where vision inspires progress
annual report 2012
TABLE OF CONTENTS Vision
1
About Us
3
Business Lines
5
Corporate Information
6
International Presence
7
Board Of Directors’ Profiles
8
Shari’ah Supervisory Board
10
Senior Management Team
12
Financial Highlights
17
Organisation Chart By Functions
18
CEO’s Message
22
Corporate Governance And Compliance
25
Risk Management
28
Financial Review
30
Corporate Events
32
Financial Statements
36
annual report 2012 ALKHAIR INTERNATIONAL ISLAMIC BANK
about
us
Alkhair Malaysia bases its delivery of exceptional value to clients and shareholders on its shared values of professionalism, integrity and innovation. These tenets drive the Bank’s endeavour to be the leading provider of Shari’ah compliant banking products and services.
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Alkhair International Islamic Bank Berhad is the first foreign Islamic Bank in Malaysia licensed to conduct a full range of nonMalaysian Ringgit banking activities under the Malaysia International Islamic Financial Centre (MIFC) initiative. This is an initiative which aims to strengthen Malaysia’s position as an Islamic Finance hub and build greater ties between East Asia and the Middle East. Alkhair Malaysia’s primary focus is in three core business lines: Corporate Banking, Treasury and Capital Markets to Our core focus lies in three main lines of business which complement the operations of Alkhair International Islamic Bank Berhad:
• CAPITAL MARKETS • CORPORATE BANKING • GLOBAL TREASURY 4
complement Bank Alkhair Bahrain’s existing operations. The Bank leverages its resources and expertise across each of these business lines to provide clients with a broad range of investment and banking solutions tailored to meet their specific requirements. Alkhair Malaysia seeks to deliver exceptional value to clients and shareholders through innovation, professionalism and integrity – the shared values that drive the Bank’s endeavour to be a leading global provider of Shari’ah compliant banking products and services. In every aspect of its business and through every level of the organisation, Alkhair Malaysia is committed to upholding the highest standards of corporate governance and transparency. The Bank’s innovative products and transactions are fully compliant with Shari’ah principles and we believe that they are consistent with international financial best practices.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
business
lines Capital Markets
Corporate Banking
Alkhair International Islamic Bank Berhad’s ability to structure, manage and place innovative debt structuring and securitisation transactions leaves the Bank’s Capital Markets division well placed to take advantage of the growing demand by both issuers and investors for Shari’ah compliant capital market products. The division caters to both corporate and sovereign clients, providing capital market financing and advisory services, including access to the global capital markets (primarily through the structuring, arranging and issuance of Sukuks); structured finance; asset securitisation; and client rating advisory services.
The Corporate Banking division delivers innovative advice and solutions, tailor made to meet each client’s specific requirements. The Bank’s expertise as well as in-depth knowledge of local and regional market conditions assists clients in attaining their financial needs. The Corporate Banking division manages financing portfolio and client relationship, in addition to providing strategic advisory services involving direct financing, club deal and syndicated financing.
The division also provides strategic advisory services encompassing valuations, business plans, restructuring and project advisory.
Global Treasury The Treasury division plays a key role in managing the Bank’s liquidity requirements and funding needs. The Treasury division is a profit centre in itself, optimising returns on the Bank’s investments through various measures which involve matching both risk profile and level of returns. In addition, Treasury also interacts closely with corporate clients in sourcing funding needs and meeting clients’ expectations on the rate of return through product innovations and enhancements. This includes the structuring of Shari’ah compliant investment products which allow clients to efficiently manage their liquidity.
Its main functions include: • Creating a niche as a high quality, profitable corporate entity and building a portfolio of financial solutions by way of innovative structured financing packages for clients. • Enhancing shareholders’ wealth by securing non-financing income. • Supporting other lines of business within AKIIB, for instance, to support Corporate Financing activities in the form of bridging financing to enable the division to secure bankable deals. • Support Alkhair Group’s clientele base requiring alternative financing and assisting the Treasury line of business in developing its deposit funds.
5
corporate
information BOARD OF DIRECTORS Datuk Kamaruddin Taib Non-Executive Chairman
Dato’ Abdul Aziz Abu Bakar Non-Executive and Independent Director
Sheikh Dr. Abdul Aziz Al Orayer Non-Executive Non-Independent Director
Dato’ Megat Hisham bin Megat Mahmud Non-Executive and Independent Director
Ikbal Daredia Executive Director
CHIEF EXECUTIVE OFFICER Ikbal Daredia
COMPANY SECRETARY Dale Affendy Yusof
SENIOR MANAGEMENT TEAM Ikbal Daredia Chief Executive Officer
Dale Affendy Yusof Company Secretary
Azlan Shaharuddin Head of Finance
Khadijah Iskandar Head of Risk Management
Nor Izdihar Mohd Azmi Head of Operations
Mohd Fuad Abdullah Head of Treasury
Mahmud Abu Bakar Head of Capital Markets
Jeslyn Chiang Quee Boon Head of Human Resources
Tan Heng Chee
Level 38 Menara Standard Chartered 30, Jalan Sultan Ismail 50250 Kuala Lumpur, Malaysia Tel : +603 2773 8700 Fax : +603 2773 8710 Email :
[email protected] Website : www.alkhairmalaysia.com
HEAD OFFICE ADDRESS Bank Alkhair B.S.C. (c) P.O. Box 31700 MENA Telecom Building Building No. 2304 Road 2830, Block 0428 Al-Seef District, Manama Kingdom of Bahrain Tel : +973 17 566 000 Fax : +973 17 566 001 Email :
[email protected] Website : www.bankalkhair.com
Head of Information Technology
AUDITORS
SHARI’AH ADVISORY BOARD (Head Office)
Messrs. KPMG Level 10, KPMG Tower 8, First Avenue, Bandar Utama 47800 Petaling Jaya Selangor Darul Ehsan
Dr. Khalid Mathkoor Al-Mathkoor Chairman
Dr. Aagil Jasim Al-Nashmy Deputy Chairman
Dr. Abdul Sattar Abdul Kareem Abu Ghuddah Dr. Ali Muhyealdin Al-Quradaghi
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REGISTERED & OFFICE ADDRESS
Dr. Mohammad Daud Bakar Sh. Nizam Mohammad Yaqouby
Tel Fax
: +603 7721 3388 : +603 7721 3399
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
international presence Bank Alkhair B.S.C (c)
Alkhair Capital Turkey Degerler A.S Muallim Naci Cad. No. 47 80840 Ortaköy, Istanbul, Turkey
P.O. Box 31700, MENA Telecom Building Building No. 2304, Road 2830, Block 0428 Al-Seef District, Manama, Kingdom of Bahrain
Tel Fax Email Website
Tel Fax Email Website
: +90 212 236 4141 : +90 212 236 3918 :
[email protected] : www.alkhaircapital.com.tr
: +973 17 566 000 : +973 17 566 001 :
[email protected] : www.bankalkhair.com
Turkey Bahrain KSA Malaysia
Alkhair Capital Saudi Arabia P.O. Box 69410 Sky Towers, Olaya District, King Fahd Road 2nd Floor, North Tower, Riyadh 11547 Kingdom of Saudi Arabia Tel Fax Email
: +966 1 2191180 : +966 1 2191270 :
[email protected]
Alkhair International Islamic Bank Berhad Level 38, Menara Standard Chartered 30, Jalan Sultan Ismail, 50250 Kuala Lumpur Malaysia Tel Fax Email Website
: +603 2773 8700 : +603 2773 8710 :
[email protected] : www.alkhairmalaysia.com
7
board of
directors’ profiles Sheikh Dr. Abdul Aziz Al Orayer Non-Executive and Non-Independent Director
Datuk Kamaruddin Taib Non-Executive Chairman
Datuk Kamaruddin Taib is currently the Executive Chairman and partner of Germanisher Lloyd GLM Sdn. Bhd., a leading company specialising in independent consultancy and technical services for the oil and gas industry in the Asian Region. He has significant experience in merchant banking, corporate finance and mergers & acquisitions. His career started in 1980 with a leading merchant bank in Malaysia. Subsequently, he served as a director for several private companies as well as companies listed on Bursa Malaysia. Apart from the experience of serving on the board of companies listed on Bursa Malaysia, his experience include serving on the board of companies listed on the Stock Exchange of India as well as on the Nasdaq (USA).
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He currently serves as an Independent Non-Executive Director of two companies listed on Bursa Malaysia. He holds a Bachelor of Science degree in Mathematics from the University of Salford, United Kingdom.
Dr. Abdul Aziz Al Orayer is currently the Chairman of t’azur Company B.S.C. (c), a regional takaful company established in 2007 following two years of intensive research and development led by the Alkhair Group. Dr Abdul Aziz was the Undersecretary for the Ministry of Finance (Saudi Arabia) and later a three term member of the Shura Council and Chairman of its Economic and Finance Committee since 2000. Previously, Dr. Abdul Aziz served as Chairman of the Boards of the Arab Company of Industrial Investments and the Saudi Bangladeshi Company for Agricultural and Industrial Investments. He was also Chairman and CEO of Saudi Credit Bank; Vice Chairman of National Cooperative Insurance Co.; a board member of the Royal Board for Jubail and Yanbou; and a board member of King Fahd University for Petrol and Minerals. Dr. Abdul Aziz has also held numerous high level diplomatic posts such as Head of the Saudi Delegation to the 24 Ministerial Group at the World Bank and IMF; Head of the Saudi Preparatory Committee for Economic, Trade and Cultural Cooperation with Yemen; and Head of the Negotiating Delegation for the Agreements on Protection and Encouragement of Investment with a number of countries. Dr. Abdul Aziz has a PhD in Economy and Business Administration from the University College of Wales his Masters and BA from University of California (Berkeley).
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ALKHAIR INTERNATIONAL ISLAMIC BANK
Dato’ Abdul Aziz Abu Bakar Non-Executive and Independent Director
Dato’ Abdul Aziz Abu Bakar is currently the Chief Executive Officer of Malaysia Directors Academy (MINDA). Prior to his appointment as MINDA’s first CEO, Dato’ Aziz was the Chief Human Capital Officer at Telekom Malaysia (now known as TM), a position he held for five years before his retirement in September 2009. He has also served in various senior positions across a number of industries including banking, oil & gas and aviation. Prior to his stint in TM, Dato’ Aziz was the Executive VP, HR Division, of RHB Bank Berhad. Before that, he spent twenty years in Shell Malaysia in various management positions in Internal & Computing Audit, Marketing Economics, Sales, Supply & Planning and HR. In 1991, he was assigned an international posting to Shell Group Head Office in London where he held the position of the shareholders’ representative overseeing Shell’s business interests in Hong Kong and China. Prior to joining Shell Malaysia, he was a Fleet Planning Coordinator with Malaysia Airline System Berhad (MAS).
Dato’ Megat Hisham bin Megat Mahmud Non-Executive and Independent Director
Dato’ Megat Hisham bin Megat Mahmud’s received his Bachelor degree in Economics (Hons) from University Malaya 33 years ago and has remained active in the financial and banking sector since.
Dato’ Aziz was previously on the Boards of INTRIA Berhad (now known as UEM Builders), Costain Group Plc (UK), FCW Holdings Berhad and Rangkaian Segar Sdn. Bhd. He is currently an alternate Director of SOCSO, a Council Member of the Malaysian Employers Federation (MEF) and a member of the Resources Committee of Razak School of Government (RSOG).
He started his career as a foreign exchange dealer in Bank Bumiputra Malaysia Berhad and swiftly worked his way up to become the Head of Foreign Bond Department. After a short stint at PROTON as the Deputy Manager of International Finance, Dato’ Megat joined the Amanah Capital Group and spent a decade in Amanah Merchant Bank Berhad, finally holding the position of Deputy General Manager of the Treasury Department. He was transferred within the Group successively as the Executive Director of Malaysia Discounts Berhad (Discount House) and Amanah Short Deposits Berhad (Discount House). To fulfil the Group’s aspiration of having a foothold in Investment Banking, he was tasked to lead the formation and thereafter helmed MIDF Amanah Investment Bank Berhad as the Chief Executive Officer in 2005. He served the Investment Bank for 6 years until his early retirement in 2011.
Dato’ Aziz holds a Bachelor of Economics (Honours) degree from University of Malaya.
Dato’ Megat currently serves as a director of the public-listed company Duty Free International in Singapore.
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shari’ah supervisory board
10
Dr. Khalid Mathkoor Al-Mathkoor
Dr. Aagil Jasim Al-Nashmy
Chairman
Deputy Chairman
Dr. Khalid Mathkoor Al-Mathkoor is the Chairman of the Higher Consultative Committee for Finalization of the Application of the Provisions of Islamic Shari’ah for the State of Kuwait. He is a Lecturer in the Division of Comparative Jurisprudence and Shari’ah Policy of the Faculty of Shari’ah and Islamic Studies at the University of Kuwait. Dr. Al-Mathkoor is a member of the Higher Planning Board of the State of Kuwait, and serves on the Shari’ah Supervisory Boards of a number of Islamic banks. Dr. Al-Mathkoor holds a PhD in Shari’ah from Al-Azhar University.
Dr. Aagil Jasim Al-Nashmy is a Professor at the Faculty of Shari’ah and Islamic Studies at the University of Kuwait. He represents the State of Kuwait in the Islamic Fiqh Academy, which evolved from the Organizations of Islamic Conference in Jeddah, Saudi Arabia. He is a member of the Shari’ah Supervisory Boards of a number of Islamic banks, as well as of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Dr. Al-Nashmy also serves on the Fatwa Committee of the Kuwait Ministry of Awqaf and Islamic Affairs. Dr. Al-Nashmy holds a PhD in Shari’ah from Al-Azhar University.
Dr. Mohammad Daud Bakar Dr. Mohammad Daud Bakar is currently president and CEO of the International Institute of Islamic Finance Inc. and Amanie Business Solutions Sdn. Bhd., Kuala Lumpur, Malaysia. Previously, Dr. Bakar held the position of Deputy Rector for Student Affairs and Development of the International Islamic University, Malaysia. He also served as Dean of the Centre for Postgraduate Studies and Associate Professor of Islamic Law at the International Islamic University, Malaysia. Dr. Bakar is a member of the Shari’ah Advisory Councils of both the Securities Commission and Bank Negara (Central Bank), Malaysia. Dr. Bakar holds a PhD in Shari’ah from St. Andrews University, UK. He also sits on the Shari’ah Supervisory Board for a number of Islamic banks.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Dr. Abdul Sattar Abu Ghuddah
Dr. Ali Muhyealdin Al-Quradaghi
Sh. Nizam Mohammad Yaqouby
Dr. Abdul Sattar Abu Ghuddah is a member of the Islamic Fiqh Academy, which evolved from the Organizations of Islamic Conference in Jeddah, Saudi Arabia. He sits on both the Standard Board and Shari’ah Board of AAOIFI. He is also a member of the Shari’ah Supervisory Board for a number of Islamic banks. Previously, Dr. Abu Ghuddah held the positions of Expert and Reporter for the Islamic Fiqh Encyclopedia, Ministry of Awqaf and Islamic Affairs, State of Kuwait. Dr. Abu Ghuddah holds a PhD in Shari’ah from Al-Azhar University.
Dr. Ali Muhyealdin Al-Quradaghi is a professor and Chairman of the Department of Jurisprudence and its Principles in the Faculty of Shari’ah Law and Islamic Studies at the University of Qatar. He is a member of the Islamic Fiqh Academy, Organization of Islamic Conference, in the Kingdom of Saudi Arabia. He also sits on the Shari’ah Supervisory Board for a number of Islamic banks. Dr. Al-Quradaghi holds a PhD in Shari’ah from Al-Azhar University.
Sh. Nizam Mohammad Yaqouby is a member of the Shari’ah Supervisory Board of a number of Islamic banks and institutions. He holds a BA in Economics and Comparative Religion from McGill University, Canada and at present is a PhD candidate in Islamic Law at the University of Wales. He also sits on the Shari’ah Supervisory Board for a number of Islamic banks.
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senior management
team
Ikbal Daredia Chief Executive Officer
Ikbal Daredia has over 20 years of experience in Islamic Banking. Prior to joining Alkhair International Islamic Bank Berhad, he was the Deputy Chief Executive Officer of Noriba, UBS’s global Islamic platform for Shari’ah compliant products and services. Prior to this, he was the Global Head of Islamic Financial Services at ABN Amro Bank in Bahrain for four years. Ikbal has originated and executed several Islamically structured cross border transactions for sovereign entities and corporates in Turkey, the GCC countries, the Philippines, India, Pakistan and the United Kingdom. In 2007, he led the distribution efforts for two Sukuk with a total value of US$1.6 billion issued on behalf of a prominent Saudi corporate. He was also Noriba’s project leader for the first ever US$750 million Exchangeable Sukuk for Khazanah, Malaysia, and the US$350 million first international rated corporate Sukuk for Sarawak Corporate Sukuk Inc. (Malaysia) which was jointly led by UBS Investment Bank and Noriba in 2004. Prior to this, in 2001, he worked on the Sukuk issue for Kumpulan Guthrie, Malaysia.
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Ikbal is an Associate of the Chartered Institute of Bankers, England.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Mohd Fuad Abdullah Head of Treasury
Mohd Fuad Abdullah has over 27 years of working experience in the area of treasury and debt capital across various financial sectors. Prior to joining Alkhair International Bank Berhad, he was the Head of Treasury Dealing at PM Securities (“PMS”) and KAF Investment Bank, previously known as KAF Discounts Bhd.
Mahmud Abu Bakar Head of Capital Markets
Mahmud Abu Bakar has over 24 years of experience in the banking sector in the areas of corporate banking, offshore banking and investment banking. He began his banking career in 1988 as a trainee officer in OCBC Bank (M) Bhd and later became Vice President in its Corporate Banking department. He was seconded as General Manager of OCBC Bank Labuan branch, where he was involved in various cross border financing transactions.
As an active participant in the development of the Malaysian bond market, he participated in numerous discussions and meetings with market participants and Bank Negara Malaysia while representing his organisation as a Principal Dealer. His stint at PMS’s corporate finance department in 2009, where he was involved and led a team in some of the PMS’s independent corporate advisory exercises, earned him valuable corporate finance experience.
In 2002, Mahmud joined Affin Investment Bank Bhd as a First Vice President in the CEO Office, where he was responsible for spearheading the corporate planning initiatives to redefine the business strategy for the investment bank. He subsequently headed the Capital Markets division and was instrumental in structuring and executing a number of high profile transactions on Private Debt Securities (“PDS”), involving Sukuk and other financing instruments.
