Deutsche Bank (Malaysia) Berhad: Financial Statements - 31 December 2020

Transcription

1. Deutsche Bank (Malaysia) Berhad (Company No. 199401026871 (312552-W)) (Incorporated in Malaysia) and its subsidiaries Financial statements for the year ended 31 December 2020
2. Table of Contents Statement of Corporate Governance 2020 1 Directors ’ report for the year ended 31 December 2020 44 Statement by Directors pursuant to Section 251(2) of the Companies Act, 2016 51 Statutory declaration Pursuant to Section 251(1)(b) of the Companies Act, 2016 52 Shariah Committee’s Report 53 Independent auditors’ report to the member of Deutsche Bank (Malaysia) Berhad 55 Statements of financial position as at 31 December 2020 59 Statements of profit or loss and other comprehensive income for the year ended 31 December 2020 61 Statements of changes in equity for the year ended 31 December 2020 62 Statements of cash flows for the year ended 31 December 2020 64 Notes to the financial statements 66 1. Basis of preparation 66 2. Significant accounting policies 69 3. Cash and cash equivalents 94 4. Financial securities 96 5. Loans, advances and financing 98 6. Other assets 103 7. Statutory deposit with Bank Negara Malaysia 103 8. Investments in subsidiary companies 103 9. Property and equipment 105 10. Right-of-use assets 106 11. Deferred tax assets 107 12. Deposits from customers 108 13. Deposits and placements of banks and other financial institutions 109 14. Lease liabilities 109
3. 15 Other liabilities 109 16 . Share capital 110 17. Reserves 110 18. Interest income 111 19. Interest expense 111 20. Non-interest income 112 21. Other operating expenses 113 22. Allowance (made)/written back for impairment 114 23. Related parties 114 24. Credit transactions and exposures with connected parties 118 25. Intercompany charges 119 26. Key management personnel compensation 120 27. Tax expense 122 28. Earnings per share 123 29. Dividends 124 30. Capital adequacy 125 31. Commitments and contingencies 127 32. Capital management 129 33. Risk management 129 34. Financial assets and liabilities 145 35. Share-Based Compensation Plans 156 36 Comparative Figures 159 37 The operations of Islamic Banking 160
4. 1 Deutsche Bank (Malaysia) Berhad (Company No. 199401026871 (312552-W)) (Incorporated in Malaysia) and its subsidiaries Statement of Corporate Governance 2020 CEO’s Statement The global economic outlook has improved since September thanks to the development of vaccines, and it’s possible that the global GDP returns to pre-virus levels in Q2 2021. However, there is still the risk of the vaccine rollout being delayed, which could slow the recovery of the global economy. The US economy has continued to contract, albeit at a slower pace. However, the new Biden administration is likely to deliver further fiscal support later in 2021. The Eurozone GDP has continued to contract as well, mainly due to latest restrictions to combat the second wave of the virus. Europe has continued with temporary stimulus measures, but this is dependent in part on the pace of the economic recovery. Locally, the economy has recorded another quarter of negative growth in Q4 2020, largely attributable to restrictions impose to combat the pandemic. The restrictions was a major cause of drag on local economic activity. This was slightly mitigated by an improvement in external demand. The manufacturing sector has benefited the most from this demand, but the same can’t be said of the other sectors which have mostly seen a contraction in growth. Domestic demand has also declined as private consumption and public investment has continued to be subdued. As with the rest of the world, the recovery of the local economy in 2021 is heavily dependent on the successful rollout of newly developed vaccines, and the resulting easing of restrictions from the reduced need for such stringent containment measures. However, should there be a resurgence before the population is sufficiently covered, the reintroduction of containment measures would be necessary. Despite challenging domestic and external environment, the Bank remained resilient and recorded income before taxes of RM355.7 million and net profit of RM268.7 million for the financial year ended 31 December 2020. This translates to earnings per share of 154.8 sen in 2020. The Bank reported return on equity of 18.5% whilst liquidity profile continues to be strong with total deposits at RM7.2 billion. The Bank’s Internal Capital Adequacy Assessment (“ICAAP”) and the capitalization level remains healthy and robust with overall and common equity tier 1 capital ratio reported at 23.54% and 22.91% respectively as at 31 December 2020.
5. 2 Company No . 199401026871 (312552-W) CEO’s Statement (continued) Notable deals and Awards Below are the awards won by Deutsche Bank in the year 2020: • • • Best Islamic Custodian by The Asset Triple A Islamic Finance Awards 2020; Best Domestic Custodian by The Asset Triple A Islamic Finance Awards 2020; Ranked No. 1 Market Leader for FX in 2020 Asiamoney FX survey. Bank Ratings In November 2020, RAM has reaffirmed the Bank’s long and short term ratings of AA1 and P1 respectively, with a stable outlook. Business plan and strategy We remain focused on building our franchise, with emphasis on tapping client flows in foreign exchange, fixed income, interest rate derivatives, credit derivatives, structured transactions, money markets, repo, capital market instruments, cash management, securities services, trade finance and Islamic banking. Our objectives remain as a client focussed organisation and building a global network of balanced businesses underpinned by strong capital and liquidity. The Bank stands firmly committed to Corporate Responsibility (“CR”). Over the course of the year, we continued to work with the Deutsche Bank Asia Foundation (“DBAF”) to support local projects relating to education, corporate volunteering, sustainability and community development. We regard these CR initiatives as investments in our own future.
6. 3 Company No . 199401026871 (312552-W) CEO’s Statement (continued) Outlook For 2021, The Malaysian annual growth is expected to be supported by private and public sector activities. However, recovery and subsequent growth is dependent on the successful rollout of vaccines, with no large scale resurgence of the virus. Should the rollout be successful, investment activity is projected to record a modest recovery, underpinned by ongoing and new projects, both in the public and private sectors. The Bank remains competitive with the solid frameworks around capital and liquidity management, risk controls and enhanced internal processes. We continue to be relentless in our commitment towards client centricity and in driving product innovation to deliver sustainable performance. The Bank looks forward to contribute to the economic growth and wellbeing of the communities in which we operate and to create positive impact for our clients, investors, employees and society at large. Dato’ Yusof Annuar bin Yaacob Chief Executive Officer
7. 4 Company No . 199401026871 (312552-W) Board of Directors Composition of the Board The Directors who served since the date of the last report are as follows: Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin Chairman - Independent Non-Executive Director Dato’ Yusof Annuar bin Yaacob Chief Executive Officer (CEO) - Non-Independent Executive Director Mr. Steven Choy Khai Choon Vice-Chairman - Independent Non-Executive Director Madam Koid Swee Lian Independent Non-Executive Director Mr Seamus Toal Non-Independent Executive Director
8. 5 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin was appointed to the Board of DB Malaysia on 28 April 2016 and succeeded the role as non-executive Chairman of the Bank on 1 January 2017. Tunku Dato’ Mahmood Fawzy received his Bachelor of Arts (Hons) Business Studies degree from the Polytechnic of Central London (now known as Westminster University), Masters in Business Administration from the University of Warwick and the Diploma in Marketing from the Chartered Institute of Marketing. Tunku Dato’ Mahmood Fawzy is a Fellow of the Institute of Corporate Directors Malaysia, Member of the Australian Institute of Company Directors, Malaysian Institute of Management and Malaysian Institute of Corporate Governance. Tunku Dato’ Mahmood Fawzy draws on a wealth of governance, management and cross border experience in telecommunications, investment management and private equity activity, oil and gas, marine and aviation logistics, corporate advisory, banking and financial services, across several international locations including the United Kingdom, New Zealand, South Africa and Malaysia. Tunku Dato’ Mahmood Fawzy was previously a board member of Malaysia Airports Holdings Berhad, Hong Leong Islamic Bank Berhad, Pos Malaysia Bhd, SapuraKencana Petroleum Bhd/ Kencana Petroleum Berhad, Ethos Capital One Sdn Berhad, The Federation of Investment Managers Malaysia, Energy Africa Limited, Engen Limited in South Africa, Telekom Malaysia Berhad and its subsidiaries Webe Digital Sdn Berhad and VADS Berhad, Hong Leong Assurance Berhad and Hong Leong MSIG Takaful Berhad. Tunku Dato’ Mahmood Fawzy currently sits on the board of Hong Leong Asset Management Berhad.
9. 6 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Dato’ Yusof Annuar bin Yaacob Dato’ Yusof Annuar bin Yaacob was appointed as Executive Director and Chief Executive Officer of DB Malaysia on 20 February 2014. Dato’ Yusof is a Chartered Accountant by profession and qualified from the Chartered Institute of Management Accountants. Dato’ Yusof has distinguished experience in the telecommunication industry and over 18 years of experiences in investment banking, financial management, accounting and corporate management of international firms. Prior to joining DB Malaysia, Dato’ Yusof was the Managing Director and Chairman of the Investment Banking Division, Goldman Sachs Malaysia Sdn Bhd. Dato’ Yusof held positions as Executive Director/Chief Financial Officer of Axiata Group Berhad and served as a Board Member of several public listed companies both local and international. Mr. Steven Choy Khai Choon Mr. Steven Choy Khai Choon was appointed to the Board of DB Malaysia on 29 June 2012. Mr. Choy graduated from the University of New South Wales, Australia with a Bachelor of Commerce and holds a Master in Business Administration from Oklahoma City University, United States of America. He had attended the General Management Programme at INSEAD, France over a period of two (2) years from 2001 to 2002. He is a Fellow of the Certified Practicing Accountants Australia and a member of the Malaysian Institute of Accountants. He has extensive experience in financial sector and had served as the President/Chief Executive Officer of Cagamas Berhad for six (6) years before retiring in March 2012. Prior to that, he was the Senior General Manager, Group Head, Business Reengineering with RHB Banking Group and had held various senior positions with Aviva Insurance Group, Credit Corporation Malaysia Berhad. He was previously a board member of Zurich Takaful Malaysia Berhad and RAM Rating Services Berhad. Mr. Choy is currently a Director of Malaysia Marine and Heavy Engineering Holdings Berhad, Zurich General Insurance Malaysia Berhad, Hap Seng Plantations Holdings Berhad, MSM Malaysia Holdings Berhad, Bond and Sukuk Information Platform Sdn Bhd, Asian Banking School Sdn Bhd and the Director/ Chairman of Zurich Life Insurance Malaysia Berhad. Mr. Choy is also a Public Interest Director on the Board of The Federation of Investment Managers Malaysia and an Authority Member of Labuan Financial Services Authority.
10. 7 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Madam Koid Swee Lian Madam Koid Swee Lian was appointed to the Board of DB Malaysia on 7 December 2016. Madam Koid was a scholar of Bank Negara Malaysia (BNM) to read law in the Law Faculty of the University of Malaya. She graduated with a Bachelor of Laws Degree in 1981 and was admitted to the Malaysia Bar in 1983. Madam Koid has been with BNM for more than 32.5 years until her retirement and she has served in various capacities including as Board member and CEO of BNM’s Credit Counselling and Debt Exposure Management Agency (AKPK). She was previously a board member of Hong Leong Capital Berhad. Madam Koid was appointed by the Securities Commission Malaysia as a Public Interest Director on the Board of The Federation of Investment Managers Malaysia and chairs one of its Board Committees. Her directorships in other companies include HLA Holdings Sdn Bhd and Genting Berhad. She was appointed as an advisor for the Consumer Financial Education Initiative of the Financial Planning Association of Malaysia from 1 August 2015 to 30 June 2019. She entered into a Service Agreement with the ICLIF Leadership and Governance Centre (ICLIF) as a coach and facilitator for ICLIF's Programmes from 27 October 2017 to 31 December 2019. Mr. Seamus Toal Mr. Seamus Toal was appointed to the Board of DB Malaysia on 27 July 2017. Mr. Toal is a graduate of the Columbia Senior Executive Program, a Fellow of the Institute of Bankers and Finance Singapore and Associate Member of the Association of Corporate Treasurers. Mr. Toal started his career with National Westminster Bank in 1986 and moved on to various senior positions in Deutsche Bank across various regions. Mr. Toal has more than 30 years of experience in the banking industry. He is currently the Managing Director/ Chief Risk Officer Asia Pacific of Deutsche Bank with oversight across all risk categories, credit, market, liquidity, operational and information and resilience and responsible for implementation of risk strategies, vision, policies and direction.
11. 8 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Role and Responsibilities of the Board The Board’s role is to effectively supervise the affairs of the Bank, to deliberate and approve significant policies and strategies that are proposed by management and to ensure its compliance with all regulatory and statutory obligations. The Board reviews the Bank’s business plans, strategies and financial performance periodically to ensure that it achieves its objectives and provides regular oversight of the Bank’s business operations and performance. The Board also reviews and approves proposals to hire new key Senior Management officers, to ensure that the affairs of the Bank are administered by qualified and competent officers. The roles of the Chairman and CEO are separate and distinct to ensure an appropriate balance of role, responsibility, authority and accountability. These two positions are held by different individuals and the division in the roles of the Chairman and the CEO is clearly defined in the terms of reference. The Independence Non-Executive Chairman assumes an important role in encouraging a healthy debate on critical issues and brings to the Board the required level of independence and professional skepticism. Board Training To keep abreast of current market developments, the Board is encouraged to attend public programmes, seminars, training or talks on areas related to their roles and responsibilities. Training programmes on specific subjects or areas can be requested and arranged internally. Directors received training by attending external seminars, training sessions and talks and through reading materials. They had also attended talks, dialogues sessions and focus group sessions organised by FIDE Forum, an initiative of the alumni members of the Financial Institutions Directors’ Education Programme, set out to enhance corporate governance practices in the boards of financial institutions and to develop world class directors who are advocates of best practices and excellence in corporate governance. During the year, the Directors had attended the following training programmes, seminars and workshops:-
12. 9 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Workshops Seminars/ Description of training Institute of Corporate Directors Malaysia Presenter/ Panel on the following topics (“ICDM”) Director’s training for Khazanah by ICDM: • Introduction to corporate directorship. • Delegation & Reliance & The Business Judgement Rule. Anti-Money Laundering and Counter Financing of Terrorism (“AML-CFT”) • AML-CFT related matters. FIDE FORUM Webinar - Covid-19 and Current Economic Reality: Implications for Financial Stability • The state of the world economy and plausible impact on the financial services industry in the mid-to-long term, especially in Asia. • The impact of recent events on the risk appetite and risk framework of banks and insurance companies: what opportunities could be tapped? • Actions that central banks and financial institutions can consider given the situation. • Actions that the Board of Directors can consider in terms of strategy and business model.
13. 10 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Workshops Seminars/ Description of training FIDE FORUM Webinar - Risks: A Fresh Look from the Board's Perspective • What are the critical discussions about risk and compliance that Board Members of banks and insurance companies should be having in view of the continued uncertainties and their long-term impact on the financial ecosystem? • How can the Board and the Boardlevel Risk Committee lead the organization during these unprecedented times? What must they do differently with regard to emerging risk and compliance in this scenario? • What factors should the Chairman of the Board and the Risk Committee consider when leading risk- and compliance-related discussions and decision-making? • What are the key questions that Board Members should be asking their CEOs, CROs and CCOs now? FIDE FORUM Webinar : Green Fintech: Ping An's journey to becoming a top Environmental, Social and Governance (“ESG”)-Performing Financial Institution (“FI”) • Aspects of using artificial intelligence, machine learning and the power of technology to support FIs’ ESG efforts, both internally and externally. Launch of the World Development Report • 2020 :Trading for Development in the Age of Global Value Chain (“GVC”) • GVCs powered the surge of international trade after 1990 and now account for almost half of all trade. This shift enabled an unprecedented economic convergence: poor countries grew rapidly and began to catch up with richer countries. New technologies could draw production closer to consumers and reduce the demand for labour. Report examines whether there is still a path to development through GVCs and trade.
14. 11 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Seminars/ Workshops New Era of Corporate Liability under • Malaysian Anti Bribery Law • Deutsche Bank (“DB”) Securities Services • Conference: Malaysia Capital Market Update • FIDE FORUM Webinar - Risks: A Fresh • Look from the Board's Perspective • • • Description of training Overview on Section 17A of Malaysian Anti-Corruption Commission Act 2009 on “Offence by Commercial Organization”. Scope of corporate liability, penalties and defences: adequate procedures. The ongoing COVID-19 pandemic has prompted policy makers, central banks, regulators, financial market infrastructurers and other industry stakeholders to respond quickly and decisively, and to ensure securities markets can maintain their development momentum. To take stock of this dynamic situation as countries implement their recovery strategies towards going back to the “new normal”. Critical discussions about risk & compliance that Board Members of banks & insurers should be having in view of continued uncertainties & their long-term impact on the financial ecosystem? How can the Board & Board-level Risk Committee lead the organisation during these unprecedented times? What must they do differently with regard to emerging risk & compliance in this scenario? What factors should Chairman of the Board & Risk Committee consider when leading risk- & compliancerelated discussions & decisionmaking? Key questions that Board Members should be asking their CEOs, CROs and CCOs.
15. 12 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Workshops Seminars/ FIDE FORUM Webinar - Digital FIs Series: Managing Virtual Banking and Insurance Businesses Description of training • • • FIDE FORUM - Banking on Governance, • Insuring Sustainability • FIDE FORUM - Digital FIs Series: Fidor’s • Experience Preparing the Board for a Post-COVID • World • • Lessons learned from discussions with regulators. Opportunities for a differentiated value proposition from the incumbent banks and insurers. Experience from launching digital financial services in collaboration with non-financial service partners. Research findings on corporate governance, remuneration and risk management practices of 50 of the largest banks as well as 50 of the largest insurance companies from 15 different countries in the Asia Pacific region. Highlights how these companies are responding to new and emerging challenges relating to corporate culture, technical disruption, cybersecurity, environmental, social and governance issues, and responsible lending and investing. Shared on Fidor Bank’s (digital bank founded in Germany) disruptive, transparent approach to banking, its fintech activity and innovative use of social media. Pandemic has had an unprecedented and far reaching impact on all aspect of business, what are the lasting lessons this period will leave Boards with? Need to consider composition and diversity, with appropriate balance of skill and strategic mindsets to survive this crisis. Non-executive directors to shift from constructive challenge to more of a supportive role.
16. 13 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Seminars/ Workshops Anti-Money Laundering, Anti-Terrorism • Financing & Proceeds of Unlawful Activities Act 2001 (“AMLA 2001”): Risks, Challenges, Governance & Transparency • • in Managing Business & Compliance • • Federation of Investment Managers • Malaysia: Industry Briefing on Regulatory Activities & Initiatives • Green Growth at The Cooler Earth • Sustainability Summit: Building on the Past for the Future • • Securities Commission (“SC”) Fintech • • Conference 2020 • • • • • Made for Good Accelerator for Women • Audit Committee’s Guide to Committee of • Sponsoring Organisations of the Treadway Commission (“COSO”) 2013 and Internal Controls Description of training Overview of AML-CFT & Targeted Financial Sanctions (“TFS”) Regulations in Malaysia AMLA 2001. Money Laundering Risk in Malaysia. Terrorism Financing & TFS Risk in Malaysia. Implication of non-Compliance on Reporting Institutions. Regulatory updates and initiatives relating to observations from registration and supervisory activities, and complaints trends and actions. Briefing on the revised Annual Compliance Review Checklist for 2020. Built Heritage: A model of Sustainability. Old Buildings, New Lives. Building a New Tomorrow. Synergistic Collaborations by the SC. Navigating the “New Normal”. Beyond Reality in Finance. Investment Behaviour in Turbulent Times Modernising the Financial Infrastructure. Crypto Conundrum in Islamic Finance. The Role of Fintech in Responsible Fundraising & Investing. DB’s ‘CSR Made for Good’ initiative partnered with global social enterprise enabler Ashoka to help 3 women social entrepreneurs in Asia Pacific grow their business. COSO 2013 Integrated Framework.
17. 14 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Workshops Seminars/ Description of training FIDE FORUM Webinar : Green Fintech: • Ping An's journey to becoming a top ESGPerforming Financial Institution • Directors guide to Governance, Risk and • Compliance Ping An’s journey in creating a platform to meet regulatory requirements & key lessons learned. Framework that should be considered in the technological design that can help financial institutions. Essential knowledge every board member needs to know in order to govern successfully. Institute of Corporate Directors Malaysia Presenter/ Panel on the following topics (“ICDM”) Director’s training for Khazanah by ICDM: • Introduction to corporate directorship. • Delegation & Reliance & Business Judgement Rule. The Anti-Money Laundering and Counter AML-CFT related matters. Financing of Terrorism (“AML-CFT”) FIDE FORUM Webinar - Covid-19 and The state of the world economy and Current Economic Reality: Implications plausible impact on the financial services for Financial Stability industry in the mid-to-long term, especially in Asia. The impact of recent events on the risk appetite and risk framework of banks and insurance companies: what opportunities could be tapped? Actions that central banks and financial institutions can consider given the situation. Actions that the Board of Directors can consider in terms of strategy and business model.
