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MBSB Bank: Annual Report 2019

IM Insights
By IM Insights
3 years ago
MBSB Bank: Annual Report 2019

Amanah, Fiqh, Islam, Islamic banking, Murabahah, Shariah, Shariah compliant, Sukuk, Takaful, Tawarruq, Wakalah, Zakat, Credit Risk, Financing Assets, Net Assets, Participation, Provision, Receivables, Reserves, Sales

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  1. CM Y MY CY CMY K MTRADE RM897 .43 million Profit Before Tax 19.240% CET1 Capital Ratio DEBIT CARD E-WALLET REMAIN COST TO INCOME RATIO BELOW 30% M Y S T E R Y S H O P P I N G R E S U LT S I M P R O V E D C U S T O M E R S A T I S FA C T I O N I N D E X I M P R O V E D REFERRAL MANAGEMENT SYSTEM SUKUK WAKALAH PROGRAMME HIGHER DISBURSEMENTS CONVERSION OF CONVENTIONAL ASSETS DIGITAL BRANCH RETAIL INTERNET BANKING TREASURY TRADING & FEE INCOME GROWTH CASH RECYCLING MACHINES ANNUAL REPORT 2019 11th Floor, Wisma MBSB No. 48, Jalan Dungun Damansara Heights 50490 Kuala Lumpur Tel : 03-2096 3000 Fax : 03-2096 3144 22/05/2020 CASHLINE M MALAYSIA BUILDING SOCIETY BERHAD Registration No. 197001000172 (9417-K) C 1 CORPORATE INTERNET BANKING 00•Malaysia Building Society Berhad AR19_RET1809P_Cover_200520.pdf 10:30 PM BANKING ON TECHNOLOGY ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Registration No. 197001000172 (9417-K) RM50.71 billion in Assets
  2. Cover Rationale The abstract performance bar chart represents the dynamism of MBSB through its accomplishments in 2019 . As digitisation becomes a key enabler in the banking industry, MBSB believes in staying relevant by enhancing its digital capabilities. With that, Banking on Technology has been established as its ethos.
  3. Table of Contents OVERVIEW 02 Our Profile 03 Corporate Information 04 Corporate Structure 05Awards and Accolades 06Calendar of Events LEADERSHIP 12Profile of Board of Directors: MBSB 18Profile of Board of Directors: MBSB Bank 28Profile of Shariah Advisory Committee (SAC) 32Profile of Group President and CEO 34Profile of Management Team: MBSB Bank 42MBSB Bank Vision and Core Values 43MBSB Bank Branches MANAGEMENT DISCUSSION AND ANALYSIS 48 Market Overview for 2019 50 Facing the Headwinds 50 Creating Sustainable Value 52 Value Creation Model 54 Strategic Review 60Outlook 62 Moving forward 63 COVID-19 Update 66 Financial Highlights CORPORATE GOVERNANCE 70Corporate Governance Overview Statement 82Additional Compliance Statement 84Statement on Risk Management and Internal Control 98Report of the Audit Committee FINANCIAL STATEMENTS 104 Financial Statements STAKEHOLDER INFORMATION 323Analysis of Shareholdings 326Schedule of Properties
  4. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD   02 Our  Profile  MALAYSIA BUILDING SOCIETY BERHAD HISTORY IN BRIEF 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. 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. www.mbsb.com.my MALAYSIA BUILDING SOCIETY BERHAD CORPORATE HIGHLIGHTS MBSB has been granted with an exemption under Section 7(4) of the Borrowing Companies Act 1969 (BCA). 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 FCA was later repealed by Banking and Financial Institutions Act 1989 (BAFIA). 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. Corporate Information BOARD OF DIRECTORS 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 GROUP PRESIDENT AND CHIEF EXECUTIVE OFFICER Datuk Seri Ahmad Zaini bin Othman 03 AUDITORS KPMG PLT (AF 0758) (Chartered Accountants) REGISTERED OFFICE COMPANY SECRETARIES Koh Ai Hoon (MAICSA 7006997) Practicing Certificate No.: 201908003748 Tong Lee Mee (MAICSA 7053445) Practicing Certificate No.: 201908001316 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 STOCK EXCHANGE LISTING Puan Zaidatul Mazwin binti Idrus Non-Independent Executive Director Encik Mohamad Abdul Halim bin Ahmad Independent Non-Executive Director REGISTRAR 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 Main Market of Bursa Malaysia Securities Berhad (Listed since 14 March 1972) www.mbsb.com.my
  6. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD   04 Corporate Structure 100% 100% MBSB Bank Berhad Idaman Usahamas Sdn Bhd 200501033981 (716122-P) 200501031076 (713213-W) (in Member’s Voluntary Winding-up) 100% 100% Jana Kapital Sdn Bhd Ombak Pesaka Sdn Bhd 201301012769 (1042607-U) 201101003786 (931926-X) 100% 100% Malaya Borneo Building Society Limited 195002000016 (991834-T) 100% Definite Pure Sdn Bhd 199601006810 (379156-D) 100% MBSB Project Management Sdn Bhd 199701039021 (454521-D) 100% MBSB Properties Sdn Bhd 198001001895 (55678-T) 100% MBSB Tower Sdn Bhd 201201039931 (1024409-X) www.mbsb.com.my Malaysia Building Society Berhad 197001000172 (9417-K) 88 Legacy Sdn Bhd 201401028909 (1104995-A) 100% Sigmaprise Sdn Bhd 200001023133 (525741-H) 100% MBSB Development Sdn Bhd 199201011105 (242608-P) 92% Prudent Legacy Sdn Bhd 199601010638 (382987-W)
  7. Awards and Accolades 05 The Best Structured Finance Sukuk Asia Pacific The Asset Asian Awards 2019 2nd Place Best Independent Assessment Malaysian e-Payments Excellence Awards 2018 Appreciation Award PINTAR Foundation 10th Anniversary www .mbsb.com.my
  8. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD   06 Calendar of Events 24 25 ROYAL CHULAN DAMANSARA, KUALA LUMPUR Hub and Spoke Congress 2019 An event to reward operating excellence at branches, graced by Chief Operations Officer, Hj Asrul Hazli Salleh and Chief Corporate Officer, Puan Azlina Mohd Rashad. Hulu Langat, SELANGOR Sejahtera Programme Handover Ceremony Chief Corporate Officer, Puan Azlina Mohd Rashad handed the mock house key to Sejahtera Programme beneficiary Encik Farul Rafizi at the key handover ceremony. February 2019 February 2019 28 16 22 ST REGIS HOTEL, KUALA LUMPUR Analyst Briefing President and Chief Executive Officer, Datuk Seri Ahmad Zaini Othman and Chief Financial Officer, Encik Tang Yow Sai presented analysts with MBSB’s FYE 2018 financial results. Taman Tugu NURSERY T rail C onservation Programme The bank’s employees volunteered to plant trees and cleaned the trail which is now a conservation area in Kuala Lumpur. ST REGIS HOTEL, KUALA LUMPUR IFN Award MBSB Bank was the recipient of the ‘Deals of The Year’ award at the IFN Awards 2019. Chief Business Officer, Datuk Nor Azam M Taib represented the bank to receive the award. February 2019 www.mbsb.com.my March 2019 March 2019
  9. 07 27 02 ISPACE , PLAZA VADS KUALA LUMPUR GROW THE GOOSE FINANCIAL LITERACY PROGRAMME The children of MBSB Bank’s employees participated in the financial literacy programme which taught them the value of money and how to manage their finances. WISMA MBSB, KUALA LUMPUR MBSB Bank 1st Anniversary To celebrate the bank’s 1st anniversary, exclusive merchandises were given to all employees. March 2019 April 2019 24 30 04 Hilton Hotel, Kuala Lumpur PrimeWin CASA-i Launch MBSB Bank launched its PrimeWin campaign together with the introduction of the MBSB Bank’s VISA debit card-i. RAWANG, SELANGOR Ramadhan Cheer MBSB Bank contributed electrical appliances and groceries to Rumah Anak Kesayangan and Pusat Jagaan Kasih Ilahi. SK SENIBAI, NEGERI SEMBILAN Seminar BH Didik 2019 A seminar to prepare year 6 students for the UPSR examination was conducted in collaboration with BH Didik. April 2019 April 2019 May 2019 www.mbsb.com.my
  10. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD   08 Calendar of Events 11 15 24 ALOFT SENTRAL, KUALA LUMPUR Iftar with Orphans 200 orphans were treated Iftar and were also given school bags and other gifts. ST REGIS HOTEL, KUALA LUMPUR ANALYST BRIEFING Sharing the 2Q19 financial results with analysts, President and Chief Executive Officer, Datuk Seri Ahmad Zaini and Chief Financial Officer, Encik Tang Yow Sai also answered financial related questions on that day. PUSAT GELANDANGAN MEDAN TUNKU, KUALA LUMPUR SOUP KITCHEN In our effort to alleviate the plight of the destitute, MBSB Bank conducted its soup kitchen in collaboration with Pertubuhan Tindakan Wanita Islam (PERTIWI). It was joined by the management committee, board of directors, alongside staff who volunteered to distribute food and clothes to the destitute at the transit centre. May 2019 May 2019 May 2019 11 19 CONNEXION@NEXUS BANGSAR SOUTH, KUALA LUMPUR 49TH ANNUAL GENERAL MEETING The company’s shareholders were present at the AGM where management committee and board of directors tabled the audited reports on the company’s performance. DORSETT GRAND SUBANG, SELANGOR Raya Open House Corporate clients and media representatives were invited to the bank’s Hari Raya Open House. June 2019 www.mbsb.com.my June 2019
  11. 09 04 26 27 FOUR SEASONS HOTEL , KUALA LUMPUR Triple A Awards MBSB Bank received the Best Structured Sukuk Award at the Asset Asian Award and Chief Financial Officer, Encik Tang Yow Sai accepted the award on the bank’s behalf. PUSAT GELANDANGAN MEDAN TUNKU, Kuala Lumpur SOUP KITCHEN MBSB Bank’s volunteers, comprising of employees served food and basic necessities to the destitute at the transit centre. SK JLN SUNGAI BESI, KUALA LUMPUR Seminar BH Didik 2019 Interesting approaches were introduced to students on how to answer UPSR’s English language exam questions. July 2019 July 2019 July 2019 05 17 07 SIME DARBY CONVENTION CENTRE, SELANGOR The Journey 2.0 Launch With the success of The Journey campaign, MBSB Bank launched The Journey 2.0 to reward the bank’s loyal customers. KIDZANIA KUALA LUMPUR Kidzania Experience Children of MBSB Bank employees were given the chance to explore the educational theme park and understand the roles of different jobs in various industries. Nibong Tebal, Penang Tree Planting A conservation project was done with the planting of trees in the mangrove area to help improve biodiversity. August 2019 August 2019 September 2019 www.mbsb.com.my
  12. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD   10 Calendar of Events 07 07 22 KG. KUANTAN FIREFLIES PARK, KUALA SELANGOR River Clean Up MBSB Bank staff volunteered to clean Sg Selangor by clearing up rubbish in the river using boats as Sg Selangor is the main source of water in Selangor. KUALA SG. KERTEH, TERENGGANU Beach Cleaning The first beach cleaning in the East Coast was done with the help of MBSB Bank employees as volunteers. WANGSA BOWL@ONE UTAMA, PETALING JAYA MBSB Bank - Media Bowling Tournament In strengthening our relationship with the media, a friendly bowling tournament was being held with several media agencies, in collaboration with National News Agency (BERNAMA). September 2019 September 2019 September 2019 05 10 KOMPLEKS SUKAN AIR, PUTRAJAYA Oxygenation Boat Race For the first time ever, MBSB Bank participated in the boat race and its team, ‘Waverunners’ won second runner up for Bank Category. SK TAMBAK JAWA, SELANGOR Financial Literacy Programme Using simple yet effective methods, the students were taught the importance of financial management. October 2019 www.mbsb.com.my October 2019
  13. 11 02 02 22 Panti Bird Sanctuary , Johor Tree Planting In an effort to save the environment, a tree planting activity was done in collaboration with Johor State Forestry Department. TANJUNG ARU, KOTA KINABALU Beach Clean Up MBSB Bank staff from Kota Kinabalu volunteered for the beach cleaning activity. Training Room, Wisma MBSB MBSB Bank Blood Donation In collaboration with National Blood Bank, MBSB Bank employees donated the gift of life. November 2019 November 2019 November 2019 05 December 2019 SOFITEL HOTEL, KUALA LUMPUR In Service Training (INSPRO) Newcomers were introduced to MBSB Bank’s values and culture shared management committee. www.mbsb.com.my
  14. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership   12 Profile of Board of Directors: Malaysia Building Society Berhad TAN SRI ABDUL HALIM BIN ALI Chairman, Non-Independent Non-Executive Director Nationality/Age/Gender: Malaysian/76/Male Date of Appointment: 22 June 2001 Academic/Professional Qualification(s): • Bachelor of Arts (Hons) in History, University of Malaya Working Experience and Occupation Present Directorship(s) Other listed entities: • 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 IJM Corporation Berhad (2007–2019) • 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 (1978–1982) Current Membership of Board Committee(s) in MBSB: Nil Attendance in 2019: • All 22 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 2019. www.mbsb.com.my
  15. 13 ENCIK LIM TIAN HUAT Senior Independent Non-Executive Director Nationality /Age/Gender: Malaysian/65/Male Date of Appointment: 4 April 2011 Academic/Professional Qualification(s): • Fellow, Association of Chartered Certified Accountants • Council Member, Insolvency Practitioners Association of Malaysia • Member, Malaysian Institute of Accountants (MIA) • Member, Malaysia Institute of Certified Public Accountant (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 • Pacific & Orient Insurance Co. 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 2019: • All 22 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 2019. www.mbsb.com.my
  16. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  14 Profile of Board of Directors: Malaysia Building Society Berhad Ir. MOSLIM BIN OTHMAN Independent Non-Executive Director Nationality/Age/Gender: Malaysian/65/Male Date of Appointment: 21 September 2015 Academic/Professional Qualification(s): • Bachelor of Engineering (Civil), University of Melbourne • Master of Science (Building Services), Brunel University, London •Professional Engineer with Practicing Certificate, 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, Option Committee Attendance in 2019: • All 22 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 2019. www.mbsb.com.my
  17. 15 PUAN LYNETTE YEOW SU-YIN Academic /Professional Qualification(s): • Member, Malaysian Bar • Master of Arts, University of Cambridge • Bachelor of Arts (Hons), University of Cambridge Independent Non-Executive Director Working Experience and Occupation Nationality/Age/Gender: Malaysian/50/Female Date of Appointment: 22 March 2017 Present Directorship(s): Other listed entities: Nil Other Public Companies: • MBSB Bank Berhad Present Appointment(s): • Director, Themed Attractions Resorts and Hotels Sdn Bhd • Consultant, Sanjay Mohan, Advocates & Solicitors Past Directorship(s) and/or Appointment(s): •Panel of Mediators, Securities Industry Dispute Resolution Center (SIDREC) (2015–2019) • 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, Audit Committee Attendance in 2019: • All 22 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 2019. www.mbsb.com.my
  18. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  16 Profile of Board of Directors: Malaysia Building Society Berhad PUAN ZAIDATUL MAZWIN BINTI IDRUS Non-Independent Executive Director* Nationality/Age/Gender: Malaysian/50/Female Date of Appointment: 14 October 2019 Academic/Professional Qualification(s): • Bachelor of Law (LLB), International Islamic University Malaysia Working Experience and Occupation Present Directorship(s): Other listed entities: Nil Other Public Companies: Nil Present Appointment(s): • Head of Legal Department, Employees Provident Fund • Director, Kwasa Properties Sdn Bhd Past Directorship(s) and/or Appointment(s): Nil Current Membership of Board Committee(s) in MBSB: Nil Attendance in 2019: • 3 out of 4 Board Meetings after the appointment date. Declaration: • No family relationship with any director and major shareholders of MBSB. • Nominee of Employee Provident Fund Board (“EPF”). • 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 2019. *Puan Zaidatul Mazwin binti Idrus does not hold any executive position in MBSB and does not have any management responsibilities in MBSB. Her designation as Non-Independent Executive Director (“NIED”) of MBSB 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 and Puan Zaidatul Mazwin binti Idrus has management responsibilities in EPF. www.mbsb.com.my
  19. 17 ENCIK MOHAMAD ABDUL HALIM BIN AHMAD Independent Non-Executive Director Nationality /Age/Gender: Malaysian/60/Male Date of Appointment: 2 March 2020 Academic/Professional Qualification(s): •Bachelor of Science of Civil Engineering (First Class Honour), Imperial College, University of London •Associate member, Institute of Chartered Accountants England and Wales • Member of Malaysian Institute of Accountants Working Experience and Occupation Present Directorship(s): Other listed entities: Nil Other Public Companies: Nil Present Appointment(s): Nil Past Directorship(s) and/or Appointment(s): • Director, Perbadanan Insurans Deposit Berhad (2012–2018) • Director, Sime Darby Utilities Sdn Bhd (2011–2017) • Director, TMD Berhad (2004–2008) • Managing Director, Saujana Consolidated Berhad (1996–2017) • Managing Director, Saujana Resort (M) Berhad (1996–2014) • Director, Shangri-La Hotel (M) Berhad (1996–2005) • Managing Director, Landmarks Berhad (1996–2005) • Group Chief Executive, Peremba (Malaysia) Sdn Bhd (1994–2014) • Director, Rashid Hussain Berhad (1994–2003) • General Manager of Finance, Landmarks Berhad (1988–1993) • Senior Manager of Finance, Amanah Merchant Bank Berhad (1987–1988) • Audit Senior, Arthur Andersen & Co (KL) (1986–1987) • Audit Trainee/Senior, Arthur Andersen & Co. (London) (1982–1985) Current Membership of Board Committee(s) in MBSB: • Member, Risk Management Committee • Member, Audit Committee Attendance in 2019: N/A 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 as at the date of his appointment. www.mbsb.com.my
  20. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  18 Profile of Board of Directors: MBSB Bank Berhad TAN SRI ABDUL HALIM BIN ALI Chairman, Non-Independent Non-Executive Director Nationality/Age/Gender: Malaysian/76/Male Date of Appointment: 7 February 2018 Academic/Professional Qualification(s): • 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, Sedania Innovator Berhad • Chairman, Universiti Teknologi Malaysia Past Directorship(s) and/or Appointment(s): • Chairman of IJM Corporation Berhad (2007–2019) • 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 (1978–1982) Current Membership of Board Committee(s) in MBSB Bank Berhad: Nil www.mbsb.com.my
  21. 19 ENCIK SAZALIZA BIN ZAINUDDIN Non-Independent Executive Director * Nationality/Age/Gender: Malaysian/47/Male Date of Appointment: 7 February 2018 Academic/Professional Qualification(s): • ACCA (UK) •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. www.mbsb.com.my
  22. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  20 Profile of Board of Directors: MBSB Bank Berhad ENCIK AW HONG BOO Senior Independent Non-Executive Director Nationality/Age/Gender: Malaysian/70/Male Date of Appointment: 7 February 2018 Academic/Professional Qualification(s): • Member, Malaysian Institute of Accountants (MIA) • Member, Malaysian Institute of Certified Public Accountant (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 Nominating & Remuneration Committee www.mbsb.com.my
  23. 21 DATUK JOHAR BIN CHE MAT Independent Non-Executive Director Nationality /Age/Gender: Malaysian/67/Male Date of Appointment: 19 December 2017 Academic/Professional Qualification(s): • Bachelor of Economics, University of Malaya Working Experience and Occupation Present Directorship(s) and/or Appointment(s): • Chairman, Malaysian Re (Dubai) Ltd • Chairman, MNRB Holdings Berhad • Chairman, Takaful Ikhlas Family Berhad • Chairman, Takaful Ikhlas General Berhad • Director, Motordata Research Consortium Sdn Bhd • Director, Rural Capital Berhad • Director, Dagang NeXchange 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 www.mbsb.com.my
  24. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  22 Profile of Board of Directors: MBSB Bank Berhad DATUK AZRULNIZAM BIN ABDUL AZIZ Independent Non-Executive Director Nationality/Age/Gender: Malaysian/50/Male Date of Appointment: 1 March 2017 Academic/Professional Qualification(s): • Chartered Professional in Islamic Finance • Executive Education-Driving Digital Strategy, Harvard Business School, USA • Leadership Programme, Oxford University, UK • 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): • Chairman, Pelaburan MARA Berhad • Director, Goldina International Sdn Bhd • Independent Director, AmMetlife Takaful Berhad • Executive Director, CR FinaCapital Sdn Bhd • Director, Petrowangsa Sdn Bhd Past Directorship(s) and/or Appointment(s): • Director, Dagong PMB Holdings Berhad (2018–2019) •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 • Member, Board Information Technology Oversight Committee www.mbsb.com.my
  25. 23 PUAN LYNETTE YEOW SU-YIN Independent Non-Executive Director Nationality /Age/Gender: Malaysian/50/Female Date of Appointment: 7 February 2018 Academic/Professional Qualification(s): • Member, Malaysian Bar • 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 • Consultant, Sanjay Mohan, Advocates & Solicitors Past Directorship(s) and/or Appointment(s): •Panel of Mediators, Securities Industry Dispute Resolution Center (SIDREC) (2015–2019) • 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 www.mbsb.com.my
  26. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  24 Profile of Board of Directors: MBSB Bank Berhad TUNKU ALINA BINTI RAJA MUHD ALIAS Non-Independent Non-Executive Director Nationality/Age/Gender: Malaysian/56/Female Date of Appointment: 7 February 2018 Academic/Professional Qualification(s): •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 www.mbsb.com.my
  27. 25 DR . LOH LEONG HUA Independent Non-Executive Director Nationality/Age/Gender: Malaysian/62/Male Date of Appointment: 1 June 2018 Academic/Professional Qualification(s): • 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, Pacific & Orient Insurance Co. Berhad • Member, Rating Committee, Malaysian Rating Corporation Berhad Past Directorship(s) and/or Appointment(s): • Director, Transnational Insurance Brokers (M) Sdn Bhd (2012–2019) • Director, Asian Finance Bank Berhad (2017–2018) • 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 • Member, Board Information Technology Oversight Committee www.mbsb.com.my
  28. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  26 Profile of Board of Directors: MBSB Bank Berhad ENCIK KAMARULZAMAN BIN AHMAD Independent Non-Executive Director Nationality/Age/Gender: Malaysian/45/Male Date of Appointment: 1 October 2019 Academic/Professional Qualification(s): • British A-Levels, New College Cardiff, United Kingdom •BEng (Hons) Electrical and Electronics Engineering, Imperial College of Science & Technology, London, United Kingdom Working Experience and Occupation Present Directorship(s) and/or Appointment(s): • Managing Director, LCTAsia Sdn Bhd Past Directorship(s) and/or Appointment(s): • Managing Director of a Military Cybersecurity Company (2014–2017) • Managing Director, Endeavor Malaysia (2013–2014) • CEO, CaterhamJet Malaysia (2013) • Director, Asian Aviation Centre of Excellence (2011–2013) • Regional Head of Customer Experience, AirAsia (2011–2013) • Regional Head of Strategy and Planning, AirAsia (2010–2011) • Various senior positions in PETRONAS Group (2006–2010) • Formula 1 Electronics Engineer (2000–2005) Current Membership of Board Committee(s) in MBSB Bank Berhad: • Chairman, Board Information Technology Oversight Committee • Member, Board Risk Management & Compliance Committee www.mbsb.com.my
  29. 27 ENCIK ARUL SOTHY S MYLVAGANAM Independent Non-Executive Director Nationality /Age/Gender: Malaysian/63/Male Date of Appointment: 5 May 2020 Academic/Professional Qualification(s): • Fellow, Association of Chartered Certified Accountants, UK • Fellow, Certified Public Accountants, Australia • Certified Financial Planner Working Experience and Occupation Present Directorship(s) and/or Appointment(s): • Director, Takaful Ikhlas General Berhad • Director, Agensi Pekerjaan Hays (Malaysia) Sdn Bhd • Director, Hays Specialist Recruitment Holding Sdn Bhd • Principal, Myles Advisory Past Directorship(s) and/or Appointment(s): • Director, MNRB Holdings Berhad (2017–2019) • Director, Malaysia National Reinsurance Berhad (2016–2019) • Group Chief Operating Officer, PNB Commercial Sdn Bhd (2009–2011) •General Manager/CFO, Syarikat Perumahan Pegawai Kerajaan Sdn Bhd (1995–2009) • Senior Manager, Audit, Ernst & Young Kuala Lumpur (1987–1994) • Accountant, North American Travel, London, UK (1986–1987) •Articled Student Accountant, Simmons Cohen Fine & Partners, London, UK (1978–1985) Current Membership of Board Committee(s) in MBSB Bank Berhad: • Member, Board Audit Committee • Member, Board Risk Management & Compliance Committee www.mbsb.com.my
  30. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  28 Profile of Shariah Advisory Committee (SAC) TN. HJ. MOHD BAHRODDIN BIN BADRI Chairman Tn. Hj. Mohd Bahroddin Bin Badri is a Shariah Consultant at ISRA Consulting Sdn. Bhd. cum Researcher at the International Shariah Research Academy and also a for Islamic Finance (ISRA). Prior to joining ISRA in 2012, he has served as an academician 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 contributions to Islamic finance industry include involvement in developing few Policy Guidelines (Shariah Standards) issued by Bank Negara Malaysia and Shariah-compliant Schemes issued by the Companies Commission of Malaysia (SSM). He is one of the writers of Islamic finance textbook, “Islamic Financial System: Principles & Operations” (2 Ed) and sukuk textbook “Sukuk: Principles and Practices”. He has produced several research papers and articles on Shariah and Islamic finance and has presented to international conferences, forums and workshops such as in Brunei, Singapore, Jakarta, Oman, Istanbul, Morocco 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 held in Sejong University, Seoul Korea. He is also engaged closely with various stakeholders from financial institutions and non-financial institutions by conducting trainings, advisory and consultancy services locally and globally. Currently, he is pursuing his Doctoral study in Business at the International University Malaya-Wales (IUMW). www.mbsb.com.my
  31. 29 TN . HJ. MOHD NASIRUDDIN BIN MOHD KAMARUDDIN Tn. Hj. 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 his retirement in January, 2018. During his twenty-eight (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 joined the Islamic Banking Division in 1999 and was responsible for the setting up of the Islamic Banking subsidiary in 2008 and was also responsible for building the infrastructure to prepare the Bank to fully comply with BNM’s Shariah Governance Framework and the operational requirements laid down in Islamic Financial Services Act (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, Tn. Hj. Mohd Nasiruddin is pursuing his doctoral degree in Islamic banking at the same university. He was appointed member of MBSB Bank Shariah Advisory Committee in February, 2018. www.mbsb.com.my
  32. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  30 Profile of Shariah Advisory Committee (SAC) SOHIBUS SAMAHAH DR. LUQMAN BIN HJ. ABDULLAH www.mbsb.com.my Dr. Luqman Bin Hj. Abdullah, is currently a senior lecturer of Fiqh and Usul alFiqh/Islamic Jurisprudence Department, Academy of Islamic Studies, University of Malaya. He has been appointed as Federal Territories Mufti from 15th May 2020 to 14th May 2022. He obtained his Doctoral Degree (Ph.D) in Islamic Law of Property, University of Edinburg, Scotland (2005) and Bachelor of Arts (Honours) in Shariah, University of Malaya (1993). His areas of specialization are Islamic Law of Muamalat, Islamic Jurisprudence/Legal Theories and Shariah/ Fiqh Textual Studies. Apart from being a Member of the Shariah Advisory Committee of MBSB Bank Berhad, he serves as a Member of the Shariah and Fatwa Committee at financial institutions, including Zurich Takaful Malaysia Berhad, Amanah Raya Berhad, Department of Islamic Development Malaysia (Jabatan Kemajuan Islam Malaysia) and Kelantan Islamic Religious Council. He 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.
  33. 31 DR . AHMAD FAIZOL BIN ISMAIL Dr. Ahmad Faizol bin Ismail is a Senior Lecturer and Head of Shariah Department, Faculty of Islamic Contemporary Studies at Universiti Sultan Zainal Abidin (UniSZA). Before that, he was the Post-Graduate Coordinator at Faculty of Islamic Contemporary Studies, UniSZA. Dr. Ahmad Faizol obtained his Ph.D. in Law from School of Law, University of Leeds, United Kingdom, and Masters of Shariah from the University of Malaya (UM). He also holds a degree in Shariah from Al-Azhar University and Diploma in Islamic Studies (Shariah) from Kolej Ugama Sultan Zainal Abidin (KUSZA). He specialises in the Islamic financial system, Shariah governance, and corporate governance. He teaches various subjects such as fiqh al-mua`malat, usul al-fiqh, al-qawaid al-fiqhiyyah and al-siyasah al-shar`iyyah which are also his research interests. He has conducted several types of research in social sciences and humanities, accumulating more than RM1 million research grants in value. He managed multiple international conferences and seminars, as well as other institutional academic activities in his previous institutions. After finishing his Ph.D. in 2019, he has been active as an editor for several academic journals, especially in Islamic finance. www.mbsb.com.my
  34. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  32 Profile of Group President and CEO DATUK SERI AHMAD ZAINI BIN OTHMAN Group President and Chief Executive Officer Nationality/Age/Gender: Malaysian/63/Male Date of Appointment: 26 February 2009 Academic/Professional Qualification(s): •Fellow Chartered Member of the Chartered Institute of Islamic Finance Professional (CIIF) (2019) •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 • BSc in Finance, University of Southern Illinois, USA • Higher National Diploma (HND) in Accounting, Manchester, England Working Experience and Occupation Present Directorship(s): Other listed entities: Nil Other Public Companies: Nil Present Appointment(s): •AI-xChange: CEO Faculty Programme, Universiti Utara Malaysia. Past Directorship(s) and/or Appointment(s): •Adjunct Professor, School of Economics, Finance and Banking, UUM College of Business, Universiti Utara Malaysia (2016–2018) • 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 2019. www.mbsb.com.my
  35. 33 www .mbsb.com.my
  36. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  34 Profile of Management Team Tang Yow Sai Aged 57, Malaysian Chief Financial Officer, Finance Division Appointment to current position 1 October 2010 Committee Memberships • Credit and Rehabilitation Assessment Committee/ Management Investment & Credit Committee (CARAC/MICC) • Management Committee (MANCO) •Assets and Liabilities Committee (ALCO) • Sigmaprise Consultative Committee •Capital Management Committee (CMC) 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) •Chartered Professional in Islamic Finance, Chartered Institute of Islamic Finance Professionals (CPIF) www.mbsb.com.my Skills and Experience Tang Yow Sai joined MBSB on 20 December 2004. He was appointed as MBSB’s Chief Financial Officer (CFO) on 1 October 2010. As CFO, he oversees all financial functions for MBSB, MBSB Bank and MBSB’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. He has more than 34 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.
  37. 35 Lim Seong Soon Aged 58 , Malaysian Chief Risk Officer, Risk Management Division Appointment to current position 20 May 2013 Committee Memberships •Assets and Liabilities Committee (ALCO) •Capital Management Committee (CMC) Permanent Invitees • C o m m i t t e e / M a n a g e m e n t 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 MBSB on 20 May 2013 as Chief Risk Officer (CRO). As CRO, he leads the development and drives the execution of a comprehensive risk policy framework and strategy to mitigate risks for MBSB Bank at an organisationwide level. He has 32 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 MBSB 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. www.mbsb.com.my
  38. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  36 Profile of Management Team ANIZA BINTI ZAKARIA Aged 46, Malaysian Chief Internal Auditor, Internal Audit Division Appointment to current position 1 January 2017 Committee memberships Secretary for Audit Committee Permanent Invitee Risk Management and Compliance Committee (RMC) 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 •Masters in Islamic Finance Practice, INCEIF – The Global University of Islamic Finance www.mbsb.com.my Skills and experience Aniza began her employment at MBSB on 13 August 2014 as Assistant Vice President, Internal Audit Division, after acquiring over 21 years of industry experience from several banking institutions in Malaysia. On 1 January 2017, she was appointed as Chief Internal Auditor for MBSB. 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 MBSB, Aniza was with Kuwait Finance House Malaysia Berhad’s Internal Audit Division. Aniza is also an Associate Member of the Institute of Internal Auditors Malaysia (IIAM), Senior Associate Member of Chartered Institute of Islamic Finance Professionals and Associate of Asian Institute of Chartered Bankers. Aniza is a member of Development Committee for Certified Professional Shariah Auditor, by IBFIM and Universiti Sains Islam Malaysia and in 2019, Aniza was listed 127th in the WOMANi top 300 Most Influential Women in Islamic Business and Finance. WOMANi is a part of the women empowerment programme by Cambridge IFA, a UKbased financial intelligence house, to highlight enormously important roles that exceptionally talented women are playing in Islamic business and finance.
  39. 37 Tengku Khalizul Bin Tengku Khalid Aged 45 , Malaysian Chief Compliance Officer, Compliance Division Appointment to current position 7 February 2018 Permanent Invitees •Management Committee (MANCO) •Assets and Liabilities Committee (ALCO) •Capital Management Committee (CMC) 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 •Chartered Professional in Islamic Finance, Chartered Institute of Islamic Finance Professionals (CPIF) Skills and experience Tengku Khalizul joined MBSB 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. He has more than 17 years of working experience in auditing with expertise in branch operations, head office operations, retail credit, wealth management bancassurance and asset management. www.mbsb.com.my
  40. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  38 Profile of Management Team Datuk Nor Azam Bin M. Taib Aged 51, Malaysian Chief Business Officer, Business Division Appointment to current position 7 February 2018 Committee memberships •Management Committee (MANCO) •Assets and Liabilities Committee (ALCO) •Project Steering Committee – Business and Operations Permanent Invitee • 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) www.mbsb.com.my Skills and experience Datuk Nor Azam has more than 26 years of experience in banking and finance sector in the areas of auditing, structured lending, business banking and corporate business. Before MBSB, he was Head of Business Banking in Bank Islam (M) Berhad. Datuk Nor Azam joined MBSB 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.
  41. 39 Risham Akashah Bin KamaruzamaN Aged 47 , Malaysian Chief Technology Officer, Technology Division Appointment to current position 1 November 2018 Committee memberships • Credit and Rehabilitation Assessment Committee/ Management Investment & Credit Committee (CARAC/MICC) • Management Committee (MANCO) •Assets and Liabilities Committee (ALCO) •Project Steering Committee – Business and Operations 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 MBSB 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 November 1st 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-toend product launches across the online customer journey that enhances customer experience. www.mbsb.com.my
  42. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  40 Profile of Management Team Hj Asrul Hazli Bin Salleh Aged 41, Malaysian Chief Operations Officer, Operations Division Appointment to current position 7 February 2018 Committee memberships •Management Committee (MANCO) •Management Investment & Credit Committee/Credit and Rehabilitation Assessment Committee (MICC/ CARAC) •Asset and Liability Committee (ALCO) •Chairman Capital Management Committee (CMC) •Chairman Project Steering Committees (PSCs) •Chairman ProTem Committee •Chairman Data Analytics Working Committee (DAWC) 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), ACI-Financial Markets Association of Malaysia (ACI-FMAM) and Asian Institute of Chartered Bankers (AICB) •Intermediate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (IBFIM) •Associate Qualification in Islamic Finance, Islamic Banking and Finance Institute Malaysia (IBFIM) Skills and experience Hj Asrul Hazli joined MBSB 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 MBSB, 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. In overall, he is accountable and responsible in overseeing eight (8) departments namely Channel Management Department, Retail Credit Management Department, Corporate Credit Management & Disbursement Department, Collection & Recovery Department, Transactional Banking Department, Operations Management Department, Procurement Department and Property and Project Monitoring Department. 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. www.mbsb.com.my
  43. 41 Azlina BINTI Mohd Rashad Aged 47 , Malaysian Chief Corporate Officer, Corporate Services Division Appointment to current position 7 February 2018 Committee memberships •Management Committee (MANCO) •Assets and Liabilities Committee (ALCO) Permanent Invitee •Credit and Rehabilitation Assessment Committee/Management Investment & Credit Committee (CARAC/MICC) 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) •Chartered Professional in Islamic Finance, Chartered Institute of Islamic Finance Professionals (CPIF) Skills and experience Azlina joined MBSB on 6 April 2009 as 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 MBSB’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 currently tasked to direct Strategic Communication, Customer Experience Management, KPI & Performance Management, Product Development & Management, Strategic Business Planning as well as administering Shariah Secretariat & Advisory. Azlina was ranked 40th in the top 300 Most Influential Women in Islamic Business and Finance in 2019 by WOMANi. WOMANi is a part of the women empowerment programme by Cambridge IFA, a UKbased financial intelligence house, to highlight enormously important roles that exceptionally talented women are playing in Islamic business and finance. www.mbsb.com.my
  44. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  42 MBSB Bank Vision and Core Values OUR VISION TO BE A TOP PROGRESSIVE ISLAMIC BANK OUR CORE VALUES •HUMILITY •PROFESSIONALISM •ETHICS •EMPATHY •PASSION
  45. MBSB Bank Branches WILAYAH PERSEKUTUAN SELANGOR DAMANSARA Ground Floor , Wisma MBSB, 48, Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur. TEL. NO. 03-20963333 FAX NO. 03-20963376 PETALING JAYA No. 3 Jalan 52/16, 46200 Petaling Jaya, Selangor. TEL. NO. 03-79569200 FAX NO. 03-79569627 KUALA LUMPUR No. 8, Wisma RKT, Jalan Raja Abdullah, Off Jalan Sultan Ismail, 50300 Kuala Lumpur. TEL. NO. 03-26912689 FAX NO. 03-26912830 CHERAS 185, Jalan Sarjana, Taman Connaught, 56000 Cheras, Kuala Lumpur. TEL. NO. 03-91322955 FAX NO. 03-91322954 PUTRAJAYA No.30, Jalan Diplomatik 3/1, Presint 15, 62000 Putrajaya. TEL. NO. 03-88810569 FAX NO. 03-88810572 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 JALAN SULTAN ISMAIL Ground Floor, Podium Block, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur. TEL. NO. 03-20791144 FAX NO. 03-20791100 KLANG 33, Jalan Tiara 3, Bandar Baru Klang, 41150 Klang, Selangor. TEL. NO. 03-33426822 FAX NO. 03-33411410 BATU CAVES Lot 1-0, Jalan SM1, Taman Sunway Batu Caves 68100 Batu Caves, Selangor. TEL. NO. 03-61777956 FAX NO. 03-61772404 BANDAR BARU BANGI No. 49, Jalan Medan Pusat 2D, Seksyen 9, 43650 Bandar Baru Bangi, Selangor. TEL. NO. 03-89257584 FAX NO. 03-89257708 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 43 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 KAJANG No. 2A-G, Jalan Semenyih, Pekan Kajang, 43000 Kajang, Selangor. TEL. NO. 03-87301521 FAX NO. 03-87401436 PULAU PINANG 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 BUTTERWORTH No. 2783 Jalan Chain Ferry, Taman Inderawasih, 13600 Perai, Pulau Pinang. TEL. NO. 04-3980145 FAX NO. 04-3980898 SHAH ALAM EMIRA Lot R-01-01 & R-01-02, Emira D’Kayangan, Seksyen 13, 40100 Shah Alam, Selangor. TEL. NO. 03-55231381 FAX NO. 03-55231392 www.mbsb.com.my
  46. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD Leadership  44 MBSB Bank Branches KEDAH PERAK ALOR SETAR No. 165 & 166 Kompleks Perniagaan Sultan Abdul Hamid Fasa 2 11, Susur Sultan Abdul Hamid 05050 Alor Setar Kedah. TEL. NO. 04-771 4355 FAX NO. 04-772 4308 IPOH No. 45, Persiaran Greenhill, 30450 Ipoh, Perak. TEL. NO. 05-2545659 FAX NO. 05-2544748 SUNGAI PETANI No. 114, Jalan Pengkalan, Taman Pekan Baru, 08000 Sungai Petani, Kedah. TEL. NO. 04-4229302 FAX NO. 04-4212046 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 PERLIS KANGAR No. 35, Jalan Seruling, 01000 Kangar, Perlis. TEL. NO. 04-9766400 FAX NO. 04-9774141 www.mbsb.com.my TAIPING No. 1, Lot 10958, Jalan Saujana, Taman Saujana 3, 34600 Kamunting, Perak. TEL. NO. 05-8074000 FAX NO. 05-8041444 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 JOHOR JOHOR BAHRU D-1-5, D-2-5, D-3-5 & D-4-5 Pusat Komersial Bayu Tasek Persiaran Southkey 1, Kota Southkey 80150 Johor Bahru, Johor TEL. NO. 07-3364707 FAX NO. 07-3383124 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 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 BATU PAHAT No. 28 & 29, Jalan Persiaran Flora Utama, Taman Flora Utama, 83000 Batu Pahat, Johor. TEL. NO. 07-4316614 FAX NO. 07-4317382 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 MELAKA MELAKA No. 203 & 204, Jalan Melaka Raya 1, Taman Melaka Raya, 75000 Melaka. TEL. NO. 06-2828255 FAX NO. 06-2847270
  47. 45 NEGERI SEMBILAN SABAH SARAWAK SEREMBAN Lot 11-G & Lot 12-G, 11-1 & 12-1, Seremban City Centre, Jalan Pasar 70000 Seremban, Negeri Sembilan TEL. NO. 06-7638455 FAX NO. 06-7630701 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 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 TERENGGANU KOTA KINABALU Lot 11 & 12, Ground Floor, Block C, Lintasjaya Uptownship, 88300 Kota Kinabalu, Sabah. TEL. NO. 088-722500 FAX NO. 088-713503 MIRI No 1115, Ground Floor, Pelita Commercial Centre, 98000 Miri, Sarawak. TEL. NO. 085-424400 FAX NO. 085-424141 SANDAKAN Lot 201, Prima Square, Phase 3, Jalan Utara, 90000 Sandakan, Sabah. TEL. NO. 089-223400 FAX NO. 088-223544 SIBU Ground Floor, SL 166 Lorong Pahlawan 7B3, Jalan Pahlawan, 96000 Sibu, Sarawak. TEL. NO. 084-210703 FAX NO. 084-210714 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, Jln Green, Block 68, 96400 Mukah, Sarawak. TEL. NO. 084-874262 FAX NO. 084-874259 KUALA TERENGGANU 104-A, 104-B, Tingkat Bawah dan Tingkat 1 Jalan Sultan Ismail 20200 Kuala Terengganu, Terengganu. TEL. NO. 09-6227844 FAX NO. 09-6220744 KEMAMAN K-10723, Taman Chukai Utama, Fasa 4, Jalan Kubang Kurus, 24000 Kemaman, Terengganu. TEL. NO. 09-8589486 FAX NO. 09-8589291 PAHANG KUANTAN No. A157 & A159, Sri Dagangan, Jalan Tun Ismail, 25000 Kuantan, Pahang. TEL. NO. 09-5157677 FAX NO. 09-5145060 www.mbsb.com.my
  48. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 46 Management Discussion and Analysis 48 Market Overview for 2019 50 Facing the Headwinds 50 Creating Sustainable Value 52 Value Creation Model 54 Strategic Review 60Outlook 62 Moving forward 63 COVID-19 Update 66 Financial Highlights www .mbsb.com.my
  49. 47 www .mbsb.com.my
  50. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 48 Management Discussion and Analysis Malaysia Building Society Berhad together with its subsidiaries (“MBSB” or the “Group”) recorded a respectable double-digit growth in Profit After Tax for FY 2019. MBSB remained resilient and held up well against the challenging economic environment. Revenue RM3.0 billion Up 5.2% to expand at its weakest pace since 1990. Being one of the world’s largest importers, China’s slowdown inevitably caused repercussions to global economic growth, leading to weaker trade activities and investments, affecting both business and consumer confidence. Slower domestic growth Despite the challenging external environment, the Malaysian economy grew by 4.3% in 2019, albeit its slowest pace since the 2009 global financial crisis. Profit After Tax (“PAT”) RM716.9 million Malaysia GDP Growth (%) Up 11.6% Gross Financing RM35.9 billion 5.7 5.0 Up 2.0% 4.7 4.5 4.3 Malaysia’s total trade for 2019 has also contracted by 2.5% to RM1.8 trillion weighed by declines in both manufactured and commodities exports. As a measure to sustain economic headwinds Bank Negara Malaysia (BNM) has lowered the Overnight Policy Rate (OPR) systematically, a few times. It was reduced to 3.00% in May 2019 and the financial impact of the pandemic has forced them to bring down the OPR further to 2.75% in January, 2.50% in March and further reduced by 0.50% to 2.00% in May 2020. Malaysia Loan Growth (%) Net Profit Margin 2.89% Sector growth was slower across most industries, especially for the mining and quarry sector and the construction sector which experienced contraction of 1.5% and minuscule growth of 0.2% respectively for 2019. 2015 2016 2017 2018 2019 7.9 7.7 Down 17 basis points (“bps”) Source: Department of Statistics Malaysia MARKET OVERVIEW FOR 2019 2019 has been a challenging year for the Malaysian banking sector due to slower market growth and external uncertainties. Geopolitical tensions On the global front, uncertainties over the US-China trade war continues to weigh down on global economy. Notably, the trade tensions have caused China’s 2019 economic growth www.mbsb.com.my Overall, the growth was driven by higher private sector spending, private consumption and private investment growth. However, the growth was lessened by the supply disruptions in the commodities sector, dragged by the sharp decline in oil palm production, natural gas and crude oil contraction. 5.3 4.1 2015 2016 2017 3.9 2018 2019 Source: Bank Negara Malaysia Resilient banking sector Malaysia’s banking sector remained resilient, supported by excess capital buffers of RM111.0 billion as at the end of 2019.
