Login Get Started
HelpDesk
 Embed  Download
  of  

or
Sign in to continue reading...

Malaysia Building Society Berhad: Annual Report 2018

IM Insights
By IM Insights
5 years ago
Malaysia Building Society Berhad: Annual Report 2018

Amanah, Fiqh, Halal, Islam, Islamic banking, Murabahah, Shariah, Shariah compliant, Sukuk, Takaful, Tawarruq, Usul al-fiqh, Zakat, Credit Risk, Financing Assets, Net Assets, Participation, Provision, Receivables, Reserves, Sales

Organisation Tags (12)


Create FREE account or Login to add your comment
Comments (0)


Transcription

  1. www .mbsb.com.my JOURNEY TOWARDS MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 11th Floor, Wisma MBSB No. 48, Jalan Dungun Damansara Heights 50490 Kuala Lumpur annual report 2018
  2. JOURNEY TOWARDS At MBSB , we are constantly striving to provide innovative financial products and services to our customers while contributing to our nation’s economic development. As such, we have embarked on a mission to leverage state-of-the-art technologies in order to significantly enhance our performance. On the cover, the stylised image of a caterpillar transforming into a butterfly mirrors how we are evolving rapidly in our quest to fulfil our true potentials.
  3. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page iii CONTENTS MANAGEMENT DISCUSSION AND ANALYSIS OVERVIEW LEADERSHIP 02 03 04 05 06 11 Profile of the Board of Directors: MBSB 16 Profile of the Board of Directors: MBSB Bank 25 Profile of Shariah Advisory Committee 30 Profile of Group President and CEO 32 Management Team: 34 Profile of Management Team 38 MBSB Bank Vision and Values 39 MBSB Bank Branches 43 48 52 57 CORPORATE GOVERNANCE FINANCIAL STATEMENTS STAKEHOLDER INFORMATION 60 Corporate Governance Overview Statement 69 Additional Compliance Statement 71 Statement on Risk Management and Internal Control 85 Report of the Audit Committee 92 Financial Statements 246 Analysis of Shareholdings 249 Schedule of Properties 250 Notice of Annual General Meeting 255 Statement Accompanying the Notice of Annual General Meeting 256 Annexure 1 Our Profile Corporate Information Corporate Structure Awards and Accolades Calendar of Events Strategic Review Financial Review Business Review Risk Review Proxy Form
  4. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 2 2 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 OUR PROFILE WHO WE ARE MALAYSIA BUILDING SOCIETY BERHAD HISTORY IN BRIEF MALAYSIA BUILDING SOCIETY BERHAD CORPORATE HIGHLIGHTS The origin of Malaysia Building Society Berhad (MBSB) can be traced back to the Federal and Colonial Building Society Limited incorporated in 1950. In 1956, it changed its name to Malaya Borneo Building Society Limited (MBBS), with the Malaysian government as its major shareholder. MBBS was then listed on the Stock Exchange of Malaya and Singapore in August 1963. MBSB has been granted with an exemption under Section 7(4) of the Borrowing Companies Act 1969 (BCA). The company became an incorporation in Malaysia under the Companies Act 1965 on 17 March 1970, before it was listed on the Kuala Lumpur Stock Exchange, now Bursa Malaysia on 14 March 1972. The Employees Provident Fund (EPF) is currently the holding entity of MBSB. The FCA was later repealed by Banking and Financial Institutions Act 1989 (BAFIA). As a result of the change from BCA to Finance Companies Act (FCA), all references to borrowing business and borrowing company were to be construed respectively as finance business and finance company. The BAFIA has been repealed and replaced with FSA 2013. On 6 November 2017, MBSB entered into the Share Purchase Agreement with the shareholders of Asian Finance Bank Berhad (“AFB/Vendors”) for the proposed acquisition by MBSB of the entire equity interest in AFB for an aggregate purchase of RM644,952,807.66 to be satisfied by way of cash amounting to RM396,894,036.26 and the issuance of 225,507,974 Consideration Shares at an issue price of RM1.10 per Consideration Share (“the Acquisition”). The Acquisition was approved by the shareholders of MBSB on 23 January 2018. The shareholders also approved the transfer of Shariah Compliant Assets and Liabilities of MBSB to AFB via a Members’ Scheme of Arrangement. Pursuant to the abovesaid approval and upon completion of the transfer of shares and the payment of the balance of the purchase consideration to the Vendors, AFB became a wholly owned subsidiary of MBSB on 7 February 2018. AFB undertook a rebranding exercise on 2 April 2018 and changed its name to MBSB Bank Berhad (“MBSB Bank”).
  5. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 3 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 CORPORATE INFORMATION BOARD OF DIRECTORS REGISTRAR Tan Sri Abdul Halim bin Ali Chairman/ Non-Independent Non-Executive Director Tricor Investor & Issuing House Services Sdn Bhd Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur Tel : 03 - 2783 9299 Fax : 03 - 2783 9222 Encik Lim Tian Huat Senior Independent Non-Executive Director Ir. Moslim bin Othman Independent Non-Executive Director AUDITORS Puan Lynette Yeow Su-Yin Independent Non-Executive Director Ernst & Young (Chartered Accountants) COMPANY SECRETARY GROUP PRESIDENT AND CHIEF EXECUTIVE OFFICER Datuk Seri Ahmad Zaini bin Othman COMPANY SECRETARIES REGISTERED OFFICE 11th Floor, Wisma MBSB 48 Jalan Dungun, Damansara Heights 50490 Kuala Lumpur Tel : 03 - 2096 3000 Fax : 03 - 2096 3144 Website: www.mbsb.com.my Koh Ai Hoon (MAICSA 7006997) STOCK EXCHANGE LISTING Tong Lee Mee (MAICSA 7053445) Main Market of Bursa Malaysia Securities Berhad (Listed since 14 March 1972) KOH AI HOON (MAICSA 7006997) Chartered Secretary (ICSA) Bachelor of Law, University of London Associate member of The Malaysian Association of Chartered Secretaries & Administrators (MAICSA) Associate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (AQIF) 3
  6. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 4 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 4 annual report 2018 CORPORATE STRUCTURE MALAYSIA BUILDING SOCIETY BERHAD (9417-K) MBSB Bank Berhad (716122-P) Jana Kapital Sdn Bhd 100% 100% 100% MBSB Development Sdn Bhd (242608-P) 92% Prudent Legacy Sdn Bhd (382987-W) (1042607-U) Sigmaprise Sdn Bhd 100% 100% Malaya Borneo Building Society Limited (991834-T) 100% MBSB Project Management Sdn Bhd (454521-D) 100% Idaman Usahamas Sdn Bhd (525741-H) Farawide Sdn Bhd (525694-W) 100% Definite Pure Sdn Bhd 100% (713213-W) (379156-D) MBSB Properties Sdn Bhd 100% 100% MBSB Tower Sdn Bhd 100% 100% Ombak Pesaka Sdn Bhd (931926-X) (1024409-X) Ganesha Sdn Bhd Home Approach Sdn Bhd (1042293-T) (In Members’ Voluntary Liquidation) 88 Legacy Sdn Bhd (1104995-A) (55678-T) 100% 100% (49108-K) (In Members’ Voluntary Liquidation)
  7. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 5 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 5 annual report 2018 AWARDS AND ACCOLADES 12th Annual Best Deal & Solution Awards 2018 BEST SUKUK DEAL IN SOUTHEAST ASIA 2018 league of excellence award I LEAD sustainable housing future awards 2018 ifn deals of the year awards 2018 SUSTAINABLE PROPERTY BANKER OF THE YEAR EQUITY & IPO DEAL OF THE YEAR
  8. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 6 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 6 annual report 2018 CALENDAR OF EVENTS HIGHLIGHTS OF  THE  YEAR 5 JAN 16 JAN 23 JAN 26 JAN 30 JAN 10 FEB JANUARY 23 January 30 January 5 January Connexion Conference & Event Centre @ Nexus St Regis Hotel SK Tambak Jawa Back To School Programme Central Regional Manager, Puan Faraheeda Ahmad Rejab handed school supplies to the students from SK Tambak Jawa for the back to school programme by Malaysia Building Society Berhad. 16 January Residensi Hektar Gombak Sales Gallery Signing Ceremony with Hektar Aneka Sdn Bhd President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman at the Signing Ceremony of Hektar Aneka Sdn Bhd for the Islamic Financing Facility of Residensi Hektar Gombak. Extraordinary General Meeting An Extraordinary General Meeting (EGM) was held to seek approval from shareholders on the acquisition of Asian Finance Bank. Analyst briefing President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman and Chief Financial Officer, Mr Tang Yow Sai presented the 2017 financial results to analysts. FEBRUARY 26 January Malaysian RE Townhall President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman addressed issues pertaining the company’s new direction at the townhall to all staff. 10 February Sime Darby Convention Centre Townhall with Asian Finance Bank (AFB) staff A townhall was held to engage and inform all of Asian Finance Bank staff about the bank’s new direction after being acquired by Malaysia Building Society Berhad.
  9. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 7 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 7 annual report 2018 CALENDAR OF EVENTS 24 FEB 31 MAR 2 APR 17 APR 23 APR 12 MAY 19 MAY 28 MAY 24 February Istana Budaya Ola Bola The Musical Malaysia Building Society Berhad brought school children to watch the musical about the Malaysian football team. MARCH 31 March One World Hotel Malaysia Building Society Berhad Appreciation Night It was a colourful night with Bolllywood as the theme. There were performances from staff, as well as by guests artists. The night was hosted by Awal Ashaari. APRIL 2 April Hilton KL Launch of new bank Chairman, Tan Sri Abdul Halim Ali, President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman and former second Finance Minister YB Datuk Seri Abdul Johari Ghani at the launch of MBSB Bank which was attended by industry practitioners, clients as well as members of the media. 17 April St Regis Hotel Signing ceremony with Cagamas SRP A partnership between MBSB Bank and Cagamas SRP was sealed to provide assurance for Skim Rumah Pertamaku, a home financing service catered to the bank’s customers. 23 April 19 May Hilton Hotel Rumah Pengasih Warga Prihatin (RPWP) Signing ceremony with FIS MBSB Bank teamed up with FIS Asia Pacific Inc for an upgraded treasury management system. MAY 12 May FRIM Kepong Tree Planting The tree planting is a partnership with Forest Reserve Institute Malaysia (FRIM) where MBSB Bank staff volunteered to plant trees at FRIM, Kepong. Iftar at Rumah Pengasih Warga Prihatin Chief Operations Officer, Tuan Haji Asrul Hazli Salleh handed out Raya gifts to the children from Rumah Pengasih Warga Prihatin (RPWP) during the Iftar programme. 28 May St Regis Hotel Analyst briefing Q&A session during the analyst briefing for Malaysia Building Society Berhad’s 1st quarter 2018 performance.
  10. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 8 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 8 annual report 2018 CALENDAR OF EVENTS 20 JUN 25 JUN 28 JUN 3 JUL 14 JUL 19 JUL 28 JUL 30 JUL JUNE 20 June Ministry of Finance Tabung Harapan Malaysia Consistent with its purpose to be a bank that is socially responsible, MBSB Bank played its part by contributing RM1,000,000 to Tabung Harapan Malaysia (THM). 28 June 14 July 28 July Dorsett Grand Subang PPR Kerinchi Lavana Sports Centre Raya Open House Cooking For A Cause (Central Region) Badminton Tournament Chairman, Tan Sri Abdul Halim Ali and President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman entertained corporate clients at MBSB Bank's Hari Raya Open House. JULY 25 June Connexion Conference & Event Centre @ Nexus 3 July Wisma MBSB Cooking for a cause is a nourishment programme for the community at high density and low income areas in collaboration with Food Aid Foundation. It was attended by Lembah Pantai Member of Parliament, YB Fahmi Fadzil, seen here with Chief Corporate Officer Puan Azlina Mohd Rashad. 48th Annual General Meeting High Achievement Award 19 July President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman presented the performance of Malaysia Building Society Berhad Group to the shareholders at its 48th Annual General Meeting (AGM). Chief Corporate Officer, Puan Azlina Mohd Rashad with recipients of the High Achievement Award. Kompleks Perbadanan Putrajaya Signing ceremony with LPPSA A partnership with Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) to provide a joint-home ownership initiative, the Skim Pembiayaan Perumahan Bersama for civil servants. More than 100 staff participated in the badminton tournament organised by MBSB Bank’s Sports Club. 30 JULY St Regis Hotel Analyst Briefing Chief Business Officer, Datuk Nor Azam M Taib presented MBSB Bank's second quarter financial results to analysts
  11. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 9 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 9 annual report 2018 CALENDAR OF EVENTS 4 AUG 7 AUG 10 AUG 16 AUG 18 AUG 27 AUG 8 SEP 3 OCT AUGUST 10 August 18 August 4 August Eat, Shoots and Roots, Damansara Kidzania Kidzania Experience Dewan Taman Robina, Butterworth Edible Garden Cooking For A Cause & Community Programme (Northern Region) 30 staff who participated were taught non cultivation gardening method using decompost items. Children of MBSB Bank’s staff learned about working in different industries as they participated in role playing activities in Kidzania. 16 August 27 August Lim Kok Wing University SK Kebor Besar Sustainable Housing Future Awards 2018 Impacting Lives Heightening Aspirations (ILHAM) by MBSB Bank MBSB Bank staff volunteered and helped paint the community hall and also transformed a section of the hall into a mini library 7 August Kg Tualang Sekah, Perak Key handover ceremony Head of Strategic Communications Department, Puan Zuhaznim Izzuddin handed the house key to Sejahtera programme recipient. MBSB Bank received the Sustainable Property Banker of the Year Award at the Sustainable Housing Future Awards 2018. MBSB Bank was represented by Executive Vice President, Wholesale Banking, Puan Nur Zarina Ghazali to receive the award. Year 6 students from SK Kebor Besar were given activities to prepare them for UPSR examination. SEPTEMBER 8 September Pusat Jagaan Indah Harapan, Muar Cooking For a Cause (Southern Region) A CSR programme held at Pusat Jagaan Indah Harapan in collaboration with Food Aid Foundation where staff volunteered to prepare food for the ones in need. OCTOBER 3 October Sasana Kijang Global Islamic Finance Forum (GIFF) Islamic finance practitioners worldwide gathered at the event to exchange ideas and President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman was honoured with the Leadership Excellence Award (I LEAD) by Islamic Banking and Finance Institute Malaysia (IBFIM).
  12. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 10 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 10 annual report 2018 CALENDAR OF EVENTS 3 OCT 6 OCT 23 OCT 11 NOV 13 NOV 1 DEC 4 DEC 6 DEC 3 October 23 October 13 November 4 December Le Meridien Hotel Taman Negara Majestic Hotel Taman Botani Shah Alam Media Appreciation Night Explore Taman Negara Analyst briefing Skytrex Challenge President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman presented the grand prize to best dressed winner at the Media Appreciation Night. A two day trip to Taman Negara where 80 staff tried out various outdoor activities and learned about wildlife. A school holiday programme for children of MBSB Bank staff to inculcate interest for outdoor activities. NOVEMBER President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman and Chief Financial Officer, Mr Tang Yow Sai announced financial results for the third quarter of 2018. 6 October 11 November Bagan Lalang Beach Kampung Kuantan Fireflies Park Beach Cleaning MBSB Bank staff volunteered to clean the beach area in Sepang and collected 189kgs worth of rubbish. River Clean Up MBSB Bank staff volunteered to clean Sungai Selangor, which is the main source of water in the Klang Valley DECEMBER 1 December Taman Puchong Permai Cooking For A Cause Central Region MBSB Bank staff volunteered to cook for the residents of Flat Taman Puchong Permai. Some of them were also given basic groceries. 6 December Office of the Chief Minister of Sarawak Courtesy visit to Chief Minister of Sarawak A courtesy visit by MBSB Bank Chairman, Tan Sri Abdul Halim Ali, President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman, Chief Operations Officer, Tuan Haji Asrul Hazli Salleh, Executive Vice President, Puan Nur Zarina Ghazali together with Sarawak Regional Manager, En. Morshidi Hj Abong to meet Chief Minister of Sarawak, YAB Datuk Patinggi (Dr.) Abang Haji Abdul Rahman Zohari bin Tun Datuk Abang Haji Openg.
  13. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 11 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF THE BOARD  OF  DIRECTORS: MALAYSIA BUILDING SOCIETY BERHAD Tan Sri Abdul Halim Bin Ali Chairman, Non-Independent Non-Executive Director Encik Lim Tian Huat Senior Independent Non-Executive Director Ir. Moslim Bin Othman Independent Non-Executive Director Puan Lynette Yeow Su-Yin Independent Non-Executive Director 11
  14. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 12 12 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS: MALAYSIA  BUILDING  SOCIETY  BERHAD Tan Sri Abdul Halim Bin Ali Chairman, Non-Independent Non-Executive Director Nationality/ Age/ Gender Date of Appointment Academic/Professional Qualification(s) : Malaysian/ 75/ Male : 22 June 2001 : Bachelor of Arts (Hons) in History, University of Malaya Working Experience and Occupation Present Directorship(s) Other listed entities: • Chairman, IJM Corporation Berhad • Chairman, Sedania Innovator Berhad Other Public Companies: • Chairman, MBSB Bank Berhad Present Appointment(s) • Chairman, Universiti Teknologi Malaysia Past Directorship(s) and/or Appointment(s) • Chairman of the Employees Provident Fund (2001- 2007) • Chief Secretary of the Government (1996- 2001) • Secretary General of the Ministry of Foreign Affairs (1996) • Deputy Secretary General I (Political Affairs) (1991-1996) • Malaysian Ambassador to Austria (1988-1991) • Deputy Secretary General III (Administration) of the Ministry of Foreign Affairs (1985-1988) • Malaysian Ambassador to Vietnam (1982-1985) • Malaysia Deputy Permanent Representative to the United Nations (1979-1982) Current Membership of Board Committee(s) in MBSB Nil Attendance in 2018 • All 12 Board Meetings held in the financial year. Declaration : • No family relationship with any director and major shareholders of MBSB. • Nominee of Employees Provident Fund Board (EPF). • No conflict of interest with MBSB. • He has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018.
  15. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 13 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS: MALAYSIA  BUILDING  SOCIETY  BERHAD Encik Lim Tian Huat Senior Independent Non-Executive Director Nationality/ Age/ Gender Date of Appointment Academic/Professional Qualification(s) : Malaysian/ 64/ Male : 4 April 2011 : Council Member, Insolvency Practitioners Association of Malaysia Fellow, Association of Chartered Certified Accountants Member, Malaysian Institute of Accountants (MIA) Member, Malaysia Institute of Certified Public Accountants (MICPA) Degree in BA (Honours) in Economics Working Experience and Occupation Present Directorship(s) Other listed entities: • UEM Sunrise Berhad (listed in Bursa Malaysia) • Anglo-Eastern Plantation PLC (listed in London Stock Exchange) Other Public Companies: • PLUS Malaysia Berhad Present Appointment(s) • Managing Director of Andersen Corporate Restructuring Sdn Bhd • Managing Partner of Rodgers Reidy & Co Past Directorship(s) and/or Appointment(s) • Member, Corporate Law Reform Committee (CLRC) under the purview of the Companies Commission of Malaysia. • Director, Bank of Yingkou, China (2011-2017) • Director, Perbadanan Insurans Deposit Malaysia (2010-2016) • Founding President, Insolvency Practitioners Association of Malaysia (IPAM) (2010-2013) • Partner, Ernst & Young (2002- 2009) • Partner, Arthur Andersen & Co. (1990- 2002) • Commissioner, United Nations Compensations Commission (1998-2002) Current Membership of Board Committee(s) in MBSB • Chairman, Risk Management Committee • Chairman, Audit Committee • Member, Nominating & Remuneration Committee • Member, Option Committee Attendance in 2018 • All 12 Board Meetings held in the financial year. Declaration : • No family relationship with any director and major shareholders of MBSB. • No conflict of interest with MBSB. • He has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018. 13
  16. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 14 14 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS: MALAYSIA  BUILDING  SOCIETY  BERHAD Ir. Moslim Bin Othman Independent Non-Executive Director Nationality/ Age/ Gender Date of Appointment Academic/Professional Qualification(s) : Malaysian/ 64/ Male : 21 September 2015 : Bachelor of Engineering (Civil), University of Melbourne Master of Science (Building Services), Brunel University, London Registered Professional Engineer with the Board of Engineers Malaysia Member, Institution of Engineers Malaysia Working Experience and Occupation Present Directorship(s) Other listed entities: Nil Other Public Companies: Nil Present Appointment(s) • Sole proprietor of Sejagat Consultant • Executive Director, Haluan Fokus Sdn Bhd Past Directorship(s) and/or Appointment(s) • Chief Operating Officer, Infra Desa Johor Sdn Bhd, an associate company of Bumi Hiway (1999-2000) • Chief Operating Officer, Bumi Hiway Group of Companies (now known as Selia Group) (1996 - 1999) • Civil engineer with Public Works Department (PWD) (1978 - 1995) Current Membership of Board Committee(s) in MBSB • Chairman, Nominating & Remuneration Committee • Member, Risk Management Committee • Member, Audit Committee • Member, Option Committee Attendance in 2018 • All 12 Board Meetings held in the financial year. Declaration : • No family relationship with any director and major shareholders of MBSB. • No conflict of interest with MBSB. • He has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018.
  17. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 15 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS: MALAYSIA  BUILDING  SOCIETY  BERHAD Puan Lynette Yeow Su-Yin Independent Non-Executive Director Nationality/ Age/ Gender : Malaysian/ 49/ Female Date of Appointment : 22 March 2017 Academic/Professional : Member, Malaysian Bar Qualification(s) Member, Bar Council Malaysian Mediation Centre Master of Arts, University of Cambridge Bachelor of Arts (Hons), University of Cambridge Working Experience and Occupation Present Directorship(s) Other listed entities: Nil Other Public Companies: • MBSB Bank Berhad Present Appointment(s) • Director, Themed Attractions Resorts and Hotels Sdn Bhd • Panel of Mediators, Securities Industry Dispute Resolution Center (SIDREC) • Consultant, Sanjay Mohan, Advocates & Solicitors Past Directorship(s) and/or Appointment(s) • Partner, Chua Associates, Advocates & Solicitors (2015-2018) • Partner, Kadir Andri & Partners (2011–2015) • Partner, Zaid Ibrahim & Co (2002– 2011) • Partner, Raslan Loong (2000-2002) Current Membership of Board Committee(s) in MBSB • Chairman, Option Committee • Member, Nominating & Remuneration Committee • Member, Risk Management Committee • Member, Audit Committee Attendance in 2018 • All 12 Board Meetings held in the financial year. Declaration : • No family relationship with any director and major shareholders of MBSB. • No conflict of interest with MBSB. • She has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018. 15
  18. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 16 16 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF THE BOARD OF  DIRECTORS: MBSB BANK BERHAD Tan Sri Abdul Halim Bin Ali Chairman, Non-Independent Non-Executive Director Encik Sazaliza Bin Zainuddin Non-Independent Executive Director Encik Aw Hong Boo Senior Independent Non-Executive Director Datuk Johar Bin Che Mat Independent Non-Executive Director Datuk Azrulnizam Bin Abdul Aziz Independent Non-Executive Director Puan Lynette Yeow Su-Yin Independent Non-Executive Director Tunku Alina Binti Raja Muhd Alias Non-Independent Non-Executive Director Dr Loh Leong Hua Independent Non Executive Director
  19. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 17 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS:  MBSB  BANK BERHAD Tan Sri Abdul Halim Bin Ali Chairman, Non-Independent Non-Executive Director Nationality/ Age/ Gender Date of Appointment Academic/Professional Qualification(s) : Malaysian/ 75/ Male : 7 February 2018 : Bachelor of Arts (Hons) in History, University of Malaya Working Experience and Occupation Present Directorship(s) and/or Appointment(s) • Chairman, Malaysia Building Society Berhad • Chairman, IJM Corporation Berhad • Chairman, Sedania Innovator Berhad • Chairman, Universiti Teknologi Malaysia Past Directorship(s) and/or Appointment(s) • Chairman of the Employees Provident Fund (2001- 2007) • Chief Secretary of the Government (1996- 2001) • Secretary General of the Ministry of Foreign Affairs (1996) • Deputy Secretary General I (Political Affairs) (1991-1996) • Malaysian Ambassador to Austria (1988-1991) • Deputy Secretary General III (Administration) of the Ministry of Foreign Affairs (1985-1988) • Malaysian Ambassador to Vietnam (1982-1985) • Malaysia Deputy Permanent Representative to the United Nations (1979-1982) Current Membership of Board Committee(s) in MBSB Bank Berhad Nil 17
  20. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 18 18 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS:  MBSB  BANK BERHAD Encik Sazaliza Bin Zainuddin Non-Independent Executive Director* Nationality/ Age/ Gender : Malaysian/ 46/ Male Date of Appointment : 7 February 2018 Academic / Professional : ACCA (UK) Qualification(s) BA Hons in Accounting & Finance, Southbank University, United Kingdom Diploma in Accountancy, UITM Working Experience and Occupation Present Directorship(s) and/or Appointment(s) • Chief Financial Officer of the Employees Provident Fund Past Directorship(s) and/or Appointment(s) • Director, Malaysia Building Society Berhad (2017-2018) • Director, HSBC Amanah Takaful (Malaysia) Berhad (2013–2017) • Senior Manager (Assurance), Pricewaterhouse Coopers (1997–2006) Current Membership of Board Committee(s) in MBSB Bank Berhad • Member, Board Investment & Credit Committee * Encik Sazaliza Bin Zainuddin does not hold any executive position in MBSB Bank and does not have any management responsibilities in MBSB Bank. His designation as Non-Independent Executive Director (“NIED”) of MBSB Bank is pursuant to the definition of “executive director” in Bank Negara Malaysia’s Guidelines on Corporate Governance which define “executive director” as a director of a financial institution who has management responsibilities in the financial institution or any of its affiliates. EPF is an affiliate of MBSB Bank and Encik Sazaliza Bin Zainuddin has management responsibilities in EPF.
  21. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 19 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS:  MBSB  BANK BERHAD Encik Aw Hong Boo Senior Independent Non-Executive Director Nationality/ Age/ Gender : Malaysian/ 69/ Male Date of Appointment : 7 February 2018 Academic/Professional : Member, Malaysian Institute of Accountants (MIA) Qualification(s) Member, Malaysian Institute of Certified Public Accountants (MICPA) Fellow, Institute of Chartered Accountants in England & Wales (ICAEW) Working Experience and Occupation Past Directorship(s) and/or Appointment(s) • Director, Malaysia Building Society Berhad (2005-2018) • Director, Quill Capita Management Sdn Bhd (2006–2015) • Corporate Advisor, Quill Group of Companies (2004–2010) • Director, KP Keningau Berhad (2000–2006) • Director, RHB Finance Berhad (1995-1999), • Director, RHB Leasing Sdn Bhd (1990–1999) • Director, RHB Nominees Sdn Bhd (1983-1999) • Senior General Manager, Branch Network / Risk Management, RHB Bank Berhad (1978–1999) • Audit Senior / Manager, Ernst & Whinney (1974-1977) Current Membership of Board Committee(s) in MBSB Bank Berhad • Chairman, Board Audit Committee • Member, Board Risk Management & Compliance Committee • Member, Board Nominating & Remuneration Committee 19
  22. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:39 PM Page 20 20 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS:  MBSB  BANK BERHAD Datuk Johar Bin Che Mat Independent Non-Executive Director Nationality/ Age/ Gender : Malaysian/ 66/ Male Date of Appointment : 19 December 2017 Academic/Professional : Bachelor of Economics, University of Malaya Qualification(s) Working Experience and Occupation Present Directorship(s) and/or Appointment(s) • Director, MNRB Holdings Berhad • Director, Rural Capital Berhad • Director, Dagang NeXchange Berhad • Director, Takaful Ikhlas Family Berhad • Director, Takaful Ikhlas General Berhad Past Directorship(s) and/or Appointment(s) • Director, Malaysia Building Society Berhad (2017-2018) • Director, Bank Pertanian Malaysia Berhad (Agro Bank) (2010–2016) • Director, Amanah Raya Group (2010–2016) • Director, Aseambankers (2000–2002) • Director, Etiqa Insurance (2004–2010) • Director, Maybank Trustee Berhad (2007–2010) • Director, Maybank Islamic Berhad (2006–2010) • Various Senior positions in Maybank Group (1976–2010) Current Membership of Board Committee(s) in MBSB Bank Berhad • Chairman, Board Investment & Credit Committee • Chairman, Board Nominating & Remuneration Committee
  23. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 21 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS:  MBSB  BANK BERHAD Datuk Azrulnizam Bin Abdul Aziz Independent Non-Executive Director Nationality/ Age/ Gender : Malaysian/ 49/ Male Date of Appointment : 1 March 2017 Academic/Professional : Executive Education, Harvard Business School Qualification(s) Leadership Programme, Oxford University MBA, International Business, University of Hartford, Connecticut, USA BBA Marketing, Wichita State University, USA Diploma in Business Studies, UiTM Malaysia Working Experience and Occupation Present Directorship(s) and/or Appointment(s) • Director, AmMetlife Takaful Berhad • Executive Director, CR FinaCapital Sdn Bhd • Director, Petrowangsa Sdn Bhd Past Directorship(s) and/or Appointment(s) • Group Strategic Financial Advisor, Syarikat Perumahan Negara Berhad (SPNB) (2018-2019) • Director, Bintai KA Development Sdn Bhd (2017-2019) • Executive Director, OCR Group Berhad (2016-2018) • Chief Executive Officer, Al Rajhi Banking & Investment Corporation Malaysia Berhad (2012-2014) • Chief Executive Officer, Standard Chartered Sa’adiq Berhad (2008–2011) • Director & Head of Islamic Banking Division, Standard Chartered Bank Malaysia Berhad (2005-2008) • Vice President, Citibank Malaysia Berhad (1996-2005) Current Membership of Board Committee(s) in MBSB Bank Berhad • Member, Board Investment and Credit Committee 21
  24. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 22 22 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS:  MBSB  BANK BERHAD Puan Lynette Yeow Su-Yin Independent Non-Executive Director Nationality/ Age/ Gender : Malaysian/ 49/ Female Date of Appointment : 7 February 2018 Academic/Professional : Member, Malaysian Bar Qualification(s) Member, Bar Council Malaysian Mediation Centre Master of Arts, University of Cambridge Bachelor of Arts (Hons), University of Cambridge Working Experience and Occupation Present Directorship(s) and/or Appointment(s) • Director, Malaysia Building Society Berhad • Director, Themed Attractions Resorts and Hotels Sdn Bhd • Panel of Mediators, Securities Industry Dispute Resolution Center (SIDREC) • Consultant, Sanjay Mohan, Advocates & Solicitors Past Directorship(s) and/or Appointment(s) • Partner, Chua Associates, Advocates & Solicitors (2015-2018) • Partner, Kadir Andri & Partners (2011–2015) • Partner, Zaid Ibrahim & Co (2002-2015) • Partner, Raslan Loong (2000–2002) Current Membership of Board Committee(s) in MBSB Bank Berhad • Member, Board Investment and Credit Committee • Member, Board Nominating & Remuneration Committee
  25. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 23 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS:  MBSB  BANK BERHAD Tunku Alina Binti Raja Muhd Alias Non-Independent Non-Executive Director Nationality/ Age/ Gender Date of Appointment Academic/Professional Qualification(s) : Malaysian/ 55/ Female : 7 February 2018 : Doctorate in Islamic Finance, International Centre for Education in Islamic Finance, Malaysia Green Templeton College - Advanced Management Programme, Oxford University Masters in Law (Corporate and Commercial Law), King’s College, London Bachelor of Laws, University Malaya Working Experience and Occupation Present Directorship(s) and/or Appointment(s) • Director, Malaysian Pacific Industries Berhad • Director, IJM Corporation Berhad • Director, Batu Kawan Berhad • Director, Joyous Waves Sdn Bhd • Director, Preci Horizon Sdn Bhd • Director, JA Russell & Co. Sdn Bhd • Trustee, Raja Alias Foundation Past Directorship(s) and/or Appointment(s) • Director, Malaysia Building Society Berhad (2017-2018) • Partner, Wong Lu Peen & Tunku Alina, Advocates & Solicitors (1992–2011) Current Membership of Board Committee(s) in MBSB Bank Berhad • Member, Board Risk Management & Compliance Committee • Member, Board Audit Committee 23
  26. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 24 24 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF BOARD OF DIRECTORS:  MBSB  BANK BERHAD Dr Loh Leong Hua Independent Non-Executive Director Nationality/ Age/ Gender Date of Appointment Academic/Professional Qualification(s) : Malaysian/ 61/ Male : 1 June 2018 : PhD in Management Studies, Universiti Kebangsaan Malaysia (UKM) Advanced Management Program (AMP) Graduate, The Wharton School of University of Pennsylvania, USA International Banking Summer School (IBSS) Programme, Sorrento, Italy Working Experience and Occupation Present Directorship(s) and/or Appointment(s) • Director, Transnational Insurance Brokers (M) Sdn Bhd • Member, Rating Committee, Malaysian Rating Corporation Berhad Past Directorship(s) and/or Appointment(s) • Director, Asian Finance Bank Berhad (Mar 2017-Feb 2018) • Director, WTK Holdings Berhad (2014-2018) • Member, Board Risk Committee, Sarawak Economic Development Corporation [SEDC] (2013- 2017) • Director, YKGI Holdings Berhad (2015-2017) • Director, YFG Berhad (2012-2015) • Senior Director, Kenanga Investment Bank Berhad (2006-2011) • Senior Vice President, Affin Merchant Bank Berhad (2006) • Head, Commercial Banking, Eon Bank Berhad, HO, KL (2002-2005) • Head, Sarawak & Sabah Region, Eon Bank Berhad (1996-2002) Current Membership of Board Committee(s) in MBSB Bank Berhad • Chairman, Board Risk Management & Compliance Committee • Member, Board Audit Committee
  27. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 25 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF SHARIAH ADVISORY COMMITTEE Assistant Professor Dr. Akhtarzaite Binti Abdul Aziz Chairperson, Shariah Advisory Committee Assistant Professor Dr. Akhtarzaite Binti Abdul Aziz, born in 1972, currently serves as an Assistant Professor at the Department of Fiqh and Usul al-Fiqh, International Islamic University Malaysia (IIUM). She obtained her Doctoral Degree (Ph.D), Master in Fiqh and Usul al-Fiqh in 2005 and 2000, respectively, and also Degree in LLB and LLB (Shariah) from the same university in 1995. Her areas of specialization are Islamic Banking and Finance, Fiqh and Usul al-Fiqh and Halal & Shariah Compliance. She has been involved in various professional membership and trainings on Islamic finance apart from actively involved in writing books and articles, as well as presenting papers in various conferences at both international and national levels. She is a Member of the Association of Shariah Advisors in Islamic Finance Malaysia (ASAS). 25
  28. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 26 26 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF SHARIAH ADVISORY COMMITTEE Professor Dr. Abdul Rahim Bin Abdul Rahman Member, Shariah Advisory Committee Professor Dr. Abdul Rahim Bin Abdul Rahman is currently a Deputy Vice-Chancellor (Academic and International) and a Professor at the Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM). Apart from being a Member of the Shariah Advisory Committee of MBSB Bank Berhad, he serves as a Member of the Shariah Committee for Etiqa Takaful Berhad and Amanah Ikhtiar Malaysia. He is also a Panel Member of Muamalat experts for the Department of Islamic Development Malaysia (JAKIM), and also a Working Committee Member of the Economics and Management Cluster of Majlis Professor Negara (MPN). Dr. Abdul Rahim obtained his Bachelor’s degree in Finance and Accounting from the University of East London, United Kingdom. Later, he obtained his Master’s degree in Accounting and Management Sciences, and PhD in Accounting and Finance from the University of Southampton, United Kingdom. Dr. Abdul Rahim to date has produced 3 books and more than 40 publications in journals, and has presented several conference papers at various national and international events.
  29. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 27 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF SHARIAH ADVISORY COMMITTEE Dato’ Professor Dr. Noor Inayah Binti Ya’akub (DSPN) Member, Shariah Advisory Committee Dato’ Professor Dr. Noor Inayah Binti Ya’akub is a Professor of Islamic finance and comparative business law at Putra Business School, University Putra Malaysia. She was admitted to the Malaysian Bar as a qualified Advocate & Solicitor of the High Court of Malaya in 1996 and also a qualified Shariah lawyer of Negeri Sembilan in the same year. She has more than 20 years of experience in teaching Islamic law, Syariah & conventional banking law, Takaful and insurance law, equity & trust law, business law and ethics and leadership and principles of Islamic management. She serves as Member of the Board Shariah Committee at financial institutions, including Sun-life Takaful, Trustee Council of Majlis Amanah Raya and recently appointed as a Member of the Shariah Committee for the Malaysia’s second largest Islamic bank, MBSB Bank Berhad. She received double degrees of a Bachelor of Law (Hons) and Bachelor of Shariah Law (Hons) from the International Islamic University Malaysia. She received her LL.M. (Master of Comparative Civil & Banking Law) from the school of Law, University of Bristol, United Kingdom and a PhD in Comparative Civil & Islamic Banking Law of Guarantee from the law Faculty, University of Manchester, United Kingdom. She has demonstrated an excellent record of teaching and supervision for more than 20 years in the academic field, both undergraduate and postgraduate levels. She has shown excellent records of impactful research and publications and secured several competitive national grants and research awards. She holds a Professional Certificate of Project Management from Innovation Centre, University of Oxford and a University Performance Management Advanced Certificate from the United Nation. Her notable contributions are recognized locally and internationally as proven by invitation as invited speaker, reviewer, and editor in journals, external assessor, internal and external examiner in the fields of business law, governance, leadership, Islamic finance and management across disciplines. She has had vast experiences as Dean of Faculty of Business and Accountancy, Director for University Corporate Planning, Director for Research and Board of Director’s Member for Professional Institute of Baitul Mal, Wilayah Persekutuan Religious Authority. 27
  30. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 28 28 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF SHARIAH ADVISORY COMMITTEE En. Mohd Nasiruddin Bin Mohd Kamaruddin Member, Shariah Advisory Committee En. Mohd Nasiruddin Bin Mohd Kamaruddin, a seasoned banker, began his banking career with Chung Khiaw Bank Limited in 1987. He then served Standard Chartered Bank Malaysia Berhad from 1989 until 2017. During his 28 years’ career with the Bank, he held various management positions, the last being the Head of Shariah and Chief Operating Officer of the Bank’s Islamic Banking Subsidiary. He was responsible for the setting up of the subsidiary in 2008 and was responsible for building the infrastructure to prepare the Bank to fully comply with BNM’s Shariah Governance Framework and the requirements laid down in IFSA 2013. He is an expert in Islamic banking products and operational requirements. He holds a B.Sc. Finance and MBA (Finance), both from California State University Fresno, USA. In addition, he also obtained a Certificate in Islamic Law from the International Islamic University Malaysia (IIUM), in 2009. Currently, En. Mohd Nasiruddin is pursuing his doctoral degree in Islamic banking at the same university.
  31. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 29 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF SHARIAH ADVISORY COMMITTEE En. Mohd Bahroddin Bin Badri Member, Shariah Advisory Committee En. Mohd Bahroddin Bin Badri is Researcher at the International Shariah Research Academy for Islamic Finance (ISRA) and Shariah Consultant at ISRA Consultancy Sdn Bhd (ICSB), a consultancy arm of ISRA. Prior to joining ISRA in 2012, he has served as a lecturer at the International Islamic University Malaysia (IIUM) since 2003. He holds a Bachelor’s Degree of Islamic Revealed Knowledge and Heritage (Fiqh and Usul al-Fiqh) from the IIUM and a Master’s Degree of Shariah-Economics from the University of Malaya. His significant contributions to Islamic finance industry includes, an involvement in developing few Policy Guidelines (Shariah Standards) issued by Bank Negara Malaysia and Shariah-based Scheme issued by the Companies Commission of Malaysia (SSM). He is one of the Authors of the world’s first most comprehensive Islamic finance textbook, “Islamic Financial System: Principles & Operations” (2nd ED) and a co-Author of “Sukuk: Principles and Practices”. He has produced several research papers and articles on Shariah and Islamic finance and actively presented and participated in local and international workshops, seminars and conferences, including in Brunei, Singapore, Jakarta, Oman, Istanbul and Toronto, Canada. His co-authored research on “Shariah Issues of Preference Shares: An Analysis Based on Musharakah Contract” has won Best Paper Award at the 1st International Halal Management Conference 2017 held in Sejong University, Seoul Korea. He is also engaged closely with various stakeholders by conducting international and local trainings, advisory and consultancy services. Currently, he is pursuing his Doctoral study in business at the International University MalayaWales (IUMW). 29
  32. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 30 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 30 annual report 2018 PROFILE OF GROUP PRESIDENT AND CEO Datuk Seri Ahmad Zaini bin Othman smw Group President and Chief Executive Officer, Malaysia Building Society Berhad Nationality / Age / Gender Date of Appointment Academic/Professional Qualification(s) : Malaysian / 62 / Male : 26 February 2009 : Member, CEO Faculty Program, emplaced by Ministry of Higher Education (2016) Faculty member (Industry expert), International Centre for Education in Islamic Finance (INCEIF) Accreditation Panel Member, Asian Institute of Finance for the year (2011) Member, Chartered Institute of Islamic Finance Professionals (CIIF) MBA (Finance), University of St. Louis, USA (1984) BSc in Finance, University of Southern Illinois, USA (1983) Higher National Diploma (HND) in Accounting, Manchester, England (1980) Working Experience and Occupation Present Directorship(s) Listed entity: Nil Other Public Companies: Nil Present Appointment(s) • Adjunct Professor, School of Economics, Finance and Banking, UUM College of Business, Universiti Utara Malaysia Past Directorship(s) and/or Appointment(s) • CEO of AmIslamic Bank (2004-2008) • Head/Senior General Manager, Corporate Banking for Ambank (1995-2004) • Corporate Director/Senior Group General Manager, Banking & Finance, Perwaja Steel (1993-1995) • Head of Corporate Finance, Intradagang Merchant Bankers (1988-1993) • Head of Corporate Banking, Syndications and Project Finance, Bumiputra Merchant Bankers (1984-1988) Achievement • Asia Pacific Outstanding Entrepreneurship Award 2014 from the Enterprise Asia Declaration • No family relationship with any director and major shareholders of MBSB. • No conflict of interest with MBSB. • He has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018.
  33. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 31 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF GROUP PRESIDENT AND CEO 31
  34. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 32 32 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 MANAGEMENT TEAM From left to right 1. Aniza Binti Zakaria 2. Lim Seong Soon 3. Datuk Nor Azam Bin M. Taib 4. Hj Asrul Hazli Bin Salleh
  35. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 33 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 MANAGEMENT TEAM 5. Risham Akashah Bin Kamaruzaman 6. Tengku Khalizul Bin Tengku Khalid 7. Tang Yow Sai 8. Azlina Binti Mohd Rashad 33
  36. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 34 34 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF MANAGEMENT TEAM Aniza Binti Zakaria Lim Seong Soon Aged 45, Malaysian Chief Internal Auditor, Internal Audit Division Aged 57, Malaysian Chief Risk Officer, Risk Management Division Appointment to current position 1 January 2017 Appointment to current position 20 May 2013 Committee memberships • Secretary for Audit Committee • Project Steering Committee RRS (Regulatory Reporting System) Committee memberships • Asset and Liability Committee (ALCO) • Initial Alert Report Committee (IAR) • IT Steering Committee (ITSC) • Project Steering Committee RRS (Regulatory Reporting System) Permanent Invitees • IT Steering Committee Qualifications • Bachelor of Science in Finance & Management, University of Oregon, USA • Professional Certificate in Islamic Banking, INCEIF – The Global University of Islamic Finance • Shariah Audit Certificate – Universiti Sains Islam Malaysia (USIM) • Certificate in Internal Auditing for Financial Institutions – Asian Institute of Chartered Bankers • Certification for Bank Auditors – Asian Institute of Chartered Bankers Skills and experience Aniza began her employment at Malaysia Building Society Berhad on 13 August 2014 as Assistant Vice President, Internal Audit Division, after acquiring over 20 years of industry experience from several banking institutions in Malaysia. On 1 January 2017, she was then appointed as Chief Internal Auditor for Malaysia Building Society Berhad. Her major responsibilities are to formulate strategies and execution of an independent, cost effective and efficient audit and examination function for MBSB Bank’s operations, and provide independent and objective assessments of control and risk levels in the bank entities. Prior to joining Malaysia Building Society Berhad, Aniza was a Senior Manager of Internal Audit Division at Kuwait Finance House Malaysia Berhad. Aniza is also an Associate Member of The Institute of Internal Auditors Malaysia (IIAM) and Senior Associate Member of Chartered Institute of Islamic Finance Professionals and Associate of Asian Institute of Chartered Bankers. Declaration • No family relationship with any director and major shareholders of MBSB • No conflict of interest with MBSB and its subsidiaries • Other than traffic offences, she has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018 Permanent Invitees • Credit and Rehabilitation Assessment Committee/ Management Investment & Credit Committee (CARAC/MICC) • Management Committee (MANCO) Qualifications • Master of Business Administration (Finance), University of Kansas, USA • Bachelor of Business Administration (Finance), University of Oklahoma, USA • Associate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (AQIF) Skills and experience Lim Seong Soon joined Malaysia Building Society Berhad on 20 May 2013 as Chief Risk Officer (CRO). As CRO, he leads the development and drive the execution of a comprehensive risk policy framework and strategy to mitigate risks for MBSB Bank at an organization-wide level. He has 31 years of extensive experience in the banking industry and was previously attached with major financial institutions in Malaysia. Lim Seong Soon was the General Manager/Head of Risk Management at Bank of China (Malaysia) Berhad before joining Malaysia Building Society Berhad where he held various positions within the bank including Chairman for the Credit & Loans Committee (C&LC), Vice Chairman of the Risk Management and Internal Control Committee (RMICC) and Secretary of the Board Risk Committee. Declaration • No family relationship with any director and major shareholders of MBSB • No conflict of interest with MBSB and its subsidiaries • Other than traffic offences, he has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018
  37. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 35 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 35 PROFILE OF MANAGEMENT TEAM Datuk Nor Azam Bin M. Taib Hj Asrul Hazli Bin Salleh Aged 51, Malaysian Chief Business Officer, Business Division Aged 41, Malaysian Chief Operations Officer, Operations Division Appointment to current position 7 February 2018 Appointment to current position 7 February 2018 Committee memberships • Management Committee (MANCO) • Asset and Liability Committee (ALCO) • IT Steering Committee (ITSC) • Initial Alert Report Committee (IAR) • Project Steering Committee RRS (Regulatory Reporting System) Committee memberships • Credit and Rehabilitation Assessment Committee/ Management Investment & Credit Committee (CARAC/MICC) • Management Committee (MANCO) • Asset and Liability Committee (ALCO) • Initial Alert Report Committee (IAR) • IT Steering Committee (ITSC) • Project Steering Committee RRS (Regulatory Reporting System) Permanent Invitees • Credit and Rehabilitation Assessment Committee/ Management Investment & Credit Committee (CARAC/MICC) Qualifications • Master of Business Administration, Charles Stuart University, Australia • Bachelor of Science in Accounting, University of Wyoming, USA • American Associate Degree, Indiana University, Bloomington, USA • Certified Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (CQIF) • Intermediate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (IQIF) • Associate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (AQIF) Skills and experience Datuk Nor Azam has more than 25 years of experience in banking and finance sector in the areas of auditing, structured lending, business banking and corporate business. Before Malaysia Building Society Berhad, he was Head of Business Banking in Bank Islam (M) Berhad. Datuk Nor Azam joined Malaysia Building Society Berhad on 8 November 2010 as General Manager, heading the Corporate Business Division which main function was to provide a comprehensive financial solution to corporate and institutional clients. In 2018, Datuk Nor Azam was appointed as Chief Business Officer (CBO) of MBSB Bank. His role as CBO is to enhance business strategies of the Bank, develop, guide, motivate and direct the implementation of specific plans and programs for the different types of banking and overall performance. He leads the team in overall management of sales strategies; maintain effective relationship with regulatory, governmental, industry, financial and community groups so as to enhance financial performance and business effectiveness. Declaration • No family relationship with any director and major shareholders of MBSB • No conflict of interest with MBSB and its subsidiaries • Other than traffic offences, he has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018 Qualifications • Bachelor of Business Administration (Hons) Finance, University of Technology MARA (UiTM) • American Degree Program (ADP) Centre of Preparatory Education, University Technology MARA (UiTM) • Persatuan Kewangan Malaysia Certificate (PKMC), ACIFinancial Markets Association of Malaysia (ACI-FMAM) and Asian Institute of Chartered Bankers (AICB) • Intermediate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (IQIF) • Associate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (AQIF) Skills and experience Hj Asrul Hazli joined Malaysia Building Society Berhad on 1 October 2010 as the Assistant General Manager of Treasury Division bringing with him years of experience and knowledge on treasury and capital markets, specializing in liquidity, asset and liability and balance sheet management from several financial institutions. Prior to joining Malaysia Building Society Berhad, Hj Asrul Hazli was the Senior Dealer and Head of ALM & Funding Desk of Treasury and Capital Markets Department at Bank Muamalat Malaysia Berhad. Hj Asrul Hazli was appointed as Chief Operations Officer of MBSB Bank in 2018. He is responsible in providing strategic direction for the Bank’s overall operational matters and execution of the day-to-day activities for all the departments under his purview. He also oversees the Global Markets Department’s affairs involving the Bank’s liquidity, balance sheet management and FX portfolios. As Chief Operations Officer, Hj Asrul Hazli is responsible in formulating the development of operational strategies of MBSB Bank and manages the efficiency and effectiveness of the related activities in ensuring for smooth and seamless operational alignment to the business goals and objectives of the Bank. Hj Asrul Hazli is also a member of ACI-Financial Markets Association of Malaysia (ACI-FMAM) since 2001. Declaration • No family relationship with any director and major shareholders of MBSB • No conflict of interest with MBSB and its subsidiaries • Other than traffic offences, he has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018
  38. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 36 36 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 PROFILE OF MANAGEMENT TEAM Risham Akashah Bin Kamaruzaman Tengku Khalizul Bin Tengku Khalid Aged 46, Malaysian Chief Technology Officer, Technology Division Aged 44, Malaysian Chief Compliance Officer, Compliance Division Appointment to current position 1 November 2018 Appointment to current position 7 February 2018 Committee memberships • Credit and Rehabilitation Assessment Committee/ Management Investment & Credit Committee (CARAC/MICC) • Management Committee (MANCO) • Asset and Liability Committee (ALCO) • IT Steering Committee (ITSC) • Project Steering Committee RRS (Regulatory Reporting System) Committee memberships • Project Steering Committee RRS (Regulatory Reporting System) Qualifications • Bachelor in Electrical and Electronics Engineering, California State University-Chico, USA • American Degree Program, University of Technology MARA (UiTM), Kuantan Skills and experience Risham Akashah joined Malaysia Building Society Berhad on 8 January 2018 as Chief Digital Officer, Digital Initiatives Division. A trained Electrical/Electronics engineer, Risham Akashah’s over 20 years of working experience ranges from software development to managing IT teams across industries, including oil & gas, broadcasting, telecommunications and banking. On 1 November 2018, Risham Akashah was appointed as Chief Technology Officer (CTO) of MBSB Bank. As CTO, he oversees all information technology functions for the Bank, as well as lead and drive the Digital Banking strategy, including development of end-to-end product launches across the online customer journey that enhances customer experience. Declaration • No family relationship with any director and major shareholders of MBSB • No conflict of interest with MBSB and its subsidiaries • Other than traffic offences, he has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018 Permanent Invitees • Management Committee (MANCO) • Asset and Liability Committee (ALCO) Qualifications • Bachelor of Science in Business Administration (Finance), Northern Arizona University, USA • Certificate in Internal Auditing for Financial Institutions (CIAFIN), Asian Institute of Chartered Bankers (AICB) • Certificate in Regulatory Compliance, Asian Institute of Chartered Bankers (AICB) • Associate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (AQIF) • Certificate in Shariah Audit, University Sains Islam Malaysia Skills and experience Tengku Khalizul joined Malaysia Building Society Berhad as Senior Manager on 5 May 2014. Heading the Compliance Division, he is responsible in coordinating the identification and management of compliance risk in the organisation. In 2018, Tengku Khalizul was appointed as Chief Compliance Officer of MBSB Bank where he leads and manages the Bank’s Compliance function and act as the focal point for all compliance related initiatives including compliance risk, Anti Money Laundering and CTF (Counter Terrorism Financing). Tengku Khalizul’s statutory responsibilities in the Bank include AML/CFT Compliance Officer, FATCA Officer and PDPA Officer. Previously he was Manager in the Internal Audit Department at Kuwait Finance House (Malaysia) Berhad. Declaration • No family relationship with any director and major shareholders of MBSB • No conflict of interest with MBSB and its subsidiaries • Other than traffic offences, he has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018
  39. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 37 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 37 PROFILE OF MANAGEMENT TEAM Tang Yow Sai Azlina Binti Mohd Rashad Aged 55, Malaysian Chief Financial Officer, Finance Division Aged 46, Malaysian Chief Corporate Officer, Corporate Services Division Appointment to current position 1 October 2010 Appointment to current position 7 February 2018 Committee memberships • Credit and Rehabilitation Assessment Committee/ Management Investment & Credit Committee (CARAC/MICC) • Management Committee (MANCO) • Assets and Liabilities Committee (ALCO) • IT Steering Committee (ITSC) • Initial Alert Report Committee (IAR) • Project Steering Committee RRS (Regulatory Reporting System) • Sigmaprise Consultative Committee Committee memberships • Credit and Rehabilitation Assessment Committee/ Management Investment & Credit Committee (CARAC/MICC) • Management Committee (MANCO) • Asset and Liability Committee (ALCO) • IT Steering Committee (ITSC) • Project Steering Committee RRS (Regulatory Reporting System) Qualifications • Certified Public Accountant from Malaysian Institute of Certified Public Accountants (MICPA) • Intermediate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (IQIF) • Associate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (AQIF) Skills and experience Tang Yow Sai was appointed as Malaysia Building Society Berhad’s Chief Financial Officer (CFO) on 1 October 2010. As CFO, he oversees all financial functions for Malaysia Building Society Berhad, MBSB Bank and Malaysia Building Society Berhad’s subsidiaries which includes reviewing and managing financial policies and annual budget, ensuring efficient use of the Bank’s financial resources. Before appointment as the CFO, he was the Group Financial Controller, heading the Finance Division and Information Technology Department. Qualifications • Bachelor in Accountancy (Hons), University of Northumbria, Newcastle, England • Diploma in Accountancy, University of Technology MARA (UiTM) • Certified Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (CQIF) • Intermediate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (IQIF) • Associate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (AQIF) Tang Yow Sai joined Malaysia Building Society Berhad on 20 December 2004. He has more than 33 years of working experience, where he has held various positions in auditing, corporate finance, finance, business management, strategic planning and consulting services. He is a member of the Malaysian Institute of Certified Public Accountants (MICPA). Before joining MBSB, Tang Yow Sai was the Financial Controller at Tebrau Teguh Berhad, and prior to that, he was the General Manager, Corporate Finance at Ekran Berhad. Skills and experience Azlina joined Malaysia Building Society Berhad on 6 April 2009 as a Senior Manager, Transformation Management Office, CEO’s Office. Amongst her major responsibilities were to assist the CEO in planning and ensuring the successful implementation of all strategic business and operational initiatives being undertaken by the business and support divisions. She has a wealth of experience in the financial sector, spanning over 21 years, with previous employment at AmIslamic Bank, undertaking the Business Management function. Azlina also plays a primary role in establishing Malaysia Building Society Berhad’s and MBSB Bank’s brand names as key players in the financial industry. In 2018, she was appointed as the Chief Corporate Officer of MBSB Bank. In assuming this position, she oversees the Corporate Services Division and is tasked to direct Strategic Planning, Strategic Communication, Human Resource, Shariah Secretariat and Advisory, Legal and Customer Experience Management. Declaration • No family relationship with any director and major shareholders of MBSB • No conflict of interest with MBSB and its subsidiaries • Other than traffic offences, he has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018 Declaration • No family relationship with any director and major shareholders of MBSB • No conflict of interest with MBSB and its subsidiaries • Other than traffic offences, she has not been convicted for any offences within the past 5 years and has not been imposed of any public sanction or penalty by the relevant regulatory bodies during the financial year ended 31 December 2018
  40. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 38 38 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 MBSB BANK VISION AND VALUES To be a Top Progressive Islamic Bank • Humility • Professionalism • Ethics • Empathy • Passion
  41. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 39 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 MBSB BANK BRANCHES CENTRAL REGION DAMANSARA Ground Floor, Wisma MBSB, 48, Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur. Tel. No. 03-20963333 Fax No. 03-20963376 KUALA LUMPUR No. 8, Wisma RKT, Jalan Raja Abdullah, Off Jalan Sultan Ismail, 50300 Kuala Lumpur. Tel. No. 03-26912689 Fax No. 03-26912830 PETALING JAYA No. 3, Jalan 52/16, 46200 Petaling Jaya, Selangor. Tel. No. 03-79569200 Fax No. 03-79569627 KLANG 33, Jalan Tiara 3, Bandar Baru Klang, 41150 Klang, Selangor. Tel. No. 03-33426822 Fax No. 03-33411410 PUCHONG 1-G-1, Ground Floor, Tower 1 @ PFCC, Jalan Puteri 1/2, Bandar Puteri, 47100 Puchong, Selangor. Tel. No. 03-80635208 Fax No. 03-80635867 SHAH ALAM No. 21, Jalan Plumbum R7/R, Seksyen 7, 40000 Shah Alam, Selangor. Tel. No. 03-55105075 Fax No. 03-55104144 KELANA JAYA A-11-1 & A-11-2, Blok A, Plaza Glomac, Jalan SS7/19, Kelana Jaya, 47301 Petaling Jaya, Selangor. Tel. No. 03-78830089 Fax No. 03-78830120 PUTRAJAYA No. 30, Jalan Diplomatik 3/1, Presint 15, 62000 Putrajaya. Tel. No. 03-88810569 Fax No. 03-88810572 BATU CAVES Lot 1-0, Jalan SM1, Taman Sunway Batu Caves, 68100 Batu Caves, Selangor. Tel. No. 03-61777956 Fax No. 03-61772404 WANGSA MAJU Ground Floor, No. 52, Jalan Wangsa Delima 6, Pusat Bandar Wangsa Maju, 53300 Kuala Lumpur. Tel. No. 03-41421292 Fax No. 03-41421269 CHERAS 185, Jalan Sarjana, Taman Connaught, 56000 Cheras, Kuala Lumpur. Tel. No. 03-91322955 Fax No. 03-91322954 KAJANG No. 2A-G, Jalan Semenyih, Pekan Kajang, 43000 Kajang, Selangor. Tel. No. 03-87301521 Fax No. 03-87401436 BANDAR BARU BANGI No. 49, Jalan Medan Pusat 2D, Seksyen 9, 43650 Bandar Baru Bangi, Selangor. Tel. No. 03-89257584 Fax No. 03-89257708 JALAN SULTAN ISMAIL Ground Floor, Podium Block, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur. Tel. No. 03-20791100 Fax No. 03-20791144 NORTHERN REGION PENANG No. W-00 Ground Floor, Wisma Penang Garden, No. 42, Jalan Sultan Ahmad Shah, 10050 Pulau Pinang. Tel. No. 04-2266275 Fax No. 04-2286275 ALOR SETAR 1578, Jalan Kota, 05000 Alor Setar, Kedah. Tel. No. 04-7314655 Fax No. 04-7317996 KANGAR No. 35, Jalan Seruling, 01000 Kangar, Perlis. Tel. No. 04-9766400 Fax No. 04-9774141 39
  42. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 40 40 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 MBSB BANK BRANCHES SUNGAI PETANI No. 114, Jalan Pengkalan, Taman Pekan Baru, 08000 Sungai Petani, Kedah. Tel. No. 04-4229302 Fax No. 04-4212046 BUTTERWORTH No. 2783, Jalan Chain Ferry, Taman Inderawasih, 13600 Perai, Pulau Pinang. Tel. No. 04-3980145 Fax No. 04-3980898 KULIM No. 26, Jalan Raya, 09000 Kulim, Kedah. Tel. No. 04-4951400 Fax No. 04-4904400 LANGKAWI No. 26 & 28, Jalan Pandak Mayah 4, Pusat Bandar Kuah, 07000 Langkawi, Kedah. Tel. No. 04-9666055 Fax No. 04-9669055 SOUTHERN REGION MELAKA No. 203 & 204, Jalan Melaka Raya 1, Taman Melaka Raya, 75000 Melaka. Tel. No. 06-2828255 Fax No. 06-2847270 JOHOR BAHRU 1st & 2nd Floor, Bangunan KWSP, Jalan Dato’ Dalam, 80000 Johor Bahru, Johor. Tel. No. 07-2238977 Fax No. 07-2240143 SEREMBAN No. S-1, Kompleks Negeri, Jalan Dato’ Bandar Tunggal, 70000 Seremban, Negeri Sembilan. Tel. No. 06-7638455 Fax No. 06-7630701 IPOH No. 45, Persiaran Greenhill, 30450 Ipoh, Perak. Tel. No. 05-2545659 Fax No. 05-2544748 TEBRAU No. 17 & 17-1, Jalan Mutiara Emas 9/3, Austin Boulevard, Taman Mount Austin, 81100 Johor Bahru, Johor. Tel. No. 07-3581700 Fax No. 07-3581703 TAIPING No. 1, Lot 10958, Jalan Saujana, Taman Saujana 3, 34600 Kamunting, Perak. Tel. No. 05-8074000 Fax No. 05-8041444 BATU PAHAT No. 28 & 29, Jalan Persiaran Flora Utama, Taman Flora Utama, 83000 Batu Pahat, Johor. Tel. No. 07-4316614 Fax No. 07-4317382 SITIAWAN Ground Floor, No. 35, Persiaran PM 3/2, Pusat Bandar Sri Manjung, Seksyen 3, 32040 Sri Manjung, Perak. Tel. No. 05-6882700 Fax No. 05-6882703 MUAR No. 30A-2, Jalan Arab, 84000 Muar, Johor. Tel. No. 06-9532000 Fax No. 06-9533200 KLUANG No. 6, Lot 9053, Jalan Hj Manan, 86000 Kluang, Johor. Tel. No. 07-7717585 Fax No. 07-7726572 KULAI 19, Jalan Sri Putra, Bandar Putra, 81000 Kulai, Johor. Tel. No. 07-6633458 Fax No. 07-6633284 TAMAN MOLEK No. 65 & 65A, Jalan Molek 2/4, Taman Molek, 81100 Johor Bahru, Johor. Tel. No. 07-3542240 Fax No. 07-3542241
  43. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 41 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 MBSB BANK BRANCHES EAST COAST REGION KEMAMAN K-10723, Taman Chukai Utama, Fasa 4, Jalan Kubang Kurus, 24000 Kemaman, Terengganu. Tel. No. 09-8589486 Fax No. 09-8589291 KUALA TERENGGANU No. 1A, Jalan Air Jernih, 20300 Kuala Terengganu, Terengganu. Tel. No. 09-6227844 Fax No. 09-6220744 KUANTAN No. A157 & A159, Sri Dagangan, Jalan Tun Ismail, 25000 Kuantan, Pahang. Tel. No. 09-5157677 Fax No. 09-5145060 TAWAU Ground Floor, TB 15590, Block B, Lot 45, Kubota Square, 91000 Tawau, Sabah. Tel. No. 089-755400 Fax No. 089-749400 BINTULU No. 1, Ground Floor, Jalan Tun Ahmad Zaidi/ Jalan Kambar Bubin, 97000 Bintulu, Sarawak. Tel. No. 086-336400 Fax No. 086-339400 KENINGAU Ground Floor, Lot No. 7, Block A, Keningau Plaza, 89000 Keningau, Sabah. Tel. No. 087-337611 Fax No. 087-337617 MUKAH Ground Floor, Sub Lot 77, Lot 927, New Mukah Town Centre, Jalan Green, Block 68, 96400 Mukah, Sarawak. Tel. No. 084-874262 Fax No. 084-874259 KOTA KINABALU MAIN Lot 144, Q6 Block Q, Lorong Plaza Permai 1, Alamesra-Sulaman Coastal Highway, 88450 Kota Kinabalu, Sabah. Tel. No. 088-485680 Fax No. 088-485620 SARAWAK REGION SABAH REGION KOTA KINABALU Lot 11 & 12, Ground Floor, Block C, Lintasjaya Uptownship, 88300 Kota Kinabalu, Sabah. Tel. No. 088-722500 Fax No. 088-713503 SANDAKAN Lot 201, Prima Square, Phase 3, Jalan Utara, 90000 Sandakan, Sabah. Tel. No. 089-223400 Fax No. 088-223544 KUCHING Tingkat Bawah & Satu, Bangunan Tunku Muhammad Al-Idrus, 439, Jalan Kulas Utara 1, 93400 Kuching, Sarawak. Tel. No. 082-248240 Fax No. 082-248611 MIRI No. 1115, Ground Floor, Pelita Commercial Centre, 98000 Miri, Sarawak. Tel. No. 085-424400 Fax No. 085-424141 SIBU Ground Floor, SL 166 Lorong Pahlawan 7B3, Jalan Pahlawan, 96000 Sibu, Sarawak. Tel. No. 084-210703 Fax No. 084-210714 41
  44. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 42 42 MANAGEMENT DISCUSSION AND  ANALYSIS MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018
  45. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 43 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 43 annual report 2018 STRATEGIC REVIEW BECOMING MBSB BANK The journey through the merger process was extensive and strenuous but ultimately rewarding for the organisation. The significant milestones can be summarised as below. Signing of SPA Legal Day 1 (LD1) 6 November 2017 7 February 2018 Operations Day 1 (OD1) & Name Change to MBSB Bank 2 April 2018 Single Platform Day 1 2 April 2019 STRATEGIC OVERVIEW Malaysia Building Society Berhad (MBSB) has embarked on a new strategic direction this year upon the birth of MBSB Bank, the core business of MBSB. MBSB Bank represents the business operations of MBSB and will grow in overall contribution over the next few years. With a vision of becoming “The Top Progressive Islamic Bank”, the objectives of the Bank are to: • • • • Establish a strong financial position, Offer digital banking and innovative product solutions, Provide excellent customer service, and Become an employer of choice. We kicked off a 3-year business plan BP, BP 2018 – 2020 (see following slides). The formulation of BP 2018 – 2020 revolves around completing the list of 22 key initiatives. The main purpose was to itemise the capabilities that MBSB Bank will build up in the next 3 years. This will be supplemented by BP 2019 as an opportunity to reemphasise our “Journey Towards Technology Transformation”. It will outline the strategy to drive the business, capabilities that are going to be built and the key enablers needed to achieve BP 2018 – 2020.