18. 15 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Workshops In-house Training Connect2 Learn : Seminars/ Deutsche Bank Description of training • Compliance – The Essentials of Market Abuse and Antitrust Refresher • Compliance – The Essentials of Managing our Conflicts of Interest • Compliance – The Essentials of Market Participation and Banking Rules • Compliance - IBOR Transition Conduct Risk Considerations • Compliance - Personal Conflicts of Interest • Compliance - The Essentials of Supervision • Crisis Management • Risk – Risk Awareness 2020 • Anti-Financial Crime – AML, Counter Terrorist and Proliferation Financing and Tax Evasion • Anti-Financial Crime – Sanctions and Embargoes Essentials • Anti-Financial Crime – Anti-Fraud, Bribery and Corruption • Anti-Financial Crime – Gifts, Entertainment and Business Events Refresher • Anti-Financial Crime - AML and Sanctions : Your Role in Managing Financial Crime Risk • Anti-Financial Crime - Accountable Client Owner Training • Understanding your Deferred Awards (2020 version) • Global Training for Board Members and Branch Managers • Legal – The Essentials of Data Protection & Privacy • Chief Security Office – Global Information Security Awareness
19. 16 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Workshops Seminars/ Description of training FIDE FORUM Webinar - Risks: A Fresh What are the critical discussions about Look from the Board's Perspective risk and compliance that Board Members of banks and insurance companies should be having in view of the continued uncertainties and their long-term impact on the financial ecosystem? How can the Board and the Board-level Risk Committee lead the organization during these unprecedented times? What must they do differently with regard to emerging risk and compliance in this scenario? What factors should the Chairman of the Board and the Risk Committee consider when leading risk- and compliancerelated discussions and decisionmaking? What are the key questions that Board Members should be asking their CEOs, CROs and CCOs now? FIDE FORUM Webinar : Green Fintech: Ping An's journey to becoming a top Environmental, Social and Governance (“ESG”)-Performing Financial Institution (“FI”) Aspects of using artificial intelligence, machine learning and the power of technology to support FIs’ ESG efforts, both internally and externally.
20. 17 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Board Training (continued) Training Programmes/ Workshops Seminars/ Description of training Launch of the World Development Report GVCs powered the surge of international 2020 :Trading for Development in the Age trade after 1990 and now account for almost half of all trade. This shift enabled of Global Value Chain (“GVC”) an unprecedented economic convergence: poor countries grew rapidly and began to catch up with richer countries. New technologies could draw production closer to consumers and reduce the demand for labour. Report examines whether there is still a path to development through GVCs and trade. New Era of Corporate Liability under Overview on Section 17A of Malaysian Malaysian Anti Bribery Law Anti-Corruption Commission Act 2009 on “Offence by Commercial Organization”. Scope of corporate liability, penalties and defences: adequate procedures.
21. 18 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Frequency and Conduct of Board Meetings The Board meets on a regular basis to review the Bank’s financial performance, risk positions and minutes of meetings of the Bank’s various internal governance committees. Special Board meetings are convened for purposes such as to assess business proposals or address issues that require the immediate decision of the Board. The agenda and board papers are furnished to Directors for their perusal in advance prior to the Board meeting to enable them to have sufficient time to review the agenda papers and provide informed views and comments during the deliberations at Board meetings. The relevant management staff are invited to the Board meetings to provide additional input and clarification to the issues or business proposals. The attendance of each director at the Board meetings during the financial year is set out below:Name of Directors Attendance at Meetings Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin 8/8 (100%) Mr. Steven Choy Khai Choon 8/8 (100%) Dato’ Yusof Annuar bin Yaacob 8/8 (100%) Madam Koid Swee Lian 8/8 (100%) Mr. Seamus Toal 8/8 (100%) Directors’ Independence To ensure transparency in corporate governance as well as to promote independent oversight by the Board, the Bank has put in place its internal guidelines that the maximum tenure of a new Independent Director who is appointed from January 2017 onwards, shall be capped at 9 years, subject to the approval by the Board and BNM for such tenure to extend beyond 9 years whilst existing Independent Directors may continue to serve on the Board until the expiry of their terms as approved by BNM.
22. 19 Company No . 199401026871 (312552-W) Board of Directors (continued) Key information and background of Directors (continued) Directors’ remuneration RM’000 Non-Executive Directors Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin Mr. Steven Choy Khai Choon Madam Koid Swee Lian 325 195 192 Executive Director Mr. Seamus Toal - Executive Director (CEO) Fixed Remuneration BenefitsFixed Pay Other in-kind Dato’ Yusof Annuar bin Yaacob RM’000 1,962 RM’000 442 RM’000 39 Variable remuneration Non Deferred deferred Cash Cash Shares RM’000 RM’000 RM’000 372 266 494
23. 20 Company No . 199401026871 (312552-W) Board Committees The following Board Committees assist the Board in the discharge of its role and responsibilities. The terms of reference and the composition of these Committees are set out below. In line with the requirements of BNM’s Corporate Governance Policy, the Board Committees comprise three independent non-executive Directors and is chaired by an independent director. The Directors have the necessary skills, knowledge and experience relevant to the responsibilities of the Board Committee. (a) Nominating and Remuneration Committee Membership and composition In 2020, the Nominating and Remuneration Committee (“NRC”) comprises the following Independent Non-Executive Directors of the Board: Mr. Steven Choy Khai Choon - Chairman Madam Koid Swee Lian - Vice Chairperson Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin - Member The NRC comprises three independent non-executive Directors. There were 4 meetings held by the NRC during the financial year. Terms of Reference Its responsibilities are as follows: • • To establish minimum requirements for the Board, i.e. required mix of skills, experience, qualification and other core competencies required of a director. The committee is also responsible for establishing minimum requirements for the CEO’s post. The requirements and criteria must be approved by the full Board. To assess and recommend to the Board the nominees for directorship, Board committee membership as well as nominees for the CEO’s post and Shariah Committee membership. This includes assessing directors, Shariah Committee members and CEO for appointment and re-appointment, before an application for approval is submitted to Bank Negara Malaysia. In considering the appointment of a CEO or nominees for directorship and Shariah Committee membership, the Board shall take into consideration the requirements of the regulator and the recommendation of the representatives of the Shareholder, whether at a regional or global level.
24. 21 Company No . 199401026871 (312552-W) Board Committees (continued) (a) Nominating and Remuneration Committee Terms of Reference (continued) • • • • • • • • To oversee the overall composition of the Board, in terms of the appropriate size and skills and the balance between executive directors, non-executive directors and independent directors through annual review. Such composition of the Board shall always include two representatives of the Group’s Regional Management. To recommend to the Board the removal of a director/CEO from the Board/ Management team if the director/CEO is found to be ineffective, errant and negligent in discharging their responsibilities. To establish a mechanism for the formal assessment on the effectiveness of the Board as a whole and the contribution of each Director to the effectiveness of the Board, the contribution of the Board’s various committees, determine whether a director is independent and the performance of the CEO and other key Senior Management officers. To recommend the remuneration of the Shariah Committee members for the full board’s approval and that the remuneration shall commensurate and reflect the roles and responsibilities of the Shariah Committee. To ensure that all directors receive an appropriate continuous training programme in order to keep abreast with latest developments in the industry; To oversee the appointment, management succession planning and performance evaluation of key Senior Management officers and Shariah Committee members. To recommend to the Board the removal of key Senior Management officers if they are ineffective, errant and negligent in discharging their responsibilities. To assess on an annual basis, that the directors and key Senior Management officers continue to be “Fit and Proper” persons and are not disqualified under sections 59 & 60 of the Financial Services Act 2013 (“FSA”) and sections 69 & 70 of the Islamic Financial Services Act 2013 (“IFSA”).
25. 22 Company No . 199401026871 (312552-W) Board Committees (continued) (a) Nominating and Remuneration Committee Terms of Reference (continued)      To recommend a framework of remuneration for directors, Shariah Committee members, CEO and Senior Management officers for the full Board’s approval. The remuneration framework should support the Bank’s risk culture, objectives and strategy and should reflect the responsibility and commitment, which goes with Board membership and responsibilities of the CEO and senior management officers. There should be a balance in determining the remuneration package, which should be sufficient to attract and retain directors of calibre, and yet not excessive to the extent the Bank’s funds are used to subsidise the excessive remuneration packages. The framework should cover all aspects of remuneration including director’s fees, salaries, allowances, bonuses, options and benefits-in-kind. To review and recommend the preliminary performance of DBMB and provide feedback/ recommendations on the compensation level of DBMB to the Group’s APAC Regional Office to ensure rewards are aligned with DBMB’s performance and local industry benchmarks. To recommend specific remuneration packages for executive directors and the CEO. The remuneration package should be structured such that it is competitive and consistent with the Bank’s culture, objectives and strategy. Salary scales drawn up should be within the scope of the general business policy and not be dependent on short term performance to avoid incentives for excessive risk raking. As for nonexecutive directors and independent directors, the level of remuneration should be linked to their level of responsibilities undertaken and contribution to the effective functioning of the Board. In addition, the remuneration of each board member may differ based on their level of expertise, knowledge and experience. To recommend the appointment, remuneration and termination of the Head of Compliance for the full Board’s approval. Periodically review the remuneration of directors on the Board, particularly on whether remuneration remains appropriate to each director’s contribution, taking into account the level of expertise, commitment and responsibilities undertaken.
26. 23 Company No . 199401026871 (312552-W) Board Committees (continued) (a) Nominating and Remuneration Committee Frequency and Conduct of Meetings Meeting shall be held at least once a year with a view to discussing the above issues or such other times as the NRC deems appropriate. The attendance of each director at NRC meetings during the financial year is set out below:Name of Directors Mr. Steven Choy Khai Choon - Chairman 4/4 (100%) Madam Koid Swee Lian - Vice Chairperson 4/4 (100%) Tunku Dato’ Mahmood Muhiyiddin - Member (b) Attendance at Meetings Fawzy bin Tunku 4/4 (100%) Audit and Examination Committee Membership and composition In 2020, the Audit and Examination Committee (“AEC”) comprises the following Independent Non-Executive Directors of the Board: Mr Steven Choy Khai Choon - Chairman Madam Koid Swee Lian - Vice Chairperson Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin - Member
27. 24 Company No . 199401026871 (312552-W) Board Committees (continued) (b) Audit and Examination Committee Terms of Reference Its responsibilities are as follows:        To support the Board in ensuring there is a reliable and transparent financial reporting process. To oversee the effectiveness of the internal audit function. To foster a quality audit by exercising oversight over the external auditor, in accordance with the expectations set out in the policy document on External Auditor. Review and update the Board on all related party transactions. Review the accuracy and adequacy of the Chairman’s statement in the directors’ report, corporate governance disclosures, interim financial reports and preliminary announcements in relation to the preparation of financial statements. Monitor compliance with the Board’s conflicts of interest policy. Review third-party opinions on the design and effectiveness of the Bank’s internal control framework (where available). Frequency and Conduct of Meetings The AEC shall hold regular meeting, at least once every quarter and should report regularly to the Board. The attendance of each director at AEC meetings during the financial year is set out below:Name of Directors Attendance at Meetings Mr. Steven Choy Khai Choon – Chairman 4/4 (100%) Madam Koid Swee Lian - Vice Chairperson 4/4 (100%) Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin - Member 4/4 (100%)
28. 25 Company No . 199401026871 (312552-W) Board Committees (continued) (c) Board Risk Management Committee Membership and composition In 2020, the Board Risk Management Committee (“BRMC”) comprises the following Independent Non-Executive Directors of the Board: Madam Koid Swee Lian - Chairperson Mr. Steven Choy Khai Choon - Vice Chairman Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin - Member Terms of Reference Its responsibilities are as follows:          To review and recommend the overall risk management strategies, policies and risk appetite framework for Board’s approval. To review and assess adequacy of risk management policies and frameworks including but not limited to technology-related matters, in identifying, measuring, monitoring and controlling risk and the extent to which these policies are operating effectively. To ensure infrastructure, resources and systems are in place for risk management i.e. ensuring that the staff responsible for implementing risk management systems perform those duties independently of the licensed institution’s risk taking activities. To review management’s periodic reports on market risk exposure, specific risk portfolio composition and risk management activities is supported by overall adequacy of capital and liquidity buffers of the Bank. To review minutes of MANCO, OPCO and ALCO meetings to be made aware of the business activities of the Bank and that the organisation units are operating within the parameters of the Bank’s risk appetite framework for specific types of risks. To review MYRC Minutes and credit and new product/product variation recommendations including compliance with legal and regulatory requirements. Review minutes of Shariah Committee meetings to be made aware of the Islamic Banking business operations and provide oversight on the overall compliance with Shariah. To ensure Senior Management monitors and control the Bank’s risk and is consistent with approved strategies and policies as approved by the Board. To provide oversight and advice to the Board on the current market risk exposures of the Bank and future risk strategy.
29. 26 Company No . 199401026871 (312552-W) Board Committees (continued) (c) Board Risk Management Committee (continued)   To review information on the key exposures and the associated risk tolerance of the Bank and provide high level information on the scope and outcome of any stresstesting programme to the Board. In assisting the implementation of a sound remuneration system, examine whether incentives provided by the remuneration system take into consideration risks, capital, liquidity and the likelihood and timing of earnings, without prejudice to the tasks of the NRC. Frequency and Conduct of Meetings The BRMC shall hold regular meeting, at least once every quarter and should report regularly to the Board. The attendance of each director at BRMC meetings during the financial year is set out below:Name of Directors Madam Koid Swee Lian - Chairperson Mr. Steven Choy Khai Choon – Vice Chairman Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin - Member Attendance at Meetings 4/4 (100%) 4/4 (100%) 4/4 (100%) Internal Audit and Internal Control Activities Deutsche Bank (Malaysia) Berhad (“DBMB”) has a local Group Audit function. The local audit team in DBMB represents Group Audit in Malaysia and is primarily supported by resources from the Group Audit Asia Pacific regional team in Singapore. Chief Internal Auditor – Malaysia has a functional reporting line to the Bank’s Audit and Examination Committee and the Group Audit Country Head Malaysia and Thailand. Group Audit reports to the Audit and Examination Committee on a quarterly basis. The audits are managed in conjunction with the Principal Audit Managers mainly based in Singapore, who provide ‘subject matter expertise’ across business functions and products, with overall coordination by the Group Audit Country Head Malaysia and Thailand. Group Audit provides a risk-based approach to examine, evaluate and report objectively on the adequacy of both the design and operating effectiveness of the systems of internal control and the effectiveness of risk management and governance processes. The Audit and Examination Committee reviews DBMB audit plan, progress and reports issued.
30. 27 Company No . 199401026871 (312552-W) Remuneration Deutsche Bank Group is a truly global organisation with compensation principles and policies established at a global level and underpinned by the goals of Deutsche Bank’s Strategy 2020. Compensation plays an integral role in the successful delivery of our strategic objectives. Attracting, developing and retaining talent on a global basis is central to our compensation strategy. The cornerstone of this is the concept of pay for performance, within a sound risk management and governance framework, and with due consideration of market factors and societal values. It is the full intention of the Bank to ensure that the Compensation Policy is applicable on a global basis in order to foster a fair and transparent approach to compensation across all jurisdictions. Notwithstanding this, the Bank is mindful that the specific nature of local operations should be considered and respected when making decisions and the input of local management sought to ensure this. In view of this and in accordance with Bank Negara Malaysia’s Guidelines on Corporate Governance for Licensed Institutions, the Bank’s NRC is in place to ensure corporate governance and oversight by the Board. Employee Compensation Report The content of the 2020 Employee Compensation Report is based on the qualitative and quantitative remuneration disclosure requirements outlined in Article 450 No. 1 (a) to (i) Capital Requirements Regulation (CRR) in conjunction with Section 16 of the Remuneration Ordinance for Institutions (Institutsvergütungsverordnung – InstVV). This Compensation Report takes a group-wide view and covers all consolidated entities of the Deutsche Bank Group. In accordance with regulatory requirements, equivalent reports for 2020 are prepared for the following Significant Institutions within Deutsche Bank Group: BHW Bausparkasse AG, Germany; Deutsche Bank Luxembourg S.A., Luxembourg; Deutsche Bank S.p.A., Italy; Deutsche Bank Mutui S.p.A., Italy; Deutsche Bank S.A.E., Spain. Regulatory Environment Ensuring compliance with regulatory requirements is an overarching consideration in our Group Compensation Strategy. We strive to be at the forefront of implementing regulatory requirements with respect to compensation and will continue to work closely with our prudential supervisor, the European Central Bank (ECB), to be in compliance with all existing and new requirements.
31. 28 Company No . 199401026871 (312552-W) Remuneration (continued) Regulatory Environment (continued) As an EU-headquartered institution, Deutsche Bank is subject to the Capital Requirements Regulation / Capital Requirements Directive (CRR / CRD) globally, as transposed into German national law in the German Banking Act and InstVV. We adopted the rules in its current version for all of Deutsche Bank’s subsidiaries and branches world-wide to the extent required in accordance with Section 27 InstVV. As a Significant Institution within the meaning of InstVV, Deutsche Bank identifies all employees whose work is deemed to have a material impact on the overall risk profile (Material Risk Takers or MRTs) in accordance with criteria stipulated under the Commission Delegated Regulation (EU) No. 604/2014. MRTs are identified at a Group level and at the level of Significant Institutions. Taking into account more sector-specific legislation and in accordance with InstVV, some of Deutsche Bank’s subsidiaries (in particular within the DWS Group) fall under the local transpositions of the Alternative Investments Fund Managers Directive (AIFMD) or the Undertakings for Collective Investments in Transferable Securities Directive (UCITS). We also identify MRTs in these subsidiaries. Identified employees are subject to the remuneration provisions outlined in the Guidelines on sound remuneration policies under AIFMD/UCITS published by the European Securities and Markets Authority (ESMA). Deutsche Bank takes into account the regulations targeted at employees who engage directly or indirectly with the bank’s clients, for instance as per the local transpositions of the Markets in Financial Instruments Directive II – MiFID II. Accordingly, we have implemented specific provisions for employees deemed to be Relevant Persons to ensure that they act in the best interest of our clients. Where applicable, Deutsche Bank is also subject to specific rules and regulations implemented by local regulators. Many of these requirements are aligned with the InstVV. However, where deviations exist, proactive and open discussions with regulators have enabled us to follow the local regulations whilst ensuring that any impacted employees or locations remain within the bank’s over-all Group Compensation Framework. This includes, for example, the identification of Covered Employees in the United States under the requirements of the Federal Reserve Board. In any case, we apply the InstVV requirements as minimum standards globally.
32. 29 Company No . 199401026871 (312552-W) Remuneration (continued) Compensation Governance Deutsche Bank has a robust governance structure enabling it to operate within the clear parameters of its Compensation Strategy and Compensation Policy. In accordance with the German two-tier board structure, the Supervisory Board governs the compensation of the Management Board members while the Management Board oversees compensation matters for all other employees in the Group. Both the Supervisory Board and the Management Board are supported by specific committees and functions, in particular the Compensation Control Committee (CCC), the Compensation Officer, and the Senior Executive Compensation Committee (SECC). In line with their responsibilities, the bank’s control functions are involved in the design and application of the bank’s remuneration systems, in the identification of MRTs and in determining the total amount of Variable Compensation (VC). This includes assessing the impact of employees’ behavior and the business-related risks, performance criteria, granting of remuneration and severance payments as well as ex-post risk adjustments. Reward Governance structure Supervisory Board1 Chairman’s Committee Audit Committee Risk Committee Integrity Committee Compensation Control Committee Support & Information Compensation Officer Monitoring Information & Reporting Management Board Monitoring Information Senior Executive Compensation Committee (SECC) 1 Does not comprise a complete list of Supervisory Board Committees of Deutsche Bank AG.
33. 30 Company No . 199401026871 (312552-W) Remuneration (continued) Compensation Control Committee (CCC) The Supervisory Board has set up the CCC to support it in establishing and monitoring the structure of the compensation system for the Management Board members of Deutsche Bank AG, considering, in particular, the effects on the risks and risk management in accordance with the InstVV. Furthermore, the CCC monitors the appropriateness of the compensation systems for the employees of Deutsche Bank Group, as established by the Management Board and the SECC. The CCC checks regularly whether the total amount of variable compensation is affordable and set in accordance with the InstVV. The CCC also assesses the impact of the compensation systems on the management of risk, capital and liquidity, and seeks to ensure that the compensation systems are aligned with the business and risk strategies. Furthermore, the CCC supports the Supervisory Board in monitoring the MRT identification process and whether the internal control functions and the other relevant areas are properly involved in the structuring of the compensation systems. The CCC consists of the Chairperson of the Supervisory Board and five further Supervisory Board members, three of whom are employee representatives. The CCC held seven meetings in the calendar year 2020. The members of the Risk Committee attended two meetings as guests. Further details can be found in the Report of the Supervisory Board within the Annual Report. Compensation Officer The Management Board, in cooperation with the CCC, has appointed a Group Compensation Officer to support the Supervisory Board of Deutsche Bank AG and the supervisory boards of the bank’s Significant Institutions in Germany in performing their compensation related duties. The Compensation Officer is involved in the conceptual review, development, monitoring and application of the employees’ compensation systems on an ongoing basis. The Compensation Officer performs his monitoring obligations independently and provides an assessment of the appropriateness of the design and practices of the compensation systems for employees at least annually. He supports and advises the CCC regularly.
34. 31 Company No . 199401026871 (312552-W) Remuneration (continued) Senior Executive Compensation Committee (SECC) The SECC is a delegated committee established by the Management Board which has the mandate to develop sustainable compensation principles, to prepare recommendations on Total Compensation levels and to ensure appropriate compensation governance and oversight. The SECC establishes the Group Compensation Strategy and the Compensation and Benefits Policy. Moreover, using quantitative and qualitative factors, the SECC assesses Group and divisional performance as a basis for compensation decisions and makes recommendations to the Management Board regarding the total amount of annual variable compensation and its allocation across business divisions and infrastructure functions. In order to maintain its independence, only representatives from infrastructure and control functions who are not assigned to any of the business divisions are members of the SECC. In 2020, the SECC’s members were comprised of the Chief Transformation Officer (based on his responsibility for HR) and the Chief Financial Officer as Co-Chairpersons, as well as the Chief Risk Officer (all of whom are Management Board members), the Global Head of Human Resources as well as an additional representative from both Finance and Risk as voting members. The Compensation Officer, the Deputy Compensation Officer, the Global Head of HR Performance & Reward and an additional representative from Finance participated as non-voting members. The SECC generally meets on a monthly basis and meets more frequently during the compensation process. It held 25 meetings in total with regard to the compensation process for performance year 2020.
