Documente Academic
Documente Profesional
Documente Cultură
OUR VISION
AN OUTSTANDING
FINANCIAL SERVICES
ORGANISATION,
HIGHLY COMPETITIVE
AND PROFITABLE,
WHERE PEOPLE MAKE
THE DIFFERENCE
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 1
2 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Corporate Section
4 | Hong Leong Islamic Bank Story
0
05 | The Business
06 | Financial Highlights
07 | Chairmans Statement
09 | Managing Directors Review
14 | Corporate Social Responsibility
20 | Corporate Information
21 | Directors Profile
26 | Shariah Advisory Committees Profile
28 | Board Audit & Risk Management Committee Report
32 | Corporate Governance & Internal Control
41 | Shariah Advisory Committees Report
Contents
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 3
Financial Section
42 | Directors Report
46 | Balance Sheets
47 | Income Statements
48 | Statements of Changes in Equity
49 | Cash Flow Statements
51 | Notes to the Financial Statements
98 | Statement by Directors
98 | Statutory Declaration
99 | Independent Auditors Report
4 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Hong Leong Islamic Bank Berhad Today that Vision is manifested and
(HLISB), which is a member of the entrenched in the Groups corporate
Hong Leong Group Malaysia, is a culture, which is firmly rooted on
wholly owned subsidiary of Hong the Groups core values of Quality,
Leong Bank Berhad (HLB). With its Entrepreneurship, Innovation, Honour,
beginning as the Islamic Banking arm Human Resource, Unity, Progress and
of HLB, the division was incorporated Social Responsibility.
as a separate entity on 28 March
2005 and is today a full service As part of the financial services arm
Islamic bank with an authorised of Hong Leong Financial Group, which
and paid up capital of RM1 billion comprises Hong Leong Islamic Bank,
and RM500 million, respectively. Hong Leong Tokio Marine Takaful,
Following the transfer of the Islamic Hong Leong Bank, Hong Leong
Banking Departments business to Assurance and HLG Capital, the Bank
HLISB, the latter continues to tap on is well positioned as an integrated
HLBs infrastructure and strength in financial services provider.
embedded customer relationship. With
Quality over 200 branches including 4 full- The guiding principles of integrity,
fledged Islamic branches nationwide, trust and service, which are
Entrepreneurship the Islamic banking products and synonymous with the Hong Leong
Group, shall be consistent with
Innovation services are easily accessible to
Islamic banking principles. Hence,
Malaysian consumers to meet their
Honour multi-faceted needs. HLISB continues to adopt and
practise them accordingly. The
Human Resource Hong Leong Group Malaysia (the Banks business concept relies on
Group) is one of the largest business partnership to create value for its
Unity groups in Malaysia and internationally. business partners and customers.
The strong foundation and solid
Progress growth of the Group is attributed to The Groups Reaching Out to You
embeds the organisation in the
Social Responsibility the Power of Vision and the Vision
country and community within which
of its Chairman and Chief Executive
Officer, Tan Sri Quek Leng Chan. it operates.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 5
The Business
Business Banking
Wealth Management
Takaful
Financial Highlights
9,962
10,000 5,000
9,142
4,242 4,139
8,121
3,945
8,000 4,000 3,825
3,673
6,434 6,224
6,000 3,000
RM mil
RM mil
4,000 2,000
2,000 1,000
0 0
FY06 FY07 FY08 FY09 FY10 FY06 FY07 FY08 FY09 FY10
RM mil
4,000 60
3,000
40
2,000
20
1,000
0 0
FY06 FY07 FY08 FY09 FY10 FY06 FY07 FY08 FY09 FY10
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 7
Chairmans Statement
Istatements
am pleased to present the Annual Report and financial
of Hong Leong Islamic Bank Berhad (HLISB or
Bank) for the financial year ended 30 June 2010.
Chairmans Statement
(continued)
THE VALUE OF
HERITAGE
THE POWER OF
VISION
BUILDING UPON
THE STRENGTH OF
THE NATION
The Bank retained its profitability with whilst return on average shareholder A NOTE OF APPRECIATION
a pre-tax profit improvement of 11% funds increased to 10.8% against
to RM111 million during the financial 10.5% last financial year. I wish to extend my appreciation to the
year 2010. Over the last 5 years, the Board of Directors and our customers
pre-tax profit for the Bank had been The Bank has achieved measurable for their continuous commitment and
growing with a steady average growth success in increasing its shareholder support and to the management and
rate of 16%. value and building a sound foundation all of our staff for their dedication,
in term of financial profiles, regulatory contributions and commitment to
The Bank sustained a healthy growth compliance and Shariah governance ensure the continued growth and
in assets and core deposits in 2010 infrastructure towards creating a success of the Bank.
with total assets increased by 9% strong Islamic franchise for the Hong
to RM10.0 billion. Deposit franchise Leong Group. We intend to use this Last but not least, on behalf of the
remains strong with depositor base position of strength to expand our Board and Management, I wish
stood at RM7.7 billion and core deposit Islamic business further into new to extend my sincere gratitude to
expanded by 18% to RM4.0 billion as area of growth in the local and global Bank Negara Malaysia, the Ministry
of June 2010 from RM3.4 billion as of front. of Finance, government agencies,
last year. Financing registered a growth regulatory authorities, our Shariah
of 8% to RM4.1 billion contributed by HLISB, being the centre of excellence Advisory Committee and all the relevant
the consumer business and business for Islamic finance for the Group, authorities for their invaluable service
banking. continuously puts efforts in assistance, guidance and counsel.
strengthening and enhancing its
The Bank maintained its position in Shariah Governance Framework to
asset quality and capital adequacy well meet the challenging demand of the QUEK LENG CHAN
above the industry average, registering industry. The Bank is proactively Chairman
a Net Non Performing Financing (NPF) looking beyond ordinary generic
ratio of 0.3% among the lowest in Islamic contracts to areas that can
the industry. Capital adequacy ratio accommodate the development of
was at 21% above the regulatory business in different sectors of the
requirements of 8%. economy that will provide holistic
and globally accepted Islamic finance
Earning per share improved from 14.9 solutions to its customers.
sen last year to 16.8 sen in 2010
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 9
REVIEW OF PERFORMANCE
last financial year. The Bank recorded Deposit franchise remained strong STRATEGIC INITIATIVES
a net after tax profit of RM84 million, with depositor base stood at RM7.7
13% higher as compared to RM74 billion and core deposit expanded Our main focus remains on broadening
million achieved in 2009. by 18% to RM4.0 billion as of June our capabilities in the Islamic
2010 from RM3.4 billion as of last Investment Banking, Business Banking
Since its establishment, the Bank year. and Treasury, complementing our well
had maintained a steady growth in established consumer business.
profitability with a cumulative average Net Non Performing Financing
growth rate of 16% over the last 5 (NPF) ratio was at 0.3%, being one The Islamic Investment Banking
years. of the lowest among peer banks. Division continues to support the
The Bank was well capitalized with Banks clients where Islamic capital
The following are highlights of financial its capital adequacy ratio at 21% market funding is required. The team
performance of HLISB for the financial this year as compared to 23% last is focused on efficient and effective
year 2010:- financial year. solutions for its customers to ensure
competitiveness in the market. The
Pre-tax profit of the Bank increased The net NPF ratio and capital adequacy solutions range from project finance
by 11% to RM111 million as ratio for the Bank were well above the and structured finance to straight
compared to RM100 million last industry average. forward financing raising exercises for
year, on the back of a strong 14% corporate clients.
growth in total net income. In view of the Banks sustained good
performance in this year, the Board Our treasury division is continually
Earnings per share were 16.8 sen of Directors has proposed a payment expanding its product and solutions
as of 30 June 2010 against 14.9 of a final net dividend in respect of offering. This will ensure that the whole
sen last financial year, or grew by financial year ended 30 June 2010 spectrum of customer needs can be
13% year-on-year. of 4.8 sen per share amounting to met from cash management to foreign
RM24,000,000. exchange facilities and Sukuk trading
Return on average shareholder and distribution as well as structured
funds improved to 10.8% against During the year, Rating Agency products. The division constantly
10.5% last financial year. Malaysia (RAM) has reaffirmed the upgrades its infrastructure and applies
Banks short term rating of P1 and sophisticated trading management
Total assets grew by 9% to RM10.0 upgraded its long term financial processes to weather the challenging
billion with financing registering institution rating from AA2 to AA1. and uncertain market environment.
a growth of 8% to RM4.2 billion
contributed by the Banks retail
and corporate segments.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 11
Governance distribution of our products and services Centre of Excellence for Product
and provide personalized services to Development
We are committed to uphold strong our valued customers. The Bank had
governance practices in all aspects officially opened its first full-fledged Our continuous commitment to
of our business operation at all time, Islamic branch in Terengganu in July research and development is focusing
specifically on the Shariah governance 2010, increasing the number of our on building new and comprehensive
and compliance. Our existing strategy branches to four. The newly launched Islamic contracts to enhance our
in ensuring that Shariah requirements Kuala Terengganu branch not only product offerings. The Bank is
in the area of Usul Fiqh (Islamic complements the three existing Islamic embarking on various new product
jurisprudence) and Fiqh Muammalat branches located in Kota Bharu, Shah initiatives at the wholesale banking
(Islamic transaction law) is embedded Alam and Kuala Lumpur but also cater activities, namely Business Banking,
in all our activities. the needs of our growing customer Investment Banking and Treasury,
base in the East Coast. This is a pilot encompassing the contracts of
The Bank has continued to enhance its Hong Leong Islamic Bank branch which Musharakah, Mudharabahah, Wakalah,
Shariah governance infrastructure in features the new contemporary look As Sarf, Murabahah and Ijarah. We
aligning with the more comprehensive and feel. want to ensure that we can provide
and structured framework that is being end to end business solutions to our
developed for implementation by the valued clients.
