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Statement of Board of Directors Responsibilities Directors Report Statement by Directors Statutory Declaration Report of the Auditors Balance Sheets Income Statements Consolidated Statement of Changes in Equity Statement of Changes in Equity Consolidated Cash Flow Statement Cash Flow Statement Notes to the Financial Statements
Directors Report
DIRECTORS REPORT The Directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 March 2008. PRINCIPAL ACTIVITIES The principal activities of the Company are investment holding and provision of management services to the subsidiaries. The principal activities of the subsidiaries are commercial banking and financing, investment banking including Islamic banking and provision of stockbroking services, unit trusts and fund management, and the provision of related financial services. There have been no significant changes in the nature of the principal activities during the financial year. RESULTS GROUP RM000 Profit before taxation Taxation and zakat Profit for the year Attributable to: Equity holders of the Company Minority interests Profit for the year There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements. DIVIDENDS The amount of dividends declared and paid by the Company since 31 March 2007 were as follows: RM000 (i) First interim dividend of 1.75 sen per share, less 27% taxation, on 1,548,105,929 ordinary shares of RM1.00 each, in respect of financial year ended 31 March 2008, was paid on 20 September 2007 (ii) Second interim dividend of 4.50 sen per share comprising of 4.15 sen, less 26% taxation and 0.35 sen single-tier exempt dividend, on 1,548,105,929 ordinary shares of RM1.00 each, in respect of financial year ended 31 March 2008, was paid on 26 March 2008 19,777 52,794* 72,571 = = = = = = = = = = = = = = = 502,050 (121,955) 380,095 = = = = = = = = = = = = = = = 379,956 139 380,095 = = = = = = = = = = = = = = = COMPANY RM000 100,948 (27,699) 73,249 = = = = = = = = = = = = = = = 73,249 73,249 = = = = = = = = = = = = = = =
* Dividends paid on the shares held in Trust pursuant to the Companys ESS which are classified as shares held for ESS are not accounted for in the shareholders equity. An amount
of RM167,000, being dividends paid for those shares were added back to the appropriation of retained profits in respect of the second interim dividend.
Directors Report
EMPLOYEES SHARE SCHEME The Alliance Financial Group Berhad Employees Share Scheme (ESS) is governed by the Bye-Laws approved by the shareholders at an Extraordinary General Meeting held on 28 August 2007. The ESS which comprises the Share Option Plan, the Share Grant Plan and the Share Save Plan took effect on 3 December 2007 and is in force for a period of 10 years. On 12 December 2007, the Company offered/awarded the following share options and share grants to Directors and employees of the Company and its subsidiaries who have met the criteria of eligibility for participation in the ESS: (i) 2,007,300 share grants under the Share Grant Plan. (ii) 8,738,200 share options under the Share Option Plan at an option price of RM3.07 per share which will be vested subject to the achievement of performance conditions. There were no share option offered under the Share Save Plan during the financial year. The salient features of the ESS are disclosed in Note 29 to the financial statements. Details of share options/share grants offered/awarded to Directors are disclosed in section on Directors Interests in this report. SHARES HELD FOR EMPLOYEES SHARE SCHEME During the financial year, the Trustee of the ESS had purchased 9,374,700 ordinary shares of RM1.00 each fully paid in the Company from the open market at an average price of RM2.79 per share. The total consideration paid for the purchase including transaction costs was RM26,253,810. The shares purchased are being held in trust by the Trustee of ESS in accordance with the Trust Deed dated 3 December 2007. As at 31 March 2008, the Trustee of the ESS held 9,374,700 of ordinary shares representing 0.61% of the issued and paid-up capital of the Company. Such shares are held at a carrying amount of RM26,253,810 and further relevant details are disclosed in Note 28 to the financial statements. BUSINESS REVIEW FOR 2008 The financial year ended 31 March 2008 was a challenging year both locally and globally. The optimism in the financial markets in the first half of 2007, especially in the equity markets, began to taper off in the second half as a result of the extended pressures of the United States subprime mortgage crisis and further increases in crude oil prices. Our local bourse was not spared from the effects of the downturn, but the impact of the crisis on Malaysia has been relatively less severe due to the limited exposure of local banks to the foreign debt markets. Notwithstanding this, the local banking scene was exposed to the indirect impact of increased risk premiums, and lower valuation of fixed income instruments. The impact, however, weighed more heavily on lower-rated instruments. During the year, Alliance Financial Group continued on its transformation journey by progressing from the restructuring phase to focus on building competitive positioning. Business strategies, new business models as well as re-engineered business processes and systems were put in place to drive higher productivity and efficiency which would brace the Group for the challenges of an increasingly competitive environment. To-date we have: instilled the Groups Vision and Mission and Core Values; implemented new business strategies and business models; built new capabilities and IT supported infrastructure; expanded our multiple sales and services distribution channels; expanded our range of products and services and secured strategic alliances; distilled and rolled-out our Banking Made Personal brand; developed a new Human Resource Development Strategy; and driven a culture of performance.
Directors Report
BUSINESS REVIEW FOR 2008 (contd) So far, we have achieved steady momentum in our initiatives and the trends in our results have been positive. All indications are that we are heading in the right direction. The Groups progressive improvements and strengthened performance has not gone unnoticed as evidenced by the extended coverage it received on its stock performance by reputable research houses. In line with our efforts to achieve a firmer foothold in Islamic banking, we launched our Islamic banking subsidiary, Alliance Islamic Bank Berhad on 1 April 2008. This will put the Group in a better position to develop our own branding under the Islamic banking banner and explore further opportunities for strategic alliances to introduce niche Islamic financing products. Starting with two Islamic Banking centres in the Capital Square and Ampang Point branches, we are targeting the roll-out of several more centres. Branches are the face of the Bank and hence, we have invested substantially not only in transforming the external facade, but complemented our branches with a professional team qualified to advise our customers on the range of wealth management products. We have also invested in technology to ensure that we provide our customers the convenience of banking via alternative channels. During the year, we strengthened our branch footprint to a total of more than 90 branches inclusive of our Alliance Rakan branches, with a total of 17 Privilege Banking Centres and increased the number of SME business centres to 25 to cater to both individual customers and the business community. In addition, as part of our alternative sales strategy, the Groups Alliance Direct Marketing sales force expanded significantly. The Group continued to invest in building and enhancing its infrastructure to support business growth and to effectively manage risks. The Group is guided by its risk management framework that is designed to balance strong corporate oversight with well-defined independent risk management functions within each business unit and entity. In line with this, the new systems implemented included systems for automated debt collection system, credit card merchant acquiring and issuing, share margin, trade finance and credit scoring. Notably, the Group completed implementation of the Credit Risk Management System for Basel II Accord and is Basel II compliant with effect from January 2008. Alliance Bank received a Certificate of Merit at the National Annual Corporate Report Awards (NACRA) 2007 for its financial year ended 31 March 2006 Annual Report while Alliance Investment Management Berhads Alliance First Fund emerged as the Best Performing Fund under the Mixed Asset Balanced 10 year-category at the Edge-Lipper Malaysia Funds Award 2008 for the second consecutive year. On the wealth management front, Eurekahedge, the leading global independent hedge fund research company, in their rankings that were released in 2007 ranked the Alliance Dana Adib Fund and Alliance Islamic Money Market Fund among the worlds top 10 in the Islamic funds category for year 2006. While strengthening our commitment to our customers, the Group is also equally committed to our employees by providing them with training and a conducive environment to learn new skills for career advancement and overall, career satisfaction. The Alliance Young Executive Programme was launched during the year to develop young executives for potential middle management and more senior positions within the Group. A differentiated Employees Share Scheme was launched with a restricted share grant and a share option plan. The latter scheme ties in with key performance measures aligned to building long term shareholders value.
Directors Report
ECONOMIC OUTLOOK AND PROSPECTS FOR 2009 The Malaysian economic outlook will be influenced by the possibility of sharper than expected global economic slowdown and uncertainties in the international financial markets. While this may impact consumer and business sentiments, the major underlying factors supporting domestic private sector activities are generally anticipated to remain intact. According to Bank Negara Malaysia, the Malaysian economy is expected to remain on a steady growth path by expanding between 5% to 6% in 2008, supported by resilient domestic demand. BUSINESS OUTLOOK FOR 2009 With the strategies, business models and infrastructure in place, we now need to scale up our business to achieve greater market share and maximize revenue for sustainable quality growth and profitability. By adopting a segmented approach and offering innovative financial products and services to meet the customers needs, Alliance Financial Group will focus on growing its market share in consumer and commercial banking. We will also continue to leverage on the Groups resources to grow our corporate and investment banking businesses. Consistent with our tagline, Banking Made Personal, Alliance Financial Group, as an Integrated Financial Services Group, will offer our targeted customer segments an array of products and services that best that meet their needs at every stage of their financial growth and development. We will also continue to invest in our branches network and alternative sales channels to expand reach and also improve on our quality of service. There will be further upgrading of our systems to enhance our analytical capabilities and to create a positive experience for our customers across all touch points. Human capital development and talent management will continue to remain a key management agenda for the Group to ensure that we have a high performing work force and culture to achieve our vision to be an Integrated Financial Services Group, delivering the best customer experience and long term shareholders value. The Group will continue to focus on its growth strategy and expanding its market share in Malaysia. Barring any unforeseen circumstances, the Group is expected to continue to record satisfactory performance in the new financial year ending 31 March 2009. RATING BY EXTERNAL AGENCY The banking subsidiary Alliance Bank Malaysia Berhad (ABMB) is rated by Rating Agency Malaysia Berhad (RAM). Based on RAMs rating in August 2007, ABMBs short term and long term ratings are reaffirmed at P1 and A1 respectively. RAM has classified these rating categories as follows: P1 - Financial institutions in this category have superior capacities for timely payments of obligations. A1 - Financial institutions rated in this category are adjudged to offer adequate safety for timely payments of financial obligations. This level of rating indicates financial institutions with adequate credit profiles, but which possess one or more problem areas, giving rise to the possibility of future riskiness. Financial institutions rated in this category have generally performed at industry average and are considered to be more vulnerable to changes in economic conditions than those rated in the higher categories.
Directors Report
DIRECTORS The names of the Directors of the Company in office since the date of the last report and at the date of this report are: Datuk Oh Chong Peng Dato Thomas Mun Lung Lee Tan Yuen Fah Tee Kim Chan Stephen Geh Sim Whye Phoon Siew Heng Megat Dziauddin Bin Megat Mahmud Kung Beng Hong Datuk Bridget Anne Chin Hung Yee (appointed on 20 June 2007) DIRECTORS BENEFITS Neither at the end of the financial year, nor at any time during the year, did there subsist any arrangement to which the Company was a party, whereby the Directors might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, other than those arising from the share options and share grants under the ESS. Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the Directors as shown in Note 34(b) and Note 46(c) 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. DIRECTORS INTERESTS According to the Register of Directors Shareholdings, the interests of Directors in office at the end of the financial year in shares, share options and share grants in the Company were as follows: Number of Ordinary Shares of RM1.00 Each 1.4.2007 Acquired Sold 31.3.2008 The Company Megat Dziauddin Bin Megat Mahmud - Direct - Indirect Dato Thomas Mun Lung Lee - Direct - Indirect (held through spouse, Datin Teh Yew Kheng) 3,000 35,000 3,000 35,000
Directors Report
Number of Options Over Ordinary Shares of RM1.00 Each 1.4.2007/ Offered # Vested Exercised 31.3.2008 Date of appointment
DIRECTORS INTERESTS (contd) Exercise price RM The Company Datuk Bridget Anne Chin Hung Yee
#
3.07
992,100 #
992,100
Subject to the achievement of performance conditions. Number of Grants Over Ordinary Shares of RM1.00 Each 1.4.2007/ Awarded Vested* 31.3.2008 Date of appointment
140,400*
140,400
* The first 50% of the share grants are to be vested at the end of the 2nd year and the remaining 50% of the share grants are to be vested at the end of the 3rd year from the date on which an award is made. By virtue of their shareholdings in the Company, the above Directors are deemed to have beneficial interests in the shares of the subsidiary companies of the Company. None of the other Directors in office at the end of the financial year had any interest in shares, share options and share grants in the Company or its related corporations during the financial year. ISSUE OF SHARES During the financial year, the Company increased its issued and paid-up ordinary share capital from RM1,217,669,947 to RM1,548,105,929 by way of the issuance of 330,435,982 new ordinary shares of RM1.00 each pursuant to the exercise of 330,435,982 2002/2007 Warrants at an exercise price of RM1.21 per ordinary share. The new ordinary shares issued during the financial year rank pari passu in all respects with the existing ordinary shares of the Company. BAD AND DOUBTFUL DEBTS Before the income statements and balance sheets of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written-off and that adequate allowance had been made for doubtful debts. At the date of this report, the Directors are not aware of any circumstances which would render the amount written-off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent.
Directors Report
CURRENT ASSETS Before the income statements and balance sheets of the Group and of the Company were made out, the Directors took reasonable steps to ensure that any current assets, which were unlikely to realise their value in the ordinary course of business had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Group and of the Company misleading. VALUATION METHOD At the date of this report, the Directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. CONTINGENT AND OTHER LIABILITIES 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 in the ordinary course of business. No contingent or other liability of the Group or of the Company has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may affect the ability of the Group and of the Company to meet their obligations as and when they fall due. CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and of the Company, that would render any amount stated in the financial statements misleading. ITEMS OF AN UNUSUAL NATURE In the opinion of the Directors: (i) the results of the operations of the Group or of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and (ii) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature 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 (a) Rationalisation of the Unit Trust Management Business of Alliance Unit Trust Management Berhad (AUTM) and the Asset Management Business of Alliance Capital Asset Management Sdn. Bhd. (ACAM) (Rationalisation Exercise) Pursuant to a Vesting Order granted by the High Court of Malaya at Kuala Lumpur on 28 March 2007 and as part of the rationalisation exercise of the Group, the asset management business of ACAM, a 70% subsidiary of Alliance Investment Bank Berhad, was vested to AUTM, a 70% subsidiary of Alliance Bank Malaysia Berhad, on 2 April 2007.
Directors Report
SIGNIFICANT EVENTS (contd) (a) Rationalisation of the Unit Trust Management Business of Alliance Unit Trust Management Berhad (AUTM) and the Asset Management Business of Alliance Capital Asset Management Sdn. Bhd. (ACAM) (Rationalisation Exercise) (contd) On 4 April 2007, AUTM changed its name to Alliance Investment Management Berhad and carries on the business of management of unit trust funds, provision of fund management and investment advisory services. On 7 June 2007, ACAM was placed under Members Voluntary Winding Up pursuant to Section 254 of the Companies Act, 1965. (b) Expiry of Warrants The 2002/2007 Warrants of the Company had expired on 8 June 2007. There were 2,013,228 warrants not exercised by the expiry date and have accordingly lapsed. The 2002/2007 Warrants were removed from the Official List of Bursa Malaysia Securities Berhad on 11 June 2007. The Company received a total proceeds of RM466.475 million from the exercise of 385,516,561 of the 2002/2007 Warrants at an exercise price of RM1.21 over the exercise period from 9 September 2002 to 8 June 2007. (c) Change of Name The Company obtained approval from the shareholders on 28 August 2007 and changed its name from Malaysian Plantations Berhad to Alliance Financial Group Berhad with effect from 31 August 2007. (d) Redemption of Commercial Papers/Medium Term Notes On 18 September 2007, the Company had fully redeemed the Special First Issuance of Commercial Papers of RM200 million upon its maturity. (e) Reduction of the Share Premium Account of the Company The Company obtained approval from the shareholders at the Extraordinary General Meeting of the Company held on 28 August 2007 approved the proposal to set off the entire audited accumulated losses of the Company as at 31 March 2007 amounting to RM256.341 million against RM256.341 million from the audited Share Premium Account which stood at RM491.238 million as at 31 March 2007 (Share Premium Reduction). The High Court of Malaya at Kuala Lumpur had on 11 December 2007 granted the Companys petition for an Order for the Share Premium Reduction and it become effective on 9 January 2008 upon lodgement of the sealed copy of the Court Order with the Companies Commission of Malaysia. (f) Dissolution of a subsidiary Cosmoplex Sdn Bhd, a wholly-owned subsidiary of the Company had been dissolved pursuant to Section 272(5) of the Companies Act, 1965 with effect from 2 June 2007. (g) Subscription for Irredeemable Non-Cumulative Convertible Preference Shares (INCCPS) in ABMB On 26 March 2008, the Company had subscribed for 200,000,000 INCCPS of RM0.01 each in ABMB, a wholly-owned subsidiary of the Company at a subscription price of RM1.00 each. Each INCCPS will carry a right to receive a non-cumulative preferential dividend of 5 sen per annum. The subscription of INCCPS provides additional capital funds to ABMB for its continued future growth.