35. 32 Company No . 199401026871 (312552-W) Remuneration (continued) Compensation Strategy Deutsche Bank recognizes that its compensation framework plays a vital role in supporting its strategic objectives. It enables us to attract and retain the individuals required to achieve our bank’s objectives. The Group Compensation Strategy is aligned to Deutsche Bank’s business strategy, risk strategy, and to its corporate values and beliefs as outlined below. Five key objectives of our compensation practices Core remuneration principles – To support the delivery of the bank’s client-focused, global bank strategy by attracting and retaining talent across its full range of diverse business models and country locations – Align compensation to shareholder interests and sustained bank-wide profitability, taking account of risk – – To support the long-term, sustainable performance and development of the bank and a corresponding risk strategy Maximize sustainable performance, both at the employee and the bank-wide level – Attract and retain the best talent – Calibrate compensation to reflect different divisions and levels of responsibility – Apply a simple and transparent compensation design – Ensure compliance with regulatory requirements – To promote and support long-term performance based on cost discipline and efficiency – To ensure that the bank’s compensation practices are safe, by way of risk-adjusting performance outcomes, preventing inappropriate risk taking, ensuring sustained compatibility with capital and liquidity planning, and complying with regulation – To apply and promote the bank’s corporate values of integrity, sustainable performance, client centricity, innovation, discipline and partnership
36. 33 Company No . 199401026871 (312552-W) Remuneration (continued) Group Compensation Framework Our compensation framework emphasizes an appropriate balance between Fixed Pay (FP) and Variable Compensation (VC) – together Total Compensation (TC). It aligns incentives for sustainable performance at all levels of Deutsche Bank whilst ensuring the transparency of compensation decisions and their impact on shareholders and employees. The underlying principles of our compensation framework are applied to all employees equally, irrespective of differences in seniority, tenure or gender. Pursuant to CRD 4 and the requirements subsequently adopted in the German Banking Act, Deutsche Bank is subject to a ratio of 1:1 with regard to fixed-to-variable remuneration components, which was increased to 1:2 through shareholder approval on May 22, 2014 with an approval rate of 95.27 %, based on valid votes by 27.68 % of the share capital represented at the Annual General Meeting. Nonetheless, the bank has determined that employees in specific infrastructure functions should continue to be subject to a ratio of at least 1:1 while Control Functions as defined by InstVV are subject to a ratio of 2:1. The Bank has assigned a Reference Total Compensation (RTC) to eligible employees that describes a reference value for their role. This value provides our employees orientation regarding their FP and VC. Actual individual TC can be at, above or below the Reference Total Compensation, depending on VC decisions. Fixed Pay is used to compensate employees for their skills, experience and competencies, commensurate with the requirements, size and scope of their role. The appropriate level of FP is determined with reference to the prevailing market rates for each role, internal comparisons and applicable regulatory requirements. FP plays a key role in permitting us to meet our strategic objectives by attracting and retaining the right talent. For the majority of our employees, FP is the primary compensation component. Variable Compensation reflects affordability and performance at Group, divisional, and individual level. It allows us to differentiate individual performance and to drive behavior through appropriate incentives that can positively influence culture. It also allows for flexibility in the cost base. VC generally consists of two elements – the Group VC Component and the Individual VC Component.
37. 34 Company No . 199401026871 (312552-W) Remuneration (continued) Group Compensation Framework (continued) The Group VC Component is based on one of the overarching goals of the compensation framework – to ensure an explicit link between VC and the performance of the Group. To assess our annual achievements in reaching our strategic targets, the four Key Performance Indicators (KPIs) utilized as the basis for determining the 2020 Group VC Component were: Common Equity Tier 1 (CET 1) Capital Ratio, Leverage Ratio, Adjusted Costs, and Post-Tax Return on Tangible Equity (RoTE). These four KPIs represent the bank’s capital, leverage, profitability, and cost targets. The Individual VC Component is delivered either in the form of Individual VC (generally applicable for employees at the level of Vice President (VP) and above) or as Recognition Award (generally applicable for employees at the level of Assistant Vice President (AVP) and below). In cases of negative performance contributions or misconduct, an employee’s VC can be reduced accordingly and can go down to zero. VC is granted and paid out subject to Group affordability. Under our compensation frame-work, there continues to be no guarantee of VC in an existing employment relationship. Guaranteed VC arrangements are utilized only in very limited cases for new hires in the first year of employment and are subject to the bank’s standard deferral requirements. Key components of the compensation framework 1 Some Assistant Vice Presidents and below in select entities and divisions are eligible for the Individual VC Component in lieu of the Recognition Award.
38. 35 Company No . 199401026871 (312552-W) Remuneration (continued) Group Compensation Framework (continued) Individual VC takes into consideration a number of financial and nonfinancial factors, including the applicable divisional performance, the employee’s individual performance, conduct, and adherence to values and beliefs, as well as additional factors such as the comparison of pay levels with the employee’s peer group and retention considerations. Recognition Awards provide the opportunity to acknowledge and reward outstanding contributions made by the employees of lower seniority levels in a timely and transparent manner. Generally, the overall size of the Recognition Award budget is directly linked to a set percentage of FP for the eligible population and it is currently paid out twice a year, based on a review of nominations and contributions in a process managed at the divisional level. In the context of InstVV, severance payments are considered variable compensation. The bank’s framework for severance payments ensures full alignment with the respective InstVV requirements. Employee benefits complement Total Compensation and are considered FP from a regulatory perspective, as they have no direct link to performance or discretion. They are granted in accordance with applicable local market practices and requirements. Pension expenses represent the main element of the bank’s benefits portfolio globally. Determination of performance-based Variable Compensation In 2020, we put a special focus on further improving our governance on compensation related decision making processes. This included the development of more sophisticated analytical tools and scenarios for testing affordability and other premises to determine variable compensation. Furthermore, we simplified and increased transparency of our policies and procedures. This resulted in a strengthened set of rule-based principles for compensation decisions with an even closer link to the business and individual performance.
39. 36 Company No . 199401026871 (312552-W) Remuneration (continued) Determination of performance-based Variable Compensation (continued) The total amount of VC for any given performance year is initially determined at Group level, taking into account the bank’s affordability parameters, and then allocated to divisions and infrastructure functions based on their performance in support of achieving the bank’s strategic objectives. In a first step, Deutsche Bank assesses the bank’s profitability, solvency and liquidity position in line with its Risk Appetite Frame-work, including a holistic review against the bank’s multi-year strategic plan to determine what the bank “can” award in line with regulatory requirements (i.e. Group affordability). In the next step, the bank assesses Group and divisional risk-adjusted performance, i.e. what the bank “should” award in order to provide an appropriate compensation for contributions to the bank’s success. When assessing divisional performance, a range of considerations is referenced. Performance is assessed in the context of financial and – based on Balanced Scorecards – nonfinancial targets. The financial targets for front-office divisions are subject to appropriate risk-adjustment, in particular by referencing the degree of future potential risks to which Deutsche Bank may be exposed, and the amount of capital required to absorb severe unexpected losses arising from these risks. For the infrastructure functions, the financial performance assessment is mainly based on the achievement of cost targets. While the allocation of VC to infrastructure functions, and in particular to control functions, depends on the overall performance of Deutsche Bank, it is not dependent on the performance of the division(s) that these functions oversee. At the level of the individual employee, we have established Variable Compensation Guiding Principles, which detail the factors and metrics that have to be taken into account when making Individual VC decisions. Our managers must fully appreciate the risk-taking activities of individuals to ensure that VC allocations are balanced and risk-taking is not inappropriately incentivized. The factors and metrics to be considered include, but are not limited to, individual performance based on quantitative and qualitative aspects, culture and behavioral considerations, and disciplinary sanctions. Managers of MRTs must specifically document the factors and risk metrics considered when making Individual VC decisions. Generally, performance is assessed based on a one year period. However, for Management Board members of Significant Institutions, the performance over three years is taken into account.
40. 37 Company No . 199401026871 (312552-W) Remuneration (continued) Variable Compensation Structure Our compensation structures are designed to provide a mechanism that promotes and supports long-term performance of our employees and our bank. Whilst a portion of VC is paid upfront, these structures require that an appropriate portion is deferred to ensure alignment with the sustainable performance of the Group. For both parts of VC, we use Deutsche Bank shares as instruments and as an effective way to align compensation with Deutsche Bank’s sustainable performance and the interests of shareholders. We continue to go beyond regulatory requirements with the amount of VC that is deferred and our minimum deferral periods. The deferral rate and period are determined based on the risk categorization of the employee, the division and the business unit. We start to defer parts of variable compensation for MRTs where VC is set at or above € 50,000. For nonMRTs, deferrals start at higher levels of VC. MRTs are on average subject to deferral rates in excess of the minimum 40 % (60 % for Senior Management) as required by InstVV. For MRTs in Material Business Units (MBU) we introduced a deferral rate of at least 50 %. The VC threshold for MRTs requiring at least 60 % deferral is set at € 500,000. Furthermore, Directors and Managing Directors in Corporate Bank (CB), Investment Bank (IB) or Capital Release Unit (CRU) are subject to a VC deferral rate of 100 % with respect to any VC in excess of € 500,000. If Fixed Pay for these employees exceeds an amount of € 500,000, the full VC is deferred.
41. 38 Company No . 199401026871 (312552-W) Remuneration (continued) Variable Compensation Structure (continued) As detailed in the table below, deferral periods range from three to five years, dependent on employee groups. Overview on 2020 Award Types (excluding DWS Group) Award Type Upfront: Cash VC Description Upfront cash portion Beneficiaries All eligible employees Deferral Period N/A Retention Period N/A Proportion InstVV MRTs: 50 % of upfront VC Non-MRTs: 100 % of upfront VC Upfront: Equity Upfront Award (EUA) Deferred: Restricted Incentive Award (RIA) Deferred: Restricted Equity Award (REA) Upfront equity portion (linked to Deutsche Bank’s share price over the retention period) Deferred cash portion All InstVV MRTs with VC >= € 50,000 N/A All employees with Equal tranche deferred VC vesting: CB/IB/CRU: 4 years MRTs in MBU: 4 years Sen. Mgmt.1: 5 years Other: 3 years Deferred equity portion All employees with Equal tranche deferred VC vesting: (linked to Deutsche Bank’s share price over CB/IB/CRU: 4 the vesting and retention years MRTs in period) MBU: 4 years Sen. Mgmt.1: 5 years Other: 3 years Twelve months 50 % of upfront VC N/A 50 % of deferred VC Twelve months for 50 % of deferred InstVV MRTs VC N/A – Not applicable 1For the purpose of Performance Year 2020 annual awards, Senior Management is defined as DB AG MB-1 positions; voting members of Business Division Top Executive Committees; MB members of Significant Institutions; respective MB-1 positions with managerial responsibility. For the specific deferral rules for the Management Board of DB AG refer to the Com-pensation Report for the Management Board. Our employees are not allowed to sell, pledge, transfer or assign a deferred award or any rights in respect to the award. They may not enter into any transaction having an economic effect of hedging any variable compensation, for example offsetting the risk of price movement with respect to the equity-based award. Our Human Resources and Compliance functions, supported by the Compensation Officer, work together to monitor employee trading activity and to ensure that all our employees comply with this requirement.
42. 39 Company No . 199401026871 (312552-W) Remuneration (continued) Group Compensation Framework (continued) Ex-post Risk Adjustment of Variable Compensation In line with regulatory requirements relating to ex-post risk adjustment of variable compensation, we believe that a long-term view on conduct and performance of our employees is a key element of deferred VC. As a result, all deferred awards are subject to performance conditions and forfeiture provisions as detailed below. Overview of Deutsche Bank Group performance conditions and forfeiture provisions of Variable Compensation granted for Performance Year 2020 1 2 Considering clearly defined and governed adjustments for relevant Profit and Loss items (e.g., business restructurings; impairments of goodwill or intangibles). Other provisions may apply as outlined in the respective plan rules.
43. 40 Company No . 199401026871 (312552-W) Remuneration (continued) Senior Managements & Material Risk Takers’ Remuneration for 2020 Senior Management** Fixed Remuneration Cash Other Variable - Non Deferred - Deferred Cash Cash Shares Guaranteed bonus Sign On bonus Severance Payments Others Outstanding deferred remuneration - Non Deferred Cash - Deferred Cash Shares Exposure to implicit & explicit adjustments - - - Total amount of outstanding deferred remuneration and retained remuneration exposed to ex-post explicit and implicit adjustments Total amount of reductions during the financial year due to ex-post explicit adjustments Total amount of reductions during the financial year due to ex-post implicit adjustment Total Material Risk Takers 1 RM’000 No RM’000 No RM’000 3,396 2 7 7 3,542 1 3 3 6,929 2 790 16 70 7 1 2 923 429 975 3 3 2 1,613 445 1,045 713 7 915 3 1,529 33 58 1 1 2,916 2,969 3 3 2,949 2,927 - - - - - - - - - - - - - - - 1 Refers to locally identified risk takers who can materially commit or control significant amounts of the Bank's resources or whose actions are likely to have a significant impact on the bank's risk profile. ** Excluding CEO
44. 41 Company No . 199401026871 (312552-W) Management Report Board meetings are structured around a pre-set agenda and regular reports from the management on risk management, key operating, financial, legal, compliance and regulatory matters and minutes of committee meetings are circulated to keep Directors abreast with the performance of the Bank.
45. 42 Company No . 199401026871 (312552-W) Corporate Social Responsibility Our corporate social responsibility (CSR) initiatives contribute to the bank’s stated purpose of enabling economic growth and societal progress. They are how we make a positive impact for people and communities. The strategic focus of our social engagement is on education, enterprise, and community, and we encourage our employees to support them with their professional expertise and life skills. We maximize the impact of our CSR agenda by interacting with our stakeholders, forging long-term partnerships with charities, supporting advocacy initiatives, and working with others, e.g. companies, to promote impact monitoring. All our CSR programs help build trust, deepen employee and client loyalty, and enhance our reputation as a socially minded enabler, reliable partner, and catalyst for societal change. Education, which empowers people to improve their economic well-being and achieve a better quality of life, is essential to both social cohesion and economic development. Our Born to Be youth engagement program, helps young people realize their potential. It is brought to life by raising aspirations, fostering skills, and improving access to education and employment opportunities. We also help build strong and inclusive communities. Our strategy for alleviating poverty extends beyond philanthropy and includes high level field leadership, advocacy, and employee engagement. We focus on projects that deliver basic welfare, support individuals experiencing homelessness and improve essential infrastructure. In addition, we provide emergency relief in crises, support disaster recovery, and assist with longer-term plans to enhance resilience. For more than 25 years, our Plus You volunteering and giving community has offered employees the opportunity to volunteer, and donate to charitable causes. Corporate Volunteering not only boosts the impact of our CSR programs, it also enhances our employees’ personal development, motivation, and loyalty. They share their skills by mentoring young people, advising charities, advocating for social progress, and lending a hand to community projects. We encourage employees to donate to charities, join fundraising drives. Key topics and impact in 2020 Social distancing requirements during the COVID-19 pandemic created significant challenges for our long-standing charity partners. Volunteering declined tangibly, as did food and monetary donations. Many charities could no longer serve their communities, including vulnerable populations; some even faced closure. We responded with a CSR COVID-19 relief campaign, getting the ball rolling with a Corporate donation, and inviting employees to join in where their contributions were matched 100% by the Bank. For this CSR Plus You initiative, our support enabled the Global Peace Foundation to continue serving the Orang Asli Communities by distributing meals and food packs to more than 1800 families, as well as providing shelter and a variety of services to homeless, elderly and disadvantaged families. Furthermore, we invited staff to take part in a walkathon, the PlusMySteps challenge. The aggregated number of steps was converted into a monetary value. In total, around 156 employees achieved over 15 million steps, and thereby raised funds for our long-standing charity partner, Badan Amal Nur Zaharah Welfare Home, formed to give new hope, education and better standard of living to the less fortunate children.
46. 43 Company No . 199401026871 (312552-W) Corporate Social Responsibility (continued) The pandemic, school closures, and home-schooling requirements had a massive impact on the education systems. We participated in the Education Assistance Program in partnership with Soroptimist International Damansara, a global volunteer movement working together to transform the lives of women and children, to educate, empower and enable opportunities especially for the financially disadvantaged women and children. Despite the pandemic, as part of our group’s goal of planting 150,000 trees for the 150th anniversary of Deutsche Bank Group, Deutsche Bank (Malaysia) Berhad participated in the Khazanah Taman Tugu Tree Adoption programme. 2020 has been a remarkably challenging year and the resulting impact has led to a crisis of unprecedented reach and proportion. In this year, 79% of our colleagues in Malaysia stepped up to volunteer and raise funds for those who were hit hardest by the pandemic. Governance and impact tracking The Communications & CSR team reports directly to the CEO. The “Donations, Memberships, Sponsorships (DMS) Policy & Corporate Social Responsibility (CSR) Cornerstones – Deutsche Bank Group”, and other applicable policies and procedures define the mandatory operating framework for Deutsche Bank (Malaysia) Berhad and external partners acting on its behalf. Our CSR initiatives are implemented by our regional units and endowed foundations. Proposals for new initiatives can be benchmarked against previous projects, depending on the investment amount, require sign-off by local CSR teams, regional CSR councils, and/or Board members of Deutsche Bank Group. To ensure that resources are deployed efficiently and projects fully aligned with our CSR agenda’s strategic objectives, we use the Global Impact Tracking (GIT) tool to monitor our investments’ direct impact and systematically gather feedback from our community partners on an annual basis.
47. 44 Deutsche Bank (Malaysia) Berhad (Company No. 199401026871 (312552-W)) (Incorporated in Malaysia) and its subsidiaries Directors’ report for the year ended 31 December 2020 The Directors have pleasure in presenting their report and the audited financial statements of the Group and the Bank for the financial year ended 31 December 2020. Principal activities The principal activities of the Bank are banking and related financial services that also include Islamic Banking business. The principal activities of the subsidiaries are disclosed in Note 8 to the financial statements. There has been no significant change in the nature of the activities of the Bank and its subsidiaries during the financial year. Results Group and Bank RM’000 Profit before tax Tax expense 355,656 (86,938) Profit for the year attributable to owner of the Bank 268,718 Dividends Since the end of the previous financial year, the amount of dividends paid by the Bank was as follows:In respect of the financial year ended 31 December 2019 as reported in the Director’s Report of that year, a final ordinary dividend of 127.9 sen per ordinary share totalling RM222,055,000 paid on 30 July 2020. The final dividend recommended by the Directors in respect of the financial year ended 31 December 2020 is 154.8 sen per ordinary share totaling RM268,718,000.
48. 45 Company No . 199401026871 (312552-W) Reserves, provisions and allowances There were no material transfers to or from reserves, allowances or provisions during the financial year other than those disclosed in the financial statements. Directors of the Bank The Directors of the Bank who served on the board since the beginning of the current financial year to the date of this report are: Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin Dato’ Yusof Annuar bin Yaacob Mr Steven Choy Khai Choon Madam Koid Swee Lian Mr Seamus Toal
49. 46 Company No . 199401026871 (312552-W) Bad and doubtful debts and financing Before the financial statements of the Group and of the Bank were made out, the Directors took reasonable steps to ascertain that actions had been taken in relation to the writing off of bad debts and financing and the making of allowances for doubtful debts and financing, and satisfied themselves that all known bad debts and financing had been written off and adequate allowances had been made for doubtful debts and financing. At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad debts and financing, or the amount of the allowance for doubtful debts and financing, in the financial statements of the Group and of the Bank inadequate to any substantial extent. Current assets Before the financial statements of the Group and of the Bank were made out, the Directors took reasonable steps to ascertain that any current assets, other than debts and financing, which were unlikely to be realised in the ordinary course of business at their values as shown in the accounting records of the Group and of the Bank, have been written down to an amount which they might be expected to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Group and of the Bank misleading. Valuation methods At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities in the financial statements of the Group and of the Bank misleading or inappropriate.
50. 47 Company No . 199401026871 (312552-W) Contingent and other liabilities At the date of this report, there does not exist: (a) any charge on the assets of the Group or of the Bank which has arisen since the end of the financial year and which secures the liabilities of any other person, or (b) any contingent liability in respect of the Group or of the Bank that has arisen since the end of the financial year other than those incurred in the ordinary course of business. No contingent or other liability of the Group and of the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Bank to meet their obligations as and when they fall due. Change of circumstances At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and of the Bank, which would render any amount stated in the financial statements misleading. Items of an unusual nature The results of the operations of the Group and of the Bank for the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group and of the Bank for the current financial year in which this report is made.
51. 48 Company No . 199401026871 (312552-W) Compliance with Bank Negara Malaysia’s expectations on financial reporting In the preparation of the financial statements, the Directors have taken reasonable steps to ensure that Bank Negara Malaysia’s expectations on financial reporting have been complied with, including those set out in the Guidelines on Financial Reporting. Directors’ interests in shares According to the Register of Directors’ Shareholdings maintained by the Bank in accordance with the Companies Act, 2016, the Directors holding office at year end who have beneficial interests in the shares of the Bank and its related corporations are as follows: Number of ordinary shares Balance at Balance at 1.1.2020 Bought Sold 31.12.2020 Holding company Deutsche Bank Aktiengesellschaft Dato’ Yusof Annuar bin Yaacob Seamus Toal 2,330 44,358 Balance at 1.1.2020 Holding company Deutsche Bank Aktiengesellschaft - DB Restricted Equity Units Plan Dato’ Yusof Annuar bin Yaacob Seamus Toal 38,566 37,632 13,634 17,936 (4,091) (2) 11,873 62,292 Number of DB Restricted Equity Units Awarded/ Exercised/ Forfeiture Balance at Granted Vested 31.12.2020 12,042 8,893 (13,634) (17,937) (14,183) - 22,791 28,588 None of the other Directors held or dealt in the shares of the Bank or its related corporations during the financial year.