Regulator. The Bank is in a position to
comply with a more transparent and
high Shariah standards going forward
in all aspects of our business operation
as we are poised to expand our Islamic
finance business capabilities in the
coming financial year.
Distribution Channel
During the financial year we saw People Make the Difference has Global economic recovery is still
that the new Central Bank Act 2009 always been our principal belief. We vulnerable evidenced by the mixed
was enacted. The new act solidifies are committed to ensure that the economic data in the US. Malaysia
the position of the BNM Shariah welfare of our staff is maintained at is still cautiously optimistic of the
Advisory Council as the supreme body the highest standards. Investment in prospects of economic growth and
to decide on Shariah related matters talents management is a key priority seeing trade activities for year 2010/11
in Malaysia. We see this as a very for the Bank to ensure the retention is picking up with all sectors are
positive development for the industry and development of our staff and showing signal on steady momentum,
to address issues on uncertainties capable human capital with the right although some sectors demonstrate
arising from different opinions and skill sets are in place to support our sluggish recovery. Moving forward,
interpretations of Shariah principles in long term growth plan. we believe the banking climate remains
the market. robust and many opportunities exist
Corporate Social Responsibility for sustainable long term growth.
The Bank has throughout the financial
year participated very actively in The initiatives of Corporate Social The Bank is ready to face future
various exercises initiated by BNM Responsibility (CSR) have been an challenges in the more competitive
in the formulation of standards for integral part of the Hong Leong Group market through innovation, efficiency
Shariah parameters and framework social objectives. Besides participating and quality services to meet the market
for the implementation at the industry in the CSR activities initiated by the needs.
level. In this regard, we believe the Group, we have also proactively
active collaborations between the made number of donations to many We aspire to be a significant industry
regulators and the industry players will charities during this financial year. The player that makes the incremental
strengthen and facilitate the growth detail CSR activities are highlighted difference to the industry which is fast
of Islamic finance industry in the on a separate section in this Annual evolving and gaining public acceptance
country. Report. not only in Malaysia but also globally.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 13
A NOTE OF APPRECIATION
Corporate Social Responsibility (CSR) An established Enterprise Risk exercising their business judgment
for the Hong Leong Group has always Management structure to ensure to act in what they reasonably
been more than just about community that a systematic process and believe to be in the best interest of
welfare. It is about having a sustainable delegation of responsibility is clearly the company and the shareholders
business strategy in the face of global set out to guide management. they represent.
demands and challenges. It is also The Group sees Enterprise
about conducting business with a Risk Management as a serious The strict practice of responsible
conscience - caring for the community, consideration to protect the selling and marketing of products
the environment, the customers, company from defaults that could and services, in a global market
employees and stakeholders. fundamentally damage enterprise that is increasingly becoming even
value. more aggressive and competitive.
Customer Service
The Group also actively promotes climate change, was observed by the its focus areas, education in particular,
work-life balance through various Group. The Bank, together with the takes top priority.
sports, family, social events initiatives. Group, supported Earth Hour 2010 by
In this regard, various initiatives such switching off non-essential lights at Scholarship
as sports activities, social events and Banks branches on 27 March 2010
family day, were carried out with the from 8.30pm-9.30pm. The Bank staff The Foundation has, as part of its
full support and commitment of the were also notified to do their part on a donation framework, designed a
employees throughout the financial personal level. Scholarship Programme to benefit
year. academically outstanding Malaysian
Organised by the World Wildlife Fund, students from low-income families,
Environmental Preservation Earth Hour was conceived in Sydney and of late also included students
in 2007. Since then, many other cities with disabilities. The Foundation
As part of our commitment to our around the world adopted the event believes that providing scholarships is
employees and to society as a whole, in 2008, and is now held on the last about providing opportunities giving
we practise environmental preservation Saturday of March annually. By doing deserving students the chance to have
and maintain high standards of its part, the Group supported this global the higher education necessary to
Occupational Safety and Health effort to help make a difference. break the cycle of poverty and become
management practices. Environmental tomorrows leaders.
management programmes such as
recycling campaigns, air pollution COMMUNITY INVESTMENT Over 1.5 million Ringgit is allocated
controls and waste management each year for scholarship grants for the
programmes are continuously deployed The Group conducts most of its public for diploma and undergraduate
to achieve the Groups objectives. philanthropic activities through the studies at local universities and
Hong Leong Foundation, the charitable selected institutions of higher learning.
In addition, we conduct regular arm of Hong Leong Group. Since its Invitations are also extended to the
occupational safety and awareness incorporation in 1992, the Foundations scholars for industrial training at
programmes for our employees. programmes have been funded by the Group companies to help ensure that
Group companies contributions. The scholars graduate into the workforce
Earth Hour, a global event where Foundation focuses on education and with sufficient knowledge and relevant
households and businesses are community welfare as its key thrusts experience.
encouraged to turn off non-essential and responds to appeals for aid of
lights and other electrical appliances victims of natural disasters such as Apart from these, a separate fund is
for one hour to raise awareness floods, tsunamis and others. Among set aside for scholarship grants for
towards the need to take action on
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 19
deserving children of Group staff. Both The Foundation has made substantial and welfare homes, assist in the
grants for the public and Group staffs donations to many charities over provision of medical services to poor
children are unconditional they do the years. In this fiscal year alone, communities through blood donation
not carry any repayment requirement Vinashini Home Seremban, Little Sister drives and volunteer work in hospitals
nor are the recipients bonded to work of the Poor Kuala Lumpur, Education, as well as initiating and participating in
for the Group upon graduation. Welfare, Research Foundation, Science projects involving environmental and
of Life 24/7 Malacca, Persatuan Kanak social issues.
Student Assistance Kanak Cerebal Palsy (Spastik) Pulau
Pinang, Pusat Jagaan Nur Salam, Small Enterprise Programme
Although primary and secondary Persatuan Daybreak Perak, Sunflower
education in Malaysia is free, there are Centre Sarawak and Sabah Cheshire The people behind Hong Leong
still a number of students from low- Home, were amongst some of them. Group are entrepreneurs and we
income families who find it a challenge seek to propagate this same spirit of
to put this educational opportunity into Besides the above programmes entrepreneurship to the community.
best use. To address the immediate conducted by the Group, the By expanding our contribution to
needs of these students, the Foundation Bank has also proactively initiated the community to include this new
reaches out to them through the various charitable contributions in category, through our dealings with
Student Assistance Programme. To this financial year such as Tasputra various charities on programs designed
date, through this Programme, the Perkim-Day Care Centre for Handicap to help the underprivileged set up their
Foundation has sponsored thousands Children, Pertubuhan Amal Gabungan own businesses, we are able to teach
of underprivileged school children Permata Istimewa Malaysia, Tabung people to stand on their own two
nationwide in the form of distribution Kebajikan Pelajar Miskin Negeri feet, eventually breaking the cycle of
of free school bags, books, uniforms, Pahang and Rumah Anak Kesayangan. poverty. Over the short term, those
stationeries, dictionaries, bicycles, In conjunction with the month whom we help by giving seed money
tuition, transportation fees and of Ramadhan, the Bank has also for businesses will be able to generate
others. participated in a charity programmme enough income to be able to provide
for orphan, hosted by Putrajaya Malay for their families needs. Over time,
School Building Fund Chamber of Commerce Malaysia. with proper management and guidance
these businesses will grow and, in
The Foundation actively pursues On top of the above, the Bank has turn, be able to help others.
opportunities where it can play a part fulfilled its obligations for Zakat to
in improving the quality of education various states to help improving the Towards this end, we are working with
in the country today. Donations for well-being of the communities. various NGOs, among which are Ray
the construction of bigger and better of Hope and The Community Service
facilities for learning institutions Apart from activities carried out by Centre For the Deaf, Kuala Lumpur.
help create an environment in which the Foundation and the Bank, Group
students can excel. companies stage their own activities
in numerous communities nationwide.
Towards this, the Foundation has The Groups employees regularly
made substantial donations to various participate in community services
academic and vocational training that include visits to orphanages
institutions nationwide.
