase Undertaking, the Exercise Price shall become immediately due and payable. Upon declaration of the Dissolution Event, the Trustee shall be entitled to institute such proceedings to dissolve the Musharakah Venture and the trusts conferring the undivided beneficial ownership of the Trust Assets. The Trustee shall enforce all payment obligations in relation to the Exercise Price pursuant to the Purchase Undertaking.

(t) Covenants These shall include, but not be limited to, the following: a) The Issuer will at all times maintain its corporate

legal existence and exercise reasonable diligence in carrying out its business in a proper and efficient manner and in particular, it will ensure, amongst others, that all necessary approvals or relevant licences are obtained;

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b) The Issuer will at all times perform all its

obligations and promptly comply with all provisions of the transaction documents and the Subordinated Sukuk Musharakah Programme;

c) The Issuer shall at all times on demand execute

all such further documents and do all such further acts reasonably necessary at any time or times to give further effect to the terms and conditions of the transaction documents;

d) The Issuer shall provide the following to the Trustee:

(i) within 180 days after the end of each

financial year, a copy of its annual audited accounts; within 90 days after the end of each half of its financial year, copies of its unaudited consolidated interim financial statements for that half year; and any other accounts, reports, notices, statements, circulars or other documents issued by the Issuer to its shareholders;

(ii) annually, a certificate stating that the Issuer has complied with its obligations under the Trust Deed and the terms and conditions of the Subordinated Sukuk Musharakah Programme and that there did not exist or had not existed, from the first issue date or date of previous certificate (as the case may be), any Dissolution Event or enforcement and if such is not the case, to specify the same; and

(iii) such information relating to the Issuer’s affairs to the extent permitted by law which the Trustee may reasonably require from time to time in order to discharge its duties and obligations.

e) The Issuer shall immediately notify the Trustee in

writing in the event that the Issuer becomes aware of any of the following: (i) the occurrence of any Dissolution Event

and the Issuer shall take reasonable steps and/or such other steps as may be reasonably requested by the Trustee to remedy and/or to mitigate the Dissolution Event;

(ii) any circumstance that has occurred or any other matter that may have a material adverse effect on the ability of the Issuer to perform its obligations under the Subordinated Sukuk Musharakah Programme and/or the transaction

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documents;

(iii) any substantial change in the nature of the business of the Issuer;

(iv) any litigation or other proceedings of any

nature whatsoever being threatened or initiated against the Issuer before any court or tribunal or administrative agency which may have a material adverse effect on the ability of the Issuer to comply with its obligations under the Subordinated Sukuk Musharakah Programme;

(v) any change in the utilisation of the

proceeds from the Subordinated Sukuk Musharakah Programme other than for the purpose stipulated;

(vi) of the happening of any event that has

caused or could cause one or more of the following: (a) any amount payable under the Subordinated Sukuk Musharakah to become immediately payable; (b) the Subordinated Sukuk Musharakah to become immediately enforceable; or (c) any other rights or remedies under the terms and conditions of the Subordinated Sukuk Musharakah or the Trust Deed to become immediately enforceable;

(vii) any change in the Issuer’s withholding tax

position or taxing jurisdiction of the Issuer (where applicable); and

(viii) any other matters that may materially

prejudice the interests of the Sukukholders;

f) keep proper books and accounts at all times on a

basis consistently applied in accordance with the laws of Malaysia and generally accepted accounting principles and standards in Malaysia and information contained therein gives a true and fair view of the Issuer’s operations for the period to which the books and accounts are kept and provide the Trustee and any person appointed by it (e.g. auditors) access to such books and accounts to the extent permitted by law;

g) The Issuer will maintain a paying agent or its equivalent who is based in Malaysia;

h) The Issuer will procure that the paying agent notify the Trustee, through a facility agent, if the paying agent does not receive payment from the Issuer on the due dates as required under the Trust Deed and the terms and conditions of the Subordinated Sukuk Musharakah Programme;

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i) The Issuer shall promptly comply with all

applicable provisions of the CMSA and IBA and/or any notes, circulars, conditions and/or guidelines issued by the SC and BNM from time to time; and

j) Such other covenants as may be advised by the solicitors for the Lead Arranger including but not limited to the requirements under the Trust Deed Guidelines.

(u) Provisions on buy -back

and early redemption of sukuk (“Early Redemption”)

“Early Redemption” refers to Optional Redemption, Regulatory Redemption and/or Tax Redemption, all as further described below. Optional Redemption (“Call Option”): For each tranche of the Subordinated Sukuk Musharakah, the Issuer may, at its sole discretion, and subject to the Redemption Conditions (as defined herein) being satisfied, redeem the Subordinated Sukuk Musharakah in whole on the relevant Call Date at the Exercise Price (as defined herein). The optional redemption of one tranche of the Subordinated Sukuk Musharakah does not trigger the redemption of other tranche(s) of the Subordinated Sukuk Musharakah under the Subordinated Sukuk Musharakah Programme. Regulatory Redemption: If the Subordinated Sukuk Musharakah (in whole or in part) no longer qualify as Tier 2 capital of the Issuer for the purposes of BNM’s capital adequacy requirements under any regulations applicable to the Issuer or if, at any time, there is more than an insubstantial risk that the Subordinated Sukuk Musharakah (in whole or in part) will either immediately or with the passage of time or upon either the giving of notice or the fulfilment of a condition, no longer qualify as such, the Issuer may, at its option, redeem the Subordinated Sukuk Musharakah (in whole, but not in part) at the Exercise Price, subject to the Redemption Conditions being satisfied. Tax Redemption: If there is more than an insubstantial risk that the Issuer will be required to pay any additional amounts or will no longer be able to deduct profit in respect of the relevant Subordinated Sukuk Musharakah for taxation purposes as a result of a change in any applicable law or regulation which comes into effect on or after the issue dates of the relevant Subordinated Sukuk Musharakah and the Issuer cannot, by taking reasonable measures available to it, avoid the payment of any additional amounts or deduct profit in respect of the relevant Subordinated Sukuk Musharakah, the Issuer may, at its option, redeem the relevant Subordinated Sukuk Musharakah (in whole, but not in part) at the Exercise Price, subject to the Redemption Conditions being satisfied.

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Final Redemption: Unless previously redeemed pursuant to Optional Redemption or Regulatory Redemption or Tax Redemption, or purchased from the market and cancelled, the Subordinated Sukuk Musharakah shall be fully redeemed on the respective Maturity Date(s) at the Exercise Price. Redemption Conditions mean: (i) the Issuer is solvent at the time of any redemption

of the Subordinated Sukuk Musharakah and immediately thereafter;

(ii) the Issuer is not in breach of BNM’s minimum capital adequacy ratio requirements applicable to the Issuer;

(iii) the Issuer has obtained the written approval of BNM prior to the redemption of the Subordinated Sukuk Musharakah.

(v) Other principal terms and

conditions for the issue

(i) Form and denomination Form The Subordinated Sukuk Musharakah shall be represented by Global Certificates in bearer form (exchangeable for definitive certificates in limited circumstances) in accordance with the “Operational Procedures for the Real Time Electronic Transfer of Funds and Securities (“RENTAS”)” issued by Malaysian Electronic Clearing Corporation Sdn Bhd (“MyClear ”) effective 16 February 2011, and the “Operational Procedures for Securities Services” and the “Participation and Operation Rules for Payments and Securities Services” both issued by MyClear and effective 17 February 2011, as amended and substituted from time to time (collectively the “MyClear Rules and Procedures ”) and/or any other procedures/guidelines issued by the relevant authority(ies). No physical delivery of the Subordinated Sukuk Musharakah is permitted. The Global Certificates will be deposited with BNM acting as the Central Depository. Denomination RM1,000 (unless required to be in such other denominations in accordance with MyClear Rules and Procedures and/or any other relevant guidelines).

(ii) Profit Reserve Account The Manager shall open a profit reserve account, into

which shall be credited any excess income from the Trust Assets and, if applicable, re-credited any Advance Incentive Fee, which will be used to fund payments of the Periodic Payment(s) from time to time to the extent that there is insufficient income from the Trust Assets to make such Periodic Payment(s).

(iii) Purchase Undertaking In respect of each tranche of the Subordinated Sukuk

Musharakah, the Obligor shall grant an undertaking to the

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Trustee (acting on behalf of the Sukukholders) whereby the Obligor shall undertake to purchase the Trust Assets from the Trustee at the “Exercise Price ” upon the occurrence of the earlier of any of the following events: 1. the respective Maturity Dates of the Subordinated

Sukuk Musharakah; or 2. the declaration of a Dissolution Event; or

3. the Early Redemption date

The Exercise Price shall be determined based on the following formula: On the respective Maturity Dates of the Subordinated Sukuk Musharakah: Exercise Price = Musharakah Capital plus Expected Return less total Periodic Distribution(s) paid up to the Maturity Dates. On declaration of a Dissolution Event: Exercise Price = Musharakah Capital plus Expected Return up to such date the Dissolution Event was declared less aggregate of Periodic Distribution(s) paid and to be adjusted to be equivalent to the accreted value (if applicable) plus accrued but unpaid Periodic Payments (if any) up to such Dissolution Date and such calculation of the Exercise Price shall be in accordance with MyClear Rules and Procedures. On Early Redemption: Exercise Price = Musharakah Capital plus Expected Return on Early Redemption date less aggregate of Periodic Distribution(s) paid and to be adjusted to be equivalent to the accreted value (if applicable) plus accrued but unpaid Periodic Payments (if any) up to the Early Redemption date and such calculation of the Exercise Price shall be in accordance with MyClear Rules and Procedures. On any payment of the Exercise Price, the Obligor will be entitled to deduct the aggregate of the Advance Profit Payments in relation to the portion of the Subordinated Sukuk Musharakah outstanding from the Exercise Price.

(iv) Compensation for Late and Default Payments (“Ta’widh”) (applicable to the Purchase Undertaking only)

In the event of any overdue payments of any amounts due under the Purchase Undertaking, the Obligor shall pay to the Trustee for the benefit of the Sukukholders compensation (Ta’widh) on such overdue amounts at the rate and manner prescribed by the Shariah Advisory Council of the SC from time to time in accordance with the Shariah principles.

(v) Status The Subordinated Sukuk Musharakah will constitute unsecured obligations of the Issuer, subordinated in right and priority of payment, to the extent and in the manner provided in the Subordinated Sukuk Musharakah, to all deposit liabilities and other liabilities

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of the Issuer except all other present and future unsecured and subordinated obligations of the Issuer which by their terms rank pari passu in right of and priority with or subordinated to the Subordinated Sukuk Musharakah. The Subordinated Sukuk Musharakah will, in the event of a distribution of assets in the winding-up or liquidation of the Issuer, rank senior to the share capital of the Issuer and be subordinated in right of payments to the claims of Senior Creditors (as defined below). The Subordinated Sukuk Musharakah will rank pari passu with all subordinated debt issued. “Senior Creditors” means depositors and all other creditors of the Issuer other than those creditors whose claims are expressed to rank pari passu with or junior to the claims of the Sukukholders. Senior Creditors shall include the holders of the senior Sukuk issued under the Issuer’s RM3.0 billion Senior Sukuk Musharakah Programme.

(vi) Open Market Acquisition and Cancellation

The Issuer or any of its related corporations (within the meaning of the Companies Act 1965) may, subject to the prior approval of BNM (save and except for a purchase done in the ordinary course of business), at any time acquire the Subordinated Sukuk Musharakah at any price in the open market or by way of a private treaty, provided: (a) Any of the Subordinated Sukuk Musharakah so

acquired (other than in the ordinary course of business) by the Issuer or any of the Issuer’s related corporations shall, subject to the prior approval of BNM, be cancelled and cannot be reissued; and

(b) Any of the Subordinated Sukuk Musharakah acquired by the Issuer or any of the Issuer’s related corporations that need not be cancelled i.e. acquisitions for and on behalf of their third party customers (“Customers”), where such customers are eligible for voting at any Sukukholders’ meeting, the Issuer or any of the Issuer’s related corporations may vote for their Customers according to non-discretionary mandates given by such Customers .

For the purpose of this clause, the term “ordinary course of business” includes those activities performed by the Issuer or any related corporations of the Issuer for the Customers and excludes those activities performed for the funds of the Issuer or any such of its related corporations.

(vii) Changes of Circumstances

If, as a result of any change in applicable law, regulation or regulatory requirement or in the interpretation or application thereof or if compliance by the Lead Arranger / Facility Agent / Primary Subscriber(s) / investor(s) (collectively the “Transaction Parties ”) with the applicable direction, request or requirement (whether or not having the force of law) will impose on the Transaction Parties

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any condition, burden or obligation, then, upon written notice to the Issuer after becoming aware of such occurrence or within such reasonable period as may be permitted by law or the authorities: (a) where the change, interpretation or application

makes it unlawful for the Transaction Parties to make available the Subordinated Sukuk Musharakah, without breaching such law or regulation, the Transaction Parties shall terminate their obligations in respect of the Subordinated Sukuk Musharakah Programme; and

(b) where the change, interpretation or application causes the Transaction Parties to incur additional costs or be required to make further payments, then the Issuer shall compensate the Transaction Parties for the additional cost incurred or payments made.

(viii) Adverse Market At any time prior to the first issuance under the

Subordinated Sukuk Musharakah Programme, the Transaction Parties reserve the right to withdraw / terminate the arrangement of the Subordinated Sukuk Musharakah Programme if there occurs any change in the national or international financial, political or economic conditions, including but not limited to adversities in international/domestic money, capital or syndicated financing markets, the business activities or financial position of the Issuer which in the opinion (which opinion shall be final and binding upon the Issuer) of the Transaction Parties, will materially affect the offering and distribution of the Subordinated Sukuk Musharakah under the Subordinated Sukuk Musharakah Programme in the secondary market upon successful completion of the arrangement of the same.

(ix) Trust Deed The Subordinated Sukuk Musharakah Programme shall be constituted by a trust deed, which shall be administered by the Trustee, who shall act on behalf of the Sukukholders.

(x) Taxation All payments by the Issuer in respect of the Subordinated Sukuk Musharakah Programme shall be made without withholding or deductions for or on account of any present or future tax, duty or charge of whatsoever nature imposed or levied by or on behalf of Malaysia or Malaysian law, unless such withholding or deduction is required by law, in which event, the Issuer shall not gross up for any such withholding or deduction.

(xi) Further Issues The Issuer may, from time to time, raise additional subordinated Sukuk provided that such subordinated Sukuk ranks pari passu in right and priority of payment with or are subordinated to the Subordinated Sukuk Musharakah in case of liquidation or winding-up of the Issuer.

(xii) Currency Ringgit Malaysia (“RM”).

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(xiii) Documentation Standard documentation satisfactory to all parties

concerned incorporating clauses normal and customary for a financing of this nature and/or as advised by the Lead Arranger’s solicitors and/or the Shariah Adviser.

(xiv) Governing Law The laws of Malaysia.

(xv) Jurisdiction The Issuer shall unconditionally and irrevocably submit to the exclusive jurisdiction of the courts of Malaysia.


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3. INVESTMENT CONSIDERATIONS

The business of AmIslamic is subject to a number of risk factors, many of which are outside its control. Prior to making an investment decision, prospective investors should carefully consider, along with the other information in this IM, the following risks. The risks and risk factors set forth below are not an exhaustive list of the challenges currently facing AmIslamic or that may develop in the future. Additional risks, whether known or unknown, may in the future have a material adverse effect on AmIslamic and/or the Subordinated Sukuk Musharakah.

3.1 Considerations Relating to the Malaysian Banking Industry

3.1.1 AmIslamic may be subject to changes to the Malaysian regulatory environment for the financial industry

To the extent that AmIslamic is a financial institution licensed under IBA, the Bank is regulated by BNM. The Bank is also subject to relevant securities and other laws in Malaysia. BNM is given extensive powers to regulate the Malaysian banking industry under the Malaysian law. This includes the authority to establish limits on lending to certain sectors of the Malaysian economy, establish priority lending guidelines in furtherance of certain social and economic objectives, and establish measures requiring maintenance of reserves and minimum capital adequacy requirement. BNM also has broad investigative and enforcement powers. Accordingly, potential investors should be aware that BNM could, in the future, significantly restrict business activities or restrict credit in a way which may be adverse to the operations, financial condition or asset quality of banks and financial institutions in Malaysia, including AmIslamic.

3.1.2 Deposits in Malaysia

Generally, BNM is not required to act as lender of last resort to meet liquidity needs in the banking system or for specific institutions. In the past, BNM has on a case-by-case basis provided a safety net for individual banks with an isolated liquidity crisis. However, there can be no assurance that BNM will provide such assistance in the future.

Effective from 1 September 2005, BNM introduced a deposit insurance system (“Deposit Insurance System ”). The Deposit Insurance System is administrated by PIDM, an independent statutory body. All licensed banks or licenced finance companies under BAFIA or Islamic Banks under the IBA (including foreign banks operating in Malaysia through their subsidiaries as licensed banks or Islamic banks) are member institutions of the Deposit Insurance System.

Under the Deposit Insurance System, eligible deposits are insured up to a prescribed

limit of RM250,000 (inclusive of principal and interest) per depositor, per member institution. There is also separate coverage of up to RM250,000 per depositor, per member institution for Islamic deposits (i.e. those accepted under Shariah principles), accounts held under joint ownership, trust accounts and accounts in the name of sole proprietorships and partnerships.

However, the fact that deposits exceeding the prescribed limit are not insured up to their full amount could lead to or exacerbate liquidity problems, which, if severe, could have an adverse effect on AmIslamic’s business, financial condition, results of operations or prospects, or on the Malaysian financial markets generally.

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3.2 Considerations Relating to AmIslamic

3.2.1 Political and Economic Factors Political and economic conditions and developments in Malaysia as well as abroad could have a profound effect on the financial performance of AmIslamic. Adverse political and economic conditions or developments, such as an unstable political system, nationalisation and severe fluctuations in interest and currency exchange rates, create uncertainty and could discourage the free flow of investment capital and affect international trade, ultimately resulting in adverse developments in national economic activity. This in turn may have a material adverse impact on the financial performance of AmIslamic as a financial services provider. As a result of globalisation, economic or market problems in a single country or region are increasingly affecting other markets generally. A continuation of these situations could adversely affect global economic conditions and world markets and, in turn, could cause a chain reaction effect and thus adversely affect AmIslamic’s businesses.

3.2.2 Changes in market conditions may have an adverse effect on AmIslamic's

business, financial condition, and results of operations or prospects

The Malaysian economy is affected by changes in the global economic and market environment. Any widespread global financial instability may adversely affect the Malaysian economy, which could materially and adversely affect AmIslamic’s business, financial conditions and results of operations or prospects. There can be no assurance that changes in market conditions will not adversely affect AmIslamic’s business, financial condition, results of operations or prospects. In addition, to the extent that any of AmIslamic's customers have been adversely affected by the changes in market conditions and the global credit and financial markets generally, the ability of such customers to service their financing obligations to AmIslamic may also be affected. If financing to these customers were to become non-performing, this could adversely affect AmIslamic's business, financial condition, results of operations or prospects.

3.2.3 Competition

Whilst the number of domestic banking institutions has been reduced over time through consolidation, the Malaysian banking industry operates in a very competitive environment fostered by the implementation by BNM of policies which has resulted in the liberalisation of the banking industry to allow greater presence of foreign conventional and Islamic banks as well as providing greater opportunities for banks to widen their scope of business beyond traditional commercial banking. On 16 April 2010, BNM announced that a commercial banking licence had been issued to a locally-incorporated company to be established by Bank of Baroda (40%), Indian Overseas Bank (35%) and Andhra Bank (25%) as a reinstatement of a commercial banking licence to an Indian bank. On 17 June 2010, BNM announced that 5 commercial banking licences will be issued to the wholly-owned subsidiaries of foreign financial institutions. The liberalisation of the banking industry has brought greater competition among banking institutions as foreign licensed Islamic banks are now allowed to offer/perform products and services that are similar to those of AmIslamic. These measures will further intensify competition to AmIslamic. Although these policies are designed, in part, to encourage development of financial institutions in Malaysia and to strengthen domestic financial institutions in preparation for increased foreign competition, any increased competition could have an adverse effect on

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AmIslamic’s operations in the form of reduced margins, smaller market share and reduced income generally. Although AmIslamic would plan for expansion and growth in future business volume, AmIslamic’s future growth would inevitably be subject to competition from other service providers and also customer preference. As such, there can be no assurance that AmIslamic will be able to maintain or increase its present market share in the future.

3.2.4 A decline in AmIslamic’s asset quality could adversely affect its business,

financial condition, results of operations or prospects if its financing provisions are insufficient to cover its liabilities

AmIslamic’s business, financial condition, results of operations or prospects could be adversely affected if AmIslamic’s financing provisions are insufficient, the value of AmIslamic’s collateral securing financing for its customers’ declines or a material amount of AmIslamic’s financing becomes uncollectible. A portion of AmIslamic’s collateral is in the form of vehicles, which do not maintain their value due to depreciation. In addition, AmIslamic’s financing is also secured by collateral such as real estate and securities. Any significant decline in AmIslamic’s asset quality could adversely affect its business, financial condition, results of operations or prospects. Further, any decline in the value of the collateral securing AmIslamic’s financing to its customers, coupled with any inability to obtain additional collateral or inability to realise the value of collateral may require AmIslamic to increase its financing loss provisions, which may adversely affect AmIslamic’s business, financial condition, and results of operations or prospects.

Although AmIslamic believes that it has adopted a sound asset quality management and intends to maintain it, there is no assurance that the system will remain effective or adequate in the future.

3.2.5 AmIslamic may experience liquidity constraints as it is dependent on short-term funding

The funding requirements of Malaysian banks, particularly Islamic banks, are primarily met through short-term funding, namely term deposits from customers and from other financial institutions. AmIslamic’s experience is that a substantial portion of its customers’ term deposits are rolled over upon maturity. However, no assurance can be given that this will continue in the future. If a substantial number of depositors, or a small number of large depositors, fail to roll over deposited funds upon maturity, AmIslamic’s liquidity position could be adversely affected and AmIslamic may be required to seek alternative sources of short-term or long-term funding, which may be more expensive than deposits, to finance its operations. Furthermore, there can be no guarantee that AmIslamic will be able to obtain such funds.

3.2.6 AmIslamic’s risk management system may be inadequate or ineffective in managing risks

As an Islamic banking institution covering activities including retail, commercial and corporate banking, and Markets products and services that are Shariah-compliant in nature, AmIslamic is subject to business risks which are inherent in the Islamic financial services industry. Generally, these business risks can be broadly divided into:

(a) Market risk, which is the risk of loss associated with changes in the value of

portfolios and financial instruments caused by movements in market variables, such as profit rates, foreign exchange rates and equity prices;

(b) Funding risk, which is the risk that AmIslamic is not able to fund its day-to-

day operations at a reasonable cost;

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(c) Credit risk, which is the risk of loss due to the inability or unwillingness of a

counterparty to meet its payment obligations; (d) Operational risk, which is the risk of potential loss from a breakdown in

internal processes and systems, deficiencies in people and management or operational failure arising from external events; and

(e) Legal and regulatory risk, which is the risk of breaches of applicable laws

and regulatory requirements, breaches of obligations of fidelity, unenforceability of counterparty obligations, and inappropriate documentation of contractual obligations.

Each of the business risks above has an implication on AmIslamic’s financial condition and every transaction that AmIslamic undertakes is subject to, inter-alia, the abovementioned risks. AmIslamic’s financial position may be adversely affected resulting from any of the risks operating on its own. For example, AmIslamic’s investment position in certain assets may require a huge mark-down as a result of the slump in the market price of those assets, or AmIslamic may find that it will not be able to enforce a counterparty obligation due to imperfect documentation. Far more critical to AmIslamic’s financial condition is a risk that has a ‘chain reaction’ effect whereby the operation of one risk leads to the operation of one or more other risks. For example, a market downturn may result in AmIslamic’s customers incurring losses thus weakening their financial condition and triggering an increase in credit risks. Such increased credit risks may require AmIslamic to set aside additional loss provisions which could potentially affect AmIslamic’s credit rating adversely thereby increasing liquidity risk. In an extreme case, the additional loss provisions (if large) may lead to AmIslamic breaching regulatory capital requirements. To counter the business risks it faces, AmIslamic has put in place a risk management framework to manage uncertainties such that deviations from AmIslamic’s intended objectives are kept within acceptable levels. The risk management framework thus serves to identify, capture and analyse the risks assumed by AmIslamic at an early stage, continuously measuring and monitoring the risks and to set limits, policies and procedures to control them to ensure sustainable risk-taking and sufficient return. However, the risk management framework, as a whole may not always be fully effective as there may be risks that have not been anticipated or identified and certain risks may be significantly greater than indicated by historical data. Further, the data relied upon to formulate the risk management framework may not be accurate, complete, up-to-date or properly evaluated. The process to manage operational, legal and regulatory risks would require proper recording and verification of a large number of transactions and events. Such process may not be fully effective in all cases. Accordingly, any failure in the effectiveness of AmIslamic’s risk management procedures could have a material adverse effect on AmIslamic’s business, financial condition, results of operations or prospects. A description of AmIslamic’s risk management structure is set out in Section 6.0 of this IM.

3.2.7 Major shareholders may influence policies of AmIslamic

As of 30 June 2011, Amcorp and ANZ (via ANZ Funds) held 16.72% and 23.78%, respectively, of the issued share capital of AMMB, which, in turn, holds 100% of the issued share capital of AmIslamic. As of 30 June 2011, TSAH, the Chairman/Non-Independent Non-Executive Director of AmIslamic held indirectly, a 100% controlling interest in Amcorp. Based on these shareholding interests in Amcorp and AmIslamic, each of these major shareholders may, to a certain extent, be able to exercise control over matters which require shareholders’ approval. There can be no

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assurance that the corporate objectives and strategies of AmIslamic would not be substantially influenced by the policies of the shareholders. In the case of ANZ as a major shareholder, AmIslamic and such shareholder enjoy a strategic relationship which has been and is expected to continue to be of significant benefit to AmIslamic. If for any reason the nature or extent of ANZ’s investment in AmIslamic were to change over time, there can be no assurance that AmIslamic would continue to benefit from this or any similar strategic relationship to the same extent.

3.2.8 Employee misconduct could adversely tarnish AmIslamic’s image and affect its business, financial condition, results of operations or prospects

As with any business enterprise, AmIslamic is susceptible to the risks associated with acts of misconduct by its employees including directors. Acts of misconduct by employees may take various forms and could include misappropriation of AmIslamic’s assets or the assets of its clients, concealment and/or wilful misstatement of its liabilities, unauthorised transactions and/or commitment of its resources, and breach of client confidentiality. Acts of misconduct by employees would not only result in financial loss to AmIslamic but may also tarnish its image, which would bring about a loss of its stature in the market. Furthermore, acts of misconduct may also cover breaches of laws, regulations and guidelines, which, in extreme cases, could result in suspension and/or revocation of its banking and finance licences under IBA. Whilst the risks of misconduct by employees, including directors, cannot be entirely eliminated, AmIslamic has in place internal control systems to check such misconduct and to take appropriate actions.

3.2.9 IT risk could affect AmIslamic’s business, financial condition, results of operations or prospects AmIslamic is susceptible to IT risk as large portions of its operational systems are computerised. However, AmIslamic has taken reasonable steps to reduce these risks, including the following: (a) Adoption of an IT risk assessment and risk treatment model which is used to

monitor and manage the critical information system operational risk; (b) Adoption of an IT governance model which includes regular reviews by

senior management; (c) Formulation of an “Information and Communication Technology” plan which

is reviewed annually to ensure continuous upgrading of the critical IT application systems;

(d) Formulation and adoption of disaster recovery procedures and facilities for

critical application areas which are tested on a regular basis; and

(e) Conduct of regular audits to ensure that appropriate mechanisms are in place and are being adopted for IT security and control.

3.2.10 Classification and Provisioning Policies for NPF

AmIslamic adopts conservative accounting policies vis-à-vis BNM’s requirements with regard to classification of NPF, provision for bad and doubtful debts, general provision and write-off policies.

Further, the Malaysian Accounting Standards Board (MASB) had announced that Financial Reporting Standard (FRS) 139 - Financial Instruments: Recognition and Measurement will be applicable to all entities for annual periods beginning on or after

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1 January 2010. For AmIslamic, FRS 139 is applicable for the first time with effect from the financial year beginning 1 April 2010. FRS 139 requires, among others, the application of fair value accounting and impairment assessment for financial assets and financial liabilities. Therefore, the first time adoption of FRS 139 by AmIslamic has resulted in adjustments to opening retained earnings and the potential recognition of fair value adjustments to the income statements, the adjustments of which had no material impact on AmIslamic’s operations. Although AmIslamic believes that its financing portfolio is adequately provided, no assurance can be given that the level of provisions would prove to be adequate or that AmIslamic would not have to make significant additional provisions for possible financing losses in the future.

3.2.11 Risk of possible future mergers and acquisitions within the banking industry

Given the consolidation of financial institutions in the domestic banking industry, there can be no assurance that the AMMB Group will not be affected by or involved in any mergers or acquisitions in the future and that any such mergers or acquisitions will be guaranteed a successful implementation or will not have any adverse effect on the AMMB Group’s business, financial condition, results of operations or prospects. In particular, if the AMMB Group makes a decision relating to any acquisition or merger in uncertain or highly competitive economic or market conditions, respectively, or for a substantial consideration, such an acquisition or a merger may result in an increase to its risk factor or a depletion of the resources of the AMMB Group, which could have an adverse effect on the business, financial condition and results of operations of AmIslamic.

3.2.12 Dependence on the AMMB Group for certain services

To operate its business, AmIslamic currently obtains certain services, including support services for its finance, audit and compliance functions, from other companies in the AMMB Group. In addition, AmIslamic also relies on AmBank’s distribution channels in the course of its business. The terms for the provision of such services, including the costs payable by AmIslamic, have been arrived at on an arm’s length basis. However, there is no assurance that such terms will not be less favourable or that the costs of such services will not increase in the future. In addition, if there are material interruptions in the supply of such services and AmIslamic is unable to obtain from alternative sources services of an acceptable quality in a timely and cost-effective manner, AmIslamic’s operations may be affected, which may result in a loss of customers and income. There can be no assurance as to the availability of such services in the future.

3.3 Considerations Relating to the Subordinated Sukuk Musharakah

3.3.1 Limited Dissolution Events and Right to Accelerate and Subordinate Obligations

There are only two (2) Dissolution Events prescribed under the terms of the

Subordinated Sukuk Musharakah:-

(i) where a default is made in the payment of the principal or profits or any other amount under the Subordinated Sukuk Musharakah and such inability continues for a period of 14 days; or

(ii) a court order is made or an effective resolution is passed for the winding up of AmIslamic.

Where a Dissolution Event referred to in (ii) above occurs, the Trustee may and shall, if directed to do so by the Subordinated Sukukholders, declare such Dissolution Event has occurred and pursuant to the Purchase Undertaking, accelerate payment

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of the outstanding principal together with accrued profit payment of the Subordinated Sukuk Musharakah. Upon the declaration of the Dissolution Event, the Trustee shall be entitled to institute such proceedings to dissolve the Musharakah Venture and the trusts conferring the undivided beneficial ownership of the Trust Assets, The Trustee shall enforce all payment obligations in relation to the Exercise Price pursuant to the Purchase Undertaking. In respect of each tranche of the Subordinated Sukuk Musharakah, upon exercise of the Purchase Undertaking and the payment of the Exercise Price, the relevant Musharakah Venture and declaration of trust will be dissolved and the Subordinated Sukuk Musharakah will be cancelled. The Subordinated Sukuk Musharakah (regardless of the tranche) shall at all times rank pari passu without discrimination, preference or priority amongst themselves and, subject to such exceptions as may from time to time exist under applicable laws and the transaction documents, rank as trust obligations of the Issuer in relation to, and represent beneficial ownership of the Subordinated Sukukholders in the Trust Assets. The obligations of the Issuer pursuant to the Purchase Undertaking in respect of the Subordinated Sukuk Musharakah shall constitute direct, unconditional and unsecured obligations of the Obligor, subordinated in right and priority of payment, to the extent and in the manner provided for in the Subordinated Sukuk Musharakah, to all deposit liabilities and other liabilities of the Issuer except liabilities of the Issuer which by their terms rank pari-passu in right and priority of payment with or which are subordinated to the Subordinated Sukuk Musharakah. The obligation of the Issuer pursuant to the Purchase Undertaking will, in the event of a winding-up or liquidation of the Issuer, be subordinated in rights of payments to the claims of Senior Creditors (as defined in Section 2 of this IM). The Subordinated Sukuk Musharakah will rank pari passu to all subordinated debt issued by the Issuer but senior to the share capital of the Issuer and such obligations of the Issuer that are expressed to rank pari passu with or junior to the claims of the Subordinated Sukukholders.

3.3.2 Subordinated Sukuk Musharakah may be subject to Early Redemption by the

Issuer The Subordinated Sukuk Musharakah may be redeemed at the option of the Issuer under Optional Redemption, Regulatory Redemption or Tax Redemption (as defined in Section 2 of this IM) at the Exercise Price, subject to the Redemption Conditions being satisfied.

3.3.3 Liquidity of the Subordinated Sukuk Musharakah

The Subordinated Sukuk Musharakah will constitute a new issue of securities with no established trading market. No assurance can be given as to whether an active or liquid trading market for the Subordinated Sukuk Musharakah will develop or if a trading market develops, that it will provide investors with liquidity of investments or that the liquidity will continue for the tenor of the Subordinated Sukuk Musharakah Programme. Furthermore, no assurance can be given as to the market prices for the Subordinated Sukuk Musharakah.

3.3.4 A downgrade in ratings may affect the liquidity and market price of the Subordinated Sukuk Musharakah RAM Ratings has assigned a final long term rating of A1 for the issuances of Subordinated Sukuk Musharakah under the Subordinated Sukuk Musharakah Programme. There can be no assurance that the rating will remain in effect for any given period or that the ratings will not be revised by RAM Rating in the future if, in their judgement, circumstances so warrant. Any downgrade or withdrawal of a rating

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may have an adverse effect on the liquidity and market price of the Subordinated Sukuk Musharakah but would not constitute an event of default or an event obliging the Issuer to prepay the Subordinated Sukuk Musharakah.

3.3.5 There are no terms in the Subordinated Sukuk Musharakah that limit the Issuer’s ability to incur additional indebtedness, including but not limited to any indebtedness that are secured or ranks senior to or equally with the Subordinated Sukuk Musharakah There are no restrictions on the amount or number of other securities or any other form of indebtedness that AmIslamic may issue which are secured or rank senior to or pari passu with the Subordinated Sukuk Musharakah. The creation and issue of further securities or any other form of indebtedness that are secured or which rank senior to or pari passu with the Subordinated Sukuk Musharakah does not require the consent of the Subordinated Sukukholders. The issue of such securities and/or incurrence of such indebtedness may reduce the amount recoverable by the Subordinated Sukukholders in the event of dissolution or winding-up of AmIslamic.

3.3.6 Issuer’s ability to meet its obligations under the Subordinated Sukuk Musharakah

The Subordinated Sukuk Musharakah constitute direct and unsecured obligations of the Issuer and are payable out of the business operations of the Issuer and thus will not be the obligations or responsibilities of any person other than the Issuer. The ability of the Issuer (in its capacity of the Obligor) to meet its obligations to pay the relevant Exercise Price of the Subordinated Sukuk Musharakah will largely be dependent on the revenue generated by its operations.

3.3.7 Shariah considerations

The Shariah Adviser has issued a Shariah Pronouncement in respect of the Subordinated Sukuk Musharakah and the related structure and mechanism of the Subordinated Sukuk Musharakah and its compliance with the Shariah principles. However, the Shariah Pronouncement is only an expression of the view of the Shariah Adviser and there can be no assurance that the transaction structure or issue and trading of the Subordinated Sukuk Musharakah will be deemed Shariah compliant by any other Shariah board or Shariah scholars. Investors are reminded that, as with any Shariah views, differences in opinion are possible. Investors are advised to obtain their own independent Shariah advice as to whether the Subordinated Sukuk Musharakah structure meets their individual standards of compliance with Shariah principles and make their own determination as to the compliance of the structure, the issue and trading of the Subordinated Sukuk Musharakah with Shariah principles.

3.4 Potential pressure on AmIslamic’s capital due to Basel III

Initiatives to strengthen banks’ capital and reduce systemic risks have arisen in light of the unprecedented stresses that the global financial markets have been subjected to in the last few years. AmIslamic is subject to the risk, inherent in all regulated financial businesses, of having insufficient capital resources to meet its minimum regulatory capital requirements. Currently, under Basel II, capital requirements are inherently more sensitive to market movements than under previous regimes and capital requirements will increase if economic conditions or negative trends in the financial markets worsen. Any failure of AmIslamic to maintain its minimum regulatory capital ratios could result in administrative actions or sanctions, which in turn may have a material adverse impact on AMMB Group’s results of operations. A shortage of available capital might restrict AMMB Group’s opportunities for expansion. In the future, under Basel III, capital and liquidity requirements are expected to increase. Since 17 December 2009, the Basel Committee on Banking Supervision (the “Basel

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Committee ”) has published and issued various consultation papers and press releases outlining measures aimed at strengthening the resilience of the banking sector. On 16 December 2010 and on 13 January 2011, the Basel Committee issued its final guidance on Basel III. The Basel Committee's package of reforms includes increasing the minimum common equity (or equivalent) requirement from 2 per cent. (before the application of regulatory adjustments) to 4.5 per cent. (after the application of stricter regulatory adjustments). In addition, banks will be required to maintain, in the form of common equity (or equivalent), a capital conservation buffer within the range of 0 per cent 2.5 per cent. of common equiy to withstand future periods of stress, bringing the total common equity (or equivalent) requirements to 7 per cent. If there is excess credit growth in any given country resulting in a system-wide build up of risk, a countercyclical buffer within a range of 0 per cent. to 2.5 per cent. of common equity at the discretion of BNM (or other fully loss absorbing capital) is to be applied as an extension of the conservation buffer. Furthermore, systemically important banks should have loss absorbing capacity beyond these standards. The Basel III reforms also require Tier 1 and Tier 2 capital instruments to be more loss-absorbing. The reforms therefore increase the minimum quantity and quality of capital which AmIslamic is obliged to maintain. There can be no assurance as to the availability or cost of such capital. The capital requirements are to be supplemented by a leverage ratio, and a liquidity coverage ratio and a net stable funding ratio will also be introduced. The proposed reforms are expected to be implemented by the beginning of 2013, however the requirements are subject to a series of transitional arrangements and will be phased in over a period of time, to be fully effective by 2019. The approach and local implementation of Basel III in Malaysia will depend on BNM’s response to the minimum capital standards set by the Basel Committee. There can be no assurance that, prior to its implementation in 2013, the Basel Committee will not amend the package of reforms described above. Further, BNM may implement the package of reforms in a manner that is different from that which is currently envisaged, or may impose additional capital requirements on banks in Malaysia. There is no assurance that AmIslamic will not face increased pressure on its capital in the future under the Basel III standards. If the regulatory capital requirements, liquidity restrictions or ratios applied to AmIslamic are increased in the future, any failure of AmIslamic to maintain such increased regulatory capital ratios could result in administrative actions or sanctions, which may have an adverse effect on AmIslamic’s results of operations.

