Bank Pembangunan Malaysia: Annual Report 2020

Transcription

1. I M P A C T – D R I V E N F I N A N C I N G ANNUAL INTEGRATED REPORT 2020
2. ABOUT US Incorporated in 1973 , Bank Pembangunan Malaysia Berhad (BPMB) is one of Malaysia’s first Development Financial Institutions (DFIs) and is wholly owned by the Malaysian Government through the Minister of Finance (Incorporated). The Bank’s focus has evolved from supporting Malaysia’s early developmental needs to one of creating meaningful and sustainable impact for Malaysia. INTRODUCTION With the Nation in MIND Group at a Glance Chairman’s Statement President/Group Chief Executive Officer’s Statement 2 4 6 8 PERFORMANCE Our Operating Environment and Outlook Our Value Creating Business Model Our Strategic Transformation Plan Operationalising Strategy through Culture Measurement Framework Five-Year Group Financial Summary Financial Highlights Group Statement of Financial Position Five-Year Group Growth Trajectory Non-Financial Performance 14 16 18 20 22 24 25 26 27 28 LEADERSHIP Board of Directors President/Group Chief Executive Officer Former Board of Directors Shariah Committee Senior Management Group Organisation Structure 30 32 33 36 39 40 GOVERNANCE Statement of Corporate Governance Statement of Shariah Governance Statement of Internal Control Group Risk Management 42 56 60 62 SUSTAINABILITY Stakeholder Engagement Value for People 74 78 CORPORATE HIGHLIGHTS Highlights of the Year 84 CORPORATE INFORMATION Corporate Information 88 FINANCIALS Financial Statements 89 ABOUT THIS REPORT This report is prepared using the Integrated Reporting Framework to demonstrate how the Bank creates and sustains value over time. The report illustrates the Bank’s management of and the interaction between its financial and non-financial capitals, against stakeholder and external environment considerations. The report adheres to Bank Negara Malaysia’s policies for DFIs including but not limited to Financial Reporting for DFIs, Corporate Strategic Plan, Shariah Governance and Corporate Governance. The financial reporting is aligned with Malaysian and international guidelines and recommendations. PURPOSE, VISION, MISSION Purpose: Developing a sustainable and inclusive Malaysia Vision: Malaysia’s leading developmental partner Mission: Impactful delivery with strategic outcomes I M P A C T – D R I V E N F I N A N C I N G For close to five decades, BPMB has supported Malaysia’s nascent infrastructure and industries, creating vibrant new industries and economic opportunities for millions of Malaysians. Evolving with the nation’s progress, BPMB has shifted gears from being a provider of development finance to a catalyst for a new economy. Today, BPMB is focused on creating meaningful and sustainable impact for the economy, society and environment to support Malaysia’s development needs now and for generations to come.
3. WITH THE NATION IN MIND BPMB ’s Impact Assessment Framework, which was jointly developed with the World Bank Group, aims to enhance project evaluation from a credit-centric assessment to a holistic end-to-end assessment that includes reviewing the environmental, social and economic impact of each transaction. It was internally launched as Measuring Impact on National Development (MIND) and implemented beginning March 2020. One year post-implementation, MIND has guided the Bank’s approach and yielded positive impact for the economy, society and the environment. MIND framework Delivering positive impact for… The economy Financial and Efficiency Indicators BPMB Credit Rating Private Sector Crowding-In MIND framework Private Sector Crowding-Out Efficiency Ratio Social, Environmental and Economic Impact Indicators Contribution to 5 SDGs 4 7 2,628,000 No. of approved projects captured under MIND Prioritisation model since March 2020 No. of projects in underserved / unserved areas* No. of projects identified as a national priority area Total clean energy generated per year (in MWh) 3,762 6,633 277,748 5 988 Total permanent jobs created (#) Average household income based on project location (RM) Direct beneficiaries per day (#) No. of projects above the SEI score threshold No. of affordable homes / workers’ quarters built (units) The society Safeguard Indicators Under the MIND framework, transactions are assessed using a set of 32 indicators capturing financial efficiency as well as social and environmental information, and subsequently plotting them into priority quadrants based on their scores. To date, 44 projects have been evaluated using the MIND framework. 2020 • 2 9 BNM Additionalities Others—Government’s Strategic Priority Areas Our progress and plans The environment Through the MIND framework, the Bank delivers positive impact for the economy, environment and society. The impact created dovetails effectively with the Bank’s five focus Sustainable Development Goals, enabling BPMB to deliver on our commitment to the global sustainable development initiative as we focus on driving national development. 2021 MIND framework was launched and implemented • Seven awareness sessions were organised across internal business functions to embed understanding of the MIND framework BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 • 2022 Sharing knowledge with external entities such as the United Nations Global Compact, EPF, Sunway Group, and UKM to further calibrate the framework • Continued focus on launching the MIND framework to other DFIs, which has been delayed due to MCO restrictions BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 3
4. INTRODUCTION GROUP AT A GLANCE INTRODUCTION In fulfilling our mandate as a Development Financial Institution (DFI), BPMB has aligned our organisational culture, business processes and talent towards developing a sustainable and inclusive Malaysia. This section summarises how our strategic plan is operationalised to achieve our objectives. Developing a Sustainable and Inclusive Malaysia PURPOSE Malaysia’s leading developmental partner VISION What we do How we create value BPMB is one of Malaysia’s pioneer and key DFIs. We keenly pursue development projects closely aligned with the national growth agenda, to finance projects that generate sustainable outcomes and positively impact the community and  the environment. To differentiate ourselves from other DFIs, BPMB focuses on our strong governance, internal culture and commitment to sustainability to add value to our stakeholders. See more: President/Group Chief Executive Officer’s Statement pages 8 to 13 Our ecosystem of sound financial resources Dedicated schemes we create Transforming funds into value Impact we create Our Sources of Funding—Pool of Both Internal and External Funds Government Dedicated Schemes—Interest/ Finance Income and Cost Differential Subsidies Our Resources Contribution to sustainable development Impactful delivery with strategic outcomes MISSION OUR DIFFERENTIATING FACTORS Our Strategic Thrusts GOVERNANCE | CULTURE | COMMITMENT TO SUSTAINABILITY See more: Our Value Creating Business Model pages 16 and 17 Back-to-Basic Principles CORE VALUES I am worthy of your trust I will speak and seek the truth I will seek knowledge to remain relevant I will not let you down An impact-driven culture Pro-active risk management Committed to governance excellence We promote a set of Back-to-Basic Principles that is the bedrock of our organisational culture. When the entire workforce embraces this impact-driven mindset, we can achieve our vision and deliver our mission more expeditiously. The Board maintains a disciplined oversight with clear Senior Management supervision and detailed processes to monitor, manage and pre-empt tangible and intangible risks. The Board is committed to good corporate governance as a fundamental and transparent process that contributes towards achieving fair and sustainable long-term value for all stakeholders, while upholding the Bank’s status and reputation as one of Malaysia’s first and premier DFIs. See more: Chairman’s Statement pages 6 to 7 Our value-based strategies and enablers STRATEGIC THRUSTS 1 2 3 Embracing Paradigm Shift Supporting Government’s Strategic Priority Areas Adhering to Islamic Principles The three strategic thrusts define the direction the organisation is moving towards. To enable the staff to achieve the objectives, we enhanced the processes and strengthened capacity through targeted training. See more: Our Strategic Transformation Plan pages 18 to 19 See more: Group Risk Management pages 62 to 73 Creating meaningful impact Despite the adverse impact from COVID-19 pandemic, strengthening our financials empowers us to continue being the banker of choice for future projects of national significance and benefit. A focus on impact creating metrics ensures that we prioritise projects that contribute to national development. Total Assets Financing to the Unserved and Underserved Segments Private Investment Crowd-In FY2020: FY2020: 23,476 RM MIL (FY2020) 24,663 RM MIL (FY2019) 4 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 See more: Statement of Corporate Governance pages 42 to 55 Return on Assets FY2020: FY2019: 0.44% 1.02% See more: Financial Performance pages 24 to 27 FY2019: 19.55% 20.17% See more: Non-Financial Performance pages 28 to 29 FY2019: 3.38 7.25% TIMES BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 5
5. INTRODUCTION CHAIRMAN ’S STATEMENT Before I present to you the Annual Integrated Report 2020 (AIR 2020), I would like to express my gratitude to the Board of Directors (the Board) of Bank Pembangunan Malaysia Berhad (BPMB) for my appointment as the Chairman of the Bank. It is a great honour and privilege for me to undertake this role which was previously held by Y.Bhg. Datuk Zaiton Mohd Hassan. I would also like to take this opportunity to commend Datuk Zaiton for the dedication, passion, and enthusiasm she brought to BPMB. Under her leadership, the Bank introduced several new initiatives such as the implementation of the Bank’s core values, Integrated Reporting, and the Measuring Impact on National Development (MIND) framework. On behalf of BPMB, I would like to extend our deepest appreciation to Datuk Zaiton for her professionalism and commitment throughout her tenure as the Bank’s Chairperson. On behalf of the Board, I am pleased to present to you BPMB’s second AIR, for the financial year ended 31 December 2020 (FY2020). “I am grateful and honoured for the opportunity to take on this new role in BPMB and bring to bear the 29 years of experience I have in the financial industry. Leveraging on the Bank’s history and with the support of management and staff as well as fellow Board Members, I hope to steer this Bank to greater heights.” 6 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BPMB will contribute to the nation’s progress by anchoring our focus on three strategic themes – Sustainability, Inclusivity and Digitalisation. We will deliver economically viable financial solutions with sustainable impact to our corporate customers, in line with the Bank’s Strategic Transformation Plan which advocates a mind-set shift in how we deliver value for Malaysia’s developmental needs. CATALYSING CHANGE AND STRENGTHENING GOVERNANCE As has been made known in the public domain, the Government has aspirations to expand BPMB via mergers with other financial institutions with developmental mandates. It is an exciting thought, but we must ensure that these mergers only occur if the combination of entities can be a well-managed institution that can fulfil our stakeholders’ aspirations. Meanwhile, we remain focused on making today’s BPMB better and stronger. To that end, the management team is enhancing processes and procedures within the Bank, while ensuring integrity, commitment and dedication continue to undergird our efforts. I have informed staff that one of the most important parts of my role is to make sure that when they look up in the organisation, they only see leadership that they can trust and a corporate mission that they can believe in. 2021 INTRODUCTION Dear Stakeholders, We anticipate another challenging year ahead with the pandemic expected to continue costing lives and impairing livelihoods for most of 2021. We will continue to adopt the safest work practices for our staff, be as understanding as we can to help our customers through these extraordinary times and step forward to assist the Government as it expands its role to mitigate the debilitating effects of COVID-19 on our economy and society. NAZIR RAZAK Chairman “BPMB will contribute to the nation’s progress by anchoring our focus on three strategic themes – Sustainability, Inclusivity and Digitalisation.” SUPPORTING NATIONAL DEVELOPMENT Incorporated in 1973, BPMB was mandated to support Malaysia’s economic development. Today, BPMB stands proud as a key development financial institution which provides medium to long-term financing in sectors of strategic importance to the nation. The Bank places particular focus on sustainable and impact financing, by channelling capital to address social issues and developmental priorities whilst promoting socio-economic growth. I am grateful and honoured for the opportunity to take on this new role in BPMB and bring to bear the 29 years of experience I have in the financial industry. Leveraging on the Bank’s history and with the support of management and staff as well as fellow Board Members, I hope to steer this Bank to greater heights. BPMB’s focus has evolved from a mandate of supporting Malaysia’s early developmental needs to one of creating meaningful and sustainable impact for the nation. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 7
6. INTRODUCTION OVERVIEW Dear Valued Stakeholders , First of all, I would like to extend my greatest appreciation to our outgoing Chairman, Y. Bhg. Datuk Zaiton Mohd Hassan, who retired from her position on 18 February 2021. During her two years with BPMB as Chairman of the Board of Directors, she has been a wonderful role model, driving us to excellence in thought and conduct. I am immensely grateful for Datuk Zaiton’s professionalism and integrity in discharging her duties and responsibilities as Chairman and BPMB has benefited immeasurably as a result. At the same time, I would like to extend my warmest welcome to our new Chairman, Y. Bhg. Dato’ Sri Nazir Razak, formally appointed on 22 April 2021. His vast experience in banking and finance is known to many and will indeed be a significant asset to BPMB as we continue on our nation-building journey in the years to come. I look forward to working closely with him as we bring BPMB to new heights. “As the financial sophistication of the nation continues to advance, it was evident that we need to transform ourselves to realise our vision to be Malaysia’s Leading Developmental Partner. No longer can we be content with servicing only our traditional sectors as commercial financial institutions are now sufficiently capable of providing the same financial solutions that we had focused on in the past.” ARSHAD MOHAMED ISMAIL Many of us would agree that 2020 was truly a year full of uncertainty, surprises and challenges. A once-in-alifetime global pandemic in COVID-19 has put the global economy and the lives of billions in disarray with national lockdowns imposed to help curb its spread and protect the public. The results have been quite clear in recent months. Malaysia’s real Gross Domestic Product for 2020 contracted by 5.6% year-on-year, surpassing the official projection of 4.5%. Almost all sectors of the economy have been adversely affected, with the hardest-hit sectors being tourism, aviation, and recreation-led activities. BPMB was not spared the effects of the pandemic. Work-from-home arrangements had to be planned and prepared for in a short amount of time while we adjusted to the new normal. New and emerging risks from the pandemic continue to be identified and the appropriate mitigation measures are devised and adopted in response to these threats. Being able to adapt to the rapidly changing circumstances of the situation is crucial for us to carry out our developmental role, which has become ever more critical in these turbulent times. FINANCIAL PERFORMANCE It cannot be denied that our financial performance has been adversely affected by the pandemic. The BPMB Group recorded a net profit of RM107.1 million for the financial year 2020, which is a decrease of 57% from RM251.6 million for the financial year 2019. This is primarily as a result of larger allowances for impairment losses on our loans, financing and advances, which has increased by about 7 times attributed to the pandemic’s effects on the economy and the financial health of our customers. Much of this allowance was for the construction sector and the hotel industry within the BPMB Group financing portfolio, with these two sectors contributing almost 75% of our total impairment allowance for 2020. Similarly at the Bank level, we recorded a decrease in our net profit to RM100.8 million, which represents a 68% decrease from a year ago. As a result of the fall in the Group’s net profits for the year, the Earning per Share also fell to 3.48 sen per share in 2020 from 8.18 sen per share in 2019. This is the lowest figure since 2016. Despite these challenging times, however, I am pleased to report that BPMB has achieved a 2.54% growth in our financing portfolio for the year, increasing our portfolio size to RM18.5 billion and the first growth since 2016. This is mainly attributed to higher disbursements from existing and new financings. In 2020, we undertook an exercise to redeem our borrowings totalling RM1.2 billion with the Employees Provident Fund (EPF) ahead of schedule. This was done to reduce BPMB’s Conventional liabilities as part of an effort to become a Full-Fledged Islamic Development Financial Institution and generate net finance expense savings. Consequently, this exercise has led to a drop in the Group’s total liabilities to RM15.5 billion in 2020, which represents a 7.5% decrease compared to last year while overhead expenses also saw a slight dip to RM107.1 million in 2020 from RM113.5 million in 2019. In addition, the Group’s Gross Impaired Financing ratio (GIF) has also shown a marked improvement to 11.3% in 2020 compared to 12.2% in 2019 due to a larger financing base as a result of the growth in our financing portfolio. In addition, the improved GIF was also contributed by a lower amount of impaired financing due to no new impairments during the year and increased recoveries from existing impaired financings. The Group’s Cost to Income Ratio (CIR), excluding a one-off borrowing redemption cost, has remained low compared to our peers while also seeing a reduction to 9.4% from 16.5% a year ago. This decrease was mainly the result of a net compensation of RM134.6 million in Government compensation derived from the Infrastructure Support Fund that has boosted our net income as well as lower financing expenses upon early redemption of our EPF borrowings. NON-FINANCIAL PERFORMANCE When discussing development finance, one significant challenge is being able to systematically measure the non-financial impact from the operations of a Development Financial Institution (DFI). At BPMB, we realised that there was a need for us to properly understand and measure the non-financial impact of our business as this represents the very foundation for our existence. Therefore, BPMB has adopted a performance framework that inter alia measures non-financial indicators to quantify the socio-economic impact arising from BPMB’s operations. The framework measures BPMB’s non-financial performance through two components, which are additionalities as well as social cost and benefit. Under the first component of additionalities, BPMB has managed to achieve all but one of the four indicators for 2020. We approved six applications for green financing with a total financing size of RM691.3 million compared to a target of RM400.0 million, improved 41 of our customers’ income compared to a target of 22 and achieved a crowd-in private investment ratio of 3.38 times, indicating that for every RM1 contributed by BPMB in a financing deal, private sector financiers or investors have contributed RM3.38. The one indicator that we did not meet based on our target for the year was financing to unserved and underserved segments. Within the year, only 19.6% of our financing exposure is in less developed regions, primarily areas outside of Kuala Lumpur, Putrajaya, Selangor, Penang and Johor as compared to our target of 20.0%. We will continue to ensure that our efforts benefit the underserved and unserved segments as these groups remain central to BPMB’s mission as a DFI. Further to the above, there are three indicators under the social cost and benefit component, which are the Output Index (OI), Subsidy Dependence Index (SDI) and the Net Subsidy Cost (NSC). BPMB has managed to keep its OI at 0.56 for 2020, which remains the same as in 2019. An OI of less than 1 indicates that BPMB’s development activities have a broader outreach towards targeted segments. The SDI, however, increased to 12.1% this year from -15.1%, indicating BPMB had a higher reliance on government subsidies in 2020. On a positive note, BPMB recorded a NSC of RM73.8 million in 2020, which was lower than the net subsidy received of RM132.8 million for the same year. This indicates that the subsidies received have an effective reach towards targeted segments, implying a lower cost to society. 3-YEAR STRATEGIC TRANSFORMATION PLAN (STP) 2020 – 2022 Our 3-year Strategic Transformation Plan, which we embarked upon in early 2020, made us dig deep and ask ourselves some hard questions. How can we remain relevant in the face of Malaysia’s evolving development needs? As the financial sophistication of the nation continues to advance, it was evident that we need to transform ourselves to realise our vision to be Malaysia’s Leading Developmental Partner. No longer can we be content with servicing only our traditional sectors as commercial financial institutions are now sufficiently capable of providing the same financial solutions that we had focused on in the past. PRESIDENT/GROUP CHIEF EXECUTIVE OFFICER 8 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 9 INTRODUCTION PRESIDENT/ GROUP CHIEF EXECUTIVE OFFICER’S STATEMENT
7. INTRODUCTION PRESIDENT / GROUP CHIEF EXECUTIVE OFFICER’S STATEMENT It is my pleasure to report that progress towards the completion of our STP has been excellent thus far. We have accomplished all of our targeted milestones for the year 2020. Under the STP, we have identified three strategic thrusts to drive the desired transformation of BPMB. I detail each thrust and our achievements for 2020 as follows. STP Thrust 1: Embracing the Paradigm Shift We aim to guide the future direction of BPMB by focusing on seven paradigm shifts in the areas of focus, posture, mind-set, tools, relationship, people and stakeholders. The initiatives we have undertaken under this thrust include, but are not limited to the following: 10 •Submission of three national policy proposals as part of the National Budget 2021, which were subsequently announced in November 2020. We expect this to be beneficial in assisting the Government with national policy formulation and implementation; •Signing of Memoranda of Understanding with Kumpulan Modal Perdana and Malaysian Technology Development Corporation. These collaborations aim to seek avenues of mutual cooperation in the development of and investment in high impact technologies and renewable energy between BPMB and our industry partners; •Becoming a member of the United Nations Environment Programme – Finance Initiative (UNEP-FI). This membership is expected to allow us to participate meaningfully in discussions concerning sustainability in the banking and finance universe; •Establishment of several leadership and executive coaching programmes as described later in my statement to promote success maximisation through a continuous learning process. Within the next few years, we aim to increase the level of cooperation with our existing and potential strategic partners and continue to involve ourselves in policy formulation with the Government. Despite some challenges that lay ahead of us, I remain confident that we will be able to carry forward our momentum in the timely achievement of our future aspirations under the STP. STP Thrust 2: Supporting the Government’s Strategic Priority Areas It is imperative that BPMB, as a DFI is able to support and catalyse the developmental initiatives of the Government in line with our mission. However, for us to understand the effects of our operations, we would need a way to meaningfully measure and quantify the potential developmental outcomes to evaluate the impact of the projects that we finance. For this reason, the Bank started developing our Impact Assessment Framework in 2019, which we now call “Measuring Impact on National Development” or MIND. After rolling out MIND in early 2020 on a pilot basis, we are currently working towards integrating MIND more closely into our present operations. Jointly developed with the World Bank, MIND enhances the traditional method of project evaluation from a solely credit perspective to a holistic and structured end-to-end assessment across selected Environmental, Social and Governance (ESG) aspects. Using 32 indicators, which will quantify both the financial efficiency of a project as well as its BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 social, environmental and economic impact, the MIND framework. It will then plot the project’s metrics on a two-dimensional matrix on financial and developmental perspectives to further categorise these projects. Projects that score highly across both perspectives will be prioritised by BPMB. MIND’s assessment metrics are anchored on five out of the 17 Sustainable Development Goals, which are: •SDG7 – Affordable and clean energy; •SDG8 – Decent work and economic growth; •SDG9 – Industry, Innovation and Infrastructure; •SDG10 – Reduced inequality; and • SDG13 – Climate action. Thus far, the preliminary results of financing deals evaluated under the MIND framework have shown much promise. Approximately 2,600 permanent jobs have been created along with an estimated 270,000 direct beneficiaries per day benefiting from these projects. Several projects assessed under MIND with a focus on renewable energy have also shown results with an estimated 2,628 GWh of clean energy produced in 2020 alone. BPMB will continue to monitor the results of MIND’s implementation and make the necessary improvements to it as and when necessary.  STP Thrust 3: Adhering to Islamic Principles We recognise that Islamic financial business has significant potential in allowing BPMB to promote sustainability and practice ethical banking based on the principles of Shariah, which prioritises human development and betterment of human life. Furthermore, the Government envisages Malaysia as a global leader in Islamic finance. We as a DFI are working to assist the Government to realise this vision through our array of Shariah-compliant products and solutions. Additionally, the Group remains committed to becoming a Full-Fledged Islamic Development Financial Institution (FFIDFI) in the near future. I am delighted to report that the percentage of Islamic assets within our financing portfolio stands at 71.3%, which amounts to RM13.2 billion in absolute terms as at 31 December 2020. This represents an increase of 68.8% from the figure in 2019. BPMB targets to convert another RM3 billion in Conventional assets to be Shariah-compliant by the end of 2021. This will be a clear demonstration of our ability and commitment to encourage and stimulate sustainable development in line with Islamic principles. “The BPMB Group continues to uphold and practice the highest standards of governance expected of us as a DFI.” INTRODUCTION BPMB will therefore seek to evolve beyond our traditional sectors and align our developmental efforts with the Government’s initiatives and global megatrends, effectively becoming sector agnostic in playing our developmental role. With our renewed focus on sustainable and impact financing, our mission today is Impactful Delivery with Strategic Outcomes. This evolution in our focus naturally necessitates a major change in how we do business and the mind-set of our people. Please refer to Our Strategic Transformation Plan from page 18 to 19 for further discussions on the strategic thrusts MERGER OF DFIS Under the National Budget 2020, a restructuring exercise was announced by the Government to merge several DFIs, including BPMB, into a single, larger financial institution. The other entities involved are Danajamin Nasional Berhad (Danajamin), Small and Medium Development Bank Malaysia Berhad (SME Bank) and Export-Import Bank of Malaysia Berhad (EXIM Bank). The purpose of this exercise is to bolster the development finance ecosystem in Malaysia. As at time of writing, a Steering Committee, led by MOF, has endorsed an initial structure whereby Danajamin will become a wholly-owned subsidiary of BPMB. We will continue to play our role to ensure that the merger is successfully executed. GOVERNANCE The BPMB Group continues to uphold and practice the highest standards of governance expected of us as a DFI. We continuously review our governance structures, and enhancements are made at the earliest opportunity. Our initiatives for the year 2020 are summarised below as follows: Anti-Bribery Management Systems (ABMS) Bribery is among the key governance risks faced by all organisations, including the BPMB BPMB continues to support government’s aspirations through financing with a stronger emphasis on the social, environmental and economic impact of the projects. Group. As a single act of bribery, no matter how small, entails major negative implications, we view all potential incidents of bribery and corruption very seriously and adopt a zero-tolerance approach. To assist in our endeavour, we have engaged with Institut Integriti Malaysia and SIRIM Berhad to carry out the following enhancements: •To develop our Anti-Bribery Management System (ABMS) to prevent, detect and respond to bribery incidents; •To achieve MS ISO 37001 ABMS certification for the BPMB Group; We expect to complete both tasks by the end of 2021 as part of our continued efforts against bribery and corruption. Data Governance Framework (DGF) The Group remains committed to ensuring the highest levels of data integrity and protection are practised within our business. To further improve on this point, BPMB has established a Data Governance Framework (DGF) in July 2020 that is applied during the data mining, analysis and reporting processes within the Bank. Our DGF aims to achieve the following: •Establish a sound data governance structure that ensures effective control of data quality; •Maintain robust control over data security and privacy to safeguard data integrity; To achieve these aims, a Data Governance Steering Committee and Management Information System (MIS) unit have been formed. Both functions will ensure that our businesses, risk management and IT strategies are aligned with the DGF. Thus far, we have undertaken the following initiatives: •Implementation of a MIS Solution initiative to enable key data and insights to cater for BPMB’s business needs. This initiative is a constituent of our STP; BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 11
8. INTRODUCTION •Formation of a comprehensive data and system architecture that is appropriate to the scale and complexity of BPMB’s operations; •Ongoing monitoring of the data quality within the Bank with regular references against BPMB’s data policy statements; •Ensure timely access to critical data by various functions of the Bank for decision-making, analysis and control purposes. and have appointed a Digital Advisor to help oversee key IT initiatives to be implemented post-assessment. During the assessment, we have identified two critical transformation plans to be undertaken under the Group’s IT infrastructure framework. These are as follows: BPMB’s Whistleblowing Channel The Group is dedicated to upholding Malaysia’s Anti-Corruption Principles in promoting integrity, transparency and good governance in all aspects of its business when we signed the Corporate Integrity Pledge on 26 September 2016. As such, our Whistleblowing Policy is designed to allow individuals to whistleblow on issues of serious concern they encounter. These include bribery, corruption, conflict of interest, fraud, abuse of power or other issues that have a reputational risk to the Group. The policy also extends the necessary protections to the whistleblower in line with the Whistleblower Protection Act 2010. An external independent party administers a platform known as Halo that provides a feedback channel to all BPMB staff. Halo provides five modes of communication for staff to disclose concerns, via toll-free telephone number, website, email, facsimile and post. All of these serve to complement the Group’s governance framework and ensure legitimate concerns can be objectively evaluated and addressed. Information Technology (IT) Infrastructure Framework At BPMB, we are continuously reviewing our IT infrastructure to be certain that it can satisfy our business aspirations and meet regulatory requirements. We had recently conducted an extensive assessment of our current IT infrastructure, 12 •General upgrading works on our IT infrastructure and network systems. This is to ensure sufficient IT capacity, such as computing power, to support the current and future needs of BPMB and to significantly improve our operational efficiency and achieve better cost optimisation. These upgrades are undertaken to comply with Bank Negara Malaysia’s (BNM) Risk Management in IT (RMiT) guidelines and are expected to be completed by the third quarter of 2021; •Development and establishment of a data warehouse infrastructure within BPMB to automate report generation such as BNM regulatory reports, management dashboard and advanced analytics. We will commence work on this initiative by mid-2021 and expect completion and implementation by June 2022. EMPOWERING OUR PEOPLE No organisation can claim a robust performance without the solid backing and commitment of the people behind it. BPMB places great importance on building a culture of high performance and integrity while also ensuring a healthy and safe work environment for our valuable talents. Hence, this year, BPMB has started to concentrate on building the leadership capabilities of our strategic leaders starting with the implementation of a 12-month learning journey for the key management personnel of the Bank. Our “Top Team Effectiveness and Coaching Programme” aspires to foster effective leadership behaviours amongst key management personnel, leading to a BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 more productive working culture within the Bank. BPMB also has plans to introduce additional leadership programmes, such as BPMB’s Bespoke Leadership Development Series in 2021 to complement the Bank’s talent management initiatives. Our “Back-to-Basic Principles” remain the backbone of BPMB’s aim to promote a good corporate governance mindset and culture, with a focused emphasis on the four Core Values to our people, which are: • I am worthy of your trust • I will speak and seek the truth • I will seek knowledge to remain relevant • I will not let you down A BPMB Core Values Programme is currently in the pipeline for implementation in 2021 to further inculcate the Core Values as part of BPMB’s ethos. To ensure the well-being of our people, we have taken active steps to respond to their needs which have become particularly vital in light of COVID-19. The Bank launched Naluri Community to provide remote therapy to our staff, consisting of a dedicated 24/7 helpline for immediate assistance from a certified counsellor, a dietician helpline and online emotional well-being assessments as a quick and easy way for employees to evaluate their mental health. Other initiatives for the year include the implementation of e-Farma for easy access to long term medication from the comfort of our employees’ homes and targeted financial assistance to selected employees facing financial hardship. CREDIT VALUE CHAIN (CVC) As part of our ongoing efforts to improve how we evaluate and monitor our financing portfolio, BPMB had commenced our CVC project in December 2018, while targeting completion in December 2020. This project involved a comprehensive revamp to not only achieve speedier turnaround times for financing applications, but to also raise the quality of our financing assets. Despite the pandemic, the project was successfully completed two months ahead of schedule in October 2020. My heartfelt gratitude goes out to all my colleagues and other stakeholders who have contributed to and participated in the CVC project within and beyond our organisation. As we are currently in the implementation phase, I summarise the key developments we have achieved under this project as follows: •Development of an Early Warning Signal (EWS) system to assist our credit monitoring functions by detecting certain red flags before default. The EWS ecosystem is supported by a more structured escalation process to ensure all necessary signals are detected early and the pertinent issues are resolved accordingly; • • Enhancement of the Bank’s existing credit risk rating model to improve model robustness and predictive power. This helps improve the soundness of our financing and portfolio management decisions. Additionally, the model incorporates the Probability of Default (PD) and the Loss Given Default (LGD) parameters, which will allow for the computation of the forward-looking PD as part of our financing evaluation process; Strengthening our credit analysis during the underwriting stage to be more comprehensive and projectfocused. During the assessment of any new application, a holistic assessment will be conducted, incorporating all aspects of the project such as the credit, technical and commercial elements. SERVING THE NEEDY DURING DIFFICULT TIMES The impact of COVID-19 has been deeply felt by our communities within and beyond the Bank. Significant hardship has struck many, resulting in unemployment or reduction in business for Small and Medium Enterprises (SMEs). While we are hopeful for an economic rebound to occur in the near future, as a responsible corporate citizen, BPMB is cognizant of the need to play a more active role in the meantime to help our community weather the storm through our Corporate Social Responsibility (CSR) initiatives. In April 2020, the Government announced an automatic six-month loan or financing moratorium to all retail and SME customers of banks in the country. In conjunction with this announcement, BPMB granted the same not only to our clients that are categorised as SMEs, but also to our larger corporate clients who are facing significant financial difficulties. As at December 2020, the total value of the moratorium granted by the Bank stands at around RM7.1 billion, with the infrastructure and maritime sectors of our portfolio making up the largest beneficiaries. Additionally, targeted assistance was granted to selected businesses that faced substantial financial strain upon the expiry of the automatic moratorium, via extensions or restructuring and rescheduling of their financing facilities. Our philosophy in this regard was to assist and not to compound the problems faced by our clients. To help in the fight against the spread of COVID-19, particularly in rural areas with limited infrastructure, BPMB collaborated with Yayasan Ikhlas to produce and donate approximately 27,500 sets of Personal Protective Equipment to the healthcare front liners in both Sabah and Sarawak. In addition, to assist the severely impacted asnaf community, BPMB has also made significant contributions totalling RM18,236,358 in zakat to all fourteen state zakat agencies in Malaysia for the year 2020. This assistance was disseminated through special zakat distribution programmes by each of the fourteen zakat state agencies to maximise reach and mitigate the impact of COVID-19 on the vulnerable asnaf community. BPMB champions equal opportunity for our youth to have access to quality education and as a way to promote the sustainability agenda, in particular, the 17 SDGs by the UN. Ensuing from this commitment, BPMB has launched a School Adoption initiative under our SEEDS (Supporting English Empowerment to Drive Sustainability) programme, whereby two schools have been adopted by the Bank, namely SMK Seri Titiwangsa and SMK Padang Tembak. The goals of SEEDS are to sharpen English literacy and heighten awareness of sustainability and its importance among the adopted schools. To date, BPMB has contributed computers to both schools, held a talk that featured speakers from esteemed organisations such as the United Nations and organised workshops to assist the students in tackling the Sijil Pelajaran Malaysia (SPM) 2020 English examination. THE PATH FORWARD Moving forward into 2021 and beyond, BPMB will continue to support the Government to revitalize and reinvigorate the economy through our various products and financing solutions with an emphasis on digitalisation, inclusivity and sustainability. We recognise that we have a counter-cyclical role to play to ensure those who are most vulnerable are able to brave through the next few years and come out ready to navigate the much anticipated economic upturn and drive Malaysia into a high-income economy. I would like to extend my deepest gratitude to our major stakeholders at MOF, BNM and all related regulatory and governmental bodies for their support and confidence in BPMB. My heartfelt thanks also goes out to our highly experienced Board of Directors, whose guidance has been invaluable in ensuring that our transformation journey within the Bank continues to benefit the nation as a whole. I would also like to take this opportunity to express my greatest appreciation to my colleagues, who have worked tirelessly through these challenging times to ensure that we are able to continue to serve our developmental role to the nation. Their adaptability and dedication have greatly inspired me and I am extremely proud of the capabilities of our talents, who remain at the core of the Bank. ARSHAD MOHAMED ISMAIL President / Group Chief Executive Officer BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 13 INTRODUCTION PRESIDENT/ GROUP CHIEF EXECUTIVE OFFICER’S STATEMENT
9. PERFORMANCE Despite the sharp economic downturn caused by the pandemic , BPMB continued to remain resilient in 2020. The pandemic has shown that our emphasis on digitalisation, inclusivity and sustainability is ever relevant, and we remain steadfast in supporting these key areas to support sustainable economic growth. PERFORMANCE OUR OPERATING ENVIRONMENT AND OUTLOOK ECONOMIC SUSTAINABILITY DIGITALISATION INCLUSIVITY • In 2020, the global economy slipped into its deepest recession since World War II as the imposition of lockdowns and the closure of international borders worldwide caused an unprecedented pullback in global economic activities. • Remote-sensing data before and during the pandemic collected by NASA, US Geological Survey (USGS) and ESA (European Space Agency) earth-observing satellites showed that COVID-19 had resulted in improved environmental quality in many parts of the world as economic activities slowed down dramatically. However, for Malaysia, environmental degradation arising from rapid economic growth and under-investment in natural resource management over the years has worsened despite the slowdown in activities. • The pandemic has propelled an accelerated shift to digital technologies. At the same time, the use of Internet of Things (IOT) and artificial intelligence (AI) powered by 5G for various consumer and business digital applications, as well as for industrial machinery, has continued to pick up pace. • Household income and wealth disparities have further widened as a result of the pandemic. To mitigate this, the Government introduced various relief measures and handouts to help low-income groups and those who had lost their jobs. • Malaysia’s real GDP contracted by 5.6%, sharper than the official and our projection of 4.5% as the resurgence of COVID-19 in 4Q 20 pushed the economy back into Movement Control Order (MCO) 2.0. • The impact of the pandemic also exacerbated the slowdown in trade activities arising from the persistent US-China trade conflict tension, the fall in prices and demand for commodities as well as the disruption in global supply value chains. • As the nation’s leading Development Financial Institution (DFI), we worked closely with the Government in delivering the stimulus packages in response to the pandemic-led slowdown. Impact • Sustainable development financing is a key imperative for solving the nation’s developmental challenges and aligning with Malaysia’s commitment towards the 2030 United Nations (UN) Sustainable Development Goals (SDGs). • Having been mandated by the Ministry of Finance to manage the Sustainable Development Financing Scheme (SDFS) since 2019, BPMB will continue to support the Government’s drive toward meeting the 17 targets under the UN SDGs. Impact • Following the introduction of the National Policy on Industry 4.0 through Industry4WRD, a comprehensive transformation agenda to drive digital transformation of the manufacturing sector, the Government is now moving forward to prepare for the adoption of 5G. • In August 2020, the Government introduced the National Digital Infrastructure or Jalinan Digital Negara (JENDELA) blueprint, a 5-year plan to steer Malaysia towards greater digital connectivity. The blueprint includes a plan to boost the efficiency of the existing national 4G infrastructure and optimise spectrum usage to set the stage for the first phase of 5G technology. • We foresee the emergence of more structural issues leading to the disparity in income over the medium- to long-term period. • In alignment with the Government’s Shared Prosperity Vision 2030 (SPV 2030) as the main blueprint and guide for restructuring the economy and correcting income and wealth disparities, our role as a DFI in promoting inclusivity will be through providing holistic financing to businesses or projects that will have a positive impact on society or on the economic development of unserved and underserved areas. • BPMB will continue supporting the Government in its drive to ensure greater automation and digitalisation among SMEs. • Frequent water disruptions stemming from raw water pollution in Selangor have highlighted the insufficiency of existing water treatment facilities and infrastructure in coping with the rate of industrial activity. There is an urgent need for more investment targeted at better management of raw water supply and water treatment plants, especially in the Klang Valley. Proper planning is also necessary for effective development of the urban-rural continuum. • As the Government rolls out further development projects in new sectors with a green or sustainability agenda such as urbanisation planning toward smart cities, there will be a greater need to take stock and first identify basic infrastructural needs. Impact Impact Risk Risk Risk Risk Opportunity Opportunity Opportunity Opportunity Our Strategic Response Our Strategic Response Our Strategic Response Our Strategic Response • The slowdown impacted all sectors in general, although some industries and business stood to gain from the changes in supplydemand dynamics brought about by the pandemic. The services industry was particularly hard-hit, especially in the tourism, aviation, events and recreational-led sectors. • Prolonged lockdowns also pushed many SMEs dependent on daily turnover as a source of cashflow, to the brink. A significant number of businesses faced cash flow strains in meeting debt obligations, with many forced to close down. Financing performance and approvals deteriorated, and slower credit growth was recorded in multiple segments. • We have exposure to sectors that were among the worst affected by COVID-19. The speed of economic recovery in 2021 will depend highly on the effectiveness of the national vaccination programme and domestic political stability. Setbacks and negative developments arising from the delays in the implementation of the vaccination programme and heightened instability on the political front could pose significant downside to the economy and potentially trigger market risks. BPMB may be exposed to these market risks in the form of losses due to a change in the values of assets and liabilities held. Economic recovery and a new 5-year plan will attract new investments especially those with focus on sustainability, inclusivity and technology advancement. • Going forward, we will step up our efforts to position ourselves as the key advocator to our stakeholders in driving the nation’s economic development, and strengthen our position as the leading financier for Government-led development initiatives. • We are in the process of transitioning to become sector-agnostic, however, we will continue to lend to related sectors under our dedicated schemes set up to support the Government’s development agenda in those sectors. • BPMB has been at the forefront of supporting Government efforts to assist businesses hit by the pandemic but stayed on the course of financing strategic sectors via our various schemes. This has strengthened our position vis-a-vis other financiers to capitalise on the much anticipated economic upcycle anticipated to accompany the impending roll-out of the 12th Malaysia Plan. • We assisted customers affected by the lockdown measures and economic slowdown by providing a six-month loan moratorium that was part of the PRIHATIN package introduced by the Government. Upon the expiry of the moratorium, we continued to provide relief to affected customers via a targeted assistance approach. The growing importance of sustainability demands that the Bank lends only to responsible businesses with activities that are in line with the 2030 UN SDGs, such as those with minimal adverse environmental impact or those that mitigate climate change. Failure to do so may increase our credit and reputational risks. Adopting the UN SDGs agenda enables us to mitigate various environmental, developmental and social risks through sound lending practices. Achieving economic growth through sustainable development is also perceived as the most innovative money-saving tool for the economy in general. • The Measuring Impact on National Development (MIND) framework launched in 2020 will be used to assess the potential impact of our lending practices across environmental, social and governance aspects. • The SDFS established to support the Government’s effort to implement the 17 SDGs will run until 2021. While the Bank will be sector-agnostic post 2021, we will retain an inclination towards the financing of SDG-related projects given that SDG-related sectors are likely to score highly on our MIND framework. • BPMB has become an official signatory to the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Responsible Banking (PRB). The PRB aligns the banking sector with the objectives of the UN SDGs and the 2015 Paris Climate Agreement, helping banks to identify where they have the potential to make the most impact for a better economy and world. • We foresee an acceleration in digitalisation pace among small businesses while those that are already well ahead will be readying themselves for adoption of 5G network and related technologies. • The increase in entrepreneurial activity following the rise in the unemployment rate due to the COVID-19 impact will also see a corresponding rise in demand for digitalisation for businesses. • 5G adoption among consumers will be almost automatic as more personal devices become 5G-enabled. Technology and mobility are increasingly shaping consumer and business behaviour. Failure to explore new infrastructure and technology frontiers will erode the Bank’s leadership and relevance as a DFI. Potential new sectors for financing could include disruptive or ground-breaking technologies displacing established technologies and shaking up the industry. One example of this is social AI which includes but is not limited to robotics and automation meant for technology firms or manufacturing companies. • The Bank’s Industry Digitalisation Transformation Scheme (IDTS) introduced in 2019 will be extended until December 2023 as part of the measures under Budget 2021 to boost digitalisation activities among SMEs. • Strategic collaborations with Ministry of Science, Technology, and Innovation’s (MOSTI) funding agencies – Kumpulan Modal Perdana (KMP) and Malaysian Technology Development Corporation (MTDC) will encourage greater adoption of advanced technology and automation to solve sectorial gaps. Embracing Paradigm Shift 14 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Supporting Government’s Strategic Priority Areas • Focusing on inclusivity will provide more opportunities for all to improve standards of living and boost recovery speed, thereby contributing to economic growth, poverty reduction and the mitigation of extreme inequalities. • The Bank could undertake a greater role in supporting projects that promote inclusivity particularly in unserved and underserved areas. Shifts in political agenda continue to be a key risk for which unanticipated changes in laws, regulations or socio-economic focus could expose BPMB to strategic risks impacting the execution of our business strategy and adversely impact the Bank’s productivity and profitability. Increased focus on sustainability in future economic agendas could make inclusivity outcomes more easily achieved via development projects and initiatives planned by the Government. • BPMB will continue to focus on delivering positive impact through sustainability and inclusivity, beyond the financial viability of projects, especially for underserved and unserved regions. • We will continue to support sectors with the ability to boost economic productivity and raise the nation’s potential to achieve high-income nation status. Adhering to Islamic Principles Read more about Our Strategic Transformation Plan from page 18 to 19 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 15
10. PERFORMANCE In our transformation strategy , we designed a system with clear processes and performance metrics to generate and quantify the value we create OUR ECOSYSTEM OF SOUND FINANCIAL RESOURCES DEDICATED SCHEMES WE CREATE Our Sources of Funding – Pool of Both Internal and External Funds Government Dedicated Schemes – Interest/Finance Income and Cost Differential Subsidies Through capital management excellence, we have nurtured and created an ecosystem of sound financial resources over the years which are tapped into to create and support specialised schemes for development. We channel our financial resources toward creating dedicated schemes for development. The Government provides compensation through subsidies for financing rate of up to 2%. 27% 34% 2% Industry Digitalisation Transformation Scheme (IDTS) RM1.0 BIL Maritime and Logistics Scheme (MLS) RM1.5 BIL 37% Sustainable Development Financing Scheme (SDFS) Shareholders Funds RM7.7 BIL RM2.0 BIL Redeemable Notes/Sukuk RM8.2 BIL Long-Term Borrowing RM0.5 BIL Deposits from customers and FIs RM6.1 BIL Tourism Infrastructure Scheme (TIS) RM1.0 BIL Public Transport Scheme (PTS) RM0.1 BIL # TRANSFORMING FUNDS INTO Transforming funds into value VALUE CREATION creation Note: Excluding one-off cost of borrowings redemption IMPACT WE CREATE Our Resources Strategic Thrusts Developmental impact We rely on our unique blend of strengths and resources to transform our funds into impact and value creation for all stakeholders. To ensure successful execution on our mission of impactful delivery with strategic outcomes, we are rallying the organisation through three strategic thrusts. 19.55% 4 Organisational excellence (sound IT system and talent management) 5 Sound financial standing crowd-in private investment RM691.3 MIL Increase in clients’ income (Approval under moratorium) Financing targeted sectors Embracing Paradigm Shift 0.56 An output index below 1 shows that our funds are channelled to targeted sectors RM73.8 MIL Strong relationship with the Government Dedicated client management 3.38 TIMES 41 CUSTOMERS Specialised skillset and knowledge 3 Financing to underserved and unserved segments Approved Green Financing 1 2 PERFORMANCE OUR VALUE CREATING BUSINESS MODEL Low net subsidy cost indicates that the subsidy reaches more targeted sectors Financing sustainably 12.11% Supporting Government’s Strategic Priority Areas Low subsidy dependence index demonstrates less dependence on Government financing Operational efficiency RM147.2 MIL Profit Before Tax 9.07% # Cost to Income Ratio 1.31%/0.42% Return on Equity/Return on Assets Adhering to Islamic Principles See more: Our Strategic Transformation Plan pages 18 and 19 11.31% Gross Impaired Financing Ratio 42.83% Risk Weighted Capital Ratio, above the required 8% Contributing to SDGs See more: Performance pages 14 to 29 OUR DIFFERENTIATING FACTORS 16 GOVERNANCE | CULTURE | COMMITMENT TO SUSTAINABILITY BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 STAKEHOLDERS BENEFITTING SOCIAL BUSINESSES BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 17
11. PERFORMANCE As part of BPMB ’s vision to be “Malaysia’s Leading Developmental Partner”, the Bank plays a key role both as thought partner and information provider to the Government in formulating national development policies, implementing these policies and providing subsequent assessment and feedback for further improvement. BPMB’s role as a DFI extends beyond traditional lending sectors so as to align our strategies with the Government’s initiatives and global megatrends. The Bank aims to achieve sustainable and inclusive growth consistent with the 2030 Agenda for Sustainable Development advocated by the United Nations. BPMB strives to achieve our vision through our mission of “Impactful Delivery with Strategic Outcomes”. This entails a flexible and accommodative business approach in order to be constantly aligned with the evolving national agenda. A new impact assessment framework, named Measuring Impact on National Development (MIND), has been adopted to broaden our horizon and focus, as well as track developmental impact on the ground. Three Strategic Thrusts supporting our vision  and mission STRATEGIC THRUSTS PROGRESS ACHIEVED IN FY2020 FOCUS AREAS FOR NEXT YEAR PRINCIPAL RISKS • Embracing Paradigm Shift Supporting Government’s Strategic Priority Areas Adhering to Islamic Principles 1  2 3 Holistic impact-focusing approach anchored on two main elements: • Supporting the development of Malaysia policies including: • Impact to Nation and SDGs • Malaysia Plans • Impact to Financial Sustainability • National Blueprints • Functioning as a “Policy Bank” to serve as Government’s thought partner • Shared Prosperity Vision • Promoting a success maximisation mindset as opposed to focusing on risk mitigation • Becoming a catalyst for national development and a solution-driven organisation • Partnering and learning with reputable and multilateral organisations • BPMB’s proposal on National Development Scheme was announced in National Budget 2021 • BPMB is a member of the Joint Committee on Climate Change (JC3) of BNM & SC to pursue collaborative action for building climate resilience within Malaysia’s financial sector • BPMB has collaborated with strategic partners such as Kumpulan Modal Perdana, Malaysian Technology Development Corporation, China Construction Bank (M) Berhad, Sabah Ports Sdn Bhd and Malaysia Smart Cities Alliance (MSCA) • BPMB is in the working committee with multiple agencies such as MDEC, MOSTI, MITI and MIDA to discuss issues and challenges on IR4.0 • BPMB became a member of United Nations Environment Programme Finance Initiative (UNEP FI) • Rolled out the Top-Team Effectiveness and Coaching Programme for Strategic Leaders (CEO-1) • Continuous improvement and leadership in MIND, our Impact Assessment Framework for measuring potential developmental outcomes of the projects financed • Participate in policy making and serve in advocacy role to the Government • Continuous strategic partnerships with renowned organisations • Become a centre of excellence in development finance • Regulatory Risk: Challenges may arise from shifts in focus areas arising from changes in the political landscape • Market Risk: • The development of COVID-19 vaccination phases throughout nation • Uncertainty and ambiguity arising from economic situation PERFORMANCE OUR STRATEGIC TRANSFORMATION PLAN • Creating greater socio-economic impact • Shariah-compliant financing and solutions in line with impact-focusing approach • Emphasising Islamic tenets (Islam, Iman, Ihsan, Adab) • Spearheading and advocating Government’s strategic focus • Serving the unserved and underserved with emphasis on developmental impact • Promoting ethical banking through impact financing aligned to sustainability • Approved and launched MIND Framework in 1Q2020 • 71.36% of BPMB’s financing portfolio consists of Islamic financial business • Bank has approved 41 customers who received their moratorium • • Approved green financing amounting to RM691.3 million against the target of RM400.0 million • Recognition of Ramly Food as first Industry Digitalisation Transformation Scheme (IDTS) recipient COVID-19 contributions of approximately RM2.2 million in PPE, face shields, shoe covers, masks and gloves to three Government hospitals; face masks to Polis Diraja Malaysia (PDRM) and Angkatan Tentera Malaysia (ATM) • Zakat contributions of approximately RM23.1 million – (i) RM18.2 million contributed to 14 state zakat authorities (ii) RM2.9 million COVID-19 zakat contribution (iii) RM2.0 million in other contributions (i.e. universities) • Complete implementation plan for full-fledged Islamic Development Financial Institution covering eight areas and 20 initiatives • Implement structural solution for treatment of any Shariah non-compliant income, post becoming a full-fledged Islamic Development Financial Institution • Become a champion of ethical banking • Regulatory Risk: Strict guidelines and close monitoring by Bank Negara Malaysia could impact the Bank’s process/timeline of converting to Islamic Bank • Shariah non-compliance risk: Any financial or non-financial implications such as reputational damage arising from a Shariah non-compliance event • Nurture potential of future projects high on the scale of Impact to Nation / SDGs and Financial Sustainability • Adopt additionalities indicators as promoted by Bank Negara Malaysia • Credit Risk: BPMB is exposed to default risk from existing clients due to uncertainty and ambiguity of economic situation • Concentration Risk: Few and limited projects located in the unserved and underserved area could result in risk of concentrated funding in urban areas • Climate Change Risk: The value of our assets may be adversely impacted by the effects of climate change. Yet, climate change presents an opportunity as we focus on funding for climate resilience Read more about how we manage our principal risks from page 62 to 73 18 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 19