Mohd Fuad is an International Member of Persatuan Pasaran Kewangan Malaysia (“PPKM”) which is a member of Association Cambiste International (“ACI”). He served as the Honorary Secretary of PPKM from 1992 to 1995 under the Presidentship of Dr. Raja Lope Raja Shahrom and Tan Sri Amirsham A. Aziz. It was during this tenure that BNM elevated the status of PPKM’s membership where the need for PPKM’s license was enforced as a pre-requisite before treasury dealers are allowed to deal in any financial instruments. These licensing requirements were further reinforced with the introduction of the Capital Market Services Act in 2007, which covers the whole spectrum of capital market activities in Malaysia.
Mahmud holds a Bachelor’s degree in Business Administration and Economics from California State University, Sacramento (USA) and a Master’s degree in Business Administration from the University of Leicester (UK).
Mohd Fuad holds a Bachelor’s Degree in Business Administration (Marketing) from the Royal Melbourne Institute of Technology University, Australia and also holds a Diploma in Investment Analysis from UiTM, Malaysia.
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senior management
team
Khadijah Iskandar Head of Risk Management
Khadijah Iskandar graduated with a Bachelor Degree in Accounting in 1991 from the University of Denver, Colorado, USA. She also holds a Certified Credit Professional qualification.
Dale Affendy Yusof Company Secretary
Dale Affendy Yusof has over 16 years of experience in company secretarial and legal matters from various sectors of the marketplace. Apart from being Company Secretary of the Bank, he is also responsible for all of the Bank’s legal and compliance matters as well as the Bank’s corporate affairs related matters. In his role as Company Secretary, he has worked across a broad range of industry sectors such as consulting engineering, toll concessionaire, property, IT, government linked entities and banking. Prior to joining the Bank in April 2010, Dale Affendy was the Company Secretary for Maybank Islamic Berhad, Mayban Trustees Berhad and Maybank International (L) Ltd, to list a few.
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Dale Affendy graduated with a Degree in Law from Leeds Metropolitan University, United Kingdom and is an Associate Member of Malaysia Institute of Chartered Secretaries and Administrators (MAICSA).
Khadijah Iskandar possesses more than 21 years experience in financial services - in both local and international set up, as well as conventional and Islamic banking environment. She started her banking career at RHB Group where she spent more than 10 years in various capacities and departments. She started as a trainee in Commercial Loans Division at RHB Bank Bhd, and her last position was Head of Credit Management Division at RHB ISLAMIC Bank Bhd. Equipped with the added invaluable Islamic banking skills, which she had acquired being one of the pioneer management team at RHB ISLAMIC Bank, she left RHB Group in 2007 to pursue other opportunities in Islamic Banking industry. Her involvement in Islamic Banking since 2005 includes experience in representing RHB ISLAMIC Bank as an examination committee member of Certified Islamic Financing Professional (CIFP) under the purview of Islamic Banking and Finance Institution Malaysia (IBFIM). Currently she is also a moderator and panel trainer for IBFIM. She joined Alkhair International Bank Berhad (formerly known as Unicorn International Islamic Bank Malaysia Bhd) in 2008, with the main task of setting up credit management division. Presently she is Head of Risk Management of Alkhair International Islamic Bank Berhad.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Azlan Shaharuddin Head of Finance
Azlan Shaharuddin is an adventurous and energetic Chartered Accountant, and a Fellow Member (FCCA) of the Association of Chartered Certified Accountants, United Kingdom (ACCA). His professional career started at Deloitte and PricewaterhouseCoopers Malaysia where he has gained extensive experience in assurance and consulting services covering aspects of management and operations in highly regulated environments. His first commercial finance experience began with Malaysia Airports Holdings Berhad. He proceeded to develop his financial career in the banking sector by joining the RHB Banking Group where he was the front-runner in the Bank’s initiative to adopt the new IFRS regime. His initiatives were subsequently scouted by Kuwait Finance House Malaysia where he was appointed Head of Group Accounting & Tax. Overall, Azlan has more than 12 years financial management experience in professional services, commercial finance, banking and private equity.
Jeslyn Chiang Quee Boon Head of Human Resources
Jeslyn has 16 years of working experience in various Industries at several companies. In her most recent position, she was with Omron Electronics Sdn. Bhd. as an Assistant Manager, Human Resource (Head of Human Resource) and responsible for the full spectrum of Human Resource Management including formulating and streamlining the company’s HR processes, policies, recruitment, employee relations and training & Development. Her last achievement was received a national recognition of Human Resource Development Award in September 2011. Jeslyn holds a Bachelor of Business in Human Resource Management from Edith Cowan University, Australia. Besides, she also holds a Diploma In Industrial Relations from Malaysian Employer Federation (MEF) and Work-Based Diploma in Management from Malaysian Institute of Management (MIM) & Australia Wide Business Training (AWBT).
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senior management
team
Nor Izdihar Mohd Azmi Head of Operations
Head of Information Technology
Nor Izdihar Mohd Azmi’s career began in 2000 with ABN AMRO Bank Berhad where he was responsible for its Treasury Back-Office Operations.
Tan Heng Chee has over 15 years of experience in Information Technology. He began his career in 1999 with Fonterra Brands Malaysia as a System Administrator managing the entire IT infrastructure including Wintel & Unix platforms, Messaging as well as Networking.
Subsequently, in 2004, he was employed by Citibank Berhad as an Assistant Manager for Client Services in the Securities Services Department where his duties comprised the processing of securities trades, the protection of financial assets and the servicing of associated portfolios.
Prior to joining Alkhair International Islamic Bank Berhad, he was the Assistant Manager at CIMB Bank Berhad. In CIMB, he led a team of technical specialists managing CIMB’s Wintel infrastructure in HQ as well as various branches. During his employment with CIMB, he was involved in various key technology initiatives including Server Virtualisation, Disaster Recovery, ITIL and others. Prior to joining CIMB, he was with a couple of organisations namely Alcatel Lucent Malaysia and HP Malaysia.
In May 2005, he was given the task of setting up an Islamic bank and subsequently launched Kuwait Finance House (M) Berhad within BNM’s dateline. His responsibilities entailed the set up of a Treasury Operations Department comprising the implementation of policies and procedures, training of staff, and core banking system selection.
Tan Heng Chee
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Heng Chee holds a MSc in Strategic Business and Information Systems from University of Hertfordshire UK, Microsoft Certified Technology Specialist, Microsoft Certified Solutions Associate, Microsoft Certified IT Professional and Huawei Certified Datacom Associate qualification. He is also certified in Information Security based on ISO/ IEC 27002 and Information Technology Service Management based on ISO/IEC 20000.
In 2007, he crossed borders to Singapore to embark on his new role as the Assistant Vice President of Operations specialising in treasury operations with the Islamic Bank of Asia Limited. He established core banking system parameterisation, testing and implementation, and drawing up of policies and procedures manuals. Nor Izdihar studied Investment Analysis and Business Administration & Finance and holds a Bachelor of Arts in Business Administration from Ashford University, UK; and a Diploma in Investment Analysis from the University of Technology MARA.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
financial
highlights (RM)
2008
Total Shareholders’ Funds Profit Before Taxation Profit After Taxation Total Assets Total Deposits Taking Total Net Financing
Total Assets
76,222,436 814,010 812,546 122,490,901 – –
2009
2010
2011
2012
90,145,350 1,691,990 1,692,014 942,475,623 823,905,266 97,693,268
82,394,247 3,363,510 3,341,857 490,692,204 405,965,171 181,085,822
88,239,642 2,527,808 2,527,808 601,907,016 508,604,632 276,389,895
93,846,969 3,469,555 3,469,555 571,016,096 471,715,425 263,351,168
Total Net Financing
(RM’ Million)
Total Deposits Taking
(RM’ Million)
942.48
(RM’ Million)
276.39 263.35
601.91
823.91
181.09
571.02
508.60 471.72 405.97
490.69 97.69 122.49 NIL ‘08
‘09
‘10
‘11
‘12
Total Shareholders’ Funds (RM’ Million)
90.15
82.39
88.24
‘08
NIL ‘09
‘10
‘11
‘12
‘08
‘09
‘10
‘11
‘12
Profit After Taxation (RM’ Million)
3.47
3.34
93.85
76.22
2.53
1.69
0.81
‘08
‘09
‘10
‘11
‘12
‘08
‘09
‘10
‘11
‘12
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organisation chart by functions
Board Of Directors
Shari’ah Board
Company Secretary
Compliance
Human Resources & Administration
Shari’ah Coordinator, Shari’ah Bahrain
NOTE: * currently undertaken by HQ, Bahrain
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Chief Executive Officer
Operations
Finance
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Nomination & Remuneration Committee
Audit & Risk Management Committee
Legal
Information Technology
Capital Markets & Corporate Banking
Treasury
Risk Management
Money Market
Credit Risk
Foreign Exchange
Operations Risk
Fixed Income
Market Risk
Internal Audit*
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annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Global Strength, Local Knowledge With an increasing demand for global capital market access and investment banking services, our presence on the international stage and our understanding of local business needs have equipped us with valuable insights to provide a higher level of professionalism in our services.
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ceo’s message
Overview of Alkhair Malaysia Alkhair International Islamic Bank Malaysia Berhad (“Alkhair Malaysia” or “the Bank”) was the first foreign international Islamic bank to be licensed to conduct a full range of non-Malaysian Ringgit banking activities under the Malaysia International Islamic Financial Centre (MIFC) initiative, which aims to promote Malaysia as a major hub for international Islamic finance. The Bank’s primary focus is on three core business lines – Corporate Banking, Treasury and Capital Markets – to complement the parent Bank’s existing operations in Bahrain and to promote cooperation between the Gulf Cooperation Council (“GCC”) region and Malaysia in the area of Islamic finance. Having been operational for five years, we remain committed to increasing our share capital further to support Alkhair Malaysia’s business growth needs. We have also put in place our key organisational structure and have identified the remaining resources required to continue to strengthen our operational capabilities.
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annual report 2012 ALKHAIR INTERNATIONAL ISLAMIC BANK
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ceo’s message Operational Achievements in 2012 As at 31 December 2012, the Bank’s total assets stood at RM571.02 million, representing a slight reduction of 5.13% compared to RM601.91 million in 2011. However, this reflects the strengthening of the existing strategy to focus on maintaining an optimal asset mix level and generating further income from fee-based transactions. Total deposits received reduced by 7.25%, from RM508.61 million in 2011 to RM471.72 million in 2012. Total shareholders’ equity increased by 6.36% to RM93.84 million in 2012, compared to RM88.24 million in 2011. The increase was due to higher net profit and positive unrealised mark-to-market valuation of the Treasury’s assets. The overall increase in net income eased the impact of higher operating expenses, thus resulting in the Bank’s net profit increase by 37.15% from RM2.53 million in 2011 to RM3.47 million in 2012. The Corporate Banking business line’s net financing to customers totalled RM263.35 million against RM276.39 million in 2011. The Treasury business line continued to play an active role in the primary and secondary Sukuk market, while holding adequate Sukuk as part of its liquefiable assets. Treasury also managed to secure additional interbank lines and new clients’ deposits, in addition to maintaining its existing broad client base across Malaysia, including government agencies, financial institutions and public listed companies. Capital Markets business line contributed advisory fees of RM 3.47 million in 2012.
Strategic Direction and Prospects Our newly developed 5-Year Business and Financial Plan to further broaden and deepen our local presence is on track. The 5-year plan is based on two key drivers, namely the value proposition that continues to exist in the Malaysian Islamic financial services market space and the changing imperatives for investment banking business. We have also rationalised our strategic objectives which encompass all the Bank’s business lines: firstly, to have a balanced mix and emphasis on business lines according to the Bank’s growth stage;
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secondly, to extend business capabilities and diversify funding sources; thirdly, to operate as a regional hub for the Alkhair Group; and lastly, to maintain innovative product capabilities. We have also taken concrete measures to bolster our Corporate Governance and Risk Management functions. This includes the development of new policies and procedures to further enhance the Group’s Corporate Governance and Risk Management frameworks.
Appreciation We would like to thank the Board of Directors of the Bank for their efforts in guiding and leading the Bank. We also take this opportunity to express our gratitude to the Management of our parent bank, Bank Alkhair B.S.C. (c), for their continued support; to Bank Negara Malaysia and the MIFC for their invaluable guidance; to our clients for their confidence in the Bank; and last but not least, to Alkhair Malaysia’s dedicated team of employees who have worked tirelessly to make the Bank profitable and who have been instrumental in the achievements recorded by the Bank to date. We look forward to the coming year with enthusiasm for the opportunities ahead.
Ikbal Daredia Chief Executive Officer
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
corporate governance
and compliance
Alkhair Malaysia strives to achieve and maintain the highest standards of ethical conduct in full compliance with the Malaysian Banking rules and regulations, which comprise trustworthiness, transparency and accountability of the Bank’s business practices.
• Responsibility, in terms of having clear lines of delegation of authority within decisions and actions that require Board or shareholder approval. The Board provides leadership and direction to the Bank, in addition to establishing its objectives and approving its operational strategies for attaining these objectives. The Board is responsible for effective governance over the affairs of the Bank, as well as maintaining an adequate balance between the interests of its diverse constituencies around the world, which include its clients, employees, suppliers and local communities. The Directors are expected to exercise reasonable judgement in ensuring all actions taken by the Board are in the best interests of the Bank. They may rely on the honesty and professional integrity of the Bank’s senior executives and its outside advisors and auditors, in so doing. The CEO has primary responsibility toward implementing Board decisions, and thus represents the Board in terms of communicating with the Management.
The Bank is committed to applying the highest level of corporate governance practices at all times, which exceeds meeting all minimal legal and regulatory governance requirements. The Bank sees good corporate governance as means to facilitate the Bank’s ability to ascertain and attain its corporate objectives, in addition to being an end to itself. This enables the Management to become accountable to the Board and the Board to its owners and other stakeholders.
The Board is required to fulfil the following responsibilities:
The Board has adopted its own Corporate Governance Charter, which provides the authority and practices for the Bank’s corporate governance, along with the Bank’s Articles and Memorandum of Association and also the charters of its Board committees.
• Ensuring competent management;
The Bank’s guiding principles of good corporate governance are: • Fairness, in terms of treating its minority shareholders, investors and other stakeholders, and taking their interests into account. • Transparency and Timeliness in disclosure of all relevant banking information to its stakeholders. • Accountability of Management towards the Board, and likewise, the Board toward its stakeholders, for the planning and implementation of policies that ensure the safeguarding of the Bank’s assets and liabilities at all times.
• Reviewing and approving strategies, business plans and significant policies, as well as monitoring of Management’s performance when implementing them; • Setting corporate values and clear lines of responsibility and accountability that are communicated well throughout the organisation;
• Ensuring Islamic banking operations are conducted prudently, and within the framework of relevant laws and policies; • Ensuring the establishment of comprehensive risk management policies, processes and infrastructure for the management of the Bank’s various types of risks; • Ensuring Shari’ah compliance in all aspects of operations, products and activities via the institution of comprehensive policies, procedures and infrastructure that support the same; • Ensuring the set up of an effective internal audit department that performs various internal audit functions, covering the financial, management and Shari’ah audit, while ensuring the department is staffed with qualified internal audit personnel;
25
corporate governance and compliance
• Establishing procedures to avoid self-serving practices and conflicts of interest, including dealings of any form with related entities; • Ensuring protection of the interests of depositors, particularly investment account holders;
Audit & Risk Management Committee As a standing Committee of the Board, the Audit & Risk Management Committee’s objective is to assist the Board in fulfilling its oversight of responsibility pertaining to:
• Establishing and ensuring the effective functioning of various Board Committees;
• The integrity of the Bank’s financial statements and financial reporting processes; as well as the Bank’s systems of internal accounting and financial control;
• Ensuring the Bank has a beneficial influence toward the economic well-being of its community;
• The appointment of an internal auditor, and the regular review of the internal audit function;
• Discussing, evaluating and providing input on strategies and policies to suit the local environment; and
• The annual independent audit of the Bank’s financial statements, the engagement of the external auditors, and the evaluation of the external auditors’ qualifications, independence and performance;
• Deliberating and approving major issues and decisions. In summary, the Board is held accountable for the affairs and performance of the Bank. In so doing, it establishes the Bank’s objectives, develops strategies to meet these objectives, and oversees the implementation of these strategies.
• The Bank’s compliance with legal and regulatory requirements, including the Bank’s disclosure controls and procedures; and • Compliance with the Bank’s code of conduct. The Committee comprises of:
Board Committees
• Only Non-Executive Directors;
The Audit Committee & Risk Management Committee and the Nomination & Remuneration Committee are standing committees of the Board.
• Not less than three (3) members;
At the Nomination & Remuneration Committee’s recommendation, the Board:
The Chairman of the Board and the Chief Executive Officer (CEO) are not allowed to become Committee members. The appointments within the Committee are for a period of up to three (3) years, which may be extended for another two (2) further three (3)-year periods, so long as the Director remains independent.
• Appoints Committee members, after consulting the individual Directors; • Rotates Committee Chairpersons and members. Each Committee has its own written charter that complies with the applicable corporate governance rules, and other applicable laws and regulations. The written charter sets clarity to the following aspects of the Committee:
Nomination & Remuneration Committee
• Its mission and responsibilities;
• Only Non-Executive Directors; preferably Independent Directors;
• Qualification requirements for Committee members; • Procedures for the appointment and removal of Committee members; and • The Committee’s structure, operations and reporting to the Board.
26
• A majority of Independent Directors.
The Committee comprises:
• Not less than three (3) members. The Chairman of the Committee should be a Non-Executive, Independent Director. The Chairman of the Board may chair the Nomination & Remuneration Committee, except when the Committee is dealing with the appointment of the Board Chairmanship’s successor.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
The Nomination & Remuneration Committee has the following responsibilities: • Identifying qualified individuals for Board membership; • Recommending the Director Nominees for the next Annual General Meeting (AGM) to the Board; • Leading the Board in its annual review of its performance; • Recommending to the Board candidates for each Committee for appointment by the Board; • Taking a leadership role in shaping corporate governance policies and practices, including the Corporate Governance Charter applicable to the Bank, and monitoring Management’s compliance with the Charter and policies; • Evaluating the skills and expertise of the Directors and recommending the relevant training accordingly; • Devising, with the CEO, the succession plan for the Board and Senior Management, specifically that of the Chief Executive Officer (CEO), Chief Operating Officer (COO) and Chief Financial Officer (CFO); • Considering the CEO’s recommendations on Senior Management’s remuneration, and the Chairman’s recommendation on the CEO’s remuneration; and presenting these to the Board for approval; • Recommending the form and amount of Director’s compensation to the Board for approval at the Bank’s Annual General Meeting (AGM); and • Approving the remuneration policy and special compensation plans across the Bank, including annual bonus schemes, share option plans and staff saving schemes.