3.5 Forward Looking Statements

Certain statements in this IM are forward-looking in nature. These statements include, among others, discussions of AmIslamic’s business strategies and expectations concerning its position in the Malaysian economy, future operations, profitability, liquidity, capital resources and financial position. All forward-looking statements are based on estimates and assumptions made by AmIslamic and third party consultants that, although believed to be reasonable, are subject to risks and uncertainties which may cause actual events and the future results of AmIslamic to be materially different from that expected or indicated by such statements and estimates and no assurance can be given that any such statements or estimates will be realised. In light of these and other uncertainties, the inclusion of forward-looking statements in this IM should not be regarded as a representation or warranty by AmIslamic or any other person that the plans and objectives of AmIslamic will be achieved.


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4. DESCRIPTION OF THE ISSUER

4.1 History and Background Information on AmIslamic

AmIslamic is a public limited company incorporated under the Act on 14 April 1994. AmIslamic is a wholly-owned subsidiary of AMMB. AmIslamic was incorporated as Arab-Malaysian Bank Berhad to acquire the commercial banking business of the Malaysian branch of the Bank of America (Asia) Limited, then operating under the name of Security Pacific Asian Bank Limited, Kuala Lumpur Branch (“SPABL ”). On 1 August 1994, Arab-Malaysian Bank Berhad completed the acquisition of the business of SPABL and commenced operations as a locally incorporated commercial bank before changing its name to AmBank Berhad on 14 June 2002. On 1 June 2005, the banking business of AmBank Berhad was vested in AmFinance Berhad (now known as AmBank (M) Berhad) pursuant to the vesting order of the High Court of Malaya dated 18 May 2005 issued under section 50 of the BAFIA. Thereafter, AmBank Berhad surrendered its commercial banking license to the Ministry of Finance and ceased to be a commercial banking institution. On 16 September 2005, AmBank Berhad was renamed AMBB Capital Berhad. On 21 February 2006, AMBB Capital Berhad was renamed AmIslamic Bank Berhad. On 1 May 2006, AmIslamic commenced operations as an Islamic banking institution under the IBA after AmBank transferred all of its Islamic banking and financial businesses to AmIslamic pursuant to the vesting order of the High Court of Malaya dated 18 April 2006 under section 50 of the BAFIA. AmIslamic provides a range of retail, commercial banking, corporate banking and Markets products and services which are Shariah-compliant in nature. On 28 February 2011, as part of AMMB Group's ongoing capital management strategy and an internal reorganisation exercise relating to the shareholding structure of AMMB’s banking subsidiaries, AMMB acquired the 100% equity interest held by AmBank in AmIslamic, resulting in AmIslamic becoming directly held by AMMB. As at 30 June 2011, the authorised share capital of AmIslamic is RM2,000,000,000 comprising 2,000,000,000 ordinary shares of RM1.00 each, of which 403,038,000 ordinary shares of RM1.00 each were issued and fully paid-up.


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4.2 Business Overview

As at 30 June 2011, AmIslamic has unaudited total assets of RM21.1 billion, financing and advances of RM14.0 billion, customer deposits of RM15.8 billion and shareholders’ funds of RM1.45 billion. In terms of total assets, AmIslamic is the fifth largest Islamic bank in Malaysia (based on the published financial results of the 17 domestic and foreign Islamic banks in Malaysia) as at 30 June 2011. Since its inception, AmIslamic has not only shown growth but has also capitalised on the demand for Islamic financial services. With its universal banking licence and 17 years of experience in offering Islamic banking products and services via the AmBank Group’s channels, AmIslamic continues to build its relationship with existing customers as well as cultivate new ones in providing a range of retail and commercial banking products and services which are Shariah-compliant. This is further complemented by the AmBank Group’s extensive network of branches, ATMs, and e-banking centres nationwide. In addition to its Islamic banking business activities, one of the key aspects of AmIslamic’s operations is in paying its zakat contributions as part of its corporate social responsibility as well as duty as an Islamic business entity. The following are some of the strategic initiatives that are being undertaken at AmIslamic:

Dedicated branches As a key component of its business moving forward, AmIslamic has set up 3 dedicated branches in addition to its shared branch network with AmBank. The first two branches which began operations in November 2007 are located in Bandar Baru Bangi and Putrajaya. The third branch was set up at the International Islamic University Malaysia in Gombak in June 2010. This was undertaken with the objective of enhancing its visibility and fulfilling the AMMB Group’s vision in making AmIslamic the premier Islamic bank of choice in Malaysia and the region. AmIslamic branding for the AMMB Group

In an effort taken by AmIslamic in conjunction with the International Currency Business Unit (“ICBU”) licence granted by BNM, the AMMB Group is now adopting the brand name of “AmIslamic” in order to create and build a brand that is relevant and preferred for Islamic banking & finance both locally and globally. Synonymous with being the AMMB Group’s Islamic entity, “AmIslamic” shall be known as the promoting brand for all the AMMB Group’s Islamic products and services including investment banking, funds management and ICBU products. AmIslamic being an Islamic brand name is expected by the AMMB Group to be a more preferred brand for, inter alia, Islamic business activities and investors. This is expected to also provide a greater brand exposure and growth potential for AmIslamic brand in the global Islamic banking and finance scene (under the Malaysian Government’s initiative to promote Malaysia as a major hub for international Islamic finance through the Malaysian International Islamic Financial Centre (MIFC). A dual signage comprising signages of AmIslamic and AmBank throughout their shared branch network has also been introduced with the objective of strengthening AmIslamic’s brand visibility.

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Tie ups and alliances

AmIslamic has invested in tying up its products through various alliances and collaborations with 3rd parties to expand its product reach and market penetration. The following are some of the initiatives:

� AmIslamic’s granting to Perbadanan Tabung Pendidikan Tinggi Nasional (“PTPTN”) in December 2009 and June 2010 respectively, of two (2) 10-year Bai’ Inah Term Financing amounting to RM3.0 billion guaranteed by the Government of Malaysia where AmIslamic is the financier and facility agent; and

� AmIslamic has begun collaborating with Yayasan Waqaf Malaysia and Universiti

Kebangsaan Malaysia to be the collection agent for their “Cash Waqaf Fund” via the Bank’s extensive channels.

Retail and Business Banking Activities To date the major focus on growing AmIslamic’s retail and commercial business are through some of the following new products and programmes;

� Musharakah Mutanaqisah (Diminishing Partnership) a house financing product with

flexible rate features as opposed to fixed rate financing; � AmEnergy Islamic Negotiation Instruments of Deposit (NID-i), a 2-year Islamic

Negotiable Instrument of Deposit (NID-i) that tracks the performance of three (3) energy themed commodities namely Crude Oil (WTI), Soybean (Biodiesel) and Sugar (Ethanol). The payoff at maturity is subject to the least performing underlying performance at maturity against a 75% strike level. This is a Shariah-compliant product based on Mudharabah Muqayyadah concept;

� AmIslamic signed a Memorandum of Participation for Bursa Commodity House (“BCH”). BCH is a MIFC initiative operated by Bursa Securities’ wholly-owned subsidiary, Bursa Malaysia Islamic Services Sdn Bhd. BCH is a Shariah-compliant web-based commodity trading platform aimed at facilitating commodity murabahah transactions for the development of the Islamic financial market infrastructure as well as to facilitate liquidity management for Islamic financial institutions;

� The AmAdvance Investment Account-i for retail customers. The product is based on

the Shariah concept of Wakalah Bil Istithmar (an agency for investment); � Cash Line Facility -i with Variable Rate features. The product provides financing

facility for the purpose of working capital, asset acquisitions and/or personal consumption. The product is based on the Shariah concept of Bai’Inah (Sell and Buy Back of Asset);

� Housing Development Account-I (“HDA-i ”). A Shariah-compliant Current Account-i

offered to licensed housing developers. HDA-i is offered based on the Shariah concept of Wadiah Yad Dhamanah;

� Three (3) products were launched under the Shariah concept of Murabahah

Tawarruq. This concept is an arrangement that involves the purchase of asset based on Murabahah (cost plus profit) and a subsequent sale of the same asset to a third party in order to gain cash money. The 3 products are Murabahah Tawarruq Term Financing-i, Murabahah Tawarruq Complementary Term Financing-i and Murabahah Tawarruq Revolving Credit-i; and

� AmIslamic Bank CARz Card-i, a card specially designed to cater for motorists,

package with numerous auto related benefits.

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Decrease cost of funds in tandem with enhancements to cost efficiency The AMMB Group has outlined as part of its strategic aspirations, a targeted reduction in its funding costs, while simultaneously reducing the interest/profit rate volatility risk in its funding costs. AmIslamic aims to move towards the target by improving its funding and liquidity profile, building its deposit distribution capabilities and creating deposit-focused product units. The AMMB Group also seeks to reduce its cost and increase its efficiency in various other aspects of its business and attain, in the medium term, a cost to income ratio of circa 40%. From an operational perspective, AmIslamic aims to centralise its key processes and backroom activities to increase its efficiency. AmIslamic also aims for further operational enhancement via simplification, automation and outsourcing. With respect to its employees, AmIslamic aims to streamline performance management activities to align targets across its business. Reduce NPF and strengthen receivables management, collections and risk management policies The AMMB Group aims to reduce its net NPFs ratio to below system levels in the medium term upon recovery from the current global, regional and domestic economic downturn. AmIslamic aims to strengthen its credit risk infrastructure and improve its risk assessment processes with the goal of further refining credit scoring across all retail products. AmIslamic has established a centralised retail collection centre to focus on maximising recovery efforts. Differentiate and enhance customer experience AmIslamic aims to elevate the customer experience through brand differentiation and migration of customer transactions to preferred and more cost effective delivery channels. AmIslamic consistently monitors its brand position in the market and is dedicated to the enhancement of its brand positioning and brand awareness amongst consumers, with a particular focus on customer profitability in all sales acquisition programmes and campaigns.

Leverage the synergies of AmIslamic’s Business Banking and Retail Banking divisions AmIslamic currently aims to utilise the synergies of its Business Banking and Retail Banking divisions to: � reduce the cost of funding by achieving CASA (“Current Accounts and Saving

Accounts ”) portfolio growth; � reduce operational cost by achieving cost efficiencies; and � introduce new products and services.

4.3 Australia and New Zealand Banking Group Limited (“ANZ”)

On 26 April 2007, AMMB obtained the approval of its shareholders at an EGM for its proposed strategic partnership with ANZ by way of ANZ's equity participation via ANZ Funds, in the AMMB Group. ANZ's equity participation entailed: (a) the issuance of 163,934,426 convertible preference shares by AMMB to ANZ Funds

at an issue price of RM3.05 per share which were convertible into 163,934,426 new shares in AMMB, all of which have since been converted into shares in AMMB by ANZ Funds in March 2008; and

(b) the issuance of RM575.0 million exchangeable bonds by AmBank to ANZ Funds

which were originally exchangeable into 188,524,590 new shares in AMMB at RM3.05 per share; subsequent to a rights issue exercise undertaken by AMMB to

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partially fund the privatisation of AIGB, the outstanding bonds were exchangeable for 194,915,254 shares in AMMB and the exchange price was reduced to RM2.95 per share in AMMB, all of which have since been exchanged into shares in AMMB by ANZ Funds in August 2009.

ANZ Funds also acquired 300,000,000 shares in AMMB in May 2007 pursuant to a purchase from Amcorp and 57,991,803 shares in AMMB in January 2008 pursuant to ANZ Funds’ entitlement under the said rights issue exercise undertaken by AMMB. On 3 August 2009, AMMB has allotted 194,915,254 new AMMB shares to ANZ Funds upon the latter’s notice to exchange its entire holding of the exchangeable bonds into new AMMB shares. As at 31 August 2011, the shareholding of ANZ Funds in AMMB is 23.78%.

ANZ has three representatives on the board of directors of AMMB along with representations on the various management and board committees of AmBank. ANZ’s equity investment provides ANZ with the opportunity to nominate senior management appointments to the AMMB Group. Current senior management nominees by ANZ include the Deputy Group Managing Director/ Chief Financial Officer, Chief Risk Officer and Chief Operations Officer. ANZ is an international banking and financial services group which is ranked amongst the top 25 banks in the world by market capitalisation. ANZ has over six million customers worldwide and a presence in over 30 countries, with its primary operations in Australia, New Zealand and Asia Pacific. ANZ is a leading retail, corporate and institutional bank in Australia and one of the largest banks in New Zealand. Its retail business in Australia provides a full range of products through over 820 branches. ANZ, which began its Australian operations in 1835 and its New Zealand operations in 1840, is one of the four major banking groups headquartered in Australia. As at 31 March 2011, ANZ had total assets of 537.5 billion Australian Dollars (AUD) and shareholders’ equity of AUD 35.1 billion. ANZ’s principal ordinary share listing and quotation is on the Australian Securities Exchange. Its ordinary shares are also quoted on the New Zealand Stock Exchange. As at the close of trading on 19 August 2011, ANZ had a market capitalisation of approximately AUD 50.2 billion. The Group provides a broad range of banking and financial products and services to retail, small business, corporate and institutional clients. It conducts its operations primarily in Australia, New Zealand and the Asia Pacific region. The Group also operates in a number of other countries, including the United Kingdom and the United States. The Group’s primary strategy is to become a super regional bank focusing on Australia, New Zealand and the Asia Pacific region. Consistent with this strategy, one aim includes revenues sourced from Asia Pacific, Europe & America driving 25 per cent to 30 per cent of Group profit by 2017. ANZ has established partnerships with the following financial institutions in Asia: Metrobank Card Corporation (Philippines), Panin Bank (Indonesia), Sacombank (Vietnam), Saigon Securities Inc (Vietnam), ANZ Royal (Cambodia), Vientiane Commercial Bank (Laos), Bank of Tianjin (China) and the Shanghai Rural Commercial Bank (China). In 2009, ANZ also acquired selected RBS businesses in Asia. The acquisition included the RBS retail, wealth and commercial businesses in Taiwan, Singapore, Indonesia and Hong Kong, and the institutional businesses in Taiwan, the Philippines and Vietnam. The AMMB Group's strategic partnership with ANZ has created further market growth opportunities, given ANZ's exposure to international products, banking systems as well as cross border capabilities in Asia. By leveraging on ANZ's capabilities in risk management, retail banking and business banking, product innovation, branding, IT infrastructure, training and development of personnel, AmIslamic aims to entrench its position as a premier Islamic financial institution providing innovative products and services to its customers.

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4.4 Corporate Information 4.4.1 Registered Office and Principal Place of Business

The registered office of AmIslamic is located at 22nd Floor, Bangunan AmBank Group, No. 55 Jalan Raja Chulan, 50200 Kuala Lumpur while its principal place of business is located at Level 45, Menara AmBank, No. 8, Jalan Yap Kwan Seng, 50450 Kuala Lumpur.

4.4.2 Share Capital and Changes in Share Capital

Share Capital The authorised and issued and fully paid-up share capital of AmIslamic as at 30 June 2011 are as follows:

Type No. of Shares Par value

(RM) Total (RM)

Authorised Ordinary shares 2,000,000,000 1.00 2,000,000,000 Issued and fully paid -up Ordinary shares 403,038,000 1.00 403,038,000

Changes in Share Capital The changes in the issued and paid-up share capital of AmIslamic since its incorporation are as follows:

Date of

Allotment No. of Shares

allotted Par

value Type of Issuance Cumulative

share capital (RM) (RM)

14.04.1994 2 1.00 Subscribers’ shares 2 01.08.1994 124,999,998 1.00 Cash 125,000,000 28.08.1995 78,125,000 1.00 Cash 203,125,000 30.08.1995 50,000,000 1.00 Note1 253,125,000 29.11.1996 94,921,875 1.00 Cash 348,046,875 29.10.1999 31,250,000 1.00 Note2 379,296,875 29.04.2000 56,250,000 1.00 Note3 435,546,875 30.09.2002 69,921,875 1.00 Note4 505,468,750 06.01.2004 203,125,000 1.00 Cash 708,593,750 29.07.2004 31,250,000 1.00 Cash 739,843,750 31.03.2005 21,875,000 1.00 Cash 761,718,750 28.12.2005 (608,680,750)5 1.00 Capital Reduction 153,038,000 01.05.2006 250,000,000 1.00 Note6 403,038,000

Notes: 1. Conversion of RM75,000,000 nominal amount of Irredeemable Convertible Unsecured Loan Stocks 1994/1999

(“ICULS 94/99”) on the basis of one (1) new ordinary share in exchange for RM1.50 nominal value of ICULS 94/99 tendered.

2. Conversion of RM50,000,000 nominal amount of Interest Bearing Irredeemable Convertible Unsecured Loan Stocks 1995/2005 (“ICULS 95/05”) on the basis of one (1) new ordinary share in exchange for RM1.60 nominal value of ICULS 95/05 tendered.

3. Conversion of RM30,000,000 nominal amount of ICULS 95/05 and RM60,000,000 nominal amount of Interest Bearing Irredeemable Convertible Unsecured Loan Stocks 1996/2001 (“ICULS 96/01”) on the basis of one (1) new ordinary share in exchange for RM1.60 nominal amount of ICULS 95/05 and 96/01 tendered.

4. Conversion of RM20,000,000 nominal amount of ICULS 95/05 and RM91,875,000 nominal amount of Interest Bearing Irredeemable Convertible Unsecured Loan Stocks 1996/2002 (“ICULS 96/02”) on the basis of one (1) new ordinary share in exchange for RM1.60 nominal amount of ICULS 95/05 and 96/02 tendered.

5. Pursuant to an order by the High Court of Malaya dated 19 December 2005 for capital reduction in accordance with Section 64(2) of the Act.

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6. Settlement for the acquisition of Islamic banking business of AmBank (M) Berhad pursuant to the Islamic Banking Business Transfer Agreement dated 5 April 2006.

4.4.3 Substantial Shareholders

As at 30 June 2011, the substantial shareholders of AmIslamic and their respective shareholding are as follows:

Substantial Shareholders

Nationality/ Country of

Incorporation

No. of Shares Direct

interest % Indirect

interest %

AMMB Malaysia 403,038,000 100 - - TSAH Malaysian - - 403,038,000* 100 Amcorp Malaysia - - 403,038,000* 100 Clear Goal Sdn Bhd Malaysia - - 403,038,000* 100 ANZ Funds Australia - - 403,038,000* 100 ANZ Australia - - 403,038,000* 100

* Deemed interested by virtue of his/its interests arising from his/its subtantial interests in AMMB.

4.5 Information on Directors and Senior Management

4.5.1 Board

The members of the Board as at 30 June 2011 are as follows: Name / Designation Date of appointment

Nationality

TSAH (Chairman, Non-Independent Non-Executive Director)

01.08.1994 Malaysian

Tun Moha mmed Hanif bin Omar (Non-Independent Non-Executive Director)


Tan Sri Datuk Clifford Francis Herbert (Independent Non-Executive Director)


Dato’ Gan Nyap Liou @ Gan Nyap Liow (Independent Non-Executive Director)


Dato’ Dr Mahani binti Zainal Abidin (Independent Non-Executive Director)


Cheah Tek Kuang (Non-Independent Non-Executive Director)


Ashok Ramamurthy (Non-Independent Non-Executive Director)

18.11.2008 Australian

- The rest of this page has been left blank intentionally –

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4.5.2 Directors’ Shareholdings

Name / Designation

No. of Shares held as at 30 June 2011

Direct % Indirect % TSAH (Chairman, Non-Independent Non-Executive Director)

-

-

403,038,0001

100

Tun Mohammed Hanif bin Omar (Non-Independent Non-Executive Director)

- - - -

Tan Sri Datuk Clifford Francis Herbert (Independent Non-Executive Director)

- - - -

Dato’ Gan Nyap Liou @ Gan Nyap Liow (Independent Non-Executive Director)

- - - -

Dato’ Dr Mahani binti Zainal Abidin (Independent Non-Executive Director)

Cheah Tek Kuang (Non-Independent Non-Executive Director)

- - - -

Ashok Ramamurthy (Non-Independent Non-Executive Director)

- - - -

Note: 1 Deemed interested by virtue of his interests arising from his substantial interests in AMMB


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4.5.3 Directors’ Profiles The directors of AmIslamic and their respective profiles are set out below:-

Y.Bhg. Tan Sri Azman Hashim

Y Bhg Tan Sri Azman Hashim (NRIC No. 390717-10-5069) , a Malaysian, was appointed on

1 August 1994 to the Board of AmIslamic, then known as Arab-Malaysian Bank Berhad. Tan Sri Azman has been the Chairman of AMMB, the holding company of AmIslamic since 1991. He is the Non-Independent Non-Executive Chairman of AMMB.

He is also the Chairman of the board of several subsidiaries of AMMB, namely AIGB, AMFB,

AmBank, AmInvestment Bank, AmG Insurance Berhad, AmLife Insurance Berhad and AmFamily Takaful Berhad.

Tan Sri Azman, a Chartered Accountant (FCPA), a Fellow of the Institute of Chartered

Accountants and a Fellow of the Institute of Chartered Secretaries and Administrators, has been in the banking industry since 1960 when he joined BNM and served there until 1964. He practised as a Chartered Accountant in Azman Wong Salleh and Co. from 1964 to 1971. He then joined the board of Malayan Banking Berhad from 1966 until 1980 and was its Executive Director from 1971 until 1980. He was the Executive Chairman of Kwong Yik Bank Berhad, a subsidiary of Malayan Banking Berhad, from 1980 until April 1982 when he acquired the then Arab-Malaysian Development Bank Berhad which is now known as AmInvestment Bank Berhad.

Tan Sri Azman is the Executive Chairman of Amcorp and RCE Capital Berhad, and

Chairman of Malaysian South-South Corporation Berhad, MCM Technologies Berhad and the Institute of Bankers Malaysia. He serves as a member on the board of Pembangunan MasMelayu Berhad and the Asian Institute of Finance Berhad. Tan Sri Azman is also involved in several charitable organisations as the Chairman and Trustee of AmGroup Foundation, ECM Libra Foundation and Perdana Leadership Foundation, and Trustee for Yayasan Azman Hashim, Yayasan Perpaduan Nasional, Malaysian Liver Foundation, Yayasan Tuanku Najihah and Yayasan Canselor Open University Malaysia.

Tan Sri Azman is the Chairman of Malaysian Investment Banking Association, Malaysia Productivity Corporation and East Asia Business Council. He is the Chairman Emeritus of Pacific Basin Economic Council (PBEC) International and Co-Chairman of Malaysia – Singapore Roundtable. He is the President of Malaysia South-South Association, Malaysia-Japan Economic Association, Malaysian Prison FRIENDS Club and Non-Aligned Movement’s (NAM) Business Council, and Treasurer of Malaysia-Australia Foundation. He is a member of the APEC Business Advisory Council, the Trilateral Commission (Asia-Pacific Group), the Malaysian-British and Malaysia-China Business Councils. He is also the Leader of the ASEAN-Japanese Business Meeting (Malaysia Committee, Keizai Doyukai) and is on the Board of Advisors of AIM Centre for Corporate Social Responsibility. He is the Pro-Chancellor of Open University of Malaysia, a member of the Governing Body of Asian Productivity Organisation and the International Advisory Panel of Bank Negara Malaysia International Centre for Education in Islamic Finance (INCEIF).

Y.A. Bhg. Tun Mohammed Hanif Bin Omar

Y A Bhg Tun Mohammed Hanif Bin Omar (NRIC No. 390116-08-5111) , a Malaysian, was appointed to the Board of AmIslamic on 15 May 2006.

Tun Mohammed Hanif also sits on the board of AMMB and other subsidiaries of AMMB, namely AMFB, AmBank and AmInvestment Bank.

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He is currently the Deputy Executive Chairman of Genting Berhad and Genting Malaysia Berhad. He has been the President of the Malaysian Institute of Management since 2001. He is also the President of the Malaysian Branch of the Royal Asiatic Society. He was the Inspector-General of the Royal Malaysia Police for 20 years until his retirement in January 1994.

Tun Mohammed Hanif received his Bachelor of Arts from the then University of Malaya, Singapore in 1959, Bachelor of Law (Honours) from Buckingham University, United Kingdom in 1986 and Certificate of Legal Practice (Honours) from the Legal Qualifying Board in 1987.

Y. Bhg. Tan Sri Datuk Clifford Francis Herbert

Y Bhg Tan Sri Datuk Clifford Francis Herbert (NRIC No. 411004-10-5405) , a Malaysian, was appointed on 16 April 2004 to the Board of AmIslamic, then known as AmBank Berhad.

Tan Sri Datuk Clifford at present sits on the boards of AMMB, AmInvestment Bank, AmBank, Genting Malaysia Berhad and Shell Refining Company (Federation of Malaya) Berhad.

Tan Sri Datuk Clifford joined the Malaysian Civil Service in 1964 as Assistant Secretary in the Public Services Department from 1964 to 1968. Subsequently, he served in the Ministry of Finance from 1975 to 1997, culminating as Secretary General to the Treasury. He retired from the civil service in 1997.

As Secretary General in the Ministry of Finance, he was also appointed as alternate Governor of the World Bank. From 1994 to 2000, Tan Sri Datuk Clifford was the Chairman of KL International Airport Berhad which built the Kuala Lumpur International Airport. He had been a board member of numerous statutory bodies and government related public companies among them being Kumpulan Khazanah Nasional Berhad, Malaysian Airline System Berhad, Petroliam Nasional Berhad, BNM, the SC and Chairman of Percetakan Nasional Malaysia Berhad. Additionally Tan Sri Datuk Clifford is also involved in several Non-governmental Organisations.

Tan Sri Datuk Clifford holds a Masters of Public Administration from University of Pittsburgh, U.S.A. and a Bachelor of Arts (Honours) in Economics from University of Malaya.

Y. Bhg. Dato’ Gan Nyap Liou @ Gan Nyap Liow (Larry)

Y Bhg Dato’ Gan Nyap Liou (NRIC No. 541219-04-5409) , a Malaysian, was appointed to the Board of AmIslamic on 15 November 2007. He is a Certified Management Consultant and a Chartered Accountant. Dato’ Gan was with Accenture, a global management and technology consulting firm for 26 years until his retirement in December 2004. He was a worldwide partner for 16 years and held many global leadership positions including Managing Partner ASIA and Managing Partner Corporate Development ASIA PACIFIC. He was Chairman of the CEO Advisory Council and member of the Global Management Council from 1997 to 2004. He served as Chairman of the Association of Computer Industry Malaysia (PIKOM), Vice President of the Association of Asian Oceania Computer Industry Organisation, and member of the Ministry of Science and Technology Think Tank, Copyright Tribunal, and the Labuan International Financial Exchange Committee.

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Dato’ Gan presently serves on the boards of several public companies. He is Chairman of Cuscapi Berhad and Catcha Media Berhad, and a director of AmBank, Tanjong Public Limited Company, Amcorp Properties Berhad and Hong Leong Assurance Berhad. He also serves as a director of Badan Pengawas Pemegang Saham Minoriti Berhad (Minority Shareholder Watchdog Group), Deputy Chairman of the British Chamber of Commerce and Trustee & Deputy Chairman of Yayasan Tuanku Nur Zahirah.

Y. Bhg. Dato’ Dr Mahani binti Zainal Abidin

Y Bhg Dato’ Dr Mahani binti Zainal Abidin (NRIC No. 540411-01-5942), a Malaysian, was appointed to the Board of AmIslamic on 21 May 2009. She is also a board member of AmInvestment Services Berhad, a subsidiary of AMMB.

Dato’ Dr. Mahani is currently the Chief Executive, Institute of Strategic and International Studies (ISIS), Malaysia and has been holding the position since May 2007.

Dato’ Dr. Mahani obtained a Ph.D (development economics) from the University of London in 1992 and was Professor in the Department of Applied Economics at the Faculty of Economics and Administration, University of Malaya until 2007. Her research interests are industrialisation and economic transformation, international trade and regional integration. In 1998, Dato’ Dr. Mahani was appointed a member of the Working Group for the National Economic Action Council, a body established by the Malaysian Government to formulate measures to initiate recovery from the economic and financial crisis. In 2001, she was appointed as the Head, Special Consultancy Team on Globalisation of the National Economic Action Council, and from 2005 to 2007 she worked as the Deputy Director-General, Department of Higher Education, Ministry of Higher Education Malaysia.

Dato’ Dr Mahani was a board member of the Employees Provident Fund from 1998 to 2000, Deputy Chairman of the National Accreditation Board from 2003 to 2000, and was a Council Member of National Economic Advisory Council (NEAC) from 2009 to 2011. She is currently a Trustee of Yayasan 1Malaysia, the Deputy President of the Malaysian Economic Association and Member of International Steering Committee for the Pacific Trade & Development (PAFTAD).

Mr. Cheah Tek Kuang

Mr Cheah Tek Kuang (NRIC No. 470528-07-5067) , a Malaysian, was appointed on 1 August 1994 to the Board of AmIslamic, then known as Arab-Malaysian Bank Berhad. He is currently the Group Managing Director of AMMB and Chief Executive Officer of AmBank.

Mr Cheah joined AmInvestment Bank in 1978 and held various senior positions. In 1994, he was promoted to Managing Director, and he became the Group Managing Director of AmInvestment Bank from January 2002 to December 2004 before assuming the office of Group Managing Director in AMMB. He remains as a Non-Independent Non-Executive Director of AmInvestment Bank.

He is also a board member of several subsidiaries of AMMB, namely AmBank, AmLife Insurance Berhad, AmG Insurance Berhad, AmFamily Takaful Berhad and AIGB. His directorships in other public companies include Bursa Malaysia Berhad and Cagamas Holdings Berhad. He is a member of the Investment Panel of Retirement Fund Incorporated (Kumpulan Wang Persaraan {Diperbadankan}). He also currently serves as a Council Member of the Association of Banks in Malaysia and is the Alternate Chairman of Malaysian Investment Banking Association.

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Mr. Cheah has a Bachelor of Economics (Honours) degree from the University of Malaya and is a Fellow of the Institute of Bankers Malaysia.

Mr. Ashok Ramamurthy

Mr Ashok Ramamurthy (Australian Passport No. E4011749) , an Australian, was appointed to the Board of AmIslamic on 18 November 2008. Mr. Ashok is currently the Deputy Group Managing Director/Chief Financial Officer of AMMB. Mr. Ashok is also a director in AMMB’s subsidiaries, namely AIGB, AmInvestment Bank and AmBank.

As the Chief Financial Officer of AMMB, Mr. Ashok is accountable for the delivery of financial performance to meet the targets set by the Group Managing Director and AMMB’s board of directors and to meet all financial regulatory reporting requirements. The role, as a key member of the leadership committees, requires him to proactively manage resources and trends to deliver superior financial performance in a challenging and competitive environment.

Mr. Ashok is the Senior ANZ’s representative in AMMB Group and accountable for building enduring relationships between ANZ and AMMB Group. This is a key role representing ANZ interests as a director in the board and various sub-committees of the board of the major subsidiaries of AMMB Group.

Mr. Ashok has worked with ANZ for circa 22 years, across multiple geographies including New Zealand, Australia, India and now Malaysia. His functional expertise is built around finance at the core, and blended with risk management, operations and shared services, and strategy and change management. He has direct experience as the Chief Financial Officer and/or Chief Operating Officer in a number of ANZ businesses including Commercial Banking, Markets and Treasury, Funds Management and Insurance, Wealth Management, Banking Products and Transaction Services, and Personal/Retail Banking. Mr. Ashok has been successful in developing and executing transformational agendas in his career.

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4.5.4 Profile of Key Management

Y. Bhg. Datuk Mahdi bin Morad

Datuk Mahdi bin Morad , a Malaysian, is currently the Chief Executive Officer of AmIslamic. The previous position held by Datuk Mahdi was Executive Director, Retail Banking of AmBank. He joined Arab-Malaysian Finance Berhad (now known as AMFB Holdings Berhad) in 1989. Prior to this, he held various positions in Asia Commercial Finance Berhad and Sime Darby Plantations Berhad. Datuk Mahdi has a Bachelor of Science degree in Agricultural Business from Iowa State University, U.S.A and a Masters degree in Business Administration from University of Missouri, U.S.A. Datuk Mahdi serves as a director on the boards of various subsidiaries of AmBank, namely AmPremier Capital Berhad, AMBB Capital (L) Ltd, AmCapital (L) Inc., MBf Information Services Sdn Bhd, MBF Trustees Berhad, Bougainvillaea Development Sdn Bhd, AmProperty Holdings Sdn Bhd and AmCredit & Leasing Sdn Bhd. He is also the Chairman of Arab-Malaysian Credit Berhad. Datuk Mahdi also sits on the board of IBFIM, an industry-owned institute dedicated to producing executives with required talent in Islamic finance industry and is the Council Member/Exco Member of the Association of Islamic Banking Institutions Malaysia (AIBIM).

4.6 AmIslamic’s Businesses

Following the completion of the transfer of all AmBank’s Islamic banking and financial businesses to AmIslamic pursuant to the vesting order of the High Court of Malaya dated 18 April 2006 issued under section 50 of the BAFIA “Business Transfer ”, AmIslamic’s operations have been divided into five business divisions, namely the Retail Banking Division, the Business Banking Division, the Corporate and Institutional Banking Division, the Transactional Banking Division and the Markets Division. As at 30 June 2011, the Retail Banking Division contributed approximately 67% of AmIslamic’s total financing assets. 4.6.1 Retail Banking

AmIslamic’s Retail Banking services and products are offered across the following business units: � vehicle financing; � personal financing/cashline;

� property financing

� credit cards; and

� deposits;

As at 30 June 2011, the Retail Banking business served approximately 1.5 million customer accounts through its distribution network of branches, ATMs, EBCs, 24-hour customer contact centre, mobile banking and internet banking services. AmIslamic has adopted a customer service campaign known as Customer F.I.R.S.T. (which stands for Friendly, Innovative, Responsive, Simple and Trustworthy). Under

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this campaign, AmIslamic benchmarks itself against banking practices and reviews and rewards branches that excel in customer service. In addition, AmIslamic and AmBank joint branches operate as full service retail banking shopfronts offering customers traditional retail banking products and services as well as bancatakaful and investment services. This service model is intended to ensure that branch personnel are simultaneously focused on providing efficient and effective service to customers whilst driving business growth with an entrepreneurial mindset. In recent years, AmIslamic has increased the number of customer facing personnel in branches and also transformed the sales zone in its branches to ensure a more conducive environment for customer sales interactions. (a) Vehicle financing

As at 30 June 2011, AmIslamic had RM7.28 billion financing outstanding (before deduction of financing sold to Cagamas Berhad) in the purchase of transport vehicles sector, representing approximately 45% of AmIslamic’s total gross financing portfolio (before deduction of financing sold to Cagamas Berhad). The Bank is amongst the top vehicle financing providers based on the published financial results of domestic and foreign financial institutions in Malaysia. The table below sets out AmIslamic’s vehicle financing portfolio as at the dates indicated:-

As at 31 March 2010

RM billion

As at 31 March 2011

RM billion

As at 30 June 2011

RM billion Financing for purchase of transport vehicles (household section)

6.14 6.88 7.28

The vehicle financing is usually offered on a fixed-rate basis, generally secured by the vehicle being purchased and typically has a term of three to seven years (with a maximum of nine years). The financing typically represents 75% to 90% of the assessed collateral value of the vehicle to be financed, depending on the credit assessment of the customers, and the age of the vehicles.

(b) Personal Financing

As at 30 June 2011, AmIslamic is amongst the key players in personal financing/ co-operative financing, based on the published financial results of domestic and foreign financial institutions in Malaysia. The Bank’s gross assets for personal financing stood at RM2.0 billion which represent 11% of the total personal financing market. AmIslamic offers principal personal financing/co-operative financing products aimed at members of co-operatives who are government employees the payment method of which is via monthly salary deductions.

(c) Residential Property financing

AmIslamic’s Retail Banking Property Financing portfolio consists mainly of financing for residential properties. AmIslamic has approximately RM478.7 million of gross residential property financing assets as at 30 June 2011 and they represent approximately 3% of AmIslamic’s total financing portfolio. The table below sets out AmIslamic’s property financing portfolio as at the dates indicated:-

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As at 31 March 2010 RM million

As at 31 March 2011 RM million

As at 30 June 2011 RM million

Residential property financing for households

377.1 453.7 478.7

The Bank provides a wide range of residential property financing which offers multiple and varied financing options including fixed or floating rate options and flexible payment options based on the Bai’ Bithaman Ajil (deferred payment sale) and Musyarakah Mutanaqisah (diminishing partnership concept. AmIslamic’s residential property financing normally have terms of between 20 and 25 years, with a maximum financing tenure of 30 years. These financings are typically secured by the property being purchased or refinanced and are generally term financing or cash line (or a combination of both). AmIslamic’s marketing activities in relation to property financing include product-bundling initiatives and active participation in sales launches. AmIslamic also has strategic alliances with major housing developers to provide end financing packages to home buyers. In addition, AmIslamic has expanded the sales channels and emphasis on the extensive branch distribution channels. Leveraging on AmBank’s infrastructure, AmIslamic currently has 5 mortgage business centres throughout Malaysia, as well as offering mortgage products through its entire network of 190 retail branches through branch managers and a specialised sales force comprising personal bankers and consumer financing specialists.

(d) Cards

AmIslamic issues Al-Taslif Card-i and cards based on Shariah concept of Bai Inah via its True Card-i and CARz Card-i with features such as non-compounding of profit, lower profit rates as well as cash rebate on petrol as part of its initiatives to attract the market. The Bank plans to continue expanding its cards customer base through cross-selling of its products and services to customers via product packaging and bundling. As at 30 June 2011, AmIslamic hold 21% in the Islamic cards market based on BNM’s monthly statistical report as at 30 June 2011.

(e) Deposit

AmIslamic offers a complete range of Shariah-compliant deposit products and services including current and savings accounts, investment deposits and structured deposits. The Bank has grown its term deposits base by maintaining relationships with its customers and a pricing strategy to assist in funding asset growth. The Bank’s key strategies revolve around the concepts of: (1) Acquisition – understanding its key customer segments and meeting

their financial needs;

(2) Activation – increasing transactionality and primary accounts; and

(3) Anti-attrition – prevention to reduce dormancy and closure. These strategies are underpinned by the delivery of key customer proof points centred on the themes of simplicity, friendliness and convenience.

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The Bank continues to focus on initiatives which will provide long-term sustainable growth specifically in low-cost deposits.

4.6.2 Business Banking

AmIslamic offers a wide range of products and services to cater for the needs of corporate and commercial customers. In addition, the SMEs market segment has also been identified as a target market with high growth potential. The Business Banking Division has also established a Bumiputera unit that focuses on expanding the Bank’s customer base to include Bumiputera entrepreneurs, Government-Linked Corporations (“GLCs ”) and statutory bodies. In collaboration with Credit Guarantee Corporation Malaysia Berhad (“CGC”), AmIslamic also offers financing via its Direct Access Guarantee Scheme-i (DAGS-i) with guarantee directly through CGC. The Asset Financing and Small Business Department offers a financing programme focusing on SMEs financing requirements in respect of the purchase of commercial and industrial properties. This programme offers a more flexible and faster approval process compared to the approval process normally applicable within the Business Banking Division.

4.6.3 Corporate and Institutional Banking

Corporate and Institutional Banking (“CIB”) is a division which focuses on deepening and expanding banking relationships with the AMMB Group’s corporate clients, as well as offering a wider spectrum of the AMMB Group’s commercial banking and investment banking products. CIB focuses on the areas of relationship banking. Relationship Banking provides clients with financial solutions, which include but are not limited to financing, debt and equity capital markets, trade and cash management, foreign exchange and derivatives, as well as advisory and investment products.

CIB works closely with other divisions within the AMMB Group to structure value-added financial solutions for the AMMB Group’s clients. With the increase in the coverage of banking solutions by this division, the CIB teams are able to increase coverage of clients in various sectors. In addition, by marketing various products and services that the AMMB Group offers, this division also plays a pivotal role in cross-selling the products and services of the AMMB Group. Going forward, the broad strategies of the division will be to diversify and differentiate, in line with the AMMB Group’s strategic objectives. In addition, the division has well-documented asset writing strategies to provide it with clear direction during the current financial market conditions.