Community Welfare
Corporate Information
DIRECTORS AUDITORS
Directors' Profile
Directors' Profile
(continued)
MS YVONNE CHIA
Non-Executive/Non-Independent
Aged 57, Ms Yvonne Chia, a Malaysian, holds a Bachelor Ms Chia was appointed a Director of HLISB on 28 March
of Economics (Second Class Upper Honours) from the 2005.
University of Malaya. An international banker, Ms Chia
started her career with the Bank of America and held Ms Chia is a Director of HLFG and HLB, both companies
various positions in Hong Kong, Manila and Kuala Lumpur listed on the Main Market of Bursa Securities. Ms Chia is
between 1976 to 1993; the last position being Vice- also a Director of Cagamas Berhad and Prominic Berhad, all
President and Country Head of Marketing. In March 1994, public companies.
Ms Chia joined RHB Bank Berhad (RHB Bank) as General
Manager and went on to become Chief Executive Officer/ Ms Chia attended all the six Board Meetings of HLISB held
Managing Director of RHB Bank, a position she held until during the financial year ended 30 June 2010.
March 2002. She successfully grew RHB Bank to be one of
leading local banks in Malaysia and in the region during the
challenging years of the Asian financial crisis (1996-2002).
She further strengthened RHB Banks position from 6th to
3rd largest bank in Malaysia through a series of mergers and
acquisitions with DCB Bank Berhad and Kwong Yik Bank
Berhad. She also headed a distressed bank (the former Sime
Bank Berhad) under the ambit of Bank Negara Malaysia
(BNM) during the Asian financial crisis (1999/2000)
while serving concurrently as the Managing Director of RHB
Bank.
Directors' Profile
(continued)
Aged 57, Mr Kwek Leng Hai, a Singaporean, qualified as Aged 61, Tan Sri A. Razak bin Ramli, a Malaysian, obtained
a chartered accountant and has extensive experience in a Bachelor of Arts (Honours) degree in Public Administration
financial services, manufacturing and property investment. from the University of Tasmania, Australia and has a diploma in
Mr Kwek is the President and Chief Executive Officer of Gestion Publique from Institut International dAdministration
Guoco Group Limited (GGL), a company listed in Hong Publique, Paris, France. He has served in various Ministries
Kong and has been an Executive Director of GGL since including the Public Services Department and Economic
1990. Mr Kwek is also a director of GGLs key subsidiaries Planning Unit in the Prime Ministers Department and the
including GuocoLand Limited and GuocoLeisure Limited, Ministry of International Trade and Industry (MITI). Tan
both public listed companies in Singapore. He is also a Sri A. Razak was the Chairman of APEC Senior Officials
director of Bank of Chengdu Co., Ltd. when Malaysia hosted APEC, and held various positions in
MITI including Deputy Secretary General (Industry), Deputy
Mr Kwek was appointed to the Board of HLISB on 23 June Secretary General (Trade) and retired as the Secretary
2005 and is a member of the NC of HLISB. General of MITI.
He is also a Director of HLB, a company listed on the Main Tan Sri A. Razak was appointed to the Board of HLISB on
Market of Bursa Securities and HLCM, a public company. 23 June 2005. Tan Sri is the Chairman of the Board Audit
& Risk Management Committee (BARMC) and a member
Mr Kwek attended all the six Board Meetings of HLISB held of the NC of HLISB.
during the financial year ended 30 June 2010.
Tan Sri A. Razak is the Chairman of Shangri-La Hotels
(Malaysia) Berhad and Transmile Group Berhad, the Deputy
Chairman of Favelle Favco Berhad and a Director of Lafarge
Malayan Cement Berhad and Ann Joo Resources Berhad,
companies listed on the Main Market of Bursa Securities. He
is also the Chairman of Hong Leong Tokio Marine Takaful
Berhad (HLTMT) and Ophir Holdings Berhad and a Director
of Hong Leong Investment Bank Berhad (HLIB), all public
companies.
Tan Sri A. Razak attended five out of the six Board Meetings
of HLISB held during the financial year ended 30 June
2010.
24 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Directors' Profile
(continued)
YBhg Dato Abdul Majit attended all the six Board Meetings
of HLISB held during the financial year ended 30 June
2010. PUAN HIJAH ARIFAKH BINTI OTHMAN
Managing Director/Chief Executive Officer
YBHG DATO MOHAMED NAZIM BIN Aged 50, Puan Hijah Arifakh Binti Othman, a Malaysian,
obtained a Bachelor of Science Degree in Mathematics
ABDUL RAZAK and Computer Science from the City University of London,
Non-Executive Director/Independent United Kingdom.
Aged 48, YBhg Dato Mohamed Nazim Bin Abdul Razak, a Puan Hijah has extensive experience in the banking industry.
Malaysian, an architect by profession, graduated from the She forged her early career in Bank Negara Malaysia for
Architectural Association, School of Architecture, London. 14 years before moving to Danamodal Nasional Berhad as
YBhg Dato served with YRM Architects in London, a multi- Head of Treasury. Puan Hijah held various senior positions in
disciplinary building design consultancy and has more than established banking groups including the position of Director
16 years experience in the architectural field, 13 of which of Asian Fixed Income Malaysia and Head of Group Treasury
were in Kuala Lumpur. YBhg Dato is the Managing Director Business, the last being Head, Group Treasury Business of
of NRY Architects Sdn Bhd. Maybank Berhad.
YBhg Dato Mohamed Nazim was appointed to the Board of Puan Hijah was the Chief Operating Officer, Global Islamic
HLISB on 23 June 2005. He is the Chairman of the RC and Financial Services of HLB.
a member of the NC of HLISB.
She was appointed as Managing Director/Chief Executive
YBhg Dato Mohamed Nazim is also a Director of HLB Officer of HLISB on 9 April 2010.
and HLGC, companies listed on the Main Market of Bursa
Securities and ING Insurance Berhad, a public company. Puan Hijah attended the one Board Meeting of HLISB held
during her office as Director of HLISB for the financial year
YBhg Dato Mohamed Nazim attended five out of the six ended 30 June 2010.
Board Meetings of HLISB held during the financial year
ended 30 June 2010.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 25
26 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Shariah Advisory
Committees Profile
ASSOCIATE PROFESSOR DR. AB. MUMIN AB. GHANI (Chairman)
Dr. Ab. Mumin Ab. Ghani is currently a lecturer in the Department of Shariah
and Management, Academy of Islamic Studies, UM. He graduated from Universiti
Kebangsaan Malaysia (UKM) in 1979, with a Bachelor of Economics (Honours).
He later obtained a Diploma in Education (UKM) in 1979, a Diploma in Public
Administration (INTAN) in 1983 and an MBA (UKM) in 1987. He obtained his PhD
in Shariah (specialized in Islamic Finance) in 1998 at University of Malaya (UM).
At the Academy of Islamic Studies UM , he held several roles, the Deputy Dean,
Faculty of Shariah; Head, Department of Shariah and Management; Deputy
Director of the Academy, and a Member of UM Senate Committee. At present, he
contributes on an academic panel for several institutions of higher education and
is also in the Management Academy of YPEIM. Besides that, he is also involved in
establishing the Ummah Development Index, IKIM.
His first papers in Islamic Finance Methodology were published in the USA in the
1970s. His highly acclaimed book on Foreign Capital & Development Process was
published by University Press of America, Washington, D.C. in 1977. He served
as Presidential Adviser to the Government of Pakistan, Ministry of Production in
1978 and served as a Visiting Professor at Pakistan Institute of Management. From
1996 to 2006 he served as the Vice Chancellor and Provost at Global Studies
Institute in Massachusetts.
Shariah Advisory
Committees Profile
(continued)
Professor Dar is also associated with the Institute of Islamic Banking & Insurance
London and is a member of the editorial board of its flagship publication New Horizon.
A prolific author, he sits on the editorial boards of Review of Islamic Economics,
International Journal of Islamic Financial Services, and ISRA International Journal
of Islamic Finance. He is also Editor-in-Chief of Global Islamic Finance Report,
an annual publication that he founded in 2010. His other appointments include
directorship of Arab British Chamber of Commerce, honorary fellowships at
Cass Business School and the University of Durham. He also serves as a Visiting
Professor in Islamic Finance at Universiti Teknologi MARA (UiTM).
Dr. Hj. Muhamad Rahimi Osman is currently the Director of the Centre for
Islamic Thought and Understanding (CITU), UiTM, which was upgraded from the
universitys Centre for Islamic Education with a role to develop university courses
related to Islamic education and Islamic civilisation.
After his postgraduate degree, he joined Universiti Teknologi MARA (UiTM). There,
he served as the Coordinator of Islamic Social Science at the Centre for Islamic
Education. He was also the Head of the Zakat Unit at the Centre for Integrated
Islamic Services and the Deputy Director at the Department of Islamic Education
and Civilization; Centre for Islamic Thought and Understanding (CITU). He has
produced several research papers and writings related to Islamic economics,
Islamic commercial transactions (Fiqh al-Muamalat), Islamic banking and Zakat.