Shari’ah Supervisory Board The Bank relies on its Head Office’s Shari’ah Supervisory Board for guidance and advice on ensuring consistency throughout the entire Group. A seven (7) scholar Shari’ah Supervisory Board is in place to provide Islamic advice and guidance, in ensuring that all of the Group’s activities comply with Shari’ah law. The Shari’ah Supervisory Board’s members are prominent Islamic scholars, who are also well-versed in international finance. They hold proven track-records in the implementation of rules and principles within Islamic banks, as well as in product development and Islamic finance structuring techniques.
The Shari’ah Supervisory Board is proactively involved in all product development and investment decisions relating to transactions. It also ensures all underlying contractual documentation is only finalised after obtaining the approval of the Assurance Department, which is under its direct oversight. The Shari’ah Supervisory Board sets out Islamic opinions (Fatwas) which are required for approval of the structures of each financial transaction, service or investment product. The Group’s Shari’ah Assurance division works closely with the Shari’ah Supervisory Board in developing and pre-screening every business proposition. The Assurance division also has a vital role in ensuring that the Fatwas of the Shari’ah Supervisory Board are consistently applied.
Management Executive Committee The Management Executive Committee is the Bank’s Management forum for major operational decisions. It serves as the Management’s principal decision making body that oversees the overall direction and operations of the Bank.
Asset & Liability Committee The Asset & Liability Committee takes responsibility in managing the asset and liability structure, liquidity and funding strategy of the Bank, which involves monitoring and reviewing the Bank’s overall financial risks, including liquidity risks, market risks and counterparty risks. The Committee also ensures that appropriate strategies are in place for the effective management of the Bank’s assets, liabilities and capital.
Credit Committee The Credit Committee’s role is to act as the Bank’s credit approving authority. It takes responsibility for overseeing the management and performance of the Bank’s credit related transactions, in accordance with the Bank’s guidelines and Credit Policy. The Committee also performs all such actions and activities as may be referred to it from time to time by the Board of the Bank.
27
risk management Risk is an inherent part of the Group’s business activities. The Group’s risk management and governance framework is intended to provide progressive controls and continuous management of the major risks involved in the Group’s activities. Risks are managed by a process of identification, measurement and monitoring, subject to risk limits and other controls.
The process of risk management is critical to the Group’s continuing profitability and each business unit within the Group is accountable for the risk exposures relating to their responsibilities. The Group is exposed to investment and credit risk, market risk, liquidity risk and operational risks, as well as other external business risks. The Group’s ability to properly identify, measure, monitor, report and actively manage risks is a core element of the Group’s operating philosophy and profitability. • Risk identification: The Group’s exposure to risk through its business activities, including investment in private equity, asset management, strategic mergers & acquisitions, corporate finance and lending as well as capital markets, is identified through the Group’s risk management infrastructure. The Risk Management infrastructure and governance model was significantly enhanced by the setup of specific risk management units for the handling of all risk policies, processes and infrastructures; the analysis of credit, investment and counterparty risk; as well as the monitoring and controlling of exposures on a global basis. This process continues through expansion of the Group’s Risk Management infrastructure. • Risk measurement: The Group measures risk using basic risk management position methodologies which reflect the Group’s risk appetites. • Risk monitoring: The Group’s risk management policies and procedures incorporate risk appetite statements, converted to a range of limits appropriate to the Group’s business model. Key areas of the Group’s activities are subject to monitoring limits which are regularly reviewed. • Risk reporting: The Group undertakes reporting of all core risks relevant to its businesses on a consolidated basis. The information is reported to the Group Asset and Liability Committee (“ALCO”) and the Group Risk Executive Committee (“REXCO”) on a regular basis. The Bank has in place the Risk Management Framework which allows Group REXCO to have oversight over the Bank’s activity and facilitate the implementation of group level risk policies such as the Group Credit Policy and the Group Large Exposure Policy.
28
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Group Risk Framework and Governance
Internal Audit & Independent Review
The Board of Directors is ultimately accountable for the risk management of the Group. The Board has advocated a wholly integrated risk management process within the Group, in which all business activities are aligned to the risk framework. The Bank and the Alkhair Group as a whole have witnessed tremendous growth in operations and geographic footprint since its formative years, and arising from this growth is the need to adopt a harmonised Group risk architecture and framework. The Group Risk Framework establishes Group risk management standards, risk processes, structures, and defines the Bank’s risk philosophy. The Board has approved a number of supporting risk policies designed to support the framework as well as Basel II and III compliance efforts.
All key operational, financial and risk management processes are audited by Internal Audit according to risk based auditing standards. Internal Audit examines the strategies of the Group, the adequacy of the relevant policies and procedures and the Group’s compliance with internal policies and regulatory guidelines. Internal Audit discusses the result of all assessments with Management and reports its findings and recommendations to the Audit Committee. The Internal Audit recommendations are tracked for resolution via the Committee.
Risk Committee which is based in Bahrain as the Alkhair Group Risk Executive Committee to act as the senior management Group risk oversight authority with all subsidiary Risk and Credit Committees having a reporting line to REXCO. REXCO is designed to support effective Group risk oversight and governance across the Group through ensuring harmonisation of Group risk standards, policies and reporting processes. The Group Risk Framework and architecture is in compliance with the group risk governance recommendations of the Basel Committee on Bank Supervision (“BCBS”) in its “Principles for Enhancing Corporate Governance” guidelines for banking entities issued in October 2010.
Board of Directors’ Oversight of Risk Management The Board of Directors is responsible for defining the Group’s risk appetite within which it manages its risk exposures and reviews the Group’s compliance with delegated risk authorities. As part of the Group Risk Framework, the Audit Committee of the Board took on the additional responsibility for risk management oversight and the committee is a key part of the risk governance framework and receives periodic Group-wide risk reports from the Chief Risk Officer. To ensure the independence of the Risk Management Function, the Chief Risk Officer (“CRO”) reports functionally to the Board and administratively to the Chief Executive Officer.
29
financial review
for the year ended 31 December 2012 Summary of Financial Performance (RM millions)
2012
2011
Income derived from investment of depositors’ funds and others
24.59
19.18
Income derived from investment of shareholders’ funds
1.67
1.84
Fees and commission
5.80
3.07
32.06
24.09
(13.91)
(11.33)
18.15
12.76
(13.91)
(10.23)
Total distributable income Income attributable to depositors Total net income Total operating expenses Allowance for impairment on financing Net profit for the year
(0.77) ‐ 3.47
2.53
Income derived from investment of depositors’ funds and others increased by 28.21% from RM19.18 million in 2011 to RM24.59 million in 2012. The increased was mainly attributed by higher profit income from financing of customers (RM5.59 million) and dividend income and capital gains from securities available‐for‐sale (RM0.11 million). During the year, the Bank’s Head Office in Bahrain repositioned its global Capital Markets division to operate out of Malaysia office. The Capital Markets division generated advisory fees of RM3.47 million in 2012. The overall increased in net income eased the impact of higher operating expenses and allowance for impairment on financing for the year. This has enabled the Bank to maintain its cost to income ratio at about the same level of 80.88% in 2012, as compared to 80.17% in 2011. Accordingly, the Bank’s net profit increased by 37.15% from RM2.53 million in 2011 to RM3.47 million in 2012.
Risk-Weighted Capital Ratio (RWCR) RWCR improved to 24.11% as compared to 23.46% in 2011; attributable by lower market risk due to reduced foreign currency exposures.
30
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Statement of Financial Position Analysis (RM millions) Cash and short-term funds
2012
2011
212.23
235.64
Securities available-for-sale
83.36
73.49
Net financing of customers
263.35
276.39
Other assets
12.08
16.39
Total assets
571.02
601.91
Deposits from customers
352.06
410.78
Deposits and placements of banks and other financial institutions
119.66
97.83
Other liabilities Total liabilities Total shareholders’ equity
5.45
5.06
477.17
513.67
93.85
88.24
As at 31 December 2012, the Bank’s total assets stood at RM571.02 million, representing a slight reduction of 5.13% compared to RM601.91 million in 2011. This reflects the strengthening of the existing strategy to maintain an optimal asset mix level and generate more income from fee‐based transactions. The strategy is two‐pronged where the other leg focuses on to strengthen level of liquidity and optimising each monies available. Accordingly, total deposits received reduced by 7.25%, from RM508.60 million in 2011 to RM471.72 million in 2012. Nonetheless, Corporate Banking was again the key drivers of the Bank’s business. The Corporate Banking division’s net financing to customers totalled RM263.35 million against RM276.39 million in 2011. The division secured three (3) new local financings with two (2) matured in 2012, while maintaining all of its existing international clients. Total shareholders’ equity increased by 6.36% to RM93.85 million in 2012 from RM88.24 million in 2011 due to higher mark‐to‐market gain on securities available‐for‐sale.
31
corporate
events IFN Sri Lanka 2012 Panel of speakers.
Selangor Golf Masters 2012 Group photo of sponsors during the event.
IFN 2012 Asia Forum Alkhair Malaysian booth at the IFN 2012 Asia Forum.
32
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Clients in Singapore Business visit to Singapore.
Riyadh Real Estate & Urban Development Exhibition 2012 Business visit to KSA.
IFN Thailand 2012 Panel of speakers.
33
34
annual report 2012 ALKHAIR INTERNATIONAL ISLAMIC BANK
Innovating Talent, Creative Solutions We have built a team of highly talented and experienced innovative-thinking investment professionals to deliver the most prudent ideas and solutions to the management of alternative assets and optimise returns.
35
financial statements -31 December 2012
Directors’ Report
38
Statement By Directors
41
Statutory Declaration
41
Report Of The Shari’ah Supervisory Board
42
Independent Auditors’ Report
43
Statements Of Financial Position
45
Income Statements
46
Statements Of Comprehensive Income
46
Consolidated Statement Of Changes In Equity
47
Statement Of Changes In Equity
48
Statements Of Cash Flows
49
Notes To The Financial Statements
50
directors’
report
The Directors of Alkhair International Islamic Bank Berhad (“the Bank”) have pleasure in presenting their report together with the audited financial statements of the Group and of the Bank for the financial year ended 31 December 2012.
Principal Activities The principal activity of the Bank is that of an International Islamic Bank pursuant to the Bank being granted a license to carry on Islamic banking business in currencies other than in Ringgit Malaysia by the Minister of Finance on 14 December 2007. The principal activities of its subsidiaries are disclosed in Note 9 to the financial statements. There has been no significant change in the principal activities of the Bank and its subsidiaries during the financial year.
Results
Group RM
Bank RM
Net profit for the year
3,460,845
3,469,555
In the opinion of the Directors, the results of the operations of the Group and of the Bank during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature.
Reserves and Provisions There were no material transfers to and from reserves or provisions during the financial year under review except as disclosed in the financial statements.
Dividends No dividend has been paid or declared by the Bank since the date of the last report. The Directors do not recommend the payment of any final dividend in respect of the current financial year.
Directors The names of Directors of the Bank in office since the date of last report and at the date of this report are: Datuk Kamaruddin bin Taib Dato’ Abdul Aziz bin Abu Bakar Dr. Abdul Aziz bin Naif Al-Orayer Dato’ Megat Hisham bin Megat Mahmud Ikbal Haji Karim Daredia
38
(appointed on 15 October 2012) (appointed on 15 October 2012)
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
Directors’ Interests According to the Register of Directors’ Shareholdings, the interest of a Director in office at the end of the financial year in shares of the immediate and ultimate holding company, Bank Alkhair B.S.C. (c) during the financial year were as follows: Direct interests: Ikbal Haji Karim Daredia
Number of Ordinary Shares of US$1 each Balance at Balance at 1 Jan 2012 Acquired Disposed 31 Dec 2012
82,489
-
-
82,489
Other than as disclosed above, none of the Directors in office at the end of the financial year had any interest in shares in the Bank or its related corporations during the financial year.
Directors’ Benefits Since the end of the previous financial year, no Director has received nor become entitled to receive any benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements or the fixed salary of a full time employee of the Bank or of related corporations) by reason of a contract made by the Bank or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Bank was a party, whereby the Directors might acquire benefits by means of acquisition of shares in or debentures of the Bank or any other body corporate.
Issue of Shares There were no changes in the authorised, issued and paid-up capital of the Company during the financial year.
Other Statutory Information (a) Before the statements of financial position and income statements of the Group and of the Bank were made out, the Directors took reasonable steps:
(i) to ascertain that proper actions had been taken in relation to the writing-off of bad financing and the making of allowance for impairment for impaired financing, and have satisfied themselves that all known bad financing have been written-off and adequate allowance for impairment had been made for impaired financing; and
(ii) to ensure that any current assets other than financing which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected to realise.
39
directors’
report
Other Statutory Information (cont’d) (b) At the date of this report, the Directors are not aware of any circumstances which would render:
(i) the amount written-off for bad financing, or amount of allowance for impairment made for impaired financing in the financial statements of the Group and of the Bank; inadequate to any substantial extent; and
(ii) the values attributed to current assets in the financial statements of the Group and of the Bank misleading.
(c) At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Bank misleading or inappropriate. (d) At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Group and of the Bank which would render any amount stated in the financial statements misleading. (e) As at the date of this report, there does not exist:
(i) any charge on the assets of the companies within the Group which has arisen since the end of the financial year which secures the liabilities of any other person; or
(ii) any contingent liability in respect of the Group or of the Bank which has arisen since the end of the financial year.
(f)
In the opinion of the Directors:
(i) no contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Bank to meet its obligations as and when they fall due; and
(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Bank for the financial year in which this report is made.
Auditors The auditors, KPMG have expressed their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors dated 20 February 2013.
Datuk Kamaruddin bin Taib Kuala Lumpur, Malaysia
40
Dato’ Megat Hisham bin Megat Mahmud
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
statement by
directors
Pursuant to Section 169(15) of the Companies Act, 1965
In the opinion of the Directors, the financial statements set out on pages 45 to 100 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Bank as at 31 December 2012 and their financial performance and cash flows for the financial year then ended. Signed on behalf of the Board in accordance with a resolution of the Directors dated 20 February 2013.
Datuk Kamaruddin bin Taib
Dato’ Megat Hisham bin Megat Mahmud
Kuala Lumpur, Malaysia
statutory declaration Pursuant to Section 169(16) of the Companies Act, 1965 I, Ikbal Haji Karim Daredia, the officer primarily responsible for the financial management of Alkhair International Islamic Bank Berhad, do solemnly and sincerely declare that the financial statements set out on pages 45 to 100 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly declared by the abovenamed Ikbal Haji Karim Daredia at Kuala Lumpur in the Federal Territory on 20 February 2013.
Ikbal Haji Karim Daredia
Before me,
41
report of the shari’ah supervisory board Asslamo A’laikom Wa Rahmatu Allah Wa Barakatuh. In compliance with the terms of our letter of appointment, we are required to report as follows: We have reviewed through the Shari’ah department and under our supervision the principles and the contracts relating to the transactions conducted by Alkhair International Islamic Bank Berhad (“the Bank”) during the year ended 31 December 2012. We have conducted our review with a view to form an opinion as to whether the Bank has complied with rules and principles of Islamic Shari’ah and also with the specific fatwa’s, rulings and guidelines issued by us. The Bank’s management is responsible for ensuring that the Bank conducts its business in accordance with the rules and principles of Islamic Shari’ah. It is our responsibility to form an independent opinion, based on our review of the operations of the Bank, and to report to you. We conducted our review through the Shari’ah department and under our supervision which included examining, on a test basis, each type of transaction and the relevant documentation and procedures adopted by the Bank. We planned and performed our review so as to obtain all the information and explanation that we considered necessary in order to provide us with sufficient evidences to give assurance that the Bank has not violated any rules and principles of Islamic Shari’ah. In our opinion: (a) The contracts, transactions and dealings entered into by the Bank during the year ended 31 December 2012 are in compliance with the rules and principles of Islamic Shari’ah. (b) The allocation of profit and charging of losses relating to investment accounts conform to the basis that had been approved by us in accordance with Islamic Shari’ah rules and principles. (c) During the year, the Bank has realised small non Shari’ah compliant income due to late payment charges of one client, and the Board advised that this income shall be disposed off and given to charity under its supervision. (d) The calculation of Zakah is determined on the Group basis (at the holding company level); is in compliance with the rules and principles of Islamic Shari’ah. We supplicate to Allah the Almighty to grant us success and a straight path. Wa Asslamo A’laikom Wa Rahmatu Allah Wa Barakatuh.
Dr. Khalid Mathkoor Al-Mathkoor Chairman of the Shari’ah Supervisory Board 20 February 2013
42
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
independent
auditors’ report
to the members of Alkhair International Islamic Bank Berhad
Report on the Financial Statements We have audited the financial statements of Alkhair International Islamic Bank Berhad, which comprise the statements of financial position as at 31 December 2012 of the Group and of the Bank, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows of the Group and of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 45 to 100. Directors’ Responsibility for the Financial Statements The Directors of the Bank are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Bank as of 31 December 2012 and of its financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia.
Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank and its subsidiaries have been properly kept in accordance with the provisions of the Act. b) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Bank’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. c) Our audit report on the accounts of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.
43
Other Matters As stated in Note 2(a) to the financial statements, the Group and the Bank adopted Malaysian Financial Reporting Standards and International Financial Reporting Standards on 1 January 2012 with a transition date of 1 January 2011. These standards were applied retrospectively by the Directors to the comparative information in these financial statements, including the statements of financial position as at 31 December 2011 and 1 January 2011, and the statement of comprehensive income, changes in equity and cash flows for the year ended 31 December 2011 and related disclosures. We were not engaged to report on the comparative information that is prepared in accordance with MFRS and IFRS, and hence it is unaudited. Our responsibilities as part of our audit of the financial statements of the Group and the Bank for the year ended 31 December 2012 have, in these circumstances, included obtaining sufficient appropriate audit evidence that the opening balances as at 1 January 2012 do not contain misstatements that materially affect the financial position as at 31 December 2012 and financial performance and cash flows for the year then ended. This report is made solely to the members of the Group and the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.