4.6.4 Transactional Banking

AmIslamic provides a wide array of trade services and financing products to cater to the growing business needs of Malaysian exporters. AmIslamic’s trade businesses contribute RM1.1 billion in receivables as at 30 June 2011. AmIslamic is well positioned to grow its trade assets size with a network of offices, agents and correspondent banking relationships in countries worldwide.

4.6.5 Markets

The Markets division provides capabilities for the trading of Islamic money market investment and Islamic fixed income securities instruments across every market segment including the consumer, SMEs, corporate, institutional and inter-bank markets.

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4.7 Competitive Strengths

AmIslamic considers the following to be its principal competitive strengths:

4.7.1 Strategic partnership with ANZ, a major international banking and financial

services group

The partnership with ANZ enables AmIslamic to leverage on the international expertise and strengths of ANZ, as ANZ brings with it its international best practices as well as exposure to international products, banking systems and cross border capabilities. The equity participation of ANZ is expected to enable AmIslamic to compete more effectively against international banks, given the expected enhancement of its product development abilities and risk management practices. AmIslamic believes that the following benefits will be derived by AmIslamic from the AMMB Group's strategic partnership with ANZ: (i) Risk Management Framework: ANZ has a proven track record in transferring

risk capabilities to its partners. This includes improvements of credit risk management systems, knowledge transfer on Basel II implementation and enhancement of financial discipline.

Retail and Business Banking: ANZ has experience and capabilities in deposit-raising strategies, auto financing, mortgages and branch service enhancement. ANZ’s experience with SMEs will also enable AmIslamic to leverage on ANZ’s vast corporate banking experience for business expansion purposes. ANZ’s credit card business in other Asian markets is expected to enable AmIslamic to adopt ANZ’s best practice and capture a larger share of the fast-growing Malaysian credit card market.

(ii) Product Innovation: AmIslamic will have access to ANZ’s products and

services expertise for product enhancement and innovation as well as cross-selling activities via AmIslamic's existing franchise and distribution channels.

(iii) Branding: It is envisaged that ANZ will add significant credibility and provide

a “unique selling point” for AmIslamic to position itself as a domestic Islamic bank with a significant foreign shareholding, and further strengthen its brand equity.

(iv) IT Infrastructure and other Operations: AmIslamic is expected to be able to

leverage on ANZ’s international standards and IT practices for the enhancement of its existing IT infrastructure. ANZ’s best practices in the area of compliance are expected to enable AmIslamic to enhance its internal auditing and reporting systems. Further, AmIslamic is expected to also gain exposure to ANZ’s highly automated banking processes and centralised back office operations.

(v) Training and Development: With staff secondment and training, AmIslamic is

expected to be able to absorb and implement ANZ’s international service standards to enhance the overall quality of its human capital.

(vi) Regional Presence and Cross-Border Transactions: The partnership is

expected to also provide AmIslamic with access to ANZ’s wide international network for remittance, Transactional Banking operations and investment banking cross border dealflow.

On 28 August 2008, with the technical expertise from ANZ, the AMMB Group has established the foreign exchange, interest rate derivatives and commodities business. The AMMB Group is leveraging on ANZ’s markets sales, trading, IT, risk,

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product development and process skills to set foundation for a sustainable markets business in the AMMB Group. The business aspiration is to build complete and integrated end-to-end solutions that add significant value across the Group’s business segments including retail banking, business banking and corporate banking.

4.7.2 Extensive and diversified distribution network

AmIslamic and AmBank currently jointly operate 190 branches (including 3 dedicated Islamic banking branches), more than 800 ATMs and 145 self-service EBCs in Malaysia. Besides its network of dedicated nationwide marketing officers and personal bankers, AmIslamic also leverages on the sales force in the AMMB Group which comprise marketing, sales and financial services personnel and agents.

4.7.3 Extensive and diversified retail banking business AmIslamic offers a diversified range of retail banking products and services. In 2011, the major focus is on growing a new product, Flexi Bai’ Bithaman Ajil and Musharakah Mutanaqisah for House Financing-i, a house financing product with flexible rate features as opposed to fixed rate financing as part of AmIslamic’s medium to long term strategy in gearing up the development of variable and floating rate financing products as the mainstream product over fixed rate financing products. The introduction of variable rate hire purchase scheme, branded as AmAuto Cruise, saw a great success in both disbursements and market reception.

4.7.4 Leading market position in key products

AmIslamic is the fifth (5th) largest Islamic bank in Malaysia in terms of asset size as at 30 June 2011 based on the published financial results of the 17 domestic and foreign Islamic banks in Malaysia. The Bank card and hire purchase market share stood at 21% and 15.4% respectively based on BNM monthly statistical report as at 30 June 2011.

4.7.5 Ability to provide and cross-sell a wide range of products and services

Being the first-to-market in the region through numerous product innovations, AmIslamic provides a wide range of Shariah-compliant commercial banking, retail banking and related financial services, which also include investment advisory as well as treasury products. Striving to be the premier Islamic bank of choice, AmIslamic continues to grow while providing our customers a complete range of innovative Shariah compliant financial solutions. One notable product innovation by AmIslamic is the AmMomentum Select NID-i, a flexible investment strategy that monitors market momentum to determine timing and methods of investment.

4.7.6 Established and reputable brand name

The initiatives to strengthen the branding of AmIslamic come through the approach of elevating the brand of “AmIslamic” as the Islamic banking / finance products and services for the AMMB Group. The AMMB Group continues to adopt the brand name of “AmIslamic” in order to create and build a brand that is relevant and preferred for Islamic banking & finance both locally and globally in conjunction with the International Currency Business Unit (“ICBU”) licence granted by BNM. Synonymous with the AMMB Group’s Islamic entity, “AmIslamic” shall be known as the promoting brand for all the Group’s Islamic products and services including investment banking, funds management and ICBU products.

By leveraging on the AMMB Group’s extensive international networking to carry the brand of AmIslamic, it should add significant credibility in establishing AmIslamic as a

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prominent brand in the local front as well as the region. Through this approach, the bank should be able to cater for all their customers’ Islamic financial needs by offering a complete range of Shariah-compliant products and services and also a variety of banking concepts Another significant branding initiative comes in the form of “dual signage” where the brand name of AmIslamic appears side by side with the conventional brand at major locations of the Group’s shared branches throughout the country. This strategy is meant to elevate the visibility of AmIslamic as part of strengthening its brand.

4.8 Strategy

AMMB Group’s Medium Term Aspirations (“MTA”) is to be Malaysia’s preferred banking group with international connectivity, as measured by customer satisfaction, sound financial performances, and well diversified and sustainable growth. For FYE 2012, AMMB Group’s strategic priorities focus on profitable growth and rebalancing, diversification and new business development, non-interest income and deposit growth, and customer centricity. To achieve this, the AMMB Group will focus on leveraging international connectivity, investing to grow income, increasing customer share of wallet, capitalising on the Economic Transformation Programme (“ETP”), and upgrading capability and productivity. AMMB Group will tap on the domestic economic growth agenda, particularly in prime sectors of the ETP initiated by the government. To date, a total of 60 entry point projects have been announced, involving over RM95 billion investments primarily from the private sector. The banking industry is poised to benefit from lending and financing growth, the extension of working capital and bridging financing, and the issuance of new private debt securities that will boost capital market activities. In the upcoming financial year, the retail banking division’s key agenda is to grow deposits via enlarged distribution channels and enhanced cross-selling, and balanced with assets growth in profitable segments. Additional emphasis will be placed on wealth management initiatives in order to improve revenue diversification and fee income growth. In the business banking front, strategic initiatives are three-pronged: conserving relationship with existing customers, competing for new accounts with good track record and controlling accounts to contain impaired financing. Business banking continues to generate deposits growth via cash management and transactional banking and increasing fee-based businesses. Corporate and institutional banking aims to deliver innovative and quality solutions, increase share of wallet, target high-profile and high-value clients. For its lending business, the division aims to widen its clientele and target higher share of project financing with government support in the market. Since 2008, the Markets business has gained good momentum and provided income diversification to the AMMB Group. For FYE 2012, the division will remain focused on building a substantive and integrated client-led business. The Bank continues to function on the shared business model and operating platform of the overall conventional businesses. Capitalising on the sovereign direction and initiatives to catapult Malaysia into becoming a global Islamic financial hub, will accord the AMMB Group the lever to drive the AmIslamic’s banking business growth. Enablement functions are critical to the achievement of the AMMB Group’s MTA, therefore the AMMB Group will continuously make inroads in progressing “best in class” practices to provide seamless customer service. Focus areas include the development of leadership and talent, risk management and financial governance framework, and integration of technology, operations and infrastructure.

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The major strategic initiatives that will continue throughout FYE 2012 include:

� Ongoing product development; � Business tie-ups and dealings; � Gearing up development and capitalisation of business opportunities in equity

business; and � Increase business penetration for government and government-linked companies for

deposits and financing.


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5. FINANCIAL AND OTHER MATERIAL INFORMATION 5.1 Financial Highlights

A summary of the financial statements of AmIslamic based on the audited financial statements for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012 are as follows:

FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million RM million Income Statement Income derived from investment of depositors’ funds and others

807.9

884.7

1,025.6

301.8

Income derived from investment of shareholder’s funds

155.6

148.3

154.0

34.4

Allowance for impairment on financing and advances

(93.7)

(90.3)

(247.8)

(41.9)

Impairment (loss)/write back on financial investments - (4.2) 4.2 - (Provision)/write back of provision for commitments and contingencies

(12.0)

12.7

(6.3)

(1.1)

Transfer (to)/from profit equalisation reserve

(24.6)

12.6

42.5

4.8

Total distributable income 833.2 963.8 972.2 298.0 Income attributable to the depositors

(382.2)

(327.8)

(448.8)

(142.1)

Total net income 451.0 636.0 523.4 155.9 Other operating expenses (218.5) (259.3) (280.9) (70.8) Finance cost (19.2) (20.1) (33.4) (10.7) Profit before zakat and taxation 213.3 356.6 209.1 74.4 Zakat (1.0) (1.3) (0.5) (0.5) Taxation (55.6) (94.0) (52.0) (19.3) Profit for the year/period 156.7 261.3 156.6 54.6 EPS (sen) Basic/Diluted 38.87 64.84 38.85 13.54


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FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million RM million Statement of Comprehensive

Income

Profit for the year/period 261.3 156.6 54.6 Other comprehensive

(loss)/income: Net change in revaluation of

financial investments Available-for-sale (9.0) (4.0) (0.7)

Income tax relating to components of other comprehensive income 2.3 1.0 0.2

Other comprehensive loss for the year/period, net of tax (6.7) (3.0)

(0.5)

Total comprehensive income for

the year/period 254.6 153.6 54.1

Note 1. Statement of comprehensive income for FYE 31 March 2009 was not available in the audited financial

statements. 2. Statement of comprehensive income for FYE 31 March 2010 was based on comparative figures of audited

financial statements for FYE 31 March 2011.


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FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM milllion RM million RM million RM million Statement of Financial Position

ASSETS Cash and short-term funds 3,217.9 3,886.5 4,738.8 4,913.3 Deposits and placements with banks and other financial institutions

-

150.0

250.0

400.0 Derivative financial assets 1.9 3.5 3.3 5.8 Financial assets Held-for-trading 203.9 350.9 991.1 1,149.4 Financial investments Available- for-sale

569.3

907.9

715.9

398.5

Financing and advances 9,810.5 11,758.7 13,247.1 13,975.3 Other assets 106.4 81.6 124.6 92.8 Statutory deposit with Bank Negara Malaysia

86.0

32.1

-

50.0

Deferred tax asset 99.2 41.5 118.4 118.6 Property and equipment 0.4 0.3 0.7 0.6 Intangible assets 0.6 0.4 0.3 0.2 TOTAL ASSETS 14,096.1 17,213.4 20,190.2 21,104.5 LIABILITIES AND EQUITY Deposits and placements of banks and other financial institutions

1,445.1

1,485.8

1,467.5

1,597.2

Derivative financial liabilities 1.9 3.5 3.3 5.8 Deposits from customers 10,155.1 13,398.0 15,249.7 15,765.3 Term funding - - 550.0 704.0 Bills and acceptances payable 612.6 395.0 879.5 893.3 Subordinated Sukuk Musharakah 400.0 400.0 400.0 400.0 Other liabilities 196.8 191.8 242.0 286.2 Provision for zakat 1.1 1.2 0.6 1.1 Total Liabilities 12,812.6 15,875.3 18,792.6 19,652.9 Share capital 403.0 403.0 403.0 403.0 Reserves 880.5 935.1 994.6 1,048.6 Equity attributable to equity holder of the Bank

1,283.5

1,338.1

1,397.6

1,451.6

TOTAL LIABILITIES AND EQUITY

14,096.1

17,213.4

20,190.2

21,104.5

Net assets per share (RM) 3.18 3.32 3.47 3.60

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Core financial ratios of the Bank can be summarised as follows:

FYE 31 March

2009

FYE 31 March

2010

FYE 31 March

2011

30 June

2011 (Unaudited)

Financial Ratios - Unaudited Return on assets 1.3% 1.7% 0.8% 1.1% * Return on equity 13.1% 19.9% 11.5% 15.6% * Net financing margin 4.4% 4.1% 3.4% 3.4% Financing loss coverage ratio 110.8% 137.0% 157.4% 178.7% Financing to deposits ratio 96.6% 87.8% 86.9% 88.7% Cost to income 38.9% 37.9% 40.3% 38.6% Financial Ratios - Audited Gross NPF/impaired financing

ratio 2.2%

** 1.5% 2.1% 1.8% Core capital ratio 11.2% 10.5% 8.0% 8.0% Risk-weighted capital ratio 16.7% 15.3% 12.5% 12.5%

* Annualised ** Ratio restated to conform with subsequent years’ presentation. Audited ratio for FYE 2009 was on net

NPF basis. Notes: The Financial Ratios used are defined as:

Return on assets means net profit for the year/period as a percentage of the average of beginning and year-end/period end total assets. Return on equity means net profit for the year/period as a percentage of the average of beginning and year-end/period end shareholders’ funds. Net financing margin means net financing income, as a percentage of the average of beginning and year-end/period end profit-earning assets (comprising cash and short-term funds, deposits and placements with banks and other financial institutions, financial assets Held-for-trading, financial investments Available-for-sale and financing and advances). Gross NPF/impaired financing ratio means non-performing/impaired financing as a percentage of gross financing and advances (before deduction of Islamic financing sold to Cagamas Berhad). Financing loss coverage ratio means total specific/individual allowance and general/collective allowance for bad and doubtful financing as a percentage of gross non-performing/impaired financing. Financing to deposits ratio means net financing and advances as a percentage of deposits from customers. Cost to income means operating expenses as a percentage of net income (gross finance income and hibah and other operating income less income attributable to the depositors and finance cost). Core capital ratio means the ratio of Tier I capital to risk-weighted assets calculated in accordance with BNM guidelines. Risk-weighted capital ratio means the ratio of total capital base to risk-weighted assets calculated in accordance with BNM guidelines.


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5.2 Commentaries On Past Performance

FYE 31 March 2009

Effective on 12 April 2008, the Islamic fund-based activity of AmInvestment Bank was transferred to the Bank. The consideration for the business transfer, which was based on the book value of the assets acquired less the book value of the liabilities assumed, was settled in cash by the Bank.

During the financial year, AmIslamic had displayed its resilience against the global financial downturn by registering a PBT of RM213.3 million. The increase in PBT was mainly attributable to increase in net financing income arising from continuous strong growth in financing and advances as well as a significant decrease in allowances for losses on financing and advances, which was underpinned by improved credit control, collections and recoveries management. Gross non-performing financing ratio of the Bank continued to improve to 2.2%. The improvement from net profit income and allowances for losses on financing and advances was partially offset by higher other operating expenses, which was in line with the Bank’s expanding business operations, profit equalisation reserve charge as compared to a write back in the previous financial year as well as provisions made on commitments and contingencies. FYE 31 March 2010 The substantially improved domestic economy and capital markets recovery had benefited the domestic banking industry, with AmIslamic achieving a significant increase in its PBT to RM356.6 million, which represented an increase of RM143.3 million or 67.2% over the preceeding financial year. The sound performance of the Bank was principally due to increase in net financing income, driven by the continuous strong growth in financing and advances, write back of provision for commitments and contingencies and profit equalisation reserve compared to a charge in the previous financial year. The increase was partly offset by higher other operating expenses, which was in line with the expanding business operations. With superior credit/risk tools and enhanced systems, the Bank’s asset quality continued to improve, whereby the Bank’s gross non-performing financing ratio fell to 1.5% from 2.2%. FYE 31 March 2011

AmIslamic showed significant progress in an increasingly competitive environment, in line with the increased integration of the Malaysian Islamic financial system into the global Islamic financial landscape. The Bank’s total financing and advances had increased by 12.7% over the preceding financial year and stood at RM13.2 billion and total deposits from customers had increased by 13.8% and stood at RM15.2 billion. However, despite the strong growth in its financing and advances and deposits from customers, AmIslamic’s PBT had declined to RM209.1 million or a decrease of RM147.5 million or 41.4% over the preceding financial year. The decrease in AmIslamic’s profit is mainly attributable to higher allowances for impairment on financing and advances due to structural changes associated with co-operative financing industry resulting in increased allowances under FRS 139 methodology. The decrease in PBT was also contributed by higher income attributable to the depositors, in line with increase in deposits from customers, higher finance cost and higher other operating expenses, which was due to the Bank’s expanding business operations. The decrease in PBT was partially offset by an increase in net financing income from strong growth in financing and advances and higher transfer from profit equalisation reserve. Gross impaired financing ratio of the Bank had increased to 2.1%, principally due to co-operative financing.

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5.3 Capitalisation and Indebtedness The following table sets out the capitalization and indebtedness of AmIslamic based on the audited financial statements for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012:

FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million RM million Short -term and long -term liabilities

Deposits from customers 10,155.1 13,398.0 15,249.7 15,765.3 Deposits and placements of banks and other financial institutions

1,445.1

1,485.8

1,467.5

1,597.2 Derivative financial liabilities 1.9 3.5 3.3 5.8 Bills and acceptances payable 612.6 395.0 879.5 893.3 Other liabilities Provision for zakat

196.8 1.1

191.8 1.2

242.0 0.6

286.2 1.1

12,412.6 15,475.3 17,842.6 18,548.9

Term funding

-

- 550.0

704.0 Subordinated Sukuk Musharakah

400.0

400.0

400.0

400.0

400.0 400.0 950.0 1,104.0 Total Liabilities 12,812.6 15,875.3 18,792.6 19,652.9 Equity Share capital 403.0 403.0 403.0 403.0 Reserves Share premium 534.0 534.0 534.0 534.0 Statutory reserve 168.8 265.2 304.3 304.3 Available for-sale reserve 8.9 2.2 (6.3) (6.8) Retained Earnings 168.8 133.7 162.6 217.1 Total Shareholder’s Funds 1,283.5 1,338.1 1,397.6 1,451.6 Total Liabilities and Equity 14,096.1 17,213.4 20,190.2 21,104.5 Commitments and Contingencies

4,185.8

4,117.9

7,596.0

7,291.6

Total Capitalisation 1,683.5 1,738.1 1,797.6 1,851.6

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5.4 Funding

The Bank funds most of its operations from customer deposits and interbank financing. Customer deposits in the CASA space has increased by 26% over the last fifteen (15) months. The overall strategy is to enlarge the distribution footprint and branch network plays a pivotal role in depositing gathering. AmIslamic’s distribution footprint includes 3 dedicated Islamic bank branches, more than 800 ATMs and 145 electronic banking centres nationwide. Of these, a targeted 400 (342 installations completed) ATMs are placed at 7-Eleven stores to accord customers with 24-hour and more secure banking convenience. The Bank’s liquidity risk management is in compliance with the New Liquidity Framework as prescribed by BNM. 5.4.1 Customer Deposits The following table illustrates the profile of AmIslamic’s customer deposits by type for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012: Profile of Customer Deposits by Type

FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million RM million Deposit Type

Non-Mudharabah

Demand deposits 645.9 910.8 1,166.5 1,199.0 Savings deposits 945.9 1,154.4 1,335.3 1,385.1 Term deposits - - - 9.8 Negotiable instruments of deposits

267.0

155.8

13.2

256.4

Other deposits - 9.5 22.5 201.5 1,858.8 2,230.5 2,537.5 3,051.8 Mudharabah Demand deposits - - 11.3 12.4 Savings deposits - - 4.6 4.7 General investment deposits 8,251.4 11,089.0 12,585.1 12,533.9 Structured deposits 44.9 78.5 111.2 162.5 8,296.3 11,167.5 12,712.2 12,713.5 Total 10,155.1 13,398.0 15,249.7 15,765.3


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The following table illustrates the maturity structure of negotiable instruments of deposits, general investment deposits, term deposits and structured deposits for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012: Maturity Structure

FYE 31 March 2009

FYE 31 March 2010

(Audited)

FYE 31 March 2011

(Audited)

30 June 2011

(Unaudited) RM million* RM million* RM million RM million Maturity Structure Due within six months 7,588.3 10,616.4 11,585.1 11,495.6 Six months to one year 525.3 411.6 720.2 1,006.6 One year to three years 379.3 233.0 190.6 299.9 Three years to five years 70.4 62.3 213.5 160.5 Total 8,563.3 11,323.3 12,709.4 12,962.6

* Restated to conform with subsequent years’ presentation. Maturity structure for FYE 31 March 2009 is unaudited whereas maturity structure for FYE 31 March 2010 was based on comparative figures of audited financial statements for FYE 31 March 2011.

5.4.2 Interbank Deposits The Bank is an active interbank participant. It also acts as a Principal Dealer on BNM money market tender operations. Interbank financing are normally used to fund short term mismatches in the Bank’s maturity profiles or for on-financing and arbitrage opportunities, where there are opportunities to do so. The Bank seeks to maintain financing from the interbank market within manageable levels so as to avoid dependence on the interbank market financing. The Bank is currently a net interbank financier. The Bank also issues negotiable certificates of deposits and sells securities to raise short term funds.

5.4.3 Other Funding Sources Sale of credit facilities to Cagamas Berhad

The Bank is able to secure longer-term sources of funds of three to seven years tenor by selling consumer financings to Cagamas Berhad (the Malaysian national mortgage corporation) with recourse to the Bank. The Bank continues to service such financings, retaining the fixed or floating profit collected on the financings, and pays a fixed or floating rate of profit to Cagamas Berhad as selected by the Bank at the time of sale.

Senior Sukuk Musharakah

Subject to market conditions and investor appetite, the Bank is able to secure longer-term funds through the wholesale markets using its 2010 RM 2.0 billion Senior Sukuk Musharakah Programme. As at 30 June 2011, RM 550.0 million of Sukuk have been issued out of this programme and maturing in 2017. The Bank is servicing these financings through its normal course of business activities. These stable funds provide an additional buffer against liquidity stress in the Bank, and are expected to be beneficial to AmIslamic in meeting the proposed Basel III liquidity measures such as the Net Stable Funds Ratio.

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5.4.4 Contingency Funding Plan

The contingency funding plan of AmIslamic comprises the following:-

• liquidity and crisis management policy

• liquidity and management resources

• crisis management action plan

The above are adopted in accordance with Sound Practices for Managing Liquidity in Banking Organisation issued by the Basel Committee on Banking Supervision 2000.


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5.5 Capital Adequacy Our historical capital adequacy ratios for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012 are as follows:

FYE 31 March

2009 (Audited)

FYE 31 March 2010

(Audited)

FYE 31 March 2011

(Audited)

30 June 2011

(Unaudited) RM million RM million RM million RM million Tier 1 capital Paid-up ordinary share capital

403.0

403.0

403.0

403.0

Share premium 534.0 534.0 534.0 534.0 Statutory reserve 168.8 265.2 304.3 304.3 Retained earnings 168.8 133.7 162.6 162.6 1,274.6 1,335.9 1,403.9 1,403.9 Less: Deferred tax asset (102.1) (42.2) (116.3) (116.3) Total Tier 1 capital 1,172.5 1,293.7 1,287.6 1,287.6 Tier 2 capital Subordinated Sukuk Musharakah

400.0

400.0

400.0

400.0

Collective/general allowance

166.5

184.8

324.0

330.2

Total Tier 2 capital 566.5 584.8 724.0 730.2 Capital base 1,739.0 1,878.5 2,011.6 2,017.8 Risk-weighted assets 10,447.0 12,286.5 16,049.1 16,193.6 Capital Ratios: Core capital 11.2% 10.5% 8.0% 8.0% Risk-weighted capital 16.7% 15.3% 12.5% 12.5%

Notes:

The capital adequacy ratios of the Bank are computed in accordance with Bank Negara Malaysia’s Capital Adequacy Framework for Islamic Banks, which are based on the Basel II capital accord. The following is a breakdown of the risk weighted assets of AmIslamic in the various categories of risk weights for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012:

FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million RM million

Credit risk 9,279.5 10,740.2

14,379.7

14,393.7 Market risk 237.8 456.3 459.9 562.7 Operational risk 929.7 1,090.0 1,209.5 1,237.2 Total risk weighted assets 10,447.0 12,286.5 16,049.1 16,193.6

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5.6 Asset Quality

5.6.1 Financing and Advances Portfolio

Financing and advances by type The following table sets out the breakdown of AmIslamic’s financing portfolio by product type for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012:

FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million RM million Cash lines 125.8 252.5 376.2 444.0 Term financing: House financing 730.8 772.8 1,077.5 1,178.2 Hire-purchase

receivables

7,608.6

7,947.6

8,730.8

9,000.6 Other financing 4,359.1 4,751.2 6,586.8 7,150.3 Card receivables 310.6 292.9 313.2 313.7 Bills receivables 2.1 - - - Trust receipts 32.4 70.2 91.7 115.4 Claims on customers under acceptance credit 763.7 917.8 957.6 972.4 Revolving credit 257.0 771.3 1,608.9 1,130.5 Total 14,190.1 15,776.3 19,742.7 20,305.1 Less: Unearned income (3,208.3) (3,422.3) (4,291.2) (4,266.7) 10,981.8 12,354.0 15,451.5 16,038.4 Less: Islamic financing sold

to Cagamas Berhad (905.8) (345.7) (1,700.0) (1,546.0) Gross financing and advances

10,076.0

12,008.3

13,751.5

14,492.4

Allowance for bad and doubtful financing:

- Collective allowance - - (479.0) (488.7) - Individual allowance - - (25.4) (28.4) - General allowance (166.5) (184.8) - - - Specific allowance (99.0) (64.8) - - Net financing and advances 9,810.5 11,758.7 13,247.1 13,975.3


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Financing and advances by sector The following table sets out the breakdown of AmIslamic’s gross financing portfolio by sector for the past two (2) FYEs 31 March 2010 to 2011 and the unaudited first quarter of FYE 2012:

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million Primary agriculture 112.4 136.3 166.7 Mining and quarrying 12.7 20.0 20.3 Manufacturing 948.3 1,456.9 1,616.8 Electricity, gas and water 203.3 216.3 133.2 Construction 311.3 922.8 1,016.8 Wholesale, retail trade, restaurant and hotel 478.5 497.7

521.7

Transport, storage and communication 300.0 764.1

720.6

Finance, insurance, real estate and business activities 496.3 1,168.7

1,225.6

Education and health 318.0 415.5 461.7 Household 8,869.9 9,765.7 10,069.2 of which: - purchase of residential

properties 377.1 453.7

478.7 - purchase of transport vehicles 6,143.2 6,882.5 7,284.8 - others 2,349.6 2,429.5 2,305.7 Others 303.3 87.5 85.8 Less: Islamic financing sold to

Cagamas Berhad

(345.7)

(1,700.0)

(1,546.0) Gross financing and

advances

12,008.3

13,751.5

14,492.4 Note 1. Breakdown of gross financing portfolio by sector for FYE 31 March 2009 was not available in the audited

financial statements. 2 For audited financial statements FYE 31 March 2010, disclosure for financing and advances was by economic

purpose and not by sector. Breakdown of gross financing portfolio by sector for FYE 31 March 2010 was based on comparative figures of audited financial statements for FYE 31 March 2011.


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5.6.2 Financing and Advances Maturity Profile

The following table sets out the breakdown of AmIslamic’s gross financing portfolio by remaining maturity for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012:

FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million RM million Financing Maturity Maturing within one year 1,268.1 1,982.2 3,090.1 2,406.9 One year to three years 759.2 804.7 1,374.9 1,444.1 Three years to five years 1,536.0 2,074.7 2,405.3 2,852.0 Over five years 6,512.7 7,146.7 6,881.2 7,789.4 Gross fi nancing and

advances 10,076.0 12,008.3 13,751.5 14,492.4

5.6.3 Impairment

Definition of Past Due and Impaired Financing All financing and advances are categorised as either: � Neither past due nor impaired; � Past due but not impaired; or � Impaired

An asset is considered past due when any payment (whether principal and/or profit) due under the contractual terms are received late or missed. A financing is classified as impaired under the following circumstances: (a) where the principal or profit or both1 is past due or the amount outstanding is in

excess of approved limit (for revolving facilities), each for more than 90 days or 3 months; or

(b) the financing exhibits weaknesses that render a classification appropriate according

to the Bank's Credit Risk Rating Framework, which requires it to fall under the “unlikeliness to repay” category under the Bank’s Watch-list Policy.

(c) for financing with repayment schedules on a quarterly basis or longer intervals to be

classified as impaired as soon as default2 occurs, unless it does not exhibit any weakness that would render it to be classified according to the Bank's Credit Risk Rating Framework. Notwithstanding that, these financing shall be classified as

1 For credit card facilities, an account is "past due" when the cardmember fails to settle the minimum

monthly repayment due before the next billing date. 2 "Default" is defined for financing with repayment schedules on a quarterly basis or longer as 1 day

past due + 30 days

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impaired when the principal or profit or both is past due for more than 90 days or 3 months.

(d) for distressed rescheduled and restructured (“R/R”) facilities, these financing are

categorised as “unlikeliness to repay” and classified as impaired. Non-performing R/R facilities remain impaired until re-aged.


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Profile of NPF/Impaired Financing

AmIslamic’s impaired financing was RM289.4 million as at 30 June 2011, representing a ratio of gross NPF impaired financing to total gross financing and advances (before deduction of Islamic financing sold to Cagamas Berhad) of 1.8%. Set out below are AmIslamic’s total NPF/impaired financing and NPF/impaired financing ratios for the past three (3) FYEs 31 March 2009 to 2011 and the unaudited first quarter of FYE 2012:

FYE 31 March 2009

(Audited)

FYE 31 March 2010

(Audited)

FYE 31 March 2011

(Audited)

30 June 2011

(Unaudited) RM million RM million RM million RM million Balance at beginning of year - as previously stated 305.3 239.6 182.2 320.4 - effect of adopting FRS 139 - - 9.7 - Balance at beginning of year /period (restated)

305.3 239.6 191.9 320.4

Non-performing/impaired during the year/period 186.2 155.1 309.7 74.2 Reclassified as performing/non-impaired (62.4) (54.8) (56.8)

(48.5)

Amount recovered (27.6) (21.1) (34.5) (15.6) Amount written off (161.9) (136.6) (89.9) (41.1) Balance at end of year/period

239.6 182.2 320.4 289.4

Gross financing and advances 10,076.0 12,008.3 13,751.5 14,492.4 Add: Islamic financing sold to Cagamas Berhad 905.8 345.7 1,700.0 1,546.0 Gross financing and advances (including Islamic financing sold to Cagamas Berhad) 10,981.8 12,354.0 15,451.5 16,038.4

Ratio of gross impaired financing and advances

to total financing and advances (including Islamic financing sold to Cagamas Berhad) 2.2% 1.5% 2.1% 1.8%

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Non-performing/Impaired financing by sector The table below sets out AmIslamic’s NPF/impaired financing by sector for the past two (2) FYEs 31 March 2010 to 2011 and the unaudited first quarter of FYE 2012:

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million Primary agriculture 0.5 0.4 0.3 Mining and quarrying - 0.1 0.1 Manufacturing 9.4 28.4 27.3 Electricity, gas and water 0.1 - - Construction 4.5 5.2 5.0 Wholesale, retail trade, restaurant and hotel 8.7 23.6 19.4 Transport, storage and communication 0.8 1.7 1.7 Finance, insurance, real estate and business activities 1.2 3.0 0.1 Education and health 0.5 1.8 4.4 Household 156.5 256.1 231.0 of which: - purchase of residential properties 37.9 20.9 19.6 - purchase of transport vehicles 104.5 98.5 97.4 - others 14.1 136.7 114.0 Others - 0.1 0.1 Non-performing/Impaired financing and advances 182.2 320.4 289.4

Note 1. Breakdown of non-performing financing by sector for FYE 31 March 2009 was not available in the audited

financial statements. 2. For audited financial statements FYE 31 March 2010, disclosure for non-performing financing was by economic

purpose and not by sector. Breakdown of non-performing financing by sector for FYE 31 March 2010 was based on comparative figures of audited financial statements for FYE 31 March 2011.

Methodology for Determination of Individual and Collective Allowances An assessment is performed to determine whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant or not individually impaired. Individual Assessment Individual assessment is divided into 2 main processes – detection of an event(s) and an assessment of impairment: (a) Trigger management

In trigger management, financial assets which are above the pre-set individual assessment threshold are assessed using the relevant impairment triggers for objective evidence of impairment.

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(b) Valuation of assets Financial assets which are triggered by the impairment triggers will be measured for

evidence of high likelihood of impairment, that is, estimated recoveries (based on the discounted cash flow projection method and taking into account economic conditions) is less than carrying value or fair value is less than the carrying value.

Collective Assessment All financial assets below the significant threshold and those not assessed to be individually impaired will be subject to collective assessment and a collective allowance will be computed accordingly. As a transitional arrangement up to 2012, BNM has given banking institutions the choice of applying either one of the following approaches in computing the required collective assessment: (a) Transitional approach – where, banking institutions may maintain an allowance of at

least 1.5% of total outstanding financing net of individual impairment allowance; or

(b) Full FRS 139 compliance approach – where collective allowances are computed using models based on the banking institutions’ historical experience.

The Bank has opted for the transitional approach and has modified it to reflect its historical

loss experience.


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5.6.4 Portfolio of Securities

The financial assets Held-for-trading and financial investments Available-for-sale of AmIslamic for the past three (3) FYEs 31 March 2009 to 2011 and first quarter of FYE 2012 are as set out below:

FYE 31 March

2009 (Audited)

FYE 31 March

2010 (Audited)

FYE 31 March

2011 (Audited)

30 June

2011 (Unaudited)

RM million RM million RM million RM million Financial assets Held-for -trading

At fair value Money market securities in Malaysia:

Malaysian Government investment certificates - 189.9 549.8 300.5 Islamic Treasury bills - 39.1 18.3 28.1 Sukuk BNM - 15.0 1.5 4.2 Islamic Khazanah bonds 1.0 - - - BNM monetary notes - 48.7 179.2 218.9 1.0 292.7 748.8 551.7 Unquoted Securities in Malaysia:

Private debt securities 202.9 58.2 242.3 597.7 Total financial assets Held-for-trading

203.9

350.9 991.1

1,149.4

Financial investments Available-for-sale

At fair value Money market securities in Malaysia:

Malaysian Government investment certificates 36.0 76.0 190.1 291.1 Negotiable instruments of deposit 29.2 577.3 348.5 49.8 65.2 653.3 538.6 340.9

Quoted securities in Malaysia: Unit trusts

-

-

10.0

10.0

Unquoted securities in Malaysia:

Private debt securities 504.1 254.6 167.3 47.6 Total financial investments Available-for-sale 569.3 907.9 715.9 398.5

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Financial assets Held-for-trading A financial asset is classified as Held-for-trading if it is acquired principally for the purpose of selling it in the near term. As at 30 June 2011, the financial assets Held-for-trading constituted 5.5% of AmIslamic’s total assets. AmIslamic’s financial assets Held-for-trading comprised mainly Malaysian Government investment certificates, BNM monetary notes, Islamic Treasury Bills, Sukuk BNM and unquoted private debt securities. Financial Investments Available-for-sale Available-for-sale investments are those non-derivative financial assets intended to be held for an indefinite period of time, which may be sold in response to liquidity requirements or changes in profit rates, exchange rates, commodity prices or equity prices. Available-for-sale investments refer also to assets that are designated as Available-for-sale or are not classified in Financial assets Held-for-trading, Financing and receivables or Held-to-maturity investments. As at 30 June 2011, the financial investments Available-for-sale constituted 1.9% of AmIslamic’s total assets. AmIslamic’s securities Available-for-sale comprised mainly Malaysian Government investment certificates, negotiable instruments of deposits, unquoted private debt securities and unit trusts.

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6. RISK MANAGEMENT FRAMEWORK

The Risk Management Framework takes its lead from the Board of Directors’ Approved Risk Appetite Framework which provides the catalyst to setting the risk/reward profile required by the Board of Directors, together with the related business strategies, limit framework and policies required to enable successful execution. The Risk Appetite Framework is approved annually by the Board of Directors taking into account the Bank's desired external rating and targeted profitability/return on equity (“ROE”) and is reviewed periodically throughout the financial year by both the executive management and the Board of Directors to consider any fine tuning/amendments taking into account prevailing or expected changes to the operational environment. The Risk Appetite Framework provides portfolio parameters for Credit Risk, Traded Market Risk, Non-Traded Market Risk and Operational Risk incorporating, inter alia, limit structures for countries, industries, single counterparty, value at risk, capital at risk, earnings at risk, stop loss, stable funding ratio and liquidity. Each business unit has asset writing strategies which tie into the overall Risk Appetite Framework providing detailed strategies of how the business units will execute their business plans in compliance with the Risk Appetite Framework. Risk Management Governance The Board of Directors is ultimately responsible for the management of risks within the Bank. The Risk Management Committee of Directors is formed to assist the Board of Directors in discharging its duties in overseeing the overall management of all risks covering market risk management, liquidity risk management, credit risk management and operational risk management. The Board of Directors has also established various management committees to assist it in managing the risks and businesses of the Bank. The following chart sets out the organisational structure of the risk management committees and an overview of the respective committee’s roles and responsibilities:

Board of DirectorsRisk Management

Committee of Directors

Chief Executive OfficerCommittee

Group Assets & Liabilities Committee

Group Traded Market

Risk Committee

Group Portfolio Management &

Credit Policy Committee

Group Operational &

Legal Risk Committee

Islamic Assets &

Liabilities Committee

Executive Committee of Directors

Business and IT Project

Committee

Group Projects Prioritisation Committee

**

*

* At entity level

Group Impairment Provision

Committee

Shariah Committee

Audit & Examination Committee of Directors

Group Product

Committee

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Committee

Roles and Responsibilities

Risk Management Committee of Directors (“RMCD”)

- Oversee senior management activities in managing risk (covering credit, market, funding, operational, legal regulatory capital and strategic risk) and to ensure that the risk management process is in place and functioning.

- Report to and advise the Board of Directors on risk

issues.

Audit & Examination Committee of Directors (“AEC”)

- Provide assistance to the Board in relation to fulfilling fiduciary responsibilities and monitoring of the accounting and financial reporting practices of AmIslamic.

- Provide assistance to the Board of Directors in ensuring the Islamic Banking operations are Shariah-compliant

Shariah Committee - Responsible and accountable on matters related to Shariah, which includes advising Board of Directors and management on Shariah matters and endorsing and validating products and services, and the relevant documentations in relation to Islamic Banking operations.