28 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
CONSTITUTION
The Board Audit & Risk Management Committee (the Committee) of Hong Leong Islamic Bank Berhad (HLISB or the
Bank) was established on 29 September 2005.
COMPOSITION
SECRETARY
The Secretary to the Committee is Mr Lim Kim Seng who is the Group Chief Internal Auditor of Hong Leong Bank Berhad
(HLB).
To nominate and recommend for the approval of the Board of Directors (Board), a person or persons as external
auditor(s).
To review the external audit fees.
To review, with the external auditors, the audit scope and plan.
To review, with the external auditors, the audit report and audit findings and the managements response thereto.
To review the assistance given by the officers of the Bank to the external auditors.
To review the quarterly reports and annual financial statements of the Bank prior to the approval by the Board.
To review the adequacy of the internal audit scope and plan, functions and resources of the internal audit division.
To review the report and findings of the internal audit division including any findings of internal investigations and the
managements response thereto.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 29
AUTHORITY
The BARMC is authorised by the Board to review any activity of the Bank within its Terms of Reference. It is authorised to
seek any information it requires from any Director or member of management and all employees are directed to co-operate
with any request made by the Committee.
The Committee is authorised by the Board to obtain independent legal or other professional advice if it considers necessary.
MEETINGS
The Committee meets at least five (5) times a year and additional meetings may be called at any time as and when necessary.
All meetings to review the quarterly reports and annual financial statements are held prior to such quarterly reports and annual
financial statements being presented to the Board for approval.
The Group Managing Director of HLB, the Managing Director of HLISB, the Executive Director of HLB, the Chief Financial
Officer, the Head of Integrated Risk Management & Compliance and external auditors are invited to attend Committee
meetings, where applicable.
Two (2) members of the Committee, who shall be independent and non-executive, shall constitute a quorum.
After each Committee meeting, the Committee shall report and update the Board on significant issues and concerns discussed
during the Committee meetings and where appropriate, make the necessary recommendations to the Board.
ACTIVITIES
The Committee carried out its duties in accordance with its Terms of Reference.
The Committee met six (6) times during the financial year ended 30 June 2010. YBhg Tan Sri A. Razak bin Ramli and YBhg
Datuk Dr Hussein Awang attended all the meetings held during the financial year, while YBhg Dato Abdul Majit bin Ahmad
Khan attended five (5) meetings and there was no meeting held after the appointment of Mr. Choong Yee How on 24 June
2010. The Committee also had two (2) separate sessions with the external auditors without the presence of executive
directors.
The Committee reviewed the quarterly reports and annual financial statements of the Bank. The Committee met with the
external auditors and discussed the nature and scope of the audit, considered significant changes in accounting and auditing
issues, reviewed the management letter and managements response, examined pertinent issues which had significant impact
on the results of the Bank and discussed applicable accounting and auditing standards. The Committee also reviewed the
internal auditors audit findings and recommendations as well as Bank Negara Malaysias Examination Reports on the Bank.
In addition, the Committee reviewed the adequacy and integrity of internal control systems, including risk management and
relevant management information system. It also reviewed the processes put in place to identify, evaluate and manage the
significant risks encountered by the Bank.
The Committee reviewed various related party transactions carried out by the Bank.
30 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
INTERNAL AUDIT
During the financial year ended 30 June 2010, the Internal Audit Division carried out its duties covering audit on operations,
credit, head office, branches and other assignments as directed. The division also worked closely with HLISB Shariah
Secretariat and Integrated Risk Management & Compliance Division to review, evaluate and improve the risk management
framework, its effective deployment and Shariah Compliance Review.
RISK MANAGEMENT
Managing risks is an integral part of the Banks overall business strategy, as risks, if left unchecked against a backdrop of
rapidly changing financial landscape can be detrimental to the Bank. Recognising the need to be proactive in the management
of risks, the Bank has implemented the Groups Integrated Risk Management (IRM) framework where the Banks risks are
managed at various levels.
The Board of Directors is ultimately responsible for risk oversight within the Group through the Board Audit & Risk Management
Committee (BARMC).
The Board sets the risk appetite and tolerance levels that are consistent with the Banks overall business objectives and
desired risk profile.
The Board Audit & Risk Management Committee is assisted by the Integrated Risk Management Department, and it reports
to the Board on the proper functioning of the Integrated Risk Management Framework, as part of its responsibilities of
monitoring compliance with the business objectives, policies, reporting standards and control procedures of the Group.
Specialised risk committees, namely the Board Credit Supervisory Committee, Operational Risk Management & Compliance
Committee and Asset & Liability Management Committee assists the BARMC in managing credit risk, operational risk inclusive
of Shariah Compliance Risk and market/liquidity risk respectively. These specialised committees are responsible for the
development and implementation of risk policies; and for the assessment of the effectiveness of policies.
RISK MANAGEMENT
BARMC
Sets standards and policies for management
Risk Management and of risk
regulatory compliance Policy and standards approved by BARMC
and BOD
Shariah
Shariah compliance risk Advisory
management Committee
BUSINESS RISK
Sets business-level policies within the
parameters of group-level policies
PFS, HLi Market, Business Banking, Strategic ALMCO
Policy approved by BARMC and BOD
Support
BUSINESS MANAGER
BCSC
Develops operational
Line Management
manuals/processes/procedures to
implement policies, regulatory ORMCC
guidelines/requirements
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 31
The Bank recognize that a sound and robust Shariah governance is fundamental for the Bank to ensure that its business are
in compliance with Shariah principles at all times.
The Shariah governance framework of the Bank comprises three main components, namely the Board of Directors, the
management and the independent Shariah Advisory Committee that is competent and accountable, supported by a strong
internal Shariah research capacity, and monitored through active Shariah review and Shariah risk management process.
At the apex of the IRM framework, the Board has the overall responsibility to ensure there is proper oversight of the
management of risks in the Bank. The Board sets the risk appetite and tolerance level and allocates the Banks capital that is
consistent with the Banks overall business objectives and desired risk profile.
At the Business and Operating Units level, the units are risk owners and accountable for the risks inherent in their business.
They manage the day-to-day risks of their respective operations.
For risk governance, the Integrated Risk Management and Compliance (IRMC) based at the Group level monitors and reports
the Banks Credit, Market, Liquidity, Operational and IT Risks and presents these risks in a single, consolidated view to the
BARMC regularly. The BARMC deliberates and evaluates the reports prepared by IRMC on the adequacy and effectiveness
of the controls to mitigate the Banks risks and thereafter reports and provide updates to the Board of Directors, and where
appropriate, make the necessary recommendations to the Board.
The Bank places great importance on CAFIB and views CAFIB as a bank-wide initiative that will ensure that the Bank
continues to meet international best practices for Credit, Market and Operational risk management practices. In addition, the
Bank will be able to enhance and embed sound risk management practices within the Bank and be equipped with the right
risk management discipline, practices, processes and systems.
To underscore the importance of this initiative and ensure a concerted effort towards the successful implementation of
various aspects of CAFIB including fully automating the calculation of CAFIB and Basel II, this initiative is housed under the
parents Bank Basel II & CAFIB Project Steering Committee (PSC) which is chaired by the parent Banks Group Managing
Director. This Committee is tasked to oversee the implementation of CAFIBs individual work streams to ensure that the Bank
is on track in meeting current and future CAFIBs requirements. The PSC is supported by a dedicated Basel II and CAFIB
department which monitors the progress of the CAFIB initiatives on regular basis.
32 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Corporate Governance is the process and structure used to direct and manage the business and affairs of the Company towards
enhancing business prosperity and corporate accountability with the ultimate objective of realising long term shareholder
value, whilst taking into account the interest of other stakeholders.
The Board of Directors (Board) has reviewed the manner in which the Malaysian Code on Corporate Governance (the
Code) is applied in the Bank as set out below. The Board is pleased to report compliance of the Bank with the Best Practices
set out in Part 2 of the Code except where otherwise stated.
A. DIRECTORS
I The Board
The Board assumes responsibility for effective stewardship and control of the Bank and has established terms of
reference to assist in the discharge of this responsibility.
The role and responsibilities of the Board broadly cover formulation of corporate policies and strategies;
overseeing and evaluating the conduct of the Banks businesses; identifying principal risks and ensuring the
implementation of appropriate systems to manage these risks; reviewing and approving key matters such as
financial results, investments and divestments, acquisitions and disposals and major capital expenditure and such
other responsibilities that are required of them by Bank Negara Malaysia (BNM) as specified in guidelines and
circulars issued by BNM from time to time.