  46. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 44 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 44 annual report 2018 STRATEGIC REVIEW BUSINESS PLAN 2018 - 2020 BP 2018-2020 was formulated around ensuring that maximum synergy is garnered from the acquisition. JOURNEY TOWARDS TECHNOLOGY TRANSFORMATION RETAIN EXISTING AND GROW • Grow the core business • Build up critical capabilities where lagging • Reorganise the operating model EMPOWER THE BUSINESS • Target key customer segments and industries • Introduce products to capture adjacent opportunities to the core business including cross-sell PENETRATE NEW MARKETS • Introduce new banking products and services to extend customer reach • Attain acquired capabilities for key targeted sectors to sustain a differentiated positioning • Build up capabilities to enable expansion in the market Phase 1 Phase 2 Phase 3 LEVERAGING OUR BANKING LICENSE IN 2018 In our transformative year, the business plan was focused on maximising the opportunities allowed by the banking license. Below is an assessment of how far we’ve explored its potentials this year: GLOBAL MARKETS 70% Plans are underway to optimise our capabilities by revising the existing policy based on new Bank’s risk appetite, enhancing treasury systems, aggressive marketing and promotions as well as ensuring sufficient resources are in place. BUSINESS 65% Business will be looking to maximise our license in terms of deliverables of products and services. DIGITAL 70% Transformation has yielded Retail Internet Banking, Corporate Internet Banking, Cash Recycling Machines with connectivity to PayNet. This constitutes the bulk of reach to customers for majority of fund transfers and payments (JomPay).
  47. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:40 PM Page 45 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 45 annual report 2018 STRATEGIC REVIEW OUR FOCUS ON SUSTAINABILITY Our long term sustainability strategy remains consistent in ensuring that as we grow and progress as a business, our communities are progressing together with us. Building Malaysia remains a key focus for our organisation as we strive to build financially resilient Malaysians and local businesses. PROGRESS FOR ALL We are pleased that our efforts in improving the sustainability of our business have resulted in improvements across the board. This is acknowledged through our year-on-year increase in our FTSE4Good Bursa Malaysia scoring; from 1.0 in 2016 to 2.6 in 2017 and to 3.4 in 2018 (out of a possible total of 5.0). This has resulted in our entry into the FTSE4Good Index Series as a constituent company. CERTIFICATE OF MEMBERSHIP “BUILDING MALAYSIA” This is to certify that Help Malaysians build a sustainable and superior financial position Malaysia Building Society Help Malaysia’s economic growth by supporting local businesses is a constituent company in the FTSE4Good Index Series OUR CORE VALUES Humility Professionalism Ethics Empathy Passion OUR INTEGRITY OUR PEOPLE OUR CUSTOMERS OUR PRODUCTS OUR TECHNOLOGY OUR COMMUNITIES OUR PLANET PEOPLE PLANET June 2018 PROFIT Mark Makepeace Sir Mark Moody-Stuart
  48. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 46 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 46 annual report 2018 STRATEGIC REVIEW OUR SUSTAINABILITY PURSUITS BETTER COMPANY BETTER VALUE BETTER WORLD We strive to uphold the highest level of scrutiny on the integrity of our organisation – in our everyday conduct, and in taking care of the wellbeing of our family of employees. We aim to grow together with the nation as we add value through technology and our solutions – for the betterment of our customers and the industry. We exist as a bank to make a positive difference in the world – in the lives of the communities we serve and in protecting our planet for our next generation. Our Integrity Our Customers Our Communities Our People Our Products Our Planet Our Technology
  49. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 47 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 47 annual report 2018 STRATEGIC REVIEW SUPPORTING THE SDGs MBSB Bank has mapped its material matters to the most supported Sustainable Development Goals (SDGs). In the coming year, we aspire to drill down on the SDG targets to be mapped with our business KPIs in ensuring that we continue to contribute to this important global agenda. Matters Supported SDGs Our Integrity ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// Our People ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// Our Customers ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// Our Products ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// Our Technology ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// Our Communities ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// Our Planet //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////
  50. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 48 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 48 annual report 2018 FINANCIAL REVIEW 2018 was a milestone year for MBSB Group with the acquisition of Asian Finance Bank Berhad completed on 7 February 2018, and two months later, the merged entity operational on 2 April 2018. This allowed for some leverage of the combined entity for the remainder of the year, with the main focus on building up core banking capabilities. PROFIT AFTER TAX – increased by 54.01% The Group reported its Profit After Tax (PAT) of RM642.40 million for the full Financial Year Ended 31 December 2018 (“FYE18”), a significant increase of RM225.27 million compared to RM417.13 million posted in the previous Financial Year Ended 31 December 2017 (“FYE17”) due to lower impairment allowances and partly set off by higher operating expenses. REVENUE – consistent The Group’s revenue at RM3.15 billion for FYE18 is consistent with RM3.26 billion recorded in FYE 2017. COST TO INCOME RATIO – regressed by 9.97% The Group’s Cost to Income ratio (CIR) of 29.53% regressed from 19.56% (FYE17) due to the increase in staff and higher operating costs from investments in IT infrastructure and distribution channels. Nevertheless, MBSB’s CIR still remained well below the industry’s average of 50.1%. NET PROFIT MARGIN - consistent Net Profit Margin (“NPM”) stood at 3.06% (FYE18), consistent with 3.08% (3Q18) mainly contributed by Personal Financing, Corporate and Global Market portfolios.
  51. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 49 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 49 FINANCIAL REVIEW MBSB’s FINANCIAL PERFORMANCE THIS YEAR NET RETURN ON EQUITY – increased by 2.60% The Net Return on Equity (“ROE”) stood at 8.62% (FYE18) trending upwards compared to 6.02% (FYE17). NET RETURN ON ASSETS – increased by 0.47% Net Return on Assets (“ROA”) moved up to 1.42% (FYE18) from 0.95% (FYE17). GROSS FINANCING AND LOANS – increased by 2.84% Gross financing and loans trended upwards from RM34.20 billion (FYE17) to RM35.17 billion (FYE18). The Group’s total assets stood at RM45.42 billion, consistent with RM44.81 billion (FYE17). NET IMPAIRED FINANCING RATIO – increased by 0.28% Net Impaired Financing Ratio stood at 2.39% (FYE18) compared to 2.11% (FYE17). The increase is due to higher impaired financing during the year. DEPOSITS – increased by 1.01% The Group’s Deposit saw growth to RM32.79 billion (FYE18) from RM32.76 billion (FYE17).
  52. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 50 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 50 annual report 2018 FINANCIAL REVIEW 2,613 3,050 3,275 3,260 3,146 933 355 338 551 854 37,666 41,089 43,268 44,810 45,426 FINANCIAL HIGHLIGHTS ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 6,724 7,125 7,786 173 171 116 120 122 39 9 5 7 10 Group Total Assets (RM Million) 4,862 Group Profit Before Taxation (RM Million) 4,682 Group Revenue (RM Million) ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 Group Shareholders’ Equity (RM Million) Group Net Assets Per Share (sen) Group Basic Earning Per Share (sen)
  53. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 51 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 51 annual report 2018 22 23 21 20 30 2,533 2,842 2,998 3,008 813 913 289 224 432 276 FINANCIAL REVIEW ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 46,309 47,418 7,292 27,531 28,585 30,611 32,755 - 4,688 4,803 6,557 6,845 7,048 Company Profit Before Taxation (RM Million) 44,535 Company Revenue (RM Million) 38,976 Group Cost to Income Ratio (%) ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 Company Total Assets (RM Million) Company Deposit (RM Million) Company Shareholders’ Equity (RM Million)
  54. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 52 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 52 annual report 2018 BUSINESS REVIEW OUR BUSINESS PERFORMANCE THIS YEAR Overall Achievement Overall achievement for the year 2018 was commendable for Consumer Banking, closing the year exceeding stated targets. This is due to effective marketing strategies implemented this year, as well as the positive impact of the merger exercise which allowed the Bank to offer more attractive rates and more comprehensive financing solutions. Business Banking saw softer progress in 2018 due to some factors that were not conducive for growth. One contributing factor was the cut back in projects and infrastructure investments. However, strategic business expansions increased the asset composition in 2018 between retail and corporate to 75:25 as compared to 79:21 as at 31 December 2017, moving dynamically towards the group’s target of 65:35 by year 2020. Total Group gross financing/loans for 2018 ended at 94% Islamic and 6% Conventional with Personal Financing 100% Islamic, Housing at 80.35% Islamic, and Auto Financing at 92.60% Islamic. FINANCING, LOANS AND ADVANCES 40,000 RM million 30,000 20,000 10,000 0 Personal Financing Corporate Auto Financing Housing Personal Financing Housing Auto Financing Corporate 1Q18 2Q18 3Q18 4Q18 8,303 271 5,299 21,329 8,825 260 5,330 21,195 9,155 247 5,320 21,130 8,931 233 5,428 20,579
  55. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 53 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 53 annual report 2018 BUSINESS REVIEW PORTFOLIO MIX 23.6% 24.8% 25.5% 25.4% 1Q18 2Q18 3Q18 4Q18 76.4% 75.2% 74.5% 74.6% Retail Corporate SOURCES OF FUNDS 40,000 RM million 30,000 20,000 10,000 0 Customer Deposits Sukuk Cagamas Customer Deposits Cagamas Sukuk 1Q18 2Q18 3Q18 4Q18 2,316 2,175 33,987 2,187 2,165 31,479 2,215 2,150 33,570 1,968 2,136 32,788
  56. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:41 PM Page 54 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 54 annual report 2018 BUSINESS REVIEW GROSS IMPAIRED RATIO Percentage (%) 6 5.5% 5.5% 5.5% 2Q18 3Q18 4Q18 5 4.8% 4 1Q18 BUSINESS OPERATIONS Building Our Banking Infrastructure Within BP 2018-2020, this year was a critical year for business operations. We focused extensively on establishing and creating solid infrastructure and foundational capabilities for the Bank. By Operations Day 1 (OD1) on 2 April 2018, we had ramped up the necessary basics to operate as a full-fledged bank. The key capabilities encompassed the following four areas: Delivery Channels • Mobile Sales Force Mobile sales tool for pre-approval for Industrial Hire Purchase and Mortgage. • Hub and Spoke Model for Bank Branches Hub and spoke distribution model with hubs identified in KL Jalan Sultan Ismail and Penang, and spokes in Damansara and JB Taman Molek. Product Offerings • Deposits Deployment of Basic Current Account. • Treasury Expanding existing Treasury product offerings by leveraging on current AFB Treasury products. • Trade Finance Offering trade finance products leveraging on AFB trade finance products. Transactional Services • Payments/Remittance Provide cheque processing and RENTAS/SWIFT services.
  57. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 55 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 55 annual report 2018 BUSINESS REVIEW Supporting Functions • Compliance Prudential ratios and regulatory reports, policies and procedures for products and services, FEA Compliance Toolkit and compliance monitoring across 6 regions. • Name and Branding Bank name and branding to be consistent with the aspiration to be a progressive new Islamic Bank. OPERATING EXPENSES 1Q’18 RM million 2Q’18 RM million 3Q’18 RM million 4Q’18 RM million 347.6 44.6 48.3 92.9 358.1 57.4 51.6 108.9 341.5 60.3 61.5 121.8 328.5 65.4 17.3 82.7 Total Income Salary and Related Expenses Other Expenses Total Expenses 1Q18 2Q18 Quartely 79.1% SALARY & RELATED TO OTHER EXPENSES RATIO 3Q18 4Q18 Year to date 1Q18 2Q18 Quartely 56.0% 50.1% 49.5% 50.5% 52.7% 48.0% 48.0% 25.2% 29.5% 30.9% 35.7% 28.6% 26.7% 26.7% 30.4% COST TO INCOME RATIO 3Q18 4Q18 Year to date
  58. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 56 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 56 annual report 2018 BUSINESS REVIEW BUSINESS DRIVERS Our overarching thematic business drivers are divided into two: Inclusive Financing Green Financing MBSB Bank has been privileged to have been the bank of the people since our conception as a building society. Our financing products have also served financing access and activity for the underserved and the civil servants of Malaysia. We have fully embraced green financing as one of our drivers of business growth. To manage our risk exposure in a new industry, and to design relevant financing products for the alternative energy sector, we have hired industry experts into the bank to advise us in this field. BUSINESS DRIVERS In our aspiration to be the Top Progressive Islamic bank, technology will be our key business driver and enabler. The urgent and critical focus will be on: • • • • The realisation of BP 2018 – 2020, Enhancements of the core and infrastructure in meeting the demands of regulatory and business, Introduction of new services and capabilities for future business needs, and Automation to increase productivity and efficiency. This will be focused in the following development areas: KEEPING THE LIGHTS ON ENHANCING FOR THE FUTURE NEW SERVICES AND CAPABILITIES Core Banking Review Core Capabilities Insourcing Partnerships Network Enhancement Data Centre E-Wallet Security and Cyber Risks Vendor and Contract Management Automation Services Monitoring Enhanced Governance and Process Controls New Services Analytics
  59. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 57 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 57 RISK REVIEW OUR FOCUS ON RISK AND COMPLIANCE THIS YEAR With the business transformations occurring in 2018, risk and compliance were critical areas for MBSB Bank. We focused on ensuring that we understood, adopted, implemented and communicated all new and existing compliance matters across the organisation. To ensure we had comprehensive oversight, a Board Risk Management and Compliance Committee (BRMCC) was set up as the oversight committee of all risk and compliance matters in the new bank. In addition, six new positions for Regional Compliance and Risk Officers have been introduced to provide guidance and oversight at local levels. Numerous efforts were also undertaken to ensure increased governance and compliance. SHARIAH RISK • • • • • Developed and implemented Assessment Checklist for Product Development (Shariah Checklist for Product). Promoted Shariah Risk Awareness via monthly e-mails to all Staff. Updated and enhanced Shariah Risk Management Procedures and SOP for Shariah Risk Unit. Provided Shariah Risk Awareness training jointly with Operational Risk. Provided input for discussions on Shariah related issues that were escalated to the Shariah Deliberation Team Meeting. MARKET RISK • • • • • • • Conducted gap analysis and revised the risk related policies and procedures during the merger integration between MBSB and AFB, including: the Enterprise Risk Management Framework. the Market Risk Unit Standard Operating Procedures. the Enhanced ICAAP Framework. Conducted stress testing and reverse stress testing which included the enhancement in the liquidity stress testing, and determined the Internal Capital Target. Enhanced monitoring and reporting of major risk exposures in order to identify emerging risks on a timely basis Developed a daily market risk compliance report. Enhanced monthly reporting of Market and Liquidity risks to ALCO. Enhancement of the Treasury Management System (Quantum) to facilitate risk monitoring. Enhanced risk analysis and reporting through establishing the data warehouse via the System for MBSB Analytics and Reporting (SMART) project which was successfully rolled out in August 2018. Assisted in the review of relevant sections of BNM’s reporting under Basel III and Capital Adequacy Framework. Conducted testing on the effectiveness of the Liquidity Contingency Funding Plan to ensure the feasibility of actions outlined in the plan.
  60. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 58 58 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 RISK REVIEW CREDIT RISK • • • • • • • • • • • • Developed a Risk Informed Pricing Framework to ensure that decisions on retail financing pricing are consistent with the approved risk appetite. Conducted a validation exercise on the Personal Financing Scorecard to ensure that the scorecard is still relevant for informed decision making. Conducted a performance review of the Corporate Scorecards to assess the quality of the portfolio following the implementation of the scorecards. Conducted a gap analysis and integration of credit risk related policies for MBSB Bank: Credit Policy. Credit Transactions and Exposures with Connected Parties Policy. Enterprise Risk Management Framework. Reviewed policies from other departments that were enhanced for the integration process of MBSB Bank, as a member of the Organisation & Methods Working Group. Reviewed and updated Terms of Reference for BRMCC, Management Investment and Credit Committee and Board Investment and Credit Committee for MBSB Bank. Reviewed and revised the Approving Authority Limits for MBSB Bank. Monitored closing of gaps identified by BNM in 2017 CRR Findings (AFB) and prepare quarterly progress updates for Management, Board and BNM. SMART Project - assisted with identifying and incorporating risk-related data elements and reports into the system. Provided governance support for the implementation of Payments & Cards. Provided governance support for the implementation of Corporate Internet Banking. Provided governance support for the implementation of Trade Finance product. OPERATIONAL RISK • • • • • • • Effectively managed Operational Risk and BCM Tools (i.e. Risk and Control Self- Assessment, Key Risk Indicator, Loss Event Reporting, and Business Impact Analysis) across the Bank to assist Business Units in identifying, assessing, monitoring and reporting of risk situations faced by them. Reported Loss Event Data, Key Risk Indicators and Scenario Analysis via BNM Operational Risk Integrated Online Network (ORION) in order to monitor operational risk exposures. Implemented the Daily Risk and Compliance Certification for all branches in order to ensure continuous management of compliance and operational risk activities. Provided independent assessment on procurement, outsourcing arrangement and review of policies & procedures of respective Business Units. Formalised the Business Continuity Plan (BCP) to recover the critical business functions within the reasonable timeframe in the event of operational disruption or disaster. Timely and effectively conducted the BCP testing to ensure its effectiveness and operational feasibility to align with BNM's requirements, inclusive of PayNet. Conducted continuous Operational Risk and BCM awareness training for all the Designated Compliance and Risk Officers (DCOROs) and Regional Compliance and Risk Officers (RCROs).
  61. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 59 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 59 RISK REVIEW IT RISK • • • • • • Developed IT Risk Management framework to manage and identify the risk associated with the operation and use of information systems that support business functions of MBSB Bank. Monitored all significant IT Risks in support of management, and ensuring that sufficient controls are in place to address these risks. Provided guidance and leads, in determining the Risk and Control Self-Assessment and Key Risk Indicator for IT Risk. Reviewed quality and effectiveness of additional system controls implemented and initiated by Business Units. Reviewed roles and positions for user access rights based on User Access Matrix. Conducted continuous IT risk awareness training for all the DCOROs and RCROs. DUE DILIGENCE • • • Conducted training for Relationship Managers to give more practical perspectives, and to ensure a structured and systematic approach in identifying credit risks and provide mitigation in the credit proposals. Establishment of Risk and Business Engagement Meeting by Management to assist in understanding and addressing the risk issues identified. Formalised and enhanced the standard operating procedures for Due Diligence to ensure clear processes in performing the functions.
  62. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 60 60 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 CORPORATE GOVERNANCE OVERVIEW STATEMENT The Board of Directors (”Board”) of Malaysia Building Society Berhad (“MBSB”) strongly believes in the importance of corporate governance and is fully committed to ensure that the highest standards of corporate governance and integrity are applied throughout MBSB and its subsidiaries (“MBSB Group”). In addition, the Board also considers and adopts where appropriate, the principles and best practices of corporate governance as prescribed in the Malaysian Code of Corporate Governance (”MCCG”) and those outlined by other regulatory bodies such as Bank Negara Malaysia’s guidelines on Corporate Governance. In May 2018, the Company Secretary presented the “Asean Corporate Governance (“CG”) Scorecard 2017”, to update the Board on the findings and results concerning the governance level of MBSB based on the assessment by Minority Shareholder Watchdog Group (“MSWG”). The assessment was based on the ASEAN Corporate Governance Scorecard which uses the Organization of Economic Cooperation and Development (“OECD”) Principles of Corporate Governance as the main benchmark. MBSB is a member of Federation of Public Listed Companies Berhad (“FPLC”) and a corporate subscriber of MSWG. This Corporate Governance Overview (“CG Overview”) statement is prepared in compliance with Main Market Listing Requirement (“MMLR”) Bursa Malaysia Securities Berhad (“Bursa Malaysia”) and it is to be read together with the Corporate Governance Report (“CG Report”) which is available on MBSB’s website at https://www.mbsb.com.my/CG_Report_2018. The Board is pleased to report to shareholders the manner in which it has applied the Principles of the MCCG as set out in the CG Report. 1.0 PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS Board Responsibilities The ASEAN CG Scorecard 2017 covered five areas of the OECD Principles and adopted 2 levels of scoring to capture the actual implementation of the substance of good corporate governance. The Top 100 Public Listed Companies (“PLCs”) were further subjected to elimination criteria of Return on Equity (“ROE”) of not less than 3% for the last three year. MBSB was ranked number 47 out of the Top 100 PLCs with Good Disclosure and number 63 out of the Top 100 PLCs for the overall CG & Performance. MBSB rating with FTSE4Good Bursa Malaysia had also improved from 2.6 in 2017 to 3.4 in 2018, resulting in MBSB’s entry into FTSE4Good Index Series as a constituent company. The Board is responsible for overseeing the conduct of MBSB Group business and the Management’s implementation of the MBSB Group’s strategic objectives as well as its conduct and performance. During the financial year 2018, MBSB has successfully acquired Asian Finance Bank Berhad (“AFB”) (now known as MBSB Bank Berhad (“the Bank”)). On 2 April 2018, the Islamic Assets and Liabilities of MBSB were vested down to the Bank pursuant to a Scheme of Arrangement. The Board of MBSB and the Bank (“the Boards”) are guided by their own Board Charter which clearly identifies the respective Board’s role, duties and responsibilities.
  63. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 61 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 61 CORPORATE GOVERNANCE OVERVIEW STATEMENT The Board Charter of the Boards also outlines the processes and procedures to ensure the effectiveness and efficiency of the Boards and its Committees. The Boards are supported by various Board Committees and Management Led Committees (“the Committees”) and the roles and responsibilities of the respective Committees are clearly outlined in Terms of Reference (“TOR”) and the Approving Authority Manual (“AA Manual”) which requires regular review and approval by the Boards from time to time. Any decisions which are not within the Committees’ authority would be escalated to the respective Boards with the Committees’ recommendation. The Boards have entrusted its’ Committees with specific responsibilities to oversee the Group’s affairs in accordance with their respective Terms of Reference and remain responsible and keep abreast with the key issues and decisions made by the respective Committees through the reports escalated to the Boards as well as the minutes of meetings which capture the detailed deliberations and were subsequently tabled to the Boards for notation. The name of AFB was changed to “MBSB Bank Berhad” on 2 April 2018. MBSB and the Bank had since undertaken a rebranding exercise to revitalize the Bank’s Corporate Identity and its brand outlook as a progressive full-fledged Islamic bank and to enhance the brand’s positioning and corporate image in the market and to be in line with MBSB’s new strategic business direction. The Board of MBSB in consultation with the Board of the Bank determines the strategic direction of the Group to ensure that MBSB Group achieves its initiatives as set in the Business Plan. The Boards of MBSB and the Bank had during the year convened regularly to examine the progress of the integration between MBSB and the Bank, including the enhancement to the core banking system to meet the banking and regulatory requirements, the budget required for the integration and the future growth for the Group. During the year, the Boards had reviewed and set the performance scorecard targets of the Group and for the Group President and Chief Executive Officer (“Group PCEO”). In February 2018, the Board of MBSB and the Bank also had reviewed their respective Board Charter to ensure that the Board Charter contains practices, policies and procedures that are in line with the market practices and adhere to the requirements as stated in the Bank Negara Malaysia Corporate Governance Guide and Malaysian Code on Corporate Governance. The TOR for the following Board Committees and Management Led Committees for the Bank were reviewed and had been put in place effective from Legal Day 1 i.e. 7 February 2018, being the date of the acquisition of the entire issued and paid up capital in the Bank:1. 2. 3. 4. 5. 6 7. 8. 9. Board Investment & Credit Committee (“BICC”); Board Risk Management & Compliance Committee (“BRMCC”); Board Audit Committee (“BAC”); Board Nominating & Remuneration Committee (“BNRC”). Management Committee (“MANCO”); Management Investment & Credit Committee (“MICC”); Asset & Liability Committee (“ALCO”); Information Technology Steering Committee (“ITSC”); and Initial Alert Committee (“IAR”). The ad-hoc Project Steering Committee (“PSC”) shall be formed and its terms of reference will be established as and when a specific project is undertaken by the Bank’s Management. The Approving Authority (“AA”) Manual for the Bank was reviewed to reflect the necessary changes in the internal process and regulatory requirement to ensure operational efficiency and readiness. The Board of the Bank had also approved the AA and relevant manuals detailing out the procedure and processes for the Bank effective from Legal Day 1.
  64. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 62 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 62 annual report 2018 CORPORATE GOVERNANCE OVERVIEW STATEMENT The governance structure of MBSB and the Bank can be depicted as follows:- GOVERNANCE MODEL & FRAMEWORK: MALAYSIA BUILDING SOCIETY BERHAD BOARD OF DIRECTORS Report to Delegates BOARD COMMITTEES Risk Management Committee (RMC) Audit Committee (AC) Nominating & Remuneration Committee (NRC) Option Committee Group President and Chief Executive Officer Internal Audit Risk Management Compliance Management Governance Framework INDEPENDENT CONTROL FUNCTIONS MANAGEMENT COMMITTEES Management Committee (MANCO) Credit and Rehabilitation Assessment Committee (CARAC) Asset Liability Committee (ALCO) GOVERNANCE MODEL & FRAMEWORK: MBSB BANK BERHAD BOARD OF DIRECTORS Report to Delegates BOARD COMMITTEES Board Audit Committee (BAC) Board Risk Management and Compliance Committee (BRMCC) Board Investment & Credit Committee (BICC) Board Nominating & Remuneration Committee (BNRC) Group President and Chief Executive Officer Internal Audit Risk Management Compliance Management Governance Framework INDEPENDENT CONTROL FUNCTIONS MANAGEMENT COMMITTEES Management Committee (MANCO) Asset Liability Committee (ALCO) Project Steering Committee (PSC) Management Investment and Credit Committee (MICC) Initial Alert Committee (IAR) Information Technology Steering Committee (ITSC)
  65. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 63 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 63 CORPORATE GOVERNANCE OVERVIEW STATEMENT The governance structure of MBSB Group is supported by the AA Manual which delineates relevant matters and approving authority limits, including those reserved for the Board’s approval and those which the Board may delegate to the relevant Board Committees, the Group PCEO and Management. The governance structure, Terms of Reference, Board Charter and the AA Manual will be reviewed as and when required or at least once in every 2 years, to ensure an optimum structure for efficient and effective decision-making in the organisation. In 2018, three (3) Directors of MBSB, eight (8) directors of the Bank and the Group PCEO have undergone and completed the Financial Institutions Directors Education Programme (“FIDE”) Core – Bank training for Module A and Module B. The remaining Director of MBSB completed the FIDE Programme in March 2019. MBSB Group also has put in place a Code of Conduct and Ethics for employees and Complaint & Whistle Blowing Manual to encourage employees to report on suspected fraud, misconduct behavior and/or violations of the Code of Conduct and Ethics as well as any other directives or policies issued by MBSB Group from time to time. This is to support MBSB Group’s values in upholding the highest standard of personal and professional integrity, ensure employees can raise concerns without fear of reprisals; and provide a transparent and confidential process for dealing with genuine concerns pertaining to safeguarding the Company’s interests. The position of the Chairman and the Group PCEO are held by different individuals with clear division of responsibility between the Chairman and Group PCEO to ensure balance of power and authority and promotes check and balance. The Chairman focuses on strategy, management oversight, board leadership and risk management whereas the Group PCEO focuses on the business, operations and organizational issues and implementing Board’s decision. The roles of Chairman and Group PCEO which are formally documented in the Board Charter can be found on the website of MBSB at https://www.mbsb.com.my/mbsb_board_charter. All the Board members have full access to two (2) Company Secretaries who are qualified to act as Company Secretary under Section 235 of the Companies Act, 2016 and they are Associate members of Malaysian Institute of Chartered Secretaries and Administrators (“MAICSA”). The Company Secretaries demonstrates ongoing support in advising and assisting the Board on matters relating to the affairs of the Company, including issues pertaining to compliance, corporate governance and best practices, boardroom effectiveness and Directors’ duties and responsibilities including disclosure of their interest in securities, disclosure of conflict of interest in transactions, prohibition on dealing in securities and restrictions on disclosure of price sensitive information. Board Composition MBSB Group also has in place a Fraud and Corruption Control Policies and Procedures in managing the risk of fraud and corruption which should be read together with the Complaint and Whistle Blowing Policy. In addition, MBSB Group has established Anti-Money Laundering and Counter Financing of Terrorism Framework which is part of the Compliance policy for the Group. MBSB Group is committed to fully cooperate with the relevant local and international competent authorities and law enforcement agencies in combating money laundering and financing of terrorism. Appropriate internal controls and procedures for money laundering prevention are in place. Compliance Division carries out regular checks and training to ensure that the employees are fully aware and committed in discharging their obligations. MBSB Group has also established the Related Party Transactions Policy in February 2019 that outlines the roles and responsibilities expected of the Management and the Board of Directors, as well as other relevant divisions/departments within MBSB Group. It provides the guidance on transactions that involve related parties and ensuring that such transactions are conducted at arm’s length basis and in accordance with good governance, as well as with appropriate disclosures. The respective Boards recognizes the benefits of having a diverse Board to ensure that the Board is able to perform effectively by providing the necessary range of perspectives, experience and expertise. The Boards are committed to Board diversity and at the same time will ensure that all appointments to the respective Boards will be made based on merits while taking into account the Company’s needs and circumstances, present size of the Board, suitability for the role, skills, experience, knowledge, experience and diversity. MBSB Board has adopted the Boardroom Diversity Policy which covers diversity in terms of professional experience, skills, knowledge, education and background, age, ethnicity, culture and gender for MBSB Group. The diversity of skill, experience and knowledge of its members in various disciplines and profession allows the Board to address and/or to resolve the various issues in an effective and efficient manner.
  66. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 64 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 64 annual report 2018 CORPORATE GOVERNANCE OVERVIEW STATEMENT The Boards through its respective Nominating and Remuneration Committee (“NRC”) and the Bank’s BNRC reviews the Board composition on yearly basis and the same is tabled to the respective Boards, the optimum size of the Board to enable effective oversight and delegation of responsibilities to encourage the active participation of all directors in Board/Board committees. For the year 2018, the Board of MBSB, had prior to the acquisition of the Bank, reviewed the Board Committees composition for MBSB and the Bank in January 2018. The Board of MBSB had again reviewed the Board composition in August 2018. The MBSB’s NRC and the Bank’s BNRC have conducted an annual review on the Board’s mix of skills and experience, diversity and other qualities in 2018 and concluded that there was a need to appoint female directors and directors who possess Information Technology or Accounting/Auditing experiences. Both Committees also agreed that additional directors need to be appointed as part of the succession planning of the Board. The Boards have obtained list of board candidates from various source i.e. external sources, shareholders etc. and the evaluation process is still on-going. A Board Skill Matrix was used to understand the capabilities and personal attributes of the existing Board members and use as a reference when considering a new appointment of directors. The MBSB’s NRC and the Bank’s BNRC, have carried out fit and proper assessment on the candidates prior to recommendation to the Board for approval. The Boards have adopted a Fit and Proper Policy & Procedure which outlined the following criteria for assessment of the suitability of the candidates, re-election of Directors, appointment/renewal of contract/performance for the Group PCEO, key senior management with “C” Suites position and the Company Secretary:(i) Probity, personal integrity and reputation - person must have the personal qualities such as honesty, integrity, diligence, independence of mind and fairness. (ii) Competence and capability - person must have the necessary skills, experience, ability and commitment to carry out the role. (iii) Financial integrity - person must manage his debts or financial affairs prudently. The “C” Suites position will cover the Chief Financial Officer, the Chief Compliance Officer, the Chief Internal Auditor, the Chief Risk Officer, the Chief Business Officer, the Chief Operating Officer, the Chief Technology Officer and the Chief Corporate Officer. The NRC prior to the acquisition of AFB had also recommended additional candidates for appointment as Shariah Committee Members of the Bank. Post-acquisition, matters concerning the Shariah members were discussed and decided at the BNRC of the Bank. The BNRC of the Bank is also responsible in reviewing the appointment, removal and determines the remuneration package of the members of the Shariah Advisory Committee. The Boards through NRC and the BNRC has conducted the annual assessment on the effectiveness of the Board, Board Committees, individual directors and independence of Independent Directors. The results of the annual assessment indicated that the Board, Board Committees and the individual directors have performed within expectation and able to discharge their functions and duties effectively. The Boards are also satisfied with the results of the assessment on the Independent Directors and was of the view that all Independent Directors are independent of management and free of any interest, position, association or other relationship that might materially influence the Independent Director’s capacity to bring an independent judgment and to act in the best interests of the Group and its stakeholders. The MBSB’s NRC and the Bank’s BNRC have also assessed the performance of Directors who are subject to re-election of Directors at the forthcoming AGM and the recommendation is submitted to the respective Boards for decision on the proposed re-election of the Director concerned for shareholders’ approval at the forthcoming AGM. During the year, the MBSB‘s Board size had decreased from ten (10) members as at 1 January 2018 to four (4) members as at 31 December 2018. Five (5) Directors who had resigned from MBSB had been appointed as the Directors of the Bank in February 2018 as part of the restructuring exercise. There are two (2) common Directors in MBSB and the Bank. Currently, the women representation in the Board of MBSB and the Bank was registered at 25% and 12.5% respectively. The respective NRC and BNRC and the Boards of MBSB and the Bank are actively looking for potential candidates to achieve optimum Board size with right diversity. The detailed activities carried out by NRC and the BNRC in 2018 are disclosed in Corporate Governance Report.
  67. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 65 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 65 CORPORATE GOVERNANCE OVERVIEW STATEMENT Board Remuneration The Boards have established a Directors Remuneration Framework which is tailored to support the strategies and long-term vision of MBSB Group as well as provide adequate motivational incentive for directors to pursue longterm growth and success of MBSB Group. The NRC and BNRC are responsible to review the Directors’ remuneration on an annual basis prior to making its recommendations to the Boards for approval. The revision to the Directors Remuneration Framework was approved by the Board in January 2018. Both the NRC and the BNRC are responsible to ensure that the Directors’ remuneration for MBSB and the Bank are competitive and align with the industry benchmark. The level of remuneration for the Directors shall be determined and recommended by the NRC and the BNRC to the respective Boards after giving due consideration to all relevant factors including the Directors fiduciary duties, time commitments expected of the Directors, Company’s performance, market conditions as well as the compensation level for comparable positions among other similar Malaysian public listed companies and similar sized financial institutions. The fees and benefits payable to Directors are approved by the shareholders in general meeting accordance with the Companies Act, 2016 and Company’s Constitution. Both NRC and the BNRC have reviewed the Directors’ fee structure and the benefits payable to the Directors and have recommended for the fee structure to remain unchanged. With the Companies Act, 2016, MCCG and MMLR in place, the duties and responsibilities of Board members have become more onerous and the expectations of the Board Committees have increased. The Board Committees of MBSB and the Bank are also carrying the oversight responsibilities particularly in ensuring that the MBSB Group is in compliance with the BNM guidelines. In order to ensure that the current remuneration structure commensurate with the respective directors’ responsibilities, the NRC has requested for an external consultant to be appointed to review the remuneration structure of Directors of MBSB and the Bank. The details of the Directors’ fees structure and benefits payable to the Directors of MBSB and the Bank are disclosed in the CG Report. 2.0 PRINCIPLE B: EFFECTIVE AUDIT & RISK MANAGEMENT Audit Committees (“AC”) As at 31 December 2018, the MBSB’s Audit Committee (“AC”) comprises three (3) Independent Non-Executive Directors. The Audit Committee was chaired by Encik Lim Tian Huat who has extensive experience in accounting and finance. Encik Lim is a Council Member of Insolvency Practitioners Association of Malaysia, a Fellow of Association of Chartered Certified Accountants, a member of the Malaysian Institute of Accountants and Malaysian Institute of Certified Public Accountant. As at 31 December 2018, the Bank’s BAC comprised of two (2) Independent Non-Executive Directors and one (1) Non-Independent Non-Executive Director. The Bank’s BAC was chaired by Encik Aw Hong Boo, a Fellow of Institute of Chartered Accountants in England & Wales, a member of the Malaysian Institute of Accountants and Malaysian Institute of Certified Public Accountants. None of the MBSB’s AC members and the Bank’s BAC members was a former key audit partner in the past 2 years. The Boards have adopted a stricter policy in the Board Charter which applies to appointment of new director as well. The Board Charter states that ‘any candidate/director directly involved in the engagement and any partner of the external auditor firm must not serve or to be appointed as Director until at least 2 years after he ceases to be an officer and/or partner of that firm and the firm last served as an auditor of the Group.’ The MBSB’s AC and the Bank’s BAC are also responsible to review and monitor the suitability and independence of external auditors annually. Both Committees are guided by the External Audit Policy and Procedures on the assessment of external auditors. The review encompasses an assessment of the qualifications and performance of the auditors, the quality and the auditor’s communication with the AC and the Group, the auditor’s independence, objectivity and professional skepticism. The MBSB’s AC and the Bank’s BAC are satisfied with the performance of Messrs Ernst & Young (“EY”) and Messrs KPMG PLT, based on the quality of service and sufficiency of resources which they provided to the Group and the Bank respectively. The MBSB’s AC was also satisfied with its review that the non-audit services provided by EY for financial year ended 31 December 2018 did not in any way impair their objectivity and independence as external auditors of the Group.
  68. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 66 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 66 annual report 2018 CORPORATE GOVERNANCE OVERVIEW STATEMENT The MBSB’s AC and the Board had in February 2019 considered the efficiency of having only 1 External Audit firm for both MBSB and the Bank. As Messrs KMPG PLT is the existing External Auditor for the Bank, the MBSB’s AC and Board has recommended that Messrs. KPMG PLT be appointed as the auditors for both MBSB and Bank for the financial year ending 31 December 2019, subject always to the approval from the Regulators and Shareholders. Boards also have the overall responsibility of maintaining a sound system of internal controls to safeguard shareholders’ investments and the Company’s assets. Risk Management and Internal Control Framework The establishment of DCORO is to strengthen the compliance and risk management culture within Bank and to ensure compliance and operational risks are managed effectively within Bank. The Board is ultimately responsible for risk oversight within the Group through the RMC and BRMCC at the Bank level (the Risk Committees). The Risk Committees are responsible to periodically review the Risk Management policies, risk exposure and limit whilst ensuring infrastructure and resources are in place. The following Management Led Committees have been put in place to assist the Risk Committees in managing credit risk, operational risk, market risk, liquidity risk, Shariah risk, IT risk and other material risks. Management Led Committees at MBSB 1. 2. 3. Management Committee (“MANCO”) Credit Assessment and Rehabilitation Committee (“CARAC”) Asset & Liability Committee (“ALCO”) Management Led Committees at the Bank 1. 2. 3. 4. 5. Management Committee (“MANCO”) Management Investment & Credit Committee (“MICC”) Asset & Liability Committee (“ALCO”) Initial Alert Report Committee (“IAR”) IT Steering Committee (“ITSC”) The Risk Committees have established the Group’s Risk Management Framework and Risk Appetite Framework which act as the main reference documents in matters relating to the Group’s risk management activities and serve as a guide to Risk Management Division in monitoring risk management practices. The risk appetite framework also assists the Management and the Boards in managing risk within the Group, where the business activities are mainly risk-taking in nature. The respective heads of business units are responsible for monitoring the compliance of their business activities to the approved risk appetite in the framework and the Risk Management Division is responsible for monitoring the risk limits set by the Boards and reporting any limit breaches or exceptions to the relevant Management Led Committees, Board Committees and the Board. The reports include the type of breaches, rationale (cause or reason leading to the breaches) and action plans taken to rectify the situation. The At the Bank level, MANCO in May 2018 has approved the establishment of “Designated Compliance and Risk Officer” (DCORO) at all business and support functions including bank branches. DCORO together with all Business Unit and the Management will act as the first line of defense in executing compliance and operational risk initiatives at business and support functions. The formation of DCORO at business and support functions are in line with paragraph 8.3 of BNM Policy Document on Operational Risk. Further, in respect of managing compliance risk at business and support functions, the formation of DCORO is in line with Section 19 (4) of Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act (“AMPLATFPUAA”) 2016. The Regional Compliance and Risk Officers (RCRO) are also appointed at all regional branches to oversee the overall compliance and risk areas in branches nationwide. Among the responsibilities of a RCRO are to validate health checks submission by branch, to perform gap analysis relating to branch operations, acts as a business advisor for branches on compliance and risk matters and to provide training to branch employees on compliance, risk and operational control requirements. The Boards are of the view that the risk management and internal control framework in place during 2018 is sound and sufficient to ensure that all risks are well managed within the Group’s risk appetite by providing adequate infrastructure and resources in place to support the risk management activities. The risk management and internal control framework is disclosed in the Statement on Risk Management and Internal Control Section in the Company’s Annual Report 2018. Shariah Governance The Board of MBSB has established and implemented a comprehensive Shariah Governance Framework (“SGF”) since 2012. With effect from 2 April 2018, the Islamic Assets and Liabilities of MBSB were vested down to the Bank pursuant to a Scheme of Arrangement. All Shariah activities post 2 April 2018 were carried out at the Bank. With the SGF in place, Bank has ensured that the aims, governance structures, operations, policies and procedures of its business are in compliance with Shariah principles at all times.
  69. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 67 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 67 annual report 2018 CORPORATE GOVERNANCE OVERVIEW STATEMENT The Bank has also established an independent Shariah Advisory Committee, as well as Shariah compliance and research functions to manage, advise, examine and evaluate Bank’s level of compliance to Shariah and promote end-to-end Shariah compliance awareness within the Islamic finance industry. Efforts to further strengthen Shariah governance standards remain a priority to the Bank as good governance models and practices evolve in tandem with the growing complexity of the Islamic finance industry. As such, the SGF envisions for future of Shariah governance impacting business model and strategy of the Bank as a full-fledged standalone Islamic bank, as well as driving innovation of value-added Islamic financial products through effective implementation of a holistic Shariah regulatory framework. SGF of Bank is in line with the SGF for Islamic Financial Institutions issued by Bank Negara Malaysia. The framework provides clear roles and responsibilities of an Islamic financial institution for adherence to Shariah across the organization as illustrated below: SHARIAH as overarching principle in Islamic finance BOARD BOARD RISK MANAGEMENT COMMITTEE Overall oversight on Shariah governance structure & Shariah compliance BOARD AUDIT COMMITTEE SHARIAH COMMITTEE MANAGEMENT Oversight accountability on Shariah related matters • Ensure executions of business & operations are in accordance with Shariah principles. • Provide necessary support to the Shariah Committee SHARIAH RISK MANAGEMENT CONTROL FUNCTION SHARIAH REVIEW FUNCTION SHARIAH RESEARCH FUNCTION SHARIAH AUDIT FUNCTION Identify, measure, monitor, report & control Shariah non-compliance risk Review business operations on regular basis to ensure Shariah compliance Conduct in-depth Shariah research prior to submission to the Shariah Committee Provide independent assessment & objective assurance designed to value add & improved IFI’s compliance with Shariah SHARIAH COMPLIANCE AND RESEARCH FUNCTIONS
  70. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 68 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 68 annual report 2018 CORPORATE GOVERNANCE OVERVIEW STATEMENT 3.0 PRINCIPLE C: INTEGRITY IN CORPORATE REPORTING & MEANINGFUL RELATIONSHIP WITH STAKEHOLDERS Communication with Stakeholders MBSB is committed to provide the investors and stakeholders with high quality information on a timely manner. MBSB actively engages all its stakeholders through various platforms including the announcements via BursaLINK, disclosures on MBSB website and engagement through the investor relations function. MBSB also maintain an open communication with analyst, investors, regulators, employees, customers and other communities. As part of the Group’s initiatives, Group PCEO together with the Chief Financial Officer and the Corporate Services Division conduct discussions, dialogues and briefings with fund managers, financial analyst and media, as and when necessary and/or after the Group’s quarterly financial results are released to Bursa Malaysia. This is to promote better understanding of the Group’s financial performance, operations and other matters affecting shareholders’ interest. Conduct of General Meeting The AGM of the Company is the principal forum for dialogue and interaction with its shareholders. Shareholders are given the opportunity to participate effectively in resolutions tabled at the AGM. All shareholders have direct access to the Board members at this AGM. In addition, the senior management, external auditors and other advisors are present at the AGM to provide answers and clarifications to shareholders. Four (4) directors were present at the 48th AGM. The remaining director was unable to attend the 48th AGM as he was attending another AGM overseas. During the 48th AGM, the Group PCEO presented the Group’s financial performance to the shareholders before proceeding with the business of the meeting. The Group PCEO also shared the responses to questions submitted in advance of the AGM by the MSWG. The Chairman also invited the shareholders to raise questions pertaining to MBSB’s financial statements, proposed resolutions and other items during the Questions and Answers session before putting a resolution to vote. MBSB and the Bank’s website, which can be found at https://www.mbsb.com.my, and https://www.mbsbbank.com respectively, provides updated information on the corporate and business aspect of the MBSB Group. Press releases, announcements to Bursa Malaysia, analysts briefings and quarterly results of the group are also made available on MBSB’s website and this helps to promote accessibility of information to the company’s shareholders and all other market participants. All details of the corporate events carried out by MBSB Group are also available on MBSB and the Bank’s website. The notice and agenda of AGM together with Form of Proxy are given to shareholders at least 28 days before the AGM, which gives shareholders sufficient time to prepare themselves to attend the AGM or to appoint proxy to attend and vote on their behalf. Each item of special business included in the notice of AGM will be accompanied by an explanatory statement on the effects of a proposed resolution. A Corporate Disclosure Policy of the Group has been in place and it has set out the policies and procedures for disclosure of all material information to be released to the public. This CG Overview Statement was approved by the Board of Directors on 27 March 2019. Stakeholders are encouraged to drop an email at enquiry@mbsbbank.com if they have any inquiries. The poll voting at the 48th AGM was conducted through electronic voting system.