  51. 49 “ As the theme, “Banking on Technology” suggests, continuous innovation is key to future-proof our business. As a new bank, our focus was on laying a firm foundation by getting the basics right, to enable accelerated innovation in the future. www.mbsb.com.my
  52. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 50 Management Discussion and Analysis According to BNM , the Malaysian banking system’s total assets rose by 3.5% to RM2.8 trillion as at the end of 2019. Total financing provided by the banking system also grew by 3.9% to RM1.8 trillion at the end of 2019 attributable to the increase in financing from Islamic Banks which recorded a strong growth of 8.3% year-on-year to RM611.1 billion. Housing loans remained a key borrowing for the banking sector which contributed to 62.7% of the total banking system’s financing growth in 2019, mainly fuelled by the Home Ownership Campaign (HOC) 2019 introduced by the Malaysian Government to encourage home ownership. FACING THE HEADWINDS Amid the challenging backdrop, MBSB remained focused on achieving its vision to be the “Top Progressive Islamic Bank” by building up technology-based capabilities at its core business: MBSB Bank Berhad (“MBSB Bank”). Our Business Plan (“BP”) 2018 - 2020, supplemented by BP2019, has guided us in facing the headwinds this year. Since becoming a full-fledged Islamic Bank in April 2018, our priorities have been focused on establishing and creating solid infrastructure and foundational capabilities via delivering our four core objectives: Establish a strong financial position Offer digital banking and innovative product solutions Provide excellent customer service Strong management to become an employer of choice In achieving our core objectives, 22 initiatives were identified in 2018 to be implemented over the span of three years. Although MBSB is long-established, the transition to a full-fledged Islamic Bank involved a steep learning curve. Nonetheless, our determination – driven by the Board, Management and supported by the collective efforts of all employees – has enabled us to achieve 20 out of the 22 initiatives within less than 2 years, paving the path for greater success ahead. CREATING SUSTAINABLE VALUE Sustainability strategy As a progressive Islamic Bank, we uphold the principles of Shariah to create positive and meaningful impacts on our stakeholders, consistent with the concept of Value Based Intermediation (“VBI”) introduced by BNM in 2018. In tandem with our business plans, our sustainability strategy focuses on “Building Malaysia” as we strive to build financially resilient Malaysians and local businesses. www.mbsb.com.my
  53. 51 Updates on the 22 initiatives Progress 1 Develop customer knowledge and segmentation Completed 2 Introduce call centre support for businesses and consumers Completed 3 Develop understanding of Islamic Banking and Finance across NewBank Completed 4 Expand network of ATMs across targeted areas Completed 5 Introduce CDMs in targeted areas Completed 6 Connect MBSB Bank to payment gateways Completed 7 Introduce trade finance offerings to existing customers Completed 8 Rationalise existing branch network Completed Completed 9 Design and launch Internet banking platform (consumer) 10 Design and launch mobile banking platform On-going 11 Promote product cross-sell and pull-through Completed 12 Streamline loan and financing origination 13 Build a Shariah-based product development team Completed 14 Collaborate with wealth product providers Completed 15 Introduce targeted marketing and campaigns Completed 16 Develop a single 360o customer view Completed 17 Enhance collections and recovery management Completed 18 Enhance treasury management system Completed 19 Design and launch internet banking platform (business) Completed 20 Introduce trade finance offerings to GCC Completed 21 Drive product bundling, flexible pricing and efficient decision Completed 22 Enhance speed and flexibility in product manufacturing Completed Our sustainability strategy covers economic, environmental and social (“EES”) matters which aims to achieve our three key sustainability objectives: 1. Creating a fair, safe and inclusive workplace 2. Innovating value through technology for the betterment of our customers and industry 3. Operating sustainably and responsibly In doing so, we could address the most important matters affecting our business, allowing us to achieve sustainable growth while at the same time, create value for our stakeholders. On-going Total Assets (RM mil) 50,710 Deposits (RM mil) 35,894 ROE (%) 8.8 Material matters In 2019, we conducted a thorough materiality assessment to identify matters that reflect our significant EES impacts, as well as matters that have the potential to affect the assessment and decision of our stakeholders. Total Capital Ratio (%) 23.5 Through the materiality assessment process, we identified 17 material matters, as illustrated in our materiality matrix. Refer to MBSB Sustainability Report for more information on our materiality assessment process and stakeholder engagement www.mbsb.com.my
  54. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS Value Creation Model 52 OVERARCHING GOVERNANCE Premised on the Shariah Principles , we commit to uphold the highest level of integrity in our everyday decisions and actions, in our efforts to uplift our communities and our nation. Our Sustainability Steering Committee is chaired by our PCEO and consists of senior management across the organisation. KEY INPUT BUSINESS ACTIVITIES Manufactured Financial Resources used • • • • RM6.9bil share capital RM35.9bil deposits RM5.4bil borrowings RM3.1bil cash flows generated from operations • 46 branches across Malaysia • Branch transformation initiatives to improve look and feel of the branches 30 self-service terminals • VISION To Become a Top Progressive Islamic Bank Shariah Foundation and Principles Establish a Strong Financial Position Offer Digital Banking/Innovative Product Solutions Strategic Objectives Provide Excellent Customer Service Become an Employer of Choice Technology as Enabler Human •Values, principles, standards, and norms of behavior Risk management framework, • systems, processes and policies • Internet banking platform • RM13.3mil in advertising and promotion •8.9% budget used for IT infrastructure investment Natural Social & Relationship • 1,888 employees • RM4.8mil invested in employees’ learning and development •Competitive benefits Intellectual Consumer Banking | Business Banking | Trade Financing stakeholder engagement • RM8.9mil contributed in total •Continuous community investment Responsible financing policy • • Data protection and privacy policies Green financing initiatives • •Invested in green building as MBSB’s new corporate headquarters • Energy efficiency initiatives • Waste management processes • Digitalisation efforts and initiatives to reduce environmental footprint STRATEGY Business Plan (“BP”) 2018-2020 PHASE 1 Retain Existing and Grow •Grow the core business •Build-up critical capabilities •Reorganise the operating model PHASE 2 Empower the Business •Target key customer segments and industries •Introduce products to capture opportunities •Build-up capabilities to enable expansion PHASE 3 Penetrate New Markets •Introduce ranges of new banking products and services •Attain required capabilities to sustain a differentiated positioning BP 2019 - Journey Towards Technology Transformation Supplements the foundation of BP 2018 - 2020 which outlines the capabilities that are going to be built, strategy to drive the business and the key enablers or support that are needed to ensure proper completion of the 22 initiatives of BP 2018-2022 Sustainability Strategy: Building Malaysia Sustainability Pursuits CORE VALUES Humility Professionalism Ethics Empathy Passion Supported by Policies, Procedures and Systems www.mbsb.com.my
  55. 53 Our Shariah Advisory Committee (“SAC”) oversees the Bank’s compliance to our internal Shariah Governance Framework and to all regulatory Shariah standards and guidelines issued by Bank Negara Malaysia. We have robust policies and procedures across the Group to ensure our banking services are ethical, transparent and secure. OUTPUT MANAGING KEY RISKS Cyber Risk Risk of exposure or loss resulting from a cyber attack or data breach Credit Risk Risk of default on a debt that may arise from a borrower failing to make required payments Fraud Risk Risk of intentionally deceptive action that may result in unfavourable impacts to the Bank Value Created • RM3.0bil revenue • RM716.9mil profit after tax • 28.4% cost-to-income ratio • Regulators and local banks appear primed to take advantage of fintech opportunities • A strategic government plan to develop more sophisticated financial markets should support growth • Further regional integration in the ASEAN region should benefit cross-border investment and activities OUTCOME Value Shared Board of Directors •Transparent and accountable leadership •Reliable management and systems Shareholders • RM319.5mil Dividend paid • 545 customer complaints received, of which 98% have been resolved as at year end • RM7.5bil in total approved financing supporting both retail, SME and corporate • Diversified portfolio for business lines by specific region and size • 287 new hires • 40% women representation at MBSB board level while 22.2% women representation on MBSB Bank board •Diverse workforce with 57% women employees • RM240.3mil total wages and benefits expense RECOGNISING KEY OPPORTUNITIES Our Board of Directors is diverse in skills, qualifications and experiences. As at 31 December 2019, 60.0% of MBSB Board and 66.7% of MBSB Bank Board are independent non-executives directors. •Three new products and features • Zero non-compliance fines and sanctions • RM234.2mil in Advertising (Ad) Value • RM16.1mil in PR Value • 10% increase in awareness on MBSB Bank from the 2019 Brand Audit •Three substantiated complaints concerning breaches of customer privacy • RM5.9mil approved and accepted financing qualified to programs designed to promote small businesses and community developments •RM157.7mil of green financing approved in 2019 which aggregates to RM472.2mil in total green financing • 5,513.2 mWh in energy consumption • 69,370 m3 in water consumption • 3,826.2 tCO2e in carbon emissions (scope 2) • 15,842 reams of paper purchased Customers •Achieved 82% Customer Satisfaction Index Score •Enhanced customer experience Employees • 10 years average number in years of service • 6.6% employee turnover rate Regulators •Complied with regulations and standards •Improved socio economic welfare Media and Analyst •Enhanced brand quality •Increased transparency and information reliability Government • RM301.5mil total tax and zakat paid •Contributed to national economy •Positive impacts on society and environment Society and NGOs •Provided access to financing for lower income groups • Improved financial literacy among our MBSB Bank Adopted School Programme students Partners and Alliances •Successful projects and partnerships •More future collaboration opportunities www.mbsb.com.my
  56. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 54 Strategic Review MBSB Earnings Trend (RM’mil) 2,863 969 642 3,012 1,012 717 2018 2019 Revenue Operating Profit ESTABLISH A STRONG FINANCIAL POSITION The implementation of our BP 2018 – 2020, BP 2019 and sustainability strategy has collectively guided us through the challenging year. Improved financial performance Overall, MBSB reported a commendable year-on-year growth in PAT by RM74.5 million or 11.6% to RM716.9 million. The PAT was achieved on the back of stronger Group Revenue and improved costto-income ratio. Revenue The Group revenue stood at RM3.0 billion, which is 5.2% higher than RM2.9 billion recorded in 2018. Higher revenue is contributed by the 46.6% increase in non-financing income driven by income from financial investments which saw a 98.8% surge to RM347.9 million. The Group’s loans, financing and advances income for the year retracted by around 1.2%, mainly www.mbsb.com.my MBSB Return on Equity (“ROE”) and Return on Assets (“ROA”) 8.6% 8.8% 1.4% 1.5% 2018 2019 6.0% 5.4% 3.5% PAT due to the drop in OPR. Despite the drop in total financing income, income from trade financing has increased by 155.3% to RM21.7 million, while wholesale financing increased to RM253.9 million, up 32.3% as compared to the previous year. Overall, income from Islamic banking operations accounted for 92.1% of total revenue, consistent with our efforts to collapse all conventional assets. Consumer banking segment remains as the principal source of our financing income. The growth eased by 2.1% year-on-year, largely contributed by the personal financing income. Personal financing portfolio which accounts for 62.4% of our total Islamic financing income, decreased by 5.4% or RM81.3 million as compared to 2018. Nevertheless, the strong growth in property financing portfolio of 20.7% has partially offset the fall in consumer banking segment. Cost-to-income ratio (“CIR”) The Group’s cost efficiency, measured by total CIR, improved in 2019 to 28.4%, compared to 29.5% recorded 1.0% 0.7% 0.5% 2015 2016 2017 ROE ROA in the previous year, which outperforms the industry average of 48.3%. The improved CIR has contributed to the expansion of our operating profit by 4.4%. The key drivers for the Group’s improved operating leverage is due to cost discipline and business efficiency through technology and digital initiatives. Net Profit Margin (“NPM”) The Group’s NPM was compressed amid lending rate pressure, paired with BNM’s OPR rate cut in May 2019. Consequently, NPM for 2019 fell to 2.9% from 3.1% in 2018. Return on Equity (“ROE”) MBSB’s ROE has been on an upward trend over the past five years, reaching 8.8% in 2019, which is around 20bps higher compared to 2018. The increase in ROE is driven by more effective utilisation of our assets to generate profits.
  57. 55 Robust financial position Financing by type Financing by sector Household Total assets Loan , financing and advances Total gross financing grew by RM691.9 million or 2.0% to RM35.9 billion as at the end of 2019, which is at a slower pace compared to the growth of 2.8% recorded in 2018. Nonetheless, the largest surge in financing was seen in property financing (up RM630.6 million), other term financing (up RM428.0 million) and trade finance (up RM422.5 million), in line with market trends in 2019. However, the growth was mitigated by reduction in personal financing, and auto financing as the Group focuses to grow the asset base of other portfolios. It is also worth mentioning that the Cashline facility launched in July 2019 has been well received by customers, with total approval of RM60 million within the first 6 months. Islamic financing remained the largest portion of total gross financing at 94.8%. Personal financing accounted for 55.7% of the total gross financing, followed by other term financing and property financing of 18.7% and 16.8% respectively. Construction 14.1% The Group’s total assets further strengthened by over RM5 billion or 11.6% to RM50.7 billion as at the end of 2019, attributable to the increase in investments in money market instruments. Loans, financing and advances account for 67.0% of the Group’s total assets. 94% 95% 7.8% 72.8% 6% 2018 Conventional 5% Overall, MBSB and MBSB Bank’s retail-to-corporate financing ratio has moved to 73:27 and 75:25 respectively as at 31 December 2019, steadily towards the target of 70:30 by 2022. Refer to Note 9 to the financial statements for more information on the breakdown on the loans, financing and advances (pg 171) Non-performing financing (“NPF”) The Group’s Gross NPF improved from 5.5% to 5.2% mainly due to improvement in asset quality of mortgage while its Net NPF improved marginally by 5bps to 2.3% as compared to 2018 despite the higher underlying improvement in Gross NPF as some provisions for Expected Credit Loss (“ECL”) were released following model refinements in 2019. Finance and insurance Wholesale and retail Manufacturing Education, health and others Electricity, gas and water Transport, storage and communication Agriculture 2019 Islamic By sector, the breakdown of sector financing was not too dissimilar from the previous year. Household financing still accounts for the largest part of the Group’s total gross financing at 72.8%, followed by construction (14.1%) and finance, insurance and business services (7.8%). 1.3% 1.0% 0.9% 0.7% 0.6% 0.4% 0.4% XXXXX Source of funds To fund the financing of both corporate and retail asset growth, we practise efficient balance sheet management. The Group’s main source of funds is derived from customers deposits which increased by RM3.1 billion or 9.5% to RM35.9 billion as at 31 December 2019, a testament to our promotional campaigns to attract customer deposits, such as PrimeValue Campaign and PrimeWin CASA-i campaign. Source of funds 2,958 1,968 2,136 32,788 2018 Deposits 2,481 35,894 Cagamas 2019 Sukuk www.mbsb.com.my
  58. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 56 Strategic Review During the year , the Group’s deposit growth outpaced financing growth, which led to improvements in the financing-to-deposit ratio at 99.9%, compared to 107.3% recorded in previous year. This further strengthened our liquidity by providing more buffer. The Group’s capital position remains robust, reporting higher Common Equity Tier 1 (“CET1”) Capital Ratio and Total Capital Ratio at 19.2% (+80bps) and 23.5% (+386bps) respectively for 2019, both of which are exceedingly higher than the capital adequacy requirements by BNM. The Group’s liquidity coverage ratio stood at 295.9%, which is also above the regulatory requirement. OFFER DIGITAL BANKING AND INNOVATIVE PRODUCT SOLUTIONS To further strengthen the Group’s capital base, MBSB Bank issued a RM1.3 billion Tier-2 Sukuk Wakalah in December 2019. Liquidity and capital strength The Group stays guided by the Bank’s Internal Capital Adequacy Assessment Process (“ICAAP”) framework. The Group ensures 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. MBSB capital ratio 18.4% 19.6% 2018 CET1 Capital Ratio Total Capital Ratio www.mbsb.com.my 19.2% 23.5% 2019 Innovation As the theme, “Banking on Technology” suggests, continuous innovation is key to future-proof our business. As a new bank, our focus was on laying a firm foundation by getting the basics right, to enable accelerated innovation in the future. This year, we have successfully implemented the following technology-related initiatives as outlined in our business plans: • Develop customer knowledge and segmentation – Launched MBSB Analytics and Reporting (“SMART”) which is an enterprise data warehouse and business intelligence solution that was introduced to enhance risk analysis and reporting. SMART has the capability to perform predictive modelling using big data analysis.
  59. 57 During the year , 16 successful analysis have been performed using SMART. • Expand the network of Auto Teller Machines (“ATMs”) and introduce Cash Deposit Machine (“CDM”) across targeted areas – Launched MBSB Bank Visa Debit Card-i in 2019 and installed Cash Recycling Machines (“CRMs”) – which have the functions of both ATM and CDM – at 15 selected branches, namely: Damansara, Jalan Sultan Ismail, Penang, Taman Molek, Bangi, Kuala Terengganu, Alor Setar, Johor Bahru, Seremban, Shah Alam, Kuching, Kota Kinabalu, Kuantan, Ipoh and Melaka. As at 31 December 2019, 12,046 debit cards were issued, and 108,818 transactions were made through the CRM during the year. • Connect MBSB Bank to payment gateways – Successfully completed and rolled out the Real-time Retail Payments Platform (“RPP”) in April 2019. • Rationalise existing branch – A rigorous branch restructuring exercise was done during the first quarter of 2019 as to fit into MBSB Bank’s new branch target operating model - Hub, City Spokes and Digital Spokes. Successfully transformed 15 selected branches embedded with digital elements such as online banking platform, CRM and self-service touchpoint via information tablets and digital screens. • Internet banking platform – Launched the MJourney internet banking platform for both consumer and corporate customers in April 2019. As at 31 December 2019, we recorded 9,176 retail internet banking users. Through the implementation of our business plans, we have gained the core capabilities and benefits to provide full banking services to our customers in just less than two years. As at 31 December 2019, we offer the following banking services: ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Debit Card Current and Saving Accounts Chequing service Full list of payment services via PayNet, SWIFT, RENTAS, IBG, JomPay, MyDebit and VISA Trade Financing services Cash line Internet banking services for retail and corporate Branch self-service with CRM in 15 branches Treasury Refer to MBSB Sustainability Report for more information on our innovation initiatives • Develop a single 360º customer view – Developed a single 360º customer view platform for the selected catalyst using big data analysis, leveraging on SMART. This is used for wallet sizing activities to assess the spending capacity of customers on banking products. www.mbsb.com.my
  60. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 58 Strategic Review Green financing PROVIDE EXCELLENT CUSTOMER SERVICE As at 31 December 2019 , we provided close to half a billion-ringgit worth of green financing. In 2019, we provided RM157.7 million in green financing, which brings the total cumulative green financing to RM472.2 million as at the year end. The projects we financed include large scale solar PV plants and mini-hydro projects in Malaysia, with a total clean energy generation capacity of 57MW. Customer experience and satisfaction Inclusive financing • Case Management System (“CMS”) – Implemented the CMS which aims to enhance the effectiveness of managing complaints and enquiries by automating the support process and systematically tracking the turnaround time. Total financing of RM5.9 million was approved for small businesses and community developments. Cyber security Cyber security is crucial to us as it safeguards and protects sensitive data, customers’ information and intellectual property from theft and manipulation. The impacts of cyber-attacks can be unprecedented – it disrupts business operations, causes reputational harm, and destroys relationship and trust with customers and business partners. This year, we successfully implemented the Cyber Security Enhancement project, which strengthened MBSB Bank’s perimeter security controls to allow cyber attack defense in tandem with the Security Monitoring and Operation Centre, providing enhanced security monitoring against malicious attacks and visibility to identify, evaluate and respond to any cyber security incidents. We have also collaborated with CyberSecurity Malaysia on our Safety Awareness Campaign to provide advice on issues relating to cyber security. Refer to MBSB Sustainability Report for more information on our cyber security management approach www.mbsb.com.my Great customer experience builds brand loyalty and affinity, improves brand image and gives us a competitive advantage for sustainable growth. To improve customer experience, we have carried out the following initiatives during the year: • Superb CX – Launched the Superb CX Program to ensure timely delivery of service within the acceptable turnaround time. Superb CX workshop was conducted in April 2019 for six departments to identify areas of improvement. A total of 22 initiatives were successfully enhanced and committed by the respective departments.
  61. 59 • 24 Hours Customer Service Centre (“CSC”) – In April 2019, CSC extended its operation hours to 24 hours to support CARDs, CRM and Internet banking (Retail and Corporate) Inquiries. CSC also supports all new products and campaign inquiries, and managed to achieve an average service level of above 80% for 2019. • Service Transformation for Excellent Performance (“STEP”) Programme – For 2019, the focus was to enhance the STEP 2018, by implementing different approaches and initiatives to equip MBSB Bank’s staff with the right mindset and skills in providing excellent service. The structure and functions of Corporate Transformation Team (“CTT”) was reviewed and realigned by the appointment of new committee members with new initiatives. 12 selected employees were trained to be the STEP inhouse trainer for new joiner and refresher programme. Since the implementation of STEP, our customer satisfaction index improved by 370bps to 82% in 2019. Refer to MBSB Sustainability Report for more information on our initiatives to improve customer experience and satisfaction STRONG MANAGEMENT TO BECOME AN EMPLOYER OF CHOICE Our employees are our greatest assets, they are our ambassadors, our front liners and the backbone of our organisation which enable us to achieve our business strategy and deliver value for all stakeholders. We are building a future-ready workforce which is engaged, diverse and inclusive through our conscious efforts in providing equal opportunities for career development, effective training and attractive remunerations. As at 31 December 2019, our employee headcount increased by 9% to 1,888 to support the growth of our business. We have also recruited three key positions, namely the Chief IT Security Officer, the Independent Credit Review Officer and the Independent Procurement Officer. Our focus this year was to build our employees’ capabilities to prepare them for tomorrow’s challenges. Consequently, we invested RM4.8 million on training and development programmes for our employees, equivalent to 3.1% of our 2018 gross salary which exceeds BNM’s Staff Training Expenditure requirement of 2.5% on gross salary of the preceding year. The training and development programmes covered topics such as sustainability, cyber security and Islamic finance, amongst others. In 2019, MBSB Bank has enrolled 248 employees for 26 types of certification, such as AQIF, IQIF, Executive Banker programme, Bank Risk management, Unit Trust and many more. The list below are chiefs who received certifications: Chartered Professional in Islamic Finance 1. Azlina Mohd Rashad 2. Tengku Khalizul Tengku Khalid 3. Tang Yow Sai Fellow Member, Chartered Institute of Islamic Finance Professionals (CPIF) 1. Datuk Seri Ahmad Zaini Othman www.mbsb.com.my
  62. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 60 Strategic Review Furthermore , we have introduced several customised development programmes to develop the next generation of leaders. The programmes are as follows: • Managers 360 • Essential Bankers •Senior Management Leadership Programme. A total of 84 supervisors have undergone these programmes as at 31 December 2019. OUTLOOK The outlook for both global and domestic economy remains testing for 2020. Recent events such as the coronavirus (“COVID-19”) outbreak, the oil price crash and the resurgence in domestic political uncertainty have caused greater risk aversion, resulting in tighter financial conditions and volatile financial market. According to S&P Global Rating, global growth is expected to slow down with Malaysia’s GDP growth to be significantly lower at 3.9%. www.mbsb.com.my To support economic growth amid these obstacles, the Malaysian government has introduced a RM20 billion stimulus package targeted at SMEs and those affected by COVID-19. BNM has also lowered OPR to 2.75% in January 2020 in an effort to push domestic economic growth. The OPR was also brought down again to 2.50% in March and further reduced by 0.50% to 2.00% in May 2020 as consumer sentiments were still low as a result of the spread of the pandemic which caused issues such as salary cuts and retrenchment. The emerging worrying trend would reflect a slower credit growth of between 1% and 3% with potentially higher non-performing loans ratio for Malaysian banks in 2020. For us, we are targeting gross impaired financing ratio of 2.0% and 3.2% for MBSB Bank and MBSB respectively at the end of 2020 despite the economic and political headwinds. We anticipate that the impact of the OPR cut on our NPM would be contained, given that more than half of our financings are at fixed rates. We believe that our strong fundamentals and capital reserves would enable us to weather the storm ahead.
  63. 61 Outlook Risks Opportunities Actions moving forward Challenging • Increased credit risks from • non-performing financing market conditions due to the direct and indirect impacts of the coronavirus outbreak • Increased pressure on profit margins from the OPR cut • Decreased gross financing • growth New approaches to deliver • Create a new niche for growth innovative products and through expansion of trade services to our customers, finance in local and regional together with efficient market allocation of capital and • Diversify financing portfolio to resources to generate returns reduce concentration risk to shareholders • Focus on equipment and SME financing Identify new growth areas • Introduce new products such as Wakalah Investment Account and structured products • Maintain strong capital reserves and healthy liquidity coverage ratio Increased regulatory oversight and stakeholder scrutiny • Increased regulatory • expectations lead to higher compliance cost • Increased compliance risk and exposure to legal penalties • Increased reputational • risks from not meeting stakeholders’ expectations • Build trust by transparently • Engage frequently with working with, and partnering stakeholders including with, government, regulators regulators to stay abreast and NGOs to deliver improved of latest developments stakeholder outcomes • Send employees for training Enable us to improve internal and certification programmes processes for greater to increase competencies and efficiency and productivity capabilities Safeguard the interest of our • Review policies and processes timely to ensure relevance stakeholders • Implement automation to enhance monitoring and screening process • Introduce e-KYC to reduce customer waiting time during on-boarding Digital advancement and technological change • Increased competition from • By improving our digital digital banks capabilities and investing in cyber security, we can serve • Increased cyber security risk our customers in new and from adoption of technology innovative ways, meeting their and digital platforms needs for safe and secure digital banking solutions • Invest RM250 million over the next 3 years on technology • Introduce MBSB’s e-wallet • Introduce MTrade Mobile application for trade financing • Introduce Cash Management System (“CAMS”) for corporate clients • Improve security of IT systems through upgrading of hardware and updating of system software • Routine maintenance of IT infrastructure www.mbsb.com.my
  64. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 62 Strategic Review Outlook Risks Opportunities Actions moving forward Environment and • Increased credit risk on • Enhancement in risk • Increase financing for portfolios exposed to climate renewable energy including climate change management approach change to incorporate climate risk roof-top solar, small- and • Increased reputational risk assessment when providing large-scale solar projects if we fail to raise standards financing could safeguard • Engage and work closely with across all our activities and MBSB’s value relevant agencies such as take customer and societal • New revenue streams from Suruhanjaya Tenaga, Green impacts into consideration financing opportunities for Tech Malaysia and Credit when making business the transition to a low carbon Guarantee Corporation to decision economy explore new opportunities • Increase awareness and understanding on climate risk and its impacts to our business with reference to leading industry practices Refer to the Statement on Risk Management and Internal Control (SORMIC) on Pg XX for more information on our approach in identifying and managing key risks. MOVING FORWARD Structurally, we are expecting to convert all our existing conventional assets into Islamic assets by 2021, according to the timeline given by BNM. Once we have moved all assets into MBSB Bank, we will restructure MBSB to make MBSB Bank the holding company, taking on the listing status on the stock exchange. This move will mark our journey to becoming a full-fledged Islamic financial institution which will allow us to unlock more opportunities being a Shariahcompliant stock, attracting further investments. We will continue focusing on delivering the remaining 2 (out of 22) initiatives while we start on our new business plan for the next three years (2020 to 2022). The Business Plan 2020-2022 (Banking on Technology) sets out the plans and strategies for us to overcome the challenges and issues facing us, through key areas such as Trade Finance and adopting technology. www.mbsb.com.my In this Business Plan, we are also introducing a long-term vision to bring MBSB to the next level i.e. continued strategies and targets for the future. This is what we call the Journey 25 (“J25”). In achieving our long-term vision, we have reorganised our management structure in January 2020 to ensure effective leadership succession, which saw the introduction of two deputy CEO positions. MBSB Bank’s organisation chart has also been restructured of which Divisions have been grouped into Business and Operations. Notwithstanding our genuine intention to implement the Business Plans, some of the elements of our business plan would have to be revised in order to address the impacts of the COVID-19 as it unfolds, particularly to maintain strong capital ratio amidst the 6-month moratorium given to our individual and SME customers.
  65. 63 BP2020-2022 Key Focus Areas : 1 Operations Management √ Operational Efficiency √ Channel Management √ Portfolio Management Human Resource Management & Culture √ Training & Certification √ Employee Engagement √Productivity √ Consequence Management √ Compliance and Risk Culture √ On-boarding plans √ Succession Planning Capital, Asset and Liability Management √ Capital Management √ Sources & Allocation √ Asset Liability Management (ALM) 2 3 4 Financing Assets and Fee Income Growth √ Business Banking √ Trade Finance Business √ Consumer Banking √ Treasury Business Technology √ Keeping the lights on √ Process improvement √Security √ Regulatory Compliance Restructuring √Reorganisation √Restructuring 5 6 7 COVID-19 Update On 11 March 2020, the World Health Organisation declared COVID-19 as a pandemic. Since then, we have seen an exponential increase in the number of transmissions and deaths globally which accentuates the seriousness of this situation. Around the world, the pernicious effects of COVID-19 have been felt: some form of movement restriction or lockdown has been enforced, global supply chains have been disrupted, businesses are struggling, and people are losing their jobs. During this time of crisis, we have a responsibility to step up and support our customers, employees as well as the wider society in the face of adversity. For MBSB, we concentrate our efforts on three key areas: caring for our employees, serving our customers and society, and managing the economic impact on the Bank. Compliance, Risk & Audit At the top, we have established the COVID-19 Committee with a multi-disciplinary pandemic team (“MDPT”) to manage and mitigate the associated COVID-19 risks and to respond immediately to any developing situation. In addition, six sub-committee working groups were formed to take proactive measures in addressing critical issues for the purpose of business continuity. They report directly to the MANCO on a weekly basis to update on the situation and action plan. The sub-committee working groups comprise the following: 1. 2. 3. 4. 5. 6. Cashflow, Capital and Business Working Group Business and Technology Working Group Communication and Pandemic Working Group BNM Liaison Working Group Operations and Collections Working Group Human Resources Working Group www.mbsb.com.my
  66. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 64 Strategic Review We have also activated the Business Continuity Plan (“BCP”) and emplaced critical operations departments to split their operations arrangements and to operate from separate locations. This is to ensure that the Bank remains in operation and is capable to provide the essential banking services to our customers. Caring for our employees As MBSB Bank is categorised as “essential service” under the Movement Control Order (“MCO”) by the government, we have to ensure we are able to continue our operations. In doing so, we have assessed the risks, implemented controls and extended support to safeguard the well-being of our employees. On this note, we would like to express our sincere gratitude and appreciation to our employees who are required to work from office. Among the efforts undertaken by MBSB include: • Issuance of Work From Office (“WFO”) Guide; •Distribution of 15,000 pieces of surgical masks, 5,000 pieces of latex gloves and 300 bottles of liquid hand sanitisers to staff at branches and Head Office (estimated costs of RM582 per employee on WFO arrangement); •Continuous disinfectant cleaning of Head Office and branch premises; •Implementation of shorter working hours from 9am–5pm to 9am-4pm for branches; • Suspension of Account opening services; •Closure of 19 branches nationwide with low traffic volumes and/or in high-risk areas; • Cancellation of corporate open house; •Undertaking of online meetings including Board meetings; •Conduct remote AGM meetings with remote participation and voting facilities; •Implementation of Work From Home (“WFH”) arrangements for pregnant employees; and •Requirement for employees returning from overseas travel during MCO to undergo a self-quarantine period. www.mbsb.com.my As at 30 April 2020, we have 24% of employees on WFO and 76% on WFH, which we believe is the minimal level to ensure that we remain in operation and are able to provide essential services to our customers. We will continue to observe the situation and identify areas of improvement. Serving our customers and society As a responsible Islamic Financial Institution, we are equally concerned of the well-being of our customers as well as the wider society. Under our Financial Relief Programme, we have granted an automatic six-month moratorium for all our individual and SME customers starting 1 April 2020 to help relieve some of their financial burdens. This programme is also extended to our corporate customers on a case-by-case basis. Beyond that, we have contributed RM1.6 million to support the front-liners, underprivileged communities, orphanages and university students.
  67. 65 Community Looking after the underprivileged Healthcare Front-liners Aid to purchase respiratory equipment and medical supplies Distribution of personal protective equipment Total contribution : Total contribution: Total contribution: RM858,200 RM300,000 Universities RM150,000 Animals Distribution of packed foods, face masks and hand sanitisers for students Facilitation of cleaning and feeding of animals Total contribution: Total contribution: RM225,000 Managing the economic impact Inarguably, this pandemic would have a certain impact on our economic performance in the short term and may affect the implementation of some of the initiatives in our business plans moving forward. Rest assured, MBSB Bank’s position in terms of capital, liquidity and cash flow shall remain strong as MBSB Bank has always taken precautionary measures to mitigate these vulnerabilities. As for further financial security, we are able to tap on our RM10 billion Sukuk programme and also the emplacement of standby facilities when needed. Despite the financial security we may have, business as usual would have to be redefined, even post-MCO. Until a vaccine for COVID-19 is developed, the risk of a further outbreak could not be ignored. Our approach in the foreseeable future would be to optimise the potentials of technology, by accelerating our efforts to roll out online RM50,000 financing applications for customers as well as upgrading our infrastructure to conduct online meetings and training effectively. We will continue to explore new ways of running our business and perhaps identify a new norm for the future. While our actions help to address the current concerns, MDPT is actively monitoring the situation and working to identify additional ways for further improvements. We believe our actions in this unpropitious time would demonstrate our resiliency and build trust in the market. Hopefully, this situation would take a turn for the better. We stand by our commitment to all our employees and customers - together, we will go through this. Note : Our initiatives disclosed in this MD&A on COVID-19 are based on the MCO enacted by the government of Malaysia up to 30 April 2020. www.mbsb.com.my
  68. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD MANAGEMENT DISCUSSION AND ANALYSIS 66 Financial Highlights 3 ,275 3,260 2,863 3,012 355 338 551 854 897 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 43,268 44,810 45,426 50,710 4,862 6,724 7,125 7,786 8,587 Group Shareholders’ Equity (RM’mil) 41,089 Group Total Assets (RM’mil) 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 120 125 131 9 5 7 10 11 Group Basic Earning Per Share (sen) 116 Group Net Assets Per Share (sen) 171 “The Group realigned disclosures of revenue for year 2018 to accurately reflect nature of the relevant transactions as disclosed in the audited financial statements for year 2019. Revenue for year 2015 to 2017 remain as disclosed in prior year annual report.” Group Profit Before Tax (RM’mil) 3,050 Group Revenue (RM’mil) 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 www.mbsb.com.my
  69. 67 21 20 30 28 28 ,585 30,611 32,755 32,788 35,894 Group Deposit (RM’mil) 23 Group Cost-To-Income Ratio (%) 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2018 2019 276 140 2016 2017 2018 2019 Company Shareholders’ Equity 7,150 2017 2015 7,048 47,418 2016 7,305 46,309 2015 7,292 44,535 Company Total Assets (RM’mil) 432 2019 6,845 113 2018 224 813 2017 6,557 3,008 2016 289 2,998 2015 Company Profit Before Tax (RM’mil) 4,803 2,842 Company Revenue (RM’mil) 2015 2016 2017 2018 2019 www.mbsb.com.my
  70. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD   68   Corporate Governance 70Corporate Governance Overview Statement 82Additional Compliance Statement 84Statement on Risk Management and Internal Control 98Report of the Audit Committee www.mbsb.com.my
  71. 69 www .mbsb.com.my
  72. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 70 Corporate Governance Overview Statement Corporate governance is crucial to enable effective and prudent management of our organisation in delivering sustainable value for all our stakeholders . The objectives of our corporate governance are clear – to ensure that our business is conducted in a transparent, ethical, fair and responsible manner, in compliance with all relevant laws and regulations. The Board of Directors (the “Board”) of MBSB firmly believes in the importance of good corporate governance in realising our vision for MBSB Bank to become a top progressive Islamic bank and is fully committed to ensure that the highest standards of corporate governance and integrity are applied throughout our organisation via our governance structures and core values supported by robust policies and procedures. We adopt the principles and best practices of corporate governance as prescribed in the Malaysian Code of Corporate Governance (“MCCG”) 2017 and those outlined by other regulatory bodies such as Bank Negara Malaysia’s guidelines on Corporate Governance, where appropriate. MBSB is also a member of the Federation of Public Listed Companies Berhad. The Board is pleased to present our Corporate Governance (“CG”) Overview Statement which outlines our approach to governance in practice and the key Board activities in 2019. This CG Overview Statement focuses on the following three (3) key CG principles of MCCG 2017: Assessment. MSWG’s 2018 CG Assessment was based on the ASEAN CG Scorecard 2018 which adopted the Organisation of Economic Cooperation and Development (“OECD”) Principles of Corporate Governance as its main benchmark. In the latest MSWG-ASEAN CG Awards held in July 2019, we were In MSWG-ASEAN CG proud to be ranked amongst the Awards 2018: Top 100 Top 100 Malaysian public listed companies (“PLCs”) for corporate Companies for CG governance, out of the 866 PLCs disclosure category assessed. Our continuous efforts in improving our CG disclosures Achieved and practices were recognised as 3.7out of 5 In the MBSB was ranked 25th in the Top FTSE4Good ESG rating 100 Companies for CG disclosure for 2019 category. MBSB’s ranking for the overall CG and performance category had also improved to 52nd place, up from 63rd in the previous year. Ranked 25th A. Board Leadership and Effectiveness B. Effective audit and risk management C.Integrity in corporate reporting and meaningful relationship with stakeholders This CG Overview Statement is prepared in compliance with Bursa Malaysia Securities Berhad (“Bursa Malaysia”) Main Market Listing Requirement (“MMLR”) and it is to be read together with the Corporate Governance Report (“CG Report”) 2019 which is available on MBSB’s website at https://www.mbsb.com.my/ar.html In October 2019, our Company Secretary presented the findings and observations concerning our governance level at MBSB based on the reports from Bursa Malaysia’s Corporate Governance Monitor as well as the Minority Shareholder Watchdog Group (“MSWG”)’s 2018 CG www.mbsb.com.my We are also a proud constituent of FTSE4Good Bursa Malaysia Index (“F4GBM”) since 2016. Our FTSE4Good ESG rating had also improved from 3.4 in 2018 to 3.7 in 2019, allowing us to retain our inclusion in the F4GBM this year. A. BOARD LEADERSHIP AND EFFECTIVENESS Board Responsibilities The Board sets the tone from the top and is collectively responsible for overseeing the conduct of the Group’s business as well as the Management’s implementation of the Group’s strategic objectives including its performance to ensure the sustainability of the Group and its ability to create long-term value, not only for our shareholders, but also for our broader stakeholders.