12. PERFORMANCE OPERATIONALISING STRATEGY THROUGH CULTURE THE PARADIGM SHIFT EMBRACING THE PARADIGM SHIFT PERFORMANCE The MIND framework requires an overarching paradigm shift of mindset and behaviour to be embraced by BPMB and our staff . A total of seven Paradigms have been identified, culminating from our own internal reflection and recognition of external challenges. These are listed below. The Paradigm Shift will be articulated in the way transactions are being assessed via the 6 filters where transactions will be: • Impact Driven • Success Oriented • Solution Driven •Catalystic PROJECT ASSESSMENT From To Profit-driven Impact-driven Deal seeker Financing advocate Risk mitigation Success maximisation SUSTAINABLE IMPACT ORIENTATION Focus Demonstrate clear understanding of what drives the profitability of the business/ project and industry Establish the long term outlook of the key profitability drivers of the business/ project within the industry it operates in Sustainable financial institution with impact focus Articulate the development impact of the project by utilising the MIND framework Provide an optimum financing structure which reflects the peculiarities of the project and industry Ensure the project sponsors and counter parties is credible and has sufficient technical and financial capabilities to undertake the project successfully Mitigate all the risks inherent to the project to the level acceptable to the Bank Posture Mindset Product focused Solution driven Requires the Bank to have and be Tool Financier Us People Reporting & compliance SOLUTION DRIVEN INSTITUTION Provide diverse range of products and services to cater for varying needs of customers Advocacy Stakeholder 20 Houses deep technical expertise in identified areas to maximise impact OPERATIONAL EXCELLENCE BPMB will explore new and innovative ways to achieve our targets as a DFI. A snapshot of our approach is presented below: Managing our risks • Utilisation of a risk-compass and risk-informed pricing to source high potential deals while managing risk appropriately Leveraging our talents • Driving HR excellence and innovation that leads to successful outcomes and moves the Bank forward while leveraging on HR technology • Deploying recruitment and retention strategies including attracting and retaining qualified and high potential individuals for the Bank • Investing in our employees’ development and expanding our talent and succession management programmes that reinforce our strategy of “growing our own” • Enhancing the employee experience through a culture of engagement, wellness, diversity and inclusion that leads to overall employee well-being, productivity and retention • Automate processes to reduce processing times and greatly improve efficiency in processing deals and disbursements • Make BPMB an accelerator of a Green 1st Strategy in sustainable financing and development • Establish collaborations with industry experts or established players to complement BPMB’s development objectives Catalyst Relationship Me STRONG TECHNICAL EXPERTISE BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Upgrading of processes and methods BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 21
13. PERFORMANCE MEASUREMENT FRAMEWORK PERFORMANCE It is important for BPMB to have a structured and comprehensive measurement framework to assess its crucial role in supporting the development agenda of the nation . As a specialised financial institution, BPMB plays an important role in bridging financing gaps by participating in markets or sectors that are not adequately served by the private sector, as they are typically characterised by high risks, high costs and high uncertainties. BPMB measures and manages its performance from two perspectives – financial and non-financial. The twin perspectives ensure a holistic performance appraisal. TWIN TRACK TO SUSTAINABLE PERFORMANCE Informed decision making for balanced outcomes 22 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Ensure long-term focus and sustainability Align BPMB’s activities with national agenda FINANCIAL PERFORMANCE NON-FINANCIAL PERFORMANCE As a Development Financial Institution (DFI), impact on financial performance must be carefully managed and tracked to ensure that the Bank’s financial position remains sustainable and on target in all its financial undertakings. Evaluating non-financial performance from an impact creation perspective helps to ensure activities are aligned with the Bank’s mandate to be the catalyst for sustainable development. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 23
14. PERFORMANCE 2020 Profitability (RM million) Profit before tax and zakat Net profit for the year FINANCIAL HIGHLIGHTS 2019 2018 2017 Group 2016 Profitability (RM million) Profit before tax and zakat Net profit for the year Bank 2020 2019 2020 2019 158 107 380 252 147 101 435 315 158 107 380 252 261 167 325 213 208 231 Key statements of financial position data (RM million) Total assets Cash and total deposits and placements Financial Investment—FVOCI Financial Investment—FVTPL Financial Investment—Available for sale (AFS)# Financial Investment—Held to maturity (HTM)# Loans, financing and advances Other assets 23,476 1,221 6,132 46 – – 15,584 493 24,663 3,574 5,024 – – – 15,702 364 24,734 2,350 3,720 – – – 18,285 379 26,999 1,718 – – 5,224 – 19,743 314 26,861 1,296 – – 3,697 186 21,210 472 Key statements of financial position data (RM million) Total assets Total deposits and placements Financial Investment—FVOCI Financial Investment—FVTPL Investment in subsidiaries Loans, advances and financing Other assets 23,476 1,221 6,132 46 – 15,584 493 24,663 3,574 5,024 – – 15,702 364 23,209 913 6,132 46 255 15,394 469 24,411 3,254 5,019 – 255 15,546 337 Total liabilities Deposits from customers and financial institution Bill and acceptance payable Redeemable Notes Borrowings Infrastructure support fund Deferred income Other liabilities 15,514 6,148 – 8,249 508 305 202 102 16,768 6,525 – 7,293 2,176 439 212 123 17,183 6,513 – 7,344 2,682 304 220 120 19,272 8,160 249 7,393 2,784 304 227 155 19,278 9,760 – 5,920 2,944 307 234 113 Total liabilities Deposits from customers and financial institutions Redeemable Notes Borrowing Infrastructure support funds Deferred income Other liabilities 15,514 6,148 8,249 508 305 202 102 16,768 6,525 7,293 2,176 439 212 123 15,462 6,148 8,249 508 305 202 50 16,725 6,525 7,293 2,176 439 212 80 Total equity Paid-up capital Reserves Non Controlling Interest 7,962 3,079 4,871 12 7,895 3,079 4,804 12 7,551 3,079 4,456 16 7,727 3,079 4,629 19 7,583 3,079 4,472 32 Total equity Paid-up capital Reserves Non Controlling Interest 7,962 3,079 4,871 12 7,895 3,079 4,804 12 7,747 3,079 4,668 – 7,686 3,079 4,607 – Commitments and contingencies 7,347 7,532 6,915 7,313 Commitments and contingencies 7,347 7,532 6,258 9,335 8,351 3.48 2.44 2.44 – 8.18 4.94 3.25 1.69 5.56 3.25 3.25 – 7.34 3.25 3.25 – 7.08 3.25 3.25 – 3.48 2.44 2.44 – 8.18 4.94 3.25 1.69 – 2.44 2.44 – – 4.94 3.25 1.69 1.35 0.44 9.44* 3.26 1.02 16.54 2.19 0.65 13.09 2.76 0.79 11.28 3.05 0.86 13.03 1.35 0.44 9.44* 3.26 1.02 16.54 1.31 0.42 9.07* 4.20 1.29 15.04 12.15 4.88 10.95 4.89 12.15 4.99 15.02 6.33 Share information Earnings per share Gross dividends (sen) Normal (sen) Special (sen) Financial ratios Profitability ratios (%) Return on Equity Return on Assets Cost to Income Ratio Asset quality ratios (%) Gross impaired loans, financing and advances ratio Net impaired loans, financing and advances ratio * # 11.29 4.45 Note: Excluding one-off cost of borrowing redemption Note: Under MFRS 9, AFS and HTM were classification under MFRS 139 which have been classified as FVOCI. Share Information Earnings per share – basic (sen) Gross dividends (sen) Normal (sen) Special (sen) Financial ratios Profitability ratios (%) Return on Equity Return on Assets Cost to Income Ratio Capital adequacy ratios (%) Risk Weighted Capital Ratio (RWCR) Core Capital Ratio Asset quality ratios (%) Gross impaired loans, financing and advances ratio Net impaired loans, financing and advances ratio * 24 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 – – 11.29 4.45 – – 12.15 4.88 42.83 33.75 38.83 32.35 11.31 4.49 12.18 4.92 Note: Excluding one-off cost of borrowing redemption BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 25 PERFORMANCE FIVE-YEAR GROUP FINANCIAL SUMMARY
15. PERFORMANCE COMPOSITION OF ASSETS – 2020 5.20% 1.94% FIVE-YEAR GROUP GROWTH TRAJECTORY COMPOSITION OF LIABILITIES AND EQUITY – 2020 1.30% 13.11% 1.34% 22.78% 26.12% TOTAL ASSETS NET INCOME 23,476 944 RM MIL RM MIL 3.41% 66.38% 0.36% 981 2.17% 26,861 35.14% PERFORMANCE GROUP STATEMENT OF FINANCIAL POSITION 944 26,999 870 20.75% 24,734 820 24,663 23,476 Deposits from customers Deposits and placements from Financial Institutions Term loans Reserves Redeemable Notes Share Capital Infrastructure support funds Other liabilities Loans, financing and advances Fixed assets Financial Investment — FVOCI Cash and short term deposits Other assets COMPOSITION OF ASSETS – 2019 1.12% 14.49% 2016 2018 2019 2020 PROFIT BEFORE TAX & ZAKAT 20,594 261 208 63.67% 2020 22,033 4.19% 20.37% 2019 23,834 325 22.27% 2018 RM MIL 380 1.41% 2017 18,519 RM MIL 1.78% 2016 GROSS LOANS, FINANCING AND ADVANCES 158 COMPOSITION OF LIABILITIES AND EQUITY – 2019 12.48% 2017 686 18,060 18,519 2019 2020 158 8.82% 29.57% 0.35% 19.48% Loans, financing and advances Fixed assets Financial Investment — FVOCI Cash and short term deposits Other assets Deposits from customers Deposits and placements from Financial Institutions Term loans Reserves Redeemable Notes Share Capital Infrastructure support funds Other liabilities 2016 2017 2018 2019 2020 2016 2017 2018 NET LOANS, FINANCING AND ADVANCES DEPOSITS FROM CUSTOMERS & FINANCIAL INSTITUTIONS TOTAL EQUITY RM MIL RM MIL RM MIL 15,584 6,148 7,962 7,962 9,760 21,210 7,895 19,743 7,727 8,160 18,285 7,583 15,702 2016 26 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2017 2018 2019 15,584 2020 2016 2017 6,513 6,525 2018 2019 7,551 6,148 2020 2016 2017 2018 2019 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2020 27
16. PERFORMANCE The Bank ’s Non-financial Performance Framework is an outcome-based framework designed to capture the broader contributions of BPMB beyond the narrow focus of financing growth indicators. In particular, it integrates developmental key result indicators to measure the socio-economic impact of BPMB’s operations and to create strong incentives for strategic alignment to achieve greater development impact. B.SOCIAL COST AND BENEFIT We have adopted the following metrics as part of our plan for 2020 – 2022 to measure our effectiveness in using public resources to deliver on our mandate: The framework adopted to measure BPMB’s non-financial performance comprises two components: INDICATOR A. DEVELOPMENTAL IMPACT B. SOCIAL COST AND BENEFIT There are four indicators on developmental impact, which are also included in BPMB’s Corporate Scorecard 2020. INDICATOR FY2020 TARGET FY2020 PERFORMANCE Financing to unserved and underserved segments 20.00% 19.55% Total Portfolio Approved Green Financing (new) RM400.0 million Total funding from other institutions RM691.3 million A total of 6 approved green financing in FY2020. 22 customers Measures the DFI in fulfilling social objectives i.e. financing targeted sectors. An OI below 1 indicates that more funds have been channelled towards the targeted segments rather than non-targeted segments. Self dependent 2019 (15.06%) Moving forward, our strategy is to achieve a lower SDI by achieving a higher PBTZ and financing disbursement while maintaining lower Government assistance. 0.56 0.56 BPMB achieved an OI of less than 1 for both 2020 and 2019. Moving forward, the strategy is to maintain lower Output Index below 1 by providing financing to targeted sectors. 2019 2020 Net Subsidy Cost (NSC) 0.25 times ≤ x ≤ 4.00 times SDI for 2020 is higher than the figure in 2019, mainly driven by lower Profit Before Taxation and Zakat (PBTZ) supported with higher Government assistance in the form of Government compensation scheme. 41 customers  xceeded approvals under moratorium E target, preserving clients’ income and improve client cash flow and profitability. BNM announced a moratorium for SMEs to manage the impact of the COVID-19 outbreak which includes measures for a 6-month deferment of all financing repayments effective from 1 April 2020, applicable for all performing financing that have not been in arrears for more than 90 days. Crowd-in Private Investment 2020 12.11% Subsidy dependent Output Index (OI) Total approval of Sustainable Development Financing Scheme (SDFS) and any approval via Measuring Impact on National Development (MIND). Increase in clients’ income (Approvals under moratorium) (new) Measures the DFI’s level of self-sustainability in relation to Government assistance. A higher SDI indicates higher dependence on the Government’s financial assistance.  arget of 20% was almost met for financing T to unserved and underserved segments. Portfolio (excluding Kuala Lumpur, Putrajaya, Selangor, Penang & Johor) FY2019/FY2020 PERFORMANCE Subsidy Dependence Index (SDI) A.DEVELOPMENTAL IMPACT PERFORMANCE NON-FINANCIAL PERFORMANCE 3.38 times Participated in 2 syndications in 2020 to promote Private Investment Crowd-In. Measures the effective weighted cost of the subsidy (Government assistance) to the society against the OI. NSC lower than net subsidy received is better, indicating effective social gain as the subsidy reaches more targeted sectors. 2020 RM 73.8 MIL The NSC for 2020 was higher compared to 2019 driven by lower PBTZ and higher Government assistance for the year. Moving forward, the strategy is to achieve a lower NSC, by achieving a higher PBTZ and maintaining lower OI and other forms of Government assistance. 2019 (RM 113.2 MIL) Total funding from BPMB Please refer to Highlights of the Year from page 84 to 87 for key developments on the Sustainability, Inclusivity, Digitalisation and Economic fronts. 28 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 29
17. LEADERSHIP BOARD OF DIRECTORS LEADERSHIP A Board Audit Committee C Board Credit Committee I Board Information Technology Committee N Board Nomination & Remuneration Committee R Board Risk Management Committee Denotes Committee Chairman DATO’ SRI MOHAMED NAZIR ABDUL RAZAK Non-Executive Chairman/Independent Non-Executive Director Date of Appointment 22 April 2021 Qualifications • Bachelor of Science (Hons) in Economics and Politics, University of Bristol • Master of Philosophy in Development Economics, University of Cambridge • Chevening Fellow at the Oxford Centre for Islamic Studies • Transformational Leadership Fellow, Blavatnik School of Government, Oxford University Areas of Expertise • Banking & Transformational Leadership Relevant Experience Dato’ Sri Nazir brings with him over 29 years of experience in the banking industry. His career began in 1989 in the corporate advisory department of Commerce International Merchant Bankers Berhad (now known as CIMB Investment Bank Berhad). He held various roles within the firm before being appointed as Chief Executive in June 1999 at the age of 33. Dato’ Sri Nazir spearheaded CIMB’s transformation from a Malaysian investment bank to an ASEAN universal bank via a series of bank acquisitions across the region. He served as the Group’s CEO for over 15 years, until 2014 when he became its Chairman. He retired from CIMB in October 2018. During his career at CIMB he also served as a Non-Executive Director of Khazanah Nasional for 4 years from 2014 to 2018 and a member of the Employee Provident Fund Investment Panel for 15 years from 2002 to 2017. Dato’ Sri Nazir received various accolades throughout his career. In 2004, he was awarded the American Express and Business Times CEO of the Year Award. He also became the youngest ever recipient of Finance Asia’s prestigious “Lifetime Achievement Award” in 2009. He received the Euromoney’s Outstanding Achievement Award in 2012 and Asia House Asian Business Leader Award for 2015. Dato’ Sri Nazir has made significant contributions in philanthropy. He was instrumental in setting up the CIMB Foundation in 2007 and now sits on the advisory board of the Centre for Asian Philanthropy and Society (CAPS) and is a trustee of the Urological Cancer Trust Fund of Universiti Malaya. Directorships in Public Companies/ Subsidiaries of Public Companies • Chairman of PLS Plantation Berhad Shareholdings in BPMB Group • Nil Membership of Board Committees in BPMB A C I N R Declaration Dato’ Sri Nazir has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. Since 2019 Dato’ Sri Nazir has been the Founding Partner and Chairman of Ikhlas Capital, an ASEAN private equity firm. NORAZILLA MD TAHIR ARIFF ROZHAN Independent Non-Executive Director Independent Non-Executive Director Date of Appointment 14 August 2020 Date of Appointment 10 May 2019 Qualifications • Bachelor of Arts (Hons) in Accounting, University of Stirling, Scotland • Member of the Malaysian Institute of Accountants (MIA) • Fellow Chartered Accountant of the Institute of Chartered Accountants in England and Wales (ICAEW) Qualifications • LLB (Hons) from Reading University, Berks, England • Fellow of the Chartered Institute of Arbitrators Areas of Expertise • Finance, Audit and Accounting Relevant Experience Norazilla has more than 25 years’ experience in financial management, notably in Financial Institutions and Capital Markets. She also possesses experience in sales logistics chain management, having worked at L’Oreal Malaysia Sdn Bhd and Universal Music Sdn Bhd. Prior to her appointment at BPMB, Norazilla was the Chief Financial Officer of Cagamas Berhad (Cagamas) for nine years, where she spearheaded the financial leadership of the Group and was responsible for upholding strong financial management and governance through the implementation of enhanced internal controls and processes to ensure timely, accurate and reliable financial reporting. Norazilla has also served as CFO/Head of Finance at RHB Islamic Bank Berhad, Asian Finance Bank Berhad and the Al Rajhi Banking and Investment Corporation (Malaysia) Berhad. Directorships in Public Companies/ Subsidiaries of Public Companies • Director of Global Maritime Ventures Berhad • Director of Pembangunan Leasing Corporation Sdn Bhd • Director of PLC Credit & Factoring Sdn Bhd • Director of BI Credit & Leasing Berhad Ariff began his career in 1989 at an international city law firm in London, practicing as a Barrister until 2004 when he returned to Malaysia and practised as an advocate and solicitor of the High Court of Malaya. He was a partner at Zaid Ibrahim & Co (ZICO), where he headed the firm’s Dispute Resolution practice and served on its Executive Committee. He is currently owner and Managing Partner at Ariff Rozhan & Co, which he founded in 2015. The firm manages both Malaysian and international clients, which include banks, major corporations, statutory bodies, local authorities, conglomerates and high net worth individuals. Ariff also continues to practice as a Barrister and is authorised by the Bar Council of England & Wales to “Conduct Litigation” and is registered in England & Wales to accept instructions via Direct Access. Directorships in Public Companies/ Subsidiaries of Public Companies • Chairman of Global Maritime Ventures Berhad • Director of Pan Malaysia Corporation Berhad Shareholdings in BPMB Group • Nil Membership of Board Committees in BPMB Membership of Board Committees in BPMB C I N R A Declaration Norazilla has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Relevant Experience Having practised law for more than 30 years, Ariff possesses extensive experience as a counsel and solicitor in complex claims and disputes across areas including arbitration, corporate and commercial disputes, insurance and reinsurance, banking, administrative, insolvency, construction and contractual matters. He is also well-versed in forensic investigations, forensic due diligence, and cases involving issues of regulatory and statutory compliance. Shareholdings in BPMB Group • Nil A 30 Areas of Expertise • Legal and Litigation (including banking and financial disputes, corporate, contractual and commercial disputes, forensic investigation and construction) C I N R Declaration Ariff has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 31
18. LEADERSHIP ARSHAD MOHAMED ISMAIL DATO ’ WAN MOHD FADZMI CHE WAN OTHMAN FADZILAH DATUK ZAITON MOHD HASSAN President/Group Chief Executive Officer Former Independent Non-Executive Director Date of Appointment 8 April 2019 Date of Appointment 25 April 2019 (resigned on 25 April 2021) Former Non-Executive Chairman/Independent Non-Executive Director Qualifications • LL.B. (Hons.) from the International Islamic University Malaysia • M.B.A. from the London Business School, United Kingdom • Chartered Banker, Asian Institute of Chartered Bankers Qualifications •Bachelor of Construction Economics, from RMIT University, Australia •Advanced Management Programme at the Wharton Business School, University of Pennsylvania, United States of America •Senior Executive Finance Programme at Templeton College, University of Oxford •Chartered Banker at the Asian Institute of Chartered Bankers (AICB) • Chartered Professional in Islamic Finance (CPIF) • Fellow, Institute of Corporate Directors Malaysia (ICDM, F) Areas of Expertise • Corporate Banking, Debt Capital Markets, Islamic Banking & Finance Relevant Experience Prior to his appointment as President/Group Chief Executive Officer of BPMB, Arshad was Head of Global Banking Business at Maybank Islamic Berhad, where he oversaw the bank’s corporate banking, trade finance and investment banking business lines. Since commencing his career in 1995 as a lawyer with Messrs. Mohamed Ismail & Co, specialising in corporate law, banking and finance law, and Islamic banking and finance law, Arshad has taken a varied career path. In early 2003, he was part of the pioneer team of CIMB Islamic Bank Berhad, focusing on Sukuk origination and execution before relocating to the United Arab Emirates in late 2004 to join HSBC Amanah as the Head of Islamic Capital Market. At HSBC Amanah, Arshad and his team originated many innovative and groundbreaking Sukuk transactions in the Gulf Cooperation Council region and South East Asia. Arshad has also held the role of Head of Asset Management at Aayan Capital, a boutique investment bank based in Jeddah, Saudi Arabia and Head of Corporate Finance and Advisory at Al Hilal Bank, an Islamic bank based in Abu Dhabi. Arshad returned to Malaysia in 2011 to join the International Islamic Liquidity Management Corporation (IILM) as Executive Director, Origination and Structuring. Directorships in Public Companies/ Subsidiaries of Public Companies • Director of Pembangunan Leasing Corporation Sdn Bhd • Director of PLC Credit & Factoring Sdn Bhd • Director of BI Credit & Leasing Berhad Shareholdings in BPMB Group • Nil Membership of Board Committees in BPMB • Nil Declaration Arshad has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. 32 FORMER BOARD OF DIRECTORS BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Areas of Expertise • Commercial and Development Banking, Economics, Agriculture Relevant Experience A professional banker with over 25 years of experience in domestic and international banking, Dato’ Wan Mohd Fadzmi has received many accolades in his career including Outstanding CEO 2017 from the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) in Macau, China and CEO of the Year at the Global Islamic Finance Awards (GIFA) 2016 in Jakarta, Indonesia. Dato’ Wan Mohd Fadzmi began his career in Melbourne, Australia as a Cost Estimator with Peter Slattery & Co in 1986. Upon returning to Malaysia in 1988, he joined Malayan Banking Berhad (MBB) where he spent the next 12 years in various leadership roles which include serving as General Manager/Country Head of MBB’s London and New York branches, as well as General Manager/Chief Executive of MBB Hong Kong. Thereafter, Dato’ Wan Mohd Fadzmi joined RHB Bank as Director, Global Business Banking Strategic Business Group in 2010 overseeing RHB’s international banking operations comprising branches in Singapore, Thailand and Brunei Darussalam. He was appointed as the President/Chief Executive Officer of Bank Pertanian (M) Berhad (Agrobank) from 2011 to 2017, and was fully responsible for leading Agrobank’s operations across Peninsular Malaysia, Sabah and Sarawak. Directorships in Public Companies/ Subsidiaries of Public Companies • Director of Hap Seng Consolidated Berhad • Director of Sumitomo Mitsui Banking Corporation Berhad • Chairman of Sedania Assalam Capital Sdn Bhd • Director of Pembangunan Leasing Corporation Sdn Bhd • Director of PLC Credit & Factoring Sdn Bhd • Director of BI Credit & Leasing Berhad Shareholdings in BPMB Group • Nil Membership of Board Committees in BPMB A C I N R Declaration Dato’ Wan Mohd Fadzmi has no •Family relationship with any director and/or major shareholder of BPMB • Conflict of interest with BPMB and has never been charged for any offence LEADERSHIP PRESIDENT/ GROUP CHIEF EXECUTIVE OFFICER Date of Appointment 18 February 2019 (retired on 18 February 2021) Qualifications • Fellow of the Association of Chartered Certified Accountants (ACCA), United Kingdom • Member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants Areas of Expertise • Banking, Accounting, Finance Relevant Experience Datuk Zaiton brings more than 40 years of diverse banking and finance experience, including 12 years in Maybank, in various senior positions including heading Treasury, International Operations, Branch Operations and Group Strategic Planning and 13 years on the Board of Bank Islam (M) Berhad, including chairing both the Board Risk Committee and the Audit & Examination Committee. She set up Malaysian Rating Corporation Bhd (MARC) in 1996 and was its President/Executive Director for eight (8) years. She was also responsible for the establishment of the Malaysia Professional Accountancy Centre (MyPAC) in 2015, a not for profit institution, which focuses on giving the opportunity and funding for students from underprivileged B40 families to pursue professional accounting qualifications and is currently its Chief Executive Officer. Datuk Zaiton’s extensive experience as an independent director includes chairing the Group Governance & Audit Committee of Sime Darby Plantation Berhad. She is currently the Chairman of Private Pension Administrator Malaysia and Director of several other private companies. She is also a Global Council Member of ACCA and a Member of the International Federation of Accountants (IFAC) Professional Accountants in Business Advisory Group. Directorships in Public Companies/ Subsidiaries of Public Companies • Director of Sime Darby Plantation Berhad Shareholdings in BPMB Group • Nil Membership of Board Committees in BPMB A C R Declaration Datuk Zaiton has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 33
19. LEADERSHIP TAN SRI DR RAHAMAT BIVI YUSOFF DATO ’ OTHMAN SEMAIL TAN LYE SIM DR MOHAMED ASHRAF MOHAMED IQBAL Former Independent Non-Executive Director Former Non-Independent Non-Executive Director Former Independent Non-Executive Director Former Independent Non-Executive Director Date of Appointment 1 October 2018 (retired on 1 October 2020) Date of Appointment 22 January 2019 (retired on 20 March 2021) Date of Appointment 15 September 2018 (retired on 15 September 2020) Date of Appointment 1 February 2019 (resigned on 28 February 2021) Qualifications • Bachelor of Social Science (Economics) (Honours) degree from Universiti Sains Malaysia • Master of Economics from University of Western Michigan, USA • Diploma in Public Administration from the Institute of Public Administration (INTAN) • Ph.D. in Political Science and International Relations from Australian National University Qualifications • Master of Business Administration from Universiti Kebangsaan Malaysia (UKM) • Bachelor of Natural Resources Economics from Universiti Pertanian Malaysia (UPM) • Diploma in Public Administration from the National Institute of Public Administration (INTAN) • Diploma in Agriculture from UPM Qualifications • Fellow of the Association of Chartered Certified Accountants Qualifications • PhD in Islamic Banking and Finance from the International Centre for Education in Islamic Finance (INCEIF) • Post Graduate Diploma in Islamic Studies from International Islamic University Malaysia • Master in Business Administration from California State University Fresno • Bachelor of Science in Mechanical Engineering from California State University Fresno • Chartered Professional in Islamic Finance (CPIF) Areas of Expertise • Economy, Finance, Macro Development, Government Projects Relevant Experience Tan Sri Dr Rahamat had served in the public service for 36 years, with vast experience in the fields of economy, finance and macroeconomic development. Her career began at the Ministry of Finance (MOF) as an Assistant Secretary in the Tax Division in 1981 followed by a stint as a Project Officer at the Institute of Public Administration (INTAN) from 1988 to 1991. Tan Sri Dr Rahamat then served as Assistant Director in the Macroeconomic and Evaluation Section of the Economic Planning Unit (EPU) in the Prime Minister’s Department from 1991 to 1993. She was later promoted to the position of Principal Assistant Director in the same section from 1994 to 2000 and also held the same position in Section Industry and Services in 2001. She was seconded to the Department of Industrial Development, Energy Commission as Director in 2002. Tan Sri Dr Rahamat returned to the EPU as Deputy Director in the Macroeconomic Section in August 2004 and in December the same year she was appointed as the Secretary of Economic Division at MOF. She continued to hold prominent positions at MOF through her promotion as Director of the Budget Division in 2008, and as Deputy Secretary General (Systems and Controls) in 2011.Tan Sri Dr Rahamat then returned to the EPU as Director General from 2011 to June 2017. She is currently the Chairperson of Malaysia Deposit Insurance Corporation (PIDM), Co-chair of Malaysia Thailand Joint Authority (MTJA) and Chairperson of Board of Governors, Multimedia University. She is also a Member of Advisory Panel of Asian Development Bank Institute. Directorships in Public Companies/ Subsidiaries of Public Companies • Director of IOI Corporation Berhad • Director of Ekuiti Nasional Berhad (EKUINAS) • Chairperson of Global Maritime Ventures Berhad Areas of Expertise • Agriculture, Procurement, Public Sector Relevant Experience Dato’ Othman has over 37 years of experience in public sector. He began his career as an Assistant Agriculture Officer at Rubber Industry Smallholders Development Authority (RISDA) in 1982 and moved on to the Planning and Corporate Division of Ministry of Primary Industries as an Assistant Secretary in 1998. He then joined the Ministry of Finance in 2005 as an Assistant Secretary in the Government Procurement Division and thereafter undertook numerous positions before he was promoted to his current position as Deputy Secretary General (Management) in October 2018. He was the Chairman of SRC International Sdn Bhd and a Director of Capital Market Development Fund prior to his retirement. Directorships in Public Companies/ Subsidiaries of Public Companies • Chairman of Technology Depository Agency Berhad Shareholdings in BPMB Group • Nil Membership of Board Committees in BPMB C I N Declaration Dato’ Othman has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. Shareholdings in BPMB Group • Nil Membership of Board Committees in BPMB A N Declaration Tan Sri Dr Rahamat Bivi has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. 34 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Areas of Expertise • Risk Management, Banking, Accounting Relevant Experience Tan Lye Sim is an accomplished risk practitioner with more than 30 years of experience in financial institutions, securities houses, merchant and commercial banks and finance companies. Tan Lye Sim held various senior positions in financial institutions from 2005 to 2013, including as the Head of Treasury Compliance of RHB Bank Berhad, Group Chief Risk Officer of Alliance Financial Group, Chief Risk Officer of Hong Leong Bank, Director, and Head of Operational Risk Management of CIMB Investment Bank. Her last position was as Group Chief Risk Officer at Kenanga Investment Bank Berhad from 2013 to 2017. During her time there, Tan Lye Sim developed overall risk management framework and policies for the respective banks. She also planned, led and implemented programs, processes and systems for effective group wide risk management. Tan Lye Sim began her career in the Foreign Exchange Department at the London branch of United Overseas Bank Ltd in 1984. She spent 13 years working in London and held various positions at Nikko Securities Co. (Europe) Ltd, Hill Samuel Merchant Bank Ltd and Fuji International Finance Ltd. Upon her return to Malaysia, she joined MBf Finance Berhad as Head, Risk Management Dept./Treasury Settlements from 1997 to 2002. She then joined SAS Institute Sdn. Bhd. in 2002 as a Principal Risk Consultant for Enterprise Wide Risk Management solutions. Tan Lye Sim currently does not hold any directorship in other companies. Directorships in Public Companies/ Subsidiaries of Public Companies • Nil Shareholdings in BPMB Group • Nil Relevant Experience Dr Mohamed Ashraf is the CEO of MindSpring Sdn Bhd, a consulting firm that he started in 2005 specialising in business performance solutions with a keen interest in the performance of knowledge based organisations. He began his career at Shell Malaysia in 1991 and held various positions in Human Resource, Distribution and Business Re-Engineering. He then moved on to Proton Berhad from 1996 to 1999 where he assumed the positions of Managing Director of Proton Cars (UK) Ltd, Executive Director of Proton Cars (Europe) Ltd and Director of Proton Cars (Australia) Ltd. He then assumed the position of Director of Hay Group, Asia from 1999 to 2002 and Managing Director of Federal Auto Holdings Berhad from 2002 to 2005. He was previously a Director of HSBC Amanah Malaysia Berhad and Fairview International Schools, the country’s largest International Baccalaureate education provider. He is currently the Chairman of WAAFI Bank Ltd. He is also a Shariah Committee Member of HSBC Amanah Malaysia Berhad. Directorships in Public Companies/ Subsidiaries of Public Companies • Chairman of Pembangunan Leasing Corporation Sdn Bhd • Chairman of PLC Credit & Factoring Sdn Bhd • Chairman of BI Credit & Leasing Berhad Shareholdings in BPMB Group • Nil Membership of Board Committees in BPMB A Areas of Expertise • Islamic Banking & Finance, Human Resource, Strategy, Organisational Transformation, Automotive Membership of Board Committees in BPMB R Declaration Tan Lye Sim has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. C I N R Declaration Dr Mohamed Ashraf has no • Family relationship with any director and/or major shareholder of BPMB. • Conflict of interest with BPMB and has never been charged for any offence. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 35 LEADERSHIP FORMER BOARD OF DIRECTORS
20. LEADERSHIP LEADERSHIP SHARIAH COMMITTEE ASSOCIATE PROFESSOR DR AZNAN HASAN DR AHMAD BASRI IBRAHIM USTAZ MOHD FADHLY MD YUSOFF Chairman Member Member Date of Appointment 1 April 2017 Date of Appointment 1 April 2017 Date of Appointment 1 April 2017 Qualifications • Bachelor Degree in Shariah from University of Al-Azhar, Egypt • Master Degree with distinction, in Shariah from Cairo University, Egypt • PhD from University of Wales, Lampeter, United Kingdom Qualifications • Bachelor in Islamic Jurisprudence and Legislation from the University of Jordan, Jordan • Master Degree in Islamic Revealed Knowledge and Heritage from the International Islamic University of Malaysia • PhD in Islamic Law from the University of Birmingham, United Kingdom Qualifications • Bachelor Degree in Shariah (First Class) from the University of Malaya, Malaysia Relevant Experience Dr Aznan is currently an Associate Professor at the IIUM Institute of Islamic Banking and Finance, International Islamic University of Malaysia. He teaches post-graduate level students and specialises in Islamic Commercial Law, Islamic legal maxims and other related areas of Islamic banking and finance. Renowned locally and internationally for his extensive experience and involvement in Islamic finance and Shariah advisory, Dr Aznan has served as a Shariah advisor and consultant to various financial institutions, corporate entities, Government agencies and regulatory authorities for approximately 15 years. He was involved in advising and approving various Islamic financial products in the banking, capital market and takaful industries, and is credited with over 40 research papers and more than 100 presentations on Shariah and Islamic finance worldwide. Memberships and Other Appointments • Member of the Association of Shariah Advisors in Islamic Finance • Deputy Chairman of the Shariah Advisory Council of the Securities Commission Malaysia • Chairman of the Shariah Committee of Maybank Islamic Berhad 36 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Relevant Experience Dr Ahmad Basri is currently Head of Shariah Management at Permodalan Nasional Berhad (PNB), leading a team on Shariah matters in unit trust fund management. Prior to this, he was an Associate Professor at the Department of Fiqh and Usul Al-Fiqh at the Kulliyyah of Islamic Revealed Knowledge and Human Sciences, International Islamic University of Malaysia teaching Usul Al-Fiqh, Islamic Criminal Law, and Introduction to Fiqh. Having previously served as chairman and member of the Shariah Committee in a number of Islamic financial institutions in Islamic banking and takaful industries, Dr Ahmad Basri possesses extensive experience in Shariah advisory and has received multiple invitations to present research papers and provide training on Shariah and Islamic finance in conferences. His research areas of interest include Islamic law of transactions, Islamic political systems and Islamic legal maxims. Memberships and Other Appointments • Member of the Association of Shariah Advisors in Islamic Finance • Shariah Committee member of RHB Islamic Bank Berhad Relevant Experience Ustaz Mohd Fadhly currently runs his own business and is also an independent Shariah advisor and consultant. Prior to this, he was a manager with the Islamic Capital Market Department in Securities Commission Malaysia for 12 years, supervising and monitoring Shariah compliance requirements of Islamic product structures in relation to submissions for issuance of Sukuk, structured products, collective investments and Islamic real estate investment trusts. Ustaz Mohd Fadhly was also in charge of research and development activities relating to Islamic capital market products, as well as reviewing and providing consultative input and criteria for the preparation of Islamic securities and capital market guidelines. Ustaz Mohd Fadhly is an appointed Shariah advisor and consultant for a number of educational, non-governmental organisations and financial institutions. An accredited trainer for Islamic Finance Qualification (IFQ) by the Chartered Institute for Securities and Investment, he is actively involved in reviewing Shariah and Islamic finance curriculums and syllabi for human capital development and training providers. Memberships and Other Appointments • Member of the Association of Shariah Advisors in Islamic Finance • Shariah Committee member of RHB Islamic Bank Berhad • Shariah Committee member of Sun Life Malaysia Takaful Berhad BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 37
21. LEADERSHIP SENIOR MANAGEMENT SHARIAH COMMITTEE LEADERSHIP EXECUTIVE COMMITTEE CHAIRMAN ASSOCIATE PROFESSOR DR MISZAIRI SITIRIS ASSOCIATE PROFESSOR DR NORAINI MOHD ARIFFIN Member Member Date of Appointment 1 October 2008 Date of Appointment 13 June 2012 Qualifications • Bachelor Degree in Islamic Revealed Knowledge and Heritage (Fiqh and Usul Al-Fiqh) from the International Islamic University of Malaysia • Second Bachelor Degree in Psychology from the International Islamic University of Malaysia • Master Degree in Fiqh and Usul Al-Fiqh from the International Islamic University of Malaysia • PhD in Fiqh and Usul Al-Fiqh from the International Islamic University of Malaysia • Postgraduate Diploma in Law and Administration of Islamic Judiciary from the Harun M. Hashim Law Centre, International Islamic University of Malaysia Qualifications • Bachelor of Science (Econs) in Accounting from the University of Aberystwyth, United Kingdom • Master Degree in Accounting and Finance with distinction, from the University of Dundee, United Kingdom • PhD in Accounting for Islamic Banks from the University of Surrey, United Kingdom Relevant Experience Dr Miszairi is currently an Associate Professor in the Department of Fiqh and Usul Al-Fiqh at the Kulliyyah of Islamic Revealed Knowledge and Human Sciences, International Islamic University of Malaysia. He teaches several subjects on Shariah and has written a number of research papers. In line with his interest on Islamic finance, Dr Miszairi has also supervised postgraduate thesis on takaful. Currently also teaching at IIUM Institute of Islamic Banking and Finance on a part-time basis, Dr Miszairi is occasionally involved as a trainer and facilitator on Shariah subjects in Islamic banking and finance courses and participates actively in Shariah and Islamic finance conferences. Memberships and Other Appointments • Member of the Association of Shariah Advisors in  Islamic Finance 38 Relevant Experience Dr Noraini is currently an Associate Professor in the Department of Accounting, Kulliyyah of Economics and Management Sciences, International Islamic University of Malaysia. She teaches several subjects such as Company Accounting, Accounting for Islamic Banks, Accounting, Auditing and Governance of Islamic Financial Institutions and Risk Management for Islamic Financial Institutions at undergraduate and postgraduate levels. Dr Noraini has published numerous articles related to Islamic risk management, Shariah audit and Shariah governance of Islamic banks, and participated as a speaker at national and international conferences. She co-authored a book entitled ‘Accounting for Islamic Banks’ and is also one of the writers for a book entitled ‘Accounting for Islamic Finance’, published by the Malaysian Institute of Accountants. Dr Noraini is actively involved in consultancy projects to develop Islamic banking regulations in a few developing countries and is occasionally involved as a trainer in Shariah audit and accounting for Islamic banking courses. Memberships and Other Appointments • Treasurer of the Association of Shariah Advisors in Islamic Finance • Associate Member of the Malaysian Institute of Accountants • Shariah Committee member of AmMetLife Takaful Berhad • Shariah Committee member of Amanah Raya Berhad BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 ARSHAD MOHAMED ISMAIL President/Group Chief Executive Officer MEMBERS ZULKEEFLI MAD KARIM MUHAMMAD TAUFIQ ABDUL LATIF HILDAH HAMZAH Chief Financial Officer Chief Risk Officer Head, Business Banking Group II MUHAMMAD AZRAINI ABDUL HAMID VIKRAMAN KALIA PURUMAL ZARINA NADZIMUDDIN Group Head, Operations Acting Group Head, Strategy General Counsel and Group Company Secretary ZAINUDIN ISMAIL MUHAMED NOH KADERAN NOOR AIN MOHD. AMIN Chief Human Resource Officer Chief Internal Auditor Acting Head, Group Shariah Management BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 39
22. LEADERSHIP GROUP ORGANISATION STRUCTURE GMV BOARD PLC BOARD BITC BCC LEADERSHIP BPMB BOARD BNRC BRMC BAC SC P /GCEO Global Maritime Ventures Berhad Pembangunan Leasing Corporation Sdn Bhd Business Banking Group I Group Digital Group Operations Group Finance Group Human Resource Group Corporate Secretarial & Legal Services Group Compliance Group Risk Management Group Internal Audit Group Shariah Management Digital Projects Credit Administration Treasury Organisational Performance & Rewards Legal Regulatory Compliance Credit Risk Business & Credit Audit Shariah Advisory & Research Information Technology Finance Organisational Development & Talent Management Corporate Secretarial Financial Intelligence & Integrity Market Risk Support, Operations & IT Audit Shariah Documentation Review Corporate Communications Manuals & Documentation Recovery HR Shared Services ◊ Compliance Review Operational & Shariah Risk Investigation & Professional Practices Economics/ Research Property Management & Services Procurement Industrial & Employee Relations Credit Policy & Portfolio Management ◊ Shariah Audit Group Strategy Corporate Planning Business Banking Group II Business Banking A/B Business Banking A/B/C Programme Management Office Monitoring & Evaluation Legends Embedded Legal Board Subsidiaries (BS) Group Business Products Client Management Board Committees (BC) Value Creator Value Enabler Business Products Risk Strategy & Analytics Value Protector ◊Shariah Review function will report directly to SC as per BNM Shariah Governance Framework. Shariah Audit reports to BAC via Chief Internal Auditor 40 Investor Relations BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 41
23. GOVERNANCE The Board of Directors (Board) of BPMB is committed to uphold high standards of corporate governance by continuously advocating transparency, accountability, responsibility and integrity, in line with the principles and best practices of Corporate Governance, Bank Negara Malaysia’s (BNM) Policy Document on Corporate Governance, Garis Panduan Ahli Lembaga Pengarah Lantikan Menteri Kewangan (Diperbadankan) and primary legislative and regulatory provisions, i.e. Development Financial Institutions Act 2002. Skills and Experience Banking Gender Age Malaysian Male 50 – 55 years old 3 Accounting Key Board Features Nationality Finance The Directors’ professional backgrounds, skills, extensive experience and knowledge in various fields, accumulated while serving the private and government sectors, bring to the Board the essential range of capabilities and experience required to effectively perform its functions. A brief profile of each Director is presented on pages 30 to 35 of the Annual Report. The Board is also committed to maintaining diversity and inclusion in its composition and decision-making process. In this regard, the Board considers diversity across different aspects, including gender, age, educational background, nationality, professional experience, skills, knowledge and length of service. As at 30 April 2021, the Board comprises three (3) members with one (1) Non-Executive Chairman/ Independent Non-Executive Director and two (2) Independent Non-Executive Directors. All Independent and NonExecutive Directors are persons of high calibre and integrity with the ability to exercise independent judgement and act in the best interests of the Bank. The high proportion of Independent Non-Executive Directors (INEDs) also provides the necessary checks and balances on executive decisions made by the Management. The Board is satisfied that no individual or group of Directors has unfettered decisionmaking powers that will create a potential conflict of interest. The appointment of the Non-Independent Non-Executive Director of BPMB is currently on-going. BPMB is in the process of appointing an Independent Director with financerelated or accounting experience in order to comply with the requirement 42 CORPORATE GOVERNANCE FRAMEWORK Legal and Compliance Shareholders BOARD Board Credit Committee Board of Directors Board Audit Committee MANAGEMENT Board Nomination and Remuneration Committee Board Risk Committee Board Information Technology Committee President/ Group Chief Executive Officer Management prescribed in the BNM Policy Document on Corporate Governance, i.e. at least three (3) directors must have financerelated or accounting experience. The appointment/reappointment of Directors is governed by the BNM Policy Document on Corporate Governance, BNM Policy on Fit & Proper Criteria, BPMB Policy on Fit and Proper Criteria for the Board of Directors, Shariah Committee (SC) and President/Group Chief Executive Officer (P/GCEO) and the Bank’s Constitution. The Board Nomination and Remuneration Committee (BNRC) reviews and BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 assesses the potential and current Directors’ mix of skills, core competencies, experience, integrity and time to effectively discharge his or her role for the purpose of appointments/reappointments before a recommendation is made to the Board for approval. BNRC will also refer to the results of the individual assessments conducted via Directors’ Self and Peer Assessment for reappointment of Directors. The application for the appointment/ reappointment of Directors will be submitted to BNM for approval. BOARD EVALUATION The Board has also implemented an annual evaluation of the overall effectiveness of the Board and Board Committees. The Board Effectiveness Evaluation (BEE) for year 2020 was conducted by an external consultant whereby a detailed questionnaire was given to each Director and the P/GCEO with an interview held with each respondent accordingly. The questionnaire covers questions on the experience, qualification and skills of the directors, comprehension of role and responsibilities as members of the Board Oversight Committees, directors’ preparedness, contribution and quality of discussions. This exercise is undertaken upon the completion of every financial year and forms part of the supporting documents for the ‘fit and proper’ assessment for reappointment of Directors. Feedback and suggestions from the Board will be gathered for deliberation and information of the BNRC and thereafter presented to the Board for consideration and approval on further professional development plans for the Directors and Board. DUTIES AND RESPONSIBILITIES The Board is responsible for setting the policy framework and business strategies to align sustainable business strategies driven by the Management with BPMB’s objectives and aspirations, taking into account interests of stakeholders. There is clear separation of the roles and responsibilities of the Chairman and P/GCEO, in line with best practices to ensure appropriate supervision of the Management. The Board delegates daily operations of the Bank to the 3 Female Audit Transformational Leadership BOARD COMPOSITION AND BALANCE 2 P/GCEO who, with the Management, is accountable to the Board. The Board is guided by the Board Charter with respect to the Board’s duties, functions and powers. The Board Charter is reviewed periodically to incorporate changes to applicable legislations and guidelines. The Board Charter includes, amongst others, the Board’s roles and responsibilities on the following matters: i) Corporate Governance, Policy and Strategic Matters for the Group; ii) Shariah Governance and Compliance; iii) Risk Governance and Internal Control; iv) Succession Planning; and v) Conduct of the Group's business. 1 SHARIAH GOVERNANCE AND COMPLIANCE The Board’s oversight accountability over Shariah governance and compliance must reflect the integration of Shariah governance considerations within the business and risk strategies of BPMB. In fulfilling this role, the Board must: i) promote Shariah compliance in accordance with expectations set out in the BNM Policy Document on Shariah Governance and ensure its effective integration with the Bank’s business and risk strategies; ii) institutionalise a robust Shariah governance framework commensurate with the size, complexity and nature of BPMB; There are Board Reserved Matters in the Board Charter, specifically for the Board’s decision, including approval of business plans and the annual budget, dividend recommendation, acquisition and disposal of undertakings and properties of substantial values, major investment and financial decisions, as well as changes to the management and control structure within the Group, including policies and delegated authority limits. The Board also approves the Group’s plans in relation to managing its climate, sustainability and developmental impact through its purview of the Group’s strategy. iii) approve all policies relating to Shariah governance structure and reporting arrangements, Shariah risk management and other areas that are material to the effective implementation of governance within the Bank, and ensure that such policies are implemented effectively; Where there is a potential conflict of interest, the Director concerned is required to declare his/her interest and abstain from the deliberation and decision-making process. v) oversee the implementation of the internal control framework to prevent Shariah non-compliance and approve any rectification measures to resolve incidences or circumstances that may result or have resulted in Shariah non-compliance; Read more about BPMB’s Board Charter at bpmb.com.my iv) oversee the implementation of BNM Shariah Advisory Council (SAC) rulings and decisions or advice of the SC within all business and functional lines, including any business or risk implications arising from such implementation; BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 43 GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE
24. GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE vii ) promote a sound corporate culture which reflects the importance of adhering to Shariah requirements in product development and marketing, strategy formulation, business operations, risk management practices and other aspects that promote end-to-end compliance with Shariah; and viii)continuously develop and strengthen Directors’ knowledge and understanding on Islamic finance business as well as keeping Directors’ abreast of developments that may impact Islamic financial business, in order to fulfil their responsibilities to BPMB. The P/GCEO holds overall executive responsibility in ensuring the day-to-day operations of BPMB Group are effectively and appropriately managed. P/GCEO serves as the conduit between the Board and Management in ensuring the success of BPMB Group’s governance and management functions. The role of the P/GCEO includes the following: i) Implementing business and risk strategies, remuneration and other policies in accordance with the approved business strategies and funding plan as endorsed by the Board; ii) Promoting, together with the Board, a sound corporate culture within BPMB which reinforces ethical, prudent and professional behaviour; iii) Addressing actual or suspected breaches of regulatory requirements or internal policies in a timely and appropriate manner; iv) Regularly updating the Board with material information the Board needs to carry out its oversight responsibilities; v) Ensuring that, in leading Senior Management, the Group’s Islamic finance operations, business, affairs and activities comply at all times with Shariah requirements; vi) Serving as the conduit between the Board and Management in ensuring the success of the Group’s governance and management functions; vii) Ensuring the Board’s decisions are implemented and the Board’s directions are responded to; viii)Providing direction in the implementation of both short-term and long-term business plans; ix) Providing strong leadership that effectively communicates sound and viable vision, management philosophy and business strategy to the employees; and x) Ensuring the day-to-day business affairs of the Group are effectively and appropriately managed. Via the relevant Management Committees, the P/GCEO promotes a sound corporate culture within BPMB Group which reinforces ethical, prudent and professional behaviour and addresses any breaches or potential breaches of prudential regulation and steps to be taken to ensure that the underlying root causes of any regulatory/internal control failures are identified and addressed. CODE OF ETHICS AND BUSINESS CONDUCT FOR BOARD OF DIRECTORS AND SHARIAH COMMITTEE BPMB has adopted a Code of Ethics and Business Conduct for the Board of Directors and Shariah Committee that sets out sound principles and standards of good practice in the banking industry. Directors are expected to maintain a good reputation for ethical behaviour and fair dealings in the conduct of business and are expected to conduct the business of BPMB Group in a professional manner. Whistleblowing Policy The Group is dedicated to upholding Malaysia’s Anti-Corruption Principles in promoting integrity, transparency and good governance in all aspects of its business when we signed the Corporate Integrity Pledge on 26 September 2016. As such, our Whistleblowing Policy is designed to allow individuals to whistleblow on issues of serious concern they encounter. These include bribery, corruption, conflict of interest, fraud, abuse of power or other issues that have a reputational risk to the Group. The policy also extends the necessary protections to the whistleblower in line with the Whistleblower Protection Act 2010. An external independent party administers a platform known as Halo that provides a feedback channel to all BPMB staff. Halo provides 5 modes of communication for staff to disclose any concerns via a toll-free telephone number, website, email, facsimile and post. All of these serve to complement the Group’s governance framework and ensure legitimate concerns can be objectively evaluated and addressed. BOARD MEETING AND SUPPLY OF INFORMATION As per the BNM Policy on Corporate Governance, the Board is required to meet at least once every two months to discuss and monitor amongst others, the overall conduct and performance of the Bank, including matters relating to financials, policies, strategies, performance and resources. Approvals on urgent or important business issues requiring the sanction of the Board are sought by convening Special Board meetings or by way of Circular Resolutions enclosing all relevant information to enable the Board to make informed decisions. All Circular Resolutions approved by the Board will then be tabled at the next Board meeting for notation. Meetings of the Board and Board Oversight Committees are scheduled in advance prior to the commencement of a new financial year. The meeting calendar is circulated to all Directors to enable them to plan ahead. The agenda for each Board/Board Oversight Committee meeting and papers relating to the matters to be deliberated at the meetings are forwarded to all Directors prior to the date of the Board/Board Oversight Committee meetings. The Board also peruses the deliberations and decisions made by the Board Oversight Committees through the meeting minutes of the Board Oversight Committees, which will be tabled at the Board meetings. The Chairman of each Board Oversight Committee is responsible for informing the Directors during the Board meetings of any salient matters noted by the Board Oversight Committees requiring the Board’s attention or direction. All proceedings of Board meetings are minuted and signed by the Chairman in accordance with the provisions of the Companies Act, 2016. All Directors have direct access to the services of the Company Secretary’s Office and Senior Management. Independent professional advice is also made available to the Directors in discharging their duties, in the event such services are required. During the financial year ended 31 December 2020, the Board met 22 times. The attendance record of the Directors at Board Meetings for 2020 is as follows: BOARD’S DELIBERATIONS with particular focus on ethical banking, green financing and reaching the unserved and underserved sectors. KEY MATTERS DISCUSSED BY THE BOARD Key areas/matters reviewed, deliberated and approved by the Board during FY2020 include the following: Financial Performance • Strategy: • Disposal of 183,945,700 Ordinary Shares of RM0.25 each in Malaysian Bulk Carriers Berhad • Approval of new Policy on Monitoring and Evaluation of Financing Transactions • Approved Statement of Corporate Intent (SCI) and Annual Funding Requirement (AFR) for Financial Year 2020 and 2021 • Issuance of RM1.2 billion of BPMB Sukuk under Project Hijrah for partial prepayment of conventional borrowings from Employees Provident Fund • Progress Update of 3-Year Strategic Plan 2020-2022 • Review of climate-related/ sustainability/developmental impact Name of Director GOVERNANCE vi) oversee the performance of Senior Management and other officers entrusted to implement Shariah governance framework such that the Board is satisfied that the measures of their performance are aligned with Shariah governance objectives; Approval of Project Hijrah involving the transfer of neutral and Islamic instrument Statement of Financial Position items to Islamic Book Governance: • Approval of revisions to the Board Charter, Code of Ethics and Business Conduct, and Fit and Proper Criteria for the Board, SC and P/GCEO • Credit Value Chain (CVC) Result Measurement Dashboard, Process Comparison and Application of CVC Improvements • Election of BNM Framework for Development Financial Institutions and BNM Policy Document on Transitional Arrangements for Regulatory Capital Treatments of Accounting Provisions for Development Financial Institutions COVID-19 Response: • Appraisal of Risk Weighted Capital Ratio and Cost-Bearing Liabilities Analysis Approval of counter-cyclical measures as part of review on DFI counter-cyclical role No. of Meetings and Attendance Datuk Zaiton Mohd Hassan Non-Executive Chairman/Independent NonExecutive Director 22/22 • Tan Lye Sim Independent Non-Executive Director (ceased w.e.f. 15 September 2020) 11/14* Risk Management & Compliance: Tan Sri Dr Rahamat Bivi Yusoff Independent Non-Executive Director (ceased w.e.f. 1 October 2020) 13/16* Dato’ Othman Semail Non-Independent Non-Executive Director 19/22 Dr Mohamed Ashraf Mohamed Iqbal Independent Non-Executive Director 22/22 Dato’ Wan Mohd Fadzmi Che Wan Othman Fadzilah Independent Non-Executive Director 22/22 Ariff Rozhan Independent Non-Executive Director 22/22 Norazilla Md Tahir Independent Non-Executive Director (appointed w.e.f. 14 August 2020) 10/10* • Approval of alternate site for BPMB • Financial simulation impact on the proposed modification of BNM Guidelines on Development Financial Institutions Financial Reporting Information Technology: • Establishment of Technology Risk Management Framework and Cyber Resilience Framework • Approval of MIS Roadmap and the Way Forward Culture & Values: • Community Adoption Programme • Top Team Effectiveness and Coaching Programme for GMC members * Reflects the number of meetings attended during the time the Director held office. 44 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 45