  71. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 69 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 69 annual report 2018 ADDITIONAL COMPLIANCE STATEMENT Utilisation of Proceeds Raised from any Corporate Proposal During the financial year ended 31 December 2018, the following were carried out by the Group: 1) Dividend Reinvestment Plan (“DRP”) The net proceeds raised from DRP (after deducting the estimated expenses for DRP) are for the purpose of funding of the working capital and/or other requirements of the Group. Non-Audit Fees Apart from the annual audit fees, the Group has incurred other assurance related fees of and non-audit fees paid or payable to external auditors of MBSB, Messrs Ernst & Young or its affiliates for the financial year ended 31 December 2018. Group (RM’000) Company (RM’000) 490 410 5 5 Non-Audit Fees - Corporate Exercise (Merger and Integration) - MFRS 9 - Legal related - Taxation - Training 8,480 508 150 11 10 5,123 508 150 - Total 9,654 6,196 Fees paid/payable to Ernst & Young - Audit Fees Regulatory Related - Statement on Risk Management and Internal Control Material Contracts with Related Parties Save as disclosed in Note 44 to the financial statements, there are no other material contracts subsisting at the end of the financial year or entered into since the end of the previous financial year by the Company and its subsidiaries which involves interests of the Directors, Group PCEO and major shareholders.
  72. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 70 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 70 annual report 2018 ADDITIONAL COMPLIANCE STATEMENT Dividend Payment Policy The Company has adopted a 30% dividend payment ratio on profit after tax. Employees Shares Option Scheme (“ESOS”) The Shares Option granted to Group PCEO as at 31 December 2018 was as follows:Name Datuk Seri Ahmad Zaini Othman Exercise Price (RM) As at 1.1.2018 Granted Exercised As at 31.12.2018 1.42 270,461 - - 270,461 The number of shares allocated, in aggregate, to the Directors and senior management of MBSB Group shall not exceed 50% of the total Company’s shares available under the scheme. As at 31 December 2018, the actual percentage of total options granted to senior management of MBSB Group under ESOS was 22.58% of the total ESOS granted. Details of the ESOS during the financial year 2018 are set out in Note 29 of the Notes to the Financial Statements in this Annual Report.
  73. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 71 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 71 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL The Board of Directors (“MBSB Board”) is pleased to provide a statement on the state of the risk management and internal control system of Malaysia Building Society Berhad (‘’MBSB’’) and its group of companies (collectively known as “the Group”) in this Annual Report as per the Bursa Malaysia Securities Berhad Main Market Listing Requirement (“Bursa Malaysia”) and the Malaysian Code on Corporate Governance. The Statement outlines the key features of the risk management and internal control system of the Group during the year under review. The following Statement on Risk Management and Internal Control (SRMIC) is prepared in accordance with the guidelines as set out in the “Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers”. Effective 2 April 2018, MBSB had transferred its Islamic assets and liabilities into the Bank (formerly known as Asian Finance Bank Berhad). BOARD RESPONSIBILITY MBSB Board is cognizant of its overall responsibility and recognizes the importance of maintaining a sound system of risk management and internal control and reviewing its adequacy, integrity and effectiveness so as to safeguard shareholders’ investments and the Group’s assets. MBSB Board endeavors to oversee to ensure that principal risks are identified and ensure the implementation of appropriate internal controls and mitigation measures. Due to the limitations that are inherent in any system of risk management and internal control, this system can therefore only provide reasonable and not absolute assurance against the occurrence of any material misstatement, loss or fraud. Limitations inherent in the system include among others, human error and potential impact of external events beyond Management control. MBSB Board remains committed towards operating a sound risk management and internal control system and, therefore, recognizes that the system must continuously evolve to support the Group’s businesses and operations in a dynamic business environment. As such, MBSB Board ensures that the Group establishes comprehensive risk management policies, processes and infrastructure to manage the various types of risks. MBSB Board has ensured appropriate controls and processes such as policies, procedures and risk limits within the Group for identifying, measuring, monitoring, controlling and reporting of significant risks as well as emerging risks that may affect the achievement of business goals and objectives of the Group which had taken into consideration the changes in the business environment and regulatory requirements. The outcome of this process is closely monitored and reported in a timely manner to MBSB Board and the Bank Board (collectively known as “the Boards”) for deliberation. This ongoing process has been in place for the entire financial year under review and up to the date of approval of this Statement for inclusion in the Annual Report. MBSB Board regularly receives and reviews reports relating to the compliance status of the internal and regulatory requirements imposed on the Group. The Boards deliberate on any gaps and deficiencies reported and will direct Management to take all the necessary actions including remedial plans and follow-up actions to ensure that the gaps and deficiencies are addressed.
  74. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 72 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 72 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL MANAGEMENT RESPONSIBILITY The Management is overall responsible for implementing the Group’s policies and processes to identify, measure, monitor, control and report on risks as well as the effectiveness of the internal control systems, taking appropriate and timely remedial actions as required. Its roles include: reports regularly to the Boards on all risks related to the Group. The Management is also accountable to ensure such policies and procedures are being continuously reviewed in order to meet the changing financial landscape as well as the changes in the nature and size of the Group’s activities. RISK MANAGEMENT FRAMEWORK • Identifying and evaluating the risks relevant to the Group’s business and achievement of its business objectives and strategies; • Formulating and implementing relevant policies and procedures to manage risks and the conduct of business in accordance with the Group’s strategic vision and overall risk appetite; • Designing and implementing the risk management framework and internal control system, and monitoring its effectiveness; The Group has in place a risk management framework for identifying, measuring, monitoring, controlling and reporting the significant risks faced in the achievement of business objectives and strategies. The risk management framework ensures that there is an effective ongoing process to identify, measure, monitor, control and report risks across the Group. The key features of the risk management framework include: • Implementing remedial actions to address compliance deficiencies as directed by the Boards; and • Reporting in a timely manner to the Boards on any changes identified to the risks or emerging risk and the corrective actions taken. MBSB Board has also obtained assurance from the President and Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and Chief Compliance Officer that the Group’s risk management and internal control system is operating adequately and effectively. RISK MANAGEMENT AND INTERNAL CONTROL MBSB Board regards risk management as an integral part of business operations and confirms that there is an on-going process of identifying, measuring, monitoring, controlling and reporting the significant risks that may affect the achievement of its business objectives. The control structure and processes which have been instituted throughout the Group are reviewed and updated from time to time to strengthen and tighten the relevant internal controls which are consistent with the Group and industry practices. Responsibility for implementing the Group’s strategies and dayto-day businesses are delegated to the Management. The organizational structure sets out clear segregation of roles and responsibilities, lines of accountability and levels of authority to ensure effective and independent stewardship. The Management assists the Boards in implementing the risk management policies and procedures as well as developing and operating internal controls to manage the identified risks, as well as monitors and i. Governance & Organization: A strong governance structure is important to ensure an effective and consistent implementation of the risk management framework. MBSB Board is ultimately responsible for the Group’s risk management activities and sets the strategic direction, risk appetite and relevant frameworks. The Boards are assisted by various Board committees and control functions in ensuring that the risk management framework is effectively maintained. ii. Internal Capital Adequacy Assessment Process (ICAAP) of the Bank: The ICAAP framework ensures that all material risks are identified, measured and reported; and that adequate capital levels consistent with the risk profiles, including capital buffers, are maintained to support the current and projected demand for capital, under existing and stressed conditions. For non-measurable risks, relevant frameworks and control mechanisms are implemented to mitigate and manage the same. iii. Risk Appetite of the Bank: Risk Appetite is defined as the amount and types of risk that the Bank is able and willing to accept in pursuit of its strategic and business objectives. The development of the risk appetite is integrated into the annual strategic planning process and is adaptable to changing business and market conditions. As the risk appetite is dynamic, the risk appetite is set based on the business and financial targets, while incorporating macroeconomic and global outlook. The Bank Board considers the actual and targeted risk profile proposed by senior management and business units when setting the risk appetite. The risk appetite is also being reviewed annually or as and when required.
  75. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 73 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 73 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL iv. Risk Management Process for the Group: • Business Planning: Risk Management Division is an element of the business planning process, which encompasses setting frameworks for risk appetite, risk structure and new products or new business activities, for the relevant entities. v. • Risk Identification: Risks are systematically identified through the robust application of the Enterprise Risk Management Framework, policies and procedures. • Measure and Assess: Risks are measured and aggregated using risk methodologies across each of the risk types, including stress testing. • Manage and Control: Controls and limits are used to manage risk exposures within the risk appetite. Controls and limits are regularly monitored and reviewed in the face of evolving business needs, market conditions and regulatory changes. Corrective actions are taken to mitigate risks. • Monitor and Report: Risks on an individual as well as a portfolio basis are regularly monitored and reported to ensure they remain within the Bank’s risk appetite. Risk Management Infrastructure: • Risk Policies, Procedures and Methodologies: Welldefined risk policies by risk type provide the principles by which the Group manages its risks. Procedures provide guidance for day-to-day risk-taking activities. Methodologies provide specific requirements, rules or criteria that must be met to comply with the policies. • People: Attracting the right talent and skills are the key to ensuring a well-functioning risk management framework. The Group continuously evolves and proactively responds to the increasing complexity of the Group as well as the economic and regulatory environment. v. Risk Culture: The Group embraces risk management as an integral part of its culture and decision-making processes. The Group’s risk management philosophy is embodied in the Three Lines of Defense approach, whereby risks are managed at the point of a risk-taking activity. There is clear accountability of risk ownership across the Group. Guided by the said principle, the Group has launched a Risk Awareness Culture which comprises training, awareness campaigns and roadshows to promote a healthy risk culture. A strong risk culture minimizes the Group’s exposure to financial and nonfinancial risks including reputational impact, over time. In addition, the Bank has introduced Regional Compliance and Risk Officers (“RCRO”) and Designated Compliance and Risk Officers (“DCORO”) to cultivate proactive risk and compliance management and to establish a robust risk culture. The DCOROs are appointed at the respective branches, business and functional units across the Bank to provide real time advisory on risk and compliance matters. The implementation of the above is in line with the ‘Three Lines of Defense’ concept as practiced by the Group. There is clear accountability of risk ownership across the Group. The model is depicted in the diagram below: BOARD, Risk Committees, Internal/External Audit 3rd Line RMD, Legal, Compliance and Organization & Methods 2nd Line • Technology and Data: Appropriate technology and sound data management are enablers to support risk management activities. All Business Units or Line Management 1st Line
  76. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 74 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 74 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL RISK GOVERNANCE STRUCTURE The Group has established guiding principles which form the basis and foundation for clear accountability and responsibility for effective risk management governance as follows: The respective Risk Committees undertake the overall responsibility for risk oversight within the Group which includes reviewing the risk management policies, risk exposures and limits as well as ensuring that all risks are well managed within the Group’s risk appetite, by providing adequate infrastructure and resources to support the risk management activities. Risk Management Committee The Boards have respectively put in place the MBSB Risk Management Committee (“RMC”) and Bank Board Risk Management and Compliance Committee (“BRMCC’’), (collectively known as “the Risk Committees”) as the drivers for identifying significant risks and ensuring proper oversight of the management of risks which relate to the Group’s processes and activities. The Boards are ultimately responsible for risk oversight within the Group through the Risk Committees. Primary objectives of the respective Risk Committees are to assist the Boards in fulfilling their fiduciary responsibilities particularly in the management of controls as well as to provide a focal point for communication between risk managers, the Boards and Senior Management on matters in connection with reporting risks and controls and providing a forum for independent discussion. The Risk Committees shall also undertake additional duties as may be deemed appropriate and necessary to assist the Boards. MBSB During the financial year ended 31 December 2018, a total of 7 RMC meetings were held. The Committee comprises the following members and details of their attendance of meetings held during the financial year are as follows: Name of Members Number of meetings attended/held Encik Lim Tian Huat (Chairman) 7/7 Encik Moslim bin Othman * Appointed as RMC member on 6 February 2018 6/6 Puan Lynette Yeow Su-Yin * Appointed as RMC member on 6 February 2018 6/6 Encik Aw Hong Boo * resigned as RMC member on 6 February 2018 1/1 Tunku Alina Alias * resigned as RMC member on 6 February 2018 1/1 Dato’ Jasmy Ismail * resigned as RMC member on 6 February 2018 1/1
  77. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 75 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 75 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL The Bank During the financial year ended 31 December 2018, a total of 15 BRMCC meetings for the Bank were held. The Committee comprises the following members and details of their attendance of meetings held during the financial year are as follows: Name of Members Number of meetings attended/held Dr. Loh Leong Hua (Chairman) * from AFB (resigned as BRMCC member on 7 February 2018) * Appointed as BRMCC member on 24 May 2018 * Appointed as Chairman of BRMCC on 20 August 2018 10/10 Encik Aw Hong Boo *appointed as BRMCC member on 7 February 2018 15/15 Tunku Alina Alias * appointed as BRMCC member and Chairman on 7 February 2018 * redesignated as member of BMRCC on 20 August 2018 15/15 Datuk Azrulnizam bin Abdul Aziz * appointed as BRMCC member on 7 February 2018 ** stepped down as BRMCC member on 1 June 2018 6/6 Dato’ Dr. Md Khir Bin Abdul Rahman * from AFB (resigned as BRMCC member on 7 February 2018) 1/1 Encik Abdul Rahim Bin Abdul Hamid * from AFB (resigned as BRMCC member on 7 February 2018) 1/1 Datuk Johar Bin Che Mat * from AFB (resigned as BRMCC member on 7 February 2018) 1/1 • Risk Committees are responsible for periodically reviewing risk management policies, risk exposures and limits whilst ensuring infrastructure and resources are in place; and • Committees are set-up to assist the Risk Committees to manage credit risk, operational risk, market risk, liquidity risk, Shariah risk, other material risks and compliance. The respective Management Led Committees set-up under the Group are as follows: MBSB • Management Committee (“MANCO”) • Credit and Rehabilitation Assessment Committee (“CARAC”) • Asset Liability Committee (“ALCO”) The Bank • Management Committee (“MANCO”) • Management Investment and Credit Committee (“MICC”), • Asset Liability Committee (“ALCO”) • Initial Alert Report Committee (“IAR”) • IT Steering Committee (“ITSC”)
  78. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 76 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 76 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL Management Led Committees • Asset Liability Committee (ALCO) serves as the primary oversight and decision making body that provides strategic direction for the management of market risk and liquidity risk. The committee also monitors capital adequacy through capital management. • Initial Alert Report Committee (IAR), in attending to corporate and retail financing, the committee reviews and evaluates the position of financing accounts that are in arrears or require closer monitoring and determines the course of action to be taken for these accounts. On a portfolio level, the committee assesses the quality of the retail and corporate financing portfolios and evaluates any significant trends detected. • IT Steering Committee (ITSC), as the senior governance and policy making body for information technology (IT) at the Bank, the committee ensures that the Bank’s planning for and investment in IT supports the organisation’s strategic goals. MBSB MANCO, which constitutes members of Senior Management, acts as a platform for addressing all inherent risks to MBSB as well as the development of risk mitigation measures and strategies. The committee is also responsible for identifying, discussing and resolving any operational, financial and key management issues. Other dedicated management committees namely ALCO and CARAC assist RMC and MBSB Board in managing credit, operational, market and liquidity risks. Further details of the roles and responsibilities of these committees are as follows: • ALCO serves as the primary oversight and decision making body that provides strategic direction of the Group for the management of market risk, liquidity risk, profit rate and the Group assets and liabilities. The committee also monitors capital adequacy through capital management of MBSB Bank. • CARAC deliberates and approves decisions on the remaining conventional corporate and retail financing, within the authority limit delegated by MBSB’s Board. Where the proposals of the existing corporate and retail financing are not within CARAC’s authority limit, it would recommend the proposals to MBSB Board for approval. No new financings are being carried out at MBSB as all new financings are being undertaken by the Bank. The Bank At the Bank level, the following Committees were established in managing credit, operational, market, liquidity and Shariah risks. • MANCO, which constitutes members of Senior Management, acts as a platform for addressing all inherent risks to the Bank as well as the development of risk mitigation measures and strategies. In implementing the Risk Appetite Framework across the Bank, the Bank’s MANCO ensures timely escalation of all events which may materially impact the Bank’s financial condition or reputation for appropriate action. The committee is also responsible for identifying, discussing and resolving any operational, financial and key management issues. • Management Investment and Credit Committee (MICC) deliberates and approves corporate financing and retail financing/investment accounts, within the authority limit delegated by the Bank’s Board. Where the prospective corporate financing and retail financing/investment accounts are not within MICC’s authority limit, it would recommend the financing to the relevant Bank Board Committees for approval. These committees are responsible for overseeing the development and assessing the effectiveness of policies approved by the Bank’s Board. Senior Management oversees the execution and implementation of the policies. RISK MANAGEMENT DIVISION The Risk Management Division (RMD) is headed by the Chief Risk Officer and is responsible for communicating the critical risks the Group faces, the controls in place and future plans to manage these risks to the Management, Risk Committees and the Boards. RMD continues to provide advice and guidance on the credit, operational, market, liquidity, Shariah and general business risk to the Group. The scope of advice serves to manage and control significant risk exposures inherent to the Group’s business operations as well as covers the identification of significant risks. RMD is involved in all aspects of the Group’s activities, including new product approvals, credit approval, credit and limit monitoring, outsourcing process and reviews of process workflows and policies.
  79. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 77 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 77 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL The four key aspects of risk management in the Group i.e. Risk Identification, Risk Measurement, Risk Controls and Risk Monitoring and Reporting are detailed as below: RISK IDENTIFICATION • Risks are identified through the application of risk frameworks, policies and procedures. • Risks inherent in products and business activities are identified upfront at the point of introduction, as well as on an ongoing basis via various avenues, including, product reviews, Risk Control Self-Assessment (RCSA), Key Risk Indicators (KRI), incident/loss event reports, and through reviews conducted by the Internal Audit division. This includes the identification of any emerging risks that may have a significant impact on the Group. • The usage of key risk indicators enables early detection of risk, in order to ensure that adequate risk management controls and procedures are in place to ensure appropriate management of these risks in an informed and strategic manner. • Under the Bank, material risks are identified by determining events or scenarios that may have adverse impact. The details of the identification and assessment process are documented under the Bank’s ICAAP Framework. RISK CONTROLS • Controls and limits are used to manage risk exposures within the risk appetite. The Bank’s risk appetite is disclosed in the Bank’s ICAAP Framework. • Qualitative and quantitative controls including risk triggers and limits have been developed to oversee and manage significant risk exposures. • Risk mitigation techniques have been implemented in order to minimize existing or to prevent new or emerging risks from occurring. • These controls and limits are regularly monitored and reviewed in the face of evolving business needs, market conditions and regulatory changes. RISK MEASUREMENT • Risks are measured and aggregated using risk methodologies across each of the risk types. • Qualitative and quantitative risk measurement techniques have been developed across different dimensions of risk factors, including stress testing methodologies, credit risk grading methodologies, and ratios for various types of risk. RISK MONITORING AND REPORTING • Risks are being monitored on an on-going basis. Risk Management reports addressing the Group’s risk exposure (on an individual and portfolio basis), risk portfolio composition and risk management activities are submitted to the respective Management Led Committees, Risk Committees and the Boards for their review on a regular basis. • Key risk indicators and early warning signals are monitored to ensure that sufficient and timely actions can be put in place to mitigate any potential risk. • Qualitative and quantitative metrics are assigned based on the key risks for the Group. The state of compliance of these indicators is reported to the respective Management Led Committees, Risk Committees and the Boards on a regular basis. • Operational risk incidents highlighted in incident/loss event reports are also reported to the respective Management Led Committees, Risk Committees and the Boards regularly.
  80. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 78 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 78 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL During the year, RMD was involved in the following key activities: • Merger integration between MBSB and the Bank (formerly known as Asian Finance Bank Bhd) which includes the following : - Conducted gap analysis and revised the risk related policies and procedures Streamlining of current processes; • Enhanced the ICAAP Framework; • Developed Risk Informed Pricing Framework to be in line with BNM’s Guidelines; • Developed checklist for risk assessment on new vendors/procurement to ensure a comprehensive risk assessment is conducted by the respective departments/divisions; • Conducted stress testing which includes the enhancement in the liquidity stress testing and determined the Internal Capital Target; • Enhanced monitoring and reporting of major risk exposures in order to identify emerging risks on a timely basis; • Conducted the testing on the effectiveness of the Liquidity Contingency Funding Plan to ensure the feasibility of the actions outlined in the plan; • Development of Bank-Wide Key Risk Indicators which will facilitate the monitoring and control of risk in order to identify current risk exposures and emerging risks; • Conducted continuous risk awareness training across all regions; • Implementation of the Daily Risk and Compliance Certification for all branches in order to ensure continuous management of compliance and operational risk activities; • Developed Shariah Non-Compliance checklist in order to recognize potential and actual Shariah non-Compliant. RMD also reviews the Group’s compliance to risk limits and identifies emerging risk issues. During the financial year, RMD has representation and provides feedback in decision-making meetings as follows: MBSB • Enhancement of the Treasury Management System (Quantum) to facilitate risk monitoring; • Implementation of the Asset Liability Management System to enhance risk reporting; • • • MANCO - Permanent Invitee CARAC - Permanent Invitee ALCO - Member The Bank • Enhanced risk analysis and reporting through establishing the data warehouse via System for MBSB Analytics and Reporting (SMART) project which has been successfully rolled out in August 2018; • Regulatory reporting to Bank Negara Malaysia (BNM) : - - Reporting of Loss Event Data, Key Risk Indicators and Scenario Analysis via BNM Operational Risk Integrated Online Network (ORION) in order to monitor operational risk exposures. Involved in BNM’s reporting under Basel III and Capital Adequacy Framework; • • • • • MANCO - Permanent Invitee MICC - Permanent Invitee ALCO – Member IAR - Member ITSC – Member RMD continues to report to respective Management Led Committees, Risk Committees and the Boards according to the committees’ requirements and the changing business environment. Risk Management reports addressing the Group’s risk exposure, risk portfolio composition and risk management activities are submitted to respective Management Led Committees, Risk Committees and the Boards for their review on a regular basis.
  81. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 79 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 79 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL Risk of Shariah non-compliance • Shariah non-compliance risk is the risk of failure to comply with the Shariah rules and principles as determined by the respective entities’ Shariah Committee/ Advisor or the relevant bodies, such as the Shariah Advisory Council (“SAC”) of BNM and the SAC of Securities Commission. With effect from 2 April 2018, upon the vesting of MBSB’s Islamic Assets and Liabilities to the Bank, all Shariah activities are carried out at the Bank level. • • • The Bank has implemented controls as follows: • • • On-going identification, assessment, monitoring and controlling of Shariah non-compliance risk as set out in the Shariah Governance Framework and other guidelines to ensure operations and business activities are in compliance with Shariah requirements Use of operational risk management tools such as loss incident management, Risk and Control Self-Assessment and Key Risk Indicators for monitoring of Shariah noncompliance risk exposures and effectiveness of controls New Islamic products or services introduced as well as variations are subject to a vigorous product evaluation process which assesses potential Shariah non-compliance risk as well as the readiness to introduce the said products or services • Periodic review of the potential risks and issues relating to the Islamic concepts/contracts of Islamic products and services to ensure the potential issues are managed and the products and services are Shariah compliant • Sponsoring staff to acquire Shariah certification to enhance knowledge and upgrade skills on Shariah matters Information Technology Risk Management Framework The Group endeavors to adopt sound Information Technology Risk Management (ITRM) practices based on industry best practices. This Framework is implemented with the following objectives: • • • Articulate the overall vision, principles, philosophy, objectives and goals of IT Risk Management; Provide greater clarity of roles and responsibilities for IT Risk Management at all levels of staff; Define a policy for effective management and supervision of IT risk; • • Define a policy for IT risk identification, assessment, treatment and monitoring and reporting; Integrate and align the management of IT Risk with Operational Risk Management Framework, as well as other relevant guidelines, thus allowing well-informed decisions about the extent of the risk to be made; Promote IT risk awareness and culture and ensure that a commitment to IT Risk Management exists at all levels of staff; Foster an organizational climate where information security risk is considered within the context of the design of business process, enterprise system architecture and system development life cycle; Ensure that adequate security controls are implemented to protect information assets (confidentiality, integrity, availability); and Reduce exposure to unexpected losses caused by IT Risk. It is imperative that staff at all levels understand their responsibilities and are held accountable for managing IT Risk, that is, the risk associated with the operation and use of information systems that support the missions and business functions of the Group. Shariah Governance Framework The Group’s Shariah Governance Framework sets out the expectations of the Shariah governance structures, processes and arrangements of all businesses of Islamic business transactions. This is to ensure that all its operations and business activities are in accordance with Shariah principles as well as to provide comprehensive guidance to the Bank’s Board, Shariah Advisory Committee and Management in discharging their duties in matters relating to Shariah. The Bank’s Shariah Governance Framework reflects the responsibility of the Bank’s Board, Management, Shariah Advisory Committee and Shariah Control functions, namely, Shariah Advisory and Research, Shariah Risk, Shariah Review and Shariah Audit, as well as Business Units to ensure effective management of Shariah Non-Compliance risks. The end-to-end Shariah compliant governance mechanism is executed through four lines of defense that cater for both preexecution and post-execution. The four lines of defense are 1stManagement and Business Unit, 2nd-Shariah Advisory and Research, 3rd-Shariah Risk and 4th-Shariah Audit and Shariah Review.
  82. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 80 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 80 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL INTERNAL AUDIT DIVISION The Internal Audit Division, reporting to the MBSB Audit Committee (“MBSB AC”) and Bank Board Audit Committee (“the Bank BAC”), performs systematic and regular reviews of key processes via audit of divisions/departments and branches in an effort to assess the effectiveness, adequacy and integrity of internal controls including compliance to the necessary policies and guidelines. Areas of improvement and proposed recommendations are highlighted to Senior Management and the MBSB AC and the Bank BAC with periodic follow-up reviews on actions taken. The Internal Audit Division assists the MBSB AC and Bank BAC in discharging the Committee’s duties and responsibilities by independently reviewing and reporting on the adequacy and integrity of the MBSB and the Bank’s system of internal controls. In doing so, the Internal Audit Division adopts the industry practice based on the following guidelines/practices:i) BNM/RH/GL (013-4) Guidelines on Internal Audit Function of Licensed Institutions During the year, the Internal Audit Division has carried out independent and objective reviews in accordance with an approved audit plan covering credit assessment, credit operations, treasury, financial accounting, information technology, Shariah, outsourcing services, audit reviews on BNM regulatory requirements and operational controls. The annual audit plan is developed using a risk-based approach and is reviewed and approved by the Bank BAC. Shariah audit is embedded in the respective audit areas of the above. Based on the reviews, the Internal Audit Division has provided the MBSB AC and the Bank BAC with periodic reports highlighting observations, recommendations and management action plans to improve the system of internal controls. The MBSB AC and the Bank BAC, on behalf of the Boards regularly reviews and deliberates on internal control issues identified in reports prepared by the internal auditors and the related actions taken by Senior Management. The MBSB AC and the Bank BAC also reviews the external auditor’s annual audit plan and the annual audit report together with Management’s response on any findings raised. The core functions of an Internal Audit Division according to the above Guidelines are: COMPLIANCE FUNCTION • • ii) To perform an independent appraisal of activities as a service to the Management; and To assist Management to establish and maintain the best possible internal control environment within MBSB Group International Professional Practice Framework To ensure that the Internal Audit Division operates competently and professionally within this changing environment, a series of professional standards have been adopted which reflect the internationally accepted International Professional Practice Framework, issued by the Institute of Internal Auditors iii) The function of the Internal Audit Division is also guided by the Internal Audit Charter, Internal Audit manual and Audit Committee Terms of Reference. Compliance management is the collective responsibility of the Boards, Senior Management and every employee of the organisation. The Compliance function is driven by the Compliance Division, whereby its main function is to identify and manage compliance risk at the Group level through consistent compliance monitoring and testing carried out across the organisation. The Compliance Division, reporting to the Boards and to the President and Group Chief Executive Officer, continuously performs Compliance Thematic reviews, transaction monitoring on Anti-Money Laundering & Counter Financing of Terrorism (AML/CFT) and provides compliance advisory support to ensure regulatory and compliance risks are mitigated. Shariah Compliance reviews were also conducted with the objective of ensuring that the Bank’s activities and operations do not contravene with Shariah rulings. The Compliance Thematic review reports, Shariah Compliance review reports, progress rectification of issues and other pertinent regulatory updates are tabled to Manco, Risk Committees and the Boards. In addition, the Shariah Compliance review reports are also tabled to the Bank’s Shariah Advisory Committee (SAC) to ensure that the Bank’s practices are Shariah compliant (where applicable).
  83. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 81 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 81 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL In addition, Compliance Division sends out an Annual Statement of Compliance Certification to all business/support units and branches. It is a self-certification exercise whereby the business/support units and branches certify their state of compliance with regulatory and Shariah requirements as well as policies and procedures within their respective business/support units. 4. Compliance Division had performed validation on the compliance health-checks including Shariah related healthchecks, submitted by the branches and business divisions to ensure that the health-checks are implemented accurately, completely and effectively. The areas cover regulatory requirement such as AML/CFT, Personal Data Protection Act, FATCA, CRS and key pertinent Shariah contracts. During the year, the Compliance Division had implemented the following key initiatives: 1. AML/CFT Compliance Programme 5. Compliance Division had undertaken several initiatives to ensure continuous compliance with BNM’s Guidelines on AML/CFT (Sector 1) covering, inter-alia, transaction monitoring via newly deployed AML/CFT screening database and providing training and awareness to strengthen the Group’s staff understanding and knowledge on the relevant requirements. 2. 3. Implementation of Foreign Exchange Administration (FEA) Rules Compliance Division had embarked on implementation of FEA Rules to support and facilitate trade, business and investment activities. The initiatives undertaken by Compliance Division includes enforcement of FEA Rules policies, putting in place numerous key control processes to facilitate compliance to FEA Rules. A number of trainings were also conducted to ensure all employees are aware of the requirements under the FEA Rules. Regulatory and Shariah Compliance Review The regulatory and Shariah compliance review were developed based on the mandatory reviews required by the respective BNM guidelines as well as gap analysis conducted on regulatory requirement and against the Bank’s internal policies and procedures. Additionally, deliberation and subsequent coordination with Internal Audit Division (IAD) was put in place to ensure that there was no overlapping of review by both Divisions. Shariah Compliance review was also deliberated and approved by the Bank’s SAC. Validation of Compliance Health-Checks 6. Appointment of Regional Compliance and Risk Officers Regional Compliance and Risk Officers (RCRO) were appointed at all regional branches to oversee the overall compliance and risk areas in branches nationwide. Among the responsibilities of a RCRO are to validate health-checks submission by branches, to perform gap analysis relating to branch operations, acts as a business advisor for branches on compliance and risk matters, and to provide training to branch employees on compliance, risk and operational controls requirements. Development of Common Reporting Standards HealthCheck 7. Compliance Division had developed a Common Reporting Standards (CRS) health-check which incorporated with the Foreign Account Tax Compliance Act (FATCA). The healthcheck is aimed to ensure that the branches and business divisions continuously comply with FATCA and CRS requirements during on-boarding process. Compliance Training and Awareness Compliance training activities for 2018 were structured to focus on ensuring continuous adherence of relevant regulatory requirement from the regulatory bodies. The training plan also aims to update the Group’s staff with latest and new development in term of requirements in AML/CFT and other regulatory requirements such as Responsible Financing Guidelines, FATCA, CRS and FEA Rules. Occurrence of non-compliance cases from thematic review or external regulatory review were also shared with the staff for their information and no recurrence.
  84. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 82 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 82 annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL 8. Other Compliance Initiatives • Compliance Division had undertaken the following activities for the year of 2018: a. b. c. d. e. f. Continuation of Gap Analysis exercise for BNM Guidelines for the Group Product and business advisory activities for the Bank Development of CRS Framework for the Bank Involvement in Project Steering Committees (PSC) and Project Working Groups (PWG) for all newly implemented banking products and services for the Bank Active member of Organization & Methods Working Group (OMWG) in reviewing all the Group’s policies and procedures for the Group Appointment of Designated Compliance and Risk Officers (DCORO) OTHER KEY ELEMENTS OF INTERNAL CONTROL In addition to the Risk Committees, MBSB AC and the Bank BAC, the Boards are also supported by other established Board Committees in the execution of its responsibilities namely the Bank Board Investment and Credit Committee (BICC), Bank Board Nominating & Remuneration Committee (Bank BNRC) and MBSB Nominating & Remuneration Committee (MBSB NRC) the details of which are set out in the Corporate Governance Report. Each committee has clear terms of reference; • An Approving Authority Manual with appropriate empowerment and authority limits has been approved by the respective Boards including authorization limits at various levels of Management, to ensure accountability and responsibility; • The Risk Appetite Statement (incorporated under the ICAAP Framework) which articulates the nature, type and level of risk the Bank is willing to assume is reviewed and approved by the Bank Board on an annual basis. The compliance to the risk appetite is monitored on a periodic basis and any non-compliance to the Risk Appetite Statement is reported to the Bank Board; • The Risk Control and Self-Assessment (RCSA) serves as a tool to empower risk owners to perform risk analyses on their business operations. The RCSA allows risk owners to identify, assess, mitigate, monitor and report operational risk at a process level. The objective is to ensure that processes become inherently stronger, in its effort to reduce residual risk and the number of lapses in the processes; • Business Continuity Management (BCM) policies have been established for the Bank. The processes are regularly tested during the year with the relevant department/ division to ensure the effectiveness of the process. The BCM programme serves as a guideline for the Bank to resume critical operations within the required timeframes and minimizes the cost of damages and interruptions due to disasters; The other key elements of the procedures established by the Group that provide effective internal control include: • The Finance Division drives the financial management for the Group and maintains and enhances financial control. A detailed integrated budgeting process has been established, resulting in clear ownership of business objectives, plans and the expected financial outcome based on the approved budget. The budget and business plan as well as strategic initiatives, taking into account the risk appetite, are deliberated by Management and the Bank Board on an annual basis. The Bank Board also reviews the operational and financial performance of the Bank. Quarterly management reports are presented to the Bank’s Board providing information on the financial performance and risk exposure of the Bank to enable the Bank Board to effectively oversee the Bank’s overall performance objectives, key initiatives, financial plans and annual budget; A clear, effective and robust corporate governance structure is in place with well-defined, transparent and consistent lines of responsibility;
  85. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 83 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 83 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL • Policies, procedures and processes governing the Group businesses and operations are documented and are made available to employees through the Group intranet portal. The policies, procedures and processes are reviewed and updated regularly to ensure relevance to the current business environment as well as compliance with current/applicable laws and regulations, and are communicated and made available to all employees via intranet. The policies, procedures and processes are reviewed and updated by the business and functional units through a structured review process to address changes in laws and regulations and business and operational environment, as well as to manage any risks arising from such changes; • A strong risk culture is promoted within the Group, which supports and provides appropriate standards and incentives for professional and responsible behavior; • Recruitment procedures are established within the Group to ensure that the right and appropriate persons are selected to fill available positions including the Fit and Proper Requirements Policies & Procedures which was developed for key responsible persons. Formal training programs either face-to-face or through e-learning, semi and annual performance appraisals, and other relevant procedures are in place to ensure that staff are adequately trained and competent to enable them to discharge their duties and responsibilities effectively. Proper guidelines are also drawn up for termination of staff; • Employees are bound to observe prescribed standards of business ethics when conducting themselves at work and in their relationship with external parties, such as customers and suppliers. The Guidelines on the Code of Ethics and Conduct for Directors, Officers and Employees set out the standards of good and ethical banking practices, and aims to maintain confidence in the security and integrity of the Group’s business practices. Employees are expected to comply with the Guidelines on the Code of Conduct for Directors, Officers and Employees to conduct themselves with integrity and objectivity and not be placed in a position of conflict of interest; • Complaint Handling & Whistle Blowing Policy is in place to address the avenues for individuals to report suspected breaches of law or regulations or other improprieties. All staff are accorded the opportunity to report via the Whistle Blowing mechanism with the assurance that it shall be dealt with confidentiality and that the complainant’s identity is protected; • The Group participates in forums and trainings to stay informed on fraud events and controls. To this extent, the Fraud & Corruption Control Policies & Procedures has been disseminated to all employees in order to ensure the Policy requirements are implemented and strictly followed consistently. All employees and intermediaries are made aware of the stance on fraud and their responsibilities in relation to fraud prevention. The Fraud & Corruption Control Policies & Procedures are implemented to provide broad principles, strategy and policies in relation to fraud in order to promote high standards of integrity. The policy establishes robust and comprehensive programmes and controls, including a periodic review of the Fraud controls are in place as well as highlight the roles and responsibilities at every level for preventing and responding to fraud. A fraud risk assessment is in place in order to identify and address vulnerabilities to internal and external fraud. Appropriate fraud awareness information to all employees is provided upon commencement of employment. Where suspected fraud is detected, the Group ensures prompt investigations and disciplinary actions are taken accordingly;
  86. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 84 84 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL • • The AML/CFT Framework is continuously reviewed and updated to meet regulatory requirements as well as to combat money laundering and financing of terrorism activities. All employees are expected to carry out their functions with the highest ethical and professional standards, in accordance with the AML/CFT Framework and to continuously be vigilant against the Group being exposed or used to launder money or finance illegal activities including terrorist financing. The Group has embraced technology to improve customer experience and achieve greater levels of operational efficiency. Concurrently, maintaining the integrity of operations, including cyber security, remains one of the key priorities. To strengthen and complement IT risk management framework, the Group has introduced a 3 phased security upgrade and enhancements in securing the Group further with the increasing threat posed using technology. The 3 phases will be deployed throughout 2018 up to the first half of 2019. This coincides closely with the availability of the Group’s internet banking and cash recycling machine facilities. Protection of customers data is paramount and have been included as part of this delivery. The Group’s Security Operations Center was put into effect in November 2018 and encompasses relevant tools in managing the technology security aspects of the Group. The President and Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and Chief Compliance Officer of the Group have provided confirmation that the Group’s risk management and internal control system is operating adequately and effectively, in all material aspects during the financial year under review and up to the date of approval of this Statement for inclusion in the Annual Report, based on the risk management and internal control system adopted by the Group. Management continues to take measures to strengthen the control environment. REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS The external auditors have reviewed this Statement on Risk Management and Internal Control for inclusion in the annual report for the financial year ended 31 December 2018. Their review was performed in accordance with AAPG 3 Guidance for Auditors on Engagements to Report on the Statement on Risk Management and Internal Control included in the Annual Report (“AAPG 3”) issued by the Malaysian Institute of Accountants. Based on their review, the external auditors have reported that this Statement is consistent with their understanding of the process that the Board has adopted in the review of the adequacy and effectiveness of the Group risk management and internal control system. AAPG3 does not require the external auditors to form an opinion on the adequacy and effectiveness of the Group’s risk management and internal control procedures. MBSB Board confirms that the system of risk management and internal control, with the key elements highlighted above, was in place during the financial year. The system is subjected to regular reviews and MBSB Board believes that the system of risk management and internal control is sound and sufficient to safeguard shareholders’ investments and the Group’s assets. The statement was approved by the Board of Directors on 27 March 2019.
  87. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 85 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 85 annual report 2018 REPORT OF THE AUDIT COMMITTEE 1.0 PURPOSE The establishment of MBSB Audit Committee (MBSB AC) and the Bank Board Audit Committee (Bank BAC) are to assist the Board of Directors (Boards) of both Malaysia Building Society Berhad (MBSB) and MBSB Bank Berhad (MBSB Bank) in the following: • Provide independent oversight on the financial reporting, risk management and internal control systems that facilitate appropriate check and balance within MBSB Group. • Serve as an independent party to objectively review the financial information of MBSB Group which is presented by the Management to the Board and Shareholders. NAME OF MEMBERS 2.0 COMPOSITION OF MBSB AC AND BANK BAC 2.1 MBSB AC Encik Lim Tian Huat as the Chairman of MBSB AC is a Council Member of Insolvency Practitioners Association of Malaysia, a Fellow of the Association of Chartered Certified Accountants and a member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants. This is in line with the requirement of the Bursa Securities Listing Requirements which requires at least one qualified accountant as a member of MBSB AC. During the FY2018, a total of 9 MBSB AC meetings were held. The composition of MBSB AC members and attendance of each member at the Committee meetings held during the financial year are as follows: NUMBERS OF MEETING ATTENDED OR HELD Encik Lim Tian Huat (Chairman) 9/9 Ir Moslim Othman * appointed as AC member on 6 February 2018 8/8 Puan Lynette Yeow Su-Yin * appointed as AC member on 6 February 2018 8/8 Encik Aw Hong Boo * resigned as AC member on 6 February 2018 1/1 Dato' Jasmy Ismail * resigned as AC member on 6 February 2018 1/1 Encik Sazaliza Bin Zainuddin * resigned as AC member on 6 February 2018 1/1 The Chairman of MBSB AC reports to the Board on matters deliberated during the Audit Committee meetings. Minutes of each meeting are tabled to the Board for notification.
  88. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 86 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 86 annual report 2018 REPORT OF THE AUDIT COMMITTEE 2.2 BANK BAC Encik Aw Hong Boo as the Chairman of the Bank BAC is a Fellow of Institute of Chartered Accountants in England & Wales (ICAEW), a member of Malaysian Institute of Accountants (MIA) and Malaysian Institute of Certified Public Accountant (MICPA). NAME OF MEMBERS During the FY2018, a total of 13 Bank BAC meetings were held. The composition of the Bank BAC members and attendance of each member at the Committee meetings held during the financial year are as follows: NUMBERS OF MEETING ATTENDED OR HELD Encik Aw Hong Boo (Chairman) * appointed as the Bank BAC member on 7 February 2018 13/13 Tunku Alina Raja Muhd Alias * appointed as the Bank BAC member on 7 February 2018 13/13 Dr Loh Leong Hua * From AFB (resigned as Bank BAC member on 7 February 2018 * appointed as the Bank BAC member on 1 June 2018 9/9 Datuk Azrulnizam bin Abdul Aziz * appointed as Bank BAC member on 7 Februar y 2018 * resigned as Bank BAC member on 24 Ma y 2018 6/6 Dato’ Dr. Md. Khir Abdul Rahman * resigned as the Bank BAC member on 7 February 2018 2/2 Encik Abdul Rahim Abdul Hamid * resigned as the Bank BAC member on 7 February 2018 2/2 The Chairman of the Bank BAC reports to the Board on matters deliberated during the Board Audit Committee meetings. Minutes of each meeting are also distributed to each member of the Board.
  89. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 87 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 87 annual report 2018 REPORT OF THE AUDIT COMMITTEE 3.0 AUTHORITY OF MBSB AC AND BANK BAC The MBSB AC and Bank BAC (the Committees), in discharging their duties, have explicit authority to investigate any matters within their terms of reference. The Committees have full access to and co-operation from the Management which include discretion to invite the Group President and Chief Executive Officer, Management Team, Chief Internal Auditor and external auditors to attend their meetings. The Committees shall have the right to obtain the necessary resources to enable the Committees in performing their duties and an independent professional advice if necessary, with any expenses related thereto to be borne by MBSB Group. 4.2 Internal Audit a) Reviewed and approved the risk-based Annual Audit Plan (AAP) to ensure adequate scope, procedures, frequency, functions and coverage over the activities of MBSB Group. b) Reviewed the internal audit budget, resources, initiatives, skills and competencies. c) Reviewed the status of completion of the AAP for the year and assessed the performance and effectiveness of the Internal Audit Division (IAD). d) Reviewed the internal audit reports and investigation reports tabled during the year, which outlined the audit issues, recommendations and management’s response. Discussed with the management and where appropriate, directed management to rectify and improve the system of internal controls and workflow processes based on the internal auditors’ recommendations for improvement to ensure control lapses are addressed. e) Monitored the corrective actions taken on the outstanding audit issues to ensure that all key risks and control lapses have been addressed and implemented by the management. f) Reviewed the minutes of the Committees meeting and matters arising based on the previous meetings. 4.0 SUMMARY OF ACTIVITIES OF MBSB AC AND BANK BAC During the financial year, the main activities undertaken by the Committees in accordance with their terms of reference are summarised as follows:4.1 Financial Reporting a) b) c) Reviewed the quarterly unaudited financial results of MBSB Group prior to recommending to the Board of Directors for approval with particular focus on the main factors contributing to the financial performance in terms of revenue and operating expenses. Reviewed the impact of any changes to the accounting policies and adoption of new accounting standards as well as the accounting treatments used in the financial statements. Reviewed the annual audited financial statements of MBSB Group and discussed with the Management and external auditors prior to submission to the Board of Directors for their approval. The review was to ensure that the accounting treatment, financial reporting and disclosures were in compliance with: • • • • Provisions of the Companies Act 2016; Listing Requirements of Bursa Malaysia Securities Berhad; Applicable approved accounting standards in Malaysia; and Other legal and regulatory requirements. 4.3 External Audit a) Reviewed with the external auditors:• • • b) their audit planning memorandum for the year ended 31 December 2018 comprising their audit plan, audit strategy and scope of work for the year. their annual audit report and management letter together with management’s response to the findings of the external auditors. updates of new developments on Financial Reporting Standards issued by the Malaysian Accounting Standards Board. Met the external auditors twice for discussion without the presence of the Management.
  90. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 88 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 88 annual report 2018 REPORT OF THE AUDIT COMMITTEE c) d) Assessed the independence and objectivity of the external auditors during the year and prior to the appointment of the external auditors for ad hoc nonaudit services. The Committees also received from the external auditors their written confirmation regarding their independence and the measures used to control the quality of their work. Evaluate the performance and effectiveness of the external auditors and made recommendations to the Board of Directors on their audit fees and for their reappointment to hold office until the conclusion of the next annual general meeting. The evaluation of the external auditor would include the following: i) Performance • • • • • ii) Level of knowledge, capabilities, experience and quality of previous work; Level of engagement with the board; Ability to provide constructive observation, implications and recommendation in areas which require improvement; Appropriateness of audit approach and the effectiveness of audit planning; and Ability to perform the audit work within the agreed duration given. Independence and objectivity • • Non-audit services rendered by auditor does not impede independence; and Auditor demonstrates unbiased stance when interpreting the standards/policy adopted by a financial institution. 4.4 Policy Review and Other Matters Reviewed the Audit Charter, the Committees’ Terms of Reference and External Audit Policy and Procedures for the respective Boards’ approval. 4.5 Annual Report Reviewed and recommended the Report of the Audit Committee for the respective Boards’ approval for inclusion in the Annual Report for the FY2018. 4.6 Appointment of PricewaterhouseCoopers Reviewed and recommended for the Bank Board’s approval the appointment of PricewaterhouseCoopers (PwC) to conduct quality assurance review on Internal Audit Division of MBSB Bank. 4.7 Appointment of Deloitte Enterprise Risk Services Sdn Bhd. Reviewed and recommended for the Bank Board’s approval the appointment of Deloitte Enterprise Risk Services Sdn Bhd to co-source the Bank Negara Malaysia’s (BNM’s) statistical reporting audit for MBSB Bank. 4.8 Directors’ Training During the year, the Committees members have attended the relevant training programmes, conferences and seminars as disclosed in the Corporate Governance Report 2018. 4.9 Related Party Transaction Reviewed any related party transactions and conflict of interest situation that may arise within MBSB Group including any transaction, procedures or course of conduct that raises questions on Management’s integrity and update the board on all related party transactions.
  91. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 89 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 89 REPORT OF THE AUDIT COMMITTEE 5.0 STATEMENT ON INTERNAL AUDIT FUNCTION FOR MBSB AC AND BANK BAC 5.1 The internal audit function is performed in-house and undertaken by MBSB Group’s IAD. The IAD functionally reports to the Committees as an independent unit that provides independent and objective assurance on the adequacy and effectiveness of MBSB Group’s internal control systems implemented by the Management. 5.2 The function of the IAD is to assist the Committees in discharging the Committees’ duties and responsibilities by independently reviewing and reporting on the adequacy and integrity of the MBSB Group’s system of internal controls The IAD is adopting the relevant requirements on internal audit: i) BNM/RH/GL (013-4) Guidelines on Internal Audit Function of Licensed Institutions The core functions of an Internal Audit Division according to the above Guidelines are:- ii) • To perform an independent appraisal of activities as a service to the Management; and • To assist Management to establish and maintain the best possible internal control environment within MBSB and MBSB Bank. International Professional Practice Framework issued by the Institute of Internal Auditors (IIA) To ensure that the IAD operates competently and professionally within this changing environment, a series of professional standards have been adopted. They reflect the internationally accepted “International Professional Practice Framework pronounced by the Institute of Internal Auditors”. iii) The IAD is also guided by the Internal Audit Charter, Internal Audit Manual and the Committees’ Terms of Reference. The Internal Audit Manual documents audit processes, methodology, roles, duties and responsibilities of internal auditors. 5.3 The function of internal audit is an independent, objective assurance and consulting activity designed to add value and improve MBSB Group’s operations. It evaluates whether: i) Resources are effectively and economically utilised. ii) Internal controls are adequate, efficient and effective. iii) The objectives of MBSB Group are being achieved efficiently and effectively. iv) The established policies and procedures are being followed. 5.4 The IAD reports directly to the Committees and administratively to the Group President and Chief Executive Officer. 5.5 The Chief Internal Auditor is also invited to attend various level of Committees’ meetings at both MBSB and MBSB Bank i.e. Management Committees, Risk Management Committee (RMC) / Board Risk Management and Compliance Committee (BRMCC) and IT Steering Committee as permanent invitee /observer. 5.6 The IAD is represented at the onset in all major IT projects undertaken, and provide necessary input especially in relation to internal controls required. The IAD provides consulting or advisory services in the evaluation of risk exposures of new systems, business products and services to assess the controls that should be in place to mitigate the risks identified prior to implementation. When providing such consulting or advisory services, the IAD is not involved in the system selection or implementation process in order to maintain its objectivity and independence. 5.7 The IAD provides periodic reports to the Committees deliberating the results of the audit conducted in terms of risk management of the unit, operating effectiveness of internal controls, compliance with internal and regulatory requirements and overall management of the unit. Key control issues, significant risks and recommendations are highlighted along with the Management’s responses and action plans for improvement and/or rectification where applicable. The IAD also carries out investigative audits where there are improper, illegal and dishonest acts reported. This enables the Committees to execute their oversight function by forming an opinion on the adequacy of measures undertaken by the Management.
  92. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 90 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 90 annual report 2018 REPORT OF THE AUDIT COMMITTEE 5.8 Prior to the merger acquisition between MBSB and Asian Finance Bank Berhad (AFB), the following activities were undertaken by the IAD and the reports were presented at MBSB AC: a) Presented its risk-based audit plan, audit budget and scope of work to MBSB AC for approval. The internal auditors have adopted a risk-based approach towards the planning and conduct of audits, which is designed to evaluate and monitor MBSB Group’s internal controls system. b) Conducted the scheduled audits, ad-hoc audit assignments and investigations which the audit reports were tabled to MBSB AC highlighting the audit findings, issues and recommendations for improvement. The scheduled audits were of the following: • • c) Credit audit of Head Office covering the credit underwriting of post disbursed loan, credit operations, security documentation and credit recovery. Treasury audit, covering front office, middle office and back office, with the aim to ensure that Treasury operations are in-line with the objectives and strategies of the asset and liabilities management and the approved policies and procedures as well as to ensure proper authentication and verification of treasury transactions. • Operational audits covering Facility Management, Secretarial, Branch Network and Group Risk with the primary objective to ensure effective operations processes are discharged. • Information System (IS) audit with the primary objective is to ensure that the in-house application system and those outsourced systems in respect of the process data migration, operations, access control, business continuity & disaster recovery, physical security, maintenance and its contingency planning are in accordance with MBSB Group’s policies and procedures. Conducted investigations into activities or matters as instructed by MBSB AC and the Management. The outcomes from the investigations were tabled to MBSB AC and / or the Board. 5.9 The IAD had also presented the reports on relevant activities undertaken by the IAD after the merger acquisition such as quarterly reports on the status of audit activities to MBSB AC and the Board as well as the follow-up on the status of unresolved audit findings to MBSB AC. 5.10 Arising from the merger acquisition, all Islamic assets and liabilities have been transferred to MBSB Bank. The following activities were undertaken by the IAD and the reports were presented at the Bank BAC: a) Presented its revised risk-based audit plan, audit budget and scope of work to the Bank BAC for approval. The internal auditors have adopted a risk-based approach towards the planning and conduct of audits, which is designed to evaluate and monitor MBSB Bank’s internal controls system. b) Conducted the scheduled audits and ad-hoc audit assignments which the audit reports were tabled to the Bank BAC highlighting the audit findings, issues and recommendations for improvement. The scheduled audits were of the following:• Finance audit with the primary objective is to provide an independent, reasonable assurance of the accounting system and information. • Corporate credit and retail audit covering the credit underwriting, pre and post disbursement, financing activities, credit operations, security documentation and corporate and retail credit recovery. • Independent reviews on relevant guidelines issued by BNM and statistical reporting audit based on BNM’s regulatory requirements with the primary objective to ensure the reporting requirements, data accuracy, governance, check and controls are in line with BNM’s requirement. • Treasury audit, covering front office, middle office and back office, with the aim to ensure that Treasury operations are in-line with the objectives and strategies of the asset and liabilities management and the approved policies and procedures as well as to ensure proper authentication and verification of treasury transactions.