  73. 71 The Boards of MBSB and MBSB Bank Berhad (“MBSB Bank”) (together, the “Boards”) are guided by their own respective Board Charters which clearly identifies the respective Board’s role, duties and responsibilities. Each of the Board Charters also outlines the processes and procedures to ensure the effectiveness and efficiency of the Boards and their Committees. The Board of MBSB in consultation with the Board of the Bank determines the strategic direction of the Group to ensure that the Group achieves its initiatives as set in the Business Plan. The Boards are supported by various Board Committees and Management-led Committees (together, the “Committees”). The roles and responsibilities of the respective Committees are clearly outlined in their Terms of Reference (“TOR”) and Approving Authority Manual (“AA Manual”) which require 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. Board Activities 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 Board Charters for MBSB and MBSB Bank are available online at www.mbsb.com.my and www.mbsbbank.com, respectively Since the acquisition of Asian Finance Bank Berhad (“AFB”) in 2018 and the subsequent change of name to MBSB Bank Berhad in the same year, the Group had since undertaken a rebranding exercise to revitalize MBSB Bank’s Corporate identity and its brand outlook as a progressive full-fledged Islamic bank which enhance the brand’s positioning and corporate image in the market, in line with MBSB’s new strategic business direction. >Refer to the Management Discussion and Analysis section for more information on the Business Plan During the year, the Boards convened regularly to examine the progress of the integration between MBSB and the Bank, the enhancement and changes required to the core banking system to meet the latest changes to the banking and regulatory requirements, the budget or resources required, the progress of the Business Plan and the future growth for the Group. Furthermore, the Boards had also convened to review and set the performance scorecard targets of the Group and targets for the Group President and Chief Executive Officer (“Group PCEO”). In 2019, the Boards reviewed their respective Board Charters to ensure uniformity of the policies and guidelines applied across the Group. From the review, enhancements were made to provide clarity on the definition of “Executive Director” which is aligned to the BNM’s Guideline on Corporate Governance. In addition, enhancements were also made on the Criteria for Independent Directors, restriction on directorship and standardisation of some of the terms. The TOR of the Board and Management-led Committees as well as the Policies and Procedures were also reviewed and revised during the year to reflect the necessary changes in the internal process and regulatory requirement for better operational efficiency and readiness. >Refer to MBSB CG Report 2019 for more information on the number of meetings conducted and Board attendance in 2019 www.mbsb.com.my
  74. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 72 Corporate Governance Overview Statement Leadership and Governance Structure The governance structure of MBSB and the Bank can be depicted as follows :GOVERNANCE MODEL & FRAMEWORK: MBSB BOARD OF DIRECTORS Report to Delegates BOARD COMMITTEE AUDIT COMMITTEE (AC) RISK MANAGEMENT COMMITTEE (RMC) NOMINATING & REMUNERATION COMMITTEE (NRC) OPTION COMMITTEE GROUP PRESIDENT AND CHIEF EXECUTIVE OFFICER INTERNAL AUDIT RISK MANAGEMENT COMPLIANCE INDEPENDENT CONTROL FUNCTIONS MANAGEMENT GOVERNANCE FRAMEWORK MANAGEMENT COMMITTEE MANAGEMENT COMMITTEE (MANCO) ASSET LIABILITY COMMITTEE (ALCO) CREDIT AND REHABILITATION ASSESSMENT COMMITTEE (CARAC) GOVERNANCE MODEL & FRAMEWORK: MBSB BANK BERHAD BOARD OF DIRECTORS Report to Delegates BOARD COMMITTEE BOARD AUDIT COMMITTEE (BAC) BOARD RISK MANAGEMENT AND COMPLIANCE COMMITTEE (BRMCC) BOARD INVESTMENT & CREDIT COMMITTEE (BICC) BOARD NOMINATING & REMUNERATION COMMITTEE (BNRC) Board IT Oversight Committee (BITC) Shariah Advisory Committee (SAC) GROUP PRESIDENT AND CHIEF EXECUTIVE OFFICER INTERNAL AUDIT RISK MANAGEMENT COMPLIANCE INDEPENDENT CONTROL FUNCTIONS MANAGEMENT GOVERNANCE FRAMEWORK MANAGEMENT COMMITTEE ASSET LIABILITY COMMITTEE (ALCO) www.mbsb.com.my PROJECT STEERING COMMITTEE (PSC) MANAGEMENT INVESTMENT AND CREDIT COMMITTEE (MICC) INITIAL ALERT COMMITTEE (IAR) MANAGEMENT COMMITTEE (MANCO)
  75. 73 The governance structure of the 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, TOR, Board Charter and the AA Manual will be reviewed at least once every two years or as and when required, to ensure an optimum structure for efficient and effective decision-making in the organisation. In March 2020, prior to the issuance of this annual report, the Board Information Technology Oversight Committee (“BITC”) was established at MBSB Bank level in conformance with the requirements of the Risk Management in Technology (“RMiT”) Guidelines issued by BNM. The BITC comprises 3 Independent Non-Executive Directors. The BITC is chaired by a director with IT background. Ethical Business Conduct The Boards have established the Directors’ Code of Ethics in line with the practices in the MCCG. The Directors observe the Code of Ethics in performing their duties and are fully subscribed to highly ethical standards considering the interest of all stakeholders. The Group has put in place the Code of Conduct and Ethics for employees as well as the Whistleblowing Policy to encourage employees to report on suspected fraud, misconduct behaviour and/or violations of the Code of Conduct and Ethics, directives or policies issued by the Group. This is to support the 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 MBSB’s interests. The Board had on 19 September 2019 approved the establishment of the Integrity Governance Unit (“IGU”) for the Bank, in which the Chief Compliance Officer helms the role of the interim Head. The main purpose of IGU is to ensure honest work culture amongst the Bank’s employees including members of Senior Management and the Board and to combat bribery, corruption and abuse of power >Further information on MBSB and MBSB Bank Whistleblower Policy is available online at www. mbsb.com.my and www.mbsbbank.com, respectively The Group does not tolerate any form of bribery, corruption and abuse of power. MBSB Bank’s Fraud and Corruption Control Policies and Procedures provide the basis for managing the risk of fraud and corruption which should be read together with the Whistleblowing Policy. In addition, the Group has established the Anti-Money Laundering and Counter Financing of Terrorism (“AML/CFT”) Framework which is part of the Compliance policy for the Group. The 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. The Group’s Compliance Division carries out regular checks and training to ensure that the employees are fully aware and committed in discharging their obligations. www.mbsb.com.my
  76. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 74 Corporate Governance Overview Statement In February 2019 , the Group has also established the Related Party Transactions Policy that outlines the roles and responsibilities expected of the Management and the Boards, as well as other relevant divisions or departments within the 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. >Refer to MBSB CG Report 2019 and Sustainability Report (“Our Integrity” section) for more information on our ethical business conduct Roles and Responsibilities of the Chairman and PCEO The position of the Chairman and the Group PCEO are held by different individuals with clear division of responsibilities between the Chairman and Group PCEO to ensure balance of power and authority, and to promote check and balance. The Chairman, Tan Sri Abdul Halim bin Ali focuses on board leadership whereas the Group PCEO, Datuk Seri Ahmad Zaini Othman focuses on the business, strategy, operations and organisational issues and implementing Board’s decision. The roles of Chairman and Group PCEO are formally documented in the Board Charters. Company Secretary 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 demonstrate 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 as at 28 April 2020 The Board of MBSB consists of six (6) Directors: • Four (4) Independent Non-Executive Directors • One (1) Non–Independent Non-Executive Director • One (1) Non-Independent Executive Director At the Bank level, the Board of MBSB Bank consists of Nine (9) Directors: • Six (6) Independent Non-Executive Directors • Two (2) Non–Independent Non-Executive Directors • One (1) Non-Independent Executive Director www.mbsb.com.my
  77. 75 There are two (2) common Directors in MBSB and MBSB Bank. The respective Boards recognises the benefits of having a diverse Board to ensure that the Board can 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 considering the Group’s needs and circumstances, present size of the Board, suitability for the role, skills, experience, knowledge, experience and diversity. The 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 the 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. The Boards, through MBSB’s Nominating and Remuneration Committee (“NRC”) and MBSB Bank’s Nominating and Remuneration Committee (“BNRC”), review the Board composition on a yearly basis or as and when required, to ensure the optimum size of the respective Boards which enable effective oversight and delegation of responsibilities to encourage the active participation of all Directors in Board or Board committees. During the year, the MBSB Board appointed Puan Zaidatul Mazwin binti Idrus as a Non-Independent Executive Director, which increased the composition of women Directors at MBSB to 40%, thus fulfilling the Practice 4.5 of the MCCG 2017 of having at least 30% women Directors on Board. The percentage was subsequently reduced to 33.33% in 2020 with the appointment of an additional Independent Non-Executive Director (“INED”). On 2 March 2020, MBSB appointed Encik Mohamad Abdul Halim bin Ahmad as an Independent Non-Executive Director. Encik Halim is an Associate Member of the Institute of Chartered Accountants England & Wales and also a member of the Malaysian Institute of Accountants. At the Bank level, the Board appointed Encik Kamarulzaman bin Ahmad in October 2019 as an Independent NonExecutive Director of MBSB Bank. Encik Kamarulzaman brings with him 23 years of experience from the IT Industry. >Refer to the “Profile of the Board of Directors” section on page 12 – 27 for more information on the background of each Director A Board Skills Matrix was used to understand the capabilities and personal attributes of the existing Board members and is used as a reference when considering a new appointment of Directors. MBSB’s NRC and the Bank’s BNRC, have carried out fit and proper assessment on the candidates prior to recommendation to the respective Board’s for approval. During the 2018 Annual Review on the Board’s mix of skills and experience, diversity and other qualities, both the NRC and BNRC concluded that there was a need to appoint female Directors and Directors who possess Information Technology or Accounting/Auditing experiences to enhance the Board diversity. Both Committees also agreed that additional directors need to be appointed as a part of the succession planning of the Board. www.mbsb.com.my
  78. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 76 Corporate Governance Overview Statement The Boards have adopted a Fit and Proper Policy and Procedure which outlined the following criteria for assessment of the suitability of the candidates , re-election of Directors, appointment or renewal of contract/performance for the Group PCEO, key senior management with “C” Suites position and the Company Secretary: • P  robity, personal integrity and reputation - person must have the personal qualities such as honesty, integrity, diligence, independence of mind and fairness. • C  ompetence and capability - person must have the necessary skills, experience, ability and commitment to carry out the role. • F  inancial integrity - person must manage his debts or financial affairs prudently. The “C” Suites position will cover the Deputy Chief Executive Officer, 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, the Chief Corporate Officer, and the Head of Global Markets. The BNRC of the Bank is also responsible for reviewing the appointment, removal of the members of the Shariah Advisory Committee (“SAC”) and determines their remuneration package. The results of the annual assessment indicated that the Board, Board Committees and the individual Directors have performed within expectation and are 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 NRC and BNRC have also both 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 Board for decision on the proposed re-election of the Director concerned for shareholders’ approval at the forthcoming AGM. The Board of MBSB Bank through the BNRC also conducted annual assessment on the performance and effectiveness of the SAC and every member of the SAC, in line with the Shariah Governance Framework issued on 20 September 2019. In accordance with the Board Charter, the tenure of the independent directors shall not exceed a cumulative period of nine (9) years except under exceptional circumstances or as part of transitional arrangement towards full implementation of the succession plans subject to BNM approval. Board Evaluation Each of 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. www.mbsb.com.my >Refer to MBSB CG Report 2019 for further details on activities carried by NRC and BNRC in 2019
  79. 77 Board Remuneration The Boards have established a Directors Remuneration Framework which is tailored to support the strategies and long-term vision of the Group as well as provide adequate motivational incentive for Directors to pursue long-term growth and success of the 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. Both the NRC and the BNRC are responsible to ensure that the Directors’ remuneration for MBSB and MBSB Bank are competitive and aligned 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. 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 MBSB Bank are also carrying the oversight responsibilities particularly in ensuring that the Group is in compliance with BNM guidelines. In order to ensure that the current remuneration structure commensurates with the respective Directors’ responsibilities, the NRC requested for an external consultant to be appointed to review the remuneration structure of Directors for both MBSB and MBSB Bank. In 2019, MBSB and MBSB Bank engaged the external consultant; KPMG Management & Risk Consulting Sdn Bhd, to review and address the remuneration gaps. The Boards of both MBSB and MBSB Bank took note of the recommendation by the consultants on the remuneration gap. The Board, in view of the economic situation which could be affected by the external factors, decided not to recommend any increase in the fee structure for the Directors. The fees and benefits payable to Directors are approved by the shareholders in the general meeting in accordance with the Companies Act, 2016 and the Company’s Constitution. >Refer to MBSB CG Report 2019 for details of the Directors’ fees structure and benefits payable to NEDs of MBSB and MBSB Bank Board Training The Boards have established the Directors Orientation and Training Guidelines which encourage Board members to attend continuous training to acquire new knowledge which will enable them to discharge their duties effectively. The Company Secretaries have also arranged for the Directors of MBSB and MBSB Bank to attend the mandatory certification programs within the stipulated timeline; such as Mandatory Accreditation Programme (“MAP”) – for listed entities only, Financial Institutions Directors Education Programme (“FIDE”) and Islamic Finance for Board of Directors Programme (“ISRA”). >Refer to MBSB CG Report 2019 for details of the list of programmes/conferences/seminars/dialogues attended by the Board of MBSB and MBSB Bank www.mbsb.com.my
  80. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 78 Corporate Governance Overview Statement B . EFFECTIVE AUDIT AND RISK MANAGEMENT Audit Committees As at 31 December 2019, the MBSB’s Audit Committee (“AC”) comprises three (3) Independent Non-Executive Directors. The AC is 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 the Association of Chartered Certified Accountants (“ACCA”), a member of the Malaysian Institute of Accountants (“MIA”) and the Malaysian Institute of Certified Public Accountants (“MICPA”). At the bank level, MBSB Bank’s Audit Committee (“BAC”) consists of two (2) Independent Non-Executive Directors and one (1) Non-Independent Non-Executive Director as at the end of 2019. MBSB Bank’s BAC is chaired by Encik Aw Hong Boo, a Fellow of the Institute of Chartered Accountants in England & Wales (“ICAEW”), a member of MIA and MICPA. None of the AC and 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 Directors as well. The Board Charter states that ‘any candidate or 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.’ objectivity and professional skepticism. The AC and BAC are satisfied with the performance of KPMG PLT (“KPMG”), based on the quality of service and sufficiency of resources which they provided to the Group including MBSB Bank. The AC and BAC are also satisfied with their review that the non-audit services provided by KPMG for financial year ended 31 December 2019 did not in any way impair their objectivity and independence as external auditors of the Group. >Refer to the Report of the Audit Committee 2019 on page 98-103 for more information on our audit committee and internal audit function Risk Management and Internal Control Framework The Boards are ultimately responsible for risk oversight within the Group through MBSB’s Risk Management Committee (“RMC”) and Board Risk Management and Compliance Committee (“BRMCC”) at MBSB Bank level (together, 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. Management Committee (“MANCO”) The AC and 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, www.mbsb.com.my 2.Credit Assessment and Rehabilitation Committee (“CARAC”) 3. Asset & Liability Committee (“ALCO”)
  81. 79 Management-led Committees at MBSB Bank 1 .Management Committee (“MANCO”); 2.Management Investment and Credit Committee (“MICC”) 3. Asset and Liability Committee (“ALCO”) 4. Initial Alert Report Committee (“IAR”) 5.Capital Management Committee (“CMC”) – subset of ALCO The ITSC was disbanded and its responsibilities have been taken over by the MANCO since March 2020. In March 2020, the Board Information Technology Oversight Committee (“BITC”) was established to provide Board oversight over all IT related matters. The CMC was established by MBSB Bank in September 2019. The roles and responsibilities of CMC is to monitor the capital adequacy of MBSB Bank, review the internal control measures, stress test results to ensure optimisation of the economic performance of MBSB Bank’s assets and liabilities through managing the allocation of capital. 6. IT Steering Committee (“ITSC”) (disbanded) 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 Managementled Committees, Board Committees and the Boards. The reports include the type of breaches, rationale (cause or reason leading to the breaches) and action plans taken to rectify the situation. The Boards also have the overall responsibility of maintaining a sound system of internal controls to safeguard shareholders’ investments and the company’s assets. At the Bank level, the Designated Compliance and Risk Officer (“DCORO”) at all business and support functions including bank branches has been established. 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 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 (“AMLATFPUAA”) 2016. The Boards are of the view that the risk management and internal control framework in place during 2019 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. >Refer to the Statement on Risk Management and Internal Control (SORMIC) on page 84-97 for more information on our risk management and internal control framework www.mbsb.com.my
  82. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 80 Corporate Governance Overview Statement Shariah Governance As the second largest stand-alone Islamic bank in Malaysia , MBSB Bank strives to hold the banner of Islamic banking to the highest standards, and to ensure that its operations, business, affairs and activities comply, at all times, with Shariah. MBSB Bank is governed by its Shariah Governance Framework established by the SAC and in line with the Shariah guidelines issued by BNM. The Shariah governance framework is supported by the following Shariah governance policies and procedures: C. I NTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP WITH STAKEHOLDERS Communication with Stakeholders MBSB is committed to provide investors and stakeholders with high quality information in 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. • Shariah Policies for Tawarruq Financial Products • S  hariah Secretariat and Advisory (“SSA”) Department Procedures • Shariah Risk Unit Procedures • S  hariah Requirements for Advertising, Marketing, Corporate Events and Business Tie-up 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’ interests. • Zakat Policy >Refer to MBSB Sustainability Report (“Our Integrity” section) for more information on the measures established and initiatives implemented in 2019 www.mbsb.com.my >Refer to MBSB Sustainability Report (“Stakeholder Engagement” section) for more information on our stakeholder engagements in 2019 and the list of stakeholders’ interests and concerns
  83. 81 MBSB and MBSB Bank ’s website, which can be found at http://www.mbsb.com.my, and https://www.mbsbbank.com respectively, provides updated information on the corporate and business aspect of the 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 MBSB’s shareholders and all other market participants. All details of the corporate events carried out by the Group are also available on MBSB and MBSB Bank’s website. All four (4) MBSB Directors were present at the 49h AGM. During the 49th 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 Group has developed the Corporate Disclosure Policy which sets out the policies and procedures for the disclosure of all material information to be released to the public. The notice and agenda of AGM together with Form of Proxy are given to shareholders at least 28 days before the AGM, which would allow 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. Stakeholders are welcomed and encouraged to drop us an email at enquiry@mbsbbank.com if they have any inquiries. Conduct of General Meeting The AGM of the Company is the principal forum for dialogue and interaction with the 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 support and provide further clarifications to the shareholders. The Chairman 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. The poll voting at the 49th AGM was conducted through electronic voting system. D.CONCLUSION Moving forward, the Boards have identified sustainability as a focus area of the Group – to contribute to the environment and society through our operations and to better understand the risks and opportunities it presents to the Group, particularly on climate-related risks. The Boards will provide the appropriate guidance and oversight to the Management in driving the sustainability agenda of the Group. This CG Overview Statement was approved by the Board of Directors of MBSB on 28 April 2020. www.mbsb.com.my
  84. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 82 Additional Compliance Statement Utilisation of Proceeds Raised from any Corporate Proposal During the financial year ended 31 December 2019 , 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. Audit and 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 KPMG PLT or its affiliates for the financial year ended 31 December 2019. Group (RM’000) Company (RM’000) 1,683 346 - Review of Statement on Risk Management and Internal Control 10 10 - Review of year-end submission to regulator and abridged financial statements 50 - - A  greed upon procedures for validation programme required by Perbadanan Insurans Deposit Malaysia (“PIDM”) 150 - - 9 months interim review 285 85 - R  emuneration review of Directors and Group President and Chief Executive Officer 130 130 2,308 571 Fees paid/payable to KPMG - Audit fees Regulatory related Non audit fees Total www.mbsb.com.my
  85. 83 Material Contracts with Related Parties Save as disclosed in Note 45 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. 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 2019 was as follows:Name Datuk Seri Ahmad Zaini Othman Exercise Price (RM) As at 1.1.2019 Granted Exercised As at 31.12.2019 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 2019, the actual percentage of total options granted to senior management of MBSB Group under ESOS was 22.18% of the total ESOS granted. Details of the ESOS during the financial year 2019 are set out in Note 30 to the financial statements in this Annual Report. www.mbsb.com.my
  86. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 84 Statement on Risk Management and Internal Control The Board of Directors of Malaysia Building Society Berhad (“the Board”) is pleased to present the following Statement on Risk Management and Internal Control (“SORMIC”) which outlines the key features of the Group’s risk management and internal control system during the year under review. The Board remains committed towards operating a sound risk management and internal control system and, therefore, recognises that the system must continuously enhanced to support the Group’s businesses and operations in a dynamic business environment. This SORMIC is prepared in accordance with the Malaysian Code on Corporate Governance, Bursa Malaysia Securities Berhad Main Market Listing Requirement as well as the guidelines as set out in the “Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers” by Bursa Malaysia. The 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 to the Board as well as MBSB Bank’s Board (collectively known as “the Boards”) for deliberation. This ongoing process has been in place for the financial year end up to the date of approval of this Statement for inclusion in this Annual Report. BOARD RESPONSIBILITY The Board is fully aware of its overall responsibility and recognises the importance of maintaining a sound risk management and internal control system, including review of the adequacy, integrity and effectiveness of the system so as to safeguard shareholders’ investments and the Group’s assets. The Board oversees the risk management and internal controls of the Group and endeavours to ensure that principal risks are identified and appropriate internal controls and mitigation measures are being implemented. To ensure that the risk management of the Group is being adequately managed, the Risk Management Committee at MBSB and the Board Risk Management and Compliance Committee at MBSB Bank have been set up. The respective Board risk committees will be responsible for establishing the risk management and internal controls of each entity respectively. 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’s control. www.mbsb.com.my The Boards receive and review reports relating to the compliance status of the internal and regulatory requirements imposed on the respective Group entities. The Boards deliberate on any gaps and deficiencies reported and will direct the Management to take the necessary actions including remedial plans and follow-up actions to ensure that the gaps and deficiencies are addressed. MANAGEMENT RESPONSIBILITY The Management is accountable to the Boards and is overall responsible for implementing the Group’s policies and processes to identify, measure, monitor, control and report on risks as well as to ascertain the effectiveness of internal control systems and implement appropriate remedial action. The Management’s roles include: • Identifying and evaluating the risks relevant to the Group’s business and monitors the achievement of its business objectives and strategies;
  87. 85 • F  ormulating 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; • D  esigning and implementing the risk management framework and internal control system, and monitoring its effectiveness; • Implementing remedial actions to address compliance deficiencies as directed by the Boards; and • R  eporting to the Boards on any changes identified to the risks or emerging risk and the corrective actions taken. RISK MANAGEMENT AND INTERNAL CONTROL The 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. The key features of the risk management framework include: i. Governance and Organisation: A governance structure is fundamental to ensure effective and consistent implementation of the risk management framework. The 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 maintained at the Group level. In this regard, the Risk Management Committee at MBSB and the Board Risk Management and Compliance Committee at MBSB Bank will ensure that the risk management framework is adequate at each entity respectively. ii. I nternal Capital Adequacy Assessment Process (“ICAAP”) of MBSB 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, qualitative approach is used and normally this type of risk is labelled as potentially material. The Group has to rely on the management experience and judgement if such risk could potentially threaten the survival of the Group. RISK MANAGEMENT FRAMEWORK The Group has in place a risk management framework for identifying, measuring, monitoring, controlling and reporting the significant risks faced by the Group in achieving its 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. iii. Risk Appetite of MBSB Bank: Risk Appetite is defined as per the Bank’s ICAAP Framework as the amount and types of risk that MBSB 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 the changing business and market conditions. As the risk appetite is dynamic, it is set based on the business and financial targets, while incorporating external factors such as www.mbsb.com.my
  88. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 86 Statement on Risk Management and Internal Control macroeconomic and global outlook . The Board of MBSB Bank 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 as part of strategic planning process or as and when required due to changing business and market conditions. 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. • R  isk Identification: Risks are identified through the application of the Enterprise Risk Management (‘’ERM’’) Framework, 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 SelfAssessment (“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 significant impacts to the Group. The usage of KRI 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. At MBSB Bank level, 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 MBSB Bank’s ICAAP Framework. www.mbsb.com.my • M  easure and Assess: 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. • M  anage and Control: Controls and limits are used to manage risk exposures within the risk appetite. MBSB Bank’s risk appetite is documented in its ICAAP Framework. Qualitative and quantitative controls including risk triggers and limits have been developed to oversee and manage significant risk exposures. In addition, risk mitigation techniques have been implemented in order to minimise existing or to prevent new or emerging risks from occurring. Controls and limits are monitored and reviewed in the face of evolving business needs, market conditions and regulatory changes. Corrective actions are also taken to mitigate risks. • M  onitor and Report: Risks on an individual as well as a portfolio basis are being monitored and reported to the respective management-led committees, Board Risk Committees, Board Audit Committees and the Boards for their review to ensure the risks remain within MBSB Bank’s risk appetite. KRI and early warning signals are monitored to ensure that sufficient and timely actions can be put in place to mitigate any potential risk.
  89. 87 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, Board Risk Committees, Board Audit Committees and the Boards. Operational risk incidents highlighted in incident/loss event reports are also reported to the respective management-led committees, Board Risk Committees and the Boards. v. R  isk 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. The Three Lines of Defense is reflected in the Group’s ERM Framework. 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 minimises the Group’s exposure to financial and non-financial risks including reputational impact, over time. In addition, MBSB Bank has appointed 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 assigned at the respective branches, business and functional units across MBSB 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: 3rd Line Boards, Board Risk Committees, Board Audit Committees, Internal/External Audit 2nd Line RMD, Legal, Compliance and Organisation & Methods 1st Line All Business Units or Line Management RISK GOVERNANCE STRUCTURE The Group has established guiding principles which form the basis and foundation for accountability and responsibility for risk management governance as follows: Risk Management Committee The Boards have respectively set up the MBSB’s Risk Management Committee (“RMC”) and MBSB Bank’s Board Risk Management and Compliance Committee (‘’BRMCC’’), (collectively, the “Board Risk Committees”) as the drivers for review, monitor, mitigate and report 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 Board Risk Committees. The respective Board 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. www.mbsb.com.my
  90. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 88 Statement on Risk Management and Internal Control The primary objectives of the respective Board Risk Committees are to assist the Boards in fulfilling their fiduciary responsibilities , particularly in the management of controls and to provide a focal point for communication between risk managers, the Boards and Senior Management on matters in connection with reporting risks and controls as well as providing a forum for independent discussion. The Board Risk Committees shall also undertake additional duties as may be deemed appropriate and necessary to assist the Boards. • C  redit and Rehabilitation Assessment Committee (“CARAC”) deliberates and approves decisions on the remaining conventional corporate and retail financing, within the authority limit delegated by the Board. Where the proposals of the existing corporate and retail financing are not within CARAC’s authority limit, it would recommend the proposals to the Board for approval. No new financings are being carried out at MBSB as all new financings are being undertaken by MBSB Bank. MBSB Bank Management Led Committees Management-led Committees are set-up to assist the Board Risk Committees to manage credit risk, operational/ Information Technology 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 The Management Committee (“MANCO”), which comprises 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 management-led committees namely ALCO and CARAC assist RMC and the Board in managing credit, operational, market and liquidity risks. Further details of the roles and responsibilities of these committees are as follows: • A  sset Liability Committee (“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’s assets and liabilities. The committee also monitors capital adequacy through capital management of MBSB Bank. www.mbsb.com.my At MBSB Bank level, the following Committees were established in managing credit, operational/Information Technology, market, liquidity and Shariah risks. • M  ANCO, which comprises members of Senior Management, acts as a platform for addressing all inherent risks to MBSB Bank as well as the development of risk mitigation measures and strategies. In implementing the Risk Appetite Framework across MBSB Bank, MBSB Bank’s MANCO ensures timely escalation of all events which may materially impact MBSB 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. • M  anagement Investment and Credit Committee (“MICC”) deliberates and approves corporate financing and retail financing/investment accounts, within the authority limit delegated by the Board of MBSB Bank. 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 Board Committees of MBSB Bank for approval. • A  LCO serves as the primary oversight and decisionmaking body that provides strategic direction for the management of market risk and liquidity risk. The committee also monitors capital adequacy through capital management.1
  91. 89 • Initial Alert Report Committee (“IAR”), in attending to corporate and retail financing, 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”)2, as the senior governance and policy-making body for IT-related matters at MBSB Bank, the committee ensures that MBSB Bank’s planning for and investment in IT supports the organisation’s strategic goals. The Capital Management Committee had been established on 23 August 2019 to report to ALCO on the capital management of MBSB Bank. 2 The IT Steering Committee (ITSC) was disbanded and its responsibilities have been taken over by MANCO in March 2020. 1 These committees are responsible for overseeing the development and assessing the effectiveness of policies approved by MBSB Bank’s Board. MBSB Bank’s Senior Management oversees the execution and implementation of the policies. 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. To strengthen the IT risk management, a Chief Information Security Officer (“CISO”) was appointed in May 2019 to oversee the IT risk management. RMD also reviews the Group’s compliance and risk limits and identifies emerging risk issues. During the financial year, RMD provided feedbacks in decision-making meetings as follows: MBSB • MANCO - Permanent Invitee • CARAC - Permanent Invitee • ALCO - Member MBSB Bank • MANCO - Permanent Invitee • MICC - Permanent Invitee • ALCO - Member • IAR - Member • ITSC - Member (disbanded) 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, Board Risk Committees and the Boards. RMD continues to provide advice and guidance on the credit, operational/Information Technology, market, liquidity, Shariah and general business risk to the Group. The scope RMD continues to report to the respective Management Committees, Board 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, Board Risk Committees and the Boards for their review on a regular basis. www.mbsb.com.my
  92. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 90 Statement on Risk Management and Internal Control INFORMATION TECHNOLOGY RISK MANAGEMENT FRAMEWORK • R  educe exposure to unexpected losses caused by IT Risk. The Group endeavours to adopt sound Information Technology Risk Management (“ITRM”) practices based on industry best practices. MBSB’s ITRM Framework is implemented with the following objectives: 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. • A  rticulate the overall vision, principles, philosophy, objectives and goals of IT Risk Management; • P  rovide greater clarity of roles and responsibilities for IT Risk Management at all levels of staff; • D  efine a policy for effective management and supervision of IT risk; • D  efine 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; • P  romote IT risk awareness and culture and ensure that a commitment to IT Risk Management exists at all levels of staff; • F  oster an organisational climate where information security risk is considered within the context of the design of business process, enterprise system architecture and system development life cycle; • E  nsure that adequate security controls are implemented to protect information assets (confidentiality, integrity, availability); and www.mbsb.com.my With regards to Financial Institutions’ management of technology risk, BNM had issued a policy document on Risk Management in Technology (“RMiT”) on 18 July 2019 with one of the requirements is to designate a board-level committee which shall responsible for supporting the board in providing oversight over technology-related matters. Following this, the Board Information Technology Oversight Committee (“BITC”) was established in March 2020 as a formal committee reporting to the Board. The BITC is the senior governance and policy making body for IT at MBSB Bank. Its role is to ensure that the organisation’s planning for and investment in IT supports the Bank’s strategic goals and to provide an oversight on the IT Risk Management Framework. 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. MBSB Bank’s Shariah Governance Framework reflects the responsibility of the MBSB Bank’s Board, Management, Shariah Advisory Committee and Shariah Control functions, namely, Shariah Advisory and Research, Shariah Risk, Shariah Review and Shariah
  93. 91 Audit , as well as Business Units to ensure 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 pre-execution and post-execution. The four lines of defense are as follow: 1)Management and Business Unit 2)Shariah Advisory and Research 3)Shariah Risk 4)Shariah Audit and Shariah Review 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 • P  eriodic 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 Risk of Shariah Non-Compliance • S  ponsoring staff to acquire Shariah certification to enhance knowledge and upgrade skills on Shariah matters Shariah non-compliance risk is the risk of failure to comply with the Shariah rules and principles as determined by the Shariah Committee/Advisor or the relevant bodies, such as the Shariah Advisory Council of both BNM and Securities Commission. INTERNAL AUDIT DIVISION MBSB Bank has implemented the following controls in addressing this risk: • O  n-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 • U  se of Operational Risk Management tools such as Loss Event Reporting (“LER”), RCSA and KRI for monitoring of Shariah non-compliance risk exposures and effectiveness of controls The Internal Audit Division, reporting to the Audit Committee (“AC”) and MBSB Bank’s Board Audit Committee (“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 AC and the BAC with periodic follow-up reviews on actions taken. The Internal Audit Division assists the AC and BAC in discharging the Committee’s duties and responsibilities by independently reviewing and reporting on the adequacy and integrity of MBSB and MBSB Bank’s system of internal controls. • New Islamic products or services introduced as www.mbsb.com.my
  94. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 92 Statement on Risk Management and Internal Control COMPLIANCE FUNCTION Structure of Compliance Function Compliance Function Compliance Monitoring Provide continuous monitoring of AML & CFT and regulatory compliance Policy Governance Compliance Business Advisory Shariah Compliance Review AML & CFT Compliance Organisation & Methods Central repository of all key regulatory guidelines Provide advisory support to business and support units on regulatory and compliance Provide postassessment on Shariah compliance and reporting to Shariah Advisory Council (SAC) Transactions monitoring, AML/CFT advisory, assessment governance and awareness Improve efficiency and controls of policies and procedures based on regulatory requirements Compliance management is the collective responsibility of the Boards, Senior Management and every employee of the Group. Led by the Boards and Senior Management, the Group adopts a compliance culture which reflects a corporate culture of ethical standards and integrity. The Group aspires to uphold high standards in carrying on its business and at all times observes both the spirit and letter of the laws and regulations. To achieve this, it is important that compliance is managed in a systematic and effective manner by a dedicated compliance function. The compliance function of the Group is driven by Compliance Division, whereby its main function is to identify and manage compliance at Group level through consistent compliance programmes carried out across the Group. To maintain its independence, Compliance Division reports functionally to the Boards and administratively to the President and Group Chief Executive Officer. Compliance issues and matters in respect of governance, processes, controls as well as systems are deliberated at Senior Management Committees, Board Risk Committees and Boards. www.mbsb.com.my
  95. 93 The effectiveness of compliance function within the Group is further supported and augmented by : • R  CRO, who is appointed to continuously reinforce compliance culture and manage compliance risk at regional level under the second line of defence. Effectively, performing thematic review, monitoring of compliance, coordinating compliance and risk activities as well as strengthening compliance culture at branches become the primary roles of RCRO, amongst others. • D  CORO, who represents the first line of defence and acts as the key interface with Compliance Division in delivering and promoting compliance awareness, implementing and monitor control measures, executing compliance framework as well as facilitating the understanding of compliance requirements at the respective business and support units. The Group’s commitment towards compliance is embodied in its Compliance Charter as follows: • P  reserve the integrity and reputation of MBSB Bank by way of adherence with applicable laws, regulations, ethical standards in all markets and jurisdictions in which it operates. • Improve the corporate image of MBSB Bank as a respectable organisation with regards to compliance, including Shariah rulings and Anti-Money Laundering (AML) & Counter Financing Terrorism (CFT) risks. • F  ully cooperate with the relevant local and international competent authorities and law enforcement agencies in combating money laundering and counter financing of terrorism. The Interconnectedness of compliance responsibilities within the Group is depicted in the diagram below: INTERNAL AUDIT Responsible for providing independent assurance to the Board and senior management on the overall quality and effectiveness of compliance risk management controls executed by Compliance Division, business and support units. COMPLIANCE Compliance Division manages the compliance risk by assessing and monitoring the adequacy and effectiveness of the governance, processes and systems carried out by respective business and support units. BUSINESS & SUPPORT UNITS Business units and support units, primarily responsible for managing compliance risk inherent in the day-to-day activities, processes and systems for which they are accountable for. www.mbsb.com.my
  96. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 94 Statement on Risk Management and Internal Control In light of the above , Compliance Division undertakes the following key activities and functions on a continuous basis: • R  egulatory and Shariah Compliance Reviews – The regulatory and Shariah compliance reviews are developed based on mandatory requirements by the respective Policy Documents issued by BNM. To this end, Compliance Thematic and Shariah Compliance reviews are periodically conducted to monitor the Group’s activities are in compliance with the applicable regulations and Shariah rulings, respectively. RCRO is responsible to perform the thematic review on branches. Reports on the outcomes of the compliance reviews are tabled to senior management committee, Board risk committee and Boards, including SAC for Shariah compliance. Subsequently, the rectification progress of the highlighted issues is also tracked and monitored until full resolution. • G  ap Analysis Exercise – Gap analysis is performed on new and revised regulatory requirements against the internal policies and procedures to identify the difference between the current and regulatory practices. Action plans are formulated by the affected process owners and tracked for implementation and closure by Compliance Division. • A  ML/CFT Compliance Programme – Compliance Division undertakes several initiatives to ensure continuous compliance with BNM’s Guidelines on AML, CFT and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) covering, inter-alia, conduct transactions monitoring via AML/CFT screening database and providing training and awareness to strengthen the staff understanding and knowledge on relevant requirements. Additionally, Compliance Division also provides advisory support on AML/CFT matters and perform risk assessment on the Group’s business initiatives affecting new and revised products, services and delivery channels. www.mbsb.com.my • A  dvisory Support and risk assessment – Provide compliance advisory support to business and support units to ensure regulatory risk is mitigated. Additionally, Compliance Division is also involved in the Project Steering Committees (“PSC”) and Project Working Groups (“PWG”) for all the newly implemented banking products and services. Compliance risk assessment is conducted on all the Group’s projects and initiatives as part of the strategies to comply with the regulatory requirements. • C  ompliance Healthcheck – Healthcheck is developed to serve as a self-assessment tool for branches as well as selected business and support units to test the key compliance controls including Shariah on a periodic basis, and allow prompt addressing of self-identified gaps. The areas in the exercise include regulatory requirements such as AML/CFT, Personal Data Protection Act, Foreign Account Tax Compliance Act (“FATCA”), Common Reporting Standard (“CRS”) and key pertinent Shariah contracts. The latest addition to the Healthcheck list for branches is on the Foreign Exchange Administration (“FEA”) Rules. To ensure objectivity and improve the effectiveness of the exercise, the outcomes of completed healthchecks are validated by Compliance Division on a periodic basis. • C  ompliance Training – Compliance training activities are structured to focus on ensuring continuous adherence to relevant regulatory requirements issued by the regulatory bodies. The training plan also aims to update the Group’s staff with latest and new development in term of regulatory requirements such as AML/CFT, Personal Data Protection Act, FATCA, CRS, FEA Rules and key pertinent Shariah contracts. In addition to this, instances of non-compliance highlighted during the thematic and external regulatory reviews are also shared with the staff to prevent recurrence of the same.
  97. 95 • C  ompliance Awareness – Another platform which strengthens the staff learning exposure in the Group is via the various compliance awareness mediums i.e. monthly compliance bulletin and bi-monthly posters. These mediums of communication are intended to reinforce the level of comprehension on key compliance areas including Shariah, while demonstrating MBSB Bank’s continued commitment to alleviate compliance culture amongst the staff. • R  eview of Internal Policies and Procedures – Compliance Division participates in the Group’s review of new and revised policies and procedures via a working group. This role is instrumental in ensuring all regulatory requirements, including AML/CFT areas are embedded and harmonised into the internal policies and procedures to ensure compliance gaps are adequately addressed. • L  iaison Officer with Regulators – Compliance Division is the key contact point for the Group in its engagement and liaison with the regulators and Law Enforcement Agencies. The liaison roles include coordinating the information and communication from or to these authority bodies in a systematic manner. • Integrity Governance Unit (IGU) – The Board had on 19 September 2019 approved the establishment of the IGU for the Bank, in which the CCO helms the role of the interim Head. The main purpose of IGU is to ensure honest work culture amongst the Bank’s employees including members of Senior Management and Board, founded upon strong morals and ethics to combat bribery, corruption and abuse of power. IGU is tasked to carry out the core functions such as emplacement of governance, integrity enhancement, complaints management, detection as well as verification. In addition to the above key activities and functions, Compliance Division also sends out an Annual Statement of Compliance Certification to all business and support units and branches. It is a self-certification exercise whereby the business units, support units and branches certify their state of compliance with regulatory requirements, Shariah requirements as well as policies and procedures surrounding the key business activities and operations at their respective business and support units. OTHER KEY ELEMENTS OF INTERNAL CONTROL The other key elements of the procedures established by the Group in ensuring effective internal control include: • T  he 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 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 MBSB Bank Board on an annual basis. The MBSB Bank Board also reviews the operational and financial performance of MBSB Bank. Quarterly management reports are presented to the MBSB Bank’s Board providing information on the financial performance and risk exposure of MBSB Bank to enable MBSB Bank Board to effectively oversee the MBSB Bank’s overall performance objectives, key initiatives, financial plans and annual budget. www.mbsb.com.my
  98. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 96 Statement on Risk Management and Internal Control • A  corporate governance structure is in place with transparent and consistent lines of responsibility. In addition to the Board Risk Committees, the Board Audit Committees, the Boards are also supported by other established Board Committees in the execution of its responsibilities namely MBSB Bank’s Board Investment and Credit Committee (“BICC”), MBSB Bank’s Board Nominating & Remuneration Committee (BNRC) and MBSB Nominating & Remuneration Committee (NRC) the details of which are set out in the Corporate Governance Report. Each committee has their respective terms of reference. • A  n Approving Authority Manual with appropriate empowerment and authority limits has been approved by the respective Boards including authorisation limits at various levels of Management. • T  he Risk Appetite Statement (incorporated under the ICAAP Framework) which articulates the nature, type and level of risk that MBSB Bank is willing to assume, is reviewed and approved by the Board of MBSB Bank on an annual basis. Compliance to the risk appetite is monitored on a periodic basis and any non-compliance to the Risk Appetite Statement is reported to the Board of MBSB Bank. • T  he 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. • B  usiness Continuity Management (“BCM”) policies have been established for MBSB 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 MBSB Bank to resume critical operations within the required timeframes and minimises the cost of damages and interruptions due to disasters. www.mbsb.com.my • P  olicies, 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. • R  ecruitment 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. • T  he Group has established guidelines on the Code of Ethics and Conduct for Directors and Employees which sets out the responsibilities of the Group’s directors and employees in observing the principles and upholding the corresponding conduct to achieve professionalism and ethics in the conduct of the Group’s business and professional activities. • C  omplaint 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 employees 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. • T  he Fraud & Corruption Control Policies & Procedures has been disseminated to all employees in order to ensure the Policy requirements are implemented and expected to be strictly followed. 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 programmes and
  99. 97 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. 3 (“AAPG 3”), Guidance for Auditors on Engagements to Report on the Statement on Risk Management and Internal Control included in the Annual Report issued by the Malaysian Institute of Accountants (“MIA”) for inclusion in the Integrated Annual Report of the Group for the financial year ended 31 December 2019. • T  he 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 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. Based on the review conducted, the external auditors have reported to the Board that nothing has come to their attention that would cause them to believe that this statement: • T  he Group has strengthened the internal controls and IT risk management framework and implemented the cyber security project which focuses on strengthening the security perimeter to protect the critical systems, enhancing the protection of internet facing applications, proactive monitoring by the Security Operations Center to ensure the visibility of the cyber security threats and protecting the Group’s data from unauthorised information disclosure. 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 SORMIC BY EXTERNAL AUDITORS The external auditors have reviewed this Statement on Risk Management and Internal Control pursuant to the scope set out in the Audit and Assurance Practice Guide a)has not been prepared in accordance with the disclosures required by paragraphs 41 and 42 of the Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers, or b)is factually inaccurate. AAPG 3 does not require the external auditors to consider whether the Directors’ Statement on Risk Management and Internal Control covers all risks and controls, or to form an opinion on the adequacy and effectiveness of the Group’s risk management and internal control system including the assessment and opinion by the Board of Directors and the Management thereon. The auditors are also not required to consider whether the processes described to deal with material internal control aspects of any significant problems disclosed in the Integrated Annual Report will, in fact, remedy the problems. CONCLUSION The 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 28 April 2020. www.mbsb.com.my
  100. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 98 Report of the Audit Committee PURPOSE OF AUDIT COMMITTEE The establishment of the MBSB ’s Audit Committee (“AC”) and MBSB Bank’s Board Audit Committee (“BAC”) is to assist the MBSB’s Board of Directors (“MBSB Board”) and MBSB Bank’s Board of Directors (MBSB Bank Board) in: • P  roviding independent oversight on the financial reporting, risk management and internal control systems and ensure appropriate method and procedure are in place to provide the level of assurance required by each Board. • S  erving as an independent party to objectively review the financial information of the Group which is presented by the Management to each Board and shareholders. COMPOSITION OF THE AC AND BAC Paragraph 15.09(1)(c) of the Bursa Malaysia’s MMLR requires that at least one (1) member of each Committee must be a member of MIA or equivalent expertise or experience in the field of finance. MBSB - AC The Chairman of the AC, Encik Lim Tian Huat, is a Fellow of ACCA, member of the MIA and MICPA. In 2019, a total of 16 AC meetings were held. The composition of the AC members and attendance of each member at the Committee meetings held during the financial year are as follows: Committee Member Encik Lim Tian Huat (Chairman) (Senior Independent Non-Executive Director) Ir Moslim Othman (Independent Non-Executive Director) Puan Lynette Yeow Su-Yin (Independent Non-Executive Director) Attendance 16/16 16/16 16/16 Encik Mohamad Abdul Halim Ahmad has been appointed as AC Committee Member on 2 March 2020 to replace Ir Moslim Othman who retired on same date. www.mbsb.com.my MBSB Bank - BAC Encik Aw Hong Boo as the Chairman of the BAC is a Fellow of ICAEW, member of MIA and MICPA. In 2019, a total of 15 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: Committee Member Encik Aw Hong Boo (Chairman) (Senior Independent Non-Executive Director) Tunku Alina Raja Muhd Alias (Non-Independent Non-Executive Director) Dr Loh Leong Hua (Independent Non-Executive Director) Attendance 15/15 15/15 15/15 The respective NRC and BNRC ensured that the AC and BAC comprised of Independent Non-Executive Directors who have the appropriate level of expertise and experience with strong understanding of the Bank’s business to maintain an independent and effective AC & BAC. The Chairman of the AC and BAC report to the respective Boards on matters deliberated during the AC and BAC meetings respectively. Minutes of each meeting are also distributed to each member of the respective Board. The AC and BAC meetings were also attended by the Group PCEO, Group Chief Risk Officer, Group Chief Internal Auditor (“GCIA”) together with the Audit Department Heads while the attendance of other Senior Management staff is by invitation depending on the matters being deliberated. AUTHORITY OF THE AC AND BAC The AC and BAC, in discharging their duties, have explicit authority to investigate any matter within their terms of reference. The AC and BAC also have full access to and co-operation from the Management which include discretion to invite the Group PCEO, Management Team, GCIA and external auditors to attend their meetings. The AC and BAC shall have the rights to obtain the necessary
  101. 99 resources to enable them in performing their duties and providing independent professional advice if necessary , with any expenses related thereto to be borne by the Group. ROLES AND RESPONSIBILITIES OF THE AC AND BAC The main roles and responsibilities of the AC and BAC include, but are not limited to the following: Financial Reporting a)Assisted each Board in ensuring the accounting treatment, financial reporting and disclosures in the Annual Audited Financial Statement of MBSB and MBSB Bank for the financial year ended 31 December 2019, are in compliance with: • Provisions of the Companies Act, 2016; • Bursa Malaysia’s MMLR; • T  o fulfil and comply with the relevant regulatory and statutory requirements of Audit Committee; • T  o fulfil the independent oversight function in relation to the adequacy and integrity of internal controls and financial reporting, risk management and compliance with internal policies, procedures and external applicable rules and regulations; • R  einforce the independence and objectivity of the Internal Audit Division (“IAD”); • P  rovide the focal point for communication between external auditors, internal auditors, risk managers, Directors and the Management on matters in connection with accounting, reporting, risks and controls and providing a forum for discussion independent of the Management; and • U  ndertake additional duties as may be deemed appropriate and necessary to assist the respective Boards. –The full Terms of Reference of the AC can be downloaded at https://www.mbsb.com.my/TOR_AC.pdf • A  pplicable approved accounting standards in Malaysia and adoption of new accounting standards as well as the accounting treatments used in the financial statements; and • Other legal and regulatory requirements. b)Reviewed the quarterly unaudited financial results of the Group and discussed with the Management before recommending to the respective Boards for approval prior to submission to relevant regulatory authorities. c)Reviewed the MFRS 9 validation by the external auditors for each Board’s approval. d)Reviewed the Expected Credit Losses (“ECL”) refined model for each Board’s approval. e)Reviewed the proposed Interim Dividend for each Board’s approval. f)Reviewed the write off proposal for each Board’s approval. g)Reviewed the Basel II Pillar 3 disclosure on half yearly basis. ACTIVITIES OF THE AC AND BAC IN 2019 The summary of the activities of the AC and BAC in the discharge of its duties and responsibilities for the financial year ended 31 December 2019 included the following: The Group Chief Financial Officer is responsible for financial management of the Group, including MBSB Bank. www.mbsb.com.my
  102. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 100 Report of the Audit Committee External Audit a )Reviewed with the external auditors on: • T  heir audit planning memorandum for the year ended 31 December 2019 comprising their audit plan, audit approach, audit strategy and scope of work for the year; • T  heir annual audit report and management letter together with management’s response to the findings of the external auditors; and • U  pdates of new developments on the Malaysian Financial Reporting Standards issued by the Malaysian Accounting Standards Board. b)In compliance with the MMLR, met the representatives of the external auditors twice a year for discussion without the presence of the Management, to discuss any issues of concern of the external auditors arising from their audits, including the level of cooperation provided by the Company’s employees to the external auditors. Other officers of the Group are also invited to the AC and BAC meetings during the deliberation of matters related to them as and when necessary. c)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 Committee also received from the external auditors their written confirmation regarding their independence and the measures used to control the quality of their work. d)Evaluated the performance and effectiveness of the external auditors as follows: • P  erformance, quality of services and sufficiency of resources provided by the external auditor; • C  ommunication and interaction with the external auditor; and • Auditor independence and objectivity. e)Made recommendations to each Board of Directors on their audit fees, non-audit fees and for their reappointment to hold office until the conclusion of the next annual general meeting. www.mbsb.com.my Internal Audit The AC and BAC activities related to Internal Audit are further deliberated in the “Statement on Internal Audit Function” and the “Internal Audit Division Activities in 2019” section in this Report. Annual Report Reviewed and recommended the Report of the Audit Committee for each Board’s approval for inclusion in the Annual Report for the FY2019. Related Party Transaction Reviewed related party transactions entered into by MBSB and its subsidiaries that may arise within the Group, covering the nature and amount of the transactions so as to ensure that related party transactions are undertaken on an arm’s length basis, on normal commercial terms and on terms that are not more favourable to the related parties than those generally available to the non-related parties. Directors’ Training During the year, the Committee members have attended the relevant training programmes, conferences and seminars as disclosed in MBSB CG Report 2019. STATEMENT ON INTERNAL AUDIT FUNCTION FOR THE AC AND BAC The internal audit function is performed in-house and undertaken by the Group’s IAD. The IAD reports administratively to the Group PCEO and directly to the AC and BAC as an independent unit that provides independent and reasonable assurance that the system of internal controls continues to operate satisfactorily and effectively. The audits cover the review of the adequacy of risk management, operational controls, compliance with established procedures, guidelines and statutory requirements, quality of assets, application systems and management efficiency, amongst others. To maintain objectivity and independence, the appointment, remuneration, performance appraisal, transfer and dismissal of the GCIA are to be decided by the AC and BAC. IAD personnel do not have any authority or responsibility for the activities they audit. They are required to report to the GCIA any situation in which a conflict of interest or bias is present or may reasonably be inferred. Assignments are allocated so that potential and actual conflicts and bias are avoided.
  103. 101 The IAD is adopting the relevant requirements on internal audit : a) BNM/RH/GL (013-4) Guidelines on Internal Audit Function of Licensed Institutions The core functions of an IAD according to the above Guidelines are: • T  o perform an independent appraisal of activities as a service to the Management; and 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. • T  o assist Management to establish and maintain the best possible internal control environment within MBSB and MBSB Bank. The IAD provides periodic reports to the Committee 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. b) 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”. 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 Committee to execute its oversight function by forming an opinion on the adequacy of measures undertaken by the Management. c)The IAD is also guided by the Internal Audit Charter, Internal Audit Manual and the Committee’s Terms of Reference. The Internal Audit Manual documents audit processes, methodology, roles, duties and responsibilities of internal auditors. The AC and BAC also reviewed and assessed the performance of the GCIA, including the fit and proper assessment to ensure that the GCIA satisfies the fitness and propriety criteria set out in the Fit and Proper Requirements Policies & Procedures on a continuous basis. The function of internal audit is an independent, objective assurance and consulting activity designed to add value and improve the Group’s operations. It evaluates whether: THE INTERNAL AUDIT DIVISION ACTIVITIES IN 2019 • Resources are effectively and economically utilised; • Internal controls are adequate, efficient and effective; • T  he objectives of the Group are being achieved efficiently and effectively; and • T  he established policies and procedures are being followed. The GCIA is also invited to attend various level of Committee’s meeting at both MBSB and MBSB Bank including Management Committee, Risk Management Committee (RMC), Board Risk Management and Compliance Committee (BRMCC) and IT Steering Committee as permanent invitee and observer in a consultative capacity to provide independent feedback on internal control and governance aspects. As a result of the transfer of all Islamic assets and liabilities to MBSB Bank, the IAD’ activities were mainly presented at MBSB Bank’s BAC as follows: a)Presented its risk-based audit plan, audit budget and scope of work to the 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 the Group’s internal controls system and taking into consideration the business strategic plans, regulatory requirements and Management’s inputs. b)Revised the audit plan during the half-year review of the plan to take into account changes in business environment, audit priorities and ad-hoc requests from regulators or Management. www.mbsb.com.my
  104. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD CORPORATE GOVERNANCE 102 Report of the Audit Committee c )Conducted scheduled audits, ad-hoc audit assignments and investigations which the audit reports were tabled to the BAC highlighting the audit findings, issues and recommendations for improvement. The scheduled audits were of the following: • C  orporate credit and retail audit covering the credit underwriting, pre and post disbursement, financing activities, credit operations, security documentation and corporate and retail credit recovery. • T  reasury 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. • O  perational audits covering Asset Management, Warehouse Outsourcing Services, Human Resource Department, Compliance Division, Strategic Planning and Group Risk with the primary objective to ensure effective operations processes are discharged. • Information System audit with the primary objective to ensure that the in-house application system and those outsourced systems in respect of the process data migration, operations, access control, business continuity and disaster recovery, physical security, maintenance and its contingency planning are in accordance with MBSB Bank’s policies and procedures. • 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. • A  udit of selected IT projects undertaken by MBSB Bank to ensure proper internal control and compliance with the project governance. • A  udit at selected MBSB Bank’s branches as per approved audit plan. • A  udit of selected support business divisions and departments to ensure proper internal control and compliance with the respective policies and procedures. www.mbsb.com.my • A  udit of Related Party Transaction and Connected Parties to ensure no conflict of interest arose when approving the financing facilities as well as appointing the vendors. • S  hariah Audit is embedded in the respective audit assignments in ensuring compliance with Shariah rules and principles as prescribed by SAC, policies and procedures and relevant BNM’s guidelines. For 2019, the IAD has conducted the thematic Shariah audit review on selected areas namely Commodity Trading Supplier, Fees and Charges, Zakat Operations Utilisation with the objective to ensure that adequate controls were in place to ascertain 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. With regards to Shariah audit, findings and recommendations were also tabled to the Shariah Advisory Committee (“SAC”) and BAC for notification and deliberation. d)Conducted investigations into activities or matters as instructed by the BAC and the Management. The outcomes from the investigations were tabled to the BAC and MBSB Bank Board. e)Monitored, followed-up and validated the completion of management action plans to address audit findings on unresolved audit findings and reported the status to the BAC. f)Reviewed and revised internal audit manual & new audit rating methodology to ensure the appropriateness of the methodology adopted. g)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. h)Provided quarterly reports on the status of internal audit activities to the BAC.