KPMG Firm Number: AF 0758 Chartered Accountants
Petaling Jaya,
Date: 20 February 2013
44
Ahmad Nasri Abdul Wahab Approval Number: 2919/03/14(J) Chartered Accountant
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
statements of Note 31 Dec 2012 RM Assets Cash and short-term funds Deposits and placements with banks and other financial institutions Securities available-for-sale Financing of customers Other assets Investment in subsidiaries Equipment
financial position as at 31 December 2012
Group 31 Dec 2011 1 Jan 2011 RM RM
31 Dec 2012 RM
Bank 31 Dec 2011 RM
1 Jan 2011 RM
4 212,233,653
235,642,555
234,484,916 212,233,648
235,642,550
234,484,911
5 - 6 83,360,888 7 263,351,168 8 11,057,475 9 - 10 1,115,700
- 73,494,865 276,389,895 14,735,703 - 1,763,151
21,584,500 - 41,107,495 83,360,888 181,085,822 263,351,168 10,374,315 10,954,687 - 5 2,182,841 1,115,700
- 73,494,865 276,389,895 14,616,550 5 1,763,151
21,584,500 41,107,495 181,085,822 10,246,630 5 2,182,841
Total assets 571,118,884
602,026,169
490,819,889 571,016,096
601,907,016
490,692,204
11 352,058,838
410,776,571
230,816,932 352,058,838
410,776,571
230,816,932
12 119,656,587 13 5,462,849
97,828,061 5,074,387
175,148,239 119,656,587 2,337,678 5,453,702
97,828,061 5,062,742
175,148,239 2,332,786
Total liabilities 477,178,274
513,679,019
408,302,849 477,169,127
513,667,374
408,297,957
Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Other liabilities
Shareholders’ equity Share capital 14 Reserves
86,487,610 7,453,000
86,487,610 1,859,540
86,487,610 (3,970,570)
86,487,610 7,359,359
86,487,610 1,752,032
86,487,610 (4,093,363)
93,940,610
88,347,150
82,517,040
93,846,969
88,239,642
82,394,247
Total liabilities and shareholders’ equity 571,118,884
602,026,169
490,819,889 571,016,096
601,907,016
490,692,204
23.5% 23.5%
29.2% 29.2%
Capital adequacy 30 Core capital ratio Risk-weighted capital ratio
24.1% 24.1%
23.5% 23.5%
The accompanying notes form an integral part of the financial statements.
29.2% 29.2%
24.1% 24.1%
45
income
statements
for the year ended 31 December 2012
Group Bank 2012 2011 2012 Note RM RM RM Income derived from investment of depositors’ funds and others Income derived from investment of shareholders’ funds Fees and commission
2011 RM
15
24,589,941
19,184,578
24,589,941
19,184,578
16 17
1,674,197 5,801,472
1,839,640 3,073,974
1,674,197 5,801,472
1,839,640 3,073,974
Total distributable income Income attributable to depositors 18
32,065,610 24,098,192 32,065,610 24,098,192 (13,912,933) (11,331,722) (13,912,933) (11,331,722)
Total net income Personnel expenses 19 Other overheads and expenditures 20 Allowance for impairment on financing 21
18,152,677 (6,585,176) (7,334,588) (772,068)
12,766,470 (5,454,473) (4,798,595) -
18,152,677 (6,585,176) (7,325,878) (772,068)
12,766,470 (5,454,473) (4,784,189) -
Profit before taxation Taxation 22
3,460,845 -
2,513,402 -
3,469,555 -
2,527,808 -
Net profit for the year
3,460,845
2,513,402
3,469,555
2,527,808
statements of
comprehensive income
for the year ended 31 December 2012
Group Bank 2012 2011 2012 RM RM RM Net profit for the year
2011 RM
3,460,845
2,513,402
3,469,555
2,527,808
3,919,374
215,570
3,919,374
215,570
Other comprehensive income: Unrealised net income on revaluation of securities available-for-sale Net realised to income statement upon disposal/maturity of securities available-for-sale Currency translation differences
1,429,797 (3,216,556)
627,660 2,473,478
1,429,797 (3,211,399)
627,660 2,474,357
Other comprehensive income for the year
2,132,615
3,316,708
2,137,772
3,317,587
Total comprehensive income for the year
5,593,460
5,830,110
5,607,327
5,845,395
Total comprehensive income for the year attributable to: Equity holders of the Bank
5,593,460
5,830,110
5,607,327
5,845,395
46 The accompanying notes form an integral part of the financial statements.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
consolidated statement of
changes in equity for the year ended 31 December 2012
Share Statutory capital reserve* RM RM
Foreign currency translation reserve RM
Unrealised holding Distributable reserve/ retained (deficit) profit RM RM
Total RM
GROUP At 1 January 2012
86,487,610
4,187,112
(11,073,141)
Currency translation differences Unrealised net income on revaluation of securities available-for-sale Net realised to income statement upon disposal/maturity of securities available-for-sale
-
-
(3,216,556)
-
-
-
-
Net income not recognised in the income statement Net profit for the year
- -
- -
Total comprehensive income for the year Transfer to statutory reserve
- -
(1,691,756)
10,437,325
88,347,150
-
-
(3,216,556)
-
3,919,374
-
3,919,374
-
1,429,797
-
1,429,797
(3,216,556) -
5,349,171 -
- 3,460,845
2,132,615 3,460,845
- 1,734,778
(3,216,556) -
5,349,171 -
3,460,845 (1,734,778)
5,593,460 -
86,487,610
5,921,890
(14,289,697)
3,657,415
12,163,392
93,940,610
At 1 January 2011
86,487,610
2,881,095
(13,546,619)
(2,534,986)
9,229,940
82,517,040
Currency translation differences Unrealised net income on revaluation of securities available-for-sale Net realised to income statement upon disposal/maturity of securities available-for-sale
-
-
2,473,478
-
-
2,473,478
-
-
-
215,570
-
215,570
-
-
-
627,660
-
627,660
Net income not recognised in the income statement Net profit for the year
- -
- -
2,473,478 -
843,230 -
- 2,513,402
3,316,708 2,513,402
Total comprehensive income for the year Transfer to statutory reserve**
- -
- 1,306,017
2,473,478 -
843,230 -
2,513,402 (1,306,017)
5,830,110 -
86,487,610
4,187,112
(11,073,141)
10,437,325
88,347,150
At 31 December 2012
At 31 December 2011
(1,691,756)
* The Statutory reserve is maintained in compliance with Section 15 of the Islamic Banking Act 1983 and is not distributable as dividends. ** The transfer to Statutory reserve exceeds 50% of the Bank’s 2011 profit after tax in order to address the shortfall of RM42,113 in prior years.
The accompanying notes form an integral part of the financial statements.
47
statement of
changes in equity
for the year ended 31 December 2012
Share Statutory capital reserve* RM RM
Foreign currency translation reserve RM
Unrealised holding Distributable reserve/ retained (deficit) profit RM RM
Total RM
BANK At 1 January 2012
86,487,610
4,187,112
(10,986,966)
Currency translation differences Unrealised net income on revaluation of securities available-for-sale Net realised to income statement upon disposal/maturity of securities available-for-sale
-
-
(3,211,399)
-
-
-
-
Net income not recognised in the income statement Net profit for the year
- -
- -
Total comprehensive income for the year Transfer to statutory reserve
- -
At 31 December 2012
(1,691,756)
10,243,642
88,239,642
-
-
(3,211,399)
-
3,919,374
-
3,919,374
-
1,429,797
-
1,429,797
(3,211,399) -
5,349,171 -
- 3,469,555
2,137,772 3,469,555
- 1,734,778
(3,211,399) -
5,349,171 -
3,469,555 (1,734,778)
5,607,327 -
86,487,610
5,921,890
(14,198,365)
3,657,415
11,978,419
93,846,969
At 1 January 2011
86,487,610
2,043,294
(13,461,323)
(2,534,986)
9,859,652
82,394,247
Currency translation differences Unrealised net income on revaluation of securities available-for-sale Net realised to income statement upon disposal/maturity of securities available-for-sale
-
-
2,474,357
-
-
2,474,357
-
-
-
215,570
-
215,570
-
-
-
627,660
-
627,660
Net income not recognised in the income statement Net profit for the year
- -
- -
2,474,357 -
843,230 -
- 2,527,808
3,317,587 2,527,808
Total comprehensive income for the year Transfer to statutory reserve**
- -
- 2,143,818
2,474,357 -
843,230 -
2,527,808 (2,143,818)
5,845,395 -
86,487,610
4,187,112
(10,986,966)
10,243,642
88,239,642
At 31 December 2011
(1,691,756)
* The Statutory reserve is maintained in compliance with Section 15 of the Islamic Banking Act 1983 and is not distributable as dividends. ** The transfer to Statutory reserve exceeds 50% of the Bank’s 2011 profit after tax in order to address the shortfall of RM879,914 in prior years.
48 The accompanying notes form an integral part of the financial statements.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
statements of
cash flows
for the year ended 31 December 2012
Group Bank 2012 2011 2012 RM RM RM Profit before taxation Adjustments for: Equipment depreciation Securities available-for-sale: Net gain on disposal Dividend income Collective allowance for impairment on financing Unrealised exchange (gain)/loss on foreign exchange Loss on written-off of equipment Gain on disposal of equipment
(253,237) (2,932,303) 772,068 (62,902) 9,416 (195)
Operating profit/(loss) before changes in working capital
1,577,619
(Increase)/decrease in operating assets: Deposits and placements with banks and other financial institutions Financing of customers Securities available-for-sale Other assets Increase/(decrease) in operating liabilities: Deposits from customers Deposits and placements with banks and other financial institutions Other liabilities
2011 RM
3,460,845
2,513,402
3,469,555
2,527,808
583,927
483,780
583,927
483,780
(735,772) (2,792,366) - 105,642 - - (425,314)
- 21,411,758 2,533,869 (87,059,839) (4,058,760) (25,728,351) 1,032,569 (3,820,155) (44,642,099) 167,400,230 25,535,222 (79,349,459) (573,369) 2,765,081
(253,237) (2,932,303) 772,068 (61,512) 9,416 (195) 1,587,719
(735,772) (2,792,366) 109,325 (407,225)
- 21,411,758 2,533,869 (87,059,839) (4,058,760) (25,728,351) 3,176,480 (3,939,308) (44,642,099) 167,400,230 25,535,222 752,921
(4,806,049) (15,114,648)
(79,349,459) 2,753,436
Net cash used in operating activities
(18,594,949)
(4,918,758)
Cash flows from investing activities Purchase of equipment Proceed from disposal of equipment
(4,686) 2,568
(20,440) -
(4,686) 2,568
(20,440) -
Net cash used in investing activities
(2,118)
(20,440)
(2,118)
(20,440)
Cash flows from financing activities Repayment of Islamic hire purchase financing
(204,743)
(165,219)
(204,743)
(165,219)
Net cash used in financing activities
(204,743)
(165,219)
(204,743)
(165,219)
Net decrease in cash and cash equivalents - Effects of foreign exchange rate changes
(18,801,810) (4,607,092)
(4,991,708) (15,321,509) 6,149,347 (8,087,393)
(5,104,417) 6,262,056
Cash and cash equivalents: - at the beginning of the financial periods 235,642,555
234,484,916 235,642,550
234,484,911
- at the end of the financial periods 212,233,653
235,642,555 212,233,648
235,642,550
Analysis of cash and cash equivalents: - Cash and short-term funds 212,233,653
235,642,555 212,233,648
235,642,550
The accompanying notes form an integral part of the financial statements.
49
notes to the
financial statements
1. Corporate Information The principal activity of the Bank is that of an International Islamic Bank (“IIB”) pursuant to the Bank being granted a licence to carry on Islamic banking business in currencies other than in Ringgit Malaysia (“RM”) by the Minister of Finance on 14 December 2007. The principal activities of its subsidiaries are disclosed in Note 9. There has been no significant change to the principal activities of the Bank and its subsidiaries during the financial year.
The Bank is incorporated and domiciled in Malaysia.
The registered office of the Bank is located at Level 38, Menara Standard Chartered, 30, Jalan Sultan Ismail, 50250 Kuala Lumpur. The principal place of business of the Bank is located at Level 27 & 38, Menara Standard Chartered, 30, Jalan Sultan Ismail, 50250 Kuala Lumpur. The immediate and ultimate holding company of the Bank is Bank Alkhair B.S.C. (c), a bank incorporated and domiciled in the Kingdom of Bahrain. The consolidated financial statements comprised the Bank and its subsidiaries (together referred as “the Group”) were authorised for issue by the Board of Directors in accordance with a resolution of the Directors on 20 February 2013.
2. Basis of Preparation
(a) Statement of compliance
The financial statements of the Group and of the Bank have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards and the Companies Act, 1965 in Malaysia. These are the Group and the Bank’s first financial statements prepared in accordance with MFRS and MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards has been applied. In the previous years, the financial statements of the Group and of the Bank were prepared in accordance with Financial Reporting Standards (“FRS”) in Malaysia. The financial impact of transition to MFRS are disclosed in Note 33 to the financial statements. The following are accounting standards, amendments and interpretations that have been issued by the Malaysian Accounting Standards Board (“MASB”) but have not been adopted by the Group and the Bank.
50
MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2012
•
mendments to MFRS 101, Presentation of Financial Statements – Presentation of Items of Other Comprehensive A Income
MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2013
• • •
MFRS 10, Consolidated Financial Statements MFRS 11, Joint Arrangements MFRS 12, Disclosure of Interests in Other Entities
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
2. Basis of Preparation (cont’d)
(a) Statement of compliance (cont’d)
MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2013 (cont’d)
• • • • • • • •
• • • • • • •
MFRS 13, Fair Value Measurement MFRS 119, Employee Benefits (2011) MFRS 127, Separate Financial Statements (2011) MFRS 128, Investments in Associates and Joint Ventures (2011) IC Interpretation 20, Stripping Costs in the Production Phase of a Surface Mine Amendments to MFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards – Government Loans Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards (Annual Improvements 2009-2011 Cycle) Amendments to MFRS 101, Presentation of Financial Statements (Annual Improvements 2009-2011 Cycle) Amendments to MFRS 116, Property, Plant and Equipment (Annual Improvements 2009-2011 Cycle) Amendments to MFRS 132, Financial Instruments: Presentation (Annual Improvements 2009-2011 Cycle) Amendments to MFRS 134, Interim Financial Reporting (Annual Improvements 2009-2011 Cycle) Amendments to MFRS 10, Consolidated Financial Statements: Transition Guidance Amendments to MFRS 11, Joint Arrangements: Transition Guidance Amendments to MFRS 12, Disclosure of Interests in Other Entities: Transition Guidance
MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2014
•
Amendments to MFRS 132, Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities
MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2015
• • •
MFRS 9, Financial Instruments (2009) MFRS 9, Financial Instruments (2010) Amendments to MFRS 7, Financial Instruments: Disclosures – Mandatory Effective Date of MFRS 9 and Transition Disclosures
The Group and the Bank plan to apply the abovementioned standards, amendments and interpretations:
•
f rom the annual period beginning on 1 January 2013 for those standards, amendments or interpretations that are effective for annual periods beginning on or after 1 July 2012 and 1 January 2013, except for IC Interpretation 20 which is not applicable to the Group and the Bank.
•
f rom the annual period beginning on 1 January 2014 for those standards, amendments or interpretations that are effective for annual periods beginning on or after 1 January 2014.
•
f rom the annual period beginning on 1 January 2015 for those standards, amendments or interpretations that are effective for annual periods beginning on or after 1 January 2015.
51
notes to the
financial statements
2. Basis of Preparation (cont’d)
(a) Statement of compliance (cont’d)
MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2015 (cont’d)
Material impact of initial application of a standard, an amendment or an interpretation, which will be applied retrospectively, is discussed below:
(i)
MFRS 9, Financial Instruments
MFRS 9 replaces the guidance in MFRS 139, Financial Instruments: Recognition and Measurement on the classification and measurement of financial assets and financial liabilities. The adoption of MFRS 9 may result in a change in accounting policy for financial assets. The Group is currently assessing the financial impact that may arise from the adoption of MFRS 9. The initial application of the other standards, amendments and interpretations are not expected to have any material financial impacts to the current and prior periods financial statements of the Group and of the Bank upon their first adoption.
3. Significant Accounting Policies
3.1 Summary of significant accounting policies
The accounting policies set out below have been applied consistently to the periods presented in these financial statements and in preparing the opening MFRS statements of financial position of the Group and of the Bank at 1 January 2011, unless otherwise stated.
(a) Basis of measurement
The financial statements of the Group and of the Bank are prepared under the historical cost convention, unless otherwise indicated in the respective accounting policies.
(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 Bank’s separate financial statements, investment in subsidiaries are stated at cost less impairment losses, if any. On disposal of such investment, the difference between net disposal proceeds and their carrying amounts is included in the income statement.
52
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(b) Subsidiaries and basis of consolidation (cont’d)
(ii) Basis of consolidation
The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at the reporting date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Bank. Consistent accounting policies are applied to like transactions and events in similar circumstances. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Acquisitions of subsidiaries are accounted for by applying the purchase method. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Adjustments to those fair values relating to previously held interest are treated as a revaluation and recognised in other comprehensive income. The cost of a business combination is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instrument issued, plus any costs directly attributable to the business combination. Any excess of the cost of business combination over the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities is recorded as goodwill on the statement of financial position. Any excess of the Group’s share in the net fair value of the acquired subsidiary’s identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised as income in the income statement on the date of acquisition. When the Group acquires a business, embedded derivatives separated from the host contract by the acquiree are reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract. 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.
(c) Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and can be reliably measured.
(i)
Profit Income
Profit income is recognised using the effective profit rate method. The effective profit rate is the rate that discounts estimated future cash receipts or payments through the expected life of the financial instrument or, when appropriate, a shorter period to its carrying amount. The calculation includes significant fees and transaction costs that are integral to the effective profit rate, as well as premiums or discounts. When a financing, advance and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original effective profit rate of the instrument, and continues unwinding the discount as profit income. Profit income on impaired financing and receivables is recognised using the original effective profit rate. Income from Islamic banking deposit is recognised on an accrual basis based on effective profit rate method.
53
notes to the
financial statements
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(c) Revenue Recognition (cont’d)
(ii) Fee Income
(iii) Dividends
Structuring and incentive fees are recognised as income when all conditions precedent are fulfilled.
Dividends are recognised when the rights to receive the payment is established.
(iv) Corporate advisory fees
Corporate advisory fees are recognised as income on completion of each stage of the engagement and issuance of invoice.
(d) Equipment and Depreciation
Equipment is initially recorded at cost. Subsequent costs are included in the asset’s 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. Subsequent to recognition, equipment is stated at cost less accumulated depreciation and, if any, accumulated impairment losses. Depreciation of equipment is provided on a straight line basis to write-off the cost of each asset to its residual value over the estimated useful life, at the following annual rates: Building equipment Renovations Office equipment Furniture and fittings Motor vehicles Computer equipment
Depreciation Rate 33% 10% 10% - 33% 10% 20% 33%
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 the expected pattern of consumption of the future economical benefits embodied in the equipment. An item of equipment is derecognised upon disposal or when no future economic benefits are expected from its use. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in income statement. During the financial year ended 31 December 2012, the Group reviewed the residual value of its remaining office equipment and the estimated economic lives of these equipments. As a result, the expected residual values of certain assets have been revised downwards. The effect of these changes on depreciation expense is an increase in annual charge of RM141,002 in current financial year.
54
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(e) Financial Instruments
Financial instruments comprise financial assets and financial liabilities.
Financial assets consist of cash and short-term funds, deposits and placements with banks and other financial institutions, securities available-for-sale, financing of customers and other assets. Financial liabilities consist of deposits from customers, deposits and placements of banks and other financial institutions and other liabilities.