  93. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 91 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 91 annual report 2018 REPORT OF THE AUDIT COMMITTEE • • • • • • • Information System (IS) audit with the primary objective is to ensure that the in-house application system and those outsourced systems in respect of the process data migration, operations, access control, physical security, maintenance and its contingency planning are in accordance with MBSB Bank’s policies and procedures. With regards to Shariah audit, findings and recommendations were also tabled to the SAC and the Bank BAC for notification and deliberation. c) Conducted investigations into activities or matters as instructed by the Bank BAC and Management. The outcomes from the investigations were tabled to the Bank BAC and / or the Bank Board. d) Followed-up on management corrective actions on unresolved audit findings and reported the status to the Bank BAC. Audit at selected MBSB Bank’s branches as per approved audit plan. e) Operational audit which includes the audit of outsourcing companies with the primary objective to ensure compliance with the outsourcing policies and procedures. Conducted annual reviews of the Business Contingency Plan and Disaster Recovery Plan testing to ensure compliance with the BNM’s Guidelines on Business Continuity Management. f) Provided quarterly reports on the status of audit activities to the Bank BAC. g) Provided advisory services to review the operational guidelines and manuals to ensure pertinent controls embedded are consistent with the changes in businesses and operations. h) Witnessed the tender opening process for procurement of services or assets to ensure the activities in the tendering process are conducted in a fair, transparent and consistent manner. i) Independent Credit Review (ICR) with the primary objective to ensure the effectiveness of the regular review and / or appraisal of the effectiveness of the overall credit risk management arrangements within the MBSB Group was set up in August 2018. For the financial year (FY) 2018, the ICR has completed and tabled to the Bank BAC its Terms of Reference, Charter and Manual and 1 audit assignment i.e. review of corporate financing turnaround time. Audit of IT projects undertaken by MBSB Bank to ensure proper internal control and compliance with the project governance. Audit of selected support business divisions / departments to ensure proper internal control and compliance with the respective policies and procedures. Audit of Related Party Transaction to ensure no conflict of interest arose when approving the financing facilities as well as appointing the vendors. Shariah Audit was embedded in the respective audit assignments in ensuring compliance with Shariah rules and principles as prescribed by MBSB Bank’s Shariah Advisory Committee (SAC), policies and procedures and relevant BNM’s guidelines. For 2018, the IAD had conducted the shariah audit review on the commodity trading transactions in respect of personal financing with the objective to ensure that adequate controls were in place to ascertain the validity of the commodity trading transactions as well as conformity with Shariah principles. The purpose of Internal Shariah Audit was to ensure that the system of internal control for Shariah Compliance comprise of Shariah Governance, Shariah Product, Shariah Operations and Shariah Support was conceptually sound and effective in implementation, so as to ensure that goals and objectives for Shariah Compliance were achieved. 5.11 The cost incurred for the internal audit function in respect of the FY2018 amounted to RM3,987,399. 6.0 INTERNAL AUDIT REPORTS The IAD has completed 90 assignments (17 BNM’s requirements and 73 internal audit assignments) and 48 consultancy services during the year covering the audits of all key operations and investigations. All findings by the IAD are tracked and followed-up until closure.
  94. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 92 FINANCIAL STATEMENTS 93 94 100 100 101 105 107 108 110 112 Directors’ Responsibility Statement Directors’ Report Statement by Directors Statutory Declaration Independent Auditors’ Report Statements of Financial Position Statements of Comprehensive Income Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements
  95. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 93 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 93 DIRECTORS’ RESPONSIBILITY STATEMENT The Directors are required by the Companies Act 2016 (“CA”) to prepare financial statements for each financial year which have been made out in accordance with the applicable Malaysian Financial Reporting Standards (“MFRS”), the International Financial Reporting Standards (“IFRS”) and the provisions of the CA in Malaysia and give a true and fair view of the state of affairs and of the results and cash flows of the Company and the Group for the financial year. In preparing the financial statements, the Directors have used appropriate and relevant accounting policies that are consistently applied and supported by reasonable as well as prudent judgments and estimates, and that the financial statements is prepared on a going concern basis. The Directors are responsible for ensuring that the Company and the Group keep proper accounting records which disclose with reasonable accuracy the financial position of the Group and Company and which enable them to ensure that the financial statements comply with the CA. The Directors have the general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group, to detect and prevent fraud and other irregularities.
  96. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 94 94 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 DIRECTORS’ REPORT The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2018. Principal activities The Company was principally engaged in investment holding, money market activities, provision of financing, advances and financial guarantees on a secured and unsecured basis, which includes Islamic financing, and other related financial services. On 7 February 2018, the Company acquired MBSB Bank Berhad (formerly known as Asian Finance Bank Berhad) ("the Bank"). On 2 April 2018, the Company had via the First Tranche Transfer, transferred all of its Shariah-compliant assets and liabilities to the Bank. The transfer was implemented through a members' scheme of arrangement pursuant to Section 366 of the Companies Act, 2016 by way of a Vesting Order dated 28 February 2018 from the High Court of Malaya. Since the transfer on 2 April 2018, the Company was no longer involved in the money market activities and did not give out loans and advances. The Company continues to manage the remaining conventional loans and advances. The principal activities of the subsidiaries are described in Note 15. There have been no significant changes in the nature of the principal activities of the subsidiaries during the financial year. Results Profit for the year Group RM'000 Company RM'000 642,400 200,395 There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the statements of comprehensive income and the statements of changes in equity. In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature. Dividends The amount of dividend paid by the Company since 31 December 2018 was as follows: RM'000 In respect of the financial year ended 31 December 2017: - single-tier final dividend of 5.0 sen net per ordinary share on 6,149,933,174 ordinary shares approved on 25 June 2018, paid on 3 August 2018 307,497 On 8 April 2019, the Company announced the proposed single-tier final dividend of 5.0 sen net per ordinary share in respect of the financial year ended 31 December 2018. Based on the number of shares in issue of 6,389,101,298 ordinary shares as at 31 December 2018, the dividend payable would be RM319,455,065. The financial statements for the current financial year do not reflect the proposed final dividend. Such dividend, if approved by the shareholders in the forthcoming Annual General Meeting, will be accounted for in equity as an appropriation of retained profits in the financial year ending 31 December 2019. The entire portion of the dividend can be elected to be reinvested in new ordinary shares in accordance with the Dividend Reinvestment Plan ("DRP") as disclosed in Note 42 to the financial statements and subject to the relevant regulatory approvals. The DRP was previously approved by the shareholders on 10 December 2013.
  97. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 95 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 95 DIRECTORS’ REPORT Directors The directors of the Company in office since the beginning of the current financial year to the date of this report are: The Company Tan Sri Abdul Halim bin Ali Encik Lim Tian Huat Ir. Moslim bin Othman Puan Lynette Yeow Su-Yin Datuk Shahril Ridza bin Ridzuan (Resigned on 20 August 2018) Datuk Syed Zaid bin Syed Jaffar Albar (Resigned on 6 February 2018) Dato' Jasmy bin Ismail (Resigned on 6 February 2018) Encik Aw Hong Boo (Resigned on 6 February 2018) Encik Sazaliza bin Zainuddin (Resigned on 6 February 2018) Datuk Johar bin Che Mat (Resigned on 6 February 2018) Tunku Alina binti Raja Muhd Alias (Resigned on 6 February 2018) MBSB Bank Berhad Datuk Azrulnizam bin Abdul Aziz Datuk Johar bin Che Mat Tan Sri Abdul Halim bin Ali (Appointed on 7 February 2018) Encik Sazaliza bin Zainuddin (Appointed on 7 February 2018) Encik Aw Hong Boo (Appointed on 7 February 2018) Puan Lynette Yeow Su-Yin (Appointed on 7 February 2018) Tunku Alina binti Raja Muhd Alias (Appointed on 7 February 2018) Dr. Loh Leong Hua (Resigned on 9 February 2018 and reappointed on 1 June 2018) Dr. Saleh Jameel Malaikah (Resigned on 7 February 2018) Encik Zakir Hussain Rizvi (Resigned on 7 February 2018) Dato' Dr. Md Khir Abdul Rahman (Resigned on 9 February 2018) Dato' Dr. Vaseehar Hassan Abdul Razack (Resigned on 9 February 2018) Abdul Rahim Abdul Hamid (Resigned on 9 February 2018) Other subsidiaries of the Company Encik Tang Yow Sai Puan Azlina Mohd Rashad Encik Asrul Hazli Salleh Encik Hazim Dato' Yahya Cik Norhayati binti Azit Encik Lim Tian Huat Yam Kwai Ying Sharon (Appointed on 1 August 2018) Encik Loke Chee Kien (Resigned on 1 August 2018) Dato' Azman Aziz (Resigned on 31 October 2018) Directors' benefits Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company or its subsidiaries were a party whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as shown in Note 38 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest. The Group directors and officers are covered by Directors' and Officers' Liability Takaful. The total insurance coverage amounts to RM30,000,000 and the annual insurance premium that is payable amounts to RM79,510.
  98. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 96 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 96 annual report 2018 DIRECTORS’ REPORT Directors' interests According to the register of directors' shareholdings, the interest of a director in office at the end of the financial year in shares of the Company during the financial year were as follows: Name of director 1.1.2018 Direct interest: Ordinary shares of the Company Tan Sri Abdul Halim bin Ali 238,667 Number of ordinary shares Acquired Sold 31.12.2018 11,699 - 250,366 None of the other directors in office at the end of the financial year had any interest in shares or options over shares in the Company or its related corporations during the financial year. Issue of shares During the financial year, the Company increased its issued and paid up ordinary share capital by RM510,050,897 from RM6,172,050,894 to RM6,682,101,791 as follows: Issuance of new shares for cash pursuant to: Exercise of Special Issue (DRP) Issued on 7 February 2018 pursuant to the acquisition of the entire equity interest in MBSB Bank Berhad Number of new ordinary shares Units '000 RM '000 Issue/ exercise price 239,168 243,952 1.02 239,168 243,952 225,508 266,099 464,676 510,051 1.18 The new ordinary shares issued during the financial year ranked pari passu in all respects with the existing ordinary shares of the Company. Employee Share Option Scheme The Malaysia Building Society Berhad's Employee Share Option Scheme ("ESOS") is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 29 April 2010. The ESOS was implemented on 12 August 2010 and is in force for a period of 5 years from the date of implementation. The Board of Directors approved the extension of the duration of the ESOS for a further 5 years from 12 August 2015 to 11 August 2020 in accordance with By-Law 19.3 of Malaysia Building Society Berhad's ESOS by-Laws on 6 August 2015.
  99. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 97 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 97 annual report 2018 DIRECTORS’ REPORT Employee Share Option Scheme (cont'd.) The salient features and other terms of the ESOS are disclosed in Note 29(a) to the financial statements. Details of the options to subscribe for ordinary shares of the Company pursuant to the ESOS as at 31 December 2018 are as follows: Grant date Expiry date Exercise price (RM) Number of options 11.09.2010 09.03.2012 15.11.2012 09.03.2014 11.08.2020 11.08.2020 11.08.2020 11.08.2020 1.00* 1.02* 1.42* 1.52* 1,264,740 846,175 8,996,266 14,802,993 * New exercise prices adjusted pursuant to the ESOS By-Law 15.1(c)(ii) as a result of the implementation of the Rights Issue exercise. The Company has been granted exemption by the Companies Commission of Malaysia from having to disclose the names of option holders, other than directors, who have been granted options to subscribe for less than 276,643 ordinary shares of RM1.00 each as at the year end. The names of option holders who were granted options to subscribe for 276,643 or more ordinary shares of RM1.00 each during the financial year are as follows: Name Tang Yow Sai Azlina Binti Mohd Rashad Zainnurain Bin Othman Salim Yazan Bin Gulzar Mohamed Asrul Hazli Bin Salleh Koh Ai Hoon Tamin Bin Jafeeri Adzahar Bin Abdul Khalid Nor Azam Bin M. Taib Azlina Binti Mohd Abdul Karim @ Alias Md Azhar Bin Md Ali Hasliza Binti Ismail Revised Exercise Price RM 1.1.2018 1.00 1.42 1.42 1.42 1.52 1.02 1.42 1.00 1.42 1.42 1.00 1.42 1.02 1.42 1.52 1.52 1.52 367,229 175,799 480,978 422,178 418,577 147,979 260,180 268,111 109,014 321,298 222,516 66,232 108,991 173,480 276,643 276,643 276,643 Number of Share Options Granted Exercised 31.12.2018 - - 367,229 175,799 480,978 422,178 418,577 147,979 260,180 268,111 109,014 321,298 222,516 66,232 108,991 173,480 276,643 276,643 276,643 Statement of Corporate Governance The Board of Directors ("the Board") of the Company are pleased to report the application by the Company of the principles contained in the Malaysia Code on Corporate Governance ("the Code") and the extent of compliance with the best practices of the Code. The Board has endeavoured to apply the principles and comply with the relevant best practices of corporate governance as set out in the Code. The Company is also required to comply with Bank Negara Malaysia ("BNM")'s policy document on Corporate Governance ("BNM/RH/PD 029-9") issued on 3 August 2016.
  100. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 98 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 98 annual report 2018 DIRECTORS’ REPORT Business review for 2018 The Group registered a profit before taxation and zakat of RM854 million for 2018 as compared to profit before taxation and zakat of RM551 million in prior year. Gross loans, financing and advances for the Group as at 31 December 2018 stood at RM35,173 million (2017: RM34,201 million) whilst total deposits from customers and placements of banks and other financial institutions stood at RM32,788 million (2017: RM32,755 million). The Group’s business, policies and operations have been realigned following the merger with MBSB Bank Berhad (formerly known as Asian Finance Bank Berhad) on 7 February 2018. Investments were being made to upgrade and improve the delivery of products and services at various channels including internet and mobile banking. These investments include upgrade and enhancement of information technology infrastructure and services, people resources and upgrading of branches. The merger is further elaborated in Note 53. Outlook for 2019 The Islamic industry in Malaysia has advanced rapidly over the years, with a significant proportion of loans and financing in the country being Islamic financing. Islamic banks offer various competitive and innovative products, complementing solutions offered by conventional banks. While the growth is seen as significant in the industry, it is also important that Islamic financing delivers a positive and sustainable impact on the economy and community. The Group will continue its focus to expand the corporate business, to reach the desired corporate retail portfolio mix. The Group is looking forward to expand its products and services which include trade finance, wealth management and internet and mobile banking to cater for various segments of our customers and depositors. Barring any unforeseen circumstances, the Group’s prospects for the year is expected to be satisfactory. Other statutory information (a) Before the statements of financial position and statements of comprehensive income of the Group and of the Company were made out, the directors took reasonable steps: (i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and (ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances which would render: (i) the amount written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; and (ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading. (c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing methods of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading.
  101. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 99 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 99 annual report 2018 DIRECTORS’ REPORT Other statutory information (cont’d.) (e) As at the date of this report, there does not exist: (i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or (ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year other than those arising in the normal course of business of the Group and of the Company as disclosed in Note 47 to the financial statements. (f) In the opinion of the directors: (i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations as and when they fall due; and (ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made. Significant event during the financial year Significant event during the financial year is disclosed in Note 53 to the financial statements Auditors The auditors, Ernst & Young, will not be seeking reappointment to continue in office. The auditors' remunerations are disclosed in Note 36 to the financial statements. Signed on behalf of the Board in accordance with a resolution of the directors dated 19 April 2019. Tan Sri Abdul Halim bin Ali Chairman Kuala Lumpur, Malaysia Lim Tian Huat Director
  102. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 100 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 100 annual report 2018 STATEMENT BY DIRECTORS pursuant to Section 251(2) of the Companies Act 2016 We, Tan Sri Abdul Halim bin Ali and Lim Tian Huat, being two of the directors of Malaysia Building Society Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 105 to 245 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2018 and of the financial performance and the cash flows of the Group and of the Company for the year then ended. Signed on behalf of the Board in accordance with a resolution of the directors dated 19 April 2019. Tan Sri Abdul Halim bin Ali Chairman Lim Tian Huat Director Kuala Lumpur, Malaysia STATUTORY DECLARATION pursuant to Section 251(1)(b) of the Companies Act 2016 I, Tang Yow Sai, being the officer primarily responsible for the financial management of Malaysia Building Society Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 105 to 245 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared by the abovenamed Tang Yow Sai at Kuala Lumpur in the Federal Territory on 19 April 2019 Before me, Tang Yow Sai
  103. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 101 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 101 INDEPENDENT AUDITORS' REPORT to the members of Malaysia Building Society Berhad (Incorporated in Malaysia) Report on the financial statements Opinion We have audited the financial statements of Malaysia Building Society Berhad, which comprise the statements of financial position as at 31 December 2018 of the Group and of the Company, and the statements of comprehensive income, the statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 105 to 245. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2018, and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 2016 in Malaysia. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence and other ethical responsibilities We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the Group and of the Company for the current year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditors’ responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis of our audit opinion on the accompanying financial statements. Adequacy of impairment allowance for loans, advances and financing As at 31 December 2018, the loans, advances and financing represent 72.9% and 18.2% of the total assets of the Group and of the Company respectively. The adoption of MFRS 9 Financial Instruments has fundamentally changed the Group and the Company’s accounting for loan and financing loss impairment by replacing MFRS 139 Financial Instruments: Recognition and Measurement's incurred loss approach with a forward-looking expected credit loss ("ECL") approach. The measurement of ECL requires the application of significant judgement and increased complexity which include the identification of on-balance sheet and off-balance sheet credit exposures with significant deterioration in credit quality, assumptions used in the ECL models (for exposures assessed individually or collectively) such as the expected future cash flows, forward looking macroeconomic factors and probability-weighted multiple scenarios.
  104. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 102 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 102 annual report 2018 INDEPENDENT AUDITORS’ REPORT to the members of Malaysia Building Society Berhad (Incorporated in Malaysia) Key audit matters (cont’d.) Adequacy of impairment allowance for loans, advances and financing (cont’d.) Refer to summary of significant accounting policies in Note 2(l), significant accounting estimates and judgements in Note 4(b) and the disclosures of loans, advances and financing in Note 10 to the financial statements. Our audit procedures included the assessment of key controls over the origination, segmentation, ongoing internal credit quality assessments, recording and monitoring of the loans, advances and financing and the investments. We also assessed the processes and effectiveness of key controls over the transfer criteria (for the three stages of credit exposures under MFRS 9 in accordance with credit quality), impairment measurement methodologies, governance for development, maintenance and validation of ECL models, inputs, basis and assumptions used by the Group and the Company in staging the credit exposures and calculating the ECL. For staging and identification of credit exposures with significant deterioration in credit quality, we assessed and tested the reasonableness of the transfer criteria applied by the Group and the Company for different types of credit exposures. We evaluated if the transfer criteria are consistent with the Group and the Company’s credit risk management practices. For the measurement of ECL, we assessed and tested reasonableness of the Group's and the Company’s ECL models, including model input, model design and model performance for significant portfolios. We challenged whether historical experience is representative of current circumstances and of the recent losses incurred in the portfolios and assessed the reasonableness of forward looking adjustments, macroeconomic factor analysis and probability-weighted multiple scenarios. With respect to individually assessed ECL which are mainly in relation to the impaired assets in Stage 3, we reviewed and tested a sample of loans, advances and financing and to evaluate the timely identification by the Group and the Company of exposures with significant deterioration in credit quality or which have been impaired. For cases where impairment has been identified, we assessed the Group’s and the Company’s assumptions on the expected future cash flows, including the value of realisable collaterals based on available market information, the timing of the recovery and the multiple scenarios considered. We also assessed whether the financial statement disclosures are adequate and appropriately reflect the Group’s and the Company’s exposures to credit risk. Impairment of provisional goodwill As at 31 December 2018, the provisional goodwill recognised in the financial statements of the Group is RM188.8 million (as disclosed in Note 19), arising from the acquisition of a subsidiary i.e. MBSB Bank Berhad (formerly known as Asian Finance Bank Berhad) during the financial year as disclosed in Note 53 to the financial statements. The goodwill has been recorded on a provisional basis pending the completion of the purchase price allocation which will be finalized in the next financial year. The Group has performed an impairment assessment on the provisional goodwill. Goodwill impairment testing of cash generating units (“CGUs”) relies on estimates of value-in-use (“VIU”) based on estimated future cash flows. These involve management judgement and are based on assumptions that are affected by expected future market and economic conditions. Refer to summary of significant accounting policies in Note 2(c)(i), significant accounting estimates and judgement in Note 4(b) and the disclosure of intangible assets in Note 19 to the financial statements. Our audit procedures included, among others, evaluating the assumptions and methodology used by the Group in performing the impairment assessment. We tested the basis of preparing the cash flow projections taking into account the historical evidence supporting underlying assumptions. We assessed the appropriateness of the other key assumptions, such as the growth rates used to extrapolate the cash flows and the discount rate applied, by comparing against internal information, and external economic and market data. We also assessed the sensitivity analysis performed by management on the key inputs to the impairment model, to understand the impact that reasonable alternative assumptions would have on the overall carrying amounts.
  105. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 103 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 103 INDEPENDENT AUDITORS’ REPORT to the members of Malaysia Building Society Berhad (Incorporated in Malaysia) Information other than the financial statements and auditors’ report thereon The directors of the Group and of the Company are responsible for the other information. The other information comprises directors’ report and annual report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon. Our opinion on the financial statements of the Group and of the Company 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 Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company 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 Company are responsible for the preparation of financial statements of the Group and of the Company 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 Company that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Group and of the Company, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
  106. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 104 104 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 INDEPENDENT AUDITORS’ REPORT to the members of Malaysia Building Society Berhad (Incorporated in Malaysia) Auditors’ responsibilities for the audit of the financial statements (cont’d.) • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company 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. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements In accordance with the requirements of the Companies Act, 2016 in Malaysia, we report that the subsidiaries of which we have not acted as auditors, is disclosed in Note 15 to the financial statements. Other matters This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act, 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Kuala Lumpur, Malaysia 19 April 2019 Chan Hooi Lam No. 02844/02/2020 J Chartered Accountant
  107. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 105 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 105 annual report 2018 STATEMENTS OF FINANCIAL POSITION as at 31 December 2018 Note Assets Cash and short-term funds Deposits and placements with other financial institutions Derivative financial assets Financial investments at fair value through other comprehensive income ("FVOCI") Financial investments available-for-sale Financial investments at amortised cost Loans, financing and advances Financial assets held-for-sale Trade receivables Other receivables Statutory deposits with Bank Negara Malaysia Investments in Joint venture Inventories Property and equipment Intangible assets Investment properties Land use rights Deferred tax assets Tax recoverable 5(a) 5(b) 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 Total assets Liabilities and shareholders' equity Deposits from customers Deposits and placements of banks and other financial institutions Derivative financial liabilities Trade payables Other payables Recourse obligation on loans/financing sold Sukuk - MBSB Structured Covered ("SC") Murabahah Provision for taxation and zakat Deferred tax liabilities 23 24 6 25 26 27 28(a) 22 Total liabilities Ordinary share capital Reserves Retained earnings 29 30 Total equity Total liabilities and shareholders' equity Commitments and contingencies The accompanying notes form an integral part of the financial statements. 46 Group 2018 2017 RM'000 RM'000 3,411,986 931,087 67 5,097,105 20,350 33,133,119 561 243,047 1,053,000 102,432 297,567 293,513 820 5,262 34,318 801,278 7,787,132 747,403 3,171,913 32,006,244 38,409 295 218,413 103,242 168,504 14,633 5,423 31,359 517,177 45,425,512 44,810,147 24,209,449 8,578,851 2 225 650,767 2,135,518 1,968,075 36,901 60,120 25,526,548 7,228,589 210 377,327 2,238,167 2,287,877 16,410 10,156 37,639,908 37,685,284 6,682,102 16,873 1,086,629 6,172,051 (395) 953,207 7,785,604 7,124,863 45,425,512 44,810,147 6,538,250 7,775,301
  108. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 106 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 106 annual report 2018 STATEMENTS OF FINANCIAL POSITION as at 31 December 2018 Note Assets Cash and short-term funds Deposits and placements with financial institutions Financial investments available-for-sale Sukuk Commodity Murabahah Loans, financing and advances Financial investments held-for-sale Other receivables Investments in subsidiaries Inventories Property and equipment Intangible assets Deferred tax assets Tax recoverable 5(a) 5(b) 8 28(b) 10 11 13 15 17 18 19 22 Company 2018 2017 RM'000 RM'000 155,077 154,347 1,326,502 148,672 4,756,328 24,831 15,687 710,610 7,768,634 51,368 3,171,913 3,245,851 32,006,244 38,409 539,955 7,397 900 34,096 14,588 21,187 517,177 7,292,054 47,417,719 239,669 4,787 25,526,548 7,228,589 3,278,537 2,238,167 2,287,877 13,374 244,456 40,573,092 6,682,102 6,261 359,235 6,172,051 (395) 672,971 Total equity 7,047,598 6,844,627 Total liabilities and shareholders' equity 7,292,054 47,417,719 39,909 7,355,440 Total assets Liabilities and shareholders' equity Deposits from customers Deposits and placements of banks and other financial institutions Other payables Recourse obligation on loans/financing sold Sukuk - MBSB Structured Covered ("SC") Murabahah Provision for taxation and zakat 23 24 26 27 28(a) Total liabilities Ordinary share capital Reserves Retained earnings Commitments and contingencies The accompanying notes form an integral part of the financial statements. 29 30 46
  109. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 107 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 107 annual report 2018 STATEMENTS OF COMPREHENSIVE INCOME for the year ended 31 December 2018 Note Revenue Income derived from investment of general investment deposits and Islamic capital funds Income attributable to depositors Income attributable to securitisation Income attributable to sukuk Company 2018 2017 RM'000 RM'000 31 3,145,937 3,259,763 812,513 3,008,175 32 2,604,687 (1,272,930) (97,665) (107,299) 2,422,414 (1,077,119) (96,978) (122,675) 609,344 (304,799) (24,843) (69,836) 2,543,830 (1,077,119) (96,978) (329,908) 1,126,793 1,125,642 209,866 1,039,825 216,796 (21,832) 427,821 (152,299) 174,530 (21,832) 390,566 (152,299) 194,964 275,522 152,698 238,267 Net income from Islamic financing operations Interest income Interest expense Group 2018 2017 RM'000 RM'000 33 34 Net interest income Operating income Net other income 35 1,321,757 53,963 1,401,164 80,584 362,564 45,593 1,278,092 73,282 Net income Other operating expenses 36 1,375,720 (406,280) 1,481,748 (289,800) 408,157 (120,917) 1,351,374 (273,307) Operating profit Impairment allowance 39 969,440 (115,867) 1,191,948 (641,216) 287,240 (11,338) 1,078,067 (646,142) 853,573 (198,173) (13,000) 550,732 (121,735) (11,871) 275,902 (75,507) - 431,925 (115,786) (11,871) Profit for the year Other comprehensive income Fair value reserve (net increase), which may be reclassified subsequently to profit or loss 642,400 417,126 200,395 304,268 17,268 13,154 6,656 13,154 Total comprehensive income for the year, net of tax 659,668 430,280 207,051 317,422 10.32 10.32 7.10 7.10 Profit before taxation and zakat Taxation Zakat Earnings per share (sen) Basic Diluted 40 41(a) 41(b) The accompanying notes form an integral part of the financial statements.
  110. (198,449) - - 144,491 13 198,449 - 12,486 17,838 Dividends (Note 42) Issuance of ordinary shares pursuant to exercise of DRP Issuance of ordinary shares pursuant to exercise of ESOS Transfer of share option reserve to retained profits upon expiry of share options Transfer of share premium to share capital Transfer of warrant reserve to retained profits Transfer of capital redemption reserve redeemable cumulative preference shares to share capital Transfer of capital reserve to share capital - 243,952 266,099 Dividends (Note 42) Issuance of ordinary shares pursuant to exercise of DRP Issuance of shares for acquisition of a subsidiary - - - - - - - - - - - - - - - - (3,633) - - - - 3,633 - - - - - - - - (12,486) - - - - - - 12,486 - 6,261 - - - - 6,261 - 6,261 - - (543) - (6) - - - 6,810 - 10,612 - - - 17,268 (6,656) 17,268 (6,656) - - - - - - 13,154 (19,810) 13,154 - - 7 144,491 (173,963) 430,280 - - (307,497) 642,400 266,099 243,952 (307,497) 659,668 751,726 6,923,382 642,400 642,400 17,268 953,207 7,124,863 (201,481) (201,481) - 543 3,633 - - (173,963) 417,126 705,868 6,724,048 417,126 417,126 13,154 Total RM'000 16,873 1,086,629 7,785,604 - - - 17,268 (395) 17,268 (395) - - (543) - (6) - - 13,154 (13,000) 13,154 Retained profits RM'000 The accompanying notes form an integral part of the financial statements. #1 Pursuant to subsection 618(3) and 618(4) of the Companies Act 2016, the Group may exercise its right to use the credit amount being transferred from the share premium account within 24 months after the commencement of the Act. #2 Capital reserve arose out of the transfer of Malaya Borneo Building Society Limited as at 29 February 1972 to the Company on 1 March 1972 via a Scheme of Arrangement. #3 Capital redemption reserve arose out of the redemption of redeemable cumulative preference shares of the Company. 6,682,102 - - Total comprehensive income for the year At 31 December 2018 - 6,172,051 - Profit for the year Other comprehensive income for the year - - 6,172,051 - (17,838) - - - - - 17,838 - Capital Warrants Reserve#2 Reserve (Note 30) (Note 30) RM'000 RM'000 108 At 31 December 2017 Effects of adopting MFRS 9 (Note 3(a)) - - Total comprehensive income for the year 198,449 - 5,798,774 - Share Premium#1 RM'000 At 1 January 2017 Profit for the year Other comprehensive income for the year Group Share Capital RM'000 Other Reserves Capital Redemption Reserve#3 Redeemable Cumulative Share Preference Option Fair value Shares Reserve Reserves (Note 30) (Note 30) (Note 30) Total RM'000 RM'000 RM'000 RM'000 MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:42 PM Page 108 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 STATEMENTS OF CHANGES IN EQUITY for the year ended 31 December 2018
  111. (198,449) - - 144,491 13 198,449 - 12,486 17,838 Dividends (Note 42) Issuance of ordinary shares pursuant to exercise of DRP Issuance of ordinary shares pursuant to exercise of ESOS Transfer of share option reserve to retained profits upon expiry of share options Transfer of share premium to share capital Transfer of warrant reserve to retained profits Transfer of capital redemption reserve redeemable cumulative preference shares to share capital Transfer of capital reserve to share capital - 243,952 266,099 Dividends (Note 42) Issuance of ordinary shares pursuant to exercise of DRP Issuance of shares for acquisition of a subsidiary - - - - - - - - (17,838) - - - - - 17,838 - - - - - - - - - (3,633) - - - - 3,633 - Capital Warrants Reserve#2 Reserve (Note 30) (Note 30) RM'000 RM'000 - - - - - - - (12,486) - - - - - - 12,486 - 6,261 - - - - 6,261 - 6,261 - - (543) - (6) - - - 6,810 - - - - - 6,656 (6,656) 6,656 (6,656) - - - - - - 13,154 (19,810) 13,154 6,261 - - - 6,656 (395) 6,656 (395) - - (543) - (6) - - 13,154 (13,000) 13,154 Total RM'000 - - 7 144,491 (173,963) 317,422 266,099 243,952 (307,497) 207,051 359,235 7,047,598 - - (307,497) 200,395 466,337 6,637,993 200,395 200,395 6,656 672,971 6,844,627 (206,634) (206,634) - 543 3,633 - - (173,963) 304,268 538,490 6,556,670 304,268 304,268 13,154 Retained profits RM'000 annual report 2018 The accompanying notes form an integral part of the financial statements. MALAYSIA BUILDING SOCIETY BERHAD (9417-K) #1 Pursuant to subsection 618(3) and 618(4) of the Companies Act 2016, the Group may exercise its right to use the credit amount being transferred from the share premium account within 24 months after the commencement of the Act. #2 Capital reserve arose out of the transfer of Malaya Borneo Building Society Limited as at 29 February 1972 to the Company on 1 March 1972 via a Scheme of Arrangement. #3 Capital redemption reserve arose out of the redemption of redeemable cumulative preference shares of the Company. 6,682,102 - - Total comprehensive income for the year At 31 December 2018 - 6,172,051 - Profit for the year Other comprehensive income for the year - - 6,172,051 - At 31 December 2017 Effects of adopting MFRS 9 (Note 3(a)) - - Total comprehensive income for the year 198,449 - 5,798,774 - Share Premium#1 RM'000 At 1 January 2017 Profit for the year Other comprehensive income for the year Company Share Capital RM'000 Other Reserves Capital Redemption Reserve#3 Redeemable Cumulative Share Preference Option Fair value Shares Reserve Reserves (Note 30) (Note 30) (Note 30) Total RM'000 RM'000 RM'000 RM'000 MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 109 109 STATEMENTS OF CHANGES IN EQUITY or the year ended 31 December 2018
  112. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 110 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 110 annual report 2018 STATEMENTS OF CASH FLOWS for the year ended 31 December 2018 Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 853,573 550,732 275,902 431,925 8,615 11,008 1,804 8,225 161 11,383 (316) (2,384) 33 401 161 10,841 9 (2,095) 1,731 (318) 2,710 (2,384) 401 10,823 9 15,018 (2,095) 174,919 45,944 (100,635) 6 (4,359) (8) 36,162 598,611 42,597 8 22,485 19,167 50,074 (82,424) 11,711 4,588 8,222 (45,222) 606,382 652 2 34,420 4,686 22,420 (92,836) (36,524) 234 - (24,215) (7,880) (4) - (9,898) (27,348) (24,215) (7,880) (4) (121,612) 894,369 1,202,258 208,716 978,756 (183,684) (1,028,826) (267,709) 38,409 810 (258) (198,716) 328,675 (387,162) (38,409) (41) 239 (111,574) (157,792) 495,291 38,409 900 374,310 410,838 (387,746) (38,409) (83,400) (1,920,965) 15 226 2 203,729 - 2,143,813 23 50,856 - (790,770) (798,327) - 2,143,813 (269,223) (59,057) Cash flows from operating activities Profit before taxation Adjustments for: Depreciation of property, plant and equipment Amortisation: - land use rights - intangible assets (Gain)/loss on disposal of property and equipment and land use rights Loss on liquidation of subsidiaries Gain on disposal of financial assets held-for sale Net loss on sale of investments securities at FVOCI Loss/(gain) on disposal of foreclosed properties Allowance/(write back) for impairment of: - loans, financing and advances - other receivables - financing commitments, financial guarantees and other payables - investments in subsidiaries - investments at amortised cost - asset held-for-sale - financing to subsidiaries - amount due from subsidiaries - trade receivables Accruals/(reversal) during the year Interest/profit effective rate recognition: - loans, financing and advances - Financial investments - Financial investments at amortised cost - Sukuk - MBSB SC Murabahah - Sukuk Commodity Murabahah Operating profit before working capital changes Working capital changes: (Increase)/decrease in deposits with financial institutions with maturity of more than one month Increase in statutory deposits with BNM (Increase)/decrease in loans, financing and advances Decrease/(increase) in financial assets held-for-sale Decrease/(increase) in inventories (Increase)/decrease in trade receivables (Increase)/decrease in other receivables (Decrease)/increase in deposits from customers, banks and other financial institutions Increase in trade payables Decrease in derivative assets Increase in derivative liabilities Increase/(decrease) in other payables Increase in financing to subsidiaries The accompanying notes form an integral part of the financial statements.
  113. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 111 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 111 annual report 2018 STATEMENTS OF CASH FLOWS for the year ended 31 December 2018 Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 Cash flows from operating activities (cont’d.) Cash (used in)/generated from operations Tax paid Zakat paid Net cash (used in)/generated from operating activities (2,462,598) 3,188,678 (629,263) 2,695,572 (325,688) (7,826) (92,291) (3,275) (178,476) (2,982) (86,333) (3,275) (2,796,112) 3,093,112 (810,721) 2,605,964 Cash flows from investing activities Arising from acquisition of MBSB Bank (Note 53) Proceeds from financial assets held-for-sale Purchase of property and equipment Purchase of intangible assets Proceeds from disposal of foreclosed properties Proceeds from disposal of property and equipment and land use rights Purchase of financial investments at FVOCI and available-for-sale Proceeds from sale of financial investments at amortised cost Proceeds from maturity of Sukuk Commodity Murabahah 181,076 40,793 (136,942) (101,473) - (37,832) (10,059) 3,315 (6,666,078) 40,793 (1,736) (11,509) - (3,723) (10,042) 3,315 2,097 (1,109,523) 31,168 - 24 (786,129) - 516 (38,118) - 24 (786,129) 452,903 Net cash used in investing activities (1,092,804) (830,681) (6,676,132) (343,652) Repayment of bank borrowings Repayment from recourse obligation on loans/financing sold Repayment of Sukuk - MBSB SC Murabahah Dividends paid on ordinary shares Net proceeds from issuance of ordinary shares (102,649) (320,036) (307,497) 243,952 (575,275) (182,008) (327,926) (173,963) 144,504 (63,159) (307,497) 243,952 (575,275) (182,008) (327,926) (173,963) 144,504 Net cash used in financing activities (486,230) (1,114,668) (126,704) (1,114,668) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year (4,375,146) 7,787,132 1,147,763 6,639,369 (7,613,557) 7,768,634 1,147,644 6,620,990 Cash and cash equivalents at end of year (Note 5(a)) 3,411,986 7,787,132 155,077 7,768,634 Cash and short-term funds 3,411,986 7,787,132 155,077 7,768,634 Cash and cash equivalents at end of year (Note 5(a)) 3,411,986 7,787,132 155,077 7,768,634 Cash flows from financing activities Cash and cash equivalents is represented by: The accompanying notes form an integral part of the financial statements.
  114. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 112 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 112 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 1. Corporate information The Company is a public limited liability company, incorporated under the Companies Act 2016 in Malaysia, domiciled in Malaysia, and listed on the Main Market of Bursa Malaysia Securities Berhad. The registered office of the Company is located at 11th Floor, Wisma MBSB, 48, Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur. The immediate and ultimate holding body of the Company is Employees Provident Fund ("EPF"), a statutory body established under the Employee Provident Fund Act 1991 (Act 452). The Company was principally engaged in investment holding, money market activities, provision of financing, advances and financial guarantees on a secured and unsecured basis, which includes Islamic financing, and other related financial services. On 7 February 2018, the Company acquired MBSB Bank Berhad (formerly known as Asian Finance Bank Berhad) ("the Bank"). On 2 April 2018, the Company had via the First Tranche Transfer, transferred all of its Shariah-compliant assets and liabilities to the Bank. The transfer was implemented through a members' scheme of arrangement pursuant to Section 366 of the Companies Act, 2016 by way of a Vesting Order dated 28 February 2018 from the High Court of Malaya. Since the transfer on 2 April 2018, the Company was no longer involved in the money market activities and did not give out loans and advances. The Company continues to manage the remaining conventional loans and advances. The principal activities of the subsidiaries are described in Note 15. There have been no significant changes in the nature of the principal activities of the subsidiaries during the financial year. The consolidated financial statements comprise of the Company and its subsidiaries (together reported to as "Group"). These financial statements were approved by the Board of Directors on 19 April 2019. 2. Summary of significant accounting policies Basis of preparation The consolidated and separate financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards ("MFRS"), International Financial Reporting Standards ("IFRS") and the requirements of the Companies Act 2016 in Malaysia. The financial statements of the Group and of the Company have been prepared on a historical cost basis except as disclosed in the accounting policies below. The financial statements incorporate those activities relating to Islamic banking operations which have been undertaken by the Group and by the Company. Islamic banking operations refer generally to the acceptance of deposits and granting of financing under the principles of Shariah. Disclosures relating to the Islamic banking operations are disclosed in Note 52. The financial statements are presented in Ringgit Malaysia ("RM") which is the Company's functional currency. All financial information is presented in RM and has been rounded to the nearest thousand (RM'000) except when otherwise indicated. (a) Foreign currency transactions Foreign currency transactions are translated into the respective functional currencies of Group entities using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
  115. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 113 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 113 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont’d.) (b) Subsidiaries and basis of consolidation (i) Subsidiaries A subsidiary is an entity over which the Group has all of the following: - power over the investee; exposure or rights to variable returns from its involvement with the investee; and the ability to use its power to affect those returns. In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less any impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(j) below. On disposal of such investments, the difference between the net disposal proceeds and their carrying amounts is included in profit or loss. Dividends received from subsidiaries are recorded as a component of revenue in the Company’s profit or loss. Dividend income received from subsidiary is recognised in profit or loss on the date that the Company's right to receive payment is established. (ii) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at and for the year ended 31 December of each financial year. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. In preparing the consolidated financial statements, all intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the Group are eliminated in full. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The assessment of control is performed continuously to determine if control exists or continues to exist over an entity. Acquisitions of subsidiaries are accounted for using the acquisition method of accounting. The identifiable assets acquired and the liabilities assumed are measured at their fair values at the acquisition date. Acquisition costs incurred are expensed and included in administrative expenses. The difference between these fair values and the fair value of the consideration (including the fair value of any preexisting investment in the acquiree) is goodwill or discount on acquisition. The accounting policy for goodwill is set out in Note 2(c)(i) below. Discount on acquisition which represents negative goodwill is recognised immediately in profit or loss. In business combinations achieved in stages, previously held equity interest in the acquiree is remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at the acquisition date either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Changes in the Group’s equity interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their respective interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in shareholders’ equity.
  116. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 114 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 114 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (b) Subsidiaries and basis of consolidation (cont’d.) (ii) Basis of consolidation (cont'd.) If the Group loses control over a subsidiary, at the date the Group loses control, it: - Derecognises the assets (including goodwill) and liabilities of the subsidiary at their respective carrying amounts; - Derecognises the carrying amount of any non-controlling interest; - Derecognises the cumulative translation differences recorded in equity; - Recognises the fair value of the consideration or distribution received; - Recognises the fair value of any investment retained; - Recognises any surplus or deficit in profit or loss; and - Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate. (iii) Transactions with non-controlling interests Non-controlling interests represent the equity in subsidiaries not attributable, directly or indirectly, to the owners of the Company, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from shareholders’ equity. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners. (c) Intangible assets (i) Goodwill Goodwill is initially measured at cost. Following initial recognition, goodwill is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill acquired is allocated, from the acquisition date, to each of the Group’s cash-generating units ("CGU") that are expected to benefit from the synergies of the combination. The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired. This is done by comparing the carrying amount of the cash-generating unit, including the allocated goodwill, with the recoverable amount of the cash-generating unit. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in profit or loss. Impairment losses recognised for goodwill are not reversed in subsequent periods. Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the disposed operations and the portion of the cash-generating unit retained.
  117. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 115 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 115 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (c) Intangible assets (cont'd.) (ii) Other intangible assets Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial acquisition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with finite useful lives are amortised over the estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss. Intangible assets with indefinite useful lives, or which are not yet available for use, are tested for impairment annually, or more frequently if the events and circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. Software licences The useful life of software licences is assessed to be finite and is amortised on a straight-line basis over 5 years. Land use rights Land use rights are distinct and separate from land ownership. Land use rights are initially measured at cost. Following initial recognition, land use rights are measured at cost less accumulated amortisation and accumulated impairment losses. The land use rights are amortised over their lease terms. (d) Property and equipment and depreciation All items of property and equipment are initially recorded at cost. The cost of an item of property and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Subsequent to recognition, property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. When significant parts of property and equipment are required to be replaced, the Group recognises such parts as individual assets with specific useful lives and depreciation. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. Freehold land has an unlimited useful life and therefore is not depreciated.
  118. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 116 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 116 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (d) Property and equipment and depreciation (cont’d.) Depreciation of other property and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rates: Building in progress Buildings Building renovation Furniture and equipment Motor vehicles Data processing equipment * 0%* 2.5% 20% 20% 20% 20% Building in progress will not be depreciated until it becomes ready for use. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted prospectively, if appropriate. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in profit or loss in the year the asset is derecognised. (e) Employee benefits (i) Short term 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. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences. Short term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defined contribution plans As required by law, companies in Malaysia make contributions to the Employees Provident Fund (“EPF”), a defined contribution pension scheme. Such contributions are recognised as an expense in profit or loss when incurred. (iii) Employee share option scheme The Malaysia Building Society Berhad's Employee Share Option Scheme ("ESOS"), an equity-settled, share-based compensation plan, allows the employees of subsidiaries of the Group (including executive directors), other than subsidiaries which are dormant, to acquire ordinary shares of the Company. The total fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in the share option reserve within equity over the vesting period and taking into account the probability that the options will vest. The fair value of share options is measured at grant date, taking into account, if any, the market vesting conditions upon which the options were granted but 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 become exercisable on vesting date. At each reporting date, the Group revises its estimates of the number of options that are expected to become exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in profit or loss, and a corresponding adjustment to equity over the remaining vesting period. The equity amount is recognised in the share option reserve until the option is exercised, upon which it will be transferred to the share capital account, or until the option expires, upon which it will be transferred directly to retained earnings.
  119. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 117 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 117 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (f) Investment properties Investment properties are properties which are held either to earn rental income or for capital appreciation or both. Investment properties are measured at cost less accumulated depreciation and accumulated impairment losses. Depreciation rate is at 2.5% per annum. A property interest under an operating lease is classified and accounted for as an investment property on a property-byproperty basis when the Group holds it to earn rental or for capital appreciation or both. Investment properties are derecognised when either it has been disposed of or when the investment properties are permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognised in profit or loss in the financial year of retirement or disposal. Transfers are made to or from investment property only when there is change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. For a transfer from owner-occupied property to investment property, the property is accounted for in accordance with the accounting policy for property, plant and equipment up to the date of change in use. At the date of change in use, the property is recorded at the net book value when the property is transferred to investment property. (g) Inventories Inventories of the Group comprise completed properties and hotel inventories. Inventories of completed properties are stated at the lower of cost (determined on specific identification basis) and net realisable value. Costs include costs associated with the acquisition of land, direct costs and appropriate development overheads. Hotel inventories comprising food, beverage and hotel supplies are stated at the lower of cost (determined on a first-in, firstout basis) and net realisable value. Net realisable value represents the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale. (h) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (i) Cash and cash equivalents Cash and short-term funds in the statements of financial position comprise cash at bank and on hand, demand deposits and short-term deposits with original maturities of one month or less which are subject to an insignificant risk of change in value. For the purposes of the statements of cash flows, cash and cash equivalents consist of cash and short-term funds as defined above, excluding deposits and monies held in trust and net of outstanding bank overdrafts.
  120. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 118 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 118 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (j) Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when an annual impairment assessment for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows ("CGU"). In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis. Impairment losses are recognised in profit or loss. An assessment is made at each reporting date as to whether there is any indication that a previously recognised impairment loss may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation and/or amortisation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss. Impairment loss on goodwill is not reversed in a subsequent period. (k) Financial instruments Unless specifically disclosed, the Group and the Company generally applied the following accounting policies retrospectively. Nevertheless, as permitted by MFRS 9, Financial Instruments, the Group and the Company have elected not to restate the comparatives. (i) Recognition and initial measurement A financial asset or a financial liability is recognised in the statement of financial position when, and only when, the Group or the Company becomes a party to the contractual provisions of the instrument. Current financial year A financial asset or a financial liability is initially measured at fair value plus or minus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issuance.
  121. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 119 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 119 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (k) Financial instruments (cont'd.) (i) Recognition and initial measurement (cont’d.) Previous financial year Financial instrument was recognised initially, at its fair value plus or minus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that were directly attributable to the acquisition or issue of the financial instrument. (ii) Financial instrument categories and subsequent measurement Financial assets Current financial year On initial recognition, a financial asset is classified as measured at: amortised cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). Financial assets are not reclassified subsequent to their recognition unless the Group and Company change its business model for managing assets. a) Financial assets measured at amortised cost A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: b) - the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and - the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest/profit ("SPPI"). Financial assets measured at FVOCI A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL: c) - the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and - the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI. Financial assets measured at FVTPL Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.
  122. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 120 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 120 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (k) Financial instruments (cont'd.) (ii) Classification and subsequent measurement (cont'd) Current financial year (cont'd) d) Business model assessment The Group and the Company make an assessment of the objective of a business model ("BM") in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The Group and the Company has to consider all relevant evidence that is available at the date of the assessment. Such relevant evidence includes, but is not limited: i) the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management’s strategy focuses on earning contractual profit revenue, maintaining a particular profit rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets. ii) How the performance of the business model (and the financial assets held within) is evaluated and reported to the Group's and the Company's key management personnel; (iii) The risks that affect the performance of the business model (and the financial assets held within) and, in particular, the way that those riks are managed; and (iv) How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or the contractual cash flows collected) (v) the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group’s and the Company's stated objective for managing the financial assets is achieved and how cash flows are realised. e) Assessment of whether contractual cash flows are SPPI For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest/Profit’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin. In assessing whether the contractual cash flows are SPPI, the Group and Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group and the Company considers: - contingent events that would change the amount and timing of cash flows; leverage features; prepayment and extension terms; terms that limit the Group’s and the Company's claim to cash flows from specified assets (e.g. non-recourse loans); and features that modify consideration of the time value of money (e.g. periodical reset of interest rates).
  123. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 121 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 121 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (k) Financial instruments (cont'd.) (ii) Classification and subsequent measurement (cont'd) Current financial year (cont'd) e) Assessment of whether contractual cash flows are SPPI (cont’d.) The Group and the Company holds a portfolio of long-term fixed-rate loans for which the Group and the Company has the option to propose to revise the profit rate at periodic reset dates. These reset rights are limited to the market rate at the time of revision. The borrowers have an option to either accept the revised rate or redeem the loan at par without penalty. The Group and the Company has determined that the contractual cash flows of these financing are SPPI because the option varies the profit rate in a way that is consideration for the time value of money, credit risk, other basic lending risks and costs associated with the principal amount outstanding. This category comprises investment in equity that is not held for trading, and the Group and the Company irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an investment-by-investment basis. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of investment. Other net gains and losses are recognised in other comprehensive income. On derecognition, gains and losses accumulated in other comprehensive income are not reclassified to profit or loss. Previous financial year In the previous financial year, financial assets of the Group and the Company were classified and measured under MFRS 139 Financial Instruments: Recognition and Measurement as follows: (a) Fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term. It also includes derivative instruments where currently applicable only to forward foreign exchange contracts. (b) Held-to-maturity Financial investments held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group and the Company have the positive intention and ability to hold to maturity. If the Group and the Company were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available-for-sale. (c) Loans, financing and advances Loans, financing and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These financial assets are in the form of Ijarah, Qard and Bai'. These contracts are initially recognised at fair value, including direct and incremental transaction costs, and subsequently measured at amortised cost using the effective profit method. The contracts are stated at net of unearned income and any amounts written off less any impairment loss. (d) Available-for-sale financial assets Financial investments available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories. All financial assets, except for those measured at fair value through profit or loss were subject to impairment assessment.
  124. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 122 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 122 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (k) Financial instruments (cont'd.) (ii) Classification and subsequent measurement (cont'd) Financial liabilities Current financial year 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), contingent consideration in a business combination and financial liabilities that are specifically designated into this category upon initial recognition. On initial recognition, the Group or the Company 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 (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 the profit or loss. For financial liabilities where it is designated as fair value through profit or loss upon initial recognition, the Group and the Company 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 or effective yield method. Interest or profit expense and foreign exchange gains and losses are recognised in the profit or loss. Any gains or losses on derecognition are also recognised in the profit or loss.
  125. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 123 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 123 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (k) Financial instruments (cont'd.) (ii) Classification and subsequent measurement (cont'd) Financial liabilities Previous financial year The Group and the Company's holding in financial liabilities are recognised at amortised cost. Financial liabilites are derecognised when extinguished. Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are measured at amortised cost. Financial liabilities measured at amortised cost are deposits from customers, deposits and placements of banks and other financial institutions. The Group and the Company's financial liabilities The financial liabilities include Sukuk - MBSB SC Murabahah, trade payables, other payables, bank and other borrowings, recourse obligations on loans sold to Cagamas Berhad, deposits from customers and deposits and placements of banks and other financial institutions. The deposits are stated at placement values. Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. Bank and other borrowings and recourse obligations on loans sold to Cagamas Berhad are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method. Sukuk - MBSB SC Murabahah is classified as other financial liabilities as there is a contractual obligation by the Group or the Company to make cash payments of either principal or profit or both to holders of the Sukuk - MBSB SC Murabahah and the Group or the Company is contractually obliged to settle the financial instrument in cash. Subsequent to initial recognition, Sukuk issued is recognised at amortised cost, with any difference between proceeds net of transaction costs and the redemption value being recognised in profit or loss over the period of the Sukuk - MBSB SC Murabahah using the effective profit method. (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: (a) the amount of the loss allowance; and (b) 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.
  126. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 124 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 124 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (l) Impairment of financial assets Unless specifically disclosed below, the Group and the Company generally applied the following accounting policies retrospectively. Nevertheless, as permitted by MFRS 9, Financial Instruments, the Group and the Company elected not to restate the comparatives. An impairment loss in respect of financial assets measured at amortised cost is recognised in profit or loss and the carrying amount of the asset is reduced through the use of an allowance account. An impairment loss in respect of debt investments measured at fair value through other comprehensive income is recognised in profit or loss and the allowance account is recognised in other comprehensive income. Current financial year Measurement The Group and the Company recognise loss allowances for expected credit losses on financial assets measured at amortised cost, debt investments measured at fair value through other comprehensive income, contract assets and lease receivables. Expected credit losses are a probability-weighted estimate of credit losses. The Group and the Company measure loss allowances at an amount equal to lifetime expected credit loss ("ECL"), except for debt securities that are determined to have low credit risk at the reporting date, cash and bank balance and other debt securities for which credit risk has not increased significantly since initial recognition, which are measured at 12-month expected credit loss. Loss allowances for trade receivables, contract assets and lease receivables are always measured at an amount equal to lifetime expected credit loss. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit loss, the Group and the Company consider reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group and the Company historical experience and informed credit assessment and including forward-looking information, where available. The key inputs into the measurement of ECL are the term structure of the following variables: - probability of default ("PD"); loss given default ("LGD"); and exposure at default ("EAD"). ECL for exposures in Stage 1 is calculated by multiplying the 12-month PD by LGD and EAD. Lifetime ECL is calculated by multiplying the lifetime PD by LGD and EAD. PD provides an estimate of the likelihood that a borrower will be unable to meet its debt obligation or default over a particular time.