52. 49 Company No . 199401026871 (312552-W) Directors’ benefits Since the end of the previous financial year, no Director of the Bank has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of remuneration received or due and receivable by Directors as shown in Note 26 to the financial statements) by reason of a contract made by the Bank or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangements to which the Bank is a party whereby Directors might acquire benefits by means of the acquisition of shares in, or debentures of, the Bank or any other body corporate other than the share and options compensation plans operated by Deutsche Bank Aktiengesellschaft as disclosed in Note 35. Issue of shares and debentures There were no changes in the issued and paid-up capital of the Bank during the financial year. There were no debentures issued during the year. Options granted over unissued shares No options were granted to any person to take up unissued shares of the Bank during the year. Indemnity and insurance costs During the financial year, the total amount of insurance cost incurred for the Directors of the Bank net of Directors’ contribution is RM25,958. There were no indemnity and insurance cost effected for auditors of the Bank during the financial year.
56. 53 Deutsche Bank (Malaysia) Berhad (Company No. 199401026871 (312552-W)) (Incorporated in Malaysia) and its subsidiaries Shariah Committee’s Report In the Name of Allah, The Most Compassionate, The Most Merciful, In compliance with the letter of appointment, we are required to submit the following report: We have reviewed the principles and the contracts relating to the transactions and applications introduced by Deutsche Bank (Malaysia) Berhad’s Islamic Banking division during the year ended 31 December 2020. We have also conducted our review to form an opinion as to whether Deutsche Bank (Malaysia) Berhad’s Islamic Banking division has complied with the Shariah principles and with the Shariah rulings issued by the Shariah Advisory Council of Bank Negara Malaysia, as well as Shariah decisions made by us. The management of Deutsche Bank (Malaysia) Berhad’s Islamic Banking division (“Division”) is responsible for ensuring that the Division conducts its business in accordance with the Shariah principles. It is our responsibility to form an independent opinion, based on our review of the operations of Deutsche Bank (Malaysia) Berhad’s Islamic Banking division, and to report to you. We have assessed the Shariah review work carried out by Shariah Compliance Officer and internal Shariah audit. We planned and performed our review so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Islamic Banking division has not violated the Shariah principles.
58. Ernst & Young PLT 202006000003 (LLP0022760-LCA) & AF 0039 SST ID: W10-2002-32000062 Chartered Accountants Level 23A Menara Milenium Jalan Damanlela Pusat Bandar Damansara 50490 Kuala Lumpur, Malaysia Tel: +603 7495 8000 Fax: +603 2095 5332 (General line) +603 2095 9076 +603 2095 9078 ey.com Company No. 199401026871 (312552-W) Independent auditors’ report to the member of Deutsche Bank (Malaysia) Berhad (Incorporated in Malaysia) Report on the audit of the financial statements Opinion We have audited the financial statements of Deutsche Bank (Malaysia) Berhad, which comprise the statements of financial position as at 31 December 2020 of the Group and of the Bank, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Bank for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 59 to 166. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Bank as at 31 December 2020, and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Group and of the Bank in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“ByLaws”) and the International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. A member firm of Ernst & Young Global Limited 55
59. Company No . 199401026871 (312552-W) Independent auditors’ report to the member of Deutsche Bank (Malaysia) Berhad (cont’d.) (Incorporated in Malaysia) Information other than the financial statements and auditors’ report thereon The Directors of the Bank are responsible for the other information. The other information comprises the Statement of Corporate Governance, Directors’ Report and Shariah Committee’s Report, but does not include the financial statements of the Group and of the Bank and our auditors’ report thereon. Our opinion on the financial statements of the Group and of the Bank does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Group and of the Bank, our responsibility is to read the other information and, in doing so, consider whether the other information are materially inconsistent with the financial statements of the Group and of the Bank or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial statements The directors of the Bank are responsible for the preparation and presentation of the financial statements of the Group and of the Bank that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements of the Group and of the Bank that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the ability of the Group and of the Bank to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Bank or to cease operations, or have no realistic alternative but to do so. A member firm of Ernst & Young Global Limited 56
60. Company No . 199401026871 (312552-W) Independent auditors’ report to the member of Deutsche Bank (Malaysia) Berhad (cont’d.) (Incorporated in Malaysia) Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Bank as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:  Identify and assess the risk of material misstatement of the financial statements of the Group and of the Bank, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Group and of the Bank.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.  Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Group and of the Bank to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Bank or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group and the Bank to cease to continue as a going concern. A member firm of Ernst & Young Global Limited 57
61. Company No . 199401026871 (312552-W) Independent auditors’ report to the member of Deutsche Bank (Malaysia) Berhad (cont’d.) (Incorporated in Malaysia) Auditors’ responsibilities for the audit of the financial statements (continued)  Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Bank, including the disclosures, and whether the financial statements of the Group and of the Bank represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Other matters This report is made solely to the member of the Bank, as a body, in accordance with Section 266 of the Companies Act 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. The financial statements of the Group and of the Bank for the year ended 31 December 2019 were audited by another auditor who expressed an unmodified opinion on those financial statements on 13 July 2020. Ernst & Young PLT 202006000003 (LLP0022760-LCA) & AF 0039 Chartered Accountants Yeo Beng Yean No. 03013/10/2022 J Chartered Accountant Kuala Lumpur, Malaysia Date: 31 May 2021 A member firm of Ernst & Young Global Limited 58
62. 59 Deutsche Bank (Malaysia) Berhad (Company No. 199401026871 (312552-W)) (Incorporated in Malaysia) and its subsidiaries Statements of financial position as at 31 December 2020 Group 2019 RM’000 Restated 1.1.2019 RM’000 Restated 2020 RM’000 Bank 2019 RM’000 Restated Note 2020 RM’000 1.1.2019 RM’000 Restated 3.1 3,813,279 3,749,550 1,793,561 3,813,279 3,749,550 1,793,561 3.2 1,339,991 199,993 374,990 1,339,991 199,993 374,990 4 112,446 2,273,674 400,307 1,467,364 146,401 3,407,359 112,446 2,273,674 400,307 1,467,364 146,401 3,407,359 2,190,021 1,383,549 237,779 - 2,974,983 884,393 356,117 7,406 2,275,345 890,488 393,151 15,188 2,190,021 1,383,549 237,779 - 2,974,983 884,393 356,117 7,406 2,275,345 890,488 393,151 15,188 7 20,000 10,000 20,000 20,000 10,000 20,000 8 9 10 1,782 1,063 23,262 2,538 2,139 29,697 2,927 35,355 20 1,782 1,063 23,262 20 2,538 2,139 29,697 20 2,927 35,355 11,396,846 10,084,487 9,354,765 11,396,866 10,084,507 9,354,785 Assets Cash and short-term funds Deposits and placements with banks and other financial institutions Reverse repurchase agreements Financial securities Loans, advances and financing Derivative assets Other assets Tax recoverable Statutory deposit with Bank Negara Malaysia Investments in subsidiary companies Property and equipment Right-of-use assets Deferred tax assets Total assets 5 34.3 6 11
63. 60 Company No . 199401026871 (312552-W) Statements of financial position as at 31 December 2020 (continued) Note 2020 RM’000 Group 2019 RM’000 Restated 1.1.2019 RM’000 Restated 2020 RM’000 Bank 2019 RM’000 Restated 1.1.2019 RM’000 Restated Liabilities and equity Deposits from customers Deposits and placements of banks and other financial institutions Lease liabilities Taxation Derivative liabilities Other liabilities 12 6,405,254 5,331,773 4,226,840 6,405,274 5,331,793 4,226,860 13 14 815,211 1,257 4,136 1,387,482 839,556 1,249,128 2,157 858,058 747,998 1,514,300 854,986 1,249,128 2,157 858,058 747,998 1,514,300 854,986 885,218 815,211 1,257 4,136 1,387,482 839,556 9,452,896 8,189,114 7,481,344 9,452,916 8,189,134 7,481,364 531,362 1,412,588 531,362 1,364,011 531,362 1,342,059 531,362 1,412,588 531,362 1,364,011 531,362 1,342,059 1,943,950 1,895,373 1,873,421 1,943,950 1,895,373 1,873,421 11,396,846 10,084,487 9,354,765 11,396,866 10,084,507 9,354,785 34.3 15 Total liabilities 885,218 Equity Share capital Reserves Total equity attributable to owner of the Bank Total liabilities and equity 16 17 Note 2020 RM’000 Commitments and contingencies 31 95,945,909 Group and Bank 2019 1.1.2019 RM’000 RM’000 Restated Restated 88,963,721 97,386,346 The notes on pages 66 to 166 are an integral part of these financial statements.
64. 61 Deutsche Bank (Malaysia) Berhad (Company No. 199401026871 (312552-W)) (Incorporated in Malaysia) and its subsidiaries Statements of profit or loss and other comprehensive income for the year ended 31 December 2020 Note Interest income Interest expense Group and Bank 2020 2019 RM’000 RM’000 18 19 238,836 (45,442) 303,082 (97,037) Net interest income Net income from Islamic Banking Operations Non-interest income 37 20 193,394 2,198 317,219 206,045 2,759 253,407 Operating income Other operating expenses 21 512,811 (156,246) 462,211 (163,327) 22 356,565 (909) 298,884 290 27 355,656 (86,938) 299,174 (77,119) 268,718 222,055 2,460 1,095 Operating profit Allowance (made) / written back for impairment Profit before tax Tax expense Profit for the year Other comprehensive income: Items that are or may be reclassified subsequently to profit or loss Movement in fair value reserve (debt securities): Net change in fair value Net amount transferred to profit or loss 59 (49) (605) (251) Other comprehensive income for the year 1,914 795 Total comprehensive income for the year 270,632 222,850 154.8 127.9 Income tax effect relating to component of other comprehensive income Earnings per share (sen) 11 28 The notes on pages 66 to 166 are an integral part of these financial statements.
65. 62 Deutsche Bank (Malaysia) Berhad (Company No. 199401026871 (312552-W)) (Incorporated in Malaysia) and its subsidiaries Statements of changes in equity for the year ended 31 December 2020 Attributable to owner of the Bank Group and Bank Note At 1 January 2020 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend paid Transfer of retained earnings to other reserves At 31 December 2020 Share capital RM’000 NonDistributable distributable Other Retained reserves earnings RM’000 RM’000 Total reserves RM’000 Total RM’000 531,362 - 45,872 1,914 1,914 1,318,139 268,718 268,718 1,364,011 268,718 1,914 270,632 1,895,373 268,718 1,914 270,632 29 - - (222,055) (222,055) (222,055) 17 - - - - - 531,362 47,786 1,364,802 1,412,588 1,943,950 Note 16 Note 17 Note 17
66. 63 Company No . 199401026871 (312552-W) Statements of changes in equity for the year ended 31 December 2020 (continued) Attributable to owner of the Bank Group and Bank Note At 1 January 2019 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend paid Transfer of retained earnings to other reserves At 31 December 2019 Share capital RM’000 NonDistributable distributable Other Retained reserves earnings RM’000 RM’000 531,362 - 40,077 795 795 1,301,982 222,055 222,055 29 - - (200,898) 17 - 5,000 (5,000) 531,362 45,872 1,318,139 Note 16 Note 17 Note 17 The notes on pages 66 to 166 are an integral part of these financial statements. Total reserves RM’000 Total RM’000 1,342,059 222,055 795 222,850 1,873,421 222,055 795 222,850 (200,898) (200,898) - - 1,364,011 1,895,373
67. 64 Deutsche Bank (Malaysia) Berhad (Company No. 199401026871 (312552-W)) (Incorporated in Malaysia) and its subsidiaries Statements of cash flows for the year ended 31 December 2020 Group and Bank 2020 2019 RM’000 RM’000 Cash flows from operating activities Profit before tax Adjustments for: Depreciation of property and equipment (Note 9) Depreciation of right-of-use assets (Note 10) Interest expense in lease liabilities (Note 14) Allowance (written back)/made for impairment Net unrealised gain/(loss) on revaluation of trading portfolio (including derivatives) Operating profit before changes in operating assets and liabilities (Increase)/Decrease in operating assets: Reverse repurchase agreements Financial securities Loans, advances and financing Other assets Statutory deposit with Bank Negara Malaysia Increase/(Decrease) in operating liabilities: Deposits from customers Deposits and placements of banks and other financial institutions Other liabilities Cash generated from operations Net income taxes paid Tax refunds received Net cash generated from operating activities 355,656 987 2,013 56 (930) 299,174 1,098 1,876 129 (186) 29,141 10,955 386,923 313,046 287,861 (803,731) 785,832 (1,747,740) (10,000) (253,906) 1,941,090 (699,501) (804,855) 10,000 1,073,481 1,104,933 (433,917) 1,958,763 1,497,472 (82,146) 12,580 1,427,906 (265,172) 702,881 2,048,516 (77,467) 13,537 1,984,586
68. 65 Company No . 199401026871 (312552-W) Statements of cash flows for the year ended 31 December 2020 (continued) Group and Bank 2020 2019 RM’000 RM’000 Cash flows from investing activity Purchase of property and equipment (Note 9) (231) (709) (231) (709) Cash flows from financing activities Payment of lease liabilities (Note 14) Dividends paid (Note 29) (1,893) (222,055) (1,987) (200,898) Net cash used in financing activities (223,948) (202,885) Net cash used in investing activity Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December (i) (i) 1,203,727 3,949,543 1,780,992 2,168,551 5,153,270 3,949,543 Cash and cash equivalents comprise: Cash and short-term funds Deposits and placements with banks and other financial institution 3,813,279 3,749,550 1,339,991 5,153,270 199,993 3,949,543 The notes on pages 66 to 166 are an integral part of these financial statements.
70. 67 Company No . 199401026871 (312552-W) 1. Basis of preparation (continued) (a) Statement of compliance (continued) The following are financial reporting 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 2021 • Amendments to MFRS 9 Financial Instruments, MFRS 139 Financial Instruments: Recognition and Measurement, MFRS 7 Financial Instruments: Disclosures, MFRS 4 Insurance Contracts and MFRS 16 Leases – Interest Rate Benchmark Reform – Phase 2 MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2022 • Amendments to MFRSs contained in the document entitled “Annual Improvements to MFRS Standards 2018-2020” • Amendments to MFRS 3 Business Combinations – Reference to the Conceptual Framework • Amendments to MFRS 116 Property, Plant and Equipment – Proceeds before Intended Use • Amendments to MFRS 137 Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts – Cost of Fulfilling a Contract MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2023 • Amendments to MFRS 17 Insurance Contracts • Amendments to MFRS 4 Insurance Contracts – Extension of the Temporary Exemption from Applying MFRS 9 • Amendments to MFRS 101, Presentation of Financial Statements – Classification of Liabilities as Current or Non-current 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
71. 68 Company No . 199401026871 (312552-W) 1. Basis of preparation (continued) (a) Statement of compliance (continued) The Group and the Bank plan to apply the abovementioned accounting standards, interpretations and amendments, where applicable: • from the annual period beginning on 1 January 2021 for those amendments, that are effective for annual periods beginning on or after 1 January 2021: • from the annual period beginning on 1 January 2022 for the amendment that is effective for annual periods beginning on or after 1 January 2022: and, • from the annual period beginning on 1 January 2023 for the amendment, that is effective for annual periods beginning on or after 1 January 2023. The Group and the Bank do not plan to apply MFRS 17, Insurance Contracts that is effective for annual periods beginning on or after 1 January 2023 as it is not applicable to the Group and the Bank. The initial application of the financial reporting standards, amendments and interpretations are not expected to have any material financial impact to the current period and prior period financial statements of the Group and the Bank. (b) Basis of measurement The financial statements of the Group and the Bank have been prepared on a historical cost basis unless otherwise indicated in the financial statements. The financial statements incorporate all activities relating to the Islamic Banking business which have been undertaken by the Group and the Bank. Islamic Banking business refers generally to the acceptance of deposits and granting of financing under the principles of Shariah. (c) Functional and presentation currency The financial statements are presented in Ringgit Malaysia (“RM”) which is also the functional currency of the Bank. All values are rounded to the nearest thousand (“RM’000”) except when otherwise indicated. (d) Use of estimates and judgements The preparation of the financial statements in accordance with MFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income, expenses, the accompanying disclosures and the disclosure of contingent liabilities. Actual results may differ from these estimates.
72. 69 Company No . 199401026871 (312552-W) 1. Basis of preparation (continued) (d) Use of estimates and judgements (continued) Judgments, estimates and assumptions are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Significant areas of estimation, uncertainty and critical judgements used in applying accounting policies that have significant effect on the amount recognised in the financial statements are described in the following notes: • • • • • Note 2(c)(vi) and 34.2 – Fair value of financial instruments Note 2(d)(i) and Note 5 – Impairment of financial assets Note 10 – Extensions options and incremental borrowing rates in relation to leases Note 11 – Deferred tax assets Note 27 – Income taxes 2. Significant accounting policies The accounting policies set out below have been applied consistently to the periods presented in these financial statements, and have been applied consistently by the Group entities, unless otherwise stated. (a) Basis of consolidation (i) Subsidiaries Subsidiaries are entities, including structured entities, controlled by the Bank. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
73. 70 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (a) Basis of consolidation (continued) (i) Subsidiaries (continued) The Bank controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Potential voting rights are considered when assessing control only when such rights are substantive. The Bank also considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s return. Investments in subsidiaries are measured in the Bank’s statement of financial position at cost less any impairment losses, unless the investment is classified as held for sale or distribution. The cost of investment includes transaction costs. (ii) Loss of control Upon the loss of control of a subsidiary, the Bank derecognises the assets and liabilities of the former subsidiary, any non-controlling interests and the other components of equity related to the former subsidiary from the consolidated statement of financial position. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Bank retains any interest in the former subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity accounted investee or as a financial asset depending on the level of influence retained.
74. 71 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (a) Basis of consolidation (continued) (iii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (b) Cash and cash equivalents Cash and cash equivalents comprise cash and balances with banks and other financial institutions, and short-term deposits maturing within three months. (c) Financial instruments (i) Recognition and initial measurement A financial asset or a financial liability is recognised in the statements of financial position when, and only when, the Group or the Bank becomes a party to the contractual provisions of the instrument. A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument.
75. 72 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (ii) Financial instrument categories and subsequent measurement Financial assets On initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income (“FVOCI”) – debt securities; FVOCI – equity investments; or fair value through profit or loss (“FVTPL”). The classification of financial assets is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: − − it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. A debt security is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: − − it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.
76. 73 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (ii) Financial instrument (continued) categories and subsequent measurement Financial assets (continued) On initial recognition of an equity investment that is not held for trading, the Group and the Bank may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment-by-investment basis. All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative assets. On initial recognition, the Group and the Bank may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
77. 74 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (ii) Financial instrument (continued) categories and subsequent measurement Financial assets (continued) The following accounting policies measurement of financial assets. apply to the subsequent Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. Financial assets at amortised cost These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Debt securities at FVOCI These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. Equity These assets are subsequently measured at fair value. investments Dividends are recognised as income in profit or loss at FVOCI unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.
78. 75 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (ii) Financial instrument (continued) categories and subsequent measurement Financial liabilities The categories of financial liabilities at initial recognition are as follows: (a) Fair value through profit or loss Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) and financial liabilities that are specifically designated into this category upon initial recognition. On initial recognition, the Group or the Bank may irrevocably designate a financial liability that otherwise meets the requirements to be measured at amortised cost as at fair value through profit or loss: (a) if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise; (b) a group of financial liabilities or assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the Group’s key management personnel; or
79. 76 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (ii) Financial instrument (continued) categories and subsequent measurement Financial liabilities (continued) (a) Fair value through profit or loss (continued) (c) if a contract contains one or more embedded derivatives and the host is not a financial asset in the scope of MFRS 9, where the embedded derivative significantly modifies the cash flows and separation is not prohibited. Financial liabilities categorised as fair value through profit or loss are subsequently measured at their fair value with gains or losses, including any interest expense are recognised in profit or loss. For financial liabilities where it is designated as fair value through profit or loss upon initial recognition, the Group and the Bank recognise the amount of change in fair value of the financial liability that is attributable to change in credit risk in the other comprehensive income and remaining amount of the change in fair value in the profit or loss, unless the treatment of the effects of changes in the liability’s credit risk would create or enlarge an accounting mismatch. (b) Amortised cost Other financial liabilities not categorised as fair value through profit or loss are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in the profit or loss. Any gains or losses on derecognition are also recognised in profit or loss.
80. 77 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (iii) Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantees issued are initially measured at fair value. Subsequently, they are measured at higher of: • the amount of the loss allowance; and • the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance to the principles of MFRS 15, Revenue from Contracts with Customers. Liabilities arising from financial guarantees are presented together with other provisions. (iv) Regular way purchase or sale of financial assets A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. A regular way purchase or sale of financial assets is recognised and derecognised, as applicable, using trade date accounting. Trade date accounting refers to: (a) the recognition of an asset to be received and the liability to pay for it on the trade date, and (b) derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date.