(f)
Financial assets Initial recognition:
Financial assets within the scope of MFRS 139 are classified as “financial assets at fair value through profit or loss”, “financing and receivables”, “held-to-maturity investments”, “available-for-sale financial assets”, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way of purchases) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset.
Subsequent measurement:
The subsequent measurement of financial assets depends on their classification as follows:
(i)
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by MFRS 139. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with gains or losses recognised in the income statement. The Group has not designated any financial assets as at fair value through profit or loss during the year ended 31 December 2012.
(ii) Financing and receivables
Financing and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are carried at amortised cost using the effective profit rate method. Gains and losses are recognised in the income statement when the financing and receivables are derecognised or impaired, as well as through the amortisation process.
55
notes to the
financial statements
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(f)
Financial assets (cont’d)
Subsequent measurement (cont’d):
(iii) Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold it to maturity. After initial measurement, held-to-maturity investments are measured at amortised cost using the effective profit rate method. This method uses an effective profit rate that exactly discounts estimated future cash receipts through the expected life of the financial assets to the net carrying amount of the financial assets. Gains and losses are recognised in the income statement when the investment are derecognised or impaired, as well as through the amortisation process.
(iv) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial measurement, available-for-sale financial assets are measured at fair value with unrealised gains or losses recognised directly in equity until the investment is derecognised, at which time the cumulative gain or loss recorded in equity is recognised in the income statement, or determined to be impaired, at which time the cumulative loss recorded in equity is recognised in the income statement. The Group has designated its non-current investments as available-for-sale financial assets.
(g) Financial liabilities
Initial recognition:
Financial liabilities are classified as “financial liabilities at fair value through profit or loss”, “financing and borrowings” or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. Financial liabilities are initially recognised at fair value plus transaction costs for all financial liabilities not carried at fair value through profit or loss. Financial liabilities carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement.
Subsequent measurement:
The subsequent measurement of financial liabilities depends on their classification as follows:
(i)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by MFRS 139. Gains or losses on liabilities held for trading are recognised in the income statement.
56
The Group has not designated any financial liabilities as at fair value through profit or loss during the year ended 31 December 2012.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(g) Financial liabilities (cont’d)
Subsequent measurement (cont’d):
(ii) Financing and borrowings
After initial recognition, profit bearing financing and borrowings are subsequently measured at amortised cost using the effective profit rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.
(h) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
(i)
Impairment of financial assets (excluding investment in subsidiaries)
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the customers or a group of customers is experiencing significant financial difficulty, default or delinquency in profit or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
(a) Financial assets carried at amortised cost
For financing of customers carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Profit income continues to be accrued on the reduced carrying amount based on the original effective profit rate of the asset. Financing together with the associated allowance are written-off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognised in the income statement.
57
notes to the
financial statements
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(i)
Impairment of financial assets (excluding investment in subsidiaries) (cont’d) (a) Financial assets carried at amortised cost (cont’d)
The present value of the estimated future cash flows is discounted at the financial asset’s original effective profit rate. If a financing has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate.
(b) Securities available-for-sale
For securities available-for-sale, both debt and equity instruments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired based on the same criteria as financial assets carried at amortised cost. For equity instruments, the objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in the income statement. The amount of cumulative loss that is reclassified to the income statement is the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement. For debt instruments, profit continues to be accrued at the original effective profit rate on the reduced carrying amount of the asset and is recorded as part of “Income derived from investment of depositors’ funds and others” and “Income derived from investment of shareholders’ funds”. If, in the subsequent year, the fair value of a debt instruments increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Any subsequent increase in their fair value after impairment are recognised directly in equity.
(j)
Derecognition of financial instruments
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:
-
the right to receive cash flows from the asset has expired; or
- the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the assets, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the assets but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a ‘pass through’ agreement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognised to the extent of the Group’s continuing involvement in the asset.
58
Continuing involvement that takes the form of a guarantee over the transferred asset, is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(j)
Derecognition of financial instruments (cont’d)
When continuing involvement takes the form of a written and/or purchased option (including cash settled options or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including cash settled options or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired.
When an existing financial liability is replaced by another financial liability from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.
(k) Employee benefits
(i)
Short-term benefits
Wages, salaries and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees.
(ii) Defined contribution plan
Defined contribution plans are post-employment benefit plan under which the Group pays fixed contributions into separate entities of funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employees benefits relating to employee services in the current and preceding financial years. Such contributions are recognised as an expense in the income statement as incurred. As required by law, companies in Malaysia make such contributions to the Employees Provident Fund (“EPF”).
(l)
Impairment of other assets
The carrying amounts of other assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated to determine the amount of impairment loss. For the purpose of impairment testing of these assets, recoverable amount is determined on an individual basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash-generating unit (“CGU”) to which the asset belongs to. An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The value in use is based on the net present value of estimated future cash flows determined by the Group using current profit rates for asset with similar terms and risk characteristics. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or group of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis.
59
notes to the
financial statements
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(l)
Impairment of other assets (cont’d)
An impairment loss is recognised in the income statement in the year in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for as a revaluation decrease to the extent that the impairment loss does not exceed the amount held in the asset revaluation reserve for the same asset. An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount of an asset is increased to its revised recoverable amount, provided that this 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 the income statement, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase.
(m) Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
(n) Foreign currencies
(i)
Functional and presentation currency
The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional and presentation currency for the Bank and its subsidiaries are as follows:
Functional Currency
Presentation Currency
Alkhair International Islamic Bank Berhad Paksi Kurnia Sdn Bhd Alkhair Capital (L) Ltd.
US$ RM US$
RM RM US$
(ii) Foreign currency transactions
In preparing the financial statements of the Bank and its subsidiaries, transactions in currencies other than the Bank’s and its respective subsidiaries’ functional currencies are recorded in the functional currencies using the exchange rates prevailing at the dates of the transactions.
60
At each reporting date, monetary items denominated in foreign currencies are translated at the rates prevailing on the reporting date. Exchange differences arising on the settlement of monetary items or on translating monetary items at reporting date are recognised in the income statement except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to the income statement of the Group on disposal of the foreign operations.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(n) Foreign currencies (cont’d)
(ii) Foreign currency transactions (cont’d)
Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when fair value was determined. Non-monetary items that are measured in terms of historical cost in foreign currencies are not translated. When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in income statement, any exchange component of that gain or loss shall be recognised in income statement. The principal exchange rate used for each respective unit of foreign currency ruling at reporting date is as follows:
2012 RM
2011 RM
3.06
3.17
US$/RM
(iii) Translations from functional currency to presentation currency
For the Bank and a subsidiary where the functional currency is United States Dollar (“USD”), the translation from functional currency into RM for the purposes of the consolidated and separate financial statements are as follows:
- Assets and liabilities for each statement of financial position are translated at the closing rate prevailing at the reporting date;
- Income and expenses for each income statement are translated at average rates for the year, which approximates the exchange rates at the date of the transactions; and
-
All resulting exchange differences are taken to the foreign currency translation reserve within equity.
(o) Income tax
Income tax expense on the income statement for the period comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the period and is measured using the tax rates that have been enacted at the reporting date. Income tax expense is recognised in the income statement, except when it arises from a transaction which is charged or credited in other comprehensive income or directly in equity. In such cases, the income tax expense is charged to other comprehensive income or to equity. Deferred tax is provided for, using the liability method. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is not provided for goodwill not deductible for tax purposes and the initial recognition of assets and liabilities that at the time of transaction, affects neither accounting nor taxable profit.
61
notes to the
financial statements
3. Significant Accounting Policies (cont’d)
3.1 Summary of significant accounting policies (cont’d)
(o) Income tax (cont’d)
Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date. The Bank has been granted tax holidays for a period of ten (10) years from the date of the IIB licence being granted by Minister of Finance under Malaysian International Islamic Finance Centre initiative to promote International Islamic Finance.
(p) Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents consist of cash on hand and at banks and deposits with licensed financial institutions with remaining maturity of less than one month.
(q) Share capital
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Ordinary shares are equity instruments. Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.
3.2 Significant accounting estimates and assumptions
In the process of applying the Group’s accounting policies, management makes estimates and assumptions in determining the amounts recognised in the financial statements. The most significant use of estimates and assumptions are as follows:
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, assumption is required to establish fair values. The assumptions include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset-backed securities.
Valuation of securities available-for-sale: unquoted shares
The valuation of the unquoted shares is derived from a blended valuation of discounted cash flows analysis and comparable company analysis. For the discounted cash flows analysis, key assumptions used by management include (i) compound annual growth rates of free cash flows up to the terminal year, (ii) terminal growth rates of free cash flows, (iii) discount rate, (iv) revenue growth rates, and (v) profit margins. Additionally, for the comparable company analysis, key assumptions used by management include (i) selection of comparable companies, and (ii) assessing the reasonableness of the ratio (Enterprise Value)/(Earnings Before Profit Expense, Tax, Depreciation and Amortisation) of the comparable companies to that of the company which the Group has made the unquoted shares investment.
62
Collective impairment assessment
The estimates and assumptions of the collective assessment is disclosed in Note 7.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
4. Cash and Short-Term Funds 31 Dec 2012 RM
Group 31 Dec 2011 1 Jan 2011 RM RM
31 Dec 2012 RM
Bank 31 Dec 2011 RM
1 Jan 2011 RM
Cash in hand - Denominated in RM Cash and balances with banks and other financial institutions - Denominated in US$ - Denominated in RM - Denominated in EUR
127
451
221
122
446
216
20,220,749 123,277 -
25,851,716 595,781 144,607
57,833,013 297,122 133,905
20,220,749 123,277 -
25,851,716 595,781 144,607
57,833,013 297,122 133,905
20,344,026
26,592,104
58,264,040
20,344,026
26,592,104
58,264,040
Money at call and interbank placements with remaining maturity not exceeding one month - Denominated in US$ 191,889,500 - Denominated in RM -
206,050,000 3,000,000
167,129,468 191,889,500 9,091,187 -
206,050,000 3,000,000
167,129,468 9,091,187
191,889,500
209,050,000
176,220,655 191,889,500
209,050,000
176,220,655
235,642,555
234,484,916 212,233,648
235,642,550
234,484,911
Total cash and short-term funds 212,233,653
Included in the above are cash and short-term funds with the immediate and ultimate holding company, Bank Alkhair B.S.C. (c) amounting to RM37,792,216 (31 December 2011: RM42,490,943; 1 January 2011: RM35,249,586).
5. Deposits and Placements with Banks and Other Financial Institutions Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
Other financial institution - Denominated in US$
21,584,500
-
-
63
notes to the
financial statements
6. Securities Available-For-Sale Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
At fair value Securities in Malaysia: - Unquoted Sukuk Securities outside Malaysia: - Unquoted Sukuk - Unquoted shares
6,509,695
13,050,636
-
76,851,193 -
60,444,229 -
36,630,253 4,477,242
76,851,193
60,444,229
41,107,495
83,360,888
73,494,865
41,107,495
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
Total securities available-for-sale
7. Financing of Customers
At amortised cost:
Term financing - Syndicated financing - - Revolving credit 250,314,593 - Contract financing 11,378,818
9,674,552 264,878,860 -
9,410,562 170,825,900 -
261,693,411 Add: Income receivable 2,422,257
274,553,412 1,836,483
180,236,462 849,360
Gross financing of customers 264,115,668 276,389,895 Less: Allowance for impairment for bad and doubtful financing: - Individual assessment allowance - - - Collective assessment allowance (764,500) -
181,085,822
Total net financing of customers 263,351,168
276,389,895
181,085,822
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
Analysis of gross financing is as follows:
(i)
By contract
Murabahah (cost-plus) 264,115,668
64
-
276,389,895
181,085,822
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
7. Financing of Customers (cont’d)
(ii) By type of customer
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
Foreign entities - non-banking institutions 215,737,324 Domestic non-banking institutions 48,378,344 Domestic banking institutions -
216,975,893 40,384,159 19,029,843
167,250,958 13,834,864 -
264,115,668
276,389,895
181,085,822
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
(iii) By profit rate sensitivity
276,389,895
181,085,822
(iv) By sector
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
Trading 117,464,903 Construction and real estate 58,008,952 Finance, insurance and business services 18,506,221 Mining 18,415,245 Manufacturing 13,931,479 Electricity, gas and water 3,108,806 Transport, storage and communication 2,212,622 Education and health 1,485,674 Miscellaneous sector 30,981,766
124,455,684 67,162,922 38,198,181 12,904,894 14,474,192 3,221,682 - - 15,972,340
92,977,106 65,165,741 18,624,540 4,318,435 -
264,115,668
276,389,895
181,085,822
Variable rate: Murabahah (cost-plus)
264,115,668
The comparative figures have been reclassified to conform with current year classification and presentation.
65
notes to the
financial statements
7. Financing of Customers (cont’d)
(v) By geographical distribution
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
Kingdom of Saudi Arabia 197,231,103 Malaysia 48,378,344 Kingdom of Bahrain 18,506,221
197,807,555 59,414,002 19,168,338
148,626,418 13,834,864 18,624,540
264,115,668
276,389,895
181,085,822
Movements in allowance for impaired financing
Impairment assessment
The Group uses an incurred loss basis for the recognition of losses on impaired financial assets. This means that losses can only be recognised when objective evidence of a specific loss event has been observed. The main considerations for the financing impairment assessment include whether any payments of principal or profit are overdue by more than 90 days or whether there are any known difficulties in the cash flows of the counterparties, credit rating downgrades, or infringement of the original terms of the contract. The Group addresses impairment in two areas: individually assessed allowance and collectively assessed allowance.
The Group determines that all customers are individually significant during the financial year.
Individually assessed allowance
The Group conducts impairment assessment and determines the allowance appropriate for each individually significant financing on an individual basis at each reporting date, unless unforeseen circumstances require more careful attention. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance once a financial difficulty has arisen, projected receipts and the expected payout should bankruptcy ensue, the availability of other financial support, the realisable value of collateral and the timing of the expected cash flows. The Group has no individually assessed impairment allowance as at 31 December 2012 (Nil as at 31 December 2011 and 1 January 2011).
Collectively assessed allowance
The Group conducts impairment assessment and determines the appropriate collective allowance for losses on financing that are not individually significant and for individually significant financing that have been assessed individually and found not to be impaired at each reporting date with each portfolio unless unforeseen circumstances require more careful attention.
66
The collective impairment assessment is made for groups of assets with similar risk characteristics, in order to determine whether allowance should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident in the individual financing assessment. The collective impairment assessment takes accounts of data from financing portfolio (such as historical losses on the portfolio, level of arrears, credit utilisation, financing to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and local or industry-specific problems). The approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. Management is responsible for deciding the length of this period which can extend for as long as one year.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
7. Financing of Customers (cont’d)
Movements in allowance for impaired financing (cont’d)
Collectively assessed allowance (cont’d)
The Group, in the previous year, concluded for no collective impairment allowance on the total gross financing as at reporting date on the basis of (i) no historical losses on the portfolio as incurred by the Group, (ii) no record of principal or profit settlement that is considered to be past due, and (iii) based on efforts undertaken by the Group’s management subsequent to 31 December 2011 up to the date of the authorisation of these financial statements, there were no events that have affected the recoverability of the Group’s financing of customers. In the current financial year, the Group has incorporated collective impairment allowance of RM764,500 to take into consideration current risk profile of mainly its customers originating from the Middle East, based on the current economic and political situation in the Middle East.
Collective impairment allowance
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
Balance at the beginning of the financial year Net allowance made during the year Exchange difference
- 772,068 (7,568)
- - -
-
Balance at the end of the financial year
764,500
-
-
31 Dec 2012 RM
Bank 31 Dec 2011 RM
1 Jan 2011 RM
8. Other Assets 31 Dec 2012 RM
Deposits Prepayments Income receivables Amount due from subsidiaries Amount due from holding company Amount due from corporate client Staff advances Tax recoverable
Group 31 Dec 2011 1 Jan 2011 RM RM
287,568 504,272 27,145 - 9,865,955 367,935 4,600 -
298,101 398,097 38,799 - 14,000,293 - 413 -
267,130 305,361 62,530 - 9,707,133 - 1,305 30,856
287,568 504,272 27,145 9,315,852 447,315 367,935 4,600 -
298,101 398,097 38,799 9,644,447 4,236,693 - 413 -
267,130 305,361 62,530 9,369,496 209,952 1,305 30,856
11,057,475
14,735,703
10,374,315
10,954,687
14,616,550
10,246,630
The amount due from subsidiaries and immediate and ultimate holding company is unsecured, profit-free and repayable on demand.
67
notes to the
financial statements
9. Investment in Subsidiaries 31 Dec 2012 RM Unquoted shares at cost - in Malaysia
Details of the subsidiary companies are as follows:
Details
5
Bank 31 Dec 2011 RM
1 Jan 2011 RM
5
5
Paksi Kurnia Sdn Bhd
Alkhair Capital (L) Ltd.
Principal Activities Provision of corporate finance advisory activities and as an investment company but has not commenced operations since incorporation.
Provision of services but currently dormant.