Executive Committee of Directors (“EXCO”)

- Responsible to consider and approve credit facilities and commitments that are not in accordance with the policies approved by the Board for which EXCO has been granted powers to exempt.

- Review credit facilities and commitments that exceed certain thresholds.

Chief Executive Officer Committee (“CEO Committee”)

- Responsible for overall day to day operations of AmIslamic such as overseeing management’s activities in managing risk, reviewing high level risk exposures, portfolio composition and risk strategies; and evaluating the existence and effectiveness of the control and risk management infrastructure.

- Report to and advise the Board of Directors on risk

issues.

Group Assets and Liabilities Committee (Conventional and Islamic) (“GALCO”)

- Responsible for the development of capital and balance sheet management policy, approving and overseeing non-traded rate of return risk exposures, liquidity and funding framework and hedging and management of structural foreign exposure. Ensuring fund transfer pricing are effective and fair and capital is managed.

Islamic Assets and Liabilities Committee

- Responsible for the development of Islamic capital and balance sheet management policy, approve and oversee rate of return risk exposures, liquidity and funding framework and hedging and management of structural foreign exposure. Ensure fund transfer pricing are effective and fair and capital is managed.

Group Traded Market Risk Committee (“GTMRC”)

- Responsible for development of traded market risk policy framework, overseeing the trading book portfolio, approving new trading products and ensuring the compliance with the internal and regulatory requirements throughout AmIslamic.

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Committee

Roles and Responsibilities

Group Portfolio Management and Credit Policy Committee (“GPMCP”)

- Responsible for development for credit policy framework, overseeing credit portfolio, endorsing asset writing strategies, reviewing credit provisioning policies and processing and ensuring the compliance with the internal and regulatory requirements throughout AmIslamic.

Group Impairment Provision Committee

- Responsible for the development of key policies relating to impairment provisions, ensuring provision are assessed and made in accordance with Board approved policies and FRS 139 and 137 standards and establishing adequate management governance for the determination of provisions.

Group Operational and Legal Risk (“GOLRC”)

- Responsible for endorsing operational risk, legal risk and regulatory compliance framework, overseeing operational risk and legal risk management and reviewing regulatory actions or any incidences that may give rise to operational and legal risk along with the actions taken to mitigate such risks.

Group Product Committee (“GPC”)

- Responsible for ensuring adequate infrastructure and resources are in place for product management, endorsing proposal for new products and product launching strategies, approving proposals for product variation and reactivation of dormant products; and reviewing post implementation activities and product performance.

Business and IT Project Committee (“BITPC”)

- Responsible to review and approve (or where required recommend for approval) requests relating to AmIslamic’s major Business and IT investments.

- To ensure all projects are aligned to the Business and IT plans, appropriate prioritisation of Business and IT projects, and the allocation of resources.

Group Projects Prioritization Committee

- Responsible to optimise the allocation of shared resources and change capacity to programmes, projects and initiatives across AmIslamic.


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7. INDUSTRY OVERVIEW 7.1 Islamic Finance Developments

Vibrant Islamic finance Malaysia remains at the forefront of Islamic finance with an average growth of 20.0% in the past five years, attributed to various efforts to promote Malaysia as an International Islamic Financial Centre (MIFC). Malaysia was awarded “Best International Islamic Finance Centre” at the 2010 London Sukuk Summit Awards for the third consecutive year. Since 2010, various key initiatives were undertaken to strengthen Malaysia’s position in Islamic finance. These included the introduction of Syariah Governance Framework for Islamic Financial Institutions, which provides guiding principles on syariah governance structures, processes and arrangements to manage syariah risks. The framework also sets the standards for the board, committee and management in discharging their duties pertaining to syariah. In addition, the Syariah Parameter References were developed to codify the syariah principles for commonly used Islamic financial contracts, namely murabahah, ijarah, mudharabah, musharakah, istisna’ and wadiah.

Malaysia also chairs the Task Force on Islamic Finance and Global Financial Stability which established the Islamic Financial Stability Forum (IFSF). The IFSF serves as a platform to deliberate relevant issues for ensuring stability in the Islamic financial system. Talent development and research in syariah and Islamic finance are promoted through the International Education Center for Islamic Finance (INCEIF) and the International Syariah Research Academy (ISRA). To further position Malaysia as the reference centre for Islamic finance, ISRA signed a Memorandum of Understanding in February 2010 with Thomson Reuters to raise ISRA’a profile as an important repository of knowledge for syariah views or fatwa.

The SC has published Malaysia’s Capital Market Masterplan 2 (CMP2) in 2011, which was drawn up to chart the development of the capital market from 2011 to 2020. Under CMP2, the primary objective in respect of the Islamic capital market is to widen its international base. Among the strategies identified to support this objective and which will also address some of the challenges mentioned earlier are the following: • Strengthening training and professional development to increase the supply of Shariah

experts; • Increasing international collaboration on Shariah research and product development; and • Strengthening service and operational infrastructure to expand ICM’s international reach.

The Islamic capital market plays a significant role in providing an alternative source for capital fund raising. Bursa Malaysia currently hosts over 800 syariah-compliant securities representing 89% of total listed securities with market capitalisation of RM836.17 billion as at June 2011 (June 2010; RM666.34 billion).

In addition, Bursa Suq Al-Sila’, the world’s first syariah-complaint commodity trading platform, was established in August 2009 to facilitate cross-border multi-currency commodity-based Islamic financing and investment transactions. It registered commodity trading participants locally as well as across the Middle East and Europe.

Despite the uncertainty in the market conditions, Malaysia maintains its position as the biggest issuer of Sukuk, accounting for 67% of the USD17.1 billion Sukuk issued in 2010. In an effort to promote the debt securities markets whilst enhancing the breadth and depth of investment options on Malaysian capital market, the Bursa Malaysia offers a platform for the listing of Islamic bonds or sukuk and debt securities. This is in line with the effort of the BNM and SC, and the government to develop Malaysia as an International Islamic Financial Centre (MIFC). Currently, there are 17 sukuk listed on Bursa Malaysia’s Exempt Regime. (Source: AmInvestment, Economic Report 2010/2011, Ministry of Finance, Malaysia, Securities Commission Malaysia and Bursa Malaysia Berhad)

- 78 -

7.2 Malaysia’s Banking Sector

Banking system stayed resilient In Q2 2011, the Malaysian banking system remained robust supported by strong capitalisation, steady profitability and improved asset quality. The risk-weighted capital ratio (RWCR) and core capital ratio (CCR) of the banking system remained high at 13.9% and 12.3% respectively as at end- June 2011 (end-March 2011: 14.4%; 12.8%). Banking system total deposits grew 11.5% to RM1.21 trillion as at end-June 2011 (end-March 2011: 9.5%; RM1.17 trillion). Pre-tax profits of the banking sector were sustained at RM6.6 billion in the second quarter, supported mainly by higher financing and net interest income (Q1 2011: RM6.9 billion). The quality of loan portfolios in the banking system improved further with net impaired loans ratio at 2% as at end-June 2011 (end-March 2011: 2.2%).

(Source: Malaysian Economy, Second Quarter 2011, Ministry of Finance, Malaysia)

7.3 Prospects for 2011

Modest global prospects Global growth is expected to continue at a modest pace, led by sustained growth in emerging and developing economies. The recent moderation in global oil and commodity prices will impact positively on consumer spending and reduce inflationary pressures. Meanwhile, the recovery from the supply chain disruptions arising from Japan’s earthquake is expected to pave the way for global industrial output to rebound. In addition, raising of the US government debt ceiling to avoid default; the Fed’s commitment to maintain its policy rate close to zero through mid-2013; and the European Central Bank’s intervention in the bond market is likely to have positive outcomes on financial markets and investor confidence. On the domestic front, the Malaysian economy is expected to sustain its growth momentum in the remaining quarters of 2011. This was reflected by the Leading Index, which grew by an average of 1.9% in the first six months of 2011. On the demand side, growth will emanate from private consumption and investment activities as well as acceleration of public expenditure. Consumer spending will be supported by steady increase in disposable income as well as firm commodity prices, while private investment is expected to increase, given improved corporate earnings and high utilisation rate in most industries. On the supply side, growth will be supported by the expansion in the services and manufacturing sectors, underpinned by strengthening domestic demand amid continued policy support.

(Source: Malaysian Economy, Second Quarter 2011, Ministry of Finance, Malaysia)


- 79 -

8. OTHER INFORMATION 8.1 Material Contracts

There are no material contracts (including contracts not reduced into writing), not being contracts entered into in the ordinary course of business which have been entered into by AmIslamic during the past two (2) years preceding the date of this IM.

8.2 Material Litigation

As at 30 June 2011: (a) in respect of material litigation, claims and arbitration arising from the ordinary course

of business apart from those which:

(i) the financial impact thereof has already been accounted for in the last audited financial statements of AmIslamic; and

(ii) if not accounted for as alluded to in the preceding sub-paragraph (i),

AmIslamic is of the view that there is no material and adverse impact on the financial position of AmIslamic arising from such litigation, claims and arbitration.

Further, AmIslamic does not know of any threatened proceedings against AmIslamic that is likely to have a material adverse effect on our financial position or business; and

(b) in respect of material litigation, claims and arbitration arising not in the ordinary course of business:

(i) AmIslamic is not engaged in any such material litigation, claims and

arbitration either as plaintiff or defendant; and (ii) the Board does not know of any such threatened proceedings against

AmIslamic that is likely to have a material adverse effect on AmIslamic’s business.


- 80 -

8.3 Commitments and Contingent Liabilities

In the normal course of business, AmIslamic makes various commitments and incurs certain contingent liabilities with legal recourse to its customers. No material losses are anticipated as a result of these transactions. The commitments and contingencies are not secured against AmIslamic’s assets. The commitments and contingencies outstanding of AmIslamic as at 30 June 2011 are as follows:

Principal Amount

RM million Contingent Liabilities Direct credit substitutes 291.6 Certain transaction-related contingent items 445.7 Short term self liquidating trade-related contingencies 115.0 Islamic financing sold to Cagamas Berhad with recourse 1,546.0 Obligations under underwriting agreements 137.5 Others 10.7 2,546.5 Commitments Irrevocable commitments to extend credit maturing : - less than one year 3,025.7 - more than one year 840.1 Unutilised credit card line 468.6 Forward asset purchase 70.9 4,405.3 Derivative Financial Instruments Foreign exchange related contracts: - less than one year 10.2 Equity and commodity related contracts: - Over one year to five years 329.6 339.8 Total 7,291.6

As at 30 June 2011, AmIslamic does not have any capital commitments.

- 81 -

APPENDIX

AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD

1 APRIL 2010 TO 31 MARCH 2011

Company No. 295576–U

AmIslamic Bank Berhad(Incorporated in Malaysia)

CONTENTS PAGE(S)

Directors' Report 1

Statement by Directors 16

Statutory Declaration 17

Shariah Committee's Report 18

Report of the Auditors 19

Statement of Financial Position 21

Income Statement 22

Statement of Comprehensive Income 23

Statement of Changes in Equity 24

Statement of Cash Flows 25

Notes to the Financial Statements 27

AmIslamic Bank BerhadFinancial Statements For The Year Ended 31 March 2011

AmIslamic Bank BerhadFinancial Statements For The Year Ended 31 March 2011


1AmIslamic Bank Berhad

Financial Statements For The Year Ended 31 March 2011


DIRECTORS' REPORT

PRINCIPAL ACTIVITIES

FINANCIAL RESULTSRM'000

Profit before zakat and taxation 209,125 Zakat (560) Taxation (51,976) Profit for the year 156,589

The directors have pleasure in presenting their report and the audited financial statements of theBank for the financial year ended 31 March 2011.

The Bank is a licensed Islamic banking institution providing Islamic retail and commercialbanking products and services in accordance with Shariah principles. There have been nosignificant changes in the nature of the activities of the Bank during the financial year.

There were no material transfers to or from reserves, allowances or provisions during thefinancial year other than those disclosed in the financial statements.

In the opinion of the directors, the results of the Bank during the financial year have not beensubstantially affected by any item, transaction or event of a material and unusual nature otherthan the effects arising from the changes in accounting policies due to the adoption of FRS 139Financial Instruments: Recognition and Measurement which has resulted in a decrease in theBank's profit for the year by RM62 million as disclosed in Note 2.1b to the financial statements.

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


DIVIDENDS

RM'000

In respect of the financial year ended 31 March 2011:

Interim single-tier dividend of 9.9% on 403,038,000 ordinary shares, approved by the Board of Directors on 26 October 2010 and paid on 22 November 2010 39,901

BUSINESS PLAN AND STRATEGY

AMMB Holdings Berhad and its subsidiaries' (the "Group") Medium Term Aspirations (“MTA”) isto be Malaysia’s preferred banking group with international connectivity, as measured bycustomer satisfaction, sound financial performances, and well diversified and sustainablegrowth. For financial year ("FY") 2012, The Group’s strategic priorities focus on profitable growthand rebalancing, diversification and new business development, non-interest income and depositgrowth, and customer centricity. To achieve this, the Group will focus on leveraging internationalconnectivity, investing to grow income, increasing customer share of wallet, capitalising on theEconomic Transformation Programme (“ETP”), and upgrading capability and productivity.

The Group will tap on the domestic economic growth agenda particularly in prime sectors of the

The amount of dividends paid by the Bank since 31 March 2010 were as follows:

The directors do not recommend the payment of final dividend in respect of the current financialyear.



The Group will tap on the domestic economic growth agenda, particularly in prime sectors of theETP initiated by the government. To date, a total of 60 entry point projects have beenannounced, involving over RM95 billion investments primarily from the private sector. Thebanking industry is poised to benefit from lending growth, the extension of working capital andbridging financing, and the issuance of new private debt securities that will boost capital marketactivities.

In the upcoming financial year, Retail Banking division’s key agenda is to grow deposits viaenlarged distribution channels and enhanced cross-selling, and balanced with assets growth inprofitable segments. Additional emphasis will be placed on wealth management initiatives inorder to improve revenue diversification and fee income growth.

In the Business Banking front, strategic initiatives are three-pronged: conserving relationshipwith existing customers, competing for new accounts with good track record and controllingaccounts to contain impaired financing. Business Banking continues to generate deposits growthvia cash management and transactional banking and increasing fee-based businesses.




BUSINESS PLAN AND STRATEGY (CONTD.)

Corporate and Institutional Banking’s aims are to deliver innovative and quality solutions,increase share of wallet, target high-profile and high-value clients. For its lending business, thedivision aims to widen its clientele and target higher share of project financing with governmentsupport in the market.

Since 2008, Treasury and Markets business has gained good momentum and provided incomediversification to the Group. For FY2012, the division will remain focused on building asubstantive and integrated client-led business.

The Bank continues to function on the shared business model and operating platform of theoverall conventional businesses. Capitalising on the sovereign direction and initiatives to catapultMalaysia into becoming a global Islamic financial hub, will accord us the lever to drive ourIslamic banking business growth.

Enablement functions are critical to the achievement of our MTA, therefore we continuouslymake inroads in progressing “best in class” practices to provide seamless customer service.Focus areas include the development of leadership and talent, risk management and financialgovernance framework, and integration of technology, operations and infrastructure.

Since its launch in May 2006, the Bank has not only shown significant growth but has alsocapitalised on the robust demand for Islamic financial services. With its universal bankinglicence and 17 years of experience in offering Islamic banking products and services via theAmBank (M) Berhad's channels, the Bank continues to build its relationship with existingcustomers as well as cultivate new ones in providing a complete range of innovative retail and



customers as well as cultivate new ones in providing a complete range of innovative retail andcommercial banking products and services. This is further complemented by the AmBank (M)Berhad’s extensive network of branches including the third dedicated branch in InternationalIslamic University of Malaysia (IIUM), automatic teller machines, online banking, mobile bankingand e-banking centres nationwide.

The Bank showed significant progress in an increasingly competitive environment, in line withthe increased integration of the Malaysian Islamic financial system into the global Islamicfinancial landscape. With its pre-tax profit of RM209.1 million and total assets of RM20.2 billionas at 31st March 2011, it has proven itself as an important component of the Group’s business.Total financing was reported at RM13.2 billion, which accounted for 65.6% of total assets due tothe continued demand for financing in the retail and business banking segments. The Bank'stotal deposits had increased by 12.3% and stood at RM16.7 billion for the year ended 31stMarch 2011 due to our competitive rates offer to our customers.







i. Card•

ii.• AmAuto Cruise

iii. Home Financing• HomeLink Financing-i• MM Home Financing-i

iv. Personal Financing• AmMoneyLine Facility-i

v. Deposit Investment Product• Wakalah Investment Account-i• AmAdvance Investment Account-i

vi. Islamic Negotiable Instrument of Deposit (NID-i)• AmDaily Opportunities NID-i• AmEnergy NID-i

vii. SME Financing• Industrial Hire Purchase-i (Variable Rate)

•

•

•

•

Auto FinancingAmIslamic Bank CARz Card-i

the Bank collaborated with Perbadanan Tabung Pendidikan Tinggi Nasional ("PTPTN")to be the collection agent for the PTPTN financing payment;

Product and business development efforts remain the focus of the Bank. Apart from enhancingexisting products and developing new ones, the Bank also invests in tying up its productsthrough various alliances and collaborations with external parties to expand its product reachand market penetration. The following are new products launched by the Bank during thefinancial year:

The following are some of the major initiatives and awards received by the Bank during thefinancial year:

the Bank collaborated with Yayasan Waqaf Malaysia ("YWM") and UniversitiKebangsaan Malaysia ("UKM") to be the collection agent for their “Cash Waqaf Fund”via our extensive channels;Received Best Islamic Structured Product (AmIslamic Bank AmMomentum Select NID-i) from The Asset Triple A Islamic Finance Awards 2010;Received Best Islamic Product for AmMomentum Select NID-i from FinanceAsiaAward.

The Bank has fulfilled its obligation as a business organisation and also the corporate socialresponsibility to the community through its business zakat distribution for financial year 2010with zakat payment amounted to RM1.22 million. 34 charity homes and organizations wereselected as the recipient in addition to the 14 state zakat collection centers and being distributedthrough several events organised by the Bank.



The major strategic initiatives that will continue throughout FY 2012 include:

• Ongoing product development;

• Business tie-ups and dealings;

•

•

OUTLOOK FOR NEXT FINANCIAL YEAR

Gearing up development and capitalisation of business opportunities in equitybusiness; and

Increase business penetration for government and government-linked companies fordeposits and financing.

In tandem with the Bank retail focus strategy, the Bank has participated in Franchise Seminarand Business Opportunities Exhibition in February 2010 and the World Halal Forum andMalaysia International Halal Showcase (MIHAS) in June 2010 to promote our Islamic productsand services directly to the target market.

Regional trade is anticipated to continue to provide support to the domestic economic growth, asglobal economy shifts towards the Asian emerging markets. Nonetheless, recent developmentshave resulted in global volatilities, including the geo-political turmoils and natural disasters invarious parts of the world. Risk of surging inflationary pressures loom in view of the highcommodity prices resulting from scarcity and the frequent spate of unfortunate global events.

In Malaysia the still robust domestic demand and the implementation of the ETP are expected



The Group is well-positioned to weather economic uncertainties, whilst harnessing on growthopportunities in the market and industry. We are committed and focused on delivering increasing value to our shareholders as outlined in our Medium Term Aspirations.

Looking ahead, the Group will continue leveraging ANZ’s (The Australia and New ZealandBanking Group) international connectivity to drive business growth. ANZ’s well-establishedgeographical presence throughout Asia Pacific provides the Group the immediate access tocross-border markets. Plans are in place for higher collaborations in regional structuring andadvisory businesses, offshore fund management and Islamic banking, markets, and internationaltrade financing transactions.

In Malaysia, the still robust domestic demand and the implementation of the ETP are expectedto support gross domestic product (“GDP”) growth. For calendar year 2011, current consensusestimate projects the Malaysian GDP to grow, on average, at circa 5.0% to 6.0%.






ISSUANCE OF SHARES

SHARE OPTIONS

BAD AND DOUBTFUL DEBTS AND FINANCING

CURRENT ASSETS

VALUATION METHODS

There were no issuance of shares and debentures during the financial year.

No options have been granted by the Bank to any parties during the financial year to take upunissued shares of the Bank.

No shares have been issued during the financial year by virtue of the exercise of any option totake up unissued shares of the Bank. As at the end of the financial year, there were no unissuedshares of the Bank under options.

Before the income statement and statement of financial position of the Bank were made out, thedirectors took reasonable steps to ascertain that action had been taken in relation to the writingoff of bad debts and financing and the making of allowances for doubtful debts and financingand have satisfied themselves that all known bad debts and financing had been written off andadequate allowance had been made for doubtful debts and financing.

At the date of this report, the directors are not aware of any circumstances that would render theamount written off for bad debts and financing or the amount of allowance for doubtful debts andfinancing in the Bank inadequate to any substantial extent.

Before the income statement and statement of financial position of the Bank were made out, thedirectors took reasonable steps to ascertain that any current assets, other than debts andfinancing, which were unlikely to be realised in the ordinary course of business, their values asshown in the accounting records of the Bank, have been written down to their estimatedrealisable values.

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

At the date of this report, the directors are not aware of any circumstances which have arisenwhich render adherence to the existing methods of valuation of assets or liabilities in the Bank’sfinancial statements misleading or inappropriate.




CONTINGENT AND OTHER LIABILITIES

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

(a)

(b)

CHANGE OF CIRCUMSTANCES

DIRECTORS

Tan Sri Azman HashimTun Mohammed Hanif Omar Tan Sri Datuk Clifford Francis HerbertDato’ Gan Nyap Liou @ Gan Nyap Liow Dato' Dr. Mahani binti Zainal Abidin Cheah Tek KuangAshok Ramamurthy

any charge on the assets of the Bank which has arisen since the end of the financial yearand which secures the liability of any other person; or

The directors of the Bank who served on the Board since the date of the last report and at thedate of this report are:

In accordance with Article 87 of the Bank’s Articles of Association, Tan Sri Datuk Clifford FrancisHerbert retires at the forthcoming Annual General Meeting and, being eligible, offers himself forre-election.

any contingent liability in respect of the Bank that has arisen since the end of the financialyear, other than those incurred in the normal course of business.

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

Pursuant to Section 129 of the Companies Act, 1965, Tan Sri Azman Hashim and TunMohammed Hanif Omar, retire at the forthcoming Annual General Meeting ("AGM") and offerthemselves for reappointment to hold office until the conclusion of the next AGM.

At the date of this report, the directors are not aware of any circumstances, not otherwise dealtwith in this report or the financial statements of the Bank that would render any amount stated inthe financial statements misleading.




DIRECTORS' INTERESTS

DIRECT INTERESTS

In the holding company,AMMB Holdings Berhad ("AMMB")

Shares

Balance at Balance at1.4.2010 Bought Sold 31.3.2011

Cheah Tek Kuang 78,800 - - 78,800 Ashok Ramamurthy 100,000 - - 100,000

Scheme Shares *

Balance at Balance at1.4.2010 Granted Vested 31.3.2011

Cheah Tek Kuang 110,000 192,200 - 302,200 Ashok Ramamurthy 44,300 135,800 - 180,100

Shares Under Options *

Balance at Balance at1.4.2010 Granted Vested 31.3.2011

Cheah Tek Kuang 672,400 227,300 - 899,700 Ashok Ramamurthy 264,800 181,900 - 446,700

*

Under the Bank's Articles of Association, the directors are not required to hold shares in theBank.

The interests in shares and options in the holding company, of those who were directors at theend of the financial year as recorded in the Register of Directors’ Shareholdings kept by theBank under Section 134 of the Companies Act, 1965, are as follows:

No. of ordinary shares of RM1.00 each ("shares")

No. of shares pursuant to AMMB Executives' Share Scheme

No. of shares pursuant to AMMB Executives' Share Scheme

The vesting of the Scheme Shares and/or the entitlement to exercise the Options areconditional upon the satisfaction of service condition and the performance targets of theGroup, and all other conditions as set out in the By-Laws of AMMB Executives' ShareScheme.




DIRECTORS' INTERESTS (CONTD.)

INDIRECT INTERESTS

In the holding company,AMMB

Shares

Balance at Balance at1.4.2010 Bought Sold 31.3.2011

Tan Sri Azman Amcorp Group Hashim Berhad 503,853,918 1,926,636 - 505,780,554

DIRECTORS’ BENEFITS

By virtue of Tan Sri Azman Hashim's shareholding in the holding company, AMMB HoldingsBerhad, he is deemed to have interests in the shares of the Bank and its related corporations tothe extent the holding company has an interest.

No. of ordinary shares of RM1.00 eachName of

Company

None of the other directors in office at the end of the financial year had any interest in the sharesof the Bank or its related corporations during the year.

Since the end of the previous financial year, no director of the Bank has received or becomeentitled to receive a benefit (other than benefits included in the aggregate amount ofemoluments received or due and receivable by directors as shown in Note 29 to the financialstatements) by reason of a contract made by the Bank or a related corporation with the directoror with a firm in which the director is a member, or with a company in which the director has asubstantial financial interest except for related party transactions as shown in Note 28 to thefinancial statements.

Neither during nor at the end of the financial year, did there subsist any arrangements to whichthe Bank is a party to any arrangements whose object is to enable the directors to acquirebenefits by means of the acquisition of shares in, or debentures of, the Bank or any other bodycorporate, other than those arising from the scheme shares and options granted pursuant to theExecutives' Share Scheme of AMMB, the holding company.




CORPORATE GOVERNANCE

(a) BOARD RESPONSIBILITY AND OVERSIGHT

(b) COMMITTEES OF THE BOARD

1. Nomination Committee2. Remuneration Committee3. Audit and Examination Committee4. Risk Management Committee

The Board addresses key matters concerning strategy, finance, organisation structure,business developments, human resource (subject to matters reserved for shareholders'meetings by law), and establishes guidelines for overall business, risk and control policies,capital allocation and approves all key business developments.

The Board currently comprises seven (7) directors with wide skills and experience, four (4)of whom are Independent Non-Executive Directors. The Directors participate fully indecision-making on key issues regarding the Bank. The Independent Non-ExecutiveDirectors ensure strategies proposed by the management are fully discussed andexamined, as well as taking into account the long term interests of various stakeholders.

There is a clear division between the roles of Chairman and the Chief Executive Officer ofthe Bank. The Senior Management team of the Bank are invited to attend Board Meetingsto provide presentations and detailed explanations on matters that have been tabled. TheCompany Secretary has been empowered by the Board to assist the Board in matters ofgovernance and in complying with statutory duties.

The Board delegates certain responsibilities to the Board Committees. The Committees,which were created to assist the Board in certain areas of deliberations, are:

The Board of Directors (the “Board”) remains fully committed in ensuring that the principlesand best practices in corporate governance are applied consistently in the Bank. The Boardcomplies with the best practices in corporate governance as set out in the Malaysian Codeon Corporate Governance.

The Board supervises the management of the Bank’s businesses, policies and affairs withthe goal of enhancing shareholder's value. The Board meets nine (9) times in a year tocarry out its duties and responsibilities, with additional Board meetings being convened,whenever required.

The roles and responsibilities of each Committee are set out under the respective terms ofreference, which have been approved by the Board. The minutes of the Committeemeetings are tabled at the subsequent Board meetings for comment and notation.




CORPORATE GOVERNANCE (CONTD.)

(b) COMMITTEES OF THE BOARD (CONTD.)

Notes:1.2. N/A represents non-Committee member.

The attendance of Board members at the meetings of the Board and the various BoardCommittees is set out below:-

All attendances reflect the number of meetings attended during the Directors’ tenure of service.

Audit and RiskBoard of Nomination Remuneration Examination ManagementDirectors Committee Committee Committee Committee

Tan Sri Azman 9 3 2 N/A N/AHashim (Chairman)Tun Mohammed 8 3 N/A 7 N/AHanif Omar (Chairman)Tan Sri Datuk 9 3 2 7 6Clifford Francis (Chairman) (Chairman) (Chairman)HerbertDato' Gan Nyap 8 N/A N/A 7 6Liou @ Gan NyapLiowDato' Dr Mahani binti 8 N/A N/A N/A 5Zainal Abidin Cheah Tek Kuang 8 3 2 N/A N/AAshok 8 3 2 N/A N/ARamamurthyNumber of meetingsheld in FY2011 9 3 2 7 6

Number of meetings attended in Financial Year 2011 ("FY2011")






Nomination Committee

Remuneration Committee

Audit and Examination Committee

The Committee comprises five (5) members, two (2) of whom are Independent Non-Executive Directors. The Committee is responsible for regularly reviewing the boardstructure, size and composition, as well as making recommendation to the Board withregard to any changes that are deemed necessary. It also recommends the appointment ofDirectors to the Board and Committees of the Board as well as annually reviews the mix ofskills, experience and competencies that the Directors should bring to the Board.

The Committee also, on an annual basis assesses the effectiveness of the Board as awhole and the Committees as well as the contribution of the Chairman and each Director tothe effectiveness of the Board.

The Committee comprises four (4) members, all of whom are Non-Executive Directors. TheCommittee is responsible for determining and recommending to the Board the framework orbroad policy for the remuneration of the Directors, the Chief Executive Officer and otherSenior Management staff.

The Committee met three (3) times during the financial year 2011.

Remuneration is determined at levels which would enable the Bank to attract and retain theDirectors, the Chief Executive Officer and Senior Management staff with the relevantexperience and expertise in managing the Bank effectively.

The Committee comprises three (3) members, all of whom are Independent Non-ExecutiveDirectors. The Board has appointed the Audit and Examination Committee (“AEC”) to assistin discharging its duties of maintaining a sound system of internal controls to safeguard theBank’s assets and shareholder’s investments.

The AEC met during the financial year 2011 to review the scope of work of both the internalaudit function and the statutory auditors, the results arising thereafter as well as theirevaluation of the system of internal controls. The AEC also followed up on the resolution ofmajor issues raised by the internal auditors, statutory auditors as well as the regulatoryauthorities in the examination reports. The financial statements were reviewed by the AECprior to their submission to the Board of the Bank for adoption.






Audit and Examination Committee (Contd.)

Risk Management Committee

Internal Audit and Internal Control Activities

The Risk Management Committee exercises oversight on behalf of the Board to ensureadequate overall management of credit, market, liquidity, operational, legal and capital risksimpacting the Bank.

The Committee is independent from management and comprises three (3) members, all ofwhom are Independent Non-Executive Directors. The Committee ensures that the Board’srisk tolerance level is effectively enforced, the risk management process is in place andfunctioning and reviews high-level risk exposures to ensure that they are within the overallinterests of the Bank. It also assesses the Bank’s ability to accommodate risks undernormal and stress scenarios.

The Risk Management Department is independent of the various business units and acts asthe catalyst for the development and maintenance of comprehensive and sound riskmanagement policies, strategies and procedures within the Bank. The functions encompassresearch and analysis, portfolio risk exposure reporting, compliance monitoring, formulationof policies and risk assessment methodology, and formulation of risk strategies.

The Head of the Group Internal Audit Department reports to the AEC. Group Internal Auditassists the AEC in assessing and reporting on business risks and internal controls, andoperates within the framework defined in the Audit Charter.

The AEC approves the Group Internal Audit’s annual audit plan, which covers the audit ofall major business units and operations within the Bank. The results of each audit aresubmitted to the AEC and significant findings are discussed during the AEC meetings.

Risk management is an integral part of the Bank’s strategic decision-making process whichensures that the corporate objectives are consistent with the appropriate risk-return trade-off. The Board approves the risk management strategy and sets the broad risk tolerancelevel and also approves the engagement of new products or activities after considering therisk bearing capacity and readiness of the Bank.

In addition, the AEC has reviewed the procedures set up by the Bank to identify and report,and where necessary, seek approval for related party transactions and, with the assistanceof the internal auditors, reviewed related party transactions.






Internal Audit and Internal Control Activities (Contd.)

MANAGEMENT INFORMATION

All Directors review Board papers and reports prior to the Board meeting. Information andmaterials, relating to the operations of the Bank that are important to the Directors’understanding of the items in the agenda and related topics, are distributed in advance of themeeting. The Board reports, include among others, minutes of meetings of all Committees of theBoard, monthly performance of the Bank, credit risk management, asset liability and market riskmanagement and industry benchmarking as well as prevailing regulatory developments and theeconomic and business environment.

These reports are issued giving sufficient time before the meeting to enable the Directors to beprepared and to obtain further explanations, where necessary, and provides input on Bankpolicies.

Group Internal Audit focuses its efforts on performing audits in accordance with the auditplan, which is prioritised based on a comprehensive risk assessment of all significant areasof audit identified in the Bank. The structured audit risk assessment approach ensures thatall risk-rated areas are kept in view to ensure appropriate audit coverage and auditfrequency. The risk based audit plan is reviewed annually, taking into account the changingfinancial significance of the business and risk environment.

Group Internal Audit also performs investigations and special reviews, and participatesactively in major system development activities and project committees to advise on riskmanagement and internal control measures.

The minutes of the AEC meetings are formally tabled to the Board for notation and action,where necessary. The Chief Internal Auditor and the external auditors also attend the AECmeetings by invitation and the AEC holds separate meetings with the Chief Internal Auditorand external auditors whenever necessary.

The scope of internal audit covers review of adequacy of the risk management processes,operational controls, financial controls, compliance with laws and regulations, lendingpractices and information technology, including the various application systems inproduction, data centres and network security.



Note 2011 2010RM’000 RM’000

ASSETSCash and short-term funds 5 4,738,758 3,886,453 Deposits and placements with banks and other financial institutions 6 250,000 150,000 Derivative financial assets 7 3,258 3,461 Financial assets held-for-trading 8 991,136 350,934 Financial investments available-for-sale 9 715,937 907,930 Financing and advances 10 13,247,076 11,758,678 Other assets 11 124,657 81,626 Statutory deposit with Bank Negara Malaysia 12 - 32,079 Deferred tax asset 33 118,406 41,500 Property and equipment 13 654 317 Intangible assets 14 278 449

20,190,160 17,213,427

Deposits and placements of banks and other

STATEMENT OF FINANCIAL POSITIONAS AT 31 MARCH 2011

LIABILITIES AND EQUITY

TOTAL ASSETS



financial institutions 15 1,467,556 1,485,750 Derivative financial liabilities 7 3,254 3,458 Deposits from customers 16 15,249,655 13,398,040 Term funding 17 550,000 - Bills and acceptances payable 18 879,522 394,986 Subordinated Sukuk Musyarakah 20 400,000 400,000 Other liabilities 19 242,001 191,820 Provision for zakat 559 1,226 TOTAL LIABILITIES 18,792,547 15,875,280

Share capital 21 403,038 403,038 Reserves 22 994,575 935,109 Equity attributable to equity holder of the Bank 1,397,613 1,338,147

20,190,160 17,213,427

41 7,595,982 4,117,941

3.47 3.32

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


COMMITMENTS AND CONTINGENCIES

NET ASSETS PER SHARE (RM)





Note 2011 2010RM’000 RM’000

Income derived from investment of depositors' funds and others 23 1,025,632 884,705 Income derived from investment of shareholder's funds 24 153,974 148,294 Allowance for impairment on financing and advances 25 (247,791) (90,297) Impairment write back/(loss) on financial investments 4,218 (4,218) (Provision)/write back of provision for commitments and contingencies 19 (6,283) 12,713 Transfer from profit equalisation reserve 19 42,444 12,635 Total distributable income 972,194 963,832 Income attributable to the depositors 26 (448,841) (327,872) Total net income 523,353 635,960 Other operating expenses 27 (280,855) (259,250) Finance cost 31 (33,373) (20,100) Profit before zakat and taxation 209,125 356,610 Z k t (560) (1 270)

INCOME STATEMENTFOR THE YEAR ENDED 31 MARCH 2011



Zakat (560) (1,270) Taxation 32 (51,976) (93,995)

156,589 261,345

Earnings per share (sen):Basic/Diluted earnings per ordinary share 34 38.85 64.84


Profit for the year





STATEMENT OF COMPREHENSIVE INCOME

2011 2010RM’000 RM’000

Profit for the year 156,589 261,345

Other comprehensive (loss)/income:Net change in revaluation of financial investments available-for-sale (4,044) (9,005) Income tax relating to the components of other comprehensive income 1,011 2,252 Other comprehensive loss for the year, net of tax (3,033) (6,753)

Total comprehensive income for the year 153,556 254,592

FOR THE YEAR ENDED 31 MARCH 2011


Financial Statements For The Year Ended 31 March 201123AmIslamic Bank Berhad



AmIslamic Bank Berhad (Incorporated in Malaysia)



STATEMENT OF CHANGES IN EQUITY

<------------Non-distributable--------------> Distributable

Available-Share Share Statutory For-Sale RetainedCapital Premium Reserve Reserve Earnings TotalRM'000 RM'000 RM'000 RM'000 RM'000 RM'000

At 1 April 2009 403,038 534,068 168,773 8,906 168,770 1,283,555 Total comprehensive (loss)/income for the year - - - (6,753) 261,345 254,592 Transfer to statutory reserve - - 96,396 - (96,396) - Dividends (Note 35) - - - - (200,000) (200,000) At 31 March 2010 403,038 534,068 265,169 2,153 133,719 1,338,147

At 1 April 2010 As previously stated 403,038 534,068 265,169 2,153 133,719 1,338,147 Effects of adopting FRS139 - - - (5,444) (48,745) (54,189) At 1 April 2010 (restated) 403,038 534,068 265,169 (3,291) 84,974 1,283,958

Total comprehensive (loss)/income - for the year - - - (3,033) 156,589 153,556 Transfer to statutory reserve - - 39,147 - (39,147) - Dividends (Note 35) - - - - (39,901) (39,901) At 31 March 2011 403,038 534,068 304,316 (6,324) 162,515 1,397,613

<------------- Attributable to Equity Holder of the Bank ---------------->

FOR THE YEAR ENDED 31 MARCH 2011




2011 2010RM’000 RM’000

Profit before zakat and taxation 209,125 356,610 Adjustments for: Allowances for losses on financing 305,508 123,162 Depreciation of property and equipment 200 136 Amortisation of intangible assets 173 164 Impairment (write back)/loss on financial investments (4,218) 4,218 Transfer from profit equalisation reserve (42,444) (12,635) Accretion of discount less amortisation of premium (13,818) (1,259) Gain on disposal of financial assets held-for-trading (6,130) (2,952) Gain on disposal of financial investments available-for-sale (6,741) (4,665) (Gain)/loss on revaluation of financial assets held-for-trading (253) 716 Provision/(write back) of provision for commitments and contingencies 6,283 (12,713) Shares/options granted under Executives' Share Scheme 471 190 Operating profit before working capital changes 448 156 450 972

CASH FLOWS FROM OPERATING ACTIVITIES

FOR THE YEAR ENDED 31 MARCH 2011STATEMENT OF CASH FLOWS



Operating profit before working capital changes 448,156 450,972 (Increase)/decrease in operating assets: Deposits and placements with banks and other financial

institutions (100,000) (150,000) Financial assets held-for-trading (626,077) (142,148) Financing and advances (1,852,558) (2,071,363) Other assets (43,503) 24,622 Statutory deposit with Bank Negara Malaysia 32,079 54,000 Increase/(decrease) in operating liabilities: Deposits from customers 1,851,615 3,242,970 Deposits and placements of banks and other financial

institutions (18,194) 40,698 Bills and acceptances payable 484,536 (217,581) Other liabilities 32,904 234 Term funding 550,000 - Cash generated from operations 758,958 1,232,404 Zakat paid (1,227) (1,174) Tax paid (68,371) (27,000) Net cash generated from operating activities 689,360 1,204,230





2011 2010RM’000 RM’000

203,385 (335,574)

Purchase of property and equipment (537) (60) Purchase of intangible assets (2) (53) Net cash generated/(used) in investing activities 202,846 (335,687)

Dividends paid, representing net cash used in financing activity (39,901) (200,000)

Net increase in cash and cash equivalents 852,305 668,543Cash and cash equivalents at beginning of year 3,886,453 3,217,910 Cash and cash equivalents at end of year (Note 5) 4 738 758 3 886 453

FOR THE YEAR ENDED 31 MARCH 2011 (CONTD.)