  105. 103 i )Provided advisory services to review the operational guidelines and manuals to ensure pertinent controls embedded are consistent with the changes in businesses and operations. j)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. k)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 Group was set up in August 2018. Undertake the External Quality Assurance Review conducted by the PWC Malaysia, and the action plan taken by IAD to address the recommendations raised therein. IAD was assigned a “Generally in Conformance” rating by PWC Malaysia with respect to its adherence to the IIA’s International Standards for the Professional Practice of Internal Auditing. Conducted scheduled audits, in which the audit reports were tabled to the AC highlighting the audit findings, issues and recommendations for improvement. The scheduled audits were of the following: • 3-Year Audit Plan (2019-2021); • 2018 Report of the Board Audit Committee; • Internal Audit Division 4th Quarter Report as at 31 December 2018; • Internal Audit Division 1st Quarter Report as at 31 March 2019; • Internal Audit Report of Asset Management Unit; • Follow-Up Audit of Asset Management Unit; • Internal Audit Report of Corporate Recovery, Collection & Recovery Department; and • Internal Audit Report on Status of Unresolved Audit Issues to the Audit Committee. Based on the audit conducted, IAD received full cooperation from Management and staff. IAD had full and unrestricted access to all personnel, information and documents relevant to the internal audit work. The Management has responded positively and taken steps to address the audit observations and process improvements raised during the audit. IAD also works with the external auditors to resolve any control issues raised by them to ensure that significant issues are duly acted upon by Management. IAD continues with its initiatives to optimise the use of technology and increase the usage of data analytics tools to achieve audit effectiveness and efficiency. The upskilling of internal auditors through continuous learning and development remains a key focus. This is achieved through structured and formalised training programmes on themed subject matters. IAD staff had acquired technical competence and training that demonstrated by various certifications. The cost incurred for the internal audit function in respect of the FY2019 amounted to RM4,223,654.00. INTERNAL AUDIT REPORTS In 2019, the IAD has completed 91 assignments (22 BNM’s requirements and 69 internal audit assignments) and consultancy services covering the audits of all key operations and investigations carried out. All findings by the IAD are tracked and followed-up until closure. Conclusion In the annual assessment of the effectiveness of Board Committees for FY2019, each Board was satisfied that the AC and BAC members have discharged their function, duties and responsibilities in accordance with the TOR to provide independent oversight of the Group’s internal and external audit functions, internal controls and ensuring checks and balances within the Group. www.mbsb.com.my
  106. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD 104 Financial Statements 106 Statement of Directors’ Responsibility 107 Directors’ Report 115 Statement by Directors 115 Statutory Declaration 116 Independent Auditors’ Report 122Statements of Financial Position 124Statements of Profit or Loss and Other Comprehensive Income 125Statements of Changes in Equity 127 Statements of Cash Flows 132Notes to the Financial Statements www.mbsb.com.my
  107. 105 www .mbsb.com.my
  108. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 106 Statement of Directors ’ Responsibility 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. www.mbsb.com.my
  109. Directors ’ Report 107 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 2019. Principal activities The Company is principally engaged in investment holding. The Company had ceased providing new financing, but continues to manage its remaining conventional loans and advances. The principal activities of the subsidiaries are described in Note 13. 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’000 716,900 162,233 Reserves and provisions There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the statements of profit or loss and other 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 2018:   - single-tier final dividend of 5.0 sen net per ordinary share on 6,389,101,298     ordinary shares approved on 8 April 2019, paid on 23 July 2019 319,455 On 6 May 2020, the Company announced the proposed single-tier final dividend of 3.0 sen net per ordinary share in respect of the financial year ended 31 December 2019. Based on the number of shares in the issue of 6,713,401,615 ordinary shares as at 31 December 2019, the dividend payable would be RM201,402,049. www.mbsb.com.my
  110. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 108 Directors ’ Report Dividends (cont’d.) 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 2020. 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 43 to the financial statements and subject to the relevant regulatory approvals. The DRP was previously approved by the shareholders on 10 December 2013. 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 Puan Zaidatul Marwin Idrus (Appointed on 14 October 2019) Encik Mohamad Abdul Halim bin Ahmad (Appointed on 2 March 2020) MBSB Bank Berhad Datuk Azrulnizam bin Abdul Aziz Datuk Johar bin Che Mat Tan Sri Abdul Halim bin Ali Encik Sazaliza bin Zainuddin Encik Aw Hong Boo Puan Lynette Yeow Su-Yin Tunku Alina binti Raja Muhd Alias Dr. Loh Leong Hua Encik Kamarulzaman Ahmad (Appointed on 1 October 2019) Encik Arul Sothy Mylvaganam (Appointed on 5 May 2020) Other subsidiaries of the Company Encik Tang Yow Sai Puan Azlina Mohd Rashad Encik Asrul Hazli Salleh Encik Hazim Dato’ Yahya Cik Yam Kwai Ying Sharon Puan Thiru Selvi a/p Supramaniam (Appointed on 1 October 2019) Encik Edmund Lee Kwing Mun (Appointed on 16 December 2019) Puan Norhayati binti Azit (Resigned on 1 October 2019) www.mbsb.com.my
  111. Directors ’ Report 109 Directors’ benefits Since the end of the previous financial year, no Director, other than disclosed in Note 45 (c) to the financial statements 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 39 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. There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by mean of the acquisition of shares in or debentures of the Company or any of its related corporations during the financial year, except for the share options granted to executives of the Company pursuant to the Malaysia Building Society Berhad Employee Share Options Scheme. Indemnity and Takaful cost The Group Directors and Officers are covered by Directors’ and Officers’ Liability Takaful. The total insurance coverage amounts to RM50,000,000 and the annual insurance premium that is payable amounts to RM122,970. 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: Number of ordinary shares Name of Director 1.1.2019 Acquired Sold 31.12.2019 250,366 15,647 - 266,013 Direct interest: Ordinary shares of the Company   Tan Sri Abdul Halim bin Ali 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. www.mbsb.com.my
  112. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 110 Directors ’ Report Issue of shares and debentures During the financial year, the Company increased its issued and paid-up ordinary share capital by RM259,440,254 from RM6,682,101,791 to RM6,941,542,045 as follows: Number of new ordinary shares Units ‘000 RM ‘000 Issue/ exercise price 324,300 259,440 0.80 Issuance of new shares for cash pursuant to: Dividend Reinvestment Plan The new ordinary shares issued during the financial year ranked pari passu in all respects with the existing ordinary shares of the Company. On 20 December 2019, a subsidiary of the Group issued a new Tier-2 Sukuk Wakalah with nominal value of RM1,300,000,000. Save as disclosed above, there were no other new shares or debentures issued during the financial year. Options granted over unissued shares There were no options granted during the financial year by the Company to take up any unissued shares of the Company. No shares have been issued during the financial year by virtue of the exercise of any options to take up unissued shares of the Company. At the end of the financial year, there were no unissued shares of the Company under options, other than the options granted under the Employee Share Options Scheme (“ESOS”). Employee Share Option Scheme 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 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. www.mbsb.com.my
  113. Directors ’ Report 111 Employee Share Option Scheme (cont’d.) The salient features and other terms of the ESOS are disclosed in Note 30(b) to the financial statements. Details of the options to subscribe for ordinary shares of the Company pursuant to the ESOS as at 31 December 2019 are as follows: Grant date Expiry date Exercise price (RM) Number of options 11.09.2010 09.03.2012 11.08.2020 1.00* 1,179,561 11.08.2020 1.02* 780,784 15.11.2012 11.08.2020 1.42* 8,439,265 09.03.2014 11.08.2020 1.52* 13,795,866 24,195,476 * 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 as at the year-end. The names of option holders who were granted options to subscribe for 276,643 or more ordinary shares as at 31 December 2019 are as follows: Revised Exercise Price    Name Tang Yow Sai   Number of Share Options  RM 1.1.2019 Granted Exercised 31.12.2019 1.00 367,229 - - 367,229 1.42 175,799 - - 175,799 Azlina Binti Mohd Rashad 1.42 480,978 - - 480,978 Zainnurain Bin Othman 1.42 422,178 - - 422,178 Salim Yazan Bin Gulzar Mohamed 1.52 418,577 - - 418,577 Asrul Hazli Bin Salleh 1.02 147,979 - - 147,979 1.42 260,180 - - 260,180 1.00 268,111 - - 268,111 1.42 109,014 - - 109,014 Tamin Bin Jafeeri 1.42 321,298 - - 321,298 Adzahar Bin Abdul Khalid 1.00 222,516 - - 222,516 1.42 66,232 - - 66,232 Koh Ai Hoon www.mbsb.com.my
  114. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 112 Directors ’ Report Employee Share Option Scheme (cont’d.) Revised Exercise Price    Name Nor Azam Bin M. Taib   Number of Share Options  RM 1.1.2019 Granted Exercised 31.12.2019 1.02 108,991 - - 108,991 1.42 173,480 - - 173,480 Azlina Binti Mohd Abdul Karim @ Alias 1.52 276,643 - - 276,643 Md Azhar Bin Md Ali 1.52 276,643 - - 276,643 Hasliza Binti Ismail 1.52 276,643 - - 276,643 Statement of Corporate Governance The Board of Directors (“the Board”) of the Company is 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. Business review for 2019 The Group registered a profit before taxation and zakat of RM897 million for 2019 as compared to profit before taxation and zakat of RM854 million in prior year. Gross loans, financing and advances for the Group as at 31 December 2019 stood at RM35,864 million (2018: RM35,173 million) whilst total deposits from customers and placements of banks and other financial institutions stood at RM35,894 million (2018: RM32,788 million). The Group continued its focus to grow corporate financing during the year, including expanding its trade finance portfolio and strengthening its capital with the issuance of Tier-2 Sukuk Wakalah in December 2019. The Group was also active in the treasury segment, achieving a higher treasury income and increased investment in securities during the year. Overall, the Group’s financial results for 2019 is satisfactory. www.mbsb.com.my
  115. Directors ’ Report 113 Outlook for 2020 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 expanding its products and services which include trade finance, wealth management and mobile banking to cater for various segments of our customers and depositors. For the year 2020, the Group’s performance are expected to be impacted by the novel coronavirus (“Covid-19”) outbreak in the country. Other statutory information (a)Before the statements of financial position and statements of profit or loss and other 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 impaired loans, advances and financing; 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 impaired loans, advances and financing 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. www.mbsb.com.my
  116. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 114 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 48 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 events during the financial year and subsequent events after the financial year end Significant events during the financial year are disclosed in Note 55 to the financial statements. Subsequent events after the financial year end are disclosed in Note 56 to the financial statements. Auditors The auditors, KPMG PLT, have expressed their willingness to continue in office. The auditors’ remunerations are disclosed in Note 37 to the financial statements. Signed on behalf of the Board in accordance with a resolution of the directors dated 6 May 2020. Tan Sri Abdul Halim bin Ali                    Lim Tian Huat Chairman                                    Director Kuala Lumpur, Malaysia www.mbsb.com.my
  117. Statement by Directors 115 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 122 to 322 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 2019 and of the financial performance and 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 6 May 2020. Tan Sri Abdul Halim bin Ali                    Lim Tian Huat Chairman                                    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 122 to 322 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 6 May 2020 Tang Yow Sai Before me, www.mbsb.com.my
  118. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 116 Independent Auditors ’ Report To the Members of Malaysia Building Society Berhad (197001000172/9417-K) (Incorporated in Malaysia) Report on the Audit of 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 2019 of the Group and of the Company, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 122 to 322. 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 2019, 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 auditors’ report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and Other Ethical Responsibilities We are independent of the Group and of the 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. www.mbsb.com.my
  119. Independent Auditors ’ Report To the Members of Malaysia Building Society Berhad (197001000172/9417-K) (Incorporated in Malaysia) Key Audit Matters (cont’d.) Valuation of loans, financing and advances Refer to Note 2(o) – Significant accounting policy: Impairment of financial assets, Note 4(i) – Expected credit losses/ Allowance for impairment of loans, financing and advances and other receivables and Note 9 – Loans, financing and advances to the financial statements. The key audit matter How the matter was addressed in our audit As at 31 December 2019, loans, financing and advances Our audit procedures performed over this area included, among represent 66.96% and 15.70% of the total assets of the others: Group and of the Company respectively. • Assessed the design and tested the operating effectiveness of management controls implemented in identifying MFRS 9, Financial Instruments requires the Group and the potentially impaired loans, assessing for evidence of Company to recognise Expected Credit Losses (“ECL”) on significant increase in credit risk for the purposes of their loans, financing and advances and off-balance sheet staging classification and reviewing the adequacy of ECL positions. allowances. The measurement of ECL requires the application of • significant judgment and increased complexity which include the identification of on-balance sheet and offbalance 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 and forward-looking macroeconomic factors. Tested the completeness and accuracy of data from underlying systems that are used for the c omputation of ECL. Assessed the reasonableness of the criteria for identifying a significant increase in credit risk and considered if those criteria are consistent with credit risk management practices. In order to maintain model performance and relevance to • reflect the credit exposure of the business, the ECL models are subjected to model refinements/enhancements. Significant judgement and assumptions are applied in the • refinement/enhancement exercise.  ested the accuracy of the classification of aging buckets T for retail loans, financing and advances that was part of the criteria for account staging. • For a selected number of samples of individually impaired customers, obtained the Group and Company’s assessment of their recoverability of these exposures and challenged whether the assumptions and key inputs used in the individual impairment assessments were appropriate. •  ssessed whether the financial statement disclosures are A adequate and appropriately reflect the Group’s and the Company’s exposures to credit risk. For a selected number of samples of performing Wholesale and Commercial Banking loans, financing and advances, performed credit reviews to ascertain the credit grading and classification of account staging. www.mbsb.com.my 117
  120. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 118 Independent Auditors ’ Report To the Members of Malaysia Building Society Berhad (197001000172/9417-K) (Incorporated in Malaysia) Key Audit Matters (cont’d.) Valuation of loans, financing and advances (cont’d.) The key audit matter How the matter was addressed in our audit Our financial risk management specialists assisted in performing audit procedures, which included, among others: •  ssessed and validated ECL model refinements for A reasonableness and consistency of methodology and compliance with MFRS 9. •  hallenged the reasonableness of the key assumptions C and variables used by management in the ECL allowance computations for key portfolios and considered whether they were representative of current economic circumstances. •  erformed re-computation of ECL on key portfolios P using the attributes embedded in the ECL models developed by the Group and the Company. Goodwill Refer to Note 2(e)(i) – Significant accounting policy: Intangible assets - Goodwill, Note 4(ii) – Goodwill from acquisition of MBSB Bank Berhad and Note 19 – Goodwill to the financial statements. The key audit matter How the matter was addressed in our audit As at 31 December 2019, the goodwill recognised in the Our audit procedures performed over this area included, financial statements of the Group was RM148.0 million amongst others: (as disclosed in Note 19), arising from the acquisition of a subsidiary, MBSB Bank Berhad in February 2018. •  ssessed the sensitivity analysis performed by A the Group and Company on the key inputs to the impairment model, to understand the impact that reasonable alternative assumptions would have on the overall carrying amounts. • www.mbsb.com.my  ssessed the adequacy of the disclosures of the key A assumptions used by the Group in determining the recoverable amount of the CGUs.
  121. Independent Auditors ’ Report To the Members of Malaysia Building Society Berhad (197001000172/9417-K) (Incorporated in Malaysia) Key Audit Matters (cont’d.) Goodwill (cont’d.) The key audit matter How the matter was addressed in our audit The Group has performed an impairment assessment on goodwill. Goodwill impairment testing of cash-generating units (“CGUs”) relies on estimates of value-in-use (“VIU”) based on estimated future cash flows. The carrying value of goodwill may be materially misstated due to management judgement involved in the estimation of value-in-use, as well as assumptions factored in the estimation of future cash flows that are affected by future, market and economic conditions. Our corporate finance specialists assisted in performing audit procedures, which included among others: • Assessed the reasonableness of the key assumptions and methodology used by the Group and Company in performing the impairment assessment. • Assessed the basis of preparing the cash flow projections and appropriateness of key assumptions such as growth rate and discount rate applied by taking into consideration historical evidence and comparing the assumption used against internal information as well as external economic and market data. Information Other than the Financial Statements and Auditors’ Report Thereon The Directors of the Company are responsible for the other information. The other information comprises the information included in the Directors’ Report, but does not include the financial statements of the Group and of the Company and our auditors’ report thereon, which we obtained prior to the date of this auditors’ report, and the remaining parts of the annual report, which are expected to be made available to us after that date. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not and will 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 identified above 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 on the other information that we obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the remaining parts of the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the Directors of the Company and take appropriate actions in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. www.mbsb.com.my 119
  122. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 120 Independent Auditors ’ Report To the Members of Malaysia Building Society Berhad (197001000172/9417-K) (Incorporated in Malaysia) 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 ability of the Group and of the Company 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. •  btain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in O the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Group and of the Company. •  valuate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related E disclosures made by the Directors. • Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Group or the Company 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 and the Company to cease to continue as a going concern. www.mbsb.com.my
  123. Independent Auditors ’ Report To the Members of Malaysia Building Society Berhad (197001000172/9417-K) (Incorporated in Malaysia) Auditors’ Responsibilities for the Audit of the Financial Statements (cont’d.) •  valuate the overall presentation, structure and content of the financial statements of the Group and of the Company, E 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 gives a true and fair view. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express on 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 auditors’ 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 subsidiary of which we have not have not acted as auditor is disclosed in Note 13 to the financial statements. Other Matters 1.The financial statements of the Group and of the Company as at and for the year ended 31 December 2018 were audited by another auditor who expressed an unmodified opinion on those statements on 19 April 2019. 2.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. KPMG PLT                        Ow Peng Li (LLP0010081-LCA & AF 0758)               Approval Number: 02666/09/2021 J Chartered Accountants                  Chartered Accountant Petaling Jaya 6 May 2020 www.mbsb.com.my 121
  124. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 122 Statements of Financial Position As at 31 December 2019 Group Company Note 2019 RM ’000 2018 RM’000 2019 RM’000 2018 RM’000 Cash and short-term funds 5(a) 2,034,889 3,411,986 189,526 155,077 Deposits and placements with other   financial institutions 5(b) 873,515 931,087 - 154,347 Derivative financial assets 6 4,239 67 - - Financial investments at fair value through other   comprehensive income (“FVOCI”) 7 10,694,644 5,097,105 - - Assets Financial investments at amortised cost 8 494,705 20,350 - - Loans, financing and advances 9 33,953,822 33,133,119 1,146,505 1,326,502 Trade receivables 10 1 561 - - Other receivables 11 188,342 243,047 104,906 148,672 Statutory deposits with Bank Negara Malaysia 12 1,090,000 1,053,000 - - Investments in subsidiaries 13 - - 5,290,328 4,756,328 Investments in joint venture 14 - - - - Inventories 15 102,175 102,432 - - Property and equipment 16 313,964 297,567 24,367 24,831 Right-of-use assets 17(a) 8,784 - - - Intangible assets 18 167,209 293,513 - - Goodwill 19 148,031 - - - Investment properties 20 820 820 - - Land use rights 21 521 5,262 - - Deferred tax assets 22 28,218 34,318 9,585 15,687 Tax recoverable Total assets 605,778 801,278 539,621 710,610 50,709,657 45,425,512 7,304,838 7,292,054 The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  125. Statements of Financial Position 123 As at 31 December 2019 (cont’d.) Group Note Company 2019 RM’000 2018 RM’000 2019 RM’000 2018 RM’000 Liabilities and shareholders’ equity Deposits from customers 23 25,271,951 24,209,449 - - Deposits and placements of banks and other   financial institutions 24 10,621,769 8,578,851 - - 6 1 2 - - Trade payables 25 22 225 - - Other payables 26 642,278 650,767 154,484 239,669 Lease liabilities 17(b) 8,919 - - - Derivative financial liabilities Recourse obligation on financing sold 27 2,481,251 2,135,518 - - Sukuk - MBSB Structured Covered (“SC”)  Murabahah 28 1,664,973 1,968,075 - - Sukuk Wakalah 29 1,293,075 - - - Deferred tax liabilities 22 126,607 60,120 - - Provision for taxation and zakat Total liabilities Ordinary share capital 30 Reserves 31 11,940 36,901 538 4,787 42,122,786 37,639,908 155,022 244,456 6,941,542 6,682,102 6,941,542 6,682,102 160,837 16,873 5,843 6,261 Retained earnings 1,484,492 1,086,629 202,431 359,235 Total equity 8,586,871 7,785,604 7,149,816 7,047,598 Total liabilities and shareholders’ equity 50,709,657 45,425,512 7,304,838 7,292,054 Total Islamic banking assets* 48,090,927 42,291,495 - - 5,098,853 6,116,722 29,749 38,242 Commitments and contingencies 47 * The disclosure is in accordance with the requirements of Bank Negara Malaysia’s Guideline on Financial Reporting for Islamic Banking Institutions dated 27 September 2019. The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  126. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 124 Statements of Profit Or Loss and Other Comprehensive Income For the Year Ended 31 December 2019 Group Note Revenue 32 Income derived from investment of general   investment deposits and Islamic capital funds 33 Income attributable to depositors Income attributable to securitisation Income attributable to sukuk Net income from Islamic operations Interest income 34 Interest expense 35 3,012,003 2,862,724 113,233 812,513 2,774,929 2,604,687 - 609,344 (1,428,408) (1,272,930) - (304,799) (93,821) (97,665) - (24,843) (95,312) (107,299) - (69,836) 1,157,388 1,126,793 - 209,866 151,955 216,796 105,107 174,530 (21,832) (20) (21,832) 105,087 152,698 1,309,323 1,321,757 105,087 362,564 103,394 53,963 37,517 45,593 1,412,717 1,375,720 142,604 408,157 (400,831) (406,280) (42,172) (120,917) 1,011,886 969,440 100,432 287,240 40 (114,457) (115,867) 39,190 (11,338) 897,429 853,573 139,622 275,902 41 (181,067) (198,173) 22,540 (75,507) 899 (13,000) 71 - 717,261 642,400 162,233 200,395 36 37 Operating profit Profit before taxation and zakat Taxation 2018 RM’000 194,964 Net income Net (allowance)/writeback for impairment on  loans, financing and advances and other financial assets 2019 RM’000 (20) Operating income Other operating expenses 2018 RM’000 151,935 Net interest income Net other income Company 2019 RM’000 Zakat Profit from continuing operations (361) - - - Profit for the year 716,900 642,400 162,233 200,395 Other comprehensive income, net of tax:  Movement in fair value reserve, which may be reclassified subsequently to profit or loss 144,382 17,268 - 6,656 Total comprehensive income for the year, net   of tax 861,282 659,668 162,233 207,051 Loss from discontinued operation Earnings per share (sen) Basic 42 (a) 10.97 10.32 Diluted 42 (b) 10.97 10.32 The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  127. Statements of Changes in Equity 125 For the Year Ended 31 December 2019  Non-distributable  Distributable Share Capital RM’000 Share Option Reserve RM’000 Fair Value Reserves RM’000 Retained Earnings RM’000 Total RM’000 6,682,102 6,261 10,612 1,086,629 7,785,604 Profit for the year - - - 716,900 716,900 Other comprehensive income for the year - - 144,382 - 144,382 Dividends (Note 43) - - - (319,455) (319,455) 259,440 - - - 259,440 Group At 1 January 2019 Issuance of shares pursuant to  Dividend Reinvestment Plan (Note 43) Transfer of share option reserve to  retained profits upon expiry of share options - (418) At 31 December 2019 6,941,542 5,843 154,994 1,484,492 8,586,871 At 1 January 2018 6,172,051 6,261 (6,656) 751,726 6,923,382 Profit for the year - - - 642,400 642,400 Other comprehensive income for the year - - 17,268 - 17,268 Dividends (Note 43) - - - (307,497) (307,497) 243,952 - - - 243,952 Issuance of shares pursuant to  Dividend Reinvestment Plan (Note 43) Issuance of shares for acquisition of a  subsidiary At 31 December 2018 - 418 - 266,099 - - - 266,099 6,682,102 6,261 10,612 1,086,629 7,785,604 The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  128. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 126 Statements of Changes in Equity For the Year Ended 31 December 2019 (cont’d.)  Non-distributable  Distributable Share Capital RM’000 Share Option Reserve RM’000 Fair Value Reserves RM’000 Retained Earnings RM’000 Total RM’000 6,682,102 6,261 - 359,235 7,047,598 Profit for the year - - - 162,233 162,233 Dividends (Note 43) - - - (319,455) (319,455) 259,440 - - - 259,440 - (418) - 418 - At 31 December 2019 6,941,542 5,843 - 202,431 7,149,816 At 1 January 2018 Company At 1 January 2019 Issuance of shares pursuant to   Dividend Reinvestment Plan (Note 43) Transfer of share option reserve to retained   profits upon expiry of share options 6,172,051 6,261 (6,656) 466,337 6,637,993 Profit for the year - - - 200,395 200,395 Other comprehensive income for the year - - 6,656 - 6,656 Dividends (Note 43) - - - (307,497) (307,497) Issuance of shares pursuant to  Dividend Reinvestment Plan (Note 43) 243,952 - - - 243,952 Issuance of shares for acquisition of a  subsidiary 266,099 - - - 266,099 6,682,102 6,261 - 359,235 7,047,598 At 31 December 2018 The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  129. Statements of Cash Flows 127 For the Year Ended 31 December 2019 Cash flows from operating activities Profit before taxation Adjustments for :   Depreciation of property and equipment Amortisation: - land use rights - intangible assets Depreciation of right-of-use asset Loss/(gain) 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 (gain)/loss on sale of financial investments at FVOCI Net gain on sale of financial investments at FVTPL (Gain)/loss on disposal of foreclosed properties Allowance/(write back) for impairment of: - loans, financing and advances - other receivables - financing commitments, financial guarantees - other payables - investments at amortised cost - investments at FVOCI - asset held-for-sale - financing to subsidiaries - amount due from subsidiaries - trade receivables Profit adjustments: - loans, financing and advances - financial investments - Sukuk - MBSB SC Murabahah - Sukuk Wakalah - recourse obligation on financing sold - Sukuk Commodity Murabahah Operating profit before working capital changes Group 2019 2018 RM’000 RM’000 Company 2019 2018 RM’000 RM’000 897,429 853,573 139,622 275,902 8,605 8,615 464 1,804 91 24,210 8,814 161 11,383 - - 1,731 - 3,938 - (316) (2,384) - (318) 2,710 (2,384) (58,592) 33 - - (1,424) (7,109) 401 (7,109) 401 78,487 65,538 (29,732) 146 18 - 174,919 45,944 (102,205) 1,570 6 (4,359) (8) (64,986) 14,482 (1,028) 12,342 - 19,167 50,077 (83,994) 1,570 11,708 4,588 8,222 - (347,897) 93,096 2,216 93,821 831,655 (92,836) (36,524) 107,299 97,665 1,062,937 93,787 (9,898) 69,836 24,843 (27,348) 348,617 The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  130. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 128 Statements of Cash Flows For the Year Ended 31 December 2019 (cont’d.) Group Working capital changes:   Decrease/(increase) in deposits with financial institutions    with maturity of more than one month Increase in statutory deposits with Bank Negara Malaysia (Increase)/decrease in loans, financing and advances Decrease in financial assets held-for-sale Decrease in inventories Company 2019 RM’000 2018 RM’000 2019 RM’000 2018 RM’000 57,572 (183,684) 154,347 (157,792) (37,000) (1,028,826) - - (931,515) (267,709) 244,983 495,291 - 38,409 - 38,409 257 810 - 900 (Increase)/decrease in derivative assets (4,172) 226 - - Decrease/(increase) in trade receivables 560 (258) - - Decrease/(increase) in other receivables 10,020 (198,716) 5,830 374,310 3,105,420 (1,920,965) - (790,770) (203) 15 - - (1) 2 - - Increase/(decrease) in deposits from customers, banks   and other financial institutions (Decrease)/increase in trade payables (Decrease)/increase in derivative liabilities 20,804 239,891 (84,157) (871,692) 3,053,397 (2,257,868) 414,790 (562,727) Tax paid (293,370) (325,688) (106,024) (178,476) Tax refunded 306,474 - 305,655 - (8,158) (7,826) (4,178) (2,982) 3,058,343 (2,591,382) 610,243 (744,185) Increase/(decrease) in other payables Cash generated from/(used in) operations Zakat paid Net cash generated from/(used in)   operating activities The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  131. Statements of Cash Flows 129 For the Year Ended 31 December 2019 (cont’d.) Group 2019 RM’000 Company 2018 RM’000 2019 RM’000 2018 RM’000 Cash flows from investing activities Increase in investment in subsidiaries - - (534,000) - Acquisition of MBSB Bank Berhad - 181,076 - (6,666,078) - 40,793 - 40,793 Purchase of property and equipment (60,968) (136,942) - (1,736) Purchase of intangible assets (33,080) (101,473) - (11,509) Proceeds from disposal of foreclosed properties 18,221 - 18,221 - Proceeds from financial assets held-for-sale Proceeds from disposal of property and equipment   and land use rights Profit income from financial investment Net purchase of financial investment Proceeds from sale of financial investments at amortised  cost 36,678 2,097 - 516 347,897 36,524 - - (5,822,066) (1,146,047) - (38,118) - 31,168 - - (5,513,318) (1,092,804) (515,779) (6,676,132) Issuance/(repayment) of recourse   obligation on financing sold 345,231 (102,649) - (88,002) Profit expense paid on recourse obligation on financing sold (93,319) (97,665) - - (301,859) (318,694) - (41,693) (94,339) (108,407) - - Net cash used in investing activities Cash flows from financing activities Repayment of Sukuk - MBSB SC Murabahah Profit expense paid on Sukuk - MBSB SC Murabahah (8,679) - - - 1,290,859 - - - Dividends paid on ordinary shares (319,455) (307,497) (319,455) (307,497) Net proceeds from issuance of ordinary shares 259,440 243,952 259,440 243,952 1,077,879 (690,960) (60,015) (193,240) Payment of lease liabilities Issuance of Sukuk Wakalah Net cash generated from/(used in) financing activities The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  132. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 130 Statements of Cash Flows For the Year Ended 31 December 2019 (cont’d.) Group Company 2019 RM’000 2018 RM’000 2019 RM’000 2018 RM’000 Net (decrease)/increase in cash and cash equivalents (1,377,097) (4,375,146) 34,449 (7,613,557) Cash and cash equivalents at 1 January 3,411,986 7,787,132 155,077 7,768,634 Cash and cash equivalents at 31 December 2,034,889 3,411,986 189,526 155,077 2,034,889 3,411,986 189,526 155,077 Cash and cash equivalents is represented by: Cash and short-term funds (Note 5(a)) The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  133. Statements of Cash Flows 131 For the Year Ended 31 December 2019 (cont’d.) An analysis of changes in liabilities arising from financing activities for the financial year is as follows: Group At 1 January 2019 Recourse obligation on financing sold RM’000 SukukMBSB SC Murabahah RM’000 Sukuk Wakalah RM’000 Total RM’000 2,135,518 1,968,075 - 4,103,593 Profit expense during the year 93,821 93,096 2,216 189,133 Profit paid during the year (93,319) (94,339) - (187,658) 345,231 (301,859) 1,290,859 1,334,231 At 31 December 2019 2,481,251 1,664,973 1,293,075 5,439,299 At 1 January 2018 2,238,167 2,287,877 - 4,526,044 Repayment and redemption Profit expense during the year 97,665 107,299 - 204,964 Profit paid during the year (97,665) (108,407) - (206,072) (102,649) (318,694) - (421,343) 2,135,518 1,968,075 - 4,103,593 Recourse obligation on financing sold RM’000 SukukMBSB SC Murabahah RM’000 Total RM’000 2,238,167 2,287,877 4,526,044 24,843 69,836 94,679 Repayment and redemption At 31 December 2018 Company At 1 January 2018 Profit expense during the year Repayment and redemption Vested to MBSB Bank Berhad At 31 December 2018 (88,002) (41,693) (129,695) (2,175,008) (2,316,020) (4,491,028) - - - The accompanying notes form an integral part of the financial statements. www.mbsb.com.my
  134. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 132 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 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 address of its registered office and principal place of business is as follows: 11th Floor, Wisma MBSB 48, Jalan Dungun Damansara Heights 50490 Kuala Lumpur The consolidated financial statements of the Company as at and for the financial year ended 31 December 2019 comprise of the Company and its subsidiaries (together reported as (“the Group”) and individually referred to as ("Group entities") and the Group’s interest in a joint venture. The Company was principally engaged in investment holding. The Company had ceased providing new financing, but continues to manage its remaining conventional loans and advances. The principal activities of the subsidiaries are described in Note 13. There have been no significant changes in the nature of the principal activities of the subsidiaries during the financial year. 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). These financial statements were approved by the Board of Directors on 6 May 2020. 1. 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 other than as disclosed in Note 2. The financial statements incorporate those activities relating to Islamic banking operations which have been undertaken by the Group. 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 in Note 53. 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. www.mbsb.com.my
  135. Notes To The Financial Statements 133 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies The accounting policies set out below have been applied consistently to the periods presented in these financial statements unless otherwise stated. (a) Foreign currency transactions Foreign currency transactions are translated to the respective functional currencies 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. (b) Basis of consolidation (i)Subsidiaries A subsidiary is an entity over which the Company 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, investment in subsidiary is accounted for at cost less any impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(o) below. On disposal of such investment, the difference between the net disposal proceeds and its carrying amount is included in 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) Business combination 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 are expensed as incurred and included in administrative expenses. The difference between these fair values and the fair value of the consideration (including the fair value of any pre-existing investment in the acquiree) is goodwill or discount on acquisition. Discount on acquisition which represents gain on bargain purchase 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. www.mbsb.com.my
  136. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 134 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (b) Basis of consolidation (cont’d.) (ii) Business combination (cont’d.) 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. 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. (c) Joint ventures Joint ventures are corporations, partnerships or other entities over which there is contractually agreed sharing of control by the Group with one or more parties where the strategic financial and operating decisions relating to the entities require unanimous consent of the parties sharing control and the Group has rights over the net assets of the arrangements. Investment in joint ventures are measured in the Group's statements of financial position at cost less impairment losses, unless the investment is classified as held for distribution. The cost of investment includes transaction costs. www.mbsb.com.my
  137. Notes To The Financial Statements 135 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (d) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity-accounted associates and joint ventures are eliminated against the investment to the extent of the Group’s interest in the investees. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (e) Intangible assets (i)Goodwill Goodwill arises on business combination is initially measured at cost. Following initial recognition, goodwill is measured at cost less any 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. During the year, the Group finalised provisional goodwill arising from acquisition of MBSB Bank Berhad as set out in Note 54. (ii) Other intangible assets Intangible assets other than goodwill, that are acquired is measured initially at cost. Following initial acquisition, these intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses. www.mbsb.com.my
  138. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 136 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (e) Intangible assets (cont’d.) (iii)Amortisation 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. Other intangible assets in the Group are as follows: Software license The useful life of software license is assessed to be finite and is amortised on a straight-line basis over 5 years. Banking license Banking license was acquired from acquisition of MBSB Bank Berhad as set out in Note 54. Core deposit Core deposit was acquired from acquisition of MBSB Bank Berhad as set out in Note 54. Core deposit is amortised over the expected economic benefit period of 6 years. www.mbsb.com.my
  139. Notes To The Financial Statements 137 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (e) Intangible assets (cont’d.) 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 the lease terms. (f) 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 any accumulated depreciation and any 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. Depreciation of property and equipment is provided for on a straight-line basis to write down the cost of each asset to its residual value over the estimated useful life from the date they are available for use. The estimated useful life is as follows: Building in progress Buildings Building renovation Furniture and equipment Motor vehicles Data processing equipment * 40 years 5 years 5 years 5 years 5 years *  Building in progress will not be depreciated until it becomes ready for use. The carrying amounts of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. The residual values, useful lives and depreciation methods are reviewed at end of the reporting period, and adjusted prospectively, if appropriate. www.mbsb.com.my
  140. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 138 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (f) Property and equipment and depreciation (cont’d.) 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. Freehold land has unlimited useful life and therefore is not depreciated. (g)Leases The Group has applied MFRS 16 using the modified retrospective approach, which requires the recognition of the cumulative effect of initially applying MFRS 16 to the retained earnings brought forward and not to restate prior year comparatives information as previously reported under MFRS 117, Leases and related interpretations. The Group also does not recognise lease arrangements for which the lease term ends within 12 months of the date of initial application. The Group has elected, on a lease-by-lease basis, to recognise the right-of-use assets at the amount equal to the lease liabilities, hence there were no impact to the retained earnings brought forward as at 1 January 2019. Current financial year (i) Definition of a lease A contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether: • the contract involves the use of an identified asset - this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; • the customer has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and • the customer has the right to direct the use of the asset. The customer has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the customer has the right to direct the use of the asset if either the customer has the right to operate the asset; or the customer designed the asset in a way that predetermines how and for what purpose it will be used. www.mbsb.com.my
  141. Notes To The Financial Statements 139 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (g) Leases (cont’d.) Current financial year (cont’d.) (i) Definition of a lease (cont’d.) At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative standalone prices. However, for leases of properties in which the Group is a lessee, it has elected not to separate non-lease components and will instead account for the lease and non-lease components as a single lease component. (ii) Recognition and initial measurement (a) As a Lessee The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the respective Group entities' incremental borrowing rate. Generally, the Group entities use their incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in-substance fixed payments less any incentives receivables; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; • the exercise price under a purchase option that the Group is reasonably certain to exercise; and • penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The Group excludes variable lease payments that linked to future performance or usage of the underlying asset from the lease liability. Instead, these payments are recognised in profit or loss in the period in which the performance or use occurs. The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. www.mbsb.com.my
  142. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 140 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (g) Leases (cont’d.) Current financial year (cont’d.) (ii) Recognition and initial measurement (cont’d.) (b) As a Lessor When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To clarify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. If an arrangement contains lease and non-lease components, the Group applies MFRS 15 to allocate the consideration in the contract based on the stand-alone selling prices. The Group recognises assets held under a finance lease in its statement of financial position and presents them as a receivable at an amount equal to the net investment in the lease. The Group uses the interest rate implicit in the lease to measure the net investment in the lease. When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. It assesses the lease classification of a sublease with reference to the right-ofuse asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sublease as an operating lease. (iii) Subsequent measurement (a) As a Lessee The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a revision of in-substance fixed lease payments, or if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, of if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. www.mbsb.com.my
  143. Notes To The Financial Statements 141 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (g) Leases (cont’d.) Current financial year (cont’d.) (iii) Subsequent measurement (cont’d.) (a) As a Lessee (cont’d.) When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. (b) As a Lessor The Group recognises lease payments received under operating leases as income on a straight-line basis over the lease term as part of "revenue". Previous financial year As a lessee (i) Finance lease Leases in terms of which the Group assumed substantially all the risks and rewards of ownership were classified as finance leases. Upon initial recognition, the leased asset was measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset was accounted for in accordance with the accounting policy applicable to the asset. Minimum lease payments made under finance leases were apportioned between the finance expense and the reduction of the outstanding liability. The finance expense was allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments were accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment was confirmed. Leasehold land which in substance was a finance lease was classified as property, plant and equipment, or as investment property if held to earn rental income or for capital appreciation or for both. (ii) Operating lease Leases, where the Group did not assume substantially all risks and rewards of ownership were classified as operating leases and, except for property interest held under operating lease, the leased assets were not recognised on the statement of financial position. Property interest held under an operating lease, which was held to earn rental income or for capital appreciation or both, was classified as investment property and measured using fair value model. www.mbsb.com.my
  144. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 142 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (g) Leases (cont’d.) Previous financial year (cont’d.) (ii) Operating lease (cont’d.) Payments made under operating leases were recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received were recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Contingent rentals were charged to profit or loss in the reporting period in which they were incurred. Leasehold land which in substance was an operating lease was classified as prepaid lease payments. (h) Investment property Investment property, comprising only freehold land is held for capital appreciation, and is not occupied by the Group. The investment property is initially recognised at cost and subsequently at cost less any accumulated impairment losses. The carrying amount of the investment property is reviewed at the end of each reporting period to determine whether there is any indication of impairment based on market value determined by independent qualified valuers. Right-of-use asset held under a lease contract that meets the definition of investment property is initially measured similarly as other right-of-use assets. An investment property is derecognised on its disposal, or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal. The difference between net disposal proceeds and the carrying amount is recognised in profit or loss in the period in which the item is derecognised. (i)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, first-out basis) and net realisable value. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. www.mbsb.com.my
  145. Notes To The Financial Statements 143 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (j) Employee benefits (i) Short-term benefits Wages, salaries, bonuses and social security contributions are measured on an undiscounted basis and are expensed of 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, sharebased 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 nonmarket 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. (k)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. www.mbsb.com.my
  146. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 144 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (k) Provisions (cont’d.) Provisions are reviewed at the end of each reporting period 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. (l) Cash and cash equivalents Cash and short-term funds in the statements of financial position consist of cash and balances with banks and other financial instituitions, money at call and deposit placements with banks and other financial institutions which have an insignificant risk of changes in fair value with original maturities of one month or less. For the purposes of the statements of cash flows, cash and cash equivalents consist of cash and short-term funds as defined above. (m) Impairment of non-financial assets The Group assesses at the end of each reporting period 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. For goodwill and intangible assets that have an indefinite useful lives or that are not yet available for use, the recoverable amount is estimated at each period at the same time. An asset's recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use. For the purpose of assessing impairment, assets are grouped at the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. Subject to an operating segment ceiling test, for the purpose of goodwill impairment testing, cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to a cash-generating unit or a group of cash-generating units that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less cost of disposal. 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. www.mbsb.com.my
  147. Notes To The Financial Statements 145 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont'd.) (m) Impairment of non-financial assets (cont'd.) An impairment loss is recognised in profit or loss if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of cash-generating units) and then to reduce the carrying amounts of the other assets in the cash-generating unit (groups of cashgenerating units) on a pro-rata basis. An assessment is made at the end of each reporting period 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. (n) Financial instruments (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. A financial asset (unless it is a trade receivable without significant financing component) 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. A trade receivable without a significant financing component is initially measured at the transaction price. Financial assets 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"). www.mbsb.com.my
  148. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 146 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (n) Financial instruments (cont’d.) (ii) Classification and subsequent measurement Financial assets are not reclassified subsequent to their recognition unless the Group and Company change its business model for managing assets. a) Business model assessment The Group and the Company make an assessment of the objective of the 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 consider all relevant evidence that is available at the date of the assessment. Such relevant evidence includes, but is not limited to: 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 portfolio (and the financial assets held within) is evaluated and reported to the management; iii)the risks that affect the performance of the portfolio (and the financial assets held within) and, in particular, the way that those risks are managed; 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); and 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. www.mbsb.com.my
  149. Notes To The Financial Statements 147 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont'd.) (n) Financial instruments (cont'd.) (ii) Classification and subsequent measurement (cont'd.) a) Business model assessment (cont'd.) 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. b) Assessment of whether contractual cash flows are solely payments of principal and interest/profit ("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 the Company consider 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 consider: • • • • • c) 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 financing); and features that modify consideration of the time value of money (e.g. periodical reset of profit rates). 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: • 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 SPPI on the principal amount outstanding. www.mbsb.com.my
  150. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 148 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (n) Financial instruments (cont’d.) (ii) Classification and subsequent measurement (cont’d.) c) Financial assets measured at amortised cost (cont’d.) Subsequent to initial recognition, these financial assets are measured at amortised cost using the effective interest/profit method. The amortised cost is reduced by impairment losses. Interest/profit income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Interest/profit income is recognised by applying effective profit rate to the gross carrying amount except for credit-impaired financial assets where the effective interest/profit rate is applied to the amortised cost. Included in financial assets measured at amortised cost are financing and advances based on Shariah contracts of Tawarruq, Bai', Ijarah and Istisna'. d) Financial assets measured at fair value through other comprehensive income ("FVOCI") (i) Debt investments This category comprises debt investment where it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the debt investment, and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and profit on the principal amount outstanding. The debt investment is not designated as at fair value through profit or loss. Income calculated using the effective profit method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in other comprehensive income. On derecognition, gains and losses accumulated in other comprehensive income are reclassified to profit or loss. (ii) Equity investments This category comprises investment in equity that is not held for trading, and the Group and the Company may 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. www.mbsb.com.my
