Bank Rakyat: Annual Report 2018

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Bank Rakyat: Annual Report 2018

Amanah, Fatwa, Fiqh, Halal, Islam, Islamic banking, Mufti, Murabahah, Musharakah, Shariah, Shariah compliant, Sukuk, Takaful, Tawarruq, Zakat, Al-barakah, Credit Risk, Participation, Provision, Receivables, Reserves, Sales

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A LIGHTHOUSE FOR GOVERNANCE On A New Journey , Less Travelled Terrain Annual Report 2018
BE A LIGHTHOUSE FOR GOVERNANCE Since its establishment , Bank Rakyat has always maintained our position as a progressive, dynamic and Islamic cooperative bank that ensures the well-being and prosperity of our members, customers and community at large. The theme for 2018 titled “Be a Lighthouse for Governance” communicates our commitment in promoting Bank Rakyat as the lighthouse for good governance and a thought leader in the industry. We want to actively participate with the market in regulatory reforms relevant to the industry as well as leveraging collaborations with the relevant parties to create shared value for the large-scale benefit. The visual of a lighthouse is used to represent the role as a guidance and beacon to all who are either voyaging or adrift. Visible in all weather conditions, the lighthouse provides stability and direction. Just as it can guide us through storms, it still glows when all is well, consistently leading the way forward. With our strong values, resources and experience, we continuously bridge boundaries by tapping into our capabilities. The value of our services is experienced by a broad range of our customers with a variety of needs and expectations. From diversifying and upgrading products and services, exploring new business opportunities to meeting customers’ needs as well as other groups that have a stake in the operations of Bank Rakyat, we have an obligation and an expressed intent to meet our stakeholders’ expectations.
WHAT ’S INSIDE About Us From the Top 4Overview 28 5 The Brand 6 2017 Highlights 36Management Discussion and Analysis Bank Rakyat: A Snapshot 10Five-Year Performance (Non-Financial) 11Five-Year Performance (Financial) 12 Quarterly Performance 12Assets 50 129 Notice of Annual General Meeting Chairman’s Statement Corporate Information 50Our Values, Vision & Our Mission Financial Statements 132Report of the Auditor General on The Financial Statements of Bank Kerjasama Rakyat Malaysia Berhad 136 Statement by Directors 51 Our Business Pillars 52 Group Corporate Structure 137Annual Report of Shariah Committee of Bank Rakyat 2018 53 Bank Rakyat and the Government 142 Statutory Declaration 54 Organisation Chart 143 Directors’ Report 146 Statements of Financial Position Our Leadership Team 58 Board of Directors 148Statements of Profit or Loss and Other Comprehensive Income 60 Board of Directors Profile 150Statements of Changes In Equity 14Dividend 70 Shariah Committee 154 14Banking Operation Performance 72 Shariah Committee Profile 158Notes To The Financial Statements 13Segmental Analysis for Bank Earnings 13 Liabilities and Equity Our Members 76 Management Committee 16 Key Milestones 78 Management Committee Profile 20 2018’s Significant Events 24 Our Presence 25 2018 Accolades 26 Us in the Media 15 Statements of Cash Flows Additional Information & Directory 336Corporate Office & Branches 84 Sustainability Report Corporate Governance 104Board of Directors and Main Committees 117Audit and Examination Committee Report 122 Risk Management Committee 125Shariah Committee Terms of Reference 341 Ar-Rahnu X’change 342Rakyat Xcess and Ar-Rahnu X’change 343 Rakyat Xcess 344Subsidiaries 345 Bank Rakyat Service Agents
THE LIGHTHOUSE Just as the lighthouse guides ship through the turbulent weather , Bank Rakyat aims to be the champion of good governance and integrity, given calls for higher transparency and stricter controls from markets and the public everywhere.
4 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BANK RAKYAT OVERVIEW ABOUT US We are the biggest Islamic cooperative bank in the country and the second largest Islamic financial institution in terms of Shariah assets. Our journey began as a pioneer cooperative bank in 1954 with the mandate to raise the social and economic status of rural communities, provide opportunities for self-improvement and to build a better future for their families as well as their communities for the stability and prosperity of our nation. We have proudly surpassed this mandate. We became known as Bank Kerjasama Rakyat Malaysia (Bank Rakyat) in 1973 and extended our membership to individuals. Governed by our by-laws and the Bank Kerjasama Rakyat (Malaysia) Berhad Act 1978, we are allowed to provide financing to non-members as well. We now not only serve our members but also individuals, businesses, corporations, SMEs, and a whole range of others. OUR PRINCIPAL ACTIVITIES OUR PERFORMANCE Our principal activities are those of a cooperative that carries out banking activities based on Shariah principles through accepting deposits and providing financial services for retail and commercial needs. Throughout over 60 years of establishment, our performance has remained commendable. As at the end of 2018, we had: Staff 5,178 OUR LEGACY Our ongoing legacy has been one of unyielding courage, formidable spirit and commendable achievements. Our vision, mission and values remain our team’s pulse and thrust forward, enabling us to have achieved many developmental milestones. The numerous local, regional and international awards we have received over the years prove we are not only a major player in the domestic Islamic banking scene but also an international leader in Islamic banking. CATALYST TO NATIONʼS ECONOMIC PROGRESS In addition to our Islamic banking activities, as an entity under the control of the Ministry of Entrepreneur Development, and as the second largest contributor emanating from the cooperative sector, we play a major role in enabling the cooperative sector to be a significant driver of Malaysia’s economy. Our numerous initiatives for the benefit of cooperatives and their members foster their growth, supporting them to develop and grow their businesses and performance. personnel Total Assets Customer RM106.89 million Total Shareholders’ Funds Profit before Zakat & Taxation billion 7.82 RM1.86 billion RM17.87 billion OUR MANTRA We are engraved distinctly in Malaysia’s banking history and will endeavour to remain “Your Choice Bank” by being “A Lighthouse For Governance”.
ANNUAL REPORT | 5 THE BANK RAKYAT No. ISLAMIC INSTITUTION IN FAR EAST ASIA No. ISLAMIC INSTITUTION BY • REVENUE • NET PROFIT • ASSETS No. ISLAMIC FINANCIAL INSTITUTION WORLDWIDE FASTEST GROWING ISLAMIC INSTITUTION IN FAR EAST ASIA *Leaders in Islamic Finance: An Islamic Business & Finance Special Report (2018, December). Islamic Business & Finance, (122), 40-57 ABOUT US BRAND
6 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD MENGENAI ABOUT US KAMI 2018 HIGHLIGHTS
ANNUAL REPORT | 7 2018 HIGHLIGHTS Profit before Zakat and Taxation Total Shareholders’ Funds OVER 7.82 MILLION Customers 106.89 BILLION RM82.74 BILLION Total Assets Total Deposits RM23.46 MILLION Zakat Allocation RM2,986,030,000 BILLION 854,855 Members’ Share Capital Shareholders 5,178 147 115 Employees Branches Ar-Rahnu X’change 4 78 4 Rakyat Xcess Bank Rakyat Agents Mobile Banks 1,000 ATM/CDM/ CICO Terminals ABOUT US RM17,873,724 BILLION RM1.86 BILLION
NEW JOURNEY 64 years legacy is not an excuse to be complacent . Evolve and reinvent to stay ahead in a fast-moving world.
10 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD FIVE YEAR PERFORMANCE (NON-FINANCIAL) Customers (Million) BANK RAKYAT: A SNAPSHOT Branches ‘18 147 ‘18 ‘17 147 ‘17 ‘16 147 ‘16 ‘15 148 ‘14 147 7.82 7.49 6.26 ‘15 6.01 ‘14 6.00 ATM/CDM/CICO Terminals Ar-Rahnu X’change ‘18 116 ‘18 1,000 ‘17 113 ‘17 998 ‘16 110 ‘15 95 ‘14 ‘16 960 ‘15 960 ‘14 90 Registered i-Rakyat Customers Employees ‘18 5,178 ‘18 ‘17 5,008 ‘17 ‘16 5,036 ‘16 ‘15 5,135 ‘15 ‘14 4,640 ‘14 1,345,501 ‘17 2,114,995 68,356 99,054 2,274 357 ‘17 1,181,292 ‘16 ‘15 1,114,150 ‘15 604,832 136,795 ‘18 ‘16 ‘14 128,028 Agent Banking (Rakyat C.A.R.E) Contact Centre Calls Received ‘18 895 ‘14 304 204 84 6
ANNUAL REPORT | 11 FIVE YEAR PERFORMANCE (FINANCIAL) ‘18 6.91 ‘18 7.02 ‘17 ‘16 ‘17 ‘18 1.76 ‘17 ‘18 1.91 ‘15 1.82 ‘14 1.98 ‘17 ‘18 ‘17 69.19 ‘17 67.81 63.14 60.48 ‘16 ‘15 10.78 12.84 11.88 15.04 18.00 Gross Impaired Financing Ratio (%) ‘18 34.34 32.03 ‘16 34.59 29.26 24.63 68.52 ‘14 Cost to Income Ratio (%) ‘14 70.98 Return on Average Shareholders' Fund (%) 69.00 ‘15 77.90 ‘14 ‘18 ‘17 83.24 ‘15 Financing and Advances (RM Billion) ‘14 82.74 ‘16 1.63 ‘15 2.19 Deposits and Savings (RM Billion) Profit after Taxation and Zakat (RM Billion) ‘16 2.01 ‘14 6.07 ‘16 1.74 ‘15 6.43 ‘14 2.05 ‘16 6.66 ‘15 1.86 ‘18 2.12 ‘17 ‘16 ‘15 ‘14 2.23 1.99 1.89 2.04 BANK RAKYAT: A SNAPSHOT Profit before Taxation and Zakat (RM Billion) Operating Income (RM Billion)
12 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Quarterly Performance BANK RAKYAT: A SNAPSHOT Q1 Q2 Q3 Q4 (RM Billion) (RM Billion) (RM Billion) (RM Billion) 2018 Income Expenditure Net Income Profit before Taxation and Zakat Profit after Taxation and Zakat 1.561.621.651.64 0.810.850.880.85 0.780.770.770.79 0.45 0.28 0.50 0.62 0.39 0.28 0.25 0.85 2017 Income Expenditure Net Income Profit before Taxation and Zakat Profit after Taxation and Zakat 1.571.561.611.60 0.800.790.820.83 0.760.770.790.77 0.59 0.37 0.48 0.61 0.56 0.32 0.44 0.59 Assets 31.1% 3.2% 2.9% 0.1% 29.1% 2018 2017 2.3% 1.1% 64.6% 65.6% Deposits and Placements with Financial Institutions Financial Investments Portfolio Financing and Advances Other Assets Cash and Short-Term Funds
ANNUAL REPORT | 13 Segmental Analysis for Bank Earnings 2018 2017 Percentage (%) Consumer Banking Commercial Banking Fee-Based Ar-Rahnu Others RM ‘000 Percentage (%) 66.9 4.0 1.2 3.5 24.4 4,605,920 272,104 82,222 243,197 1,681,520 65.6 4.5 1.0 3.4 25.5 RM ‘000 4,557,483 310,484 70,255 238,931 1,770,920 Liabilities and Equity 13.9% 12.9% 2.8% 1.3% 2.8% 1.5% 3.6% 0.8% 4.1% 2018 2017 77.4% 78.9% Deposits from Customers Deposits and Placements from Banks and Financial Institutions Debt Securities Issued and Other Fund Sources Other Liabilities Share Capital Other Reserves BANK RAKYAT: A SNAPSHOT
14 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Dividend (RM Million) ‘18 378.97 BANK RAKYAT: A SNAPSHOT ‘17 469.77 ‘16 443.77 ‘15 384.82 ‘14 441.05 Banking Operations Performance 24.4% 25.5% 2018 2017 3.5% 3.4% 1.2% 1.0% 4.0% 4.5% 66.9% Consumer Banking 65.6% Commercial Banking Ar-Rahnu Fee-Based Others
ANNUAL REPORT | 15 OUR MEMBERS YEAR CATEGORY TOTAL INDIVIDUAL COOPERATIVE 2018 852,618 2,237 854,855 2017 872,202 2,178 874,380 2016 890,314 2,154 892,468 2015 905,790 2,128 907,918 2014 922,452 2,099 924,551 Total Capital (Individual and Cooperative): 2014-2018 YEAR CATEGORY TOTAL INDIVIDUAL (RM) COOPERATIVE (RM) (RM) 2018 2,780,033,736 205,996,264 2,986,030,000 2017 2,798,115,203 187,914,797 2,986,030,000 2016 2,814,631,034 171,298,966 2,986,030,000 2015 2,815,744,078 168,178,922 2,983,923,000 2014 2,809,032,861 164,644,139 2,973,677,000 BANK RAKYAT: A SNAPSHOT Total Members (Individual and Cooperative): 2014-2018
16 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Key Milestones BANK RAKYAT: A SNAPSHOT 1954 § Official registration of Bank Agong Kampong Berkerjasama-sama Persekutuan Tanah Melayu Dengan Tanggongan Berhad with its first headquarters in Bukit Mertajam, Penang. §Election of the Menteri Besar of Perlis, Tan Sri Sheikh Ahmad Mohd Hashim, as the President of the Board of Sponsors. 1964 § Commencement of construction of Bank Agong Headquarters in Jalan Ipoh, Kuala Lumpur. 1966 §Bank Agong moves to its own building at Jalan Ipoh, Kuala Lumpur. 1971 § Expansion of services to include providing loans to members who want to venture into businesses, industries and for the purchase of assets such as houses. §Establishment of Angkatan Kerjasama Kebangsaan Malaysia Berhad (ANGKASA) after an agreement was reached at the 2nd Malaysia Cooperative Congress chaired by the Chairman of Bank Kerjasama, Tan Sri Sheikh Ahmad. 1955 1967 §First election of the Board of Directors by regional members. §Decision by Bank’s Board of Directors to change the name of Bank Agong to Bank Kerjasama Malaysia Berhad or better known as Bank Kerjasama. §Opening of the Malacca branch of Bank Kerjasama at Jalan Hang Tuah, ofﬁciated by the Chief Minister of Malacca, Dato’ Talib Karim, marking Bank Kerjasama’s initiative to expand into urban areas. 1968 1972 § Opening of Bank Kerjasama’s ﬁrst branch in Sungai Petani, Kedah, after the acquisition of Bank Persatuan Berkerjasama-sama Kedah Tengah. § Launch of the Provident Trust Fund Account. §Re-election of Tan Sri Sheikh Ahmad as Chairman of the Bank. § Relocation of Bank headquarters to Padang Kota, Penang. 1958 §Launch of Bank’s Five-Year Development Plan to raise more than RM12 million in capital over the next ﬁve years by Tan Sri Sheikh Ahmad, Chairman of the Bank. 1961 1969 §Change of name from Bank Kerjasama to Bank Kerjasama Rakyat Malaysia Berhad or Bank Rakyat at the 17th Annual General Meeting (AGM). § Opening of Bagan Serai Branch, ofﬁciated by Menteri Besar of Perak, Dato’ Sri Ahmad Mohd Said. § Establishment of Bank Rakyat’s ﬁrst subsidiary. §Opening of Muar Branch, ofﬁciated by Menteri Besar of Johor, Dato’ Othman Mohd Saat. 1973 § Publication of Berita Bank Kerjasama, the Bank’s ﬁrst magazine, with the Editor’s Column touching on the possibility of establishing a single Cooperative Union in Malaysia. § Ofﬁcial adoption of the name Bank Rakyat after personal proposal by the then Prime Minister, Tun Abdul Razak. §Relocation of Bank Agong Headquarters to Kuala Lumpur to centralise operations for services to all customers in the Peninsular. 1963 §Bank Agong membership comprises 32 co-operatives with total share investment amounting to RM143,000 1970 § Opening of Kangar Branch, ofﬁciated by the Regent of Perlis, Tuan Syed Sirajuddin Ibni Tuanku Syed Putra Jamalullail. § Opening of Kota Bharu Branch by Kelantan Acting Menteri Besar, Dato’ Muhammad Nasir. 1974 §Establishment of a cooperative company called Syarikat Kerjasama Bank Rakyat, also known as SEKATARAKYAT by Bank Rakyat employees. § Launch of Rakyat First Merchant Bankers Berhad (Rakyat First), Bank Rakyat’s merchant banking arm.
ANNUAL REPORT | 17 1975 1983 1990 § Establishment of Rakyat Trading Corporation Sdn Bhd (RTC), a supplier of construction materials such as steel and cement, and distributor of goods produced by ASEAN Chemical Fertiliser. § Increase in Bank membership to 29,002, comprising 28,134 individuals and 868 co-operatives. §Approval received to use Bank Rakyat’s reserves amounting to RM96.70 million to cover losses accumulated totalling RM86.60 million. 1977 § Launch of Collection Department and setting up of a Complaints Bureau. 1978 § The Bank Kerjasama Rakyat Malaysia Berhad Act (Special Provisions 1978) came into force. § Increase in Bank’s total assets to RM519 million and net proﬁt reaches RM5.9 million. 1984 § Launch of the ﬁrst Education Loan Scheme, Skim Pinjaman Menanam Budi. 1986 § Bank Rakyat placed under the supervision of the Minister responsible for cooperative development. § Launch of Nuri Savings Scheme by the Minister of National and Rural Development to encourage a savings culture among school children. 1979 1988 § White Paper on Bank Rakyat, Kedudukan Bank Rakyat, tabled in Parliament following the tabling of Bank Kerjasama Rakyat Malaysia Berhad (Special Provisions Bill) in Dewan Rakyat on 19 December 1977. § Launch of the second Educational Loan Scheme to assist students pursuing higher education in the country and abroad. 1981 1992 §Approval of the Co-operative Act 1992 by Parliament. Four main objectives of the Act: to encourage and promote the development of co-operatives, to transform co-operatives into a sustainable movement, to reform co-operative administration and management, and to consolidate laws related to the co-operative movement. 1993 §Launch of a Special Graduate Loan Scheme (SPKS) with a maximum loan of RM20,000 to help graduates without permanent employment to set up and start their own accounting and taxation services business. §Signing of joint venture agreement with Deutsche Genossenchaftsbank (DG Bank), a stepping stone for Bank Rakyat to participate in the merchant banking segment. §Launch of Bank Rakyat’s ﬁrst mini branch in Bandar Tun Razak, Cheras, Kuala Lumpur. 1982 1989 §Launch of Motorcycle Loan Scheme in the effort to broaden lending activities. § Introduction of services for the co-operative sector through the Special Co-operative Savings Accounts (ATKK). §Launch of Mobile Banking Services at the Alor Setar branch, with the Mobile Banking vehicle mainly operating at Lembaga Padi and Beras Negara Complex in conjunction with the harvesting season. § Announcement of the distribution of two percent bonus to members from 1978 to 1988, a 10 percent cash dividend for the financial year 1989, and a 10 percent dividend and 20 percent bonus shares respectively for 1990 and 1991. § Launch of the Shariah banking system offering facilities such as Al-Wadiah Savings Account, Al-Mudharabah General Investment Account, Al-Bai’ Bithaman Ajil Property Financing and Bai Al-Inah Personal Financing. § Going back to where it all began, opening of the Bank’s 42nd branch in Bukit Mertajam, Penang, the birth place of the Bank. § Introduction of the Ar-Rahnu Islamic Pawn Broking Scheme in collaboration with the Malaysian Islamic Economic Development Foundation (YaPEIM) with an initial capital of RM5 million. §Signing of memorandum of understanding for the implementation of Ar-Rahnu with YaPEIM on 11th October 1993. BANK RAKYAT: A SNAPSHOT Key Milestones
18 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BANK RAKYAT: A SNAPSHOT Key Milestones 1994 2002 2007 § Launch of automated teller machine (ATM) at the Bank’s main branch by Bank Rakyat Managing Director, Dato’ Anuar Jaafar, signalling the beginning of an era of transformation with the use of new technology. §Launch of free advisory and guidance services through Program Rakan Koop (Coop Partner Programme) to assist cooperatives in managing their business activities. §Launch of Kelab Nuri Bank Rakyat by Puan Sri Wan Naﬁsah Nik Mohd Adeeb, wife of the Bank’s Chairman, Tan Sri Dato’ Dr. Syed Jalaludin Syed Salim. Introduction of a new mascot with the concept of an astronaut. §Establishment of Bank Rakyat’s Shariah Advisory Council. 2003 2008 § Opening of ﬁrst branch outside the Peninsular in Kuching, Sarawak. § Ofﬁcial announcement that all of Bank Rakyat’s operations are fully Shariah-compliant. 1998 § Launch of Electronic-Banking Centre (EBC) or eRakyat at Jalan Tangsi Branch, Kuala Lumpur. §Inaugural Bank Rakyat Carnival for the public with the concept of games is held at Padang Dataran Pemuda Merdeka, Butterworth, Penang. A similar carnival is also held in Pasir Puteh, Kelantan, and Batu Pahat, Johor. § Launch of An-Naqlu Vehicle Financing Scheme, a ﬁnancing facility for the purchase of cars. 1999 §Launch of the state-of-the-art Integrated Retail Banking System (IRBS) at the Pudu Branch in Kuala Lumpur, allowing online management of retail banking transactions and general ledger, and supporting ATM services for speedy savings and investment account transactions. 2000 §Launch of the Tijari Contract Financing in the effort to assist dynamic and viable small businesses. 2001 § Launch of the new corporate logo to replace the 20-year-old logo, in conjunction with Bank Rakyat's 47th anniversary. § Launch of three new products based on the Al-Mudarabah concept: Syabab, Tawﬁr and Tilmiz - ofﬁciated by the Land and Co-operative Development Minister, Tan Sri Kasitah Gaddam. 2004 §Bank Rakyat placed under the Ministry of Entrepreneur and Co-operative Development (MECD) following a reshufﬂe of government ministries. Prior to this, the Bank was placed under the Ministry of Land and Co-operative Development. 2005 § Bank Rakyat becomes the ﬁrst noncommercial ﬁnancing institution to introduce MEPS Interbank Giro (IBG) services. 2006 § Launch of tele-Rakyat Call Centre, enabling customers to perform transactions with the assistance of Call Centre Personel. 2009 §Establishment of Yayasan Bank Rakyat (Bank Rakyat Foundation) aimed at developing and improving the standard of education for Malaysians, especially among the children of Bank members. §Issue of and introduction into the market of ﬁrst credit card based on the Shariah principle of Tawarruq in collaboration with MasterCard Worldwide. 2010 § Launch of strategic partnership with Tabung Haji, allowing Tabung Haji depositors to perform various transactions at all Bank Rakyat branches. §Launch of the Bank Rakyat Corporate Culture, R.A.K.Y.A.T.: R: Rajin (Diligent) A: Amanah (Trustworthy) K: Kompeten (Competent) Y: Yakin (Conﬁdent) A: Akhlak Mulia (Exemplary Behaviour) T: Taqwa (God Conscious) 2012 §Entry of Ar-Rahnu X’change, the Islamic pawnbroking franchise into the market, managed by Bank Rakyat’s subsidiary, Rakyat Management Services Sdn Bhd (RMS). § Increase in number of Bank Rakyat members to 943,464 comprising 941,383 individuals and 2,081 co-operatives. §Launch of inaugural issuance of Sukuk worth RM1 billion under the Islamic Medium Term Notes Programme. 2013 §Appointment as the collection agent for income tax payment through a strategic partnership with the Inland Revenue Board of Malaysia (LHDN).
ANNUAL REPORT | 19 Key Milestones 2016 §Opening of 145th branch in Labis, Johor, marking the Bank’s 15th branch in the state. § Establishment of Taska Kasih Nuri at Tower 2, Menara Kembar Bank Rakyat, a childcare facility for Bank Rakyat HQ staff, ofﬁciated by Bank Rakyat Chairman. § Announcement of the issuance of Sukuk Musyarakah worth RM1 billion for the period of three and ﬁve years. § Truly a momentous year. Relocation to Menara Kembar Bank Rakyat, the Bank’s new iconic building at Jalan Rakyat and celebration of the Bank’s 60th anniversary on the new premises. 2015 § Launch of the model of Menara Bank Rakyat Johor by DYMM Sultan Johor to mark the Bank’s venture into investment in the real estate segment in Johor. §First Program Kembara Kemanusiaan Kemboja 2016 (Humanitarian Mission to Cambodia) and distribution of Aidiladha sacriﬁcial meat in conjunction with Hari Raya Aidiladha. §First Program Berkhatan Beramai-ramai 2016 (Mass Circumcision Programme) organised by Surau Al-Barakah Menara Kembar Bank Rakyat for children of Bank staff and Al Barakah congregation. § Launch of 2017 Bank Rakyat Calendar themed “Indahnya Ilhammu, Seninya Jiwamu” inspired by autistic children as the Bank’s initiative to support the government’s efforts to aid the less fortunate. §Ofﬁcial launch of Menara Kembar Bank Rakyat (Bank Rakyat Twin Towers). § Handover of sponsored bus by Bank Rakyat to Football Association of Malaysia (FAM). §Launch of Credit Card-i Platinum. § First International Shariah Scholars Roundtable organised by Bank Rakyat. §Launch of i-Rakyat Internet Banking. § Launch of coral reef preservation project off the Terengganu coast as an initiative to conserve marine wildlife. §Tadarus Mega Bank Rakyat (Qur’an recitation) at Surau Al-Barakah Menara Kembar Bank Rakyat in conjunction with the fasting month of Ramadhan. §Opening of Kuala Pilah branch by DYMM Yang DiPertuan Besar Negeri Sembilan. §Inauguration of Bank Rakyat - Bangsar LRT Station by Bank Rakyat Chairman as part of the bank’s corporate social responsibility programme. §Bank Rakyat adopts the theme “Anak Kita” (Our Children) for 2016/2017 as its commitment to focus on children, in particular autistic children, by organising various activities as part of our social corporate responsibility initiatives for autism. §Launch of Kad Muslimah Bank Rakyat, the ﬁrst Shariah-compliant Credit Card-i for women. § Organisation of the Amazing Heroes Programme to honour our national paralympics atheletes who won gold and bronze medals at the Rio 2016 Paralympics. 2017 §Organisation of Bank Rakyat and Utusan Breaking of Fast together with autistic children and presentation of duit raya to the children. § Finance Accreditation Agency (FAA) Certiﬁcate Presentation Ceremony for Branch Managers Individual Accreditation in recognition of their competency. § 2017 Autismlympic Programme for autistic children in the Klang Valley. §Rakyat Run 2017, organised by the Bank for the ﬁrst time in conjunction with the 2017 Kuala Lumpur SEA Games. 2018 § Bank Rakyat’s four main pillars in this regard are: Educating To provide exposure to the public and to raise awareness of autism. Socialising To provide autistic children with recreational and socialising opportunities in public areas in large groups through various activities. Therapy To organise activities related to the enhancement of cognitive, motor, sensory, and social and communication skills. Fundraising To aid in the collection of funds and contributions for autism associations/ bodies that are in need of ﬁnancial aid. §Organising Anugerah Dari Hati Ke Hati for the first time on 2nd April in conjunction with Autism Awareness Day 2018. §Share the joy of the Eid-fitri celebration with autistic children through Program Sinar Aidilfitri Dari Hati Ke Hati Bank Rakyat at Mydin Hypermarket Petra Jaya, Kuching. §Organising Choral Speaking Competition for the first time on 14th to 16th September in conjunction with 61st National Day celebration at Concourse, Suria KLCC. § The bus handover to Badminton Association of Malaysia (BAM) is part of Bank Rakyat’s brand-building initiatives as well as efforts to support national sports activities in promoting Malaysia to the eyes of the world. BANK RAKYAT: A SNAPSHOT 2014
20 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SIGNIFICANT EVENTS OF 2018 BANK RAKYAT: A SNAPSHOT JANUARY 16 January 2018 The launching of “The Islamic Banker” at Dewan Tun Abdul Razak, Menara Kembar Bank Rakyat (MKBR) 19 January 2018 Kedah Financial Carnival 2018 at TH Hotel & Convention Centre, Alor Setar, Kedah 25 January 2018 Official visit of Delegates from Department of Cooperatives, Bangladesh, to Bank Rakyat Twin Tower 25 - 28 January 2018 Bank Rakyat Sports programme Universiti Malaysia Pahang at 26 January 2018 Carnival of Jom Niaga Wilayah Utara 2018 at Amanjaya Mall Sg. Petani, Kedah 27 January 2018 Carnival of Kelab Nuri Bank Rakyat at IOI City Mall, Putrajaya 29 January 2018 The launching ceremony of collaboration between Dana Wakaf Maidam with Bank Rakyat at Hotel Primula, Kuala Terengganu FEBRUARY 4 February 2018 The launching ceremony of Non-Cash Transactions “Cashless School” at Sekolah Menengah Sultan Abdul Halim, Jitra 4 - 7 February 2018 5 Years Strategic Plan: Transformation Blueprint Workshop at Cyberview, Cyberjaya 8 February 2018 Signing Ceremony of the Partnership Agreement between Bank Rakyat & Yayasan Peneraju at MKBR 12 February 2018 The launching ceremony of Akaun Simpanan-i Umrah & Tabung Korban at MKBR 19 - 21 February 2018 Future Leaders Summit Cyberview, Cyberjaya 2018 at 22 February 2018 Memorandum of Agreement (MoA) Skim Zamalah Pascasiswazah Bank Rakyat, Kolej Universiti Islam Antarabangsa Selangor (Kuis), Yayasan Kuis Dan Yayasan As-Syafie at Bangunan Pentadbiran KUIS Bandar Seri Putra, Kajang
ANNUAL REPORT | 21 BANK RAKYAT: A SNAPSHOT SIGNIFICANT EVENTS OF 2018 MARCH 5 March 2018 The launching ceremony of Non-Cash Transactions ‘Cashless School’ at SMK Sultan Abdul Halim, Alor Star, Kedah 7 March 2018 The launching of KADS1M 2.0 at UiTM Shah Alam 8 March 2018 The launching of Akaun Simpanan untuk Ibadah Umrah at DTAR 13 March 2018 The official opening ceremony for Bangunan Blok Kolej Kediaman at Unimap Pauh Putra Campus & Donations Handover Ceremony of Bank Rakyat to Unimap at Bangunan KWSP Kangar, Perlis 15 - 18 March 2018 Mosque Cycling Tour Programme Pahang State Level at Pekan, Pahang 18 March 2018 Al Ustaz Programme: “Semakin Hari Semakin Sayang” at Balai Tan Sri Sheikh Ahmad, MKBR 18 - 22 March 2018 Tilawah Al-Quran Autisme 2018 Ceremony at Masjid Raja Muda Musa, Semenyih 19 March 2018 The official opening ceremony for Fajr Prayer Campaign and closing ceremony for Mosque Cycling Tour Programme Pahang State Level at Masjid Sultan Ahmad Shah Al-Haj, Pekan, Pahang 21 March 2018 Asmaul Husna Therapy at Balai Tan Sri Sheikh Ahmad, MKBR APRIL 1 April 2018 Celebrating Autism Awareness Day: Light up Blue 2 April 2018 32nd Annual General Meeting of Kelab Sukan Bank Rakyat (Kebara) at Balai Tan Sri Sheikh Ahmad, Level 3, MKBR 22 March 2018 Mini Autismlympic at KB Mall 8 April 2018 Bank Rakyat Annual General Meeting 2018 at Dewan Tun Abdul Razak, MKBR 22 - 24 March 2018 Carnival of Kelab Nuri Bank Rakyat at KB Mall, Kota Bharu, Kelantan 9 April 2018 Autisme Award: Heart to Heart Award at Dewan Tun Abdul Razak, MKBR 24 March 2018 Kelantan Aquatic Therapy with Sinar Harian at Hotel Holiday Villa, Kota Bharu 14 April 2018 Heart to Heart Therapy: Speech at Dewan Tun Abdul Razak, MKBR 27 March 2018 Media Conference for the announcement of Group Financial Performance and Dividend for year ended December 31, 2018 at Anjung Kembar, Level 2, MKBR 18 - 21 April 2018 Regional Heads’ Summit 2018 at The Everly Hotel, Putrajaya 31 March 2018 “Heart to Heart” Therapy PPD Hulu Selangor at SMK Bandar Sungai Buaya, Rawang 22 April 2018 Kuching Autism Run at Padang Merdeka, Kuching, Sarawak
22 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BANK RAKYAT: A SNAPSHOT 2018’s Significant Events JULY SEPTEMBER 9 July 2018 Collaboration Ceremony for Education Financing ‘Pendidikan-i’ at Dewan Tun Abdul Razak, MKBR 4 September 2018 Edu Fair @ KPTM at Kolej Poly-Tech MARA, Cheras 21 July 2018 KEBARA: Futsal 2018 at Arena Ampang Sports Planet 28 July 2018 Pulau Aman Food Bank at SK Pulau Aman AUGUST MAY 11 May 2018 Invitation of Golf Muhibah Coop Bank Association at Starfield, Mantin 19 May 2018 ‘Sungkai Sama’ Era Sabah 2018 at Kota Kinabalu 22 May 2018 ‘Pautan Ramadan’ - ‘Kacau Bubur Lambuk’ 2018 at Lobi Menara 2, MKBR Break Fast Event with Utusan Malaysia 26 May 2018 ‘Sungkei Sama’ Era Sarawak 2018 at Kuching, Sarawak JUNE 7 June 2018 Break Fast Ceremony, Yayasan Bank Rakyat 2018 at Tingkat 2, Dewan Tun Abdul Razak, Menara 1, MKBR 8 June 2018 ‘Sinar Aidilfitri Dari Hati Ke Hati’ 2018 at Karangkraf, Seksyen 15, Shah Alam 9 June 2018 ‘Sinar Aidilfitri Dari Hati Ke Hati’ 2018 at Alam Warisan Ballroom, Pullman Putrajaya Lakeside 27 - 30 June 2018 World Cup Fever at MKBR 9 August 2018 Official visit of National Cooperative Federation, Nepal to Bank Rakyat at Auditorium 1B, MKBR 11 August 2018 KEBARA: Treasure Hunt Bank Rakyat at MKBR 16 - 18 August 2018 Bank Rakyat’s 1H2018 Performance Review at Putrajaya Marriott Hotel 18 August 2018 Aquatic Therapy KL at Setiawangsa, KL KEBARA: Badminton 2018 at Balai Tan Sri Sheikh Ahmad, Tingkat 3, MKBR 22 - 23 August 2018 Aidiladha Programme Sabah & Sarawak 23 - 26 August 2018 Cambodia Humanitarian Mission 2018 at Kampot, Cambodia 25 August 2018 ‘Sinar Aidiladha’ Bank Rakyat 1439H at Masjid Al-Alahshariah, Kampung Lubuk Redan, Melaka and Presint 15, Masjid Al-Mustaqim, Kampung Datuk Abu Bakar Baginda, Kajang 7 September 2018 Official visit by Bank of Bhutan Limited to Bank Rakyat at Auditorium 1B, MKBR 12 September 2018 Signing Ceremony of Partnership Agreement between Bank Rakyat and Universiti Islam Antarabangsa Sultan Abdul Halim Mu'adzam Shah and Yayasan As-Syafie at MKBR 14 - 16 September 2018 Bank Rakyat Choral Speaking 2018 (Final) at KLCC, Kuala Lumpur 22 September 2018 BR with Autisme at PI3KUM, Batu Caves, Selangor 22 - 23 September 2018 NURI ECO CAMP 2018 at GIBS Eco Tourism, Ulu Yam 24 September 2018 Handover Ceremony of Sponsored Bus by Bank Rakyat to Badminton Association Malaysia (BAM) at Menara 2 Lobby, MKBR 24 - 27 September 2018 Bank Rakyat Health Week 2018 at Main Lobby, MKBR 28 September 2018 64th Anniversary of Bank Rakyat 29 September 2018 Nuri Joran @ Pangkor at Rockbound Fishing Chalet, Pangkor, Perak 29 - 30 September 2018 BR Annual Bazar
ANNUAL REPORT | 23 BANK RAKYAT: A SNAPSHOT 2018’s Significant Events OCTOBER NOVEMBER DECEMBER 2 - 7 October 2018 Exhibition: Bank Rakyat Edu Fair & Islamic Finance Carnival 2018 at Dataran DBS, UniSZA 2 - 4 November 2018 Exhibition: Geng Kayuh ERA Bank Rakyat 3.0 Sempena Regatta Sarawak 2018 at Kuching, Waterfront Sarawak 1 December 2018 Edu Fair @ UMSKAL at UMSKAL, Labuan 9 - 12 October 2018 Bank Rakyat Business Plan 2019 at Swiss Garden Beach Resort Damai Laut Lumut Perak 10 November 2018 Edu Fair @ Kuantan at UMP, Kuantan 13 October 2018 Sekata Media Hunt @ PD 17 October 2018 Prize-giving Ceremony for #Bankrakyatcares, ‘Beli Rumah Dapat Kereta’ and ‘Emas 1 Kilo’ campaigns at MKBR 26 October 2018 Futsal Competition for Sabah Media Club at Arena Futsal Yayasan Sabah Media Conference on Bank Rakyat New Activities at Le Meridien, Kota Kinabalu 27 October 2018 Edu Fair @ Sabah at Universiti Malaysia Sabah 26 - 28 October 2018 Exhibition: Media Futsal & Edu Fair 2018 at Media Futsal (Arena Futsal Yayasan Sabah) Edu Fair 2018 (Universiti Malaysia Sabah) Night at Library (UMS Library) 24 November 2018 Autismlympic Melaka at UiTM, Melaka Edu Fair @ UiTM Melaka 30 November 2018 Exhibition: Kelab Nuri Carnival at Sarawak Bank Rakyat Media Programme: Media Night Sarawak Labuan Run @ UMSKAL at UMSKAL, Labuan 8 - 9 December 2018 Nuri Library KK at Kota Kinabalu Library 15 - 16 December 2018 Night at The Museum @ National Museum 22 December 2018 Food Bank Perlis 22 - 23 December Nuri Library UNIMAP at UNIMAP Library
24 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BANK RAKYAT: A SNAPSHOT Our Presence Throughout Malaysia BRANCHES AR-RAHNU X’CHANGE RAKYAT XCESS BANK RAKYAT SERVICE AGENTS Selangor 22 9 2 11 Kuala Lumpur / Putrajaya 14 2 - 8 Negeri Sembilan 7 3 1 4 Melaka 4 2 - 1 Johor 15 7 1 7 Pahang 11 3 - 9 Kelantan 8 3 - 4 Terengganu 8 2 - 3 Perak 12 6 1 5 Kedah 10 6 - 6 Pulau Pinang 7 - - 5 Perlis 2 - - 2 Sabah 13 - - 7 Sarawak 14 1 1 6 147 44 6 78 STATE Total BRANCHES AR-RAHNU X'CHANGE 147 RAKYAT XCESS 44 BANK RAKYAT SERVICE AGENTS 6 78
ANNUAL REPORT | 25 BANK RAKYAT: A SNAPSHOT 2018 ACCOLADES Suruhanjaya Koperasi Malaysia – 100 Koperasi Terbaik Malaysia 2018 First Place Malaysia e-Payments Excellence Awards 2018 Outstanding Contribution to MyDebit Malaysian CMO Awards 2018 Best Marketer in Sustainable Brand Marketing CSR Malaysia Awards 2018 Company of the Year (Overall Excellence)
26 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BANK RAKYAT: A SNAPSHOT US IN THE MEDIA
ANNUAL REPORT | 27 BANK RAKYAT: A SNAPSHOT US IN THE MEDIA
28 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD FROM THE TOP Chairman's Statement A NEW JOURNEY, A NEW PATH Dear Shareholders of Bank Rakyat, “Sometimes integrity is seen as a threat by those who desire control” Firstly, allow me to share my gratitude and privilege for being appointed Chairman of Bank Rakyat on the 6th of December 2018. It also gives me great honour to address you through this Letter in my inaugural year as the Chairman of Bank Rakyat’s (BR hereafter) board of directors (“the board”), as well as present the Annual Report for the financial year which ended 31 December 2018 (FY2018). - Robert Vanleeuwen I would like this Letter to be a document which you can use as a template for how we plan to take Bank Rakyat to its next trajectory and echelon of growth whilst navigating the rising endogenous and exogenous challenges. Of immense importance here is that my goals are aligned with that of the shareholders, the Bank’s and yours. “ Businesses of the past and present, as well as governments and its institutions are having to remodel and rethink its vision to operate under the prevailing exogenous and endogenous factors. Malaysia is not spared by this reality. DATUK NORIPAH KAMSO Chairman
ANNUAL REPORT | 29 Chairman's Statement Given these dynamics, when I took office as the Chairman, one of the first things I did was to realign the existing Bank Rakyat 5 Year Plan, which will expire in 2022, to reflect three major forces that are profoundly transforming the entire global banking landscape today - digitalisation, globalisation and regulation. The New Plan for Bank Rakyat is called the BR25, developed in partnership with the shareholders, the board and the management team, aimed at evolving Bank Rakyat into a sustainable bank that would remain relevant by 2025. Like many of you, I come here having served the financial industry. That said, coming into Bank Rakyat with this foundation from the outside allows me to an extent to ask new questions and look at challenges in a different way. Notwithstanding, I am a great advocate of teamwork and I know only collectively as a team can we overcome the many hurdles that await us and reap the many opportunities that abound for the Bank. The team and I, including the board, are focused on tackling these issues head on and we are making positive progress across multiple metrics. I will walk you through the issues and the actions we are taking to improve BR and our financial position, in this Letter. FROM THE TOP Malaysia is on its new track of growth; and corporations and businesses like ourselves have an intrinsic role and duty to offer and serve this country. With rising youth landscape in what is an expanding digitisation environment, as a business we must have the capacity to serve and service all segments of our demography; the young, old, women, men, employed, unemployed, public and private sectors; all races, colour and creed, entrepreneurs, in markets here and in time globally. We must also have the wherewithal to serve not just for today, but in trying and good times. Businesses of the past and present, as well as governments and its institutions are having to remodel and rethink its vision to operate under the prevailing exogenous and endogenous factors. Malaysia is not spared by this reality. This Letter will have three short sections. In the first section, I will present to you the financial performance of the company for year ending 2018 and make the argument that building strong shareholder value can only be done in conjunction with taking care of employees, customers and communities. I would like to present our forward looking plans in the second section of this Letter, where I will discuss our BR25 against a backdrop where we are increasingly faced with trust deficit in virtually all institutions, from corporations in public and private sectors to the media. I will also discuss the risks faced by the industry and qualities required to navigate these. The third section of this Letter will focus on the vision of Bank Rakyat to be the lighthouse of good governance and integrity, given the calls for higher transparency and stricter controls from markets and the public everywhere. The Pakatan Harapan (PH hereafter) Administration, as you know, has placed institutional reform and good governance as key to its administering the country and as a Development Financial Institution (DFI), we must not only spearhead this agenda for the industry, but also be the lighthouse for the market. Our every plans and actions must exude this vision. “ Having had the good providence of serving this country in various roles and capacities, it is my belief that businesses and governments need to work as partners, optimally, collaboratively and constructively to examine, solve and deliver solutions to strengthen the economy for everyone’s benefit. For in the final analyses, no man is an island.
30 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD FROM THE TOP Chairman's Statement Having had the good providence of serving this country in various roles and capacities, it is my belief that businesses and governments need to work as partners, optimally, collaboratively and constructively to examine, solve and deliver solutions to strengthen the economy for everyone’s benefit. For in the final analyses, no man is an island. A YEAR OF MANY FIRSTS, AND MANY NEW EXPECTATIONS IT IS CLEAR WE HAVE A LOT OF WORK TO DO. One of the first things we did was to take stock of our strategy for the Bank as well as make major changes to BR’s strategy, portfolio, leadership, and board - my own appointment included. In the speech delivered by Y.Bhg Datuk Nor Shamsiah Mohd Yunus, Governor of Bank Negara Malaysia, at the World Bank and Bank Negara Malaysia Forum on Performance Measurement for DFIs in August of 2018, amongst others the Governor reiterated the role of Development Financial Institutions (DFIs) when she said, “The strategic role of DFIs make them well placed to contribute to the development priorities of the nation, and assist in the materialisation of the SDGs. Specifically, DFIs can play an important role in contributing to the advancement of the following SDGs: no poverty, zero hunger, good health and well-being, quality education, clean water and sanitation, affordable and clean energy, industry, innovation and infrastructure, reduced inequality, sustainable cities and communities and climate action, amongst others. Thus, as institutions designed with developmental mandates in mind, DFIs are primed to serve the greater good. For Malaysia, the developmental story is not over as we seek to transform our economy into a high income nation while ensuring no one is left behind. The task ahead of us is challenging, but it is not insurmountable.” These are areas BR is fully focused on and hopes to further enhance in our strategy moving forward. These expectations are also reiterated further by the current administration in its expectations of government linked investment companies and their interests therein. When the PH Government took Office on the 9th of May 2018, and in one of his first few interviews, the Prime Minister YAB Tun Dr.Mahathir Mohamad was asked what Malaysia Baru or New Malaysia will look like. To which he said - “the New Malaysia, of course, is something that should be certainly better than the last regime, and even an improvement on the period during which I was Prime Minister for 22 years, which means of course that we have to go back to democracy and the rule of law”. The Malaysian economy grew at a moderate pace of 4.7%, (2018) compared with the 5.9% in the previous year reporting year (2017). This was to a large extent led by the uncertainties of the outcome of the general elections (GE14) which had investors take a ‘look and see’ stance, followed by understanding the remits and vision of the new administration under PH post GE14. Notwithstanding and amidst these uncertainties, as well as global wild cards on immigration, trade and tariff issues, Bank Rakyat delivered another year of encouraging revenue and earnings growth. This could not have been achieved without the unrelenting commitment of the staff, the management team and the board. I take this opportunity to reiterate that Bank Rakyat remains firmly committed to its principles as Malaysia’s leading Islamic cooperative Bank, anchored by decades of valuable experience as a Bank for and of the people. I am also pleased to announce that Bank Rakyat is the first Bank in Malaysia to establish an Integrity Department, headed by a secondment from Malaysian Anti-Corruption Commission (MACC). I will present some of the work we have since done in Section 3 on governance. Based on our emphasis on the core values of stakeholder management and increasing shareholders’ value, we started executing our market strategy to expand products and services as well as grow our market share. Despite the global economic challenges that surrounds us I am confident that we will deliver yet another strong year for three reasons: our team, our technology, and our network. “ ............businesses and governments need to work as partners, optimally, collaboratively and constructively to examine, solve and deliver solutions to strengthen the economy for everyone’s benefit. For in the final analyses, no man is an island.
ANNUAL REPORT | 31 TOTAL ASSETS RM106.89 billion Bank Rakyat Group’s total assets grew 1.4% to RM106.89 billion as at year end, consolidating our position as the biggest Islamic cooperative bank in Malaysia. Our total deposit was recorded at RM82.74 billion as at the end of 2018, a marginal decrease from RM83.24 billion in the previous year. On the back of exceptional financial performance and in line with Bank Rakyat's dividend policy, a cash dividend of 13 % or a total amount of RM379 million has been announced. “ FINANCIAL PERFORMANCE - WHERE WE FARED WELL, WHERE WE NEED TO IMPROVE I am pleased to announce that Bank Rakyat was the first Bank in Malaysia to establish an Integrity Department, headed by a secondment from MACC. REVENUE RM1.86 billion THE PERFORMANCE - Despite the challenging environment, the results achieved in 2018 has placed the Bank on a strong and stable growth trajectory. For the financial year ending 31 December 2018, Bank Rakyat Group posted total operating revenue of RM1.86 billion before taxation and zakat. This was mainly attributed to a pick-up in financing growth, driven by the Group’s aggressive marketing and promotional campaigns throughout the year. We also contributed to the development of the cooperative sector with RM37.50 million pay out to the Cooperative Education Trust which is 2% of the revenue before taxation and zakat as well as 1% of the revenue before taxation and zakat or RM18.75 million to the Cooperative Development Provident Fund. Our zakat collection will provide assistance as well as boost the economic and social conditions of those in need throughout the country. I am pleased to announce that in December 2018, RAM Ratings (RAM) reaffirmed the Bank’s AA2/Stable/P1 rating premised on its strong foothold in personal financing (PF) and robust loss-absorbing capacity. With the Bank’s still-healthy preprovisioning profit and high capital ratio, the reaffirmation is further underpinned by RAM’s view of ready support from the Government if needed, given Bank Rakyat’s status as a cooperative bank-cumdevelopmental financial institution. The focus moving forward is to build a stronger stakeholder management and value system such that every person who transacts at Bank Rakyat will have their optimal returns on investment. In an environment where trust deficit is rising in organised institutions globally the primary focus for the board and the team at Bank Rakyat, I would argue is building and reinstating TRUST always and in everything we do and deliver. Where TRUST is not honoured and seen short changed, it does not just affect our Bank and its brand, but it affects our main shareholder – the Government of Malaysia. We owe it to the people of Malaysia to honour their trust given to us to build a strong and remarkable institution they can be proud of. FROM THE TOP Chairman's Statement
32 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Chairman's Statement FROM THE TOP HONOURING SHAREHOLDER VISION RETURNING VALUE TO SHAREHOLDERS - we need to take stock on who owns Bank Rakyat and our commitment to our shareholders and ensure that we realised their vision first and foremost. We were established as an Islamic cooperative bank on 28 September 1954 under the Cooperative Ordinance of 1948, following the growth of the cooperative movement in Peninsular Malaysia. Today we are the 8th largest bank in Malaysia by asset size. It is important to remember that in almost all cases, the ultimate beneficiaries are individuals in our communities. The largest proportion of our members are public officials who are currently serving and/or are retired. With this in mind I remind myself and our staff constantly that we go to work every day recognizing the enormous responsibility that we have to perform for our shareholders. These are public officials who serve our country and it is absolutely incumbent upon us to honour their every sweat of earnings. I am pleased to share here that in 2018, we were honoured various awards to acknowledge our achievements in a few key areas. Internationally, we received recognition at the 26th World Human Resource Development (HRD) Congress 2018. Bank Rakyat received three accolades in the category of “Innovation in Recruitment”, “Best Apprenticeship” and “Usage of Digital Media in Recruitment” for its flagship management trainee programmes, The Islamic Banker. Bank Rakyat won the Corporate Social Responsibility (CSR) Malaysia Award 2018, company of the year (overall excellence) for championing impactful corporate social responsibility initiatives for its active role in helping the autistic community and the finalist for the Marketing Excellence Awards Malaysia 2018 in the category of Excellent in Corporate Social Responsibility. The Bank was also awarded with the Best Marketer in Sustainable Brand Marketing Awards at the Malaysian Chief Marketing Officer (CMO) Awards 2018. Further and for the second consecutive year, Bank Rakyat bagged the Malaysia Best Employer Brand Awards 2018 from Employer Branding Institute (EBI). The Bank was also rated the Number One Cooperative in Malaysia for 2018 among the other 100 best cooperatives by the Co-operative Societies Commission of Malaysia (SKM). I am proud of the achievements of the team in Bank Rakyat and the positive reflection it gives to our shareholders. I am confident that these will spur us to work even harder in other areas and strengthen the current ones. BALANCING RISKS, REGULATION AND OVERSIGHT “Putting our house in order” has been the initial focus of the Bank’s 5-Year Strategic Plan (5YSP) where we focused on managing our risk across our businesses. This exercise is performed through strengthening of the financial foundation strategy, especially in the growth areas of current and saving accounts (CASA), establishment of 9 regional desks for Small and Medium Enterprises (SME hereafter) as well as greater penetration in the cooperative segment. Bank Rakyat’s 5YSP was approved by the Board of Directors on 20 June 2017. “ I remind myself and our staff constantly that we go to work every day recognizing the enormous responsibility that we have to perform for our shareholders. These are public officials who serve our country and it is absolutely incumbent upon us to honour their every sweat of earnings.
ANNUAL REPORT | 33 Chairman's Statement One of the greatest challenges of banks is to balance rigorous and disciplined approach to allocating capital in the financial system, whether directly through retail banking or through capital markets. The risk elements and factors of the industry changes as the nature of business changes. The ethos of Bank Rakyat is to help our customers through good and bad times. That said, we cannot and will not just offer loans to anyone. We are not in the business of market making as many Financial Institutions are either. Our sole purpose is to support individuals and SMEs to achieve their goals and meet their purpose. Client selection is one of the most critical elements of our business. The 5YSP strategic plan looks at how the bank mitigates risks through thoughtful, detailed analytical process that leads to well informed and measured decision making. Also important is our continued deliberation and engagement with our regulators and oversight bodies on the need and relevance for certain regulations and disclosures. This should be a live process where regulations that are no longer applicable or needs to be reviewed and revised should be highlighted by our teams. In moving towards meeting future customers’ demands especially in the digital space, the Bank has also embarked on its infrastructure-building strategy. This encompasses the establishment of the new core banking system. Further, as we compete in a challenging marketplace, the strategy to enhance operational governance which includes compliance, fraud and integrity remains an integral part of the Bank’s list of priorities to ensure a strong foundation for our people and institution. FROM THE TOP The core principles of 5YSP comprise of seven (7) pillars; striving for topline growth and achieving bottomline result: strengthening financial foundation (financing): strengthening financial foundation (deposit): embarking on operational excellence (operational): embarking on operational excellence (IT): transforming to a high performance and agile organization; and strategic cost management. WE HONOUR OUR TEAM, OUR EMPLOYEES One of the strongest attributes of the organisation is in how we honour and care for our employees. We have those who have served us for over 30 years and continue to be committed to us. The work ahead for us is to ensure we have the tools and capacity to continually train and retrain our employees to keep with the needs of the times. We need to also focus on inclusiveness and diversity not just in our boardrooms but also across our offices. Our people drive the ultimate success of this organisation, its vibrancy and relevance - from operations to technology to service and its reputation to oversight and risk management - everything is completely dependent and reliant upon the aptitude, acumen and character of our employees. WE SERVE TO LIFT OUR COMMUNITIES Corporate Responsibility (CR) - One of the key accolades of Bank Rakyat is our unrelenting and enduring commitment to building communities. We believe that sharing our rewards through community development provides for longevity of our business and its relevance to the communities we serve. It also makes for a stronger economy when communities are strong. Bank Rakyat has been recognised for its continual involvement in serving the community as well as its dynamic CR programmes. That said, we need to continually improve on these programmes and explore new needs which may be unattended and look at serving them. “ Client selection is one of the most critical elements of our business. The 5YSP strategic plan looks at how the bank mitigates risks through thoughtful, detailed analytical process that leads to well informed and measured decision making. Also important is our continued deliberation and engagement with our regulators and oversight bodies on the need and relevance for certain regulations and disclosures.
34 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD FROM THE TOP Chairman's Statement A LIGHTHOUSE FOR INTEGRITY AND GOVERNANCE CREATING A HIGH PERFORMING CULTURE TRUST in institutions, an especially financial institutions are at all-time low. Trust in governments is now emphatically countered by the rising nationalism and populism, heightened demands on transparency in reporting, and in their transactions. Coupled with this Malaysia is faced with many institutional crises, some of which are currently being heard in our courts. It is on the ticket of governance and reform that the current administration fought its battles during GE14. One of the first initiatives the government implemented post-GE14 was the establishment of the National Centre for Governance, Integrity and Anti-Corruption (GIACC). On the 29th of January 2019, the Government launched the National Anti-Corruption Plan (NACP) with over 100 initiatives to fight and prevent corruption in Malaysia. One of those initiatives is to strengthen the boards and management of government linked companies as well as reinforce the credibility of these institutions. Creating a Culture of Integrity and High-Performance. The key to our success henceforth will rely largely on our culture. The culture required in this environment of heightened scrutiny of institutions locally and globally, where bad news travels faster than good ones through social media, is a culture that must exude every bit of integrity, good governance and high performance if we are to remain relevant at all. I am proud to announce that BR was the first Bank in Malaysia to establish an Integrity Department, aimed at strengthening our governance oversight in the Bank. This is work in progress at the moment but we intend to roll out key programmes, and activities for our staff as well as our stakeholders on building and reinforcing good governance. My vision is to ensure and establish BR as the lighthouse for good governance in the next 5 years not just internally but also a thought leader in paving a stronger market for Malaysia where we actively participate with the market in regulatory reforms relevant to the industry. As we (BR) have had chequered past in our governance, the new board appointments and management team are tasked to ensure good governance and integrity is in the front and centre of all daily activities - be it small or big. It is therefore crucial that we aligned our strategic plans with a culture that would enable and reward integrity and high performance. This is a priority project which I am focusing on with the board and our management team. No matter the soundness of a strategy, as Peter Drucker would say - Culture ate Strategy for Breakfast. Culture remains core in us achieving BR25 and the set of behaviours and norms we reward must be clearly articulated at all levels of businesses from within and without. Simply put the BR Culture must be one that lends to excellence, integrity and of service. Having a High-Performance Culture means BR can serve its members, shareholders, and customers better and help stimulate the nation's economy through its full range of financial services that are Shariah-compliant. This would also translate to initiatives currently taken by the Bank to branch out from the current practices and develop new capabilities that would define the future of Bank Rakyat. Another key point in creating a high-performance culture is the strategy to enhance corporate governance which includes compliance, fraud and integrity in our performance measures. Bank Rakyat has always been committed to the most stringent corporate governance practices prescribed by the regulatory authorities as the Bank has always believed that good corporate governance is the foundation for longterm sustainability. That said we must also actively engage the market and policy makers in reviewing regulations that may hamper good governance and best practice. “ My vision is to ensure and establish BR as the lighthouse for good governance in the next 5 years not just internally but also a thought leader in paving a stronger market for Malaysia where we actively participate with the market in regulatory reforms relevant to the industry. WE LAY THE PATH AHEAD 2019 will be a year of change for BR. The path ahead will be inscribed by us collectively. It will be done through our commitment and hardwork, our discipline and belief in what this Bank stands for. This can only be done if we, from my own Office including myself to the people facing our stakeholders and those servicing us every day to keep our offices, meeting rooms and corridors clean, live the dream of what Bank Rakyat is about. This is one of the key cascading of vision that I believe we must commit to in the year ahead. Without this commitment, no amount of advertising will do the job for us.
We need to also improve our financial position for year ending 2019 , plugging all the pilferages and leakages. Our targets must be realistic and we must make every effort to achieve KPIs set in every aspect of our business and our operations. We must have the capacity to track and diagnose our problems and classify them as real, serious and/or urgent and offer prescriptions and workable solutions. Simply put, we have to have solid tracking mechanisms to reduce the leakages and bring those responsible for any such irresponsible acts to the disciplinary board. We are also removing waste and increasing speed across our supply chains - from our board room to the office floor to the front desks and into our customers’ workflows. That helps our partners, it helps our shareholders and it helps us. We need to detect and remove negative bureaucracy. “ The culture required in this environment of heightened scrutiny of institutions locally and globally, where bad news travels faster than good ones through social media, is a culture that must exude every bit of integrity, good governance and high performance if we are to remain relevant at all. FINAL THOUGHTS - OUR BRAND, OUR BRICKS AND MORTAR OUR PEOPLE IS OUR BRAND. How we serve our stakeholders make our brand. How we deliver to our shareholders reiterates the strength of our brand. To me, slogans and advertising campaigns do not make a brand. They do not make policies. They cannot replace strong leadership, integrity and good governance. In my view Bank Rakyat has an immensely great opportunity today to make that difference in all that it can offer in a market that is maturing, with a government looking for institutions like us to be more professional in their operations. Our challenge ahead is to develop leaders from within the bank who are able to perform the deep analysis required to fully understand our problems. We often focus on short term day to day issues and haven’t the skills to look at the horizon that can affect us year-over-year or even quarter-over-quarter. We must have the capacity in the bank to study and analyse trends and offer solutions not just for the bank but also for the country and the industry. One of the major and most profound uncertainties faced by our industry today is the entire nature and model of financial institutions. Will our bricks and mortar still be relevant, our systems needed and our services required? These trends affects jobs, affects livelihood and will affect how we serve our shareholders and stakeholders. With fintech, cryptocurrency and rising influence of online banking our future is beholden to trends and trust that our stakeholders have on us. It is my commitment to focus on finding workable solutions for some of these rising trends and work with the team to develop not just systems and processes but also build capacity in our people to rise with the challenges. In closing, I would like to express my deep gratitude and appreciation to the employees of Bank Rakyat for their work. I am proud of your contributions and how you have stood tall in an environment laden with competition. I am proud of our management team and I hope readers of this Letter and our shareholders will see that without trust in the capability of our people who make that call to walk into work every day to serve us, there can never be service and there can never be institutions like Bank Rakyat that has stood the test of time for over 65 years. ACKOWLEDGEMENT AND APPRECIATION I would like to extend my heartfelt appreciation to BR’s employees, our management team, customers, alumni, and Board for their commitment and passion to advance this company forward. The Board and I would also like to express our utmost appreciation and gratitude to YB Datuk Seri Mohd Redzuan Yusof, Minister of Entrepreneur Development (MED). We are also filled with gratitude for the invaluable assistance and guidance given by the Suruhanjaya Koperasi Malaysia (SKM), the Ministry of Finance (MOF), Bank Negara Malaysia (BNM) and all other related Regulatory Authorities. Finally, I would like to thank our valued members and customers for their continued support of Bank Rakyat. To the Bank's support group which consists of our growing customer base and also our business partners, we have come a long way beating many odds together and may we continue the journey in now escalating Bank Rakyat to its next level of achievement and accomplishments. I thank you for giving us the opportunity to earn your confidence and trust, and to serve you. Datuk Noripah Kamso Chairman Bank Rakyat Group 35 FROM THE TOP ANNUAL REPORT |
36 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD FROM THE TOP MANAGEMENT DISCUSSION AND ANALYSIS Looking into future performance and prospects Dear Stakeholders, This section of the Annual Report encompasses details of Bank Rakyat’s performance. The objective is to present a balanced reporting on the Bank's operation and the effectiveness of our management. Management Discussion and Analysis (MD&A) will lay out the overview of the Bank's business performance in 2018, financial fundamentals and the insights into the Bank's future performance and prospects. BUSINESS AND ECONOMIC ENVIRONMENT Global economy moderated in 2018 • “ Global growth is expected to moderate to 3.6% in 2018 from 3.8% in 2017, as economic and trade activities softened due to multiple headwinds. ositive start to global economic P expansion before moderating towards 2H18 - After strong growth in 2017 and early 2018, global economic activity turned slower notably in the second half of 2018, reflecting a confluence of factors affecting the world’s economies. According to the World Economic Outlook Report, growth is expected to moderate to 3.6% in 2018 from 3.8% in 2017, as economic and trade activities softened due to multiple headwinds such as the escalation of trade conflicts between U.S. and China, the fluctuation in commodity prices especially crude oil, and bouts of volatility in global financial markets. Ongoing risk-on and risk-off developments such as the prolonged trade tariff talks and trade protectionism led to sudden shifts in investor sentiments, hence contributed to a significantly weakened global expansion. These led the International Monetary Fund (IMF) to lower its global economic growth forecast twice, in April (3.9%) and October (3.7%) 2018, reflecting the loss of momentum of global economic expansion. • rude oil price increased to C more than 80USD/barrel in early October, the highest level since November 2014 but subsequently ended at an all year low - Oil started 2018 with firm growth on strong demand, and ongoing supply cuts by producer cartel Organization of the Petroleum Exporting Countries (OPEC) in partnership with Russia and several other nations since January 2017, and looming U.S. sanctions against major crude exporters. Oil prices then fell in July as the market played down rhetoric between the U.S. and Iran which had boosted the potential for tighter global supplies. The oil price had subsequently resumed its upward trend and surpassed $80 in early October, ahead of the U.S. renewed sanctions against Iran’s oil sector that took effect in November. Crude oil prices however, ended lower in 2018 (Brent: $52.2 per barrel; WTI: $45.33) due to high production growth in the U.S. and the issuance of waivers for most of the countries that imported oil from Iran. OPEC and non-OPEC oil exporters such as Russia, had collectively in December agreed to extend the production cuts starting January 2019 for an initial six-month period. The ongoing trade tensions, geopolitical worries, and fears of softening global demand, further reduced the global oil demand.
ANNUAL REPORT | 37 • G old prices dropped to a 19-month low in August - Gold price fell below the $1,200-perounce mark in August, the first time since January 2017, as the turmoil in emerging market (EM) economies and continuing U.S.-China trade dispute caused U.S. dollar to become more expensive for buyers with other currencies. However, concerns on a possible prolonged U.S. government shutdown which started at the end of 2018 and slower global growth also weighed on the dollar and equity markets, thus boosting the appeal of safe-haven assets such as gold. Malaysia economy remained firm in 2018 • Malaysian economy moderated, amid multiple headwinds - After recording a robust GDP growth of 5.9% in 2017, the Malaysian economy expanded at a moderate pace of 4.7% in 2018 amidst external and domestic challenges during the year. Major policy and political shifts, arising partly from the global trade tensions, U.S. Federal Reserve (Fed)’s monetary tightening and the historic change of government in Malaysia, became major sources of uncertainty for the domestic economy. • Headline inflation was low in 2018 - Inflation declined to 1.0% in 2018 (2017: 3.7%), attributed to the upliftment of domestic weekly fuel price adjustment; zero-rated Goods and Services Tax (GST) from June to August, which was then replaced by the narrower-base Sales and Services Tax (SST) effective September 2018; and the decline in food price inflation. • Local bourse performed relatively well - Bursa Malaysia started with an upward trend but eventually turned bearish post GE-14, hampered by political changes on the domestic front and growing uncertainties in the external economic environment such as rising U.S. interest rates, strengthening of U.S. dollar, and trade tensions as well as volatile oil prices. The local shares ended up losing 5.9% (2017: 9.4%) to close at 1,690.58, making it the worst annual performance for year-to-date change in ten years. Despite the decline, Malaysia’s stock market ended the year as the second-best performer in Asia-Pacific after Indonesia, as most equity markets in the region performed worse compared to 2017’s close. “ Malaysia’s stock market ended the year as the second-best performer in Asia-Pacific after Indonesia. FROM THE TOP MANAGEMENT DISCUSSION AND ANALYSIS
38 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD MANAGEMENT DISCUSSION AND ANALYSIS FROM THE TOP • • Ringgit performance mixed in 2018 - In contrast with the more bullish performance in 2017, the ringgit depreciated by 1.8% against the U.S. dollar to close at RM4.1385 in 2018. The local unit was affected by various internal and external factors ranging from global trade development, fears of contagion effect to EMs emanating from the currency sell-offs in Argentina and Turkey, the U.S. Fed’s interest hikes, the strengthening of the U.S. dollar and lower crude oil price. Notwithstanding the adverse development, the ringgit performed well compared to other regional currencies. oreign outflow in 2018 offset the F foreign inflow in 2017 - Malaysia recorded the second-lowest foreign outflow in the equities market after Thailand within the four ASEAN markets (including Indonesia, and the Philippines) in 2018. The total foreign net outflow of RM11.65 billion (2.88 billion USD) registered in 2018 offset the total foreign net inflow of RM10.33 billion recorded in 2017. The movement in equities market was largely reflecting changes in investors’ sentiments following the growing uncertainties in the internal and external economic environment such as investor expectations for a faster pace of monetary policy normalisation in the U.S., escalation in global trade tensions, volatile global crude oil prices and Malaysian government change. • M onetary policy remained accommodative - BNM has raised the Overnight Policy Rate (OPR) by 25 basis points to 3.25% in January 2018, the first rate hike since the rate cut in July 2016. The stance of monetary policy was to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time. However, the OPR adjustment did not constitute tightened monetary conditions, as the overall stance of monetary policy remained supportive of economic growth. • Labour market conditions remained favourable in 2018 Employment growth was strong at 2.5% (2017: 2.0%), amounting to an additional employment gain of 360,250 persons. Meanwhile, the labour force grew healthy at 2.5% (2017: 1.9%), which tabulated to 372,875 persons entering the labour force. The labour force participation rate also rose to 68.3% (2017: 68.0%) while the unemployment rate remained unchanged at 3.4%. Banking sector was resilient in 2018 • Loan growth improved - Loan growth for the banking industry rose to 5.6% YoY (Dec’17: 4.1% YoY), driven by higher growth in both the household (2018: 5.6% vs 2017: 5.1%) and non-household (2018: 5.7% vs 2017: 2.9%) segments. Islamic financing growth edged up to 11.0% in 2018 (2017: 10.3%) and accounted for 32% of the proportion of total loans. LOAN/FINANCING GROWTH (%) Banking Industry 2018 Islamic Banking 2017 Banking Industry Islamic Banking 5.6% 11.0% 4.1% 10.3% • Asset quality remained robust - The banking system’s asset quality was robust, with a tight Gross Impaired Loan (GIL) ratio range of 1.5%-1.6% throughout 2018, before hitting an alltime low of 1.45% in December 2018 (Dec’17: 1.56%). The lower GIL ratio in 2018 was primarily attributable to an expanding loan base (+5.6%) and sound underwriting practice by the banking institutions. The reduction stemmed from the manufacturing sector, and had mitigated the upticks in impaired construction loans and residential property mortgages. Meanwhile, there were some pockets of vulnerability in the property, construction and O&G sectors as well as lower-income households. • Deposit growth accelerated Throughout 2018, the banking system’s total deposit growth continued to accelerate, clocking 8.6% YoY (Dec’17: 4.1% YoY) partly driven by intense competition to build a stable funding base for the banks. The growth pace marked the first time since 2011 that deposit growth outpaced lending expansion (deposit growth: 8.6% YoY vs loan growth: 5.6% YoY). • Ample liquidity in the banking system - The liquidity coverage ratio (LCR) was at 143% in December 2018 (Dec’17: 135%), reflecting the sufficient liquidity condition at the industry level. Meanwhile, the average net stable funding ratio (NSFR) for the banking industry stood at 109.3%, with most of the banking institutions reporting NSFR levels of at least 100%. The NSFR complements the LCR by promoting long-term resilience of banking institutions’ liquidity risk profiles.