  127. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 125 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 125 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (l) Impairment of financial assets (cont'd.) Current financial year (cont'd.) Measurement (cont'd) LGD is the magnitude of the likely loss if there is a default. The Group and the Company estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the financial asset. Recognition Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of the asset, while 12-month expected credit losses are the portion of expected credit losses that result from default events that are possible within the 12 months after the reporting date. The maximum period considered when estimating expected credit losses is the maximum contractual period over which the Group and the Company is exposed to credit risk. Financial assets are segregated into 3 stages depending on the changes in credit quality since initial recognition. Stage 1 includes financial assets that not have a significant increase in credit risk since initial recognition or those have low credit risk at reporting date. For these assets, 12-month ECL are recognised and profit income is calculated on the gross carrying amount of the assets. Stage 2 includes financial assets that have a significant increase in credit risk since initial recognition but do not have objective evidence of impairment. For those assets, lifetime ECL is recognised and profit income is still calculated on the gross carrying amount of the asset. Stage 3 include financial assets that have objective evidence of impairment at reporting date. For these assets, lifetime ECL is recognised and profit income is calculated on the net carrying amount. Significant increase in credit risk (SICR) Obligatory trigger applied by the Group and the Company on determining whether there has been a significant increase in credit risk is where the principal or profit or both of the financing assets are overdue for more than 1 month, after grace period, but less than 3 months or hit any of the qualitative indicators but not limited to increase in internal credit spread of an existing facility, negative covenants and decrease in securities prices. The credit risk may also be deemed to have increased significantly since initial recognition based on qualitative factors linked to the Group and the Company's credit risk management processes. This will be the case for exposures that meet certain heightened risk criteria, such as placement on a watch list. Such qualitative factors are based on its expert judgment and relevant historical experiences. The Group and the Company determines days past due by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower.
  128. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 126 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 126 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (l) Impairment of financial assets (cont'd.) Current financial year (cont'd.) Significant increase in credit risk (SICR) (cont’d.) If there is evidence that there is no longer a significant increase in credit risk relative to initial recognition, then the loss allowance on an instrument returns to being measured as 12-month ECL. Some qualitative indicators of an increase in credit risk, such as delinquency or forbearance, may be indicative of an increased risk of default that persists after the indicator itself has ceased to exist. In these cases, the Group and the Company determines a probation period during which the financial asset is required to demonstrate good behaviour to provide evidence that its credit risk has declined sufficiently. When contractual terms of a financing have been modified, evidence that the criteria for recognising lifetime ECL are no longer met includes a history of up-to-date payment performance against the modified contractual terms. Credit impaired (Default) At each reporting date, the Group and the Company assess whether financial assets carried at amortised cost and debt securities at fair value through other comprehensive income are credit impaired. A financial asset is credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. The Group and the Company considers a financial asset to be in default when: ● Payment conduct - Where the principal or profit or both of the financing is past due for more than ninety (90) days or three (3) months; or - In the case of revolving facilities (e.g. revolving working capital or overdraft facilities), notwithstanding the first trigger above, where the outstanding amount has remained in excess of the approved limit for a period of more than ninety (90) days or three (3) months; or - Where payments are scheduled on intervals of three (3) months or longer, the account shall be classified as impaired as soon as a default occurs (i.e. when the customer is unable to meet the contractual payment terms), unless it does not exhibit any weakness that would render it classified as impaired according to MBSB’s credit risk grading framework. ● Restructured and rescheduled (“R&R”) financing; or ● Customer/Issuer is declared bankrupt / wound up. In assessing whether a borrower is in default, the Group and the Company considers indicators that are: • qualitative e.g. breaches of covenant; • quantitative e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and • based on data developed internally and obtained from external sources. Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances. The definition of default largely aligns with that applied by the Group and the Company for regulatory capital purposes.
  129. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 127 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 127 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (l) Impairment of financial assets (cont'd.) Current financial year (cont'd.) Modified financial assets Modification of financial assets involves any modification made to the original payment terms and conditions of the financing facility following an increase in the credit risk of the customer. This includes but is not limited to an extension of tenure and flexible payment schedule including payment vacation, profit only payments, or capitalisation of principal or profit or both. Once the financing assets have been modified, its satisfactory performance is monitored for a period of six months before it can be reclassified as non-credit impaired. However, the financial assets will not be considered as modified if moratorium on financing repayments is granted or the financing is rescheduled/ restructured by Agensi Kaunseling & Pengurusan Kredit (AKPK). ECL for modified financial assets that are not considered to be credit-impaired will be recognized on 12-month basis. However, if there is a significant increase in credit risk, the ECL will be recognized on a lifetime basis. Incorporation of forward-looking information MFRS 9 specifically requires measurement of ECL using not only past and current information, but also including forecast information. Hence, the ECL calculations include forward looking adjustment according the expected future macroeconomic conditions. Forward looking adjustment incorporated within the ECL model is a combination of statistical analysis and expert judgments based on the availability of detailed information. External information considered includes economic data and forecasts published by external rating agencies. Key macroeconomic variables (“MEV”) that are incorporated into the ECL calculations include, but not limited to House Price Index (HPI) and Consumer Price Index (CPI). Forward-looking MEVs are supported with 3 economic scenarios i.e baseline, best and worst case scenarios based on the available forecasts. Methodology and assumptions including forecasts of future economic conditions are reviewed regularly. Write-down Financial assets and related impairment allowances are normally written-down, either partially or in full, when there is no realistic prospect of recovery of the financial assets. Where financial assets are secured, the written-down is normally done after receipt of any proceeds from the realization of security. However, the Group and the Company will continue to collect and monitor the written-down financial assets.
  130. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 128 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 128 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (l) Impairment of financial assets (cont'd.) Previous financial year (a) Assets carried at amortised cost All financial assets (except for financial assets categorised as fair value through profit or loss) are assessed at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective profit rate. The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If ‘financing and advances’ or a ‘held-to-maturity investment’ has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. For financing and advances, the Group and the Company first assess whether objective evidence of impairment exists individually for financing and advances that are individually significant, and individually or collectively for financing and advances that are not individually significant. If the Group and the Company determine that no objective evidence of impairment exists for an individually assessed financing and advances, whether significant or not, it includes the asset in a group of financing and advances with similar credit risk characteristics and collectively assess them for impairment. The Group and the Company addressed impairment of financing and advances via either individually assessed allowance or collectively assessed allowance. i) Individual impairment allowance The Group and the Company determine the allowance appropriate for each individual significant impaired financing and advances on an individual basis. The allowances are established based primarily on estimates of the realisable value of the collateral to secure the financing and advances and are measured as the difference between the carrying amount of the financing and advances and the present value of the expected future cash flows discounted at original effective profit rate of the financing and advances. All other financing and advances that have been individually evaluated, but not considered to be individually impaired are assessed collectively for impairment. ii) Collective impairment allowance Financing and advances which are not individually significant or those that have been individually assessed with no evidence of impairment loss are grouped together for portfolio impairment assessment. These financing and advances are grouped within similar credit risk characteristics for collective assessment, whereby data from the financing portfolio are taken into consideration. When there are insufficient historical data available, past information from the industry are being used instead.
  131. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 129 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 129 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (l) Impairment of financial assets (cont'd.) Previous financial year (cont'd.) (b) Assets classified as available-for-sale The Group and the Company assesses at the end of the reporting period whether there is objective evidence that a financial asset or a portfolio of financial assets is impaired. For debt securities, the Group and the Company uses criteria and measurement of impairment loss applicable for ‘assets carried at amortised cost’ above. If, in a subsequent period, the fair value of a debt instrument classified as availablefor-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss. In the case of equity securities classified as available-for-sale, in addition to the criteria for ‘assets carried at amortised cost’ above, a significant or prolonged decline in the fair value of the security below its cost is also considered as an indicator that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in profit or loss. The amount of cumulative loss that is reclassified to profit or loss is the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments classified as available-for-sale are not reversed through profit or loss. (m) Equity instruments Ordinary shares are classified as equity. Dividends on ordinary shares are recognised as a liability and deducted from equity in the period in which all relevant approvals have been obtained. The transaction costs of an equity transaction are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided. (n) Recognition of income Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and/or the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (i) Interest and profit income from operations of Islamic business Interest income is recognised in profit or loss for all interest bearing assets on an accrual basis using the effective interest/profit method. Profit from the Islamic business operations is recognised on an accrual basis using the effective profit method in accordance with the principles of Shariah. (ii) Fee income Loan/financing arrangement fees, commissions and insurance fees are recognised as income at the time the underlying transactions are completed and there are no other contingencies associated with the fees. Commitment and processing fees are recognised as income based on the amortised cost method. (iii) Dividend income Dividend income is recognised when the Group's and/or the Company's right to receive payment is established.
  132. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 130 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 130 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (n) Recognition of income (cont’d.) (iv) Rental income Rental income is accounted for on a straight-line basis over the lease terms. The aggregate costs of incentives provided to lessees are recognised as a reduction of rental income over the lease term on a straight-line basis. (v) Other income Revenue from rental of hotel rooms, sale of food and beverage, group tours and hotel arrangements are recognised upon invoices being issued and services rendered. (o) Income tax (i) Current tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted by the reporting date. Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. (ii) Deferred tax Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all temporary differences, except: - where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and - in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, and the unused tax credits and unused tax losses can be utilised except: - where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and - in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised.
  133. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 131 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 131 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (o) Income tax (cont’d.) (ii) Deferred tax (cont’d.) The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax assets to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. (p) Zakat This represents business zakat and is an obligatory amount payable by the Group and the Company to comply with the rules and principles of shariah. The zakat is computed based on working capital method at a rate of 2.5%. The beneficiaries of zakat fund include schools, mosques, universities and non-government organisations. The obligation and responsibility of specific payment of Zakat on depositors fund lies with the muslim depositors. As such, no accrual of Zakat expenses is recognised in the financial statements of the Group. (q) Earnings per ordinary shares The Group and the Company presents the basic earnings per share data for its ordinary share ("EPS"). Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group and the Company by the weighted average number of ordinary shares outstanding during the year. (r) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: - in the principal market for the asset or liability; or - in the absence of a principal market, in the most advantageous market for the asset or liability.
  134. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 132 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 132 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 2. Summary of significant accounting policies (cont'd.) (r) Fair value measurement (cont'd.) The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The fair value measurement of a non-financial asset 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. The Group and the Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 : Quoted (unadjusted) market prices in active markets for identical assets or liabilities; Level 2 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and Level 3 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group and the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. 3. Changes in accounting policies (a) MFRS, interpretation and amendments effective for annual periods on or after 1 January 2018 On 1 January 2018, the Group and the Company has adopted the following standards, interpretations and amendments to MFRS mandatory for annual financial periods beginning on or after 1 January 2018: • • • • • • Classification and Measurement of Share-based Payment Transactions (Amendments to MFRS 2) MFRS 9 Financial Instruments (2014) MFRS 15 Revenue from Contracts with Customers Classification to MFRS 15 Revenue from Contracts with Customers IC Interpretation 22 Foreign Currency Transactions and Advance Consideration Transfer of Investment Property (Amendments to MFRS 140)
  135. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 133 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 133 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 3. Changes in accounting policies (cont’d.) (a) MFRS, interpretation and amendments effective for annual periods on or after 1 January 2018 (cont’d.) The adoption of the new and revised MFRS and interpretation did not result in any significant impact on the financial statements of the Group and of the Company except for MFRS 9 Financial Instruments which is further discussed below. Impact of application of MFRS 9 Financial Instruments The Group and the Company has adopted MFRS 9 on 1 January 2018 which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements. As permitted by MFRS 9, the Group and the Company elected not to restate comparative figures. Any adjustments to the carrying values of the financial assets and liabilities resulting from the adoption of MFRS 9 were recognised in retained earnings as at 1 January 2018. The adoption of MFRS 9 has resulted in changes in the accounting policies for classification and measurement of financial assets and liabilities and impairment of financial assets. The new impairment requirements apply to financial assets measured at amortised cost and fair value through other comprehensive income ("FVOCI"). Impairment is computed based on the exposure at default (“EAD”), which is based on the amounts the Group and the Company expect to be outstanding at the time of default, over the next 12 months, or the remaining lifetime (“Lifetime EAD”). At initial recognition, an impairment allowance is required for expected credit losses (“ECL”) resulting from default events that are possible within the next 12 months. In the event of a significant increase in credit risk, an allowance is required for ECL resulting from all possible default events over the expected life of the financial instrument (“Lifetime ECL”). Financial assets where 12 month ECL is recognised are in “Stage 1”, financial assets which are considered to have a significant increase in credit risk are in “Stage 2” and financial assets for which there is objective evidence of impairment and are considered as credit impaired are in “Stage 3”. The estimation of ECL incorporates all available information relevant to the assessment, including information about past events, current conditions, and reasonable and supportable economic forecasts at reporting date. As a result, the recognition and measurement of impairment is intended to be more forward looking than under MFRS 139, and the resulting impairment change will tend to be more volatile. For financing commitments and financial guarantee contracts, the loss allowance is recognised as other payables to the Group and to the Company. Set out below are disclosures relating to the impact of adoption of MFRS 9. Classification and measurement of financial instruments The reclassification for financial assets to new categories under MFRS 9 from their previous categories has been “retired” with no changes to measurement basis: i) Those previously classified as available-for-sale are now classified as measured at FVOCI; and ii) Those previously classified as loans, financing and receivables are now classified as measured at amortised cost. The business model for financial assets classified as FVOCI and as amortised cost are 'held to collect and sell' and 'held to collect' respectively. The instruments are held solely for collection of principal and profit and thus do not need to be classified as FVTPL.
  136. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 134 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 134 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 3. Changes in accounting policies (cont'd.) (a) MFRS, interpretation and amendments effective for annual periods on or after 1 January 2018 (cont'd.) Impact of application of MFRS 9 Financial Instruments (cont'd.) Reconciliation of new carrying amounts under MFRS 9 as at 1 January 2018 The following table reconciles the financial position carrying amounts under MFRS 139 as at 31 December 2017 with the carrying amounts under MFRS 9 as at 1 January 2018 as well as the impact of adoption of MFRS 9 on income tax assets and liabilities and accumulated losses as at 1 January 2018 Group Statement of Financial Position Assets Cash and short-term funds Deposits and placements with financial institutions Financial investments at fair value through other comprehensive income ("FVOCI") Financial investments available-for-sale Loans, financing and advances Financial assets held-for-sale ("AHS") Trade receivables Other receivables Inventories Property and equipment Intangible assets Land use rights Deferred tax assets Tax recoverable Total assets Effects of adopting MFRS 9 MFRS 139 MFRS 9 carrying carrying amounts as at Tax amounts as at 31 December 2017 Reclassification Remeasurement impact 1 January 2018 RM'000 RM'000 RM'000 RM'000 RM'000 7,787,132 - - - 7,787,132 747,403 - - - 747,403 3,171,913 32,006,244 38,409 295 218,413 103,242 168,504 14,633 5,423 31,359 517,177 3,171,913 (3,171,913) - (71,793) (3,208) - 70,406 - 3,171,913 31,934,451 35,201 295 218,413 103,242 168,504 14,633 5,423 101,765 517,177 44,810,147 - (75,001) 70,406 44,805,552
  137. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 135 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 135 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 3. Changes in accounting policies (cont'd.) (a) MFRS, interpretation and amendments effective for annual periods on or after 1 January 2018 (cont'd.) Impact of application of MFRS 9 Financial Instruments (cont'd.) Reconciliation of new carrying values under MFRS 9 as at 1 January 2018 (cont'd.) Effects of adopting MFRS 9 MFRS 139 MFRS 9 carrying carrying amounts as at Tax amounts as at 31 December 2017 Reclassification Remeasurement impact 1 January 2018 Statement of Financial Position (cont'd.) RM'000 RM'000 RM'000 RM'000 RM'000 Group (cont'd.) Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Trade payables Other payables Recourse obligation on loan/financing sold Sukuk-MBSB Structured Covered ("SC") Murabahah Provision for taxation and zakat Deferred tax liabilities 25,526,548 - - - 25,526,548 7,228,589 210 377,327 - 196,886 - 7,228,589 210 574,213 2,238,167 - - - 2,238,167 2,287,877 16,410 10,156 - - - 2,287,877 16,410 10,156 37,685,284 - 196,886 - 37,882,170 Equity Ordinary share capital Reserves Retained earnings 6,172,051 (395) 953,207 - (271,887) 70,406 6,172,051 (395) 751,726 Total equity 7,124,863 - (271,887) 70,406 6,923,382 44,810,147 - (75,001) 70,406 44,805,552 Total liabilities Total liabilities and shareholders' equity
  138. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 136 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 136 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 3. Changes in accounting policies (cont'd.) (a) MFRS, interpretation and amendments effective for annual periods on or after 1 January 2018 (cont'd.) Impact of application of MFRS 9 Financial Instruments (cont'd.) Reconciliation of new carrying values under MFRS 9 as at 1 January 2018 (cont'd.) Company Statement of Financial Position Assets Cash and short-term funds Deposits and placements with financial institutions" Financial investments at fair value through other comprehensive income ("FVOCI") Financial investment available-for-sale Sukuk Commodity Murabahah Loans, financing and advances Financial assets held- for-sale ("AHS") Other receivables Investments in subsidiaries Inventories Property and equipment Intangible assets Deferred tax assets Tax recoverable Total assets Effects of adopting MFRS 9 MFRS 139 MFRS 9 carrying carrying amounts as at Tax amounts as at 31 December 2017 Reclassification Remeasurement impact 1 January 2018 RM'000 RM'000 RM'000 RM'000 RM'000 7,768,634 - - - 7,768,634 51,368 - - - 51,368 3,171,913 3,245,851 32,006,244 38,409 539,955 7,397 900 34,096 14,588 21,187 517,177 3,171,913 (3,171,913) - (71,793) (3,208) - 65,253 - 3,171,913 3,245,851 31,934,451 35,201 539,955 7,397 900 34,096 14,588 86,440 517,177 47,417,719 - (75,001) 65,253 47,407,971 25,526,548 - - - 25,526,548 7,228,589 3,278,537 2,238,167 - 196,886 - - 7,228,589 3,475,423 2,238,167 2,287,877 13,374 - - - 2,287,877 13,374 40,573,092 - 196,886 - 40,769,978 Equity Ordinary share capital Reserves Retained earnings 6,172,051 (395) 672,971 - (271,887) 65,253 6,172,051 (395) 466,337 Total equity 6,844,627 - (271,887) 65,253 6,637,993 47,417,719 - (75,001) 65,253 47,407,971 Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Other payables Recourse obligation on loan/financing sold Sukuk-MBSB Structured Covered ("SC") Murabahah Provision for taxation and zakat Total liabilities Total liabilities and shareholders' equity
  139. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 137 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 137 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 3. Changes in accounting policies (cont'd.) (b) Standards, interpretations and amendments issued but not yet effective The following are accounting standards, interpretations and amendments of the MFRSs that have been issued by the Malaysian Accounting Standards Board ("MASB") but have not been adopted by the Group and the Company: MFRS, intepretations and amendments effective for annual periods beginning on or after 1 January 2019 • • • • • • • • • MFRS 16, Leases IC Interpretation 23, Uncertainty over Income Tax Treatments Amendments to MFRS 3, Business Combinations (Annual Improvements to MFRS Standards 2015-2017 Cycle) Amendments to MFRS 9, Financial Instruments - Prepayment Features with Negative Compensation Amendments to MFRS 11, Joint Arrangements (Annual Improvements to MFRS Standards 2015-2017 Cycle) Amendments to MFRS 112, Income Taxes (Annual Improvements to MFRS Standards 2015-2017 Cycle) Amendments to MFRS 119, Employee Benefits - Plan Amendment, Curtailment or Settlement Amendments to MFRS 123, Borrowing Costs (Annual Improvements to MFRS Standards 2015-2017 Cycle) Amendments to MFRS 128, Investments in Associates and Joint Ventures - Long-term Interests in Associates and Joint Ventures MFRS, intepretations and amendments effective for annual periods beginning on or after 1 January 2020 • • • MFRS 3, Business Combinations - Definition of a Business MFRS 101, Presentation of Financial Statements MFRS 108, Accounting Policies, Changes in Accounting Estimates and Errors- Definition of Material MFRS, intepretations and amendments effective for annual periods beginning on or after 1 January 2021 • MFRS 17, Insurance Contracts MFRS, intepretations and amendments effective for annual periods beginning on or after a date yet to be confirmed • • Amendments to MFRS 10, Consolidated Financial Statements MFRS 128, Investments in Associates and Joint Ventures The Directors of the Company do not anticipate that the application of the above will have a material impact on the financial statements of the Group and the Company.
  140. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 138 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 138 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 4. Significant accounting estimates and judgements (a) Critical judgements made in applying accounting policies The following are the judgements made by management in the process of applying the Group's accounting policies that have the most significant effect on the amount recognised in the financial statements. Assessment of derecognition of Personal Financing - Islamic ("PFI") sold to Jana Kapital Sdn. Bhd. ("JKSB") In determining if the sale meets the derecognition criteria, management has evaluated the extent to which the Company retains the risks and rewards of ownership of the PFI. As the Principal Terms and Conditions require the replacement of defaulted PFI with performing PFI, management had concluded that the risks and rewards of ownership of the PFI continue to be retained by the Company. Accordingly, the sale of the PFI to JKSB does not meet the criteria for derecognition and has not been derecognised in the financial statements of the Company. Instead, an amount equivalent to the carrying value of the pledged PFI has been recognised in the financial statements of the Company as an amount due to JKSB included in other payable, and, conversely, in JKSB's books, an equivalent amount has been recognised as an amount due from the Company. Management is of the opinion that the described accounting treatment provides a more comprehensive and accurate representation of the arrangement between the Company and JKSB. In line with the Principal Terms and Condition of the Sukuk - MBSB SC Murabahah programme of the Group (as detailed in Note 11(a)), Sukuk - MBSB SC Murabahah and Sukuk Commodity Murabahah will be issued in tranches from time to time, as decided by management and each tranche is required to be backed by a portfolio of identified PFI held by JKSB. The portfolio of identified PFI is purchased by JKSB from the Company on an arm's length basis. Management has considered the derecognition criteria prescribed in MFRS 139 Financial Instruments: Recognition and Measurement, and concluded, as described above, that the sale of PFI by the Company to JKSB has not met the derecognition criteria as stipulated in the standard. (b) Key source of estimation uncertainty The key assumption concerning the future and other key sources of estimation uncertainty at the reporting date, that has a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, is discussed below: Expected credit losses/Allowance for impairment of financing and advances and other receivables The Group’s ECL calculations involve a number of underlying assumptions and estimates such as: • • criteria that determines significant increase in credit risk; and development of ECL models which incorporates the macroeconomic variables. The calculation of credit-impairment provisions also involves expert credit judgments, counterparty information from various sources including relationship managers and external market information. The amount of impairment loss provided by the Group and the Company is disclosed in Notes 9, 10 and 26. Goodwill from acquisition of MBSB Bank Berhad (formerly known as Asian Finance Bank Berhad) Goodwill arising from consolidation represents the excess of the purchase consideration and the fair value of the net identifiable assets of the acquired Banking entity. Goodwill is not amortised but tested for impairment annually based on the recoverable amount of the investment with valuein-use ("VIU") calculations. VIU was calculated with cashflow projections, of which the first 3 years of cashflow projections were based on the 2018 financial budgets approved by the Board of Directors and discounted using Weighted Average Cost of Capital ("WACC") rates. Cash flows beyond the 3 years were estimated and discounted using WACC rates. As disclosed in Notes 19 and 53, the goodwill has been recorded on a provisional basis as at 31 December 2018 pending the finalisation of the purchase price allocation in the next financial year.
  141. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 139 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 139 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 5. Cash and short term funds and deposits and placements with financial institutions Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 (a) Cash and short-term funds: Cash at banks and on hand 262,346 265,196 72,070 250,492 Money at call and and deposit placements maturing within one month 3,149,640 7,521,936 83,007 7,518,142 Total cash and short-term funds 3,411,986 7,787,132 155,077 7,768,634 931,087 747,403 154,347 51,368 4,343,073 8,534,535 309,424 7,820,002 (b) Deposits and placements with financial institutions with original maturity of more than one month Licensed Banks Total cash and short-term funds and deposits and placements financial institutions Short-term deposits are made for varying periods of between 1 day and 1 month depending on the immediate cash requirements of the Group and the Company and earn interest at the respective short-term deposit rates. The weighted average effective interest rate as at 31 December 2018 for the Group was 3.26% (2017: 3.42%) and the Company was 3.00% (2017: 3.42%) per annum, respectively. The average maturity as at 31 December 2018 for the Group and the Company was 14 days (2017: 11 days) and 2 days (2017: 11 days), respectively. Deposits and placements with financial institutions are made with original maturity of more than one month and earn interest at the respective deposit rates. The weighted average effective interest rate as at 31 December 2018 for the Group was 3.65% (2017: 3.33%) and the Company was 3.65% (2017: 3.49%) per annum, respectively. The average maturity as at 31 December 2018 for the Group and the Company was 159 days (2017: 166 days) and 31 days (2017: 174 days), respectively. The ECL/impairment allowance for cash and short-term funds and deposits and placements above is nil.
  142. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 140 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 140 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 6. Derivative financial assets / (liabilities) The following table summarises the contractual or underlying principal amounts of derivative financial instruments held at fair value through profit or loss. The principal or contractual amount of these instruments reflects the volume of transactions outstanding at financial position date, and do not represent amounts at risk. Trading derivative financial instruments are revalued on a gross position and the unrealised gains or losses are reflected as derivative financial assets and liabilities respectively. The purpose of the derivative is to manage credit risk arising from foreign currency funding within the Group. Group Contract/ Notional amount RM'000 2018 Trading derivatives Foreign exchange contracts: Currency forward - Less than one year 7. 5,842 Fair value Assets Liabilities RM'000 RM'000 67 (2) Financial investments at FVOCI Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 At fair value Money Market Instruments Malaysian Government Investment Issues 2,154,192 - - - Debt securities: In Malaysia Private and Islamic debt securities Government Guaranteed debt securities 1,060,628 1,882,285 - - - 5,097,105 - - - The instruments above are categorised as investment grade. The ECL/impairment allowance for the instruments above is nil due to the quality. The maturity profile of financial assets at FVOCI is as follows: Group 2018 2017 RM'000 RM'000 Within one year One year to three years Three years to five years After five years Company 2018 2017 RM'000 RM'000 570,671 1,118,238 1,430,589 1,977,607 - - - 5,097,105 - - -
  143. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 141 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 141 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 8. Financial investments available-for-sale ("AFS") Group and Company 2018 2017 RM'000 RM'000 At fair value Money Market Instruments Malaysian Government Investment Issues - 1,111,691 Debt Securities: Private and Islamic debt securities Government Guaranteed debt securities - 685,123 1,375,099 - 3,171,913 The maturity profile of financial investment available-for-sale is as follows: Group and Company 2018 2017 RM'000 RM'000 Within one year One year to three years Three years to five years After five years 9. - 205,198 960,405 1,038,966 967,344 - 3,171,913 Financial investments at amortised cost Group 2018 2017 RM'000 RM'000 At amortised cost Quoted securities: In Malaysia Islamic Medium Term Notes Less: ECL/Impairment allowance - Stage 1 Company 2018 2017 RM'000 RM'000 20,356 - - - (6) - - - 20,350 - - - There was no transfer of ECL/impairment allowance out of stage 1 during the year for the instruments above. The Group has had realignment of business model for the securities acquired from MBSB Bank Berhad, and reclassed the instruments amounting to RM575,000,000 into financial assets at FVOCI on 11 December 2018. There was no transfer to the fair value reserve arising from the reclassification.
  144. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 142 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 142 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances Group 2018 2017 RM'000 RM'000 (i) Loans, financing and advances categorised by type are as follows: At amortised cost Islamic: Term financing: Property financing Bridging financing Hire purchase receivables Auto financing Personal financing Other term financing Trusts receipts Staff financing Revolving Credit Others Company 2018 2017 RM'000 RM'000 4,340,081 716,015 781,118 213,898 20,562,117 5,456,952 51,525 41,277 743,218 138,473 2,372,817 872,513 638,404 262,827 21,396,876 4,092,117 23,261 191,511 - - 2,372,817 872,513 638,404 262,827 21,396,876 4,092,117 23,261 191,511 - 1,063,043 3,367 217,708 17,319 826,113 380 - 2,830,082 15,596 326,759 18,747 1,138,521 20,424 724 1,063,043 3,367 217,708 17,319 826,113 380 - 2,830,082 15,596 326,759 18,747 1,138,521 20,424 724 Gross loans, financing and advances 35,172,604 34,201,179 2,127,930 34,201,179 Less: Impairment allowance - Collective assessment allowance - Individual assessment allowance - Stage 1 - Stage 2 - Stage 3 (358,907) (550,621) (1,129,957) (1,892,818) (302,117) - (12,370) (94,982) (694,076) (1,892,818) (302,117) - Net loans, financing and advances 33,133,119 32,006,244 1,326,502 32,006,244 Conventional: End finance: Normal housing programme Low cost housing programme Bridging financing Auto financing Other term financing Staff financing Revolving Credit
  145. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 6:44 PM Page 143 143 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances (cont'd.) Included in Islamic personal financing and property financing are amounts that have been charged for financing facilities granted to the Group as shown below: Group 2018 2017 RM'000 RM'000 Islamic financing facility granted by: Cagamas Berhad - Recourse obligation on loans/financing sold (Note 27) Sukuk - MBSB SC Murabahah* (Note 28(a)) * 2,042,743 2,584,123 2,196,993 2,891,912 The Islamic personal financing charged to Sukuk - MBSB SC Murabahah which was vested to the Bank as part of transfer of assets and liabilities on 2 April 2018 relate to Islamic personal financing sold to a subsidiary, Jana Kapital Sdn Bhd ("JKSB"), amounting to: Company 2018 2017 RM'000 RM'000 Tranche Selling date 1 2 3 4 1 December 2013 1 November 2014 1 May 2015 1 October 2015 Selling price Selling price - 570,637 833,045 1,232,642 1,239,677 - 3,876,001 (ii) The maturity structure of loans, financing and advances is as follows: Group 2018 2017 RM'000 RM'000 Maturing within one year One year to three years Three years to five years Over five years Company 2018 2017 RM'000 RM'000 2,196,230 1,792,653 2,073,320 29,110,401 1,028,128 1,655,580 2,123,963 29,393,508 715,288 22,541 133,570 1,256,531 1,028,128 1,655,580 2,123,963 29,393,508 35,172,604 34,201,179 2,127,930 34,201,179
  146. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 144 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 144 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances (cont'd.) (iii) Loans, financing and advances categorised according to their purpose are as follows: Group 2018 2017 RM'000 RM'000 Purchase of residential properties Purchase of non-residential properties Personal use Property development Working capital Purchase of transport vehicles Others Company 2018 2017 RM'000 RM'000 5,110,712 355,995 20,579,030 4,539,065 3,670,967 233,883 682,952 4,937,712 301,205 21,417,605 4,031,832 2,563,760 284,109 664,956 988,731 78,060 423,262 153,494 17,319 467,064 4,937,712 301,205 21,417,605 4,031,832 2,563,760 284,109 664,956 35,172,604 34,201,179 2,127,930 34,201,179 (iv) Loans, financing and advances categorised according to type of customer are as follows: Group 2018 2017 RM'000 RM'000 Domestic business enterprises: - Small medium enterprises - Government - Non-bank financial institutions - Others Individuals Foreign entities Company 2018 2017 RM'000 RM'000 2,722,949 240,301 536,644 5,562,252 26,104,420 6,038 2,540,062 4,850,648 26,810,469 - 301,772 791,348 1,034,810 - 2,540,062 4,850,648 26,810,469 - 35,172,604 34,201,179 2,127,930 34,201,179
  147. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 145 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 145 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances (cont'd.) (v) Loans, financing and advances categorised according by sectors are as follows: Group 2018 2017 RM'000 RM'000 Household sectors Agriculture Mining and quarrying Manufacturing Electricity, gas and water Construction Wholesale & retail trade and restaurants & hotels Transport, storage and communication Finance, insurance and business services Education, health and others Company 2018 2017 RM'000 RM'000 26,110,523 240,002 60,008 382,878 233,110 6,116,961 168,282 124,403 1,089,016 647,421 26,807,169 60,582 6,063 197,151 22,931 5,617,256 51,550 82,440 762,489 593,548 1,034,811 3,325 120,869 721,714 3,625 2,283 13,056 228,247 26,807,169 60,582 6,063 197,151 22,931 5,617,256 51,550 82,440 762,489 593,548 35,172,604 34,201,179 2,127,930 34,201,179 (vi) Loans, financing and advances categorised according to interest/profit rate sensitivity are as follows: Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 Fixed rate: Personal financing Auto finance Mortgage and property Islamic Bridging, structured and term loans and financing 18,976,550 233,797 568,200 1,185,663 20,598,230 284,109 667,953 1,291,123 17,319 3,233 262,717 20,598,230 284,109 667,953 1,291,123 Variable rate: Personal financing Mortgage and property Islamic Bridging, structured and term loans and financing 1,602,482 4,859,937 7,745,975 819,376 4,570,963 5,969,425 1,063,557 781,104 819,376 4,570,963 5,969,425 35,172,604 34,201,179 2,127,930 34,201,179
  148. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 146 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 146 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances (cont'd.) (vii) Loans, financing and advances categorised by geographical distribution are as follows: Group 2018 2017 RM'000 RM'000 Malaysia United Kingdom Company 2018 2017 RM'000 RM'000 35,172,470 134 34,201,179 - 2,127,930 - 34,201,179 - 35,172,604 34,201,179 2,127,930 34,201,179 Group Stage 2 Stage 3 RM'000 RM'000 Total RM'000 (viii) Movement in gross loans, financing and advances 2018 Gross carrying amount upon adoption of MFRS 9 as at 1 January 2018 Acquisition of MBSB Bank Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 New financing / disbursement during the year Repayment during the year Other changes to the carrying amount Write-offs Transfer from / (to) assets held-for-sale (Note 10(x)/11) 2018 Gross carrying amount upon adoption of MFRS 9 as at 1 January 2018 Vesting of assets to MBSB Bank Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 New financing / disbursed during the year Financing repaid during the year Other changes to the carrying amount Write-offs Transfer from / (to) assets held-for-sale (Note 10(x)/11) Stage 1 RM'000 28,217,055 706,265 1,466,770 (2,022,348) (434,603) 5,944,975 (5,399,551) 241,478 1,041 4,410,949 248,922 (1,448,363) 2,232,135 (507,007) 908,285 (1,267,900) (47,915) (1,055) 1,573,175 111,039 (18,407) (209,787) 941,610 50,667 (255,724) 199,687 (578,985) 110,196 34,201,179 1,066,226 6,903,927 (6,923,175) 393,250 (578,985) 110,182 28,721,082 4,528,051 1,923,471 35,172,604 Company Stage 2 Stage 3 RM'000 RM'000 Total RM'000 Stage 1 RM'000 28,217,055 (27,853,305) 780,340 (610,364) (230,178) 2,258,165 (2,264,570) 108,700 365 4,410,949 (3,060,833) (776,493) 740,884 (277,727) 373,830 (840,860) 22,250 (1,455) 406,208 590,545 1,573,175 34,201,179 (735,137) (31,649,275) (3,847) (130,520) 507,905 18,500 2,650,495 (138,093) (3,243,523) 58,226 189,176 (12,676) (12,676) (6,356) (7,446) 1,131,177 2,127,930
  149. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 147 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 147 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances (cont'd.) (ix) Movement in the allowance for impairment for loans, financing and advances are as follows: Group and Company 2018 2017 RM'000 RM'000 Collective Impairment Balance as at 1 January - effects of MFRS 9 adoption 1,892,818 (1,892,818) 2,809,131 - - as restated Impairment during the year (Note 39) Reclassification to assets held-for-sale (Note 11) - 2,809,131 558,321 (1,474,634) Balance as at 31 December - 1,892,818 302,117 (302,117) 282,005 - - as restated Impairment during the year (Note 39) Written-off - 282,005 20,400 (288) Balance as at 31 December - 302,117 Group Stage 2 Stage 3 RM'000 RM'000 Total RM'000 Individual Impairment Balance as at 1 January - effects of MFRS 9 adoption 2018 Impairment allowance upon adoption of MFRS 9 as at 1 January 2018 Acquisition of subsidiary Charged to profit or loss (Note 39) Changes in the impairment allowance - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 New financing / disbursed during the year Financing repaid during the year Changes in credit risk parameters Write-offs Transfer from assets held-for-sale (Note 11) ECL as at 31 December 2018 Stage 1 RM'000 510,347 15,639 (167,780) 703,478 6,622 (160,399) 1,052,901 45,716 500,261 2,266,726 67,977 172,082 44,641 (256,772) (221,149) 138,500 (298,743) 425,743 (39,084) 296,155 (296,808) 89,073 (505,694) 295,959 (5,557) (39,383) 517,957 42,504 (281,308) 266,048 270,077 (1,085,745) 987,750 701 920 (575,219) 106,298 (575,219) 107,919 358,907 550,621 1,129,957 2,039,485
  150. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 148 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 148 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances (cont'd.) (ix) Movement in the allowance for impairment for loans, financing and advances are as follows (cont'd.): 2018 Impairment allowance upon adoption of MFRS 9 as at 1 January 2018 Assets vested to MBSB Bank - ECL as at 2 April 2018 - Subsequent transfer of ECL * Charged to profit or loss (Note 39) Changes in the impairment allowance - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 New financing / disbursed during the year Financing repaid during the year Changes in credit risk parameters Write-offs Transfer from / (to) assets held-for-sale (Note 11) ECL as at 31 December 2018 * Stage 1 RM'000 Company Stage 2 Stage 3 RM'000 RM'000 Total RM'000 510,347 (492,316) 703,478 (444,705) 1,052,901 (538,420) 2,266,726 (1,475,441) (454,139) (38,177) (432,125) (12,580) (538,420) - (1,424,684) (50,757) (5,695) (164,027) 189,308 19,586 31,946 (92,365) (139,981) 66,471 (117,971) 246,205 (26,616) 119,971 (159,102) 45,562 (326,032) 182,190 (5,330) (27,606) 299,083 15,918 (182,594) 89,837 127,951 (626,597) 518,232 34 236 (8,906) (807) (8,906) (537) 12,370 94,982 694,076 801,428 Revision of ECL upon adoption of MFRS 9 Financial Instruments has been made post vesting of assets and liabilities. The adjustment of the ECL amounting to RM50,757,000 was subsequently transferred to MBSB Bank.
  151. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 149 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 149 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances (cont'd.) (x) Movements for impaired loans, financing and advances are as follows: Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 Balance as at 1 January Acquisition of MBSB Bank Assets vested to MBSB Bank Classified as impaired during the year Reclassified as non-impaired Amount recovered Amount written off Reclassification from/(to) assets held-for-sale (Note 10(viii)) 1,573,175 111,039 899,111 (376,828) (106,598) (286,624) 110,196 2,829,626 757,166 (417,763) (85,696) (288) (1,509,870) 1,573,175 (735,137) 584,168 (213,094) (58,903) (12,676) (6,356) 2,836,814 749,978 (417,763) (85,696) (288) (1,509,870) Balance as at 31 December Collective assessment allowance Individual assessment allowance Stage 3 impairment allowance Reclassification to assets held-for-sale 1,923,471 (1,129,957) - 1,573,175 (2,121,500) (251,226) 1,474,087 1,131,177 (694,076) - 1,573,175 (2,121,500) (251,226) 1,474,087 (1,129,957) (898,639) (694,076) (898,639) 793,514 674,536 437,101 674,536 Net impaired loans as a percentage of net loans, financing and advances 2.39% 2.11% 32.95% 2.11% Gross impaired loans as a percentage of gross loans, financing and advances 5.47% 4.60% 53.16% 4.60% Net impaired loans, advances and financing * The collective allowance included in the computation of net impaired loans, financing and advances pertain to the collective allowance recognised on loans and financing categorised as impaired. (xi) Impaired loans, financing and advances by economic purpose are as follows: Purchase of residential properties Purchase of non-residential properties Personal use Property development Working capital Purchase of transport vehicles Others Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 501,675 48,332 156,264 600,444 119,242 52,791 444,723 352,177 39,167 471,700 409,295 78,384 42,445 180,007 284,926 33,117 333,350 39,869 16,613 423,302 352,177 39,167 471,700 409,295 78,384 42,445 180,007 1,923,471 1,573,175 1,131,177 1,573,175
  152. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 150 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 150 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 10. Loans, financing and advances (cont'd.) (xii) Impaired loans, financing and advances by type of customer are as follows: Domestic business enterprises: - Small medium enterprises - Others Individuals Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 349,641 828,804 745,026 134,249 548,771 890,155 219,125 584,795 327,257 134,249 548,771 890,155 1,923,471 1,573,175 1,131,177 1,573,175 (xiii) Impaired loans, financing and advances by sector are as follows: Household sector Agriculture Mining and quarrying Manufacturing Finance, insurance and business services Construction Wholesale & retail trade and restaurants & hotels Transport, storage and communication Education, health and others Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 745,023 154 38,891 1,070 12,602 795,663 21,148 343 308,577 890,153 150 7,428 1,965 572,979 18,121 29 82,350 327,256 753 998 581,836 33 56 220,245 890,153 150 7,428 1,965 572,979 18,121 29 82,350 1,923,471 1,573,175 1,131,177 1,573,175 The credit risk of financial assets of the Group and the Company is mitigated by the collateral held against the financial assets and would reduce the extent of impairment allowance for the assets subject to impairment review. In this respect, the individual impairment allowance as at the reporting date would have been higher for the Group by approximately RM394,303,968 (2017: RM207,491,454) and for the Company by approximately RM304,838,741 (2017: RM207,491,454) without the mitigating effect of collateral held.
  153. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 151 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 151 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 11. Financial assets held-for-sale Assets held-for-sale ("AHS") comprise of non-impaired and impaired loans, financing and advances in relation to end finance, Islamic property and personal financing, which have been identified for sale and for which a firm commitment has been received from an external party as at the end of financial year. The gross amounts are categorised according to their purpose as follows: Group 2018 2017 RM'000 RM'000 Purchase of residential properties Purchase of non-residential properties Personal use Company 2018 2017 RM'000 RM'000 - 367,759 36,183 1,109,101 - 367,759 36,183 1,109,101 - 1,513,043 - 1,513,043 The sale of financial assets was concluded on 28 December 2018. Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 Gross balance Balance as at 1 January Reclassification from loans, financing and advances Vested to MBSB Bank 1,513,043 - 1,513,043 - 1,513,043 (1,155,396) 1,513,043 - Transfer (to) / from loans and financing (note 10 (viii)) Disposal during the year 1,513,043 (110,182) (1,402,861) 1,513,043 - 357,647 7,446 (365,093) 1,513,043 - - 1,513,043 - 1,513,043 Less: impairment allowance Balance as at 1 January Reclassification from loans, financing and advances Effects of MFRS 9 adoption (1,474,634) (3,208) (1,474,634) - (1,474,634) (3,208) (1,474,634) - Vested to MBSB Bank Net impairment during the year (Note 39) Transfer (to) / from loans and financing (note 10 (ix)) Disposal during the year (1,477,842) 4,359 (107,919) 1,581,402 (1,474,634) - (1,477,842) 1,137,050 (11,708) 537 351,963 (1,474,634) - Total impairment allowance - (1,474,634) - (1,474,634) Net assets held-for-sale - 38,409 - 38,409 Gross assets held-for-sale
  154. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 152 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 152 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 12. Trade receivables Group 2018 2017 RM'000 RM'000 Gross balance Less: Allowance for impairment 25,395 (24,834) 25,137 (24,842) 561 295 Movements in allowance for impairment are as follows: Balance as at 1 January (Writeback)/made (Note 39) 24,842 (8) 24,834 8 Balance as at 31 December 24,834 24,842 Net balance Trade receivables are non-interest bearing and credit terms provided are generally on 7 to 30 days (2017: 7 to 30 days) term. 13. Other receivables Other receivables consists of the following: (i) Financing to subsidiaries (ii) Other receivables Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 243,047 218,413 148,672 305,140 234,815 243,047 218,413 148,672 539,955
  155. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 153 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 153 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 13. Other receivables (cont’d.) (i) Financing to subsidiaries Company 2018 2017 RM'000 RM'000 Secured Unsecured - 250,336 236,003 Less: Allowance for impairment - 486,339 (181,199) - 305,140 Movements in the allowance for impairment are as follows: Company 2018 2017 RM'000 RM'000 Balance as at 1 January Charge for the year Secured Unsecured Vested to MBSB Bank Balance as at 31 December 181,199 146,779 248 21,928 (203,375) 937 33,483 - - 181,199 Details of the allowance for impairment are as follows: Company 2018 2017 RM'000 RM'000 Secured Unsecured - 10,035 171,164 - 181,199 The financing to subsidiaries were vested to MBSB Bank on 2 April 2018. The financing to subsidiaries are repayable on demand and certain financing to subsidiaries are secured against landed properties. The weighted average effective interest rates of financing to subsidiaries at the reporting date was 7.00% (2017: 6.75%) per annum.
  156. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 154 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 154 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 13. Other receivables (cont’d.) (ii) Other receivables Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 463,009 8,740 133,505 11,915 132,987 23,113 416,848 8,740 135,405 72,417 45,891 23,337 8,740 58,152 133,505 8,633 41,116 23,113 8,740 68,919 135,405 71,655 40,847 23,337 128 141 - - 2,470 2,733 - 2,733 775,867 (532,820) 705,512 (487,099) 273,259 (124,587) 351,636 (116,821) 243,047 218,413 148,672 234,815 Balance as at 1 January Charge/(reversal) for the year: Write back of impairment losses for foreclosed properties Advances in respect of certain projects Amount due from subsidiaries (Note 39) Write off of amount due from subsidiary due to disposal 487,099 446,535 116,821 113,516 (440) 46,161 - (1,381) 41,945 - (440) 8,222 (16) (1,381) 4,686 - Balance as at 31 December 532,820 487,099 124,587 116,821 458,821 8,740 23,113 12,498 29,648 412,660 8,740 23,113 12,498 30,088 8,740 54,777 23,113 8,309 29,648 8,740 46,571 23,113 8,309 30,088 532,820 487,099 124,587 116,821 Advances in respect of certain projects Loan commitment fees Amount due from subsidiaries Foreclosed properties Prepayments and deposits Sundry receivables Public Low Cost Housing Payment (PLCHP) Deferred expenses due to issuance of Sukuk Commodity Murabahah Deferred expenses due to issuance of Sukuk MBSB SC Murabahah Less: Allowance for impairment Movements in allowance for impairment are as follows: Details of allowance for impairment are as follows: Advances in respect of certain projects Loan commitment fees Amount due from subsidiaries Public Low Cost Housing Payment (PLCHP) Sundry receivables Foreclosed properties The unsecured advances in respect of certain projects relate to monies advanced and interest charged on these advances by a subsidiary of the Company to a third party. These advances bear interest of 10.50% (2017: 10.50%) per annum. The amount due from subsidiaries is unsecured, bears weighted average effective interest rate of 7.00% (2017: 6.75%) per annum and is repayable on demand.