10
Directors Report
EVENTS SUBSEQUENT TO BALANCE SHEET DATE (a) Incorporation of Islamic Banking Subsidiary Alliance Islamic Bank Berhad (AIS) was incorporated on 13 June 2007 as a wholly-owned subsidiary of ABMB following the approval-in-principle granted by Bank Negara Malaysia in March 2007 for ABMB to undertake Islamic banking business pursuant to the Islamic Banking Act, 1983. AIS had received an Islamic Banking license from the Minister of Finance pursuant to Section 3(4) of the Islamic Banking Act, 1983 to carry out the Islamic banking business effective 1 April 2008. Pursuant to the Vesting Order granted by the High Court of Malaya on 15 February 2008, the entire Islamic banking business of ABMB had been vested to AIS on 1 April 2008. In conjunction with the vesting of the entire Islamic banking business of ABMB to AIS, the issued and paid-up share capital of AIS had been increased from RM2.00 comprising two (2) ordinary shares of RM1.00 each to RM300,000,000 comprising of 300,000,000 ordinary shares of RM1.00 each on 1 April 2008. Accordingly, AIS had commenced its Islamic banking business on 1 April 2008. (b) Share Purchased Pursuant to ESS The Trustee of the ESS acquired 1,370,800 ordinary shares of the Company between 1 April 2008 and 16 April 2008 from the open market for a total consideration of RM3,834,028. Accordingly, the Trustee of the ESS has acquired sufficient shares of the Company totaling 10,745,500 ordinary shares to satisfy the exercise of the share options/share grants offered/awarded under the ESS on 12 December 2007. AUDITORS The auditors, Ernst & Young, have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors dated 2 June 2008.
Statement by Directors
Pursuant to Section 169(15) of the Companies Act, 1965
11
We, Datuk Oh Chong Peng and Dato Thomas Mun Lung Lee, being two of the Directors of Alliance Financial Group Berhad, do hereby state that, in the opinion of the Directors, the accompanying financial statements set out on pages 13 to 119 are drawn up in accordance with the provisions of the Companies Act, 1965 and applicable Financial Reporting Standards in Malaysia as modified by Bank Negara Malaysia Guidelines so as to give a true and fair view of the financial position of the Group and of the Company as at 31 March 2008 and of the results and the cash flows of the Group and of the Company for the year then ended. Signed on behalf of the Board in accordance with a resolution of the Directors dated 2 June 2008.
Statutory Declaration
Pursuant to Section 169(16) of the Companies Act, 1965
I, Philip Goh Teck Siang, being the officer primarily responsible for the financial management of Alliance Financial Group Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 13 to 119 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 Philip Goh Teck Siang at Kuala Lumpur in the Federal Territory on 2 June 2008 Before me,
T. Thandonee Rajagopal Commissioner for Oaths Kuala Lumpur, Malaysia 2 June 2008
12
Ernst & Young AF: 0039 Chartered Accountants Kuala Lumpur, Malaysia 2 June 2008
Balance Sheets
as at 31 March 2008
Group Note 2008 RM000 2007 RM000 2008 RM000 Company 2007 RM000
13
ASSETS Cash and short-term funds Deposits and placements with financial institutions Securities held-for-trading Securities available-for-sale Securities held-to-maturity Loans, advances and financing Balances due from clients and brokers Land held for investment Other assets Dividend receivable Tax recoverable Statutory deposits Investment in subsidiaries Leasehold land Property, plant and equipment Intangible assets Deferred tax assets TOTAL ASSETS 3 4 5 6 7 8 9 10 11 5,774,055 532,835 100,129 3,091,018 821,294 15,618,971 119,333 28,922 254,849 71,359 622,086 12,275 129,615 353,665 151,985 27,682,391 = = = = = = = = = = = = = = = 4,149,722 2,428,901 14,978 2,052,983 2,430,081 13,433,594 389,159 28,922 251,000 38,380 581,955 10,967 114,432 344,970 120,303 26,390,347 = = = = = = = = = = = = = = = 66,299 37,077 31,691 1,729,142 579 1,864,788 = = = = = = = = = = = = = = = 4,762 66,400 46,395 7,300 1,713 1,529,142 657 1,656,369 = = = = = = = = = = = = = = =
12 13 14 15 16 17
14
Balance Sheets
as at 31 March 2008
Group Note LIABILITIES AND EQUITY Deposits from customers Deposits and placements of banks and other financial institutions Obligations on securities sold under repurchase agreements Recourse obligations on loans sold to Cagamas Bills and acceptances payable Balances due to clients and brokers Other liabilities Subordinated bonds Short term borrowing Provision for taxation Deferred tax liabilities TOTAL LIABILITIES Share capital Reserves Shares held for Employees Share Scheme EQUITY ATTRIBUTABLE TO EQUITY HOLDERS Minority interests of the Company TOTAL LIABILITIES AND EQUITY 26 27 28 18 19 20 21 22 23 24 25 17 21,351,760 1,454,124 255,391 161,418 112,626 1,120,527 600,000 30,741 1,416 25,088,003 1,548,106 1,067,586 (26,254) 2,589,438 4,950 27,682,391 = = = = = = = = = = = = = = = 41 13,976,101 = = = = = = = = = = = = = = = 19,104,412 482,358 2,010,098 313,578 481,271 369,498 872,590 600,000 200,000 1,191 7,818 24,442,814 1,217,670 725,052 1,942,722 4,811 26,390,347 = = = = = = = = = = = = = = = 7,973,462 = = = = = = = = = = = = = = = 6,972 30,741 242 37,955 1,548,106 304,981 (26,254) 1,826,833 1,864,788 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 2,425 200,000 1,191 186 203,802 1,217,670 234,897 1,452,567 1,656,369 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 2008 RM000 2007 RM000 2008 RM000 Company 2007 RM000
Income Statements
for the year ended 31 March 2008
Group Note 2008 RM000 1,586,010 = = = = = = = = = = = = = = = 1,216,363 (579,475) 636,888 115,162 752,050 265,439 1,017,489 (470,082) 547,407 60,718 (106,075) 502,050 (121,955) 380,095 = = = = = = = = = = = = = = = 379,956 139 380,095 = = = = = = = = = = = = = = = 38(a) 38(b) 39 25.4 = = = = = = = = = = = = = = = 4.69 = = = = = = = = = = = = = = = 2007 RM000 1,458,827 = = = = = = = = = = = = = = = 1,122,882 (549,538) 573,344 135,035 708,379 213,770 922,149 (491,921) 430,228 (289,619) 10,203 150,812 (43,449) 107,363 = = = = = = = = = = = = = = = 107,258 105 107,363 = = = = = = = = = = = = = = = 9.1 7.9 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 2008 RM000 114,696 = = = = = = = = = = = = = = = 10,973 (4,268) 6,705 6,705 103,738 110,443 (3,834) 106,609 (5,661) 100,948 (27,699) 73,249 = = = = = = = = = = = = = = = Company 2007 RM000 11,293 = = = = = = = = = = = = = = = 1,293 (9,880) (8,587) (8,587) 10,314 1,727 (3,210) (1,483) (12) (1,495) (2,050) (3,545) = = = = = = = = = = = = = = =
15
Operating revenue Interest income Interest expense Net interest income/(expense) Net income from Islamic banking business
30 31 32
52
Other operating income Net income Other operating expenses Operating profit/(loss) Write-back/(allowance) for losses on loans, advances and financing (Provision)/write-back of impairment loss Profit/(loss) before taxation Taxation and zakat Profit/(loss) for the year Attributable to: Equity holders of the Company Minority interests Profit/(loss) for the year Earnings per share (sen): Basic Diluted Net dividends per ordinary share in respect of the year (sen):
33
34
35 36
37
16
GROUP
Note
At 1 April 2006 Net profit for the year Exercise of warrants 26 Unrealised net loss on revaluation of securities available-for-sale Transfer to statutory reserve Dividend paid 39 At 31 March 2007
(54) (54) (54) 30,018 (30,018) (320) (320) 1,217,670 491,238 268,125 7,013 12,905 (54,229) 1,942,722 4,811 1,947,533
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
At 1 April 2007 Net profit for the year Exercise of warrants 26 Unrealised net loss on revaluation of securities available-for-sale Transfer to statutory reserve Dividend paid 39 Share-based payment under Employees Share Scheme Purchased of shares pursuant to Employees Share Scheme 28 Share premium reduction At 31 March 2008 1,217,670 330,436 491,238 69,392 268,125 7,013 12,905 (54,229) 379,956 1,942,722 379,956 399,828 4,811 139 1,947,533 380,095 399,828
98,785
(35,681)
(98,785) (72,571)
(35,681) (72,571)
(35,681) (72,571)
1,438
1,438
1,438
1,548,106
(256,341) 304,289
366,910
7,013
(22,776)
1,438
(26,254) (26,254)
256,341 410,712
(26,254) 2,589,438
4,950
(26,254) 2,594,388
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
17
COMPANY At 1 April 2006 Exercise of warrants Net loss for the year At 31 March 2007 At 1 April 2007 Exercise of warrants Net profit for the year Dividend paid Share-based payment under Employees Share Scheme Purchased of shares pursuant to Employees Share Scheme Share premium reduction At 31 March 2008
Note 26
1,167,978 480,803 (252,796) 1,395,985 49,692 10,435 60,127 (3,545) (3,545) 1,217,670 491,238 (256,341) 1,452,567 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1,217,670 330,436 491,238 69,392 (256,341) 73,249 (72,571) 1,452,567 399,828 73,249 (72,571)
26 39
28
18
(63,992) (63,824) 34,934 17,794 (3,905) (2,465) (11) (1,754) (774) (5,170) (184) 195 (1,332) (266) (9,776) (1,098) (1,652) (2,382) (43,010) (11,886) 269 1,575 8,283 (4,349) 36,540 40,235 4,268 9,880 (29,045) (59,859) (87,615) (44,346) (110) (60) (15) 60,542 450,225 5,001 3,501 2,149 79,790 (4,826) 17,891 (5,377) 4,138 300 3,956 126 235 14,510 14,309 35,312 (5,778) 1,438 186 6 34 568,158 477,465
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CASH FLOWS FROM OPERATING ACTIVITIES (contd) Operating profit before working capital changes brought forward Changes in working capital: Deposits from customers Deposits and placements of banks and other financial institutions Obligations on securities sold under repurchase agreements Bills and acceptances payable Balance due from clients and brokers Other liabilities Securities held-for-trading Loans, advances and financing Other assets Statutory deposits with Bank Negara Malaysia Recourse obligations on loans sold to Cagamas Cash (used in)/generated from operations Taxes and zakat paid Net cash (used in)/generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from securities held-to-maturity Dividends received from securities available-for-sale Interest received from securities held-to-maturity Interest received from securities available-for-sale Interest received from deposits and placements with financial institutions Return on capital from investment Purchase of property, plant and equipment Purchase of computer software Purchase of leasehold land Purchase of shares from market Proceeds from disposal of property, plant and equipment Proceeds from disposal of leasehold land Proceeds from disposal of computer software Purchase of securities held-to-maturity, net of maturity and redemption proceeds Purchase of securities available-for-sale, net of sale proceeds Net cash generated/(used in) investing activities 2,981 2,205 11 29,045 59,859 87,615 44,346 110 60 15 (55,902) (38,068) (23,239) (14,902) (1,500) (26,254) 2,417 12,251 250 1 1,622,267 796,148 (1,076,833) (994,885) 560,972 (132,974) 568,158 477,465
2,247,348 1,438,191 971,766 (288,649) (2,010,098) 852,872 (319,853) 280,663 9,556 (59,917) 212,620 195,414 (86,354) 285,162 (2,250,773) (212,201) (12,745) (89,374) (40,131) 167,940 (58,187) (130,537) (768,693) 2,917,029 (150,461) (11,867) (919,154) 2,905,162
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21
CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before taxation Adjustments for: Depreciation of property, plant and equipment Property, plant and equipment written-off Interest income from deposits and placements with financial institutions Interest expense on short term borrowing Return on capital from investment Write-back of loss on investment in subsidiaries Allowance for doubtful debts due from a subsidiary Share options/grants under Employees Share Scheme Gross dividend Operating loss before working capital changes Changes in working capital: Receivables Payables Subsidiaries Cash generated from/(used in) operations Taxes paid Net cash generated from/(used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Interest received from deposits and placements with financial institutions Return on capital from investment Purchase of shares from market Acquisition of additional shares in a subsidiary Net dividend received Net cash (used in)/generated from investing activities (87) (461) 10,973 1,293 15 6 (26,254) (200,000) 83,675 (131,678) 838 100,948 (1,495)
165 112 2 (10,973) (1,293) 4,268 9,880 (15) (6) (308) 5,661 12 14 (103,653) (10,000) (3,585) (3,096) 4,314 (4,389) 3,936 (5) (47) (1,022) 4,618 (8,512) (792) (9) 3,826 (8,521)
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1. CORPORATE INFORMATION The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Board of Bursa Malaysia Securities Berhad. The registered office of the Company is located at 3rd Floor, Menara Multi-Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur, Malaysia. The principal activities of the Company are investment holding and provision of management services to the subsidiaries. The principal activities of the subsidiaries are commercial banking and financing, investment banking including Islamic banking and provision of stockbroking services, unit trusts and fund management, and the provision of related financial services. There have been no significant changes in the nature of the principal activities during the financial year. The financial statements are expressed in Ringgit Malaysia. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the Directors on 2 June 2008. 2. SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted by the Group are consistent with those adopted in the annual audited financial statements for the previous financial year except for the adoption of the following applicable revised financial reporting standards (FRSs) in Malaysia that are mandatory for the Groups financial year commencing 1 April 2007. (i) FRS 117 Leases. The principal effects of the change in accounting policy resulting from the adoption of revised FRS 117 is disclosed in Note 49. (ii) FRS 124 Related Party Disclosures. The adoption of the revised FRS 124 will not result in changes in accounting policies of the Group and the Company, except for the format and extent of disclosure presented in the financial statements. The effect of the adoption are disclosed in Note 46. (iii) Amendment to FRS 119 2004 Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures. The adoption of the amendment does not have any significant financial impact on the Group and the Company. As at the date of authorisation of the financial statements, the Group had not adopted the following revised FRSs, amendment to FRS and interpretations of the Issues Committee (IC) issued by the Malaysian Accounting Standards Board (MASB) which will be effective for financial periods beginning on or after 1 July 2007: Standard/Interpretation - FRS 107 Cash Flow Statements - FRS 111 Construction Contracts - FRS 112 Income Taxes - FRS 118 Revenue - FRS 120 Accounting for Government Grants and Disclosure of Government Assistance - FRS 134 Interim Financial Reporting - FRS 137 Provisions, Contingent Liabilities and Contingent Assets - Amendment to FRS 121 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation
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2. SIGNIFICANT ACCOUNTING POLICIES (contd) (a) Basis of Preparation (contd) (ii) Fair value estimation for securities held-for-trading (Note 5) and securities available-for-sale (Note 6) - the fair value of securities that are not traded in active market are determined using valuation techniques based on assumptions of market conditions existing at the balance sheet date, including reference to quoted market prices and independent dealer quotes for similar securities and discounted cash flows method. (iii) Utilisation of deferred tax assets (Note 17) - deferred tax assets are recognised for all unutilised tax losses to extent that it is probable that taxable profit will be available against which the tax losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. (iv) Allowance for losses on loans, advances and financing (Note 8) - whilst the assessment of allowance for losses required for loans, advances and financing is made in accordance with the requirements of BNM/GP3 Guidelines on the Classification of Non-Performing Loans and Provisions for Substandard, Bad and Doubtful Debts, the Group exercise judgement in ascertaining the recoverable amount when assessing the levels of loan loss allowance required. (v) Impairment of assets - assessment of impairment of securities available-for-sale (Note 6) and securities held-to-maturity (Note 7) is made in line with the guidance in the revised BNM/GP8 Guidelines on Financial Reporting for Licensed Institutions to determine when the investment is impaired. Management judgement is required to evaluate the duration and extent by which the fair value of the financial instruments are below its carrying value and when there is indication of impairment in the carrying value of the financial instruments. The assessment of impairment of property, plant and equipment (Note 15) and foreclosed properties also requires management judgement in the assessment of whether negative fluctuations in values of similar properties in the same location represent an indication of impairment in the value of the properties. (vi) Fair value estimation and impairment assessment of certain unquoted shares (Note 6) - during the current financial year, ABMB received a free allocation of certain unquoted shares of which some had been subsequently redeemed by the said issuer. The remaining unquoted shares are valued at the redemption price of those shares redeemed during the year, being the closest available estimate of the fair value of these shares after being recognised as an asset of ABMB. (b) Subsidiaries and Basis of Consolidation (i) Subsidiaries Subsidiaries are entities over which the Group has the ability to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity. In the Companys separate financial statements, investments in subsidiaries are stated at cost less impairment losses. The policy for recognition and measurement of impairment losses is in accordance with Note 2(k)(iv). On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss. (ii) Basis of Consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the Company. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated financial statements, intragroup balances, transactions and unrealised gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated financial statements for like transactions and events in similar circumstances. Acquisitions of subsidiaries are accounted for using the purchase method. The purchase method of accounting involves allocating the cost of the acquisition to the fair value of the assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the acquisition. Any excess of the cost of the acquisition over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represent goodwill.