CASH FLOW FROM FINANCING ACTIVITY

CASH FLOWS FROM INVESTING ACTIVITIES

STATEMENT OF CASH FLOWS

Net disposal/(purchase) of financial investment available-for-sale



Cash and cash equivalents at end of year (Note 5) 4,738,758 3,886,453






1.

2.

PRINCIPAL ACTIVITIES AND GENERAL INFORMATION

ADOPTION OF NEW AND REVISED FINANCIAL REPORTING STANDARDS ("FRSs")

The accounting policies adopted are consistent with those of the previous financial yearexcept for the adoption of the following FRSs, amendments to FRSs, IC Interpretationsand Technical Release:

NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2011

The Bank is a licensed Islamic banking institution providing Islamic retail and commercialbanking products and services in accordance with Shariah principles. There have been nosignificant changes in the nature of the activities of the Bank during the financial year.

The Bank is a licensed Islamic Bank under the Islamic Banking Act, 1983, incorporatedand domiciled in Malaysia. The registered office of the Bank is located at 22nd Floor,Bangunan AmBank Group, No. 55, Jalan Raja Chulan, 50200 Kuala Lumpur. The principalplace of business for the Retail and Business Banking Divisions are located at MenaraAmBank, Jalan Yap Kwan Seng, 50450 Kuala Lumpur and Menara Dion, Jalan SultanIsmail, 50250 Kuala Lumpur, respectively.

The financial statements of the Bank have been approved and authorised for issue by theBoard of Directors on 25 April 2011.



- FRS 4, Insurance Contracts- FRS 7, Financial Instruments: Disclosures- FRS 8, Operating Segments- FRS 101, Presentation of Financial Statements (revised)- FRS 123, Borrowing Costs (revised)- FRS 139, Financial Instruments: Recognition and Measurement- Amendments to FRS 1, First-time Adoption of Financial Reporting Standards and

FRS 127, Consolidated and Separate Financial Statements: Cost of an Investmentin a Subsidiary, Jointly Controlled Entity or Associate

- Amendments to FRS 2, Share-based Payment: Vesting Conditions and Cancellations- Amendments to FRS 132, Financial Instruments: Presentation and FRS 101,

Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation- Separation of Compound Instruments

- Amendments to FRS 132, Financial Instruments: Presentation – Classification of Rights Issues

- Amendments to FRS 139, Financial Instruments: Recognition and Measurement,FRS 7, Financial Instruments: Disclosures and IC Interpretation 9, Reassessment of Embedded Derivatives

- Reclassification of Financial Assets- Puttable Financial Instruments and Obligations Arising on Liquidation

and Technical Release:




2.

- Amendments to FRS 139, Financial Instruments: Recognition and Measurement- Collective Assessment of Impairment for Banking Institutions

- Improvements to FRSs (2009)- IC Interpretation 9, Reassessment of Embedded Derivatives- IC Interpretation 10, Interim Financial Reporting and Impairment- IC Interpretation 11, FRS 2 - Group and Treasury Share Transactions- IC Interpretation 13, Customer Loyalty Programmes- IC Interpretation 14, FRS 119 – The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and Their Interaction- TR i – 3, Presentation of Financial Statements of Islamic Financial Institutions

2.1 Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)

2.1a Standards affecting presentation and disclosure

2.1a(i) FRS 101, Presentation of Financial Statements (revised)

The following new and revised Standards and Interpretations have been adopted inthe current period and have affected the amounts reported in these financialstatements.

FRS 101 (revised) introduces changes in the presentation and disclosures offinancial statements FRS 101 (revised) separates owner and non owner

ADOPTION OF NEW AND REVISED FINANCIAL REPORTING STANDARDS ("FRSs")(CONTD.)



The Bank has adopted FRS 101 (revised) retrospectively.

financial statements. FRS 101 (revised) separates owner and non-ownerchanges in equity. The statement of changes in equity includes only details oftransactions with owners, with all non-owner changes in equity presented as asingle line. FRS 101 (revised) also introduces the statement of comprehensiveincome, with all items of income and expense recognised in profit or loss,together with all other items of income and expense recognised directly in equity,either in one single statement, or in two linked statements. The Bank has optedfor the two statements approach. The adoption of FRS 101 (revised) did notimpact the financial position or results of the Bank as the changes introduced arepresentational in nature.

In addition, a statement of financial position is required at the beginning of theearliest comparative period following a change in accounting policy, thecorrection of an error or the reclassification of items in the financial statements.

The FRS101 (revised) also requires the Bank to make new disclosures to enableusers of the financial statements to evaluate the Bank's objectives, policies andprocesses for managing capital (see Note 42).




2.

2.1 Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) (Contd.)

2.1a Standards affecting presentation and disclosure (Contd.)

2.1a(ii) FRS 4, Insurance Contracts

2.1a(iii) FRS 117, Leases

2.1a(iv) FRS 7, Financial Instruments: Disclosures

FRS 4 specifies the financial reporting requirements for insurance contracts byany entity that issues such contracts (insurers). In particular, it requiresdisclosures that identify and explain the amounts in an insurer’s financialstatements arising from insurance contracts and helps users of those financialstatements understand the amount, timing and uncertainty of future cash flowsfrom insurance contracts. FRS 4 is not relevant to the Bank.


The amendments to FRS 117 require leasehold land which is in substancefinance leases to be classified as Property, Plant and Equipment or InvestmentProperty as appropriate. The change in accounting policy does not have anyimpact to the financial performance or position of the Bank as the Bank does nothave any leasehold land.



Prior to 1 January 2010, information about financial instruments was disclosed inaccordance with the requirements of FRS 132, Financial Instruments: Disclosureand Presentation. FRS 7 introduces new disclosures to improve the informationabout financial instruments. It requires the disclosure of qualitative andquantitative information about exposure to risks arising from financialinstruments, including specified minimum disclosures about credit risk, liquidityrisk, market risk and sensitivity analysis to market risk.

The Bank has applied FRS 7 prospectively in accordance with the transitionalprovisions. Hence, FRS 7 disclosures have not been applied to the comparativesbut have been included throughout the Bank’s financial statements for the yearended 31 March 2011.




2.


2.1a Standards affecting presentation and disclosure (Contd.)

2.1a(v) FRS 8, Operating Segments

2.1a(vi) IC Interpretation 13, Customer Loyalty Programmes

FRS 8, which replaces FRS 114, Segment Reporting, specifies how an entityshould report information about its operating segments, based on informationabout the components of the entity that is available to the chief operatingdecision maker for the purposes of allocating resources to the segments andassessing their performance. FRS 8 also requires the disclosure of informationabout the products and services provided by the segments, the geographicalareas in which the Bank operates, and revenue from the Bank’s majorcustomers. The Bank concluded that the reportable operating segmentsdetermined in accordance with FRS 8 are the same as the business segmentspreviously identified under FRS 114. The Bank has adopted FRS 8retrospectively. These revised disclosures, including the related revisedcomparative information, are shown in Note 36.

IC Interpretation 13 clarifies that where goods or services are sold together witha customer loyalty incentive (for example loyalty points or free products) the




The Bank’s AmBonus Rewards Program, operated for the benefit of the Bank’scredit card customers, falls within the scope of IC Interpretation 13. Under theAmBonus Rewards Program, credit card customers are entitled to bonus pointsthat can be used to redeem gifts and vouchers. The accounting treatmentadopted by the Bank for customer loyalty programmes is consistent with ICInterpretation 13, except that the Bank recorded the expense of the AmBonuspoints as a set off against finance income in the past. The Bank has applied ICInterpretation 13 retrospectively in accordance with the transitional provisions ofIC Interpretation 13 and has reclassified the expense of the AmBonus pointsfrom finance income to fee income to reflect the multiple element arrangement.This reclassification did not affect earnings per ordinary share for the current andprior periods.

a customer loyalty incentive (for example, loyalty points or free products), thearrangement is a multiple element arrangement. The consideration receivablefrom the customer is allocated between the components of the arrangementusing fair values.




2.


2.1b Standards and Interpretations affecting the reported results or financial position

FRS 139, Financial Instruments: Recognition and Measurement

(i) Impairment of Financing and Advances

The adoption of FRS 139 changes the accounting policy relating to theassessment for impairment of financial assets, particularly financing andadvances. The existing accounting policies on the assessment of impairment ofother financial assets of the Bank are in line with those of FRS 139. Prior to theadoption of FRS 139, allowances for impaired financing (previously referred to asnon-performing financing) were computed in conformity with the BNM/GP3Guidelines on Classification of Non-Performing Loans and Provision forSubstandard, Bad and Doubtful Debts. Upon adoption of FRS 139, the Bankassesses, at the end of each reporting period, whether there is any objective

FRS 139 establishes the principles for the recognition, derecognition andmeasurement of an entity's financial instruments and for hedge accounting. The Bankhas adopted FRS 139 prospectively. The effects arising from the adoption of FRS 139has been accounted for by adjusting the opening balance of retained earnings andreserves as at 1 April 2010. Comparatives are not restated.




assesses, at the end of each reporting period, whether there is any objectiveevidence that a financing or group of financing is impaired. The financing orgroup of financing is deemed to be impaired if, and only if, there is objectiveevidence of impairment as a result of one or more events that has occurred afterthe initial recognition of the financing (an incurred 'loss event') and that the lossevent has an impact on the estimated future cash flows of the financing or groupof financing that can be reliably estimated.




2.


2.1b Standards and Interpretations affecting the reported results or financial position(Contd.)

FRS 139, Financial Instruments: Recognition and Measurement (Contd.)

(i) Impairment of Financing and Advances (Contd.)

The Bank first assesses whether objective evidence of impairment existsindividually for financing which are individually significant, and collectively forfinancing which are not individually significant. If it is determined that noobjective evidence of impairment exists for an individually assessed financing,the financing is included in a group of financing with similar credit riskcharacteristics for purposes of calculating an estimated collective loss. Futurecash flows on a group of financial assets that are collectively assessed forimpairment are estimated on the basis of historical loss experience for assetswith credit risk characteristics similar to those in the group.

If there is objective evidence that an impairment loss has been incurred, theamount of the loss is measured as the difference between the financing'scarrying amount and the present value of the estimated future cash flows. Thecarrying amount of the financing is reduced through the use of an allowance




The changes in accounting policies above have been accounted forprospectively, in line with the transitional provisions in paragraph 103AA of FRS139, with adjustments to the carrying values of financial assets affecting profit orloss as at the beginning of the current financial period being adjusted to openingretained earnings as tabulated in Note 2.1b(iv) below.

carrying amount of the financing is reduced through the use of an allowanceaccount and the amount of the loss is recognised in profit or loss.

The Bank is currently reporting under the BNM’s transitional arrangement asprescribed in its guidelines on Classification and Impairment Provisions forLoans/Financing issued on 8 January 2010 and as allowed by the MalaysianAccounting Standards Board ("MASB") in its Amendments to FRS 139 issued onthe same date. Pursuant to this transitional arrangement, banking institutions arerequired to maintain collective assessment impairment allowances of at least1.5% of total outstanding financing, net of individual impairment allowance.




2.




(ii) Financing Income Recognition

FRS 139 prescribes that financial assets classified as held-to-maturity andfinancing and receivables are measured at amortised cost using the effectiveprofit method. On adoption of FRS 139 on 1 April 2010, profit on financing andadvances is no longer recognised based on contractual profit rates but theeffective profit rate is applied instead. Effective profit rate refers to the rate thatexactly discounts the estimated future cash receipts through the expected life ofthe financing or, when appropriate, a shorter period to the net carrying amount ofthe financing.

This change in accounting policy has been accounted for prospectively in linewith the transitional provisions in paragraph 103AA of FRS 139 and the resultingopening retained earnings adjustment is tabulated in Note 2.1b(iv) below.

Prior to the adoption of FRS 139, profit accrued and recognised as income prior




(iii) Recognition of Embedded Derivatives

to the date that a financing is classified as non-performing is reversed out ofincome and set-off against the profit receivable account in the statement offinancial position. Thereafter, profit on the non-performing financing isrecognised as income on a cash basis. On adoption of FRS 139, once afinancing has been written down for impairment loss, subsequent profit incomethereafter is recognised using the rate of profit used to discount the future cashflows for the purpose of measuring the impairment loss. The opening retainedearnings adjustment as a result of this change in accounting policy is presentedin Note 2.1b(iv) below.

On adoption of FRS 139, embedded derivatives are to be separated from thehost contract and accounted for as a derivative if the economic characteristicsand risks of the embedded derivative are not closely related to that of the hostcontract and the fair value of the resulting derivative can be reliably measured.

The Bank has assessed the impact of this requirement on adoption of FRS 139on 1 April 2010 and concluded that there were no material embedded derivativeswhich were not closely related to the host contracts and which requiredbifurcation.




2.




(iv) Opening Retained Earnings Adjustments

The application of the above new accounting policies has the following effects:

At 1 April 2010 At 1 April(as previously Remeasure- 2010

stated) ments (restated)Statement of Financial Position RM'000 RM'000 RM'000

ASSETSCash and short-term funds 3,886,453 - 3,886,453 Deposits and placements with banks and other financial institutions 150,000 - 150,000 Derivative financial assets 3,461 - 3,461 Financial assets held-for-trading 350,934 (471) 350,463




g ( )Financial investments available- for-sale 907,930 (1,129) 906,801 Financing and advances 11,758,678 (58,652) 11,700,026 Other assets 81,626 - 81,626 Statutory deposit with Bank Negara Malaysia 32,079 - 32,079 Deferred tax asset 41,500 18,063 59,563 Property and equipment 317 - 317 Intangible assets 449 - 449

17,213,427 17,171,238

Deposits and placements of banks and other financial institutions 1,485,750 - 1,485,750 Derivative financial liabilities 3,458 - 3,458 Deposits from customers 13,398,040 - 13,398,040 Bills and acceptances payable 394,986 - 394,986 Subordinated Sukuk Musyarakah 400,000 - 400,000 Other liabilities 191,820 12,000 203,820 Provision for zakat 1,226 - 1,226

15,875,280 15,887,280 TOTAL LIABILITIES

TOTAL ASSETS

LIABILITIES AND EQUITY




2.




(iv) Opening Retained Earnings Adjustments (Contd.)

At 1 April 2010 At 1 April(as previously Remeasure- 2010

stated) ments (restated)RM'000 RM'000 RM'000

Share capital 403,038 - 403,038 Share premium 534,068 - 534,068 Statutory reserve 265,169 - 265,169 Available-for-sale reserve 2,153 (5,444) (3,291) Retained earnings 133,719 (48,745) 84,974 Equity attributable to equity holder of the Bank 1,338,147 1,283,958

TOTAL LIABILITIES AND




17,213,427 17,171,238

Financial impact of adoption of FRS 139 for financial year 2011:

Increase/(decrease)

2011Statement of Financial Position RM'000

Financial assets held-for-trading (1,230) Financial investments available-for-sale (1,213) Financing and advances (75,444) Deferred tax asset 52,583 Other liabilities - provision for commitments and contingencies 5,941 Other liabilities - provision for tax 31,626 Available-for-sale reserve (910) Retained earnings (61,961)





2.




(iv) Opening Retained Earnings Adjustments (Contd.)

Financial impact of adoption of FRS 139 for financial year 2011 (Contd.):

Increase/(decrease)

2011Income Statement RM'000

Income derived from investment of depositors' funds and others (6,623) Income derived from investment of shareholder's funds 7,078 Allowances for impairment on financing and advances 77,129 Provision for commitments and contingencies 5,941 Total distributable income (82,615) Total net income (82,615)




ota et co e (8 ,6 5)Profit before zakat and taxation (82,615) Taxation (20,654) Profit after zakat and taxation (61,961)

Increase/(decrease)

2011Sen per share

Basic/Diluted earnings per ordinary share (15.4)

Increase/(decrease)

2011Statement of Comprehensive Income RM'000

Net change in revaluation of financial investments available-for-sale (1,213) Income tax relating to the components of other comprehensive income 303 Other comprehensive income for the period, net of tax (910) Total comprehensive income for the period (62,871)




2.

2.2 Standards and interpretations in issue but not yet adopted

2.2a FRSs, IC Interpretations and amendments effective for annual periods beginning on or after 1 July 2010

FRS 1, First-time Adoption of Financial Reporting Standards (revised) FRS 3, Business Combinations (revised) Amendments to FRS 127, Consolidated and Separate Financial Statements Amendments to FRS 2, Share-based Payment Amendments to FRS 5, Non-current Assets Held for Sale and Discontinued Operations Amendments to FRS 138, Intangible Assets Amendments to IC Interpretation 9, Reassessment of Embedded Derivatives IC Interpretation 12, Service Concession Arrangements IC Interpretation 15, Agreements for the Construction of Real Estate IC Interpretation 16, Hedges of a Net Investment in a Foreign Operation IC Interpretation 17, Distributions of Non-cash Assets to Owners

2.2b Technical Release effective for annual periods ending on or after 31 December 2010

The Bank has not yet adopted the following accounting standards and interpretationsthat have been issued but are not yet effective:




TR 3, Guidance on Disclosures of Transition to IFRSs

2.2c FRSs, IC Interpretations and amendments effective for annual periodsbeginning on or after 1 January 2011

Amendments to FRS 1, First-time Adoption of Financial Reporting Standards – Limited Exemption from Comparative FRS 7 Disclosures for

First-time Adopters– Additional Exemptions for First-time Adopters

Amendments to FRS 2, Share-based Payment – Group Cash-settled Share-based Payment Transactions Amendments to FRS 7, Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments IC Interpretation 4, Determining whether an Arrangement contains a Lease IC Interpretation 18, Transfers of Assets from Customers TR i – 4, Shariah Compliant Sale Contracts

2.2d FRSs, IC Interpretations and amendments effective for annual periodsbeginning on or after 1 July 2011

IC Interpretation 19, Extinguishing Financial Liabilities with Equity Instruments




2.

2.2 Standards and interpretations in issue but not yet adopted (Contd.)

2.2e FRSs, IC Interpretations and amendments effective for annual periods beginning on or after 1 January 2012

Amendment to IC Interpretation 15, Agreements for the Construction of Real Estate

3.

3.1 Statement of compliance

3 2 Basis of preparation

The financial statements of the Bank have been prepared in accordance with theprovisions of the Companies Act, 1965, the Islamic Banking Act, 1983, Shariahprinciples and Financial Reporting Standards in Malaysia as modified by BNMGuidelines and Circulars.

Except for the new disclosures required under the Amendments to FRS 7, theDirectors expect that the adoption of the other accounting standards andinterpretations above will not have material impact on the financial statements in theperiod of initial application.


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



3.2 Basis of preparation

3.3 Foreign currency

3.3a Functional and presentation currency

The financial statements of the Bank have been prepared on the historical cost basisexcept as disclosed in the accounting policies below.

The financial statements of the Bank are measured using the currency of theprimary economic environment in which the Bank operates (“the functionalcurrency”). For the purpose of the financial statements, the results and financialposition of the Bank are expressed in RM, which is the functional currency of theBank and the presentation currency for the financial statements.

The financial statements are presented in Ringgit Malaysia (“RM”) and all values arerounded to the nearest thousand (RM’000) except when otherwise indicated.




3.

3.3 Foreign currency (Contd.)

3.3b Foreign currency transactions

3.4 Property, plant and equipment

In preparing the financial statements of the Bank, transactions in currenciesother than the Bank’s functional currency (foreign currencies) are recognised atthe rates of exchange approximating those ruling at the transaction dates.Monetary assets and liabilities denominated in foreign currencies are translatedat the rate of exchange ruling at the reporting date. Non-monetary itemsdenominated in foreign currencies measured at fair value are translated usingthe exchange rates at the date when the fair value was determined. Non-monetary items denominated in foreign currencies that are measured athistorical cost are translated using the exchange rates as at the dates of theinitial transactions.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

Exchange differences arising on the settlement of monetary items or ontranslating monetary items at the reporting date are recognised in profit or lossexcept for exchange differences arising on the translation of non-monetary itemscarried at fair value are included in profit or loss for the period except for thedifferences arising on the translation of non-monetary items in respect of whichgains and losses are recognised in other comprehensive income andaccumulated in equity under exchange fluctuation reserve.



3.4a Recognition and measurement

All items of property, plant and equipment are initially recorded at cost. The costof an item of property, plant and equipment is recognised as an asset if, and onlyif, it is probable that future economic benefits associated with the item will flow tothe Bank and the cost of the item can be measured reliably.

Cost includes expenditures that are directly attributable to the acquisition of theasset and any other costs directly attributable to bringing the asset to workingcondition for its intended use, and the costs of dismantling and removing theitems and restoring the site on which they are located. The cost of self-constructed assets also includes the cost of materials and direct labour. Forqualifying assets, borrowing costs are capitalised in accordance with theaccounting policy on borrowing costs.

Purchased computer software that is integral to the functionality of the relatedequipment is capitalised as part of that equipment.




3.

3.4 Property, plant and equipment (Contd.)

3.4a Recognition and measurement (Contd.)

3.4b Subsequent costs

3.4c Depreciation

Subsequent to initial recognition, property, plant and equipment are measured atcost less accumulated depreciation and accumulated impairment losses. Whensignificant parts of property and equipment are required to be replaced inintervals, the Bank recognises such parts as individual assets with specific usefullives and depreciation, respectively. Likewise, when a major inspection isperformed, its cost is recognised in the carrying amount of the property, plantand equipment as a replacement if the recognition criteria are satisfied. All otherrepairs and maintenance are recognised in profit or loss as incurred.


The cost of property, plant and equipment recognised as a result of a businesscombination is based on fair value at acquisition date. The fair value of propertyis the estimated amount for which a property could be exchanged betweenknowledgeable willing parties in an arm’s length transaction after propermarketing wherein the parties had each acted knowledgeably, prudently andwithout compulsion. The fair value of other items of plant and equipment isbased on the quoted market prices for similar items when available andreplacement cost when appropriate.



Leasehold improvements 20%Motor vehicles 20%Computer hardware 20%Office equipment, furniture and fittings 20% - 25%

An item of property and equipment is derecognised upon disposal or when nofuture economic benefits are expected from its use or disposal. Any gain or losson derecognition of the asset is included in profit or loss in the year the asset isderecognised.

Depreciation of property and equipment is computed on a straight-line basis overthe estimated useful lives of the assets.

The annual depreciation rates for the various classes of property and equipmentare as follows:

The carrying values of property and equipment are reviewed for impairmentwhen events or changes in circumstances indicate that the carrying value maynot be recoverable.

The residual value, useful life and depreciation method are reviewed at eachfinancial year end, and adjusted prospectively, if appropriate.




3.

3.5 Leases

3.6 Intangible assets

An intangible asset is recognised only when its cost can be measured reliably and it isprobable that the expected future economic benefits that are attributable to it will flow


Finance leases, which transfer to the Bank substantially all the risks and rewardsincidental to ownership of the leased item, are capitalised at the inception of the leaseat the fair value of the leased asset or, if lower, at the present value of the minimumlease payments. Any initial direct costs are also added to the amount capitalised.Leased payments are apportioned between the finance charges and reduction of thelease liability so as to achieve a constant rate of profit on the remaining balance of theliability. Finance charges are charged to profit or loss. Contingent rents, if any, arecharged as expenses in the periods in which they are incurred.

Leased assets are depreciated over the estimated useful life of the asset. However, ifthere is no reasonable certainty that the Bank will obtain ownership by the end of thelease term, the asset is depreciated over the shorter of the estimated useful life andthe lease term.

Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. The aggregate benefit of incentives provided by thelessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.



probable that the expected future economic benefits that are attributable to it will flowto the Bank. Intangible assets of the Bank comprise computer software.

Purchased computer software that is not integral to the functionality of the relatedequipment is capitalised on the basis of the costs incurred to acquire and bring thesoftware application to use. Costs associated with maintaining computer softwareapplications are recognised as expense when incurred. Costs that are directlyassociated with the software application development stage are recognised asintangible assets. Costs directly associated with software application developmentinclude employee payroll and payroll related costs.

Subsequent to initial recognition, computer software is measured at cost lessaccumulated amortisation and accumulated impairment losses.

Computer software is amortised on a straight-line basis over the estimated usefullives of 3 to 7 years and assessed for impairment whenever there is an indication thatthe computer software may be impaired. The amortisation period and the amortisationmethod are reviewed at least at each financial year end. Changes in the expecteduseful life or the expected pattern of consumption of future economic benefitsembodied in the asset is accounted for by changing the amortisation period ormethod, as appropriate, and are treated as changes in accounting estimates.




3.

3.7 Financial assets and financial liabilities (excluding derivatives)

a) financial assets held at fair value through profit or loss; b) financing and receivables; c) held-to-maturity investments; and d) available-for-sale investments.

Financial liabilities are classified as either held:a) at fair value through profit or loss, or b) at amortised cost, that is, included as other financial liabilities.

Management determines the classification of its financial assets and financialliabilities at initial recognition or, where appropriate, at the time of reclassification.

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


Financial assets and financial liabilities are recognised in the statement of financialposition when, and only when, the Bank becomes a party to the contractual provisionsof the financial instrument. The Bank classifies its financial assets into the followingmeasurement categories:



3.7a Financial assets and liabilities held at fair value through profit or loss

3.7a(i) Financial assets held-for-trading

A financial asset is classified as held-for-trading if it is acquired principallyfor the purpose of selling it in the near term.

This category comprises two sub-categories: financial assets and financialliabilities held-for-trading, and those designated by management as at fair valuethrough profit or loss at inception.




3.

3.7 Financial assets and financial liabilities (excluding derivatives) (Contd.)

3.7a

3.7a(ii)

•

•

•

3.7b Financing and receivables

Financing and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market and it is expected

the assets or liabilities include embedded derivatives and suchderivatives are required to be recognised separately.

the application of the fair value option eliminates or significantlyreduces a measurement or recognition inconsistency that wouldotherwise arise from measuring assets or liabilities on a differentbasis; or

Financial assets and financial liabilities may be designated at fair valuethrough profit or loss when the following criteria are met, and designationis determined on an instrument by instrument basis:

the financial assets and/or liabilities are part of a portfolio of financialinstruments which is managed and its performance evaluated on afair value basis; or


Financial assets and financial liabilities designated at fair valuethrough profit or loss

Financial assets and liabilities held at fair value through profit or loss(Contd.)



3.7c Held-to-maturity investments

3.7d Available-for-sale investments

determinable payments that are not quoted in an active market and it is expectedthat substantially all of the initial investment will be recovered, other thanbecause of credit deterioration.

Held-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and fixed maturities that the Bank has the positiveintention and ability to hold the investment to maturity.

As at 31 March 2011, the Bank does not have any investments held-to-maturity(2010: RM Nil).

Available-for-sale investments are those non-derivative financial assets intendedto be held for an indefinite period of time, which may be sold in response toliquidity requirements or changes in profit rates, exchange rates, commodityprices or equity prices.

Available-for-sale investments refer also to assets that are designated asavailable-for-sale or are not classified in any of the three preceding categories.




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3.7e Initial recognition

Regular way purchases or sales are purchases or sales of financial assets thatrequire delivery of assets within the period generally established by regulation orconvention in the marketplace concerned. All regular way purchases and sales offinancial assets are recognised or derecognised on the trade date i.e., the datethat the Bank commits to purchase or sell the asset.

Purchases and sales of financial assets and financial liabilities held at fair valuethrough profit or loss, financial assets held-to-maturity and available-for-sale areinitially recognised on trade date.

Financing and receivables are recognised when cash is advanced to theborrowers.

Financial assets and financial liabilities are initially recognised at fair value plus,for those financial assets and financial liabilities not carried at fair value throughprofit or loss, directly attributable transaction costs. In those cases where theinitially recognised fair value is based on a valuation model that uses inputswhich are not observable in the market, the difference between the transactionprice and the valuation model is not recognised immediately in profit or loss. Thedifference is amortised to profit or loss until the inputs become observable, or thetransaction matures or is terminated.




3.7f Subsequent measurement

3.7f(i)

3.7f(ii) Financing and receivables

Financial assets held at fair value through profit or loss are subsequentlycarried at fair value, with gains and losses arising from changes in fairvalue recognised in profit or loss. Net gains or net losses on financialassets at fair value through profit or loss do not include exchangedifferences, profit and dividend income. Exchange differences, profit anddividend income on financial assets at fair value through profit or loss arerecognised separately in profit or loss as part of other losses or otherincome.

Financial assets and financial liabilities designated at fair valuethrough profit or loss

Financing and receivables are subsequently measured at amortised costusing the effective profit method. Gains and losses are recognised in profitor loss when the financing and receivables are derecognised or impaired,and through the amortisation process.




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3.7f Subsequent measurement (Contd.)

3.7f(iii) Held-to-maturity investments

3.7f(iv) Available-for-sale investments

Available-for-sale investments are subsequently carried at fair value. Anygains or losses from changes in fair value of the financial assets arerecognised in other comprehensive income, except that impairment losses,foreign exchange gains and losses on monetary instruments and profitcalculated using the effective profit method are recognised in profit or loss.The cumulative gain or loss previously recognised in other comprehensiveincome and accumulated in equity under available-for-sale reserve isreclassified from equity to profit or loss as a reclassification adjustmentwhen the financial asset is derecognised. Profit income calculated usingthe effective profit method is recognised in profit or loss. Dividends on anavailable-for-sale equity instrument are recognised in profit or loss whenthe Bank’s right to receive payment is established.

Held-to-maturity investments are subsequently measured at amortisedcost using the effective profit method. Gains and losses are recognised inprofit or loss when the held-to-maturity investments are derecognised orimpaired, and through the amortisation process.




3.7g Sell and buy back agreements

3.7h Other financial liabilities

g p y

Investments in equity instruments whose fair value cannot be reliablymeasured are measured at cost less impairment loss.

These are obligations of the Bank to perform its commitment to buy backspecified Islamic securities at maturity. Gains and losses are recognised uponsale and shown as trading gain or loss from securities held-for-trading.

Financial liabilities that are not classified as at fair value through profit or loss fallinto this category and are measured at amortised cost using the effective profitmethod. Financial liabilities measured at amortised cost are deposits fromcustomers or banks, debt securities in issue for which the fair value option is notapplied, bonds, subordinated debts, borrowings, bills and acceptances payable,trade and other payables.




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3.7i Borrowings

3.7j Determination of fair value

For financial instruments traded in active markets, the determination of fairvalues of financial assets and financial liabilities is based on quoted marketprices or dealer price quotations. This includes listed equity securities andquoted debt instruments on major exchanges and broker quotes fromBloomberg, Bond Pricing Agency Malaysia and Reuters.

A financial instrument is regarded as quoted in an active market if quoted pricesare readily and regularly available from an exchange, dealer, broker, industrygroup, pricing service or regulatory agency, and those prices represent actualand regularly occurring market transactions on an arm’s length basis. If theabove criteria are not met, the market is regarded as being inactive. Indicationsthat a market is inactive are when there is a wide bid-offer spread or significantincrease in the bid-offer spread or there are few recent transactions.


All borrowings are initially recognised at the fair value of the considerationreceived less directly attributable transaction costs. After initial recognition, profitbearing borrowings are subsequently measured at amortised cost using theeffective profit method. Gains and losses are recognised in profit or loss whenthe liabilities are derecognised, and through the amortisation process.



For all other financial instruments, fair value is determined using valuationtechniques. In these techniques, fair values are estimated from observable datain respect of similar financial instruments using models to estimate the presentvalue of expected future cash flows or other valuation techniques, using inputs(for example, KLIBOR/LIBOR yield curve, foreign exchange rates, volatilities andcounterparty spreads) existing at the dates of the statement of financial position.

The Bank uses widely recognised valuation models for determining fair values ofnon-standardised financial instruments of lower complexity such as options. Forthese financial instruments, inputs into models are generally market observable.

For more complex instruments, the Bank uses internally developed models,which are usually based on valuation methods and techniques generallyrecognised as standard within the industry. Valuation models are used primarilyto value derivatives transacted in the over-the-counter market, unlisted debtsecurities (including those with embedded derivatives) and other debtinstruments for which markets were or have become illiquid. Some of the inputsto these models may not be market observable and are therefore estimatedbased on assumptions.

increase in the bid offer spread or there are few recent transactions.




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3.7j Determination of fair value (Contd.)

The Bank uses its own credit risk spreads in determining the current value for itsderivative liabilities and all other liabilities for which it has elected the fair valueoption. When the Bank’s credit spreads widen, the Bank recognises a gain onthese liabilities because the value of the liabilities has decreased. When theBank’s credit spreads narrow, the Bank recognises a loss on these liabilitiesbecause the value of the liabilities has increased.

The output of a model is always an estimate or approximation of a value thatcannot be determined with certainty, and valuation techniques employed may notfully reflect all factors relevant to the positions the Bank holds. Valuations aretherefore adjusted, where appropriate, to allow for additional factors includingmodel risks, liquidity risk and counterparty credit risk. Based on the establishedfair value model governance policies, and related controls and proceduresapplied, management believes that these valuation adjustments are necessaryand appropriate to fairly state the values of financial instruments carried at fairvalue in the statement of financial position. Price data and parameters used inthe measurement procedures applied are generally reviewed carefully andadjusted, if necessary, particularly in view of the current market developments.

The fair value of over-the-counter derivatives is determined using valuationth d th t l t d i th fi i l k t h t




methods that are commonly accepted in the financial markets, such as presentvalue techniques and option pricing models. The fair value of foreign exchangeforwards is generally based on current forward exchange rates.

In cases when the fair value of unlisted equity instruments cannot be determinedreliably, the instruments are carried at cost less impairment. The fair value forfinancing and advances as well as liabilities to banks and customers aredetermined using a present value model on the basis of contractually agreedcash flows, taking into account credit quality, liquidity and costs.

The fair values of contingent liabilities and irrevocable financing commitmentscorrespond to their carrying amounts.




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3.7k Recognition of day-one profit or loss

The best evidence of fair value at initial recognition is the transaction price (thatis, the fair value of the consideration given or received), unless the fair value ofthat instrument is evidenced by comparison with other observable current markettransactions in the same instrument (that is, without modification or repackaging)or based on a valuation technique whose variables include only data fromobservable markets.

The Bank has entered into transactions where fair value is determined usingvaluation models for which not all inputs are market observable prices or rates.Such financial instruments are initially recognised at the transaction price,although the value obtained from the relevant valuation model may differ. Thedifference between the transaction price and the model value, commonlyreferred to as “day-one profit and loss”, is not recognised immediately in profit orloss.

The timing of recognition of deferred day-one profit and loss is determinedindividually. It is either amortised over the life of the transaction, deferred untilthe instrument’s fair value can be determined using market observable inputs, orrealised through settlement. The financial instrument is subsequently measuredat fair value, adjusted for the deferred day-one profit and loss. Subsequentchanges in fair value are recognised immediately in the profit or loss withoutimmediate reversal of deferred day one profits and losses




3.7l Reclassifications

Held-for-trading non-derivative financial assets can only be transferred out of theheld at fair value through profit or loss category in the following circumstances: tothe available-for-sale category, where, in rare circumstances, they are no longerheld for the purpose of selling or repurchasing in the near term; or to thefinancing and receivables category, where they are no longer held for thepurpose of selling or repurchasing in the near term and they would have met thedefinition of a financing and receivable at the date of reclassification and theBank has the intent and ability to hold the assets for the foreseeable future oruntil maturity.

immediate reversal of deferred day-one profits and losses.

Financial assets can only be transferred out of the available-for-sale category tothe financing and receivables category, where they would have met the definitionof a financing and receivable at the date of reclassification and the Bank has theintent and ability to hold the assets for the foreseeable future or until maturity.

Reclassifications of financial assets, other than as set out below, or of financialliabilities between categories are not permitted following their initial recognition.




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3.7l Reclassifications (Contd.)

3.8 Renegotiated financing

Where possible, the Bank seeks to restructure financing rather than to takepossession of collateral. This may involve extending the payment arrangements andthe agreement of new financing conditions. Once the terms have been renegotiated,any impairment is measured using the original effective profit rate as calculatedbefore the modification of terms and the financing is no longer considered past due.Management continuously reviews renegotiated financing to ensure that all criteriaare met and that future payments are likely to occur. The financing continues to besubject to an individual or collective impairment assessment, calculated using the

Held-to-maturity investments must be reclassified to the available-for-salecategory if the portfolio becomes tainted following the sale of other than aninsignificant amount of held-to-maturity investments prior to their maturity.

Financial assets are reclassified at their fair value on the date of reclassification.For financial assets reclassified out of the available-for-sale category intofinancing and receivables, any gain or loss on those assets recognised in othercomprehensive income and accumulated under available-for-sale reserve prior tothe date of reclassification is amortised to profit or loss over the remaining life ofthe financial asset, using the effective profit method.




3.9 Derecognition

3.9a Financial assets

subject to an individual or collective impairment assessment, calculated using thefinancing's original effective profit rate.

A financial asset is derecognised when the contractual right to receive cash flowsfrom the asset has expired or where the Bank has transferred substantially allrisks and rewards of ownership. If substantially all the risks and rewards havebeen neither retained nor transferred and the Bank has retained control, theasset continues to be recognised to the extent of the Bank’s continuinginvolvement.

On derecognition of a financial asset in its entirety, the difference between thecarrying amount and the sum of the consideration received and any cumulativegain or loss that had been recognised in other comprehensive income andaccumulated in equity is recognised in profit or loss.




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3.9 Derecognition (Contd.)

3.9b Financial liabilities

3.10 Impairment of financial assets

The following factors are considered in assessing objective evidence of impairment:

• whether the counterparty is in default of principal or profit payments;• a counterparty files for bankruptcy protection (or the local equivalent) where this

Financial liabilities are derecognised when they are extinguished. Where anexisting financial liability is replaced by another from the same financier onsubstantially different terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as a derecognition of theoriginal liability and the recognition of a new liability, and the difference in therespective carrying amounts is recognised in profit or loss.


The Bank assesses at each reporting date whether there is objective evidence that afinancial asset or group of financial assets is impaired. A financial asset or a group offinancial assets is impaired and impairment losses are incurred if, and only if, there isobjective evidence of impairment as a result of one or more events that occurred afterthe initial recognition of the asset (a loss event), and that loss event (or events) hasan impact on the estimated future cash flows of the financial asset or group offinancial assets that can be reliably estimated.



•

•

•

•

• there is observable data indicating that there is a measurable decrease in theestimated future cash flows of a group of financial assets, although the decreasecannot yet be identified with specific individual financial assets.

the Bank files to have the counterparty declared bankrupt or files a similar orderin respect of a credit obligation;

a counterparty files for bankruptcy protection (or the local equivalent) where thiswould avoid or delay repayment of its obligation;

the Bank sells a credit obligation at a material credit-related economic loss; or

the Bank consents to a restructuring of the obligation, resulting in a diminishedfinancial obligation, demonstrated by a material forgiveness of debt orpostponement of scheduled payments;




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3.10 Impairment of financial assets (Contd.)

3.10a Assets carried at amortised cost


The Bank first assesses whether objective evidence of impairment existsindividually for financial assets that are individually significant, and individually orcollectively for financial assets that are not individually significant.