  157. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 155 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 155 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 13. Other receivables (cont’d.) The credit risk of other receivables of the Group and the Company are mitigated by the collateral held against the other receivables and would reduce the extent of impairment allowance for the assets subject to impairment review. In this respect, the individual impairment allowance as at the reporting date would have been higher for the Group and the Company by approximately RM103,854,000 (2017: RM105,316,000) without the mitigating effect of collateral held. Included in prepayments and deposits of the Group and of the Company are rental deposits paid to the Employees Provident Fund ("EPF"), the ultimate holding body, amounting to RM96,524 (2017: RM96,524). Other than the unsecured advances in respect of certain projects, the Group and the Company have no significant concentration of credit risk within other receivables that may arise from exposure to a single debtor or to groups of debtors. 14. Statutory deposits with BNM The non-interest bearing statutory deposits are maintained with Bank Negara Malaysia in compliance with Section 26(2)(c) of the Central Bank of Malaysia Act, 2009, the amount of which are determined as set percentages of total eligible liabilities. 15. Investments in subsidiaries Company 2018 2017 RM'000 RM'000 Unquoted shares at cost Less: Accumulated impairment losses Less: Write off of investments in subsidiaries due to disposal 4,858,765 (79,660) (22,777) 102,443 (95,046) - 4,756,328 7,397 Movements in the cost of investments are as follows: Company 2018 2017 RM'000 RM'000 Balance as at 1 January Disposal of subsidiaries Acquisition of MBSB Bank Berhad (Note 53) Net assets transferred to MBSB Bank Berhad (Note 53) 102,443 662,993 4,093,329 118,394 (15,951) - 4,858,765 102,443
  158. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 156 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 156 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 15. Investments in subsidiaries (cont'd.) Movements in the impairment losses are as follows: Company 2018 2017 RM'000 RM'000 Balance as at 1 January Impairment during the year (Note 36) Write off the impairment due to disposal 95,046 (15,386) 96,063 2 (1,019) Balance as at 31 December 79,660 95,046 Details of the subsidiaries are as follows: Name of subsidiaries MBSB Bank Berhad*@ MBSB Properties Sdn. Bhd. MBSB Development Sdn. Bhd. Prudent Legacy Sdn. Bhd.# Sigmaprise Sdn. Bhd. MBSB Project Management Sdn. Bhd. Definite Pure Sdn. Bhd.# Malaya Borneo Building Society Limited ("MBBS")*# Farawide Sdn. Bhd. Idaman Usahamas Sdn. Bhd. Ombak Pesaka Sdn. Bhd. MBSB Tower Sdn. Bhd. Jana Kapital Sdn. Bhd.* 88 Legacy Sdn. Bhd. Ganesha Sdn. Bhd. Home Approach Sdn. Bhd. * # @ Effective interest held (%) 2018 2017 Principal activities 100 100 100 92 100 100 100 100 100 92 100 100 100 Islamic banking and related financial services Leasing of real property Property development Property development Hotel operations Ceased operations Property development 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 Trading operation Hotel operations services Property development Hotel operations Property development Investment holding Property development Liquidated Liquidated Audited by a firm of auditors other than Ernst & Young. Dormant entity Arising from acquisition of MBSB Bank Berhad (formerly known as Asian Finance Bank Berhad) All the above subsidiaries were incorporated in Malaysia except for MBBS which was incorporated in Singapore. 16. Investments in Joint venture Group 2018 2017 RM'000 RM'000 Unquoted share capital at cost Less: Share of loss 16,222 16,222 (16,222) (16,222) - -
  159. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 157 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 157 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 16. Investments in Joint venture (cont’d.) MBSB Bank Berhad invested RM16,222,255 in participating shares of Safeena (L) Ltd, a 50% equity interest in a joint controlled entity with AmanahRaya Investment Bank Ltd. This joint venture was incorporated in the Federal Territory of Labuan, Malaysia under the Labuan Companies Act, 1990. The principal activity of Safeena (L) Ltd is provision of funding for marine vessels. (i) Management shares The management shares carry the right to vote on any matter which is required under the Labuan Companies Act, 1990, and the right to return of capital paid-up on the management shares (after the return of capital paid-up on the participating shares) and rights to dividend or to share in surplus investments remaining after the return of capital paid up on the shares of Safeena (L) Ltd. (ii) Participating shares The Principal features of the participating shares are as follows: (a) The participating shares do not confer any rights of entitlements to vote at meetings of Safeena (L) Ltd. (b) Safeena (L) Ltd may in a management shareholders’ meeting declare dividends but no dividend shall exceed the amount recommended by the Board of Directors to be justified by the profits of Safeena (L) Ltd (“the Board”). (c) The Board may from time to time if they think fit pay such interim dividends on the participating shares as appear to the Board to be justified by the profits of Safeena (L) Ltd. (d) The Board may, with the affirmative votes of the management shareholders, distribute in kind among shareholders by way of dividend or otherwise any of the assets of Safeena (L) Ltd provided that no distribution shall be made would amount to a reduction of capital except in a manner allowed by the Offshore Companies Act, 1990. (e) The rights attracting to the participating shareholders may be varied or abrogated with the consent in writing of the management shareholders provided always that the management shareholders act at all times in the interest of Safeena (L) Ltd. (f) The participating shareholders do not have the right to require the redemption of any of their participating shares. (g) The investments available for distribution amongst the shareholders shall be applied pari passu on the return paid-up capital on management shares and participating shares. (h) Any surplus investments of Safeena (L) Ltd shall be distributed pari passu amongst the participating shareholders and the Investment Advisors as performance fees in accordance with the provisions of the Investment Advisory Services Agreement. 17. Inventories Group 2018 2017 RM'000 RM'000 At cost: Hotel inventories At net realisable value: Freehold land held for sale Total inventories Company 2018 2017 RM'000 RM'000 269 179 - - 102,163 103,063 - 900 102,163 103,063 - 900 102,432 103,242 - 900
  160. 5 ,846 227,323 - 371 Net book value At 31 December 2018 - 371 Analysed as: Accumulated depreciation Accumulated impairment losses - - 371 - - - 371 At 31 December 2018 Addition from acquisition of MBSB Bank Berhad Depreciation charge for the year (Note 36) Disposals - 371 227,323 120,128 - 6,217 107,195 Building in progress RM'000 6,217 Freehold land RM'000 45,455 57,896 23,609 34,287 57,896 3,078 (190) - 55,008 20,721 34,287 103,351 (367) 103,718 Buildings RM'000 633 37,372 37,372 - 37,372 2,182 - 5,315 29,875 29,875 - 38,005 5,315 1,352 - 31,338 Building renovation RM'000 1,061 33,643 33,643 - 33,643 1,377 (23) 1,730 30,559 30,559 - 34,704 1,799 1,115 (26) 31,816 Furniture and equipment RM'000 1 913 913 - 913 (5) 86 832 832 - 914 87 (5) 832 Motor vehicles RM'000 14,661 39,405 39,405 - 39,405 1,978 (8) 4,870 32,565 32,565 - 54,066 5,742 9,214 2,546 (34) 36,598 Data processing equipment RM'000 317,714 Total RM'000 2,587 - - - - - - - 2,587 297,567 169,600 134,942 34,658 169,600 8,615 (226) 12,001 149,210 114,552 34,658 467,167 12,943 5,133 136,942 (2,546) (432) - Work in progress RM'000 158 Accumulated depreciation and impairment losses At 1 January 2018: Accumulated depreciation Accumulated impairment losses At 31 December 2018 Cost At 1 January 2018 Addition from acquisition of MBSB Bank Berhad Additions Reclassification Disposals Group 18. Property and equipment MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 158 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  161. 5 ,846 107,195 - 371 Net book value At 31 December 2017 - 371 Analysed as: Accumulated depreciation Accumulated impairment losses - - 371 - - 371 At 31 December 2017 Depreciation charge for the year (Note 36) Disposals - 107,195 73,324 33,871 - Building in progress RM'000 371 6,217 At 31 December 2017 Accumulated depreciation and impairment losses At 1 January 2017: Accumulated depreciation Accumulated impairment losses 6,217 - Freehold land RM'000 Cost At 1 January 2017 Additions Disposals Group 18. Property and equipment (cont’d.) 48,710 55,008 20,721 34,287 55,008 3,080 - 51,928 17,641 34,287 103,718 103,718 - Buildings RM'000 1,463 29,875 29,875 - 29,875 2,940 (18) 26,953 26,953 - 31,338 31,091 271 (24) Building renovation RM'000 1,257 30,559 30,559 - 30,559 1,640 (436) 29,355 29,355 - 31,816 31,924 355 (463) Furniture and equipment RM'000 - 832 832 - 832 98 (5) 739 739 - 832 832 - Motor vehicles RM'000 4,033 32,565 32,565 - 32,565 3,250 (729) 30,044 30,044 - 36,598 33,997 3,335 (734) Data processing equipment RM'000 - - - - - - - - - Work in progress RM'000 168,504 149,210 114,552 34,658 149,210 11,008 (1,188) 139,390 104,732 34,658 317,714 281,103 37,832 (1,221) Total RM'000 MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 159 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 159 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  162. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 160 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 160 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 18. Property and equipment (cont'd.) Company Freehold land RM'000 Cost At 1 January 2018 Additions Disposals Vested to MBSB Bank Berhad (Note 53) At 31 December 2018 Building Buildings renovation RM'000 RM'000 Furniture and equipment RM'000 Motor vehicles RM'000 Data processing equipment RM'000 Total RM'000 9,968 - 18,946 (367) 24,156 201 - 17,458 134 (1) 580 (2) 35,600 106,708 1,401 1,736 (32) (402) - - (24,357) (17,591) (578) (36,969) (79,495) 9,968 18,579 - - - - 28,547 - 3,436 21,173 15,734 484 31,785 72,612 Accumulated depreciation At 1 January 2018: Depreciation charge for the year (Note 36) Disposals Vested to MBSB Bank Berhad (Note 53) - 471 (191) 658 - 330 (4) 18 - 327 (9) 1,804 (204) - - (21,831) (16,060) (502) (32,103) (70,496) At 31 December 2018 - 3,716 - - - - 3,716 Net book value At 31 December 2018 9,968 14,863 - - - - 24,831 Building Buildings renovation RM'000 RM'000 Furniture and equipment RM'000 Motor vehicles RM'000 Data processing equipment RM'000 Total RM'000 Company Freehold land RM'000 Cost At 1 January 2017 Additions Disposals 9,968 - 18,946 - 24,018 162 (24) 17,689 232 (463) 580 - 33,005 104,206 3,329 3,723 (734) (1,221) At 31 December 2017 9,968 18,946 24,156 17,458 580 35,600 106,708 - 2,962 18,269 14,665 402 29,277 65,575 - 474 - 2,922 (18) - 1,510 (441) - 82 - 3,237 (729) - 8,225 (1,188) - At 31 December 2017 - 3,436 21,173 15,734 484 31,785 72,612 Net book value At 31 December 2017 9,968 15,510 2,983 1,724 96 3,815 34,096 Accumulated depreciation At 1 January 2017: Depreciation charge for the year (Note 36) Disposals Reversal
  163. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 161 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 161 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 18. Property and equipment (cont'd.) Included in freehold land and buildings are the net book value of properties which are: Group 2018 2017 RM'000 RM'000 Pending subdivision of titles 754 754 Company 2018 2017 RM'000 RM'000 184 184 19. Intangible assets Group 2018 2017 RM'000 RM'000 Provisional goodwill on consolidation (Note 53) Company 2018 2017 RM'000 RM'000 188,790 - - - 88,099 23,276 99,898 - 78,040 10,059 - 87,641 11,509 (99,150) 77,599 10,042 - 211,273 88,099 - 87,641 73,466 21,701 11,383 - 62,625 10,841 - 73,053 1,731 (74,784) 62,230 10,823 - At 31 December 106,550 73,466 - 73,053 Net book value At 31 December 104,723 14,633 - 14,588 Total 293,513 14,633 - 14,588 Software licences Cost At 1 January Addition from acquisition of MBSB Bank Berhad Additions Vested to MBSB Bank Berhad (Note 53) At 31 December Accumulated depreciation and impairment losses At 1 January Addition from acquisition of MBSB Bank Berhad Amortisation for the year (Note 36) Vested to MBSB Bank Berhad (Note 53)
  164. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 162 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 162 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 20. Investment properties Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 At cost Freehold land Addition from acquisition of MBSB Bank Berhad 820 - - - At 31 December 820 - - - The value of investment properties of RM820,000 which is categorised under Level 3 fair value has been generally derived using the sales comparison approach. 21. Land use rights Group 2018 2017 RM'000 RM'000 Cost: At 1 January/31 December 8,428 8,428 Accumulated amortisation: At 1 January Amortisation for the year (Note 36) 3,005 161 2,844 161 At 31 December 3,166 3,005 Net carrying amount 5,262 5,423 Amount to be amortised: Not later than one year Later than one year but not later than five years Later than five years 161 644 4,457 161 644 4,618 5,262 5,423
  165. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 163 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 163 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 22. Deferred tax (assets)/liabilities Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 At 1 January Addition from acquisition of MBSB Bank Recognised in profit or loss (Note 40) Recognised in profit or loss (OCI) (21,203) (657) 44,294 3,368 (18,685) (2,518) - (21,187) 5,500 - (18,710) (2,477) - At 31 December 25,802 (21,203) (15,687) (21,187) Presented, after appropriate offsetting, as follows: Deferred tax liabilities Deferred tax assets 60,120 (34,318) 10,156 (31,359) (15,687) (21,187) 25,802 (21,203) (15,687) (21,187) The components and movements of deferred tax assets and liabilities during the year prior to offsetting were as follows: Accelerated capital Provision allowances RM'000 RM'000 Fair value adjustment arising from business combination RM'000 Total RM'000 Group Deferred Tax Assets At 1 January 2017 Recognised in profit or loss (26,733) (3,460) (1,380) 214 - (28,113) (3,246) At 1 January 2018 Effect of adoption of MFRS 9 (30,193) (70,406) (1,166) - - (31,359) (70,406) (100,599) 70,406 (936) (2,702) (1,166) 266 400 13 - (101,765) 70,406 (657) (2,302) (33,831) (500) 13 (34,318) Adjusted 1 January 2018 Reclassification to tax recoverable Opening balance of MBSB Bank acquired on 2 February 2018 Recognised in profit or loss At 31 December 2018
  166. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 164 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 164 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 22. Deferred tax (assets)/liabilities (cont'd.) Fair value adjustment arising from business combination RM'000 Accelerated capital allowances RM'000 Impairment allowances RM'000 Others RM'000 Total RM'000 Group (cont'd.) Deferred Tax Liabilities At 1 January 2017 Recognised in profit or loss 5,026 - 5,977 (837) - (1,575) 1,565 9,428 728 At 1 January 2018 Recognised in profit or loss Recognised in profit or loss- OCI 5,026 3,368 5,140 7,072 - 41,234 - (10) (1,710) - 10,156 46,596 3,368 At 31 December 2018 8,394 12,212 41,234 (1,720) 60,120 Provision RM'000 Accelerated capital allowances RM'000 Total RM'000 Company Deferred Tax Assets At 1 January 2017 Recognised in profit or loss (23,307) (3,460) (1,380) 213 (24,687) (3,247) At 1 January 2018 Effect of adoption of MFRS 9 (26,767) (65,253) (1,167) - (27,934) (65,253) Adjusted 1 January 2018 Reclassification to tax recoverable Recognised in profit or loss (92,020) 65,253 11,146 (1,167) 1,101 (93,187) 65,253 12,247 At 31 December 2018 (15,621) (66) (15,687) Accelerated capital allowances RM'000 Others RM'000 Total RM'000 Deferred Tax Liabilities At 1 January 2017 Recognised in profit or loss 5,977 (837) 1,607 5,977 770 At 1 January 2018 Recognised in profit or loss 5,140 (5,140) 1,607 (1,607) 6,747 (6,747) - - - At 31 December 2018
  167. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 165 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 165 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 22. Deferred tax (assets)/liabilities (cont'd.) Deferred tax assets have not been recognised in respect of the following items: Group 2018 2017 RM'000 RM'000 Unutilised tax losses Unabsorbed capital allowances Provision for doubtful debts Others 165,445 49,722 37,444 6,995 170,843 46,079 25,680 10,099 Company 2018 2017 RM'000 RM'000 4,082 3,527 The availability of the unused tax losses and unabsorbed capital allowances for offsetting against future taxable profits of the Company's subsidiaries are subject to no substantial changes in shareholdings of the Company and of those subsidiaries under Section 44(5A) and (5B) of the Income Tax Act, 1967 in Malaysia. 23. Deposits from customers (i) By type of deposit: Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 Fixed deposits Demand deposits: Tawarruq - 775,059 - 775,059 225,520 - - - Savings deposits: Tawarruq Wadiah 76,558 - 96,643 - 96,643 23,907,371 24,092,392 - 24,092,392 24,209,449 24,964,094 - 24,964,094 - 562,454 - 562,454 - 562,454 - 562,454 24,209,449 25,526,548 - 25,526,548 Commodity Murabahah Term Deposit: Tawarruq General investment deposits
  168. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 166 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 166 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 23. Deposits from customers (ii) By type of customers: Group 2018 2017 RM'000 RM'000 Government and statutory bodies Business enterprises Individuals Company 2018 2017 RM'000 RM'000 14,746,960 6,371,297 3,091,192 15,892,197 6,828,664 2,805,687 - 15,892,197 6,828,664 2,805,687 24,209,449 25,526,548 - 25,526,548 (iii) Maturity of deposits from customers: Group 2018 2017 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 Company 2018 2017 RM'000 RM'000 17,474,783 4,818,107 723,813 1,192,746 20,005,082 3,445,961 1,044,376 1,031,129 - 20,005,082 3,445,961 1,044,376 1,031,129 24,209,449 25,526,548 - 25,526,548 (iv) By type of contract: Group 2018 2017 RM'000 RM'000 Mudharabah Tawarruq Wadiah Others Company 2018 2017 RM'000 RM'000 24,209,449 - 562,454 24,092,392 96,643 775,059 - 562,454 24,092,392 96,643 775,059 24,209,449 25,526,548 - 25,526,548
  169. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 167 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 167 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 24. Deposits and placements of banks and other financial institutions (i) By type of deposit: Group 2018 2017 RM'000 RM'000 Non-Mudharabah Funds: Other financial institutions Company 2018 2017 RM'000 RM'000 8,578,851 7,228,589 - 7,228,589 8,578,851 7,228,589 - 7,228,589 (ii) By type of contract: Group 2018 2017 RM'000 RM'000 Tawarruq Wadiah Company 2018 2017 RM'000 RM'000 8,578,851 - 7,228,481 108 - 7,228,481 108 8,578,851 7,228,589 - 7,228,589 25. Trade payables Trade payables are unsecured and non-interest bearing. The normal trade credit terms granted to the Group range from 30 to 60 (2017: 30 to 60) days. 26. Other payables Group 2018 2017 RM'000 RM'000 Amount due to Jana Kapital Sdn. Bhd. Amount due to MBSB Bank Due to other subsidiaries Al-Mudharabah security funds Other provisions and accruals Sundry creditors ECL for commitments and contingencies Deferred income Company 2018 2017 RM'000 RM'000 123,401 105,447 278,232 100,412 43,275 112,629 69,272 161,595 33,831 98,666 23,349 80,560 6,469 30,625 2,891,912 13,187 112,629 68,573 158,405 33,831 650,767 377,327 239,669 3,278,537
  170. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 168 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 168 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 26. Other payables (cont’d.) ECL movement of commitments and contingencies are as follows: 2018 Stage 1 RM'000 Group Stage 2 Stage 3 RM'000 RM'000 98,697 4,846 (50,413) 85,730 885 (49,786) 12,459 (2,006) 196,886 5,731 (102,205) 5,105 (40,251) (3,214) 33,007 (5,105) 40,280 (1,178) 7,107 (29) 4,392 203 40,317 (33,670) (11,390) (45,119) (45,771) (5,550) (1,022) (84,339) (58,183) 53,130 36,829 10,453 100,412 Stage 1 RM'000 Company Stage 2 Stage 3 RM'000 RM'000 Total RM'000 Allowance for impairment upon adoption of MFRS 9 as at 1 January 2018 Vesting of assets to MBSB Bank 98,697 (69,751) 85,730 (35,157) 12,459 (1,515) 196,886 (106,423) - commitment from financing - commitment from asset held-for-sale (AHS) (69,751) - (35,157) - (1,498) (17) (106,406) (17) Charge to profit or loss (Note 39) (28,533) (50,375) (5,086) (83,994) 4,888 (11,574) (206) 11,810 (4,888) 11,602 (678) 1,333 (28) 884 - 13,143 (11,139) (22,312) (24,324) (33,420) (4,932) (1,010) (40,395) (56,742) 413 198 5,858 6,469 Allowance for impairment upon adoption of MFRS 9 as at 1 January 2018 Addition from acquisition of MBSB Bank Charge to profit or loss (Note 39) Changes in the impairment allowance - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 New financing / disbursed during the year Derecognised/converted to loans/financing during the period (other than write-offs) Changes in credit risk parameters Allowance for impairment as at 31 December 2018 2018 Changes in the impairment allowance - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 New financing / disbursement during the year Derecognised/drawdown to loans/financing during the period (other than write-offs) Changes in credit risk parameters Allowance for impairment as at 31 December 2018 Total RM'000 The amount due to subsidiary, JKSB, relates to the sale of a portfolio of PFI that does not meet the derecognition criteria prescribed under MFRS 9 as detailed in Note 4. The amounts due to other subsidiaries are unsecured, interest-free and are repayable on demand.
  171. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 169 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 169 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 27. Recourse obligation on loans/financing sold Group 2018 2017 RM'000 RM'000 Repayments due within 12 months Repayments due after 12 months Company 2018 2017 RM'000 RM'000 593,853 1,541,665 477,918 1,760,249 - 477,918 1,760,249 2,135,518 2,238,167 - 2,238,167 Recourse obligation on loans/financing sold was vested to the Bank as part of transfer of assets and liabilities on 2 April 2018 (refer Note 53). These amounts relate to proceeds received from the sale of conventional and Islamic housing loans/financing to Cagamas Berhad with recourse to the Company. Under the agreement, the Company undertakes to administer the loans/financing on behalf of Cagamas Berhad and to buy back any loans/financing which are regarded as defective based on a set of pre-determined criteria. In November 2014, the Company started its first sale of loan/financing portfolios with recourse directly to Cagamas Berhad without participation of intermediary banks. The recourse obligation on loans or financing sold facilities granted by Cagamas Berhad are secured on a portfolio of mortgage loan and financing amounting to RM2,042,743,000 (2017: RM2,196,993,000) as disclosed in Note 10. 28. Sukuk - MBSB Structured Covered ("SC") Murabahah and Sukuk Commodity Murabahah (a) Sukuk - MBSB SC Murabahah Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 Sukuk - MBSB SC Murabahah 1,968,075 2,287,877 - 2,287,877 Maturity of Sukuk - MBSB SC Murabahah: Within one year More than one year 308,864 1,659,211 514,909 1,772,968 - 514,909 1,772,968 1,968,075 2,287,877 - 2,287,877 Sukuk - MBSB SC Murabahah was vested to MBSB Bank Berhad as part of transfer of assets and liabilities on 2 April 2018 (refer Note 53).
  172. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 170 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 170 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 28. Sukuk - MBSB Structured Covered ("SC") Murabahah and Sukuk Commodity Murabahah (cont’d.) (a) Sukuk - MBSB SC Murabahah (cont’d.) On 25 October 2013, MBSB's Sukuk - MBSB SC Murabahah programme ("the Programme") was approved by the Securities Commission of Malaysia. The salient terms of the Programme as prescribed in its Principal Terms and Conditions are as follows: (i) The Programme is available for issue within a period of 5 years from the first issuance date and is issued in tranches ("Tranche") from time to time, at the discretion of MBSB; (ii) Each Tranche will consist of multiple series of Sukuk with different maturities; (iii) Each Tranche will be backed by an identified pool of Financing Receivables ("Tranche Cover Assets") held by the Company's Special Purpose Vehicle ("SPV"), Jana Kapital Sdn. Bhd. ("JKSB"); JKSB who will issue an unconditional and irrevocable Covered Sukuk Guarantee to the holders of the Sukuk - MBSB SC Murabahah; (iv) Tranche Cover Assets will be pledged by JKSB as security for the Covered Sukuk Guarantee. These Tranche Cover Assets are assigned to the Sukuk Trustee for this purpose; (v) In the event of default as defined in the Principal Terms and Conditions, the Tranche Cover Assets will be liquidated by the Sukuk Trustee in favour of the holders of the Sukuk - MBSB SC Murabahah; and (vi) From time to time, additional Tranche Cover Assets will be purchased by JKSB in line with additional Tranches drawdown by MBSB. As at the reporting date, the carrying amount of Financing Receivables identified to back the outstanding Sukuk MBSB SCMurabahah amounted to RM2,584,123,000 (2017: RM2,891,912,000) as disclosed in Note 10. (b) Sukuk Commodity Murabahah Company 2018 2017 RM'000 RM'000 Sukuk Commodity Murabahah - 3,245,851 Sukuk Commodity Murabahah was vested to MBSB Bank Berhad as part of the transfer of assets and liabilities on 2 April 2018 (refer Note 53). As part of the Programme, Jana Kapital Sdn Bhd ("JKSB") will issue a Sukuk Commodity Murabahah to raise funds necessary for the purchase of Tranche Cover Assets from the Company. The salient terms of the Sukuk Commodity Murabahah are as follows: (i) The Sukuk Commodity Murabahah will be issued in Tranches corresponding to each Tranche of Sukuk - MBSB SC Murabahah; (ii) The tenure of the Sukuk Commodity Murabahah will be equivalent to the tenure of each Tranche of the Sukuk - MBSB SC Murabahah plus an additional year; (iii) The profit rates of each Tranche of the Sukuk Commodity Murabahah will be equivalent to the profit rates of the corresponding Sukuk - MBSB SC Murabahah.
  173. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 171 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 171 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 28. Sukuk - MBSB Structured Covered ("SC") Murabahah and Sukuk Commodity Murabahah (cont’d.) (b) Sukuk Commodity Murabahah (cont’d.) On 24 December 2013, the first drawdown of the Programme amounting to approximately RM495 million was made by the Company with an equivalent issuance by JKSB amounting to approximately RM579 million to the Company. The first Tranche is secured against Tranche Cover Assets amounting to RM570,637,000 sold to JKSB on 1 December 2013. The first Tranches of the Sukuk - MBSB SC Murabahah and the Sukuk Commodity Murabahah have a tenure of 8 and 9 years from their drawdown dates respectively and both instruments carry profit rates ranging from 3.84% to 4.68% per annum, payable semi-annually in arrears. On 10 December 2014, the second drawdown of the Programme amounting to approximately RM700 million was made by the Company with an equivalent issuance by JKSB amounting to approximately RM931 million to the Company. The second Tranche is secured against Tranche Cover Assets amounting to RM833,045,000 sold to JKSB on 1 November 2014. The second Tranches of the Sukuk - MBSB SC Murabahah and the Sukuk Commodity Murabahah have a tenure of 10 and 11 years from their drawdown dates respectively and both instruments carry profit rates ranging from 4.00% to 5.00% per annum, payable semi-annually in arrears. On 29 May 2015, the third drawdown of the Programme amounting to approximately RM900 million was made by the Company with an equivalent issuance by JKSB amounting to approximately RM1,510 million to the Company. The third Tranche is secured against Tranche Cover Assets amounting to RM1,232,642,000 sold to JKSB on 1 May 2015. The third Tranches of the Sukuk - MBSB SC Murabahah and the Sukuk Commodity Murabahah have a tenure of 9 and 10 years from their drawdown dates respectively and both instruments carry profit rates ranging from 4.30% to 5.20% per annum, payable semi-annually in arrears. On 21 October 2015, the fourth drawdown of the Programme amounting to approximately RM900 million was made by the Company with an equivalent issuance by JKSB amounting to approximately RM900 million to the Company. The fourth Tranche is secured against Tranche Cover Assets amounting to RM1,239,677,000 sold to JKSB on 1 October 2015. The fourth Tranches of the Sukuk - MBSB SC Murabahah and the Sukuk Commodity Murabahah have a tenure of 12 and 13 years from their drawdown dates respectively and both instruments carry profit rates ranging from 4.30% to 5.50% per annum, payable semi-annually in arrears. 29. Share capital Number of Shares 2018 2017 Units'000 Units'000 Ordinary shares Issued and fully paid: At 1 January Issued during the year: Issue of ordinary shares pursuant to DRP Issuance of shares for acquisition of a subsidiary Issue of ordinary shares pursuant to ESOS Transfer of share premium to share capital Transfer of capital redemption reserve redeemable cumulative preference shares to share capital Transfer of capital reserve to share capital At 31 December Amount 2018 2017 RM'000 RM'000 5,924,425 5,798,774 6,172,051 5,798,774 239,168 225,508 - 125,644 7 - 243,952 266,099 - 144,491 13 198,449 - - - 12,486 17,838 6,389,101 5,924,425 6,682,102 6,172,051
  174. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 172 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 172 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 29. Share capital (cont’d.) (a) Employee Share Option Scheme ("ESOS") The Malaysia Building Society Berhad's ESOS is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 29 April 2010. The ESOS was implemented on 12 August 2010 and is in force for a period of 10 years from the date of implementation. The salient features of the ESOS are as follows: (i) Eligible persons are employees of the Group who are on the payroll of the Group other than a subsidiary which is dormant; (ii) The total number of shares to be issued under the ESOS shall not exceed, in aggregate, 10% of the issued share capital of the Company at any point of time during the tenure of the ESOS; (iii) The option price for each share shall be the average of the main market quotation of the shares of the Company in the daily official list issued by Bursa Malaysia Securities Berhad for the five trading days preceding the date of offer, or the par value of the shares of the Company of RM1, whichever is higher; (iv) The actual number of new shares which may be offered to an eligible employee shall be at the discretion of the Option Committee and, subject to any adjustments that may be made under Clause 15 of the by-laws, shall not be less than 100 shares but not more than the maximum allowable allocation and shall always be in multiples of 100 shares; and (v) An option granted under the ESOS shall be capable of being exercised by the grantee by notice in writing to the Company commencing from the date of the offer but before the expiry of five years from 12 August 2010 in respect of all or any part of the Company's shares comprised in the option, such part being in multiples of 100 shares. Any partial exercise of an option shall not preclude the grantee from exercising the option in respect of the balance of the Company's shares comprised in the option. (vi) No option shall be granted to a Director of the Company unless the specific grant of option and the related allotment of the Company's shares to the Executive Director shall have first been approved by the shareholders of the Company in an Annual General Meeting. The number of the shares allocated, in aggregate, to the Directors and senior management of the Group shall not exceed 50% of the total Company's shares available under the Scheme. No option has been granted to any of the Directors of the Company since the implementation of the scheme. As at 31 December 2014, the maximum allocation applicable to senior management of the Company was not more than 50% of the ESOS 2010/2015 Aggregate Maximum Allocation. The number of shares allocated to any individual Director or employee who, either individually or collectively through persons connected (which term shall have the same meaning as that assigned to "a person connected with a director" in Section 122A of the Companies Act, 1965 in Malaysia), holds 20% or more in the issued and paid-up share capital of the Company shall not exceed 10% of the total shares available under the Scheme;
  175. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 173 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 173 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 29. Share capital (cont'd.) (a) Employee Share Option Scheme ("ESOS") (cont'd.) (vii) The persons to whom the options have been granted have no right to participate by virtue of the options in any share issue of any other company; (viii) In respect of the ESOS granted in 11.9.2010, 100% of the options granted are exercisable during the validity of the option provided that the employee has been in continuous service with the Group throughout the period; (ix) In respect of the ESOS granted in 9.3.2012, 100% of the options granted are exercisable during the validity of the option provided that the employee has been in continuous service with the Group throughout the period; (x) In respect of the ESOS granted in 15.11.2012, 100% of the options granted are exercisable during the validity of the option provided that the employee has been in continuous service with the Group throughout the period; (xi) In respect of the ESOS granted in 9.3.2014, 100% of the options granted are exercisable during the validity of the option provided that the employee has been in continuous service with the Group throughout the period; and (xii) All new ordinary shares issued upon exercise of the options granted under the ESOS will rank pari passu in all respects with the existing ordinary shares of the Company other than as may be specified in a resolution approving the distribution of dividends prior to their exercise dates. Movement of ESOS during the financial year The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, ESOS during the year: Group 2018 2017 No.'000 WAEP (RM) No.'000 WAEP (RM) Outstanding at 1 January - Exercised - Lapsed 25,910 (809) 1.46 28,166 (7) (2,249) 1.02 1.48 Outstanding at 31 December 25,101 1.46 25,910 1.44 Exercisable at 31 December 25,101 1.46 25,910 1.44 - The weighted average fair value of options during the financial year was RM0.31 (2017: RM0.31). - The weighted average exercise price for options outstanding at the end of the year was RM1.60 (2017: RM1.57). The weighted average remaining contractual life for these options is 1.61 years (2017: 2.60 years).
  176. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 174 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 174 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 29. Share capital (cont'd.) (a) Employee Share Option Scheme ("ESOS") (cont'd.) ESOS exercised during the financial year The exercise of the ESOS during the financial year resulted in the issuance of nil (2017: 7,000) ordinary shares. Fair value of ESOS granted The fair value of ESOS granted was estimated using a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used: Fair value per ESOS granted (RM) Weighted average share price (RM) Weighted average exercise price (RM) Expected volatility (%) Expected life (years) Risk free rate (%) Expected dividend yield (%) Granted on 9.3.2014 Granted on 15.11.2012 Granted on 09.03.2012 Granted on 11.09.2010 0.25 0.16 0.83 0.35 2.14 2.15 22.36 7 4.11 4.52 2.32 2.33 16.17 8 3.49 4.09 1.66 1.67 34.05 9 3.64 3.85 1.44 1.45 26.77 10 3.91 3.00 The expected life of the share option is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of the option grant were incorporated into the measurement of fair value.
  177. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 175 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 175 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 30. Other reserves Capital Reserve RM'000 Note (a) Share Option Reserve RM'000 Note (b) Warrants Reserve RM'000 Note (c) Capital Redemption Reserve Redeemable Cumulative Preference Shares RM'000 Note (d) At 1 January 2018 Other comprehensive income for the year - 6,261 - - - (6,656) 17,268 (395) 17,268 At 31 December 2018 - 6,261 - - 10,612 16,873 17,838 - 6,810 (6) 3,633 - 12,486 - (19,810) - 20,957 (6) - (543) - - - 13,154 (543) 13,154 - - (3,633) - - (3,633) (17,838) - - (12,486) - - (12,486) (17,838) - 6,261 - - (6,656) (395) At 1 January 2018 Other comprehensive income for the year - 6,261 - - - (6,656) 6,656 (395) 6,656 At 31 December 2018 - 6,261 - - - 6,261 17,838 - 6,810 (6) 3,633 - 12,486 - (19,810) - 20,957 (6) - (543) - - - 13,154 (543) 13,154 - - (3,633) - - (3,633) (17,838) - - (12,486) - - (12,486) (17,838) - 6,261 - - (6,656) (395) Group At 1 January 2017 Issue of ordinary shares pursuant to ESOS Transfer of share option reserve to retained profits upon lapsed of share options Other comprehensive income for the year Transfer of warrant reserve to retained profits upon expiry of warrants Transfer of capital redemption reserve redeemable cumulative preference shares to share capital Transfer of capital reserve to share capital At 31 December 2017 Fair value Reserve RM'000 Note (e) Total RM'000 Company At 1 January 2017 Issue of ordinary shares pursuant to ESOS Transfer of share option reserve to retained profits upon lapsed of share options Other comprehensive income for the year Transfer of warrant reserve to retained profits upon expiry of warrants Transfer of capital redemption reserve redeemable cumulative preference shares to share capital Transfer of capital reserve to share capital At 31 December 2017
  178. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 176 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 176 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 30. Other reserves (cont'd.) (a) The capital reserve arose out of the transfer of the reserves of Malaya Borneo Building Society Limited as at 29 February 1972 to the Company on 1 March 1972 via a Scheme of Arrangement and is not distributable as cash dividends. (b) The share option reserve relates to the equity-settled share options granted to employees. This reserve is made up of the cumulative value of services received from employees recorded on grant of share options and is transferred to retained earnings upon expiry of the share options. (c) The warrants reserve represents the cumulative fair value of the warrants yet to be exercised. The warrants have expired on 31 December 2017. (d) The capital redemption reserve arose out of the redemption of redeemable cumulative preference shares of the Company and is not distributable as cash dividends. (e) The fair value reserve includes the cumulative net changes in the fair value of financial investments at FVOCI and the expected credit losses arising from financial investments at FVOCI, until the financial investments are derecognised. In prior year, the fair value reserve was in relation to financial investments available-for-sale. 31. Revenue Revenue of the Company comprises interest income, fee and commission income, other income and financing income. Revenue of the Group comprises all types of revenue derived from the business of granting of financing and loans, property development, property management, renting of real property and hotel operations. 32. Income derived from investment of general investment deposits and Islamic capital funds Group 2018 2017 RM'000 RM'000 Financing Income from securities Profit income from Sukuk Commodity Murabahah Financial investments at FVOCI Deposits with financial institutions Company 2018 2017 RM'000 RM'000 2,296,125 31,696 143,335 133,531 2,145,098 114,160 163,156 518,653 27,348 30,096 33,247 2,169,840 121,612 114,160 138,218 2,604,687 2,422,414 609,344 2,543,830 33. Interest income Interest income from: - Loans, financing and advances - Deposits and placements with banks and other financial institutions Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 181,908 317,584 139,642 280,329 34,888 110,237 34,888 110,237 216,796 427,821 174,530 390,566
  179. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 177 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 177 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 34. Interest expense Group and Company 2018 2017 RM'000 RM'000 Deposits from customers, banks and other financial institutions Others 21,396 436 151,306 993 21,832 152,299 35. Net other income Group 2018 2017 RM'000 RM'000 Rental income Revenue from hotel operations Loan related fees Insurance commission Legal notice fees Sundry income Gain/(loss) from disposal of: Property and equipment and land use rights Foreclosed properties Inventories Subsidiary* * Company 2018 2017 RM'000 RM'000 175 6,923 23,994 11,182 11,674 182 6,914 14,578 5,149 49 51,626 11 26,474 2,424 19,377 18 14,578 5,149 49 51,486 316 (401) 100 - (9) 2,095 - 318 (401) 100 (2,710) (9) 2,095 (84) 53,963 80,584 45,593 73,282 The loss from disposal of subsidiary during the year was from the disposal of Home Approach Sdn. Bhd. 36. Other operating expenses Group 2018 2017 RM'000 RM'000 Personnel expenses (Note 37) Establishment related expenses Promotion and marketing related expenses General administrative expenses Intercompany charges Commission fees Company 2018 2017 RM'000 RM'000 227,706 52,566 7,803 80,380 37,825 164,590 43,373 6,085 46,406 29,346 44,439 9,701 1,764 29,018 23,523 12,472 160,198 39,418 5,965 42,034 (3,655) 29,347 406,280 289,800 120,917 273,307
  180. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 178 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 178 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 36. Other operating expenses (cont’d.) Included in other operating expenses are the following: Group 2018 2017 RM'000 RM'000 Parent auditors' remuneration: - Audit - Regulated related services - Other services Other auditors' remuneration: - Audit - Other services Professional fees Depreciation: - property, plant and equipment (Note 18) Amortisation: - intangible assets (Note 19) - land use rights (Note 21) Directors' remuneration (Note 38) Rental of buildings Company 2018 2017 RM'000 RM'000 490 5 9,159 667 5 518 410 5 5,781 574 5 518 1,312 308 101 8,957 - 8,957 8,615 11,008 1,804 8,225 11,383 161 3,296 8,516 10,841 161 2,576 5,987 1,731 1,399 1,768 10,823 2,576 6,886 37. Personnel expenses Group 2018 2017 RM'000 RM'000 Wages and salaries Social security costs Pension costs - Employees Provident Fund Other staff related expenses Directors fees Shariah Committee remuneration Company 2018 2017 RM'000 RM'000 171,582 1,377 28,077 22,495 3,759 416 128,211 990 20,701 11,746 2,707 235 31,959 290 5,348 5,101 1,619 122 124,564 952 20,390 11,350 2,707 235 227,706 164,590 44,439 160,198 38. Directors' remuneration Group 2018 2017 RM'000 RM'000 Directors of the Company Non-Executive: Fees Other emoluments Company 2018 2017 RM'000 RM'000 1,876 1,420 1,363 1,213 841 558 1,363 1,213 3,296 2,576 1,399 2,576
  181. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 179 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 179 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 38. Directors' remuneration (cont'd.) The number of directors of the Group and the Company whose total remuneration during the financial year fell within the following bands are analysed below: Group 2018 Non-executive directors: RM1,000 - RM50,000 RM50,001 - RM100,000 RM100,001 - RM150,000 RM150,001 - RM200,000 RM200,001 - RM250,000 RM250,001 - RM300,000 RM300,001 - RM350,000 RM350,001 - RM400,000 RM400,001 - RM450,000 RM450,001 - RM500,000 7 1 1 3 2 2 2 Number of Directors Company 2017 2018 2017 1 3 3 2 1 1 - 6 1 2 1 1 - 1 3 3 2 1 1 - Details of the directors' remuneration of each director during the financial year ended 31 December 2018 are as follows: Group 31 December 2018 Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Tan Sri Abdul Halim bin Ali Datuk Shahril Ridza bin Ridzuan Datuk Syed Zaid bin Syed Jaffar Albar Dato' Jasmy bin Ismail Encik Aw Hong Boo Encik Lim Tian Huat Ir. Moslim Othman Encik Sazaliza Zainuddin Datuk Johar bin Che Mat Puan Lynette Yeow Su Yin Tunku Alina binti Raja Muhd Alias Datuk Azrulnizam bin Abdul Aziz Dr. Loh Leong Hua Dato' Dr. Md Khir bin Abdul Rahman Dato' Dr. Vaseehar Hassan bin Abdul Razack Encik Abdul Rahim bin Abdul Hamid Dr. Saleh Jameel Malaikah Encik Zakir Hussain Rizvi Director Fees RM'000 273 70* 19 28 179 174 163 130* 168 278 154 122 92 10 6 6 2 2 1,876 Allowance RM'000 Total RM'000 226 37 13 22 158 88 84 101 136 195 130 111 79 15 10 9 6 - 499 107 32 50 337 262 247 231 304 473 284 233 171 25 16 15 8 2 1,420 3,296
  182. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 180 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 180 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 38. Directors' remuneration (cont'd.) Details of the directors' remuneration of each director during the financial year ended 31 December 2018 are as follows (cont’d.): Company 31 December 2018 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. * Director Fees RM'000 Allowance RM'000 Total RM'000 145 70* 19 28 28 174 163 20* 20 154 20 169 37 13 22 20 88 84 14 16 81 14 314 107 32 50 48 262 247 34 36 235 34 841 558 1,399 Director Fees RM'000 Allowance RM'000 Total RM'000 170 125* 125 165 165 165 120 100* 95 95 38 232 114 92 139 125 135 112 65 90 87 22 402 239 217 304 290 300 232 165 185 182 60 1,363 1,213 2,576 Tan Sri Abdul Halim bin Ali Datuk Shahril Ridza bin Ridzuan Datuk Syed Zaid bin Syed Jaffar Albar Dato' Jasmy bin Ismail Encik Aw Hong Boo Encik Lim Tian Huat Ir. Moslim Othman Encik Sazaliza Zainuddin Datuk Johar bin Che Mat Puan Lynette Yeow Su Yin Tunku Alina binti Raja Muhd Alias 50% of the directors' fees are paid to the organisation to whom the director represents. Group and Company 31 December 2017 Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. * Tan Sri Abdul Halim bin Ali Datuk Shahril Ridza bin Ridzuan Datuk Syed Zaid bin Syed Jaffar Albar Dato' Jasmy bin Ismail Encik Aw Hong Boo Encik Lim Tian Huat Ir. Moslim Othman Encik Sazaliza Zainuddin Datuk Johar bin Che Mat Puan Lynette Yeow Su Yin Tunku Alina binti Raja Muhd Alias 50% of the directors' fees are paid to the organisation to whom the director represents.
  183. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 181 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 181 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 39. Impairment allowance 2018 Stage 1 RM'000 Financial investments at amortised cost Loans, financing and advances (Note 10(ix)) Financial investments held-for-sale Trade receivables (Note 12) Other receivables Other payables Financing commitments and financial guarantees (Note 26) Impaired financing and advances: - Write off - Recovered 2017 Allowance for impairment on loans and financing (Note 10(ix)): - Individual assessment - Collective assesment Group Stage 2 Stage 3 RM'000 RM'000 Total RM'000 6 (167,780) 694 (50,413) (160,399) 1,206 (49,786) 500,261 (6,259) (8) 45,944 1,570 (2,006) 6 172,082 (4,359) (8) 45,944 1,570 (102,205) (217,493) (208,979) 539,502 113,030 - - 32,946 (30,109) 32,946 (30,109) - - 2,837 2,837 (217,493) (208,979) 542,339 115,867 Group RM'000 20,400 558,321 Allowance for impairment on other assets: - Trade receivables (Note 12) - Other receivables 8 42,597 Impaired financing and advances: - Write off - Recovered 44,667 (24,777) 641,216
  184. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 182 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 182 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 39. Impairment allowance (cont’d.) 2018 Stage 1 RM'000 Loans, financing and advances (Note 10(ix)) Financial assets held-for-sale Other receivables Other payables Financing to subsidiaries Amount due from subsidiaries (Note 13) Financing commitments and financial guarantees (Note 26) Impaired financing and advances: - Write off - Recovered 2017 Allowance for impairment on loans and financing (Note 10(ix)): - Individual assessment - Collective assesment Company Stage 2 Stage 3 RM'000 RM'000 Total RM'000 (5,695) 28 (28,533) (164,027) 1,618 (50,375) 189,308 10,062 50,077 1,570 4,588 8,222 (5,086) 19,586 11,708 50,077 1,570 4,588 8,222 (83,994) (34,200) (212,784) 258,741 11,757 - - 26,495 (26,914) 26,495 (26,914) - - (419) (419) (34,200) (212,784) 258,322 11,338 Company RM'000 20,400 558,321 Allowance for impairment on other assets: - Financing to subsidiaries (Note 13) - Amount due from subsidiaries (Note 13) - Other receivables - Investments in subsidiaries (Note 15) 34,420 4,686 652 2 Impaired financing and advances: - Write off - Recovered 44,667 (17,006) 646,142
  185. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 183 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 183 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 40. Taxation Group 2018 2017 RM'000 RM'000 Malaysian income tax: Current income tax Over provision in prior years Deferred tax (Note 22): Under provision in prior years Relating to origination and reversal of temporary differences Total income tax expense for the year Company 2018 2017 RM'000 RM'000 156,209 (2,330) 128,222 (3,969) 72,509 (2,502) 122,211 (3,948) 153,879 124,253 70,007 118,263 2,092 42,202 4,690 (7,208) 2,090 3,410 4,690 (7,167) 44,294 (2,518) 5,500 (2,477) 198,173 121,735 75,507 115,786 Domestic income tax is calculated at the Malaysian statutory tax rate of 24% (2017: 24%) of the estimated assessable profit for the year. A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows: Group 2018 RM'000 2017 RM'000 Profit before taxation and zakat 853,573 550,732 Taxation at Malaysian statutory tax rate of 24% (2017: 24%) Effect of income not subject to tax Effect of expenses not deductible for tax purposes Effect of utilisation of previously unrecognised tax losses and unabsorbed capital allowances Deferred tax assets not recognised Over provision of income tax in prior years Under provision of deferred tax in prior years Reversal of deferred tax liabilities 204,858 (47,881) 39,851 132,176 (55,139) 49,616 1,657 (2,330) 2,092 (74) (54) (5,585) (3,969) 4,690 - Tax expense for the year 198,173 121,735
  186. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 184 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 184 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 40. Taxation (cont’d.) Company 2018 RM'000 2017 RM'000 Profit before taxation and zakat 275,902 431,925 Taxation at Malaysian statutory tax rate of 24% (2017: 24%) Effect of income not subject to tax Effect of expenses not deductible for tax purposes Deferred tax assets not recognised Over provision of income tax in prior years Under provision of deferred tax in prior years 66,216 671 8,898 134 (2,502) 2,090 103,662 22 11,225 135 (3,948) 4,690 Tax expense for the year 75,507 115,786 41. Earnings per share (a) Basic Basic earnings per share is calculated by dividing the net profit for the year by the weighted average number of ordinary shares in issue during the financial year. Net profit for the year (RM'000) Weighted average number of ordinary shares in issue ('000) Basic earnings per share (sen) 2018 2017 642,400 6,226,017 10.32 417,126 5,872,769 7.10 (b) Diluted For the purpose of calculating diluted earnings per share, the net profit for the year and the weighted average number of ordinary shares in issue during the financial year have been adjusted for the dilutive effects of all potential ordinary shares, i.e. ESOS 2018 2017 642,400 417,126 Weighted average number of ordinary shares in issue ('000) Adjusted for assumed conversion of ESOS ('000) 6,226,017 - 5,872,769 308 Adjusted weighted average number of ordinary shares in issue ('000) 6,226,017 5,873,077 10.32 7.10 Net profit for the year (RM'000) Diluted earning per share (sen)
  187. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 185 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 185 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 42. Dividends Group and Company 2018 2017 RM'000 RM'000 Recognised during the financial year: Final dividend on ordinary shares: In respect of financial year ended 31 December 2017/2016: - Single-tier final dividend of 5.0 sen per share - Single-tier final dividend of 3.0 sen per share 307,497 - 173,963 307,497 173,963 319,455 - 296,221 319,455 296,221 Final dividend on ordinary shares: In respect of financial year ended 31 December 2018/2017: - Single-tier final dividend of 5.0 sen per share - Single-tier final dividend of 5.0 sen per share On 8 April 2019, the Company announced the proposed single-tier final dividend of 5.0 sen net per ordinary share in respect of the financial year ended 31 December 2018. Based on the number of shares in issue of 6,389,101,298 ordinary shares as at 31 December 2018, the dividend payable would be RM319,455,065. The financial statements for the current financial year do not reflect the proposed final dividend. Such dividend, if approved by the shareholders in the forthcoming Annual General Meeting, will be accounted for in equity as an appropriation of retained profits in the financial year ending 31 December 2019. MBSB Dividend Reinvestment Plan On 10 December 2013, the shareholders of the Company approved the Dividend Reinvestment Plan (“DRP”) to enable the Company’s efforts to enhance and maximise shareholders’ value. The DRP is part of the Company’s capital management plan in retaining capital for future expansion of the business. It should be noted that the Company is not obliged to undertake the DRP and provide the option to reinvest for every dividend declared. The Board of Directors has determined that the option to reinvest via the Dividend Reinvestment Plan ("DRP") shall apply to the entire portion of the proposed single-tier final dividend of 5.0% for the financial year ended 31 December 2017. The DRP provides shareholders with the opportunity to reinvest their dividends in new MBSB shares in lieu of receiving cash. This provides greater flexibility for the shareholders in meeting their investment objective with the choice of receiving cash or reinvesting in the Company via the subscription of new additional MBSB shares.
  188. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 186 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 186 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 42. Dividends (cont’d.) MBSB Dividend Reinvestment Plan (cont’d.) Under the DRP, shareholders will have the following options in respect of the electable portion: (a) elect to exercise the option to reinvest and thereby reinvest the entire electable portion (or a part thereof) at the issue price of the new MBSB shares ("DRP Price") and to receive cash for the remaining portion of the dividend (in the event that only part of the electable portion is reinvested); or (b) elect not to exercise the option to reinvest and thereby receive their entire dividend entitlement wholly in cash. There will be no brokerage fees and other related transaction costs payable by shareholders on the new MBSB shares allotted pursuant to the DRP. The DRP Price shall be at a discount of not more than ten percent (10%) of the five (5)-day volume weighted average market price (“VWAP”) of MBSB Shares immediately prior to the date of fixing of the DRP Price provided that the DRP Price shall not be less than the par value of MBSB Shares of RM1.00 each at the material time. The VWAP shall be adjusted ex-dividend before applying the discount in fixing the DRP Price. The DRP Price shall be announced on or before the announcement of the books closure date (“Books Closure Date”) in relation to the above proposed single-tier dividend of 4.0% to which the option to reinvest applies. An approval for the listing of and quotation for the new MBSB Shares on the Main Market of Bursa Securities pursuant to the DRP will be obtained from Bursa Securities and the announcement on the Books Closure Date will be made after receipt of the said approval from Bursa Securities and such approval from other relevant authorities (if any). Subsequent to the Books Closure Date, a notice of election pursuant to the DRP (“Notice of Election”) will be dispatched to shareholders. Instructions will be provided in the Notice of Election in respect of the action to be taken by shareholders should they wish to exercise the option to reinvest. The Notice of Election will also state, inter-alia, the last day (which will be a date to be fixed and announced by the Board) by which an election to be made by shareholders in relation to the electable portion must be received by the Company (“Expiry Date”). An announcement will also be made in respect of the day on which the new MBSB shares will be listed and quoted on the Main Market of Bursa Securities.
  189. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 187 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 187 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 43. Capital adequacy Group 2018 RM'000 Company 2018 RM'000 6,682,102 1,086,629 16,873 - 6,682,102 359,234 6,261 - 7,785,604 7,047,597 (188,790) (8,134) (104,723) (15,687) - 7,483,957 7,031,910 - - 7,483,957 7,031,910 Impairment allowance Regulatory reserve 415,057 - 87,137 - Total Tier II capital 415,057 87,137 Total capital base 7,899,014 7,119,047 Common Equity Tier 1 Capital Ordinary share capital Retained earnings Other reserve Regulatory reserve Less : Common Equity Tier 1 regulatory adjustments Goodwill Deferred tax assets Cumulative gains of Investment securities at FVOCI/AFS financial instruments Regulatory reserve attributable to financing Other intangible assets Total Common Equity Tier 1 Capital Tier 1 Capital Additional Tier 1 capital instruments Less: Tier 1 regulatory adjustments Total Tier 1 capital Tier II Capital
  190. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 188 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 188 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 43. Capital adequacy (cont'd.) Breakdown of risk weighted assets in various categories of risk weights are as follows: Group 2018 RM'000 Company 2018 RM'000 Total risk weighted assets ("RWA") - Credit risk - Market risk - Operational risk 33,204,567 2,136 2,268,538 6,970,930 1,649,011 Total RWA 35,475,241 8,619,941 21.096% 21.096% 22.266% 81.577% 81.577% 82.588% Capital ratios Common equity tier 1 capital Tier 1 capital Total capital ratio The capital ratios after the proposed single-tier final dividend of 5.0% of total number of shares in respect of financial year ended 31 December 2018 are as follows: Capital ratios (after proposed dividend) CET I capital Tier I capital Total capital ratio 20.196% 20.196% 21.366% 77.871% 77.871% 78.882% The capital adequacy ratios have been computed in accordance with BNM’s Capital Adequacy Framework (Capital Components and Basel II – Risk Weighted Assets) since 7 February 2018 upon completion of the acquisition of the Banking subsidiary as disclosed in Notes 1 and 53. The total risk weighted assets are computed based on Standardised Approach for Credit and Market Risk and Basic Indicator Approach for Operational Risk.
  191. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 189 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 189 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 44. Significant related party transactions/balances (a) Transactions and balances with government-related entities are as follows: EPF, the ultimate holding body, is a shareholder with control over the Group, with direct shareholdings of 63.77% (2017: 65.56%) as at 31 December 2018. EPF is also a government-linked entity. EPF and entities directly controlled by EPF are collectively referred to as government-related entities to the Group. All the transactions entered into by the Group with government-related entities are conducted in the ordinary course of the Group's business on terms comparable to those with other entities that are not government-related. (i) Individually significant transactions and balances with EPF are as follows: Group 2018 2017 RM'000 RM'000 Expenses Profit expense paid on Sukuk to EPF Profit expense paid on fixed deposit to EPF Rental expense Balances Sukuk MBSB-SC Murabahah Accrued profit on sukuk due to EPF Fixed deposit by EPF Accrued profit on fixed deposit due to EPF Rental deposit (Note 13) Company 2018 2017 RM'000 RM'000 56,730 3,847 288 57,477 286 14,110 72 57,477 286 1,121,242 7,824 900,000 1,025 97 1,126,387 97 97 1,126,387 97 (ii) Individually significant balances with the RHB Banking Group of companies, comprising RHB Bank Berhad and RHB Islamic Bank Berhad, being companies directly controlled by EPF, are as follows: Group 2018 2017 RM'000 RM'000 Income Interest/profit from deposit placements Expenses Interest expense to depositors Interest expenses for bank borrowing Interest expenses for recourse obligation on loans/financing sold Balances Cash and short-term funds Deposits and placements with financial institutions Deposits from customers Company 2018 2017 RM'000 RM'000 24,919 35,530 1,742 10,482 (2,478) - 2,097 240 - 2,097 240 - 20,744 - 20,744 19,215 32 - 749,944 7,377 - 50,274 7,377
  192. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 190 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 190 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 44. Significant related party transactions/balances (cont’d.) (a) Transactions and balances with government-related entities are as follows (cont’d.): (iii) Collectively, but not individually, significant balances: The Group and the Company have balances with other government-related entities including but not limited to provision of loans, financing and advances, deposits placements and borrowings. For the financial year ended 31 December 2018, the aggregate amount of the Group and Company's significant balances with other government-related entities other than the RHB Banking Group of companies are as disclosed below: Group 2018 2017 RM'000 RM'000 Income/(expenses) Profit from financing Profit/interest to depositors Balances Financing Deposits from customers Company 2018 2017 RM'000 RM'000 24,656 (8,406) 34,791 (1,682) 34,791 303,695 154,019 868,544 - 868,544 (b) Transactions and balances with subsidiaries of the Company are as follows: Company 2018 2017 RM'000 RM'000 Income/(expenses) Profit/interest charged on loans, advances and financing Rental paid 68,863 (225) 63,189 (899) Balances Financing to related companies Amount due from subsidiaries Amount due to subsidiaries Amount due to a subsidiary, Jana Kapital Sdn. Bhd. ("JKSB") 58,152 - 546,633 68,919 13,187 2,891,912 The directors are of the opinion that all the transactions and balances above have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties.
  193. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 191 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 191 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 44. Significant related party transactions/balances (cont’d.) (c) The remuneration of directors and other members of key management during the year is as follows: Group 2018 2017 RM'000 RM'000 Short-term employee benefits Pension costs: EPF Company 2018 2017 RM'000 RM'000 9,457 933 6,982 719 5,267 617 6,982 719 10,390 7,701 5,884 7,701 Included in the total key management personnel are: Group 2018 2017 RM'000 RM'000 Directors' remuneration comprising fees and allowances (Note 38) Chief Executive Officer's remuneration comprising salary, bonus, allowances and other emoluments Company 2018 2017 RM'000 RM'000 3,296 2,576 1,399 2,576 5,176 3,553 3,434 3,553 (d) Transactions and balances with directors and key management: Group 2018 2017 RM'000 RM'000 Expense Interest cost incurred on savings and deposits Balance Amount due to in respect of savings and deposits Company 2018 2017 RM'000 RM'000 (78) (55) (1) (55) 2,851 1,381 - 1,381 Directors and other members of key management of the Group and the Company have been granted the following number of options under the Employee Share Option Scheme: Group 2018 '000 At 1 January/ 31 December 813 2017 '000 813 Company 2018 2017 '000 '000 813 813 The share options were granted on the same terms and conditions as those offered to other employees of the Group.
  194. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 192 192 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 45. Credit exposures arising from transactions with connected parties Group 2018 RM'000 Outstanding credit exposures with connected parties 884,899 Percentage of outstanding credit exposures to connected parties as proportion of total credit exposures 2.11% Percentage of outstanding credit exposures to connected parties which is non-performing or in default 0.79% Company 2018 RM'000 Outstanding credit exposures with connected parties 61,523 Percentage of outstanding credit exposures to connected parties as proportion of total credit exposures 2.84% Percentage of outstanding credit exposures to connected parties which is non-performing or in default 2.80% The credit exposures above are derived based on Bank Negara Malaysia's revised Guidelines on Credit Transactions and Exposures with Connected Parties for Islamic Banks, which are effective on 1 January 2008.
  195. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 193 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 193 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 46. Commitments and contingencies Group 2018 2017 RM'000 RM'000 (i) Operational Commitments Loan and financing commitments not yet recognised in the financial statements: End financing Islamic properties Islamic personal Bridging, structured and term loans and financing Forward forex Financial guarantees Performance guarantees Approved and contracted for property development 27,471 199,420 6 5,430,938 5,842 314,193 138,852 49,857 153,279 1,329 6,405,576 650,291 93,441 27,471 7,832 2,939 49,857 153,279 1,329 6,405,576 650,291 93,441 6,116,722 7,353,773 38,242 7,353,773 421,528 421,528 1,667 1,667 421,528 421,528 1,667 1,667 6,538,250 7,775,301 39,909 7,355,440 Group 2018 2017 RM'000 RM'000 (ii) Capital Commitments Property and equipment: Approved and contracted for Approved but not contracted for Company 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 60,203 - 132,043 - - 20,186 60,203 132,043 - 20,186
  196. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 194 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 194 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 46. Commitments and contingencies (cont’d.) (iii) Lease Commitments The Group and the Company have entered into operating lease agreements for the use of certain office premises. These non-cancellable leases have an average life of between 1 to 5 years with certain contracts carrying renewal options in the contracts. Operating lease payments represent rental payables by the Group for use of building. Leases have an average life of 3 years with no renewal or purchase option included in the contracts. The future aggregate minimum lease payments under operating leases contracted for as at the reporting date but not recognised as liabilities, are as follows: Group 2018 2017 RM'000 RM'000 Future minimum rental payments: Not later than 1 year Later than 1 year but less than 5 years Later than 5 years Company 2018 2017 RM'000 RM'000 7,071 3,422 - 5,216 1,389 - - 6,114 4,982 4,491 10,493 6,605 - 15,587 The financial guarantees are secured by way of fixed charge over the borrowers' development project land or debenture created over the fixed and floating charge over the specific or entire assets of the borrower. 47. Contingent liabilities (Unsecured) (i) KCSB Konsortium Sdn Bhd and Kausar Corporation Sdn Bhd (collectively referred to as “the Plaintiffs/the Appellant”) have instituted a civil suit against the Company and its subsidiary for an alleged breach of facility agreement. The High Court dismissed the Plaintiffs’ claim with costs and allowed the Company’s counterclaim. The Plaintiffs appealed to the Court of Appeal who on 1 November 2016, allowed the appeal with no order as to costs and sent the case back to the High Court for retrial before a different Judge on the Ground that the Judgment were wholly inadequate as they could not be certain as to the basis on which the decision was reached. The High Court fixed the matter for full trial on 11, 12 and 15 September 2017. The parties filed Striking-Out Applications on 18 July 2017. On 8 September 2017, the Court found that both claims were time barred and struck out both the claims. Both parties have appealed to the Court of Appeal and the matter was subsequently heard on 28 August 2018. The Court of Appeal dismissed both appeals and directed the matter to be fixed for trial before a different judge. The Court fixed case management on 22 April 2019 as the court needed time to reconstruct and arrange the documents for the matter. The directors after obtaining advice from the Company’s solicitors are of the opinion that the Company has a reasonably fair chance in respect of the civil suit against the Company and its subsidiary.