The Board observes the Company Directors Code of Ethics established by the Companies Commission of Malaysia
and BNM/GP7 Code of Ethics: Guidelines on Code of Conduct for Directors, Officers and Employees in the Banking
industry.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 33
A. DIRECTORS (continued)
II Board Balance
The Board comprises eight (8) directors, seven (7) of whom are non-executive. Of the non-executive directors,
three (3) are independent. The profiles of the members of the Board are provided in the Annual Report.
The Board is of the view that the current Board composition fairly reflects the investment of the shareholder in
the Bank.
The Chairman ensures the smooth and effective functioning of the Board.
The Managing Director/Chief Executive Officer (MD) is responsible for implementing the policies and decisions
of the Board, overseeing the day-to-day operations, setting the plan and direction, benchmark and targets for
operating companies, tracking compliance and business progress, initiating innovative business ideas to create
competitive edge and development of business and corporate strategies with the aim of enhancing shareholders
wealth.
The Board has identified YBhg Tan Sri A. Razak bin Ramli, the Chairman of the Board Audit & Risk Management
Committee (BARMC), as the Independent Non-Executive Director of the Board to whom concerns may be
conveyed, and who would bring the same to the attention of the Board.
The Board met six (6) times during the financial year ended 30 June 2010 which timely notices of issues to be
discussed. Details of the attendance of the Directors were disclosed in the Directors Profile in the Annual Report.
At Board meetings, active deliberations of issues by Board members are encouraged and such deliberations,
decisions and conclusions are recorded by the Company Secretary accordingly. Any director who has an interest in
the subject matter to be deliberated shall abstain from deliberation and voting on the same during the meetings.
34 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
A. DIRECTORS (continued)
IV Supply of Information
All Board members are supplied with information in a timely manner. Board reports are circulated prior to Board
meetings and the reports provide, amongst others, financial and corporate information, significant operational,
financial and corporate issues, performance of the Bank and of the Group and managements proposals which
require the approval of the Board.
All Directors have access to the advice and services of the Company Secretary and Internal Auditors. All Directors
also have access to independent professional advice at the Banks expense, in consultation with the Chairman
or the MD of the Bank or the Group Managing Director/Chief Executive of Hong Leong Bank Berhad, the holding
Company of the Bank.
The Nominating Committee (NC) was established on 29 September 2005 and the members are as follows:-
YBhg Tan Sri A. Razak bin Ramli (Chairman, Independent Non-Executive Director)
YBhg Tan Sri Quek Leng Chan (Non-Independent Non-Executive Director)
Mr Kwek Leng Hai (Non-Independent Non-Executive Director)
YBhg Dato Mohamed Nazim bin Abdul Razak (Independent Non-Executive Director)
Mr Choong Yee How (Non-Independent Non-Executive Director)
(Appointed on 24 June 2010)
YBhg Datuk Dr Hussein bin Awang (Independent Non-Executive Director)
(Resigned on 24 June 2010)
The NCs functions and responsibilities are set out in the terms of reference as follows:-
Recommend to the Board the minimum requirements for appointments to the Board, Board committees and
for the position of Chief Executive Officer.
Review and recommend to the Board all Board appointments and re-appointments and removals including of
the Chief Executive Officer.
Review annually the overall composition of the Board in terms of the appropriate size and skills, the balance
between executive directors, non-executive and independent directors, and mix of skills and other core
competencies required.
Assess annually the effectiveness of the Board and key senior management officers as a whole and the
contribution by each individual Director to the effectiveness of the Board and various Board Committees
based on criteria approved by the Board.
Oversee the appointment, management succession planning and performance evaluation of key senior
management officers and recommend their removal if they are found ineffective, errant and negligent in
discharging their responsibilities.
Ensure that the Board receives an appropriate continuous training programme.
During the financial year ended 30 June 2010, three (3) NC meetings were held and all the members attended the
meetings held during their office as NC members except for YBhg Tan Sri A. Razak bin Ramli who attended two
(2) out of the three (3) NC meetings held.
The Nominating Committee reviewed the membership of the Board, the professional qualifications and experience
of the directors and was satisfied that the Board composition in terms of size, the balance between executive,
non-executive and independent directors and mix of skills was adequate. The Nominating Committee also reviewed
the performance of the Board against its terms of reference and was satisfied that the Board was competent and
effective in discharging its functions.
VI Re-election
All Directors are required to submit themselves for re-election every three (3) years.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 35
A. DIRECTORS (continued)
As part of the training programme for its Directors, the Bank has prepared for the use of its Directors, the Director
Manual and reqularly organises in-house programmes, briefings and updates by its in-house professionals. The
Directors are also encouraged to attend seminars and briefings in order to keep themselves abreast with the latest
developments in the business environment and to enhance their skills and knowledge.
The Director Manual which is given to every director for their reference, highlights, amongst others, the major
duties and responsibilities of a director vis--vis various laws, regulations and guidelines governing the same. New
directors will also be given a briefing on the businesses of the Group.
During the financial year ended 30 June 2010, the Directors received regular briefings and updates on the
Groups businesses, operations, risk management, internal controls, corporate governance, finance and any new
or changes to the companies and other relevant legislation, rules and regulations from in-house professionals. The
Bank also organised an in-house programme covering financial, legal and regulatory issues for its directors and
senior management.
The Directors of the Bank have also attended various programmes and forums facilitated by external professionals
in accordance with their respective needs in discharging their duties as directors.
During the financial year ended 30 June 2010, the Directors of the Bank, attended the following training
programmes, seminars, briefings and/or workshops:
Financial Institutions Directors Education Programme
Competency As The Backbone Of Transformation
Talk on Managing Risks On Mortgage Financing
Masterclass for Islamic Banks Board of Directors Session
Main Market Listing Requirements of Bursa Malaysia Securities Berhad
Macro-Economic Outlook Recovery Arrives, But Risks Remain
Malaysia Strategy Making Bold Changes
Review & Outlook of The Ringgit Bond Market
Briefing on Flour Milling Industry In Indonesia and FFM Berhads Investment in the Industry
Briefing on Wilmar International Limited
Manage Memory with Creativity
Board Effectiveness: Redefining The Roles and Functions of An Independent Director
Corporate Governance Guide Towards Boardroom Excellence
EQ Leadership Development
Emotional Intelligence (EQ) for Leaders Increasing Leadership Effectiveness with EQ
DB Access Asia Conference
14th Malaysian Banking Summit (Liberalisation & Internationalisation The Next Wave In Malaysian
Banking & Finance Industry)
3rd IFSB Public Lecture and High Level Conference on Financial Policy and Stability
MIFC Road Show to UAE & Kingdom of Saudi Arabia & Malaysia Country Showcase
6th World Islamic Economic Forum
36 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
B. DIRECTORS REMUNERATION
The Remuneration Committee (RC) was established on 29 September 2005 and the members are as follows:-
YBhg Dato Mohamed Nazim bin Abdul Razak (Chairman, Independent Non-Executive Director)
YBhg Tan Sri Quek Leng Chan (Non-Independent Non-Executive Director)
Mr Choong Yee How (Non-Independent Non-Executive Director)
(Appointed on 24 June 2010)
YBhg Datuk Dr Hussein bin Awang (Independent Non-Executive Director)
(Resigned on 24 June 2010)
The RCs functions and responsibilities are set out in the terms of reference as follows:
During the financial year ended 30 June 2010, one (1) RC meeting was held and all the members attended the
meeting held during their office as RC members except for YBhg Dato Mohamed Nazim bin Abdul Razak.
The Banks remuneration scheme for executive director is linked to performance, service seniority, experience and
scope of responsibility and is periodically benchmark to market/industry surveys conducted by human resource
consultants. Performance is measured against profits and targets set in the Banks annual plan and budget.
The level of remuneration of non-executive directors reflects the level of responsibilities undertaken by them.
II Procedure
The RC, in assessing and reviewing the remuneration packages of executive directors, ensures that a strong link
is maintained between their rewards and individual performance, based on the provisions in the Groups Human
Resources Manual, which are reviewed from time to time to align with market or industry practices.
The fees of directors, including non-executive directors, are recommended and endorsed by the Board for approval
by the shareholder of the Bank at its Annual General Meeting.
III Disclosure
The aggregate remuneration of Directors for the financial year ended 30 June 2010 is as follows:
The number of Directors whose remuneration fall into the following bands is as follows:
50,001 100,000 - 8
150,001 200,000 1 -
C. INVESTOR RELATION
The Bank has a website at http://www.hlisb.com.my which the investors can access for information including corporate
information, press releases, financial information and products information.
In addition, the Chief Financial Officer could provide investors with a channel of communication in which they can
provide feedback to the Bank.
The Board Audit & Risk Management Committee (BARMC) was established on 29 September 2005. The financial
reporting and internal control system of the Bank is overseen by the BARMC, which comprises all Non-Executive
Directors. The primary responsibilities of the BARMC are set out in the BARMC Report.