If the Bank determines that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, it includes theasset in a group of financial assets with similar credit risk characteristics andcollectively assesses them for impairment. Assets that are individually assessedfor impairment and for which an impairment loss is or continues to berecognised, are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on a financing and receivable or a held-to-maturity investment has been incurred, the amount of theloss is measured as the difference between the asset’s carrying amount and thepresent value of estimated future cash flows (excluding future credit losses thathave not been incurred), discounted at the asset’s original effective profit rate.The carrying amount of the asset is reduced through the use of an allowanceaccount and the amount of the loss is recognised in profit or loss. If a financingand receivable or held-to-maturity investment has a variable profit rate, thediscount rate for measuring any impairment loss is the current effective profitrate determined under the contract. As a practical expedient, the Bank maymeasure impairment on the basis of an instrument’s fair value using an



The calculation of the present value of the estimated future cash flows of acollateralised financial asset reflects the cash flows that may result fromforeclosure, less costs for obtaining and selling the collateral, whether or notforeclosure is probable. For the purposes of a collective evaluation ofimpairment, financial assets are grouped on the basis of similar credit riskcharacteristics (i.e. on the basis of the Bank’s grading process which considersasset type, industry, geographic location, collateral type, past-due status andother relevant factors). These characteristics are relevant to the estimation offuture cash flows for groups of such assets being indicative of the debtors’ abilityto pay all amounts due according to the contractual terms of the assets beingevaluated.

measure impairment on the basis of an instrument s fair value using anobservable market price.




3.

3.10 Impairment of financial assets (Contd.)

3.10a Assets carried at amortised cost (Contd.)

3.10b Available-for-sale investments


Future cash flows in a group of financial assets that are collectively evaluated forimpairment are estimated on the basis of the historical loss experience for assetswith credit risk characteristics similar to those in the group. Historical lossexperience is adjusted on the basis of current observable data to reflect theeffects of current conditions that did not affect the period on which the historicalloss experience is based, and to remove the effects of conditions in the historicalperiod that do not exist currently.

To the extent a financing is uncollectible, it is written off against the relatedprovision for financing impairment. Such financing are written off after all thenecessary procedures have been completed, it is decided that there is norealistic probability of recovery and the amount of the loss has been determined.Subsequent recoveries of amounts previously written off decrease the amount ofthe provision for financing impairment in profit or loss. If, in a subsequent period,the amount of the impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment was recognised (such asan improvement in the debtor’s credit rating), the previously recognisedimpairment loss is reversed by adjusting the allowance account. The amount ofthe reversal is recognised in profit or loss.



A significant or prolonged decline in the fair value of an equity security below itscost is considered, amongst other factors in assessing objective evidence ofimpairment for equity securities. Where objective evidence of impairment existsfor available-for-sale investments, the cumulative loss (measured as thedifference between the acquisition cost/amortised cost and the current fair value,less any impairment loss on that financial asset previously recognised in profit orloss) that had been recognised in other comprehensive income is reclassifiedfrom equity to profit or loss. If, in a subsequent period, the fair value of a debtinstrument classified as available-for-sale increases and the increase can beobjectively related to an event occurring after the impairment loss wasrecognised, the impairment loss is reversed through profit or loss. Impairmentlosses recognised in profit or loss on equity instruments are not reversed throughprofit or loss.




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3.11 Impairment of non-financial assets


The carrying values of the Bank’s other non-financial assets, other than deferred taxassets and non-current assets (or disposal groups) held for sale, are reviewed forimpairment when there is an indication that the asset might be impaired. If anyindication exists, or when annual impairment testing for an asset is required, the Bankestimates the asset's recoverable amount. An asset's recoverable amount is thehigher of an asset's or cash-generating unit's fair value less costs to sell and its valuein use. Where the carrying amount of an asset or cash-generating unit exceeds itsrecoverable amount, the asset is considered impaired and is written down to itsrecoverable amount. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset. Indetermining fair value less costs to sell, an appropriate valuation model is used.These calculations are corroborated by valuation multiples, quoted share prices forpublicly traded subsidiaries or other available fair value indicators.

For assets excluding goodwill, an assessment is made at each reporting date as towhether there is any indication that previously recognised impairment losses may nolonger exist or may have decreased. If such indication exists, the Bank estimates theasset's or cash-generating unit's recoverable amount. A previously recognisedimpairment loss is reversed only if there has been a change in the assumptions usedto determine the asset's recoverable amount since the last impairment loss wasrecognised. The reversal is limited so that the carrying amount of the asset does notexceed its recoverable amount, nor exceeds the carrying amount that would havebeen determined, net of depreciation, had no impairment loss been recognised for the



been determined, net of depreciation, had no impairment loss been recognised for theasset in prior years. Such reversal is recognised in profit or loss.




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3.12 Derivative financial instruments

The Bank uses derivatives such as forward foreign exchange contracts and optionson equities and commodities. Derivatives are categorised as trading unless they aredesignated as hedging instruments.

Derivative contracts are initially recognised at fair value on the date on which aderivative contract is entered into and are subsequently remeasured at their fairvalues. Fair values may be obtained from quoted market prices in active markets,recent market transactions, and valuation techniques, including discounted cash flowmodels and option pricing models, as appropriate. Where the initially recognised fairvalue of a derivative contract is based on a valuation model that uses inputs which arenot observable in the market, it follows the same initial recognition accounting policyas for other financial assets and liabilities. All derivatives are carried as assets whenfair value is positive and as liabilities when fair value is negative.

Certain derivatives embedded in other financial instruments, such as the conversionoption in a convertible bond held, are treated as separate derivatives when theireconomic characteristics and risks are not closely related to those of the host contractand the host contract is not carried at fair value through profit or loss. Theseembedded derivatives are measured at fair value with changes in fair valuerecognised in profit or loss.

The method of recognising the resulting fair value gain or loss depends on whetherthe derivative is designated as a hedging instrument, and if so, the nature of the itembeing hedged Changes in the fair value of any derivative instrument that does not




3.13 Repurchase and resale agreements

being hedged. Changes in the fair value of any derivative instrument that does notqualify for hedge accounting are recognised immediately in profit or loss.

Securities sold under agreements to repurchase at a specified future date are notderecognised from the statement of financial position as the Bank retains substantially all the risks and rewards of ownership. The corresponding cash received isrecognised in the statement of financial position as an asset with a correspondingobligation to return it, including accrued profit as a liability within “securities sold underrepurchase agreements", reflecting the transaction’s economic substance as afinancing to the Bank. The difference between the sale and repurchase prices istreated as financing expense and is accrued over the life of the agreement using theeffective profit rate. When the counterparty has the right to sell or repledge thesecurities, the Bank reclassifies those securities in the statement of financial positionto “Financial assets held-for-trading pledged as collateral” or to “Financial investmentsavailable-for-sale pledged as collateral”, as appropriate.




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3.13 Repurchase and resale agreements ("Contd")

3.14 Cash and cash equivalents

3.15 Provisions

Provisions are recognised when the Bank has a present obligation (legal orconstructive) as a result of a past event it is probable that an outflow of economic

Conversely, securities purchased under agreements to resell at a specified futuredate are not recognised in the statement of financial position. The consideration paid,including accrued profit, is recorded in the statement of financial position, within“securities purchased under resale agreements”, reflecting the transaction’s economicsubstance as a financing by the Bank. The difference between the purchase andresale prices is recorded in “net finance income” and is accrued over the life of theagreement using the effective profit rate.

If securities purchased under agreement to resell are subsequently sold to thirdparties, the obligation to return the securities is recorded as a short sale within“financial liabilities held-for-trading” and measured at fair value with any gains orlosses included in “net trading income”.


Cash and cash equivalents as referred to in the statement of cash flow comprise cashand short term funds, excluding deposits and monies held in trust, net of bankoverdrafts.



constructive) as a result of a past event, it is probable that an outflow of economicresources will be required to settle the obligation and the amount of the obligation canbe estimated reliably.

Provisions are reviewed at each reporting date and adjusted to reflect the current bestestimate. If it is no longer probable that an outflow of economic resources will berequired to settle the obligation, the provision is reversed. If the effect of the timevalue of money is material, provisions are discounted using a current pre-tax rate thatreflects, where appropriate, the risks specific to the liability. When discounting isused, the increase in the provision due to the passage of time is recognised as afinance cost.




3.

3.16 Provision for commitments and contingencies

3.17 Contingent liabilities and contingent assets

3.18 Financial guarantees


Based on management's evaluation, specific provisions for commitments andcontingencies are made in the event of a call or potential liability and there is ashortfall in the security value supporting these instruments.

The Bank does not recognise a contingent liability but discloses its existence in thefinancial statements. A contingent liability is a possible obligation that arises from pastevents whose existence will be confirmed only by the occurrence or non-occurrenceof uncertain future events not wholly within the control of the Bank or a presentobligation that is not recognised because it is not probable that an outflow ofresources will be required to settle the obligation. A contingent liability also arises inthe extremely rare case where there is a liability that cannot be recognised because itcannot be measured reliably.

A contingent asset is a possible asset that arises from past events whose existencewill be confirmed only by the occurrence or non-occurrence of uncertain future eventsnot wholly within the control of the Bank. The Bank does not recognise contingentassets in the statement of financial position but discloses its existence where inflowsof economic benefits are probable, but not virtually certain.



In the ordinary course of business, the Bank gives financial guarantees, consisting ofletters of credit, guarantees and acceptances. Financial guarantees are initiallyrecognised in the statement of financial position (within "other liabilities") at fair value,being the premium received. Subsequent to initial recognition, the Bank's liabilityunder each guarantee is measured at the higher of the amount initially recognisedless, when appropriate, cumulative amortisation recognised in profit or loss, and thebest estimate of expenditure required to settle any financial obligation arising as aresult of the guarantee.

Any increase in the liability relating to financial guarantees is recorded in profit or lossin "provision for commitments and contingencies". The premium received isrecognised in profit or loss in "other operating income" on a straight-line basis overthe life of the guarantee.




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3.19 Profit equalisation reserve

3.20 Revenue

3.20a Financing income and expense


Profit equalisation reserve is the amount appropriated out of the Bank's gross incomein order to maintain a certain level of return to depositors which is as stipulated byBNM’s Circular on “Framework of Rate of Return”. Profit equalisation reserve isdeducted from the total gross income in deriving the net distributable gross income ata rate which does not exceed the maximum amount of the total of 15% of monthlygross income, monthly net trading income, other income and irregular income. Theamount appropriated is shared by the depositors and the Bank. Profit equalisationreserve is maintained up to the maximum of 30% of total capital funds of the Bank.

Financing income and expense are recognised in income statement using theeffective profit method.

The effective profit method is a method of calculating the amortised cost of afinancial asset or a financial liability and of allocating the financing income orfinancing expense over the relevant period. The effective profit rate is the ratethat exactly discounts estimated future cash payments or receipts through theexpected life of the financial instrument or, when appropriate, a shorter period tothe net carrying amount of the financial asset or financial liability. Whencalculating the effective profit rate, the Bank estimates cash flows considering all



g p , gcontractual terms of the financial instrument except for future credit losses. Thecalculation includes all fees and points paid or received between parties to thecontract that are an integral part of the effective profit rate, transaction costs andall other premiums or discounts.

Where the estimates of cash flows have been revised, the carrying amount ofthe financial asset or financial liability is adjusted to reflect the actual and revisedestimated cash flows, discounted at the financial instrument’s original effectiveprofit rate. The adjustment is recognised as financing income or expense in profitor loss.

If the financial asset has been reclassified, subsequent increases in theestimates of future cash receipts as a result of increased recoverability arerecognised as an adjustment to the effective profit rate from the date of thechange in estimate.

Once a financial asset or a group of similar financial assets has been writtendown as a result of an impairment loss, financing income is recognised using therate of profit used to discount the future cash flows for the purpose of measuringthe impairment loss.




3.

3.20 Revenue (Contd.)

3.20a Financing income and expense (Contd.)

3.20b Fees and commissions

Financing arrangement, management and participation fees, underwritingcommissions and brokerage fees are recognised as income based oncontractual arrangements.

Fees from advisory and corporate finance activities are recognised net of servicetaxes and discounts on completion of each stage of the assignment.

Portfolio and other management advisory and service fees are recognised basedon the applicable service contracts, usually on a time apportionment basis.


Handling fees paid to motor vehicle dealers for hire purchase financing areamortised in the income statement over the tenor of the financing and is set offagainst financing income recognised on the hire purchase financing.

Financing commitment fees for financing that are likely to be drawn down andother credit related fees are deferred (together with any incremental costs) andrecognised as an adjustment to the effective profit rate on the financing. When itis unlikely that a financing will be drawn down, the financing commitment feesare recognised over the commitment period on a straight-line basis



3.20c Dividend income

Dividend income is recognised when the right to receive the payment isestablished.

are recognised over the commitment period on a straight-line basis.




3.

3.20 Revenue (Contd.)

3.20d Investment and trading income

3.20e Sale of trust units

3.20f Customer loyalty programmes

3.21 Employee benefits


Results arising from investments and trading activities include all gains andlosses from trading, changes in fair value and dividends. This includes anyineffectiveness recorded in hedging transactions.

Revenue from sale of trust units is recognised upon allotment of units, net of costof units sold.

Award credits under customer loyalty programmes are accounted for as aseparately identifiable component of the transaction in which they are granted.The fair value of the consideration in respect of the initial sale is allocatedbetween the award credits and the other components of the sale. The cost ofproviding the loyalty points is set off against fee income. The fair values of thepoints earned by the credit card customer are recognised as revenue when theBank fulfils its obligations in respect of the awards.



3.21a Short-term benefits

3.21b Defined contribution pension plan

Wages, salaries, bonuses and social security contributions are recognised as anexpense in the year in which the associated services are rendered by employeesof the Bank. Short-term accumulating compensated absences such as paidannual leave are recognised when services are rendered by employees thatincrease their entitlement to future compensated absences, and short-term non-accumulating compensated absences such as sick leave are recognised whenthe absences occur.

As required by law, the Bank makes contributions to the state pension scheme.Such contributions are recognised as an expense in profit or loss as incurred.Once the contributions have been paid, the Bank has no further paymentobligations.




3.

3.21 Employee benefits (Contd.)

3.21c Termination benefits

3.21d Share-based payment transactions


Termination benefits are payable whenever an employee’s employment isterminated before the normal retirement date or whenever an employee acceptsvoluntary redundancy in exchange for these benefits. The Bank recognisestermination benefits when it is demonstrably committed to either terminate theemployment of current employees according to a detailed formal plan withoutpossibility of withdrawal or to provide termination benefits as a result of an offermade to encourage voluntary redundancy. Benefits falling due more than 12months after the reporting date are discounted to present value.

The holding company, AMMB Holdings Berhad ("AMMB"), operates an equity-settled share-based compensation scheme wherein shares or options tosubscribe for shares of AMMB are granted to eligible directors and employees ofthe Group based on the financial and performance criteria and such conditionsas it may deem fit.

Where the Group pays for services of its employees using share options or viagrant of shares, the fair value of the transaction is recognised as an expense inthe income statement over the vesting periods of the grants, with acorresponding increase in equity. The total amount to be recognised as

ti i d t i d b f t th f i l f th h



3.22 Finance costs

Finance costs consist of profit and other costs that the Bank incurred in connectionwith the use of funds.

Finance costs are capitalised as part of the cost of a qualifying asset if they aredirectly attributable to the acquisition, construction or production of that asset.Capitalisation of finance costs commences when the activities to prepare the asset forits intended use or sale are in progress and the expenditures and finance costs areincurred. Finance costs are capitalised until the assets are substantially completed fortheir intended use or sale.

All other finance costs are recognised in profit or loss in the period they are incurred.

compensation expense is determined by reference to the fair value of the shareoptions or shares granted at the date of the grant and the number of shareoptions or shares granted to be vested by the vesting date, taking into account, ifany, the market vesting conditions upon which the options or shares weregranted but excluding the impact of any non-market vesting conditions. At thereporting date, the Group revises its estimate of the number of share options orshares granted that are expected to vest by the vesting date. Any revision of thisestimate is included in the income statement and a corresponding adjustment toequity over the remaining vesting period.




3.

3.23 Dividends on ordinary shares

3.24 Income taxes

3.24a Current tax

3.24b Deferred tax


Current tax assets and liabilities are measured at the amount expected to berecovered from or paid to the taxation authorities. The tax rates and tax lawsused to compute the amount are those that are enacted or substantively enactedat the reporting date.

Current taxes are recognised in profit or loss except to the extent that the taxrelates to items recognised outside profit or loss, either in other comprehensiveincome or directly in equity.

Deferred tax is provided using the liability method on temporary differences at

Dividends on ordinary shares are recognised as a liability and deducted from equitywhen they are approved by the Bank’s shareholders. Interim dividends are deductedfrom equity when they are declared and no longer at the discretion of the Bank.

Dividends for the reporting period that are approved after the reporting date aredisclosed as an event after the reporting date.



-

- in respect of taxable temporary differences associated with investments insubsidiaries, associates and interests in joint ventures, where the timing ofthe reversal of the temporary differences can be controlled and it isprobable that the temporary differences will not reverse in the foreseeablefuture.

where the deferred tax liability arises from the initial recognition of goodwillor of an asset or liability in a transaction that is not a business combinationand, at the time of the transaction, affects neither the accounting profit nortaxable profit or loss; and

Deferred tax is provided using the liability method on temporary differences atthe reporting date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences,except:




3.

3.24 Income taxes (Contd.)

3.24b Deferred tax (Contd.)

-

-


where the deferred tax asset relating to the deductible temporarydifference arises from the initial recognition of an asset or liability in atransaction that is not a business combination and, at the time of thetransaction, affects neither the accounting profit nor taxable profit or loss;and

in respect of deductible temporary differences associated with investmentsin subsidiaries, associates and interests in joint ventures, deferred taxassets are recognised only to the extent that it is probable that thetemporary differences will reverse in the foreseeable future and taxableprofit will be available against which the temporary differences can beutilised.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and tax losses, to the extent it is probable thattaxable profit will be available against which the deductible temporarydifferences, and the carry forward of unused tax credits and unused tax lossescan be utilised except:

The carrying amount of deferred tax assets is reviewed at each reporting dateand reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised



will be available to allow all or part of the deferred tax asset to be utilised.Unrecognised deferred tax assets are reassessed at each reporting date and arerecognised to the extent that it has become probable that future taxable profit willallow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that areexpected to apply in the year when the asset is realised or the liability is settled,based on tax rates (and tax laws) that have been enacted or substantivelyenacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised incorrelation to the underlying transaction either in other comprehensive income ordirectly in equity and deferred tax arising from a business combination isadjusted against goodwill on acquisition.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceableright exists to set off current tax assets against current tax liabilities and thedeferred taxes relate to the same taxable entity and the same taxation authority.




3.

3.25 Zakat

3.26 Segment reporting

3.27 Share capital and share issuance expenses

This represents business zakat. It is an obligatory amount payable by the Bank tocomply with the principles of Shariah. Zakat provision is calculated based on 2.5% ofnet profit after taxation.

Segment information is presented in respect of the Bank’s business segments. Thebusiness segment information is prepared based on internal management reports,which are regularly reviewed by the chief operating decision-maker in order to allocateresources to a segment and to assess its performance.

All transactions between business segments are conducted on arm’s length basis,with intra-segment revenue and costs being eliminated in head office. Income andexpenses directly associated with each segment are included in determining businesssegment performance.

In accordance with FRS 8, the Bank has the following business segments: retailbanking, business banking, corporate and institutional banking, treasury and marketswith minor segments aggregated under group functions and others.

An equity instrument is any contract that evidences a residual interest in the assets of




3.28 Equity reserves

3.28a Share premium

3.28b Statutory reserve

The reserves recorded in equity on the Bank’s statement of financial position include:

An equity instrument is any contract that evidences a residual interest in the assets ofthe Bank after deducting all the liabilities. Ordinary shares are equity instruments.

Ordinary shares are recorded at the proceeds received, net of directly attributableincremental transaction costs.

“Share premium” is used to record premium arising from new shares issued inthe Bank.

“Statutory reserve” is maintained in compliance with the provisions of the IslamicBanking Act, 1983. The statutory reserve is not distributable as cash dividends.




3.

3.28c Available-for-sale reserve

4.

(a) Impairment losses on financing and advances


The Bank reviews its individually significant financing and advances at each reportingdate to assess whether an impairment loss should be recorded in the incomestatement. In particular, management judgement is required in the estimation of theamount and timing of future cash flows when determining the impairment loss. Theseestimates are based on assumptions about a number of factors and actual resultsmay differ, resulting in future changes to the allowance.

Financing and advances that have been assessed individually and found not to beimpaired and all individually insignificant financing and advances are then assessedcollectively, in groups of assets with similar risk characteristics, to determine whetherprovision should be made due to incurred loss events for which there is objective

In the process of applying the Bank's accounting policies, management has exercisedjudgement and estimates in determining the amounts recognised in the financialstatements. The most significant uses of judgment and estimates are as follows:

SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

“Available-for-sale reserve” comprises changes in fair value of available-for-saleinvestments.



(b) Deferred tax and income taxes

p jevidence but whose effects are not yet evident. The collective assessment takesaccount of data from the financing portfolio (such as levels of arrears, creditutilisation, financing to collateral ratios, etc.), and judgements to the effect ofconcentrations of risks and economic data (including levels of unemployment, realestate prices indices, country risk and the performance of different individual groups).

There are many transactions and interpretations of tax laws for which the finaloutcome will not be established until sometime later. Liabilities for taxation arerecognised based on estimates of whether additional taxes will be payable. Theestimation process includes seeking expert advice where appropriate. Where the finalliability for taxation is different from the amounts that were initially recorded, thedifference will affect the income tax and deferred tax provisions in the period in whichthe estimate is revised or the final liability is established.

Deferred tax assets are recognised for all unutilised tax losses to the extent that it isprobable that taxable profit will be available against which the losses can be utilised.Significant management judgement is required to determine the amount of deferredtax assets that can be recognised, based upon the likely timing and level of futuretaxable profits together with future tax planning strategies.




4.

(c) Fair value of financial assets determined using valuation techniques

Fair value, in the absence of an active market, is estimated by using valuationtechniques, such as recent arm’s length transactions, reference to the current marketvalue of another instrument which is substantially the same, discounted cash flowanalysis and/or option pricing models. For reference to similar instruments,instruments must have similar credit ratings.

For discounted cash flow analysis, estimated future cash flows and discount rates arebased on current market information and rates applicable to financial instruments withsimilar yields, credit quality and maturity characteristics. Estimated future cash flowsare influenced by factors such as economic conditions (including country specificrisks), concentrations in specific industries, types of instruments or currencies, marketliquidity and financial conditions of counter-parties. Discount rates are influenced byrisk-free profit rates and credit risk.

Option pricing models incorporate all factors that market participants would considerand are based on observable market data when available. These models consider,among other factors, contractual and market prices, correlation, time value of money,credit risk, yield curve volatility factors and/or prepayment rates of the underlyingpositions.

The valuation techniques described above are calibrated annually.

SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (CONTD.)





5.

2011 2010RM’000 RM’000

Cash and balances with banks and other financial institutions 7,718 3,553 Money at call and deposits placements maturing within one month 4,731,040 3,882,900

4,738,758 3,886,453

The net interbank financing position of the Bank is detailed as follows:

Interbank financing: Cash and short-term funds 4,731,040 3,882,900 Deposits and placements with banks and other financial institutions (Note 6) 250,000 150,000

4,981,040 4,032,900 Interbank borrowing (Note 15) (129,338) (296,931) Net interbank financing 4,851,702 3,735,969

6.

2011 2010RM’000 RM’000

DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

CASH AND SHORT-TERM FUNDS



Licensed banks 250,000 - Other financial institutions - 150,000

250,000 150,000

7.

Included in the above are interbank financing of RM250,000,000 (2010: RM150,000,000).

DERIVATIVE FINANCIAL ASSETS/LIABILITIES

Derivative financial instruments are financial instruments whose values change in responseto changes in prices or rates (such as foreign exchange rates, profit rates and securityprices) of the underlying instruments. These instruments allow the Bank and its customersto transfer, modify or reduce their foreign exchange and profit rate risks via hedgerelationships. The default classification for derivative financial instruments is trading,unless designated in a hedge relationship and are in compliance with the hedgeeffectiveness criteria. The risks associated with the use of derivative financial instruments,as well as management’s policy for controlling these risks are set out in Note 40.




7.

Contract/ Notional Positive NegativeAmount Fair Value Fair ValueRM'000 RM'000 RM'000

31 March 2011Equity and commodity related contracts 222,526 3,258 3,254

31 March 2010Equity and commodity related contracts 151,000 3,461 3,458

8.

2011 2010

DERIVATIVE FINANCIAL ASSETS/LIABILITIES (CONTD.)

Fair values of derivative financial instruments are normally zero or negligible at inceptionand the subsequent change in value is favourable (assets) or unfavourable (liabilities) as aresult of fluctuations in market rates of return or foreign exchange rates relative to theirterms.

The table below shows the Bank’s derivative financial instruments as at the reporting date.The contractual or underlying principal amounts of these derivative financial instrumentsand their corresponding gross positive (derivative financial asset) and gross negative(derivative financial liability) fair values at the reporting date are analysed below:

FINANCIAL ASSETS HELD-FOR-TRADING



2011 2010RM’000 RM’000

At fair value:

Money Market Securities In Malaysia: Malaysian Government Investment Certificates 549,823 189,911 Islamic Treasury Bills 18,302 39,141 Sukuk Bank Negara Malaysia 1,469 14,990 Bank Negara Malaysia Monetary Notes 179,241 48,716

748,835 292,758

Unquoted Securities in Malaysia: Private debt securities 242,301 58,176 Total financial assets held-for-trading 991,136 350,934




9.

2011 2010RM’000 RM’000

At fair value

Money Market Securities in Malaysia: Malaysian Government Investment Certificates 190,141 76,005 Negotiable instruments of deposit 348,470 577,330

538,611 653,335

Quoted securities in Malaysia: Unit trusts 10,000 -

Unquoted securities in Malaysia: Private debt securities 167,326 254,595 Total financial investments available-for-sale 715,937 907,930

The Bank was appointed as Islamic Principal Dealer ("i-PD") by Bank Negara Malaysia("BNM") for Islamic Government and BNM Sukuk Berhad issuances with effect from 1 July2009 until 31 December 2012.

As an i-PD, the Bank is required to undertake certain obligations as well as accordedcertain incentives in the appointment period. One of the incentives accorded is theeligibility to maintain 1% Statutory Reserve Requirement ("SRR") in the form ofGo ernment In estment Certificates ("GIC") holdings instead of cash As at 31 March

FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE



Government Investment Certificates ("GIC") holdings instead of cash. As at 31 March2011, the nominal values of GIC holdings maintained for SRR purposes amount toRM190.26 million (2010: RM 75.26 million).




10.

(i) Financing and advances analysed by type are as follows:

2011 2010RM’000 RM’000

At amortised cost:

Cash lines 376,204 252,506 Term financing - House financing 1,077,494 772,823 - Hire purchase receivables 8,730,827 7,947,593 - Other financing * 6,586,784 4,751,206 Card receivables 313,246 292,842 Trust receipts 91,670 70,239 Claims on customers under acceptance credit 957,590 917,819 Revolving credit 1,608,944 771,311 Total 19,742,759 15,776,339 Unearned income (4,291,192) (3,422,336)

15,451,567 12,354,003 Less: Islamic financing sold to Cagamas Berhad (1,700,034) (345,738) Gross financing and advances 13,751,533 12,008,265 Allowances for bad and doubtful financing - Collective allowance (479,010) - - Individual allowance (25,447) - - General allowance - (184,803)

Specific allowance (64 784)

FINANCING AND ADVANCES



- Specific allowance - (64,784) Net financing and advances 13,247,076 11,758,678

*

(ii) Financing and advances analysed by contract are as follows:

2011 2010RM’000 RM’000

Bai’ Bithaman Ajil 2,364,361 1,260,664 Ijarah/Al-Ijarah Thumma Al-Bai’ 5,623,929 6,271,747 Murabahah 1,271,257 1,033,047 Other Islamic contracts 4,491,986 3,442,807 Gross financing and advances 13,751,533 12,008,265

Included in other financing is financing amounting to RM202,955,000 (2010:RM210,619,000) which is exempted from collective/general allowance by BankNegara Malaysia.




10.

(iii) Financing and advances analysed by type of customer are as follows:

2011 2010RM’000 RM’000

Domestic non-bank financial institutions 134,867 58,012 Domestic business enterprises - Small medium enterprises 1,431,397 1,150,197 - Others 3,824,101 2,063,244 Government and statutory bodies 260,385 210,619 Individuals 8,093,551 8,519,544 Other domestic entities 1,783 2,078 Foreign entities 5,449 4,571 Gross financing and advances 13,751,533 12,008,265

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

2011 2010RM’000 RM’000

In Malaysia 13,751,533 12,008,265

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

FINANCING AND ADVANCES (CONTD.)



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

2011 2010RM’000 RM’000

Fixed rate - House financing 292,844 325,779 - Hire purchase receivables 5,195,687 6,271,747 - Other financing 5,010,842 4,360,448 Variable rate - Base financing rate plus 934,352 83,079 - Cost plus 2,317,808 967,212 Gross financing and advances 13,751,533 12,008,265




10.

(vi) Financing and advances analysed by sector are as follows:

2011 2010RM’000 RM’000

Primary agriculture 136,324 112,353 Mining and quarrying 20,023 12,746 Manufacturing 1,456,937 948,257 Electricity, gas and water 216,324 203,262 Construction 922,841 311,351 Wholesale, retail trade, restaurant and hotel 497,651 478,520 Transport, storage and communication 764,120 299,988 Finance, insurance, real estate and business activities 1,168,643 496,301 Education and health 415,475 318,030 Household 9,765,682 8,869,853 of which: - purchase of residential properties 453,697 377,089 - purchase of transport vehicles 6,882,486 6,143,134 - others 2,429,499 2,349,630 Others 87,547 303,342 Less: Islamic financing sold to Cagamas Berhad (1,700,034) (345,738) Gross financing and advances 13,751,533 12,008,265

( ii) Th t it t t f fi i d d i f ll




(vii) The maturity structure of financing and advances is as follows:

2011 2010RM’000 RM’000

Maturing within one year 3,090,124 1,982,230 One year to three years 1,374,951 804,687 Three years to five years 2,405,274 2,074,631 Over five years 6,881,184 7,146,717 Gross financing and advances 13,751,533 12,008,265

(viii) Impaired financing and advances analysed by geographical distribution are as follows:

2011 2010RM’000 RM’000

In Malaysia 320,418 182,232




10.

(ix)

2011 2010RM’000 RM’000

Primary agriculture 429 497 Mining and quarrying 106 20 Manufacturing 28,397 9,358 Electricity, gas and water 1 68 Construction 5,201 4,492 Wholesale, retail trade, restaurant and hotel 23,584 8,677 Transport, storage and communication 1,714 839 Finance, insurance, real estate and business activities 2,948 1,250 Education and health 1,834 539 Household 256,119 156,492 of which: - purchase of residential properties 20,923 37,872 - purchase of transport vehicles 98,508 104,474 - others 136,688 14,146 Others 85 - Impaired financing and advances 320,418 182,232

(x)

Impaired financing and advances analysed by sector are as follows:

Movements in impaired financing and advances are as follows:




2011 2010RM’000 RM’000

Balance at beginning of year - as previously stated 182,232 239,637 - effect of adopting FRS 139 9,662 - Balance at beginning of year (restated) 191,894 239,637 Impaired during the year 309,733 155,135 Reclassified as non-impaired (56,861) (54,810) Amount recovered (34,476) (21,151) Amount written off (89,872) (136,579) Balance at end of year 320,418 182,232

Gross financing and advances 13,751,533 12,008,265 Add: Islamic financing sold to Cagamas Berhad 1,700,034 345,738 Gross financing and advances (including Islamic financing sold to Cagamas Berhad) 15,451,567 12,354,003

Ratio of gross impaired financing and advances to total financing and advances (including Islamic financing sold to Cagamas Berhad) 2.1% 1.5%




10.

(xi)

2011 2010RM’000 RM’000

Collective Allowance Balance at beginning of year - as previously stated - - - effect of adopting FRS 139 287,844 - Balance at beginning of year (restated) 287,844 - Allowance made during the year (Note 25) 281,169 -

Amount written off (90,003) - Balance at end of year 479,010 -

As % of gross financing and advances (including Islamic financing sold to Cagamas Berhad) less individual allowance and financing exempted from collective allowance by Bank Negara Malaysia 3.1% -

Individual Allowance Balance at beginning of year - as previously stated - -

effect of adopting FRS 139 1 108


Movements in the allowance for impaired financing and advances are as follows:



- effect of adopting FRS 139 1,108 - Balance at beginning of year (restated) 1,108 -

Allowance made during the year - net (Note 25) 24,339 - Balance at end of year 25,447 -




10.

(xi)

2011 2010RM’000 RM’000

General Allowance Balance at beginning of year - as previously stated 184,803 166,507 - effect of adopting FRS 139 (184,803) - Balance at beginning of year (restated) - 166,507 Allowance made during the year (Note 25) - 18,296 Balance at end of year - 184,803

As % of net financing and advances (including Islamic financing sold to Cagamas Berhad) less financing exempted from general allowance by Bank Negara Malaysia - 1.5%

2011 2010RM’000 RM’000

Specific Allowance


Movements in the allowance for impaired financing and advances are as follows(Contd.):



Balance at beginning of year - as previously stated 64,784 99,053 - effect of adopting FRS 139 (64,784) - Balance at beginning of year (restated) - 99,053 Allowance made during the year (Note 25) - 149,764 Amount written back in respect of recoveries during the year (Note 25) - (44,898) Net charge to income statement - 104,866 Amount written off - (139,135) Balance at end of year - 64,784




11. OTHER ASSETS

2011 2010Note RM’000 RM’000

Other receivables and prepayments (a) 51,365 18,578 Profit receivable 14,132 9,528 Deferred charges 59,160 53,520

124,657 81,626

(a)

12. STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA

The non-profit bearing statutory deposit is maintained with Bank Negara Malaysia incompliance with Section 37(1)(c) of the Central Bank of Malaysia Act, 1958 (revised 1994),the amounts of which are determined as a set percentage of total eligible liabilities. As at31 March 2011, a total of RM190.26 million nominal value of Government InvestmentCertificates, classified as financial investments available-for-sale, was used for StatutoryReserve Requirement purposes, as mentioned in Note 9 (2010: RM75.26 million).

Other receivables and prepayments are net of allowance for doubtful debts whichamounted to RM36,000 (2010: RM36,000)







13. PROPERTY AND EQUIPMENT

Office equipment,Leasehold furniture and Computer

improvements fittings equipment Motor vehicles TotalRM’000 RM’000 RM’000 RM’000 RM’000

CostAs at 1 April 2010 262 89 377 - 728 Additions 61 1 20 455 537 As at 31 March 2011 323 90 397 455 1,265

Accumulated Depreciation As at 1 April 2010 146 65 200 - 411 Depreciation for the year 64 18 76 42 200 As at 31 March 2011 210 83 276 42 611

Net Book ValueAs at 31 March 2011 113 7 121 413 654

CostAs at 1 April 2009 214 88 366 - 668 Additions 48 1 11 - 60 As at 31 March 2010 262 89 377 - 728

Accumulated Depreciation As at 1 April 2009 102 47 126 - 275 Depreciation for the year 44 18 74 - 136 As at 31 March 2010 146 65 200 - 411

Net Book ValueAs at 31 March 2010 116 24 177 - 317

Fully depreciated assets: - 2011 - 10 - - 10 - 2010 - - - - -


14. INTANGIBLE ASSETS

The net carrying amount of intangible assets are as follows:

2011 2010RM’000 RM’000

Computer Software

CostAt the beginning of the year 862 809 Additions 2 53 At the end of the year 864 862

Accumulated AmortisationAt the beginning of the year 413 249 Amortisation for the year 173 164

At the end of the year 586 413

Net Book Value 278 449

15. DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

2011 2010



RM’000 RM’000

Non-MudharabahLicensed Islamic banks - 289,762 Licensed banks 811,398 450,363 Licensed investment banks 129,806 123,224 Other financial institutions 142,647 48,159 Bank Negara Malaysia 15,216 2,823

1,099,067 914,331

MudharabahLicensed investment banks 157 152

Other financial institutions 368,332 571,267 368,489 571,419

Total 1,467,556 1,485,750

Negotiable instruments of deposits 951,306 610,619 Interbank borrowings (Note 5) 129,338 296,931

Included under deposits and placements of banks and other financial institutions are thefollowing:




16. DEPOSITS FROM CUSTOMERS

2011 2010RM’000 RM’000

(i) By type of deposit:

Non-MudharabahDemand deposits 1,166,546 903,437 Savings deposits 1,335,281 1,146,174 Negotiable instruments of deposits 13,168 155,782 Other deposits 22,490 9,544

2,537,485 2,214,937 MudharabahDemand deposits 11,286 7,322 Savings deposits 4,617 8,239 General investment deposits 12,585,105 11,088,972

Structured deposits 111,162 78,570 12,712,170 11,183,103

Total 15,249,655 13,398,040

(ii) The deposits are sourced from the following types of customers:

Included in deposits from customers are deposits of RM180,370,000 (2010: RM161,705,000) held as collateral for financing and advances.



(ii) The deposits are sourced from the following types of customers:

Government and other statutory bodies 5,881,071 4,745,630 Business enterprises 6,528,508 6,163,798

Individuals 2,532,779 2,171,919 Others 307,297 316,693

15,249,655 13,398,040

(iii) The maturity structure of negotiable instruments of deposits, general investment deposits and structured deposits are as follows:

Due within six months 11,585,122 10,616,372 Six months to one year 720,194 411,653

One year to three years 190,603 232,968 Three years to five years 213,516 62,331

12,709,435 11,323,324




17. TERM FUNDING

18. BILLS AND ACCEPTANCES PAYABLE

19. OTHER LIABILITIES

2011 2010RM’000 RM’000

Profit payable 94,193 48,910 Other creditors and accruals 60,638 73,441 Lease deposits and advance rentals 12,898 10,355

Profit equalisation reserve 6,854 49,298 Amount due to related companies 284 2,428 Provision for commitments and contingencies 18,620 337

Deferred income 26 -

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

On 20 September 2010, the Bank issued RM550 million senior sukuk under its programmeof up to RM3 billion in nominal value. The senior sukuk bears profit rate at 4.3% per annum and has a tenor of seven years. The RM3 billion Senior Sukuk Musyarakah Programmewas assigned a rating of AA3/Stable by Rating Agency Malaysia.



Provision for taxation 48,488 7,051 242,001 191,820

Profit equalisation reserve

The movements in profit equalisation reserve are as follows:

2011 2010RM’000 RM’000

Balance at beginning of year 49,298 61,933 Transfer to income statement (42,444) (12,635) Balance at end of year 6,854 49,298




19. OTHER LIABILITIES (CONTD.)

Provision for commitments and contingencies

The movements in provision for commitments and contingencies are as follows:

2011 2010RM’000 RM’000

Balance at beginning of year - as previously stated 337 - - effect of adopting FRS 139 12,000 - Balance at beginning of year (restated) 12,337 - Charge for the year 6,283 337 Balance at end of year 18,620 337

20. SUBORDINATED SUKUK MUSYARAKAH

On 21 December 2006, the Bank issued the RM400 million Subordinated SukukMusyarakah in one lump sum in the format of a 10 year Non-Call 5 year. Subject to theprior approval of Bank Negara Malaysia (“BNM”), the Bank may exercise its call option andredeem in whole (but not in part) the Subordinated Sukuk Musyarakah on the 5thanniversary of the issue date or on any anniversary date thereafter at 100% of the principalamount together with the expected profit payments.