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2. SIGNIFICANT ACCOUNTING POLICIES (contd) (d) Intangible Assets (contd) (ii) Computer Software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring the specific software to use. The costs are amortised over their useful lives which is five years and are stated at cost less accumulated amortisation and accumulated losses, if any. Computer software is assessed for impairment whenever there is an indication that it may be impaired. The amortisation period and amortisation method are reviewed at least at each balance sheet date. The policy for the recognition and measurement of impairment losses is in accordance with 2(k)(iii). Costs associated with developing or maintaining computer software programmes are recognised as an expenses as incurred. Costs that are directly associated with production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software development employee costs and appropriate portion of relevant overhead. (e) Allowance for Bad and Doubtful Debts and Financing Loans, advances and financing are stated at cost less any allowance for bad and doubtful debts and financing. Specific allowance for bad and doubtful debts and financing are made with regard to specific risks and relate to those loans or trade receivables that have been individually reviewed and specifically identified as sub-standard, doubtful or bad. A general allowance based on a percentage of total outstanding loans and financing (including unearned interest/income), net of specific allowance for bad and doubtful debts, is maintained by the Group against risks which are not identified. An uncollectible loan/financing or portion of a loan/financing classified as bad is written-off after taking into consideration the realisable value of collateral, if any, when in the judgement of the management, there is no prospect of recovery. Values assigned to collateral held for non-performing loans secured by properties is determined based on the realisable values of the properties, being the forced sale value provided by independent parties/valuers, on the following basis: (i) assigning only fifty percent (50%) of the realisable value of the properties held as collateral for non-performing loans which are in arrears for more than five (5) years but less than seven (7) years; and (ii) no value assigned to the realisable value of the properties held as collateral for non-performing loans which are in arrears for more than seven (7) years. The allowance for bad and doubtful debts and financing are computed in conformity with BNM/GP3. Consistent with previous years, the Group has adopted a more stringent classification policy on non-performing loans, whereby loans are classified as non-performing and sub-standard when repayments are in arrears for more than three (3) months from the first day of the default or after maturity date. Accordingly, the Group has also adopted a more stringent basis for specific allowances on non-performing loans by making a 100% specific allowance on balance of the non-performing loans which are more than 3 months-in-arrears and not covered by realisable value of collateral. The Directors are of the view that such treatment will reflect a more prudent provisioning policy on loans, advances and financing. For margin balances of the stockbroking business, the accounts are classified as non-performing loans when the closing market value of the counter(s) so financed has fallen below 130% of the outstanding balance, and 100% specific allowance is make on the non-performing loans, net of collateral held, if any.
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2. SIGNIFICANT ACCOUNTING POLICIES (contd) (i) Investments in Subsidiaries and Associates The Companys investments in subsidiaries and associates are stated at cost less impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(k)(iv). On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is recognised in profit or loss. (j) Property, Plant and Equipment and Depreciation All items of property, plant and equipment are initially recorded at cost. Subsequently costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. When significant parts of an item of property plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Subsequent to intial recognition, property, plant and equipment except for freehold land are stated at cost less accumulated depreciation and any accumulated impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(k)(iv). Freehold land has an unlimited useful life and therefore is not depreciated. Depreciation of other property, plant and equipment is provided for on a straight line-basis to write off the cost of each asset to its residual value over the estimated useful life, at the following annual rate: Buildings Renovations Office equipment, furniture and fittings Computer equipment Motor vehicles 2% 20% 10% 33.3% 10% - 16.6%
The residual values, useful life and depreciation method are reviewed at each financial year end to ensure that the amount, method and period of depreciation are consistent with previous estimates and expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in profit or loss. (k) Impairment of Assets The carrying amount of the Groups assets, except for deferred tax assets and financial assets (other than securities held-to-maturity and available-for-sale) are reviewed at each balance sheet date to determine whether there are any indications of impairment. Of any such indications exist, the assets recoverable amount is estimated to determine the amount of impairment loss. The policy of the impairment of assets are summarised as follows: (i) Securities Held-to-Maturity For securities carried at amortised cost in which there are objective evidence of impairment, impairment loss is measured as the difference between the securities carrying amount and the present value of the estimated future cash flows discounted at the securities original effective interest rate. The amount of the impairment loss is recognised in profit or loss.
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2. SIGNIFICANT ACCOUNTING POLICIES (contd) (k) Impairment of Assets (contd) (iv) Other Assets (contd) The carrying amount is increased to its revised recoverable amount, provided that the amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset is recognised in profit or loss. (l) Leases A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. All leases that do not transfer substantially all the risks and rewards are classified as operating leases. (i) Finance Leases Assets acquired by way of hire purchase or finance leases are stated at an amount equal to the lower of their fair values and the present value of the minimum lease payments at the inception of the leases, less accumulated depreciation and impairment losses. The corresponding liability is included in the balance sheet as borrowings. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Companys incremental borrowing rate is used. Any initial direct costs are also added to the carrying amount of such assets. Lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised in profit or loss over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. The depreciation policy for leased assets is in accordance with that for depreciable property, plant and equipment as described in Note 2(j). The policy for the recognition and measurement of impairment losses is in accordance with Note 2(k)(iv). (ii) Operating Leases Operating lease payments are recognised in profit or loss on a straight-line basis over the term of the relevant lease. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expenses over the lease term on a straight-line basis. The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. Leasehold land that normally has an indefinite economic life and where title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for as prepaid lease payments at the balance sheet date. In the case of a lease of land and buildings, the prepaid lease payments or the upfront payments made are allocated, whenever necessary, between the land and buildings elements in proportion to the relative fair values for leasehold interest in the land element and buildings element of the lease at the inception of the lease. The prepaid lease payments are amortised over the lease term in accordance with the pattern of benefits provided. (m) Bills and Acceptances Payable Bills and acceptances payable represent the Groups own bills and acceptances rediscounted and outstanding in the market.
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2. SIGNIFICANT ACCOUNTING POLICIES (contd) (n) Financial Instruments (contd) (vii) Balances Due From Clients and Brokers In accordance with the Rules of Bursa Malaysia Securities Berhad (the Bursa), clients accounts for the Group are classified as non-performing (doubtful or bad) under the following circumstances: Criteria for classification as non-performing Types Contra losses Overdue purchase contracts Doubtful When account remains outstanding for 16 to 30 calendar days from the date of contra transaction. When the account remains outstanding from T+5 market days to 30 calendar days. Bad When the account remains outstanding for more than 30 calendar days from the date of contra transaction. When the account remains outstanding for more than 30 calendar days.
Bad debts are written-off when identified. Specific allowances are made for balances due from clients and brokers which are considered doubtful or which have been classified as non-performing after taking into consideration collateral held by the Group and deposits of and amounts due to dealers representative in accordance with the Rules of the Bursa. General allowance is made based on a certain percentage of balances due from clients and brokers (excluding outstanding purchase contracts which are not due for payment) net of specific allowances already made. (o) Revenue Recognition Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of the revenue can be measured reliably. (i) Dividend Income Dividend income from securities held-to-maturity, securities available-for-sale and investment in subsidiaries and associates are recognised when the right to receive payment is established. (ii) Interest Income Interest income is recognised in profit or loss for all interest bearing assets on an accrual basis. Interest income includes the amortisation of premium or accretion of discount. Interest income on securities are recognised on an effective yield basis. Interest income on overdrafts, housing loans and term loans is accounted for on accrual basis by reference to rest periods as stipulated in the loan agreements, which are either monthly or daily. Interest income on hire purchase, block discounting and leasing business is recognised on the Rule of 78 method. Income from the Islamic Banking business is recognised on the accrual basis in accordance with the principles of Syariah. Where an account is classified as non-performing, interest/income accrued and recognised as income prior to the date the loan is classified as non-performing is reversed out of interest income and set-off against the accrued interest/income receivable account in the balance sheet. Thereafter, interest/income on the non-performing loan shall be recognised as income on a cash basis. Customers accounts are deemed to be non-performing where repayments are in arrears for more than three (3) months from the first day of default or after maturity date. The policy on interest income recognition on non-performing loans is in conformity with the revised Guidelines on Financial Reporting for Licensed Institutions (BNM/GP8) issued by BNM on 5 October 2004.
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2. SIGNIFICANT ACCOUNTING POLICIES (contd) (s) Foreclosed Properties Foreclosed properties are stated at cost less impairment losses, if any, of such properties. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(k)(iv). (t) Cash and Cash Equivalents Cash and cash equivalents as stated in the cash flow statements comprise cash and short-term funds and deposits and placements with financial institutions which have an insignificant risk of changes in value. (u) Profit Equalisation Reserve (PER) PER refers to the amount appropriated out of the total Islamic Banking gross income in order to maintain a certain level of return to depositors in conformity with BNMs The Framework of the Rate of Return. PER is deducted from the total Islamic Banking gross income in deriving the net distributable gross income. This amount appropriated is shared by the depositors and the Alliance Bank group. (v) Employee Benefits (i) Short Term Benefits Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defined Contribution Plans Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities or funds and will have no legal or constructive obligations to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Such contributions are recognised as an expense in profit or loss as incurred. As required by law, companies in Malaysia make contributions to the Employees Provident Fund (EPF). (iii) Equity Compensation Benefits The ESS comprise the Share Option Plan, the Share Grant Plan and the Share Save Plan. The ESS are an equity-settled, share-based compensation plans, in which the Groups Directors and employees are granted or are allowed to acquire ordinary shares of the Company. The total fair value of the share options/share grants offered/awarded to the eligible Directors and employees are recognised as an employee cost with a corresponding increase in the share scheme reserve within equity over the vesting period and taking into account the probability that the scheme will vest. The fair value of the shares options/share grants are measured at grant date, taking into account, if any, the market vesting conditions upon which the share options/share grants were offered/awarded but excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of share options/share grants that are expected to become exercisable/to vest. At each balance sheet date, the Group revises its estimates of the number of share options/share grants that are expected to become exercisable/to vest. 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 scheme reserve until the share options/share grants are exercised/vested. The proceeds received net of any directly attributable transaction costs are credited to equity when the options are exercised.
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Included in the cash and balances with banks is an amount of RM167,000 (2007: Nil) being a bank account by PB Trustee Bhd pursuant to the Companys ESS. The deposits of the Company amounting to RM64,600,000 (2007: Nil) are placed with its subsidiaries. 4. DEPOSITS AND PLACEMENTS WITH FINANCIAL INSTITUTIONS Group 2008 RM000 Licensed banks Islamic banks Bank Negara Malaysia Other financial institutions 399,500 100,000 33,335 532,835 = = = = = = = = = = = = = = = 2007 RM000 69,625 5,000 2,322,867 31,409 2,428,901 = = = = = = = = = = = = = = = 2008 RM000 Company 2007 RM000
The deposits of the Company with maturity more than one month amounted to RM59,300,000 were placed with its subsidiaries. 5. SECURITIES HELD-FOR-TRADING Group 2008 RM000 At fair value Money market instruments: Bank Negara Malaysia bills Commercial papers Quoted securities in Malaysia: Shares Debt securities Unquoted securities: Debt securities 2007 RM000
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6. SECURITIES AVAILABLE-FOR-SALE
At fair value Money market instruments: Malaysian Government securities Malaysian Government investment certificates Cagamas bonds Negotiable instruments of deposits Commercial papers Bankers acceptances Quoted securities in Malaysia: Shares Debt securities Unquoted securities: Shares (Note (a)) Debt securities
Note: (a) The unquoted shares relate to shares allocated to a subsidiary and out of which a portion had been redeemed by the issuer on the same date. The shares are generally non-voting and is non-transferable until three years after the close of the issuers Initial Public Offering (IPO), subject to limited exceptions stipulated by the issuer. The remaining units of shares have been valued based on the redemption price of the shares, being the closest available estimate of the fair value of these shares.