  151. Notes To The Financial Statements 149 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (n) Financial instruments (cont’d.) (ii) Classification and subsequent measurement (cont’d.) e) Financial assets measured at fair value through profit or loss ("FVTPL") All financial assets not measured at amortised cost or fair value through other comprehensive income as described above are measured at fair value through profit or loss. This includes derivative financial assets (except for a derivative that is a designated and effective hedging instrument). On initial recognition, the Group or the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at fair value through other comprehensive income as at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets categorised as fair value through profit or loss are subsequently measured at their fair value. Net gains or losses, including any profit or dividend income, are recognised in the profit or loss. All financial assets, except for those measured at fair value through profit or loss and equity investments measured at fair value through other comprehensive income, are subject to impairment assessment (Note 2(o)). Financial liabilities The categories of financial liabilities at initial recognition are as follows: a) Financial liabilities measured at amortised cost Other financial liabilities not categorised as fair value through profit or loss are subsequently measured at amortised cost using the effective profit method. 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. b) Financial liabilities measured at fair value through profit or loss ("FVTPL") Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) and financial liabilities that are specifically designated into this category upon initial recognition. www.mbsb.com.my
  152. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 150 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (n) Financial instruments (cont’d.) (ii) Classification and subsequent measurement (cont’d.) Financial liabilities (cont’d.) b) Financial liabilities measured at fair value through profit or loss (“FVTPL”) (cont’d.) 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: i)if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise; ii)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 iii)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 profit 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. The Group's financial liabilities The financial liabilities include Sukuk - MBSB SC Murabahah, Sukuk Wakalah, trade payables, other payables, bank and other borrowings, recourse obligations on financing sold to Cagamas Berhad, deposits from customers and deposits and placements of banks and other financial institutions. The deposits are stated at placement values. Sukuk - MBSB SC Murabahah and Sukuk Wakalah are classified as other financial liabilities as there are contractual obligation by the Group to make cash payments of either principal or profit or both to holders of the Sukuk and the Group is contractually obliged to settle the financial instrument in cash. www.mbsb.com.my
  153. Notes To The Financial Statements 151 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (n) Financial instruments (cont’d.) (ii) Classification and subsequent measurement (cont’d.) The Group’s financial liabilities (cont’d.) 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 using the effective profit method. 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/profit method. Bank and other borrowings and recourse obligations on financing sold to Cagamas Berhad are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost 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 included within "expected credit losses for commitment and contingencies" under other payables. (iv)Derecognition A financial asset or part of it is derecognised when, and only when the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) is recognised in profit or loss. www.mbsb.com.my
  154. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 152 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (n) Financial instruments (cont’d.) (iv) Derecognition (cont’d.) A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged, cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. (v) Modifications of financial assets and financial liabilities 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"). The Group and the Company evaluate whether the cash flows of the modified asset are substantially different if the terms of a financial asset are modified. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value. If the cash flows of the modified asset carried at amortised cost or FVOCI are not substantially different, the modification does not result in derecognition of the financial asset. In this case, the Group and the Company recalculate the gross carrying amount of the financial asset using the original effective profit rate of the asset and recognises the amount arising from adjusting the gross carrying amount as a modification gain or loss in profit or loss. If such a modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is presented as profit income, calculated using the effective interest/profit rate method. www.mbsb.com.my
  155. Notes To The Financial Statements 153 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (n) Financial instruments (cont’d.) (v) Modifications of financial assets and financial liabilities (cont'd.) Financial liabilities The Group and the Company derecognise a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in profit or loss. If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective profit rate and the resulting gain or loss is recognised in profit or loss. (vi)Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statements of financial position when, and only when, the Group and the Company currently have a legally enforceable right to set off the amounts and they intend either to settle them on a net basis or to realise the asset and settle the liability simultaneously. (vii) Fair value of financial assets and liabilities 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 in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market to which the Group has access at that date. The fair value of a liability includes the risk that the Group will not be able to honour its obligations. The fair value of financial instruments is generally measured on the basis of the individual financial instrument. However, when a group of financial assets and financial liabilities is managed on the basis of its net exposure to either market risk or credit risk, the fair value of the group of financial instruments is measured on a net basis. The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If the market for a financial instrument, and for unlisted securities, is not active, the Group establishes fair value by using valuation techniques. www.mbsb.com.my
  156. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 154 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (o) Impairment of financial assets 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 ("FVOCI") is recognised in profit or loss and accumulated in a separate component of equity. Measurement The Group and the Company recognise loss allowances for expected credit losses ("ECL") on financial assets measured at amortised cost and financial investments measured at FVOCI (debt securities), but not on investments in equity instruments. ECL are a probability-weighted estimate of credit losses. The Group and the Company measure loss allowances at an amount equal to lifetime ECL except for debt securities that are determined to have low credit risk at the reporting date and other financial instruments of which credit risk has not increased significantly since initial recognition, which are measured at 12-month ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, 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’s and the Company's 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 horizon, usually in the course of 1 year. LGD is the magnitude of the likely loss if there is a default. The Group and the Company estimate 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. www.mbsb.com.my
  157. Notes To The Financial Statements 155 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (o) Impairment of financial assets (cont’d.) Measurement (cont’d.) EAD represents the expected exposure in the event of a default. The Group and the Company derive the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract and arising from amortisation. The EAD of a financial asset is its gross carrying amount at the time of default. For lending commitments, the EADs are potential future amounts that may be drawn under the contract, which are estimated based on historical observations and forward-looking forecasts. For financial guarantees, the EAD represents the amount of the guaranteed exposure when the financial guarantee becomes payable. For some financial assets, EAD is determined by modelling the range of possible exposure outcomes at various points in time using scenario and statistical techniques. As described above, and subject to using a maximum of a 12-month PD for Stage 1 financial assets, the Group and the Company measure ECL considering the risk of default over the maximum contractual period (including any borrower’s extension options) over which they are exposed to credit risk, even if, for credit risk management purposes, the Group and the Company consider a longer period. The maximum contractual period extends to the date at which the Group and the Company have the right to require repayment of an advance or terminate a financing commitment or guarantee. However, for facilities that include both a financing and an undrawn commitment component, the Group and the Company measure ECL over a period longer than the maximum contractual period if the Group’s and the Company's contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group’s and the Company's exposure to credit losses to the contractual notice period. These facilities do not have a fixed term or repayment structure. The Group and the Company can cancel them with immediate effect but this contractual right is not enforced in the normal day-to-day management, but only when the Group and the Company become aware of an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions that the Group and the Company expect to take, and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and/or turning the outstanding balance into a financing with fixed repayment terms. Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of shared risk characteristics that include but not limited to: • • • • • • • • instrument type; credit risk gradings; collateral type; financing-to-value (“FTV”) ratio for retail property financing; date of initial recognition; remaining term to maturity; industry; and geographic location of the borrower. www.mbsb.com.my
  158. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 156 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (o) Impairment of financial assets (cont’d.) Measurement (cont’d.) The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately homogeneous. For portfolios in respect of which the Group has limited historical data, external benchmark information is used to supplement the internally available data. Recognition Lifetime ECL is the ECL that results from all possible default events over the expected life of the asset, while 12-month ECL are the portion of ECL that result from default events that are possible within the 12 months after the reporting date. The maximum period considered when estimating ECL is the maximum contractual period over which the Group and the Company are 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 do not have a significant increase in credit risk since initial recognition or those that 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 includes 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 triggers applied by the Group and the Company in 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, breach of 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’s 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 watchlist. Such qualitative factors are based on the management's expert judgement and relevant historical experiences. The Group and the Company determine 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. www.mbsb.com.my
  159. Notes To The Financial Statements 157 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (o) Impairment of financial assets (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 a financial asset 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 determine 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 consider a financial asset to be in default when: (a) 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; • 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; •  here payments are scheduled on intervals of three (3) months or longer, the account shall be W 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 the Group’s and the Company's credit risk grading framework. (b) Restructured and rescheduled (“R&R”) financing; or www.mbsb.com.my
  160. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 158 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (o) Impairment of financial assets (cont’d.) Credit-impaired (Default) (cont’d.) (c) Customer/Issuer is declared bankrupt/wound up. In assessing whether a borrower is in default, the Group and the Company consider indicators that are: • • •  ualitative: e.g. breaches of covenant; q quantitative: e.g. overdue status and non-payment on another obligation of the same issuer to the Group or the Company; and based on data developed internally and obtained from external sources. Inputs into the assessment of whether a financial asset 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. ECL against credit-impaired financial assets are determined based on an assessment of the recoverable cash flows, including the realisation of any collateral held where appropriate. The ECL held represent the difference between the present value of the cash flows expected to be recovered, discounted at the instrument’s original effective profit rate, and the gross carrying value of the instrument prior to any credit impairment. Restructured financial assets If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and ECL are measured as follows: • If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset. • If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective profit rate of the existing financial asset. ECL for restructured financial assets that are not considered to be credit-impaired will be recognised on 12-month basis. However, if there is a significant increase in credit risk, the ECL will be recognised on a lifetime basis. www.mbsb.com.my
  161. Notes To The Financial Statements 159 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (o) Impairment of financial assets (cont’d.) 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 to the expected future macroeconomic conditions. Forward-looking adjustment incorporated within the ECL model is a combination of statistical analysis and expert judgements 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/write-off Financial assets and related impairment allowances are normally written down/written off, either partially or in full, when there is no realistic prospect of recovery of the financial assets. This is generally the case when the Group and the Company determine that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-down/write-off. This assessment is carried out at the individual asset level. Where financial assets are secured, the write-down/write-off is normally done after receipt of any proceeds from the realisation of security. Financial assets that are written down/written off could still be subject to enforcement activities in order to comply with the Group's and the Company's procedures for recovery of amounts due. (p) 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. www.mbsb.com.my
  162. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 160 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (q) Recognition of income Revenue is recognised to the extent that it is probable that the economic benefit 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/Profit income and interest/profit expense Interest/Profit income is recognised in profit or loss for all income/profit-bearing assets and liabilities using the effective profit method. The effective interest/profit method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest/profit income or interest/profit expense over the relevant period. The effective interest/profit rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest/profit rate, the Group and the Company take into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest/profit rate, but not future credit losses. Interest/Profit on impaired financial assets is recognised using the rate of interest/profit used to discount the future cash flows for the purpose of measuring the impairment loss. Murabahah income is recognised on effective profit rate basis over the period of the contract based on the financing amounts disbursed. Ijarah income is recognised on effective profit rate basis over the lease term of the financing amount. Tawarruq income is essentially Murabahah contract-based income and therefore recognised on the same basis as Murabahah income. Istisna' income is also recognised on effective profit rate basis over the contractual period based on financing amount disbursed. (ii) Fee income 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. www.mbsb.com.my
  163. Notes To The Financial Statements 161 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (q) 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 Other income, including 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. (r) 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 or substantively enacted by the end of reporting period. Current tax is 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 end of each reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: •  here the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in w 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. www.mbsb.com.my
  164. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 162 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (r) Income tax (cont’d.) (ii) Deferred tax (cont’d.) 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. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period 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 end of each reporting period. 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. (s)Zakat This represents business zakat that is paid on the Group's portion. It is an obligatory amount payable by the Group 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 nongovernment organisations. www.mbsb.com.my
  165. Notes To The Financial Statements 163 For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (s) Zakat (cont’d.) The obligation and responsibility of specific payment of zakat on deposit fund lies with the muslim depositors. As such, no accrual of zakat expenses is recognised in the financial statements of the Group. (t) Earnings per ordinary share The Group and the Company present the basic earnings per share ("EPS") data for their ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group and the Company by the weighted average number of ordinary shares outstanding during the year. (u) Operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. Operating segment results are reviewed regularly by the chief operating decision maker, which in this case is the Chief Executive Officer of the Group, to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available. (v) 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. 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 use 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. www.mbsb.com.my
  166. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 164 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 2. Summary of significant accounting policies (cont’d.) (v) Fair value measurement (cont’d.) 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 that the Group can access at the measurement date; 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 determine 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) MFRSs, interpretation and amendments effective for annual periods on or after 1 January 2019 On 1 January 2019, where applicable, the Group and the Company adopted the following MFRSs and Amendments to MFRSs mandatory for annual financial 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 119, Employee Benefits - Plan Amendment, Curtailment or Settlement www.mbsb.com.my
  167. Notes To The Financial Statements 165 For the Financial Year Ended 31 December 2019 (cont’d.) 3. Changes in accounting policies (cont’d.) (a)MFRSs, interpretation and amendments effective for annual periods on or after 1 January 2019 (cont’d.) • • 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 The adoption of the new and revised MFRSs and interpretation did not result in any significant impact on the financial statements of the Group and of the Company except for effects of adopting MFRS 16, Leases which is further discussed in Note 17. (b) MFRSs, 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: MFRSs, interpretations and amendments effective for annual periods beginning on or after 1 January 2020 • • •  mendments to MFRS 3, Business Combinations – Definition of a Business A Amendments to MFRS 101, Presentation of Financial Statements and MFRS 108, Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Material Amendments to MFRS 9, Financial Instruments, MFRS 139, Financial Instruments: Recognition and Measurement and MFRS 7, Financial Instruments: Disclosures –Interest Rate Benchmark Reform MFRSs, interpretations and amendments effective for annual periods beginning on or after 1 January 2021 • MFRS 17, Insurance Contracts MFRSs, interpretations and amendments effective for annual periods beginning on or after 1 January 2022 • Amendments to MFRS 101, Presentation of Financial Statements – Classification of Liabilities as Current or Non-current MFRSs, interpretations and amendments effective for annual periods beginning on or after a date yet to be confirmed •  mendments to MFRS 10, Consolidated Financial Statements and MFRS 128, Investments in Associates A and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture www.mbsb.com.my
  168. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 166 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 3. Changes in accounting policies (cont’d.) (b) MFRSs, interpretations and amendments issued but not yet effective (cont’d.) The Group and the Company plan to apply the abovementioned accounting standards, interpretations and amendments from the annual period beginning on 1 January 2022 for the amendment that is effective for annual periods beginning on or after 1 January 2022. The initial application of the abovementioned accounting standards, amendments and interpretations is not expected to have material financial impact to the current period and prior period financial statements of the Group and the Company. 4. Significant accounting estimates and judgements The preparation of the financial statements in conformity with MFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimate and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Key source of estimation uncertainty The key assumption concerning the future and other key sources of estimation uncertainty at the end of the reporting period, 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: (i) Expected credit losses/Allowance for impairment of loans, financing and advances and other receivables The Group’s and the Company’s ECL calculations involve a number of underlying assumptions and estimates such as: • criteria that determine if there has been a significant increase in credit risk; and • development of ECL models which includes the choice of inputs relating to the macroeconomic variables. The calculation of credit impairment provisions also involves expert credit judgements to be applied by the credit risk management team based upon counterparty information from various sources including relationship managers and external market information. www.mbsb.com.my
  169. Notes To The Financial Statements 167 For the Financial Year Ended 31 December 2019 (cont’d.) 4. Significant accounting estimates and judgements (cont’d.) The Group’s and the Company’s significant accounting policies on the impairment of financial assets are disclosed in Note 2(o) and the amount of impairment losses provided by the Group and the Company is disclosed in Notes 9, 11, 13 and 26. (ii) Goodwill from acquisition of MBSB 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 value-in-use (“VIU”) calculations. VIU was calculated with cash flow projections, of which the first 3 years of cash flow projections were based on the 2020 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. During the year, the Group finalised the purchase price allocation of MBSB Bank Berhad and reallocated the provisional goodwill as disclosed in Note 54. 5. Cash and short-term funds and deposits and placements with financial institutions Group (a) Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 196,865 262,346 45,637 72,070 1,838,024 3,149,640 143,889 83,007 2,034,889 3,411,986 189,526 155,077 873,515 931,087 - 154,347 2,908,404 4,343,073 189,526 309,424 Cash and short-term funds: Cash at banks and on hand Money at call and deposit placements maturing   within one month (b)Deposits and placements with financial  institutions with original maturity of more than one month    Licensed Banks The ECL for cash and short-term funds and deposits and placements above is nil (2018: nil). www.mbsb.com.my
  170. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 168 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 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. Group Fair value Notional amount RM'000 Assets RM’000 Liabilities RM’000 228,295 4,239 (1) 2019 Trading derivatives Foreign exchange contracts: Currency forward -  Less than one year Group Fair value Notional amount RM'000 Assets RM’000 Liabilities RM’000 5,842 67 (2) 2018 Trading derivatives Foreign exchange contracts: Currency forward -  Less than one year www.mbsb.com.my
  171. Notes To The Financial Statements 169 For the Financial Year Ended 31 December 2019 (cont’d.) 7. Financial investments at FVOCI Group 2019 RM'000 2018 RM'000 7,530,627 2,154,192 Private and Islamic debt securities 1,109,787 1,060,628 Government Guaranteed debt securities 2,054,230 1,882,285 10,694,644 5,097,105 At fair value Money Market Instruments Malaysian Government Investment Issues Debt securities: In Malaysia The carrying amount of financial investments measured at FVOCI is its fair value. Accordingly, the recognition of an impairment loss does not affect the carrying amount of those assets, but is reflected as a debit to profit or loss or retained earnings, and credit to other comprehensive income. ECL movement for financial investments at FVOCI: Group Stage 1 Stage 2 Stage 3 Total RM'000 RM'000 RM'000 RM'000 - - - - Total charge to profit or loss: 18 - - 18   Change in credit risk 18 - - 18 At 31 December 2019 18 - - 18 At 1 January 2019 There was no ECL for financial investments at FVOCI during the financial year 2018. www.mbsb.com.my
  172. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 170 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 8. Financial investments at amortised cost Group 2019 RM'000 2018 RM'000 494,857 20,356 At amortised cost Quoted securities: In Malaysia Private and Islamic debt securities Less: ECL stage 1 (152) (6) 494,705 20,350 ECL movement for financial investments at amortised cost: Group Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 6 - - 6 Total charge to profit or loss -New financial assets   purchased (Note 40) 146 - - 146 ECL at 31 December 2019 152 - - 152 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 ECL upon adoption of MFRS 9 as at 1 January 2018 - - - - Total charge to profit or loss - Change in credit risk   (Note 40) 6 - - 6 At 31 December 2018 6 - - 6 ECL at 1 January 2019 Group www.mbsb.com.my
  173. Notes To The Financial Statements 171 For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances Group (i) Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 Personal financing 19,994,419 20,562,117 - - Property financing By type At amortised cost Islamic: Term financing: 5,169,539 4,340,081 - - Industrial hire purchase 808,958 781,118 - - Bridging financing 593,906 716,015 - - 160,479 213,898 - - 5,949,892 5,456,952 - - Revolving credit 703,389 743,218 - - Trade finance 560,978 138,473 - - Auto financing Other term financing Trusts receipts Cashline Staff financing - 51,525 - - 3,663 - - - 44,798 41,277 - - 864,289 1,063,043 864,289 1,063,043 Conventional: End finance: Normal housing programme 3,252 3,367 3,252 3,367 Other term financing 761,218 826,113 761,218 826,113 Bridging financing 228,310 217,708 228,310 217,708 17,080 17,319 17,080 17,319 Low cost housing programme Auto financing 320 380 320 380 35,864,490 35,172,604 1,874,469 2,127,930 - Stage 1 (411,822) (358,907) (10,532) (12,370) - Stage 2 (433,194) (550,621) (64,260) (94,982) - Stage 3 (1,065,652) (1,129,957) (653,172) (694,076) 33,953,822 33,133,119 1,146,505 1,326,502 Staff financing Gross loans, financing and advances Less: ECL Net loans, financing and advances www.mbsb.com.my
  174. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 172 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont'd.) Included in Islamic personal financing and property financing are financing that have been assigned as security for financing facilities granted to the Group as shown below: Group 2019 2018 RM’000 RM'000 Islamic financing facility granted by: Cagamas Berhad - recourse obligation on financing sold (Note 27) Sukuk - MBSB SC Murabahah (Note 28) 2,608,415 2,274,991 2,042,743 2,584,123 (ii) By residual contractual maturity Maturing within one year One year to three years Three years to five years Over five years Group 2019 2018 RM’000 RM'000 2,632,716 2,196,230 1,778,969 1,792,653 2,239,227 2,073,320 29,213,578 29,110,401 35,864,490 35,172,604 Company 2019 2018 RM’000 RM’000 578,839 715,288 128,050 22,541 123,980 133,570 1,043,600 1,256,531 1,874,469 2,127,930 Group 2019 2018 RM’000 RM'000 20,090,515 20,674,423 4,833,569 4,769,205 Company 2019 2018 RM’000 RM’000 311 321 436,805 423,262 (iii) By economic purpose Personal use Construction Purchase of landed property: - Residential - Non-residential Working capital Purchase of transport vehicles Purchase of other fixed assets Purchase of other securities Purchase of consumer durables Others www.mbsb.com.my 5,604,901 740,556 2,477,796 175,924 955,086 34,452 5,738 945,953 35,864,490 5,025,148 825,713 2,088,603 228,603 871,473 580 6,598 682,258 35,172,604 800,903 104,275 85,125 14,681 5,752 426,617 1,874,469 988,217 110,126 113,625 14,968 7,778 469,633 2,127,930
  175. Notes To The Financial Statements 173 For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont'd.) (iv) By type of customers Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 26,120,060 26,104,420 839,081 1,034,810 2,500,266 2,722,949 700,906 691,374 - Non-bank financial institutions 710,454 536,644 - - - Government 141,302 240,301 - - 6,384,211 5,562,252 334,482 8,197 6,038 - 35,864,490 35,172,604 1,874,469 Individuals Domestic business enterprises: - Small medium enterprises - Others Foreign entities 401,746 2,127,930 (v) By sector Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 26,120,060 26,110,523 839,081 1,034,811 Construction 5,061,309 6,116,961 690,520 721,714 Finance, insurance and business services Household sectors 2,798,729 1,089,016 11,002 13,056 Wholesale & retail trade and restaurants & hotels 472,966 168,282 3,420 3,625 Manufacturing 374,515 382,878 92,047 120,869 Education, health and others 317,522 647,421 233,346 228,247 Electricity, gas and water 262,076 233,110 - - Transport, storage and communication 206,583 124,403 1,896 2,283 Agriculture 133,443 240,002 3,157 3,325 Mining and quarrying 117,287 60,008 - - 35,864,490 35,172,604 1,874,469 2,127,930 www.mbsb.com.my
  176. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 174 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont'd.) (vi) By profit rate sensitivity Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 17,477,316 18,976,550 - - 1,063,641 1,185,663 127,066 262,717   Mortgage and property Islamic 471,125 568,200 2,211 3,233   Auto financing 180,167 233,797 17,080 17,319   Bridging, structured and term loans and   financing 8,547,101 7,745,975 862,462 781,104   Mortgage and property Islamic 5,591,882 4,859,937 865,650 1,063,557 Fixed rate:   Personal financing   Bridging, structured and term loans and   financing Variable rate:   Personal financing 2,533,258 1,602,482 - - 35,864,490 35,172,604 1,874,469 2,127,930 (vii) By geographical distribution Group Malaysia United Kingdom www.mbsb.com.my Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 35,864,490 35,172,470 1,874,469 2,127,930 - 134 - - 35,864,490 35,172,604 1,874,469 2,127,930
  177. Notes To The Financial Statements 175 For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont'd.) (viii) Movement of gross loans, financing and advances Group Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 28,721,082 4,528,051 1,923,471 35,172,604 2019 Gross carrying amount as at 1 January 2019 Transfer to stage 1 963,825 (869,735) (94,090) - Transfer to stage 2 (1,163,094) 1,405,858 (242,764) - (137,451) (285,312) 422,763 - New financing/disbursement during the year 5,007,227 461,038 66,694 5,534,959 Repayment during the year (4,033,508) (658,155) (155,110) (4,846,773) 57,871 5,251 162,470 225,592 - - (221,892) (221,892) 29,415,952 4,586,996 1,861,542 35,864,490 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 28,217,055 4,410,949 1,573,175 34,201,179 706,265 248,922 111,039 1,066,226 Transfer to stage 1 1,466,770 (1,448,363) (18,407) - Transfer to stage 2 (2,022,348) 2,232,135 (209,787) - Transfer to stage 3 Other movements Write-offs Group 2018 Gross carrying amount upon adoption of   MFRS 9 as at 1 January 2018 Acquisition of MBSB Bank Berhad Transfer to stage 3 (434,603) (507,007) 941,610 - New financing/disbursement during the year 5,944,975 908,285 50,667 6,903,927 Repayment during the year (5,399,551) (1,267,900) (255,724) (6,923,175) 241,478 (47,915) 199,687 393,250 Other movements Write-offs Transfer from/(to) assets held-for-sale - - (578,985) (578,985) 1,041 (1,055) 110,196 110,182 28,721,082 4,528,051 1,923,471 35,172,604 www.mbsb.com.my
  178. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 176 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont'd.) (viii) Movement of gross loans, financing and advances (cont'd.) Company Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 406,208 590,545 1,131,177 2,127,930 Transfer to stage 1 55,468 (49,302) (6,166) - Transfer to stage 2 (29,468) 95,223 (65,755) - Transfer to stage 3 (2,184) (32,206) 34,390 - - 95 - 95 (83,245) (136,678) (93,883) (313,806) 3,886 12,610 43,754 60,250 350,665 480,287 1,043,517 1,874,469 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 Gross carrying amount upon adoption of  MFRS 9 as at 1 January 2018 28,217,055 4,410,949 1,573,175 34,201,179 Vesting of assets to MBSB Bank Berhad 2019 Gross carrying amount as at 1 January 2019 Disbursement during the year Repayment during the year Other movements Company 2018 (27,853,305) (3,060,833) (735,137) (31,649,275) Transfer to stage 1 780,340 (776,493) (3,847) - Transfer to stage 2 (610,364) 740,884 (130,520) - Transfer to stage 3 (230,178) (277,727) 507,905 - New financing/disbursement during the year 2,258,165 373,830 18,500 2,650,495 Repayment during the year (2,264,570) (840,860) (138,093) (3,243,523) 108,700 22,250 58,226 189,176 - - (12,676) (12,676) Other movements Write-offs Transfer from/(to) assets held-for-sale www.mbsb.com.my 365 (1,455) (6,356) (7,446) 406,208 590,545 1,131,177 2,127,930
  179. Notes To The Financial Statements 177 For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont'd.) (ix) Movement of ECL for loans, financing and advances Stage 1 RM'000 2019 ECL as at 1 January 2019 Charged to profit or loss (Note 40) Changes in the ECL - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 New financing/disbursement during the year Repayment during the year Changes in credit risk parameters Change to model assumptions and methodologies ^ Write-offs ECL as at 31 December 2019 2018 ECL upon adoption of MFRS 9 as at   1 January 2018 Acquisition of subsidiary Charged to profit or loss (Note 40) Changes in the ECL - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 New financing/disbursement during the year Repayment during the year Changes in credit risk parameters Write-offs Transfer from assets held-for-sale ECL as at 31 December 2018 358,907 52,915 Group Stage 2 Stage 3 RM'000 RM'000 550,621 (117,427) Total RM'000 1,129,957 157,589 2,039,485 93,077 142,567 (96,973) (45,594) - (20,096) (1,885) 110,426 (178,959) 48,045 (47,183) 411,822 162,154 (67,373) 39,036 (249,340) 183,422 (88,353) 433,194 (142,058) 69,258 38,274 (85,700) 396,017 (72,608) (221,894) 1,065,652 187,736 (513,999) 627,484 (208,144) (221,894) 1,910,668 Stage 1 RM'000 Group Stage 2 Stage 3 RM'000 RM'000 Total 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) 425,743 701 358,907 (39,084) 296,155 (296,808) 89,073 (505,694) 295,959 920 550,621 (5,557) (39,383) 517,957 42,504 (281,308) 266,048 (575,219) 106,298 1,129,957 270,077 (1,085,745) 987,750 (575,219) 107,919 2,039,485 ^ The changes to model assumptions and methodologies were in relation to incorporation of additional macroeconomic variables (“MEV”) to account for potential impact from various external factors and incorporation of cure rates to the loss given default (“LGD”) model. www.mbsb.com.my
  180. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 178 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont'd.) (ix) Movement of ECL for loans, financing and advances (cont'd.) Company Stage 2 Stage 3 RM'000 RM'000 Total RM'000 12,370 (1,838) 94,982 (30,722) 694,076 (40,904) 801,428 (73,464) 10,486 (1,023) (73) (9,951) 1,147 (2,424) (6,012) 49,235 (6,448) 8 (78,636) 25,813 (14,682) (4,474) (48,212) 6,521 (33,852) 68,598 (29,485) 8 (122,439) 95,558 (46,951) 10,532 64,260 653,172 727,964 Stage 1 RM'000 2019 ECL as at 1 January 2019 Charged to profit or loss (Note 40) Changes in the ECL - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 Disbursement during the year Repayment during the year Changes in credit risk parameters Change to model assumptions and methodologies^ ECL as at 31 December 2019 ^  The changes to model assumptions and methodologies were in relation to incorporation of additional macroeconomic variables (“MEV”) to account for potential impact from various external factors and incorporation of cure rates to the loss given default (“LGD”) model. Company Stage 1 Stage 2 Stage 3 Total RM'000 RM'000 RM'000 RM'000 2018 510,347 703,478 1,052,901 2,266,726 ECL upon adoption of MFRS 9 as at 1 January 2018 Assets vested to MBSB Bank Berhad (492,316) (444,705) (538,420) (1,475,441) - ECL as at 2 April 2018 (454,139) (432,125) (538,420) (1,424,684) - Subsequent transfer of ECL * (38,177) (12,580) (50,757) Charged to profit or loss (Note 40) (5,695) (164,027) 189,308 19,586 Changes in the ECL 31,946 (26,616) (5,330) - Transfer to stage 1 - Transfer to stage 2 (92,365) 119,971 (27,606) - Transfer to stage 3 (139,981) (159,102) 299,083 New financing/disbursement during the year 66,471 45,562 15,918 127,951 Repayment during the year (117,971) (326,032) (182,594) (626,597) Changes in credit risk parameters 246,205 182,190 89,837 518,232 Write-offs (8,906) (8,906) Transfer from/(to) assets held-for-sale (Note 11) 34 236 (807) (537) ECL as at 31 December 2018 12,370 94,982 694,076 801,428 *Revision of ECL upon adoption of MFRS 9 Financial Instruments had been made post vesting of assets and liabilities. The adjustment of the ECL amounting to RM50,757,000 was subsequently transferred to MBSB Bank. www.mbsb.com.my
  181. Notes To The Financial Statements 179 For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont’d.) (x) Movements of impaired loans, financing and advances Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 1,573,175 1,923,471 1,573,175 1,131,177 Acquisition of MBSB Bank Berhad - 111,039 - - Assets vested to MBSB Bank Berhad - - - (735,137) Balance as at 1 January Classified as impaired during the year 489,457 992,277 34,390 526,405 Reclassified as non-impaired (336,854) (228,194) (71,921) (134,367) Amount recovered (155,110) (255,724) (93,883) (138,093) Other movements 162,470 199,687 43,754 58,226 Amount written off (221,892) (578,985) - (12,676) - 110,196 - (6,356) Balance as at 31 December 1,861,542 1,923,471 1,043,517 1,131,177 Less: ECL stage 3 (1,065,652) (1,129,957) (653,172) (694,076) 795,890 793,514 390,345 437,101 Net impaired as a percentage of net loans,   financing and advances 2.34% 2.39% 34.05% 32.95% Gross impaired as a percentage of gross   loans, financing and advances 5.19% 5.47% 55.67% 53.16% Reclassification from/(to) assets held-for-sale Net impaired loans, advances and financing www.mbsb.com.my
  182. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 180 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont'd.) (xi) Impaired loans, financing and advances by economic purpose Group 2019 RM’000 Company 2018 RM'000 2019 RM’000 2018 RM’000 Personal use 140,300 159,884 - 265 Construction 630,722 600,444 339,853 333,350   - Residential 447,465 502,027 232,072 284,612   - Non-residential 71,623 Purchase of landed property: 105,258 101,007 71,857 Working capital 45,465 44,037 - - Purchase of transport vehicles 45,818 50,037 13,948 14,261 Purchase of other fixed assets 39,745 33,152 1,400 1,401 - 11 - - 5,626 6,456 - - 401,143 426,416 384,387 425,665 1,861,542 1,923,471 1,043,517 1,131,177 Purchase of other securities Purchase of consumer durables Others (xii) Impaired loans, financing and advances by sector Group 2019 RM’000 Company 2018 RM'000 2019 RM’000 2018 RM’000 Household sector 669,634 745,023 271,089 327,256 Construction 751,711 795,663 544,444 581,836 1,012 998 15,737 12,602 Wholesale & retail trade and restaurants   & hotels 22,744 21,148 172 33 Manufacturing 60,863 1,070 1,096 753 298,183 308,577 225,648 220,245 3,810 343 56 56 38,691 38,891 - - 169 154 - - 1,861,542 1,923,471 1,043,517 1,131,177 Finance, insurance and business services Education, health and others Transport, storage and communication Mining and quarrying Agriculture www.mbsb.com.my
  183. Notes To The Financial Statements 181 For the Financial Year Ended 31 December 2019 (cont’d.) 9. Loans, financing and advances (cont’d.) (xiii) Impaired loans, financing and advances by geographical distribution Group Malaysia Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 1,861,542 1,923,471 1,043,517 1,131,177 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 ECL 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 RM374,262,004 (2018: RM394,303,968) and for the Company by approximately RM261,836,839 (2018: RM304,838,741) without the mitigating effect of collateral held. 10. Trade receivables Group 2019 RM’000 2018 RM’000 Gross balance 24,835 25,395 Less: ECL stage 3 (24,834) (24,834) 1 561 24,834 24,842 Movements of ECL stage 3 is as follows: Balance as at 1 January Writeback (Note 40) Balance as at 31 December - (8) 24,834 24,834 Trade receivables are non-interest bearing and credit terms provided are generally on 7 to 30 days term (2018: 7 to 30 days). www.mbsb.com.my
  184. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 182 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 11. Other receivables Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 514,318 463,009 - - Loan commitment fees - 8,740 - 8,740 Amount due from subsidiaries - - 65,041 58,152 113,262 133,505 113,262 133,505 Advances in respect of certain projects Foreclosed properties Prepayments and deposits 17,297 11,915 8,633 8,633 Sundry receivables 90,961 132,987 18,490 41,116 - 23,113 - 23,113 2,322 2,598 - - 738,160 775,867 205,426 273,259 (549,818) (532,820) (100,520) (124,587) 188,342 243,047 104,906 148,672 532,820 487,099 124,587 116,821 Sundry receivables 3,711 - 3,691 - Charge of impairment losses for foreclosed  properties 2,960 - 2,960 (440) Public Low Cost Housing Programme (“PLCHP”) Deferred expenses Less: Allowance for impairment Movements of allowance for impairment are as  follows: Balance as at 1 January Charge/(reversal) for the year: Disposal of foreclosed properties (9,129) (440) (9,129) Advances in respect of certain projects 51,309 46,161 - - - - 12,342 8,222 (23,113) - (25,191) (16) Amount due from subsidiaries (Note 40) Other write off Write off of loan commitment fees Balance as at 31 December www.mbsb.com.my (8,740) - (8,740) - 549,818 532,820 100,520 124,587
  185. Notes To The Financial Statements 183 For the Financial Year Ended 31 December 2019 (cont’d.) 11. Other receivables (cont'd.) Details of allowance for impairment are as follows: Group Company 2019 RM’000 2018 RM'000 510,130 458,821 - - 23,479 29,648 23,479 29,648 - - 65,041 54,777 Public Low Cost Housing Programme (“PLCHP”) - 23,113 - 23,113 Loan commitment fees - 8,740 - 8,740 16,209 12,498 12,000 8,309 549,818 532,820 100,520 124,587 Advances in respect of certain projects Foreclosed properties Amount due from subsidiaries Sundry receivables 2019 RM’000 2018 RM’000 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% per annum (2018: 10.50%). The amount due from subsidiaries is unsecured, bears weighted average effective interest rate of 6.75% per annum (2018: 7.00%) and is repayable on demand. 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 RM89,782,000 (2018: RM103,854,000) 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 (2018: 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. 12. Statutory deposits with Bank Negara Malaysia 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. www.mbsb.com.my
  186. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 184 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 13. Investments in subsidiaries Company Unquoted shares at cost Less: Accumulated impairment losses 2019 RM’000 2018 RM’000 5,369,988 4,835,988 (79,660) (79,660) 5,290,328 4,756,328 Movements in the cost of investments are as follows: Company Balance as at 1 January 2018 RM’000 4,835,988 102,443 534,000 - Acquisition of MBSB Bank Berhad - 662,993 Net assets transferred to MBSB Bank Berhad - 4,093,329 Issuance of shares to MBSB Bank Berhad (Note 55(i)) Write off of investments in subsidiaries due to disposal 2019 RM’000 - (22,777) 5,369,988 4,835,988 Movements of allowance for impairment is as follows: Company 2019 RM’000 Balance as at 1 January Write off of impairment due to disposal Balance as at 31 December www.mbsb.com.my 2018 RM’000 79,660 95,046 - (15,386) 79,660 79,660
  187. Notes To The Financial Statements 185 For the Financial Year Ended 31 December 2019 (cont’d.) 13. Investments in subsidiaries (cont’d.) Details of the subsidiaries are as follows: Effective interest held (%) Name of subsidiaries 2019 2018 MBSB Bank Berhad 100 100 Islamic banking and related financial services MBSB Properties Sdn. Bhd. 100 100 Leasing of real property MBSB Development Sdn. Bhd. 100 100 Property development Property development Principal activities 92 92 Sigmaprise Sdn. Bhd. 100 100 Hotel operations MBSB Project Management   Sdn. Bhd. 100 100 Ceased operations Definite Pure Sdn. Bhd. # 100 100 Property development Malaya Borneo Building   Society Limited (“MBBS”) *# 100 100 Trading operation Hotel operations services Prudent Legacy Sdn. Bhd. #& - 100 Idaman Usahamas Sdn. Bhd. ^ 100 100 In liquidation Ombak Pesaka Sdn. Bhd. 100 100 Hotel operations MBSB Tower Sdn. Bhd. 100 100 Property development 100 100 Investment holding 100 100 Property development Farawide Sdn. Bhd.^^ Jana Kapital Sdn. Bhd. 88 Legacy Sdn. Bhd. @ * # ^^ ^ @ & Audited by a firm of auditor other than KPMG PLT Dormant entity Disposed during the year In liquidation and did not give rise to significant impact to the results of the Group and the Company Subsidiary of MBSB Bank Berhad Subsidiary of MBSB Development Sdn Bhd All the above subsidiaries were incorporated in Malaysia except for MBBS which was incorporated in Singapore. www.mbsb.com.my
  188. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 186 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 14. Investments in joint venture Group 2019 RM’000 2018 RM’000 Unquoted share capital at cost 16,222 16,222 Less: Share of loss (16,222) (16,222) - - MBSB Bank Berhad invested RM16,222,000 (2018: RM16,222,000) in participating shares of Safeena (L) Ltd, a 50% equity interest in a jointly controlled entity with AmanahRaya Investment Bank Ltd. The 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 the 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) (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 (“the Board”) to be justified by the profits of Safeena (L) Ltd. (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 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. The participating shares do not confer any rights of entitlements to vote at meetings of Safeena (L) Ltd. www.mbsb.com.my
  189. Notes To The Financial Statements 187 For the Financial Year Ended 31 December 2019 (cont’d.) 14. Investments in joint venture (cont'd.) (ii) Participating shares (cont'd.) The principal features of the participating shares are as follows (cont'd.): (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. 15.Inventories Group 2019 RM’000 2018 RM’000 12 269 Freehold land held for sale 102,163 102,163 Total inventories 102,175 102,432 At cost: Hotel inventories At net realisable value: www.mbsb.com.my
  190. www .mbsb.com.my 103,351 - - 36,977 6,217 29,610 At 31 December 2019 Net book value  Accumulated   impairment losses  Accumulated   depreciation Analysed as: 7,367 29,610 371 5,846 34,287 371 (4,677) (30,527) 371 Disposals - - At 31 December 2019 2,241 - Write off 34,287 57,896 371 371 Depreciation charge   for the year (Note 37)  Accumulated   impairment losses  Accumulated   depreciation At 1 January 2019: Accumulated   depreciation and   impairment losses 23,609 - - (66,374) - Disposals Reversal At 31 December 2019 - - Reclassification Write off At 1 January 2019 6,217 4,710 35,848 - 35,848 35,848 (2,734) (6) 1,216 37,372 - 37,372 40,558 (41) (2,798) (6) - 5,398 38,005 1,530 17,775 - 17,775 17,775 (14,152) (2,515) 799 33,643 - 33,643 19,305 (28) (14,200) (2,515) - 1,344 34,704 Furniture Building and Buildings renovation equipment RM’000 RM’000 RM’000 Additions Cost Group Freehold land RM’000 249 731 - 731 731 (249) - 67 913 - 913 980 - (251) - - 317 914 16,794 42,470 - 42,470 42,470 (351) (866) 4,282 39,405 - 39,405 59,264 - (356) (866) 1,383 5,037 54,066 Data Motor processing vehicles equipment RM’000 RM’000 277,468 - - - - - - - - - - 277,468 - - - - 50,145 227,323 Building in progress RM’000 - - - - - - - - - - - - (1,204) - - (1,383) - 2,587 Work in progress RM’000 313,964 126,805 34,658 92,147 126,805 (48,013) (3,387) 8,605 169,600 34,658 134,942 440,769 (1,273) (83,979) (3,387) - 62,241 467,167 Total RM’000 188 16. Property and equipment ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  191. Net book value At 31 December 2018 Addition from   acquisition of MBSB   Bank Berhad Depreciation charge   for the year (Note 37) Disposals At 31 December 2018 Analysed as:  Accumulated   depreciation  Accumulated   impairment losses At 31 December 2018 Accumulated   depreciation and   impairment losses At 1 January 2018:  Accumulated   depreciation  Accumulated   impairment losses Group Cost At 1 January 2018 Addition from   acquisition of MBSB   Bank Berhad Additions Reclassification Disposals 34,287 57,896 371 371 45,455 23,609 - 5,846 3,078 (190) 57,896 371 34,287 55,008 371 371 - 20,721 - - 103,351 (367) 6,217 103,718 633 37,372 37,372 2,182 37,372 5,315 29,875 29,875 38,005 5,315 1,352 - 31,338 1,061 33,643 33,643 1,377 (23) 33,643 1,730 30,559 30,559 34,704 1,799 1,115 (26) 31,816 Furniture and Building Buildings renovation equipment RM’000 RM’000 RM’000 6,217 Freehold land RM’000 16. Property and equipment (cont'd.) 1 913 913 (5) 913 86 832 832 914 87 (5) 832 14,661 39,405 39,405 1,978 (8) 39,405 4,870 32,565 32,565 54,066 5,742 9,214 2,546 (34) 36,598 Data Motor processing vehicles equipment RM’000 RM’000 - - 227,323 - - - - 227,323 120,128 - 107,195 Building in progress RM’000 2,587 - - - - - - 2,587 5,133 (2,546) - - Work in progress RM’000 297,567 34,658 169,600 134,942 8,615 (226) 169,600 12,001 34,658 149,210 114,552 467,167 12,943 136,942 (432) 317,714 Total RM’000 Notes To The Financial Statements 189 For the Financial Year Ended 31 December 2019 (cont’d.) www.mbsb.com.my
  192. www .mbsb.com.my Company Cost At 1 January 2018 Additions Disposals Vested to MBSB Bank  Berhad At 31 December 2018 Accumulated  depreciation At 1 January 2018 Depreciation charge   for the year (Note 37) Disposals Vested to MBSB Bank  Berhad At 31 December 2018 Net book value At 31 December 2018 Company Cost At 1 January 2019/   31 December 2019 Accumulated  depreciation At 1 January 2019 Depreciation charge   for the year (Note 37) At 31 December 2019 Net book value At 31 December 2019 - 18,946 (367) 18,579 3,436 471 (191) 3,716 14,863 9,968 9,968 9,968 - (21,831) - 658 - 21,173 (24,357) - 24,156 201 - - (16,060) - 330 (4) 15,734 (17,591) - 17,458 134 (1) Furniture and equipment RM’000 - - Building Buildings renovation RM’000 RM’000 14,399 9,968 Freehold land RM’000 464 4,180 - - - - 3,716 - - Furniture and equipment RM’000 - 18,579 Building Buildings renovation RM’000 RM’000 9,968 Freehold land RM’000 - (502) - 18 - 484 (578) - 580 (2) - (32,103) - 327 (9) 31,785 (36,969) - 35,600 1,401 (32) 24,831 (70,496) 3,716 1,804 (204) 72,612 (79,495) 28,547 106,708 1,736 (402) Total RM’000 Data Motor processing vehicles equipment RM’000 RM’000 464 4,180 3,716 28,547 24,367 - - - Total RM’000 - - - - - Data Motor processing vehicles equipment RM’000 RM’000 190 16. Property and equipment (cont'd.) ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  193. Notes To The Financial Statements 191 For the Financial Year Ended 31 December 2019 (cont’d.) 16. Property and equipment (cont'd.) Included in freehold land and buildings are the net book value of properties which are: Group Pending subdivision of titles Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 - 754 - 184 17. Right-of-use assets and lease liabilities (a) Right-of-use assets Group 2019 RM’000 Cost - At 1 January 2019 Effects of adoption of MFRS 16 11,588 6,010 Additions At 31 December 2019 17,598 Accumulated depreciation - At 1 January 2019 Depreciation for the period (Note 37) 8,814 At 31 December 2019 8,814 8,784 Leases of the Group are mainly contracts of leases with lease periods between one year and five years. www.mbsb.com.my
  194. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 192 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 17. Right-of-use assets and lease liabilities (cont'd.) (b) Lease liabilities Group 2019 RM’000 Current Lease liabilities 3,639 Non-current Lease liabilities 5,280 8,919 The movement of lease liabilities during the financial year is as follows: Group 2019 RM’000 At 1 January 2019 Effects of adoption of MFRS 16 Additions Profit expense on leases 11,588 6,010 465 Lease payments (9,144) At 31 December 2019 8,919 The following table explains the difference between operating lease commitments disclosed applying MFRS 117 at 31 December 2018, and lease liabilities recognised in the statement of financial position at 1 January 2019. Group Operating lease commitments at 31 December disclosed in the financial statements Less: Discounted using the incremental borrowing rate at 1 January 2019 Add: Lease liabilities recognised at 31 December 2018 Less: Recognition exemption for short-term leases Lease liability recognised at 1 January 2019 www.mbsb.com.my RM’000 10,493 (358) 1,466 (13) 11,588