Country of Incorporation
Percentage of equity held as at 31 December 2012/2011/1 January 2011
Paid up capital as at 31 December 2012/2011/1 January 2011
Malaysia
Malaysia
100%
100%
RM2
RM3
10. Equipment Building Group and Bank equipment Renovations RM RM
68
Office equipment, furniture and fittings RM
Motor vehicles RM
Computer equipment RM
Total RM
At 31 December 2012
Cost At 1 January 2012 Additions for the year Written-off for the year Disposal for the year Exchange difference
85,534 - - - (3,022)
1,163,273 - - - (41,100)
1,055,155 - (9,567) (1,415) (37,172)
940,068 - - - (33,213)
700,243 4,686 (384,294) (2,828) (20,912)
3,944,273 4,686 (393,861) (4,243) (135,419)
At 31 December 2012
82,512
1,122,173
1,007,001
906,855
296,895
3,415,436
Accumulated depreciation At 1 January 2012 Charge for the year Written-off for the year Disposal for the year Exchange difference
27,590 37,561 - - (1,343)
513,515 113,328 - - (19,254)
408,777 214,268 (4,911) (142) (16,493)
593,378 183,166 - - (22,760)
637,862 35,604 (379,534) (1,728) (19,148)
2,181,122 583,927 (384,445) (1,870) (78,998)
At 31 December 2012
63,808
607,589
601,499
753,784
273,056
2,299,736
Carrying amount at 31 December 2012
18,704
514,584
405,502
153,071
23,839
1,115,700
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
10. Equipment (cont’d) Building Group and Bank equipment Renovations RM RM
Office equipment, furniture and fittings RM
Motor vehicles RM
Computer equipment RM
Total RM
At 31 December 2011
Cost At 1 January 2011 Additions Exchange difference
83,200 - 2,334
1,127,165 4,489 31,619
1,020,638 5,886 28,631
914,417 - 25,651
671,344 10,065 18,834
3,816,764 20,440 107,069
At 31 December 2011
85,534
1,163,273
1,055,155
940,068
700,243
3,944,273
Accumulated depreciation At 1 January 2011 Charge for the year Exchange difference
18,518 8,253 819
386,677 111,923 14,915
295,094 101,709 11,974
394,303 181,420 17,655
539,331 80,475 18,056
1,633,923 483,780 63,419
At 31 December 2011
27,590
513,515
408,777
593,378
637,862
2,181,122
Carrying amount at 31 December 2011
57,944
649,758
646,378
346,690
62,381
1,763,151
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
11. Deposits from Customers
(i)
By type of deposits
Non-Mudharabah Fund: Wakala deposits 352,058,838
410,776,571
230,816,932
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
(ii) By type of customer
Government/State Government Institutions 345,814,708 Corporate customers 6,244,130 Government/State Government-Linked Companies -
400,758,779 6,030,370 3,987,422
158,829,179 6,608,471 65,379,282
352,058,838
410,776,571
230,816,932
69
notes to the
financial statements
12. Deposits and Placements of Banks and Other Financial Institutions Group and Bank 31 Dec 2012 31 Dec 2011 RM RM Non-Mudharabah Fund: Licensed Islamic banks 119,656,587
1 Jan 2011 RM
97,828,061
175,148,239
31 Dec 2012 RM
Bank 31 Dec 2011 RM
1 Jan 2011 RM
13. Other Liabilities 31 Dec 2012 RM
Group 31 Dec 2011 1 Jan 2011 RM RM
Income payable to depositors Deferred tax liabilities Islamic hire purchase payable [Note 13(a)] Deferred income Accrued expenses Gharamah/Penalty [Note 13(b)] Other payables
3,392,515 21,474
3,562,450 22,260
1,589,892 21,653
3,392,515 21,474
3,562,450 22,260
1,589,892 21,653
178,942 1,328,190 520,160 21,568 -
367,639 674,955 438,790 - 8,293
524,159 - 201,974 - -
178,942 1,328,190 511,013 21,568 -
367,639 674,955 427,145 - 8,293
524,159 197,082 -
5,462,849
5,074,387
2,337,678
5,453,702
5,062,742
2,332,786
At the reporting date, deferred tax liability outstanding arising from origination of temporary differences between the carrying amount and tax depreciated amount of equipment upon the expiry of the tax exemption period on year of assessment (“Y/A”) 2016.
70
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
13. Other Liabilities (cont’d)
(a) Islamic hire purchase payable
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
Analysed: Due within 12 months Due after 12 months Exchange difference
194,166 14,347 (29,571)
204,744 208,513 (45,618)
192,468 413,257 (81,566)
178,942
367,639
524,159
Minimum lease payments: Not later than 1 year Later than 1 year and not later than 2 years Later than 2 years and not later than 5 years
200,412 14,446 -
223,212 200,412 14,446
223,212 223,212 214,858
Less: Future profit charges Exchange difference
214,858 (6,345) (29,571)
438,070 (24,813) (45,618)
661,282 (55,557) (81,566)
Present value of finance lease liability
178,942
367,639
524,159
Present value of finance lease liability: Not later than 1 year Later than 1 year and not later than 2 years Later than 2 years and not later than 5 years Exchange difference
194,166 14,347 - (29,571)
204,744 194,166 14,347 (45,618)
192,468 204,744 208,513 (81,566)
178,942
367,639
524,159
Group and Bank 31 Dec 2012 31 Dec 2011 RM RM
1 Jan 2011 RM
(b) Gharamah/Penalty
Sources and uses of charity funds: Undistributed charity funds as at 1 January Gharamah/Penalty charges
- 21,568
- -
-
Total sources of funds during the year
21,568
-
-
Uses of charity funds
-
-
-
Undistributed charity funds as at 31 December
21,568
-
-
71
notes to the
financial statements
13. Other Liabilities (cont’d)
(b) Gharamah/Penalty (cont’d)
The Bank imposes late payment charges to its financing customers based on Bank Negara Malaysia’s (“BNM”) guideline on Late Payment Charges for Islamic Banking Institutions. The Gharamah is the difference between the late payment charge and Ta’widh amount. Ta’widh (compensation) refers to the amount that may be compensated to the Bank based on the actual loss incurred due to default and recognised as income to the Bank; and subject to certain criteria. The Gharamah amount is to be channelled to charitable organisation. The administration of Gharamah to approve benefactors or charitable organisation shall be determined by the Bank’s Shari’ah Supervisory Board.
14. Share Capital Group and Bank Number of shares of RM1 each 31 Dec 2012 31 Dec 2011 1 Jan 2011 31 Dec 2012 RM
Amount 31 Dec 2011 RM
1 Jan 2011 RM
Authorised: Ordinary shares of RM1 each 100,000,000
100,000,000
100,000,000
Issued and fully paid: Ordinary shares of RM1 each At 31 December/1 January
86,487,610
86,487,610
86,487,610
100,000,000
86,487,610
100,000,000 100,000,000
86,487,610
86,487,610
15. Income Derived from Investment of Depositors’ Funds and Others Finance income and hibah Income from financing of customers Income from securities available-for-sale Income from money at call and deposits and placements with financial institutions
72
Group and Bank 2012 2011 RM RM
22,102,645 2,008,207
16,508,222 1,904,876
479,089
771,480
24,589,941
19,184,578
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
16. Income Derived from Investment of Shareholders’ Funds Finance income and hibah Income from securities available-for-sale Income from money at call and deposits and placements with financial institutions
Group and Bank 2012 2011 RM RM
1,177,333
1,623,262
496,864
216,378
1,674,197
1,839,640
17. Fees and Commission
Group and Bank 2012 2011 RM RM
Corporate advisory fees Structuring Fees Incentive Fees - Restricted Wakala Other income
3,474,029 2,262,657 63,061 1,725
2,414,047 659,499 428
5,801,472
3,073,974
18. Income Attributable to Depositors Non-Mudharabah Fund : Wakala deposits
Group and Bank 2012 2011 RM RM 13,912,933
11,331,722
19. Personnel Expenses
Group and Bank 2012 2011 RM RM
Salaries and allowances Contributions to defined contribution plan Social security contributions Others
5,823,705 394,297 12,858 354,316
4,822,557 362,182 13,635 256,099
6,585,176
5,454,473
73
notes to the
financial statements
19. Personnel Expenses (cont’d)
Compensation of key management personnel
The Group considers the key management personnel as those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Group.
The remuneration of key management personnel during the years are as follows:
Group and Bank 2012 2011 RM RM
Short-term employee benefits Directors’ fee* - Underprovision made in the prior year Post-employment benefits
4,252,725 372,000 - 231,145
3,235,579 320,000 140,000 231,174
4,855,870
3,926,753
* The Directors’ fee is classified in Other Overheads and Expenditures (Note 20) and not under Personnel Expenses although it is part of the compensation of key management personnel.
The comparative figures have been reclassified to conform with current year classification and presentation.
20. Other Overheads and Expenditures Group Bank 2012 2011 2012 RM RM RM Marketing costs Advertisement and publicity
428,484
401,702
428,484
401,702
Establishment costs Rental Depreciation Loss on written-off of equipment Gain on disposal of equipment Electronic data processing expenses Bank annual license
922,710 583,927 9,416 (195) 473,607 50,000
908,194 483,780 - - 589,142 50,000
922,710 583,927 9,416 (195) 473,607 50,000
908,194 483,780 589,142 50,000
General expenses Auditors’ remuneration Professional fees Legal expenses Repair and maintenance Insurance
74
2011 RM
75,000 3,351,595 3,390 85,498 1,796
75,000 237,995 86,833 59,623 1,515
72,000 3,344,974 3,390 85,498 1,796
72,000 237,995 86,833 59,623 1,515
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
20. Other Overheads and Expenditures (cont’d) Group Bank 2012 2011 2012 RM RM RM
2011 RM
Utilities expenses Telephone Stationery and printing Postage and courier Travelling Directors’ fee - Underprovision made in the prior year Other expenses
23,963 258,723 35,138 2,726 140,902 372,000 - 515,908
31,852 242,339 57,973 6,311 376,197 320,000 140,000 730,139
23,963 258,723 35,138 2,726 140,902 372,000 - 516,819
31,852 242,339 57,973 6,311 376,197 320,000 140,000 718,733
7,334,588
4,798,595
7,325,878
4,784,189
21. Allowance for Impairment on Financing
Group and Bank 2012 2011 RM RM
Individual impairment allowance Collective impairment allowance
- (772,068)
-
(772,068)
-
22. Taxation Domestic income tax is calculated at the Malaysian statutory tax rate of 25% (2011: 25%) of the estimated assessable profit for the year except for a subsidiary incorporated under the Labuan Business Activity Act, 1990; of which the tax charge is computed based on 3% of the chargeable profit or RM20,000, whichever is lower. The Bank has been granted tax exemption for a period of ten (10) years pursuant to Income Tax (Exemption) (No. 12) Order 2007 for carrying business transactions in international currencies. This tax exemption is effective from Y/A 2007 to Y/A 2016.
75
notes to the
financial statements
22. Taxation (cont’d) Reconciliations 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 Bank are as follows:
2012 RM
2011 RM
Group Profit before taxation
3,460,845
2,513,402
Taxation at Malaysian statutory tax rate of 25% Tax rate of 3% or RM20,000 Effects of: - Income not subject to tax - Expenses not deductible for tax purposes
867,314 (252)
632,410 (487)
(1,013,619) 146,557
(821,852) 189,929
Tax expense for the year
-
-
Bank Profit before taxation
3,469,555
2,527,808
867,389
631,952
Taxation at Malaysian statutory tax rate of 25% Effects of: - Income not subject to tax - Expenses not deductible for tax purposes Tax expense for the year
(1,013,272) 145,883
(821,115) 189,163
-
-
23. Off-Balance Sheet Item - Restricted Wakala Deposits The transaction of Restricted Wakala contract is accounted as an off-balance sheet item. The movement of the Restricted Wakala is as follows:
Accrual of Profit RM
Total RM
As at 1 January 2011 Addition Maturity
- 74,819,925 (63,471,325)
- 1,719,299 76,539,224 (1,595,599) (65,066,924)
As at 31 December 2011 Addition Maturity
11,348,600 - (11,348,600)
123,700 11,472,300 276,732 276,732 (400,432) (11,749,032)
As at 31 December 2012
76
Principal Amount RM
-
-
-
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
23. Off-Balance Sheet Item - Restricted Wakala Deposits (cont’d)
Investment and Collateral
The Bank entered into Restricted Wakala contract as a “Wakeel” in investing the proceeds of the Wakala; invested by Investors (“Muwakeel”) in a Restricted Investment Plan of which the return would be generated from an identified real estate assets that is being held as collateral to the Investment Transaction. The Restricted Investment Plan would involve the proceeds to be utilised by Kingdom Installment Company (“KIC”); the owner of the identified real estate assets for its working capital requirements which involve Shari’ah compliant consumer financing and real estate activities; hence, the short-term tenure of 6 months. The real estate assets which have been identified and owned by KIC are Al Mashaer Towers (the “Assets”) located in Makkah, Kingdom of Saudi Arabia (“KSA”). The Assets are seven (7) residential buildings with 336 apartments fully leased to King Abdullah Medical City (the “Lessee”), a KSA government owned institution, for the accommodation of its employees and staff. The Lessee will pay to the owner of the Assets, KIC (the “Lessor”) an annual rental of SAR 26,557,870 for an initial period of three years commencing 16 January 2010 and thereafter the lease period is automatically renewed for a similar period and terms except that the annual rental increases by 10% per annum.
Investment Policy and Profit Allocation
The Wakeel shall be entitled to the Wakala (agency) fee specified in the Wakeel Offer in respect of the Wakeel’s performance in the Investment Transaction. The Wakeel will notify the Muwakeel of the profit expected to be generated from the Investment Transaction at the point of placement. The profit to be generated is expected to be at the rate of 5% per annum on the Investment Amount from the date on which the Investment Amount is transferred into the specific account of KIC (“Expected Profit Rate”). The Wakeel and Muwakeel have agreed that in the event the actual profit generated from the Investment Transaction is lower than the Expected Profit Rate, the Muwakeel shall only receive the actual profit and the Wakeel shall not be entitled to an incentive fee (“Incentive Fee”) but shall be entitled to the Wakala (agency) fee. In the event that the actual profit generated from the Investment Transaction is higher than the Expected Profit Rate, the Muwakeel shall receive the Expected Profit Rate and the Wakeel shall be entitled to the difference between the actual profit generated and the Expected Profit Rate as the Incentive Fee.
Risk Profiles to Muwakeel
(a) The Muwakeel may suffer loss if the Investment Transaction does not perform. By signing the Restricted Wakala agreement, the Muwakeel confirms that he has read and understood the contents and risks spelt out in the Confidential Information Memorandum and acknowledges that no responsibility or liability is accepted by the Wakeel for the Confidential Information Memorandum that was issued by the Wakeel at the request and on behalf of KIC based solely on information provided by KIC, and that KIC accepts full responsibility and liability for the Confidential Information Memorandum.
(b) The Muwakeel as principal shall bear all the risks associated with the acts of the Wakeel as agent for the Muwakeel except those risks resulting from the Wakeel’s default, misconduct, non-performance and/or fraudulent misrepresentation, for which the Muwakeel will only be compensated for the investment losses.
77
notes to the
financial statements
24. Related Party Transactions
Transactions, arrangements and agreements involving related parties
Related parties comprise major shareholders, Directors and senior management personnel of the Group, members of the Shari’ah Supervisory Board of Bank Alkhair B.S.C. (c), close members of their families and entities owned or controlled by them. Pricing policies and terms of the transactions relating to these related parties are approved by management.
Statements of Financial Position
Assets Cash and short-term funds Securities available-for-sale Financing of customers Other assets
31 Dec 2012 Holding Other Related Company Entities RM RM
37,792,216 - - 9,865,955
Income Statements Income from financing of customers - Income from securities available-for-sale - Income from deposits and placements with financial institutions 418,461 Other expenses (3,531,356)
Group 31 Dec 2011 Holding Other Related Company Entities RM RM
1 Jan 2011 Holding Other Related Company Entities RM RM
- 25,293,849 18,452,620 -
42,490,943 - - 14,000,293
- 21,712,202 19,168,338 -
35,249,586 - - 9,707,133
18,441,365 18,624,540 -
885,687
-
847,819
-
598,644
1,648,586
-
2,050,277
-
2,050,645
- (176,966)
186,078 (105,847)
- (120,407)
8,804,410 (7,331)
(34,273)
Transactions with immediate and ultimate holding company, Bank Alkhair B.S.C. (c)
Aside from intercompany balances and subscription of share capital issued by the Bank, the Group also entered into money market transactions with immediate and ultimate holding company. Other than Other Assets which are unsecured, profit-free and repayable on demand, the above mention outstanding balances arose from the ordinary course of business. The profit earned on the above transactions is at negotiated rates. On 21 July 2012, the Standby Wakala Financing Facility of US$15 million granted by the immediate and ultimate holding company for liquidity management purposes, was renewed for another 1 year period maturing 21 July 2013. The Bank incurred structuring fee computed at 0.35% over the facility granted.
25. Risk Management The Group through the Bank (since the other 2 subsidiaries are dormant) is committed to actively manage its risks and adopt international leading practices and comply, where applicable, with the requirements of BNM. The Bank takes cognisance of the risks which are inherent in banking and financial services, and that in order to achieve its strategic and business objectives, the identification, assessment, management, and implementation of control/mitigating activities of these risks are necessary. Therefore, from a functional perspective, the Bank views risk management as essential to increase the value the Bank delivers to their clients, shareholders and stakeholders.
78
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
25. Risk Management (cont’d) As part of the Group Wide Risk Management (Global) initiatives, the Bank has developed Risk Management Framework which encompasses the following:
i) ii) iii) iv)
Principles and definitions of risks Risk strategy Risk governance and organisation; and Risk measurement
The risk strategy of the Bank is in line with its immediate and ultimate holding company, which defines its overall risk strategy objectives as follows:
a) Manage risks inherent in the banking transactions to align with the overall risk appetite of the Bank and its capital adequacy targets; b) Strengthen its risk management practices to reflect industry leading practices; and c) Align its risk tolerances and risk taking capacities based on its business strategy and capital availability.
The risk strategy of the Bank is articulated through the various risk management policies and limit structures which have been implemented, and reviewed on a timely basis.
Risk Framework and Governance
The Bank’s overall governance model is premised on the concept of “Three (3) Lines of Defence” namely:
1st Line of Defence - Risk Taking Units which comprises of business and/or support units; 2nd Line of Defence - Risk Control Units which comprises of risk management units; and 3rd Line of Defence - Internal Audit Unit which is independent of all other units.
The governance model is designed in this manner so as to place accountability and ownership to where the risk originates whilst ensuring sufficient level of independent oversight for comprehensive risk management across the Bank.
Global Risk Office
The Global Risk Office (“GRO”) is an independent function residing at the immediate and ultimate holding company in Kingdom of Bahrain that reports to the Board Risk Committee and the Group Chief Executive Officer (“CEO”) in Kingdom of Bahrain. The GRO, was vested with the necessary mandate, such that issues raised by risk functions receive due attention from the Board of Directors (both in Kingdom of Bahrain and Malaysia), senior management and business lines. The risk units within the Bank’s Risk Management Department (“RMD”), reports to the GRO in Kingdom of Bahrain on all matters pertaining to risk management of the Bank, as this ensures the independence of the functions. Administratively, the risk units within the Bank report to the local CEO. In order to ensure appropriate management of risk throughout the organisation, the operational responsibility for the governance of the Group’s risks rest with the Group Risk Executive Committee in Kingdom of Bahrain, local units of Credit Committee, Asset Liability Committee and Management Executive Committee while ultimate responsibility to review and approve remains with the Board of Directors of the Bank.
79
notes to the
financial statements
25. Risk Management (cont’d)
Risk Framework and Governance (cont’d)
Board of Directors of Alkhair International Islamic Bank Berhad (“Alkhair Malaysia”)
The Board of Directors of the Bank retains and sets its own corporate governance responsibilities, and evaluate any Bank-level decisions or practices to ensure that they do not put the Bank in breach of applicable legal or regulatory provisions or prudential rules. Furthermore, the Board of Directors in Malaysia ultimately remains responsible for effective risk management processes and have appropriate understanding and input into the adoption and assessment of local risks at the Bank.