81. 78 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (v) Derecognition A financial asset or part of it is derecognised when, and only when, the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) is recognised in the profit or loss. A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the profit or loss. (vi) Determination of fair value Fair value of an asset or a liability, except for share-based payment and lease transactions, is determined as 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. The measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market. For non-financial asset, the fair value measurement takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
82. 79 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (vi) Determination of fair value (continued) When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair value are categorised into different levels in a fair value hierarchy based on the input used in the valuation technique as follows: Level 1: Level 2: Level 3: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date. inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. unobservable inputs for the asset or liability. The Group recognises transfers between levels of the fair value hierarchy as of the date of the event or change in circumstances that caused the transfers. For financial instruments measured at fair value, where available, quoted and observable market prices in an active market or dealer price quotations are used to measure fair value. These include listed equity securities and broker quotes on Bloomberg and Reuters. Where such quoted and observable market prices are not available, fair values are determined using appropriate valuation techniques, which include the use of mathematical models, such as discounted cash flow models and option pricing models, comparison to similar instruments for which market observable prices exist and other valuation techniques. Valuation techniques used incorporate assumptions regarding discount rates, interest/profit rate yield curves, estimates of future cash flows and other factors, as applicable. The Group and the Bank generally use widely recognised valuation techniques with market observable inputs, if available, for the determination of fair value.
83. 80 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (vi) Determination of fair value (continued) If prices and parameter inputs or assumptions are not observable, the appropriateness of fair value is subject to additional procedures to assess its reasonableness. Such procedures include performing revaluations using independently generated models, assessing the valuations against appropriate proxy instruments, performing sensitivity analysis and extrapolation techniques, and considering other benchmarks. Assessment is made as to whether the valuation techniques yield fair value estimates that are reflective of the way the market operates by calibrating the results of the valuation models. These procedures require the application of management judgement. (vii) Offsetting of financial instruments Financial assets and liabilities are offset and the net amount reported in the statements of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and to settle the liability simultaneously. This is not generally the case with master netting agreements and therefore, the related assets and liabilities are presented on a gross basis in the statements of financial position.
84. 81 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (d) Impairment i. Financial assets The ‘expected credit loss’ model applies to all debt instruments that are measured at amortised cost or FVOCI, and to off-balance sheet credit exposures such as loan commitments and financial guarantees (hereafter collectively referred to as “Financial Assets”). Staged Approach to the Determination of Expected Credit Losses The Group and the Bank follow a three stage approach to impairment for Financial Assets at the date of origination or purchase. This approach is summarised as follows: − Stage 1: The Group and the Bank recognise a loss allowance at an amount equal to 12-month expected credit losses (“ECL”). This represents the portion of lifetime ECL from default events that are expected within 12 months of the reporting date, assuming that credit risk has not increased significantly after initial recognition. − Stage 2: The Group and the Bank recognises a loss allowance at an amount equal to lifetime ECL for those Financial Assets which are considered to have experienced a significant increase in credit risk since initial recognition. This requires the computation of ECL based on lifetime probability of default (LTPD) that represents the probability of default occurring over the remaining lifetime of the Financial Asset. Allowance for credit losses are higher in this stage because of an increase in credit risk and the impact of a longer time horizon being considered compared to 12 months in Stage 1.
85. 82 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (d) Impairment (continued) i. Financial assets (continued) − Stage 3: The Group and the Bank recognise a loss allowance at an amount equal to lifetime ECL, reflecting a Probability of Default (PD) of 100%, via the recoverable cash flows for the asset, for those Financial Assets that are credit-impaired. The Group’s definition of default is aligned with the regulatory definition. Financial Assets that are credit-impaired upon initial recognition, if any, are categorised within Stage 3 with a carrying value already reflecting the lifetime ECL. Significant Increase in Credit Risk When determining whether the credit risk (i.e., risk of default) of a Financial Asset has increased significantly since initial recognition, the Group and the Bank consider reasonable and supportable information that is relevant and available without undue cost or effort. This includes quantitative and qualitative information based on historical experience, credit risk assessment and forward-looking information (including macro-economic factors). The assessment of significant credit deterioration is key in determining when to move from measuring an allowance based on 12month ECLs to one that is based on lifetime ECLs.
86. 83 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (d) Impairment (continued) i. Financial assets (continued) Credit-impaired financial assets The determination of whether a Financial Asset is credit impaired focusses exclusively on default risk, without taking into consideration the effects of credit risk mitigants such as collateral or guarantees. Specifically, a Financial Asset is credit impaired and in Stage 3 when: − The Group and the Bank consider the obligor is unlikely to pay its credit obligations to the Bank. Determination may include forbearance actions, where a concession has been granted to the borrower or economic or legal reasons that are qualitative indicators of credit impairment; or − Contractual payments of either principal or interest by the obligor are past due by more than 90 days. For Financial Assets considered to be credit impaired, the ECL allowance covers the amount of loss the Group and the Bank is expected to suffer. Forecasts of future economic conditions when calculating ECLs are considered. The lifetime expected losses are estimated based on the probability-weighted present value of the difference between 1) the contractual cash flows that are due to the Group and the Bank under the contract; and 2) the cash flows that the Group and the Bank expects to receive. ii. Other assets The carrying amounts of other assets (except for deferred tax assets) are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
87. 84 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (d) Impairment (continued) ii. Other assets (continued) For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. 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 or cash-generating unit. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amounts of the assets in the cash-generating unit (groups of cash-generating units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at the end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.
88. 85 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (e) Repurchase agreements Reverse repurchase agreements are securities which the Group and the Bank commit to resell at future dates and are reflected as an asset. Repurchase agreements are obligations which the Group and the Bank commit to repurchase at future dates and are reflected as a liability. (f) Property and equipment (i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures 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. The cost of self-constructed assets also includes the cost of materials and direct labour. When significant parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognised net within “other operating income” and “other operating expenses” respectively in profit or loss.
89. 86 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (f) Property and equipment (continued) (ii) Subsequent costs The cost of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group or the Bank, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised to profit or loss. The costs of the day-today servicing of property and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is calculated on the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property and equipment from the date that they are available for use. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group or the Bank will obtain ownership by the end of the lease term. The estimated useful lives for the current and comparative periods are as follows: Renovations Office equipment Computer equipment and software Furniture and fittings Motor vehicles 5 – 10 years 4 – 10 years 3 – 5 years 5 – 10 years 4 – 5 years Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate at the end of the reporting period.
90. 87 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (g) Leases Definition of a lease A contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group and the Bank assess whether: • the contract involves the use of an identified asset – this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; • the customer has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and • the customer has the right to direct the use of the asset. The customer has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the customer has the right to direct the use of the asset if either the customer has the right to operate the asset; or the customer designed the asset in a way that predetermines how and for what purpose it will be used. At inception or on reassessment of a contract that contains a lease component, the Group and the Bank allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. However, for leases of properties in which the Group and the Bank is a lessee, it has elected not to separate non-lease components and will instead account for the lease and non-lease components as a single lease component.
91. 88 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (g) Leases (continued) (i) Recognition and initial measurement The Group and the Bank recognise a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measure at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s and the Bank’s incremental borrowing rate. Generally, the Group and the Bank use the incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise of the following: • fixed payments, including in-substance fixed payments less any incentives receivables; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; • the exercise price under a purchase option that the Group and the Bank is reasonably certain to exercise; and • penalties for early termination of a lease unless the Group and the Bank is reasonable certain not to terminate early.
92. 89 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (g) Leases (continued) (ii) Recognition and initial measurement (continued) The Group and the Bank exclude variable lease payments that are linked to future performance or usage of the underlying asset from the lease liability. Instead, these payments are recognised in profit or loss in the period in which the performance or use occurs. The Group and the Bank have elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Group and the Bank recognise the lease payments associated with these leases as an expense on a straight-line basis over the lease term. (iii) Subsequent measurement The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a revision of in-substance fixed lease payments, or if there is a change in the Group’s and the Bank’s estimate of the amount expected to be payble under a residual value guarantee, or if the Group and the Bank change its assessment of whether it will exercise a purchase, extension or termination option.
93. 90 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (g) Leases (continued) (iii) Subsequent measurement (continued) When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. (h) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss 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 financial years. Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the statements of financial position and their tax bases. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax assets and liabilities on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
94. 91 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (i) Recognition of interest and financing income and expense Interest and financing income and expense for all interest-bearing financial instruments are recognised in the statements of profit or loss and other comprehensive income using the effective interest rates of the financial assets or financial liabilities to which they relate. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability, or where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group and the Bank estimate cash flows considering all contractual terms of the financial instrument but not future credit losses. The calculation includes all amounts paid or received by the Bank that are an integral part of the effective interest rate, including transaction costs and all other premiums or discounts. (j) Recognition of fees and other income Loan arrangement fees and commissions are recognised as income when all conditions precedent are fulfilled. Commitment fees and guarantee fees are recognised as income based on time apportionment over the contractual period. Dividends from securities are recognised when the right to receive payment is established.
95. 92 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (k) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of the Group and the Bank at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the profit or loss. (l) Employee benefits (i) Short-term employee benefits Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group and the Bank. Short-term accumulating compensated absences such as paid annual leaves are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defined contribution plan As required by law, companies in Malaysia make contributions to the state pension scheme, the Employees’ Provident Fund (“EPF”). Such contributions are recognised as expense in profit or loss as incurred.
96. 93 Company No . 199401026871 (312552-W) 2. Significant accounting policies (continued) (l) Employee benefits (continued) (iii) Share-based compensation The Group and the Bank participate in equity-settled and cash-settled share based compensation plan for the employees that is offered by the ultimate holding company, Deutsche Bank Aktiengesellschaft, a bank incorporated in Germany. The fair value of the services received in exchange for the grant of the options is recognised as an expense in the profit of loss over the vesting periods of the grant. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each reporting date, the Group and the Bank revise its estimates of the number of options that are expected to vest. The Group and the Bank recognise the impact of the revision of original estimates, if any, in the profit or loss. (m) Earnings per ordinary share The Group and the Bank present basic earnings per share (“EPS”) data for their ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group and the Bank by the weighted average number of ordinary shares outstanding during the year. (n) Provisions A provision is recognised if, as a result of a past event, the Group or the Bank have a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.
97. 94 Company No . 199401026871 (312552-W) 3. Cash and cash equivalents 3.1 Cash and short-term funds Group and Bank 2020 2019 RM’000 RM’000 Cash and balances with banks and other financial institutions Money at call and deposit placements maturing within one month 475,498 304,703 3,337,781 3,444,847 3,813,279 3,749,550 3.2 Deposits and placements with banks and other financial institutions Group and Bank 2020 2019 RM’000 RM’000 Licensed bank Other financial institutions 239,995 1,099,996 199,993 1,339,991 199,993
98. 95 Company No . 199401026871 (312552-W) 3. Cash and cash equivalent (continued) The following table shows reconciliations from the opening to the closing balance of the loss allowance for cash and cash equivalents. 2020 Group and Bank 12-month ECL RM’000 2019 Lifetime ECL not credit – impaired Lifetime ECL credit - impaired RM’000 RM’000 12-month ECL Total RM’000 RM’000 Lifetime ECL not credit – impaired Lifetime ECL credit - impaired Total RM’000 RM’000 RM’000 Cash and cash equivalents Balance at 1 January 116 - - 116 219 - - 219 Net remeasurement of loss allowance (17) - - (17) (107) - - (107) 16 - 16 19 - - 19 (19) - - (19) (15) - - (5) 96 - - 96 116 - - 116 New financial assets originated or purchased Financial assets that have been derecognised Balance at 31 December -
99. 96 Company No . 199401026871 (312552-W) 4. Financial securities Group and Bank 2020 2019 RM’000 RM’000 Debt securities at FVTPL Malaysian Government Securities Malaysian Investment Issue Cagamas bonds Negotiable Instruments of Deposits Debt securities at FVOCI Malaysian Government Securities Malaysian Investment Issue Negotiable Instruments of Deposits Equity investments at FVOCI Unquoted shares in Malaysia 910,802 127,969 199,982 - 485,124 301,966 235,062 150,009 1,238,753 1,172,161 762,232 71,098 200,000 1,033,330 222,902 70,710 293,612 1,591 1,591 2,273,674 1,467,364
100. 97 Company No . 199401026871 (312552-W) 4. Financial securities (continued) The following table show reconciliations from the opening to the closing balance of the loss allowance for debt securities at FVOCI. 2020 Group and Bank 2019 12-month ECL Lifetime ECL not creditimpaired Lifetime ECL credit - impaired RM’000 RM’000 RM’000 Lifetime ECL not credit – impaired 12-month ECL Total Lifetime ECL credit - impaired Total RM’000 RM’000 RM’000 RM’000 RM’000 Debt securities at FVOCI Balance at 1 January Net remeasurement of loss allowance New financial assets originated or purchased Financial assets that have been derecognised Balance at 31 December 158 - - 158 207 - - 207 - - (7) - - - - 212 - - 212 158 - - 158 (146) - - (146) (207) - - (207) 217 - - 217 158 - - 158 (7)
101. 98 Company No . 199401026871 (312552-W) 5. Loans, advances and financing Group and Bank 2020 2019 RM’000 RM’000 At amortised cost Overdrafts Term loans - housing loans - other term loans Bills receivable Trust receipts Claims on customers under acceptance credits Staff loans 35,604 7,287 672,014 214,233 187,396 1,087,067 27 63,513 8,323 727,285 127,861 171,530 1,905,015 52 Unearned interest 2,203,628 (5,524) 3,003,579 (21,383) Gross loans, advances and financing Allowance for impaired loans and financing - Expected credit losses 2,198,104 2,982,196 Net loans, advances and financing 2,190,021 (8,083) (7,213) 2,974,983
102. 99 Company No . 199401026871 (312552-W) 5. Loans, advances and financing (continued) The following table shows reconciliations from the opening to the closing balance of the loss allowance for loans, advances and financing. 2019 2020 Group and Bank 12month ECL RM’000 Lifetime ECL not credit impaired RM’000 Lifetime ECL credit impaired RM’000 12-month ECL Total RM’000 Lifetime ECL not credit impaired Lifetime ECL credit impaired Total RM’000 RM’000 RM’000 RM’000 Loans, advances and financing at amortised cost* 4,073 1,193 1,947 7,213 5,146 623 1,582 7,351 Transfer to 12-month ECL 298 - (298) - 247 (18) (229) - Transfer to lifetime ECL not credit-impaired (25) 25 - - (2) 2 - - (203) - 203 - (613) - 613 - (901) 909 43 51 (864) 305 (19) (578) New financial assets originated or purchased 843 1,418 - 2,261 1,084 444 - 1,528 Financial assets that have been derecognised (861) (444) (137) (1,442) (925) (163) - (1,088) 3,224 3,101 1,758 8,083 4,073 1,193 1,947 7,213 Balance at 1 January Transfer to lifetime ECL credit-impaired Net remeasurement of loss allowance Balance at 31 December * The loss allowance in this table includes ECL on loan commitment and financial guarantees.
103. 100 Company No . 199401026871 (312552-W) 5. Loans, advances and financing (continued) 5.1 The maturity structure of gross loans, advances and financing are as follows: Group and Bank 2020 2019 RM’000 RM’000 Maturing within one year More than one year to three years More than three years to five years Over five years 5.2 1,994,715 197,125 1,554 4,710 2,804,093 170,659 1,266 6,178 2,198,104 2,982,196 Gross loans, advances and financing analysed by type of customer are as follows: Group and Bank 2020 2019 RM’000 RM’000 Domestic banking institutions Domestic non-bank financial institutions Domestic business enterprises Individuals Government and statutory bodies Foreign entities 35,954 251,993 1,673,935 7,313 59,372 169,537 410,306 2,361,447 8,375 74,240 127,828 2,198,104 2,982,196
104. 101 Company No . 199401026871 (312552-W) 5. Loans, advances and financing (continued) 5.3 Gross loans, advances and financing analysed by interest/profit rate sensitivity are as follows: Group and Bank 2020 2019 RM’000 RM’000 Fixed rate - Other fixed rate loans/financing Variable rate - Base lending rate plus - Cost plus - Other variable rates 5.4 34,839 9,837 243,210 1,903,351 16,704 225,194 2,735,059 12,106 2,198,104 2,982,196 Gross loans, advances and financing analysed by their economic sectors are as follows: Group and Bank 2020 2019 RM’000 RM’000 Mining and Quarrying Manufacturing Construction Wholesale & retail trade and restaurants & hotels Transport, storage and communication Finance, insurance and business services Education, health and others Household Others 150,134 361,086 211,462 385,799 551,717 471,221 59,372 7,313 - 150,215 460,813 203,901 326,070 1,080,433 678,147 74,240 8,375 2 2,198,104 2,982,196
105. 102 Company No . 199401026871 (312552-W) 5. Loans, advances and financing (continued) 5.5 Gross loans, advances and financing analysed by geographical distribution are as follows: Group and Bank 2020 2019 RM’000 RM’000 Malaysia China India Turkey Others 5.6 2,028,567 3,025 124,149 36,911 5,452 2,854,368 751 118,661 1,763 6,653 2,198,104 2,982,196 Movements in impaired loans, advances and financing are as follows: Group and Bank 2020 2019 RM’000 RM’000 At 1 January Classified as impaired during the year Reclassified as non-impaired during the year Amounts recovered 3,526 605 (750) (381) 2,965 2,070 (648) (861) At 31 December Gross impaired loans as a percentage of gross loans, advances and financing 3,000 3,526 0.14% 0.12%
106. 103 Company No . 199401026871 (312552-W) 5. Loans, advances and financing (continued) 5.6 Movements in impaired loans, advances and financing are as follows: (continued) 5.6.1 Impaired loans, advances and financing analysed by economic sector and geographical distribution are as follows: Group and Bank 2020 2019 RM’000 RM’000 Household (Malaysia) 3,000 3,526 6. Other assets Group and Bank 2020 2019 RM’000 RM’000 Interest/Income receivable Margin placed with exchange Other debtors, deposits and prepayments 7. 18,456 219,323 14,658 1,611 339,848 237,779 356,117 Statutory deposit with Bank Negara Malaysia The non-interest bearing statutory deposit is maintained with Bank Negara Malaysia in compliance with Section 26(2)(c) and Section 26(3) of the Central Bank of Malaysia Act, 2009, the amount of which is determined as a set percentage of total eligible liabilities. 8. Investments in subsidiary companies Bank 2020 RM’000 Unquoted shares, at cost 20 2019 RM’000 20
107. 104 Company No . 199401026871 (312552-W) 8. Investments in subsidiary companies (continued) Details of the subsidiaries which are incorporated in Malaysia are as follows: Name Principal activities Effective ownership interest 2020 2019 DB (Malaysia) Nominee (Tempatan) Sendirian Berhad Nominee services 100% 100% DB (Malaysia) Nominee (Asing) Sdn. Bhd. Nominee services 100% 100% All income and expenditure in respect of the subsidiary companies operations are taken up by the Bank. The subsidiary companies are audited by Ernst & Young PLT.
108. 105 Company No . 199401026871 (312552-W) 9. Property and equipment Group and Bank Cost At 1 January 2019 Additions At 31 December 2019/ 1 January 2020 Additions Write-offs At 31 December 2020 Accumulated depreciation At 1 January 2019 Charge for the year At 31 December 2019/ 1 January 2020 Charge for the year Write-offs At 31 December 2020 Carrying amounts At 1 January 2019 At 31 December 2019/ 1 January 2020 At 31 December 2020 Computer equipment Furniture Office and and Motor Renovations equipment software fittings vehicles Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 11,294 - 5,317 426 20,000 269 3,822 14 547 - 40,980 709 11,294 - 5,743 76 (32) 20,269 155 (3,371) 3,836 - 547 - 41,689 231 (3,403) 11,294 5,787 17,053 3,836 547 38,517 11,284 3 5,105 76 17,797 851 3,648 59 219 109 38,053 1,098 11,287 1 - 5,181 96 (32) 18,648 730 (3,371) 3,707 50 - 328 110 - 39,151 987 (3,403) 11,288 5,245 16,007 3,757 438 36,735 10 212 2,203 174 328 2,927 7 6 562 542 1,621 1,046 129 79 219 109 2,538 1,782
109. 106 Company No . 199401026871 (312552-W) 10. Right-of-use assets Group and Bank At 1 January Buildings 2020 2019 RM’000 RM’000 2,139 4,015 Additions Depreciation At 31 December 937 - (2,013) (1,876) 1,063 2,139 The Group and the Bank lease its building and store on a 3-year tenancy contract. Lease of the office building contains extension options exercisable by the Group and the Bank up to six years before the end of the non-cancellable contract period. Where practicable, the Group and the Bank seek to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Group and the Bank and not by the lessors. The Group and the Bank have assessed and concluded that it is reasonably certain not to exercise the extension options. Significant judgements and assumptions in relation to leases The Group and the Bank assess at lease commencement by applying significant judgement whether it is reasonably certain to exercise the extension options. The Group and the Bank consider all facts and circumstances including its past practice and any cost that will be incurred to change the asset if an option to extend is not taken, to help it determine the lease term. The Group and the Bank also applied judgement and assumptions in determining the incremental borrowing rate of the respective leases. The Group and the Bank first determine the closest available borrowing rates before using significant judgement to determine the adjustments required to reflect the term, security, value or economic environment of the respective leases.