ANNUAL REPORT | 39 Several key issues in 2018 The domestic banking sector was affected by several notable domestic and external events last year; in particular, the transition of government, supply disruptions in the agriculture and mining sectors, the U.S.China trade war, and the tightening global financial conditions. • Transition of government - The transition to a new government caused political uncertainty on the government’s policy. The rationalisation on public projects and reduction in government’s spending depicts the government’s effort for fiscal consolidation. This has indirectly weighed heavily on investor sentiment on the economy resulting in slower growth in private investment and other key economic sectors, such as construction. • upply disruptions - Supply disruption S adversely impacted mining and agriculture sectors since second quarter of 2018, as well as commodity exports. Mining sectors shrunk due to the unplanned maintenance shutdown that resulted in declining natural gas output. On the other hand, the production constraint and adverse weather condition negatively affected the rubber and palm oil output, which in turn led to the negative growth of agriculture sector. • .S.-China trade war - The cyclical U slowdown in external demand was also weighed down by the escalation of trade tensions among major economies beginning April 2018. While the implementation of higher tariffs by the U.S. and subsequent retaliation by major trade partners have negatively impacted the global trade, it has led to higher uncertainty for businesses and further contributed to sudden shifts in investor sentiments and episodes of financial market volatility. • Tightening global financial conditions - The mixture of strong U.S. economic conditions and continued rate hikes by the U.S. Fed in 2018 had subsequently led to a rebalancing of funds away from EM economies towards U.S. dollar assets. STAYING ON TRACK Bank Rakyat is on track with the Five-Year Strategic Plan (2018-2022) focusing on stability and sustainability after had delivered the Bank’s Strategic Directions, 2013-2017 in the previous years. This new strategic plan aims to offer the Malaysian Market a unique value proposition that will lead to a positive growth in 2018, in terms of financing and assets. The beginning of this new strategic plan has helped further strengthened Bank Rakyat’s position as one of the largest Islamic institution and the largest Islamic cooperative in Malaysia. In term of personal financing, credit card, residential property financing, hire purchase segments and also business financing to cooperatives, the Bank has recorded significant growth. “ Throughout 2018, the banking system’s total deposit growth continued to accelerate, clocking 8.6% YoY (Dec’17: 4.1% YoY) partly driven by intense competition. The Bank's accomplishments has also reflected in term of our mandated outputs. We have met if not exceeded most of our targets. Some of our significant examples were the schemes we have lay out to accommodate cooperatives, franchises, and aspiring entrepreneurs, where we attained the targets for approved financing. FROM THE TOP MANAGEMENT DISCUSSION AND ANALYSIS
40 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD MANAGEMENT DISCUSSION AND ANALYSIS ACHIEVING 2017 INSTITUTIONAL GOALS DEVELOPMENT OUTCOMES Objective Strategic Actions Performance Target 2018 Actual Performance December 2018 SHORT/MEDIUM/LONG TERM FROM THE TOP High level impact analysis on Development Finance Institutions achievement • Contribution to the development of cooperative sector Grant funding to enable cooperatives to create new products and add value to existing products •C ooperative Education Trust Fund •C ooperative Development Provident Fund Long Term • 2% of PBTZ • 1% of PBTZ Long Term • 2% of profit before tax and zakat (PBTZ) • 1% of profit before tax and zakat (PBTZ) • Contributing to the development of educational sector Members of Bank Rakyat grant funding to enable student participation to higher education through financial assistance • Allocation of fund through Yayasan Bank Rakyat •0 .50% of individual share • 0.50% of individual share • Contribution to the development of economic sector Prospering our members •D ividend payout • < 50% of PATZ • <50% of profit after tax and zakat (PATZ) MANDATED SECTOR OUTPUT Institutional achievement in supporting the needs of targeted sectors • Implementation of Government specific initiatives Assisting rural area’s Bumiputra entrepreneur • Skim Pembiayaan Ekonomi Desa (SPED) Medium Term SPED: • Fund Utilization (Approval) - RM2.50 mil Medium Term SPED: • Fund Utilization (Approval) - RM2.41 mil Provide special funding scheme to eligible cooperatives at a competitive advantage • Funding schemes Medium Term Funding Scheme to Cooperatives: • Approval - RM300.00 mil Medium Term Funding Scheme to Cooperatives: • Approval - RM952.01 mil Medium Term Financing Bumiputera in Strategic Sectors: • 55 companies / cooperatives Medium Term Financing Bumiputera in Strategic Sectors: • 88 companies / cooperatives Medium Term SPPH: • 15 units Medium Term SPPH: • 65 units Strengthening Bumiputera entrepreneurs and business in strategic sectors •P rogram Pembangunan Usahawan Francais Dan Skim Pembiayaan Assisting ownership of Bumiputera entrepreneurs and business on commercial properties / premises •S kim Penyewaan & Pemilikan Hartanah (SPPH) Bumiputera • Provision of financing on mandated sectors served Develop cooperative societies • Ar-Rahnu X’change (RMS) Long Term • 8 outlets Long Term • 4 outlets •P rovision of advisory and consultancy services Provide value-added services in developing & nurturing SMEs •S eminar for coop and entrepreneur development Medium Term • 15 seminars for the year Medium Term • 18 seminars for the year
ANNUAL REPORT | 41 MANAGEMENT DISCUSSION AND ANALYSIS Strategic actions Performance Target 2018 Actual Performance December 2018 Institutional requisites to facilitate DFIs in achieving mandated activities • Achieve financial sustainability Initiatives undertaken to maintain safe and sound operating conditions • Risk Weighted Capital Ratio (RWCR) Long term • ≥ 20.78% Long term • 22.72% • Core Capital Ratio • ≥ 19.43% • 21.33% • Liquidity Coverage Ratio • 165.92% • 196.18% • Net Stable Funding Ratio • 104.47% • 103.11% • Profit Before Tax and Zakat • RM1.62 bil • RM1.86 bil • Return on Shareholders’ Fund (ROSF) • ≥15.00% • 10.08% • Return on Assets (ROA) • 1.75% Financial Highlights Bank Rakyat collected RM1.86 billion profit before taxation and zakat for the financial year ended 31 December 2018, a slight dip compared to the RM2.05 billion collected in 2017, while total deposits and savings for 2018 were recorded at RM82.74 billion compared to RM83.24 billion in 2017. Although there was a drop, the Bank's performance remained commendable in view of the challenging and volatile year due to internal and external developments. Nonetheless, Bank Rakyat still retained its position as the country's largest Islamic cooperative bank and the second largest Islamic financial institution in terms of assets. • ≥ 2.00% Return on Assets (ROA) during the year remained healthy, at 1.8%, a marginal dip from 2.0% previously but well above the domestic banking industry’s ROA of 1.6%. The Bank's financing and advances for 2018 on the other hand, stood at RM69.00 billion as compared to RM69.19 billion in 2017. However, the sum collected in 2018 has shown a steady progress and still remained above those collected in 2016, 2015 and 2014. Profit after taxation and zakat stood at RM1.76 billion while total operating income was recorded at RM6.91 billion, a marginal decrease from RM7.02 billion in the previous year but outpaced those of 2016 at RM6.66 billion and RM6.43 billion in 2015. In term of asset growth, 2018 recorded a 1.4% growth or RM1.44billion to RM106.89 billion, compared to RM105.45 billion previously. This was driven by moderate growth in treasury assets of 8.3% or RM2.54 billion to RM33.23 billion in line with the regulatory requirement to hold sufficient level of High Quality Liquid Assets (HQLA). Home financing grew 12.8% or RM0.67 billion to RM5.92 billion, compared to RM5.25 billion previously. Car financing grew 1.3% or RM0.04 billion to RM2.77 billion, compared to RM2.73 billion previously. Meanwhile, business financing, especially the cooperative segment, grew 13.3% or RM0.26 billion to RM2.22 billion, compared to RM1.96 billion previously. As part of diversification on other portfolios, personal financing balance stood at RM54.88 billion, a slight decline of 2.0% or RM1.12 billion in line with the Group’s long-term strategy to reduce overall dependency on personal financing. The Financing Loss Coverage continued to remain high at 115.8% (2017: 112.3%), better than the domestic industry’s average of 97.5%. In addition, the Group continued to monitor closely its assets quality with an improved gross impaired financing ratio of 2.12% as compared to 2.23% previously. Stable Deposits Balance Stable Financing Balance For the year ended 2018, the gross financing balance stood at RM70.40 billion, compared to RM70.63 billion previously. The Group continued to benefit from the diversification of portfolios, mainly from home, car and business financings. The Group’s deposits stood at RM82.74 billion in 2018, compared to RM83.24 billion previously, a slight decline in line with the softening of overall industry’s financing growth. Nevertheless, Current Account and Savings Account (CASA) balances improved significantly at 14.5% or RM0.73 billion to RM5.73 billion for the year, in tandem with the strategy to increase its CASA. FROM THE TOP SHORT/MEDIUM/LONG TERM ORGANIZATIONAL SOUNDNESS Objective
42 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD MANAGEMENT DISCUSSION AND ANALYSIS FROM THE TOP Strong Capital Position The Group’s shareholders fund rose 7.5% to RM17.87 billion in 2018 (2017: RM16.63 billion) contributed by the increase in net profit for the year. As at 31 December 2018, Risk-Weighted Capital Ratio and Core Capital Ratio after the proposed final dividend remained strong at 22.7% and 21.3% respectively. These capital ratios were well above the minimum regulatory requirements, positioning the Group as one of the strongest banks in terms of capital position. Contribution to Co-operative Funds The Group continues to support its yearly mandated role to the cooperative ecosystem by contributing 2% of its profit before taxation and zakat amounting RM37.50 million to the Co-operative Education Trust Fund and 1% or RM18.75 million to the Co-operative Development Provident Fund. Total contribution to these Co-operative funds for the year 2018 amounted to RM56.25 million. RAM Ratings RAM Ratings Services Berhad (RAM) reaffirmed Bank Rakyat’s AA2/Stable/P1 financial institution rating along with its Sukuk, issued through the Bank’s funding conduits. This was given due to the Bank’s strong personal financing (PF) and robust loss-absorbing capacity. RAM noted that Bank Rakyat’s asset quality is supported by a sizeable PF portfolio that gained benefit from payment by salary deduction and transfer mechanism. As at end of June 2018, the Bank’s gross impaired-financing (GIF) ratio remained healthy at 2.4% while GIF coverage ratio (inclusive of regulatory reserves) stood at 123.5%. The Bank’s robust capitalisation on the other hand was backed by a healthy internal capital generation and the periodic issuance of new shares. The Bank’s Basel I core capital and riskweighted capital adequacy ratios stood at 20.09% and 21.63% respectively as at end of June 2018. RETAIL BANKING SECTOR Personal Financing-i Personal continues to be the central component of the Bank's retail banking business. The portfolio declined 2.0%, compared to a growth of 0.6% in the previous year, due to our effort to control its growth at under 1% a year as we are taking steps to diversify into other areas. Retail banking is also trying to broaden the customer base, diversifying from the current dependency on civil servants to employees from the private sector and business owners. The personal financing portfolio figure was recorded at RM54.88 billion as at the end of 2018. Deposit In 2018, our total deposits declined by 0.6% or RM0.50 billion to RM82.74 billion as compared to RM83.24 billion in 2017. As at December 2018, our eCA-i balance was recorded at RM1.40 billion, which saw an increase of RM227.34 million from the figure in the previous year while our SA-i balance has increased to RM4.33 billion or 13.0% as compared to the figure collected in 2017. TD-i balance on the other hand recorded a 1.2% decrease to RM68.93 billion. Auto Financing-i This financing is a flexible installment scheme for customers to purchase new local and imported cars with maximum financing tenure of up to nine years. 2018 saw the growth of Auto Financing-i by 1.3% to RM2.77 billion compared to RM2.73 billion in the previous year. Home Financing-i Bank Rakyat's Home Financing-i segment recorded substantial growth of 12.8% in 2018 with a sum of RM5.92 billion as compared to RM5.25 billion in 2017. The growth has been achieved despite a slower property market due to macro-prudential measures introduced by the government and Bank Negara Malaysia to instill responsible lending in the financial sector and restrain speculative activities in the market. This was also contributed by the easing of residential property prices and weaker consumer sentiment over concerns of higher cost of living that has put the pressure on the demand for residential properties.
ANNUAL REPORT | 43 Pawn Broking-i BUSINESS FINANCING An alternative to conventional pawn broking, Pawn Financing-i Ar Rahnu (Islamic pawnbroking or Ar-Rahnu) provides instant and easy cash of up to RM350,000 based on Shariah principles. This has been one of our most successful products since its introduction in 1993. This service is provided via 141 Ar-Rahnu outlets inclusive of branches and ArRahnu X’change that operate from Monday to Saturday. Property-i To finance purchase of residential, commercial properties and land for development with financing tenure of up to 20 years. The products offered are Pawn Broking-i Ar Rahnu, Pawn Broking-i Ar Rahnu Az-Zahab and Pawn Broking Ar Rahnu Genius. Ar-Rahnu X’change now stands at number one in Malaysia with 45% market share, and contributed RM1.73 billion of balances in 2018. Hire purchase-i To give financing facility for commercial and industrial vehicles. FY2018 GROUP HIGHLIGHTS 2018 2017 Variance Total income RM6.91b RM7.02b  1.7% Total costs RM5.05b RM4.98b  1.4% PBTZ RM1.86b RM2.05b  9.1% Total Assets RM106.89b RM105.45b  1.4% Gross financing RM70.40b RM70.63b  0.3% Deposits RM82.74b RM83.24b  0.6% The profit before taxation and zakat (PBTZ) was achieved through higher operating and fee based revenue, whilst maintaining lower operating expenditure and impaired provisioning. Gross Financing Gross financing is slightly lower due to the consolidation and streamlining of business focus in line with the 5 Years Business Plan (5YSP). Revolving Credit-i To finance working requirements to meet the short-term cash flow requirement for businesses. Working capital financing-i To finance working capital for business requirement. Term financing-i To finance long-term working capital requirement for businesses, i.e. operating and capital expenditure, purchase of machineries, etc. Bridging-i To give short-term financing to bridge a project. Deposits Trade Finance-i To provide a range of services and financing to facilitate local and international business transactions. Our deposits saw a slight decline in line with the softening of the overall industry’s financing growth and with the reduction in High Quality Liquid Assets (HQLA) to maintain a lower percentage of Liquidity Coverage Ratio (LCR). Contract-i To provide financing for part of the cost to complete a contract awarded. KEY PERFORMANCE INDICATORS Micro Financing Offered to SMEs and cooperatives under government-funded schemes. Key Performance Indicators 2018 Targets 2018 Achievements Profit Before Taxation and Zakat RM1.62 billion RM1.86 billion Asset Growth 6.5% 1.4% Cost to Income Ratio 38.0% 34.3% Dividend Payout Ratio 14.1% 15.1% Return on Equity 9.69% 10.8% Financing Growth 5.0% -0.3% Gross Impaired Financing 2.1% 2.1% CASA Growth 25.4% 14.5% Deposits 3.4% -0.6% Project/ Contract-i To part-finance the cost to complete a contract awarded by the government/ GLCs. Micro Financing Offered under Government Mandated Funds As for micro financing for SMEs, the overall achievements for 2018 are as below: Approval - RM41.75 million Disbursement - RM40.87 million Outstanding Balance - RM85.41 million Income - RM15.32 million FROM THE TOP MANAGEMENT DISCUSSION AND ANALYSIS
44 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD MANAGEMENT DISCUSSION AND ANALYSIS TREASURY SECTOR FROM THE TOP Treasury sector can be labeled as the heart of the Bank. The treasury controls the funding activities for the Bank while maximising potential income from financial market activities. The sector consists of three main business divisions; Funding and Currency Management, Portfolio Investment Management, and Treasury Sales and Distribution. These three divisions supervise six critical departments that are responsible for Money Market, Foreign Exchange, Fixed Income, Equity Investment, Treasury Sales and Distribution as well as Investment Account. Micro-i Financing Scheme (MUsK-i) In 2018, the scheme disbursed RM40.87 million to 2,696 micro-enterprises. Micro Traders and Hawkers Scheme Fund (MPPK-i) A total of RM79.69 million in microfinancing was disbursed to 18,194 accounts until April 2018 as there was no approval nor disbursement after April 2018. Rural Economic Financing Scheme (SPED) As at December 2018, RM192.33 million was disbursed to 1,843 approved applicants. SME Corp Fund: Enrichment and Enhancement Programme (E²) A total of RM5.73 million of this fund was disbursed to 134 SMEs in 2018, aiding them to further grow their businesses. 2018 Key Business Targets and Strategic Priorities The focus in 2018 was on Mortgage Financing, Auto Financing, Ar-Rahnu, Credit Card business, SME financing, CASA through Tabung Qurban and Tabung Umrah as well as fee based products. Other than that, the Bank has also initiated the Core Banking (COBRA) project. VIRTUAL BANKING SECTOR Generation Y and X are the two generations that are driving the growing trend of online and mobile banking. Having introduced our internet banking services in 2007, we have done rather remarkably to meet the need for an increasing number of internet and smartphone users who demand fast, easy, and convenient banking solutions. We are devoted to providing the best services by investing in the latest technologies, securing the services of technical expertise and performing frequent monitoring to make sure the security and performance of our online banking services are not compromised. Currently, we have few virtual channels, namely i-Rakyat, i-Rakyat Commerce, Bank Rakyat Autopay System and 1Pay. i-Rakyat is an internet banking portal that offers online banking in a safe and secure environment, while i-Rakyat Commerce caters for non-individual e-Current account holders, cooperatives, sole proprietorships, partnerships, clubs, associations, companies, government agencies, etc. We also provide crediting facility for employers to perform bulk payment with one submission, called Bank Rakyat Autopay System and 1Pay, an electronic payment instrument for eCA-i account holders to do payment without writing a cheque. Apart from its dealings with the Money Market, the sector is also engaged with Fixed Income Securities (SUKUK), Equity Shares Trading and Investment as well as facilitation of Foreign Exchange transactions. As the main contact point in connecting Bank Rakyat with the Malaysian financial market, it is responsible to optimise the Bank's assets to facilitate the needs of treasury as well as corporate and branch customers. Operating Environment In 2018, the Treasury sector faced challenges on the back of a slowdown in global economic growth. This was aggravated by heightened volatility in financial market, which influenced the movement of rates and investment strategies which was caused by global economic uncertainty and geopolitics instability, volatility in the Malaysian Financial Market and ensuring compliance with Basel requirements. Answering to these challenges, the Treasury took the following strategies such as controlling the cost of borrowing, managing overall cash flows, preserving strong liquidity positions, and spearheading the Bank's strategic investment in companies to focus on enhancing value creating activities across the portfolio. The Treasury also implemented optimising of asset allocation strategies and enhanced funding compositions.
ANNUAL REPORT | 45 FROM THE TOP MANAGEMENT DISCUSSION AND ANALYSIS Moving Forward Anticipating 2019 outlook, external developments such as the US Federal Reserve's decision on policy rates will probably dominate market movements, given the lack of domestic catalysts. The Malaysian trading market is also facing a challenging period with a prolonged scenario of slower global economic growth and low investment yield environment. The Treasury is looking to widen and diversify its sources of fund and control the deposit composition to be consistent with Management's aspirations. We will also implement a prudent strategy in sourcing out funds to manage cost effectively and in purchasing as well as allocation of asset for income generation from trading purposes to avoid unwanted risks. Apart from that, we will replace the current bank portfolio maturities with better quality assets at higher yield and continue long-standing engagements with depositors and interbank counterparties. The Treasury will also comply with all internal targets/ratios and shift the focus on enhancing staff strengths and talents. The Bank is also looking to strengthen the Balance Sheet via diversification of retail portfolio, repositioning of business banking, strengthening of the funding base and innovation of products and services. In doing so, Bank Rakyat will accelerate other key retail portfolios, namely Mortage, Hire Purchase and Ar-Rahnu, while maintaining the “controlled growth” strategy of Personal Financing, completion of COBRA and put more focus on SME, co-operatives and selected corporates. DELIVERING EXCEPTIONAL CUSTOMER SERVICE Bank Rakyat successes for the past 60 over years has been made possible with the continual support of our customers. We have more than 7.49 million customers and we see them as our strategic partners. As such, we make it our priority to deliver the best services based on the Islamic banking principles of fairness and profit-sharing in dealing with our customers. These principles are the basis of all that we do at Bank Rakyat as we ensure our customers achieve their financial goals by positioning them as the ‘You’ in ‘Your Bank of Choice’. This has led to our success and this will continue to drive us forward. The lasting relationships that we have built with our customers as part of our strategy has served us well. Our customer base now includes a large number of customers utilising two or more of our banking products. Keeping in mind the importance of our customers to us and keeping them satisfied, we continue to serve our customers by providing financial products that meet their lifetime needs and making sure they receive our best possible service. MULTIPLE CUSTOMER SERVICE TOUCHPOINTS In connecting with our customers, we make sure nobody is being denied the access to quality banking services. On top of our outstanding customer service, our multiple customer touchpoints help us develop closer relations with our customers. • 147 branches nationwide remain our primary banking channel to serve our customers who seek direct interaction with the Bank. • 4 mobile banks to enhance our reach, especially for those with no easy access to banking services. This enables customers in rural areas and Felda re-development scheme areas to perform banking transactions at their locations. •48 Rakyat Xcess located nationwide to serve as mini branches to complement main branches for rural communities to get access to our banking facilities. •1,000 ATM/CDM/CICO terminals nationwide. • Internet banking services provide fast and on-demand banking services for our customers. During the year under review, our secure and efficient digital platform www. irakyat.com.my had recorded 309,790 registered users. •Social media: As at 31 December 2018, our Facebook page had 241,000 fans while our Twitter and Instagram accounts @ myBankRakyat had 9,896 and 18,900 followers respectively. •tele-Rakyat call centre operated by trained and knowledgeable Service Consultant Executives assist our customers, providing them with essential information about our products and services to promote our offerings.
46 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD MANAGEMENT DISCUSSION AND ANALYSIS FROM THE TOP ENHANCING SERVICE STANDARDS It is imperative for us to understand our customers' experience with us so that we could enhance our service standards for us to remain successful. We recognise the importance of getting feedback from our customers and assign several channels for our customers to share their opinions, make inquiries and voice their dissatisfaction with the quality of service they received. Other than our tele-Rakyat call centre, our customers can engage us by using the forms available at our branches or download them from www.bankrakyat. com.my/web/guest/maklumbalas. Aside from that, customers can also email us their feedback to jkp@bankrakyat.com. my or visit our social media channels at www.facebook.com.my/myBankRakyat and twitter.com.my/myBankRakyat. Another way is to call Bank Rakyat Customer Service at 03-26975011/ 6011/7011, fax to 03-26129655 or email to aduan@bankrakyat.com.my. We have also put in place a clear process to ensure that all complaints are given equal attention with appropriate action taken. CENTRAL COMPLAINT MANAGEMENT SYSTEM Complaints that are handled effectively not only resolve the problem at hand, it is also an opportunity to transform customer perception and increase loyalty and advocacy. Our Central Complaint Management System (CCMS) handles and resolves all complaints from our customers within the stipulated period in a speedy, effective and efficient manner. The system also merged all complaints received from various channels such as branches, Public Complaints Bureau, and tele-Rakyat. We respond to all feedback and complaints received through telephone, email or facsimile transmittals within 24 hours of receipt. All complaints are treated with urgency and in a fair and consistent manner. We strive for immediate resolution for telephone complaints, a three-day resolution period for complaints which require follow-up action and a 14-day period to resolve complicated complaints received via email or facsimile transmittal. HARNESSING TECHNOLOGY The banking business has become more and more technologically driven. More specifically, Information technology (IT) has evolved and continues to change the way we serve our customers through our products and services. As the digital landscape continues to grow, IT now has a vital role to sustain business growth especially with the emerging competition from Financial Technology (FinTech) start-ups. The introduction of latest technologies, analytics, and automation in banking business have enabled products and services to be tailored to customer demands and delivered efficiently, reliably and securely while managing risks prudently in compliance with statutory and regulatory mandates. The last three years (2015-2017) have seen the formulation of our 3-year IT Blueprint which saw Bank Rakyat prioritise IT initiatives that have a direct impact on its businesses whilst strengthening its Infrastructure, Systems and Processes. The Bank has also identified both shortand long-term initiatives that have been rolled out. Short-term initiatives are leveraging on digital initiatives, using Enterprise content management system as a platform for collaboration and content, and for the Bank to have a golden copy of data through Master Data Management (MDM)/CIF and Cashline, a new financing product for corporate customers. Long-term initiatives such as the 5-Year IT Blueprint are also being established. The 5-Year IT Blueprint is going to be the guiding principle to ensure the Bank is always keeping up with the latest trends and technological advancements, in terms of Infrastructure, Application, Security and processes/best practices. It is also aims to support the Bank’s 5-Year Strategic Plan. Apart from that, there are also the new Core Banking Project with more features and functions to meet the growing needs of Bank Rakyat's retail and corporate banking operations. Enterprise Fraud Management System (Phase 1) was implemented to help the Bank manage and improve fraud issues through fraud management framework, end-to-end fraud detection and management, and system automation for proactive and preventive measure.
ANNUAL REPORT | 47 MANAGEMENT DISCUSSION AND ANALYSIS “ FROM THE TOP Our Central Complaint Management System (CCMS) handles and resolves all complaints from our customers within the stipulated period in a speedy, effective and efficient manner. 2018 Achievements Developments in 2018 2018 INITIATIVES Our main achievements were in the areas of governance and process, service delivery, development of internal capability and the development of digital platforms such as mobile banking and e-wallet, with 39 digital initiatives identified, to be implemented by 2019. In addition, BNM has approved our email migration project to leverage on a ‘cloud-based’ platform and Bank Rakyat has become the first Bank in Malaysia to utilise Microsoft 365 for productivity and as a collaboration platform in 2018. • ank Rakyat Marketplace: A new B e-channel for the distribution of financing products, on top of the existing normal platform to reach out to customers. This serves as a digital channel for customers to get quick and easy financial services and as a platform for our Financial Advisers to reach out to the public. Short-term initiatives • i-Rakyat Mobile Responsive: This allows customers to optimize i-Rakyat Interface via multiple devices such as Desktop, Tablet and Mobile Phone. • abung Haji Internet Banking: The T enablement of TH Internet Banking on our platforms provide convenient access for our customers in dealing with account opening, registration, deposit, withdrawal, and fund transfer. • Enterprise Content Management System to provide a Collaboration & Content platform for the Bank. Branches have used digitised documents while departments at HQ are coming on board utilising the solution in phases. 2018 Challenges Our main challenges were technology, process and governance, and people related. With regard to technology-related challenges, we faced increased threats of cyber security and challenges posed by fraud and threats to electronic/ internet banking transactions, as well as long enhancement processes due to the complex system design and legacy system complications. Process and governance related challenges included adoption of ITIL best practices, improvement of IT governance practices, inconsistent project management practices, the focus on developing a customer centric business model and delivery channel, and the absence of a dedicated QA team. As for people-related challenges, these were over dependency on vendors for support and development, lack of internal expertise in technical areas and the need for a mind-set to promote digital transformation. • PTPTN/SSPN-i Internet Banking: This enablement provides online PTPTN/SSPN services via Internet Banking i-Rakyat such as Account Opening, Deposit, Withdrawal, Fund Transfer/ Loan Repayment. • Combo Card: This allows retail transactions via a single card that serves as an ATM card, a domestic debit card and an international debit card. •Leverage digital initiatives such as: Internet Banking, New Corporate Internet Banking, Mobile Banking Applications, Mobile Wallet, Retail Real-Time Payment Platform (RPP), and Agent Banking Mobile Applications. •Master Data Management (MDM)/ CIF to allow the Bank to have a golden copy of data. Operationalisation of the Golden Record and Data Cleansing activities are ongoing. • Introduction of Cashline, a new financing product for corporate customers.
48 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD FROM THE TOP MANAGEMENT DISCUSSION AND ANALYSIS Long-term initiatives REINFORCING OUR BRAND 2019 DIRECTIONS •A new 5-Year IT Blueprint has been established, focusing on: For the past 60 over years since our establishment, we have been consistent with our effort to build our brand. We became a recognisable brand that is trustworthy and evokes an expectation of high quality among our customers. The Five-Year Strategic Plan (2018-2022): Stability and Sustainability is in its initial stage this year. Moving forward, we are looking to unlock the potential that exists within the Bank and maintain our growth momentum, growing our capacity as well as strength to enhance our value to customers. Goal #1 Leveraging on Digital Initiatives To optimise on customer-facing technologies and improve digital touchpoints to support the business goal of improving customer experience. Goal #2 Strengthening IT Governance To ensure overall IT operations are optimized and managed efficiently, governed by proper IT Governance and Compliance Best Practices. Goal #3 Improving Service Delivery To provide effective and efficient IT services to internal and external customers by streamlining the Technology, Process and People components. Goal #4 Developing Internal Capabilities To develop internal capabilities and rightly skilled IT Talent to support the demand of IT and Business objectives. • Our new Core Banking project will provide a proven solution with more features and functions to cater to the growing needs of Bank Rakyat’s retail and corporate banking operations. • An Enterprise Fraud Management System will allow the Bank to manage and improve the way we handle fraud areas in terms of fraud management framework, end-to-end fraud detection and management, as well as proactive and preventive measures via system automation. • The first phase of our Enterprise Risk Management System will focus on Operational Risk and MFRS9. • IT is pursuing the certification of ISO/IEC 20000-1 from SIRIM for IT Service Desk area to reflect our continuous commitment to high quality IT delivery. Successful brands deliver on their promises and we strive to do the same. Our Bank Rakyat brand, its messaging, visual identity, print collateral, products and services, marketing material and advertising campaigns, revolves around our promise. That is to be “Your Choice Bank”, which is expected of us and what our customers deserve. We promise to serve our customers better and we are continually expanding our portfolio of superior branded products into the most promising markets and innovating to expand product categories and create new ones. It is about fulfilling societal obligations to the cooperatives who are the raison d'être of our establishment and planting roots in the communities in which we work, earning their trust and respect as a good corporate citizen. Above all, it is about serving the interests of the nation. This will call for more than just delivering a suitcase full of products and services just to keep up with the competition or simply to meet the customer expectation. The Bank will need to provide more to existing customers and add new ones, understanding their specific needs that will enable them to grow and prosper. The Five-Year Strategic Plan (2018-2022) is about developing strategies that will work, reexamining business model and make necessary adjustments to it, restructuring our organisation, refocusing on long-term strategy of the Bank's mandates and core business, and examining business portfolio, new markets, and partnerships. The highlight will remain to be on operational excellence and efficiencies to provide a high standard of financial performance, maintain balance sheet efficiencies and put into practice effective
ANNUAL REPORT | 49 MANAGEMENT DISCUSSION AND ANALYSIS We will also expand our businesses organically to sustain our growth alongside our strong corporate brand as a respectable, safe and efficient Islamic cooperative bank. To drive this, we will continue to tap into available opportunities in the market by keeping the focus on delivering efficient services, and at the same time, broadening and innovating our product range to meet the increasing needs of our growing customers. Another focus area in our aim to grow more sustainably in the long run is the diversification of financial portfolio. Personal Financing (PF) has been our bread and butter and we are by far the biggest player in the market. However, the move to diversify our business portfolio will see us slightly moving our focus from our PF segment as the fastchanging and increasingly competitive environments have made diversification necessary and forced us to change our business model. This move will see us grow our PF segment at a controlled pace of 1% a year and reduce it to 70% of our total financing in the coming years as we shift the focus to home, auto, and SME financing. Our commitment to fulfil our mandated financing to SMEs and cooperatives will be continued. This will ensure the Bank's role in empowering SMEs and the cooperatives sector to drive the nation's economy. SMEs and the micro enterprises are expected to be partly responsible for the larger GDP share (2020 forecast: 41% of GDP), and with that in mind, we are keen to finance SMEs, particularly large cooperatives. FROM THE TOP cost and balance sheet managements. The expected challenging environment will be tolerated with our Treasury and capital market operations safeguarding our risk management and liquidity in order for them to remain solid. This will be done simultaneously with driving the market share by providing competitive pricing, appealing terms and innovative products features. We will also continue to uphold our strong corporate governance, compliance culture and solid risk management practices. We are also going to acquire stronger earnings by continuing to grow our fee income segment by accelerating our Ar-Rahnu or Islamic pawnbroking's growth as we are already the market leader with a market share of about 45%. As a cooperative bank that offers retail banking, close to 90% of our assets are retail assets. In order to lower our cost of funds, we will need to diversify our assets as well as our liabilities which are now focusing towards fixed and corporate deposits. We are looking to boost CASA by introducing new products and campaigns that will grow CASA in the coming years to at least 15% of our total deposits. Moving forward, our focus will be on growing financing for retail, specifically on the higher income segment of government servants. In terms of business financing, our focus will be shifted to SMEs. Our funding structure will be diversified to increase retail funding and lessen the dependency on wholesale deposits. On top of that, our strength as an Islamic cooperative bank will be utilised to contribute significantly in the cooperative market which is our mandated role under the purview of previously KPDNKK and now MED as well as to expand products subscription by our existing shareholders. We will also put in improvement to our delivery channels via enhanced technologies for us to realign our portfolio composition, target a wider market and venture into new products and services. Various initiatives have been implemented to strengthen our prudent risk taking and compliance culture for our risk management. Some of the initiatives we have implemented are Risk Awareness Programme to promote and maintain Bank-wide risk culture; enhancement of our Risk Management IT infrastructure with the implementation of the Integrated Risk Management System Project and the implementation of the Enterprise Risk Management Framework to furnish a combined view of the Bank's risk-taking activities and its profile to the Board and Senior Management. We will also continue to amplify credit underwriting standards; ensure the alignment of an adoption of regulatory standards set by BNM, Basel ll and Basel lll and Credit Risk Best Practices; and introduce the Scenario Analysis Framework which will allow the Bank to systematically conduct fault tree analysis of our internal control environment and estimate the probability and impact of a certain black swan event. This will be in line with BNM's Policy on Operational Risk introduced in May 2017 and the issuance of the revised Policy Document on Operational Risk Integrated Online Network (ORION). The development of technology in the banking space will see the Bank staying astute to respond to the digital banking evolution. We will continue to expand our value proposition to customers by enhancing our digital capabilities, developing innovative payment capabilities and service enhancements.
50 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Corporate INFORMATION AUDITORS Auditor-General of Malaysia National Audit Department Malaysia No. 15, Aras 4, Persiaran Perdana, Presint 2, Pusat Pentadbiran Kerajaan Persekutuan, 62518 Putrajaya Tel : 03-8889 9000 Fax : 03-8888 9721 FROM THE TOP CHAIRMAN • Datuk Noripah Kamso BOARD OF DIRECTORS • Datuk Noripah Kamso • Datuk Wan Suraya Wan Mohd Radzi • Datuk Siti Zauyah Md Desa • Dato’ Sri Jamil Salleh • Wan Zamri Wan Zain • Abd Rani Lebai Jaafar • Edham Reza Shah Dato’ Abdul Rahman • Prof. Dr. Obiyathulla Ismath Bacha • Dato’ Rosman Mohamed COOPERATIVE REGISTRATION NUMBER 2192 ACTING BANK SECRETARY •Ratnasari Mohd Damanhuri REGISTERED OFFICE Bank Kerjasama Rakyat Malaysia Berhad Tingkat 35, Menara 1, Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral, 50470 Kuala Lumpur CORPORATE OFFICE Bank Rakyat Tingkat 35, Menara 1 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral, 50470 Kuala Lumpur Tel : 03-2612 9600 WEBSITE www.bankrakyat.com.my OUR VALUES, VISION & MISSION VALUES RAJIN DILIGENT AMANAH TRUSTWORTHY KOMPETEN COMPETENT YAKIN CONFIDENT AKHLAK MULIA TAKWA EXEMPLARY GOD-CONSCIOUS BEHAVIOUR
ANNUAL REPORT | 51 MEMBERS To ensure continuous success by collectively directing the company’s affairs, whilst maintaining shareholders’ conﬁdence by ensuring the appropriate interests of shareholders and stakeholders are met. Further, to deal with issues relating to business, ﬁnance, corporate governance, corporate social responsibility and corporate ethics in a transparent manner. COOPERATIVE MOVEMENT To steer the development and advancement of the cooperative movement and contribute to making the cooperative movement a force in the economic growth of the nation. CUSTOMERS To conduct business in a fair and transparent manner by providing Shariah compliant banking services and products, to offer prompt, courteous and effective services, and to focus on sound corporate governance and responsible ﬁnancing. ISLAMIC PRINCIPLES To uphold an exemplary Islamic ﬁnancial system by providing Shariah compliant ﬁnancial services that are exceptional, recognised and trusted, with the aim of being acknowledged as a model Islamic development ﬁnance institution. To be a responsible corporate citizen that is not just driven by proﬁt, but more notably, bringing positive changes to the economy, generating jobs and spearheading economic activities that will assist Malaysia in achieving developed nation status with a high-income economy. VISION MISSION Serving the community, nation and planet. Be a globally recognised catalyst for national development through a range of financial services rooted in Islamic values, community spirit, and sustainability. FROM THE TOP SOCIETY To effect positive changes in society by providing Islamic ﬁnancial services and corporate social responsibility activities that will elevate the standard of living and well-being of Malaysians. NATION OUR BUSINESS PILLARS
52 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD FROM THE TOP GROUP CORPORATE STRUCTURE Management 100% RAKYAT MANAGEMENT SERVICES SDN BHD Nominees 100% RAKYAT NOMINEES SDN BHD Holdings 100% RAKYAT HOLDINGS SDN BHD Travel 100% RAKYAT TRAVEL SDN BHD Hartanah 100% RAKYAT HARTANAH SDN BHD Asset 100% RAKYAT ASSET MANAGEMENT SDN BHD Niaga 100% RAKYAT NIAGA SDN BHD Facility 100% RAKYAT FACILITY MANAGEMENT SDN BHD (Ar-Rahnu Exchange Franchise & Gold Management) (Share Trading) (Investment Holding, Property Management & Management Services) (Umrah & Travel Services) (Property Development & Project Management) (Investment in Real Property) (General Trading & Supplies) (Building Management & Maintenance)
ANNUAL REPORT | 53 BANK RAKYAT AND THE GOVERNMENT MINISTRY OF FINANCE Bank Kerjasama Rakyat Malaysia Berhad Act (Special Provision) 1978 MINISTRY OF ENTREPRENEUR DEVELOPMENT Cooperative Act 1993 FROM THE TOP By-Law CENTRAL BANK OF MALAYSIA The Development Financial Institutions Act 2002
54 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD ORGANISATION CHART FROM THE TOP BOARD OF DIRECTOR CHAIRMAN CHIEF OPERATING OFFICER, BUSINESS CHIEF HUMAN CAPITAL OFFICER • • • • • • HC BUSINESS PARTNER (BUSINESS) HC BUSINESS PARTNER (BANKING OPERATIONS) HC BUSINESS PARTNER (SUPPORT) HEAD, HC STRATEGY HEAD, HC OPERATIONS HEAD, HC DEVELOPMENT CHIEF STRATEGY & TRANSFORMATION OFFICER • HEAD, ECONOMIC RESEARCH & INDUSTRY ANALYSIS • HEAD, STRATEGIC PLANNING & CORPORATE PERFORMANCE • HEAD, PROGRAMME MANAGEMENT OFFICE CHIEF FINANCE OFFICER • HEAD, FINANCE & REPORTING • HEAD, ASSET LIABILITY & CAPITAL MANAGEMENT • HEAD, DATA MANAGEMENT/ CIF HEAD, MEMBERS’ FUNCTION & CO-OPERATIVE DEVELOPMENT • • • • HEAD, MEMBERS’ SERVICES HEAD, ENTREPRENEUR ADVISORY HEAD, COOPERATIVE DEVELOPMENT & SUPERVISION HEAD, COOPERATIVE SOLUTIONS HEAD, LEGAL • HEAD, LEGAL (OPERATION & LITIGATION) • HEAD, LEGAL (PRODUCTS & SERVICES) • HEAD, LEGAL (CORPORATE FINANCING & DOCUMENTATION) MD OFFICE CHAIRMAN’S OFFICE CHIEF RETAIL BANKING OFFICER • HEAD, RETAIL FINANCING • HEAD, PERSONAL FINANCING BUSINESS • HEAD, MORTGAGE BUSINESS • HEAD, HIRE PURCHASE BUSINESS • HEAD, AR-RAHNU BUSINESS • HEAD, RETAIL FUNDING & SERVICES • HEAD, RETAIL BANKING FUNDING • HEAD, WEALTH MANAGEMENT & BANCA TAKAFUL • HEAD, DELIVERY CHANNEL • HEAD, CARD & PAYMENT BUSINESS • HEAD, RETAIL BANKING STRATEGY & PERFORMANCE MANAGEMENT • REGIONAL DIRECTOR (SOUTHERN) • REGIONAL DIRECTOR (NORTHERN) • REGIONAL DIRECTOR (SABAH & SARAWAK) CHIEF BUSINESS BANKING OFFICER • • • • • • • • HEAD, CORPORATE BANKING (PRIVATE) HEAD, GOVERNMENT & GLC HEAD, SME & MICRO HEAD, COOPERATIVE FINANCING HEAD, CASH MANAGEMENT HEAD, TRADE FINANCE HEAD, ACCOUNT REVIEW & SUPPORT COMPLIANCE OFFICER (BUSINESS BANKING) CHIEF TREASURY OFFICER • HEAD, PORTFOLIO INVESTMENT MANAGEMENT • HEAD, FUNDING & CURRENCY MANAGEMENT • HEAD, TREASURY SALES & DISTRIBUTION HEAD, MARKET RESEARCH & PRODUCT DEVELOPMENT • HEAD, MARKET & CLIENT ANALYTICS • HEAD, PRODUCT DEVELOPMENT (SECURED FINANCING) • HEAD, PRODUCT DEVELOPMENT (UNSECURED FINANCING) • HEAD, PRODUCT DEVELOPMENT (DEPOSIT & INVESTMENT)
ANNUAL REPORT | 55 ORGANISATION CHART CHIEF OPERATING OFFICER, BANKING OPERATIONS CHIEF IT OFFICER • • • • • • • HEAD, IT OPERATION MANAGEMENT HEAD, CORE SYSTEM & ENTERPRISE SOLUTIONS HEAD, IT DEVELOPMENT & ENTERPRISE ARCHITECTURE HEAD, IT PLANNING, STRATEGY & PMO HEAD, IT GOVERNANCE & ASSURANCE HEAD, IT SECURITY PROJECT DIRECTOR, CORE BANKING OFFICE CHIEF CORPORATE SERVICES OFFICER • HEAD, PROCUREMENT MANAGEMENT • HEAD, PROCUREMENT (GENERAL) • HEAD, PROPERTY SERVICES • HEAD, ADMIN & SECURITY SERVICES • HEAD, TRANSACTION OPERATIONAL SUPPORT • HEAD, BANKING OPERATIONAL SUPPORT CHIEF BRANCH OPERATIONS & RECOVERY OFFICER • HEAD, RECOVERY CENTRE • HEAD, RETAIL RECOVERY/ REHABILITATION • HEAD, BUSINESS RECOVERY/ REHABILITATION • HEAD, BRANCH OPERATIONS & SUPPORT • HEAD, BRANCH OPERATIONS MANAGEMENT (ZONE 1) • HEAD, BRANCH OPERATIONS MANAGEMENT (ZONE 2) • HEAD, BRANCH OPERATIONS MANAGEMENT (ZONE 3) • HEAD, BRANCH SUPPORT & SERVICES HEAD, MARKETING & COMMUNICATIONS • HEAD, CORPORATE COMMUNICATIONS • HEAD, EVENTS MANAGEMENT • HEAD, STRATEGIC MARKETING HEAD, CUSTOMER SERVICE MANAGEMENT & GUIDELINES BANK SECRETARY • BOD SECRETARIAL SERVICES • MANAGEMENT SECRETARIAL SERVICES RISK MANAGEMENT COMMITTEE CHIEF RISK OFFICER • HEAD, FINANCIAL RISK • HEAD, NON-FINANCIAL RISK • HEAD, CREDIT ASSESSMENT AUDIT & EXAMINATION COMMITTEE CHIEF INTERNAL AUDIT • HEAD, GOVERNANCE & BUSINESS BANKING AUDIT • HEAD, INVESTIGATION & BRANCH OPERATION AUDIT • HEAD, STRATEGIC & IT AUDIT SHARIAH COMMITTEE HEAD, SHARIAH COMPLIANCE • HEAD, SHARIAH RESEARCH & ADVISORY • HEAD, SHARIAH REVIEW • HEAD, SHARIAH DEVELOPMENT & AWARENESS CHIEF COMPLIANCE & GOVERNANCE • HEAD, AML/CFT COMPLIANCE • HEAD, REGULATORY COMPLIANCE • HEAD, OPERATIONAL COMPLIANCE HEAD, FRAUD MANAGEMENT HEAD, LEAN MANAGEMENT 1 HEAD, LEAN MANAGEMENT 2 HEAD, CORPORATE INTEGRITY FROM THE TOP MANAGING DIRECTOR / PRESIDENT
LEADERSHIP Great leaders must possess unrivalled tenacity , commitment to their goals and the sense that any task, regardless of audaciousness, must be accomplished for the good of the company.
58 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD OUR LEADERSHIP TEAM BOARD OF DIRECTORS 5 7 3 4 1 1. Datuk Noripah Kamso 3. Datuk Wan Suraya Wan Mohd Radzi Chairman 4. Dato’ Sri Jamil Salleh 2. Datuk Siti Zauyah Md Desa 5. Wan Zamri Wan Zain
ANNUAL REPORT | 59 OUR LEADERSHIP TEAM BOARD OF DIRECTORS 9 10 6 8 2 6. Abd Rani Lebai Jaafar 9. Prof. Dr. Obiyathulla Ismath Bacha 7. 10. Ratnasari Mohd Damanhuri Edham Reza Shah Dato’ Abdul Rahman 8. Dato’ Rosman Mohamed (Acting, Bank Secretary)
60 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BOARD OF DIRECTORS PROFILE OUR LEADERSHIP TEAM APPOINTMENT AS CHAIRMAN •First Appointment as Chairman: 11 December 2018 - 10 December 2020 EDUCATION •1980, Master in Business Administration, Marshall University, Huntington, West Virginia, United States of America •1979, Bachelor of Science, Northern Illinois University, DeKalb, Illinois, United States of America • 1978, Diploma in Business Studies, Institute Technology MARA DATUK NORIPAH KAMSO Independent Non-Executive Director AGE: 62 GENDER: Female OTHER POSITIONS HELD • Director, Top Glove Corporation Berhad •Appeal Committee Member for SIDREC (Securities Industry Dispute Resolution Center), Securities Commission Malaysia •Co-Chairman, Islamic Finance Industry Council, Malaysia-US Chamber of Commerce, Washington DC PREVIOUS EXPERIENCE •Fellow in Islamic Finance at Oxford Centre for Islamic Studies (2016 2017) •Global Practitioner in Residence in the Center for Global Citizenship of Principal Financial Group, Drake University, Des Moines Iowa, United States of America (2015) •Advisor of CIMB Islamic (2013 - 2014) •Chief Executive Officer, CIMB Principal Islamic Asset Management (2008 - 2012) •Chief Executive Officer, CIMB Principal Asset Management Berhad (2004 - 2008) •Executive Director / Chief Executive Officer, CIMB Futures Sdn Bhd (1996 - 2004) •Deputy General Manager, General Manager, Director, Corporate Banking, Commerce International Merchant Bankers Berhad (CIMB) (1993 - 2004) •Executive Senior Manager Corporate Banker, Bank of Commerce (M) Berhad (1983 - 1992) •Development Officer, Project Division, Urban Development Authority (UDA) (1980 - 1983)
ANNUAL REPORT | 61 BOARD OF DIRECTORS PROFILE EDUCATION •LLB (Hons) University of Sheffield, Sheffield, United Kingdom •Postgraduate Diploma in Public Management Programme, Kuala Lumpur, Malaysia •Diploma in Trade Policy, World Trade Organization (WTO), Geneva, Switzerland •High Potentials Leadership Programme, Harvard Business School, Boston, Massachusetts United States of America •ASEAN Government Leadership Programme, GE Crotonville, New York, United States of America DATUK WAN SURAYA WAN MOHD RADZI Non-Independent Non-Executive Director AGE: 50 GENDER: Female OTHER POSITION HELD IN THE BANK RAKYAT •Member, Board Nomination Committee •Member, Board Investment Committee •Member, Board Tender Committee •Member, Board Remuneration Committee OTHER POSITIONS HELD •Secretary-General, Ministry of Entrepreneur Development, Malaysia PREVIOUS EXPERIENCE •Deputy Secretary-General (Strategy & Monitoring), Ministry of International Trade & Industry (MITI), Malaysia •Senior Director (Sectoral Policy), Ministry of International Trade & Industry (MITI), Malaysia •Senior Director (Investment Policy and Trade Facilitation), Ministry of International Trade & Industry (MITI), Malaysia •Advisor on Economic Affairs, MITI Overseas Office (Singapore), Ministry of International Trade & Industry (MITI) •Minister’s Advisor on Economic Affairs, MITI Overseas Office (Brussels), Ministry of International Trade & Industry (MITI) •Chief Assistant Director (ASEAN Economic Integration), Ministry of International Trade & Industry (MITI), Malaysia •Assistant Director (International Trade), Ministry of International Trade & Industry (MITI), Malaysia OUR LEADERSHIP TEAM APPOINTMENT AS DIRECTOR •First Appointment as Board of Director: 11 December 2018 - 10 December 2021
62 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BOARD OF DIRECTORS PROFILE OUR LEADERSHIP TEAM APPOINTMENT AS DIRECTOR •First Appointment as Board of Director: 1 July 2015 - 30 June 2017 •Reappointment: 1 July 2017 - 30 June 2019 OTHER POSITIONS HELD IN THE BANK RAKYAT •Member, Board Investment Committee • Member, Board Risk Committee • Member, Board Financing Committee • Member, Board Tender Committee •Member, Board Nomination Committee DATUK SITI ZAUYAH MD DESA Non-Independent Non-Executive Director AGE 60 GENDER Female OTHER POSITIONS HELD IN THE BANK RAKYAT GROUP •Chairman, Rakyat Asset Management Sdn Bhd •Board of Director, Rakyat Holdings Sdn Bhd •Board of Director, Rakyat Hartanah Sdn Bhd •Board of Director, Rakyat Management Services Sdn Bhd OTHER POSITIONS HELD •Deputy Secretary-General (Policy), Ministry of Finance •Director, Johor Corporation •Director, Majlis Amanah Rakyat (MARA) •Director, Employees Provident Fund •Director, National Trust Fund •Director, Pegurusan Aset Air Berhad •Director, Bintulu Port Holdings Berhad •Director, Petroliam Nasional berhad (PETRONAS) •Director, Malaysia Airports Holdings Berhad PREVIOUS EXPERIENCE •Director, National Budget Office, Ministry of Finance •Under Secretary, Government Investment Company Division, Ministry of Finance •Under Secretary, Loan Management, Financial Market and Actuarial Division, Ministry of Finance •Deputy Secretary (Economy), Investment, Ministry of Finance (Inc) & Privatisation Division, Ministry of Finance •Deputy Secretary (Infrastructure), Investment, Ministry of Finance (Inc) & Privatisation Division, Ministry of Finance •Head of Section (External Funding), Loan Management, Financial Markets & Actuary Division, Ministry of Finance •Principal Assistant Secretary (Multilateral Unit), Loan Management, Financial Markets & Actuarial Division, Ministry of Finance •Advisor to Director of the constituency belonging to Malaysia, Myanmar, Nepal, Singapore and Thailand •Director, Social Security Fund of Malaysia •Director, National Defense University of Malaysia •Director, Malaysia Airport Holding Bhd (Alternate Director) •Director, Jambatan Kedua Sdn Bhd (Alternate Director) •Director, Export-Import Bank of Malaysia •Director, Aerospace Technology Systems Corporation Sdn Bhd •Director, Bank Pembangunan Malaysia berhad •Director, UDA Holdings Berhad •Director, Amanah Raya Bhd •Director, KWAP Investment Panel •Director, EPF Investment Panel •Director, Islamic Corporation for the Development of the Private Sector (ICD) •Director, Global Maritime Ventures Berhad •Director, Syarikat Prasarana Malaysia Berhad •Director, Bank Simpanan Nasional •Director, Westports Malaysia Sdn Bhd •Director, Telekom Malaysia Berhad (Alternate Director) •Director, Malaysia Debt Ventures Berhad •Director, DanaInfra Nasional Berhad •Director, Govco Holdings Berhad •Director, Turus Pesawat Sdn Bhd •Director, Felda Global Ventures Holdings Berhad •Director, Felda Holdings Berhad •Director, Malaysia Digital Economy Corporation Sdn Bhd •Director, Retirement Fund (Incorporated)
ANNUAL REPORT | 63 APPOINTMENT AS DIRECTOR •First Appointment as Board of Director: 1 October 2016 - 30 September 2019 EDUCATION •Bachelor of Arts (Hons) Anthropology and Sociology, University of Malaya •Diploma in Public Administration, National Institute of Public Administration (INTAN) Malaysia OTHER POSITIONS HELD IN THE BANK RAKYAT •Member, Board Nomination Committee •Member, Board Remuneration Committee •Member, Board Tender Committee •Member, Board Investment Committee DATO’ SRI JAMIL SALLEH Independent Non-Executive Director AGE 60 GENDER Male OTHER POSITIONS HELD IN THE BANK RAKYAT GROUP •Chairman, Rakyat Holdings Sdn Bhd •Chairman, Rakyat Travel Sdn Bhd PREVIOUS EXPERIENCE •Secretary-General, Ministry of Domestic Trade, Co-operatives and Consumerism •Chairman, Companies Commission of Malaysia •Secretary-General, Ministry of Youth and Sports •Deputy Secretary-General, Ministry of Youth and Sports •Deputy Secretary, Ministry of Home Affairs •Director, Prison Department, Ministry of Home Affairs •Unit Head, Prison Department, Ministry of Home Affairs •Assistant Secretary, Ministry of Defense •Assistant Secretary, Ministry of Home Affairs •Senior Assistant Director, Ministry of Youth and Sports •Assistant Director, Ministry of Youth and Sports OUR LEADERSHIP TEAM BOARD OF DIRECTORS PROFILE
64 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BOARD OF DIRECTORS PROFILE OUR LEADERSHIP TEAM APPOINTMENT AS DIRECTOR •First Appointment as Board of Director: 9 October 2017 - 8 October 2019 EDUCATION •Master of Business Administration (Financial Management and Management Information System), West Coast University, Los Angeles, California, United States of America •Bachelor of Science in Finance and Business Economics, Southern Illinois University, Carbondale, Illinois, United States of America •Associate Financial Planner, Institute of Financial Planners, Hong Kong •International Certificate for Financial Advisors, Chartered Institute of Insurers, United Kingdom •Diploma in Direct Marketing, Institute of Direct Marketing WAN ZAMRI WAN ZAIN Independent Non-Executive Director AGE 59 GENDER Male OTHER POSITIONS HELD IN BANK RAKYAT •Interim Chairman, Board Audit and Examination Committee •Chairman, Board Tender Committee •Chairman, Board Financing Committee •Member, Board Nomination Committee •Member, Board Remuneration Committee •Member, Board Investment Committee •Member, Board Risk Committee OTHER POSITIONS HELD •Independent Director, Zurich General Insurance Bhd PREVIOUS EXPERIENCE •Chief Executive Officer, AmMetlife Takaful Bhd •Chief Executive Officer, AIA Takaful International Bhd •Head of Group Business, HSBC Amanah Takaful (Malaysia) Sdn Bhd •Head of Channel Management, HSBC Amanah Takaful (Malaysia) Sdn Bhd •Senior Regional Sales & Distribution Manager, HSBC, Hong Kong, Asia Pacific, Personal Financial Services •Regional Investment and Insurance Manager, HSBC, Hong Kong, Asia Pacific, Personal Finance Services •Regional Manager, Ipoh and Cameron Highland Branches, HSBC Malaysia •Manager Personal Banking, Ipoh Branch, HSBC Malaysia •Manager Investment & Insurance Services, HSBC Malaysia •Assistant Manager Corporate Credit, HSBC Malaysia •Trade Services Executive, HSBC Malaysia •Corporate Credit Executive, HSBC Malaysia •Operation Officer, HSBC Malaysia
ANNUAL REPORT | 65 APPOINTMENT AS DIRECTOR •First Appointment as Board of Director: 1 January 2018 - 31 December 2019 ABD RANI LEBAI JAAFAR Independent Non-Executive Director AGE 61 GENDER Male EDUCATION •Member, Chartered Institute of Islamic Finance Professionals (CIIF) •Financial Institutions Directors’ Education Programme (FIDE), Bank Negara Malaysia •Leadership Development Summer Program (GLDP), Harvard University Boston, Massachusetts, United States of America •Member (MIBM) Institute Bank-Bank Malaysia •Master of Business Administration Finance & Marketing, University of New Haven, Connecticut, United States of America •Bachelor of Science in Business Finance, Indiana University Bloomington, Bloomington, Indiana, United States of America •Diploma in Accountancy, MARA Institute of Technology OTHER POSITIONS HELD IN BANK RAKYAT •Chairman, Board Nomination Committee •Chairman, Board Investment Committee • Chairman, Board Risk Committee •Member, Board Audit and Examination Committee •Member, Board Financing Committee OTHER POSITIONS HELD •Board Member, Leadership & Entrepreneurship Advance Institute (LEAD), Management & Science University (MSU) •Adjunct Professor, Management & Science University (MSU) PREVIOUS EXPERIENCE •Chairman & Director Zikay Factoring Sdn Bhd •Director, Public Sector & Business Development, RHB Capital •Chief Executive Officer/ Managing Director, RHB Islamic Bank •Deputy Chief Executive Officer, Affin Islamic Bank •Senior Vice President, Contract Financing & SME Department, Affin Bank Bhd •First Vice President, Enterprise Banking, Affin Bank Bhd •Deputy General Manager, Banking Division, Affin Bank Bhd •Head of Operations Division, Affin Bank Bhd •Branch Manager, Affin Bank Bhd •Account Relationship Manager, Corporate Banking Division, Standard Chartered Bank OUR LEADERSHIP TEAM BOARD OF DIRECTORS PROFILE
66 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BOARD OF DIRECTORS PROFILE OUR LEADERSHIP TEAM APPOINTMENT AS DIRECTOR •First Appointment as Board of Director: 2 January 2019 - 1 January 2022 EDHAM REZA SHAH DATO’ ABDUL RAHMAN S.A.P., B.K.T. Independent Non-Executive Director AGE 38 GENDER Male EDUCATION •Professional Certificate In Trade Financing, International Association of Accounting Professionals IAAP, United Kingdom •Certificate of Eligibility on Qualified Lawyers Transfer Scheme (QLTS) as Solicitor of England and Wales, Law Society, United Kingdom •Certificate in Oil & Gas Law, Brickfields Asia College, Kuala Lumpur, Malaysia •Certificate in Islamic Finance (IFQ), Chartered Institute for Securities & Investment (CISl), United Kingdom •Masters in Banking Law (Majoring in Islamic Banking Finance & Takaful) (LLM), International Islamic University Malaysia (IIUM), Malaysia •Admitted as an Advocate & Solicitor to the Malaysian Bar, Bar Council Malaysia •Admitted as Utter Barrister-at-Law, Gray’s Inn London, United Kingdom •Post Graduate Diploma in Bar Vocational Course (BVC), BPP Law School, London, United Kingdom •LLB (Hons), University of Sheffield, United Kingdom OTHER POSITIONS HELD IN BANK RAKYAT •Member, Board Nomination Committee •Chairman, Board Remuneration Committee •Member, Board Audit & Examination Committee OTHER POSITIONS HELD •Joint Managing Partner, Abdul Rahman & Partners •Commissioner for Oaths •Member Panel of Arbitrators of Asian International Arbitration Centre (formerly known as The Kuala Lumpur Regional Centre for Arbitration) Panel of Islamic Banking and Financial Services Arbitrator •Associate member of The Chartered Tax Institute of Malaysia • Member of Bar Council Malaysia •Member of the Kuala Lumpur Bar Committee, Malacca Bar Committee, and Johore Bar Committee PREVIOUS EXPERIENCE •Partner, Head of Corporate Banking & Islamic Finance Takaful Practice, Abdul Rahman & Partners •Associate, Corporate Banking & Finance, Albar & Partners
ANNUAL REPORT | 67 APPOINTMENT AS DIRECTOR •First appointment as Board of Director: 1 April 2019 - 31 March 2020 EDUCATION •Executive Diploma in Marketing & Selling Bank Services, International Management Centre, Buckingham, England •Master’s in Business Administration (MBA). St-Louis University, Missouri, United States of America •Bachelor’s in Business Administration, Urbana University, Ohio, United States of America DATO’ ROSMAN MOHAMED Independent Non-Executive Director AGE 58 GENDER Male OTHER POSITIONS HELD •Director, RM 48 Ventures Sdn Bhd •Board Member, Koperasi Harapan Berhad •Chairman, Koperasi Rangkaian Global Malaysia Berhad •Vice President, Talent & Development, Malaysia-Bahrain Economic Cooperation Chamber (MBECC) •Professor of Practice, Putra Business School, Universiti Putra Malaysia PREVIOUS EXPERIENCE •Managing Director, Centre of Excellence, Abdul Latif Jameel, Jeddah, Saudi Arabia •Managing Partner, LDS (M) Sdn Bhd & Top Performers Leadership Centre •Senior General Manager, Corporate Services, Bank Rakyat •Managing Director Kaizen Business Development and Human Resources, Abdul Latif Jameel, Jeddah, Saudi Arabia •Regional Business Development & HR Director Asia Pacific, CABOT •Senior Manager-Change Management, British American Tobacco •Founder and Consultant, Growthworks (Asia) Sdn Bhd •Head of Training / Credit Manager, Maybank •Executive Accounting Officer, Road Transport Department (JPJ) OUR LEADERSHIP TEAM BOARD OF DIRECTORS PROFILE
68 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BOARD OF DIRECTORS PROFILE APPOINTMENT AS DIRECTOR •First Appointment as Board of Director: 1 April 2019 - 31 March 2022 OUR LEADERSHIP TEAM EDUCATION •Doctor of Business Administration (with specialisation in Finance), Boston University, United States of America •Master in Business Administration (with High Honors), Boston University, United States of America •Master of Arts (Economics), Boston University, United States of America •Bachelor Soc Sc (Hons, 2nd upper), Science University of Malaysia, Malaysia PROF. DR. OBIYATHULLA ISMATH BACHA Independent Non-Executive Director AGE 61 GENDER Male OTHER POSITIONS HELD •Professor of Finance, Depart. Of Finance and Accounting, International Centre for Education in Islamic Finance (INCEIF) •Shariah Committee Member, SABANA, Real Estate Investment Trust (REIT) PREVIOUS EXPERIENCE •Advisor, Great Eastern Life Insurance •President of Malaysian Finance Association •Adjunct Professor of Finance, Luxembourg School of Finance, University of Luxembourg, France •Shariah Committee Member, HSBC Amanah •Shariah Committee Member, Asia Equity Partners (AEP) Private Equity, Singapore •Investment Committee Member, Pacific Mutual Fund, Malaysia •Derivatives Market Consultative Panel, Bursa Malaysia, Malaysia •Consultant IDB - BNM Joint Working Group for Resource Mobilication, BNM/IDB, Malaysia •Consultant, IRTI-IFSB Midterm Review Islamic Capital Markets, IRT-IFSB, Malaysia •Consultant, The World Bank Project on Feasibility of Using Sukuk for Local Government Financing, World Bank - Turkey Branch Office, Turkey •Consultant, UNESCAP, Ideas from Islamic Capital Markets for Sustainable Development in Asia and the Pacific, UNESCAP - Bangkok, Thailand •Consulting on Proposed Risk Sharing Sukuk for Indonesia, Maybank Islamic, Malaysia •Head / Dean of Graduate Studies, International Centre for Education in Islamic Finance (INCEIF), Malaysia •Professor of Finance, Dept. of Business Administration, Faculty of Economics and Management Sciences, International Islamic University, Malaysia •Professor and Director, Management Centre, International Islamic University, Malaysia •Associate Professor & Director, Management Centre, International Islamic University, Malaysia •Head, MBA Programme, International Islamic University, Malaysia •Associate Professor & Head, Department of Business Admin, International Islamic University, Malaysia •Assistant Professor & Head of Department of Business Admin, International Islamic University, Malaysia •Assistant Professor of Finance, Boston, University, United States of America •Credit Officer, Malayan Banking Berhad
ANNUAL REPORT | 69 BANK SECRETARY EDUCATION •Bachelor of Management (Human Resource Management), Open University •LS 0008410 RATNASARI MOHD DAMANHURI Acting Bank Secretary AGE 46 GENDER Female OUR LEADERSHIP TEAM APPOINTMENT AS ACTING BANK SECRETARY •2 October 2017
70 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD OUR LEADERSHIP TEAM SHARIAH COMMITTEE 2 3 1 1. Dato’ Setia Hj. Mohd Tamyes Abd Wahid 3. 4 Ustaz Md. Yunus Abd. Aziz Chairman 4. Assoc. Prof. Dr. Azman Mohd Noor 2. Dr Mohammad Zaini Yahaya
ANNUAL REPORT | 71 OUR LEADERSHIP TEAM SHARIAH COMMITTEE 5 8 6 7 5. Ustaz Mohd Zamerey Abdul Razak 7. 6. 8. Prof. Dato’ Dr Mohd Azmi Omar Ustaz Wan Rumaizi Wan Husin Dr. Abdullaah Jalil
72 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SHARIAH COMMITTEE PROFILE APPOINTED TO SHARIAH COMMITTEE •1 May 2019 - 31 August 2021 OUR LEADERSHIP TEAM EDUCATION •Bachelor of Shariah (Hons), Al-Azhar University, Cairo, Egypt •Diploma in Arabic Language Education, Ain Shams University, Cairo, Egypt DATO’ SETIA HJ MOHD TAMYES ABD WAHID Chairman OTHER POSITIONS HELD • Mufti of Selangor •Chairman, State Fatwa Committee, Selangor •Member, Selangor Royal Council •Member, Board of Trustees, Selangor Zakat Board (LZS) •Member, Selangor Islamic Religious Council (MAIS) •Member, Al-Quran Printing Control and Licensing Board (LPPQ), Ministry of Home Affairs •Member, Shariah Advisory Committee, as-Salihin Trustee Berhad •Chairman, Zakat Distribution Committee, Selangor Zakat Board (LZS) PREVIOUS EXPERIENCE •Member, Shariah Panel, Standards and Industrial Research Institute of Malaysia (SIRIM Berhad) •Member, Halal Certification Panel, Halal Development Corporation (HDC) •Principal, Sekolah Agama Menengah Tinggi Hishamuddin, Klang •Principal, Sekolah Agama Menengah Tinggi Kuala Kubu Bharu APPOINTED TO SHARIAH COMMITTEE • 1 July 2018 - 30 June 2020 PREVIOUS EXPERIENCE •Deputy Dean, Student Performance and Development Management, Islamic Science University of Malaysia •Head, Bachelor’s in Fiqh and Fatwa Programme, Islamic Science University of Malaysia •Coordinator, World Fatwa Management and Research Institute (Documentation Section), Islamic Science University of Malaysia •Coordinator, Falak Unit, Faculty of Shariah and Laws, Islamic Science University of Malaysia •Shariah Advisor, Koperasi Alam Bersih (Ko-Alam) EDUCATION •Master of Fiqh and Usul Fiqh, al-Bayt University, Jordan •Bachelor of Shariah, University of Malaya OTHER POSITIONS HELD •Lecturer, Faculty of Shariah and Laws, Islamic Science University of Malaysia •Member, Shariah Advisory Council, Islamic Science University of Malaysia •Chairman, Surau At-Taqwa Desa Anggerik, Nilai, Negeri Sembilan USTAZ MD. YUNUS ABD. AZIZ •Member, Investment Committee, Selangor Islamic Council (MAIS) •Member, Shariah Panel, Wakaf Fund, Islamic University of Malaysia (UIM) •Member, Board of Directors, Perbadanan Wakaf Selangor •Member, Joint Management Committee Wakaf Selangor Muamalat, Bank Muamalat Malaysia Berhad
ANNUAL REPORT | 73 SHARIAH COMMITTEE PROFILE EDUCATION •Master of Fiqh and Usul al-Fiqh, International Islamic University Malaysia •Bachelor of Fiqh and Usul al-Fiqh, al-Bayt University, Jordan USTAZ WAN RUMAIZI WAN HUSIN OTHER POSITIONS HELD •Member, Shariah Committee, PruBSN Takaful •Member, Shariah Board, Ar-Rajhi Bank Malaysia •Member, Shariah Advisory Committee, Tabung Haji Board •Member, Shariah Council, Malaysian Chinese Muslim Association (MACMA) •Member, Consultant Panel, International Research Centre in Islamic Economics and Finance (IRCIEF), International Islamic University College Selangor (KUIS) •Consultant, Sadaqa House, International Research Centre in Islamic Economics and Finance (IRCIEF), International Islamic University College Selangor (KUIS) APPOINTED TO SHARIAH COMMITTEE •1 April 2018 - 31 March 2020 EDUCATION •PhD in Islamic Finance, INCEIF •MBA (Islamic Banking and Finance), International Islamic University Malaysia •Bachelor of Shariah (Fiqh and Islamic Studies), Yarmouk University, Irbid, Jordan DR. ABDULLAAH JALIL OTHER POSITIONS HELD •Senior Lecturer, Faculty of Economics and Muamalat, Islamic Science University of Malaysia •Shariah Compliance Officer, Quality Management System Certification MS1900:2005, Islamic Science University of Malaysia •Chairman, Shariah Committee, PruBSN Takaful •Member, Shariah Committee, Islamic Science University of Malaysia Staff Cooperative •Member, Fatwa Researcher Panel, Mufti Department of Negeri Sembilan PREVIOUS EXPERIENCE •Lecturer, Department of Fiqh and Usul al-Fiqh, International Islamic University Malaysia •Member, Shariah Committee, Yayasan Muamalat Belia •Shariah Advisor, Tissue Bank, Universiti Sains Malaysia Hospital, Kubang Kerian, Kelantan •Consulting Fellow and Module Developer, International Research Centre in Islamic Economics and Finance (IRCIEF), International Islamic University College Selangor (KUIS) •Member, Working Group for MS1900: 2014 Standard (Shariah-based Quality Management Systems - Requirement with Guidance), SIRIM Secretariat •Trainer in Islamic Finance and Banking for staff of Bank Negara Malaysia, CIMB, Hong Leong Bank, Public Bank, Prudential Assurance Malaysia Berhad, BSN, MBSB, PUNB, RHB and OCBC •Member, International Union of Muslim Scholars (Ittihad al-‘Alami li ‘Ulama’ al-Muslimin), Qatar •Member, Association of Shariah Advisors (ASAS), Kuala Lumpur •Member, Muamalat Expert Panel, Jabatan Kemajuan Islam Malaysia (JAKIM) •Member, Shariah Advisory Committee, International Islamic University Malaysia PREVIOUS EXPERIENCE •Member, Shariah Committee, Shariah and Islamic Finance Unit, World Fatwa Management and Research Institute (INFAD), Islamic Science University of Malaysia •Member, Coordinating Committee for Muamalat Takaful, and Islamic Finance and Banking Programme, Ministry of Higher Education Malaysia •Seminar Coordinator, World Fatwa Management and Research Institute (INFAD), Islamic Science University of Malaysia •Research Fellow, Islamic Finance and Wealth Management Institute (IFWMI), Islamic Science University of Malaysia OUR LEADERSHIP TEAM APPOINTED TO SHARIAH COMMITTEE •1 May 2019 - 31 August 2021
74 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SHARIAH COMMITTEE PROFILE APPOINTED TO SHARIAH COMMITTEE •1 January 2019 - 31 December 2020 OUR LEADERSHIP TEAM EDUCATION •PhD in Islamic Law, University of Edinburgh, UK •Master of Islamic Criminal Law, National University of Malaysia •Master of Muamalat (Islamic Law of Transactions), International Islamic University Malaysia •Bachelor of Islamic Law, Islamic University of Madinah, Saudi Arabia OTHER POSITIONS HELD •Senior Lecturer, International Institute of Islamic Banking & Finance, International Islamic University Malaysia •Deputy Chairman, Shariah Board, Al-Rajhi Bank Malaysia •Chairman, Shariah Panel, AmFamily Takaful •MQA Expert, Muamalah and Islamic Banking Panel •Member, Fatwa Committee, Pejabat Mufti Negeri Perlis PREVIOUS EXPERIENCE •Member, Shariah Committee, SME Bank •Member, Shariah Advisory Council, Securities Commission Malaysia •Member, Shariah Committee, MNRB Retakaful ASSOC. PROF. DR AZMAN MOHD NOOR APPOINTED TO SHARIAH COMMITTEE •1 May 2019 - 31 August 2021 EDUCATION •PhD, Fiqh & Usul Department, International Islamic University Malaysia •Master of Islamic Studies, National University of Malaysia •Bachelor of Shariah (Hons), Al-Azhar University, Cairo, Egypt OTHER POSITIONS HELD •Senior Lecturer, Department of Shariah, Faculty of Islamic Studies, National University of Malaysia •Deputy Director, Islamic Centre, National University of Malaysia DR MOHAMMAD ZAINI YAHAYA PREVIOUS EXPERIENCE •Lecturer, National University of Malaysia •Tutor, National University of Malaysia •Member, Research Panel, Research for The Enhancement of KAFA Curriculum (2015-2016), •Department of Islamic Development Malaysia (JAKIM) •Assessment Panel, Chair of Principal Fellow in Fatwa Research Project, World Fatwa Management and Research Institute (INFAD), Islamic Science University of Malaysia (USIM) •Chairman, Panel Meeting for Assesment of Manuscripts and Sample Textbook Packages for Standard Curriculum for Prifor Primary Schools (KSSR), Dewan Bahasa & Pustaka (DBP) •Chairman, Panel Meeting for Assesment of Manuscripts and Sample Textbook Packages for Standard Curiculum for Primary Schools (KSSR) Textbooks •Member, Committee for The Development of DSKP KSSM (Document for Standard Curiculum and Assesment, Standard Curriculum for Secondary Schools) Al-Shahadah Al-Ulya Ulul Albab Turath Dirasat Islamiah 2017, Ministry of Education Malaysia •Member, Shariah Committee, Asian Finance Bank
ANNUAL REPORT | 75 APPOINTED TO SHARIAH COMMITTEE •01 January 2018 - 31 December 2019 EDUCATION •PhD (Finance), Bangor University, Wales, United Kingdom •Chartered Professional in Islamic Finance, Chartered Institute of Islamic Finance Professionals •Master of Finance, Northern Illinois University, USA •Bachelor of Finance, Northern Illinois University, USA •Diploma in Finance, MARA Institute of Technology, Malaysia OTHER POSITIONS HELD •President / Chief Executive Officer,International Centre for Education in Islamic Finance (INCEIF) •Member, Shariah Committee, Etiqa Takaful Berhad •Islamic Finance Expert, Monetary Authority Brunei Darussalam PREVIOUS EXPERIENCE •Director General, Islamic Research and Training Institute, Islamic Development Bank Group Jeddah, Kingdom of Saudi Arabia •Deputy Rector, Professor and Lecturer, International Islamic University Malaysia (1983 - 2011) •Member, Amanah Ikhtiar Malaysia Shariah Committee PROF. DATO’ DR MOHD AZMI OMAR APPOINTMENT AS SECRETARY •18 August 2014 - To date EDUCATION •Master in Islamic Studies, Universiti Kebangsaan Malaysia •Bachelor of Shariah (Hons), Yarmouk University, Jordan OTHER POSITIONS HELD IN BANK RAKYAT •Head, Shariah Compliance Division OTHER POSITIONS HELD •Chairman, Board of Trustees, Academy Imam Syafi’e •Member, Board of Trustees, Tabung Amanah Tok Kenali •Member, Board of Trustees, Yayasan Kolej University Islam Selangor (KUIS) USTAZ MOHD ZAMEREY ABDUL RAZAK PREVIOUS EXPERIENCE •Head, Shariah Department, Takaful Ikhlas Bhd •Member, Shariah Committee, Stella Capital al-Aqarat, United States of America •Member, Shariah Committee, Islamic Retail Fund (Isareit Retail Properties Sdn Bhd Malaysia) •Head, Division, Asian Finance Bank Berhad •Shariah Secretary, Asian Finance Bank Berhad •Shariah Secretary, Safeena (L) Ltd (Islamic Marine Fund-Labuan) •Industrial Advisor, Faculty of Muamalat & Management, International Islamic University College Selangor (KUIS) OUR LEADERSHIP TEAM SHARIAH COMMITTEE PROFILE
76 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD OUR LEADERSHIP TEAM MANAGEMENT COMMITTEE 2 1 3 1. Dr Mohammad Hanis Osman Chief Retail Banking Officer 2. Dato’ Amirudin Abdul Halim Chief Operating Officer, Business (until 02/07/2019) 3. Nor Haimee Zakaria Chief Finance Officer 4 5 4. Dato’ Asmuni Sudin Chief Operating Officer, Banking Operations 5. Muzamir Omar Chief Strategy and Transformation Officer
ANNUAL REPORT | 77 OUR LEADERSHIP TEAM MANAGEMENT COMMITTEE 8 7 9 6 2 6. Ahmad Shukri Abdul Rahman 9. Abdul Razak Abu Bakar Chief Risk Officer 7. Mohd Shahril Isa 10. Amren Faisal Fadzil Chief Branch Operations & Recovery Officer 8. Dato’ Syed Abdul Aziz Syed Hassan Chief Corporate Services Officer Chief Business Banking Officer Chief Treasury Officer 10
78 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD OUR LEADERSHIP TEAM MANAGEMENT COMMITTEE PROFILE Dato’ Amirudin Abdul Halim Dato’ Asmuni Sudin Chief Operating Officer, Business Chief Operating Officer, Banking Operations Dato’ Amirudin was appointed Chief Operating Officer, Business, at Bank Rakyat on 3 July 2017. He is a graduate of the Advanced Management Program at the Wharton Business School, University of Pennsylvania, USA. In addition, he holds a Bachelor of Arts in Finance from St. Louis University, Missouri, USA; and a Diploma in Business Studies from MARA Institute of Technology, Malaysia. Before working with Bank Rakyat, he was Executive Director, Banking, at Affin Bank Bhd and Director, Business Banking, before that. Prior to that, he worked at Maybank Bhd, Mayban Fortiss Bhd and Mayban Finance Bhd. Dato’ Asmuni assumed the position of COO, Banking Operations at Bank Rakyat on 4 December 2017. Prior to assuming the position of COO, Banking Operations, at Bank Rakyat, he held the post of Chief Finance Officer at Agrobank Bhd and Chief Operations Officer before that. His earlier working experience was at Maybank Bhd where he was Regional Director for Selangor and Negeri Sembilan Region. He also served as General Manager for Brunei. Dato’ Asmuni holds a Bachelor’s degree in Economics from the University of Malaya.