  195. Notes To The Financial Statements 193 For the Financial Year Ended 31 December 2019 (cont’d.) 18. Intangible assets Group Software license RM’000 Work in Provisional Progress goodwill RM’000 RM’000 Banking license RM’000 Core deposits RM’000 Total RM’000 Cost 183,141 28,131 188,790 - - 400,062 34,121 - - - - 34,121 Reallocation of provisional  goodwill - - (53,631) 47,415 6,216 - Reallocated to deferred tax   liabilities (Note 22) - - 12,872 - - 12,872 Reclassification to goodwill   (Note 19) (148,031) At 1 January 2019 Additions - - (148,031) - - Reclassification to software  license 990 (990) - - - - Disposal (223) - - - - (223) Reversal (552) (489) - - - (1,041) 217,477 26,652 - 47,415 6,216 297,760 106,550 - - - - 106,550 22,224 - - - 1,986 24,210 (209) - - - - (209) 128,565 - - - 1,986 130,551 At 31 December 2019 Accumulated amortisation At 1 January 2019 Amortisation charge for the   year (Note 37) Disposals At 31 December 2019 Net book value At 31 December 2019 88,912 26,652 - 47,415 4,230 167,209 www.mbsb.com.my
  196. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 194 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 18. Intangible assets (cont'd.) Group Software license RM’000 Work in Provisional Progress goodwill RM’000 RM’000 Banking license RM’000 Core deposits RM’000 Total RM’000 Cost At 1 January 2018 88,099 - - - - 88,099 - - 188,790 - - 188,790 23,276 Arising from acquisition of   MBSB Bank Berhad Addition from acquisition of   MBSB Bank Berhad 23,276 - - - - Additions 71,767 28,131 - - - 99,898 183,142 28,131 188,790 - - 400,063 At 1 January 2018 73,466 - - - - 73,466 Addition from acquisition of   MBSB Bank Berhad 21,701 - - - - 21,701 Amortisation for the year 11,383 - - - - 11,383 106,550 - - - - 106,550 At 31 December 2018 Accumulated amortisation At 31 December 2018 Net book value At 31 December 2018 www.mbsb.com.my 76,592 28,131 188,790 - - 293,513
  197. Notes To The Financial Statements 195 For the Financial Year Ended 31 December 2019 (cont’d.) 18. Intangible assets (cont’d.) Company Software license RM’000 Cost At 1 January 2018 87,641 Additions 11,509 Vested to MBSB Bank Berhad (99,150) At 31 December 2018 - Accumulated amortisation At 1 January 2018 Amortisation for the year (Note 37) Vested to MBSB Bank Berhad At 31 December 2018 73,053 1,731 (74,784) - Net book value At 31 December 2018 - The Company did not acquire nor dispose of any intangible assets during the year 2019. 19.Goodwill Group 2019 RM’000 At 1 January 2019 - Reclassed from intangible assets (Note 18) 148,031 At 31 December 2019 148,031 The aggregate carrying amounts of goodwill allocated for each unit are as follows: Corporate Banking Retail Banking 146,256 1,775 148,031 www.mbsb.com.my
  198. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 196 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 19. Goodwill (cont’d.) Goodwill arose from the finalisation of purchase price allocation of MBSB Bank Berhad which was acquired in February 2018 (Note 54). There is no impairment to goodwill since acquisition. Impairment testing for cash-generating unit containing goodwill For the purpose of impairment testing, goodwill is allocated to the Group's operating divisions which represents the lowest level within the Group at which the goodwill is monitored for internal mangement purposes. The recoverable amount of cash-generating units ("CGU") is determined based on the value in-use ("VIU") calculations. These calculations use pre-tax cash flow projections based on the 2020 financial budgets approved by the Board of Directors, projected for 3 years. Cash flows beyond the 3 years period are extrapolated using the estimated terminal growth rates and discounted using pre-tax discount rates which reflect the specific risks relating to the CGU. The cash flow projections are derived based on a number of key factors including the past performance and management's expectation of market developments. The estimated terminal growth rates and discount rates used for VIU calculations are as follows: Terminal Growth rate Pre-tax Discount rate Corporate Banking 3.2% 7.4% Retail Banking 3.2% 7.5% The estimated recoverable amounts significantly exceeds that carrying amount of the cash-generating units containing goodwill. Management considers that it is not reasonably possible for the terminal growth rate and pre-tax discount to change so significantly as to eliminate this excess. www.mbsb.com.my
  199. Notes To The Financial Statements 197 For the Financial Year Ended 31 December 2019 (cont’d.) 20. Investment properties Group 2019 RM’000 2018 RM’000 874 At cost Freehold land At 1 January 874 Accumulated impairment loss (54) (54) At 31 December 820 820 Fair Value At 1 January 820 820 At 31 December 820 820 The investment property is a freehold land of RM820,000 (2018: RM820,000) categorised under Level 3 fair value derived using the sales comparison approach. Sales price of comparable properties in close proximity are adjusted for differences in key attributes such as property size. The most significant input into this valuation approach is price per square foot of comparable properties. www.mbsb.com.my
  200. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 198 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 21. Land use rights Group 2019 RM’000 2018 RM’000 8,428 Cost At 1 January 8,428 Disposal (7,275) - At 31 December 1,153 8,428 3,166 3,005 91 161 Accumulated amortisation At 1 January Amortisation for the year (Note 37) (2,625) - At 31 December 632 3,166 Net carrying amount 521 5,262 Disposal Amount to be amortised: Within one year One year to five years Over five years 91 161 364 644 66 4,457 521 5,262 Land use rights of the Group are leasehold land for some of the office branches. Leasehold land is amortised over the period of the respective lease which range from 33 to 62 years (2018: 34 to 63 years) and have been pledged to the holding company. www.mbsb.com.my
  201. Notes To The Financial Statements 199 For the Financial Year Ended 31 December 2019 (cont’d.) 22. Deferred tax (assets)/liabilities Group At 1 January Company 2019 RM’000 2018 RM'000 25,802 (21,203) 2019 RM’000 2018 RM’000 (15,687) (21,187) - - (657) - Reallocated from intangible asset (Note 18) 12,872 - - - Recognised in profit or loss (Note 41) 14,126 44,294 6,102 5,500 Recognised in other comprehensive income   (Note 41) 45,589 3,368 - - At 31 December 98,389 25,802 (9,585) (15,687) Acquisition of MBSB Bank Presented, after appropriate offsetting, as follows:   Deferred tax liabilities 126,607 60,120 - -   Deferred tax assets (28,218) (34,318) (9,585) (15,687) 98,389 25,802 (9,585) (15,687) www.mbsb.com.my
  202. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 200 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 22. Deferred tax (assets)/liabilities The components and movements of deferred tax assets and liabilities during the year prior to offsetting were as follows: Group Accelerated capital Provision allowances RM’000 RM’000 Fair value reserve of finanical investments Impairment at FVOCI allowances RM’000 RM’000 Others RM’000 Total RM’000 Deferred tax assets Adjusted 1 January 2018 Reclassification to tax  recoverable (100,599) (1,166) - - - (101,765) 70,406 - - - - 70,406 Opening balance of MBSB   Bank acquired on   2 February 2018 (936) 266 13 - - (657) Recognised in profit or loss (2,702) 400 - - - (2,302) (33,831) (500) 13 - - (34,318) - - - 4,170 1,930 6,100 (33,831) (500) 13 4,170 1,930 (28,218) At 1 January 2018 - 5,140 - - 5,016 10,156 Recognised in profit or loss - 7,072 - 41,234 (1,710) 46,596 At 1 January 2019 Recognised in profit or loss At 31 December 2019 Deferred tax liabilities Recognised in other   comprehensive income - - 3,368 - - 3,368 At 1 January 2019 - 12,212 3,368 41,234 3,306 60,120 Reallocated from intangible  assets - - - - 12,872 12,872 Recognised in profit or loss - 7,510 - 1,656 (1,140) 8,026 Recognised in other   comprehensive income - - 45,589 - - 45,589 At 31 December 2019 - 19,722 48,957 42,890 15,038 126,607 www.mbsb.com.my
  203. Notes To The Financial Statements 201 For the Financial Year Ended 31 December 2019 (cont’d.) 22. Deferred tax (assets)/liabilities (cont'd.) Company Accelerated capital Provision allowances RM’000 RM’000 Fair value reserve of finanical investments Impairment at FVOCI allowances RM’000 RM’000 Others RM’000 Total RM’000 - (27,934) Deferred tax assets At 1 January 2018 (26,767) (1,167) - - Effect of adoption of   MFRS 9 (65,253) - - - - (65,253) Adjusted 1 January 2018 (92,020) (1,167) - - - (93,187) Reclassified to tax  recoverable 65,253 - - - - 65,253 Recognised in profit or loss 11,146 1,101 - - - 12,247 At 1 January 2019 (15,621) (66) - - - (15,687) Recognised in profit or loss   (Note 41) At 31 December 2019 - - - 4,170 1,932 6,102 (15,621) (66) - 4,170 1,932 (9,585) Deferred tax liabilities At 1 January 2018 - 5,140 - - 1,607 6,747 Recognised in profit or loss - (5,140) - - (1,607) (6,747) At 1 January 2019 - - - - - - Recognised in profit or loss - - - - - - At 31 December 2019 - - - - - - www.mbsb.com.my
  204. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 202 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 22. Deferred tax (assets)/liabilities (cont’d.) Deferred tax assets have not been recognised in respect of the following items: Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 153,885 165,445 - - Unabsorbed capital allowances 50,426 49,722 - - Provision for doubtful debts 45,518 37,444 - - 3,759 6,995 - 4,082 Unutilised tax losses Others The unutilised tax losses of the Group are available for offsetting against future taxable profits of the respective entities within the Group for another 7 consecutive years effective from Year of Assessment 2019. The unabsorbed capital allowances of the Group are not subject to 7 year limitation period and available indefinitely for offsetting against future taxable profits of the respective entities within the Group. This utilisation of carry forward of tax losses and allowances are also subject to no substantial change in shareholdings of those entities under Income Tax Act, 1967 and guidelines issued by the tax authority. 23. Deposits from customers (i) By type of deposit: Group 2019 RM’000 2018 RM’000 24,738,093 23,907,371 Demand deposits 192,381 225,520 Savings deposits 341,477 76,558 25,271,951 24,209,449 Commodity Murabahah Term Deposit www.mbsb.com.my
  205. Notes To The Financial Statements 203 For the Financial Year Ended 31 December 2019 (cont’d.) 23. Deposits from customers (cont’d.) (ii) Maturity of deposits from customers: Group 2018 RM’000 16,480,775 17,474,783 More than six months to one year 5,426,032 4,818,107 More than one year to three years 1,891,341 723,813 Due within six months More than three years 2019 RM’000 939,945 1,192,746 24,738,093 24,209,449 (iii) By type of customers: Group 2018 RM’000 12,696,568 14,746,960 Business enterprises 7,229,721 6,371,297 Individuals 5,345,662 3,091,192 25,271,951 24,209,449 Government and statutory bodies 2019 RM’000 (iv) By type of contract: Group Tawarruq 2019 RM’000 2018 RM’000 25,271,951 24,209,449 25,271,951 24,209,449 www.mbsb.com.my
  206. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 204 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 24. Deposits and placements of banks and other financial institutions (i) By type of deposit: Group 2019 RM’000 2018 RM’000 152,390 - Non-Mudharabah Funds: Other financial institutions: - Licensed investment banks - Licensed Islamic banks - Other financial institutions 112,937 - 10,356,442 8,578,851 10,621,769 8,578,851 (ii) By type of contract: Group Tawarruq 2019 RM’000 2018 RM’000 10,621,769 8,578,851 10,621,769 8,578,851 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 days (2018: 30 to 60 days). www.mbsb.com.my
  207. Notes To The Financial Statements 205 For the Financial Year Ended 31 December 2019 (cont’d.) 26. Other payables Group Amount due to MBSB Bank Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 - - 78,416 98,666 Sundry creditors 319,544 278,232 60,920 80,560 Al-Mudharabah security funds 137,309 123,401 - - Expected credit losses for commitments and   contingencies (i) 70,680 100,412 5,441 6,469 Deferred income 38,362 43,275 3,524 30,625 Other provisions and accruals 76,383 105,447 6,183 23,349 642,278 650,767 154,484 239,669 The amount due to MBSB Bank is unsecured, interest-free and is repayable on demand. (i) Expected credit losses for commitments and contingencies Movement of expected credit losses for commitments and contingencies are as follows: Group Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 ECL at 1 January 2019 53,130 36,829 10,453 100,412 Charge to profit or loss (Note 40) (8,934) (18,851) (1,947) (29,732) - Transfer to stage 1 4,940 (2,357) (2,583) - - Transfer to stage 2 (4,914) 5,263 (349) - 2019 Changes in the impairment allowance (798) (4,814) 5,612 - New financing/disbursement during the year 25,153 1,791 426 27,370 Derecognised/converted to loans/financing   during the period (other than write-offs) (12,511) (6,126) (815) (19,452) Changes in credit risk parameters (14,394) (4,718) (3,203) (22,315) - Transfer to stage 3 Changes to model assumptions and methodologies^ (6,410) (7,890) (1,035) (15,355) ECL as at 31 December 2019 44,196 17,978 8,506 70,680 ^ The changes to model assumptions and methodologies were in relation to incorporation of additional macroeconomic variables (“MEV”) to account for potential impact from various external factors and incorporation of cure rates to the loss given default (“LGD”) model. www.mbsb.com.my
  208. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 206 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 26. Other payables (cont’d.) (i) Expected credit losses for commitments and contingencies (cont’d.) Movement of expected credit losses for commitments and contingencies are as follows (cont’d.): Group 2018 ECL upon adoption of MFRS 9 as at   1 January 2018 Addition from acquisition of MBSB Bank Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 98,697 85,730 12,459 196,886 4,846 885 - 5,731 (50,413) (49,786) (2,006) (102,205) - Transfer to stage 1 5,105 (5,105) - - - Transfer to stage 2 (40,251) 40,280 (29) - - Transfer to stage 3 (3,214) (1,178) 4,392 - Charge to profit or loss (Note 40) Changes in the impairment allowance New financing/disbursement during the year 33,007 7,107 203 40,317 Derecognised/converted to loans/financing   during the period (other than write-offs) (33,670) (45,119) (5,550) (84,339) Changes in credit risk parameters (11,390) (45,771) (1,022) (58,183) ECL as at 31 December 2018 53,130 36,829 10,453 100,412 www.mbsb.com.my
  209. Notes To The Financial Statements 207 For the Financial Year Ended 31 December 2019 (cont’d.) 26. Other payables (cont'd.) (i) Expected credit losses for commitments and contingencies (cont'd.) Movement of expected credit losses for commitments and contingencies are as follows (cont'd.): 2019 ECL as at 1 January 2019 Charge to profit or loss (Note 40) Changes in the impairment allowance - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 Derecognised/converted to loans/financing   during the period Changes in credit risk parameters Changes to model assumptions and methodologies^ ECL as at 31 December 2019 2018 ECL upon adoption of MFRS 9 as at   1 January 2018 Vesting of assets to MBSB Bank - commitment from financing - commitment from asset held-for-sale (AHS) Charge to profit or loss (Note 40) Changes in the impairment allowance - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 New financing/disbursement during the year Derecognised/converted to loans/financing   during the period (other than write-offs) Changes in credit risk parameters ECL as at 31 December 2018 Stage 1 RM'000 413 (162) Company Stage 2 Stage 3 RM'000 RM'000 198 5,858 (22) (844) Total RM'000 6,469 (1,028) 86 (24) (7) (7) 73 (12) (79) (49) 19 - (51) (114) (52) 251 (63) 29 (42) 176 (194) 23 (564) 5,014 (308) (62) (658) 5,441 Stage 1 RM'000 Company Stage 2 Stage 3 RM'000 RM'000 Total RM'000 98,697 (69,751) (69,751) (28,533) 85,730 (35,157) (35,157) (50,375) 12,459 (1,515) (1,498) (17) (5,086) 196,886 (106,423) (106,406) (17) (83,994) 4,888 (11,574) (206) 11,810 (4,888) 11,602 (678) 1,333 (28) 884 - 13,143 (11,139) (22,312) 413 (24,324) (33,420) 198 (4,932) (1,010) 5,858 (40,395) (56,742) 6,469 ^ The changes to model assumptions and methodologies were in relation to incorporation of additional macroeconomic variables (“MEV”) to account for potential impact from various external factors and incorporation of cure rates to the loss given default (“LGD”) model. www.mbsb.com.my
  210. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 208 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 27. Recourse obligation on financing sold Group Repayments due within 12 months Repayments due after 12 months 2019 RM’000 2018 RM’000 100,857 593,853 2,380,394 1,541,665 2,481,251 2,135,518 These amounts relate to proceeds received from the sale of Islamic house financing to Cagamas Berhad with recourse to MBSB Bank Berhad ("MBSB Bank"), subsidiary of the Company. Under the agreement, MBSB Bank undertakes to administer the financing on behalf of Cagamas Berhad and to buy back any financing which are regarded as defective based on a set of pre-determined criteria. In November 2014, the Group started its first sale of financing portfolios with recourse directly to Cagamas Berhad without participation of intermediary banks. The recourse obligation on financing sold facilities granted by Cagamas Berhad are secured on a portfolio of property islamic financing amounting to RM2,608,415,000 (2018: RM2,042,743,000) as disclosed in Note 9. 28. Sukuk - MBSB Structured Covered ("SC") Murabahah Group Sukuk - MBSB SC Murabahah 2019 RM’000 2018 RM’000 1,664,973 1,968,075 Maturity of Sukuk - MBSB SC Murabahah: Within one year More than one year www.mbsb.com.my 294,973 308,864 1,370,000 1,659,211 1,664,973 1,968,075
  211. Notes To The Financial Statements 209 For the Financial Year Ended 31 December 2019 (cont’d.) 28. Sukuk - MBSB Structured Covered ("SC") Murabahah (cont'd.)  In 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) (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. Each Tranche will consist of multiple series of Sukuk with different maturities; As at 31 December 2019, the carrying amount of Financing Receivables identified to back the outstanding Sukuk MBSB SC-Murabahah amounted to RM2,274,991,000 (2018: RM2,584,123,000) as disclosed in Note 9. 29. Sukuk Wakalah Group Sukuk Wakalah 2019 RM’000 2018 RM’000 1,293,075 - 2,201 - 1,290,874 - 1,293,075 - Maturity of Sukuk Wakalah: Within one year More than one year www.mbsb.com.my
  212. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 210 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 29. Sukuk Wakalah (cont’d.) MBSB Bank’s Sukuk Wakalah Programme of up to RM10.0 billion nominal value was approved by Bank Negara Malaysia and endorsed by the Securities Commission in November 2019. The Sukuk Wakalah Programme comprises: (i) Senior Sukuk Wakalah, and/or (ii) Tier-2 Sukuk Wakalah, and/or (iii) Additional Tier-1 Sukuk Wakalah In December 2019, MBSB Bank issued Tier-2 Sukuk Wakalah in nominal value of RM1.3 billion, comprising RM650 million at 5.05% p.a. and RM650 million at 5.25% p.a. The salient terms of the Tier-2 Sukuk Wakalah are as follows: (i) subject to call option, with minimum tenure of at least 5 years (ii) not pledged to any security (iii)non-convertible 30. Ordinary share capital Number of Shares Amount 2019 Units’000 2018 Units'000 2019 Units’000 2018 Units’000 6,389,101 5,924,425 6,682,102 6,172,051 324,300 239,168 259,440 243,952 - 225,508 - 266,099 6,713,401 6,389,101 6,941,542 6,682,102 Ordinary shares Issued and fully paid: At 1 January Issued during the year:   Issue of ordinary shares pursuant to Dividend   Reinvestment Plan (“DRP”) Issuance of ordinary shares pursuant to acquisition   of MBSB Bank Berhad At 31 December www.mbsb.com.my
  213. Notes To The Financial Statements 211 For the Financial Year Ended 31 December 2019 (cont’d.) 30. Ordinary share capital (cont’d.) (a)During the year, the issued and paid up capital of the company was increased from RM6,682,101,791 to RM6,941,542,045 via the issuance of 324,300,318 shares at 80 sen per share amounting to RM259,440,254 arising from the DRP as disclosed in Note 43. The new ordinary shares rank pari passu in all respects with the existing ordinary shares of the Company. (b) Employee Share Option Scheme (“ESOS”) The Malaysia Building Society Berhad ESOS is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held in April 2010. The ESOS was implemented in 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. www.mbsb.com.my
  214. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 212 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 30. Ordinary share capital (cont’d.) (b) Employee Share Option Scheme (“ESOS”) (cont’d.) (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; (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 September 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 March 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 November 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 on 9 March 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. www.mbsb.com.my
  215. Notes To The Financial Statements 213 For the Financial Year Ended 31 December 2019 (cont’d.) 30. Ordinary share capital (cont’d.) (b) Employee Share Option Scheme (“ESOS”) (cont’d.) 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 and Company 2019 2018 Units’000 WAEP (RM) Units’000 25,101 - 25,910 - (906) 1.43 (809) 1.46 Outstanding at 31 December 24,195 1.44 25,101 1.44 Exercisable at 31 December 24,195 1.44 25,101 1.44 Outstanding at 1 January Lapsed during the year WAEP (RM) -The weighted average fair value of options during the financial year was RM0.31 (2018: RM0.31). - The weighted average exercise price for options outstanding at the end of the year was RM1.44 (2018: RM1.44). The weighted average remaining contractual life for these options is 0.60 years (2018: 1.61 years). 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) 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 Weighted average share price (RM) 2.14 2.32 1.66 1.44 Weighted average exercise price (RM) 2.15 2.33 1.67 1.45 22.36 16.17 34.05 26.77 7 8 9 10 Risk free rate (%) 4.11 3.49 3.64 3.91 Expected dividend yield (%) 4.52 4.09 3.85 3.00 Expected volatility (%) Expected life (years) www.mbsb.com.my
  216. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 214 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 30. Ordinary share capital (cont’d.) (b) Employee Share Option Scheme (“ESOS”) (cont’d.) Fair value of ESOS granted (cont’d.) 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. 31. Reserves Group At 1 January 2019 Other comprehensive income for the year Transfer of share option reserve to retained profits upon expiry of   share options Share Option Reserve RM’000 Note (a) Fair value Reserve RM’000 Note (b) Total RM’000 6,261 10,612 16,873 - 144,382 144,382 (418) - (418) At 31 December 2019 5,843 154,994 160,837 At 1 January 2018 6,261 (6,656) (395) - 17,268 17,268 6,261 10,612 16,873 Other comprehensive income for the year At 31 December 2018 www.mbsb.com.my
  217. Notes To The Financial Statements 215 For the Financial Year Ended 31 December 2019 (cont’d.) 31. Reserves (cont’d.) Company At 1 January 2019 Transfer of share option reserve to retained profits upon expiry of   share options Share Option Reserve RM’000 Note (a) Fair value Reserve RM’000 Note (b) 6,261 - (418) Total RM’000 6,261 - (418) At 31 December 2019 5,843 - 5,843 At 1 January 2018 6,261 (6,656) (395) - 6,656 6,656 6,261 - 6,261 Other comprehensive income for the year At 31 December 2018 (a)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. (b)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. 32.Revenue Revenue of the Company comprises interest/profit income, fee and commission income, financing income and other 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. Comparative revenue has been restated as per Note 57. www.mbsb.com.my
  218. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 216 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 33. Income derived from investment of general investment deposits and Islamic capital funds Group Financing Income from financial investments at FVOCI Income from financial investments at amortised cost Income from financial investments at FVTPL Profit income from Sukuk Commodity Murabahah Deposits with financial institutions Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 2,305,160 2,296,125 - 518,653 322,145 153,430 - 30,096 25,479 21,601 - - 272 - - - - - - 27,348 121,873 133,531 - 33,247 2,774,929 2,604,687 - 609,344 Sukuk Commodity Murabahah was vested to MBSB Bank Berhad as part of the transfer of assets and liabilities in April 2018. The Company recorded nil profit income (2018: RM27,348,000) as the Company no longer holds the Sukuk. 34. Interest income Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 142,694 181,908 95,846 139,642 Interest income from:   - Loans and advances   -D  eposits and placements with banks and other   financial institutions www.mbsb.com.my 9,261 34,888 9,261 34,888 151,955 216,796 105,107 174,530
  219. Notes To The Financial Statements 217 For the Financial Year Ended 31 December 2019 (cont’d.) 35. Interest expense Group and Company Deposits from customers, banks and other financial institutions Others 2019 RM’000 2018 RM’000 - 21,396 20 436 20 21,832 36. Net other income Group Rental income Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 180 175 6,655 11 Revenue from hotel operations 2,449 6,923 - - Loan related fees 9,024 23,994 8,118 26,474 Insurance commission 13,629 11,182 8 2,424 Ta’widh/Penalty 20,011 24,240 18,257 32,125 Gain/(loss) from sale of financial investments at  FVOCI 58,592 (6,112) - (7,649) Gain from sale of financial investments at FVTPL 1,424 - - - Sundry expenses (5,086) (6,454) (2,630) (5,099)   Property and equipment and land use rights (3,938) 316 - 318   Foreclosed properties (401) (Loss)/gain from disposal of: 7,109 (401) 7,109  Inventories - 100 - 100  Subsidiary - - - (2,710) 103,394 53,963 37,517 45,593 www.mbsb.com.my
  220. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 218 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 37. Other operating expenses Group Personnel expenses (Note 38) Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 240,308 227,706 (3,850) 44,439 9,701 Establishment related expenses 67,147 52,566 1,479 Promotion and marketing related expenses 13,319 7,803 - 1,764 General administrative expenses 45,298 80,380 6,569 29,018 - - 37,220 23,523 Intercompany charges ^ Commission fees ^ Included in other operating expenses are the following: 34,759 37,825 754 12,472 400,831 406,280 42,172 120,917 The intercompany charges of the Company were transactions entered with related entities in Malaysia. Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 1,683 490 346 410 Parent auditors’ remuneration:   - Audit   - Regulatory related services 210 5 10 5   - Non-audit fees 415 9,159 215 5,781 Other auditors’ remuneration:   - Audit - 1,312 - -   - Regulatory related services - 150 - -   - Non-audit fees - 158 - - 15,600 101 4,236 -   - property and equipment (Note 16) 8,605 8,615 464 1,804 Depreciation of right-of-use asset (Note 17(a)) 8,814 - - - 465 - - - 24,210 11,383 - 1,731 91 161 - - - 8,516 - 1,768 3,442 3,296 1,185 1,399 Professional fees Depreciation: Lease profit expenses Amortisation:   - intangible assets (Note 18)   - land use rights (Note 21) Rental of buildings Directors’ remuneration (Note 39) www.mbsb.com.my
  221. Notes To The Financial Statements 219 For the Financial Year Ended 31 December 2019 (cont’d.) 38. Personnel expenses Group Wages and salaries Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 177,846 171,582 (5,700) 31,959 5,348 31,042 28,077 - Social security costs 1,660 1,377 - 290 Directors fees (Note 39) 3,442 3,296 1,185 1,399 Contributions to Employees Provident Fund Shariah Committee remuneration Other staff related expenses 466 416 - 122 25,852 22,958 665 5,321 240,308 227,706 (3,850) 44,439 39. Directors' remuneration Group 2019 RM’000 Company 2018 RM'000 2019 RM’000 2018 RM’000 Directors of the Company  Non-Executive:   Fees 1,815 1,876 660 841   Other emoluments 1,627 1,420 525 558 3,442 3,296 1,185 1,399 www.mbsb.com.my
  222. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 220 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 39. 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 2019 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 RM500,001 - RM550,000 RM550,001 - RM600,000 2 2 3 3 1 1 Number of Directors Company 2018 2019 7 1 1 3 2 2 2 - 1 1 3 - 2018 6 1 2 1 1 - Details of the directors' remuneration of each director during the financial year ended 31 December 2019 are as follows: Group 31 December 2019 Directors 1. Tan Sri Abdul Halim bin Ali 2. Encik Aw Hong Boo 3. Encik Lim Tian Huat 4. Ir. Moslim Othman 5. Encik Sazaliza Zainuddin 6. Datuk Johar bin Che Mat 7. Puan Lynette Yeow Su Yin 8. Tunku Alina binti Raja Muhd Alias 9. Datuk Azrulnizam bin Abdul Aziz 10.Dr. Loh Leong Hua 11.Encik Kamarulzaman bin Ahmad 12.Puan Zaidatul Mazwin Idrus www.mbsb.com.my Director Fees RM’000 280 165 175 165 120* 155 290 140 120 150 30 25* 1,815 Allowance RM’000 260 163 153 145 98 129 278 132 105 135 20 9 1,627 Total RM’000 540 328 328 310 218 284 568 272 225 285 50 34 3,442
  223. Notes To The Financial Statements 221 For the Financial Year Ended 31 December 2019 (cont’d.) 39. Directors’ remuneration (cont’d.) Group 31 December 2018 Directors 1. Tan Sri Abdul Halim bin Ali Director Fees RM’000 Allowance RM’000 Total RM’000 273 226 499 107 2. Datuk Shahril Ridza bin Ridzuan 70* 37 3. Datuk Syed Zaid bin Syed Jaffar Albar 19 13 32 4. Dato’ Jasmy bin Ismail 28 22 50 179 158 337 5. Encik Aw Hong Boo 6. Encik Lim Tian Huat 174 88 262 7. Ir. Moslim Othman 163 84 247 8. Encik Sazaliza Zainuddin 130* 101 231 9. Datuk Johar bin Che Mat 168 136 304 10.Puan Lynette Yeow Su Yin 278 195 473 11.Tunku Alina binti Raja Muhd Alias 154 130 284 12.Datuk Azrulnizam bin Abdul Aziz 122 111 233 171 13.Dr. Loh Leong Hua 92 79 14.Dato’ Dr. Md Khir bin Abdul Rahman 10 15 25 15.Dato’ Dr. Vaseehar Hassan bin Abdul Razack 6 10 16 16.Encik Abdul Rahim bin Abdul Hamid 6 9 15 17.Dr. Saleh Jameel Malaikah 2 6 8 18.Encik Zakir Hussain Rizvi 2 - 2 1,876 1,420 3,296 Director Fees RM’000 Allowance RM’000 Total RM’000 140 73 213 Company 31 December 2019 1. Tan Sri Abdul Halim bin Ali 2. Encik Lim Tian Huat 175 153 328 3. Ir. Moslim Othman 165 145 310 4. Puan Lynette Yeow Su Yin 155 145 300 9 34 525 1,185 5. Puan Zaidatul Mazwin Idrus 25* 660 www.mbsb.com.my
  224. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 222 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 39. Directors' remuneration (cont'd.) Director Fees RM’000 145 70* 19 28 28 174 163 20* 20 154 20 841 Company 31 December 2018 1. Tan Sri Abdul Halim bin Ali 2. Datuk Shahril Ridza bin Ridzuan 3. Datuk Syed Zaid bin Syed Jaffar Albar 4. Dato’ Jasmy bin Ismail 5. Encik Aw Hong Boo 6. Encik Lim Tian Huat 7. Ir. Moslim Othman 8. Encik Sazaliza Zainuddin 9. Datuk Johar bin Che Mat 10.Puan Lynette Yeow Su Yin 11.Tunku Alina binti Raja Muhd Alias * Allowance RM’000 169 37 13 22 20 88 84 14 16 81 14 558 Total RM’000 314 107 32 50 48 262 247 34 36 235 34 1,399 50% of the directors' fees are paid to the organisation to whom the director represents. 40. Net allowance/(writeback) for impairment on loans, financing and advances and other financial assets Group 2019 Financial investments at FVOCI (Note 7) Financial investments at amortised cost (Note 8) Loans, financing and advances (Note 9(ix)) Other receivables Financing commitments and financial guarantees   (Note 26) Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 18 - - 18 146 - - 146 52,915 (117,427) 157,589 93,077 - - 65,538 65,538 (8,934) (18,851) (1,947) (29,732) 44,145 (136,278) 221,180 129,047 - Write off - - 17,735 17,735 - Recovered - - (32,325) (32,325) - - (14,590) (14,590) 44,145 (136,278) 206,590 114,457 Impaired financing and advances: www.mbsb.com.my
  225. Notes To The Financial Statements 223 For the Financial Year Ended 31 December 2019 (cont’d.) 40.Net allowance/(writeback) for impairment on loans, financing and advances and other financial assets (cont'd.) Group Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 6 - - 6 (167,780) (160,399) 500,261 172,082 694 1,206 (6,259) (4,359) Trade receivables (Note 10) - - (8) (8) Other receivables - - 45,944 45,944 Other payables - - 1,570 1,570 2018 Financial investments at FVOCI (Note 8) Loans, financing and advances (Note 9(ix)) Financial assets held-for-sale Financing commitments and financial guarantees   (Note 26(i)) (50,413) (49,786) (2,006) (102,205) (217,493) (208,979) 539,502 113,030 - Write off - - 32,946 32,946 - Recovered - - (30,109) (30,109) - - 2,837 2,837 (217,493) (208,979) 542,339 115,867 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 Impaired financing and advances: Company 2019 (1,838) (30,722) (40,904) (73,464) Other receivables - - 14,482 14,482 Amount due from subsidiaries - - 12,342 12,342 (162) (22) (844) (1,028) (2,000) (30,744) (14,924) (47,668) - Write off - - 26,731 26,731 - Recovered - - (18,253) (18,253) - - 8,478 8,478 (2,000) (30,744) (6,446) (39,190) Loans, financing and advances (Note 9(ix)) Financing commitments and financial guarantees   (Note 26) Impaired financing and advances: www.mbsb.com.my
  226. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 224 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 40.Net allowance/(writeback) for impairment on loans, financing and advances and other financial assets (cont'd.) Company 2018 Loans, financing and advances (Note 9(ix)) Financial assets held-for-sale Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 (5,695) (164,027) 189,308 19,586 28 1,618 10,062 11,708 Other receivables - - 50,077 50,077 Other payables - - 1,570 1,570 Financing to subsidiaries - - 4,588 4,588 Amount due from subsidiaries - - 8,222 8,222 Financing commitments and financial guarantees   (Note 26) (28,533) (50,375) (5,086) (83,994) (34,200) (212,784) 258,741 11,757 - Write off - - 26,495 26,495 - Recovered - - (26,914) (26,914) - - (419) (419) (34,200) (212,784) 258,322 11,338 Impaired financing and advances: www.mbsb.com.my
  227. Notes To The Financial Statements 225 For the Financial Year Ended 31 December 2019 (cont’d.) 41.Taxation Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000   Current income tax 203,999   Over provision in prior year (37,058) 156,209 33,784 72,509 (2,330) (62,426) (2,502) 166,941 153,879 (28,642) 70,007   Origination and reversal of temporary differences 8,487 42,202 2,923 3,410   Under provision in prior years 5,639 2,092 3,179 2,090 14,126 44,294 6,102 5,500 181,067 198,173 (22,540) 75,507 45,589 3,368 - - Malaysian income tax: Deferred tax (Note 22): Total income tax expense for the year Tax recognised directly in equity:   Fair value reserve (Note 22) 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 Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 Profit before taxation and zakat 897,429 853,573 139,622 275,902 66,216 Taxation at Malaysian statutory tax rate of 24% 215,383 204,858 33,509 Effect of income not subject to tax (48,744) (47,881) - 671 Effect of expenses not deductible for tax purposes 49,306 39,851 3,198 8,898 (Reversal of a previous write-down of deferred tax   assets)/Write-down of deferred tax assets Over provision of income tax in prior years Under provision of deferred tax in prior years Charge/(reversal) of deferred tax liabilities Tax expense for the year (3,861) 1,657 - 134 (37,044) (2,330) (62,424) (2,502) 5,624 2,092 3,177 2,090 403 (74) - - 181,067 198,173 (22,540) 75,507 www.mbsb.com.my
  228. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 226 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 42. 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. 2019 Net profit for the year (RM'000) Weighted average number of ordinary shares in issue (‘000) Basic earnings per share (sen) 2018 716,900 642,400 6,533,037 6,226,017 10.97 10.32 (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. 2019 2018 716,900 642,400 Weighted average number of ordinary shares in issue (‘000) 6,533,037 6,226,017 Adjusted weighted average number of ordinary shares in issue (‘000) 6,533,037 6,226,017 10.97 10.32 Net profit for the year (RM'000) Diluted earning per share (sen) 43.Dividends Group and Company 2019 RM’000 2018 RM’000 Recognised during the financial year: 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 for 2018 319,455 - - Single-tier final dividend of 5.0 sen per share for 2017 - 307,497 319,455 307,497 www.mbsb.com.my
  229. Notes To The Financial Statements 227 For the Financial Year Ended 31 December 2019 (cont’d.) 43. Dividends (cont’d.) On 6 May 2020, the Company announced the proposed single-tier final dividend of 3.0 sen net per ordinary share in respect of the financial year ended 31 December 2019. Based on the number of shares in issue of 6,713,401,615 ordinary shares as at 31 December 2019, the dividend payable would be RM201,402,049. 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 2020. 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 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. The Board of Directors has determined that the option to reinvest via the DRP shall apply to the entire portion of the proposed single-tier final dividend of 3.0 sen per ordinary share for the financial year ended 31 December 2019. 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. www.mbsb.com.my
  230. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 228 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 43. Dividends (cont’d.) MBSB Dividend Reinvestment Plan (cont’d.) 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 singletier 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. www.mbsb.com.my
  231. Notes To The Financial Statements 229 For the Financial Year Ended 31 December 2019 (cont’d.) 44. Capital adequacy Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 Ordinary share capital 6,941,542 6,682,102 6,941,542 6,682,102 Retained earnings 1,484,492 1,086,629 202,431 359,234 Common Equity Tier 1 Capital Other reserve 160,837 16,873 5,843 6,261 8,586,871 7,785,604 7,149,816 7,047,597 (148,031) (188,790) - - (28,218) - (9,585) (15,687) Less : Common Equity Tier 1 regulatory adjustments Goodwill Deferred tax assets Cumulative gains of Investment securities at FVOCI (114,082) (8,134) - - Other intangible assets (167,209) (104,723) - - 8,129,331 7,483,957 7,140,231 7,031,910 - - - - Total Common Equity Tier 1 Capital Tier 1 Capital Additional Tier 1 capital instruments Less: Tier 1 regulatory adjustments Total Tier 1 capital - - - - 8,129,331 7,483,957 7,140,231 7,031,910 87,137 Tier 2 Capital 497,961 478,878 75,219 Tier 2 capital instruments 1,293,075 - - - Total Tier 2 capital 1,791,036 478,878 75,219 87,137 Total capital base 9,920,367 7,962,835 7,215,450 7,119,047 Impairment allowance www.mbsb.com.my
  232. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 230 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 44. Capital adequacy (cont'd.) Breakdown of risk weighted assets in various categories of risk weights are as follows: Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 39,836,868 38,310,259 7,113,253 6,970,930 33,759 2,136 - - 2,380,936 2,268,538 1,048,976 1,649,011 42,251,563 40,580,933 8,162,229 8,619,941 Total risk weighted assets (“RWA”) - Credit risk - Market risk - Operational risk Total RWA Capital ratios Common equity Tier 1 capital 19.240% 18.442% 87.479% 81.577% Tier 1 capital 19.240% 18.442% 87.479% 81.577% Total capital ratio 23.479% 19.622% 88.400% 82.588% The capital ratios after the proposed single-tier final dividend of 3.0 sen per ordinary share in respect of financial year ended 31 December 2019 are as follows: Capital ratios (after proposed single-tier final dividend of 3.0 sen per ordinary share) CET 1 capital 18.764% 17.655% 85.011% 77.871% Tier 1 capital 18.764% 17.655% 85.011% 77.871% Total capital ratio 23.003% 18.835% 85.933% 78.882% www.mbsb.com.my
  233. Notes To The Financial Statements 231 For the Financial Year Ended 31 December 2019 (cont’d.) 45. 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 64.48% as at 31 December 2019 (2018: 63.77%). 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 governmentrelated. (i) Individually significant transactions and balances with EPF are as follows: Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 Profit expense paid on sukuk to EPF 56,966 56,730 - 14,110 Profit expense paid on fixed deposits to  EPF 71,235 3,847 - - 249 288 - 72 1,178,793 1,121,242 - - 7,983 7,824 - - 1,800,000 900,000 - - 47,071 1,025 - - 97 97 97 97 Expenses Rental paid Balances Sukuk MBSB - SC Murabahah Accrued profit on sukuk due to EP Fixed deposits by EPF Accrued profit on fixed deposits due to  EPF Rental deposit www.mbsb.com.my
  234. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 232 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 45. Significant related party transactions/balances (cont'd.) (a) Transactions and balances with government-related entities are as follows: (cont'd.) (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 Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 Income/(Expense) 1 24,919 - 1,742 (2,419) (2,478) - - 71,412 19,215 - - 32 32 - - Profit income from deposit placements Profit expense to depositors Balances Cash and short-term funds Deposits and placements with financial  institutions 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. (iii) Collectively, but not individually, significant balances: For the financial year ended 31 December 2019, the aggregate amount of the Group and the Company's significant balances with other government-related entities other than the RHB Banking Group of companies are as disclosed below: Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 Profit from financing 20,253 24,656 - - Profit to depositors (5,579) (8,406) - (1,682) Financing 303,627 303,695 - - Deposits from customers 191,076 154,019 - - Income/(Expense) Balances www.mbsb.com.my
  235. Notes To The Financial Statements 233 For the Financial Year Ended 31 December 2019 (cont’d.) 45. Significant related party transactions/balances (cont'd.) (b) Transactions and balances with subsidiaries and related entities of the Group and the Company are as follows: Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 - - 4,191 68,863 Income/(Expense) Interest charged on loans and advances Rental paid Other expenses - - - (225) (2,844) (1,398) - - - - 65,040 58,152 139,859 - - - Balances Amount due from subsidiaries Deposits from customer 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. (c) The remuneration of Directors and other members of key management during the year is as follows: Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 Short-term employee benefits 9,431 Pension costs: EPF 1,014 9,457 - 5,267 933 - 10,445 617 10,390 - 5,884 Included in the total key management personnel are: Group Chief Executive Officer’s remuneration   comprising salary, bonus, allowances   and other emoluments Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 4,974 5,176 - 3,434 www.mbsb.com.my
  236. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 234 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 45. Significant related party transactions/balances (cont'd.) (d) Transactions and balances with Directors and key management: Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 (81) (78) - (1) 2,787 2,851 - - Expense Interest cost incurred on savings and deposits Balances Amount due to in respect of savings and  deposits 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 At 1 January/31 December Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 813 813 813 813 The share options were granted on the same terms and conditions as those offered to other employees of the Group. 46. Credit exposures arising from transactions with connected parties Group 2019 RM’000 2018 RM’000 1,622,739 884,899 Percentage of outstanding credit exposures to connected parties as proportion of   total credit exposures 3.90% 2.11% Percentage of outstanding credit exposures to connected parties which is   non-performing or in default 0.80% 0.79% Outstanding credit exposures with connected parties www.mbsb.com.my
  237. Notes To The Financial Statements 235 For the Financial Year Ended 31 December 2019 (cont’d.) 46. Credit exposures arising from transactions with connected parties (cont’d.) Company 2019 RM’000 2018 RM’000 Outstanding credit exposures with connected parties 61,661 61,523 Percentage of outstanding credit exposures to connected parties as proportion of   total credit exposures 3.24% 2.84% Percentage of outstanding credit exposures to connected parties which is   non-performing or in default 3.20% 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. 47. Commitments and contingencies In the normal course of business, the Group and the Company make various commitments and incur certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions. Principal amount RM’000 Credit equivalent amount RM’000 Risk weighted amount RM’000 179,476 177,186 177,186 Trade-related contingencies 96,744 48,372 48,372 Short-term self liquidating trade related contingencies 83,691 16,738 16,738 - one year or less 1,338,351 307,921 307,921 - over one year to five years 3,100,296 1,545,476 1,488,381 72,000 36,000 36,000 228,295 7,277 1,536 5,098,853 2,138,970 2,076,134 Group 31 December 2019 Direct credit substitutes Irrevocable commitments to extend credit: - over five years Foreign exchange related contracts - one year or less www.mbsb.com.my
  238. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 236 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 47. Commitments and contingencies (cont'd.) Principal amount RM’000 Credit equivalent amount RM’000 Risk weighted amount RM’000 Direct credit substitutes 4,141 2,031 2,031 Trade-related contingencies 2,939 1,469 1,469 22,669 8,431 6,185 29,749 11,931 9,685 Principal amount RM’000 Credit equivalent amount RM’000 Risk weighted amount RM’000 Direct credit substitutes 195,617 192,992 192,866 Trade-related contingencies 257,427 92,396 92,396 Company 31 December 2019 Irrevocable commitments to extend credit: - over one year to five years Group 31 December 2018 Irrevocable commitments to extend credit: - one year or less 1,248,707 350,206 350,206 - over one year to five years 4,188,313 2,088,759 2,088,759 220,816 110,408 110,408 - over five years Foreign exchange related contracts - one year or less 5,842 151 151 6,116,722 2,834,912 2,834,786 Principal amount RM’000 Credit equivalent amount RM’000 Risk weighted amount RM’000 Direct credit substitutes 7,832 5,207 5,207 Trade-related contingencies 2,939 1,469 1,469 27,471 10,503 10,503 38,242 17,179 17,179 Company 31 December 2018 Irrevocable commitments to extend credit: - over one year to five years www.mbsb.com.my
  239. Notes To The Financial Statements 237 For the Financial Year Ended 31 December 2019 (cont’d.) 47. Commitments and contingencies (cont'd.) Group (i) Capital Commitments Property and equipment/Intangible assets: Contracted but not provided for Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 50,342 60,203 - - 48. 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, Definite Pure Sdn. Bhd. 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 in 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 matter was now fixed for case management on 13 November 2019 to update the progress of the mediation and the court vacated the case management on 30 January 2020 and 31 January 2020 and further fixed for mediation on 1 April 2020 to 3 April 2020. 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. www.mbsb.com.my
  240. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 238 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 48. Contingent liabilities (Unsecured) (cont’d.) (ii) 88 Legacy Sdn Bhd (represented by Malaysia Building Society Berhad. “MBSB”) v Pentadbir Tanah Daerah Klang The 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 “MBSB”). However, the acquisition had 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 referred the matter to High Court of Shah Alam and based on trial held on 29 January 2020, the Court allowed the appeal on the compensation amount payable to 88 Legacy Sdn Bhd. The compensation amount for appeal is currently being assessed. The Directors are of the opinion that the additional amount to be compensated is not material to the Company. 49. Financial risk management The Group and the Company have exposure to one or more of the following risks: (i) 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; (ii) 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, commodity prices and their associated volatility; (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; www.mbsb.com.my
  241. Notes To The Financial Statements 239 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) (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. (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) (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. Identify and monitor the various risk exposures and risk requirements; www.mbsb.com.my
  242. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 240 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) (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 nonmeasurable risks, relevant framework and control mechanisms are implemented to mitigate and manage the same. (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. www.mbsb.com.my
  243. Notes To The Financial Statements 241 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) (b) Risk Management Framework (cont'd.) (iv) Risk Management Process •  usiness Planning: Risk Management Division is an element of the business planning process, which B 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. •  easure and Assess: Risks are measured and aggregated using the Group-wide methodologies M across each of the risk types, including stress testing. •  anage and Controls: Control and limits are used to manage risk exposures within the risk appetite M 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 risktaking activities. Methodologies provide specific requirements, rules or criteria that must be met to comply with the policy. •  eople: Attracting the right talent and skills are the key to ensuring a well-functioning risk management P framework. The organisation continuously evolves and proactively responds to the increasing complexity of the Group as well as the economic and regulatory environment. •  echnology and Data: Appropriate technology and sound data management are enablers to support T risk management activities. www.mbsb.com.my
  244. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 242 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) (b) Risk Management Framework (cont'd.) (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 minimises 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. (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. 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 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. www.mbsb.com.my
  245. Notes To The Financial Statements 243 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) (c) Risk organisation (cont’d.) (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 i.e. 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, the 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. (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. www.mbsb.com.my
  246. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 244 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) (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 several 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. 49.1 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 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. www.mbsb.com.my
  247. Notes To The Financial Statements 245 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.1 Credit risk (cont'd.) (i) Financial instruments by category 2019 Carrying amount RM’000 Amortised cost RM’000 FVOCI RM’000 Derivatives RM’000 2,034,889 2,034,889 - - 873,515 873,515 - - Group Financial assets Cash and short-term funds Deposits and placements with other   financial institutions 4,239 - - 4,239 Financial investments 11,189,349 494,705 10,694,644 - Loans, financing and advances 33,953,822 33,953,822 - - 74,753 74,753 - - Derivative financial assets Trade and other receivables Statutory deposits with Bank Negara  Malaysia 1,090,000 1,090,000 - - 49,220,567 38,521,684 10,694,644 4,239 Deposits from customers 25,271,951 25,271,951 - - Deposits and placements of banks and   other financial institutions 10,621,769 10,621,769 - - 1 - - 1 527,555 527,555 - - 8,919 8,919 - - Recourse obligation on financing sold 2,481,251 2,481,251 - - Sukuk - MBSB SC Murabahah 1,664,973 1,664,973 - - 1,293,075 1,293,075 - - 41,869,494 41,869,493 - 1 Financial liabilities Derivative financial liabilities Trade and other payables Lease liabilities Sukuk Wakalah www.mbsb.com.my
  248. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 246 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.1 Credit risk (cont'd.) (i) Financial instruments by category (cont’d.) 2019 Carrying amount RM’000 Amortised cost RM’000 FVOCI RM’000 Derivatives RM’000 189,526 189,526 - - 1,146,505 1,146,505 - - 6,490 6,490 - - 1,342,521 1,342,521 - - 144,777 144,777 - - 144,777 144,777 - - Company Financial assets Cash and short-term funds Loans, financing and advances Other receivables Financial liabilities Other payables www.mbsb.com.my
  249. Notes To The Financial Statements 247 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (i) Financial instruments by category (cont’d.) 2018 Carrying amount RM’000 Amortised cost RM’000 FVOCI RM’000 Derivatives RM’000 3,411,986 3,411,986 - - 931,087 931,087 - - Group Financial assets Cash and short-term funds Deposits and placements with other   financial institutions Derivative financial assets Financial Investments Loans, financing and advances Trade and other receivables Statutory deposits with Bank Negara  Malaysia 67 - - 67 5,117,455 20,350 5,097,105 - 33,133,119 33,133,119 - - 121,050 121,050 - - 1,053,000 1,053,000 - - 43,767,764 38,670,592 5,097,105 67 24,209,449 24,209,449 - - 8,578,851 8,578,851 - - 2 - - 2 Financial liabilities Deposits from customers Deposits and placements of banks and   other financial institutions Derivative financial liabilities Trade and other payables Recourse obligation on financing sold Sukuk - MBSB SC Murabahah 502,270 502,270 - - 2,135,518 2,135,518 - - 1,968,075 1,968,075 - - 37,394,165 37,394,163 - 2 www.mbsb.com.my
  250. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 248 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (i) Financial instruments by category (cont’d.) Carrying amount RM’000 Amortised cost RM’000 FVOCI RM’000 Derivatives RM’000 Cash and short-term funds 155,077 155,077 - - Deposits and placements with other   financial institutions 154,347 154,347 - - 1,326,502 1,326,502 - - 36,182 36,182 - - 1,672,108 1,672,108 - - 185,695 185,695 - - 185,695 185,695 - - 2018 Company Financial assets Loans, financing and advances Other receivables Financial liabilities Other payables (ii) Maximum exposure to credit risk The following analysis represents the Group and the Company's maximum exposure to credit risk onbalance 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. www.mbsb.com.my
  251. Notes To The Financial Statements 249 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (ii) Maximum exposure to credit risk (cont’d.) Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 2,034,889 3,411,986 189,526 155,077 873,515 931,087 - 154,347 4,239 67 - - 10,694,644 5,097,105 - - 494,705 20,350 - - 33,953,822 33,133,119 1,146,505 1,326,502 1 561 - - 74,752 120,489 6,490 36,182 Credit exposure for on-balance sheet   financial assets Cash and short-term funds Deposits and placements with financial  institutions Derivative financial assets Financial investments at FVOCI Financial investments at amortised cost Loans, financing and advances Trade receivables Other receivables* Statutory deposits with Bank Negara   Malaysia Total financial assets 1,090,000 1,053,000 - - 49,220,567 43,767,764 1,342,521 1,672,108 *Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme ("PLCHP") and deferred expenses as these items are classified as non-financial assets. Group 2019 RM’000 Company 2018 RM'000 2019 RM’000 2018 RM’000 Credit exposure for off-balance sheet   financial assets Direct credit substitutes Trade-related contingencies Short term self-liquidating trade-related  contingencies Irrevocable commitments 179,476 195,617 4,141 7,832 96,744 257,427 2,939 2,939 83,691 - - - 4,510,647 5,657,836 22,669 27,471 4,870,558 6,110,880 29,749 38,242 www.mbsb.com.my