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108,606 53,046 94,983 278,756 124 4,932 22,021 396,274 958,742 (137,448) 821,294 = = = = = = = = = = = = = = =
165,370 188,989 49,747 174,928 440,000 269,034 705,050 25,587 21,496 521,941 2,562,142 (132,061) 2,430,081 = = = = = = = = = = = = = = =
(i) Market value of money market instruments and quoted securities: Malaysian Government securities Malaysian Government investment certificates Bank Negara Malaysia bills Cagamas bonds Negotiable instruments of deposits Khazanah bonds Bankers acceptances Debt securities (ii) The maturity structure of money market instruments held are as follows: Within one year One year to three years Three years to five years 410,501 111,433 13,581 535,515 = = = = = = = = = = = = = = = 1,464,940 489,951 38,227 1,993,118 = = = = = = = = = = = = = = = 108,601 53,588 95,339 278,954 123 3,452 = = = = = = = = = = = = = = = 165,060 189,564 49,751 175,743 440,636 268,870 700,467 25,054 = = = = = = = = = = = = = = =
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Overdrafts Term loans/financing - Housing loans/financing - Syndicated term loans/financing - Hire purchase receivables - Lease receivables - Other term loans/financing Bills receivables Trust receipts Claims on customers under acceptance credits Staff loans [include RM389,000 loan to Executive Director from a banking subsidiary (2007: RM498,000)] Credit/charge card receivables Revolving credits Other loans
1,787,614 5,775,875 297,179 1,427,178 4,053 4,749,197 152,046 138,705 1,553,982 112,779 546,659 600,847 360,325 17,506,439 (961,743) 16,544,696 (636,429) (289,296) 15,618,971 = = = = = = = = = = = = = = =
Unearned interest and income Gross loans, advances and financing Allowance for bad and doubtful debts and financing: - Specific - General Net loans, advances and financing (i) By maturity structure: Within one year One year to three years Three years to five years Over five years Gross loans, advances and financing
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8. LOANS, ADVANCES AND FINANCING (contd) (iv) By economic purposes: (contd) Group 2008 RM000 Brought forward Credit card Purchase of durable goods Construction Working capital Others Gross loans, advances and financing (v) Movements in non-performing loans, advances and financing (NPL) are as follows: At beginning of year Non-performing during the year Reclassified as performing during the year Loans/financing converted to securities Recoveries Amount written off At end of year Specific allowance Net non-performing loans, advances and financing Net NPL as % of gross loans, advances and financing less specific allowance (vi) Movements in the allowance for bad and doubtful debts and financing are as follows: General Allowance At beginning of year Allowance made during the year Amount written back At end of year As % of gross loans, advances and financing less specific allowance 245,582 69,252 (25,538) 289,296 1.8% = = = = = = = = = = = = = = = 207,102 75,959 (37,479) 245,582 1.8% = = = = = = = = = = = = = = = 1,568,510 762,791 (626,319) (11,726) (352,592) (182,158) 1,158,506 (636,429) 522,077 = = = = = = = = = = = = = = = 3.3% = = = = = = = = = = = = = = = 2,140,326 1,527,519 (1,115,054) (1,464) (551,222) (431,595) 1,568,510 (813,485) 755,025 = = = = = = = = = = = = = = = 5.5% = = = = = = = = = = = = = = = 10,305,175 546,636 116 263,678 4,971,564 457,527 16,544,696 = = = = = = = = = = = = = = = 2007 RM000 8,541,081 399,469 186 339,725 4,715,359 496,841 14,492,661 = = = = = = = = = = = = = = =
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9. BALANCES DUE FROM CLIENTS AND BROKERS (contd) These represent amount receivable by Alliance Investment Bank Berhad (AIBB) from non-margin clients and outstanding contracts entered into on behalf of clients where settlements via the Central Depository System has yet to be made. AIBBs normal trade credit terms for non-margin is 3 market days in accordance with the Bursa Malaysia Securities Berhad Fixed Delivery and Settlement System (FDSS) trading rules. Included in the balances due from clients and brokers are non-performing accounts, as follows: Group 2008 RM000 Classified as doubtful Classified as bad 825 25,290 26,115 = = = = = = = = = = = = = = = 2007 RM000 3,991 24,580 28,571 = = = = = = = = = = = = = = =
The movements in allowance for bad and doubtful debts are as follows: At beginning of year Allowance made during the year Reversal of allowance At end of year 10. LAND HELD FOR INVESTMENT Group 2008 RM000 Freehold land, at cost Development costs 23,114 8,943 32,057 (3,135) 28,922 = = = = = = = = = = = = = = = 2007 RM000 23,114 8,943 32,057 (3,135) 28,922 = = = = = = = = = = = = = = = 21,367 4,219 (921) 24,665 = = = = = = = = = = = = = = = 19,220 4,932 (2,785) 21,367 = = = = = = = = = = = = = = =
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(a) Other receivables, deposits and prepayments Included in other receivables, deposits and prepayments of the Group is an amount of RM39,272,000 (2007: RM45,299,000) being the principal balance of housing loans and hire purchase loans acquired by the banking subsidiary from a state owned entity and which have been sold to Cagamas Berhad, with recourse obligations. (b) Managers stocks The managers stock represent units held by the Group in the trust funds it manages and are stated at the lower of cost and market value. Cost is determined using the weighted average method of valuation. Market value of unit trust stock is determined by the Group as manager of the trust funds based on the underlying value of the trust funds. Group 2008 RM000 Managers stock, at cost Market value The Group have no significant concentration of credit risk that may arise from the exposure to a single debtor or group of debtors. 3,257 = = = = = = = = = = = = = = = 3,257 = = = = = = = = = = = = = = = 2007 RM000 1,258 = = = = = = = = = = = = = = = 1,382 = = = = = = = = = = = = = = =
45
11. OTHER ASSETS (contd) (c) Amount due from subsidiaries Group 2008 RM000 Interest bearing Non-interest bearing = = = = = = = = = = = = = = = 2007 RM000 = = = = = = = = = = = = = = = 2008 RM000 49,865 49,865 (13,188) 36,677 = = = = = = = = = = = = = = = Company 2007 RM000 8,135 41,072 49,207 (7,527) 41,680 = = = = = = = = = = = = = = =
The amounts due from subsidiaries of RM49,865,000 (2007: RM41,072,000) are unsecured, interest-free and have no fixed terms of repayment. 12. STATUTORY DEPOSITS Statutory deposits comprise the followings: (a) non-interest bearing statutory deposits of RM621,986,000 (2007: RM581,855,000) relating to the banking subsidiaries, maintained with Bank Negara Malaysia in compliance with Section 37(1)(c) of the Central Bank of Malaysia Act, 1958 (revised 1994), the amounts of which are determined as a set percentage of total eligible liabilities. (b) interest bearing statutory deposits of RM100,000 (2007: RM100,000) relating to a subsidiary, Alliance Trustee Berhad which is maintained with the Accountant-General in compliance with Section 3(f) of the Trust Companies Act, 1949. 13. INVESTMENT IN SUBSIDIARIES Company 2008 RM000 Unquoted shares, at cost At beginning of year Subscription of additional shares in a subsidiary 1,567,198 200,000 1,767,198 (38,056) 1,729,142 = = = = = = = = = = = = = = = 2007 RM000 1,567,198 1,567,198 (38,056) 1,529,142 = = = = = = = = = = = = = = =
On 26 March 2008, the Company had subscribed for 200,000,000 Preference Shares of RM0.01 each at an issue price of RM1.00 per Irredeemable Non-Cumulative Convertible Preference Shares in ABMB for cash pursuant to a right issue by ABMB, a wholly-owned subsidiary of the Company.
46
47
13. INVESTMENT IN SUBSIDIARIES (contd) Details of the subsidiaries, which are incorporated in Malaysia, are as follows: (contd) Name Principal Activities Effective Equity Interest Held (%) 2008 2007
Subsidiaries of Alliance Bank Malaysia Berhad (contd) Alliance International Nominees (Asing) Sdn. Bhd. AFB Nominees (Tempatan) Sdn. Bhd. Alliance Islamic Bank Berhad Subsidiaries of Alliance Investment Bank Berhad Alliance Merchant Nominees (Tempatan) Sdn. Bhd. (under members voluntary winding up) Alliance Merchant Nominees (Asing) Sdn. Bhd. (under members voluntary winding up) Alliance Capital Asset Management Sdn. Bhd. (under members voluntary winding up) Rothputra Nominees (Tempatan) Sdn. Bhd. (under members voluntary winding up) Rothputra Nominees (Asing) Sdn. Bhd. (under members voluntary winding up) KLCS Sdn. Bhd. Alliance Research Sdn. Bhd. KLCity Ventures Sdn. Bhd. Alliance Asset Management (L) Limited Alliance Investment Futures Sdn. Bhd. KLCS Asset Management Sdn. Bhd. KLCity Unit Trust Bhd. AIBB Nominees (Tempatan) Sdn. Bhd. AIBB Nominees (Asing) Sdn. Bhd. Dormant Dormant Dormant Dormant Dormant Dormant Investment advisory Dormant Dormant Dormant Dormant Dormant Nominee services Nominee services 100 100 70 100 100 100 100 100 100 100 100 94.94 100 100 100 100 70 100 100 100 100 100 100 100 100 94.94 100 100 Dormant Dormant Dormant 100 100 100 100 100
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The leasehold land are stated at recoverable amount subject to impairment test in accordance with the policy on impairment of assets of the Group. The fair value less costs to sell off the leasehold land was determined with reference to qualified external valuers valuation.
49
Group 2008 Cost At beginning of year As previously stated Reclassification to leasehold land (Note 14) As restated Additions Disposals Written off At end of year Accumulated Depreciation At beginning of year As previously stated Reclassification to leasehold land (Note 14) As restated Charge for the year Disposals Written off At end of year Accumulated Impairment Loss At beginning of year Charge for the year At end of year Net Carrying Amount
Buildings RM000
Renovations RM000
Total RM000
2,962 3,484 60,665 115,026 82,698 106,993 10,758 382,586 (3,484) (10,588) (14,072) 2,962 50,077 115,026 82,698 106,993 10,758 368,514 1,000 25,123 4,312 24,769 698 55,902 (635) (1,342) (801) (209) (5,482) (8,469) (269) (572) (191) (66) (1,098) 2,962 50,442 138,538 85,637 131,362 5,908 414,849
389 14,700 91,965 56,892 85,772 7,469 257,187 (389) (2,716) (3,105) 11,984 91,965 56,892 85,772 7,469 254,082 1,004 10,112 7,340 16,217 261 34,934 (122) (1,326) (773) (208) (4,397) (6,826) (108) (562) (191) (51) (912) 12,866 100,643 62,897 101,590 3,282 281,278
3,956 3,956 3,956 3,956 2,962 33,620 37,895 22,740 29,772 2,626 129,615 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
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Group 2007 Cost At beginning of year As previously stated Reclassification to leasehold land (Note 14) As restated Additions Disposals Reclassification to leasehold land (Note 14) At end of year Accumulated Depreciation At beginning of year As previously stated Reclassification to leasehold land (Note 14) As restated Charge for the year Disposals Reclassification to leasehold land (Note 14) At end of year Net Carrying Amount
Buildings RM000
Renovations RM000
Total RM000
4,210 3,679 61,164 102,265 83,323 93,021 20,246 367,908 (3,679) (10,588) (14,267) 4,210 50,576 102,265 83,323 93,021 20,246 353,641 10 894 15,837 3,126 17,184 1,017 38,068 (1,258) (195) (1,393) (3,076) (3,751) (3,212) (10,505) (23,390) 195 195 2,962 50,077 115,026 82,698 106,993 10,758 368,514
365 13,522 87,856 55,649 81,642 16,238 255,272 (365) (2,505) (2,870) 11,017 87,856 55,649 81,642 16,238 252,402 24 1,220 5,970 4,833 5,117 865 18,029 (42) (1,861) (3,590) (987) (9,634) (16,114) (24) (211) (235) 11,984 91,965 56,892 85,772 7,469 254,082 2,962 38,093 23,061 25,806 21,221 3,289 114,432 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
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Company 2008 Cost At beginning of year Additions At end of year Accumulated Depreciation At beginning of year Charge for the year At end of year Net Carrying Amount 2007 Cost At beginning of year Additions Disposals At end of year Accumulated Depreciation At beginning of year Charge for the year Disposals At end of year Net Carrying Amount
Renovations RM000
Total RM000
255 560 492 540 1,847 21 7 59 87 276 567 492 599 1,934 202 442 97 449 1,190 30 41 30 64 165 232 483 127 513 1,355 44 84 365 86 579 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
222 540 96 543 1,401 33 30 396 2 461 (10) (5) (15) 255 560 492 540 1,847 179 433 38 441 1,091 23 17 59 13 112 (8) (5) (13) 202 442 97 449 1,190 53 118 395 91 657 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
52
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16. INTANGIBLE ASSETS (contd) (a) Impairment Test on Goodwill Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. Goodwill have been allocated to the Groups cashgenerating units (CGU) that expected to benefit from the synergies of the acquisitions, identified according to the business segment as follows: Group RM000 Corporate banking Commercial banking Consumer banking Treasury Corporate finance and equity capital market Stockbroking business Debt capital market Asset management 44,758 56,080 101,565 83,284 1,838 12,433 2,084 2,107 304,149 = = = = = = = = = = = = = = =
For annual impairment testing purposes, the recoverable amount of the CGUs, which are reportable business segments, are determined based on their value-in-use. The value-inuse calculations apply a discounted cash flow model using cash flow projections based on financial budget and projections approved by management. The key assumptions for the computation of value-in-use include the discount rates, cash flow projection and growth rates applied are as follows: (i) Discount rate The discount rate of 10.1% are based on the pre-tax weighted average cost of capital plus an appropriate risk premium, that reflect specific risks relating to the Group. The pre-tax weighted average cost of capital is generally derived from an appropriate capital asset pricing model, which itself depends on inputs reflecting a number of financial and economic variables including the risk-free rate in the country. (ii) Cash flow projections and Growth rate Cash flow projections are based on five year financial budget and projections approved by management. Cash flows beyond the fifth year are extrapolated in perpetuity using a nominal long term growth rate of 6.5% based on average annual Gross Domestic Product growth rate forecasted for the 10 years from year 2011 to 2020 reported in the Third Industrial Master Plan. Cash flows are extrapolated in perpetuity due to the long term perspective of these businesses within the Group. Impairment is recognised in profit and loss when the carrying amount of a CGU exceeds its recoverable amount. This annual impairment test review reveals that there was no evidence of impairment. (b) Sensitivity to changes in assumptions Any reasonable possible change in the key assumptions would not cause the carrying amount of the goodwill to exceed the recoverable amount of the CGU, which would warrant any impairment loss to be recognised.
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The components and movements of deferred tax assets and liabilities during the financial year prior to offsetting are as follows: Unabsorbed tax losses and capital allowances RM000
Group Deferred tax assets: At 1 April 2007 Recognised in income statement Recognised in equity At 31 March 2008 At 1 April 2006 Recognised in income statement Recognised in equity At 31 March 2007
Total RM000
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Group Deferred tax liabilities: At 1 April 2007 Recognised in income statement At 31 March 2008 At 1 April 2006 Recognised in income statement At 31 March 2007
Receivables RM000
Total RM000
20,631 (6,023) 14,608 = = = = = = = = = = = = = = = 20,243 388 20,631 = = = = = = = = = = = = = = = Other temporary differences RM000
Company Deferred tax assets: At 1 April 2007 Recognised in income statement At 31 March 2008 At 1 April 2006 Recognised in income statement At 31 March 2007 = = = = = = = = = = = = = = = (25) 25 = = = = = = = = = = = = = = =
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Company Deferred tax liabilities: At 1 April 2007 Recognised in income statement At 31 March 2008 At 1 April 2006 Recognised in income statement At 31 March 2007 18. DEPOSITS FROM CUSTOMERS
Receivables RM000
Total RM000
85 85 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
2008 RM000 Demand deposits Savings deposits Fixed/investment deposits Money market deposits Negotiable instruments of deposits 5,790,214 1,648,957 12,868,850 979,283 64,456 21,351,760 = = = = = = = = = = = = = = =
(i) The maturity structure of fixed/investment deposits, money market deposits and negotiable instruments of deposits are as follows: Due within six months Six months to one year One year to three years Three years to five years 10,058,979 3,363,014 439,876 50,720 13,912,589 = = = = = = = = = = = = = = = 8,432,607 3,644,654 691,587 77,920 12,846,768 = = = = = = = = = = = = = = =
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(ii) The deposits are sourced from the following types of customers: Government and statutory bodies Business enterprises Individuals Others 932,413 7,631,613 12,018,644 769,090 21,351,760 = = = = = = = = = = = = = = = 978,380 6,663,947 10,630,492 831,593 19,104,412 = = = = = = = = = = = = = = = Group 2008 RM000 Licensed commercial banks Licensed investment banks Bank Negara Malaysia 783,829 255,000 415,295 1,454,124 = = = = = = = = = = = = = = = 2007 RM000 222,982 259,376 482,358 = = = = = = = = = = = = = = =
20. RECOURSE OBLIGATIONS ON LOANS SOLD TO CAGAMAS This relates to proceeds received from conventional housing loans and hire purchase loans sold directly to Cagamas Berhad with recourse to the Group. Under the agreement, the Group undertakes to administer the loans on behalf of Cagamas Berhad and to buy back any loans which are regarded as defective based on pre-determined and agreed upon prudential criteria set by Cagamas Berhad. 21. BILLS AND ACCEPTANCES PAYABLE Bills and acceptances payable represents the Groups own bills and acceptances rediscounted and outstanding in the market. 22. BALANCES DUE TO CLIENTS AND BROKERS Group 2008 RM000 Due to clients Due to brokers 52,249 60,377 112,626 = = = = = = = = = = = = = = = 2007 RM000 188,823 180,675 369,498 = = = = = = = = = = = = = = =
These mainly relate to amounts payable to non-margin clients and outstanding contracts entered into on behalf of clients where settlement via the Central Depository System has yet to be made. AIBBs normal trade credit terms for non-margin clients is 3 market days according to Bursa Malaysia Securities Berhads FDSS trading rules.