ANNUAL REPORT | 79 OUR LEADERSHIP TEAM MANAGEMENT COMMITTEE PROFILE Dr Mohammad Hanis Osman Mohd Shahril Isa Chief Retail Banking Officer Chief Branch Operations & Recovery Officer Dr Mohammad Hanis’ career for the last 20 years has been extensively involved in the area of treasury and investment. He has worked both in Malaysia and in the Middle East with various commercial, Islamic and investment banks in areas involving the Money Market, Fixed Income, Foreign Exchange, Equities, Derivatives and Structured Products. His qualifications include PhD in Economics from International Islamic University Malaysia; Master of Business Administration (Finance) from International Islamic University Malaysia; and a BA (Hons) Accounting and Finance from University of East London, United Kingdom. He is also a Certified Treasury Professional and is licensed by Securities Commission Malaysia as a Licensed Dealer’s Representative. He started working at Bank Rakyat on 15 December 2009. Mohd Sharil holds a Bachelor of Economics degree from the University of Malaya and started his career with Bank Rakyat in 1984 as an Executive in the Human Resource Department. He was then appointed Senior Vice President, Branch Network for Bank Rakyat from 2014-2015. Mohd Shahril has more than 30 years of experience in the banking industry, including as Branch Manager and Head of Financing Rehabilitation. On 1 September 2015, he was appointed Chief Retail Banking Officer. On 1 January 2018, he was appointed as Chief Branch Operations & Recovery Officer.
80 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD OUR LEADERSHIP TEAM MANAGEMENT COMMITTEE PROFILE Dato’ Syed Abdul Aziz Syed Hassan Nor Haimee Zakaria Ahmad Shukri Abdul Rahman Chief Corporate Services Officer Chief Finance Officer Chief Risk Officer Dato’ Syed Abdul Aziz was appointed Chief Corporate Services Officer at Bank Rakyat on 1 April 2017. He comes with more than 29 years of experience at top management level in leading property development companies including five years as a Chief Executive Officer at Rakyat Holdings Sdn Bhd. During his tenure in the property development sector, he headed various property development projects at several leading property development companies such as Zikay Group Sdn Bhd, PECD Berhad and Island and Peninsular Berhad. Dato’ Syed Abdul Aziz is a graduate of the Senior Management Programme at Harvard Business School. Nor Haimee Zakaria, is a fellow of the Association of Chartered Certified Accountants (ACCA), United Kingdom and a Chartered Accountant of the Malaysian Institute of Accountants (MIA). He also holds a Bachelor's Degree in Accountancy, Finance and Economics from the University of Essex, UK. He has more than 27 years' experience in finance and banking. He started his career as the Trainee Accountant (ICAEW) with Coopers and Lybrand, Birmingham, UK (1990) and later as Audit Senior with Coopers Lancaster Brewers, CA London, till end 1993. He came back to Malaysia and served as the Finance Manager with Arab Malaysian Development Bhd (1994-2001), before joining Bank Islam as the Head of Group Finance/Company Secretary till 2008. He later joined Bank Rakyat as Vice President, Finance, in October 2008, and later promoted as the Chief Finance Officer in 2014 - the position held until now. Ahmad Shukri joined Bank Rakyat on August 15, 2016. Prior to this, he was Head of Risk Management at OCBC Al-Amin Bank. He has had 26 years’ experience in the banking industry, 17 years of which were in local and foreign Islamic banks. Ahmad Shukri was one of the pioneers responsible for setting up Al Rajhi Bank Malaysia in 2006 before he left for Al Rajhi Bank in 2008 to form part of the team that established OCBC Al-Amin Bank Berhad. His working experience includes stints at Bank Muamalat, Pacific Bank Berhad and Oriental Finance Berhad. He holds an Executive Masters in Islamic Banking and Finance from Asia e University, Malaysia and a Bachelor of Business Administration (Finance) from Texas A&M University at Commerce, USA. He also holds a Certificate in Islamic Law from International Islamic University Malaysia. In his position as Chief Risk Officer at Bank Rakyat, Ahmad Shukri is responsible for managing bank-wide risks and focusing on ensuring robust and effective risk management and ensuring the Bank grows prudently within its risk appetite. He also holds a Bachelor’s in Business Management from Ohio University, USA, and a Diploma in Plantation Industry Management from Universiti Teknologi Mara, Malaysia.
ANNUAL REPORT | 81 OUR LEADERSHIP TEAM MANAGEMENT COMMITTEE PROFILE Abdul Razak Abu Bakar Amren Faisal Fadzil Muzamir Omar Chief Business Banking Officer Chief Treasury Officer Chief Strategy and Transformation Officer Abdul Razak holds a Bachelor of Accounting degree from the University Utara Malaysia and a Chartered Accountant of the Malaysian Institute of Accountants. He started his career as an Audit Executive/Tax Executive at Azman Wong Salleh & Co. Later, he served as Assistant Manager, Corporate Finance at Aseambankers Berhad. In 2001, he served as Senior Relationship Manager, Commercial Banking at RHB Bank Malaysia Berhad. Later, he served as Assistant Vice President, Head of Structured Finance at OCBC Bank Berhad. In 2009, he served as Head SME, Commercial Banking at Bank Islam Berhad. Later, he joined Bank Rakyat in 2012 as Assistant General Manager, Commercial Banking. In 2014, he served as Senior Vice President, Corporate Banking. On 1 November 2018, he was appointed as Chief Business Banking Officer. Amren Faisal holds a Bachelor in Finance from University Teknologi MARA (UiTM) and a Diploma in Investment Analysis from University Teknologi MARA (UiTM). He is also holds a Certified Financial Planner and Federation of Malaysia Unit Trust Manager. He started his career as Financial Planner Executive at Permodalan Nasional Berhad. Later, he served as Portfolio Manager at Affin Fund Management. He joined Bank Rakyat in 2012 as Investment Manager. In 2014, he served as Equity Manager. In 2016, he served as Vice President, Investment Portfolio Management. On 1 November 2018, he was appointed as Chief Treasury Officer. Muzamir Omar holds a Master's in Business Administration from University Teknologi MARA (UiTM), Bachelor of Education 2nd Class Upper from Dewan Bahasa & Pustaka, Diploma in Translation from University of Kent, United Kingdom and Chartered Islamic Finance Professional. He started his career at Bank Rakyat as Manager of Corporate Planner. In 2006, he served as Manager of Corporate Planner in 2006. In 2014, he served as Vice President of Corporate Strategy. On 1 November 2018, he was appointed as Chief Strategy and Transformation Officer.
SUSTAINABILITY REPORT Embarking towards a sustainable journey .
84 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT SUSTAINABILITY REPORT ABOUT THE SUSTAINABILITY REPORT (“REPORT”) All corporations have a competitive agenda - winning in the marketplace and be profitable. Bank Rakyat has always believed that profits and corporate responsibility (CR) are not mutually exclusive. Profits are an important part of our ability to deliver the economic, environmental and social requirements of sustainable development. The Report presents our clear direction, key areas of focus, major considerations, the governance, our motivation and overall view on sustainable finance and sustainable development. Our reporting process is inspired by Bursa Malaysia Securities Berhad’s (“Bursa Malaysia”) Listing Requirements and its supplementary Sustainability Reporting Guide. This Report covers our financial year ended 2018 (1 January to 31 December 2018) and all operations within Bank Kerjasama Rakyat Malaysia Berhad (“Bank Rakyat”), unless otherwise stated. STAKEHOLDER ENGAGEMENT We believe that our Vision can only be achieved with support from our stakeholders. Our stakeholders and their inputs are valuable to us and we seek to reach out to them regularly through various platforms as part of the usual course of our business in order to understand their concerns. Feedback received both directly and indirectly influences the way we derive our material matters. The table below illustrates concerns raised by stakeholder groups: Stakeholder Groups Members (also known as our shareholders) Board of Directors (“the Board”) Modes of Engagement § § § § § Annual General Meetings Investor Relations Email correspondences Board meetings Special meetings Management § Management meetings § Special meetings Employees § § § § § § § § § Customers Intranet Web communities Town hall sessions Employee related events Grievance systems ‘Open door’ policy Social media Customer service channels Public Complaints Bureau Government and Regulators § Meetings § Forums § Regulatory briefings Local communities § Volunteering activities § CSR programmes § Meetings, press releases and press briefings § Briefings, meetings, volunteer programmes Media Non-Government Organisations (NGOs) Matters of Interest § § § § § § § § § § § § § § § Financial performance Societal impact of products and services Ethical business practice Overall performance and strategic direction Good governance practice Relationship with stakeholder groups Operational efficiency Innovative services and products Rapport with stakeholder groups Customer satisfaction Performance and societal impact Employee welfare Career progression Ethical business practice Societal impact § § § § § § § § § § § § § § § Amiable products and services Streamlined customer services Ethical business practice Personal data protection Products and services Ethical business practice Overall performance Regulatory compliance Indirect economic contribution CSR contribution Good governance practices Societal impact Good governance practices Societal impact Indirect economic contribution
LAPORAN TAHUNAN | 85 SUSTAINABILITY REPORT This year, we conducted a structured process to identify our material sustainability matters. Material sustainability matters are areas where we have the greatest impact and through which we seek to create shared value. We identified Bank Rakyat’s sustainability matters by assessing the operating environment and emerging trends affecting the financial services industry, as well as benchmarking potential sustainability matters across a broad range of references such as peer reviews and the Global Reporting Initiative Standards (“GRI Standards”). For the purpose of this report, our Sustainability Working Group (“SWG”) led a risk assessment exercise to determine the level of significance of each matter to the Bank. Based on the outcome of the risk assessment exercise, Bank Rakyat determined the level of impact of each sustainability matters to the business (i.e. The Bank). We have grouped our material matters into three themes, as shown below. Our performance and measures taken to manage these matters are discussed in the next section of this Report. 3- THEMES RESPONSIBLE BANKING POSITIVE SOCIETAL IMPACT § Community Investment and Development § Environmental Management § Ethics and Compliance § Responsible Lending § Digitalisation and Innovation § Responsible Procurement Practices § Data Security § Customer Experience CARE FOR OUR PEOPLE § Health and Safety § Employment Practices § Talent Attraction and Retention SUSTAINABLE DEVELOPMENT GOALS AND ELEVENTH MALAYSIA PLAN We understand that appropriate management of our matters creates value far beyond the vicinity of our operations. Global movements, most prominently represented by the United Nations 17 Sustainable Development Goals (“SDGs”) and Malaysia’s national Eleventh Malaysia Plan (“11MP”), echo a universal understanding that various facets of our current lifestyle needs to be adjusted towards sustainable practices. Therefore, we would like to acknowledge the universal cause, and the themes where Bank Rakyat is creating value alongside the relevant SDGs and the relevant 11MP movements: SDGs Responsible Banking 4 QUALITY EDUCATION 12 RESPONSIBLE CONSUMPTION AND PRODUCTION 8 DECENT WORK AND ECONOMIC GROWTH 9 11MP INDUSTRY, INNOVATION AND INFRASTRUCTURE Peace, justice strong 16 and institutions SUSTAINABLE RESPONSIBLE CONSUMPTION AND PRODUCTION Positive Societal Impact 4 QUALITY EDUCATION AND 12 11 CITIES COMMUNITIES Care for Our People 3 GOOD HEALTH AND WELL-BEING ECONOMIC 8 AND 10 REDUCE INEQUALITIES GROWTH DECENT WORK 10 INEQUALITIES REDUCE Enhancing Inclusiveness towards an equitable society Improving wellbeing for all Enhancing Inclusiveness towards an equitable society Accelerating human capitial development for an advanced nation Enhancing Inclusiveness towards an equitable society Improving wellbeing for all Re-engineering growth for greater prosperity Accelerating human capitial development for an advanced nation SUSTAINABILITY REPORT OUR SUSTAINABILITY MATTERS
86 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT SUSTAINABILITY REPORT GOVERNANCE At present, our sustainability matters are managed as part of the usual course of business. Our strategic direction is set by the Board and each Head of Department monitors the performance and management of respective risks and opportunities. The performance of each department is reported to respective Board Committees. At year end, information is collated and reported to stakeholders through our Sustainability Report. Moving forward, we would look into formalising our sustainability governance and reporting structure to better reflect the way we manage our areas of impact. Responsible Lending Ethics and Compliance As the largest Islamic cooperative bank in Malaysia, we understand the critical role we play in supporting the country’s development plan. We strive to ensure lending practices are performed responsibly to the benefit of our customers and members. In addition to our internal policies, our conduct is governed by our by-laws, Bank Kerjasama Rakyat Malaysia Berhad (Special Provisions) Act 1978, the DFI Act 2002, as well as the regulations of Bank Negara Malaysia. Align with our role as a Development Financial Institution ("DFI"), we understand our responsibility to facilitate national development in the most responsible manner. Therefore, we acknowledge good corporate governance together with ethical and compliant business practices as the foundation of our business. Our actions are underpinned by our six (6) corporate cultures of Rajin (Diligent), Amanah (Trustworthy), Kompeten (Competent), Yakin (Confidence), Akhlak Mulia (Exemplary Behaviour) and Takwa (God-conscious) or R.A.K.Y.A.T and our commitments, prescribed in our policies and codes. In addition, our role as an Islamic financial institution promotes the granting of products and services in compliance with Shariah laws. In providing oversight on Shariah matters in relation to the Bank’s business and operations, our governance structure includes a dedicated Shariah Committee (the “Committee”). The Committee reviews operational processes to ensure that our services and products are Shariah-compliant. Responsible Procurement Practices We recognise the role we play in ensuring our procurement practices are ethical and responsible, as well as supporting local businesses. Our internal processes, policies and procedures guide our employees in fair procurement and ensure appropriate criteria are thoroughly considered when selecting suppliers. Our Our Code of Business Conduct and Ethics (“COBCE”) and procedural documents guide our procurement staff in ethical conduct, including gift policy, facilitation payment, and ensuring suppliers’ practices align with our policies and codes, as well as laws and regulations. All quotations and tenders submitted by suppliers are evaluated on quality of goods and services, background and experience, competitiveness of price, and any efforts towards energy efficiency or resource conservation. In adhering to its policy of sustainable and ethical procurement, Bank Rakyat emphasises that all purchasing decisions must be based on good governance practices and in the best interest of the Bank. We are also committed to transparency, confidentiality and fairness in all our dealings. As such, all our suppliers can expect to be treated fairly and even-handedly at all stages of the procurement process. It means being open with those involved, ensuring that the principle of fair competition is upheld and that all bidders have access to the same information to ensure a level playing field. There should be no conflicts of interest among Bank Rakyat employees involved in the tender process. The exertion of undue influence or abuse of power, as well as being unprofessional, may contravene relevant legislations, codes and guidelines. At the same time, we expect our suppliers to comply with legal requirements and agree to any negotiated terms and conditions. Wherever possible, we practise supply chain diversification to avoid overreliance on any one supplier. All quotations and tenders submitted must be evaluated, not only on price competitiveness or value for money, but also the quality of the goods or services provided and track records of the bidders. Procurement practices can also make a significant contribution to our sustainability goals. We take into account environmental factors as part of the tendering process, giving priority to products and services that conserve natural resources, protect the environment and are energy efficient. During the Induction Programme, our employees are made aware of our practices via our COBCE. The COBCE communicates our policies to our employees, including but not limited to our gift policy, anti-corruption policy, conflict of interest policy, and policy on political contributions. We maintain two independent sources in guiding employees to report a misconduct: the Progressive Disciplinary Handbook and the Whistleblowing Policy. The Whistleblowing Policy is publicly available to allow parties external to Bank Rakyat to understand grievance channels available. Employees and third parties are encouraged to report any misconduct, including, but not limited to, fraud, bribery, and abuse of power through email to whistle@bankrakyat.com.my in a strict and confidential manner.
LAPORAN TAHUNAN | 87 SUSTAINABILITY REPORT Contributing to the local community has always been important to Bank Rakyat. As a responsible bank with a growing business, we deem it our obligation to support surrounding communities. We utilise our resources to provide for areas of need in local communities to help alleviate living standards. Bank Rakyat is committed to carrying on our business and affairs in a socially responsible, sustainable, and meaningful way, taking into account ethics, the environment and society at large. We have in place our GPP 171 Donations/ Sponsorship Guidelines that focus our commitments and contributions towards programmes involving education, children with special needs, Islamic-related programmes, programmes organised by the government, ministry or agencies, Suruhanjaya Koperasi Malaysia, and also programmes organised by business partners, depositors and cooperatives. We however do not support any activity, project or event that is related to a political group or party, or that is against Bank Rakyat's Corporate Values. #AnakKita The Malaysian government had in place various initiatives to elevate the lives of people with disabilities and this has been widely accepted by Bank Rakyat. To support this effort, we came up with the theme “#AnakKita” that seeks to engage and help children with autism. We hope our activities will not only raise public awareness on children with autism but also attract other organisations to join us in aiding these children. Our approach towards this is based on four (4) main pillars; EDUCATING Giving exposure and awareness to the community regarding autism THERAPY Organising activities relating to elevating cognitive behavioural therapy, and increasing their social and communication skills SOCIALISING “ Providing children with autism the opportunity for recreational activities in public spaces FUNDRAISING Involvement in fundraising and charitable activities to benefit the community and disadvantaged groups In 2018, we had organised 105 activities to create awareness amongst the society on autism with the involvement of around 19,000 participants. YEAR SCHOOLS / ASSOCIATIONS / INSTITUTIONS INVOLVED 2018 50 IMPACT 7,380 People CONTRIBUTION RM 0.92 Mil TOTAL NUMBER OF ACTIVITIES 105 Activities NASOM welcomes such partnership from the corporate community like Bank Rakyat as we strive to improve the quality of life for people with autism and their families through programs, resources, knowledge and social innovation. We hope by getting more involvement from the corporate community, it would help us to create more awareness regarding the subject of autism. FEILINA S.Y MUHAMMAD FEISOL Chairman of NASOM SUSTAINABILITY REPORT COMMUNITY
88 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT SUSTAINABILITY REPORT Yayasan Bank Rakyat (“YBR”) Yayasan Bank Rakyat was established to focus on educational funding and charity contribution for the local community. We have been actively sponsoring education for underprivileged Malaysian citizens, regardless of religion, race, and background. The foundation also provides financial assistance to the disabled and individuals or organisations in need. 2018 marks the 11-year anniversary of our YBR that has affected many lives and will continue to be an integral part of Bank Rakyat’s Corporate Social Responsibility efforts. In 2018, we have benefited around 154,000 individuals. More information at https://www.yayasanbankrakyat.com.my/ “ YBR gave me a platform to realise my dream and I am very thankful for the wonderful opportunity. The experience I had while studying in Australia helps me to improve as a person and more importantly, prepares me to be more confident in facing challenges ahead. MUHAMMAD AMZAR MUHAMMAD FAUZI YBR Scholars University of Western Australia Ministry of Education's 7-a-side 1 Student 1 Sport National Football Tournament YBR realises the importance of a healthy and fit community. Thus sports is an important aspect in the holistic development of the future generation of the country. In line with the 1 Student 1 Sports Policy introduced in 2010, YBR in collaboration with the Ministry of Education Malaysia (“KPM”), organised the 7-a-side 1 Student 1 Sport National Football Tournament. This tournament has been endorsed by the National Blue Ocean Strategy (“NBOS”) under the National Education Blueprint 2013-2025 through the collaboration between the private sector and the KPM. In addition to enhancing the involvement of students in sports, the tournament also focused on the development of human capital through sports by developing the talent of the young athletes from the early stages.
LAPORAN TAHUNAN | 89 SUSTAINABILITY REPORT Distribution to State Zakat Centre (RM Million) Asnaf Zakat Distribution (RM Million) 14.66 8.79 FYE 2017 Zakat As an Islamic co-operative bank, we understand our obligations to abide by the Islamic principles to allocate a proportion of our business profit to aid the poor and needy. In 2018, Bank Rakyat’s total zakat payment totalled RM23.45 million. We distribute our zakat payment directly to the State Zakat Centre and the Asnaf (the individuals entitled to receive zakat). Distribution to State Zakat Centre (RM Million) Asnaf Zakat Distribution (RM Million) 25.42 15.25 FYE 2016 Distribution to State Zakat Centre (RM Million) Asnaf Zakat Distribution (RM Million) 22.91 13.74 FYE 2015 Distribution to State Zakat Centre (RM Million) Asnaf Zakat Distribution (RM Million) 23.24 13.94 FYE 2014 Community Engagement Aligning business practises with societal needs and expectations help drive long-term sustainability. Having grown to our present of strength in the banking sector, this means we can apply the size and scale we have to reach out and make a difference in addressing some of society’s biggest challenges. By doing so, we contribute to the strength and vibrancy of the communities in which we serve Distribution to State Zakat Centre (RM Million) Asnaf Zakat Distribution (RM Million) 25.62 15.37 FYE 2013 Distribution to State Zakat Centre (RM Million) Asnaf Zakat Distribution (RM Million) 25.62 15.37 SUSTAINABILITY REPORT FYE 2018
90 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT SUSTAINABILITY REPORT ENVIRONMENT Our great national reach places us in the position to affect the environment and local communities that we operate in. We believe that we have a responsibility to protect the environment and support the local community. Therefore, it is imperative for us to continuously enhance the way we manage our environmental and social impacts in order to move towards sustainable excellence. Environmental Management We are persistently progressive on how we monitor and manage our environmental footprint by focusing on our greenhouse gas ("GHG") emissions, water, energy consumption, and waste management. Electricity Usage in kWh at Menara Kembar Bank Rakyat Tower 1 11,303,701 Our office buildings contribute to our overall energy consumption. The Bank Rakyat Twin Towers reflect our commitment to monitor and reduce our energy usage. The towers have been uniquely designed to maximise energy performance as they are installed with glass facades that enable maximum transparency and capture natural sunlight. Apart from that, the offices and common areas are cooled by a centralised Chiller system, with temperature transmitters monitoring the building load and chilled water flow rate to maximise energy efficiency. Tower 2 5,040,584 Tower 1 9,207,487 Our waste management effort is largely directed towards monitoring waste generated from paper and IT equipment. As our operations move towards digitalisation, we have seen a great reduction in our paper usage as well as increased productivity. The e-documents system uses software to manage documents more efficiently and cost-effectively. Apart from that, we also advocate to our employees to use paper only when it is necessary. Tower 2 5,089,421 Paperless Environment Worldwide consumption of paper has risen in the last 40 years. With increasing awareness, there is a growing trend towards sustainability in the global pulp and paper industry. Since 2014, with the move to its new headquarters, Bank Rakyat has been increasingly transitioning towards implementing a paperless work environment, where the use of paper is greatly reduced or eliminated altogether. Going paperless not only reduces clutter, saves money and boosts productivity, but it is also a great public relations message in a more environmentally-conscious world. Documents, whether electronic or paper, are essential components of any corporations. The e-documents system uses cutting-edge software to manage documents more efficiently and cost-effectively. With the system, lost or mislaid files are a thing of the past. The reduced need to print or copy documents also saves time and money. The introduction of e-forms for claims, leave application, purchase of flight tickets among others, has also contributed to an increasingly paperless environment in Bank Rakyat. FYE 2018 FYE 2017 Tower 1 10,269,337 Tower 2 4,833,660 FYE 2016
LAPORAN TAHUNAN | 91 SUSTAINABILITY REPORT We value our employees as their dedication and talents contribute to the sustainable success of Bank Rakyat. We strive to attract and retain the best talent in the industry as part of our continuous business improvement. Therefore, it is essential for Bank Rakyat to provide a nurturing, competitive, exciting and safe working environment for all our 5,178 employees. Employment Practices We place great importance on upholding the fundamental rights of our employees. Built on our commitments, we shape and endorse a safe and respectful workplace with fair and equal opportunities for our employees. Bank Rakyat’s COBCE is an integral point of reference for Bank Rakyat’s employees and is accessible via the intranet. We endeavour to promote diversity in terms of gender and age ratios as we firmly believe embracing diversity will increase productivity. As of 2018, 42% of our total employees are women. We intend to provide more opportunities for women in the coming years. Item Gender Age Group Position Employment Contract Total no. of Employees Category FYE 2016 FYE 2017 FYE 2018 Female 2,049 2,058 2,207 Male 2,987 2,950 2,971 Below 30 1,551 1,321 1,333 30 - 50 3,258 3,401 3,431 Over 50 227 286 414 Senior Management 54 64 68 Middle Management 260 262 291 Executive 2,483 2,573 Non-Executive 2,239 Permanent Contract BANK RAKYAT TOTAL EMPLOYEES (FYE 2016 - 2018) TOTAL EMPLOYEES BY AGE Below 30 1,333 30 - 50 3,431 Over 50 414 2018 Below 30 1,321 30 - 50 3,401 286 Over 50 2017 Below 30 1,551 30 - 50 3,258 227 Over 50 2016 Below 30 1,721 2,915 30 - 50 3,200 2,109 1,904 Over 50 4,700 4,800 4,755 336 208 423 TOTAL EMPLOYEES BY GENDER AS AT 31ST DECEMBER 2018 2018 5,178 Female 2,207 2017 5,008 Male 2,971 2016 5,036 214 2015 SUSTAINABILITY REPORT WORKPLACE
92 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT SUSTAINABILITY REPORT TOTAL EMPLOYEES BY POSITION BANK RAKYAT FEMALE EMPLOYEES 68 13% 291 29% 2,915 49% 1,904 36% 2018 2018 64 11% 262 27% 2,573 47% 2,109 37% 2017 TOTAL EMPLOYEES BY GENDER Female 2,207 Male 2,971 2018 Female 2,058 Male 2,950 2017 Female 2,049 Male 2,987 2016 2017 54 9% 260 28% 2,483 46% 2,239 37% 2016 2016 Female 2,077 Male 3,058 2015 TOTAL EMPLOYEES BY CONTRACT TYPE Permanent 4,755 Contract Senior Management Executive Middle Management Non-Executive 423 2018 4,800 Permanent Our commitment towards providing fair and equal opportunities is further showcased by employing differently-abled individuals. To date, we currently employ 2 individuals whom are currently working as our telephonist. One is visually impaired and the other requires a wheelchair for mobility. To ensure we cater to their special needs, we adapted their working space to ensure it is near the restroom and also provide a special area to place the wheelchair. No. of differently-abled employees FYE 2016 FYE 2017 FYE 2018 2 2 2 208 Contract 2017 4,700 Permanent 336 Contract 2016 4,458 Permanent 677 Contract 2015
LAPORAN TAHUNAN | 93 SUSTAINABILITY REPORT Type of Benefit Life insurance and medical benefits Health and wellness Retirement benefits Other benefits Description The Life Insurance covers death, total permanent disability and partial permanent disability. The total for hospitalisation and non-hospitalisation is 60 days. ‘Kelab Sukan Bank Rakyat’ ("KEBARA") conducted the Floor to Floor Health Talk sessions in 2017 in MKBR. The objective is to improve the level of awareness about healthy lifestyle among employees. Apart from that, 10 sessions of the Health & Wellness Training was organised for involving 355 employees from all over the country. Bank Rakyat organises the Pre-Retirement Program where we conduct sessions consisting of awareness on financial, health and business after retirement. In 2017, 667 employees received the Long Service Award 2016 which was presented during the Annual Dinner 2017. • Compassionate Leave (Death of close relatives/Disasters/ Warded Immediate Family): Bank Rakyat provides maximum four (4) days of compassionate leave per annum • Incentive for employees (Further studies): 59 recipients in 2017 • Incentive for Dependent (Achieve Excellent Result): 144 recipients in 2017 • Corporate Golf Memberships (Entitlement: Manager Level & Above): 51 golf clubs handed with the number of 145 memberships in 2017 Employee Engagement We engage with our employees regularly, as part of our culture to foster open channels of communication and develop meaningful relationships with our employees to motivate and accelerate their learning and development. We value individual input from our employees and provide platforms for them to raise their concerns. We conduct performance review sessions annually to help them plan and strategies their professional development and encourage them to create their own career opportunities. During Human Capital Day in 2016, we launched the Career at Bank Rakyat handbook that provides guidance to our employees towards achieving their full potential. In the handbook, we communicate to our employees the roles and responsibilities they, their managers and the Bank have, to support their personal development and growth. We also established an organised approach to help our people reach their full potential in the Bank’s Talent Management process flow. SUSTAINABILITY REPORT Bank Rakyat places great emphasis on the welfare of its employees. Bank Rakyat covers the employees with attractive benefits that support their productivity. The benefits provided are as shown below:
94 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT TALENT POTENTIAL ASSESMENT SUSTAINABILITY REPORT CAREER CONVERSATION TALENT CALIBRATION TALENT MANAGEMENT PROCESS FLOW ON GOING MONITORING ASSESSMENT CENTRE DEVELOPMENT PLAN We also motivate our employees to take the initiative to discuss with their managers whenever they identify possible areas for them to contribute towards the increase in revenue/profit, reduced costs, or otherwise make the Bank more efficient or effective. We also conducted the Employee Engagement Survey twice, in 2015 and 2017, as part of our initiatives to our people's aspirations and development needs. Percentage (%) of employees who received performance reviews FYE 2016 FYE 2017 FYE 2018 100% 100% 100% EMPLOYEE ENGAGEMENT SURVEY 15% 25% 17% 21% 4,991 Invited Participants 2017 4,850 Responses 17% 97% Responses Rate 56% 2017 21% 6% 4,817 Invited Participants 2015 4,420 Responses 92% Responses Rate 2015 Highly Engaged (HE) Moderately Engaged (ME) Passive Actively Disengaged
LAPORAN TAHUNAN | 95 SUSTAINABILITY REPORT Grievance Mechanism FYE 2016 FYE 2017 FYE 2018 - 1 1 Total no. of grievance cases Health and Safety The health and safety of our employees is a priority for Bank Rakyat. To demonstrate our commitment to protect the health and safety of our employees, we have in place Bank Rakyat Occupational Safety & Health (“OSH”) Policy & Manual which is communicated and available via the intranet and also displayed on every level of Menara Kembar Bank Rakyat and at each of our branch. The Bank has established a Safety Unit under the Industrial Relations Department that reports directly to the Human Capital Chief Officer in his capacity as Chairman of the OSH Main Committee. The Safety Unit serves as a secretariat to OSH Main Committee in preparing the OSH Policy and manuals, followed by monitoring of the implementation of the policy and manuals and periodic reviews to ensure effectiveness. We are the first bank in Malaysia to obtain the OHSAS 18001:2007 Occupational Health and Safety Management System certification as well as MS1722:2011 Malaysian Standard on Occupational Health and Safety Management System. To measure the effectiveness of our OSH management, we monitor the health and safety performance of our employees. For FYE 2018, our reported injuries reduced from the previous year by 10 cases. BANK RAKYAT HEALTH AND SAFETY PERFORMANCE 2016 2017 2018 No. of recordable injuries No. of lost days No. of recordable injuries No. of lost days No. of recordable injuries No. of lost days 14 49 20 91 10 58 Incident rate Frequency rate Incident rate Frequency rate Incident rate Frequency rate 2.64 1.27 3.77 1.81 1.97 1.05 Severity rate No. of fatalities Severity rate No. of fatalities Severity rate No. of fatalities 4.44 0 8.25 0 6.09 0 SUSTAINABILITY REPORT We promote a working culture where there is respect for the individual. We encourage our people to lodge on any official complaints through our MyHR Portal. As at December 2018, we only received 1 grievance case.
96 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT Bank Rakyat Health and Safety Performance SUSTAINABILITY REPORT 30 25 25.2 20 15 10 8.25 5 4.67 2.35 4.44 3.77 1.81 2.64 1.27 0 As part of our initiatives to ensure a safe and healthy workplace, we encourage our employees to adopt a healthy lifestyle by introducing the Floor-To-Floor Health Talk (Health Awareness) and Corporate Wellness Programme. We continuously seek ways to reduce the number of accidents in our operations. In 2018, we organised several trainings to increase awareness on occupational health and safety, as illustrated below: Type of Training/ Programme No. of Session No. of Participants Mega OSH Tool Box 2018 1 15 Chemical Exposure Monitoring for Ar-Rahnu Unit 1 22 Commuting Safety Support Program 8 192 Participate in Pertandingan Kawad Kecekapan Bomba State Level (Wilayah Persekutuan Kuala Lumpur) 1 18 Basic Occupational First Aid & CPR Training 8 190 Fire & Rescue Team Training 10 355 Floor To Floor Health Talk 24 900 ISO 45001 Interpretation & Internal Audit Training 1 20 Defensive Riding Training 5 100
LAPORAN TAHUNAN | 97 SUSTAINABILITY REPORT The Bank provides a supportive place for career progression and to meet the needs of our employees. We enable our employees to reach their full potential and accomplish personal goals by continuously investing in developing their skills and knowledge. In addition, we ensure we provide for our employees by listening and understanding their needs. Since 2016, we have been conducting programmes specifically dedicated to the development of our talent in an internal training room at Menara 2, Menara Kembar Bank Rakyat, that is equipped with dedicated training facilities. In 2018, we invested a total of RM14 million to provide our employees with regular trainings and other career development programmes. The programmes were targeted at all level of employees. TOTAL AMOUNT INVESTED IN TRAINING (RM) 14.0 Million FYE 2018 14.0 Million FYE 2017 14.5 Million FYE 2016 24.0 Million FYE 2015 Training and development To define high quality development plans, we believe it is crucial to apply the 70/20/10 model. The concept states that only a blend of different learning approaches will provide powerful development for our people. 70/20/10 70: Experiential Learning This is the process of learning through experience and practise such as on the job training, knowledge sharing, projects, assignments, international exposure, acting role, shadowing, etc. 20: Informal Learning (Coaching & Feedback) It is defined as a process of learning through others via coaching and support. It requires a partnership of learners and those providing the support to reach the objective of learning. There is a variety of strategies used such as observation, networking with those with similar function and asking others. Learning could be optimised most of the time through feedback by others of how well the individual is performing. 10: Formal Learning The formal classroom training as a model for knowledge and technical skills transfer is always mistaken as the optimal choice of learning for performance. In reality, it only provides a very small percentage of an individual's job skills. Other learning avenues of formal learning includes research, reading books, e-learning, etc. SUSTAINABILITY REPORT Talent Attraction and Retention
98 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT SUSTAINABILITY REPORT Life Long Learning The continuous change in globalisation will surely impact and pose a challenge to all countries, especially developing countries like Malaysia. To address this, YBR has taken proactive steps in empowering the workforce to become competitive and advanced by developing skilled and knowledgeable human capital. Lifelong learning enables one to acquire knowledge and skills in conjunction with high-income economy models that are capable of integrating the potential of young executives, to ensure the sustainability and relevance of the organisation they work for. Ultimately, they contribute to the development of the nation, enabling it to stay ahead of the changing environments. Education is not only for the youth, hence YBR has taken a vigorous step in ensuring the incessant implementation of lifelong learning. Our Life Long Learning programme, established in 2015, is still ongoing in collaboration with Universiti Utara Malaysia Professional and Continuing Education Centre ("UUMPACE"). All classes are held once a month at Bank Rakyat's Twin Towers. This programme is aimed at providing opportunities for tertiary education, enhancing knowledge skills, and applying lifelong learning culture regardless of age, and is open to Bank Rakyat’s employees, including subsidiaries and members. YBR also took the initiative towards developing productive workers, possessing highlevel thinking skills and the capacity to use information and communication technology (“ICT”). Employees should now be able to perform more complex tasks, innovate and improve work processes through the use of new technology. In the direction of human capital development, continuous learning is needed to help achieve targeted standards. Programmes: Talent Management Initiatives Frequency: Annual Target group: Management level In an effort to retain employees in an organisation, a robust and inclusive talent management process is crucial. Bank Rakyat places great emphasis in meeting the ever changing demand of employees and has embarked on a Career Conversation initiative. Career Conversation is a career discussion between an employee and their immediate manager where identified areas of interest are expressed and development plans are identified and agreed upon. Career Conversation helps the employer understand the employees’ needs for career development and provide encouragement along the way. This helps to motivate and accelerate Bank Rakyat employees’ learning and development. Career Conversation is also a means of providing avenues for employees to feel appreciated and be heard. It creates a culture that encourages career management to attract, engage and retain the brightest of talents and allow a self-directed journey in managing their career progression in the long run. It also provides an avenue to help employees develop new capabilities and knowledge while providing longer term career growth opportunities. In Bank Rakyat, Career Conversation is conducted when the performance management cycle is concluded. As employees have proven their capabilities to achieve the organisation’s desired result, this Career Conversation would allow them to realise their potential and developmental areas that would excel them further in their career. Since its implementation, all executive level employees of Bank Rakyat have gone through this process and has their own individual development plan which is monitored as part of their performance achievement on a yearly basis. Subsequent to this exercise, other talent initiatives – Talent Potential Assessment and Classification of Talent – were also implemented in an effort to drive the Bank towards a high performing and agile organisation.
LAPORAN TAHUNAN | 99 SUSTAINABILITY REPORT Programme: The Islamic Banker ("TIB") The Bank’s focus on the development of talent is not just for existing employees. As a mean to attract younger generations into the organisation, the Bank has launched a management trainee programme – The Islamic Banker ("TIB"). The programme is a 2-year comprehensive development journey with the minimum requirement of being a Certified Professional Islamic Finance ("CPIF") candidate by the Chartered Institute of Islamic Finance Professionals ("CPIF"). This is a fast track CPIF pathway of attaining the certification in a 2-year timeframe. Trainees would be equipped with relevant management and soft skills competencies through a series of development programmes by renowned trainers such as ICLIF, Excel Minds and OBS. The 2-year programme is divided into 3 phases of development: foundation building, business appreciation and career placement. The programme aims to equip trainees with comprehensive competencies development to kick start their employment journey with the Bank. Additionally, trainees are also required to participate in one CSR initiative anchored by the SDGs. Upon completion of the 1-year development programme, they are expected to become a group of well-rounded trainees and would have the option to work in a preferred business unit mapped against their aspiration with alignment to the Bank’s business requirements. Development Framework Frequency: Throughout the year Target group: All employees Bank Rakyat provides a comprehensive Development Framework that caters to the development needs for all level of employees. The programmes are aimed at equipping them with technical know-how as well as managerial / soft skills and competencies. Employees at all levels have equal opportunity for continuous learning. The robust development effort is also committed in granting professional certifications that are relevant to the financial services industry to remain competitive among their peers. Managers and above are also equipped with comprehensive leadership capability programmes. It ranges from local built programmes to global exposure leadership programmes. This intervention programme aims to equip and enhance the leadership capabilities of our people in driving Bank Rakyat to its desired growth. “ This programme is a good platform for my career growth and it helps us to develop our full potential. What makes this programme so special is how it gives exposure to almost all core banking sectors as it aims to train us to be a complete banker. MUHAMMAD SYAZWAN MOHD REDZUAN Islamic Banker trainee SUSTAINABILITY REPORT Frequency: Biannual Target group: Management trainee
100 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD SUSTAINABILITY REPORT SUSTAINABILITY REPORT MARKETPLACE At present, our sustainability matters are managed as part of the usual course of business. Our strategic direction is set by the Board and each Head of Department monitors the performance and management of respective risks and opportunities. The performance of each department is reported to respective Board Committees. At year end, information is collated and reported to stakeholders through our Sustainability Report. Moving forward, we would look into formalising our sustainability governance and reporting structure to better reflect the way we manage our areas of impact. FULFILLING OUR MANDATE As a DFI, we were a pioneer in the cooperative and entrepreneurship movement, guided by a vision of reducing the social inequalities in Malaysia’s rural societies. Our mandate was to raise the social and economic status of rural communities, provide them with opportunities for self-improvement and to build a more promising future for their families and communities. From our present position of strength and capitalising on our core competencies, it is a role that we continue to play to this day. To this end, we offer products and services that target key communities in need. Highlights of our key products and services are shown below: Name of the Product Description and Target Groups No. of Beneficiaries Total Value Spend (RM) Retail Shop Transformation Programme (“TUKAR-i”) · T he programme aims to modernise existing traditional grocery stores to compete in a highly competitive retail business. Retailer can utilise borrowed funds to upgrade premises or equipment, procure stocks, purchase of point of sale (“PoS”) system or used as working capital · This programme is in collaboration with local and foreign hypermarkets (as consultants), with funds provided by Ministry of Domestic Trade, Co-operatives and Consumerism ("MDTCC") In the year 2018, 7 applications were approved Modernisation of Automotive Workshop (“ATOM”) · A TOM is a programme designed to modernise existing workshops and enhance their competitiveness, utilising funds provided by MDTCC · The programme is implemented in collaboration with automotive associations and organisations (appointed Consultants) and to be carried out until 2020 This year, 15 applications were approved, making it a total of 1,044 recipients benefiting from the programme since 2011 2018: RM5.09 million Rural Economic Financing Scheme (“SPED”) · T he scheme aims to: · increase the number of rural Bumiputera entrepreneurs in all dynamic and legal economic areas; · upgrade the business of rural Bumiputera entrepreneurs to be more dynamic, competitive, and resilient; · provide funding facilities for rural Bumiputera entrepreneurs in order to improve the rural economy; · provide a collateral-free funding scheme with a low installment rate; and · encourage creation of Bumiputera Commercial and Industry Community (“BCIC”) among rural residents. In 2018, 22 applications were approved 2018: RM2.41 million A total of 1,577 retailers have benefited from the programme since 2011 Since 2001, 2,397 Bumiputera entrepreneurs have benefited from the scheme 2018: RM1.09million A total of RM108.39 million of fund has been approved since 2011. A total of RM107.86 million has been approved since 2011 Since its launching, a total of RM209.22 million has been approved
LAPORAN TAHUNAN | 101 SUSTAINABILITY REPORT DIGITALISATION AND INNOVATION In financial services, digitalisation of services and process lines are critical to ensure the Bank complements the lifestyle of our members and non-members. It also allows us to provide higher quality services with faster turnaround time. As we push for digitalisation, we are able to observe further opportunities which leads to our desire to continuously innovate our digitalised platform. We make a conscious effort to deliver a more structured digital service, system experience and support to our customers and members. We look to optimise customer-facing technologies and improve digital touchpoints with the aim of enhancing customer experience on our digital platform. Some of the digital transactions occur as part of the following services: Name of the Product Description of the Product i-Rakyat Mobile Responsive · T his feature allows customers to optimise i-Rakyat Interface via multiple devices such as desktop, tablet and mobile phone Tabung Haji (“TH”) Internet Banking · T he enablement of TH Internet Banking on our platforms provide convenient access for our customers in dealing with balance inquiry, fund transfer, Hajj registration, Hajj status checking, account linkage and account delink Perbadanan Tabung Pendidikan Tinggi Nasional/ Skim Simpanan Pendidikan Nasional (“PTPTN”) Internet Banking · T he enablement of PTPTN Internet Banking on our iRakyat platform will allow users to perform loan repayment e-Statement · E ffective July 2018, Credit Card-i e-Statement will be sent to Bank customers’ email address as we strive to promote environmentally-friendly approaches in our operations To support and drive the innovations and development of our digital products and services, we have established the Bank Rakyat Innovation and Technology Centre of Excellence Team (“BRITE”). This dedicated team is tasked with overseeing innovation and research activities regarding Information Technology (“IT”) and digital services. In the near future, we will continue to provide exceptional digital services to our customers and members, leveraging on several initiatives, including new corporate internet banking for our corporate customers, enhancing mobile banking applications, mobile wallet, real-time payment platforms and agent banking mobile applications amongst others, to remain relevant and competitive in the business. CUSTOMER EXPERIENCE As our customers form one of our business pillars, we strive to meet their needs through our products and services, as well as the way we conduct business. We conduct business in a fair and transparent manner, provide Shariah compliant banking services and products, and focus on sound governance and responsible financing. We aspire to be the bank of choice for our members and customers. We engage our customers via various platforms, including social media and Biro Aduan Awam. During which, we obtain comments on areas such as customer service experience, feedback on areas of improvement, and products or services. We listen to our customers and consider their feedback in identifying areas of improvement or developing new products. In 2018, we received 22,999 complaints from our customers which is slightly higher compared to 2017. The increase is due to customer awareness on their right to pursue complaints to Bank Negara, Ombudsman for Financial Services and Securities Industry Dispute Resolution Centre. We managed to resolve each of the complaints made and will continue to provide better services to our customers. Total no. of Customer Complaints FYE 2016 FYE 2017 FYE 2018 16,462 22,814 22,999 SUSTAINABILITY REPORT We will continue working hand-in-hand with the government and other parties to serve the national development agenda. We will also strive further to provide innovative ethical and Shariah-compliant products and services to cater to the needs of our customers and members.
GOVERNANCE Developing a credible and trustworthy institution built on the principles of transparency and accountability .
104 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BOARD OF DIRECTORS AND MAIN COMMITTEES CORPORATE GOVERNANCE The Board of Directors of Bank Kerjasama Rakyat Berhad (BKRM) aspires to pursue its efforts in improving its corporate governance by facilitating effective and prudent management that can deliver long-term success of the Bank whilst achieving the highest standard of business principles and professionalism for its shareholders and stakeholders. THE BOARD OF DIRECTORS 1. Composition of Board Currently, there are nine (9) Directors on the Bank Rakyat’s Board, comprising of: • Seven (7) Independent Non-Executive Directors. • Two (2) Non-Independent Non-Executive Directors (Nominees from the Ministry of Finance and the Ministry of Entrepreneur Development ("MED"). • One (1) Non-Independent Executive Director, designated as Managing Director. The current Board composition is in compliance with Bank Negara Malaysia Guidelines on Corporate Governance for Development Financial Institutions. More than half of the members are Independent Directors, which provides an effective check and balance in the functioning of the Board. The Directors are from diverse backgrounds with expertise and knowledge in banking, finance, accounting, legal and business that provides the necessary experience needed to address key risks and major issues relating to the Bank’s business and its policies, strategies and action plans to effectively overcome the challenges and obstacles faced in today’s banking environment. 2. Board Charter The Board formalised a Board Charter setting out the duties, responsibilities and functions of the Board. The Board Charter also provides references for Directors and other Board Committees in discharging their stewardship effectively and efficiently. The Board Charter covers the following key areas: i) ii) iii) iv) v) vi) vii) viii) ix) 3. Roles and Responsibilities of the Board The Size and Composition of the Board New Appointment/Reappointment of the Directors The Role and Responsibilities of the Board Code of Conduct for the Directors Conduct of Board Meetings Roles of Chairman Roles of Managing Director Roles of Independent Non-Executive Directors Roles of Board Committees The Board members, in carrying out their duties and responsibilities, are firmly committed and compliant with the highest standards of corporate governance. This ensures the Bank continues delivering strong financial performance that serves to give long term and sustainable value to the stakeholders. The Board has a fiduciary responsibility to act in the best interest of the Bank. The Board assumes the following key roles: • Provides strategic guidance and direction for the Bank, charting the course of its business operations; and •Reviews and approves, in consultation with the Managing Director and Senior Management, the business plans and key policies of the Bank.
ANNUAL REPORT | 105 BOARD OF DIRECTORS AND MAIN COMMITTEES The major responsibilities of the Board include: a) b) c) d) e) Finance and Operations i) Review and approve the Bank’s business strategies. ii) Provide clear objectives and policies within which Management is to operate; iii) Review, approve and monitor budgets, major capital commitments, capital management, acquisitions and divestitures. iv)Review, approve and monitor the Bank’s business plans, annual targets, financial statements and other reports. v) Provide input and feedback, review and approve Management’s development strategies and performance objectives. vi)Ensure Management’s performance in implementing the approved strategies, plans and budget within the approved risk appetites. vii) Review and approve the Bank’s business and operational policies. viii)Ensure that the operating infrastructure, systems of control, systems for risk identification and management, and financial and operational controls, are in place and properly implemented. ix)Avoid conflicts of interest, ensure disclosure of possible conflicts of interest and review and approve the entry into, or variation of, any contract, transaction, arrangement or commitment with any related party or any dealing involving conflict of interest situation. x) Determine dividend policy and the amount, nature and timing of dividends to be paid. xi)Select, appoint and terminate the appointment of the external auditor. xii)Oversee the Audit and Examination Committee’s evaluation of the performance of the external auditor and ongoing independence. xiii)Ensure and maintain corporate governance standards and set Key Performance Indicators to enhance business prosperity and corporate accountability. Risk Management i)Review and approve risk management framework and policies and ensure that the Bank establishes adequate internal controls and infrastructure to effectively monitor and manage these risks. ii)Review and approve the Bank’s Business Continuity Management Policy in dealing with extreme internal or external events and disasters. iii) Evaluate the effectiveness of the Management in controlling and handling the risks of the Bank. Internal Audit i)Establish the functions, role and responsibilities of the internal audit division and the scope and nature of the financial and management audit and evaluate the effectiveness of the internal audit function in providing independent evaluation on the adequacy and compliance with established policies and procedures. ii)Evaluate the lines of reporting of the internal audit function and the procedures used to report internal control deficiencies. Human Resource and Governance i)Review and approve the appointment, job grade, promotion, remuneration, compensation and removal of key Management personnel. ii) Review and approve Human Resource policies. iii)Undertake ongoing assessment and annual review of the performance of the Chairman, Managing Director and individual Directors and key Senior Management personnel and evaluate the effectiveness of the Board. iv)Make recommendations on remuneration packages, allowances, benefits, new appointments and re-appointments for Directors. Compliance i)Review relevant reports and proposals to ensure the operations of the Bank are in compliance with the relevant laws, statutory acts, Shariah principles and established policies and procedures of the Bank. ii)Uphold and observe all applicable laws, regulations, rules, directives, guidelines and circulars (including continuous disclosure) and ethical standards. iii)Consider and provide any response, attestation, undertaking or confirmation as required by regulatory authorities in relation to compliance with regulatory requirements. f)Others i) In carrying out its functions, the Board has access to the records, properties and personnel of the Bank. CORPORATE GOVERNANCE
106 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD CORPORATE GOVERNANCE BOARD OF DIRECTORS AND MAIN COMMITTEES 4. New Appointment and Re-Appointment 1.The proposed appointment or re-appointment of Directors is subject to prior approval of the Minister who is responsible for cooperative development. 2.The appointment of new Directors is for an initial term not exceeding three (3) years and any such appointee is eligible for re-appointment for a term not exceeding two (2) years. 5. Training and Continuous Professional Development of Directors Continuous Training is vital for the Directors to broaden their perspective and keep abreast of the development in the banking industry and of changes in new statutory and regulatory requirements to further enhance their skills and knowledge in discharging their responsibilities effectively. Directors of the Bank are required to register for the Director’s core training programme under the Financial Institutions Directors’ Education Program ("FIDE"). The Directors are also encouraged to attend other training that is relevant to enable them to discharge their responsibilities effectively. In this regard, focus will be on the elective training organised by FIDE as such training is structured based on areas that are relevant to the banking industry. The Directors can also attend other training organised by local professional bodies and regulatory authorities in areas that are relevant to the Bank. The training needs of Directors will be on a continuous basis and the areas determined will be used to provide further understanding of the issues faced by the Bank. 6. Independent Non-Executive Directors The effective participation of Independent Non-Executive Directors brings an external perspective and enhances accountability in the Board’s decision-making process. The responsibilities of Independent Non-Executive Directors should therefore include the following: (a) To provide and enhance the necessary independence and objectivity of the Board; (b) To ensure effective checks and balances on the Board; (c)To mitigate any possible conflict of interest between the policy making process and the day-to-day management of the Bank; (d) To constructively challenge and contribute to the development of business strategy and direction of the Bank; and (e)To ensure that adequate systems and controls to safeguard the interests of the Bank are in place. In addition to the rights accorded to Directors, Independent Non-Executive Directors may request that their views, comments and stance are recorded to enable them to effectively discharge their duties. 7. Directors' Remuneration The remuneration and allowances of the Chairman and all other Directors are determined by the Minister-in-Charge and with the concurrence of the Ministry of Finance ("MOF"). 8. Roles and Responsibilities of the Chairman The Chairman is responsible for a) The leadership and management of the Board and ensuring that the Board and the Board Committees function effectively; b) Chairing all Board meetings and leading discussion among Directors; c)Ensuring that the Directors receive accurate, timely and clear information to enable them to discharge their duties. The Directors are entitled to request additional information where they consider such information necessary to make informed decisions; d)Ensuring that the views, guidelines, circulars and directives of Bank Negara Malaysia, the MOF and the Minister are communicated to and adhered to by the Board;
ANNUAL REPORT | 107 e)Ensuring that the Directors continually update their skills, knowledge and familiarity with the Bank to fulfil their role both on the Board and on Board Committees; f) Facilitating the effective contribution of all Directors at Board meetings; and g) Promoting constructive and respectful relations between Directors, and between the Board and Management. 9. Roles and Responsibilities of the Managing Director The Managing Director is responsible for a)The development, in conjunction with the Board, and implementation of short, medium and long-term corporate strategies for the Bank, preparing business plans and reports with Senior Management and reporting/presenting to the Board on current and future initiatives; b) Ensuring that the policies and decisions approved by the Board are carried out by Management to their desired outcomes; c) Ensuring the efficient and effective day-to-day operations of the Bank; d) Ensuring that the Bank has the appropriate risk management policies in place; e)Providing strong leadership and, together with Management, communicating the Bank’s vision, management philosophy and business strategy to the employees; f) Assessing business opportunities which are of potential benefit to the Bank; and g) Bringing material and other relevant matters to the attention of the Board in an accurate and timely manner. 10. Board Meetings The Board of Directors meets at least once a month and additional meetings are held when required. The Board held fourteen (14) meetings during the financial year ended 31 December 2018 and the attendance was as follows: Name Attendance at Board Meetings Tan Sri Shukry Mohd Salleh (Appointment as Chairman until 25 November 2018) 13/13 Dato’ Zulkiflee Abbas Abdul Hamid 14/14 Dato’ Sri Jamil Salleh 14/14 Datuk Siti Zauyah Md Desa 12/14 Wan Zamri Wan Zain 14/14 Abd Rani Lebai Jaafar (Appointment effective 1 January 2018) 14/14 Armi Zainudin (Appointment effective 1 March 2018) 11/11 Dato’ Sri Alias Haji Ahmad 10/14 Datuk Haji Abdul Rahman Kasim (Appointment until 14 April 2018) 5/5 Razalee Amin (Appointment until 18 February 2018) 2/3 Datin Dr Nik Sarina Lugman Hashim (Appointment until 31 May 2018) 6/7 CORPORATE GOVERNANCE BOARD OF DIRECTORS AND MAIN COMMITTEES
108 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD CORPORATE GOVERNANCE BOARD OF DIRECTORS AND MAIN COMMITTEES 11. Board Committees The following standing committees have been established to assist the Board in carrying out its responsibilities a) Audit and Examination Committee; b) Risk Management Committee; c) Nominations Committee; d) Remuneration Committee; e) Financing Committee; f) Investment Committee; g) Tender Board. The composition, roles and responsibilities of the Board Committees are laid out in their respective charters. The members serving the Board Committees shall be changed at appropriate and regular intervals. To ensure that the entire Committee is not replaced at any one time, such change of members shall be done on rotation basis. a) Audit and Examination Committee The Audit and Examination Committee is committed to ensure the operational levels of the Bank are at their best. This responsibility is fulfilled through the independent supervision of risk management, internal controls and governance processes. The Audit and Examination Committee shall comprise not less than three (3) Non-Executive Directors of the Board. The Committee held ten (10) meetings during the financial year ended 31 December 2018 and the attendance was as follows: Name Wan Zamri Wan Zain (Appointment as Interim Chairman effective 7 March 2018) Attendance at Meetings 10/10 Abd Rani Lebai Jaafar (Appointment effective 27 March 2018) 7/7 Armi Zainudin (Appointment effective 28 May 2018) 6/6 Datuk Haji Abdul Rahman Kasim (Appointment until 14 April 2018) 3/3 Razalee Amin (Appointment until 18 February 2018) 1/1 Datin Dr Nik Sarina Lugman Hashim (Appointment until 31 May 2018) 4/4 The objectives of the Audit and Examination Committee are •To assist the Board in the discharge of its statutory duties and responsibilities relating to accounting and reporting practices of the Bank, its subsidiaries and Yayasan Bank Rakyat; • To provide an independent oversight of the Bank’s financial reporting and internal control systems; and •To ensure that adequate risk management processes and checks and balances are in place for the proper overall management of the Bank.