110. 107 Company No . 199401026871 (312552-W) 11. Deferred tax assets The recognised net deferred tax assets are attributable to the following: Group and Bank 2020 2019 RM’000 RM’000 Property and equipment - capital allowances Others (87) 23,349 (36) 29,733 23,262 29,697 The movements in net deferred tax assets during the financial year are as follows: Group and Bank 2020 2019 RM’000 RM’000 At 1 January Recognised in profit or loss (Note 27) Recognised in other comprehensive income 29,697 (5,830) (605) 35,355 (5,407) (251) At 31 December 23,262 29,697
111. 108 Company No . 199401026871 (312552-W) 12. Deposits from customers Group Demand deposits Savings deposits Fixed deposits Other deposits Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 5,611,932 12 590,306 203,004 5,000,687 102 123,389 207,595 5,611,952 12 590,306 203,004 5,000,707 102 123,389 207,595 6,405,254 5,331,773 6,405,274 5,331,793 12.1 The maturity structure of fixed deposits and other deposits are as follows: Group and Bank 2020 2019 RM’000 RM’000 Due within six months More than six months to one year More than one year to three years More than three years to five years More than five years 634,046 910 350 158,004 - 188,142 1,470 141,372 793,310 330,984 12.2 The deposits are sourced from the following types of customers: Group Business enterprises Individuals Foreign customers Others Bank 2020 RM’000 2019 RM’000 2020 RM’000 2019 RM’000 5,595,073 258 56,076 753,847 4,742,810 405 123,658 464,900 5,595,093 258 56,076 753,847 4,742,830 405 123,658 464,900 6,405,254 5,331,773 6,405,274 5,331,793
112. 109 Company No . 199401026871 (312552-W) 13. Deposits and placements of banks and other financial institutions Group and Bank 2020 2019 RM’000 RM’000 Licensed bank Other financial institutions 80,360 734,851 815,211 1,249,128 1,249,128 14. Lease liabilities Group and Bank 2020 2019 RM’000 RM’000 Leases as lessee Lease liabilities are payable as follows: Within 12 months After next 12 months 1,088 169 1,815 342 1,257 2,157 Reconciliation of movements in lease liabilities to cash flows arising from financing activities Group and Bank 2020 2019 RM’000 RM’000 At 1 January Addition Interest expense in lease liabilities Net change from financing cash flows At 31 December 2,157 937 56 (1,893) 4,015 129 (1,987) 1,257 2,157 15 Other liabilities Group and Bank 2020 2019 RM’000 RM’000 Interest payable Bills payable Employee benefits Other liabilities 850 10,239 25,392 803,075 2,587 23,561 22,023 699,827 839,556 747,998
113. 110 Company No . 199401026871 (312552-W) 16. Share capital Ordinary shares: Issued and fully paid Number of shares 2020 ‘000 Group and Bank Number Amount of shares 2020 2019 RM’000 ‘000 Amount 2019 RM’000 173,599 531,362 531,362 173,599 The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meeting of the Bank. 17. Reserves Group and Bank 2020 2019 RM’000 RM’000 Non-distributable: Regulatory reserve Fair value reserve Distributable: Retained earnings 45,000 2,786 45,000 872 47,786 45,872 1,364,802 1,318,139 1,412,588 1,364,011 The regulatory reserve is maintained to comply with Bank Negara Malaysia’s Guidelines on Financial Reporting dated 27 September 2019 which requires the Bank to maintain in aggregate, loss allowance for non-credit impaired exposures and regulatory reserve of no less than 1.0% of all credit exposures, net of loss allowance for credit impaired exposures. An amount of RM5,000,000 was transferred from retained earning to regulatory reserve in the previous financial year to comply with the abovementioned requirement.
114. 111 Company No . 199401026871 (312552-W) 18. Interest income Group and Bank 2020 2019 RM’000 RM’000 Loans, advances and financing Money at call and deposit placements with financial institutions Reverse repurchase agreements Financial securities Other interest income 101,720 123,064 74,424 2,163 60,515 14 84,815 3,538 91,526 139 238,836 303,082 19. Interest expense Group and Bank 2020 2019 RM’000 RM’000 Deposits and placements of banks and other financial institutions Repurchase agreement Deposits from customers Other interest expense 7,578 15 37,197 652 37,220 21 59,075 721 45,442 97,037
115. 112 Company No . 199401026871 (312552-W) 20. Non-interest income Group and Bank 2020 2019 RM’000 RM’000 Fee income: Commissions Service charges and fees Guarantee fees Fee expense: Commissions Service charges and fees Net fee income 7,027 21,193 2,968 7,905 31,057 4,049 31,188 43,011 (4,468) (4,842) (5,834) (14,801) (9,310) (20,635) 21,878 22,376 104,130 (247) 55,043 384 54,028 (28,894) 168,460 134 (24,530) (11,339) 192,620 568 (2,270) 295,341 18,285 231,031 317,219 253,407 Net gains from financial instruments: Net gain arising on financial securities: Realised gain Unrealised (loss)/gain Net gain/(loss) arising on trading derivatives: Realised gain/(loss) Unrealised loss Foreign exchange gain Gross dividend income Other (loss)/income: Other operating (loss)/income, net
116. 113 Company No . 199401026871 (312552-W) 21. Other operating expenses Group and Bank 2020 2019 RM’000 RM’000 Personnel costs - Salaries, allowances and bonuses - Contributions to Employees’ Provident Fund - Others Establishment costs - Rental - Depreciation - property and equipment (Note 9) - Depreciation - right-of-use assets (Note 10) - Others Marketing expenses Administration and general expenses - Intercompany charges (Note 25) - Communication - Auditors’ remuneration - statutory audit fee - other services - Professional fees - Others 47,156 7,535 2,322 46,150 7,207 5,679 554 353 987 2,013 4,734 1,306 1,098 1,876 5,095 2,079 77,276 1,430 81,840 1,494 141 2,480 8,312 141 93 2,999 7,223 156,246 163,327 The number of employees of the Group and the Bank at the end of the year was 198 (2019: 198).
117. 114 Company No . 199401026871 (312552-W) 22. Allowance (made)/written back for impairment Group and Bank 2020 2019 RM’000 RM’000 Expected credit losses - loans, advances and financing (Note 5) - cash and cash equivalents (Note 3) - debt securities at FVOCI (Note 4) (870) 20 (59) 138 103 49 (909) 290 23. Related parties Identity of related parties For the purposes of these financial statements, parties are considered to be related to the Group and the Bank if the Group or the Bank has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group or the Bank and the party are subject to common control. Related parties may be individuals or other entities. The Group and the Bank also have related party relationships with its holding company, other related companies, Directors and key management personnel. Transactions with key management personnel Key management personnel compensation Key management personnel compensation is disclosed in Note 26.
118. 115 Company No . 199401026871 (312552-W) 23. Related parties (continued) Other significant related party transactions and balances of the Group and the Bank are as follows: 2020 Income Interest on advances and deposits Fee income Other operating (loss)/ income Expenditure Interest on deposits Fee expenses Other operating expenses Amount due from Cash and short-term funds Derivatives Other assets - Others Holding company RM’000 Subsidiary companies RM’000 Other related companies RM’000 2,046 2,254 (10,100) - 686 992 7,837 (5,800) - 9,515 1,886 1,241 71,971 - 56 2,814 5,336 75,098 - 8,206 222,513 435,876 - 15 841 32,417 - 5,334 690,806 - 6,190
119. 116 Company No . 199401026871 (312552-W) 23. Related parties (continued) 2020 Amount due to Deposits and placements of banks and other financial institutions Derivatives Other liabilities - Others - Interest payable Subsidiary companies RM’000 Other related companies RM’000 347,497 319,974 20 - 20,352 9,894 68,253 16 - 8,757 - 735,740 20 39,003 649 12,260 9,489 - 2,850 819 8,796 22,398 - 12,465 25,248 408 78,630 - 10 13,662 4,037 104,286 - 17,709 Holding company RM’000 2019 Income Interest on advances and deposits Fee income Other operating income Expenditure Interest on deposits Fee expenses Other operating expenses
120. 117 Company No . 199401026871 (312552-W) 23. Related parties (continued) 2019 Amount due from Cash and short-term funds Derivatives Other assets - Others Amount due to Deposits and placements of banks and other financial institutions Derivatives Other liabilities - Others - Interest payable Other related companies RM’000 Holding company RM’000 Subsidiary companies RM’000 401,058 153,108 - 7,088 34,285 79,058 - 5,716 633,224 - 47,089 626,645 183,871 20 - 54,378 4,872 46,839 1,252 - 4,893 8 858,607 20 64,151
121. 118 Company No . 199401026871 (312552-W) 24. Credit transactions and exposures with connected parties Group and Bank 2020 2019 RM’000 RM’000 Outstanding credit exposures with connected parties Of which: Total credit exposures which is non-performing Total credit exposures Percentage of outstanding credit exposures to connected parties - as a proportion of total credit exposures - as a proportion of capital base - which is non-performing 385,753 247,393 - - 11,244,034 10,025,703 3.43% 20.03% 0% 2.47% 13.23% 0% The above disclosure is presented in accordance with the requirements of Paragraph 9.1 of Bank Negara Malaysia’s Revised Guidelines on Credit Transaction and Exposures with Connected Parties. Credit transactions and exposures to connected parties as disclosed above includes the extension of credit facilities and/or off-balance sheet credit exposures such as guarantees, trade-related facilities and loan commitments. It also includes holdings of equities and corporate bonds issued by the connected parties. The credit transactions with connected parties above are all transacted on an arm’s length basis and on terms and conditions no more favourable than those entered into with other counterparties with similar circumstances and credit worthiness. Due care has been taken to ensure that the credit worthiness of the connected party is not less than that normally required of other persons.
122. 119 Company No . 199401026871 (312552-W) 25. Intercompany charges Below disclosure on intercompany charges is presented in accordance with the requirements of Paragraph 11.4(u) of Bank Negara Malaysia’s Guidelines on Financial Reporting. 25.1 Intercompany charges analysed by type of services received are as follows: Group and Bank 2020 2019 RM’000 RM’000 Asia Pacific Head Office (Singapore) Charges Global Overheads Divisional Functions Transfer Pricing Global Transaction Banking Charges - Deutsche Bank AG, Singapore Group Technology & Operations Charges Others 16,340 11,730 366 14,716 10,171 2,933 12,386 26,371 10,083 8,599 33,463 11,958 77,276 81,840 25.2 Intercompany charges analysed by geographical distribution are as follows: Group and Bank 2020 2019 RM’000 RM’000 Singapore United Kingdom Germany United States of America Philippines Others 43,063 10,911 12,621 4,471 2,425 3,785 45,513 18,529 7,468 5,940 2,084 2,306 77,276 81,840
123. 120 Company No . 199401026871 (312552-W) 26. Key management personnel compensation The key management personnel compensation are as follows: Group and Bank 2020 2019 RM’000 RM’000 Executive Directors Dato’ Yusof Annuar bin Yaacob (Chief Executive Officer) - Salary and other remuneration - Bonuses - Benefits-in-kind 2,404 1,132 39 2,382 622 40 - - Fees - Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin - Mr Steven Choy Khai Choon - Madam Koid Swee Lian 280 150 150 280 150 150 Other remuneration - Tunku Dato’ Mahmood Fawzy bin Tunku Muhiyiddin - Mr Steven Choy Khai Choon - Madam Koid Swee Lian 45 45 42 48 47 45 4,287 3,764 Seamus Toal - Salary and other remuneration - Bonuses - Benefits-in-kind Non-Executive Directors
124. 121 Company No . 199401026871 (312552-W) 26. Key management personnel compensation (continued) The key management personnel compensation are as follows: (continued) Group and Bank 2020 2019 RM’000 RM’000 Other key management personnel - Short-term employee benefits - Share-based payments 10,516 1,045 10,131 549 11,561 10,680 Other key management personnel comprise persons other than the Directors of Group entities, having authority and responsibility for planning, directing and controlling the activities of the entity either directly or indirectly.
125. 122 Company No . 199401026871 (312552-W) 27. Tax expense Group and Bank 2020 2019 RM’000 RM’000 Current tax expense Current year Under/(over) provision in prior year Deferred tax expense (Note 11) Origination and reversal of temporary differences (Over)/under provision in prior year 81,000 108 73,500 (1,788) 81,108 71,712 6,091 (261) 4,994 413 5,830 5,407 86,938 77,119 355,656 299,174 Tax at Malaysian tax rate of 24% Non-deductible expenses 85,357 1,734 71,802 6,692 Over provision in prior year, net 87,091 (153) 78,494 (1,375) 86,938 77,119 605 251 Reconciliation of tax expense Profit before tax Tax recognised directly in equity: Fair value reserve (Note 11)
126. 123 Company No . 199401026871 (312552-W) 28. Earnings per share Basic earnings per share The calculation of basic earnings per share for the year ended 31 December 2020 was based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding, calculated as follows: Group and Bank 2020 2019 RM’000 RM’000 Profits attributable to ordinary shareholders 268,718 222,055 Weighted average number of ordinary shares - Issued ordinary shares during the year 173,599 173,599 Group and Bank 2020 2019 (sen) (sen) Basic earnings per share 154.8 127.9 Diluted earnings per share The Group and the Bank have no dilution in their earnings per ordinary share in the current financial year as the Group and the Bank do not have dilutive instruments.
127. 124 Company No . 199401026871 (312552-W) 29. Dividends Dividends recognised by the Bank: Sen per share 2020 Final 2019 ordinary Group and Bank Total Date of amount Payment RM’000 127.9 222,055 30 July 2020 115.7 200,898 18 July 2019 2019 Final 2018 ordinary After the end of the reporting period, the Directors recommended a final dividend of 154.8 sen per ordinary share totalling RM268,718,000 in respect of the financial year ended 31 December 2020. This dividend will be recognised in the subsequent financial year upon approval by the shareholders of the Bank.
128. 125 Company No . 199401026871 (312552-W) 30. Capital adequacy Group and Bank 2020 2019 RM’000 RM’000 Components of Tier 1 and Tier 2 capital are as follows: Tier 1 capital Paid-up share capital Other disclosed reserves Retained profits Less: Deferred tax assets 531,362 1,179 1,364,802 (23,262) 531,362 338 1,318,139 (29,697) Total common equity tier 1/Total tier 1 capital 1,874,081 1,820,142 6,325 45,000 5,266 45,000 1,925,406 1,870,408 22.914% 23.541% 19.423% 19.959% Tier 2 capital Expected credit losses (“ECL”)* Regulatory reserve Total capital base Common equity tier 1/Tier 1 capital ratio Total capital ratio * Refers to ECL for Stage 1 and Stage 2
129. 126 Company No . 199401026871 (312552-W) 30. Capital adequacy (continued) The capital adequacy ratios of the Group and of the Bank are computed in accordance with Bank Negara Malaysia’s Capital Adequacy Framework (Capital Components and Basel II – Risk-Weighted Assets) reissued on 2 February 2018. The Group and the Bank have adopted the Standardised Approach for Credit Risk and Market Risk, and the Basic Indicator Approach for Operational Risk. The minimum regulatory capital adequacy ratios before including capital conservation buffer and countercyclical capital buffer (“CCyB”) are 4.5% for CET1 Capital Ratio, 6.0% for Tier 1 Capital Ratio and 8.0% for Total Capital Ratio. The capital conservation buffer required to be maintained in the form of CET1 Capital above the minimum regulatory capital adequacy ratios requirement is at 2.5%. Effective from 25 March 2020, the Group and the Bank are allowed to drawdown the capital conservation buffer of 2.5% to manage the impact of the Covid-19 outbreak. However, Bank Negara Malaysia expects the Group and the Bank to rebuild this buffer after 31 December 2020 and to meet the minimum regulatory requirements by 30 September 2021. The CCyB which is in a range of between 0% and 2.5% is not a requirement for exposure in Malaysia yet but may be applied by regulators in the future. The breakdown of risk-weighted assets (“RWA”) by each major risk category is as follows: RISK TYPE 1 Credit risk 2 Market risk 3 Operational risk Total Risk-Weighted Assets 2020 RM’000 2019 RM’000 4,904,608 2,393,224 881,099 5,399,155 3,132,398 839,613 8,178,931 9,371,166
130. 127 Company No . 199401026871 (312552-W) 31. Commitments and contingencies The off-balance sheet exposures and their related counterparty credit risk of the Group and of the Bank are as follows: 2020 Group and Bank Principal Amount RM’000 Direct credit substitutes Transaction related contingent items 541,127 Short-term self liquidating trade related 158,020 contingencies Foreign exchange related contracts One year or less 13,364,383 Over one year to five years 1,803,531 Over five years Interest/profit rate related contracts One year or less 160,000 Over one year to five years 110,000 Over five years 27,063 Equity related contracts One year or less Over one year to five years Over five years Credit derivatives contract One year or less Over one year to five years Over five years OTC Derivative transactions and credit derivative contracts subject to valid bilateral netting agreements 75,537,697 Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 400,093 Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year 3,843,995 Any commitments that are unconditionally cancelled at any time by the Bank without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness Total 95,945,909 Credit RiskEquivalent Weighted Amount Assets RM’000 RM’000 270,564 250,292 31,604 31,098 300,944 169,311 - 280,853 155,339 - 1,402 4,234 1,624 628 2,280 1,624 - - - - 1,313,938 328,663 200,046 200,046 768,799 768,799 - - 3,062,466 2,019,622
131. 128 Company No . 199401026871 (312552-W) 31. Commitments and contingencies (continued) The off-balance sheet exposures and their related counterparty credit risk of the Group and of the Bank are as follows (continued): 2019 Group and Bank Principal Amount RM’000 Direct credit substitutes Transaction related contingent items 519,514 Short-term self liquidating trade related contingencies 75,372 Foreign exchange related contracts One year or less 13,110,350 Over one year to five years 1,705,634 Over five years 310,475 Interest/profit rate related contracts One year or less 230,127 Over one year to five years 270,000 Over five years 27,063 Equity related contracts One year or less Over one year to five years Over five years Credit derivatives contract One year or less Over one year to five years Over five years OTC Derivative transactions and credit derivative contracts subject to valid bilateral 69,441,961 netting agreements Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year 378,985 Other commitments, such as formal standby facilities and credit lines, with an original 2,894,240 maturity of up to one year Any commitments that are unconditionally cancelled at any time by the Bank without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness Total 88,963,721 Credit RiskEquivalent Weighted Amount Assets RM’000 RM’000 259,757 246,797 15,074 13,516 282,876 159,315 31,048 235,748 159,315 15,524 835 6,497 1,894 579 2,948 1,894 - - - - 1,290,467 352,371 189,492 189,492 578,848 578,848 - - 2,816,103 1,797,032
132. 129 Company No . 199401026871 (312552-W) 32. Capital management The wide variety of the Group’s businesses requires the Group to identify, measure, aggregate and allocate capital among the businesses appropriately. The Group manages capital through a framework of principles, organisational structures as well as measurement and monitoring processes that are closely aligned with the activities of group divisions. While the Group capital management continuously evolves and improves, there can be no assurance that all market developments, in particular those of extreme nature, can be fully anticipated at all times. The Group manages capital in a coordinated manner at all relevant levels within the organisation. This also holds true for complex products which the Group typically manages within the framework established for trading exposures. The structure of capital function is closely aligned with the structure of group divisions. The Bank’s regulatory capital is determined under Bank Negara Malaysia’s revised Risk-Weighted Capital Adequacy Framework. The Bank’s capital ratios complied with the minimum requirements set under this guideline. Information on the Group’s and the Bank’s capital adequacy ratios, regulatory minimum capital requirements and the components of capital base are disclosed in Note 30. 33. Risk management The Deutsche Bank Group (“DB Group”) has extensive risk management procedures and policies in place. The identification, monitoring and management of all risks within the DB Group are integrated into the DB Group-wide risk management processes in order to optimise the risk mitigating effort. Risk management procedures and policies are the responsibility of the DB Group Risk Committee and encompass all types of risk which includes market risk, credit risk and liquidity risk, as well as non-financial risks (including operational risk), and reputational risks. These risk areas are actively managed by dedicated divisions such as the Market & Valuation Risk Management Division, Credit Risk Management Division, Liquidity Risk Management Division and Non-Financial Risk Management Division.
133. 130 Company No . 199401026871 (312552-W) 33. Risk management (continued) Treasury is responsible for overall liquidity management of the Bank including managing day-to-day liquidity risk positions and ensuring they remain in line with the tolerance/risk appetite applied by Liquidity Risk Management Division. The Board regularly reviews reports from the respective regional divisions and is made aware of the risk exposure of the Bank and its ongoing management at each board meeting. Risk management The Group and the Bank has exposure to the following risks from its use of financial instruments: - Credit risk Liquidity risk Market risk Operational risk Credit risk Credit risk is the risk of any transactions giving rise to actual, contingent or potential claims against any counterparty, obligor or borrower, where the Group and the Bank bears the risk of loss if the counterparty, obligor or borrower defaults. Risk management objectives, policies and processes for managing the risk Policies for managing credit risk are determined by the DB Group Risk Committee, which also delegates credit authorities to independent Risk Officers. Divisional credit portfolio guidelines, credit strategies for the major industries, and product specific policies are the principal instruments to determine the Bank’s risk appetite, as well as the framework for the measurement and management of credit risk. Approval of credit limits and management of exposure takes place within the framework of portfolio guidelines and credit strategies.
134. 131 Company No . 199401026871 (312552-W) 33. Risk management (continued) Credit risk (continued) Exposure to credit risk, credit quality and collateral Principal exposures to credit risk in this regard are primarily represented by the carrying amounts of financial instruments and loans, advances and financing portfolios in the statements of financial position. The credit exposures arising from off-balance sheet activities have been disclosed in Note 31. (a) Credit quality of gross loans, advances and financing Group and Bank Stage 1 : 12-month ECL Stage 2 : Lifetime ECL not credit-impaired Stage 3 : Lifetime ECL credit-impaired Total 2020 2019 RM’000 RM’000 2,165,845 2,954,432 29,260 2,999 24,238 3,526 2,198,104 2,982,196 ECL Stage determination (i) Stage 2: Lifetime ECL not credit-impaired At initial recognition, loans which are not purchased or originated credit impaired (“POCI”) are reflected in Stage 1. If there is a significant increase in credit risk the loans are transferred to Stage 2. Significant increase in credit risk is determined by using rating related and process related indicators as discussed below: Rating-related indicators: Based on dynamic change in counterparty probability of default (“PD”) that is linked to all transactions with the counterparty, the lifetime PD at reporting date are compared to the expectations at the date of initial recognition. The loans would be considered as significantly deteriorated if for the remaining lifetime of the PD of a transaction given current expectations exceeds the PD of the relevant threshold rating.