  197. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 195 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 195 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 47. Contingent liabilities (Unsecured) (cont'd.) (ii) 88 Legacy Sdn Bhd (represented by) Malaysia Building Society Berhad v Pentadbir Tanah Daerah Klang State Authority had acquired three (3) pieces of land held under Lot 31632 PM 416, Lot 31633 PM 417 and Lot 31634 PM 418 owned by 88 Legacy Sdn Bhd (represented by) Malaysia Building Society Berhad. This matter has been referred to the court on the basis that the compensation amount awarded by Jabatan Ketua Pengarah Tanah dan Galian ("JKPTG") was insufficient in comparison to the valuation report provided by panel valuer. Pentadbir Tanah Klang had referred the matter with respect to Lot 31632 PM 416 to the High Court of Shah Alam on 14 November 2018 and the case management was fixed on 14 December 2018. The Court fixed the next case management on 29 January 2019 to deliberate on the status of the other two Lots i.e. Lot 31633 PM 417 and Lot 31634 PM 418 which were jointly heard at JKPTG but has yet to be referred to the court. The Company's solicitors have applied to the Court to consolidate all three (3) matters in order to be heard together. The matter has been fixed for case management on 29 April 2019 for the Company’s solicitors to file consolidation application and valuation report for all 3 cases. 48. Financial risk management The Group has exposure to one or more of the following risks: (i) Market risk Arising from fluctuations in the market value of the trading; or investment exposure arising from changes to market risk factors such as profit rates, currency exchange rates, credit spreads, commodities prices and their associated volatility; (ii) Credit risk Arising from the possibility of losses due to an obligor or, market counterparty or issuer of securities or other instruments held, having failed to perform its contractual obligations to the Group; (iii) Liquidity risk Arising from a Group’s ability to efficiently meet its present and future funding needs or regulatory obligations, when they come due, which may adversely affect is daily operations and incur unacceptable losses; (iv) Operational risk Arising from risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events; (v) Profit rate/rate of return risk in the banking book Current and potential risk to the Group’s earning and economic value arising from movement in the profit rates/rate of return (vi) Capital risk Arising from the failure to meet the minimum regulatory and internal requirements; and (vii) Shariah Non Compliance risk Arising from possible failure to comply with the Shariah requirements as determined by Shariah Advisory Council ("SAC") of Bank Negara Malaysia ("BNM") and Securities Commission ("SC"), the Shariah Committee and other Shariah regulatory authorities.
  198. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 196 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 196 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) (a) Financial risk management objectives and policies Risk management forms an integral part of the Group and the Company's activities and remains an important feature in all its business, operations, delivery channels and decision-making processes. The extent to which the Group and the Company are able to identify, assess, monitor, manage and report each of the various types of risk is critical to its strength, soundness and profitability. The Group’s and the Company's risk management function is independent of its operating units. All new businesses, introduction of new products, engagement in new activities or entrance into new strategic alliances are subject to endorsement by the Risk Management Division and submitted to the Audit Committee (“AC”), Risk Management Committee ("RMC") and/or Board of Directors for approvals. In essence, the objectives of the Group and the Company's risk management activities are to: (i) Identify and monitor the various risk exposures and risk requirements; (ii) Ensure risk taking activities are consistent with the approved policies and the aggregated risk positions are within the risk appetite as approved by the Board; and (iii) Help create shareholder value through proper allocation of risk and the facilitation of independent risk assessments of new business and products. (b) Risk management framework The Group and the Company employ an Enterprise-wide Risk Management framework to manage its risks effectively. The framework involves an on-going process of identifying, evaluating, monitoring, managing and reporting significant risks affecting the Group and the Company which is implemented through a number of committees established by the Board of Directors. This framework provides the Board and the management with a tool to anticipate and manage both existing and potential risks, taking into consideration dynamic risk profiles as dictated by changes in business strategies, regulatory environment and functional activities throughout the year. Key features of the Risk Management Framework include: (i) Governance and Organisation A strong governance structure is important to ensure an effective and consistent implementation of the risk management framework. The Board is ultimately responsible for the Group’s strategic directions, which is supported by the risk appetite and risk management frameworks, policies and procedures. The Board is assisted by various risk committees and control functions in ensuring that the Group’s risk management framework is effectively maintained. (ii) Internal Capital Adequacy Assessment Process (ICAAP) The Group’s ICAAP framework ensures that all material risks are identified, measured and reported; and that adequate capital levels consistent with the risk profiles, including capital buffers, are maintained to support the current and projected demand for capital, under existing and stressed conditions. For non-measurable risks, relevant framework and control mechanisms are implemented to mitigate and manage the same.
  199. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 197 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 197 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) (iii) Risk Appetite It is defined as the amount and types of risk that the Group is able and willing to accept in pursuit of its strategic and business objectives. The development of the risk appetite is integrated into the annual strategic planning process and is adaptable to changing business and market conditions. As the risk appetite is dynamic, the Board sets the risk appetite based on the business and financial targets, while incorporating macroeconomic and global outlook. The Board also considers the actual and targeted risk profile of the Group proposed by senior management and business units when setting the risk appetite. The risk appetite is also being reviewed annually or as and when required. (iv) Risk Management Process • • • • • Business Planning: Risk Management Division is an element of the business planning process, which encompasses setting frameworks for risk appetite, risk structure and new product or new business activities. Risk Identification: Risks are systematically identified through the robust application of the Group’s Risk Management Framework, policies and procedures. Measure and Assess: Risks are measured and aggregated using the Group-wide methodologies across each of the risk types, including stress testing. Manage and Controls: Control and limits are used to manage risk exposures within the risk appetite set by the Board. Controls and limits are regularly monitored and reviewed in the face of evolving business needs, market conditions and regulatory changes. Corrective actions are taken to mitigate risks. Monitor and Report: Risks on an individual as well as a portfolio basis are regularly monitored and reported to ensure they remain within the Group’s risk appetite. (v) Risk Management Infrastructure • • • Risk Policies, Procedures and Methodologies: Well-defined risk policies by risk type provide the principles by which the Group manages its risks. Procedures provide guidance for day-to-day risk-taking activities. Methodologies provide specific requirements, rules or criteria that must be met to comply with the policy. People: Attracting the right talent and skills are the key to ensuring a well-functioning risk management framework. The organization continuously evolves and proactively responds to the increasing complexity of the Group as well as the economic and regulatory environment. Technology and Data: Appropriate technology and sound data management are enablers to support risk management activities. (vi) Risk Culture The Group embraces risk management as an integral part of its culture and decision- making processes. The Group’s risk management philosophy is embodied in the Three Lines of Defense approach, whereby risks are managed at the point of a risk-taking activity. There is clear accountability of risk ownership across the Group. Guided by the said principle, the Group has launched a Risk Awareness Culture which comprises training, awareness campaigns and roadshows within the Group to promote a healthy risk culture. A strong risk culture minimizes the Group’s exposure to financial and non- financial risks including reputational impact, over time. In addition, the Group has implemented the Regional Compliance and Risk Officers (“RCRO”) and Designated Compliance and Risk Officers (“DCORO”) to cultivate proactive risk and compliance management and to establish a robust risk culture. The DCOROs are appointed at the respective branches, business and functional units across the Group to provide real time advisory on risk and compliance matters.
  200. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 198 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 198 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) (c) Risk organisation At the apex of the Group and the Company's risk management structure is the Board of Directors, which comprises non-executive directors of the Group and the Company. In line with best practices, the Board determines the risk policy objectives for the Group and the Company, and assumes responsibility for the supervision of risk management. The day-to-day responsibility for risk management and control is delegated to the RMC which undertakes the oversight function for overall risk limits and ensures that the Group and the Company are within risk appetites as established by the Board. Other than the RMC, the Board is also supported by specialised and supervisory committees, the details of which are as follows: (i) Asset and Liability Committee ("ALCO"): The ALCO is responsible for the Group’s and the Company's liquidity management by focusing on the maturity gap, liquidity position, loans portfolio concentration, deposits composition and depositors’ concentration. The ALCO also manages the interest rate exposures and interest margin of the Group and the Company by reviewing the lending rates, cost of funds, interest margin and the repricing gaps. (ii) Credit and Rehabilitation Assessment Committee ("CARAC"): CARAC deliberates and approves decisions on the remaining conventional corporate and retail financing, within the authority limit delegated by MBSB's Board. Where the proposals of the existing corporate and retail financing are not within CARAC's authority limit, it would recommend the proposals to MBSB Board for approval. No new financings are being carried out at MBSB as all new financings are being undertaken by the Bank. (iii) Management Committee ("MANCO"): The MANCO deliberates the implementation of the enterprise-wide risk management framework which addresses credit, market and operational and strategic risks and also resolves operational issues within the policies established by the Board and recommends policy changes to the Board. The Group’s risk management approach is based on the ‘Three Lines of Defence’ concept. 1st line of defence - the risk owner or risk taking unit ie Business or Support unit is accountable for putting in place a robust control environment within their respective units. They are responsible for the day to day management of operational risk. 2nd line of defence - Risk Management Division is responsible for establishing and maintaining the Risk Management Framework, developing various risk management tools to facilitate the management of operational risk, monitoring the effectiveness of risk management, assessing operational risk issues from the risk owner and escalating the issues to the relevant governance level with recommendations on appropriate risk mitigation strategies. In creating a strong risk culture, Risk Management Division is also responsible to promote risk awareness across the Group and the Company. Compliance Division is responsible for ensuring effective oversight on compliance-related risks such as regulatory compliance risk,compliance risk as well as money laundering and terrorism financing risks through proper classification of risks and developing, reviewing and enhancing compliance-related training programme as well as conducting training that promotes awareness creation. 3rd line of defence - Internal Audit provides independent assurance to the Board and senior management on the effectiveness of the risk management process.
  201. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 199 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 199 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) (d) Risk reporting and monitoring The Group and the Company's credit portfolios are monitored through early alert reporting to ensure credit deterioration is promptly detected and mitigated through the implementation of risk remediation strategies. All business units undertake regular and comprehensive analyses of their credit portfolios and report to the relevant committees and are overseen by the Group Risk Management Division ("GRM"). The GRM provides independent reporting to the business units and the Board to ensure independence in relation to the prompt identification and communication of emerging credit issues of the Group and the Company to the Board. (e) Credit risk mitigation All credit facilities are granted on the credit standing of the borrower, source of repayment, debt servicing ability and the collateral provided. The valuation of the collateral is conducted periodically. The main types of collateral taken by the Group and the Company are marketable securities, real estate, inventory and receivables. Personal guarantees are also taken as a part of the collateral to support moral commitment from the principal shareholders and directors. Corporate guarantees are often obtained when the borrower’s credit worthiness is insufficient to justify the granting of credit facilities. (f) Concentration risk Concentration of credit risk arises when a number of customers are engaged in similar business activities or activities within the same geographic region, or when they have similar risk characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Group and the Company monitor their portfolios to identify and assess risk concentrations. The credit portfolios are monitored and periodically reviewed to identify, assess and guard against unacceptable risk concentrations. The GRM also applies single customer counterparty limits to protect against unacceptably large exposures to single risk. The GRM conducts analyses and reports concentration risk to the Board of Directors on a quarterly basis. Credit risk Credit risk is the risk of loss to the Group and the Company due to the deterioration in credit worthiness of its borrowers and, consequently, their ability to discharge their contractual obligations to the Group and the Company. Credit risk remains the most significant risk to which the Group and the Company are exposed. The purpose of credit risk management is to keep credit risk exposure to an acceptable level in line with the Group’s and the Company's risk appetite and to ensure that the returns are commensurate to the risk underwritten. The primary objective of the Group and the Company's credit platform is to enhance the efficiency and effectiveness of the credit oversight and credit approval processes for all retail and corporate loans. Credit proposals are submitted to the relevant credit committees for approval or concurrence, and are subsequently submitted to the GRM for independent assessment. Credit exposures are evaluated by the GRM and are monitored against approved limits on a periodic basis on a portfolio and individual basis, individually and on a portfolio level. (i) Maximum exposure to credit risk The following analysis represents the Group and the Company's maximum exposure to credit risk on-balance sheet financial assets and off-balance sheet exposure, excluding any collateral held or other credit enhancements. For on-balance sheet financial assets, the exposure to credit risk equals their carrying amount. For off-balance sheet exposure, the maximum exposure to credit risk is the maximum amount that the Group and the Company would have to pay if the obligations of the instruments issued are called upon.
  202. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 200 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 200 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (i) Maximum exposure to credit risk (cont'd.) Group 2018 2017 RM'000 RM'000 Financial Assets: Loans, financing and advances: Without taking collateral into account: End financing and Islamic property Personal financing Bridging, structured and term loans and financing Auto finance Net of Impairment: End finance and Islamic property Personal financing Bridging, structured and term loans and financing Auto finance Deposits and placements with Financial Institutions and Bank Balances: Cash and short-term funds Deposits and placements with financial institutions Company 2018 2017 RM'000 RM'000 5,428,578 20,579,029 8,931,114 233,883 5,238,917 21,417,604 7,260,549 284,109 1,066,790 1,043,821 17,319 5,238,917 21,417,604 7,260,549 284,109 35,172,604 34,201,179 2,127,930 34,201,179 4,633,442 20,194,839 8,140,599 164,239 4,405,641 20,610,480 6,782,192 207,931 700,422 625,527 553 4,405,641 20,610,480 6,782,192 207,931 33,133,119 32,006,244 1,326,502 32,006,244 3,411,986 931,087 7,787,132 747,403 155,077 154,347 7,768,634 51,368 4,343,073 8,534,535 309,424 7,820,002
  203. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 201 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 201 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (i) Maximum exposure to credit risk (cont'd.) Group 2018 2017 RM'000 RM'000 Other Financial Assets: Financing to subsidiaries Financial investments available-for-sale Financial investments at FVOCI Financial investments at amortised cost Trade receivables Other receivables* Statutory deposits with Bank Negara Malaysia Derivative financial assets Sukuk Commodity Murabahah Financial investments held-for-sale Total financial assets Operational Commitments End finance Islamic properties Islamic personal Bridging, structured and term loans and financing Forward forex Financial guarantees Performance guarantees * Company 2018 2017 RM'000 RM'000 5,097,105 20,350 561 127,275 1,053,000 67 - 3,171,913 295 42,060 38,409 36,182 - 305,140 3,171,913 57,843 3,245,851 38,409 6,298,358 3,252,677 36,182 6,819,156 45,814,035 45,988,391 2,473,536 48,840,337 27,471 199,420 6 5,430,938 5,842 314,193 138,852 49,857 153,279 1,329 6,405,576 650,291 93,441 27,471 7,832 2,939 49,857 153,279 1,329 6,405,576 650,291 93,441 6,116,722 7,353,773 38,242 7,353,773 Other receivables exclude foreclosed properties, prepayments and deposits as these items are classified as non-financial assets. The financial effect of collateral (quantification to the extent to which collateral and other credit enhancements mitigate credit risk) held for net loans, financing and advances for the Group is 23.85% (2017: 25.37%) and the Company is at 86.40% (2017: 25.37%). The financial effect of collateral held for the remaining financial assets are not significant.
  204. Other Financial Assets : Derivative financial assets Financial investments at FVOCI Financial investments at amortised cost Trade receivables Other receivables Statutory deposits with Bank Negara Malaysia Deposits with Financial Institutions and Bank Balance: Cash and short-term funds Deposits and placements with financial institutions 3,768 1,053,000 6,294,522 - 4,343,073 493 3,275 - 931,087 67 5,097,105 20,350 124,000 - 8 - 8 - - - - 691,128 30,790,299 1,767,707 3,411,986 132,190 679,851 6,954,666 326,288 199,396 33,254 626,577 418,021 43,258 3,925,706 19,805,346 104,581 Neither Past Due Nor Impaired RM'000 60 - 60 - - - - - - - Past due but not impaired Past Due Past Due Past Due Up To 1 To < 3 3 To < 6 <1 Month Months Months RM'000 RM'000 RM'000 528,006 - 24,834 503,172 - - - 1,923,470 1,164,407 550,007 156,266 52,790 6,826,364 1,053,000 67 5,097,105 20,350 25,395 630,447 4,343,073 931,087 3,411,986 35,172,604 8,931,114 5,428,578 20,579,029 233,883 Total Net RM'000 8,140,599 (528,006) - (24,834) (503,172) - - - 6,298,358 1,053,000 67 5,097,105 20,350 561 127,275 4,343,073 931,087 3,411,986 (2,039,485) 33,133,119 (790,515) (795,136) 4,633,442 (384,190) 20,194,839 (69,644) 164,239 Impairment Impaired Total Gross Allowances RM'000 RM'000 RM'000 2018 202 Financial Assets: Loans, financing and advances: End finance and Islamic property Personal financing Auto finance Bridging, structured and term loans and financing Group The credit quality of financial assets are analysed as follows: (ii) Credit quality Credit risk (cont'd.) 48. Financial risk management (cont'd.) MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 202 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  205. Other Financial Assets : Financial investments available-for-sale Trade receivables Other receivables Financial investments held-for-sale Deposits with Financial Institutions and Bank Balance: Cash and short-term funds Deposits and placements with financial institutions Financial Assets: Loans, financing and advances: End finance and Islamic property Personal financing Auto finance Bridging, structured and term loans and financing Group (ii) Credit quality (cont’d.) Credit risk (cont'd.) 48. Financial risk management (cont'd.) 273 3,250,860 - 8,534,535 132 141 - - 747,403 3,171,913 40,538 38,409 - 140 140 - - - - 606,288 30,974,316 1,047,400 7,787,132 100,106 - 6,492,757 305,148 165,995 35,039 701,324 279,591 66,485 3,841,101 20,500,318 140,140 Neither Past Due Nor Impaired RM'000 23 23 - - - - - - - Past due but not impaired Past Due Past Due Past Due Up To 1 To < 3 3 To < 6 <1 Month Months Months RM'000 RM'000 RM'000 481,828 24,817 457,011 - - - - 1,573,175 667,686 391,344 471,700 42,445 3,733,124 3,171,913 25,112 497,690 38,409 8,534,535 747,403 7,787,132 34,201,179 7,260,549 5,238,917 21,417,604 284,109 Total Net RM'000 6,782,192 (481,828) (24,817) (457,011) - - - - 3,251,296 3,171,913 295 40,679 38,409 8,534,535 747,403 7,787,132 (2,194,935) 32,006,244 (478,357) (833,276) 4,405,641 (807,124) 20,610,480 (76,178) 207,931 Impairment Impaired Total Gross Allowances RM'000 RM'000 RM'000 2017 MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 203 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 203 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  206. Other Financial Assets : Other receivables - 36,182 - 309,424 36,182 - 154,347 280,767 581,250 - 89,912 156,092 155,077 190,662 193 424,969 189 Neither Past Due Nor Impaired RM'000 - - - - - 134,736 1,295 133,116 325 - - - - - - - - Past due but not impaired Past Due Past Due Past Due Up To 1 To < 3 3 To < 6 <1 Month Months Months RM'000 RM'000 RM'000 94,939 94,939 - - - 1,131,177 796,522 318,043 16,612 131,121 131,121 309,424 154,347 155,077 2,127,930 1,043,821 1,066,790 17,319 (94,939) (94,939) - - - (801,428) (418,294) (366,368) (16,766) Impairment Impaired Total Gross Allowances RM'000 RM'000 RM'000 2018 36,182 36,182 309,424 154,347 155,077 1,326,502 625,527 700,422 553 Total Net RM'000 204 Deposits with Financial Institutions and Bank Balance: Cash and short-term funds Deposits and placements with financial institutions Financial Assets: Loans, financing and advances: End finance Auto finance Bridging, structured and term loans and financing Company (ii) Credit quality (cont’d.) Credit risk (cont'd.) 48. Financial risk management (cont'd.) MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 204 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  207. Other Financial Assets : Loans to subsidiaries Financial investments available-for-sale Other receivables Sukuk Commodity Murabahah Financial investments held-for-sale Deposits with Financial Institutions and Bank Balance: Cash and short-term funds Deposits and placements with financial institutions Financial Assets: Loans, financing and advances: End finance and Islamic property Personal financing Auto finance Bridging, structured and term loans and financing Company (ii) Credit quality (cont’d.) Credit risk (cont'd.) 48. Financial risk management (cont'd.) - 6,749,959 - 7,820,002 - - 51,368 235,943 3,171,913 57,843 3,245,851 38,409 - - - - - - 606,288 30,974,316 1,047,400 7,768,634 100,106 - 6,492,757 305,148 165,995 35,039 701,324 279,591 66,485 3,841,101 20,500,318 140,140 Neither Past Due Nor Impaired RM'000 - - - - - - - - Past due but not impaired Past Due Past Due Past Due Up To 1 To < 3 3 To < 6 <1 Month Months Months RM'000 RM'000 RM'000 337,129 250,396 86,733 - - - - 1,573,175 667,686 391,344 471,700 42,445 7,087,088 486,339 3,171,913 144,576 3,245,851 38,409 7,820,002 51,368 7,768,634 34,201,179 7,260,549 5,238,917 21,417,604 284,109 Total Net RM'000 6,782,192 (267,932) (181,199) (86,733) - - - - 6,819,156 305,140 3,171,913 57,843 3,245,851 38,409 7,820,002 51,368 7,768,634 (2,194,935) 32,006,244 (478,357) (833,276) 4,405,641 (807,124) 20,610,480 (76,178) 207,931 Impairment Impaired Total Gross Allowances RM'000 RM'000 RM'000 2017 MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 205 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 205 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  208. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 206 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 206 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (ii) Credit quality (cont'd.) Neither Past Due Nor Impaired (a) High Grade This refers to cash at banks and short-term deposits with banks and other financial institutions. (b) Standard Grade This refers to financial assets in respect of loans, financing and advances and financial investments at fair value through other comprehensive income which have been disbursed in previous years and are neither past due nor impaired. Standard Grade financial assets also include other financial assets that are neither past due nor impaired. (c) New Loans During The Year This refers to financial assets in respect of loans, financing and advances which were disbursed during the year and are neither past due nor impaired. Credit quality of financial assets that are neither past due nor impaired by credit quality is as follows: Group High Grade RM'000 2018 New Loans Standard During The Grade Year RM'000 RM'000 Total RM'000 Financial Assets: Loans, financing and advances: End finance and Islamic property Personal financing Auto finance Bridging, structured and term loans and financing - 3,102,615 18,864,699 103,441 4,494,158 823,091 940,647 1,140 2,460,508 3,925,706 19,805,346 104,581 6,954,666 - 26,564,913 4,225,386 30,790,299
  209. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 207 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 207 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (ii) Credit quality (cont'd.) Credit quality of financial assets that are neither past due nor impaired by credit quality is as follows (cont'd.): Group High Grade RM'000 Deposits with Financial Institutions and Bank Balance: Cash at banks and on hand Deposits and placements with financial institutions: - with maturity of less than one month - with maturity of more than one month Other Financial Asset: Derivative financial assets Financial investments at FVOCI Financial investments at amortised cost Other receivables Statutory deposits with Bank Negara Malaysia 2018 New Loans Standard During The Grade Year RM'000 RM'000 Total RM'000 262,346 - - 262,346 3,149,640 931,087 - - 3,149,640 931,087 4,343,073 - - 4,343,073 - 67 5,097,105 20,350 124,000 1,053,000 - 67 5,097,105 20,350 124,000 1,053,000 - 6,294,522 - 6,294,522 2017 New Loans Standard During The Grade Year RM'000 RM'000 Total RM'000 Group High Grade RM'000 Financial Assets: Loans, financing and advances: End finance and Islamic property Personal financing Auto finance Bridging, structured and term loans and financing - 3,011,474 19,853,757 139,429 4,368,551 829,627 646,561 711 2,124,206 3,841,101 20,500,318 140,140 6,492,757 - 27,373,211 3,601,105 30,974,316
  210. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 208 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 208 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (ii) Credit quality (cont'd.) Credit quality of financial assets that are neither past due nor impaired by credit quality is as follows (cont'd.): Group High Grade RM'000 Deposits with Financial Institutions and Bank Balance: Cash at banks and on hand Deposits and placements with financial institutions: - with maturity of less than one month - with maturity of more than one month Other Financial Assets: Financial investments available-for-sale Other receivables Financial investments held-for-sale 2017 New Loans Standard During The Grade Year RM'000 RM'000 Total RM'000 265,196 - - 265,196 7,521,936 747,403 - - 7,521,936 747,403 8,534,535 - - 8,534,535 - 3,171,913 40,538 38,409 - 3,171,913 40,538 38,409 - 3,250,860 - 3,250,860 2018 New Loans Standard During The Grade Year RM'000 RM'000 Total RM'000 Company High Grade RM'000 Financial Assets: Loans, financing and advances: End finance and Islamic property Auto finance Bridging, structured and term loans and financing - 424,969 189 156,092 - 424,969 189 156,092 - 581,250 - 581,250
  211. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 209 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 209 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (ii) Credit quality (cont'd.) Credit quality of financial assets that are neither past due nor impaired by credit quality is as follows (cont'd.): Company High Grade RM'000 Deposits with Financial Institutions and Bank Balance: Cash at banks and on hand Deposits and placements with financial institutions: - with maturity of less than one month - with maturity of more than one month Other Financial Assets: Other receivables 2018 New Loans Standard During The Grade Year RM'000 RM'000 Total RM'000 72,070 - - 72,070 83,007 154,347 - - 83,007 154,347 309,424 - - 309,424 - 36,182 - 36,182 - 36,182 - 36,182 2017 New Loans Standard During The Grade Year RM'000 RM'000 Total RM'000 Company High Grade RM'000 Financial Assets: Loans, financing and advances: End finance and islamic property Personal financing Auto finance Bridging, structured and term loans and financing Deposits with Financial Institutions and Bank Balance: Cash at banks and on hand Deposits and placements with financial institutions: - with maturity of less than one month - with maturity of more than one month - 3,011,474 19,853,757 139,429 4,368,551 829,627 646,561 711 2,124,206 3,841,101 20,500,318 140,140 6,492,757 - 27,373,211 3,601,105 30,974,316 250,492 - - 250,492 7,518,142 51,368 - - 7,518,142 51,368 7,820,002 - - 7,820,002
  212. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 210 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 210 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (ii) Credit quality (cont'd.) Credit quality of financial assets that are neither past due nor impaired by credit quality is as follows (cont'd.): Company High Grade RM'000 Other Financial Assets: Loans to subsidiaries Financial investments available-for-sale Other receivables Sukuk Commodity Murabahah Financial investments held-for-sale 2017 New Loans Standard During The Grade Year RM'000 RM'000 Total RM'000 - 235,943 3,171,913 57,843 3,245,851 38,409 - 235,943 3,171,913 57,843 3,245,851 38,409 - 6,749,959 - 6,749,959 Past Due But Not Impaired Past due but not impaired financial assets are loans and receivables where the customer has failed to make a principal or interest payment when contractually due, and includes loans, financing and advances which are not past due or have no overdraft for a period of less than three months. Group By ageing Months-in-arrears 1 Months-in-arrears 2 2018 % to Gross RM'000 Financing 2017 % to Gross RM'000 Financing 1,517,877 682,108 4.32% 1.94% 1,637,894 613,870 4.79% 1.79% 2,199,985 6.25% 2,251,764 6.58% Company 2018 % to Gross RM'000 Financing 2017 % to Gross RM'000 Financing By ageing Months-in-arrears 1 Months-in-arrears 2 280,767 134,736 13.19% 6.33% 1,637,894 613,870 4.79% 1.79% 415,503 19.53% 2,251,764 6.58%
  213. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 211 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 211 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (ii) Credit quality (cont'd.) Impaired This refers to financial assets in respect of loans, financing and advances for which exposures are assessed individually and considered impaired based on the Company's policies. Impaired financing: Individually accessed of which: Months-in-arrears 0 Months-in-arrears 1 Months-in-arrears 2 Months-in-arrears 3 and above Collectively assessed Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 151,900 12,525 3,567 680,015 152,608 50,534 257,888 139,000 12,252 535,720 152,608 50,534 257,888 1,075,464 1,112,145 443,932 1,112,145 1,923,471 1,573,175 1,131,177 1,573,175 Impaired financing of which rescheduled and restructured financing Consumer Business Group 2018 2017 RM'000 RM'000 Company 2018 2017 RM'000 RM'000 91,424 271,460 351,942 235,190 12,031 226,290 14,044 235,190 362,884 587,132 238,321 249,234 Rescheduled or restructured financings are financings where the original contractual terms have been modified due to deterioration in the customers’ financial positions and the Group has made concessions that it would not otherwise consider. Once the financing is rescheduled or restructured, its satisfactory performance is monitored for a period of six months before it can be reclassified to non-credit impaired.
  214. Assets not subject to credit risk 67 67 780 ,213 4,343,063 67 - 3,548,764 - 4,343,073 - - - - 496 10 - 13,590 - 5,097,105 - 5,097,105 126,742 3,225,927 439,709 206,977 - 10,119 502,630 585,001 - 84 5 - 1,035,554 473,197 121,927 161,860 - 20,350 33,133,119 - 20,350 33,133,119 - - - - 561 - 561 - - - 561 - 127,275 - 127,275 123,892 - - 737 2,646 - 1,053,000 - 1,053,000 - 1,053,000 - - - - - - - - - - - - Total RM'000 84 5 1,030,914 8,863,245 912,906 328,904 163,654 10 - 43,774,550 - - 43,774,540 - - - - - 24,868,915 210,620 20,742 383,186 751,135 - 6,227,928 12,302 Statutory Loans, deposits financing with Bank Sukuk Financial and Trade Other Negara Commodity investments advances receivables receivables Malaysia Murabahah held-for-sale RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 - 24,868,915 210,620 20,742 373,067 20,350 228,155 - 5,626,691 12,302 Cash and short-term funds and deposits and Financial placements Derivative Financial investments with financial financial investments at amortised institution assets at FVOCI cost RM'000 RM'000 RM'000 RM'000 212 Financial Assets: Household sectors Agriculture Mining and quarrying Manufacturing Electricity, gas and water Construction Purchase of landed property Wholesale & retail trade and restaurants & hotels Transport, storage and communication Finance, insurance and business services Education, health an others Purchase of transport vehicles Consumption credit Others Group 31 December 2018 (iii) Industry analysis Credit risk (cont'd.) 48. Financial risk management (cont'd.) MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 212 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  215. Company Financial Assets : Household sectors Agriculture Manufacturing Construction Wholesale & retail trade and restaurants & hotels Transport, storage and communication Finance, insurance and business services Education, health and others Others Company 31 December 2018 - 309,424 309,424 - - - - - - - - - - Cash and short-term funds and deposits and Financial placements Derivative Financial investments with financial financial investments at amortised institution assets at FVOCI cost RM'000 RM'000 RM'000 RM'000 (iii) Industry analysis (cont’d.) Credit risk (cont'd.) 48. Financial risk management (cont'd.) 1,326,502 11,137 91,263 - 1,963 3,077 662,133 3,106 117,315 436,508 - - - - - 36,182 36,182 - - - - - - - - - - - - - - - - - - Statutory Loans, deposits financing with Bank Sukuk Financial and Trade Other Negara Commodity investments advances receivables receivables Malaysia Murabahah held-for-sale RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 1,672,108 320,561 91,263 36,182 1,963 3,077 662,133 3,106 117,315 436,508 Total RM'000 MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 213 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 213
  216. 39 ,909 39,909 14,170 693 7,820,002 699,670 8,534,535 3,171,913 3,171,913 - - - 744,225 567,260 - 80,147 - 32,006,244 - - - 25,153,312 58,317 5,800 171,511 22,330 - 5,155,112 48,230 295 - - 295 40,679 37,297 - 2,709 673 - - - - - - - - Total RM'000 80,147 38,409 43,831,984 38,409 11,774,549 567,260 776,876 - - 25,153,312 58,317 5,800 171,511 22,330 - 5,171,991 49,891 Statutory Loans, deposits financing with Bank Sukuk Financial and Trade Other Negara Commodity investments advances receivables receivables Malaysia Murabahah held-for-sale RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 214 Financial Assets: Household sectors Agriculture Mining and quarrying Manufacturing Electricity, gas and water Construction restaurants & hotels Transport, storage and communication Finance, insurance and business services Education, health and others Others Group 31 December 2017 Cash and short-term funds and deposits and Financial placements Derivative Financial investments with financial financial investments at amortised institution assets at FVOCI cost RM'000 RM'000 RM'000 RM'000 (iii) Industry analysis (cont’d.) Credit risk (cont'd.) 48. Financial risk management (cont'd.) MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 214 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  217. Financial Assets : Household sectors Agriculture Mining and quarrying Manufacturing Electricity, gas and water Construction Wholesale & retail trade and restaurants & hotels Transport, storage and communication Finance, insurance and business services Education, health and others Others Company Company 31 December 2017 - 7,820,002 7,820,002 3,171,913 3,171,913 - - - - 744,225 567,260 - 80,147 48,230 - 32,006,244 - - - - - - - - 57,843 57,843 - - - - - - - - 3,245,851 3,245,851 - - - Total RM'000 80,147 48,230 38,409 46,340,262 38,409 11,774,549 567,260 - 3,303,694 - - - 25,153,312 58,317 5,800 171,511 22,330 - 5,155,112 Statutory Loans, deposits financing with Bank Sukuk Financial and Trade Other Negara Commodity investments advances receivables receivables Malaysia Murabahah held-for-sale RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 - 25,153,312 58,317 5,800 171,511 22,330 - 5,155,112 Cash and short-term funds and deposits and Financial placements Derivative Financial investments with financial financial investments at amortised institution assets at FVOCI cost RM'000 RM'000 RM'000 RM'000 (iii) Industry analysis (cont’d.) Credit risk (cont'd.) 48. Financial risk management (cont'd.) MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 215 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 215
  218. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 216 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 216 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Credit risk (cont'd.) (iv) Collateral The credit risk of financial assets of the Group and the Company is mitigated by the collateral in respect of financial assets. The collateral mitigates credit risk and would reduce the extent of impairment losses for assets subject to impairment review. The main types of collateral obtained by the Group and the Company to mitigate credit risk are as follows: - For conventional mortgage and property Islamic - charge over properties; For auto loan and financing - ownership claims over the vehicles financed; For project loans and financing - charges over the project being financed; and For others loan, advances and financing - charges over business assets such as premises, inventories, marketable securities, real estate, and trade receivables or deposits. (v) Key macroeconomic variables In computing the Excepted Credit Losses ("ECL") of financing and advances, the Group and the Company incorporate the impact of forward-looking key macroeconomic variables ("MEV") according to the respective portfolio. The MEVs incorporated into the ECL calculations include, but not limited to House Price Index (HPI) and Consumer Price Index (CPI). The forward-looking MEVs are supported with 3 economic scenarios i.e baseline, best and worst case scenarios. Macroeconomic Variables (MEV) House Price Index (HPI) Consumer Price Index (CPI) - Year on Year Change Base Scenario Remaining Next 12 Forecast months Period Best Scenario Remaining Next 12 Forecast months Period Worst Scenario Remaining Next 12 Forecast months Period 196.28 211.79 197.19 216.54 194.61 203.77 1.38 2.11 2.04 2.57 1.11 1.80 Sensitivity analysis for macroeconomic variables At the reporting date, if the forward-looking MEVs had changed by 10% favourable/non- favourable, with all other variables held constant, the Group's and the Company's net profit and shareholders' equity would have been as per the following table, arising as a result of changes in the probability of default. 2018 Tax rate Group 10% 10% nonfavourable favourable RM'000 RM'000 Company 10% 10% nonfavourable favourable RM'000 RM'000 Sensitivity to HPI Impact to profit before tax Impact to profit after tax and equity: 24% 8,622 6,553 (8,387) (6,374) 2,460 1,870 (2,390) (1,816) Sensitivity to CPI Impact to profit before tax Impact to profit after tax and equity: 24% 2,343 1,781 (2,298) (1,746) 1 1 (1) (1)
  219. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 217 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 217 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Market risk Market risk is the risk of potential loss as a result of changes in the intrinsic value of financial instruments caused by movements in market variables such as interest rates, equity pricing and other related macro economic factors that will eventually affect the Group and the Company's profitability and capital preservation. The Group and the Company's market risk management includes the monitoring of fluctuations in net interest income or investment value due to changes in relevant market risk factors. The ALCO monitors the exposure on a monthly basis through reports produced by the Treasury Division. The GRM, via its presence in the ALCO, provides advisory services and input on the Group and the Company's market risk management. In managing interest rate risk, the Group and the Company intend to maximise net interest income and net interest margin and minimise the significant volatilities that may arise in relation to the Group and the Company's assets and liabilities. Sensitivity analysis for interest/profit rate risk At the reporting date, if interest/profit rates had been 100 basis points lower/higher, with all other variables held constant, the Group and the Company's net profit and shareholders' equity would have been as per the following table, arising mainly as a result of changes in interest expenses from floating rate borrowings and fixed deposits placed by customers and interest income from floating rate loans, financing and advances. 2018 Impact to profit before tax Impact to profit after tax and equity Tax rate Group +100 basis -100 basis points points RM'000 RM'000 Company +100 basis -100 basis points points RM'000 RM'000 24% (162,069) (123,172) 162,069 123,172 (23,011) (17,488) 23,011 17,488 24% (217,338) (165,177) 217,338 165,177 (224,299) (170,467) 224,299 170,467 2017 Impact to profit before tax Impact to profit after tax and equity
  220. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 218 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 218 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Market risk (cont'd.) Interest/profit rate risk The table below summarises the Group's and the Company's exposure to interest/profit rate risk. The table indicates effective average interest/profit rates at the reporting date and the periods in which the financial instruments reprice or mature, whichever is earlier. Assets classified as non-interest sensitive are either non-interest bearing or, if interest bearing, the cashflows arising from these assets are not expected to change significantly if interest/profit rates change. Group 2018 Average interest rate Total % per RM'000 annum Up to 1 month RM'000 >1-3 months RM'000 >3-12 months RM'000 >1-5 years RM'000 Over 5 years RM'000 Noninterest sensitive RM'000 3,149,641 - - - - 262,345 3,411,986 3.26 1,874 5,097 - 154,347 67 192,538 - 774,866 373,038 - 2,548,826 20,350 1,977,605 - - 931,087 67 5,097,104 20,350 3.65 449,953 - 510,074 - 447,912 - 2,235,452 - 8,693,950 - 20,002,265 32,339,606 793,513 793,513 6.70 - - - - - 3,606,565 857,026 1,595,816 4,804,628 10,671,555 22,231,612 43,767,202 6,313,061 7,648,313 8,087,677 1,929,971 53,158 177,269 24,209,449 1,368,508 2 3,517,649 - 2,812,625 - 871,612 - - 8,457 - 8,578,851 2 4.05 7,597 - 20,511 - 565,744 503,864 1,541,666 1,054,590 409,621 - 2,135,518 1,968,075 4.51 4.88 Total financial liabilities 7,689,168 11,186,473 11,969,910 5,397,839 462,779 Total interest/profit sensitivity gap (4,082,603) (10,329,447) (10,374,094) Financial Assets Cash and short-term funds Deposits and placements with financial institutions Derivative assets Financial assets at FVOCI Financial assets at amortised cost Loans, financing and advances: - non-impaired - impaired, net of allowances* Statutory deposits with Bank Negara Malaysia Other receivables^ Total financial assets Financial Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Derivative liabilities Recourse obligation on loans/ financing sold Sukuk - MBSB SC Murabahah * ^ (593,211) 10,208,776 1,053,000 120,489 4.09 4.22 1,053,000 120,489 4.08 185,726 36,891,894 22,045,886 6,875,308 This is arrived after deducting impairments from gross impaired financing. Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties,prepayments and deposits, Public Low Cost Housing Payment (PLCHP), deferred expenses due to issuance of Sukuk Commodity Murabahah and deferred expenses due to issuance of Sukuk - MBSB SC Murabahah as these items are classified as nonfinancial assets.
  221. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 219 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 219 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Market risk (cont'd.) Interest/profit rate risk (cont'd.) Group 2017 Average interest rate Total % per RM'000 annum Up to 1 month RM'000 >1-3 months RM'000 >3-12 months RM'000 >1-5 years RM'000 Over 5 years RM'000 Noninterest sensitive RM'000 7,521,937 - - - - 265,196 7,787,132 3.42 335 122,860 624,208 - - - 747,403 3.33 124,222 - 366,353 - 439,708 - 3,428,774 - 28,268,945 - (1,296,294) 31,331,708 674,536 674,536 38,409 38,409 6.80 - 10,151 - 189,945 - 1,879,936 - 1,091,881 - 7,646,494 499,364 1,253,861 5,308,710 29,360,826 (284,760) 43,784,495 9,019,516 6,237,005 8,378,681 1,392,870 472,417 26,059 25,526,548 3,944,872 918,972 1,286,444 977,851 100,342 108 7,228,589 3.86 9,573 92,937 426,637 - 41,708 421,973 1,760,249 1,134,083 638,884 - 2,238,167 2,287,877 4.51 4.83 Total financial liabilities 13,066,898 7,582,614 10,128,806 5,265,053 1,211,643 Total interest/profit sensitivity gap (5,420,404) (7,083,250) (8,874,945) 43,657 28,149,183 Financial Assets Cash and short-term funds Deposits and placements with financial institutions Loans, financing and advances: - non-impaired - impaired, net of allowances* Financial assets held-for-sale Financial investments available-for-sale Other receivables^ Total financial assets Financial Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on loans/ financing sold Sukuk - MBSB SC Murabahah * ^ 33,393 3,171,913 33,393 4.02 3.98 26,167 37,281,181 (310,927) 6,503,314 This is arrived after deducting impairments from gross impaired financing. Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties,prepayments and deposits, Public Low Cost Housing Payment (PLCHP), deferred expenses due to issuance of Sukuk Commodity Murabahah and deferred expenses due to issuance of Sukuk - MBSB SC Murabahah as these items are classified as nonfinancial assets.
  222. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 220 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 220 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Market risk (cont'd.) Interest/profit rate risk (cont'd.) Company 2018 Average interest rate Total % per RM'000 annum Up to 1 month RM'000 >1-3 months RM'000 >3-12 months RM'000 >1-5 years RM'000 Over 5 years RM'000 Noninterest sensitive RM'000 83,007 - - - - 72,070 155,077 3.00 - 154,347 - - - - 154,347 3.65 140 3,375 72 - 112,617 - 126,436 - 757,489 - (107,354) 437,102 32,807 889,400 437,102 36,182 8.01 86,522 154,419 112,617 126,436 757,489 434,625 1,672,108 Financial Liabilities Other payables # - - - - - 105,135 105,135 Total financial liabilities - - - - - 105,135 105,135 86,522 154,419 112,617 126,436 757,489 329,490 1,566,973 Financial Assets Cash and short-term funds Deposits and placements with financial institutions Loans, financing and advances: - non-impaired - impaired, net of allowances* Other receivables^ Total financial assets Total interest/profit sensitivity gap * ^ # 7.00 This is arrived after deducting impairments from gross impaired financing. Other receivables exclude loan commitment fees, foreclosed properties,prepayments and deposits and Public Low Cost Housing Payment (PLCHP) as these items are classified as non-financial assets. Other payables exclude accruals, deferred income and others as these items are classified as non-financial liabilities. Company 2017 Financial Assets Cash and short-term funds Deposits and placements with financial institutions Loans, financing and advances: - non-impaired - impaired, net of allowances* Financial assets held-for-sale Sukuk Commodity Murabahah Financial investments available-for-sale Other receivables^ Total financial assets Average interest rate Total % per RM'000 annum Up to 1 month RM'000 >1-3 months RM'000 >3-12 months RM'000 >1-5 years RM'000 Over 5 years RM'000 Noninterest sensitive RM'000 7,518,142 - - - - 250,492 7,768,634 3.42 303 - 51,065 - - - 51,368 3.49 124,222 8,436 366,353 1 439,708 335,242 3,428,774 1,322,366 28,268,945 1,579,805 (1,296,292) 31,331,710 674,536 674,536 38,409 38,409 - 3,245,850 6.80 22,348 10,151 - 189,945 - 1,879,936 - 1,091,881 - 7,673,451 376,505 1,015,960 6,631,076 30,940,631 32,538 3,171,913 54,886 (300,317) 46,337,306 3.40 4.02 6.75
  223. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 221 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 221 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Market risk (cont'd.) Interest/profit rate risk (cont'd.) Company 2017 Noninterest sensitive RM'000 Average interest rate Total % per RM'000 annum Up to 1 month RM'000 >1-3 months RM'000 >3-12 months RM'000 >1-5 years RM'000 Over 5 years RM'000 9,019,516 6,237,005 8,378,681 1,392,870 472,417 3,944,872 918,972 1,286,444 977,851 100,342 108 7,228,589 3.86 9,573 92,937 2,905,099 426,637 - 41,708 421,973 - 1,760,249 1,134,083 - 638,884 - 112,629 2,238,167 2,287,877 3,017,728 4.51 4.83 6.75 Total financial liabilities 15,971,997 7,582,614 10,128,806 5,265,053 1,211,643 Total interest/profit sensitivity gap (8,298,546) (7,206,109) (9,112,846) 1,366,023 29,728,988 Financial Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on loans/ financing sold Sukuk - MBSB SC Murabahah Other payables # * ^ # 26,059 25,526,548 3.98 138,796 40,298,909 (439,113) 6,038,397 This is arrived after deducting impairments from gross impaired financing. Other receivables exclude loan commitment fees, foreclosed properties,prepayments and deposits and Public Low Cost Housing Payment (PLCHP) and deferred expenses due to issuance of Sukuk - MBSB SC Murabahah as these items are classified as non-financial assets. Other payables exclude accruals, deferred income and others as these items are classified as non-financial liabilities. Foreign Exchange Risk The Group and the Company are exposed to transactional foreign exchange exposures which are exposures on assets and liabilities denominated in currencies other than the functional currency of the transacting entity. The Group and the Company take minimal exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Group and the Company manages its exposure to foreign exchange currencies at each entity level. As at the end of the reporting period, the financial assets and financial liabilities of the Group and the Company in the currency other than Ringgit Malaysia ("MYR") are not material to the Group and to the Company, therefore the foreign exchange risk sensitivity analysis is not presented. Liquidity risk The Group’s and the Company's liquidity risk management policy is to maintain high quality and well diversified portfolios of liquid assets and sources of funds under both normal business and stress conditions. Liquidity risk management of the Group and the Company is governed by established risk tolerance levels as defined in the Group’s and the Company's Market Risk Framework. The ALCO would be informed by management action triggers to alert management to potential and emerging liquidity pressures. The Group’s and the Company's early warning system and contingency funding plans are in place to alert and enable management to act effectively and efficiently during a liquidity crisis. The ALCO meets at least once a month to discuss the liquidity risk and funding profile and is chaired by the Chief Executive Officer. The ALM and Funding Unit, which is responsible for the independent monitoring of the Group’s and the Company's liquidity risk profile, works closely with the Treasury Division in the surveillance on market conditions and performs stress testing on liquidity positions.
  224. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 222 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 222 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Liquidity risk (cont’d.) (a) Analysis of financial instruments by remaining contractual maturities for assets and liabilities The table below summarises the maturity profile of the Group and the Company's assets and liabilities at the reporting date based on contractual repayment obligations. 2018 RM'000 On demand or within one year One to five years Over five years No specific maturity Total 3,411,986 - - - 3,411,986 931,087 67 - - - 931,087 67 570,674 1,771,580 561 127,275 - 2,548,826 20,350 3,695,525 - 1,977,605 27,666,014 - 1,053,000 5,097,105 20,350 33,133,119 561 127,275 1,053,000 6,813,230 6,264,701 29,643,619 1,053,000 43,774,550 22,292,890 1,863,692 52,867 - 24,209,449 7,707,238 2 225 502,045 593,853 308,864 871,613 1,541,665 1,064,590 594,621 - 8,578,851 2 225 502,045 2,135,518 1,968,075 Total liabilities 31,405,117 5,341,560 647,488 - 37,394,165 Net liquidity gap (24,591,887) 923,141 28,996,131 1,053,000 6,380,385 208,989 105,204 - - 314,193 208,989 105,204 - - 314,193 Group Assets Cash and short-term funds Deposits and placements with other financial institutions Derivative financial assets Financial investments at fair value through other comprehensive income ("FVOCI") Financial investments at amortised cost Loans, financing and advances Trade receivables Other receivables* Statutory deposits with Bank Negara Malaysia Total assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Derivative financial liabilities Trade payables Other payables # Recourse obligation on loans/financing sold Sukuk - MBSB SC Murabahah Operational commitments: Financial guarantees * # Other receivables exclude foreclosed properties, prepayments and deposits as these items are classified as non-financial assets. Other payables exclude other provisions and accrual and deferred income as these items are classified as non-financial liabilities.
  225. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 223 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 223 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Liquidity risk (cont’d.) (a) Analysis of financial instruments by remaining contractual maturities (cont'd.) 2017 RM'000 On demand or within one year One to five years Over five years No specific maturity Total 7,787,132 - - - 7,787,132 747,403 200,096 38,409 795,081 295 40,679 1,879,936 3,476,095 - 1,091,881 27,735,068 - - 747,403 3,171,913 38,409 32,006,244 295 40,679 9,609,095 5,356,031 28,826,949 - 43,792,075 23,768,989 1,757,374 185 - 25,526,548 6,360,614 210 274,224 477,918 514,909 867,975 1,760,249 1,134,083 638,885 - 7,228,589 210 274,224 2,238,167 2,287,877 Total liabilities 31,396,864 5,519,681 639,070 - 37,555,615 Net liquidity gap (21,787,769) (163,650) 28,187,879 - 6,236,460 255,997 461,335 26,400 - 743,732 255,997 461,335 26,400 - 743,732 Group Assets Cash and short-term funds Deposits and placements with other financial institutions Financial investments available-for-sale Financial assets held-for-sale Loans, financing and advances Trade receivables Other receivables* Total assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Trade payables Other payables Recourse obligation on loans/financing sold Sukuk - MBSB SC Murabahah Operational commitments: Financial guarantees * Other receivables exclude foreclosed properties, prepayments and deposits as these items are classified as non-financial assets.
  226. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 224 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 224 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Liquidity risk (cont’d.) (a) Analysis of financial instruments by remaining contractual maturities (cont'd.) 2018 RM'000 On demand or within one year One to five years Over five years No specific maturity Total 155,077 - - - 155,077 154,347 400,751 36,182 122,099 - 803,652 - - 154,347 1,326,502 36,182 Total assets 746,357 122,099 803,652 - 1,672,108 Liabilities Other payables 185,695 - - - 185,695 Total liabilities 185,695 - - - 185,695 Net liquidity gap 560,662 122,099 803,652 - 1,486,413 7,257 575 - - 7,832 7,257 575 - - 7,832 Company Assets Cash and short-term funds Deposits and placements with other financial institutions Loans, financing and advances Other receivables* Operational commitments: Financial guarantees * Other receivables exclude foreclosed properties, prepayments and deposits as these items are classified as non-financial assets.
  227. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 225 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 225 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Liquidity risk (cont’d.) (a) Analysis of financial instruments by remaining contractual maturities (cont'd.) 2017 RM'000 Company Assets Cash and short-term funds Deposits and placements with other financial institutions Financial investments available-for-sale Sukuk Commodity Murabahah Loans, financing and advances Financial assets held-for-sale Other receivables Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Other payables Recourse obligation on loans/financing sold Sukuk - MBSB SC Murabahah Net liquidity gap Operational commitments: Financial guarantees * On demand or within one year One to five years Over five years No specific maturity Total 7,768,634 - - - 7,768,634 51,368 200,096 343,679 795,081 38,409 57,843 1,879,936 1,322,366 3,476,095 - 1,091,881 1,579,805 27,735,068 - - 51,368 3,171,913 3,245,850 32,006,244 38,409 57,843 9,255,110 6,678,397 30,406,754 - 46,340,261 23,768,989 1,757,374 185 - 25,526,548 6,360,614 3,176,133 477,918 514,909 867,975 1,760,249 1,134,083 638,885 - 7,228,589 3,176,133 2,238,167 2,287,877 34,298,563 5,519,681 639,070 - 40,457,314 (25,043,453) 1,158,716 29,767,684 - 5,882,947 255,997 461,335 26,400 - 743,732 255,997 461,335 26,400 - 743,732 Other receivables exclude foreclosed properties, prepayments and deposits as these items are classified as non-financial assets.
  228. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 226 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 226 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Liquidity risk (cont’d.) (b) Analysis of financial instruments by contractual maturity of liabilities at undiscounted value 2018 RM'000 Group Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on loans/financing sold Sukuk - MBSB SC Murabahah Other payables On demand or within one year One to five years Over five years No specific maturity Total 22,827,623 2,138,159 69,698 - 25,035,480 7,517,308 675,578 399,459 502,045 1,031,993 1,717,725 1,309,715 - 670,125 - - 8,549,301 2,393,303 2,379,299 502,045 31,922,013 6,197,592 739,823 - 38,859,428 2017 RM'000 Group Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on loans/financing sold Sukuk - MBSB SC Murabahah Other payables On demand or within one year One to five years Over five years No specific maturity Total 23,908,957 2,032,288 224 - 25,941,469 6,409,116 549,703 428,661 274,224 1,070,754 1,996,200 1,709,174 - 670,125 - - 7,479,870 2,545,903 2,807,960 274,224 31,570,661 6,808,416 670,349 - 39,049,426 2017 RM'000 Company Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Recourse obligation on loans/financing sold Sukuk - MBSB SC Murabahah Other payables On demand or within one year One to five years Over five years No specific maturity Total 23,908,957 2,032,288 224 - 25,941,469 6,409,116 549,703 428,661 3,176,133 1,070,754 1,996,200 1,709,174 - 670,125 - - 7,479,870 2,545,903 2,807,960 3,176,133 34,472,570 6,808,416 670,349 - 41,951,335
  229. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 6:17 PM Page 227 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 227 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 48. Financial risk management (cont'd.) Operational risk Operational risk is defined as the risk of loss arising from inadequate or failed internal processes, people and systems and external events, which includes legal risk and Shariah compliance risk but excludes strategic and reputational risk. The Group recognizes and emphasizes the importance of operational risk management and manages this risk through a control-based environment where processes are documented, authorization is independent, transactions are reconciled and monitored and business activities are carried out within the established guidelines, procedures and limits. The Group’s governance approach in managing operational risk is premised on the Three Lines of Defense Approach as discussed under Note 48(c). 49. Capital management The primary objective of the Group's and the Company's capital management is to ensure that a strong credit rating and healthy capital ratios are maintained in order to support their business and maximise shareholder value. The Group and the Company manage their capital structure and make adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group and the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2017 and 2018. The Group and the Company monitor their capital using both leverage ratio (which is computed using common equity Tier 1 divided by total assets including off balance sheet commitments) and risk weighted capital adequacy ratio ("RWCR") (which is computed using capital base divided by total risk weighted assets) as prescribed by Bank Negara Malaysia for licensed financial institutions in Malaysia. 50. Fair values (a) Fair values of financial instruments by classes that are not carried at fair value and whose carrying amounts are not reasonable approximations of fair value Loans, financing and advances The fair value of fixed rate loans with remaining maturities of less than one year and variable rate loans are estimated to approximate the carrying amount. 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, discounted at prevailing rates offered for similar loans to new borrowers with similar credit profiles as at the reporting date. The fair value of impaired fixed and variable rate loans is represented by their carrying amount, net of individual impairment provisions, being the expected recoverable amount.