ANNUAL REPORT | 109 BOARD OF DIRECTORS AND MAIN COMMITTEES The function of the Audit and Examination Committee: The Committee has explicit authority to investigate matters within its terms of reference in line with such limits as may be determined by the Board from time to time. During the discharge of such duties, the Committee shall have full and unrestricted access to • The records, properties and personnel of the Bank; • Cooperation from Management and the discretion to invite any Director and employee to attend its meetings; •The advice and services of the Secretary of the Bank, the Managing Director, the Chief Internal Auditor and external auditors; and •The independent professional advice and expertise necessary to perform its duties at the expense of the Bank provided that written approval from the Board must be obtained prior to the incurring of any such expense on behalf of the Bank. The Committee’s duties and responsibilities are to •Ensure that the accounts are prepared in a timely and accurate manner with frequent reviews of the adequacy of provisions against contingencies and bad and doubtful debts and that the financial statements comply with applicable financial reporting standards. •Ensure fair and transparent reporting of the accounts for submission to the Board and ensure the prompt publication of annual accounts. •Establish an internal audit function which reports directly to the Committee. •Oversee that the internal audit function has an appropriate standing within the Bank and has access to the Committee at all times, evaluate their performance and report to the Board at regular intervals. •Oversee, review and report to the Board the adequacy and effectiveness of the internal audit function, internal controls and risk management and governance processes (including compliance with Shariah). •Ensure that all fraud and non-fraud related irregularities are investigated and the responses and explanations are examined and investigated and to report the findings to the Board. •Review any significant transactions that are not within the normal course of business and where potential conflict of interest may arise between related parties and to report the transactions to the Board. •Recommend to the Board the external experts to be engaged and the fees payable where the internal audit function lacks expertise needed to perform specialised audit and ensure clear establishment of the terms and scope of engagement, working arrangement with the internal auditors and reporting requirements. •Review and determine the deliverables of the Shariah audit function upon consultation with the Shariah Committee. •Oversee the function of the external auditors. •Review internal, external and Shariah audit findings and recommend to the Board the action to be taken by Management. b) Risk Management Committee The Risk Management Committee comprises not less than three (3) Non-Executive Directors of the Board. The Committee held five (5) meetings during the financial year ended 31 December 2018 and the attendance was as follows: Name Attendance at Meetings Abd Rani Lebai Jaafar (Appointment as Chairman effective 27 March 2018) 5/5 Datuk Siti Zauyah Md. Desa 5/5 Wan Zamri Wan Zain (Appointment effective 28 May 2018) 4/4 Datin Dr Nik Sarina Lugman Hashim (Appointment until 31 May 2018) 1/1 Datuk Haji Abdul Rahman Kasim (Appointment until 14 April 2018) 1/1 CORPORATE GOVERNANCE
110 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD CORPORATE GOVERNANCE BOARD OF DIRECTORS AND MAIN COMMITTEES The objectives of the Risk Management Committee are: • To provide an oversight of the identification and management of the Bank’s significant risks; •To ensure that adequate risk management processes and checks and balances are in place for the proper overall management of the Bank; and •To foster the establishment and maintenance of an effective risk awareness culture throughout the Bank and the Bank’s compliance with policies and legal and regulatory requirements. The function of the Risk Management Committee: The Committee shall have the authority to deliberate and approve on matters within its primary duties and responsibilities in line with such limits as may be determined by the Board from time to time. During the discharge of such duties, the Committee shall have access to • The records, properties and personnel of the Bank; •The advice and services of Senior Management personnel of the Risk Management and Compliance sectors and the Chief Risk Officer ("CRO"); and •The independent professional advice and expertise necessary to perform its duties at the expense of the Bank provided that written approval from the Managing Director must be obtained prior to the incurring of any such expense on behalf of the Bank. The Committee’s duties and responsibilities are to •Oversee the effectiveness of the risk management function and ensure compliance with relevant Bank Negara Malaysia’s guidelines on risk management function requirements. •Review the implementation of capital management in line with the Capital Adequacy Framework for Islamic Banks issued by Bank Negara Malaysia and approve scenario for stress test on capital adequacy. •Review the allocation of risk-adjusted capital and broad-based limits across the Bank covering credit, market and operational risks. •Review with Management and advise the Board on whether a sound and effective approach has been followed in establishing the Bank’s business continuity planning arrangements including whether disaster recovery plans have been tested periodically. •Review with Management on any legal matter that could have a significant impact on the Bank’s operations and financial performance. •Review and monitor compliance initiatives and activities on anti-money laundering/counter financing of terrorism ("AML/CFT") and other regulatory requirements. •Provide oversight for compliance with the Bank’s policies, guidelines and procedures as well as all applicable laws, rules and regulations. •Ensure there is a system for monitoring the Bank’s compliance with laws and regulations and obtain reports on an annual basis that the Bank is in conformity with applicable legal requirements. •Ensure that all issues related to Bank Negara Malaysia’s Composite Risk Rating (CRR) are being monitored and resolved accordingly. •Review and recommend to the Board the new products and services and discretionary power or authority limits in relation to any product programme proposal. • Review all business proposals, particularly i) product programme and its performance; ii) target market and risk acceptance criteria of any products and services; and iii) product profitability assessment. •Review and recommend to the Board any new outsourcing proposals and approve the renewal of outsourcing services including the appointment and/or renewal of the outsourcing service providers.
ANNUAL REPORT | 111 BOARD OF DIRECTORS AND MAIN COMMITTEES c) Nomination Committee The Nomination Committee comprises a minimum of five (5) members, of which at least four (4) must be Non-Executive Directors of the Board. The Committee held ten (10) meetings during the financial year ended 31 December 2018 and the attendance was as follows: Name Abd Rani Lebai Jaafar (Appointment effective 7 March 2018) (Appointment as Chairman effective 28 May 2018) Dato’ Sri Jamil Salleh Attendance at Meetings 9/9 10/10 Wan Zamri Wan Zain (Appointment effective 14 November 2017) (Re-appointment effective 28 May 2018) 8/8 Dato’ Sri Alias Haji Ahmad (Appointment effective 7 March 2018) 8/9 Armi Zainudin (Appointment effective 27 March 2018) 8/8 Datuk Siti Zauyah Md Desa (Appointment effective 28 May 2018) 6/6 Datuk Haji Abdul Rahman Kasim (Appointment until 14 April 2018) 3/3 Razalee Amin (Appointment until 18 February 2018) 1/1 Datin Dr Nik Sarina Lugman Hashim (Appointment until 31 May 2018) 3/4 The objectives of the Nomination Committee are: •To establish a formal and transparent procedure for the recommendation of eligible candidates for appointment or reappointment of Directors, Shariah Committee members, Managing Director, Chairman and key Senior Management personnel; •To assess the effectiveness of individual Directors, the Board and Board Committees, Shariah Committee members and Shariah Committee as a whole; and •To evaluate the performance of the Managing Director and key Senior Management personnel. The function of the Nomination Committee: The Committee shall have the authority to deliberate and approve on matters within its primary duties and responsibilities in line with such limits as may be determined by the Board from time to time. During the discharge of such duties, the Committee shall have access to •The records, properties and personnel of the Bank; •The advice and services of the Secretary of the Bank and key Senior Management personnel in the Human Capital/ Resources department; and •The independent professional advice and expertise necessary to perform its duties at the expense of the Bank provided that written approval from the Managing Director must be obtained prior to the incurring of any such expense on behalf of the Bank. CORPORATE GOVERNANCE
112 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD CORPORATE GOVERNANCE BOARD OF DIRECTORS AND MAIN COMMITTEES The Committee’s duties and responsibilities are to •Review the structure, size and composition of the Board. •Establish and recommend to the Board the minimum requirements on the skills, business experience, professional and academic qualifications, expertise and other core competencies of a Director and Shariah Committee member. •To determine the appropriate limit for the total number of directorships that can be held by the nominee in companies / institutions / organisations. • Assess the competency and experience and recommend to the Board the nominees for directorship, Board Committee members, Shariah Committee members and the Managing Director. • Undertake ongoing assessment and annual review of the performance of the Directors, Shariah Committee members, the Managing Director and Chairman. •Recommend to the Board the removal or any other actions to be taken against any Director, Shariah Committee member, the Managing Director or the Chairman from the Board or Board Committees. •At least once a year, review, in consultation with the Chairman, and implement a mechanism for the formal assessment on the effectiveness of the Board as a whole and the Board Committees individually and the contribution of each Director to the effectiveness of the Board and Board Committees and report to the Board as may be necessary. •Assess and recommend to the Board the appointment, job grade, promotion, remuneration package, succession planning and performance evaluation of key Senior Management personnel. •Recommend to the Board the actions to be taken against any key Senior Management personnel if they are ineffective, errant or negligent in discharging their responsibilities. d) Remuneration Committee Members of the Remuneration Committee comprise not less than three (3) Non-Executive Directors of the Board. The Committee held four (4) meetings throughout the financial year ended 31 December 2018 and the attendance was as follows: Name Attendance at Meetings Dato’ Sri Alias Haji Ahmad (Appointment as Chairman effective 21 June 2017) 4/4 Dato’ Sri Jamil Salleh 3/4 Wan Zamri Wan Zain (Appointment effective 27 March 2018) 3/3 Armi Zainudin (Appointment effective 27 March 2018) 3/3 Datuk Haji Abdul Rahman Kasim (Appointment until 14 April 2018) 2/2 The objectives of the Remuneration Committee are: • To establish a formal and transparent procedure for developing a remuneration policy for Directors, Shariah Committee members, the Managing Director and key Senior Management personnel; and •To ensure that the compensation structure is competitive and consistent with the Bank’s culture, objectives and strategy.
ANNUAL REPORT | 113 BOARD OF DIRECTORS AND MAIN COMMITTEES The function of the Remuneration Committee: The Committee shall have the authority to deliberate and approve on matters within its primary duties and responsibilities in line with such limits as may be determined by the Board from time to time. During the discharge of such duties, the Committee shall have access to •The records, properties and personnel of the Bank; •The advice and services of the Secretary of the Bank and key Senior Management personnel in the Human Capital/ Resources department; and •The independent professional advice and expertise necessary to perform its duties at the expense of the Bank provided that written approval from the Managing Director must be obtained prior to the incurring of any such expense on behalf of the Bank. The Committee’s duties and responsibilities are to •Review and recommend to the Board the overall remuneration policy for directors, the Managing Director and key Senior Management personnel; •Review and recommend to the Board specific remuneration package for the Directors, Managing Director and key Senior Management personnel reporting functionally or administratively to the Managing Director and such other personnel as determined by the Board from time to time; • Determine the total individual remuneration package for personnel including appropriate bonuses, incentive payments, etc. based on individual performance; •Make recommendations to the Board in relation to any review of employee remuneration and benefit structures including bonuses and performance related pay schemes to ensure alignment throughout the Bank; •Review and recommend to the Board the remuneration of Shariah Committee members. Board Financing Committee e) The Board Financing Committee comprises not less than three (3) Non-Executive Directors of the Board. The Committee held nine (9) meetings during the financial year ended 31 December 2018 and the attendance was as follows: Name Attendance at Meetings Wan Zamri Wan Zain (Appointment effective 27 March 2018) (Appointment as Chairman effective 28 May 2018) 8/8 Datuk Siti Zauyah Md. Desa 7/9 Abd Rani Lebai Jaafar (Appointment effective 27 March 2018) 8/8 Datin Dr Nik Sarina Lugman Hashim (Appointment until 31 May 2018) 3/3 Razalee Amin (Appointment until 18 February 2018) 1/1 The objective of the Board Financing Committee: The objective of the Committee is to assist the Board in fulfilling their responsibilities by ensuring the proper oversight of the credit risk management of the Bank. CORPORATE GOVERNANCE
114 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BOARD OF DIRECTORS AND MAIN COMMITTEES CORPORATE GOVERNANCE The function of the Board Financing Committee: The Board Financing Committee shall have the authority to deliberate on matters within its primary duties and responsibilities in line with such limits as may be determined by the Board from time to time. During the discharge of such duties, the Committee shall have access to: •The records, properties and personnel of the Bank; •The advice and services of the Secretary of the Bank and key Senior Management personnel in the Business Banking department; and •The independent professional advice and expertise necessary to perform its duties at the expense of the Bank provided that written approval from the Managing Director must be obtained prior to the incurring of any such expense on behalf of the Bank. The Committee’s duties and responsibilities are to:- •Affirm or veto the Financing Committee A’s approval on annual reviews with the unchanged terms and conditions. •Affirm or veto the Financing Committee A’s approval on new / additional financing and / or variation on terms and conditions of existing financing. •Recommend for the Board’s decision on all financing exceeding Financing Committee A’s discretionary power. •Affirm or veto all restructuring and rescheduling financing proposal and recommend for the Board’s decision. •Oversee the performance of rescheduled and restructured accounts to minimise credit loss and maximise the recovery of such accounts. • Affirm or veto the Financing Committee A’s approval on all cases of charge-off and write-off of financings. •Oversee the management of impaired financing as well as monitor the recovery of impaired financing to oversight the financing recovery functions to maximise collections. f) Board Investment Committee The Board Investment Committee shall comprise not less than three (3) Non-Executive Directors of the Board. The Committee held four (4) meetings during the financial year ended 31 December 2018 and the attendance was as follows: Name Attendance at Meetings Abd Rani Lebai Jaafar (Appointment effective 27 March 2018) 3/3 Datuk Siti Zauyah Md Desa 4/4 Dato’ Sri Jamil Salleh (Appointment effective 27 March 2018) 3/3 Wan Zamri Wan Zain (Appointment effective 27 March 2018) 3/3 Datuk Haji Abdul Rahman Kasim (Appointment until 14 April 2018) 1/1 Razalee Amin (Appointment until 18 February 2018) 1/1 Datin Dr Nik Sarina Lugman Hashim (Appointment until 31 May 2018) 1/1 The objective of the Board Investment Committee: The objective of the Board Investment Committee is to play a role in drafting the policies and directions relating to investment to ensure the Bank’s investments are secure and provide satisfactory returns.
ANNUAL REPORT | 115 BOARD OF DIRECTORS AND MAIN COMMITTEES The function of the Board Investment Committee: The Committee shall have the authority to deliberate and approve on matters within its primary duties and responsibilities in line with such limits as may be determined by the Board from time to time. During the discharge of such duties, the Committee shall have access to •The investments in equities, fixed income, real estate and other investments deemed necessary. •The the determination and approvals of the investment policies and procedures based on the Bank's business objectives generally. •The approvals of any new investment related activities other than real estate investment. •The affirmation of real estate investment. The Committee’s duties and responsibilities are to •Determine and approve policies and procedures for investment, assets allocation, the direction of investment, risk control and other relevant investment. •Consider and approve any proposal relating to new investment activities other than real estate investment. •Consider and recommend investment in real estate before being forwarded to the Board for approval. •Inform the investment decision that has been made to the Board. •Appoint the members of the Investment Committee at the Management level. Tender Board g) The Tender Board shall comprise not less than three (3) Non-Executive Directors of the Board. The Tender Board held three (3) meetings during the financial year ended 31 December 2018 and the attendance was as follows: Name Attendance at Meetings Wan Zamri Wan Zain (Appointment as Chairman effective 27 March 2018) 3/3 Datuk Siti Zauyah Md Desa 3/3 Dato’ Sri Jamil Salleh 3/3 Dato’ Sri Alias Haji Ahmad (Appointment effective 27 March 2018) 3/3 Armi Zainudin (Appointment effective 27 March 2018) 3/3 The objectives of the Tender Board: Among the objectives of the Tender Board is to deliberate on and approve tenders submitted for acquisitions valued at more than RM3 million that involves capital expenditure and expenditure for renovation. The function of the Tender Board: The Committee shall have the authority to deliberate and approve on matters within its primary duties and responsibilities in line with such limits as may be determined by the Board from time to time. During the discharge of such duties, the Committee shall approve procurement tenders worth more than RM3 million (capital expenditure and renovation). The Committee’s duties and responsibilities are to • Consider and approve procurement tenders worth more than RM3 million (capital expenditure and renovation). •Proper and clear record of all basis and selection factors and the decision to be communicated to the Board of Directors. CORPORATE GOVERNANCE
116 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BOARD OF DIRECTORS AND MAIN COMMITTEES CORPORATE GOVERNANCE ANNUAL GENERAL MEETINGS The Annual General Meetings ("AGM") represents the primary platform for a dialogue between the shareholders, the Board and Senior Management. At the AGM, a comprehensive and concise review of the Bank’s financial performance and value created for shareholders is presented. ACCOUNTABILITY AND AUDIT 1. Financial Report The Board of Directors is committed to provide a balanced, comprehensive and easily-understood assessment of the Bank’s financial status and prospects in all disclosures made to shareholders and the authorities. The Bank uses the appropriate accounting policies and standards consistently and supported by reasonable considerations and estimates. All the relevant accounting standards are complied with, particularly in the reporting of the Annual Financial Statements to ensure the integrity of the Bank remains intact. The Board is assisted by the Audit Committee to oversee the financial reporting process and the reliability of the financial reporting. 2. Internal Controls The Board of Directors has the overall responsibility to ensure that, on the whole, all existing internal controls provide reasonable operational effectiveness, efficiency and compliance with laws, regulations, policies and internal procedures. The size and the diversity of the Bank’s operations necessitate mitigation management of various risks. The diversity of risks could entail the Bank experiencing unexpected and unavoidable losses. Internal Audit conducts reviews on compliance with policies and procedures and the effectiveness of the structure of the Bank’s internal control as a whole.
ANNUAL REPORT | 117 1. COMPOSITION AND TERMS OF REFERENCE 1.1Composition a.The Audit & Examination Committee (“Committee”) is established by the Board of Directors from amongst its Directors and consisted of not less than three members, all of whom are Non-Executive Directors. b.At least one member of the Committee should have accounting expertise or experience in the field of finance. 1.2. Frequency and Proceeding of Meetings a.Meetings shall be held at least once in three months. b.The Chairman may also convene a meeting upon request of any members of the Committee, the Management, or internal or external auditors to consider any matters that should be brought to the attention of the Board of Directors or members of the Bank. c.The Committee will regulate its own procedure pertaining to the calling of meetings, the notice to be given of such meetings, the voting and proceedings of such meetings, the keeping of minutes, and the custody, production and inspection of such minutes. d.The Committee may invite any Directors who are not a member of the Committee and/or any employees of the Bank to attend any of its meetings. e.The Chairman of the Committee shall report all matters that require the attention of the Board of Directors or members of the Bank. 1.3.Quorum A quorum shall consist of three (3) members. 1.4.Secretary The Secretary of the Committee shall be the Chief Internal Auditor. 1.5.Rights The Committee shall, wherever necessary and reasonable for the performance of its duties, have the following rights at the cost of Bank Rakyat: • Authority to investigate any matters within its terms of reference; • The resources which are required to perform its duties; • Full access to any information pertaining to the Bank; • Direct communication channels with the external and internal auditors; • Ability to obtain independent professional or other advice; and • Ability to convene meetings with the external auditors. CORPORATE GOVERNANCE Audit and Examination Committee REPORT
118 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Audit and Examination Committee REPORT CORPORATE GOVERNANCE 1.6. Duties & Responsibilities The primary responsibilities of the Committee are as follows: •To review the adequacy and effectiveness of the system of internal controls, risk management and governance processes (which includes compliance with Shariah) of Bank Rakyat, its subsidiaries and Yayasan Bank Rakyat including the scope of internal audit, internal audit programme, internal audit findings, and recommend action to be taken by the Management. •To review the adequacy of the functions and resources of the Internal Audit Sector and ensuring that it has the necessary authority to carry out its work. •To appoint, determine the appropriate remuneration package, evaluate performance and decide on the transfer and dismissal of the Chief Internal Auditor. • •To select / recommend external auditor for the appointment / re-appointment / removal by the Board of Directors; •To review the quarterly results and year-end financial statements focusing particularly on the reliability of the information disclosed therein, changes in accounting policy, significant matters highlighted, including financial reporting issues, significant judgements made by Management, significant and unusual events or transactions and how these matters are addressed, compliance with accounting standards and other legal requirements. •To ensure fair and transparent reporting of the financial accounts for submission to the Board of Directors and ensure the prompt publication of annual accounts. •To review any related party transactions that may arise between the Bank and its subsidiaries. • •To review the assessment and audit findings on the effectiveness of the internal control system and the Bank’s compliance with Shariah. •Oversee the functions of the Internal Audit Sector and ensuring compliance with Bank Negara Malaysia’s (“BNM”) Guidelines on Internal Audit Function of Licensed Institutions [BNM/RH/GL 013-4]. To review and consider the internal investigations’ findings and the Management’s responses. •To review the external auditor’s scope of audit plan, the system of internal accounting controls, the audit controls, the audit reports (including the Management Letter and Management's responses), the assistance given by the Management and any findings or actions to be taken. To review the deliverables of Shariah Audit upon consultation with the Shariah Committee.
ANNUAL REPORT | 119 Audit and Examination Committee REPORT 2. ATTENDANCE AT MEETINGS Attendance at Committee Meetings Percentage of Attendance Y. Brs. En. Razalee Amin Member (resigned with effective from 19 February 2018) 1/1 100% Y. Bhg. Datuk Hj. Abdul Rahman Kasim Member (ceased with effective from 14 April 2018) 3/3 100% Y. Bhg. Datin Dr. Nik Sarina Lugman Hashim Member (ceased with effective from 31 May 2018) 4/4 100% Y. Brs. En. Wan Zamri Wan Zain Interim Chairman (appointed with effective from 9 October 2017) 10/10 100% Y. Brs. Tuan Haji Abd Rani Lebai Jaafar Member (appointed with effective from 27 March 2018) 7/7 100% Y. Brs. Puan Hajah Armi Haji Zainuddin Member (appointed with effective from 28 May 2018) 6/6 100% Name of Committee Members 3. SUMMARY OF ACTIVITIES During the year under review, the Committee in the discharge of its duties and functions, had carried out the following activities: 3.1. Financial Reporting Reviewed the quarterly unaudited financial results and the annual audited financial statements of the Bank and Bank Rakyat Group to ensure that the financial reporting and disclosure requirements are in compliance with the accounting standards and regulatory requirements. 3.2. Internal Audit a.Reviewed and approved the annual audit plan to ensure the comprehensiveness of audit scope and coverage over the activities of Bank Rakyat, its subsidiaries and Yayasan Bank Rakyat as well as the adequacy of Internal Audit Sector’s resources to carry out its functions. b. Reviewed the Internal Audit reports, audit recommendations and Management’s responses to these recommendations. c.Reviewed the status report on actions implemented by Management to rectify the outstanding audit issues to ensure control lapses were addressed. d.Reviewed the monthly Internal Audit Achievements and Performance Reports to ensure the progress, achievement, performance, and coverage of the Internal Audit functions are in line with the annual audit plan. e. Reviewed the audit reports issued by regulatory authorities, Management’s responses to the Regulators’ recommendations and the remedial actions taken to rectify the weaknesses highlighted. CORPORATE GOVERNANCE Ten (10) Committee meetings were held during 2018. The details of attendance of each member at the Committee meetings are as follows:
120 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD CORPORATE GOVERNANCE Audit and Examination Committee REPORT f.Reviewed the audit reports on subsidiaries and Yayasan Bank Rakyat for an overview of the risk management and internal control systems of those entities. g.Evaluated the performance of the Chief Internal Auditor. h.Instructed the conduct of investigations on matters within its terms of reference. i.Reviewed and noted the Committee’s minutes of meetings to obtain overviews of the deliberations and remedial actions taken by Management on the control lapses raised by Internal Audit Sector. 3.3. External Audit a. Reviewed with the external auditors: • The Audit Planning Memorandum and scope of work for the year; and •The results of audit, the relevant audit reports, Management Letter and Memorandum of Recommendations together with Management’s responses / comments to the findings. b.Ensured that there are proper checks and balances in place so that the provision of non-audit services does not interfere with the exercise of independent judgement of the auditors. c.Assessed the performance of the external auditors and made recommendations to the Board of Directors on their reappointment. 3.4.Related Party Transactions Reviewed the related party transactions entered into by Bank Rakyat and its subsidiaries. 4.TRAINING The training attended by members of the Committee is reported under the Statement on Corporate Governance. 5. INTERNAL AUDIT FUNCTION The Committee is supported by Internal Audit Sector in the discharge of its duties and responsibilities. Internal Audit Sector provides independent and objective assessment on the adequacy and effectiveness of the risk management, internal controls and governance processes. Internal Audit Sector also carries out investigative audits where there are improper, illegal and dishonest acts reported. Internal Audit Sector reviews the effectiveness of internal control structures over the activities of Bank Rakyat, its subsidiaries and Yayasan Bank Rakyat focusing on high risk areas as determined using a risk-based approach. All high risk activities in each auditable area are audited annually. Internal Audit Sector covers the review of the adequacy of risk management, operational controls, compliance with established procedures, guidelines and statutory requirements, quality of assets, management efficiency and level of customer services, amongst others. These audits are to ensure that the established controls are appropriate, effectively applied and achieved acceptable risk exposures consistent with the Bank’s risk management policy. In performing such reviews, Internal Audit Sector made recommendations to improve and enhance the existing system of internal controls and work processes. Internal Audit Sector also conducts audits on the information system of Bank Rakyat to ensure that the computing resources are adequately secured to protect data integrity and confidentiality as well as the availability of adequate controls to safeguard the system’s continuity in supporting the business operational needs.
ANNUAL REPORT | 121 Audit and Examination Committee REPORT All auditing activities are conducted in line with Bank Rakyat’s objectives and policies and in compliance with the relevant policies and guidelines issued by BNM and as guided by the Code of Ethics and International Standards for the Professional Practice of Internal Auditing ("Standards") promulgated by the Institute of Internal Auditors ("IIA") During 2018, the activities undertaken by Internal Audit Sector were as follows: •Developed an annual audit plan using a risk-based approach, taking into consideration the Bank’s 5-Year Strategic Plan (2018-2022) and inputs from the Management (as recommended by the Institute of Internal Auditors); •Provided independent assessment and objective assurance over the adequacy and effectiveness of risk management, internal control and governance processes through structured reviews of departments and operations identified in the annual audit plan; •Conducted periodical assessments to ensure that a sound and effective internal control system for Shariah compliance has been implemented; •Performed independent assessments and provided objective assurances to add value and improve the Bank’s compliance with Shariah; •Monitored and provided assurance on the soundness and robustness of the Bank’s Shariah governance framework; •Assisted the Shariah Committee in discharging its oversight role on Shariah matters related to the Bank’s business operations and activities through Shariah Audit’s participations at Shariah Committee Meetings which enabled the Shariah Committee to identify issues that require its attention and where appropriate, to propose corrective measures; •Performed audits on the Bank’s information systems to ensure the adequacy of the systems’ security, controls and compliance with the relevant acts or regulatory requirements; • •Reviewed risk exposures of new systems, business products and services to ensure that there are controls in place to mitigate the risks identified prior to implementation; • •Participated in various Business Continuity Management exercises to ensure the Bank’s readiness in resuming/recovering its operational activities and systems in the event of disaster within the expected timelines; • •Conducted investigations on activities or matters as instructed by the Committee and Management; •Engaged an external consultant, Deloitte Risk Advisory Sdn Bhd to conduct a Quality Assurance Review (“QAR”) to assess its effectiveness; •Prepared the Audit & Examination Committee Report for Bank Rakyat’s Annual Report for Financial Year Ended 31 December 2017; and •Conducted Internal Control Awareness Programmes ("ICAP") for branch staff. The total costs incurred for the Internal Audit Sector of Bank Rakyat for 2018 is RM8,032,225.16 million. Applied a holistic approach in extending audit coverage by using data analytics tools; Conducted ad-hoc assignments and special reviews as instructed by the Committee, Management or BNM; Ascertained the level of compliance with established policies and procedures and statutory requirements; •Recommended improvements and enhancements to the existing system of internal controls, work procedures/processes, Operational Guidelines ("GPOs") and Department Manuals; CORPORATE GOVERNANCE Internal Audit Sector provides consulting or advisory functions in the evaluation of risk exposures of new systems, business products and services to assess the controls that should be in place to mitigate the risks identified prior to their implementation. In order to maintain its objectivity and independence, Internal Audit Sector is not involved in the system selection or implementation process when providing such consulting or advisory functions.
122 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD CORPORATE GOVERNANCE Risk Management Committee REPORT Amidst the sea of changes in macro and micro economic conditions, geopolitical environment and regulations in 2018, Risk Management has remained steadfast in supporting and upholding the Bank’s transformation agenda. Working hand in glove with the business, operations and other control functions in the Bank, Risk Management has been integral to strategic business development and growth initiatives, as well as in the Bank’s pursuit of operational excellence through business process and technology transformation. Rooted to our role as the second line of defense throughout our involvement, the Risk Management Committee has ensured the risk policies and parameters remained accommodative for business growth without transgressing the confines of the risk appetite set by the Board. Enhanced Roles and Responsibilities The Bank’s risk governance framework is developed in accordance with the requirements by BNM Guidelines on Corporate Governance and Risk Governance. Additionally, the Bank’s risk governance will comply with other BNM guidelines which stipulated the expectation on governance related to the role of Board and Senior Management as well as risk management function. Through its quarterly meetings, the Board Risk Committee had detailed deliberation of the enterprise risk and compliance profiles and heatmaps, key risk indicators and dashboards, scenario analyses, stress testing and thematic review reports. The Board Risk Committee also played a pivotal role in the oversight of the risks in the introduction of new products and services, as well as during risk and compliance policy development, review and refinement. In 2018, the role of the Board Risk Committee was expanded beyond the oversight of risk and compliance to include the oversight on new financial technology implementation. In this new role, the Board Risk Committee is entrusted with the responsibility to ensure risk management and security controls are in place to mitigate risks prior to implementing the e-banking services or any material enhancement to the e-banking services. Quality of risk and compliance oversight function has been further enhanced via common membership between the Board Risk Committee and the Audit and Examination Committee. From a governance perspective, Risk Management has been instrumental in the continuous enhancement of the approving authority matrixes and limits on credit underwriting for various retail and business financing products, capital expenditure and operating expenditure. Together with Compliance and Internal Audit, Risk Management performed independent quality assurance role in strategic business plan implementation, Malaysian Financial Reporting Standard ("MFRS") 9 implementation and information technology projects through representation in project working committees and project steering committees. In view of the project risks and criticality of the core banking system replacement project, the Bank had gone further by establishing a dedicated committee comprising Risk Management, Compliance, Internal Audit and Shariah Advisory to oversee risk and internal control requirements on changes to standard operating procedures and workflows arising from the implementation of the new core banking system. Ongoing Professional Development and Capacity Building In line with the industry-wide commitment to professionalism of the bank’s workforce characterised by high standards of professional conduct, knowledge and competence, we have enrolled Risk Management staff to undertake professional accreditation on Bank Risk Management organised by Asian Institute of Chartered Bankers ("AICB"). It is the Bank’s commitment to continuously invest in professionalisation or certification of standards for Risk Management. Besides the commitment with AICB, we also continuously invest in professional development of our staff with training and development programs for specific areas necessary to increase the skills and capabilities. This is to ensure Risk Management function and capabilities evolve and align with the rapid changes and expectation in business environment and regulatory requirements as well as to effectively managing the risk-taking activities of the Bank. As part of the initiatives to inculcate risk awareness and maintain a strong risk culture, Risk Management has conducted training sessions known as Best Practice and Lessons Learnt for all credit personnel at branches in efforts to ensure branches adopt the best practices in the extension of retail financing to customers. The sessions had also shared the common and recurring credit issues in retail financing at branches, especially on the origination of retail financings. The session is part of our strategic initiatives of capacity building to enhance the skill set of the origination team.
ANNUAL REPORT | 123 Risk Management Committee REPORT In support of the Bank’s business expansion towards becoming a competitive financial institution in the industry, Risk Management has remained to be a strategic partner to its stakeholders through active participation in the core pillars of the Bank’s transformation agenda. This is performed by ensuring that the regulatory requirements relating to credit practices and risk management are not compromised while realising the Bank’s business strategies. Additionally, Risk Management has maintained its advisory role with its capability in providing consultation on matters relating to credit governance, policies and processes. Anticipating the realisation of business growth as well as the expectation of evolving regulatory requirements, the Bank has strengthened its credit risk function and resources by empowering its competent personnel with a discretionary power to decide on Business Banking financing within parameters and threshold limits approved by the Board. This is also to be in line with the Bank’s direction to focus on growing its financing to Small and Medium Enterprise ("SME") businesses and to improve the Turn-Around-Time ("TAT") of financing processes. Recognising the importance of proactive risk management, a dedicated function in Risk Management was established to perform post approval credit review ("PACR") to provide independent assessment on the quality of credit appraisal, effectiveness of the credit process and quality of financing. The observations from the PACR would be shared with the relevant stakeholders on a periodic basis with the objective to instil and enforce strong credit underwriting culture within the Bank. The Bank has also enhanced its risk modelling function to withstand the challenges in fulfilling the expectation of robust credit risk measurement methodologies in estimating credit losses. Risk Management play a prominent role in the implementation of MFRS9 as a function duly entrusted in the generation of Probability of Default ("PD") for each business portfolio segmentation of the Bank. A comprehensive Forward Looking ("FL") Multivariate Economic Variable ("MEV") was also conducted where the necessary correlation and regression were performed to gauge the significance of MEV in estimating credit risk impairment. In addition, the function was also strengthened in preparation of complying to regulatory expectations as mooted by BNM in its Credit Risk policy document. Robust and granular portfolio monitoring continued to take place to ensure constant monitoring of the performance of the respective financing portfolio as well as overall portfolio. This was merely conducted by detecting early warning signals as preventive measures to avoid deterioration in asset quality. These early warning signals not only helped in dealing with the existing portfolio but also prevent future financing to become delinquent based on historical signals detected. Identification of changes in the risk profiles and significant credit exposures were escalated appropriately to support oversight and decision making by the Management and/or Board. In ensuring the Bank’s credit underwriting standard and credit processes remain relevant in the industry, credit policies were reviewed and enhanced reflecting the Bank’s tolerance level of risks. These policies were diligently observed as indicated through the overall asset quality that was deemed sustainable. Significant enhancement of Impairment Policy was being made incorporating the staging of financing accounts as outlined in MFRS9 requirements. The Policy delineated trigger events for credit exposures which included Business Banking financing, Retail Banking financing and Islamic Debt Securities ("IDS"). Additionally, the application of trigger events of each financing portfolio and managing of accounts by stages were also administered by the Policy. Governing the work processes of risk modelling and ensuring the necessary standards are being adhered to, Model Validation Framework & Policy was developed. The Framework is developed to ensure that the Bank has effective and robust model validation programmes while the Policy provides principle standards and requirements that depict the required actions to ensure that risk assessment and measurement models are able to generate accurate, consistent and unbiased predictive estimates. As the Bank is receptive with the external causes such as regulatory requirements and market changes, Risk Management will continue to embrace challenges alongside sustaining the soundness of assets and profitability through risk parameters setting with consideration of the Bank’s aspiration to offer various range of banking facilities. Pro-active Management for Strategic Growth In achieving its financial objectives, the Bank charts its strategic business plan within the boundaries of its risk appetite, assuming an appropriate balance between the level of risk and the level of return desired to sustain maximum returns to shareholders. It entails a proactive management of the Bank’s balance sheet as well as prudent management of the Bank’s resources to support the growth of the Bank’s economic value and maintaining a sound capital base. In doing so, it engages the Bank in the process of identifying, measuring, monitoring and managing capital against structural risks inherent in all activities of the Bank. CORPORATE GOVERNANCE Strategic Business Partner
124 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Risk Management Committee REPORT CORPORATE GOVERNANCE While addressing the appropriate mix of its assets and liabilities, the Bank has to maintain the optimal liquidity position as every financial transaction or a commitment has an implication directly or indirectly to the Bank’s liquidity. This requires the Bank to be particularly attentive to the liquidity risk strategy and management approach and continuously enhance its efforts to effectively manage liquidity risk. Liquidity risk positions are monitored regularly against the established liquidity risk management framework, policies and procedures. The Bank uses a range of tools to monitor and control liquidity risk exposure such as intra-day cash flow position, liquidity mismatch gap, concentration of deposits, availability of funding and stress testing. The process of managing liquidity risk includes maintaining sufficient amount of unencumbered high-quality liquid assets as a protection against any unforeseen interruption to the Bank’s cash flows. In this regard, the Bank ensures its compliance with liquidity regulatory requirements and is pro-actively strategising its readiness to observe Basel III liquidity ratios; i.e. Liquidity Coverage Ratio ("LCR") and Net Stable Funding Ratio ("NSFR"). The Bank has in place a Liquidity Contingency Funding Plan (“LCFP”) formulated to provide a systematic approach in addressing potential liquidity crisis or funding disruption affecting its liquidity soundness and financial solvency. The LCFP comprises strategies, decision-making authorities, communication channels and processes as well as courses of action for management to make prompt decisions. The plan is reviewed and tested regularly to ensure its effectiveness and robustness in handling liquidity crisis events, to meet its obligations in a timely manner and at a reasonable cost. Changes in the macro and micro-economic and geopolitical landscape expose the Bank to adverse market conditions, unfavorable prices and volatility, which could affect the Bank’s revenues and profits as well as timely achievement of the Bank’s strategic objective. The Bank’s market risk management ensure that the control and minimizing such impact with an established framework, policy and procedures. In addition, with the new system and enhanced technology in place, it will enable the Bank to monitor and manage the exposure in a timely and efficient manner. Preserving the Operational Excellence The Bank remained vigilant on the risk exposure to emerging cyber threats, emanating from the myriad ‘Macau scams’, ransomwares and threats of data theft that had been afflicting the industry at large. In addition to the bank-wide Risk and Control Self-Assessment (RCSA) exercise, and monitoring and analysis of key risk indicators and loss event data, the Bank had conducted scenario and faulttree analyses to obtain in-depth understanding of our cyber security and resiliency posture, identify areas of potential vulnerabilities and the quantified impact as well as institute the appropriate mitigation plan. Amongst others, the Bank has strengthened our cyber security controls and monitoring, fraud detection and management capabilities, incident management and coordination as well as customer awareness programmes. Recognising that prompt incident management and handling is paramount in averting crisis, Risk Management spearheads the Bank’s incident management team to ensure effective coordination and prompt actions by all elements involved, not limited to business and operational functions, information technology, legal, public relations and customer service. Notwithstanding, business continuity management strategies and plans, which are also under Risk Management’s purview, were continuously being reviewed and tested in preparation for any eventualities. Moving Forward for 2019 In the current fast-paced business environment, technology has become more prominent to the industry particularly to financial institutions. While banks have greatly benefited from the technology especially in information security, they have also been attracted by more threats and vulnerabilities. Cyber threats are one of the exposures emanating from technology advancement. Given the exposure on technology risks, the Bank will continue to strengthen the internal controls to ensure compliance as well as managing the regulators' expectations. As the Bank values customers’ information, the Bank will be focusing further on the effort to establish a role that is responsible for technology risk management and provide oversight on cyber risks. Given the importance of modelling technique in the current business environment and technology, the framework and methodologies of modelling landscape will continuously enhance. The Bank will embark on comprehensive capacity building for modelling technique that includes but is not limited to credit risk model, market risk model and capital stress test model. The scopes range from technical modelling techniques to the understanding on the usage and implication of the model.
ANNUAL REPORT | 125 Shariah Committee Terms of Reference Establishment of Shariah Committee (“SC”) of Bank Rakyat is a requirement by Bank Negara Malaysia (“BNM”). The purpose is to ensure all activities, products, transactions, operations and zakat management of Bank Rakyat and all of its subsidiaries are Shariah compliant at all times as a full-fledged Islamic financial institution incorporated in Malaysia. 2.0 FORMATION OF SHARIAH COMMITTEE 2.1 The SC shall report directly to the Board of Directors (“BOD”) and shall be recognised as an independent committee. 2.2The appointment of the SC members must obtain prior written approval from BNM and BOD upon recommendation by the Nomination Committee. 2.3SC member must fulfill the ‘fit and proper’ criteria to become an SC as described in Shariah Governance Framework for Islamic Financial Institutions of BNM (“BNM/SGF”). 2.4The SC shall comprise at least five (5) members as required by BNM/SGF. 2.5Majority members in the SC shall have qualified Shariah background with at least a Bachelor’s degree in Shariah, which includes study in usul fiqh (origin of Islamic law) or fiqh muamalat (Islamic transaction/commercial law) from a recognised university. 2.6 Chairman of the SC shall have qualified Shariah background. 2.7The SC may comprise experts with diverse qualification, experience and knowledge to support the depth and breadth of the Shariah deliberations. 2.8Majority members of SC should be able to demonstrate strong proficiency and knowledge in written and verbal Arabic and have good understanding in Bahasa Malaysia and English. 2.9The SC member is not considered an SC member and disallowed to perform the roles of SC upon expiry of the appointment term until fresh approval is obtained from BNM. 3.0 ROLES AND RESPONSIBILITIES 3.1 Responsible and accountable for all Shariah decisions, views and opinions issued on Shariah matters provided by the SC. 3.2Advice, provide input and necessary assistance on Shariah matters to BOD, Bank Rakyat’s stakeholders and parties associated with Bank Rakyat’s business operations and activities including the activities of its subsidiaries and cooperatives regulated by Suruhanjaya Koperasi Malaysia (“SKM”) which consult or refer to Bank Rakyat on a case to case basis to ensure compliance with Shariah requirements at all times. 3.3To adopt the resolutions of Shariah Advisory Council of Bank Negara Malaysia (“SAC/BNM”) and Shariah Advisory Council of Securities Commission (“SAC/SECCOM”) upon publication in deriving Shariah decisions and to highlight to Management and BOD in the event SC invokes its right to adopt stringent decisions as permissible by BNM/SGF. 3.4Perform oversight role on Shariah matters related the Bank Rakyat’s business operations and activities including its subsidiaries and guide Bank Rakyat and its subsidiaries on the implementation of Shariah decisions issued. 3.5Assess and validate works which include Shariah research, takyif fiqhi (application of Shariah ruling), report and findings carried out by all Shariah functions inclusive of Shariah Research and Advisory, Shariah Review, Shariah Risk and Shariah Audit in order to ensure Shariah compliance. CORPORATE GOVERNANCE 1.0 OBJECTIVE OF SHARIAH COMMITTEE
126 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD CORPORATE GOVERNANCE Shariah Committee Terms of Reference 3.6Approve and provide written confirmation (or in a form of certificate being signed off by all SC members) on Shariah compliance of Bank Rakyat’s product proposal based on proper support of takyif fiqhi and confirmation whereby no contradiction against SAC/BNM ruling is identified in the product proposal for the purpose of new product approval submission to BNM. 3.7Endorse all framework, policies, procedures and any other applicable documents relating to Shariah and ensure the contents do not contain any elements which are not in line with Shariah. 3.8Endorse and validate all relevant documentations relating to products, business and operations including but not limited to legal documents, product policies and procedures, product manual and marketing collaterals to ensure compliance with Shariah requirements with exception to certain specific tasks empowered to specific internal Shariah functions by recorded decision of the SC by consensus. 3.9 Advice and assist Bank Rakyat to consult SAC/BNM and/or SAC/SECCOM when necessary in a written form. 3.10Advice Bank Rakyat on the calculation, allocation and distribution of zakat and validate the list of zakat recipients post-decision of Jawatankuasa Zakat Perniagaan Bank di bawah Asnaf (“JZPBA”). 3.11Abstain from making a decision which is not in line with the ruling of SAC/BNM which may violate the Central Bank of Malaysia Act 2009. 3.12Must not act in a manner that would undermine the rulings and decisions made by SAC/BNM and the SC and required to respect and observe the published Shariah rulings issued by SAC/BNM and shall not go against the decisions of the SC that they represent in public. 3.13Retreat of Shariah decision issued by SC in the event of issuance of new and/or revised Shariah resolutions and decisions made by SAC/BNM and SAC/SECCOM. 3.14Harmonise the conflict between Shariah and legal approaches to gradually lead Bank Rakyat's practices towards the best globally accepted Shariah practices. 3.15Validate and endorse all matters related to Shariah non-compliant event, rectification measures and purification process including the list of beneficiaries of tainted income for further reporting to BOD. 3.16Inform BNM on Shariah non-compliant activities in the event they are not effectively or adequately addressed or no rectification measures are made by Bank Rakyat. 3.17 Regularly inform the BOD on relevant Shariah matters. 3.18Disclose sufficient information relating to Shariah as required by BNM in the annual SC report which is embedded in Bank Rakyat’s annual report and endorse the annual report prior to publication. 3.19Act as Shariah spokesperson to respond on Shariah related inquiries during Bank Rakyat annual general meeting or any public events which involve Bank Rakyat. 3.20Observe the principle of confidentiality in relation to Bank Rakyat’s business, operations and affairs at all times whereby all information obtained shall not be used in the manner that could be detrimental to Bank Rakyat. 3.21Other responsibilities being assigned by BOD from time to time or any Shariah matters that require SC’s immediate attention.
ANNUAL REPORT | 127 Shariah Committee Terms of Reference 4.1 The SC meeting shall be held at least once in every two (2) months. 4.2 Minimum quorum of SC meeting shall be 2/3 with majority attending are Shariah qualified members. 4.3In the event Chairman of SC is unable to attend the SC meeting, the members shall elect one (1) member among themselves to become the alternate Chairman with qualified Shariah background to preside over the meeting. 4.4Any decisions during the SC meeting shall be made on the basis of 2/3 of the members present where majority of the 2/3 votes shall come from Shariah qualified members. 4.5Any dissenting view by members of SC shall be properly recorded with justification and he/she reserves the right to abstain from voting in decision making. 4.6The SC members must attend at least 75% of the SC meetings held in each financial year, except with reasonable excuse, at official venue in Bank Rakyat’s headquarters or other venue determined by Shariah Secretariat to SC in or outside Malaysia. 4.7SC meeting can be facilitated by means of video or telephone conference as an alternative. 4.8Managing Director, Chief Risk Officer and Chief Internal Audit and other members of Management may be invited on per meeting invitation basis to provide explanation to SC on matters arising and/or papers presented. 4.9Formal decision of SC shall be escalated to Management and BOD on a quarterly basis and escalation to business and support unit shall be done on post-meeting basis upon review by the Secretary to SC and validation by the Chairman of SC. 4.10The number of SC meetings held in the particular year, as well as the attendance of every SC members, shall be disclosed in the annual report. 5.0 ANNUAL SHARIAH COMMITTEE REPORT 5.1SC is required to report all approved and launched products for the year, disclose sufficient information relating to Shariah as required by BNM in the annual SC report which is embedded in Bank Rakyat’s annual report, confirm the management of zakat is compliant to Shariah and endorse the annual report prior to publication. 5.2The report must also address all information required by BNM under the ‘Guidelines on Financial Reporting for Development Financial Institutions‘. 5.3The report shall be signed by all SC members. 6.0 REPRESENTATION IN BOARD OF DIRECTORS MEETING 6.1Representative of SC attends the BOD meeting to serve as a bridge or communicator between SC and BOD in matters pertaining to Shariah. 6.2One (1) of the SC members may be appointed as permanent representative while another one (1) as an alternate representative in the event the permanent representative is unavailable to attend the meeting. 6.3The SC representative shall provide advice on Shariah related matters only without intervening into matters other than the coverage of roles and responsibilities of the SC. 6.4Seating fee paid to the SC representative who attends the meeting is subjected to BOD’s approval and/or review from time to time upon recommendation by the Remuneration Committee. CORPORATE GOVERNANCE 4.0 SHARIAH COMMITTEE MEETING
128 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD CORPORATE GOVERNANCE Shariah Committee Terms of Reference 7.0 ADVISOR TO JAWATANKUASA ZAKAT PERNIAGAAN BANK DI BAWAH ASNAF 7.1Two (2) of the SC members are appointed as an advisor to JZPBA to ensure the management of zakat is compliant to Shariah. 7.2 7.3The SC representative or zakat advisor shall provide advice on zakat matters which cover the zakat calculation, allocation, distribution, issue of had kifayah (sufficient amount) and asnaf qualification related matters to be in line with Shariah principles and requirements. 7.4Seating fee paid to the SC representative who serves as the advisor to JZPBA is subjected to BOD’s approval and/or review from time to time upon recommendation by the Remuneration Committee. JZPBA meeting can only be conducted with the presence of at least one (1) of the appointed advisors. 8.0 REMUNERATION OF SHARIAH COMMITTEE MEMBER 8.1 SC member is remunerated with fixed monthly retainer fee and seating fee which are paid based on meeting attendance. 8.2 Seating fee includes SC meeting and all other meetings that require the SC member to be present. 8.3Whenever SC member is invited to attend formal or informal Bank Rakyat’s event, attending formal event on Bank Rakyat’s behalf, invited as a trainer to Bank Rakyat’s internal or external programme or any other event in the name of Bank Rakyat, the respective SC member is entitle to a fixed event fee and mileage claim. 8.4 Upon reappointment of SC member, an increment to the respective SC member shall be considered. 8.5Remuneration amount is subjected to BOD’s approval and/or review from time to time upon recommendation by the Remuneration Committee and it shall commensurate with the roles and responsibilities of the SC member. 9.0 SECRETARY AND SECRETARIAT TO SHARIAH COMMITTEE 9.1Head of Shariah who is a qualified Shariah personnel shall be appointed by SC as the Secretary to SC. Secretary to SC has no voting power in decision making by the SC. 9.2Secretary to SC or an alternate secretary appointed by the Secretary to SC in his/her absence with apology, should attend all SC meetings and should maintain accurate and adequate records of any action deliberated during the meetings. All records regarding SC meeting shall be reviewed by the Secretary prior to escalation. 9.3The function of Shariah Secretariat to SC is assigned to SC Secretariat under Shariah Research and Advisory Department of Bank Rakyat. 10.0 ATTENDANCE OF SHARIAH COMMITTEE MEETINGS IN 2018 Name of Committee Members Attendance at Committee Meetings Percentage of Attendance SS Dato’ Setia Mohd Tamyes Abd Wahid 13/14 92.86% Prof. Dato’ Dr. Mohd Azmi Omar 12/14 85.71% Dr. Mohammad Zaini Yahaya 14/14 100% Ust. Md. Yunus Abd. Aziz 13/14 92.86% Ust. Wan Rumaizi Wan Husin 13/14 92.86% Dr. Abdullaah Jalil 14/14 100% Prof. Madya Dr. Azman Mohd Noor 14/14 100%
ANNUAL REPORT | 129 Notice of Annual General Meeting Date : 18 April 2019 / 12 Syaaban 1440H NOTICE OF BANK RAKYAT ANNUAL GENERAL MEETING 2019 NOTICE IS HEREBY GIVEN THAT the Bank Rakyat Annual General Meeting 2019 will be held as follows: Date : 04 May 2019 (Saturday) (28 Syaaban 1440H) Venue : Dewan Tun Abdul Razak Level 2, Tower 1 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat 50470 Kuala Lumpur. Time : 11:30 am MEETING AGENDA 1. Presentation of Bank Rakyat's future; 2. Confirmation of the minutes of the Annual General Meeting held on 08 th April 2018; 3.To appoint a Committee of six (6) representatives and four (4) members of the Board including the Chairman, to verify the draft of the minutes of the Annual General Meeting; 4.To present the Audited Financial Statements for the year ended 31st December 2018, together with the Board of Directors' Report, Audit and Examination Committee Report, Auditor General's Report, and Views of the Malaysia Cooperative Societies Commission; and 5.To deliberate on the proposals from members received by the Board not less than seven (7) days before the Annual General Meeting (if available). By Order of the Board RATNASARI MOHD DAMANHURI Acting Bank Secretary CORPORATE GOVERNANCE All Representatives of Bank Rakyat Cooperative Members All Representatives of Bank Rakyat Individual Members
FINANCIAL STATEMENTS
132 Report of the Auditor General on The Financial Statements of Bank Kerjasama Rakyat Malaysia Berhad 136 Statement by Directors 137Annual Report of Shariah Committee of Bank Rakyat 2018 142Statutory Declaration 143 Directors’ Report 146 Statements of Financial Position 148Statements of Profit or Loss and Other Comprehensive Income 150Statements of Changes In Equity 154 Statements of Cash Flows 158Notes To The Financial Statements
136 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD statement by directors FINANCIAL STATEMENTS We, DATUK NORIPAH KAMSO and DATO’ ZULKIFLEE ABBAS ABDUL HAMID, being two of the Directors of Bank Kerjasama Rakyat Malaysia Berhad, do hereby state that: (i) The financial statements of the Bank have been prepared in accordance with the provisions of Bank Kerjasama Rakyat Malaysia Berhad (Special Provisions) Act 1978 (Act 202), the Co-operative Societies Act 1993 (Act 502), Development Financial Institutions Act 2002 (Act 618) and applicable Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards (“IFRS”) with modifications based on guidelines issued by Bank Negara Malaysia (“BNM”) and in compliance with the principles of Shariah; (ii) The financial statements of the subsidiaries of the Bank have been prepared in accordance with MFRS, IFRS and the provisions of the Companies Act, 2016 in Malaysia. In the opinion of the Directors, the financial statements are drawn up so as to give true and fair view of state of affairs as at 31 December 2018 and of the results of the operations and cash flows for the year ended on that date. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors. DATUK NORIPAH KAMSO Chairman DATO’ ZULKIFLEE ABBAS ABDUL HAMID Managing Director/President Kuala Lumpur Date: 14 March 2019
ANNUAL REPORT | 137 Annual Report of Shariah Committee of Bank Rakyat 2018 The Management of Bank Rakyat is responsible for ensuring Bank Rakyat conducts its business in accordance with Shariah principles. It is our responsibility to form an independent opinion, based on our review of Bank Rakyat’s operation and to report to the Board of Directors of Bank Rakyat. During the financial year ended 31st December 2018, the Shariah Committee had convened 14 times with an addition of another 2 special sittings in which we reviewed on products, services, transactions, processes and banking documentations. We have provided the Shariah advisory services on various aspects to the Bank in order to ensure compliance with applicable Shariah principles as well as the relevant resolutions and rulings locally and globally made by the Shariah Advisory Councils of the regulatory bodies. To ensure smoothness of banking operation, we empowered and delegated the approval authority to Shariah Compliance Division to approve generic Shariah related matters and the approvals by the Shariah Compliance Division are duly reported to us on a quarterly basis for review and confirmation. We planned and performed our review to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that Bank Rakyat has not violated the Shariah principles. APPROVAL 1. We have endorsed and approved the principles and the contracts relating to the following products offered by Bank Rakyat in the year of 2018 as below: i. Implementation of Cash Line-i (Corporate) based on the concept of Tawarruq launched on 17th October 2018. ii. Waqaf Fund Initiative involving strategic collaboration with Majlis Agama Islam Dan Adat Melayu Terengganu (“MAIDAM”) launched on 14th December 2018 iii. System enhancement and replacement of Shariah contract for Kontrak-i Tijari from Bai Inah to Tawarruq executed on July 2018. 2. We have endorsed and approved the transactions, applications and dealings entered into by Bank Rakyat through the following processes: i. Shariah review on products and departmental policies and procedures. ii. Shariah review on legal and banking documents, Products Disclosure Sheet (“PDS”), notices and marketing materials prior to publishment. iii. Shariah review on Shariah compliance status of commercial banking customers prior to approval of financing. iv. Shariah review on product operations at the branch level, related departments and Bank’s subsidiaries which involve review on legal documents executed and akad sequences. v. Shariah review on system application related to banking products. FINANCIAL STATEMENTS In carrying out the roles and responsibilities of Shariah Committee of Bank Rakyat, we hereby submit the following report on Shariah compliance of Bank Rakyat’s business activities and operations for the financial year ended 31st December 2018.
138 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Annual Report of Shariah Committee of Bank Rakyat 2018 FINANCIAL STATEMENTS vi. Shariah review on banking activities, asset rental by the bank and its subsidiaries to third party as well as sponsorship activities. vii.Shariah risk assessment on new products or enhancement to the existing products, processes and procedures, business activities and operations. viii.Shariah audit on operations, documentations and system application of departments, branches and subsidiaries of Bank Rakyat. SHARIAH RESEARCH AND ADVISORY, SHARIAH REVIEW, SHARIAH AUDIT AND SHARIAH RISK 1. Shariah Research and Advisory, Shariah Review, Shariah Audit and Shariah Risk functions play a vital role in achieving the objective of ensuring end to end Shariah Compliance of the bank at all times by evaluating and assessing all activities and banking operation. 2. We have assessed the work carried out by Shariah Research and Advisory, Shariah Review, Shariah Audit and Shariah Risk which included examining on a sample basis of each type of transaction, the relevant documentations and procedures adopted by Bank Rakyat. 3.Shariah Research and Advisory provide advisory on product development and day to day business operations which include issuing of Shariah Compliance Review Certificate, Shariah parameters, vetting of legal documentation, screening business banking financing applications, approving marketing materials and co-operative appointment of card merchants as delegated by us. 4. Shariah Review and Shariah Audit have performed their review and audit based on review and audit plan approved by us. Shariah Review and Shariah Audit Reports were presented and deliberated in our meetings to confirm that the Bank has complied with the rulings issued by the Shariah Advisory Council of Bank Negara Malaysia, Shariah Advisory Council of Securities Commission Malaysia and decisions made by us. 5. Shariah Risk is responsible to systematically identify, measure, monitor and control Shariah non-compliance risks, and therefore mitigate or minimise the occurrence of Shariah non-compliances. A systematic approach of managing Shariah non-compliance risks will enable the Bank to continue its operations and activities effectively without exposing the Bank to unacceptable levels of risk. 6. During the financial year of 2018, Shariah Review and Shariah Audit presented to us the following reports: Shariah Review a. Shariah Review Report on 147 Bank Rakyat’s branches b. Shariah Review Report on 17 Rakyat Xcess & Ar-Rahnu X’change (combo), 4 Rakyat Xcess and 26 Ar-Rahnu X’change c. Shariah Review Report on 46 corporate financing and cooperative financing application d. Shariah Review Report on 42 Trade Finance application e. Shariah Review Report on 4 Treasury Departments and 7 subsidiaries of Bank Rakyat f. Shariah Review Report : Branch Operation Processing Department g. Shariah Review Report : Virtual Banking Department h. Shariah Review Report : Payroll & Benefits Administration Department i. Shariah Review Report : Card & Payment Business Department j. Shariah Review Report : Business Banking Division
ANNUAL REPORT | 139 k. Shariah Review Report : Early Monitoring Department l. Shariah Review Report : Cash Management Department m.Shariah Review Report : Legal (Corporate Financing & Documentation) Department n. Shariah Review Report : Money Market Department o. Shariah Review Report : Foreign Exchange Department p. Shariah Review Report : Equity Department q. Shariah Review Report : Fixed Income Department r. Shariah Review Report : Marketing & Communication Division s. Shariah Review Report : Strategic Marketing Department Shariah Audit a) Shariah Audit Report : Special Audit on Zakat Management b) Shariah Audit Report : Micro Financing-i c) Shariah Audit Report : Auto Financing-i d) Shariah Audit Report : SME Financing e) Shariah Audit Report : Virtual Banking Department f) Shariah Audit Report : Corporate Banking (Operations) g) Shariah Audit Report : Corporate Banking (Government / Government Linked Company) h) Shariah Audit Report : Legal (Corporate Financing & Documentation) i) Shariah Audit Report : Member’s Services j) Shariah Audit Report : Payroll & Benefit Administration Department (Staff Financing) k) Shariah Audit Report : Shariah Review Department l) Shariah Audit Report : Shariah Research & Advisory Department m)Shariah Audit Report : Private (Business Development) Department n) Shariah Audit Report : Limited review on settlement arrangement handled by Business Rehabilitation Department o) Shariah Audit Report : Limited review on Rakyat Hartanah Sdn Bhd’s Operation p) Shariah Audit Report : Limited review on Shariah governance process related to documentation of Trade Finance q) Shariah Audit Report : Limited review on Credit Card-i, Acquiring Business r) Shariah Audit Report : Limited review on Shariah governance process related to sukuk documentation, Capital Management s) Shariah Audit Report : Limited review on outsourcing of gold wafers production, Rakyat Management Services Sdn Bhd t) Shariah Audit Report : Limited review on Unit Trust & Estate Management Department u) Shariah Audit Report : Limited review on Shariah Risk Unit, Operational Risk Department v) Shariah Audit Report : Limited review on management of tenancy & rental collection, Rakyat Holdings Sdn Bhd w) Shariah Audit Report : Limited review on Combo Debit Card-i x) Shariah Audit Report : Limited review on investment activities of quoted shares handled by Equity Department Shariah Training and Awareness 1. For the financial year of 2018, a total of 39 Shariah training and awareness programmes have been conducted to internal employees of the bank which were attended by more than 900 participants throughout Malaysia. 2. To increase the awareness on Shariah governance and compliance among the headquarter’s (“HQ”) staffs, the Bank conducts Shariah Town Hall sessions whereby we were responsible to update on Shariah requirements and rulings issued either by us or the regulators and sharing on Shariah non-compliance incidences detected by Shariah Review and Shariah Audit to avoid any occurrence event in meeting the business objectives. FINANCIAL STATEMENTS Annual Report of Shariah Committee of Bank Rakyat 2018
140 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD Annual Report of Shariah Committee of Bank Rakyat 2018 FINANCIAL STATEMENTS 3. Training Academy of Bank Rakyat also retained the slots of Shariah application in Islamic Banking during the induction programme which has been specifically organised for new recruits, as one of the efforts to ensure all levels of the bank’s employees understand the application of Shariah in every product offered by the bank. 4. Bank Rakyat has also committed to elevate the knowledge and understanding of Shariah as well as Islamic Banking of its employees by execution of in-house intensive programmes. 7 members of Shariah Committee together with 22 Shariah officers have attended 5 days Intensive Course of Muamalat from the Perspective of Mazhab Shafi’i, which were proudly led by Sheikh Dr. Abdul Sattar Abu Ghuddah, a prominent Shariah scholar of worldwide Islamic Finance industry. In addition, to sharpen the internal talent and accommodate the training efficiency, 2 Shariah officers have successfully completed the Certified Training Professional (“CTP”) by Finance Accreditation Agency (“FAA”) which is an independent quality assurance and accreditation body supported by Bank Negara Malaysia (Central Bank of Malaysia) and Securities Commission Malaysia. 5. Bank Rakyat has conducted 15 series of Zero Tolerance Clinic programme which includes Shariah compliance briefing sessions attended by representatives of management from each branches throughout Malaysia, in an effort to increase the awareness on Shariah compliance culture among the employees at branches. Shariah Non Compliance Issue 1. For the financial year ended 31st December 2018, the Shariah non-compliance issues deliberated by us were as follows: a) Overcharged safekeeping fees in the process of Gold Auction between branch and Rakyat Management Services Sdn Bhd (RMS) due to the delay in closing of customers’ accounts. b) Subscription of conventional insurance premium financed by the bank for Vehicle Financing-i (An-Naqlu 2) involving 11 accounts from 7 branches. c) Execution of disbursement payment to customers on the purchase of Shariah non-compliant goods under the Skim Pinjaman Tukar-i . 2. All of the events together with the rectification plans were presented to us and the Board of Directors for approval, and were accordingly reported to Bank Negara Malaysia in accordance with the Shariah non-compliance reporting requirements imposed by the Islamic Financial Services Act 2013 (“IFSA”). 3. Shariah non-compliance events experienced by the Bank were mostly due to operational non-compliances detected by Shariah Review and Shariah Audit. The Bank has taken corrective as well as preventive measures in order to avoid the same Shariah non-compliance events from occurring in the future which includes specific Shariah training to all of the staff. 4. Within the financial year of 2018, the Bank received Shariah non-compliant income amounting to RM10,979.11. The amount was returned to the affected customers and part of it was disposed for charitable purposes upon Shariah Committee and Board of Directors’ approval. Zakat on Business 1. In the financial year of 2018, we confirmed that the Bank has fulfilled its obligation to pay zakat on its business to Majlis Agama Islam Negeri-Negeri by adopting the growth capital computation method and in compliance with the Manual Pengurusan Zakat Perbankan issued by Jabatan Wakaf, Zakat dan Haji. 2. For the Zakat Asnaf, we confirmed that Business Zakat of the Bank was distributed accordingly to the eligible asnaf as guided by Policy and Procedure Business Zakat Management of Bank Rakyat that was approved by us.
ANNUAL REPORT | 141 Annual Report of Shariah Committee of Bank Rakyat 2018 1. The Shariah principles and contracts implemented on products listed in paragraph 1 are in compliance with the Shariah principles and Shariah resolutions issued by the Shariah Advisory Council of Bank Negara Malaysia, as well as Shariah decisions made by us. 2. The transactions, applications and dealings entered into by the Bank that we have reviewed excluding the Shariah noncompliance incidences mentioned above, are in compliance with the Shariah principles and Shariah resolutions issued by the Shariah Advisory Council of Bank Negara Malaysia, as well as Shariah decisions made by us. 3. Rectification plans has been executed on all confirmed Shariah non-compliant events. 4. The transactions, applications and dealings which are subjected to further investigation and rectification will be carried out on an ongoing basis. 5. All earnings that have been realised from sources or by means prohibited by the Shariah principles were disposed accordingly. 6. The calculation and distribution of zakat on Banking Business for the year of 2018 is in compliance with Shariah principles. We, the members of the Shariah Committee of Bank Rakyat, to the best of our knowledge, do hereby confirm that the operations of Bank Rakyat, to the best of its effort, for the year ended 31st December 2018 have been conducted in conformity with the Shariah principles. USTAZ MD. YUNUS ABD. AZIZ Member of Shariah Committee USTAZ WAN RUMAIZI WAN HUSIN Member of Shariah Committee USTAZ ABDULLAAH JALIL Member of Shariah Committee PROF. MADYA DR. AZMAN MOHD NOOR Member of Shariah Committee PROF. DATO’ DR. MOHD AZMI OMAR Member of Shariah Committee DR. MOHAMAD ZAINI YAHAYA Member of Shariah Committee SS DATO’ SETIA HJ. MOHD TAMYES ABD WAHID Chairman of Shariah Committee FINANCIAL STATEMENTS Based on the report, we opined that:
142 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD statutory declaration FINANCIAL STATEMENTS I, NOR HAIMEE ZAKARIA, being the officer primarily responsible for the financial management of Bank Kerjasama Rakyat Malaysia Berhad, do solemnly and sincerely declare that the financial statements are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared by the abovenamed in Kuala Lumpur on 14 March 2019. NOR HAIMEE ZAKARIA Before me:
ANNUAL REPORT | 143 DIRECTORS’ REPORT PRINCIPAL ACTIVITIES The principal activities of the Bank are those of a co-operative that carries out banking activities based on Shariah principles through accepting deposits and providing financial services for retail and commercial needs. The principal activities of the subsidiaries are disclosed in Note 17 to the financial statements. There have been no significant changes in the nature of these principal activities of the Bank and of its subsidiaries during the year. RESULTS OF OPERATIONS Group Bank RM’000 RM’000 1,859,179 1,875,002 Taxation (76,025) (70,609) Zakat (25,533) (24,592) 1,757,621 1,779,801 (522,278) (522,278) 1,235,343 1,257,523 48,468 48,468 Total comprehensive income for the year 1,283,811 1,305,991 Total comprehensive income for the year attributable to: Equity holders of the Bank 1,283,811 1,305,991 Profit before taxation and zakat Profit after taxation and zakat Statutory appropriations Profit for the year after statutory appropriations Other comprehensive income In the opinion of the Directors, the results of operations of the Group and of the Bank during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature. RESERVES AND PROVISION There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements. FINANCIAL STATEMENTS The Directors of Bank Kerjasama Rakyat Malaysia Berhad (“the Bank”) have pleasure in submitting their report and the audited financial statements of the Group and of the Bank for the financial year ended 31 December 2018.