The BARMC met six (6) times during the financial year ended 30 June 2010. Details of attendance of the committee
members are set out in the BARMC Report appearing on page 28 of the Annual Report. The Group Managing Director of
HLB, the Managing Director of HLISB, the Executive Director of HLB, the Chief Financial Officer, the Head of Integrated
Risk Management & Compliance and external auditors are invited to attend Committee meetings, where applicable.
Issues raised, discussions, deliberations, decisions and conclusions made at the BARMC meetings are recorded in the
minutes of the meetings. Where the BARMC is considering a matter in which a committee member has an interest, such
member abstains from deliberating and voting on the subject matter.
The BARMC which comprises all independent non executive directors is supported by the Group Internal Audit Division
whose principal responsibility is to conduct periodic audits on internal control matters to ensure compliance with
systems and/or standard operating procedures of the Bank. Investigation will be made at the request of the BARMC and
senior management on specific areas of concern when necessary. Significant breaches and deficiencies identified are
discussed at the BARMC meetings where appropriate actions will be taken.
I Financial Reporting
The Board is responsible for ensuring the proper maintenance of accounting records of the Bank. The Board
receives the recommendation to adopt the financial statements from the BARMC, which assesses the financial
statements with the assistance of the external auditors.
38 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
II Internal Control
The Board has overall responsibility for maintaining a system of internal controls which covers financial and
operational controls and risk management. This system provides reasonable but not absolute assurance against
material misstatements, losses and fraud.
The BARMC is also entrusted with the responsibility of identifying and communicating to the Board critical risks
the Bank faces, changes to the Banks risk profile and managements action plans to manage the risks.
The Statement on Internal Control as detailed under Section E of this Statement provides an overview of the state
of internal controls within the Bank.
The appointment of external auditors is recommended by the BARMC, which determines the remuneration of the
external auditors.
During the financial year under review, the external auditors met with BARMC to:
present the scope of the audit before the commencement of audit; and
review the results of the audit as well as the management letter after the conclusion of the audit.
The external auditors meet with the BARMC members at least twice a year without the presence of executive
directors and management.
The Board, recognising its responsibilities in promoting good corporate governance and ensuring sound internal controls
and risk management practices, has set up the BARMC on 29 September 2005. The Board has also put in place an
Integrated Risk Management Framework to assist it in:
identifying the significant risks faced by the Bank in the business environment as well as evaluating the impact of
such risks;
developing and approving the necessary controls and measures to manage these risks; and
monitoring the adequacy and effectiveness of such controls and measures.
The BARMC, assisted by the Internal Audit Division, oversees and reports to the Board on the proper functioning of
the Integrated Risk Management Framework, as part of its responsibilities of monitoring compliance with the business
objectives, policies, reporting standards and control procedures of the Bank.
The controls instituted by the Banks operating units and built into the risk management framework are not intended to
eliminate all risks of failure to achieve business objectives but are designed to ensure all relevant and significant risks
have been identified and managed as part of the management and decision-making process throughout the Bank. As
with all such frameworks, controls, by their nature, can only provide reasonable, but not absolute assurance against
material misstatement of management and financial information or against financial losses and fraud.
The risk management framework is embedded in the management and decision-making process through the following
structures:
Key strategies to achieve the Banks business plans and budget as approved by the Board, are tracked and
reviewed by the operating divisions/departments to monitor achievement of these business plans and budgets.
The various divisional and departmental heads of the Bank operate their respective units within the policies,
functional, financial and operating reporting standards and control procedures developed by the Bank. Such
reporting standards and control procedures are supplemented on an ongoing basis by operating procedures,
policies and action plans developed by the operating units to manage and monitor risks impacting the Bank and to
suit the regulatory and business environment in which they operate.
Where feasible and necessary, relevant group resources are focused to manage common risks on an integrated
and Bank-wide basis, using common tools, procedures and control systems as appropriate.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 39
evaluate all identified risks for their continuing relevance in the business environment and inclusion in the Risk
Management Framework;
oversee and monitor the implementation of appropriate systems and risk management controls to manage these
risks;
assess the adequacy of action plans and control systems developed to manage these risks;
monitor the performance of management in executing the action plans and operating the control systems; and
regularly report to the BARMC and the Board on the state of internal controls and the efficacy of management of
risks throughout the Bank.
In discharging the above responsibilities, the Head, IRMC is guided by but not limited to the questions raised in the
Appendix to the Statement of Internal Control - Guidance for Directors of Public Listed Companies and she reports
regularly to the BARMC and the Board on risk matters. The Board receives regular reports on significant risk areas e.g.
market risk, credit risk and operational risk.
As a licensed banking and finance institution, the business of the Bank entails management of risks common to all
financial intermediaries. The more significant risks are set out below:
Credit risk - Risk of loss if a customer or counterparty in a transaction fails to meet its obligations.
Rate of Return risk - Risk of loss resulting from changes in market rate of return.
Market risk - Risk of loss in financial instruments or the balance sheet due to adverse movements in
market factors such as foreign exchange rates and market prices.
Liquidity risk - Risk of loss resulting from the unavailability of sufficient funds to fulfill financial
commitments, including customers liquidity needs, as they fall due. Liquidity risk also
includes the risk of not being able to liquidate assets in a timely manner at a reasonable
price.
Operational risk - Risk of loss resulting from inadequate or failed processes, people and systems or from
external sources including IT, legal and reputational risks.
Product risk - Risk of introducing a new product that the Bank does not have the resources, systems or
expertise.
To ensure that the Banks operations are consistently conducted in accordance with Shariah principles, HLISB has
established the Shariah Advisory Committee (SAC) which comprise of five experienced scholars.
In order to ascertain that HLISBs operations are in compliance with Shariah precepts, the SAC undertakes various roles
such as the followings:-
a. Review principles and contracts relating to the products introduced by the Bank, transactions and application
of Shariah principles to the Banks operation, that being disclosed to the SAC. In the review process, the SAC
also takes views from the Shariah Advisory Council of Bank Negara Malaysia and Securities Commission where
applicable;
40 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
b. Endorse product documentations and relevant disclosures that being presented to SAC.
c. To perform opinion whether the Bank operations are in compliance with the Shariah principles, based on
representation made by the management and review of the financial reports.
The profiles of the Banks Shariah Advisory Committee members are set out in page 26 to 27
This Statement on Corporate Governance and Internal Control is made in accordance with the resolution of the Board
of Directors.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 41
In compliance with the letter of appointment, we are required to submit the following report:
We have reviewed the principles and the contracts relating to the transactions and applications introduced by the Bank
during the period ended 30th June 2010. We have also conducted our review to form an opinion as to whether the Bank has
complied with Shariah rules and principles and with the specific fatwas, rulings and guidelines issued by us.
The Banks management is responsible for ensuring that the Bank conducts its business in accordance with Shariah rules and
principles. 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 performed our review on the basis of information and explanations that deemed essential in order to provide us with
sufficient evidence to give reasonable assurance that the Bank has not violated Shariah rules and principles.
In our opinion:
a) the contracts, transactions and dealings entered into by the Bank during the period ended 30th June 2010, that we have
reviewed are to the best of our knowledge in compliance with the Shariah rules and principles; and
b) the main sources and investments of the Bank disclosed to us conform to the basis that had been approved by us in
accordance with Shariah rules and principles.
We beg Allah the Almighty to grant us all the success and straight-forwardness.
Chairman
Directors Report
for the financial year ended 30 June 2010
The Directors of Hong Leong Islamic Bank Berhad ("the Bank" or "HLISB") have pleasure in presenting their report together
with the audited financial statements of the Bank for the financial year ended 30 June 2010.
PRINCIPAL ACTIVITIES
The Bank was incorporated under the Companies Act, 1965, on 28 March 2005 for the purpose of undertaking the Islamic
Banking Business pursuant to Subsection 3(4) of the Islamic Banking Act, 1983. The Bank operates through its head office,
located at Level 1, Wisma Hong Leong, 18 Jalan Perak, 50450 Kuala Lumpur.
The Bank is principally engaged in the Islamic banking business and related financial services. There have been no significant
changes in the principal activities of the Bank during the financial year.
FINANCIAL RESULTS
RM000
DIVIDENDS
Since the last financial year ended 30 June 2009, a final net dividend of 0.915 sen per share less income tax of 25%
amounting to RM4,575,000 in respect of the financial year ended 30 June 2009, was paid on 17 November 2009.
The Directors of the Bank now recommend a payment of final net dividend of 4.80 sen per share less income tax of 25%
amounting to RM24,000,000 for the financial year ended 30 June 2010.
SHARE CAPITAL
During the financial year, there was no issuance of new ordinary shares. As at 30 June 2010, the issued and paid-up capital
of the Bank is RM500,000,000 comprising 500,000,000 ordinary shares of RM1.00 each.
There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the
financial statements.
DIRECTORS
The Directors who served since the date of the last report are as follows:
Directors Report
for the financial year ended 30 June 2010
(continued)
DIRECTORS (continued)
In accordance with Article 94 of the Banks Articles of Association, Puan Hijah Arifakh binti Othman retires at the forthcoming
Annual General Meeting ("AGM") and being eligible, offers herself for re-election.