  252. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 250 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (a) Loans, financing and advances Loans, financing and advances are summarised as follows: Group Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 712 - - 712  Good 3,038,429 148,411 - 3,186,840  Average 3,802,919 794,862 - 4,597,781 171,898 123,787 - 295,685 20,492 259,221 - 279,713 Retail financing 22,381,502 1,904,969 - 24,286,471 Total neither past due nor  impaired 29,415,952 3,231,250 - 32,647,202 2019 Neither past due nor impaired Corporate financing  Excellent   Below Average  Poor www.mbsb.com.my
  253. Notes To The Financial Statements 251 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Loans, financing and advances are summarised as follows: (cont’d.) Group 2019 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 - - - - Past due but not impaired Corporate financing  Excellent  Good - 10,116 - 10,116  Average - 60,770 - 60,770   Below Average - - - -  Poor - - - - Retail financing - 1,284,860 - 1,284,860 Total past due but not impaired - 1,355,746 - 1,355,746 Impaired - - 1,861,542 1,861,542 29,415,952 4,586,996 1,861,542 35,864,490 (411,822) (433,194) (1,065,652) (1,910,668) 29,004,130 4,153,802 795,890 33,953,822 Gross loans, financing and  advances Less: ECL Net loans, financing and  advances www.mbsb.com.my
  254. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 252 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.1 Credit risk (cont'd.) (iii) Credit quality (cont'd.) (a) Loans, financing and advances (cont'd.) Loans, financing and advances are summarised as follows: (cont’d.) Group 2019 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 - - - - - - - - 85,125 - - 85,125 Neither past due nor impaired Corporate financing  Excellent  Good  Average - - - - 19,634 119,405 - 139,039 Retail financing 245,907 173,563 - 419,470 Total neither past due nor  impaired 350,666 292,968 - 643,634   Below Average  Poor www.mbsb.com.my
  255. Notes To The Financial Statements 253 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Loans, financing and advances are summarised as follows: (cont’d.) Company Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000  Excellent - - - -  Good - - - -  Average - - - -   Below Average - - - -  Poor - - - - Retail financing - 187,318 - 187,318 Total past due but not impaired - 187,318 - 187,318 Impaired 2019 Past due but not impaired Corporate financing - - 1,043,517 1,043,517 Gross loans, financing and  advances 350,666 480,286 1,043,517 1,874,469 Less: ECL (10,532) (64,260) (653,172) (727,964) Net loans, financing and  advances 340,134 416,026 390,345 1,146,505 www.mbsb.com.my
  256. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 254 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.1 Credit risk (cont'd.) (iii) Credit quality (cont'd.) (a) Loans, financing and advances (cont'd.) Loans, financing and advances are summarised as follows: (cont’d.) Group 2018 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 1,380 - - 1,380 Neither past due nor impaired Corporate financing  Excellent  Good 3,487,498 273,974 - 3,761,472  Average 2,668,903 473,353 - 3,142,256 225,842 7,862 - 233,704 51,744 22,961 - 74,705 Retail financing 22,285,715 1,549,916 - 23,835,631 Total neither past due nor  impaired 28,721,082 2,328,066 - 31,049,148   Below Average  Poor www.mbsb.com.my
  257. Notes To The Financial Statements 255 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Loans, financing and advances are summarised as follows: (cont’d.) Group Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000  Excellent - - - - 2018 Past due but not impaired Corporate financing  Good - 90,649 - 90,649  Average - 199,213 - 199,213   Below Average - 58,833 - 58,833  Poor - 204,494 - 204,494 Retail financing - 1,646,796 - 1,646,796 Total past due but not impaired - 2,199,985 - 2,199,985 Impaired - - 1,923,471 1,923,471 28,721,082 4,528,051 1,923,471 35,172,604 (358,907) (550,621) (1,129,957) (2,039,485) 28,362,175 3,977,430 793,514 33,133,119 Gross loans, financing and  advances Less: ECL Net loans, financing and  advances www.mbsb.com.my
  258. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 256 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Loans, financing and advances are summarised as follows: (cont’d.) Company 2018 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 - - - - 3,015 - - 3,015 113,625 - - 113,625 Neither past due nor impaired Corporate financing  Excellent  Good  Average   Below Average - - - - 20,355 19,097 - 39,452 Retail financing 269,213 155,945 - 425,158 Total neither past due nor  impaired 406,208 175,042 - 581,250  Poor www.mbsb.com.my
  259. Notes To The Financial Statements 257 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Loans, financing and advances are summarised as follows: (cont’d.) Company Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000  Excellent - - - -  Good - - - -  Average - - - -   Below Average - - - -  Poor - 91,207 - 91,207 Retail financing - 324,296 - 324,296 Total past due but not impaired - 415,503 - 415,503 Impaired - - 1,131,177 1,131,177 406,208 590,545 1,131,177 2,127,930 (12,370) (94,982) (694,076) (801,428) 393,838 495,563 437,101 1,326,502 2018 Past due but not impaired Corporate financing Gross loans, financing and  advances Less: ECL Net loans, financing and  advances www.mbsb.com.my
  260. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 258 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Group 2019 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 Financing commitments Corporate financing  Excellent  Good  Average   Below Average  Poor Retail financing Gross financing commitments Less: ECL Net financing commitments - - - - 984,399 25,672 - 1,010,071 2,103,914 672,167 - 2,776,081 255,942 - - 255,942 - 20 5,337 5,357 431,034 20,115 12,047 463,196 3,775,289 717,974 17,384 4,510,647 (40,885) (15,151) (6,217) (62,253) 3,734,404 702,823 11,167 4,448,394 - - - - 57,043 - - 57,043 144,282 104,327 - 248,609 Financial guarantees Corporate financing  Excellent  Good  Average   Below Average  Poor Gross financing guarantees Less: ECL Net financing guarantees www.mbsb.com.my 9,842 - - 9,842 543 37 43,837 44,417 211,710 104,364 43,837 359,911 (2,520) (2,749) (2,289) (7,558) 209,190 101,615 41,548 352,353
  261. Notes To The Financial Statements 259 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.1 Credit risk (cont'd.) (iii) Credit quality (cont'd.) (a) Loans, financing and advances (cont'd.) Company Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000  Excellent - - - -  Good - - - -  Average - - - -   Below Average - - - - 2019 Financing commitments Corporate financing - - - - Retail financing 13,108 2,648 6,913 22,669 Gross financing commitments 13,108 2,648 6,913 22,669 (208) (176) (2,904) (3,288) 12,900 2,472 4,009 19,381 - - - -  Poor Less: ECL Net financing commitments Financial guarantees Corporate financing  Excellent  Good  Average   Below Average  Poor Gross financing guarantees Less: ECL Net financing guarantees - - - - 3,010 - - 3,010 - - - - 540 - 3,530 4,070 3,550 - 3,530 7,080 (43) - (2,110) (2,153) 3,507 - 1,420 4,927 www.mbsb.com.my
  262. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 260 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Group 2018 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 Financing commitments Corporate financing  Excellent 506 - - 506  Good 1,937,849 202,108 - 2,139,957  Average 2,469,641 414,399 - 2,884,040 241,195 363 - 241,558   Below Average  Poor Retail financing Gross financing commitments Less: ECL Net financing commitments - 12,630 152,248 164,878 200,667 13,055 13,175 226,897 4,849,858 642,555 165,423 5,657,836 (48,412) (31,232) (7,084) (86,728) 4,801,446 611,323 158,339 5,571,108 - - - - Financial guarantees Corporate financing  Excellent  Good  Average   Below Average  Poor Gross financing guarantees Less: ECL Net financing guarantees www.mbsb.com.my 83,254 - - 83,254 255,955 76,170 - 332,125 - 4,000 - 4,000 7,241 - 26,424 33,665 346,450 80,170 26,424 453,044 (4,717) (5,597) (3,369) (13,683) 341,733 74,573 23,055 439,361
  263. Notes To The Financial Statements 261 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Company Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000  Excellent - - - -  Good - - - -  Average - - - -   Below Average - - - - 2018 Financing commitments Corporate financing  Poor - - - - Retail financing 17,989 2,206 7,276 27,471 Gross financing commitments 17,989 2,206 7,276 27,471 (299) (199) (3,232) (3,730) 17,690 2,007 4,044 23,741  Excellent - - - -  Good - - - -  Average - - - - Less: ECL Net financing commitments Financial guarantees Corporate financing   Below Average - - - -  Poor 7,241 - 3,530 10,771 Gross financing guarantees 7,241 - 3,530 10,771 (84) - (2,625) (2,709) 7,157 - 905 8,062 Less: ECL Net financing guarantees www.mbsb.com.my
  264. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 262 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Internal rating is defined as follows: Risk Level Description Excellent Superior capability for payment of financial commitments with little susceptibility to adverse effects to changes in circumstances and economic conditions. Good Strong capacity to meet financial commitments and are less susceptible to adverse effects to changes in circumstances and economic conditions. Average Moderate capacity to meet financial commitments and may be susceptible to adverse changes in circumstances and economic conditions. Below Average Weak in terms of overall credit risk, with some apparent risk of default. May face problems in meeting commitments in the long term. Poor Poor credit quality and high risk of default. Credit quality of financial assets that are neither past due nor impaired by credit quality is as follows: 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. 2019 Group RM’000 2018 % to Gross Financing RM’000 % to Gross Financing By ageing www.mbsb.com.my Months-in-arrears 1 964,888 2.69% 1,517,877 4.32% Months-in-arrears 2 390,860 1.09% 682,108 1.94% 1,355,748 3.78% 2,199,985 6.26%
  265. Notes To The Financial Statements 263 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Past due but not impaired (cont’d.) 2019 Company RM’000 2018 % to Gross Financing RM’000 % to Gross Financing 13.20% By ageing Months-in-arrears 1 117,406 6.26% 280,767 Months-in-arrears 2 69,911 3.73% 134,736 6.33% 187,317 9.99% 415,503 19.53% Credit quality of financial assets that are impaired by credit quality is as follows: 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 Group and the Company's policies. Group Company 2019 RM’000 2018 RM'000 2019 RM’000 2018 RM’000 25,248 151,900 11,227 139,000 Months-in-arrears 1 - 12,525 - 12,525 Months-in-arrears 2 - 3,567 - - 829,427 680,015 649,207 535,720 1,006,867 1,075,464 383,082 443,932 1,861,542 1,923,471 1,043,516 1,131,177 Impaired: Individually assessed of which: Months-in-arrears 0 Months-in-arrears 3 and above Collectively assessed www.mbsb.com.my
  266. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 264 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (a) Loans, financing and advances (cont’d.) Impaired (cont’d.) Impaired loans, financing and advances of which are rescheduled and restructured financing: Group 2019 RM’000 Company 2018 RM'000 2019 RM’000 2018 RM’000 Consumer 48,000 91,424 7,140 12,031 Business 222,285 271,460 197,845 226,290 270,285 362,884 204,985 238,321 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. www.mbsb.com.my
  267. Notes To The Financial Statements 265 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (b) Other financial assets Credit quality of other financial assets is as follows. The rating is based on available rating by external credit agencies. 2019 Neither past due nor impaired Cash and short-term funds AAA AA and below Unrated Deposits and placements with   banks and other financial  institutions AAA AA and below Debt investments AAA AA and below Unrated* Other financial assets Unrated Stage 1 RM'000 Group Stage 2 Stage 3 RM'000 RM'000 Total RM'000 1,937,589 12,268 85,032 2,034,889 - - 1,937,589 12,268 85,032 2,034,889 873,483 32 873,515 - - 873,483 32 873,515 975,286 134,501 10,079,562 11,189,349 - - 975,286 134,501 10,079,562 11,189,349 74,752 74,752 - - 74,752 74,752 * Unrated debt investments for the Group include government guaranteed securities of RM9,584,857,000 (2018: RM4,036,477,000) www.mbsb.com.my
  268. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 266 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (b) Other financial assets (cont'd.) Company 2019 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 189,526 - - 189,526 189,526 - - 189,526 6,490 - - 6,490 6,490 - - 6,490 Neither past due nor impaired Cash and short-term funds AAA Other financial assets Unrated www.mbsb.com.my
  269. Notes To The Financial Statements 267 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (b) Other financial assets (cont’d.) Group 2018 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 3,289,152 - - 3,289,152 71,831 - - 71,831 51,003 - - 51,003 3,411,986 - - 3,411,986 Neither past due nor impaired Cash and short-term funds AAA AA and below Unrated Deposits and placements with   banks and other financial  institutions AAA AA and below 931,055 - - 931,055 32 - - 32 931,087 - - 931,087 969,308 - - 969,308 Debt investments AAA AA and below Unrated* 91,320 - - 91,320 4,056,827 - - 4,056,827 5,117,455 - - 5,117,455 127,275 - - 127,275 127,275 - - 127,275 Other financial assets Unrated * Unrated debt investments for the Group include government guaranteed securities of RM9,584,857,000 (2018: RM4,036,477,000) www.mbsb.com.my
  270. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 268 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (iii) Credit quality (cont’d.) (b) Other financial assets (cont’d.) Company 2018 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 155,077 - - 155,077 155,077 - - 155,077 154,347 - - 154,347 154,347 - - 154,347 36,182 - - 36,182 36,182 - - 36,182 Neither past due nor impaired Cash and short-term funds AAA Deposits and placements with   banks and other financial  institutions AAA Other financial assets Unrated Credit rating mapping table for other financial assets The credit mapping table below provides information to users of financial statements in understanding the Group and the Company's risk management practices and evaluating the nature of risks arising from financial instruments. The Group and the Company's internal rating scale and mapping of external ratings are set out below: Rating for disclosures in the financial statements AAA AA and below www.mbsb.com.my RAM RATINGS MARC MOODY’S AAA AAA Aaa BBB3 to AA1 BBB- to AA+ Baa3 to Aa1
  271. Others 4 ,239 4,239 366 2,908,404 - - 10,694,644 - - 1,902,936 240,065 - 536,808 474,031 10,177 - - - 7,530,627 - - 161,700 2,716,425 198,647 459,162 4,605,061 255,886 356,847 76,950 130,594 494,705 33,953,822 - 211,369 263,003 - - - - 20,333 - - - 24,992,550 - 1 - - - - 1 - - - - - - - - - - - - - - - - - 76,122 373,069 6,103,164 438,712 461,124 5,158,426 729,917 387,357 76,950 130,594 - 24,992,550 74,752 1,090,000 49,220,567 71,517 - - - 587 2,648 - - - - - - 1,090,000 10,292,582 359,911 - - 6,300 44,305 3,995 288,989 11,698 4,329 295 - - - 4,510,647 - 32,669 837,770 82,318 279,796 2,460,669 129,551 141,621 4,262 81,031 460,960 - On balance Commitment sheet Financial and total guarantees contingencies^ RM’000 RM’000 RM’000 *Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme (PLCHP) and deferred expenses as these items are classified as non-financial assets. ^ Commitments and contingencies exclude foreign exchange related contracts. 1,220,800 Finance, insurance   and business  services Education, health   and others - Transport, storage  and  communication - 1,374 Wholesale & retail   trade and   restaurants &  hotels Electricity, gas and  water - - - Manufacturing - - - Mining and quarrying - - - Agriculture 13,909 - - Construction - 1,671,955 Household sectors Government and   central banks Financial Assets: Cash and short-term funds and deposits Statutory and Financial deposits placements investments Loans, with with Derivative Financial at financing Bank financial financial investments amortised and Trade Other Negara Group institutions assets at FVOCI cost advances receivables receivables* Malaysia RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 31 December 2019 (iv) Concentration of credit risk 49.1 Credit risk (cont’d.) 49. Financial risk management (cont’d.) Notes To The Financial Statements 269 For the Financial Year Ended 31 December 2019 (cont’d.) www.mbsb.com.my
  272. www .mbsb.com.my - - - - 189,526 Manufacturing Construction Wholesale & retail   trade and   restaurants &  hotels Transport, storage  and  communication Finance, insurance   and business  services - 189,526 Education, health   and others Others - - - - - - - - - - - - - - - - - - - - - - 1,146,505 - 91,209 9,501 1,769 3,046 394,701 88,562 2,963 554,754 - - - - - - - - - - 6,490 6,490 - - - - - - - - - - - - - - - - - - 1,342,521 6,490 91,209 199,027 1,769 3,046 394,701 88,562 2,963 554,754 7,080 - - - - - 7,080 - - - 22,669 - - - 24 403 420 108 - 21,714 On balance Commitment sheet Financial and total guarantees contingencies^ RM’000 RM’000 RM’000 *Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme (PLCHP) and deferred expenses as these items are classified as non-financial assets. ^ Commitments and contingencies exclude foreign exchange related contracts. - - Agriculture - - - Household sectors Financial Assets: Cash and short-term funds and deposits Statutory and Financial deposits placements investments Loans, with with Derivative Financial at financing Bank financial financial investments amortised and Trade Other Negara Company institutions assets at FVOCI cost advances receivables receivables* Malaysia 31 December 2019 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 (iv) Concentration of credit risk (cont’d.) 49.1 Credit risk (cont’d.) 270 49. Financial risk management (cont’d.) ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  273. - Manufacturing Electricity , gas and  water 1,260,577 Finance, insurance   and business  services Others 67 67 4,343,073 - - - - 596 - - Transport, storage  and  communication Education, health   and others 496 Wholesale & retail   trade and   restaurants &  hotels - - - - - - - 5,097,105 126,742 439,709 1,071,735 206,977 - 585,001 502,630 10,119 - - - 2,154,192 - - 473,197 1,035,556 121,927 161,860 5,626,692 228,155 373,067 20,742 210,620 20,350 33,133,119 - - - - - - 20,350 - - - - 24,881,303 - 561 - - - - 561 - - - - - - - - - - - - - - - - - 244,511 912,906 3,367,868 328,904 163,654 6,227,929 751,135 383,186 20,742 210,620 - 24,881,303 120,489 1,053,000 43,767,764 117,106 - - - 737 2,646 - - - - - - 1,053,000 6,275,006 453,044 - - 1,934 2,000 5,330 309,778 95,000 5,528 8,794 24,680 - - 5,657,836 - 130,000 99,538 836,046 69,526 3,498,682 357,138 127,243 8,045 145,137 386,481 - On balance Commitment sheet Financial and total guarantees contingencies^ RM’000 RM’000 RM’000 *Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme (PLCHP) and deferred expenses as these items are classified as non-financial assets. ^ Commitments and contingencies exclude foreign exchange related contracts. - Mining and quarrying 13,590 - Agriculture Construction - 3,067,814 Household sectors Government and   central banks Financial Assets: Cash and short-term funds and deposits Statutory and Financial deposits placements investments Loans, with with Derivative Financial at financing Bank financial financial investments amortised and Trade Other Negara Group institutions assets at FVOCI cost advances receivables receivables* Malaysia RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 31 December 2018 (iv) Concentration of credit risk (cont’d.) 49.1 Credit risk (cont’d.) 49. Financial risk management (cont’d.) Notes To The Financial Statements 271 For the Financial Year Ended 31 December 2019 (cont’d.) www.mbsb.com.my
  274. www .mbsb.com.my 309,424 Finance, insurance   and business  services - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,326,502 - 91,263 11,137 1,963 3,077 436,508 - 117,315 - 3,106 662,133 - - - - - - - - - - - - 36,182 36,182 - - - - - - - - - - - - - - - - - - - - - - 1,672,108 36,182 91,263 320,561 1,963 3,077 436,508 - 117,315 - 3,106 662,133 10,771 - - - - 539 10,232 - - - - - 27,471 - - - 39 403 613 - 108 - - 26,308 On balance Commitment sheet Financial and total guarantees contingencies^ RM’000 RM’000 RM’000 *Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme (PLCHP) and deferred expenses as these items are classified as non-financial assets. ^ Commitments and contingencies exclude foreign exchange related contracts. - Transport, storage  and  communication - - Wholesale & retail   trade and   restaurants &  hotels - - 309,424 - Construction - - Electricity, gas and  water - - - Manufacturing - - - Mining and quarrying - - Others - Agriculture Education, health   and others - Household sectors Financial Assets: Cash and short-term funds and deposits Statutory and Financial deposits placements investments Loans, with with Derivative Financial at financing Bank financial financial investments amortised and Trade Other Negara Company institutions assets at FVOCI cost advances receivables receivables* Malaysia 31 December 2018 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 (iv) Concentration of credit risk (cont’d.) 49.1 Credit risk (cont’d.) 272 49. Financial risk management (cont’d.) ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  275. Notes To The Financial Statements 273 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.1 Credit risk (cont'd.) (v) 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 loans 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. 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 25.86% (2018: 23.85%) and the Company is at 90.93% (2018: 86.40%). The financial effect of collateral held for the remaining financial assets are not significant. (vi) 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 Group and the Company performed statistical analysis based on historical experience and identified the MEV impacting credit risk and ECL for each portfolio. The relationship of the MEV on the components of ECL has been determined by performing statistical regression analysis to understand the impact changes in these variables have had historically on default rates and the components. Sources of forecasts of the MEV are external research houses. The MEVs incorporated into the ECL calculations are supported with 3 economic scenarios i.e. baseline, best and worst case scenarios. The following table shows the MEVs applied but not limited to by the Group and the Company in the ECL models. www.mbsb.com.my
  276. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 274 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.1 Credit risk (cont’d.) (vi) Key macroeconomic variables (cont’d.) Base scenario Best scenario Next 12 months Remaining forecast period Household Disposable   Income (in Billion) 915.88 Private Consumption   (in Billion) Macroeconomic Variables (“MEVs”) Worst scenario Next 12 months Remaining forecast period Next 12 months Remaining forecast period 989.54 921.12 1,020.27 906.47 950.69 Year 2019 906.50 1,008.34 925.51 1,024.26 885.13 1,001.45 Interbank Offered   Rate - 3 months   (“KLIB3M”) (%) 2.96 3.41 2.97 3.66 2.63 2.48 House Price Index  ("HPI") 205.81 223.48 208.36 230.00 203.61 213.91 Unemployment Rate  (%) 3.11 3.10 3.01 3.02 3.61 3.53 Overnight Policy   Rate (“OPR”) (%) 3.00 3.61 3.10 3.80 2.50 2.67 64.13 66.56 79.28 81.17 60.80 63.56 Brent Crude Oil Future   Prices (USD/barrel) Consumer Price   Index (“CPI”) 124.16 129.56 125.51 131.89 123.63 128.23 Exchange Rate  (USD/MYR) 4.24 4.24 3.92 4.16 4.40 4.27 Total Unemployed   (in Million) 0.50 0.51 0.48 0.50 0.61 0.57 House Price Index  (“HPI”) 196.28 211.79 197.19 216.54 194.61 203.77 Consumer Price Index  (“CPI”) 123.05 128.33 124.40 130.65 122.53 127.03 Year 2018 During the year, the Group and the Company improved the ECL models by incorporating additional MEVs to account for potential impact from various external factors. www.mbsb.com.my
  277. Notes To The Financial Statements 275 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.2 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 macroeconomic 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. Group Company Tax rate +100 basis points RM’000 -100 basis points RM’000 +100 basis points RM’000 -100 basis points RM’000 (199,488) 199,488 8,128 (8,128) 24% (151,611) 151,611 6,177 (6,177) (162,069) 162,069 (23,011) 23,011 24% (123,172) 123,172 (17,488) 17,488 2019 Impact to profit before tax Impact to profit after tax and equity 2018 Impact to profit before tax Impact to profit after tax and equity www.mbsb.com.my
  278. www .mbsb.com.my - 583,688 - - Other receivables Total financial  assets 2,408,738 - - ^ - - Trade receivables - - Statutory deposits   with Bank Negara  Malaysia 452,246 - 131,442 - - - >1-3 months RM’000   - impaired, net of ECL*   - non-impaired 540,939 25,504 Financial assets at   amortised cost Loans, financing and  advances: 4,239 Financial assets at  FVOCI 32 Derivative financial  assets 1,838,024 Deposits and   placements with   financial institutions Up to 1 month RM’000 Cash and short-term  funds Financial Assets Group 2019 2,256,768 - - - - 936,448 - 446,837 - 873,483 - >3-12 months RM’000 464,373 5,949,207 - - - Over 5 years RM’000 - - - - 7,950,442 34,708,440 - - - - 3,778,456 28,294,860 30,332 4,141,654 - - - >1-5 years RM’000 4,239 873,515 2,034,889 494,705 74,752 1 1,090,000 795,890 1,312,491 49,220,567 74,752 1 1,090,000 795,890 (845,017) 33,157,932 - 6.95 5.59 3.86 3.42 3.13 Average interest/ profit rate Total % per RM’000 annum - 10,694,644 - - 196,865 Noninterest/ profit sensitive RM’000 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/profit sensitive are either non-interest/profit bearing or, if interest/profitbearing, the cash flows arising from these assets are not expected to change significantly if interest/profit rates change. Interest/profit rate risk 49.2 Market risk (cont'd.) 276 49. Financial risk management (cont'd.) ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  279. - - 7 ,820,232 (5,411,494) (8,347,026) (13,420,217) Sukuk Wakalah Total financial  liabilities Total interest/profit   sensitivity gap >1-5 years RM’000 - 995,000 2,380,394 8,448 - - - 924,240 1,770,863 1,290,874 375,000 - - - - - - 104,989 Over 5 years RM’000 1 1,293,075 1,664,973 2,481,251 8,919 527,533 22 676,170 7,351,073 636,321 41,869,494 - - - - 527,533 22 - 11,327 10,621,769 5.29 4.92 4.49 4.33 3.91 3.92 Average interest/ profit rate Total % per RM’000 annum 97,439 25,271,951 Noninterest/ profit sensitive RM’000 * 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 Programme (PLCHP) and deferred expenses 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. 916,063 32,937,577 8,930,714 15,676,985 7,034,379 2,201 294,973 - 65,837 471 - 24,668 - - Lease liabilities 10,352 - - Other payables # - - Sukuk - MBSB SC  Murabahah - - 3,582,828 Recourse obligation   on financing sold - 1 3,502,116 Trade payables 2,601,258 Deposits and   placements of   banks and other   financial institutions >3-12 months RM’000 5,403,930 11,730,675 2,726,297 >1-3 months RM’000 Derivative financial  liabilities 5,208,621 Up to 1 month RM’000 Deposits from  customers Financial Liabilities Group 2019 Interest/profit rate risk (cont’d.) 49.2 Market risk (cont’d.) 49. Financial risk management (cont’d.) Notes To The Financial Statements 277 For the Financial Year Ended 31 December 2019 (cont’d.) www.mbsb.com.my
  280. www .mbsb.com.my - Financial assets at   amortised cost 3,615,642 Other receivables^ Total financial  assets - - Trade receivables 857,860 - - - - Statutory deposits   with Bank Negara  Malaysia 510,908 - 192,538 67 154,347 - >1-3 months RM’000   - impaired, net of ECL*   - non-impaired 462,943 5,098 Financial assets at  FVOCI Loans, financing and  advances: - 1,874 Deposits and   placements with   financial institutions Derivative financial  assets 3,145,727 Up to 1 month RM’000 Cash and short-term  funds Financial Assets Group 2018 Interest/profit rate risk (cont’d.) 49.2 Market risk (cont’d.) 1,660,940 - - - - 513,036 - 373,038 - 774,866 - >3-12 months RM’000 - 1,977,605 - - - Over 5 years RM’000 - - - - 6,294,765 30,014,265 - - - - 3,725,589 28,036,660 20,350 2,548,826 - - - >1-5 years RM’000 20,350 5,097,105 67 931,087 3,411,986 120,489 561 1,053,000 793,511 1,324,292 43,767,764 120,489 561 1,053,000 793,511 6.70 4.22 4.09 3.65 3.26 Average interest/ profit rate Total % per RM’000 annum (909,528) 32,339,608 - - - - 266,259 Noninterest/ profit sensitive RM’000 278 49. Financial risk management (cont’d.) ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  281. 953 ,204 29,366,777 647,488 594,621 - - - - - 52,867 Over 5 years RM’000 1,968,075 2,135,518 502,045 225 2 8,578,851 636,297 6,373,599 687,995 37,394,165 - - 502,045 225 - 8,456 4.88 4.51 4.05 4.08 Average interest/ profit rate Total % per RM’000 annum 177,269 24,209,449 Noninterest/ profit sensitive RM’000 * 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 Programme (PLCHP) and deferred expenses 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. (5,284,585) (9,117,555) (10,180,539) 1,064,590 1,541,666 - - - 871,613 1,863,692 >1-5 years RM’000 9,975,415 11,841,479 5,341,561 308,864 8,900,227 - 565,744 Total interest/profit   sensitivity gap - Sukuk - MBSB SC  Murabahah 20,511 - - - 2,812,625 8,154,246 >3-12 months RM’000 Total financial  liabilities 7,597 - - Other payables # Recourse obligation   on financing sold - - - 2 2,783,187 Trade payables 2,102,970 Deposits and   placements of   banks and other   financial institutions 7,171,717 >1-3 months RM’000 Derivative financial  liabilities 6,789,658 Up to 1 month RM’000 Deposits from  customers Financial Liabilities Group 2018 Interest/profit rate risk (cont’d.) 49.2 Market risk (cont’d.) 49. Financial risk management (cont’d.) Notes To The Financial Statements 279 For the Financial Year Ended 31 December 2019 (cont’d.) www.mbsb.com.my
  282. www .mbsb.com.my 89 - - 4,063 - - 4,063 - - 4,063 - >3-12 months RM’000 212,231 - - 212,231 - - 212,231 - >1-5 years RM’000 614,089 - - 614,089 - - 614,089 - Over 5 years RM’000 222,902 144,777 144,777 367,679 6,490 390,345 (74,793) 45,637 Noninterest sensitive RM’000 1,197,744 144,777 144,777 1,342,521 6,490 390,345 756,160 189,526 Total RM’000 6.75 7.62 2.77 Average interest rate % per annum * 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 Programme (PLCHP) and deferred expenses 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. ^ 144,370 - Total interest/profit   sensitivity gap - Total financial  liabilities 89 - 144,370 - 89 - >1-3 months RM’000 - 481 143,889 Up to 1 month RM’000 Other payables# Financial Liabilities Total financial  assets ^ Other receivables   - impaired, net of ECL*   - non-impaired Loans, financing and  advances: Cash and short-term  funds Financial Assets Company 2019 Interest/profit rate risk (cont’d.) 49.2 Market risk (cont’d.) 280 49. Financial risk management (cont’d.) ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  283. 154 ,419 - - 154,419 112,617 - - 112,617 - - 112,617 - - >3-12 months RM’000 126,436 - - 126,436 - - 126,436 - - >1-5 years RM’000 757,489 - - 757,489 - - 757,489 - - Over 5 years RM’000 248,930 185,695 185,695 434,625 32,807 437,102 (107,354) - 72,070 Noninterest sensitive RM’000 1,486,413 185,695 185,695 1,672,108 36,182 437,102 889,400 154,347 155,077 Total RM’000 7.00 8.01 3.65 3.00 Average interest rate % per annum * 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 Programme (PLCHP) and deferred expenses 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. 86,522 - Total financial  liabilities Total interest/profit   sensitivity gap - Other payables# Financial Liabilities 86,522 - Total financial  assets - 3,375 Other receivables^ 72 154,347 - >1-3 months RM’000   - impaired, net of ECL*   - non-impaired 140 - Deposits and   placements with   financial institutions Loans, financing and  advances: 83,007 Up to 1 month RM’000 Cash and short-term  funds Financial Assets Company 2018 Interest/profit rate risk (cont’d.) 49.2 Market risk (cont’d.) 49. Financial risk management (cont’d.) Notes To The Financial Statements 281 For the Financial Year Ended 31 December 2019 (cont’d.) www.mbsb.com.my
  284. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 282 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.2 Market risk (cont'd.) Foreign Exchange Risk The Group is 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 takes 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. Sensitivity Analysis The table below shows sensitivity of the Group's profit and reserves to movement in foreign exchange rates: Group 2019 RM'000 2018 RM'000 +1% (1,703) (87) -1% 1,703 87 www.mbsb.com.my
  285. Notes To The Financial Statements 283 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.2 Market risk (cont’d.) Foreign Exchange Risk (cont’d.) Sensitivity Analysis (cont'd.) Group 2019 MYR RM’000 USD RM’000 Others RM’000 Total RM’000 2,026,077 6,554 2,258 2,034,889 873,515 - - 873,515 4,239 - - 4,239 10,694,644 - - 10,694,644 Assets Cash and short-term funds Deposits and placements with banks and other   financial institutions Derivative financial assets Financial investments at FVOCI 494,705 - - 494,705 33,591,223 362,599 - 33,953,822 Trade receivables 1 - - 1 Other receivables 188,342 - - 188,342 Financial investments at amortised cost Financing and advances 1,090,000 - - 1,090,000 Inventories 102,175 - - 102,175 Property and equipment 313,964 - - 313,964 8,784 - - 8,784 Intangible assets 167,209 - - 167,209 Goodwill 148,031 - - 148,031 Investment properties 820 - - 820 Land use rights 521 - - 521 Statutory deposits with Bank Negara Malaysia Right-of-use assets Deferred tax assets Tax recoverable Total assets 28,218 - - 28,218 605,778 - - 605,778 50,338,246 369,153 2,258 50,709,657 www.mbsb.com.my
  286. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 284 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.2 Market risk (cont’d.) Foreign Exchange Risk (cont’d.) Sensitivity Analysis (cont’d.) Group 2019 MYR RM’000 USD RM’000 Others RM’000 Total RM’000 Deposits from customers 25,136,935 126,161 8,855 25,271,951 Deposits and placements of banks and other   financial institutions 10,609,489 12,280 - 10,621,769 Liabilities 1 - - 1 Trade payables 22 - - 22 Other payables 642,278 - - 642,278 Lease liabilities 8,919 - - 8,919 Recourse obligation on financing sold 2,481,251 - - 2,481,251 Sukuk - MBSB Structured Covered (“SC”)  Murabahah 1,664,973 - - 1,664,973 Sukuk Wakalah 1,293,075 - - 1,293,075 126,607 - - 126,607 11,940 - - 11,940 41,975,490 138,441 8,855 42,122,786 8,362,756 230,712 (6,597) 8,586,871 Derivative financial liabilities Deferred tax liabilities Provision for zakat Total liabilities Net on-balance sheet financial position www.mbsb.com.my
  287. Notes To The Financial Statements 285 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.2 Market risk (cont’d.) Foreign Exchange Risk (cont’d.) Sensitivity Analysis (cont’d.) Group 2018 MYR RM’000 USD RM’000 Others RM’000 Total RM’000 3,359,826 49,244 2,916 3,411,986 931,087 - - 931,087 67 - - 67 5,097,105 - - 5,097,105 Assets Cash and short-term funds Deposits and placements with banks and other   financial institutions Derivative financial assets Financial investments at FVOCI Financial investments at amortised cost 20,350 - - 20,350 33,122,639 10,480 - 33,133,119 Trade receivables 561 - - 561 Other receivables 243,047 - - 243,047 Financing and advances Statutory deposits with Bank Negara Malaysia 1,053,000 - - 1,053,000 Inventories 102,432 - - 102,432 Property and equipment 297,567 - - 297,567 Intangible assets 293,513 - - 293,513 Investment properties Land use rights Deferred tax assets Tax recoverable Total assets 820 - - 820 5,262 - - 5,262 34,318 - - 34,318 801,278 - - 801,278 45,362,872 59,724 2,916 45,425,512 www.mbsb.com.my
  288. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 286 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.2 Market risk (cont’d.) Foreign Exchange Risk (cont’d.) Sensitivity Analysis (cont’d.) Group 2018 MYR RM’000 USD RM’000 Others RM’000 Total RM’000 24,158,253 50,924 272 24,209,449 8,578,851 - - 8,578,851 2 - - 2 Trade payables 225 - - 225 Other payables 650,767 - - 650,767 Recourse obligation on financing sold 2,135,518 - - 2,135,518 Sukuk - MBSB Structured Covered (“SC”)  Murabahah 1,968,075 - - 1,968,075 Deferred tax liabilities 60,120 - - 60,120 Provision for zakat 36,901 - - 36,901 37,588,712 50,924 272 37,639,908 7,774,160 8,800 2,644 7,785,604 Liabilities Deposits from customers Deposits and placements of banks and other   financial institutions Derivative financial liabilities Total liabilities Net on-balance sheet financial position 49.3 Liquidity risk The Group 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. www.mbsb.com.my
  289. Notes To The Financial Statements 287 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.3 Liquidity risk (cont’d.) 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. (a) Maturity analysis Group 2019 On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 Financial assets Cash and short-term  funds 1,838,024 - - 196,865 2,034,889 Deposits and placements   with other financial  institutions 873,515 - - - 873,515 Derivative financial assets 4,239 - - - 4,239 Financial investments at   fair value through other  comprehensive   income (“FVOCI”) 603,783 4,141,654 5,949,207 - 10,694,644 - 30,332 464,373 - 494,705 2,189,315 3,827,395 27,937,112 - 33,953,822 1 - - - 1 74,752 - - - 74,752 Financial investments at   amortised cost Loans, financing and  advances* Trade receivables Other receivables ^ Statutory deposits with   Bank Negara Malaysia Total financial assets - - - 1,090,000 1,090,000 5,583,629 7,999,381 34,350,692 1,286,865 49,220,567 * This is arrived after deducting ECL from gross financing and advances. Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme (PLCHP) and deferred expenses as these items are classified as non-financial assets. ^ www.mbsb.com.my
  290. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 288 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.3 Liquidity risk (cont’d.) (a) Maturity analysis (cont'd.) On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 Deposits from customers 22,440,665 2,726,297 104,989 - 25,271,951 Deposits and placements   of banks and other   financial institutions 9,697,529 924,240 - - 10,621,769 1 - - - 1 Group 2019 Financial liabilities Derivative financial  liabilities Trade payables Other payables# 22 - - - 22 527,533 - - - 527,533 471 8,448 - - 8,919 100,857 2,380,394 - - 2,481,251 294,973 995,000 375,000 - 1,664,973 2,201 - 1,290,874 - 1,293,075 Total financial liabilities 33,064,252 7,034,379 1,770,863 - 41,869,494 Net liquidity gap on   Statement of   Financial Position (27,480,623) 965,002 32,579,829 1,286,865 7,351,073 Commitments and  contingencies@ (1,594,333) (3,204,225) (72,000) - (4,870,558) Net liquidity gap (29,074,956) (2,239,223) 32,507,829 1,286,865 2,480,515 Lease liabilities Recourse obligation on   financing sold Sukuk - MBSB SC  Murabahah Sukuk Wakalah Other payables exclude other provisions and accruals as well as deferred income as these items are classified as non-financial liabilities. @ Commitments and contingencies exclude foreign exchange related contracts. # www.mbsb.com.my
  291. Notes To The Financial Statements 289 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.3 Liquidity risk (cont’d.) (a) Maturity analysis (cont’d.) Group 2018 On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 Financial assets Cash and short-term  funds 3,411,986 - - - 3,411,986 Deposits and placements   with other financial  institutions 931,087 - - - 931,087 Derivative financial assets 67 - - - 67 Financial investments at   fair value through other   comprehensive income  (“FVOCI”) 570,674 2,548,826 1,977,605 - 5,097,105 - 20,350 - - 20,350 1,771,580 3,695,525 27,666,014 - 33,133,119 Financial investments at   amortised cost Loans, financing and  advances* Trade receivables Other receivables^ Statutory deposits with   Bank Negara Malaysia Total financial assets 561 - - - 561 120,489 - - - 120,489 - - - 1,053,000 1,053,000 6,806,444 6,264,701 29,643,619 1,053,000 43,767,764 * This is arrived after deducting ECL from gross financing and advances. Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme (PLCHP) and deferred expenses as these items are classified as non-financial assets. ^ www.mbsb.com.my
  292. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 290 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.3 Liquidity risk (cont’d.) (a) Maturity analysis (cont’d.) On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 Deposits from customers 22,292,890 1,863,692 52,867 - 24,209,449 Deposits and placements   of banks and other   financial institutions 7,707,238 871,613 - - 8,578,851 2 - - - 2 Group 2018 Financial liabilities Derivative financial  liabilities Trade payables 225 - - - 225 Other payables# 502,045 - - - 502,045 Recourse obligation on   financing sold 593,852 1,541,666 - - 2,135,518 Sukuk - MBSB SC  Murabahah 308,864 1,064,590 594,621 - 1,968,075 Total financial liabilities 31,405,116 5,341,561 647,488 - 37,394,165 Net liquidity gap on   Statement of   Financial Position (24,598,672) 923,140 28,996,131 1,053,000 6,373,599 Commitments and  contingencies@ (1,492,151) (4,397,913) (220,816) - (6,110,880) Net liquidity gap (26,090,823) (3,474,773) 28,775,315 1,053,000 262,719 Other payables exclude other provisions and accruals as well as deferred income as these items are classified as non-financial liabilities. @ Commitments and contingencies exclude foreign exchange related contracts. # www.mbsb.com.my
  293. Notes To The Financial Statements 291 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.3 Liquidity risk (cont’d.) (a) Maturity analysis (cont’d.) On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 Cash and short-term  funds 143,889 - - 45,637 189,526 Loans, financing and  advances* 249,871 216,378 680,256 - 1,146,505 6,490 - - - 6,490 400,250 216,378 680,256 45,637 1,342,521 Other payables# 144,777 - - - 144,777 Total financial liabilities 144,777 - - - 144,777 Net liquidity gap on   Statement of Financial  Position 255,473 216,378 680,256 45,637 1,197,744 Company 2019 Financial assets Other receivables^ Total financial assets Financial liabilities Commitments and  contingencies@ (7,080) (22,669) - - (29,749) Net liquidity gap 248,393 193,709 680,256 45,637 1,167,995 * This is arrived after deducting ECL from gross financing and advances. ^Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme (PLCHP) and deferred expenses as these items are classified as non-financial assets. #Other payables exclude other provisions and accruals as well as deferred income as these items are classified as non-financial liabilities. @ Commitments and contingencies exclude foreign exchange related contracts. www.mbsb.com.my
  294. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 292 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.3 Liquidity risk (cont’d.) (a) Maturity analysis (cont’d.) On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 Cash and short-term  funds 155,077 - - - 155,077 Deposits and placements  with other financial institutions 154,347 - - - 154,347 Loans, financing and  advances* 400,751 122,099 803,652 - 1,326,502 36,182 - - - 36,182 746,357 122,099 803,652 - 1,672,108 Other payables# 185,695 - - - 185,695 Total financial liabilities 185,695 - - - 185,695 Net liquidity gap on   Statement of Financial  Position 560,662 122,099 803,652 - 1,486,413 Commitments and  contingencies@ (10,196) (28,046) - - (38,242) Net liquidity gap 550,466 94,053 803,652 - 1,448,171 Company 2018 Financial assets Other receivables^ Total financial assets Financial liabilities * This is arrived after deducting ECL from gross financing and advances. ^Other receivables exclude advances in respect of certain projects, loan commitment fees, foreclosed properties, prepayments and deposits, Public Low Cost Housing Programme (PLCHP) and deferred expenses as these items are classified as non-financial assets. # Other payables exclude other provisions and accruals as well as deferred income as these items are classified as non-financial liabilities. @ Commitments and contingencies exclude foreign exchange related contracts. www.mbsb.com.my
  295. Notes To The Financial Statements 293 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.3 Liquidity risk (cont'd.) (b) Contractual maturity of financial liabilities on an undiscounted basis On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 Deposits from customers 22,360,750 2,981,791 132,933 - 25,475,474 Deposits and placements   of banks and other   financial institutions 9,787,128 1,022,622 - - 10,809,750 1 - - - 1 22 - - - 22 527,533 - - - 527,533 480 8,802 - - 9,282 Recourse obligation on   financing sold 205,723 2,617,551 - - 2,823,274 Sukuk - MBSB SC  Murabahah 380,524 1,183,076 416,240 - 1,979,840 Group 2019 Financial liabilities Derivative financial  liabilities Trade payables Other payables# Lease liabilities Sukuk Wakalah 67,317 267,800 1,703,090 - 2,038,207 33,329,478 8,081,642 2,252,263 - 43,663,383 115,392 64,083 - - 179,475 56,899 39,845 - - 96,744 Commitments and   contingencies@ Direct credit substitutes Trade-related contingencies Short-term self-liquidating  trade-related  contingencies 83,691 - - - 83,691 Irrevocable commitments 1,338,351 3,100,297 72,000 - 4,510,648 1,594,333 3,204,225 72,000 - 4,870,558 Other payables exclude other provisions and accruals as well as deferred income as these items are classified as non-financial liabilities. @ Commitments and contingencies exclude foreign exchange related contracts. # www.mbsb.com.my
  296. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 294 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.3 Liquidity risk (cont’d.) (b) Contractual maturity of financial liabilities on an undiscounted basis (cont'd.) On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 Deposits from customers 22,827,623 2,138,159 69,698 - 25,035,480 Deposits and placements   of banks and other   financial institutions 7,517,308 1,031,993 - - 8,549,301 2 - - - 2 Group 2018 Financial liabilities Derivative financial  liabilities Trade payables 225 - - - 225 Other payables# 502,045 - - - 502,045 Recourse obligation on   financing sold 675,578 1,717,725 - - 2,393,303 Sukuk - MBSB SC  Murabahah 399,459 1,309,715 670,125 - 2,379,299 31,922,240 6,197,592 739,823 - 38,859,655 Commitments and   contingencies@ Direct credit substitutes Trade-related contingencies Irrevocable commitments 90,413 105,204 - - 195,617 153,033 104,394 - - 257,427 1,248,705 4,188,315 220,816 - 5,657,836 1,492,151 4,397,913 220,816 - 6,110,880 Other payables exclude other provisions and accruals as well as deferred income as these items are classified as non-financial liabilities. @ Commitments and contingencies exclude foreign exchange related contracts. # www.mbsb.com.my
  297. Notes To The Financial Statements 295 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.3 Liquidity risk (cont’d.) (b) Contractual maturity of financial liabilities on an undiscounted basis (cont’d.) On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 144,777 - - - 144,777 144,777 - - - 144,777 Direct credit substitutes 4,141 - - - 4,141 Trade-related contingencies 2,939 - - - 2,939 - 22,669 - - 22,669 7,080 22,669 - - 29,749 Company 2019 Financial liabilities Other payables# Commitments and   contingencies@ Irrevocable commitments Other payables exclude other provisions and accruals as well as deferred income as these items are classified as non-financial liabilities. @ Commitments and contingencies exclude foreign exchange related contracts. # www.mbsb.com.my
  298. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 296 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont’d.) 49.3 Liquidity risk (cont’d.) (b) Contractual maturity of financial liabilities on an undiscounted basis (cont’d.) On demand or within one year RM’000 One to five years RM’000 Over five years RM’000 No specific maturity RM’000 Total RM’000 185,695 - - - 185,695 185,695 - - - 185,695 Direct credit substitutes 7,257 575 - - 7,832 Trade-related contingencies 2,939 - - - 2,939 - 27,471 - - 27,471 10,196 28,046 - - 38,242 Company 2018 Financial liabilities Other payables# Commitments and   contingencies@ Irrevocable commitments Other payables exclude other provisions and accruals as well as deferred income as these items are classified as non-financial liabilities. @ Commitments and contingencies exclude foreign exchange related contracts. # www.mbsb.com.my
  299. Notes To The Financial Statements 297 For the Financial Year Ended 31 December 2019 (cont’d.) 49. Financial risk management (cont'd.) 49.4 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 recognises and emphasises the importance of operational risk management and manages this risk through a control-based environment where processes are documented, authorisation 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 49(c). 50. Capital management The primary objective of the Group 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 2018 and 2019. The Group and the Company monitor their capital using both leverage ratio (which is computed using Common Equity Tier 1 capital 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. www.mbsb.com.my
  300. www .mbsb.com.my 4,239 10,698,883 - Financial investments at amortised cost Derivative financial assets 1 - Derivative financial liabilities Loans, financing and advances Financial Assets - 1 - Recourse obligation on financing sold - - - Sukuk Wakalah - - - Sukuk - MBSB SC Murabahah - - - Deposits and placements of banks and   other financial institutions Company - - Deposits from customers - - - Financial liabilities 10,694,644 - Level 2 RM’000 Loans, financing and advances Level 1 RM’000 Financial investments at FVOCI Financial Assets 2019 Group - - - - - - - - - - - - - - Level 3 RM’000 - - 1 1 - - - - - 10,698,883 4,239 - - 10,694,644 Total RM’000 - - - - - - - - - - - - - - Level 1 RM’000 - - 39,167,728 - - 1,300,000 1,729,374 10,716,722 25,421,632 494,165 - 494,165 - - Level 2 RM’000 1,147,733 1,147,733 2,498,652 - 2,498,652 - - - - 34,390,379 - - 34,390,379 - Level 3 RM’000 1,147,733 1,147,733 41,666,380 - 2,498,652 1,300,000 1,729,374 10,716,722 25,421,632 34,884,544 - 494,165 34,390,379 - Total RM’000 Fair value of financial instruments not carried at fair value 1,147,733 1,147,733 41,666,381 1 2,498,652 1,300,000 1,729,374 10,716,722 25,421,632 45,583,427 4,239 494,165 34,390,379 10,694,644 Total fair value 1,146,505 1,146,505 41,333,020 1 2,481,251 1,293,075 1,664,973 10,621,769 25,271,951 45,147,410 4,239 494,705 33,953,822 10,694,644 Carrying amount 298 Fair value of financial instruments carried at fair value The tables below analyse other financial instruments at fair value. Tha carrying amount of cash and short-term funds, deposits and placements with financial institutions, trade and other receivables (excluding prepayments and deposits) and trade and other payables reasonably approximate their fair values due to the relatively short term nature of these financial instruments. 51. Fair values ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  301. 5 ,097,172 - Financial investments at amortised cost Derivative financial assets 2 - Recourse obligation on financing sold Derivative financial liabilities Loans, financing and advances Financial Assets Company 2 - Sukuk - MBSB SC Murabahah - - - - - - Deposits and placements of banks and   other financial institutions - - Deposits from customers Financial liabilities 67 - - - 5,097,105 Level 2 RM’000 Loans, financing and advances Level 1 RM’000 Financial investments at FVOCI Financial Assets 2018 Group - - - - - - - - - - - - - Level 3 RM’000 - - 2 2 - - - - 5,097,172 67 - - 5,097,105 Total RM’000 Fair value of financial instruments carried at fair value - - - - - - - - - - - - - Level 1 RM’000 - - 34,795,737 - - 1,993,863 8,582,337 24,219,537 20,145 - 20,145 - - Level 2 RM’000 1,328,331 1,328,331 2,149,454 - 2,149,454 - - - 35,091,760 - - 35,091,760 - Level 3 RM’000 1,328,331 1,328,331 36,945,191 - 2,149,454 1,993,863 8,582,337 24,219,537 35,111,905 - 20,145 35,091,760 - Total RM’000 Fair value of financial instruments not carried at fair value The tables below analyse other financial instruments at fair value (cont'd.) 51. Fair values (cont'd.) 1,328,331 1,328,331 36,945,193 2 2,149,454 1,993,863 8,582,337 24,219,537 40,209,077 67 20,145 35,091,760 5,097,105 Total fair value 1,326,502 1,326,502 36,891,895 2 2,135,518 1,968,075 8,578,851 24,209,449 38,250,641 67 20,350 33,133,119 5,097,105 Carrying amount Notes To The Financial Statements 299 For the Financial Year Ended 31 December 2019 (cont’d.) www.mbsb.com.my
  302. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 300 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 51. Fair values (cont'd.) The fair values of the financial instruments not measured at fair value are based on the following methodologies and assumptions: (i)  Financial investments at FVOCI and financial investments at amortised cost The estimated fair value is generally based on the quoted and observable market prices. Where there is no ready market in certain securities, the Group and the Company establish fair value by using valuation techniques. These include the use of recent arm's length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. (ii) Loans, financing and advances The fair value of fixed rate financing with remaining maturities of less than one year and variable rate financing are estimated to approximate the carrying amount. For fixed rate financing 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 financing to new borrowers with similar credit profiles as at the reporting date. The fair value of impaired fixed and variable rate financing is represented by their carrying amount, which are net of impairment allowances. (iii) 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. (iv) Recourse obligation on financing sold The fair values for recourse obligations on 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. (v) Sukuk - MBSB SC Murabahah and Sukuk Wakalah The fair value of Sukuk - MBSB SC Murabahah and Sukuk Wakalah are based on market prices. www.mbsb.com.my
  303. Notes To The Financial Statements 301 For the Financial Year Ended 31 December 2019 (cont’d.) 52. Operating segments The Group has five reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Chief Operating Decision Maker ("CODM") (i.e. the Management) reviews internal management reports at least on a quarterly basis. The following summary describes the operations in each of the Group's reportable 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; (iv) Hotel operations - the leasing of hotel rooms, sale of food and beverage and other related income; and (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 Group operates predominantly in Malaysia and accordingly, information by geographical location on the Group's operation is not presented. 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. www.mbsb.com.my
  304. (a) www.mbsb.com.my Capital expenditure Depreciation of  property,   plant and  equipment Amortisation of land   used rights and   intangible assets Non-cash expenses   other than  depreciation   and amortisation Other Information Segment liabilities Consolidated total  liabilities Liabilities Segment assets Consolidated total  assets Assets Segment results Taxation Zakat Loss from  discontinued  operation Net profit for the year Result External sales Inter-segment sales Total revenue Revenue 447,417 421,083 (47,621) 51,039 - 103,435 4,290 9,635 136,579 46,182 6,276 22,213 156,043 51,309 - - 50,145 44,299,612 40,045,507 1,054,482 50,348,379 44,946,851 663,691 2,818,852 2,089,310 122,992 21,435 49,819 - - 120,129 956,607 370,851 (65,605) 45,945 - Property development 2019 2018 RM’000 RM’000 - 20 186 - 195,107 5,752 (18,182) 878 - 20 186 - 177,144 5,956 (16,926) 899 Leasing of real property 2019 2018 RM’000 RM’000 - 84 1,451 35 196,890 19,097 (32,057) 2,449 3,844 229,119 139,663 160,763 365,584 720,544 10,280 (8) 158 2,335 31 (39,190) - 464 - 11,339 1,731 1,804 13,245 209,901 2,815,399 3,200,138 64,552 10,458,761 10,659,302 (22,268) 6,925 3,916 Hotel operations Investment holding 2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000 - - - - 3,781 372 (253) - 102,732 (288,477) Consolidated 2019 2018 RM’000 RM’000 145,609 853,573 (198,173) (13,000) 642,400 897,429 (181,067) 899 (361) 716,900 - 3,012,003 2,862,724 (36,530) 3,012,003 2,862,724 Eliminations 2019 2018 RM’000 RM’000 - - - - (53,705) 1,984 228 - (81,862) - - - 114,457 24,301 8,605 96,362 115,867 11,544 8,615 236,840 42,122,786 37,639,908 3,529 (6,442,485) (6,952,918) 42,122,786 37,639,908 50,709,657 45,425,512 371 (10,543,787)(10,622,371) 50,709,657 45,425,512 (238) - Others 2019 2018 RM’000 RM’000 302 Revenue and   expenses Banking 2019 2018 RM’000 RM’000 Business segments (cont'd.) 52. Operating segments (cont'd.) ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.)