135. 132 Company No . 199401026871 (312552-W) 33. Risk management (continued) Credit risk (continued) (a) Credit quality of gross loans, advances and financing (continued) ECL Stage determination (continued) (i) Stage 2: Lifetime ECL not credit-impaired (continued) Process-related indicators: Process-related indicators are derived using existing risk management indicators, which allow the Group and the Bank to identify whether the credit risk of the loans has significantly increased. Such indicators but not limited to: a) b) c) d) Obligors being added to a credit watch list; Obligors being transferred to workout status; Payments being 30 days or more overdue; or In forbearance On an ongoing basis, as long as the condition for one or more of the indicators is fulfilled and the loan is not recognised as defaulted, the loan will remain in Stage 2. If none of the indicator conditions is any longer fulfilled and the loan is not defaulted, the loan is transferred back to Stage 1. In case of default, the loan is allocated to Stage 3. (ii) Stage 3: Lifetime ECL credit-impaired Stage 3 is based on the status of the obligor being in default. Loans are deemed credit impaired and in Stage 3 when: − − The Group and the Bank consider the obligor is unlikely to pay its credit obligations to the Group and the Bank. Determination may include forbearance actions, where a concession has been granted to the borrower for economic or legal reasons that are qualitative indicators of credit impairment; or Contractual payments of either principal or interest by the obligor are past due by more than 90 days.
136. 133 Company No . 199401026871 (312552-W) 33. Risk management (continued) Credit risk (continued) (b) Fair value of collateral held against loans, advances and financing to customers and banks The Group and the Bank hold collateral against loans, advances and financing to customers in the form of mortgage interests over property and guarantees. Fair value of housing loans collaterals are assessed on yearly basis based on independent valuation. The fair value of property collateral held against outstanding loans, advances and financing to customers is as per below. Group and Bank 2020 2019 RM’000 RM’000 Against stage 1 : 12-month ECL Against stage 2 : Lifetime ECL not credit-impaired Against stage 3 : Lifetime ECL credit-impaired 17,230 6,698 11,651 14,499 8,445 13,039 35,579 35,983
137. 134 Company No . 199401026871 (312552-W) 33. Risk management (continued) Credit risk (continued) (c) Credit quality of financial securities Set out below is the credit quality of assets analysed by external rating of the counterparties. Equity Debt securities Debt securities investments at Group and Bank at FVTPL at FVOCI FVOCI RM’000 RM’000 RM’000 2020 Domestic Rating AAA+ to AA199,982 200,000 100 A+ to A1,038,771 833,330 Unrated 1,491 1,238,753 Group and Bank 2019 Domestic Rating AAA+ to AAA+ to AUnrated 1,033,330 1,591 Equity Debt securities Debt securities investments at at FVTPL at FVOCI FVOCI RM’000 RM’000 RM’000 385,071 787,090 - 293,612 - 100 1,491 1,172,161 293,612 1,591 (d) Fair value of collateral held against derivative assets The Group and the Bank hold collateral against derivative assets to banks and financial institutions counterparties in the form of cash of RM503,675,520(2019: RM420,477,482) as at the reporting date. Market risk Market risk arises from the uncertainty concerning changes in market prices and rates (including interest rates, foreign exchange rates and equity prices, commodity rates and other market risks), the correlations among them and their levels of volatility.
138. 135 Company No . 199401026871 (312552-W) 33. Risk management (continued) Market risk (continued) Risk management objectives, policies and processes for managing the risk Deutsche Bank Group entities, including the Group and the Bank, use a combination of risk sensitivities, Value-at-Risk (“VaR”), sensitivities and stress testing metrics to manage market risks and establish limits. Steered by the DB Group Risk Committee, the Market & Valuation Risk Management team (MVRM), which is part of the DB Group’s independent risk management function, is responsible for managing the market risk of the Bank. Limits, set commensurate to the risk appetite in terms of VaR, are communicated to the appropriate personnel along with the limit structure for each business division. The majority of the interest rate risk arising from non-trading asset and liability positions is transferred through internal hedges to Treasury and is thus managed on the basis of Banking Book Value-at-Risk. A summary of the VaR position of the Bank’s portfolios is as follows: Jan – Sept 2020* Group and Bank At 30 September RM’000 Average RM’000 Maximum RM’000 Minimum RM’000 2020 Interest Rate Risk: Market Risk Specific Risk Foreign Exchange Risk Commodity Risk Equity Risk 3,960 5 1,140 - 4,913 9 2,320 - 8,190 17 5,241 - 2,585 2 578 - Total VaR 4,198 5,572 8,847 3,255 Average RM’000 Maximum RM’000 Minimum RM’000 3,334 6,819 8,607 2,186 347 3,895 6,486 5,221 1,027 189 5,631 11,267 8,607 2,712 601 1,954 2,227 526 448 37 13,073 9,765 14,722 3,437 Oct – Dec 2020* Group and Bank 2020 Interest Rate Risk Credit Risk Foreign Exchange Risk Equity Risk Residual Risk Total VaR At 31 December RM’000 *Effective from October 2020, DB Group has changed the methodology from Monte Carlo simulation to Historical simulation .
139. 136 Company No . 199401026871 (312552-W) 33. Risk management (continued) Market risk (continued) Group and Bank At 31 December RM’000 Average RM’000 Maximum RM’000 Minimum RM’000 2019 Interest Rate Risk: Market Risk Specific Risk Foreign Exchange Risk Commodity Risk Equity Risk 3,069 8 4,186 - 2,744 16 2,224 526 151 5,298 86 6,666 2,036 919 1,257 2 132 - Total VaR 5,062 3,771 7,344 1,529
140. 137 Company No . 199401026871 (312552-W) 33. Risk management (continued) Market risk (continued) Value-at-Risk (“VaR”) VaR is a quantitative measure of the potential loss due to market movements, that will not be exceeded in a defined period of time, and with a defined confidence level. The Bank adopts the DB Group’s internal VaR model, which is based on Historical Simulation technique. VaR is calculated using a 99% confidence level and a one day holding period. One year of historical market data is used as input to calculate VaR. Risks not in value-at-risk are monitored and assessed on a regular basis through our Risk Not In VaR (“RNIV”) framework. Stressed Value-at-Risk (“SVaR”) calculates a VaR based on a historical one year period of significant market stress. DB Group’s internal VaR model: VaR SVaR Methodology Historical Simulation Historical Simulation Holding Period 1-day 1-day Confidence Level 99% 99% Trade Window Most recent one year period One year period of significant market stress (high levels of volatility in the top value-atrisk contributors) DB Group regularly reviews and validates its VaR model. The main limitations of the VaR framework are as follows: (a) Not all risks can be incorporated into the main VaR model. This limitation is remediated by the RNIV framework. (b) Where idiosyncratic and general market risk components of risk factors are modelled separately, the revaluation for the idiosyncratic component is always Sensitivity – based, but the general component may be either Sensitivity or Full reval – based. (c) Aggregation of general and (modelled) specific risk is based on VaR aggregation. (d) Risk-P&Ls are based on sensitivities for some books and Full revaluation for others depending on Full revaluation onboarding status. (e) Hist sim VaR is based on 1 year of daily P&L estimates. The VaR 99% quantile does not correspond directly to a P&L observation but has to be interpolated. (f) In case historical data does not exist, proxies may be used.
141. 138 Company No . 199401026871 (312552-W) 33. Risk management (continued) Liquidity risk Liquidity risk is the risk to a bank’s earnings and capital arising from the inability to timely meet obligations when they come due without incurring unacceptable losses. Risk management objectives, policies and processes for managing the risk The objective of the Liquidity Management (“LM”) function is to ensure that the Bank can fulfill its payment obligations at all times at reasonable cost, without affecting daily operations of the Bank. All relevant and significant drivers of liquidity risk, onbalance sheet as well as off-balance sheet, are taken into account. Prices of all asset and liability types reflect their liquidity risk characteristics and the Bank’s cost of funding. Liquidity Risk Management(“LRM”) is a governance function which does not report to any business division and which adheres to the rules and regulations issued by BNM, in addition to the Basel Committee on Banking Supervision Principles for Sound Liquidity Risk Management and Supervision, the German Minimum Requirements for Risk Management (“MaRisk”) as well as the upcoming regulatory requirements on liquidity risk under Basel III and Capital Requirements Regulation (“CRR”). Liquidity risk is managed through the Asset and Liability Committee (“ALCO”). This committee, chaired by the Treasurer, is responsible for both statutory and prudential liquidity management of the Bank including the approval of liquidity risk limits which are in line with the tolerance/risk appetite applied by LRM. Decisions made by the ALCO for the Bank are submitted to the Board Risk Management Committee and Board of Directors for notification and for approval where necessary. Liquidity risk is monitored through local liquidity regulations issued by Bank Negara Malaysia, such as Liquidity Coverage Ratio, Net Stable Funding Ratio, and an array of internal liquidity risk limits including Stressed Net Liquidity Position, Customer Concentration Ratio, Funding Matrix, etc. The Bank’s stress testing process is established to reflects the Bank’s business-specific and market systemic liquidity risk, of which the stress assumptions and prudently formulated and embedded in the daily risk reporting. Stress testing result is monitored on a daily basis, reported to the ALCO via weekly liquidity dashboard and at its regular meetings.
142. 139 Company No . 199401026871 (312552-W) 33. Risk management (continued) Liquidity risk (continued) (a) Maturity analysis of financial assets and financial liabilities based on remaining contractual maturity The following tables present the maturity analysis for financial assets and financial liabilities as at 31 December 2020 and 31 December 2019: Group 2020 Up to 30 days RM’000 > 30 days - 6 Months RM’000 > 6-12 Months RM’000 > 1 Year RM’000 Total RM’000 Assets Cash and short-term funds 3,813,279 Deposits and placements with banks and other financial institutions 1,339,991 Reverse repurchase agreements 112,446 Financial securities 299,995 Loans, advances and financing 923,256 Derivative assets 207,947 Other assets (excluding prepayments) 147,211 Statutory deposit with Bank Negara Malaysia 20,000 - - - 3,813,279 395,620 939,767 271,770 199 - 246,015 182,708 131,244 3,441 - 1,332,044 144,290 772,588 23,632 - 1,339,991 112,446 2,273,674 2,190,021 1,383,549 174,483 20,000 6,864,125 1,607,356 563,408 2,272,554 11,307,443 Deposits from customers 5,833,481 Deposits and placements of banks and other financial institutions 815,211 Derivative liabilities 287,537 Other liabilities (excluding provisions and accruals) 684,647 412,509 910 158,354 6,405,254 293,441 168 84,289 6 722,215 1 815,211 1,387,482 684,822 Total liabilities 706,118 85,205 880,570 9,292,769 Total assets Liabilities 7,620,876
143. 140 Company No . 199401026871 (312552-W) 33. Risk management (continued) Liquidity risk (continued) (a) Maturity analysis of financial assets and financial liabilities based on remaining contractual maturity (continued) Group 2019 Up to 30 days RM’000 > 30 days - 6 Months RM’000 > 6-12 Months RM’000 > 1 Year RM’000 Total RM’000 Assets Cash and short-term funds 3,749,550 Deposits and placements with banks and other financial institutions 199,993 Reverse repurchase agreements 152,909 Financial securities 90,008 Loans, advances and financing 857,199 Derivative assets 59,483 Other assets (excluding prepayments) 240,123 Statutory deposit with Bank Negara Malaysia 10,000 - - - 3,749,550 309,095 892,863 173,588 849 - 114,738 584,243 101,493 231 - 247,398 953,523 640,678 549,829 28,923 - 199,993 400,307 1,467,364 2,974,983 884,393 270,126 10,000 5,359,265 1,376,395 800,705 2,420,351 9,956,716 Deposits from customers 5,167,581 Deposits and placements of banks and other financial institutions 1,043,684 Derivative liabilities (excluding provisions and accruals) 279,008 Other liabilities 518,531 21,350 1,470 141,372 5,331,773 205,444 41,500 55 25,438 8 512,112 - 1,249,128 858,058 518,594 Total liabilities 268,349 26,916 653,484 7,957,553 Total assets Liabilities 7,008,804 The above disclosure also apply for the Bank except that included in the deposits from customers is RM20,000 (2019: RM20,000) cash consolidated from the subsidiaries with remaining contractual maturity of up to 30 days.
144. 141 Company No . 199401026871 (312552-W) 33. Risk management (continued) Liquidity risk (continued) (b) Maturity analysis of financial liabilities on an undiscounted basis The following tables show the contractual undiscounted cash flows payable for financial liabilities by remaining contractual maturity. The financial liabilities in the tables below will not agree to the carrying amounts reported in the statements of financial position as the tables incorporate all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments. Group 2020 Deposits from customers Deposits and placements of banks and other financial institutions Up to 30 days RM’000 > 30 days - 6 Months RM’000 > 6-12 Months RM’000 > 1 Year RM’000 Total RM’000 5,833,633 412,828 921 188,124 6,435,506 815,303 - - - 815,303 Derivative liabilities 310,603 381,212 193,319 632,239 1,517,373 Other liabilities (excluding provisions and accruals) 684,647 168 6 1 684,822 7,644,186 794,208 194,246 820,364 9,453,004 Transaction related contingent items 10,328 220,763 170,042 139,994 541,127 Short-term self liquidating trade related contingencies 18,180 120,819 19,021 - 158,020 Total commitment and contingencies 28,508 341,582 189,063 139,994 699,147 Total liabilities
145. 142 Company No . 199401026871 (312552-W) 33. Risk management (continued) Liquidity risk (continued) (b) Maturity analysis of financial liabilities on an undiscounted basis (continued) Group 2019 Up to 30 days RM’000 > 30 days - 6 Months RM’000 > 6-12 Months RM’000 > 1 Year RM’000 Total RM’000 Deposits from customers 5,167,635 21,401 1,491 173,829 5,364,356 Deposits and placements of banks and other financial institutions Derivative liabilities 1,044,022 205,512 - - 1,249,534 286,726 73,823 58,389 388,346 807,284 516,374 55 8 - 516,437 7,014,757 300,791 59,888 562,175 7,937,611 Transaction related contingent items 25,925 134,352 173,466 185,771 519,514 Short-term self liquidating trade related contingencies 55,396 19,976 - - 75,372 Total commitment and contingencies 81,321 154,328 173,466 185,771 594,886 Other liabilities (excluding provisions and accruals) Total liabilities The above disclosure also apply for the Bank except that included in the deposits from customers is RM20,000 (2019: RM20,000) cash consolidated from the subsidiaries with remaining contractual maturity of up to 30 days. Other commitments of RM4,244,088,000(2019: RM3,273,225,000) consist of formal standby facilities and credit lines granted to customers by the Group and the Bank which remain undrawn as at the end of the reporting period, and are subject to drawdown on demand by customers.
146. 143 Company No . 199401026871 (312552-W) 33. Risk management (continued) Operational Risk Operational Risk Management Framework (“ORMF”) Operational risk means the risk of loss stemming from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal risks, but excludes business and reputational risk and is embedded in all banking products and activities. Operational risk forms a subset of the Bank’s Non-Financial Risks(NFR). Deutsche Bank’s Operational Risk appetite sets out the amount of Operational Risk we are willing to accept as a consequence of doing business. We take on operational risks consciously, both strategically as well as in day-to-day business. While the Bank may have no appetite for certain types of Operational Risk events (such as serious violations of laws or regulations and misconduct), in other cases a certain amount of Operational Risk must be accepted if the Bank is to achieve its business objectives. In case a residual risk is assessed to be outside our risk appetite, risk reducing actions must be undertaken including remediating the risks, insuring risks or ceasing business. The ORMF is a set of interrelated tools and processes that are used to identify, assess, measure, monitor and remediate the Bank’s operational risks. Its components have been designed to operate together to provide a comprehensive approach to managing the Bank’s most material operational risks. ORMF components include the Bank’s approach to setting and adhering to Operational Risk appetite, the Operational Risk type and control taxonomies, the minimum standards for Operational Risk management processes including tools and the Bank’s Operational Risk capital model. The governance of our operational risks follows the Bank’s Three Lines of Defence (“3LoD”) approach to managing all of its financial and non-financial risks. The ORMF establishes the Operational Risk governance standards including the core 1st and 2nd LoD roles and their responsibilities, to ensure effective risk management and appropriate independent challenge: Operational risk governance standard for the first line of defence (“1st LoD”): Risk owners as the 1st LoD have full accountability for their operational risks and manage these against a defined risk specific appetite. Risk owners are those roles in the Bank whose (business) activities generate risks. As heads of business divisions and infrastructure functions, they must determine the appropriate organisational structure to identify their organisations’ operational risk profile, implement risk management and control standards within their organisation, take business decisions on the mitigation or acceptance of operational risks to ensure they remain within risk appetite and establish and maintain 1st LoD controls.
147. 144 Company No . 199401026871 (312552-W) 33. Risk management (continued) Operational Risk (continued) Operational Risk Management Framework (continued) Operational risk governance standard for the second line of defence (“2nd LoD”): Risk Type Controllers (“RTCs”) act as the 2nd LoD control functions for all sub-risk types under the overarching risk type “operational risk”. RTCs establish the framework and define risk appetite statements for the specific operational risk type they oversee. RTCs define the fundamental risk management and control standards and independently oversee and challenge risk owners’ implementation of these standards in their day-to-day processes, as well as their risktaking and management activities. RTCs establish independent operational risk governance and prepare aggregated risk type profile reporting. RTCs monitor the risk type’s profile against risk appetite and exercise a veto on risk decision leading to foreseeable risk appetite breaches. As risk type experts, RTCs define the risk type and its taxonomy and support and facilitate the implementation of risk type framework in the 1st LoD. To maintain their independence, RTC roles are located only in infrastructure functions. Operational risk governance standard for Non-Financial Risk Management (“NFRM”) as the RTC for the overarching risk type operational risk: As they RTC/ risk control function for operational risk, NFRM establishes and maintains the overarching ORMF and determines the appropriate level of capital to underpin the Bank’s operational risk. — As the 2nd LoD risk control function, NFRM defines the Bank’s approach to operational risk appetite and monitors its adherence, breaches and consequences. NFRM is the independent reviewer and challenger of the 1st LoD’s risk and control assessments and risk management activities. NFRM provides the oversight of risk and control mitigation plans to return the Bank’s operational risk to its risk appetite where required. It also establishes and regularly reports the Bank’s operational risk profile and operational top risks. — As the subject matter expert for operational risk, NFRM provides independent risk views to facilitate forward-looking management of operational risks, actively engages with risk owners (1st LoD) and facilitates the implementation of risk management and control standards across the Bank. — NFRM is accountable for the design, implementation and maintenance of the approach to determine the adequate level of capital required for operational risk, for recommendation to the Management Board. This includes the calculation and allocation of operational risk capital demand and expected loss under the Advanced Measurement Approach (“AMA”).
148. 145 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities 34.1 Categories of financial instruments The table below provides an analysis of financial instruments categorised as follows: (a) (b) (c) Fair value through profit or loss (“FVTPL”); Amortised cost (“AC”); and Fair value through other comprehensive income (“FVOCI”) − Debt securities − Equity investments Group 2020 Financial assets Cash and short-term funds Deposits and placements with banks and other financial institutions Reverse repurchase agreements Financial securities Loans, advances and financing Derivative assets (Note 34.3) Statutory deposit with Bank Negara Malaysia Other assets (excluding prepayments) Carrying amount RM’000 FVOCIFVOCIDebt Equity FVTPL securities investments RM’000 RM’000 RM’000 AC RM’000 3,813,279 3,813,279 - - - 1,339,991 1,339,991 - - - 112,446 2,273,674 112,446 - 1,238,753 1,033,330 2,190,021 2,190,021 1,383,549 - 1,383,549 - - 20,000 20,000 - - 174,483 174,483 - - 11,307,443 7,537,774 2,734,748 1,033,330 Financial liabilities Deposits from customers Deposits and placements of banks and other financial institutions Derivative liabilities (Note 34.3) Other liabilities (excluding provisions and accruals) 6,405,254 6,405,254 1,591 1,591 - - - 815,211 - 1,387,482 - - 684,822 - - 9,292,769 7,905,287 1,387,482 - 815,211 1,387,482 684,822 -
149. 146 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.1 Categories of financial instruments (continued) Group 2019 Financial assets Cash and short-term funds Deposits and placements with banks and other financial institutions Reverse repurchase agreements Financial securities Loans, advances and financing Derivative assets (Note 34.3) Statutory deposit with Bank Negara Malaysia Other assets (excluding prepayments) Carrying amount RM’000 FVOCIFVOCIDebt Equity FVTPL securities investments RM’000 RM’000 RM’000 AC RM’000 3,749,550 3,749,550 199,993 400,307 1,467,364 - - - - - - 400,307 - 1,172,161 293,612 1,591 199,993 2,974,983 2,974,983 884,393 - 884,393 - - 10,000 10,000 - - 270,126 270,126 - - 9,956,716 7,204,652 2,456,861 293,612 Financial liabilities Deposits from customers 5,331,773 5,331,773 Deposits and placements of banks and other financial institutions 1,249,128 1,249,128 Derivative liabilities (Note 34.3) 858,058 Other liabilities (excluding provisions and accruals) 518,594 518,594 7,957,553 7,099,495 1,591 - - - 858,058 - - - - 858,058 - -
150. 147 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.1 Categories of financial instruments (continued) The above disclosure is also applicable for the Bank level except that included in the deposits from customers is RM20,000 (2019: RM20,000) cash consolidated from the subsidiaries. 34.2 Determination of fair value and the fair value hierarchy MFRS 13, Fair Value Measurement requires each class of assets and liabilities measured at fair value in the statements of financial position after initial recognition to be categorised according to hierarchy that reflects the significance of inputs used in making the measurements, in particular, whether the inputs used are observable or unobservable as discussed in Note 2(c)(vi).