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(a) Included in remisiers accounts are deposits of RM5,762,000 (2007: RM6,567,000) which bear weighted average effective interest rate of 3.28% (2007: 3.16%) per annum. (b) The amount due to subsidiaries are unsecured, interest-free and have no fixed terms of repayment. 24. SUBORDINATED BONDS Group 2008 RM000 At face value The following are the salient features of the said bonds: Description: Tenure: Settlement date: Anniversary date: Maturity date: Interest coupon: Revision of interest: Redemption option: Final redemption: 10 year from the Issue Date on a non-callable 5 year basis 10 years 26 May 2016 26 May 26 May 2011 6.09% per annum, subject to revision of rate in year six The bonds, unless redeemed at the end of 5 years from the settlement date, shall bear interest of 7.59% per annum from the sixth year onwards until the final redemption The issuer may redeem the bonds in part or in whole, at any anniversary date after 5 years from the settlement date; namely on 26 May in year 2011 or thereafter At par on maturity date 600,000 = = = = = = = = = = = = = = = 2007 RM000 600,000 = = = = = = = = = = = = = = =
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One-year Commercial Papers 2006/2007 - secured The Programme will be unsecured except for the following:
= = = = = = = = = = = = = = =
200,000 = = = = = = = = = = = = = = =
(i) Special First Issuance of CP/MTN of nominal value of RM200 million where the said CP/MTN will be secured against a Standby Letter of Credit/Bank Guarantee to be issued by DBS Bank Ltd, Labuan Branch; (ii) CPs up to the nominal value of RM100 million where the said CPs will be secured against a Standby Letter of Credit/Bank Guarantee to be issued by DBS Bank Ltd, Labuan Branch. On 18 September 2007, the Company had fully redeemed the Special First Issuance of Commercial Papers of RM200 million upon its maturity. 26. SHARE CAPITAL Number of Ordinary Shares of RM1 each (in 000) 2008 2007 Authorised At beginning and end of the year Issued and fully paid At beginning of the year Exercise of warrants At end of the year 1,217,670 330,436 1,548,106 = = = = = = = = = = = = = = = 1,167,978 49,692 1,217,670 = = = = = = = = = = = = = = = 1,217,670 330,436 1,548,106 = = = = = = = = = = = = = = = 1,167,978 49,692 1,217,670 = = = = = = = = = = = = = = = 2,000,000 = = = = = = = = = = = = = = = 2,000,000 = = = = = = = = = = = = = = = 2,000,000 = = = = = = = = = = = = = = = 2,000,000 = = = = = = = = = = = = = = = Amount 2008 RM000 2007 RM000
During the financial year, the issued and paid-up share capital of the Company was increased from RM1,217,669,947 comprising 1,217,669,947 ordinary shares of RM1.00 each to RM1,548,105,929 comprising 1,548,105,929 ordinary shares of RM1.00 each by the issuance of 330,435,982 new ordinary shares of RM1.00 each at an exercise price of RM1.21 per RM1.00 ordinary share arising from the exercise of 330,435,982 2002/2007 Warrants.
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(e)
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27. RESERVES (contd) (a) The statutory reserve is maintained by the Group, in compliance with Section 36 of the Banking and Financial Institutions Act, 1989 and the amount of RM366,910,000 (2007: RM268,125,000) represents the groups share of the post acquisition statutory reserve. The statutory reserve is not distributable as dividends. (b) The captial reserve is in respect of retained profit capitalised for a bonus issue by a subsidiary. (c) The revaluation reserve is in respect of unrealised fair value gains and losses on securities available-for-sale. (d) The employees share scheme reserve relates to the equity-settled share options/grants to Directors and employees. This reserve is made up of the estimated fair value of the share options/share grants based on the cumulative services received from Directors and employees over the vesting period. (e) Prior to the year of assessment 2008, Malaysian companies adopted the full imputation system. In accordance with the Finance Act 2007 which was gazetted on 28 December 2007, companies shall not be entitled to deduct tax on dividend paid, credited or distributed to its shareholders, and such dividends will be exempted from tax in the hands of the shareholders (single tier system). However, there is a transitional period of six years, expiring on 31 December 2013, to allow companies to pay franked dividends to their shareholders using their section 108 balance under limited circumstances. Companies also have an irrevocable option to disregard their accumulated tax credit under Section 108 of the Income Tax Act, 1967 and opt to pay dividends under the single tier system. The change in the tax legislation also provides for the Section 108 balance to be locked-in as at 31 December 2007 in accordance with Section 39 of the Finance Act 2007. On 26 March 2008, the Company paid a second interim dividend of 4.50 sen per share comprising of 4.15 sen dividend less 26% tax and 0.35 sen single-tier exempt dividend in respect of the financial year ended 31 March 2008. The applicable 26% tax on 4.15 sen was franked using the available balance of the Section 108 as at 31 December 2007. With the franking of this portion of the dividend, the Company had utilise its available Section 108 balance and, on the same day, exercised the irrevocable option to elect for the single tier system. Hence, the remaining 0.35 sen portion of the dividend is exempt under the single tier system. The Company will distribute subsequent dividends out of its retained profits under the single tier system. 28. SHARES HELD FOR EMPLOYEES SHARE SCHEME A trust has been established for the ESS and is administrated by an appointed trustee. The Trustee will be entitled from time to time to accept financial assistance from the Company upon such terms and conditions as stipulated in the Trust Deed dated 3 December 2007 and the Trustee may purchase the Companys shares from the open market for the purpose of the ESS. The Trustee shall refrain from exercising any voting rights attached to these shares. In accordance with FRS 132 Financial Statements - Presentation and Disclosure, the share purchased for the benefit of the ESS are recorded as Share Held for ESS in the equity on the balance sheet. During the financial year, the Trustee of ESS had purchased 9,374,700 of the Companys issued ordinary shares from the open market at an average price of RM2.79 per share. The total consideration paid for the purchase including the transaction costs was RM26,253,810. As at 31 March 2008, the Trustee of the ESS held 9,374,700 ordinary shares representing 0.61% of the issued and paid-up capital of the Company. There were no share options or share grants being vested during the financial year. 29. EMPLOYEES SHARE SCHEME (ESS) The Alliance Financial Group Berhad Employees Share Scheme (ESS) is governed by the Bye-Laws approved by the shareholders at an Extraordinary General Meeting held on 28 August 2007. The ESS which comprises of the Share Option Plan, the Share Grant Plan and the Share Save Plan took effect on 3 December 2007 and is in force for a period of 10 years.
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63
29. EMPLOYEES SHARE SCHEME (ESS) (contd) The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options/share grants during the financial year: Share Options Number of share options Group Company 000 000 Offerred/awarded Vested Exercised Lapsed At end of year WAEP (RM) (a) Details of share options/share grants at the end of financial year: WAEP RM 2008 Share Options 3.07 Exercise Period 8,738 (69) 8,669 = = = = = = = = = = = = = = = 3.07 = = = = = = = = = = = = = = = 94 94 = = = = = = = = = = = = = = = 3.07 = = = = = = = = = = = = = = = Share Grants Number of share grants Group Company 000 000 2,007 (22) 1,985 = = = = = = = = = = = = = = = 18 18 = = = = = = = = = = = = = = =
2008 Share Grants - First 50% of the share grants - Second 50% of the share grants (b) Fair value of share options/share grants offered/awarded during the financial year:
12.12.09 12.12.10
The fair value of share options/share grants under the Share Option Plan and the Share Grant Plan during the financial year was estimated by an external valuer using a binomial model, taking into account the terms and conditions upon which the share options/share grants were offered/awarded. The fair value of share options and share grants measured at offer/award date and the assumptions are as follows:
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The expected life of the share options is based on the exercisable period of the share options 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 share options/share grants were incorporated into the measurement of fair value. The risk-free rate is employed using a range of risk-free rates for Malaysian Government Securities (MGS) tenure from 1-year to 20-year MGS. 30. OPERATING REVENUE Operating revenue of the Group comprises revenue derived from commercial banking, investment banking, stockbroking, Islamic banking, sale of trust units, trustee services and dividend income from investment, but excludes all related company transactions. Operating revenue of the Company comprises gross interest income, dividend income and interest income derived from subsidiaries. 31. INTEREST INCOME Group 2008 RM000 Loans, advances and financing - Interest/income other than recoveries from NPLs - Recoveries from NPLs Money at call and deposit placements with financial institutions Securities held-for-trading Securities available-for-sale Securities held-to-maturity Others Carried forward 776,224 88,253 189,045 1,156 87,615 29,045 1,384 1,172,722 2007 RM000 738,812 107,150 146,108 56 44,346 59,859 2,779 1,099,110 2008 RM000 10,973 10,973 Company 2007 RM000 1,079 214 1,293
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Brought forward Accretion of discount less amortisation of premium Net interest/income suspended
Deposits and placements of banks and other financial institutions Deposits from customers Loans sold to Cagamas Subordinated bonds Short term borrowing Others
(a) Fee income: Commissions Service charges and fees Portfolio management Corporate advisory fees Underwriting commissions Brokerage fees Guarantee fees Processing fees Commitment fees Other fee income 22,112 23,450 7,066 5,047 3,667 44,310 10,359 13,345 13,474 15,816 158,646 = = = = = = = = = = = = = = =
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3,905 58,074 = = = = = = = = = = = = = = =
2,465 11 18,021 = = = = = = = = = = = = = = =
103,653 103,653 = = = = = = = = = = = = = = =
10,000 10,000 = = = = = = = = = = = = = = =
(c) Other income: Foreign exchange profit/(loss) - Realised - Unrealised Rental income Gain on disposal of property, plant and equipment Gain/(loss) on disposal of leasehold land Gain on disposal of foreclosed properties Write-back on investment in subsidiaries Return on capital from investment Others 48,768 (8,283) 327 774 184 1,332 15 5,602 48,719 265,439 = = = = = = = = = = = = = = = 24,477 4,349 453 5,170 (195) 266 8 5,059 39,587 213,770 = = = = = = = = = = = = = = = 15 70 85 103,738 = = = = = = = = = = = = = = = 308 6 314 10,314 = = = = = = = = = = = = = = =
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Personnel costs - Salaries, allowances and bonuses - Pension costs - Share options/grants under ESS - Others
205,895 36,096 1,438 32,243 275,672 34,934 14,510 126 25,601 5,835 7,074 24,185 14,964 127,229 6,722 1,525 6,264 14,511 14,382 5,980 2,362 14,783 15,163 52,670 470,082 = = = = = = = = = = = = = = =
Establishment costs - Depreciation of property, plant and equipment - Amortisation of computer software - Amortisation of leasehold land - Rental of premises - Water and electricity - Repairs and maintenance - EDP expenses - Others
Administration and general expenses - Communication expenses - Printing and stationery - Insurance - Professional fees - Others
68
Directors of Subsidiaries: Executive Directors - Salaries and allowances - Bonuses - Share options/grants under ESS - Benefits-in-kind
69
34. OTHER OPERATING EXPENSES (contd) (b) Directors remuneration (contd) Directors of Subsidiaries: (contd) Group 2008 RM000 Non-Executive Directors - Allowances - Fees 348 522 870 38 79 117 5,787 = = = = = = = = = = = = = = = 5,678 = = = = = = = = = = = = = = = 2007 RM000 441 777 1,218 783 30 30 843 5,273 = = = = = = = = = = = = = = = 5,158 = = = = = = = = = = = = = = = 2008 RM000 663 = = = = = = = = = = = = = = = 635 = = = = = = = = = = = = = = = Company 2007 RM000 642 = = = = = = = = = = = = = = = 615 = = = = = = = = = = = = = = = Group 2008 RM000 (Write-back)/allowance for bad and doubtful debts and financing: (a) Specific allowance - Made during the year - Written back during the year (b) General allowance - Made during the year - Written back during the year Bad debts on loans and financing - Recovered - Written off 2007 RM000
Total Total Directors remuneration excluding benefits-in-kind 35. (WRITE-BACK)/ALLOWANCE FOR LOSSES ON LOANS, ADVANCES AND FINANCING
641,980 (230,235) 75,959 (37,479) (180,439) 14,183 283,969 2,149 3,501 289,619
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37. TAXATION AND ZAKAT Group 2008 RM000 Income tax: Provision for current year (Over)/under provision in prior years Deferred tax (Note 17): Relating to origination and reversal of temporary differences Relating to change in tax rate (Over)/under provision in prior years Taxation Zakat (27,347) 5,467 (4,102) 121,925 30 121,955 = = = = = = = = = = = = = = = 3,700 8,909 (15,625) 43,419 30 43,449 = = = = = = = = = = = = = = = 39 (14) 31 27,699 27,699 = = = = = = = = = = = = = = = 95 (3) (1,189) 2,050 2,050 = = = = = = = = = = = = = = = 166,180 (18,273) 45,049 1,386 30,343 (2,700) 2,700 447 2007 RM000 2008 RM000 Company 2007 RM000
Income tax is calculated at the Malaysian Statutory tax rate of 26% (2007 : 27%) of the estimated assessable profit for the year.
71
37. TAXATION AND ZAKAT (contd) 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 2008 RM000 Profit/(loss) before taxation Taxation at Malaysian statutory tax rate of 26% (2007: 27%) Effect of income subject to tax rate of 20% Effect of changes in tax rates on opening balance of deferred tax Effect on deferred tax for reduction in income tax rate Deferred tax assets recognised at different tax rate Effect of expenses not deductible for tax purposes Effect of income not subject to tax Effect of changes in tax rates on dividend income taxed on receipt basis (Over)/under provision of tax expense in prior years - deferred tax - income tax Effect of utilisation of previously unrecognised tax losses Deferred tax assets not recognised Tax expense for the year 502,050 = = = = = = = = = = = = = = = 130,533 (6) 4,348 1,119 5,774 (214) 2,122 (4,102) (18,273) (1,706) 2,330 121,925 = = = = = = = = = = = = = = = 2007 RM000 150,812 = = = = = = = = = = = = = = = 40,719 (1) 8,909 7,915 767 (15,625) 1,385 (1,105) 455 43,419 = = = = = = = = = = = = = = = 2008 RM000 100,948 = = = = = = = = = = = = = = = 26,246 (14) 1,690 (4) 2,450 31 (2,700) 27,699 = = = = = = = = = = = = = = = Company 2007 RM000 (1,495) = = = = = = = = = = = = = = = (404) (3) 3,199 (1,189) 447 2,050 = = = = = = = = = = = = = = =
Tax savings during the year arising from: - utilisation of current year tax losses - utilisation of previously unrecognised tax losses - utilisation of tax losses brought forward from previous year
1,706 = = = = = = = = = = = = = = =
90 1,105 44,527 = = = = = = = = = = = = = = =
= = = = = = = = = = = = = = =
= = = = = = = = = = = = = = =
With effect from year of assessment 2008, corporate tax rate is at 26%. The Malaysian Budget 2008 also announced the reduction of corporate tax rate to 25% in 2009. Consequently, deferred tax assets and liabilities are measured using the corporate tax rate of 25%.