144 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD DIRECTORS’ REPORT DIVIDENDS FINANCIAL STATEMENTS During the financial year ended 31 December 2018, the Bank paid a cash dividend of 16% amounting to RM470 million in regards to the previous financial year ended 31 December 2017. In respect of the current financial year, the Board of Directors has proposed a cash dividend up to 14% amounting to RM420 million. The proposed dividend will be recognised in the subsequent financial year upon approval by the relevant authorities outside the Bank. OTHER STATUTORY INFORMATION In the opinion of the Directors, the financial statements set out on pages 000 to 000 have been drawn up so as to give a true and fair view of the state of affairs of the Group and of the Bank as of 31 December 2018 and of the results of their operations and cash flows for the year ended on that date. The Directors are satisfied that before the statements of financial position and the statements of profit or loss and other comprehensive income of the Group and of the Bank were made out, reasonable steps have been taken on the following matters: (i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of impairment provisions 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 provisions and allowance for impaired financing had been made for doubtful debts; and (ii) to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business had been written down to their estimated realisable values. At the date of this report, within the knowledge of the Directors, they are not aware of any circumstances that would cause the following: (i) the amount written off for bad financing and bad debts or the amount of the impairment provisions and allowance for doubtful debts in the financial statements of the Group and of the Bank inadequate to any substantial extent; or (ii) the values attributed to the current assets in the financial statements of the Group and of the Bank misleading; or (iii) the amount reported in the financial statements of the Group and of the Bank misleading; and (iv) any adherence to the existing method of valuation of assets or liabilities of the Group and of the Bank misleading or inappropriate. At the date of this report, there does not exist: (i) (ii) any charge on the assets of the Group and of the Bank which has arisen since the end of the financial year which secures the liability of any other person; and any contingent liability of the Group and of the Bank which has arisen since the end of the financial year.
ANNUAL REPORT | 145 DIRECTORS’ REPORT No contingent or other liability which has not been discharged has been undertaken by the Group and the Bank, except as disclosed in Note 41 to the financial statements. No contingent or other liability has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Bank to meet their obligations as and when they fall due. In the opinion of the Directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of operations of the Group and of the Bank for the succeeding financial year. The Directors do solemnly and sincerely declare that there were no other matters, within their knowledge, that are not disclosed in accordance with Section 59, Co-operative Societies Act 1993. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors. DATUK NORIPAH KAMSO DATO’ ZULKIFLEE ABBAS ABDUL HAMID Kuala Lumpur Date: 14 March 2019 FINANCIAL STATEMENTS OTHER STATUTORY INFORMATION (CONTINUED)
146 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 Group FINANCIAL STATEMENTS Note Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 ASSETS Cash and short-term funds 6 1,163,630 2,476,623 1,161,454 2,469,937 Deposits and placements with financial institutions 7 - 101,384 - 100,992 Financial investments at fair value through profit or loss 8 742,297 - 742,297 - Financial investments available-for-sale 9 - 20,252,909 - 20,252,428 Financial investments at fair value through other comprehensive income 10 22,329,782 - 22,329,773 - Financial investments held-to-maturity 11 - 10,437,053 - 10,437,053 Financial investments at amortised cost 12 10,155,789 - 10,155,789 - Financing and advances 13 69,003,855 69,189,090 69,003,855 69,189,090 Trade receivables 14 2,459 1,795 - - Other assets 15 1,132,604 1,019,205 1,097,380 987,691 Inventories 16 8,018 9,291 - - Investment in subsidiaries 17 - - 100,744 65,976 Property and equipment 18 713,862 708,374 621,876 649,790 Intangible assets 19 265,294 13,185 252,109 - Investment properties 20 1,214,812 1,116,302 1,005,948 871,845 Prepaid lease payments 21 60,708 62,234 60,708 62,234 5,780 51,111 3,267 47,806 86,333 13,446 86,000 13,000 106,885,223 105,452,002 106,621,200 105,147,842 Tax recoverable Deferred tax assets TOTAL ASSETS 22
ANNUAL REPORT | 147 STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 (continued) Note Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 LIABILITIES Deposits from customers 23 82,735,900 83,235,496 82,735,900 83,235,496 Deposits and placements from banks and financial institutions 24 824,000 - 824,000 - 2,840 2,681 - - Trade payables Recourse obligations on financing sold to Cagamas 25 710,335 748,334 710,335 748,334 Debt securities issued 26 3,143,366 3,443,770 3,143,366 3,443,770 Other liabilities 27 1,590,976 1,379,579 1,711,453 1,490,291 18 574 - - Deferred tax liabilities 22 4,064 4,371 - - Financing from other financial institutions 28 - 8,844 - - 89,011,499 88,823,649 89,125,054 88,917,891 2,986,030 2,986,030 2,986,030 2,986,030 19,104 36,440 19,104 36,440 14,868,590 13,605,883 14,491,012 13,207,481 17,873,724 16,628,353 17,496,146 16,229,951 106,885,223 105,452,002 106,621,200 105,147,842 2,796,414 2,723,371 2,796,414 2,723,371 Provision for taxation TOTAL LIABILITIES SHAREHOLDERS’ FUND Share capital 29 Share redemption fund Reserves 30 TOTAL SHAREHOLDERS’ FUND TOTAL LIABILITIES AND SHAREHOLDERS’ FUND COMMITMENTS AND CONTINGENCIES 41 The accompanying notes form an integrated part of the financial statements. FINANCIAL STATEMENTS Group
148 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 Group FINANCIAL STATEMENTS Note Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Income 31 6,492,687 6,336,268 6,439,937 6,290,020 Expenditure 32 (3,382,670) (3,245,264) (3,328,724) (3,200,025) 3,110,017 3,091,004 3,111,213 3,089,995 Net income Allowances for impairment 33 (455,124) (522,979) (455,124) (522,979) Other operating income 34 414,637 687,166 445,026 658,053 Operating expenses 35 (1,210,351) (1,210,039) (1,226,113) (1,226,815) 1,859,179 2,045,152 1,875,002 1,998,254 Profit before taxation and zakat Taxation 36 (76,025) (92,545) (70,609) (83,573) Zakat 37 (25,533) (42,980) (24,592) (41,739) 1,757,621 1,909,627 1,779,801 1,872,942 (451,098) (478,670) (451,098) (478,670) (37,500) (39,965) (37,500) (39,965) (18,750) (19,983) (18,750) (19,983) (14,930) (14,930) (14,930) (14,930) (522,278) (553,548) (522,278) (553,548) 1,235,343 1,356,079 1,257,523 1,319,394 Profit after taxation and zakat Statutory appropriations Transfer to statutory reserve: 25% (2017: 25%) 38 Contribution to the Co-operative Education Trust Fund: 2% (2017: 2%) Contribution to the Co-operative Development Provident Fund: 1% (2017: 1%) Contribution to Bank Rakyat Foundation Profit for the year
ANNUAL REPORT | 149 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) Bank 2018 2017 2018 2017 Note RM’000 RM’000 RM’000 RM’000 Net gain on revaluation of financial investments available-for-sale 30(iii) - 20,076 - 20,076 Net gain on revaluation of financial investments at fair value through other comprehensive income 30(iv) 48,468 - 48,468 - 48,468 20,076 48,468 20,076 1,283,811 1,376,155 1,305,991 1,339,470 0.59 0.64 - - Other comprehensive income Items that may be reclassified subsequently to profit or loss: Total comprehensive income for the year Earnings per share (RM) Basic 39 The accompanying notes form an integrated part of the financial statements. FINANCIAL STATEMENTS Group
150 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 FINANCIAL STATEMENTS <___________ Non-distributable ___________> Distributable Share capital Share redemption fund Other reserves Retained profits Total equity RM’000 RM’000 RM’000 RM’000 RM’000 2,986,030 52,070 5,468,605 6,726,074 15,232,779 Profit after taxation and zakat - - - 1,909,627 1,909,627 Transfer to statutory reserve - - - (478,670) (478,670) Contribution to the Co-operative Education Trust Fund - - - (39,965) (39,965) Contribution to the Co-operative Development Provident Fund - - - (19,983) (19,983) Contribution to Bank Rakyat Foundation - - - (14,930) (14,930) Profit for the year - - - 1,356,079 1,356,079 Other comprehensive income - - 20,076 - 20,076 Total comprehensive income for the year - - 20,076 1,356,079 1,376,155 Transfer from retained profits - - 478,670 - 478,670 Issuance to new member 16,626 - - - 16,626 Share withdrawal (32,256) - - - (32,256) Transfer to share capital 15,630 (15,630) - - - Dividends (Note 40) - - - (443,774) (443,774) Overprovision in contribution to Bank Rakyat Foundation - - - 153 153 2,986,030 36,440 5,967,351 7,638,532 16,628,353 Note 30 Note 30 Group At 1 January 2017 At 31 December 2017 Note 29
ANNUAL REPORT | 151 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 (CONTINUED) Distributable Share capital Share redemption fund Other reserves Retained profits Total equity RM’000 RM’000 RM’000 RM’000 RM’000 2,986,030 36,440 5,967,351 7,638,532 16,628,353 - - 68,779 (71,471) (2,692) 2,986,030 36,440 6,036,130 7,567,061 16,625,661 Profit after taxation and zakat - - - 1,757,621 1,757,621 Transfer to statutory reserve - - - (451,098) (451,098) Contribution to the Co-operative Education Trust Fund - - - (37,500) (37,500) Contribution to the Co-operative Development Provident Fund - - - (18,750) (18,750) Contribution to Bank Rakyat Foundation - - - (14,930) (14,930) Profit for the year - - - 1,235,343 1,235,343 Other comprehensive income - - 48,468 - 48,468 Total comprehensive income for the year - - 48,468 1,235,343 1,283,811 Transfer from retained profits - - 451,098 - 451,098 Issuance to new member 14,168 - - - 14,168 Share withdrawal (31,504) - - - (31,504) Transfer to share capital 17,336 (17,336) - - - Dividends (Note 40) - - - (469,774) (469,774) Overprovision in contribution to Bank Rakyat Foundation - - - 264 264 2,986,030 19,104 6,535,696 8,332,894 17,873,724 Note 30 Note 30 Group At 1 January 2018 As previously stated Effect of adopting MFRS 9 Restated balance as at 1 January 2018 At 31 December 2018 Note 29 FINANCIAL STATEMENTS <___________ Non-distributable ___________>
152 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 (CONTINUED) FINANCIAL STATEMENTS <___________ Non-distributable ___________> Distributable Share capital Share redemption fund Other reserves Retained profits Total equity RM’000 RM’000 RM’000 RM’000 RM’000 2,986,030 52,070 5,469,346 6,363,616 14,871,062 Profit after taxation and zakat - - - 1,872,942 1,872,942 Transfer to statutory reserve - - - (478,670) (478,670) Contribution to the Co-operative Education Trust Fund - - - (39,965) (39,965) Contribution to the Co-operative Development Provident Fund - - - (19,983) (19,983) Contribution to Bank Rakyat Foundation - - - (14,930) (14,930) Profit for the year - - - 1,319,394 1,319,394 Other comprehensive income - - 20,076 - 20,076 Total comprehensive income for the year - - 20,076 1,319,394 1,339,470 Transfer from retained profits - - 478,670 - 478,670 Issuance to new member 16,626 - - - 16,626 Share withdrawal (32,256) - - - (32,256) Transfer to share capital 15,630 (15,630) - - - Dividends (Note 40) - - - (443,774) (443,774) Overprovision in contribution to Bank Rakyat Foundation - - - 153 153 2,986,030 36,440 5,968,092 7,239,389 16,229,951 Note 30 Note 30 Bank At 1 January 2017 At 31 December 2017 Note 29
ANNUAL REPORT | 153 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018 (CONTINUED) Distributable Share capital Share redemption fund Other reserves Retained profits Total equity RM’000 RM’000 RM’000 RM’000 RM’000 2,986,030 36,440 5,968,092 7,239,389 16,229,951 - - 68,779 (72,827) (4,048) 2,986,030 36,440 6,036,871 7,166,562 16,225,903 Profit after taxation and zakat - - - 1,779,801 1,779,801 Transfer to statutory reserve - - - (451,098) (451,098) Contribution to the Co-operative Education Trust Fund - - - (37,500) (37,500) Contribution to the Co-operative Development Provident Fund - - - (18,750) (18,750) Contribution to Bank Rakyat Foundation - - - (14,930) (14,930) Profit for the year - - - 1,257,523 1,257,523 Other comprehensive income - - 48,468 - 48,468 Total comprehensive income for the year - - 48,468 1,257,523 1,305,991 Transfer from retained profits - - 451,098 - 451,098 Issuance to new member 14,168 - - - 14,168 Share withdrawal (31,504) - - - (31,504) Transfer to share capital 17,336 (17,336) - - - Dividends (Note 40) - - - (469,774) (469,774) Overprovision in contribution to Bank Rakyat Foundation - - - 264 264 2,986,030 19,104 6,536,437 7,954,575 17,496,146 Note 30 Note 30 Bank At 1 January 2018 As previously stated Effect of adopting MFRS 9 Restated balance as at 1 January 2018 At 31 December 2018 Note 29 The accompanying notes form an integrated part of the financial statements. FINANCIAL STATEMENTS <___________ Non-distributable ___________>
154 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 FINANCIAL STATEMENTS Group Bank 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 1,235,343 1,356,079 1,257,523 1,319,394 451,098 37,500 478,670 39,965 451,098 37,500 478,670 39,965 18,750 14,930 76,025 25,533 156,649 455,382 19,983 14,930 92,545 42,980 139,171 519,948 18,750 14,930 70,609 24,592 156,649 455,382 19,983 14,930 83,573 41,739 139,171 519,948 - 3,031 - 3,031 475 - 475 - (733) 63,839 1,526 22,929 6 (244) 15,188 398 (103,259) (224) 98,055 1,526 9,523 (16,750) 17,196 173 (128,605) (57) (733) 60,308 1,526 22,929 6 (1) 15,188 971 (104,841) - 95,141 1,526 9,523 (16,686) 17,196 19 (99,784) - - (649) - (649) (9,123) - (9,123) - - (46,483) - (46,483) (213) - (213) - - (598) - (598) CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES Profit for the year Adjustment for: Transfer to statutory reserve Contribution to the Co-operative Education Trust Fund Contribution to the Co-operative Development Provident Fund Contribution to Bank Rakyat Foundation Taxation Zakat Profit expense on debt securities issued Allowance for impairment on financing and advances Allowance for impairment on financial investments available-for-sale Allowance for impairment on financial investments at fair value through other comprehensive income Allowance for impairment on financial investments at amortised cost Depreciation of property and equipment Amortisation of prepaid lease payment Amortisation of intangible assets Property and equipment written off Gain on disposal of property and equipment Loss on financing written off Allowance for doubtful debts Gain on revaluation of investment properties Allowance for doubtful debts no longer required Allowance for impairment loss on financial investments held-to-maturity no longer required Net gain on disposal of financial investments at fair value through profit or loss Net gain on disposal of financial investments available-for-sale Net gain on disposal of financial investments at fair value through other comprehensive income Net gain on disposal of financial investments held-for-trading
ANNUAL REPORT | 155 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) Bank 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 167,745 34,313 - 42,661 (18,123) 167,745 34,313 - 42,661 (18,123) (12,596) - - (12,596) (34,768) - 2,651,237 2,665,171 2,628,219 2,644,147 CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES (CONTINUED) Adjustment for: (continued) Net loss on revaluation of financial investments at fair value through profit or loss Profit expense on financing sold with recourse to Cagamas Dividend from financial investments available-for-sale Dividend from financial investments at fair value through profit or loss Dividend from subsidiary Operating profit before working capital changes Decrease/(Increase) in assets: Deposits and placements with financial institutions Financing and advances Trade receivables Other assets Inventories 101,384 (297,268) (470) (114,102) 1,273 102,766 (1,919,527) 3,752 (381,028) (4,364) 100,992 (297,268) (112,351) - 102,034 (1,919,527) (389,598) - (499,596) 5,332,174 (499,596) 5,332,174 824,000 159 (72,312) 121,516 (900,000) (1,607) (357,114) (50,013) 824,000 (72,312) 130,895 (900,000) (357,114) (100,419) 2,715,821 4,490,210 2,702,579 4,411,697 (111,522) (39,464) (12,511) (31,907) (106,148) (38,137) (6,667) (29,621) 2,564,835 4,445,792 2,558,294 4,375,409 (Decrease)/Increase in liabilities: Deposits from customers Deposits and placements from banks and financial institutions Trade payables Recourse obligations on financing sold to Cagamas Other liabilities Cash generated from operations Income tax paid Zakat paid Net cash from operating activities FINANCIAL STATEMENTS Group
156 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) Bank FINANCIAL STATEMENTS Group 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 Purchases of financial investments held-for-trading Proceeds from disposal of financial investments held-for-trading Purchases of financial investments at fair value through profit or loss (2,376,463) Net proceed from disposal of financial investments at fair value through profit or loss 2,049,873 Purchases of financial investments available-for-sale Proceeds from disposal of financial investments available-for-sale Purchases of financial investments at fair value through other comprehensive income (4,981,000) Net proceed from disposal of financial investments at fair value through other comprehensive income 2,394,659 Purchases of financial investments held-to-maturity Proceeds from disposal of financial investments held-to-maturity Purchases of financial investments at amortised cost (5,408,260) Proceeds from disposal of financial investments at amortised cost 5,690,256 Purchase of investment properties (46,321) Purchase of property and equipment (81,819) Purchase of intangible assets (211,562) Proceeds from disposal of property and equipment 324 Dividend from financial investments available-for-sale Dividend from financial investments at fair value through profit or loss 12,596 Dividend from subsidiary Investment in subsidiaries - (780,000) - (780,000) 780,598 - 780,598 - (2,376,463) - (9,014,723) 2,049,401 - (9,014,723) 3,860,749 - 3,860,677 - (4,981,000) - (2,736,000) 2,394,659 - (2,736,000) 3,655,062 - (5,408,260) 3,655,062 - (156,143) (90,124) 19,744 18,123 5,690,256 (43,722) (81,416) (211,562) 1 - (83,840) (88,801) 19,452 18,123 - 12,596 34,768 (34,768) - (4,442,714) (2,955,510) (4,369,452) CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES Net cash used in investing activities (2,957,717)
ANNUAL REPORT | 157 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) Bank 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 Proceeds from issue of shares to members Dividend paid Fund received from government Proceeds from debt securities issued Payment of profit expenses on debt securities issued Receipt of financing from other financial institutions Payment of financing from other financial institutions 14,168 (469,774) 1,392 (457,053) (8,844) 16,626 (443,774) 15,800 1,900,000 (1,414,013) 7,844 (21) 14,168 (469,774) 1,392 (457,053) - 16,626 (443,774) 15,800 1,900,000 (1,414,013) - Net cash (used in)/generated from financing activities (920,111) 82,462 (911,267) 74,639 (1,312,993) 2,476,623 85,540 2,391,083 (1,308,483) 2,469,937 80,596 2,389,341 1,163,630 2,476,623 1,161,454 2,469,937 1,163,630 2,476,623 1,161,454 2,469,937 - 101,384 - 100,992 1,163,630 2,578,007 1,161,454 2,570,929 - 101,384 - 100,992 1,163,630 2,476,623 1,161,454 2,469,937 CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Cash and cash equivalents comprises: Cash and short-term funds (Note 6) Deposits and placements with financial institutions (Note 7) Less: Cash and short-term funds and deposits and placements with original maturity of more than three months The accompanying notes form an integrated part of the financial statements. FINANCIAL STATEMENTS Group
158 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 1. GENERAL INFORMATION FINANCIAL STATEMENTS The Bank was established under the Co-operative Societies Act 1993 with the registered office address at 35th Floor, Menara 1, Menara Kembar Bank Rakyat, No. 33, Jalan Rakyat, 50470 Kuala Lumpur. The principal activities of the Bank are those of a co-operative that carries out banking activities based on Shariah principles through accepting deposits and providing financial services for retail and commercial needs. The principal activities of the subsidiaries are disclosed in Note 17. There have been no significant changes in the nature of these principal activities of the Bank and its subsidiaries during the year. The Bank has a total of 147 branches as of 31 December 2018 (2017: 147). 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Bank have been prepared in accordance with the provisions of Bank Kerjasama Rakyat Malaysia Berhad (Special Provisions) Act 1978 (Act 202), the Cooperative Societies Act 1993 (Act 502), Development Financial Institutions Act 2002 (Act 618) and applicable Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards (“IFRS”), Guidelines issued by Bank Negara Malaysia (“BNM”) and in compliance with the principles of Shariah. The financial statements of the subsidiaries of the Bank have been prepared in accordance with MFRS, IFRS and the provisions of the Companies Act, 2016 in Malaysia. The financial statements are presented in Ringgit Malaysia (“RM”) and are rounded to the nearest thousand (“000”), unless otherwise stated. The following are accounting standards, amendments and interpretations that have been issued by the Malaysian Accounting Standards Board (“MASB”) but have not been adopted by the Group and the Bank. MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2019 • • • • • • • • • MFRS 16, Leases IC Interpretation 23, Uncertainty over Income Tax Treatments Amendments to MFRS 9, Financial Instruments - Prepayment Features with Negative Compensation Amendments to MFRS 128, Investments in Associates and Joint Ventures - Long-term Interests in Associates and Joint Ventures Amendments to MFRS 119, Employee Benefits - Curtailment or Settlement Amendments to MFRS 3, Business Combinations (Annual Improvements to MFRS Standards 2015-2017 Cycle) Amendments to MFRS 11, Joint Arrangements (Annual Improvements to MFRS Standards 2015-2017 Cycle) Amendments to MFRS 112, Income Taxes (Annual Improvements to MFRS Standards 2015-2017 Cycle) Amendments to MFRS 123, Borrowing Costs (Annual Improvements to MFRS Standards 2015-2017 Cycle)
ANNUAL REPORT | 159 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) • • • Amendments to MFRS 3, Business Combinations - Definition of a Business Amendments to MFRS 101, Presentation of Financial Statements and MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors - Definition of Material The Conceptual Framework for Financial Reporting MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2021 • MFRS 17, Insurance Contracts MFRSs, Interpretations and amendments effective for annual periods beginning on or after a date yet to be confirmed • Amendments to MFRS 10, Consolidated Financial Statements and MFRS 128, Investments in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The initial application of the accounting standards, amendments or interpretations are not expected to have any material financial impacts to the current period and prior period financial statements of the Group and the Bank except as mentioned below: MFRS 16, Leases MFRS 16 introduces a single accounting model for a lessee and eliminates the distinction between finance lease and operating lease. Lessee is now required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Upon adoption of MFRS 16, the Group and the Bank are required to account for major part of their operating leases in the balance sheet by recognising the “right-ofuse” assets and the lease liability, thus increasing the assets and liabilities of the Group and of the Bank. •Lessee At the commencement date of lease, a lessee will recognise a lease liability to make lease payments and an asset representing the “right to use” of the underlying asset during the lease term. Subsequently, the “rightof-use” asset is depreciated in accordance with the principle in MFRS 116, Property, Plant and Equipment and the lease liability is accreted over time with profit expense recognised in the profit or loss. •Lessor Lessor accounting under MFRS 16 is substantially the same as the accounting under MFRS117. Lessors will continue to classify all leases using the same classification principle as in MFRS 117 and distinguish between two types of leases: operating and finance leases. The financial effects arising from the adoption of this standard are still being assessed by the Group. FINANCIAL STATEMENTS MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2020
160 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) IC Interpretation 23, Uncertainty over Income Tax Treatments FINANCIAL STATEMENTS The Interpretation provides guidance on how to recognise and measure deferred and current income tax assets and liabilities in situations where there is uncertainty over whether the tax treatment applied by an entity will be accepted by the tax authority. If it is probable that the tax authority will accept an uncertain tax treatment that has been taken or is expected to be taken on a tax return, the accounting for income taxes shall be determined consistently with that tax treatment. If an entity concludes that it is not probable that the treatment will be accepted, it should reflect the effect of the uncertainty in its income tax accounting in the period in which that determination is made, by applying the most likely amount method or the expected value method. The Interpretation is effective for annual periods beginning on or after 1 January 2019 with early adoption permitted. Entities can choose to apply the Interpretation on full retrospective basis if possible without the use of hindsight, or retrospectively with the cumulative effect of initial application recognised as an adjustment to the opening balance of retained profits. 3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Basis of preparation The financial statements of the Group and of the Bank have been prepared on the historical cost basis, except for certain assets and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration involved in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for sharebased payment transactions that are within the scope of MFRS 2, leasing transactions that are within the scope of MFRS 117 and measurements that have some similarities to fair value but are not fair value, such as net realisable value in MFRS 102 or value-in-use in MFRS 136. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability. The principal accounting policies are set out below.
ANNUAL REPORT | 161 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.2 Subsidiaries and basis of consolidation The consolidated financial statements incorporate the financial statements of the Bank and entities (including structured entities) controlled by the Bank and its subsidiaries. Control is achieved when the Bank has the power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect the investee’s return. The Bank reassesses 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 stated above. When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, including: • the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Bank, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in profit or loss and other comprehensive income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policy. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Bank. FINANCIAL STATEMENTS 3.
162 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.2 Subsidiaries and basis of consolidation (continued) FINANCIAL STATEMENTS When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under MFRS 9, Financial Instruments (“MFRS 9”), and when applicable, the cost on initial recognition of an investment in an associate or joint venture. 3.3 Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At acquisition date, the identifiable assets acquired and liabilities assumed are recognised at their fair value, except that: • deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with MFRS 112, Income Taxes and MFRS 119, Employee Benefits respectively; • liabilities or equity instruments related to the share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with MFRS 2, Share-based Payment at the acquisition date; and • assets (or disposal groups) that are classified as held-for-sale in accordance with MFRS 5, Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of noncontrolling interests are measured at fair value or, when applicable, on the basis specified in another MFRS.
ANNUAL REPORT | 163 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.3 Business combinations (continued) Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of MFRS 9, is measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with MFRS 9. Other contingent consideration 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. Where a business combination is achieved in stages, the Group’s previously held equity interests in the acquiree are remeasured to fair value at the acquisition date (i.e. the date when the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised at that date. 3.4 Goodwill on consolidation Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see 3.3 above) less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cashgenerating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. FINANCIAL STATEMENTS 3.
164 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5 Financial instruments FINANCIAL STATEMENTS Financial assets and financial liabilities are recognised when, and only when the Group and the Bank become a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of the financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs that are directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Effective profit method The effective profit method is a method of calculating the amortised cost of a financial asset or liability and of allocating profit income or expense over the relevant period. The effective profit rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. 3.5.1 Financial assets 3.5.1.1 Date of recognition All financial assets are initially recognised on the trade date, i.e. the date that the Group and the Bank become a party to the contractual provisions of the instrument. This includes regular way trades, purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place. 3.5.1.2 Initial recognition and subsequent measurement All financial assets are measured initially at their fair value plus directly attributable transaction costs, except in the case of financial assets recorded at fair value through profit or loss. From 1 January 2018, the Group and the Bank classify all of its financial assets based on the business model for managing the assets and the asset’s contractual cash flow characteristics, measured at either: • Amortised cost • Fair value through other comprehensive income (“FVOCI”) • Fair value through profit or loss (“FVTPL”) Before 1 January 2018, the Group and the Bank classified its financial assets as financing and advances (amortised cost), FVTPL, held-to-maturity (amortised cost) or available-forsale.
ANNUAL REPORT | 165 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5.1 Financial assets (continued) 3.5.1.2 Initial recognition and subsequent measurement (continued) Included in Financial assets are the following: (i) Financial assets at amortised cost From 1 January 2018, the Group and the Bank measure financial assets at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and profit (“SPPP”) on the principal amount outstanding. The details of these conditions are outlined below: (a) Business model assessment The Group and the Bank determine its business model at the level that best reflects how groups of financial assets are managed to achieve its business objective. The Group and the Bank’s business model is not assessed on an instrumentby-instrument basis, but a higher level of aggregated portfolios and is based on observable factors such as: • How the performance of the business model and the financial assets held within that business model are evaluated and reported to the key management personnel; • The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed; • How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected); • The expected frequency, value and timing of sales are also important aspects of the Group and the Bank’s assessment. The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Group and the Bank’s original expectations, the Group and the Bank do not change the classification of the remaining financial assets held in that business model, but incorporate such information when assessing newly originated or newly purchased financial assets going forward. FINANCIAL STATEMENTS 3.5 Financial instruments (continued)
166 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 3.5 Financial instruments (continued) 3.5.1 Financial assets (continued) 3.5.1.2 Initial recognition and subsequent measurement (continued) (i) Financial assets at amortised cost (continued) (b) The SPPP test As a second step of its classification process the Group and the Bank assess the contractual terms of financial assets to identify whether they meet the SPPP test. “Principal” for the purpose of this test is defined as their fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/ discount). The most significant elements of profit within a lending arrangement are typically the consideration for the time value of money and credit risk. To make the 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 profit rate is set. 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 arrangement do not give rise to contractual cash flows that are solely payments of principal and profit on the amount outstanding. In such cases, the financial asset is required to be measured at FVTPL. From 1 January 2018, the Group and the Bank measure financing and advances at amortised cost. (ii) Fair value through other comprehensive income (“FVOCI”) The Group and the Bank apply the new category under MFRS 9 of debt instruments measured at FVOCI when both of the following conditions are met: • The instrument is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets; and • The contractual terms of the financial assets meet the SPPP test. These instruments largely comprise assets that had previously been classified as financial investments available-for-sale under MFRS 139.
ANNUAL REPORT | 167 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5.1 Financial assets (continued) 3.5.1.2 Initial recognition and subsequent measurement (continued) (ii) Fair value through other comprehensive income (“FVOCI”) (continued) Financial assets at FVOCI are subsequently measured at fair value with gains and losses arising due to changes in fair value recognised in Other Comprehensive Income (“OCI”). Profit income and foreign exchange gains and losses are recognised in profit or loss in the same manner as for financial assets measured at amortised cost. On derecognition, cumulative gains or losses previously recognised in OCI are reclassified from OCI to profit or loss. Equity instruments are normally measured at FVTPL. However, for unquoted equity instruments, with an irrevocable option at inception, the Group and the Bank measure the changes through FVOCI (without recycling profit or loss upon derecognition). (iii) Financial assets at fair value through profit or loss (“FVTPL”) Financial assets at FVTPL include financial assets held-for-trading (“HFT”) and financial asset designated at FVTPL upon initial recognition. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held-for-trading. From 1 January 2018, financial assets at FVTPL are those that are not held-fortrading and have been either designated by management upon initial recognition or are mandatorily required to be measured at fair value under MFRS 9. Management designates an instrument at FVTPL upon initial recognition when one of the following criteria are met. Such designation is determined on an instrument-by-instrument basis: • The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis; or • The assets and liabilities are part of a group of financial assets, financial liabilities or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. Included in financial assets HFT are derivatives (including separated embedded derivatives), debt securities and equities. Subsequent to initial recognition, financial assets held-for-trading and financial assets designated at FVTPL are recorded in the statement of financial position at fair value. Changes in fair value are recognised in the income statements under the heading of ‘other operating income’. FINANCIAL STATEMENTS 3.5 Financial instruments (continued)
168 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 3.5 Financial instruments (continued) 3.5.1 Financial assets (continued) 3.5.1.2 Initial recognition and subsequent measurement (continued) (iv) Financial investments available-for-sale (Policy applicable before 1 January 2018) Financial investments available-for-sale are financial assets that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in profit rates, exchange rates or equity prices or that are not classified as financing and receivables, financial investments held-to-maturity or financial investments at fair value through profit or loss. Financial investments available-for-sale are initially recognised at fair value at the end of the reporting period. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in other reserves, with the exception of impairment losses and profit calculated using the effective profit method which are recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in other reserves is reclassified to profit or loss. Available-for-sale equity instruments that do not have a quoted market price in an active market whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost less any identified impairment losses at the end of the reporting period. Dividend from available-for-sale equity investments are recognised in profit or loss when the Group’s and the Bank’s right to receive the dividend is established. (v) Financial investments held-to-maturity (Policy applicable before 1 January 2018) Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s and the Bank’s management have the positive intent and ability to hold to maturity. These are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, using the effective profit method less any impairment. Profit on financial investments held-to-maturity is included in profit or loss and reported as ‘Income from financial investments’. In the case of an impairment, the impairment loss is reported as a deduction from the carrying value of the financial asset and recognised in profit or loss as ‘Allowance for impairment on financial investments’. (vi) Financing and receivables Financing and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
ANNUAL REPORT | 169 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5.1 Financial assets (continued) 3.5.1.2 Initial recognition and subsequent measurement (continued) (vi) Financing and receivables (continued) Financing and receivables are initially recognised at fair value, including direct and incremental transaction costs, and subsequently measured at amortised cost using the effective profit method, less any impairment. Regular way recognition of financing and advances is recorded on settlement date, when all the conditions under financing contract have been fulfilled. Profit on financing is recognised in profit or loss by applying the effective profit rate. 3.5.1.3 Impairment of financial assets (Policy applicable from 1 January 2018) The MFRS 9 impairment requirements are based on an Expected Credit Loss (“ECL”) model that replaces the Incurred Loss model under MFRS 139. The ECL model applies to financial assets measured at amortised cost or at FVOCI, irrevocable financing commitments and financial guarantee contracts; which include financing and advances, as well as financial instruments held by the Group and the Bank. The ECL model also applies to contract assets under MFRS 15, Revenue from Contracts with Customers and lease receivables under MFRS 117, Leases. The measurement of expected credit loss involves increased complexity and judgement that include: (i) Determining a significant increase in credit risk since initial recognition. The assessment of significant deterioration since initial recognition is the key to determine the point of switching between measuring an allowance based on 12-month ECL, or an allowance based on lifetime ECL. A number of both qualitative and quantitative assessments are used in determining whether there is a significant increase in credit risk as at reporting date when compared with the date of initial recognition. The Group and the Bank apply a three-stage approach based on the change in credit quality since initial recognition: Stage 1 Stage 2 Stage 3 Performing Under-performing Non-performing Description No significant increase in credit risk Credit risk increased significantly Credit-impaired assets ECL Approach 12-month ECL Lifetime ECL Lifetime ECL Recognition of profit income On gross carrying amount On gross carrying amount On net carrying amount 3-Stage approach FINANCIAL STATEMENTS 3.5 Financial instruments (continued)
170 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 3.5 Financial instruments (continued) 3.5.1 Financial assets (continued) 3.5.1.3 Impairment of financial assets (Policy applicable from 1 January 2018) (continued) (ii) ECL Measurement There are three main components to measure ECL which are probability of default (“PD”) model, a loss given default (“LGD”) model, and the exposure at default model (“EAD”). MFRS 9 does not distinguish between individual assessment and collective assessment. Therefore, the Group and the Bank has continued to measure impairment on individual assessment basis for financial assets that are deemed to be individually significant. All other remaining financial assets are collectively assessed as per the Group’s policy. (iii) Expected life Lifetime expected credit losses must be measured over the expected life. This is defined to be the maximum contractual life, including any expected prepayment, extension, call and similar options. (iv) Financial investments at FVOCI The ECLs of financial investments measured at FVOCI do not reduce the carrying amount of these financial assets, which remains at fair value. Rather, 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 and loss upon derecognition of the assets. (v) Forward-looking information Expected credit losses are the unbiased probability-weighted credit losses, determined by evaluating a range of possible outcomes and considering future economic conditions. The reasonable and supportable forward-looking information is based on the Group’s and the Bank’s Economic Research Division. Where applicable, the Group and the Bank incorporate forward-looking adjustments in credit risk factors of PD and LGD used in ECL calculation, taking into account the impact of multiple probability-weighted future forecast economic scenarios.
ANNUAL REPORT | 171 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5.1 Financial assets (continued) 3.5.1.3 Impairment of financial assets (Policy applicable from 1 January 2018) (continued) (v) Forward-looking information (continued) Embedded in ECL is a broad range of forward-looking information as economic inputs, such as: • • • • The Group and Bank apply the following three alternative macro-economic scenarios to reflect an unbiased probability-weighted range of possible future outcomes in estimating ECL: Gross Domestic Product (“GDP”) House Price Indices (“HPI”) Consumer Price Indices (“CPI”) Overnight Pricing Rate (“OPR”) Base scenario: This scenario reflects the current macro-economic conditions that continue to prevail. Best and Worst scenarios: These scenarios are set relative to the base scenario; reflecting the best and worst-case macro-economic conditions based on subject matter expert’s best judgement from current economic conditions. 3.5.1.4 (vi) Valuation for Stage 3 ECL The Group and the Bank’s accounting policy for collateral assigned to it through its lending arrangements under MFRS 9 is the same as it was under MFRS 139. Impairment of financial assets (Policy applicable before 1 January 2018) (i) Financing and advances Financing and advances (“financing”) of the Group and of the Bank are classified as impaired when they fulfill any of the following criteria: • Principal or profits or both are past due for three (3) months or more; • Where a financing is in arrears for less than three (3) months, the financing exhibits indications of credit weaknesses; or • Where an impaired financing has been rescheduled or restructured, the financing will continue to be classified as impaired until payments based on the revised and/or restructured terms have been observed continuously for certain period of months. FINANCIAL STATEMENTS 3.5 Financial instruments (continued)
172 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 3.5 Financial instruments (continued) 3.5.1 Financial assets (continued) 3.5.1.4 Impairment of financial assets (Policy applicable before 1 January 2018) (continued) (i) Financing and advances (continued) For determination of impairment on financing, the Group and the Bank assess at the end of each reporting period whether there is objective evidence that a financing or a group of financing is impaired. A financing or a group of financing is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (i.e. an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financing or a group of financing that can be reliably estimated. The Group and the Bank first assess individually whether objective evidence of impairment exists individually for financing which are individually significant, or collectively for financing which are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financing, the financing is then included in a group of financing with similar credit risk characteristics and collectively assessed for impairment. Financing that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in collective assessment for impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the financing’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financing’s original effective profit rate. The carrying amount of the financing is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Where appropriate, the calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financing are grouped on the basis of similar credit risk characteristics. Impairment for this group is assessed based on the historical financing loss experience in terms of default rate and estimated recovery rate. Future cash flows of the financing are evaluated depending on the availability of security for the financing. For unsecured financing, the fraction of exposure at default that will not be recovered following the default is taken in full. For financing secured with collateral pledged to the Group and the Bank, the fraction of exposure at default would take into account value of the security discounted based on the expected period of recovery of the security using the effective profit rate.
ANNUAL REPORT | 173 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5.1 Financial assets (continued) 3.5.1.4 Impairment of financial assets (Policy applicable before 1 January 2018) (continued) (i) Financing and advances (continued) The likelihood that the financing would fall into default is computed based on average default rates for the latest number of years using historical data of outstanding balance that flow through to the following month. Similar rate of the likelihood of default is applied to the group of financing with similar credit risk characteristics. In conjunction with the convergence of the FRSs in Malaysia with the IFRSs, BNM’s guideline on Classification and Impairment Provisions for Loans/Financing was revised on 9 November 2011 to align the requirements on the determination of collective assessment allowance with that of the Malaysian Financial Reporting Standard 139: Financial Instruments: Recognition and Measurement (“MFRS 139”). Based on the revised guideline, the transitional arrangement on collective assessment is removed with effect from 1 January 2012. Thereafter, the Bank applies the basis for collective assessment impairment allowance by grouping of these financing with similar credit risk characteristics as explained above. On 4 February 2014, BNM issued letter requiring banking institutions to maintain, in aggregate, collective impairment provisions and regulatory reserves at minimum rate of 1.2% of total outstanding financing, net of individual impairment provisions. This move is to further strengthen buffers against potential credit losses. When a financing is uncollectible, it is written off against the related allowance for financing impairment. Such financing are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to financing and advances to customers are classified in financing impairment charges. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss. (ii) Financial investments available-for-sale The Group and the Bank assess at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. If any such evidence exists for financial investments available-for-sale, cumulative gain or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. FINANCIAL STATEMENTS 3.5 Financial instruments (continued)
174 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 3.5 Financial instruments (continued) 3.5.1 Financial assets (continued) 3.5.1.4 Impairment of financial assets (Policy applicable before 1 January 2018) (continued) (ii) Financial investments available-for-sale (continued) In respect of available-for-sale equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of other reserves. In respect of availablefor-sale debt securities, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. (iii) Financial investments held-to-maturity The Group and the Bank assess at the end of each reporting period whether objective evidence of impairment of financial investments held-to-maturity exists as a result of one or more loss events and that loss event has an impact on the estimated future cash flows of the financial investment or group of financial investments that can be reliably estimated. When there is objective evidence of impairment, an impairment loss is recognised as the difference between the acquisition cost and the present value of the estimated future cash flows, less any impairment loss previously recognised. If held-to-maturity investments have a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Group and the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price. 3.5.1.5 Modification of financing The Group and the Bank sometimes renegotiate or otherwise modify the contractual cash flows of financing to customers. When this happens, the Group and the Bank assess whether or not the new terms are substantially different to the original terms. The Group and the Bank do this by considering, among others, the following factors: • If the customer is in financial difficulty, whether the modification merely reduces the contractual cash flows to amount the customer is expected to be able to pay • Whether any substantial new terms are introduced, such as profit share / equity-based return that substantially affects the risk profile of the financing • Significant extension of the financing term when the customer is not in financial difficulty • Significant change in profit rate
ANNUAL REPORT | 175 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5.1 Financial assets (continued) 3.5.1.5 Modification of financing (continued) The Group and Bank sometimes renegotiate or otherwise modify the contractual cash flows of customer financing. When this happens, the Group and the Bank assess whether or not the new terms are substantially different to the original terms. The Group and Bank do this by considering, among others, the insertion of collateral, other security, or credit enhancements that significantly affect the credit risk associated with the financing. If the terms are substantially different, the Group and the Bank derecognise the original financial asset and recognise a ‘new’ asset at fair value and recalculate a new effective profit rate for the asset. The date of renegotiation is consequently considered to be the date of initial recognition for both impairment calculation purposes and in determining whether a significant increase in credit risk has occurred. If the terms are not substantially different, the renegotiation or modification does not result in derecognition. The Group and the Bank recalculate the gross carrying amount based on the revised cash flows of the financial asset and recognises a modification gain or loss in the income statements. The new gross carrying amount is recalculated by discounting the modified cashflows at the original effective profit rate. 3.5.1.6 Reclassification of financial assets (Policy applicable from 1 January 2018) From 1 January 2018 onwards, reclassification of financial assets is permissible when and only when there is change in business model for managing financial assets. Subsequent to initial recognition, the Group and the Bank did not reclassify its financial assets in 2018. 3.5.1.7 Rescheduled and restructured financing Where a financing shows evidence of credit weaknesses, the Group and the Bank may seek to renegotiate the financing rather than to take possession of collateral. This may involve an extension of the payment arrangements via rescheduling or the renegotiation of new financing terms and conditions via restructuring. Management monitors the renegotiated financing to ensure that all the revised terms are met and that the payments are made promptly for a continuous period. Where an impaired financing is renegotiated, the customer must adhere to the revised and/or restructured payment terms for a continuous period of six months before the financing is classified as non-impaired. This financing continues to be subjected to individual or collective impairment assessment. FINANCIAL STATEMENTS 3.5 Financial instruments (continued)
176 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 3.5 Financial instruments (continued) 3.5.2 Derecognition of financial assets Financial assets are derecognised when the contractual rights to the cash flows from the assets expire, or when the Group and the Bank transfer the financial assets and substantially all the risks and rewards of ownership of the assets to another entity. If the Group and the Bank neither transfer nor retain substantially all the risks and rewards of ownership and continue to control the financial asset, the Group and the Bank recognise their retained interest in the asset and an associated liability for amounts it may have to pay. If the Group and the Bank retain substantially all the risks and rewards of ownership of a transferred financial asset, the Group and the Bank continue to recognise the financial asset and also recognise a collaterised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated under the heading of other reserves is recognised in profit or loss. 3.5.3 Classification as debt or equity Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. 3.5.4 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a group entity are recognised at the proceeds received, net of direct issue costs. Repurchase of the Group’s and of the Bank’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s and of the Bank’s own equity instruments. 3.5.5 Financial liabilities Financial liabilities are initially recognised at the fair value of consideration received less directly attributable transaction costs. Subsequent to initial recognition, financial liabilities are measured at amortised cost using the effective profit method. The Group and the Bank do not have any non-derivative financial liabilities designated at fair value through profit or loss. Financial liabilities at amortised cost include deposits from customers, deposits and placements from banks and financial institutions, trade and other payables, recourse obligations on financing sold to Cagamas, debt securities issued and other borrowed funds. The effective profit method is a method of calculating the amortised cost of a financial liability and of allocating profit expense over the relevant period. The effective profit rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or where appropriate, a shorter period to the net carrying amount on initial recognition.
ANNUAL REPORT | 177 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5 Financial instruments (continued) 3.5.6 Derecognition of financial liabilities The Group and the Bank derecognise financial liabilities when, and only when, the Group’s and the Bank’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liabilities derecognised and the consideration paid or payable is recognised in profit or loss. 3.5.7 Determination of fair value For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices. This includes listed equity securities and quoted debt instruments on Bursa Malaysia and broker quotes from Bond Pricing Agency. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive. Indications that a market is inactive are when there is a wide bid-offer spread or significant increase in the bidoffer spread or there are few recent transactions. For all other financial instruments, fair value is determined using valuation techniques. Under these techniques, fair values are estimated from observable data in respect of similar financial instruments, using models to estimate the present value of expected future cash flows or other valuation techniques, and using inputs existing at the end of the reporting period. The fair value for financing and advances as well as liabilities to banks and customers are determined using a present value model on the basis of contractually agreed cash flows, taking into account credit quality, liquidity and costs. 3.6 Cash and cash equivalents Cash and short term funds in the statement of financial position comprise of cash and bank balances with bank and other financial institutions and short-term deposits maturing within one month. For purpose of the statement of cash flows, cash and cash equivalents consist of cash and short term funds with original maturity of less than three months. FINANCIAL STATEMENTS 3.
178 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.7Leases FINANCIAL STATEMENTS Leases comprise operating lease. Lease of assets is classified as operating lease where a significant portion of the risks and rewards of ownership is retained by the lessor. a) Group as lessor 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. b) Group as lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 3.8 Investment properties Properties that are held for long-term rental yields or for capital appreciation or both, and that are not occupied by the entities in the Group and the Bank, are classified as investment properties. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value, which reflects market conditions at the end of the reporting period. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss in the year in which they arise. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between net disposal proceeds and the carrying amount of the assets), is included in profit or loss in the period which the property is derecognised. 3.9 Property and equipment Land and buildings comprise mainly branches and offices. All property and equipment used by the Group and the Bank are stated at historical cost less accumulated depreciation and any impairment losses. Historical cost includes expenditure that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.
ANNUAL REPORT | 179 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.9 Property and equipment (continued) Subsequent expenditures are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when 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. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are charged to profit or loss during the financial period in which they are incurred. Freehold land has unlimited useful life and therefore is not depreciated. Construction work-in-progress are not depreciated until the assets are ready for their intended use. Depreciation of other property and equipment are calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows: Buildings Leasehold land and buildings Renovation Furniture, fittings and office equipment Motor vehicles 50 years 50 years 5 - 50 years 5 years 5 years The assets’ residual values, useful lives and depreciation method are reviewed at the end of each reporting period with the effect of any changes in estimates accounted for on a prospective basis. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gains and losses arising on disposals are determined as the difference between sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 3.10 Intangibles Assets In addition to goodwill, intangible asset also includes computer software and software-in-development. An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group and the Bank. Intangible assets acquired separately are measured at cost on initial recognition. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Subsequent to initial recognition, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses, except software-in-development which is not subject to amortisation until the development is completed and the asset is available for use. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with indefinite lives are not amortised but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. FINANCIAL STATEMENTS 3.
180 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 3.10 Intangibles Assets (continued) Intangible assets with finite lives are amortised 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. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives recognised in the income statements in the expense category consistent with the function of the intangible asset. Gains or losses arising from derecognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the assets and are recognised in income statements when the asset are derecognised. Amortisation of intangible assets are calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows: Computer software 5 years 3.11 Prepaid lease payments Leasehold land that has an indefinite economic life which title is not expected to pass to the Group by end of the lease period is classified as operating lease. The upfront payments for right to use the leasehold land over a predetermined period are accounted for as prepaid lease payments and are stated at cost less amount amortised. The prepaid lease payments are amortised on a straight-line basis over the remaining lease terms, ranging from 7 to 863 years (2017: 8 to 864 years). 3.12Provisions Provisions are recognised when the Group and the Bank have a present obligation (legal or constructive) as a result of past events, when it is probable that the Group and the Bank will be required to settle the obligation, and when a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of time value of money is material).
ANNUAL REPORT | 181 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.13 Inventories Inventories are valued at the lower of cost (determined using the first-in, first out method) and net realisable value. The cost of inventories comprises the original cost of purchase plus the incidental cost incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price in the ordinary course of business less selling and distribution costs and all other estimated costs to completion. In arriving at net realisable value, due allowance is made for damaged, obsolete or slow-moving inventories. Completed property units for sale are valued at the lower of cost and net realisable value. Cost is determined using the ‘specific identification’ method. 3.14 Profit income and expense For all financial instruments measured at amortised cost and profit-bearing financial assets classified as fair value through profit or loss and fair value through other comprehensive income, income and expense are recognised under “Income” and “Expenditure” respectively using the effective profit method. The effective profit method is a method of calculating the amortised cost of a financial asset or liability and of allocating the profit income or expense over the relevant period. The effective profit rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. The calculation takes into account all contractual terms of the financial instruments (for example, prepayment options) but does not consider future credit losses. Significant fees and transaction costs integral to the effective profit rate, as well as premiums or discounts are also considered. For impaired assets where the value of the financial assets has been written down as a result of an impairment loss, profit income continues to be recognised using the profit rate used to discount the future cash flows for the purpose of measuring the impairment loss. 3.15 Fee and commission income Financing arrangement fees are recognised as income based on contractual arrangements. Guarantee fee is recognised as income upon issuance of the guarantee. Fees from advisory and corporate finance activities are recognised net of sales and service tax and discounts on completion of each stage of the assignment. Fees and commissions are generally recognised on an accrual basis when the service has been provided. 3.16 Dividend income Dividends are recognised in profit or loss as ‘dividend income’ when the Group’s right to receive payment is established. FINANCIAL STATEMENTS 3.
182 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 3.17 Income tax 3.17.1 Current income tax Current income tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous years. 3.17.2 Deferred income tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profits. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that sufficient future taxable profits will be available against which those deductible temporary differences, unused tax losses and unused tax credits can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group and the Bank expect, at the end of the reporting period, to recover or settle the carrying amount of their assets and liabilities. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different tax entities, but they intend to settle their current tax assets and liabilities on a net basis. 3.18 Employee benefits 3.18.1 Defined contribution plan For defined contribution plan, the Group and the Bank pay contributions to Employees Provident Fund (“EPF”) on a mandatory basis. The Group and the Bank have no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due.
ANNUAL REPORT | 183 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.18.2 Short-term employee benefits Wages, salaries, paid annual leaves, bonuses and social contributions are recognised in the year in which the associated services are rendered by employees of the Group and of the Bank. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by the employees that increase their entitlement to future compensated absences. Short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur. 3.19 Impairment of non-financial assets At the end of each reporting period, the Group and the Bank review the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group and the Bank estimate the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 3.20Zakat In computing for zakat, the Group and the Bank have been applying the growth capital method based on the rate of 2.5%. This method applies the rate on owners’ equity, long term liability, net of fixed assets and non-current assets, and subjected to allowable adjustments. It is an obligatory amount payable on the business on behalf of the shareholders and/or business entity depending on the ownership characteristics. Zakat is distributed according to Shariah principle and being extended through Islamic Religious Council of the respective states and other rightful beneficiaries or asnaf. FINANCIAL STATEMENTS 3.18 Employee benefits (continued)
184 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group’s and the Bank’s financial statements and financial results are influenced by accounting policies, assumptions, estimates and management judgements, which necessarily have to be made in the course of preparation of the financial statements. The Group and the Bank make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. All estimates and assumptions required in conformity with MFRS are best estimates undertaken in accordance with the applicable standards. Estimates and judgements are evaluated on a continuous basis, and are based on past experience and other factors, including expectations with regard to future events. Accounting policies and management’s judgements for certain items are especially critical for the Group’s and the Bank’s results and financial situation due to their materiality. 4.1 Impairment losses on financing and advances The Group and the Bank review their financing and advances portfolio to determine whether impairment losses should be recognised in profit or loss. Financing is considered as impaired when there is objective evidence of impairment as a result of loss event that has affected future estimated cash flows of the financing subsequent to its initial recognition. Components of impairment allowance are as follows: (i) Individual impairment Where an account has exceeded certain number of arrears or when the account has fulfilled certain criteria that indicates credit weaknesses, the account is individually assessed for impairment. Individual allowance is measured as the difference between carrying amount of the financing and present value of estimated future cash flows that are discounted at the effective profit rate. Expectation on future cash flows is established by applying the best estimate formed on reliable and objective evidence. This process involves significant and reasonable judgement.
ANNUAL REPORT | 185 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) 4.1 Impairment losses on financing and advances (continued) Components of impairment allowance are as follows: (continued) (ii) Collective impairment The Group and the Bank’s ECL calculations under MFRS 9 are outputs of complex models with several underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgements and estimates include: • Criteria for assessing if there has been a significant increase in credit risk, which includes qualitative assessment, to determine whether financial assets should be measures on lifetime ECL basis rather than 12-month ECL basis; • The segmentation of financial assets, when their ECL is assessed on a collective basis; • Development of ECL models, including various formulas and the choice of inputs; • Determination of associations between macroeconomic scenarios, and economic inputs, such as unemployment levels and overnight pricing rate, and their effect on PDs, EADs, and LGDs; • Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic inputs into the ECL models. Under MFRS 139, collective allowance takes into account probability of financing turning into default (or probability of default) and estimated loss on default (or loss given default) of any particular financing. Probability of default is the resultant of cumulative trend of default for a specified period. It is reflective of business sectors for the financing and is refined to the extent of gravity in terms of defaults shown by the financing. Derivation of the rate for probability of default takes into account risk aspect of the business sector. Loss given default is measured by considering value of collateral to the financing and estimated recovery period from the collateral. 4.2 Impairment of financial assets portfolio The Group and the Bank review their financial investments at FVOCI and financial investments at amortised cost under MFRS 9 to recognise the ECL at each reporting date to reflect changes in credit risk of the financial investments not measured through FVTPL. MFRS 9 incorporates forward-looking and historical, current and forecasted information into ECL estimation. In carrying out the impairment review, the following management’s judgements are required: (i) Determination whether the investment is impaired based on certain indicators such as, among others, difficulties of the issuers or obligors, deterioration of the credit quality of the issuers or obligors; and FINANCIAL STATEMENTS 4.
186 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) FINANCIAL STATEMENTS 4.2 Impairment of financial assets portfolio (continued) (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, as at the reporting date about past events, current conditions, and forecasts of future economic conditions. Under MFRS 139, the Group and the the Bank review their financial investments AFS and financial investments HTM at each reporting date to assess if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the investment. (i) Impairment for debt securities A debt security is impaired if there is an indication that a loss event has occurred since initial recognition. This normally has a negative impact on the estimated future cash flows in relation to the payments of the security. (ii) Impairment for equity securities For equity instruments, impairment is not identified based on analysis of projected cash flows similar to debt instruments above. It arises due to establishment of the following events: (a) significant decline in fair value of the securities below original cost (30%); or (b) prolonged decline in fair value of the securities below original cost (9 months). The above are considered objective evidence for provision of impairment on the equity securities. 4.3 Fair value estimation of financial assets at FVTPL and financial investments at FVOCI When the fair value of financial assets recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair values are measured using valuation techniques. Valuation techniques include the discounted cashflow methods, option pricing models, and other relevant valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values.
ANNUAL REPORT | 187 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) 4.4 Deferred tax Deferred tax assets are recognised for deductible temporary differences to the extent that it is probable that sufficient future taxable profit will be available against which the deductible temporary differences can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon likely timing and level of future taxable profit together with future tax planning strategies. 5. CHANGES IN ACCOUNTING POLICIES On 1 January 2018, the Group and the Bank adopted the following amendments to MFRSs and annual improvements to MFRSs: MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2018 • • • • MFRS 9, Financial Instruments MFRS 15, Revenue from Contracts with Customers IC Interpretation 22, Foreign Currency Transactions and Advance Consideration Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards (Annual Improvements to MFRS Standards 2014-2016 Cycle) • Amendments to MFRS 2, Share-based Payment - Classification and Measurement of Share-based Payment Transactions • Amendments to MFRS 4, Insurance Contracts - Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts • Amendments to MFRS 128, Investments in Associates and Joint Ventures (Annual Improvements to MFRS Standards 2014-2016 Cycle) • Amendments to MFRS 140, Investment Property - Transfers of Investment Property The adoption of the accounting standards, amendments or interpretations did not have any material financial impact on the financial statements of the Group and the Bank except as mentioned below: 5.1 MFRS 9 Financial Instruments The Group and the Bank have adopted MFRS 9 to replace MFRS 139 Financial Instruments: Recognition and Measurement as issued by MASB in 2015 with a date of transition of 1 January 2018, 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 any of MFRS 9 in previous periods. The Group and the Bank does not expect to restate comparatives on initial application of MFRS 9 on 1 January 2018 but will provide detailed transitional disclosures in accordance with the amended requirements of MFRS 7. FINANCIAL STATEMENTS 4.
188 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.1 MFRS 9 New Requirements Details of these new requirements as well as their impact on the Group’s and the Bank’s financial statements are described below. 5.1.1.1 Classification and measurement There is no significant impact on its balance sheet or equity on applying the classification and measurement requirements of MFRS 9. The Group and the Bank expect to continue measuring at fair value all financial assets currently held at fair value. Quoted shares currently held as available-for-sale (“AFS”) with gains and losses recorded in other comprehensive income (“OCI”) will, instead, be measured at fair value through profit or loss, which will increase volatility in recorded profit or loss. The AFS reserve of RM52.13 million related to those securities in amount, which is currently presented as accumulated OCI, will be reclassified to retained profits. Debt securities are expected to be measured at fair value through profit or loss and OCI under MFRS 9 as the Group and the Bank expect not only to hold the assets to collect contractual cash flows, but also to sell a significant amount on a relatively frequent basis. The unquoted shares are intended to be held for the foreseeable future. No impairment losses were recognised in profit or loss during prior periods for these investments. The Group and the Bank will apply the option to present fair value changes in OCI, and, therefore, the application of MFRS 9 will not have a significant impact. Financing as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and profit. The Group and the Bank analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under MFRS 9. Therefore, reclassification for these instruments is not required. 5.1.1.2 Impairment The impairment requirements apply to financial assets measured at amortised cost and fair value through other comprehensive income and certain financing commitments as well as financial guarantee contracts. At initial recognition, allowance for impairment is required for expected credit losses (“ECL”). In the event of a significant increase in credit risk, allowance for impairment is required for ECL resulting from all possible default events over the expected life of the financial instrument. The assessment of credit risk, as well as the estimation of ECL, are required to be unbiased, probability-weighted and should incorporate all available information which is relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of future events and economic conditions at the reporting date. In addition, the estimation of ECL should also be considered the time value of money.
ANNUAL REPORT | 189 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.2 Classification of MFRS 9 Financial Assets 5.1.2.1 Equity instruments The adoption of MFRS 9 resulted in the following changes to the Group’s and the Bank’s accounting policies. From 1 January 2018, the Group and the Bank have applied MFRS 9 and classifies its financial assets in the following measurement categories: Investments in equity instruments are always measured at fair value. Equity instruments that are held for trading are classified at Fair Value through Profit and Loss (“FVTPL”). For non-trading equities, management has an option to make an irrevocable election to present changes in Fair Value through Other Comprehensive Income (“FVOCI”) rather than profit or loss. This option is only applicable upon initial recognition and it is on an instrument-by-instrument basis. Any realised gains or losses on equity instruments that are measured at FVOCI are not recycled through the profit or loss account, i.e. it is merely a transfer from FVOCI reserve to retained profits during the financial period. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a group entity are recognised at the proceeds received, net of direct issue costs. Repurchase of the Group’s and of the Bank’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s and of the Bank’s own equity instruments. 5.1.2.2 Debt instruments Classification for investments in debt instruments is driven by the entity’s business model for managing financial assets and the financial assets’ contractual cash flow characteristics (i.e. the solely payment of principal and profit (“SPPP”) test. MFRS 9 mandates three classification categories for debt instruments, i.e. (i) Amortised cost A financial asset is measured at amortised cost if the asset is held to collect its contractual cash flow and the asset’s contractual cash flows represent SPPP. (ii) FVOCI A financial asset is measured at FVOCI if the business model is both collecting contractual cash flows and selling financial assets, and the asset’s contractual cash flows represent SPPP. Fair value movements of FVOCI assets are taken through OCI, except for the recognition of impairment gains or losses, revenue and foreign exchange gains and losses which are recognised in profit or loss. Realised gains or losses on FVOCI debts assets are recycled through profit or loss. FINANCIAL STATEMENTS 5.
190 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.2 Classification of MFRS 9 Financial Assets (continued) 5.1.2.2 Debt instruments (continued) (iii)FVTPL FVTPL is the residual category if they do not meet the criteria of amortised cost or FVOCI. Financial assets included within the FVTPL category are subsequently measured at fair value with all changes taken through profit or loss, i.e. transfer from FVOCI reserve to profit or loss during the financial period. As a result, the financial instruments available-for-sale (“AFS”) and held-to-maturity (“HTM”) categories were removed. 5.1.3 MFRS 9 New classification requirements 5.1.3.1 Financing and advances but which fail the SPPP test The Group and the Bank holds a portfolio of musharakah financing that failed to meet the SPPP requirement for amortised cost classification under MFRS 9. These instruments contain provisions that the cash flow financing payment may be affected based on the customer’s performance. This clause breaches the criterion that profit payment should only be consideration for credit risk and time value of money on the principal. As a result, this asset which amounted to RM41.37 million, were classified as FVTPL from the date of initial application. 5.1.3.2 Financial investments within the liquidity and trading portfolio After assessing the business model for financial investments within the Group’s and the Bank’s liquidity portfolio, which are mostly held to collect the contractual cash flow and held to collect the contractual cash flow and sell, the Group and the Bank has identified certain financial investments which are managed separately for trading purposes. Consequently, the Group and the Bank assessed that the appropriate business model for this group of financial investments is hold to sell. These financial investments which amounted to RM573.85 million and which were previously classified as available-forsale, were reclassified to FVTPL from the date of initial application. The remainder of the Group’s and the Bank’s liquidity portfolio were classified as fair value through other comprehensive income. 5.1.3.3 Investment in Unit Trust Funds The Group and the Bank holds an investment in unit trust funds amounting to RM1.71 million which did not meet the SPPP criteria. These were accounted as debt securities where including callable option with the equity conversion feature representing an embedded derivative. Under MFRS 9, these instruments failed the SPPP test. Hence, the instruments now measured at FVTPL in their entirety.
ANNUAL REPORT | 191 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.3 MFRS 9 New classification requirements (continued) 5.1.3.4 Investment in quoted shares The Group and the Bank holds an investment of RM572.14 million in quoted shares. These were accounted as investment in equity securities and measured at FVTPL. 5.1.3.5 Designation of equity instuments at FVOCI The Group and the Bank have elected to irrevocably designate investment in the nontrading equity securities of Payments Network Malaysia Sdn Bhd (also known as “PayNet”; formerly known as Malaysian Electronic Payment System or “MEPS”) and Raeed Holdings Sdn Bhd, amounting to RM17.40 million and RM0.75 million respectively as FVOCI; as permitted under MFRS 9. These securities were previously classified as available-for-sale. The changes in fair value of those securities will no longer be reclassified to profit loss when they are disposed of. At 1 January 2018, the Group and the Bank designated certain investments shown in the following table as equity securities as at FVOCI. In 2017, these investments were classified as available-for-sale and measured at cost. The FVOCI designation was made because the investments are expected to be held for the long-term for strategic purposes. Fair value at 31 December 2018 Dividend income recognised 2018 RM’000 RM’000 37,795 - - - 37,795 - Investment in: Payments Network Malaysia Sdn Bhd (also known as “PayNet”) Raeed Holdings Sdn Bhd FINANCIAL STATEMENTS 5.
192 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.4 MFRS 9 Impairment MFRS 9 introduces expected credit losses (“ECL”) model on impairment that replaces the incurred loss model used in MFRS 139. The ECL model requires impairment to be recognised on initial recognition including expected future credit losses whilst the incurred loss impairment model only requires recognition of credit losses incurred as at reporting date. The impairment requirements apply to financial assets measured at amortised cost and FVOCI, lease receivables and certain financing commitments as well as financial guarantee contracts, which includes financing and advances and investment securities. MFRS 9 does not distinguish between individual assessment and collective assessment for purposes of ECL computation. For financing and advances, the Group and the Bank first assess individually whether objective evidence of impairment exists for financings which are individually significant. If it is determined that objective evidence of impairment exists, i.e.: credit impaired, for an individually assessed financing, a lifetime ECL will be recognised for impairment loss which has been incurred. Collectively, the individual assessment allowance and collective assessment allowance form the total allowance for impairment on financing and advances. Allowance for impairment will be made based on the following three-stage approach which reflects the change in credit quality of the financial instrument since initial recognition: (i) Stage 1: 12-month ECL For exposures where there has not been a significant increase in credit risk since initial recognition 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. (ii) 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, a lifetime ECL will be recognised. (iii) 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, a lifetime ECL will be recognised. The assessment of credit risk, as well as the estimation of ECL, are required to be unbiased, probability-weighted, and should incorporate all available information which is relevant to the assessment, including information about past events, current conditions, and reasonable and supportable forecasts of future events and economic conditions at the reporting date. In addition, the estimation of ECL should also take into account the time value of money. Impact as a result of MFRS 9 adoption The total ECL allowances computed under MFRS 9 is higher than the total allowance for impairment on financing and advances under MFRS 139 as a more forward-looking approach is adopted.
ANNUAL REPORT | 193 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (i) Reconciliation of statement of financial position 31 December Reclassification / 2017 Remeasurement Group Expected Credit Loss 1 January 2018 RM’000 RM’000 RM’000 RM’000 2,476,623 - - 2,476,623 101,384 - - 101,384 Financial investments FVTPL - 574,339 - 574,339 Financial investments available-for-sale 20,252,909 (20,252,909) - - Financial investments FVOCI - 19,695,224 - 19,695,224 Financial investments held-to-maturity 10,437,053 (10,437,053) - - Financial investments at amortised cost - 10,437,053 - 10,437,053 Financing and advances 69,189,090 - (11,933) 69,177,157 1,795 - (335) 1,460 1,019,205 - - 1,019,205 9,291 - - 9,291 708,374 - - 708,374 13,185 - - 13,185 1,116,302 - - 1,116,302 Prepaid lease payments 62,234 - - 62,234 Tax recoverable 51,111 12,510 (128,588) (64,967) Deferred tax assets 13,446 9,000 100,000 122,446 105,452,002 38,164 (40,856) 105,449,310 Assets Cash and short-term funds Deposits and placements with financial institutions Trade receivables Other assets Inventories Property and equipment Intangible assets Investment properties Total assets FINANCIAL STATEMENTS 5.