  305. Notes To The Financial Statements 303 For the Financial Year Ended 31 December 2019 (cont’d.) 52. Operating segments (cont’d.) (b) Geographical Segments: The Group's activities are in Malaysia, therefore segmental reporting is not analysed by geographical locations. 53. The Operations of Islamic Business STATEMENT OF FINANCIAL POSITION OF MBSB BANK GROUP ("BANK GROUP") AS AT 31 DECEMBER 2019 Note Assets Cash and short-term funds Deposits and placements with banks and other financial institutions Derivative financial assets Financial investments at fair value through other comprehensive income  (“FVOCI”) Financial investments at amortised cost Financing and advances Other receivables Investment in subsidiary Investment in joint venture Statutory deposits with Bank Negara Malaysia Investment property Property and equipment Intangible assets Right-of-use assets Tax recoverable Total assets Bank Group 2019 2018 RM'000 RM'000 (a) (a) 1,829,715 873,515 4,239 3,242,228 776,739 67 (b) (c) (d) (e) 10,694,644 494,705 32,807,317 548,207 5,097,105 20,350 31,806,617 578,064 - - 1,090,000 820 25,444 115,559 16,821 65,978 48,566,964 1,053,000 820 20,923 104,692 74,587 42,775,192 www.mbsb.com.my
  306. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 304 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 53. The Operations of Islamic Business (cont'd.) STATEMENT OF FINANCIAL POSITION OF MBSB BANK GROUP (“BANK GROUP”) AS AT 31 DECEMBER 2019 (cont’d.) Note Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Derivative financial liabilities Other payables Lease liabilities Recourse obligation on financing sold Sukuk - MBSB Structured Covered (“SC”) Murabahah Sukuk Wakalah Deferred tax liabilities Provision for zakat Total liabilities (f) (g) (h) Equity Share capital Reserves Total equity Total liabilities and equity Commitments and contingencies The accompanying notes provide further details on the balances as at reporting date. www.mbsb.com.my Bank Group 2019 2018 RM'000 RM'000 25,271,951 10,621,769 1 571,744 17,130 2,481,251 1,664,973 1,293,075 94,739 8,192 42,024,825 24,209,449 8,578,851 2 515,834 2,135,518 1,968,075 41,552 13,000 37,462,281 5,159,859 1,382,280 6,542,139 4,625,859 687,052 5,312,911 48,566,964 42,775,191 5,069,104 6,078,479
  307. Notes To The Financial Statements 305 For the Financial Year Ended 31 December 2019 (cont’d.) 53. The Operations of Islamic Business (cont’d.) STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME OF MBSB BANK GROUP ("BANK GROUP") FOR THE YEAR ENDED 31 DECEMBER 2019 Income derived from investment of depositors’ funds Income derived from investment of shareholders’ funds Net allowance for impairment on financing and advances and other financial assets Total distributable income Income attributable to depositors and others Total net income Personnel expenses Other overhead expenses Profit before taxation and zakat Taxation Zakat Profit for the year Other comprehensive income, net of tax:  Movement in fair value reserve, which may be reclassified subsequently to profit or loss Total comprehensive income for the year Bank Group 2019 2018 RM'000 RM'000 2,189,304 1,800,046 689,549 252,918 (156,043) (135,694) 2,722,810 1,917,270 (1,617,541) (1,126,948) 1,105,269 790,322 (241,652) (180,456) (110,427) 753,190 (203,172) 828 550,846 (91,872) 517,994 (121,116) (13,000) 383,878 144,382 695,228 10,667 394,545 (a) Cash and short-term funds and deposits and placements with banks and other financial institutions (a) Cash and balances with banks and other financial institutions Money at call and deposit placements maturing within one month (b)Deposits and placements with banks and other financial institutions with   original maturity of more than one month Licensed Islamic banks Bank Group 2019 2018 RM'000 RM'000 135,579 179,508 1,694,136 3,062,720 1,829,715 3,242,228 873,515 2,703,230 776,739 4,018,967 The ECL for cash and short-term funds and deposits and placements with banks and other financial institutions above is nil (2018: nil). www.mbsb.com.my
  308. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 306 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 53. The Operations of Islamic Business (cont’d.) (b) Financial investments at FVOCI Bank Group 2019 2018 RM'000 RM'000 At fair value Money Market Instruments Malaysian Government Investment Issues Debt securities: In Malaysia Private and Islamic debt securities Government Guaranteed debt securities 7,530,627 2,154,192 1,109,787 2,054,230 10,694,644 1,060,628 1,882,285 5,097,105 The carrying amount of financial investments measured at FVOCI is its fair value. Accordingly, the recognition of an impairment loss does not affect the carrying amount of those assets, but is reflected as a debit to profit or loss or retained earnings, and credit to other comprehensive income. ECL movement for financial investments at FVOCI: Bank Group Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 - - - - Total charged to profit or loss: 18 - - 18   Change in credit risk 18 - - 18 At 31 December 2019 18 - - 18 At 1 January 2019 There was no ECL for financial investments at FVOCI during the year 2018. www.mbsb.com.my
  309. Notes To The Financial Statements 307 For the Financial Year Ended 31 December 2019 (cont’d.) 53. The Operations of Islamic Business (cont’d.) (c) Financial investments at amortised cost Bank Group 2019 2018 RM'000 RM'000 At amortised cost Quoted securities: In Malaysia Private and Islamic debt securities Less: ECL stage 1 494,857 (152) 494,705 20,356 (6) 20,350 ECL movement for financial investments at amortised cost: Bank Group Stage 1 RM’000 Stage 2 RM’000 Stage 3 RM’000 Total RM'000 6 - - 6 Total charge to profit or loss - Change in credit  risk 146 - - 146 ECL at 31 December 2019 152 - - 152 ECL at 1 January 2019 Bank Group Stage 1 RM’000 Stage 2 RM’000 Stage 3 RM’000 Total RM'000 - - - - Total charge to profit or loss - Change in credit  risk 6 - - 6 ECL at 31 December 2018 6 - - 6 ECL upon adoption of MFRS 9 as at 1 January  2018 www.mbsb.com.my
  310. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 308 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 53. The Operations of Islamic Business (cont’d.) (d) Financing and advances Bank Group 2019 2018 RM'000 RM'000 (i) By type At amortised cost Term financing   - Personal financing   - Property financing   - Hire purchase receivables   - Bridging financing   - Auto financing 19,994,419 5,169,539 808,958 593,906 160,479 20,562,117 4,340,081 781,118 716,015 213,898   - Other term financing Trust receipts Revolving credit Staff financing Cashline Trade Finance Gross financing and advances 5,949,892 703,389 44,798 3,663 560,978 33,990,021 5,456,952 51,525 743,218 41,277 138,473 33,044,674 (401,290) (368,934) (412,480) 32,807,317 (346,537) (455,639) (435,881) 31,806,617 Less: ECL   - Stage 1   - Stage 2   - Stage 3 Net financing and advances www.mbsb.com.my
  311. Notes To The Financial Statements 309 For the Financial Year Ended 31 December 2019 (cont’d.) 53. The Operations of Islamic Business (cont’d.) (d) Financing and advances (cont'd.) (ii) Movement in gross financing and advances Bank Group 2019 Gross carrying amount as at 1 January  2019 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 28,314,877 3,937,504 792,293 33,044,674 Transfer to stage 1 908,357 (820,433) (87,924) - Transfer to stage 2 (1,133,626) 1,310,635 (177,009) - Transfer to stage 3 (135,267) (253,106) 388,373 - New financing/disbursement during the  year 5,007,227 460,943 66,694 5,534,864 Repayment during the year (3,950,263) (521,477) (61,227) (4,532,967) 53,982 (7,357) 118,717 165,342 - - (221,892) (221,892) 29,065,287 4,106,709 818,025 33,990,021 Other movements Write-offs Gross carrying amount as at 31 December   2019 www.mbsb.com.my
  312. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 310 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 53. The Operations of Islamic Business (cont’d.) (d) Financing and advances (cont’d.) (ii) Movement in gross financing and advances (cont’d.) Bank Group 2018 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 Gross carrying amount upon adoption of   MFRS 9 as at 1 January 2018 729,499 247,871 111,424 1,088,794 27,853,305 3,060,833 735,137 31,649,275 Vested from holding company on   2 April 2018 Transfer to stage 1 686,430 (671,870) (14,560) - Transfer to stage 2 (1,411,984) 1,491,251 (79,267) - Transfer to stage 3 (204,425) (229,280) 433,705 - New financing/disbursement during the  year 3,686,809 534,453 32,166 4,253,428 Repayment during the year (3,134,981) (427,040) (117,630) (3,679,651) 109,548 (69,114) 141,080 181,514 Other movements Write-offs - - (566,315) (566,315) Transfer from financial assets held-for-sale 676 400 116,553 117,629 Gross carrying amount as at 31 December   2018 28,314,877 3,937,504 792,293 33,044,674 www.mbsb.com.my
  313. Notes To The Financial Statements 311 For the Financial Year Ended 31 December 2019 (cont’d.) 53. The operations of Islamic business (cont'd.) (d) Financing and advances (cont’d.) (iii) Movement of ECL for financing and advances Bank Group 2019 Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 ECL as at 1 January 2019 346,537 455,639 435,881 1,238,057 54,753 (86,705) 198,493 166,541 Charged to profit or loss Changes in the ECL:   - Transfer to stage 1 132,081 (90,961) (41,120) -  - Transfer to stage 2 (19,073) 112,919 (93,846) - (1,812) (60,925) 62,737 - New financing/disbursement during the year 110,426 39,028 38,274 187,728 Repayment during the year (169,008) (170,704) (51,848) (391,560) Change in credit risk parameters 46,898 157,609 327,419 531,926 Changes to model assumptions and methodologies ^ (44,759) (73,671) (43,123) (161,553) - - (221,894) (221,894) 401,290 368,934 412,480 1,182,704  - Transfer to stage 3 Write-offs ECL as at 31 December 2019 ^The changes to model assumptions and methodologies were in relation to incorporation of additional macroeconomic variables (“MEV”) to account for potential impact from various external factors and incorporation of cure rates to the loss given default (“LGD”) model. www.mbsb.com.my
  314. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 312 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 53. The operations of Islamic business (cont’d.) (d) Financing and advances (cont’d.) (iii) Movement of ECL for financing and advances Bank Group Stage 1 RM'000 Stage 2 RM'000 Stage 3 RM'000 Total RM'000 16,691 6,665 45,716 69,072 Vested from holding company 492,316 444,705 538,420 1,475,441   - ECL as at 2 April 2018 454,139 432,125 538,420 1,424,684 38,177 12,580 - 50,757 (163,136) 3,584 310,952 151,400   - Transfer to stage 1 12,696 (12,468) (228) -  - Transfer to stage 2 (164,406) 176,183 (11,777) -  - Transfer to stage 3 (81,168) (137,706) 218,874 - 2018 ECL upon adoption of MFRS 9 as at   1 January 2018   - Subsequent adjustment of ECL* Charged to profit or loss Changes in the ECL: New financing/disbursement during the  year 72,027 43,512 26,587 142,126 Repayment during the year (180,772) (179,663) (98,714) (459,149) Change in credit risk parameters 178,487 113,726 176,210 468,423 Write-offs Transfer from financial assets held-for-sale ECL as at 31 December 2018 - - (566,315) (566,315) 666 685 107,108 108,459 346,537 455,639 435,881 1,238,057 *Revision of ECL upon adoption of MFRS 9 Financial Instruments had been made post vesting of assets and liabilities. The adjustment of the ECL amounting to RM50,757,000 was subsequently transferred to MBSB Bank. www.mbsb.com.my
  315. Notes To The Financial Statements 313 For the Financial Year Ended 31 December 2019 (cont’d.) 53. The operations of Islamic business (cont'd.) (d) Financing and advances (cont'd.) (iv) Movement for impaired financing and advances Balance as at 1 January Impaired financing vested from holding company Classified as impaired during the year Reclassified as non-impaired Amount recovered Amount written off Other movements Bank Group 2019 2018 RM'000 RM'000 792,293 111,424 735,137 455,067 465,871 (264,933) (93,827) (61,227) (117,630) (221,892) (566,315) 118,717 141,080 Transfer from financial assets held-for-sale Balance as at 31 December 818,025 116,553 792,293 2.41% 2.40% Gross impaired as a percentage of gross financing and advances (e) Other receivables Financing to related companies Amount due from holding company Prepayments and deposits Deferred expenses Sundry receivables Less: ECL at stage 3 Bank Group 2019 2018 RM'000 RM'000 661,555 635,993 78,416 98,666 8,110 3,765 2,208 2,470 69,908 88,132 820,197 829,026 (271,990) (250,962) 548,207 578,064 There was no transfer of ECL out of stage 3 during the financial year and previous year for financial assets under other receivables. www.mbsb.com.my
  316. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 314 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 53. The operations of Islamic business (cont’d.) (f) Deposits from customers Bank Group 2019 2018 RM'000 RM'000 (i) By type of deposit: Non-Mudharabah Funds: Commodity Murabahah Term Deposits Demand deposits Savings deposits 24,738,093 192,380 341,478 23,907,371 225,520 76,558 25,271,951 24,209,449 Bank Group 2019 2018 RM'000 RM'000 (ii) Maturity structure of term deposits are as follows: Due within six months More than six months to one year More than one year to three years More than three years 16,480,775 5,426,032 1,891,341 939,945 17,172,705 4,818,107 723,813 1,192,746 24,738,093 23,907,371 Bank Group 2019 2018 RM'000 RM'000 (iii) By type of customers: Government and statutory bodies Business enterprises Individuals www.mbsb.com.my 12,696,568 7,229,721 5,345,662 14,746,960 6,371,297 3,091,192 25,271,951 24,209,449
  317. Notes To The Financial Statements 315 For the Financial Year Ended 31 December 2019 (cont’d.) 53. The operations of Islamic business (cont’d.) (g) Deposits and placements of banks and other financial institutions Bank Group 2019 2018 RM'000 RM'000 (i) By type of deposit: Non-Mudharabah Funds: Other financial institutions: - Licensed Investment Banks - Licensed Islamic Banks - Other Financial Institutions 152,390 112,937 10,356,442 8,578,851 10,621,769 8,578,851 (h) Other payables Amount due to related companies Al-Mudharabah security funds ECL for commitments and contingencies (i) Other provisions and accruals Deferred income Sundry creditors Bank Group 2019 2018 RM'000 RM'000 33,668 35,437 137,309 123,401 65,239 93,943 70,260 82,292 34,838 12,649 230,430 168,112 571,744 515,834 www.mbsb.com.my
  318. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 316 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 53. The operations of Islamic business (cont’d.) (h) Other payables (cont’d.) (i) ECL for commitments and contigencies Movement of ECL for commitments and contingencies is as follows: Bank Group Stage 1 RM’000 Stage 2 RM’000 Stage 3 RM’000 Total RM’000 ECL as at 1 January 2019 52,717 36,630 4,596 93,943 Total charged to profit or loss (8,772) (18,828) (1,104) (28,704)   - Transfer to stage 1 4,854 (2,350) (2,504) -  - Transfer to stage 2 (4,890) 5,190 (300) - 2019 Changes in the ECL: (791) (4,802) 5,593 - New financing/disbursement during the year 25,153 1,791 426 27,370 Repayment/drawdown to financing during   the year (12,460) (6,063) (621) (19,144) Change in credit risk parameters (14,280) (4,746) (3,227) (22,253) Changes to model assumptions and methodologies ^ (6,358) (7,848) (471) (14,677) ECL as at 31 December 2019 43,945 17,802 3,492 65,239  - Transfer to stage 3 ^The changes to model assumptions and methodologies were in relation to incorporation of additional macroeconomic variables (“MEV”) to account for potential impact from various external factors and incorporation of cure rates to the loss given default (“LGD”) model. www.mbsb.com.my
  319. Notes To The Financial Statements 317 For the Financial Year Ended 31 December 2019 (cont’d.) 53. The operations of Islamic business (cont’d.) (h) Other payables (cont’d.) (i) ECL for commitments and contigencies (cont’d.) Bank Group Stage 1 RM’000 Stage 2 RM’000 Stage 3 RM’000 Total RM’000 4,659 863 - 5,522 Vested from holding company on   2 April 2018 69,751 35,157 1,515 106,423 Total charged to profit or loss (21,694) 610 3,081 (18,002)   - Transfer to stage 1 217 (217) - -  - Transfer to stage 2 (28,677) 28,677 - -  - Transfer to stage 3 (3,008) (501) 3,509 - New financing/disbursement during the  year 21,197 5,774 203 27,174 Repayment/drawdown to financing during   the year (22,531) (20,795) (619) (43,945) Change in credit risk parameters 11,109 (12,328) (12) (1,231) ECL as at 31 December 2018 52,716 36,631 4,596 93,943 2018 ECL upon adoption of MFRS 9 as at   1 January 2018 Changes in the ECL: 54. Business Combination As allowed by MFRS 3, Business Combinations, the Group had previously accounted for the acquisition of MBSB Bank Berhad (formerly known as Asian Finance Bank Berhad) on 7 February 2018 using the provisional fair values on the acquisition date. During the year, the Group completed its allocation of the assets acquired and liabilities assumed. The fair value adjustments and intangible assets identified on the acquisition were based on finalised purchase allocation and fair value exercise. www.mbsb.com.my
  320. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 318 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 54. Business Combination (cont’d.) The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities assumed at the acquisition date: i) Fair value of consideration transferred Purchase consideration satisfied via cash Purchase consideration satisfied via issuance of shares (225,507,974 ordinary shares) ii) Group RM'000 396,894 266,099 662,993 Identifiable assets acquired and liabilities assumed Group RM'000 Assets Cash and short-term funds Derivative financial assets Financial investments at FVOCI Financial investments at amortised cost Financing and advances Other assets Statutory deposits with Bank Negara Malaysia Property and equipment Investment Properties Deferred tax assets Tax recoverable Banking license Core deposits Liabilities Deposits from customers Deposits and placement of banks and other financial institution Other payables Deferred tax liabilities (arising from banking license and core deposits) www.mbsb.com.my 577,970 293 227,966 602,736 998,250 8,165 24,174 2,517 820 626 5,750 47,415 6,216 2,502,898 1,184,855 769,273 20,936 12,872 1,987,936 514,962
  321. Notes To The Financial Statements 319 For the Financial Year Ended 31 December 2019 (cont’d.) 54. Business Combination (cont'd.) iii) Net cash outflow arising from acquisition Purchase consideration satisfied via cash Less: Cash and short-term funds acquired Group RM'000 266,099 (577,970) (311,871) iv)Goodwill Goodwill was recognised as a result of the acquisition as follows: Fair value of consideration transferred Less: Fair value of identifiable net assets Goodwill Goodwill is allocated to the following: Goodwill - Corporate Banking Goodwill - Retail Banking Group RM'000 662,993 (514,962) 148,031 146,256 1,775 148,031 55. Significant events (i) Increase of investment in MBSB Bank Berhad by RM534 million On 13 December 2019, MBSB Bank Berhad increased its issued and paid-up capital from RM4,625,859,288 to RM5,159,859,288 via the issuance of 534,000,000 new ordinary shares which was subscribed by the Company. (ii) Issuance of RM1.3 billion Tier-2 Sukuk Wakalah On 20 December 2019, MBSB Bank Berhad issued RM1.3 billion Tier-2 Sukuk Wakalah under the Sukuk Wakalah Programme of RM10.0 billion in nominal value as disclosed in Note 29. www.mbsb.com.my
  322. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 320 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 55. Significant events (cont’d.) (iii) Transfer of assets to MBSB Bank Berhad During the year, the Company progressively transferred the following assets to MBSB Bank Berhad: Group RM'000 Mortgage converted to Islamic property financing i) Converted on 20 April 2019 ii) Converted on 27 July 2019 iii) Converted on 24 August 2019 iv) Converted on 28 September 2019 v) Converted on 26 October 2019 25,079 39,961 20,018 23,372 16,454 (iv) Disposal of hotel operation On 10 July 2019, Sigmaprise Sdn. Bhd. ("Sigmaprise"), a subsidiary of the Company entered into a sale and purchase agreement ("SPA") with Nautical Insight Sdn. Bhd. ("the Purchaser") to dispose of a hotel owned by Sigmaprise in Melaka. The SPA includes the disposal of the land title of the hotel. On 23 December 2019, Sigmaprise entered into a shares purchase agreement with the vendor to dispose of its subsidiary, Farawide Sdn. Bhd. ("Farawide"). The principal activity of Farawide is the provision of hospitality services to the hotel owned by Sigmaprise. The sale of the hotel and Farawide was completed on 31 December 2019. Following the completion, the operation of the hotel is under the new management by the Purchaser. Since entering into the SPA up to the completion of the sale, the Group recorded a loss from discontinued operation of the hotel of RM361,000 as disclosed in the statements of profit or loss and other comprehensive income. www.mbsb.com.my
  323. Notes To The Financial Statements 321 For the Financial Year Ended 31 December 2019 (cont’d.) 56. Subsequent events Impact of novel coronavirus (“Covid-19”) The existence of the novel coronavirus (“Covid-19”) was confirmed subsequent to December 2019. On 11 March 2020, the World Health Organisation declared the Covid-19 outbreak to be a pandemic in recognition of its rapid spread across the globe, with most countries now affected. Many governments are taking increasingly stringent steps to help contain or delay the spread of the virus, for instance, by declaring travel restrictions and quarantine measures. Consequently, there is a significant increase in economic uncertainty globally, which is evidenced by the increased volatility in financial markets, commodity prices and currency exchange rates. As a preventive measure towards Covid-19, the Malaysian government also implemented a movement control order (“MCO”) on 18 March 2020 that lasted for 56 days until 12 May 2020 (as at date of printing). The measure entailed a general prohibition of mass movements or gatherings and the closure of all government and private premises except for those involved in essential services (such as water and banking, amongst others). The MCO is anticipated to lead to decreased gross domestic product levels for 2020, disruptions to business operations and reduced consumer spending. The Malaysian government had subsequently launched two economic stimulus packages on 27 February 2020 and 27 March 2020 with a combined value of RM250 billion to improve the welfare of Malaysian citizens and businesses by alleviating income losses resulting from the MCO. The stimulus packages largely assume one-off cash payments to households and individuals, discounts on utility bills and deferments of contributions to the Employees Provident Fund. The bulk of the payments are scheduled to be disbursed in April and May 2020. The package also included other incentives, cash flow reliefs, wage subsidies and loan guarantees to companies. In a letter to the heads of financial institutions dated 24 March 2020, Bank Negara Malaysia (“BNM”) had announced a six-month automatic moratorium for individuals and small and medium-sized enterprises on repayments of all ringgit-denominated loans or financing except credit cards that are not in arrears exceeding 90 days as at 1 April 2020. BNM clarified that banks should not impose penalty charges on the deferred amounts nor classify them as non-performing. In the same letter, BNM also encouraged banks to facilitate requests for a moratorium for corporate borrowers. The Group and the Company consider this outbreak as well as the resulting MCO, economic stimulus package and moratorium on repayments as non-adjusting post balance sheet events. Consequently, there is no impact on the recognition and measurement of assets and liabilities as at 31 December 2019 in the Group and the Company’s financial statements. As the situation continues to be fluid and rapidly evolving, the Group and the Company do not consider it practicable to provide a quantitative estimate of the potential impact of these economic conditions on the Group and the Company. The impact of this outbreak and its associated events will be incorporated into the Group’s and the Company’s MFRS 9 estimates of expected credit loss provisions in 2020. www.mbsb.com.my
  324. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD FINANCIAL STATEMENTS 322 Notes To The Financial Statements For the Financial Year Ended 31 December 2019 (cont’d.) 57. Comparative information The following comparative amount has been restated to conform with the current year’s presentation which more accurately reflects the nature of the relevant transactions. The Group’s prior financial year’s results were not affected by this restatement. Group Revenue www.mbsb.com.my As previously reported RM’000 Adjustment RM’000 As restated RM’000 3,145,937 (283,213) 2,862,724
  325. Analysis of Shareholdings As at 29 April 2020 323 Total number of Issued Shares : 6,713,401,615 Class of Shares : Ordinary Shares Voting Rights : One Vote per Ordinary Share ANALYSIS OF ORDINARY SHAREHOLDINGS Size of holdings No. of Holders % No. of Shares % 1 – 99 1,739 4.783 60,937 0.001 100 – 1,000 5,274 14.507 4,258,745 0.063 1,001 – 10,000 15,579 42.854 78,478,646 1.169 10,001 – 100,000 11,666 32.090 354,844,736 5.286 2,095 5.763 1,946,628,869 28.996 1 0.003 4,329,129,682 64.485 36,354 100.000 6,713,401,615 100.000 100,001 – 335,670,079 (*) 335,670,080 AND ABOVE (**) TOTAL Remark : * - Less Than 5% Of Issued Shares ** - 5% And Above Of Issued Shares DIRECTORS’ DIRECT AND INDIRECT INTERESTS IN SHARES IN THE COMPANY Name DIRECT INTEREST No. of % of shares held Issued Shares Tan Sri Abdul Halim bin Ali 266,013 0.004% INDIRECT INTEREST TOTAL SHAREHOLDINGS No. of % of shares held Issued Shares - - No. of % of shares held Issued Shares 266,013 0.004% Note: Tan Sri Abdul Halim bin Ali, by virtue of his total direct interests of 266,013 shares in MBSB, is deemed interested in the shares in all MBSB’s subsidiaries to the extent that MBSB has interest. GROUP PRESIDENT AND CHIEF EXECUTIVE OFFICERS’ DIRECT AND INDIRECT INTERESTS IN SHARES IN THE COMPANY Name DIRECT INTEREST No. of % of shares held Issued Shares Datuk Seri Ahmad Zaini bin Othman 568,437 0.009% INDIRECT INTEREST TOTAL SHAREHOLDINGS No. of % of shares held Issued Shares - - No. of % of shares held Issued Shares 568,437 0.009% Note: Datuk Seri Ahmad Zaini bin Othman, by virtue of his total direct interests of 568,437 shares in MBSB, is deemed interested in the shares in all MBSB’s subsidiaries to the extent that MBSB has interest. www.mbsb.com.my
  326. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD STAKEHOLDER INFORMATION 324 Analysis of Shareholdings As at 29 April 2020 SUBSTANTIAL SHAREHOLDERS No . Name 1. EMPLOYEES PROVIDENT FUND BOARD Holdings % 4,329,129,682 64.485 Note: Total direct interest of EPF held under Citigroup Nominees (Tempatan) Sdn Bhd THIRTY LARGEST SHAREHOLDERS No. Name Holdings % 4,329,129,682 64.485 MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD MALAYAN BANKING BERHAD (ECDG HEDGING) 250,000,000 3.724 3. CGS-CIMB NOMINEES (TEMPATAN) SDN BHD EXEMPT AN FOR CGS-CIMB SECURITIES (SINGAPORE) PTE LTD (RETAIL CLIENTS) 183,483,305 2.733 4. HSBC NOMINEES (ASING) SDN BHD EXEMPT AN FOR HSBC PRIVATE BANK (SUISSE) SA (CLIENT ASSETS) 124,398,715 1.853 5. RHB NOMINEES (ASING) SDN BHD TADHAMON CAPITAL BSC CLOSED 103,441,163 1.541 6. CIMB GROUP NOMINEES (ASING) SDN BHD EXEMPT AN FOR DBS BANK LTD (SFS-PB) 86,573,949 1.290 7. PERMODALAN NASIONAL BERHAD 67,022,652 0.998 8. RHB CAPITAL NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR FONG SILING (CEB) 41,000,000 0.611 9. KHAZANAH NASIONAL BERHAD 37,016,300 0.551 10. HSBC NOMINEES (ASING) SDN BHD JPMCB NA FOR VANGUARD EMERGING MARKETS STOCK INDEX FUND 32,428,400 0.483 11. HSBC NOMINEES (ASING) SDN BHD JPMCB NA FOR VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND 30,204,884 0.450 12. MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR HAWANG KIM LIAN 20,000,075 0.298 13. B-OK SDN BHD 17,495,726 0.261 14. HSBC NOMINEES (ASING) SDN BHD EXEMPT AN FOR CREDIT SUISSE (SG BR-TST-ASING) 16,644,511 0.248 1. CITIGROUP NOMINEES (TEMPATAN) SDN BHD EMPLOYEES PROVIDENT FUND BOARD 2. www.mbsb.com.my
  327. 325 No . Name Holdings % 15. AFFIN HWANG NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR CHUNG CHEE YANG 15,759,120 0.235 16. CITIGROUP NOMINEES (ASING) SDN BHD CBNY FOR DIMENSIONAL EMERGING MARKETS VALUE FUND 15,332,591 0.228 17. AFFIN HWANG NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR CHUNG CHEE YANG (CHU0328C) 14,523,773 0.216 18. CARTABAN NOMINEES (ASING) SDN BHD EXEMPT AN FOR STATE STREET BANK & TRUST COMPANY (WEST CLT OD67) 13,923,000 0.207 19. CITIGROUP NOMINEES (ASING) SDN BHD CBNY FOR EMERGING MARKET CORE EQUITY PORTFOLIO DFA INVESTMENT DIMENSIONS GROUP INC 12,819,302 0.191 20. DB (MALAYSIA) NOMINEE (ASING) SDN BHD SSBT FUND WTAU FOR WISDOMTREE EMERGING MARKETS SMALLCAP DIVIDEND FUND 11,144,900 0.166 21. TA NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR HENG TENG KUANG 10,604,574 0.158 22. CITIGROUP NOMINEES (ASING) SDN BHD CBNY FOR DFA EMERGING MARKETS SMALL CAP SERIES 8,145,383 0.121 23. POSEIDON SENDIRIAN BERHAD 7,374,859 0.110 24. DB (MALAYSIA) NOMINEE (ASING) SDN BHD SSBT FUND SD4N FOR ALBERTA INVESTMENT MANAGEMENT CORPORATION 7,206,400 0.107 25. MAYBANK SECURITIES NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR LEAN SIEW SEE 7,140,000 0.106 26. TEE KOK THYE 7,050,395 0.105 27. HLB NOMINEES (TEMPATAN) SDN BHD PLEDGED SECURITIES ACCOUNT FOR TAN KIM HEUNG 6,984,431 0.104 28. LKK REALTY SDN BHD 6,727,522 0.100 29. DB (MALAYSIA) NOMINEE (ASING) SDN BHD THE BANK OF NEW YORK MELLON FOR VANGUARD FTSE ALL-WORLD EX-US SMALL-CAP INDEX FUND 6,200,200 0.092 30. CARTABAN NOMINEES (ASING) SDN BHD STATE STREET LONDON FUND OD75 FOR ISHARES PUBLIC LIMITED COMPANY 6,199,900 0.092 TOTAL SHAREHOLDING OF THE THIRTY LARGEST SHAREHOLDERS 5,495,975,712 81.864 www.mbsb.com.my
  328. ANNUAL REPORT 2019 MALAYSIA BUILDING SOCIETY BERHAD STAKEHOLDER INFORMATION 326 Schedule of Properties No . Location 1 Tenure Lot 31632, 31633 and 31634 PM No.416, 417 and 418, Bukit Leasehold Raja, Mukim of Kapar, District of Klang, Selangor. No. of years Expiry Date Land Area (Sq. Metres) Description Ages of Book Building Value (Years) (RM ‘000) Date of Re-valuation/ Date of Acquirement 99 08.05.2093 42,208.89 Vacant Land Nil 102,163 29/7/2020 99 18.12.2094 161,106.01 Vacant Land Nil 35,739 24/1/2019 2,155,202.84 Vacant Land Nil 34,961 Properties acquired on 9/11/2010 A) Lot No. 3077 Title Pajakan Negeri No. 32340, Mukim Pegoh, Alor Gajah, Melaka. (phase 2C, A'Famosa resort) 2 B) 65 undeveloped detached house plots of land, Part of Phase 12, Leasehold 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. 3 4 5 3 agricultural lots and 246 building lots, Mukim of Linggi, District of Port Dickson, Negeri Sembilan. Leasehold No.48, Jalan Dungun, Damansara Heights, Kuala Lumpur. Freehold Lot No. 2402 PN 28760 Port Dickson, Negeri Sembilan. Leasehold (No. 325, Batu 1, Jalan Rumah Rehat, Port Dickson) www.mbsb.com.my 60 (3 lots) 22.12.2046 99 (246 lots) 08.11.2094 Nil Nil 1,595.28 Office Building 31 27,142 23/9/2019 99 06.10.2095 6,042.00 Hotel 21 17,025 26/3/2019
  329. 327 No . Location 6 7 8 9 10 Tenure No. of years Expiry Date Land Area (Sq. Metres) Description Ages of Book Building Value (Years) (RM ‘000) Date of Re-valuation/ Date of Acquirement 8 units of completed shop office at ButterworthLot 2622, 2651, 2624, 2653, 2654, 2625, 2676, 2674, 2626, 2655, 2628, 2657, 2629, 2658 Freehold Nil Nil 1,040.00 Shop Office 3 9,600 Properties acquired on 30/4/2015 56 Vacant industrial lots located in Mukim of Taboh Naning, Alor Gajah, Melaka. Freehold Nil Nil 274,782.68 Vacant Land Nil 4,630 25/1/2019 5 units shop office known as unit no. 11-1, 11-2, 11-3, 11-16 and 15-13 Port Tech Tower, Klang. Leasehold 99 08.05.2093 - Office unit 5 2,466 30/1/2019 Lot 1520 GRN 60632 Bandar Segamat, Segamat, Johor. Freehold Nil Nil 7,001 Vacant Land Nil 2,000 28/1/2019 Geran No. 6951 Lot 3243, Bandar Kuala Terengganu, Daerah Kuala Terengganu, Negeri Terengganu. Freehold Nil Nil 197 Office Building 20 512.10 7/9/2019 www.mbsb.com.my
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  332. MALAYSIA BUILDING SOCIETY BERHAD Registration No . 197001000172 (9417-K) 11th Floor, Wisma MBSB No. 48, Jalan Dungun Damansara Heights 50490 Kuala Lumpur Tel : 03-2096 3000 Fax : 03-2096 3144