72
The calculation of the diluted earnings per share is based on net profit attributable to equity holders of the Company for the financial year ended 31 March 2007 divided by the adjusted weighted average number of ordinary shares of RM1.00 each in issue and taken into account the assumed exercise of the outstanding 2002/2007 warrants for the financial year ended 31 March 2007. Diluted earning per share is not applicable for the current financial year ended 31 March 2008, as the 2002/2007 Warrants of the Company had expired on 8 June 2007. Group 2007 Net profit attributable to equity holders of the Company (RM000) Weighted average number of ordinary shares in issue (000) Effect of exercise of warrants (000) Adjusted weighted average number of ordinary shares in issue and issuable (000) Diluted earnings per share (sen) 107,258 1,174,337 180,077 1,354,414 = = = = = = = = = = = = = = = 7.9 = = = = = = = = = = = = = = =
73
39. DIVIDENDS
Recognised during the year: First interim dividend 1.75 sen (less 27% taxation), on 1,548,105,929 ordinary shares of RM1.00 each, declared in the financial year ended 31 March 2008, paid on 20 September 2007 Second interim dividend 4.15 sen (less 26% taxation) and 0.35 sen single-tier exempt dividend, on 1,548,105,929 ordinary shares of RM1.00 each, declared in the financial year ended 31 March 2008, paid on 26 March 2008
19,777 = = = = = = = = = = = = = = =
= = = = = = = = = = = = = = =
1.28 = = = = = = = = = = = = = = =
= = = = = = = = = = = = = = =
52,794* = = = = = = = = = = = = = = =
= = = = = = = = = = = = = = =
3.41 = = = = = = = = = = = = = = =
= = = = = = = = = = = = = = =
* Dividends paid on the shares held in Trust pursuant to the Companys ESS which are classified as shares held for ESS are not accounted for in the shareholders equity. An amount of RM167,000, being dividends paid for those shares were added back to the appropriation of retained profits in respect of the second interim dividend. 40. CAPITAL COMMITMENTS Group 2008 RM000 Capital expenditure: Authorised and contracted for Authorised but not contracted for 55,229 35,235 90,464 = = = = = = = = = = = = = = = 2007 RM000 74,820 15,217 90,037 = = = = = = = = = = = = = = =
41. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Group made various commitments and incurred certain contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of these transactions.
74
Group Direct credit substitutes Transaction-related contingent items Short-term self-liquidating trade-related contingencies Irrevocable commitments to extend credit: - maturity exceeding one year - maturity not exceeding one year Foreign exchange related contracts: - less than one year Underwriting liabilities Other commitments and contingencies
3,560,974 107,963 51,475 585,023 18,458 4,363 27,000 13,500 13,500 211,643 13,976,101 3,292,594 2,829,213 7,973,462 970,763 891,227 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
* The credit equivalent amount is arrived at using the credit conversion factor as per BNM guidelines. The foreign exchange related contracts are all forward contracts. Foreign exchange contracts are subject to market risk and credit risk. Market Risk Market risk is the potential change in value caused by movement in market rates or prices. The contractual amounts stated above provide only a measure of involvement in these types of transactions and do not represent the amounts subject to market risk. Exposure to market risk may be reduced through offsetting on and off-balance sheet positions. As at the end of the financial year, the amount of market risk is as follows: Group 2008 RM000 Amount of contracts which were not hedged and hence, exposed to market risk 3,963 = = = = = = = = = = = = = = = 2007 RM000 742 = = = = = = = = = = = = = = =
75
41. COMMITMENTS AND CONTINGENCIES (contd) Credit Risk Credit risk arises from the possibility that a counterparty may fail to meet their financial commitments when due, in particular where the Groups stands to gain from the transaction. The potential loss amount may increase or decrease over the life of the contracts, mainly as a function of market rates or prices to replace these positions. As at the end of the financial year, the amounts of credit risk are as follows: Group 2008 RM000 Exposure to credit risk, measured in terms of cost to replace the profitable contracts 42. FINANCIAL RISK MANAGEMENT POLICIES The Group manages risk within clearly defined guidelines that are approved by the Directors. In addition, the Board of Directors of the Group perform an independent oversight function to ensure that risk management policies are complied with, through a framework of established controls and reporting process. The guidelines and policies adopted by the Group to manage the main risks that arise in the conduct of its business activities are as follows: (a) Credit Risk Credit Risk is the potential loss of revenue and/or principal arising from defaults by borrower or counterparties through business activities in lending, trading, investing and hedging. Exposure to credit risk may be categorised as primary or secondary. Primary exposure to credit risk arises from loans and advances. The credit exposure amount is represented by the carrying amount of loans and advances in the Balance Sheet. The Groups lending activities in the Group are guided by the Groups Credit Policies and Guidelines, in line with Best Practices in the Management of Credit Risk issued by Bank Negara Malaysia. These credit policies and guidelines also include an internal credit rating model adopted by the Group to grade its loan accounts according to the borrowers risk profiles. On the other hand, secondary credit exposure may arises from financial transactions with counterparties (including interbank financial market activities, derivative instruments used for hedging and debt instruments) of which the amount of credit exposure in respect of these instruments is equal to the carrying amount of these assets in the Balance Sheet. This exposure is monitored on an on-going basis against approved counterparty limits. The credit exposure arising from Off-Balance Sheet activities i.e. commitments and contingencies, is set out in Note 41. Credit risk arising from Treasury activities are managed by appropriate policies and supported by the Groups Risk Management Framework. (b) Liquidity Risk Liquidity risk refers to the Groups ability to maintain adequate liquid assets so as to punctually meet its financial obligations and commitments upon maturity and at a reasonable cost. Liquidity risk is managed through the New Liquidity Framework issued by Bank Negara Malaysia and other internal policies and ALCO benchmarks. In case of need, the Group will activate its contingency funding plans and strategies as defensive measures to mitigate the impact of adverse changes in liquidity in the market place. 34,889 = = = = = = = = = = = = = = = 2007 RM000 7,176 = = = = = = = = = = = = = = =
76
77
Group
2008
Assets Cash and short-term funds Deposits and placement with financial institutions Securities held-for-trading Securities available-for-sale Securities held-to-maturity Loans, advances and financing Balances due from clients and brokers Other non-interest sensitive balances Total assets Liabilities Deposits from customers Deposits and placement of banks and other financial institutions Bills and acceptances payable Subordinated bonds Recourse obligations on loans sold to Cagamas Balances due to clients and brokers Other non-interest sensitive balances Total liabilities Equity Minority interests Total liabilities and equity On-balance sheet interest sensitivity gap Off-balance sheet interest sensitivity gap Total interest sensitivity gap
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
953,698 953,698
112,360 112,360
21,351,760 1,454,124 161,418 600,000 255,391 112,626 1,152,684 25,088,003 2,589,438 4,950 27,682,391
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = * Non performing loans, specific allowance and general allowance of the Group are classified as non-interest sensitive.
78
Company
2008
Assets Cash and short-term funds Other assets Total assets Liabilities Other liabilities Total liabilities Equity Total liabilities and equity On-balance sheet interest sensitivity gap Off-balance sheet interest sensitivity gap Total interest sensitivity gap
64,600 64,600
3.49
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
64,600 64,600
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
79
2007
Assets Cash and short-term funds Deposits and placement with financial institutions Securities held-or-trading Securities available-for-sale Securities held-to-maturity Loans, advances and financing Balances due from clients and brokers Other non-interest sensitive balances Total assets Liabilities Deposits from customers Deposits and placement of banks and other financial institutions Obligations on securities sold under repurchase agreements Bills and acceptances payable Subordinated bonds Recourse obligations on loans sold to Cagamas Balances due to clients and brokers Short-term borrowing Other non-interest sensitive balances Total liabilities Equity Minority interests Total liabilities and equity On-balance sheet interest sensitivity gap Off-balance sheet interest sensitivity gap Total interest sensitivity gap
Up to 1 month RM000
3,697,143 900 16,316 573,233 8,692,438 371,837 13,351,867
Total RM000
4,149,722 2,428,901 14,978 2,052,983 2,430,081 13,433,594 389,159 1,490,929 26,390,347
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
11,195,404 189,343 2,010,098 148,840 369,205 13,912,890 13,912,890 (561,023) (561,023) 1,545,867 36,891 224,248 1,807,006 1,807,006 2,900,780 2,900,780 1,948,138 2,888 108,183 2,059,209 2,059,209 (1,282,480) (1,282,480) 3,645,496 10,585 18,895 200,000 3,874,976 3,874,976 (3,192,351) (3,192,351) 769,507 117,651 600,000 294,683 1,781,841 1,781,841 1,542,623 1,542,623 125,000 125,000 125,000 912,242 912,242 293 881,599 881,892 1,942,722 4,811 2,829,425 (337,983) (337,983) 18,192 18,192 19,104,412 482,358 2,010,098 481,271 600,000 313,578 369,498 200,000 881,599 24,442,814 1,942,722 4,811 26,390,347 2.75 2.20 3.25 3.76 6.09 3.46 2.50 4.58
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = * Non performing loans, specific allowance and general allowance of the Group are classified as non-interest sensitive.
80
Company
2007
Assets Cash and short-term funds Deposits and placement with financial institutions Other assets Total assets Liabilities Short term borrowing Other liabilities Total liabilities Equity Total liabilities and equity On-balance sheet interest sensitivity gap Off-balance sheet interest sensitivity gap Total interest sensitivity gap
30,400 30,400
36,000 36,000
3.51
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
30,400 30,400
36,000 36,000
4.58
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
81
44. CAPITAL ADEQUACY BNM guidelines on capital adequacy require the Alliance Bank group to maintain an adequate level of capital to withstand any losses which may result from credit and other risks associated with financing operations. The capital adequacy ratio is computed based on the eligible capital in relation to the total risk-weighted assets as determined by BNM. The Alliance Bank group implemented its Basel II risk-weighted assets computation under the BNMs Risk-Weighted Capital Adequacy Framework with effect from 1 January 2008. The group has adopted the Standardised Approach for credit risk and Basic Indicator Approach for operational risk computation. The comparative figures have not been restated as the requirement for Basel II risk weighted assets computation took effect from 1 January 2008. The capital adequacy ratios of the Alliance Bank group is as follows: Basel II 2008 % Before deducting proposed dividends Core capital ratio Risk-weighted capital ratio After deducting proposed dividends Core capital ratio Risk-weighted capital ratio Components of Tier-I and Tier-II capital is as follows: Basel II 2008 RM000 Tier-I capital Paid-up share capital Preference shares Share premium Retained profits Statutory reserves Other reserves Minority interests 596,517 4,000 597,517 702,407 608,948 10,035 4,949 2,524,373 (304,149) (151,985) 2,068,239 = = = = = = = = = = = = = = = 596,517 2,000 399,517 504,137 511,450 10,035 4,810 2,028,466 (304,149) (120,303) 1,604,014 = = = = = = = = = = = = = = = Basel I 2007 RM000 11.46 16.39 = = = = = = = = = = = = = = = 11.23 16.16 = = = = = = = = = = = = = = = Basel I 2007 % 10.89 16.62 = = = = = = = = = = = = = = = 10.73 16.47 = = = = = = = = = = = = = = =
Less : Purchased goodwill/goodwill on consolidation Deferred tax assets Total Tier-I capital
82
83
45. LEASE COMMITMENTS (contd) The operating leases for the Group and the Companys other premises typically run for a initial period of three years with options for renewal. These leases are cancellable but are usually renewed upon expiry or replaced by leases on other properties. Future minimum lease commitments are anticipated to be not less than the rental expense for 2008. 46. SIGNIFICANT RELATED PARTY TRANSACTIONS In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are the Groups and the Companys other significant related party transactions and balances: Group 2008 RM000 (a) Transactions Interest income - subsidiaries - key management personnel Dividend income - subsidiaries Overhead expenses recharged - subsidiaries Interest expenses - related companies - key management personnel Facility agent fees expense - related companies Treasury and commercial fees expense - related companies Purchase and maintenance of Automated Debt and Recovery System - related companies Fund management fees expense - related companies (15) 1,725 273 (36) 72 1,848 13 4,334 1,548 (10,863) (103,653) (713) (1,233) (10,000) 46 2007 RM000 2008 RM000 Company 2007 RM000
84
(i) The above transactions have been entered into in the normal course of business based on negotiated and mutually agreed terms, and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties. (ii) The affiliated companies refer to the group of companies within a substantial corporate shareholder of the Company. The transactions with affiliated companies are aggregated because these transactions are similar in nature and no single transaction is significant enough to warrant separate disclosure. (iii) Key management personnel refer to those persons having authority and responsibility for planning, directing and controlling the activities of the Group and the Company, directly or indirectly, including Executive Directors and Non-Executive Directors of the Group and the Company (including close members of their families). Other members of key management personnel of the Group are the Group Chief Executive Officer, Group Chief Operating Officer, Group Chief Financial Officer, Group Chief Risk Officer and Group Company Secretary. (c) Compensation of key management personnel Remuneration of directors and other members of key management for the year is as follows: Group 2008 RM000 Short-term employee benefits Fees Salary and other remuneration, including meeting allowances Share options/grants under ESS Benefits-in-kind 1,551 7,918 202 145 9,816 = = = = = = = = = = = = = = = 2008 RM000 Directors remuneration (Note 34) 5,670 = = = = = = = = = = = = = = = 2007 RM000 1,778 5,406 98 7,282 = = = = = = = = = = = = = = = Group 2007 RM000 4,430 = = = = = = = = = = = = = = = 2008 RM000 663 = = = = = = = = = = = = = = = 2008 RM000 432 489 9 47 977 = = = = = = = = = = = = = = = Company 2007 RM000 424 337 33 794 = = = = = = = = = = = = = = = 2007 RM000 642 = = = = = = = = = = = = = = =
85
46. SIGNIFICANT RELATED PARTY TRANSACTIONS (contd) (c) Compensation of key management personnel (contd) Executive Directors of the Group and other members of key management have been granted the following number of share options/share grants under the ESS: Group 2008 Share Options Share Grants 000 000 Offered/awarded Vested Exercised Lapsed At end of year 1,556 1,556 = = = = = = = = = = = = = = = 219 219 = = = = = = = = = = = = = = = Company 2008 Share Options Share Grants 000 000 68 68 = = = = = = = = = = = = = = = 9 9 = = = = = = = = = = = = = = =
The above share options/share grants were offered/awarded on the same terms and conditions as those offered to other employees of the Group (Note 29). 47. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The scarrying amounts and the fair value of the financial assets and liabilities of the Group and of the Company are as follows: 2008 Carrying Amount RM000 Fair Value RM000 Carrying Amount RM000 2007 Fair Value RM000
Group Financial assets Cash and short-term funds Deposits and placements with financial institutions Securities held-for-trading Securities available-for-sale Securities held-to-maturity Loans, advances and financing Balances due from clients and brokers
86
Group Financial liabilities Deposits from customers Deposits and placements of banks and other financial institutions Obligations on securities sold under repurchase agreements Recourse obligations on loans sold to Cagamas Bills and acceptances payable Balances due to clients and brokers Subordinated bonds Short term borrowing Company Financial assets Cash and short-term funds Deposits and placements with financial institutions Financial liability Short-term borrowing
66,299 = = = = = = = = = = = = = = =
66,299 = = = = = = = = = = = = = = =
4,762 66,400 = = = = = = = = = = = = = = =
4,762 66,400 = = = = = = = = = = = = = = =
= = = = = = = = = = = = = = =
= = = = = = = = = = = = = = =
200,000 = = = = = = = = = = = = = = =
200,000 = = = = = = = = = = = = = = =
Note : The fair value of the other assets and other liabilities, which are considered short-term in nature, are estimated to be approximately their carrying values. The methods and assumptions used in estimating the fair values of financial instruments are as follows: (i) Cash and short-term funds The carrying amounts approximate fair values due to the relatively short maturity of the financial instruments. (ii) Deposits and placements with financial institutions The fair values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. For those financial instruments with maturity of more than one year, the fair values are estimated based on discounted cash flows using applicable prevailing market rates for placements of similar credit risk and similar remaining maturity as at the balance sheet date.