25. GOVERNANCE GOVERNANCE STRATEGY • Approved Disposal of 183,945,700 Ordinary Shares of RM0.25 Each in Malaysian Bulk Carriers Berhad Held by BPMB • Approved Revision to the Board Charter, and the Code of Ethics and Business Conduct for Board of Directors and Shariah Committee • Approved New Policy on Monitoring and Evaluation of Financing Transaction • • Received Progress Update of 3-Year Strategic Plan 2020 – 2022 Approved Revision to the Fit and Proper for Board of Directors, Shariah Committee and President/Group Chief Executive Officer • Appraised Whistleblowing Policy • Approved Statement of Corporate Intent (SCI) and Annual Funding Requirement (AFR) for Financial Year 2020 and 2021 • Reviewed Membership of Board & Board Oversight Committees and Subsidiary of BPMB • Reviewed BPMB’s Authority Matrix • Appraised Credit Value Chain (CVC) Result Measurement Dashboard, Process Comparison and Application of CVC Improvements • Approved Project Hijrah: Issuance of RM 1.2 Billion of Bank Pembangunan Malaysia Berhad Sukuk (BPMB Sukuk) to Partially Prepay Conventional Borrowings from Employees Provident Fund (EPF) RESPONSE TO COVID-19 FINANCIAL PERFORMANCE • • Regularly reviewed BPMB & its subsidiaries Financial Results (Monthly Management Report, Quarterly, Half Yearly & Yearly) • Considered Economic Impact of COVID-19 • Deliberated Simulation of Financial Impact Arising from 6 Months Moratorium and COVID-19 Outbreak Approved Budget 2020 for Revised 2020 Balance Scorecard • Approved Countercyclical Measures of BPMB • Promoted Business Continuity Management, Crisis Management and COVID-19 (Briefing Session by Dr Goh Moh Heng, President BCM Institute) • Appraised Risk Weighted Capital Ratio Analysis • Approved Election of Bank Negara Malaysia Modified Framework for Development Financial Institutions • Approved BPMB and Its Subsidiaries – 2020 Audit Plan and Timeline • Reviewed Development Bank’s Counter-Cyclical Role • Appraised Analysis of Cost-Bearing Liabilities • Approved Project Hijrah: Transfer of Neutral and Islamic Instrument Statement of Financial Position Items to Islamic Book • Approved Business Plan and Budget 2021 • Promoted SC-BOD Engagement Session – ‘Structural Solution in the Treatment of Shariah Non-Compliant Income: Development Financial Institution’s Perspective’ • Approved Election of BNM’s Policy Document on Transitional Arrangements for Regulatory Capital Treatments of Accounting Provisions for Development Financial Institutions • Considered and Approved Alternate Site for BPMB • Received Status Update on Risk Appetite Statement and Tolerance Level • Received Quarterly Group Stress Test Results • RISK MANAGEMENT & COMPLIANCE Approved Financial Simulation Impact on the Proposed Modification of Bank Negara Malaysia Guidelines on Development Financial Institutions Financial Reporting INFORMATION TECHNOLOGY CULTURE, VALUE • Reviewed Data Governance Framework for BPMB Group • Approved MIS Roadmap and the Way Forward • Approved Establishment of Technology Risk Management Framework and Cyber Resilience Framework 46 • Promoted Community Adoption Programme • Received Regular Updates on Top Team Effectiveness and Coaching Program for GMC Members BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 TRAINING AND DEVELOPMENT OF DIRECTORS All newly appointed Directors are required to attend FIDE Core Programme Modules A and B, the Islamic Finance for Board of Directors Programme and an induction programme organised by the Management. Directors will be introduced to the Management team and briefed on the Bank’s history, operations and financial performance to provide them first-hand understanding of the Bank’s operations. At the induction programme, Heads of Functions and Chief Executive Officers (CEO) of the main subsidiaries will brief newly appointed Directors on their areas of responsibilities in order to offer the Directors background knowledge of the Bank and establish personalised interaction with key individuals in Senior Management. The Board keeps abreast of the latest developments in the banking industry by attending relevant conferences and seminars held in Malaysia and abroad for their continuing professional education. The Bank also encourages its Directors to attend talks, training programmes and seminars to update themselves on new developments in the business environment. Seminars/conferences/training programmes attended by the Directors in the financial year ended 31 December 2020 included the following: • FIDE Core Programme Module A • FIDE Core Programme Module B • Islamic Finance for Board of Director Programme • FIDE Elective: Emerging Risks, the future Board and return on Compliance • Anti-Money Laundering / Counter Financing of Terrorism – Banking Sector The remuneration package for NonExecutive Directors (NEDs) is generally commensurate with the expertise, skills, responsibilities and the risks undertaken by the NEDs concerned. All NEDs are paid a fixed monthly director’s fee and meeting attendance allowance for each Board and Board Oversight Committee meeting attended. In addition, NEDs also receive other benefits-in-kind including Directors & Officers Liability Insurance and medical benefits. Remuneration of NEDs is decided by shareholders. A summary of the total remuneration of the Directors for the financial year ended 31 December 2020 is set out on page 160 of this Annual Report. • To approve and/or endorse “policy loans/financing” and loans/financing, which are required by statute to be approved by the Board, provided that the initial filter of approval is conducted by GCC. • To approve all cases of write-offs proposals from BPMB and as prescribed in AA. The BPMB Board shall be notified on all write-off proposals approved by BCC via minutes of the BCC meeting. • To approve the Terms of Reference (TOR) of GCC. However, the appointment and/ or termination of GCC members shall be at the absolute discretion of the Chairman of GCC. • To perform the credit risk oversight role in a manner that is not compromised and without undue influence from any party. • To approve and/or endorse any other matters as prescribed in AA. • To consider any other matters as referred by BPMB Board to BCC. COMMITTEES There are five (5) Board Oversight Committees established to assist the Board in discharging its duties and responsibilities. These are the Board Credit Committee, Board Audit Committee, Board Nomination and Remuneration Committee, Board Risk Management Committee and Board Information Technology Committee. BOARD CREDIT COMMITTEE Objective The primary objective of the Board Credit Committee (BCC) is to provide a supervisory and oversight role on all loans/financings/credit-related proposals and investment as per the limit set in BPMB’s Approving Authority Matrix (AA), and to ensure adequate risk management processes are in place and functioning effectively. Committee Meeting and Attendance Functions and Responsibilities • To deliberate, review and, if necessary, exercise the rights to veto, challenge, reject the Group Members DIRECTORS’ REMUNERATION BPMB acknowledges the importance of attracting and retaining qualified Directors with high calibre and possessing the necessary qualifications, skills, expertise and experience for effective functioning of the Board. Credit Committee’s (GCC) approvals/decisions on all loans/ financings/ credit-related proposals and investment including the proposed terms and conditions or any variations thereof as per the limit and authority set in AA. * Based on the TOR of the BCC, BCC may meet twice a month and for any additional ad hoc meetings as and when required. BCC met 13 times during FY2020. The Committee members and their records of attendance are as follows: No. of Meetings and Attendance Dr Mohamed Ashraf Mohamed Iqbal Chairman 13/13 Datuk Zaiton Mohd Hassan 13/13 Dato’ Othman Semail 8/13 Dato’ Wan Mohd Fadzmi Che Wan Othman Fadzilah 13/13 Reflects the number of meetings attended during the time the Member held office. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 47 GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE
26. GOVERNANCE reappointment of External Auditors , the fee and other matters pertaining to the resignation or termination or change of External Auditors; BCC’s Deliberations Areas/matters reviewed, deliberated, endorsed and approved by BCC during FY2020 include the following: • • Conditions and criteria for moratorium on repayment/ payment of loans/financing due to the COVID-19 pandemic. • To adopt a ‘six (6) filters’ methodology for financing approval, as follows: b. To monitor and assess the independence of the External Auditors including by approving the provision of non-audit services by the External Auditors; – Articulate the development impact of the proposal. – Provide an appropriate financing structure that is responsive to category idiosyncrasies. – Affirm all risk safeguards (financial and non-financial) are in place. Objective The duties and responsibilities of BAC include the following: • 48 Recommend to the Board each financial year, the appointment/ f. To review the assessment or findings arising from the Shariah audit and report the non-compliance events to the Shariah Committee and the Board; e. To maintain regular, timely, open and honest communication with the External Auditors, and requiring the External Auditors to report to the BAC on significant matters. BOARD AUDIT COMMITTEE Functions and Responsibilities e. To review the effectiveness of the Internal Audit function, including compliance with The Institute of Internal Auditors’ International Professional Practices Framework for Internal Auditing consisting of the Definition of Internal Auditing, Code of Ethics and the Standards; d. To ensure that Senior Management is taking necessary corrective actions in a timely manner to address external audit findings and recommendations in their Management Letter and Management Response; and – Evidence the integrity, credibility and capability of the proponents to ensure project success. • g. To note significant disagreements between the Chief Internal Auditor and the rest of the Senior Management team, irrespective of whether these have been resolved, in order to identify any impact the disagreements may have on the audit process or findings; and With regard to the Internal Audit function: a. To review the adequacy of the scope, functions and resources of the Group Internal Audit function and Audit Charter, and that it has the necessary authority to carry out its responsibilities; b. To review and approve the internal audit plan, programme, processes, scope, procedures and frequency; BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 • To review the Bank’s compliance with related Government regulations including AntiMoney Laundering and Counter Financing of Terrorism (AML/ CFT) measures annually. • To review the quarterly result, half-yearly result and the year-end Audited Financial Statements prior to submission to the Board for approval. The review of the year-end Audited Financial Statements by the External Auditor shall focus particularly on: h. To establish a mechanism to assess the performance and effectiveness of the Group Internal Audit function. • To receive and consider reports relating to the perpetration and prevention of fraud. in relation to the preparation of financial statements and other BAC reports that contain the following information, which shall be published in the Bank’s Annual Report: i. A summary of the activities of the BAC in the discharge of its functions and duties for the financial year; and ii. A summary of the activities of the Group Internal Audit function. a. any major changes in the accounting policy or its implementation; d. To recommend to BNRC and/or the Board, the appointment, remuneration package, performance evaluation and termination of the Chief Internal Auditor; c. To review the audit plan and audit report, monitor and assess the effectiveness of the external audit, including meeting with the External Auditors without the presence of Senior Management at least annually; – Link macro-economic analysis to category profitability drivers to understand the longer-term behaviour of the category. The objective of the Board Audit Committee (BAC) is to provide independent oversight to review the financial conditions of BPMB and the Group’s financial reporting processes and internal controls, ensure checks and balances within BPMB Group, review the performance and findings of the internal auditors and recommend appropriate remedial action regularly. With regard to the External Auditors: a. To recommend to the Board, the appointment, removal and remuneration of the External Auditor; – Demonstrate a clear understanding of the underlying profitability drivers of the category for the project. c. To review key audit reports (including reports on internal controls, risk management processes, compliance with statutory requirements and governance practices) and ensure that Senior Management is taking necessary corrective actions in a timely manner to address control weaknesses, non-compliance with laws, regulatory requirements, policies and other problems identified by Group Internal Audit and other control functions; b. Interim financial reports and preliminary announcements in relation to the preparation of Audited Financial Statements. b. adequacy of allowance against contingencies, bad and doubtful debts; • c. significant and unusual events; and d. compliance with accounting standards and other legal requirements. • To ensure that the accounts are prepared in a timely and accurate manner and ensure prompt publication of the Audited Financial Statements. • To discuss any problem or reservations that may arise from the interim and final audits as well as any matter which the External Auditors may wish to discuss, in the absence of Management, where necessary. • • • To deliberate investigation reports in relation to whistleblowing cases and decide on actions to be taken in accordance with Group Human Resource (HR) policy. • To approve the TOR and appointment and/or termination of Members of Management Audit Committee. • To consider any other matters as referred by the BPMB Board to BAC. • To monitor compliance with the Board’s conflicts of interest policy. • To review third-party opinions on the design and effectiveness of the Group’s internal control framework. Committee Meeting and Attendance To inform the Board on the issues and concerns discussed during its Meetings, including those raised by the External Auditors and where appropriate, make the necessary recommendations to the Board. Based on the TOR of the BAC, BAC shall meet at least four (4) times a year and at any ad-hoc meetings as and when required. BAC met six (6) times during FY 2020. The Committee members and their records of attendance are as follows: Members To review and update the Board on all related party transactions and conflict of interest situations that may arise in the Bank or BPMB Group including any transaction, procedure or conduct that raises questions of management integrity. To review the accuracy and adequacy of the following documents: a. Chairman’s Statement in the directors’ report, corporate governance disclosures, interim financial reports and preliminary announcements To review and endorse the status and progress of Management’s responses and corrective measures on issues raised in the BNM Examination Report, prior to submission to the Board for approval. • * No. of Meetings and Attendance Norazilla Md Tahir Chairperson (appointed as Member with effect from 27 August 2020 and re-designated from Member to Chairperson w.e.f. 28 September 2020) 2/2* Datuk Zaiton Mohd Hassan 6/6 Tan Lye Sim (ceased as member with effect from 15 September 2020) 4/4* Ariff Rozhan 6/6 Tan Sri Dr Rahamat Bivi Yusoff Chairperson (ceased as Chairperson with effect from 28 September 2020) 4/4* Reflects the number of meetings attended during the time the Member held office. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 49 GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE
27. GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE Areas /matters reviewed, deliberated, endorsed and approved by BAC during FY2020 include the following: • • Approval of the Internal Audit Plan Endorsement of the Group Internal Audit Balanced Scorecard • Review of TOR of BAC • Endorsement of the appointment of a consultant for a Quality Assurance Review on Group Internal Audit of BPMB • • • Assessment of “The function effectiveness in discharging its duties” KPI for Group Internal Audit Endorsement of the performance evaluation of the Chief Internal Auditor and employees at C-2 positions in Group Internal Audit • Updates on New Audit issues and Outstanding Audit Issues from previous Internal Audit Reports • Status update on Bank Pembangunan Malaysia Berhad and Its Subsidiaries – Memorandum of Recommendation (MOR) Objective The objectives of the Board Nomination and Remuneration Committee (BNRC) are to provide: (i) a formal and transparent procedure for the appointment and/or reappointment as well as to assess the effectiveness of Key Responsible Persons and the Company Secretary; and (ii) a formal and transparent procedure for developing a 50 ‘Key Responsible Persons’ refer to persons who are accountable or responsible for the management or oversight of BPMB Group. These comprise: • a) the Board of BPMB and its subsidiaries (the Group), b) members of the SC, c) the P/GCEO and CEOs of major subsidiaries; and Endorsement of the interim unaudited financial statements and the financial statements for the financial year ended 31 December 2020 BOARD NOMINATION AND REMUNERATION COMMITTEE • d) Senior Officers. F  unctions and Responsibilities The functions and responsibilities of the BNRC, amongst others, are as follows: Nomination Function • • • Establish and recommend to the Board for approval, the minimum required skills, experience, qualification and core competencies of a Director on the Board and the P/GCEO in order for them to perform their responsibilities effectively. Oversee the overall composition of the Board (BPMB and major subsidiaries), Board Oversight Committees and SC in terms of the appropriate size and skills, and the balance between Executive Directors, Non-Executive and Independent Directors through annual reviews. Recommend and/or assess nominees for the appointment, reappointment or resignation of the Board of Directors (BPMB and its major subsidiaries), P/ GCEO, Board Oversight Committees and SC Members for the Board’s approval. The proposed appointment or reappointment of BPMB Board/ SC Members will require BNM’s verification on meeting the necessary ‘fit and proper’ criteria BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 • • and the Minister of Finance’s final approval, as the case may be. – Management succession planning Assess and determine annually whether a Director fulfils the criteria of being an Independent Director. – Performance evaluation Establish a mechanism for the formal assessment on the effectiveness of the Board as a whole, the contribution of each Director to the effectiveness of the Board, the contribution of the Board Oversight Committees including SC Members and the performance of the P/GCEO, CEOs of major subsidiaries, Senior Officers and the Company Secretary. The annual assessment should be conducted based on objective performance criteria, as approved by the Board. Assess annually whether the Directors and P/GCEO are not disqualified under Section 7 of the Development Financial Institutions Act 2002 and recommend to the Board, the removal of a Director or the P/GCEO if he/she is ineffective, errant or negligent in discharging his/her responsibilities. Ensure that all Directors and SC Members undergo the appropriate induction programme and receive continuous training in order to keep abreast of the latest developments in the industry. • Assess the performance of the P/GCEO before submission to the Board of BPMB for approval. • Oversee/recommend the following matters in relation to Senior Officers and the Company Secretary for the Board’s approval: – New appointment/ recruitment –Reappointment – Renewal/non-renewal of contract – Conversion of employment status – Secondment to subsidiaries • • • For new appointments, the P/GCEO is given the authority to assess and evaluate candidates, negotiate and determine the salary, benefits and terms and conditions of service for the positions of Senior Officers and the Company Secretary. Thereafter, it would be tabled to BNRC for recommendation and the Board for approval. should BNRC become aware of information on any Key Responsible Persons and the Company Secretary, which may materially compromise his/her fitness or propriety. Remuneration Function • • Assess and recommend the emoluments and benefits of Board members, Board Oversight Committee members, SC members, P/GCEO, CEOs of major subsidiaries, Senior Officers and the Company Secretary for the Board’s approval subject to BPMB’s Constitution and Ministry of Finance Inc.’s approval, where applicable. • Endorse the remuneration for each Director, member of Senior Management and other material risk takers annually for the Board’s approval. BPMB shall maintain and regularly review a list of officers who fall within the definition of “other material risk takers”. • Endorse the remuneration and benefits for the Directors of BPMB subsidiaries based on recommendation by BNRC for the Board’s approval. The same shall be forwarded to MOF Inc. for notification. • Assess and endorse the salary structure framework for employees in executive grades and above for the Board’s approval. The salary structure is subject to the final approval of MOF Inc. • Assess and recommend the Terms of Services and new Terms for Executives and staff of BPMB Group including the Collective Agreement between the Bank and the Union for the Board’s approval. The terms of the Collective Agreement are subject to the final approval of MOF Inc. • Assess and recommend the proposed annual bonus payment for the P/GCEO. The payment is subject to the final approval of MOF Inc. a. be subject to the Board’s active oversight to ensure that the system operates as intended; b. reflect the mandate of BPMB and align with the business, risk strategies and development priorities, corporate values and long-term interests of BPMB Group; The appointment/recruitment, reappointment, performance evaluation of CEOs of major subsidiaries and management succession planning of the subsidiaries shall be tabled to the Board of the respective subsidiaries first prior to BNRC for endorsement and Board approval. c. promote prudent risk-taking behaviour and encourage individuals to act in the interests of BPMB Group as a whole, taking into account the interests of its customers and long-term financial sustainability of BPMB Group without recourse to the Government; Recommend to the Board the removal of Senior Officers and the Company Secretary if they are ineffective, errant or negligent in discharging their responsibilities. The removal of CEOs of major subsidiaries shall be tabled to the Board of Directors of the respective subsidiaries first, prior to BNRC for endorsement and the Board of BPMB for approval. d. accord appropriate emphasis to BPMB Group’s developmental outcomes taking into account demonstration, design and policy additionalities in addition to financing outcomes; and Recommend the appointment and removal of Board Directors, external Directors or Management Staff as Directors in the subsidiaries/associated companies (excluding JV-SOCs of Global Maritime Ventures Berhad). Conduct ‘fit and proper’ assessment on Key Responsible Persons and the Company Secretary on a yearly basis to determine if the ‘fit and proper’ criteria continue to be met, to ensure the effectiveness of the Key Responsible Persons and the Company Secretary in carrying out his/her responsibilities. A ‘fit and proper’ assessment is to be conducted Ensure that the overall remuneration system must – quality talents to deliver BPMB Group’s mandate successfully. The policy should consider the different skill sets, knowledge and experience required to support the business and risk strategies of BPMB Group. e. be designed and implemented with input from the control functions and the Board Risk Management Committee to ensure that risk exposures and risk outcomes are adequately considered. • Recommend the remuneration policy of BPMB and conduct periodic review, including when material changes are made to the policy for the Board’s approval. The overall remuneration policy should be sufficiently competitive to attract, nurture and retain high GOVERNANCE remuneration policy for Key Responsible Persons and the Company Secretary and ensuring that compensation is competitive and consistent with BPMB Group’s culture, objectives and strategies. BAC’s Deliberations BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 51
28. GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE • Assess and recommend the pool for annual bonus/annual incentive/annual ex-gratia and the payment of the annual bonus/annual incentive/annual ex-gratia for employees and other material risk takers or other group-wide performancerelated rewards and annual increment of the Group. The pool for annual bonus/annual incentive payment/annual ex-gratia payment is subject to the final approval of MOF Inc. • • • Review and assess the effectiveness of Group HR in supporting the Group to achieve its objectives, including ensuring that the appropriate HR strategies, policies and frameworks for high quality and effective HR management for the Group (e.g. succession planning, talent and leadership development, training, recruitment and retention programmes, compensation and benefits plan etc.) are developed, implemented and periodically reviewed. Review and recommend for the Board’s approval, changes to Group HR policies and strategies and Organisational Structure of the Group. Endorse HR-related matters as prescribed in the Approving Authority Structure for Group HR. 52 Members * Based on the TOR of the BNRC, BNRC shall meet at least four (4) times a year to fulfil its responsibilities. BNRC met eight (8) times during the financial year 2020. 8/8 Dato’ Othman Semail 6/8 Dr Mohamed Ashraf Mohamed Iqbal 8/8 Norazilla Md Tahir (appointed as Member of BNRC w.e.f. 26 November 2020) 1/1* Tan Sri Dr Rahamat Bivi Yusoff (ceased as Chairperson w.e.f 28 September 2020) 5/6* Datuk Zaiton Mohd Hassan (resigned as Member of BNRC w.e.f. 26 November 2020) 7/7* Areas/matters reviewed, deliberated and approved by BNRC during FY2020 included the following: SUCCESSION PLANNING • Relating to the appointment of Directors, Nominee Directors, Senior Officers and SC members PERFORMANCE • Revision to the Board Charter, and Code of Ethics and Business Conduct for the Board and SC Formation of Board Information Technology Committee (BITC) • Revision to the Fit and Proper Policy for the Board, SC and P/GCEO • Gap Analysis with regard to the Board’s Responsibilities as stated in the BNM Policy Document on (I) Shariah Governance; and (II) Outsourcing Plan • The primary objective of the Board Risk Management Committee (BRMC) is to oversee the activities of Senior Management in managing the key risk areas of BPMB and the Group and to ensure that risk management processes are in place and functioning effectively. Functions and Responsibilities Review of Directorships in BPMB subsidiaries • The performance of the P/GCEO and Senior Vice Presidents (SVP) and above through the FY2020 Balanced Scorecard and FY2019 Year End Performance Assessment respectively. Review of Membership of Board Oversight Committees and subsidiaries of BPMB Review of the Composition and Competencies of the BPMB Board BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 • • REMUNERATION • Total rewards (bonus and salary increment) for the Group • One-off Financial Assistance of RM300 per eligible staff in response to the Government’s Call on the Private Sector to support its endeavours in the Implementation of the Economic Stimulus Package • • Review of minimum salary range OTHERS • Job Rotation Guideline for employees in high-risk positions • Competency framework and assessments • Consequence management strategy and policies approved by the Board, including the risk appetite framework and implementation. • • The duties and responsibilities of BRMC include the following: The performance of Directors through an annual assessment, i.e. Annual Fit & Proper Assessment for Directors • The reappointment of Directors and SC members • • Objective • GOVERNANCE • BOARD RISK MANAGEMENT COMMITTEE Reflects the number of meetings attended during the time the Member held office. • No. of Meetings and Attendance Ariff Rozhan Chairman (re-designated from Member to Chairman of BNRC w.e.f. 28 September 2020) BNRC’s Deliberations Consider any other matters as referred by the Board of BPMB to BNRC. Committee Meetings and Attendance The Committee members and their records of attendance are as follows: Recommend the separation schemes for the Board’s approval and thereafter for MOF Inc’s final approval. Human Resource (HR) Oversight Function • To provide oversight and strategic direction for the management of all risks in BPMB. To review and recommend risk management strategies (e.g. development of new products, ventures into new market or business activities, product pricing strategies, planning of technology, skills and resources required), policies and risk tolerance appropriate to the nature, scale and complexity of BPMB Group’s activities for the Board’s approval. To review and assess adequacy of BPMB Group’s risk management policies and framework in identifying, measuring, monitoring and controlling risk and the extent to which these are operating effectively. To ensure infrastructure, resources and systems are in place for risk management, that is, ensuring that staff responsible for implementing risk management systems perform those duties independently of BPMB Group’s risk-taking activities. • To review management’s periodic reports on risk exposure, risk portfolio composition and risk management activities. • To provide effective oversight of Senior Management’s actions to ensure consistency with the risk To meet with BAC periodically, to ensure effective exchange of information so as to enable effective coverage of all risks, including emerging risk issues that could have an impact on BPMB’s risk appetite and business plans. To seek independent third-party views or information on risk implications as appropriate before coming to any conclusion or making any significant policy recommendation. • To consider how risks associated with BPMB’s operational and organisational structures affects its ability to manage risks on an enterprise-wide and group-wide basis and the implications for capital and funding strategies. • In relation to the position of Chief Risk Officer (CRO), BRMC is required to: a) establish an independent senior risk executive role (CRO or its equivalent) who has direct and unimpeded access to the Board and BRMC and to allow for effective engagement with the P/GCEO and other members of Senior Management with sufficient stature, authority, seniority and distinct responsibility for the Group Risk Management function and framework across the entire organisation; b) recommend to BNRC and/or the Board, the appointment, performance evaluation and termination of the CRO; c) engage CRO on a regular basis and provide the opportunity for CRO to meet with BRMC and discuss issues faced by the Group Risk Management function; engaging CRO without the presence of other Senior Management individuals from time to time; and GOVERNANCE • e) ensure that CRO is supported with sufficient resources, including competent officers, to perform his/her duties effectively. • In relation to the position of Chief Compliance Officer (CCO), BRMC is required to: a) recommend to BNRC and/or the Board, the appointment, remuneration package, performance evaluation and termination of the CCO; b) ensure that CCO has sufficient stature to allow for effective engagement with the P/GCEO and other members of Senior Management; c) engage CCO on a regular basis and provide the opportunity for CCO to meet with BRMC and to discuss issues faced by the Group Compliance function; d) in relation to item (c) above, BRMC may consider engaging CCO without the presence of other Senior Management individuals from time to time; e) provide CCO with direct and unimpeded access to BRMC; f) ensure that CCO is supported with sufficient resources, including competent officers, to perform his/her duties effectively; and g) where CCO also carries out responsibilities with respect to other control functions (if any), be satisfied that a sound overall control environment will not be compromised by the combination of responsibilities performed by CCO. d) in relation to item (c) above, BRMC may consider BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 53
29. GOVERNANCE • To oversee the management of BPMB Group’s compliance risk. In order to fulfil this duty, BRMC is required to: Members a) approve BPMB Group’s compliance policy and oversee its implementation; b) approve the establishment of the Compliance function and the position of the CCO, and ensure that the Compliance function and the CCO are provided with appropriate standing, authority and independence; c) discuss compliance issues regularly, ensuring that adequate time and priority is provided in BRMC’s agenda to deliberate on compliance issues and that such issues are resolved effectively and expeditiously; and d) evaluate the effectiveness of BPMB Group’s overall management of compliance risk, having regard to the assessments of Senior Management and Group Internal Audit, as well as interactions with CCO at least on an annual basis. • • • To deliberate on investigation reports in relation to whistleblowing cases and decide on actions to be taken on the alleged individuals in accordance with Group HR policy. To approve the appointment and/or termination of members and TOR of Management Risk Committee and Asset & Liability Committee. To consider any other matters as referred by the BPMB Board to BRMC. * 54 Based on the TOR of the BRMC, the BRMC shall meet once in every two months. GRMC met nine (9) times during the financial year 2020. The Committee members and their records of attendance are as follows: 9/9 Datuk Zaiton Mohd Hassan 9/9 Dr. Mohamed Ashraf Mohamed Iqbal 8/9 Norazilla Md Tahir (appointed as Member w.e.f. 27 August 2020) 5/5* Tan Lye Sim Chairperson (ceased as Chairperson w.e.f. 15 September 2020) 3/3* • Objective The duties and responsibilities of BITC include the following: • Risk Dashboard (Credit Portfolio Report, Asset/Liability & Liquidity Management Report and Operational Risk Management Report) • Performance Assessment of Chief Risk Officer and Chief Compliance Officer • Annual Attestation of BPMB’s Compliance with BNM’s Policy Document on Introduction of New Products • Improvement Of Privileged Identity Management BNM Composite Risk Rating • Report On Legal Action • Status Update on Risk Appetite Statement and Tolerance Level • Report On Financing Facilities with Connected Parties • Group Stress Test result • • Review of the Internal Capital Adequacy Assessment Process Framework and New Internal Capital Target Green Technology Financing Scheme 2.0 – Offering of Scheme with Revised Features • Outsourcing Plan • Independent Review Report on Compliance with Paynet’s Participation Rules and Operational Procedures • Compliance Risk Assessment 2019 And Heat Map • Environmental Conservation Subsector as at 31 December 2019: Status and Analysis of Renewable Energy Sub-Subsector • The primary objective of the Board Information Technology Committee (BITC) is to provide oversight function on the implementation of technology-related strategies and initiatives for the Group. Functions and Responsibilities • • BOARD INFORMATION TECHNOLOGY COMMITTEE Reflects the number of meetings attended during the time the Member held office. Areas/matters reviewed, deliberated and approved by BRMC during FY2020 included the following: Committee Meetings and Attendance Dato’ Wan Mohd Fadzmi Che Wan Othman Fadzilah Chairman (re-designated from Member to Chairman w.e.f. 28 September 2020) BRMC’s Deliberations No. of Meetings and Attendance Gap Analysis Exercise – Business Information System Risk Assessment Outcome of Gap Analysis on BNM’s Policy Document on Shariah Governance BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 • Outcome of Compliance Review • Yearly Review of Counterparty Limit for Deposit Placement • Update On BPMB Recovery Plan for COVID-19 • Review Of BPMB’s Authority Matrix • Business Impact Analysis & Risk Assessment Report • Key Risk Indicators (KRIs) Review • Risk And Control SelfAssessment 2019/2020 Report • Shariah Risk Learning Programme • Evaluation for the application of Contingency Funding Plan Countermeasures • Group Compliance Report • Acceptance of the Enhanced Credit Risk Rating Models • • • To oversee the effective implementation of a sound and robust Technology Risk Management Framework (TRMF) and Cyber Resilience Framework (CRF) as required by BNM under the Risk Management in Technology policy; To review and monitor the implementation of technologyrelated frameworks and ensure risk assessments undertaken in relation to material technology applications submitted to BNM are robust and comprehensive; To review and monitor implementation of IT projects/initiatives undertaken by the Bank to ensure alignment with the Bank’s policies and strategies; • To review and recommend to the Board any appointment of such person, consultants or advisors to undertake any specific projects or assignments in relation to the Bank’s IT or digitalisation initiatives/projects; • To continuously engage in cyber security preparedness, education and training; and • To consider any other matters as referred by the Board to BITC. Committee Meetings and Attendance To establish and recommend to the Board for approval, the technology risk appetite which is aligned with the Bank’s risk appetite statement, as well as the Board’s approval on corresponding risk tolerances for technology-related events; and ensure key performance indicators are in place to monitor the Bank’s technology risk; To recommend to the Board for approval the Bank’s cybersecurity strategy which is aligned with the overall Bank’s business and IT strategy and oversee the adequacy of the Bank’s IT and cybersecurity strategic plans covering a period of no less than three years. These plans should address the Bank’s requirements on infrastructure, control measures to mitigate IT and cyber risk and financial and non-financial resources commensurate with the complexity of the Bank’s operations and changes in the risk profile and business environment; • Based on the TOR of the BITC, BITC shall meet at least four (4) times a year and for any ad hoc meetings as and when required. BITC met six (6) times during the financial year 2020. The Committee members and their records of attendance are as follows: Members No. of Meetings and Attendance Dato’ Wan Mohd Fadzmi Che Wan Othman Fadzilah Chairman (Appointed as Chairman w.e.f. 25 February 2020) 6/6 Dato’ Othman Semail (Appointed as Member w.e.f. 25 February 2020) 3/6 Dr. Mohamed Ashraf Mohamed Iqbal (Appointed as Member w.e.f. 25 February 2020) 6/6 Ariff Rozhan (Appointed as Member w.e.f. 25 February 2020) 6/6 Norazilla Md Tahir (Appointed as Member w.e.f. 28 September 2020) 3/3* * Reflects the number of meetings attended during the time the Member held office. BITC Deliberations Areas/matters reviewed, deliberated, endorsed and approved by BITC during FY2020 included the following: • Review of the TOR of BITC and Management Information Technology Committee (MITC) • Endorsement of the reappointment of a digital advisor on contract to provide consulting and advisory services to assist BPMB in achieving desired outcomes; encompassing information technology, management of systems infrastructure, information security with specific focus on BNM’s Risk Management in Technology requirement including IT-related risks and compliance, in order to meet the needs of key stakeholders • Review of revisions to the IT Security Policy • Review of the 2021 – 2023 IT Plan and IT Capacity Planning Report • Review of the Enterprise Refresh Project Implementation Plan (Network & Infrastructure) • Review of the Vulnerability Assessment And Penetration Test (VAPT) Report For Year 2019 And 2020 • Review of the Feasibility Study on Automated Deployment And Testing Tool • Monthly IT Dashboard Report • Management Information System (MIS) Roadmap BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 55 GOVERNANCE STATEMENT OF CORPORATE GOVERNANCE
30. GOVERNANCE STATEMENT OF SHARIAH GOVERNANCE With regard to the Shariah governance requirements , BPMB is primarily governed by the Shariah Governance Policy Document (SGPD) issued by BNM. This SGPD which supersedes the previous Shariah Governance Framework for Islamic Financial Institutions since April 1, 2020 aims to further strengthen the effectiveness of Shariah governance implementation and enforce a closer integration of Shariah considerations in the business and risk strategies of Islamic financial institutions. It provides a framework comprising the Shariah governance structure, processes and controls which BPMB is expected to adhere to, in order to ensure that all its operations and business activities are performed in compliance with Shariah. and responsibilities of the Shariah Committee. A brief profile of each Shariah Committee member is presented on pages 36 to 38 of the Annual Integrated Report. The appointment/re-appointment of members of the Shariah Committee is governed by BNM’s SGPD and internal policies and procedures. The Board Nomination and Remuneration Committee (BNRC) reviews and assesses the members for the purpose of appointment/re-appointment before any recommendation is made to the Board for approval. BNRC will also refer to the results of individual assessments conducted via self and peer assessments, the Shariah Committee’s effectiveness assessment and the Management’s assessment on the Shariah Committee. The application for the appointment/re-appointment of Shariah Committee members will be submitted to BNM for approval. SHARIAH COMMITTEE While the Board is ultimately responsible and accountable for the overall Shariah governance implementation and Shariah compliance of BPMB, the Board is advised and guided by the Shariah Committee on Shariah matters in relation to the Islamic financial business of BPMB. The Shariah Committee is regarded as a committee of the Board and therefore functionally reports to the Board. Amongst other matters, the Shariah Committee ensures that the Shariah rulings and decisions relating to the Islamic financial business of BPMB comply with the fundamental Shariah principles and resolutions of the relevant regulatory authorities on Shariah matters. Duties and Responsibilities The Shariah Committee is expected to provide advice and decisions on Shariah matters related to the Islamic financial business of BPMB to ensure its compliance with Shariah. Specifically, the functions and responsibilities of the Shariah Committee are, among others, as follows: Composition and Background In line with BNM’s SGPD, the Shariah Committee comprises five (5) members where a majority i.e. four (4) members are Shariahqualified while one (1) member comes from a non-Shariah background, but possesses the relevant skills, knowledge and experience relevant to support the roles 56 1.To be responsible and accountable for all Shariah decisions, opinions and views provided by them. 2.To advise the Board and Management of BPMB on Shariah matters in order to ensure that its Islamic financial business and operations comply with Shariah principles at all times. 3.To validate and endorse the following: a)The Islamic products and services of BPMB are in compliance with Shariah in all aspects including: BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 •The terms and conditions contained in the forms, contracts and agreements used in executing the transactions; • The guidelines, manuals and procedures in relation to the products and services, schemes and funds offered by BPMB; and • The product manual(s), marketing advertisements, disclosure sheets, sales illustrations and brochures used to describe the products. b)The policies and procedures applicable to Islamic finance business prepared by BPMB and the contents therein do not have any elements which are not in line with Shariah. 4.To confirm and form an independent opinion on the Shariah compliance status of BPMB based on their assessment of the works carried out by Shariah review and Shariah audit, and provide assurance information to be disclosed in the annual report, with respect to the following: •The transactions and dealings by BPMB in relation to its Islamic financial business for the reporting year are in compliance with Shariah; •The allocation of profit and charging of losses relating to investment accounts, if any, are in compliance with Shariah; •The de-recognition of Shariah non-compliant income and its distribution for charity purposes are in compliance with Shariah; and •The computation and distribution of Zakat are in compliance with Shariah. 5.To provide a decision or advice to BPMB on matters which require a reference to be made to the Shariah Advisory Council of Bank Negara Malaysia or Securities Commission Malaysia which includes but is not limited to the following circumstances: •Where the Shariah Advisory Council has not made any rulings on a particular matter; or •Where the Shariah Committee is not able to arrive at a decision or advice; or •Where BPMB submits applications to BNM for approval of new Islamic products. 6.To assist and provide advice on Shariah matters to related parties such as the legal counsel, auditors or consultants appointed by BPMB based on the recommendation or request from the Management. 7.To put on record its concerns over any Shariah non-compliance issues in its report or statements directed to the Board. 8.To provide decisions or advice on BPMB’s operations, business, affairs and activities which may trigger a Shariah non-compliance event and to endorse a rectification measure to address the event, if any. MEETINGS AND ATTENDANCE Meetings are to be held at least once every two (2) months in line with the requirements of BNM’s SGPD. The Shariah Committee meets to discuss and monitor, among others, the overall Shariah compliance matters of BPMB. The notice and agenda for each Shariah Committee meeting together with papers to be deliberated at the meetings are distributed to all members of the Shariah Committee prior to the meetings by the Company Secretary with the assistance of Group Shariah Management as the secretariat to the Shariah Committee. The minutes of the meetings are escalated to the Board for perusal and information. GOVERNANCE BPMB conducts Islamic financial business in addition to its existing conventional financial business. The conduct of Islamic financial business by BPMB is governed mainly by the relevant provisions in the Development Financial Institutions Act 2002 and other rules and regulations as issued by Bank Negara Malaysia (BNM) from time to time. During the financial year ended 31 December 2020 the Shariah Committee held 12 meetings. The record of attendance of members of the Shariah Committee for the meetings is as follows: Name of Shariah Committee Members No. of Meetings and Attendance Associate Professor Dr Aznan Hasan (Chairman) 12/12 Associate Professor Dr Miszairi Sitiris 12/12 Associate Professor Dr Noraini Mohd Ariffin 12/12 Dr Ahmad Basri Ibrahim 12/12 Ustaz Mohd Fadhly Md Yusoff 12/12 Training and Development of Shariah Committee Members Newly appointed members of the Shariah Committee are required to attend an induction programme organised by the Management to enable them to gain first-hand understanding of BPMB and its operations. The Shariah Committee is also required to enrol in certification programmes to upskill existing Shariah advisors in serving the industry, namely the Certified Shariah Advisor (CSA) and Certified Shariah Practitioner (CSP) programmes administered by the Association of Shariah Advisors in Islamic Finance (ASAS). Most of the members have successfully completed modules in Level 1 of the programme. In addition, the members also attended selected international and local trainings as part of their competency development programme. The Bank also encourages the Shariah Committee members to attend talks, training programmes and seminars to update themselves and to keep abreast with new developments in the industry for their continuing education and skills improvement. SECRETARIAT FUNCTION a) Group Shariah Management Group Shariah Management in BPMB is designated as the secretariat to the Shariah Committee and bears the responsibility of providing operational support for effective functioning of the Shariah Committee. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 57
31. GOVERNANCE STATEMENT OF SHARIAH GOVERNANCE Shariah Advisory & Research Shariah Documentation Review Zakat Management • R  esponsible for providing Shariah advisory service to relevant stakeholders and entities within BPMB Group • Responsible for providing advisory service on Shariah-related matters or products by conducting review process on relevant legal documentation and proposed transaction agreements, and the proposed policies, guidelines and procedures from internal stakeholders in order to ensure compliance with the approved Shariah principles and decisions • Responsible for the management, payment and distribution of business zakat in compliance with established rulings to ensure efficiency and effectiveness of business zakat management and distribution • R  esponsible for supporting stakeholders on the Shariah aspects of Islamic finance business, based on the rulings and resolutions issued by BNM’s SAC and Securities Commission’s SAC and advice, precedents and decisions of BPMB’s Shariah Committee • Responsible for performing in-depth Shariah research and studies on Shariah issues • Responsible for serving as the secretariat to the Shariah Committee in undertaking related administrative matters such as coordinating meetings, compiling proposal papers and disseminating Shariah committee decisions to relevant stakeholders within the BPMB Group • Responsible for coordinating BPMB Group’s projects and initiatives in relation to the implementation of requirements under the SGPD • Responsible for matters regarding the appointment/re-appointment/ cessation/resignation of the Shariah Committee and their trainings INTERNAL CONTROL FUNCTIONS a) Group Risk Management Guided by the Shariah Risk Management Guideline, the Bank has always placed a strong emphasis on the importance of Shariah Risk Management to ensure its effectiveness throughout the organisation. As such, the Bank will continue with the execution of the relevant tools which have been put in place, namely the Risk and Control Self-Assessment (RCSA), and Shariah Non-Compliance Reporting and Key Risk Indicators, while striving to improve the comprehension of the tools by all staff through their designated Operational Risk Liaison Officer (ORLO). Group Risk Management performed a review of the Bank’s internal Key Risk Indicators (KRI), which includes the Shariah KRI comprising of 13 indicators; with 5 leading and 8 lagging Shariah KRI. Leading KRI Lagging KRI • Number of Islamic Finance related training/knowledge sharing session to be conducted within 3 months • Number of new litigation cases initiated against the Bank with Shariah non-compliance (SNC) implications • Gap analysis arising from development/revision of BNM policies, guidelines & resolutions • Number of new Shariah-related complaints • Number of rejected financing proposal by Shariah Advisory • Number of operational errors that resulted to actual SNC event and/or income • Number of sales and marketing collateral & advertisement rejected by Shariah Advisory or requires amendment • Number of new potential SNC event occurred and confirmed by QSO • Number of “product proposal” rejected by Shariah Committee (SC) • Number of SNC income which is not derecognised from the financial account • Number of application for Shariah non-compliant business dealings and activities • Number of unresolved actual SNC event • Number of Shariah related compliance and audit findings 58 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 The outcome from the annual RCSA showed that ‘People’ was the primary causal factor for the identified Shariah risk exposures impacting BPMB. Further training courses have been organised as mitigating measures to address this causal factor. There were no Shariah NonCompliance events reported for financial year 2020. In addition, no Shariah Non-Compliance KRIs were triggered. This indicates probable improvement in understanding and knowledge of Shariah related matters. Notwithstanding, Group Risk Management via Operational and Shariah Risk Function will continue to enforce adequate and competent resources and controls to ensure that the Bank is compliant with Shariah requirements. In relation to the expectations stipulated in the BNM Shariah Governance Policy Document 2019 for a strong Shariah compliance culture within the Bank, Operational and Shariah Risk Function undertook several initiatives on Shariah risk awareness throughout the year. These included a “Shariah Risk Learning Programme” where a total of 12 Shariah Risk Management modules was emailed to all staff over the course of the year on a monthly basis in the form of an infographic. A dedicated column on Shariah Risk Management was also published on a half-yearly basis in the Group’s Risk e-Bulletin. These initiatives have been pertinent in elevating the level of knowledge and awareness in Shariah risks and ensuring a continuous record of zero Shariah Non-Compliance events. More of such initiatives are scheduled to be carried out in 2021 to further enhance the Shariah-compliant culture of the Bank. These include relevant e-learning programmes and short quizzes in digital format from Group Risk Management to gauge staff understanding of the knowledge shared in the infographic emails and ensure staff are adequately equipped. b) Group Compliance In line with the fundamental responsibilities of Compliance as outlined in BNM’s Policy Documents on Shariah Governance and Compliance, the dedicated Compliance Review unit within Group Compliance was established to undertake the function of compliance reviews including Shariah reviews. Comprising certified compliance officers and qualified Shariah officers, the unit aims to provide assurance to the Senior Management, Shariah Committee and Board of Directors on the state of Shariah compliance in the BPMB Group. The Shariah review function is performed systematically based on the Guideline and Procedure on Compliance Review Programme established by Group Compliance. These documents encompass, among others, the Compliance Review function, governance structure and end-to-end processes of performing regular assessments on the compliance of the operations, business, affairs and activities of BPMB Group with Shariah requirements. This structured process includes planning where Shariah review activities are to be executed, based on an annual plan approved by the relevant committees including the Shariah Committee. In developing the plan, Compliance Review annually performs Compliance Review Risk-Based Assessment (CR-RBA) to ascertain the proposed Shariah review subjects to be reviewed in the succeeding year. Subsequently, the outcome of Shariah review activities shall be reported periodically to the relevant internal committees including the Shariah Committee. Shariah compliance in the Bank. The Shariah Audit Section under Group Internal Audit is primarily responsible for providing independent assessment and objective assurance that adds value and improves the degree of compliance in relation to Islamic business operations. GOVERNANCE Group Shariah Management is currently organised into three (3) main areas of responsibilities as follows: Reporting independently to both the Board Audit Committee and the Shariah Committee, Shariah Audit provides independent assurance on the effectiveness of internal control systems and related policies and procedures implemented by the BPMB Group to govern the conduct of its Islamic financial business operations and activities. The scope of Shariah Audit is established in line with the areas stipulated by BNM’s SGPD as well as accepted auditing standards. Evaluation on the governance, risk management, controls and compliance with Shariah rules and principles is carried out by adopting Group Internal Audit’s methodology which is in line with the Institute of Internal Auditors’ (IIA) standard. Where appropriate, recommendations for improvements and enhancements are made and thereafter reported to the Shariah Committee, Management Audit Committee and Board Audit Committee. c) Group Internal Audit The Group Internal Audit function bears the responsibility of ensuring a sound and effective internal control system for Please refer to Shariah Committee’s Report of Audited Financial Statement (AFS) FYE 31 December 2020 on pages 96 to 100 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 59
32. GOVERNANCE The Statement of Internal Control establishes the key constructs underpinning the Board ’s work to promote the highest standards in the Group’s financial management and reporting in compliance with all applicable laws and regulations. Such high standards of operational efficiency are achieved by delegating appropriate authority to distinct committees within the Management, who collectively report back to the Board to ensure tangible and intangible risks are effectively and pro-actively managed throughout the organisation. RESPONSIBILITY The Board affirms its commitment to overall responsibility and oversight of the BPMB Group’s internal control system. The Board keeps abreast with developments in the areas of risk and governance to ensure its effectiveness in safeguarding stakeholders’ interests and the Group’s assets. The Board recognises that internal controls and risk management systems in place need to be updated from time to time to align with changes in the business environment and process improvement initiatives undertaken. The Board has established appropriate control structures and processes for identifying, evaluating, monitoring, managing and responding to significant risks faced by the Group in achieving its business goals and objectives. The Management is accountable to the Board and is responsible for the effective implementation of the policies and procedures on risks and controls. Regular testing of the adequacy, effectiveness, efficiency and integrity of the internal control system and its processes are conducted to ensure its viability and robustness. KEY INTERNAL CONTROL PROCESSES AND STRUCTURES The key processes that the Board has established in reviewing the adequacy and effectiveness of the internal control system include the following: Establish the Management’s role with regard to internal controls The roles of the Management include but are not limited to: •Identifying and evaluating the risks faced in the achievement of business objectives and strategies; •Formulating relevant policies and procedures to manage these risks; •Monitoring the effective implementation of the internal control system; and •Reporting to the Board on any changes to the risks and the corrective actions taken in a timely manner. Internal Audit Function — Group Internal Audit (GIA) The GIA undertakes periodic reviews of the Group’s business and operations to provide independent assurance to the Board that the risk management, internal control systems and governance processes put in place are working effectively. Audit engagements are carried out based on the annual audit plan as approved by the Board Audit Committee (BAC) and takes into consideration feedback from the Management and Shariah Committee. The GIA assesses the selected auditable functions and areas under the audit scope with regard to risk exposure, compliance toward approved policies, procedures, and relevant laws and regulations; and benchmarks them against available best practices. In evaluating the internal controls, the GIA adopts the five (5) components set out in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway Commission (COSO); namely control environment, risk assessment, control activities, information and communication, and monitoring activities. The result of the audits conducted, including the risks and recommendations are reported to the BAC on a regular basis. Resolution to the audit findings are performed and followed up with the Management and deliberated at the Management Audit Committee (MAC) and BAC meetings. The Shariah audit findings are presented to the Shariah Committee (SC) where any potential Shariah non-compliance (SNC) issues are deliberated and confirmed by the SC. The GIA continues to enhance its capabilities through continuous improvement to its internal audit processes benchmarked against the industry’s standards, upskilling of the internal auditors through various internal and external trainings, certification of auditors and engagements with reputable third-party service providers when undertaking specific audit assignments. Management Audit Committee (MAC) The MAC is a Management-level committee chaired by the Chief Internal Auditor (CIA), which meets once every two (2) months or as and when required. The MAC facilitates the BAC to review the financial condition of the BPMB Group, the internal controls, performance and findings of the internal auditors and where necessary; to monitor the execution and implementation of all necessary action plans including the recommendations made by the BAC, ensuring that they are undertaken by the Management within the agreed timeline. Minutes of the MAC meetings are tabled to the BAC together with the audit reports. Board Audit Committee (BAC) The BAC meets at least four (4) times a year and at any ad hoc meetings as and when required, or at the Chairman’s request to further review issues identified in audit reports prepared by the GIA as well as by external auditors. The BAC has active oversight on the GIA’s independence, scope of work and resources. It also reviews and approves the annual audit plan and the frequency of internal audit activities. OTHER INTERNAL CONTROL PROCESSES AND STRUCTURES The other key elements of the procedures established by the Board to provide effective internal control include: 60 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 The Board keeps abreast with the developments in the areas of risk and governance to ensure its effectiveness in safeguarding stakeholders’ interests and the Group’s assets. Business Plan and Performance Review An annual business plan and budget  are submitted to the Board for approval. Performance achievements are reviewed against the targeted results on a monthly basis, allowing timely responses and corrective actions to be taken to mitigate risks. The Board reviews regular reports from the Management on the key operating statistics. The Board also approves any changes or amendments to the Group’s policies. Board Committees Board Committees (other than the BAC) are also established to assist the Board in performing its oversight function, namely, the Board Credit Committee (BCC), Board Nomination & Remuneration Committee (BNRC), Board Risk Management Committee (BRMC), Board Information Technology Committee (BITC) and Shariah Committee (SC). These Committees have the authority (Terms of Reference) to examine all matters within their scope and report their recommendations to the Board. Management Committees Various Management Committees (Executive-level) are also established by the Management to assist and support the various Board Committees in overseeing core areas of business operations. These Committees include the Executive Committee (EXCO), Group Credit Committee (GCC), Management Risk Committee (MRC), Asset and Liability Committee (ALCO), Management Tender Committee GOVERNANCE STATEMENT OF INTERNAL CONTROL (MTC), Management Information Technology Committee (MITC), Group Human Resource Committee (GHRC), Crisis Management Team (CMT) and Group Budget Working Committee (GBWC). Policies, Standard Operating Procedures (SOPs) and Authority Limits Policies and SOPs governing the Group’s businesses and operations are documented and made available to all employees across the Group. These policies and SOPs are reviewed and updated by the respective business and functional units through a structured process of review to cater to changes in laws and regulations as well as changes to the business and operational environment. Delegation of authority including authorised limits at various levels of Management in the Group are documented and designed to ensure accountability and responsibility. Code of Ethics and Conduct The Code of Ethics and Conduct (the Code) sets out the standards of good and ethical banking practices, and aims to maintain confidence in the security and integrity of the Group’s business practices. The Code applies to all employees working in the Bank, complies with the laws of Malaysia as well as all internal policies and procedures of the Bank. All employees of the Bank are expected to carry out business activities and represent the Group with the highest ethical, legal and professional standards. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 61
