Bank Pembangunan Malaysia Berhad IMTN Sukuk RM5 Billion - Information Memorandum

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1. STRICTLY CONFIDENTIAL – DO NOT FORWARD ATTACHED IS AN ELECTRONIC COPY OF THE INFORMATION MEMORANDUM DATED 7 SEPTEMBER 2020 (“INFORMATION MEMORANDUM”), IN RELATION TO THE ISSUANCE OF ISLAMIC MEDIUM TERM NOTES (“SUKUK WAKALAH”) UNDER AN ISLAMIC MEDIUM TERM NOTES PROGRAMME OF UP TO RM5.0 BILLION IN NOMINAL VALUE UNDER THE SHARIAH PRINCIPLE OF WAKALAH BI AL-ISTITHMAR (“SUKUK WAKALAH PROGRAMME”), BY BANK PEMBANGUNAN MALAYSIA BERHAD (COMPANY REGISTRATION NO. 197301003074 (16562-K)) (“ISSUER”). BY OPENING AND ACCEPTING THIS ELECTRONIC TRANSMISSION CONTAINING THE INFORMATION MEMORANDUM, THE RECIPIENT AGREES TO BE BOUND BY ALL THE TERMS AND CONDITIONS BELOW. IF YOU DO NOT AGREE TO ANY OF THE TERMS AND CONDITIONS, PLEASE DELETE THIS ELECTRONIC TRANSMISSION IMMEDIATELY. THE INFORMATION MEMORANDUM IS STRICTLY CONFIDENTIAL AND ANY DISTRIBUTION OF THE INFORMATION MEMORANDUM WITHOUT THE PRIOR CONSENT OF THE ISSUER, THE JOINT PRINCIPAL ADVISERS OR THE JOINT LEAD ARRANGERS OR THE JOINT LEAD MANAGERS IS UNAUTHORISED. THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE ISSUER, THE JOINT PRINCIPAL ADVISERS OR THE JOINT LEAD ARRANGERS OR THE JOINT LEAD MANAGERS AND ITS/THEIR RESPECTIVE AGENTS IS PROHIBITED FROM DISCLOSING THE INFORMATION MEMORANDUM, ALTERING THE CONTENTS OF THE INFORMATION MEMORANDUM OR FORWARDING A COPY OF THE INFORMATION MEMORANDUM OR ANY PORTION THEREOF BY ELECTRONIC MAIL OR OTHERWISE TO ANY PERSON. THE INFORMATION MEMORANDUM IS NOT A PROSPECTUS AND HAS NOT BEEN REGISTERED NOR WILL IT BE REGISTERED AS A PROSPECTUS UNDER THE CAPITAL MARKETS AND SERVICES ACT 2007, AS AMENDED FROM TIME TO TIME (“CMSA”). AT ISSUANCE, THE SUKUK WAKALAH MAY ONLY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF DIRECTLY OR INDIRECTLY TO A PERSON TO WHOM AN OFFER OR INVITATION TO SUBSCRIBE THE SUKUK WAKALAH MAY BE MADE AND TO WHOM THE SUKUK WAKALAH ARE ISSUED WOULD FALL WITHIN PART I OF SCHEDULE 6 AND PART I OF SCHEDULE 7 OF THE CMSA, READ TOGETHER WITH SCHEDULE 9 (OR SECTION 257(3)) OF THE CMSA SUBJECT TO ANY CHANGE IN THE APPLICABLE LAWS. THEREAFTER, THE SUKUK WAKALAH MAY ONLY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF DIRECTLY OR INDIRECTLY TO A PERSON TO WHOM AN OFFER OR INVITATION TO SUBSCRIBE THE SUKUK WAKALAH MAY BE MADE AND TO WHOM THE SUKUK WAKALAH ARE ISSUED WOULD FALL WITHIN PART I OF SCHEDULE 6 (OR SECTION 229(1)(b)) OF THE CMSA, READ TOGETHER WITH SCHEDULE 9 (OR SECTION 257(3)) OF THE CMSA SUBJECT TO ANY CHANGE IN APPLICABLE LAWS. FURTHER, AS THE SUKUK WAKALAH HAVE BEEN ACCORDED A RATING OF AAAIS BY MALAYSIAN RATING CORPORATION BERHAD, THE ISSUANCE OF, OFFER FOR SUBSCRIPTION OR PURCHASE OF, OR INVITATION TO SUBSCRIBE OR PURCHASE OF THE SUKUK WAKALAH FALLS WITHIN PARAGRAPH 12, SCHEDULE 8 (OR SECTION 257(1)) OF THE CMSA. THIS TRANSMISSION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SUKUK WAKALAH IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL UNDER THE LAWS OF SUCH JURISDICTIONS. TRANSMISSION OVER THE INTERNET MAY BE SUBJECT TO INTERRUPTIONS, TRANSMISSION BLACKOUT, DELAYED TRANSMISSION DUE TO INTERNET TRAFFIC, INCORRECT DATA TRANSMISSION DUE TO THE PUBLIC NATURE OF THE INTERNET, DATA CORRUPTION, INTERCEPTION, UNAUTHORISED AMENDMENT, TAMPERING, VIRUSES OR OTHER TECHNICAL, MECHANICAL OR SYSTEMIC RISKS ASSOCIATED WITH INTERNET TRANSMISSIONS. THE ISSUER, THE JOINT PRINCIPAL ADVISERS, THE JOINT LEAD ARRANGERS, THE JOINT LEAD MANAGERS OR ITS/THEIR RESPECTIVE AGENTS HAVE NOT ACCEPTED AND WILL NOT ACCEPT ANY RESPONSIBILITY AND/OR LIABILITY FOR ANY SUCH INTERRUPTION, TRANSMISSION BLACKOUT, DELAYED TRANSMISSION, INCORRECT DATA TRANSMISSION, DATA CORRUPTION, INTERCEPTION, UNAUTHORISED AMENDMENT, TAMPERING OR VIRUSES OR ANY CONSEQUENCES THEREOF WHICH MAY RESULT IN A DIFFERENCE BETWEEN THE INFORMATION MEMORANDUM DISTRIBUTED TO YOU IN ELECTRONIC FORMAT AND THE HARD COPY VERSION AVAILABLE TO YOU ON REQUEST FROM US. THE FOREGOING IS IN ADDITION TO AND WITHOUT PREJUDICE TO ALL OTHER DISCLAIMERS AND AGREEMENTS WHICH A RECIPIENT OF THE INFORMATION MEMORANDUM SHALL BE DEEMED TO HAVE AGREED TO OR BE BOUND BY AS PROVIDED IN THE INFORMATION MEMORANDUM.
2. STRICTLY PRIVATE AND CONFIDENTIAL BANK PEMBANGUNAN MALAYSIA BERHAD (COMPANY REGISTRATION NO. 197301003074 (16562-K)) Information Memorandum Islamic Medium Term Notes Programme of up to RM5.0 billion in Nominal Value to be established under the Shariah Principle of Wakalah Bi Al-Istithmar Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers CIMB Investment Bank Berhad (Company Registration No. 197401001266 (18417-M)) Maybank Investment Bank Berhad (Company Registration No. 197301002412 (15938-H)) This Information Memorandum is dated 7 September 2020
3. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL IMPORTANT NOTICE Responsibility Statements This Information Memorandum has been approved by the directors of Bank Pembangunan Malaysia Berhad (Company Registration No. 197301003074 (16562-K)) (“Issuer” or “BPMB”) and the Issuer accepts full responsibility for the accuracy of the information contained in this Information Memorandum. The Issuer, after having made all reasonable enquiries, confirms that this Information Memorandum contains all information with respect to the Issuer which is material in the context of the Islamic medium term notes (“Sukuk Wakalah”) to be issued pursuant to the Islamic medium term notes programme of up to RM5.0 billion in nominal value under the Shariah principle of Wakalah Bi Al-Istithmar (“Sukuk Wakalah Programme”). The opinions and intentions expressed in this Information Memorandum in relation to the Issuer are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions and there are no other facts in relation to the Issuer or the Sukuk Wakalah Programme the omission of which would, in the context of the Sukuk Wakalah Programme and each Sukuk Wakalah issuance, make any statement in this Information Memorandum misleading in any material respect and all reasonable enquiries have been made by the Issuer to ascertain such facts and to verify the accuracy of all such information and statements. No representation or warranty, expressed or implied, is made such that the information remains unchanged in any respect as of any date or dates after those stated herein, with respect to any matter concerning the Issuer or any statement made in this Information Memorandum. The Issuer and its Board of Directors accept full responsibility for the information contained in this Information Memorandum. Important Notice and General Statement of Disclaimer This Information Memorandum is being furnished on a private and confidential basis solely for the purpose of enabling prospective investors to consider the purchase of the Sukuk Wakalah to be issued pursuant to the Sukuk Wakalah Programme. The Sukuk Wakalah Programme has been assigned a preliminary rating of AAAIS by Malaysian Rating Corporation Berhad (“MARC”). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the rating agency. None of the information or data contained in this Information Memorandum has been independently verified by CIMB Investment Bank Berhad (Company Registration No. 197401001266 (18417-M)) (“CIMB”) and Maybank Investment Bank Berhad (Company Registration No. 197301002412 (15938-H)) (“Maybank IB”) as the Joint Principal Advisers, Joint Lead Arrangers and Joint Lead Managers (each as hereinafter defined) of the Sukuk Wakalah Programme. Accordingly, no representation, warranty or undertaking, express or implied, is given or assumed by the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers as to the authenticity, origin, validity, accuracy or completeness of such information and data or that the information or data remains unchanged in any respect after the relevant date shown in this Information Memorandum. The Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers have not accepted and will not accept any responsibility for the information and data contained in this Information Memorandum or otherwise in relation to the Sukuk Wakalah Programme and shall not be liable for any consequences of reliance on any of the information or data in this Information Memorandum. Each of the Joint Shariah Advisers (as hereinafter defined) has issued a Shariah pronouncement confirming, amongst others, that the structure and mechanism of the Sukuk Wakalah Programme is Shariah-compliant as at the date of the Shariah pronouncement. It is to be noted that although the Issuer has sought the advice of CIMB Islamic Bank Berhad and Maybank Islamic Berhad as the Joint Shariah Advisers with regards to the conformity of the Sukuk Wakalah to be issued under the Sukuk Wakalah Programme with Shariah, none of the Issuer, the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers and/or the Joint Shariah Advisers shall be liable for any consequences of such reliance and/or assumption of any such compliance. Investors are reminded that, as with any Shariah views, differences in opinion are possible. Each recipient should perform and is deemed to have consulted its own professional advisers and obtained independent Shariah advice on whether each of the structure, the issue and the trading of the Sukuk Wakalah is in compliance with Shariah. Any non-compliance with Shariah may have legal consequences. The information in this Information Memorandum supersedes all other information and material previously supplied (if any) to the recipients. By taking possession of this Information Memorandum, the recipients are acknowledging and agreeing and are deemed to have acknowledged and agreed that they will not rely on any previous information supplied. No person is authorised to give any information or data or to make any representation or warranty other than as contained in this Information Memorandum and, if given or made, any such information, data, representation or warranty must not be relied upon as having been authorised by the Issuer, the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers or any other person. This Information Memorandum has not been and will not be made to comply with the laws of any jurisdiction other than Malaysia (“Foreign Jurisdiction”), and has not been and will not be lodged, registered or approved pursuant to or under any legislation of (or with or by any regulatory authorities or other relevant bodies of) any Foreign Jurisdiction and it does not constitute an issue, offer or sale of, or an invitation to subscribe or purchase the Sukuk Wakalah or any other securities of any kind by any party in any Foreign Jurisdiction. This Information Memorandum is not and is not intended to be a prospectus. Unless otherwise specified in this
4. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Information Memorandum , the information contained in this Information Memorandum is current as at the date hereof. The distribution or possession of this Information Memorandum in or from certain jurisdictions may be restricted or prohibited by law. Each recipient is required to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. Neither the Issuer nor the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers accepts any responsibility or liability to any person in relation to the distribution or possession of this Information Memorandum in or from any such Foreign Jurisdiction. By accepting delivery of this Information Memorandum, each recipient agrees to the terms upon which this Information Memorandum is provided to such recipient as set out in this Information Memorandum, and further agrees and confirms that (a) it will keep confidential all of such information and data, (b) it is lawful for the recipient to subscribe for or purchase the Sukuk Wakalah under all jurisdictions to which the recipient is subject, (c) the recipient has complied with all applicable laws in connection with such subscription or purchase of the Sukuk Wakalah, (d) the Issuer, the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers and their respective directors, officers, employees and professional advisers are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject as a result of such subscription or purchase of the Sukuk Wakalah, and they shall not have any responsibility or liability in the event that such subscription or purchase of the Sukuk Wakalah is or shall become unlawful, unenforceable, voidable or void, (e) it is aware that the Sukuk Wakalah can only be offered, sold, transferred or otherwise disposed of directly or indirectly in accordance with the relevant selling restrictions and all applicable laws, (f) it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of subscribing or purchasing the Sukuk Wakalah, and is able and is prepared to bear the economic and financial risks of investing in or holding the Sukuk Wakalah, (g) it is subscribing or accepting the Sukuk Wakalah for its own account, and (h) it is a person to whom an issue, offer or invitation to subscribe or purchase the Sukuk Wakalah would constitute an excluded offer or excluded issue as specified in Part I of Schedule 6, and Part I of Schedule 7 read together with Schedule 9 or Section 257(3) of the Capital Markets and Services Act 2007 (“CMSA”) at issuance and Part I of Schedule 6 or Section 229(1)(b) read together with Schedule 9 or Section 257(3) of the CMSA thereafter, subject to any change in the applicable laws. Each recipient is solely responsible for seeking all appropriate expert advice as to the laws of all jurisdictions to which it is subject. For the avoidance of doubt, this Information Memorandum shall not constitute an offer or invitation to subscribe or purchase the Sukuk Wakalah in relation to any recipient who does not fall within item (h) above. Further, as the Sukuk Wakalah have been accorded a rating of AAAIS by MARC, the issuance of, offer for subscription or purchase of, or invitation to subscribe or purchase of the Sukuk Wakalah falls within paragraph 12, Schedule 8 (or section 257(1)) of the CMSA. This Information Memorandum or any document delivered under or in relation to the issue, offer and sale of the Sukuk Wakalah is not, and should not be construed as, a recommendation by the Issuer and/or the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers to subscribe or purchase the Sukuk Wakalah. This Information Memorandum is not a substitute for, and should not be regarded as, an independent evaluation and analysis and does not purport to be all-inclusive. Each recipient should perform and is deemed to have made its own independent investigation and analysis of the Issuer, the Sukuk Wakalah Programme and all other relevant matters, and each recipient should consult its own professional advisers. All information and statements herein are subject to the detailed provisions of the respective agreements referred to herein and are qualified in their entirety by reference to such documents. Neither the delivery of this Information Memorandum nor the offering, sale or delivery of any Sukuk Wakalah shall in any circumstance imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Sukuk Wakalah Programme is correct as of any time subsequent to the date indicated in the document containing the same. Neither the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers nor any other advisers for the Sukuk Wakalah Programme undertake to review the financial condition or affairs of the Issuer or to advise any participants of the Sukuk Wakalah Programme or investor in any Sukuk Wakalah of any information coming to their respective attention. The recipient of this Information Memorandum or the prospective investor should review, inter alia, the most recently published documents incorporated by reference to this Information Memorandum when deciding whether or not to purchase any Sukuk Wakalah. This Information Memorandum includes forward-looking statements and reflects projections of future events which may or may not prove to be correct. All of these statements are based on estimates and assumptions made by the Issuer and its advisers and although believed to be reasonable, are subject to risks and uncertainties that may cause actual events or future results to be materially different than expected or indicated by such statements and estimates, and no assurance can be given that any such statements or estimates will be realised. In light of these and other uncertainties, the inclusion of forward-looking statements in this Information Memorandum should not be regarded as a representation or warranty by the Issuer, its advisers or any other persons that the future events as anticipated by the Issuer will occur. Any such statements are not guarantees of performance and involve risks and uncertainties many of which are beyond the control of the Issuer. All discrepancies (if any) between the listed amounts and totals thereof in the tables included in this Information Memorandum are due to certain numbers shown after rounding. This Information Memorandum includes certain historical information, estimates, or reports thereon derived from sources mentioned in this Information Memorandum and other parties with respect to the Malaysian economy, the material businesses which the Issuer operates and certain other matters. Such information, estimates, or reports have been included solely for illustrative purposes. No representation or warranty is made as to the accuracy or completeness of any information, estimates and/or reports thereon derived from such sources or from other third party sources.
5. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Where this Information Memorandum contains or refers to a summary of a document or agreement , the summary is not meant to be exhaustive. The contents of the summary may be subject to some other provisions in the relevant document or agreement. Acknowledgement The Issuer hereby acknowledges that it has authorised the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers to circulate or distribute this Information Memorandum on its behalf in respect of or in connection with the proposed offer or invitation to subscribe for and issue of the Sukuk Wakalah to prospective investors and that no further evidence of authorisation is required. Statements of Disclaimer by the Securities Commission Malaysia A copy of this Information Memorandum will be lodged with the Securities Commission Malaysia (“SC”), which takes no responsibility for its contents. The issue, offer or invitation in relation to the Sukuk Wakalah Programme in this Information Memorandum or otherwise are subject to the fulfilment of various conditions precedent including without limitation the lodgement to the SC. The endorsement from the SAC of the SC was obtained on 23 June 2020, and the lodgement of the Sukuk Wakalah with the SC pursuant to the LOLA Guidelines has been made on 12 August 2020. Each recipient of this Information Memorandum acknowledges and agrees that the acknowledgement of the SC shall not be taken to indicate that the SC recommends the subscription or purchase of the Sukuk Wakalah. The lodgement pursuant to the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework in relation to the proposed issuance of the Sukuk Wakalah has been made with the SC on 12 August 2020. Please note that the lodgement to the SC shall not be taken to indicate that the SC recommends the subscription or purchase of the Sukuk Wakalah. The SC shall not be liable for any non-disclosure on the part of the Issuer and assumes no responsibility for the correctness of any statements made or opinions or reports expressed in this Information Memorandum. EACH ISSUANCE OF SUKUK WAKALAH UNDER THE SUKUK WAKALAH PROGRAMME WILL CARRY DIFFERENT RISKS AND ALL INVESTORS SHOULD EVALUATE EACH ISSUE OF SUKUK WAKALAH ON ITS OWN MERITS. INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT. IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR FINANCIAL, LEGAL AND OTHER ADVISERS BEFORE PURCHASING OR ACQUIRING OR SUBSCRIBING FOR THE SUKUK WAKALAH. Statements of Disclaimer on Shariah Pronouncements CIMB Islamic Bank Berhad and Maybank Islamic Berhad as the Joint Shariah Advisers have approved the structure and mechanism of the Sukuk Wakalah Programme and their compliance with Shariah vide the Shariah pronouncement. However, the approval is only an expression of the view of the Joint Shariah Advisers based on their experience in the subject. There can be no assurance as to the Shariah permissibility of the structure of the issue and the trading of the Sukuk Wakalah and none of the Issuer, the Joint Principal Advisers/Joint Lead Arranger/Joint Lead Managers makes any representation as to the same. Investors are reminded that, as with any Shariah views, differences in opinion are possible. Investors are advised to obtain their own independent Shariah advice and make their own determination as to whether the structure and the future tradability of the Sukuk Wakalah on any secondary market meet their individual standards of Shariah compliance. Documents Incorporated by Reference The following documents published or issued from time to time after the date hereof shall be deemed to be incorporated in, and to form part of, this Information Memorandum: (i) the most recently published audited consolidated and non-consolidated annual financial statements and, if published later, the most recently published interim consolidated and non-consolidated financial statements (if any) of the Issuer; and (ii) all supplements or amendments to this Information Memorandum circulated by the Issuer, if any, save that any statement contained herein or in a document which is deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Information Memorandum to the extent that a statement contained in any such subsequent document which is deemed to be incorporated by reference herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Information Memorandum.
6. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL The Issuer will provide , without charge, to each person to whom a copy of this Information Memorandum has been delivered, upon the request of such person, a copy of any or all of the documents deemed to be incorporated herein by reference unless such documents have been modified or superseded as specified above. Requests for such documents should be directed to the Issuer at its offices set out at the end of this Information Memorandum. CONFIDENTIALITY To the recipient of this Information Memorandum: This Information Memorandum and its contents are strictly confidential and are made strictly on the basis that they will remain confidential. Accordingly, this Information Memorandum and its contents, or any information, which is made available in connection with any further enquiries, must be held in complete confidence. This Information Memorandum is submitted to prospective investors specifically in reference to the Sukuk Wakalah Programme and may not be reproduced or used, in whole or in part, for any purpose, nor furnished to any person other than those to whom copies have been sent by the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers. The recipient must return this Information Memorandum and all reproductions whether in whole or in part and any other information in connection therewith to the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers promptly upon the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers’ request. PRIVACY NOTICE Pursuant to the Personal Data Protection Act 2010 which came into force on 15 November 2013, the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers and their affiliates are required to issue privacy notice to any person for the use and processing of personal information of such person. The privacy notices of the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers are available at the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers’ respective websites. In respect of a person which is a body corporate, the consent and authority of their directors, shareholders, authorised signatories and officers are deemed to have duly obtained to provide the personal data (as defined under the Personal Data Protection Act 2010) as required by the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers and their respective affiliates. [The rest of this page is intentionally left blank]
7. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL TABLE OF CONTENTS Page No . DEFINITIONS 6 SECTION 1.0 INTRODUCTION SECTION 2.0 PRINCIPAL TERMS AND CONDITIONS OF THE SUKUK WAKALAH PROGRAMME 14 SECTION 3.0 CORPORATE INFORMATION OF THE ISSUER 39 SECTION 4.0 BUSINESS OVERVIEW OF THE ISSUER 56 SECTION 5.0 FINANCIAL INFORMATION 61 SECTION 6.0 RISK MANAGEMENT OF THE ISSUER 71 SECTION 7.0 REGULATORY AND SUPERVISORY FRAMEWORK GOVERNING BPMB 75 SECTION 8.0 INVESTMENT CONSIDERATIONS 76 SECTION 9.0 OVERVIEW OF THE ECONOMY 82 SECTION 10.0 OTHER INFORMATION 86 APPENDICES Appendix I Audited Financial Statements of the Issuer for the Financial Year Ended 31 December 2019 Appendix II Unaudited Financial Statements of the Issuer for the Half Year Ended 30 June 2020 9
8. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL DEFINITIONS In this Information Memorandum , the following words or expressions shall have the following meanings except where the context otherwise requires: BICL - BI Credit & Leasing Berhad (Company Registration 198101000931 (67040-T)) BNM - Bank Negara Malaysia BPMB or Issuer - Bank Pembangunan Malaysia Berhad (Company Registration No. 197301003074 (16562-K)) Bursa Malaysia - Bursa Malaysia Securities Berhad Bursa Suq Al-Sila’ - A commodity trading platform established by Bursa Malaysia and managed by Bursa Malaysia Islamic Services Sdn Bhd, with multiple commodity vendors Commodities - Shariah-compliant commodities which may include but are not limited to crude palm oil or such other acceptable commodities (excluding ribawi items in the category of medium of exchange such as currency, gold and silver) which are provided through the commodity trading platform, Bursa Suq Al-Sila’ or such other independent commodity trading platforms as approved by the Joint Shariah Advisers which will be identified at or around the time of each issuance of the Sukuk Wakalah DFIs - Development financial institutions as defined in the DFIA DFIA - Development Financial Institutions Act 2002, as amended from time to time Dissolution Events - The events as identified in paragraph 24 of the Principal Terms and Conditions of the Sukuk Wakalah Programme as set out in Section 2.0 of this Information Memorandum ECL - Expected credit loss Expected Periodic Distribution Amount - Federal Lands Commissioner - On any relevant Periodic Distribution Date, such amount calculated at the Periodic Distribution Rate on the nominal value of the relevant Sukuk Wakalah based on actual/365 days A body of corporation managed by a public officer appointed by Yang di-Pertuan Agong under Federal Commissioner Act 1957 FYE - Financial year ended GMV - Global Maritime Ventures Berhad (Company Registration No. 199301009820 (264557-A)) Government - The Government of Malaysia Page 6 No.
9. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Group - BPMB and its subsidiary companies HYE - Half year ended IT - Information technology Joint Principal Advisers /Joint Lead Arrangers/Joint Lead Managers - CIMB Investment Bank Berhad (Company Registration No. 197401001266 (18417-M)) and Maybank Investment Bank Berhad (Company Registration No. 197301002412 (15938-H)) in their capacity as Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers for the Sukuk Wakalah Programme Joint Shariah Advisers - CIMB Islamic Bank Berhad (Company Registration No. 200401032872 (671380-H)) and Maybank Islamic Berhad (Company Registration No. 200701029411 (787435-M)) in their capacity as Joint Shariah Advisers for the Sukuk Wakalah Programme LOLA Guidelines - the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 (revised and effective 30 June 2020) (as amended from time to time) MARC - Malaysian Rating Corporation Berhad Maturity Date - In respect of any Sukuk Wakalah, the date for payment of the nominal value of that Sukuk Wakalah MOF - Ministry of Finance MOF Inc - Minister of Finance (Incorporated) Periodic Distribution Rate - The periodic distribution rate for each of the Sukuk Wakalah with periodic distribution PLC - Pembangunan Leasing Corporation Sdn Registration No. 197701004799 (35667-P)) PLCCF - PLC Credit & Factoring Sdn Bhd (Company No. 198401001440 (113961-D)) SMEs - Small and medium enterprises SME Bank - Bank Perusahaan Kecil & Sederhana Malaysia Berhad (Company No. 197901005290 (49572-H)) Sukuk Wakalah - The Islamic medium term notes issued under the Sukuk Wakalah Programme Sukuk Wakalah Programme - The Sukuk Wakalah Programme of up to RM5.0 billion in nominal value under the Shariah principle of Wakalah Bi Al-Istithmar Page 7 Bhd (Company
10. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Sukuk Trustee - Malaysian Trustees Berhad (Company Registration No. 197501000080 (21666-V)), in its capacity as Sukuk trustee for the Sukuk Wakalah Programme. Sukukholders - The holders of the Sukuk Wakalah [The rest of this page has been left blank intentionally] Page 8
11. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 1 .0 INTRODUCTION 1.1 The Issuer BPMB was incorporated under the Companies Act 1965 on 28 November 1973 (and deemed to be registered under the Companies Act 2016) under the name of Bank Pembangunan Malaysia Berhad and began its operations on 8 June 1974. On 14 January 1999, BPMB’s name was changed to Bank Pembangunan dan Infrastruktur Malaysia Berhad. In 2005, following a rationalisation exercise initiated by the Government to streamline the operations of the DFIs, BPMB acquired SME Bank (which was then known as Bank Industri & Teknologi Malaysia Berhad). SME Bank was formed as a whollyowned subsidiary of BPMB. Pursuant to the rationalisation, BPMB assumed its current name on 30 September 2005. BPMB is principally engaged in the business of providing financing facilities to finance infrastructure projects, maritime, technology and capital intensive industries in manufacturing as well as other identified sectors in line with the country’s development policy. BPMB’s shareholders are MOF Inc. and Federal Lands Commissioner. 1.2 Brief Description of the Sukuk Wakalah Programme The Sukuk Wakalah Programme is an Islamic medium term notes issuance programme of up to RM5.0 billion in nominal value under the Shariah principle of Wakalah Bi Al-Istithmar pursuant to which Sukuk Wakalah will be issued from time to time, provided always that the aggregate outstanding nominal value of the Sukuk Wakalah issued shall not exceed RM5.0 billion at any one time. The Sukuk Wakalah issued under the Sukuk Wakalah Programme shall be at least one (1) year and up to thirty (30) years as may be determined by the Issuer, provided always that the maturity of the Sukuk Wakalah shall not exceed the tenure of the Sukuk Wakalah Programme, which is thirty (30) years from the date of the first issuance under the Sukuk Wakalah Programme. The Sukuk Wakalah may be issued at any time upon completion of documentation and fulfillment of all conditions precedent to the satisfaction of the Joint Lead Arrangers, unless waived by the Joint Lead Arrangers, provided that the first issuance of the Sukuk Wakalah shall be issued within sixty (60) business days from the date of lodgement with the SC or such other period as may be determined by the SC. The issuance of each tranche of Sukuk Wakalah from time to time under the Sukuk Wakalah Programme shall be effected as follows: Underlying Transaction (1) Pursuant to a Wakalah agreement entered into between the Sukuk Trustee (acting on behalf of the Sukukholders) and BPMB as the Issuer (“Wakalah Agreement”), BPMB shall be appointed as an agent of the Sukukholders (“Wakeel”) to perform services of investing the issue proceeds (“Sukuk Proceeds”) in the relevant Shariah-compliant Wakalah portfolio (“Wakalah Portfolio”) and management of the Wakalah Portfolio, in accordance with the Wakalah Agreement. Each Wakalah Portfolio shall comprise a combination of investment in the following: Page 9
12. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL (a) the Shariah-compliant business of the Issuer from time to time (“Shariah-compliant Business”), which shall represent the Sukukholders’ interest in the Shariah-compliant Business. Investment in the Shariah-compliant Business could either be the whole or a portion of the business which will be determined by the Issuer prior to the issuance of the Sukuk Wakalah; and (b) Commodities to be sold to BPMB as purchaser (“Purchaser”) under the Shariah principle of Murabahah (“Commodity Murabahah Investment”). (2) The Wakeel shall declare a trust on the trust assets (which shall comprise the Sukuk Proceeds, the Wakalah Portfolio and the rights, title, interest, entitlement and benefit in, to and under the Transaction Documents for the benefit of the Sukukholders. The Issuer shall, from time to time, issue Sukuk Wakalah to the Sukukholders and the Sukukholders shall subscribe to the Sukuk Wakalah by paying the Sukuk Proceeds. The relevant Sukuk Wakalah shall represent the Sukukholders’ undivided proportionate interest in the relevant Wakalah Portfolio. (3) Pursuant to an investment agreement entered into between the Wakeel and BPMB as the investment manager (“Investment Manager”) (“Investment Agreement”), the Wakeel (on behalf of the Sukukholders) shall utilise at least 33% of the Sukuk Proceeds of the relevant tranche of Sukuk Wakalah for investment into the Shariah-compliant Business via the Investment Manager, subject to the valuation principles set out in the Wakalah Agreement. The Wakeel shall appoint the Investment Manager to manage the Shariahcompliant Business for the benefit of the Sukukholders. For the avoidance of doubt, the above ratio of at least 33% of the Sukuk Proceeds of the relevant tranche of Sukuk Wakalah is only applicable at the point of initial investment for each tranche of Sukuk Wakalah and does not need to be maintained throughout the tenure of the relevant tranche of Sukuk Wakalah. However, the Wakeel shall ensure that the Shariah-compliant Business shall at all times be a component of the Wakalah Portfolio. (4) The remaining proceeds of the Sukuk Wakalah shall be utilised by the Wakeel for the Commodity Murabahah Investment. The Commodity Murabahah Investment shall be effected as follows: (a) Pursuant to the Commodity Murabahah Investment Agreement entered into between BPMB as the Purchaser and the Wakeel, the Purchaser shall issue a purchase order (“Purchase Order”) to the Wakeel with an undertaking to purchase the Commodities from the Wakeel at the Deferred Sale Price (as defined herein). (b) Pursuant to the Purchase Order, the Wakeel shall purchase the Commodities on spot basis from the commodity supplier via a commodity trading participant, at the commodity purchase price equivalent to such remaining Sukuk Proceeds of the relevant tranche of Sukuk Wakalah after investment into the Shariah-compliant Business (“Commodity Purchase Price”). The Commodity Purchase Price shall comply with SC’s Shariah Advisory Council asset pricing requirements as provided in the LOLA Guidelines. (c) Upon acquiring the Commodities, the Wakeel (on behalf of the Sukukholders) shall sell the Commodities to the Purchaser for a sale price equivalent to the Commodity Purchase Price plus the profit margin payable on a deferred basis (“Deferred Sale Price”). For the avoidance of doubt, the Deferred Sale Price shall be equivalent to the Page 10
13. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL aggregate of the Expected Periodic Distribution Amount (if any) and the nominal value of the relevant tranche of Sukuk Wakalah. (d) (5) Upon completion of such sale under paragraph 4(c) above, the Purchaser shall, subsequently sell the Commodities to the commodity buyer via a commodity trading participant on spot basis for an amount equal to the Commodity Purchase Price. The Wakeel shall distribute income generated from the Wakalah Portfolio (“Income”) up to: (a) in respect of Sukuk Wakalah with periodic distribution (“Periodic Distribution”), the Expected Periodic Distribution Amount to the Sukukholders in the form of Periodic Distribution on each periodic distribution date (“Periodic Distribution Date”); or (b) in respect of Sukuk Wakalah without Periodic Distribution, the expected one-off distribution amount (“Expected One-off Distribution Amount”) which shall be equal to the difference between the nominal value and the Sukuk Proceeds of the Sukuk Wakalah, to the Sukukholders in the form of a one-off distribution upon the declaration of a Dissolution Event or the Maturity Date of the relevant Sukuk Wakalah, whichever is the earlier. Any excess above the Expected Periodic Distribution Amount shall be waived by the Sukukholders and retained by the Wakeel as incentive fee. (6) BPMB as the obligor (“Obligor”) shall issue a purchase undertaking (“Purchase Undertaking”) in favour of the Sukuk Trustee (acting on behalf of the Sukukholders), under which the Obligor undertakes to purchase the Sukukholders’ interest in the Shariah-compliant Business from the Sukuk Trustee (acting on behalf of the Sukukholders) upon: (i) the declaration of a Dissolution Event or (ii) the Maturity Date, whichever is earlier, at the market value of the Shariah-compliant Business (“Exercise Price”) and to enter into a sale agreement for such purchase. (7) Upon the declaration of a Dissolution Event or the Maturity Date, the proceeds from the Wakalah Portfolio made up of the Exercise Price, outstanding Deferred Sale Price (subject to Ibra’) and any returns generated shall be paid to the Sukukholders to redeem the relevant Sukuk Wakalah. Any excess above the nominal value or the accreted value (as the case may be) and if applicable, any accrued but unpaid Expected Periodic Distribution Amount of the relevant Sukuk Wakalah shall be waived by the Sukukholders and retained by the Wakeel as an incentive fee upon the full redemption of the relevant Sukuk Wakalah. Upon the full payment of all amounts due and payable under the relevant Sukuk Wakalah, the trust in respect of the relevant Wakalah Portfolio will be dissolved and the relevant Sukuk Wakalah held by the Sukukholders will be cancelled. In the event BPMB proposes to issue green, socially responsible and/or sustainable Sukuk Wakalah which is in compliance with any one or more of the relevant guidelines or frameworks, as amended from time to time, including but not limited to: (a) Sustainable and Responsible Investment Sukuk Framework pursuant to the LOLA Guidelines; (b) the ASEAN Green Bond Standards pursuant to the LOLA Guidelines; (c) the ASEAN Social Bond Standards pursuant to the LOLA Guidelines; and (d) the ASEAN Sustainability Bond Standards pursuant to the LOLA Guidelines, Page 11
14. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL (collectively, “Sustainability Guidelines/Framework” and the Sukuk Wakalah issued under such Sustainability Guidelines/Framework shall be referred to as “Sustainability Sukuk Wakalah”) under the Sukuk Wakalah Programme, BPMB shall, or shall procure the Joint Principal Advisers to: 1) submit the relevant terms of such Sustainability Sukuk Wakalah to the Islamic Capital Market Development division of the SC (“SC ICM”) for endorsement of the SC’s SAC; 2) once endorsement of the SC’s SAC has been obtained, ensure that the requirements for post-issuance revision under the LOLA Guidelines are complied with; and 3) amend the relevant Transaction Documents to cater for the issuances of Sustainability Sukuk Wakalah. The Sukukholders shall be deemed to have consented to such amendments and issuances of the Sustainability Sukuk Wakalah by BPMB, and no further consent is required from the Sukukholders, the Sukuk Trustee, or any other party under the Sukuk Wakalah Programme. For the avoidance of doubt, the Issuer will still need to obtain the required consent for other revisions or amendments. The relevant Sustainability Guidelines/Framework under which such Sustainability Sukuk Wakalah are issued and the naming of such Sustainability Sukuk Wakalah shall be specified in the relevant pricing supplement and the documents in relation to the issuance of such Sustainability Sukuk Wakalah. 1.3 Rationale for the Sukuk Wakalah Programme The Sukuk Wakalah Programme is established as part of BPMB’s approved annual funding strategy. The Sukuk Wakalah Programme is intended to enable BPMB to meet its funding requirements and shall act as a standby facility to meet any additional funding required from the growth in financing activities as budgeted from time to time. 1.4 Utilisation of proceeds The proceeds from the Sukuk Wakalah shall be utilised for BPMB and its subsidiaries’ Shariah-compliant financing activities comprising refinancing of existing financing/borrowings, working capital and other corporate purposes, all of which shall be Shariah compliant. 1.5 Rating of the Sukuk Wakalah Programme The Sukuk Wakalah Programme has been assigned a preliminary rating of AAAIS, pursuant to MARC’s letter to the Issuer dated 21 May 2020. 1.6 Regulatory Approvals Required Pursuant to s.6 Loans Guarantee (Bodies Corporate) Act 1965, as BPMB has an outstanding guarantee from MOF, BPMB is required to obtain the consent from MOF to exercise any further powers to borrow. BPMB has obtained consent from MOF for the establishment of the Sukuk Wakalah Programme pursuant to the letters from MOF dated 18 May 2016 and 16 November 2018. Page 12
15. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Further , under s.34 and s.45 of the DFIA, BPMB shall have obtained approval from MOF on their annual funding requirement. Pursuant to the letters from the Ministry of Economic Affairs and MOF dated 26 February 2019 and 3 April 2019 respectively, the Ministry of Economic Affairs and MOF has approved the Issuer’s statement of corporate intent and funding requirements. [The rest of this page has been left blank intentionally] Page 13
16. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 2 .0 PRINCIPAL TERMS AND CONDITIONS OF THE SUKUK WAKALAH PROGRAMME The principal terms and conditions hereunder are not intended as a summary of the legal documentation entered or to be entered into in connection with the Sukuk Wakalah Programme. To understand all of the terms and conditions of the Sukuk Wakalah Programme, the investors should read the legal documentation concerned and obtain such necessary professional advice on the same. Definitions of terms used in this Section 2.0 may not be similar to the definitions in the “Definitions” section of this Information Memorandum. In the event of inconsistencies, the definitions used in Section 2.0 shall prevail for the purposes of this Section 2.0. 2.1 Principal Terms and Conditions of the Sukuk Wakalah Programme 1. Name of facility : An Islamic medium term notes (“Sukuk Wakalah”) programme of up to RM5.0 billion in nominal value based on the Shariah principle of Wakalah Bi Al-Istithmar (“Sukuk Wakalah Programme”). 2. One-time issue or programme : Programme 3. Shariah Principles (for sukuk) : 1. 2. 4. Facility description (for ringgitdenominated sukuk, to provide description as cleared by the SC) : BPMB will issue Sukuk Wakalah under the Sukuk Wakalah Programme. Wakalah Bi Al-Istithmar. Murabahah (via Tawarruq arrangement). The issuance of each tranche of Sukuk Wakalah from time to time under the Sukuk Wakalah Programme shall be effected as follows: Underlying Transaction 1) Pursuant to a Wakalah agreement entered into between the Sukuk Trustee (acting on behalf of the holders of the Sukuk Wakalah (“Sukukholders”)) and BPMB as the Issuer (“Wakalah Agreement”), BPMB shall be appointed as an agent of the Sukukholders (“Wakeel”) to perform services of investing the issue proceeds (“Sukuk Proceeds”) in the relevant Shariah-compliant Wakalah portfolio (“Wakalah Portfolio”) and management of the Wakalah Portfolio, in accordance with the Wakalah Agreement. Each Wakalah Portfolio shall comprise a combination of investment in the following: a) the Shariah-compliant business of the Issuer from time to time (“Shariahcompliant Business”), which shall represent the Sukukholders’ interest in the Shariah-compliant Business. Investment in the Shariah-compliant Business could Page 14
17. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL either be the whole or a portion of the business which will be determined by the Issuer prior to the issuance of the Sukuk Wakalah ; and b) Commodities (as defined herein) to be sold to BPMB as purchaser (“Purchaser”) under the Shariah principle of Murabahah (“Commodity Murabahah Investment”). “Commodities” is defined as Shariah-compliant commodities which may include but are not limited to crude palm oil or such other acceptable commodities (excluding ribawi items in the category of medium of exchange such as currency, gold and silver) which are provided through the commodity trading platform, Bursa Suq Al-Sila’ or such other independent commodity trading platforms as approved by the Joint Shariah Advisers which will be identified at or around the time of each issuance of the Sukuk Wakalah. 2) The Wakeel shall declare a trust on the trust assets (which shall comprise the Sukuk Proceeds, the Wakalah Portfolio and the rights, title, interest, entitlement and benefit in, to and under the Transaction Documents (as defined herein)) for the benefit of the Sukukholders. The Issuer shall, from time to time, issue Sukuk Wakalah to the Sukukholders and the Sukukholders shall subscribe to the Sukuk Wakalah by paying the Sukuk Proceeds. The relevant Sukuk Wakalah shall represent the Sukukholders’ undivided proportionate interest in the relevant Wakalah Portfolio. 3) Pursuant to an investment agreement entered into between the Wakeel and BPMB as the investment manager (“Investment Manager”) (“Investment Agreement”), the Wakeel (on behalf of the Sukukholders) shall utilise at least 33% of the Sukuk Proceeds of the relevant tranche of Sukuk Wakalah for investment into the Shariah-compliant Business via the Investment Manager, subject to the valuation principles set out in the Wakalah Agreement. The Wakeel shall appoint the Investment Manager to manage the Shariah-compliant Business for the benefit of the Sukukholders. For the avoidance of doubt, the above ratio of at least 33% of the Sukuk Proceeds of the Page 15
18. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL relevant tranche of Sukuk Wakalah is only applicable at the point of initial investment for each tranche of Sukuk Wakalah and does not need to be maintained throughout the tenure of the relevant tranche of Sukuk Wakalah . However, the Wakeel shall ensure that the Shariah-compliant Business shall at all times be a component of the Wakalah Portfolio. 4) The remaining proceeds of the Sukuk Wakalah shall be utilised by the Wakeel for the Commodity Murabahah Investment. The Commodity Murabahah Investment shall be effected as follows: a) Pursuant to the Commodity Murabahah Investment Agreement entered into between BPMB as the Purchaser and the Wakeel, the Purchaser shall issue a purchase order (“Purchase Order”) to the Wakeel with an undertaking to purchase the Commodities from the Wakeel at the Deferred Sale Price (as defined herein). b) Pursuant to the Purchase Order, the Wakeel shall purchase the Commodities on spot basis from the commodity supplier via a commodity trading participant, at the commodity purchase price equivalent to such remaining Sukuk Proceeds of the relevant tranche of Sukuk Wakalah after investment into the Shariah-compliant Business (“Commodity Purchase Price”). The Commodity Purchase Price shall comply with the Securities Commission Malaysia (“SC”)’s Shariah Advisory Council (“SAC”) asset pricing requirements as provided in the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 (revised and effective 30 June 2020) (as amended from time to time) (“LOLA Guidelines”). c) Upon acquiring the Commodities, the Wakeel (on behalf of the Sukukholders) shall sell the Commodities to the Purchaser for a sale price equivalent to the Commodity Purchase Price plus the profit margin payable on a deferred basis (“Deferred Sale Price”). For the avoidance of doubt, the Deferred Sale Price shall be equivalent to the aggregate Page 16
19. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL of the Expected Periodic Distribution Amount (if any) and the nominal value of the relevant tranche of Sukuk Wakalah. “Expected Periodic Distribution Amount” means on any relevant Periodic Distribution Date (as defined herein), such amount calculated at the Periodic Distribution Rate (as defined herein) on the nominal value of the relevant Sukuk Wakalah based on actual/365 days. d) Upon completion of such sale under paragraph 4(c) above, the Purchaser shall, subsequently sell the Commodities to the commodity buyer via a commodity trading participant on spot basis for an amount equal to the Commodity Purchase Price. 5) The Wakeel shall generated from the (“Income”) up to: distribute Wakalah income Portfolio a) in respect of Sukuk Wakalah with periodic distribution (“Periodic Distribution”), the Expected Periodic Distribution Amount to the Sukukholders in the form of Periodic Distribution on each periodic distribution date (“Periodic Distribution Date”); or b) in respect of Sukuk Wakalah without Periodic Distribution, the expected one-off distribution amount (“Expected One-off Distribution Amount”) which shall be equal to the difference between the nominal value and the Sukuk Proceeds of the Sukuk Wakalah, to the Sukukholders in the form of a one-off distribution upon the declaration of a dissolution event (“Dissolution Event”) or the maturity date of the relevant Sukuk Wakalah (“Maturity Date”), whichever is the earlier. Any excess above the Expected Periodic Distribution Amount shall be waived by the Sukukholders and retained by the Wakeel as incentive fee. 6) BPMB as the obligor (“Obligor”) shall issue a purchase undertaking (“Purchase Undertaking”) in favour of the Sukuk Trustee (acting on behalf of the Sukukholders), under which the Obligor undertakes to purchase the Sukukholders’ interest in the ShariahPage 17
20. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL compliant Business from the Sukuk Trustee (acting on behalf of the Sukukholders) upon: (i) the declaration of a Dissolution Event or (ii) the Maturity Date, whichever is earlier, at the market value of the Shariah-compliant Business (“Exercise Price”) and to enter into a sale agreement for such purchase. 7) Upon the declaration of a Dissolution Event or the Maturity Date, the proceeds from the Wakalah Portfolio made up of the Exercise Price, outstanding Deferred Sale Price (subject to Ibra’) and any returns generated shall be paid to the Sukukholders to redeem the relevant Sukuk Wakalah. Any excess above the nominal value or the accreted value (as the case may be) and if applicable, any accrued but unpaid Expected Periodic Distribution Amount of the relevant Sukuk Wakalah shall be waived by the Sukukholders and retained by the Wakeel as an incentive fee upon the full redemption of the relevant Sukuk Wakalah. Upon the full payment of all amounts due and payable under the relevant Sukuk Wakalah, the trust in respect of the relevant Wakalah Portfolio will be dissolved and the relevant Sukuk Wakalah held by the Sukukholders will be cancelled. “tranche” shall mean such Sukuk Wakalah with the same issue date and the same Maturity Date. In the event BPMB proposes to issue green, socially responsible and/or sustainable Sukuk Wakalah which is in compliance with any one or more of the relevant guidelines or frameworks, as amended from time to time, including but not limited to: a) Sustainable and Responsible Investment Sukuk Framework pursuant to the LOLA Guidelines; b) the ASEAN Green Bond Standards pursuant to the LOLA Guidelines; c) the ASEAN Social Bond Standards pursuant to the LOLA Guidelines; and d) the ASEAN Sustainability Bond Standards pursuant to the LOLA Guidelines, (collectively, “Sustainability Guidelines/ Framework” and the Sukuk Wakalah issued under such Sustainability Guidelines/Framework shall be referred to as “Sustainability Sukuk Wakalah”) under the Sukuk Wakalah Programme, BPMB shall, or shall procure the joint principal advisers of the Sukuk Wakalah Page 18
21. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Programme to : 1) submit the relevant terms of such Sustainability Sukuk Wakalah to the Islamic Capital Market Development division of the SC (“SC ICM”) for endorsement of the SC’s SAC; 2) once endorsement of the SC’s SAC has been obtained, ensure that the requirements for post-issuance revision under the LOLA Guidelines are complied with; and 3) amend the relevant Transaction Documents to cater for the issuances of Sustainability Sukuk Wakalah. The Sukukholders shall be deemed to have consented to such amendments and issuances of the Sustainability Sukuk Wakalah by BPMB, and no further consent is required from the Sukukholders, the Sukuk Trustee, or any other party under the Sukuk Wakalah Programme. For the avoidance of doubt, the Issuer will still need to obtain the required consent for other revisions or amendments. 5. Currency : Ringgit. 6. Expected facility/programme size (for programme, state option to upsize) : Up to RM5,000,000,000.00 Option to upsize: Yes. The Issuer shall have the option to upsize the Sukuk Wakalah Programme and for the avoidance of doubt, the Sukukholders shall via the trust deed for the Sukuk Wakalah Programme (including any supplemental) (“Trust Deed”) provide their upfront consent for any upsizing of the Sukuk Wakalah Programme provided that: (i) (ii) (iii) (iv) the Issuer shall obtain all required regulatory approvals, if any; Credit Rating Agency has confirmed that there is no adverse impact on the prevailing rating of the Sukuk Wakalah Programme following such upsizing; the Issuer shall comply with the relevant requirements under the LOLA Guidelines; and such other terms and/or conditions as may be advised by the Solicitors, if any. 7. Tenure of facility/programme : 30 years. 8. Availability period of debt or sukuk programme : The Sukuk Wakalah may be issued at any time upon completion of documentation and fulfillment of all conditions precedent to the satisfaction of the JPAs/JLAs, unless waived by the JPAs/JLAs, provided that the first issuance of the Sukuk Wakalah shall be issued within sixty (60) Page 19
22. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL business days from the date of lodgement with the SC or such further extension as may be granted by the SC . 9. Clearing & settlement platform : PayNet. 10. Mode of issue : Book building, bought deal, direct placement and/or private placement. 11. Selling restrictions : Selling Restrictions at Issuance ☐ Exclusively to persons outside Malaysia ☒ Part I of Schedule 6 of the CMSA ☒ Part I of Schedule 7 of the CMSA ☒ Read together with Schedule 9 of CMSA ☒ Schedule 8 of CMSA ☐ Section 2(6) of the Companies Act, 2016 ☐ Other Selling Restrictions Thereafter ☐ Exclusively to persons outside Malaysia ☒ Part I of Schedule 6 of the CMSA ☒ Read together with Schedule 9 of CMSA ☒ Schedule 8 of CMSA ☐ Section 2(6) of the Companies Act, 2016 ☐ Other Selling Restrictions at Issuance The Sukuk Wakalah may only be offered, sold, transferred or otherwise disposed of, directly or indirectly, to persons to whom an offer or invitation to subscribe the Sukuk Wakalah may be made and to whom the Sukuk Wakalah are issued would fall within Part I of Schedule 6 of the CMSA and Part I of Schedule 7 of the CMSA, read together with Schedule 9 of the CMSA or Section 257(3) of the CMSA, subject to any change in the applicable laws. Selling Restrictions Thereafter The Sukuk Wakalah may only be offered, sold, transferred or otherwise disposed of, directly or indirectly, to persons to whom an offer or invitation to subscribe the Sukuk Wakalah may be made and to whom the Sukuk Wakalah are issued would fall within Part I of Schedule 6 of the CMSA or Section 229(1)(b) of the CMSA, read together with Schedule 9 of the CMSA or Section 257(3) of the CMSA, subject to any change in the applicable laws. Further, as the Sukuk Wakalah Programme has been accorded an initial rating of AAA by Malaysian Rating Corporation Berhad, the issuance of, offer for subscription or purchase of, or invitation to subscribe for the Sukuk Wakalah falls within Paragraph 12, Schedule 8 (or Section 257(1)) of the CMSA. Page 20
23. BANK PEMBANGUNAN MALAYSIA BERHAD 12 . Tradability & transferability STRICTLY PRIVATE AND CONFIDENTIAL : Tradable & transferable. Amount: RM5,000,000,000.00 13. Details of security/collateral pledged, if applicable : Unsecured 14. Details of guarantee, if applicable : Not guaranteed. 15. Convertibility of issuance and details of the convertability : Non-convertible. 16. Exchangeability of issuance and details of the exchangeability : Non-exchangeable. 17. Call option and details, if applicable : No call option. 18. Put option and details, if applicable : No put option. 19. Details of covenants: : (1) Positive Covenants Positive covenants customary for a programme of this nature, which shall include but not be limited to the following: a) To maintain in full force and effect all relevant authorisations, licences, permits, consents, exemptions and rights necessary for the conduct of its business or for the Issuer to enter into or perform its obligations under the Transaction Documents or to ensure the validity, enforceability, admissibility in evidence of the obligations of the Issuer or the priority or rights of the Sukukholders under the Transaction Documents and the Issuer shall comply with the terms of the Transaction Documents; b) the Issuer shall at all times, so far as required by law, execute all such further documents and do all such further acts reasonably necessary at any time or times to give further effect to the terms and conditions of the Transaction Documents; c) the Issuer shall exercise reasonable diligence in carrying out its business and affairs in a proper and efficient manner and in accordance with the regulatory standards and requirements of a development financial institution which shall ensure, amongst others, that all necessary approvals or relevant licenses are obtained and maintained; d) the Issuer shall promptly comply with all Page 21
24. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL applicable provisions of the CMSA and /or the Sukuk Wakalah, circulars, conditions or guidelines issued by SC from time to time; e) the Issuer will at all times maintain a paying agent for the Sukuk Wakalah in Malaysia, and the Issuer shall cause and procure such paying agent to notify the Sukuk Trustee in writing in the event the paying agent does not receive payment from the Issuer on the due dates as required under the Sukuk Wakalah; f) the Issuer will keep proper books and accounts at all times on a basis consistently applied in accordance with the laws of Malaysia and generally accepted accounting principles and standards in Malaysia, and promptly after giving reasonable notice, permit the Sukuk Trustee and any person appointed by it to have access to such records to the extent permitted by law during office hours; g) the Issuer shall promptly perform and carry out all its obligations under all the Transaction Documents (including but not limited to redeeming the Sukuk Wakalah on the relevant Maturity Date(s) or any other date on which the Sukuk Wakalah are due and payable) and ensure that it shall immediately notify the Sukuk Trustee in writing in the event that the Issuer is unable to fulfil or comply with any of the provisions of the Transaction Documents; h) the Issuer will comply, in all material aspects, with all laws and regulations which may be imposed by the relevant authorities; and i) such other covenants deemed necessary by the JPAs/JLAs and the Solicitors and to be mutually agreed by the Issuer. (2) Negative covenants : No negative covenant. (3) Financial covenants : No financial covenant. (4) Information covenants : Information covenants customary for a programme of this nature, which shall include but not be limited to the following: a) The Issuer shall deliver to the Sukuk Trustee the following: (i) Page 22 annually, a certificate signed by the authorised signatory(ies) of the Issuer, confirming that it has complied with all its obligations under the Transaction Documents and the terms and conditions of the Sukuk Wakalah and
25. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL that there did not exist or had not existed , from the date the Sukuk Wakalah were first issued or date of the previous certificate as the case may be, any Dissolution Event, and if such is not the case, to specify the same; (ii) as soon as they become available (and in any event within one hundred and eighty (180) calendar days after the end of each of its financial year) copies of its consolidated financial statements for that financial year which shall contain the income statement and balance sheet of the Issuer and which are audited and certified without qualification by independent accountants permitted under applicable laws; (iii) as soon as they become available (and in any event within ninety (90) calendar days after the end of each half of its financial year), copies of its unaudited half yearly consolidated financial statements for that period which shall contain the income statement and balance sheet of the Issuer which are duly certified by any one of the directors; (iv) such additional financial or other information relating to the Issuer’s businesses and its operations as the Sukuk Trustee may from time to time reasonably request in order to discharge its duties and obligations as the Sukuk Trustee under the Transaction Documents, to the extent permitted by law; b) the Issuer shall notify the Sukuk Trustee promptly in writing in the event that the Issuer becomes aware of any of the following: (i) the occurrence of any Dissolution Event or any event that has caused or could cause one or more of the following: (1) any amount payable under the Sukuk Wakalah to become immediately payable; (2) the Sukuk Wakalah to become immediately enforceable; or (3) any other rights or remedy under the terms, provisions or covenants of the Sukuk Wakalah to become immediately enforceable; (ii) any circumstances that have occurred that would materially prejudice the Page 23
26. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Issuer ; (iii) any substantial change in the nature of the business of the Issuer; (iv) any changes in the withholding tax position or taxing jurisdiction of the Issuer; (v) any change in the utilisation of the proceeds of the Sukuk Wakalah as set out in the information memorandum for the Sukuk Wakalah Programme (including any supplemental) (“Information Memorandum”) and the Trust Deed; (vi) any other matter that may materially prejudice the interests of the Sukukholders; and c) 20. Details of designated account(s), if applicable : 21. Details of credit rating, if applicable : 22. Conditions precedent : such other covenants as may be advised by the JPAs/JLAs and Solicitors and to be mutually agreed by the Issuer. No designated account. Credit Rating Agency Programme Credit Rating Final/ Indicative MARC Sukuk Wakalah AAA IS Indicative Conditions precedent for establishment of the Sukuk Wakalah Programme Standard and customary for a programme of this nature which shall include but not limited to the following (in each case satisfactory in form and substance to the JPAs/JLAs as applicable):Main Documentation a) The transaction documentations (“the Transaction Documents”) (as further defined below) in relation to the establishment of the Sukuk Wakalah Programme have been completed, executed and stamped (or if exempted, duly endorsed as such) and where applicable, registered at the relevant registry. Issuer a) A report of the relevant company and winding up searches with no adverse results or the relevant statutory declaration of the Issuer; b) Receipt of the following documents:Page 24
27. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL (I) Certified true Certificate of Constitution; copy of the Issuer’s Incorporation and its (II) Certified extract of a board resolution of the Issuer authorising, among others, the establishment of the Sukuk Wakalah Programme and the appointment of authorised signatories to execute the relevant documents thereto; (III) A list of the authorised signatories of the Issuer and their respective specimen signatures; and (IV) Certified true copies of the latest Return for allotment of shares, Notification of Change in the Registered Address and Notification of Change in the Register of Directors, Managers and Secretaries and the latest Annual Return of the Issuer. General a) Documentary evidence confirming that the approvals from the relevant authorities (including but not limited to approval from the Ministry of Finance (“MOF”)) and all other governmental, statutory, corporate, creditors' or other consents, licences, approvals, permits, authorisations, orders and exemptions which are necessary or expedient for the establishment of the Sukuk Wakalah Programme have been obtained, including evidence that the shareholders of the Issuer has authorised the issuance of the Sukuk Wakalah under the Sukuk Wakalah Programme pursuant to the Issuer’s Constitution; b) Documentary evidence that all relevant endorsement, approvals and acknowledgements including the SAC of the SC’s endorsement and acknowledgement in respect of the lodgement of the Sukuk Wakalah Programme from the SC, have been obtained; c) Satisfactory legal opinion from the Solicitors as to the legality, validity and enforceability of all Transaction Documents and that all conditions precedent have been duly complied (or waived); d) Evidence of the confirmation from the JSAs that the structure and mechanism of the Sukuk Wakalah Programme together with the Transaction Documents, are in compliance with Shariah; e) The Sukuk Wakalah have received their requisite rating as stated in this Lodgement Page 25
28. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Form ; 23. Representations and warranties : f) Documentary evidence that arrangement of payment on all transaction fees, costs and expenses due and payable under the Sukuk Wakalah Programme and in connection with the preparation of the Sukuk Wakalah have been made; and g) All other condition as may be deemed necessary by the JPAs/JLAs and/or the Solicitors and to be mutually agreed by the Issuer. Customary representations and warranties for a programme of this nature which shall include but not be limited to the following: a) the Issuer is duly established and validly in existence under the laws of Malaysia and has the power and authority to conduct its business; b) the Issuer has the power to enter into the Transaction Documents, to issue the Sukuk Wakalah and to exercise its rights to perform its obligations under the Transaction Documents; c) all necessary actions, authorisations and consents required under the Transaction Documents and the Sukuk Wakalah have been obtained and remain in full force and effect; d) the entry into and the exercise of its rights and performance of its obligations under the respective Transaction Documents do not and will not violate any existing law or regulation; e) the Transaction Documents, when executed, creates valid and binding obligations which are enforceable against the Issuer in accordance with their terms; f) the audited financial statements of the Issuer are prepared on a basis consistently applied in accordance with approved accounting standards in Malaysia and they represent a true and fair view of the Issuer’s financial position; g) the information furnished by the Issuer or on its behalf and with the knowledge of the Issuer, in connection with the Sukuk Wakalah Programme and the Transaction Documents do not contain any untrue statement or omit to state any fact, the omission of which makes the statements therein, in the light of the circumstances under which they are made, misleading, and are not misleading, except that, when warranted information is a forecast, the Page 26
29. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL warranty will be to the effect that the forecast has been made on the basis of assumptions that were reasonable at the time when they were made and after due enquiry ; 24. Events of default or enforcement events, where applicable, including recourse available to investors : h) no Dissolution Event (as described in Dissolution Events below) has occurred and/or is continuing or would occur as a result of each issuance of the Sukuk Wakalah; i) save as disclosed in the Information Memorandum, no litigation or arbitration is current or, to the Issuer’s knowledge, is threatened against it or any Material Subsidiaries (to be defined in the Transaction Documents), which if determined adversely to the Issuer would have a Material Adverse Effect (as defined herein); j) no step has been taken by the Issuer, its creditors or any of its shareholders or any other person on its behalf nor have any legal proceedings or applications been started or threatened, under Section 366 of the Companies Act 2016 (the “Act”); k) there has been no change in the business or condition (financial or otherwise) of the Issuer or its subsidiaries since the date of its last audited financial statements which might have a Material Adverse Effect; l) the Issuer has complied in all material respects, with all legal requirements relating to its business, including but not limited to any laws and regulations which may be imposed by the relevant authorities; and m) the Issuer does not enjoy any immunity from process, execution, attachment or legal process on the grounds of sovereignty or otherwise in respect of its obligations under the Sukuk Wakalah and the other Transaction Documents; and n) other representations and warranties as may be advised by the JPAs/JLAs and/or Solicitors and to be mutually agreed by the Issuer. Dissolution events (“Dissolution Events”) customary for a programme of this nature, which shall include but not be limited to the following: a) failure to pay any amounts due under the Sukuk Wakalah Programme and the Transaction Documents on the due date, or if so payable, on demand and the Issuer fails to remedy such default within seven (7) business days from the date such amount is Page 27
30. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL due or demanded ; b) there is a breach by the Issuer of any term or condition of the Sukuk Wakalah Programme or provision of any of the Transaction Documents (other than a breach described in paragraph (a) above) which is not capable of remedy; or if it is capable of remedy, is not remedied within thirty (30) calendar days after receipt by the Issuer of a notice from the Sukuk Trustee specifying the default or after the Issuer becoming aware of the breach; c) any of the Transaction Documents cease to remain binding on any of the parties thereto or become unenforceable for any other reason; d) the Issuer makes or enters into a general assignment or arrangement or composition with or for the benefit of its creditors, or a moratorium is declared on any of its indebtedness (other than for the purposes of and followed by any reconstruction previously approved in writing by the Sukuk Trustee (upon the instruction of the Sukukholders by way of an extraordinary resolution), unless during or following such reconstruction the Issuer becomes or is declared to be insolvent, and whether pursuant to Section 398 of the Act or otherwise), or any creditors’ scheme of arrangement under Section 366 of the Act is instituted with respect to the Issuer; e) the Issuer is insolvent or consents to the appointment of a custodian or a receiver over the whole or a substantial part of its assets; f) For the purpose of this paragraph (e), references to “substantial” shall mean such value equivalent to or more than 5% of the Issuer’s net tangible assets as reflected in its latest annual audited financial statements. g) any other indebtedness of the Issuer becomes due or payable or capable of being declared due or payable prior to its stated maturity or any guarantee or similar obligations of the Issuer is not discharged at maturity or when called and such declaration of indebtedness being due or payable or such call on the guarantee or similar obligations is not discharged or disputed in good faith by the Issuer in a court of competent jurisdiction within thirty (30) days from the date of such declaration or call, or the Issuer goes into default under, or commits a breach of, any agreement or Page 28
31. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL instrumental relating to such indebtedness , guarantee or other obligations, or any security created to secure such indebtedness becomes enforceable, provided that it shall not be a dissolution event if all aggregate amounts of the indebtedness and the guarantee or similar obligations falling within this paragraph (f) is less than 5% of the Issuer’s net tangible assets as reflected in its latest annual audited financial statements; h) any step is taken for the winding up or a resolution to wind up the Issuer has been passed, or a petition for winding up is presented against the Issuer and the Issuer has not taken any action in good faith to set aside such petition or order within sixty (60) days from the date of service of such winding up petition or a winding up order has been made against the Issuer; i) there is a revocation, withholding or modification of a license, authorisation, consent or approval which in the reasonable opinion of the Sukuk Trustee may materially and adversely impair or prejudice the Issuer’s ability to comply with the terms and conditions of the Sukuk Wakalah Programme or the provisions of any other document relating to the issue, offer or invitation in respect of the Sukuk Wakalah Programme; j) any representation or warranty made or given by the Issuer under the Transaction Documents or which is contained in any certificate, document, or statement furnished at any time pursuant to the terms of the Sukuk Wakalah Programme and/or any of the Transaction Documents proves to have been incorrect or misleading in any material respect on or as of the date made or given or deemed made or given, and in the case of a failure which in the opinion of the Sukuk Trustee is capable of being remedied, the Issuer does not remedy the failure within a period of thirty (30) calendar days after the Issuer became aware or having been notified by the Sukuk Trustee of that failure; k) any other event occurs or any situation exists which in the reasonable opinion of the Sukuk Trustee has or will have a Material Adverse Effect on the Issuer and in the case of the occurrence of such event or situation which is capable of being remedied, the Issuer does not remedy it within a period of thirty (30) calendar days after the Issuer became aware or having Page 29
32. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL been notified by the Sukuk Trustee of the event or situation ; l) the Issuer fails to satisfy any judgement passed against it by any court of competent jurisdiction and no appeal against such judgement or no application for a stay of execution has been made to any appropriate appellate court within the time prescribed by law or such appeal or application for a stay of execution has been dismissed; m) at any time any of the provisions of the Transaction Documents is or becomes illegal, void, voidable or unenforceable; n) the Issuer is deemed unable to pay any of its debts within the meaning of Section 466(1) of the Act or becomes unable to pay any of its debts as they fall due or suspend or threaten to suspend making payments with respect to all or any class of its debts; and o) such other events of default as may be advised by the JPAs/JLAs and/or Solicitors and to be mutually agreed by the Issuer. Upon the occurrence of a Dissolution Event, the Sukuk Trustee may, or shall (upon the instruction of the Sukukholders by way of an extraordinary resolution), declare that a Dissolution Event has occurred and all sums payable by the Issuer under the outstanding Sukuk Wakalah shall become immediately due and payable in full. The Sukuk Trustee shall exercise its rights under the Transaction Documents, including requiring: (a) the Obligor to purchase the Sukukholders’ interest in the Shariah-compliant Business at the Exercise Price and to enter into a sale agreement for such purchase; and (b) the Issuer (in its capacity as Purchaser) to pay the outstanding amounts of the Deferred Sale Price (subject to Ibra’), and the Sukuk Trustee (for and on behalf of the Sukukholders) shall use the aggregate proceeds thereof made up of the Exercise Price, the Deferred Sale Price and any returns generated from the Wakalah Portfolio to redeem the Sukuk Wakalah in accordance with the terms of the Transaction Documents. “Material Adverse Effect” means, in relation to the Issuer, the occurrence of any event which materially and adversely affects (1) the business or financial position, shareholders’ funds or results of the operations of the Issuer and Page 30
33. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL affecting the obligations of the Issuer under the Sukuk Wakalah Programme ; or (2) the ability of the Issuer to perform any of its obligations under any of the Transaction Documents. 25. Governing laws : Laws of Malaysia. 26. Provisions on buy-back, if applicable : The Issuer or its subsidiaries or agent(s) of the Issuer may at any time purchase the Sukuk Wakalah in the open market at any price, but the Sukuk Wakalah purchased by the Issuer or its subsidiaries or agent(s) of the Issuer shall be cancelled and cannot be resold. 27. Provisions on early redemption, if applicable : No provision for early redemption. 28. Voting : Voting by the Sukukholders under the Sukuk Wakalah Programme shall be carried out as follows: Prior to upsizing of the Sukuk Wakalah Programme: All matters (save in relation to the upsizing of the Sukuk Wakalah Programme) which require the Sukukholders’ consent under the Sukuk Wakalah Programme shall be carried out on a collective basis. Post upsizing of the Sukuk Wakalah Programme: All matters which require the Sukukholders’ consent under the Sukuk Wakalah Programme shall be carried out on a per series basis. Sukukholders holding a requisite amount under each series (to be determined under the Trust Deed) shall provide their consent for the relevant matters to be passed under the Sukuk Wakalah Programme and the consent from Sukukholders of all outstanding series shall have been obtained for any such resolution to be carried. Any Sukuk Wakalah held by the Issuer or any Interested Persons (to be defined in the Transaction Documents) of the Issuer shall not be counted for the purpose of voting. “series” shall mean such Sukuk Wakalah with the same issue date. 29. Permitted investments, if applicable : No permitted investments. 30. Ta’widh : In the event the Wakeel breaches its fiduciary duty as an investment manager due to its failure to distribute any realised Income and/or the Obligor/Purchaser delays the payment of the Exercise Price and/or the Deferred Sale Price, the Wakeel and/or the Obligor/Purchaser shall pay to the Sukuk Trustee (acting on behalf of the Page 31
34. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Sukukholders ) Ta'widh (compensation) on such delay in payments at the rate and in the manner prescribed by the SC's SAC from time to time. 31. Ibra’ : An Ibra’, where applicable, shall be granted by the Sukukholders. The Sukukholders in subscribing to or purchasing the Sukuk Wakalah consent to grant an Ibra’ on the Deferred Sale Price upon the declaration of a Dissolution Event. Ibra’ refers to an act of releasing absolutely or conditionally the Sukukholders’ rights and claims on any obligation against the Issuer which would result in the latter being discharged of its obligations or liabilities towards the former. The release may be either partial or in full. With respect to the Murabahah contract, Ibra’ refers to the release of rights on debts/amount due and payable under the said contract. The Ibra’ for redemption upon the declaration of a Dissolution Event shall be calculated as follows: (i) in the case of Sukuk Wakalah without Periodic Distribution and issued at a discount: the unearned discounted amount. (ii) in the case of Sukuk Wakalah with Periodic Distribution and issued at a discount: the aggregate of unearned Expected Periodic Distribution Amount. (iii) in the case of Sukuk Wakalah with Periodic Distribution and issued at par: the aggregate of unearned Expected Periodic Distribution Amount. (iv) in the case of Sukuk Wakalah with Periodic Distribution and issued at a premium: the aggregate of unearned Expected Periodic Distribution Amount. The Ibra’ in relation to (i), (ii), (iii) and (iv) above shall be calculated from the date of the declaration of a Dissolution Event up to the respective Maturity Date of the Sukuk Wakalah. For the avoidance of doubt any double counting shall be disregarded and the Ibra’ will be deemed granted upon such redemption of the Sukuk Wakalah. 32. Kafalah : Not applicable. 33. Other terms and conditions (1) Identified assets : Identified Asset Shariah-compliant Business Murabahah Investment. Page 32 and Commodity
35. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Trust Asset (i) the Sukuk Proceeds; (ii) the Wakalah Portfolio (which shall comprise the Shariah-compliant Business and the Commodity Murabahah Investment); and (iii) the rights, title, interest, entitlement and benefit in, to and under the Transaction Documents. (2) Utilisation of proceeds : The proceeds shall be utilised for BPMB and its subsidiaries’ Shariah-compliant financing activities comprising refinancing of existing financing/borrowings, working capital and other corporate purposes, all of which shall be Shariah compliant. (3) Status : The Sukuk Wakalah, pursuant to the relevant Transaction Documents, will constitute direct, unsubordinated, unconditional and unsecured obligations of the Issuer and at all times rank pari passu in all respects amongst themselves and at least pari passu with the claims of all the Issuer’s unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law generally and the Transaction Documents. (4) Purchase and selling price/ rental, where applicable : In respect of the Commodity Murabahah Investment, the Commodity Purchase Price and the Deferred Sale Price are to be determined prior to each issuance of the Sukuk Wakalah under the Sukuk Wakalah Programme. The Commodity Purchase Price shall comply with the SC’s SAC asset pricing requirements as provided in the LOLA Guidelines. (5) Profit/ coupon/ rental payment rate : The Sukuk Wakalah may be issued with or without Periodic Distribution. Sukuk Wakalah with Periodic Distribution The expected periodic distribution rate for each of the Sukuk Wakalah with Periodic Distribution (“Periodic Distribution Rate”) shall be on a fixed rate basis and shall be determined prior to each issuance of the Sukuk Wakalah. Sukuk Wakalah without Periodic Distribution Not applicable. (6) Issue Price (7) Profit Payment Frequency : The Sukuk Wakalah issued with Periodic Distribution may be issued at par, premium or discount to its nominal value, whereas the Sukuk Wakalah issued without Periodic Distribution shall be issued at discount to its nominal value. : Sukuk Wakalah with Periodic Distribution Semi-annually or such other period of frequency to be agreed between the Issuer, the JLMs and/or the relevant qualified investor(s) prior to each Page 33
36. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL issuance of the Sukuk Wakalah (“Distribution Period”). The “Distribution Date” is defined as the last day of each Profit Payment Period. Sukuk Wakalah without Periodic Distribution Not applicable. (8) Profit Payment Basis : Sukuk Wakalah with Periodic Distribution Actual/365 days. Sukuk Wakalah without Periodic Distributio Not applicable. (9) Issue Tenure : The tenure of each Sukuk Wakalah to be issued under the Sukuk Wakalah Programme shall be at least one (1) year and up to thirty (30) years as the Issuer may elect, provided that the relevant Sukuk Wakalah matures on or prior to the expiry of the Sukuk Wakalah Programme. (10) Form and denomination : Issuance of the Sukuk Wakalah shall be in accordance with: (1) the Participation and Operation Rules of Payments and Securities Services issued by Payments Network Malaysia Sdn Bhd (“PayNet”) or its successor in title, assigns or any successor in such capacity (as amended and/or substituted from time to time) (“PayNet Rules”); (2) the Operational Procedures for Securities Services and Operational Procedures for Malaysian Ringgit Settlement in the Real Time Electronic Transfer of Funds and Securities System issued by PayNet or its successor in title, assigns or any successor in such capacity (as amended and/or substituted from time to time) (“PayNet Procedures”); and (3) any other procedures/guidelines/rules issued by the relevant authorities from time to time (as amended and/or substituted from time to time). Form The Sukuk Wakalah shall be represented by a global certificate to be deposited with BNM, and is exchangeable for definitive bearer certificates only in certain limited circumstances. Denomination The denomination of the Sukuk Wakalah shall be Ringgit Malaysia One Thousand (RM1,000.00) and in multiples of Ringgit Malaysia One Thousand (RM1,000.00) thereof or such other denomination as may be mutually agreed by the Page 34
37. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Issuer and the JPAs /JLAs/JLMs as may be allowed under the PayNet Rules and the PayNet Procedures. The minimum issue size for each issuance of the Sukuk Wakalah under the Sukuk Wakalah Programme is Ringgit Malaysia One Million (RM1,000,000.00). (11) Special Condition : In the event the Minister of Finance (Incorporated) ceases to be the majority shareholder of the Issuer, the Issuer shall notify the Sukuk Trustee in writing and shall comply with any conditions (if any) imposed by the Sukuk Trustee upon the instruction of the Sukukholders and agreed by the Issuer in respect of the Sukuk Wakalah Programme. (12) Taxation : All payments by the Issuer shall be made without withholding or deductions for or on account of any present or future tax, duty or charge of whatsoever nature imposed or levied by or on behalf of Malaysia or any other applicable jurisdictions, or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. For the avoidance of doubt, in the event the Issuer is required by law to withhold or deduct, the Issuer is not required to pay such additional amount (i.e. additional amount which the payee would have otherwise received if no such withholding or deductions are made) to the payee. (13) Transaction Documents : The Transaction Documents shall include the following: (1) (2) (3) (4) (5) (6) the Programme Agreement; the Trust Deed; the Securities Lodgement Form; the Subscription Agreement(s); the relevant Islamic documents in relation to the underlying transaction of the Sukuk Wakalah; and such other agreements as may be advised by the Solicitors. (14) Jurisdiction : The Issuer shall irrevocably and unconditionally submit to the exclusive jurisdiction of the courts of Malaysia. (15) Other Conditions : The Sukuk Wakalah shall at all times be governed by the guidelines issued and to be issued from time to time by the SC and BNM having jurisdiction over matters pertaining to the Sukuk Wakalah and the PayNet Rules and PayNet Procedures. [The rest of this page has been left blank intentionally] Page 35
38. BANK PEMBANGUNAN MALAYSIA BERHAD 2 .2 STRICTLY PRIVATE AND CONFIDENTIAL Transaction Diagram and Explanatory Notes of the Sukuk Wakalah Programme 1) Pursuant to a Wakalah agreement entered into between the Sukuk Trustee (acting on behalf of the holders of the Sukuk Wakalah (“Sukukholders”)) and BPMB as the Issuer (“Wakalah Agreement”), BPMB shall be appointed as an agent of the Sukukholders (“Wakeel”) to perform services of investing the issue proceeds (“Sukuk Proceeds”) in the relevant Shariah-compliant Wakalah portfolio (“Wakalah Portfolio”) and management of the Wakalah Portfolio, in accordance with the Wakalah Agreement. Each Wakalah Portfolio shall comprise a combination of investment in the following: a) the Shariah-compliant business of the Issuer from time to time (“Shariah-compliant Business”), which shall represent the Sukukholders’ interest in the Shariahcompliant Business. Investment in the Shariah-compliant Business could either be the whole or a portion of the business which will be determined by the Issuer prior to the issuance of the Sukuk Wakalah; and b) Commodities (as defined herein) to be sold to BPMB as purchaser (“Purchaser”) under the Shariah principle of Murabahah (“Commodity Murabahah Investment”). “Commodities” is defined as Shariah-compliant commodities which may include but are not limited to crude palm oil or such other acceptable commodities (excluding ribawi items in the category of medium of exchange such as currency, gold and silver) which are provided through the commodity trading platform, Bursa Suq Al-Sila’ or such other independent commodity trading platforms as approved by the Joint Shariah Advisers which will be identified at or around the time of each issuance of the Sukuk Wakalah. 2) The Wakeel shall declare a trust on the trust assets (which shall comprise the Sukuk Proceeds, the Wakalah Portfolio and the rights, title, interest, entitlement and benefit in, to and under the Transaction Documents (as defined herein)) for the benefit of the Sukukholders. The Issuer shall, from time to time, issue Sukuk Wakalah to the Sukukholders and the Sukukholders shall subscribe to the Sukuk Wakalah by paying the Sukuk Proceeds. The relevant Sukuk Wakalah shall represent the Sukukholders’ undivided proportionate interest in the relevant Wakalah Portfolio. Page 36
39. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL 3 ) Pursuant to an investment agreement entered into between the Wakeel and BPMB as the investment manager (“Investment Manager”) (“Investment Agreement”), the Wakeel (on behalf of the Sukukholders) shall utilise at least 33% of the Sukuk Proceeds of the relevant tranche of Sukuk Wakalah for investment into the Shariah-compliant Business via the Investment Manager, subject to the valuation principles set out in the Wakalah Agreement. The Wakeel shall appoint the Investment Manager to manage the Shariahcompliant Business for the benefit of the Sukukholders. For the avoidance of doubt, the above ratio of at least 33% of the Sukuk Proceeds of the relevant tranche of Sukuk Wakalah is only applicable at the point of initial investment for each tranche of Sukuk Wakalah and does not need to be maintained throughout the tenure of the relevant tranche of Sukuk Wakalah. However, the Wakeel shall ensure that the Shariah-compliant Business shall at all times be a component of the Wakalah Portfolio. 4) The remaining proceeds of the Sukuk Wakalah shall be utilised by the Wakeel for the Commodity Murabahah Investment. The Commodity Murabahah Investment shall be effected as follows: a) Pursuant to the Commodity Murabahah Investment Agreement entered into between BPMB as the Purchaser and the Wakeel, the Purchaser shall issue a purchase order (“Purchase Order”) to the Wakeel with an undertaking to purchase the Commodities from the Wakeel at the Deferred Sale Price (as defined herein). b) Pursuant to the Purchase Order, the Wakeel shall purchase the Commodities on spot basis from the commodity supplier via a commodity trading participant, at the commodity purchase price equivalent to such remaining Sukuk Proceeds of the relevant tranche of Sukuk Wakalah after investment into the Shariah-compliant Business (“Commodity Purchase Price”). The Commodity Purchase Price shall comply with the Securities Commission Malaysia (“SC”)’s Shariah Advisory Council (“SAC”) asset pricing requirements as provided in the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 (revised and effective 30 June 2020) (as amended from time to time) (“LOLA Guidelines”). c) Upon acquiring the Commodities, the Wakeel (on behalf of the Sukukholders) shall sell the Commodities to the Purchaser for a sale price equivalent to the Commodity Purchase Price plus the profit margin payable on a deferred basis (“Deferred Sale Price”). For the avoidance of doubt, the Deferred Sale Price shall be equivalent to the aggregate of the Expected Periodic Distribution Amount (if any) and the nominal value of the relevant tranche of Sukuk Wakalah. “Expected Periodic Distribution Amount” means on any relevant Periodic Distribution Date (as defined herein), such amount calculated at the Periodic Distribution Rate (as defined herein) on the nominal value of the relevant Sukuk Wakalah based on actual/365 days. d) Upon completion of such sale under paragraph 4(c) above, the Purchaser shall, subsequently sell the Commodities to the commodity buyer via a commodity trading participant on spot basis for an amount equal to the Commodity Purchase Price. 5) The Wakeel shall distribute income generated from the Wakalah Portfolio (“Income”) up to: a) in respect of Sukuk Wakalah with periodic distribution (“Periodic Distribution”), the Expected Periodic Distribution Amount to the Sukukholders in the form of Periodic Page 37
40. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Distribution on each periodic distribution date (“Periodic Distribution Date”); or b) in respect of Sukuk Wakalah without Periodic Distribution, the expected one-off distribution amount (“Expected One-off Distribution Amount”) which shall be equal to the difference between the nominal value and the Sukuk Proceeds of the Sukuk Wakalah, to the Sukukholders in the form of a one-off distribution upon the declaration of a dissolution event (“Dissolution Event”) or the maturity date of the relevant Sukuk Wakalah (“Maturity Date”), whichever is the earlier. Any excess above the Expected Periodic Distribution Amount shall be waived by the Sukukholders and retained by the Wakeel as incentive fee. 6) BPMB as the obligor (“Obligor”) shall issue a purchase undertaking (“Purchase Undertaking”) in favour of the Sukuk Trustee (acting on behalf of the Sukukholders), under which the Obligor undertakes to purchase the Sukukholders’ interest in the Shariah-compliant Business from the Sukuk Trustee (acting on behalf of the Sukukholders) upon: (i) the declaration of a Dissolution Event or (ii) the Maturity Date, whichever is earlier, at the market value of the Shariah-compliant Business (“Exercise Price”) and to enter into a sale agreement for such purchase. 7) Upon the declaration of a Dissolution Event or the Maturity Date, the proceeds from the Wakalah Portfolio made up of the Exercise Price, outstanding Deferred Sale Price (subject to Ibra’) and any returns generated shall be paid to the Sukukholders to redeem the relevant Sukuk Wakalah. Any excess above the nominal value or the accreted value (as the case may be) and if applicable, any accrued but unpaid Expected Periodic Distribution Amount of the relevant Sukuk Wakalah shall be waived by the Sukukholders and retained by the Wakeel as an incentive fee upon the full redemption of the relevant Sukuk Wakalah. Upon the full payment of all amounts due and payable under the relevant Sukuk Wakalah, the trust in respect of the relevant Wakalah Portfolio will be dissolved and the relevant Sukuk Wakalah held by the Sukukholders will be cancelled. [The rest of this page has been left blank intentionally] Page 38
41. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 3 .0 CORPORATE INFORMATION OF THE ISSUER 3.1 Corporate History BPMB was incorporated under the Companies Act 1965 on 28 November 1973 (and deemed to be registered under the Companies Act 2016) under the name Bank Pembangunan Malaysia Berhad and began its operations on 8 June 1974. BPMB’s mandated role then was to assist entrepreneurs involved in small and medium industries through the provision of various financing facilities; provision of entrepreneur training and advisory services to, in particular, Bumiputra entrepreneurs; and also through financing and equity participation. In December 1998, BPMB was entrusted with another important role of providing financing for infrastructure projects, particularly Government projects. In conjunction with this, BPMB changed its name to Bank Pembangunan dan Infrastruktur Malaysia Berhad in January 1999. In early 2002, BPMB was granted an “exempt dealer status” from MOF, allowing it to offer corporate advisory, corporate financing and underwriting services to companies engaged in the development of infrastructure projects. In 2002, BPMB was identified as one of six DFIs which is a group of specialised financial institutions established by the Government as part of an overall strategy to develop and promote specific strategic sectors, such as agriculture, SMEs, infrastructure development, shipping and capital intensive, high-technology industries and export-oriented industries for the social and economic development of the country. Following this, the DFIA was enacted and made effective on 15 February 2002. In 2005, as part of the Government’s initiative to streamline the operations of the DFIs, BPMB acquired SME Bank (which was then known as Bank Industri & Teknologi Malaysia Berhad) as a wholly-owned subsidiary. As a result, the operations of the enlarged group of BPMB were realigned. BPMB focused on providing medium to long-term credit facilities to industries and projects that are capital-intensive in the infrastructure, maritime, high-technology and selected sectors, whereas SME Bank’s mandated role was to assist entrepreneurs, particularly Bumiputra entrepreneurs, involved in small and medium industries through provision of various financing facilities, entrepreneur training and advisory services. In line with the rationalisation, BPMB once again changed its name, to Bank Pembangunan Malaysia Berhad on 30 September 2005. In April 2008, BPMB and SME Bank underwent a de-merger exercise in which the latter was separated from BPMB (then SME Bank’s parent) and placed under MOF Inc. The separation aimed to further strengthen and enhance the capacity, efficiency and effectiveness of both DFIs in providing specialised financial services to their targeted sectors. Following the separation, BPMB is more focused on its mandated role assigned by the Government to provide financing facilities for infrastructure projects, maritime, technology and capital-intensive industries in manufacturing as well as other identified sectors in line with the country’s development policy. In 2012, in view of the importance of the oil & gas sector as reflected in the Economic Transformation Programme (ETP), BPMB expanded its sectors in focus to include oil & gas, in addition to infrastructure, maritime and technology. In 2016, BPMB made a commitment to transform into a full-fledged Islamic DFI. This is in line with the Government’s aspiration to make Malaysia an international Islamic financial centre and leader in global Islamic finance industry. Resulting from this commitment, BPMB currently emphasises on growing its Islamic portfolio by continuously offering Shariah-compliant financing. To date, approximately 70% of BPMB’s loans/financing portfolio is Shariah-compliant. Page 39
42. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL BPMB ’s role in assisting the development of the nation’s main infrastructure and its innovative contributions in developing SMEs has received numerous recognitions. Over the years, BPMB was conferred awards by the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) under various categories. In 2007, BPMB was the winner for Infrastructure Development Category for Stormwater Management & Road Tunnel Project. In 2013, BPMB won again the Infrastructure Development Category for KL Sentral Development Project. BPMB also won two (2) categories in 2016 namely the Environmental Development Category for the Perdana Putra High Performance Green Building and the Infrastructure Development Category for the Private Finance Initiative (PFI) in Education Sector. In 2019, BPMB was placed under the purview of the Ministry of Economic Affairs. During the tabling of the Budget 2020, it was announced that BNM proposed a twophase restructuring plan, where a new financial institution was to be formed by merging BPMB, Danajamin Nasional Berhad, SME Bank and Export-Import Bank of Malaysia Berhad. Pursuant to MOF’s direction in its letter to BPMB dated 24 June 2020 however, this proposal has been postponed indefinitely. 3.2 Share capital The issued and paid-up share capital of BPMB as at 15 August 2020 are as follows: 3.3 Type of shares No. of shares Ordinary shares 3,078,724,049 Total (RM) 3,078,724,049 Shareholders The shareholders of BPMB as at 15 August 2020 are as follows: No. of ordinary shares held directly Name MOF Inc 3,078,724,048 99.99999999967 1 0.00000000033 Federal Lands Commissioner 3.4 % of share capital Subsidiary Companies The following are the subsidiary companies of BPMB as at 15 August 2020: Equity interest held by BPMB % Subsidiaries Principal activities Direct Subsidiaries PLC Maju Nominees 100 Lease, hire purchase financing, factoring, block discounting and investment holding 100 Nominee for the holding Page 40
43. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Equity interest held by BPMB % Subsidiaries (Tempatan) Sdn Bhd Principal activities company SME Growth Acceleration Fund Sdn Bhd 100 Venture capital investment BPMB Urus Harta Sdn Bhd 100 Dormant GMV 90 Venture capital investment Emerald Upline Sdn Bhd 100 Dormant PLCCF 100 Hire purchase financing, factoring, insurance agency and letting of properties BICL 100 Credit and leasing Mutiara Navigation Sdn Bhd* 63 Dormant Nilam Navigation Sdn Bhd# 63 Dormant Sari Navigation Sdn Bhd# 63 Dormant Glory Incentive Sdn Bhd 90 Investment holding GMV-Alam Sdn Bhd 90 Investment holding GMV-Bahtera Sdn Bhd 90 Investment holding GMV-Borcos Sdn Bhd# 90 Investment holding GMV-Gagasan Sdn Bhd# 90 Investment holding GMV-Global Sdn Bhd# 90 Investment holding Bhd# Subsidiaries of PLC Subsidiaries of GMV GMV-Efogen Sdn 90 Investment holding GMV-Jasa Sdn Bhd# 90 Investment holding GMV-Omni Sdn Bhd# 90 Investment holding GMV-Regional Sdn Bhd 90 Investment holding GMV-Orkim Sdn Bhd* 90 Investment holding GMV-Offshore Sdn Bhd 90 Investment holding Subsidiaries of Glory Incentive Sdn Bhd Kencana Navigation Sdn Bhd* 63 Dormant Gemala Navigation Sdn Bhd* 63 Dormant Page 41
44. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Equity interest held by BPMB % Principal activities Sdn 63 Dormant Permata Navigation Sdn Bhd* 63 Dormant Ayu Navigation Sdn Bhd 63 Dormant 90 Provision of financial & accounting services Subsidiaries Ratna Bhd* Navigation Subsidiary of GMV-Global Sdn Bhd Bahtera Berlian Sdn Bhd# * The subsidiary is dissolved # The subsidiary is under liquidation Information on the key companies within the Group is as follows: (a) PLC PLC was incorporated on 1 November 1977 as a wholly-owned subsidiary of BPMB. PLC was established as an effort by BPMB to venture into commercial financing market, particularly through leasing. In its early years, PLC’s business activities were confined solely to offering of leasing facilities. Over the years as PLC’s business grew, it expanded its scope of business to include offering of hire purchase and factoring facilities. PLC has since evolved into a credit company with an extensive offering of financing packages. As at 15 August 2020, PLC has an issued and paid-up capital of RM74,000,000.00. PLCCF, a subsidiary of PLC, was incorporated on 26 January 1984 under the name of Pembangunan Realty Corporation Sdn Bhd. It was established principally to handle land matters and insurance coverage on financed assets. In early 1997, PLCCF assumed its present name and its business activities were expanded to provide facilities such as industrial and nonindustrial hire-purchase, factoring, letters of credit, bank guarantees and insurance. As at 15 August 2020, PLCCF has an issued and paid-up capital of RM50,000,000.00. BICL was incorporated on 28 January 1981 and became a subsidiary of PLC on 21 July 2006. BICL was principally involved in offering credit and leasing facilities and is currently focusing on repayment collection of its existing portfolio. As at 15 August 2020, BICL has an issued and paid-up capital of RM400,000,000.00. (b) GMV GMV was incorporated on 19 May 1993 as a subsidiary of Bank Industri & Teknologi Malaysia Berhad (currently known as SME Bank). All shares of SME Bank in GMV were transferred to BPMB in April 2006 following the merger of BPMB and SME Bank. As at 15 August 2020, GMV has an issued and paid-up capital of RM300,000,000.00. GMV is a marine venture capital investment holding company incorporated to accelerate the development of the country’s maritime industry. GMV’s mandated role is to develop the national shipping business sector by building Page 42
45. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL strategic alliances with local partners to jointly acquire vessels for domestic as well as international operations . In fulfilling its objectives, GMV forms joint ventures with ship owners and has formed joint ventures with ten (10) active ship owners. Under the joint venture, a ship-owning company will be established for the purpose of acquiring vessels. 3.5 Associated Companies The following is the associated companies of the Group as at 15 August 2020: Associated Companies Equity interest held by BPMB % Principal activities Associated company held through GMV Wawasan Bulk Services Sdn Bhd 27 Ship Management Associated companies held through SME Growth Acceleration Fund Sdn Bhd Ambang Bhd Sdn 26 Dormant Cantuman Wawasan Sdn Bhd 26 Dormant Internexia Sdn Bhd 26 Dormant MS Time Ventures Sdn Bhd 26 Dormant Nano C Sdn Bhd# 26 Dormant Profound Kestrel Laboratories Sdn Bhd 49 Dormant S.I.T Schiffs & Industries Technic Sdn Bhd# 26 Dormant Welland Communications Sdn Bhd# 26 Dormant # The 3.6 Wibawa company is under liquidation Investments in Joint Ventures The following are the Group’s investments in joint ventures as at 15 August 2020: Jointly Controlled Entities Equity interest held by BPMB % Principal activities Jointly Controlled Entities held through GMV Alam Eksplorasi (M) Sdn Bhd 36 Ship-owning, ship operating, ship agency, chartering and others related to shipping industry Alam Synergy I (L) Inc. 36 Ship-owning, ship operator and charter hire of vessel Alam Synergy II (L) Inc. 36 Ship-owning, ship operator Page 43
46. BANK PEMBANGUNAN MALAYSIA BERHAD Jointly Controlled Entities STRICTLY PRIVATE AND CONFIDENTIAL Equity interest held by BPMB % Principal activities Jointly Controlled Entities held through GMV and charter hire of vessel Alam Synergy III (L) Inc. 36 Ship-owning, ship operator and charter hire of vessel Baycorp Ship Management Sdn Bhd* 36 Ship management Formasi Cekal Sdn Bhd# 36 Ship-owning, ship operator and to undertake all kinds of contracts to carry merchant goods Gagasan Ked Sdn Bhd# 54 Ship-owning Gagasan Paha Sdn Bhd# 54 Ship-owning Global BMesra Sdn Bhd# 44.1 Ship-owning and freighting Global BMesra Dua Sdn Bhd# 44.1 Ship-owning and freighting Global BIkhlas Sdn Bhd# 44.1 Ship-owning and freighting Sea Weasel Limited 44.1 Ship-owning and freighting * The company has been dissolved # 3.7 The company is under liquidation Corporate Structure The summary of BPMB’s corporate structure as at 15 August 2020 is as follows: Page 44
47. BANK PEMBANGUNAN MALAYSIA BERHAD 3 .8 STRICTLY PRIVATE AND CONFIDENTIAL Profile of directors The directors of BPMB and their respective profile as at 15 August 2020 are as follows: Datuk Zaiton binti Mohd Hassan Independent Non-Executive Chairman Datuk Zaiton binti Mohd Hassan was appointed to the Board of BPMB on February 18, 2019. Datuk Zaiton is a Fellow of the Association of Chartered Certified Accountants (ACCA), United Kingdom a member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants. She brings a total of 40 years of varied 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 MARC in 1996 and was its President / Executive Director until 2004. She then set up her own financial advisory firm Capital Intelligence Advisors Sdn Bhd. She was also responsible in the establishment of the Malaysia Professional Accountancy Centre (MyPAC) in 2015 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 the Private Pension Administrator Malaysia. She is also a Global Council Member of ACCA and a Member of the International Federation of Accountants (IFAC) Professional Accountants in Business (PAIB) Committee. Tan Lye Sim Independent Non-Executive Director Madam Tan Lye Sim was appointed to the Board of BPMB on September 15, 2018. She is an ACCA Fellow and an accomplished risk practitioner with more than 30 years of experience in financial institutions, securities houses, merchant and commercial banks and finance companies. Madam Tan 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 Berhad, Chief Risk Officer of Hong Leong Bank Berhad, Director, and Head of Operational Risk Management of CIMB Investment Bank Berhad. Her last position was as Group Chief Risk Officer at Kenanga Investment Bank Berhad from 2013 to 2017. During her time there, Madam Tan developed the 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. She 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, Madam Tan joined MBf Finance Berhad as Head, Risk Management Department/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. Madam Tan currently does not hold any directorships in other companies. Page 45
48. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Tan Sri Dr . Rahamat Bivi Yusoff Independent Non-Executive Director Tan Sri Dr. Rahamat Bivi Yusoff was appointed to the Board of BPMB on October 1, 2018. She holds a Bachelor of Social Science (Economics) (Honours) degree from Universiti Sains Malaysia and a Master of Economics from University of Western Michigan, USA. Tan Sri Dr. Rahamat also holds a Diploma in Public Administration from the Institute of Public Administration (INTAN) Malaysia and was conferred a Ph.D. in Political Science and International Relations from Australian National University. She had served in the public service for 36 years, with vast experience in the fields of economics, finance and macroeconomic development. Her career began at the MOF as an Assistant Secretary in the Tax Division in 1981 followed by a stint as a Project Officer at 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, the 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), the Co-chair of Malaysia Thailand Joint Authority (MTJA) and Chairperson of Board of Governors, Multimedia University. She also sits on the Board of IOI Corporation Berhad and Ekuiti Nasional Berhad (EKUINAS). She is also a Chairperson of GMV. She is a Member of the Advisory Panel of Asian Development Bank Institute (ADBI). Dato’ Othman Semail Non-Independent Non-Executive Director Dato’ Othman Semail was appointed to the Board of BPMB on January 22, 2019. He holds a Master of Business Administration from Universiti Kebangsaan Malaysia (UKM) and graduated with a Bachelor of Natural Resources Economics from Universiti Pertanian Malaysia (UPM). He also holds a Diploma in Public Administration (1999) from INTAN and a Diploma in Agriculture from UPM. Dato’ Othman has over 37 years of experience in the 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 MOF 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. Dato’ Othman currently sits on the Board of Technology Depository Agency Berhad, Construction Industry Development Board (CIDB), Selangor State Development Corporation (PKNS), Capital Market Development Fund and several other private companies. He is also an Advisor to Dewan Bandaraya Kuala Lumpur. Page 46
49. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Dr . Mohamed Ashraf Mohamed Iqbal Independent Non-Executive Director Dr. Mohamed Ashraf Mohamed Iqbal was appointed to the Board of BPMB on February 1, 2019. He holds a PhD in Islamic Banking and Finance from the International Centre for Education in Islamic Finance (INCEIF), a Post Graduate Diploma in Islamic Studies from International Islamic University Malaysia, a Master in Business Administration and a Bachelor of Science in Mechanical Engineering from California State University Fresno. He is also a Chartered Professional in Islamic Finance (CPIF). He is the Chief Executive Officer 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 a Member of Shariah Committee of HSBC Amanah Malaysia Berhad He is the Chairman of PLC, PLCCF and BICL. He is also a Director of FIDE Forum and USAINS Holding Sdn Bhd. Dato’ Wan Mohd Fadzmi Che Wan Othman Fadzilah Independent Non-Executive Director Dato’ Wan Mohd Fadzmi Che Wan Othman Fadzilah was appointed to the Board of BPMB on April 25, 2019. He graduated with a Bachelor of Construction Economics from RMIT University, Australia. He has attended the Advanced Management Program at the Wharton Business School at the University of Pennsylvania in the United States of America and the Senior Executive Finance Program at Templeton College, University of Oxford. He is also a Chartered Banker at the Asian Institute of Chartered Bankers (AICB) and CPIF. Dato’ Wan Mohd Fadzmi is a professional banker with over 25 years of experience in domestic and international banking. His career began in Melbourne, Australia as a Cost Estimator with Peter Slattery & Co in March 1986. Upon his return to Malaysia in 1988, Dato’ Wan Mohd Fadzmi joined Malayan Banking Berhad (Maybank) and held various positions at Maybank’s head office until December 1994. In December 1994, Dato’ Wan Mohd Fadzmi moved to Maybank’s London branch as its Credit & Marketing Manager. This was followed by his appointment as General Manager/Country Head of the London branch in September 1999 where he was responsible for the UK operations. Dato’ Wan Mohd Fadzmi then spent three years as Maybank’s New York General Manager/Country Head and had the overall responsibility for the New York City branch’s banking operations. Dato’ Wan Mohd Fadzmi then returned to the head office in Malaysia to helm Overseas Operations in November 2005 before leaving for the republic of China in September 2006. He spent the following four years as the General Manager/Chief Executive of Maybank’s Hong Kong branch. Page 47
50. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Thereafter , he joined RHB Bank Berhad as Director, Global Business Banking Strategic Business Group in July 2010 where he was responsible for RHB’s international banking operations comprising of branches in Singapore, Thailand and Brunei Darussalam. Dato’ Wan Mohd Fadzmi was then appointed as the President/Chief Executive Officer of Bank Pertanian (M) Berhad (Agrobank) from July 2011 to August 2017 and was fully responsible for leading Agrobank’s full operations via 188 outlets in Peninsular Malaysia, Sabah and Sarawak. Dato’ Wan Mohd Fadzmi has received many accolades in his career including Outstanding Chief Executive Officer 2017 from Association Development Financial Institution in Asia Pacific (ADFIAP) in Macau, China and Chief Executive Officer of the Year at the Global Islamic Finance Awards (GIFA) 2016 in Jakarta, Indonesia. He currently sits as Director of CCM Berhad, Hap Seng Consolidated Berhad, Sumitomo Mitsui Banking Corporation Berhad, PLC, PLCCF and BICL. He is also the Chairman of Sedania Assalam Capital Sdn Bhd. Ariff bin Rozhan Independent Non-Executive Director Encik Ariff bin Rozhan was appointed to the Board of BPMB on May 10, 2019. He holds a LLB (Hons) from Reading University, Berks, England and is a Fellow of the Chartered Institute of Arbitrators. Encik Ariff has practiced law for nearly 30 years. He began his career in 1989 at an international city law firm in London, and thereafter, practiced as a Barrister in London, England, where he was instructed as Counsel at various levels of the Judicial System in England and Wales. He is also an advocate and solicitor of the High Court of Malaya. In Malaysia, he was a partner at Zaid Ibrahim & Co, where he managed the firm's Dispute Resolution department and was on the Executive Committee until April 2015. He founded Ariff Rozhan & Co in April 2015 and is now its Managing Partner. Ariff also set up the Chambers of Ariff Rozhan in London, England, in 2015 from where he practices as a Barrister. Ariff has also been authorised by the Bar Council of England & Wales to "Conduct Litigation" and is registered to accept instructions via Direct Access. Encik Ariff has experience in conducting cases in complex claims and disputes, in a wide range of fields including arbitration, corporate and commercial disputes, insurance and reinsurance, banking, administrative, insolvency, construction and contractual matters. He also has extensive experience in forensic investigations, forensic due diligence, and cases involving issues of regulatory and statutory compliance. His clients include both local and international banks, major local and international corporations, statutory bodies, local authorities and local and international conglomerates in various industries. He is currently the Managing Partner of Ariff Rozhan & Co and a Director of Pan Malaysia Corporation Berhad and GMV. Puan Norazilla Md Tahir Independent, Non-Executive Director Puan Norazilla Md Tahir was appointed to the Board of BPMB on 14 August 2020. She has more than 25 years’ experience in financial management, notably in financial institution and capital markets. Page 48
51. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Prior to her appointment as a director of BPMB , Puan Norazilla was the Chief Financial Officer of Cagamas Berhad for a total of 9 years from when she first joined in 2009. She spearheaded the financial leadership of Cagamas Berhad’s group and was responsible for upholding strong financial management and governance while providing timely, accurate and reliable financial information and enhancing internal control. Apart from Cagamas Berhad, Puan Norazilla held other Chief Financial Officer/Head of Finance positions at three Islamic banking institutions, namely RHB Islamic Bank Berhad, Asian Finance Bank Berhad and the Al Rajhi Banking and Investment Corporation (Malaysia) Berhad. Besides banking, Puan Norazilla is also experienced in fast moving consumer goods, having been involved in sales logistic chain management while at L’Oreal Malaysia Sdn Bhd and Universal Music Sdn Bhd. Puan Norazilla is a graduate of the University of Stirling, Scotland, a member of the Malaysian Institute of Accountants (MIA) and a Fellow Chartered Accountant of the Institute of Chartered Accountants in England and Wales (ICAEW). She is passionate about coaching and mentoring and her volunteer work includes the coaching of undergraduates at UiTM INTEC. 3.9 Profile of the Management The profiles of the key personnel in the management team of BPMB as at 15 August 2020 are as follows: Arshad Mohamed Ismail President/Group Chief Executive Officer / Covering Head Group Business Products Encik Arshad Mohamed Ismail was appointed BPMB’s President/Group Chief Executive Officer on 8 April 2019. Prior to his appointment, Encik Arshad was Head of Global Banking Business at Maybank Islamic Berhad, in which capacity he oversaw their corporate banking, trade finance and investment banking business lines. He has had a varied career path since commencing his career in 1995 as a lawyer in Kuala Lumpur with Messrs Mohamed Ismail & Co; he specialised in corporate law, banking and finance law, and also Islamic banking and finance law. In early 2003, he joined CIMB Islamic Bank Berhad as one of its pioneer members where he focused on Sukuk origination and execution before relocating to the United Arab Emirates in late 2004 to join HSBC Amanah Bank Berhad as the Head of Islamic Capital Markets. At HSBC Amanah Bank Berhad, Encik Arshad and his team originated and worked on many innovative and ground breaking Sukuk transactions in the Gulf Cooperation Council region and South East Asia. The other roles he has held include 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. He returned to Malaysia in 2011 to join the International Islamic Liquidity Management Corporation as Executive Director, Origination and Structuring. Encik Arshad holds an LL.B. (Hons.) degree from the International Islamic University Malaysia and an M.B.A. from the London Business School, United Kingdom. He was elected to the SC-OCIS Visiting Fellowship in Islamic Finance for the academic year 2015 - 2016 at the Oxford Centre for Islamic Studies, University of Oxford. Page 49
52. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Zulkeefli Mad Karim Chief Financial Officer Encik Zulkeefli Mad Karim joined BPMB on 15 March 2016 as Vice President /Head, Chief Executive’s Office, at PLC and attached to BPMB Finance as Head, Financial Management. He was then transferred and appointed as Head, Group Finance at BPMB in March 2018. On 1 March 2020, Encik Zulkeefli was appointed as the Bank’s Chief Financial Officer. He is a Fellow member with Association of Chartered Certified Accountant, United Kingdom and a Chartered Accountant member of Malaysian Institute of Accountant. He holds a Master’s degree in Accounting (Post Graduate Diploma) from the University of De Monfort, Leicester, United Kingdom in 1995. Prior to joining BPMB, he was attached to Coop Bank Persatuan Malaysia Berhad as its Chief Financial Officer. Other positions held include Vice President/Head, Management Report, Group Account and Treasury at Sime Darby Berhad Group and Vice President/Head, Finance and Accounts at SME Bank. Muhammad Taufiq Abdul Latif Chief Risk Officer Encik Taufiq is the Chief Risk Officer of BPMB. As a member of the senior management team, he oversees the 5 pillars of the risk management function comprising Credit Risk, Market Risk, Operational & Shariah Risk, Credit Policy & Portfolio Management and Risk Strategy. He joined BPMB in 2012 where he served in various units within the Group Risk Management Function at management level such as Enterprise Risk, Risk Control, Market/Liquidity & Capital Risk. He has also served as Head of the Risk Strategic and Analytics, Portfolio Risk and Internal Control units. BPMB appointed Encik Taufiq as Chief Risk Officer in June 2020. Prior to joining BPMB, Encik Taufiq was with the Malayan Banking Berhad (Maybank Group) for almost 18 years. He started his career with Mayban Finance Berhad with exposure in credit marketing and disbursement, credit control, recovery & rehabilitation and credit review before being identified and subsequently taking the role of Assistant Vice President/Head, Knowledge Management, Credit Risk Management (Group), where he was also appointed as an Executive Coach of Credit Risk for the Maybank Group. His last position with the Maybank Group was as Assistant Vice President/Head, Transformation Office, Maybank Islamic Berhad. Encik Taufiq has a Diploma in Microbiology and an Advanced Diploma in Business Studies (Marketing) from UiTM. Muhamed Noh Kaderan Chief Internal Auditor Encik Muhamed Noh Kaderan joined BPMB as Chief Internal Auditor, Group Internal Audit on 16 April 2018. He graduated from Universiti Utara Malaysia (UUM) with a Bachelor of Accountancy (Hons) in 1997. He is a Chartered Accountant registered with Malaysian Institute of Accountants (MIA), Certified Bank Auditor (AICB), member of ASEAN Chartered Professional Accountants (ACPA) and a Chartered Member of the Institute of Internal Auditors Malaysia (IIAM). He has over 22 years of auditing experience and began his career as an Audit Assistant at an audit firm, Syed Mubarak & Co. in 1997 before joining Malayan Banking Berhad as an Internal Auditor in 1998. He was attached to Bank Muamalat Malaysia Berhad in 2001 as Senior Auditor and was involved in the setting up of an internal audit function for MIA as pioneer Audit Manager/Head in 2003. Encik Muhamed Noh joined Bangkok Bank Berhad as a Chief Internal Auditor in 2006. He Page 50
53. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL then became Head , Internal Audit at Cagamas Berhad in 2010 before moving on to The Institute of Internal Auditors Malaysia as an Executive Director in 2017 prior to joining BPMB. Suffian Abdul Rahman Chief Compliance Officer Encik Suffian Abdul Rahman joined BPMB as Chief Compliance Officer on 1 October 2018. He graduated from Universiti Putra Malaysia with a Bachelor in Forestry Science in 2008 and holds a Master’s in Business Management from Universiti Teknologi MARA. He also holds an Advance Certification for Regulatory Compliance from AICB, a Shariah Registered Financial Planner from Malaysian Financial Planning Council and recently completed his certification as a Certified Integrity Officer from the Malaysian Anti-Corruption Academy. He is currently pursuing the Certified Professional in Financial Crime qualification from AICB. He was previously the Chief Compliance Officer for 4 entities under Zurich Insurance Malaysia from 2007 to 2018. He also held positions in Malayan Banking Berhad from 2001 to 2007 and in Pacific Bank Berhad from 1997 to 2000. Zainuddin Ismail Chief Human Resource Officer Encik Zainudin joined BPMB as Chief Human Resource Officer on 15 June 2020. He graduated from West Texas A & M University with a Bachelor of Science in Public Administration in 1990. He has served in senior Human Resource positions at reputable companies across multiple industries including energy, infrastructure and logistics. Prior to joining BPMB, En. Zainudin was the Deputy Chief Human Capital Officer at Prasarana Malaysia Berhad. Other positions held include Director of Human Resource at DHL Logistics Malaysia and Indonesia, Director of Strategic Human Resources at Mass Rapid Transit Corporation Sdn Bhd and MyHSR Corporation Sdn Bhd respectively. Muhammad Azraini Abd Hamid Group Head, Group Operations Encik Muhammad Azraini joined BPMB on 1 April 2016 as Chief Executive Officer of GMV, a wholly-owned subsidiary of BPMB. Currently, he is the Group Head of Bank’s Operations. Credit Administration, Information Technology, Manuals & Documentation and Property Management & Services are all under his portfolio. He graduated with a Bachelor of Science in Management from the Golden Gate University, San Francisco, USA. He then received a Master of Business Administration in Finance from the Alliance Manchester Business School, United Kingdom in 2008. He began his career as Head, Market Information Unit at MTDC Capital & Technology Research Sdn Bhd before joining CAV Private Equity Management Sdn Bhd in 2000 as Associate Director. In August 2012 he moved to RHB Investment Bank Berhad where he held the position of Deputy Director. His last position prior to joining BPMB was Chief Executive Officer at Putra Eco Ventures Inc. Sulaiman Abd Rahim Head, Business Banking Group 1 Encik Sulaiman joined BPMB on 16 December 2013 as Senior Vice President, Head of Capital Market and Advisory. After a reorganization in 2016, he served as Head, Page 51
54. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Investment Banking 1 . Subsequently in 2018, he was appointed Head, Business Banking 1 and with the restructuring of Group Business Banking on 1 August 2020, Encik Sulaiman was appointed as Head, Business Banking Group 1. He graduated with a Bachelor of Science in Finance from the Northern Illinois University, USA. He then received a Master of Business Administration from the Drake University, USA in 1989. He began his career as a Project Officer in Malaysian Industrial Development Finance Berhad, followed by multiple stints in capital markets and investment banking. His last position prior to BPMB was Head of the Malaysia Branch at Elaf Bank BSC. Hildah Hamzah Head, Business Banking Group 2 Puan Hildah joined BPMB on 4 June 2018 as Deputy Head, Strategy under the Group Transformation Office and was later appointed as Head, Corporate Planning during a structure reorganisation. In July 2019, she was appointed as Group Head, Business Products before assuming her current role in Aug 2020. She graduated with a Bachelor of Commerce (Accounting and Finance) from the University of Sydney, Australia in 2001. She began her career as an internal auditor for Projek Lebuhraya Utara Selatan Sdn Bhd (PLUS) and Time Dotcom Sdn Bhd before joining PricewaterhouseCoopers Advisory Sdn Bhd as a Risk and Performance Improvement Consultant. She joined Cagamas Berhad in 2006 before beginning her career in the banking industry. She was attached to Kuwait Finance House (Malaysia) Berhad as Assistant Director, Transformation Program Office in 2010 and as Assistant Director, Investment Banking in 2013. Prior to joining BPMB, Puan Hildah was Head of Corporate Strategy and Products at Danajamin Nasional Berhad. Mohamad Salihin Deris Group Head, Group Shariah Management Encik Mohamad Salihin Deris joined BPMB on 18 January 2016 as Head, Shariah Advisory. A few organisational restructuring exercises led to the change of Shariah Advisory to its existing name, Group Shariah Management in January 2019. He currently oversees the overall Shariah advisory function of the Bank on Shariah compliance requirements for its Islamic financial business and provides operational support as secretariat to its Shariah Committee’s oversight role. He graduated from the International Islamic University Malaysia with a Bachelor of Laws (Hons) and a Bachelor of Laws (Hons) (Shariah). He began his career at BNM in 2000 where he served in its Islamic Banking & Takaful Department, specifically incharge of formulation of legal and regulatory policy for the Islamic finance industry as well as Shariah advisory and reviews. He moved on to join CIMB Islamic Bank Berhad in 2009 as a Shariah manager and his last position was Senior Manager in 2013 in charge of Shariah advisory and research. In 2013 he joined Hong Leong Islamic Bank to head its Shariah Compliance Review. His last position prior to joining BPMB was as Director overseeing Shariah and regulatory affairs at the Association of Islamic Banking Institutions Malaysia (AIBIM) in 2015. Encik Mohamad Salihin holds an Associate Qualification in Islamic Finance Certification from the Islamic Banking & Finance Institute Malaysia (IBFIM). He is currently attending the Certified Shariah Advisory (CSA) certification programme by the Association of Shariah Advisors in Islamic Finance (ASAS), a professional body of Shariah advisors and officers in which he is also currently serving as its exco. Page 52
55. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Wan Faizah Che Din Group Head , Group Strategic Planning Puan Wan Faizah Che Din joined BPMB on 1 March 2018 as Head, Property Management before her appointment as Head, Property and Administration in October 2018. In January 2019 Puan Wan Faizah was appointed as Group Head, Group Strategic Planning. Puan Wan Faizah was an Associate Director, Property Management at Savills Malaysia from 2014 to 2018 prior to joining BPMB. Among the other positions held prior to joining BPMB were as Head, Special Project at Pengurusan Danaharta Nasional Berhad and Assistant General Manager at TTDI Development Sdn Bhd from 1999 to 2005, as General Manager, Asset Management and Restructuring at Perbadanan Nasional Berhad (PNS) from 2005 to 2007 and as Group Head, Offshore and Islamic Capital Markets at Bursa Malaysia from 2008 to 2010. Early in her career Puan Wan Faizah served at Ernst & Young in corporate recovery and restructuring for 7 years, with short stints at a merchant bank and a public listed company in corporate finance and corporate planning respectively. Puan Wan Faizah graduated with a Bachelor in Business (Accounting) from Monash University, Australia in 1990. She was a member of CPA Australia from 1992 to 1998. In January 2018 Puan Wan Faizah was admitted as a member of Board of Valuers, Appraisers, Estate Agents and Property Managers. 3.10 Profile of the Shariah Committee of BPMB The profiles of the key personnel in the Shariah committee of BPMB as at 15 August 2020 are as follows: Associate Professor Dr. Aznan Bin Hasan Chairman Dr Aznan joined BPMB on 1 April 2017. He has a Bachelor Degree in Shariah from University of Al-Azhar, Egypt, a Master Degree in Shariah from Cairo University, Egypt and a Ph.D. from the University of Wales, Lampeter, United Kingdom. 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 specializes in the subjects of Shariah such as Islamic commercial law, Islamic legal maxims and other related areas of Islamic banking and finance. Dr. Aznan is a renowned Shariah scholar locally as well as at the international arena in the field of Islamic finance. He has an extensive experience and involvement in Shariah advisory for approximately 15 years, where he has served as a Shariah advisor and consultant to various financial institutions, corporate entities, government agencies and regulatory authorities. He was involved in advising and approving various Islamic financial products in the banking, capital market and takaful industries. He has also conducted and published more than 40 researches and presented more than 100 presentations on Shariah and Islamic finance world-wide. Currently, Dr. Aznan serves as the President of the Association of Shariah Advisors in Islamic Finance. He is also the Deputy Chairman of Shariah Advisory Council of the Securities Commission Malaysia and the Chairman of the Shariah Committee of Maybank Islamic Berhad. Page 53
56. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Assistant Professor Dr . Miszairi Bin Sitiris Member Dr Miszairi joined BPMB on 1 October 2008. Dr Miszairi has a Bachelor Degree in Islamic Revealed Knowledge and Heritage (Fiqh and Usul Al-Fiqh) from the International Islamic University of Malaysia, a Second Bachelor Degree in Psychology from the International Islamic University of Malaysia, and a Master Degree in Fiqh and Usul Al-Fiqh from the International Islamic University of Malaysia. Further, Dr. Miszairi also has a Ph.D in Fiqh and Usul Al-Fiqh from the International Islamic University of Malaysia and a Postgraduate Diploma in Law and Administration of Islamic Judiciary from the Harun M. Hashim Law Centre, International Islamic University of Malaysia. Dr. Miszairi is currently an Assistant Professor in the Department of Fiqh and Usul AlFiqh 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, he has also supervised post-graduate thesis on takaful and is teaching at IIUM Institute of Islamic Banking and Finance on part-time basis. He is occasionally involved as a trainer and facilitator on Shariah subjects in Islamic banking and finance courses. He participates actively in Shariah and Islamic finance conferences. Currently, Dr. Miszairi is a member of Association of Shariah Advisors in Islamic Finance. Associate Professor Dr. Noraini Binti Mohd Ariffin Member Dr. Noraini joined BPMB on 13 June 2012. Dr. Noraini has a Bachelor of Science (Econs) in Accounting from the University of Aberystwyth, United Kingdom, a Master Degree in Accounting and Finance (with distinction) from the University of Dundee, United Kingdom and a Ph.D in Accounting for Islamic Banks from the University of Surrey, United Kingdom. Dr. Noraini is currently an Associate Professor in the Department of Accounting, Kulliyyah of Economics and Management Sciences, International Islamic University of Malaysia (IIUM). 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 for undergraduate and postgraduate levels. Dr. Noraini has published numerous articles related to Islamic accounting and finance, mainly on risk management for Islamic banks and corporate governance of Islamic banks. She recently co-authored a book entitled ‘Accounting for Islamic Banks’. She has participated as a speaker at national and international conferences. She has also been involved in consultancy projects to develop Islamic banking regulations in a few developing countries. She is occasionally involved as a trainer in Shariah audit and accounting for Islamic banks’ courses. Currently, Dr. Noraini is the Treasurer of Association of Shariah Advisors in Islamic Finance and also an Associate Member of the Malaysian Institute of Accountants. She is also a member of Audit Committee for IIUM Holdings Sdn. Bhd., a subsidiary of IIUM. Dr. Ahmad Basri Bin Ibrahim Member Dr. Ahmad Basri joined BPMB on 1 April 2017. He has a Bachelor in Islamic Jurisprudence and Legislation from the University of Jordan, Jordan, a Master Degree in Islamic Revealed Knowledge and Heritage from the International Islamic Page 54
57. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL University of Malaysia and a Ph .D in Islamic Law from the University of Birmingham, United Kingdom. Dr. Ahmad Basri is currently Vice President and Head of Shariah Management at Permodalan Nasional Berhad (PNB). He leads and oversees a team in-charge of Shariah matters in unit trust funds 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. He taught subjects of Shariah such as Usul Al-Fiqh, Islamic criminal law, introduction to Fiqh and his research areas of interest includes Islamic law of transactions, Islamic political system and Islamic legal maxims. Dr. Ahmad Basri has wide experience in Shariah advisory as he has previously served as chairman and member of Shariah Committee of a number of Islamic financial institutions in Islamic banking and takaful industries. He has conducted research as well as published articles and book chapters. He has also been invited to present papers and training on Shariah and Islamic finance in conferences. Currently, Dr. Ahmad Basri is a member of Association of Shariah Advisors in Islamic Finance. He is also a member of Shariah Committee of RHB Islamic Bank Berhad. Ustaz Mohd Fadhly Bin Md Yusoff Member Ustaz Mohd Fadhly joined BPMB on 1 April 2017. He has a Bachelor Degree in Shariah (First Class) from the University of Malaya, Malaysia. Ustaz Mohd Fadhly currently runs his own business and is also an independent Shariah advisor and consultant. Prior to this, he was previously a manager with the Islamic Capital Market Department in Securities Commission Malaysia (SC) where he had served for 12 years. He was responsible in managing, 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. He was also in-charge of research and development activities in relation to Islamic capital market products and outlined the criteria and manuals for Islamic securities. He was involved in reviewing and providing technical inputs for preparation of Islamic capital market guidelines. Ustaz Mohd Fadhly was appointed as a consultant for the Islamic Capital Market Department after he left the SC. He was also appointed as Shariah advisor and consultant by a number of educational, non-governmental organisations and financial institutions. On capacity building front, he is involved in reviewing Shariah and Islamic finance curriculum and syllabus for human capital development and training providers. He is also an accredited trainer for Islamic Finance Qualification by Chartered Institute for Securities and Investment. Currently, Ustaz Mohd Fadhly is a member of Association of Shariah Advisors in Islamic Finance. He is also a Shariah Committee member of RHB Islamic Bank Berhad and Sun Life Takaful Berhad. [The rest of this page has been left blank intentionally] Page 55
58. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 4 .0 BUSINESS OVERVIEW OF THE ISSUER 4.1 BPMB’s operations BPMB is a development financial institution and is mandated to provide financing facilities to finance infrastructure projects, maritime, technology and capital intensive industries in manufacturing as well as other identified sectors in line with the country’s development policy. In the past, BPMB has benefited from multilateral and government-to-government concessional funding. It has a long track record of managing funds through borrowings from the Government for lending towards key development sectors. BPMB’s operations can be categorised as follows: (a) Financial Services; and (b) Investment Operations. (a) Financial Services Mode of Financing The provision of financing facilities and related services forms the core business operation of BPMB. The types of financing provided include: (i) Project Finance Project finance is a mode of financing designed for long-term capitalintensive projects whereby the source of financing repayment is solely based on the cash flow generated from the project. Such financing is normally extended to a special purpose vehicle and has no or very limited recourse to the promoter. (ii) Contract Finance Contract finance is a short to medium-term financing offered to contractors, who have been awarded contracts to construct and complete infrastructure projects under progress payment arrangements. (iii) Deferred Payment Financing Deferred payment financing is a medium-term financing offered to contractors, who have been awarded contracts to construct and complete infrastructure projects under the deferred payment arrangement with the Government. The financing is designed to ease the Government’s cash flow position and allow contractors to receive uninterrupted milestone payments during construction, disbursed by BPMB. The Government pays the contractor over an agreed period after the completion of the construction milestones and these payments are utilised to settle their financing. (iv) Private Finance Initiative Private Finance Initiative (“PFI”) is a scheme designed to support the Government’s efforts to improve the quality of services of public facilities. This term financing provides funding for private sector Page 56
59. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL investors in completing the PFI projects awarded by the Government to them . The Government will then make contractual periodic payments for the availability of the facilities for their purpose and for the maintenance cost of the facilities. These payments are then assigned to and utilised to pay BPMB. (v) Structured Finance Structured finance is a medium to long-term financing offered to eligible customers in which the consideration would be based on a combination of the viability of the project to be undertaken and the financial strength of the promoter. This mode of financing is to assist the customers in the construction of buildings and the acquisition of assets. In meeting the specific financing requirements of BPMB’s customers, the above financing can be packaged in the form of various financing facilities, either conventional or based on Islamic principles. Attractive financing packages are also made available on concessionary terms through BPMB’s various Special Funds & Schemes. (vi) Asset Financing This type of facility is intended to finance the asset requirements of a company including the purchase of land, building, machinery, equipment, vehicle and other fixed assets, vessels that may be required by a project. The amount and margin of financing offered by BPMB would be dependent on the payment capacity of the customer and the total security value of the fixed assets financed. The standard tenure of financing under this category of facility is determined by the project’s projected cash flow, inclusive of the grace period for repayment. (vii) Working Capital Financing BPMB offers financing facilities for the purchase of raw materials, finished goods and other working capital requirements. The facilities can be granted together as a combined facility with fixed asset financing. (viii) Credit Wrap For customers that wish to issue a bank guaranteed Sukuk at a lower yield than their stand-alone yield, BPMB can provide a Kafalah Bank Guarantee to guarantee the Sukuk investor’s income and principal for a specified period. The specified period can cover construction period only or until and including the maturity of the Sukuk, (ix) Special Funds and Schemes BPMB also provides financing under its special funds and schemes established for projects related to the development of tourism infrastructures, public transportation, maritime industry, projects approved and awarded by the Government and projects qualifying under the PFI scheme. The various special funds and schemes are as follows: (1) Tourism Infrastructure Fund; (2) Public Transportation Fund; Page 57
60. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL (3) Maritime Fund; (4) Industry Digitalisation Transformation Fund; (5) Sustainable Development Financing Fund; (6) Contract Financing Scheme; (7) Deferred Payment Scheme; and (8) Green Technology Financing Scheme. Targeted Sectors Prior to 2020, BPMB’s financing focus has been in the four targeted sectors, as below. Beyond 2020, BPMB remains committed to the targeted sectors, while additional sectors will be considered based on the developmental needs of the nation. This is further elaborated in Section 4.2 below. Infrastructure BPMB’s financing of infrastructure projects is centred on seven (7) target sectors, namely: utilities, transportation, development areas, tourism, roads/highways, ports and community, social and public services. Infrastructure financing generally has long gestation periods and usually features a grace period of 3 to 5 years given to borrowers. Maritime Maritime financing involves long-term financing facilities and assistance to the maritime and shipyard industries as well as maritime-related activities. BPMB provides financial assistance to enhance Malaysia’s shipping capabilities, increase the efficiency and productivity of local ports, inland storage services and transportation systems. This facility offers financing for the purchase of new and used vessels such as dry and liquid cargo vessels, specialised vessels, container vessels, tugboats and barges with preference given to vessels constructed at local yards. Offshore support vessels serving the oil and gas industry are categorised under the Oil & Gas sector. As for the financing of maritimerelated activities, BPMB offers fixed asset financing to enable companies to invest in machinery and equipment or upgrade their existing infrastructure and working capital facility to meet their working capital requirements. Technology BPMB also provides technology financing by giving long-term financing to manufacturers of high-technology based industries such as advanced manufacturing, information and communication technology, advanced materials research, biotechnology, telecommunications, alternative energy source and power engineering, indigenous technology and photonics optics and laser technology, in order to assist these industries to succeed in the domestic and international marketplace. The purpose of this financing is to purchase the plant, machinery and equipment; and to construct factory buildings in relation to the development of such high-technology based activities. Page 58
61. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Oil & Gas BPMB also provides financing to the oil and gas sectors, both onshore and offshore. BPMB provides financing for machinery and equipment, to oil and gas storage facilities and infrastructure and to provide working capital to local contractors and fabricators. These also include financing of offshore support vessels such as anchor handling tugboats, supply vessels and other specialised vessels serving the oil and gas industry. Typically, BPMB’s customers have been those serving upstream and midstream activities of the oil majors. Financial instruments The abovementioned financial facilities are offered, inter alia, through the following instruments: (i) Financing; (ii) Islamic term Financing; (iii) Lease financing; (iv) Trade facilities; and (v) Kafalah Bank Guarantee. In addition to the above, BPMB is also active in financing large-scale projects through its participation in loan syndications with other financial institutions. In light of the growing interest and the many benefits conferred to Islamic banking products, BPMB has introduced these Islamic financing facilities: Tawarruq (fixed asset and working capital), Bai’ Murabahah (revolving working capital) and Kafalah (bank guarantee). Another innovative effort initiated to meet the demand for Shariah products was the introduction of Shariah-based facilities for several sub-sectors supported by BPMB. (b) Investment Operations Apart from offering financing services and products, BPMB is also involved in investment activities whereby BPMB subscribes either directly or indirectly, in the equity of locally registered companies. These investments are held by BPMB over a period of 5 to 7 years before being divested either through a listing on a stock exchange, private sale or buy-out by eligible Bumiputra purchasers. Apart from BPMB’s investments in equity, BPMB also invests in fixed income securities such as bonds/Sukuk, which are primarily medium to long term in nature. 4.2 Business Strategy BPMB’s vision is to be “Malaysia’s Leading Development Partner” where it will serve as thought partner and advisor to the Government, catalyzing new strategic areas in line with the nation’s development agenda. This vision is guided by the mission statement of “Impactful Delivery with Strategic Outcomes”. Page 59
62. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Under this mission , a new assessment framework, “Measuring Impact of National Development (“MIND”) was adopted in 2020, an evidence-based approach to evaluate, track and ultimately measure the developmental impact; from both the achievement of national development as well as sustainability goals on all projects financed by BPMB. There are three strategic thrusts that would support the vision and mission above: 1) Embracing paradigm shift; 2) Supporting Government’s strategic focus; and 3) Adhering to Islamic principles. Moving forward, in view of the changing economic landscape, BPMB will be sectoragnostic, with emphasis on developmental impact, as guided by the MIND assessment. As such, BPMB’s business strategy is to grow business in areas aligned with national policies and BPMB’s sustainable impact assessment appetite. BPMB will expand its focus from the four sectors of infrastructure, maritime, oil & gas and technology, while further aligning its strategies with the Government’s initiatives and global megatrends emphasising sustainability, digitalisation and inclusivity. In line with the above, particular attention will be given to robust and effective risk management, ample liquidity and lower funding costs to ensure the sustainability of BPMB’s overall business strategy. In view of financial deregulation and market volatility, particularly in an environment where profit rates/interest rates are trending downwards, the challenge is to attain an optimal funding mix to address BPMB’s funding needs while mitigating, amongst others, the profit rate/interest rate risk and cost. BPMB’s role as a DFI will evolve beyond the traditional sectors by aligning its strategies with the government’s initiatives and global megatrends emphasising sustainability, digitalisation and inclusivity. [The rest of this page has been left blank intentionally] Page 60
63. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 5 .0 FINANCIAL INFORMATION 5.1 Financial Highlights A summary of the financial results and position of the Group for FYE 31 December 2017 to HYE 30 June 2020 are as follows: The Group Income Statement Net interest income Profit before taxation Profit after taxation Balance Sheet Total Assets Loans, advances and financing Financial investments at fair value Financial investments – available-for-sale Cash and short term deposits (includes deposits and placements with financial institutions) Other assets1 Total Liabilities Deposits and placements from customers and financial institutions Redeemable notes/Sukuk Borrowings Other liabilities2 HYE 30 June FYE 31 December 2020 (Unaudited) RM(‘000,000) 2019 (Audited) RM(‘000,000) 177.7 219.1 158.1 482.9 379.7 251.6 495.9 260.7 167.3 564.6 325.3 215.0 23,278.9 24,663.1 24,734.1 26,998.6 15,691.7 15,701.8 18,284.7 19,743.3 5,551.8 5,024.0 3,719.9 - - - - 5,224.0 3,573.8 2,311.7 1,717.9 384.9 363.5 417.8 313.4 15,333.7 16,768.3 17,183.0 19,272.3 6,524.8 6,412.2 8,160.5 7,293.2 2,175.7 774.6 7,343.9 2,681.9 745.0 7,393.2 2,784.0 934.6 1,650.5 5,544.7 7,292.8 1,720.2 776.0 2018 2017 (Audited) (Audited) RM(‘000,000) RM(‘000,000) 1 Other assets comprise amounts receivable from the Government in respect of compensation schemes, foreign exchange differences, investment in subsidiaries (at Bank level), fixed assets and deferred tax assets. 2 Other liabilities include infrastructure support fund, deferred income, lease liabilities, deferred tax liabilities and other creditors/payables Page 61
64. BANK PEMBANGUNAN MALAYSIA BERHAD BPMB STRICTLY PRIVATE AND CONFIDENTIAL HYE 30 June 2020 (Unaudited) RM (‘000,000) Income Statement Net interest income Profit before taxation Profit after taxation Balance Sheet Total Assets Loans, advances and financing Financial investments at fair value Financial investments – available-for-sale Cash and short term deposits (includes deposits and placements with financial institutions) Other assets3 Total Liabilities Deposits and placements from customers and financial institution Redeemable notes/Sukuk Borrowings Other liabilities4 FYE 31 December 2019 (Audited) RM(‘000,000) 2018 (Audited) RM(‘000,000) 2017 (Audited) RM(‘000,000) 168.6 208.8 152.0 461.8 434.7 314.9 470.7 218.1 136.3 540.8 294.0 199.4 23,021.7 24,411.4 24,458.8 26,745.5 15,515.5 15,545.7 18,127.6 19,557.6 5,547.5 5,019.0 3,717.2 - - - - 5,219.2 1,343.6 3,253.8 2,020.1 1,440.3 615.1 592.9 593.9 528.4 15,290.7 16,725.3 17,141.0 19,218.3 5,544.7 6,524.8 6,412.7 8,160.5 7,292.8 1,720.2 733.0 7,293.2 2,175.7 731.6 7,343.9 2,681.9 702.5 7,393.2 2,784.0 880.6 The Group recorded a profit before tax and zakat of RM379.7 million in 2019 compared to RM260.7 million in 2018, up by 45.6% year-on-year. This is mainly due to lower impairment provisions on loans, financing and advances coupled with higher non-interest or finance income on financial investments as a result of its gain on disposals. On 25 March 2020, BNM made an announcement relating to measures to be undertaken by banking institutions that include a six-month deferment (moratorium) for all loans/financing repayments/payments, effective from 1 April 2020, to assist individuals and SMEs to manage the impact of the coronavirus disease (“Covid-19”) outbreak. In support of this initiative, BPMB had, on 9 April 2020, decided to offer a 6month moratorium to existing borrowers/customers who fulfilled the criteria set by BPMB. The day 1 debt modification loss arising from the approved 6-month moratorium will be incorporated in the financial statements upon the completion of the credit review in the second half of the year after the repayment structure has been 3 Other assets comprise amounts receivable from the Government in respect of compensation schemes, foreign exchange differences, investment in subsidiaries (at Bank level), fixed assets and deferred tax assets. 4 Other liabilities include infrastructure support fund, deferred income, lease liabilities, deferred tax liabilities and other creditors/payables. Page 62
65. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL determined . Please refer to the unaudited financial statements of BPMB for HYE 30 June 2020 as set out in Appendix II. As at 30 June 2020, the Group’s total assets and the Group’s total liabilities reduced to RM23 billion and RM15 billion respectively in comparison to FYE 31 December 2019. This was mainly contributed by lower cash and short-term deposits arising from the maturities of deposits from customers. The borrowings also dropped in June 2020 as a result of the EPF loan facility maturity. 5.2 Sources of Funding Historically, BPMB has relied primarily on its shareholder / the Government to support its financing activities. As a DFI with a public policy role, BPMB benefits from funding support from the Federal Government and Government-controlled entities such as Employee Provident Fund (“EPF”) and Kumpulan Wang Persaraan (Diperbadankan) (“KWAP”). In recent times however, BPMB has proactively shifted towards sourcing funds from the money markets and domestic capital markets (private debt securities and Islamic securities) in its efforts to diversify its financing alternatives towards funding self-sustainability. For further details on BPMB’s funding, please refer to the audited financial statements of BPMB for FYE 31 December 2019 and the unaudited financial statements of BPMB for HYE 30 June 2020 as set out in Appendix I and Appendix II respectively. BPMB’s funding from the Government and Government-controlled entities comprise 59.70% of its funding pool. BPMB’s funding from deposits remains at RM5.5 billion as at 30 June 2020, which constitutes 24.88% of its funding pool. [The rest of this page has been left blank intentionally] Page 63
66. BANK PEMBANGUNAN MALAYSIA BERHAD 5 .3 STRICTLY PRIVATE AND CONFIDENTIAL Capital Adequacy The capital adequacy ratios of BPMB are computed in accordance with BNM’s Capital Framework for DFIs. Capital adequacy ratios of BPMB for the FYE 31 December 2017 to HYE 30 June 2020 are as follows: HYE 30 June 2020 (Unaudited) FYE 31 December 2019 (Audited) FYE 31 December 2018 (Audited) FYE 31 December 2017 (Audited) Core capital ratio 32.58 32.35 31.22 29.54 Risk-weighted capital adequacy ratio 39.62 38.83 37.45 33.78 % 5.4 Asset Quality Loans, advances and financing by type The Group’s total loans, advances and financing for the FYE 31 December 2017 to HYE 30 June 2020 are as follows: The Group HYE 30 June 2020 (Unaudited) RM’000 FYE 31 December 2019 (Audited) RM’000 FYE 31 December 2018 (Audited) RM’000 FYE 31 December 2017 (Audited) RM’000 18,349,020 18,238,781 20,784,494 22,276,253 - Stage 1: 12-Month ECL* (946,275) (870,590) (751,857) - - Stage 2: Lifetime ECL not credit impaired* (314,150) (270,967) (423,534) - (1,396,862) (1,395,452) (1,324,431) - - Individual allowance - - - (1,678,836) - Collective allowance - - - (854,118) (2,657,287) (2,537,009) (2,499,822) (2,532,954) 15,691,733 15,701,772 18.284,672 19,743,299 Gross loans, advances and financing Allowance for impairment on loans, financing and advances - Stage 3: Lifetime ECL credit impaired* Net loans, financing and advances *This change follows BPMB’s adoption of MFRS9 on 1 January 2018 where net incurred loss approach has been replaced with a forward looking ECL approach Page 64
67. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Loans , advances and financing by economic purpose The following table sets out a breakdown of the Group’s loan portfolio by industry: HYE FYE FYE FYE 30 June 31 December 31 December 31 December 2020 2019 2018 2017 (Unaudited) (Audited) (Audited) (Audited) RM’000 RM'000 RM'000 RM'000 11 11 9 235 Construction 9,440,587 8,906,333 9,533,344 10,142,214 Education 1,810,740 1,871,106 1,964,077 2,025,103 Electricity, gas and water supply 151,535 142,277 2,148,740 2,295,231 Finance, insurance and business 142,904 91,821 95,220 71,220 1,223,203 1,244,934 1,237,980 1,369,505 5,100 5,236 6,583 7,470 Manufacturing 325,311 316,497 343,276 428,467 Marine related 263,065 181,999 50,334 - - - - 11,224 16,719 16,719 16,017 14,708 - - - 90 Other community, social and personal service activities 397,438 370,328 313,924 273,975 Public administration and defense 12,265 16,156 23,570 32,464 Real estate, renting and business activities 359,337 366,608 402,714 437,224 Shipping 1,092,336 1,155,554 864,706 1,092,197 Shipyard 130,322 130,339 157,597 182,567 2,978,417 3,422,863 3,626,403 3,892,359 18,349,020 18,238,781 20,784,494 22,276,253 Agriculture, hunting and forestry Hotel and restaurants Housing Materials technology Medical and pharmaceuticals Mining and quarrying Transport, storage and communications Gross loans, advances and financing Page 65
68. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Loan Maturity Profile The following table sets out the breakdown of the Group ’s gross loan portfolio by remaining maturity for the FYE 31 December 2017 to HYE 30 June 2020: HYE FYE FYE FYE 30 June 31 December 31 December 31 December 2020 2019 2018 2017 (Unaudited) (Audited) (Audited) (Audited) RM’000 RM'000 RM'000 RM'000 Maturity within one year 2,448,655 2,341,721 4,235,799 4,662,598 One year to three years 2,141,105 2,219,921 2,316,224 3,827,532 Three years to five years 2,176,705 2,099,661 2,478,524 2,662,653 11,577,555 11,577,478 11,483,947 11,123,470 18,349,020 18,238,781 20,784,494 22,276,253 Over five years Movement in impaired loans, financing and advances The following table sets out the breakdown of the Group’s movement in impaired loans, financing and advances for the FYE 31 December 2017 to HYE 30 June 2020: HYE FYE FYE FYE 30 June 31 December 31 December 31 December 2020 2019 2018 2017 (Unaudited) (Audited) (Audited) (Audited) RM’000 RM'000 RM'000 RM'000 2,216,796 2,276,895 2,706,332 3,623,124 Impaired during the financial year 222,977 221,640 580,780 183,672 Reclassified as non-impaired (88,107) (55,918) (67,171) (253,151) (129,313) (155,816) (164,646) (143,255) (3,561) (70,005) (778,400) (704,058) 2,218,792 2,216,796 2,276,895 2,706,332 12.09% 12.15% 10.95% 12.15% At 1 January Recovered during the financial year Amount written off At 30 June/31 December, where applicable Gross impaired loans, financing and advances as a % of gross loans, financing and advances Page 66
69. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Movement in impaired loans , financing and advances by industry The following table sets out the breakdown of the Group’s movement in impaired loans, financing and advances analysed by industry for the FYE 31 December 2017 to HYE 30 June 2020: HYE FYE FYE FYE 30 June 31 December 31 December 31 December 2020 2019 2018 2017 (Unaudited) (Audited) (Audited) (Audited) RM’000 RM'000 RM'000 RM'000 436,661 447,613 414,501 399,012 Education 64,128 63,760 68,929 74,177 Electricity, gas and water supply 30,450 30,698 54,373 111,260 - - 31 1,865 734,437 677,745 719,043 542,417 88,503 88,141 129,312 195,106 Materials technology - - - 11,224 Marine related - - - - 16,719 16,719 16,017 14,708 123,047 122,216 1 561 - - - - Shipping 565,927 608,768 705,726 778,764 Shipyard - - - - 158,920 161,136 168,962 577,238 2,218,792 2,216,796 2,276,895 2,706,332 Construction Finance, insurance/takaful and business Hotel and restaurants Manufacturing Medicine and pharmaceuticals Other community, social and personal service activities Real estate, renting and business activities Transport, storage and communication Non-Performing Loans/Financing (“NPLs”) BPMB conducts regular reviews of all credit facilities and other advances extended to clients (with emphasis on client risk profile), with a view to classify them as impaired loans/financing. In line with BNM’s requirement for timely identification, the recognition of impaired loans/financing would be based on the on-going assessment of the borrower’s credit profile, taking into account the latest information available, including any evidence of default in repayment. A systematic mechanism for prompt identification of impaired loans/financing has been formulated, using “ageing” as a basis. For borrowers with multiple credit facilities, when any credit facility that is non-performing, all their other credit facilities must be classified as NPLs by reason of cross-default. Page 67
70. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Profile of NPLs BPMB ’s gross NPLs were RM2.2 billion and net NPLs were RM818 million as at 30 June 2020, representing a ratio of gross NPL to total gross loans, advances and financing of 12.12% and a ratio of net NPL to total net loans, advances and financing of 4.88%. Set out below are BPMB’s gross and net NPLs for the FYE 31 December 2017 to HYE 30 June 2020: HYE 30 June 2020 (Unaudited) FYE 31 December 2019 (Audited) FYE 31 December 2018 (Audited) FYE 31 December 2017 (Audited) RM’000 RM ‘000 RM ‘000 RM ‘000 2,200,409 2,200,280 2,246,791 2,653,317 (1,382,051) (1,378,943) (1,295,781) (1,630,661) 818,358 821,337 951,010 1,022,656 Non-performing loans, advances and financing Less: Specific allowance Net non-performing loans, advances and financing Loan loss provisioning policy The loan provision under MFRS 9 is based on the ECL model as follows: 1) 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. 2) 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. 3) 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. Page 68
71. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Write-off policy Subject to the approval of the Board of Directors , a credit facility is to be fully or partially written-off when it is genuinely uncollectible and worthless, i.e., action for recovery has been exhausted or is no longer worthwhile in the foreseeable future. Portfolio of Securities The securities at fair value through other comprehensive income (“FVOCI”) under MFRS 9 (previously known as available-for-sale (“AFS”) under MFRS 139) and securities at amortised cost under MFRS 9 (previously known as held-to-maturity (“HTM”) under MFRS 139) of the Group for the FYE 31 December 2017 to HYE 30 June 2020: HYE 30 June 2020 (Unaudited) FYE 31 December 2019 (Audited) FYE 31 December 2018 (Audited) FYE 31 December 2017 (Audited) RM’000 RM ‘000 RM ‘000 RM ‘000 FVOCI FVOCI FVOCI AFS - - 319,847 - 1,974,988 1,640,721 1,064,075 1,236,893 20,711 20,252 50,510 - Shares 90,093 106,115 105,788 153,806 Others - - - 201,008 3,466,056 3,256,877 2,179,732 3,632,312 Shares - - - - Loan stocks - - - - 5,551,848 5,023,965 3,719,952 5,224,019 (Less): Accumulated impairment losses Amortisation - - - - Total securities at FVOCI/AFS 5,551,848 5,023,965 3,719,952 5,224,019 2) Securities Amortised Cost Amortised Cost Amortised Cost HTM Malaysian Government Securities - - - - Cagamas - - - - Private Debt securities - - - 405,364 Loan stock - - 22 22 1) Securities available-for-sale At fair value Money market securities: Malaysian Government Securities Government Investment Issues Cagamas Quoted securities: Unquoted securities: Private debt securities Total Quoted securities: Unquoted securities: Page 69
72. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL HYE 30 June 2020 (Unaudited) FYE 31 December 2019 (Audited) FYE 31 December 2018 (Audited) FYE 31 December 2017 (Audited) RM’000 RM ‘000 RM ‘000 RM ‘000 - - - - Total - - 22 405,386 Less: Accumulated impairment losses - - - (405,364) Total securities at amortised cost/HTM - - 22 22 5,551,848 5,023,965 3,719,974 5,224,041 Others TOTAL SECURITIES Securities 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 fair value through the statement of profit or loss (“FVTPL”), are measured at FVOCI. Movements in the carrying amount are taken through other comprehensive income, 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 other comprehensive income 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. As at 30 June 2020, the securities at FVOCI constituted 24% of the Group’s total assets. BPMB’s securities at FVOCI comprise mainly of private debt securities. Securities at amortised cost Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and profit/interest, 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. As at 30 June 2020, there was no securities at amortised cost in the Group’s balance sheet. [The rest of this page is intentionally left blank] Page 70
73. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 6 .0 RISK MANAGEMENT OF THE ISSUER 6.1 Risk Management Framework Risk is an inherent component in all aspects of the businesses. The risk management process seeks to identify, measure, monitor and control risk in order to ensure that the risk exposure is adequately managed and that expected return able to compensate the risk taken. BPMB has established a comprehensive risk management system to identify, measure, monitor and control risks that will promote and maintain high asset quality and minimize reliance on collateral lending in its endeavor to achieve the mandate set by the Government. BPMB manages its risk actively guided by its risk management governance and framework. BPMB is guided by its Governance and Risk Management Framework, which outlines a sound basis for integrated risk management effort and internal control as components of good corporate governance. Specific frameworks, policies and procedures have been established for each of the risk management functions within Group Risk Management as well as established and emplaced risk controls within the operational functions of BPMB. Towards this end, risk management in BPMB shall provide a framework to identify, objectively assess and actively manage all relevant potential risks and opportunities. An effective risk management framework and process will assist to reinforce a strong risk culture, which in turn is critical to sound risk management of the Group. The overall structure of the Risk Management Framework is premised on the following building blocks: (i) (ii) (iii) (iv) (v) (vi) 6.2 Risk Principles Risk Appetite & Strategy Governance & Risk Oversight Risk & Compliance Culture Risk Management Practices & Processes Resources & System Infrastructure Risk Management Governance The Group adopts the “3 Lines of Defence” model which places accountability and ownership in 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 following details the Risk Management Governance structure adopted by BPMB, who is guided by BNM’s Risk Governance Policy, Guidelines on Corporate Governance for Development Financial Institutions and the Shariah Governance Policy Document. The Board of Directors of BPMB (“Board”) is ultimately responsible for the sound and prudent management of risk of BPMB. The Board ensures effective implementation of the risk management policies and determines the risk level, consistent with the risk appetite of BPMB. Given the size and complexity of its operations, the Board has established dedicated committees to assist in overseeing and managing total risks and specific risks faced by BPMB. This has provided the necessary infrastructure for managing risk within BPMB and for implementing various risk management policies and procedures. Page 71
74. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL There are three board level committees : (i) Board Risk Management Committee (“BRMC”) The BRMC is a Board level committee responsible to oversee the Group’s risks. It is primarily responsible to oversee senior management’s activities in managing the key risk areas of the Group which includes credit risk, operational risk, liquidity risk, and market risk as well as asset liability management. In addition, BRMC ensures the appropriate risk management infrastructure, resources and processes are in place and functioning effectively. (ii) Board Credit Committee (“BCC”) The BCC is tasked by the Board to review financing approvals and credit risk portfolio. (iii) Board Nomination & Remuneration Committee (“BNRC”) BNRC is appointed to oversee the establishment and implementation of remuneration policy and structures; including to ensure such policy and structures do not induce excessive risk-taking and able to reinforce prudent risk-taking. Apart from the aforementioned board level committees, 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 to deliberate and provide decisions, views and advice on Shariah matters/issues, as well as Shariah compliance oversight on the Group’s Islamic business operations/activities. The board level committees are being assisted by the following management committees: (a) Management Risk Committee (“MRC”) MRC is a management committee responsible for the management of all material risks within the Group, except asset-liability management matters which is being overseen by ALCO (as defined below). (b) Asset & Liability Management Committee (“ALCO”) ALCO performs the oversight function and deliberates key issues related to BPMB’s asset/liability and liquidity management. ALCO’s primary role is to manage the profit rate/interest rate risk, market/liquidity risk and capital risk of BPMB. ALCO’s mandate is to derive with the most appropriate strategy for BPMB in terms of the mix of assets and liabilities to generate optimum levels of quality earnings and to guard against the potential consequences of market volatility, profit rate/interest rate movement, liquidity constraints and capital adequacy requirement in order to enhance or optimize riskreturn. In this committee, all Market Risk Indicator Limits approved by the Board are being monitored as well as ensuring the implementation of the various strategies related to the asset and liabilities management. (c) Group Credit Committee (“GCC”) GCC forms part of the risk governance for managing credit/ investment risks within the Group. The Committee is empowered to Page 72
75. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL approve credit /investment related proposals, which falls within their authority. (d) Business Continuity Management Committee (“BCMC”) The BCMC is tasked with overseeing the Business Continuity Management (BCM) of the Group. For example, approving the relevant BCM documents such as Business Continuity Plan (BCP) and Disaster Recovery Plan (DRP). 6.3 Risk Appetite & Strategy The risk appetite is a critical component of the Group’s robust risk management framework and is driven by both top-down Board leadership and bottom-up involvement of management at all levels. The Group’s risk appetite 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 risk appetite balances the needs of all stakeholders by acting as both a risk gatekeeper and as a driver of future and current business activities as well as a powerful reinforcement to a strong risk culture. 6.4 Key Functional Structure within the Risk Management The main management function primarily involved in the management of risk in BPMB is Group Risk Management, which provides the main support to the BRMC and is responsible for the development and maintenance of sound risk management policies and procedures for BPMB and its main subsidiaries. In order to maintain its independence, Group Risk Management reports directly to the BRMC and is made up of five (5) functions as follows:(i) (ii) (iii) (iv) (v) Credit Risk Market Risk Operational & Shariah Risk Credit Policy & Portfolio Management Risk Strategy Group Risk Management manages the principal risks that BPMB is exposed to. These risks are briefly described as follows:Risk Credit Description Risks arising from the following: (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 (d) Concentration risk – risks arising from the following:  Concentration on assets portfolios – risk of losses associated with inadequate diversification of asset portfolios; and  Concentration on business portfolio – risk of financial loss due to having written large proportions of business in the same or similar risk profile. Market The risk that the Group will suffer loss due to a change in the value of assets and liabilities held (including on and off-balance sheet items) Page 73
76. BANK PEMBANGUNAN MALAYSIA BERHAD 6 .5 STRICTLY PRIVATE AND CONFIDENTIAL Risk Description caused by the changes in market risk factors, such as interest rates/ profit rate, securities/ Sukuk prices, foreign exchange rates etc. Liquidity Liquidity risk forms part of Market Risk and is defined as the risk that the Bank will be unable to secure necessary funding due to deteriorating financial condition or a similar reason, and will therefore 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. Profit/Interest Rate Risks arising from the exposure of the bank’s financial condition to adverse movements in interest rate/ profit rate. Operational The risk of loss resulting from inadequate or failed internal processes, people, systems or from external events. Reputational The potential loss to financial capital, social capital and/or market share resulting from damages to BPMB’s brand or reputation. Regulatory Risk that unanticipated new acts or regulations will result in the need to change business practices that may lead to financial losses to BPMB. Strategic Risk that BPMB’s business strategy is inappropriate, or that it is unable implement or execute its strategy that shall adversely impact the production and profitability of the business going forward. Risk & Compliance Culture A vital component in strengthening the Group’s risk governance structure is its risk and compliance culture. Culture forms the fundamental building block of risk management and serves as the foundation upon which a strong enterprise wide risk management structure is built. The risk and compliance culture of the Group is driven from the top and complimented with the tone from the middle, that are ingrained at all levels of business and activities. As an essential building block for effective risk governance, this culture is continuously promoted to ensure that the right risk and compliance culture is embraced and exhibited in the behaviour of each individual within the organisation. As part of the risk and compliance culture, the Group managed to instill a compliance culture where the Board, the senior management and every employee of the Group is committed to adhere to the requirement of relevant laws, rules, regulations and regulatory guidelines. The Group’s commitment is 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 the cost of doing business arising from regulatory penalties, as well as protects the Group’s integrity and reputation. [The rest of this page has been left blank intentionally] Page 74
77. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 7 .0 REGULATORY AND SUPERVISORY FRAMEWORK GOVERNING BPMB BPMB, as a DFI, is regulated by BNM and MOF. 7.1 Development Financial Institutions in Malaysia DFIs in Malaysia are specialised financial institutions established by the Government with specific mandates to develop and promote key sectors that are considered of strategic importance to the overall socio-economic development objectives of the country. These strategic sectors include agriculture, SMEs, infrastructure, maritime, export-oriented sectors as well as capital-intensive and high-technology industries. As specialised institutions, DFIs provide a range of specialised financial products and services to suit the specific needs of the targeted strategic sectors. Ancillary services in the form of consultation and advisory services are also provided by DFIs to nurture and develop the identified sectors. DFIs therefore complement the banking institutions and act as a strategic conduit to bridge the gaps in the supply of financial products and services to the identified strategic areas for the purpose of long-term economic development. The DFIs have, to a large extent, contributed to the development and growth of the targeted sectors.5 7.2 Regulatory Requirements With the enactment of the DFIA, selected DFIs have been placed under the regulatory purview of BNM. As part of the regulatory and supervisory framework, BNM monitors the activities and financial performance of these institutions to ensure that they perform their mandated roles in a prudent manner, supported by strong corporate governance and best practices.6 BNM requires the DFIs to maintain an absolute minimum capital of RM300.0 million at all times. This is to ensure that DFIs have sufficient financial capacity to sustain their business operations on an on-going basis. DFIs are required to comply with the Risk Weighted Capital Ratio (“RWCR”) of 8% at all times at the entity level, subject further that the SPI 7 DFIs are required to observe a minimum capital adequacy requirement for Islamic banking portfolios in addition to the existing compliance on a consolidated basis, through a separate compliance requirement for the Islamic banking portfolio that involves the reallocation of current capital funds into the Islamic Banking Fund (“IBF”). The SPI DFIs are required to observe a minimum core capital ratio (“CCR”) of 4% and a minimum RWCR of 8% for Islamic banking portfolios, subject to a minimum IBF or whichever is higher. The DFIs are required to submit to BNM regular returns on RWCR position each month.8 A DFI shall, for each financial year, submit to BNM, within such period as BNM may specify such statement of corporate intent as may be approved by the Minister charged with the responsibility for that DFI, and an annual funding requirement for the MOF’s approval. The statement of corporate intent shall be in such form as BNM may specify and shall include the DFI’s strategic plans and manner of sourcing for funds for the following financial year. Please refer to Section 1.6 of this Information Memorandum for a more detailed description of the approvals granted by the Ministry of Economic Affairs and MOF in relation to the Sukuk Wakalah Programme. BNM’s official website BNM’s official website 7 SPI refers to Islamic banking scheme provided by DFIs to conduct banking business based on Islamic principles 8 Capital Framework for Development Financial Institutions issued by BNM 5 6 Page 75
78. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 8 .0 INVESTMENT CONSIDERATIONS Investment in the Sukuk Wakalah involves certain risks. This section provides a summary of certain risk factors, each of which, among others, may materially and adversely affect the ability of the Issuer to make payment under any Sukuk Wakalah in full at or before the Maturity Date for such Sukuk Wakalah. This section is not intended to be exhaustive. Prospective purchasers of the Sukuk Wakalah should read and carefully consider, among other things, the following factors in connection with the purchase of the Sukuk Wakalah and undertake their own investigations and analyses on the Issuer, its business and risks associated with the Sukuk Wakalah. 8.1 Risks relating to the Sukuk Wakalah (a) Rating of the Sukuk Wakalah: The Sukuk Wakalah Programme has been assigned a preliminary rating of AAAIS by MARC. A rating is not a recommendation to purchase, hold or sell the Sukuk Wakalah as such ratings do not comment as to market price or suitability for a particular investor. There is no assurance that a rating will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn entirely by an assigning rating organisation in the future, if, in its judgment, circumstances in the future so warrant. Further, such a rating is not a guarantee of payment or that there will be no default by the Issuer under the Sukuk Wakalah. In the event that the rating initially assigned to the Sukuk Wakalah is subsequently reduced, suspended or withdrawn for any reason, no person or entity will be obliged to provide any additional credit enhancement with respect to the Sukuk Wakalah. Any reduction, suspension or withdrawal of a rating may have an adverse effect on the liquidity and market price of the Sukuk Wakalah. (b) The Issuer may upsize the Sukuk Wakalah Programme limit: The Issuer shall have the option to upsize the Sukuk Wakalah Programme limit provided that such upsizing will not result in any adverse impact on the ratings of the Sukuk Wakalah Programme, subject to the lodgement of the required information and documents relating to the upsizing of the Sukuk Wakalah Programme limit with the SC and compliance with all relevant requirements under Section B, Part 3, Chapter 4 of the LOLA Guidelines. No further consent is required to be obtained from the Sukuk Trustee, the Sukukholders or any other party under the Sukuk Wakalah Programme for the Issuer to exercise the option to upsize the Sukuk Wakalah Programme limit. (c) The Sukuk Wakalah may be issued at a discount or premium: The market values of securities issued at a discount or premium to their nominal value tend to fluctuate more in relation to general changes in profit rate/interest rates levels than do prices for other profit-bearing securities. Generally, the longer the remaining term of the securities, the greater the price volatility as compared to other profit-bearing securities with comparable maturities. (d) No prior market for the Sukuk Wakalah: The Sukuk Wakalah comprise a new issue of securities for which there is currently no public market. There can be no assurance that any such market for the Sukuk Wakalah will develop or, if it does develop, that it will provide the Sukukholders with the liquidity of investments or will continue for the tenor of the Sukuk Wakalah. If a market develops, the market value of the Sukuk Wakalah may fluctuate. Any sale of the Sukuk Wakalah by the Sukukholders in any secondary market which may develop may be at a discount from the original issue price of the Sukuk Wakalah. (e) Issuer’s ability to meet its obligations under the Sukuk Wakalah: The Sukuk Wakalah are direct and unsecured obligations of the Issuer payable out of the Issuer’s own funds. The Sukuk Wakalah will not be the obligations or responsibilities of any other person other than the Issuer. In particular, the Sukuk Wakalah will not be the obligations or responsibilities of any of the Issuer’s subsidiaries, the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers or any other person involved or interested in the Sukuk Wakalah Programme. Page 76
79. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL (f) Recourse to the Issuer and Wakalah Portfolio: Following a Dissolution Event pursuant to the terms of the Sukuk Wakalah Programme, the sole rights of each of the Sukuk Trustee and the Sukukholders of the relevant tranche of the Sukuk Wakalah will be against the Issuer to pay any amounts due under the Sukuk Wakalah Programme and the Transaction Documents on the due date in respect of such tranche including the Deferred Sale Price and Exercise Price. The Issuer’s obligations are not secured by the Wakalah Portfolio or any other assets of the Issuer. (g) The market value of the Sukuk Wakalah may be subject to fluctuation: Trading prices of the Sukuk Wakalah may be influenced by numerous factors, including the operating results and/or financial condition of the Issuer, political, economic, financial and any other factors that can affect the capital markets or the industries in which Group operates in. Consequently, any sale of the Sukuk Wakalah by the Sukukholders in any secondary market which may develop may be at prices that may be higher or lower than the initial offering price. Adverse economic developments could have a material adverse effect on the market value of the Sukuk Wakalah. Sukukholders may suffer unforeseen losses due to fluctuations in profit rate/interest rate levels. Although the Sukuk Wakalah are Islamic securities which do not pay interest, they are similar to fixed income securities and may therefore see their prices fluctuate due to fluctuations in profit rate/interest rate levels. Generally, a rise in the benchmark profit rate/interest rate levels may cause a fall in the prices of fixed income securities. The Sukuk Wakalah may be similarly affected, resulting in a capital loss for the Sukukholders. Conversely, when the benchmark profit rate/interest rate levels fall, prices of fixed income securities and the prices at which the Sukuk Wakalah are traded may rise and thus results in a capital gain but profit received may be reinvested for lower returns. (h) No assurance that Sukuk Wakalah will be Shariah-compliant in accordance to all investors’ standards: The Joint Shariah Advisers have issued pronouncements which state, amongst others that in their opinion, the structure and mechanism of the Sukuk Wakalah Programme are in compliance with Shariah. Neither the Issuer nor the Joint Principal Advisers/Joint Lead Arrangers/Joint Lead Managers makes any representation as to the Shariah permissibility of the structure or the issue and trading of the Sukuk Wakalah issued under the Sukuk Wakalah Programme. The Shariah pronouncements are only an expression of the view of the Joint Shariah Advisers based on their experience in the subject and are not binding opinions. Investors are reminded that as with any Shariah views, differences in opinion are possible and opinions may change from time to time. Investors should obtain their own independent Shariah advice as to the Shariah permissibility of the structure, the issue and the trading of the Sukuk Wakalah. If the Sukuk Wakalah are deemed not to be Shariah-compliant by an investor’s own standard of Shariah compliance, such investor may be required to sell or otherwise dispose of its Sukuk Wakalah by virtue of its own constitutional restraints or otherwise. Similarly, if the Sukuk Wakalah are deemed not to be Shariah-compliant by potential investors’ standard of Shariah compliance, they may be prohibited from buying the Sukuk Wakalah by virtue of its own constitutional restraints or otherwise. Accordingly, the liquidity and price of the Sukuk Wakalah in the market may be adversely affected by particular Shariah standards, and interpretation thereof, of existing or potential investors. (i) Suitability of Investments Each potential investor in the Sukuk Wakalah must determine the suitability of its investment in light of its own circumstances. In particular, each potential investor should: (i) have sufficient knowledge and experience to make a meaningful evaluation of the Sukuk Wakalah, the merits and risks of investing in the Sukuk Wakalah and the information contained in this Information Memorandum; Page 77
80. BANK PEMBANGUNAN MALAYSIA BERHAD (ii) (iii) (iv) (v) STRICTLY PRIVATE AND CONFIDENTIAL have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Sukuk Wakalah and the impact the Sukuk Wakalah will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Sukuk Wakalah; understand thoroughly the terms of the Sukuk Wakalah and be familiar with the behaviour of any relevant indices and financial markets; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic and other factors that may affect its investment and its ability to bear the applicable risks. (j) Change of law: The terms and conditions of the Sukuk Wakalah are based on Malaysian law in effect as at the date of this Information Memorandum. No assurance can be given as to the impact of any possible judicial decision or change to Malaysian law or administrative practice after the date of this Information Memorandum. 8.2 Risks relating to the Issuer (a) Availability of Funding: The Issuer currently relies on capital funds and borrowings to fund its assets. In addition, the Issuer also secures deposits from corporate depositors. Low cost funds are typically sourced from the Government and Government-related institutions such as EPF and KWAP. Most of the funds secured are long-term in nature ranging between 5 and 39 years. The Issuer currently enjoys a relatively stable funding base due to the firm support it receives from the Government and foreign institutions. There can be no assurance that the funding base of the Issuer will remain unchanged or that the Issuer will not experience difficulties in obtaining funding in the future. Any such change or difficulties could adversely affect the ability of the Issuer to make payments under the Sukuk Wakalah when due or at all. (b) Compensation from the Government: For certain Government identified projects, the Issuer receives compensation from the Government to cover profit differentials (where the cost of borrowing is higher than profit from lending) plus an agreed margin. Whilst it is generally perceived that this arrangement will continue, there is no binding agreement on the Government to make such compensation to the Issuer and the amount and timing of the compensation payment are beyond the control of the Issuer. (c) Non-performing loans/financing: Provisions are made for doubtful debts and financing based on the Issuer’s evaluation of the recoverability and the status of the loans or financing and their related underlying securities. These loans and financing are individually reviewed and specifically identified as sub-standard, doubtful or bad. The Issuer also makes general provisions based on a percentage of the loan and financing portfolio and specific provision for bad and doubtful debts on its accounts. The Issuer’s policy on provision for sub-standard, doubtful and bad debts is in conformity with the minimum requirements of BNM’s "Guideline on the Classification of Impaired Loans/Financing and Provisioning for Bad and Doubtful Debts, BNM/RH/GL/005-3" (“BNM Guideline”), with such modifications and exceptions as determined by BNM from time to time. The provisions mentioned above were based on old standards. Currently, the loan provisions under MFRS 9 are based on the following ECL model: 1) 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 Page 78
81. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL credit impaired upon origination , the ECL associated with the probability of default events occurring within next 12 months will be recognised. 2) 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. 3) 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. In accordance with BNM’s Guideline and as a matter of prudence, the management of the Issuer, as at 31 December 2019, has made provisions for doubtful debts (ECL Stage 3) amounting to RM132.9 million for BPMB Group. These provisions were made based on the Issuer’s detailed evaluation of the status of the debts and the recoverability of such debts. Should these provisions be realised and be written off in the current financial year, such realisation and write-off may affect the Issuer’s ability to meet its obligations under the Sukuk Wakalah Programme. (d) Government Control and Ownership: The Government, primarily through MOF Inc, is the major shareholder of the Issuer and is involved in the appointment of the Board. As a principal DFI, the Issuer plays an important role in promoting the development of infrastructure, maritime and high-technology sectors in Malaysia. The Government has historically demonstrated its support in terms of capital provision and other forms of financial assistance to the Issuer. The Government’s continued support is seen as an important and crucial factor in determining the Issuer’s future performance and sustained profitability. Although the capital level of the Issuer is currently adequate, the Issuer may require further financial assistance to support a fast growing infrastructure sector in Malaysia. While it is generally perceived that Governmental support would be forthcoming when required, there is no certainty that this expectation would be met. (e) Profit Rate/Interest Rate Risk: Fluctuation in profit rates/interest rates and changes in the Government’s policies and regulations concerning, inter alia, monetary and fiscal issues, can have a substantial effect on the margin of the Issuer. There can be no assurance that the financial position of the Issuer will not be adversely affected by an increase in profit cost/interest cost and profit rate/interest rate fluctuations. 8.3 Risks relating to the Industry (a) Competition: In tandem with the recovery of the economy, financial institutions, in particular, DFIs, will be compelled to reposition themselves to meet the evolving needs of the industrialisation drive. While DFIs have previously been receiving Government support as a result of the socio-economic role they play in assisting designated industries as well as the small and medium-scale industries, the Government is striving for the DFIs to be more independent and commercially managed. Therefore, DFIs may have to source funds for its financing activities from other sources including bank loans and from the capital Page 79
82. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL markets which may be more costly for the DFIs and hence , may adversely affect its financial performance. (b) Changes to the regulatory environment: The Group’s core business is subject to regulatory purview and measures imposed by the relevant regulatory agencies. BPMB is regulated by the DFIA. There are also other regulatory measures imposed on banks in Malaysia include restrictions on operations and measures requiring maintenance of reserves and minimum capital adequacy requirements. (c) Banking industry specific risks: Potential investors should be aware of the specific risks of the banking industry which are peculiar in nature as compared to other industries. These risks include but are not limited to, profit rate/interest rate risks, liquidity risks and credit risks. Potential investors should refer to Section 8 of this Information Memorandum for a more detailed description of the nature of these risks and the measures put in place by BPMB to mitigate such risks. 8.4 In General (a) Forward Looking Statements: Certain statements, information, estimates and reports in this Information Memorandum are based on historical data, which may not be reflective of the future results, and others are forward-looking in nature, which are subject to uncertainties and contingencies. All forward-looking statements are based on estimates and assumptions made by the Issuer, and although the Board of Directors of the Issuer believes that these forward-looking statements are reasonable, the statements are nevertheless subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in such forward-looking statements. In light of these and other uncertainties, the inclusion of forward-looking statements in this Information Memorandum should not be regarded as a representation or warranty by the Issuer or its advisers or arrangers, and there can be no assurance that the plans and objectives of the Group will be achieved. A deterioration in the financial condition of the Issuer could adversely affect the market value of the Sukuk Wakalah and the ability of the Issuer to make payments under the Sukuk Wakalah when due, if at all. (b) Political, Economy and Regulatory Considerations: Adverse developments in the political and economic conditions in Malaysia and other countries in the region could materially affect the financial prospects of the Issuer. Political and economic uncertainties include risks of war, expropriation, nationalisation, re-negotiation or nullification of existing contracts, changes in profit rates/interest rates and methods of taxation and currency exchange controls. Investors should note that whilst the Issuer strives to continue to take effective measures such as prudent financial management and efficient operating procedures, there can be no assurance that adverse political and economic factors will not materially affect the Issuer. (c) Force Majeure: An event of force majeure is an event which is not within the control of the party effected, which that party is unable to prevent, avoid or remove and shall include war and acts of terrorism, riot and disorders, natural catastrophes and others. Force majeure events do not include economic downturn, non-availability or insufficient or lack of financing on the part of the Issuer. The occurrence of a force majeure event may have a material impact on the Issuer’s business. (d) COVID-19: Due to the unprecedented Covid-19 pandemic, the global economy is experiencing an economic downturn, and a prolonged recession that have severely impacted financial institution’s capital as its profitability and asset quality decline. BNM has announced deferment and restructuring on loans/ financing repayment and drawdown of capital conservation buffer to help companies and business to weather the storm caused by Covid-19. Financial institutions will likely face liquidity crunch in Page 80
83. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL the near future , with significant reduction in cash inflow and liquidity drying up in the money market. [The rest of this page is intentionally left blank] Page 81
84. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 9 .0 OVERVIEW OF THE ECONOMY 9.1 Economic and Financial Developments in Malaysia The Malaysian economy was confronted by concurrent supply and demand shocks arising from weak external demand conditions and strict containment measures in 2Q 2020. As a result, the economy registered its first contraction since the Global Financial Crisis (2Q 2020: -17.1%; 3Q 2009: -1.1%). On the supply side, this was reflected in negative growth across most sectors. From the expenditure side, domestic demand declined, while exports of goods and services registered a sharper contraction. On a quarter-on-quarter seasonally-adjusted basis, the economy declined by 16.5% (1Q 2020: -2.0%). Weak growth across most economic sectors Weak growth was recorded across most economic sectors amid the imposition of the Movement Control Order (MCO), followed by the Conditional and Recovery MCO, during 2Q 2020. The services sector contracted by 16.2% (1Q 2020: 3.1%). The sector was affected by the implementation of a nationwide restrictive MCO, with only essential services such as foodrelated retail, utilities, banking, transportation as well as information and communication entities allowed to operate with very limited capacity. The subsequent transition to Conditional MCO (CMCO) in May and Recovery MCO (RMCO) in June provided some relief to businesses in the sector. The lockdown had substantially affected consumer spending and tourism activity, as shown by the significant declines in the wholesale and retail trade, as well as food and beverages and accommodation sub-sectors. The transport and storage subsector was impacted by a sudden stop in tourist arrivals due to travel restrictions imposed domestically as well as the international border closures. Growth in the finance and insurance sub-sector was weighed down by lower net interest income, and lower fee-based income amid subdued capital market activity. Meanwhile, growth in the information and communication sub-sector was relatively sustained by the continued high demand for data communication services especially during this period of remote working arrangements. Sharp contraction in domestic demand Domestic demand declined by 18.7% in 2Q 2020 (1Q 2020: 3.7%), due mainly to weaker private sector expenditure. Spending by the private sector was impacted by lower income, movement restrictions and subdued consumer and business sentiments. While net exports continued to decline, the contribution of the external sector to the economy improved due mainly to the larger contraction in imports vis-a-vis the previous quarter. Private consumption growth declined by 18.5% in 2Q 2020 (1Q 2020: 6.7%). Household spending was particularly impacted by the strict movement restrictions in the early part of the quarter and income losses amid weak economic conditions. As movement restrictions were gradually relaxed towards the end of the quarter, retail and financing data indicated some improvement in spending, albeit remaining subdued. Duringthischallengingperiod, stimulus measures such as the disbursement of Bantuan Prihatin Nasional cash transfers, EPF iLestari withdrawals and the implementation of the loan moratorium helped to cushion consumption spending. Public consumption continued to expand, albeit at a more moderate pace of 2.3% (1Q 2020: 5.0%). Growth was supported by continued increase in emoluments amid lower spending on supplies and services. Gross fixed capital formation (GFCF) registered a sharper contraction of 28.9% (1Q 2020: 4.6%), weighed by significantly lower capital spending by both public and private sectors. By type of asset, both investment in structures and machinery & equipment (M&E) declined by 41.2% (1Q2020: -4.0%) and 11.1% (1Q 2020: -6.2%), respectively. Page 82
85. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL Private investment declined by 26 .4% (1Q 2020: -2.3%), due mainly to the COVID-19 containment measures and heightened uncertainty which affected business sentiments and investment intentions. During the quarter, investment was affected by mobility restrictions, which temporarily halted the implementation of projects. Despite the gradual relaxation of the MCO, firms maintained a cautious approach to capital expenditure amid slower production and disruptions to global value chains. Furthermore, businesses also faced challenges in the delivery and installation of M&E amid border closures. Public investment also recorded a larger decline of 38.7% (1Q2020: -11.3%). This was due to a contraction in capital spending by both general government and public corporations due mainly to the movement restrictions. (Source: Economic and Financial Developments in the Malaysian Economy in the Second Quarter of 2020 – BNM) 9.2 Outlook and Policy in 2020 The global economy is projected to register negative growth in 2020, due mainly to the significant economic repercussions arising from the unprecedented coronavirus disease (COVID-19) pandemic. The IMF is expecting the global economy to undergo a recession in 2020 that is at least as bad as the GFC, with a projected recovery in 2021. Growth prospects for advanced countries and EMEs will be weak, with advanced economies in particular expected to experience a contraction in growth. Measures implemented to contain the rapid spread of COVID-19, including broad-based travel restrictions, enforced business closures and restrictions on social activities, will suppress private sector activity globally. Nonetheless, the unprecedented nature and scale of fiscal and monetary policy intervention across economies is expected to cushion the economic disruptions caused by COVID-19. These measures will support a gradual normalisation in economic activities upon the successful containment of the pandemic. Risks to global growth are tilted to the downside, mainly reflecting the significant uncertainties surrounding the COVID-19 pandemic. The extent of the economic impact arising from this pandemic would be contingent on the severity and duration of the outbreak in various economies and the corresponding measures undertaken to contain this global health crisis. The weakness in the real economy could be further weighed down by a prolonged tightening of global financial conditions. Against this highly challenging global economic outlook, Malaysia’s GDP growth is projected to be between -2.0 to 0.5% in 2020 (2019: 4.3%). The domestic economy will be impacted by the necessary global and domestic actions taken to contain the outbreak. Of significance, tourism-related sectors are expected to be affected by broad-based travel restrictions and travel risk aversion, while production disruptions in the global supply chain will weigh on the manufacturing sector and exports. The implementation and subsequent extension of the Movement Control Order (MCO), while critical, will dampen economic activity following the suspension of operations by non-essential service providers and lower operating capacity of manufacturing firms. Beyond the MCO period, reduced social and recreational activities until the pandemic is fully controlled globally and domestically will continue to dampen consumption and investment activity. Apart from the pandemic, the domestic economy will also be affected by the sharp decline and volatile shifts in crude oil prices and continued supply disruption in the commodities sector. Unfavourable weather conditions and maintenance works will weigh on the production of oil palm, crude oil and natural gas. Given the significant headwinds to growth arising from COVID-19, the Government and Bank Negara Malaysia have introduced large countercyclical policy measures to mitigate the economic impact of the pandemic. Two economic stimulus packages amounting to RM250 billion were introduced to provide immediate relief to affected households and businesses. These packages also include loan guarantees and an automatic 6-month moratorium on loan repayments for individuals and small and medium enterprises (SMEs). The economic Page 83
86. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL stimulus measures were complemented by two consecutive Overnight Policy Rate (OPR) reductions early this year and measures to provide additional liquidity in the banking system. Private consumption is expected to be dampened by weak labour market conditions, mobility restrictions and subdued sentiments. Nonetheless, policy measures introduced in the two economic stimulus packages, including cash transfers to vulnerable households, flexibility to withdraw from EPF savings and the moratorium on loan repayments will increase disposable income and improve cash flow for households. In addition to supporting household spending, these broad-based measures will facilitate a gradual recovery in private consumption as labour market conditions eventually stabilise following the projected improvement in global and domestic economic activities. Domestic growth prospects are expected to improve towards the end of the year, in line with the projected recovery in global demand and amid continued support from policy measures. Recovering external demand will lift growth in the export-oriented sectors. Consumer sentiments are also expected to gradually improve following the easing of travel restrictions and resumption of tourism activities as risks from the pandemic subside. In addition, the anticipated recovery from supply disruptions in the commodities sector and higher public sector expenditure will support the gradual improvement in the Malaysian economy in the latter part of the year. Public sector spending will be underpinned by the continuation of largescale transport-related projects by public corporations and the implementation of more smallscale projects worth RM4 billion by the Federal Government. Overall risks to the domestic growth outlook are tilted to the downside, mainly due to the risk of a prolonged and wider spread of COVID-19 and its effects on the global and domestic economy. Domestic growth also remains susceptible to a recurrence of commodities supply shocks and continued low commodity prices which could pose additional risks to production in the commodities sector, exports and income growth. In addition, heightened financial market volatility due to ongoing external uncertainties may lead to tighter domestic financial market conditions. The baseline growth projection could, however, be lifted by a stronger-thanexpected impact from the various stimulus measures by the Federal Government and additional measures implemented by several state governments. Headline inflation is forecasted to average within the range of -1.5 to 0.5% in 2020 (2019: 0.7%), mainly reflecting significantly lower global oil and commodity prices. Without the direct downward impact from lower global oil prices, underlying inflation, as measured by core inflation, is projected to remain positive, averaging between 0.8 to 1.3%. This reflects subdued demand pressures, expectations for a negative output gap this year, as well as weak labour market conditions. Monetary policy in 2020 will focus on providing support to domestic economic growth in an environment of subdued price pressures. The OPR was reduced in January and March 2020 by a total of 50 basis points to 2.50% to provide a more accommodative monetary environment to support economic growth amid price stability. The Statutory Reserve Requirement (SRR) ratio was also reduced further by 100 basis points in March 2020 along with the granting of flexibility to Principal Dealers to recognise Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) for SRR compliance, releasing an additional liquidity of RM30 billion into the banking system. In addition, the Bank undertook measures to ensure continued financial intermediation including providing additional funds for SMEs, amounting to a total allocation of RM13.1 billion under the BNM’s Fund for SMEs and improving features of the funds. These measures, together with lower borrowing costs for the private sector, will reinforce support to financing activity. Monetary policy will continue to take into account the continuously evolving balance of risks surrounding the outlook for growth and inflation. (Source: BNM Annual Report 2019) Page 84
87. BANK PEMBANGUNAN MALAYSIA BERHAD 9 .3 STRICTLY PRIVATE AND CONFIDENTIAL Developments in the banking sector in Malaysia Liquidity in the banking system remained sufficient to facilitate financial intermediation, although the level of surplus placed with the central bank has declined during the 2Q 2020, driven by the increased demand for cash. The Statutory Reserve Requirement (SRR) ratio remained unchanged at 2.00% after being lowered by 100bps in March. Effective May, all banking institutions were allowed the flexibility to use MGS and MGII to fully meet the SRR compliance. This measure has released approximately RM16 billion worth of liquidity into the banking system. According to BNM, the adjustment has provided greater flexibility for banks in their liquidity management and reduced the need for liquidity provision through the Bank’s monetary operations. This flexibility provided to banking institutions has also supported the continued smooth functioning of the domestic bond market. Meanwhile, the level of surplus liquidity placed with the Bank declined in the 2Q 2020, due mainly to the higher currency in circulation, reflecting the increased demand for cash during the quarter. Nevertheless, banking system liquidity remained sufficient to facilitate financial intermediation. In 2Q 2020, net financing expanded albeit at a slower pace of 3.7% YoY (1Q 2020: 4.7%) while outstanding loan growth increased by a slightly faster rate of 4.1% (1Q 2020: 3.8%). At the same time, growth in outstanding corporate bonds decelerated to 2.5% (1Q 2020: 7.6%), due mainly to a high base effect from a one-off large issuance in the same period last year, while that for business increased to 3.9% (1Q 2020: 3.4%), supported by loans for working capital purposes. For the household sector, growth in outstanding loans was relatively unchanged at 3.7% (1Q 2020: 3.8%), supported by loans for the purchase of residential properties and personal use. The recent data reflected the normalisation of business loan disbursements in June following the gradual relaxation of the MCO but not for demand for household loans which experienced a broad-based decline given the still cautious sentiment among households. (Source: BNM, International Monetary Fund) Page 85
88. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL SECTION 10 .0 OTHER INFORMATION 10.1 Material litigation As at 15 August 2020, BPMB is not involved in any litigation or arbitration, either as plaintiff or defendant which has a material effect on the financial position of BPMB and the Board does not have any knowledge of any proceedings pending or threatened or of any fact likely to give rise to any proceedings which might materially and adversely affect the position and/or business of BPMB. 10.2 Material contracts outside the ordinary course of business As at 15 August 2020, there are no contracts which are or may be material, not being contracts entered into in the ordinary course of business, which have been entered into by BPMB in the preceding two (2) years. 10.3 Related party transactions Save as those disclosed in the audited financial statements of the Issuer for FYE 31 December 2019 as set out in Appendix I, as at 15 August 2020, the Board is not aware of any other material related party transactions. 10.4 Material contingent liabilities and material capital commitments Save as those disclosed in the audited financial statements of the Issuer for FYE 31 December 2019 as set out in Appendix I, as at 15 August 2020, the Board is not aware of any material contingent liabilities and material capital commitments, which upon becoming enforceable may have a substantial impact on the financial position and/or the business of BPMB. 10.5 Conflict of interest or potential conflict of interest situations A. CIMB Investment Bank Berhad After making enquiries as were reasonable in the circumstances, CIMB Investment Bank Berhad is not aware of any circumstances that would give rise to a conflict of interest or potential conflict of interest situation, arising from its roles as the Joint Principal Adviser, Joint Lead Arranger and Joint Lead Manager in relation to the Sukuk Wakalah Programme. B. Maybank Investment Bank Berhad After making enquiries as were reasonable in the circumstances, Maybank Investment Bank Berhad is not aware of any circumstances that would give rise to a conflict of interest or potential conflict of interest situation, arising from its roles as the Joint Principal Adviser, Joint Lead Arranger, Joint Lead Manager and Facility Agent in relation to the Sukuk Wakalah Programme. C. CIMB Islamic Bank Berhad After making enquiries as were reasonable in the circumstances, CIMB Islamic Bank Berhad is not aware of any circumstances that would give rise to a conflict of interest or potential conflict of interest situation, arising from its role as the Joint Shariah Adviser in relation to the Sukuk Wakalah Programme. D. Maybank Islamic Berhad After making enquiries as were reasonable in the circumstances, Maybank Islamic Berhad is not aware of any circumstances that would give rise to a conflict of interest or potential conflict of interest situation, arising from its role as the Joint Shariah Adviser in relation to the Sukuk Wakalah Programme. Page 86
89. BANK PEMBANGUNAN MALAYSIA BERHAD STRICTLY PRIVATE AND CONFIDENTIAL E . Malaysian Trustees Berhad After making enquiries as were reasonable in the circumstances, Malaysian Trustees Berhad is not aware of any circumstances that would give rise to a conflict of interest or potential conflict of interest situation, arising from its role as the Sukuk Trustee in relation to the Sukuk Wakalah Programme. F. Messrs Zaid Ibrahim & Co After making enquiries as were reasonable in the circumstances, Messrs Zaid Ibrahim & Co is not aware of any circumstance that would give rise to a conflict of interest or potential conflict of interest situation, arising from its role as the solicitors for the Joint Principal Advisers, Joint Lead Arrangers and Joint Lead Managers in relation to the Sukuk Wakalah Programme. G. Messrs Lee Hishammuddin Allen & Gledhill After making enquiries as were reasonable in the circumstances, Messrs Lee Hishammuddin Allen & Gledhill is not aware of any circumstance that would give rise to a conflict of interest or potential conflict of interest situation, arising from its role as the solicitors for the Issuer in relation to the Sukuk Wakalah Programme. [The rest of this page has been left blank intentionally] Page 87
90. APPENDIX I Audited Financial Statements of the Issuer for the Financial Year Ended 31 December 2019
91. BANK PEMBANGUNAN MALAYSIA BERHAD 197301003074 (16562-K) (Incorporated in Malaysia) Directors’ Report and Audited Financial Statements 31 December 2019
92. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Contents Directors’ Report Page 1-6 Statement by Directors 7 Statutory Declaration 8 Shariah Committee's Report 9 - 15 Independent Auditors' Report 16 - 19 Statements of Financial Position 20 - 21 Statements of Profit or Loss 22 - 23 Statements of Comprehensive Income 24 Consolidated Statement of Changes in Equity 25 Statement of Changes in Equity 26 Statements of Cash Flows 27 - 29 Notes to the Financial Statements 30 - 201
93. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) 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 2019. 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 46 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'000 251,591 314,940 251,770 (179) 251,591 314,940 314,940 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 . In the opinion of the directors, the results of the operations of the Group and of the Bank during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature. Dividends The amount of dividends paid by the Bank since 31 December 2018 were as follows: Final single tier tax exempt dividend on 3,078,724,049 ordinary shares, amounting to RM100,000,000 (3.25 sen net per ordinary share), in respect of the financial year ended 31 December 2018 was approved on 26 June 2019 and paid on 28 June 2019. 1
94. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Dividends (cont'd.) At the forthcoming Annual General Meeting, a final single tier tax exempt dividend in respect of the financial year ended 31 December 2019, on 3,078,724,049 ordinary shares, amounting to a dividend payable of RM152,213,638.40 (4.94 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 2020. Directors The names of the directors of the Bank in office since the beginning of the financial year to the date of this report are: 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 Datuk Seri Hashmuddin bin Mohammad Musa bin Abdul Malek Suffian bin Baharuddin Datuk Wan Azhar bin Wan Ahmad (appointed on 18 February 2019) (appointed on 22 January 2019) (appointed on 1 February 2019) (appointed on 25 April 2019) (appointed on 10 May 2019) (ceased with effect from 22 January 2019) (ceased with effect from 12 February 2019) (ceased with effect from 12 February 2019) (resigned on 22 February 2019) 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) Global Maritime Ventures Berhad (appointed on 28 February 2019) Tan Sri Dr. Rahamat Bivi binti Yusoff Datin Rashidah binti Mohd Sies Afidah binti Mohd Ghazali Datuk Wan Azhar bin Wan Ahmad (resigned on 4 February 2019) (resigned on 28 February 2019) (ii) Pembangunan Leasing Corporation Sdn Bhd Mohamad Rafi bin Shahzada Dr. Mohamed Ashraf bin Mohamed Iqbal Dato' Wan Mohd Fadzmi bin Che Wan Othman Fadzilah Arshad bin Mohamed Ismail Afidah binti Mohd Ghazali Datuk Wan Azhar bin Wan Ahmad 2 (appointed on 22 February 2019) (appointed on 16 October 2019) (appointed on 16 October 2019) (resigned on 4 February 2019) (resigned on 22 February 2019)
95. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Directors (cont'd.) (iii) SME Growth Acceleration Fund Sdn Bhd Nik Nor Aini binti Nik Mohamed Razali bin Hassan Afidah binti Mohd Ghazali Datuk Wan Azhar bin Wan Ahmad (appointed on 4 February 2019) (appointed on 22 February 2019) (resigned on 4 February 2019) (resigned on 22 February 2019) (iv) Emerald Upline Sdn Bhd Azmahnor binti Siarap @ Abdul Wahab Zulkeefli bin Mad Karim (v) Maju Nominees (Tempatan) Sdn Bhd Roslina binti Mohamed (vi) BPMB Urus Harta Sdn Bhd Zulkeefli bin Mad Karim Elioskarma bin Abdul Aziz Afidah binti Mohd Ghazali (appointed on 4 February 2019) (resigned on 4 February 2019) Directors' Benefits 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. 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. 3
96. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) 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 RM418,720. 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. Rating by External Rating Agencies Details of the Bank’s ratings are as follows: Rating agency Date Rating classification Rating RAM Rating 29 November 2019 Financial Institution Rating AAA/Stable/ PI RAM Rating 29 November 2019 RM7.0 billion Conventional Medium-Term Notes Programme and Islamic Murabahah Medium-Term Notes Programme AAA/Stable Business Outlook The operating environment is likely to be unfavourable for most part of the year as the impact from the Corona Virus (“COVID-19”) outbreak gathers force. There is a large amount of uncertainty surrounding the outcome of the outbreak and how that would determine the depth of the recession in many countries including Malaysia. The federal government together with Bank Negara Malaysia, a few Government Linked Companies (“GLCs”) and other government agencies had introduced a significant stimulus package to cushion the impact, amounting to RM250 billion. Most of the measures are directed to help the low income group i.e. B40, middle income group i.e. M40 to cope with the likely fall in income and loans/financings guarantees and an automatic 6-month moratorium on loans/financings repayments/payments for individuals and small and medium enterprises. On top of that, BNM had also cut the Overnight Policy Rate by 50 basis points, to 2.50% (the lowest since 2010) early this year to provide additional liquidity in the banking system. In its recently released Economic and Monetary Review in their Annual Report 2019, BNM had stated that domestic growth prospects are expected to improve towards the end of the year, in line with the projected recovery in global demand and amid continued support from policy measures. Notwithstanding, BNM has also highlighted that the overall risks to the domestic growth outlook are tilted to the downside, mainly due to the risk of a prolonged and wider spread of COVID-19 and its effects on the global and domestic economy. That also explains the wide range of economic growth forecast by the central bank, i.e. -2.0 to +0.5% for 2020. 4
97. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Business Outlook (cont'd.) We are more bearish, projecting a contraction of 4.5% for 2020 as we expect the recovery would be very sluggish in the second half of the year. This would be due to the likely sharp economic contraction in major economies that would compound the pullback in manufacturing, mining, trade and trade-related activities. Despite the less favourable operating environment, the banking system would continue to remain resilient with strong asset quality as well as capitalisation levels. On the back of this forecast trajectory, the Bank would likely see increased role in assisting the affected customers/borrowers, particularly in the tourism sector. In line with measures announced by BNM, the Bank will grant a moratorium on repayments/payments of loans/financings for customers/borrowers for a period of 6 months. The Bank would deliver this mandate with continued prudence and not compromising on the need to maintain strong corporate governance and sound risk management policies. Other Statutory Information (a) 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: (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. (b) 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. 5
101. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) 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. Assalamualaikum Warahmatullahi Wabarakatuh To the shareholders, depositors and customers of Bank Pembangunan Malaysia Berhad ("the Bank"): INTRODUCTION In carrying out the roles and the responsibilities of the Shariah Committee of the Bank as prescribed in the Shariah Governance Framework for Islamic Financial Institutions 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 2019. 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 Shariah compliance and research 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 noncompliance risks, conducting Shariah review and Shariah audit in relation to Islamic financial business of the Bank. During the financial year, there were sixteen (16) 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. 9
102. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Shariah Committee Report (cont'd.) SIGNIFICANT DEVELOPMENTS AND ACTIVITIES Among the key developments and activities during the financial year are the approvals of enhancement on templates of legal documentation with regard to 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 Bai’ Dayn bi al-Sila’ in Factoring-i and Ijarah in Hire Purchase-i/Industrial Hire Purchase-i. In supporting the government initiative towards developmental roles, we have deliberated and approved the principal terms and conditions of dedicated fund namely Industry Digitalisation Transformation Fund, Sustainable Development Financing Fund and Public Transport Fund as well as the enhancement on Tourism Infrastructure Fund and Maritime Fund. The Shariah Committee has also deliberated on various issues with regard to debt restructuring scheme such as the methodology to execute ‘Debt to Equity Swap ’ using the principle of ‘‫اﻧﻘﺿﺎء‬ ‫( ’اﻻﻟﺗزام ﺑﻣﺎ ﯾﻌﺎدل اﻟوﻓﺎء‬Set-off the obligation with the equivalent of fulfillment). 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 for conversion from conventional loan to Islamic financing. In addition, the engagement also touches Shariah governance matters, tourism related financing, exploring new alternative financing structure and the implication of financial technology (fintech) towards Islamic banking industry. As part of training and development program for Shariah Committee, all members have been enrolled into certification programmes 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 training as part of their competency development program. The following are the other major developments and initiatives in relation to Shariah governance that took place during the financial year: a. Shariah Research 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. They also provide Shariah advisory and endorsement as delegated by the Shariah Committee on the proposals by those functions. 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. 10
103. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Shariah Committee Report (cont'd.) SIGNIFICANT DEVELOPMENTS AND ACTIVITIES (CONT'D.) a. Shariah Research (cont'd.) Throughout the financial year, Group Shariah Management had also collaborated with prominent educational and research institutions in coming out with research initiatives which will benefit the banking and finance industry in general. This initiative has received financial assistance from the Bank in providing the research grant for the following topics: 1. Harnessing Value Based Intermediation ("VBI"): The Role of Development Financial Institutions (DFIs); and 2. The Future of Education Market Landscape for Social Impact Funding In addition, Group Shariah Management has collaborated with one (1) university in coming out with the research initiatives as follows: 1. Ratification of Uqud al-Fasidah (Irregular Contracts) : Solutions and Its Implementation in Islamic Financial Institutions; and 2. The Treatment of Non-Performing Loan in Conversion of Conventional Bank to Islamic Bank. 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 2018 to zakat management agencies and eligible recipients in December 2019. Apart from that, we also noted that Group Shariah Management had managed to conduct and compile Shariah research for the following Shariah Committee’s resolutions: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Excess Fee Collected on Bank Guarantee-i Imposition of Participation Fee for Kafalah Bank Guarantee Compensation Charges (Ta’widh) Not To Be Compounded In Restructuring Treatment of Deposit Payment in Ijarah Financing Execution of Sale Contract By Conduct Beneficial Ownership Under Ijarah Product Structure The Definition of Full-Fledged Islamic Development Financial Institution Treatment of Conventional Securities for Conversion Shariah Pre-Screening Parameter BPMB Financing of Cultural Performing Art Theatre 11
104. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Shariah Committee Report (cont'd.) SIGNIFICANT DEVELOPMENTS AND ACTIVITIES (CONT'D.) b. Shariah Risk Management The Shariah Risk Unit, which currently resides under Operational & Shariah Risk of Group Risk Management has undertaken the responsibilities to facilitate the management of Shariah NonCompliance ("SNC") risk for the Bank, which forms part of the Bank’s risk management framework. This is also as referred to 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. 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 has been reporting the Shariah Key Risk Indicators (“KRI”) on monthly basis and had completed the 2018/2019 Risk & Control Self-Assessment (“RCSA”) which includes SNC risks. The RCSA exercise has the objectives for the ORLOs to identify and assess the SNC risks exposures inherent in their related area, measure the potential impact of the risk exposures, and thereafter to establish the appropriate risk mitigation measures. Shariah Risk Unit had constructively deliberated and challenged the ORLOs on the risks identified and effectiveness of the mitigation controls in-place, as to ensure comprehensive exercise was conducted. Subsequently, the SNC risk exposures were monitored and tracked periodically. As to ensure a proper oversight by the senior management and the Board, the Shariah KRI and the outcome from the RCSA exercise had been escalated and endorsed by the Management, Board Risk Committee and Shariah Committee. As part of the continuous awareness efforts on SNC risk exposures, there were three (3) engagement sessions conducted with the dedicated ORLOs throughout the financial year, whereby the importance of reporting of any potential SNC events and its reporting process were emphasized while lessons learnt from the past SNC events were discussed. For the financial year under reporting, there were two (2) Actual SNC events detected and reported by the designated ORLOs from the business Functions. Both events were reported to BNM and relevant rectification plans and additional control measures were introduced by the respective risk owners to mitigate the risk exposures and to avoid recurrence. Concurrently, the risk assessments on the SNC events were performed to ascertain the causal factors and appropriate recommendations. c. Shariah Review Group Compliance, through its Compliance Review team continued to play a vital role by the performance of a regular assessment of the Bank’s operations, business, affairs and activities aimed at ensuring the activities and operations in relation to Islamic financial business carried out by the Bank do not contravene with the Shariah. 12
105. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Shariah Committee's Report (cont'd.) SIGNIFICANT DEVELOPMENTS AND ACTIVITIES (CONT'D.) c. Shariah Review (cont'd.) During financial year 2019, there were ten (10) Shariah compliance reviews conducted by Compliance Review team in accordance to 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. Kafalah Ijarah Tawarruq Deposit Wakalah Investment Accounts Under Recovery Annual Report 2018 Tawarruq Financing System of Pembangunan Leasing Corporation Sdn. Bhd. ("PLC") Fees and Charges 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. d. Shariah Audit 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"). Shariah Audit Section under GIA is primarily responsible for providing 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. In 2019, the Bank Group Internal Audit had performed a Shariah audit assessment on Islamic Banking Operations under co-sourcing arrangement with an external consultant. The objective of the audit is to provide assurance that the processes and documentation of Islamic banking operations are in compliance with the relevant Bank Negara Malaysia ("BNM") Shariah Standards, Shariah Advisory Council of Bank Negara Malaysia ("SAC") Shariah Resolutions, circulars, regulatory framework and guidelines and internal policies, procedures and manuals. 13
106. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Shariah Committee's Report (cont'd.) SIGNIFICANT DEVELOPMENTS AND ACTIVITIES (CONT'D.) d. Shariah Audit (cont'd.) The Shariah Committee noted that, GIA through Shariah Audit Section also conducted the following audits as part of audit plan for the year 2019:1. Independent Shariah Validation on Enterprise Loan Management System ("ELMS") • GIA had assessed whether all Islamic financing facilities features and functionalities which embedded in the ELMS are in compliance with Shariah's requirement. • GIA had assessed and identify any material weaknesses and had made recommendations to refine control activities when Shariah's compliance is not assured. 2. Shariah Audit on Bank’s Islamic Treasury Operations • GIA had assessed the Islamic treasury activities whether the activities were carried out in accordance with the relevant Shariah's principles and requirements. 3. Shariah Audit on Recovery Activities • GIA had assessed whether Islamic recovery processes carried out by Recovery Function specifically in relation to litigations and rehabilitation activities are in compliance with Shariah's requirement. INITIATIVES ON TRAINING AND AWARENESS In year 2019, a total of 172 staff have 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. Shariah Awareness Session : Understanding The Shariah Principles In Islamic Banking Shariah Compliance Awareness Legal Documentation For Islamic Financial & Islamic Capital Market Services Legal Perspective Of Restructuring & Rescheduling For Islamic Finance Facilities Structuring Sukuk & Islamic Securitization Documentation And Litigation For Islamic Financing Facilities Islamic Treasury, Islamic Structured Products And Sukuk Asset Liability Management In Islamic Banks Credit Management, Restructuring, Rescheduling And Recovery In Islamic Banking Governance, Risk Management And Compliance Legal Aspect And Governance For Islamic Finance Fundamentals Of Islamic Banking Islamic Business Financing Products And Services 14
108. 197301003074 (16562-K) Independent auditors' report to the members of Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Report on the audit of the financial statements Opinion We have audited the financial statements of Bank Pembangunan Malaysia Berhad, which comprise the statements of financial position as at 31 December 2019 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 20 to 201. 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 2019, and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence and other ethical responsibilities 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 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. The Annual Report is expected to be made available to us after the date of this auditors' report. 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. 16
109. 197301003074 (16562-K) Independent auditors' report to the members of Bank Pembangunan Malaysia Berhad (cont'd.) (Incorporated in Malaysia) Information other than the financial statements and auditors’ report thereon (cont'd.) 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. 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, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements of the 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. 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. 17
110. 197301003074 (16562-K) Independent auditors' report to the members of Bank Pembangunan Malaysia Berhad (cont'd.) (Incorporated in Malaysia) Auditors’ responsibilities for the audit of the financial statements (cont'd.) 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. 18
112. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statements of Financial Position As at 31 December 2019 Note Group 2019 2018 RM'000 RM'000 Assets Cash and short term deposits 4(a) 2,648,922 Deposits and placements with financial institutions 4(b) 924,915 Financial investments at fair value through profit or loss 5 Financial investments at fair value through other comprehensive income 6 5,023,965 Financial investments at amortised cost 7 Loans, financing and advances 8 15,701,772 Other assets 9 228,221 Investments in subsidiaries 10 Interest in associates 11 539 Interest in joint ventures 12 Property, plant and equipment 13 86,511 Investment properties 14 337 Intangible assets 15 6,790 Right-of-use assets 16(a) 357 Deferred tax assets 17 40,521 24,662,850 Assets classified as held for sale 45 254 24,663,104 Total assets 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 Bank 2019 RM'000 2018 RM'000 2,311,748 2,371,020 2,020,160 38,055 882,828 - - - - 3,719,952 5,019,020 3,717,174 22 18,284,672 178,516 533 81,600 601 6,985 111,425 24,734,109 24,734,109 15,545,685 206,854 255,426 86,357 337 6,596 314 36,939 24,411,376 24,411,376 18,127,583 139,938 256,641 81,434 345 6,617 108,947 24,458,839 24,458,839 18 5,492,175 6,412,169 5,492,175 6,412,169 19 20 21 22 23 24 16(b) 17 1,032,669 122,449 7,293,172 2,175,728 439,129 212,255 354 383 16,768,314 100,354 120,254 7,343,958 2,681,874 304,166 219,962 245 17,182,982 1,032,669 79,893 7,293,172 2,175,728 439,129 212,255 309 16,725,330 100,354 78,513 7,343,958 2,681,874 304,166 219,962 17,140,996 20
113. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statements of Financial Position As at 31 December 2019 (cont'd.) Note Equity attributable to equity holders of the Bank Share capital Reserves Bank 2019 RM'000 2018 RM'000 Non-controlling interests Total equity 3,078,724 4,803,738 7,882,462 12,328 7,894,790 3,078,724 4,456,111 7,534,835 16,292 7,551,127 3,078,724 4,607,322 7,686,046 7,686,046 3,078,724 4,239,119 7,317,843 7,317,843 Total equity and liabilities 24,663,104 24,734,109 24,411,376 24,458,839 7,532,222 6,257,513 7,313,415 6,046,597 Commitments and contingencies 25 26 Group 2019 2018 RM'000 RM'000 40(a) The accompanying notes form an integral part of the financial statements 21
114. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statements of Profit or Loss For the Financial Year Ended 31 December 2019 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 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/(loss) of associates and joint ventures Profit before taxation and zakat Taxation Zakat Net profit for the year Group 2019 2018 RM'000 RM'000 Bank 2019 RM'000 2018 RM'000 28 29 721,400 (238,540) 482,860 758,618 (262,768) 495,850 700,313 (238,537) 461,776 733,454 (262,768) 470,686 49 30 311,417 27,128 297,848 26,580 307,651 60,375 293,618 23,420 31 32 (134,963) 686,442 (113,533) 820,278 (107,351) (134,963) 694,839 (104,527) 787,724 (101,021) 10(b) (41,316) 35 (95,774) (423,224) (98,432) (441,118) 36 (56,105) (16,570) (57,147) (27,446) 379,714 273,133 434,733 218,139 - - 6 37 379,720 (103,833) (24,296) 251,591 22 - (12,445) 260,688 (75,890) (17,488) 167,310 - 434,733 (98,667) (21,126) 314,940 - 218,139 (66,879) (14,972) 136,288
115. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statements of Profit or Loss For the Financial Year Ended 31 December 2019 (cont'd.) Note Attributable to: Equity holders of the Bank Profit for the year attributable to equity holders of the Bank Non-controlling interests Loss for the year attributable to non-controlling interests of the Bank Group 2019 2018 RM'000 RM'000 Bank 2019 RM'000 2018 RM'000 251,770 171,213 314,940 136,288 (179) 251,591 (3,903) 167,310 314,940 136,288 Earnings per share attributable to the equity holders of the Bank: Basic/diluted earnings per share (sen) - from operations 39 8.18 5.56 The accompanying notes form an integral part of the financial statements 23
116. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statements of Comprehensive Income For the Financial Year Ended 31 December 2019 Net profit for the year Group 2019 2018 RM'000 RM'000 Bank 2019 RM'000 2018 RM'000 251,591 314,940 136,288 Other comprehensive income/(loss) 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 327 167,310 (48,019) (1,840) (45,986) 37,162 2,013 - - 137,500 14,504 137,500 14,504 55,958 230,947 6 (31,496) 55,958 191,618 6 (31,476) (38,875) (38,875) 8,233 8,233 (38,355) (38,355) 7,745 7,745 Other comprehensive income/(loss) for the year, net of tax 192,072 (23,263) 153,263 (23,731) Total comprehensive income for the year 443,663 144,047 468,203 112,557 447,627 (3,964) 443,663 146,209 (2,162) 144,047 468,203 468,203 112,557 112,557 Income tax effect (Note 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 24
117. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Consolidated Statement of Changes in Equity For the Financial Year Ended 31 December 2019 <----------------------------- Attributable to equity holders of the Bank ---------------------------> Group At 1 January 2019 Total comprehensive income/ (loss) for the financial year Transfer to statutory reserve Dividend paid At 31 December 2019 At 1 January 2018 Total comprehensive (loss)/ income for the financial year Transfer to statutory reserve Dividend paid At 31 December 2018 <------------------------- Non-distributable ----------------------------> Exchange Unrealised translation Distributable Share Capital Statutory FVOCI reserve/ retained capital reserve reserve reserve (deficit) profits Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 38 38 Noncontrolling Total interests RM'000 RM'000 Total equity RM'000 3,078,724 1,000 1,994,631 5,401 (47,944) 2,503,023 7,534,835 16,292 7,551,127 3,078,724 1,000 78,735 2,073,366 154,910 160,311 40,947 (6,997) 251,770 (78,735) (100,000) 2,576,058 447,627 (100,000) 7,882,462 (3,964) 12,328 443,663 (100,000) 7,894,790 3,078,724 1,000 1,960,559 30,677 (48,216) 2,465,882 7,488,626 18,454 7,507,080 3,078,724 1,000 34,072 1,994,631 (25,276) 5,401 272 (47,944) 171,213 (34,072) (100,000) 2,503,023 146,209 (100,000) 7,534,835 (2,162) 16,292 144,047 (100,000) 7,551,127 The accompanying notes form an integral part of the financial statements 25
118. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statement of Changes in Equity For the Financial Year Ended 31 December 2019 <--------------Non-distributable -----------------> Bank At 1 January 2019 Total comprehensive income for the financial year Transfer to statutory reserve Dividend paid At 31 December 2019 At 1 January 2018 Total comprehensive (loss)/income for the financial year Transfer to statutory reserve Dividend paid At 31 December 2018 Note 38 38 Share capital RM'000 Statutory reserve RM'000 Unrealised FVOCI reserve RM'000 3,078,724 1,994,631 6,486 3,078,724 78,735 2,073,366 153,263 159,749 314,940 (78,735) (100,000) 2,374,207 468,203 (100,000) 7,686,046 3,078,724 1,960,559 30,217 2,235,786 7,305,286 3,078,724 34,072 1,994,631 (23,731) 6,486 136,288 (34,072) (100,000) 2,238,002 112,557 (100,000) 7,317,843 The accompanying notes form an integral part of the financial statements 26 Distributable retained profits RM'000 Total RM'000 2,238,002 7,317,843
119. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statements of Cash Flows For the Financial Year Ended 31 December 2019 Cash flows from operating activities Profit before taxation and zakat Adjustment for: Share of (profit)/loss 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)) Gain on disposal of asset held for sale (Note 30(b)) Gain Net gain on sale on disposal of financial of financial investments investment at FVOCI (Note 30(a) and 49(l)) Unrealised loss on revaluation of financial investment at FVTPL (Note 30(a)) 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 49(l)) Impairment allowance/(written back) for: Financial investments at FVOCI (Note 36) Investment properties (Note 36) Investment in subsidiaries (Note 36) Gain on foreign exchange (Note 30(b)) Allowances for impairment losses on loans, financing and advances, net (Note 35) Balance carried forward Group 2019 2018 RM'000 RM'000 Bank 2019 RM'000 2018 RM'000 379,720 260,688 434,733 218,139 12,445 - - 134,963 - 134,963 - 3,841 4,015 3,767 3,940 10 10 8 7 2,447 2,640 2,273 2,467 140 - 127 - (6) - (216) - - (161) - (43,020) - (10,959) 1,712 (43,020) - (167) - (10,959) 1,712 (25) - (7,348) - (25) (36,040) (7,348) - (11,098) (126) (11,098) (126) 55,958 - 6 30 (133) 55,958 1,215 - 6 27,663 - 98,081 640,942 473,580 708,914 99,090 622,020 27 455,302 717,905
120. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statements of Cash Flows For the Financial Year Ended 31 December 2019 (cont'd.) Group 2019 2018 RM'000 RM'000 Cash flows from operating activities (cont'd.) Balance brought forward 622,020 Impaired loans and other assets written off (Note 35 and 36) 15,593 Allowance for ex-staff loan/financing (Note 36) Gain due to debt/financing modification (Note 30(b), 49(k) and 49(l)) (2,736) Compensation from the Government (Note 28 and Note 49(l)) (129,364) Operating cash flows before working capital changes 505,513 Decrease/(increase) in operating assets: Deposits and placements with financial institutions (886,860) Loans, financing and advances 2,475,947 Other assets (102,287) 1,486,800 (Decrease)/increase in operating liabilities: Deposits from customers (919,994) Deposit and placements from financial institutions 932,315 Other liabilities 150,064 162,385 Cash generated from/(used in) operating activities 2,154,698 Interest expense on lease liabilities (24) Income taxes paid (91,399) Zakat paid (17,282) Net cash generated from/(used in) operating activities 2,045,993 Cash flows from investing activities Dividend income from: Financial investments at FVTPL (Note 30(a)) Subsidiaries Purchase of financial investments at FVOCI Balance carried forward 25 (6,764,496) (6,764,471) 28 Bank 2019 RM'000 2018 RM'000 717,905 640,942 708,914 728 13,921 220 52 - 52 (8,527) (2,736) (8,527) (133,615) (129,364) (133,615) 576,543 522,763 567,044 (38,055) 720,821 (18,039) 664,727 (882,828) 2,479,669 (114,654) 1,482,187 672,868 (19,755) 653,113 (1,748,300) (919,994) (1,748,300) 100,354 2,016 (1,645,930) 932,315 111,079 123,400 100,354 (5,485) (1,653,431) (404,660) (97,766) (15,847) 2,128,350 (21) (87,886) (17,282) (433,274) (82,794) (15,847) (518,273) 2,023,161 (531,915) 7,348 (1,794,521) (1,787,173) 25 36,040 (6,764,496) (6,728,431) 7,348 (1,794,521) (1,787,173)
121. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Statements of Cash Flows For the Financial Year Ended 31 December 2019 (cont'd.) Group 2019 2018 RM'000 RM'000 Cash flows from investing activities (cont'd.) Balance brought forward Purchase of property, plant and equipment (Note 13) Purchase of intangible assets (Note 15) Proceeds from disposal of financial investments at FVTPL Proceeds from disposal/maturity of financial investments at FVOCI Proceeds from disposal of property, plant and equipment Proceeds from asset held for sale Net cash outflow on dissolution of subsidiaries (Note 10(b)) Net cash (used in)/generated from investing activities Cash flows from financing activities Net repayments of long-term loans Net repayment of bills and acceptance payables Net repayment of redeemable notes Proceeds from Government compensation Dividend paid (Note 38) Payment of principal portion of lease liabilities Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year Cash and cash equivalents comprise: Cash and short term deposits (Note 4(a)) Bank 2019 RM'000 2018 RM'000 (6,764,471) (1,787,173) (6,728,431) (1,787,173) (8,752) (2,252) (3,541) (1,313) (8,690) (2,252) (3,291) (1,309) - 199,296 - 199,296 5,657,015 3,079,267 5,657,015 3,079,267 - 344 472 - 191 - (405) - - - (1,118,865) 1,487,352 (1,082,358) 1,486,981 (500,000) (100,000) (500,000) (100,000) (50,000) (250,000) (50,000) (50,000) (250,000) (50,000) 60,189 (100,000) 124,818 (100,000) 60,189 (100,000) 124,818 (100,000) (143) - (132) - (589,954) (375,182) (589,943) (375,182) 337,174 593,897 350,860 579,884 2,311,748 1,717,851 2,020,160 1,440,276 2,648,922 2,311,748 2,371,020 2,020,160 2,648,922 2,311,748 2,371,020 2,020,160 The accompanying notes form an integral part of the financial statements 29
122. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 1. Corporate Information Bank Pembangunan Malaysia Berhad ("the Bank") is a public limited liability company, incorporated and domiciled in Malaysia. The registered office of the Bank is located at Level 16, Menara Bank Pembangunan, Bandar Wawasan, No. 1016, Jalan Sultan Ismail, 50250 Kuala Lumpur. 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 46. 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 20 May 2020. 2. Significant Accounting Policies 2.1 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”), International Financial Reporting Standards ("IFRS") 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 47(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. 30
123. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.1 Statement of Compliance and Basis of Preparation (cont'd.) The presentation and classification of items in the current year financial statements have been consistent with the previous financial year except that certain comparative amounts have been reclassified to conform with current year's presentation. 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 2019, the Group and the Bank adopted the following new and amended MFRS mandatory for annual financial periods beginning on or after 1 January 2019. Effective for annual period beginning on or after Description MFRS 16 Leases MFRS 9 Prepayment Features with Negative Compensation (Amendments to MFRS 9) MFRS 128 Long-term Interests in Associates and Joint Ventures (Amendments to MFRS 128) MFRS 119 Plan Amendment, Curtailment or Settlement Annual Improvements to MFRS Standards 2015–2017 Cycle IC Interpretation 23 Uncertainty over Income Tax Treatments 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 MFRS 16 Leases The Group and the Bank has adopted MFRS 16 as issued by MASB in April 2016 with a date of transition of 1 January 2019, which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements. The Group and the Bank did not early adopt MFRS 16 in previous periods. As permitted by the transitional provisions of MFRS 16, the Group and the Bank elected not to restate comparative figures. Any adjustments to the carrying amounts of financial assets and liabilities at the date of transition were recognised in the opening retained earnings and other reserves of the current period. At inception, the Group and the Bank opted for Modified Retrospective Approach whereby the Day 1 opening balance for right-of-use ("ROU") assets is the same as the Day 1 opening balance for lease liability. The Group and the Bank elects to use the exemptions allowed by the standard on lease contracts for which the lease term ends within 12 months as at the date of initial application and lease contracts for which the underlying assets is of low value. 31
124. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.2 Changes in Accounting Policies MFRS 16 Leases (cont'd.) The adoption of MFRS 16 has resulted in changes in the accounting policies for recognition and measurement of ROU assets and lease liabilities in the financial statements. The lease liability is initially measured at present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications. Set out below are disclosures relating to the impact of the adoption of MFRS 16 on the Group and the Bank. On 1 January 2019, the opening balance for both the ROU assets and lease liabilities relating to lease of equipment are as follows: Lease obligation Group RM'000 Bank RM'000 409 353 MFRS 16 requires separate presentation of the interest expense on the lease liability and the depreciation charge for the ROU asset in the lessee’s statements of profit or loss. The interest expense on the lease liability is a component of finance costs, which MFRS 101 requires to be presented separately in the statements of profit or loss. The annual depreciation and interest expense amount calculated as at 31 December 2019 are as follows: Depreciation expense Interest expense Group RM'000 Bank RM'000 140 24 127 21 In the statements of cash flows, a lessee is required to classify cash payments for the principal portion of the lease liability within financing activities. Cash payments for the interest portion of the lease liability are classified by applying the requirements in MFRS 107 for interest paid. Furthermore, short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability are classified within operating activities. 32
125. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. 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. Effective for annual period beginning on or after Description Revised Conceptual Framework for Financial Reporting (the Conceptual Framework) MFRS 17 Insurance Contract Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2020 1 January 2021 Deferred 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 (a) 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: • 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. 33
126. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (a) Subsidiaries and basis of consolidation (cont'd.) (i) Subsidiaries (cont'd.) 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 2.4(h). 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. 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. 34
127. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (a) Subsidiaries and basis of consolidation (cont'd.) (ii) Basis of consolidation (cont'd.) 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: • 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. All of the above will be accounted for from the date when control is lost. 35
128. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (a) Subsidiaries and basis of consolidation (cont'd.) (iii) Business combinations and goodwill 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 or in the statements of profit or loss or statement 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 profit or loss. 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. 36
129. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (a) Subsidiaries and basis of consolidation (cont'd.) (iii) Business combinations and goodwill (cont'd.) 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 cash-generating unit retained. (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 JVs 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. 37
130. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (b) Investment in associates and joint ventures (cont'd.) 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. The 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 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 statements 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. 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. 38
131. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (b) Investment in associates and joint ventures (cont'd.) 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 (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 statements of profit or loss of the Group and on disposal of the foreign operation. 39
132. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (c) Foreign currency transactions (cont'd.) (ii) Foreign currency transactions (cont'd.) 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. (iii) Foreign operations 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 statements of 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 2.4(h), 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. 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. 40
133. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (d) Property, plant and equipment (cont'd.) 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 2.4(h), 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. 41
134. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (e) Investment properties (cont'd.) 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. Computer softwares were acquired separately and are amortised on a straight line basis over the useful lives of 3 - 5 years. (g) Leases 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. 42
135. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (g) Leases (cont'd.) (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. 43
136. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (g) Leases (cont'd.) (ii) Lease liabilities (cont'd.) 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. (h) Impairment of non-financial assets The Group and the Bank assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when an annual impairment assessment for an asset is required, the Group and the Bank make an estimate of the asset’s recoverable amount. 44
137. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (h) Impairment of non-financial assets (cont'd.) An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units (“CGU”)). In assessing value in use, the estimated future cash flows expected to be generated by the asset 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. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis. Impairment losses are recognised in statements of profit or loss. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in statements of profit or loss. Impairment loss on goodwill is not reversed in a subsequent period. (i) Financial assets 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. 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. 45
138. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) 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 allowance (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. Classification and subsequent measurement Financial assets The Group and the Bank determines the classification of their financial assets at initial recognition based on the following measurement categories: - Fair value through profit or loss ("FVTPL"); Fair value through other comprehensive income ("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 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. (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. 46
139. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) Classification and subsequent measurement (cont'd.) Financial assets (cont'd.) (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. Solely Payments of Principal and Interest/Profit ("SPPI/SPPP") test 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’. ‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition. 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. 47
140. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) Classification and subsequent measurement (cont'd.) Financial assets (cont'd.) 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 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. Financing and advances 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) 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. 48
141. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) Classification and subsequent measurement (cont'd.) Financial assets - Amortised cost (cont'd.) Financing and advances (cont'd.) Definition of Shariah concept (cont'd.): (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. (e) 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. 49
142. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) Classification and subsequent measurement (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. 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. 50
143. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) Impairment The Group and the Bank assesses on a forward-looking basis the expected credit losses ("ECL") associated with its financial investment instruments assets carried at amortised cost and FVOCI with the exposure arising from loan, financing and advances commitments and financial guarantee contracts. 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. 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 three-stage approach based on the change in credit quality since initial recognition: - 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. 51
144. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) Financial assets (cont'd.) (i) Impairment (cont'd.) 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. 52
145. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) Impairment (cont'd.) The calculation of ECL (cont'd.) The mechanics of the ECL methods are summarised below: - 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. 53
146. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) Impairment (cont'd.) The calculation of ECL (cont'd.) - 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. Debt instruments measured at FVOCI 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 as an accumulated impairment amount, with a corresponding charge to profit or loss. The accumulated loss recognised in OCI is recycled to the profit or loss upon derecognition of the assets. 54
147. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (i) Financial assets (cont'd.) 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. 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. (j) 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 statement 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. (k) 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. 55
148. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (l) 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. (m) 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. (n) Government grants 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. 56
149. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (n) Government grants (cont'd.) 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. (o) 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. (p) 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. (q) 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. 57
150. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (q) Disposal groups and assets held for sale (cont'd.) Immediately before classification as held for sale, the measurement of the noncurrent assets (or all the assets and liabilities in a disposal group) is brought up-todate 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. (r) Revenue 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/profit 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. 58
151. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (r) Revenue (cont'd.) (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' Bithaman Ajil ) and Bai' 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. 59
152. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (s) 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 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: • 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. 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. 60
153. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 2. Significant Accounting Policies (cont'd.) 2.4 Summary of Significant Accounting Policies (cont'd.) (s) Income Taxes (cont'd.) (ii) Deferred tax (cont'd.) 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. (t) 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. 3. Significant Accounting Judgements and Estimates 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. 61
154. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 3. Significant Accounting Judgments and Estimates (cont'd.) Judgements (contd.) (a) Impairment of financial investments portfolio (Note 6, Note 7 and Note 36) 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: (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: (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 PDs 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 Expected Credit Loss basis and the qualitative assessment; 62
155. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 3. Significant Accounting Judgments and Estimates (cont'd.) (b) Impairment of loans, financing and advances (Note 8 and Note 35) (cont'd.) 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 (cont'd.): (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, KLIBOR and the effect on PD, EAD and LGD, including assessing for potential impact from the deterioration in oil price and the Corona Virus outbreak ("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. (c) Impairment of investment in subsidiaries (Note 10), interest in associates (Note 11) and JVs (Note 12) The Group and the Bank assess whether there is any indication that an investment in subsidiaries, interest in associates and JVs 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. 63
156. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 3. Significant Accounting Judgments and Estimates (cont'd.) (c) Impairment of investment in subsidiaries (Note 10), interest in associates (Note 11) and JVs (Note 12) (cont'd.) 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 JVs 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. Estimates 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: (a) Allowance for impairment of investment in subsidiaries (Note 10), interest in associates (Note 11) and JVs (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. 64
157. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 3. Significant Accounting Judgments and Estimates (cont'd.) Estimates (cont'd.) (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 - Estimating the incremental borrowing rate The Group 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 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 ‘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 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). 65
158. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 4(a). Cash and Short Term Deposits Group 2019 2018 RM'000 RM'000 Cash and balances with other financial institutions Money at call and deposit placements maturing within one month Bank 2019 RM'000 2018 RM'000 14,306 55,332 2,933 36,142 2,634,616 2,648,922 2,256,416 2,311,748 2,368,087 2,371,020 1,984,018 2,020,160 4(b).Deposits and Placements with Financial Institutions Licensed banks Group 2019 2018 RM'000 RM'000 Bank 2019 RM'000 924,915 882,828 38,055 2018 RM'000 - 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 2019 WAEIR (%) Bank 2019 2018 3.25 3.45 3.24 3.41 62 41 49 16 Average maturity (Days) 5. 2018 Financial Investments at FVTPL Included in the financial investments at FVTPL is a private debt securities with a cost of RM 405,364,712 and a fair value of RM nil. 66
159. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 6. Financial Investments at FVOCI Group 2019 2018 RM'000 RM'000 Bank 2019 RM'000 2018 RM'000 At fair value Debt Instruments: Money market instruments: Malaysian Government Securities Government investment issues Cagamas Unquoted securities: Corporate bonds and sukuk Equity Securities: Quoted securities: Shares Total financial investments at FVOCI - 319,847 - 319,847 1,640,721 20,252 1,660,973 1,064,075 50,510 1,434,432 1,640,721 20,252 1,660,973 1,064,075 50,510 1,434,432 3,256,877 3,256,877 2,179,732 2,179,732 3,256,877 3,256,877 2,179,732 2,179,732 106,115 106,115 105,788 105,788 101,170 101,170 103,010 103,010 5,023,965 3,719,952 5,019,020 3,717,174 Movements in allowances for impairment which reflect the ECL allowance are as follows: 2019 Group and Bank At 1 January Net allowance made New financial investments purchased Net allowance additional At 31 December 12-Month ECL Stage 1 RM'000 Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 286 1,853 54,105 - 286 55,958 78 1,775 2,139 20,936 33,169 54,105 - 21,014 34,944 56,244 67
160. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 6. Financial Investments at FVOCI (cont'd.) Movements in allowances for impairment which reflect the ECL allowance are as follows (cont'd.): 2018 Group and Bank At 1 January Net allowance made New financial investments purchased Net allowance written back At 31 December 7. 12-Month ECL Stage 1 RM'000 Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 280 6 - - 280 6 17 (11) 286 - - 17 (11) 286 Financial Investments at Amortised Cost At amortised cost Group 2019 2018 RM'000 RM'000 Unquoted securities: Loan stock Total financial investments at amortised cost 68 Bank 2019 RM'000 2018 RM'000 - 22 - - - 22 - -
161. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 8. Loans, Financing and Advances At amortised cost Loans, financing and advances to industries: Government guaranteed Others Loans, financing and advances to others: Staff loan/financing Gross loans, financing and advances Group 2019 2018 RM'000 RM'000 Bank 2019 RM'000 2018 RM'000 181,104 18,052,441 18,233,545 1,623,970 19,153,941 20,777,911 181,104 17,873,365 18,054,469 1,623,970 18,963,596 20,587,566 5,236 5,236 6,583 6,583 5,236 5,236 6,583 6,583 18,238,781 20,784,494 18,059,705 20,594,149 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 (870,590) (751,857) (864,539) (748,458) (270,967) (423,534) (270,538) (422,327) (1,395,452) (1,324,431) (1,378,943) (1,295,781) (2,537,009) (2,499,822) (2,514,020) (2,466,566) 15,701,772 18,284,672 15,545,685 18,127,583 69
162. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 8. Loans, Financing and Advances (cont'd.) (i) Loans, financing and advances analysed by type are as follows: Group 2019 2018 RM'000 RM'000 Bai' Bithaman Ajil 89,692 Bridging financing Factoring 31,165 Hire purchase 93,495 Istisna' 2,772,582 Ijarah Muntahiyah bi Tamlik 52,078 Leasing 12,261 Murabahah 8,315 Revolving financing Revolving working capital 160,995 Staff loan/financing 5,236 Tawarruq 9,544,462 Term loan 5,468,500 Gross loans, financing and advances 18,238,781 Bank 2019 RM'000 2018 RM'000 141,654 6,776 19,726 108,327 3,246,867 52,534 22,918 9,273 263 176,592 6,583 7,521,448 9,471,533 86,745 2,772,582 20,693 8,315 160,995 5,236 9,539,493 5,465,646 141,654 3,246,867 21,616 9,273 176,592 6,583 7,520,031 9,471,533 20,784,494 18,059,705 20,594,149 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 (870,590) (751,857) (864,539) (748,458) (270,967) (423,534) (270,538) (422,327) (1,395,452) (1,324,431) (1,378,943) (1,295,781) (2,537,009) (2,499,822) (2,514,020) (2,466,566) 15,701,772 18,284,672 15,545,685 18,127,583 70
163. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 8. Loans, Financing and Advances (cont'd.) (ii) Loans, financing and advances analysed by type of borrowers/customers are as follows: Group 2019 2018 RM'000 RM'000 Domestic business enterprises Individuals 18,229,509 9,272 18,238,781 20,777,911 6,583 20,784,494 Bank 2019 RM'000 18,054,469 5,236 18,059,705 2018 RM'000 20,587,566 6,583 20,594,149 (iii) Loans, financing and advances analysed by interest/profit rate sensitivity are as follows: Group 2019 2018 RM'000 RM'000 Fixed rate: Housing loans/financing Hire purchase receivables Other fixed rate loans/ financing Variable rate: Cost plus Other variable rates Bank 2019 RM'000 2018 RM'000 9,272 11,864 5,236 6,583 93,495 108,327 - - 11,066,427 12,504,442 10,984,882 12,427,705 4,791,538 2,278,049 18,238,781 4,617,812 3,542,049 20,784,494 4,791,538 2,278,049 18,059,705 4,617,812 3,542,049 20,594,149 71
164. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 8. Loans, Financing and Advances (cont'd.) (iv) Loans, financing and advances analysed by industry are as follows: Group 2019 2018 RM'000 RM'000 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 Bank 2019 RM'000 2018 RM'000 11 8,906,333 1,871,106 9 9,533,344 1,964,077 8,904,249 1,871,106 9,532,577 1,964,077 142,277 2,148,740 142,277 2,148,740 91,821 1,244,934 5,236 316,497 181,999 95,220 1,237,980 6,583 343,276 50,334 1,217,259 5,236 309,025 181,999 1,216,808 6,583 322,706 50,334 . 16,719 16,017 16,719 16,017 370,328 313,924 355,010 313,812 16,156 23,570 16,156 23,570 366,608 1,155,554 130,339 402,714 864,706 157,597 366,608 1,155,554 130,339 402,714 864,706 157,597 3,422,863 18,238,781 3,626,403 20,784,494 3,388,168 18,059,705 3,573,908 20,594,149 72
165. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 8. Loans, Financing and Advances (cont'd.) (v) The maturity structure of loans, financing and advances is as follows: Group 2019 2018 RM'000 RM'000 Maturity within one year One year to three years Three years to five years Over five years 2,341,721 2,219,921 2,099,661 11,577,478 18,238,781 4,235,799 2,316,224 2,748,524 11,483,947 20,784,494 Bank 2019 RM'000 2,279,185 2,137,937 2,065,105 11,577,478 18,059,705 2018 RM'000 4,209,711 2,249,376 2,678,308 11,456,754 20,594,149 (vi) Loans, financing and advances analysed by geographical distribution are as follows: Group 2019 2018 RM'000 RM'000 Within Malaysia 18,238,781 20,784,494 Bank 2019 RM'000 18,059,705 2018 RM'000 20,594,149 (vii) Movements in credit impaired loans, financing and advances are as follows: Group 2019 2018 RM'000 RM'000 At 1 January Impaired during the financial year Reclassified as nonimpaired Recovered during the financial year Amount written off At 31 December Gross impaired loans, financing and advances as a % of gross loans, financing and advances Bank 2019 RM'000 2018 RM'000 2,276,895 2,706,332 2,246,791 2,653,317 221,640 580,780 216,792 566,695 (55,918) (67,171) (55,860) (51,047) (155,816) (70,005) 2,216,796 (164,646) (778,400) 2,276,895 (148,385) (59,058) 2,200,280 (147,148) (775,026) 2,246,791 12.15% 10.95% 12.18% 10.91% 73
166. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 8. Loans, Financing and Advances (cont'd.) (viii) Impaired loans, financing and advances analysed by industry are as follows: Construction Education Electricity, gas and water supply Finance, insurance/takaful and business Hotel and restaurants Manufacturing Medical and pharmaceuticals Other community, social and personal service activities Shipping Transport, storage and communication Group 2019 2018 RM'000 RM'000 Bank 2019 RM'000 2018 RM'000 447,613 63,760 414,501 68,929 445,544 63,760 414,047 68,929 30,698 54,373 30,698 54,373 677,745 88,141 31 719,043 129,312 673,604 88,121 712,351 112,928 16,719 16,017 16,719 16,017 122,216 608,768 1 705,726 118,137 608,768 705,726 161,136 2,216,796 168,962 2,276,895 154,929 2,200,280 162,420 2,246,791 74
167. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 8. Loans, Financing and Advances (cont'd.) (ix) Movements in the allowance for impairment of loans, financing and advances are as follows: Group 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 12-Month ECL Stage 1 RM'000 751,857 9,565 Lifetime ECL Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 423,534 2,499,822 (761) - 108,869 (36,495) - - (53,724) 53,724 - 181,542 870,590 (198,908) 270,967 116,456 (61,903) 1,395,452 99,090 (61,903) 2,537,009 595,832 545,876 1,680,392 2,822,100 (72,374) (8,804) 1,324,431 Total RM'000 2018 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 18,254 (6,440) (11,814) - (60,341) 78,496 (18,155) - (2,601) (151,082) 153,683 - (43,316) 423,534 297,905 (777,580) 1,324,431 200,713 751,857 75 455,302 (777,580) 2,499,822
168. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 8. Loans, Financing and Advances (cont'd.) (ix) Movements in the allowance for impairment of loans, financing and advances are as follows (cont'd.): Bank 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 12-Month ECL Stage 1 RM'000 748,458 8,804 (72,293) Lifetime ECL Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 422,327 (8,804) Total RM'000 1,295,781 2,466,566 - - 107,240 (34,947) - - (53,193) 53,193 - 179,570 864,539 (197,032) 270,538 115,543 (50,627) 1,378,943 98,081 (50,627) 2,514,020 592,298 544,563 1,630,661 2,767,522 - - 2018 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 6,422 (6,422) (58,320) 76,475 (18,155) - (2,528) (150,993) 153,521 - (41,296) 422,327 304,290 (774,536) 1,295,781 210,586 748,458 76 473,580 (774,536) 2,466,566
169. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 9. Other Assets Note Sundry receivables, deposits and prepayments Less: Allowance for doubtful debts Bank 2019 RM'000 2018 RM'000 (i) 311,868 325,912 6,390 6,845 (ii) (292,910) 18,958 (292,998) 32,914 (581) 5,809 (607) 6,238 Amount due from subsidiaries Amount receivable from Government in respect of compensation for: Infrastructure projects Foreign exchange differences Tax recoverable (i) Group 2019 2018 RM'000 RM'000 - - 590 590 109,216 47,749 109,216 47,749 85,361 14,686 228,221 85,361 12,492 178,516 85,361 5,878 206,854 85,361 139,938 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 (2018: RM289,463,000). (ii) Allowance for doubtful debts Group 2019 2018 RM'000 RM'000 At 1 January Provided during the financial year: - Staff resigned Recovered during the financial year: - Staff resigned - Tenant Amount written off At 31 December Bank 2019 RM'000 2018 RM'000 292,998 293,221 607 830 - 52 - 52 (17) (9) (62) 292,910 77 (270) (5) 292,998 (17) (9) 581 (270) (5) 607
170. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 10. Investments in Subsidiaries Unquoted shares, at cost Additional capital contribution due to waiver of debt Less: Allowance for impairment on investments in subsidiaries Bank 2019 RM'000 2018 RM'000 922,939 68,750 991,689 922,939 68,750 991,689 (736,263) 255,426 (735,048) 256,641 735,048 1,215 736,263 707,385 27,663 735,048 Movement of allowance for impairment: As at 1 January Amount provided during the financial year At 31 December * Refer to Note 46 for the list of subsidiaries. (a) Subsidiary with significant non-controlling interest The summarised financial information of Global Maritime Ventures Berhad ("GMVB") which have significant non-controlling interests to the Group is set out below. The summarised financial information presented below is the amount before inter-company elimination: (i) Summarised statement of financial position GMVB 2019 RM'000 2018 RM'000 5,205 102,615 107,820 5,248 108,576 113,824 Current liabilities Total liabilities Net assets 9,913 9,913 97,907 10,529 10,529 103,295 Equity attributable to the owners of the company 95,086 96,671 2,821 6,624 Non current assets Current assets Total assets Carrying value of non-controlling interests 78
171. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 10. Investments in Subsidiaries (cont'd.) (a) Subsidiary with significant non-controlling interest (cont'd.) (ii) Summarised statement of comprehensive income GMVB 2019 RM'000 Other income Administrative expenses Share of profit/(loss) of joint ventures and associates Loss on deconsolidation of dissolve companies Loss before taxation Income tax Zakat Loss for the year 2018 RM'000 3,210 (1,800) 3,256 (10,844) 6 (41,316) (39,900) (696) (1,955) (42,551) (20,950) (28,538) (850) (1,751) (31,139) Other comprehensive income: Other comprehensive income to be reclassified to profit or loss in subsequent periods: Foreign currency translation reserve Total comprehensive loss for the year 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 79 40,917 40,917 389 389 (1,634) (30,750) (42,533) (18) (42,551) (31,122) (17) (31,139) (1,585) (49) (1,634) (30,850) 100 (30,750)
172. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 10. Investments in Subsidiaries (cont'd.) (a) Subsidiary with significant non-controlling interest (cont'd.) (iii) Summarised statement of cash flows GMVB 2019 RM'000 Net cash generated from/(used in) operating activities Net cash generated from/(used in) investing activities Net increase/(decrease) in cash and cash cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at the end of the financial year 2018 RM'000 172 (2,912) 41,072 (53,986) 41,244 (56,898) 33,436 90,334 74,680 33,436 (b) Dissolution of subsidiaries During financial year ended 2019, GMV Orkim and five companies under Wawasan Group, namely Permata Navigation, Gemala Navigation, Kencana Navigation, Ratna Navigation, and Mutiara Navigation had been 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: Total RM'000 Assets Tax recoverable Cash and bank balances Amount due from related parties 319 405 12,496 13,220 Liabilities Payable and accruals 131 131 13,089 Net assets 80
173. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 10. Investments in Subsidiaries (cont'd.) (b) Dissolution of subsidiaries (cont'd.) Details of the deconsolidation of the subsidiaries as at the date of dissolution were as follows (cont'd.): At the date of dissolution RM'000 Capital distribution received Net identifiable assets disposed @ 100% Transfer from foreign exchange reserves Transfer from non-controlling interest Loss on deconsolidation 9,173 (13,089) (41,154) 3,754 (41,316) 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 (405) (405) 11. Interest in Associates Group 2019 RM'000 At cost: Unquoted ordinary shares Group’s share of post acquisition reserve 300 239 539 539 Less: Dividend from associates Details of the associates incorporated in Malaysia are as follows: Name of Associates (incorporated in Malaysia) Effective interest held by the Group 2018 2019 % % Principal Activities Held through GMVB, a subsidiary: Wawasan Bulk Services Sdn Bhd 27.0 81 27.0 Ship management 2018 RM'000 300 3,233 3,533 (3,000) 533
174. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 11. Interest in Associates (cont'd.) Details of the associates incorporated in Malaysia are as follows: (cont'd.) Name of Associates (incorporated in Malaysia) Effective interest held by the Group 2018 2019 % % Principal Activities Held through SME Growth Acceleration Fund Sdn Bhd ("SME GAF"), a subsidiary: Ambang Wibawa Sdn Bhd * 26.0 26.0 Dormant 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 Nano C Sdn Bhd * 26.0 26.0 Dormant Profound Kestrel Laboratories Sdn Bhd * 49.0 49.0 Dormant S.I.T Schiffs & Industries Tehcnic Sdn Bhd * 26.0 26.0 Dormant Wellad Communications Sdn Bhd * 26.0 26.0 Dormant * Audited by firms of auditors other than Ernst & Young PLT, Malaysia. 82
175. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 11. Interest in Associates (cont'd.) The summarised financial statements of the associates not adjusted for the proportion of ownership interest held by the Group are as follows: (a) Summarised statement of financial position Group 2019 RM'000 Total assets Total liabilities 2018 RM'000 1,838 42 1,924 147 18 22 23 37 (b) Summarised statement of profit or loss Revenue Profit for the year (c) Reconciliation of the summarised financial information Net assets at 1 January Profit for the financial year Other comprehensive 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 1,877 37 (137) 1,777 30% 533 12. Interest in Joint Ventures At cost: Unquoted ordinary shares Group’s share of post acquisition deficit Advances to joint ventures ("JVs"): within 1 year Less: Allowance for doubtful debts 83 Group 2019 RM'000 2018 RM'000 11,274 (11,274) - 11,274 (11,274) - 8,412 (8,412) - 8,239 (8,239) -
176. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 12. Interest in Joint Ventures (cont'd.) The advances to JVs bear an interest of 5% (2018: 5%) per annum and are repayable on a quarterly basis over a period of 1 year. Details of the JVs are as follows: Name of JVs (incorporated in Malaysia Effective interest held by the Group 2018 2019 % % Principal Activities Held through GMVB, a subsidiary: 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 ^ Collectively known as Alam Group The aggregate current assets, current liabilities and result of the JVs are as follows: (a) Summarised statement of financial position 2019 RM'000 2018 RM'000 93,583 93,583 70,389 70,389 Liabilities: Current liabilities Total liabilities 149,955 149,955 122,869 122,869 Net liabilities (56,372) (52,480) Assets: Current assets Total assets 84
177. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 12. Interest in Joint Ventures (cont'd.) The aggregate current assets, current liabilities and result of the JVs are as follows (cont'd.): (b) Summarised statement of profit or loss 2019 RM'000 Revenue Cost of sales Gross loss Other income Operating expenses Loss from operations Finance costs Loss before taxation Taxation Loss for the year (7,970) (7,970) 5,553 (1,093) (3,510) (510) (4,020) 128 (3,892) 2018 RM'000 4,281 (9,592) (5,311) 700 (94,507) (99,118) (1,048) (100,166) (100,166) (c) Reconciliation of the summarised financial information Net (liabilities)/assets 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 85 2019 RM'000 2018 RM'000 (52,480) (3,892) (56,372) 33,823 (22,549) 20,993 1,556 - 47,686 (100,166) (52,480) 31,487 (20,993) 1,845 19,148 -
178. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 13. Property, Plant and Equipment Group Freehold land RM'000 Leasehold Furniture land and and buildings equipment RM'000 RM'000 Mechanical Motor and vehicles Renovation electricals RM'000 RM'000 RM'000 Capital work-inprogress RM'000 Total RM'000 2019 Cost At 1 January Additions Disposals/write-off At 31 December Accumulated depreciation At 1 January Charge for the financial year Disposals/write-off At 31 December Net carrying amount 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 86,511
179. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 13. Property, Plant and Equipment (cont'd.) Group Freehold land RM'000 Leasehold Furniture land and and buildings equipment RM'000 RM'000 Mechanical Motor and vehicles Renovation electricals RM'000 RM'000 RM'000 Capital work-inprogress RM'000 Total RM'000 2018 Cost At 1 January Additions Reclassification Transfer to intangible assets (Note 15) Disposals/write-off At 31 December 17,973 - 71,747 - 24,714 873 326 1,527 1,339 - 2,568 706 88 40,380 - 986 623 (414) 159,895 3,541 - 17,973 (130) 71,617 (543) 25,370 (808) 2,058 (384) 2,978 (41) 40,339 (355) 840 (355) (1,906) 161,175 Accumulated depreciation At 1 January Charge for the financial year Disposals/write-off At 31 December - 13,982 1,432 (130) 15,284 22,058 1,102 (415) 22,745 1,499 190 (808) 881 956 875 (384) 1,447 38,843 416 (41) 39,218 56,333 2,625 1,177 1,531 1,121 Net carrying amount 17,973 87 840 77,338 4,015 (1,778) 79,575 81,600
180. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 13. Property, Plant and Equipment (cont'd.) Bank Freehold land RM'000 Furniture and Buildings equipment RM'000 RM'000 Mechanical Motor and vehicles Renovation electricals RM'000 RM'000 RM'000 Capital work-inprogress RM'000 Total RM'000 2019 Cost At 1 January Additions Disposals/write off At 31 December Accumulated depreciation At 1 January Charge for the financial year Disposals/write off At 31 December Net carrying amount 17,973 17,973 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 - 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 88 86,357
181. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 13. Property, Plant and Equipment (cont'd.) Bank Freehold land RM'000 Furniture and Buildings equipment RM'000 RM'000 Mechanical Motor and vehicles Renovation electricals RM'000 RM'000 RM'000 Capital work-inprogress RM'000 Total RM'000 2018 Cost At 1 January Additions Reclassification Transfer to intangible assets (Note 15) Disposals/write off At 31 December Accumulated depreciation At 1 January Charge for the financial year Disposals/write off At 31 December Net carrying amount 17,973 - 71,617 - 21,381 623 326 813 1,339 - 2,155 706 88 40,380 - 986 623 (414) 155,305 3,291 - 17,973 71,617 (305) 22,025 (461) 1,691 2,949 (41) 40,339 (355) 840 (355) (807) 157,434 - 13,852 1,432 15,284 18,798 1,047 (281) 19,564 801 176 (461) 516 549 869 1,418 38,843 416 (41) 39,218 17,973 56,333 2,461 1,531 1,121 89 1,175 840 72,843 3,940 (783) 76,000 81,434
182. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 14. Investment Properties Group 2019 2018 RM'000 RM'000 Cost At 1 January Transfer to assets held for sale (Note 45) At 31 December Bank 2019 2018 RM'000 RM'000 682 682 382 382 (300) 382 682 382 382 Depreciation and impairment loss At 1 January Charge for the financial year Impairment Transfer to assets held for sale (Note 45) At 31 December 81 10 - 41 10 30 37 8 - 30 7 - (46) 45 81 45 37 Carrying amount 337 601 337 345 Group 2019 2018 RM'000 RM'000 Included in the above are: Freehold land Buildings (i) 337 337 140 461 601 Bank 2019 2018 RM'000 RM'000 337 337 345 345 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 (2018: RM830,000) and RM400,000 (2018: RM440,000) respectively which have been determined by an accredited independent valuer. 90
183. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 15. Intangible Assets Computer software Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 Cost At 1 January Addition Transfer from property, plant and equipment (Note 13) At 31 December 31,629 2,252 29,961 1,313 27,540 2,252 25,876 1,309 33,881 355 31,629 29,792 355 27,540 Amortisation At 1 January Amortisation charged At 31 December 24,644 2,447 27,091 22,004 2,640 24,644 20,923 2,273 23,196 18,456 2,467 20,923 6,790 6,985 6,596 6,617 Carrying amount 16. Leases (a) The carrying amounts of right-of-use assets recognised and the movements during the period: Group 2019 Other Equipment RM'000 RM'000 Cost At 1 January Addition during the year At 31 December 409 88 497 409 88 497 Depreciation At 1 January Charge for the financial year At 31 December 140 140 140 140 Carrying amount 357 357 91 Total
184. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 16. Leases (cont'd.) (a) The carrying amounts of right-of-use assets recognised and the movements during the period (cont'd.): Bank 2019 Other Equipment RM'000 Total RM'000 Cost At 1 January Addition during the year At 31 December 353 88 441 353 88 441 Depreciation At 1 January Charge for the financial year At 31 December 127 127 127 127 Carrying amount 314 314 (b) The carrying amounts of lease liabilities and the movements during the period: Group 2019 RM'000 Bank 2019 RM'000 409 88 24 (167) 354 353 88 21 (153) 309 144 210 354 142 167 309 At 1 January Addition during the year Accretion of interest Payments At 31 December Current Non-current The maturity analysis of lease liabilities are disclosed in Note 47 c(i). 92
185. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 16. Leases (cont'd.) (c) The following are the amounts recognised in profit or loss: Group 2019 RM'000 Depreciation expense of right-of-use assets Interest expense on lease liabilities Expense relating to leases of low-value assets (included in overhead expenses) Total amount recognised in profit or loss Bank 2019 RM'000 140 24 127 21 418 582 418 566 17. Deferred Tax Assets/(Liabilities) At 1 January Recognised in statement of profit or loss Recognised in equity At 31 December Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 111,180 71,590 108,947 70,493 (32,167) (38,875) 40,138 31,357 8,233 111,180 (33,653) (38,355) 36,939 30,709 7,745 108,947 40,521 (383) 40,138 111,425 (245) 111,180 36,939 36,939 108,947 108,947 Presented after appropriate offsetting as follows: Deferred tax assets Deferred tax liabilities Deferred tax assets and liabilities are offset when there is a legally enforceable right to setoff current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. 93
186. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 17. Deferred Tax Assets/(Liabilities) (cont'd.) The components and movements of deferred tax assets and liabilities during the financial year prior to offsetting are as follows: Deferred tax assets Group At 1 January 2019 Recognised in statement of profit or loss At 31 December 2019 Loan/ Provisions financing and other loss and temporary allowances differences RM'000 RM'000 Property, plant and equipment RM’000 Total RM'000 97,405 14,003 2,373 113,781 (31,927) 65,478 (8,155) 5,848 1,017 3,390 (39,065) 74,716 73,201 12,408 - 85,609 24,204 97,405 1,595 14,003 2,373 2,373 28,172 113,781 Loan/ Unrealised financing FVOCI loss and reserve allowances RM'000 RM'000 Property, plant and equipment RM’000 Total RM'000 At 1 January 2018 Recognised in statement of profit or loss At 31 December 2018 Deferred tax liabilities Group At 1 January 2019 Recognised in statement of profit or loss Recognised in equity At 31 December 2019 (1,710) (658) (233) (2,601) 6,862 (38,875) (33,723) 391 (267) (355) (588) 6,898 (38,875) (34,578) (4,076) (14,019) 3,843 (233) 3,185 8,233 (2,601) At 1 January 2018 Recognised in statement of profit or loss Recognised in equity At 31 December 2018 (9,943) 8,233 (1,710) 94 (658) (658)
187. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 17. Deferred Tax Assets/(Liabilities) (cont'd.) The components and movements of deferred tax assets and liabilities during the financial year prior to offsetting are as follows: (cont'd.) Deferred tax assets Loan/ Provisions financing and other loss and temporary allowances differences RM'000 RM'000 Bank Total RM'000 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 At 1 January 2018 Recognised in statement of profit or loss At 31 December 2018 70,060 27,345 97,405 12,080 1,554 13,634 82,140 28,899 111,039 Unrealised FVOCI reserve RM'000 Property, plant and equipment RM’000 Total RM’000 At 1 January 2019 Recognised in statement of profit or loss Recognised in equity At 31 December 2019 (2,049) 6,862 (38,355) (33,542) (43) (355) (398) (2,092) 6,507 (38,355) (33,940) At 1 January 2018 Recognised in statement of profit or loss Recognised in equity At 31 December 2018 (9,794) 7,745 (2,049) (1,853) 1,810 (43) (11,647) 1,810 7,745 (2,092) Deferred tax liabilities Bank 95
188. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 18. Deposits from Customers Group and Bank 2019 2018 RM'000 RM'000 At amortised cost Fixed deposits and negotiable instruments of deposits 5,492,175 6,412,169 4,852,186 639,989 5,492,175 5,359,624 1,052,545 6,412,169 880,874 4,611,301 5,492,175 549,255 5,862,914 6,412,169 4,893,965 254,946 272,454 70,810 5,492,175 5,282,198 786,706 161,300 181,965 6,412,169 (a) The deposits are sourced from the following types of deposit: Tawarruq Others (b) The deposits are sourced from the following types of customers: Business enterprises Government and statutory bodies (c) The deposits maturity structure are as follows: Less than six months Six months to one year One year to three years Three years to five years Over five years 19. Deposits and Placements from Financial Institutions Group and Bank 2019 2018 RM'000 RM'000 At amortised cost Licensed banks 1,032,669 100,354 1,032,669 100,354 (a) The deposits maturity structure are as follows: Less than six months 96
189. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 20. Other Liabilities Group 2019 2018 RM'000 RM'000 Provision for taxation Zakat payables Bank guarantee received in advance Trade creditors Security deposits Sundry creditors and accruals Bank 2019 2018 RM'000 RM'000 72 24,520 17,136 15,766 21,350 16,995 14,980 21,327 514 17,094 15,805 48 16,951 21,327 - 15,805 - 58,922 122,449 54,548 120,254 37,216 79,893 30,733 78,513 21. Redeemable Notes/Sukuk Note Group and Bank 2019 2018 RM'000 RM'000 Redeemable non-guaranteed notes/sukuk Medium term notes Sukuk Murabahah (i) (ii) 404,695 3,034,278 3,438,973 404,695 3,034,656 3,439,351 Redeemable guaranteed notes/sukuk Medium term notes Sukuk Murabahah (iii) (iv) 510,718 3,041,969 3,552,687 510,652 3,042,202 3,552,854 Infrastructure notes - nominal value Less: Unaccreted discount (v) 303,883 (2,371) 301,512 7,293,172 354,531 (2,778) 351,753 7,343,958 (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 4.28% to 4.98% per annum and for tenures of 5 years to 19 years. These sukuk will mature in March 2022, 2026, 2027, 2031, 2032 and 2035 respectively. (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. 97
190. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 21. Redeemable Notes/Sukuk (cont'd.) (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 RM300,000,000 (2018: RM350,000,000), which carries a coupon rate of 7.50% (2018: 7.50%) per annum. The note will mature in October 2025. The movements in the redeemable notes/sukuk are as follows: Group and Bank Non-Murabahah 2019 2018 RM'000 RM'000 Redeemable non-guaranteed notes/sukuk Principal At 1 January/31 December 400,000 400,000 3,000,000 3,000,000 4,695 25,200 4,695 25,200 34,656 139,787 34,269 140,552 (25,200) 4,695 (25,200) 4,695 (140,165) 34,278 (140,165) 34,656 404,695 404,695 3,034,278 3,034,656 500,000 500,000 3,000,000 3,000,000 10,652 24,000 10,586 24,000 42,202 137,397 41,671 138,160 (23,934) 10,718 (23,934) 10,652 (137,630) 41,969 (137,629) 42,202 510,718 510,652 Accrued interest/profit payable At 1 January Charge for the financial year Repayment/payment during the financial year At 31 December Redeemable guaranteed notes/ sukuk Principal At 1 January/31 December Accrued interest/profit payable At 1 January Charge for the financial year Repayment/payment during the financial year At 31 December 98 Murabahah 2019 2018 RM'000 RM'000 3,041,969 3,042,202
191. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 21. Redeemable Notes/Sukuk (cont'd.) The movements in the redeemable notes are as follows (cont'd.): Infrastructure notes Principal At 1 January Repayment during the financial year At 31 December Unaccreted discount At 1 January Accreted discount during the financial year At 31 December Accrued interest payable At 1 January Charge for the financial year Repayment during the financial year At 31 December 2019 RM'000 2018 RM'000 350,000 (50,000) 300,000 400,000 (50,000) 350,000 (2,778) 407 (2,371) (3,184) 406 (2,778) 4,531 25,602 (26,250) 3,883 5,178 29,353 (30,000) 4,531 301,512 351,753 22. Borrowings Note Group and Bank Loans from Employees Provident Fund ("EPF") Unsecured: Principal Interest Other loans Unsecured: Principal Interest 31 December 2019 Due after Due within twelve twelve months months RM'000 RM'000 31 December 2018 Due after Due within twelve twelve months months RM'000 RM'000 1,700,000 1,700,000 400,000 24,490 424,490 2,100,000 2,100,000 400,000 28,148 428,148 - 50,000 1,238 51,238 50,000 50,000 100,000 3,726 103,726 1,700,000 475,728 2,150,000 531,874 22 (a) 22 (b) Total borrowings 2,175,728 99 2,681,874
192. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 22. Borrowings (cont'd.) The movements in borrowings are as follows: Group and Bank Unsecured: Principal At 1 January Repayment during the financial year At 31 December Accrued interest payable At 1 January Charge for the financial year Repayment during the financial year At 31 December Total borrowings Loans from EPF 2019 2018 RM'000 RM'000 Other loans 2019 2018 RM'000 RM'000 2,500,000 2,500,000 150,000 250,000 (400,000) 2,100,000 2,500,000 (100,000) 50,000 (100,000) 150,000 28,148 103,511 27,829 116,434 3,726 4,869 6,197 10,753 (107,169) 24,490 (116,115) 28,148 (7,357) 1,238 (13,224) 3,726 51,238 153,726 2,124,490 2,528,148 (a) Loan from EPF Note Loan 1 Loan 2 22(a)(i) 22(a)(ii) Group and Bank Principal 2019 2018 RM'000 RM'000 1,600,000 500,000 2,100,000 2,000,000 500,000 2,500,000 (i) The loan is repayable in 5 equal instalments over a period of 5 years, commencing 2019. (ii) 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 4.52% to 5.23% (2018: 4.52% to 5.23%) per annum. 100
193. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 22. Borrowings (cont'd.) (b) Other Loans - unsecured: Group and Bank Principal 2019 2018 RM'000 RM'000 Loan from: Pension Trust Fund Council ("PTFC") 50,000 50,000 150,000 150,000 Other loan - unsecured is the loan from PTFC amounting to RM50,000,000 (2018: RM150,000,000) and repayable in 10 instalments over a period of 6 years, commencing from 2015. This loan will mature in 2020 and bear interest at rate of 5.88% (2018: 5.88%) per annum during the financial year. 23. Infrastructure Support Fund ("ISF") Note ISF - Novated loans At 1 January/31 December (i) Infrastructure Support Fund At 1 January Refund of government compensation (Note 31) At 31 December Group and Bank 2019 2018 RM'000 RM'000 303,974 303,974 192 134,963 135,155 192 192 439,129 304,166 (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 impaiment losses, write-off and other liquidity requirements that may arise from loans given for government infrastructure projects. 101
194. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 24. Deferred Income Group and Bank 2019 2018 RM'000 RM'000 At 1 January Received from Government during the financial year Utilised during the financial year At 31 December 219,962 7,056 (14,763) 212,255 227,030 7,705 (14,773) 219,962 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 2019 2018 '000 '000 Group and Bank Issued and fully paid: Ordinary shares of RM1.00 each 3,078,724 3,078,724 Amount 2019 2018 RM'000 RM'000 3,078,724 3,078,724 26. Reserves Note Non-distributable: Capital reserve Statutory reserve Unrealised FVOCI reserve Exchange translation reserve Distributable: Retained profits (i) Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 26 (i) 26 (ii) 1,000 2,073,366 1,000 1,994,631 2,073,366 1,994,631 26 (iii) 160,311 5,401 159,749 6,486 26 (iv) (6,997) 2,227,680 (47,944) 1,953,088 2,233,115 2,001,117 27 2,576,058 4,803,738 2,503,023 4,456,111 2,374,207 4,607,322 2,238,002 4,239,119 The capital reserve of the Group arose from the capitalisation of bonus issue in certain subsidiaries in previous financial years. 102
195. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 26. Reserves (cont'd.) (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) Unrealised FVOCI reserve represents the cumulative fair value changes and changes in 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: Group 2019 2018 RM'000 RM'000 At 1 January Unrealised gain/(loss) on fair value changes Changes in allowance for expected credit losses Transfer to deferred tax At 31 December 5,401 30,677 Bank 2019 2018 RM'000 RM'000 6,486 30,217 137,827 (33,515) 135,660 (31,482) 55,958 (38,875) 160,311 6 8,233 5,401 55,958 (38,355) 159,749 6 7,745 6,486 (iv) 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. 103
196. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 28. Interest Income Loans and advances 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 Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 472,451 581,344 460,672 563,468 111,470 117,281 111,470 117,281 64,862 77,560 726,343 34,450 26,009 759,084 55,554 77,560 705,256 27,162 26,009 733,920 (4,943) 721,400 (466) 758,618 (4,943) 700,313 (466) 733,454 29,931 61,166 29,931 61,135 29. Interest Expense Group 2019 2018 RM'000 RM'000 Deposits from customers Deposits and placements from financial institutions Borrowings Redeemable notes Lease Bank 2019 2018 RM'000 RM'000 48,788 55,649 48,788 55,649 6,139 108,380 75,209 24 238,540 973 127,187 78,959 262,768 6,139 108,380 75,209 21 238,537 973 127,187 78,959 262,768 104
197. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 30. Non-Interest Income Group 2019 2018 RM'000 RM'000 (a) Investment income: Net gain/(loss) arising on financial investment at FVTPL: - gross dividend income - unrealised revaluation loss Net gain arising on financial investment at FVOCI: - net gain on disposal Gross dividend income from subsidiaries (b) Other income: Fee income Rental income: - Subsidiaries - Others Gain on disposal of property, plant and equipment Gain on disposal of asset held for sale (Loss)/gain on loan modification Gain on foreign exchange realised Others Total non-interest income 25 - 7,348 (1,712) Bank 2019 2018 RM'000 RM'000 25 - 7,348 (1,712) 24,138 1,791 24,138 1,791 24,163 7,427 36,040 60,203 7,427 3,598 6,601 1,037 3,472 1,597 2,100 321 1,597 511 2,090 - 216 - 167 - 161 - - (2,810) 9,715 580 2,965 133 227 19,153 27 172 38 15,993 27,128 26,580 60,375 23,420 105 (2,810) 9,715
198. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 31. Refund of Government Compensation During the year, a loan provided to a borrower funded by the ISF was fully settled by the borrower. As a result of the full settlement, an amount of 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. 32. Overhead Expenses Note Personnel costs Establishment related expenses Promotion and marketing expenses General administrative expenses Bank 2019 2018 RM'000 RM'000 (i) 73,615 72,374 68,082 66,117 (ii) 14,119 13,921 13,306 12,308 (iii) 3,813 2,132 3,813 2,132 (iv) 21,986 113,533 18,924 107,351 19,943 105,144 21,292 101,849 113,533 107,351 (617) 104,527 (828) 101,021 58,427 57,637 54,052 53,041 1,303 396 2,277 379 1,195 349 1,853 331 7,628 6,933 6,933 6,224 5,861 73,615 5,148 72,374 5,553 68,082 4,668 66,117 Overhead expenses charged to subsidiaries via SLA (i) Group 2019 2018 RM'000 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 106
199. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 32. Overhead Expenses (cont'd.) Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 (ii) 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 3,841 10 140 4,015 10 - 3,767 8 127 3,940 7 - 2,447 2,640 2,273 2,467 1,523 1,805 1,500 1,772 6,158 14,119 5,451 13,921 5,631 13,306 4,122 12,308 3,813 2,132 3,813 2,132 20,881 17,741 19,266 20,597 792 824 494 494 - 46 - 18 313 21,986 313 18,924 183 19,943 183 21,292 (iii) Promotion and marketing expenses Advertisement and publicity (iv) General administrative expenses General administrative expenses Auditors’ remuneration: - Statutory audit - Current year - Under provision in respect of prior year - Non-audit services - regulatory related services 107
200. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 33. President/Group Chief Executive Officer and Directors' Fees and Remuneration The total remuneration (including benefits-in-kind) of the President/Group Chief Executive Officer and Directors of the Bank are as follows: 2019 Remuneration received from the Bank Pension Other BenefitsBank Salary Fees Bonus cost emoluments in-kind total Fees RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Remuneration received from Subsidiary Companies Other BenefitsGroup emoluments in-kind total RM'000 RM'000 RM'000 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 Puan Tan Lye Sim Tan Sri Dr. Rahamat Bivi binti Yusoff Total 373 373 - - 56 56 - - 429 429 - - - 429 429 - 175 - - 109 50 48 86 136 6 - 290 136 184 - 26 - 290 136 210 373 34 32 9 7 7 4 54 54 474 474 - 56 63 29 18 20 20 6 128 100 715 715 6 6 97 61 27 27 27 10 182 154 1,195 1,624 47 10 57 57 2 14 9 51 51 - 99 61 88 27 27 10 182 173 1,303 1,732 108
201. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 33. President/Group Chief Executive Officer and Directors' Fees and Remuneration (cont'd.) The total remuneration (including benefits-in-kind) of the President/Group Chief Executive Officer and Directors of the Bank are as follows: (cont'd.) 2018 Remuneration received from the Bank Pension Other BenefitsBank Salary Fees Bonus cost emoluments in-kind total Fees RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Remuneration received from Subsidiary Companies Other BenefitsGroup emoluments in-kind total RM'000 RM'000 RM'000 President/Group Chief Executive Officer Shaharuddin bin Zainuddin Non-Executive Directors: Tan Sri Dato' Sri Dr. Wan Abdul Aziz bin Wan Abdullah Datuk Wan Azhar bin Wan Ahmad Datuk Jamaludin bin Nasir Suffian bin Baharuddin Musa bin Abdul Malek Datuk Seri Hashmudin bin Mohammad Puan Tan Lye Sim Tan Sri Dr. Rahamat Bivi binti Yusoff Total 560 560 - - 100 100 336 336 - 996 996 - - - 996 996 560 242 60 10 60 60 60 18 15 525 525 - 100 200 256 31 282 289 195 44 31 1,328 1,664 - 442 316 41 342 349 255 62 46 1,853 2,849 300 300 300 118 6 124 124 - 442 734 41 348 349 255 62 46 2,277 3,273 109
202. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 34. Compensation to Key Management Personnel 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: Note Short term employee benefits' (excluding benefits-in-kind) Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 33 1,732 3,273 1,624 2,849 33 429 996 429 996 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 Stage 1 - 12-month ECL, net Stage 2 - Lifetime ECL not credit impaired, net Stage 3 - Lifetime ECL credit impaired, net Impaired loans/financing: Written off Recovered Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 118,733 156,025 116,081 156,160 (152,567) (122,342) (151,789) (122,236) 132,924 421,619 133,789 439,656 15,610 (18,926) 95,774 998 (33,076) 423,224 13,938 (13,587) 98,432 490 (32,952) 441,118 110
203. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 36. Allowances for Impairment Losses on Other Assets Group 2019 2018 RM'000 RM'000 Financial investments at FVOCI Investments in subsidiaries Investment in JVs Investment properties Tenant - written back Allowance for ex-staff loan/ financing: Made during the financial year Written back Bank 2019 2018 RM'000 RM'000 55,958 173 (9) 6 16,757 30 (5) 55,958 1,215 (9) 6 27,663 (5) (17) 56,105 52 (270) 16,570 (17) 57,147 52 (270) 27,446 37. Taxation Income tax expense: Current income tax Over provision in prior years Deferred tax expense: Reversal of temporary differences Under/(over) provision in prior years Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 140,011 108,927 133,210 97,644 (68,345) 71,666 (1,680) 107,247 (68,196) 65,014 (56) 97,588 (36,834) (28,431) (35,360) (28,430) 69,001 32,167 103,833 (2,926) (31,357) 75,890 69,013 33,653 98,667 (2,279) (30,709) 66,879 Domestic income tax is calculated at the Malaysian statutory tax rate of 24% (2018: 24%) of the estimated assessable profit for the financial year. 111
204. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 37. Taxation (cont'd.) 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: Profit before taxation and zakat Tax using Malaysian tax rate of 24% (2018: 24%) Income not subject to tax Non-deductible expenses Deferred tax assets not recognised during the year Under/(over) provision of deferred tax in prior years Over provision of income tax in prior years Taxation Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 379,720 434,733 91,133 (7,473) 19,517 260,688 62,565 (5,512) 21,740 - 1,703 104,336 (7,324) 838 - 218,139 52,353 (5,680) 22,541 - 69,001 (2,926) 69,013 (2,279) (68,345) 103,833 (1,680) 75,890 (68,196) 98,667 (56) 66,879 38. Dividends Dividends recognised in the current year by the Bank are: 2019 Sen per Total share amount RM'000 Final 2018 ordinary, net of tax Final 2017 ordinary, net of tax 3.25 3.25 100,000 100,000 2018 Sen per Total share amount RM'000 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 2019, on 3,078,724,049 ordinary shares, amounting to a dividend payable of RM152,213,638.40 (4.94 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 2020. 112
205. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 39. Earnings Per Share ("EPS") 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 2019 Profit attributable to equity holders of the Bank (RM'000) - operations Number of ordinary shares in issue ('000) Basic/diluted EPS (sen) for: - operations 2018 251,770 171,213 3,078,724 3,078,724 8.18 5.56 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 2019 2018 RM'000 RM'000 Disbursement of loans/ financing to industries Secured guarantees on behalf of borrowers/ customers given to third parties Bank 2019 2018 RM'000 RM'000 5,230,637 4,510,166 5,011,830 4,299,250 2,301,585 7,532,222 1,747,347 6,257,513 2,301,585 7,313,415 1,747,347 6,046,597 113
206. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 40. Commitments and Contingencies (cont'd.) (b) Capital commitments of the Group and the Bank which are not included in these financial statements are as follows: Group 2019 2018 RM'000 RM'000 Capital expenditure: Approved but not contracted for - 2,560 Bank 2019 2018 RM'000 RM'000 - 2,560 41. Capital Adequacy 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. 114
207. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 41. Capital Adequacy (cont'd.) Capital management (cont'd.) Regulatory capital (cont'd.) The following table sets forth capital resources and capital adequacy for the Bank as at reporting date. Bank 2019 2018 RM'000 RM'000 Tier 1 capital Paid-up share capital Other reserves Less: Deferred tax asset Total Tier 1 capital 3,078,724 4,607,322 (36,939) 7,649,107 3,078,724 4,239,119 (108,947) 7,208,896 Tier 2 capital Government support funds Stage 1 and Stage 2 expected credit loss allowances Total Tier 2 capital 651,384 1,135,077 1,786,461 524,128 1,170,785 1,694,913 Total capital Less: Investment in subsidiaries Total capital base 9,435,568 (255,426) 9,180,142 8,903,809 (256,641) 8,647,168 Breakdown of risk-weighted assets in the various categories of risk-weights: Bank 2019 2018 RM'000 RM'000 20% 50% 100% 661,234 1,339,339 21,641,645 23,642,218 115 416,264 942,296 21,734,060 23,092,620
208. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 41. Capital Adequacy (cont'd.) Capital management (cont'd.) Regulatory capital (cont'd.) Without deducting proposed dividend: Bank 2019 % Core capital ratio RWCR 32.354 38.829 2018 % 31.217 37.446 After deducting proposed dividend: Bank 2019 % Core capital ratio RWCR 31.710 38.186 2018 % 30.784 37.013 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. 116
209. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 42. Significant Events During the 2020 Budget Speech on 11 October 2019, the previous Finance Minister announced the proposed merger which involves four Development Financial Institutions (“DFIs”) with an objective to strengthen the development finance eco-system. Under the 2phase restructuring plan, a new financial institution will be formed through the merger of Bank Pembangunan Malaysia Berhad (“BPMB”), Danajamin Nasional Berhad (“Danajamin”), Small Medium Enterprise Development Bank Malaysia Berhad (“SME Bank”) and ExportImport Bank of Malaysia Berhad (“Exim Bank”). The first phase of the restructuring will involve the merger of BPMB and Danajamin. BPMB and Danajamin have received approval from Bank Negara Malaysia (“BNM”) to commence negotiations. The finalisation of the first phase is subject to ongoing negotiation of the transaction price. The second phase of the restructuring involves the merger of Exim Bank and SME Bank with the enlarged BPMB-Danajamin Group. 43. Significant Related Party Transactions and Balances 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% (2018: 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. 117
210. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 43. Significant Related Party Transactions and Balances (cont'd.) 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: 43.1 Significant balances and transactions with a significant shareholder (a) Significant balances with a significant shareholder Group and Bank 2019 2018 RM'000 RM'000 Other assets Amount receivable from Government in respect of compensation for: Foreign exchange differences Infrastructure projects 85,361 109,216 85,361 47,749 (b) Significant transactions with a significant shareholder Group and Bank 2019 2018 RM'000 RM'000 Conventional Interest compensation from Government of Malaysia Refund of government compensation Islamic Profit compensation from Government of Malaysia Fee income from Unit Kerjasama Awam Swasta ("UKAS") 118 111,470 (134,963) 117,281 - 17,894 16,334 572 2,867
211. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 43. Significant Related Party Transactions and Balances (cont'd.) 43.2 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 2019 2018 RM'000 RM'000 Assets Short term deposits Deposits and placements with financial institution Financial investments at FVOCI Financial investments at amortised cost Liabilities Deposits from customers Deposits and placements from financial institutions Redeemable notes Borrowings ISF Deferred income Bank 2019 2018 RM'000 RM'000 2,524,345 1,991,892 2,257,815 1,719,494 924,915 38,055 882,828 - 4,629,258 3,383,345 4,624,313 3,380,567 - 22 - - 5,492,175 6,411,769 5,492,175 6,411,769 702,107 7,293,172 2,175,728 439,129 212,255 100,354 7,343,958 2,681,874 304,166 219,962 702,107 7,293,172 2,175,728 439,129 212,255 100,354 7,343,958 2,681,874 304,166 219,962 119
212. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 43. Significant Related Party Transactions and Balances (cont'd.) 43.2 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 Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 Conventional 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 63,047 34,320 53,738 27,032 75,034 26,009 75,034 26,009 (4,943) 25 1,597 (54,528) (108,380) (75,209) 120 (466) 7,348 2,100 (56,622) (127,187) (78,959) (4,943) 25 36,040 1,918 (54,528) (108,380) (75,209) (466) 7,348 2,601 (56,622) (127,187) (78,959)
213. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 43. Significant Related Party Transactions and Balances (cont'd.) 43.2 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.) Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 Islamic Income Finance income from deposits and placements with financial institutions Financial investments at FVOCI Accretion of discount less amortisation of premium Expenses Income attributable to the depositors: Deposits from customers and financial institutions Sukuk Bills and acceptance payable 41,632 36,243 40,637 35,558 39,607 145,422 39,607 145,422 16,041 592 16,041 592 (194,857) (277,184) - 121 (225,351) (278,712) (2,177) (194,857) (277,184) - (225,351) (278,712) (2,177)
214. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 43. Significant Related Party Transactions and Balances (cont'd.) 43.3 Significant balances and transactions with subsidiaries, associates and JVs (a) Significant balances with subsidiaries, associates and JVs Bank 2019 2018 RM'000 RM'000 Conventional Loans to subsidiaries Payment on behalf of subsidiary 44 546 37 553 (b) Significant transactions with subsidiaries, associates and JVs Bank 2019 2018 RM'000 RM'000 Conventional Income Rental income from subsidiaries Fee Income from subsidiaries 321 617 511 828 Expenses Management fee expense from subsidiaries (12) (12) 43.4 Significant balances and transactions with Group's related parties (a) Significant balances with the Group's related parties Group 2019 2018 RM'000 RM'000 Other assets Trade receivables due from related parties 122 9,468 30,814
215. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 43. Significant Related Party Transactions and Balances (cont'd.) 43.4 Significant balances and transactions with Group's related parties (cont'd.) 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; (iv) 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. 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. 123
216. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 44. Loans/Financing Facilities with Connected Parties Group and Bank 2019 Total Exposure RM'000 Items Credit facility and leasing (except guarantee) Equities and PDS held Total Total exposure to connected parties as % of total capital Total exposure to connected parties as % of total outstanding financial exposure Impaired RM'000 2018 Total Exposure RM'000 Impaired RM'000 917,463 917,463 276,177 276,177 959,275 375,679 1,334,954 278,151 278,151 11% 3% 16% 3% 3% 1% 4% 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. 124
217. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 45. Assets Classified as Held For Sale Group 2019 2018 RM'000 RM'000 At 1 January Disposed during the financial year Transfer from investment properties At 31 December 254 254 311 (311) - On 25 November 2019, a subsidiary had entered into Sale and Purchase Agreements (“SPAs”) with purchasers for the disposal of: (i) The subsidiary building in Pahang for a total cash consideration of RM332,000 subject to the terms and conditions as stipulated in the SPAs. The subsidiary has received RM33,200 (10% of earnest deposits) and the balance of RM298,800 is outstanding from the purchaser as at 31 December 2019. (ii) 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 subsidiary has received RM14,000 and pending execution of Memorandum of Transfer ("MOT") as at 31 December 2019. 46. Companies in the Group (a) The subsidiaries, all incorporated in Malaysia, are as follows: Subsidiary Effective interest held by the Bank 2019 2018 % % Principal activities BPMB Urus Harta Sdn Bhd 100.00 100.00 Dormant Emerald Upline Sdn Bhd 100.00 100.00 Dormant Global Maritime Ventures Berhad 90.00 90.00 Venture capital investment Maju Nominees (Tempatan) Sdn Bhd 100.00 100.00 Nominee for the holding company 125
218. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 46. Companies in the Group (cont'd.) (a) The subsidiaries, all incorporated in Malaysia, are as follows: (cont'd.) Subsidiary Effective interest held by the Bank 2019 2018 % % Principal activities 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 (b) Details of subsidiary companies of Global Maritime Ventures Berhad, all of which are incorporated in Malaysia, are as follows: Subsidiary Effective interest held by the Bank 2019 2018 % % Mutiara Navigation Sdn Bhd * Principal activities - 63.00 Dormant 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 126
219. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 46. Companies in the Group (cont'd.) (b) Details of subsidiary companies of Global Maritime Ventures Berhad, all of which are incorporated in Malaysia, are as follows: (cont'd.) Subsidiary (c) Effective interest held by the Bank 2019 2018 % % Principal activities 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 90.00 Investment holding GMV-Omni Sdn Bhd # 90.00 90.00 Investment holding GMV-Regional Sdn Bhd 90.00 90.00 Dormant GMV-Orkim Sdn Bhd * - 90.00 Investment holding GMV-Offshore Sdn Bhd 90.00 90.00 Investment holding Details of subsidiary companies of Glory Incentive Sdn Bhd ("GISB"), all of which are incorporated in Malaysia, are as follows: Subsidiary Effective interest held by the Bank 2019 2018 % % Principal activities Permata Navigation Sdn Bhd * - 63.00 Dormant Gemala Navigation Sdn Bhd * - 63.00 Dormant Ratna Navigation Sdn Bhd * - 63.00 Dormant Kencana Navigation Sdn Bhd * - 63.00 Dormant 63.00 63.00 Dormant Ayu Navigation Sdn Bhd 127
220. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 46. Companies in the Group (cont'd.) (d) Details of a subsidiary company of GMV-Global Sdn Bhd, which is incorporated in Malaysia, are as follows: Subsidiary Bahtera Berlian Sdn Bhd # Effective interest held by the Bank 2019 2018 % % 90.00 90.00 Principal activities Ship-management (e) Details of subsidiary companies of Pembangunan Leasing Corporation Sdn Bhd ("PLC"), all of which are incorporated in Malaysia, are as follows: Subsidiary Effective interest held by the Bank 2019 2018 % % Principal activities PLC Credit & Factoring Sdn Bhd 100.00 100.00 Hire purchase financing, factoring, insurance agency and letting of properties BI Credit & Leasing Berhad 100.00 100.00 Credit and leasing # * Placed under creditors voluntary liquidation during the financial year. Represent companies dissolved during the year. 47. Financial Instruments Risk Financial risk management objectives and policies 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. 128
221. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) 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. The Board 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 interest/profit or both, arising from customers or counterparties’ failure or unwillingness to honour their financial and contractual obligations when they are due. These obligations are from lending/financing, placement and other activities undertaken by the Bank. Credit risk management activities conducted by the Bank are within Credit Risk Management Framework approved by the Board of Directors. This includes risk identification, assessment, measurement and monitoring. Credit risk is principally managed through the establishment of lending/financing directions, risk appetite and policies and guidelines to enhance loan/financing asset quality. Credit processes are structured to ensure adherence to credit policies and to establish impartiality in loan/financing origination, approval, documentation, disbursement and settlement. All credit proposals are rated using an internal two dimensional credit rating system to measure each borrower’s/customer's risk of default and facility risk. 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. 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. Sector limit for commercial lending/financing is being observed to monitor undesirable concentration which could expose the Bank to higher risk of lending/financing. Meanwhile, counterparty limits are in place to control over exposure to a single financial institution. 129
222. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) Collateral is taken whenever possible to mitigate credit risk. 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 Credit Committee of the Board (CCB) and Board of Directors (BOD) for connected parties transactions. (i) Credit exposure Note On balance sheet: Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI - debt Financial investments at amortised cost Loans, financing and advances Other assets Bank 2019 2018 RM'000 RM'000 4(a) 2,648,922 2,311,748 2,371,020 2,020,160 4(b) 924,915 38,055 882,828 - 6 4,917,850 3,614,164 4,917,850 3,614,164 7 - 22 - - 8 9 15,701,772 213,535 24,406,994 18,284,672 166,024 24,414,685 15,545,685 200,976 23,918,359 18,127,583 139,938 23,901,845 256,110 24,663,104 319,424 24,734,109 493,017 24,411,376 556,994 24,458,839 7,532,222 32,195,326 6,257,513 30,991,622 7,313,415 31,724,791 6,046,597 30,505,436 Other assets not subject to credit risk Off balance sheet: Commitments and Contingencies Group 2019 2018 RM'000 RM'000 40(a) 130
223. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (ii) The following table sets out the credit risk concentration by economic sectors: Group 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 Short-term deposits, and placements with financial institutions RM'000 Financial investments at FVOCI RM'000 Financial investments at amortised cost RM'000 Loans, financing and advances RM'000 Other assets RM'000 3,573,837 - 476,606 377,457 3,329,650 21,188 - - 10 8,095,058 1,714,907 75,939 89,089 758,757 5,004 257,821 159,919 11,709 - 3,573,837 3,573,837 671,319 41,630 4,917,850 4,917,850 131 - 240,091 14,662 339,073 693,882 104,953 3,140,898 15,701,772 15,701,772 213,535 213,535 256,110 469,645 - Commitments and Total contingencies RM'000 RM'000 10 8,571,664 1,714,907 453,396 6,992,576 758,757 5,004 279,009 159,919 11,709 240,091 14,662 1,010,392 735,512 104,953 3,140,898 213,535 24,406,994 256,110 24,663,104 4,446,183 500,396 73,690 2,038 772,465 119,794 219,210 300,000 620,619 97,000 332,642 38,740 9,445 7,532,222 7,532,222
224. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (ii) The following table sets out the credit risk concentration by economic sectors: (cont'd.) Group 2018 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 Short-term deposits, and placements with financial institutions RM'000 Financial investments at FVOCI RM'000 Financial investments at amortised cost RM'000 Loans, financing and advances RM'000 Other assets RM'000 Commitments and Total contingencies RM'000 RM'000 2,349,803 - 508,756 221,978 2,525,987 - - 9 8,783,866 1,767,528 1,902,710 61,315 836,007 6,351 269,995 37,250 13,869 - 9 9,292,622 1,767,528 2,124,688 4,937,105 836,007 6,351 269,995 37,250 13,869 3,989,511 545,893 44,159 85,076 580,574 140,748 350,000 - 2,349,803 2,349,803 59,842 297,601 3,614,164 3,614,164 22 22 22 266,919 21,398 383,456 391,288 153,782 3,369,004 19,925 18,284,672 18,284,672 166,024 166,024 319,424 485,448 266,919 81,240 681,057 391,288 153,782 3,369,004 185,971 24,414,685 319,424 24,734,109 333,675 2,306 185,571 6,257,513 6,257,513 132
225. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (ii) The following table sets out the credit risk concentration by economic sectors: (cont'd.) Bank 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 Other assets not subject to credit risk 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 Commitments and Total contingencies RM'000 RM'000 3,253,848 - 476,606 377,457 3,329,650 21,188 - 8,095,025 1,714,907 75,939 737,249 5,004 251,153 159,919 11,709 - 8,571,631 1,714,907 453,396 6,583,498 737,249 5,004 272,341 159,919 11,709 4,416,183 500,396 73,690 640,370 3,253,848 3,253,848 133 671,319 41,630 4,917,850 4,917,850 229,011 14,662 339,073 693,882 104,953 3,113,199 15,545,685 15,545,685 200,976 200,976 493,017 693,993 229,011 14,662 1,010,392 735,512 104,953 3,113,199 200,976 23,918,359 493,017 24,411,376 620,619 97,000 332,642 24,527 7,313,415 7,313,415 88,778 219,210 300,000 -
226. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (ii) The following table sets out the credit risk concentration by economic sectors: (cont'd.) Bank 2018 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 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 Commitments and Total contingencies RM'000 RM'000 2,020,160 - 508,756 221,978 2,525,987 - 8,783,557 1,767,528 1,902,710 820,887 6,351 258,891 37,250 13,869 - 9,292,313 1,767,528 2,124,688 4,546,147 820,887 6,351 258,891 37,250 13,869 3,988,861 545,893 44,159 559,525 131,868 350,000 - 2,020,160 2,020,160 59,842 297,601 3,614,164 3,614,164 266,810 21,398 383,456 391,288 153,782 3,319,806 18,127,583 18,127,583 139,938 139,938 556,994 696,932 266,810 81,240 681,057 391,288 153,782 3,319,806 139,938 23,901,845 556,994 24,458,839 333,675 2,306 90,310 6,046,597 6,046,597 134
227. 197301003074 (16562-K) DRAFT Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (iii) Gross loans, financing and advances are rated based on internal rating by the Bank: Group Upper-medium grade Medium grade Speculative Considered speculative Poor standing Impaired Neither past due nor impaired RM'000 2019 Past due but not impaired Impaired RM'000 RM'000 Total RM'000 Neither past due nor impaired RM'000 2018 Past due but not impaired Impaired RM'000 RM'000 Total RM'000 957,412 4,149,706 7,259,001 3,408,134 162,013 15,936,266 1,347 10,476 30,135 43,761 85,719 2,216,796 2,216,796 958,759 4,160,182 7,289,136 3,451,895 162,013 2,216,796 18,238,781 2,502,101 4,368,858 9,764,665 1,710,920 96,657 18,443,201 2,337 6,600 32,645 22,816 64,398 2,276,895 2,276,895 2,504,438 4,375,458 9,797,310 1,733,736 96,657 2,276,895 20,784,494 934,377 4,114,336 7,201,992 3,408,134 162,013 15,820,852 38,573 38,573 2,200,280 2,200,280 934,377 4,114,336 7,201,992 3,446,707 162,013 2,200,280 18,059,705 2,481,162 4,327,095 9,715,740 1,702,832 96,657 18,323,486 1,219 22,653 23,872 2,246,791 2,246,791 2,481,162 4,327,095 9,716,959 1,725,485 96,657 2,246,791 20,594,149 Bank Upper-medium grade Medium grade Speculative Considered speculative Poor standing Impaired 135
228. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (iv) Aging analysis of impaired and past due but not impaired loans, financing and advances 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 2019 2018 RM'000 RM'000 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 Bank 2019 2018 RM'000 RM'000 92,339 32,156 2,092,301 2,216,796 253,834 46,466 10,723 294,597 1,671,275 2,276,895 92,339 32,156 2,075,785 2,200,280 253,834 46,374 10,723 294,541 1,641,319 2,246,791 37,745 41,609 6,365 85,719 52,950 7,550 3,898 64,398 38,573 38,573 23,872 23,872 (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. 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: 136
229. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (v) Collateral and credit enhancement for loans, financing and advances (cont'd.) Collateral by amount 2019 Group Past due but not impaired Impaired Secured Unsecured RM'000 RM'000 2018 Total Estimated fair value Total of collateral RM'000 RM'000 Secured RM'000 Unsecured RM'000 Total Estimated fair value Total of collateral RM'000 RM'000 38,573 1,493,694 1,532,267 47,146 723,102 770,248 85,719 2,216,796 2,302,515 280,000 3,501,640 3,781,640 20,267 1,518,295 1,538,562 44,131 758,600 802,731 64,398 2,276,895 2,341,293 51,948 3,632,289 3,684,237 38,573 1,493,694 1,532,267 706,586 706,586 38,573 2,200,280 2,238,853 280,000 3,501,640 3,781,640 20,267 1,518,295 1,538,562 3,605 728,496 732,101 23,872 2,246,791 2,270,663 51,948 3,632,289 3,684,237 Bank Past due but not impaired Impaired 137
230. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (v) Collateral and credit enhancement for loans, financing and advances (cont'd.) Collateral by type Group Past due but not impaired Impaired Bank Past due but not impaired Impaired 2019 Properties Guarantee and by CGC equipment Vessels RM'000 RM'000 RM'000 Total RM'000 Guarantee by CGC RM'000 2018 Properties and equipment Vessels RM'000 RM'000 Total RM'000 5,166 5,166 280,000 2,807,255 3,087,255 689,219 689,219 280,000 3,501,640 3,781,640 5,166 3,079 8,245 46,782 2,658,628 8,245 970,582 970,582 51,948 3,632,289 3,684,237 5,166 5,166 280,000 2,807,255 3,087,255 689,219 689,219 280,000 3,501,640 3,781,640 5,166 3,079 8,245 46,782 2,658,628 2,705,410 970,582 970,582 51,948 3,632,289 3,684,237 138
231. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) (vi) Restructured loans/financing 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 RM8,523.5 million (2018: RM9,251.7 million). (vii) Credit quality for treasury credit risk exposures The table below shows treasury credit risk exposures by the current counter parties' rating: Group 2019 2018 RM'000 RM'000 Bank 2019 2018 RM'000 RM'000 Financial investments at FVOCI Sovereign AAA AA BBB Non-rated 3,188,895 846,388 329,210 98,527 454,830 4,917,850 2,831,928 397,315 51,779 81,034 252,108 3,614,164 3,188,895 846,388 329,210 98,527 454,830 4,917,850 2,831,928 397,315 51,779 81,034 252,108 3,614,164 22 22 - - Financial investments at amortised cost Sovereign - 139
232. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) 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 Board. The Group and the Bank may be exposed to a loss in earnings due to the interest/profit rates structure of the financial position arising from interest/profit rates and yield curve changes. The sensitivity to interest/profit rates arises from the mismatches in the repricing rates, cash flows and other characteristic of the assets and their corresponding liability funding. The Group and the Bank manage their interest/profit rate risk exposure through the use of fixed/floating rate debts/financing and financial instruments. 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. Impact on interest/ profit 2019 RM'000 Interest/profit rate - parallel shift + 50 basis points - 50 basis points 17,267 (17,267) 140 Group and Bank Impact on Impact on interest/ equity profit 2018 2019 RM'000 RM'000 21,380 (21,380) (184,399) 184,399 Impact on equity 2018 RM'000 (105,081) 105,081
233. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (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. Group 2019 <--------------------------------------- Non-trading book -----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/ Total profit rate RM'000 % Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI Financial investments at amortised cost Loans, financing and advances - non-impaired - impaired * Other assets Total assets * 2,634,616 - - - - 14,306 2,648,922 3.23 51,269 924,915 - - 1,051,313 3,815,267 106,116 924,915 5,023,965 4.33 161,095 2,846,980 201,778 1,126,693 696,590 696,590 3,729,658 4,780,971 11,220,423 15,035,690 12,441 (320,213) 213,535 26,185 16,021,985 (320,213) 213,535 24,513,109 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 141 6.41 -
234. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Group 2019 (cont'd.) <--------------------------------------- Non-trading book -----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/ Total profit rate RM'000 % 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 1,163,140 1,838,281 2,079,982 321,179 89,593 - 5,492,175 3.79 882,669 93,172 75,728 2,214,709 150,000 - - 1,988,281 400,000 2,479,982 2,350,000 1,250,000 3,921,179 4,850,000 450,000 5,389,593 122,449 439,129 212,255 354 774,187 1,032,669 122,449 7,293,172 2,175,728 439,129 212,255 354 16,767,931 3.25 4.85 4.72 - 859,792 9,646,097 (748,002) 7,745,178 632,271 (861,588) (1,783,392) 142
235. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Group 2018 <--------------------------------------- Non-trading book -----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/ Total profit rate RM'000 % Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI Financial investments at amortised cost Loans, financing and advances - non-impaired - impaired * Other assets Total assets * 2,256,416 - - - - 55,332 2,311,748 3.43 38,790 - 38,055 - - 818,846 - 2,756,528 22 105,788 - 38,055 3,719,952 22 3.40 4.53 - 732,774 3,027,980 258,141 296,196 2,068,508 2,068,508 4,460,790 5,279,636 10,978,860 13,735,410 8,526 (222,927) 166,024 112,743 18,507,599 (222,927) 166,024 24,520,473 6.57 - This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 143
236. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Group 2018 (cont'd.) <--------------------------------------- Non-trading book -----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/ Total profit rate RM'000 % Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Total liabilities 832,305 2,774,032 2,463,498 160,994 181,340 - 6,412,169 4.06 100,354 96,736 81,874 1,111,269 2,774,032 50,000 450,000 2,963,498 2,050,000 1,650,000 3,860,994 5,147,222 500,000 5,828,562 120,254 304,166 219,962 644,382 100,354 120,254 7,343,958 2,681,874 304,166 219,962 17,182,737 3.80 4.94 4.35 - Total interest/profit sensitivity gap 1,916,711 (2,477,836) 1,418,642 7,906,848 (531,639) 7,337,736 (894,990) 144
237. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Bank 2019 <--------------------------------------- Non-trading book -----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/ Total profit rate RM'000 % 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 * 2,368,087 - - - - 2,933 2,371,020 3.25 51,269 882,828 - - 1,051,313 3,815,268 101,170 882,828 5,019,020 4.33 161,095 2,580,451 201,778 1,084,606 693,330 693,330 3,638,503 4,689,816 11,152,278 14,967,546 12,441 (313,740) 200,976 3,780 15,859,425 (313,740) 200,976 24,019,529 6.39 - This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 145
238. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Bank 2019 (cont'd.) <--------------------------------------- Non-trading book -----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/ Total profit rate RM'000 % 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 1,163,140 1,838,281 2,079,982 321,179 89,593 - 5,492,175 3.79 882,669 93,172 75,728 2,214,709 150,000 1,988,281 400,000 2,479,982 2,350,000 1,250,000 3,921,179 4,850,000 450,000 5,389,593 79,893 439,129 212,255 309 731,586 1,032,669 79,893 7,293,172 2,175,728 439,129 212,255 309 16,725,330 3.25 768,637 9,577,953 (727,806) 7,294,199 365,742 (903,675) (1,786,652) 146 4.85 4.72 -
239. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Bank 2018 <--------------------------------------- Non-trading book -----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/ Total profit rate RM'000 % Assets Cash and short term deposits Financial investments at FVOCI Loans, financing and advances - non-impaired - impaired * Other assets Total assets * 1,984,018 38,790 - - 818,846 2,756,528 36,142 103,010 2,020,160 3,717,174 3.41 4.53 730,543 2,753,351 254,885 254,885 2,049,507 2,049,507 4,325,036 5,143,882 10,978,860 13,735,388 8,527 (219,775) 139,938 67,842 18,347,358 (219,775) 139,938 24,004,855 6.49 - This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 147
240. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Bank 2018 (cont'd.) <--------------------------------------- Non-trading book -----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/ Total profit rate RM'000 % Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Total liabilities 832,305 2,774,032 2,463,498 160,994 181,340 - 6,412,169 4.06 100,354 96,736 81,874 1,111,269 2,774,032 50,000 450,000 2,963,498 2,050,000 1,650,000 3,860,994 5,147,222 500,000 5,828,562 78,513 304,166 219,962 602,641 100,354 78,513 7,343,958 2,681,874 304,166 219,962 17,140,996 3.80 4.94 4.75 - Total interest/profit sensitivity gap 1,642,082 (2,519,147) 1,282,888 7,906,826 (534,799) 6,863,859 (913,991) 148
241. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk Liquidity risk is the risk that an enterprise 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. 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. 149
242. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (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 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific Group month months months years years maturity Total 2019 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 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 * 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 1,126,693 696,590 696,590 3,729,658 4,791,762 10,606,910 14,462,655 12,441 (320,213) 213,535 11,879 16,021,985 (320,213) 213,535 24,513,109 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 150
243. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Group 2019 (cont'd.) <----------------------------------------- Non-trading book ------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 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 1,250,951 1,832,024 2,065,935 272,454 70,811 - 5,492,175 882,399 51,239 12 2,184,601 150,270 25 1,982,319 403,950 107 2,469,992 2,382,418 1,262,944 210 3,918,026 4,910,754 457,595 5,439,160 122,449 439,129 212,255 773,833 1,032,669 122,449 7,293,172 2,175,728 439,129 212,255 354 16,767,931 Net maturity mismatches 1,238,929 873,736 9,023,495 (761,954) 7,745,178 (855,626) 151 (1,773,402)
244. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Group 2018 <----------------------------------------- Non-trading book ------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 2,311,748 - - - - - 2,311,748 5,934 - 38,055 23,390 - 9,466 - 818,846 - 2,756,529 22 105,787 - 38,055 3,719,952 22 527,889 2,845,571 321,949 383,394 2,108,987 2,118,453 4,569,916 5,388,762 10,970,332 13,726,883 8,526 (222,927) 166,024 57,410 18,507,599 (222,927) 166,024 24,520,473 Assets Cash and short term deposits Deposits and placements with financial institutions 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 from the outstanding gross impaired loans/financing. 152
245. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Group 2018 (cont'd.) <----------------------------------------- Non-trading book ------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 778,685 2,799,492 2,490,728 161,300 181,964 - 6,412,169 100,354 53,726 932,765 2,799,492 878,148 3,368,876 1,675,877 1,250,000 3,087,177 5,668,081 500,000 6,350,045 120,254 304,166 219,962 644,382 100,354 120,254 7,343,958 2,681,874 304,166 219,962 17,182,737 (2,416,098) (1,250,423) 2,301,585 7,376,838 (586,972) 7,337,736 Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Total liabilities Net maturity mismatches 1,912,806 153
246. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Bank 2019 <----------------------------------------- Non-trading book -------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 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 1,084,606 693,330 693,330 3,638,503 4,700,607 10,538,765 14,394,511 12,441 (313,740) 200,976 847 15,859,425 (313,740) 200,976 24,019,529 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 * This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 154
247. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Bank 2019 (cont'd.) <----------------------------------------- Non-trading book -------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,250,951 1,832,024 2,065,935 272,454 70,811 - 5,492,175 882,399 51,239 12 2,184,601 150,270 24 1,982,318 403,950 106 2,469,991 2,382,418 1,262,944 167 3,917,983 4,910,754 457,595 5,439,160 79,893 439,129 212,255 731,277 1,032,669 79,893 7,293,172 2,175,728 439,129 212,255 309 16,725,330 782,624 8,955,351 (730,430) 7,294,199 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 961,027 (897,712) 155 (1,776,661)
248. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Bank 2018 <----------------------------------------- Non-trading book -------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 2,020,160 5,934 23,390 9,466 818,846 2,756,528 103,010 2,020,160 3,717,174 525,658 2,551,752 318,693 342,083 2,089,986 2,099,452 4,434,163 5,253,009 10,970,331 13,726,859 8,527 (219,775) 139,938 31,700 18,347,358 (219,775) 139,938 24,004,855 Assets Cash and short term deposits Financial investments at FVOCI Loans, financing and advances - non-impaired - impaired * Other assets Total assets * This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 156
249. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) <----------------------------------------- Non-trading book -------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific Bank month months months years years maturity 2018 (cont'd.) RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Total RM'000 Equity and liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Total liabilities Net maturity mismatches 778,685 2,799,492 2,490,728 161,300 181,964 - 6,412,169 100,354 53,726 932,765 2,799,492 878,148 3,368,876 1,675,877 1,250,000 3,087,177 5,668,081 500,000 6,350,045 78,513 304,166 219,962 602,641 100,354 78,513 7,343,958 2,681,874 304,166 219,962 17,140,996 (2,457,409) (1,269,424) 2,165,832 7,376,814 (570,941) 6,863,859 1,618,987 157
250. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (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 2019 and 31 December 2018. 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. Group 2019 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities <----------------------------------------- Non-trading book ------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,252,626 1,842,865 2,096,150 278,253 73,420 - 5,543,314 883,207 51,481 14 2,187,328 150,892 28 1,993,785 409,149 127 2,505,426 2,612,260 1,403,652 231 4,294,396 7,715,330 611,503 8,400,253 122,449 122,449 1,034,099 122,449 10,327,590 2,475,785 400 19,503,637 780,169 2,819,274 2,539,643 170,687 187,022 - 6,496,795 100,635 54,442 935,246 2,819,274 158 935,957 3,475,600 1,921,450 1,400,514 3,492,651 8,827,519 691,135 9,705,676 120,254 120,254 100,635 120,254 10,748,969 3,082,048 20,548,701 2018 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Total liabilities
251. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 47. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (ii) Contractual maturity of financial liabilities on an undiscounted basis (cont'd.) Bank 2019 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities <----------------------------------------- Non-trading book ------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,252,626 1,842,865 2,096,150 278,253 73,420 - 5,543,314 883,207 51,481 13 2,187,327 150,892 26 1,993,783 409,149 116 2,505,415 2,612,260 1,403,652 197 4,294,362 7,715,330 611,503 8,400,253 79,893 79,893 1,034,099 79,893 10,327,590 2,475,785 352 19,461,033 780,169 2,819,274 2,539,643 170,687 187,022 - 6,496,795 100,635 54,442 935,246 2,819,274 935,957 3,475,600 1,921,450 1,400,514 3,492,651 8,827,519 691,135 9,705,676 78,513 78,513 100,635 78,513 10,748,969 3,082,048 20,506,960 2018 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Total liabilities 159
252. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 48. Fair Values Measurements (a) Financial assets and liabilities measured at fair value Determination of fair value and the fair value hierarchy 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 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: 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 nonfinancial 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. 160
253. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 48. Fair Values Measurements (cont'd.) (a) Financial assets and liabilities measured at fair value (cont'd.) 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. 2019 Group 2018 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'000 106,115 4,917,850 - 5,023,965 105,788 3,614,164 - 3,719,952 Assets measured at fair value: Financial investments at FVOCI Total financial assets carried at fair value 5,023,965 3,719,952 Assets for which fair values are disclosed (Note 48 (b)): Loans, financing and advances - - 15,728,966 15,728,966 - - 18,379,806 18,379,806 - - 7,456,888 2,297,329 7,456,888 2,297,329 - - 7,520,390 2,368,746 7,520,390 2,368,746 Liabilities for which fair values are disclosed (Note 48 (b)): Redeemable notes/Sukuk Borrowings 161
254. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 48. Fair Values Measurements (cont'd.) (a) Financial assets and liabilities measured at fair value (cont'd.) 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.) 2019 Bank 2018 Level 1 RM'000 Level 2 RM'000 Level 3 RM'000 101,170 4,917,850 - Total RM'000 Level 1 RM'000 Level 2 RM'000 Level 3 RM'000 5,019,020 103,010 3,614,164 - Total RM'000 Assets measured at fair value: Financial investments at FVOCI Total financial assets carried at fair value 5,019,020 3,717,174 3,717,174 Assets for which fair values are disclosed (Note 48 (b)): Loans, financing and advances - - 15,537,083 15,537,083 - - 18,222,716 18,222,716 - - 7,456,888 2,297,329 7,456,888 2,297,329 - - 7,520,390 2,368,746 7,520,390 2,368,746 Liabilities for which fair values are disclosed (Note 48 (b)): Redeemable notes/Sukuk Borrowings 162
255. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 48. Fair Values Measurements (cont'd.) (a) Financial assets and liabilities measured at fair value (cont'd.) Determination of fair value and the fair value hierarchy (cont'd.) 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% to 13% (2018: 2.0% to 13.0%) 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 3.6% to 7.2% (2018: 3.6% to 7.2%). (b) Financial assets and liabilities not carried at fair value 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. 2019 Financial assets Loans, financing and advances Financial liabilities Redeemable notes/Sukuk Borrowings Group Carrying value Fair value RM’000 RM’000 Bank Carrying value Fair value RM’000 RM’000 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 18,284,672 18,379,806 18,127,583 18,222,716 7,343,958 2,681,874 7,520,390 2,368,746 7,343,958 2,681,874 7,520,390 2,368,746 2018 Financial assets Loans, financing and advances Financial liabilities Redeemable notes/Sukuk Borrowings 163
256. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 48. Fair Values Measurements (cont'd.) (b) Financial assets and liabilities not carried at fair value (cont'd.) 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. (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. 164
257. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 48. Fair Values Measurements (cont'd.) (b) Financial assets and liabilities not carried at fair value (cont'd.) (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. 165
258. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business The state of affairs as at 31 December 2019 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 2019 Note Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI Financing and advances Other assets Total assets Liabilities Deposits from customers Deposits from financial institutions Other liabilities Sukuk Deferred income Total liabilities Equity Capital funds Reserves Total equity 2018 RM'000 Bank 2019 RM'000 2018 RM'000 (a) 1,384,176 867,162 1,351,797 833,719 (b) 150,681 - 150,681 - (c) (d) (e) 2,006,990 11,254,745 5,026 14,801,618 2,895,208 9,848,598 23,929 13,634,897 2,006,990 11,222,492 4,737 14,736,697 2,895,208 9,818,277 23,050 13,570,254 (f) 4,852,186 5,359,624 4,852,186 5,359,624 (g) (h) (i) 501,519 236,061 6,076,247 212,255 11,878,268 100,354 165,243 6,076,858 219,962 11,922,041 501,519 209,520 6,076,247 212,255 11,851,727 100,354 138,377 6,076,858 219,962 11,895,175 1,722,418 1,200,932 2,923,350 1,602,400 110,456 1,712,856 1,717,418 1,167,552 2,884,970 1,597,400 77,679 1,675,079 14,801,618 13,634,897 14,736,697 13,570,254 6,769,669 5,432,356 6,769,669 5,432,356 (j) Total liabilities and equity Commitments and contingencies Group 2019 RM'000 (s) 166
259. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) Statements of Profit or Loss For the Financial Year Ended 31 December 2019 Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 (k) 218,930 242,469 218,930 242,469 (l) 564,810 561,619 561,044 557,389 (m) (93,857) (168,667) (93,119) (174,121) (n) (55,902) Note Income derived from investment of depositors' funds Income derived from investment of shareholders' funds Allowance for impairment losses on financing and advances (Allowance)/writeback for impairment losses on other assets Total distributable income Income attributable to the depositors (o) Total net income Overhead expenses Finance cost (p) (q) Profit before zakat Zakat Profit for the financial year (r) 207 (55,902) 207 633,981 635,628 630,953 625,944 (195,139) (225,351) (195,139) (225,351) 438,842 410,277 435,814 400,593 (57,842) (277,184) (47,569) (280,889) (58,587) (277,184) (47,509) (280,889) 103,816 81,819 100,043 72,195 (24,296) (17,488) (21,126) (14,972) 79,520 64,331 78,917 57,223 167
260. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) Statements of Comprehensive Income For the Financial Year Ended 31 December 2019 Group 2019 RM'000 Profit for the financial year Other comprehensive income 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 Total comprehensive income for the financial year Total comprehensive income attributable to: Shareholders of the Bank 2018 RM'000 Bank 2019 RM'000 2018 RM'000 79,520 64,331 78,917 57,223 75,060 9,488 75,060 9,488 55,914 130,974 6 9,494 55,914 130,974 6 9,494 210,494 73,825 209,891 66,717 210,494 210,494 73,825 73,825 209,891 209,891 66,717 66,717 218,930 242,469 218,930 242,469 564,810 561,619 561,044 557,389 (195,139) (277,184) (225,351) (280,889) (195,139) (277,184) (225,351) (280,889) 311,417 297,848 307,651 293,618 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 168
261. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) Consolidated Statement of Changes in Equity For the Financial Year Ended 31 December 2019 Capital funds RM'000 Unrealised FVOCI Statutory reserve reserve RM'000 RM'000 Retained profits RM'000 Total RM'000 Group At 1 January 2019 Total comprehensive income for the financial year Transfer to statutory reserve Capital re-allocation At 31 December 2019 1,602,400 120,018 1,722,418 19,729 423,754 443,483 23,441 130,974 154,415 87,015 79,520 (19,729) 456,228 603,034 1,712,856 210,494 1,000,000 2,923,350 At 1 January 2018 Total comprehensive income for the financial year At 31 December 2018 1,602,400 1,602,400 - 13,947 9,494 23,441 22,684 64,331 87,015 1,639,031 73,825 1,712,856 169
262. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) Statement of Changes in Equity For the Financial Year Ended 31 December 2019 Capital funds RM'000 Unrealised FVOCI Statutory reserve reserve RM'000 RM'000 Retained profits RM'000 Total RM'000 Bank At 1 January 2019 Total comprehensive income for the financial year Transfer to statutory reserve Capital re-allocation At 31 December 2019 1,597,400 120,018 1,717,418 19,729 423,754 443,483 23,441 130,974 154,415 54,238 78,917 (19,729) 456,228 569,654 1,675,079 209,891 1,000,000 2,884,970 At 1 January 2018 Total comprehensive income for the financial year At 31 December 2018 1,597,400 1,597,400 - 13,947 9,494 23,441 (2,985) 57,223 54,238 1,608,362 66,717 1,675,079 170
263. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) Statements of Cash Flows For the Financial Year Ended 31 December 2019 Group 2019 RM'000 Cash flows from operating activities Profit before zakat Adjustments for: Net gain on sale of financial investments at FVOCI (Note 49(l)) Accretion of discount less amortisation of premium of financial investments (Note 49(l)) Allowance for impairment losses on financing and advances, net (Note 49(m)) Loss due to financing modification (Note 49(k) and Note 49(l)) Impairment allowance for: Financial investments at FVOCI (Note 49(n)) Impaired financing written off (Note 49(m)) Allowance for ex-staff financing (Note 49(n)) Compensation from the Government (Note 49(l)) Operating cash flows before working capital changes (Increase)/decrease in operating assets: Other assets Deposits and placements with financial institutions Financing and advances 2018 RM'000 Bank 2019 RM'000 2018 RM'000 103,816 81,819 100,043 72,195 (18,882) (9,168) (18,882) (9,168) (16,041) (592) (16,041) (592) 93,481 (5,546) 172,629 1,188 92,409 (5,546) 178,103 1,188 55,914 6 55,914 6 809 683 787 556 - 52 - 52 (17,894) (16,334) (17,894) (16,334) 195,657 230,283 190,790 226,006 (2,940) (150,681) (1,484,703) (1,638,324) 171 34,165 (1,020,459) (986,294) (3,531) (150,681) (1,481,676) (1,635,888) 33,676 (1,033,315) (999,639)
264. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) Statements of Cash Flows For the Financial Year Ended 31 December 2019 (cont'd.) Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 Cash flows from operating activities (cont'd.) (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 63,191 (507,438) 44,373 (454,199) 66,686 (507,438) 50,893 (454,199) 401,165 (43,082) 100,354 (309,472) 401,165 (39,587) 100,354 (302,952) (1,485,749) (17,282) (1,065,483) (15,847) (1,484,685) (17,282) (1,076,585) (15,847) (1,503,031) (1,081,330) (1,501,967) (1,092,432) (681,904) (1,087,924) (681,904) (1,087,924) Cash flows from investing activities Purchase of financial investments at FVOCI Proceeds from disposal/maturity of financial investments at FVOCI 1,701,949 2,496,224 1,701,949 2,496,224 Net cash generated from investing activities 1,020,045 1,408,300 1,020,045 1,408,300 Cash flows from financing activities Net repayment of acceptance payables Proceeds from government compensation Capital re-allocation Statutory reserve re-allocation Net cash generated from/(used in) financing activities 576,246 423,754 1,000,000 172 (250,000) 3,056 - (246,944) 576,246 423,754 1,000,000 (250,000) 3,056 - (246,944)
265. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) Statements of Cash Flows For the Financial Year Ended 31 December 2019 (cont'd.) Group 2019 RM'000 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 2018 RM'000 Bank 2019 RM'000 2018 RM'000 517,014 80,026 518,078 68,924 867,162 787,136 833,719 764,795 1,384,176 867,162 1,351,797 833,719 Cash and cash equivalents comprise: Group 2019 RM'000 Cash and short term deposits (Note (a)) 1,384,176 2018 RM'000 867,162 Bank 2019 RM'000 1,351,797 2018 RM'000 833,719 (a) Cash and Short Term Deposits Group 2019 RM'000 Cash and bank balances with financial institutions Money at call and deposit placements maturing within one month 2018 RM'000 Bank 2019 RM'000 2018 RM'000 3,502 36,980 1,749 33,950 1,380,674 1,384,176 830,182 867,162 1,350,048 1,351,797 799,769 833,719 (b) Deposits and placements with financial institutions Group 2019 RM'000 Licensed banks 150,681 173 2018 RM'000 - Bank 2019 RM'000 150,681 2018 RM'000 -
266. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (c) Financial Investments at FVOCI Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 532,047 849,769 532,047 849,769 Unquoted securities: Sukuk 1,474,943 2,045,439 1,474,943 2,045,439 Total financial investments at FVOCI 2,006,990 2,895,208 2,006,990 2,895,208 At fair value Debt Instruments: Money market instruments: Government investment issues Movements in allowances for impairment which reflect the ECL allowance are as follows: 2019 Group and Bank At 1 January Net allowance made New financial investments purchased Net allowance additional At 31 December 2018 Group and Bank 12-Month ECL Stage 1 RM'000 Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 286 1,809 54,105 - 286 55,914 34 1,775 2,095 20,936 33,169 54,105 - 20,970 34,944 56,200 Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 12-Month ECL Stage 1 RM'000 At 1 January Net allowance made New financial investments purchased Net allowance written back At 31 December 174 280 6 - - 280 6 17 (11) 286 - - 17 (11) 286
267. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (d) Financing and Advances Group 2019 RM'000 Bai' Bithaman Ajil Murabahah Istisna' Ijarah Muntahiyah bi Tamlik Tawarruq Staff financing Unearned income Gross financing and advances 2018 RM'000 Bank 2019 RM'000 2018 RM'000 91,999 8,315 3,884,854 52,079 14,969,098 7,884 (6,542,567) 151,682 9,273 4,686,641 52,945 12,342,630 10,421 (6,272,126) 89,053 8,315 3,884,854 20,694 14,964,129 7,884 (6,542,567) 148,132 9,273 4,686,641 21,616 12,341,213 10,421 (6,272,126) 12,471,662 10,981,466 12,432,362 10,945,170 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 Net financing and advances (595,108) (522,081) (593,149) (521,902) (197,685) (154,315) (197,686) (154,298) (424,124) (456,472) (419,035) (450,693) (1,216,917) (1,132,868) (1,209,870) (1,126,893) 11,254,745 9,848,598 11,222,492 9,818,277 175
268. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (i) Financing and advances analysed by type of customers are as follows: Group 2019 RM'000 Domestic business enterprises Individual 12,464,185 7,477 12,471,662 2018 RM'000 10,972,187 9,279 10,981,466 Bank 2019 RM'000 12,427,831 4,531 12,432,362 2018 RM'000 10,939,441 5,729 10,945,170 (ii) Financing and advances analysed by profit rate sensitivity are as follows: Group 2019 RM'000 Fixed rate: Housing financing Other fixed rate financing Variable rate: Cost plus Other variable rates 2018 RM'000 Bank 2019 RM'000 2018 RM'000 7,477 9,279 4,531 5,729 8,021,671 7,139,737 8,021,671 7,106,991 2,331,127 2,111,387 12,471,662 2,220,365 1,612,085 10,981,466 2,294,773 2,111,387 12,432,362 2,220,365 1,612,085 10,945,170 176
269. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (iii) Financing and advances analysed by industry are as follows: Group 2019 RM'000 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 2018 RM'000 Bank 2019 RM'000 2018 RM'000 11 5,862,923 1,761,496 9 4,910,146 1,459,353 5,862,923 1,761,496 4,906,112 1,459,353 133,331 119,589 133,331 119,589 31,873 314,796 4,531 238,365 181,999 25,267 235,843 5,729 240,452 50,336 314,796 4,531 238,141 181,999 235,843 5,729 240,032 50,335 58,967 62,416 56,018 62,305 16,156 517,304 130,339 23,572 407,156 157,597 16,156 517,304 130,339 23,572 407,156 157,597 3,219,571 12,471,662 3,284,001 10,981,466 3,215,328 12,432,362 3,277,547 10,945,170 (iv) The maturity structure of financing and advances are as follows: Group 2019 RM'000 Receivable after 12 months Receivable within 12 months 2018 RM'000 Bank 2019 RM'000 2018 RM'000 11,369,576 9,313,317 11,330,276 9,278,686 1,102,086 12,471,662 1,668,149 10,981,466 1,102,086 12,432,362 1,666,484 10,945,170 177
270. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (vi) Movements in impaired financing and advances are as follows: At 1 January Impaired during the financial year Reclassified as non-impaired Recovered during the financial year Amount written off At 31 December Gross impaired financing and advances as a % of gross financing and advances Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 802,978 887,951 791,580 874,840 45,969 130,885 45,969 125,902 (55,096) (2,593) (55,096) - (68,924) (8,484) 716,443 (54,186) (159,079) 802,978 (66,879) (8,484) 707,090 (50,640) (158,522) 791,580 5.74% 7.31% 5.69% 7.23% (vii) Impaired financing and advances analysed by industry are as follows: Group 2019 RM'000 Construction Education Electricity, gas and water supply Hotel and restaurants Manufacturing Shipping Other community, social and personal service activities Transport, storage and communication 2018 RM'000 Bank 2019 RM'000 2018 RM'000 84,256 39,979 53,708 45,625 84,256 39,979 49,674 45,625 21,752 114,000 17,274 275,851 21,701 111,462 30,474 370,443 21,752 113,085 17,236 275,851 21,701 111,462 30,255 370,443 5,631 - - - 157,700 716,443 169,565 802,978 154,931 707,090 162,420 791,580 178
271. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (viii) Movements in allowance for impaired financing and advances are as follows: Group 2019 At 1 January - Transfer to Lifetime ECL not credit impaired (Stage 2) - Transfer to Lifetime ECL credit impaired (Stage 3) - Transfer to Lifetime ECL credit impaired (Stage 3) Allowance/(written back) made, net Amount written off At 31 December 2019 12-Month ECL Stage 1 RM'000 Lifetime ECL Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 522,081 154,315 456,472 1,132,868 (46,227) 46,227 - - - (14,236) 14,236 - - 34,947 (34,947) - 119,254 595,108 (23,568) 197,685 (2,205) (9,432) 424,124 93,481 (9,432) 1,216,917 391,516 137,254 587,529 1,116,299 - - - - - 2018 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/(written back) made, net Amount written off At 31 December 2018 4 (47,707) (4) 47,707 - (26,825) 26,825 178,268 522,081 (3,817) 154,315 (1,822) (156,060) 456,472 179 172,629 (156,060) 1,132,868
272. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (viii) Movements in allowance for impaired financing and advances are as follows (cont'd.): Bank 2019 At 1 January - Transfer to Lifetime ECL not credit impaired (Stage 2) - Transfer to Lifetime ECL credit impaired (Stage 3) - Transfer from Lifetime ECL credit impaired (Stage 3) Allowance/(written back) made, net Amount written off At 31 December 2019 12-Month ECL Stage 1 RM'000 Lifetime ECL Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 521,902 154,298 450,693 1,126,893 (46,227) 46,227 - - - (14,236) 14,236 - - 34,947 (34,947) - 117,474 593,149 (23,550) 197,686 (1,515) (9,432) 419,035 92,409 (9,432) 1,209,870 391,416 137,219 578,122 1,106,757 (47,702) 47,702 - - 178,188 (26,794) (3,829) 26,794 3,744 178,103 521,902 154,298 (157,967) 450,693 (157,967) 1,126,893 2018 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 2018 180
273. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (ix) Financing and advances analysed by geographical distribution are as follows: Group 2019 RM'000 Within Malaysia 12,471,662 2018 RM'000 10,981,466 Bank 2019 RM'000 12,432,362 2018 RM'000 10,945,170 (e) Other Assets Group 2019 RM'000 Sundry receivables Amount receivable from Government Interfund receivables 2018 RM'000 Bank 2019 RM'000 2018 RM'000 2,179 17,746 1,890 16,867 572 2,275 5,026 735 5,448 23,929 572 2,275 4,737 735 5,448 23,050 (f) Deposits from Customers Group and Bank 2019 2018 RM'000 RM'000 At amortised cost Fixed deposits and negotiable instruments of deposits 4,852,186 5,359,624 880,874 3,971,312 4,852,186 487,982 4,871,642 5,359,624 4,253,976 254,946 272,454 70,810 4,852,186 4,483,330 876,294 5,359,624 (a) The deposits are sourced from the following types of customers: Business enterprises Government and statutory bodies (b) The deposits maturity structure are as follows: Less than six months Six months to one year Three years to five years Over five years 181
274. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (g) Deposits and Placements from Financial Institutions Group and Bank 2019 2018 RM'000 RM'000 At amortised cost Licensed banks 501,519 100,354 501,519 100,354 (a) The deposits maturity structure are as follows: Less than six months (h) Other Liabilities Note Other payables Zakat payables Kafalah received in advance Shariah non-compliant income (i) Interfund payables (ii) (i) Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 7,346 24,520 4,982 15,766 6,382 21,350 4,551 14,980 19,854 15,526 19,854 15,526 27 184,314 236,061 128,969 165,243 27 161,907 209,520 103,320 138,377 No. of events 2019 RM'000 No. of events 2018 RM'000 2 2 27 27 - - Shariah non-compliant income SNC income derecognised from the Bank's income due to placement of Islamic fund in Conventional Instrument 182
275. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (h) Other Liabilities (cont'd.) (i) Shariah non-compliant income (cont'd.) 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 2018, there was no incident of Shariah non-compliance event. Shariah NonCompliance Income RM'000 Total RM'000 - - Funds collected/received during the year 27 27 Undistributed funds as at 31 December 2019 27 27 Group and Bank Undistributed funds as at 31 December 2018/1 January 2019 (ii) Interfund payables are unsecured, profit free and are repayable on demand. (i) Sukuk Note Group and Bank 2019 2018 RM'000 RM'000 Non-guaranteed Sukuk Murabahah (i) 3,034,278 3,034,278 3,034,656 3,034,656 Guaranteed Sukuk Murabahah (ii) 3,041,969 3,041,969 3,042,202 3,042,202 6,076,247 6,076,858 183
276. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (i) Sukuk (cont'd.) (i) These sukuk carry profit rates ranging between 4.28% to 4.98% per annum and for tenures of 5 years to 19 years. These sukuk will mature in March 2022, 2026, 2027, 2031, 2032 and 2035 respectively. (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 2019 2018 RM'000 RM'000 Non-guaranteed Sukuk Murabahah Principal At 1 January/31 December Accrued profit payable At 1 January Charge for the financial year Payment during the financial year At 31 December Guaranteed notes Sukuk Murabahah Principal At 1 January/31 December Accrued profit payable At 1 January Charge for the financial year Payment during the financial year At 31 December 3,000,000 3,000,000 34,656 139,787 (140,165) 34,278 34,269 140,552 (140,165) 34,656 3,034,278 3,034,656 3,000,000 3,000,000 42,202 137,397 (137,630) 41,969 3,041,969 184 41,671 138,160 (137,629) 42,202 3,042,202
277. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (j) Reserves Note Non-distributable: Unrealised FVOCI reserve Statutory reserve (i) Distributable: Retained profits (i) Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 154,415 443,483 597,898 23,441 23,441 154,415 443,483 597,898 23,441 23,441 603,034 1,200,932 87,015 110,456 569,654 1,167,552 54,238 77,679 Unrealised FVOCI reserve represents the cumulative fair value changes and changes in 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 At 31 December Group 2019 RM'000 23,441 2018 RM'000 13,947 Bank 2019 RM'000 23,441 2018 RM'000 13,947 75,060 9,488 75,060 9,488 55,914 154,415 6 23,441 55,914 154,415 6 23,441 (k) Income Derived from Investment of Depositors' Funds Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 203,530 227,841 203,530 227,841 13,460 258 14,905 192 13,460 258 14,905 192 1,682 218,930 (469) 242,469 1,682 218,930 (469) 242,469 Finance Income Financing and advances Other income: Fee income Ta'widh Gain/(loss) on financing modification 185
278. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (k) Income Derived from Investment of Depositors' Funds (cont'd.) Group 2019 RM'000 Of which: Finance income earned on impaired financing and advances (l) 4,203 2018 RM'000 10,124 Bank 2019 RM'000 4,220 2018 RM'000 10,124 Income Derived from Investment of Shareholders' Funds Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 359,130 327,633 356,534 324,193 17,894 16,334 17,894 16,334 42,343 36,243 41,349 35,558 81,555 500,922 151,051 531,261 81,555 497,332 151,051 527,136 16,041 516,963 592 531,853 16,041 513,373 592 527,728 18,882 24,615 486 9,168 21,040 277 18,882 24,439 486 9,168 20,935 277 3,864 564,810 (719) 561,619 3,864 561,044 (719) 557,389 Finance Income Financing and advances Compensation from the Government Deposits and placements with financial institution Financial investments at FVOCI Accretion of discount less amortisation of premium Other income: Net gain arising on financial investment at FVOCI : - net gain on disposal Fee income Ta'widh Gain/(loss) on financing modification Of which: Finance income earned on impaired financing and advances 7,417 186 14,442 7,392 14,412
279. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (m) Allowances for Impairment Losses of Financing and Advances Group 2019 RM'000 Stage 1 - 12-month ECL, net Stage 2 - Lifetime ECL not credit impaired, net Stage 3 - Lifetime ECL credit impaired, net Impaired financing: Written off Recovered 2018 RM'000 Bank 2019 RM'000 2018 RM'000 73,027 130,565 71,247 130,486 43,370 17,061 43,388 17,079 (22,916) 25,003 (22,226) 30,538 809 (433) 93,857 683 (4,645) 168,667 787 (77) 93,119 556 (4,538) 174,121 (n) Allowance/(writeback) for Impairment Losses on Other Assets Group and Bank 2019 2018 RM'000 RM'000 Financial investments at FVOCI Allowance for ex-staff financing - Made during the financial year - Written back 55,914 (12) 55,902 6 52 (265) (207) (o) Income Attributable to the Depositors Group and Bank 2019 2018 RM'000 RM'000 Deposits from customers 190,797 221,701 Deposits and placements from financial institutions 4,342 195,139 3,650 225,351 187
280. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (p) Overhead Expenses Note Personnel costs Establishment related expenses Promotion and marketing expenses General administrative expenses (i) Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 (i) 40,263 33,368 39,615 32,711 (ii) 4,326 2,918 4,244 2,794 (iii) 1,888 1,031 1,887 1,031 (iv) 11,365 57,842 10,252 47,569 12,841 58,587 10,973 47,509 31,648 214 26,853 171 31,129 207 26,351 164 4,190 3,184 4,098 3,096 4,211 40,263 3,160 33,368 4,181 39,615 3,100 32,711 918 906 918 906 3,408 4,326 2,012 2,918 3,326 4,244 1,888 2,794 1,888 1,031 1,887 1,031 Personnel costs Salaries, allowances and bonuses Social security cost Pension costs - Defined contribution plan Other staff related expenses (ii) Establishment related expenses Repairs and maintenance of property, plant and equipment Information technology expenses (iii) Promotion and marketing expenses Advertisement and publicity 188
281. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (p) Overhead Expenses (cont'd.) Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 (iv) General administrative expenses General administrative expenses 11,365 10,252 12,841 10,973 The above overhead expenses have been determined after charging amongst other items the following: Group Bank 2019 2018 2019 2018 RM'000 RM'000 RM'000 RM'000 Shariah Committee's remuneration 224 206 224 206 (q) Finance Cost Sukuk Bills and acceptance payable Group 2019 RM'000 2018 RM'000 Bank 2019 RM'000 2018 RM'000 277,184 278,712 277,184 278,712 277,184 2,177 280,889 277,184 2,177 280,889 2018 RM'000 Bank 2019 RM'000 2018 RM'000 (r) Zakat Group 2019 RM'000 Zakat 24,296 17,488 21,126 14,972 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%. 189
282. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (r) Zakat (cont'd.) 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. (s) Commitments and Contingencies Group and Bank 2019 2018 RM'000 RM'000 Contingencies as at the financial year end constitute the following: Secured guarantees on behalf of customers given to third parties Disbursement of financing and advances to industries 2,264,486 4,505,183 6,769,669 1,706,997 3,725,359 5,432,356 (t) Capital Adequacy Capital management Regulatory capital The following table sets forth capital resources and capital adequacy for the Bank as at reporting date. Bank 2019 2018 RM'000 RM'000 Tier 1 capital Capital funds Other reserves Total Tier 1 capital 1,717,418 1,167,552 2,884,970 1,597,400 77,679 1,675,079 Tier 2 capital Government support funds Stage 1 and Stage 2 expected credit loss allowances Total Tier 2 capital 212,255 790,835 1,003,090 219,962 676,200 896,162 Total capital base 3,888,060 2,571,241 190
283. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 49. Islamic Financial Business (cont'd.) (t) Capital Adequacy (cont'd.) Capital management (cont'd.) Regulatory capital (cont'd.) Breakdown of risk-weighted assets in the various categories of risk-weights: Bank 2019 RM'000 10% 20% 50% 100% 305,054 1,235,447 14,944,801 16,485,302 2018 RM'000 167,043 822,943 13,873,128 14,863,114 Without deducting proposed dividend: Bank 2019 % Core capital ratio RWCR 17.500 23.585 2018 % 11.270 17.299 50. Government Funds 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. 191
284. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) (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 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 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 Fund 2.0 The objective of the maritime fund 2.0 is to provide financial assistance to existing and new companies dealing with or involved in maritime related activities and services. (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. 192
285. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) 50.1 Performance of the fund 2019 Group Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Tourism Infrastructure fund 2.0* RM'000 1,000,000 (324,272) 675,728 Public Transport fund 2.0* RM'000 1,500,000 (212,473) 1,287,527 500,000 (10,552) 489,448 3,000,000 (224,048) 2,775,952 22,230 22,230 - 1 1 - 1 - Dec 20 Dec 20 Dec 20 Dec 20 Dec 20 *Fund was created on 1 January 2019. 193 177,948 (8,953) 168,995 1,000,000 (418,603) 581,397 11,370 11,370 Number of beneficiaries Expiry Maritime fund 2.0* RM'000 Industry Sustainable Digitalisation Development Transformation Financing fund* fund* RM'000 RM'000 - Subtotal 1 RM'000 7,000,000 (1,189,948) 5,810,052 211,548 (8,953) 202,595 3
286. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) 50.1 Performance of the fund (cont'd.) 2019 Group Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry* Tourism Tourism Infrastructure Infrastructure Development fund fund RM'000 RM'000 Maritime fund RM'000 Maritime Development fund RM'000 2,400,000 (1,849,114) 550,886 2,000,000 (1,168,199) 831,801 4,494,258 (3,233,696) 1,260,562 3,000,000 (741,272) 2,258,728 1,847,359 (948,306) 899,053 705,809 (201,544) 504,265 5,809,651 (4,471,750) 1,337,901 434,033 (47,349) 386,684 Public Transport fund RM'000 1,000,000 12,894,258 (326,043) (7,318,324) 5,575,934 673,957 325,962 (299,981) 25,981 57 12 41 6 107 Dec 18 Dec 18 Dec 18 Dec 18 Dec 18 * The expiry date of these fund were extended to December 2020 subsequent to year end. 194 Subtotal 2 RM'000 9,122,814 (5,968,930) 3,153,884 223
287. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) 50.1 Performance of the fund (cont'd.) Group Subtotal 1 RM'000 2019 Subtotal 2 RM'000 Allocated funds Net approved Fund available 7,000,000 (1,189,948) 5,810,052 12,894,258 (7,318,324) 5,575,934 19,894,258 (8,508,272) 11,385,986 211,548 (8,953) 202,595 9,122,814 (5,968,930) 3,153,884 9,334,362 (5,977,883) 3,356,479 Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries 3 Total RM'000 223 226 195
288. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) 50.1 Performance of the fund (cont'd.) 2018 Group Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry Tourism Tourism Infrastructure Infrastructure Development fund fund RM'000 RM'000 Maritime fund RM'000 Maritime Development fund RM'000 2,400,000 (1,849,114) 550,886 2,000,000 (1,168,199) 831,801 4,494,258 (3,233,696) 1,260,562 3,000,000 (741,272) 2,258,728 1,843,791 (850,445) 993,346 498,771 (146,323) 352,448 5,230,863 (3,765,310) 1,465,553 167,462 (39,221) 128,241 Public Transport fund RM'000 1,000,000 12,894,258 (326,043) (7,318,324) 5,575,934 673,957 325,962 (282,759) 43,203 57 10 41 4 107 Dec 18 Dec 18 Dec 18 Dec 18 Dec 18 196 Total RM'000 8,066,849 (5,084,058) 2,982,791 219
289. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) 50.2 Performance of the fund 2019 Bank Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Tourism Infrastructure fund 2.0* RM'000 1,000,000 (324,272) 675,728 1,500,000 (212,473) 1,287,527 - 3,000,000 (224,048) 2,775,952 177,948 (8,953) 168,995 1,000,000 (418,603) 581,397 11,370 11,370 22,230 22,230 - 1 1 - 1 - Dec 20 Dec 20 Dec 20 Dec 20 Dec 20 Number of beneficiaries Expiry Maritime fund 2.0* RM'000 Industry Sustainable Public Digitalisation Development Transport Transformation Financing fund 2.0* fund* fund* RM'000 RM'000 RM'000 *Fund was created on 1 January 2019. 197 - Subtotal 1 RM'000 6,500,000 (1,179,396) 5,320,604 211,548 (8,953) 202,595 3
290. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) 50.2 Performance of the fund (cont'd.) 2019 Bank Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry* Tourism Tourism Infrastructure Infrastructure Development fund fund RM'000 RM'000 Maritime fund RM'000 Maritime Development fund RM'000 2,400,000 (1,849,114) 550,886 2,000,000 (1,168,199) 831,801 4,494,258 (3,233,696) 1,260,562 3,000,000 (741,272) 2,258,728 1,847,359 (948,306) 899,053 705,809 (201,544) 504,265 5,809,651 (4,471,750) 1,337,901 434,033 (47,349) 386,684 Public Transport fund RM'000 5,742 11,900,000 (5,742) (6,998,023) 4,901,977 - 5,661 (5,661) - 57 12 41 6 1 Dec 18 Dec 18 Dec 18 Dec 18 Dec 18 * The expiry date of these fund were extended to December 2020 subsequent to year end. 198 Subtotal 2 RM'000 8,802,513 (5,674,610) 3,127,903 117
291. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) 50.2 Performance of the fund (cont'd.) Bank Subtotal 1 RM'000 2019 Subtotal 2 RM'000 Allocated funds Net approved Fund available 6,500,000 (1,179,396) 5,320,604 11,900,000 (6,998,023) 4,901,977 18,400,000 (8,177,419) 10,222,581 211,548 (8,953) 202,595 8,802,513 (5,674,610) 3,127,903 9,014,061 (5,683,563) 3,330,498 Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries 14 Total RM'000 117 131 199
292. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 50. Government Funds (cont'd.) 50.2 Performance of the fund (cont'd.) 2018 Bank Allocated funds Net approved Fund available Loans, financing and advances: Disbursement Repayment Outstanding Number of beneficiaries Expiry Tourism Tourism Infrastructure Infrastructure Development fund fund RM'000 RM'000 Maritime fund RM'000 Maritime Development fund RM'000 2,400,000 (1,849,114) 550,886 2,000,000 (1,168,199) 831,801 4,494,258 (3,233,696) 1,260,562 3,000,000 (741,272) 2,258,728 1,843,791 (850,445) 993,346 498,771 (146,323) 352,448 5,230,863 (3,765,310) 1,465,553 167,462 (39,221) 128,241 Public Transport fund RM'000 5,742 11,900,000 (5,742) (6,998,023) 4,901,977 - 5,661 (5,661) - 57 10 41 4 1 Dec 18 Dec 18 Dec 18 Dec 18 Dec 18 200 Total RM'000 7,746,548 (4,806,960) 2,939,588 113
293. 197301003074 (16562-K) Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 December 2019 51. Subsequent Events Bank Negara Malaysia (“BNM”) has made an announcement on 25 March 2020 relating to measures to be undertaken by banking institutions that include a six-month deferment (moratorium) for all loans/financing repayments/payments, effective from 1 April 2020, to assist individuals and Small and Medium Enterprises ("SMEs") to manage the impact of the Covid-19 outbreak. In support of this initiative, the Bank, on 9 April 2020 have decided to offer a 6-month moratorium to existing borrowers/customers who fulfilled the criteria set by the Bank. The moratorium is expected to be a temporary arrangement and economic recovery will be supported by the announcement of government economic stimulus package amounting to RM250 billion on 27 March 2020 and additional RM10.0 billion for SMEs. 201
294. APPENDIX II Unaudited Financial Statements of the Issuer for the Half Year Ended 30 June 2020
295. BANK PEMBANGUNAN MALAYSIA BERHAD (197301003074) (Incorporated in Malaysia) Interim Unaudited Financial Statements 30 June 2020
296. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Contents Statements of Financial Position Page 1-2 Statements of Profit or Loss - Group 3 Statements of Comprehensive Income - Group 4 Statements of Profit or Loss - Bank 5 Statements of Comprehensive Income - Bank 6 Consolidated Statement of Changes in Equity 7 Statement of Changes in Equity 8 Statements of Cash Flow 9 - 10 Notes to the Financial Statements 11 - 98
297. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statements of Financial Position As at 30 June 2020 Note Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 Assets Cash and short term deposits 9 1,312,597 Deposits and placements with financial institutions 10 337,896 Financial investments at fair value through profit or loss 11 Financial investments at fair value through other comprehensive income 12 5,551,848 Loans, financing and advances 13 15,691,733 Other assets 14 273,725 Investments in subsidiaries Interest in associates 539 Property, plant and equipment 15 86,348 Investment properties 16 333 Intangible assets 17 6,214 Right-of-use assets 18(a) 293 Deferred tax assets 17,430 23,278,956 Assets classified as held for sale 23,278,956 Total assets 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 2,648,922 1,293,226 2,371,020 924,915 50,372 882,828 - - - 5,023,965 15,701,772 228,221 539 86,511 337 6,790 357 40,521 24,662,850 254 24,663,104 5,547,512 15,515,522 252,982 255,426 86,185 333 6,083 256 13,845 23,021,742 23,021,742 5,019,020 15,545,685 206,854 255,426 86,357 337 6,596 314 36,939 24,411,376 24,411,376 4,361,980 5,492,175 4,361,980 5,492,175 1,182,730 123,113 7,292,792 1,720,253 439,129 213,038 18(b) 298 383 15,333,716 1,032,669 122,449 7,293,172 2,175,728 439,129 212,255 354 383 16,768,314 1,182,730 80,560 7,292,792 1,720,253 439,129 213,038 251 15,290,733 1,032,669 79,893 7,293,172 2,175,728 439,129 212,255 309 16,725,330 19 20 21 22 The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 1
298. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statements of Financial Position As at 30 June 2020 (cont'd.) Group 30 June 31 December 2020 2019 RM'000 RM'000 Equity attributable to equity holders of the Bank Share capital Reserves Non-controlling interests Total equity 3,078,724 4,854,317 7,933,041 12,199 7,945,240 3,078,724 4,803,738 7,882,462 12,328 7,894,790 3,078,724 4,652,285 7,731,009 7,731,009 3,078,724 4,607,322 7,686,046 7,686,046 Total equity and liabilities 23,278,956 24,663,104 23,021,742 24,411,376 6,954,704 7,532,222 6,723,974 7,313,415 Commitments and contingencies 23 24 Bank 30 June 31 December 2020 2019 RM'000 RM'000 32 The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 2
299. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statements of Profit or Loss For the Financial Half Year Ended 30 June 2020 Group Interest income Interest expense Net interest income Net income from Islamic financial business Non-interest income Net income Overhead expenses Allowance for impairment losses of loans, financing and advances Writeback for impairment losses on other assets Profit before taxation and zakat Taxation Zakat Profit for the period Note 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 25 26 133,894 (41,817) 92,077 193,662 (61,814) 131,848 271,177 (93,464) 177,713 384,130 (123,574) 260,556 35 27 28 80,801 11,503 184,381 (24,493) 70,045 10,275 212,168 (28,883) 182,524 23,731 383,968 (49,411) 143,035 15,726 419,317 (56,256) 30 (107,944) (63,065) (117,564) (81,394) 31 Attributable to: Shareholders of the Bank Non-controlling interests 1,305 9 2,102 13 53,249 (11,991) (3,392) 37,866 120,229 (28,784) (14,008) 77,437 219,095 (51,702) (9,276) 158,117 281,680 (67,865) (18,910) 194,905 46,543 (8,677) 37,866 77,467 (30) 77,437 158,248 (131) 158,117 194,910 (5) 194,905 5.14 6.33 Earnings per share attributable to the equity holders of the Bank: Basic/diluted earnings per share (sen) - from operations The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 3
300. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statements of Comprehensive Income For the Financial Half Year Ended 30 June 2020 Group 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 Profit for the period 37,866 77,437 158,117 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 30,388 (3,210) (26,303) 8,507 (25) Items that may be reclassified to profit or loss: Translation difference in respect of foreign operations Debt instruments at fair value through other comprehensive income: - Net change in fair value during the period - Changes in writeback for expected credit losses 194,905 (7,711) 2 - 164,407 36,097 96,224 93,672 (1,398) 201,904 32,862 (2,285) 67,638 85,961 (39,456) (39,456) (7,483) (7,483) (23,092) (23,092) (20,227) (20,227) Other comprehensive income in subsequent periods, net of tax 162,448 25,379 44,546 65,734 Total comprehensive income for the period 200,314 102,816 202,663 260,639 200,484 (170) 200,314 102,846 (30) 102,816 202,792 (129) 202,663 260,644 (5) 260,639 Income tax effect Total comprehensive income attributable to: Shareholders of the Bank Non-controlling interests The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 4
301. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statements of Profit or Loss For the Financial Half Year Ended 30 June 2020 Bank Interest income Interest expense Net interest income Net income from Islamic financial business Non-interest income Net income Overhead expenses Allowance for impairment losses of loans, financing and advances Writeback for impairment losses on other assets Profit before taxation and zakat Taxation Zakat Profit for the period Note 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 25 26 130,107 (41,814) 88,293 188,587 (61,814) 126,773 262,044 (93,461) 168,583 373,867 (123,574) 250,293 35 27 28 79,778 12,919 180,990 (25,211) 69,203 9,243 205,219 (26,447) 180,406 24,002 372,991 (47,747) 141,232 13,801 405,326 (51,239) 30 (107,201) (62,710) (118,711) (82,510) 31 1,398 49,976 (11,994) (945) 37,037 3 116,065 (27,856) (13,384) 74,825 2,287 208,820 (50,117) (6,678) 152,025 13 271,590 (65,182) (17,306) 189,102 The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 5
302. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statements of Comprehensive Income For the Financial Half Year Ended 30 June 2020 Bank 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 Profit for the period 37,037 74,825 152,025 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 29,846 (2,760) (25,693) (7,358) 164,407 36,097 96,224 93,672 (1,398) 192,855 33,337 (2,285) 68,246 86,314 (39,458) (39,458) (8,001) (8,001) (23,094) (23,094) (20,715) (20,715) Other comprehensive income in subsequent periods, net of tax 153,397 25,336 45,152 65,599 Total comprehensive income for the period 190,434 100,161 197,177 254,701 190,434 190,434 100,161 100,161 197,177 197,177 254,701 254,701 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 period - Changes in writeback for expected credit losses Income tax effect Total comprehensive income attributable to: Shareholders of the Bank 189,102 The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 6
303. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Consolidated Statement of Changes in Equity For the Financial Half Year Ended 30 June 2020 <---------------------------Attributable to equity holders of the Bank ---------------------------> Group <----------------------- Non-distributable----------------------------> Exchange Unrealised translation Distributable Share Capital Statutory FVOCI reserve/ retained capital reserve reserve reserve (deficit) profits RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Noncontrolling Total interest RM'000 RM'000 Total equity RM'000 At 1 January 2020 Total comprehensive income/(loss) for the period Dividends paid At 30 June 2020 3,078,724 1,000 2,073,366 160,311 (6,996) 2,576,058 7,882,463 12,328 7,894,791 3,078,724 1,000 2,073,366 44,544 204,855 (6,996) 158,248 (152,214) 2,582,092 202,792 (152,214) 7,933,041 (129) 12,199 202,663 (152,214) 7,945,240 At 1 January 2019 Total comprehensive income/(loss) for the period Dividends paid At 30 June 2019 3,078,724 1,000 1,994,631 5,401 (47,944) 2,503,023 7,534,835 16,292 7,551,127 3,078,724 1,000 1,994,631 65,734 71,135 (47,944) 194,910 (100,000) 2,597,933 260,644 (100,000) 7,695,479 (5) 16,287 260,639 (100,000) 7,711,766 The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 7
304. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statement of Changes in Equity For the Financial Half Year Ended 30 June 2020 <---------------Non-distributable-----------------> Bank Share capital RM'000 Statutory reserve RM'000 Unrealised FVOCI reserve RM'000 Distributable retained profits RM'000 Total RM'000 At 1 January 2020 Total comprehensive income for the period Dividends paid At 30 June 2020 3,078,724 3,078,724 2,073,366 2,073,366 159,749 45,152 204,901 2,374,207 152,025 (152,214) 2,374,018 7,686,046 197,177 (152,214) 7,731,009 At 1 January 2019 Total comprehensive income for the period Dividends paid At 30 June 2019 3,078,724 3,078,724 1,994,631 1,994,631 6,486 65,599 72,085 2,238,002 189,102 (100,000) 2,327,104 7,317,843 254,701 (100,000) 7,472,544 The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 8
305. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statements of Cash Flows For the Financial Half Year Ended 30 June 2020 Group 30 June 30 June 2020 2019 RM'000 RM'000 Bank 30 June 30 June 2020 2019 RM'000 RM'000 219,095 281,680 208,820 271,590 1,733 4 1,068 89 1,932 5 1,244 - 1,704 4 1,005 83 1,892 4 1,158 - Cash flows from operating activities Profit before taxation and zakat Adjustment for: Depreciation of property, plant and equipment Depreciation of investment properties Amortisation of intangible assets Depreciation of right-of-use assets Gain on disposal of property, plant and equipment Net gain on disposal of financial investment at FVOCI Dividend income: Financial investments at FVTPL Accretion of discount less amortisation of premium of financial investments Impairment written back for: Financial investments at FVOCI Allowances for impairment losses on loans, financing and advances, net Impaired loans and other assets written off Gain due to debt/financing modification Compensation from the Government Operating cash flows before working capital changes Decrease/(increase) in operating assets: Deposits and placements with financial institutions Loans, advances and financing Other assets (Decrease)/increase in operating liabilities: Deposits from customers Deposits and placements from financial institutions Other liabilities (106) (28,797) 5,535 (2,285) (29,734) (25) 1,158 - (106) (28,797) 5,535 (2,285) (29,734) (25) 1,158 - 123,792 89,021 123,195 88,818 625 2,279 (51,042) 1,654 1,008 (64,640) 608 2,279 (51,042) 1,516 1,008 (64,640) 271,990 283,303 261,003 272,745 587,020 (112,261) 98,952 573,711 38,055 1,334,476 (3,475) 1,369,056 832,456 (93,285) 93,470 832,641 1,326,595 (18,715) 1,307,880 (1,130,195) 150,061 (1,296) (981,430) 9 329,221 260,777 (7,671) 582,327 (1,130,195) 329,221 150,061 5,980 (974,154) 260,777 3,033 593,031
306. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Interim Financial Statements Unaudited Statements of Cash Flows For the Financial Half Year Ended 30 June 2020 (cont'd.) Group 30 June 30 June 2020 2019 RM'000 RM'000 Bank 30 June 30 June 2020 2019 RM'000 RM'000 (135,729) (13) (39,823) (25,502) (201,067) 119,490 (10) (36,550) (25,502) 57,428 Cash flows from operating activities (cont'd.) Cash used in operating activities Interest expense on lease liabilities Income taxes paid Zakat paid Net cash generated from operating activities Cash flows from investing activities Dividend income from: Financial investments at FVTPL Purchase of financial investments at FVOCI Purchase of property, plant and equipment Purchase of intangible assets Proceeds from disposal/maturity of financial investments at FVOCI Proceeds from disposal of property, plant and equipment Net cash (used in)/generated from investing activities Cash flows from financing activities Net repayments of long-term loans Proceeds from Government compensation Dividends paid Payment of principal portion of lease liabilities Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period - 2,234,686 (43,425) 2,191,261 25 - 2,173,656 (38,460) 2,135,196 25 (2,581,843) (1,570) (492) (2,521,773) (4,846) (189) (2,581,843) (1,532) (492) (2,521,773) (4,812) (189) 2,045,330 3,318,307 2,045,330 3,318,307 106 - 106 - (538,469) 791,524 (538,431) 791,558 (450,000) (450,000) (450,000) (450,000) 5,506 (152,214) 11,726 (100,000) 5,506 (152,214) 11,726 (100,000) (81) (596,789) (538,274) (83) (596,791) (538,274) (1,336,325) 2,444,511 (1,077,794) 2,388,480 2,648,922 2,311,748 2,371,020 2,020,160 1,312,597 4,756,259 1,293,226 4,408,640 The Interim Financial Statements should be read in conjunction with the audited financial statements of the Group and the Bank for the year ended 31 December 2019. 10
307. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the interim unaudited financial statements - 30 June 2020 Explanatory Notes pursuant to Malaysian Financial Reporting Standard ('MFRS 134') and Revised Guidelines on Financial Reporting For Licensed Institution ('BNM/GP8') issued by Bank Negara Malaysia 1. Basis of Preparation The interim unaudited financial statements for the 2nd quarter and financial half year ended 30 June 2020 of the Group and of the Bank have been prepared under the historical cost convention except for the following assets and liabilities which are stated at fair values: financial assets at fair value through profit or loss ("FVTPL"), financial investments at fair value through other comprehensive income ("FVOCI") derivative financial instruments and investment properties. The interim unaudited financial statements have been prepared in accordance with the requirements of MFRS 134 : Interim Financial Reporting issued by Malaysian Accounting Standard Board ("MASB"). The interim unaudited financial statements should be read in conjunction with the audited financial statements for the Group and the Bank for the financial year ended 31 December 2019. The explanatory notes attached to the interim unaudited financial statements provide an explanation of event and transactions that are significant to form an understanding of the changes in the financial position and performance of the Group and the Bank since the year ended 31 December 2019. 2. Significant Accounting Policies The financial statements of the Group and of the Bank have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards ("IFRS") and the requirements of the Companies Act, 2016 in Malaysia. The significant accounting policies and methods of computation applied by the Group and Bank are consistent with those adopted in the most recent audited annual financial statements ended 31 December 2019. 3. Auditor's Report on Preceding Annual Financial Statements The auditor reports unqualified audit opinion on the audited financial statements for the financial year ended 31 December 2019. 4. Seasonal or Cyclical Factors The operation of the Group and the Bank were not materially affected by any seasonal or cyclical factors in the current financial period. 11
308. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 5. Unusual Items and Subsequent Events Bank Negara Malaysia (“BNM”) has made an announcement on 25 March 2020 relating to measures to be undertaken by banking institutions that include a six-month deferment (moratorium) for all loans/financing repayments/payments, effective from 1 April 2020, to assist individuals and Small and Medium Enterprises ("SMEs") to manage the impact of the Covid-19 outbreak. In support of this initiative, the Bank, on 9 April 2020 have decided to offer a 6-month moratorium to existing borrowers/customers who fulfilled the criteria set by the Bank. The moratorium is expected to be a temporary arrangement and economic recovery will be supported by the announcement of government economic stimulus package amounting to RM250 billion on 27 March 2020 and additional RM10.0 billion for SMEs. 6. Changes in Estimates There were no material changes in estimates during the current financial period. 7. Changes in Debt and Equity Securities There were no changes including repayment of debt and equity securities by the Bank during the current financial period. 8. Dividend Paid 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. 9. Cash and Short Term Deposits Group 30 June 31 December 2020 2019 RM'000 RM'000 Cash and balances with other financial institutions Money at call and deposit placements maturing within one month Bank 30 June 31 December 2020 2019 RM'000 RM'000 23,253 14,306 6,280 2,933 1,289,344 1,312,597 2,634,616 2,648,922 1,286,946 1,293,226 2,368,087 2,371,020 12
309. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 10. Deposits and Placements with Financial Institutions Group 30 June 31 December 2020 2019 RM'000 RM'000 Licensed banks 337,896 924,915 Bank 30 June 31 December 2020 2019 RM'000 RM'000 50,372 882,828 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 30 June 31 December 2020 2019 WAEIR (%) Bank 30 June 31 December 2020 2019 2.26 3.25 2.10 3.24 62 62 27 49 Average maturity (Days) 11. Financial investments at FVTPL 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. 12. Financial investments at FVOCI Group 30 June 31 December 2020 2019 RM'000 88 Bank 30 June 31 December 2020 2019 RM'000 RM'000 At fair value Debt Instruments: Money market instruments: Government investment issues Cagamas Unquoted securities: Corporate bonds and sukuk 1,974,988 20,711 1,995,699 1,640,721 20,252 1,660,973 1,974,988 20,711 1,995,699 1,640,721 20,252 1,660,973 3,466,056 3,466,056 3,256,877 3,256,877 3,466,056 3,466,056 3,256,877 3,256,877 13
310. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 12. Financial investments at FVOCI (cont'd.) Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 At fair value Equity Securities: Quoted securities: Shares Total financial investments at FVOCI 90,093 90,093 106,115 106,115 85,757 85,757 101,170 101,170 5,551,848 5,023,965 5,547,512 5,019,020 Movements in allowances for impairment which reflect the ECL allowance are as follows: Group and Bank 12-Month ECL Stage 1 RM'000 Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 At 1 January 2020 Net allowance made New financial investments purchased Net allowance writeback At 30 June 2020 2,139 (346) 54,105 (1,939) - 56,244 (2,285) 5 (351) 1,793 (1,939) 52,166 - 5 (2,290) 53,959 At 1 January 2019 Net allowance made New financial investments purchased Net allowance additional At 31 December 2019 286 1,853 54,105 - 286 55,958 78 1,775 2,139 20,936 33,169 54,105 - 21,014 34,944 56,244 14
311. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 13. Loans, Financing and Advances At amortised cost Loans, financing and advances to industries: Government guaranteed Others Loans, financing and advances to others: Staff loan/financing Gross loans, financing and advances Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 129,773 18,214,147 18,343,920 181,104 18,052,441 18,233,545 129,773 18,017,864 18,147,637 181,104 17,873,365 18,054,469 5,100 5,236 5,100 5,236 18,349,020 18,238,781 18,152,737 18,059,705 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 (946,275) (870,590) (942,004) (864,539) (314,150) (270,967) (313,160) (270,538) (1,396,862) (1,395,452) (1,382,051) (1,378,943) (2,657,287) (2,537,009) (2,637,215) (2,514,020) 15,691,733 15,701,772 15,515,522 15,545,685 15
312. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 13. Loans, Financing and Advances (cont'd.) (i) Loans, financing and advances analysed by type are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Bai' Bithaman Ajil 80,719 Factoring 37,322 i-Factoring 10,221 Hire purchase 82,015 Istisna' 2,597,276 Ijarah Muntahiyah bi Tamlik 43,588 Leasing 7,592 Murabahah 8,315 Revolving working capital 169,143 Staff loan/financing 5,100 Tawarruq 9,598,490 Term loan 5,709,239 Gross loans, financing and advances 18,349,020 Bank 30 June 31 December 2020 2019 RM'000 RM'000 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 77,991 2,597,276 1,221 8,315 169,143 5,100 9,584,452 5,709,239 86,745 2,772,582 20,693 8,315 160,995 5,236 9,539,493 5,465,646 18,238,781 18,152,737 18,059,705 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 (946,275) (870,590) (942,004) (864,539) (314,150) (270,967) (313,160) (270,538) (1,396,862) (1,395,452) (1,382,051) (1,378,943) (2,657,287) (2,537,009) (2,637,215) (2,514,020) 15,691,733 15,701,772 15,515,522 15,545,685 16
313. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 13. Loans, Financing and Advances (cont'd.) (ii) Loans, financing and advances analysed by type of borrowers/customers are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Domestic business enterprises Individuals 18,342,791 6,229 18,349,020 18,229,509 9,272 18,238,781 Bank 30 June 31 December 2020 2019 RM'000 RM'000 18,147,637 5,100 18,152,737 18,054,469 5,236 18,059,705 (iii) Loans, financing and advances analysed by interest/profit rate sensitivity are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Fixed rate: Housing loans/financing Hire purchase receivables Other fixed rate loans/ financing Variable rate: Cost plus Other variable rates 6,229 82,015 Bank 30 June 31 December 2020 2019 RM'000 RM'000 9,272 93,495 5,100 - 5,236 - 10,888,517 11,066,427 10,775,378 10,984,882 5,366,698 2,005,561 18,349,020 4,791,538 2,278,049 18,238,781 5,366,698 2,005,561 18,152,737 4,791,538 2,278,049 18,059,705 17
314. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 13. Loans, Financing and Advances (cont'd.) (iv) Loans, financing and advances analysed by industry are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Agriculture, hunting and forestry Construction Education Electricity, gas and water supply Finance, insurance 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 Bank 30 June 31 December 2020 2019 RM'000 RM'000 11 9,440,587 1,810,740 11 8,906,333 1,871,106 9,440,575 1,810,740 8,904,249 1,871,106 151,535 142,277 151,535 142,277 142,904 1,223,203 5,100 325,311 263,065 91,821 1,244,934 5,236 316,497 181,999 1,218,662 5,100 315,789 263,065 1,217,259 5,236 309,025 181,999 16,719 16,719 16,719 16,719 397,438 370,328 387,973 355,010 12,265 16,156 12,265 16,156 359,337 1,092,336 130,322 366,608 1,155,554 130,339 359,337 1,092,336 130,322 366,608 1,155,554 130,339 2,978,147 18,349,020 3,422,863 18,238,781 2,948,319 18,152,737 3,388,168 18,059,705 18
315. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 13. Loans, Financing and Advances (cont'd.) (v) The maturity structure of loans, financing and advances is as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Maturity within one year One year to three years Three years to five years Over five years 2,448,655 2,146,105 2,176,705 11,577,555 18,349,020 2,341,721 2,219,921 2,099,661 11,577,478 18,238,781 Bank 30 June 31 December 2020 2019 RM'000 RM'000 2,383,937 2,080,361 2,110,884 11,577,555 18,152,737 2,279,185 2,137,937 2,065,105 11,577,478 18,059,705 (vi) Loans, financing and advances analysed by geographical distribution are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Within Malaysia 18,349,020 18,238,781 Bank 30 June 31 December 2020 2019 RM'000 RM'000 18,152,737 18,059,705 (vii) Movements in credit impaired loans, financing and advances are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 At 1 January Impaired during the period/financial year Reclassified as nonimpaired Recovered during the period/financial year Amount written off Closing balance Gross impaired loans, financing and advances as a % of gross loans, financing and advances Bank 30 June 31 December 2020 2019 RM'000 RM'000 2,216,796 2,276,895 2,200,280 2,246,791 222,977 221,640 215,149 216,792 (88,107) (55,918) (88,107) (55,860) (129,313) (3,561) 2,218,792 (155,816) (70,005) 2,216,796 (126,904) (9) 2,200,409 (148,385) (59,058) 2,200,280 12.09% 12.15% 12.12% 12.18% 19
316. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 13. Loans, Financing and Advances (cont'd.) (viii) Impaired loans, financing and advances analysed by industry are as follows: 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 Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 436,661 64,128 447,613 63,760 433,145 64,128 445,544 63,760 30,450 734,437 88,503 30,698 677,745 88,141 30,450 730,930 88,124 30,698 673,604 88,121 16,719 16,719 16,719 16,719 123,047 565,927 122,216 608,768 120,317 565,927 118,137 608,768 158,920 2,218,792 161,136 2,216,796 150,669 2,200,409 154,929 2,200,280 20
317. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 13. Loans, Financing and Advances (cont'd.) (vii) 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 Credit Impaired Stage 3 RM'000 Total RM'000 At 1 January 2020 Allowance made/ (written back), net Amount written off At 30 June 2020 870,590 270,967 1,395,452 2,537,009 75,685 946,275 43,183 314,150 4,924 (3,514) 1,396,862 123,792 (3,514) 2,657,287 At 1 January 2019 - 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 2019 751,857 423,534 1,324,431 2,499,822 9,565 (761) - 108,869 (36,495) - - (53,724) 53,724 - 181,542 870,590 (198,908) 270,967 (72,374) 21 (8,804) 116,456 (61,903) 1,395,452 99,090 (61,903) 2,537,009
318. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 13. Loans, Financing and Advances (cont'd.) (vii) Movements in the allowance for impairment of loans, financing and advances are as follows (cont'd.): Bank 12-Month ECL Stage 1 RM'000 Lifetime ECL Not Credit Impaired Stage 2 RM'000 Lifetime Credit Impaired Stage 3 RM'000 Total RM'000 At 1 January 2020 Allowance made/ (written back), net At 30 June 2020 864,539 270,538 1,378,943 2,514,020 77,465 942,004 42,622 313,160 3,108 1,382,051 123,195 2,637,215 At 1 January 2019 - 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 2019 748,458 422,327 1,295,781 2,466,566 - - 8,804 (72,293) (8,804) 107,240 (34,947) - - (53,193) 53,193 - 179,570 864,539 (197,032) 270,538 22 115,543 (50,627) 1,378,943 98,081 (50,627) 2,514,020
319. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 14. Other Assets Note Sundry receivables, deposits and prepayment Less: Allowance for doubtful debts Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 (i) 313,328 311,868 6,639 6,390 (ii) (292,908) 20,420 (292,910) 18,958 (579) 6,060 (581) 5,809 Amount due from subsidiaries Amount receivable from Government in respect of compensation for: Infrastructure projects Foreign exchange differences Tax recoverable - - 1,168 590 160,393 109,216 160,393 109,216 85,361 7,551 273,725 85,361 14,686 228,221 85,361 252,982 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 RM289,463,000 (2019: RM289,563,000). (ii) Allowance for doubtful debt Group 30 June 31 December 2020 2019 RM'000 RM'000 At 1 January Recovered during the period/financial year: - Staff resigned - Tenant Amount written off Closing balance Bank 30 June 31 December 2020 2019 RM'000 RM'000 292,910 292,998 581 607 (2) 292,908 (17) (9) (62) 292,910 (2) 579 (17) (9) 581 23
320. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 15. Property, Plant and Equipment Group Cost At 1 January Additions Disposals/write-off At 30 June 2020 Accumulated depreciation At 1 January Charge for the period Disposals/write-off At 30 June 2020 Net carrying amount Freehold land RM'000 Leasehold Furniture land and and Buildings equipment RM'000 RM'000 Mechanical Motor and vehicle Renovation electricals RM'000 RM'000 RM'000 Capital work-in progress RM'000 Total RM'000 17,973 17,973 71,617 71,617 27,996 585 28,581 2,452 (336) 2,116 2,978 2,978 40,370 3 40,373 6,446 982 7,428 169,832 1,570 (336) 171,066 - 16,716 712 17,428 23,600 434 24,034 1,151 134 (336) 949 2,394 332 2,726 39,460 121 39,581 - 83,321 1,733 (336) 84,718 17,973 54,189 4,547 1,167 252 792 7,428 24 86,348
321. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 15. Property, Plant and Equipment (cont'd.) Group (cont'd.) Cost At 1 January Additions Disposals/write-off At 31 December 2019 Accumulated depreciation At 1 January Charge for the financial year Disposals/write-off At 31 December 2019 Net carrying amount Freehold land RM'000 Leasehold Furniture land and and Buildings equipment RM'000 RM'000 Mechanical Motor and vehicle Renovation electricals RM'000 RM'000 RM'000 Capital work-in progress RM'000 Total RM'000 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 25 86,511
322. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 15. Property, Plant and Equipment (cont'd.) Bank Cost At 1 January Additions Disposals/write off At 30 June 2020 Accumulated depreciation At 1 January Charge for the period Disposals/write off At 30 June 2020 Net carrying amount Freehold land RM'000 Furniture and Buildings equipment RM'000 RM'000 Mechanical Motor and vehicles Renovation electricals RM'000 RM'000 RM'000 Capital work-in progress RM'000 Total RM'000 17,973 17,973 71,617 71,617 24,679 547 25,226 2,085 (336) 1,749 2,949 2,949 40,370 3 40,373 6,446 982 7,428 166,119 1,532 (336) 167,315 - 16,716 712 17,428 20,435 405 20,840 786 134 (336) 584 2,365 332 2,697 39,460 121 39,581 - 79,762 1,704 (336) 81,130 17,973 54,189 4,386 252 792 7,428 26 1,165 86,185
323. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 15. Property, Plant and Equipment (cont'd.) Bank (cont'd.) Cost At 1 January Additions Disposals/write off At 31 December 2019 Accumulated depreciation At 1 January Charge for the financial year Disposals/write off At 31 December 2019 Net carrying amount Freehold land RM'000 Furniture and Buildings equipment RM'000 RM'000 Mechanical Motor and vehicles Renovation electricals RM'000 RM'000 RM'000 17,973 17,973 71,617 71,617 22,025 2,659 (5) 24,679 1,691 394 2,085 - 15,284 1,432 16,716 19,564 876 (5) 20,435 516 270 786 17,973 54,901 4,244 27 1,299 Capital work-in progress RM'000 Total RM'000 2,949 2,949 40,339 31 40,370 840 5,606 6,446 157,434 8,690 (5) 166,119 1,418 947 2,365 39,218 242 39,460 - 76,000 3,767 (5) 79,762 910 6,446 584 86,357
324. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 16. Investment Properties Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 Cost At 1 January Transfer to assets held for sale Closing balance 382 382 682 (300) 382 382 382 382 382 Depreciation and impairment loss At 1 January Charge for the period Transfer to assets held for sale Closing balance 45 4 49 81 10 (46) 45 45 4 49 37 8 45 333 337 333 337 Carrying amount 17. Intangible Assets Computer software Group Bank 30 June 31 December 30 June 31 December 2020 2019 2020 2019 RM'000 RM'000 RM'000 RM'000 Cost At 1 January Additions Closing balance 33,881 492 34,373 31,629 2,252 33,881 29,792 492 30,284 27,540 2,252 29,792 Amortisation At 1 January Amortisation charged Closing balance 27,091 1,068 28,159 24,644 2,447 27,091 23,196 1,005 24,201 20,923 2,273 23,196 6,214 6,790 6,083 6,596 Carrying amount 28
325. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 18. Leases (a) The carrying amounts of right-of-use assets recognised and the movements are as follows: Other Equipment Group Bank 30 June 31 December 30 June 31 December 2020 2019 2020 2019 RM'000 RM'000 RM'000 RM'000 Cost At 1 January Additions Closing balance Depreciation At 1 January Charge for the period/ financial year Closing balance Carrying amount (b) 497 25 522 409 88 497 441 25 466 353 88 441 140 - 127 - 89 229 140 140 83 210 127 127 293 357 256 314 The carrying amounts of lease liabilities and the movements are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 At 1 January Addition Accretion of interest Payments Closing balance Current Non-current Bank 30 June 31 December 2020 2019 RM'000 RM'000 354 25 12 (93) 298 409 88 24 (167) 354 309 25 10 (93) 251 353 88 21 (153) 309 98 200 298 144 210 354 86 165 251 142 167 309 The maturity analysis of lease liabilities are disclosed in Note 34 c(i). 29
326. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 18. Leases (cont'd.) (c) The following are the amounts recognised in profit or loss: Group 30 June 31 December 2020 2019 RM'000 RM'000 Depreciation expense of right-of-use assets Interest expense on lease liabilities Expense relating to leases of low-value assets (included in overhead expenses) Total amount recognised in profit or loss Bank 30 June 31 December 2020 2019 RM'000 RM'000 89 140 83 127 10 24 10 21 108 418 108 418 207 582 201 566 19. Deposits from Customers Group and Bank 30 June 31 December 2020 2019 RM'000 RM'000 At amortised cost Fixed deposits and negotiable instruments of deposits: (a) 4,361,980 4,361,980 4,852,186 639,989 5,492,175 The deposits are sourced from the following types of customers: Business enterprises Government and statutory bodies (c) 5,492,175 The deposits are sourced from the following types of deposit: Tawarruq Others (b) 4,361,980 1,394,073 2,967,907 4,361,980 880,874 4,611,301 5,492,175 3,280,707 736,418 272,434 72,421 4,361,980 4,893,965 254,946 272,454 70,810 5,492,175 The deposits maturity structure are as follows: Less than six months Six months to one year One year to three years Three years to five years Over five years 30
327. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 20. Deposits and Placements from Financial Institutions Group and Bank 30 June 31 December 2020 2019 RM'000 RM'000 At amortised cost Licensed banks (a) 1,182,730 1,032,669 1,182,730 1,032,669 The deposits maturity structure are as follows: Less than six months 21. Other Liabilities Group 30 June 31 December 2020 2019 RM'000 RM'000 Provision for taxation Zakat payables Bank guarantee received in advance Trade creditors Security deposits Sundry creditors and accruals Bank 30 June 31 December 2020 2019 RM'000 RM'000 5,635 11,377 72 24,520 5,542 10,700 21,350 14,007 72 20,502 21,327 514 17,094 14,007 - 21,327 - 71,520 123,113 58,922 122,449 50,311 80,560 37,216 79,893 31
328. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 22. Redeemable Notes/Sukuk Note Group and Bank 30 June 31 December 2020 2019 RM'000 RM'000 Redeemable non guaranteed notes/sukuk Medium term notes Sukuk Murabahah (i) (ii) 404,488 3,034,096 3,438,584 404,695 3,034,278 3,438,973 Redeemable guaranteed notes/sukuk Medium term notes Sukuk Murabahah (iii) (iv) 510,586 3,041,969 3,552,555 510,718 3,041,969 3,552,687 Infrastructure notes - nominal value Less: Unaccreted discount (v) 303,822 (2,169) 301,653 7,292,792 (i) 303,883 (2,371) 301,512 7,293,172 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 4.28% to 4.98% per annum and for tenures of 5 years to 19 years. These sukuk will mature in March 2022, 2026, 2027, 2031, 2032 and 2035 respectively. (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 RM300,000,000 (2019: RM300,000,000), which carries a coupon rate of 7.50% (2019: 7.50%) per annum. The note will mature in October 2025. 32
329. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 23. Share capital Number of shares 30 June 31 December 2020 2019 RM'000 '000 Group and Bank Issued and fully paid: Ordinary shares of RM1.00 each 3,078,724 3,078,724 Amount 30 June 31 December 2020 2019 RM'000 '000 3,078,724 3,078,724 24. Reserves Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 Note Non-distributable: Capital reserve Statutory reserve Unrealised FVOCI reserve 24 (i) Exchange translation reserve Distributable: Retained profits 1,000 2,073,366 1,000 2,073,366 2,073,366 2,073,366 204,855 160,311 204,901 159,749 (6,996) 2,272,225 (6,997) 2,227,680 2,278,267 2,233,115 2,582,092 4,854,317 2,576,058 4,803,738 2,374,018 4,652,285 2,374,207 4,607,322 (i) Unrealised FVOCI reserve represents the cumulative fair value changes and changes in allowance for expected credit loss, net of tax, of FVOCI financial assets until they are disposed of or impaired. At 1 January Unrealised gain on fair value changes Changes in (writeback)/ allowance for expected credit losses Transfer to deferred tax Closing balance Group 30 June 31 December 2020 2019 Bank 30 June 31 December 2020 2019 160,311 5,401 159,749 6,486 69,921 137,827 70,531 135,660 (2,285) (23,092) 204,855 55,958 (38,875) 160,311 (2,285) (23,094) 204,901 55,958 (38,355) 159,749 33
330. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 25. Interest Income Group Loans and advances Compensation from the Government Money at call and deposit placements with financial institutions Financial investments at FVOCI Amortisation of premium less accretion of discount Of which: Interest income earned on impaired loans and advances Bank Loans and advances 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 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 75,489 131,153 147,079 269,493 25,282 27,873 48,504 56,247 5,385 31,832 137,988 20,242 14,951 194,219 22,912 59,701 278,196 31,841 27,486 385,067 (4,094) 133,894 (557) 193,662 (7,019) 271,177 (937) 384,130 3,962 17,985 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 7,265 26,548 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 73,500 128,495 141,924 264,088 25,282 27,873 48,504 56,247 3,587 31,832 134,201 17,825 14,951 189,144 18,934 59,701 269,063 26,983 27,486 374,804 (4,094) 130,107 (557) 188,587 (7,019) 262,044 (937) 373,867 3,952 34 17,985 7,255 26,525
331. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 26. Interest Expense Group Deposits from customers Deposits and placements from financial institutions Borrowings Redeemable notes Lease Bank Deposits from customers Deposits and placements from financial institutions Borrowings Redeemable notes Lease 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 1,123 15,585 6,231 28,150 2,085 20,623 17,977 9 41,817 627 26,689 18,913 61,814 5,878 45,388 35,954 13 93,464 726 57,081 37,617 123,574 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 1,123 15,585 6,231 28,150 2,085 20,623 17,977 6 41,814 627 26,689 18,913 61,814 5,878 45,388 35,954 10 93,461 726 57,081 37,617 123,574 27. Non-Interest Income Group (a) 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 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 - - - 25 12,236 12,236 8,810 8,810 21,796 21,796 12,516 12,541 35
332. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 27. Non-Interest Income (cont'd.) Group (b) Other income: Fee income Rental income - Others Gain on disposal of property, plant and equipment Loss on loan modification # Others Total non-interest income Bank (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 Other income: Fee income Rental income: Subsidiaries Others Gain on disposal of property, plant and equipment (Loss)/gain on loan modification # Others Total non-interest income 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 1,015 310 1,273 398 2,130 680 2,440 914 (2,419) 361 (733) 11,503 (320) 114 1,465 10,275 106 (1,611) 630 1,935 23,731 (320) 151 3,185 15,726 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 - - - 25 12,236 12,236 8,810 8,810 21,796 21,796 12,516 12,541 383 286 517 528 94 310 66 398 189 680 132 914 - - 106 - (130) 26 683 12,919 36 (320) 3 433 9,243 678 36 2,206 24,002 (320) 6 1,260 13,801
333. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 27. Non-Interest Income (cont'd.) # The Day 1 Debt Modification Loss arising from the approved 6-month moratorium given to customers affected by Covid-19 Pandemic will be included upon the completion of the credit review in the second half of the year after repayment structure has been determined. 28. Overhead Expenses 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Group Note Personnel costs (i) Establishment related expenses (ii) Promotion and marketing expenses (iii) General administrative expenses (iv) (i) Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 20,142 21,765 39,077 41,420 2,720 3,341 5,422 6,254 998 516 1,274 1,273 633 24,493 3,261 28,883 3,638 49,411 7,309 56,256 16,581 17,479 32,687 33,972 244 101 303 100 474 202 672 197 1,872 2,000 3,715 3,963 1,344 20,142 1,883 21,765 1,999 39,077 2,616 41,420 Personnel costs Salaries, allowances and bonuses Non-executive Directors' fees and remuneration Social security cost Pension costs - Defined contribution plan Other staff related expenses 37
334. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 28. Overhead Expenses (cont'd.) Group (cont'd.) (ii) 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 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 855 2 51 968 2 - 1,733 4 89 1,932 5 - 527 624 1,068 1,244 353 554 758 731 932 2,720 1,193 3,341 1,770 5,422 2,342 6,254 998 516 1,274 1,273 417 3,060 3,199 6,891 199 187 412 391 17 633 14 3,261 27 3,638 27 7,309 (iii) Promotion and marketing expenses Advertisement and publicity (iv) General administrative expenses General administrative expenses Auditors’ remuneration: - Statutory audit - Non-audit services - regulatory related services 38
335. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 28. Overhead Expenses (cont'd.) 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Bank Note Personnel costs (i) Establishment related expenses (ii) Promotion and marketing expenses (iii) General administrative expenses (iv) Overhead expenses charged to subsidiaries via SLA (i) Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 18,542 20,093 35,783 38,363 2,462 3,043 4,964 5,716 997 516 1,273 1,267 3,395 25,396 3,003 26,655 6,097 48,117 6,310 51,656 (185) 25,211 (208) 26,447 (370) 47,747 (417) 51,239 15,176 16,110 29,806 31,513 244 88 307 88 468 177 612 174 1,697 1,807 3,361 3,612 1,337 18,542 1,781 20,093 1,971 35,783 2,452 38,363 Personnel costs Salaries, allowances and bonuses Non-executive Directors' fees and remuneration Social security cost Pension costs - Defined contribution plan Other staff related expenses 39
336. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 28. Overhead Expenses (cont'd.) Bank (cont'd.) (ii) 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 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 840 2 48 947 2 - 1,704 4 83 1,892 4 - 503 581 1,005 1,158 350 424 748 592 719 2,462 1,089 3,043 1,420 4,964 2,070 5,716 997 516 1,273 1,267 3,263 2,875 5,834 6,054 125 121 249 242 7 3,395 7 3,003 14 6,097 14 6,310 (iii) Promotion and marketing expenses Advertisement and publicity (iv) General administrative expenses General administrative expenses Auditors’ remuneration: - Statutory audit - Non-audit services - regulatory related services 40
337. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 29. President/Group Chief Executive Officer and Directors' Fees and Remuneration The total remuneration (including benefits-in-kind) of the President/Group Chief Executive Officer and Directors of the Bank are as follows: 30 June 2020 Remuneration received from the Bank Pension Other BenefitsBank Salary Fees Bonus cost emoluments in-kind total Fees RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Remuneration received from Subsidiary Companies Other BenefitsGroup emoluments in-kind total RM'000 RM'000 RM'000 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 Tan Lye Sim Tan Sri Dr. Rahamat Bivi binti Yusoff Ariff bin Rozhan Total 255 255 - - 36 36 74 74 - 365 365 - - - 365 365 - 90 24 24 - - 50 22 44 - 140 46 68 - 4 - 140 46 72 255 24 24 24 24 234 234 - 36 32 29 30 27 234 308 - 56 53 54 51 468 833 - 2 6 6 - 58 53 54 51 474 839 41
338. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 29. President/Group Chief Executive Officer and Directors' Fees and Remuneration (cont'd.) The total remuneration (including benefits-in-kind) of the President/Group Chief Executive Officer and Directors of the Bank are as follows (cont'd.): 30 June 2019 Remuneration received from the Bank Pension Other BenefitsBank Salary Fees Bonus cost emoluments in-kind total Fees RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Remuneration received from Subsidiary Companies Other BenefitsGroup emoluments in-kind total RM'000 RM'000 RM'000 President/Group Chief Executive Officer Arshad bin Mohamed Ismail Non-Executive Directors: Datuk Zaiton binti Mohd Hassan 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 Dato' Othman bin Semail Dr. Mohamed Ashraf bin Mohamed Iqbal Dato' Wan Mohd Fadzmi bin Che Wan Othman Fadzilah Ariff bin Rozhan Total 118 118 - - 18 18 - - 136 136 - - - 136 136 - 88 9 7 7 5 29 29 26 24 - - 38 18 20 20 6 82 65 48 61 - 126 27 27 27 11 111 94 74 85 46 - 14 - - 126 87 27 27 11 111 94 74 85 118 10 8 242 242 - 18 9 3 370 370 - 19 11 612 748 46 46 14 14 - 19 11 672 808 42
339. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 30. Allowance for Impairment Losses of Loans, Financing and Advances Group Stage 1 - 12-month ECL, net Stage 2 - Lifetime ECL not credit impaired, net Stage 3 - Lifetime ECL credit impaired, net Impaired loans/financing: Written off Recovered Bank Stage 1 - 12-month ECL, net Stage 2 - Lifetime ECL not credit impaired, net Stage 3 - Lifetime ECL credit impaired, net Impaired loans/financing: Written off Recovered 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 62,776 46,152 75,685 45,167 45,127 (54,966) 43,183 (54,966) 76,900 4,924 98,820 197 465 (621) 107,944 1,087 (6,108) 63,065 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 625 (6,853) 117,564 1,662 (9,289) 81,394 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 63,353 46,811 77,465 46,811 45,519 (55,375) 42,622 (55,375) (1,506) 76,110 3,108 97,382 490 (655) 107,201 43 999 (5,835) 62,710 608 (5,092) 118,711 1,524 (7,832) 82,510
340. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 31. Writeback of Impairment Losses on Other Assets Group Financial investments at FVOCI Investment in JVs Tenant - written back Allowance for ex-staff loan/ financing - Written back Bank Financial investments at FVOCI Tenant - written back Allowance for ex-staff loan/ financing - Written back 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (1,398) 93 - (6) (3) (2,285) 185 (2) (5) (1,305) (9) (2,102) (8) (13) 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (1,398) - (3) (2,285) (2) (5) (1,398) (3) (2,287) (8) (13) 32. Commitments and Contingencies Loan and financing related commitments and contingencies of the Group and the Bank not included in these financial statements are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Disbursement of loans/ financing to industries Secured guarantees on behalf of borrowers/customers given to third parties Bank 30 June 31 December 2020 2019 RM'000 RM'000 4,661,252 5,230,637 4,430,522 5,011,830 2,293,452 6,954,704 2,301,585 7,532,222 2,293,452 6,723,974 2,301,585 7,313,415 44
341. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 33. Capital Adequacy 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 able 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 follows: Bank 30 June 31 December 2020 2019 RM'000 RM'000 Tier 1 capital Paid-up share capital Other reserves Less: Deferred tax asset Total Tier 1 capital 3,078,724 4,607,133 (36,939) 7,648,918 3,078,724 4,607,322 (36,939) 7,649,107 Tier 2 capital Government support funds Stage 1 and Stage 2 expected credit loss allowances Total Tier 2 capital 652,167 1,255,164 1,907,331 651,384 1,135,077 1,786,461 Total capital Less: Investment in subsidiaries Total capital base 9,556,249 (255,426) 9,300,823 9,435,568 (255,426) 9,180,142 45
342. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 33. Capital Adequacy (cont'd.) Capital management (cont'd.) Regulatory capital (cont'd.) Breakdown of risk-weighted assets in the various categories of risk-weights: Bank 30 June 31 December 2020 2019 RM'000 RM'000 20% 50% 100% 275,734 1,196,388 22,003,013 23,475,135 661,234 1,339,339 21,641,645 23,642,218 Before deducting proposed dividend: Bank 30 June 31 December 2020 2019 % % Core capital ratio RWCR 32.583 39.620 32.354 38.829 After deducting proposed dividend: Bank 30 June 31 December 2020 2019 % % Core capital ratio RWCR 32.583 39.620 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. 46
343. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk Financial risk management objectives and policies The Group’s and the Bank's financial risk management policies seek to enhance shareholder value. The Group and the Bank focuses on the enterprise wide risk exposure, which include credit, market, liquidity and operation risk and seeks 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 was established. Financial risks 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. The Board 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 interest or both, arising from customers or counterparties’ failure or unwillingness to honour their financial and contractual obligations when they are due. These obligations are from lending, placement and other activities undertaken by the Bank. Credit risk management activities conducted by the Bank are within Credit Risk Management Framework approved by the Board of Directors. This includes risk identification, assessment, measurement and monitoring. Credit risk is principally managed through the establishment of lending directions, policies and guidelines to enhance loan/financing asset quality. Credit processes are structured to ensure adherence to credit policies and to establish impartiality in loan/financing origination, approval, documentation, disbursement and settlement. All credit proposals are rated using an internal two dimensional credit rating system to measure each borrower’s risk of default and facility risk. Only viable credit 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, maximize recoveries and to ensure timely recognition of asset impairment. 47
344. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (a) Credit risk (cont'd.) Prudential limits are established according to various categories such as customer and industry sector to minimize concentration risk. Single Customer Limit ("SCL") has been extended to capture the Group exposure to manage the Bank’s and subsidiaries’ concentration risk to common group of customers at group level. Sector limit for commercial lending/financing is being observed to monitor undesirable concentration which could expose the Bank to higher risk of lending. Meanwhile, counterparty limits are in place to control over exposure to a single financial institution. Collateral is taken whenever possible to mitigate credit risk. The value of collateral is monitored periodically through frequent 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 to ensure that credit policies and procedures are complied with. (b) 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 Board. The Group and the Bank may be exposed to a loss in earnings due to the interest/profit rates structure of the balance sheet arising from interest/profit rates and yield curve changes. The sensitivity to interest/profit rates arises from the mismatches in the repricing rates, cash flows and other characteristic of the assets and their corresponding liability funding. The Group and the Bank manages its interest/profit rate risk exposure through the use of fixed/floating rate debts/financing and financial instruments. 48
345. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (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 rates at the reporting date and the periods in which the financial instruments reprice or mature, whichever is earlier. Group 30 June 2020 <----------------------------------------- Non-trading book ----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/profit Total rate RM'000 % Assets Cash and short term deposits Financial investments at FVOCI Loans, financing and advances - non-impaired - impaired * Other assets Total assets * 1,423,623 54,411 153,617 - 50,000 - 849,835 4,557,510 23,253 90,092 1,650,493 5,551,848 3.23 4.33 268,504 1,746,538 274,226 427,843 718,858 768,858 3,773,120 4,622,955 11,089,444 15,646,954 6,076 (438,495) 266,174 (52,900) 16,130,228 (438,495) 266,174 23,160,248 6.41 - This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 49
346. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Group 30 June 2020 (cont'd.) <----------------------------------------- Non-trading book ----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/profit Total rate RM'000 % 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 1,157,361 459,573 94,961 20,253 1,732,148 14,390 1,082,570 672,547 1,755,117 1,717,403 50,610 400,000 400,000 2,568,013 315,053 1,950,000 850,000 3,115,053 89,593 4,847,831 450,000 5,387,424 123,113 439,129 213,038 298 775,578 4,361,980 1,182,730 123,113 7,292,792 1,720,253 439,129 213,038 298 15,333,333 (1,327,274) (1,799,155) 1,507,902 10,259,530 (828,478) 7,826,915 50 3.79 3.25 4.85 4.72 -
347. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Group 31 December 2019 <----------------------------------------- Non-trading book ----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Effective interest/profit Total rate RM’000 % 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 * 2,634,616 - - - - 14,306 2,648,922 3.23 51,269 924,915 - - 1,051,313 3,815,267 106,116 924,915 5,023,965 4.33 161,095 2,846,980 201,778 1,126,693 696,590 696,590 3,729,658 4,780,971 11,220,423 15,035,690 12,441 (320,213) 213,535 26,185 16,021,985 (320,213) 213,535 24,513,109 6.41 - This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 51
348. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Group 31 December 2019 (cont'd.) <----------------------------------------- Non-trading book ----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/profit Total rate RM'000 % 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 1,163,140 882,669 1,838,281 150,000 2,079,982 - 321,179 - 93,172 75,728 2,214,709 1,988,281 400,000 2,479,982 632,271 (861,588) 52 (1,783,392) 2,350,000 1,250,000 3,921,179 89,593 4,850,000 450,000 5,389,593 122,449 439,129 212,255 354 774,187 5,492,175 1,032,669 122,449 7,293,172 2,175,728 439,129 212,255 354 16,767,931 3.79 3.25 4.85 4.72 - 859,792 9,646,097 (748,002) 7,745,178 -
349. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Bank 30 June 2020 <----------------------------------------- Non-trading book ----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/profit Total rate RM'000 % Assets Cash and short term deposits Financial investments at FVOCI Loans, financing and advances - non-impaired - impaired * Other assets Total assets * 1,287,318 54,411 - 50,000 - 849,835 4,557,510 6,280 85,756 1,343,598 5,547,512 3.25 4.33 266,531 1,608,260 261,581 261,581 695,944 745,944 3,634,439 4,484,274 11,087,757 15,645,267 6,076 (436,806) 252,982 (85,712) 15,952,328 (436,806) 252,982 22,659,614 6.39 - This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 53
350. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Bank 30 June 2020 (cont'd.) <----------------------------------------- Non-trading book ----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/profit Total rate RM'000 % 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 1,157,361 459,573 94,961 20,253 1,732,148 (123,888) 1,082,570 672,547 1,755,117 1,717,403 50,610 400,000 400,000 2,568,013 315,053 1,950,000 850,000 3,115,053 (1,493,536) (1,822,069) 1,369,221 54 89,593 4,847,831 450,000 5,387,424 10,257,843 80,560 439,129 213,038 251 732,978 4,361,980 1,182,730 80,560 7,292,792 1,720,253 439,129 213,038 251 15,290,733 (818,690) 7,368,881 3.79 3.25 4.85 4.72 - -
351. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Bank 31 December 2019 <----------------------------------------- Non-trading book ----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/profit Total rate RM'000 % 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 * 2,368,087 - - - - 2,933 2,371,020 3.25 51,269 882,828 - - 1,051,313 3,815,268 101,170 882,828 5,019,020 4.33 161,095 2,580,451 201,778 1,084,606 693,330 693,330 3,638,503 4,689,816 11,152,278 14,967,546 12,441 (313,740) 200,976 3,780 15,859,425 (313,740) 200,976 24,019,529 6.39 - This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 55
352. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (b) Market risk (cont'd.) (i) Interest/profit rate risk (cont'd.) Bank 31 December 2019 (cont'd.) <----------------------------------------- Non-trading book ----------------------------------------> NonUp to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 interest/profit month months months years years sensitive RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Effective interest/profit Total rate RM'000 % 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 1,163,140 882,669 93,172 75,728 2,214,709 365,742 1,838,281 150,000 1,988,281 (903,675) 56 2,079,982 400,000 2,479,982 321,179 2,350,000 1,250,000 3,921,179 89,593 4,850,000 450,000 5,389,593 79,893 439,129 212,255 309 731,586 5,492,175 1,032,669 79,893 7,293,172 2,175,728 439,129 212,255 309 16,725,330 (1,786,652) 768,637 9,577,953 (727,806) 7,294,199 3.79 3.25 4.85 4.72 - -
353. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk Liquidity risk is the risk that an enterprise 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 over a range of maturities. The Group and the Bank manages its liquidity requirement on a day-to-day basis to ensure that funds are readily available for its operational needs, withdrawals of deposits and repayments 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. 57
354. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (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 has 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. Group 30 June 2020 <-------------------------------------------- Non-trading book -------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,446,503 - 153,617 - 50,373 - 858,978 4,602,777 90,093 1,650,493 5,551,848 931,429 2,377,932 274,226 427,843 718,858 769,231 3,773,120 4,632,098 10,426,519 15,029,296 6,076 (438,495) 266,174 (76,152) 16,130,228 (438,495) 266,174 23,160,248 Assets Cash and short term deposits Financial investments at FVOCI Loans, financing and advances - non-impaired - impaired * Other assets Total assets * This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 58
355. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Group 30 June 2020 (cont'd.) <-------------------------------------------- Non-trading book -------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,247,834 1,076,974 1,692,318 272,434 72,420 - 4,361,980 460,774 9 1,708,617 671,778 16 1,748,768 50,178 404,488 403,936 73 2,550,993 1,977,643 858,841 200 3,109,118 4,910,661 457,476 5,440,557 123,113 439,129 213,038 775,280 1,182,730 123,113 7,292,792 1,720,253 439,129 213,038 298 15,333,333 (1,320,925) (1,781,762) 1,522,980 9,588,739 (851,432) 7,826,915 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 669,315 59
356. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) 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 has 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. Group 31 December 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 * <----------------------------------------- Non-trading book ----------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific months months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 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 1,126,693 696,590 696,590 3,729,658 4,791,762 10,606,910 14,462,655 12,441 (320,213) 213,535 11,879 16,021,985 (320,213) 213,535 24,513,109 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 60
357. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Group 31 December 2019 (cont'd.) <----------------------------------------- Non-trading book ----------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific months months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Infrastructure support fund Deferred income Lease liabilities Total liabilities 1,250,951 1,832,024 2,065,935 272,454 70,811 - 5,492,175 882,399 51,239 150,270 - 403,950 2,382,418 1,262,944 4,910,754 457,595 12 2,184,601 25 1,982,319 107 2,469,992 210 3,918,026 5,439,160 122,449 439,129 212,255 773,833 1,032,669 122,449 7,293,172 2,175,728 439,129 212,255 354 16,767,931 Net maturity mismatches 1,238,929 873,736 9,023,495 (761,954) 7,745,178 Equity and liabilities (855,626) (1,773,402) 61
358. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) 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 has 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. Bank 30 June 2020 Assets Cash and short term deposits Financial investments at FVOCI Loans, financing and advances - non-impaired - impaired * Other assets Total assets * <----------------------------------------- Non-trading book ----------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,293,225 - - 50,373 - 858,978 4,602,778 85,756 1,343,598 5,547,512 929,456 261,581 695,944 3,634,439 10,424,832 2,222,681 261,581 746,317 4,493,417 15,027,610 6,076 (436,806) 252,982 (91,992) 15,952,328 (436,806) 252,982 22,659,614 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 62
359. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Bank 30 June 2020 (cont'd.) <----------------------------------------- Non-trading book ----------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,247,834 1,076,974 1,692,318 272,434 72,420 - 4,361,980 460,774 7 1,708,615 671,778 14 1,748,766 50,178 404,488 403,936 65 2,550,985 1,977,643 858,841 165 3,109,083 4,910,661 457,476 5,440,557 80,560 439,129 213,038 732,727 1,182,730 80,560 7,292,792 1,720,253 439,129 213,038 251 15,290,733 (1,487,185) (1,804,668) 1,384,334 9,587,053 (824,719) 7,368,881 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 514,066 63
360. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) 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 has 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. Bank 31 December 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 * <------------------------------------------ Non-trading book ---------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific months months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 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 1,084,606 693,330 693,330 3,638,503 4,700,607 10,538,765 14,394,511 12,441 (313,740) 200,976 847 15,859,425 (313,740) 200,976 24,019,529 This is arrived at after deducting Stage 1, Stage 2 and Stage 3 from the outstanding gross impaired loans/financing. 64
361. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (i) Contractual maturity of total assets and liabilities (cont'd.) Bank 31 December 2019 (cont'd.) <------------------------------------------ Non-trading book ---------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific months months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,250,951 1,832,024 2,065,935 272,454 70,811 - 5,492,175 882,399 51,239 12 2,184,601 150,270 24 1,982,318 403,950 106 2,469,991 2,382,418 1,262,944 167 3,917,983 4,910,754 457,595 5,439,160 79,893 439,129 212,255 731,277 1,032,669 79,893 7,293,172 2,175,728 439,129 212,255 309 16,725,330 8,955,351 (730,430) 7,294,199 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 961,027 (897,712) (1,776,661) 65 782,624
362. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (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 March 2019 and 31 December 2018. 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. Group 30 June 2020 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities <----------------------------------------- Non-trading book ------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,248,802 1,082,570 1,717,403 278,248 73,420 - 4,400,443 461,071 15 1,709,888 673,979 30 1,756,579 50,611 425,200 418,420 135 2,611,769 2,077,930 956,003 231 3,312,412 7,472,796 600,499 8,146,715 123,113 123,113 1,185,661 123,113 9,975,926 1,974,922 411 17,660,476 1,252,626 1,842,865 2,096,150 278,253 73,420 - 5,543,314 883,207 51,481 14 2,187,328 150,892 28 1,993,785 409,149 127 2,505,426 2,612,260 1,403,652 231 4,294,396 7,715,330 611,503 8,400,253 122,449 122,449 1,034,099 122,449 10,327,590 2,475,785 400 19,503,637 31 December 2019 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities 66
363. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the financial statements - 30 June 2020 (cont'd.) 34. Financial Instruments Risk (cont'd.) (c) Liquidity risk (cont'd.) (ii) Contractual maturity of financial liabilities on an undiscounted basis (cont'd.) Bank 30 June 2020 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities <----------------------------------------- Non-trading book ------------------------------------------> Up to 1 >1 - 3 >3 - 12 >1 - 5 Over 5 Non-specific month months months years years maturity Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,248,802 1,082,570 1,717,403 278,248 73,420 - 4,400,443 461,071 14 1,709,887 673,979 27 1,756,576 50,611 425,200 418,420 123 2,611,757 2,077,930 956,003 197 3,312,378 7,472,796 600,499 8,146,715 80,560 80,560 1,185,661 80,560 9,975,926 1,974,922 361 17,617,873 1,252,626 1,842,865 2,096,150 278,253 73,420 - 5,543,314 883,207 51,481 13 2,187,327 150,892 26 1,993,783 409,149 116 2,505,415 2,612,260 1,403,652 197 4,294,362 7,715,330 611,503 8,400,253 79,893 79,893 1,034,099 79,893 10,327,590 2,475,785 352 19,461,033 31 December 2019 Liabilities Deposits from customers Deposits and placements from financial institutions Other liabilities Redeemable notes/Sukuk Borrowings Lease liabilities Total liabilities 67
364. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business The state of affairs as at 30 June 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: Interim Financial Statements Unaudited Statements of Financial Position As at 30 June 2020 Note Assets Cash and short term deposits Deposits and placements with financial institutions Financial investments at FVOCI Financing and advances Other assets Total assets Liabilities Deposits from customers Deposits from financial institutions Other liabilities Sukuk Deferred income Total liabilities Equity Capital funds Reserves Total equity Bank 30 June 31 December 2020 2019 RM'000 RM'000 (a) 1,025,711 1,384,176 1,012,958 1,351,797 (b) - 150,681 - 150,681 (c) (d) (e) 1,993,889 11,419,938 5,398 14,444,936 2,006,990 11,254,745 5,026 14,801,618 1,993,889 11,347,833 5,043 14,359,723 2,006,990 11,222,492 4,737 14,736,697 (f) 4,852,186 4,361,980 4,852,186 (g) (h) (i) 4,361,980 671,738 286,049 6,076,065 207,529 11,603,361 501,519 236,061 6,076,247 212,255 11,878,268 671,738 240,112 6,076,065 207,529 11,557,424 501,519 209,520 6,076,247 212,255 11,851,727 (j) 1,722,418 1,119,157 2,841,575 1,722,418 1,200,932 2,923,350 1,717,418 1,084,881 2,802,299 1,717,418 1,167,552 2,884,970 14,444,936 14,801,618 14,359,723 14,736,697 6,238,163 6,769,669 6,238,163 6,769,669 Total liabilities and equity Commitments and contingencies Group 30 June 31 December 2020 2019 RM'000 RM'000 (s) 68
365. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) Interim Financial Statements Unaudited Statements of Profit or Loss For the Financial Half Year Ended 30 June 2020 Group Note Income derived from investment of depositors' funds Income derived from investment of shareholders' funds Allowance for impairment losses on financing and advances Writeback/(allowance) for impairment losses on other assets Total distributable income Income attributable to the depositors 47,191 58,708 98,184 115,094 (l) 143,762 132,028 306,469 269,707 (m) (92,761) (30,857) (114,061) (40,486) (n) 1,399 (o) (p) (q) (Loss)/profit before zakat Zakat (Loss)/profit before zakat Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (k) Total net income Overhead expenses Finance cost 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 (r) (1) 2,283 7 99,591 159,878 292,875 344,322 (41,016) (52,399) (83,414) (104,880) 58,575 107,479 209,461 239,442 (16,933) (69,136) (10,795) (68,292) (32,161) (138,715) (26,569) (136,886) (27,494) 28,392 38,585 75,987 (1,470) (14,008) (7,354) (18,910) (28,964) 14,384 31,231 57,077 69
366. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) Interim Financial Statements Unaudited Statements of Comprehensive Income For the Financial Half Year Ended 30 June 2020 Group (Loss)/profit before zakat Other comprehensive income 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 period - Changes in writeback for expected credit losses Total comprehensive income for the period, net of zakat Total comprehensive income attributable to: Shareholders of the Bank 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (28,964) 14,384 31,231 57,077 59,838 16,367 41,491 45,174 (1,399) 58,439 16,367 (2,283) 39,208 45,174 29,475 30,751 70,439 102,251 29,475 29,475 30,751 30,751 70,439 70,439 102,251 102,251 47,191 58,708 98,184 115,094 143,762 132,028 306,469 269,707 (41,016) (69,136) (52,399) (68,292) (83,414) (138,715) (104,880) (136,886) 80,801 70,045 182,524 143,035 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 70
367. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) Interim Financial Statements Unaudited Statements of Profit or Loss For the Financial Half Year Ended 30 June 2020 Bank Note Income derived from investment of depositors' funds Income derived from investment of shareholders' funds Allowance for impairment losses on financing and advances Writeback/(allowance) for impairment losses on other assets Total distributable income Income attributable to the depositors Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (k) 47,191 56,909 98,184 113,295 (l) 142,739 132,985 304,351 269,703 (m) (94,746) (31,458) (114,219) (41,185) (n) 1,399 (o) Total net income Overhead expenses Finance cost 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 (p) (q) (Loss)/profit before zakat Zakat (Loss)/profit for the period (r) (1) 2,283 7 96,583 158,435 290,599 341,820 (41,016) (52,399) (83,414) (104,880) 55,567 106,036 207,185 236,940 (16,545) (69,136) (14,303) (68,292) (31,457) (138,715) (26,899) (136,886) (30,114) 23,441 37,013 73,155 (13,384) (6,678) (17,306) 10,057 30,335 55,849 (945) (31,059) 71
368. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) Interim Financial Statements Unaudited Statements of Comprehensive Income For the Financial Half Year Ended 30 June 2020 Bank (Loss)/profit for the period Other comprehensive income 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 period - Changes in writeback for expected credit losses Total comprehensive income for the period, net of zakat Total comprehensive 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 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (31,059) 10,057 30,335 55,849 59,838 16,367 41,491 45,174 (1,399) 58,439 16,367 (2,283) 39,208 45,174 27,380 26,424 69,543 101,023 27,380 27,380 26,424 26,424 69,543 69,543 101,023 101,023 47,191 56,909 98,184 113,295 142,739 132,985 304,351 269,703 (41,016) (69,136) (52,399) (68,292) (83,414) (138,715) (104,880) (136,886) 79,778 69,203 180,406 141,232 72
369. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 March 2020 35. Islamic Financial Business (cont'd.) Interim Financial Statements Unaudited Consolidated Statement of Changes in Equity For the Financial Half Year Ended 30 June 2020 Capital funds RM'000 Unrealised FVOCI Statutory reserve reserve RM'000 RM'000 Retained profits RM'000 Total RM'000 Group At 1 January 2020 Total comprehensive income for the period Dividend paid At 30 June 2020 1,722,418 1,722,418 463,213 463,213 154,415 39,208 193,623 583,304 31,231 (152,214) 462,321 2,923,350 70,439 (152,214) 2,841,575 At 1 January 2019 Total comprehensive income for the period At 30 June 2019 1,602,400 1,602,400 - 23,441 28,807 52,248 87,015 131,454 218,469 1,712,856 160,261 1,873,117 73
370. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 31 March 2020 35. Islamic Financial Business (cont'd.) Interim Financial Statements Unaudited Statement of Changes in Equity For the Financial Half Year Ended 30 June 2020 Capital funds RM'000 Bank At 1 January 2020 Total comprehensive income for the period Dividend paid At 30 June 2020 At 1 January 2019 Total comprehensive income for the period At 30 June 2019 Unrealised FVOCI Statutory reserve reserve RM'000 RM'000 1,717,418 - 463,213 - 154,415 39,208 1,717,418 463,213 1,597,400 1,597,400 - 74 Retained profits RM'000 Total RM'000 193,623 549,924 30,335 (152,214) 428,045 2,884,970 69,543 (152,214) 2,802,299 23,441 45,174 68,615 54,238 55,849 110,087 1,675,079 101,023 1,776,102
371. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) Interim Financial Statements Unaudited Statements of Cash Flows For the Financial Half Year Ended 30 June 2020 Group 30 June 30 June 2020 2019 RM'000 RM'000 Cash flows from operating activities Profit before zakat Adjustments for: Net gain on sale of financial investments at FVOCI Accretion of discount less amortisation of premium of financial investments Impairment written back for: Financial investments at FVOCI Allowance for impairment losses on financing and advances, net Loss due to financing modification Impairment allowance for: Impaired financing written off Compensation from the Government Operating cash flows before working capital changes (Increase)/decrease in operating assets: Other assets Deposits and placements with financial institutions Financing and advances Bank 30 June 2020 RM'000 30 June 2019 RM'000 38,585 75,987 37,013 73,155 (7,002) (17,218) (7,002) (17,218) (1,484) 221 (1,484) 221 (2,283) - (2,283) - 114,411 40,441 114,225 41,101 9,689 688 9,378 688 25 90 25 84 (10,029) (8,393) (10,029) (8,393) 141,912 91,816 139,843 89,638 (30,504) 1,797 (30,437) 2,886 150,681 (286,687) (166,510) 75 (135,738) (133,941) 150,681 (246,338) (126,094) (139,420) (136,534)
372. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) Interim Financial Statements Unaudited Statements of Cash Flows For the Financial Half Year Ended 30 June 2020 (cont'd.) Group 30 June 30 June 2020 2019 RM'000 RM'000 Bank 30 June 2020 RM'000 30 June 2019 RM'000 67,955 170,219 (490,206) 20,571 60,165 (304,323) 49,234 170,219 (490,206) 19,714 60,165 (304,323) (252,032) (748,095) (971,682) (270,753) (748,095) (972,539) (276,630) (25,502) (1,013,807) - (257,004) (25,502) (1,019,435) - (302,132) (1,013,807) (282,506) (1,019,435) (275,110) (151,539) (275,110) (151,539) Cash flows from operating activities (cont'd.) (Decrease)/increase in operating liabilities : Other liabilities Deposits from interbank Deposits from customers Deposits and placements from financial institutions Cash used in operating activities Zakat paid Net cash used in operating activities Cash flows from investing activities Purchase of financial investments at FVOCI Proceeds from disposal/maturity of financial investments at FVOCI Net cash generated from investing activities Cash flows from financing activities Dividend paid Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 370,991 1,542,213 370,991 1,542,213 95,881 1,390,674 95,881 1,390,674 (152,214) - (152,214) - (152,214) - (152,214) - (358,465) 376,867 (338,839) 371,239 1,384,176 867,162 1,351,797 833,719 1,025,711 76 1,244,029 1,012,958 1,204,958
373. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (a) Cash and Short Term Deposits Group 30 June 31 December 2020 2019 RM'000 RM'000 Cash and bank balances with financial institutions Money at call and deposit placements maturing within one month Bank 30 June 31 December 2020 2019 RM'000 RM'000 5,811 3,502 4,302 1,749 1,019,900 1,025,711 1,380,674 1,384,176 1,008,656 1,012,958 1,350,048 1,351,797 - 150,681 - 150,681 (b) Deposits and placements with financial institutions Licensed banks (c) Financial Investments at FVOCI Movements in allowances for impairment which reflect the ECL allowance are as follows: Group Bank 30 June 31 December 30 June 31 December 2020 2019 2020 2019 RM'000 RM'000 RM'000 RM'000 At fair value Debt Instruments: Money market instruments: Government investment issues 208,024 532,047 208,024 532,047 Unquoted securities: Sukuk 1,785,865 1,474,943 1,785,865 1,474,943 Total financial investments at FVOCI 1,993,889 2,006,990 1,993,889 2,006,990 77
374. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (c) Financial Investments at FVOCI (cont'd.) Movements in allowances for impairment which reflect the ECL allowance are as follows: 12-Month Not Credit Credit ECL Impaired Impaired Stage 1 Stage 2 Stage 3 Total Group and Bank RM'000 RM'000 RM'000 RM'000 At 1 January 2020 Net allowance made New financial investments purchased Net allowance additional At 30 June 2020 Group and Bank At 1 January 2019 Net allowance made New financial investments purchased Net allowance additional At 31 December 2019 2,095 (344) 54,105 (1,939) - 56,200 (2,283) 5 (349) 1,751 (1,939) 52,166 - 5 (2,288) 53,917 12-Month ECL Stage 1 RM'000 Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 286 1,809 54,105 - 286 55,914 34 1,775 2,095 20,936 33,169 54,105 - 20,970 34,944 56,200 78
375. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (d) Financing and Advances Group 30 June 31 December 2020 2019 RM'000 RM'000 Bai' Bithaman Ajil Murabahah Istisna' Ijarah Muntahiyah bi Tamlik i-Factoring Tawarruq Staff financing Unearned income Gross financing and advances Bank 30 June 31 December 2020 2019 RM'000 RM'000 58,226 8,290 3,699,850 70,488 10,221 15,177,802 7,649 (6,283,105) 91,999 8,315 3,884,854 52,079 14,969,098 7,884 (6,542,567) 57,097 8,290 3,699,850 18,383 15,163,764 7,649 (6,283,105) 89,053 8,315 3,884,854 20,694 14,964,129 7,884 (6,542,567) 12,749,421 12,471,662 12,671,928 12,432,362 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 Net financing and advances (678,117) (595,108) (676,841) (593,149) (230,583) (197,685) (230,305) (197,686) (420,783) (424,124) (416,949) (419,035) (1,329,483) (1,216,917) (1,324,095) (1,209,870) 11,419,938 11,254,745 11,347,833 11,222,492 79
376. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (i) Financing and advances analysed by type of customers are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Domestic business enterprises Individual (ii) 12,743,860 5,561 12,749,421 12,464,185 7,477 12,471,662 Bank 30 June 31 December 2020 2019 RM'000 RM'000 12,667,496 4,432 12,671,928 12,427,831 4,531 12,432,362 Financing and advances analysed by profit rate sensitivity are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Fixed rate: Housing financing Other fixed rate financing Variable rate: Cost plus Other variable rates Bank 30 June 31 December 2020 2019 RM'000 RM'000 5,561 7,477 4,432 4,531 7,997,369 8,021,671 7,997,369 8,021,671 2,913,552 1,832,939 12,749,421 2,331,127 2,111,387 12,471,662 2,837,188 1,832,939 12,671,928 2,294,773 2,111,387 12,432,362 80
377. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (iii) Financing and advances analysed by industry are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 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 30 June 31 December 2020 2019 RM'000 RM'000 11 6,377,346 1,705,676 11 5,862,923 1,761,496 6,377,345 1,705,676 5,862,923 1,761,496 142,915 133,331 142,915 133,331 51,085 348,327 4,432 265,249 263,066 31,873 314,796 4,531 238,365 181,999 348,327 4,432 254,911 263,066 314,796 4,531 238,141 181,999 69,226 58,967 56,015 56,018 12,265 558,110 130,322 16,156 517,304 130,339 12,265 558,110 130,322 16,156 517,304 130,339 2,821,391 12,749,421 3,219,571 12,471,662 2,818,544 12,671,928 3,215,328 12,432,362 (iv) The maturity structure of financing and advances are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Receivable after 12 months Receivable within 12 months Bank 30 June 31 December 2020 2019 RM'000 RM'000 11,627,590 11,369,576 11,550,097 11,330,276 1,121,831 12,749,421 1,102,086 12,471,662 1,121,831 12,671,928 1,102,086 12,432,362 81
378. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (vi) Movements in impaired financing and advances are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 At 1 January Impaired during the period/financial year Reclassified as non-impaired Recovered during the period/financial year Amount written off Closing balance Gross impaired financing and advances as a % of gross financing and advances Bank 30 June 31 December 2020 2019 RM'000 RM'000 716,443 802,978 707,090 791,580 105,739 45,969 105,211 45,969 (88,702) (55,096) (88,107) (55,096) (58,006) 675,474 (68,924) (8,484) 716,443 (57,208) 666,986 (66,879) (8,484) 707,090 5.30% 5.74% 5.26% 5.69% (vii) Impaired financing and advances analysed by industry are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Construction Education Electricity, gas and water supply Hotel and restaurants Manufacturing Shipping Other community, social and personal service activities Transport, storage and communication Bank 30 June 31 December 2020 2019 RM'000 RM'000 89,105 40,347 84,256 39,979 89,105 40,347 84,256 39,979 21,829 114,778 8,939 242,312 21,752 114,000 17,274 275,851 21,829 113,803 8,921 242,312 21,752 113,085 17,236 275,851 5,208 5,631 - - 152,956 675,474 157,700 716,443 150,669 666,986 154,931 707,090 82
379. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (viii) Movements in allowance for impaired financing and advances are as follows: Group 12-Month ECL Stage 1 RM'000 Lifetime ECL Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 At 1 January 2020 Allowance/(written back) made, net Amount written off At 30 June 2020 595,108 197,685 424,124 1,216,917 83,009 678,117 32,897 230,582 (1,533) (1,806) 420,785 114,373 (1,806) 1,329,484 At 1 January 2019 - Transfer to Lifetime ECL not credit impaired (Stage 2) - Transfer to Lifetime ECL credit impaired (Stage 3) - Transfer to Lifetime ECL credit impaired (Stage 3) Allowance/(written back) made, net Amount written off At 31 December 2019 522,081 154,315 456,472 1,132,868 (46,227) 46,227 - - - (14,236) 14,236 - - 34,947 (34,947) - (23,568) 197,685 (2,205) (9,432) 424,124 119,254 595,108 83 93,481 (9,432) 1,216,917
380. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (viii) Movements in allowance for impaired financing and advances are as follows (cont'd.): Bank 12-Month ECL Stage 1 RM'000 Lifetime ECL Lifetime ECL Not Credit Credit Impaired Impaired Stage 2 Stage 3 RM'000 RM'000 Total RM'000 At 1 January 2020 Allowance/(written back) made, net At 30 June 2020 593,149 197,686 419,035 1,209,870 83,692 676,841 32,619 230,305 (2,086) 416,949 114,225 1,324,095 At 1 January 2019 - Transfer to Lifetime ECL not credit impaired (Stage 2) - Transfer to Lifetime ECL credit impaired (Stage 3) - Transfer from Lifetime ECL credit impaired (Stage 3) Allowance/(written back) made, net Amount written off At 31 December 2019 521,902 154,298 450,693 1,126,893 (46,227) 46,227 - - - (14,236) 14,236 - - 34,947 (34,947) - (23,550) 197,686 (1,515) (9,432) 419,035 117,474 593,149 84 92,409 (9,432) 1,209,870
381. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (d) Financing and Advances (cont'd.) (ix) Financing and advances analysed by geographical distribution are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 Within Malaysia 12,749,421 12,471,662 Bank 30 June 31 December 2020 2019 RM'000 RM'000 12,671,928 12,432,362 (e) Other Assets Group 30 June 31 December 2020 2019 RM'000 RM'000 Sundry receivables Amount receivable from Government Interfund receivables Bank 30 June 31 December 2020 2019 RM'000 RM'000 4,826 2,179 4,471 1,890 572 5,398 572 2,275 5,026 572 5,043 572 2,275 4,737 (f) Deposits from Customers Group and Bank 30 June 31 December 2020 2019 RM'000 RM'000 At amortised cost Fixed deposits and negotiable instruments of deposits 4,361,980 4,852,186 1,398,788 2,963,192 4,361,980 880,874 3,971,312 4,852,186 3,280,707 736,418 272,434 72,421 4,361,980 4,253,976 254,946 272,454 70,810 4,852,186 (a) The deposits are sourced from the following types of customers: Business enterprises Government and statutory bodies (b) The deposits maturity structure are as follows: Less than six months Six months to one year One year to three years Three years to five years Over five years 85
382. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (g) Deposits and Placements from Financial Institutions Group and Bank 30 June 31 December 2020 2019 RM'000 RM'000 At amortised cost Licensed banks 671,738 501,519 671,738 501,519 (a) The deposits maturity structure are as follows: Less than six months (h) Other Liabilities Note Other payables Zakat payables Kafalah received in advance Charity payables Interfund payables (i) (i) (ii) Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 27,478 11,198 7,346 24,520 23,288 10,700 6,382 21,350 12,734 27 234,612 286,049 19,854 27 184,314 236,061 12,734 27 193,363 240,112 19,854 27 161,907 209,520 No. of events 2020 RM'000 No. of events 2019 RM'000 - - 2 2 27 27 Shariah non-compliant events SNC income derecognised from the Bank's income due to placement of Islamic fund in Conventional Instrument 86
383. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (h) Other Liabilities (cont'd.) (i) Shariah non-compliant events (cont'd.) 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. Group and Bank Undistributed funds as at 1 January 2020/30 June 2020 (ii) (i) Shariah NonCompliance Income RM'000 Total RM'000 27 27 Interfund payables are unsecured, profit free and are repayable on demand. Sukuk Note Group and Bank 30 June 31 December 2020 2019 RM'000 RM'000 Non-guaranteed Sukuk Murabahah (i) 3,034,095 3,034,095 3,034,278 3,034,278 Guaranteed Sukuk Murabahah (ii) 3,041,970 3,041,970 3,041,969 3,041,969 6,076,065 6,076,247 (i) These sukuk carry profit rates ranging between 4.28% to 4.98% per annum and for tenures of 5 years to 19 years. These sukuk will mature in March 2022, 2026, 2027, 2031, 2032 and 2035 respectively. (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. 87
384. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (j) Reserves Note Non-distributable: Unrealised FVOCI reserve Statutory reserve (i) Distributable: Retained profits (i) Group 30 June 31 December 2020 2019 RM'000 RM'000 Bank 30 June 31 December 2020 2019 RM'000 RM'000 193,623 463,213 656,836 154,415 443,483 597,898 193,623 463,213 656,836 154,415 443,483 597,898 462,321 1,119,157 603,034 1,200,932 428,045 1,084,881 569,654 1,167,552 Unrealised FVOCI reserve represents the cumulative fair value changes, net of tax, of FVOCI financial assets until they are disposed of or impaired. Movements of the FVOCI reserve are as follows: Group 30 June 31 December 2020 2019 RM'000 RM'000 At 1 January Unrealised gain on fair value changes Changes in (writeback)/ allowance for expected credit losses Closing balance Bank 30 June 31 December 2020 2019 RM'000 RM'000 154,415 23,441 154,415 23,441 41,491 75,060 41,491 75,060 (2,283) 193,623 55,914 154,415 (2,283) 193,623 55,914 154,415 88
385. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (k) Income Derived from Investment of Depositors' Funds Group Finance Income Financing and advances Other income: Fee income Ta'widh Loss on financing modification # Of which: Finance income earned on impaired financing and advances Bank Finance Income Financing and advances Other income: Fee income Ta'widh Loss on financing modification # Of which: Finance income earned on impaired financing and advances 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 46,201 55,110 95,000 108,400 2,746 50 3,790 63 5,315 525 6,886 63 (1,806) 47,191 (255) 58,708 (2,656) 98,184 2,484 3,281 224 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 (255) 115,094 3,955 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 46,201 53,851 95,000 107,141 2,746 50 3,284 29 5,315 525 6,346 63 (1,806) 47,191 (255) 56,909 (2,656) 98,184 2,446 3,397 340 89 (255) 113,295 3,917
386. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (l) Income Derived from Investment of Shareholders' Funds Group Finance Income Financing and advances Compensation from the Government Deposits and placements with financial institution Financial investments at FVOCI Accretion of discount less amortisation of premium Other income: Net gain arising on financial investment at FVOCI : - net gain on disposal Fee income Tawidh Loss on financing modification # Of which: Finance income earned on impaired financing and advances 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 103,703 83,856 228,388 170,183 4,736 4,194 10,029 8,393 5,425 12,928 9,704 19,573 21,592 135,456 18,334 119,312 42,601 290,722 44,771 242,920 731 136,187 (50) 119,262 1,484 292,206 (221) 242,699 7,002 13,054 1,240 17,218 10,122 99 (7,033) 306,469 (431) 269,707 5,947 6,433 (9) (4,796) 143,762 270 90 7,958 5,194 45 (431) 132,028 3,074 8,033 6,223
387. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (l) Income Derived from Investment of Shareholders' Funds (cont'd.) Bank Finance Income Financing and advances Compensation from the Government Deposits and placements with financial institution Financial investments at FVOCI Accretion of discount less amortisation of premium Other income: Net gain arising on financial investment at FVOCI : - net gain on disposal Fee income Ta'widh Loss on financing modification # Of which: Finance income earned on impaired financing and advances 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 102,952 84,552 226,697 170,183 4,736 4,194 10,029 8,393 5,169 13,193 9,448 19,573 21,592 134,449 18,334 120,273 42,601 288,775 44,771 242,920 731 135,180 (50) 120,223 1,484 290,259 (221) 242,699 7,002 12,596 1,216 17,218 10,118 99 (6,722) 304,351 (431) 269,703 5,946 6,131 (33) (4,485) 142,739 173 7,958 5,190 45 (431) 132,985 3,088 7,926 6,223 # The Day 1 Debt Modification Loss arising from the approved 6-month moratorium given to customers affected by Covid-19 Pandemic will be included upon the completion of the credit review in the second half of the year after repayment structure has been determined. 91
388. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (m) Allowances for Impairment Losses of Financing and Advances Group Stage 1 - 12-month ECL, net Stage 2 - Lifetime ECL not credit impaired, net Stage 3 - Lifetime ECL credit impaired, net Impaired financing: Written off Recovered Bank Stage 1 - 12-month ECL, net Stage 2 - Lifetime ECL not credit impaired, net Stage 3 - Lifetime ECL credit impaired, net Impaired financing: Written off Recovered 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 59,813 45,843 83,008 45,843 37,002 (17,823) 32,956 (17,444) (1,757) 2,842 (1,553) 12,042 (2,272) (25) 92,761 5 (10) 30,857 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 25 (375) 114,061 90 (45) 40,486 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 60,137 45,710 83,691 45,710 36,754 (17,444) 32,620 (17,444) (2,145) 3,189 (2,086) 12,835 94,746 3 31,458 24 (30) 114,219 84 41,185 (n) Writeback for Impairment Losses on Other Assets Group and Bank Financial investments at FVOCI Allowance for ex-staff financing - Written back 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (1,399) - (2,283) - (1,399) 1 1 (2,283) 7 7 92
389. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (o) Income Attributable to the Depositors 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Group and Bank Deposits from customers Deposits and placements from financial institutions Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 34,993 51,868 72,564 104,047 6,023 41,016 531 52,399 10,850 83,414 833 104,880 (p) Overhead Expenses Group Personnel costs Establishment related expenses Promotion and marketing expenses General administrative expenses (i) Note 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (i) 13,282 8,502 25,580 21,292 (ii) 1,077 1,080 1,871 1,707 (iii) 701 296 894 700 (iv) 1,873 16,933 917 10,795 3,816 32,161 2,870 26,569 10,770 65 6,198 50 21,165 129 17,431 96 1,253 1,038 2,416 2,007 1,194 13,282 1,216 8,502 1,870 25,580 1,758 21,292 Personnel costs Salaries, allowances and bonuses Social security cost Pension costs - Defined contribution plan Other staff related expenses 93
390. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (p) Overhead Expenses (cont'd.) Group (cont'd.) 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (ii) Establishment related expenses Repairs and maintenance of property, plant and equipment Information technology expenses 553 546 832 636 524 1,077 534 1,080 1,039 1,871 1,071 1,707 701 296 894 700 1,873 917 3,816 2,870 (iii) Promotion and marketing expenses Advertisement and publicity (iv) General administrative expenses General administrative expenses 94
391. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (p) Overhead Expenses (cont'd.) Bank Personnel costs Establishment related expenses Promotion and marketing expenses General administrative expenses (i) Note 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (i) 13,044 11,465 25,137 21,292 (ii) 1,031 1,107 1,800 1,707 (iii) 701 297 894 700 (iv) 1,769 16,545 1,434 14,303 3,626 31,457 3,200 26,899 10,606 62 9,161 50 20,798 124 17,431 96 1,189 1,038 2,352 2,007 1,187 13,044 1,216 11,465 1,863 25,137 1,758 21,292 553 546 831 636 478 1,031 561 1,107 969 1,800 1,071 1,707 701 297 894 700 Personnel costs Salaries, allowances and bonuses Social security cost Pension costs - Defined contribution plan Other staff related expenses (ii) Establishment related expenses Repairs and maintenance of property, plant and equipment Information technology expenses (iii) Promotion and marketing expenses Advertisement and publicity 95
392. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (p) Overhead Expenses (cont'd.) Bank 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 (iv) General administrative expenses General administrative expenses 1,769 1,434 3,626 3,200 The above overhead expenses have been determined after charging amongst other items the following: Shariah Committee's remuneration 61 56 122 100 (q) Finance Cost Group and Bank Sukuk - Non Guaranteed Sukuk - Guaranteed 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 34,729 34,407 69,136 34,260 34,032 68,292 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 69,900 68,815 138,715 68,760 68,126 136,886 (r) Zakat Group Zakat 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 1,470 96 14,008 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 7,354 18,910
393. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (r) Zakat (cont'd.) Bank 2nd Quarter Ended 30 June 30 June 2020 2019 RM'000 RM'000 Zakat 945 13,384 Half Year Ended 30 June 30 June 2020 2019 RM'000 RM'000 6,678 17,306 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%. 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 the asnaf were approved by the Shariah Committee. (s) Commitments and Contingencies Financing related commitments and contingencies of the Group and the Bank not included in these financial statements are as follows: Group and Bank 30 June 31 December 2020 2019 RM'000 RM'000 Disbursement of financing to industries Secured guarantees on behalf of customers given to third parties 97 3,981,810 4,505,183 2,256,353 6,238,163 2,264,486 6,769,669
394. 197301003074 Bank Pembangunan Malaysia Berhad (Incorporated in Malaysia) Notes to the Financial Statements - 30 June 2020 35. Islamic Financial Business (cont'd.) (t) Capital Adequacy Capital management Regulatory capital The following table sets forth capital resources and capital adequacy for the Bank as at reporting date. Bank 30 June 31 December 2020 2019 RM'000 RM'000 Tier 1 capital Capital funds 1,717,418 1,717,418 Other reserves 1,045,671 1,165,902 Total Tier 1 capital 2,763,089 2,883,320 Tier 2 capital Government support funds Stage 1 and Stage 2 expected credit loss allowances Total Tier 2 capital 207,532 907,146 1,114,678 212,255 790,835 1,003,090 Total capital base 3,877,767 3,886,410 Breakdown of risk-weighted assets in the various categories of risk-weights: Bank 30 June 31 December 2020 2019 RM'000 RM'000 20% 50% 100% 204,663 1,105,025 15,276,473 16,586,161 305,054 1,235,447 14,944,801 16,485,302 Before deducting proposed dividend: Bank 30 June 31 December 2020 2019 % % Core capital ratio RWCR 16.659 23.380 98 17.490 23.575
395. ISSUER Bank Pembangunan Malaysia Berhad (Company Registration No. 197301003074 (16562-K)) Level 16, Bandar Wawasan, No. 1016, Jalan Sultan Ismail, 50250 Kuala Lumpur. JOINT PRINCIPAL ADVISERS/JOINT LEAD ARRANGERS/JOINT LEAD MANAGERS CIMB Investment Bank Berhad Maybank Investment Bank Berhad (Company Registration No. 197401001266 (18417-M)) Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral 50470 Kuala Lumpur (Company Registration No. 197301002412 (15938-H)) Level 32, Menara Maybank 100, Jalan Tun Perak 50050 Kuala Lumpur JOINT SHARIAH ADVISERS CIMB Islamic Bank Berhad Maybank Islamic Berhad (Company Registration No. 200401032872 (671380-H)) Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral 50470 Kuala Lumpur (Company Registration No. 200701029411 (787435-M)) Level 15, Tower A Dataran Maybank 1, Jalan Maarof 59000 Kuala Lumpur SOLICITORS TO THE JOINT PRINCIPAL ADVISERS/JOINT LEAD ARRANGERS/JOINT LEAD MANAGERS SUKUK TRUSTEE Messrs. Zaid Ibrahim & Co. Level 19 Menara Milenium Jalan Damanlela Pusat Bandar Damansara 50490 Kuala Lumpur SOLICITORS TO THE ISSUER Messrs. Lee Hishamuddin Allen & Gledhill Level 6, Menara 1 Dutamas Solaris Dutamas, No. 1, Jalan Dutamas 1 50480 Kuala Lumpur Malaysian Trustees Berhad (Company Registration No. 197501000080 (21666-V)) Level 9, Tower One, RHB Centre Jalan Tun Razak 50400 Kuala Lumpur