  230. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 6:17 PM Page 228 228 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 50. Fair values(cont’d.) (a) Fair values of financial instruments by classes that are not carried at fair value and whose carrying amounts are not reasonable approximations of fair value (cont'd.) Deposits from customers and deposits and placements of banks and other financial institutions Deposits, placements and obligations which mature or reprice after one year are grouped by residual maturity. Fair value is estimated using discounted cash flows, applying either market rates, where applicable, or current rates offered for deposits of similar remaining maturities. The fair values of deposits repayable on demand and deposits and placements with remaining maturities of less than one year are approximated by their carrying values due to the relatively short maturity of these instruments. Sukuk Commodity Murabahah and Sukuk - MBSB SC Murabahah The fair values of Sukuk Commodity Murabahah and Sukuk - MBSB SC Murabahah are estimated by discounting expected future cash flows at the effective profit rate of similar instruments. Recourse obligation on loans/financing sold The fair values for recourse obligations on loans/financing sold to Cagamas Berhad are determined based on discounted cash flows of future instalment payments at prevailing rates quoted by Cagamas Berhad as at reporting date. (b) Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximations of fair value The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximations of fair value: Note Cash and short-term funds Deposits and placements with financial institutions Financial investments at amortised cost Trade receivables Other receivables (excluding foreclosed properties, and prepayments and deposits) Trade payables Other payables 5(a) 5(b) 9 12 13 25 26 The carrying amounts of these financial assets and liabilities are reasonable approximations of fair values, either due to their short-term nature or the fact that these are floating rate instruments that are re-priced to market interest rates on or near the reporting date.
  231. Financial assets Loans , financing and advances Company Financial liabilities Deposits from customers Deposits and placements of banks and other financial institutions Sukuk - MBSB SC Murabahah Recourse obligation on financing sold Derivative financial liabilities Financial investments at FVOCI Loans, financing and advances Financial investments at amortised cost Derivative financial assets Financial assets 2018 Group - 2 - - 2 - - - - - - 5,097,172 - - 67 - - - - - 5,097,105 - 67 - - 1,993,863 8,582,337 - - - - - 34,795,737 - - - - 24,219,537 20,145 20,145 - - - - 5,097,105 5,097,105 20,145 - 20,145 67 20,350 67 2,149,454 - 1,993,863 8,582,337 2,149,454 2 1,993,863 8,582,337 2,135,518 2 1,968,075 8,578,851 1,328,331 1,328,331 1,328,331 1,328,331 1,328,331 1,328,331 1,326,502 1,326,502 2,149,454 36,945,191 36,945,193 36,891,895 2,149,454 - - - - 24,219,537 24,219,537 24,209,449 35,091,760 35,111,905 40,209,077 38,250,641 - 35,091,760 35,091,760 35,091,760 33,133,119 - Carrying amount RM'000 annual report 2018 - - 2 2 - - - - - - - Total fair value RM'000 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) - - - - - - - - 5,097,172 - - - 5,097,105 Fair value of financial instruments Fair value of financial instruments carried at fair value not carried at fair value Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 The tables below analyses other financial instruments at fair value. That carrying amount of cash and short-term funds, deposits and placements with financial institutions, other receivables (excluding prepayments and deposits) and other payables reasonably approximate their fair values due to the relatively short term nature of these financial instruments. 50. Fair values (cont'd.) MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 229 229 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  232. Financial liabilities Deposit from customers Deposits and placements of banks and other financial institutions Sukuk - MBSB SC Murabahah Recourse obligation on financing sold Financial assets Financial investments available-for-sale Sukuk Commodity Murabahah Loans , financing and advances Company - - 3,171,913 - - - - - - - - - - 3,171,913 - - - - - 3,171,913 - - - - 3,171,913 - - - - - - - - - - - - - - - - - - - 3,171,913 - - - 3,171,913 - - - - - - 3,171,913 - - 3,171,913 - - - - 2,296,335 7,130,275 - - 7,130,275 - 35,391,357 - - 2,296,335 - - 25,964,747 - 3,288,865 - - 3,288,865 - - 35,391,357 - - - - 25,964,747 - - - - 3,171,913 3,171,913 Carrying amount RM'000 2,259,385 2,296,335 7,130,275 2,259,385 2,296,335 7,130,275 2,238,167 2,287,877 7,228,589 3,288,865 - 3,288,865 3,171,913 3,245,851 3,171,913 2,259,385 2,296,335 7,130,275 2,259,385 2,296,335 7,130,275 2,238,167 2,287,877 7,228,589 2,259,385 37,650,742 37,650,742 37,281,181 2,259,385 - - - 25,964,747 25,964,747 25,526,548 33,353,406 36,642,271 39,814,184 38,424,008 33,353,406 33,353,406 33,353,406 32,006,244 - - 2,259,385 37,650,742 37,650,742 37,281,181 2,259,385 - - - 25,964,747 25,964,747 25,526,548 33,353,406 33,353,406 36,525,319 35,178,157 33,353,406 33,353,406 33,353,406 32,006,244 - Total fair value RM'000 230 Financial liabilities Deposits from customers Deposits and placements of banks and other financial institutions Sukuk - MBSB SC Murabahah Recourse obligation on financing sold 2017 Financial assets Financial investments available-for-sale Loans, financing and advances Group Fair value of financial instruments Fair value of financial instruments carried at fair value not carried at fair value Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 The tables below analyses other financial instruments at fair value (cont'd.) 50. Fair values (cont'd.) MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 230 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  233. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 231 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 231 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 50. Fair values (cont'd.) In relation to assets where the fair values are measured under level 3 of the fair value hierarchy, a description of the significant unobservable inputs asset in the valuation is as follows: Valuation technique Significant unobservable inputs Range (weighted average) Bridging, structured and term loans and financing *DCF method Interest/ profit rate 0.9%-11.5% (4.6%) Recourse obligation on loans/financing sold *DCF method Interest/ profit rate 4.2%-4.6% (4.5%) * DCF method refers to the discounted cash flows method where future expected cash flows are discounted at rates prevailing at the reporting date. 51. Segment information The Group is organised into four major business segments: (i) Banking - Banking business and the provision of related financial services; (ii) Property development - the development of residential and commercial properties; (iii) Leasing of real property - the letting of office buildings; and (iv) Hotel operations - the leasing of hotel rooms, sale of food and beverage and other related income. (v) Investment holding - issuance of sukuk and holding company operation Other business segments include project management which are not significant to be reported separately. The directors are of the opinion that all inter-segment transactions have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties.
  234. - - - - 4 ,290 9,635 - 136,579 - - - - 29,731 40,045,507 44,946,851 49,819 - - - 120,128 956,607 370,851 (65,605) 45,945 - 41,945 - - - 33,871 747,279 228,146 (64,312) 41,352 - - - 20 186 - 177,144 5,956 (16,926) 899 - - 18 186 - 160,460 6,198 (14,860) 899 Leasing of real property 2018 2017 RM'000 RM'000 (8) - 158 2,335 26 209,901 64,552 (22,268) 6,925 3,916 365,584 1,003,757 10,280 538,700 3,211,497 27,776 Investment holding 2018 2017 RM'000 RM'000 8 - 161 2,369 238 189,850 11,338 - 1,731 1,804 - 646,140 2 10,823 8,225 3,723 3,200,138 43,838,986 66,792 10,659,302 51,011,829 (18,954) 6,914 3,802 Hotel operations 2018 2017 RM'000 RM'000 - - - - - 3,529 371 (238) - 145,609 (36,530) 110,352 642,400 853,573 (198,173) (13,000) 3,145,937 417,126 550,732 (121,735) (11,871) 3,259,763 3,259,763 - Consolidated 2018 2017 RM'000 RM'000 - 3,145,937 (32,477) - Eliminations 2018 2017 RM'000 RM'000 - - - - - (81,862) - - - - (55,204) (2) - 228 - 115,866 - 11,544 8,615 149,885 632,889 - 11,002 11,008 37,832 37,639,908 37,685,284 3,291 (6,952,918) (7,254,582) 37,639,908 37,685,284 45,425,512 44,810,147 372 (10,622,371) (6,503,190) 45,425,512 44,810,147 (194) - Others 2018 2017 RM'000 RM'000 The Group’s activities are in Malaysia, therefore segmental reporting is not analysed by geographical locations. (b) Geographical Segments: Capital expenditure Depreciation property, plant and equipment Amortisation of land used rights and intangible assets Impairment for investments in subsidiaries Non-cash expenses other than depreciation and amortisation Other Information Consolidated total liabilities Segment liabilities Liabilities Consolidated total assets Segment assets Assets 447,417 2,089,310 21,435 Property development 2018 2017 RM'000 RM'000 232 Net profit for the year Segment results Taxation Zakat Result Total revenue External sales Inter-segment sales Revenue Revenue and expenses Banking 2018 2017 RM'000 RM'000 (a) Business segments (cont'd.) 51. Segment information (cont'd.) MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 232 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018
  235. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 233 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 233 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The Operations of Islamic Business Statement of financial position as at 31 December 2018 Note Assets Cash and short-term funds Deposits and placements with banks and other financial institutions Derivative financial assets Financial assets at fair value through other comprehensive income ("FVOCI") Financial investments available-for-sale Financial assets at amortised cost Financial assets held-for-sale Financing and advances Other receivables Statutory deposits with Bank Negara Malaysia Investment property Property and equipment Intangible assets Tax recoverable (a) (a) Group 2018 2017 RM'000 RM'000 3,242,228 776,739 67 5,097,105 20,350 31,806,617 578,064 1,053,000 820 20,923 104,692 74,587 6,732,883 747,100 3,171,913 8,734 28,553,830 1,958,135 - 42,775,192 41,172,595 24,209,449 24,711,466 8,578,851 2 515,834 2,135,518 1,968,075 13,000 41,552 7,228,589 2,432,036 1,269,652 2,287,877 73,982 - 37,462,281 38,003,602 Equity Share capital Reserves 4,625,859 687,052 4,000 3,164,993 Total equity 5,312,911 3,168,993 42,775,192 41,172,595 (b) (c) (d) (e) Total assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Derivative financial liabilities Other payables Recourse obligation on financing sold Sukuk-MBSB Structured Covered ("SC") Murabahah Provision for taxation and zakat Deferred tax liabilities Total liabilities Total Liabilities and Equity (f) (g) As disclosed in Note 1, on 2 April 2018, the Company transferred all of its Shariah- compliant assets and liabilities to the Bank. Further details are as disclosed in Note 53.
  236. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 234 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 234 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The operations of Islamic business (cont'd.) Statement of comprehensive income for the year ended 31 December 2018 Note Income derived from investment of general investment deposits and Islamic capital funds Income attributable to depositors Income attributable to securitisation Income attributable to sukuk (h) Group 2018 2017 RM'000 RM'000 2,604,687 (1,272,930) (97,665) (107,299) 2,422,414 (1,077,119) (96,978) (122,675) 1,126,793 11,942 (328,456) (129,052) 1,125,642 26,107 (959) (271,002) (566,840) Profit before taxation and zakat Taxation Zakat 681,227 (172,697) (13,000) 312,948 (66,564) (11,871) Profit for the year Other comprehensive income Fair value reserve, which subsequently to profit or loss 495,530 234,513 6,670 13,154 Total comprehensive income for the year, net of tax 502,200 247,667 Net income from Islamic financing operations and securities Net other income Profit expenses Other expenses Impairment allowance Consequent to the First Tranche Transfer on 2 April 2018, profits pertaining to Operations of Islamic business vested is segregated between the Company and the Bank. The breakdown of Islamic business profits for the year by legal entity as follows: Profit for the year Group RM'000 Company RM'000 Bank RM'000 495,530 156,828 338,702
  237. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 235 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 235 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The operations of Islamic business (a) Cash and short-term funds and deposits and placements with financial institutions Group 2018 2017 RM'000 RM'000 Cash and short-term funds: Cash at banks Deposits and placements with financial institutions with maturity less than one month 179,508 3,062,720 1,207,493 5,525,390 Deposits and placements with financial institutions with maturity more than one month 3,242,228 776,739 6,732,883 747,100 4,018,967 7,479,983 The weighted average effective yield rate of deposits with financial institutions at the reporting date was 3.65% (2017: 3.26%) per annum. (b) Financial assets at FVOCI Group 2018 2017 RM'000 RM'000 At fair value Money Market Instruments Malaysian Government Investment Issues 2,154,192 - Debt securities: In Malaysia Private and Islamic debt securities Government Guaranteed debt securities 1,060,628 1,882,285 - 5,097,105 - The ECL/impairment allowance for the instruments above is nil. (c) Financial assets at amortised cost Group 2018 2017 RM'000 RM'000 At amortised cost Quoted securities: In Malaysia Islamic Medium Term Notes Less: ECL/Impairment allowance - Stage 1 20,356 (6) - 20,350 -
  238. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 236 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 236 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The operations of Islamic business (cont'd.) (d) Financing Group 2018 2017 RM'000 RM'000 (i) By type: Term financing - Bridging financing - Property financing - Personal financing - Auto Financing - Hire purchase receivables - Other term financing Trusts receipts Staff financing Revolving Credit Others Less: Unearned income Reclassification to AHS 716,015 4,340,081 20,562,117 213,898 781,118 5,456,952 51,525 41,277 743,218 138,473 - 11,310,360 7,058,100 33,958,447 300,651 18,571 (21,651,643) (1,144,160) Gross financing and advances Less: Impairment allowance - Individual assessment allowance - Collective assessment allowance - Stage 1 - Stage 2 - Stage 3 33,044,674 29,850,326 (346,537) (455,639) (435,881) (435) (1,296,061) - Net financing and advances 31,806,617 28,553,830 4,384,353 23,698,767 4,111,153 850,401 - 14,162,791 9,892,992 5,794,543 33,044,674 29,850,326 (ii) By contract: Bai' Tawarruq Ijarah Istisna' Contract financing
  239. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 237 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 237 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The operations of Islamic business (cont'd.) (d) Financing (cont'd.) (iii) Movement in gross financing and advances Stage 1 RM'000 Group December-18 Stage 2 Stage 3 RM'000 RM'000 Total RM'000 Gross carrying amount upon adoption of MFRS 9 as at 1 January 2018 Vesting of assets from MBSB Group as at 2 April 2018 Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 New financing / disbursed during the year Repayment during the year Other movement Write-offs Transfer from asset held-for-sale 729,499 27,853,305 686,430 (1,411,984) (204,425) 3,686,809 (3,134,981) 109,548 676 247,871 3,060,833 (671,870) 1,491,251 (229,280) 534,453 (427,040) (69,114) 400 111,424 735,137 (14,560) (79,267) 433,705 32,166 (117,630) 141,075 (566,310) 116,553 1,088,794 31,649,275 4,253,428 (3,679,651) 181,509 (566,310) 117,629 Gross carrying amount as at 31 December 2018 28,314,877 3,937,504 792,293 33,044,674 (iv) Movement in impairment allowance for financing and advances Group 2018 2017 RM'000 RM'000 Collective Assessment Allowance Balance as at 1 January - effects of MFRS 9 adoption 1,296,061 (1,296,061) 1,870,623 - As restated Impairment during the year Reclassification to AHS - 1,870,623 560,864 (1,135,426) Balance as at 31 December - 1,296,061 435 (435) 165 - As restated Impairment during the year - 165 270 Balance as at 31 December - 435 Individual Assessment Allowance Balance as at 1 January - effects of MFRS 9 adoption
  240. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 238 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 238 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The operations of Islamic business (cont'd.) (d) Financing (cont'd.) (iv) Movement in impairment allowance for financing and advances (cont’d.) 2018 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 Loss allowance upon adoption of MFRS 9 as at 1 January 2018 Vesting of assets from MBSB Group 16,691 492,316 6,665 444,705 45,716 538,420 69,072 1,475,441 - ECL as at 2 April 2018 - Subsequent transfer of ECL* 454,139 38,177 432,125 12,580 538,420 - 1,424,684 50,757 Charged to Income Statement (163,136) 3,584 310,952 151,400 Changes in the loss allowance: - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 New financing / disbursed during the year Financing repaid during the year Change in credit risk parameters 12,696 (164,406) (81,168) 72,027 (180,772) 178,487 (12,468) 176,183 (137,706) 43,512 (179,663) 113,726 (228) (11,777) 218,874 26,587 (98,714) 176,210 142,126 (459,149) 468,423 666 685 (566,315) 107,108 (566,315) 108,459 346,537 455,639 435,881 1,238,057 Write-offs Transfer from asset held-for-sale Loss allowance as at 31 December 2018 * The Group has had a revision of ECL upon adoption of MFRS 9 post vesting of assets and liabilities from the Company to the Bank. The adjustment of the ECL amounting to RM50,757,000 was subsequently transferred to the Bank.
  241. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 239 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 239 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The operations of Islamic business (cont'd.) (d) Financing (cont'd.) (v) Movement for impaired financing and advances Group 2018 2017 RM'000 RM'000 Balance as at 1 January Acquisition of MBSB Bank Classified as impaired during the year Reclassified as non-impaired Amount recovered Amount written off Reclassification to AHS 697,611 111,039 520,930 (206,793) (56,827) (273,667) - 1,657,995 517,959 (326,361) (8,174) (1,143,808) Balance as at 31 December Less: Impairment allowance - Collective assessment allowance - Reclassification to AHS - Individual assessment allowance - Stage 3 792,293 697,611 (435,881) (1,515,803) 1,135,338 (435) - Allowance for impairment (435,881) (380,900) Net impaired financing 356,412 316,711 1.1% 1.1% Net impaired financing as a percentage of net financing (e) Other receivables Group 2018 2017 RM'000 RM'000 Inter-branch transaction Financing to related companies Amount due from holding company Prepayments and deposits Sundry receivables 385,031 98,666 6,235 88,132 1,029,512 2,874 925,749 578,064 1,958,135
  242. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 240 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 240 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The operations of Islamic business (cont'd.) (f) Deposits from customers (i) By type of deposit: Group 2018 2017 RM'000 RM'000 Non-Mudharabah Funds: Demand deposits: Tawarruq Savings deposits: Tawarruq Wadiah Commodity Murabahah Term Deposits: Tawarruq Mudharabah Funds: General investment deposits 225,520 - 76,558 - 56,626 23,907,371 24,092,386 24,209,449 24,149,012 - 562,454 - 562,454 24,209,449 24,711,466 (ii) By type of customer: Group 2018 2017 RM'000 RM'000 Government and statutory bodies Business enterprises Individuals 14,746,960 6,371,297 3,091,192 10,093,494 12,475,856 2,142,116 24,209,449 24,711,466 (iii) By maturity of deposits from customers: Group 2018 2017 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 17,474,783 4,818,107 723,813 1,192,746 19,808,854 3,402,533 662,243 837,836 24,209,449 24,711,466
  243. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 241 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 241 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 52. The operations of Islamic business (cont'd.) (g) Other payables Group 2018 2017 RM'000 RM'000 Amount due to related companies Al-Mudharabah security funds Disbursement payable Proportionate operating expenses Sundry creditors Other provisions and accruals Expected credit losses for commitment and contingencies Deferred income 35,437 123,401 168,112 82,292 93,943 12,649 112,629 100,489 998,732 1,220,186 - 515,834 2,432,036 (h) Income derived from investment of general investment deposits and Islamic capital funds Group 2018 2017 RM'000 RM'000 Financing Income from securities Financial assets at FVOCI Deposits with financial institutions 2,296,125 31,696 143,335 133,531 2,145,098 114,160 163,156 2,604,687 2,422,414 53. Significant event On 21 December 2016, MBSB ("the Company") announced that Bank Negara Malaysia ("BNM") had via its letter on the same date, informed the Company that it has no objection-in- principle for the Company to commence negotiations with the shareholders of Asian Finance Bank Berhad ("AFB") namely, Qatar Islamic Bank, Financial Assets Bahrain W.L.L, RUSD Investment Bank Inc and Tadhamon International Islamic Bank (collectively, the "Vendors") for the proposed merger of the Company and AFB ("BNM Letter"). BNM had, in its letter stipulated a deadline of six (6) months from the date of the BNM Letter for the Company to complete negotiations for the proposed merger of the Company and AFB. On 19 June 2017, the Board of Directors ("Board") announced that the Company had on the same date, submitted an application to BNM within the stipulated timeframe, to seek the approvals of BNM and/or the Ministry of Finance, Malaysia ("MOF") for the proposed merger. On 18 August 2017, the Board annouced that the MOF (through BNM), had via BNM's letter dated 18 August 2017 granted its approval to the Company for the proposed acquisition of 100% equity interest in AFB ("MOF/BNM Approval"). On 6 November 2017, RHB Investment Bank Berhad ("RHB Invest") and AmInvestment Bank Berhad ("AM Invest") on behalf of the Board, announced that the Company had on the same date entered into the conditional share purchase agreement with the Vendors, for the proposed acquisition by the Company of the entire equity interest in AFB from the Vendors for an aggregate purchase consideration of RM644,952,807.66 to be satisfied by way of cash amounting to RM396,894,036.26 and the issuance of 225,507,974 new ordinary shares of the Company ("Consideration Shares(s)") at an issue price of RM1.10 per Consideration Share ("the Acquisition").
  244. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 242 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 242 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 53. Significant event (cont'd.) The acquisition was approved by the shareholders of the Company on 23 January 2018. The shareholders also approved the transfer of Shariah Compliant Assets and Liabilities of the Company to AFB via a Members' Sceme of Arrangement. Pursuant to the abovesaid approval and upon completion of the transfer of shares and the payment of the balance of the purchase consideration to the Vendor, AFB became a wholly owned subsidiary of the Company on 7 February 2018. The fair value of the assets and liabilities arising from the acquisition are as follows: Fair value RM'000 Share capital Regulatory reserve Fair value reserve Accumulated losses 532,530 5,234 98 (63,659) Add: Provisional goodwill (Note 19) 474,203 188,790 662,993 The purchase price allocation is still ongoing as at the reporting date and will be finalised in the next financial year. Fair value RM'000 Purchase consideration satisfied via cash Purchase consideration satisfied via issuance of Consideration Shares at market value on 7 February 2018 of RM1.18 per share 396,894 266,099 662,993 RM'000 Cash acquired from acquisition of MBSB Bank Berhad Purchase consideration of MBSB Bank Berhad satisfied via cash 577,970 (396,894) Net cash flows from acquisition of MBSB Bank Berhad 181,076 The fair value of acquired and the residual goodwill has been provisionally accounted for as the accounting for the acquisition is still incomplete at the time the financial statements have been authorised for issue. On 2 April 2018, the Company via the First Tranche Transfer, completed the transfer all of its Shariah-compliant assets and liabilities ("Identified A&L") to AFB ("the First Tranche Transfer") as a going concern and changed the legal entity name of AFB to MBSB Bank Berhad ("the Bank"). The transfer of the Identified A&L was implemented through a members' scheme of arrangement pursuant to section 366 of the Companies Act 2016 by way of a Vesting Order dated 28 February 2018 from the High Court of Malaya of which can be completed within 3 years from 2 April 2018.
  245. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 243 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 243 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 53. Significant event (cont'd.) The Identified A&L comprised the following: Identified Assets Cash and short-term funds Financing and advances Gross at stage 1 Gross at stage 2 Gross at stage 3 ECL stage 1 ECL stage 2 ECL stage 3 Financial investments at FVOCI Sukuk - SPV Murabahah Other receivables/other assets Financing to subsidiaries Gross at stage 3 ECL stage 3 Deposits and placements with financial institutions Amount due from Jana Kapital Sdn Bhd Financial asset held for sale Gross at stage 1 Gross at stage 2 Gross at stage 3 ECL stage 1 ECL stage 2 ECL stage 3 Property and equipment At cost Accumulated depreciation Investment in Jana Kapital Sdn Bhd RM'000 6,269,184 30,118,185 27,853,305 3,060,833 735,137 (523,890) (467,282) (539,918) 3,210,031 3,273,199 538,017 311,386 514,761 (203,375) 54,813 21,915 18,346 438 9,752 1,145,206 (21) (1,157) (1,135,872) 8,999 79,495 (70,496) * 43,824,075 * Represents RM2
  246. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 244 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 244 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 53. Significant event (cont'd.) The Identified A&L comprised the following (cont’d.): Identified Liabilities Deposits from customers Sukuk - MBSB Bank SC Murabahah Recourse obligation on financing sold Amount due to SPV Other payables RM'000 31,964,367 2,316,020 2,175,008 2,811,064 464,287 39,730,746 Net assets transferred 4,093,329 Cash flow effect to the Company from the investment in MBSB Bank Berhad: RM'000 Cash and short-term funds transferred by way of a Vesting Order Purchase consideration satisfied via cash 6,269,184 396,894 Cash flows from investment in MBSB Bank Berhad 6,666,078 The consideration for the above transfer was satisfied by an issuance of 4,093,329,268 new shares by the Bank to the Company. In conjunction with the First Tranche Transfer, the Sukuk Exchange was also completed following the successful issuance of the Bank's Structured Covered Sukuk (debt nature) in exchange for MBSB Structured Covered Sukuk held by MBSB Sukuk holders. Accordingly, Jana Kapital Sdn Bhd ("JKSB"), the special purpose vehicle for the Sukuk programme, an investment being part of the Identified A&L is now a wholly-owned subsidiary of the Bank. Subsequent to the First Tranche Transfer and up to the end of the reporting period, the Company has progressively transferred the following assets and liabilities to the Bank: RM'000 i) Intangible assets transferred in April 2018 Cost Accumulated amortisation Net Book Value ii) Mortgage converted to property Islamic financing Converted on 29 May 2018 Converted on 24 October 2018 Converted on 24 November 2018 iii) Conventional deposit converted to Islamic deposit on 14 July 2018 99,150 (74,784) 24,366 248,015 602 84,607 20,222
  247. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 245 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 245 annual report 2018 NOTES TO THE FINANCIAL STATEMENTS 31 December 2018 54. Comparative information The following comparative amount have been reclassified to conform with the current year's presentation which more accurately reflect the nature of the relevant transactions. The Group's and the Company's prior financial year's results were not affected by these reclassification. Group Statements of financial position Deposits from customers Deposits and placements of banks and other financial institutions Statements of comprehensive income Income derived from investment of general investment deposits and Islamic capital funds Income attributable to sukuk Interest income Net other income Other operating expenses Impairment allowance Company Statements of financial position Deposits from customers Deposits and placements of banks and other financial institutions Statements of comprehensive income Income derived from investment of general investment deposits and Islamic capital funds Income attributable to sukuk Interest income Net other income Other operating expenses Impairment allowance As previously Rereported classification RM'000 RM'000 As restated RM'000 32,755,137 - (7,228,589) 7,228,589 25,526,548 7,228,589 32,755,137 - 32,755,137 2,634,924 (328,835) 472,333 33,377 (336,060) (598,611) (212,510) 206,160 (44,512) 47,207 46,260 (42,605) 2,422,414 (122,675) 427,821 80,584 (289,800) (641,216) 1,877,128 - 1,877,128 As previously Rereported classification RM'000 RM'000 As restated RM'000 32,755,137 - (7,228,589) 7,228,589 25,526,548 7,228,589 32,755,137 - 32,755,137 2,549,107 (328,835) 435,078 26,075 (316,722) (606,382) (5,277) (1,073) (44,512) 47,207 43,415 (39,760) 2,543,830 (329,908) 390,566 73,282 (273,307) (646,142) 1,758,321 - 1,758,321
  248. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 246 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 246 annual report 2018 ANALYSIS OF SHAREHOLDINGS as at 29 March 2019 Total number of Issued Shares : 6,389,101,298 Ordinary Shares Class of Shares : Ordinary Shares Voting Rights : One Vote per Ordinary Share ANALYSIS OF ORDINARY SHAREHOLDINGS No. of Shareholders % of Shareholders No. of Shares % of Issued Share Capital 1 - 99 100 - 1,000 1,001 - 10,000 10,001 - 100,000 100,001 - 319,455,063* 319,455,064** AND ABOVE 1,336 5,296 16,244 11,010 1,854 1 3.738 14.817 45.449 30.804 5.187 0.002 43,008 4,362,231 82,047,285 334,440,727 1,893,733,052 4,074,474,995 0.000 0.068 1.284 5.234 29.640 63.772 TOTAL 35,741 100.00 6,389,101,298 100.00 Size of Shareholdings Remark : * - Less than 5% of issued shares ** - 5% and above of issued shares DIRECTORS' DIRECT AND INDIRECT INTERESTS IN SHARES IN THE COMPANY NAME Tan Sri Abdul Halim Ali DIRECT INTEREST No. of % of Shares Held Issued Shares 250,366 0.004 INDIRECT INTEREST No. of % of Shares Held Issued Shares - - TOTAL SHAREHOLDINGS No. of % of Shares Held Issued Shares 250,366 0.004 Note: Tan Sri Abdul Halim bin Ali, by virtue of his total direct interests of 250,366 shares in MBSB, is deemed interested in the shares in all MBSB's subsidiaries to the extend that MBSB has interest. GROUP PRESIDENT AND CHIEF EXECUTIVE OFFICERS' DIRECT AND INDIRECT INTERESTS IN SHARES IN THE COMPANY NAME Datuk Seri Ahmad Zaini bin Othman DIRECT INTEREST No. of % of Shares Held Issued Shares 535,000 0.008 INDIRECT INTEREST No. of % of Shares Held Issued Shares - - TOTAL SHAREHOLDINGS No. of % of Shares Held Issued Shares 535,000 0.008 Note: Datuk Seri Ahmad Zaini bin Othman, by virtue of his total direct interests of 535,000 shares in MBSB, is deemed interested in the shares in all MBSB's subsidiaries to the extend that MBSB has interest.
  249. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 247 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 247 annual report 2018 ANALYSIS OF SHAREHOLDINGS as at 29 March 2019 SUBSTANTIAL SHAREHOLDERS Name EMPLOYEES PROVIDENT FUND BOARD TAN SRI DATO' CHUA MA YU No. of Shares Held % of Issued Shares 4,074,474,995 519,863,650 63.77 8.137 Notes: 1. Total direct interest of EPF held under Citigroup Nominees (Tempatan) Sdn Bhd 2. Total direct interest of Tan Sri Dato’ Chua Ma Yu held under Cimsec Nominees (Tempatan) Sdn Bhd exempt an for CIMB Securities (Singapore) Pte Ltd (Retail Clients) and Maybank Securities Nominees (Tempatan) Sdn Bhd 3. Total indirect interest of Tan Sri Dato’ Chua Ma Yu held under Maybank Securities Nominees (Asing) Sdn Bhd, Maybank Kim Eng Securities Pte Ltd for CMY Global Ltd., Maybank Securities Nominees (Tempatan) Sdn Bhd, Pledged Securities Account for CMY Incubator Sdn Bhd, CMY Equity Sdn Bhd and CMY Capital Markets Sdn Bhd THIRTY LARGEST SHAREHOLDERS NO 1 NAME NO. OF SHARES % OF SHARES 4,074,474,995 63.772 183,475,635 2.871 130,452,400 2.041 117,081,144 1.832 103,441,163 1.619 91,566,350 1.433 PERMODALAN NASIONAL BERHAD 67,022,652 1.049 MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD 45,500,000 0.712 44,000,000 0.688 38,000,000 0.594 34,000,000 0.532 32,460,600 0.508 31,019,494 0.485 CITIGROUP NOMINEES (TEMPATAN) SDN BHD EMPLOYEES PROVIDENT FUND BOARD 2 CIMSEC NOMINEES (TEMPATAN) SDN BHD EXEMPT AN FOR CGS-CIMB SECURITIES (SINGAPORE) PTE LTD (RETAIL CLIENTS) 3 MAYBANK SECURITIES NOMINEES (ASING) SDN BHD MAYBANK KIM ENG SECURITIES PTE LTD FOR CMY GLOBAL LTD 4 RHB NOMINEES (ASING) SDN BHD RUSD INVESTMENT BANK INC. 5 RHB NOMINEES (ASING) SDN BHD TADHAMON CAPITAL BSC CLOSED 6 MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR CMY INCUBATOR SDN BHD 7 8 PLEDGED SECURITIES ACCOUNT FOR CMY EQUITY SDN BHD 9 CIMB GROUP NOMINEES (TEMPATAN) SDN BHD YAYASAN HASANAH (AUR-VCAM) 10 RHB CAPITAL NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR FONG SILING (CEB) 11 MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR CMY CAPITAL MARKETS SDN BHD 12 HSBC NOMINEES (ASING) SDN BHD JPMCB NA FOR VANGUARD EMERGING MARKETS STOCK INDEX FUND 13 HSBC NOMINEES (ASING) SDN BHD JPMCB NA FOR VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND
  250. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 248 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 248 annual report 2018 ANALYSIS OF SHAREHOLDINGS as at 29 March 2019 THIRTY LARGEST SHAREHOLDERS (cont’d.) NO 14 NAME MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD NO. OF SHARES % OF SHARES 23,450,095 0.367 20,000,000 0.313 19,474,200 0.304 16,000,000 0.250 15,616,185 0.244 PLEDGED SECURITIES ACCOUNT FOR HAWANG KIM LIAN 15 MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR CHUA MA YU 16 CARTABAN NOMINEES (ASING) SDN BHD EXEMPT AN FOR STATE STREET BANK & TRUST COMPANY (WEST CLT OD67) 17 CITIGROUP NOMINEES (TEMPATAN) SDN BHD KUMPULAN WANG PERSARAAN (DIPERBADANKAN) (VCAM EQUITY FD) 18 CITIGROUP NOMINEES (ASING) SDN BHD CBNY FOR EMERGING MARKET CORE EQUITY PORTFOLIO DFA INVESTMENT DIMENSIONS GROUP INC 19 20 B-OK SDN BHD 15,600,025 0.244 MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD 15,000,000 0.234 13,717,704 0.214 13,669,434 0.213 13,017,707 0.203 10,490,196 0.164 9,554,517 0.149 8,800,000 0.137 8,526,100 0.133 7,600,088 0.118 POSEIDON SENDIRIAN BERHAD 7,373,985 0.115 CITIGROUP NOMINEES (ASING) SDN BHD 7,246,082 0.113 5,217,630,751 81.651 PLEDGED SECURITIES ACCOUNT FOR CHUA MA YU 21 CITIGROUP NOMINEES (ASING) SDN BHD CBNY FOR DIMENSIONAL EMERGING MARKETS VALUE FUND 22 AFFIN HWANG NOMINEES (TEMPATAN) SDN. BHD. PLEDGED SECURITIES ACCOUNT FOR CHUNG CHEE YANG (CHU0328C) 23 HSBC NOMINEES (ASING) SDN BHD EXEMPT AN FOR CREDIT SUISSE (SG BR-TST-ASING) 24 AFFIN HWANG NOMINEES (TEMPATAN) SDN. BHD. PLEDGED SECURITIES ACCOUNT FOR CHUNG CHEE YANG (CHU0328C) 25 TA NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR HENG TENG KUANG 26 MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LEAN SIEW SEE 27 DB (MALAYSIA) NOMINEE (ASING) SDN BHD DEUTSCHE BANK AG SINGAPORE FOR NIIF PUBLIC EQUITIES 28 CIMB GROUP NOMINEES (TEMPATAN) SDN BHD CIMB BANK BERHAD (EDP 2) 29 30 CBNY FOR DFA EMERGING MARKETS SMALL CAP SERIES TOTAL SHAREHOLDING OF THE THIRTY LARGEST SHAREHOLDERS
  251. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 249 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 249 annual report 2018 SCHEDULE OF PROPERTIES No. Location Tenure No. of years Expiry Date 1 Lot 31632, 31633 and 31634 PM No.416, 417 and 418, Bukit Raja, Mukim of Kapar, District of Klang, Selangor. Leasehold 99 08.05.2093 2 Lot 353, PN 7164, Kawasan Bandar VIII, District of Melaka Tengah Leasehold 99 29.08.2074 3 A) Lot No. 3077 Title Pajakan Negeri No. 32340, Mukim Pegoh, Alor Gajah, Melaka (phase 2C, A'Famosa resort) Leasehold 99 18.12.2094 Land Area (Sq. Metres) Description 42,208.89 Vacant Land Ages of Book Building Value (Years) (RM'000) Nil 102,163 18 44,609 161,106.01 Vacant Land Nil 35,739 2,155,202.84 Vacant Land Nil 34,961 7,048.10 Hotel B) 65 undeveloped detached house plots of land, Part of Phase 12, A' Famosa Resort Malaysia, Jalan Kemus, Simpang Ampat, Melaka. C) 62 undeveloped detached house plots of land, Part of Phase 8, A'Famosa Resort Malaysia, Jalan Kemus, Simpang Ampat, Melaka 4 3 agricultural lots and 246 building lots, Mukim of Linggi , District of Port Dickson, Negeri Sembilan. 5 No.48, Jalan Dungun, Damansara Heights, Kuala Lumpur 6 60 22.12.2046 Leasehold (3 lots) 99 08.11.2094 (246 lots) Freehold Nil Nil 1,595.28 Office Building 30 27,606 Lot No. 2402 PN 28760 Port Dickson, Leasehold Negeri Sembilan (No. 325, Batu 1, Jalan Rumah Rehat, Port Dickson) 99 06.10.2095 6,042.00 Hotel 20 17,558 7 8 units of completed shop office at Butterworth - Lot 2622, 2651, 2624, 2653, 2654, 2625, 2676, 2674, 2626, 2655, 2628, 2657, 2629, 2658 Freehold Nil Nil 1,040.00 Shop Office 2 12,560 8 Lot 328 Geran 1901 Pekan Klebang Seksyen III, Melaka Freehold Nil Nil 13,557.02 Vacant Land Nil 5,223 9 Lot 1755 PN No. 39370, Mukim of Bukit Katil, District of Melaka Tengah, Melaka Leasehold 99 15.07.2095 43,137.00 Vacant Land Nil 4,640 10 56 Vacant industrial lots located in Mukim of Taboh Naning, Alor Gajah, Melaka Freehold Nil Nil 274,782.68 Vacant Land Nil 4,630
  252. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 250 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 250 annual report 2018 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT THE 49th ANNUAL GENERAL MEETING (“AGM”) of the Company will be held at Grand Nexus, Level 3A, Connexion Conference & Event Centre @ Nexus, Bangsar South City, No. 7 Jalan Kerinchi, 59200 Kuala Lumpur on Tuesday, 11 June 2019 at 10.00 a.m. for the following purposes: ORDINARY BUSINESS: 1. To receive the Audited Financial Statements of the Company and of the Group for the year ended 31 December 2018 and Reports of the Directors and Auditors thereon. (Please refer to Explanatory Note 1) 2. To declare a Single-Tier Final Dividend of 5.0 sen per ordinary share for the financial year ended 31 December 2018. Ordinary Resolution 1 3. To approve payment of Directors’ Fees amounting to RM1,877,013.52 (MBSB : RM839,999.00 and MBSB Bank : RM1,037,014.52) for the financial year ended 31 December 2018. Ordinary Resolution 2 4. To approve payment of benefits (excluding Directors’ Fees) payable to Directors from the date of this AGM until the next AGM of the Company in 2020. Ordinary Resolution 3 5. To re-elect Ir. Moslim bin Othman who retire in accordance with Article 86 of the Company’s Constitution, and who being eligible offer himself for re-election. Ordinary Resolution 4 6. To appoint Messrs. KPMG PLT as Auditors of the Company in place of the retiring auditors, Messrs. Ernst & Young and to authorise the Directors to determine their remuneration. Ordinary Resolution 5 SPECIAL BUSINESS: To consider and if thought fit, to pass the following resolutions:7. Authority to allot and issue shares “THAT subject always to the Companies Act, 2016 (“the Act”), the Constitution of the Company, the Main Market Listing Requirements of Bursa Malaysia Securities Berhad and the approvals of the relevant government/regulatory authorities, where such approval is required, the Directors be and are hereby authorised and empowered pursuant to Section 75 of the Act, to allot and issue shares in the Company to such persons, at any time, and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued does not exceed 10% of the total number of issued shares of the Company for the time being AND THAT the Directors be also empowered to obtain the approval from the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad AND THAT such authority shall continue in force until the conclusion of the next AGM of the Company”. Ordinary Resolution 6
  253. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 251 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 251 NOTICE OF ANNUAL GENERAL MEETING 8. Allotment and issuance of new Ordinary Shares in MBSB (“MBSB Shares”) in relation to the Dividend Reinvestment Plan that allows shareholders of MBSB (“Shareholders”) to reinvest their dividend to which the dividend reinvestment plan applies, in new MBSB Shares (“Dividend Reinvestment Plan”). Ordinary Resolution 7 “THAT pursuant to the Dividend Reinvestment Plan as approved by the Shareholders at the Extraordinary General Meeting held on 10 December 2013, approval be and is hereby given to the Company to allot and issue such number of new MBSB Shares from time to time as may be required to be allotted and issued pursuant to the Dividend Reinvestment Plan until the conclusion of the next Annual General Meeting upon such terms and conditions and to such persons as the Directors, may in their absolute discretion, deem fit and in the interest of the Company PROVIDED:i. THAT the issue price of the said new MBSB Shares shall be fixed by the Directors at a discount of not more than ten percent (10%) to the five (5)-day volume weighted average price (“VWAP”) of MBSB Shares immediately prior to the price-fixing date, of which the VWAP shall be adjusted ex-dividend before applying the aforementioned discount in fixing the issue price. AND THAT the Directors of the Company be and are hereby authorized to do all such acts and enter into all such transactions, arrangements and documents as may be necessary or expedient in order to give effect to the Dividend Reinvestment Plan with full power to assent to any conditions, modifications, variations and/or amendments to the terms of the Dividend Reinvestment Plan as the Directors may deem fit, necessary and/or expedient in the best interest of the Company or as may be imposed or agreed to by any relevant authorities or consequent upon the implementation of the said conditions, modifications, variations and/or amendments and to take all steps as it considers necessary in connection with the Dividend Reinvestment Plan.” 9. SPECIAL RESOLUTION: To consider and if thought fit, to pass the following special resolution:Proposed Adoption of a New Constitution of the Company (Proposed Adoption) “THAT approval be and is hereby given to revoke the existing Constitution of the Company with immediate effect and in place thereof, the proposed new Constitution of the Company, as set out in Appendix II of the Circular to Shareholders dated 30 April 2019, be and is hereby adopted as the Constitution of the Company. AND THAT the Board of Directors be and is hereby authorised to do all such acts, deeds and things as are necessary and/or expedient in order to give full effect to the Proposed Adoption with full powers to assent to any conditions, modifications and/or amendments as may be required by any relevant authorities.” 10. To transact any other ordinary business of which due notice shall have been given. BY ORDER OF THE BOARD KOH AI HOON (MAICSA 7006997) TONG LEE MEE (MAICSA 7053445) Company Secretaries Kuala Lumpur 30 April 2019 Special Resolution 1
  254. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 252 252 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTICE OF ANNUAL GENERAL MEETING Explanatory Notes: 1. Item 1 of the Agenda This Agenda is meant for discussion only, as the provision of Section 340(1)(a) of the Companies Act, 2016 does not require a formal approval of the shareholders for the Audited Financial Statements. Hence, this Agenda item is not put forward for voting. 2. Item 3 of the Agenda The details of the Directors fees for financial year ended 31 December 2018 are as follows:MBSB Total (RM) MBSB Bank Total (RM) Tan Sri Abdul Halim bin Ali Encik Lim Tian Huat Ir. Moslim bin Othman Puan Lynette Yeow Su-Yin Datuk Shahril Ridza Ridzuan (50% Directors’Fees to be paid to EPF) (resigned in MBSB on 20 August 2018) Datuk Syed Zaid bin Syed Jaffar Albar (resigned in MBSB on 6 February 2018) Encik Aw Hong Boo (resigned in MBSB on 6 February 2018) Dato’ Jasmy bin Ismail (resigned in MBSB on 6 February 2018) Encik Sazaliza Zainuddin (50% Directors’Fees to be paid to EPF) (resigned in MBSB on 6 February 2018) Datuk Johar bin Che Mat (resigned in MBSB on 6 February 2018) Tunku Alina Binti Raja Muhd Alias (resigned in MBSB on 6 February 2018) Datuk Azrulnizam bin Abdul Aziz Dr. Loh Leong Hua (Resigned on 9 February 2018 and reappointed on 1 June 2018) Dato’ Dr. Md Khir bin Abdul Rahman (resigned on 9 February 2018) Dato’ Dr. Vaseehar Hassan bin Abdul Razack (resigned on 9 February 2018) Encik Abdul Rahim bin Abdul Hamid (resigned on 9 February 2018) Dr. Saleh Jameel Malaikah (resigned on 7 February 2018) Mr. Zakir Hussain Rizvi (resigned on 7 February 2018) 145,000 174,167 162,916 153,749 128,334 123,750 70,000 - 19,167 - 27,500 151,250 27,500 - 20,000 110,000 20,000 148,155.42 20,000 - 134,167 122,739.42 - 91,904.42 - 9,714.26 - 6,071.42 - 6,071.42 - 2,428.58 - 2,428.58 TOTAL 839,999 1,037,014.52 Board members
  255. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 253 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 253 NOTICE OF ANNUAL GENERAL MEETING 3. Item 4 of the Agenda The details of the benefits payable to Directors are as follows:Board Meeting Allowance General Meeting Allowance Board Committee Meeting Allowance Any other meeting allowances (where the Directors are invited to attend) Chairman’s Car allowance Other benefits - RM3,000.00 per meeting - RM3,000.00 per meeting - RM2,000.00 per meeting - RM2,000.00 per meeting - RM10,000.00 per month - medical coverage, travel, communication and other claimable benefits Note: (a) The meeting allowances will be paid to the Directors after the conclusion of each meeting. (b) The benefits payable to the Directors comprise allowances and other emoluments payable to the Chairman and member of the Board, Board of Subsidiaries and Board Committees (c) The total amount of benefits payable to the Directors is estimated up to RM2,500,000 from date of this AGM until the next AGM in 2020 based on the estimated number of 199 meetings. 4. Item 6 of the Agenda Messrs. KPMG PLT is the existing auditors of MBSB’s subsidiary companies i.e. MBSB Bank Berhad and Jana Kapital Sdn Bhd. The Audit Committee and the Board have considered the efficiency of having only one (1) External Audit firm for MBSB Group and have recommended Messrs. KPMG PLT be appointed as the auditors of MBSB in place of the retiring auditors, Messrs. Ernst & Young for the financial year ending 31 December 2019, subject always to the approval from the Regulators and Shareholders. Messrs KPMG PLT has given their consent to act as statutory auditors of the Company, a copy of which is annexed hereto and marked as “Annexure 1”. 5. Item 7 of the Agenda The proposed Ordinary Resolution 6, if passed, will give powers to the Directors to issue new ordinary shares in the capital of the Company up to an aggregate amount not exceeding 10% of the paid-up share capital of the Company for the time being without having to convene a general meeting. This authority, unless revoked or varied at a general meeting, will expire at the next AGM. The purpose of the proposed mandate from shareholders is to provide MBSB the flexibility to undertake any share issuance during the financial year that is not material in nature under exceptional circumstances i.e. in the event that any capital management requirement to meet the prudential compliance capital leverage ratio or strategic opportunities involving equity deals which may require the Company to allot and issue new shares on urgent basis and which is only to be undertaken if the Board considers it to be in the best interest of the Company.
  256. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 254 254 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 NOTICE OF ANNUAL GENERAL MEETING 6. Item 8 of the Agenda Dividend Reinvestment Plan (“DRP”) is a capital management tool that would strengthen the Company’s capital position. The reinvestment of dividend entitlements by shareholders for new Company shares will enlarge the Company’s share capital and strengthen its capital position for future growth. Under the DRP, the cash that would otherwise be paid out by way of dividend will be preserved to fund the working capital and/or capital funding requirements of the Group and the Company. The proposed Ordinary Resolution 7, if passed, will empower the Directors of the Company to issue new ordinary shares pursuant to the terms and conditions of the Company’s DRP which are contained in the DRP Statement set out in Appendix I to the Circular to Shareholder dated 25 November 2013 (as may be amended in accordance with the provisions of the said DRP). The authority conferred by such renewed mandate/authority will be effective from the date of the forthcoming AGM and unless revoked or varied at a general meeting, will expire at the next AGM. 7. Item 9 of the Agenda This proposed Special Resolution 1 if passed, will give full effect to the Proposed Adoption as set out in Appendix II of the Circular to Shareholders dated 30 April 2019 accompanying the Company’s Annual Report for the financial year ended 31 December 2018. The Proposed Adoption is undertaken primarily to streamline the Constitution with the Act, which came into effect from 31 January 2017 and other relevant regulatory provisions. The Proposed Adoption is also undertaken to align the Constitution with the Listing Requirements issued by Bursa Securities to provide clarity on certain provisions thereof and to render consistency throughout in order to facilitate and further enhance administrative efficiency. Notes:1. For the purpose of determining a member who shall be entitled to attend this AGM, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd in accordance with Article 58A(2) of the Company’s Constitution and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991, to issue a General Meeting Record of Depositors as at 29 May 2019. Only a depositor whose name appears on the Record of Depositors as at 29 May 2019 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his/her behalf. 2. A member shall be entitled to appoint another person as his proxy. There shall be no restriction as to the qualification of the proxy. A proxy appointed to attend and vote at a meeting of a company shall have the same rights as the member to attend, participate, speak and vote at the meeting. 3. In the case of a corporate body, the proxy appointed must be in accordance with its constitution, if any, and the instrument appointing a proxy shall be given under the company’s common seal or under the hand of an officer or attorney duly authorised. 4. Where a member appoints more than one (1) proxy, the appointment shall be invalid unless he specifies the proportion of his holdings to be represented by each proxy. 5. Where a member of the company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities account (“omnibus account”), there is no limit to the number of proxies which the exempt authorized nominee may appoint in respect of each omnibus account it holds. An exempt authorised nominee refers to an authorised nominee defined under the Securities Industry (Central Depositories) Act 1991 (“SICDA”) which is exempted from compliance with the provisions of subsection 25A(1) of SICDA. 6. To be valid, the duly completed instrument appointing a proxy must be deposited at the Share Registrar’s office at Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No.8 Jalan Kerinchi,59200 Kuala Lumpur, Malaysia not less than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof.
  257. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 255 MALAYSIA BUILDING SOCIETY BERHAD (9417-K) annual report 2018 255 STATEMENT ACCOMPANYING THE NOTICE OF ANNUAL GENERAL MEETING Pursuant to Paragraph 8.27(2) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad 1. Ir. Moslim bin Othman is standing for re-election at the 49th Annual General Meeting of the Company to be held Grand Nexus, Level 3A, Connexion Conference & Event Centre @ Nexus, Bangsar South City, No. 7 Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia on Tuesday, 11 June 2019 at 10.00 a.m. 2. The details of Ir. Moslim bin Othman who is standing for re-election at the 49th Annual General Meeting are disclosed under the Directors’ Profile on page 14 of this Annual Report.
  258. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 256 ANNEXURE 1
  259. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 257 PROXY FORM CDS  Account No.: No. of Shares Held: I/We ___________________________________________________________________________ NRIC No. _____________________________ Tel No. ______________________________ of _______________________________________________________________________________ _________________________________________ being a member/members of MALAYSIA BUILDING SOCIETY BERHAD hereby appoint ______________________________________________________________________________ NRIC No._______________________________ of ____________________________________________________________________________________________________________________ and/or failing him ______________________________________________________________ NRIC No. _______________________________ of ____________________________________________________________________________________________________________________ or failing him, the Chairman of the Meeting as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at Grand Nexus, Level 3A, Connexion Conference & Event Centre @ Nexus, Bangsar South City, No. 7 Jalan Kerinchi, 59200 Kuala Lumpur on Tuesday, 11 June 2019 at 10.00 a.m. and at any adjournment thereof. For appointment of two proxies, the percentage of shareholdings to be represented by each proxy are as follows:Percentage (%) First Proxy (1) Second Proxy (2) Total 100 My/Our proxy to vote as indicated hereunder. NO. RESOLUTIONS FOR AGAINST Ordinary Business:1. To declare a Single-Tier Final Dividend of 5.0 sen per ordinary share for the financial year ended 31 December 2018. Ordinary Resolution 1 2. To approve payment of Directors’ Fees amounting to RM1,877,013.52 (MBSB : RM839,999.00 and MBSB Bank : RM1,037,014.52) for the financial year ended 31 December 2018. Ordinary Resolution 2 3. To approve payment of benefits (excluding Directors’ Fees) payable to Directors from the date of this AGM until the next AGM of the Company in 2020. Ordinary Resolution 3 4. To re-elect Ir. Moslim bin Othman who retire in accordance with Article 86 of the Company’s Constitution, and who being eligible offer himself for re-election. Ordinary Resolution 4 5. To appoint Messrs. KPMG PLT as Auditors of the Company in place of the retiring auditors, Messrs. Ernst & Young and to authorise the Directors to determine their remuneration. Ordinary Resolution 5 Special Business:- 6. Authority allot and issue shares. Ordinary Resolution 6 7. To allot and issue shares in relation to the Dividend Reinvestment Plan. Ordinary Resolution 7 8. Proposed Adoption of a New Constitution of the Company Special Resolution 1 (Please indicate with an ‘x’ in the space indicated above as to how you wish to cast your vote. If no specific directions as to voting are given, the proxy shall vote or abstain from voting at his/her full discretion) ________________________________ Date _________________________________ Signature of member
  260. MBSBar2018 (CJ).qxp_Layout 1 17/04/2019 5:43 PM Page 258 Notes: 1. For the purpose of determining a member who shall be entitled to attend this AGM, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd in accordance with Article 58A(2) of the Company’s Constitution and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991, to issue a General Meeting Record of Depositors as at 29 May 2019. Only a depositor whose name appears on the Record of Depositors as at 29 May 2019 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his/her behalf. 2. 3. A member shall be entitled to appoint another person as his proxy. There shall be no restriction as to the qualification of the proxy. A proxy appointed to attend and vote at a meeting of a company shall have the same rights as the member to attend, participate, speak and vote at the meeting. In the case of a corporate body, the proxy appointed must be in accordance with its constitution, if any, and the instrument appointing a proxy shall be given under the company’s common seal or under the hand of an officer or attorney duly authorised. 4. Where a member appoints more than one (1) proxy, the appointment shall be invalid unless he specifies the proportion of his holdings to be represented by each proxy. 5. Where a member of the company is an exempt authorised nominee which holds ordinary shares in the company for multiple beneficial owners in one securities account (“omnibus account”), there is no limit to the number of proxies which the exempt authorized nominee may appoint in respect of each omnibus account it holds. An exempt authorised nominee refers to an authorised nominee defined under the Securities Industry (Central Depositories) Act 1991 (“SICDA”) which is exempted from compliance with the provisions of subsection 25A(1) of SICDA. 6. To be valid, the duly completed instrument appointing a proxy must be deposited at the Share Registrar’s office at Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No.8 Jalan Kerinchi,59200 Kuala Lumpur, Malaysia not less than forty-eight (48) hours before the time for holding the meeting or any adjournment thereof. Please fold here Affix Stamp The Share Registrar Tricor Investor & Issuing House Services Sdn Bhd (11324-H) Unit 32 - 01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur Please fold here
  261. www .mbsb.com.my MALAYSIA BUILDING SOCIETY BERHAD (9417-K) 11th Floor, Wisma MBSB No. 48, Jalan Dungun Damansara Heights 50490 Kuala Lumpur