In accordance with Article 119 of the Banks Articles of Association, Ms Yvonne Chia and Mr Kwek Leng Hai retire by rotation
at the forthcoming AGM and being eligible, offer themselves for re-election.
DIRECTORS INTERESTS
No Director holding office at the end of the financial year had any beneficial interest in the ordinary shares/warrants/convertible
unsecured loan stocks of the Bank and/or related corporations during the financial year ended 30 June 2010 as recorded in
the Register of Directors Shareholdings kept by the Bank under Section 134 of the Companies Act 1965 except for YBhg Tan
Sri Quek Leng Chan, Mr Kwek Leng Hai, Ms Yvonne Chia and Mr Choong Yee How, whose beneficial interests are disclosed
in the Directors Report of the holding company as provided for under Section 134 of the Companies Act, 1965.
DIRECTORS BENEFITS
No Director of the Bank has received or become entitled to receive any benefit (other than a benefit included in the aggregate
amount of emoluments received or due and receivable by certain 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 the Director is a member, or with a company in which the Director has
a substantial financial interest except for YBhg Tan Sri Quek Leng Chan, who may be deemed to derive a benefit by virtue
of those transactions, contracts and agreements for the acquisition and/or disposal of stocks and shares, stocks in-trade,
products, parts, accessories, plants, chattels, fixtures, buildings, land and other properties or any interest in any properties;
and/or the provision of services including but not limited to project and sales management and any other management
and consultancy services; and/or the provision of construction contracts, leases, tenancy, dealership and distributorship
agreements; and/or the provision of treasury functions, advances and the conduct of normal trading, investment, stockbroking
and/or other businesses between the Bank or its related corporations and corporations in which YBhg Tan Sri Quek Leng Chan
is deemed to have interest.
CORPORATE GOVERNANCE
Disclosures on:
- Statement on Corporate Governance
- The Board of Directors ("Board") responsibility and oversight
- Risk Management
- Internal Audit and Internal Control Activities
The Board receives and reviews regular reports from the Management on key financial and operating statistics as well as
legal and regulatory matters. The performance of each business unit is assessed against the approved budgets and business
objectives whilst explanation is provided for significant variances.
44 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Directors Report
for the financial year ended 30 June 2010
(continued)
(a) Before the income statements and balance sheets of the Bank were made out, the Directors took reasonable
steps:
(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and financing and
the making of allowance for doubtful debts and financing and had satisfied themselves that all known bad
debts and financing had been written off and that adequate allowance had been made for doubtful debts and
financing; and
(ii) to ensure that any current assets, other than debts and financing, which were unlikely to realise their book
values in the ordinary course of business had been written down to their estimated realisable values.
(b) In the opinion of the Directors, the results of the operations of the Bank during the financial year had not been
substantially affected by any item, transaction or event of a material and unusual nature.
(II) From the end of the financial year to the date of this report
(i) which would render the amount written off for bad debts and financing or the amount of the allowance for
doubtful debts and financing inadequate to any material extent;
(ii) which had arisen which would render adherence to the existing method of valuation of assets or liabilities of
the Bank misleading or inappropriate;
(iii) which would render the values attributed to current assets in the financial statements misleading; and
(i) the results of the operations of the Bank for the financial year ended 30 June 2010 are not likely to be
substantially affected by any item, transaction or event of a material and unusual nature which had arisen in
the interval between the end of the financial year and the date of this report; and
(ii) no contingent or other liability has become enforceable, or is likely to become enforceable, within the period
of twelve months after the end of the financial year which will or may affect the ability of the Bank to meet
their obligations as and when they fall due.
(a) There are no charges on the assets of the Bank which had arisen since the end of the financial year to secure the
liabilities of any other person.
(b) There are no contingent liabilities which had arisen since the end of the financial year.
(c) The Directors are not aware of any circumstances not otherwise dealt with in the report or financial statements
which would render any amount stated in the financial statements misleading.
The Banks business activities are subject to the Shariah compliance and confirmation by the Shariah Advisory Committee
consisting of 4 scholars appointed by the Board.
The primary role of the Shariah Advisor is mainly advising on matters relating to the operation of the Banks existing products
and providing support by attending regular meetings with the Bank to ensure that its products are in conformity with Shariah
principles.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 45
Directors Report
for the financial year ended 30 June 2010
(continued)
The holding and ultimate holding companies are Hong Leong Bank Berhad and Hong Leong Company (Malaysia) Berhad
respectively, both incorporated in Malaysia.
Hong Leong Bank Berhad is listed on the Main Market of Bursa Malaysia Securities Berhad.
AUDITORS
The auditors, Messrs PricewaterhouseCoopers, have expressed their willingness to continue in office.
Kuala Lumpur
8 September 2010
46 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Balance Sheets
as at 30 June 2010
30.6.2010 30.6.2009
Assets
Cash and short-term funds 3 2,096,269 2,511,864
Deposits and placements with banks and other financial institutions 4 469,178 125,167
Held-for-trading securities 5 2,133,529 2,011,644
Available-for-sale securities 6 569,403 467,377
Held-to-maturity securities 7 461,739 126,623
Financing and advances 8 4,138,867 3,824,880
Other assets 9 26,791 7,615
Statutory deposits with Bank Negara Malaysia 10 47,000 46,064
Property and equipment 11 1,977 1,794
Deferred tax assets 12 17,593 18,932
Total assets 9,962,346 9,141,960
Liabilities
Deposits from customers 13 7,731,615 7,979,898
Deposits and placements of banks and other financial institutions 14 865,979 30,000
Bills and acceptances payable 18,774 16,133
Other liabilities 15 521,766 366,504
Provision for taxation 5,402 9,394
Total liabilities 9,143,536 8,401,929
Income Statements
for the financial year ended 30 June 2010
30.6.2010 30.6.2009
Income derived from investment of depositors funds and others 18 309,105 322,130
Income derived from investment of shareholders funds 19 36,464 41,412
Allowance for losses on financing 20 (610) (15,052)
Profit equalisation reserve 15 (544) (407)
Total distributable income 344,415 348,083
Income attributable to the depositors 21 (160,189) (186,793)
Total net income 184,226 161,290
Personnel expenses 22 (8,823) (8,197)
Other overheads and expenditures 23 (63,980) (53,053)
Profit before zakat and taxation 111,423 100,040
Zakat and taxation 25 (27,235) (25,687)
Profit after zakat and taxation 84,188 74,353
30.6.2010 30.6.2009
30.6.2010 30.6.2009
The financial statements of the Bank have been prepared under the historical cost convention (unless otherwise
indicated), and in accordance with the directives and guidelines issued by Bank Negara Malaysia ('BNM'), Financial
Reporting Standards ('FRS'), the Malaysian Accounting Standard Board ('MASB') Approved Accounting Standards in
Malaysia for Entities Other than Private Entities and the provisions of the Companies Act, 1965.
The preparation of financial statements in conformity with FRS, the MASB Approved Accounting Standards in Malaysia
for Entities Other than Private Entities requires the use of estimates and assumption that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and
the reported amounts of revenues and expenses during the reported year. It also requires Directors to exercise their
judgement in the process of applying the Banks accounting policies. Although these estimates are based on the
Directors best knowledge of current events and actions, actual result may be differ.
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant
to the financial statements are disclosed in Note 40.
(a)
Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Bank and are effective.
The new accounting standard, amendments to published standards and interpretations to existing standards that
are applicable and effective for the Bank for the financial year ended 30 June 2010 are as follows:
FRS 8 "Operating Segments" (effective from 1 July 2009) replaces FRS 1142004 Segment Reporting.
The new standard requires a 'management approach', under which segment information is reported in a
manner that is consistent with the internal reporting provided to the chief operating decision-maker. The
improvement to FRS 8 (effective from 1 January 2010) clarifies that entities that do not provide information
about segment assets to the chief operating decision-maker will no longer need to report this information.
Prior year comparatives must be restated. The adoption of the new accounting standard does not have any
significant financial impact on the results of the Bank.
(b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Bank but not yet effective.
The new and revised standards, amendments to published standards and IC Interpretations that are applicable to
the Bank but which the Bank have not early adopted, are as follows:
The revised FRS 3 "Business Combinations" (effective prospectively from 1 July 2010). The revised standard
continues to apply the acquisition method to business combinations, with some significant changes. For
example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with
contingent payments classified as debt subsequently re-measured through the income statement. There is a
choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at
fair value or at the non-controlling interests proportionate share of the acquirees net assets. All acquisition-
related costs should be expensed. The application of this standard is not expected to have a material impact
on the financial statements of the Bank.
The revised FRS 101 "Presentation of Financial Statements" (effective from 1 January 2010) prohibits the
presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of
changes in equity. 'Non-owner changes in equity' are to be presented separately from owner changes in
equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities
can choose whether to present one performance statement (the statement of comprehensive income) or two
statements (the income statement and statement of comprehensive income).