The Subordinated Sukuk Musyarakah, which has been awarded a long term rating of A1by Rating Agency Malaysia, is not listed on Bursa Securities Malaysia Berhad or on anyother stock exchange but is traded and prescribed under the Scripless Securities TradingSystem maintained by BNM.

The Subordinated Sukuk Musyarakah qualifies as Tier II capital of the Bank.

The Subordinated Sukuk Musyarakah bears an expected profit rate of 4.80% per annumfor the first 5 years and commencing from the beginning of the 6th year from the issuedate and at the beginning of every subsequent year thereafter, the expected profit rateshall be stepped up by 0.50% per annum to legal maturity date.




21. SHARE CAPITAL2011 2010

RM’000 RM’000

Authorised:Balance at beginning and end of year Ordinary shares of RM1.00 each 2,000,000 2,000,000

Issued and fully paid:Balance at beginning and end of year Ordinary shares of RM1.00 each 403,038 403,038

22. RESERVES

2011 2010Note RM’000 RM’000

Non-distributable reserves: Share premium (a) 534,068 534,068 Statutory reserve (b) 304,316 265,169

Available-for-sale reserve (c) At 1 April - as previously stated 2,153 8,906



- effects of adopting FRS 139 (5,444) - At 1 April (restated) (3,291) 8,906 Net unrealised gain/(loss) on financial investments available-for-sale 2,697 (8,558) Net realised gain on financial investments available-for-sale reclassified to the income statement (6,741) (4,665) Cumulative loss reclassified to the income statement - 4,218 Deferred tax 1,011 2,252 At 31 March (6,324) 2,153

Total non-distributable reserves 832,060 801,390

Distributable reserve: Retained earnings (d) 162,515 133,719 Total reserves 994,575 935,109




22. RESERVES (CONTD.)

(a)

(b)

(c)

(d)

The available-for-sale reserve is in respect of unrealised fair value gains and losseson financial investments available-for-sale.

Retained earnings are those reserves available for distribution by way of dividends.Prior to the year of assessment 2008, Malaysian companies adopted the fullimputation system. In accordance with the Finance Act, 2007 which was gazetted on28 December 2007, companies shall not be entitled to deduct tax on dividends paid,credited or distributed to its shareholders, and such dividends will be exempted fromtax in the hands of the shareholders ("single tier system"). However, there is atransitional period of six years, expiring on 31 December 2013, to allow companies topay franked dividends to their shareholders under limited circumstances. Companiesalso have an irrevocable option to disregard the Section 108 balance and opt to paydividends under the single tier system. The change in the tax legislation also providesfor the Section 108 balance to be locked-in as at 31 December 2007 in accordancewith Section 39 of the Finance Act, 2007.

The statutory reserve is maintained in compliance with Section 15 of the IslamicBanking Act, 1983 and is not distributable as cash dividends.

D i th i fi i l th B k h d f ll tili d th t dit d

Movement in reserves are shown in the statement of changes in equity.

Share premium is used to record premium arising from new shares issued by theBank.



23. INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS AND OTHERS

2011 2010RM’000 RM’000

Income derived from investment of:

(i) General investment deposits 685,779 647,960 (ii) Other deposits 339,853 236,745

1,025,632 884,705

During the previous financial year, the Bank had fully utilised the tax credit underSection 108 of the Income Tax Act, 1967 to distribute cash dividend payments. TheBank may distribute dividends out of its entire retained earnings under the single tiersystem.




23. INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS AND OTHERS(CONTD.)

(i) Income derived from investment of general investment deposits

2011 2010RM’000 RM’000

Finance income and hibah:Financing and advances - Financing income 562,877 554,540 - Financing income on impaired financing 243 - Financial assets held-for-trading 12,147 5,287 Money at call and deposits with financial institutions 75,395 57,112 Total finance income and hibah 650,662 616,939

Other operating income:Fee and commission income: - Commission 5,641 5,819 - Other fee income 25,326 23,799Net gain from sale of financial assets held-for-trading 4,099 1,896

for-trading 169 (460) Foreign exchange (122) (19) Others 4 (14) Total other operating income 35 117 31 021

Gain/(loss) on revaluation of financial assets held-



Total other operating income 35,117 31,021

Total 685,779 647,960




23. (CONTD.) (ii) Income derived from investment of other deposits

2011 2010RM’000 RM’000

Finance income and hibah:Financing and advances - Financing income 278,946 202,612 - Financing income on impaired financing 120 - Financial assets held-for-trading 6,020 1,932 Money at call and deposits with financial institutions 37,364 20,867 Total finance income and hibah 322,450 225,411

Other operating income:Fee and commission income: - Commission 2,796 2,126 - Other fee income 12,551 8,695 Net gain from sale of financial assets held-for-trading 2,031 693

for-trading 84 (168) Foreign exchange (61) (7) Others 2 (5) T t l th ti i 17 403 11 334

INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS AND OTHERS

Gain/(loss) on revaluation of financial assets held-




Total 339,853 236,745




24. INCOME DERIVED FROM INVESTMENT OF SHAREHOLDER'S FUNDS

2011 2010RM’000 RM’000

Finance income and hibah:Financing and advances - Financing income 112,393 106,280 Financial assets held-for-trading - 636 Financial investments available-for-sale 19,084 19,823 Money at call and deposits with financial institutions - 10,946 Total finance income and hibah 131,477 137,685

Other operating income:Fee and commission income: - Commission 4,538 1,115 - Other fee income 11,218 4,561 Net gain from sale of financial assets held-for-trading - 363 Net gain from sale of financial investments available-for-sale 6,741 4,665 Loss on revaluation of financial assets held-for-trading - (88) Foreign exchange - (4) Others - (3)


T t l 153 974 148 294



Total 153,974 148,294

25. ALLOWANCE FOR IMPAIRMENT ON FINANCING AND ADVANCES

2011 2010RM’000 RM’000

Allowance for impaired financing and advances: Individual allowance - net {Note 10(xi)} 24,339 - Collective allowance {Note 10(xi)} 281,169 - Specific allowance – made in the financial year {Note 10(xi)} - 149,764 – written back {Note 10(xi)} - (44,898) General allowance made in the financial year

{Note 10(xi)} - 18,296 Bad debts and financing recovered - net (57,717) (32,865)

247,791 90,297




26. INCOME ATTRIBUTABLE TO THE DEPOSITORS

2011 2010RM’000 RM’000

Deposit from customers - Mudharabah fund 309,470 242,259 - Non-Mudharabah fund 25,926 25,565

335,396 267,824

Deposits and placements of banks and other financial institutions - Mudharabah fund 10,259 13,036 - Non-Mudharabah fund 44,202 22,130

54,461 35,166

Others 58,984 24,882 448,841 327,872

27. OTHER OPERATING EXPENSES

2011 2010RM’000 RM’000



Personnel costs - Salaries, allowances and bonuses 7,187 5,184 - Shares and options granted under Executives' Share Scheme 471 190 - Others 1,754 1,148 Establishment costs - Depreciation of property and equipment 200 136 - Amortisation of intangible assets 173 164 - Rental 748 664 - Cleaning, maintenance and security 51 30 - Computerisation cost 80 29 - Others 46 26 Marketing and communication expenses - Communication, advertising and marketing expenses 4,295 8,539 - Others 96 68

Administration and general expenses - Professional services 2,895 2,995 - Others 703 304 Service transfer pricing expenses 262,156 239,773

280,855 259,250




27. OTHER OPERATING EXPENSES (CONTD.)

The above expenditure includes the following statutory disclosures:

2011 2010RM’000 RM’000

Directors’ remuneration (Note 29) 564 554

Rental of premises 748 664 Auditors’ remuneration– Audit 164 164 – Assurance related services 45 95

Personnel costs include salaries, bonuses, contributions to Employees' Provident Fund("EPF") and all other staff related expenses. Contributions to EPF by the Bank amountedto RM1,134,000 (2010: RM829,000).





28. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

2011 2010RM’000 RM’000

Income

The directors regard AmBank (M) Berhad and AMMB Holdings Berhad as the holdingcompany and the ultimate holding company respectively, up to 28 February 2011.Thereafter, AMMB Holdings Berhad is the holding company of the Bank, following thedisposal by AmBank (M) Berhad of its entire shareholding in the Bank to AMMB HoldingsBerhad on 28 February 2011.

In addition to the transactions detailed elsewhere in the financial statements, the Bank hadthe following transactions with related parties during the financial year:

Key management personnel are the persons who have authority and responsibility forplanning, directing and controlling the activities of the Bank either directly or indirectly. Keymanagement personnel of the Bank are the directors and certain members of seniormanagement of the Bank including close members of their families.

Related party transactions also include transactions with entities that are controlled, jointlycontrolled or significantly influenced directly or indirectly by any key managementpersonnel or their close family members.



Related companyProfit on deposits and placements 12 8

Expenditure

Holding companyProfit on deposits and placements 29,106 137 Service transfer pricing expenses 238,226 238,292

Related companiesProfit on deposits and placements 7,494 2,184 Service transfer pricing expenses 23,930 1,480

Substantial shareholder of holding companyProfessional fees - 35




28. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONTD.)

2011 2010RM’000 RM’000

Expenditure (contd.)

Key management personnelProfit on deposits and placements 42 36

Amount due from

Related companyOther receivables 37,073 -

Key management personnelFinancing (card receivables) 9 4

Amount due to

Ultimate Holding CompanyOther payable - 278

Holding companyDeposits and placements - 328,686 Oth bl 2 021



Other payable - 2,021 Profit payable - 6

Related companiesDeposits and placements 969,276 158,002 Other payable 284 129 Profit payable 268 119

Key management personnelDeposits and placements 4,719 4,654

The above transactions have been entered into in the normal course of business and havebeen established under terms and conditions that are no less favourable than thosearranged with independent parties.




28. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONTD.)

2011 2010Supplier Types of Transactions RM’000 RM’000

Harpers Travel (M) Provision of airline Sdn Bhd ticketing services 60 8 Islamic Banking and Finance Institute Malaysia Sdn Bhd Seminar attendance fee - 9 Financial Information Services Provision of information Sdn Bhd service 39 43 Institute of Bankers Malaysia Training 2 3 AmFirst Real Estate Rental of premises, management Investment Trust fee and charges 774 640 Gubahan Impian Flower arrangement and

hamper - 2 Bursa Malaysia Bhd Training - 2 Restoran Seri Melayu Sdn Bhd Food and beverages 5 1 AmTrustee Bhd Management fees 2 - Melawangi Sdn Bhd Rental of premises 52

The significant transactions of the Bank with companies in which certain directors and/ortheir close family members are deemed to have a substantial interest, are as follows:

Directors related transactions



Melawangi Sdn Bhd Rental of premises 52 - Asia Smart Cards Centre (M) Sdn Bhd Embossing credit cards 19 - LittleDrops Sdn Bhd Food and beverages 3 -

The above transactions have been entered into in the normal course of business and havebeen established under terms and conditions that are not materially different from thosearranged with independent parties.






29. CHIEF EXECUTIVE OFFICER'S AND DIRECTORS’ REMUNERATION

The total remuneration (including benefits-in-kind) of the Chief Executive Officer and Directors of the Bank are as follows:

Other Benefits-Salary Fees Bonus Emoluments in-kind Total

2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Chief Executive Officer:Datuk Mahdi Bin Morad 590 - 319 145 100 1,154

590 - 319 145 100 1,154

Non-Executive Directors:Tan Sri Azman Hashim - - - 154 - 154 Tun Mohammed Hanif Omar - 60 - 46 - 106 Tan Sri Datuk Clifford Francis Herbert - 60 - 51 - 111 Dato' Gan Nyap Liou @ Gan Nyap Liow - 60 - 31 - 91 Dato' Dr. Mahani binti Zainal Abidin - 60 - 13 - 73 Cheah Tek Kuang # - - - 29 - 29 Ashok Ramamurthy # - - - - - -

- 240 - 324 - 564

Total remuneration 590 240 319 469 100 1,718

# Directors' fees for directors who are executives of the subsidiaries of AMMB Holdings Berhad are paid to their respective companies.




29. CHIEF EXECUTIVE OFFICER'S AND DIRECTORS’ REMUNERATION (CONTD.)

The total remuneration (including benefits-in-kind) of the Chief Executive Officer and Directors of the Bank are as follows (Contd.):

Other Benefits-Salary Fees Bonus Emoluments in-kind Total

2010 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Chief Executive Officer:Datuk Mahdi Bin Morad * 360 - - 116 82 558

360 - - 116 82 558

Non-Executive Directors:Tan Sri Azman Hashim - - - 153 - 153Tun Mohammed Hanif Omar - 60 - 49 - 109Tan Sri Datuk Clifford Francis Herbert - 60 - 56 - 116Dato' Gan Nyap Liou @ Gan Nyap Liow - 60 - 28 - 88Dato' Dr. Mahani binti Zainal Abidin - 52 - 12 - 64Cheah Tek Kuang # - - - 24 - 24Ashok Ramamurthy # - - - - -

- 232 - 322 - 554

Total remuneration 360 232 - 438 82 1,112

# Directors' fees for directors who are executives of the subsidiaries of AMMB Holdings Berhad are paid to their respective companies.* Appointed as Chief Executive Officer of the Bank with effect from 1 August 2009.


30. SHARIAH COMMITTEE'S MEMBERS' REMUNERATION

31. FINANCE COST

32. TAXATION

Taxation consists of the following:

2011 2010RM’000 RM’000

Current year taxation: Current income tax 111,487 34,052 Over provision in prior years (1,679) -

109,808 34,052

Deferred tax (Note 33) :Relating to origination and reversal of temporary differences (57,655) 57,327 (Over)/under provision in prior years (177) 2 616

Finance cost is mainly in respect of income attributable to investors of the SubordinatedSukuk Musyarakah and senior sukuk.

Shariah committee's members' remuneration charged to the income statement for the yearwas RM50,000 (2010: RM56,000).



(Over)/under provision in prior years (177) 2,616 (57,832) 59,943

Tax expense for the year 51,976 93,995

2011 2010RM’000 RM’000

Profit before taxation 209,125 356,610

Taxation at Malaysian statutory tax rate of 25% (2010: 25%) 52,281 89,153 Income not subject to tax (1,055) -

Expenses not deductible for tax purposes 2,606 2,226 Over provision of income tax in prior years (1,679) - (Over)/under provision of deferred tax in prior years (177) 2,616 Tax expense for the year 51,976 93,995

During the previous financial year, the Bank has fully utilised the unabsorbed tax losses ofapproximately RM226.6 million to offset against taxable income.

A reconciliation of income tax expense applicable to profit before taxation at the statutoryincome tax rate to income tax expense at the effective income tax rate of the Bank is asfollows:




33. DEFERRED TAX ASSET

2011 2010RM’000 RM’000

Balance at beginning of year - as previously stated 41,500 99,191 - effect of adopting FRS 139 18,063 - Balance at beginning of year (restated) 59,563 99,191

Recognised in equity 1,011 2,252 Transfer to income statement (Note 32) 57,832 (59,943) Balance at end of year 118,406 41,500

Deferred tax assets/(liabilities) are in respect of the following temporary differences:

2011 2010RM’000 RM’000

Temporary differences between depreciation and tax allowances on property and equipment (109) (147) Temporary differences arising from collective/general allowance for bad and doubtful debts and financing 142,254 46,201 Temporary differences arising from profit equalisation

reserve 1,713 12,324 Temporary difference recognised in equity 2,108 (718)



Others (27,560) (16,160) 118,406 41,500

Deferred tax asset/(liability) recognised directly in equity:

2011 2010RM’000 RM’000

Balance at beginning of year - as previously stated (718) (2,970) - effect of adopting FRS 139 1,815 - Balance at beginning of year (restated) 1,097 (2,970) Relating to net unrealised gain on financial investments available-for-sale 1,011 2,252 Balance at end of year 2,108 (718)




34. EARNINGS PER SHARE

2011 2010

Basic/dilutedNet profit attributable to equity holder of the Bank (RM'000) 156,589 261,345

Number of ordinary shares at beginning and end of year representing weighted average number of ordinary shares in issue ('000) 403,038 403,038

Basic/diluted earnings per share (sen) 38.85 64.84

35. DIVIDENDS

2011 2010

Basic earnings per share is calculated by dividing the profit for the year attributable toequity holder of the Bank by the weighted average number of ordinary shares in issueduring the financial year.

Diluted earnings per share is calculated by dividing the adjusted net profit attributable toequity holder of the Bank by the adjusted weighted average number of ordinary shares inissue and issuable during the financial year.



RM’000 RM’000

Recognised during the financial year:

In respect of financial year ended 31 March 2011:

Interim single tier dividend of 9.9% on 403,038,000 ordinary shares 39,901 -

In respect of financial year ended 31 March 2010:

First interim dividend of 33.08% less 25% tax on 403,038,000 ordinary shares - 100,000 Second interim dividend, consisting of: - Gross dividends of 16.56% less 25% tax on 403,038,000 ordinary shares - 50,060 - Single-tier dividend of 12.39% on 403,038,000 ordinary shares - 49,940

39,901 200,000

The directors do not recommend the payment of final dividend in respect of the currentfinancial year.




36. BUSINESS SEGMENT ANALYSIS

Business Segment Analysis

The Bank comprises the following main business segments:

(a) Retail Banking

(b) Business Banking

(c) Corporate and Institutional Banking

Retail banking focuses on providing products and services to individual customersand small and medium enterprises. The products and services offered to thecustomers include credit facilities such as auto financing, mortgages and otherconsumer financing, credit cards, asset financing and small business, personalfinancing, retail distribution and deposits.

Segment information is presented in respect of the Bank’s business segments. Thebusiness segment information is prepared based on internal management reports, whichare regularly reviewed by the chief operating decision-maker in order to allocate resourcesto a segment and to assess its performance.

The business banking operations consist of provision of trade services, cashmanagement and transactional banking services.



(d) Treasury and Markets

(e) Group Functions and Others

The corporate and institutional banking focuses on deepening and expandingcorporate and institutional banking relationships with the Bank’s corporate clients, aswell as offering of a wider spectrum of the Bank’s commercial and investment bankingproducts through the overseas business operations and providing real estatemanagement services.

The treasury and markets operations focus on activities and services which includeforeign exchange, money market, derivatives and trading of capital marketinstruments.

Group functions and others comprise activities which complement and support theoperations of the main business units and non-core operations of the Bank.




36. BUSINESS SEGMENT ANALYSIS (CONTD.)

Measurement of Segment Performance

Operating Revenue

Major Customers

Operating revenue of the Bank comprises all type of revenue derived from the businesssegments.

No revenue from one single customer amounted to greater than 10% of the Bank’srevenue for the current and previous financial year.

The segment performance is measured on income, expenses and profit basis. These areshown after allocation of certain centralised costs, funding income and expenses andexpenses directly associated with each segment. Transactions between segments arerecorded within the segment as if they are third party transactions and are eliminated onaggregation.








Retail Business Corporate Treasury Group Functions Total2011 Banking Banking and Institutional and Markets and Others

BankingRM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Operating revenue 551,245 106,167 236,389 27,036 258,769 1,179,606

Income 456,297 70,146 28,471 23,980 118,498 697,392Expenses (189,358) (25,602) (1,938) (3,325) (60,632) (280,855) Profit before provision 266,939 44,544 26,533 20,655 57,866 416,537Provision (141,651) (30,056) (6,321) 3,876 (33,260) (207,412) Profit before zakat and taxation 125,288 14,488 20,212 24,531 24,606 209,125Zakat and taxation (31,322) (3,622) (5,053) (6,132) (6,407) (52,536)Profit for the year 93,966 10,866 15,159 18,399 18,199 156,589

Other information

Cost to income ratio 41.5% 36.5% 6.8% 13.9% 51.2% 40.3%Net financing and advances 10,294,986 3,285,711 1,514,746 - (1,848,367) 13,247,076Impaired financing and advances 274,835 42,821 - - 2,762 320,418Deposits 4,763,557 1,671,876 9,073,612 111,262 1,096,904 16,717,211

The financial information by geographical segment is not presented as the Bank's activities are principally conducted in Malaysia.





Retail Business Corporate Treasury Group Functions Total2010 Banking Banking and Institutional and Markets and Others

BankingRM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Operating revenue 610,837 76,474 135,111 17,761 192,816 1,032,999

Income 490,514 52,535 6,263 15,677 120,038 685,027Expenses (181,056) (18,875) (545) (4,308) (54,466) (259,250)Profit before provision 309,458 33,660 5,718 11,369 65,572 425,777Provision (73,729) (14,644) (3,488) 8,777 13,917 (69,167)Profit before zakat and taxation 235,729 19,016 2,230 20,146 79,489 356,610Zakat and taxation (58,932) (4,754) (558) (5,036) (25,985) (95,265)Profit for the year 176,797 14,262 1,672 15,110 53,504 261,345

Other information

Cost to income ratio 36.9% 35.9% 8.7% 27.5% 45.4% 37.8%Net financing and advances 9,122,603 2,229,519 716,467 - (309,911) 11,758,678Impaired financing and advances 165,850 10,679 - - 5,703 182,232Deposits 5,957,708 1,605,730 6,175,004 78,670 1,066,678 14,883,790

The financial information by geographical segment is not presented as the Bank's activities are principally conducted in Malaysia.


37. CAPITAL COMMITMENTS

As at the reporting date, the Bank has no capital commitments.

38. LEASE COMMITMENTS

2011 2010RM’000 RM’000

Within one year 1,387 1,216 Between one and five years 1,538 2,547 More than five years 655 756

3,580 4,519

The lease commitments represent minimum rentals not adjusted for operating expenseswhich the Bank is obligated to pay. These amounts are insignificant in relation to theminimum lease obligations. In the normal course of business, leases that expire will berenewed or replaced by leases on other properties, thus it is anticipated that future annualminimum lease commitments will not be less than rental expenses for the financial year.

The Bank has lease commitments in respect of rented premises and equipment on hire, allof which are classified as operating leases. A summary of the non-cancellable long-termcommitments, net of sub-leases is as follows:





39. MATURITY ANALYSIS OF ASSETS AND LIABILITIES

Less than Over12 months 12 months Total

RM’000 RM’000 RM’000

2011

ASSETSCash and short-term funds 4,738,758 - 4,738,758 Deposits and placements with banks and other financial institutions 250,000 - 250,000 Derivative financial assets - 3,258 3,258 Financial assets held-for-trading 991,136 - 991,136 Financial investments available-for-sale 358,470 357,467 715,937 Financing and advances 2,957,727 10,289,349 13,247,076 Other assets 72,386 52,271 124,657 Deferred tax asset - 118,406 118,406 Property and equipment - 654 654 Intangible assets - 278 278

9,368,477 10,821,683 20,190,160

LIABILITIES

TOTAL ASSETS

The table below shows an analysis of assets and liabilities analysed according to whenthey are expected to be recovered or settled.



Deposits and placements of banks and other financial institutions 682,471 785,085 1,467,556 Derivative financial liabilities - 3,254 3,254 Deposits from customers 14,845,536 404,119 15,249,655 Term funding - 550,000 550,000 Bills and acceptances payable 879,522 - 879,522 Subordinated Sukuk Musyarakah - 400,000 400,000 Other liabilities 217,206 24,795 242,001 Provision for zakat 559 - 559

16,625,294 2,167,253 18,792,547 TOTAL LIABILITIES




39. MATURITY ANALYSIS OF ASSETS AND LIABILITIES (CONTD.)

Less than Over12 months 12 months Total

RM’000 RM’000 RM’000

2010

ASSETSCash and short-term funds 3,886,453 - 3,886,453 Deposits and placements with banks and other financial institutions 150,000 - 150,000 Derivative financial assets - 3,461 3,461 Financial assets held-for-trading 350,934 - 350,934 Financial investments available-for-sale 595,440 312,490 907,930 Financing and advances 1,933,218 9,825,460 11,758,678 Other assets 34,463 47,163 81,626 Statutory deposit with Bank Negara Malaysia - 32,079 32,079 Deferred tax asset - 41,500 41,500 Property and equipment - 317 317 Intangible assets - 449 449

6,950,508 10,262,919 17,213,427

LIABILITIESDeposits and placements of banks and other financial institutions 1,198,982 286,768 1,485,750

TOTAL ASSETS



Derivative financial liabilities - 3,458 3,458 Deposits from customers 13,102,741 295,299 13,398,040 Bills and acceptances payable 394,986 - 394,986 Subordinated Sukuk Musyarakah - 400,000 400,000 Other liabilities 142,523 49,297 191,820 Provision for zakat 1,226 - 1,226

14,840,458 1,034,822 15,875,280 TOTAL LIABILITIES




40. RISK MANAGEMENT

40.1 GENERAL RISK MANAGEMENT

Risk Management Framework

The Risk Appetite Framework is approved annually by the Board of Directors takinginto account the Bank's desired external rating and targeted profitability/return onequity (“ROE”) and is reviewed periodically throughout the financial year by both theexecutive management and the Board of Directors to consider any finetuning/amendments taking into account prevailing or expected changes to theoperational environment.

The Risk Management Framework takes its lead from the Board of Directors’Approved Risk Appetite Framework which provides the catalyst to setting therisk/reward profile required by the Board of Directors, together with the relatedbusiness strategies, limit framework and policies required to enable successfulexecution.

The Risk Appetite Framework provides portfolio parameters for Credit Risk, TradedMarket Risk, Non-Traded Market Risk and Operational Risk incorporating, inter alia,limit structures for countries, industries, single counterparty, value at risk, capital atrisk, earnings at risk, stop loss, stable funding ratio and liquidity. Each business unithas asset writing strategies which tie into the overall Risk Appetite Frameworkproviding detailed strategies of how the business units will execute their businessplans in compliance with the Risk Appetite Framework.



Risk Management Governance

The Board of Directors is ultimately responsible for the management of risks withinthe Bank. The Risk Management Committee of Directors is formed to assist theBoard of Directors in discharging its duties in overseeing the overall management ofall risks covering market risk management, liquidity risk management, credit riskmanagement and operational risk management.

The Board of Directors has also established various management committees toassist it in managing the risks and businesses of the Bank. The following chart setsout the organisational structure of the risk management committees and an overviewof the respective committee’s roles and responsibilities:




40. RISK MANAGEMENT (CONTD.)

40.1 GENERAL RISK MANAGEMENT (CONTD.)

Board of Directors

Chief Executive Officer Committee


Risk Management Committee of Directors

Shariah Committee

Audit & Examination Committee of Directors *

*

*



Board of Directors

Chief Executive Officer Committee


Risk Management Committee of Directors

Group Assets & Liabilities

Committee

Islamic Assets & Liabilities

Committee

Group Traded Market Risk Committee

Group Portfolio Management &

Credit Policy Committee

GroupImpairment Provision

Committee

GroupOperational &

Legal Risk Committee

GroupProduct

Committee


Shariah Committee

Audit & Examination Committee of Directors

Business and IT Project Committee

* At entity level

**

*








Roles and Responsibilities-

- Report and advise the Board of Directors on risk issues.-

-

-

-

-

-

- Report and advise the Board of Directors on risk issues.-

-

CommitteeRisk Management Committee of Directors (“RMCD”)

Audit & Examination Committee of Directors (“AEC”)

Shariah Committee

Chief Executive Officer Committee (“CEO Committee”)

Group Assets and Liabilities Committee (Conventional and Islamic) (“GALCO”)

Islamic Assets and Liabilities Committee

Oversee senior management activities in managing risk(covering credit, market, funding, operational, legal,regulatory capital and strategic risk) and to ensure that therisk management process is in place and functioning.

Provide assistance to the Board in relation to fulfillingfiduciary responsibilities and monitoring of the accountingand financial reporting practices of the Bank.Provide assistance to Board of Directors in ensuring theIslamic Banking operations of the Bank are Shariahcompliant.Responsible and accountable on matters related toShariah, which includes advising Board of Directors andmanagement on Shariah matters and endorsing andvalidating products and services and the relevantdocumentations in relation to Islamic Banking operations.

Executive Committee ofDirectors (“EXCO”)

Review credit facilities and commitments that exceedscertain thresholds.

Responsible to consider and approve credit facilities andcommitments that are not in accordance with the policiesapproved by the Board for which EXCO has been grantedpowers to exempt.

Responsible for overall day-to-day operations of the Banksuch as oversee management’s activities in managing risk,review high level risk exposures, portfolio composition andrisk strategies; and evaluate the existence andeffectiveness of the control and risk managementinfrastructure.

Responsible for the development of capital and balancesheet management policy, approve and oversee non-traded interest/profit rate risk exposures, liquidity andfunding framework and hedging and management ofstructural foreign exposure. Ensure fund transfer pricingare effective and fair and capital is managed.Responsible for the development of Islamic capital andbalance sheet management policy, approve and overseerate of return risk exposures, liquidity and fundingframework and hedging and management of structuralforeign exposure. Ensure fund transfer pricing are effectiveand fair and capital is managed.






Roles and Responsibilities-

-

-

-

-

-

-

-

Group Traded Market Risk Committee (“GTMRC”)

Responsible for the development of traded market riskpolicy framework, oversee the trading book portfolio,approve new trading products and ensure the compliancewith the internal and regulatory requirements throughoutthe Bank.

Responsible to optimise the allocation of shared resourcesand change capacity to programmes, projects andinitiatives across the Bank.

Committee

Group Operational and Legal Risk Committee (“GOLRC”)

Group Product Committee (“GPC”)

Business and IT Project Committee (“BITPC”)


Responsible for endorsing operational risk, legal risk andregulatory compliance framework, oversee operational riskand legal risk management and reviews regulatory actionsor any incidences that may give rise to operational andlegal risk along with the actions taken to mitigate suchrisks. Responsible for ensuring adequate infrastructure andresources are in place for product management, endorseproposal for new products and product launchingstrategies, approve proposals for product variation andreactivation of dormant products, and review postimplementation activities and product performance.Responsible to review and approve (or where requiredrecommend for approval) requests relating to the Bank'smajor Business and Information Technology ("IT")investments.To ensure all projects are aligned to the Business and ITplans, appropriate prioritisation of Business and ITprojects, and the allocation of resources.

Responsible for the development of credit policyframework, oversee credit portfolio, endorse asset writingstrategies, review credit provisioning policies and processand ensure the compliance with the internal and regulatoryrequirements throughout the Bank.Responsible for the development of key policies relating toimpairment provisions, ensure provision are assessed andmade in accordance with Board approved policies andFRS 139 and 137 standards and establish adequatemanagement governance for the determination ofprovisions.

Group Portfolio Management and Credit Policy Committee (“GPMCP”)

Group Impairment Provision Committee



40.2 CREDIT RISK MANAGEMENT

Credit risk is the risk of loss due to the inability or unwillingness of a counterparty tomeet its payment obligations. Exposure to credit risk arises from financing, securitiesand derivative exposures. The identification of credit risk is done by assessing thepotential impact of internal and external factors on the Bank's transactions and/orpositions.

Accurate identification/recognition of credit riskon transactions and/or positions

Selection of asset and portfolio mix

Identification

Internal credit rating system Probability-of-default ("PD") Loss-given-default ("LGD") Exposure-at-default ("EAD")

Assessment/ Measurement

Monitoring of portfolio and reporting Watch-list review Post-mortem review

Monitoring/Review

Portfolio Limits, Counterparty Limits, Benchmark Returns

Collateral and tailored facility structures

Control/Mitigation

• improve the accuracy of individual obligor risk ratings and calculation ofexpected loss;

For non-retail credits, risk recognition begins with an assessment of the financialstanding of the customer or counterparty using an internally developed credit ratingmodel. The model consists of quantitative and qualitative scores that are thentranslated into a rating grade, ranging from “AAA” (representing the lowest risk grade)to "C” (that is, the highest risk grade). The assigned credit rating grade forms a crucial part of the credit analysis undertaken for each of the Bank’s credit exposures.

The primary objective of credit risk management is to maintain accurate riskrecognition - identification and measurement, to ensure that credit risk exposure is inline with the Bank's Risk Appetite Framework and related credit policies.

To support credit risk management’s observation of disciplines governed by the BaselII Framework and Financial Reporting Standards (“FRS”), our rating modelspertaining to credit risk (obligor’s probability-of-default (“PD”), loss-given-default(“LGD”) and exposure-at-default (“EAD”)) are in the process of being upgraded.These new models are scheduled to be operational during 2012 and will:





40.2 CREDIT RISK MANAGEMENT (CONTD.)

• enhance pricing models; • facilitate financing loss provision calculation; • automate stress testing; and • enhance portfolio management.

• Concentration limits:- single counterparty credit;- industry sector; - country; and

For retail credits, third generation credit-scoring systems to better differentiate thequality of customers are being used to complement the credit assessment andapproval processes. New LGD and EAD models have also been recently developedwhich will also become operational during 2012.

Financing activities are guided by internal credit policies and Risk Appetite Frameworkthat are approved by the Board of Directors. The Bank’s Risk Appetite Framework isrefreshed at least annually and with regard to credit risk, provides direction as toportfolio management strategies and objectives designed to deliver the Bank’soptimal portfolio mix. Credit Risk portfolio management strategies include, amongstothers:



- portfolio composition (by risk grade) • Asset writing strategies for industry sectors and individual customers; •

•

•

Individual credit risk exposure is reported to Credit and Commitment Committee(“CACC”). In the event such exposure exceeds CACC authority, it will be reported toEXCO. Portfolio credit risk is reported to the relevant management and boardcommittees.

The GPMCP regularly meets to review the quality and diversification of the Bank’sfinancing portfolio, approve new and amended credit risk policy, review watchlistreports and post-mortem review of financing (to extract lessons learned for facilitatingcredit training and refinement of credit policies or guidelines, towards enhancing riskidentification and control).

Setting Benchmark Returns which serve as a guide to the minimum returns theBank requires for the risk undertaken, taking into account operating expensesand cost of capital.

Setting financing to value limits for asset backed financing (i.e. propertyexposures and other collateral);

Watchlist processes for identifying, monitoring and managing customersexhibiting signs of weakness and higher risk customers; and






Credit Risk Exposure and Concentration

The Bank had engaged appropriate experts, including a Shariah advisor to review andensure that new financing proposals that have not been proposed before oramendments to existing contracts are Shariah-compliant at all times.

The Bank determines a list of all types of applicable and approved Shariahtransactions and financing. The approved list includes formal exclusions from anyengagement by the Bank in certain prohibited industries, such as pork meat, alcoholand gambling. The approved list is kept up-to-date and communicated to the relevantpersonnel within the Bank.

Group Risk prepares monthly Risk Reports which detail important portfoliocomposition and trend analysis incorporating asset growth, asset quality,impairments, flow rates of financing delinquency buckets and exposures by industrysectors are reported monthly by Group Risk to executive management and to allmeetings of the Board.

Th B k' t ti f i k d b i d t t i k d t

The Bank applies the Standardised Approach to determine the regulatory capitalcharge related to credit risk exposure.



The Bank's concentrations of risk are managed by industry sector, risk grade assetquality and single customer limit. The Bank applies single customer limits ("SCL") tomonitor the large exposures to single counterparty risk.

For financial assets recognised on the statement of financial position, the maximumexposure to credit risk before taking account of any collateral held or other creditenhancements equals the carrying amount. For contingent exposures, the maximumexposure to credit risk is the maximum amount the Bank would have to pay if theinstrument is called upon. For committed facilities which are undrawn, the maximumexposure to credit risk is the full amount of the committed facilities.

The following table shows the maximum exposure to credit risk for the components ofthe statement of financial position and commitments and contingent liabilities,including derivatives, by industry and by geography, before taking account of anycollateral held or other credit enhancements.








(i) Industry AnalysisFinance,

Wholesale, Insurance,Electricity, Retail Trade, Transport, Real Estate and

Primary Mining and Gas and Restaurant Storage and Business Education2011 Agriculture Quarrying Manufacturing Water Construction and Hotel Communication Activities * and Health Household Others Total

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

Cash and short-term funds - - - - - - - 4,738,758 - - - 4,738,758 Deposit and placements with banks and other financial institutions - - - - - - - 250,000 - - - 250,000 Derivative financial assets - - - - - - - 3,258 - - - 3,258

Financial assets held-for-trading - Money market securities - - - - - - - 748,835 - - - 748,835 - Unquoted private debt securities 25,402 5,183 - 26,533 15,323 30,096 - 84,231 10,132 - 45,401 242,301

25,402 5,183 - 26,533 15,323 30,096 - 833,066 10,132 - 45,401 991,136 Financial investments available- for-sale - Money market securities - - - - - - - 538,611 - - - 538,611 - Unquoted private debt securities - 47,409 - 34,496 32,208 - - 31,896 - - 21,317 167,326

- 47,409 - 34,496 32,208 - - 570,507 - - 21,317 705,937 Gross financing and advances (before deduction of Islamic financing sold to Cagamas) ** - Hire purchase receivables 14,969 1,916 16,250 1,447 54,198 68,674 121,953 42,249 14,017 6,622,416 651 6,958,740 - House financing - - 43,888 - 933 - - 634 682 507,883 - 554,020 - Card receivables - - - - - - - - - 303,753 - 303,753 - Other financing 59,950 13,728 91,892 5,436 105,511 50,880 37,109 69,072 116,162 2,212,662 695 2,763,097 - Corporate financing 61,405 4,379 1,304,907 209,441 762,199 378,097 605,058 1,056,688 284,614 118,968 86,201 4,871,957

136,324 20,023 1,456,937 216,324 922,841 497,651 764,120 1,168,643 415,475 9,765,682 87,547 15,451,567

Total financial assets 161,726 72,615 1,456,937 277,353 970,372 527,747 764,120 7,564,232 425,607 9,765,682 154,265 22,140,656

Contingent liabilities 1,502 2,356 243,895 10,523 307,888 32,008 61,503 266,411 1,004 - 90,241 1,017,331 Commitments 130,078 23,644 509,595 99,257 1,478,631 236,448 62,222 1,248,792 15,054 575,943 386,671 4,766,335 Total commitments and contingent liabilities 131,580 26,000 753,490 109,780 1,786,519 268,456 123,725 1,515,203 16,058 575,943 476,912 5,783,666

* Including government, government related agencies and Bank Negara Malaysia.** The amounts presented for financing and advances are gross of impairment allowances.




(ii) Geographical Analysis

2011 In Outside Malaysia Malaysia TotalRM'000 RM'000 RM'000

Cash and short-term funds 4,738,758 - 4,738,758 Deposit and placements with banks and other financial institutions 250,000 - 250,000 Derivative financial assets 3,258 - 3,258

Gross financing and advances (before deduction of Islamic financing sold to Cagamas) * - Hire purchase receivables 6,958,740 - 6,958,740 - House financing 554,020 - 554,020 - Card receivables 303,753 - 303,753 - Other financing 2,763,097 - 2,763,097 - Corporate financing 4,871,957 - 4,871,957

15,451,567 - 15,451,567



Total financial assets 20,443,583 - 20,443,583

Contingent liabilities 1,017,331 - 1,017,331 Commitments 4,766,335 - 4,766,335 Total commitments and contingent liabilities 5,783,666 - 5,783,666

* The amounts presented are gross of impairment allowances.






Main Types of Collateral Taken by The Bank

• Cash and term deposits • • Non-exchange traded debt securities/sukuk •

• Non-exchange traded shares • Residential and non-residential property • Plantation land, mining land, quarry land and vacant land • Passenger vehicle, commercial vehicle, construction vehicle and vessel • Plant and machineries

The Bank can only accept Shariah-approved assets as collateral.