194 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (i) Reconciliation of statement of financial position (continued) 31 December Reclassification / 2017 Remeasurement Group Expected Credit Loss 1 January 2018 RM’000 RM’000 RM’000 RM’000 83,235,496 - - 83,235,496 2,681 - - 2,681 748,334 - - 748,334 Debt securities issued 3,443,770 - - 3,443,770 Other liabilities 1,379,579 - - 1,379,579 Provision for taxation 574 - - 574 Deferred tax liabilities 4,371 - - 4,371 Financing from other financial institutions 8,844 - - 8,844 88,823,649 - - 88,823,649 2,986,030 - - 2,986,030 Liabilities Deposits from customers Trade payables Recourse obligations on financing sold to Cagamas Total liabilities Shareholders’ fund Share capital Share redemption fund 36,440 - - 36,440 Reserves 13,605,883 38,164 (40,856) 13,603,191 Total shareholders’ fund 16,628,353 38,164 (40,856) 16,625,661 105,452,002 38,164 (40,856) 105,449,310 Total liabilities and shareholders’ fund
ANNUAL REPORT | 195 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (i) Reconciliation of statement of financial position (continued) 31 December Reclassification / 2017 Remeasurement Bank Expected Credit Loss 1 January 2018 RM’000 RM’000 RM’000 RM’000 2,469,937 - - 2,469,937 100,992 - - 100,992 Financial investments FVTPL - 573,858 - 573,858 Financial investments available-for-sale 20,252,428 (20,252,428) - - Financial investments FVOCI - 19,695,224 - 19,695,224 10,437,053 (10,437,053) - - Financial investments at amortised cost - 10,437,053 - 10,437,053 Financing and advances 69,189,090 - (11,933) 69,177,157 987,691 - (1,691) 986,000 Assets Cash and short-term funds Deposits and placements with financial institutions Financial investments heldto-maturity Other assets Investment in subsidiaries 65,976 - - 65,976 Property and equipment 649,790 - - 649,790 Investment properties 871,845 - - 871,845 Prepaid lease payments 62,234 - - 62,234 Tax recoverable 47,806 12,510 (128,588) (68,272) Deferred tax assets 13,000 9,000 100,000 122,000 105,147,842 38,164 (42,212) 105,143,794 Total assets FINANCIAL STATEMENTS 5.
196 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (i) Reconciliation of statement of financial position (continued) 31 December Reclassification / 2017 Remeasurement Bank Expected Credit Loss 1 January 2018 RM’000 RM’000 RM’000 RM’000 83,235,496 - - 83,235,496 748,334 - - 748,334 Debt securities issued 3,443,770 - - 3,443,770 Other liabilities 1,490,291 - - 1,490,291 Total liabilities 88,917,891 - - 88,917,891 2,986,030 - - 2,986,030 36,440 - - 36,440 Reserves 13,207,481 38,164 (42,212) 13,203,433 Total shareholders’ fund 16,229,951 38,164 (42,212) 16,225,903 105,147,842 38,164 (42,212) 105,143,794 Liabilities Deposits from customers Recourse obligations on financing sold to Cagamas Shareholders’ fund Share capital Share redemption fund Total liabilities and shareholders’ fund
ANNUAL REPORT | 197 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (ii) Classification and measurement of financial instruments on the date of initial application of MFRS 9 Measurement category Group Under Under MFRS 139 MFRS 9 Carrying amount Under MFRS 139 RM’000 Remeasurement, Reclassification & Expected Credit Loss RM’000 Under MFRS 9 RM’000 Cash and short-term funds Amortised Amortised cost cost 2,476,623 - 2,476,623 Deposits and placements with financial institutions Amortised Amortised cost cost 101,384 - 101,384 Financial investments available-for-sale AFS (Equity) FVTPL 574,339 - 574,339 Financial investments available-for-sale AFS (Equity) FVOCI 7,583 16,654 24,237 Financial investments available-for-sale AFS (Debt) FVOCI 19,670,987 - 19,670,987 Financial investments held-to-maturity Amortised Amortised cost cost 10,437,053 - 10,437,053 Financing and advances Amortised Amortised cost cost 69,148,360 (11,933) 69,136,427 40,730 - 40,730 Financing and advances (which failed SPPP Amortised test) cost FVTPL FINANCIAL STATEMENTS 5.
198 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (ii) Classification and measurement of financial instruments on the date of initial application of MFRS 9 (continued) Measurement category Bank Under Under MFRS 139 MFRS 9 Carrying amount Under MFRS 139 RM’000 Cash and short-term funds Amortised Amortised cost cost Deposits and placements with financial institutions Amortised Amortised cost cost Financial investments available-for-sale AFS (Equity) FVTPL Financial investments available-for-sale AFS (Equity) FVOCI Financial investments available-for-sale AFS (Debt) FVOCI Financial investments held-to-maturity Financing and advances Remeasurement, Reclassification & Expected Credit Loss RM’000 Under MFRS 9 RM’000 2,469,937 - 2,469,937 100,992 - 100,992 573,858 - 573,858 7,583 16,654 24,237 19,670,987 - 19,670,987 Amortised Amortised cost cost 10,437,053 - 10,437,053 Amortised Amortised cost cost 69,148,360 (11,933) 69,136,427 40,730 - 40,730 Financing and advances Amortised FVTPL (which failed SPPP cost test)
ANNUAL REPORT | 199 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (iii) Reconciliation of financial instruments from MFRS 139 to MFRS 9 Group RM’000 Bank RM’000 Cash and short-term funds Closing balance under MFRS 139 as at 31 December 2017/ Opening balance under MFRS 9 as at 1 January 2018 2,476,623 2,469,937 Deposits and placements with financial institutions Closing balance under MFRS 139 as at 31 December 2017/ Opening balance under MFRS 9 as at 1 January 2018 101,384 100,992 20,252,909 (7,583) (19,670,987) (574,339) 20,252,428 (7,583) (19,670,987) (573,858) - - 10,437,053 (10,437,053) 10,437,053 (10,437,053) - - Financing and advances (including financing that failed SPPP test) Closing balance under MFRS 139 as at 31 December 2017 Recognition of expected credit loss 69,189,090 (11,933) 69,189,090 (11,933) Opening balance under MFRS 9 as at 1 January 2018 69,177,157 69,177,157 Financial investments available-for-sale Closing balance under MFRS 139 as at 31 December 2017 Reclassification to financial investments at FVOCI (Equity) Reclassification to financial investments at FVOCI (Debt) Reclassification to financial investments at FVTPL Opening balance under MFRS 9 as at 1 January 2018 Financial investments held-to-maturity Closing balance under MFRS 139 as at 31 December 2017 Reclassification to financial investments at amortised cost Opening balance under MFRS 9 as at 1 January 2018 FINANCIAL STATEMENTS 5.
200 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (iii) Reconciliation of financial instruments from MFRS 139 to MFRS 9 (continued) Group RM’000 Bank RM’000 Financial investments at FVTPL Closing balance under MFRS 139 as at 31 December 2017 Reclassification from financial investments available-for-sale 574,339 573,858 Opening balance under MFRS 9 as at 1 January 2018 574,339 573,858 Financial investments at FVOCI (Equity) Closing balance under MFRS 139 as at 31 December 2017 Reclassification from financial investments available-for-sale Unrealised gain on financial investment 7,583 16,654 7,583 16,654 Opening balance under MFRS 9 as at 1 January 2018 24,237 24,237 Financial investments at FVOCI (Debt) Closing balance under MFRS 139 as at 31 December 2017 Reclassification from financial investments available-for-sale 19,670,987 19,670,987 Opening balance under MFRS 9 as at 1 January 2018 19,670,987 19,670,987 Total financial investments measured at fair value through other comprehensive income 19,695,224 19,695,224 Financial investments at amortised cost Closing balance under MFRS 139 as at 31 December 2017 Reclassification from financial investments held-to-maturity 10,437,053 10,437,053 Opening balance under MFRS 9 as at 1 January 2018 10,437,053 10,437,053
ANNUAL REPORT | 201 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (iii) Reconciliation of financial instruments from MFRS 139 to MFRS 9 (continued) Group Bank RM’000 RM’000 Closing balance under MFRS 139 as at 31 December 2017 13,446 13,000 Tax impact on unrealised loss on financial investment at FVOCI (4,000) (4,000) 100,000 100,000 13,000 13,000 122,446 122,000 1,795 - (335) - 1,460 - 1,019,205 987,691 - (1,691) 1,019,205 986,000 9,291 - Deferred tax assets Tax impact on recognition of expected credit loss Tax impact on unrealised loss on financial investment available-for-sale reclassified to financial investments at FVTPL Opening balance under MFRS 9 as at 1 January 2018 Trade receivables Closing balance under MFRS 139 as at 31 December 2017 Recognition of expected credit loss Opening balance under MFRS 9 as at 1 January 2018 Other assets Closing balance under MFRS 139 as at 31 December 2017 Recognition of expected credit loss Opening balance under MFRS 9 as at 1 January 2018 Inventories Closing balance under MFRS 139 as at 31 December 2017/ Opening balance under MFRS 9 as at 1 January 2018 FINANCIAL STATEMENTS 5.
202 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (iii) Reconciliation of financial instruments from MFRS 139 to MFRS 9 (continued) Group Bank RM’000 RM’000 51,111 47,806 (1) (1) (128,588) (128,588) Tax impact on unrealised loss on financial investment available-for-sale reclassified to financial investments at FVTPL 12,511 12,511 Opening balance under MFRS 9 as at 1 January 2018 (64,967) (68,272) 1,379,579 1,490,291 Tax recoverable Closing balance under MFRS 139 as at 31 December 2017 Tax impact on unrealised loss on financial investment at FVOCI Tax impact on recognition of expected credit loss Other liabilities Closing balance under MFRS 139 as at 31 December 2017/ Opening balance under MFRS 9 as at 1 January 2018
ANNUAL REPORT | 203 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (iv) Reconciliation of equity balances from MFRS 139 to MFRS 9 Group Bank RM’000 RM’000 7,638,532 7,239,389 (52,130) (52,130) 5 5 (12,268) (13,624) (4,001) (4,001) Tax impact on recognition of expected credit loss (28,588) (28,588) Tax impact on unrealised loss on financial investment available-for-sale reclassified to financial investments at FVTPL 25,511 25,511 7,567,061 7,166,562 329,672 329,672 Closing balance under MFRS 139 as at 31 December 2017 (8,420) (8,420) Unrealised loss on financial investments available-for-sale reclassified to financial investments at FVTPL 52,130 52,130 (5) (5) Unrealised gain on financial investments at FVOCI 16,654 16,654 Opening balance under MFRS 9 as at 1 January 2018 60,359 60,359 Retained profits Closing balance under MFRS 139 as at 31 December 2017 Unrealised loss on financial investments available-for-sale reclassified to financial investments at FVTPL Unrealised loss transfer to fair value reserve Recognition of additional allowance under ECL Tax impact on unrealised loss on financial investment at FVOCI Opening balance under MFRS 9 as at 1 January 2018 Regulatory reserve Closing balance under MFRS 139 as at 31 December 2017/ Opening balance under MFRS 9 as at 1 January 2018 Fair value reserves Unrealised loss transfer from retained profits FINANCIAL STATEMENTS 5.
204 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 5. CHANGES IN ACCOUNTING POLICIES (CONTINUED) FINANCIAL STATEMENTS 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (v) Reconciliation of impairment allowances balance Loss allowance MFRS 139 Remeasurement Loss allowance under MFRS 9 RM’000 RM’000 RM’000 1,439,768 11,933 1,451,701 1,916 335 2,251 1,441,684 12,268 1,453,952 1,439,768 11,933 1,451,701 1,510 1,691 3,201 1,441,278 13,624 1,454,902 Group Financing and advances Trade receivables Bank Financing and advances Other assets - Amount due from subsidiaries
ANNUAL REPORT | 205 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) CHANGES IN ACCOUNTING POLICIES (CONTINUED) 5.1 MFRS 9 Financial Instruments (continued) 5.1.5 Financial impact arising from adoption of MFRS 9 Financial Instruments and restatement of comparative information (continued) (vi) Impact of capital adequacy ratio 31 December 2017 Impact of adopting MFRS 9 1 January 2018 RM’000 RM’000 RM’000 Tier I capital 15,872,259 (72,827) 15,799,432 Tier II capital 1,201,672 2,905 1,204,577 Total capital 17,007,955 (69,922) 16,938,033 Risk-weighted assets 76,382,645 (113,048) 76,269,597 Core capital ratio 20.78% (0.06%) 20.72% Risk-weighted capital adequacy ratio 22.27% (0.06%) 22.21% Core capital ratio 20.11% (0.06%) 20.05% Risk-weighted capital adequacy ratio 21.60% (0.06%) 21.54% Before proposed dividend After proposed dividend FINANCIAL STATEMENTS 5.
206 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 6. CASH AND SHORT-TERM FUNDS FINANCIAL STATEMENTS 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Cash and balances with banks and other financial institutions 833,602 1,056,304 831,426 1,049,618 Money at call and deposit placements maturing within one month 330,028 1,420,319 330,028 1,420,319 1,163,630 2,476,623 1,161,454 2,469,937 For the purpose of the statements of cash flows, cash and cash equivalents comprise the following: Cash and short-term funds 7. Bank Group Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 1,163,630 2,476,623 1,161,454 2,469,937 DEPOSITS AND PLACEMENTS WITH FINANCIAL INSTITUTIONS Licensed banks Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 - 101,384 - 100,992
ANNUAL REPORT | 207 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS Group and Bank 2018 2017 RM’000 RM’000 Government investment issues 203,600 - Islamic redeemable convertible preference shares 202,096 - 405,696 - 335,182 - 1,419 - 336,601 - 742,297 - Debt instruments at fair value through profit or loss: Equity securities at fair value through profit or loss: Quoted shares Unit trust shares Total financial investments at fair value through profit or loss FINANCIAL STATEMENTS 8.
208 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 9. FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE Group FINANCIAL STATEMENTS Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Islamic debt securities - 3,798,824 - 3,798,824 Government investment issues - 9,178,953 - 9,178,953 Government sukuk - 4,922,276 - 4,922,276 Khazanah sukuk - 208,347 - 208,347 Cagamas sukuk - 1,562,587 - 1,562,587 Quoted shares - 572,144 - 572,144 Unit trust shares - 1,714 - 1,714 Unquoted shares - 8,064 - 7,583 Net carrying amount - 20,252,909 - 20,252,428 At fair value At cost, net of impairment loss
ANNUAL REPORT | 209 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL INVESTMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Islamic debt securities 4,766,558 - 4,766,558 - Government investment issues 9,218,783 - 9,218,783 - Government sukuk 5,637,781 - 5,637,781 - Khazanah sukuk 217,208 - 217,208 - Cagamas sukuk 2,451,645 - 2,451,645 - 22,291,975 - 22,291,975 - 37,807 - 37,798 - 37,807 - 37,798 - 22,329,782 - 22,329,773 - Debt instruments at fair value through other comprehensive income: Equity securities at fair value through other comprehensive income: Unquoted shares Total financial investments at fair value through other comprehensive income Movement of accumulated impairment losses for debt instruments at fair value through other comprehensive income is as follows: 12 month ECL Stage 1 RM’000 At 1 January 2018 - Changes in credit risk (Note 33(ii)) 475 At 31 December 2018 475 FINANCIAL STATEMENTS 10.
210 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 11. FINANCIAL INVESTMENTS HELD-TO-MATURITY Group and Bank 2018 2017 RM’000 RM’000 Islamic debt securities - 642,412 Government investment issues - 6,352,971 Government sukuk - 2,248,815 Khazanah sukuk - 341,911 Cagamas sukuk - 475,271 Negotiable Islamic debt certificates - 398,630 - 10,460,010 - (22,957) - 10,437,053 At amortised cost Less: Accumulated impairment losses Islamic debt securities Net carrying amount Movement of accumulated impairment losses is as follows: Group and Bank 2018 2017 RM’000 RM’000 As of 1 January - 23,606 Charge to profit or loss, net (Note 34(ii)) - (649) As of 31 December - 22,957
ANNUAL REPORT | 211 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 11. FINANCIAL INVESTMENTS HELD-TO-MATURITY (CONTINUED) Group and Bank 2018 2017 RM’000 RM’000 Maturity within one year - 2,464,394 More than one year to five years - 6,514,401 More than five years - 1,481,215 - 10,460,010 12. FINANCIAL INVESTMENTS AT AMORTISED COST Group and Bank 2018 2017 RM’000 RM’000 At amortised cost 701,498 - Government investment issues 5,912,370 - Government sukuk 2,312,408 - Khazanah sukuk 340,579 - Cagamas sukuk 698,173 - Negotiable Islamic debt certificates 148,698 - 64,287 - 10,178,013 - (22,224) - 10,155,789 - Islamic debt securities Islamic commercial papers Less: Accumulated impairment losses Islamic debt securities FINANCIAL STATEMENTS The maturity structure of the instruments is as follows:
212 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL INVESTMENTS AT AMORTISED COST (CONTINUED) Movement of accumulated impairment losses is as follows: FINANCIAL STATEMENTS 12. 12 month ECL Stage 1 Lifetime ECL Credit Impaired Stage 3 Total RM’000 RM’000 RM’000 - 22,957 22,957 Changes in credit risk (Note 33(ii)) 55 (788) (733) At 31 December 2018 55 22,169 22,224 At 1 January 2018 The maturity structure of the instruments is as follows: Group and Bank 2018 2017 RM’000 RM’000 Maturity within one year 2,658,104 - More than one year to five years 5,527,070 - More than five years 1,992,839 - 10,178,013 -
ANNUAL REPORT | 213 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCING AND ADVANCES (i) Financing and advances analysed by type and concept Bai` `Inah Bai` Bithaman Ajil Ar-Rahn RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 23,873,401 - - - - - - 31,003,712 54,877,113 -House financing - 1,192,687 - - 359,162 - - 4,370,474 5,922,323 -Hire-purchase receivables - - - - - 1,573,656 - 895 1,574,551 -Syndicated financing - - - - 356,259 - - - 356,259 -Bridging financing - - - - 232,863 - - - 232,863 78,869 5,707 - 24 3,169,491 15 - 1,219,133 4,473,239 Pawn broking - - 1,728,090 - - - - - 1,728,090 Revolving credit - - - - 367,287 - - - 367,287 Group and Bank 2018 Qard Murabahah Ijarah Thumma Al-Bai` Musharakah Tawarruq RM’000 RM’000 Total RM’000 At amortised cost Term financing -Personal financing -Other term financing Credit card - - - - - - - 444,036 444,036 Staff financing - 425,103 - - - - - - 425,103 23,952,270 1,623,497 1,728,090 24 4,485,062 1,573,671 - 37,038,250 70,400,864 Allowance for impairment on financing and advances: Collective assessment allowance - 12 months expected credit loss (ECL) (428,090) Collective assessment allowance - lifetime ECL (591,287) Individual assessment allowance - lifetime ECL (377,632) Net financing and advances 69,003,855 FINANCIAL STATEMENTS 13.
214 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 13. FINANCING AND ADVANCES (CONTINUED) FINANCIAL STATEMENTS (i) Financing and advances analysed by type and concept (continued) Bai` `Inah Bai` Bithaman Ajil Ar-Rahn RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 26,929,050 - - - - - - 29,063,183 55,992,233 -House financing - 1,362,782 - - 347,463 - - 3,539,510 5,249,755 -Hire-purchase receivables - - - - - 1,470,205 - 1,072 1,471,277 -Syndicated financing - - - - 243,420 - 41,369 - 284,789 -Bridging financing - - - - 223,957 - - - 223,957 96,812 11,846 - 27 3,152,988 - - 1,278,541 4,540,214 - - 1,665,450 - - - - - 1,665,450 14 - - - 357,020 - - - 357,034 Group and Bank 2017 Qard Murabahah Ijarah Thumma Al-Bai` Musharakah Tawarruq RM’000 RM’000 Total RM’000 At amortised cost Term financing -Personal financing -Other term financing Pawn broking Revolving credit Credit card - - - - - - - 456,451 456,451 Staff financing - 116,461 - - - - - 271,237 387,698 27,025,876 1,491,089 1,665,450 27 4,324,848 1,470,205 41,369 34,609,994 70,628,858 Allowance for impairment on financing and advances: Individual assessment impairment (448,749) Collective assessment impairment (991,019) Net financing and advances 69,189,090
ANNUAL REPORT | 215 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCING AND ADVANCES (CONTINUED) (ii) Financing and advances analysed by geographical distribution Group and Bank 2018 2017 RM’000 RM’000 Central Region 28,249,446 28,590,050 Southern Region 10,264,927 10,238,346 Eastern Region 10,838,776 10,889,266 Northern Region 8,170,372 8,223,197 East Malaysia Region 12,877,343 12,687,999 70,400,864 70,628,858 (iii) Financing and advances analysed by economic sector Group and Bank 2018 2017 RM’000 RM’000 Purchase of securities 186,904 48,491 45,169 152,817 65,951,587 66,246,482 Agriculture 100,667 231,671 Manufacturing 120,681 173,473 182 100,549 Construction 906,823 853,112 Wholesale and retail trade 167,938 149,243 80,817 168,367 2,560,520 2,400,420 279,576 104,233 70,400,864 70,628,858 Purchase of non-residential property Consumption credit Electricity, gas and water Transportation and communication Financial, takaful and business services Community, social and personal services FINANCIAL STATEMENTS 13.
216 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 13. FINANCING AND ADVANCES (CONTINUED) FINANCIAL STATEMENTS (iv) Financing and advances analysed by remaining contractual maturity Group and Bank 2018 2017 RM’000 RM’000 Maturity within one year 2,893,708 3,029,477 More than one year to three years 1,595,693 1,562,900 More than three years to five years 3,564,192 3,057,046 62,347,271 62,979,435 70,400,864 70,628,858 More than five years (v) Financing and advances analysed by customer type Group and Bank 2018 2017 RM’000 RM’000 66,148,042 66,342,851 Business enterprises 1,928,258 2,252,027 Non-bank financial institutions - Co-operatives 2,224,996 1,963,303 1,489 1,254 98,079 69,423 70,400,864 70,628,858 Individuals Foreign entities Other entities
ANNUAL REPORT | 217 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 13. FINANCING AND ADVANCES (CONTINUED) Group and Bank 2018 2017 RM’000 RM’000 26,808,792 30,669,840 969,214 1,099,440 5,689,323 5,568,230 28,068,321 25,322,392 House financing 4,953,109 3,802,852 Others 3,912,105 4,166,104 70,400,864 70,628,858 Fixed rate Personal financing House financing Others Floating rate Personal financing (vii)Impaired financing and advances analysed by geographical distribution Group and Bank 2018 2017 RM’000 RM’000 1,216,919 1,361,350 Southern Region 67,541 58,812 Eastern Region 68,085 57,338 Northern Region 51,818 44,182 East Malaysia Region 86,387 53,343 1,490,750 1,575,025 Central Region FINANCIAL STATEMENTS (vi) Financing and advances analysed by profit rate sensitivity
218 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 13. FINANCING AND ADVANCES (CONTINUED) FINANCIAL STATEMENTS (viii) Impaired financing and advances analysed by economic sector Group and Bank Purchase of securities Purchase of non-residential property Consumption credit Agriculture Manufacturing Construction Wholesale and retail trade Transportation and communication Financial, takaful and business services Community, social and personal services 2018 RM’000 2017 RM’000 65 111,397 568,030 83,723 361,126 11,149 354,982 278 87 104,485 488,318 99,549 79,670 429,631 15 372,846 424 1,490,750 1,575,025 (ix) Movements in impaired financing and advances are as follows: Group and Bank 2018 RM’000 2017 RM’000 As of 1 January 1,575,025 1,378,626 Classified as impaired during the year Amount written back in respect of recoveries Amount written off during the year 1,360,789 (972,603) (472,461) 1,394,525 (763,569) (434,557) (84,275) 196,399 1,490,750 1,575,025 As of 31 December Gross impaired financing and advances as a percentage of gross financing and advances 2.12% 2.23%
ANNUAL REPORT | 219 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCING AND ADVANCES (CONTINUED) (x) Movements in allowance for individual assessment impairment losses on financing and advances are as follows: Group and Bank 2018 2017 RM’000 RM’000 448,749 455,390 12,238 - Restated balance as of 1 January 460,987 455,390 (Write back)/charge to profit or loss, net (Note 33(i)) (71,668) 10,330 Amount written off during the year (11,687) (16,971) As of 31 December 377,632 448,749 Individual assessment impairment As of 1 January As previously stated Effect of adopting MFRS 9 FINANCIAL STATEMENTS 13.
220 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 13. FINANCING AND ADVANCES (CONTINUED) FINANCIAL STATEMENTS (xi) Movements in allowance for collective assessment impairment on financing and advances are as follows: 12 month ECL Stage 1 Lifetime ECL Not Credit Impaired Stage 2 Lifetime ECL Credit Impaired Stage 3 Total RM’000 RM’000 RM’000 RM’000 Collective assessment impairment As of 1 January 2018 991,019 As previously stated (305) Effect of adopting MFRS 9 398,815 176,090 415,809 990,714 7,838 (17,125) (33,194) (42,481) (13,510) 65,054 (46,938) 4,606 (4,611) (11,209) 643,360 627,540 New financial assets originated 131,353 4,771 8,651 144,775 Changes in credit risk (51,150) (86,619) 30,910 (106,859) Financial assets derecognised (40,645) (12,201) (85,298) (138,144) - - (460,774) (460,774) 428,090 118,761 Restated balance as of 1 January 2018 Changes due to financing and advances movements: - Transfer to 12-month ECL (Stage 1) - Transfer to lifetime ECL not credit impaired (Stage 2) - Transfer to lifetime ECL credit impaired (Stage 3) Amount written off At 31 December 2018 472,526 1,019,377 Overall, the total allowance for impairment in financing and advances increased by RM28.7 million due to the following a) 12 month ECL (Stage 1) - increase by RM29.3 million mainly due to: – financing and advances that were newly originated; – partially offset by improvement in credit quality. b) Lifetime ECL (Stage 2) - decrease by RM57.3 million mainly due to: – financing and advances that improved in credit quality. c) Lifetime ECL (Stage 3) - increase by RM56.7 million mainly due to: – financing and advances that migrated into stage 3 due to deterioration in credit quality; – partially offset by amount written off.
ANNUAL REPORT | 221 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCING AND ADVANCES (CONTINUED) (xi)Movements in allowance for collective assessment impairment on financing and advances are as follows: (continued) Group and Bank RM’000 Collective assessment impairment As of 1 January 2017 917,676 Allowance made during the year (Note 33(i)) 1,800,444 Amount written back in respect of recoveries (Note 33(i)) (1,313,068) 487,376 Amount written off during the year (414,033) As of 31 December 2017 991,019 Group and Bank Collective impairment (inclusive of regulatory reserve) as a percentage of gross financing and advances after deduction of individual assessment impairment 2018 2017 1.93% 1.88% FINANCIAL STATEMENTS 13.
222 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 14. TRADE RECEIVABLES FINANCIAL STATEMENTS Group 2018 2017 RM’000 RM’000 Trade receivables 4,134 3,711 Less: Allowance for expected credit loss (1,675) (1,916) 2,459 1,795 At amortised cost Trade receivables are classified as amortised cost and are therefore measured at amortised cost. The credit period granted for sale of goods is 30 days (2017: 30 days). No profit is charged on trade receivables. In 2018, RM1,675,000 was recognised as provision for expected credit loss on trade receivables. The table below is an analysis of trade receivables at the end of the reporting period: Group 2018 2017 RM’000 RM’000 982 93 1 month to less than 2 months 832 - 2 months to less than 3 months 83 1,240 3 months to less than 4 months 253 168 4 months and above 759 294 1,927 1,702 1,225 1,916 4,134 3,711 Neither past due nor impaired 1 day to less than 1 month Past due but not impaired Past due and impaired
ANNUAL REPORT | 223 NOTES TO THE FINANCIAL STATEMENTS 14. TRADE RECEIVABLES (CONTINUED) Movements in the allowance for expected credit loss are as follows: Group 2018 2017 RM’000 RM’000 1,916 1,819 335 - 2,251 1,819 30 154 Amount recovered during the year (Note 34(ii)) (224) (57) Amount written off during the year (382) - 1,675 1,916 As of 1 January As previously stated Effect of adopting MFRS 9 Restated balance as of 1 January Impairment losses recognised during the year (Note 35(ii)) As of 31 December In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the customer base being large and unrelated. 15. OTHER ASSETS Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 - - 18,492 19,668 Other receivables, deposits and prepayments (ii) 1,132,604 1,019,205 1,078,888 968,023 1,132,604 1,019,205 1,097,380 987,691 Amount due from subsidiaries (i) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued)
224 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 15. OTHER ASSETS (CONTINUED) (i) Amount due from subsidiaries The amount due from subsidiaries is non-trade in nature, not subject to financing charges and has no fixed terms of payment. Bank 2018 2017 RM’000 RM’000 Outstanding balances 22,657 21,178 Less: Allowance for doubtful debts (4,165) (1,510) 18,492 19,668 Movements in the allowance for doubtful debts are as follows: Bank 2018 2017 RM’000 RM’000 As previously stated 1,510 1,510 Effect of adopting MFRS 9 1,691 - 3,201 1,510 964 - 4,165 1,510 As of 1 January Restated balance as of 1 January 2018 Impairment losses recognised during the year (Note 35(ii)) As of 31 December
ANNUAL REPORT | 225 NOTES TO THE FINANCIAL STATEMENTS 15. OTHER ASSETS (CONTINUED) (ii) Other receivables, deposits and prepayments Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Other receivables 725,311 734,974 721,511 737,689 Allowance for doubtful debts * (15,730) (15,369) (15,258) (15,258) 709,581 719,605 706,253 722,431 54,991 53,908 10,004 10,134 Prepayments 168,032 45,692 162,631 35,458 Contribution to Central Liquidity Monetary Fund ** 200,000 200,000 200,000 200,000 1,132,604 1,019,205 1,078,888 968,023 Refundable deposits * Movements in the allowance for doubtful debts are as follows: As of 1 January Impairment losses recognised during the year (Note 35(ii)) Amount written off during the year As of 31 December Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 15,369 16,109 15,258 15,998 368 19 7 19 (7) (759) (7) (759) 15,730 15,369 15,258 15,258 ** This contribution is required under sub-section 42(i) of Malaysia Co-operative Societies Commission Act 2007 (Act 665) either at a rate of 3% on the qualifying liability or RM200 million, whichever is lower, commencing in the financial period beginning on or after 1 January 2012. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued)
226 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 16. INVENTORIES Inventories consist of the following: FINANCIAL STATEMENTS Group Trading inventories, at cost 17. 2018 2017 RM’000 RM’000 8,018 9,291 INVESTMENT IN SUBSIDIARIES Bank 2018 2017 RM’000 RM’000 Unquoted shares, at cost 100,744 65,976 During the year, Rakyat Asset Management Sdn Bhd, Rakyat Niaga Sdn Bhd, Rakyat Facility Sdn Bhd and Rakyat Hartanah Sdn Bhd ordinary shares were transferred from Rakyat Holdings Sdn Bhd to the Bank by dividendin-specie amounting to RM34,769,000. Subsequent to that, the investment in subsidiaries recorded at cost amounting to RM100,744,000.
ANNUAL REPORT | 227 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 17. INVESTMENT IN SUBSIDIARIES (CONTINUED) Name Proportion of ownership interest and voting power held by the Group 2018 % Principal activities 2017 % Directly owned Rakyat Holdings Sdn Bhd * 100 100 Investment and property management Rakyat Management Services Sdn Bhd * 100 100 Management of Ar-Rahnu business and franchise Rakyat Nominees Sdn Bhd * 100 100 Dormant Rakyat Hartanah Sdn Bhd * 100 - Property development and project management Rakyat Asset Management Sdn Bhd* 100 - Management services and co-operative administrator Rakyat Facility Management Sdn Bhd* 100 - Building management and maintenance Rakyat Niaga Sdn Bhd * 100 - Trading and supply of goods Rakyat Hartanah Sdn Bhd * - 100 Property development and project management Rakyat Asset Management Sdn Bhd * - 100 Management services and co-operative administrator Rakyat Facility Management Sdn Bhd * - 100 Building management and maintenance Rakyat Niaga Sdn Bhd * - 100 Trading and supply of goods Rakyat Travel Sdn Bhd * 100 100 Transportation and travelling services Indirectly owned through Rakyat Holdings Sdn Bhd * The financial statements of these subsidiaries were not audited by the Auditor General of Malaysia. FINANCIAL STATEMENTS Details of the subsidiaries, all incorporated in Malaysia, are as follows:
228 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 17. INVESTMENT IN SUBSIDIARIES (CONTINUED) FINANCIAL STATEMENTS Composition of the Group Information about the composition of the Group at the end of the reporting period is as follows: Principal activities Place of Incorporation and Operation Number of directly owned subsidiaries 2018 2017 1 1 Number of indirectly owned subsidiaries 2018 2017 - - Investment and property management Malaysia Property development and project management Malaysia 1 - - 1 Management of Ar-Rahnu business and franchise Malaysia 1 1 - - Management services and co-operative administrator Malaysia 1 - - 1 Building management and maintenance Malaysia 1 - - 1 Trading and supply of goods Malaysia 1 - - 1 Transportation and travelling services Malaysia - - 1 1 Dormant Malaysia 1 1 - - 3 1 5 7
ANNUAL REPORT | 229 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) PROPERTY AND EQUIPMENT Group 2018 Long-term Short-term leasehold leasehold Freehold land and land and land Buildings buildings buildings Furniture, fittings Work-inand office progress Renovation equipment Motor vehicles Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 40,529 380,826 113,239 928 36,504 275,431 666,897 Additions 480 3,811 - - 63,473 3,014 11,037 4 81,819 Disposals - - - - - (146) (56) (1,202) (1,404) Write-offs - - - - - (1,345) (3,572) - (4,917) Transfer to investment properties (Note 20) - (15,085) - - - - - - (15,085) Transfer from investment properties (Note 20) - 64,797 - - - - - - 64,797 Transfer to intangible assets (Note 19) - - - - - - (260,714) - (260,714) 41,009 434,349 113,239 928 99,977 276,954 413,592 8,426 1,388,474 At 1 January - 34,496 21,017 538 - 230,416 522,446 6,691 815,604 Charge for the year - 8,936 2,130 171 - 17.553 34,223 826 63,839 At cost At 1 January At 31 December 9,624 1,523,978 Accumulated depreciation Disposals - - - - - (106) (52) (1,166) (1,324) Write-offs - - - - - (1,345) (3,566) - (4,911) Transfer to investment properties (Note 20) - (1,358) - - - - - - (1,358) Transfer to intangible assets (Note 19) - - - - - - (197,238) - (197,238) At 31 December - 42,074 23,147 709 - 246,518 355,813 6,351 674,612 41,009 392,275 90,092 219 99,977 30,436 57,779 2,075 713,862 Net book value At 31 December FINANCIAL STATEMENTS 18.
230 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 18. PROPERTY AND EQUIPMENT (CONTINUED) Long-term Short-term leasehold leasehold Freehold land and land and land Buildings buildings buildings Group 2017 Furniture, fittings Work-inand office progress Renovation equipment Motor vehicles Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 40,661 370,796 107,539 928 116 280,683 620,040 Additions - - - - 36,515 4,353 48,667 589 90,124 Disposals - (3,648) - - - - (227) (925) (4,800) Write-offs - - - - - (9,657) (1,583) - (11,240) Reclassifications - - - - (127) 52 - 75 - (132) (822) - - - - - - (954) - 14,500 5,700 - - - - - 20,200 40,529 380,826 113,239 928 36,504 275,431 666,897 9,624 1,523,978 At 1 January - 27,847 18,901 353 - 205,827 462,054 6,273 721,255 Charge for the year - 7,714 2,116 185 - 24,730 62,195 1,115 98,055 Disposals - (882) - - - - (227) (697) (1,806) At cost At 1 January Transfer to investment properties (Note 20) Transfer from investment properties (Note 20) At 31 December 9,885 1,430,648 Accumulated depreciation Write-offs - - - - - (141) (1,576) - (1,717) Transfer to investment properties (Note 20) - (183) - - - - - - (183) At 31 December - 34,496 21,017 538 - 230,416 522,446 6,691 815,604 40,529 346,330 92,222 390 36,504 45,015 144,451 2,933 708,374 Net book value At 31 December
ANNUAL REPORT | 231 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) PROPERTY AND EQUIPMENT (CONTINUED) Bank 2018 Long-term Short-term leasehold leasehold Freehold land and land and land Buildings buildings buildings Furniture, fittings Work-inand office progress Renovation equipment Motor vehicles Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 39,141 360,721 78,863 928 36,504 272,480 662,376 Additions 480 3,811 - - 63,473 2,973 10,679 - 81,416 Disposals - - - - - - (31) - (31) Write-offs - - - - - (1,345) (3,572) - (4,917) Transfer to investment properties (Note 20) - (15,085) - - - - - - (15,085) Transfer from investment properties (Note 20) - 28,187 - - - - - - 28,187 Transfer to intangible assets (Note 19) - - - - - - (260,714) - (260,714) 39,621 377,634 78,863 928 99,977 274,108 408,738 2,865 1,282,734 At 1 January - 33,562 18,924 538 - 229,198 519,866 2,000 804,088 Charge for the year - 7,649 1,355 171 - 17,264 33,642 227 60,308 Disposals - - - - - - (31) - (31) At cost At 1 January At 31 December 2,865 1,453,878 Accumulated depreciation Write-offs - - - - - (1,345) (3,566) - (4,911) Transfer to investment properties (Note 20) - (1,358) - - - - - - (1,358) Transfer to intangible assets (Note 19) - - - - - - (197,238) - (197,238) At 31 December - 39,853 20,279 709 - 245,117 352,673 2,227 660,858 39,621 337,781 58,584 219 99,977 28,991 56,065 638 621,876 Net book value At 31 December FINANCIAL STATEMENTS 18.
232 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 18. PROPERTY AND EQUIPMENT (CONTINUED) Bank 2017 Long-term Short-term leasehold leasehold Freehold land and land and land Buildings buildings buildings Furniture, fittings Work-inand office progress Renovation equipment Motor vehicles Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 39,141 364,369 78,863 928 116 278,096 615,857 Additions - - - - 36,515 3,989 48,297 - 88,801 Disposals - (3,648) - - - - (195) - (3,843) Write-offs - - - - - (9,657) (1,583) - (11,240) Reclassifications - - - - (127) 52 - 75 - At 31 December 39,141 360,721 78,863 928 36,504 272,480 662,376 2,865 1,453,878 At 1 January - 27,285 17,583 353 - 204,897 460,020 1,603 711,741 Charge for the year - 7,159 1,341 185 - 24,442 61,617 397 95,141 Disposals - (882) - - - - (195) - (1,077) Write-offs - - - - - (141) (1,576) - (1,717) At 31 December - 33,562 18,924 538 - 229,198 519,866 2,000 804,088 39,141 327,159 59,939 390 36,504 43,282 142,510 865 649,790 At cost At 1 January 2,790 1,380,160 Accumulated depreciation Net book value At 31 December Land titles of certain freehold land of the Bank with carrying amount of RM3,164,088 (2017: RM3,244,502) have not yet been issued by the relevant authorities.
ANNUAL REPORT | 233 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) INTANGIBLE ASSETS Goodwill Software Computer in software development Total RM’000 RM’000 RM’000 RM’000 13,185 - - 13,185 Transfer from property and equipment (Note 18) - 260,714 - 260,714 Additions - 21,706 189,856 211,562 Write-offs - (10) - (10) 13,185 282,410 189,856 485,451 At 1 January - - - - Transfer from property and equipment (Note 18) - 197,238 - 197,238 Charge for the year - 22,929 - 22,929 Write-offs - (10) - (10) At 31 December - 220,157 - 220,157 13,185 62,253 189,856 265,294 13,185 - - 13,185 Group 2018 At cost At 1 January At 31 December Accumulated amortisation Net book value At 31 December 2017 At cost / Net book value At 1 January / 31 December FINANCIAL STATEMENTS 19.
234 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 19. INTANGIBLE ASSETS (CONTINUED) Software Computer in software development Total RM’000 RM’000 RM’000 - - - 260,714 - 260,714 Additions 21,706 189,856 211,562 Write-offs (10) - (10) 282,410 189,856 472,266 - - - 197,238 - 197,238 22,929 - 22,929 (10) - (10) 220,157 - 220,157 62,253 189,856 252,109 Bank 2018 At cost At 1 January Transfer from property and equipment (Note 18) At 31 December Accumulated amortisation At 1 January Transfer from property and equipment (Note 18) Charge for the year Write-offs At 31 December Net book value At 31 December
ANNUAL REPORT | 235 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) INVESTMENT PROPERTIES Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 1,116,302 850,983 871,845 688,221 46,321 156,143 43,722 83,840 103,259 128,605 104,841 99,784 Transfer from property and equipment (Note 18) 13,727 771 13,727 - Transfer to property and equipment (Note 18) (64,797) (20,200) (28,187) - 1,214,812 1,116,302 1,005,948 871,845 At fair value As of 1 January Additions Gain on revaluation (Note 34(ii)) As of 31 December Investment properties include the following: Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Freehold land 145,132 144,072 145,100 144,050 Buildings 752,816 689,703 558,308 459,075 Long-term leasehold land 316,864 282,527 302,540 268,720 1,214,812 1,116,302 1,005,948 871,845 Investment properties of the Group and of the Bank are stated at fair value and are situated in Malaysia. The fair values of the Group’s and of the Bank’s investment properties as at 31 December 2018 and 31 December 2017 have been arrived at on the basis of a valuation carried out by independent valuers who have appropriate qualification and recent experience in the valuation of properties in the relevant locations. The fair value was arrived by using a variety of approaches such as comparison and investment method. FINANCIAL STATEMENTS 20.
236 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 20. INVESTMENT PROPERTIES (CONTINUED) FINANCIAL STATEMENTS Details of the Group’s and the Bank’s investment properties and information about the fair value hierarchy are as follows: Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 As at 31 December 2018 1,214,812 1,214,812 - - 1,214,812 As at 31 December 2017 1,116,302 1,116,302 - - 1,116,302 As at 31 December 2018 1,005,948 1,005,948 - - 1,005,948 As at 31 December 2017 871,845 871,845 - - 871,845 Freehold land Buildings Long-term leasehold land Total RM’000 RM’000 RM’000 RM’000 3,460 605,528 241,995 850,983 Additions 79,826 71,972 4,345 156,143 Remeasurement recognised in profit or loss 60,654 26,064 41,887 128,605 132 639 - 771 - (14,500) (5,700) (20,200) 144,072 689,703 282,527 1,116,302 - 42,282 4,039 46,321 1,060 71,901 30,298 103,259 Transfer from property and equipment - 13,727 - 13,727 Transfer to property and equipment - (64,797) - (64,797) 145,132 752,816 316,864 Group Bank Reconciliation of fair value: Group As at 1 January 2017 Transfer from property and equipment Transfer to property and equipment As at 31 December 2017 / 1 January 2018 Additions Remeasurement recognised in profit or loss As at 31 December 2018 1,214,812
ANNUAL REPORT | 237 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) INVESTMENT PROPERTIES (CONTINUED) Reconciliation of fair value: (continued) Buildings Long-term leasehold land Total RM’000 RM’000 RM’000 RM’000 3,570 459,841 224,810 688,221 Additions 79,826 - 4,014 83,840 Remeasurement recognised in profit or loss 60,654 (766) 39,896 99,784 144,050 459,075 268,720 871,845 - 39,780 3,942 43,722 1,050 73,913 29,878 104,841 Transfer from property and equipment - 13,727 - 13,727 Transfer to property and equipment - (28,187) - (28,187) 145,100 558,308 302,540 Freehold land Bank As at 1 January 2017 As at 31 December 2017 / 1 January 2018 Additions Remeasurement recognised in profit or loss As at 31 December 2018 1,005,948 Land titles for certain freehold land and leasehold land of the Group and the Bank with fair value amounting to RM41,150,000 (2017: RM950,000) and RM41,150,000 (2017: RM950,000) have not been issued to the Group and the Bank by the relevant authorities. The investment properties held by the Group and the Bank are let under operating leases to third parties, from which rental income of RM28,252,000 (2017: RM26,405,000) and RM26,447,000 (2017: RM25,360,000) has been earned during the year. FINANCIAL STATEMENTS 20.
238 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 21. PREPAID LEASE PAYMENTS Group and Bank 2018 2017 RM’000 RM’000 76,680 76,680 14,446 12,920 1,526 1,526 As of 31 December 15,972 14,446 60,708 62,234 Group and Bank 2018 2017 RM’000 RM’000 Long-term leasehold land 53,158 54,499 Short-term leasehold land 7,550 7,735 60,708 62,234 Cost As of 1 January / 31 December Accumulated amortisation As of 1 January Charge for the year (Note 35(ii)) Prepaid lease payments include: The remaining period of the leasehold land of the Group and of the Bank ranges from 7 to 863 years (2017: 8 to 864 years). The land titles of certain leasehold land of the Group and of the Bank amounting to RM8,005,970 (2017: RM10,115,423) have not yet been issued to the Bank by the relevant authorities.
ANNUAL REPORT | 239 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) DEFERRED TAX ASSETS/(LIABILITIES) Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 As of 1 January As previously stated Effect of adopting MFRS 9 Restated balance as of 1 January 9,075 9,622 13,000 10,000 109,000 - 109,000 - 118,075 9,622 122,000 10,000 (36,046) 1,698 (36,000) 3,000 240 (2,245) - - 82,269 9,075 86,000 13,000 Recognised in profit or loss (net) (Note 36) - Relating to origination and reversal of temporary differences - Over/(under) provision of net deferred tax liabilities As of 31 December Defered tax assets and liabiities are offset when there is a legally enforceable right to set-off current tax assets against current tax liabilities in respect of each entity and when the deferred income taxes relate to the same tax authority. The net deferred tax assets and liabilities shown on the statements of financial position after appropriate offsetting are as follows: Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Deferred tax assets, net 86,333 13,446 86,000 13,000 Deferred tax liabilities, net (4,064) (4,371) - - 82,269 9,075 86,000 13,000 FINANCIAL STATEMENTS 22.
240 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 22. DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED) FINANCIAL STATEMENTS Deferred tax assets and liabilities prior to offsetting are summarised as follows: Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Deferred tax assets 191,910 81,076 191,000 80,000 Deferred tax liabilities (109,641) (72,001) (105,000) (67,000) 82,269 9,075 86,000 13,000 The components and movement of deferred tax assets and liabilities during the financial year prior to offsetting are as follows: Financing loss and allowances Provision of liabilities RM’000 RM’000 RM’000 RM’000 36,000 41,014 4,302 81,316 (4,000) 3,860 (100) (240) 32,000 44,874 4,202 81,076 100,000 - - 100,000 132,000 44,874 4,202 181,076 - relating to origination and reversal of temporary differences (11,000) 21,877 (43) 10,834 As of 31 December 2018 121,000 66,751 4,159 191,910 Group Other temporary differences* Total Deferred tax assets As of 1 January 2017 Recognised in profit or loss (Note 36) - relating to origination and reversal of temporary differences As of 31 December 2017, as previously stated effect of adopting MFRS 9 Restated balance as of 1 January 2018 Recognised in profit or loss (Note 36) * Mainly consist of temporary differences in respect of allowance for doubtful debt
ANNUAL REPORT | 241 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED) The components and movement of deferred tax assets and liabilities during the financial year prior to offsetting are as follows: (continued) FVOCI reserve and impairment losses on financial investments Group Other temporary differences^ Total RM’000 RM’000 RM’000 - 71,694 71,694 - relating to origination and reversal of temporary differences - 2,552 2,552 - underprovision - (2,245) (2,245) - 72,201 72,201 (9,000) - (9,000) (9,000) 72,001 63,001 35,000 11,400 46,400 - 240 240 26,000 83,641 109,641 Deferred tax liabilities As of 1 January 2017 Recognised in profit or loss (Note 36) As of 31 December 2017, As previously stated Effect of adopting MFRS 9 Restated balance as of 1 January 2018 Recognised in profit or loss (Note 36) - Relating to origination and reversal of temporary differences - Overprovision As of 31 December 2018 ^ Mainly consist of temporary differences in respect of property and equipment and investment in properties FINANCIAL STATEMENTS 22.
242 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 22. DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED) FINANCIAL STATEMENTS The components and movement of deferred tax assets and liabilities during the financial year prior to offsetting are as follows: (continued) Financing loss and allowances Provision of liabilities RM’000 RM’000 RM’000 RM’000 36,000 41,000 4,000 81,000 (4,000) 3,000 - (1,000) 32,000 44,000 4,000 80,000 100,000 - - 100,000 132,000 44,000 4,000 180,000 - Relating to origination and reversal of temporary differences (11,000) 22,000 - 11,000 As of 31 December 2018 121,000 66,000 4,000 191,000 Bank Other temporary differences* Total Deferred tax assets As of 1 January 2017 Recognised in profit or loss (Note 36) - Relating to origination and reversal of temporary differences As of 31 December 2017, As previously stated Effect of adopting MFRS 9 Restated balance as of 1 January 2018 Recognised in profit or loss (Note 36) * Mainly consist of temporary differences in respect of allowance for doubtful debt
ANNUAL REPORT | 243 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) DEFERRED TAX ASSETS/(LIABILITIES) (CONTINUED) The components and movement of deferred tax assets and liabilities during the financial year prior to offsetting are as follows: (continued) FVOCI reserve and impairment losses on financial investments Bank Other temporary differences^ Total RM’000 RM’000 RM’000 - 71,000 71,000 - (4,000) (4,000) - 67,000 67,000 (9,000) - (9,000) (9,000) 67,000 58,000 - Relating to origination and reversal of temporary differences 35,000 12,000 47,000 As of 31 December 2018 26,000 79,000 105,000 Deferred tax liabilities As of 1 January 2017 Recognised in profit or loss (Note 36) - Relating to origination and reversal of temporary differences As of 31 December 2017, As previously stated Effect of adopting MFRS 9 Restated balance as of 1 January 2018 Recognised in profit or loss (Note 36) ^ Mainly consist of temporary differences in respect of property and equipment and investment in properties FINANCIAL STATEMENTS 22.
244 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 23. DEPOSITS FROM CUSTOMERS FINANCIAL STATEMENTS Group and Bank Savings deposits Qard Term deposits Tawarruq General investment deposits Mudarabah Negotiable Islamic debt certificates 2018 RM’000 2017 RM’000 5,733,537 5,006,012 68,929,351 69,749,467 12 17 8,073,000 8,480,000 82,735,900 83,235,496 Deposits from customers are sourced from the following type of customers: Group and Bank 2018 2017 RM’000 RM’000 Government 35,013,502 34,471,917 Business enterprises 31,067,164 33,453,286 1,947,233 1,808,285 12,627,150 11,014,365 2,080,851 2,487,643 82,735,900 83,235,496 Co-operatives Individuals Others
ANNUAL REPORT | 245 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 23. DEPOSITS FROM CUSTOMERS (CONTINUED) Group and Bank 2018 2017 RM’000 RM’000 Maturity within six months 67,062,381 70,579,539 More than six months to one year 11,142,683 9,114,398 4,530,836 3,541,559 82,735,900 83,235,496 More than one year to five years 24. DEPOSITS AND PLACEMENTS FROM BANKS AND FINANCIAL INSTITUTIONS Group and Bank 25. 2018 2017 RM’000 RM’000 Licensed Islamic banks 824,000 - RECOURSE OBLIGATIONS ON FINANCING SOLD TO CAGAMAS This represents proceeds received from financing sold directly to Cagamas Berhad with recourse to the Bank. Types of financing involved are personal financing and house financing. Under these agreements, the Bank undertakes to administer the financing on behalf of Cagamas Berhad and to replace any financing which are regarded as defective based on prudential criteria set by Cagamas Berhad. Recourse obligations on financing sold to Cagamas are stated at amortised cost. FINANCIAL STATEMENTS Maturity structure of deposits from customers is as follows:
246 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 26. DEBT SECURITIES ISSUED FINANCIAL STATEMENTS Group and Bank Note 2018 2017 RM’000 RM’000 (i)(a) - 300,414 (i)(b) 430,099 430,057 (i)(c) 150,579 150,576 (i)(c) 351,361 351,367 (i)(d) 351,374 351,356 (i)(d) 853,338 853,350 (i)(e) 272,462 272,434 (i)(e) 433,843 433,952 (ii)(a) 300,310 300,264 3,143,366 3,443,770 Issued under the RM9.0 billion Senior IMTN Programme: Second tranche: RM300 million IMTN due in 2018 Fourth tranche: RM425 million IMTN due in 2019 Fifth tranche: RM150 million IMTN due in 2019 Sixth tranche: RM350 million IMTN due in 2021 Seventh tranche: RM350 million IMTN due in 2020 Eighth tranche: RM850 million IMTN due in 2022 Ninth tranche: RM270 million IMTN due in 2020 Tenth tranche: RM430 million IMTN due in 2022 Issued under the RM5.0 billion Tier II Subordinated Programme: First tranche: RM300 million Tier II due in 2026
ANNUAL REPORT | 247 NOTES TO THE FINANCIAL STATEMENTS 26. DEBT SECURITIES ISSUED (CONTINUED) (i) On 25 October 2013, the Bank established a RM9.0 billion Senior IMTNs Programme to issue Sukuk Musharakah via Imtiaz Sukuk (II) Berhad with a programme tenure of 10 years. (a) On 20 December 2013, the Bank issued the second tranches of the Senior IMTNs of RM300 million. The second tranche has a tenure of 5 years with profit distribution rate at 4.45% and was fully redeemed on 20 December 2018. (b) On 24 March 2014, the Bank issued the fourth tranches of RM425 million of the Senior IMTNs. The fourth tranche has a tenure of 5 years with profit distribution rate at 4.60% maturing on 22 March 2019. The profit is payable semi-annually each year commencing 24 September 2014. (c) On 24 November 2014, the Bank issued the fifth and sixth tranches of RM150 million and RM350 million. The fifth tranche bears a profit distribution rate at 4.50% and matures on 22 November 2019. The sixth tranche bears a profit distribution rate at 4.65% maturing on 24 November 2021. The profit is payable semi-annually each year commencing 25 May 2015. (d) On 29 May 2017, the Bank issued the seventh and eighth tranches of RM350 million and RM850 million. The seventh tranche bears a profit distribution rate at 4.46% and matures on 29 May 2020. The eighth tranche bears a profit distribution rate at 4.58% maturing on 27 May 2022. The profit is payable semiannually each year commencing 29 November 2017. (e) On 17 October 2017, the Bank issued the ninth and tenth tranches of RM270 million and RM430 million. The ninth tranche bears a profit distribution rate at 4.45% and matures on 16 October 2020. The tenth tranche bears a profit distribution rate at 4.57% maturing on 17 October 2022. The profit is payable semiannually each year commencing 17 April 2018. The Sukuk Musharakah constitute direct, unconditional and unsecured obligations of the Issuer and shall at all times rank pari passu without discrimination, preference or priority among themselves and at least pari passu with all other unsecured and unsubordinated obligations of the Issuer, subject to the provisions of the Transaction Documents and those preferred by law. (ii) On 19 April 2016, the Bank established a Subordinated Sukuk Programme to issue a Basel III compliant Tier II Subordinated Sukuk Murabahah of up to RM5.0 billion in nominal value. The issuance was made via a SPV, Mumtaz Rakyat Sukuk Berhad. The Subordinated Sukuk Programme has a tenure of up to 20 years from the date of the first issuance and shall be issued with a maturity for at least 5 years and up to 20 years. (a) On 20 June 2016, the Bank issued the first tranche of RM300 million in nominal value of Tier II Subordinated Sukuk for a tenure of 10 years on a 10 non-callable 5 basis with profit distribution rate at 4.95% and maturity date at 19 June 2026. The profit is payable semi-annually each year commencing 20 December 2016. The Subordinated Sukuk Murabahah will constitute direct, unconditional, unsecured and subordinated obligations of the Issuer ranking pari passu without any preference among themselves and at least pari passu with all other present and future unsecured and subordinated obligations of the Issuer, except those preferred by law and the Transaction Documents. The proceeds from the issuances were utilised by the Bank for Shariah-compliant working capital and general corporate purposes. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued)
248 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 27. OTHER LIABILITIES Group FINANCIAL STATEMENTS Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 - - 129,703 124,267 Sundry creditors 265,305 149,763 272,765 152,257 Income payable 676,657 605,548 676,657 605,548 Other liabilities and accruals 417,904 366,293 402,265 351,677 Government fund 190,511 203,445 190,511 203,445 40,599 54,530 39,552 53,097 1,590,976 1,379,579 1,711,453 1,490,291 Amount due to subsidiaries (i) Zakat payable (i) Amount due to subsidiaries Bank 2018 2017 RM’000 RM’000 Term deposits 107,717 100,759 21,986 23,508 129,703 124,267 Savings deposits The amount due to subsidiaries of RM129,703,000 (2017: RM124,267,000) represents deposits placed with the Bank. The average profit rate paid/payable to subsidiaries is 3.87% (2017: 3.59%) per annum.
ANNUAL REPORT | 249 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 28. FINANCING FROM OTHER FINANCIAL INSTITUTIONS Secured Term financing 2018 RM’000 2017 RM’000 - 8,844 One of the subsidiaries has a Tawarruq Business Financing-i of RM9,154,000 from a local licensed bank, which has been fully redeemed as of 31 May 2018. The facilities bear profit at 4.65% - 4.85% per annum and secured by way of fixed charge over the investment properties of the subsidiary. 29. SHARE CAPITAL Group and Bank 2018 RM’000 2017 RM’000 Authorised 3,000,000,000 ordinary shares of RM1 each 3,000,000 3,000,000 Issued and fully paid - Ordinary shares of RM1 each As of 1 January Net issuance during the year Share withdrawal Transfer from share redemption fund * 2,986,030 14,168 (31,504) 17,336 2,986,030 16,626 (32,256) 15,630 As of 31 December 2,986,030 2,986,030 Membership as of 31 December is as follows: Group and Bank 2018 2017 Individual Co-operative 852,618 2,237 872,199 2,178 854,855 874,377 * The share redemption fund is maintained under Paragraph 19(i) of Undang-undang Kecil Bank Kerjasama Rakyat Malaysia Berhad for redemption of shares by members. FINANCIAL STATEMENTS Group
250 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 30.RESERVES FINANCIAL STATEMENTS <______________________ Non-distributable ____________________> Distributable Fair value reserve of financial AFS investments Regulatory reserve at FVOCI reserve Total other reserve Retained profits Total RM’000 RM’000 Group Capital reserve Statutory reserve RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 14,617 5,631,482 (8,420) - 329,672 5,967,351 - - 8,420 60,359 - 68,779 14,617 5,631,482 - 60,359 329,672 6,036,130 Profit after taxation and zakat - - - - - - 1,757,621 1,757,621 Transfer from retained profits - 451,098 - - - 451,098 (451,098) - Contribution to the Co-operative Education Trust Fund - - - - - - (37,500) (37,500) Contribution to the Co-operative Development Provident Fund - - - - - - (18,750) (18,750) Contribution to Bank Rakyat Foundation - - - - - - (14,666) (14,666) Unrealised net gain on revaluation of financial investments at fair value through other comprehensive income - - - 48,468 - 48,468 - 48,468 Dividends (Note 40) - - - - - - (469,774) (469,774) 14,617 6,082,580 - 108,827 329,672 6,535,696 At 1 January 2018 As previously stated Effect of adopting MFRS 9 Restated balance as at 1 January 2018 At 31 December 2018 7,638,532 13,605,883 (71,471) (2,692) 7,567,061 13,603,191 8,332,894 14,868,590
ANNUAL REPORT | 251 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) <______________________ Non-distributable _____________________> Distributable AFS Regulatory reserve reserve Total other reserve Retained profits Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 14,617 5,152,812 (28,496) 329,672 5,468,605 6,726,074 12,194,679 Profit after taxation and zakat - - - - - 1,909,627 1,909,627 Transfer from retained profits - 478,670 - - 478,670 (478,670) - Contribution to the Co-operative Education Trust Fund - - - - - (39,965) (39,965) Contribution to the Co-operative Development Provident Fund - - - - - (19,983) (19,983) Contribution to Bank Rakyat Foundation - - - - - (14,777) (14,777) Unrealised net gain on revaluation of financial investments available-for-sale - - 20,076 - 20,076 - 20,076 Dividends (Note 40) - - - - - (443,774) (443,774) 14,617 5,631,482 (8,420) 329,672 5,967,351 7,638,532 13,605,883 Group Capital reserve Statutory reserve RM’000 At 1 January 2017 At 31 December 2017 FINANCIAL STATEMENTS 30.RESERVES (CONTINUED)
252 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 30.RESERVES (CONTINUED) FINANCIAL STATEMENTS <______________________ Non-distributable ____________________> Distributable Bank Capital reserve Statutory reserve RM’000 RM’000 15,358 5,631,482 - Fair value reserve of financial AFS investments Regulatory reserve at FVOCI reserve Total other reserve Retained profits Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 (8,420) - 329,672 5,968,092 - 8,420 60,359 - 68,779 15,358 5,631,482 - 60,359 329,672 6,036,871 Profit after taxation and zakat - - - - - - 1,779,801 1,779,801 Transfer from retained profits - 451,098 - - - 451,098 (451,098) - Contribution to the Co-operative Education Trust Fund - - - - - - (37,500) (37,500) Contribution to the Co-operative Development Provident Fund - - - - - - (18,750) (18,750) Contribution to Bank Rakyat Foundation - - - - - - (14,666) (14,666) Unrealised net gain on revaluation of financial investments at fair value through other comprehensive income - - - 48,468 - 48,468 - 48,468 Dividends (Note 40) - - - - - - (469,774) (469,774) 15,358 6,082,580 - 108,827 329,672 6,536,437 At 1 January 2018 As previously stated Effect of adopting MFRS 9 Restated balance as at 1 January 2018 At 31 December 2018 7,239,389 13,207,481 (72,827) (4,048) 7,166,562 13,203,433 7,954,575 14,491,012
ANNUAL REPORT | 253 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 30.RESERVES (CONTINUED) AFS Regulatory reserve reserve Total other reserve Retained profits Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 15,358 5,152,812 (28,496) 329,672 5,469,346 6,363,616 11,832,962 Profit after taxation and zakat - - - - - 1,872,942 1,872,942 Transfer from retained profits - 478,670 - - 478,670 (478,670) - Contribution to the Co-operative Education Trust Fund - - - - - (39,965) (39,965) Contribution to the Co-operative Development Provident Fund - - - - - (19,983) (19,983) Contribution to Bank Rakyat Foundation - - - - - (14,777) (14,777) Unrealised net gain on revaluation of financial investments available-for-sale - - 20,076 - 20,076 - 20,076 Dividends (Note 40) - - - - - (443,774) (443,774) 15,358 5,631,482 (8,420) 329,672 5,968,092 7,239,389 13,207,481 Bank Capital reserve Statutory reserve RM’000 At 1 January 2017 Pada 31 Disember 2017 (i) Statutory reserve The statutory reserve is maintained in compliance with Development Financial Institutions Act 2002 (Act 618) and is not distributable as dividend. (ii) Capital reserve This is a reserve required to be maintained under Co-operative Societies Act 1993 and consists of capital gain from disposal of land or building, or both, under non-current assets. (iii) Available-for-sale reserve This reserve relates to unrealised fair value gains and losses on financial investments available-for-sale. (iv) Fair value reserve of financial investments at FVOCI This reserve relates to unrealised fair value gains and losses on financial investments at fair value through other comprehensive income. FINANCIAL STATEMENTS <______________________ Non-distributable _____________________> Distributable
254 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 30.RESERVES (CONTINUED) 31. (v) Regulatory reserve The regulatory reserve is maintained as an additional credit risk buffer to ensure the robustness of the financing impairment assessment methodology. (vi) Retained profits Included in retained profits is an amount of RM1,340,000,000 (2017: RM1,340,000,000) earmarked to improve the Rate of Return Risk (ROR) exposure as part of asset and liability management strategies. INCOME Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Income derived from investment of depositors’ fund (i) 5,099,910 5,013,745 5,099,910 5,013,745 Income derived from investment of shareholders’ fund (ii) 1,340,027 1,276,275 1,340,027 1,276,275 52,750 46,248 - - 6,492,687 6,336,268 6,439,937 6,290,020 Income generated by subsidiary companies (iii) (i) Income derived from investment of depositors’ fund Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 4,055,593 4,070,683 4,055,593 4,070,683 14,640 39,108 14,640 39,108 Income from financial investments 1,029,677 903,954 1,029,677 903,954 5,099,910 5,013,745 5,099,910 5,013,745 Income from financing and advances * Income from deposits and placements with banks and financial institutions
ANNUAL REPORT | 255 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) INCOME (CONTINUED) (ii) Income derived from investment of shareholders’ fund Income from financing and advances * Income from deposits and placements with banks and financial institutions Income from financial investments Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 1,065,628 1,036,214 1,065,628 1,036,214 3,846 9,955 3,846 9,955 270,553 230,106 270,553 230,106 1,340,027 1,276,275 1,340,027 1,276,275 * Included in income from financing and advances for the current year is profit accrued on impaired financing of RM83,031,216 (2017: RM89,055,191). (iii) Income generated by subsidiaries Group 2018 2017 RM’000 RM’000 Agency income 4,668 5,696 Pawning income 37,339 28,176 Rental income 3,272 2,572 Management fee 7,149 8,700 Sale of goods 42 673 Other charges 280 431 52,750 46,248 FINANCIAL STATEMENTS 31.
256 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 32. EXPENDITURE Group FINANCIAL STATEMENTS Income attributable to depositors (i) Profit expense on financing sold with recourse to Cagamas Profit expense on debt securities issued Cost of sales Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 3,134,023 3,013,154 3,137,762 3,018,193 34,313 42,661 34,313 42,661 156,649 139,171 156,649 139,171 57,685 50,278 - - 3,382,670 3,245,264 3,328,724 3,200,025 (i) Income attributable to depositors Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 3,121,405 3,004,245 3,125,144 3,009,284 12,618 8,909 12,618 8,909 3,134,023 3,013,154 3,137,762 3,018,193 Deposits from customers Non-Mudarabah Deposits and placements from banks and other financial institutions Non-Mudarabah
ANNUAL REPORT | 257 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) ALLOWANCES FOR IMPAIRMENT Group and Bank 2018 2017 RM’000 RM’000 Allowance for impairment on financing and advances (i) 455,382 519,948 (258) 3,031 455,124 522,979 Allowance for impairment on financial investments (ii) (i) Allowance for impairment on financing and advances Group and Bank 2018 2017 RM’000 RM’000 Individual impairment (Note 13(x)) (71,668) 10,330 Individual impairment on rescheduled financing * 37,613 22,242 Collective impairment (Note 13(xi)) 489,437 487,376 455,382 519,948 * This refers to individual impairment on rescheduled accounts during the year that was adjusted against balance of financing and advances. (ii) Allowance for impairment on financial investments Financial investments available-for-sale Financial investments at fair value through other comprehensive income (Note 10) Financial investments at amortised cost (Note 12) Group and Bank 2018 2017 RM’000 RM’000 - 3,031 475 - (733) - (258) 3,031 FINANCIAL STATEMENTS 33.