87
47. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (contd) (iii) Securities held-for-trading, Securities available-for-sale and Securities held-to-maturity The fair values are estimated based on quoted or observable market prices at the balance sheet date. Where such quoted or observable market prices are not available, the fair values are estimated using pricing models or discounted cash flow techniques. Where discounted cash flow technique is used, the expected future cash flows are discounted using prevailing market rates for a similar instrument at the balance sheet date. (iv) Loans, advances and financing The fair values of fixed rate loans with remaining maturity of less than one year and variable rate loans are estimated to approximate their carrying values. For fixed rate loans and Islamic financing with remaining maturity of more than one year, the fair values are estimated based on expected future cash flows of contractual instalment payments and discounted at applicable prevailing rates at balance sheet date offered to new borrowers with similar credit profiles. In respect of non-performing loans, the fair values are deemed to approximate the carrying values, net of specific allowance for bad and doubtful debts and financing. (v) Deposits from customers The fair values of deposit liabilities payable on demand (demand and savings deposits), or deposits with maturity of less than one year are estimated to approximate their carrying amounts. The fair values of fixed deposits with remaining maturities of more than one year are estimated based on expected future cash flows discounted at applicable prevailing rates offered for deposits of similar remaining maturities. The fair values of Islamic deposits are deemed to approximate their carrying amounts as profit rates are determined at the end of their holding periods based on the profit generated from the assets invested. For negotiable instruments of deposits, the fair values are estimated based on quoted or observable market prices as at the balance sheet date. Where such quoted or observable market prices are not available, the fair values of negotiable instruments of deposits are estimated using the discounted cash flow technique. (vi) Deposits and placements of banks and other financial institutions, Obligations on securities sold under repurchase agreements and Bills and acceptances payable The carrying values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. (vii)Recourse obligations on loans sold to Cagamas The fair values of recourse obligations on loans sold to Cagamas are determined based on the discounted cash flows of future instalment payments at applicable prevailing Cagamas rates as at the balance sheet date. (viii) Short term borrowing The fair value of short term borrowing which approximates that of the carrying value, is estimated by discounting the expected future cash flows using the current interest rate. (ix) Subordinated bonds The fair value of the Subordinated bonds is estimated based on discounted cash flow techniques using a current yield curve appropriate for the remaining term to maturity. (x) Lending-related commitments The unfunded portion of commitments to extend credit as well as standby and other letters of credit are stated at their carrying amounts, considering that estimating their fair value is not practicable within the constraints of timeliness or cost to determine with sufficient reliability. (xi) Balances due from/due to clients and brokers The carrying amounts are reasonable estimates of the fair values because of their short tenor.
88
REVENUE External revenue Inter-segment revenue Total revenue RESULTS Segment results Unallocated corporate expenses Profit from operations Finance costs Write-back for losses on loans, advances and financing Provision of impairment loss Profit before taxation Taxation Zakat Profit after taxation Minority interests Net profit for the year
Consolidated RM000 1,586,010 1,586,010 = = = = = = = = = = = = = = = 588,215 588,215 (40,808) 60,718 (106,075) 502,050 (121,925) (30) 380,095 (139) 379,956 = = = = = = = = = = = = = = =
* Others comprises investment holding, unit trust, asset management and non-banking business.
89
48. SEGMENTAL REPORTING (contd) 31 March 2008 Commercial Banking RM000 Assets Segment assets Unallocated corporate assets Intangible assets 24,880,682 2,181,343 43,357 27,105,382 223,344 353,665 27,682,391 = = = = = = = = = = = = = = = 25,055,846 32,157 25,088,003 = = = = = = = = = = = = = = = Investment Banking RM000 Others* RM000 Consolidated RM000
Other information Capital expenditure Depreciation of property, plant and equipment Amortisation of leasehold land Amortisation of computer software Other non-cash expenses 78,101 31,232 126 13,806 35,575 2,079 3,033 526 67,263 461 669 178 80,641 34,934 126 14,510 102,838 = = = = = = = = = = = = = = =
* Others comprises investment holding, unit trust, asset management and non-banking business.
90
REVENUE External revenue Inter-segment revenue Total revenue RESULTS Segment results Unallocated corporate expenses Profit from operations Finance costs Allowance for losses on loan, advances and financing Write-back of impairment loss Profit before taxation Taxation Zakat Profit after taxation Minority interests Net profit for the year
Consolidated RM000 1,458,827 1,458,827 = = = = = = = = = = = = = = = 480,343 480,343 (50,115) (289,619) 10,203 150,812 (43,419) (30) 107,363 (105) 107,258 = = = = = = = = = = = = = = =
* Others comprises investment holding, unit trust, asset management and non-banking business.
91
48. SEGMENTAL REPORTING (contd) 31 March 2007 Commercial Banking RM000 Assets Segment assets Unallocated corporate assets Intangible assets 23,458,996 2,363,633 64,065 25,886,694 158,683 344,970 26,390,347 = = = = = = = = = = = = = = = 24,433,805 9,009 24,442,814 = = = = = = = = = = = = = = = Investment Banking RM000 Others* RM000 Consolidated RM000
Other information Capital expenditure Depreciation of property, plant and equipment Amortisation of leasehold land Amortisation of computer software Other non-cash expenses 50,326 14,215 235 13,447 360,398 1,448 3,051 753 18,920 618 528 109 52,392 17,794 235 14,309 379,318 = = = = = = = = = = = = = = =
* Others comprises investment holding, unit trust, asset management and non-banking business.
92
93
49. CHANGES IN ACCOUNTING POLICIES AND ESTIMATES (contd) (b) Comparative figures (contd) Group As previously reported RM000
As restated RM000 Income statements for the year ended 31 March 2007 Operating revenue Interest income Other operating income Other operating expenses 50. SIGNIFICANT EVENTS 1,458,827 1,122,882 213,770 (491,921) = = = = = = = = = = = = = = =
(a) Rationalisation of the Unit Trust Management Business of Alliance Unit Trust Management Berhad (AUTM) and the asset management business of Alliance Capital Asset Management Sdn. Bhd. (ACAM) (Rationalisation Exercise) Pursuant to a Vesting Order granted by the High Court of Malaya at Kuala Lumpur on 28 March 2007 and as part of the rationalisation exercise of the Group, the asset management business of ACAM, a 70% subsidiary of Alliance Investment Bank Berhad, was vested to AUTM, a 70% subsidiary of Alliance Bank Malaysia Berhad, on 2 April 2007. On 4 April 2007, AUTM changed its name to Alliance Investment Management Berhad and carries on the business of management of unit trust funds, provision of fund management and investment advisory services. On 7 June 2007, ACAM was placed under Members Voluntary Winding Up pursuant to Section 254 of the Companies Act, 1965. (b) Expiry of Warrants The 2002/2007 Warrants of the Company had expired on 8 June 2007. There were 2,013,228 warrants not exercised by the expiry date and have accordingly lapsed. The 2002/2007 Warrants were removed from the Official List of Bursa Malaysia Securities Berhad on 11 June 2007. The Company had received a total proceeds of RM466.475 million from the exercise of 385,516,561 of the 2002/2007 Warrants at an exercise price of RM1.21 over the exercise period from 9 September 2002 to 8 June 2007. (c) Change of Name The Company obtained approval from the shareholders on 28 August 2007 and changed its name from Malaysian Plantations Berhad to Alliance Financial Group Berhad with effect from 31 August 2007. (d) Redemption of Commercial Papers/Medium Term Notes On 18 September 2007, the Company had fully redeemed the Special First Issuance of Commercial Papers of RM200 million upon its maturity.
94
95
52. ISLAMIC BANKING BUSINESS BALANCE SHEET AS AT 31 MARCH 2008 Group Note ASSETS Cash and short-term funds Deposits and placements with financial institutions Securities held-to-maturity Securities available-for-sale Financing, advances and other loans Other assets Statutory deposits with Bank Negara Malaysia Deferred tax assets Property, plant and equipment Intangible assets TOTAL ASSETS LIABILITIES AND ISLAMIC BANKING FUNDS Deposits from customers Deposits and placements of banks and other financial institutions Obligations on securities sold under repurchase agreements Bills and acceptances payable Other liabilities Provision for taxation TOTAL LIABILITIES Islamic Banking Funds Reserves TOTAL LIABILITIES AND ISLAMIC BANKING FUNDS COMMITMENTS AND CONTINGENCIES (t) (j) (k) 1,911,739 43,128 133,655 96,722 2,185,244 792,100 229,922 3,207,266 = = = = = = = = = = = = = = = 498,504 = = = = = = = = = = = = = = = 1,941,744 161,505 88,722 71 92,038 58,907 2,342,987 792,100 158,841 3,293,928 = = = = = = = = = = = = = = = 335,568 = = = = = = = = = = = = = = = (a) (b) (c) (d) (e) (f) (g) (h) (i) 724,084 20,000 274,524 58,843 2,020,503 19,718 63,383 25,405 176 630 3,207,266 = = = = = = = = = = = = = = = 411,305 30,000 480,657 155,795 2,085,780 42,544 73,178 14,105 147 417 3,293,928 = = = = = = = = = = = = = = = 2008 RM000 2007 RM000
(l)
96
(o)
(p)
(q)
(r)
97
52. ISLAMIC BANKING BUSINESS (contd) STATEMENT OF CHANGES IN ISLAMIC BANKING FUNDS FOR THE YEAR ENDED 31 MARCH 2008 Capital funds RM000 GROUP At 1 April 2006 Net profit for the year Unrealised net gain on revaluation of securites available-for-sale At 31 March 2007 At 1 April 2007 Net profit for the year Unrealised net loss on revaluation of securities available-for-sale At 31 March 2008 792,100 792,100 = = = = = = = = = = = = = = = 792,100 792,100 = = = = = = = = = = = = = = = 358 338 696 = = = = = = = = = = = = = = = 696 (926) (230) = = = = = = = = = = = = = = = 95,032 63,113 158,145 = = = = = = = = = = = = = = = 158,145 72,007 230,152 = = = = = = = = = = = = = = = 887,490 63,113 338 950,941 = = = = = = = = = = = = = = = 950,941 72,007 (926) 1,022,022 = = = = = = = = = = = = = = = Revaluation reserves RM000 Retained profits RM000 Total RM000
98
99
52. ISLAMIC BANKING BUSINESS (contd) CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2008 (contd) Group 2008 RM000 CASH FLOWS FROM INVESTING ACTIVITIES Income from securities held-to-maturity Income from securities available-for-sale Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Purchase of computer software Purchase of securities held-to-maturity, net of maturity and redemption proceeds Purchase of securities available-for-sale, net of sale proceeds Net cash generated from investing activities CASH FLOWS FROM FINANCING ACTIVITY Funds allocated to Islamic banking Net cash generated from financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and cash equivalents comprise the following: Cash and short-term funds Deposits and placements with financial institutions 724,084 20,000 744,084 = = = = = = = = = = = = = = = 411,305 30,000 441,305 = = = = = = = = = = = = = = = 302,779 441,305 744,084 = = = = = = = = = = = = = = = 7,254 434,051 441,305 = = = = = = = = = = = = = = = 4,691 4,482 (111) 84 (320) 224,023 90,530 323,379 8,442 8,129 (138) (312) 77,927 31,755 125,803 2007 RM000
100
(b) DEPOSITS AND PLACEMENTS WITH FINANCIAL INSTITUTIONS Bank Negara Malaysia (c) SECURITIES HELD-TO-MATURITY At amortised cost Money market instruments: Malaysian Government investment certificates Bankers acceptances Khazanah bonds Quoted securities in Malaysia: Debt securities Unquoted securities: Debt securities 20,000 = = = = = = = = = = = = = = = 30,000 = = = = = = = = = = = = = = =
140,931 55,026 169,482 14,990 103,604 484,033 (3,376) 480,657 = = = = = = = = = = = = = = = 140,249 54,759 99,389 = = = = = = = = = = = = = = =
(i) Market value of money market instruments and quoted securities: Malaysian Government investment certificates Bankers acceptances Khazanah bonds
101
52. ISLAMIC BANKING BUSINESS (contd) (c) SECURITIES HELD-TO-MATURITY (contd) Group 2008 RM000 (ii) The maturity structure of money market instruments held are as follows: Within one year One year to three years Three years to five years 137,948 67,741 13,582 219,271 = = = = = = = = = = = = = = = 2007 RM000 157,729 174,476 33,234 365,439 = = = = = = = = = = = = = = =
(d) SECURITIES AVAILABLE-FOR-SALE At fair value Money market instruments: Negotiable instruments of deposits Banker acceptances General Investment Instruments Unquoted debt securities: Debt securities
(e) FINANCING, ADVANCES AND OTHER LOANS (i) By type: Cash line financing Term loans/financing - Housing loans/financing - Hire purchase receivables - Lease receivables - Other term loans/financing Carried forward
102
Unearned income Gross financing, advances and other loans Allowance for bad and doubtful debts and financing - Specific - General Total net financing, advances and other loans (ii) By maturity structure: Within one year One year to three years Three years to five years Over five years Gross financing, advances and other loans (iii) By contract: Bai Bithaman Ajil (deferred payment sale) Ijarah Thamma Ai-Bai/AITAB (finance lease) Murabahah (cost-plus) Qard (benevolent loan) Bai Al-Dayn (debt trading) Al-Dai Inah Others Gross financing, advances and other loans
103
52. ISLAMIC BANKING BUSINESS (contd) (e) FINANCING, ADVANCES AND OTHER LOANS (contd)
(iv) By type of customer: Domestic non-bank financial institutions - Others Domestic business enterprises - Small and medium enterprises - Others Government and statutory bodies Individuals Other domestic entities Foreign entities Gross financing, advances and other loans (v) By profit rate sensitivity: Fixed rate - Housing loans/financing - Hire purchase receivables - Other fixed rate loans/financing Variable rate - Base lending rate plus - Cost plus - Other variable rates Gross financing, advances and other loans (vi) By economic purposes: Purchase of securities Purchase of transport vehicles Purchase of landed property of which: - Residential - Non-residential Purchase fixed assets Personal use Construction Working capital Others Gross financing, advances and other loans
118,276 549,071 766,677 390,743 267,237 2,994 2,094,998 = = = = = = = = = = = = = = = 574,349 533,765 205,150 328,615 14,424 354,161 34,091 471,526 112,682 2,094,998 = = = = = = = = = = = = = = =
101,947 714,534 769,870 250,309 315,797 22,266 2,174,723 = = = = = = = = = = = = = = = 28,846 728,765 570,189 171,004 399,185 18,601 161,603 54,202 503,656 108,861 2,174,723 = = = = = = = = = = = = = = =
104
105
52. ISLAMIC BANKING BUSINESS (contd) (e) FINANCING, ADVANCES AND OTHER LOANS (contd) Group 2008 RM000 (ix) NPL/NPF By economic purposes: Purchase of transport vehicles Purchase of landed property of which: - Residential - Non-residential Personal use Construction Working capital Others Gross non-performing financing, advances and other loans (f) OTHER ASSETS Other receivables, deposits and prepayments Income receivable 17,230 2,488 19,718 = = = = = = = = = = = = = = = 39,183 3,361 42,544 = = = = = = = = = = = = = = = 14,501 15,398 12,906 2,492 7,251 2,179 25,060 12,487 76,876 = = = = = = = = = = = = = = = 2007 RM000 43,391 12,485 8,986 3,499 841 208 16,685 11,500 85,110 = = = = = = = = = = = = = = =