33. GOVERNANCE In 2020 , just as the Bank began to embark on the first year of its 3-year strategic plan, the world was hit with an unprecedented outbreak of COVID-19 which grew into a pandemic affecting socioeconomics across the globe. What began initially as a year of hope and vision became a year filled with multifarious never-before-seen challenges for the Bank. New norms had to be swiftly deployed by the Bank, with virtual and remote working arrangements coming to the fore to provide assurance of adequate assistance to customers in need. In spite of the upheaval, it was imperative that the Bank’s own development agenda and corporate plans were not left behind and 2020 proved to be a year where effective risk management was paramount. Despite the challenges, the BPMB Group continued to sustain 1. our focus on fulfilling our mandated role whilst remaining steadfast in improving asset quality. Group Risk Management (GRM) keeps abreast of evolving trends and needs in business complexity and challenges of risk management to better support the Group in meeting BPMB’s strategic and business objectives. GRM is responsible for providing oversight of risk management at an enterprise-wide level through the establishment of the Group’s risk strategies, frameworks and policies, with independent assessment and monitoring of all risks. In managing the risk profile of the Group, GRM ensures that the Group’s portfolios are aligned with the risk appetite and business strategies of the Bank, with risk management frameworks refreshed to be forward-looking in order to remain risk resilient. RISK MANAGEMENT FRAMEWORK An effective risk management framework and process assists to reinforce a strong risk culture, which in turn is critical to ensuring sound risk management for the Group. The overall structure of the Risk Management Framework is shown below: BUILDING BLOCKS 2. Risk Principles Risk Appetite and Strategy Governance and Risk Oversight Risk and Compliance Culture Risk Management Processes and Practices Resources and System Infrastructure 3.RISK MANAGEMENT PROCESSES AND PRACTICES GRM has put in place a structured and coherent approach in identifying, assessing and strategically managing the respective identified risks via its annual Risk Plan. These include: a) Driving sustainable and quality asset growth — through effective risk management, managing asset growth and reducing impairment; b) Delivering client convenience and reliability — by intensifying client focus such as through engagement with the Board, Senior Management and business pillars; and through internal customer service excellence including the timely delivery of credit risk rating reports produced for new c) Ensuring effective and efficient risk governance and oversight — by promoting a risk awareness culture and strengthening the lines of defence through the Group GRM Framework and groupwide implementation of risk governance process, monitoring and reporting; d) Improving business and support processes — by having a strong infrastructure in place to support operations; e) Strengthening execution infrastructure — by either strengthening and/or streamlining capacity and capabilities of existing Risk units; and f) Building organisational capabilities by: i. creating a group-wide performance culture; ii. strengthening execution capabilities; iii. establishing highly effective performance and talent management processes; iv. assembling/building a leadership pool and pipeline to realise the Bank’s aspirations; v. increasing external recruitment to increase the talent pool; vi. training employees to increase risk awareness and understanding of risk management; and vii. adopting a ‘risk aware’ and ‘compliance culture’ as part of the organisational work culture An overview of the Risk Management Process is depicted below: 3.1 – Establish Risk Context 3.2 – Risk Identification RISK PRINCIPLES proposals and credit review proposals, credit portfolio assessment and market risk assessment for Treasury/ Finance initiatives; The risk principles of BPMB are as follows: 3.6 – Risk Communication and Consultation i) Establishing a risk appetite and strategy which is approved by the Board and articulates the nature, type and level of risk the Group is willing to assume. 3.3 – Risk Analysis or Assessment ii) Driving capital management through strategic objectives that take into account the relevant regulatory, economic and commercial environments in which the Bank operates. 3.4 – Risk Evaluation or Measurement iii) Ensuring proper governance and oversight through a clear, effective and robust governance structure with welldefined, transparent and consistent lines of established responsibility. 3.5 – Risk Treatment or Mitigation 3.7 – Risk Monitoring and Review iv) Promoting a strong risk culture that supports and provides appropriate standards premised on best and right practices. v) Implementing risk frameworks, policies and procedures to ensure that risk management practices and processes are effective at all levels. vi) Executing robust risk management practices and processes to actively identify, measure, control, monitor and report risks inherent in all products and activities undertaken by the Group. vii) Ensuring sufficient resources, infrastructure and techniques are in place to enable effective risk management. 3.1 Risk Context All GRM function heads (Heads) must first establish a clear and well-defined risk context by taking into consideration the following factors: a) External Context — Define the relationship between their own functions and BPMB’s business and operational environment, by identifying or determining the crucial elements that 62 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 may support or impair their ability to manage their own risks, such as regulatory and market conditions; and economic, environmental and social elements. b) Internal Context — Understand their functions, capacities and capabilities (i.e. the strengths/ weaknesses/ threats/ opportunities of staff, processes and systems), as well as their own business objectives, risk strategies and risk culture. c) Risk Management Context — Establish their risk management approach; i.e. define their own scope of risk assessment and evaluation criteria, define or set their own respective risk appetite and risk tolerance limits, including their risk acceptability, risk avoidance and risk mitigation. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 63 GOVERNANCE GROUP RISK MANAGEMENT
34. GOVERNANCE 3 .2 Risk Identification All Heads must put in place demonstrable processes and procedures to ensure that risks are promptly identified, and to also incorporate Key Risk Indicators (KRIs) to trigger possible future risks (i.e. emerging risks) and/or to anticipate unpredictable risks, to ensure no significant risks are being overlooked. 3.3Risk Analysis or Assessment All Heads are to provide data to assist in the evaluation and treatment of their risks. This involves the consideration of the sources of risk, the consequences (or impact) and the likelihood that these consequences may occur. Each Head is to also document the qualitative and/or quantitative measures of their likelihood and/or expected impact. Risk is analysed by combining estimates of consequences (impact) and likelihood of occurrence in the context of existing control measures in place. 3.4Risk Evaluation or Measurement a) The level of risk found during the analysis or assessment needs to be compared with the previously established risk criteria of the department or unit. This will result in a prioritised list of risks for further action by each Head. b) Identified risks should be monitored and regularly reviewed to ensure they remain adequately controlled or mitigated. c) It is also advisable for all Heads to document their own business continuity management plan(s) and embed the plan(s) within their teams to ensure any severe disruptions in their operating infrastructure can be properly managed and addressed. 64 near-miss or potential) is to be computed and documented accordingly. Each Head is to also ensure their risk management process is to be reviewed on a regular basis (at least annually) to determine its effectiveness, including identification of new risks and/or opportunities as they emerge. 3.5Risk Treatment or Mitigation Each Head is to identify the appropriate options for treating or mitigating their risks and document these options within their own risk procedure. Each option is to be assessed and properly documented. Each Head must ensure any residual risks are within their acceptable threshold. 4. 3.6Risk Communication and Consultation RISK APPETITE AND STRATEGY Each Head is to clearly and continuously communicate their risk management process to all who have roles and responsibilities within it to ensure staff understand why certain actions are required. This communication process must be clearly documented. 3.7Risk Monitoring and Review Each Head is to document the required proactive monitoring process of their risk treatment or action plans to ensure they remain relevant. Any resultant loss (actual or expected/ The risk appetite is a critical component of the Group’s robust Governance and Risk Management Framework and is driven by both top-down Board leadership and bottom-up involvement of management and staff at all levels. It enables the Board and Senior Management to communicate, understand and assess the types and levels of risk that the Group is willing to accept in pursuit of its business goals. The risk appetite is integrated into the strategic planning process, and remains dynamic and responsive to changing business and market conditions. The Bank’s risk appetite also provides a consistent structure in understanding risk and is embedded in day-to-day business activities and decisions throughout the Group. This forms the link in which the risk limits and controls are set in managing risk exposures arising from business activities. Acting as both a governor of risk and a driver of current and future business activities, the risk appetite ultimately balances the needs of all stakeholders and acts as a powerful reinforcement to a strong risk culture. Exposure Limits Governance to ensure enterprise-wide risks are within acceptable and manageable levels Oversight Process a best-practice approach to addressing these requirements RISK APPETITE STATEMENT (RAS) To address fundamental questions with respect to strategy, risk management and operations and implemented through a risk appetite framework, which includes the common language, policies, processes, systems, and tools used to establish, communicate and monitor risk appetite. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 5. Risk limits and controls Risk areas The articulation of the risk appetite is done through a set of risk appetite statements which includes a comprehensive view of all material risks to the Group as follows: Risk Appetite Categories Risk Areas Capital Adequacy • Risk Weighted Capital Ratio Asset Quality • • • • Liquidity • Bank Negara Malaysia (BNM) New Liquidity Framework Market • Earnings-at-Risk (EaR) • Economic Value of Equity (EVE) • Investment Securities Credit Ratings Operational • Operational Loss • Shariah Non-Compliance (SNC) • Cyber Security Strategic • Debt Rating • Capital Allocation • Risk-adjusted Profitability (Net Financing Margin – NFM) Compliance • Non-compliance with regulatory requirements Loan/Financing Asset Quality New Commercial Loan / Financing Rating Gross Impaired Loan Ratio Subsectors to be avoided (Commercial) BPMB is exposed to (but not limited to) the following principal risks: A well-developed RAS has the following attributes: 1. A key element of the overall RM framework; 3. Reinforces the organisation’s desired risk culture; and Risk appetite PRINCIPAL RISKS 2. Aligned with the business strategy and expressed with quantitative risk tolerances; Risk culture The risk appetite framework serves as a foundation for the Group’s risk culture and sets out the principles and policies to guide business activities and decision-making processes towards achieving an optimal balance between risk and return. Key Risk Metrics RISK MANAGEMENT (RM) GOVERNANCE GROUP RISK MANAGEMENT PRINCIPAL RISKS Credit Risk Concentration Risk Operational Risk Market Risk Liquidity Risk Interest Rate Risk Reputational Risk Information and Technology Risk Regulatory Risk Strategic Risk Shariah Risk Climate Change Risk Disease Outbreak Risk (New) 4. Produces better risk-adjusted business performance. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 65
35. GOVERNANCE GROUP RISK MANAGEMENT The respective principal risks are briefly described as follows : Risk Description Credit Risk Risks arising from the following: Risk Description Strategic Risk Risk that BPMB’s business strategy is inappropriate, or that it is unable to implement or execute its strategy such that ongoing production and profitability of the business is adversely impacted. Information and Technology Risk Risk emanating from the use of information and communication technology. These risks arise from failures or breaches of technology systems, applications, platforms, infrastructure and services which could result in financial loss, disruption in financial services or operations, or reputational harm to the BPMB Group. a) Default risk – risk arising from the inability or unwillingness of a counterparty to discharge its repayment contractual obligations; b) Downgrade risk – risk that changes in the possibility of a future default by a counterparty will adversely affect the present value of the contract with the counterparty today; c) Settlement risk – risk arising from the lag between the value and settlement dates of securities or financial instruments transactions; and The sub-categories of technology risk can be defined as follows: a) IT Risk – risk associated with the use, ownership, operation, involvement, influence and adoption of IT within BPMB Group. Consisting of IT-related events and conditions that could potentially affect the business operations, these risks are commonly related to IT infrastructure, operations and management; d) Concentration risk – risks arising from the following: Market Risk • Concentration on asset portfolios – risk of losses associated with inadequate diversification of asset portfolios • Concentration on business portfolio – risk of financial loss due to having written large proportions of business in the same or similar risk profile. b) I S Risk – risk associated with application systems with respect to relevancy of the application system to the BPMB Group or where an application system is unable to preserve integrity, confidentiality and availability of the information stored within the application system; and Risk that the value of a financial instrument will fluctuate as a result of changes in the market. Such risks include: c) Cyber Risk – risk associated with exposure or losses resulting from digital incidents caused by internal, external or third parties including theft, compromised integrity and/or damage to information and/or technology assets, internal or external fraud and business disruption. Cyber risk includes cyber-crime, cyber-terrorism, accidental loss of confidential data as well as liability for BPMB Group’s online activities. a) Interest rate risk – risk that the movement in interest rates/ profit rates can have an adverse effect both on BPMB’s earnings and economic value; b) Asset Liability mismatching risk – risk of a change in value as a result of a deviation between asset and liability cash-flows, prices or carrying amounts that originates from changes in market risk factors; c) Credit spread risk – sensitivity of the values of assets, liabilities and financial instruments to changes in the level or volatility of credit spreads over the risk-free interest rate term structure; d) Market liquidity risk – risk that the entity is unable to unwind or offset a particular position at/or near the previous market price because of inadequate market depth or because of disruptions in the marketplace caused by changes in market sentiment or due to a specific event or series of events; e) Funding risk – inability of the entity to meet its financial obligations that arise from withdrawals of deposits, repayments of purchased funds at maturity, extension of credit and working capital needs; and f) Equity risk – risk that the value of a financial instrument will fluctuate as a result of changes in equity prices. Liquidity Risk 66 Forms part of Market Risk and is defined as the risk that the BPMB Group will be unable to secure necessary funding due to deteriorating financial conditions or a similar reason, and will therefore be unable to meet cash flow requirements, or that it will suffer a loss because it is compelled to pay interest rates/ profit rates significantly higher than normal rates to secure funding. Operational Risk Risk of loss resulting from inadequate or failed internal processes, people, systems or from external events. Reputational Risk Potential loss to financial capital, social capital and/or market share resulting from damages to BPMB’s brand or reputation. Regulatory Risk Risk that unanticipated new acts or regulations will result in the need to change business practices that may lead to financial loss to BPMB. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 GOVERNANCE Shariah Risk Risk of legal or regulatory sanctions, financial loss or non-financial implications, including reputational damage, which BPMB may suffer arising from failure to comply with the rulings of the Shariah Advisory Council of Bank Negara Malaysia (SAC), standards on Shariah matters issued by BNM pursuant to Section 29(1) of the IFSA and Section 33E(1) of the DFIA, or decisions or advice of the Shariah committee. Climate Change Risk Climate change can be described as significant long-term change in the expected patterns of average weather of a region (or the whole Earth) over a significant period of time. Climate Change Risk is generally categorised as: a) Physical risk – Arises from climate-related events that damage property, reduce productivity and disrupt trade. Physical risks directly impact the continuity of business operations and economic activities, which in turn increases credit risk to financial institutions when revenue generating capacity and credit worthiness of borrowers are materially impacted. Physical risk also impacts collateral value, where assets pledged as collateral to banks could be destroyed or significantly damaged by climate events, impacting the recovery value. These risks are rarely well accounted for by the banks, resulting in under-pricing risks of such climate-related occurrences. b) Transition risk – Arises from transitioning to a lower-carbon economy which may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. The changes in the legal/ regulatory framework (e.g. disclosure requirement, implementation of carbon pricing), technological advancements (e.g. reducing cost of renewable energy) or consumer sentiments (e.g. certification scheme, fossil fuel divestment campaign) may translate into financial and/or reputational risk to financial institutions. c) Liability risk – Refers to a client seeking compensation for losses they may have suffered as a result of the physical or transitional risk related to climate change. Liability risk is generally more applicable to Insurers and Takaful operators. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 67
36. GOVERNANCE Risk Description Disease Outbreak Risk Refers to the threat of epidemics of infectious diseases that have spread through the human population across a large region (or over several countries or continents), e.g. COVID-19, MERS-CoV, SARS, Influenza. b. Concentration Risk and Connected Lending Concentration risk continues to be one of the Bank’s major concerns due to our localisation approach and the limitation in providing towards our mandated role and the business sector. The Bank is currently observing the Connected Party Limit to mitigate rising concentration risk. The COVID-19 outbreak in Malaysia started in January 2020 with case numbers beginning to escalate in early March 2020. The Bank has taken precautionary measures since early March 2020 to support the Government’s initiative on containing the outbreak. These measures include: i.Weekly communication issued by Corporate Communications and Group Human Resource to all staff on awareness of pandemic information and personal hygiene; ii.COVID-19 screening for staff who had travelled overseas before March 2020, and for staff who had come in contact with COVID-19 positive cases, including enforcement of home-quarantine for these impacted staff; The adoption of Single Customer Limit/Single Counterparty Exposure Limit and Connected Parties Limit is to extend financing facilities including investments to connected parties which are of good credit standing in the ordinary course of the business. This is to ensure that connected parties, by virtue of their position that could potentially exert influence over the Bank, do not inappropriately benefit from such transactions to the detriment of the Bank. c. Cyber Security and Data Confidentiality The increasing frequency and severity of cyber incidents including data breaches in recent years point to growing cyber security risks. As technologies evolve and become increasingly dominant in our operations, managing and maintaining a combination of IT systems and information have become the main concern of the Board and Senior Management towards ensuring resiliency of the Bank’s operations against cyber threats. iii.Implementation of health and safety measures and personal hygiene measures such as provision of facemasks for staff, allocation of hand sanitisers at every floor and at common areas; and As part of our approach in addressing data security risks and vulnerabilities, continuous assessment and heightening of cyber security controls have improved the capabilities of cyber perimeter defence in protecting the Bank’s IT infrastructure and systems from intruders as well as preserving the confidentiality, integrity and availability of the Bank’s information. In line with the new cyber security requirements enforced by the regulators, the Bank has implemented additional cyber security control measures such as secure network access, endpoint security protection, sandboxing capability, advanced persistent threat, security incident and event management capability and data loss prevention solutions to ensure a robust technology infrastructure along with the necessary detective and preventive measures. iv.Sanitisation and disinfection of BPMB’s Office on a regular basis and temperature checks at entry point through a thermal scanner installed at Menara Bank Pembangunan’s entrance lobby. v.Activation of the Bank’s Business Continuity Plan (BCP) by the Crisis Management Team (CMT) since March 2020, to support the initiatives on the containment of the outbreak. The measures adopted and implemented by the Bank in managing the COVID-19 pandemic, as approved by the CMT included: vi.Limiting workforce capacity to bare minimum in line with the MKN’s Standard Operating Procedure (SOP). This includes a split working arrangement involving Main Office, alternate sites and working from home (WFH); vii.Controlled visitor access and implementation of specific measures upon check-in to the building including obtaining visitor declarations for record; viii.Upgraded technology and infrastructure readiness including video-conferencing solutions for ease of virtual meeting arrangements during the MCO, i.e. Zoom Cloud Meeting, ix.Enhanced guidelines and procedures to align with the Standard Operating Procedure (SOP) for Financial Sector by Bank Negara Malaysia (BNM) in order to support offsite operations; and x.Sourcing for a new alternate recovery site for BPMB’s business operations in order to comply with prescribed social distancing guidelines. 6. IMMEDIATE RISKS Identifying and monitoring top and immediate risks are integral to the Group’s approach to risk management. The identification and prioritisation of key risks facing the Group is critical in enabling the Group to proactively plan for a holistic management of these risks, amongst others, across the Group. Some of the key concerns for the Group are: a. Regulatory Changes and Requirements An evolving landscape of regulatory requirements means that governments and regulators in numerous jurisdictions are expected to continue to develop and introduce regulations which may impose new requirements, including but not limited to the areas of capital and liquidity management, corporate structures, conduct of business, corporate governance and operational risks. d. Movement in Interest Rates Any interest rate movement will have an impact on the margins of the Bank’s fixed rate financing portfolio. However, the interest rate risk is managed within the risk appetite of the Bank and with well-established controls. e. Data Modern techniques of risk management, reflected in the methodological approach of Basel II, involve the estimation of probabilities of default and loss-given-default on customers’ financing portfolio. The Bank will continuously ensure that accurate data is maintained for Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD)/collateral value used in arriving at the level of provisioning required. f. Changes in Market Structure and Growing Competition Changes in the financial market structure such as privatisation, increased entry by commercial banks and financial innovations have significantly altered the competitive environment faced by BPMB. Commercial banks intensify competition with access to cheaper financing. Their competitive advantages are often enhanced by greater operating efficiency and better technology. On the one hand, the erosion in pricing power (i.e. less ability to lower deposit rates and raise financing rates) reduces earnings and increases the incentives for risk-taking on the part of the banks. Moreover, competitive pressures might also lead to mispricing. On the other hand, the presence of other commercial banks can also enhance financial stability by improving risk management among competitors. Improvements in measuring expected and unexpected losses are also needed in order to increase the use of risk-based pricing. g. Shariah Non-Compliance Shariah non-compliance risk as defined by BNM in its Policy Document of Shariah Governance (2019), is the risk of legal or regulatory sanctions, financial loss or non-financial implications, including reputational damage, which the Bank may suffer arising from failure to comply with the rulings of the Shariah Advisory Council of BNM, standards on Shariah matters issued by BNM or decisions or advice by the Shariah Committee. The Bank has established relevant policies for a sound Shariah governance framework to facilitate a strict adherence to the regulatory and Shariah requirements. More training and awareness sessions in Shariah risk related matters were organised for BPMB staff, to ensure staff are equipped with adequate knowledge to be applied in business operations. 68 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 69 GOVERNANCE GROUP RISK MANAGEMENT
37. GOVERNANCE h . Reputation Board-Level Committees Upholding the Bank’s good reputation is of paramount importance, particularly as it is undergoing a strategic transformation process. Embracing a strong risk and compliance culture is pertinent for all Bank employees as this will help to guide and encourage all staff to discharge their duties with integrity, and in doing so, help protect the Bank’s reputation. The Bank ensures that awareness programmes for all staff are conducted periodically. i. Climate Change As part of the Bank’s Environmental, Social and Governance (ESG) framework, the management continues to identify climate change risk as an emerging risk in 2020. Climate change risk refers to risk resulting from the effects of global warming. In December 2019, BNM issued a Discussion Paper on Climate Change and Principle-based Taxonomy highlighting the risks and impact of climate change. GRM undertook a rationalisation of its corporate structure and dedicated one headcount to manage risks related to climate change. In 2020, GRM continued its capacity building on the subject matter and plans have been put in place to adopt a taxonomy and establishment of a Climate Change Risk Framework/ Policy in 2021. Once the framework/policy is in place, the Bank plans to adopt the recommendations set forth by the Taskforce on Climate-related Financial Disclosures (TCFD). 7. GOVERNANCE AND RISK OVERSIGHT The BRMC is a Board-level committee responsible for overseeing the Group’s risks. It is primarily responsible for the oversight of Senior Management’s activities in managing the key risk areas of the Group and to ensure the appropriate risk management infrastructure, resources and processes are in place and functioning effectively. Board Credit Committee (BCC) The BCC is tasked by the Board to review financing approvals and the credit risk portfolio. Board Nomination & Remuneration Committee (BNRC) The BNRC is appointed to oversee the establishment and implementation of remuneration policies and structures. This includes ensuring such policies and structures do not induce excessive risk-taking yet are able to reinforce prudent risk-taking. Board Audit Committee (BAC) The BAC provides independent oversight to review the financial conditions of the Bank and BPMB Group’s financial reporting processes and internal controls and ensuring checks and balances within BPMB Group, performance and findings of the internal auditors and to recommend appropriate remedial action regularly. Board Information Technology Committee (BITC) The BITC has oversight function on the implementation of technology-related strategies and initiatives of the Bank and ensuring that the management of technology risk is embedded within the overall risk management framework. Shariah Committee The Group adopts the “3 Lines of Defence” model in managing risk, placing accountability and ownership of the business process across distinct functions and ensuring an appropriate level of independence and segregation of duties. The management of risk broadly takes place at different hierarchical levels and is emphasised through various levels of committees, business lines, control and reporting functions. The Shariah Committee reports directly to the Board and undertakes a fundamental role in ensuring the Group’s compliance with Shariah requirements. The Shariah Committee is responsible for deliberating and providing decisions, views and advice on Shariah matters/issues, as well as Shariah compliance oversight on the Group’s Islamic business operations/activities. BPMB’S LINE OF DEFENCES Management-level Committees Board External Audit Group Internal Audit Third Line of Defence Group Risk Management and Group Compliance Second Line of Defence Business Units First Line of Defence Board Risk Management Committee (BRMC) Management Risk Committee (MRC) The MRC is a Management-level committee responsible for the management of all material risks within the Group. Asset and Liability Committee (ALCO) The primary objective of the ALCO is to perform the oversight function and to deliberate key issues related to the Bank’s asset and liability management and market risk. Group Credit Committee (GCC) The GCC forms part of the risk governance for managing credit/ investment risks within the Group. The committee is empowered to approve credit/ investment related proposals which fall within their authority. Business Continuity Management Committee (BCMC) The BCMC is tasked with overseeing the Business Continuity Management (BCM) of the Group, which includes approving relevant BCM documents such as the Business Continuity Plan (BCP) and the Disaster Recovery Plan (DRP). Executive Committee (EXCO) The responsibilities of EXCO include but are not limited to approving, reviewing, advising, guiding and making recommendations (where applicable) to the Board of Directors (Board) (of each company) for consent, concurrence or approval on: a)Implementation and enforcement of business strategies, directives, action plans and budgeting in line with the mandated roles; The following illustrates the Risk Management Governance structure adopted by the Bank, which is guided by BNM’s Risk Governance Policy, Guidelines on Corporate Governance for Development Financial Institutions and the Shariah Governance Policy Document. b)General management issues related to operational policies, guidelines, procedures, controls and systems; c)Direct Corporate Investment in subsidiaries and associate companies; Board of Directors d)Other operational issues (including but not limited to IT, Human Resources, Public Relations, Marketing, Advertisements, etc.); The Board of Directors has the ultimate responsibility for the sound and prudent management of the Group. This includes responsibility for risk oversight and ensuring appropriate risk management frameworks and policies are established and implemented accordingly for the various categories of risk exposures within the Group. e)Any other areas as determined by the President/Group Chief Executive Officer from time to time. 70 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 To ensure that risk governance remains strong and relevant, GRM continues to embed robust risk governance and accountability within the Group. It also ensures adherence to dynamic global and local regulatory requirements and risk management practices across the Group. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 71 GOVERNANCE GROUP RISK MANAGEMENT
38. GOVERNANCE 8 . RISK AND COMPLIANCE CULTURE 9. The risk and compliance culture of the Group permeates all levels of business and activities within the Bank as it is driven from the top and complemented with the tone from the middle. As an essential building block for effective risk governance, this culture is continuously promoted to ensure that it is embraced and exhibited in the behaviour of each individual within the organisation. As part of the risk and compliance culture, the Group has also striven to instil a compliance culture where the Board, Senior Management and all employees of the Group are committed to adhere to relevant laws, rules, regulations and regulatory guidelines. The Group’s commitment is clearly demonstrated through the establishment of strong compliance policies and guidelines to ensure that the Group’s non-compliance risks are effectively managed. Such measures help lower potential costs arising from regulatory penalties, as well as protect the Group’s integrity and reputation. Market Risk • Review of Asset and Liability Committee (ALCO) Composition • Reestablishment of Contingency Funding Plan (CFP) • Evaluation of the Application of Contingency Funding Plan (CFP) Countermeasures • Review of Market Risk Management Framework • Review of Counterparty Limits for FY2020 In the year 2020, Group Risk Management succeeded in completing the following initiatives: Credit Risk • Establishment of criteria for payment moratorium in relation to the COVID-19 pandemic • Review and revision of Credit Risk Management Policy • Acceptance of delivery of enhanced credit risk rating model and challenge session to improve the internal control through formularisation of action plan and enhancement process • Operational & Shariah Risk • Strengthened foundation of operational risk through establishment of governing framework/policy and its supporting guidelines based on new regulatory requirements and industry best practices. e.g. – Enhancement of the Operational Risk Management Framework; • • • • Synergised business continuity management programme and activities to enhance business continuity preparedness and capability Improvised business continuity response and recovery during crisis situations Continuous engagement and awareness to instil operational risk management culture with one-on-one ORLO engagement sessions covering every function rolled out in 2020 Risk Control and SelfAssessment (RCSA) exercise BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Review of the Bank’s Key Risk Indicators which includes proposing new and re-assess the existing internal KRIs • Revision of the BPMB Authority Matrix • Revision of the Group Governance and Risk Management Framework • Quarterly Climate Change Risk reporting to BNM, in line with the BNM Discussion Paper on Climate Change and Principle-based Taxonomy • Collaboration with Group Finance to conduct the BNM Bottom-Up Stress Testing Enhanced Credit Portfolio Risk (CPR) Report to include more in-depth analysis across the Bank’s portfolio In 2020, GRM successfully completed the following activities: • Merging of Portfolio & Risk Strategy to align synergies and resource maximisation • Capacity building of Operational Risk Function i.e. IT Risk, BCM and infrastructure of Credit Risk to support Business Banking and Business Plan expansion The Bank undertakes a proactive approach in identifying emerging risks and opportunities in our operating environment. GRM regularly reports these emerging risks in the Bank’s operating environment to MRC and BRMC. Throughout 2020, the ramifications of the COVID-19 pandemic have continued to increase, fanning out from Asia to various parts of Europe and to the rest of the world. As a result, the Malaysian banking industry performed below par in 2020. A majority of sectors within the Malaysian economy were also affected in varying degrees. The tourism and hospitality sectors in particular, are fighting to restore consumer confidence amidst an atmosphere of restrictive regulations such as border closures and social distancing, as well as dwindling reserves due to the need to sustain fixed costs of operations and financing of payment obligations. In view that the Malaysian economy is not expected to recover fully from Review of the Guidelines on Best Practices for Single Counterparty Exposure Limit (SCEL) and Single Customer Limit (SCL) The Group has taken the initiative to adopt a more forward-looking approach to capital management and develop more rigorous risk management techniques. The Group’s state of implementation of these initiatives is reported to the MRC, BRMC and the Board on a regular basis, thus ensuring that the Management and Board are kept informed and continue to maintain oversight of the risks undertaken by the Group. the pandemic within the next few years, BPMB supports BNM’s relief measures and initiatives for Small and Medium Enterprises and Corporates to alleviate short-term cash flow uncertainties faced by affected customers. Approvals for Moratorium on financing payments have been extended to existing customers and new/fresh impairment is expected to be contained. As COVID-19 vaccines continue to undergo further development, approval and deployment across the globe, consensus economic forecasts for global economic growth are generally being revised upwards. However, positive growth in 2021 will largely be attributable to a low-base effect, and not all sectors are expected to experience immediate or similar levels of growth. Default risk could remain heightened for some time, due to tight liquidity and financial flexibility, before the economic cycle turns toward more sustainable growth. Asset quality is expected to remain pressured by the resurgence of COVID-19 infections dampening economic activities as well as business and consumer sentiment. We also expect average credit rating bands to face downward pressure as the FY2020 financial performance of borrowers/ customers continues to be reflected in the rating model. To account for the risks arising from COVID-19, the Bank conducts quarterly ad-hoc stress tests to simulate impact to the Bank’s capital. Based on the results of these tests, BPMB remains well-positioned and able to withstand impact to our capital. Within the industry, the current profitability levels of banks remain resilient, bolstered by 11. RISK AND OPPORTUNITIES IN OUR OPERATING ENVIRONMENT Credit Portfolio & Policy Management • 10. RESOURCES AND SYSTEM INFRASTRUCTURE Risk Strategy • – Establishment of frameworks and policies for Technology Risk Management and Cyber Resilience ACHIEVEMENTS FOR 2020 72 strong banking fundamentals. Looking ahead, we expect the industry to remain wellpositioned in maintaining and enhancing its competitive edge, supported by a high level of public confidence in the banking system as well as ongoing efforts to embrace new technologies. It is however, paramount to note that the rapid digitalisation of the financial sector inherently increases the exposure of financial institutions to cyber attacks. Such attacks have the potential to cause material disruptions to financial services that can impact the stability and integrity of the financial system. The increasing sophistication of attacks calls for corresponding measures, both at institution and system-wide levels, to support a financial sector that is both technologically innovative and resilient to cyber threats. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 73 GOVERNANCE GROUP RISK MANAGEMENT
39. SUSTAINABILITY KEY STAKEHOLDERS ENGAGEMENT PLATFORMS KEY AREAS OF CONCERN OUR ACTIONS Regulator • BPMB to remain relevant • • • Ability to measure impact for projects financed by the Bank Financed four projects in the underserved and unserved segment • • Achieving the targets set under the Performance Measurement Framework Launched MIND (Measuring Impact on National Development) Assessment Framework • Ongoing engagement with BNM • Cultivation of an ethical and risk-aware culture compliant with regulations • Provided Statement of Corporate Intent & Annual Funding Requirement • Continuous seminars/trainings to ensure all regulatory requirements are implemented • In the process of gaining Anti-Bribery Management System (ABMS) certification from SIRIM Bhd Bank Negara Malaysia (BNM) Meetings Presentations Forums Dialogue Sessions Reporting Key Ministries • Ministry of Finance (MOF) • Economic Planning Unit (EPU) • Ministry of Tourism, Arts and Culture (MOTAC) • Ministry of Science, Technology, and Innovation (MOSTI) Meetings Forums Dialogue Sessions Presentations Government Programmes Reporting Ability to support the Government in financing high risk and long-tenor developmental projects • Provided continuous financing to the strategic sectors • Outreach to the underserved and unserved sectors • Ongoing dialogue with Finance Minister • Participation in the 12th Malaysia Plan (12MP) 2021–2025 • Submitted proposal on National Budget 2020 • Continued marketing of the Bank’s dedicated schemes (Sustainable Development Financing Scheme (SDFS), Industry Digitalisation Transformation Scheme (IDTS), Tourism Infrastructure Scheme (TIS), Maritime & Logistics Scheme (MLS), Public Transportation Scheme (PTS) and National Development Scheme (NDS) • Established MoU with MOSTI Agencies (i.e. Kumpulan Modal Perdana & Malaysian Technology Development Corporation) • Financed six projects which have been identified as key national focus areas Government Agencies • • • Malaysia Investment Development Authority (MIDA) Promoting the Bank’s Special Schemes (SDFS, IDTS, PTS, MLS, TIS & NDS) Engaged closely with MIDA for the promotion of manufacturing and services sectors • Keeping up to date with rapid developments in technology in order to support the high technology sector • Established collaboration with MIGHT and MDEC • Providing assistance for evaluation of projects under IDTS Strategic Partners • Measuring impact to projects financed by the Bank • • World Bank • Knowledge sharing Engaged the World Bank to develop an Impact Assessment Framework which was launched as MIND • China Construction Bank (CCB) • Potential syndication projects • Signed MoU with CCB (M) Bhd • Islamic Development Bank (IDB) • Development of Wakaf Assets • Speaking engagement at “Infrastructure Financing” forum in collaboration with CCB (M) Bhd • Established collaboration with IDB • Malaysian Industry-Government Group for High Technology (MIGHT) • Malaysia Digital Economy Corporation (MDEC) Meetings Programmes Meetings Programmes 74 • BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Forums Dialogue Sessions SUSTAINABILITY STAKEHOLDER ENGAGEMENT Knowledge Sharing Sessions Forums Knowledge Sharing Sessions BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 75
40. SUSTAINABILITY KEY STAKEHOLDERS ENGAGEMENT PLATFORMS Associations /Membership • Association of Development Finance Institutions of Malaysia (ADFIM) • Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) • Association of National Development Finance Institutions in Member Countries of the Islamic Development Bank (ADFIMI) • China-ASEAN Inter-Bank Association (CAIBA) • United Nation Environment Programme (UNEP) • The Business Council for Sustainable Development (BCSD) Malaysia • 30% Club Malaysia Forums Programmes Dialogue Sessions OUR ACTIONS • Alignment of the Bank’s goal with SDGs and Islamic financing principles • Became the 1st Malaysian DFI member of UNEP FI • Best practice exchange across banking industry • Speaking engagement at UNEP FI’s 1st Anniversary • Participation in structured peer learning and capacity building activities • Sponsored and hosted “Global Online DFI Forum 2020” in collaboration with ADFIM • Assisting Government to enhance the infrastructure of the nation • Became a member of BCSD Malaysia • Became a member of 30% Club Malaysia • Leveraging understanding of other organisations to adopt ongoing initiatives in blue, green, circular economies, human rights and others • Assistance to affected customers during COVID-19 pandemic • Preserved customers’ income via Moratorium • Customer outreach • Participated in RTM Biz Interview “Prihatin Rangsang Permintaan” • Supporting SDG #8 – Decent Work & Economic Growth and SDG #9, Industry, Innovation & Infrastructure • Speaking engagement at “Ship Finance Restructuring Insolvency During the COVID-19 Era” forum • Speaking engagement at “Maritime Fund” forum • Speaking engagement at “Infrastructure Financing” forum in collaboration with CCB (M) Bhd • Developed Islamic Hire Purchase for Pembangunan Leasing Corporation’s customers Knowledge Sharing Sessions Customers Site Visit KEY AREAS OF CONCERN Networking Forums Advisory Engagements Employees Meetings FEET’S App Sports Club Activities • Capability development • Ongoing provision of capability development • Health and Safety • Ongoing revision of remuneration and benefits • Workplace environment • Continuous staff engagement • Workplace culture • Rolled out BPMB Prihatin • Supporting SDG #8 – Decent Work & Economic Growth • Inculcated the Paradigm Shift • Ongoing staff sharing sessions Townhall Core Value Engagement Communities Employee Engagement Survey Read more about the Paradigm Shift from page 20 to 21 • Community Events Zakat/ Donation 76 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Corporate Social Responsibilities Supporting Government’s environmental preservation initiative • Supporting SDG #4 – Quality Education • Provision of assistance during COVID-19 pandemic • Zakat Contribution • Supporting SDG #10 – Reduced Inequalities Programmes SUSTAINABILITY STAKEHOLDER ENGAGEMENT • Established Amanah Lestari Alam (ALAM) • Became a member of PINTAR and launched SEEDS, a school adoption programme • Contributed RM2.0 million to Asnaf students in eight local universities • Collaborated with Lembaga Zakat Negeri Kedah to distribute food packs during MCO • Provided full PPE suits worth RM695,000 to frontliners in Sabah and Sarawak • Provided PPE, face shields, shoe covers, masks and gloves worth RM1.0 mil to three Government hospitals, Polis Diraja Malaysia (PDRM) and Angkatan Tentera Malaysia (ATM) • Contributed RM1.0 mil and RM0.5 mil respectively to PPZ – MAIWP and Tabung Covid19 – JPM BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 77
41. SUSTAINABILITY NURTURING OUR TALENT THROUGH LEARNING AND DEVELOPMENT INITIATIVES Building a high-performance organisation with the ability to deliver  impactful strategic outcomes is a critical component of BPMB’s ongoing journey towards becoming Malaysia’s leading developmental partner. To achieve this, we strive to create value for our people and help them reach their full potential by: We believe that promoting lifelong learning leads to stronger growth, better innovation and the ability to remain relevant in a fast-changing workplace. The Bank seeks to inculcate a healthy culture of learning to equip our workforce with the necessary skills required to deliver BPMB’s mandate. This year, we refreshed our learning approach to foster a better balance between leadership and technical/functional skills required for the future economy. 1.Nurturing our talent through learning and development initiatives 2.Creating a healthy and safe work environment for all employees and supporting their physical and emotional wellbeing through BPMB Prihatin. BPMB is focused on building a high performance team that is dedicated to serving our nation. OUR EMPLOYEES Snapshot of BPMB Workforce as at 31 December 2020 TOTAL MANPOWER TOTAL MANPOWER HEADCOUNT TOTAL MANPOWER BY GENDER/AGE BY ETHNIC GROUP 457 (47%) (53%) HEADCOUNT 2020 has been a challenging year, especially for face-to-face training, due to the COVID-19 pandemic crisis. Total Staff Training Expenditure (STE) utilisation amounted to RM2.06 Mil in 2020, exceeding the 2.5% minimum BNM STE requirement, despite the exemption given by BNM on the said requirement. Some of the key development programmes implemented in  2020 include: •Building Leadership Capabilities The Bank embarked on a programme to develop the leadership capabilities of employees, from Team Contributors to Strategic Leaders, to acquire and accelerate a set of key competencies specific to the organisation’s requirements. A Top Team Effectiveness and Coaching Programme 12-month learning journey was implemented at Strategic Leaders (SL) level with the objective of developing effective leadership behaviours that improve team synergy, overall organisation and increased engagement levels and bottom-line performance. Several other in-house leadership development programmes were also implemented, with a focus on Scenario Planning, Mindset of Excellence, Entrepreneurial Mindset and Corporate Opportunities. These programmes included exposure to best practices and industry leaders. The Scenario Planning Programme by MIGHT, which imparted a sound foundation in Scenario Planning towards enhancing effectiveness of long-term planning, was widely received. Moving forward, the Bank plans to embark on more Leadership development interventions such as the Coaching Skills Programme and BPMB Bespoke Leadership Development Series (Program Pembangunan I, II, III and IV) for all levels of leaders. These programmes are currently in the pipeline for implementation in early 2021. HEADCOUNT 215 242 457 BPMB Learning and Development as at 31 December 2020 On average BPMB Staff attended 38 training hours; equivalent to 4.8 training days in 2020. 431 AGE GROUPS 94% 26 6% 48 76 220 Managerial 160 Executive 77 Non-Executive 50 & ABOVE 48 82 67 94 24 18 40 – 49 Bumi Non-Bumi 30 – 39 20 – 29 Male Female BPMB Strategic Leaders attending the Top Team Effectiveness and Coaching Programme at Casa del Rio, Malacca (1 – 3 October 2020) 78 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 79 SUSTAINABILITY VALUE FOR PEOPLE
42. SUSTAINABILITY • Embracing the ‘Core Values’ as the foundation of BPMB Leadership Development Programmes. At BPMB, we strongly believe that the Bank’s core values should serve as the foundation of our leadership development programmes with our business strategy forming the context of these programmes. This will enable us to develop not just successful leaders, but also effective leaders with the skills and desired attributes that align with BPMB’s core values. In light of this, the Bank rolled out the BPMB Journey of OUR New EmploYees Programme (JOURNEY) for new joiners. The JOURNEY programme incorporates four Core Values. To inculcate the Core Values as part of our DNA, a customised BPMB Core Values Programme is also in the pipeline for implementation in 2021. •Building Technical and Functional Capability through Specialised Qualifications and Certifications BPMB is committed to elevating the quality of professionals within the Bank through enrolments CHARTERED BANKER QUALIFICATION (CB) Back-to-Basic Principles 26 15 9 CORE VALUES •Virtual Knowledge Sharing Sessions by Renowned Global Speakers. In pursuit of excellence and knowledge sharing, we PROFESSIONAL CREDIT CERTIFICATION (PCC) 47 18 I am worthy of your trust I will speak and seek the truth I will seek knowledge to remain relevant I will not let you down To further widen our range of learning approaches, an e-learning platform with Anti-Money Laundering and Counter Financing Terrorism (AML/CFT) online modules was introduced for all employees. More online modules will be rolled out in the forthcoming years. 12 13 8 7 6 •Enhancing Learning Methods 18 16 11 CERTIFICATION FOR BANK AUDITORS (CBA) 34 4 6 5 PB CB CCE CBA BCP PB – Professional Banker CB – Chartered Banker CCE – Certified Credit Executive BCP – Business Credit Professional PROFESSIONAL QUALIFICATION IN REGULATORY COMPLIANCE (RC) PROFESSIONAL QUALIFICATION IN AML/CFT 10 to professional qualification and specialised certification programmes. 2020 marks the third year of the implementation of our 5-Year Capability Building Roadmap (2018 – 2022). The enrolment status to date, is shown below: engaged several renowned global speakers in 2020 to share insights of their experience throughout their career journey. 5 5 3 3 2 2 CRC ACRC 8 BANK RISK MANAGEMENT (BRM) 9 9 5 2 1 CAML ACAML CPFCC CRC – Certification in Regulatory Compliance ACRC – Advanced Certification in Regulatory Compliance CAML – Certification in AML/CFT ACAML – Advanced Certification in AML/CFT CPFCC – Certified Professional in Financial Crime Compliance PASARAN KEWANGAN MALAYSIA CERTIFICATE (PKMC) CERTIFIED SHARIAH ADVISOR (CSA) 8 7 8 8 BRM CERTIFIED SHARIAH PRACTITIONER (CSP) 3 3 1 PKMC Completed 80 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 CSA CSP Pursuing BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 81 SUSTAINABILITY VALUE FOR PEOPLE
43. SUSTAINABILITY VALUE FOR PEOPLE a  mental health condition. staff to remain efficient and productive in delivering against their performance goals: √ Easy-To-Follow Virtual Fitness Classes led by professional fitness coaches are available to employees to improve their physical and mental health. – Menara Bank Pembangunan – Disaster Recovery Centre (DRC) – Alternate Recovery Site (ARS) Financial Assistance for Employees E-Farma As a caring employer, the well-being of our employees is a top priority. We actively respond to their needs through the BPMB Prihatin (BPMB Cares) initiative as described below: • Introduced an online pharmacy which is made available at employees’ convenience and provides an avenue for those with chronic illnesses to request long-term medication from the comfort of their homes. Naluri Community •Naluri Community is a holistic well-being programme that aims to help our employees achieve their healthiest and best self. The programme focuses on three areas: – E  ducate & Guide to increase knowledge and raise awareness on wellness – Screen & Assess to identify at-risk employees – Intervene & Treat to attend to psychological and physical concerns The key features of Naluri Community include:  √ Remote Therapy to improve self-awareness and ability to process complex thoughts and emotions with expert help from a clinical psychologist. FEET’S • Launched FEET’S, an engagement and recognition mobile application to foster a better engagement culture. Key features include a two-way recognition platform, a suggestion box for idea generation, a ‘makan buddy’ feature to encourage staff bonding over mealtimes, a community portal, and a unique reward and redemption system. Reward points are redeemable at various brand partners as well as at FEET’S vending machine which has been installed at BPMB’s premises to enable easy redemption. Through FEET’S, we aim to: –Leverage data analytics to better understand the needs of BPMB employees –Elevate productivity and employee happiness –Adopt HR best practices and engage with experienced professionals •As a caring employer, we always strive to provide financial aid in any possible way to support employees’ needs and predicaments, as well as to nurture their children in pursuing their further education. In this context, we have introduced several schemes of Financial Assistance offered to all employees and their immediate family members as illustrated below. •In line with the Government’s call for employers to support its endeavours under the Economic Stimulus Package (ESP) to cushion the impact of COVID-19 and support economic growth, the Board of BPMB approved a one-off financial assistance for eligible employees. SUSTAINABILITY PROMOTING EMPLOYEE WELFARE THROUGH BPMB PRIHATIN • The Bank provided monetary assistance of RM500 to every employee to welcome the Holy month of Ramadhan and to strengthen our faith during the blessed month. Employee Engagement •To commemorate the Merdeka celebration with 2020’s theme ‘Malaysia Prihatin’, an engagement session was arranged to instil the spirit of patriotism in our employees, demonstrating the Rukun Negara and linking it with BPMB’s core values. Flexible Working Location Arrangement • Implemented flexible working arrangements guided by Crisis Management Team (CMT), following the directions from the Federal Government and Government Agencies. This allows our employees to work at places other than the following locations and will enable  √ Dedicated 24/7 Helpline for immediate assistance from a certified counsellor.  √ Dietitian Helpline which enables employees to speak to a registered dietitian for personalised nutrition advice and healthy food alternatives based on individual needs and preferences. 82 √ O  nline Emotional Well-being Assessment which provides a quick and easy way to determine whether employees are experiencing symptoms of BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 83
44. CORPORATE HIGHLIGHTS JULY 2020 SEPTEMBER 2020 Contribution of 5 ,000 sets of Personal Protective Equipment (PPE) to Sabah State Health Department BPMB officially joins PINTAR Foundation CORPORATE HIGHLIGHTS HIGHLIGHTS OF THE YEAR Inclusivity Sustainability Contribution of Moving Clinic (Klinik Bergerak) to Lembaga Zakat Negeri Kedah Darul Aman Mock cheque presentation ceremony of Corporate Zakat to Lembaga Zakat Selangor Inclusivity Inclusivity SEPTEMBER 2020 Signing a strategic collaboration between BPMB and China Construction Bank NOVEMBER 2020 Contribution of 10,000 Sets of PPE to Healthcare frontliners in Sabah Economic Sustainability SEEDS Programme (Supporting English Empowerment to Drive Sustainability) kick-off event at SMK Seri Titiwangsa Contribution of computers to SMK Seri Titiwangsa under the SEEDS programme Sustainability Inclusivity 84 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 85
45. CORPORATE HIGHLIGHTS NOVEMBER 2020 FEBRUARY 2021 BPMB contributes education funds amounting to RM2 million to eight public universities Championing English Literacy Amongst Youths in a three-day workshop for students of SMK Seri Titiwangsa Inclusivity CORPORATE HIGHLIGHTS HIGHLIGHTS OF THE YEAR Inclusivity DECEMBER 2020 Strategic collaborations with Kumpulan Modal Perdana and Malaysian Technology Development Corporation MARCH 2021 BPMB Partners Pusat Pungutan Zakat-MAIWP to distribute assistance  amounting to RM35,000 to 100 Asnaf children Digitalisation Inclusivity JANUARY 2021 86 BPMB partners Pusat Pungutan Zakat-MAIWP to donate basic food assistance to the Asnaf community amounting to approximately RM25,000 BPMB inks deal with Pulau Indah Power Plant Sdn. Bhd. to co-finance development of a RM3.3 billion 1,200 MW power plant Inclusivity Sustainability BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 87
46. CORPORATE INFORMATION CORPORATE INFORMATION BOARD OF DIRECTORS Dato ’ Sri Mohamed Nazir Abdul Razak Chairman/Independent Non-Executive Director COMPANY SECRETARY Zarina Nadzimuddin (MAICSA 7060104) Ariff Rozhan SHARIAH COMMITTEE Independent Non-Executive Director Norazilla Md Tahir Independent Non-Executive Director Datuk Zaiton Mohd Hassan Associate Professor Dr Aznan Hasan (Chairman) Chairman/Independent Non-Executive Director (retired with effect from 18 February 2021) Associate Professor Dr Miszairi Sitiris Tan Sri Dr Rahamat Bivi Yusoff Associate Professor Dr Noraini Mohd Ariffin Independent Non-Executive Director (retired with effect from 1 October 2020) Dato’ Othman Semail Non-Independent Non-Executive Director (retired with effect from 20 March 2021) (retired with effect from 31 March 2021) (retired with effect from 31 March 2021) Dr Ahmad Basri Ibrahim Ustaz Mohd Fadhly Md Yusoff Tan Lye Sim Independent Non-Executive Director (retired with effect from 15 September 2020) Dr Mohamed Ashraf Mohamed Iqbal AUDITORS Ernst & Young (AF: 0039) Independent Non-Executive Director (resigned with effect from 28 February 2021) REGISTERED OFFICE Dato’ Wan Mohd Fadzmi Che Wan Othman Fadzilah Independent Non-Executive Director (resigned with effect from 25 April 2021) Level 16, Menara Bank Pembangunan, Bandar Wawasan No. 1016, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia PRESIDENT/ GROUP CHIEF EXECUTIVE OFFICER Arshad Mohamed Ismail WEBSITE www.bpmb.com.my FINANCIAL STATEMENTS Directors’ Report Statement by Directors Statutory Declaration Shariah Committee’s Report Independent Auditors’ Report Statements of Financial Position Statements of Profit or Loss Statements of Comprehensive Income Consolidated Statement of Changes in Equity Statement of Changes in Equity Statements of Cash Flows Notes to the Financial Statements 88 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 90 95 95 96 101 103 104 105 106 107 108 110 89
47. DIRECTORS ’ REPORT DIRECTORS’ REPORT The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Bank for the financial year ended 31 December 2020. DIRECTORS PRINCIPAL ACTIVITIES The Bank is principally engaged to provide medium to long term credit and financing facilities under both Conventional and Islamic financial business to finance infrastructure projects, maritime, oil & gas, technology and capital intensive industries in manufacturing as well as other identified sectors in line with the country’s development policy. Information relating to principal activities of the subsidiaries are disclosed in Note 45 to the financial statements. RESULTS Net profit for the year Attributable to: Equity holders of the Bank Non-controlling interests Group RM’000 Bank RM’000 107,083 100,820 The names of the directors of the Bank in office since the beginning of the financial year to the date of this report are: Dato’ Sri Mohamed Nazir bin Abdul Razak Ariff bin Rozhan Norazilla binti Md Tahir Tan Lye Sim Tan Sri Dr. Rahamat Bivi binti Yusoff Datuk Zaiton binti Mohd Hassan Dr. Mohamed Ashraf bin Mohamed Iqbal Dato’ Othman bin Semail Dato’ Wan Mohd Fadzmi bin Che Wan Othman Fadzilah (ii) In the opinion of the directors, the results of the operations of the Group and of the Bank during the financial year were mainly affected by the lower recognition of interest and profit income due to loan moratorium and repayment assistance provided to borrowers/customers and the recognition of higher Expected Credit Loss (“ECL”) due to the application of management overlays to reflect the impact of COVID-19 pandemic. (iii) Dividends recognised in the financial year by the Bank are: 2020 Final 2019 ordinary, net of tax Final 2019 special, net of tax Total amount RM’000 3.25 1.69 4.94 100,000 52,214 152,214 At the forthcoming Annual General Meeting, a final single tier tax exempt dividend in respect of the financial year ended 31 December 2020, on 3,078,724,049 ordinary shares, amounting to a dividend payable of RM75,000,000 (2.44 sen net per ordinary share) will be proposed for the shareholders’ approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained profits in the financial year ending 31 December 2021. Pembangunan Leasing Corporation Sdn Bhd (iv) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 (appointed on 26 November 2020) (appointed on 26 November 2020) (resigned on 26 November 2020) BPMB Urus Harta Sdn Bhd Elioskarma bin Abdul Aziz Azmahnor binti Siarap @ Abdul Wahab Zulkeefli bin Mad Karim 90 (appointed on 1 September 2020) (resigned on 1 September 2020) Maju Nominees (Tempatan) Sdn Bhd Azmahnor binti Siarap @ Abdul Wahab Elioskarma bin Abdul Aziz Roslina binti Mohamed (vi) (appointed on 29 December 2020) (resigned on 29 December 2020) Emerald Upline Sdn Bhd Azmahnor binti Siarap @ Abdul Wahab Amreen bin Mohamed Zulkeefli bin Mad Karim (v) (appointed on 15 December 2020) (resigned on 29 February 2020) (resigned on 28 February 2021) (resigned on 25 April 2021) SME Growth Acceleration Fund Sdn Bhd Nik Nor Aini binti Nik Mohamed Elioskarma bin Abdul Aziz Razali bin Hassan Final single tier tax exempt dividend on 3,078,724,049 ordinary shares, amounting to RM152,213,638.40 (4.94 sen net per ordinary share), in respect of the financial year ended 31 December 2019 was approved on 10 April 2020 and paid on 25 June 2020. Sen per shares (appointed on 29 July 2020) (appointed on 28 September 2020) (retired with effect from 1 October 2020) (resigned on 29 July 2020) Arshad bin Mohamed Ismail Norazilla binti Md Tahir Mohamad Rafi bin Shahzada Dr. Mohamed Ashraf bin Mohamed Iqbal Dato’ Wan Mohd Fadzmi bin Che Wan Othman Fadzilah DIVIDENDS The amount of dividends paid by the Bank since 31 December 2019 were as follows: (appointed on 14 August 2020) (retired with effect from 15 September 2020) (retired with effect from 1 October 2020) (retired with effect from 18 February 2021) (resigned on 28 February 2021) (retired with effect from 20 March 2021) (resigned on 25 April 2021) Global Maritime Ventures Berhad Ariff bin Rozhan Norazilla binti Md Tahir Tan Sri Dr. Rahamat Bivi binti Yusoff Datin Rashidah binti Mohd Sies 100,820 – 100,820 There were no material transfers to or from reserves, allowances or provisions during the financial year other than those disclosed in Notes 8, 9, 35 and 36 to the financial statements and the statement of changes in equity. (appointed on 22 April 2021) The names of the directors of the subsidiaries of the Bank since the beginning of the financial year to the date of this report are: (i) 107,144 (61) 107,083 FINANCIAL STATEMENTS FINANCIAL STATEMENTS (appointed on 9 November 2020) (resigned on 9 November 2020) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 91