258 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 34. OTHER OPERATING INCOME Group FINANCIAL STATEMENTS Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 82,222 70,255 82,222 70,255 Other income (ii) 332,415 616,911 362,804 587,798 414,637 687,166 445,026 658,053 Fees and commission (i) (i) Fees and commission Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Takaful commission 26,298 19,693 26,298 19,693 ATM service fees 16,277 18,054 16,277 18,054 Wasiat commission 1,945 1,071 1,945 1,071 Other commission 23,136 17,210 23,136 17,210 2,007 797 2,007 797 10,001 9,794 10,001 9,794 - 485 - 485 2,558 3,151 2,558 3,151 82,222 70,255 82,222 70,255 Processing fees MEPS fees Guarantee fees Other fees
ANNUAL REPORT | 259 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) OTHER OPERATING INCOME (CONTINUED) (ii) Other income Group Bank 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 - 18,123 - 18,123 12,596 - 12,596 - - 598 - 598 9,123 - 9,123 - 213 - 213 - - 46,483 - 46,483 (167,745) - (167,745) - Rental income Compensation for late payment Charges from credit card services Other service charges Recoveries from financing written off Recoveries from financial investments written-off Allowance for doubtful debts no longer required Trade receivables (Note 14) Allowance for impairment loss on financial investments held-to-maturity no longer required (Note 11) Gain on disposal of property and equipment Other income Gain on revaluation of investment properties (Note 20) Dividend from subsidiary 24,980 5,058 12,027 11,681 261,112 23,833 3,469 13,631 13,378 293,123 26,447 5,058 12,027 11,681 261,112 25,373 3,469 13,631 13,378 293,123 - 453 - 453 224 57 - - 244 59,643 649 16,750 57,759 1 52,682 649 16,686 56,048 103,259 - 128,605 - 104,841 34,768 99,784 - 332,415 616,911 362,804 587,798 Other income from financial instruments Dividend from financial investments available-for-sale Dividend from financial investments at fair value through profit or loss Net gain on disposal of financial investments held-for-trading Net gain on disposal of financial investments at fair value through profit or loss Net gain on disposal of financial investments at fair value through other comprehensive income Net gain on disposal of financial investments available-for-sale Net loss on revaluation of financial investments at fair value through profit or loss Others FINANCIAL STATEMENTS 34.
260 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 35. OPERATING EXPENSES Group FINANCIAL STATEMENTS Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Personnel expenses (i) 708,048 609,573 691,078 592,028 Other overheads and expenditure (ii) 502,303 600,466 535,035 634,787 1,210,351 1,210,039 1,226,113 1,226,815 (i) Personnel expenses Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Salaries and wages 351,006 322,779 339,498 311,831 Allowances, compensation and bonuses 212,631 148,746 209,620 144,634 85,351 83,570 83,809 81,935 Defined contribution plan - EPF Social security contributions - SOCSO Other staff related costs 4,573 4,039 4,339 3,831 54,487 50,439 53,812 49,797 708,048 609,573 691,078 592,028 Total number of staff (excluding the Board of Directors) for the Group is 5,399 (2017: 5,180) and for the Bank is 5,236 (2017: 5,008).
ANNUAL REPORT | 261 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) OPERATING EXPENSES (CONTINUED) (ii) Other overheads and expenditure Group Bank 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 20,301 24,095 27,431 31,661 63,839 98,055 60,308 95,141 1,526 22,929 80,459 6,172 1,526 95,762 5,644 1,526 22,929 80,210 6,030 1,526 95,570 5,493 195,226 225,082 198,434 229,391 28,704 43,406 28,182 42,770 11,818 3,413 28,823 18,311 21,655 10,046 28,351 25,732 15,188 6 64,854 11,220 38,956 11,529 1,126 31,131 30,111 39,818 15,214 28,661 25,472 17,196 9,523 62,852 12,322 47,023 11,076 3,099 28,569 18,163 21,329 10,010 28,312 52,858 15,188 6 64,854 16,461 38,494 9,588 900 30,876 29,958 39,493 15,139 28,611 56,518 17,196 9,523 62,852 17,594 44,378 278,373 331,978 308,419 362,626 502,303 600,466 535,035 634,787 Establishment Rental Depreciation of property and equipment (Note 18) Amortisation of prepaid lease payments (Note 21) Amortisation of intangible assets (Note 19) Repair and maintenance Takaful Promotion Advertisement and publicity General expenses Legal and professional fees Auditors’ remuneration Communication expenses Utilities expenses Printing and stationery Postage and courier Security expenses Service charges Loss on financing written off Property and equipment written off Commission expenses Travelling and transportation Others FINANCIAL STATEMENTS 35.
262 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 35. OPERATING EXPENSES (CONTINUED) (ii) Other overheads and expenditure (continued) The above expenditure includes the following statutory disclosures: Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 30 154 - - - - 964 - 368 19 7 19 Statutory audit fees 2,115 1,118 1,800 892 Other services 1,299 15 1,299 8 (1) (6) - - 1,526 1,526 1,526 1,526 Depreciation of property and equipment (Note 18) 63,839 98,055 60,308 95,141 Amortisation of intangible assets (Note 19) 22,929 - 22,929 - 6 9,523 6 9,523 204 314 - - 13,276 16,540 20,536 24,188 7,025 7,555 6,895 7,473 Impairment losses on: Trade receivables (Note 14) Amount due from subsidiaries (Note 15(i)) Other receivables, deposits and prepayments (Note 15(ii)) Auditors’ remuneration: Current year: Overprovision in prior year Amortisation of prepaid lease payment (Note 21) Property and equipment written off Finance cost on financing from other financial institutions Rental of premises Rental of equipment
ANNUAL REPORT | 263 NOTES TO THE FINANCIAL STATEMENTS 35. OPERATING EXPENSES (CONTINUED) (ii) Other overheads and expenditure (continued) Included in general expenses are the following Directors’ remuneration: Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Salary and other remuneration 1,200 893 1,200 893 Bonuses 3,232 269 3,232 269 EPF contributions 842 221 842 221 Other emoluments 73 43 73 43 5,347 1,426 5,347 1,426 1,811 2,886 1,452 2,252 17 42 17 42 1,828 2,928 1,469 2,294 7,175 4,354 6,816 3,720 Executive Director Non-Executive Directors Fees Other emoluments FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued)
264 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 35. OPERATING EXPENSES (CONTINUED) (ii) Other overheads and expenditure (continued) Total remuneration of the Directors is as follows: 2018 Remuneration received from Bank Salary Other and emolubonus Fees ments Total RM’000 RM’000 RM’000 RM’000 Remuneration received from Subsidiary Companies Other emoluFees ments Total RM’000 RM’000 RM’000 Group Total RM’000 Executive Director Dato’ Zulkiflee Abbas Abdul Hamid 5,274 - 73 5,347 - - - 5,347 - 14 165 155 168 203 199 152 7 - 14 165 155 168 203 199 152 7 140 65 93 - - 140 65 93 - 14 305 220 261 203 199 152 7 - 1,063 - 1,063 298 - 298 1,361 - 245 71 21 52 7 10 252 71 21 62 34 14 13 - 34 14 13 252 105 35 75 - 389 17 406 61 - 61 467 - 1,452 17 1,469 359 - 359 1,828 5,274 1,452 90 6,816 359 - 359 7,175 Non-Executive Directors Datuk Noripah Kamso Dato’ Sri Jamil Salleh Dato’ Sri Alias Haji Ahmad Dato’ Siti Zauyah Md. Desa Wan Zamri Wan Zain Hj. Abd Rani Lebai Jaafar Hjh. Armi Zainudin Datuk Wan Suraya Wan Mohd Radzi Former Non-Executive Directors Tan Sri Hj. Shukry Mohd Salleh Datin Dr. Nik Sarina Lugman Hashim Razalee Amin Datuk Hj. Abdul Rahman Kasim
ANNUAL REPORT | 265 NOTES TO THE FINANCIAL STATEMENTS 35. OPERATING EXPENSES (CONTINUED) (ii) Other overheads and expenditure (continued) Total remuneration of the Directors is as follows: (continued) 2017 Remuneration received from Bank Salary Other and emolubonus Fees ments Total RM’000 RM’000 RM’000 RM’000 Remuneration received from Subsidiary Companies Other emoluFees ments Total RM’000 RM’000 RM’000 Group Total RM’000 Executive Director Dato’ Zulkiflee Abbas Abdul Hamid 1,383 - 43 1,426 - - - 1,426 - 319 198 209 154 269 426 254 52 7 5 - 326 198 214 154 269 426 254 52 110 83 97 38 115 70 - - 110 83 97 38 115 70 - 326 308 297 251 307 541 324 52 - 1,881 12 1,893 513 - 513 2,406 - 14 10 139 208 10 10 10 14 20 149 218 35 37 49 - 35 37 49 14 55 186 267 - 371 30 401 121 - 121 522 - 2,252 42 2,294 634 - 634 2,928 1,383 2,252 85 3,720 634 - 634 4,354 Non-Executive Directors Tan Sri Shukry Mohd Salleh Dato’ Sri Jamil Salleh Dato’ Siti Zauyah Md. Desa Dato’ Sri Alias Hj. Ahmad Datuk Hj. Abdul Rahman Kasim Razalee Amin Datin Dr. Nik Sarina Lugman Hashim Wan Zamri Wan Zain Former Non-Executive Directors General Tan Sri Dato’ Sri Abdul Aziz Hj. Zainal (R) Dato’ Hj. Abdullah Hj. Abas Dato’ Hj. Ismail Nordin Datuk Hj. Mohd Idris Hj. Mohd Isa FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued)
266 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 36. TAXATION Group FINANCIAL STATEMENTS Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Current year 29,550 67,725 23,684 61,783 Underprovision in prior years 10,669 24,273 10,925 24,790 40,219 91,998 34,609 86,573 36,046 (1,698) 36,000 (3,000) (240) 2,245 - - 35,806 547 36,000 (3,000) 76,025 92,545 70,609 83,573 Malaysian income tax Deferred tax (Note 22) Current year (Over)/Underprovision in prior years Total
ANNUAL REPORT | 267 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 36. TAXATION (CONTINUED) Profit before taxation and zakat Tax expense at statutory tax rate of 24% (2017: 24%) Non-taxable income Non-deductible expenses Tax exempt under Section 65(A) of the Income Tax Act 1967 Tax implication on adoption of MFRS 9 Under/(Over)provision in prior years: Current tax Deferred tax 37. Group Bank 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 1,859,179 2,045,152 1,875,002 1,998,254 446,203 (120,361) 167,186 490,837 (129,192) 102,724 449,961 (129,279) 166,434 479,541 (123,754) 101,338 (416,953) (10,479) (398,342) - (416,953) (10,479) (398,342) - 10,669 (240) 24,273 2,245 10,925 - 24,790 - 76,025 92,545 70,609 83,573 ZAKAT In computing for zakat, the Group and the Bank have been applying the growth capital method based on the rate of 2.5%. This method applies the rate on owners’ equity, long term liability, net of fixed assets and non-current assets, and subjected to allowable adjustments. Provision for current year Overprovision in prior years Group Bank 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 27,943 (2,410) 44,322 (1,342) 27,000 (2,408) 43,081 (1,342) 25,533 42,980 24,592 41,739 FINANCIAL STATEMENTS 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:
268 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 38. STATUTORY APPROPRIATIONS FINANCIAL STATEMENTS Maintenance of statutory reserve fund is required under the Development Financial Institutions Act 2002 (Act 618), whereas contributions to Co-operative Education Trust Fund and Co-operative Development Provident Fund are made in compliance with the Co-operative Societies Act 1993 (Act 502). Contribution to Bank Rakyat Foundation is made under paragraph 65(ii) of Undang-Undang Kecil Bank Kerjasama Rakyat Malaysia Berhad, which states that net profit for the year can be utilised towards a fund meant for welfare and benefits of members. 39. EARNINGS PER SHARE Basic earnings per ordinary share have been calculated based on the Group’s profit after taxation and zakat of RM1,757,621,000 (2017: RM1,909,627,000) divided by the weighted average number of ordinary shares of 2,960,691,000 (2017: 2,974,490,000) of RM1 each in issue during the financial year. 40.DIVIDENDS Group and Bank 2018 2017 RM’000 RM’000 Cash dividend of 16% for the year ended 31 December 2017 (2016: 15%) 469,774 443,774 During the financial year ended 31 December 2018, the Bank paid a cash dividend of 16% amounting to RM470 million in regards to the previous financial year ended 31 December 2017. In respect of the current financial year, the Board of Directors has proposed a cash dividend up to 14% amounting to RM420 million. The proposed dividend will be recognised in the subsequent financial year upon approval by the relevant authorities outside the Bank.
ANNUAL REPORT | 269 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Group and the Bank make various commitments and incur certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions. Group and Bank 2018 2017 RM’000 RM’000 Bank guarantee given in respect of banking facilities granted to customers 479,730 523,783 Claims for damages from litigation taken against the Bank 131,885 113,302 2,184,799 2,086,286 2,796,414 2,723,371 Contingent liabilities Commitments Undrawn financing A summary of the status of material litigations against the Bank is as follows: The Bank had terminated financing facility and filed a claim against a customer and its corporate guarantors to recover the outstanding financing of approximately RM24 million. The main contractor, the customer and its corporate guarantors had also filed claims against the Bank respectively. The High Court on 24 January 2018 had dismissed the main contractor’s claim against the Bank and other defendants. However, the counter claim by the Bank against the customer and its corporate guarantors was dismissed by the Court. Meanwhile, the customer’s counter claim against the Bank was allowed but no sum has been determined by the Court and is subject to further assessment. The corporate guarantors’ counter claim against the Bank was allowed but it was a non monetary claim. The Bank has filed an appeal to the Court of Appeal on 19 February 2018 and the hearing is fixed on 1 July 2019. The Bank’s solicitor is of the view that based on the evidence at trial and the main legal arguments for the appeal, the Bank has a fair chance in the said appeal. FINANCIAL STATEMENTS 41.
270 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 42. CAPITAL COMMITMENTS Capital expenditure approved but not provided for in the financial statements are as follows: FINANCIAL STATEMENTS Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 665,529 328,758 338,279 - Capital expenditure Approved and contracted for 43. OPERATING LEASES The Bank leases a number of premises under operating leases. None of the leases include contingent rentals. Total future minimum lease payments under these non-cancellable operating leases are as follows: Group and Bank 2018 2017 RM’000 RM’000 Within one year 375 690 Between one and two years 210 211 Between two to three years 175 - 760 901
ANNUAL REPORT | 271 NOTES TO THE FINANCIAL STATEMENTS 44. RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability to control or jointly control the other party or exercise significant influence over the other party in making financial or operational decisions, or if one other party controls both. The related parties of the Group and of the Bank are: 44.1 Subsidiaries Details of the subsidiaries are shown in Note 17. 44.2 Key Management Personnel Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group and of the Bank either directly or indirectly. The key management personnel of the Group and of the Bank includes Executive Director and Non-Executive Directors of the Bank and certain members of senior management of the Bank and heads of major subsidiaries of the Group. Remuneration of Directors and other members of key management are as follows: Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 Fees 1,811 2,886 1,452 2,252 Salary 4,728 4,036 4,124 3,381 514 468 514 468 EPF contribution 1,914 1,091 1,776 911 Bonuses 4,891 1,722 4,739 1,252 188 198 90 85 14,046 10,401 12,695 8,349 Short-term employee benefits Allowances Other emoluments FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued)
272 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 44. RELATED PARTY TRANSACTIONS (continued) FINANCIAL STATEMENTS 44.2 Key Management Personnel (continued) Included in the total compensation for key management personnel are the following items: Group Bank 2018 2017 2018 2017 RM’000 RM’000 RM’000 RM’000 6,816 3,720 6,816 3,720 359 634 - - 7,175 4,354 6,816 3,720 Directors’ remuneration From the Bank From subsidiaries 44.3 Transactions with subsidiaries All related party transactions within the Bank Rakyat group are conducted on normal commercial terms which are not more favourable than those generally available to the public. Bank 2018 2017 RM’000 RM’000 (1,482) (1,554) 3,738 5,038 26,444 29,984 Rental expenses 6,145 6,173 Purchase of goods and services 2,078 1,543 Travelling and transportation 5,616 5,569 42,539 46,753 Income earned Rental income Expenditure incurred Profit expenses Management fee expenses
ANNUAL REPORT | 273 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCING FACILITIES WITH CONNECTED PARTIES Group and Bank 2018 2017 RM’000 RM’000 2,347,292 640,290 % of outstanding exposures to connected parties as a proportion of total exposure 2.25% 0.62% % of outstanding exposures financing exposures with connected parties which is non-performing or in default 0.00% 0.04% Outstanding exposures with connected parties The above disclosure on Financing Facilities with Connected Parties is presented in accordance with para 14.1 as per BNM’s policy on Financing Facilities with Connected Parties, which became effective on 13 July 2016. 46. FINANCIAL RISK MANAGEMENT 46.1 Overview The Bank’s business activities involve the use of financial instruments that expose the Bank to a variety of financial risks with the following as the primary risks: (i) Credit risk (ii) Liquidity risk (iii) Market risk (iv) Operational risk 46.2 Risk management framework Risk Management Framework articulates the objectives, guiding principles and governance structure for risk management processes in the Bank. This enables the identification, assessment and measurement control and continuous monitoring of all material risks on a group-and bank-wide basis, supported by robust management information system that facilitates timely and reliable reporting of risks and the integration of information across the Bank. Risk Management within the Bank is guided by the following principles: • Alignment of risk taking activities with the Bank’s risk appetite; • Risk aware decision making with clear understanding of risks and their impacts on profitability and sustainability; • Accountability through ownership of risks, controls, and profitability inherent in the Bank’s business and support functions; and • Integration of risk management, compliance and ethical business practices into the culture of the Bank. FINANCIAL STATEMENTS 45.
274 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.2 Risk management framework (continued) FINANCIAL STATEMENTS The Bank’s Risk Appetite Statement is as follows: “The Bank’s business strategy and risk-taking activities should always be within the capacity of the Bank. This is achieved by strengthening the following six dimensions - Risk Governance; Capital Adequacy and Shareholders’ Value; Reputation as Islamic Bank; Asset Quality; Liquidity; and Operational Resilience.” 46.2.1 Risk governance The Bank manages its risks in accordance with the “Three Lines of Defence Model”, which places accountability and ownership to the source of risk, whilst ensuring sufficient level of independent oversight. The “Three Lines of Defence” consists of the following components: (i) First Line of Defence - Informed Decision Making by Business Units The Business Units are responsible to identify, manage and report their own risks. At this stage risk awareness is instilled starting at risk taking units so that Risk Management is incorporated into every aspect of work conducted. (ii) Second Line of Defence - Oversight by Risk Management and Compliance Risk Management and Compliance supports business units, as well as review and report key risks to the Management and Board of Directors. In doing so, Risk Management and Compliance provides support to Management and Board of Directors in fulfilling their oversight functions. (iii) Third Line of Defence - Independent Assurance by Internal Audit Internal Audit conducts quality assurance review, to ensure that the risktaking activities are in line with established standards. Internal Audit provides recommendations for improvement where necessary. Its functions complement the support extended to the Management and Board Audit Committee in the risk oversight functions.
ANNUAL REPORT | 275 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.2.1 Risk governance (continued) Roles and responsibilities of the oversight Committee: Roles and responsibilities of the Board Risk Committee (“BRC”): (a) The BRC shall be responsible to review and recommend risk management strategies, policies, appetite and tolerance for Board’s approval. (b) The BRC with the recommendation of Management Risk Committee periodically reviews the Risk Management Framework. (c) The BRC shall be responsible to assess the adequacy of risk management policies, processes and infrastructure to manage various types of risks is comprehensive and recommend to the Board for approval. (d) Review management’s periodic reports on risk exposure, risk portfolio composition and risk management activities. Roles and responsibilities of Management Risk Committee: (a) Assess whether the Bank’s corporate objectives are supported by a sound risk strategy and an effective risk management framework that is appropriate to the nature, scale and complexity of its activities. (b) Establish, review and implement Board approved risk management framework and policies. (c) Communicate approved policies to employees and monitor as well as enforce compliance with these policies. (d) Periodically review Risk Management Framework and recommend to Management Risk Committee for escalation to BRC and Board. FINANCIAL STATEMENTS 46.2 Risk management framework (continued)
276 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.2 Risk management framework (continued) 46.2.1 Risk governance (continued) Roles and responsibilities of the oversight Committee: (continued) Roles and responsibilities of Operational Risk Management Committee: (a) Review and recommend operational risk management strategies, policies, guidelines and procedures. (b) Review and assess adequacy of operational risk management framework, policies, guidelines and procedures in identifying, assessing, controlling and monitoring of operational risk and the extent to which these are operating effectively. (c) Ensure that infrastructure, resources and systems are in place to effectively manage operational risks. (d) Review operational risk profiles and periodic reports, including progress and follow-up actions. (e) Monitor the identified operational risks, key risk indicators and loss incidents in the business and functional units’ operations. Roles and responsibilities of Financing Review Committee: (a) Direct, monitor, review and consider such issues as may materially impact on the present and future quality of the Bank’s financing book. (b) Conduct post-mortem on impaired financing and to learn weaknesses in existing credit policies and processes. (c) Ensure the procedures and resources are effective to identify and manage irregular and problem credits, minimize credit loss and maximize recoveries. (d) Review and recommend any enhancement of credit related policies, process and procedures.
ANNUAL REPORT | 277 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.3 Credit risk Credit risk is the risk of suffering financial or non-financial loss should any of the customers, clients or market counterparties fail to fulfill their contractual obligations through the Bank’s financing, hedging, trading and investing activities. The Bank’s retail and corporate credit exposures are governed by credit policies and stringent underwriting criteria. The Bank’s credit processes are in line with industry best practices which emphasises on individual accountability with clear lines of responsibility where credit administration, early monitoring and recovery are independent from Business Units. 46.3.1 Management of credit risk The Bank’s credit risk management includes establishment of comprehensive credit risk policies, guidelines and procedures that document financing standards, credit risk rating, acceptable collateral and valuation, and compliance with regulatory and statutory requirements. The policies are periodically reviewed to ensure their continuous relevance. Risk Management is responsible to formulate and review the credit risk policies, guidelines and procedures as well as credit portfolio monitoring. Risk Management also conducts independent credit assessment to evaluate quality of credit proposals by Business Units for corporate customers. Risk Management also prepares reports to be presented to Board and Senior Management. The reports contain information on identified credit risk factors. With this information, Board and Senior Management are able to effectively identify adverse credit risk trends, take corrective actions and formulate business strategies accordingly. 46.3.2 Financing to retail customers Financing granted to retail customers is individually underwritten by assessing historical payment track record and payment capacity of the customer. This process is governed by Retail Credit Risk Policy, Product Policies and assessed using credit scorecard. Both Retail Credit Risk Policy and credit scorecard are developed by Risk Management while Product Policies are developed by Product Division within Retail Banking and are independently reviewed by Risk Management. The credit approving authority and credit approving officers have the responsibility to ensure that credit risk is properly assessed and all crucial credit information of the customer is included in the financing application. Risk Management is also responsible to assess new/variation of financing product or program to ensure that the product/program offered to customers is beneficial to both customers and Bank whilst mitigating the inherent risks. FINANCIAL STATEMENTS 46.
278 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.3 Credit risk (continued) 46.3.3 Financing to corporate customers Granting of credit to corporate customers is individually underwritten as guided by the Bank’s risk appetite and policies. In its oversight role, Risk Management conducts independent assessment on all credit proposals to corporate customers prior to approval. 46.3.4 Purchase of investment securities Credit qualities of financial instruments are assessed based on ratings from external credit ratings agencies. Portfolio review and monitoring is frequently conducted in ensuring the exposures are effectively managed and concentration risk is observed at all times. 46.3.5 Impaired financing and investment securities Individually impaired financing and investment securities are financing and advances and investment securities (other than those carried at fair value through profit or loss) for which the Bank determines that there is objective evidence of impairment and it does not expect to collect all principal and profits due according to the contractual terms of the financing/investment security agreement(s). 46.3.6 Neither past due nor impaired financing and investment securities These are financing and investment securities from which contractual payment of profit or principal have not defaulted and therefore are not impaired since there is no objective evidence of impairment. 46.3.7 Past due but not impaired financing and investment securities Past due but not impaired financing and investment securities, other than those carried at fair value through profit or loss, are those for which contractual profits or principal payments are past due, more than 1 day but less than three (3) months 46.3.8 Financing with renegotiated terms Financing with renegotiated terms are financing that have been restructured due to deterioration in the customer’s financial position. Once the financing is restructured it remains in this category independent of satisfactory performance after restructuring.
ANNUAL REPORT | 279 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.3 Credit risk (continued) 46.3.9 Allowances for impairment The Bank establishes an allowance for impairment loss on assets carried at amortised cost and fair value through other comprehensive income, which represents an estimation of expected losses in the financing and investment security portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective financing loss allowance established for groups of homogenous assets. Both components of allowance incorporates historical, current, and forecasted information in estimating the expected losses. Assets carried at fair value through profit or loss are not subject to impairment testing as the measure of fair value reflects the credit quality of each asset. 46.3.10 Write-off policy The Bank writes-off a financing or an investment security, and any related allowances for impairment losses, when the Bank determines that the financing or investment security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the customer’s/issuer’s financial position such that the customer/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. 46.3.11 Collateral on financing and advances In mitigating credit risk on financing and advances granted to customers, collaterals are obtained as follows: (i) House financing - charges over residential properties. (ii) Commercial property financing - charges over the properties being financed. (iii) Vehicle financing - ownership claims over the vehicles being financed. (iv) Other financing and advances - charges over business assets such as premises, trade receivables or deposits. 46.3.12 Credit grading for investment securities Credit qualities of financial instruments are assessed based on ratings from external credit ratings agencies. At the end of the reporting period, instruments rated with “Grade D” are those that have defaulted beyond their maturity period. FINANCIAL STATEMENTS 46.
280 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.3 Credit risk (continued) 46.3.13 Maximum exposure to credit risk The following table presents the Bank’s credit exposure of on-balance sheet and off-balance sheet financial instruments. For on-balance sheet assets, the exposure to credit risk equals the carrying amount. For credit commitments, maximum exposure to credit risk is the full amount of the undrawn credit facilities granter to customers. Group Bank 2018 RM’000 2017 RM’000 2018 RM’000 2017 RM’000 1,163,630 2,476,623 1,161,454 2,469,937 - 101,384 - 100,992 742,297 - 742,297 - - 20,252,909 - 20,252,428 22,329,782 - 22,329,773 - - 10,437,053 - 10,437,053 10,155,789 69,003,855 2,459 709,581 69,189,090 1,795 719,605 10,155,789 69,003,855 724,745 69,189,090 742,099 104,107,393 103,178,459 104,117,913 103,191,599 2,184,799 2,086,286 2,184,799 2,086,286 106,292,192 105,264,745 106,302,712 105,277,885 Assets Cash and short-term funds Deposits and placements with financial institutions Financial investments at fair value through profit or loss Financial investments available-for-sale Financial investments at fair value through other comprehensive income Financial investments held-to-maturity Financial investments at amortised cost Financing and advances Trade receivables Other receivables Commitments Undrawn financing Total maximum exposure to credit risk
ANNUAL REPORT | 281 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.3 Credit risk (continued) 46.3.14 Credit risk exposure on financing and advances Group and Bank 2018 2017 RM’000 RM’000 64,956,424 65,326,881 2,670,707 881,237 401,746 2,531,801 842,044 353,107 3,953,690 3,726,952 224,230 279,687 233,644 753,189 326,456 554,426 167,875 526,268 1,490,750 1,575,025 70,400,864 70,628,858 (428,090) (591,287) (377,632) (448,749) (991,019) - 69,003,855 69,189,090 At amortised cost Neither past due nor impaired 0 month Past due but not impaired 1 month 2 months 3 months Past due and impaired Less than 4 months 4 months to 6 months 7 months to 9 months More than 9 months Gross financing and advances Less: Individual assessment impairment Collective assessment impairment Collective assessment allowance - 12 months ECL Collective assessment allowance - lifetime ECL Individual assessment allowance - lifetime ECL Net financing and advances FINANCIAL STATEMENTS 46.
282 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.3 Credit risk (continued) 46.3.15 Credit risk exposure on investment securities Financial investments at fair value through profit or loss Financial investments at fair value through other comprehensive income Financial investments at amortised cost Total RM’000 RM’000 RM’000 RM’000 Grade AAA - 3,017,743 379,347 3,397,090 Grade AA+ - 80,075 111,540 191,615 Grade AA - 215,063 20,207 235,270 Grade AA- - 151,408 - 151,408 Grade AA1 - 686,346 131,767 818,113 Grade AA2 - 350,765 - 350,765 Grade AA3 - 265,158 36,413 301,571 - 4,766,558 679,274 5,445,832 - 2,451,645 698,173 3,149,818 - - 148,698 148,698 - 7,218,203 1,526,145 8,744,348 Group 2018 Rated securities Islamic debt securities Cagamas sukuk Grade AAA Negotiable Islamic debt certificates Grade AA3
ANNUAL REPORT | 283 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.3 Credit risk (continued) 46.3.15 Credit risk exposure on investment securities (continued) Financial investments at fair value through profit or loss Financial investments at fair value through other comprehensive income Financial investments at amortised cost Total RM’000 RM’000 RM’000 RM’000 203,600 9,218,783 5,912,370 15,334,753 Government sukuk - 5,637,781 2,312,408 7,950,189 Khazanah sukuk - 217,208 340,579 557,787 Islamic commercial paper - - 64,287 64,287 202,096 - - 202,096 405,696 15,073,772 8,629,644 24,109,112 336,601 - - 336,601 - 37,807 - 37,807 336,601 37,807 - 374,408 742,297 22,329,782 10,155,789 33,227,868 Group (continued) 2018 Unrated securities Government investment issues Islamic redeemable convertible preference shares Shares Quoted and unit trust shares Unquoted shares FINANCIAL STATEMENTS 46.
284 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.3 Credit risk (continued) 46.3.15 Credit risk exposure on investment securities (continued) Financial Financial investments investments at fair value at fair value through other Bank through comprehensive 2018 profit or loss income Financial investments at amortised cost Total RM’000 RM’000 RM’000 RM’000 Grade AAA - 3,017,743 379,347 3,397,090 Grade AA+ - 80,075 111,540 191,615 Grade AA - 215,063 20,207 235,270 Grade AA- - 151,408 - 151,408 Grade AA1 - 686,346 131,767 818,113 Grade AA2 - 350,765 - 350,765 Grade AA3 - 265,158 36,413 301,571 - 4,766,558 679,274 5,445,832 - 2,451,645 698,173 3,149,818 - - 148,698 148,698 - 7,218,203 1,526,145 8,744,348 Rated securities Islamic debt securities Cagamas sukuk Grade AAA Negotiable Islamic debt certificates Grade AA3 -
ANNUAL REPORT | 285 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.3 Credit risk (continued) 46.3.15 Credit risk exposure on investment securities (continued) Financial investments at fair value through profit or loss Financial investments at fair value through other comprehensive income Financial investments at amortised cost Total RM’000 RM’000 RM’000 RM’000 203,600 9,218,783 5,912,370 15,334,753 Government sukuk - 5,637,781 2,312,408 7,950,189 Khazanah sukuk - 217,208 340,579 557,787 Islamic commercial paper - - 64,287 64,287 202,096 - - 202,096 405,696 15,073,772 8,629,644 24,109,112 336,601 - - 336,601 - 37,798 - 37,798 336,601 37,798 - 374,399 742,297 22,329,773 10,155,789 33,227,859 Bank (continued) 2018 Unrated securities Government investment issues Islamic redeemable convertible preference shares Shares Quoted and unit trust shares Unquoted shares FINANCIAL STATEMENTS 46.
286 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.3 Credit risk (continued) 46.3.15 Credit risk exposure on investment securities (continued) Financial investments availablefor-sale RM’000 Financial investments held-tomaturity RM’000 Total RM’000 2,745,496 79,754 91,985 44,632 601,996 173,019 61,942 379,719 111,498 40,503 50,831 36,904 3,125,215 191,252 132,488 44,632 652,827 173,019 98,846 3,798,824 619,455 4,418,279 1,562,587 475,271 2,037,858 - 398,630 398,630 5,361,411 1,493,356 6,854,767 Unrated securities Government investment issues Government sukuk Khazanah sukuk 9,178,953 4,922,276 208,347 6,352,971 2,248,815 341,911 15,531,924 7,171,091 550,258 14,309,576 8,943,697 23,253,273 Shares Quoted and unit trust shares Unquoted shares 573,858 8,064 - 573,858 8,064 581,922 - 581,922 20,252,909 10,437,053 30,689,962 Group 2017 Rated securities Islamic debt securities Grade AAA Grade AA+ Grade AA Grade AAGrade AA1 Grade AA2 Grade AA3 Cagamas sukuk Grade AAA Negotiable Islamic debt certificates Grade AA1
ANNUAL REPORT | 287 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.3 Credit risk (continued) 46.3.15 Credit risk exposure on investment securities (continued) Financial investments availablefor-sale RM’000 Financial investments held-tomaturity RM’000 Total RM’000 2,745,496 79,754 91,985 44,632 601,996 173,019 61,942 379,719 111,498 40,503 50,831 36,904 3,125,215 191,252 137,488 44,632 652,827 173,019 98,846 3,798,824 619,455 4,418,279 1,562,587 475,271 2,037,858 - 398,630 398,630 5,361,411 1,493,356 6,854,767 Unrated securities Government investment issues Government sukuk Khazanah sukuk 9,178,953 4,922,276 208,347 6,352,971 2,248,815 341,911 15,531,924 7,171,091 550,258 14,309,576 8,943,697 23,253,273 Shares Quoted and unit trust shares Unquoted shares 573,858 7,583 - 573,858 7,583 581,441 - 581,441 20,252,428 10,437,053 30,689,481 Bank 2017 Rated securities Islamic debt securities Grade AAA Grade AA+ Grade AA Grade AAGrade AA1 Grade AA2 Grade AA3 Cagamas sukuk Grade AAA Negotiable Islamic debt certificates Grade AA1 FINANCIAL STATEMENTS 46.
288 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.3 Credit risk (continued) 46.3.16 Maximum exposure to credit risk The following analysis represents the Group’s maximum exposure to credit risk of on-balance sheet financial assets and off-balance sheet exposure, excluding any collateral held or other credit enhancements. For on-balance sheet financial assets, the exposure to credit risk equals their carrying amount. For off-balance sheet exposure, the maximum exposure to credit risk is the maximum amount that the Group would have to pay if obligations of the instruments issued are called upon and/or the full amount of the undrawn credit facilities granted to customers. 2018 2017 RM’000 RM’000 Credit exposure for on-balance sheet financial assets: Cash and short-term funds Deposits and placements with financial institutions Financial investments portfolio * Financing and advances Trade receivables Other assets 1,163,630 32,876,158 60,007,394 2,459 1,132,604 2,476,623 101,384 30,130,996 60,620,837 1,795 1 019,205 Credit exposure for off-balance sheet financial assets: Undrawn financing 2 ,184,799 2 086,286 Total maximum credit risk exposure 97,367,044 96,437,126 Group
ANNUAL REPORT | 289 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.3.16 Maximum exposure to credit risk (continued) 2018 2017 RM’000 RM’000 Credit exposure for on-balance sheet financial assets: Cash and short-term funds Deposits and placements with financial institutions Financial investments portfolio * Financing and advances Other assets 1,161,454 32,876,158 60,007,394 1 ,097,380 2,469,937 100,992 30,130,996 60,620,837 987,691 Credit exposure for off-balance sheet financial assets: Undrawn financing 2 ,184,799 2 ,086,286 Total maximum credit risk exposure 97,327,185 96,396,739 Bank * Financial investment portfolio consists of financial investments at fair value through profit or loss, financial investments at fair value through other comprehensive income and financial investments at amortised costs, excluding equity investments. FINANCIAL STATEMENTS 46.3 Credit risk (continued)
290 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.4 Liquidity risk Liquidity risk arises from mismatches in the timing of cash flows due to the inability to meet maturing or regulatory obligations and customers’ demands for funds when required, which may adversely affect daily operations, Bank’s reputation and incur unacceptable losses. 46.4.1 Management of liquidity risk The management of liquidity risk is subject to Bank Negara Malaysia’s Liquidity Framework and Liquidity Coverage Ratio requirements as well as the Bank’s liquidity risk management framework. The Bank adopts various liquidity risk measurement tools in managing the cash flows for daily movement as well as medium and long-term positions to ensure sufficient funding sources to meet obligations. It is important for the Bank to maintain diversification strategy of funding sources and providers to ensure stability of funding structure and adequate standby facilities while managing excessive concentration towards key depositors. The Bank maintains sufficient high-quality liquid assets to withstand against any unforeseen liquidity stress. In addition, a liquidity stress testing is conducted based on sensitivity analysis for various stress scenarios covering the Bank’s specific and market-wide crisis scenario. The stress scenarios would provide valuable assessment on the impact from adverse liquidity environment and the Bank’s vulnerable portfolios. The Bank has established liquidity contingency funding plan which entails the early warning indicators as well as strategies and actions to be taken by the liquidity crisis management team arising from different liquidity crisis scenarios. The Bank’s liquidity risk management framework, policies and procedures are reviewed periodically which are endorsed by Asset and Liability Committee (ALCO) and approved by the Board. ALCO meets on a monthly basis and is responsible to monitor the liquidity risk position against the Bank’s risk appetite and approved limits.
ANNUAL REPORT | 291 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.2 Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose, net liquid assets are considered as including cash and cash equivalents and investment grade securities for which there is an active and liquid market. Details of the reported Bank ratio of net liquid assets to deposits from customers at the end of the reporting period and during the year were as follows: Bank 2018 2017 At 31 December 33.99% 33.90% Average for the year 34.42% 33.44% Maximum for the year 34.94% 34.19% Minimum for the year 33.79% 32.20% 46.4.3 Liquidity risk of assets and liabilities The main thrust of liquidity management is the projection of up to one year of the maturity profile of the Bank’s assets, liabilities and off-balance sheet commitments from a given position. The focus is on the ability of the Bank to match its short-term liquidity requirement arising from maturing obligations with maturing assets, followed by a medium-term assessment of liquidity up to one year. The primary basis for determining the appropriate time bands is the contractual maturity, which is when the cash flows crystallise. FINANCIAL STATEMENTS 46.
292 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.4 Liquidity risk of assets and liabilities by remaining contractual maturities More than More than More than More than 1 week- 1 month- 3 months- 6 months- More than 1 month 3 months 6 months 1 year 1 year No specific maturity Total RM’000 RM’000 RM’000 - - 1,163,630 Group 2018 Up to 1 week RM’000 RM’000 RM’000 RM’000 RM’000 1,163,630 - - - - - 45,873 848,642 799,888 344,572 1,074,604 2,378,022 3,637,380 Trade receivables - - - - - - 2,459 2,459 Other assets - - - - - - 3,487,411 3,487,411 1,508,202 1,120,477 3,226,664 4,437,268 Assets Cash, deposits and placements with financial institutions Investment securities Financing and advances 3,249,344 27,707,617 576,504 33,227,868 5,374,957 57,591,329 (1,397,009) 69,003,855 8,624,301 85,298,946 2,669,365 106,885,223 Liabilities Deposits from customers Deposits and placements from banks and financial institutions 14,014,969 17,805,016 19,981,985 14,602,308 11,651,628 4,679,994 - 82,735,900 424,000 400,000 - - - - - 824,000 Recourse obligations on financing sold to Cagamas - 3,230 6,514 9,909 329,808 360,874 - 710,335 Debt securities issued - - 430,099 13,267 150,000 2,550,000 - 3,143,366 Trade payables - - - - - - 2,840 2,840 Other liabilities - - - - - - 1,595,058 1,595,058 14,438,969 18,208,246 20,418,598 14,625,484 12,131,436 7,590,868 Shareholders’ fund Net maturity mismatch - - - - - 1,597,898 89,011,499 - 17,873,724 17,873,724 (12,930,767) (17,087,769) (17,191,934) (10,188,216) (3,507,135) 77,708,078 (16,802,257) -
ANNUAL REPORT | 293 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.4 Liquidity risk of assets and liabilities by remaining contractual maturities (continued) More than More than More than More than 1 week- 1 month- 3 months- 6 months- More than 1 month 3 months 6 months 1 year 1 year No specific maturity Total RM’000 RM’000 RM’000 - - - 479,730 - - 131,885 - 131,885 - - - - - 2,184,799 - - - 131,885 - 2,796,414 Group 2018 Up to 1 week RM’000 RM’000 RM’000 RM’000 RM’000 479,730 - - - - - - Undrawn financing 2,184,799 - 2,664,529 - Commitment and contingencies Bank guarantee given in respect of banking facilities granted to customers Claims for damages from litigation taken against the Bank FINANCIAL STATEMENTS 46.
294 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.4 Liquidity risk of assets and liabilities by remaining contractual maturities (continued) Group 2017 Up to 1 week RM’000 More than More than More than More than 1 week- 1 month- 3 months- 6 months- More than 1 month 3 months 6 months 1 year 1 year RM’000 RM’000 RM’000 RM’000 RM’000 No specific maturity RM’000 Total RM’000 - 2,578,007 Assets Cash, deposits and placements with financial institutions 2,476,623 101,384 - - - 140,629 641,134 683,740 259,373 1,061,387 2,329,132 3,588,031 Trade receivables - - - - - - 1,795 1,795 Other assets - - - - - - 2,993,148 2,993,148 2,735,996 1,303,400 2,970,266 4,271,771 Investment securities Financing and advances - - 3,147,348 25,495,190 581,921 30,689,962 5,290,907 58,100,028 (1,439,768) 69,189,090 8,438,255 83,595,218 2,137,096 105,452,002 Liabilities Deposits from customers 12,309,801 23,089,018 21,965,758 13,195,966 9,093,538 3,581,415 - 83,235,496 Recourse obligations on financing sold to Cagamas - 3,329 6,621 10,069 20,641 707,674 - 748,334 Debt securities issued - - 5,057 13,713 300,000 3,125,000 - 3,443,770 Trade payables - - - - - - 2,681 2,681 Financing from other financial institutions - 20 40 60 121 8,603 - 8,844 Other liabilities - - - - - - 1,384,524 1,384,524 12,309,801 23,092,367 21,977,476 13,219,808 9,414,300 7,422,692 Shareholders’ fund Net maturity mismatch - - - - (9,573,805) (21,788,967) (19,007,210) (8,948,037) - 1,387,205 88,823,649 - 16,628,353 16,628,353 (976,045) 76,172,526 (15,878,462) -
ANNUAL REPORT | 295 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.4 Liquidity risk of assets and liabilities by remaining contractual maturities (continued) More than More than More than More than 1 week- 1 month- 3 months- 6 months- More than 1 month 3 months 6 months 1 year 1 year No specific maturity Total RM’000 RM’000 RM’000 - - - 523,783 - - 113,302 - 113,302 - - - - - 2,086,286 - - - 113,302 - 2,723,371 Group 2017 Up to 1 week RM’000 RM’000 RM’000 RM’000 RM’000 523,783 - - - - - - Undrawn financing 2,086,286 - 2,610,069 - Commitment and contingencies Bank guarantee given in respect of banking facilities granted to customers Claims for damages from litigation taken against the Bank FINANCIAL STATEMENTS 46.
296 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.4 Liquidity risk of assets and liabilities by remaining contractual maturities (continued) More than More than More than More than 1 week- 1 month- 3 months- 6 months- More than 1 month 3 months 6 months 1 year 1 year Bank 2018 Up to 1 week RM’000 RM’000 RM’000 RM’000 RM’000 1,161,454 - - - - - 45,873 848,642 799,888 344,572 1,074,604 2,378,022 3,637,380 - - - - 1,506,026 1,120,477 3,226,664 4,437,268 No specific maturity Total RM’000 RM’000 RM’000 - - 1,161,454 Assets Cash, deposits and placements with financial institutions Investment securities Financing and advances Other assets 3,249,344 27,707,617 576,495 33,227,859 5,374,957 57,591,329 (1,397,009) 69,003,855 - - 8,624,301 85,298,946 3,228,032 3,228,032 2,407,518 106,621,200 Liabilities Deposits from customers Deposits and placements from banks and financial institutions 14,014,969 17,805,016 19,981,985 14,602,308 11,651,628 4,679,994 - 82,735,900 424,000 400,000 - - - - - 824,000 Recourse obligations on financing sold to Cagamas - 3,230 6,514 9,909 329,808 360,874 - 710,335 Debt securities issued - - 430,099 13,267 150,000 2,550,000 - 3,143,366 Other liabilities - - - - - - 1,711,453 1,711,453 14,438,969 18,208,246 20,418,598 14,625,484 12,131,436 7,590,868 Shareholders’ fund Net maturity mismatch - - - - - 1,711,453 89,125,054 - 17,496,146 17,496,146 (12,932,943) (17,087,769) (17,191,934) (10,188,216) (3,507,135) 77,708,078 (16,800,081) -
ANNUAL REPORT | 297 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.4 Liquidity risk of assets and liabilities by remaining contractual maturities (continued) More than More than More than More than 1 week- 1 month- 3 months- 6 months- More than 1 month 3 months 6 months 1 year 1 year No specific maturity Total RM’000 RM’000 RM’000 - - - 479,730 - - 131,885 - 131,885 - - - - - 2,184,799 - - - 131,885 - 2,796,414 Bank 2018 Up to 1 week RM’000 RM’000 RM’000 RM’000 RM’000 479,730 - - - - - - Undrawn financing 2,184,799 - 2,664,529 - Commitment and contingencies Bank guarantee given in respect of banking facilities granted to customers Claims for damages from litigation taken against the Bank FINANCIAL STATEMENTS 46.
298 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.4 Liquidity risk of assets and liabilities by remaining contractual maturities (continued) Bank 2017 Up to 1 week RM’000 More than More than More than More than 1 week- 1 month- 3 months- 6 months- More than 1 month 3 months 6 months 1 year 1 year RM’000 RM’000 RM’000 RM’000 RM’000 - - No specific maturity Total RM’000 RM’000 - 2,570,929 Assets Cash, deposits and placements with financial institutions Investment securities Financing and advances Other assets 2,469,937 100,992 - - - 140,629 641,134 683,740 259,373 1,061,387 2,329,132 3,588,031 - - - - 2,729,310 1,303,008 2,970,266 4,271,771 3,147,348 25,495,190 581,440 30,689,481 5,290,907 58,100,028 (1,439,768) 69,189,090 - - 8,438,255 83,595,218 2,698,342 2,698,342 1,840,014 105,147,842 Liabilities Deposits from customers 12,309,801 23,089,018 21,965,758 13,195,966 9,093,538 3,581,415 - 83,235,496 Recourse obligations on financing sold to Cagamas - 3,329 6,621 10,069 20,641 707,674 - 748,334 Debt securities issued - - 5,057 13,713 300,000 3,125,000 - 3,443,770 Other liabilities - - - - - - 1,490,291 1,490,291 12,309,801 23,092,347 21,977,436 13,219,748 9,414,179 7,414,089 Shareholders’ fund Net maturity mismatch - - - - (9,580,491) (21,789,339) (19,007,170) (8,947,977) - 1,490,291 88,917,891 - 16,229,951 16,229,951 (975,924) 76,181,129 (15,880,228) -
ANNUAL REPORT | 299 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.4 Liquidity risk of assets and liabilities by remaining contractual maturities (continued) More than More than More than More than 1 week- 1 month- 3 months- 6 months- More than 1 month 3 months 6 months 1 year 1 year No specific maturity Total RM’000 RM’000 RM’000 - - - 523,783 - - 113,302 - 113,302 - - - - - 2,086,286 - - - 113,302 - 2,723,371 Bank 2017 Up to 1 week RM’000 RM’000 RM’000 RM’000 RM’000 523,783 - - - - - - Undrawn financing 2,086,286 - 2,610,069 - Commitment and contingencies Bank guarantee given in respect of banking facilities granted to customers Claims for damages from litigation taken against the Bank FINANCIAL STATEMENTS 46.
300 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.5 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 2018 and 31 December 2017. 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 profit analysis. The Group and the Bank manage profit liquidity risk based on discounted expected cash flows. More than More than More than More than No Group Up to 1 week - 1 month - 3 months - 6 months - More than specific 2018 1 week 1 month 3 months 6 months 1 year 1 year maturity Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Liabilities Deposits from customers Deposits and placements from banks and financial institutions Recourse obligations on financing sold to Cagamas Debt securities issued Trade payables Other liabilities 14,088,750 18,012,655 20,275,770 14,808,832 11,907,537 6,404,154 - 85,497,698 424,392 401,239 - - - - - 825,631 - 6,009 - 12,035 434,588 - 18,095 61,532 - 340,167 212,431 - 410,322 2,855,071 - 2,840 1,590,976 786,628 3,563,622 2,840 1,590,976 14,513,142 18,419,903 20,722,393 14,888,459 12,460,135 9,669,547 1,593,816 92,267,395
ANNUAL REPORT | 301 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.5 Contractual maturity of financial liabilities on an undiscounted basis (continued) More than More than More than More than No Group Up to 1 week - 1 month - 3 months - 6 months - More than specific 2017 1 week 1 month 3 months 6 months 1 year 1 year maturity Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Liabilities Deposits from customers 12,330,392 23,108,553 22,102,779 13,272,783 Recourse obligations on financing sold to Cagamas 6,256 12,528 Debt securities issued 9,748 68,315 Trade payables Financing from other financial institutions 20 40 60 Other liabilities - 9,347,973 4,597,313 18,832 378,991 - 37,815 3,563,621 - 787,409 2,681 862,840 4,020,675 2,681 121 - 7,818 - 1,384,524 8,059 1,384,524 9,745,917 8,206,567 12,330,392 23,108,573 22,118,823 13,353,686 - 84,759,793 2,174,614 91,038,572 FINANCIAL STATEMENTS 46.
302 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.5 Contractual maturity of financial liabilities on an undiscounted basis (continued) Bank 2018 Up to 1 week RM’000 More than More than More than More than 1 week - 1 months - 3 months - 6 months - More than 1 months 3 months 6 months 1 year 1 year RM’000 RM’000 RM’000 RM’000 RM’000 No specific maturity RM’000 Total RM’000 Liabilities Deposits from customers 14,088,750 18,012,655 20,275,770 14,808,832 11,907,537 Deposits and placements from banks and financial institutions 424,392 401,239 Recourse obligations on financing sold to Cagamas 6,009 12,035 18,095 340,167 Debt securities issued 434,588 61,532 212,431 Other liabilities - - - 825,631 410,322 2,855,071 - 1,711,453 786,628 3,563,622 1,711,453 14,513,142 18,419,903 20,722,393 14,888,459 12,460,135 9,669,547 1,711,453 92,385,032 6,404,154 - 85,497,698
ANNUAL REPORT | 303 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.4 Liquidity risk (continued) 46.4.5 Contractual maturity of financial liabilities on an undiscounted basis (continued) Bank 2017 Up to 1 week RM’000 More than More than More than More than 1 week - 1 month - 3 months - 6 months - More than 1 month 3 months 6 months 1 year 1 year RM’000 RM’000 RM’000 RM’000 RM’000 No specific maturity RM’000 Total RM’000 Liabilities Deposits from customers 12,330,392 23,108,553 22,102,779 13,272,783 Recourse obligations on financing sold to Cagamas 6,256 12,528 Debt securities issued 9,748 68,315 Other liabilities - 9,347,973 4,597,313 18,832 378,991 - 37,815 3,563,621 - 787,409 1,490,291 9,745,796 8,198,749 2,277,700 91,133,599 12,330,392 23,108,553 22,118,783 13,353,626 - 84,759,793 862,840 4,020,675 1,490,291 FINANCIAL STATEMENTS 46.
304 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk FINANCIAL STATEMENTS Market risk is defined as the risk of financial loss due to changes in equity prices, benchmark rates, credit spreads, foreign-exchange rates, commodity prices, and other indicators whose values are set in a public market. Changes in market rates can affect the Bank’s net earnings and also the economic value of Bank’s equity. The function of Market Risk and Asset Liability Management (“ALM”) is to manage and control market risk exposure in order to optimise return on risk while maintaining a market profile consistent with the Bank’s strategic plan. The Bank has established the market risk policy, strategy and processes which are periodically reviewed and updated to take into account changes in activities and market structure to ensure effective implementation of risk management policies. 46.5.1 Management of market risk The Bank manages market risk by segregating exposure to market risk between trading and nontrading portfolios. Trading portfolios are held by treasury department which consist of financial assets that are managed on fair value basis. The risk measurement techniques employed by the Bank to measure and quantify the market value changes and the level of market risk comprise of Value-at-Risk (“VaR”), Modified Duration and Present Value of One Basis Point (“PV01”). Exposure of the Bank to the foreign exchange rates is minimal since operation of foreign currency unit is limited to remittance services only. 46.5.2 Profit rate risk Investment in debt securities and financing are exposed to risk of change in profit rates that would result in changes in cash flows. On the other hand, investment in equity securities and other shortterm receivables and payables are not significantly exposed to profit rate risk. Among other efforts in mitigating this risk is by diversifying investment mainly in fixed-income securities with different duration. The Bank has not engaged in hedging through derivative instruments during the year. The sensitivity of the Bank’s financial assets and liabilities to the profit rate risk is measured and monitored proactively using multiple measurement techniques such as Gap Analysis, Duration and Simulation Model.
ANNUAL REPORT | 305 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.2 Profit rate risk (continued) The following shows the Bank’s sensitivity to an increase or decrease in market profit rates, assuming no asymmetrical movement in yield curves and constant financial position. Sensitivity of projected net profit income Increase by 100 bp Decrease by 100 bp Increase by 50 bp Decrease by 50 bp RM’000 RM’000 RM’000 RM’000 Year ended 31 December (120,848) 110,824 (60,436) 60,459 Average for the year (168,233) 143,780 (84,143) 78,781 Maximum for the year (191,979) 103,231 (96,012) 58,491 Minimum for the year (129,032) 169,414 (64,546) 92,114 Year ended 31 December (787,199) 774,030 (393,614) 393,642 Average for the year (266,197) 242,150 (132,595) 130,433 Maximum for the year (787,199) 774,030 (393,614) 393,642 Minimum for the year (190,016) 173,005 (95,096) 98,281 Bank 2018 2017 46.5.3 Exposure to profit rate Among other controls to ensure that market risk exposures remain within tolerable levels include stress testing, new product approval procedures and listing of permissible instruments that can be traded. Periodic stress testing and control assessment are conducted to address the plausible market events relating to the threat of market failure that could disrupt the Bank’s profitability and capital adequacy in ensuring its resiliency. FINANCIAL STATEMENTS 46.
306 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.4 Exposure to profit rate risk on profit-bearing financial instruments Group 2018 <____________________________ Non-trading book ____________________________> More than More than More than NonUp to 1 month 3 months 1 year More than profit 1 month - 3 months - 1 year - 5 years 5 years sensitive RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Trading book RM’000 Total RM’000 Assets Cash, deposits and placements with financial institutions 330,028 Financial investments at fair value through profit or loss Financial investments at fair value through other comprehensive income 35,682 Financial investments at amortised cost 10,191 Financing and advances - Non-impaired 35,851,611 - Impaired, net of allowances Other non-profit sensitive balances - - - - 833,602 - 1,163,630 - - - - - 742,297 742,297 543,406 1,728,749 12,781,551 7,203,061 (475) 37,808 22,329,782 305,236 2,320,509 5,527,070 1,992,838 (55) - 10,155,789 2,328 60,862 2,668,959 28,613,618 1,712,736 - 68,910,114 - - - - 93,741 - 93,741 - - - - - 3,489,870 - 3,489,870 36,227,512 850,970 4,110,120 20,977,580 37,809,517 6,129,419 780,105 106,885,223
ANNUAL REPORT | 307 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.4 Exposure to profit rate risk on profit-bearing financial instruments (continued) <________________________ Non-trading book _______________________> Group (continued) 2018 More than More than More than Up to 1 month 3 months 1 year More than 1 month - 3 months - 1 year - 5 years 5 years Nonprofit sensitive Trading book Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 26,682,915 21,536,091 26,144,588 6,529,835 1,842,471 - - 82,735,900 Deposits and placements from banks and financial institutions 824,000 - - - - - - 824,000 Recourse obligations on financing sold to Cagamas - - 329,296 381,039 - - - 710,335 Debt securities issued - 430,099 150,579 2,262,378 300,310 - - 3,143,366 Other non-profit sensitive balances - - - - - 1,597,898 - 1,597,898 27,506,915 21,966,190 26,624,463 9,173,252 2,142,781 1,597,898 - 89,011,499 - - - - - 17,873,724 - 17,873,724 35,666,736 (13,342,203) 780,105 - - - - 35,666,736 (13,342,203) 780,105 - Liabilities Deposits from customers Shareholders’ fund On-balance sheet profit sensitivity gap Off-balance sheet profit sensitivity gap Total profit sensitivity gap 8,720,597 (21,115,220) (22,514,343) 11,804,328 - - - - 8,720,597 (21,115,220) (22,514,343) 11,804,328 - FINANCIAL STATEMENTS 46.
308 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.4 Exposure to profit rate risk on profit-bearing financial instruments (continued) <________________________ Non-trading book _______________________> Group 2017 More than More than More than Up to 1 month 3 months 1 year More than 1 month - 3 months - 1 year - 5 years 5 years RM’000 Nonprofit sensitive Trading book Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 678,199 1,420,319 50,586 - - 428,903 Assets Cash, deposits and placements with financial institutions Financial investments available-for-sale Financial investments held-to-maturity - 2,578,007 5,092 253,859 1,851,139 10,520,876 4,063,406 - 3,558,537 20,252,909 235,475 386,715 1,819,248 6,514,401 1,481,214 - - 10,437,053 92,078 2,507,026 32,648,556 1,652,170 - 69,053,833 Financing and advances - Non-impaired - Impaired, net of allowances Other nonprofit sensitive balances 32,151,148 2,855 - - - - - - - - - - 2,994,943 135,257 - 135,257 - 2,994,943 33,069,914 2,063,748 3,813,051 19,542,303 38,193,176 5,211,273 3,558,537 105,452,002
ANNUAL REPORT | 309 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.4 Exposure to profit rate risk on profit-bearing financial instruments (continued) <________________________ Non-trading book _______________________> Group (continued) 2017 More than More than More than Up to 1 month 3 month s 1 year More than 1 month - 3 months - 1 year - 5 years 5 years Nonprofit sensitive Trading book Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 31,240,812 20,616,838 24,482,259 5,758,587 1,137,000 - - 83,235,496 Recourse obligations on financing sold to Cagamas - - - 748,334 - - - 748,334 Debt securities issued - - 300,414 2,843,092 300,264 - - 3,443,770 Other non-profit sensitive balances - - - - - 1,396,049 - 1,396,049 31,240,812 20,616,838 24,782,673 9,350,013 1,437,264 1,396,049 - 88,823,649 - - - - - 16,628,353 - 16,628,353 36,755,912 (12,813,219) 3,558,537 - - - - 36,755,912 (12,813,129) 3,558,537 - Liabilities Deposits from customers Shareholders’ fund On-balance sheet profit sensitivity gap Off-balance sheet profit sensitivity gap Total profit sensitivity gap 1,829,102 (18,553,090) (20,969,622) 10,192,290 - - - - 1,829,102 (18,553,090) (20,969,622) 10,192,290 - FINANCIAL STATEMENTS 46.
310 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.4 Exposure to profit rate risk on profit-bearing financial instruments (continued) <________________________ Non-trading book _______________________> Bank 2018 More than More than More than Up to 1 month 3 months 1 year More than 1 month - 3 months - 1 year - 5 years 5 years Nonprofit sensitive Trading book Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 330,028 - - - - 831,426 - - - - - - Assets Cash, deposits and placements with financial institutions Financial investments at fair value through profit or loss - 1,161,454 742,297 742,297 Financial investments at fair value through other comprehensive income 35,682 543,406 1,728,749 12,781,551 7,203,061 (475) 37,799 22,329,773 Financial investments at amortised cost 10,191 305,236 2,320,509 5,527,070 1,992,838 (55) - 10,155,789 60,862 2,668,959 28,613,618 1,712,736 - 68,910,114 Financing and advances - Non-impaired - Impaired, net of allowances Other nonprofit sensitive balances 35,851,611 2,328 - - - - - - - - - - 3,228,032 - 3,228,032 850,970 4,110,120 20,977,580 37,809,517 5,865,405 780,096 106,621,200 36,227,512 93,741 - 93,741
ANNUAL REPORT | 311 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.4 Exposure to profit rate risk on profit-bearing financial instruments (continued) <________________________ Non-trading book _______________________> Bank (continued) 2018 More than More than More than Up to 1 month 3 months 1 year More than 1 month - 3 months - 1 year - 5 years 5 years Nonprofit sensitive Trading book Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 26,682,915 21,536,091 26,144,588 6,529,835 1,842,471 - - 82,735,900 Deposits and placements from banks and financial institutions 824,000 - - - - - - 824,000 Recourse obligations on financing sold to Cagamas - - 329,296 381,039 - - - 710,335 Debt securities issued - 430,099 150,579 2,262,378 300,310 - - 3,143,366 Other non-profit sensitive balances - - - - - 1,711,453 - 1,711,453 27,506,915 21,966,190 26,624,463 9,173,252 2,142,781 1,711,453 - 89,125,054 - - - - - 17,496,146 - 17,496,146 35,666,736 (13,342,194) 780,096 - - - - 35,666,736 (13,342,194) 780,096 - Liabilities Deposits from customers Shareholders’ fund On-balance sheet profit sensitivity gap Off-balance sheet profit sensitivity gap Total profit sensitivity gap 8,720,597 (21,115,220) (22,514,343) 11,804,328 - - - - 8,720,597 (21,115,220) (22,514,343) 11,804,328 - FINANCIAL STATEMENTS 46.
312 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.4 Exposure to profit rate risk on profit-bearing financial instruments (continued) <________________________ Non-trading book _______________________> Bank 2017 More than More than More than Up to 1 month 3 months 1 year More than 1 month - 3 months - 1 year - 5 years 5 years RM’000 Nonprofit sensitive Trading book Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 678,199 1,420,319 50,586 - - 421,825 Assets Cash, deposits and placements with financial institutions Financial investments available-for-sale Financial investments held-to-maturity - 2,570,929 5,092 253,859 1,851,139 10,520,876 4,063,406 - 3,558,056 20,252,428 235,475 386,715 1,819,248 6,514,401 1,481,214 - - 10,437,053 92,078 2,507,026 32,648,556 1,652,170 - 69,053,833 Financing and advances - Non-impaired - Impaired, net of allowances Other nonprofit sensitive balances 32,151,148 2,855 - - - - - - - - - - 2,698,342 135,257 - 135,257 - 2,698,342 33,069,914 2,063,748 3,813,051 19,542,303 38,193,176 4,907,594 3,558,056 105,147,842
ANNUAL REPORT | 313 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.5 Market risk (continued) 46.5.4 Exposure to profit rate risk on profit-bearing financial instruments (continued) <________________________ Non-trading book _______________________> Bank (continued) 2017 More than More than More than Up to 1 month 3 months 1 year More than 1 month - 3 months - 1 year - 5 years 5 years Nonprofit sensitive Trading book Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 31,240,812 20,616,838 24,482,259 5,758,587 1,137,000 - - 83,235,496 Recourse obligations on financing sold to Cagamas - - - 748,334 - - - 748,334 Debt securities issued - - 300,414 2,843,092 300,264 - - 3,443,770 Other non-profit sensitive balances - - - - - 1,490,291 - 1,490,291 31,240,812 20,616,838 24,782,673 9,350,013 1,437,264 1,490,291 - 88,917,891 - - - - - 16,229,951 - 16,229,951 36,755,912 (12,812,648) 3,558,056 - - - - 36,755,912 (12,812,648) 3,558,056 - Liabilities Deposits from customers Shareholders’ fund On-balance sheet profit sensitivity gap Off-balance sheet profit sensitivity gap Total profit sensitivity gap 1,829,102 (18,553,090) (20,969,622) 10,192,290 - - - - 1,829,102 (18,553,090) (20,969,622) 10,192,290 - FINANCIAL STATEMENTS 46.
314 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.6 Operational risk FINANCIAL STATEMENTS The Bank defines operational risk as the risk of loss or non-achievement of business objectives due to inadequate or failed internal processes, people and system, or from external events. The Bank’s Operational Risk Management (“ORM”) Framework sets out the governance and oversight structure, roles and relationships of the three lines of defense mechanism as well as the high level principles and methodologies for operational risk identification, assessment, control and monitoring. The framework recognises the relationships between operational risk and other risk types such as strategic, credit, market and reputation risks; and is cascaded to also govern the management of operational risk sub-types i.e. legal and compliance risk, Shariah non-compliance risk, Information Technology risk and outsourcing risk. The Bank has no appetite for losses arising from inadequate internal controls, systems, and processes; which can be elaborated as zero appetite for: • Failure to maintain a sound and proportionate system of internal controls to manage the expected operational risk losses and avoid the unexpected operational risk losses; • Regulatory censures, fines or prosecution relating to the laws and regulations applicable to the Bank; and • Failure to comply with Shariah rules and parameters as set out by the Shariah Committee (“SC”) and/ or the Shariah Advisory Council of Bank Negara Malaysia. The Bank continuously monitors its operational risk exposure to ensure the level of exposure is within the acceptable tolerance. This is conducted by means of the established governance and oversight structure as well as through the day-to-day operational risk management processes. ORM processes are undertaken through the implementation of tools such as Risk and Control SelfAssessment (“RCSA”), Key Risk Indicator (“KRI”) and Loss Event Data (“LED”) collection. RCSA is a tool used to identify and assess the risks in key business processes, evaluate the effectiveness of internal controls and provide the basis for determining risk responses/strategies in pursuing business objectives. KRI provides early warning signal of any increase in risk exposure and/or occurrence of control failures. To support operational risk analytics, the Bank collects LED based on BNM’s Operational Risk Integrated Online Network (“ORION”) requirements. To improve its operational resilience, the Bank has revamped its Business Continuity Management (“BCM”) framework and processes by streamlining the governance structure and response matrix based on severity of disruption; namely code Amber, Red and Black. Code Amber incidents are isolated disruption affecting only a particular business/activity which shall be managed by the respective business involved. The entire crisis management hierarchy headed by Managing Director/President shall be activated under Code Black, which is a full-on crisis that could potentially affect the going concern of the Bank. To ensure effectiveness of the business continuity plans and to be in line with regulatory requirements, regular exercises, disaster simulations and recovery drills are conducted throughout the year.
ANNUAL REPORT | 315 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of the statement of financial position, are: (i) To comply with the capital requirements set by the regulators of the banking markets where the entities within the Bank operate; (ii) To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and (iii) To maintain a strong capital base to support the development of its business. Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employing techniques based on the guidelines under the New Liquidity Framework developed by Bank Negara Malaysia. The required information is filed with Bank Negara Malaysia on a monthly basis. The Bank maintains a ratio of total regulatory capital to its risk-weighted assets above a minimum level agreed with Bank Negara Malaysia which takes into account the risk profile of the Bank. The regulatory capital requirements are strictly observed when managing economic capital. The Bank’s regulatory capital comprises two tiers: (i) (ii) Tier 1 capital: share capital, statutory reserve, capital reserve and retained profits; and Tier 2 capital: collective impairment allowances on non-impaired financing and regulatory reserve. Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and exposures not recognised in the statement of financial position. The Bank’s policy is to maintain a strong capital base so as to ensure investors’, creditors’ and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. FINANCIAL STATEMENTS 46.7 Capital management
316 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) FINANCIAL STATEMENTS 46.7 Capital management (continued) 46.7.1 Capital adequacy ratio The Bank is required to comply with the core capital ratio and risk-weighted capital adequacy ratio prescribed by Bank Negara Malaysia. The Bank was in compliance with all prescribed capital ratios throughout the period. Bank 2018 2017 Core capital ratio 21.87% 20.78% Risk-weighted capital adequacy ratio 23.25% 22.27% Core capital ratio 21.33% 20.11% Risk-weighted capital adequacy ratio 22.72% 21.60% Before proposed dividend After proposed dividend
ANNUAL REPORT | 317 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL RISK MANAGEMENT (CONTINUED) 46.7 Capital management (continued) 46.7.1 Capital adequacy ratio (continued) The above ratios are derived by taking into account the core capital and capital base against the risk weighted assets of the Bank. Components of the capital are as follows: Bank 2018 2017 RM’000 RM’000 Paid-up share capital 2,986,030 2,986,030 Retained profits 7,954,575 7,239,389 Other reserves 6,097,938 5,646,840 17,038,543 15,872,259 Subordinated sukuk 300,000 300,000 Collective impairment * 546,851 572,000 Regulatory reserve 329,672 329,672 1,176,523 1,201,672 18,215,066 17,073,931 (100,744) (65,976) 18,114,322 17,007,955 Tier I capital Total Tier I capital (core) Tier II capital Total Tier II capital Total capital Less: Investment in subsidiaries Total capital base * This is a surplus amount allowable after taking into account the collective impairment allowance on impaired financing of the Bank. FINANCIAL STATEMENTS 46.
