Alliance Islamic Bank Berhad: Report and Financial Statements - 31 March 2020

Transcription

1. REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2020 ISLAMIC BANK
2. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) CONTENTS Directors' Report PAGE(S) 1-8 Statement by Directors 9 Statutory Declaration 9 Shariah Committee's Report 10 - 11 Independent Auditors' Report 12 - 15 Statement of Financial Position 16 Statement of Income 17 Statement of Comprehensive Income 18 Statement of Changes in Equity 19 - 20 Statement of Cash Flows 21 - 23 Notes to the Financial Statements 24 - 107
3. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) DIRECTORS' REPORT The Directors present their report together with the audited financial statements of the Bank for the financial year ended 31 March 2020. PRINCIPAL ACTIVITIES The Bank is principally engaged in all aspects of Islamic banking and finance business and the provision of related financial services. Islamic banking and finance business refers generally to the acceptance of deposits and granting of financing and all other activities allowed under the Islamic Financial Services Act, 2013 and the Shariah principles. There have been no significant changes in the nature of these activities during the financial year. FINANCIAL RESULTS RM'000 Profit before taxation Taxation Net profit for the financial year 99,108 (24,882) 74,226 RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements. DIVIDENDS The amount of dividends declared and paid by the Bank since 31 March 2019 were as follows: RM'000 (i) A single tier second interim dividend of 8.00 sen per share, on 345,045,045 ordinary shares in respect of the financial year ended 31 March 2019, was paid on 20 June 2019. 27,604 (ii) A single tier first interim dividend of 5.92 sen per share, on 345,045,045 ordinary shares in respect of the financial year ending 31 March 2020, was paid on 23 December 2019. 20,427 48,031 The Directors do not propose any final dividend in respect of the financial year ended 31 March 2020. 1
4. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) BUSINESS REVIEW FOR FINANCIAL YEAR ENDED ("FYE") 31 MARCH 2020 The Bank recorded a lower Net Profit After Tax (NPAT) of RM74.2 million for the financial year ended 31 March 2020, representing a decrease of RM41.6 million or 35.9% compared to the last financial year. The lower profits were largely due to increased credit costs and higher deposits funding costs. The increase in credit costs came from our consumer segment and some of the accounts in our commercial and small-medium enterprise (SME) portfolios, while the Bank did not have the benefit of a write-back this financial year to mitigate this, compared to the last financial year. Better Financing Growth In terms of the financing business, the Bank recorded growth but noted a compression of margins mainly due to higher cost of funds and cuts to the Overnight Policy Rate. Despite these challenges, the Bank was able to exceed targets and grow our balance sheet by about 15.8%. Gross financing and advances expanded to RM10.8 billion. Higher Other Operating Income The Bank also noted an improvement in non-financing revenue from our takaful, unit trust and treasury activities. As a result, other operating income grew by 29.8% to RM34.5 million. Operating Expenses Other operating expenses increased by RM11.5 million or 9.7%, while cost to income ratio edged up slightly by 0.4% to 38.8%. Asset Quality Net credit cost increase of 61bps YOY. The increase was contributed by a few large accounts and the mortgage portfolio. Gross impaired financing (“GIF”) ratio stood at 2.15%. The increase was mainly from the residential properties’ portfolio, as well as a few large business accounts. This was partly mitigated by repayments in the non-residential properties portfolio and several business accounts. The Bank continues to intensify proactive credit management including the refinement of credit policies, tightening of credit underwriting and enhanced collection efforts to control credit costs. Financing loss coverage (including Regulatory Reserve) remained stable at 100.5%. Healthy Funding and Liquidity Position We have grown our deposits base despite the challenging environment and increased our CASA ratio to deposits from 30.7% to 31.9%. Total customer deposits stood at RM11.8 billion, marking a 18.8% year-onyear growth. Term deposits grew RM1.2 billion 16.8% year-on-year. The Bank maintained a Total Capital ratio of 14.2%, with a Common Equity Tier 1 Capital ratio of 10.5% and Tier 1 Capital ratio at 11.6% as at 31 March 2020. Value Based Intermediation (“VBI”) The Bank has anchored on the principles of VBI to introduce differentiated propositions to our customers. This includes the One-Stop Halal Business Solution to assist SMEs to access the halal market successfully, and Sociobiz to economically empower individuals in the B40 segment through business. In addition, we have also launched the Do-Good-As-You-Go programme that enables customers to donate the profit from their fixed deposit to a charity of their choice. 2
5. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) BUSINESS REVIEW FOR FINANCIAL YEAR ENDED ("FYE") 31 MARCH 2020 (CONTD.) Shariah Governance In 2019, Bank Negara Malaysia introduced a new Policy Document on Shariah governance. In response, the Bank has enhanced its overall Shariah compliance and governance, to be aligned with the framework, especially in the context of the enhanced governance requirements for the Shariah committee and Board. In order for the board to take on this role effectively, there is a need to introduce controls and new capabilities within the team and the Bank to support the Board. Corporate Social Responsibility In 2019, the Bank supported 17 community empowerment campaigns through SocioBiz, of which 16 were fully funded with an investment of over RM100,000. In addition, we also supported the winners of the EcoBiz Dream Project with funding of RM200,000 for a filter created out of oil palm waste (biochar) that was used to clean a river. The Bank also made zakat contributions of RM700,000 to various parties. ECONOMIC OUTLOOK AND PROSPECTS FOR FYE 31 MARCH 2021 For 2020, Bank Negara Malaysia (BNM) foresees Malaysia’s gross domestic product (GDP) growth to be ranging between -2% and +0.5% year-on-year, compared to +4.3% in the preceding year. Signs of economic contractions are mainly attributed to the sharp decline in global economic and trade activities in the first quarter of 2020, as well as the unprecedented measures taken by various countries to combat the COVID-19 pandemic which have led to severe difficulties for businesses all over the world. Malaysia’s economy has also been affected by the Movement Control Order (MCO). According to an online survey done by the Department of Statistics (carried out from 23 to 31 March 2020), there are signs that domestic private consumption (which makes up 59% of Malaysia’s GDP) will be weak in the near-term as monthly household spending has fallen 55% from RM6,317 to RM2,813. The survey also shows that apart from food staples, communications and education, all other consumption categories have recorded sharp declines due to travel restrictions and closures of non-essential businesses. Post MCO, the normalisation of consumer behaviour may be gradual as precautionary social distancing practices continue. As such, private consumption growth is expected to expand at a slower pace, while weaker global demand will continue to weigh on oil prices. BNM is also expecting the COVID-19 pandemic to lower external demand drastically as global supply chains are disrupted due to prolonged factory closures in key industrial hubs worldwide. As a result, BNM is expecting Malaysia’s exports and imports to fall 13.6% and 11.9% year-on-year respectively mainly due to a dampened domestic manufacturing sector. 3
6. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) BUSINESS OUTLOOK FOR FYE 31 MARCH 2021 Despite the uncertain outlook, we believe that banking will continue to play an important role in facilitating the recovery of businesses and serving the needs of customers. Internally, we will be revamping the business model of our distribution to bring banking directly to our customers by going beyond the confines of a physical location. To do this, we will accelerate our development efforts of digital tools to enable banking to be done through mobile devices. Equipping our bankers with these tools and the requisite knowledge will thus enable the Bank to quickly adapt to a post COVID-19 environment where customers are likely to shun gathering in enclosed places. Our eventual goal is to create universal bankers with sales and advisory skills to deliver consistent and excellent service to fulfil our customers’ basic banking needs anytime and anywhere. For SME banking, the Bank will continue to expand our solutions-based approach through strategic ecosystem partnerships to address the customer journey. The Bank’s Halal-in-One programme, executed by Alliance Islamic Bank, is an example of this approach that aims to bridge the gaps for businesses that want to succeed in the halal market. Leveraging on partnerships and collaborations, we now provide end-to-end services with Halal certification support, business matching and funding. Our Action Plan to address economic headwinds As we move forward into 2020, effects of the COVID-19 pandemic, the collapse of oil price and weaker commodities price on the wider economy are likely to lead to slower overall loan growth and credit stress for the Bank. We have implemented new strategies to help mitigate the impact on the Bank and our stakeholders throughout this crisis. • For our employees, we have activated operation in separate locations for critical departments and enforced work-from-home arrangements to ensure essential services continue with minimal interruption, while protecting everyone’s health. In addition to this, we provided a one-off subsidy to lower income staff for incidental expenses. • For our customers, we are committed to helping them manage the headwinds through the 6-month automatic loan moratorium announced by the Government. We have also designed restructuring and rescheduling options for all customers including but not limited to facilitating applications to the Special Relief Fund, Credit Guarantee Corporation and Danajamin. • To support our communities, we contributed RM500,000 to MERCY Malaysia’s COVID-19 Pandemic Fund. We have also launched the #SupportLokal initiative to help SMEs promote their products and services in our digital channels. The bank allocated RM100,000 zakat to fund the purchase of emergency relief for medical frontliners working at Hospital Kuala Lumpur and and other hospitals. For the Bank, we will be paying close attention to managing our credit and liquidity risks. We will also be working out the details of post-moratorium repayment arrangements with our customers. Addressing the needs of our customers at this juncture will help us strengthen our relationships for the long term success of both the Bank and our clients. The Bank continues to maintain ample liquidity coverage and loan to funds ratios, and we are ensuring cash levels at our branches and self-service terminals remain ample at all times. We will also remain vigilant in managing our credit portfolios and conservative in our provisioning practices. 4
7. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) RATING BY EXTERNAL RATING AGENCY The Bank is rated by Rating Agency Malaysia Berhad ("RAM"). Based on RAM’s rating in November 2019, the Bank’s short-term and long-term ratings are reaffirmed at P1 and A1 respectively. RAM has classified these rating categories as follows: P1 - Financial institutions in this category have superior capacities for timely payments of obligations. A1 - Financial institutions rated in this category are adjudged to offer adequate safety for timely payments of financial obligations. This level of rating indicates financial institutions with adequate credit profiles, but possess one or more problem areas, giving rise to the possibility of future riskiness. Financial institutions rated in this category have generally performed at industry average and are considered to be more vulnerable to changes in economic conditions than those rated in the higher categories. DIRECTORS The Directors of the Bank in office during the financial year and during the period from the end of the financial year to the date of this report are: Datuk Wan Azhar Bin Wan Ahmad (Chairman) Ibrahim Bin Hassan Joel Kornreich Dato' Ahmad Hisham bin Kamaruddin Tuan Haji Rustam bin Mohd Idris (appointed on 3 February 2020) Md Ali Bin Md Sarif (retired on 22 March 2020) DIRECTORS' REMUNERATION Details of directors' remuneration are set out in Note 33 to the financial statements. DIRECTORS' BENEFITS Neither at the end of the financial year, nor at any time during the year, did there subsist any arrangements to which the Bank is a party, whereby the Directors might acquire benefits by means of the acquisition of shares in, or debentures of, the Bank or any other body corporate. Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive any benefit (other than benefits shown under Directors' Remuneration in Note 33 to the financial statements) by reason of a contract made by the Bank or its holding company or subsidiaries of the holding company with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. DIRECTORS' INTERESTS According to the Register of Directors' Shareholdings required to be kept under Section 59 of the Companies Act, 2016, none of the Directors in office at the end of the financial year had any interest in shares, share options and share grants in the Bank or its holding company or subsidiaries of the holding company during the financial year. 5
8. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) ISSUE OF SHARES AND DEBENTURES There was no new issue of shares and debentures during the financial year. BAD AND DOUBTFUL FINANCING Before the financial statements of the Bank were prepared, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad financing and the making of allowance for doubtful financing and satisfied themselves that all known bad financing had been written off and adequate allowances have been made for doubtful financing. At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad financing, or the amount of the allowance for doubtful financing, in the financial statements of the Bank inadequate to any substantial extent. CURRENT ASSETS Before the financial statements of the Bank were prepared, the Directors took reasonable steps to ascertain that any current assets, which were unlikely to realise their value as shown in the accounting records in the ordinary course of business, had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Bank misleading. VALUATION METHOD At the date of this report, the Directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Bank misleading or inappropriate. CONTINGENT AND OTHER LIABILITIES At the date of this report, there does not exist: (i) any charge on the assets of the Bank which has arisen since the end of the financial year which secures the liabilities of any other person; or (ii) any contingent liability in respect of the Bank that has arisen since the end of the financial year other than in the ordinary course of banking business. No contingent or other liability of the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may affect the ability of the Bank to meet their obligations as and when they fall due. CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Bank, which would render any amount stated in the financial statements misleading. 6
9. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) ITEMS OF AN UNUSUAL NATURE In the opinion of the Directors: (i) the results of the operations of the Bank during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and (ii) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature which is likely to affect substantially the results of the operations of the Bank for the financial year in which this report is made other than disclosed in Note 44. HOLDING COMPANY The holding company of the Bank is Alliance Bank Malaysia Berhad, a bank incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. AUDITOR'S REMUNERATION Details of auditor's remuneration are set out in Note 27 to the financial statements. SHARIAH COMMITTEE The Shariah Committee for the financial year 2019/2020 consists of 5 members appointed by the Bank’s Board of Directors. The main duties and responsibilities of the Shariah Committee are as follows:(a) Advising the Board and Management on Shariah related matters; (b) Reviewing and endorsing Shariah related policies and guidelines; (c) Endorsing new products and services including contract, agreement or other legal documentation used for Islamic banking transactions; (d) Endorsing and validating product guidelines, marketing advertisements, sales illustrations and brochures related to AIS’s products, services and activities; (e) Reviewing the work carried out by Shariah Review and Shariah Audit as the AIS’s second line and third line of defense providing assurance on the state of the Bank’s Shariah governance; (f) Endorsing AIS’s zakat computation and distribution; (g) Assisting and advising related parties such as AIS’s legal counsel, auditor or consultant on Shariah matters upon request; (h) Advising AIS in consultation with the Shariah Advisory Council of BNM (SAC) on any Shariah matters which have not been resolved or endorsed by the SAC; (i) Monitoring AIS’s compliance with all SAC’s decisions; and (j) Reviewing the potential Shariah Non-Compliance events determined by the Qualified Shariah Officer whether or not they are actual Shariah related events. 7
10. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) ZAKAT OBLIGATION The management of the Bank’s zakat is governed by the Bank's Zakat Policy and Procedures. The Bank as an Islamic business entity computes zakat using Growth Method at the rate of 2.575 percent based on Gregorian calendar. The zakat payment does not cover the zakat obligation by the depositors. The zakat computation is endorsed by the Shariah Committee. The payment of zakat to zakat authorities and eligible recipients is recommended and approved by Shariah Committee and the Board of Directors respectively. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR The significant events during the financial year are disclosed in Note 43 to the financial statements. SUBSEQUENT EVENTS The events subsequent to the end of the financial reporting period are disclosed in Note 44 to the financial statements. AUDITORS The auditors, PricewaterhouseCoopers PLT (LLP0014401-LCA & AF1146), have expressed their willingness to continue in office. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors. Datuk Wan Azhar Bin Wan Ahmad Kuala Lumpur, Malaysia 26 June 2020 Ibrahim Bin Hassan 8
11. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT BY DIRECTORS PURSUANT TO SECTION 251(2) OF THE COMPANIES ACT, 2016 We, Datuk Wan Azhar Bin Wan Ahmad and Ibrahim Bin Hassan, being two of the Directors of Alliance Islamic Bank Berhad, do hereby state that, in the opinion of the Directors, the accompanying financial statements set out on pages 16 to 107 are drawn up so as to give a true and fair view of the financial position of the Bank as at 31 March 2020 and financial performance of the Bank for the financial year ended 31 March 2020 in accordance with the Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. Signed on behalf of the Board in accordance with a resolution of the Directors. Datuk Wan Azhar Bin Wan Ahmad Kuala Lumpur, Malaysia 26 June 2020 Ibrahim Bin Hassan STATUTORY DECLARATION PURSUANT TO SECTION 251(1) OF THE COMPANIES ACT, 2016 I, Goh Chee Ho, being the officer primarily responsible for the financial management of Alliance Islamic Bank Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 16 to 107 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared by the abovenamed Goh Chee Ho at Kuala Lumpur in the Federal Territory on 26 June 2020 Goh Chee Ho MIA Membership No. (CA 21531) Before me, 9
12. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) SHARIAH COMMITTEE'S REPORT In the name of Allah, The Most Gracious, The Most Merciful In performing our roles and responsibilities in line with the Shariah Commitee Charter of Alliance Islamic Bank Berhad ("the Bank"), Bank Negara Malaysia's ("BNM") Shariah Governance Policy Document, as well as our letter of appointment, we hereby submit the following report: We wish to state notwithstanding our report presented herein, the management of the Bank is responsible to ensure that the Bank conducts its business in accordance with Shariah principles, and it is our responsibility to form an independent opinion based on our review on the Bank operations. During the period under review we had convened fourteen Shariah Committee meetings during which we reviewed the principles and the contracts relating to the products, transactions and dealings entered into by the Bank as well as issues arising thereof which had been presented before us. In addition, during the period under review we also assessed the work carried out by the Shariah Review and Shariah Audit teams. In our opinion: (a) the overall operations, business, affairs and activities of the Bank are in compliance with Shariah but it has come to our attention that there were Shariah non-compliance events had occurred as disclosed in (f) below and had been rectified or in the process of being rectified; (b) In performing our role as espoused above we obtained all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give us reasonable assurance that the Bank has not violated Shariah principles; (c) The contracts, transactions and dealings entered into by the Bank during the financial year ended 31 March 2020 that we have reviewed are in compliance with Shariah principles; (d) The Bank carried out Shariah Review and Shariah Audit functions on a regular basis where we reviewed reports prepared thereof and examined on a test basis, each type of transaction, the relevant documentations and procedures adopted by the Bank to enable us to form an opinion as to whether the Bank has complied with Shariah principles and Shariah rulings issued by the Shariah Advisory Council ("SAC") of BNM, as well as Shariah Committee's decisions. We also noted that the incidences of Shariah non-compliances revealed arising from the reviews and audit conducted were tracked and monitored until closure; (e) In the financial year under review, pursuant to the Bank’s Zakat Policy and Procedures, the Bank has fulfilled its obligation to pay zakat on its business to the eligible recipients. The zakat amount was computed using Growth method; 10
13. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) SHARIAH COMMITTEE'S REPORT (CONTD.) (f) During the period under review, there were three Shariah non-compliance events which had been confirmed by us involving RM2,044.42 non-compliance income as follows: (i) Telegraphic Transfer approved by branch staff for purchase of Shariah non-compliance item involving Islamic account; (ii) Partial disbursement of Commodity Murabahah Term Financing prior to performance of commodity trading; and (iii) Top up disbursement of Bai’ Bithaman Ajil Term Financing was performed without execution of fresh Asset Purchase Agreement (APA) and Asset Sale Agreement (ASA). We also noted that the above Shariah non-compliances were due to oversight and lack of awareness on the requisite understanding of Islamic banking principles amongst the relevant staff. The Bank had taken appropriate corrective as well as preventive measures to address the gaps as guided by us namely purifying the Shariah non-compliance income, regularizing the requisite aqad performance for the affected accounts, holding awareness programs and training to increase staff diligence when handling Islamic transactions and tightening the relevant processes to avoid recurrence. In relation to the above, based on the information provided and disclosed to us, we do hereby confirm that, to the best of our knowledge, the business, operations and activities of the Bank for the year ended 31 March 2020 had been conducted in conformity with Shariah. Associate Professor Dr. Badruddin Hj. Ibrahim Chairman of the Shariah Committee Ustadz Ahmad Fauwaz Bin Ali@Fadzil Shariah Committee Kuala Lumpur, Malaysia 26 June 2020 11
14. INDEPENDENT AUDITORS ' REPORT TO THE MEMBER OF ALLIANCE ISLAMIC BANK BERHAD (Incorporated in Malaysia) 200701018870 (776882-V) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of Alliance Islamic Bank Berhad (“the Bank”) give a true and fair view of the financial position of the Bank as at 31 March 2020, and of its financial performance and its cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. What we have audited We have audited the financial statements of the Bank, which comprise the statement of financial position as at 31 March 2020, and the statement of income, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 16 to 107. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the “Auditors’ responsibilities for the audit of the financial statements” section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Bank in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. 12
15. INDEPENDENT AUDITORS ' REPORT TO THE MEMBER OF ALLIANCE ISLAMIC BANK BERHAD (CONTD.) (Incorporated in Malaysia) 200701018870 (776882-V) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTD.) Information other than the financial statements and auditors’ report thereon The Directors of the Bank are responsible for the other information. The other information comprises the Directors’ Report and Shariah Committee’s Report, but does not include the financial statements of the Bank and our auditors’ report thereon. Our opinion on the financial statements of the Bank does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Bank, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Bank or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial statements The Directors of the Bank are responsible for the preparation of the financial statements of the Bank that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements of the Bank that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Bank, the Directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so. 13
16. INDEPENDENT AUDITORS ' REPORT TO THE MEMBER OF ALLIANCE ISLAMIC BANK BERHAD (CONTD.) (Incorporated in Malaysia) 200701018870 (776882-V) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTD.) Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Bank as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (a) Identify and assess the risks of material misstatement of the financial statements of the Bank, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. (c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors. (d) Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Bank or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Bank to cease to continue as a going concern. (e) Evaluate the overall presentation, structure and content of the financial statements of the Bank, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 14
17. INDEPENDENT AUDITORS ' REPORT TO THE MEMBER OF ALLIANCE ISLAMIC BANK BERHAD (CONTD.) (Incorporated in Malaysia) 200701018870 (776882-V) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTD.) Auditors’ responsibilities for the audit of the financial statements (contd.) We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. OTHER MATTERS This report is made solely to the member of the Bank, as a body, in accordance with Section 266 of the Companies Act, 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS PLT LLP0014401-LCA & AF1146 Chartered Accountants ONG CHING CHUAN 02907/11/2021 J Chartered Accountant Kuala Lumpur 26 June 2020 15
18. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2020 ASSETS Cash and short-term funds Financial investments at fair value through other comprehensive income Financial investments at amortised cost Financing and advances Other assets Statutory deposits with Bank Negara Malaysia Tax recoverable Right-of-use assets Property, plant and equipment Deferred tax assets Intangible assets Note 2020 RM'000 2019 RM'000 3 714,632 348,407 4 5 6 7 8 2,301,866 80,628 10,673,613 4,791 219,488 21,550 136 236 825 2,100,887 9,306,879 2,261 335,388 3,912 332 11,156 897 14,017,765 12,110,119 13 11,805,145 9,932,901 14 220,851 243,731 15 16 17 18 11 148,082 500,642 119 113,820 1,688 1,245 229,075 500,592 252,529 686 228,855 13,020,667 11,159,294 400,000 597,098 997,098 400,000 550,825 950,825 14,017,765 12,110,119 9 10 11 12 TOTAL ASSETS LIABILITIES AND EQUITY Deposits from customers Deposits and placements of banks and other financial institutions Obligations on securities sold under repurchase agreements Recourse obligation on financing sold to Cagamas Lease liabilities Other liabilities Deferred tax liabilities Provision for zakat Subordinated Sukuk 19 TOTAL LIABILITIES Share capital Reserves TOTAL EQUITY 20 21 TOTAL LIABILITIES AND EQUITY Restricted investment account Total Islamic Banking asset 40 74,795 14,092,560 179,795 12,289,914 COMMITMENTS AND CONTINGENCIES 41 2,438,545 2,290,438 The accompanying notes form an integral part of these financial statements. 16
19. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT OF INCOME FOR THE FINANCIAL YEAR ENDED 31 MARCH 2020 Note 2020 RM'000 2019 RM'000 22 649,099 584,561 23 58,470 54,580 24 (104,854) (37,009) 25 (223) 602,492 - 34 602,166 205 26 (374,098) 228,394 (129,286) 99,108 (24,882) (332,359) 270,012 (117,814) 152,198 (36,329) Net profit for the financial year 74,226 115,869 Net profit for the financial year attributable to: Equity holder of the Bank 74,226 115,869 21.5 33.6 Income derived from investment of depositors' funds and others Income derived from investment of shareholder's funds Allowance for expected credit losses on financing, advances and other financial assets (Allowance for)/write-back of expected credit losses on financial investments Total distributable income Wakalah fees income from investment account Income attributable to the depositors and financial institutions Total net income Other operating expenses Profit before taxation Taxation Earnings per share attributable to Equity holder of the Bank - basic/diluted (sen) 27 28 29 The accompanying notes form an integral part of these financial statements. 17
20. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MARCH 2020 2020 RM'000 2019 RM'000 74,226 115,869 33,800 25,131 (7,362) (6,345) (2) (724) (5,858) (34) Other comprehensive income, net of tax 20,091 18,515 Total comprehensive income for the financial year 94,317 134,384 Total comprehensive income for the financial year attributable to: Equity holder of the Bank 94,317 134,384 Net profit for the financial year Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Revaluation reserve on financial investments at fair value through other comprehensive income ("FVOCI") - Net gain from change in fair values - Realised gain transferred to statement of income on disposal and impairment - Transfer to deferred tax - Changes in expected credit losses The accompanying notes form an integral part of these financial statements. 18
21. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2020 Non-distributable reserves At 1 April 2019 As previously stated Effects of adoption of MFRS 16 [Note 2(a)(ii)] As restated Net profit for the financial year Other comprehensive income Total comprehensive income Transfer to regulatory reserves Dividend paid (Note 30) At 31 March 2020 Distributable reserve Ordinary shares RM'000 Regulatory reserves RM'000 FVOCI reserves RM'000 400,000 400,000 400,000 9,060 9,060 25,688 34,748 18,834 18,834 20,091 20,091 38,925 The accompanying notes form an integral part of these financial statements. 19 Retained profits RM'000 522,931 (13) 522,918 74,226 74,226 (25,688) (48,031) 523,425 Total equity RM'000 950,825 (13) 950,812 74,226 20,091 94,317 (48,031) 997,098
22. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2020 Non-distributable reserves Ordinary shares RM'000 At 1 April 2018 As previously stated Effects of adoption of MFRS 9 As restated Net profit for the financial year Other comprehensive income Total comprehensive income Transfer to regulatory reserves Dividend paid (Note 30) At 31 March 2019 Regulatory reserves RM'000 400,000 400,000 400,000 21,430 (21,430) 9,060 9,060 The accompanying notes form an integral part of these financial statements. 20 FVOCI reserves RM'000 319 319 18,515 18,515 18,834 Distributable reserves Revaluation reserves RM'000 246 (246) - Retained profits RM'000 498,216 (25,300) 472,916 115,869 115,869 (9,060) (56,794) 522,931 Total equity RM'000 919,892 (46,657) 873,235 115,869 18,515 134,384 (56,794) 950,825
23. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2020 2020 RM'000 2019 RM'000 99,108 152,198 (24,444) (34,048) 102,564 108 49,971 237 CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation Adjustments for: Accretion of discount less amortisation of premium of financial investments Allowance for expected credit losses on financing and advances Allowance for expected credit losses on other receivables Allowance for/(write-back of) expected credit losses on commitment and contingencies Allowance for/(write-back of) expected credit losses on financial investments Amortisation of computer software Depreciation of property, plant and equipment Depreciation of right-of-use assets Income from financial investments at amortised cost Income from financial investments at fair value through other comprehensive income Intangible assets written-off Loss on sale of financial assets at fair value through profit and loss Net gain from sale of financial investments at fair value through other comprehensive income Profit expense on obligation financing sold to Cagamas Profit expense on lease liabilities Profit expense on Subordinated Sukuk Profit expense on obligation on securities sold under repurchase agreement Unrealised gain arising from financial assets at fair value through profit and loss Zakat Operating profit before working capital changes Changes in working capital: Deposits from customers Deposits and placements of banks and other financial institutions Financial asset at fair value through profit and loss Financing and advances Obligations on securities sold under repurchase agreements Other assets Other liabilities Statutory deposits with Bank Negara Malaysia Cash generated from/(used in) operating activities Taxation paid Zakat paid 448 223 289 112 273 (3,177) (34) 315 122 - (91,501) 931 (78,106) 81 - (7,642) 21,968 16 13,392 (724) 21,979 7,291 99 (177) 655 113,245 1,872,244 Net cash generated from/(used in) operating activities 21 (12,454) (388) 590 107,030 493,836 (22,880) (960) (1,469,299) (117) 388 (1,374,473) 147,983 (2,663) (139,256) 115,900 614,314 (35,919) (95) (399) 110,323 (58,500) (721,912) (41,748) (156) 578,300 (763,816)
24. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2020 (CONTD.) 2020 RM'000 2019 RM'000 206 2,324 - CASH FLOWS FROM INVESTING ACTIVITIES Income from financial assets at fair value through profit and loss Income from financial investments at amortised costs Income from financial investments at fair value through other comprehensive income Purchase of property, plant and equipment Purchase of intangible assets Purchase of: - financial investments at FVOCI - financial investments at amortised cost Redemption/disposal of: - financial investments at FVOCI - financial investments at amortised cost 93,777 (16) (217) 72,152 (123) (235) (570,233) (80,000) (747,193) - 399,461 26,042 458,669 25,272 (128,656) (191,458) Dividend paid Repayment of lease liabilities Profit expense on obligation on financing sold to Cagamas Proceeds from issuance of subordinated sukuk Profit expense on subordinated sukuk (48,031) (298) (21,918) (13,172) (56,794) (22,054) 99,112 (7,150) Net cash (used in)/generated from financing activities (83,419) 13,114 Net change in cash and cash equivalents 366,225 (942,160) Cash and cash equivalents at beginning of financial year 348,407 1,290,567 Cash and cash equivalents at end of financial year 714,632 348,407 714,632 348,407 Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Cash and cash equivalents comprise the following: Cash and short-term funds (Note 3) 22
25. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2020 (CONTD.) A reconciliation of liabilities from financing activities to the statement of financial position and statement of cash flows as follows: Recourse obligations on financing sold to Cagamas RM'000 As at 1 April 2018 Cash flow - Issuance - Profit payment - Transaction costs Non cash changes - Profit accrued As at 31 March 2019/1 April 2019 Effects of adoption of MFRS 16 Cash flow - Profit payment - Transaction Repayment of costs lease liabilities Non cash changes - Profit accrued - Additions, remeasurement and termination of contracts As at 31 March 2020 23 Subordinated sukuk RM'000 Lease Liabilities RM'000 500,667 129,602 - (22,054) - 100,000 (7,150) (888) - 21,979 500,592 - 7,291 228,855 - 416 (21,918) - (13,172) - (298) 21,968 13,392 16 500,642 229,075 (15) 119
26. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2020 1. PRINCIPAL ACTIVITIES AND GENERAL INFORMATION The Bank is principally engaged in all aspects of Islamic banking and finance business and the provision of related financial services. Islamic banking and finance business refers generally to the acceptance of deposits and granting of financing and all other activities allowed under the Islamic Financial Services Act, 2013 and the Shariah principles. There have been no significant changes in the nature of these activities during the financial year. The Bank is a public limited liability company, incorporated and domiciled in Malaysia. The registered office is located at 3rd Floor, Menara Multi-Purpose, Capital Square, 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur, Malaysia. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the Directors on 26 June 2020. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation Malaysian Financial Reporting Standards ("MFRS") Framework The financial statements of the Bank have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. The financial statements of the Bank have been prepared under the historical cost convention, as modified by the financial investments at fair value through other comprehensive income and financial assets/liabilities (including derivative instruments) at fair value through profit or loss. The financial statements are presented in Ringgit Malaysia ("RM") and all numbers are rounded to the nearest thousand (RM'000), unless otherwise stated. The preparation of the financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires Directors to exercise their judgment in the process of applying the Bank's accounting policies. Although these estimates and judgment are based on the Directors' best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements is on the measurement of allowance for expected credit losses ("ECL") for financial assets measured at amortised cost and at fair value through other comprehensive income. These are the area that requires the use of significant assumptions about future economic conditions and credit behaviour. The allowance for ECL are recognised using forward-looking information including macroeconomic factors. By using forward-looking information will increase the level of judgement as to how changes in these macroeconomic factors will affect allowance for ECL. The Bank is of the view that it is difficult to incorporate the specific effects of COVID-19 and government relief measures on a reasonable and supportable basis as at 31 March 2020. 24
27. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (a) Basis of Preparation (contd.) Malaysian Financial Reporting Standards ("MFRS") Framework (contd.) However, the Bank has considered the impact of COVID-19 pandemic and sharp decline in economy in the macroeconomic scenarios applied and in their weightings. The methodology and assumptions including any forecasts of future economic conditions are continued to be monitored and reviewed as new information becomes available. The sensitivity effect on the macroeconomic factor is further disclosed in Note 34(a)(vi). Some of the areas of significant judgements involved in the measurement of ECL are detailed as follows: • • • • Significant increase in credit risk in Note 34(a)(iv)(a) Development of ECL models and assumption for the measurement of ECL Determining the number and relative weightings of forward-looking scenarios Establishing groups of similar financial assets for the purpose of measuring the ECL on collective basis Standards, amendments to published standards and interpretations that are effective The new accounting standards, amendments and improvements to published standards and interpretations that are effective for the Bank for the financial year beginning 1 April 2019 are as follows: • • • • • • MFRS 16 "Leases" Amendments to MFRS 9 "Prepayment Features with Negative Compensation" Amendments to MFRS 128 "Long-term Interests in Associates and Joint Ventures" Amendments to MFRS 119 "Plan Amendment, curtailment or settlement" 'IC Interpretation 23 "Uncertainty over Income Tax Treatments" Annual Improvements to MFRSs 2015 - 2017 Cycle The adoption of the above standards, amendments to published standards and interpretation to existing standards did not have any significant impact on the financial statements of the Bank other than the adoption of MFRS 16. The Bank has adopted MFRS 16 for the first time in the 31 March 2020 financial statements with the date of initial application ("DIA") of 1 April 2019 by applying the simplified retrospective transaction approach. The practical expedients elected and the detailed impacts of the change in accounting policies on leases are disclosed below. The details of the accounting policies on leases are disclosed separately in Note 2(l). Change in Accounting Policies (i) Adoption of MFRS 16 "Leases" During the financial year, the Bank has adopted MFRS 16 "Leases". The Bank has elected to use the simplified retrospective transition approach and to apply a number of practical expedients as provided in MFRS 16. 25
28. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (a) Basis of Preparation (contd.) Change in Accounting Policies (contd.) (i) Adoption of MFRS 16 "Leases" (contd.) Under the simplified retrospective transition approach, the 31 March 2019 comparative information was not restated and the cumulative effects of initial application of MFRS 16 where the Bank is a lessee were recognised as an adjustment to the opening balance of retained profits as at 1 April 2019. The comparative information continued to be reported under the previous accounting policies governed under MFRS 117 "Leases" and IC Int. 4 "Determining whether an Arrangement Contains a Lease". On adoption of MFRS 16 "Leases", the Bank recognised lease liabilities in relation to leases which had previously been classified as operating leases. These liabilities were measured at the present value of the remaining lease payments, discounted by the Bank’s incremental borrowing rate as at 1 April 2019. Right-of-use assets were measured on a retrospective basis as if the new rules had always been applied. In applying MFRS 16 for the first time, the Bank has applied the following practical expediants permitted by the standard to leases previously classified as operating leases under MFRS 117: • the use of single discount rate to a portfolio of leases with reasonably similar characteristics; • the accounting of operating leases with a remaining lease term of less than 12 months as at 1 April 2019 as short-term leases; • the exclusion of initial direct costs for the measurement of the right-of-use assets at the date of initial application; and • the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The adoption of MFRS 16 has resulted in a decrease of RM13,000 for the Bank's retained profits as at 1 April 2019. (ii) Financial Effect i. A reconcilation of the statement of financial position of the Bank upon adoption of MFRS 16 as at 1 April 2019 are as follows: As previously stated RM'000 Assets Right-of-use assets Other assets Deferred tax assets 2,261 11,156 Liabilities Lease liabilities - Equity Retained profits 522,931 Adoption of MFRS 16 RM'000 424 (25) 4 416 (13) As restated RM'000 424 2,236 11,160 416 522,918 The weighted average lease's incremental borrowing rate applied to the lease liabilities on 1 April 2019 was 5.52% per annum. 26
29. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (a) Basis of Preparation (contd.) Change in Accounting Policies (contd.) (ii) Financial Effect (contd.) ii. A reconcilation between operating lease commitments disclosed applying MFRS 117 at 31 March 2019, and the lease liabilities recognised in the statement of financial position at 1 April 2019. RM'000 Operating lease commitments as disclosed at 31 March 2019 Less: Discounted using the incremental borrowing rate at 1 April 2019 Lease liability recognised at 1 April 2019 460 (44) 416 Standards, amendments to published standards and interpretations to existing standards that are applicable to the Bank but not yet effective The Bank will apply the new standards, amendments to standards and interpretations in the following period: Financial year beginning after 1 April 2020 (i) Amendments to MFRS 3 "Definition of a Business" Amendments to MFRS 3 ‘Definition of a Business’ revise the definition of a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The amendments provide guidance to determine whether an input and a substantive process are present, including situation where an acquisition does not have outputs. To be a business without outputs, there will now need to be an organised workforce. It is also no longer necessary to assess whether market participants are capable of replacing missing elements or integrating the acquired activities and assets. In addition, the revised definition of the term ‘outputs’ is narrower, focusses on goods or services provided to customers, generating investment returns and other income but excludes returns in the form of cost savings. The amendments introduce an optional simplified assessment known as ‘concentration test’ that, if met, eliminates the need for further assessment. Under this concentration test, if substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset (or a group of similar assets), the assets acquired would not represent a business. The amendments shall be applied prospectively. 27
30. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (a) Basis of Preparation (contd.) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Bank but not yet effective (contd.) The Bank will apply the new standards, amendments to standards and interpretations in the following period: (contd.) Financial year beginning after 1 April 2020 (contd.) (ii) Amendments to MFRS 101 "Presentation of Financial Statements” and MFRS 108 “Accounting Policies, Changes in Accounting Estimates and Errors” The amendments to MFRS 101 “Presentation of Financial Statements” and MFRS 108 “Accounting Policies, Changes in Accounting Estimates and Errors” which use a consistent definition of materiality throughout International Financial Reporting Standards and the Conceptual Framework for Financial Reporting, clarify when information is material and incorporate some of the guidance in MFRS 101 about immaterial information. In particular, the amendments clarify: • That an entity assesses materiality in the context of the financial statements as a whole. • That the reference to obscuring information addresses situations in which the effect is similar to omitting or misstating that information and that an entity assesses materiality in the context of the financial statements as a whole, and • The meaning of ‘primary users of general purpose financial statements’ to whom those financial statements are directed, by defining them as ‘existing and potential investors, lenders and other creditors’ that must rely on general purpose financial statements for much of the financial information they need. The amendments shall be applied prospectively. (iii) The MASB has issued a revised Conceptual Framework which will be used in standard-setting decisions with immediate effect. Key changes include: • • • • • • • increasing the prominence of stewardship in the objective of financial reporting; reinstating prudence as a component of neutrality; defining a reporting entity, which may be a legal entity, or a portion of an entity; revising the definitions of an asset and a liability; removing the probability threshold for recognition and adding guidance on derecognition; adding guidance on different measurement basis; and stating that profit or loss is the primary performance indicator and that, in principle, income and expenses in other comprehensive income should be recycled where this enhances the relevance or faithful representation of the financial statements. The amendments shall be applied prospectively. The above standards, amendments to published standards and interpretations to existing standards are not anticipated to have any significant impact on the financial statements of the Bank in the year of initial application. 28
31. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (b) Intangible Assets: Computer Software Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring the specific software to use. The costs are amortised over their useful lives of five years and are stated at cost less accumulated amortisation and accumulated impairment losses, if any. Computer software is assessed for impairment whenever there is an indication that it may be impaired. The amortisation period and amortisation method are reviewed at least at the end of each reporting period. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(g)(ii). Costs associated with maintaining computer software programmes are recognised as expenses as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Bank, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. These costs include software development employee costs and appropriate portion of relevant overheads. (c) Property, Plant and Equipment and Depreciation Property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised as expenses in the statement of income during the financial year in which they are incurred. When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Subsequent to initial recognition, property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. The policy for the recognition and measurement of impairment is in accordance with Note 2(g)(ii). Property, plant and equipment are depreciated on the straight-line basis to write off the cost of each asset to its residual value over the estimated useful life, summarised as follows: Office equipment, furniture and fixtures Renovations Computer equipment 10% - 20% 20% 33.3% Depreciation on assets under construction commences when the assets are ready for their intented use. The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any, and the net carrying amount is recognised in the statement of income. 29
32. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (d) Financial Assets (i) Classification The Bank classifies the financial assets in the following measurement categories: • • • Fair value through other comprehensive income ("FVOCI"); Fair value through profit or loss ("FVTPL"); and Amortised cost For financial assets measured at fair value, gains and losses will either be recorded in statement of income or statement of other comprehensive income. For investment in debt instruments, this will depend on the business model in which the investment is held. For investment in equity instruments, it is determined by the irrevocable election at the time of initial recognition to account for the equity investment at FVTPL by the Bank. (i) Financial assets at FVOCI comprise of: Debt securities where the contractual cash flows are solely principal and profit and the objective of the Bank’s business model is achieved both by collecting contractual cash flows and selling financial assets (ii) The Bank classifies the following financial assets at FVTPL: Debt investments that do not qualify for measurement at either amortised cost or fair value through comprehensive income. (iii) The Bank classifies their financial assets at amortised cost only if both of the following criteria are met: • The asset is held within a business model with the objective of collecting the contractual cash flows; and • The contractual terms give rise on specified dates to cash flows that are solely payments of principal and profit on the principal outstanding. The policy of the recognition of impairment is in accordance with Note 2(g)(i). (ii) Recognition and initial measurment Regular way purchases and sales of financial assets are recognised on settlement date, the date on which the Bank settle to purchase or sell the asset. At initial recognition, the Bank measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and profit (“SPPI”). 30
33. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (d) Financial Assets (contd.) (iii) Subsequent measurement Debt instruments There are three measurement categories into which the Bank classifies its debt instruments: (i) Amortised cost Assets that are held for collection of contractual cash flows where those cash flows represent SPPI are measured at amortised cost. Profit income from these financial assets is included in gross profit income using the effective profit method. Any gain or loss arising on derecognition is recognised directly in statement of income and presented in other operating income. Impairment losses are presented as separate line item in the statement of income. (ii) FVOCI Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent SPPI, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest profit and foreign exchange gains and losses which are recognised in statement of income. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to statement of income and recognised in other operating income. Profit income from these financial assets is included in gross profit income using the effective profit. Foreign exchange gains and losses are presented in other operating income and impairment expenses are presented as separate line item in the statement of income and statement of comprehensive income. (iii) FVTPL Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. The Bank may also irrevocably designate financial assets at FVTPL if doing so significantly reduces or eliminates a mismatch created by assets and liabilities being measured on different bases. Fair value changes is recognised in statement of income and presented net within other operating income in the period which it arises. (iv) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Bank has transferred substantially all risks and rewards of ownership. Receivables that are factored out to banks and other financial institutions with recourse to the Bank is not derecognised until the recourse period has expired and the risks and rewards of the receivables have been fully transferred. The corresponding cash received from the financial institutions is recorded as amount due to Cagamas Berhad. When financial investments at FVOCI are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to statement of income. 31
34. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (e) Offsetting Financial Instruments Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy. (f) Other Assets Other receivables, deposits and amount due from related party included in other assets are carried at amortised cost using the effective yield method, less allowances for expected credit losses. Bad debts are written-off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the end of the reporting period. (g) Impairment of Assets (i) Impairment of financial assets The Bank assess on a forward looking basis the expected credit loss (“ECL”) associated with its financial assets carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Bank’s financial assets that are subjected to the ECL model includes financial assets classified at amortised cost, debt instruments measured at FVOCI, financing commitments, financial guarantee contracts and other commitments. (a) General 3-stage approach At each reporting date, the Bank measures ECL through loss allowance at an amount equal to 12 month ECL if credit risk on a financial instrument or a group of financial instruments has not increased significantly since initial recognition. For all other financial instruments, a loss allowance at an amount equal to lifetime ECL is required. Impairment will be measured on each reporting date according to a three-stage ECL impairment model: (i) Stage 1 – from initial recognition of a financial assets to the date on which the credit risk of the asset has increased significantly relative to its initial recognition, a loss allowance is recognised equal to the credit losses expected to result from defaults occurring over the next 12 months (12-month ECL). (ii) Stage 2 – following a significant increase in credit risk relative to the initial recognition of the financial assets, a loss allowance is recognised equal to the credit losses expected over the remaining life of the asset (Lifetime ECL). (iii) Stage 3 – when a financial asset is considered to be credit-impaired, a loss allowance equal to full lifetime expected credit losses is to be recognised (Lifetime ECL). This includes exposures which have triggered obligatory impairment criterion or judgmentally impaired. Measurement of ECL is set out in Note 34. 32
35. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (g) Impairment of Assets (Contd.) (i) Impairment of financial assets (contd.) (b) Simplified approach for other receivables The Bank applies the MFRS 9 simplified approach to measure ECL which uses probability default ratio ("PD") and loss given default ratio("LGD") for the due amount. The PD methodology is derived based on net flow rate model as a simplified approach in view of its low credit risk and non-maturity profile on due amount. LGD deem to be in full at any point in time as accounts are short term repayment and forward looking element will not be considered. (c) Write-off The Bank writes-off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. The assessment of no reasonable expectation of recovery is based on unavailability of borrower’s sources of income or assets to generate sufficient future cash flows to repay the amount. The Bank may writes-off financial assets that are still subject to enforcement activity. Subsequent recoveries of amounts previously written-off will result in bad debt recoveries. (ii) Impairment of non-financial assets Other non-financial assets such as property, plant and equipment and computer software are reviewed for objective indications of impairment at the end of each reporting period or whenever there is any indication that these assets may be impaired. Where such indications exist, impairment is determined as the excess of the asset's carrying value over its recoverable amount (greater of value in use or fair value less costs to sell) and is recognised in the statement of income. An impairment for an asset is reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment was recognised. The carrying amount is increased to its revised recoverable amount, provided that the amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment been recognised for the asset in prior years. A reversal of impairment for an asset is recognised in the statement of income. (h) Financial Liabilities Financial liabilities are initially recognised at the fair value of consideration received less directly attributable transaction costs. Subsequent to initial recognition, financial liabilities are measured at amortised cost. Certain financial liabilities are designated at initial recognition at fair value through profit or loss. When one of the designation criteria is met: (i) Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or (ii) Its performance is evaluated on a fair value basis, in accordance with a documented with management or investment strategy. 33
36. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (h) Financial Liabilities (contd.) A financial liability which does not meet any of these criteria may still be designated as measured at FVTPL when it contains one or more embedded derivatives that sufficiently modify the cash flows of the liability and are not clearly closely related. Profit payables are now classified into the respective class of financial liabilities. (i) Repurchase Agreements Financial instruments purchased under resale agreements are instruments which the Bank has purchased with a commitment to resell at future dates. The commitment to resell the instruments are reflected as an asset in the statement of financial position and measured at amortised cost. Conversely, obligations on financial instruments sold under repurchase agreements are instruments which the Bank has sold from their portfolio, with a commitment to repurchase at future dates are measured at amortised cost. Such financing transactions and the obligations to repurchase the instruments are reflected as a liability in the statements of financial position. (j) Bills and Acceptances Payable Bills and acceptances payable represent the Bank's own bills and acceptances rediscounted and outstanding in the market. (k) Subordinated Sukuk The profit-bearing instruments are classified as liabilities in the statement of financial position as there is a contractual obligation by the Bank to make cash payments of either principal or profit or both to holders of the debt securities and the Bank are contractually obliged to settle the financial instrument in cash or another financial instrument. Subsequent to initial recognition, debt securities issued are recognised at amortised cost, with any difference between proceeds net of transaction costs and the redemption value being recognised in the statement of income over the period of the borrowings on an effective profit method. (l) Provisions Provisions are recognised when the Bank have a present legal or constructive obligation as a result of past events. It is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Where the Bank expects a provision to be reimbursed by another party (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance cost expense. 34
37. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (m) Leases Accounting policies applicable with effective from 1 April 2019 Lease in which the Bank is a Lessee Leases are recognised as right-of-use (‘ROU’) asset and a corresponding liability at the date on which the leased asset is available for used by the Bank (i.e. the commencement date). Contracts may contain both lease and non-lease components. The Bank allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of properties for which the Bank are a lessee, it has elected the practical expedient provided in MFRS 16 not to separate lease and non-lease components. Both components are accounted for as a single lease component and payments for both components are included in the measurement of lease liability. (i) Lease Term In determining the lease term, the Bank considers all facts and circumstances that create an economic incentive to exercise an extension option, or not to exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not to be terminated). The Bank reassess the lease term upon the occurrence of a significant event or change in circumstances that is within the control of the Bank and affects whether the Bank is reasonably certain to exercise an option not previously included in the determination of lease term, or not to exercise an option previously included in the determination of lease term. A revision in lease term results in remeasurement of the lease liabilities. (ii) Right-of-use Assets Right-of-use "ROU" assets are initially measured at cost comprising the following: • The amount of the initial measurement of lease liability; • Any lease payments made at or before the commencement date less any lease incentive received; • Any initial direct costs; and • Decommissioning or restoration costs. ROU assets that are not investment properties are subsequently measured at cost, less accumulated depreciation and impairment loss, if any. The ROU assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Bank is reasonably certain to exercise a purchase option, the ROU asset is depreciated on the underlying asset's useful life. In addition, the ROU assets are adjusted for certain remeasurement of the lease liabilities. ROU assets are presented as a separate line item in the statements of financial position. 35
38. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (m) Leases (contd.) Accounting policies applicable with effective from 1 April 2019 (contd.) Lease in which the Bank is a Lessee (contd.) (iii) Lease Liabilities Lease liabilities are initially measured at the present value of the lease payments that are not paid at that date. The lease payments include the following: • Fixed payments (including in-substance fixed payments), less any lease incentive receivable; • Variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date; • Amounts expected to be payable by the Bank under residual value guarantees; • The exercise price of a purchase and extension options if the Bank is reasonably certain to exercise that option; and • Payments of penalties for terminating the lease, if the lease term reflects the Bank exercising that option. Lease payments are discounted using the profit rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Bank, the lessee’s incremental borrowing is used. This is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the ROU in a similar economic environment with similar term, security and conditions. Lease payments are allocated between principal and finance cost. The finance cost is charged to statement of income over the lease period so as to produce a constant periodic rate of profit on the remaining balance of the liability for each period. The Bank presents the lease liabilities as a separate line item in the statement of financial position. Profit expense on the lease liability is presented within the net profit income in statement of income. (iv) Short-term Leases and Leases of Low Value Assets Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise computer equipment and small items of office equipment. Payments associated with short-term leases of equipment and all leases of low-value assets are recognised on a straight-line bases as an operating expense in statement of income. 36
39. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (m) Leases (contd.) Accounting policies applicable prior to 1 April 2019 A lease is recognised as a finance lease if it transfers substantially to the Bank all the risks and rewards incidental to ownership. All leases that do not transfer substantially all the risks and rewards are classified as operating leases. Operating Leases Operating lease payments are recognised in the statement of income on a straight-line basis over the term of the relevant lease. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expenses over the lease term on a straight-line basis. The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. Leasehold land that normally has an indefinite economic life and where title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for as prepaid lease payments at the end of the reporting period. In the case of a lease of land and buildings, the prepaid lease payments or the upfront payments made are allocated, whenever necessary, between the land and buildings elements in proportion to the relative fair values for leasehold interest in the land element and buildings element of the lease at the inception of the lease. The prepaid lease payments are amortised over the lease term in accordance with the pattern of benefits provided. (n) Share Capital (i) Classification Ordinary shares with discretionary dividends are classified as equity (ii) Share issue costs Incremental costs directly attributable to the issue of new shares or options are deducted against equity. (iii) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing: • the profit attributable to owner of the Bank, excluding any costs of servicing equity other than ordinary shares; and • by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. 37
40. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (n) Share Capital (contd.) (iii) Earnings per share (contd.) Diluted earnings per share Diluted earnings per share adjusts the figures in the determination of basic earnings per share to take into account: • the after income tax effect of profit and other financing costs associated with dilutive potential ordinary shares; and • the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (o) Recognition of Financing Income Finance income is recognised using effective profit rates, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financing or, where appropriate, a shorter period to the net carrying amount of the financing. When calculating the effective profit rate, the Bank estimates cash flows considering all contractual terms of the financing but does not consider future credit losses. The calculation includes significant fees paid or received between parties to the contract that are an integral part of the effective profit rate, transaction costs and all other premiums or discounts. Profit income and financing income are recognised in the statement of income for all profit-bearing assets on an accrual basis. Profit income and financing income include the amortisation of premium or accretion of discount. Income from the Islamic banking business is recognised on an accrual basis in accordance with the Shariah principles. For impaired financing where the value has been reduced as a result of impairment loss, financing income continues to be accrued using the rate of profit used to discount the future cash flows for the purposes of measuring the impairment. 38
41. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (p) Recognition of Fees and Other Income Fee and commission income of the Bank is from a wide range of products and services provided to the customers. The income is recognised based on the contractual rates or amount, netted off against fee and commission expense which directly attributable to the income. When the performance obligation is fulfilled, where the products and services are delivered to the customer, fee and commission income will be recognised in statement of income. For transaction-based fee and commission income, it is recognised on the completion of the transaction. Such fees include fees related to the completion of corporate advisory fees, financing arrangement fees and commissions, management and participation fees, underwriting commissions, service charges on sale of unit trust funds. These fees constitute a single performance obligation. For services that are provided over a period of time, fee and commission income is recognised on equal proportion basis over the period during which the related service is provided. This basis of recognition will reflect the nature of these services to the customers over time. Fees for these services can be billed periodically over time. Such fees include commitment, guarantee and portfolio management fees and bancassurance agreements. Net gain or loss from disposal of financial assets at fair value through profit or loss and financial investments at fair value through other comprehensive income are recognised in profit or loss upon disposal of securities, as the difference between net disposal proceeds and the carrying amount of the securities. Dividends are recognised when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence. Dividend that clearly represents a recovery of part of the cost of an investment is recognised in other comprehensive income if it relates to an investment in equity investment measured at financial investments at fair value through other comprehensive income. (q) Recognition of Financing Expenses Finance cost and income attributable on deposits and borrowings of the Bank are recognised on an accrual basis. The method of allocation of income to the types of deposits is based on "the Framework on Rate of Return" issued by BNM. This Framework on Rate of Return (BNM/GP2-i) which is based on the return on assets concept, calculates the income on assets. The return on assets, after deducting incidental expenses and allowances for losses on financing and advances are distributed to the depositors using the weighted average method. 39
42. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (r) Foreign Currencies (i) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The financial statements are presented in Ringgit Malaysia, which is the Bank’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as financial investments fair value other comprehensive income. 40
43. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (s) Current and Deferred Income Tax Income tax on the profit or loss for the financial year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the end of the reporting date. In the event of uncertain tax position, the tax is measured using the single best estimate of the most likely outcome. Tax is recognised in the profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in the comprehensive income or directly in equity, respectively. Deferred tax is provided in full, using the liability method, on temporary differences at the end of the reporting date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the end of the reporting period. Deferred tax is recognised as income or an expense in the statement of comprehensive income for the period, except when it arises from a transaction which is recognised directly in other comprehensive income or directly in equity, in which case the deferred tax is also charged or credited to other comprehensive income or to equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill. Deferred and income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when deferred income tax assets and liabilities relate to taxes levied by the same tax authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. (t) Foreclosed Properties Foreclosed properties are stated at the lower of carrying amount and fair value less costs to sell. (u) Cash and Cash Equivalents Cash and cash equivalents as stated in the statement of cash flows comprise cash and bank balances and short term deposits maturity within one month that are readily convertible into cash with insignificant risk of changes in value. 41
44. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.) (v) Employee Benefits (i) Short-term Employee Benefits Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Bank. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and shortterm non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defined Contribution Plans Defined contribution plans are post-employment benefit plans under which the Bank pays fixed contributions into separate entities or funds and will have no legal or constructive obligations to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Such contributions are recognised as an expense in the statement of comprehensive income as incurred. As required by law, companies in Malaysia make contributions to the Employees Provident Fund ("EPF"). (w) Contingent Assets and Contingent Liabilities The Bank does not recognise contingent assets and liabilities, but disclose its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Bank or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. However, contingent liabilities do not include financial guarantee contracts. A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Bank. The Bank does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain. (x) Financial Guarantee Contracts Financial guarantee contracts are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Financial guarantee contracts are subsequently measured at the higher of the amount determined in accordance with the expected credit loss model under MFRS 9 ‘Financial instruments’ and the amount initially recognised less cumulative amount of income recognised in accordance with the principles of MFRS 15 ‘Revenue from Contracts with Customers’, where appropriate. 42
45. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 3. CASH AND SHORT-TERM FUNDS Cash and balances with banks and other financial institutions Money at call and deposit placements maturing within one month 2020 RM'000 2019 RM'000 14,584 700,048 714,632 28,321 320,086 348,407 The balance is within Stage 1 allocation (12 months ECL) with nil impairment allowance (2019: nil). 4. FINANCIAL INVESTMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME At fair value - debt instruments Money market instruments: Malaysian Government investment issues Unquoted securities: Sukuk 2020 RM'000 2019 RM'000 1,016,589 1,016,589 1,064,786 1,064,786 1,285,277 1,285,277 1,036,101 1,036,101 2,301,866 2,100,887 Movements in allowance for expected credit losses are as follows: 12-Month ECL (Stage 1) 2020 2019 RM'000 RM'000 At 1 April As previously stated Effects of adoption of MFRS 9 As restated New financial assets originated or purchased Financial assets derecognised other than write-off Changes due to change in credit risk Total write-back from income statement At 31 March 39 39 7 (1) (8) (2) 37 43 73 73 7 (15) (26) (34) 39
46. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 5. FINANCIAL INVESTMENTS AT AMORTISED COST 2020 RM'000 At amortised cost Unquoted securities: Sukuk Allowance for expected credit losses 80,853 (225) 80,628 2019 RM'000 - Movements in allowance for expected credit losses are as follows: 12-Month ECL (Stage 1) 2020 2019 RM'000 RM'000 At 1 April New financial assets originated or purchased Changes due to change in credit risk Total charge to income statement At 31 March 44 - - 109 116 225 225 -
47. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES By types and Shariah concepts: Bai` Bithaman Ajil RM'000 Al-Ijarah Thumma Al-Bai`/ Tawarruq AITAB Murabahah Qard RM'000 RM'000 RM'000 RM'000 Bai` Al-Dayn RM'000 Bai' `Inah RM'000 Total Financing and Advances RM'000 31 March 2020 At amortised cost Cash line financing Term financing - Housing financing 1 - Hire purchase receivables - Other term financing Bills receivables Trust receipts Claims on customers under acceptance credits Staff financing (including financing to Directors of RM Nil) Revolving credits2 Gross financing and advances 31,036 1,658,404 - - 9,121 - - 1,698,561 3,419,778 1,890,964 - 1,816,986 - 214,832 - 49,096 54,216 - - 171,694 - 3,419,778 214,832 3,879,644 49,096 54,216 - - - 687,009 - 111,683 - 798,692 15,779 210,845 5,568,402 478,513 3,953,903 214,832 790,321 9,121 111,683 171,694 15,779 689,358 10,819,956 Add : Sales commission and handling fees 52,641 Less: Allowance for expected credit losses on financing and advances (198,984) 10,673,613 Total net financing and advances 45
48. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES (CONTD.) By types and Shariah concepts (contd.): Bai` Bithaman Ajil RM'000 Al-Ijarah Thumma Al-Bai`/ Tawarruq AITAB Murabahah Qard RM'000 RM'000 RM'000 RM'000 Bai` Al-Dayn RM'000 Bai` `Inah RM'000 Total Financing and Advances RM'000 31 March 2019 At amortised cost Cash line financing Term financing - Housing financing 1 - Hire purchase receivables - Other term financing Bills receivables Trust receipts Claims on customers under acceptance credits Staff financing (including financing to Directors of RM Nil) Revolving credits2 Gross financing and advances 96,749 1,340,827 - - 5,124 - - 1,442,700 2,948,273 1,948,379 - 1,204,830 - 296,474 - 12,081 39,565 - - 214,502 - 2,948,273 296,474 3,367,711 12,081 39,565 - - - 683,926 - 86,195 - 770,121 16,777 287,995 5,298,173 215,115 2,760,772 296,474 735,572 5,124 86,195 214,502 16,777 503,110 9,396,812 Add : Sales commission and handling fees 48,577 Less: Allowance for expected credit losses on financing and advances (138,510) 9,306,879 Total net financing and advances 1 Included hire purchase receivables under Al-Ijarah Thumma Al-Bai` ("AITAB") which is the contract of lease ending transfer of ownership from the lessor to the lessee in the form of sale transaction, which may take place at the end of the Ijarah period or at any point of time during the period, subject to the agreed terms and conditions between the contracting parties. 2 The total Financing and Advances under Bai' Bithaman Ajil ("BBA") includes Revolving Credit-i (Murabahah) which substantively adopts a BBA product structure. 46
49. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES (CONTD.) (i) Purpose and source of fund for Qard financing: At 1 April Sources of Qard fund: - Shareholders' fund Uses of Qard fund: - Purchase of non-residential landed property - Personal use - Working capital At 31 March 2020 RM'000 2019 RM'000 5,124 982 13,089 14,454 (462) (8,630) 9,121 (192) (3,017) (7,103) 5,124 (ii) By maturity structure: Within one year One year to three years Three years to five years Over five years Gross financing and advances 2020 RM'000 2019 RM'000 3,345,242 354,037 685,056 6,435,621 10,819,956 2,806,896 432,115 682,581 5,475,220 9,396,812 2020 RM'000 2019 RM'000 64,816 57,081 2,710,603 1,817,910 6,123,563 24,507 78,557 10,819,956 2,358,476 1,728,815 5,154,376 13,330 84,734 9,396,812 2020 RM'000 2019 RM'000 24,161 214,811 2,142,414 27,105 296,447 2,044,961 3,404,507 5,034,063 10,819,956 2,931,296 4,097,003 9,396,812 (iii) By type of customers: Domestic non-bank financial institutions Domestic business enterprises - Small and medium enterprises - Others Individuals Other domestic entities Foreign entities Gross financing and advances (iv) By profit rate sensitivity: Fixed rate - House financing - Hire purchase receivables - Other fixed rate financing Variable rate - House financing - Other variable rate financing Gross financing and advances 47
50. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES (CONTD.) (v) By economic purposes: Purchase of transport vehicles Purchase of landed property of which: - Residential - Non-residential Purchase of fixed assets excluding land and buildings Personal use Construction Working capital Others Gross financing and advances 2020 RM'000 2019 RM'000 188,433 4,835,794 3,494,678 1,341,116 57,272 2,604,777 96,629 2,522,151 514,900 10,819,956 281,168 4,271,410 3,010,880 1,260,530 38,956 2,048,622 56,228 2,171,438 528,990 9,396,812 2020 RM'000 2019 RM'000 396,825 47,680 1,149,925 649 1,500,755 277,987 175,991 990,721 73,942 6,202,120 3,361 10,819,956 363,274 29,809 977,410 275 1,480,513 200,966 178,569 826,749 91,230 5,239,109 8,908 9,396,812 2020 RM'000 2019 RM'000 968,397 7,363,319 1,279,947 887,967 320,326 10,819,956 821,198 6,386,035 1,253,223 693,573 242,783 9,396,812 (vi) By economic sectors: Primary agriculture Mining and quarring Manufacturing Electricity, gas and water Wholesale, retail trade, restaurant and hotels Construction Transport, storage and communication Financing, insurance and business services Community and recreation Household Others Gross financing and advances (vii) By geographical distribution: Northern region Central region Southern region Sabah region Sarawak region Gross financing and advances 48
51. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES (CONTD.) (vii) Movements in credit impaired financing and advances ("impaired financing") under Stage 3 At 1 April As previously stated under MFRS 139 Effects of adoption of MFRS 9 As restated Impaired during the financial year Reclassified as unimpaired during the financial year Recovered during the financial year Financial assets derecognised during the financial year other than write-off Amount written-off At 31 March Gross impaired financing as a % of gross financing and advances 2020 RM'000 2019 RM'000 106,925 106,925 331,156 (104,984) (12,048) 104,232 178 104,410 189,668 (104,932) (24,828) (35,961) (52,519) 232,569 (10,151) (47,242) 106,925 2.15% 1.14% The Bank may write-off financial assets when relevant recovery actions have been exhausted or further recovery is not economically feasible or justifiable. The outstanding contractual amounts of such assets written-off during the year amounting to RM52,519,000 (2019: RM47,242,000) for the Bank. The Bank still seek to recover amounts that is legally owed in full, but which have been partially or fully written-off and are still subject to enforcement activity. (viii) Impaired financing and advances by economic purposes: Purchase of transport vehicles Purchase of landed property of which: - Residential - Non-residential Purchase of fixed assets excluding land & buildings Personal use Working capital Others Gross impaired financing and advances 49 2020 RM'000 2019 RM'000 5,844 116,660 89,331 27,329 352 81,327 25,738 2,648 232,569 2,309 49,337 23,445 25,892 641 33,299 18,697 2,642 106,925
52. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES (CONTD.) (ix) Credit impaired loans analysed by economic sectors: Primary agriculture Manufacturing Wholesale, retail trade, restaurants and hotels Construction Transport, storage and communication Financing, insurance, real estate and business services Household Others Gross impaired financing and advances 2020 RM'000 2019 RM'000 1,128 7,901 1,113 17,210 31,689 14,170 2,048 22,706 5,606 366 1,201 174,432 232,569 1,238 58,685 1 106,925 2020 RM'000 2019 RM'000 24,885 173,305 24,060 8,175 2,144 232,569 9,793 79,488 14,188 2,762 694 106,925 (x) Impaired financing and advances by geographical distribution: Northern region Central region Southern region Sabah region Sarawak region Gross impaired financing and advances 50
53. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES (CONTD.) (xi) Movements in allowance for expected credit losses on financing and advances are as follows: At 1 April 2019 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 New financial assets originated or purchased Financial assets derecognised other than write-off Changes due to change in credit risk Unwinding of discount Total charge to income statement Write-off 31 March 2020 At 1 April 2018 As previously stated under MFRS 139 Effects of adoption of MFRS 9 As restated Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 New financial assets originated or purchased Financial assets derecognised other than write-off Changes due to change in credit risk Unwinding of discount Total charge to income statement Write-off At 31 March 2019 Lifetime ECL Lifetime ECL 12 months ECL (Stage 1) RM'000 Not-credit impaired (Stage 2) RM'000 Credit Impaired (Stage 3) RM'000 Total RM'000 23,032 9,779 (15,292) (17) 22,190 (9,007) 1,495 9,148 9,148 (3) 32,177 69,895 (49,268) 88,314 (53,130) 26,224 (24,059) 34,637 22,718 22,718 (521) 92,092 45,583 (550) (29,801) 103,693 6,939 (9,259) (324) 70,698 (2,799) 67,899 (38,767) 74,715 138,510 (40,039) 43,221 50,546 55,353 (42,325) 35,808 102,564 (2,799) 99,765 (39,291) 198,984 34,959 (1,341) (31,276) 75,489 8,018 (2,918) (2,598) 45,374 (1,533) 43,841 (33,217) 45,583 86,206 37,209 123,415 (33,691) 32,267 26,634 65,721 (49,457) 8,497 49,971 (1,533) 48,438 (33,343) 138,510 22,429 9,004 (15,260) (33) 23,766 (12,600) (4,274) 603 603 23,032 51 66,027 (41,354) 78,803 (48,822) 33,937 (33,939) 15,369 3,994 3,994 (126) 69,895
54. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES (CONTD.) (xii) Movements in allowance for expected credit losses on financing and advances are as follows: 2020 Stage 1 expected credit losses (“ECL”) increased by RM9.1 million during the financial year mainly due to: • Newly originated gross carrying amounts (“GCA”) for financing and advances; • ECL for GCA transferred from Stage 2 and 3 to Stage 1; Partly offset by • ECL for GCA transferred from Stage 1 to Stage 2; and • Derecognition of GCA for financing and advances from full settlement. Stage 2 ECL increased by RM22.2 million mainly due to: • ECL for GCA transferred from Stage 1 and 3 to Stage 2 and incremental ECL within the same stage; Partly offset by • ECL for GCA transferred from Stage 2 to Stage 1 and 3; and • Derecognition of GCA for financing and advances from full settlement. Stage 3 ECL increased by RM29.1 million mainly due to: • ECL for GCA transferred from Stage 1 and 2 to Stage 3. Partly offset by • ECL for GCA transferred from Stage 3 to Stage 2. The GCA of the bank were written off by RM53.8 million resulted in the reduction of ECL for all stages. Details of gross carrying amounts are disclosed in Note 34(a)(v). 52
55. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 6. FINANCING AND ADVANCES (CONTD.) (xii) Movements in allowance for expected credit losses on financing and advances are as follows: 2019 Stage 1 expected credit losses (“ECL”) increased by RM0.6 million during the financial year mainly due to: • newly originated financing and advances with gross carrying amounts (“GCA”) of RM7.8 billion and ECL charge for GCA of RM0.9 billion transferred from stage 2 and 3 to stage 1; Offset by • write back of ECL for GCA of RM1.2 billion transferred from stage 1 to stage 2; and • ECL for de-recognition of GCA of RM5.6 billion for financing and advances from full settlement and write back of ECL for GCA of RM0.9 billion within stage 1. Stage 2 ECL increased by RM4.0 million mainly due to: • ECL for GCA of RM1.3 billion transferred from stage 1 and 3 to stage 2 and ECL for newly originated financing and advances with GCA of RM1.6 billion; Offset by • write back of ECL for GCA of RM0.2 billion transferred from stage 2 to stage 3; and • write back of ECL for GCA of RM0.9 billion transferred from stage 2 to stage 1 and ECL for derecognition of GCA of RM1.3 billion for financing and advances from full settlement. Stage 3 ECL increased by RM45.4 million mainly due to: • ECL for GCA of RM0.2 billion transferred from stage 1 and stage 2 to stage 3; and Offset by • write back of ECL for GCA of RM0.1 billion transferred from stage 3 to stage 2. The write-off loans with a total GCA of RM47.7 million for the Bank resulted in the reduction of stage 3 and 2. 53
56. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 7. OTHER ASSETS Other receivables Deposits Prepayment Amount due to related company Less: Allowance for expected credit losses on other receivables [Note (a)] 2020 RM'000 2019 RM'000 4,406 89 2,042 3 6,540 3,508 89 305 3,902 (1,749) 4,791 (1,641) 2,261 Note: (a) Movements for allowance for expected credit losses on other receivables are as follow: Lifetime ECL 2020 2019 RM'000 RM'000 At 1 April As previously stated Effects of adoption of MFRS 9 As restated Changes due to change in credit risk At 31 March 8. 1,641 1,641 108 1,749 1,404 1,404 237 1,641 STATUTORY DEPOSITS WITH BANK NEGARA MALAYSIA Non-profit bearing statutory deposits for the Bank of RM219,488,000 (2019: RM335,388,000) is maintained with Bank Negara Malaysia in compliance with Section 26(2)(c) of the Central Bank of Malaysia Act, 2009, the amount of which are determined as a set percentage of total eligible liabilities. 9. RIGHT-OF-USE ASSETS Premises RM'000 2020 COST At 1 April 2019 As previously stated Effects of adoption of MFRS 16 [Note 2(a)(ii)] As restated Remeasurement At 31 March 2020 848 848 (15) 833 ACCUMULATED DEPRECIATION At 1 April 2019 As previously stated Effects of adoption of MFRS 16 [Note 2(a)(ii)] As restated Charge for the financial year At 31 March 2020 424 424 273 697 NET CARRYING AMOUNT 136 54
57. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 10. PROPERTY, PLANT AND EQUIPMENT Renovations RM'000 Office equipment and furniture RM'000 Computer equipment RM'000 Total RM'000 2020 COST At 1 April 2019 Additions Written-off At 31 March 2020 1,260 (101) 1,159 96 4 (22) 78 159 12 (12) 159 1,515 16 (135) 1,396 At 1 April 2019 Charge for the financial year Written-off At 31 March 2020 987 90 (101) 976 65 4 (22) 47 131 18 (12) 137 1,183 112 (135) 1,160 NET CARRYING AMOUNT 183 31 22 236 1,177 83 1,260 74 22 96 141 18 159 1,392 123 1,515 At 1 April 2018 Charge for the financial year At 31 March 2019 889 98 987 60 5 65 112 19 131 1,061 122 1,183 NET CARRYING AMOUNT 273 31 28 332 ACCUMULATED DEPRECIATION 2019 COST At 1 April 2018 Additions At 31 March 2019 ACCUMULATED DEPRECIATION 55
58. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 11. DEFERRED TAX Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The net deferred tax assets and liabilities shown in the statement of financial position after appropriate offsetting are as follows: Deferred tax assets, net Deferred tax liabilities, net At 1 April As previously stated Effects of adoption of MFRS 16 [Note 2(a)(ii)] As restated Recognised in statement of income (Note 28) Recognised in equity At 31 March 2020 RM'000 2019 RM'000 1,688 1,688 11,156 11,156 2020 RM'000 2019 RM'000 11,156 4 11,160 (6,503) (6,345) (1,688) 1,250 1,250 15,764 (5,858) 11,156 Deferred tax assets and liabilities prior to offsetting are summarised as follows: 2020 RM'000 Deferred tax assets Deferred tax liabilities 10,592 (12,280) (1,688) 56 2019 RM'000 17,091 (5,935) 11,156
59. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 11. DEFERRED TAX (CONTD.) The components and movements of deferred tax assets and liabilities during the financial year prior to offsetting are as follows: Deferred tax assets/(liabilities) At 1 April 2018 As previously stated Effects of adoption of MFRS 9 As restated Recognised in statement of income Recognised in equity At 31 March 2019/1 April 2019 Effects of adoption of MFRS 16 [Note 2(a)(ii)] As restated Recognised in statement of income Recognised in equity At 31 March 2020 Allowance for expected credit losses RM'000 Financial investments available-forLeases sale RM'000 RM'000 Other Liabilities RM'000 Property, plant and equipment RM'000 (77) (77) (17) (17) 1,250 1,250 Total RM'000 - 1,344 1,344 - 14,492 14,492 14,492 1,255 2,599 2,599 4 4 - (5,858) (5,935) (5,935) 17 - 15,764 (5,858) 11,156 4 11,160 (8,790) 5,702 2,289 4,888 (2) 2 - (6,345) (12,280) - (6,503) (6,345) (1,688) Note: Other liabilities include provisions and deferred income. 57 (77) 77 - Financial investments at fair value through other comprehensive income RM'000
60. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 12. INTANGIBLE ASSETS 2020 RM'000 2019 RM'000 Computer software Cost At 1 April Additions Written-off At 31 March 2,172 217 2,389 2,018 235 (81) 2,172 Accumulated amortisation At 1 April Charge for the financial year At 31 March 1,275 289 1,564 960 315 1,275 825 897 Net carrying amount Note: Computer software includes work in progress of RM Nil (2019: RM224,655) which is not amortised until ready for use. 13. DEPOSITS FROM CUSTOMERS 2020 RM'000 2019 RM'000 Demand deposits - Qard 3,422,562 2,724,725 Savings deposits - Qard 339,006 320,557 6,364,480 5,452,519 512,193 805,845 1,043,198 261,717 77,304 34,292 12,110 11,805,145 95,537 39,744 232,257 9,932,901 Term deposits - Commodity Murabahah - Negotiable Islamic Debt Certificate Bai' Inah - Money market deposits - Commodity Murabahah - Other deposits - Mudharabah - Wakalah - Qard 58
61. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 13. DEPOSITS FROM CUSTOMERS (CONTD.) 2020 RM'000 2019 RM'000 4,998,550 1,985,271 854,103 205,653 8,043,577 4,020,974 1,838,605 672,770 355,270 6,887,619 2020 RM'000 2019 RM'000 501,083 1,889,921 4,171,591 4,145,593 881,043 101,894 114,020 11,805,145 795,162 2,475,387 3,646,508 2,720,243 134,874 70,963 89,764 9,932,901 (i) The maturity structure of term deposits are as follows: Due within six months Six months to one year One year to three years Three years to five years (ii) By type of customers: Domestic financial institutions Government and statutory bodies Business enterprises Individuals Domestic non-bank financial institutions Foreign entities Others 14. DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS Non-Mudharabah Fund Bank Negara Malaysia Licensed investment banks 2020 RM'000 2019 RM'000 209,689 11,162 220,851 243,731 243,731 2020 RM'000 2019 RM'000 148,082 - 15. OBLIGATIONS ON SECURITIES SOLD UNDER REPURCHASE AGREEMENTS Amortised cost 16. RECOURSE OBLIGATION ON FINANCING SOLD TO CAGAMAS This relates to proceeds received from housing financing and hire purchase financing sold directly to Cagamas Berhad with recourse to the Bank. Under the agreement, the Bank undertakes to administer the financing on behalf of Cagamas Berhad and to buy back any financing which are regarded as defective based on predetermined and agreed upon prudential criteria set by Cagamas Berhad. 59
62. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 17. LEASE LIABILITIES 2020 RM'000 At 1 April As previously stated Effects of adoption of MFRS 16 [Note 2(a)(ii)] As restated Profit expense Lease payment Remeasurement At 31 March 416 416 16 (298) (15) 119 Note: 2020 RM'000 Profit expense Total cash outflow for leases 16 298 The Bank leases premises. Rental contracts are typically made for the periods for 3 years. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Termination options are included in a number of leases across the Bank. Termination options are included, to provide a greater flexibility. 18. OTHER LIABILITIES Other payables Bills payable Clearing account Sundry deposits Provision and accruals Amount due to holding company Amount due to related company Allowance for credit losses on commitments and contingencies [Note (a)] 60 2020 RM'000 2019 RM'000 49,118 5,712 23,418 4,521 7,891 17,871 835 42,613 8,474 50,063 5,257 8,609 132,364 1,150 4,454 113,820 3,999 252,529
63. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 18. OTHER LIABILITIES (CONTD.) Note: (a) Movements in allowance for expected credit losses on commitments and contingencies are as follows: At 1 April 2019 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 New financial assets originated or purchased Financial assets derecognised other than write-off Changes due to change in credit risk Other adjustments Unwinding of discount Total charge to/(write-back from) income statement At 31 March 2020 At 1 April 2018 As previously stated under MFRS 139 Effects of adoption of MFRS 9 As restated Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 New financial assets originated or purchased Financial assets derecognised other than write-off Changes due to change in credit risk Other adjustments Unwinding of discount Total write-back from income statement At 31 March 2019 12 months ECL (Stage 1) RM'000 Lifetime ECL Not-credit impaired (Stage 2) RM'000 Lifetime ECL Credit Impaired (Stage 3) RM'000 712 445 (204) (1) 321 (205) (57) 1 300 300 1,012 3,182 (3,605) 2,674 1,840 (811) 161 259 259 3,441 105 (1) 4 (105) (9) (111) 7 (104) 1 793 793 156 (139) 560 (360) (299) 1 (81) (81) 712 5,707 5,707 (1,806) 1,306 (12) 1,549 (1,771) (1,798) 7 (2,525) (2,525) 3,182 9,960 9,960 (6) 229 (9,693) (378) (9,848) (7) (9,855) 105 Total RM'000 3,999 (3,160) 2,469 3 2,161 (1,121) ` 95 1 448 7 455 4,454 16,460 16,460 (1,650) 1,161 217 2,109 (11,824) (2,475) 8 (12,454) (7) (12,461) 3,999 As at 31 March 2020, the gross exposures of financing commitments and financial guarantee contracts that are credit impaired was at RM1,009,000 (31 March 2019: RM1,979,000). 61
64. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 19. SUBORDINATED SUKUK Subordinated Sukuk RM130 million Subordinated Sukuk Murabahah RM100 million Additional Tier I Sukuk Wakalah Note 2020 RM'000 2019 RM'000 (a) (b) 129,772 99,303 229,075 129,693 99,162 228,855 (a) RM130 million Subordinated Sukuk Murabahah On 18 September 2017, the Bank issued RM130.0 million Subordinated Sukuk Murabahah ("Subordinated Sukuk") under the RM180.0 million Subordinated Sukuk Programme. At cost Accumulated unamortised discount Profit accrued 2020 RM'000 2019 RM'000 130,000 (267) 39 129,772 130,000 (366) 59 129,693 The main features of the Subordinated Sukuk are as follows: (i) Issue date: 29 September 2017 10 years from the issue date and non-callable five (5) years after issue date (ii) Tenor of the facility/issue: (iii) Maturity date: 29 September 2027 (iv) Coupon rate: 5.50% per annum, payable semi-annually in arrears (v) Call date: 29 September 2022 and thereafter on every periodic payment date (vi) The Subordinated Sukuk constitutes direct and unsecured obligations of the issuer, subordinated in right and priority of payment, to the extent and in the manner provided in the Subordinated Sukuk, ranking pari passu among themselves. (vii) In the event of winding up or liquidation of the issuer, be subordinated in right of payment to all deposit liabilities and other liabilities of the issuer, except in each case to those liabilities which by their terms rank equally in right of payment with or are Subordinate to the Subordinated Sukuk. 62
65. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 19. SUBORDINATED SUKUK (CONTD.) (b) RM100 million Additional Tier 1 Sukuk Wakalah On 29 March 2019, the Bank issued RM100.0 million Islamic Additional Tier 1 Sukuk Wakalah ("AT1 Sukuk") of RM100.0 million in nominal value ("AT1 Sukuk Issuance") pursuant to Alliance Islamic's Sukuk Programme. At cost Accumulated unamortised discount Profit accrued 2020 RM'000 2019 RM'000 100,000 (729) 32 99,303 100,000 (888) 50 99,162 The main features of the AT1 Sukuk are as follows: (i) Issue date: 29 March 2019 Perpertual Non-callable five (5) years (ii) Tenor of the facility/issue: (iii) Maturity date: 29 March 2024 (iv) Coupon rate: 5.95% per annum, payable semi-annually (v) Call date: 29 March 2024 and thereafter on every distribution payment date (v) The AT1 Sukuk constitutes direct and unsecured obligations of the issuer and are subordinated to depositors, general creditors and other holders of subordinated debt of the issuer. (vi) Upon the occurance of any winding up proceeding, the amount payable on the AT1 Sukuk will be subordinated in right of payment to the prior payment in full of all deposit liabilities and other liabilities of the issuer, except in each case to those liabilities which by their terms rank equally with or junior to the AT1 Sukuk. 63
66. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 20. SHARE CAPITAL Ordinary shares issued and fully paid: At 1 April 2019/31 March 2020 ordinary shares with no-par value 2020 Number of ordinary shares '000 2019 Number of ordinary shares '000 RM'000 345,045 400,000 345,045 400,000 Note 2020 RM'000 2019 RM'000 (a) (b) 34,748 38,925 73,673 9,060 18,834 27,894 523,425 597,098 522,931 550,825 RM'000 21. RESERVES Non-distributable: Regulatory reserves FVOCI reserves Distributable: Retained profits (a) Regulatory reserves represent the Bank’s compliance with BNM Revised Policy Documents in Financial Reporting and Financial Reporting for Islamic Banking Institutions effective 1 January 2018 whereby the Bank must maintain in aggregate, loss allowance for non-credit-impaired exposures and regulatory reserves of no less than 1% of total credit exposures, net of loss allowance for credit-impaired exposures. (b) FVOCI reserves are the cumulative gains and losses arising on the revaluation of debt instruments measured at FVOCI, net off cumulative gains and losses transferred to statement of income upon disposal and the cumulative allowance for expected credit losses on these investments. 64
67. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 22. INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS AND OTHERS 2020 RM'000 2019 RM'000 435,183 213,916 649,099 389,831 194,730 584,561 2020 RM'000 2019 RM'000 335,838 56,277 1,954 4,841 398,910 15,034 413,944 292,283 47,639 13,036 352,958 20,767 373,725 16,721 4,236 282 435,183 14,939 570 597 389,831 Income derived from investment of : (i) Term deposits (ii) Other deposits (i) Income derived from investment of term deposits: Finance income and hibah Financing and advances Financial investments at FVOCI Financial investments at amortised cost Money at call and deposit placements with financial institutions Accretion of discount less amortisation of premium Total finance income and hibah Other operating income - Fee income - Investment income - Other income Included in financing income earned on financing and advances for the current financial year is financing accrued on impaired financing of the Bank amounting to RM1,717,000 (2019: RM939,000). (ii) Income derived from investment of other deposits: Finance income and hibah Financing and advances Financial investments at FVOCI Financial investments at amortised cost Money at call and deposit placements with financial institutions Accretion of discount less amortisation of premium Total finance income and hibah Other operating income - Fee income - Investment income - Other income 2020 RM'000 2019 RM'000 165,083 27,663 960 2,380 196,086 7,390 203,476 146,002 23,797 6,512 176,311 10,374 186,685 8,220 2,082 138 213,916 7,462 285 298 194,730 Included in financing income earned on financing and advances for the current financial year is financing accrued on impaired financing of the Bank amounting to RM844,000 (2019: RM469,000). 65
68. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 23. INCOME DERIVED FROM INVESTMENT OF SHAREHOLDER'S FUNDS Finance income and hibah Financing and advances Financial investments at FVOCI Financial investments at amortised cost Money at call and deposit placements with financial institutions Accretion of discount less amortisation of premium Total finance income and hibah Other operating income - Fee income - Investment income - Other income 2020 RM'000 2019 RM'000 45,122 7,561 263 650 53,596 2,020 55,616 40,922 6,670 1,825 49,417 2,907 52,324 2,247 569 38 58,470 2,092 80 84 54,580 Included in financing income earned on financing and advances for the current financial year is financing accrued on impaired financing of the Bank amounting to RM231,000 (2019: RM131,000). Wakalah fe 24. ALLOWANCE FOR EXPECTED CREDIT LOSSES ON FINANCING, ADVANCES AND OTHER FINANCIAL ASSETS Allowance for expected credit losses on: (a) Expected Financingcredit and advances losses - Net charge during the financial year (b) Credit impaired on financing and advances - Recovered - Written-off (c) Commitments and contingencies on financing and advances - Net charge/(write-back) during the financial year Allowance for expected credit losses on other receivables 2020 RM'000 2019 RM'000 102,564 49,971 (12,637) 14,371 (15,060) 14,315 448 104,746 (12,454) 36,772 108 104,854 237 37,009 25. ALLOWANCE FOR/(WRITE-BACK OF) EXPECTED CREDIT LOSSES ON FINANCIAL INVESTMENTS 2020 RM'000 Allowance for/(write-back of) expected credit losses on: - Financial investments at FVOCI - Financial investments at amortised cost (2) 225 223 66 2019 RM'000 (34) (34)
69. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 26. INCOME ATTRIBUTABLE TO THE DEPOSITORS AND FINANCIAL INSTITUTIONS Deposits from customers: - Mudharabah fund - Non-Mudharabah fund Deposits and placements of banks and other financial institutions: - Mudharabah fund - Non-Mudharabah fund Financing sold to Cagamas Other borrowings Subordinated Sukuk Murabahah Lease liabilities 2020 RM'000 2019 RM'000 2,300 331,781 2,988 296,315 99 4,500 21,968 42 13,392 16 374,098 3,786 21,979 7,291 332,359 2020 RM'000 2019 RM'000 65,671 10,658 8,642 84,971 59,158 9,434 7,228 75,820 112 273 289 3,044 1,784 1,191 8,776 10,816 26,285 122 315 5,069 1,606 1,227 6,890 8,114 23,343 1,761 3,486 812 6,059 1,716 3,415 886 6,017 2,003 374 1,591 4,855 3,148 11,971 129,286 2,099 413 1,149 3,686 5,287 12,634 117,814 27. OTHER OPERATING EXPENSES Personnel costs - Salaries, allowances and bonuses - Contribution to EPF - Others Establishment costs - Depreciation on property, plant and equipment - Depreciation on right-of-use assets - Amortisation of computer software - Rental - Repairs and maintenance - Water and electricity - Information technology expenses - Others [Note (a)] Marketing expenses - Promotion and advertisement - Branding and publicity - Others Administration and general expenses - Communication expenses - Printing and stationeries - Insurance - Professional fees - Others Total other operating expenses Included in the other operating expenses are the Shariah Committee members' remuneration of RM328,000 (2019: RM306,000). 67
70. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 27. OTHER OPERATING EXPENSES (CONTD.) The following represent a detailed breakdown of the Bank's share of the holding company's other operating expenses included within the Bank's total other operating expenses: Sharing of Other Operating Expenses Personnel costs - Salaries, allowances and bonuses - Contribution to EPF - Others Establishment costs - Rental - Repairs and maintenance - Water and electricity - Information technology expenses - Others [Note (a)] Marketing expenses - Promotion and advertisement - Branding and publicity - Others Administration and general - Communication expenses - Printing and stationeries - Professional fees - Others Total sharing of other operating expenses 2020 RM'000 2019 RM'000 59,467 9,683 7,999 77,149 53,893 8,611 6,450 68,954 3,044 1,761 1,165 8,635 10,798 25,403 4,761 1,564 1,192 6,758 8,020 22,295 1,218 2,318 784 4,320 1,186 2,934 870 4,990 1,243 305 3,231 280 5,059 111,931 1,288 314 2,195 2,105 5,902 102,141 Note (a): Being substantially cross-charge amount for using the fixed assets of the holding company. This includes computer software, computer equipment and furniture and fittings. Included in the other operating expenses are the following: Auditors' remuneration - statutory audit fees - audit related services - non-audit related services - tax compliance works - tax related services Computer software written-off 68 2020 RM'000 2019 RM'000 140 170 14 12 - 130 166 60 13 8 81
71. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 28. TAXATION Income tax: Current financial year (Over)/under provision in prior years Deferred tax (Note 11) Current financial year Under/(over) provision in prior years 2020 RM'000 2019 RM'000 33,084 (14,705) 18,379 52,084 9 52,093 (7,668) 14,171 6,503 (15,098) (666) (15,764) 24,882 36,329 Income tax is calculated at the Malaysian statutory tax rate of 24% (2019: 24%) of the estimated assessable profit for the financial year. A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Bank is as follows: 2020 RM'000 2019 RM'000 Profit before taxation 99,108 152,198 Taxation at Malaysian statutory tax rate of 24% (2019: 24%) Expenses not deductible for tax purposes Over provision of tax expense in prior years Tax expense for the financial year 23,785 1,631 (534) 24,882 36,527 459 (657) 36,329 29. EARNINGS PER SHARE Basic/diluted Basic/diluted earnings per share is calculated by dividing profit for the financial year attributable to ordinary Equity holder of the Bank by the weighted average number of ordinary shares in issue during the financial year. 2020 2019 Net profit for the financial year attributable to Equity holder of the Bank (RM'000) 74,226 115,869 Weighted average numbers of ordinary shares in issue ('000) 345,045 Basic/diluted earnings per share (sen) 21.5 69 345,045 33.6
72. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 30. DIVIDENDS Dividend in respect of financial year 2020 2019 RM'000 RM'000 Recognised during the financial year: First interim dividend 8.80 sen per share on 345,045,045 ordinary shares, declared in financial year ended 31 March 2019, was paid on 18 December 2018. 5.92 sen per share on 345,045,045 ordinary shares, declared in financial year ending 31 March 2020, was paid on 23 December 2019. - 30,364 20,427 - - 26,430 27,604 48,031 56,794 Second interim dividend 7.66 sen per share on 345,045,045 ordinary shares, declared in financial year ended 31 March 2018, was paid on 21 June 2018. 8.00 sen per share on 345,045,045 ordinary shares, declared in financial year ended 31 March 2019, was paid on 20 June 2019. The Directors do not propose any final dividend in respect of the financial year ended 31 March 2020. 70
73. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 31. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are the Bank's other significant related party transactions and balances: The related parties of, and their relationship with the Bank are as follows: Relationship Related parties -Key management personnel Key management personnel refer to those persons having authority and responsibility for planning, directing and controlling the activities of the Bank, directly or indirectly, including Executive Directors and Non-Executive Director of the Bank (including close members of their families). Other members of key management personnel of the Bank are the Business Support Heads who report directly to Chief Executive Officer (including close members of their families). - Holding company - Related companies Alliance Bank Malaysia Berhad Related companies refer to subsidiaries of Alliance Bank Malaysia Berhad. 2020 RM'000 2019 RM'000 (a) Transactions Profit income - key management personnel 24 17 Commission paid - related companies 13,649 9,826 Finance expenses - holding company - related companies - key management personnel 33,815 3,801 102 29,893 48 - 1 38 205 - 111,931 - 102,142 400 48,031 56,794 Deposits from customers - holding company - related companies - key management personnel 501,083 3,097 734,343 11,089 1,263 Subordinated Sukuk - holding company - related companies 130,039 60,707 130,666 100,049 Rental expense - holding company Other operating income - holding company - related companies Other operating expenses - holding company (sharing of expenses) - related companies Dividend paid - holding company (b) Balances 71
74. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 31. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONTD.) (b) Balances (contd.) Financing and advances - key management personnel Deposits and placements of banks and other financial institutions - related companies 2020 RM'000 2019 RM'000 1,431 2,068 11,162 - 3 - 17,871 835 132,364 1,150 Other assets - related company Other liabilities - holding company - related companies (c) Compensation of key management personnel Remuneration of Chief Executive Officers ("CEO"), Non-executive Directors and other members of key management excluding past CEO for the financial year is as follows: CEO and other key management: - Salary and other remuneration - Contribution to EPF - Benefits-in-kind Non-executive Directors: - Fees Payable - Allowances Included in the total key management personnel are: CEO and Directors' remuneration, excluding past CEO and Directors (Note 33) 2020 RM'000 2019 RM'000 2,340 353 1 2,694 2,418 355 2,773 409 84 493 406 115 521 1,545 1,635 Total value of remuneration and number of officers with variable remuneration for the financial year are as follows: Number Fixed remuneration Cash Variable remuneration Cash 2020 2019 Unrestricted Number Deferred Number Unrestricted Number RM'000 RM'000 RM'000 2,691 4 383 3,074 - 1 72 113 113 2,635 4 574 3,209 Deferred RM'000 - 1 85 85
75. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 32. CREDIT TRANSACTIONS AND EXPOSURES WITH CONNECTED PARTIES 2020 RM'000 2019 RM'000 2,792 2,101 - - 14,883,620 12,894,377 Outstanding credit exposures with connected parties of which: Total credit exposure which is impaired or in default Total credit exposures Percentage of outstanding credit exposures to connected parties: - as a proportion of total credit exposures 0.02% 0.02% - which is impaired or in default 0.00% 0.00% The disclosure on Credit Transactions and Exposures with Connected Parties above is presented in accordance with para 9.1 of Bank Negara Malaysia's Guidelines on Credit Transactions and Exposures with Connected Parties for Islamic Banks, which became effective on 1 January 2008. Based on these guidelines, a connected party for Islamic Banks refers to the following: (i) Directors of the Bank and their close relatives; (ii) Controlling shareholder and his close relatives; (iii) Executive officer, being a member of management having authority and responsibility for planning, directing and/or controlling the activities of the Bank, and his close relatives; (iv) Officers who are responsible for or have the authority to appraise and/or approve credit transactions or review the status of existing credit transactions, either as a member of a committee or individually, and their close relatives; (v) Firms, partnerships, companies or any legal entities which control, or are controlled by any person listed in (i) to (iv) above, or in which they have an interest, as a director, partner, executive officer, agent or guarantor, and their subsidiaries or entities controlled by them; (vi) Any person for whom the persons listed in (i) to (iv) above is a guarantor; and (vii) Subsidiary of or an entity controlled by the Bank and its connected parties. Credit transactions and exposures to connected parties as disclosed above includes the extension of credit facilities and/or off-balance sheet credit exposures such as guarantees, trade-related facilities and financing commitments. It also includes holdings of equities and private debt securities issued by the connected parties. 73
76. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 33. CEO, DIRECTORS AND SHARIAH COMMITTEE MEMBERS' REMUNERATION Remuneration in aggregate for CEO, Directors and Shariah Committee members charged to the statement of income for the financial year are as follows: 2020 RM'000 2019 RM'000 720 197 134 1 1,052 644 335 135 1,114 409 84 493 406 115 521 Total Directors' remuneration 88 21 109 1,654 67 18 10 95 1,730 Shariah Committee members 330 304 1,984 2,034 Chief Executive Officer: - Salary and other remuneration - Bonuses - Contribution to EPF - Benefits-in-kind Non-executive Directors: - Fees payable - Allowances Past Non-executive Director: - Fees payable - Allowances - Benefits-in-kind Note: (a) Other than Directors fees and allowances, there were no amount paid or payable for services rendered by any Directors of the Bank during the financial year. (b) Directors of the Bank are covered under the Directors' & Officers' Liability Insurance in respect of liabilities arising form acts committed in their capacity as Directors of the Bank, provided that such Directors have not acted negligently, fraudulently or dishonestly or is in breach of his or her duty of trust. The total apportioned amount of insurance effected for Directors under the Bank was RM4,000 (2019: RM6,000). 74
77. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 33. CEO, DIRECTORS AND SHARIAH COMMITTEE MEMBERS' REMUNERATION (CONTD.) The total remuneration of the CEO, Directors and Shariah Committee members of the Bank are as follows: BANK 2020 Chief Executive Officer: Rizal IL-Ehzan Bin Fadil Azim Non-executive Directors: Datuk Wan Azhar bin Wan Ahmad Ibrahim bin Hassan Dato' Ahmad Hisham bin Kamaruddin Tuan Haji Rustam bin Mohd Idris Past Non-executive Director: Hj Md Ali bin Md Sarif Total Directors' remuneration Shariah Committee Members: Assoc. Prof. Dr. Badruddin bin Hj Ibrahim Ustaz Zaharudin bin Muhammad Dr. Azrul Azlan bin Iskandar Mirza Ustaz Ahmad Fauwaz Bin Ali @ Fadzil Hj Md Ali bin Md Sarif Salary and other remuneration RM'000 Bonuses RM'000 Contribution to EPF RM'000 Fees RM'000 Allowances RM'000 Benefitsin-kind RM'000 Total RM'000 720 720 197 197 134 134 - - 1 1 1,052 1,052 - - - 180 125 90 14 409 20 38 24 2 84 - 200 163 114 16 493 - - - 88 88 21 21 - 109 109 720 197 134 497 105 1 1,654 - - - 60 54 54 54 54 276 11 11 11 11 10 54 - 71 65 65 65 64 330 720 197 134 773 159 1 1,984 75
78. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 33. CEO, DIRECTORS AND SHARIAH COMMITTEE MEMBERS' REMUNERATION (CONTD.) The total remuneration of the CEO, Directors and Shariah Committee members of the Bank are as follows (contd.): BANK 2019 Chief Executive Officer: Rizal IL-Ehzan Bin Fadil Azim Non-executive Directors: Datuk Wan Azhar bin Wan Ahmad Hj Md Ali bin Md Sarif Ibrahim bin Hassan Dato' Ahmad Hisham bin Kamaruddin Past Non-executive Director: Dato' Majid bin Mohamad Total Directors' remuneration Shariah Committee Members: Assoc. Prof. Dr. Badruddin bin Hj Ibrahim Hj Md Ali bin Md Sarif Ustaz Zaharudin bin Muhammad Dr. Azrul Azlan bin Iskandar Mirza Ustaz Ahmad Fauwaz Bin Ali @ Fadzil Salary and other remuneration RM'000 Bonuses RM'000 Contribution to EPF RM'000 Fees RM'000 Allowances RM'000 Benefitsin-kind RM'000 Total RM'000 644 644 335 335 135 135 - - - 1,114 1,114 - - - - - 19 28 67 1 115 - - 180 90 125 11 406 - 199 118 192 12 521 - - - 67 67 18 18 10 10 95 95 644 335 135 473 133 10 1,730 - - - 60 54 54 54 54 276 6 6 6 5 5 28 - 66 60 60 59 59 304 644 335 135 749 161 10 2,034 76
79. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES The Bank engage in business activities which entail risk taking and types of risk involved include credit, market and liquidity, operational and technology, regulatory and compliance (including Shariah noncompliance), and strategic risks. Risk management in the Bank is governed by the various risk management frameworks which covers governance, appetite, strategy, policies and processes to manage risks. The objective of risk management is to ensure the Bank conducts business in a responsible manner, to achieve sustainable growth for the Bank’s balance sheet and capital. The Bank manages risk within clearly defined guidelines that are approved by the Board of Directors. In addition, the Board of Directors of the Bank provides independent oversight to ensure that risk management policies are complied with, through a framework of established controls and reporting processes. The guidelines and policies adopted by the Bank to manage the main risks that arise in the conduct of its business activities are as follows: (a) Credit Risk Credit risk is the risk of financial loss resulting from the failure of the Bank’s borrowers or counterparties to fulfil their contractual obligations to repay their financing or settle commitments. Credit risk arises from financing, advances, investment in securities amongst others. The amount of credit exposure is represented by the carrying amount of financing, advances and investment securitites in the statement of financial position. The financing activities in the Bank are guided by the Bank’s Credit Risk Management Framework, in line with regulatory guidelines and best practices. Credit risk also arises from financial transactions with counterparties (including interbank money market activities and debt instruments), of which the amount of credit exposure in respect of these instruments are equal to the carrying amount of these assets in the statement of financial position. This exposure is monitored on an on-going basis against predetermined counterparty limits. The credit exposure arising from off-balance sheet activities, i.e. commitments and contingencies is set out in Note 41 to the financial statements. 77
80. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (i) Maximum exposure to credit risk The following table presents the Bank's maximum exposure to credit risk of on-balance sheet and off-balance sheet financial instruments, before taking into account any collateral held or other credit enhancements and after allowance for expected credit losses, where appropriate. For on-balance sheet financial assets, the maximum exposure to credit risk equals their carrying amount. For financial guarantees and similiar contracts granted, the maximum exposure to credit risk is the maximum amount that would have to be paid if the guarantees were to be called upon. For credit related commitments and contingencies that are irrevocable over the life of the respective facilities, the maximum exposure to credit risk is the full amount of the credit facilities granted to customers. 2020 RM'000 2019 RM'000 714,632 348,407 2,301,866 80,628 2,100,887 - 10,620,972 219,488 2,749 13,940,335 9,258,302 335,388 1,956 12,044,940 211,862 2,226,683 2,438,545 16,378,880 203,665 2,086,773 2,290,438 14,335,378 Credit risk exposure: on-balance sheet Cash and short-term funds (exclude cash in hand) Financial investments at fair value through other comprehensive income Financial investments at amortised cost Financing and advances (exclude sales commission and handling fees) Statutory deposits with BNM Other assets (exclude prepayment) Total on-balance sheet Credit risk exposure: off-balance sheet Financial guarantees Credit related commitments and contingencies Total off-balance sheet Total maximum exposure 78
81. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (ii) Credit risk concentrations A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar economic characteristics that cause their ability to meet contractual obligations to be similarly affected by changes in economic and other conditions. The analysis of credit risk concentration presented below relates only to financial assets subject to credit risk and are based on the industry in which the counterparty is engaged. 2020 Cash and short-term funds (exclude cash in hand) Financial investments at fair value through other comprehensive income Financial investments at amortised cost Financing and advances (exclude sales commission and handling fees) Statutory deposits with BNM Other assets (exclude prepayment) Financial guarantees Credit related commitments and contingencies Total credit risk Government and Central Bank RM'000 Financial, Takaful, Agriculture, Business Transport, Manufacturing, Services and Storage and Wholesale & Real Estate Communication Retail Trade Construction RM'000 RM'000 RM'000 RM'000 Household RM'000 Others RM'000 Total RM'000 714,632 - - - - - - 714,632 1,016,589 - 817,819 80,628 364,252 - 34,632 - 68,574 - - - 2,301,866 80,628 219,488 1,950,709 984,954 1,883,401 173,213 537,465 3,060,372 3,095,004 262,288 330,862 6,063,908 6,063,908 76,237 2,749 78,986 10,620,972 219,488 2,749 13,940,335 - 105,719 5,142 74,364 26,415 22 200 211,862 - 177,953 283,672 12,305 17,447 1,299,000 1,373,364 132,390 158,805 597,812 597,834 7,223 7,423 2,226,683 2,438,545 1,950,709 2,167,073 554,912 4,468,368 489,667 6,661,742 86,409 16,378,880 79
82. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (ii) Credit risk concentrations (contd.) A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar economic characteristics that cause their ability to meet contractual obligations to be similarly affected by changes in economic and other conditions. The analysis of credit risk concentration presented below relates only to financial assets subject to credit risk and are based on the industry in which the counterparty is engaged. (contd.) 2019 Cash and short-term funds (exclude cash in hand) Financial investments at fair value through other comprehensive income Financing and advances (exclude sales commission and handling fees) Statutory deposits with BNM Other assets (exclude prepayment) Financial guarantees Credit related commitments and contingencies Total credit risk Government and Central Bank RM'000 Financial, Takaful, Agriculture, Business Transport, Manufacturing, Services and Storage and Wholesale & Real Estate Communication Retail Trade Construction RM'000 RM'000 RM'000 RM'000 Household RM'000 Others RM'000 Total RM'000 348,407 - - - - - - 348,407 1,074,898 728,079 220,625 5,215 72,070 - - 2,100,887 335,388 1,758,693 823,107 1,551,186 176,336 396,961 2,819,052 2,824,267 194,437 266,507 5,145,806 5,145,806 99,564 1,956 101,520 9,258,302 335,388 1,956 12,044,940 - 2,830 5,147 158,376 37,041 42 229 203,665 - 158,529 161,359 4,728 9,875 1,125,334 1,283,710 143,693 180,734 620,217 620,259 34,272 34,501 2,086,773 2,290,438 1,758,693 1,712,545 406,836 4,107,977 447,241 5,766,065 136,021 14,335,378 80
83. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (iii) Collaterals The main types of collateral obtained by the Bank are as follows: - Where property is provided as collateral, legal charged over the title; - For hire purchase, ownership right over the vehicles or equipment; and - For other financing, charges over business assets such as premises, financial/trade receivables or deposits. 2020 RM'000 Gross financing and advances Less: Allowance for credit expected losses Net financing and advances 2019 RM'000 10,819,956 (198,984) 10,620,972 9,396,812 (138,510) 9,258,302 69.7% 67.8% Percentage of collateral held for financing and advances (iv) Credit Risk Measurement The Bank adopts the following key judgements and assumptions in the computation of Expected Credit Loss ("ECL"): (a) Definition of significant increase in credit risk The Bank considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis. To assess whether there is a significant increase in credit risk, the Bank compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportable forward-looking information. The following events are taken into consideration during the assessment: • • • • • Contractual payment is in arrears for 30 days or more; Significant downgrade of credit rating or internal rating; Exposure modified placed under Agensi Kaunseling dan Pengurusan Kredit ("AKPK") status; Exposure being monitored under watch list; or Restructured and reschedule exposure with increase in credit risk. (b) Definition of credit impaired financial assets An exposure is classified as credit impaired when one or more events that have a detrimental impact to the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit impaired includes observable data about the following events: Quantitative criteria: A financial asset is classified as credit impaired when the counterparty fails to make contractual payment. 81
84. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (iv) Credit Risk Measurement (contd.) (b) Definition of credit impaired financial assets (contd.) Evidence that a financial asset is credit impaired includes observable data about the following events: Qualitative criteria: • • • • • • Significant financial difficulty of the issuer or the borrower; Breach of contract such as a default of past due event; Concessions have been made by the lender relating to the borrower’s financial difficulty; Indications that borrower will enter into bankruptcy/winding up or other financial restructuring; Disappearance of an active market for that financial asset; or Purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses. (c) Measurement of Expected Credit Loss ("ECL") ECL is measured by three components, i.e. exposure at default, probability of default and loss given default. Exposure at default ("EAD") EAD for non-retail portfolio is calculated based upon the contractual amortisation amount up to the point prior to the default event. Repayments are then assumed to cease, with only profit accrued on the outstanding balance from this point. Since the non-retail portfolio contains a variety of products with different profit accrual methods, amortisation types and repayment methods, the approaches employed to calculate EAD varies accordingly. EAD for retail portfolio is calculated based upon either: (i) Simple equation based calculation approach - where the outstanding balance follows a predictable trend across the amount and tenure. (ii) Utilisation curve model. These curves provide a view of percent drawn down at the point of default, expressed as a percentage of the customer credit limit at observation. (iii) Mechanical equation based approach - which was utilised to forecast monthly default balances as per an amortisation profile and adjusted for different paths to default using an adjustment factor. Probability at default ("PD") A PD is assigned to each risk measure and represents as a percentage the likelihood of default. For non-retail portfolio, the PD is measured from the internal or external rating of the borrower or issuer to determine the level of default risk. For retail portfolio, a signature curve approach is used to forecast the lifetime PD and PD at any given time within the lifetime horizon. This is based upon historic default data using a chain ladder methodology to construct a lifetime default emergence curve. 82
85. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (iv) Credit Risk Measurement (contd.) (c) Measurement of Expected Credit Loss ("ECL") (contd.) Loss given default ("LGD") This is on a time series of probability weighted loss rate relative to the monthly exposure at default where the probabilities and loss rates are estimated by key risk driver segments such as exposure migration status (e.g. loss given cure & loss given charge off), collateral type, defaulted exposure relative to original exposure amount and months in default. (d) Forward-looking information Three economic scenarios using different probability weightage are applied to the ECL: • Base Case - based upon current economic outlook or forecast. • Positive Case - based upon a projected optimistic or positive economic outlook or forecast. • Negative Case - based upon a projected pessimistic or negative economic outlook or forecast. During the financial year, negative case has been assigned with a higher weightage due to the impact on COVID-19 pandemic and economic slowdown. The negative case has been assigned with a higher weightage for the ECL as compared to the positive case. Projection of economic scenario and the probability of each scenario happening in future shall be carried out and shall contain all macroeconomic variables ("MEV") which are applied in the ECL models as they are found to have significant correlation to increase of credit risk via the modelling exercise. For forward looking estimates, analysis was carried out with the recent development of the COVID-19 pandemic and economic slow down to determine how the estimates were affected by macroeconomic trends. Factors such as GDP growth rate, unemployment rate, consumer price index, consumption credit and producer price index were analysed to identify the level of correlation with the observed trends. Given the statistically strong correlation, the estimates were adjusted to reflect the macroeconomic trends. Weighted Average Forecast 2021 2020 % % +1.00 -2.50 +3.50 -0.96 +2.10 +0.80 +1.70 +1.40 +4.10 +3.90 +3.10 +0.30 MEV GDP Growth Rate Producer Price Index Consumer Price Index Credit Consumption Unemployment Rates House Price Index 83 2019 % +2.80 -0.20 +1.20 +1.70 +3.90 +1.50
86. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (iv) Credit Risk Measurement (contd.) (e) Grouping of exposure for ECL measured on collective basis For expected credit loss provisions modelled on a collective basis, a grouping of exposures is performed on the basis of shared risk characteristics, such that risk exposures within a group are homogeneous. The appropriateness of groupings is monitored and reviewed on a periodic basis. (f) Modification of financial assets The Bank sometimes renegotiates or otherwise modifies the contractual cash flows of financing to customers. When this happens, the Bank assess whether or not the new terms are substantially different to the original terms. When the modification is not substantial and so does not result in derecognition of the original loans, the Bank recalculate the gross carrying amount based on the revised cash flow of the financial asset and recognises a modification gain or loss in the statement of income. The new gross carrying amount is recalculated by discounting the modified cash flow at the original effective profit rate. The Bank monitors the subsequent performance of modified assets. The risk of default of such loans after modification is assessed and compared with the risk under the original terms at initial recognition. The Bank may determine that the credit risk has significantly improved after restructuring, so that the assets are moved from Stage 3 or Stage 2 (Lifetime ECL) to Stage 1 (12-month ECL). This is only the case for assets which have performed in accordance with the new terms for six consecutive months or more. If the terms are substantially different from the original terms, the Bank derecognised the original financial asset and recognised a new asset and recalculates a new effective profit rate for asset. The date of renegotiation is consequently considered to be the date of initial recognition for impairment calculation purposes, including the purpose of determining whether a significant increase in credit risk has occurred. However, the Bank also assess whether the new financial asset recognised is deemed to be credit-impaired at initial recognition, especially in circumstances where the renegotiation was driven by the debtor being unable to make the originally agreed payments. Differences in the carrying amount are recognised in statement of income as gain or loss on derecognition. 84
87. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (v) Credit Quality Upon the adoption of MFRS 9, the Bank assess the credit quality for financing and advances by the below categories: Credit Quality Credit Grading Customer Rating Scorecard Definition Low Low risk score 1 - 12 (AAA to BB) Borrowers with good capacity to meet financial commitments Medium Medium risk score 13 -16 (BB- to B-) Borrower which is in a fairly acceptable capacity to meet financial commitments High High risk score 17 - 19 (CC+ to CC-) Borrower which is in an uncertain capacity to meet financial commitments but have not been impaired Unrated Unrated Unrated Borrower which is unrated Credit Impaired Credit Impaired Credit Impaired Defaulted, or judgmentally impaired due to lack of capacity to fulfil financial commitments Other financial assets are categorised in the following manner: Credit Quality Investment graded Non-investment graded Definition Credit Rating AAA to BBB- Lower than BBB- Issuer with low risk of defaulting principal or profit payment Issuer with medium or high risk of defaulting principal or profit payment Sovereign/government backed - Issued or guarantee by Malaysian government Unrated Unrated Issuer where rating is unavailable Credit impaired Credit impaired Defaulted 85
88. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (v) Credit Quality The following table shows an analysis of the credit quality by stages and the expected credit losses for the financial assets: 2020 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 714,632 714,632 714,632 - - 714,632 714,632 714,632 798,750 1,503,116 2,301,866 - - 798,750 1,503,116 2,301,866 (37) - - (37) Financial investments at amortised cost Unrated Gross carrying amount Expected credit losses Net carrying amount 80,853 80,853 (225) 80,628 - - 80,853 80,853 (225) 80,628 Financing and advances Low Medium High Unrated Credit impaired Gross carrying amount Expected credit losses Net carrying amount 5,583,157 3,278,691 371,351 232,480 9,465,679 (32,177) 9,433,502 Cash and short-term funds (exclude cash in hand) Sovereign/government backed Gross carrying amount Expected credit losses Net carrying amount Financial investments at fair value through other comprehensive income Investment graded Sovereign/government backed Gross carrying amount Expected credit losses [Note (a)] Statutory deposit Sovereign/government backed Gross carrying amount Expected credit losses Net carrying amount 219,488 219,488 219,488 124,541 423,313 432,468 141,386 1,121,708 (92,092) 1,029,616 - 232,569 232,569 (74,715) 157,854 - 5,707,698 3,702,004 803,819 373,866 232,569 10,819,956 (198,984) 10,620,972 219,488 219,488 219,488 Note a : The expected credit losses is recognised in reserve in other comprehensive income instead of in the statement of financial position as the carrying amount of debt instruments at FVOCI is equivalent to fair value. 86
89. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (v) Credit Quality 2020 Credit related commitments and contingencies Low Medium High Unrated Credit impaired Gross carrying amount Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 1,455,658 620,724 42,307 161,452 2,280,141 15,176 137,784 3,935 500 157,395 1,009 1,009 1,470,834 758,508 46,242 161,952 1,009 2,438,545 Expected credit losses (1,012) Simplified Approach Current RM'000 Other assets (exclude prepayment) Gross carrying amount Expected credit losses Net carrying amount 2,749 2,749 2019 (1) More than 90 days past due RM'000 1,749 (1,749) - (4,454) Total RM'000 4,498 (1,749) 2,749 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 348,407 348,407 348,407 - - 348,407 348,407 348,407 614,519 1,486,368 2,100,887 - - 614,519 1,486,368 2,100,887 - - Cash and short-term funds (exclude cash in hand) Sovereign/government backed Gross carrying amount Expected credit losses Net carrying amount Financial investments at fair value through other comprehensive income Investment graded Sovereign/government backed Gross carrying amount (3,441) Expected credit losses [Note (a)] (39) (39) Note a : The expected credit losses is recognised in reserve in other comprehensive income instead of in the statement of financial position as the carrying amount of debt instruments at FVOCI is equivalent to fair value. 87
90. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (v) Credit Quality 2019 Financing and advances Low Medium High Unrated Credit impaired Gross carrying amount Expected credit losses Net carrying amount Stage 1 RM'000 5,074,372 2,015,577 652,265 119,938 7,862,152 (23,032) 7,839,120 Statutory deposit Sovereign/government backed Gross carrying amount Expected credit losses Net carrying amount Credit related commitments and contingencies Low Medium High Unrated Credit impaired Gross carrying amount Stage 2 RM'000 149,659 612,978 372,812 292,286 1,427,735 (69,895) 1,357,840 Stage 3 RM'000 106,925 106,925 (45,583) 61,342 Total RM'000 5,224,031 2,628,555 1,025,077 412,224 106,925 9,396,812 (138,510) 9,258,302 335,388 335,388 335,388 - - 335,388 335,388 335,388 1,301,437 359,794 137,537 213,788 2,012,556 43,892 219,415 12,586 10 275,903 1,979 1,979 1,345,329 579,209 150,123 213,798 1,979 2,290,438 Expected credit losses (712) Simplified Approach (3,182) Current RM'000 Other assets (exclude prepayment) Gross carrying amount Expected credit losses Net carrying amount 1,956 1,956 88 (105) More than 90 days past due RM'000 1,641 (1,641) - (3,999) Total RM'000 3,597 (1,641) 1,956
91. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (a) Credit Risk (contd.) (vi) Sensitivity test The Bank has performed credit losses sensitivity assessment on financial assets based on the changes in key variables as below while all other variables remain unchanged. The sensitivity factors used are assumptions based on parallel shifts in the key variables to project the impact on the expected credit losses of the Bank. The table below outlines the effect of the changes in major key variables used on expected credit losses while other variables remain constant: Measurement variables MEV Change (%) 2020 Retail House price index Consumption credit Consumer price index Unemployment rate Non-retail GDP growth + RM'000 RM'000 9.8 114 4.2 7.5 (5,589) 1,759 2,960 1,252 9,374 (1,704) (2,979) (1,278) Percentage Point Change (%) 2.7 (1,471) 5,373 2019 Retail Consumption credit House price index Unemployment rate 3.3 7.1 0.2 Non-retail 3 months KLIBOR 0.4 89 989 (968) 999 2,591 (960) 1,337 (1,006) (1,539)
92. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (b) Market Risk Market Risk is the risk of loss of earnings arising from changes in profit rates, foreign exchange rates, equity prices, commodity prices and their implied volatilities. The Bank has established a framework of risk policies, measurement methodologies and risk limits as approved by the Group Risk Management Committee ("GRMC") to manage market risk. Market risk arising from the trading activities is controlled via position limits, loss limits sensitivity limits and valuation via daily mark-to-market, where available. (i) Profit rate risk As a subset of market risk, profit rate risk refers to the volatility in net profit income as a result of changes in profit rate of return and shifts in the composition of the assets and liabilities. Rate of return risk is managed through profit rate sensitivity analysis. The sensitivity in net profit income from profit rate movement is monitored and reported to Management. In addition to pre-scheduled meetings, Group Assets and Liabilities Management Committee ("GALCO") will also deliberate on revising the Bank's financing and deposit rates in response to changes in the benchmark rates set by the central bank. The effects of changes in the levels of rates of return on the market value of securities are monitored closely and mark-to-market valuations are regularly reported to Management. The Bank is exposed to various risks associated with the effects of fluctuations in the prevailing levels of profit rates on its financial position and cash flows. The effects of changes in the levels of rates of return on the market value of securities are monitored regularly and the outcome of mark-to-market valuations are escalated to Management regularly. The table below summarises the effective profit rates at the end of the reporting period and the periods in which the financial instruments will re-price or mature, whichever is the earlier. 90
93. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (b) Market Risk (contd.) (i) Profit rate risk (contd.) Non-Trading Book 2020 Up to 1 month >1-3 months RM'000 RM'000 >3-6 months >6-12 months RM'000 RM'000 >1-5 years Over 5 years RM'000 RM'000 Non-profit sensitive RM'000 Total RM'000 Assets Cash and short-term funds Financial investment at fair value through other comprehensive income Financial investment at amortised cost Financing and advances Other financial assets** 700,000 - - - - - 5,001 8,580,296 - 55,117 473,997 - 50,197 80,000 117,515 - 181,974 27,783 - 1,268,129 678,167 - 720,137 710,262 - Total financial assets 9,285,297 529,114 247,712 209,757 1,946,296 1,430,399 344,401 13,992,976 3,540,018 1,909,938 1,230,849 1,967,626 3,062,180 - 94,534 11,805,145 16,540 5,471 15,070 30,993 151,997 - 780 220,851 - 147,983 - - - - 99 148,082 18 - 38 - 63 - 150,012 - 350,017 229,003 - - 613 72 105,929 500,642 119 229,075 105,929 Total financial liabilities 3,556,576 2,063,430 1,245,982 2,148,631 3,793,197 - 202,027 13,009,843 On-balance sheet profit sensitivity gap 5,728,721 (1,534,316) 1,430,399 142,374 983,133 Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Obligation on securities sold under repurchase agreements Recourse obligation on financing sold to Cagamas Lease liabilities Subordinated Sukuk Other financial liabilities (998,270) 91 (1,938,874) (1,846,901) 14,632 714,632 21,311 2,301,866 628 80,628 * 85,593 10,673,613 222,237 222,237
94. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (b) Market Risk (contd.) (i) Profit rate risk (contd.) Non-Trading Book 2019 Up to 1 month >1-3 months RM'000 RM'000 >3-6 months >6-12 months RM'000 RM'000 >1-5 years Over 5 years RM'000 RM'000 Non-profit sensitive RM'000 Total RM'000 Assets Cash and short-term funds Financial investment at fair value through other comprehensive income Financing and advances Other financial assets** 320,000 - - - - - 110,026 7,299,486 - 15,008 372,989 - 9,999 178,112 - 10,029 28,271 - 1,184,829 746,749 - 747,410 712,856 - Total financial assets 7,729,512 387,997 188,111 38,300 1,931,578 1,460,266 357,753 12,093,517 2,915,769 1,743,903 1,040,756 1,729,580 2,434,045 - 68,848 9,932,901 950 6,669 9,771 21,400 204,039 - 902 243,731 - - - - 500,012 - 228,747 - 580 108 243,920 500,592 228,855 243,920 Total financial liabilities 2,916,719 1,750,572 1,050,527 1,750,980 3,138,096 228,747 314,358 11,149,999 On-balance sheet profit sensitivity gap 4,812,793 (1,362,575) 1,231,519 43,395 943,518 Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on financing sold to Cagamas Subordinated Sukuk Other financial liabilities (862,416) (1,712,680) (1,206,518) * Impaired financing and expected credit losses of the Bank are classified under the non-profit sensitive column. ** Includes statutory deposits and other assets 92 28,407 23,586 (31,584) * 337,344 348,407 2,100,887 9,306,879 337,344
95. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (b) Market Risk (contd.) (ii) Value at risk ('VaR') Value-at-risk ("VaR") reflects the maximum potential loss of value of a portfolio resulting from market movements within a specified probability of occurrence (level of confidence); for a specific period of time (holding period). For the Bank, VaR is computed based on the historical simulation approach with parameters in accordance with BNM and Basel requirements. Backtesting is performed daily to validate and reassess the accuracy of the VaR model. This involves the comparison of the daily VaR values against the hypothetical profit and loss over the corresponding period. The table below sets out a summary of the Bank's VaR profile by financial instrument types for the Trading Portfolio: Average for the year RM'000 RM'000 Minimum RM'000 RM'000 (9,212) (3,273) (3,650) (1,239) (2,450) (773) (9,212) (3,273) (2,965) (781) (2,396) (838) (1,889) (716) (2,965) (963) Balance RM'000 Maximum RM'000 2020 Government securities Private debt securities 2019 Government securities Private debt securities (iii) Rate of Return Risk in the banking book The following tables present the Bank's projected sensitivity to a 100 basis point parallel shock to profit rates across all maturities applied on the Bank's profit sensitivity gap as at reporting date. 2020 - 100 bps + 100 bps Increase/(decrease) RM'000 RM'000 Impact on net profit after tax Impact on equity (22,620) 22,620 65,989 (62,231) (a) For every incremental increase or decrease by 25bps, the impact on net profit after tax will increased or decreased by RM5,655,000 respectively. (b) For every incremental increase or decrease by 25bps, the impact on equity will decreased by RM15,881,000 or increased by RM16,152,000. 93
96. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (b) Market Risk (contd.) (iii) Rate of Return Risk in the banking book (contd.) 2019 - 100 bps + 100 bps Increase/(decrease) RM'000 RM'000 Impact on net profit after tax Impact on equity (18,694) 18,694 63,440 (59,975) (iv) Other risk measures (i) Stress test Stress testing is normally used by banks to gauge their potential vulnerability to exceptional but plausible events. The Bank performs stress testing regularly to measure and alert the Board and Management on the effects of potential political, economic or other disruptive events on our exposures. The Bank's stress testing process is governed by the Stress Testing Framework as approved by the Board. Stress testing is conducted on a bank-wide basis as well as on specific portfolios. The Bank's bank-wide stress testing exercise uses a variety of broad macroeconomic indicators that are then translated into stress impacts on the various business units. The results are then consolidated to provide an overall impact on the Bank's financial results and capital requirements. Stress testing results are reported to the Board and Management to provide them with an assessment of the financial impact of such events would have on the Bank's profitability and capital levels. (ii) Sensitivity analysis Sensitivity analysis is used to measure the impact of changes in individual stress factors such as profit rates or foreign exchange rates. It is normally designed to isolate and quantify exposure to the underlying risk. The Bank performs sensitivity analysis such as parallel shifts of profit rates on its exposures, primarily on the banking and trading book positions. (c) Liquidity Risk Liquidity risk is the risk that the Bank is unable to meet financial commitments when due. The Bank's liquidity risk profile is managed using liquidity risk management strategies set in the Liquidity Risk Management Policy. Liquidity Risk Measures are monitored against approved thresholds by GALCO and GRMC. A contingency funding plan is also established by the Bank as a forward-looking measure to ensure that liquidity risk can be addressed according to the degrees of key risk indicators, and which incorporates alternative funding strategies which are ready to be implemented on a timely basis to mitigate the impact of unforeseen adverse changes in liquidity in the market place. 94
97. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (c) Liquidity risk (contd.) (i) Liquidity risk for assets and liabilities based on remaining contractual maturities The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counterguarantees are important factors in assessing the liquidity of the Bank. The table below provides analysis of assets and liabilities into relevant maturity terms based on remaining contractual maturities: 2020 Assets Cash and short-term funds Financial investment at fair value through other comprehensive income Financial investments at amortised cost Financing and advances Other financial and non financial assets Total assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Obligation on securities sold under repurchase agreements Recourse obligation on financing sold to Cagamas Lease liabilities Subordinated sukuk Other financial and non financial liabilities Total liabilities Net maturity mismatch Up to 1 month RM'000 >1-3 months RM'000 >3-6 months RM'000 >6-12 months RM'000 >1 year RM'000 Total RM'000 714,632 - - - - 714,632 10,308 2,453,398 2,615 3,180,953 65,990 633,449 134 699,573 55,329 853 159,081 191 215,454 181,974 51,969 68 234,011 1,988,265 79,775 7,375,716 244,018 9,687,774 2,301,866 80,628 10,673,613 247,026 14,017,765 5,643,588 1,874,981 1,249,350 1,984,129 1,053,097 11,805,145 16,542 5,471 15,848 30,993 151,997 220,851 18 77,725 5,737,873 148,082 613 38 129 2,029,314 63 72 182 1,265,515 150,012 1,260 2,166,394 350,017 229,003 37,457 1,821,571 148,082 500,642 119 229,075 116,753 13,020,667 (2,556,920) (1,329,741) (1,050,061) (1,932,383) 7,866,203 997,098 95
98. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (c) Liquidity risk (contd.) (i) Liquidity risk for assets and liabilities based on remaining contractual maturities (contd.) The maturities of on-balance sheet assets and liabilities as well as other off-balance sheet assets and liabilities, commitments and counter-guarantees are important factors in assessing the liquidity of the Bank. The table below provides analysis of assets and liabilities into relevant maturity terms based on remaining contractual maturities: (contd.) 2019 Assets Cash and short-term funds Financial investment at fair value through other comprehensive income Financing and advances Other financial and non financial assets Total assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on financing sold to Cagamas Subordinated sukuk Other financial and non financial liabilities Total liabilities Net maturity mismatch Up to 1 month RM'000 >1-3 months RM'000 >3-6 months RM'000 >6-12 months RM'000 >1 year RM'000 Total RM'000 348,407 - - - - 348,407 117,523 2,118,194 1,492 2,585,616 27,209 420,661 261 448,131 13,887 204,444 218,331 10,029 30,252 40,281 1,932,239 6,533,328 352,193 8,817,760 2,100,887 9,306,879 353,946 12,110,119 4,884,797 1,127,504 1,055,296 1,838,541 1,026,763 9,932,901 950 196,385 5,082,132 6,669 580 144 1,134,897 10,672 108 384 1,066,460 21,400 692 1,860,633 204,040 500,012 228,747 55,610 2,015,172 243,731 500,592 228,855 253,215 11,159,294 (1,820,352) 6,802,588 950,825 (2,496,516) (686,766) 96 (848,129)
99. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (c) Liquidity risk (contd.) (ii) Contractual maturity of financial liabilities on an undiscounted basis The table below presents the cash flows payable by the Bank under financial liabilities by remaining contractual maturities at the end of the reporting period. The amount disclosed in the table are the contractual undiscounted cash flows of all financial liabilities. 2020 Liabilities Deposits from customers Deposits and placements with banks and other financial institutions Obligation on securities sold under repurchase agreements Recourse obligation on financing sold to Cagamas Lease liabilities Subordinated Sukuk Other financial liabilities Items not recognised in the statement of financial position Financial guarantees Credit related commitments and contingencies Total financial liabilities Up to 1 month RM'000 >1-3 months RM'000 5,794,957 1,742,317 1,274,773 2,052,021 1,116,112 - 11,980,180 17,324 5,471 15,070 30,993 151,997 - 220,855 - 148,082 - - - - 148,082 24 76,279 5,888,584 5,464 49 129 1,901,512 5,464 49 6,568 182 1,302,106 160,941 6,496 1,260 2,251,711 368,985 257,624 35,969 1,930,687 - 540,854 122 270,688 113,819 13,274,600 22,190 17,761 12,919 137,385 21,607 - 211,862 1,801,050 7,711,824 2,204 1,921,477 7,587 1,322,612 6,921 2,396,017 408,534 2,360,828 387 387 2,226,683 15,713,145 97 >3-6 months >6-12 months RM'000 RM'000 >1-5 years Over 5 years RM'000 RM'000 Total RM'000
100. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (c) Liquidity risk (contd.) (ii) Contractual maturity of financial liabilities on an undiscounted basis (contd.) The table below presents the cash flows payable by the Bank under financial liabilities by remaining contractual maturities at the end of the reporting period. The amount disclosed in the table are the contractual undiscounted cash flows of all financial liabilities. (contd.) 2019 Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on financing sold to Cagamas Subordinated Sukuk Other financial liabilities Items not recognised in the statement of financial position Financial guarantees Credit related commitments and contingencies Total financial liabilities Up to 1 month RM'000 >1-3 months RM'000 4,906,610 1,149,693 1,089,558 1,932,844 1,141,591 - 10,220,296 950 8,483 9,771 23,091 208,871 - 251,166 196,186 5,103,746 5,494 144 1,163,814 5,494 6,550 384 1,111,757 10,988 6,550 692 1,974,165 541,071 313,350 55,123 2,260,006 - 563,047 326,450 252,529 11,613,488 21,898 38,795 10,819 105,427 15,741 10,985 203,665 1,605,476 6,731,120 2,980 1,205,589 10,054 1,132,630 6,166 2,085,758 462,009 2,737,756 88 11,073 2,086,773 13,903,926 98 >3-6 months >6-12 months RM'000 RM'000 >1-5 years Over 5 years RM'000 RM'000 Total RM'000
101. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 34. FINANCIAL RISK MANAGEMENT POLICIES (CONTD.) (d) Operational and Shariah Compliance Risk Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. The definition of Operational Risk includes legal risk, but excludes strategic and reputational risk. Operational risk includes Shariah non-compliance risk which arises from the Bank’s failure to comply with the Shariah rules and principles determined by the relevant Shariah advisory councils. Group Operational Risk of Group Risk Management formulates and implements operational risk framework within the Bank while the line of businesses are responsible for the management of their day to day operational and Shariah non-compliance risks. Operational and Shariah non-compliance risk management is a continual cyclic process which includes risk identification, assessment, control, mitigation and monitoring. This includes analysing the risk profile of the Bank, determining control gaps, assessing potential loss and enhancing controls to mitigate the risks. The main activities undertaken by the Bank in managing operational and Shariah non-compliance risks include the identification of risks and controls, monitoring of key risk indicators, reviews of policies and procedures, operational risk and Shariah non-compliance risk awareness training, and business continuity management. 35. CAPITAL COMMITMENTS 2020 RM'000 2019 RM'000 1,012 496 722 496 Capital expenditure: Authorised and contracted for Authorised and not contracted for The capital commitments mainly consist of computer software and property, plant and equipment. 36. LEASE COMMITMENTS The Bank has lease commitments in respect of equipment on hire and premises, all of which are classified as operating leases. A summary of the non-cancellable long term commitments are as follows: 2020 RM'000 2019 RM'000 - 307 153 460 Within one year Between one year to five years The operating leases of the Bank's other premises typically cover for an initial period of two years with options for renewal. These leases are cancellable but are usually renewed upon expiry or replaced by leases on other properties. From 1 April 2019, the Bank recognised lease liabilities for these leases as per Note 17. 99
102. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 37. HOLDING AND RELATED COMPANIES The holding company of the Bank is Alliance Bank Malaysia Berhad, a bank incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. Related companies in these financial statements refer to member companies in Alliance Bank Malaysia Berhad. 38. CAPITAL ADEQUACY The capital adequacy ratios of the Bank are computed in accordance with Bank Negara Malaysia's Capital Adequacy Framework for Islamic Banks. The Framework sets out the approach for computing regulatory capital adequacy ratios, as well as the levels of those ratios at which banking institutions are required to operate. The framework is to strengthen capital adequacy standards, in line with the requirements set forth under Basel III. The risk-weighted assets of the Bank are computed using the Standardised Approach for credit risk and market risk, and the Basic Indicator Approach for operational risk. (a) The capital adequacy ratios of the Bank are as follows: 2020 2019 Before deducting proposed dividends CET 1 capital ratio Tier 1 capital ratio Total capital ratio 10.507% 11.617% 14.233% 11.690% 12.950% 15.762% After deducting proposed dividends CET 1 capital ratio Tier 1 capital ratio Total capital ratio 10.507% 11.617% 14.233% 11.339% 12.599% 15.411% 2020 RM'000 2019 RM'000 400,000 523,425 34,748 38,888 997,061 400,000 522,931 9,060 18,795 950,786 (825) (21,388) (34,748) 940,100 (897) (11,156) (10,337) (9,060) 919,336 99,271 99,271 99,113 99,113 1,039,371 1,018,449 129,733 104,399 234,132 129,634 91,478 221,112 1,273,503 1,239,561 CET I Capital Paid-up share capital Retained profits Regulatory reserves FVOCI reserves Less: Regulatory adjustments - Intangible assets - Deferred tax assets - 55% of FVOCI reserves - Regulatory reserves Total CET I Capital Additional Tier 1 Sukuk Wakalah Total Additional Tier 1 Capital Total Tier I Capital Tier II Capital Subordinated Sukuk Murabahah Expected credit losses and regulatory reserves Total Tier II Capital Total Capital 100
103. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 38. CAPITAL ADEQUACY (CONTD.) (b) The breakdown of risk-weighted assets ("RWA") by exposure in each major risk category are as follows: Credit risk Operational risk Total RWA and capital requirements 2020 RM'000 2019 RM'000 8,351,930 595,399 8,947,329 7,318,223 546,146 7,864,369 Detailed information on the above risk exposure, as prescribed under BNM's Risk-Weighted Capital Adequacy Framework (Basel II) - Disclosure Requirements (Pillar 3) is presented in the Pillar 3 39. CAPITAL The capital management of Alliance Islamic Bank Berhad is under the purview of Alliance Bank Group’s (“the Group”) capital management with the objectives: - to maintain sufficient capital resources to meet the regulatory capital requirements as set forth by Bank Negara Malaysia; - to maintain sufficient capital resources to support the Group’s risk appetite and to enable future business growth; and - to meet the expectations of key stakeholders, including shareholders, investors, regulators and rating agencies. In line with this, the Bank aims to maintain capital adequacy ratios that are comfortably above the regulatory requirement, while balancing shareholders’ desire for sustainable returns and high standards of prudence. The Bank carries out stress testing to estimate the potential impact of extreme, but plausible, events on the Bank’s earnings, balance sheet and capital. The results of the stress test are to facilitate the formation of action plan(s) in advance if the stress test reveals that the Group’s capital will be adversely affected. The results of the stress test are tabled to the Group Risk Management Committee for approval. The Bank’s regulatory capital is determined under Bank Negara Malaysia’s Capital Adequacy Framework and their capital ratio complied with the prescribed capital adequacy ratios. 101
104. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 40. RESTRICTED INVESTMENT ACCOUNT The Bank has entered into an arrangement on Commodity Murabahah Term Financing (“CMTF”) with Alliance Bank Malaysia Berhad (“ABMB”), the holding company of the Bank, where ABMB will provide the funds, while the assets are managed by the Bank (as the Wakeel or agent) based on the Wakalah principle. The risk and rewards of the underlying assets are recognised and borne by ABMB. Hence, the underlying assets and allowances for expected credit losses are recognised and accounted for by ABMB. (i) The details of the Restricted Investment Account ("RIA") financing are as follows: RIA Financing and advances Total RWA for Credit Risk 2020 RM'000 2019 RM'000 74,795 179,795 2020 RM'000 2019 RM'000 75,593 181,600 2020 RM'000 2019 RM'000 179,795 - (ii) Movement in the RIA At 1 April Funding inflows/outflows New placement during the year Repayment during the year Wakalah fee At 31 March Investment assets Term financing (105,000) 74,795 200,000 (20,000) (205) 179,795 200,000 200,000 (iii) The average rate of return of the RIA is at 4.82% (2019: 5.5%) with tenure of five years. 102
105. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 41. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions. The notional amounts of the commitments and contingencies of the Bank are as follows: 2020 RM'000 2019 RM'000 191,836 60,380 20,026 160,578 68,909 46,589 367,450 1,798,853 2,438,545 415,302 1,599,060 2,290,438 Credit-related exposures Direct credit substitutes Transaction-related contingent items Short-term self-liquidating trade-related contingencies Irrevocable commitments to extend credit: - maturity exceeding one year - maturity not exceeding one year Included in direct credit substitutes and transaction-related contingent items are financial guarantee contract of RM211,862,000 (2019: RM203,665,000) of which the fair value at the time of issuance is RMNil (2019: RM Nil). 42. FAIR VALUE MEASUREMENTS (a) Determination of fair value and the fair value hierarchy MFRS 13 Fair Value Measurement requires disclosure of financial instruments measured at fair value to be categorised according to a hierarchy of valuation techniques, whether the inputs used are observable or unobservable. The following levels of hierarchy are used for determining and disclosing the fair value of the financial instruments: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Bank recognise transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. The fair value of an asset to be transferred between levels is determined as of the date of the event or change in circumstances that caused the transfer. (i) Financial instruments in Level 1 The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange and those prices represent actual and regularly occurring market transactions on an arm’s length basis. This includes listed equities and corporate debt securities which are actively traded. 103
106. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 42. FAIR VALUE MEASUREMENTS (CONTD.) (a) Determination of fair value and the fair value hierarchy (contd.) (ii) Financial instruments in Level 2 Where fair value is determined using quoted prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Bank then determine fair value based upon valuation techniques that use as inputs, market parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high. These would include government securities, corporate private debt securities, corporate notes and repurchase agreements. (iii) Financial instruments in Level 3 The Bank classifies financial instruments as Level 3 when there is reliance on unobservable inputs to the valuation model attributing to a significant contribution to the instrument value. Valuation reserves or pricing adjustments where applicable will be used to converge to fair value. The valuation techniques and inputs used generally depend on the contractual terms and the risks inherent in the instrument as well as the availability of pricing information in the market. Principal techniques used include discounted cash flows, and other appropriate valuation models. (b) Financial instruments measured at fair value and the fair value hierarchy The following tables show the Bank's financial instruments which are measured at fair value at the reporting date analysed by the various levels within the fair value hierarchy: 2020 Financial assets Financial investment at fair value through other comprehensive income - Money Market Instruments - Unquoted Securities Level 1 RM'000 Level 2 RM'000 Level 3 RM'000 Total RM'000 - 1,016,589 1,285,277 - 1,016,589 1,285,277 - 1,064,786 1,036,101 - 1,064,786 1,036,101 2019 Financial assets Financial investment at fair value through other comprehensive income - Money Market Instruments - Unquoted Securities There were no transfers between Level 1 and 2 of the fair value hierarchy for the Bank during the financial year ended 31 March 2020 and 31 March 2019. 104
107. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 42. FAIR VALUE MEASUREMENTS (CONTD.) (c) Fair values of financial instruments not carried at fair value The following table summarises the carrying amounts and the fair values of financial instruments of the Bank which are not carried at fair value in the statement of financial position. It does not include those short term/on demand financial assets and liabilities where the carrying amounts are reasonable approximate to their fair values. 2020 Financial assets Financial investments at amortised cost Financing and advances Financial liabilities Deposits from customers Deposits and placements of banks and other financial institutions Obligations on securities sold under repurchase agreements Recourse obligation on financing sold to Cagamas Subordinated Sukuk Fair value Level 2 Level 3 RM'000 RM'000 Level 1 RM'000 - 80,685 - 10,927,011 Total RM'000 Carrying amount RM'000 80,685 10,927,011 80,628 10,673,613 - 11,812,485 - 11,812,485 11,805,145 - 213,571 - 213,571 220,851 - 148,082 148,082 - 540,826 229,003 500,642 229,075 9,505,711 9,306,879 - 148,082 540,826 229,003 2019 Financial assets Financing and advances Financial liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on financing sold to Cagamas Subordinated Sukuk - - 9,505,711 - 9,935,642 - 9,935,642 9,932,901 - 233,560 - 233,560 243,731 - 563,047 228,747 - 563,047 228,747 500,592 228,855 105
108. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 42. FAIR VALUE MEASUREMENTS (CONTD.) (c) Fair values of financial instruments not carried at fair value (contd.) The methods and assumptions used in estimating the fair values of financial instruments are as follows: (i) Financing investments at amortised cost The fair values are estimated based on quoted or observable market prices at the end of the reporting period. Where such quoted or observable market prices are not available, the fair values are estimated using pricing models or discounted cash flow techniques. Where discounted cash flow technique is used, the expected future cash flows are discounted using prevailing market rates for a similar instrument at the end of the reporting period. (ii) Financing and advances The fair values of fixed rate financing with remaining maturity of less than one year and variable rate financing are estimated to approximate their carrying values. For fixed rate financing with remaining maturity of more than one year, the fair values are estimated based on expected future cash flows of contractual instalment payments and discounted at applicable prevailing rates at end of reporting period offered to new borrowers with similar credit profiles. In respect of impaired financing, the fair values represented by their carrying values, net of impairment allowances, being the expected recoverable amount. (iii) Deposits from customers, deposits and placements of banks and other financial institutions The fair values of deposit liabilities payable on demand (demand and savings deposits), or deposits with maturity of less than one year are estimated to approximate their carrying amounts. The fair values of investment accounts with remaining maturities of more than one year are estimated based on expected future cash flows discounted at applicable prevailing rates offered for deposits of similar remaining maturities. For negotiable islamic debt certificate, the fair values are estimated based on quoted or observable market prices as at the end of the reporting period. Where such quoted or observable market prices are not available, the fair values of negotiable instruments of deposits are estimated using the discounted cash flow technique. (iv) Obligations on securities sold under repurchase agreements The estimated fair value of obligations on securities sold under repurchase agreements with maturities of less than six months approximate the carrying value. (v) Recourse obligations on loans and financing sold to Cagamas The fair values of recourse obligations on loans and financing sold to Cagamas are determined based on the discounted cash flows of future instalment payments at applicable prevailing Cagamas rates as at the end of the reporting period. (vi) Subordinated sukuk The fair value of the subordinated sukuk is estimated based on the discounted cash flows techniques using the current yield curve appropriate for the remaining term to maturity. 106
109. ALLIANCE ISLAMIC BANK BERHAD 200701018870 (776882-V) (Incorporated in Malaysia) 43. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR On 22 April 2019, the Bank entered into an exclusive 15-year bancassurance agreement with Zurich General Insurance Malaysia Berhad and Zurich General Takaful Malaysia Berhad respectively. The agreement will see the Bank strengthen its position in providing end-to-end financing solutions for both individuals and small and medium enterprise (SME) community. 44. SUBSEQUENT EVENTS The global economy is expecting to slow down following disruption caused by COVID-19 pandemic and the collapse of crude oil prices. In order to mitigate the weaker economy outlook, the Malaysian government has implemented several relief measures to help stimulate the economy. To alleviate the financial difficulties of the borrowers, the Government has announced a 6 months automatic moratorium on repayments of loans and financing from 1 April 2020 for eligible small and medium enterprises and individuals (“automatic moratorium”). As such, in order to help our consumers and businesses, the Bank has implemented the automatic moratorium and this will result in modification losses on these loans and financing as the contractual cash flow has been modified either from the loan tenure or the total repayment. Overnight policy rate (“OPR”) was reduced by 50bps in early May 2020 to help easing the financial burden of the borrowers and this would impact the Bank’s revenue. In addition, expected credit losses are expected to increase following the slowdown in economy resulted from COVID-19 pandemic and Movement Control Order (“MCO”). All these would have an adverse impact on the Bank earnings for financial year 2021 and the financial impact has yet to be quantified. However, the Bank will monitor the situation closely and continue to assess the impact. Nevertheless, we are committed to help our customers navigate through the storm with loan restructuring solutions and fully support the government's economic stimulus initiatives. 107