48. DIRECTORS ’ REPORT DIRECTORS’ REPORT DIRECTORS’ BENEFITS BUSINESS OUTLOOK (CONT’D.) Neither at the end of the financial year, nor at any time during the year, did there subsist any arrangement to which the Bank was 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. At the end of 2020, the United State Dollar (“USD”) was widely expected to weaken in 2021 on rising demand for riskier assets as the global economy recovers. Nonetheless, the markets turned around unexpectedly within such a short period. The much better-than-expected US economic performance led to the higher Treasury yields and the rebound in USD in January to February 2021. This trend is likely to prevail for the rest of the year supported further by the recently approved US stimulus package amounting to US$1.9 trillion. The Bank now expect on MYR/USD to end the year at RM4.15 from RM4.10 previously. Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors, or the fixed salary of a full time employee of the Bank as shown in Notes 33 and 34 to the financial statements) by reason of a contract made by the Bank or a related corporation with any 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’ INTEREST According to the register of directors’ shareholdings, none of the directors in office at the end of the financial year had any interest in shares in the Bank or its related corporations during the financial year. INDEMNITIES TO DIRECTORS OR OFFICERS The Bank maintained a Directors’ and Officers’ Liability Insurance for the purpose of Section 289 of the Companies Act 2016, throughout the year, which provides appropriate insurance cover for the directors and officers of the Bank. The amount of insurance premium paid for any director and officer of the Bank during the financial year was RM458,507. The directors and officers shall not be indemnified by such insurance for any deliberate negligence, fraud, intentional breach of law or breach of trust proven against them. Bank Negara Malaysia (“BNM”) had decided to keep the Overnight Policy Rate (“OPR”) unchanged at 1.75% at its Monetary Policy Committee meeting on 4 March 2021. In the statement following the meeting, BNM said that the risks to the growth outlook have abated slightly, but remain tilted to the downside, primarily due to uncertainty over the path of the COVID-19 pandemic and effectiveness of the vaccination programmes. The Bank believe that, the better-than-expected economic prospects in recent weeks is giving a breather to the monetary policy. The Bank now expect the OPR to remain at 1.75% at least until the end of the first half of 2021. As BNM put it in its statement, given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will continue to be determined by new data and information. The Bank expect the banking system to remain resilient with strong asset quality as well as capitalisation levels. Latest data on the banking system by BNM showed that the net financing and capital ratios remained stable despite the economic downturn in the last 12 months. On the back of the forecast trajectory, the Bank performance should improve in line with the economic recovery albeit at a modest pace given the many headwinds casting downside risks. The upcoming 12th Malaysia Plan to be announced this year may give plenty of opportunities for the Bank to explore new sectors and boost our role as the catalyst for development with the likely greater emphasis on public-private partnership initiatives to drive the 5-year plan. OTHER STATUTORY INFORMATION (a) ISSUANCE OF ISLAMIC MEDIUM-TERM NOTE PROGRAMME (“IMTN”) On 12 October 2020, the Bank has issued an Islamic Medium Term Note (“Sukuk Wakalah Programme”) of RM1.0 billion for additional working capital purposes. The term of the Sukuk Wakalah Programme is disclosed in Note 21(ii) to the financial statements. RATING BY EXTERNAL RATING AGENCIES (b) Details of the Bank’s ratings are as follows: Rating agency Date Rating classification Rating RAM Rating 22 October 2020 RM7.0 billion Conventional Medium-Term Notes Programme and Islamic Murabahah Medium-Term Notes Programme AAA/Stable MARC Rating 6 October 2020 RM5.0 billion Islamic Medium-Term Note Programme (IMTN) Programme AAA with stable outlook BUSINESS OUTLOOK 92 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 (i) to ascertain that proper action had been taken in relation to the writing off of bad financing and bad debts and the making of impairment and allowance for doubtful debts and had satisfied themselves that all known bad financing and bad debts had been written off and that adequate impairment and allowance had been made for doubtful debts; and (ii) to ensure that any current assets which were unlikely to realise their values 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: (i) the amount written off for bad financing and bad debts or the amount of the impairment provision and allowance for doubtful debts in the financial statements of the Group and of the Bank inadequate to any substantial extent; and (ii) the values attributed to the current assets in the financial statements of the Group and of the Bank misleading. (c) 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 Group and of the Bank misleading or inappropriate. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Group and of the Bank which would render any amount stated in the financial statements misleading. (e) As at the date of this report, there does not exist: The year 2021 is widely expected to bring much better prospects to the economy after almost a year of weakness following the pandemic. The discovery of vaccines had added on to the positive view. On top of that, the year 2021 will also mark the first year of the 12th Malaysia Plan in which it is widely expected that the government will introduce projects and initiatives that will accelerate Malaysia’s technological advancement and sustainability agenda for the next 5 years. Following the re-imposition of Movement Control Order (“MCO”) in key states of the country effective from 14 January 2021, the first quarter of 2021 may see the economy to continue to show negative growth after contracting by 3.4% in the fourth quarter of 2020. Nonetheless, the low base factor may see a sharp rebound in the second quarter of 2021. The economic prospect has somewhat improved recently following the relaxation of the requirements for i-Sinar EPF withdrawals and the positive development on the domestic vaccination programme on the back of improving global economic conditions. Nonetheless, the Bank still expect real GDP to expand by 5 – 6% in 2021 as the Bank believe that as long as the job market continue to be weak, there will be limited boost to consumption coming from the EPF withdrawals and other cash handouts by the government Before the statements of profit or loss, statements of comprehensive income and statements of financial position of the Group and of the Bank were made out, the directors took reasonable steps: (f) (i) any charge on the assets of the Group or 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 of the Group or of the Bank which has arisen since the end of the financial year other than those arising in the normal course of business of the Group or the Bank. In the opinion of the directors: (i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Bank to meet their obligations as and when they fall due other than those incurred in the normal course of business; and (ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Bank for the financial year which this report is made. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 93 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
49. STATEMENT BY DIRECTORS DIRECTORS ’ REPORT Pursuant to Section 251 (2) of the Companies Act, 2016 SIGNIFICANT EVENTS SUBSEQUENT EVENTS We, Ariff bin Rozhan and Norazilla binti Md Tahir, being two of the directors of Bank Pembangunan Malaysia Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 103 to 226 are drawn up in accordance with Malaysian Financial Reporting Standards as modified by the specification provided by Bank Negara Malaysia as discussed in Note 2.1 to the financial statements and the requirements of the Companies Act, 2016 in Malaysia, so as to give a true and fair view of the financial position of the Group and of the Bank as at 31 December 2020 and of their financial performance and cash flows for the year then ended. The subsequent events are as disclosed in Note 51 to the financial statements. Signed on behalf of the Board in accordance with a resolution of the Board of Directors dated 28 May 2021. The significant events during the financial year are as disclosed in Note 50 to the financial statements. AUDITORS The auditors, Ernst & Young PLT, have expressed their willingness to continue in office. Auditors’ remunerations are disclosed in Note 32 (iv) to the financial statements. Signed on behalf of the Board in accordance with a resolution of the Board of Directors dated 28 May 2021. Ariff bin Rozhan Norazilla binti Md Tahir Kuala Lumpur, Malaysia STATUTORY DECLARATION Ariff bin Rozhan Norazilla binti Md Tahir Kuala Lumpur, Malaysia Pursuant to Section 251 (1) (b) of the Companies Act, 2016 and Section 73 (1) (e) of the Development Financial Institution Act, 2002 We, Norazilla binti Md Tahir and Arshad bin Mohamed Ismail, a Director and the President/Group Chief Executive Officer, respectively, of the Bank who are primarily being responsible for the financial management of Bank Pembangunan Malaysia Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 103 to 226 are to the best of our knowledge and belief, correct and we 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 at Kuala Lumpur in the Federal Territory on 28 May 2021. Before me, 94 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Norazilla binti Md Tahir Arshad bin Mohamed Ismail BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 95 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
50. SHARIAH COMMITTEE ’S REPORT SHARIAH COMMITTEE’S REPORT In the Name of Allah, The Compassionate, The Most Merciful Praise be to Allah and peace be upon His messenger, his family and his companions. SIGNIFICANT DEVELOPMENTS AND ACTIVITIES (CONT’D.) Assalamualaikum Warahmatullahi Wabarakatuh The following are the other major developments and initiatives in relation to Shariah governance that took place during the financial year: To the shareholders, depositors and customers of Bank Pembangunan Malaysia Berhad (“the Bank”): a.Secretariat INTRODUCTION Group Shariah Management undertakes the review and perusal of the issues, proposals and documents prepared by internal business and support functions for Shariah Committee’s approval, deliberation and information. Group Shariah Management also provide Shariah advisory and endorsement as delegated by the Shariah Committee on the proposals by those functions. In carrying out the roles and the responsibilities of the Shariah Committee of the Bank as prescribed in the Shariah Governance Policy Document issued by Bank Negara Malaysia and in compliance with our terms of appointment, we hereby submit the Shariah Committee Report for the financial year ended 31 December 2020. Management’s Responsibility The Management of the Bank shall at all times be responsible for ensuring that the Bank’s aims and operations, business affairs and activities in relation to its Islamic financial business are conducted in accordance with Shariah. Shariah Committee’s Responsibility The Shariah Committee of the Bank shall be responsible to form an independent opinion, based on our review of the aims and operations, business, affairs and activities in relation to the Islamic financial business of the Bank and to produce this report. The Shariah Committee of the Bank is assisted by the Secretariat and Internal Control Functions which are established to carry out the specified roles under the Shariah governance requirements. These functions are carried out by Group Shariah Management, Group Risk Management, Group Compliance, and Group Internal Audit. Generally, the roles of these functions include conducting Shariah research and providing Shariah advisory, acting as the Shariah Committee’s secretariat, handling zakat related matters, managing Shariah non-compliance risks, conducting Shariah review and Shariah audit in relation to Islamic financial business of the Bank. During the financial year, there were twelve (12) meetings held by the Shariah Committee of the Bank in which we reviewed and deliberated on, among others, the products and services, transactions, processes and documents which were presented to us by the Bank. In performing our roles and responsibilities, we had obtained the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance on whether the Bank has complied with Shariah. Accordingly, we have also assessed the work carried out by Shariah review and Shariah audit for this purpose. SIGNIFICANT DEVELOPMENTS AND ACTIVITIES Among the key developments and activities during the financial year are the approvals of enhancement on templates of legal documentation for the security document, enhancement on tawarruq term financing and deliberation on enhancement of policy and procedures. The Shariah Committee has deliberated in principle the application of Shariah contract of Hire Purchase-i and Industrial Hire Purchase-i. The Shariah Committee has also deliberated on various issues with regard to the Full Fledged Islamic Development Financial Institution (“FFIDFI”) Conversion Plan 2020 including a presentation to Jabatan Perbankan Islam & Takaful (“JPIT”), Bank Negara Malaysia (“BNM”) on ‘Disposal/Treatment on Shariah Non-Compliant Income: Development Financial Institution’s (“DFI”) Perspective’. The Shariah Committee has also engaged with the Board on a number of occasions where matters pertaining to latest development of Islamic banking industry in general and also with regard to issues on the Structural Solution in the Treatment of Shariah Non-Compliant Income: DFI’s Perspective. In addition, the engagement also touches Shariah governance matters and exploring new alternative financing structure. The documents among others include the financing proposals by the Bank’s business units as well as its subsidiaries, policies and procedures, guidance notes, letter of offers, legal documentation, marketing decks, the Bank’s annual report and other operational support activities. Throughout the financial year, Group Shariah Management had come out with research initiatives which will benefit the banking and finance industry in general for the following topics: 1. 2. Review of Existing Zakat Computation for Bank Pembangunan Malaysia Berhad and Its Subsidiaries; and Treatment of Portfolio Shariah Non-Compliant Income Post-Conversion into Full-Fledged Islamic DFI: Solution for BPMB Group Shariah Management is also responsible for the management, payment and distribution of business zakat in ensuring the Bank complies with the established rulings in relation to business zakat. With this new mandate, Group Shariah Management has met the target of zakat distribution for 2019. Apart from that, we also noted that Group Shariah Management had managed to conduct and compile Shariah research for Shariah Committee Resolutions in 2018 and 2019 as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Process Flow and Policy for Distribution of Zakat Computation of Zakat Base on BPMB’s Capital Self-Distribution of Zakat by the Muzakki (Paying Institution) Use of Conventional Repo as a Temporary Measure to Mitigate Sudden Withdrawal of Conventional Deposits Distribution of Tainted Income in The Charity Fund Issues on BPMB’s Staff Financing Treatment of Ta’widh in Restructuring Exercise Inaccurate Computation of Price for the Restructured Facility Rectification by Rebate and Set Off Mechanism for Accounts Under Tawarruq Financing Affected Due To Operational Lapse Notification Letter on the Change of Purchase and Selling Price To Be Deemed As Implied Consent Takyif Fiqhi on Subsidies by Goverment of Malaysia on Financing Rate Eligible Recipients (Asnaf) Under Category of Gharimin Usage of Staple Food as Underlying Commodity for Tawarruq Transaction Pre-Arrangement Between Commodity Brokers Under Tawarruq Transaction Debt-To-Equity Swap By Utilizing Bai’ Dayn Bi Sila’ Arrangement (Ordinary Share or Preference Share as the Equity) Shariah Requirement for Rescheduling and Restructuring Interest Income Generated Due to Placement of Islamic Fund by Mistake Into Conventional Account Change of Ta’widh Rate from IIMM Rate to 1% Per Annum as Compensation of Late Payment After Maturity Capital Reallocation from Conventional Financial Business to Islamic Financial Business As part of training and development program for Shariah Committee, all members have been enrolled into the certification programs namely Certified Shariah Advisor (“CSA”) and Certified Shariah Practitioner (“CSP”) by Association of Shariah Advisors in Islamic Finance (“ASAS”). Majority of the members have successfully completed modules in Level 1 of the program. In addition, the members also attended selected international and local trainings as part of their competency development program. 96 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 97 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
51. SHARIAH COMMITTEE ’S REPORT SHARIAH COMMITTEE’S REPORT SIGNIFICANT DEVELOPMENTS AND ACTIVITIES (CONT’D.) SIGNIFICANT DEVELOPMENTS AND ACTIVITIES (CONT’D.) b. d. Shariah Risk Management Shariah Audit The Shariah Risk Unit, which currently resides under the Operational & Shariah Risk of Group Risk Management has undertaken the responsibilities to facilitate the management of Shariah Non-Compliance risk for the Bank, which forms part of the Bank’s risk management framework. This is also as referred in the BNM Policy Document on Shariah Governance, where Shariah risk management involves a systematic process for identification, measurement, monitoring and reporting of Shariah non-compliance risks in the operations, business, affairs and activities of the Bank. The performance of audit to ensure a sound and effective internal control system for Shariah compliance in the Bank is within the responsibility of Group Internal Audit (“GIA”) function specifically Shariah Audit Section. Shariah Audit Section reports independently to both the Board Audit Committee and the Shariah Committee. Shariah audit aims to provide independent assessment and objective assurance designed to add value and improve the degree of compliance in relation to the Islamic business operations, with the main objective of ensuring a sound and effective internal control system for Shariah compliance. During the financial year, we note that the Bank had strengthened the implementation of Shariah Risk Management, whereby the designated Operational Risk Liaison Officers (“ORLOs”) at each business and support functions have been reporting the Shariah Key Risk Indicators (“KRI”) on monthly basis. In addition, Shariah Risk Management had completed the 2019/2020 Risk & Control Self-Assessment (“RCSA”) which includes Shariah non-compliance risks. The RCSA exercise has facilitated the management of Shariah Risk via the identification and assessment of the Shariah non-compliance risks exposures, and thereafter to establish the appropriate risk mitigation measures. Subsequently, the Shariah non-compliance risk exposures were monitored and tracked periodically. Evaluation on the governance, risk management, controls and compliance with Shariah rules and principles is carried out by adopting Group Internal Audit’s methodology which is in line with the Institute of Internal Auditors’ (“IIA”) standard. Where appropriate, recommendations for improvements and enhancements are made and thereafter reported to the Shariah Committee, Management Audit Committee and Board Audit Committee. As part of the continuous awareness efforts on Shariah non-compliance risk exposures in line with the BNM’s expectation for a strong Shariah compliance culture, Group Risk Management has introduced a Shariah Risk Learning Program with 12 Modules (an infographic via email to all staff), effective from July 2020 and targeted to complete by June 2021. The Shariah Committee noted that, Group Internal Audit through Shariah Audit Section had conducted the following Shariah audit as part of the Shariah audit plan for the year 2020:– 1. Shariah Audit on Origination, Underwriting and Disbursement of Financing Facilities, which include selling process, credit evaluation, documentation and disbursement of the financing granted and utilization of the financing granted. 2. Shariah Audit on Post-Implementation review for the enhanced Islamic Factoring Bai’ Dayn Bi Al-Sila’ offered by the PLC Credit & Factoring Sdn Bhd (“PLCCF”). This audit covers: For the financial year under reporting, there was no Shariah non-compliance event detected and reported by the designated ORLOs from the business Functions. Notwithstanding, Group Risk Management via Operational and Shariah Risk Function will continue to ensure adequate and competent resources and controls are put in-place in assuring that the Bank is in compliant with Shariah requirements. c. Shariah Review Group Compliance, through its Compliance Review team continued to play a vital role by performing a regular assessment on the compliance of the operations, business, affairs and activities in relation to Islamic financial business carried out by the Bank do not contravene with the Shariah. During financial year 2020, there were ten (10) Shariah compliance reviews conducted by Compliance Review team in accordance with the Shariah Compliance Review Plan approved by us for their implementation. The observations and area for enhancements identified as well as the proposed remedial rectifications measures to resolve non-compliances were presented and deliberated in our meetings. The reviews conducted by the Compliance Review team were as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Tawarruq Financing Tawarruq Deposit Management of Zakat and Shariah Non-Compliance (“SNC”) Funds Investment Activities Islamic Financial Services Accounts Under Recovery Commodity Broker Rescheduling and Restructuring Application of Rahn Contract (Collateral) in Islamic Financing Facilities Pembangunan Leasing Corporation Sdn. Bhd Tawarruq Financing Apart from the regular assessment, an extensive focus was given to identify gaps in the Bank’s operation which could hinder its adherence to the Shariah requirements and other applicable regulatory requirements. The appropriate internal controls were then implemented by the respective functions within the Bank and monitored accordingly by Compliance Review team. 98 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 • the approved product proposal paper, legal documentations of Islamic Factoring Bai’ Dayn Bi Al-Sila’ to ensure appropriate approving authority had been obtained prior to the product launch; • the aqad execution sequence, subject matter of the contract, documentation and product’s information disclosed in applicable documents to ensure the processes, execution, and Shariah terminologies of the document is consistent with Shariah principles as well as regulatory requirements; and • the product’s operation, system, processes and existing policy, procedure and manuals in order to evaluate the adequacy and effectiveness of Shariah governance and internal control implemented by PLCCF. INITIATIVES ON TRAINING AND AWARENESS In year 2020, a total of 342 staff had attended various Islamic finance, Shariah-related training programs and internal/external seminars includes among others as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. BPMB as an Islamic DFI: What Are the Expectations from Shariah Committee? Certified Shariah Advisor (CSA) & Certified Shariah Practitioner (CSP) Level 2 Risk Management CSA & CSP Level 2 Islamic Banking Products & Services CSA & CSP Level 2 Islamic Products & Services CSA Level 2 Usul Mazahib CSA & CSP Level 2 Takaful CSA & CSP Level 2 Corporate & Shariah Governance CSA Level 2 Applied Shariah Research in Islamic Finance CSP Level 2 Al-Ijtihad, Ikhtilaf & Ifta’ Accounting and Reporting for Islamic Financial Institutions Fundamentals of Islamic Banking Shariah Governance and Shariah Risk Management Peranan Zakat Sebagai Instrumen Kewangan Sosial Islam Dalam Menangani Pandemik COVID-19 Holistic Leadership Lecture: The Role Model of Prophet Muhammad Handling the Executive of Sale & Purchase of Commodity for Tawarruq Deposit Product BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 99 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
52. INDEPENDENT AUDITORS ’ REPORT SHARIAH COMMITTEE’S REPORT To the members of Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) SHARIAH NON-COMPLIANT EVENTS AND DERECOGNISED INCOME REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS During the financial year 2020, we confirmed that there was no occurrence of Shariah non-compliance event and income. Opinion ZAKAT ON BUSINESS We have audited the financial statements of Bank Pembangunan Malaysia Berhad, which comprise the statements of financial position as at 31 December 2020 of the Group and of the Bank, and the statements of profit or loss, statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Bank for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 103 to 226. The zakat on business for the financial year has been computed using the capital growth computation method at the rate of 2.5775%. The zakat amount is paid by the Bank to the states’ zakat management agencies and eligible beneficiaries (asnaf) in Malaysia. Throughout the year, the distribution proposals of zakat fund by the Bank to eligible beneficiaries (asnaf) were approved by the Shariah Committee. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of Bank as at 31 December 2020, and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards as modified by the specification provided by Bank Negara Malaysia (“BNM Specification”) as disclosed in Note 2.1 to the financial statements and the requirements of the Companies Act, 2016 in Malaysia. SHARIAH COMMITTEE OPINION Basis for opinion Based on the above, in our 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 audit opinion. 1. Independence and other ethical responsibilities We had also reviewed the audited financial statements of the Bank’s Islamic financial business for the financial year and confirmed that the financial statements are in compliance with Shariah. 2. The contracts, transactions and dealings entered into by the Bank in relation to its Islamic financial business during the financial year ended 31 December 2020 that were reviewed by us, are in compliance with Shariah; and The computation and distribution of zakat fund are in compliance with Shariah. We, being two (2) of the members of the Shariah Committee of Bank Pembangunan Malaysia Berhad, do hereby confirm that on behalf of the Shariah Committee, to the best of our knowledge and belief, the aims and operations, business, affairs and activities of the Bank in relation to its Islamic financial business for the financial year ended 31 December 2020 have been conducted in conformity with Shariah. We are independent of the Group and 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 Code of Ethics for Professional Accountants (including International Independence standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information other than the financial statements and auditors’ report thereon We beg Allah the Almighty to grant us all the Success and Straight-Forwardness and Allah Knows Best. The directors of the Bank are responsible for the other information. The other information comprises the information included in the Directors’ Report and the Annual Report but does not include the financial statements of the Group and of the Bank and our auditors’ report thereon. Signed on behalf of the Committee in accordance with a resolution of the Shariah Committee dated 28 May 2021. The Annual Report is expected to be made available to us after the date of this auditors’ report. We bear witness only to what we know, and we could not well guard against the unseen! (Surah Yusuf, verse:81) Our opinion on the financial statements of the Group and 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 Group and 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 Group and 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 on the other information that we obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report the fact. We have nothing to report in this regard. When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors of the Bank and take appropriate action. Assoc. Prof. Dr. Aznan bin Hasan Chairman Dr. Ahmad Basri bin Ibrahim Member of the Committee Kuala Lumpur, Malaysia Responsibilities of the directors for the financial statements The directors of the Bank are responsible for the preparation of financial statements of the Group and of the Bank that give a true and fair view in accordance with Malaysian Financial Reporting Standards as modified by the BNM Specification 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 Group and of the Bank that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Group and of the Bank, the directors are responsible for assessing the Group’s and 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 Group or the Bank or to cease operations, or have no realistic alternative but to do so. 100 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 101 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
53. INDEPENDENT AUDITORS ’ REPORT To the members of Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) STATEMENTS OF FINANCIAL POSITION As at 31 December 2020 Group Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and 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: • Identify and assess the risks of material misstatement of the financial statements of the Group and 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. • 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 Group’s and the Bank’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • 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 Group’s or 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 Group and 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 Group or the Bank to cease to continue as a going concern.  • Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Bank, including the disclosures, and whether the financial statements of the Group and of the Bank represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. 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 members 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. Ernst & Young PLT 202006000003 (LLP0026760-LCA) & AF 0039 Chartered Accountants Muhammad Syarizal Bin Abdul Rahim No. 03157/01/2023 J Chartered Accountant Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 4 5 6 1,035,238 185,772 45,566 2,648,922 924,915 – 861,787 51,137 45,566 2,371,020 882,828 – 7 8 9 10 11 12 13 14 15 16(a) 17 6,131,538 15,584,069 285,358 – 543 – 84,422 330 6,110 331 116,402 23,475,679 – 23,475,679 5,023,965 15,701,772 228,221 – 539 – 86,511 337 6,790 357 40,521 24,662,850 254 24,663,104 6,131,538 15,394,417 263,652 254,767 – – 84,180 330 6,045 301 114,787 23,208,507 – 23,208,507 5,019,020 15,545,685 206,854 255,426 – – 86,357 337 6,596 314 36,939 24,411,376 – 24,411,376 18 19 20 21 22 23 24 16(b) 17 5,346,836 801,092 101,306 8,249,316 508,466 304,503 201,800 344 59 15,513,722 5,492,175 1,032,669 122,449 7,293,172 2,175,728 439,129 212,255 354 383 16,768,314 5,346,836 801,092 49,627 8,249,316 508,466 304,503 201,800 313 – 15,461,953 5,492,175 1,032,669 79,893 7,293,172 2,175,728 439,129 212,255 309 – 16,725,330 25 26 Non-controlling interests Total equity 3,078,724 4,871,018 7,949,742 12,215 7,961,957 3,078,724 4,803,738 7,882,462 12,328 7,894,790 3,078,724 4,667,830 7,746,554 – 7,746,554 3,078,724 4,607,322 7,686,046 – 7,686,046 Total equity and liabilities 23,475,679 24,663,104 23,208,507 24,411,376 7,346,961 7,532,222 6,914,570 7,313,415 Note Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at fair value through profit or loss Financial investments at fair value through other comprehensive income Loans, financing and advances Other assets Investments in subsidiaries Interest in associates Interest in joint ventures Property, plant and equipment Investment properties Intangible assets Right-of-use assets Deferred tax assets Assets classified as held for sale Total assets 44 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Deferred tax liabilities Total liabilities Equity attributable to equity holders of the Bank Share capital Reserves Commitments and contingencies 40(a) Kuala Lumpur, Malaysia 28 May 2021 The accompanying notes form an integral part of the financial statements 102 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 103 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
54. STATEMENTS OF PROFIT OR LOSS STATEMENTS OF COMPREHENSIVE INCOME For the Financial Year Ended 31 December 2020 For the Financial Year Ended 31 December 2020 Group Note Interest income Interest expense Net interest income Net income from Islamic financial business Non-interest income Refund of government compensation Net income Overhead expenses Gain /(loss) on deconsolidation of dissolved companies Allowance for impairment losses of loans, financing and advances Allowance for impairment losses on other assets Operating profit Share of profit of associates and joint ventures Profit before taxation and zakat Taxation Zakat Net profit for the year 28 29 2020 RM’000 Group 2019 RM’000 32 10(b) 718,590 (238,540) 480,050 311,417 29,938 (134,963) 686,442 (113,533) (41,316) 485,367 (163,047) 322,320 548,856 51,438 (3,094) 919,520 (101,447) – 697,503 (238,537) 458,966 307,651 63,185 (134,963) 694,839 (104,527) – 35 36 (670,221) (9,471) (95,774) (56,105) (660,785) (10,130) (98,432) (57,147) 157,536 4 157,540 (39,237) (11,220) 107,083 379,714 6 379,720 (103,833) (24,296) 251,591 147,158 – 147,158 (37,569) (8,769) 100,820 434,733 – 434,733 (98,667) (21,126) 314,940 48 30 31 37 Non-controlling interests Loss for the year attributable to non-controlling interests of the Bank 39 107,144 251,770 100,820 314,940 (61) 107,083 (179) 251,591 – 100,820 – 314,940 3.48 8.18 The accompanying notes form an integral part of the financial statements 104 Bank 2019 RM’000 500,068 (163,049) 337,019 556,095 54,260 (3,094) 944,280 (107,111) 59 Attributable to: Equity holders of the Bank Profit for the year attributable to equity holders of the Bank Earnings per share attributable to the equity holders of the Bank: Basic/diluted earnings per share (sen) – from operations 2020 RM’000 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 107,083 251,591 100,820 314,940 (404) 327 (797) (1,840) (178) 37,162 – – 135,913 9,405 144,736 137,500 55,958 230,947 135,913 9,405 144,521 137,500 55,958 191,618 (32,438) (32,438) (38,875) (38,875) (32,619) (32,619) (38,355) (38,355) Other comprehensive income for the year, net of tax 112,298 192,072 111,902 153,263 Total comprehensive income for the year 219,381 443,663 212,722 468,203 219,494 (113) 219,381 447,627 (3,964) 443,663 212,722 – 212,722 468,203 – 468,203 Note Net profit for the year Other comprehensive income Items that will not be reclassified to profit or loss: Net change in revaluation of equity instruments at fair value through other comprehensive income Items that may be reclassified to profit or loss: Translation differences in respect of foreign operations Debt instruments at fair value through other comprehensive income: – Net change in fair value during the year – Changes in allowance for expected credit losses Income tax effect 17 Total comprehensive income/(loss) attributable to: Equity holders of the Bank Non-controlling interests The accompanying notes form an integral part of the financial statements BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 105 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
55. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY STATEMENT OF CHANGES IN EQUITY For the Financial Year Ended 31 December 2020 For the Financial Year Ended 31 December 2020 Attributable to equity holders of the Bank Non-distributable Group Note At 1 January 2020 Profit /(loss) for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year Transfer to retained profits on the disposal of equity instruments at FVOCI Transfer to statutory reserve Dividend paid At 31 December 2020 At 1 January 2019 Profit/(loss) for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year Transfer to statutory reserve Dividend paid At 31 December 2019 Share capital RM’000 3,078,724 – 38 1,000 2,073,366 160,311 Capital reserve RM’000 – – Exchange translation deficit RM’000 Total RM’000 (6,997) 2,576,058 7,882,462 – – 107,144 107,144 Non controlling interests RM’000 Total equity RM’000 12,328 7,894,790 (61) 107,083 – – 112,475 (125) – 112,350 (52) 112,298 – – – 112,475 (125) 107,144 219,494 (113) 219,381 – – (956) – – – 3,078,724 – 25,205 – – 1,000 2,098,571 – – 271,830 – (25,205) – – (152,214) (152,214) (7,122) 2,506,739 7,949,742 – – – (152,214) 12,215 7,961,957 3,078,724 1,000 1,994,631 5,401 (47,944) 2,503,023 7,534,835 16,292 7,551,127 956 – – – – – – – – 251,770 251,770 (179) 251,591 – – – 154,910 40,947 – 195,857 (3,785) 192,072 – – – 154,910 40,947 251,770 447,627 (3,964) 443,663 – 78,735 – – 1,000 2,073,366 – – 160,311 – (78,735) – – (100,000) (100,000) (6,997) 2,576,058 7,882,462 – – 3,078,724 The accompanying notes form an integral part of the financial statements 106 Distributable retained profits RM’000 – – 38 Statutory reserve RM’000 Unrealised FVOCI reserve RM’000 Non-distributable BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Bank At 1 January 2020 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transfer to retained profits on the disposal of equity instruments at FVOCI Transfer to statutory reserve Dividend paid At 31 December 2020 At 1 January 2019 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transfer to statutory reserve Dividend paid At 31 December 2019 Note 38 38 Share capital RM’000 Statutory reserve RM’000 Unrealised FVOCI reserve RM’000 Distributable retained profits RM’000 Total RM’000 3,078,724 – – – 2,073,366 – – – 159,749 – 111,902 111,902 2,374,207 100,820 – 100,820 7,686,046 100,820 111,902 212,722 – – – 3,078,724 – 25,205 – 2,098,571 179 – – 271,830 (179) (25,205) (152,214) 2,297,429 – – (152,214) 7,746,554 3,078,724 – – – – – 3,078,724 1,994,631 – – – 78,735 – 2,073,366 6,486 – 153,263 153,263 – – 159,749 2,238,002 314,940 – 314,940 (78,735) (100,000) 2,374,207 7,317,843 314,940 153,263 468,203 – (100,000) 7,686,046 – – – (100,000) 12,328 7,894,790 The accompanying notes form an integral part of the financial statements BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 107 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
56. FINANCIAL STATEMENTS STATEMENTS OF CASH FLOWS For the Financial Year Ended 31 December 2020 For the Financial Year Ended 31 December 2020 Group Cash flows from operating activities Profit before taxation and zakat Adjustments for : Share of profit of associates and joint ventures Refund of government compensation (Note 31) Depreciation of property, plant and equipment (Note 32(ii)) Depreciation of investment properties (Note 32(ii)) Amortisation of intangible assets (Note 32(ii)) Depreciation of right-of-use assets (Note 32(ii)) Gain on disposal of property, plant and equipment (Note 30(b)) Net gain on disposal of financial investments at FVOCI (Note 30(a) and 48(m)) Dividend income: Financial investments at FVTPL (Note 30(a)) Subsidiaries (Note 30(a)) Accretion of discount less amortisation of premium of financial investments (Note 28 and 48(m)) Impairment allowance for: Financial investments at FVOCI (Note 36) Investment in subsidiaries (Note 36) Allowances for impairment losses on loans, financing and advances, net (Note 35) Impaired loans/financing and other assets written off (Note 35) Allowance for ex-staff loan/financing (Note 36) Loss/(gain) due to debt/financing modification (Note 28, 48(l) and 48(m)) Unrealised gain on financial investments at FVTPL (Note 48(m)) Allowance for impairment losses on financing and advances made during the year against Infra Support Fund (“ISF”) (Note 23) Compensation from the Government (Note 28 and Note 48(m)) Operating cash flows before working capital changes Decrease/(increase) in operating assets: Deposits and placements with financial institutions Loans, financing and advances Other assets (Decrease)/increase in operating liabilities: Deposits from customers Deposit and placements from financial institutions Other liabilities Cash generated from operating activities Interest expense on lease liabilities Income taxes paid Zakat paid Net cash generated from operating activities Bank Group 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 157,540 379,720 147,158 434,733 2020 RM’000 Bank 2019 RM’000 2020 RM’000 2019 RM’000 Cash flows from investing activities Dividend income from: Financial investments at FVTPL (Note 30(a)) Subsidiaries (Note 30(a)) Purchase of financial investments at FVOCI Purchase of property, plant and equipment (Note 13) Purchase of intangible assets (Note 15) Proceeds from disposal/maturity of financial investments at FVOCI Proceeds from disposal of property, plant and equipment Net cash outflow on dissolution of subsidiaries (Note 10(b)) Net cash used in investing activities – – (6,394,928) (2,819) (1,957) 4,960,372 576 (267) (1,439,023) 25 – (6,764,496) (8,752) (2,252) 5,657,015 – (405) (1,118,865) – – (6,394,928) (2,670) (1,953) 4,960,372 106 – (1,439,073) 25 36,040 (6,764,496) (8,690) (2,252) 5,657,015 – – (1,082,358) (1,650,000) (50,000) 51,324 1,000,000 (152,214) (182) (801,072) (500,000) (50,000) 60,189 – (100,000) (143) (589,954) (1,650,000) (50,000) 51,324 1,000,000 (152,214) (168) (801,058) (500,000) (50,000) 60,189 – (100,000) (132) (589,943) (4) 3,094 4,908 7 2,637 198 (322) (6) 134,963 3,841 10 2,447 140 – – 3,094 4,847 7 2,504 185 (106) – 134,963 3,767 8 2,273 127 – (57,788) (43,020) (57,788) (43,020) – – (25) – – – (25) (36,040) 16,152 (11,098) 16,152 (11,098) 9,405 – 55,958 – 9,405 659 55,958 1,215 Cash flows from financing activities Net repayments of borrowings Net repayment of redeemable notes Proceeds from Government compensation Proceeds from Sukuk issuance Dividend paid (Note 38) Payment of principal portion of lease liabilities Net cash used in financing activities 691,900 2,382 79 99,090 15,610 (17) 680,769 1,689 79 98,081 13,938 (17) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year (1,613,684) 2,648,922 1,035,238 337,174 2,311,748 2,648,922 (1,509,233) 2,371,020 861,787 350,860 2,020,160 2,371,020 578 (4,999) (2,736) – 578 (4,999) (2,736) – Cash and cash equivalents comprise: Cash and short term deposits (Note 4) 1,035,238 2,648,922 861,787 2,371,020 (137,720) (103,840) 584,207 – (129,364) 505,513 (137,720) (103,840) 562,673 – (129,364) 522,763 739,143 (579,469) 423,590 583,264 (886,860) 2,475,947 (102,287) 1,486,800 831,691 (527,430) 345,276 649,537 (882,828) 2,479,669 (114,654) 1,482,187 (145,339) (231,577) (10,936) (387,852) 779,619 (29) (122,793) (30,386) 626,411 (919,994) 932,315 150,064 162,385 2,154,698 (24) (91,399) (17,282) 2,045,993 (145,339) (231,577) 43,938 (332,978) 879,232 (27) (117,921) (30,386) 730,898 (919,994) 932,315 111,079 123,400 2,128,350 (21) (87,886) (17,282) 2,023,161 The accompanying notes form an integral part of the financial statements 108 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 109 FINANCIAL STATEMENTS STATEMENTS OF CASH FLOWS
57. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1 . CORPORATE INFORMATION 2. Bank Pembangunan Malaysia Berhad (“the Bank”) is a public limited liability company, incorporated and domiciled in Malaysia. 2.1 Statement of Compliance and Basis of Preparation (cont’d.) The registered office of the Bank is located at Level 16, Menara Bank Pembangunan, Bandar Wawasan, No. 1016, Jalan Sultan Ismail, 50250 Kuala Lumpur. Modified accounting treatment specified by BNM (cont’d.) The holding company of the Bank is the Minister of Finance (Incorporated) (”MOF (Inc.)”) a corporate body established under the Minister of Finance (Incorporation) Act 1957 in Malaysia. The Bank is principally engaged to provide medium to long term credit and financing facilities under both Conventional and Islamic Financial Business principles to finance infrastructure projects, maritime, oil & gas, technology and capital intensive industries in manufacturing as well as other identified sectors in line with the country’s development policy. The principal activities of the subsidiary companies are as disclosed in Note 45. There have been no significant changes in the nature of the principal activities of the Bank during the financial year. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the Board of Directors on 28 May 2021. 2. SIGNIFICANT ACCOUNTING POLICIES 2.1 110 31 December 2020 SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) (iii)Disclosure The DFI shall disclose the application of the modified accounting treatment in the basis of preparation of the interim financial reports and annual financial statements. The disclosure shall also include the duration of the application and a comparison of the financial impact of applying the accounting treatment in accordance with the MFRS and the modified accounting treatment. The Group and the Bank has adopted the modified accounting treatment specified by BNM as detailed above. The modified accounting treatment is and will be applied by the Group and the Bank in its financial statements for the current financial year ended 31 December 2020 and the next financial year ending 31 December 2021 on loans/ financing for which the contractual cash flows are modified during these two financial years, as permitted by BNM. Impact of adopting the modified accounting treatment The financial impact of the affected items in the statements of profit or loss and statements of financial position of the Group and the Bank is as summarised below: Statement of Compliance and Basis of Preparation The financial statements of the Group and of the Bank have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”) as modified by the specification provided by Bank Negara Malaysia (“BNM”) as disclosed below and the requirements of the Companies Act, 2016 in Malaysia. The financial statements incorporate those activities relating to Islamic Financial Business, which have been undertaken by the Group. Islamic Financial Business refers generally to the business activities in accordance with Shariah principles. The Group and the Bank present the statements of financial position in order of liquidity. An analysis regarding the recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in Note 46(c). The financial statements of the Group and of the Bank have been prepared under the historical cost basis unless otherwise indicated in the summary of significant accounting policies below. The financial statements are presented in Ringgit Malaysia (“RM”) and all values are rounded to the nearest thousand (“RM’000”) except where otherwise indicated. Modified accounting treatment specified by BNM Pursuant to Section 75 of the Development Financial Institutions Act 2002 and in accordance with Section 26D of the Financial Reporting Act 1997 in Malaysia, BNM has issued a guideline on 28 July 2020 for Development Financial Institutions (“DFI”) specifying the accounting treatment with respect to loans/financing for which the contractual cash flows are modified, including payments deferred under moratoriums provided by the DFI during the two financial years beginning on or after 1 January 2020, with the details as follows: (i) Duration of modified accounting treatment The modified accounting treatment permitted by BNM is in place for two financial years beginning on or after 1 January 2020. (ii) Comparison of accounting treatment in accordance with MFRS and modified accounting treatment Accounting treatment in accordance with MFRS Under paragraph 5.4.3 of MFRS 9 Financial Instruments, the modification gain or loss that arises as at the commencement date of restructuring or rescheduling of loans and financing is recognised in the profit or loss immediately by recalculating the gross carrying amount of the loan and financing based on the present value of the modified cash flows discounted at the loan or financing’s original effective interest/profit rate. Modified accounting treatment No modification gain or loss is recorded against the gross carrying amount of the loan and financing as at the commencement date of restructuring or rescheduling of loans and financing. Instead, a new and modified effective interest/profit rate is calculated that exactly discounts the revised remaining cash flows to the gross carrying amount of the loan and financing as at the commencement date. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 FINANCIAL STATEMENTS 31 December 2020 Group Statements of profit or loss: Interest/profit income – Effect of lower income with adjusted effective interest/profit rate – Modification loss (net of reversal) Statements of financial position: Loans, financing and advances Retained profits Modified accounting treatment RM’000 Bank MFRS 9 RM’000 Modified accounting treatment RM’000 MFRS 9 RM’000 3,794 – – 90,715 2,985 – – 89,408 15,584,069 2,506,739 15,497,148 2,419,818 15,394,417 2,297,429 15,307,994 2,211,006 2.2 Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except as follows: On 1 January 2020, the Group and the Bank adopted the following new and amended MFRSs mandatory for annual financial periods beginning on or after 1 January 2020. Effective for annual period beginning on or after Description MFRS 3 – Definition of a Business (Amendments to MFRS 3) MFRS 101 – Definition of Material (Amendments to MFRS 101) MFRS 108 – Definition of Material (Amendments to MFRS 108) Revised Conceptual Framework for Financial Reporting (the Conceptual Framework) Interest Rate Benchmark Reform (Amendments to MFRS 9, MFRS 139 and MFRS 7) COVID-19-Related Rent Concessions (Amendment to MFRS 16 Leases) 1 January 2020 1 January 2020 1 January 2020 1 January 2020 1 January 2020 1 June 2020 The adoption of the MFRSs and amendment to MFRSs above did not have any material impact on the financial statements of the Group and Bank in the current financial year. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 111
58. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2 . 2. 31 December 2020 SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.3 Standards Issued but not yet Effective The standards and interpretations that are issued but not yet effective up to the date of issuance of the Group and the Bank financial statements are disclosed below. The Group and the Bank intend to adopt these standards, if applicable, when they become effective. 2.4 Interest Rate Benchmark Reform – Phase 2 (Amendments to MFRS 9, MFRS 139, MFRS 7, MFRS 4 and MFRS 16) Reference to the Conceptual Framework (Amendments to MFRS 3 Business Combinations) Property, Plant and Equipment – Proceeds before Intended Use (Amendments to MFRS 116 Property, Plant and Equipment) Onerous Contracts – Cost of Fulfilling a Contract (Amendments to MFRS 137 Provisions, Contingent Liabilities and Contingent Assets) MFRS 17 Insurance Contract Classification of Liabilities as Current or Non-current (Amendments to MFRS 101) Summary of Significant Accounting Policies (cont’d.) (a) Subsidiaries and basis of consolidation (cont’d.) (ii) Basis of consolidation (cont’d.) Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated financial statements, intragroup balances, transactions and unrealised gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated financial statements for like transactions and events in similar circumstances. Non-controlling interests (“NCI”) represent the portion of profit or loss and net assets in subsidiaries not owned, directly or indirectly by the Bank. NCI are presented separately in the consolidated statement of profit or loss and statement of comprehensive income and within equity in the consolidated statement of financial position, but separate from parent shareholders’ equity. Total profit or loss and other comprehensive income is allocated against the interest of NCI, even if this results in a deficit balance. Acquisition of NCI are accounted for using the parent entity extension method, whereby the difference between the consideration and the fair value of the share of the net assets acquired is recognised as equity. A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: 1 January 2022 1 January 2022 1 January 2023 1 January 2023 These standards are not expected to have a significant impact on the Group and the Bank financial statements. 2.4 Summary of Significant Accounting Policies Subsidiaries and basis of consolidation (i) Subsidiaries Subsidiaries are entities over which the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: 112 1 January 2021 1 January 2022 (a) SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) Effective for annual period beginning on or after Description • Derecognises the assets (including goodwill) and liabilities of the subsidiary at their carrying amounts; • Derecognises the carrying amount of any non-controlling interest in the former subsidiary; • Derecognises the cumulative foreign exchange translation differences recorded in equity; • Recognises the fair value of the consideration received; • Recognises the fair value of any investment retained in the former subsidiary; • Recognises any surplus or deficit in the profit or loss; and • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, if required in accordance with other MFRSs. • Power over the investee i.e. existing rights that give the current ability to direct the relevant activities of the investee; • Exposure, or rights, to variable returns from its involvement with the investee; and • The ability to use its power over the investee to affect its return. (iii) Business combinations and goodwill When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether Group has power over an investee, including: • The contractual arrangements with the other vote holders of the investee; • Rights arising from other contractual arrangements; and • The Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. In the Bank separate financial statements, investments in subsidiaries are stated at cost less any impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 3(d). On disposal of such investments, the difference between the net disposal proceeds and their carrying amounts is included in the statements of profit or loss. Dividends received from subsidiaries are recorded as a component of revenue in the Bank separate statement of profit or loss. The consolidated financial statements comprise the financial statements of the Group and the Bank as at and for the financial year ended 31 December of each year. (ii) Basis of consolidation The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at the reporting date. The financial statements of the subsidiaries are prepared for the same reporting date as the Bank. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 FINANCIAL STATEMENTS 31 December 2020 All of the above will be accounted for from the date when control is lost. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent considerations to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of MFRS 9 Financial Instruments (“MFRS 9”) is measured at fair value with changes in fair value recognised either in the statements of profit or loss or statements of comprehensive income in accordance with MFRS 9. Other contingent considerations that is not within the scope of MFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in the statements of profit or loss. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 113
59. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2 . 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) (a) SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) Subsidiaries and basis of consolidation (cont’d.) (b) Investment in associates and joint ventures (cont’d.) (iii) Business combinations and goodwill (cont’d.) Upon loss of significant influence over the associate or joint control over the JV, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or JV upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. In the Bank separate financial statements, investments in associates and JV are accounted for at cost less impairment losses. On disposal of such investment, the difference between the net disposal proceeds and the carrying amount is included in profit or loss. (c) Foreign currency transactions 114 31 December 2020 FINANCIAL STATEMENTS 31 December 2020 Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for NCI, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed off, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cashgenerating unit retained. (i) Functional and presentation currency The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Ringgit Malaysia (“RM”), which is also the Bank functional currency. (ii) Foreign currency transactions Transactions in foreign currencies are measured in the respective functional currencies of the Group and the Bank and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the reporting date. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items denominated in foreign currencies measured at fair value are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translation of monetary items at the reporting date are recognised in the statements of profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to the statement of profit or loss of the Group and on disposal of the foreign operation. Exchange differences arising on the translation of non-monetary items carried at fair value are included in the statements of profit or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in equity. Exchange differences arising from such non-monetary items are also recognised directly in equity. (b) Investment in associates and joint ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture (“JV”) is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the JV. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The Group has interests in JV that is disclosed in Note 12. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investments in its associate and JV are accounted for using the equity method. Under the equity method, the investment in an associate or a JV is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or JV since the acquisition date. Goodwill relating to the associate or JV is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. (iii) Foreign operations The consolidated statement of profit or loss reflects the Group’s share of the results of operations of the associate or JV. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or JV, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or JV are eliminated to the extent of the interest in the associate or JV. The aggregate of the Group’s share of profit or loss of an associate and a JV is shown on the face of the consolidated statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or JV. The financial statements of the associate or JV are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or JV. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or JV is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or JV and its carrying value, then recognises the loss as share of loss of an associate or JV. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 The assets and liabilities of foreign operations are translated into RM at the rate of exchange ruling at the reporting date and income and expenses are translated at exchange rates at the dates of the transactions. The exchange differences arising on the translation are taken directly to OCI. On disposal of a foreign operation, the cumulative amount recognised in OCI and accumulated in the separate component of equity, is reclassified from equity to profit or loss (as a reclassification) when the gain or loss on disposal is recognised. (d) Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the Bank and the cost of the item can be measured reliably. Subsequent to recognition, property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The policy for recognition and measurement of impairment is in accordance with Note 3(d), below. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group and the Bank recognise such parts as individual assets with specific useful lives and depreciation, respectively. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 115
60. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2 . 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) (d) Property, plant and equipment (cont’d.) (g)Leases Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the property, plant and equipment if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the statements of profit or loss as incurred. The carrying values of property, plant and equipment are reviewed for impairment when events or change in circumstances indicate that the carrying value may not be recoverable. Freehold land has an unlimited useful life and therefore is not depreciated. Building-in-progress are also not depreciated as these assets are not available for use. Depreciation of other property, plant and equipment is provided for on a straight-line basis over the estimated useful life, as follows: Leasehold land and buildings Vessels Furniture and equipment Partitioning, installation and renovations Motor vehicles 19– 50 years 5– 30 years 3– 10 years 3– 20 years 5– 8 years The residual values, useful life and depreciation method are reviewed at each financial year end and adjusted prospectively if appropriate. 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 statements of profit or loss. (e) Investment properties Investment properties principally comprise properties held for long term rental yields or capital appreciation or both and which are not occupied by the Group and the Bank. Investment property is carried at cost less accumulated depreciation and any impairment losses. The policy for recognition and measurement of impairment is in accordance with Note 3(d), below. Freehold land is not depreciated. Freehold building is depreciated at an annual rate of 2%, calculated on a straight line basis to write off the cost of each building over the estimated useful life. Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria is met and excludes the cost of day-to-day servicing of that property. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the statements of profit or loss in the year in which they arise. (f) Intangible assets Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible asset are assessed to be either finite or infinite. Intangible assets with finite lives are amortised on straight line basis over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. The amortisation expense on intangible asset with finite lives is recognised in statements of profit or loss in the expense category consistent with the function of the intangible asset. 116 31 December 2020 Computer softwares were acquired separately and are amortised on a straight line basis over the useful lives of 3 – 5 years. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 FINANCIAL STATEMENTS 31 December 2020 The Group and the Bank assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. (i) Right-of-use assets The Group and the Bank recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: Other equipment 5 years If ownership of the leased asset transfers to the Group and the Bank at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. (ii) Lease liabilities At the commencement date of the lease, the Group and the Bank recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group and the Bank uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. (iii) Short-term leases and leases of low-value assets The Group and the Bank applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. (iv) Operating lease – the Group as lessor Assets leased out under operating leases are presented on the statements of financial position according to the nature of the assets. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 117
61. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2 . 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 118 Summary of Significant Accounting Policies (cont’d.) 31 December 2020 FINANCIAL STATEMENTS 31 December 2020 SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) (h) Financial assets (h) Financial assets (cont’d.) Financial assets and liabilities are recognised in the statements of financial position when the Group and the Bank has become a party to the contractual provisions of the instruments. Classification and subsequent measurement (cont’d.) All regular way purchases and sales of financial assets that require delivery within the period generally established by regulation or market convention are recognised or derecognised on the trade date. Financial assets (cont’d.) ‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition. When financial assets or financial liabilities are recognised initially, they are measured at fair value, plus, in the case of financial assets or financial liabilities not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial assets or financial liabilities, such as fees and commissions. Transaction costs of financial assets or financial liabilities carried at FVTPL are expensed in profit or loss. Immediately after initial recognition, expected credit loss (“ECL”) is recognised for financial assets measured at amortised cost and debt instruments measured at FVOCI, which results in an accounting loss being recognised in profit or loss when an asset is newly originated. The most significant elements of interest/profit within a lending/financing arrangement are typically the consideration for the time value of money, credit risk, other basic lending/financing risks and a profit margin that is consistent with a basic lending/financing arrangement. To perform the SPPI/SPPP assessment, the Group and the Bank applies judgement and considers relevant factors such as the currency in which the financial asset is denominated, and the period for which the interest/profit rate is set. Classification and subsequent measurement In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending/financing arrangement do not give rise to contractual cash flows that are solely payments of principal and interest/profit on the amount outstanding. In such cases, the financial asset is required to be measured at FVTPL. Financial assets The Group and the Bank determines the classification of their financial assets at initial recognition based on the following measurement categories: Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest/profit. The Group and the Bank reclassified debt instruments when and only when its business model for managing those assets changes. The reclassification takes place from the start of the first reporting period following the change. Such changes are expected to be very infrequent and none occured during the period. Financial assets – Amortised cost Assets that are held for collection of contractual cash flows where those cash flows represent SPPI/SPPP, and that are not designated at FVTPL, are measured at amortised cost. The carrying amount of these assets is adjusted by any expected credit allowance recognised and measured. Interest/finance income from these financial assets is measured using the effective interest/profit rate method. – FVTPL; – FVOCI; or – Amortised cost. To determine their classification and measurement category, the financial assets, except equity instruments and derivatives, is assessed based on a combination of the Bank business model for managing the assets and the instruments’ contractual cash flow characteristics. Business model assessment Financing and advances The Group and the Bank determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business objectives. Financing and advances consist of Murabahah, Tawarruq, Ijarah (includes Ijarah Muntahiyah bi Tamlik), Istisna’, Kafalah and Bai’ Bithaman Ajil. These contracts, except for Kafalah, are recognised at amortised cost, including direct and incremental transaction costs using effective profit method. These contracts are stated at net of unearned income and any amounts written off and/or impaired. Definition of Shariah concept: (a) Business model 1 – Hold to Collect (Amortised cost) Business objective is to collect contractual cash flows over the life of the financial assets. Sales should be insignificant in value or infrequent. (b) Business model 2 – Hold to Collect and Sell (FVOCI) Business objective is both to collect contractual cash flows and sell financial assets. Debt instruments under this business model are mainly those with the objectives to: (i) Manage everyday liquidity needs e.g. frequent sales activity of significant value to demonstrate liquidity or to cover everyday liquidity needs, without the intention of short-term profit taking; (ii) Maintain a particular interest/profit yield profile e.g. active management of the portfolio on an opportunistic basis to increase return by reinvesting in higher yielding financial assets; and (iii) Match the duration of the financial assets to the duration of the liabilities which funds those assets. (c) Business Model 3 – FVTPL Business objective is neither Business Model 1 nor Business Model 2. Debt instruments are mainly held for trading and managed on a fair value basis. (a) Murabahah: It refers to a sale and purchase of an asset where the acquisition cost and the mark-up are disclosed to the purchaser. The sale price is payable by the purchaser usually on deferred terms. (b) Tawarruq: It basically consists of two sale and purchase contracts. The first involves the sale of an asset by a seller to a purchaser on a deferred basis. Subsequently, the purchaser of the first sale will sell the same asset to a third party on a cash and spot basis. (c) Istisna’: It refers to a contract which a seller sells to a purchaser an asset which is yet to be constructed, built or manufactured according to agreed specifications and delivered on an agreed specified future date at an agreed pre-determined sale price. (d) Ijarah: It refers to a contract that transfers ownership of a permitted usufruct and/or service for a specified period in exchange for a specified consideration. It includes variations of this contract i.e. Ijarah Muntahiyah bi Tamlik, where it is accompanied with an option to transfer the ownership of the leased asset to the lessee at the end of the lease period via acceptable means of ownership transfer. For financial reporting purpose the Ijarah contract meets the definition of finance lease. Solely Payments of Principal and Interest/Profit (“SPPI/SPPP”) test (e) As a second step, SPPI/SPPP test must be carried out for all financial assets to identify if contractual cash flows are ‘solely payment of principal and interest/profit on the principal amount outstanding’ which is consistent with a ‘basic lending/financing arrangement’. Kafalah: It refers to a contract where the guarantor conjoins the guaranteed party in assuming the latter’s specified liability for a specified period. (f) Bai’ Bithaman Ajil: It refers to a sale contract based on deferred payment at certain price. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 119
62. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2 . 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) (h) Financial assets (cont’d.) (h) Financial assets (cont’d.) Classification and subsequent measurement (cont’d.) Impairment (cont’d.) Debt instruments at FVOCI Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets’ cash flows represent solely payments of principal and interest/profit, and that are not designated at FVTPL, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest/finance revenue and foreign exchange gains and losses on the instrument’s amortised cost which are recognised in profit or loss. When the debt instrument is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in “Net gain on disposal”. Interest/finance income from these financial assets is measured using the effective interest/profit rate method. The ECL model also applies to contract assets under MFRS 15 Revenue from Contracts with Customers and lease receivables under MFRS 16 Leases. The Group and the Bank will be generally required to apply a threestage approach based on the change in credit quality since initial recognition: Financial assets at FVTPL Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a financial investment that is substantially measured at FVTPL and is not part of hedging relationship is recognised in profit or loss and presented in the profit or loss statement within “Net investment income” in the period in which it arises. Interest/finance income from these financial assets is measured using the effective interest/ profit rate method. Derivatives that are linked to and must be settled by delivery of unquoted equity instruments whose fair values cannot be reliably measured are measured at cost. Equity instruments Equity instruments are instruments that meet the definition of equity from the issuer’s perspective; that is, instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the issuer’s net assets. The Group and the Bank measures all equity investments at FVTPL, except where the Group and the Bank has elected, at initial recognition, to irrevocably designate an equity investment at FVOCI (with no recycling) provided that is neither held for trading nor a contingent consideration recognised by acquirer in a business combination. For equity instruments elected on FVOCI (no recycling), gain or loss on disposal is recognised in equity and dividends are recognised in profit or loss. Impairment 120 31 December 2020 FINANCIAL STATEMENTS 31 December 2020 The Group and the Bank assesses on a forward-looking basis the ECL associated with its financial assets carried at amortised cost and FVOCI. Equity instruments are not subject to impairment assessment. The allowance is based on the ECL associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 – Stage 1: 12-month ECL For exposures where there has not been a significant increase in credit risk since initial recognition or where credit risk has improved and that are not credit impaired upon origination, the ECL associated with the probability of default events occurring within next 12 months will be recognised. – Stage 2: Lifetime ECL – non-credit impaired For exposures where there has been a significant increase in credit risk since initial recognition but that are non-credit impaired, the lifetime ECL will be recognised. – Stage 3: Lifetime ECL – credit impaired Financial assets are assessed as credit impaired when one or more events that have detrimental impact on the estimated future cash flows of that asset have occurred. For financial assets that are credit impaired, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flow. The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money. Both 12 months ECL and life time ECL are calculated on either an individual basis or a collective basis, depending on the nature of the underlying portfolio of financial instruments. The calculation of ECL The Group and the Bank calculates ECL to measure the expected cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The mechanics of the ECL calculations are outlined below and the key elements are, as follows: – Probability of Default (“PD”) The PD is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio. – Exposure at Default (“EAD”) The EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest/profit, whether scheduled by contract or otherwise, expected draw downs on committed facilities. – Loss Given Default (“LGD”) The LGD is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender/financier would expect to receive, including from the realisation of any collateral. It is usually expressed as a percentage of the EAD. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 121
63. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2 . 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 122 Summary of Significant Accounting Policies (cont’d.) 31 December 2020 FINANCIAL STATEMENTS 31 December 2020 SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) (h) Financial assets (cont’d.) (h) Financial assets (cont’d.) Impairment (cont’d.) Debt instruments measured at FVOCI The calculation of ECL (cont’d.) The mechanics of the ECL methods are summarised below: The ECL for debt instruments measured at FVOCI do not reduce the carrying amount of these financial assets in the statements of financial position, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in OCI reserve as an accumulated impairment amount, with a corresponding charge to profit or loss. The accumulated loss recognised in OCI reserve is recycled to the profit or loss upon derecognition of the assets. Fair value determination For financial instruments measured at fair value, the fair value is determined by reference to quoted market prices or by using valuation models. The fair value of financial instruments traded in active markets are based on quoted market price or dealer price quotation. For all other financial assets, fair value is determined using appropriate valuation techniques. In such cases, the fair values are estimated using discounted cash flow models, based on observable data in respect of similar financial instruments and using inputs (such as yield curve) existing at the reporting date. – Stage 1 The 12 months ECL is calculated as the portion of life time ECL that represent the ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. The Group and the Bank calculates the 12 months ECL allowance based on the expectation of a default occurring in the 12 months following the reporting date. This expected 12-month default probability is applied to a forecast EAD and multiplied by the expected LGD and discounted by an approximation to the original EIR. – Stage 2 When a financial asset has shown a significant increase in credit risk since origination, the Group and the Bank records an allowance for the life time ECL. The mechanics are similar to those explained above, but PD and LGD are estimated over the lifetime of the instrument. The expected cash shortfalls are discounted by an approximation to the original EIR. – Stage 3 If the financial asset is credit impaired, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statements of profit or loss. Where appropriate, the calculation of the present value of the estimated future cash flows of a collateralised loans/financing or receivable reflect the cash flows that may result from foreclosure less costs of obtaining and selling the collateral, whether or not foreclosure is probable. Interest/finance income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest/profit used to discount the future cash flows for the purpose of measuring the impairment loss. The interest/finance income is recorded as part of ‘interest/finance income’ in the statements of profit or loss. – Loan, financing and advances commitments and letters of credit When estimating life time ECL for undrawn loan, financing and advances commitments, the Group and the Bank estimates the expected portion of the loan, financing and advances commitment that will be drawn down over its expected life. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan, financing and advances is drawn down. The expected cash shortfalls are discounted at an approximation to the expected EIR on the instrument. – Financial guarantee contracts The Group and the Bank liability under each guarantee is measured at the higher of the amount initially recognised less the ECL provision. For this purpose, the Bank estimates ECL based on the present value of the expected payments to reimburse the holder for a credit loss that it incurs. The shortfalls are discounted by the risk-adjusted interest/profit rate relevant to the exposure. The ECL related to financial guarantee contracts are recognised within provisions. – Other financial assets The Group and the Bank is applying simplified approach to assess the ECL for other financial assets. The simplified approach eliminates the need to calculate 12-month ECL and to assess when a significant increase in credit risk has occurred. The loss allowance should be measured at initial recognition and throughout the life of the other financial assets at an amount equal to lifetime ECL. The simplified approach adopted for the Group and the Bank is based on weighted average of the historical loss experience. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Derecognition Financial instruments are derecognised when the risks and rewards associated with the instruments are substantially transferred, cancelled or expired. Upon derecognition, the difference between the carrying amount of the instruments and the consideration received/paid, less the cumulative gain or loss that has been recognised in the equity are taken to the statements of profit or loss. (i) Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities are recognised in the statements of financial position when, and only when, the Group and the Bank become a party to the contractual provisions of the financial instrument. Financial liabilities are recognised at amortised cost. Financial liabilities measured at amortised cost include deposits from customers, debt securities/sukuk issued and other borrowed funds. Financial liabilities are derecognised when they are redeemed or extinguished. (j) Bills and acceptance payable Bills and acceptance payable represents the Bank own bills and acceptances rediscounted and outstanding in the market. These financial liabilities are stated at amortised cost. (k) Equity instruments An equity instrument is any contract that evidences a residual interest/profit in the assets of the Group and the Bank after deducting all of its liabilities. Ordinary shares are equity instruments. Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. (l) Employee benefits Short term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short term cash bonus if the Group and the Bank have a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. The Group and the Bank contribution to the Employees Provident Fund are charged to the statements of profit or loss in the year to which they relate. Once the contributions have been paid, the Group and the Bank have no further payment obligations. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 123
64. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2 . 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.4 Summary of Significant Accounting Policies (cont’d.) (m) Government grants (q)Revenue Government grants are recognised at their fair value in the statements of financial position where there is a reasonable assurance that the grants will be received and all attaching conditions will be complied with. The Government grants are presented in the statements of financial position as “Infrastructure Support Fund” (“ISF”) and “deferred income”. ISF relates to fund received from the Government to cover the potential risk of loan/financing default, any allowance for impairment losses, write-off and other liquidity requirements that may arise. It is also to cover the contingent liabilities of the Bank i.e. guarantees, standby credits and performance bonds. Deferred income comprises claims received in relation to profit rate differentials on financing of Government infrastructure project. Grants that compensate the Group and the Bank for expenses incurred are recognised as income over the period necessary to match the grants on a systematic basis to the costs that it is intended to compensate. (n)Provisions Provisions are recognised when the Group and the Bank have a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance cost. (o) Contingent liabilities Contingent liabilities consist of secured guarantees given to third parties on behalf of borrowers/customers and litigation cases against the Group and the Bank. Contingent liabilities are disclosed in the notes to the accounts, unless the possibility of an outflow of resources embodying economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. (p) Disposal groups and assets held for sale Non-financial assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary. 124 31 December 2020 Immediately before classification as held for sale, the measurement of the non-current assets (or all the assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable MFRSs. Then, on initial classification as held for sale, non-financial assets or disposal groups (other than investment properties, deferred tax assets, employee benefits assets and financial assets) are measured in accordance with MFRS 5: Non-current Assets Held for Sale and Discontinued Operations; that is at the lower of carrying amount and fair value less costs to sell. Any differences are included in the statements of profit or loss. A component of the Group is classified as a discontinued operation when the criteria to be classified as held for sale have been met or it has been disposed and such a component represents a separate major line of business or geographical area of operations, is part of a single co-ordinated major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resell. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 FINANCIAL STATEMENTS 31 December 2020 Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the Bank and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable. (i) Interest/finance income and similar income For all financial instruments measured at amortised cost, interest/profit bearing financial assets classified as FVOCI and financial instruments designated at FVTPL, interest/finance income is recorded using the effective interest/profit rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument (for example, repayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest/profit rate, but not future credit losses. For impaired financial assets where the value of the financial asset have been written down as a result of an impairment loss, interest/finance income continues to be recognised using the rate of interest/profit used to discount the future cash flows for the purpose of measuring the impairment loss. (ii) Islamic Financial Business income recognition Income from financing and receivables is recognised in the statements of profit or loss using the effective profit method. The effective profit rate is the rate that discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. The calculation of the effective profit rate includes all contractual terms of the financial instruments and includes any fees incremental costs that are directly attributable to the instruments and are an integral part of the effective profit rate. Sale-based Financing (Murabahah, Tawarruq, Istisna’ and Bai’ Bithaman Ajil) Income are accrued on monthly basis on the cost outstanding at the prevailing effective profit rate over the duration of the financing. Lease-based Financing (Ijarah and Ijarah Muntahiyah bi Tamlik) Finance income is recognised on the effective profit rate of the cost of the leased asset over the lease period. Fee income Fee-based income from charging administrative fees such as processing fee, arrangement fee and facility fee is recognised upon satisfaction of performance obligation. Fee-based income is also derived from provision of guarantee based on kafalah contract. (iii) Income recognition for leasing, hire purchase financing, pre-factoring and factoring Income earned on leasing, hire purchase, pre-factoring and factoring financing is recognised based on the effective interest/profit method. (iv) Dividend income Dividend income is recognised when the Group’s right to receive payment is established. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 125
65. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2 . SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES 2.4 The preparation of financial statements involved making certain judgements and estimates, that affect the accounting policies applied and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the financial statements in the period of which the estimate is revised and in any future periods affected. Significant areas of estimation, uncertainty and critical judgements used in applying accounting policies that have significant effect on amount recognised in the financial statements include the following: Judgements In the process of applying the Group and the Bank accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the financial statements. 31 December 2020 Summary of Significant Accounting Policies (cont’d.) (r) 31 December 2020 Income Taxes (i) Current tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current taxes are recognised in the statements of profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. (ii) Deferred tax (a) Impairment of financial investments portfolio (Note 7 and Note 36) Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all temporary differences, except: The Group and the Bank review the debt instruments at FVOCI and financial investments at amortised cost under MFRS 9 which requires the recognition of ECL at each reporting date to reflect changes in credit risk of the financial investments not at FVTPL. MFRS 9 incorporates forward-looking and historical, current and forecasted information into ECL estimation. In carrying out the review, the following management’s judgment are required: • • where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affect neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not be reversed in the foreseeable future, and taxable profit will be available against which the temporary differences can be utilised. (i) Determination whether the investment is impaired or has significant increase in credit risk based on certain indicators such as, amongst others, prolonged decline in fair value, significant financial difficulties of the issuer or obligors, the disappearance of an active trading market and deterioration of the credit quality of the issuers or obligors; and (ii) Determination of ECL that reflect: The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted at the reporting date. Deferred tax relating to items recognised outside the statements of profit or loss is recognised outside the statements of profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. (s) Cash and cash equivalents Cash and cash equivalents consist of cash in hand, bank balances and deposit placements with original maturity of less than one month held for the purpose of meeting short term commitments and readily convertible into cash without significant risk of changes in value. (a) An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; (b) The time value of money; and (c) Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. (b) Impairment of loans, financing and advances (Note 8 and Note 35) The Group and the Bank make certain judgement in determining the ECL to be recognised on loans, financing and advances. The Group and the Bank ECL calculations under MFRS 9 are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgements and estimates include: (i) Internal credit grading model, which assigns PD to the individual grades; (ii) Criteria for assessing if there has been a significant increase in credit risk and so allowances for financial assets should be measured on a Lifetime ECL basis and the qualitative assessment; (iii) The segmentation of financial assets when their ECL is assessed on a collective basis; (iv) Development of ECL models, including the various formulas and the choice of inputs; (v) Determination of associations between macroeconomic scenarios and, economic inputs, such as oil price forecast, USD exchange rate and the effect on PD, EAD and LGD, including assessing for potential impact from the deterioration in oil price and the COVID-19 in 2020; (vi) Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic inputs into the ECL models; and (vii) The net realisable value of collateral. 126 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 127 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
66. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 3 . SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (CONT’D.) 3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (CONT’D.) Judgements (contd.) Estimates (b) Impairment of loans, financing and advances (Note 8 and Note 35) (cont’d.) Overlays and adjustments for ECL amid COVID-19 environment As the current MFRS 9 models are not expected to generate levels of ECL with sufficient reliability in view of the unprecedented and on-going COVID-19 pandemic, overlays and post-model adjustments have been applied to determine a sufficient overall level of ECL for the year ended and as at 31 December 2020. Estimates and underlying assumptions are reviewed on an on-going basis. Revision to accounting estimates are recognised in the financial statements in the period in which the estimate is revised and in any future period affected. Significant areas of estimation, uncertainty and critical judgements used in applying accounting policies that have significant effect on the amount recognised in the financial statements include the followings: 31 December 2020 These overlays and post-model adjustments were taken to reflect the latest macroeconomic outlook not captured in the modelled outcome and the potential impact to delinquencies and defaults when the various relief and support measures are expiring in 2021. The overlays and post-model adjustments involved significant level of judgement and reflect the management’s views of possible severities of the pandemic and paths of recovery in the forward looking assessment for ECL estimation purposes. 128 The borrowers and customers who have received repayment supports remain in their existing stages unless they have been individually identified as not viable or with subsequent indicators of significant increase in credit risk from each of their pre-COVID-19 status. The overlays and post-model adjustments were generally made at individual customer level in determining the sufficient level of ECL. The adjusted downside scenario assumes a continuous restrictive economic environment due to COVID-19 until the expected second quarter of 2021, the impact of these post-model adjustments were estimated at portfolio level, remain outside the core MFRS 9 process and amount to RM273.8 million as at 31 December 2020. (c) Impairment of investment in subsidiaries (Note 10), interest in associates (Note 11) and JV (Note 12) The Group and the Bank assess whether there is any indication that an investment in subsidiaries, interest in associates and JV may be impaired at each reporting date. If indicators are present, these investments are subjected to impairment review which comprises a comparison of the carrying amount of the investment and the investment’s estimated recoverable amount. Judgments made by management in the process of applying the Group’s accounting policies in respect of investment in subsidiaries, interest in an associates and JV are as follows: (i) The Group and the Bank determine whether its investments are impaired following certain indications of impairment such as, amongst others, significant changes with adverse effects on the investment and deteriorating financial performance of the investment due to observed changes in the economic environment; and (ii) Depending on their nature and the location in which the investments relate to, judgments are made by management to select suitable methods of valuation such as, amongst others, discounted future cash flows or estimated fair value based on quoted market price of the most recent transactions. (d) Impairment of non-financial assets (Note 13, Note 15 and Note 16(a)) The carrying amounts of non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If there is such indication or when annual impairment testing for an asset is required, the Group and the Bank estimate the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value-in-use (“VIU”). When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 31 December 2020 4. (a) Allowance for impairment of investment in subsidiaries (Note 10), interest in associates (Note 11) and JV (Note 12) Once a suitable method of valuation is selected, management makes certain assumptions concerning the future to estimate the recoverable amount of the specific individual investment. These assumptions and other key sources of estimation uncertainty at the reporting date, may have a significant risk of causing a material adjustment to the carrying amounts of the investments within the next financial year. Depending on the specific individual investment, assumptions made by management may include, amongst others, assumptions on expected future cash flows, revenue growth, terminal value, discount rate used for purposes of discounting future cash flows which incorporates the relevant risks and expected future outcome based on certain past trends. (b) Income taxes (Note 37) Significant judgment is required in estimating the provision for income taxes. There are many transactions and interpretations of tax law for which the final outcome will not be established until some time later. Liabilities for taxation are recognised based on estimates of whether additional taxes will be payable. The estimation process includes seeking advice on the tax treatments where appropriate. Where the final liability for taxation is different from the amounts that were initially recorded, the differences will affect the income tax and deferred tax provisions in the period in which the estimate is revised or the final liability is established. (c) Leases (Note 16) – Estimating the incremental borrowing rate The Group and the Bank cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that the Group and the Bank would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group and the Bank ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group and the Bank estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). CASH AND SHORT TERM DEPOSITS Group Cash and balances with other financial institutions Money at call and deposit placements maturing within one month Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 13,425 14,306 2,998 2,933 1,021,813 1,035,238 2,634,616 2,648,922 858,789 861,787 2,368,087 2,371,020 The Group and the Bank bases its VIU calculation on detailed budgets and forecast calculations. In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an apropriate valuation model is used. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 129 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
67. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 5 . DEPOSITS AND PLACEMENTS WITH FINANCIAL INSTITUTIONS 7. FINANCIAL INVESTMENTS AT FVOCI (CONT’D.) Movements in allowances for impairment which reflect the ECL allowance are as follows: 31 December 2020 Group 2020 RM’000 Licensed banks 185,772 Bank 2019 RM’000 924,915 51,137 2019 RM’000 Lifetime ECL WAEIR (%) Group and Bank 2019 2020 2019 1.91 3.25 1.83 3.24 72 62 32 49 At 1 January Net (write back)/allowance made New financial investments purchased Net (write back)/allowance made At 31 December Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 45,566 45,566 – – 45,566 45,566 – – At 1 January Net allowance made New financial investments purchased Net allowance made At 31 December At fair value Included in the financial investments at FVTPL is a private debt securities with a cost of RM405,364,712 and a fair value of RM nil. 7. FINANCIAL INVESTMENTS AT FVOCI 8. – – – – – 56,244 9,405 4 9,401 65,649 286 654 76 578 940 – 55,304 20,922 34,382 55,304 – – – – – 286 55,958 20,998 34,960 56,244 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 86,705 18,646,480 18,733,185 181,104 18,052,441 18,233,545 86,705 18,427,946 18,514,651 181,104 17,873,365 18,054,469 4,649 4,649 5,236 5,236 4,649 4,649 5,236 5,236 18,737,834 18,238,781 18,519,300 18,059,705 (1,134,918) (676,288) (1,342,559) (870,590) (270,967) (1,395,452) (1,129,228) (673,057) (1,322,598) (864,539) (270,538) (1,378,943) (3,153,765) (2,537,009) (3,124,883) (2,514,020) 15,584,069 15,701,772 15,394,417 15,545,685 LOANS, FINANCING AND ADVANCES Group 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 2,225,971 46,058 2,272,029 1,640,721 20,252 1,660,973 2,225,971 46,058 2,272,029 1,640,721 20,252 1,660,973 Loans, financing and advances to industries: Government guaranteed Others Loans, financing and advances to others: Staff loan/financing Gross loans, financing and advances Total financial investments at FVOCI 55,304 9,804 – 9,804 65,108 Bank Bank At fair value Equity Securities: Quoted shares 940 (399) 4 (403) 541 At amortised cost Group Unquoted securities: Corporate bonds and sukuk Total RM’000 2019 Group Debt Instruments: Money market instruments: Government investment issues Cagamas Credit Impaired Stage 3 RM’000 2020 FINANCIAL INVESTMENTS AT FVTPL Equity Securities: Unquoted shares Total financial investments at FVTPL Not Credit Impaired Stage 2 RM’000 Bank 2020 Average maturity (Days) 12-Month ECL Stage 1 RM’000 882,828 The weighted average effective interest rates (“WAEIR”) of deposits and the average maturity of deposits of the Group and the Bank at the reporting date were as follows: Group 6. 2020 RM’000 FINANCIAL STATEMENTS 31 December 2020 3,749,837 3,749,837 3,256,877 3,256,877 3,749,837 3,749,837 3,256,877 3,256,877 109,672 109,672 106,115 106,115 109,672 109,672 101,170 101,170 6,131,538 5,023,965 6,131,538 5,019,020 Allowance for impairment on loans, financing and advances – Stage 1: 12-Month ECL – Stage 2: Lifetime ECL not credit impaired – Stage 3: Lifetime ECL credit impaired Net loans, financing and advances 130 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 131
68. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 8 . 8. 31 December 2020 LOANS, FINANCING AND ADVANCES (CONT’D.) (i) Loans, financing and advances analysed by type are as follows: Bai’ Bithaman Ajil Factoring Factoring-i Hire purchase Hire purchase-i Istisna’ Ijarah Muntahiyah bi Tamlik Leasing Murabahah Revolving working capital Staff loan/financing Tawarruq Term loan Gross loans, financing and advances Allowance for impairment on loans, financing and advances: – Stage 1: 12-Month ECL – Stage 2: Lifetime ECL not credit impaired – Stage 3: Lifetime ECL credit impaired Net loans, financing and advances (ii) 2019 RM’000 2020 RM’000 2019 RM’000 43,558 17,936 30,059 70,172 7,841 1,511,340 64,583 4,400 8,315 89,645 4,649 11,666,590 5,218,746 18,737,834 89,692 31,165 – 93,495 – 2,772,582 52,078 12,261 8,315 160,995 5,236 9,544,462 5,468,500 18,238,781 43,558 – – – – 1,511,340 1,222 – 8,315 89,645 4,649 11,644,553 5,216,018 18,519,300 86,745 – – – – 2,772,582 20,693 – 8,315 160,995 5,236 9,539,493 5,465,646 18,059,705 (870,590) (270,967) (1,395,452) (1,129,228) (673,057) (1,322,598) (864,539) (270,538) (1,378,943) (3,153,765) (2,537,009) (3,124,883) (2,514,020) 15,584,069 15,701,772 15,394,417 15,545,685 Agriculture, hunting and forestry Construction Education Electricity, gas and water supply Finance, insurance/takaful and business Hotel and restaurants Housing Manufacturing Marine related Medical and pharmaceuticals Other community, social and personal service activities Public administration and defence Real estate, renting and business activities Shipping Shipyard Transport, storage and communication (v) 2019 RM’000 2020 RM’000 2019 RM’000 18,732,056 5,778 18,737,834 18,229,509 9,272 18,238,781 18,514,651 4,649 18,519,300 18,054,469 5,236 18,059,705 Group Fixed rate: Housing loans/financing Hire purchase receivables Other fixed rate loans/financing Variable rate: Cost plus Other variable rates 2020 RM’000 2019 RM’000 11 9,802,696 1,728,466 153,769 134,486 1,311,713 5,778 312,926 325,628 17,020 439,973 8,281 371,813 1,067,439 130,339 2,927,496 18,737,834 11 8,906,333 1,871,106 142,277 91,821 1,244,934 9,272 316,497 181,999 16,719 366,292 16,156 366,608 1,155,554 130,339 3,422,863 18,238,781 – 9,800,246 1,728,466 153,769 – 1,267,654 4,649 309,236 325,628 17,020 434,712 8,281 371,813 1,067,439 130,339 2,900,048 18,519,300 – 8,904,249 1,871,106 142,277 – 1,217,259 5,236 309,025 181,999 16,719 355,010 16,156 366,608 1,155,554 130,339 3,388,168 18,059,705 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 2,413,926 2,514,398 2,429,679 11,379,831 18,737,834 2,341,721 2,219,921 2,099,661 11,577,478 18,238,781 2,329,761 2,428,184 2,381,524 11,379,831 18,519,300 2,279,185 2,137,937 2,065,105 11,577,478 18,059,705 Loans, financing and advances analysed by geographical distribution are as follows: Group Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 18,737,834 18,238,781 18,519,300 18,059,705 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 5,778 78,014 10,176,901 9,272 93,495 11,066,427 4,649 – 10,037,510 5,236 – 10,984,882 5,920,780 2,556,361 18,737,834 4,791,538 2,278,049 18,238,781 5,920,780 2,556,361 18,519,300 4,791,538 2,278,049 18,059,705 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 (vi) Within Malaysia Loans, financing and advances analysed by interest/profit rate sensitivity are as follows: 2019 RM’000 The maturity structure of loans, financing and advances is as follows: Maturity within one year One year to three years Three years to five years Over five years Bank 2020 RM’000 Bank 2020 RM’000 Group Loans, financing and advances analysed by type of borrowers/customers are as follows: Domestic business enterprises Individuals 132 Group 2020 RM’000 (1,134,918) (676,288) (1,342,559) Loans, financing and advances analysed by industry are as follows: Bank Group (iii) LOANS, FINANCING AND ADVANCES (CONT’D.) (iv) Group FINANCIAL STATEMENTS 31 December 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 133
69. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 8 . 8. 31 December 2020 LOANS, FINANCING AND ADVANCES (CONT’D.) (vii) Movements in gross loans, financing and advances are as follows: Group 12-Month ECL Stage 1 RM’000 Lifetime ECL Not Credit Impaired Stage 2 RM’000 Lifetime ECL Credit Impaired Stage 3 RM’000 Total RM’000 Lifetime ECL Not Credit Impaired Stage 2 RM’000 Lifetime ECL Credit Impaired Stage 3 RM’000 14,976,056 425,766 (1,185,557) – 76,679 489,138 (42,863) – 14,739,219 883,369 (425,766) 1,185,557 (22,633) 78,445 – (12,810) – 1,686,162 2,200,280 – – 22,633 (58,641) – – (70,353) 2,093,919 18,059,705 – – – 96,483 489,138 (55,673) (70,353) 18,519,300 16,704,747 2,934 (278,572) – 397,071 863,840 (2,713,964) – 14,976,056 1,642,611 (2,934) 330,401 (158,629) (109,479) – (818,601) – 883,369 2,246,791 – (51,829) 158,629 (94,253) – – (59,058) 2,200,280 20,594,149 – – – 193,339 863,840 (3,532,565) (59,058) 18,059,705 12–Month ECL Stage 1 RM’000 Bank Total RM’000 2020 15,129,881 425,766 (1,217,745) (9,291) (35,946) 949,842 (344,154) – 14,898,353 892,113 (425,766) 1,217,745 (24,898) 76,769 – (12,810) – 1,723,153 2,216,787 – – 34,189 (56,567) – (2,367) (75,714) 2,116,328 18,238,781 – – – (15,744) 949,842 (359,331) (75,714) 18,737,834 2019 At 1 January – Transfer to 12-month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Remeasurement, net New accounts Matured accounts Written-off At 31 December LOANS, FINANCING AND ADVANCES (CONT’D.) (vii) Movements in gross loans, financing and advances are as follows (cont’d.): 2020 At 1 January – Transfer to 12-month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Remeasurement, net New accounts Matured accounts Written-off At 31 December FINANCIAL STATEMENTS 31 December 2020 At 1 January – Transfer to 12-month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Remeasurement, net New accounts Matured accounts Written-off At 31 December 2019 16,846,705 8,203 (285,163) (1,974) 315,084 1,246,604 (2,999,578) – 15,129,881 1,656,365 (7,431) 339,145 (161,833) (115,532) – (818,601) – 892,113 2,281,425 (772) (53,982) 163,807 (101,177) – (2,178) (70,336) 2,216,787 20,784,495 – – – 98,375 1,246,604 (3,820,357) (70,336) 18,238,781 At 1 January – Transfer to 12-month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Remeasurement, net New accounts Matured accounts Written-off At 31 December (viii) Impaired loans, financing and advances analysed by industry are as follows: Group Construction Education Electricity, gas and water supply Hotel and restaurants Manufacturing Medical and pharmaceuticals Other community, social and personal service activities Shipping Transport, storage and communication Gross impaired loans, financing and advances as a % of gross loans, financing and advances 134 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 375,694 57,037 30,054 711,306 70,617 17,020 124,036 592,230 138,334 2,116,328 447,613 63,760 30,698 677,745 88,141 16,719 122,216 608,768 161,127 2,216,787 375,662 57,037 30,054 698,167 70,617 17,020 121,306 592,230 131,826 2,093,919 445,544 63,760 30,698 673,604 88,121 16,719 118,137 608,768 154,929 2,200,280 11.29% 12.15% 11.31% 12.18% BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 135
70. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 8 . 9. 31 December 2020 31 December 2020 LOANS, FINANCING AND ADVANCES (CONT’D.) (ix) OTHER ASSETS Group Movements in the allowance for impairment of loans, financing and advances are as follows: Group 12-Month ECL Stage 1 RM’000 Lifetime ECL Not Credit Impaired Stage 2 RM’000 Lifetime ECL Credit Impaired Stage 3 RM’000 Note Total RM’000 Sundry receivables, deposits and prepayments Less Allowance for doubtful debts 2020 At 1 January – Transfer to 12–month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Allowance made, net Amount written off At 31 December 870,590 64,137 (133,077) (38) 333,306 – 1,134,918 270,967 (64,137) 133,077 (148) 336,529 – 676,288 1,395,452 – – 186 22,065 (75,144) 1,342,559 2,537,009 – – – 691,900 (75,144) 3,153,765 2019 At 1 January – Transfer to 12–month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Allowance made/(written back), net Amount written off At 31 December Bank 751,857 9,565 (72,374) – 181,542 – 870,590 12–Month ECL Stage 1 RM’000 423,534 (8,804) 108,869 (53,724) (198,908) – 270,967 Lifetime ECL Not Credit Impaired Stage 2 RM’000 1,324,431 (761) (36,495) 53,724 116,456 (61,903) 1,395,452 Lifetime ECL Credit Impaired Stage 3 RM’000 2,499,822 – – – 99,090 (61,903) 2,537,009 Total RM’000 2020 At 1 January – Transfer to 12–month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) Allowance made, net Amount written off At 31 December 864,539 63,881 (132,313) 333,121 – 1,129,228 270,538 (63,881) 132,313 334,087 – 673,057 1,378,943 – – 13,561 (69,906) 1,322,598 2,514,020 – – 680,769 (69,906) 3,124,883 748,458 8,804 (72,293) – 179,570 – 864,539 422,327 (8,804) 107,240 (53,193) (197,032) – 270,538 1,295,781 – (34,947) 53,193 115,543 (50,627) 1,378,943 2,466,566 – – – 98,081 (50,627) 2,514,020 Amount due from subsidiaries Amount receivable from Government in respect of compensation for: Infrastructure projects Foreign exchange differences Tax recoverable (i) (ii) 2020 RM’000 Bank 2019 RM’000 2020 RM’000 2019 RM’000 310,489 (292,976) 17,513 311,868 (292,910) 18,958 7,509 (647) 6,862 6,390 (581) 5,809 – – 1,767 590 146,937 85,361 35,547 285,358 109,216 85,361 14,686 228,221 146,937 85,361 22,725 263,652 109,216 85,361 5,878 206,854 (i) Included in the sundry receivables, deposits and prepayments of the Group is an amount due from Syarikat Borcos Shipping Sdn Bhd (“Borcos”), a former subsidiary of Global Maritime Ventures Berhad (“GMVB”) amounting to RM289,563,000 (2019: RM289,563,000). (ii) Allowance for doubtful debts Group At 1 January Allowance for ex–staff loan/financing: Stage 1 – 12–month ECL, net Stage 3 – Lifetime ECL credit impaired, net Recovered during the financial year: –Tenant Amount written off At 31 December Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 292,910 292,998 581 607 1 78 – (17) 1 78 – (17) (13) – 292,976 (9) (62) 292,910 (13) – 647 (9) – 581 2019 At 1 January – Transfer to 12–month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Allowance made/(written back), net Amount written off At 31 December 136 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 137 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
71. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 10 . INVESTMENTS IN SUBSIDIARIES 10. INVESTMENTS IN SUBSIDIARIES (CONT’D.) 31 December 2020 Bank 2020 RM’000 Unquoted shares, at cost Additional capital contribution due to waiver of debt Less: Allowance for impairment on investments in subsidiaries 2019 RM’000 922,939 68,750 991,689 (736,922) 254,767 922,939 68,750 991,689 (736,263) 255,426 736,263 659 736,922 735,048 1,215 736,263 (a) Subsidiary with significant non-controlling interest (cont’d.) (ii) GMVB Other income Administrative expenses Share of profit of joint ventures and associates Gain/(loss) on deconsolidation of dissolve companies Profit/(loss) before taxation Taxation Zakat Loss for the year * Refer to Note 45 for the list of subsidiaries. Other comprehensive income: (a) Subsidiary with significant non-controlling interest The summarised financial information of Global Maritime Ventures Berhad (“GMVB”) which have significant noncontrolling interests to the Group is set out below. The summarised financial information presented below is the amount before inter-company elimination: Other comprehensive (loss)/income to be reclassified to profit or loss in subsequent periods: Foreign currency translation reserve (i) Total comprehensive loss for the year Summarised statement of financial position GMVB 2020 RM’000 2019 RM’000 5,060 100,478 105,538 5,205 102,615 107,820 Current liabilities Total liabilities Net assets 8,130 8,130 97,408 9,913 9,913 97,907 Equity attributable to the owners of the company 94,659 95,086 2,749 2,821 Non current assets Current assets Total assets Carrying value of non-controlling interests 138 Summarised statement of comprehensive income 2020 RM’000 Movement of allowance for impairment: As at 1 January Amount provided during the financial year At 31 December BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 FINANCIAL STATEMENTS 31 December 2020 Loss for the year attributable to: Equity holders of the parent Non-controlling interest Total comprehensive loss attributable to: Equity holders of the parent Non-controlling interest (iii) 2019 RM’000 2,335 (587) 4 59 1,811 (599) (1,532) (320) 3,210 (1,800) 6 (41,316) (39,900) (696) (1,955) (42,551) (179) (179) (499) 40,917 40,917 (1,634) (302) (18) (320) (42,533) (18) (42,551) (427) (72) (499) (1,585) (49) (1,634) Summarised statement of cash flows GMVB 2020 RM’000 Net cash (used in)/generated from operating activities Net cash (used in)/generated from investing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the financial year Cash and cash equivalents at the end of the financial year (2,025) (47,744) (49,769) 74,680 24,911 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2019 RM’000 172 41,072 41,244 33,436 74,680 139
72. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 10 . INVESTMENTS IN SUBSIDIARIES (CONT’D.) 10. INVESTMENTS IN SUBSIDIARIES (CONT’D.) 31 December 2020 (b) Dissolution of subsidiaries (b) Dissolution of subsidiaries (cont’d.) During the financial year ended 2020, GMV-Jasa Sdn Bhd and GMV-Omni Sdn Bhd were dissolved and deconsolidated on 19 February 2020 and 19 November 2020 respectively. Details of the deconsolidation of the subsidiaries as at the date of dissolution were as follows (cont’d.): Details of the deconsolidation of the subsidiaries as at the date of dissolution were as follows: At the date of dissolution RM’000 Total RM’000 Assets Tax recoverable Cash and bank balances Liabilities Payable and accruals Net assets Capital distribution received Net identifiable assets disposed @ 100% Transfer from foreign exchange reserves Transfer from non-controlling interest Loss on deconsolidation 22 267 289 72 72 217 Cash and bank balances of dissolved companies Cash outflow to the Group on dissolution Group 276 (217) 59 (267) (267) In the prior year, GMV Orkim and five companies under Wawasan Group, namely Permata Navigation, Gemala Navigation, Kencana Navigation, Ratna Navigation, and Mutiara Navigation were dissolved and deconsolidated on 10 June 2019 and 23 September 2019 respectively. Details of the deconsolidation of the subsidiaries as at the date of dissolution were as follows: At cost: Unquoted ordinary shares Group’s share of post acquisition reserve Liabilities Payable and accruals Net assets BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2019 RM’000 300 243 543 300 239 539 Details of the associates incorporated in Malaysia are as follows: Effective interest held by the Group Name of Associates (incorporated in Malaysia) Principal Activities 2020 % 2019 % 27.0 27.0 Ship management 319 405 12,496 13,220 Ambang Wibawa Sdn Bhd * 26.0 26.0 Dormant 131 131 13,089 Cantuman Wawasan Sdn Bhd * 26.0 26.0 Dormant Internexia Sdn Bhd * 26.0 26.0 Dormant MS Time Ventures Sdn Bhd * 26.0 26.0 Dormant Profound Kestrel Laboratories Sdn Bhd * 49.0 49.0 Dormant Wawasan Bulk Services Sdn Bhd Held through SME Growth Acceleration Fund Sdn Bhd (“SME GAF”), a subsidiary: * 140 2020 RM’000 Held through GMVB, a subsidiary: Total RM’000 Assets Tax recoverable Cash and bank balances Amount due from related parties (405) (405) 11. INTEREST IN ASSOCIATES The effect of the disposal on cash flows is as follows: Cash and bank balances of dissolved companies Cash outflow to the Group on dissolution 9,173 (13,089) (41,154) 3,754 (41,316) The effect of the disposal on cash flows is as follows: At the date of dissolution RM’000 Capital distribution received Net identifiable assets disposed @ 100% Gain on deconsolidation FINANCIAL STATEMENTS 31 December 2020 Audited by firms of auditors other than Ernst & Young PLT, Malaysia. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 141
73. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 11 . INTEREST IN ASSOCIATES (CONT’D.) 12. INTEREST IN JOINT VENTURES 31 December 2020 31 December 2020 Group The summarised financial statements of the associates not adjusted for the proportion of ownership interest held by the Group are as follows: 2020 RM’000 Group (a) 2,018 208 1,838 42 26 (4) 18 22 At cost: Unquoted ordinary shares Group’s share of post acquisition deficit Advances to JV within 1 year Less Allowance for doubtful debts Summarised statement of profit or loss Revenue (Loss)/profit for the year (c) 2019 RM’000 Summarised statement of financial position Total assets Total liabilities (b) 2020 RM’000 Reconciliation of the summarised financial information Net assets at 1 January (Loss)/profit for the financial year Other comprehensive income/(loss) Net assets at 31 December Interest in associates Carrying value of Group’s interest in associates 1,777 22 (3) 1,796 30% 539 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 11,274 (11,274) – 8,412 (8,412) – 8,412 (8,412) – The advances to JV bear an interest of 5% (2019: 5%) per annum and are repayable on a quarterly basis over a period of 1 year. Details of the JV are as follows: Effective interest held by the Group Principal Activities 2020 % 2019 % Alam Eksplorasi (M) Sdn Bhd ^ 36.00 36.00 Ship-owning, ship operator, ship agency, chartering and other related to shipping industry Alam Synergy I (L) Inc ^ 36.00 36.00 Ship-owning, ship operator and charter hire of vessel Alam Synergy II (L) Inc ^ 36.00 36.00 Ship-owning, ship operator and charter hire of vessel Alam Synergy III (L) Inc ^ 36.00 36.00 Ship-owning, ship operator and charter hire of vessel Held through GMVB, a subsidiary: ^ 142 11,274 (11,274) – Name of JV (incorporated in Malaysia) 1,796 (4) 18 1,810 30% 543 2019 RM’000 Collectively known as Alam Group BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 143 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
74. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 12 . INTEREST IN JOINT VENTURES (CONT’D.) 13. PROPERTY, PLANT AND EQUIPMENT 31 December 2020 31 December 2020 The aggregate current assets, current liabilities and result of the JV are as follows: Group 2020 RM’000 (a) (b) Summarised statement of financial position Assets: Current assets Total assets 93,583 93,583 Liabilities: Current liabilities Total liabilities 132,536 132,536 149,955 149,955 Net liabilities (73,792) (56,372) – (5,240) (5,240) 512 (12,225) (16,953) (467) (17,420) – (17,420) – (7,970) (7,970) 5,553 (1,093) (3,510) (510) (4,020) 128 (3,892) Summarised statement of profit or loss Reconciliation of the summarised financial information Net liabilities at 1 January Loss for the year Net liabilities at 31 December Interests in joint ventures Carrying value of Group’s interest in joint ventures Less:Cumulative unrecognised losses b/f Share of unrecognised losses for the year Net carrying value of Group’s interest in joint ventures 144 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Group Leasehold land and buildings RM’000 Furniture and equipment RM’000 Renovation RM’000 Mechanical and electricals RM’000 17,973 – – – 17,973 71,617 – – – 71,617 27,996 2,304 – – 30,300 2,452 – (336) – 2,116 2,978 – – – 2,978 40,370 – – 5,847 46,217 6,446 515 – (5,847) 1,114 169,832 2,819 (336) – 172,315 – – – – 16,716 1,435 – 18,151 23,600 1,519 – 25,119 1,151 362 (336) 1,177 2,394 469 – 2,863 39,460 1,123 – 40,583 – – – – 83,321 4,908 (336) 87,893 17,973 53,466 5,181 939 115 5,634 1,114 84,422 17,973 – – 17,973 71,617 – – 71,617 25,370 2,721 (95) 27,996 2,058 394 – 2,452 2,978 – – 2,978 40,339 31 – 40,370 840 5,606 – 6,446 161,175 8,752 (95) 169,832 – – – – 15,284 1,432 – 16,716 22,745 950 (95) 23,600 881 270 – 1,151 1,447 947 – 2,394 39,218 242 – 39,460 – – – – 79,575 3,841 (95) 83,321 17,973 54,901 4,396 1,301 584 910 6,446 86,511 Motor vehicles RM’000 Capital work-inprogress RM’000 Total RM’000 2020 58,744 58,744 Revenue Cost of sales Gross loss Other income Operating expenses Loss from operations Finance costs Loss before taxation Taxation Loss for the year (c) 2019 RM’000 Freehold land RM’000 (56,372) (17,420) (73,792) 44,274 (29,518) 22,549 6,969 – (52,480) (3,892) (56,372) 33,823 (22,549) 20,993 1,556 – Cost At 1 January Additions Disposals/write-off Reclassification At 31 December Accumulated depreciation At 1 January Charge for the year Disposals/write-off At 31 December Net carrying amount 2019 Cost At 1 January Additions Disposals/write-off At 31 December Accumulated depreciation At 1 January Charge for the year Disposals/write-off At 31 December Net carrying amount BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 145 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
75. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 13 . PROPERTY, PLANT AND EQUIPMENT (CONT’D.) 14. INVESTMENT PROPERTIES 31 December 2020 31 December 2020 Group Bank Freehold land RM’000 Buildings RM’000 Furniture and equipment RM’000 Motor vehicles RM’000 Renovation RM’000 Mechanical and electricals RM’000 Capital work-inprogress RM’000 Total RM’000 2020 Cost At 1 January Additions Disposals/write off Reclassification At 31 December Accumulated depreciation At 1 January Charge for the year Disposals/write off At 31 December Net carrying amount 2020 RM’000 682 (300) 382 382 – 382 382 – 382 Depreciation At 1 January Charge for the year Transfer to assets held for sale (Note 44) At 31 December 45 7 – 52 81 10 (46) 45 45 7 – 52 37 8 – 45 330 337 330 337 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 330 330 337 337 330 330 337 337 71,617 – – – 71,617 24,679 2,155 – – 26,834 2,085 – (336) – 1,749 2,949 – – – 2,949 40,370 – – 5,847 46,217 6,446 515 – (5,847) 1,114 166,119 2,670 (336) – 168,453 – – – – 16,716 1,435 – 18,151 20,435 1,458 – 21,893 786 362 (336) 812 2,365 469 – 2,834 39,460 1,123 – 40,583 – – – – 79,762 4,847 (336) 84,273 Carrying amount 17,973 53,466 4,941 937 115 5,634 1,114 84,180 Included in the above are: Buildings Group (i) 71,617 – – 71,617 22,025 2,659 (5) 24,679 1,691 394 – 2,085 2,949 – – 2,949 40,339 31 – 40,370 840 5,606 – 6,446 157,434 8,690 (5) 166,119 2019 RM’000 382 – 382 17,973 – – – 17,973 17,973 – – 17,973 2020 RM’000 Cost At 1 January Transfer to assets held for sale (Note 44) At 31 December 2019 Cost At 1 January Additions Disposals/write off At 31 December Bank 2019 RM’000 Bank The Directors of the Group and the Bank estimated the fair values of the investment properties of the Group and the Bank to be RM400,000 (2019: RM400,000) and RM400,000 (2019: RM400,000) respectively which have been determined by an accredited independent valuer. 15. INTANGIBLE ASSETS Computer software Accumulated depreciation At 1 January Charge for the year Disposals/write off At 31 December Net carrying amount Group – – – – 15,284 1,432 – 16,716 19,564 876 (5) 20,435 516 270 – 786 1,418 947 – 2,365 39,218 242 – 39,460 – – – – 76,000 3,767 (5) 79,762 17,973 54,901 4,244 1,299 584 910 6,446 86,357 2019 RM’000 2020 RM’000 2019 RM’000 Cost At 1 January Addition At 31 December 33,881 1,957 35,838 31,629 2,252 33,881 29,792 1,953 31,745 27,540 2,252 29,792 Amortisation At 1 January Amortisation charged At 31 December 27,091 2,637 29,728 24,644 2,447 27,091 23,196 2,504 25,700 20,923 2,273 23,196 6,110 6,790 6,045 6,596 Carrying amount 146 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Bank 2020 RM’000 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 147 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
76. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 16 . LEASES 17. DEFERRED TAX ASSETS/(LIABILITIES) 31 December 2020 (a) 31 December 2020 Group The carrying amounts of right-of-use assets recognised and the movements during the year: 2020 RM’000 Other equipment Group (b) Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 Cost At 1 January Addition during the year At 31 December 497 172 669 409 88 497 441 172 613 353 88 441 Depreciation At 1 January Charge for the year At 31 December 140 198 338 – 140 140 127 185 312 – 127 127 Carrying amount 331 357 301 314 The carrying amounts of lease liabilities and the movements during the year: Group 2020 RM’000 2019 RM’000 409 88 24 (167) 354 309 172 27 (195) 313 353 88 21 (153) 309 Current Non-current 26 318 344 144 210 354 25 288 313 142 167 309 The following are the amounts recognised in profit or loss: 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 198 17 12 140 24 – 185 15 12 127 21 – 337 564 418 582 337 549 418 566 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2019 RM’000 40,138 108,643 (32,438) 116,343 111,180 (32,167) (38,875) 40,138 36,939 110,467 (32,619) 114,787 108,947 (33,653) (38,355) 36,939 116,402 (59) 116,343 40,521 (383) 40,138 114,787 – 114,787 36,939 – 36,939 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 income taxes relate to the same fiscal authority. The components and movements of deferred tax assets and liabilities during the year prior to offsetting are as follows: Deferred tax assets Loan/ financing loss and allowances RM’000 Group Provisions and other temporary differences RM’000 Property, plant and equipment RM’000 Total RM’000 At 1 January 2020 Recognised in statement of profit or loss At 31 December 2020 65,478 111,156 176,634 5,848 (2,535) 3,313 3,390 (1,356) 2,034 74,716 107,265 181,981 At 1 January 2019 Recognised in statement of profit or loss At 31 December 2019 97,405 (31,927) 65,478 14,003 (8,155) 5,848 2,373 1,017 3,390 113,781 (39,065) 74,716 Deferred tax liabilities Unrealised FVOCI reserve RM’000 Group Bank 2020 RM’000 2019 RM’000 354 172 29 (211) 344 Group 148 2020 RM’000 At 1 January Addition during the year Accretion of interest Payments At 31 December Depreciation expense of right-of-use assets Interest expense on lease liabilities (Note 29) Finance cost on lease liabilities (Note 48(r)) Expense relating to leases of low-value assets (included in overhead expenses) Total amount recognised in profit or loss Presented after appropriate offsetting as follows: Deferred tax assets Deferred tax liabilities Bank The maturity analysis of lease liabilities are disclosed in Note 46 c(i). (c) At 1 January Recognised in statement of profit or loss Recognised in other comprehensive income At 31 December Bank 2019 RM’000 Loan/ financing loss and allowances RM’000 Property, plant and equipment RM’000 Total RM’000 At 1 January 2020 Recognised in statement of profit or loss Recognised in other comprehensive income At 31 December 2020 (33,723) 951 (32,438) (65,210) (267) 28 – (239) (588) 399 – (189) (34,578) 1,378 (32,438) (65,638) At 1 January 2019 Recognised in statement of profit or loss Recognised in other comprehensive income At 31 December 2019 (1,710) 6,862 (38,875) (33,723) (658) 391 – (267) (233) (355) – (588) (2,601) 6,898 (38,875) (34,578) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 149 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
77. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 17 . DEFERRED TAX ASSETS/(LIABILITIES) (CONT’D.) 18. DEPOSITS FROM CUSTOMERS 31 December 2020 31 December 2020 The components and movements of deferred tax assets and liabilities during the year prior to offsetting are as follows (cont’d.): Deferred tax assets Bank Loan/ financing loss and allowances RM’000 Provisions and other temporary differences RM’000 At amortised cost Fixed deposits and negotiable instruments of deposits Total RM’000 At 1 January 2020 Recognised in statement of profit or loss At 31 December 2020 65,338 111,772 177,110 5,541 (2,655) 2,886 70,879 109,117 179,996 At 1 January 2019 Recognised in statement of profit or loss At 31 December 2019 97,405 (32,067) 65,338 13,634 (8,093) 5,541 111,039 (40,160) 70,879 Deferred tax liabilities Bank Unrealised FVOCI reserve RM’000 Property, plant and equipment RM’000 Group and Bank (a) Total RM’000 At 1 January 2020 Recognised in statement of profit or loss Recognised in other comprehensive income At 31 December 2020 (33,542) 951 (32,619) (65,210) (398) 399 – 1 (33,940) 1,350 (32,619) (65,209) At 1 January 2019 Recognised in statement of profit or loss Recognised in other comprehensive income At 31 December 2019 (2,049) 6,862 (38,355) (33,542) (43) (355) – (398) (2,092) 6,507 (38,355) (33,940) Less than six months Six months to one year One year to three years Three years to five years Over five years 5,346,836 – 5,346,836 4,852,186 639,989 5,492,175 1,462,647 3,884,189 5,346,836 880,874 4,611,301 5,492,175 4,872,156 131,416 161,300 181,964 – 5,346,836 4,893,965 254,946 – 272,454 70,810 5,492,175 19. DEPOSITS AND PLACEMENTS FROM FINANCIAL INSTITUTIONS Group and Bank (a) 2020 RM’000 2019 RM’000 801,092 1,032,669 801,092 1,032,669 The deposits maturity structure are as follows: Less than six months BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 5,492,175 The deposits maturity structure are as follows: At amortised cost Licensed banks 150 5,346,836 The deposits are sourced from the following types of customers: Business enterprises Government and statutory bodies (c) 2019 RM’000 The deposits are sourced from the following types of deposit: Tawarruq Others (b) 2020 RM’000 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 151 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
78. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 20 . OTHER LIABILITIES 21. REDEEMABLE NOTES/SUKUK (CONT’D.) 31 December 2020 Group 2020 RM’000 Provision for taxation Zakat payables Bank guarantee received in advance Trade creditors Security deposits Sundry creditors and accruals 68 12,275 18,460 413 22,730 47,360 101,306 Bank 2019 RM’000 72 24,520 21,763 514 17,094 58,486 122,449 2020 RM’000 – 9,823 17,047 – – 22,757 49,627 2019 RM’000 – 21,350 21,327 – – 37,216 79,893 21. REDEEMABLE NOTES/SUKUK Group and Bank Note 2020 RM’000 2019 RM’000 Redeemable non-guaranteed notes/sukuk Medium term notes Sukuk Murabahah (i) (ii) 404,626 4,041,259 4,445,885 404,695 3,034,278 3,438,973 Redeemable guaranteed notes/sukuk Medium term notes Sukuk Murabahah (iii) (iv) 510,718 3,041,441 3,552,159 510,718 3,041,969 3,552,687 Infrastructure notes – nominal value Less: Unaccreted discount (v) 253,236 (1,964) 251,272 303,883 (2,371) 301,512 8,249,316 7,293,172 (i) This note carries a coupon rate of 6.30% per annum with a tenure of 15 years. This note will mature in April 2021. (ii) These sukuk carry profit rates ranging between 2.80% to 4.98% per annum and for tenures of 5 years to 19 years. These sukuk will mature in March 2022, 2027, 2032, October 2025, 2027, 2030 and November 2026, 2031 and 2035. (iii) These notes carry coupon rates ranging between 4.52% to 5.08% per annum and for tenures of 7 to 15 years. These notes will mature in January 2023 and 2031. (iv) These sukuk carry profit rates ranging between 4.19% to 4.85% per annum and for tenures of 7 to 20 years. These sukuk will mature in September 2021, 2024, 2029 and 2034 respectively. (v) This note has a maturity of 25 years with nominal value of RM250,000,000 (2019: RM300,000,000), which carries a coupon rate of 7.50% (2019: 7.50%) per annum. The note will mature in October 2025. The movements in the redeemable notes/sukuk are as follows: Non-Murabahah BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Murabahah 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 Redeemable non-guaranteed notes/sukuk Principal At 1 January Issued during the year At 31 December 400,000 – 400,000 400,000 – 400,000 3,000,000 1,000,000 4,000,000 3,000,000 – 3,000,000 Accrued interest/profit payable At 1 January Charge for the year Repayment/payment during the year At 31 December 4,695 25,269 (25,338) 4,626 4,695 25,200 (25,200) 4,695 34,278 147,146 (140,165) 41,259 34,656 139,787 (140,165) 34,278 404,626 404,695 4,041,259 3,034,278 500,000 500,000 3,000,000 3,000,000 Accrued interest/profit payable At 1 January 10,718 10,652 41,969 42,202 Charge for the year Repayment/payment during the year At 31 December 24,066 (24,066) 10,718 24,000 (23,934) 10,718 137,101 (137,629) 41,441 137,397 (137,630) 41,969 510,718 510,718 3,041,441 3,041,969 2020 RM’000 2019 RM’000 Group and Bank Redeemable guaranteed notes/sukuk Principal At 1 January/31 December Group and Bank Infrastructure notes Principal At 1 January Repayment during the year At 31 December Unaccreted discount At 1 January Accreted discount during the year At 31 December Accrued interest payable At 1 January Charge for the year Repayment during the year At 31 December 152 FINANCIAL STATEMENTS 31 December 2020 300,000 (50,000) 250,000 350,000 (50,000) 300,000 (2,371) 407 (1,964) (2,778) 407 (2,371) 3,883 21,914 (22,561) 3,236 4,531 25,602 (26,250) 3,883 251,272 301,512 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 153
79. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 22 .BORROWINGS 22. BORROWINGS (CONT’D.) 31 December 2020 31 December 2020 Group and Bank Loans from Employees Provident Fund (“EPF”) Unsecured: Principal Interest Other loans Unsecured: Principal Interest Note Due after twelve months RM’000 Due within twelve months RM’000 (a) 500,000 – 500,000 – 8,466 8,466 1,700,000 – 1,700,000 400,000 24,490 424,490 – – – – – – – – – 50,000 1,238 51,238 500,000 8,466 1,700,000 475,728 Loan 1 Loan 2 22 (b) 508,466 (b) Unsecured: Principal At 1 January Repayment during the year At 31 December 2020 RM’000 2020 RM’000 2,500,000 (400,000) 2,100,000 50,000 (50,000) – The loan is repayable in 10 equal instalments over a period of 5 years, commencing 2024. All the above loans are guaranteed by the Government of Malaysia and bear interest at rates of 4.56% to 5.23% (2019: 4.52% to 5.23%) per annum. Other Loans – unsecured: 24,490 73,459 (89,483) 8,466 28,148 103,511 (107,169) 24,490 1,238 243 (1,481) – 3,726 4,869 (7,357) 1,238 Total borrowings 508,466 2,124,490 – 51,238 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2020 RM’000 2019 RM’000 – – 50,000 50,000 Other loan – unsecured is the loan from PTFC amounting to RM nil (2019: RM50,000,000) and repayable in 10 instalments over a period of 6 years, commencing from 2015. The loan has been fully settled in the current year. 23. INFRASTRUCTURE SUPPORT FUND (“ISF”) Group and Bank Note Accrued interest payable At 1 January Charge for the year Repayment during the year At 31 December 1,600,000 500,000 2,100,000 (ii) 2019 RM’000 150,000 (100,000) 50,000 – 500,000 500,000 The loan has been fully settled in the current year. Loan from: Pension Trust Fund Council (“PTFC”) 2,100,000 (1,600,000) 500,000 2019 RM’000 (i) 2,175,728 Other loans 2019 RM’000 22(a)(i) 22(a)(ii) 2020 RM’000 Group and Bank Principal The movements in borrowings are as follows: Group and Bank Loan from EPF Group and Bank Principal 22 (a) Loans from EPF 154 Due after twelve months RM’000 Note Total borrowings 31 December 2019 Due within twelve months RM’000 FINANCIAL STATEMENTS 31 December 2020 ISF – Novated loans At 1 January/31 December (i) Infrastructure Support Fund At 1 January Stage 1 ECL made during the year against ISF (Note 48(m)) Stage 2 ECL made during the year against ISF (Note 48(m)) Refund of government compensation (Note 31) At 31 December 2020 RM’000 2019 RM’000 303,974 303,974 135,155 (58,562) (79,158) 3,094 529 192 – – 134,963 135,155 304,503 439,129 (ii) (i) The amount relates to financial assistance given by the Government of Malaysia upon novation of loans and the related borrowing to finance the loans to the Bank. The Fund will be utilised to cover any future losses, costs and expenses incurred by the Bank upon the final settlement of the loans. (ii) The amount relates to funds received from the Government to cover losses arising from loan/financing default, any allowance for impairment losses, write-off and other liquidity requirements that may arise from loans/financing given for government infrastructure projects. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 155
80. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 24 . DEFERRED INCOME 26. RESERVES (CONT’D.) 31 December 2020 Group and Bank 2020 RM’000 At 1 January Received from Government during the year Utilised during the year At 31 December 2019 RM’000 212,255 4,338 (14,793) 201,800 At 1 January Unrealised gain on fair value changes Changes in allowance for expected credit losses Transfer to retained profits on the disposal of equity instruments at FVOCI Transfer to deferred tax At 31 December Deferred income relates to amount received from the government for profit rate differentials on a financing given for a government infrastructure project. 25. SHARE CAPITAL Number of shares Issued and fully paid: Ordinary shares of RM1.00 each (iv) Amount 2020 ‘000 2019 ‘000 2020 RM’000 2019 RM’000 3,078,724 3,078,724 3,078,724 3,078,724 Group and Bank Movements of the FVOCI reserve are as follows: Group 219,962 7,056 (14,763) 212,255 FINANCIAL STATEMENTS 31 December 2020 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 160,311 135,508 9,405 5,401 137,827 55,958 159,749 135,116 9,405 6,486 135,660 55,958 (956) (32,438) 271,830 – (38,875) 160,311 179 (32,619) 271,830 – (38,355) 159,749 The exchange translation reserve represents exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from that of the Group’s presentation currency. 27. RETAINED PROFITS The retained profits of the Bank can be distributed as dividends under the single-tier system. 26. RESERVES Group Note Non-distributable: Capital reserve Statutory reserve Unrealised FVOCI reserve Exchange translation reserve Distributable: Retained profits Bank 2019 RM’000 2020 RM’000 2019 RM’000 28. INTEREST INCOME Group 2020 RM’000 26 (i) 26 (ii) 26 (iii) 26 (iv) 27 1,000 2,098,571 271,830 (7,122) 2,364,279 1,000 2,073,366 160,311 (6,997) 2,227,680 – 2,098,571 271,830 – 2,370,401 – 2,073,366 159,749 – 2,233,115 2,506,739 4,871,018 2,576,058 4,803,738 2,297,429 4,667,830 2,374,207 4,607,322 (i) The capital reserve of the Group arose from the capitalisation of bonus issue in certain subsidiaries in previous financial years. (ii) The statutory reserves are maintained in compliance with the requirements of Section 39 of Development Financial Institution Act 2002 (“the Act”) and are not distributable as cash dividends. Under the Act, the Bank is required to transfer at least 25% of its profit after tax, as the statutory reserves is more than 50% but less than 100% of its paid up capital. (iii) 156 2020 RM’000 Loans and advances Loss on loans modification# Compensation from the Government Money at call and deposit placements with financial institutions Financial investments at FVOCI Accretion of discount less amortisation of premium Of which: Interest income earned on impaired loans and advances # Bank 2019 RM’000 2020 RM’000 2019 RM’000 296,575 (516) 70,771 472,451 (2,810) 111,470 288,486 (516) 70,771 460,672 (2,810) 111,470 29,854 122,522 519,206 (19,138) 500,068 64,862 77,560 723,533 (4,943) 718,590 23,242 122,522 504,505 (19,138) 485,367 55,554 77,560 702,446 (4,943) 697,503 3,609 29,931 3,654 29,931 This relates to Rescheduled and Restructured (“R&R”) loans provided prior to 1 January 2020. Unrealised FVOCI reserve represents the cumulative fair value changes and allowance for expected credit loss, net of tax, of FVOCI financial assets until they are disposed of or impaired. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 157
81. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 29 . INTEREST EXPENSE 32. OVERHEAD EXPENSES 31 December 2020 31 December 2020 Group Deposits from customers Deposits and placements from financial institutions Borrowings Redeemable notes Lease Bank Group 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 6,230 11,444 73,701 71,657 17 163,049 48,788 6,139 108,380 75,209 24 238,540 6,230 11,444 73,701 71,657 15 163,047 48,788 6,139 108,380 75,209 21 238,537 Note Personnel costs Establishment related expenses Promotion and marketing expenses General administrative expenses (i) (ii) (iii) (iv) Overhead expenses charged to subsidiaries via SLA 30. NON-INTEREST INCOME Group (a) (b) Investment income: Net gain arising on financial investment at FVTPL: – gross dividend income Net gain arising on financial investment at FVOCI: – net gain on disposal Gross dividend income from subsidiaries Other income: Fee income Rental income: –Subsidiaries – Others Gain on disposal of property, plant and equipment Gain on foreign exchange realised Others Total non–interest income (i) Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 – 25 – 25 49,546 – 49,546 24,138 – 24,163 49,546 – 49,546 24,138 36,040 60,203 2,820 3,598 631 1,037 – 804 322 143 625 4,714 – 1,597 – – 580 5,775 284 804 106 – 67 1,892 321 1,597 – – 27 2,982 54,260 29,938 51,438 63,185 31. REFUND OF GOVERNMENT COMPENSATION 158 During the year, a loan provided to a borrower funded by the ISF has been repaid. As a result of the repayment, an amount of RM3,093,605 (2019: RM134,963,235) relating to the ISF recognised as income in prior years to compensate for impairment allowance made on the borrower was refunded to the ISF and recognised as an expense in the current year. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2019 RM’000 57,564 14,362 2,052 33,133 107,111 73,615 14,119 3,813 21,986 113,533 51,883 13,278 2,051 34,682 101,894 68,082 13,306 3,813 19,943 105,144 – 107,111 – 113,533 (447) 101,447 (617) 104,527 42,300 1,093 407 7,774 5,990 57,564 58,427 1,303 396 7,628 5,861 73,615 37,695 1,064 359 7,033 5,732 51,883 54,052 1,195 349 6,933 5,553 68,082 4,908 7 198 2,637 3,841 10 140 2,447 4,847 7 185 2,504 3,767 8 127 2,273 1,615 4,997 14,362 1,523 6,158 14,119 1,597 4,138 13,278 1,500 5,631 13,306 2,052 3,813 2,051 3,813 13,962 17,984 20,881 – 15,951 17,984 19,266 – 1,107 792 720 494 80 33,133 313 21,986 27 34,682 183 19,943 Promotion and marketing expenses Advertisement and publicity (iv) 2020 RM’000 Establishment related expenses Depreciation: Property, plant and equipment Investment properties Right-of-use assets Amortisation of intangible assets Repairs and maintenance of property, plant and equipment Information technology expenses (iii) 2019 RM’000 Personnel costs Salaries, allowances and bonuses Non-executive Directors’ fees and remuneration Social security cost Pension costs – Defined contribution plan Other staff related expenses (ii) Bank 2020 RM’000 General administrative expenses General administrative expenses Payment to EPF for early settlements of loans Auditors’ remuneration: – Statutory audit – Current year – Non-audit services – regulatory related services BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 159 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
82. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 33 . PRESIDENT/GROUP CHIEF EXECUTIVE OFFICER AND DIRECTORS’ FEES AND REMUNERATION 33. PRESIDENT/GROUP CHIEF EXECUTIVE OFFICER AND DIRECTORS’ FEES AND REMUNERATION (CONT’D.) 31 December 2020 31 December 2020 The total remuneration (including benefits-in-kind) of the President/Group Chief Executive Officer and Directors of the Bank are as follows: Remuneration received from Subsidiary Companies Remuneration received from the Bank 2020 President/Group Chief Executive Officer Arshad bin Mohamed Ismail Non-Executive Directors: Datuk Zaiton binti Mohd Hassan Dato’ Othman bin Semail Dr. Mohamed Ashraf bin Mohamed Iqbal Dato’ Wan Mohd Fadzmi bin Che Wan Othman Fadzilah Ariff bin Rozhan Tan Lye Sim Tan Sri Dr. Rahamat Bivi binti Yusoff Norazilla binti Md Tahir Total Salary RM’000 510 510 Fees RM’000 – – Bonus RM’000 – – Pension cost RM’000 88 88 Other emoluments RM’000 Benefitsin-kind RM’000 74 74 The total remuneration (including benefits-in-kind) of the President/Group Chief Executive Officer and Directors of the Bank are as follows (cont’d.): – – Bank total RM’000 672 672 Fees RM’000 – – Other emoluments RM’000 – – Benefitsin-kind RM’000 – – Group total RM’000 672 672 – 180 – – 121 9 310 – – – 310 – 48 – – 56 – 104 – – – 104 – 48 – – 116 – 164 – 12 – 176 – – – 48 48 34 – – – – – – 91 74 46 – – – 139 122 80 – – – 7 4 – – – – 146 126 80 – 36 – – 53 – 89 – 4 – 93 – – 510 18 460 460 – – – – – 88 38 595 669 – 9 9 56 1,064 1,736 – – – 2 29 29 – – – 58 1,093 1,765 2019 President/Group Chief Executive Officer Arshad bin Mohamed Ismail Non-Executive Directors: Datuk Zaiton binti Mohd Hassan Dato’ Othman bin Semail Dr. Mohamed Ashraf bin Mohamed Iqbal Dato’ Wan Mohd Fadzmi bin Che Wan Othman Fadzilah Ariff bin Rozhan Datuk Wan Azhar bin Wan Ahmad Suffian bin Baharuddin Musa bin Abdul Malek Datuk Seri Hashmudin bin Mohammad Tan Lye Sim Tan Sri Dr. Rahamat Bivi binti Yusoff Total 160 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Remuneration received from Subsidiary Companies Remuneration received from the Bank Salary RM’000 Fees RM’000 Bonus RM’000 Pension cost RM’000 Other emoluments RM’000 Benefitsin-kind RM’000 Bank total RM’000 Fees RM’000 Other emoluments RM’000 Benefitsin-kind RM’000 Group total RM’000 373 373 – – – – 56 56 – – – – 429 429 – – – – – – 429 429 – 175 – – 109 6 290 – – – 290 – 50 – – 86 – 136 – – – 136 – 48 – – 136 – 184 – 26 – 210 – – 34 32 – – – – 63 29 – – 97 61 – – 2 – – – 99 61 – 9 – – 18 – 27 47 14 – 88 – 7 – – 20 – 27 – – – 27 – 7 – – 20 – 27 – – – 27 – – 4 54 – – – – 6 128 – – 10 182 – – – – – – 10 182 – – 373 54 474 474 – – – – – 56 100 715 715 – 6 6 154 1,195 1,624 10 57 57 9 51 51 – – – 173 1,303 1,732 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 161 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
83. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 34 . COMPENSATION TO KEY MANAGEMENT PERSONNEL 37. TAXATION 31 December 2020 31 December 2020 Group Key management personnel are defined as President/Group Chief Executive Officer and Directors of the Bank, executive and non-executive having authority and responsibility for planning, directing and controlling the activities of the Group and the Bank directly or indirectly. The remuneration and compensation of the President/Group Chief Executive Officer and Directors of the Bank during the financial year are as follows: Group Short term employee benefits’ (excluding benefits-in-kind) 2020 RM’000 Income tax expense: Current income tax Over provision in prior years Bank Note 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 33 1,756 1,726 1,727 1,618 33 672 429 672 429 Deferred tax expense: Reversal of temporary differences Under provision in prior years Included in the above are: President/Group Chief Executive Officer and Executive Director’s remuneration (excluding benefits-in-kind) 35. ALLOWANCE FOR IMPAIRMENT LOSSES OF LOANS, FINANCING AND ADVANCES Group 2020 RM’000 Stage 1 – 12-month ECL, net Stage 2 – Lifetime ECL not credit impaired, net Stage 3 – Lifetime ECL credit impaired, net Staff loans/financing: Stage 1 – 12-month ECL, net Impaired loans/financing: Written off Recovered Bank 2019 RM’000 2020 RM’000 2019 RM’000 150,145 (2,265) 147,880 140,011 (68,345) 71,666 148,285 (249) 148,036 133,210 (68,196) 65,014 (110,709) 2,066 (108,643) 39,237 (36,834) 69,001 32,167 103,833 (110,675) 208 (110,467) 37,569 (35,360) 69,013 33,653 98,667 Domestic 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 and zakat at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Bank are as follows: Bank 2019 RM’000 2020 RM’000 Group 2019 RM’000 264,534 405,321 22,251 118,733 (152,567) 132,924 264,895 402,519 13,561 116,081 (151,789) 133,789 (206) – (206) – 2,382 (24,061) 670,221 15,610 (18,926) 95,774 1,689 (21,673) 660,785 13,938 (13,587) 98,432 Profit before taxation and zakat Tax using Malaysian tax rate of 24% (2019: 24%) Income not subject to tax Non-deductible expenses Under provision of deferred tax in prior years Over provision of income tax in prior years Taxation Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 157,540 379,720 147,158 434,733 37,810 (1,953) 3,579 2,066 (2,265) 39,237 91,133 (7,473) 19,517 69,001 (68,345) 103,833 35,318 (1,052) 3,344 208 (249) 37,569 104,336 (7,324) 838 69,013 (68,196) 98,667 36. ALLOWANCES FOR IMPAIRMENT LOSSES ON OTHER ASSETS Group Financial investments at FVOCI Investments in subsidiaries Investment in JV Tenant – written back Allowance for ex-staff loan/financing: Stage 1 – 12-month ECL, net Stage 3 – Lifetime ECL credit impaired, net 162 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 9,405 – – (13) 55,958 – 173 (9) 9,405 659 – (13) 55,958 1,215 – (9) 1 78 9,471 – (17) 56,105 1 78 10,130 – (17) 57,147 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 163 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
84. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 38 . DIVIDENDS 41. CAPITAL ADEQUACY 31 December 2020 Dividends recognised in the current year by the Bank are: 2020 Final 2019 ordinary, net of tax Final 2019 special, net of tax Final 2018 ordinary, net of tax 2019 Sen per share Total amount RM’000 Sen per share Total amount RM’000 3.25 1.69 – 4.94 100,000 52,214 – 152,214 – – 3.25 3.25 – – 100,000 100,000 At the forthcoming Annual General Meeting, a final single tier tax exempt dividend in respect of the financial year ended 31 December 2020, on 3,078,724,049 ordinary shares, amounting to a dividend payable of RM75,000,000 (2.44 sen net per ordinary share) will be proposed for the shareholders’ approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in equity as an appropriation of retained profits in the financial year ending 31 December 2021. 39. EARNINGS PER SHARE (“EPS”) Capital management Capital policy The overall objective of capital management is to maintain a strong capital position in order to provide opportunities for business growth and to provide cushion for any potential losses. In line with this objective, the Bank views capital position as an important key barometer of financial health. Regulatory capital In order to support its mandated roles, the Bank must have strong and adequate capital to support its business activities on an on-going basis. In line with this objective, Bank Negara Malaysia has imposed several regulatory capital requirements whereby, the Bank must have an absolute minimum capital of RM300,000,000 and a minimum Risk Weighted Capital Ratio (“RWCR”) of 8% at all times. The minimum capital funds refer to paid-up capital and reserves as defined in Section 3 of Development Financial Institution Act 2002. In order to further strengthen the capital position of the Bank through a progressive and systematic building up of the reserve fund, the minimum RWCR under both normal and stress scenarios shall not be less than 20% and 12% respectively. The following table sets forth capital resources and capital adequacy for the Bank as at reporting date. Bank 2020 RM’000 The basic/diluted EPS of the Group are calculated by dividing the net profit for the financial year attributable to equity holders of the Bank by the weighted average number of ordinary shares in issue during the financial year. Group Profit attributable to equity holders of the Bank (RM’000) –operations Number of ordinary shares in issue (‘000) Basic/diluted EPS (sen) for: –operations 2020 2019 107,144 251,770 3,078,724 3,078,724 3.48 8.18 40. COMMITMENTS AND CONTINGENCIES (a) Loan and financing related commitments and contingencies of the Group and the Bank which are not included in these financial statements are as follows: Group Disbursement of loans/financing to industries Secured guarantees on behalf of borrowers/customers given to third parties (b) Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 5,029,365 5,230,637 4,596,974 5,011,830 2,317,596 7,346,961 2,301,585 7,532,222 2,317,596 6,914,570 2,301,585 7,313,415 Capital commitments of the Group and the Bank which are not included in these financial statements are as follows: Group Capital expenditure: Approved but not contracted for 164 FINANCIAL STATEMENTS 31 December 2020 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 29,802 50,522 29,282 50,522 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2019 RM’000 Tier 1 capital Paid-up share capital Other reserves Less: Deferred tax asset Total Tier 1 capital 3,078,724 4,667,830 (114,787) 7,631,767 3,078,724 4,607,322 (36,939) 7,649,107 Tier 2 capital Government support funds Stage 1 and Stage 2 ECL Total Tier 2 capital 506,303 1,802,285 2,308,588 651,384 1,135,077 1,786,461 Total capital Less: Investment in subsidiaries Total capital base 9,940,355 (254,767) 9,685,588 9,435,568 (255,426) 9,180,142 Breakdown of risk-weighted assets in the various categories of risk-weights: Bank 20% 50% 100% 2020 RM’000 2019 RM’000 198,596 1,240,387 21,175,598 22,614,581 661,234 1,339,339 21,641,645 23,642,218 Without deducting proposed dividend: Bank Core capital ratio RWCR 2020 % 2019 % 33.747 42.829 32.354 38.829 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 165
85. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 41 . CAPITAL ADEQUACY (CONT’D.) 42. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES 31 December 2020 Capital management (cont’d.) Regulatory capital (cont’d.) After deducting proposed dividend: 31 December 2020 Bank Core capital ratio RWCR 2020 % 2019 % 33.415 42.497 31.710 38.186 Capital monitoring The Bank’s capital is closely monitored and actively managed. Besides the regulatory capital requirement of 8%, the Bank sets an internal capital requirement limit that would act as a buffer to the regulatory capital and as an indicator that affords the Bank a “well capitalised” status. Internal capital limit and regulatory capital requirement shall be closely monitored, regularly reviewed and reported to Management and Board of Directors. BNM Policy Document on Transitional Arrangement for Regulatory Capital Treatments of Accounting Provisions for DFI On 11 December 2020, the Bank elected to apply the BNM Policy Document on Transitional Arrangement for Regulatory Capital Treatments of Accounting Provisions for DFI issued on 9 December 2020. The Policy Document was applied by the Bank in its financial statements for the current financial year ended 31 December 2020 and will be applied for the next three-year financial years up to 31 December 2023. For the purpose of these financial statements, parties are considered to be related to the Group if the Group or the Bank has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group or the Bank and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. The Government of Malaysia (“GOM”) is a shareholder with significant influence on the Bank, with direct shareholding of 99.99% (2019: 99.99%). GOM and entities directly controlled by GOM are collectively referred to as government-related entities to the Group and the Bank. Related parties also include key management personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group and the Bank either directly or indirectly. The key management personnel includes all the Directors of the Bank as disclosed in Note 34. The Group has related party relationships with its substantial shareholders, subsidiaries, associates and key management personnel. Related party transactions have been entered into in the normal course of business under normal trade terms. The Group established credit policies, pricing strategy and approval process for loans/financing, which are independent of whether the counter parties are government-related entities or not. The significant related party transactions and balances of the Group and the Bank are as follows: 42.1 Significant balances and transactions with a significant shareholder (a) Significant balances with a significant shareholder Group and Bank Financial impact analysis based on the Policy Document is tabulated below: Bank Other assets Amount receivable from Government in respect of compensation for: Foreign exchange differences Infrastructure projects Exposures Amount RM’000 Add-back Total Stage 1 and Stage 2 ECL as at reporting date Total Stage 1 and Stage 2 ECL as at beginning of the year on the year of election Add-back factor as at reporting date during the year 667,208 1,802,285 1,135,077 100% (b) Total Tier 1 Capital of which: Total Add-back Total Additional Tier 1 Capital Total Tier 2 Capital of which: Loss provisions Total RWA After Transitional Arrangement RM’000 7,631,767 – – 2,308,588 1,802,285 22,614,581 8,298,975 667,208 667,208 1,641,380 1,135,077 22,614,581 2019 RM’000 85,361 146,937 85,361 109,216 Significant transactions with a significant shareholder Group and Bank Bank Before Transitional Arrangement RM’000 2020 RM’000 2020 RM’000 2019 RM’000 Conventional Interest compensation from Government of Malaysia Refund of government compensation 70,771 3,094 111,470 134,963 Islamic Profit compensation from Government of Malaysia Stage 1 ECL made during the year against ISF Stage 2 ECL made during the year against ISF Fee income from Unit Kerjasama Awam Swasta (“UKAS”) 33,069 58,562 79,158 785 17,894 – – 572 Bank Tier 1 Capital Total Capital 166 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Before Transitional Arrangement Ratio (%) After Transitional Arrangement Ratio (%) 33.747 42.829 36.697 42.829 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 167 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
86. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 42 . SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONT’D.) 42. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONT’D.) 31 December 2020 31 December 2020 42.2 Significant balances and transactions with a significant shareholder’s linked companies and bodies (a) Significant balances with a significant shareholder’s linked companies and bodies Group Assets Short term deposits Deposits and placements with financial institution Financial investments at FVOCI Liabilities Deposits from customers Deposits and placements from financial institutions Redeemable notes Borrowings ISF Deferred income (b) 42.2 Significant balances and transactions with a significant shareholder’s linked companies and bodies (cont’d.) (b) Significant transactions with a significant shareholder’s linked companies and bodies (cont’d.) Bank Group 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 917,800 185,772 5,712,727 2,524,345 924,915 4,629,258 754,775 51,137 5,712,727 2,257,815 882,828 4,624,313 5,333,740 5,492,175 5,333,740 5,492,175 500,650 8,249,316 508,466 304,503 201,800 702,107 7,293,172 2,175,728 439,129 212,255 500,650 8,249,316 508,466 304,503 201,800 702,107 7,293,172 2,175,728 439,129 212,255 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 14,429 41,853 41,632 39,607 14,100 41,853 40,637 39,607 2,986 155 16,041 – 2,986 250 16,041 – (132,865) (284,248) (194,857) (277,184) (132,865) (284,248) (194,857) (277,184) Islamic Income Finance income from deposits and placements with financial institutions Financial investments at FVOCI Accretion of discount less amortisation of premium Rental income Expenses Income attributable to the depositors: Deposits from customers and financial institutions Sukuk Significant transactions with a significant shareholder’s linked companies and bodies Group 2020 RM’000 Bank 2019 RM’000 2020 RM’000 2019 RM’000 Conventional 42.3 Significant balances and transactions with subsidiaries, associates and JVs (a) Significant balances with subsidiaries, associates and JVs Bank Income Money at call and deposit placements with financial institutions Financial investments at FVOCI Amortisation of premium less accretion of discount Dividend from financial investments at FVTPL Dividend from subsidiaries Rental income Expenses Interest expense on: Deposits from customers and financial institutions Borrowings Redeemable notes 168 29,765 116,533 63,047 75,034 23,153 116,533 53,738 75,034 (19,138) – – 804 (4,943) 25 – 1,597 (19,138) – – 1,088 (4,943) 25 36,040 1,918 2020 RM’000 2019 RM’000 51 1,716 44 546 Conventional Loans to subsidiaries Payment on behalf of subsidiary (b) Significant transactions with subsidiaries, associates and JVs Bank 2020 RM’000 2019 RM’000 Income Rental income from subsidiaries Fee Income from subsidiaries 379 447 321 617 Expenses Management fee expense from subsidiaries (12) (12) Conventional (13,561) (73,701) (71,657) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 (54,528) (108,380) (75,209) (13,561) (73,701) (71,657) (54,528) (108,380) (75,209) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 169 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
87. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 42 . SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONT’D.) 44. ASSETS CLASSIFIED AS HELD FOR SALE 31 December 2020 31 December 2020 Group 42.4 Significant balances and transactions with Group’s related parties (a) 2020 RM’000 Significant balances with the Group’s related parties Group 2020 RM’000 2019 RM’000 9,226 9,468 5 – Other assets Trade receivables due from related parties At 1 January Disposed during the financial year Transfer from investment properties At 31 December The credit exposures above are based on paragraph 9.1 of BNM revised Guidelines on Credit Transactions and Exposures with related parties as follows: (i) Directors of the Bank and their close relatives; (ii) Controlling shareholder of the Bank and his close relatives; (iii) Executive officer, being a member of management having authority and responsibility for planning, directing and/or controlling activities of the Bank and his close relatives; On 21 February 2019, a subsidiary had entered into Sales and Purchase Agreements (“SPAs”) with a purchaser for the disposal of building in Pahang for a total cash consideration of RM332,000 subject to the terms and conditions as stipulated in the SPAs. The transaction has been completed on 21 February 2020. (ii) On 4 February 2019, a subsidiary had entered into SPAs with a purchaser for the disposal Land for a total cash consideration of RM138,000 subject to the terms and conditions as stipulated in the SPAs, specifically the transfer of title for the land. The transaction has been completed on 2 February 2020. Officers who are responsible for or have 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 an entity controlled by the Bank and its connected parties. 45. COMPANIES IN THE GROUP (a) (iv) Credit transactions and exposures to connected parties as disclosed above include the extension of credit facilities and/or off-balance sheet credit exposures such as guarantees, trade-related facilities and loan/financing commitments. The subsidiaries, all incorporated in Malaysia, are as follows: Effective interest held by the Bank 2020 % 2019 % BPMB Urus Harta Sdn Bhd 100.00 100.00 Dormant Emerald Upline Sdn Bhd 100.00 100.00 Dormant 90.00 90.00 Maju Nominees (Tempatan) Sdn Bhd 100.00 100.00 Nominee for the holding company Pembangunan Leasing Corporation Sdn Bhd 100.00 100.00 Lease, hire purchase financing, factoring, block discounting and investment holding SME Growth Acceleration Fund Sdn Bhd 100.00 100.00 Venture capital investment Subsidiary Global Maritime Ventures Berhad 43. LOANS/FINANCING FACILITIES WITH CONNECTED PARTIES Group and Bank 2020 Credit facility and leasing (except guarantee) Total Total exposure to connected parties as % of total capital Total exposure to connected parties as % of total outstanding financial exposure 170 – – 254 254 (i) Other liabilities Trade payables due to related parties 254 (254) – – 2019 RM’000 Principal activities Venture capital investment 2019 Total Exposure RM’000 Impaired RM’000 Total Exposure RM’000 Impaired RM’000 1,311,645 1,311,645 276,177 276,177 917,463 917,463 276,177 276,177 14% 3% 11% 3% 4% 1% 3% 1% The above disclosure on loans/financing facilities with connected parties is presented in accordance with para 14.1 as per BNM’s policy on loans/financing facilities with connected parties, which became effective on 13 July 2016. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 171 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
88. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 45 . COMPANIES IN THE GROUP (CONT’D.) 45. COMPANIES IN THE GROUP (CONT’D.) 31 December 2020 (b) 31 December 2020 Details of subsidiary companies of Global Maritime Ventures Berhad, all of which are incorporated in Malaysia, are as follows: (e) Details of subsidiary companies of Pembangunan Leasing Corporation Sdn Bhd (“PLC”), all of which are incorporated in Malaysia, are as follows: Effective interest held by the Bank 2020 % 2019 % Nilam Navigation Sdn Bhd # 63.00 63.00 Dormant Sari Navigation Sdn Bhd # 63.00 63.00 Dormant Glory Incentive Sdn Bhd 90.00 90.00 Investment holding GMV-Alam Sdn Bhd 90.00 90.00 Investment holding GMV-Bahtera Sdn Bhd 90.00 90.00 Investment holding GMV-Borcos Sdn Bhd # 90.00 90.00 Investment holding GMV-Gagasan Sdn Bhd # 90.00 90.00 Investment holding GMV-Global Sdn Bhd # 90.00 90.00 Investment holding GMV-Efogen Sdn Bhd # 90.00 90.00 Investment holding GMV-Jasa Sdn Bhd * – 90.00 Investment holding GMV-Omni Sdn Bhd * – 90.00 Investment holding GMV-Regional Sdn Bhd 90.00 90.00 Dormant GMV-Offshore Sdn Bhd 90.00 90.00 Investment holding Subsidiary (c) Effective interest held by the Bank Principal activities Subsidiary Ayu Navigation Sdn Bhd (d) 2020 % 2019 % 63.00 63.00 Bahtera Berlian Sdn Bhd # 172 2020 % 2019 % 90.00 90.00 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 100.00 Hire purchase financing, factoring, insurance agency and letting of properties BI Credit & Leasing 100.00 100.00 Credit and leasing # Placed under creditors voluntary liquidation. * Represent companies dissolved during the year. The Group’s and the Bank’s financial risk management policies seek to enhance shareholder’s value. The Group and the Bank focus on the enterprise wide risk exposure, which include credit, market, liquidity and operational risk and seek to minimise potential adverse effects on the financial performance of the Group and the Bank. As part of the Group’s and the Bank’s strategy to integrate the management and control of risks across the various risk segments, a dedicated function known as the Group Risk Management had been established. Financial risk management is carried out through risk assessment and reviews, internal control systems and adherence to Group financial risk management policies, which are reported to and approved by the Board of Directors (“BOD”). The BOD also approves the treasury policies, which cover the management of these risks. The main areas of financial risks faced by the Group are set out as follows: (a) Credit risk Credit risk is the potential loss of revenue, either principal or profit or both, arising from customers or counterparties’ failure or unwillingness to honour their contractual financial obligations in accordance with the agreed terms and. It arises primarily from financing activities through financing as well as commitments to support customers’ obligations to third parties i.e. guarantee. Trading and investing the surplus funds of the Bank, such as trading or holding of debt securities and deposit placements also expose the Bank to credit risk. Credit risk management activities conducted by the Bank are within Credit Risk Management Framework and policies approved by the Board of Directors, which entails the entire credit value chain starting from credit risk assessment, credit approval, credit risk measurement, credit risk monitoring, credit concentration, problem credits, credit risk reporting and independent review. Credit risk is principally managed through the establishment of financing directions, internal controls, risk appetite, policies and guidelines to enhance financing asset quality. Credit processes are structured to ensure adherence to credit policies and to establish impartiality in financing origination, approval, documentation, disbursement and settlement. The Bank has been proactively managing its credit risk exposures within acceptable parameters to enable the Bank to pursue its business directions sustainably. All credit proposals are rated using an internal two dimensional credit rating system, which include the estimate of PD, LGD and EAD for all credit exposures to measure each customer’s risk of default and facility risk. The Bank’s internal credit rating scorecards have been periodically updated, with the latest review concluded in 2020, so as to ensure that the credit rating model remained robust and relevant with the changing business environment. The Bank embraces prudent credit decision making and only viable financing proposals with well-mitigated risk are considered for financing. Credit reviews on existing customers are performed at least once a year and more frequent on watch-list accounts to proactively manage any delinquencies, maximise recoveries and to ensure timely recognition of asset impairment and/or provisions. The staging of accounts are assessed according to the established triggers for MFRS 9 accounting standard in identifying significant increase in customer’s credit risk. Dormant Principal activities Ship-management 100.00 Financial risk management objectives and policies Effective interest held by the Bank Subsidiary PLC Credit & Factoring Sdn Bhd Principal activities Principal activities Details of a subsidiary company of GMV-Global Sdn Bhd, which is incorporated in Malaysia, are as follows: 2019 % 46. FINANCIAL INSTRUMENTS RISK Details of subsidiary companies of Glory Incentive Sdn Bhd (“GISB”), all of which are incorporated in Malaysia, are as follows: Effective interest held by the Bank 2020 % Subsidiary BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 173 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
89. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) 31 December 2020 (a) Credit risk (cont’d.) In addition, the Bank has in place the Early Warning Signal (“EWS”) guidelines which serve as an overarching document/ process for assessing and monitoring credit risk to safeguard the Bank’s assets. Prudential limits are established according to various categories such as customer and industry sector to minimise concentration risk. Single Customer Limit (“SCL”) captures Group exposure to manage the Bank’s and subsidiaries’ concentration risk to common group of customers at group level. (a) Sector limit for commercial financing is being observed to monitor undesirable concentration which could expose the Bank to higher risk of financing. Meanwhile, counterparty limits are in place to control over exposure to a single financial institution. Collateral is taken whenever possible to mitigate reduce credit risk exposure at default. The value of collateral is monitored periodically through updated valuation. Policies and processes are in place to monitor collateral value. The overall credit risk management is subject to an ongoing process for reviewing and enhancement from time to time so as to be in line with regulatory requirements. Audit is periodically performed by the Group Internal Audit to ensure that credit policies and procedures are complied with. Credit risk oversight is provided by Board Credit Committee (“BCC”). For application of financing for connected parties, such application is subject to the approval of the BOD. (i) Credit exposure Group 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 4 1,035,238 2,648,922 861,787 2,371,020 5 6 7 8 9 185,772 45,566 6,021,866 15,584,069 249,811 23,122,322 924,915 – 4,917,850 15,701,772 213,535 24,406,994 51,137 45,566 6,021,866 15,394,417 240,927 22,615,700 882,828 – 4,917,850 15,545,685 200,976 23,918,359 353,357 23,475,679 256,110 24,663,104 592,807 23,208,507 493,017 24,411,376 7,346,961 30,822,640 7,532,222 32,195,326 6,914,570 30,123,077 7,313,415 31,724,791 Note On balance sheet: Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVTPL Financial investments at FVOCI – debt Loans, financing and advances Other assets Other assets not subject to credit risk Off balance sheet: Commitments and Contingencies Bank 40(a) Credit risk (cont’d.) (ii) The following table sets out the credit risk concentration by economic sectors: Group BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Short-term deposits, and placements with financial institutions RM’000 Financial investments at FVTPL RM’000 Financial investments at FVOCI RM’000 Loans, financing and advances RM’000 Other assets RM’000 Total RM’000 Commitments and contingencies RM’000 – – – – – – – 673,951 – 11 8,587,263 1,616,395 – – – 11 9,261,214 1,616,395 – 4,231,300 492,237 – – 441,173 43,242 – 484,415 28,352 1,221,010 – 4,074,976 99,908 – 5,395,894 109,403 – – – – – – – – – – 15,950 – 773,089 4,622 206,313 296,824 – – – – 773,089 4,622 222,263 296,824 613,017 – 512,763 150,025 – – – 9,967 – 9,967 – – – 122,896 304,495 – 427,391 580,939 – – – 7,756 – 7,756 – – – – – 45,566 – 616,634 76,286 – 328,930 586,734 64,922 – – – 945,564 708,586 64,922 400,000 93,807 – – – 1,221,010 – – 45,566 – 2,653,598 – – 6,021,866 15,584,069 – 2,653,598 249,811 249,811 249,811 23,122,322 135,118 – 7,346,961 – 1,221,010 – 45,566 – – 6,021,866 15,584,069 353,357 353,357 603,168 23,475,679 – 7,346,961 2020 Agriculture, hunting and forestry Construction Education Electrical, gas and water supply Finance, insurance/ takaful and business Hotel and restaurants Housing Manufacturing Marine related Medical and pharmaceuticals Other community, social and personal service activities Public administration and defence Real estate, renting and business activities Shipping Shipyard Transport, storage and communications Others Other assets not subject to credit risk 174 FINANCIAL STATEMENTS 31 December 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 175
90. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) (a) 31 December 2020 Credit risk (cont’d.) (ii) (a) The following table sets out the credit risk concentration by economic sectors (cont’d.): Group Short-term deposits, and placements with financial institutions RM’000 Financial investments at FVOCI RM’000 Loans, financing and advances RM’000 Other assets RM’000 Total RM’000 2019 Agriculture, hunting and forestry Construction Education Electrical, gas and water supply Finance, insurance/takaful and business Hotel and restaurants Housing Manufacturing Marine related Material technology Medical and pharmaceuticals Other community, social and personal service activities Public administration and defence Real estate, renting and business activities Shipping Shipyard Transport, storage and communications Others Other assets not subject to credit risk Credit risk (cont’d.) (ii) Commitments and contingencies RM’000 The following table sets out the credit risk concentration by economic sectors (cont’d.): Bank Short-term deposits, and placements with financial institutions RM’000 Financial investments at FVTPL RM’000 Financial investments at FVOCI RM’000 Loans, financing and advances RM’000 Other assets RM’000 Total RM’000 Commitments and contingencies RM’000 – – – – 673,951 – 8,584,813 1,616,395 – – 9,258,764 1,616,395 4,177,860 492,237 – – 441,173 43,242 – 484,415 28,352 912,924 – 4,074,976 – – 4,987,900 – – – – – – – – – – – 15,950 – 721,882 4,622 202,623 296,824 – – – – 721,882 4,622 218,573 296,824 444,237 – 444,365 150,025 – – – 9,967 – 9,967 – – – 122,896 298,017 – 420,913 559,289 – – – 7,756 – 7,756 – – – – – 45,566 – 616,634 76,286 – 328,930 586,734 64,922 – – – 945,564 708,586 64,922 400,000 93,807 – – – 912,924 – – 45,566 – 2,627,690 – – 6,021,866 15,394,417 – 2,627,690 240,927 240,927 240,927 22,615,700 124,398 – 6,914,570 – 912,924 – 45,566 – – 6,021,866 15,394,417 592,807 592,807 833,734 23,208,507 – 6,914,570 2020 – – – – – 476,606 – 377,457 10 8,095,058 1,714,907 75,939 – – – – 10 8,571,664 1,714,907 453,396 – 4,446,183 500,396 73,690 3,573,837 – – – – – – 3,329,650 – – 21,188 – – – 89,089 758,757 5,004 257,821 159,919 – 11,709 – – – – – – – 6,992,576 758,757 5,004 279,009 159,919 – 11,709 2,038 772,465 – 119,794 219,210 300,000 – – – 240,091 – 240,091 620,619 – – 14,662 – 14,662 – – – – 671,319 41,630 – 339,073 693,882 104,953 – – – 1,010,392 735,512 104,953 97,000 332,642 – – – 3,573,837 – 3,140,898 – – 4,917,850 15,701,772 – 3,140,898 213,535 213,535 213,535 24,406,994 38,740 9,445 7,532,222 – 3,573,837 – – 4,917,850 15,701,772 256,110 256,110 469,645 24,663,104 – 7,532,222 Construction Education Electrical, gas and water supply Finance, insurance/ takaful and business Hotel and restaurants Housing Manufacturing Marine related Medical and pharmaceuticals Other community, social and personal service activities Public administration and defence Real estate, renting and business activities Shipping Shipyard Transport, storage and communications Others Other assets not subject to credit risk 176 FINANCIAL STATEMENTS 31 December 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 177
91. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) (a) 31 December 2020 Credit risk (cont’d.) (ii) (a) The following table sets out the credit risk concentration by economic sectors (cont’d.): Bank Short-term deposits, and placements with financial institutions RM’000 (iii) Gross loans, financing and advances are rated based on internal rating by the Bank: Financial investments at FVOCI RM’000 Other assets RM’000 Total RM’000 Commitments and contingencies RM’000 Other assets not subject to credit risk 178 2019 Neither past due nor impaired RM’000 Past due but not impaired RM’000 Impaired RM’000 105,405 4,911,760 6,168,128 529 20,833 7,323 – – – Total RM’000 Neither past due nor impaired RM’000 Past due but not impaired RM’000 Impaired RM’000 Total RM’000 105,934 4,932,593 6,175,451 957,412 4,156,086 7,271,743 1,347 4,096 17,402 – – – 958,759 4,160,182 7,289,145 Group 2019 Construction Education Electrical, gas and water supply Finance, insurance/takaful and business Hotel and restaurants Housing Manufacturing Marine related Material technology Medical and pharmaceuticals Other community, social and personal service activities Public administration and defence Real estate, renting and business activities Shipping Shipyard Transport, storage and communications Others Credit risk (cont’d.) 2020 Loans, financing and advances RM’000 FINANCIAL STATEMENTS 31 December 2020 – – – 476,606 – 377,457 8,095,025 1,714,907 75,939 – – – 8,571,631 1,714,907 453,396 4,416,183 500,396 73,690 3,253,848 – – – – – – 3,329,650 – – 21,188 – – – – 737,249 5,004 251,153 159,919 – 11,709 – – – – – – – 6,583,498 737,249 5,004 272,341 159,919 – 11,709 – 640,370 – 88,778 219,210 300,000 – – – 229,011 – 229,011 620,619 – – 14,662 – 14,662 – – – – 671,319 41,630 – 339,073 693,882 104,953 – – – 1,010,392 735,512 104,953 97,000 332,642 – – – 3,253,848 – 3,113,199 – – 4,917,850 15,545,685 – 3,113,199 200,976 200,976 200,976 23,918,359 24,527 – 7,313,415 – 3,253,848 – – 4,917,850 15,545,685 493,017 493,017 693,993 24,411,376 – 7,313,415 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Upper-medium grade Medium grade Speculative Considered speculative Poor standing Impaired 4,747,168 568,042 – 16,500,503 13,570 – 4,760,738 3,408,134 78,748 – 646,790 162,013 – 2,116,328 2,116,328 – 121,003 2,116,328 18,737,834 15,955,388 43,761 – 3,451,895 – – 162,013 – 2,216,787 2,216,787 66,606 2,216,787 18,238,781 Bank Upper-medium grade Medium grade Speculative Considered speculative Poor standing Impaired 91,353 4,839,998 6,086,502 4,747,168 568,042 – 16,333,063 – – – – – – 91,353 4,839,998 6,086,502 934,377 4,114,336 7,201,992 13,570 – 4,760,738 3,408,134 78,748 – 646,790 162,013 – 2,093,919 2,093,919 – 92,318 2,093,919 18,519,300 15,820,852 – – – – – – 934,377 4,114,336 7,201,992 38,573 – 3,446,707 – – 162,013 – 2,200,280 2,200,280 38,573 2,200,280 18,059,705 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 179
92. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) (a) 31 December 2020 Credit risk (cont’d.) (a) Credit risk (cont’d.) (iv) Aging analysis of impaired and past due but not impaired loans, financing and advances (v) Collateral and credit enhancement for loans, financing and advances (cont’d.) Collateral by amount Analysis of loans, financing and advances that are impaired and past due but not impaired based on the Group’s and the Bank’s internal credit rating system are as follows: Group Impaired: 0 month overdue 1 month overdue 2 months overdue 3 months overdue > 3 months overdue Past due but not impaired: 1 Month Overdue 2 Months Overdue 3 Months Overdue 2019 RM’000 2020 RM’000 2019 RM’000 360,600 1,518 52,742 109,577 1,591,891 2,116,328 92,339 – – 32,156 2,092,301 2,216,796 360,600 1,518 52,742 109,577 1,569,482 2,093,919 92,339 – – 32,156 2,075,785 2,200,280 2019 Secured RM’000 Unsecured RM’000 Total RM’000 Total Estimated fair value of collateral RM’000 Secured RM’000 Unsecured RM’000 Total RM’000 Total Estimated fair value of collateral RM’000 Group Past due but not impaired Impaired 92,318 1,467,292 1,559,610 28,685 121,003 261,822 38,573 649,036 2,116,328 3,422,962 1,493,694 677,721 2,237,331 3,684,784 1,532,267 28,033 66,606 280,000 723,093 2,216,787 3,501,640 751,126 2,283,393 3,781,640 92,318 1,467,292 1,559,610 – 92,318 261,822 38,573 626,627 2,093,919 3,422,962 1,493,694 626,627 2,186,237 3,684,784 1,532,267 – 38,573 280,000 706,586 2,200,280 3,501,640 706,586 2,238,853 3,781,640 Bank 104,848 11,194 4,961 121,003 37,745 41,609 6,365 85,719 92,318 – – 92,318 – 38,573 – 38,573 (v) Collateral and credit enhancement for loans, financing and advances Collateral represents the asset pledged by a borrower/customer and/or a third party on behalf of the borrower/ customer, in whole or in part, to secure a credit exposure and/or potential credit exposure with the Bank, and subject to seizure in the event of default. Collateral provides to the Bank with a secondary repayment/payment source, i.e. a source of fund to help recover its investment if the borrower/customer is unable to repay/pay the facility obtained from the Bank. 2020 Bank 2020 RM’000 FINANCIAL STATEMENTS 31 December 2020 The Group and the Bank would consider accepting the collateral based on its marketability, measurability, stability, transferability, speed in realising the collateral value, enforceability and free from encumbrances. The collateral amounts and types held by the Group and the Bank are as in the next page: Past due but not impaired Impaired Collateral by type 2020 Guarantee by CGC RM’000 Properties and equipment RM’000 2019 Vessels RM’000 Total RM’000 Guarantee by CGC RM’000 Properties and equipment RM’000 Vessels RM’000 Total RM’000 Group Past due but not impaired Impaired – 261,822 35,066 2,730,030 35,066 2,991,852 – 261,822 657,866 3,422,962 657,866 3,684,784 – 280,000 5,166 2,807,255 5,166 3,087,255 – 280,000 689,219 3,501,640 689,219 3,781,640 – 261,822 35,066 2,730,030 35,066 2,991,852 – 261,822 657,866 3,422,962 657,866 3,684,784 – 280,000 5,166 2,807,255 5,166 3,087,255 – 280,000 689,219 3,501,640 689,219 3,781,640 Bank Past due but not impaired Impaired 180 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 181
93. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) (a) 31 December 2020 Credit risk (cont’d.) (b) (i) Interest/profit rate risk (cont’d.) The table below summarises the Group’s and the Bank’s exposure to interest/profit rate risk. The table indicates effective average interest/profit rates at the reporting date and the periods in which the financial instruments reprice or mature, whichever is earlier. Restructured loans/financing refer to the financial assets that would otherwise be past due or impaired where there are fundamental revision in the principal terms and conditions of the facilities. Restructuring shall be considered when the customer’s business is still viable and is expected to remain viable after the restructuring. The total restructured loans/financing held by the Group and the Bank stood at RM9,935.2 million (2019: RM8,523.5 million). Group 2020 RM’000 2019 RM’000 Financial investments at FVOCI Sovereign AAA AA BBB Non-rated 4,089,966 933,592 409,421 109,669 479,218 6,021,866 3,188,895 846,388 329,210 98,527 454,830 4,917,850 4,089,966 933,592 409,421 109,669 479,218 6,021,866 3,188,895 846,388 329,210 98,527 454,830 4,917,850 Market risk (i) Interest/profit rate risk Interest/profit rate risk is the impact to earnings and economic value of the Group and the Bank due to fluctuations in interest/profit rates. Interest/profit rate exposure arises from the differences in the maturities and repricing dates of assets, liabilities and off-balance sheet items. These mismatches are actively monitored and managed as part of the overall interest/profit rate risk management process which is conducted in accordance with the Group’s policies as approved by the BOD. The table below shows the Group’s and the Bank’s net interest/finance income sensitivity based on possible parallel shift in interest/profit rate. Group and Bank Impact on interest/ profit 2020 RM’000 Interest/profit rate – parallel shift + 50 basis points – 50 basis points 8,390 (8,390) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Impact on interest/ profit 2019 RM’000 17,267 (17,267) Up to 1 month RM’000 >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 years RM’000 Noninterest/ profit sensitive RM’000 Total RM’000 Effective interest/ profit rate % 1,021,813 – – – – 13,425 1,035,238 2.02 – 185,772 – – – – 185,772 – – – – – – 45,566 45,566 – 57,466 – 24,982 1,599,134 4,340,284 109,672 6,131,538 4.43 281,437 – – 1,360,716 265,188 – – 450,960 844,502 4,420,222 10,798,395 11,762 16,621,506 – – – (1,037,437) (1,037,437) – – – 249,811 249,811 869,484 6,019,356 15,138,679 (607,201) 23,231,994 6.09 – – 2020 Bank 2019 RM’000 Non-trading book Group The table below shows treasury credit risk exposures by the current counter parties’ rating: 2020 RM’000 182 Market risk (cont’d.) (vi) Restructured loans/financing (vii) Credit quality for treasury credit risk exposures (b) FINANCIAL STATEMENTS 31 December 2020 Impact on equity 2020 RM’000 Impact on equity 2019 RM’000 (205,827) 205,827 (184,399) 184,399 Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVTPL Financial investments at FVOCI Financial investments at amortised cost Loans, financing and advances –non-impaired –impaired * Other assets Total assets * This is arrived at after deducting Stage 1, Stage 2 and Stage 3 ECL from the outstanding gross impaired loans/financing. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 183
94. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) (b) 31 December 2020 Market risk (cont’d.) (i) (b) Interest/profit rate risk (cont’d.) FINANCIAL STATEMENTS 31 December 2020 Market risk (cont’d.) (i) Interest/profit rate risk (cont’d.) Non-trading book Group Up to 1 month RM’000 >1 – 3 months RM’000 >3 – 12 months RM’000 Non-trading book >1 – 5 years RM’000 Over 5 years RM’000 Noninterest/ profit sensitive RM’000 Total RM’000 Effective interest/ profit rate % Group 2020 (cont’d.) 2019 Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI Loans, financing and advances –non-impaired –impaired * Other assets Total assets 1,947,848 1,934,272 1,069,461 395,255 – – 5,346,836 2.50 601,092 – 200,000 – – – – – – – – 101,306 801,092 101,306 1.87 – 101,280 8,466 – – – – 8,249,316 508,466 4.61 4.87 – – – 2,658,686 – – – 2,134,272 304,503 304,503 201,800 201,800 344 344 607,953 15,513,663 – – – 1,100,000 1,883,036 – 150,000 5,165,000 350,000 – – – – – – – – – 2,169,461 2,428,291 5,515,000 Total interest/profit sensitivity gap (1,297,970) (1,683,312) (1,299,977) 3,591,065 9,623,679 (1,215,154) 7,718,331 Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities Total interest/profit sensitivity gap * 184 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Up to 1 month RM’000 >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 years RM’000 Noninterest/ profit sensitive RM’000 2,634,616 – – – – 14,306 2,648,922 3.23 – 924,915 – – – – 924,915 – 51,269 – – 1,051,313 3,815,267 106,116 5,023,965 4.33 161,095 – – 2,846,980 201,778 – – 1,126,693 12,441 16,021,985 (320,222) (320,222) 213,535 213,535 26,176 24,513,100 6.41 – – 1,163,140 1,838,281 2,079,982 321,179 89,593 – 5,492,175 3.79 882,669 – 150,000 – – – – – – – – 122,449 1,032,669 122,449 3.25 – 93,172 75,728 – – – 2,350,000 4,850,000 400,000 1,250,000 450,000 – – 7,293,172 2,175,728 4.85 4.72 – – – 2,214,709 – – – 1,988,281 – – – – – – – – – 2,479,982 3,921,179 5,389,593 439,129 439,129 212,255 212,255 354 354 774,187 16,767,931 – – – 632,271 696,590 3,729,658 11,220,423 – – – – – – 696,590 4,780,971 15,035,690 (861,588) (1,783,392) 859,792 9,646,097 Total RM’000 Effective interest/ profit rate % (748,011) 7,745,169 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 ECL from the outstanding gross impaired loans/financing. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 185
95. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 31 December 2020 FINANCIAL STATEMENTS 31 December 2020 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) (b) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) Market risk (cont’d.) (i) Interest/profit rate risk (cont’d.) (b) (i) Non-trading book Up to 1 month RM’000 Bank >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 years RM’000 Noninterest/ profit sensitive RM’000 Total RM’000 Non-trading book Bank Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVTPL Financial investments at FVOCI Loans, financing and advances –non-impaired –impaired * Other assets Total assets Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities Up to 1 month RM’000 >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 years RM’000 Noninterest/ profit sensitive RM’000 Total RM’000 Effective interest/ profit rate % 2,368,087 – – – – 2,933 2,371,020 3.25 – 882,828 – – – – 882,828 – 51,269 – – 1,051,313 3,815,268 101,170 5,019,020 4.33 161,095 – – 2,580,451 201,778 – – 1,084,606 12,441 15,859,425 (313,740) (313,740) 200,976 200,976 3,780 24,019,529 6.39 – – 1,163,140 1,838,281 2,079,982 321,179 89,593 – 5,492,175 3.79 882,669 – 150,000 – – – – – – – – 79,893 1,032,669 79,893 3.25 – 93,172 75,728 – – – 2,350,000 4,850,000 400,000 1,250,000 450,000 – – 7,293,172 2,175,728 4.85 4.72 – – – 2,214,709 – – – 1,988,281 – – – – – – – – – 2,479,982 3,921,179 5,389,593 439,129 439,129 212,255 212,255 309 309 731,586 16,725,330 – – – 2019 858,789 – – – 51,137 – – – – – – – – – – 24,982 1,599,134 4,340,284 2,998 – 45,566 109,672 861,787 51,137 45,566 1.83 – – 57,466 – 6,131,538 4.43 265,872 – – 1,182,127 251,119 – – 302,256 806,555 4,298,149 10,791,924 11,762 16,425,381 – – – (1,030,964) (1,030,964) – – – 240,927 240,927 831,537 5,897,283 15,132,208 (620,039) 22,725,372 6.05 – – 1,947,848 1,934,272 1,069,461 395,255 – – 5,346,836 2.50 601,092 – 200,000 – – – – – – – – 49,627 801,092 49,627 1.87 – 101,280 8,466 – – 1,100,000 1,883,036 5,165,000 – 150,000 350,000 – – 8,249,316 508,466 4.61 4.87 – – – 2,658,686 – – – 2,134,272 – – – – – – – – – 2,169,461 2,428,291 5,515,000 304,503 304,503 201,800 201,800 313 313 556,243 15,461,953 – – – Total interest/profit sensitivity gap (1,476,559) (1,832,016) (1,337,924) 3,468,992 9,617,208 (1,176,282) 7,263,419 186 Interest/profit rate risk (cont’d.) Effective interest/ profit rate % 2020 * Market risk (cont’d.) This is arrived at after deducting Stage 1, Stage 2 and Stage 3 ECL from the outstanding gross impaired loans/financing. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI Loans, financing and advances –non-impaired –impaired * Other assets Total assets Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities Total interest/profit sensitivity gap * 365,742 693,330 3,638,503 11,152,278 – – – – – – 693,330 4,689,816 14,967,546 (903,675) (1,786,652) 768,637 9,577,953 (727,806) 7,294,199 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 ECL from the outstanding gross impaired loans/financing. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 187
96. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) 31 December 2020 (c) Liquidity risk Liquidity risk is the risk that the Group and the Bank will encounter difficulty in raising funds to meet its current and future payment obligations associated with financial obligations when they fall due. The liquidity and cash flow risks are managed by maintaining a diversity of funding sources and spreading debt repayments/financing payment over a range of maturities. (c) The Group and the Bank manage their liquidity requirement on a day-to-day basis to ensure that funds are readily available for its operational needs, withdrawals of deposits and repayments/payments to fund providers. The Group and the Bank may raise funds locally and globally either through government-to-government arrangements or direct negotiations. Other sources of funding through the capital market are being explored on an on-going basis to ensure a diversity of funding source. (i) Contractual maturity of total assets and liabilities The following table shows the maturity analysis of the Group’s and the Bank’s assets and liabilities based on remaining contractual maturities. The contractual maturity profile often does not reflect the actual behavioural patterns. In particular, the Group and the Bank have a significant amount of “core deposits” of non-bank customers which are contractually at call (included in the “Up to 3 months” time band) but historically a stable source of long-term funding for the Group and the Bank. Non-trading book Up to 1 month RM’000 Group >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 Non-specific years maturity RM’000 RM’000 Total RM’000 2020 Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVTPL Financial investments at FVOCI Loans, financing and advances –non-impaired –impaired * Other assets Total assets Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities Net maturity mismatches * 188 1,035,238 – – – – – 1,035,238 – – – 185,772 – – – – – – 25,046 1,614,915 – – 4,381,905 – 45,566 109,672 185,772 45,566 6,131,538 902,989 – – 1,938,227 265,188 – – 450,960 2,016,173 1,927,236 1,060,163 343,264 – 600,941 – – – – – 2 2,617,116 200,151 – – – – – 4 2,127,391 – – – – 1,113,457 1,907,459 – 152,610 – – – – 20 318 2,173,640 2,403,651 – – 5,228,400 355,856 – – – 5,584,256 844,212 4,419,446 10,177,909 11,762 16,621,506 – – – (1,037,437) (1,037,437) – – – 249,811 249,811 869,258 6,034,361 14,559,814 (620,626) 23,231,994 (678,889) (1,676,431) (1,304,382) 3,630,710 – FINANCIAL STATEMENTS 31 December 2020 Liquidity risk (cont’d.) (i) Contractual maturity of total assets and liabilities (cont’d.) Non-trading book Group Up to 1 month RM’000 >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 Non-specific years maturity RM’000 RM’000 2,648,922 – – – – – 2,648,922 – – 924,915 – – – – 1,062,104 – 3,855,745 – 106,116 924,915 5,023,965 774,608 – – 3,423,530 201,778 – – 1,126,693 1,250,951 1,832,024 2,065,935 272,454 70,811 882,399 – – 51,239 – – 12 2,184,601 150,270 – – – – – 25 1,982,319 – – – – – 2,382,418 403,950 1,262,944 – – – – 107 210 2,469,992 3,918,026 – – 4,910,754 457,595 – – – 5,439,160 – 1,032,669 122,449 122,449 – 7,293,172 – 2,175,728 439,129 439,129 212,255 212,255 – 354 773,833 16,767,931 9,023,504 (761,963) 7,745,178 Total RM’000 2019 Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI Loans, financing and advances –non-impaired –impaired * Other assets Total assets Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities Net maturity mismatches * 1,238,929 696,590 3,729,658 10,606,919 – – – – – – 696,590 4,791,762 14,462,664 (855,626) (1,773,402) 873,736 12,441 16,021,994 (320,222) (320,222) 213,535 213,535 11,870 24,513,109 – 5,492,175 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 ECL from the outstanding gross impaired loans/financing. 5,346,836 – 801,092 101,306 101,306 – 8,249,316 – 508,466 304,503 304,503 201,800 201,800 – 344 607,609 15,513,663 8,975,558 (1,228,235) 7,718,331 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 ECL from the outstanding gross impaired loans/financing. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 189
97. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) (c) 31 December 2020 Liquidity risk (cont’d.) (i) (c) Contractual maturity of total assets and liabilities (cont’d.) Liquidity risk (cont’d.) (i) Contractual maturity of total assets and liabilities (cont’d.) Non-trading book Up to 1 month RM’000 Bank >1 – 3 months RM’000 >3 – 12 months RM’000 Non-trading book >1 – 5 years RM’000 Over 5 Non-specific years maturity RM’000 RM’000 Total RM’000 Bank 2020 Up to 1 month RM’000 >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 Non-specific years maturity RM’000 RM’000 2,371,020 – – – – – 2,371,020 – – 882,828 – – – – 1,062,104 – 3,855,746 – 101,170 882,828 5,019,020 774,608 – – 3,145,628 201,778 – – 1,084,606 1,250,951 1,832,024 2,065,935 272,454 70,811 882,399 – – 51,239 – – 12 2,184,601 150,270 – – – – – 24 1,982,318 – – – – – 2,382,418 403,950 1,262,944 – – – – 106 167 2,469,991 3,917,983 – – 4,910,754 457,595 – – – 5,439,160 – 1,032,669 79,893 79,893 – 7,293,172 – 2,175,728 439,129 439,129 212,255 212,255 – 309 731,277 16,725,330 8,955,351 (730,430) 7,294,199 Total RM’000 2019 Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVTPL Financial investments at FVOCI Loans, financing and advances –non-impaired –impaired * Other assets Total assets Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities 861,787 – – – – 51,137 – – 887,424 – – 1,749,211 251,119 – – 302,256 – – – – 861,787 – – – – 25,046 1,614,915 – – 4,381,905 – 45,566 109,672 51,137 45,566 6,131,538 Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI Loans, financing and advances –non-impaired –impaired * Other assets Total assets 806,265 4,297,373 10,171,438 11,762 16,425,381 – – – (1,030,964) (1,030,964) – – – 240,927 240,927 831,311 5,912,288 14,553,343 (623,037) 22,725,372 2,016,173 1,927,236 1,060,163 343,264 – 600,941 – – – – – 2 2,617,116 200,151 – – – – – 4 2,127,391 – – – – 1,113,457 1,907,459 – 152,610 – – – – 19 288 2,173,639 2,403,621 – – 5,228,400 355,856 – – – 5,584,256 – Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities 5,346,836 – 801,092 49,627 49,627 – 8,249,316 – 508,466 304,503 304,503 201,800 201,800 – 313 555,930 15,461,953 Net maturity mismatches Net maturity mismatches * FINANCIAL STATEMENTS 31 December 2020 (867,905) (1,825,135) (1,342,328) 3,508,667 8,969,087 (1,178,967) 7,263,419 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 ECL from the outstanding gross impaired loans/financing. * 961,027 693,330 3,638,503 10,538,765 – – – – – – 693,330 4,700,607 14,394,511 (897,712) (1,776,661) 782,624 12,441 15,859,425 (313,740) (313,740) 200,976 200,976 847 24,019,529 – 5,492,175 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 ECL from the outstanding gross impaired loans/financing. 190 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 191
98. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 46 . FINANCIAL INSTRUMENTS RISK (CONT’D.) 46. FINANCIAL INSTRUMENTS RISK (CONT’D.) (c) 31 December 2020 Liquidity risk (cont’d.) (c) (ii) Contractual maturity of financial liabilities on an undiscounted basis The tables below present the cash flows payable by the Group and the Bank under financial liabilities by remaining contractual maturities as at 31 December 2020 and 31 December 2019. The amounts disclosed in the table will not agree to the carrying amounts reported in the statements of financial positions as the amounts incorporated all contractual cash flows, on an undiscounted basis, relating to both principal and interest/profit analysis. The Group and the Bank manage interest liquidity risk based on discounted expected cash flows. FINANCIAL STATEMENTS 31 December 2020 Liquidity risk (cont’d.) (ii) Contractual maturity of financial liabilities on an undiscounted basis (cont’d.) Non-trading book Bank Up to 1 month RM’000 >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 Non-specific years maturity RM’000 RM’000 2,017,610 1,934,272 1,069,461 351,656 – 601,247 – – – 16 2,618,873 200,876 – – – 32 2,135,180 – – – – 1,154,530 1,690,386 – 183,781 146 344 2,224,137 2,226,167 – – 7,062,465 467,093 – 7,529,558 1,252,626 1,842,865 2,096,150 278,253 73,420 883,207 – – 51,481 13 2,187,327 150,892 – – – 26 1,993,783 – – – – – 2,612,260 409,149 1,403,652 116 197 2,505,415 4,294,362 – – 7,715,330 611,503 – 8,400,253 Total RM’000 2020 Non-trading book Group Up to 1 month RM’000 >1 – 3 months RM’000 >3 – 12 months RM’000 >1 – 5 years RM’000 Over 5 Non-specific years maturity RM’000 RM’000 Total RM’000 2020 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities 2,017,610 1,934,272 1,069,461 351,656 – 601,247 – – – 17 2,618,874 200,876 – – – 35 2,135,183 – – – – 1,154,530 1,690,386 – 183,781 157 378 2,224,148 2,226,201 – – 7,062,465 467,093 – 7,529,558 – 5,372,999 – 802,123 101,306 101,306 – 9,907,381 – 650,874 – 587 101,306 16,835,270 2019 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities 192 1,252,626 1,842,865 2,096,150 278,253 73,420 883,207 – – 51,481 14 2,187,328 150,892 – – – 28 1,993,785 – – – – – 2,612,260 409,149 1,403,652 127 231 2,505,426 4,294,396 – – 7,715,330 611,503 – 8,400,253 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 – 5,543,314 – 1,034,099 122,449 122,449 – 10,327,590 – 2,475,785 – 400 122,449 19,503,637 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities – 5,372,999 – 802,123 49,627 49,627 – 9,907,381 – 650,874 – 538 49,627 16,783,542 2019 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities – 5,543,314 – 1,034,099 79,893 79,893 – 10,327,590 – 2,475,785 – 352 79,893 19,461,033 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 193
99. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 47 . FAIR VALUES MEASUREMENTS 47. FAIR VALUES MEASUREMENTS (CONT’D.) (a) Financial assets and liabilities measured at fair value (a) Financial assets and liabilities measured at fair value (cont’d.) Determination of fair value and the fair value hierarchy Determination of fair value and the fair value hierarchy (cont’d.) Fair value is the amount at which a financial asset could be exchanged or a financial liability settled, between knowledgeable and willing parties in an arm’s length transaction. The following table provides the fair value measurement hierarchy of the Group’s and the Bank’s assets and liabilities. The Group and the Bank classify their financial assets and financial liabilities which are measured at fair value according to the following hierarchy, reflecting the significance of inputs used in making the fair value measurements: 194 31 December 2020 FINANCIAL STATEMENTS 31 December 2020 Level 1 – Quoted market prices: quoted prices (unadjusted) in active markets for identical assets and liabilities instruments; Level 2 – Valuation techniques based on observable inputs: inputs other than quoted prices included within Level 1 that are observable for the instrument, whether directly (i.e. prices) or indirectly (i.e. derived from prices), are used; and Level 3 – Valuation techniques using significant unobservable inputs: inputs used are not based on observable market data and the unobservable inputs have a significant impact on the valuation of the financial instruments and non-financial assets. Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted prices is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an on-going basis. These would include actively traded listed equities and actively exchange-traded derivatives. Where fair value is determined using unquoted market prices in less active markets or quoted prices for similar assets and liabilities, such instruments are generally classified as Level 2. In cases where quoted prices are generally not available, the Group and the Bank then determine fair value based upon valuation techniques that use as inputs, market parameters including but not limited to yield curves, volatilities and foreign exchange rates. The majority of valuation techniques employ only observable market data and so reliability of the fair value measurement is high. These would include certain government sukuk and corporate sukuk, financing, derivatives and investment properties. Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the input or other analytical techniques. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2020 Group 2019 Level 1 RM’000 Level 2 RM’000 Level 3 RM’000 Total RM’000 Level 1 RM’000 Level 2 RM’000 Level 3 RM’000 Total RM’000 – 45,566 – 45,566 – – – – 109,672 6,021,866 – 6,131,538 106,115 4,917,850 – 5,023,965 Assets measured at fair value: Financial investments at FVTPL Financial investments at FVOCI Total financial assets carried at fair value 6,177,104 5,023,965 Assets for which fair values are disclosed (Note 47 (b)): Loans, financing and advances – – 16,068,693 16,068,693 – – 15,728,966 15,728,966 – – – – – – – – Liabilities for which fair values are disclosed (Note 47 (b)): Redeemable notes/Sukuk Borrowings 8,658,191 524,214 8,658,191 524,214 7,456,888 2,297,329 7,456,888 2,297,329 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 195
100. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 47 . FAIR VALUES MEASUREMENTS (CONT’D.) 47. FAIR VALUES MEASUREMENTS (CONT’D.) 31 December 2020 31 December 2020 (a) Financial assets and liabilities measured at fair value (cont’d.) (b) Financial assets and liabilities not carried at fair value Determination of fair value and the fair value hierarchy (cont’d.) The following table provides the fair value measurement hierarchy of the Group’s and the Bank’s assets and liabilities. (cont’d.) The following table summarises the carrying amounts and the estimated fair values of those financial assets not presented on the Group’s statements of financial position at their fair value. 2020 Bank Level 1 RM’000 Level 2 RM’000 Group 2019 Level 3 RM’000 Total RM’000 Level 1 RM’000 Level 2 RM’000 Level 3 RM’000 Total RM’000 Assets measured at fair value: Financial investments at FVTPL Financial investments at FVOCI Total financial assets carried at fair value – 45,566 – 45,566 109,672 6,021,866 – 6,131,538 – – – – 101,170 4,917,850 – 5,019,020 6,177,104 Financial assets Loans, financing and advances Financial liabilities Redeemable notes/Sukuk Borrowings 5,019,020 196 Fair value RM’000 Fair value RM’000 15,584,069 16,068,693 15,394,417 15,836,537 8,249,316 508,466 8,658,191 524,214 8,249,316 508,466 8,658,191 524,214 15,701,772 15,728,966 15,545,685 15,537,083 7,293,172 2,175,728 7,456,888 2,297,329 7,293,172 2,175,728 7,456,888 2,297,329 2019 Financial assets Loans, financing and advances – – 15,836,537 15,836,537 – – 15,537,083 15,537,083 Financial liabilities Redeemable notes/Sukuk Borrowings Liabilities for which fair values are disclosed (Note 47 (b)): Redeemable notes/Sukuk Borrowings Bank Carrying value RM’000 2020 Assets for which fair values are disclosed (Note 47 (b)): Loans, financing and advances Carrying value RM’000 – – – – 8,658,191 524,214 8,658,191 524,214 – – – – 7,456,888 2,297,329 7,456,888 2,297,329 There have been no transfer between Level 1 and Level 2 during the financial year. The fair value of loans, financing and advances that are valued at level 3 is estimated by discounting the estimated future cash flows at a discount rate between 2.37% to 6.05% (2019: 3.62% to 6.39%) whilst the fair value of redeemable notes/sukuk and term loans that are valued at level 3 is estimated by discounting the estimated future cash flows at a discount rate between 2.81% to 6.30% (2019: 3.15% to 7.50%). BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 The following methods and assumptions are used to estimate the fair value of each class of financial instruments: (i) Financial investments – Amortised Cost Fair values of securities that are actively traded is determined by quoted bid prices. For non-actively traded securities, independent broker quotations are obtained. Fair values of equity securities are estimated using a number of methods, including earning multiples and discounted cash flows analysis. Where discounted cash flows technique is used, the estimated future cash flows are discounted using applicable prevailing market or indicative rates of similar instruments at the reporting date. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 197 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
101. NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 47 . FAIR VALUES MEASUREMENTS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS 31 December 2020 (b) Financial assets and liabilities not carried at fair value (cont’d.) (ii) Loans, financing and advances Loans, financing and advances to borrowers/customers, where such market prices are not available, various methodologies have been used to estimate the approximate fair values of such instruments. These methodologies are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in the assumptions could significantly affect these estimates and the resulting fair value estimates. Therefore, for a significant portion of the Group’s and the Bank’s financial instruments, including loans, financing and advances to customers, their respective fair value estimates do not purport to represent, nor should they be construed to represent, the amount that the Group and the Bank could realise in a sale transaction at the reporting date. The fair values of variable rate loans/financing are estimated to approximate their carrying values. For fixed rate loans/financing, the fair values are estimated based on expected future cash flows of contractual instalment payments, discounted at applicable and prevailing rates at reporting date offered for similar facilities to new borrowers/customers with similar credit profiles. In respect of impaired loans/financing, the fair values are deemed to approximate the carrying values which are net of impairment allowances. (iii) Deposits from customers, deposits and placements from financial institutions, and bills and acceptance payable The fair values of deposits payable on demand and deposits and placements with maturities of less than one year approximate their carrying values due to the relatively short maturity of these instruments. The fair values of fixed deposits and placements with remaining maturities of more than one year are estimated based on discounted cash flows using applicable rates currently offered for deposits and placements with similar remaining maturities. The fair value of Islamic deposits are estimated to approximate their carrying values as the profit rates are determined at the end of their holding periods based on the actual profits generated from the assets invested. (iv) Subordinated obligations and borrowings The fair values of capital securities are estimated by discounting the expected future cash flows using the applicable prevailing interest/profit rates for securities as at reporting date. 31 December 2020 The state of affairs as at 31 December 2020 and results for the financial year ended on this date under the Islamic financial business of the Group and the Bank included in the Group financial statements are summarised as follows: Statements of Financial Position As at 31 December 2020 Group 2019 RM’000 2020 RM’000 2019 RM’000 (a) (b) (c) (d) (e) (f) 820,525 – 45,566 2,515,982 11,454,582 1,863,432 84,180 330 6,045 301 110,571 16,901,514 1,384,176 150,681 – 2,006,990 11,254,745 2,751 – – – – – 14,799,343 740,292 – 45,566 2,515,982 11,342,828 1,863,156 84,180 330 6,045 301 110,461 16,709,141 1,351,797 150,681 – 2,006,990 11,222,492 2,462 – – – – – 14,734,422 (g) (h) (i) (j) 5,346,836 80,092 132,481 7,082,700 303,974 201,800 313 171 13,148,367 4,852,186 501,519 233,786 6,076,247 – 212,255 – – 11,875,993 5,346,836 80,092 48,451 7,082,700 303,974 201,800 313 – 13,064,166 4,852,186 501,519 207,245 6,076,247 – 212,255 – – 11,849,452 2,722,657 1,030,490 3,753,147 1,717,418 1,205,932 2,923,350 2,722,657 922,318 3,644,975 1,717,418 1,167,552 2,884,970 16,901,514 14,799,343 16,709,141 14,734,422 6,493,715 6,769,669 6,493,715 6,769,669 Note Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVTPL Financial investments at FVOCI Financing and advances Other assets Property, plant and equipment Investment properties Intangible asset Right-of-use asset Deferred tax asset Total assets Liabilities Deposits from customers Deposits from financial institutions Other liabilities Sukuk Infrastructure support fund Deferred income Lease liabilities Deferred tax liabilities Total liabilities Equity Capital funds Reserves Total equity (k) Total liabilities and equity Commitments and contingencies 198 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Bank 2020 RM’000 (t) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 199 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
102. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) 31 December 2020 Statements of Profit or Loss For the Financial Year Ended 31 December 2020 Group Income derived from investment of depositors’ funds Income derived from investment of shareholders’ funds Allowance for impairment losses on financing and advances Allowance for impairment losses on other assets Total distributable income Income attributable to the depositors (Loss)/profit before taxation and zakat Tax credit Zakat (Loss)/profit for the year Bank Group 2019 RM’000 2020 RM’000 2019 RM’000 (l) 203,557 218,930 203,557 218,930 (m) 782,760 564,810 775,521 561,044 (n) (o) (655,280) (9,526) 321,511 (93,857) (55,902) 633,981 (644,968) (9,526) 324,584 (93,119) (55,902) 630,953 (145,962) (195,139) (145,962) (195,139) 175,549 438,842 178,622 435,814 Items that may be reclassified to profit or loss: Debt instruments at fair value through other comprehensive income: – Net change in fair value during the year – Changes in allowance for expected credit losses (q) (r) (59,563) (284,260) (57,842) (277,184) (57,551) (284,260) (58,587) (277,184) (s) (168,274) 38,853 (9,688) 103,816 – (24,296) (163,189) 38,057 (8,769) 100,043 – (21,126) (139,109) 79,520 (133,901) 78,917 (p) Total net income Overhead expenses Finance cost Statements of Comprehensive Income For the Financial Year Ended 31 December 2020 2020 RM’000 Note FINANCIAL STATEMENTS 31 December 2020 2020 RM’000 (Loss)/profit for the year Bank 2019 RM’000 2020 RM’000 2019 RM’000 (139,109) 79,520 (133,901) 78,917 (25,235) – (25,235) – 74,584 9,432 58,781 75,060 55,914 130,974 74,584 9,432 58,781 75,060 55,914 130,974 Income tax effect (Note 48(k)(ii)) (17,900) (17,900) – – (17,900) (17,900) – – Other comprehensive income for the year, net of tax 40,881 130,974 40,881 130,974 Total comprehensive (loss)/income for the year (98,228) 210,494 (93,020) 209,891 (98,228) (98,228) 210,494 210,494 (93,020) (93,020) 209,891 209,891 203,557 782,760 (145,962) (284,260) 218,930 564,810 (195,139) (277,184) 203,557 775,521 (145,962) (284,260) 218,930 561,044 (195,139) (277,184) 556,095 311,417 548,856 307,651 Other comprehensive income Items that will not be reclassified to profit or loss: Net change in revaluation of equity instruments at fair value through other comprehensive income Total comprehensive (loss)/income attributable to: Shareholders of the Bank Net income from Islamic financial business: Income derived from investment of depositors’ funds Income derived from investment of shareholders’ funds Income attributable to the depositors Finance cost Net income from Islamic financial business reported in the statements of profit or loss 200 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 201
103. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) 31 December 2020 Consolidated Statement of Changes in Equity For the Financial Year Ended 31 December 2020 Capital funds RM’000 Statutory reserve RM’000 Unrealised FVOCI reserve RM’000 2020 RM’000 Total RM’000 At 1 January 2020 Loss for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year 1,717,418 – – – 443,483 – – – 154,415 – 40,881 40,881 608,034 (139,109) – (139,109) 2,923,350 (139,109) 40,881 (98,228) Transfer to retained profits on the disposal of equity instruments at FVOCI Capital re-allocation Dividend paid At 31 December 2020 – 1,005,239 – 2,722,657 – – – 443,483 179 – – 195,475 (179) 75,000 (152,214) 391,532 – 1,080,239 (152,214) 3,753,147 At 1 January 2019 Profit for the year Other comprehensive income for the year Total comprehensive income for the year 1,597,400 – – – – – – – 23,441 – 130,974 130,974 92,015 79,520 – 79,520 1,712,856 79,520 130,974 210,494 Transfer to statutory reserve Capital re-allocation At 31 December 2019 – 120,018 1,717,418 19,729 423,754 443,483 – – 154,415 (19,729) 456,228 608,034 – 1,000,000 2,923,350 At 1 January 2020 Loss for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year 1,717,418 – – – 443,483 – – – 154,415 – 40,881 40,881 569,654 (133,901) – (133,901) 2,884,970 (133,901) 40,881 (93,020) Transfer to retained profits on the disposal of equity instruments at FVOCI Capital re-allocation Dividend paid At 31 December 2020 – 1,005,239 – 2,722,657 – – – 443,483 179 – – 195,475 (179) – (152,214) 283,360 – 1,005,239 (152,214) 3,644,975 At 1 January 2019 Profit for the year Other comprehensive income for the year Total comprehensive income for the year 1,597,400 – – – – – – – 23,441 – 130,974 130,974 54,238 78,917 – 78,917 1,675,079 78,917 130,974 209,891 Transfer to statutory reserve Capital re-allocation At 31 December 2019 – 120,018 1,717,418 19,729 423,754 443,483 – – 154,415 (19,729) 456,228 569,654 – 1,000,000 2,884,970 Bank BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Statements of Cash Flows For the Financial Year Ended 31 December 2020 Group Retained profits RM’000 Group 202 FINANCIAL STATEMENTS 31 December 2020 Cash flows from operating activities (Loss)/profit before zakat Adjustments for: Net gain on sale of financial investments at FVOCI (Note 48(m)) Accretion of discount less amortisation of premium of financial investments (Note 48(m)) Allowance for impairment losses on financing and advances, net (Note 48(n)) Loss/(gain) due to financing modification (Note 48(l) and Note 48(m)) Impairment allowance for: Financial investments at FVOCI (Note 48(o)) Impaired financing written off (Note 48(n)) Allowance for ex-staff financing (Note 48(o)) Unrealised gain on FVTPL (Note 48(m)) Compensation from the Government (Note 48(m)) Operating cash flows before working capital changes (Increase)/decrease in operating assets: Other assets Deposits and placements with financial institutions Financing and advances (Decrease)/increase in operating liabilities: Other liabilities Deposits from customers Deposits and placements from financial institutions Cash used in operating activities Zakat paid Net cash used in operating activities Bank 2019 RM’000 2020 RM’000 2019 RM’000 (168,274) 103,816 (163,189) 100,043 (8,242) (18,882) (8,242) (18,882) (2,986) (16,041) (2,986) (16,041) 668,581 93,481 660,355 92,409 62 (5,546) 62 (5,546) 9,432 2,459 94 (4,999) (33,069) 463,058 55,914 809 (12) – (17,894) 195,645 9,432 50 94 (4,999) (33,069) 457,508 55,914 787 (12) – (17,894) 190,778 (2,564,623) 150,681 (879,451) (3,293,393) 274,867 (150,681) (1,484,703) (1,360,517) (2,563,280) 150,681 (788,591) (3,201,190) 274,276 (150,681) (1,481,676) (1,358,081) 836,991 494,650 (421,427) 910,214 (214,604) (507,438) 401,165 (320,877) 777,484 494,650 (421,427) 850,707 (211,109) (507,438) 401,165 (317,382) (1,920,121) (30,386) (1,950,507) (1,485,749) (17,282) (1,503,031) (1,892,975) (30,386) (1,923,361) (1,484,685) (17,282) (1,501,967) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 203
104. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) 31 December 2020 Statements of Cash Flows For the Financial Year Ended 31 December 2020 (cont’d.) (a) 2020 RM’000 Cash flows from investing activities Purchase of financial investments at FVOCI Proceeds from disposal/maturity of financial investments at FVOCI Net cash (used in)/generated from investing activities Bank 2019 RM’000 2020 RM’000 2019 RM’000 (986,675) (681,904) (986,675) (681,904) 445,506 (541,169) 1,701,949 1,020,045 445,506 (541,169) 1,701,949 1,020,045 Cash and bank balances with financial institutions Money at call and deposit placements maturing within one month (b) Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 2,701 3,502 1,508 1,749 817,824 820,525 1,380,674 1,384,176 738,784 740,292 1,350,048 1,351,797 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 – 150,681 – 150,681 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 45,566 45,566 – – 45,566 45,566 – – Deposits and placements with financial institutions Group Cash flows from financing activities Proceeds from Sukuk issuance Capital re-allocation Statutory reserve re-allocation Dividends paid Net cash generated from financing activities 1,000,000 1,080,239 – (152,214) 1,928,025 – 576,246 423,754 – 1,000,000 1,000,000 1,005,239 – (152,214) 1,853,025 – 576,246 423,754 – 1,000,000 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year (563,651) 1,384,176 820,525 517,014 867,162 1,384,176 (611,505) 1,351,797 740,292 518,078 833,719 1,351,797 Licensed banks (c) Group 2019 RM’000 2020 RM’000 2019 RM’000 820,525 1,384,176 740,292 1,351,797 Financial Investments at FVTPL Bank At fair value Equity Securities: Unquoted shares Total financial investments at FVTPL Bank 2020 RM’000 Bank Group Cash and cash equivalents comprise: Cash and short term deposits (Note (a)) Cash and Short Term Deposits Group Group FINANCIAL STATEMENTS 31 December 2020 Included in the financial investments at FVTPL is a private debt securities with a cost of RM405,364,712 and a fair value of RM nil. (d) Financial Investments at FVOCI Group Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 511,056 25,033 536,089 532,047 – 532,047 511,056 25,033 536,089 532,047 – 532,047 1,870,221 1,870,221 1,474,943 1,474,943 1,870,221 1,870,221 1,474,943 1,474,943 109,672 109,672 – – 109,672 109,672 – – 2,515,982 2,006,990 2,515,982 2,006,990 At fair value Debt Instruments: Money market instruments: Government investment issues Cagamas Unquoted securities: Sukuk Equity Securities: Quoted shares Total financial investments at FVOCI 204 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 205
105. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) 31 December 2020 (d) Financial Investments at FVOCI (cont’d.) (e) Movements in allowances for impairment which reflect the ECL allowance are as follows: Financing and Advances (cont’d.) (i) Financing and advances analysed by type of customers are as follows: Lifetime ECL Group and Bank 12-Month ECL Stage 1 RM’000 Group Not Credit Impaired Stage 2 RM’000 Credit Impaired Stage 3 RM’000 Total RM’000 55,304 9,804 – 9,804 65,108 – – – – – 56,200 9,432 2 9,430 65,632 Domestic business enterprises Individual 2020 At 1 January Net (write back)/allowance made New financial investments purchased Net (write back)/allowance made At 31 December 896 (372) 2 (374) 524 (ii) 12–Month ECL Stage 1 RM’000 Not Credit Impaired Stage 2 RM’000 Credit Impaired Stage 3 RM’000 Total RM’000 286 610 34 576 896 – 55,304 20,922 34,382 55,304 – – – – – 286 55,914 20,956 34,958 56,200 (e) Group 2020 RM’000 Bai’ Bithaman Ajil Murabahah Istisna’ Ijarah Muntahiyah bi Tamlik Tawarruq Staff financing Factoring-i Hire purchase-i Unearned income Gross financing and advances 2019 RM’000 2020 RM’000 Net financing and advances 206 2019 RM’000 13,333,895 4,066 13,337,961 12,464,185 7,477 12,471,662 13,208,987 4,066 13,213,053 12,427,831 4,531 12,432,362 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 4,066 7,512,737 7,477 8,021,671 4,066 7,387,829 4,531 8,021,671 3,379,332 2,441,826 13,337,961 2,331,127 2,111,387 12,471,662 3,379,332 2,441,826 13,213,053 2,294,773 2,111,387 12,432,362 Group Within Malaysia Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 13,337,961 12,471,662 13,213,053 12,432,362 Financing and advances analysed by industry are as follows: Group 2019 RM’000 45,017 8,315 2,119,177 65,062 17,360,074 6,870 30,059 7,841 (6,304,454) 13,337,961 91,999 8,315 3,884,854 52,079 14,969,098 7,884 – – (6,542,567) 12,471,662 43,887 8,315 2,119,177 1,221 17,338,037 6,870 – – (6,304,454) 13,213,053 89,053 8,315 3,884,854 20,694 14,964,129 7,884 – – (6,542,567) 12,432,362 (832,593) (597,578) (453,208) (595,108) (197,685) (424,124) (831,445) (596,186) (442,594) (593,149) (197,686) (419,035) (1,883,379) (1,216,917) (1,870,225) (1,209,870) 11,454,582 11,254,745 11,342,828 11,222,492 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2020 RM’000 Financing and advances analysed by geographical distribution are as follows: Bank Allowance for impairment on financing and advances: – Stage 1: 12-Month ECL – Stage 2: Lifetime ECL not credit impaired – Stage 3: Lifetime ECL credit impaired (iii) (iv) Financing and Advances 2019 RM’000 Financing and advances analysed by profit rate sensitivity are as follows: Fixed rate: Housing financing Other fixed rate financing Variable rate: Cost plus Other variable rates 2019 At 1 January Net allowance made New financial investments purchased Net allowance made At 31 December Bank 2020 RM’000 Group Lifetime ECL Group and Bank FINANCIAL STATEMENTS 31 December 2020 Agriculture, hunting & forestry Construction Education Electricity, gas and water supply Finance, takaful and business Hotel and restaurants Housing Manufacturing Marine related Other community, social and personal service activities Public administration and defence Shipping Shipyard Transport, storage and communication Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 11 6,832,105 1,627,075 145,938 90,550 424,079 4,066 255,874 325,627 11 5,862,923 1,761,496 133,331 31,873 314,796 7,477 238,365 181,999 – 6,832,105 1,627,075 145,938 – 394,020 4,066 255,857 325,627 – 5,862,923 1,761,496 133,331 – 314,796 4,531 238,141 181,999 56,246 8,281 622,270 130,339 2,815,500 13,337,961 56,021 16,156 517,304 130,339 3,219,571 12,471,662 54,133 8,281 622,270 130,339 2,813,342 13,213,053 56,018 16,156 517,304 130,339 3,215,328 12,432,362 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 207
106. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) (e) 31 December 2020 Financing and Advances (cont’d.) (v) (e) The maturity structure of financing and advances are as follows: 2020 RM’000 Receivable after 12 months Receivable within 12 months (vi) 12,138,459 1,199,502 13,337,961 Group 2019 RM’000 11,369,576 1,102,086 12,471,662 2020 RM’000 12,063,936 1,149,117 13,213,053 Lifetime ECL Not Credit Impaired Stage 2 RM’000 11,330,276 1,102,086 12,432,362 Lifetime ECL Credit Impaired Stage 3 RM’000 Total RM’000 11,033,674 425,766 725,821 (425,766) 712,167 – 12,471,662 – (1,099,502) 1,099,502 – – (7,824) 167,473 603,078 (4,069) – 11,118,596 – 70,287 – (10,039) – 1,459,805 7,824 41,708 – (20) (2,119) 759,560 – 279,468 603,078 (14,128) (2,119) 13,337,961 9,445,069 218 737,569 – 798,902 (218) 10,981,540 – 2019 At 1 January – Transfer to 12-month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Remeasurement, net New accounts Matured accounts Written-off At 31 December 12-Month ECL Stage 1 RM’000 2019 RM’000 2020 At 1 January – Transfer to 12-month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Remeasurement, net New accounts Matured accounts Written-off At 31 December Movements in gross loans, financing and advances are as follows (cont’d.): Bank Movements in gross loans, financing and advances are as follows: 12-Month ECL Stage 1 RM’000 Financing and Advances (cont’d.) (vi) Group (201,755) 253,584 (51,829) – – 915,798 879,315 (4,971) – 11,033,674 (33,846) (93,838) – (137,648) – 725,821 33,846 (59,329) – (721) (8,484) 712,167 – 762,631 879,315 (143,340) (8,484) 12,471,662 Bank BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Lifetime ECL Not Credit Impaired Stage 2 RM’000 Lifetime ECL Credit Impaired Stage 3 RM’000 Total RM’000 2020 At 1 January – Transfer to 12-month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) Remeasurement, net New accounts Matured accounts At 31 December 10,999,451 425,766 725,821 (425,766) 707,090 – 12,432,362 – (1,093,233) 189,513 489,138 – 11,010,635 1,093,233 70,205 – (10,039) 1,453,454 – 41,874 – – 748,964 – 301,592 489,138 (10,039) 13,213,053 9,416,470 737,120 791,580 10,945,170 (201,755) 253,584 (51,829) – – 924,230 863,840 (3,334) – 10,999,451 (33,846) (93,389) – (137,648) – 725,821 33,846 (58,023) – – (8,484) 707,090 – 772,818 863,840 (140,982) (8,484) 12,432,362 2019 At 1 January – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Remeasurement, net New accounts Matured accounts Written-off At 31 December (vii) Impaired financing and advances analysed by industry are as follows: Group Construction Education Electricity, gas and water supply Hotel and restaurants Manufacturing Shipping Other community, social and personal service activities Transport, storage and communication Gross impaired financing and advances as a % of gross financing and advances 208 FINANCIAL STATEMENTS 31 December 2020 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 81,686 33,228 22,224 122,682 17,238 348,462 84,256 39,979 21,752 113,564 17,256 275,851 81,654 33,228 22,224 114,333 17,238 348,462 84,256 39,979 21,752 113,085 17,236 275,851 1,610 132,430 759,560 2,948 156,561 712,167 – 131,825 748,964 – 154,931 707,090 5.69% 5.71% 5.67% 5.69% BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 209
107. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) (e) 31 December 2020 Financing and Advances (cont’d.) (f) Other Assets Group (viii) Movements in the allowance for impairment of financing and advances are as follows: Group 12-Month ECL Stage 1 RM’000 Lifetime ECL Not Credit Impaired Stage 2 RM’000 Lifetime ECL Credit Impaired Stage 3 RM’000 Sundry receivables, deposits and prepayments Amount receivable from Government in respect of compensation for: Infrastructure projects Foreign exchange differences Interfund receivables Total RM’000 2020 At 1 January – Transfer to 12-Month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) Allowance made, net Amount written off At 31 December 595,108 63,881 197,685 (63,881) 424,124 – 1,216,917 – (131,281) 304,885 – 832,593 131,281 332,493 – 597,578 – 31,203 (2,119) 453,208 – 668,581 (2,119) 1,883,379 522,081 154,315 456,472 1,132,868 (46,227) 81,174 (34,947) – – 119,254 – 595,108 (14,236) (23,568) – 197,685 14,236 (2,205) (9,432) 424,124 – 93,481 (9,432) 1,216,917 FINANCIAL STATEMENTS 31 December 2020 Allowance for impairment on ex-staff financing: – Stage 1: 12-Month ECL – Stage 3: Lifetime ECL credit impaired Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 8,899 3,249 8,623 2,960 146,937 85,361 1,622,826 1,864,023 – – – 3,249 146,937 85,361 1,622,826 1,863,747 – – – 2,960 (1) (590) 1,863,432 – (498) 2,751 (1) (590) 1,863,156 – (498) 2,462 2019 At 1 January – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Allowance/(written back) made, net Amount written off At 31 December Bank 12-Month ECL Stage 1 RM’000 Lifetime ECL Not Credit Impaired Stage 2 RM’000 Lifetime ECL Credit Impaired Stage 3 RM’000 Deposits from Customers Group and Bank At amortised cost Fixed deposits and negotiable instruments of deposits (a) Total RM’000 (b) 593,149 63,881 197,686 (63,881) 419,035 – 1,209,870 – (130,517) 304,932 831,445 130,517 331,864 596,186 – 23,559 442,594 – 660,355 1,870,225 521,902 154,298 450,693 1,126,893 (46,227) 81,174 (34,947) – – 117,474 – 593,149 (14,236) (23,550) – 197,686 14,236 (1,515) (9,432) 419,035 – 92,409 (9,432) 1,209,870 2020 RM’000 2019 RM’000 5,346,836 4,852,186 1,462,647 3,884,189 5,346,836 880,874 3,971,312 4,852,186 4,872,156 131,416 161,300 181,964 5,346,836 4,253,976 254,946 272,454 70,810 4,852,186 The deposits are sourced from the following types of customers: Business enterprises Government and statutory bodies 2020 At 1 January – Transfer to 12-Month ECL (Stage 1) – Transfer to Lifetime ECL not credit impaired (Stage 2) Allowance made, net At 31 December (g) The deposits maturity structure are as follows: Less than six months Six months to one year Three years to five years Over five years 2019 At 1 January – Transfer to Lifetime ECL not credit impaired (Stage 2) – Transfer to Lifetime ECL credit impaired (Stage 3) Allowance/(written back) made, net Amount written off At 31 December 210 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 211
108. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) (h) 31 December 2020 Deposits and Placements from Financial Institutions (j) Sukuk Group and Bank At amortised cost Licensed banks (a) (i) 2019 RM’000 80,092 501,519 80,092 Note Note Other payables Zakat payables Kafalah received in advance Shariah non-compliant income Interfund payables (i) (i) (ii) Bank 2019 RM’000 2020 RM’000 2019 RM’000 30,425 10,742 16,883 – 74,431 132,481 7,346 24,520 19,854 27 182,039 233,786 22,653 9,823 15,975 – – 48,451 6,382 21,350 19,854 27 159,632 207,245 Shariah non-compliant income No. of events SNC income derecognised from the Bank’s income due to placement of Islamic fund in Conventional Instrument 2020 RM’000 – – No. of events – – 2 2 2019 RM’000 27 27 The Bank has taken necessary corrective as well as preventive measures to avoid the same incidences from recurrence where the rectification plan had been endorsed by the Shariah Committee. During the financial year 2020, there was no incident of Shariah non-compliance event. Shariah NonCompliance Income RM’000 Total RM’000 Undistributed funds as at 31 December 2019/1 January 2020 27 27 Distributed during the year (27) (27) – – Group and Bank Undistributed funds as at 31 December 2020 (ii) Interfund payables are unsecured, profit free and are repayable on demand. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2019 RM’000 (i) 4,041,259 4,041,259 3,034,278 3,034,278 Guaranteed Sukuk Murabahah (ii) 3,041,441 3,041,441 3,041,969 3,041,969 7,082,700 6,076,247 501,519 2020 RM’000 2020 RM’000 Non-guaranteed Sukuk Murabahah Other Liabilities Group 212 Group and Bank 2020 RM’000 The deposits maturity structure are as follows: Less than six months FINANCIAL STATEMENTS 31 December 2020 (i) These sukuk carry profit rates ranging between 2.80% to 4.98% per annum and for tenures of 5 years to 19 years. These sukuk will mature in March 2022, 2027, 2032, October 2025, 2027, 2030 and November 2026, 2031 and 2035. (ii) These sukuk carry profit rates ranging between 4.19% to 4.85% per annum and for tenures of 7 to 20 years. These sukuk will mature in September 2021, 2024, 2029 and 2034 respectively. The movements in the sukuk are as follows: Group and Bank Non-guaranteed Sukuk Murabahah Principal At 1 January Issued during the year At 31 December Accrued profit payable At 1 January Charge for the year Payment during the year At 31 December Guaranteed notes Sukuk Murabahah Principal At 1 January/31 December Accrued profit payable At 1 January Charge for the year Payment during the year At 31 December 2020 RM’000 2019 RM’000 3,000,000 1,000,000 4,000,000 3,000,000 – 3,000,000 34,278 147,146 (140,165) 41,259 34,656 139,787 (140,165) 34,278 4,041,259 3,034,278 3,000,000 3,000,000 41,969 137,101 (137,629) 41,441 42,202 137,397 (137,630) 41,969 3,041,441 3,041,969 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 213
109. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) 31 December 2020 (k)Reserves (m) Income Derived from Investment of Shareholders’ Funds Group Note Non-distributable: Statutory reserve Unrealised FVOCI reserve (i) (ii) Distributable: Retained profits (i) Bank 2019 RM’000 2020 RM’000 2019 RM’000 443,483 195,475 638,958 443,483 154,415 597,898 443,483 195,475 638,958 443,483 154,415 597,898 391,532 1,030,490 608,034 1,205,932 283,360 922,318 569,654 1,167,552 The statutory reserves are maintained in compliance with the requirements of Section 39 of Development Financial Institution Act 2002 (“the Act”) and are not distributable as cash dividends. Under the Act, the Bank is required to transfer at least 25% of its profit after tax, as the statutory reserves is more than 50% but less than 100% of its paid up capital. (ii) Unrealised FVOCI reserve represents the cumulative fair value changes and allowance for expected credit loss, net of tax, of FVOCI financial assets until they are disposed of or impaired. Movements of the FVOCI reserve are as follows: At 1 January Unrealised gain on fair value changes Changes in allowance for expected credit loss Transfer from retained profits on the disposal of equity instruments at FVOCI Transfer to deferred tax At 31 December Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 154,415 49,349 9,432 23,441 75,060 55,914 154,415 49,349 9,432 23,441 75,060 55,914 179 (17,900) 195,475 – – 154,415 179 (17,900) 195,475 – – 154,415 Income Derived from Investment of Depositors’ Funds Group 2020 RM’000 Finance Income Financing and advances (Loss)/gain on financing modification # Other income: Fee income Ta’widh Of which: Finance income earned on impaired financing and advances 214 Group 2020 RM’000 Group (l) FINANCIAL STATEMENTS 31 December 2020 Accretion of discount less amortisation of premium # 2020 RM’000 2019 RM’000 203,530 1,682 191,988 (75) 203,530 1,682 10,950 694 203,557 13,460 258 218,930 10,950 694 203,557 13,460 258 218,930 6,385 4,203 6,473 4,220 2019 RM’000 2020 RM’000 2019 RM’000 465,252 13 33,069 14,605 86,068 599,007 2,986 601,993 359,130 3,864 17,894 42,343 81,555 504,786 16,041 520,827 460,142 13 33,069 14,275 86,068 593,567 2,986 596,553 356,534 3,864 17,894 41,349 81,555 501,196 16,041 517,237 This relates to Rescheduled and Restructured (“R&R”) financing provided prior to 1 January 2020. Group Other income: Net gain arising on financial investment at FVTPL: – unrealised revaluation gain Net gain arising on financial investment at FVOCI : – net gain on disposal Stage 1 allowance made during the year against ISF Stage 2 allowance made during the year against ISF Rental income –Subsidiaries – Others Fee income Ta’widh Others fee Bank 2019 RM’000 191,988 (75) BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Finance Income Financing and advances Gain on financing modification # Compensation from the Government Deposits and placements with financial institution Financial investments at FVOCI Bank 2020 RM’000 Of which: Finance income earned on impaired financing and advances Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 4,999 – 4,999 – 8,242 58,562 79,158 18,882 – – 8,242 58,562 79,158 18,882 – – – 155 28,034 1,612 5 782,760 – – 24,615 486 – 564,810 95 155 26,140 1,612 5 775,521 – – 24,439 486 – 561,044 15,632 7,417 15,545 7,392 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 215
110. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) (n) 31 December 2020 Allowances for Impairment Losses of Financing and Advances (q) Group 2020 RM’000 Stage 1– 12-month ECL, net Stage 2 – Lifetime ECL not credit impaired, net Stage 3 – Lifetime ECL credit impaired, net Staff financing: Stage 1 – 12-month ECL, net Impaired financing: Written off Recovered (o) Overhead Expenses Bank 2019 RM’000 Group 2020 RM’000 2019 RM’000 237,694 399,893 31,203 73,027 43,370 (22,916) 238,505 398,500 23,559 71,247 43,388 (22,226) (209) – (209) – 2,459 (15,760) 655,280 809 (433) 93,857 50 (15,437) 644,968 787 (77) 93,119 Note Personnel costs Establishment related expenses Promotion and marketing expenses General administrative expenses (i) Group and Bank Financial investments at FVOCI Allowance for ex-staff financing: Stage 1 – 12-month ECL, net Stage 3 – Lifetime ECL credit impaired, net 2020 RM’000 2019 RM’000 9,432 55,914 1 93 9,526 – (12) 55,902 Income Attributable to the Depositors Deposits from customers Deposits and placements from financial institutions 2020 RM’000 2019 RM’000 130,154 15,808 145,962 190,797 4,342 195,139 (iii) 2019 RM’000 36,887 4,950 2,706 15,020 59,563 40,263 4,326 1,888 11,365 57,842 35,412 4,740 2,706 14,799 57,657 39,615 4,244 1,887 12,841 58,587 – 59,563 – 57,842 (106) 57,551 – 58,587 25,201 292 5,699 4,857 31,648 214 4,190 4,211 24,034 279 5,494 4,767 31,129 207 4,098 4,181 838 36,887 – 40,263 838 35,412 – 39,615 1,315 3,635 4,950 918 3,408 4,326 1,313 3,427 4,740 918 3,326 4,244 2,706 1,888 2,706 1,887 15,020 11,365 14,799 12,841 General administrative expenses General administrative expenses 2020 RM’000 Promotion and marketing expenses Advertisement and publicity (iv) 2019 RM’000 Establishment related expenses Repairs and maintenance of property, plant and equipment Information technology expenses Group and Bank Bank 2020 RM’000 Personnel costs Salaries, allowances and bonuses Social security cost Pension costs – Defined contribution plan Other staff related expenses Non-executive Directors’ fees and remuneration (ii) (p) (i) (ii) (iii) (iv) Overhead expenses charged to subsidiaries via SLA Allowance for Impairment Losses on Other Assets The above overhead expenses have been determined after charging amongst other items the following: Group Shariah Committee’s remuneration 216 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 FINANCIAL STATEMENTS 31 December 2020 Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 348 224 348 224 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 217
111. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 48 . ISLAMIC FINANCIAL BUSINESS (CONT’D.) 48. ISLAMIC FINANCIAL BUSINESS (CONT’D.) (r) 31 December 2020 Finance Cost Group Sukuk Lease Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 284,248 12 284,260 277,184 – 277,184 284,248 12 284,260 277,184 – 277,184 (u) Capital Adequacy Capital management Regulatory capital The following table sets forth capital resources and capital adequacy for the Bank as at reporting date. Bank 2020 RM’000 (s)Zakat Group Zakat Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 9,688 24,296 8,769 21,126 FINANCIAL STATEMENTS 31 December 2020 2019 RM’000 Tier 1 capital Capital funds Other reserves Less: Deferred tax asset Total Tier 1 capital 2,722,657 922,318 (110,461) 3,534,514 1,717,418 1,167,552 – 2,884,970 Zakat represents business zakat payable by the Bank to comply with the principles of Shariah and as endorsed by the Shariah Committee. The Bank only pays zakat on its business and does not pay zakat on behalf of depositors or shareholders. The zakat on business for the financial year has been computed using the capital growth computation method at the rate of 2.5775% (2019: 2.5775%). Tier 2 capital Government support funds Stage 1 and Stage 2 expected credit loss allowances Total Tier 2 capital 505,774 1,427,631 1,933,405 212,255 790,835 1,003,090 The zakat amount is paid to the states’ zakat management agencies and eligible beneficiaries (asnaf) in Malaysia. The proposals of distribution of zakat fund by the Bank to eligible beneficiaries (asnaf) were approved by the Shariah Committee. Total capital base 5,467,919 3,888,060 (t) Breakdown of risk-weighted assets in the various categories of risk-weights: Bank Commitments and Contingencies Group and Bank Contingencies as at the financial year end constitute the following: Disbursement of financing and advances to industries Secured guarantees on behalf of customers given to third parties 2020 RM’000 2019 RM’000 4,213,219 2,280,496 6,493,715 4,505,183 2,264,486 6,769,669 20% 50% 100% 2020 RM’000 2019 RM’000 158,948 1,168,734 15,946,126 17,273,808 305,054 1,235,447 14,944,801 16,485,302 Without deducting proposed dividend: Bank Core capital ratio RWCR 218 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 2020 % 2019 % 20.462 31.654 17.500 23.585 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 219
112. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 49 . GOVERNMENT FUNDS 49. GOVERNMENT FUNDS (CONT’D.) 220 As a development financial institutution, the Bank perform its mandated roles to promote strategic sectors identified by the Government of Malaysia as follows: (a) Tourism Infrastructure Fund The objective of the tourism infrastructure fund is to provide financial assistance to existing and new companies dealing with or involved in tourism related activities and services. (b) Tourism Infrastructure Development Fund The objective of the tourism infrastructure development fund is to provide financial assistance to existing and new companies dealing with or involved in tourism related activities and services. (c) Maritime Fund The objective of the maritime fund is to provide financial assistance to existing and new companies dealing with or involved in maritime related activities and services. (d) Maritime Development Fund The objective of the maritime development fund is to provide financial assistance to existing and new companies dealing with or involved in maritime related activities and services. (e) Public Transport Fund The objective of the public transport fund is to increase the utilisation of public transport by funding the improvements and growth of public transport coverage and services. (f) Industry Digitalisation Transformation Fund The objective of the industry digitalisation transformation fund is to accelerate the industry adoption of Industry 4.0 related technologies, fund the transformation of Malaysia’s industrial capabilities and support the adoption of digital transformation. (g) Sustainable Development Financing Fund The objective of the sustainable development financing fund is to support Government’s efforts to implement the 17 Sustainable Development Goals (SDGs) under the United Nation’s Development Programme 2030 agenda for sustainable development. (h) Tourism Infrastructure Fund 2.0 The objective of the tourism infrastructure fund 2.0 is to provide financial assistance to existing and new companies dealing with or involved in tourism related activities and services. (i) Maritime and Logistics Fund The objective of the maritime and logistics fund is to provide financial assistance to existing and new companies dealing with or involved in maritime related activities and services. Maritime and logistics fund was formerly known as maritime fund 2.0. (j) Public Transport Fund 2.0 The objective of the public transport fund 2.0 is to increase the utilisation of public transport by funding the improvements and growth of public transport coverage and services. For all the above funds, the Group and the Bank act as a financier that bear the credit risk and recognise its credit losses in the financial statements. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 31 December 2020 FINANCIAL STATEMENTS 31 December 2020 49.1 Performance of the fund 2020 Tourism Infrastructure fund 2.0 RM’000 Group Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry * Industry Digitalisation Transformation fund* RM’000 Sustainable Development Financing fund* RM’000 Maritime and Logistics fund* RM’000 Public Transport fund 2.0 RM’000 1,000,000 (424,272) 575,728 1,500,000 (279,856) 1,220,144 500,000 (38,752) 461,248 2,000,000 (606,348) 1,393,652 2,000,000 (376,000) 1,624,000 7,000,000 (1,725,228) 5,274,772 19,296 – 19,296 119,260 (15,588) 103,672 974 – 974 225,704 – 225,704 134,468 – 134,468 499,702 (15,588) 484,114 2 3 1 2 3 11 Dec 20 Dec 21 Dec 20 Dec 21 Dec 21 Subtotal 1 RM’000 Fund was created on 1 January 2019 and the expiry dates for Maritime and Logistics, Industry Digitalisation Transformation and Sustainable Development Financing funds were extended to December 2021. The allocated funds for Industry Digitalisation Transformation fund was reduced to RM2.0 billion and allocated funds for Sustainable Development fund was increased to RM2.0 billion effective October 2020. 2020 Group Tourism Infrastructure fund RM’000 Tourism Infrastructure Development fund RM’000 Maritime fund RM’000 Maritime Development fund RM’000 Public Transport fund RM’000 Subtotal 2 RM’000 Allocated funds Net approved Fund available 2,400,000 (1,849,114) 550,886 2,000,000 (1,168,199) 831,801 4,494,258 (2,983,696) 1,510,562 3,000,000 (741,272) 2,258,728 1,000,000 (326,043) 673,957 12,894,258 (7,068,324) 5,825,934 Loans, financing and advances: Disbursement Repayment Outstanding 1,847,359 (997,426) 849,933 885,911 (189,794) 696,117 2,983,696 (1,718,127) 1,265,569 587,299 (64,257) 523,042 325,962 (306,590) 19,372 6,630,227 (3,276,194) 3,354,033 57 14 41 7 107 226 Dec 18 Dec 18 Dec 18 Dec 18 Dec 18 Number of beneficiaries Expiry BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 221
113. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 49 . GOVERNMENT FUNDS (CONT’D.) 49. GOVERNMENT FUNDS (CONT’D.) 31 December 2020 49.1 Performance of the fund (cont’d.) 49.1 Performance of the fund (cont’d.) 2019 Tourism Infrastructure fund 2.0* RM’000 Group Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry * 1,000,000 (324,272) 675,728 Maritime fund* RM’000 1,500,000 (212,473) 1,287,527 Public Transport fund 2.0* RM’000 2020 Industry Digitalisation Transformation fund* RM’000 500,000 (10,552) 489,448 3,000,000 (224,048) 2,775,952 Sustainable Development Financing fund* RM’000 1,000,000 (418,603) 581,397 Subtotal 1 RM’000 7,000,000 (1,189,948) 5,810,052 11,370 – 11,370 22,230 – 22,230 – – – 177,948 (8,953) 168,995 – – – 211,548 (8,953) 202,595 1 1 – 1 – 3 Dec 20 Dec 20 Dec 20 Dec 20 Dec 20 Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry 222 2,400,000 (1,849,114) 550,886 Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Tourism Infrastructure Development fund RM’000 2,000,000 (1,168,199) 831,801 Maritime fund RM’000 4,494,258 (3,233,696) 1,260,562 Maritime Development fund RM’000 3,000,000 (741,272) 2,258,728 Public Transport fund RM’000 1,000,000 (326,043) 673,957 12,894,258 (7,318,324) 5,575,934 Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries 1,847,359 (948,306) 899,053 705,809 (201,544) 504,265 2,983,696 (1,776,134) 1,207,562 434,033 (47,349) 386,684 325,962 (299,981) 25,981 6,296,859 (3,273,314) 3,023,545 57 12 41 6 107 223 Dec 18 Dec 18 Dec 18 Dec 18 Dec 18 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Total RM’000 Subtotal 1 RM’000 Subtotal 2 RM’000 Total RM’000 7,000,000 (1,725,228) 5,274,772 12,894,258 (7,068,324) 5,825,934 19,894,258 (8,793,552) 11,100,706 7,000,000 (1,189,948) 5,810,052 12,894,258 (7,318,324) 5,575,934 19,894,258 (8,508,272) 11,385,986 499,702 (15,588) 484,114 6,630,227 (3,276,194) 3,354,033 7,129,929 (3,291,782) 3,838,147 211,548 (8,953) 202,595 6,296,859 (3,273,314) 3,023,545 6,508,407 (3,282,267) 3,226,140 11 226 237 3 223 226 Industry Digitalisation Transformation fund* RM’000 Sustainable Development Financing fund* RM’000 Subtotal 1 RM’000 Tourism Infrastructure fund 2.0 RM’000 Allocated funds Net approved Fund available Subtotal 2 RM’000 2019 Subtotal 2 RM’000 2020 Bank 2019 Tourism Infrastructure fund RM’000 Subtotal 1 RM’000 Group Fund was created on 1 January 2019. Group FINANCIAL STATEMENTS 31 December 2020 Expiry * Maritime and Logistics fund* RM’000 Public Transport fund 2.0 RM’000 1,000,000 (424,272) 575,728 1,500,000 (279,856) 1,220,144 – – – 2,000,000 (606,348) 1,393,652 2,000,000 (376,000) 1,624,000 6,500,000 (1,686,476) 4,813,524 19,296 – 19,296 119,260 (15,588) 103,672 – – – 225,704 – 225,704 134,468 – 134,468 498,728 (15,588) 483,140 2 3 – 2 3 10 Dec 20 Dec 21 Dec 20 Dec 21 Dec 21 Fund was created on 1 January 2019 and the expiry dates for Maritime and Logistics, Industry Digitalisation Transformation and Sustainable Development Financing funds were extended to December 2021. The allocated funds for Industry Digitalisation Transformation fund was reduced to RM2.0 billion and allocated funds for Sustainable Development fund was increased to RM2.0 billion effective October 2020. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 223
114. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 49 . GOVERNMENT FUNDS (CONT’D.) 49. GOVERNMENT FUNDS (CONT’D.) 31 December 2020 49.1 Performance of the fund (cont’d.) 49.1 Performance of the fund (cont’d.) 2020 Tourism Infrastructure fund RM’000 Bank Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry 2,400,000 (1,849,114) 550,886 Tourism Infrastructure Development fund RM’000 2,000,000 (1,168,199) 831,801 2019 Maritime Development fund RM’000 Maritime fund RM’000 4,494,258 (2,983,696) 1,510,562 3,000,000 (741,272) 2,258,728 Public Transport fund RM’000 5,742 (5,742) – Subtotal 2 RM’000 Bank Tourism Infrastructure fund RM’000 Allocated funds Net approved Fund available 3,000,000 (741,272) 2,258,728 5,742 (5,742) – 11,900,000 (6,998,023) 4,901,977 Loans, financing and advances: Disbursement Repayment Outstanding 1,847,359 (948,306) 899,053 705,809 (201,544) 504,265 2,983,696 (1,776,134) 1,207,562 434,033 (47,349) 386,684 5,661 (5,661) – 5,976,558 (2,978,994) 2,997,564 57 12 41 6 1 117 Dec 18 Dec 18 Dec 18 Dec 18 Dec 18 Total RM’000 Subtotal 1 RM’000 5,661 (5,661) – 6,309,926 (2,975,265) 3,334,661 57 14 41 7 1 120 Dec 18 Dec 18 Dec 18 Dec 18 Dec 18 Industry Digitalisation Transformation fund* RM’000 Sustainable Development Financing fund* RM’000 Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry * 224 1,500,000 (212,473) 1,287,527 – – – Number of beneficiaries Expiry 2020 3,000,000 (224,048) 2,775,952 1,000,000 (418,603) 581,397 Bank Subtotal 1 RM’000 22,230 – 22,230 – – – 177,948 (8,953) 168,995 – – – 211,548 (8,953) 202,595 1 1 – 1 – 3 Dec 20 Dec 20 Dec 20 Dec 20 Dec 20 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 Allocated funds Net approved Fund available 6,500,000 (1,179,396) 5,320,604 11,370 – 11,370 Fund was created on 1 January 2019. Subtotal 2 RM’000 4,494,258 (3,233,696) 1,260,562 587,299 (64,257) 523,042 1,000,000 (324,272) 675,728 Public Transport fund RM’000 2,000,000 (1,168,199) 831,801 2,983,696 (1,718,127) 1,265,569 Maritime fund 2.0* RM’000 Maritime Development fund RM’000 2,400,000 (1,849,114) 550,886 885,911 (189,794) 696,117 Public Transport fund 2.0* RM’000 Maritime fund RM’000 Allocated funds Net approved Fund available 1,847,359 (997,426) 849,933 Tourism Infrastructure fund 2.0* RM’000 Tourism Infrastructure Development fund RM’000 11,900,000 (6,748,023) 5,151,977 2019 Bank FINANCIAL STATEMENTS 31 December 2020 Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Subtotal 1 RM’000 2019 Subtotal 2 RM’000 Subtotal 2 RM’000 Total RM’000 6,500,000 (1,686,476) 4,813,524 11,900,000 (6,748,023) 5,151,977 18,400,000 (8,434,499) 9,965,501 6,500,000 (1,179,396) 5,320,604 11,900,000 (6,998,023) 4,901,977 18,400,000 (8,177,419) 10,222,581 498,728 (15,588) 483,140 6,309,926 (2,975,265) 3,334,661 6,808,654 (2,990,853) 3,817,801 211,548 (8,953) 202,595 5,976,558 (2,978,994) 2,997,564 6,188,106 (2,987,947) 3,200,159 10 120 130 3 117 120 50. SIGNIFICANT EVENTS 1. Full-Fledged Islamic Development Financial Institution (“FFIDFI”) The Bank started the journey to become a FFIDFI in 2017 and engaged a consultant to prepare a road map to achieve the objective in 2018. The road map was mainly focused on identifying the issues and initiatives to convert the Conventional loan to Islamic financing. The initiatives had been identified as one of the key Strategic Thrusts carved in the 3-Year Strategic Plan 2020 – 2022 under “Adhering to Islamic Principles” as approved by the Board of Directors (“BOD”) on 27 November 2019. On 5 January 2021, Bank Negara Malaysia (“BNM”) included an additional requirement for the Bank to become a FFIDFI. The Bank is required to meet a threshold of Shariah Non-Compliance Net Income of less than 33 percent in order to be recognised as a FFIDFI. BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020 225
115. FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 31 December 2020 50 . SIGNIFICANT EVENTS (CONT’D.) 2. Exposure to COVID-19 Impacted Sectors The table below presents the loans, financing and advances (net of impairment) by industry sectors identified as directly vulnerable affected by COVID-19 pandemic for the Group and the Bank: Group Construction Finance, insurance/takaful and business Hotel and restaurants Transport, storage and communications 3. Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 2,518,477 99,908 773,089 2,653,598 2,534,349 89,089 758,757 3,140,898 2,518,477 – 721,882 2,627,690 2,534,349 – 737,249 3,113,199 COVID-19 Customer Relief and Support Measures Group Total payment moratoriums, repayment assistances, rescheduling and restructuring (“R&R”) granted Matured and repaying as per revised schedules Extended and repaying as per revised schedules As a percentage of total: Matured and repaying as per revised schedules Extended and repaying as per revised schedules Bank Total payment moratoriums, repayment assistances, rescheduling and restructuring (“R&R”) granted Matured and repaying as per revised schedules Extended and repaying as per revised schedules As a percentage of total: Matured and repaying as per revised schedules Extended and repaying as per revised schedules Loans, advances and financing RM’000 6,400,704 3,993,365 2,407,339 62.39% 37.61% Loans, advances and financing RM’000 6,361,924 3,985,838 2,376,086 62.65% 37.35% 51. SUBSEQUENT EVENTS During the 2020 Budget Speech on 11 October 2019, the previous Finance Minister announced a restructuring exercise of the Development Financial Institutions (“DFIs”). The objective of this exercise is to strengthen the development finance ecosystem. The DFIs involved in this exercise are Bank Pembangunan Malaysia Berhad (“BPMB”), Danajamin Nasional Berhad (“Danajamin”), Small Medium Enterprise Development Bank Malaysia Berhad (“SME Bank”) and Export-Import Bank of Malaysia Berhad (“Exim Bank”). The Steering Committee chaired by the Ministry of Finance (“MOF”), has endorsed the institutional structure for Phase 1 of the DFI merger. Under the proposed structure, Danajamin will become a wholly-owned subsidiary of BPMB. This page was intentionally left blank 226 BANK PEMBANGUNAN MALAYSIA BERHAD ANNUAL INTEGRATED REPORT 2020
116. This page was intentionally left blank
117. Bank Pembangunan Malaysia Berhad (16562-K) Menara Bank Pembangunan, Bandar Wawasan 1016, Jalan Sultan Ismail, Peti Surat 10788 50724 Kuala Lumpur, Malaysia. Tel: 603-2611 3888 Fax: 603-2698 5701 www.bpmb.com.my