(g) DEFERRED TAX At beginning of year Recognised in income statement (Note 52(r)) Recognised in equity At end of year 14,105 11,052 248 25,405 = = = = = = = = = = = = = = = 15,678 (1,541) (32) 14,105 = = = = = = = = = = = = = = =
Presented after appropriate offsetting as follows: Deferred tax assets, net Deferred tax liabilities, net
25,405 25,405 = = = = = = = = = = = = = = =
14,105 14,105 = = = = = = = = = = = = = = =
106
Group Deferred tax assets: At 1 April 2006 Recognised in income statement Recognised in equity At 31 March 2007 Recognised in income statement Recognised in equity At 31 March 2008
Total RM000
15,709 (1,538) (32) 14,139 11,078 248 25,465 = = = = = = = = = = = = = = = Property, plant and equipment RM000
Deferred tax liabilities: At 1 April 2006 Recognised in income statement At 31 March 2007 Recognised in income statement At 31 March 2008 31 3 34 26 60 = = = = = = = = = = = = = = =
107
52. ISLAMIC BANKING BUSINESS (contd) (h) PROPERTY, PLANT AND EQUIPMENT Office equipment and furniture RM000
Group 2008 Cost At beginning of year Additions Disposal At end of year Accumulated Depreciation At beginning of year Charge for the year Disposal At end of year Net Carrying Amount 2007 Cost At beginning of year Additions At end of year Accumulated Depreciation At beginning of year Charge for the year At end of year Net Carrying Amount
Renovation RM000
Total RM000
103 24 102 279 508 111 111 (279) (279) 103 24 213 340 26 5 60 270 361 20 4 49 9 82 (279) (279) 46 9 109 164 57 15 104 176 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
46 22 23 279 370 57 2 79 138 103 24 102 279 508 14 3 40 214 271 12 2 20 56 90 26 5 60 270 361 77 19 42 9 147 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
108
(i) The maturity structure of Mudharabah general investment deposits and negotiable instruments of deposits are as follows: Due within six months Six months to one year One year to three years Three years to five years
109
52. ISLAMIC BANKING BUSINESS (contd) (j) DEPOSITS FROM CUSTOMERS (contd) Group 2008 RM000 (ii) The deposits are sourced from the following customers: Government and statutory bodies Business enterprises Individuals Others 214,389 1,164,012 376,644 156,694 1,911,739 = = = = = = = = = = = = = = = 272,035 1,221,777 306,360 141,572 1,941,744 = = = = = = = = = = = = = = = 2007 RM000
(k) DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS Mudharabah Fund Licensed Islamic banks Licensed commercial banks Licensed investment companies Non-Mudharabah Fund Bank Negara Malaysia 20,000 23,128 43,128 = = = = = = = = = = = = = = = 86,000 54,049 21,456 161,505 = = = = = = = = = = = = = = =
(l) OTHER LIABILITIES Other liabilities Income payable Profit Equalisation Reserves 71,857 9,873 51,925 133,655 = = = = = = = = = = = = = = = 16,613 40,358 (5,046) 51,925 = = = = = = = = = = = = = = = 63,901 11,524 16,613 92,038 = = = = = = = = = = = = = = = 22,391 20,773 (26,551) 16,613 = = = = = = = = = = = = = = =
The movements in Profit Equalisation Reserves are as follows: At beginning of year Provision made during the year Amount written back during the year At end of year
110
(i) Income derived from investment of general investment deposits: Finance income and Hibah Financing, advances and other loans Securities available-for-sale Securities held-to-maturity Money at call and deposit with financial institutions 40,729 3,298 1,377 4,709 50,113 4,485 54,598 4,149 58,747 = = = = = = = = = = = = = = = 52,413 4,166 3,077 4,283 63,939 6,167 70,106 1,875 71,981 = = = = = = = = = = = = = = =
Amortisation of premium less accretion of discount Total finance income and hibah Other operating income
(ii) Income derived from investment of other deposits: Finance income and Hibah Financing, advances and other loans Securities available-for-sale Securities held-to-maturity Money at call and deposit with financial institutions 65,538 1,958 7,102 74,598 7,320 81,918 5,803 87,721 = = = = = = = = = = = = = = = 50,316 2,835 3,012 3,803 59,966 5,838 65,804 1,659 67,463 = = = = = = = = = = = = = = =
Amortisation of premium less accretion of discount Total finance income and hibah Other operating income
111
52. ISLAMIC BANKING BUSINESS (contd) (n) ALLOWANCE FOR LOSSES ON FINANCING, ADVANCES AND OTHER LOANS Group 2008 RM000 Allowance for bad and doubtful debts and financing: (a) Specific allowance - Made during the year - Written back during the year (b) General allowance - Made during the year - Written back during the year (c) Bad debts on loans and financing - Recovered - Written off (d) Allowance on amount receivable 61,194 (61,018) 8,526 (6,914) (831) 174 1,131 = = = = = = = = = = = = = = = 2007 RM000 74,068 (33,619) 8,934 (5,640) (3) 95 31 43,866 = = = = = = = = = = = = = = =
(o) INCOME ATTRIBUTABLE TO DEPOSITORS AND FINANCIAL INSTITUTIONS Deposits from customers - Mudharabah Fund - Non-Mudharabah Fund Deposits and placements of banks and other financial institutions - Mudharabah Fund - Non-Mudharabah Fund - Others 40,405 12,400 504 468 1,916 55,693 = = = = = = = = = = = = = = = 40,246 10,045 7,724 273 2,003 60,291 = = = = = = = = = = = = = = =
(p) INCOME DERIVED FROM INVESTMENT OF ISLAMIC BANKING FUNDS Finance income and Hibah Financing, advances and other loans Securities available-for-sale Securities held-to-maturity Money at call and deposit with financial institutions 43,467 1,184 1,356 4,816 50,823 4,832 55,655 4,044 59,699 = = = = = = = = = = = = = = = 38,457 1,128 2,353 2,631 44,569 4,388 48,957 1,147 50,104 = = = = = = = = = = = = = = =
Amortisation of premium less accretion of discount Total finance income and hibah Other operating income
112
Establishment costs - Depreciation on property, plant and equipment - Amortisation of computer software - Rental - Water and electricity - Repairs and maintenance - EDP expenses - Others
Administration and general expenses - Communication expenses - Printing and stationery - Insurance - Professional fees - Others
Total other operating expenses Included in the Groups other operating expenses are the Syariah Committees remuneration of RM60,000 (2007: RM67,000).
113
52. ISLAMIC BANKING BUSINESS (contd) (r) TAX EXPENSE AND ZAKAT Group 2008 RM000 Income tax : Provision for current year Deferred tax (Note 52(g)): Relating to origination and reversal of temporary differences Relating to change in tax rate Taxation Zakat 37,815 (11,052) (12,065) 1,013 26,763 30 26,793 = = = = = = = = = = = = = = = 2007 RM000 23,394 1,541 427 1,114 24,935 30 24,965 = = = = = = = = = = = = = = =
Income tax is calculated at the Malaysian Statutory tax rate of 26% (2007 : 27%) of the estimated assessable profit for the year. A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group is as follows: Profit before taxation Taxation at Malaysian Statutory tax rate of 26% (2007: 27%) Effect on opening deferred tax for reduction in income tax rate Effect of expenses not deductible for tax purposes Tax expense for the year (s) CAPITAL ADEQUACY The capital adequacy ratios under the Islamic banking business are as follows: Group Basel II 2008 % Capital Ratios Core capital ratio Risk-weighted capital ratio 61.65 63.84 = = = = = = = = = = = = = = = Basel I 2007 % 40.59 42.06 = = = = = = = = = = = = = = = 98,800 = = = = = = = = = = = = = = = 25,688 1,013 62 26,763 = = = = = = = = = = = = = = = 88,078 = = = = = = = = = = = = = = = 23,782 1,114 39 24,935 = = = = = = = = = = = = = = =
114
115
52. ISLAMIC BANKING BUSINESS (contd) (t) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Group 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. Risk-weighted exposure of the Group are as follows: 2008 Basel II Credit Equivalent Amount* RM000 16,713 20,502 2,978 63,273 59,869 2007 Basel I Credit Equivalent Amount* RM000 8,987 20,927 5,282 52,616
Group Direct credit substitutes Transaction-related contingent items Short-term self-liquidating trade-related contingencies Irrevocable commitments to extend credit: - maturity exceeding one year - maturity not exceeding one year Foreign exchange related contracts: - less than one year Other commitments and contingencies
6 38,598 986 493 10,265 498,504 163,335 121,788 335,568 88,798 88,305 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
* The credit equivalent amount is arrived at using the credit conversion factor as per BNMs guidelines. The foreign related contracts are all forward contracts. Foreign exchange contracts are subject to market risk and credit risk.
116
GROUP
2008
Assets Cash and short-term funds Deposits and placements with financial institutions Securities available-for-sale Securities held-to-maturity Financing, advances and other loans Other non-profit sensitive balances Total assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Other non-profit sensitive balances Total liabilities Islamic Banking funds Total liabilities and Islamic Banking funds On-balance sheet profit sensitivity gap Off-balance sheet profit sensitivity gap Total profit sensitivity gap
Up to 1 month RM000
678,530 5,434 20,000 534,704 1,238,668
Total RM000
724,084 20,000 58,843 274,524 2,020,503 109,312 3,207,266
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
1,375,250 1,375,250 1,375,250 (136,582) (136,582) 237,514 20,008 257,522 257,522 (92,008) (92,008) 130,479 865 131,344 131,344 4,725 4,725 142,036 1,606 143,642 143,642 (63,416) (63,416) 26,460 20,649 47,109 47,109 1,047,248 1,047,248 335,185 335,185 230,377 230,377 1,022,022 1,252,399 (1,095,152) (1,095,152) 1,911,739 43,128 230,377 2,185,244 1,022,022 3,207,266 2.39 2.48
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
* Non performing financing, specific allowance and general allowance of the Group are classified as non-profit sensitive.
117
52. ISLAMIC BANKING BUSINESS (contd) (u) PROFIT RATE RISK (contd) Up to 1 month RM000
381,060 5,044 499,895 885,999
GROUP
2007
Assets Cash and short-term funds Deposits and placements with financial institutions Securities available-for-sale Securities held-to-maturity Financing, advances and other loans Other non-profit sensitive balances
Total RM000
411,305 30,000 155,795 480,657 2,085,780 130,391 3,293,928
Total assets
Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Obligations on securities sold under repurchase agreements Bills and acceptances payable Other non-profit sensitive balances Total liabilities Islamic Banking funds Total liabilities and Islamic Banking funds On-balance sheet profit sensitivity gap Off-balance sheet profit sensitivity gap Total profit sensitivity gap
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
1,147,227 105,049 88,722 10 1,341,008 1,341,008 (455,009) (455,009) 153,458 35,000 9 188,467 188,467 93,082 93,082 206,293 52 206,345 206,345 (113,796) (113,796) 398,652 2,197 400,849 400,849 (217,598) (217,598) 36,114 19,259 55,373 55,373 1,111,693 1,111,693 526,711 526,711 150,945 150,945 950,941 1,101,886 (945,083) (945,083) 1,941,744 161,505 88,722 71 150,945 2,342,987 950,941 3,293,928 2.81 3.34 3.01
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
* Non performing financing, specific allowance and general allowance of the Group are classified as non-profit sensitive.
118
Notes : The fair value of the other assets and other liabilities, which are considered short term in nature, are estimated to be approximately their carrying values. The methods and assumptions used in estimating the fair values of financial instruments are as follows: (i) Cash and short-term funds The carrying amounts approximate fair values due to the relatively short maturity of the financial instruments. (ii) Deposits and placements with financial institutions The fair values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. For those financial instruments with maturity of more than one year, the fair values are estimated based on discounted cash flows using applicable prevailing market rates for placements of similar credit risk and similar remaining maturity as at the balance sheet date. (iii) Securities held-for-trading, Securities available-for-sale and Securities held-to-maturity The fair values are estimated based on quoted or observable market prices at the balance sheet date. Where such quoted or observable market prices are not available, the fair values are estimated using pricing models or discounted cash flow techniques. Where discounted cash flow technique is used, the expected future cash flows are discounted using prevailing market rates for a similar instrument at the balance sheet date.
119
52. ISLAMIC BANKING BUSINESS (contd) (v) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (contd) (iv) Financing, advances and other loans The fair values of fixed rate loans with remaining maturity of less than one year and variable rate loans are estimated to approximate their carrying values. For fixed rate loans and Islamic financing with remaining maturity of more than one year, the fair values are estimated based on expected future cash flows of contractual instalment payments and discounted at applicable prevailing rates at balance sheet date offered to new borrowers with similar credit profiles. In respect of non-performing financing, the fair values are deemed to approximate the carrying values, net of specific allowance for bad and doubtful debts and financing. (v) Deposits from customers The fair values of deposit liabilities payable on demand (demand and savings deposits), or deposits with maturity of less than one year are estimated to approximate their carrying amounts. The fair values of fixed deposits with remaining maturities of more than one year are estimated based on expected future cash flows discounted at applicable prevailing rates offered for deposits of similar remaining maturities. The fair values of Islamic deposits are deemed to approximate their carrying amounts as profit rates are determined at the end of their holding periods based on the profit generated from the assets invested. For negotiable instruments of deposits, the fair values are estimated based on quoted or observable market prices as at the balance sheet date. Where such quoted or observable market prices are not available, the fair values of negotiable instruments of deposits are estimated using the discounted cash flow technique. (vi) Deposits and placements of banks and other financial institutions and obligations on securities sold under repurchase agreements The carrying values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. (w) CHANGE IN ACCOUNTING POLICIES AND ESTIMATES (a) The accounting policies set out in Note 2 have been applied in preparing the financial statements for the year ended 31 March 2008. As indicated in Note 2, other than FRS 117, the adoption of FRS 124 and amendment to FRS 119 2004 does not have any significant financial impact to the Group. (b) Comparative Figures The presentation and classification of items in the current years financial statements are consistent with the previous financial year except for the following comparative figures which have been restated for the effects of adopting the above change in accounting policies: As restated RM000 Balance Sheets as at 31 March 2007 Cash and short-term funds Deposits and placements with financial institutions Property, plant and equipment Intangible assets 411,305 30,000 147 417 = = = = = = = = = = = = = = = 401,305 40,000 227 337 = = = = = = = = = = = = = = = Group As Previously stated RM000
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