151. 148 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.2 Determination of fair value and the fair value hierarchy (continued) 34.2.1 Financial instruments carried at fair value The following table shows the Group’s and the Bank’s financial instruments which are measured at fair value at the reporting date analysed by the various level within the fair value hierarchy: Group and Bank 2020 Financial assets Reverse repurchase agreements Financial securities Derivative assets Level 1 RM’000 Level 2 RM’000 Level 3 RM’000 - 112,446 2,272,083 1,328,619 1,591 54,930 - 3,713,148 56,521 Financial liabilities Derivative liabilities - (1,372,277) (15,205) 2019 Financial assets Reverse repurchase agreements Financial securities Derivative assets - 400,307 1,465,773 852,142 1,591 32,251 - 2,718,222 33,842 Financial liabilities Derivative liabilities - (854,331) (3,727)
152. 149 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.2 Determination of fair value and the fair value hierarchy (continued) 34.2.1 Financial instruments carried at fair value (continued) The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy: Group and Bank 2020 2019 RM’000 RM’000 Financial assets Balance at 1 January Total gain recognised in profit or loss: - Settlements - Attributable to gain/(losses) recognised relating to financial assets that have not been realised 32,532 30,999 Balance at 31 December 56,521 33,842 (3,727) (3,172) 33,842 (9,853) 21,475 (18,632) Financial liabilities Balance at 1 January Total gain recognised in profit or loss: - Settlements - Attributable to losses recognised relating to financial liabilities that have not been realised (12,071) (2,058) Balance at 31 December (15,205) (3,727) 593 1,503 The unrealised gains/(losses) have been recognised net within noninterest income in profit or loss as shown in Note 20.
153. 150 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.2 Determination of fair value and the fair value hierarchy (continued) 34.2.2 Financial instruments not carried at fair value In respect of cash and short-term funds, other assets (excluding derivatives), statutory deposit with Bank Negara Malaysia, deposit with banks and other financial institutions, deposits and placements of banks and other financial institutions and other liabilities (excluding derivatives), the carrying amounts in the statements of financial position approximate their fair values due to the relatively shortterm/on demand nature of these financial instruments. The fair values of other financial assets/liabilities, together with the carrying amounts shown in the statements of financial position, are as follows: Group 2020 Financial assets Loans, advances and financing Carrying value RM’000 Fair value RM’000 2,190,021 2,189,041 Financial liabilities Deposits from customers 6,405,254 6,394,696 2019 Financial assets Loans, advances and financing 2,974,983 2,974,375 Financial liabilities Deposits from customers 5,331,773 5,335,701
154. 151 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.2 Determination of fair value and the fair value hierarchy (continued) 34.2.2 Financial instruments not carried at fair value (continued) The disclosure also applies for the Bank except that included in the deposits from customers is RM20,000 (2019: RM20,000) cash consolidated from the subsidiaries. (a) Loans, advances and financing The fair values of fixed rate loans with remaining maturity of less than one year and variable rate loans are estimated to approximate their carrying values. For fixed rate loans with maturities of more than one year, the fair values are estimated based on expected future cash flows of contractual instalment payments and discounted at prevailing rates at reporting date offered for similar loans. In respect of impaired loans, the fair values are deemed to approximate the carrying values, net of individual assessment allowance for impaired debts and financing. (b) Deposits from customers The fair values for deposit liabilities payable on demand (demand and savings deposits) or with remaining maturities of less than one year are estimated to approximate their carrying values at reporting date. The fair values of fixed deposits with remaining maturities of more than one year are estimated based on discounted cash flows using rates currently offered for deposits of similar remaining maturities. The fair value of loans, advances and financing and deposits from customers shown above are classified under Level 3 within the fair value hierarchy disclosure in accordance to MFRS 7.
155. 152 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.3 Derivative financial instruments The following table shows the notional and market values of the derivatives financial instruments as at 31 December 2020 and 31 December 2019: Notional RM’000 Group and Bank Positive Negative market market value value RM’000 RM’000 2020 Foreign exchange related contracts Forward exchange trades Cross currency swaps Foreign exchange options 47,834,316 9,236,202 1,083,667 515,754 333,040 21,128 (590,497) (369,431) - Interest/Profit rate related contracts Swaptions Interest rate swaps 346,519 32,501,970 1,003 512,624 (1,482) (426,072) 91,002,674 1,383,549 (1,387,482) 2019 Foreign exchange related contracts Forward exchange trades Cross currency swaps Foreign exchange options 36,651,394 9,858,540 991,637 223,823 446,181 10,169 (274,271) (398,581) (758) Interest/Profit rate related contracts Swaptions Interest rate swaps 245,119 37,348,920 13,499 190,721 (184,448) 85,095,610 884,393 (858,058)
156. 153 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.4 Offsetting of financial assets and financial liabilities Financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements are as follows: Group and Bank 2020 Amount not offset in the statements of financial position Value of Gross amount Gross amount Amount financial recognised in offset in the presented in instruments Collateral the statements statements the statements subject to of financial of financial received/ of financial netting position position position arrangement pledged* RM’000 RM’000 RM’000 RM’000 RM’000 Financial assets Derivative financial assets - Foreign exchange related contracts - Interest/Profit rate related contracts Reverse repurchase agreements Financial liabilities Derivative financial liabilities - Foreign exchange related contracts - Interest/Profit rate related contracts * Include securities accepted as collateral Net amount RM’000 869,922 513,627 - 869,922 513,627 (434,463) (267,254) (476,866) (250,098) (41,407) (3,725) 1,383,549 - 1,383,549 (701,717) (726,964) (45,132) 112,446 - 112,446 (116,005) (3,559) 1,495,995 - 1,495,995 (701,717) (842,969) (48,691) 959,928 427,554 - 959,928 427,554 (434,463) (267,254) (173,884) (159,454) 351,581 846 1,387,482 - 1,387,482 (701,717) (333,338) 352,427 -
157. 154 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.4 Offsetting of financial assets and financial liabilities (continued) Financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements are as follows: Group and Bank 2019 Amount not offset in the statements of financial position Value of Gross amount Gross amount Amount financial recognised in offset in the presented in instruments Collateral the statements statements the statements subject to of financial of financial received/ of financial netting position position position arrangement pledged* RM’000 RM’000 RM’000 RM’000 RM’000 Financial assets Derivative financial assets - Foreign exchange related contracts - Interest/Profit rate related contracts Net amount RM’000 680,173 204,220 - 680,173 204,220 (280,234) (120,311) (313,237) (114,122) 86,702 (30,213) 884,393 - 884,393 (400,545) (427,359) 56,489 400,307 - 400,307 (411,163) (10,856) 1,284,700 - 1,284,700 (400,545) (838,522) 45,633 673,610 184,448 - 673,610 184,448 (280,234) (120,311) (144,494) (70,291) 248,882 (6,154) 858,058 - 858,058 (400,545) (214,785) 242,728 Reverse repurchase agreements Financial liabilities Derivative financial liabilities - Foreign exchange related contracts - Interest/Profit rate related contracts * Include securities accepted as collateral -
158. 155 Company No . 199401026871 (312552-W) 34. Financial assets and liabilities (continued) 34.4 Offsetting of financial assets and financial liabilities (continued) Financial assets and financial liabilities are offset and the net amount is reported in the statements of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Derivatives and reverse repurchase agreements included in the amount not set-off in the statements of financial position relate to transactions where: (i) the counterparty has an offsetting exposure with the Group and the Bank and a master netting or similar arrangements is in place with a right to set-off only in the event of default, insolvency or bankruptcy; and (ii) cash and securities are received or cash pledged in respect of the transaction described above.
159. 156 Company No . 199401026871 (312552-W) 35. Share-Based Compensation Plans The Group made grants of share-based compensation under the DB Equity Plan. This plan represents a contingent right to receive Deutsche Bank common shares after a specified period of time. The award recipient is not entitled to receive dividends during the vesting period of the award. The share awards granted under the terms and conditions of the DB Equity Plan may be forfeited fully or partly if the recipient voluntarily terminates employment before the end of the relevant vesting period (or release period for Upfront Awards). Vesting usually continues after termination of employment in cases such as redundancy or retirement. In countries where legal or other restrictions hinder the delivery of shares, a cash plan variant of the DB Equity Plan was used for granting awards, and for employees of certain legal entities, deferred equity is replaced with restricted shares due to local regulatory requirements. Please note that this table does not cover awards granted to the Management Board. The following table sets forth the basic terms of these share plans: Grant year(s) Deutsche Bank Equity Plan Vesting schedule Eligibility 2019-2020 Annual Award 1/4: 12 months1 1/4: 24 months1 1/4: 36 months1 1/4: 48 months1 1/3: 12 months1 1/3: 24 months1 1/3: 36 months1 Select employees as annual performance-based compensation (CB/IB/CRU)2 Select employees as annual performance-based compensation (non-CB/IB/CRU)2 1/5: 12 months1 1/5: 24 months1 1/5: 36 months1 1/5: 48 months1 1/5: 60 months1 Individual specification Select employees as annual performance-based compensation (Senior Management) Annual Award Annual Award Retention/New Hire 2017 -2018 Annual Award – Upfront Annual Award Retention/New Hire Key Retention Plan (KRP)4 2016 1 2 3 4 5 Key Position Award (KPA)5 Vesting immediately at grant3 1/4: 12 months1 1/4: 24 months1 1/4: 36 months1 1/4: 48 months1 Or cliff vesting after 54 months1 Individual specification 1/2: 50 months3 1/2: 62 months3 Cliff vesting after 43 months Cliff-vesting after 4 years3 Select employees to attract and retain the best talent Regulated employees Select employees as annual performance-based compensation Members of Senior Leadership Cadre Select employees to attract and retain the best talent Material Risk Takers (MRTs) Non-Material Risk Takers (non-MRTs) Select employees as annual retention For InstVV-regulated employees (and Senior Management) a further retention period of twelve months applies (six months for awards granted from 2017 -2018). For grant year 2019 divisions were called CIB, for grant year 2020 CIB is split into CB/IB/CRU. Share delivery takes place after a further retention period of twelve months. Equity-based awards granted under this plan in January 2017 were subject to an additional share price condition and were forfeited as a result of this condition not being met. A predefined proportion of the individual’s KPA was subject to an additional share price condition and was forfeited as a result of this condition not being met.
160. 157 Company No . 199401026871 (312552-W) 35. Share-Based Compensation Plans (continued) Furthermore, the Group offers a broad-based employee share ownership plan entitled Global Share Purchase Plan (“GSPP”). The GSPP offers employees in specific countries the opportunity to purchase Deutsche Bank shares in monthly installments over one year. At the end of the purchase cycle, the bank matches the acquired stock in a ratio of one to one up to a maximum of ten free shares, provided that the employee remains at Deutsche Bank Group for another year. In total, 6 staff enrolled in the twelfth cycle that began in November 2020. The Group has other local share-based compensation plans, none of which, individually or in the aggregate, are material to the consolidated financial statements. The following table sets out the movements in share award units, including grants under the cash plan variant of the DB Equity Plan. Share units (in thousands) 2020 2019 Balance outstanding as of January 01 Granted Released Forfeited Other movements Balance outstanding as of December 31 151 50 (46) (58) 0 97 101 75 (21) (4) 0 151 The DB Equity Plan includes awards with share price hurdles under both the Key Position Award and the Key Retention Plan. The share price hurdle condition for both plans was measured during 2020 and was not met. As a result approximately 58 thousand share units were forfeited. In accordance with IFRS 2 the forfeiture due to a market performance condition did not result in a reversal to the recorded expense. The following table sets out key information regarding awards granted, released and remaining in the year. 2020 DB Equity Plan Weighted average fair value per award granted in year Weighted average share price at release in year Weighted average remaining contractual life in years € 7.45 € 7.63 1 2019 Weighted average fair value per award granted in the year Weighted average share price at release in year Weighted average remaining contractual life in years € 7.30 € 7.76 2 The grant volume of outstanding share awards was approximately RM3.48 million and RM5.89 million as of December 31, 2020 and 2019 respectively. Thereof, approximately RM2.48 million and RM4.7 million respectively had been recognized as compensation expense in the reporting year or prior to that. Hence, compensation expense for deferred share-based compensation not yet recognized amounted to approximately RM0.99 million and RM1.19 million as of December 31, 2020 and 2019 respectively.
161. 158 Company No . 199401026871 (312552-W) 35. Share-Based Compensation Plans (continued) The following table presents a breakdown of specific expenses according to the requirements of IAS 19 and IFRS 2. in MYR m. Expenses for share-based payments: Expenses for share-based payments, equity settled1 Expenses for share-based payments, cash settled1 Expenses for cash retention plans1 1 2020 2019 2018 3.5 0.0 2.4 5.3 0.0 0.6 3.3 0.0 2.3 Including expenses for new hire awards and the acceleration of expenses not yet amortized due to the discontinuation of employment including those amounts which are recognized as part of the Group’s restructuring expenses. Compensation expense for awards classified as equity instruments is measured at the grant date based on the fair value of the share-based award. For share awards, the fair value is the quoted market price of the share reduced by the present value of the expected dividends that will not be received by the employee and adjusted for the effect, if any, of restrictions beyond the vesting date. In case an award is modified such that its fair value immediately after modification exceeds its fair value immediately prior to modification, a remeasurement takes place and the resulting increase in fair value is recognized as additional compensation expense. The Group and the Bank record the offsetting amount to the recognized compensation expense in additional paid-in capital (“APIC”). Compensation expense is recorded on a straight-line basis over the period in which employees perform services to which the awards relate or over the period of the tranches for those awards delivered in tranches. Estimates of expected forfeitures are periodically adjusted in the event of actual forfeitures or for changes in expectations. The timing of expense recognition relating to grants which, due to early retirement provisions, include a nominal but non-substantive service period are accelerated by shortening the amortization period of the expense from the grant date to the date when the employee meets the eligibility criteria for the award, and not the vesting date. For awards that are delivered in tranches, each tranche is considered a separate award and amortized separately. Compensation expense for share-based awards payable in cash is remeasured to fair value at each balance sheet date and recognized over the vesting period in which the related employee services are rendered. The related obligations are included in other liabilities until paid.
162. 159 Company No . 199401026871 (312552-W) 36 Comparative Figures Certain amounts in the comparative financial statements and notes disclosures have been reclassified to conform with the current year's presentation. The reclassification is as follows: Statement of financial position Previously Stated RM’000 Reclassification Restated RM’000 RM’000 01 January 2019 Derivative assets Other assets 1,283,639 890,488 (890,488) 890,488 393,151 Derivative liabilities Other liabilites 1,740,204 854,986 (854,986) 854,986 885,218 31 December 2019 Derivative assets Other assets 1,240,510 884,393 (884,393) 884,393 356,117 Derivative liabilities Other liabilites 1,606,056 858,058 (858,058) 858,058 747,998
163. 160 Company No . 199401026871 (312552-W) 37 The operations of Islamic Banking Statement of financial position as at 31 December 2020 Note Assets Cash and short-term funds Financial securities Other assets (a) (b) 2020 RM’000 2019 RM’000 57,147 20,560 85 56,000 20,010 66 77,792 76,076 41,045 1,188 483 35,196 5,192 613 Total liabilities 42,716 41,001 Capital funds Retained earnings 25,000 10,076 25,000 10,075 Islamic Banking funds 35,076 35,075 Total liabilities and Islamic Banking funds 77,792 76,076 - - Total assets Liabilities and Islamic Banking funds Deposits from customers Other liabilities Tax payable Commitments and contingencies (c) (d) The notes on pages 164 to 166 are an integral part of these financial statements.
164. 161 Company No . 199401026871 (312552-W) 37. The operations of Islamic Banking (continued) Statement of profit or loss and other comprehensive income for the year ended 31 December 2020 Income derived from investment of Islamic funds Total net income Other operating expenses Operating profit Allowance written back/(made)for impairment Profit before tax Taxation Profit for the year 2020 RM’000 2,198 2019 RM’000 2,759 2,198 2,759 (193) 2,005 6 2,011 (483) 1,528 (194) 2,565 (12) 2,553 (613) 1,940 Other comprehensive income: Items that are or may be reclassified subsequently to profit or loss Movement in fair value reserve (debt securities): Net change in fair value Net amount transferred to profit or loss 549 (6) 13 12 Income tax effect relating to component of other comprehensive income Other comprehensive income for the year Total comprehensive income for the year (130) (6) 413 19 1,941 1,959 The notes on pages 164 to 166 are an integral part of these financial statements.
165. 162 Company No . 199401026871 (312552-W) 37 . The operations of Islamic Banking (continued) Statement of changes in Islamic Banking funds for the year ended 31 December 2020 Capital funds RM’000 At 1 January 2019 Other reserve RM’000 Retained profits RM’000 Total RM’000 25,000 - 10,643 1,940 35,643 1,940 - 19 - 19 - 19 - 1,940 (2,527) 1,959 (2,527) At 31 December 2019/1 January 2020 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Repayment of Islamic Banking funds 25,000 _ 19 10,056 1,528 35,075 1,528 413 - 413 413 - 1,528 (1,940) 1,941 (1,940) At 31 December 2020 25,000 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Repayment of Islamic Banking funds - 432 9,644 35,076 The Bank transferred RM25,000,000 paid-up capital funds to the Islamic Banking window on 20 April 2009. The notes on pages 164 to 166 are an integral part of these financial statements.
166. 163 Company No . 199401026871 (312552-W) 37. The operations of Islamic Banking (continued) Statement of cash flows for the year ended 31 December 2020 2020 RM’000 2019 RM’000 Cash flows from operating activities Profit before tax 2,011 2,553 Operating profit before working capital changes Increase in operating assets Increase/(Decrease) in operating liabilities 2,011 (156) 1,845 2,553 (20,049) (17,772) Cash generated from/(used in) operations Income taxes paid Net cash generatd from/(used in) operations Cash flows from financing activity Repayment of Islamic Banking funds Net cash used in financing activity 3,700 (613) 3,087 (35,268) (798) (36,066) (1,940) (1,940) (2,527) (2,527) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December (Note 37(a)) 1,147 56,000 (38,593) 94,593 57,147 56,000 The notes on pages 164 to 166 are an integral part of these financial statements.
167. 164 Company No . 199401026871 (312552-W) 37. The operations of Islamic Banking (continued) BNM had given its approval on 22 August 2007 for the Bank to conduct Islamic Banking business under Section 124 of the Banking and Financial Institutions Act, 1989 (Now repealed and replaced by the Financial Services Act, 2013). The Board of Directors oversee the Shariah governance implementation and the Islamic business operations’ overall compliance with Shariah principles. Shariah Committee The Shariah Committee was established under BNM’s “Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions” (BNM/GPS1) to advise the Board of Directors on Shariah matters in its Islamic business operations and to provide technical assistance in ensuring the Islamic Banking products and services offered by the Bank and the relevant documentation are in compliance with Shariah principles. During the financial year ended 31 December 2020, a total of 3 meetings were held. The Shariah Committee comprises the following members and the details of attendance of each member was as follows: Members Dr Sheikh Hussein Hamed Sayed Hassan* Dr Muhammad Qaseem Dr Mohd Hilmi bin Ramli Number of Shariah meetings attended 1/3 3/3 3/3 * Retired from Shariah Committee with effect from 20 August 2020 Basis of measurement The financial statements of the Islamic Banking business have been prepared on the basis consistent with that of the Group and of the Bank as disclosed in Notes 1 and 2 to the financial statements of the Group and of the Bank and have been prepared on the historical cost basis, except as mentioned in the respective accounting policy notes.
168. 165 Company No . 199401026871 (312552-W) 37. The operations of Islamic Banking (continued) (a) Cash and short-term funds Cash and balances with banks and other financial institutions (b) 56,000 2020 RM’000 2019 RM’000 20,560 20,010 2020 RM’000 2019 RM’000 41,045 35,196 2020 RM’000 2019 RM’000 15 1,173 12 5,180 1,188 5,192 Other liabilities Bills payable Other liabilities (e) 57,147 Deposits from customers Non-Mudharabah Demand deposits (d) 2019 RM’000 Financial securities Debt securities at FVOCI Malaysian Investment Issue (c) 2020 RM’000 Capital adequacy The capital adequacy ratios of the Islamic Banking business of the Group and the Bank are computed in accordance with the Capital Adequacy Framework for Islamic Banks (“CAFIB”). The Group’s Islamic Banking business has adopted the Standardised Approach for Credit Risk and Market Risk, and the Basic Indicator Approach for Operational Risk.
169. 166 Company No . 199401026871 (312552-W) 37. The operations of Islamic Banking (continued) (e) Capital adequacy (continued) Components of Tier I and Tier II capital: 2020 RM’000 2019 RM’000 Tier 1 capital Capital funds Other disclosed reserves Retained earnings 25,000 194 9,644 25,000 9 10,056 Total common equity tier 1/Total tier 1 capital Total Tier 2 capital 34,838 - 35,065 - Capital base 34,838 35,065 Common equity tier 1/Tier 1 capital ratio 662.240% 618.362% Total capital ratio 662.240% 618.362% The breakdown of risk-weighted assets (“RWA”) by exposures in each major risk category is as follows: Risk Type 1 Credit risk 2 Market risk 3 Operational risk Total Risk-Weighted Assets 2020 2019 RM’000 RM’000 5,261 5,671 5,261 5,671