Board of Directors of Bank Alkhair B.S.C. (c) (“Bank Alkhair”)
The Board of Directors of the immediate and ultimate holding company in Kingdom of Bahrain has the overall responsibility for risk management and governance of its individual banking subsidiaries. The Board of Directors of immediate and ultimate holding company is aware of the material risks and issues that might affect both the immediate and ultimate holding company as a whole and its subsidiaries. It therefore exercises adequate oversight over the Bank via respective Group (“Global”) committees, while respecting the independent legal and governance responsibilities that might apply to the Bank. In recognition of the Board’s responsibility over risk management oversight, the Board approved the formation of a Board Risk Committee, to specifically address risk management issues and assist the Board in this respect.
Risk management Related Committee
Asset and Liability Committee (“ALCO”) of Alkhair Malaysia The ALCO within the Bank is a management committee who is responsible for managing the overall liquidity risk, market risk and capital management of the Bank. This involves monitoring and reviewing of the Bank’s liquidity and market risks and ensuring that appropriate strategies are in place for managing the Bank’s assets, liabilities and capital. Credit Committee of Alkhair Malaysia The Credit Committee is a management committee, whose primary responsibility is for credit application approvals and effective credit management of the Bank. Management Executive Committee of Alkhair Malaysia The Management Executive Committee is a management committee, whose primary responsibility is for managing the overall operational and other risks which are not covered by ALCO and Credit Committee. Group Risk Executive Committee of Bank Alkhair The Group Risk Executive Committee (“Group REXCO”) is an executive management committee whose primary function is to assist the Board of Directors in the Bank and its immediate and ultimate holding company in performing their risk management oversight function. Group Asset and Liability Committee of Bank Alkhair The Group Asset and Liability Committee (“Group ALCO”) is a management level committee residing at the immediate and ultimate holding company in Kingdom of Bahrain and is responsible for managing the overall financial risks, including liquidity, market and counterparty risks. This involves monitoring and reviewing of the Group’s liquidity and market risks positions, setting of the Group limits and adequate oversight over its subsidiaries.
80
Internal Audit Function
T he Group Internal Audit (“GIA”) is based in the immediate and ultimate holding company in Kingdom of Bahrain. The GIA is responsible for assessing overall effectiveness of the governance and risk management processes in the Bank. It conducts periodic audits and report its findings to the Audit Committee (“AC”). The GIA conducts independent review and assessment of the design and implementation of the risk management process within the Bank to provide assurance to the AC.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
25. Risk Management (cont’d)
Risk Mitigation
The Bank is exposed to profit rate, credit, liquidity/funding and operational risks through its various activities. The Bank has an approved set of guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks. The Bank’s overall financial risk management objective is to enhance shareholders’ value through effective management of the Bank’s risks. Risk is mitigated via implementation of risk tolerance and limits and the Bank continue to prudently manage its risk taking activities to ensure that it remains profitable. The Bank’s overall risk tolerance and limits are established and communicated through the Bank’s risk management policies and procedures, and through its business planning and budgeting process. It is the practice of the Bank to review its risk at Group level collectively. Hence, only Group figures are presented in the following notes:
- Note 26: Credit Risk - Note 27: Liquidity and Funding Management - Note 28: Market Risk - Note 29: Operational Risk
26. Credit Risk Credit risk is the risk that the Bank will incur a loss of principal or profit earned because its customers, clients or counterparties fail to discharge their contractual obligations. The Bank has developed Group Credit Risk Policy which sets the overall credit risk appetite. The Credit Risk Management Unit (“CRMU”) has the overall responsibility for identifying, monitoring, measuring and managing credit risks assumed by the Bank. Presently, the Bank has in place a Credit Assessment and Credit Administration function as part of the CRMU. The Bank is responsible to ensure a complete, timely and comprehensive feedback cycle is in place given that the regulatory landscape in both Malaysia and Kingdom of Bahrain may differ. The Bank also adopts an integrated approach to monitoring, controlling and reporting of the various risk types. The following table shows the maximum exposure to credit risk for the components of the statement of financial position. There is no significant use of master netting and collateral agreements. Group
Gross maximum exposure 31 Dec 2012 RM
Gross maximum exposure 31 Dec 2011 RM
Gross maximum exposure 1 Jan 2011 RM
Cash and short-term funds 212,233,526 Deposits and placements with banks and other financial institutions - Securities available-for-sale 83,360,888 Financing of customers 263,351,168 Other assets 10,553,203
235,642,104 - 73,494,865 276,389,895 14,337,606
234,484,695 21,584,500 36,630,253 181,085,822 10,068,954
599,864,470
483,854,224
Total credit risk exposure 569,498,785
Concentration of risks represents risks associated with large exposures to borrower, customers, industry, collaterals, single parties, or asset concentrations. Concentration of risks is managed by counterparty, by geographical region and by industry sector. The Bank has developed Large Exposure Policy framework to manage concentration risks.
81
notes to the
financial statements
26. Credit Risk (cont’d)
(a) The analysis by geographical region for financial assets having credit risk exposure is as follows:
Group
31 Dec 2012 Banks and financial institutions RM
Others RM
Total RM
%
Malaysia 159,487,606 55,039,956 214,527,562 Kingdom of Bahrain 28,915,797 18,452,620 47,368,417 Kingdom of Saudi Arabia 18,361,250 222,322,239 240,683,489 Other Countries 66,919,317 - 66,919,317
38% 8% 42% 12%
273,683,970 295,814,815 569,498,785
100%
By country:
Group
31 Dec 2011 Banks and financial institutions RM
Others RM
Total RM
%
Malaysia Kingdom of Bahrain Kingdom of Saudi Arabia Other Countries
162,489,995 82,514,518 - 60,826,608
53,733,309 19,168,338 219,519,757 1,611,945
216,223,304 101,682,856 219,519,757 62,438,553
36% 17% 37% 10%
305,831,121
294,033,349
599,864,470
100%
Group
Banks and financial institutions RM
Others RM
Total RM
%
Malaysia Kingdom of Bahrain Kingdom of Saudi Arabia Other Countries
142,764,627 63,468,410 - 77,794,709
14,134,155 18,624,540 167,067,783 -
156,898,782 82,092,950 167,067,783 77,794,709
32% 17% 35% 16%
284,027,746
199,826,478
483,854,224
100%
By country:
1 Jan 2011
By country:
82
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
26. Credit Risk (cont’d)
(b) The distribution of financial assets by industry sector is as follows:
Group Assets RM
31 Dec 2012 Off-balance sheet Total RM RM
%
By industry: Finance, insurance and business services 271,088,479 Trading 117,492,250 Construction and real estate 83,135,277 Government 21,340,279 Mining 18,361,644 Manufacturing 13,891,291 Electricity, gas and water 9,609,569 Others 34,579,996
- 271,088,479 - 117,492,250 - 83,135,277 - 21,340,279 - 18,361,644 - 13,891,291 - 9,609,569 - 34,579,996
48% 21% 15% 4% 3% 2% 1% 6%
569,498,785
- 569,498,785
100%
Group Assets RM
31 Dec 2011 Off-balance sheet Total RM RM
%
By industry: Finance, insurance and business services Trading Construction and real estate Manufacturing Mining Electricity, gas and water Government Others
324,341,525 124,455,684 88,875,124 14,474,192 12,904,894 9,877,287 8,664,910 16,270,854
- 324,341,5255 - 124,455,684 - 88,875,124 - 14,474,192 - 12,904,894 - 9,877,287 - 8,664,910 - 16,270,854
599,864,470
-
Group Assets RM
599,864,470
1 Jan 2011 Off-balance sheet Total RM RM
54% 21% 15% 2% 2% 2% 1% 3% 100%
%
By industry: Finance, insurance and business services Trading Construction and real estate Electricity, gas and water Others
302,652,286 92,977,106 83,607,106 4,318,435 299,291
- - - - -
302,652,286 92,977,106 83,607,106 4,318,435 299,291
63% 19% 16% 1% 1%
483,854,224
-
483,854,224
100%
83
notes to the
financial statements
26. Credit Risk (cont’d)
(c) Collateral and other credit enhancements
The Group has no material usage of collateral or other credit enhancements. Majority of the outstanding local financing is collateralised.
(d) Credit quality by class of financial assets
Group Neither past due nor impaired RM
Total RM
Cash and short-term funds 212,233,526 Securities available-for-sale 83,360,888 Financing of customers 263,351,168 Other assets 10,185,268
- - - 367,935
- 212,233,526 - 83,360,888 - 263,351,168 - 10,553,203
569,130,850
367,935
- 569,498,785
Group Neither past due nor impaired RM
31 Dec 2011 Past due but not Invidually impaired impaired RM RM
Total RM
Cash and short-term funds Securities available-for-sale Financing of customers Other assets
235,642,104 73,494,865 276,389,895 14,337,606
- - - -
- - - -
235,642,104 73,494,865 276,389,895 14,337,606
599,864,470
-
-
599,864,470
1 Jan 2011 Past due but not Invidually impaired impaired RM RM
Total RM
Group Neither past due nor impaired RM
84
31 Dec 2012 Past due but not Invidually impaired impaired RM RM
Cash and short-term funds Deposits and placements with banks and other financial institutions Securities available-for-sale Financing of customers Other assets
234,484,695
-
-
234,484,695
21,584,500 36,630,253 181,085,822 10,068,954
- - - -
- - - -
21,584,500 36,630,253 181,085,822 10,068,954
483,854,224
-
-
483,854,224
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
26. Credit Risk (cont’d)
(e) Credit risk exposure for each internal credit risk rating
The Bank applies the new/updated scoring models which was rolled out in 2010. The analysis of credit quality of its financial assets is as follows: Internal credit rating
31 Dec 2012 RM
Group 31 Dec 2011 RM
1 Jan 2011 RM
P rime Risk rating class 1
18,864,429
18,860,993
18,188,888
High Grade Risk rating class 2+ - Risk rating class 2 113,412,657 Risk rating class 2- 72,348,741
- - 132,787,674
37,974,554 139,682,926
Upper Medium Grade Risk rating class 3+ Risk rating class 3 Risk rating class 3-
24,196,606 79,061,314 86,409,340
52,776,882 113,587,218 115,547,459
9,093,040 125,539,409 60,271,031
Lower Medium Grade Risk rating class 4+ Risk rating class 4 Risk rating class 4-
73,899,952 2,908,024 29,155,492
34,997,477 6,998,145 33,507,427
18,512,256
Non-Investment Grade Speculative Risk rating class 5+ Risk rating class 5 Risk rating class 5-
13,891,291 17,923,779 35,405,916
1,611,945 19,042,058 39,801,379
27,822,780 18,512,255
Highly Speculative Risk rating class 6+ Risk rating class 6 Risk rating class 6-
1,729,076 - -
- - 9,783,391
9,516,429
S ubstantial Risk Risk rating class 7
-
-
-
E xtremely Speculative Risk rating class 8
-
-
-
I n default with little prospect of recovery Risk rating class 9
-
-
-
D efault Risk rating class 10
-
-
-
Non-rated
292,168
20,562,422
18,740,656
569,498,785
599,864,470
483,854,224
There are no historical default rates assigned to the Bank’s credit exposures as the Bank only fully started its operation in 2009.
85
notes to the
financial statements
26. Credit Risk (cont’d)
(f)
Credit Monitoring and Annual Reviews
The Bank regularly monitors credit exposures, portfolio performance, and external trends which may impact risk management outcomes. Internal risk management reports are generated for senior management and risk committees, containing information on key environmental, political and economic trends across portfolios and countries, portfolio delinquency with major credit delinquency, and financing impairment performance. In addition to the on-going qualitative assessment by the account relationship managers, reviews are conducted at least once a year with updated information on the customer’s financial position, market position, industry and economic condition and account conduct. The GIA conducts independent post approval reviews on a sampling basis to ensure that adequate credit process is followed which is in accordance with the internal policies established by the Bank. The Group’s impairment assesment methodologies apply an incurred loss basis for the recognition of losses on impaired financial assets. The assessment is done on (i) individual basis i.e. applies to significant customers with certain defined threshold limits and on (ii) collective basis which applies to facilities of homogeneous portfolios. The Bank’s methodologies are detailed out in the Significant Accounting Policies item 3.1 (i) and Note 7: Financing of customers. As at 31 December 2012/2011 and 1 January 2011, the Bank has Nil impaired financing which required Nil individual impairment provision. The Bank has allocated RM764,500 as collective impairment allowance as at 31 December 2012 (Nil as at 31 December 2011 and 1 January 2011). The impaired, past due financing and allowance for impairment by industry sector as at 31 December 2012 is as follows: Group 31 Dec 2012 Collective Impaired Past Due Impairment Financing Financing Allowance RM RM RM
Write-Offs RM
By industry:
86
Finance, insurance and business services Trading Construction and real estate Government Mining Manufacturing Electricity, gas and water Others Collective impairment allowance
- - - - - - - - -
- 367,935 - - - - - - -
- - - - - - - - 764,500
-
-
367,935
764,500
-
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
27. Liquidity Risk and Funding Management Liquidity is defined as the Bank’s ability to make payments, when they fall due. When the Bank cannot raise funds to meet its obligation at market rates, it faces a liquidity crisis. This may be due to poor performance, severe tightening of market liquidity; general deterioration in the perceived credit-worthiness of the Bank in the view of the financial markets, a failure to manage cash flows of the Bank’s assets and liabilities to meet short-term funding requirements, or serious lack of profitability. The Bank has developed Asset Liability Management Policy which outlines liquidity management methodologies and sets internal liquidity thresholds. In the event of a liquidity crisis, the Bank’s liquidity framework defines a methodology and operational plan for ensuring adequate funds continue to be available. In summary, the liquidity contingency plan establishes roles and responsibilities for crisis identification and coordination, assessment of the severity and implications of the crisis, determination of the cash flows requirements, determination of investment liquidation requirements under fire sale conditions and necessary emergency finance, the management of corporate communications with external parties, regulators and the media. As part of liquidity planning, the Bank conducts periodic liquidity stress tests to evaluate potential movements in funding sources.
Analysis of financial instruments by remaining contractual maturities.
The table below summarises the maturity profile of the financial liabilities at the reporting date based on contractual undiscounted payment obligations. Group 31 Dec 2012
> 1 - 6 months RM
> 6 - 12 months RM
Deposits from customers 68,614,406 286,842,539 Deposits and placements of banks and other financial institutions 119,999,021 - Other liabilities 47,491 554,325
1,879,718
- 357,336,663
- 140,324
- 119,999,021 14,447 756,587
2,020,042
14,447 478,092,271
Up to 1 month RM
>1 year RM
Total RM
Liabilities
Total liabilities 188,660,918 287,396,864
Group 31 Dec 2011
Up to 1 month RM
> 1 - 6 months RM
> 6 - 12 months RM
>1 year RM
Total RM
58,469,651
305,918,351
52,787,660
-
417,175,662
79,029,836 26,894
19,116,685 569,761
- 73,640
- 214,858
98,146,521 885,153
Total liabilities
137,526,381
325,604,797
52,861,300
214,858
516,207,336
Group 1 Jan 2011
Up to 1 month RM
> 1 - 6 months RM
> 6 - 12 months RM
>1 year RM
Total RM
Liabilities
Deposits from customers Deposits and placements of banks and other financial institutions Other liabilities
Liabilities
Deposits from customers Deposits and placements of banks and other financial institutions Other liabilities
52,572,722
178,253,029
14,971
2,931,365
233,772,087
144,478,900 18,601
30,877,398 294,979
- 111,606
- 438,070
175,356,298 863,256
197,070,223
209,425,406
126,577
3,369,435
409,991,641
Total liabilities
87
notes to the
financial statements
27. Liquidity Risk and Funding Management (cont’d)
Analysis of financial instruments by remaining contractual maturities (cont’d).
The table shows an analysis of financial assets and financial liabilities analysed according to the relevant maturity tenures based on remaining contractual maturity. Group 31 Dec 2012
> 1 - 6 months RM
> 6 - 12 months RM
>1 year RM
Total RM
Assets
Cash and short-term funds 212,233,653 Securities available-for-sale 471,654 Financing of customers 30,545,888 Other assets 10,261,213
- - 361,784 - 93,877,613 120,005,773 884 1,061
Total assets
94,240,281 120,006,834 101,739,389 569,498,912
Liabilities
253,512,408
- 212,233,653 82,527,450 83,360,888 18,921,894 263,351,168 290,045 10,553,203
Deposits from customers 67,508,117 282,693,598 Deposits and placements of banks and other financial institutions 119,656,587 - Other liabilities 1,325,179 2,639,136
1,857,123
- 352,058,838
- 136,558
- 119,656,587 12,312 4,113,185
Total liabilities 188,489,883 285,332,734
1,993,681
12,312 475,828,610
Net maturity mismatch
Group 31 Dec 2011
65,022,525 (191,092,453) 118,013,153 101,727,077
93,670,302
Up to 1 month RM
> 1 - 6 months RM
> 6 - 12 months RM
>1 year RM
Total RM
Assets
Cash and short-term funds Securities available-for-sale Financing of customers Other assets
235,642,555 273,911 30,980,468 14,039,505
- 333,750 105,581,015 -
- 20,141,259 139,828,412 -
- 52,745,945 - 298,101
235,642,555 73,494,865 276,389,895 14,337,606
Total assets
280,936,439
105,914,765
159,969,671
53,044,046
599,864,921
Liabilities 57,684,823
301,261,118
51,830,630
-
410,776,571
78,808,061 914,541
19,020,000 3,192,077
- 85,058
- 185,496
97,828,061 4,377,172
323,473,195
Deposits from customers Deposits and placements of banks and other financial institutions Other liabilities
88
Up to 1 month RM
Total liabilities
137,407,425
51,915,688
185,496
512,981,804
Net maturity mismatch
143,529,014 (217,558,430) 108,053,983
52,858,550
86,883,117
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
27. Liquidity Risk and Funding Management (cont’d)
Analysis of financial instruments by remaining contractual maturities (cont’d).
The table shows an analysis of financial assets and financial liabilities analysed according to the relevant maturity tenures based on remaining contractual maturity (cont’d). Group 1 Jan 2011
Up to 1 month RM
> 1 - 6 months RM
> 6 - 12 months RM
>1 year RM
Total RM
Cash and short-term funds Deposits and placements with banks and other financial institutions Securities available-for-sale Financing of customers Other assets
234,484,916
-
-
-
234,484,916
- 114,175 - 9,722,896
21,584,500 60,205 79,170,260 46,767
- - 92,505,000 1,305
- 40,933,115 9,410,562 297,986
21,584,500 41,107,495 181,085,822 10,068,954
Total assets
244,321,987
100,861,732
92,506,305
50,641,663
488,331,687
Liabilities
Assets
Deposits from customers Deposits and placements of banks and other financial institutions Other liabilities
52,030,921
175,877,740
-
2,908,271
230,816,932
144,313,239 532,091
30,835,000 1,341,724
- 84,604
- 357,606
175,148,239 2,316,025
Total liabilities
196,876,251
208,054,464
84,604
3,265,877
408,281,196
Net maturity mismatch
92,421,701
47,375,786
80,050,491
47,445,736 (107,192,732)
28. Market Risk Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to adverse changes in market variables such as profit rates, foreign exchange rates, equity prices and commodities. For managing market risks on Sukuk, the Bank relies on various risk measures including soft and hard stop loss limits, minimum credit ratings and concentration limits per single obligor. Sukuk portfolio limits are monitored by the RMD on a daily basis.