Collateral is generally taken as security for credit exposures as a secondary source ofpayment in case the counterparty cannot meet its contractual payment obligationsfrom cash flow generation. Types of collateral typically taken by the Bank include:

Exchange traded shares, sukuk and marketable securities

Unit trusts (including Amanah Saham Nasional, Amanah Saham Bumiputera andmutual funds)

Where the customer risk profile is considered very sound (or by nature of the product,for instance small limit products such as credit cards), a transaction may be providedon an “unsecured” basis that is not be supported by collateral



Processes for Collateral Management

To support the development of processes around collateral valuation andmanagement, the concept of legal enforceability and certainty are central to collateralmanagement. In order to achieve legal enforceability and certainty, the Bank hasstandard collateral instruments, and where applicable, security interest are registered.

In addition to rating the customer’s probability-of-default via an internal risk ratingsystem, the Bank uses Security Indicators (“SIs”) in its non-retail portfolio to assessthe strength of collateral supporting its exposures. Thus both the PD and LGDestimates are used in assessing and monitoring exposures.

on an “unsecured” basis, that is, not be supported by collateral.






Guarantee Support

Use of Credit Derivatives and Netting for Risk Mitigation

Currently, the Bank does not use credit derivatives and netting for risk mitigation.

Transaction Structuring to Mitigate Credit Risk

Guarantee support for financing proposals are an integral component in transactionstructuring for the Bank. The guarantee of a financially strong party can help improvethe probability-of-default of a transaction through its explicit support of the customer,where the customer’s risk grade will be replaced with the guarantor’s risk grade.

Besides tangible security and guarantee support described above, credit riskmitigation techniques are used in structuring transactions. These include durationlimits managing the number of years the financing is extended amortisation

Guarantees that are recognised for risk grading purposes may be provided by partiesthat include associated entities, banks or sovereigns. Credit policies provide thresholdparameters to determine acceptable counterparties in achieving risk gradeenhancement of the transaction. Guarantee by a counterparty with lower rating thanthe customer is not recognised as part of the risk grade enhancement.



Concentrations of Credit Risk Mitigation

limits managing the number of years the financing is extended, amortisationschedules and financing covenants. These assist in managing credit risk and inproviding early warning signals, whereby should financing covenants be breached,the Bank and the customer can work together to address the underlying causes andas appropriate, restructure facilities.

The main types of collateral undertaken by the Bank are properties, motor vehiclesand exchange traded shares.






Credit Quality

Definition of the Categories

The credit quality of financial assets are analysed based on broad categories. Internalcredit rating grades assigned to corporate and retail lending businesses are mappedto the following categories based on the definitions appended below.

Committee Roles and ResponsibilitiesStrong

Satisfactory Adequate capacity to meet financial commitments. While itexhibits adequate protection, adverse economic conditionsor changing environments are more likely to lead to aweakened capacity.

Sub-standard but not impaired

Exposures that have a higher default risk. Capacity to meetfinancial commitments remains marginally acceptable butmore susceptible to changes in external market conditions.

Unrated

Strong capacity to meet financial commitments, minimalsensitivity to long-term adverse external events or marketconditions.

Exposures that are not rated.



BB- to B- BBB to B

Exposures considered past due when any payment(whether principal and/or profit/rate of return) due under thecontractual terms are received late or missed one or moredays after the contractual due date.

The table below provides the External Credit Assessment Institutions (ECAIs) ratingthat broadly corresponds to the broad internal credit quality categories.

Strong

BB to B+

Aaa to Ba2

S&PMoody's Fitch IBCA RAM and MARC

CCC to C

Satisfactory Ba3 to B2

Sub-standard B3 to C B to C CCC to C

Past due but not impaired

AAA to BB+ AAA to BB AAA to A

Credit Quality Classification






Impairment

Definition of Past Due and Impaired Financing

All financing and advances are categorised as either:

• Neither past due nor impaired; • Past due but not impaired; or • Impaired

A financing is classified as impaired under the following circumstances:

(a)

(b)

An asset is considered past due when any payment (whether principal and/or profit)due under the contractual terms are received late or missed.

where the principal or profit or both1 is past due or the amount outstanding is inexcess of approved limit (for revolving facilities), each for more than 90 days or 3months; or

the financing exhibits weaknesses that render a classification appropriate to theBank's Credit Risk Rating Framework, which requires it to fall under the“ lik li t ” t d th B k’ W t h li t P li



(c)

(d)

1

2"Default" is defined for financing with repayment schedules on a quarterly basis or longer as 1 daypast due + 30 days

For credit card facilities, an account is "past due" when the cardmember fails to settle the minimummonthly repayment due before the next billing date.

for financing with repayment schedules on a quarterly basis or longer intervals to

be classified as impaired as soon as default2 occurs, unless it does not exhibitany weakness that would render it to be classified according to the Bank's CreditRisk Rating Framework. Notwithstanding that, these financing shall be classifiedas impaired when the principal or profit or both is past due for more than 90 daysor 3 months.

for distressed rescheduled and restructured (“R/R”) facilities, these financing arecategorised as “unlikeliness to repay” and classified as impaired. Non-performingR/R facilities remain impaired until re-aged.

“unlikeliness to repay” category under the Bank’s Watch-list Policy.








Credit Quality By Class of Financial Assets

Fair value ofcollateral for

Past due Gross amount past due and/orStrong credit Satisfactory Sub- but not individually Individual impaired

profile risk standard Unrated impaired Impaired Total impaired allowance accounts2011 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Derivative financial assets 3,258 - - - - - 3,258 - - -

Financial assets held-for-trading - Money market securities 748,835 - - - - - 748,835 - - - - Unquoted private debt securities 242,301 - - - - - 242,301 - - -

991,136 - - - - - 991,136 - - - Financial investments available-for-sale - Money market securities 439,071 - - 99,540 - - 538,611 - - - - Unquoted private debt securities 167,326 - - - - - 167,326 - - -

606,397 - - 99,540 - - 705,937 - - - Gross financing and advances (before deduction of Islamic financing sold to Cagamas) * - Hire purchase receivables 2,087,797 1,645,149 471,138 - 2,649,199 105,457 6,958,740 - - 2,921,352 - House financing 86,778 221,707 94,848 - 127,647 23,040 554,020 - - 258,607 - Card receivables 92,297 45,501 93,203 - 61,848 10,904 303,753 - - 112 - Other financing 1,436,044 390,629 58,289 71,662 671,040 135,433 2,763,097 - - 160,984 - Corporate financing 2,237,822 2,374,764 112,373 94,951 6,463 45,584 4,871,957 33,737 25,447 14,922

5,940,738 4,677,750 829,851 166,613 3,516,197 320,418 15,451,567 33,737 25,447 3,355,977

Total financial assets 7,541,529 4,677,750 829,851 266,153 3,516,197 320,418 17,151,898 33,737 25,447 3,355,977

Contingent liabilities 283,063 518,805 213,615 1,848 - - 1,017,331 - - - Commitments 3,071,974 1,481,871 160,561 51,929 - - 4,766,335 - - - Total commitments and contingent liabilities 3,355,037 2,000,676 374,176 53,777 - - 5,783,666 - - -

* The amounts presented for financing and advances are gross of impairment allowances.

Neither past due nor impaired

The credit quality of financial assets is managed by the Bank using internal credit ratings. The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, basedon the Bank's internal credit rating system.




Aging Analysis of Past Due But Not Impaired Financial Assets

Up to 1 >1 to 3 month months Total

RM'000 RM'000 RM'000

Gross financing and advances (before deduction of Islamic financing sold to Cagamas) - Hire purchase receivables 1,528,022 1,121,177 2,649,199 - House financing 83,109 44,538 127,647 - Card receivables 41,325 20,523 61,848 - Other financing 424,340 246,700 671,040 - Corporate financing 6,463 - 6,463

2,083,259 1,432,938 3,516,197







Rescheduled RestructuredFinancial Financial

Assets Assets Total2011 RM'000 RM'000 RM'000

Gross financing and advances 193,500 55,447 248,947

Collateral Repossessed

Carrying Amount by Class of Financial Assets Whose Terms Have BeenRenegotiated

The Bank has policies and processes in place for restructured and rescheduled creditfacilities. Restructured/rescheduled financing is to assist the counterparty toovercome its shorter term financial difficulties particularly where the longer termprospect of the business or project is deemed to be viable.

There was no collateral taken into possession during the year and held as at the endof the year.







Methodology for Determination of Individual and Collective Allowances

Individual Assessment

(a) Trigger management

(b) Valuation of assets

Financial assets which are triggered by the impairment triggers will be measuredfor evidence of high likelihood of impairment, that is, estimated recoveries (basedon the discounted cash flow projection method and taking into account economic

diti ) i l th i l f i l i l th th i l

Individual assessment is divided into 2 main processes – detection of an event(s) andan assessment of impairment:

An assessment is performed to determine whether objective evidence of impairmentexists individually for financial assets that are individually significant, and collectivelyfor financial assets that are not individually significant or not individually impaired.

In trigger management, financial assets which are above the pre-set individualassessment threshold are assessed using the relevant impairment triggers forobjective evidence of impairment.



Collective Assessment

(a)

(b)

conditions) is less than carrying value or fair value is less than the carrying value.

All financial assets below the significant threshold and those not assessed to beindividually impaired will be subject to collective assessment and a collectiveallowance will be computed accordingly.

As a transitional arrangement up to 2012, BNM has given banking institutions thechoice of applying either one of the following approaches in computing the requiredcollective assessment:

Transitional approach – where, banking institutions may maintain an allowanceof at least 1.5% of total outstanding financing net of individual impairmentallowance; or

Full FRS 139 compliance approach – where collective allowances are computedusing models based on the banking institutions’ historical experience.

The Bank has opted for the transitional approach and has modified it to reflect itshistorical loss experience.





40.3 LIQUIDITY RISK AND FUNDING MANAGEMENT

Liquidity risk is the risk that the organisation either does not have sufficient financialresources available to meet all its obligations and commitments as they fall due, orcan only access these financial resources at an unreasonable cost. Liquidity riskexposure arises mainly from the deposit taking and borrowing activities, and to alesser extent, significant drawdown of funds from previously contracted financing andpurchase commitments.

The primary objective of the Bank’s liquidity risk management is to ensure theavailability of sufficient funds at a reasonable cost to honour all financial commitmentswhen they fall due. The secondary objective is to ensure an optimal funding structureand to balance the key liquidity risk management objectives, which includesdiversification of funding sources, customer base and maturity period.

The Group Asset & Liability Committee (“GALCO”) is the responsible governing bodythat approves the Group’s liquidity management and strategies policies and isresponsible for setting liquidity limits, proposing liquidity risk policies and contingencyfunding plan and practices to be in compliance with local regulatory requirements andmonitoring liquidity on an ongoing basis. The Capital and Balance Sheet Managementdivision and Group Risk functions propose and oversee the implementation of policiesand other controls relating to the above risks.



In the event of actual liquidity crisis occurring, a contingency funding plan provides aformal process to identify a liquidity crisis and details responsibilities among therelevant departments to ensure orderly execution of procedures to restore the liquidityposition and confidence in the organisation.

Stress testing is undertaken to assess and plan for the impact for various scenarioswhich may put the Bank’s liquidity at risk. The stress testing output contributes to thedevelopment of the liquidity risk limits and the Bank’s contingency funding plan.

The Bank stresses the importance of customer deposit accounts as a source of fundsto finance lending to customers. They are monitored using the advances to depositratio, which compares financing and advances to customers as a percentage ofcustomer deposit accounts, together with term funding with a remaining term tomaturity in excess of one year.





40.3 LIQUIDITY RISK AND FUNDING MANAGEMENT (CONTD.)

Liquidity Metrics

Adjusted Customer Financing to Deposits Ratio ("FDR")

2011

Year-end 85.4%

Maximum 96.5%

Minimum 85.4%

Average 92.1%

The Bank monitors key liquidity metrics on a regular basis. The main key metric is:

This is defined as the ratio of total outstanding financing and advances to customers(before deduction of Islamic financing sold to Cagamas), net of allowance forimpairment on financing and advances, relative to total customer deposits (inclusiveof financing sold to Cagamas Berhad and term funding with original maturity of 3years and above). This ratio reflects the percentage of customer financing andadvances that are funded by customer deposits. A ratio below 100% indicates thatour financing portfolio is completely funded by deposits. A low FDR demonstrates thatcustomer deposits exceed customer financing resulting from emphasis placed ongenerating a high level of stable funding from customers.









Analysis of Financial Assets and Liabilities By Remaining Contractual Maturities

2011 Up to 1 >1 to 3 >3 to 6 >6 to 12 >1 to 5 Over Non Specificmonth months months months years 5 years Maturity TotalRM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Financial AssetsCash and short-term funds 4,748,895 - - - - - 7,718 4,756,613 Securities purchased under resale agreementsDeposit and placements with banks and other financial institutions - 253,140 - - - - - 253,140 Derivative financial assets - - - - 3,258 - - 3,258 Financial assets held-for-trading 1,012 75,508 147,561 43,078 699,471 113,914 - 1,080,544 Financial investments available-for-sale 10,183 354,831 8,097 8,097 240,256 170,255 - 791,719 Financial investments held-to-maturityFinancing and advances 2,773,992 319,991 322,337 588,188 7,036,371 10,802,082 - 21,842,961 Statutory deposits with Bank Negara Malaysia - - - - - - - -

Total Undiscounted Financial Assets 7,534,082 1,003,470 477,995 639,363 7,979,356 11,086,251 7,718 28,728,235

Financial LiabilitiesDeposits and placements of banks and other financial institutions 393,070 145,420 48,469 108,821 877,346 - - 1,573,126 Securities lent under repurchase agreementsDerivative financial liabilities - - - - 3,254 - - 3,254 Deposits from customers 7,982,706 5,190,850 1,192,472 734,515 440,523 - - 15,541,066 Term funding - - - - - 668,250 - 668,250 Bills and acceptances payable 294,769 413,922 177,537 - - - - 886,228 Subordinated Sukuk Musyarakah - - - - 496,000 - - 496,000

Total Undiscounted Financial Liabilities 8,670,545 5,750,192 1,418,478 843,336 1,817,123 668,250 - 19,167,924

Net Undiscounted Financial Assets/(Liabilities) (1,136,463) (4,746,722) (940,483) (203,973) 6,162,233 10,418,001 7,718 9,560,311

The table below summarises the maturity profile of the Bank's financial assets and liabilities as at 31 March. All derivatives used for hedging purposes are shown by maturity, based on their contractual undiscounted repayment obligations.

Repayment which are subject to notice are treated as if notice were to be given immediately. However, the Bank expects that many customers will not request repayment on the earliest date the Bank could be required to pay and the table does not reflect the expected cash flows indicated by the Bank's deposit retention history.






2011 Up to 1 >1 to 3 >3 to 6 >6 to 12 >1 to 5 Over month months months months years 5 years TotalRM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Contingent LiabilitiesDirect credit substitutes 48,180 21,874 55,087 72,730 49,925 - 247,796 Certain transaction-related contingent items 12,004 37,220 19,294 233,936 111,007 - 413,461 Short-term self liquidating trade-related contingencies 76,298 65,579 5,612 1,281 - - 148,770 Obligations under underwriting agreements - - - 30,000 162,500 - 192,500 Others 12,312 2,492 - - - - 14,804

CommitmentsIrrevocable commitments to extend credit 486,126 459,403 233,737 1,456,824 1,301,555 219,302 4,156,947 Unutilised credit card lines 464,251 - - - - - 464,251 Forward asset purchase 145,137 - - - - - 145,137

1,244,308 586,568 313,730 1,794,771 1,624,987 219,302 5,783,666

The table below shows the contractual expiry by maturity of the Bank's commitments and contingent liabilities. Each undrawn financing commitment is included inthe time band containing the earliest date it can be drawn down. It should be noted that this is not how the Bank manages its liquidity risk for commitments andcontingencies.

Total Commitments and Contingent Liabilities



40.4 MARKET RISK MANAGEMENT

The Traded Market Risk ("TMR") management process is depicted in the table below.

Market risk is the risk of losses due to adverse changes in the level or volatility ofmarket rates or prices, such as profit rates, credit spreads, equity prices and foreignexchange rates. The Bank differentiates between two types of market risk: TradedMarket Risk (“TMR”) and Rate of Return Risk in the Banking Book (“RORBB”).Assessing, controlling and monitoring of these risks are the responsibilities of theMarket Risk Unit (“MRU”).

Traded Market Risk ("TMR")

Identify market risks within existing and new products. Review market-related information such as market trend

and economic data.

Identification

Recommend / validate methodologies to calculate: o Value-at-Risk (“VaR”) o Profit-at-Risk (“PaR”) o Capital-at-Risk (“CaR”)


Recommend: - VaR limits - PaR limits - CaR limits - Annual and Monthly Loss limits - Greeks (Delta/Gamma/Vega/Theta) limits

Controls/

Mitigation



TMR arises from transactions in which the Bank acts as principal with clients or themarket. It involves taking positions in fixed income, equity or foreign exchange. Theobjectives of TMR management are to understand, to accurately measure and towork with the business to ensure exposures are managed within Board and ExecutiveManagement approved limit structures. This is done via robust measurement, settingof limits, limit monitoring and collaboration and agreement with business units onbusiness strategies.

Identify market risks within existing and new products. Review market-related information such as market trend

and economic data.

Identification

Recommend / validate methodologies to calculate: o Value-at-Risk (“VaR”) o Profit-at-Risk (“PaR”) o Capital-at-Risk (“CaR”)


Monitor limits Periodical review and reporting

Monitoring/

Review

Recommend: - VaR limits - PaR limits - CaR limits - Annual and Monthly Loss limits - Greeks (Delta/Gamma/Vega/Theta) limits - Dollar Value of One Basis Point (“DV01”) - Position Size - Maximum Tenor - Maximum Holding Period - Stealth Concentration

Controls/

Mitigation





40.4 MARKET RISK MANAGEMENT (CONTD.)

Value-at-Risk (“VaR”), Profit-at-Risk (”PaR”), Capital-at-Risk (“CaR”) and sensitivityanalysis are used to measure, monitor and control TMR exposures. VaR is aquantitative measure which applies recent historic market conditions to estimatepotential losses in market value, at a certain confidence level and over a specifiedholding period. Profit-at-Risk (“PaR”) comprises Value-at-Risk (“VaR”) and a loss limitthreshold. Loss limit thresholds are intended to trigger management discussion onappropriate mitigation measures to be taken, once certain loss levels are reached.

To complement VaR, CaR is used as a measure of the potential impact on portfoliovalues of more extreme, albeit plausible, market movements. In addition, CaR is usedto gauge and ensure that the Bank is able to absorb extreme, unanticipated marketmovements. Apart from VaR, PaR and CaR, additional sensitivity analysis limits (that isGreeks/DV01) and indicators are used to monitor changes in portfolio value underpotential market conditions such as shifts in currency rates, equity prices and rate ofreturn. MRU monitors and reports risk exposures against limits on a daily basis. Portfoliomarket risk positions are also reported to GTMRC, RMCD and the Board of Directors(the “Board”). Furthermore, policies and procedures are in place to ensure promptaction is taken in the event of limit breaches. Business units exposed to traded market

Traded Market Risk (Contd.)



action is taken in the event of limit breaches. Business units exposed to traded marketrisk are required to maintain risk exposures within their respective thresholds. Whenrisk limits are exceeded, business units are required to reduce their exposuresimmediately to a level below the thresholds unless senior management is consultedand approve alternative strategies to minimise potential losses. The Bank adopts the Standardised Approach for market risk capital chargecomputation. This serves as a financial buffer to withstand adverse marketmovements. MRU is committed to ongoing improvements in market risk processes and systems,and allocates substantial resources to this endeavour.






Non-Traded Market Risk

Rate of Return Risk in the Banking Book (“RORBB”)

The RORBB risk management process is depicted in the table below:

RORBB arises from changes in market rates of return that impact core net profitincome, future cash flows or fair values of financial instruments. This risk arises frommismatches between repricing dates of assets and liabilities, changes in yield curves,volatilities in profit margin and implied volatilities on rate of return options. The

i i f t il d h l l b ki d t d i ( i il fi iprovision of retail and wholesale banking products and services (primarily financingand deposit-taking activities) creates rate of return sensitive positions in the Bank’sstatement of financial position. The principal objectives of balance sheet risk management are to manage net fundincome sensitivity while maintaining acceptable levels of rate of return risk andfunding risk, and to manage the market value of the Bank’s capital. The Board's oversight of RORBB is supported by the Group Asset & LiabilityCommittee (“GALCO”). GALCO is responsible for the alignment of the Group-widerisk appetite and funding needs, taking into consideration the Group-wide businessstrategies. GALCO consistently manages the Group’s gapping positions, asset growthand liability mix against the rate of return outlook. It also reviews strategies to ensurea comfortable level of rate of return risk is maintained. The Bank has successfullyengaged long-term funding to reduce longer tenor rate of return risk, and maintaineda comfortable gapping profile as a result. In accordance with AmBank Group’s policy,positions are monitored on a monthly basis and hedging strategies are used to ensurerisk exposures are maintained within Board-established limits.






Non-Traded Market Risk (Contd.)

Rate of Return Risk in the Banking Book (“RORBB”) (Contd.)

The Bank measures the risk of losses arising from potential adverse movements inmarket rate of return and volatilities using VaR. VaR is a quantitative measure ofrates of return risk which applies recent historic market conditions to estimate thepotential loss in market value, at a certain confidence level and over a specifiedholding period.

The Bank complements VaR by stress testing rate of return risk exposures tohighlight potential risk that may arise from extreme market events that are rare butplausible. Key assumptions in the gap and sensitivity analysis relate to the behaviour of rates ofreturn and spreads, changes in financing and deposit product balances due tobehavioural characteristics under different rate of return environments. Materialassumptions include the repricing characteristics and the stickiness of indeterminateor non-maturity deposits. The rate scenarios may include rapid ramping of rates of return, gradual ramping ofrate of return, and narrowing or widening of spreads. Usually each analysisincorporates what management deems the most appropriate assumptions aboutcustomer behaviour in a rate of return scenario. However, in certain cases,assumptions are deliberately changed to test the Bank’s exposure to a specified



assumptions are deliberately changed to test the Bank s exposure to a specifiedevent. The Bank’s strategy seeks to optimise exposure to rate of return risk within Board-approved limits. This is achieved through the ability to reposition the rate of returnexposure of the statement of financial position using dynamic product and fundingstrategies, supported by FRS 139-compliant rate of return hedging activities usingprofit rate swaps and other derivatives. These approaches are governed by theBank’s policies in the areas of product and liquidity management as well as thebanking book policy statements and hedging policies. RORBB is calculated monthly and reported to GALCO.

The following table demonstrates the sensitivity of the Bank's profit before taxationand equity to a reasonable possible change in rate of return with all other variablesremain constant.






(i) Rate of Return Risk

Rate of Return Sensitivity Analysis

Traded Market Risk:

Rate of Return Rate of Return+ 100 bps - 100 bps(RM'000) (RM'000)

Impact on profit before taxation (27,724) 28,298 Impact on equity - -

Non-Traded Market Risk:

Rate of Return Rate of Return+ 100 bps - 100 bps(RM'000) (RM'000)

Impact on profit before taxation (29,091) 29,091 Impact on equity (217,817) 233,984

2011

The sensitivity above for non-traded market risk excluded non profit sensitiveitems. The Bank manages rate of return risk in the banking book by including all

2011



(ii) Currency Risk

(iii) Equity Price Risk

g g y gasset and liabilities, adjusted by internal fund transfer pricing practices.

Equity price risk arises from the adverse movements in the price of equities.Equity price risk is controlled via position size, loss limits and VaR limits.

The following table demonstrates the sensitivity of the Bank's profit beforetaxation and equity to a reasonable possible change in equity prices with all othervariables remain constant.

Foreign currency exchange risk arises from changes in exchange rates toexposure on the Bank’s financial instruments denominated in currencies otherthan the functional currency of the transacting entity. Position limits are imposedto prevent the Bank from exposure to excessive foreign currency exchange risk.

The Bank does not have any outstanding exposure to foreign currency as at endof the financial year.






(iii) Equity Price Risk (Contd.)

Equity Price Equity Price+ 10 % - 10 %

(RM'000) (RM'000)

Impact on profit before taxation - - Impact on equity 1,000 (1,000)

40.5 OPERATIONAL RISK MANAGEMENT

2011

Operational risk is the potential loss from a breakdown in internal process, systems,deficiencies in people and management or operational failure arising from externalevents. It is increasingly recognised that operational risk is the single mostwidespread risk facing financial institutions today.

Operational risk management is the discipline of systematically identifying the criticalpotential risk and causes of failure, assess the relevant controls to minimise theimpact of such risk through the initiation of risk mitigating measures and policies.

Th B k i i i ti l i k b tti i l i t li i i t l



40.6 LEGAL AND REGULATORY RISK

The Bank minimises operational risk by putting in place appropriate policies, internalcontrols and procedures as well as maintaining back-up procedures for key activitiesand undertaking business continuity planning. These are supported by independentreviews by the Group’s Internal Audit team.

The Bank manages legal and regulatory risks to its business. Legal risk arises fromthe potential that breaches of applicable laws and regulatory requirements,unenforceability of contracts, lawsuits, or adverse judgement, may lead to theincurrence of losses, disruption or otherwise resulting in financial and reputationalrisk.

Legal risk is managed by internal legal counsel and where necessary, in consultationwith external legal counsel to ensure that legal risk is minimised.

Regulatory risk is managed through the implementation of measures and procedureswithin the organisation to facilitate compliance with regulations. These include acompliance monitoring and reporting process that requires identification of risk areas,prescription of controls to minimise these risks, staff training and assessments,provision of advice and dissemination of information.




41. COMMITMENTS AND CONTINGENCIES

2011 2010

RM'000 RM'000

Contingent LiabilitiesDirect credit substitutes 247,796 184,794 Certain transaction-related contingent items 413,461 130,228 Short-term self liquidating trade-related contingencies 148,770 90,357 Islamic financing sold to Cagamas Berhad with recourse 1,589,790 335,852 Obligations under underwriting agreements 192,500 391,000 Others 14,804 8,424

2,607,121 1,140,655

CommitmentsIrrevocable commitments to

In the normal course of business, the Bank make various commitments and incur certaincontingent liabilities with legal recourse to its customers. No material losses are anticipatedas a result of these transactions. The commitments and contingencies are not securedagainst the Bank’s assets.



extend credit maturing :- less than one year 2,636,090 1,987,102 - more than one year 1,520,857 160,507

Unutilised credit card lines 464,251 447,639 Forward asset purchase 145,137 - Sell and buy back agreements - 306,538

4,766,335 2,901,786

Derivative Financial InstrumentsEquity and commodity related contracts:

- over one year to five years 222,526 75,500

Total 7,595,982 4,117,941




42. CAPITAL MANAGEMENT

The capital plan takes the following into account:

(a) Regulatory capital requirements: • forecast demand for capital to support the credit ratings; and • increases in demand for capital due to business growth and market shocks.

(b) Or stresses: • available supply of capital and capital raising options; and •

The capital and risk management of the banking subsidiaries of AMMB Holdings Berhadare managed collectively at group level. The Group's capital management approach isdriven by its desire to maintain a strong capital base to support the development of itsbusinesses, to meet regulatory capital requirements at all times and to maintain goodcredit ratings.

Strategic, business and capital plans are drawn up annually covering a 5 year horizon andapproved by the Board of Directors. The capital plan ensures that adequate levels ofcapital and an optimum mix of the different components of capital are maintained by theBank to support its strategy.

internal controls and governance for managing the Bank’s risk, performance andcapital.

The Bank uses internal models and other quantitative techniques in its internal risk andcapital assessment. The models help to estimate potential future losses arising from credit,market and other risks and using regulatory formulae the amount of capital required to



market and other risks, and using regulatory formulae the amount of capital required tosupport them. In addition, the models enable the Bank to gain a deeper understanding ofits risk profile, for example, by identifying potential concentrations, assessing the impact ofportfolio management actions and performing what-if analysis.

Stress testing and scenario analysis are used to ensure that the Bank’s internal capitalassessment considers the impact of extreme but plausible scenarios on its risk profile andcapital position. They provide an insight into the potential impact of significant adverseevents on the Bank and how these events could be mitigated. The Bank’s target capitallevels are set taking into account its risk appetite and its risk profile under future expectedand stressed economic scenarios.

The Bank’s assessment of risk appetite is closely integrated with its strategy, businessplanning and capital assessment processes, and is used to inform senior management’sviews on the level of capital required to support the Bank’s business activities.

The Bank uses a capital model to assess the capital demand for material risks, andsupport its internal capital adequacy assessment. Each material risk is assessed, relevantmitigants considered, and appropriate levels of capital determined. The capital modellingprocess is a key part of the Bank’s management disciplines.




42. CAPITAL MANAGEMENT (CONTD.)

The capital that the Bank is required to hold is determined by its statement of financialposition, commitments and contingencies, counterparty and other risk exposures afterapplying collateral and other mitigants, based on the Bank’s risk rating methodologies andsystems. We discuss these outcomes with BNM on a regular basis as part of our normalregulatory liaison activities. BNM has the right to impose further capital requirements onMalaysian Financial Institutions via its Financial Market Supervision remit.

The Bank operates processes and controls to monitor and manage capital adequacyacross the organisation. Where we operate in other jurisdictions, capital is maintained onthe basis of the local regulator’s requirements. It is overseen by the Group Asset andLiability Committee (“GALCO”), which is responsible for managing the Bank’s statement offinancial position, capital and liquidity.

A strong governance and process framework is embedded in the capital planning andassessment methodology. Overall responsibility for the effective management of risk restswith the Board of Directors. The Risk Management Committee of Directors (“RMCD”) isspecifically delegated the task of reviewing all risk management issues including oversightof the Bank’s capital position and any actions impacting the capital levels. The Audit andExamination Committee (“AEC”) reviews specific risk areas and the issues discussed atthe key capital management committees.

GALCO proposes internal triggers and target ranges for capital management andoperationally oversees adherence with these. These ranges are 7.5% to 8.5% for the Tier1 capital ratio and 11.5% to 12.5% for the total capital ratio. The Bank has been(knowingly) operating in excess of these ranges for the last 3 years as the Group wasconservatively positioned for any repercussions from the global financial crisis



conservatively positioned for any repercussions from the global financial crisis.

A dedicated team, the Capital and Balance Sheet Management Department, is responsiblefor the ongoing assessment of the demand for capital and the updating of the Bank’scapital plan.

In light of the uncertain economic environment and evolving regulatory debate on bankinginstitutions’ capital structures, we believe it is appropriate to remain strongly capitalisedabove our target ranges.

Appropriate policies are also in place governing the transfer of capital within the Group.These ensure that capital is remitted as appropriate, subject to complying with regulatoryrequirements and statutory and contractual restrictions.

There are no current material, practical or legal impediments to the prompt transfer ofcapital resources in excess of those required for regulatory purposes or repayment ofliabilities between AMMB Holdings Berhad and its group entities when due.




43. CAPITAL ADEQUACY RATIO

(a) The capital adequacy ratios of the Bank as at 31 March are as follows:

2011 2010

Core capital ratio 8.0% 10.5%Risk-weighted capital ratio 12.5% 15.3%

(b) The components of Tier 1 and Tier 2 Capital of the Bank are as follows:

2011 2010RM’000 RM’000

The capital adequacy ratios of the Bank are computed in accordance with BankNegara Malaysia's Capital Adequacy Framework for Islamic Banks (CAFIB), whichare based on the Basel II capital accord. The Bank has adopted the StandardisedApproach for Credit Risk and Market Risk, and the Basic Indicator Approach forOperational Risk. The minimum regulatory capital adequacy requirement is 8.0% (2010: 8.0%) for the risk-weighted capital ratio.

The detailed disclosures on the risk exposures, as set out in Bank Negara Malaysia'sCAFIB Disclosure Requirements (Pillar 3), are presented in the Pillar 3 disclosuressection annexed to the financial statements.



Tier 1 capitalPaid-up ordinary share capital 403,038 403,038 Share premium 534,068 534,068 Statutory reserve 304,316 265,169 Retained earnings 162,515 133,719

1,403,937 1,335,994 Less: Deferred tax asset (116,298) (42,218) Total Tier 1 capital 1,287,639 1,293,776

Tier 2 capitalSubordinated Sukuk Musyarakah 400,000 400,000 Collective/general allowance * 324,004 184,803 Total Tier 2 capital 724,004 584,803

Capital base 2,011,643 1,878,579

* Excludes collective allowance on impaired financing restricted from Tier 2 capital of the Bank of RM155,006,000 as at 31 March 2011.




43. CAPITAL ADEQUACY RATIO (CONTD.)

The breakdown of the risk-weighted assets in various categories of risk are as follows:

31 March 31 March2011 2010

RM’000 RM’000

Credit risk 14,379,718 10,740,202 Market risk 459,864 456,330 Operational risk 1,209,490 1,090,009 Total risk-weighted assets 16,049,072 12,286,541





44. FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of the Bank’s financial instruments are as follows:

Carrying Fair Carrying FairValue Value Value Value

RM’000 RM’000 RM’000 RM’000

20102011

Where available, quoted and observable market prices are used as the measure of fairvalues. Where such quoted and observable market prices are not available, fair values areestimated based on a number of methodologies and assumptions regarding riskcharacteristics of various financial instruments, discount rates, estimates of future cashflows and other factors. Changes in the assumptions could materially affect theseestimates and the corresponding fair values.

Financial instruments are contracts that gives rise to both a financial asset of oneenterprise and a financial liability or equity instrument of another enterprise. The fair valueof a financial instrument is the amount at which the instrument could be exchanged orsettled between knowledgeable and willing parties in an arm’s length transaction, otherthan a forced or liquidated sale. The information presented herein represents bestestimates of fair values of financial instruments at the reporting date.

In addition, fair value information for non-financial assets and liabilities such as deferredtaxation are excluded, as they do not fall within the scope of FRS 7 Financial Instruments:Disclosure, which requires the fair value information to be disclosed.



RM’000 RM’000 RM’000 RM’000

Financial AssetsCash and short-term funds 4,738,758 4,738,758 3,886,453 3,886,453 Deposits and placements with banks and other financial institutions 250,000 250,000 150,000 150,000 Derivative financial assets 3,258 3,258 3,461 3,461 Financial assets held-for-trading 991,136 991,136 350,934 350,934 Financial investments available-for-sale 715,937 715,937 907,930 907,930 Financing and advances 13,247,076 13,248,159 11,758,678 11,990,225




44. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTD.)

Carrying Fair Carrying FairValue Value Value Value

RM’000 RM’000 RM’000 RM’000

Financial LiabilitiesDeposits and placements of banks and other financial institutions 1,467,556 1,365,103 1,485,750 1,496,564 Derivative financial liabilities 3,254 3,254 3,458 3,458 Deposits from customers 15,249,655 15,264,689 13,398,040 13,385,662 Term funding 550,000 558,085 - - Bills and acceptances payable 879,522 879,522 394,986 394,986 Subordinated Sukuk Musyarakah 400,000 403,960 400,000 402,880

2011 2010

The fair value of contingent liabilities and undrawn credit facilities are not readilyascertainable. These financial instruments are presently not sold or traded. They generatefees that are in line with market prices for similar arrangements. The estimated fair valuemay be represented by the present value of the fees expected to be received, lessassociated costs and potential loss that may arise should these commitments crystallise.The Bank assesses that their respective fair values are unlikely to be significant given thatthe overall level of fees involved is not significant and no allowance is necessary to be



(a) Cash and Short-Term Funds

(b)

The estimated fair value is based on quoted or observable market prices at thereporting date. Where such quoted or observable market prices are not available, thefair value is estimated using net tangible assets techniques. Where discounted cashflow techniques are used, the estimated future cash flows are discounted usingmarket indicative rates of similar instruments at the reporting date.

Financial Assets Held-For-Trading and Financial Investments Available-For-Sale

The following methods and assumptions were used to estimate the fair value of assets andliabilities as at 31 March 2011 and 31 March 2010:

The carrying values are a reasonable estimate of the fair values because of negligiblecredit risk, short-term nature or frequent repricing.

the overall level of fees involved is not significant and no allowance is necessary to bemade.




44. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTD.)

(c) Financing and Advances

(d) Derivative Financial Instruments

(e) Deposits from Customers, Deposits Of Banks and Other Financial Institutions

The fair value of variable rate financing and advances are estimated to approximatetheir carrying values. For fixed rate financing, the fair values are estimated based onexpected future cash flows of contractual instalment payments and discounted atprevailing indicative rates adjusted for credit risk. In respect of impaired financing andadvances, the fair values are deemed to approximate the carrying values, net ofindividual allowance for bad and doubtful financing.

The fair values of the derivative financial instruments are obtained from quotedmarket prices in active markets, including recent market transactions and valuationtechniques, including discounted cash flow models and option pricing models, asappropriate.

The fair value of deposits liabilities payable on demand (“current and savingsdeposits”) or with remaining maturities of less than six months are estimated toapproximate their carrying values at statement of financial position date. The fairvalues of term deposits, negotiable instrument of deposits with remaining maturities ofmore than six months are estimated based on discounted cash flows using KLIBORrates.



(f) Bills and Acceptances Payable

(g) Subordinated Sukuk Musyarakah and Term Funding

The fair values of financing are based on quoted prices at reporting date.

As assumptions were made regarding risk characteristics of the various financialinstruments, discount rates, future expected loss experience and other factors, changes inthe uncertainties and assumptions could materially affect these estimates and the resultingvalue estimates.

rates.

The carrying values are a reasonable estimate of their fair values because of theirshort-term nature.




45. CREDIT EXPOSURES ARISING FROM CREDIT TRANSACTIONS WITH CONNECTED PARTIES

2011 2010

44,243 30,541

0.3% 0.2%

0.6% 0.1%

(a)

(b)

(c)

Percentage of outstanding credit exposures to connectedparties as proportion of total credit exposures (%)

Percentage of outstanding credit exposures withconnected parties which is non-performing or in default(%)

The credit exposures above are derived based on Bank Negara Malaysia's revisedGuidelines on Credit Transactions and Exposures with Connected Parties, which areeffective for the financial year 2009. Under the guidelines, a connected party refers to:

directors of the Bank and their close relatives;

controlling shareholder and his close relatives;

executive officer and his close relatives; executive officer refers to member ofmanagement having authority and responsibility for planning, directing and/orcontrolling the activities of the Bank;

Outstanding credit exposures with connected parties(RM'000)



(d)

(e)

(f)

(g)

officer and his close relatives; officer refers to those responsible for or have theauthority to appraise and/or approve credit transactions or review the status ofexisting credit transactions, either as a member of a committee or individually;

firms, partnerships, companies or any legal entities which control, or are controlled by,any person (including close relatives in the case of individuals) listed in (a) to (d)above, or in which they have interest as a director, partner, executive officer, agent orguarantor, and their subsidiaries or entities controlled by them;

any person for whom the persons listed in (a) to (d) above is a guarantor;

subsidiary of, or an entity controlled by the Bank and its connected parties.

Credit transactions and exposures to connected parties disclosed includes the extension ofcredit facility and/or off-balance sheet transactions that give rise to credit/counterparty risk,the underwriting and acquisition of equities and private debt securities.




45. CREDIT EXPOSURES ARISING FROM CREDIT TRANSACTIONS WITH CONNECTED PARTIES (CONTD.)

(i)

(ii)

(iii) the credit transactions are in the interest of the Bank and approved by the Board ofDirectors with not less than three quarters of all board members present.

the terms and conditions of credit transactions with connected parties are not morefavourable than those entered into with other counterparties with similarcircumstances and creditworthiness; and

Credit transactions entered into with connected parties are on arm's length basis whereby:

the creditworthiness of the connected party is not less than what is normally requiredof other persons;




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