318 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 46. FINANCIAL RISK MANAGEMENT (CONTINUED) 46.7 Capital management (continued) FINANCIAL STATEMENTS 46.7.1 Capital adequacy ratio (continued) Assets in various categories are risk-weighted as follows: 2018 2017 RM’000 RM’000 Total assets assigned 20% risk-weighted 725,709 791,560 Total assets assigned 50% risk-weighted 2,890,810 2,566,393 Total assets assigned 100% risk-weighted 72,926,532 71,675,391 1,353,289 1,349,301 77,896,340 76,382,645 Off-Balance Sheet claims assigned 100% risk-weighted 47. Bank FAIR VALUES OF FINANCIAL INSTRUMENTS Financial instruments comprise financial assets, financial liabilities and off-balance sheet financial instruments. Fair value is the amount at which the financial asset could be exchanged or a financial liability could be settled, between knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents the best estimates of fair values as at the end of the reporting period. Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on appropriate methodologies and assumptions on risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates. Fair value information for non-financial assets and liabilities is excluded as they do not fall within the scope of MFRS 132, Financial Instruments: Disclosure and Presentation which requires the fair value information to be disclosed.
ANNUAL REPORT | 319 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.1 Valuation of financial instruments The Group and the Bank measure fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. (i) Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. (ii) Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. (iii) Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices. For all other financial instruments, the Group and the Bank determine fair values using valuation techniques. There were no financial liabilities of the Group and the Bank at the end of the reporting period that were measured at fair value. FINANCIAL STATEMENTS 47.
320 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) FINANCIAL STATEMENTS 47.2 Valuation of financial instruments at fair value Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 Government investment issues 203,600 203,600 - 203,600 - Islamic redeemable convertible preference shares 202,096 202,096 - 202,096 - Quoted shares 335,182 335,182 335,182 - - 1,419 1,419 - 1,419 - 742,297 742,297 335,182 407,115 - Islamic debt securities 4,766,558 4,766,558 - 4,766,558 - Government investment issues 9,218,783 9,218,783 - 9,218,783 - Government sukuk Group 2018 Financial investments at fair value through profit or loss Unit trust shares Financial investments at fair value through other comprehensive income 5,637,781 5,637,781 - 5,637,781 - Khazanah sukuk 217,208 217,208 - 217,208 - Cagamas sukuk 2,451,645 2,451,645 - 2,451,645 - 37,807 37,807 - - 37,807 22,329,782 22,329,782 - 22,291,975 37,807 Unquoted shares
ANNUAL REPORT | 321 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.2 Valuation of financial instruments at fair value (continued) Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 Islamic debt securities 3,798,824 3,798,824 - 3,798,824 - Government investment issues 9,178,953 9,178,953 - 9,178,953 - Government sukuk 4,922,276 4,922,276 - 4,922,276 - Khazanah sukuk 208,347 208,347 - 208,347 - Cagamas sukuk 1,562,587 1,562,587 - 1,562,587 - 572,144 572,144 572,144 - - Unit trust shares 1,714 1,714 - 1,714 - Unquoted shares 8,064 8,064 - - 8,064 20,252,909 20,252,909 572,144 19,672,701 8,064 Group 2017 Financial investments available-for-sale Quoted shares FINANCIAL STATEMENTS 47.
322 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FINANCIAL STATEMENTS 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.2 Valuation of financial instruments at fair value (continued) Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 Government investment issues 203,600 203,600 - 203,600 - Islamic redeemable convertible preference shares 202,096 202,096 - 202,096 - Quoted shares 335,182 335,182 335,182 - - 1,419 1,419 - 1,419 - 742,297 742,297 335,182 407,115 - Islamic debt securities 4,766,558 4,766,558 - 4,766,558 - Government investment issues 9,218,783 9,218,783 - 9,218,783 - Government sukuk Bank 2018 Financial investments at fair value through profit or loss Unit trust shares Financial investments at fair value through other comprehensive income 5,637,781 5,637,781 - 5,637,781 - Khazanah sukuk 217,208 217,208 - 217,208 - Cagamas sukuk 2,451,645 2,451,645 - 2,451,645 - 37,798 37,798 - - 37,798 22,329,773 22,329,773 - 22,291,975 37,798 Unquoted shares
ANNUAL REPORT | 323 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.2 Valuation of financial instruments at fair value (continued) Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 Islamic debt securities 3,798,824 3,798,824 - 3,798,824 - Government investment issues 9,178,953 9,178,953 - 9,178,953 - Government sukuk 4,922,276 4,922,276 - 4,922,276 - Khazanah sukuk 208,347 208,347 - 208,347 - Cagamas sukuk 1,562,587 1,562,587 - 1,562,587 - 572,144 572,144 572,144 - - Unit trust shares 1,714 1,714 - 1,714 - Unquoted shares 7,583 7,583 - - 7,583 20,252,428 20,252,428 572,144 19,672,701 7,583 Bank 2017 Financial investments available-for-sale Quoted shares FINANCIAL STATEMENTS 47.
324 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Valuation of financial instruments not carried at fair value (but fair value disclosures are required) Set out below is a comparison of the carrying amount and fair value of financial instruments that are not measured at fair value in the financial statements. Carrying amount Fair value Carrying amount Fair value 2018 2018 2017 2017 RM’000 RM’000 RM’000 RM’000 1,163,630 1,163,630 2,476,623 2,476,623 Deposits and placements with financial institutions - - 101,384 101,384 Financial investments held-to-maturity - - 10,437,053 10,349,190 Financial investments at amortised cost 10,155,789 10,072,444 - - Financing and advances 69,003,855 73,479,723 69,189,090 74,663,760 2,459 2,459 1,795 1,795 964,572 964,572 973,513 973,513 82,735,900 82,905,425 83,235,496 83,386,758 Deposits and placements from banks and financial institutions 824,000 824,000 - - Recourse obligations on financing sold to Cagamas 710,335 702,741 748,334 740,290 3,143,366 3,140,978 3,443,770 3,434,050 - - 8,844 8,844 Trade payables 2,840 2,840 2,681 2,681 Other liabilities 1,409,003 1,409,003 1,249,997 1,249,997 Group Financial assets Cash and short-term funds Trade receivables Other receivables and deposits Financial liabilities Deposits from customers Debt securities issued Financing from other financial institutions
ANNUAL REPORT | 325 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Carrying amount Fair value Carrying amount Fair value 2018 2018 2017 2017 RM’000 RM’000 RM’000 RM’000 1,161,454 1,161,454 2,469,937 2,469,937 Deposits and placements with financial institutions - - 100,992 100,992 Financial investments held-to-maturity - - 10,437,053 10,349,190 Financial investments at amortised cost 10,155,789 10,072,444 - - Financing and advances 69,003,855 73,479,723 69,189,090 74,663,760 916,257 916,257 932,565 932,565 82,735,900 82,905,425 83,235,496 83,386,758 Deposits and placements from banks and financial institutions 824,000 824,000 - - Recourse obligations on financing sold to Cagamas 710,335 702,741 748,334 740,290 Debt securities issued 3,143,366 3,140,978 3,443,770 3,434,050 Other liabilities 1,531,376 1,531,376 1,364,260 1,364,260 Bank Financial assets Cash and short-term funds Other receivables and deposits Financial liabilities Deposits from customers FINANCIAL STATEMENTS Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued)
326 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued) Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 1,163,630 1,163,630 - - 1,163,630 Government sukuk 2,312,408 2,295,743 - 2,295,743 - Government investment issues 5,912,370 5,856,014 - 5,856,014 - Islamic debt securities 679,274 673,137 - 673,137 - Khazanah sukuk 340,579 342,541 - 342,541 - Cagamas sukuk 698,173 692,024 - 692,024 - Negotiable Islamic debt certificates 148,698 148,698 - - 148,698 64,287 64,287 - 64,287 - 69,003,855 73,479,723 - - 73,479,723 Group 2018 Financial assets Cash and short-term funds Financial investments at amortised cost: Islamic commercial paper Financing and advances Trade receivables Other receivables and deposits 2,459 2,459 - - 2,459 964,572 964,572 - - 964,572 81,290,305 85,682,828 - 9,923,746 75,759,082
ANNUAL REPORT | 327 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 82,735,900 82,905,425 - - 82,905,425 Group (continued) 2018 Financial liabilities Deposits from customers Deposits and placements from banks and financial Institutions 824,000 824,000 - - 824,000 Recourse obligations on financing sold to Cagamas 710,335 702,741 - - 702,741 3,143,366 3,140,978 - 3,140,978 - Trade payables 2,840 2,840 - - 2,840 Other liabilities 1,409,003 1,409,003 - - 1,409,003 88,825,444 88,984,987 - Debt securities issued 3,140,978 85,844,009 FINANCIAL STATEMENTS Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued)
328 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued) Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 2,476,623 2,476,623 - - 2,476,623 101,384 101,384 - - 101,384 Government sukuk 2,248,815 2,223,513 - 2,223,513 - Government investment issues Group 2017 Financial assets Cash and short-term funds Deposits and placements with financial institutions Financial investments held-to-maturity: 6,352,971 6,299,619 - 6,299,619 - Islamic debt securities 619,455 611,976 - 611,976 - Khazanah sukuk 341,911 344,269 - 344,269 - Cagamas sukuk 475,271 471,183 - 471,183 - Negotiable Islamic debt certificates 398,630 398,630 - - 398,630 69,189,090 74,663,760 - - 74,663,760 Financing and advances Trade receivables Other receivables and deposits 1,795 1,795 - - 1,795 973,513 973,513 - - 973,513 83,179,458 88,566,265 - 9,950,560 78,615,705
ANNUAL REPORT | 329 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 83,235,496 83,386,758 - - 83,386,758 Group (continued) 2017 Financial liabilities Deposits from customers Recourse obligations on financing sold to Cagamas 748,334 740,290 - - 740,290 3,443,770 3,434,050 - 3,434,050 - Financing from other financial institutions 8,844 8,844 - - 8,844 Trade payables 2,681 2,681 - - 2,681 Other liabilities 1,249,997 1,249,997 - - 1,249,997 88,689,122 88,822,620 - Debt securities issued 3,434,050 85,388,570 FINANCIAL STATEMENTS Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued)
330 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued) Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 1,161,454 1,161,454 - - 1,161,454 Government sukuk 2,312,408 2,295,743 - 2,295,743 - Government investment issues 5,912,370 5,856,014 - 5,856,014 - Islamic debt securities 679,274 673,137 - 673,137 - Khazanah sukuk 340,579 342,541 - 342,541 - Cagamas sukuk 698,173 692,024 - 692,024 - Negotiable Islamic debt certificates 148,698 148,698 - - 148,698 64,287 64,287 - 64,287 - 69,003,855 73,479,723 - - 73,479,723 916,257 - - 81,237,355 85,629,878 - Bank 2018 Financial assets Cash and short-term funds Financial investments at amortised cost: Islamic commercial paper Financing and advances Other receivables and deposits 916,257 916,257 9,923,746 75,706,132
ANNUAL REPORT | 331 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 82,735,900 82,905,425 - - 82,905,425 Bank (continued) 2018 Financial liabilities Deposits from customers Deposits and placements from banks and financial Institutions 824,000 824,000 - - 824,000 Recourse obligations on financing sold to Cagamas 710,335 702,741 - - 702,741 Debt securities issued 3,143,366 3,140,978 - 3,140,978 - Other liabilities 1,531,376 1,531,376 - - 1,531,376 88,944,977 89,104,520 - 3,140,978 85,963,542 FINANCIAL STATEMENTS Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued)
332 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued) Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 2,469,937 2,469,937 - - 2,469,937 100,992 100,992 - - 100,992 Government sukuk 2,248,815 2,223,513 - 2,223,513 - Government investment issues Bank 2017 Financial assets Cash and short-term funds Deposits and placements with financial institutions Financial investments held-to-maturity: 6,352,971 6,299,619 - 6,299,619 - Islamic debt securities 619,455 611,976 - 611,976 - Khazanah sukuk 341,911 344,269 - 344,269 - Cagamas sukuk 475,271 471,183 - 471,183 - Negotiable Islamic debt certificates 398,630 398,630 - - 398,630 69,189,090 74,663,760 - - 74,663,760 932,565 - - 83,129,637 88,516,444 - Financing and advances Other receivables and deposits 932,565 932,565 9,950,560 78,565,884
ANNUAL REPORT | 333 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Carrying amount Fair value Level 1 Level 2 Level 3 RM’000 RM’000 RM’000 RM’000 RM’000 83,235,496 83,386,758 - - 83,386,758 Bank (continued) 2017 Financial liabilities Deposits from customers Recourse obligations on financing sold to Cagamas 748,334 740,290 - - 740,290 Debt securities issued 3,443,770 3,434,050 - 3,434,050 - Other liabilities 1,364,260 1,364,260 - - 1,364,260 88,791,860 88,925,358 - 3,434,050 85,491,308 FINANCIAL STATEMENTS Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued)
334 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD NOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued) 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued) The following methods and assumptions are used to estimate the fair values of the following classes of financial instruments: 47.3.1 Cash and short-term funds The carrying amounts of cash and short-term funds approximate fair values due to the relatively short maturity of the financial instruments. This is similar to deposits and placements with financial institutions maturing within one month that have relatively short maturity period. 47.3.2 Deposits and placements with financial institutions The fair values of deposits and placements with financial institutions are not materially sensitive to changes in market profit rate because of their limited term to maturity. 47.3.3 Financial investments at amortised cost Financial investments at amortised are carried at amortised cost at the end of the reporting period. Fair values for these financial instruments are estimated based on broker quotes from Bond Pricing Agency. 47.3.4 Financing and advances Financing and advances are carried at amortised cost at the end of the reporting period. Fair valuation of these financial instruments are estimated based on discounted payment to be received in the future using effective profit rate offered for similar financing at the reporting date. 47.3.5 Trade and other receivables The carrying amounts of trade and other receivables reported in the statement of financial position approximate their fair values due to the relatively short-term maturity of these instruments. 47.3.6 Deposits from customers The fair values of deposits payable on demand (demand and savings deposits), or deposits with remaining maturity of less than one year are estimated to approximate their carrying amounts. The fair values of deposits with remaining maturities of more than one year are estimated using discounted cash flows based on effective profit rates for similar deposits from customers at the reporting date. However, since all deposits received can be classified as Islamic deposits, their fair values are deemed to approximate their carrying amounts as profit rates are determined at the end of the maturity period based on the sharing of profits generated from investments of the deposits.
ANNUAL REPORT | 335 NOTES TO THE FINANCIAL STATEMENTS 47. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 47.3 Valuation of financial instruments not carried at fair value (but fair value disclosures are required) (continued) 47.3.7 Deposits and placements from banks and financial institutions The fair values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. 47.3.8 Recourse obligations on financing sold to Cagamas The fair values for recourse obligations sold to Cagamas that have remaining maturity of less than one year are estimated to approximate their carrying amounts. For remaining maturity of more than one year, they are estimated using discounted cash flows based on prevailing Cagamas rates at the reporting date. 47.3.9 Debt securities issued Debt securities issued are measured at amortised cost at the end of the reporting period. The fair value of the securities are derived by referring to the present value of the expected amount due in the future by applying the effective profit rate for the debt securities at the reporting date. 47.3.10 Trade and other liabilities The carrying amounts of trade and other liabilities reported in the statement of financial position approximate their fair values due to the relatively short-term maturity of these instruments. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 (continued)
336 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD ADDITIONAL INFORMATION & DIRECTORY Corporate office & Branches CORPORATE OFFICE BANK RAKYAT Menara 1 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur Tel : 03-2612 9600 Website : www.bankrakyat.com.my Tele-Rakyat : 1-300-80-5454 International Call : +603-5526 9000 i-Rakyat : www.irakyat.com.my Instagram/Twitter/FB : /myBankRakyat BRANCHES REGION OFFICE (PERLIS/KEDAH/ PULAU PINANG) No. 66, Level 2, Jalan Langgar 05460 Alor Setar, Kedah ARAU No. 6, 8 & 10, Jalan Pauh Taman Pauh Utama 02600 Pekan Pauh, Perlis KANGAR No. 13, Jalan Hospital 01000 Kangar, Perlis ALOR SETAR 66, Jalan Langgar 05460 Alor Setar, Kedah BALING Tingkat Bawah, Bangunan UMNO Pekan Baru 09100 Baling, Kedah GURUN No. 19 C & 19 D, Jalan Sungai Petani 08300 Gurun, Kedah JITRA No. 247 & 248, Jalan PJ 2/2 Pekan Jitra 2 06000 Jitra, Kedah KUALA NERANG No. 32-33 Pekan Baru Jalan Semeliang 06300 Kuala Nerang, Kedah KULIM No. 203 & 204, Jalan Lunas Taman Seluang, Kelang Lama 09000 Kulim, Kedah LANGKAWI No. 140 & 142, Persiaran Bunga Raya Langkawi Mall, Kuah 07000 Langkawi, Kedah REGION OFFICE (PERAK) No. 47B, Jalan Meru Bestari A2 Medan Meru Bestari 30020 Ipoh, Perak BAGAN SERAI No. 132, Jalan Setia, Pusat Bandar 34300 Bagan Serai, Perak MERGONG No. 7 & 8, Tuanku Haminah Business Centre Mergong 05150 Alor Setar, Kedah GREENTOWN No. 8 & 10, Jalan Greentown 5 Greentown Nova 30450 Ipoh, Perak PENDANG Lot 9-11, Pendang Square 06700 Pendang, Kedah GRIK No. 1, Jalan Indah 1 33600 Grik, Perak SUNGAI PETANI No. 28, Jalan Petani 08000 Sungai Petani, Kedah KUALA KANGSAR No. 1 & 2, Bangunan Bank Rakyat Jalan Daeng Selili 33000 Kuala Kangsar, Perak BAYAN BARU No. 49, 51 & 53, Block H Persiaran Mahsuri 1/3 Sunway Avenue 11950 Bayan Baru, Pulau Pinang MANJUNG No. 41, 43 & 45, Persiaran PM 3/2 Seri Manjung City Centre, Section III 32040 Seri Manjung, Perak BUKIT MERTAJAM No. 22 & 24, Jalan Perda Selatan Bandar Perda 14000 Bukit Mertajam, Pulau Pinang MEDAN GOPENG No. 37 & 39, Medan Gopeng 1 Jalan Raja Dr Nazrin Shah Peti Surat 494 30750 Ipoh, Perak GEORGETOWN No. 137, Jalan Magazine 10300 Georgetown, Pulau Pinang JAWI No. 56 & 58, Jalan Jawi Jaya 1 Taman Jawi Jaya Seberang Prai Selatan 14200 Sungai Jawi, Pulau Pinang JELUTONG No. 13 & 13A, Metro Avenue Jelutong Express Way 11600 Pulau Pinang KEPALA BATAS No. 8, Jalan Dagangan 2 Pusat Bandar Bertam Perdana 13200 Kepala Batas, Pulau Pinang SEBERANG JAYA No. 1, Tingkat Bawah & 1, Jalan Todak 1 Pusat Bandar Seberang Jaya 13700 Prai, Pulau Pinang MERU RAYA No. 42 & 44, Jalan Meru, Impian A1 Meru Impian Business Centre Bandar Meru Raya 30010 Ipoh, Perak SRI ISKANDAR No. 24 & 26, Jalan Maju Satu Taman Maju, Bandar Sri Iskandar 32610 Bandar Seri Iskandar, Perak TAIPING Lot 2478 & 2482, Jalan Berek 34000 Taiping, Perak TANJUNG MALIM Lot 27 & 29, Jalan Permai 1 Taman Ketoyong Permai 2 35900 Tanjung Malim, Perak
ANNUAL REPORT | 337 TAPAH No. 56 & 57, Jalan Besar 35000 Tapah, Perak TELUK INTAN No. 187, Jalan Intan 5, Bandar Baru 36000 Teluk Intan, Perak REGION OFFICE (SELANGOR) No. 9 & 11, Level 3 Jalan Tuanku Ampuan Zabedah H/9H Seksyen 9 40000 Shah Alam, Selangor AMPANG No. 2, Jalan Dagang1/1A Taman Dagang 68000 Ampang, Selangor BANDAR BARU BANGI No. 37 & 39 Jalan Medan Pusat 2D, Seksyen 9 43650 Bandar Baru Bangi, Selangor BANDAR BARU KLANG No. 28 & 30, Jalan Tiara 2C Bandar Baru Klang 41500 Klang, Selangor BANTING No. 239, Jalan Sultan Abdul Samad 42700 Banting, Selangor CYBERJAYA Unit F03 & F03A, Fasa 1 Glomac Cyberjaya, Persiaran APEC 63000 Cyberjaya, Selangor KAJANG No. 18 & 19, Jalan Jelok 3 Off Jalan Bukit Kajang 43000 Kajang, Selangor KELANA JAYA Ground Floor, Wisma Sekatarakyat Glomac Business Centre Jalan SS 5/1, Kelana Jaya 47301 Petaling Jaya, Selangor KUALA SELANGOR No. 2, Jalan Bendahara 1/1 Bandar Bendahara 45000 Kuala Selangor, Selangor MELAWATI No. 326, Jalan Bandar Melawati Melawati Square, Pusat Bandar Melawati 68000 Ulu Klang, Selangor PETALING JAYA No. 1-1, Jalan 14/22 Wisma Federal Academy Ballet 46100 Petaling Jaya, Selangor PJ STATE No. 11 & 13 Jalan Yong Shook Lin, Seksyen 52 46200 Petaling Jaya, Selangor PORT KLANG No. 2 & 4, Harbour Point Commercial Centre, Jalan Sungai Aur 42000 Port Klang, Selangor PUCHONG No. 28 & 30, Jalan Puteri 4/2 Bandar Puteri 47100 Puchong, Selangor RAWANG No. 73, Jalan Bandar Rawang 2 Pusat Bandar Rawang 48000 Rawang, Selangor SEKSYEN 23, SHAH ALAM No. 23 & 25, Jalan Pelabur B/23B Seksyen 23 40300 Shah Alam, Selangor SERDANG RAYA No. C1-00-28, Seksyen 9, Jalan SR 1/9 Taman Serdang Raya 43300 Seri Kembangan, Selangor SHAH ALAM No. 9 & 11 Jalan Tuanku Ampuan Zabedah H/9H Seksyen 9 40000 Shah Alam, Selangor SUBANG PERDANA No. 39, Jalan Dinar GU 3/G Seksyen U3, Taman Subang Perdana 40150 Shah Alam, Selangor REGION OFFICE (KUALA LUMPUR/ PUTRAJAYA) Tingkat 6, No. 140 Bangunan Bank Rakyat, Jalan Ipoh 51200 Kuala Lumpur BANGSAR BARU No. 60 & 62 Tingkat Bawah 1 & 2, Jalan Maarof 59100 Bangsar Baru, Kuala Lumpur BANDAR TUN RAZAK G11, G12, 01-11 & 01-12 Wisma Zelan, Bandar Tun Razak 56000 Kuala Lumpur DESA PANDAN No. 33 & 35 Jalan 1/76 Desa Pandan 55100 Kuala Lumpur DESA SRI HARTAMAS Lot B-02 & B-03, Galeria Hartamas Jalan 26/70A, Desa Seri Hartamas 50480 Kuala Lumpur GLO DAMANSARA Level G.01, G.01AL Aras Bawah, GLO Damansara Jalan Damansara 60000 Kuala Lumpur JALAN IPOH, KL No. 140, Bangunan Bank Rakyat Jalan Ipoh 51200 Kuala Lumpur JALAN PINANG, KL 19-1-1 Tingkat Bawah & 19-1-1A Mezzanine Floor, UOA Centre No. 19 Jalan Pinang 50450 Kuala Lumpur SUNGAI BESAR A12 & A13, Jalan Menteri 45300 Sungai Besar, Selangor JALAN TANGSI, KL Tingkat Bawah, Bangunan Bank Rakyat Jalan Tangsi 50732 Kuala Lumpur SUNGAI BULOH Lot 91 & 93, Pusat Commercial TSB Jalan Nautika A U20/A Seksyen U20, Sungai Buloh 40160 Shah Alam, Selangor KEPONG No. 11 & 15, Jalan Rimbunan Raya 1 Laman Rimbunan Raya 1 Laman Rimbunan 52100 Kepong, Kuala Lumpur USJ, SUBANG JAYA No. 22 & 24, Jalan USJ 9/5Q, UEP 47600 Subang Jaya, Selangor ADDITIONAL INFORMATION & DIRECTORY Corporate office & Branches
338 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD ADDITIONAL INFORMATION & DIRECTORY Corporate office & Branches PRESINT 15, PUTRAJAYA No. 22 & 24, Jalan Diplomatik 3/1 Presint 15 62050 Putrajaya PUTRAJAYA Ayer @ 8, Lot 3 & 3A, Blok B8C1 Jalan P8G, Presint 8 62250 Putrajaya SELAYANG Tingkat Bawah, Blok B, KIP Tower Jalan Kuching 68100 Kuala Lumpur SETAPAK No. 1, Jalan 2/50, Diamond Square Off Jalan Gombak 53000 Kuala Lumpur SHAMELIN No. 68-1-1 & 68-1-2, Jalan 4/91 Dataran Shamelin Taman Shamelin Perkasa 56100 Kuala Lumpur UTAMA, MKBR Tingkat Bawah Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur REGION OFFICE (MELAKA/ NEGERI SEMBILAN) No. 4-5 & 6-5, Tingkat 5, Jalan KC 1 Kota Cemerlang 75450 Ayer Keroh, Melaka AYER KEROH No. G-4 & G-6, Jalan KC 1 Kota Cemerlang, 75450 Ayer Keroh, Melaka JASIN JA 9943 Bandar Baru Jasin III 77000 Jasin, Melaka MASJID TANAH MT 2893-2895 Jalan Taman Bandar Baru Utama Taman Bandar Baru Masjid Tanah 78300 Masjid Tanah, Melaka MELAKA Bangunan Bank Rakyat Jalan Hang Tuah, Peti Surat No. 354 75760 Melaka BAHAU No. 25 & 26 Tingkat Bawah & 1 Pusat Perniagaan Bahau, Jalan Masjid 72100 Bahau, Negeri Sembilan KUALA PILAH Lot No. 3803 & 3804 Jalan Dato’ Muar, Ulu Muar 70000 Kuala Pilah, Negeri Sembilan LUKUT No. 137 & 138, Jalan D8 1/11 Bandar Dataran Segar, Lukut 71010 Port Dickson, Negeri Sembilan NILAI PT 7436, Jalan BBN 1/2F Bandar Baru Nilai 71800 Nilai, Negeri Sembilan SENAWANG No. 156 & 157, Blok L Senawang Commercial Park 70450 Seremban, Negeri Sembilan SEREMBAN Bangunan Bank Rakyat, Lot 5750 Jalan Tuanku Munawir, Peti Surat 70 70000 Seremban, Negeri Sembilan TAMPIN No. 1135 Taman Seri Intan 73000 Tampin, Negeri Sembilan REGION OFFICE (JOHOR) Lot 1610, Indahwalk 2 Jalan Indah 15-2 Bukit Indah 81200 Johor Bahru, Johor BATU PAHAT No. 3 & 4, Jalan Maju Barat Taman Maju, Bukit Pasir 83000 Batu Pahat, Johor KOTA TINGGI No. 24 & 26, Jalan Jaya 1 Taman Jaya 81900 Kota Tinggi, Johor KULAI No. 4 & 5, Jalan Anggerik Satu Taman Kulai Utama 81000 Kulai, Johor LABIS No. 4A & 4B Jalan Segamat 85300 Labis, Johor LARKIN PERDANA No. 61 & 63, Susur Larkin Perdana 1 Persiaran Larkin Perdana Taman Larkin Perdana 81100 Johor Bahru, Johor MASAI No. 31, Jalan Suria 3 Bandar Seri Alam 81750 Masai, Johor MERSING No. 6 & 7, Jalan Ismail 86800 Mersing, Johor MUAR No. 222, Jalan Abdullah 84000 Muar, Johor NUSAJAYA Lot 1610, Indahwalk 2 Jalan Indah 15/2, Bukit Indah 81200 Johor Bahru, Johor PONTIAN No. 11, Jalan Delima 2 Pusat Perdagangan Pontian 82000 Pontian, Johor SEGAMAT No. 123 & 124, Jalan Genuang 85000 Segamat, Johor JOHOR BAHRU Podium 2, Unit 2B, Menara Ansar No. 65, Jalan Trus, Peti Surat 112 80000 Johor Bahru, Johor TAMAN UNIVERSITI, SKUDAI No. 14 & 16, Jalan Pendidikan 8 Taman Universiti 81300 Skudai, Johor KLUANG No. 27 & 29, Jalan Md Lazim Saim 86000 Kluang, Johor YONG PENG No. 5 & 6, Jalan Tropika Utama 4 Taman Bukit Tropika 83700 Yong Peng, Johor
ANNUAL REPORT | 339 REGION OFFICE (PAHANG/ TERENGGANU/KELANTAN) No. 25 & 26, Tingkat 4 Bazar Maidam, Jalan Masjid Abidin 20100 Kuala Terengganu, Terengganu BANDAR INDERA MAHKOTA No. B 56 & B 58, Persiaran Sultan Abu Bakar, Bandar Indera Mahkota 25000 Kuantan, Pahang BENTONG No. P18 & P19 Jalan Prima 1, Bentong Prima 28700 Bentong, Pahang BERA No. 13, 15 & 17, Jalan Angsana 1 Taman Angsana, Bandar Bera 28200 Bera, Pahang JENGKA Lot 92, Jalan Zamrud Nadi Kota 26400 Bandar Jengka, Pahang JERANTUT No. 1, Jalan Pine 1, Taman Pine 27000 Jerantut, Pahang KUALA LIPIS Lot 2891, Jalan BBKL, 2-3-1 No. 2-3-1, Bandar Baru Kuala Lipis 27200 Kuala Lipis, Pahang KUANTAN G-15, Mahkota Square, Jalan Mahkota 25000 Kuantan, Pahang MUADZAM SHAH No. 117, 118 & 119 Jalan Medan Mewah 7, Medan Mewah 26700 Bandar Muadzam Shah, Pahang PEKAN G-1, Bangunan UMNO Pekan Jalan Teng Quee 26600 Pekan, Pahang RAUB No. 25 & 26 Bandar Raub Perdana, Jalan Lipis 27600 Raub, Pahang TEMERLOH No. 7 & 9, Jalan Sudirman 2 Bandar Sri Semantan 28000 Temerloh, Pahang DUNGUN PT 12447 & 12448 Taman Saujana, Sura Gate 23000 Dungun, Terengganu GONG BADAK No. 1, 2 & 3, Taman Tanjung Permata Kampung Gong Badak Jalan Batu Rakit 21300 Kuala Terengganu, Terengganu JERTIH Lot 4123 & 4124, Jalan Pasar Bandar Jertih 22000 Jertih, Terengganu KEMAMAN Lot K12086 & K12087 Jalan Kubang Kurus 24000 Kemaman, Terengganu KERTEH Lot PT14507, 14508 & 14509 Kampung Baru, Mukim Kerteh 24300 Kerteh, Terengganu KUALA BERANG PT 11282 & 11283, Batu 23 Jalan Kuala Berang 21700 Kuala Berang, Terangganu KUALA TERENGGANU No. 8 & 9 Pusat Niaga Paya Keladi Jalan Paya Keladi 20000 Kuala Terengganu, Terengganu MARANG Lot 8996 & 8997 Kompleks Komersial Marang 21600 Marang, Terengganu GUA MUSANG Lot PT 7841 & PT 7842 Jalan Persiaran Raya, Taman Mesra 18300 Gua Musang, Kelantan KOTA BHARU Lot 206 & 207, Jalan Pengkalan Chepa 15400 Kota Bharu, Kelantan KUALA KRAI No. PT 5572 & PT 5573 KM 2, Jalan Kuala Krai - Gua Musang 18000 Kuala Krai, Kelantan KUBANG KERIAN Lot PT 1709 & 1710 Jalan Raja Perempuan Zainab 2 Bandar Baru Kubang Kerian 16150 Kubang Kerian, Kelantan MACHANG Lot 90-92 Bangunan Usahasama Sentosa Jaya Dev. Sdn Bhd, Jalan Bakat 18500 Machang, Kelantan PASIR MAS PT 315 & PT 316 Wisma Majlis Daerah Pasir Mas Jalan Pasir Pekan 17000 Pasir Mas, Kelantan TANAH MERAH Lot PT 237 & PT 238 Bandar Tanah Merah 17500 Tanah Merah, Kelantan WAKAF CHE YEH No. J-105 & J-106 Zon Komersial Wakaf Che Yeh 15050 Kota Bharu, Kelantan REGION OFFICE (SARAWAK) Tingkat 3, No. 9 & 10, Blok 16 KCLD, Jalan Tun Jugah 93350 Kuching, Sarawak BINTULU Lot 22 & 23, Commerce Square Jalan Tun Ahmad Zaidi 97000 Bintulu, Sarawak KAPIT Lot 542 & 54 Wisma Ngieng Ping Toh Jalan Airport 96800 Kapit, Sarawak KOTA PADAWAN Lot 42 & 43 10th Commercial Centre Jalan Kuching-Serian, Kota Padawan 93250 Kuching, Sarawak KOTA SAMARAHAN Lot 18 & 19 Uni Capital Commercial Centre Kuching/Kota Samarahan Express Way 94300 Kota Samarahan, Sarawak ADDITIONAL INFORMATION & DIRECTORY Corporate office & Branches
340 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD ADDITIONAL INFORMATION & DIRECTORY Corporate office & Branches LIMBANG Lot 11 & 12, Limbang Town District Jalan Pandaruan 98700 Limbang, Sarawak MATANG JAYA No. 3 & 4, Taman Lee Ling Commercial Centre, Jalan Matang 93050 Kuching, Sarawak MIRI Lot 1111 & 1112 Bangunan Tabung Baitul Mal Sarawak Pelita Commercial Central 98000 Miri, Sarawak MUKAH No. 1152 & 1153, Blok C Mukah Town Extension Phase II 96400 Mukah, Sarawak PERMY JAYA Lot 6131 & 6132, Pusat Bandar Fasa 6 Bandar Baru Permy Jaya 98000 Miri, Sarawak SARIKEI No. 22 & 22A, Lorong Tun Razak 1 96100 Sarikei, Sarawak SATOK (FORMERLY KNOWN AS KUCHING) Lot 504, Section 6 KTLD, Jalan Kulas Tengah 93400 Kuching, Sarawak SIBU Lot 12 E & 12 F, Blok 4 Jalan Kampung Datu 96000 Sibu, Sarawak SIMPANG TIGA Tingkat Bawah & 1, No. 9 & 10 Blok 16, KCLD, Jalan Tun Jugah 93350 Kuching, Sarawak SRI AMAN Lot 1467 & 1468 Seksyen 3 S.T.D, Jalan Hospital 95000 Sri Aman, Sarawak REGION OFFICE (SABAH) Tingkat 5, Blok B, Harbour City Lot 20 & 21, Jalan Pantai Baru Sembulan 88000 Kota Kinabalu, Sabah KOTA BELUD Lot 3 & 4, Block E Yick Ming Commercial Centre 89157 Kota Belud, Sabah KOTA MARUDU No. 6 & 7, WTK Phase 2 89108 Kota Marudu, Sabah LABUAN Tingkat Bawah, Bangunan UMNO Pekan Baru, Unit No. E001 Tingkat Bawah Financial Park Labuan Complex Jalan Merdeka 87000 Labuan LAHAD DATU Lot 27 & 28, Block D, Airport Plaza Fajar Centre, Jalan Segama 91100 Lahad Datu, Sabah KENINGAU Lot 7 & 8 Blok C Keningau Plaza, Peti Surat 910 89008 Keningau, Sabah LIKAS No. 1, Block A, Plaza Juta Jalan Tuaran 88400 Kota Kinabalu, Sabah PENAMPANG No. 49 & 50, Block H Donggongan Square, Penampang 89500 Kota Kinabalu, Sabah PUTATAN Lot 5 & 6, Tapak Putatan Baru Jalan Putatan 88300 Kota Kinabalu, Sabah SANDAKAN Lot 4 & 5, Fasa 2 Sandakan Square, Jalan Prayer 90000 Sandakan, Sabah SEMPORNA Lot D2 & A19, Jalan Bubul Bandar Utama Semporna 91308 Semporna, Sabah TAWAU TB 4615-4617 Pusat Komersial Ba Zhong Jalan Tawau Lama 91000 Tawau, Sabah KOTA KINABALU Lot 20 & 21, Blok B, Harbour City Jalan Pantai Baru, Sembulan 88000 Kota Kinabalu BEAUFORT Lot 21 & 22, Block C At Commercial Lot New Beaufort Jaya Near Beaufort Bridge 89800 Beaufort, Sabah
ANNUAL REPORT | 341 KEDAH ALOR SETAR No. 47, Jalan PSK Satu Pekan Simpang Kuala 05400 Alor Setar, Kedah CHANGLUN No. 61-A & B, Pekan Baru Jalan Kodiang 06010 Changlun, Kedah LANGKAWI No. 66, Persiaran Dayang 1 Pusat Perniagaan Dayang 07000 Langkawi, Kedah MERGONG No. 19, Lorong Putih 9 Taman Rakyat Mergong 05150 Alor Setar, Kedah BATANG KALI No. 37, Jalan Mahogani 7/1, Seksyen 4 Bandar Utama Batang Kali 44300 Batang Kali, Selangor ULU KELANG No. 3-G, Tingkat Bawah, Ukay Boulevard Jalan Lingkaran Tengah 2 68000 Hulu Klang, Selangor WILAYAH PERSEKUTUAN JALAN RAKYAT Tingkat GB, Menara 1 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur SENTUL No. 22, Jalan 14/48 A Sentul Raya Boulevard 51000 Kuala Lumpur SITIAWAN No. 25, Tingkat Bawah Taman Sentosa, Jalan Lumut 32000 Sitiawan, Perak TELUK INTAN Jalan Selat 36000 Teluk Intan, Perak TAIPING No. 31, Tingkat Bawah Susur Simpang Jalan Kg. Dew 34700 Simpang, Perak SELANGOR AMPANG No. 53G, Jalan Wawasan 2/1 Bandar Baru Ampang 68000 Ampang, Selangor BALAKONG No. 7G, Jalan Cheras Maju Pusat Perniagaan Cheras Maju 43200 Balakong, Selangor TANGKAK No. 9, Tingkat Bawah & Mezzanine Jalan Muar 84900 Tangkak, Johor ULU TIRAM No. 1, Jalan Ledang 25 Taman Bukit Tiram 81800 Ulu Tiram, Johor PAHANG KUANTAN No. 99, Tingkat Bawah Jalan Tun Ismail 25000 Kuantan, Pahang TERENGGANU PERAK BATU GAJAH No. 5, Tingkat Bawah Jalan Dewangsa 31000 Batu Gajah, Perak MUAR No. 25-2, Jalan Majidi 84000 Muar, Johor NEGERI SEMBILAN KUALA PILAH No. 511, Tingkat Bawah, Taman Sentosa 72000 Kuala Pilah, Negeri Sembilan REMBAU No. 990, Tingkat Bawah, Jalan Terentang 71300 Rembau, Negeri Sembilan MELAKA MELAKA SENTRAL No. 49, Tingkat Bawah, Jalan PMS 1 Plaza Melaka Sentral 75400 Melaka SUNGAI UDANG No. 2, Tingkat Bawah, Jalan Pahlawan 7 Taman Pahlawan 76300 Sungai Udang, Melaka JOHOR KLUANG No. 22, Tingkat Bawah, Jalan Pesona 2 Taman Pesona 86000 Kluang, Johor MASAI No. 16, Jalan Sejambak 14 Taman Bukit Dahlia 81700 Pasir Gudang, Johor KEMAMAN Kedai Al-Rahnu Kemaman No. 22, Jalan Sulaimani Chukai 24000 Kemaman Terengganu KELANTAN JELAWAT Lot 164, Pekan Jelawat 16070 Bachok, Kelantan KOTA BHARU Tingkat Bawah, Lot PT 68 Bangunan Yabmud Jalan Kebun Sultan 15350 Kota Bharu, Kelantan SARAWAK SATOK Lot 497, Seksyen 6 KTLD Jalan Kulas Tengah 93400 Kuching, Sarawak ADDITIONAL INFORMATION & DIRECTORY AR-RAHNU X’ CHANGE
342 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD RAKYAT XCESS & AR-RAHNU X'CHANGE ADDITIONAL INFORMATION & DIRECTORY KEDAH SELANGOR AR-RAHNU X’CHANGE SIMPANG KUALA No. 33 & 34 Jalan SPK 1 Pekan Simpang Kuala 05400 Alor Setar, Kedah AR-RAHNU X’CHANGE BANDAR TASIK PUTERI No. 69-G & 1, Jalan 7A/3 Bandar Tasik Puteri 48020 Rawang, Selangor AR RAHNU X'CHANGE SUNGAI PETANI No. 21-F, Jalan Ibrahim 08000 Sungai Petani Kedah AR-RAHNU X’CHANGE BANGI Lot 1.01 Tingkat Bawah Wisma UNIKEB 43609 Bangi, Selangor AR RAHNU X'CHANGE SIK No. 1A & 1B Susur Alamanda 2 Pusat Perniagaan Alamanda 08200 Sik, Kedah RAKYAT XCESS SIMPANG KUALA No. 33 & 34 Jalan SPK 1 Pekan Simpang Kuala 05400 Alor Setar, Kedah RAKYAT XCESS SUNGAI PETANI No. 21-F, Jalan Ibrahim 08000 Sungai Petani Kedah RAKYAT XCESS SIK No. 1A & 1B Susur Alamanda 2 Pusat Perniagaan Alamanda 08200 Sik, Kedah PERAK AR RAHNU X'CHANGE KAMPAR No 7 & 8, Jalan Siswa 1 Taman Kampar Siswa 31900 Kampar, Perak RAKYAT XCESS KAMPAR No 7 & 8, Jalan Siswa 1 Taman Kampar Siswa 31900 Kampar, Perak AR-RAHNU X’CHANGE BERANANG No. 27-G & 1, Jalan TPS 2/1 Taman Pelangi Semenyih 2 43700 Beranang, Selangor AR-RAHNU X’CHANGE TANJUNG KARANG No.1 & 3, Jalan Makmur 1 Taman Makmur, Batu 7 45500 Tanjung Karang, Selangor AR-RAHNU X’CHANGE SAUJANA UTAMA No. 1-G-52, Jalan Bidara 6/3 Saujana Utama 3 47000 Sungai Buloh, Selangor RAKYAT XCESS BANDAR TASIK PUTERI No. 69-G, Jalan 7A/3 Bandar Tasik Puteri 48020 Rawang, Selangor RAKYAT XCESS BANGI Lot 1.01 Tingkat Bawah Wisma UNIKEB 43609 Bangi, Selangor RAKYAT XCESS BERANANG No. 27-G, Jalan TPS 2/1 Taman Pelangi Semenyih 2 43700 Baranang, Selangor RAKYAT XCESS TANJUNG KARANG No.1 & 3, Jalan Makmur 1 Taman Makmur, Batu 7 45500 Tanjung Karang Selangor RAKYAT XCESS SAUJANA UTAMA No. 1-G-50, Jalan Bidara 6/3 Bandar Saujana Utama 47000 Sungai Buloh, Selangor NEGERI SEMBILAN AR-RAHNU X’CHANGE GEMAS Lot 4642, Tingkat Bawah, Pekan Gemas 73400 Gemas, Negeri Sembilan AR RAHNU X'CHANGE ENSTEK No. 78-1 & 78-2 Mercato Jalan Timur 6/1B Bandar Enstek 71600 Bandar Enstek, Negeri Sembilan RAKYAT XCESS GEMAS Lot 4642, Tingkat Bawah, Pekan Gemas 73400 Gemas, Negeri Sembilan RAKYAT XCESS ENSTEK No. 78-1 & 78-2 Mercato Jalan Timur 6/1B Bandar Enstek 71600 Bandar Enstek, Negeri Sembilan JOHOR AR-RAHNU X’CHANGE BENUT No. 40, Tingkat Bawah, Jalan Mutiara 4 Pusat Perniagaan Benut 82200 Pontian, Johor AR-RAHNU X’CHANGE PARIT RAJA No. 53, Jalan Universiti 1 Taman Universiti, Parit Raja 86400 Batu Pahat, Johor RAKYAT XCESS BENUT No. 39, Tingkat Bawah, Jalan Mutiara 4 Pusat Perniagaan Benut 82200 Pontian, Johor RAKYAT XCESS PARIT RAJA No. 52, Jalan Universiti 1 Taman Universiti, Parit Raja 86400 Batu Pahat, Johor PAHANG AR-RAHNU X’CHANGE MENTAKAB No. 119, Tingkat Bawah Jalan Temerloh 28400 Mentakab, Pahang AR RAHNU X'CHANGE KUALA ROMPIN No 70 & 71 Jalan Pasar Bandar Baru Rompin 26800 Kuala Rompin, Pahang
ANNUAL REPORT | 343 RAKYAT XCESS & AR-RAHNU X'CHANGE RAKYAT XCESS KUALA ROMPIN No 70 & 71 Jalan Pasar Bandar Baru Rompin 26800 Kuala Rompin, Pahang TERENGGANU KELANTAN AR-RAHNU X’CHANGE CHABANG TIGA No. 2 & 3, Tingkat Bawah Wisma KY Kg. Chabang 3 Simpang Tok Ku 21000 Kuala Terengganu, Terengganu AR-RAHNU X’CHANGE JELI Lot 6491, Tingkat Bawah & Atas Hadapan Balai Bomba & Penyelamat Taman Haji Hamat 17600 Jeli, Kelantan RAKYAT XCESS CHABANG TIGA No. 2 & 3, Tingkat Bawah Wisma KY Kg. Chabang 3 Simpang Tok Ku 21000 Kuala Terengganu, Terengganu RAKYAT XCESS JELI Lot 6491, Tingkat Bawah & Atas Hadapan Balai Bomba & Penyelamat Taman Haji Hamat 17600 Jeli, Kelantan RAKYAT XCESS PERAK RAKYAT XCESS SUNGAI SIPUT No.15, Jalan Ipoh 31100 Sungai Siput (U), Perak NEGERI SEMBILAN RAKYAT XCESS SEREMBAN 2 No. 115, Tingkat Bawah Jalan S2 F2, Garden Homes Seremban 2 70000 Seremban, Negeri Sembilan JOHOR RAKYAT XCESS BUKIT GAMBIR No. 6, Jalan Gambir 5 Pusat Komersil Gambir 84800 Bukit Gambir, Johor PAHANG RAKYAT XCESS CAMERON HIGHLANDS No. 6-1, Marigold Square Tanah Rata 39000 Cameron Highlands, Pahang SARAWAK RAKYAT XCESS SERIAN No. 11, Tingkat Bawah Louis Junction, Batu 39 Jalan Kuching-Serian 94700 Serian, Sarawak ADDITIONAL INFORMATION & DIRECTORY RAKYAT XCESS MENTAKAB No. 121, Tingkat Bawah Jalan Temerloh 28400 Mentakab, Pahang
344 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD ADDITIONAL INFORMATION & DIRECTORY SUBSIDIARIES RAKYAT FACILITY MANAGEMENT SDN BHD Level 10, Menara 2 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur Email : admin@rakyatholdings.com.my Tel : 03-2265 7661 / 7662 Fax : 03-2265 7663 RAKYAT HARTANAH SDN BHD Level 10, Menara 2 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur Tel : 03-2276 4510 / 4512 / 4513 Fax : 03-8737 0828 RAKYAT HOLDINGS SDN BHD Level 12, Menara 2 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur Email : admin@rakyatholdings.com.my Tel : 03-2265 7676 RAKYAT TRAVEL SDN BHD Level 11, Menara 2 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur Email : info@rakyatravel.com.my Website : www.rakyatravel.com.my Tel : 03-2276 6980 / 6981 / 6983 / 6984 Fax : 03-2276 5233 RAKYAT NIAGA SDN BHD Level 11, Menara 2 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur Email : admin@rakyatholdings.com.my Tel : 03-2276 4516 / 4517 / 4518 Fax : 03-2276 5332
ANNUAL REPORT | 345 BANK RAKYAT SERVICE AGENTS KOPERASI UNIMAP PERLIS (KOUNIMAP) BERHAD No 8, 10 dan 12, Jalan M.U. Satu Medan Universiti 02600 Arau, Perlis Tel : 019-481 5686 KOPERASI GURU-GURU MELAYU PERLIS BERHAD 11 Jalan Syed Saffi 01000 Kangar, Perlis Tel : 04-976 5282 Fax : 04-976 5096 KEDAH KOPERASI GURU-GURU MELAYU KEDAH BERHAD (KGMKB) Menara Guru Persiaran Sultan Abdul Hamid 05050 Alor Star, Kedah Tel : 04-777 3373 Fax : 04-771 1215 KOPERASI PASAR MINGGUAN GUAR CHEMPEDAK BERHAD No. 3 Level 1, Bangunan Arked 08800 Guar Chempedak, Kedah Tel : 04-468 1697 Fax : 04-468 1697 KOPERASI PEKEBUN KECIL DAERAH KUBANG PASU BERHAD No. 167, Jalan Hosba 7 Taman Sri Hosba KM 18, Lebuhraya Utara-Selatan Pekan Napoh 06000 Jitra, Kedah Tel : 04-917 2172 KOPERASI PESERTA-PESERTA RANCANGAN FELCRA PULAU BELANTIK SIK BERHAD Felcra Pulau Belantik, Kota Aur 08210 Sik, Kedah Tel : 04-752 1440 KOPERASI UNIVERSITI UTARA MALAYSIA (UUM) BERHAD Pejabat Urusan, No. 66, Tingkat 1 Pekan Changlun 2 06010 Changlun, Kedah Tel : 04-928 5507 Fax : 04-924 2539 KOPERASI INSTITUT PERGURUAN SULTAN ABDUL HALIM SUNGAI PETANI KEDAH BERHAD Institut Perguruan Sultan Abdul Halim Jalan Kuala Ketil 08000 Sungai Petani, Kedah Tel : 04-421 8621 Fax : 04-421 8582 PULAU PINANG KOPERASI GURU AGAMA KERAJAAN NEGERI PULAU PINANG BERHAD 2640, Tingkat 1 Taman Haji Ahmad Jamil Tasek Gelugor 13300 Seberang Perai, Pulau Pinang Tel : 04-575 9566 Fax : 04-575 9566 KOPERASI KOLEJ KEMAHIRAN TINGGI BALIK PULAU BERHAD Jalan Genting 11000 Balik Pulau, Pulau Pinang Tel : 04-866 5805 Fax : 04-866 5741 PERAK KOPERASI BINA BERSAMA KAMPONG GAJAH PERAK BERHAD No. 14A, Medan Koperasi 36800 Kampong Gajah, Perak Tel : 05-631 1368 Fax : 05-631 1368 KOPERASI KAKITANGAN KERAJAAN HULU PERAK BERHAD No. 8281, Tingkat Bawah Jalan Suda Bahagia Jalan Sultan Iskandar 33300 Grik, Perak Tel : 05-791 1887 Fax : 05-791 1887 KOPERASI PESERTA-PESERTA RANCANGAN FELCRA SEBERANG PERAK BERHAD Lot 4271, Co-op Business Centre (CBC) Lebuh Paduka Bandar Seberang Perak 36800 Kampung Gajah, Perak Tel : 05-655 8101 Fax : 05-655 8100 KOPERASI PEKERJA PRASARANA MALAYSIA BERHAD Block 228A-2-1, Fortune Court Bandar Baru Farlim, Jalan Thean Teik 11400 Pulau Pinang Tel : 04-827 9006 Fax : 04-829 6007 KOPERASI SELAMA PERAK BERHAD Lot No. 4, Jalan Besar Selama 34100 Selama, Perak Tel : 05-839 4532 Fax : 05-839 2940 KOPERASI POS DAN TELEKOM PULAU PINANG BERHAD No. 80, Jalan Rangoon 10400 Georgetown, Pulau Pinang Tel : 04-226 1346 Fax : 04-227 1346 KOPERASI BUKIT SEMANGGOL BERHAD No. 16, Jalan Besar Gunung Semanggol 34400 Simpang 4 Semanggol, Perak Tel : 05-890 4320 Fax : 05-890 4320 KOPERASI UNIVERSITI SAINS MALAYSIA (USM) BERHAD Universiti Sains Malaysia 11800 Minden, Pulau Pinang Tel : 04-653 3888 Fax : 04-657 5688 ADDITIONAL INFORMATION & DIRECTORY PERLIS
346 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BANK RAKYAT SERVICE AGENTS ADDITIONAL INFORMATION & DIRECTORY SELANGOR KOPERASI KAKITANGAN UNIKL MIAT SEPANG BERHAD Lot 2891, Jalan Jenderam Hulu 43800 Dengkil, Selangor Tel : 03-8768 0804 Fax : 03-8768 8485 KOPERASI KAKITANGAN UNIVERSITI TEKNOLOGI MARA (UiTM) BERHAD B13-2, Jalan Lazuardi 7/9, Seksyen 7 40000 Shah Alam, Selangor Tel : 03-5519 5912 Fax : 03-5513 0540 KOPERASI MEMBELI DAN MEMBUKA TANAH SERI CHEEDING BERHAD Lot 6665, Jalan Merak Kampung Seri Cheeding 42700 Banting, Selangor Tel : 03-3191 4729 Fax : 03-3191 4729 KOPERASI PELABURAN PEKERJA PROTON BERHAD Kedai Koperasi Pelaburan Pekerja Proton Berhad, Seksyen 26 40400 Shah Alam, Selangor Tel : 03-5192 5611 Fax : 03-5102 6148 KOPERASI PENEROKA SUNGAI TENGI BERHAD Bangunan Stesen Minyak BH Petrol Jalan Merdeka Desa Maju Sungai Tengi 44010 Kuala Kubu Bharu, Selangor Tel : 03-6042 1034 Fax : 03-6042 1034 KOPERASI PEMBANGUNAN PEKERJA INDUSTRI SELANGOR BERHAD (KOPEKERJA) Suite 1-17, Jalan Dagang B/3A Taman Dagang 68000 Ampang, Selangor Tel : 03-4270 4331 Fax : 03-4270 7659 KOPERASI PEMBANGUNAN PULAU LUMUT BERHAD No. 24A, Jalan Batu Unjur 1 Bayu Perdana 41200 Klang, Selangor Tel : 03-3324 2728 Fax : 03-3324 2558 KOPERASI TERAS SEMENYIH SELANGOR BERHAD 24 & 25, Seksyen 2, Jalan Besar 43500 Semenyih, Selangor Tel : 03-8723 8615 Fax : 03-8723 4479 KOPERASI UNIKEB BERHAD Wisma UNIKEB Universiti Kebangsaan Malaysia 43600 Bangi, Selangor Tel : 03-8925 2540 Fax : 03-8925 7177 KOPERASI UNIVERSITI PUTRA MALAYSIA BERHAD Tingkat 1, Bangunan Pusat Perniagaan Beg Berkunci 260, Pejabat Pos UPM Universiti Putra Malaysia 43400 Serdang, Selangor Tel : 03-8946 7980 Fax : 03-8948 9796 KOPERASI PEGAWAI-PEGAWAI KERAJAAN MALAYSIA BERHAD No 54G-1, Jalan SS1/22 Kampung Tunku 47300 Petaling Jaya, Selangor Tel : 03-7876 2167 Fax : 03-7876 2167 WILAYAH PERSEKUTUAN KOPERASI KAKITANGAN BANK RAKYAT BERHAD (SEKATARAKYAT) Tingkat 2A, Menara 2 Menara Kembar Bank Rakyat No. 33, Jalan Rakyat, KL Sentral 50470 Kuala Lumpur Tel : 03-2273 3314 Fax : 03-2274 1314 KOPERASI KEDAI BUKU UNIVERSITI MALAYA BERHAD (KKUM) Bangunan Perdana siswa, Universiti Malaya Peti Surat 1127, Jalan Pantai Baru 59700 Kuala Lumpur Tel : 03-7956 5000 Fax : 03-7954 7040 KOPERASI SERBAGUNA PEKERJA FELDA MALAYSIA BERHAD (KOGUNA) No. 2F, Jalan Gurney 54000 Kuala Lumpur Tel : 03-2698 4202 Fax : 03-2693 4511 KOPERASI PEKERJA-PEKERJA BANK MALAYSIA BERHAD (KOBANK) Lot No. 1108-1109B Level 11, Wisma MPL Jalan Raja Chulan 50200 Kuala Lumpur Tel : 03-2031 4933 Fax : 03-2031 7298 KOPERASI SIMPANAN DAN KREDIT BERSATU MALAYSIA BERHAD Suite 10.02, Level 10, The Gardens South Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur Tel : 2282 7233 KOPERASI RANGKAIAN GLOBAL MALAYSIA BERHAD No 31, Tingkat 1 Jalan Dewan Sultan Sulaiman Satu Off Jalan Tuanku Abdul Rahman 50300 Kuala Lumpur Tel : 013-628 2434 Fax : 03-2697 8305 KOPERASI KEMENTERIAN SUMBER MANUSIA (KOKESUMA) Tingkat 7, Menara PERKESO 281 Jalan Ampang 50450 Kuala Lumpur Tel : 03-4253 1606 Fax : 03-4257 6995 KOPERASI MODAL DAN AMANAH MALAYSIA BERHAD A-G-5, Blok A Glomac Damansara No. 699 Jalan Damansara 60000 Kuala Lumpur Tel : 03-7731 3699
ANNUAL REPORT | 347 NEGERI SEMBILAN KOPERASI JELAI TIGA GEMAS BERHAD Stesen Minyak Koperasi Kampung Felda Jelai Tiga 73480 Gemas, Negeri Sembilan Tel : 06-434 7495 Fax : 06-434 7495 KOPERASI MELAYU BERJAWATAN KERAJAAN NEGERI SEMBILAN BERHAD (KOMBEK) No. 39 & 40, Wisma Bukti Taman Bukti Ampangan 70400 Seremban, Negeri Sembilan Tel : 06-679 1633 Fax : 06-679 1733 KOPERASI SERBAMAJU DAERAH JEMPOL BERHAD No. 10 (Tingkat Atas), Jalan Beringin 2 72200 Batu Kikir, Negeri Sembilan Tel : 06-454 8621 KOPERASI PEMBANGUNAN MUKIM JOHOL NEGERI SEMBILAN BERHAD No 82, Jalan Besar Pekan Johol 73100 Johol, Negeri Sembilan Tel : 06-436 9254 Fax : 06-436 9254 MELAKA KOPERASI KAKITANGAN PENJARA MELAKA BERHAD Tingkat Bawah Pasar Mini Koperasi Sekolah Henry Gurney Telok Mas 75450 Melaka Tel : 06-261 7429 Fax : 06-261 9261 JOHOR KOPERASI FELDA LOK HENG TIMUR BERHAD Bangunan Koperasi Felda Lok Heng Timur 81909 Kota Tinggi, Johor Tel : 07-894 7889 Fax : 07-894 7452 KOPERASI KONTRAKTOR DAN USAHAWAN MELAYU LEDANG BERHAD No. 166, Tingkat Bawah, Jalan Muar 84900 Tangkak, Johor Tel : 06-978 3719 Fax : 06-979 1119 KOPERASI GURU-GURU MELAYU PAHANG BARAT BERHAD No. 3C, Tingkat 2, Bangunan KGMPB Kompleks Lipis Inn 27200 Kuala Lipis, Pahang Tel : 09-312 1800 Fax : 09-312 3877 KOPERASI PELABURAN PEKERJAPEKERJA KEJORA BERHAD No. 15, Banguna Kedai, Pusat Bandar Bandar Penawar 81930 Kota Tinggi, Johor Tel : 07-822 1394 Fax : 07-822 1394 KOPERASI MUKMIN CAMERON HIGHLANDS BERHAD Pejabat Agama Islam Daerah Cameron Highlands, Tanah Rata 39000 Cameron Highlands, Pahang Tel : 05-491 1425 KOPERASI PENULIS DAN PEMBACA MUAR BERHAD TL MBP 115, Parit Raja KM5, Jalan Temenggong Ahmad 84000 Muar, Johor Tel : 06-981 1226 Fax : 06-981 1292 KOPERASI PENEROKA FELDA TEMBANGAU SATU KEMAYAN PAHANG BERHAD Pejabat Koperasi Felda Tembangau Satu 28380 Kemayan, Pahang Tel : 06-468 5406 Fax : 06-468 5406 KOPERASI PERUNDING TAKAFUL IKHLAS MALAYSIA BERHAD No. 3, Jalan Langsat, Peti Surat 142 88000, Kluang, Johor Tel : 07-771 9788 Fax : 07-774 4788 KOPERASI PEMBANGUNAN DAERAH MARAN BERHAD No 2 Tingkat 2 Bangunan Wisma Pemuda UMNO Jalan Perpustakaan 26500 Maran, Pahang Tel : 019-966 7186 KOPERASI PERBADANAN JOHOR BERHAD Tingkat 11, Bangunan KOMTAR Johor Bahru City Centre (JBCC) 80000 Johor Bahru, Johor Tel : 07-219 2692 Fax : 07-223 3175 KOPERASI PESERTA-PESERTA FELCRA GUGUSAN SRI MAKMUR BERHAD Felcra Sri Makmur 26030 Kuantan, Pahang Tel : 013-973 8878 Fax : 09-546 1040 KOPERASI MITRA USAHAWAN BERHAD No 12, Jalan Uda Utama 3/15 Bandar Uda Utama 81300 Skudai, Johor Tel : 07-232 5325 Fax : 07-234 3917 KOPERASI SERBAGUNA FELDA KERATONG TIGA BERHAD Felda Keratong Tiga 26900 Bandar Tun Abdul Razak, Pahang Tel : 09-445 7452 Fax : 09-445 7452 PAHANG KOPERASI FELDA SUNGAI KOYAN III RAUB BERHAD Felda Sungai Koyan 3 27650 Raub, Pahang Tel : 09-340 1442 Fax : 09-340 1442 KOPERASI SERBAGUNA FELDA CHINI TIMUR SATU BERHAD Felda Chini Timur Satu, Chini 26690 Pekan, Pahang Tel : 09-457 1266 Fax : 09-457 1266 KOPERASI FELDA SELANCAR DUA ROMPIN BERHAD Felda Selancar 2, Selancar 2 26700 Muadzam Shah, Pahang Tel : 09-438 1435 Fax : 09-438 1159 ADDITIONAL INFORMATION & DIRECTORY BANK RAKYAT SERVICE AGENTS
348 | BANK KERJASAMA RAKYAT MALAYSIA BERHAD BANK RAKYAT SERVICE AGENTS ADDITIONAL INFORMATION & DIRECTORY TERENGGANU KOPERASI COBE PANTAI TIMUR BERHAD No. 102B, Tingkat 2, Bangunan COBE Jalan Tengku Embong Fatimah 20200 Kuala Terengganu, Terengganu Tel : 09-622 2796 Fax : 09-624 1498 KOPERASI FELCRA KAWASAN HULU BERANG HULU TERENGGANU BERHAD Lot 3765 Kg Matang Jalan Felda Mengkawang 21800 Ajil, Hulu Terengganu, Terengganu Tel : 09-612 4845 KOPERASI PEMBANGUNAN DAERAH SETIU BERHAD Wisma KPD, Bandar Permaisuri 22100 Setiu, Terengganu Tel : 09-609 2333 Fax : 09-609 2332 KELANTAN KOPERASI PEKEBUN KECIL PASIR PUTEH BERHAD Lot 455, Bangunan PKINK, Jalan Nara 16800 Pasir Puteh, Kelantan Tel : 09-786 7302 Fax : 09-786 2717 KOPERASI PENEROKA FELDA KEMAHANG 1 BERHAD Felda Kemahang 1 17500 Tanah Merah, Kelantan Tel : 09-958 2007 Fax : 09-958 4288 KOPERASI PESERTA-PESERTA FELCRA GUGUSAN BUKIT TANDAK KELANTAN BERHAD Pejabat Felcra Berhad Kawasan Bukit Tandak 17200 Rantau Panjang, Kelantan Tel : 013-933 5259 Fax : 09-958 4288 KOPERASI PESERTA-PESERTA RANCANGAN FELCRA GUGUSAN GEMANG BERHAD PT 2103/C Bandar Baru Bukit Bunga 17700 Air Lanas, Kelantan Tel : 09-946 8799 Fax : 09-946 8513 SABAH KOPERASI ANAK WATAN RANAU BERHAD Blok B, Lot 10, Bangunan Kedai SEDCO 89300 Ranau, Sabah Tel : 088-879 539 Fax : 088-876 073 KOPERASI ANAK WAWASAN KOTA KINABALU BERHAD Lot 3A 34, Level 3 Central Shopping Plaza Jalan Banjaran 88200 Kota Kinabalu, Sabah Tel : 088-254 534 Fax : 088-254 534 KOPERASI BELIA TENOM BERHAD Asia Rasa Bed & Breakfast Jalan Tun Mustafa, W.D.T 32 89907 Tenom, Sabah Tel : 013-851 6198 KOPERASI PEKERJA YAYASAN SABAH BERHAD Lot 7-3, Tingkat 3 Bunga Raja Shopping Complex Lorong Bunga Raja 5, Off Jalan Lintas 88845 Kota Kinabalu, Sabah Tel : 088-389 258 Fax : 088-383 258 KOPERASI SUKAU KINABATANGAN BERHAD Blok C1, Lot 1 Tingkat 1, Wisma Kosuk Berhad Bandar Lubuk Jaya, Batu 7 90000 Sandakan, Sabah Tel : 089-232 960 KOPERASI UNIVERSITI MALAYSIA SABAH BERHAD (KoUMS) Bangunan Pusat Perkhidmatan Pelajar (Anjung Siswa) Universiti Malaysia Sabah 88999 Kota Kinabalu, Sabah Tel : 088-320 714 KOPERASI KOPIS LABUAN BERHAD Court Light Industrial Durian Tunjung P.O. Box 391 87008 W.P. Labuan Tel : 087-581 011 Fax : 087-583 011 SARAWAK KOPERASI BUMIPUTERA KANOWIT BERHAD Lot 125, Pekan Kanowit 96700 Kanowit, Sarawak Tel : 019-865 2539 KOPERASI DAERAH JULAU BERHAD Lot 42, Jalan Lim Ah Din 96600 Julau, Sarawak Tel : 019-817 5566 Fax : 084-734 299 KOPERASI KOPERKASA BERHAD (KOPERKASA) No. 16-19, Wisma KOPERKASA Jalan Simpang Tiga 93300 Kuching, Sarawak Tel : 082-415 611 Fax : 082-231 650 KOPERASI PERDAGANGAN DAN PERINDUSTRIAN BARAM MIRI BERHAD Lot 337, Pasar Marudi 98050 Baram, Sarawak Tel : 019-856 1461 Fax : 085-75 6526 KOPERASI SARATOK BERHAD Lot 379, Stesen Minyak Petronas Saratok Town District 95400 Saratok, Sarawak Tel : 083-438 385 KOPERASI SINARAN LAWAS BERHAD Batu 1/4, Jalan Punang 98850 Lawas, Sarawak Tel : 085-284 340
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