(a) Profit rate risk
Profit rate risk arises from the possibility that changes in profit rate will affect future profitability or the fair value of financial instruments. The Bank currently has exposure to profit rate risk. The Bank’s floating rate assets and liabilities that are exposed to profit rate risk include deposits and placements with banks and other financial institutions, securities available-for-sale, financing of customers, deposits from customers and deposits and placements of banks and other financial institutions.
89
notes to the
financial statements
28. Market Risk (cont’d)
(a) Profit rate risk (cont’d)
Sensitivity analysis for profit rate risk
The table below demonstrates the sensitivity to a reasonably possible change in profit rates with all other variables held constant, of the Bank’s profit net of tax through the impact on profit income on all floating rate assets above. Group 2012 Movement Effect on profit net of tax in basis points (+) movement (-) movement RM RM Financing of customers Securities available-for-sale
+100 -100 +50 -50
2,856,442 - 20,389 -
(2,856,442) (20,389)
2,876,831
(2,876,831)
Group 2011 Movement Effect on profit net of tax in basis points (+) movement (-) movement RM RM Financing of customers Securities available-for-sale
90
+100 -100 +50 -50
2,309,265 - 107,059 -
(2,309,265) (107,059)
2,416,324
(2,416,324)
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
28. Market Risk (cont’d) The table below analyses the profit rate risk for all assets and liabilities at carrying amount, categorised by the earlier of contractual repricing or maturity dates. Group 31 Dec 2012
Up to > 1 - 6 > 6 - 12 > 1 Non-profit 1 month months months year rate sensitive RM RM RM RM RM
Total RM
Assets Cash and short-term funds 191,889,500 - Securities available-for-sale 21,376,640 - Financing of customers 93,834,543 149,510,868 Other assets - - Equipment - -
- - 18,348,000 - -
- 57,347,285 - - -
20,344,153 212,233,653 4,636,963 83,360,888 1,657,757 263,351,168 11,057,475 11,057,475 1,115,700 1,115,700
Total assets
18,348,000
57,347,285
38,812,048 571,118,884
1,857,123
-
- 352,058,838
- 74,826
- 12,312
- 119,656,587 5,283,907 5,462,849
Total liabilities 187,179,823 282,770,283 Shareholders’ equity - -
1,931,949 -
12,312 -
5,283,907 477,178,274 93,940,610 93,940,610
Total liabilities and shareholders’ equity 187,179,823 282,770,283
1,931,949
12,312
99,224,517 571,118,884
On-balance sheet profit rate sensitivity gap 119,920,860 (133,259,415)
16,416,051
57,334,973
16,416,051
57,334,973
307,100,683 149,510,868
Liabilities and shareholders’ equity Deposits from customers 67,508,117 282,693,598 Deposits and placements of banks and other financial institutions 119,656,587 - Other liabilities 15,119 76,685
Total profit rate sensitivity gap 119,920,860 (133,259,415)
91
notes to the
financial statements
28. Market Risk (cont’d) The table below analyses the profit rate risk for all assets and liabilities at carrying amount, categorised by the earlier of contractual repricing or maturity dates (cont’d). Group 31 Dec 2011
Up to > 1 - 6 > 6 - 12 > 1 Non-profit 1 month months months year rate sensitive RM RM RM RM RM
Assets Cash and short-term funds Securities available-for-sale Financing of customers Other assets Equipment
209,050,000 18,994,453 33,602,000 - -
- - 228,087,552 - -
- - 12,863,860 - -
- 53,107,644 - - -
26,592,555 1,392,768 1,836,483 14,735,703 1,763,151
235,642,555 73,494,865 276,389,895 14,735,703 1,763,151
Total assets
261,646,453
228,087,552
12,863,860
53,107,644
46,320,660
602,026,169
57,684,823
301,261,118
51,830,630
-
-
410,776,571
78,808,061 14,762
19,020,000 74,945
- 92,436
- 185,496
- 4,706,748
97,828,061 5,074,387
Total liabilities Shareholders’ equity
136,507,646 -
320,356,063 -
51,923,066 -
185,496 -
4,706,748 88,347,150
513,679,019 88,347,150
Total liabilities and shareholders’ equity
136,507,646
320,356,063
51,923,066
185,496
93,053,898
602,026,169
On-balance sheet profit rate sensitivity gap
125,138,807
(92,268,511) (39,059,206)
52,922,148
125,138,807
(92,268,511) (39,059,206)
52,922,148
Liabilities and shareholders’ equity Deposits from customers Deposits and placements of banks and other financial institutions Other liabilities
92
Total profit rate sensitivity gap
Total RM
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
28. Market Risk (cont’d) The table below analyses the profit rate risk for all assets and liabilities at carrying amount, categorised by the earlier of contractual repricing or maturity dates (cont’d). Group 1 Jan 2011
Up to > 1 - 6 > 6 - 12 > 1 Non-profit 1 month months months year rate sensitive RM RM RM RM RM
Total RM
Assets Cash and short-term funds 176,220,655 Deposits and placements with banks and other financial institutions - Securities available-for-sale 18,476,150 Financing of customers - Other assets - Equipment -
-
-
-
58,264,261
234,484,916
21,584,500 - 180,236,462 - -
- - - - -
- 18,501,000 - - -
- 4,130,345 849,360 10,374,315 2,182,841
21,584,500 41,107,495 181,085,822 10,374,315 2,182,841
201,820,962
-
18,501,000
75,801,122
490,819,889
175,877,740
-
2,908,271
-
230,816,932
30,835,000 68,475
- 84,604
- 357,606
- 1,813,519
175,148,239 2,337,678
Total assets
194,696,805
Liabilities and shareholders’ equity Deposits from customers 52,030,921 Deposits and placements of banks and other financial institutions 144,313,239 Other liabilities 13,474
Total liabilities Shareholders’ equity
196,357,634 -
206,781,215 -
84,604 -
3,265,877 -
1,813,519 82,517,040
408,302,849 82,517,040
Total liabilities and shareholders’ equity
196,357,634
206,781,215
84,604
3,265,877
84,330,559
490,819,889
On-balance sheet profit rate sensitivity gap
(1,660,829)
(4,960,253)
(84,604)
15,235,123
(1,660,829)
(4,960,253)
(84,604)
15,235,123
Total profit rate sensitivity gap
93
notes to the
financial statements
28. Market Risk (cont’d)
(b) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Bank has bank balances in Euro and RM and other financial assets and liabilities in RM. These holdings expose the Bank to foreign currency risk.
Sensitivity analysis for foreign currency risk
The following table demonstrates the sensitivity of profit net of tax to a reasonably possible change in the respective functional currencies, with all other variables held constant. Group Increase/Decrease Effect on profit net of tax in percentage 2012 2011 RM RM US$/RM
+20 -20
(25,547) 25,547
(607,997) 607,997
US$/EUR
+20 -20
- -
(27,907) 27,907
(c) Equity price risk
Equity price risk is the risk that the fair value of equities decreases as the result of adverse changes in the levels of equity price and the value of individual shares. As of 31 December 2012/2011 and 1 January 2011, the Bank does not hold any investment in equity. As such, the Bank is not subject to equity price risk.
29. Operational Risk Operational risks is the risk of unexpected losses resulting from inadequate or failed internal controls or procedures, system failures, fraud, business interruption, compliance breaches, human error, management failure or inadequate staffing. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or lead to financial loss. While operational risks cannot be entirely eliminated, they are managed and mitigated by ensuring that appropriate infrastructure, controls, systems, procedures and trained and competent people are in place throughout the Bank. The Bank adopted the Basic Indicator Approach, as guided by Capital Adequacy Framework for Islamic Banks (“CAFIB”), in computing the capital charge for operational risk which is described as the average of fixed percentage [denoted (α)] of positive annual gross income over the previous three (3) financial years.
94
31 Dec 2012 RM
Gross Income Average for preceding three (3) financial years Alpha (α)
40,342,852 13,447,617 15%
32,292,543 10,764,181 15%
24,428,009 8,142,670 15%
2,017,143
1,614,627
1,221,400
Capital charge for operational risk
Group and Bank 31 Dec 2011 RM
1 Jan 2011 RM
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
30. Capital Management The Bank maintains an actively managed capital base to cover risks inherent in the business. In line with this, the risk strategy and capital planning/management process established refers to BNM’s CAFIB guidelines, as a guide to ensure that it sets and operates at an internal capital target level that is above the minimum BNM requirement and at a level which is adequate for its risk taking activities. The Bank has adopted the Standardised Approach for Credit Risk and Market Risk, and the Basic Indicator Approach for Operational Risk, in the computation of capital adequacy ratios. The capital adequacy ratios for the Bank also representing the capital adequacy ratios of the Group since the Bank’s subsidiaries’ exposures were not consolidated for the purpose of computing the capital adequacy ratios as the subsidiaries are non-financial entities.
The Bank’s capital adequacy ratios are as follows:
31 Dec 2012
Capital ratio Core capital ratio Risk-weighted capital ratio
24.1% 24.1%
Group and Bank 31 Dec 2011
23.5% 23.5%
1 Jan 2011
29.2% 29.2%
The Bank’s Tier 1 capital are as follows. The Bank does not have other capital except Tier 1 capital.
31 Dec 2012 RM
Group and Bank 31 Dec 2011 RM
1 Jan 2011 RM
Tier 1 capital Paid up capital Other reserves Less: Investment in subsidiaries
86,487,610 3,242,410 (5)
86,487,610 2,967,423 (5)
86,487,610 (2,021,744) (5)
89,730,015
89,455,028
84,465,861
Total Tier 1 capital
95
notes to the
financial statements
30. Capital Management
(a) The breakdown of risk-weighted assets for credit risk in the various categories of risk-weights are as follows:
Bank Bank Bank 31 Dec 2012 31 Dec 2011 1 Jan 2011 Risk- Risk- Risk Principal Weighted Principal Weighted Principal Weighted RM RM RM RM RM RM
0% 37,860,331 - 20% 212,707,986 42,541,596 50% 20,206,830 10,103,416 100% 293,628,879 293,628,885 150% 367,935 551,903
18,861,439 246,312,627 45,556,482 285,463,093 -
- 49,262,525 22,778,243 285,463,093 -
18,189,104 256,341,677 - 213,253,147 -
51,268,336 213,253,147 -
Risk-weighted assets for credit risk 564,771,961 346,825,800
596,193,641
357,503,861
487,783,928
264,521,483
127,996
3,597,560
9,525,588
25,214,283
20,182,840
15,267,506
Total risk-weighted assets 372,168,079
381,284,261
289,314,577
Risk-weighted assets for market risk Risk-weighted assets for operational risk
(b) The breakdown of risk-weighted assets by exposures in each major risk category, are as follows:
Bank Total 31 Dec 2012 Risk-Weighted Capital Risk-Weighted Assets After Requirement Gross Exposures Net Exposures Assets Effect of PSIA 8% RM RM RM RM RM
96
(i) Credit Risk On-Balance Sheet Exposures Sovereign & Central Banks Banks, Financial Institutions (“FIs”), & Multilateral Development Bank (“MDBs”) Corporates Other assets
21,340,279
21,340,279
1,172,251
1,172,251
93,780
242,925,051 298,594,369 1,912,262
242,925,051 298,594,369 1,912,262
48,217,915 295,523,494 1,912,140
48,217,915 295,523,494 1,912,140
3,857,433 23,641,880 152,971
564,771,961
564,771,961
346,825,800
346,825,800
27,746,064
Long Position Short Position (ii) Market Risk* Foreign Exchange Risk - 127,996 127,996 (iii) Operational Risk
127,996 25,214,283
127,996 25,214,283
10,240 2,017,143
(iv) Total Risk-Weighted Assets and Capital Requirement
372,168,079
372,168,079
29,773,447
Total On-Balance Sheet Exposures
* The Bank classified its financial assets under banking book and thus no impact to market risk assessment in risk-weighted assets except for foreign exchange risk.
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
30. Capital Management (cont’d)
(b) The breakdown of risk-weighted assets by exposures in each major risk category, are as follows (cont’d):
Bank Total 31 Dec 2011 Risk-Weighted Capital Risk-Weighted Assets After Requirement Gross Exposures Net Exposures Assets Effect of PSIA 8% RM RM RM RM RM (i) Credit Risk On-Balance Sheet Exposures Sovereign & Central Banks Banks, Development Financial Institutions (“DFIs”), FIs & MDBs Corporates Other assets
8,664,910
8,664,910
2,413,946
2,413,946
193,116
295,409,587 289,658,936 2,460,208
295,409,587 289,658,936 2,460,208
66,299,019 286,331,134 2,459,762
66,299,019 286,331,134 2,459,762
5,303,922 22,906,491 196,781
596,193,641
596,193,641
357,503,861
357,503,861
28,600,310
Long Position Short Position (ii) Market Risk* Foreign Exchange Risk - 3,597,560 3,597,560 (iii) Operational Risk
3,597,560 20,182,840
3,597,560 20,182,840
287,805 1,614,627
(iv) Total Risk-Weighted Assets and Capital Requirement
381,284,261
381,284,261
30,502,742
Total On-Balance Sheet Exposures
* The Bank classified its financial assets under banking book and thus no impact to market risk assessment in risk-weighted assets except for foreign exchange risk.
Bank Total 1 Jan 2011 Risk-Weighted Capital Risk-Weighted Assets After Requirement Gross Exposures Net Exposures Assets Effect of PSIA 8% RM RM RM RM RM (i)
Credit Risk On-Balance Sheet Exposures Sovereign & Central Banks Banks, DFIs, FIs & MDBs Corporates Other assets
- 274,530,565 210,465,654 2,787,709
- 274,530,565 210,465,654 2,787,709
- 51,268,336 210,465,654 2,787,493
- 51,268,336 210,465,654 2,787,493
4,101,467 16,837,252 222,999
Total On-Balance Sheet Exposures
487,783,928
487,783,928
264,521,483
264,521,483
21,161,718
Long Position Short Position (ii) Market Risk* Foreign Exchange Risk - 9,525,588 9,525,588 (iii) Operational Risk
9,525,588 15,267,506
9,525,588 15,267,506
762,047 1,221,400
(iv) Total Risk-Weighted Assets and Capital Requirement
289,314,577
289,314,577
23,145,165
* The Bank classified its financial assets under banking book and thus no impact to market risk assessment in risk-weighted assets except for foreign exchange risk.
97
notes to the
financial statements
30. Capital Management (cont’d)
(c) The breakdown of credit risk exposure by risk-weights, are as follows:
Bank Total Exposures Exposures after Netting and Credit Risk Mitigation after Netting 31 Dec 2012 Total Sovereign & Banks, & Credit Risk Risk-Weighted Central Banks FIs and MDBs Corporates Other Assets Mitigation Assets RM RM RM RM RM RM
Risk-Weights 0% 20% 50% 100% 150%
18,995,780 - 2,344,499 - -
18,864,429 212,707,986 11,352,636 - -
- - 6,509,695 291,716,739 367,935
122 - - 1,912,140 -
37,860,331 212,707,986 20,206,830 293,628,879 367,935
42,541,596 10,103,416 293,628,885 551,903
21,340,279
242,925,051
298,594,369
1,912,262
564,771,961
346,825,800
Bank Total Exposures Exposures after Netting and Credit Risk Mitigation after Netting 31 Dec 2011 Total Sovereign & Banks, DFIs, & Credit Risk Risk-Weighted Central Banks FIs and MDBs Corporates Other Assets Mitigation Assets RM RM RM RM RM RM
Risk-Weights 0% 20% 50% 100%
- 6,395,031 2,269,879 -
18,860,993 239,917,596 36,630,998 -
- - 6,655,605 283,003,331
446 - - 2,459,762
18,861,439 246,312,627 45,556,482 285,463,093
49,262,525 22,778,243 285,463,093
8,664,910
295,409,587
289,658,936
2,460,208
596,193,641
357,503,861
Bank Total Exposures Exposures after Netting and Credit Risk Mitigation after Netting 1 Jan 2011 Total Sovereign & Banks, DFIs, & Credit Risk Risk-Weighted Central Banks FIs and MDBs Corporates Other Assets Mitigation Assets RM RM RM RM RM RM
98
Risk-Weights 0% 20% 100%
- - -
18,188,888 256,341,677 -
- - 210,465,654
216 - 2,787,493
18,189,104 256,341,677 213,253,147
51,268,336 213,253,147
-
274,530,565
210,465,654
2,787,709
487,783,928
264,521,483
annual report 2012
ALKHAIR INTERNATIONAL ISLAMIC BANK
31. Fair Values of Financial Instruments The carrying amount of the financial assets and financial liabilities approximates fair value due to the relatively short-term nature of these financial instruments. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques:
Level 1
Quoted (unadjusted) prices in active markets for identical assets and liabilities;
Level 2 Other techniques for which all inputs which have a significant effect on the recorded fair value are observable market data, either directly or indirectly; and
Level 3 Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
The following table shows an analysis of financial instruments recorded at fair value by level of fair value hierarchy:
Group 31 Dec 2012
Level 1 RM
Level 2 RM
Level 3 RM
Total RM
Investment securities Securities available-for-sale - Unquoted Sukuk
-
83,360,888
-
83,360,888
Group 31 Dec 2011
Level 1 RM
Level 2 RM
Level 3 RM
Total RM
Investment securities Securities available-for-sale - Unquoted Sukuk
-
73,494,865
-
73,494,865
Group 1 Jan 2011
Level 1 RM
Level 2 RM
Level 3 RM
Total RM
Investment securities Securities available-for-sale - Unquoted Sukuk - Unquoted shares
- -
36,630,253 -
- 4,477,242
36,630,253 4,477,242
-
36,630,253
4,477,242
41,107,495
Transfer between Level 1, Level 2 and Level 3 None of the financial assets were transferred from Level 1 to Level 2 to Level 3 during the year ended 31 December 2012.
99
notes to the
financial statements
32. Currency
All amounts are stated in RM.
33. Explanation of Transition to MFRSs The accounting policies set out in Note 3 have been applied in preparing the financial statements of the Group and of the Bank for the financial year ended 31 December 2012, the comparative information presented in these financial statements for the financial year ended 31 December 2011 and in the preparation of the opening MFRS statements of financial position at 1 January 2011 (the Group’s date of transition to MFRSs). The transition to MFRSs does not have any financial impact to the financial statements of the Group and of the Bank, as the accounting policies adopted under the previous FRS framework in Malaysia were already in line with the requirements of the MFRS framework.
100
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