Where entities restate or reclassify comparative information, they will be required to present a restated
balance sheet as at the beginning comparative period in addition to the current requirement to present
balance sheets at the end of the current period and comparative period. The application of this standard is
not expected to have a material impact on the financial statements of the Bank.
52 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
(b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Bank but not yet effective. (continued)
FRS 139 "Financial Instruments: Recognition and measurement" (effective from 1 January 2010) establishes
principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and
sell non-financial items. Hedge accounting is permitted under strict circumstances. The amendments to FRS
139 provide further guidance on eligible hedged items. The amendment provides guidance for two situations.
On the designation of a one-sided risk in a hedged item, the amendment concludes that a purchased option
designated in its entirety as the hedging instrument of a one-sided risk will not be perfectly effective. The
designation of inflation as a hedged risk or portion is not permitted unless in particular situations. The
improvement to FRS 139 clarifies that the scope exemption in FRS 139 only applies to forward contracts
but not options for business combinations that are firmly committed to being completed within a reasonable
timeframe.
IC Interpretation 9 "Reassessment of embedded derivatives" (effective from 1 January 2010) requires an
entity to assess whether an embedded derivative is required to be separated from the host contract and
accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment
is prohibited unless there is a change in the terms of the contract that significantly modifies the cash
flows that otherwise would be required under the contract, in which case reassessment is required. The
improvement to IC Interpretation 9 (effective from 1 July 2010) clarifies that this interpretation does not
apply to embedded derivatives in contracts acquired in a business combination, businesses under common
control or the formation of a joint venture.
FRS 7 "Financial Instruments: Disclosures" (effective from 1 January 2010) provides information to users
of financial statements about an entitys exposure to risks and how the entity manages those risks. The
improvement FRS 7 clarifies that entities must not present total interest income and expense as a net
amount within finance costs on the face of the income statement.
The Bank have applied the transitional provision in the respective standards which exempts entities from
disclosing the possible impact arising from the initial application of the following standards and interpretations
on the financial statements of the Bank:
- FRS 139, Amendments to FRS 139 on eligible hedged items, Improvement to FRS 139 and IC
Interpretation 9
- FRS 7 and Improvement to FRS 7
BNM may prescribe the use of an alternative basis for collective assessment of impairment for a transitional
period for purpose of complying with the collective assessment of impairment requirement in FRS 139.
The amendment to FRS 2 "Share-based payment: Vesting conditions and cancellations" (effective from
1 January 2010) deals with vesting conditions and cancellations. It clarifies that vesting conditions are
service conditions and performance conditions only. Other features of a share-based payment are not vesting
conditions. These features would need to be included in the grant date fair value for transactions with
employees and others providing similar services; they would not impact the number of awards expected
to vest or valuation there of subsequent to grant date. All cancellations, whether by the entity or by
other parties, should receive the same accounting treatment. The improvement to FRS 2 (effective from 1
July 2010) clarifies that contributions of a business on formation of a joint venture and common control
transactions are outside the scope of FRS 2. The application of this standard is not expected to have a
material impact on the financial statements of the Bank.
The amendments to FRS 132 "Financial Instruments: Presentation" and FRS 101 (revised) "Presentation of
financial statements" - "Puttable financial instruments and obligations arising on liquidation" (effective from
1 January 2010) require entities to classify puttable financial instruments and instruments that impose on
the entity an obligation to deliver to another party a prorata share of the net assets of the entity only on
liquidation as equity, if they have particular features and meet specific conditions. The application of this
standard is not expected to have a material impact on the financial statements of the Bank.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 53
(b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Bank but not yet effective. (continued)
IC Interpretation 10 "Interim Financial Reporting and Impairment" (effective from 1 January 2010) prohibits
the impairment losses recognised in an interim period on goodwill and investments in equity instruments and
in financial assets carried at cost to be reversed at a subsequent balance sheet date. The application of this
standard is not expected to have a material impact on the financial statements of the Bank.
IC Interpretation 11 "FRS 2 Group and Treasury Share Transactions" (effective from 1 January 2010)
provides guidance on whether share-based transactions involving treasury shares or involving group entities
should be accounted for as equity-settled or cash-settled share-based payment transactions in the stand-
alone accounts of the parent and group companies. The application of this standard is not expected to have
a material impact on the financial statements of the Bank.
IC Interpretation 13 "Customer Loyalty Programmes" (effective from 1 January 2010) clarifies that where
goods or services are sold together with a customer loyalty incentive, the arrangement is a multiple-element
arrangement and the consideration receivable from the customer is allocated between the components of
the arrangement using fair values. The application of this standard is not expected to have a material impact
on the financial statements of the Bank.
IC Interpretation 14 "FRS 119 The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction" (effective from 1 January 2010) provides guidance on assessing the limit in FRS 119
on the amount of the surplus that can be recognised as an asset. The application of this standard is not
expected to have a material impact on the financial statements of the Bank.
Improvement to existing MASBs standards (effective for accounting periods beginning on or after 1 January
2010) are as follows:
FRS 107 Statement of Cash Flows (effective from 1 January 2010) clarifies that only expenditure resulting
in a recognised asset can be categorised as a cash flow from investing activities.
FRS 110 Events after the Balance Sheet Date (effective from 1 January 2010) reinforces existing guidance
that a dividend declared after the reporting date is not a liability of an entity at that date given that there is
no obligation at that time.
FRS 116 Property, Plant and Equipment (effective from 1 January 2010) requires entities whose ordinary
activities comprise of renting and subsequently selling assets to present proceeds from the sale of those
assets as revenue and should transfer the carrying amount of the asset to inventories when the asset
becomes held for sale. A consequential amendment to FRS 107 states that cash flows arising from purchase,
rental and sale of those assets are classified as cash flows from operating activities.
FRS 117 Leases (effective from 1 January 2010) clarifies that the default classification of the land element
in a land and building lease is no longer an operating lease. As a result, leases of land should be classified as
either finance or operating, using the general principles of FRS 117.
FRS 118 Revenue (effective from 1 January 2010) provides more guidance when determining whether an
entity is acting as a 'principal' or as an 'agent'.
FRS 134 Interim Financial Reporting (effective from 1 January 2010) clarifies that basic and diluted earnings
per share ('EPS') must be presented in an interim report only in the case when the entity is required to
disclose EPS in its annual report.
FRS 136 Impairment of Assets (effective from 1 January 2010) clarifies that the largest cash-generating
unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is
an operating segment before the aggregation of segments with similar economic characteristics. The
improvement also clarifies that where fair value less costs to sell is calculated on the basis of discounted
cash flows, disclosures equivalent to those for value in use should be made.
The adoption of the above revised MASB accounting standards is not expected to have any significant financial
impact on the results of the Bank.
54 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past events,
when it is probable that an outflow of resources will be required to settle the obligations, and when a reliable
estimate of the amount can be made.
(O) Cash and cash equivalents
Cash and cash equivalents are cash and short term funds held for the purpose of meeting short term commitments
and readily convertible into cash without significant risk of changes in value.
(P) Zakat
Zakat provision is calculated based on 2.5% of net asset method.
(Q) Profit equalisation reserve ("PER")
PER is a mechanism to reduce the fluctuations in the profit rates payable to the depositors. It is provided based
on the Framework of the Rate of Return issued by Bank Negara Malaysia. The amount of PER is appropriated from
and written back and is reflected under other liabilities of the Bank.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 59
30.6.2010 30.6.2009
RM000 RM000
Cash and balances with banks and other financial institutions 228,000 297,274
Money at call and deposit placements maturing within one month 1,868,269 2,214,590
2,096,269 2,511,864
30.6.2010 30.6.2009
RM000 RM000
5 HELD-FOR-TRADING SECURITIES
30.6.2010 30.6.2009
RM000 RM000
6 AVAILABLE-FOR-SALE SECURITIES
30.6.2010 30.6.2009
RM000 RM000
7 HELD-TO-MATURITY SECURITIES
30.6.2010 30.6.2009
RM000 RM000
461,739 126,623
(i) By type
30.6.2010 30.6.2009
RM000 RM000
(ii) By contract
30.6.2010 30.6.2009
RM000 RM000
30.6.2010 30.6.2009
RM000 RM000
30.6.2010 30.6.2009
RM000 RM000
Fixed rate
- Housing financing 291,334 406,862
- Hire purchase receivables 2,166,936 2,249,514
- Other fixed rate financing 70,754 128,160
Variable rate
- Others 1,698,725 1,134,857
Gross financing and advances 4,227,749 3,919,393
62 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
(v) By purpose
30.6.2010 30.6.2009
RM000 RM000
Securities 93 345
Transport vehicles 2,081,103 2,125,401
Purchase of landed property:
- residential 1,348,304 1,122,005
- non-residential 196,623 192,233
Personal use 64,681 58,542
Construction 24,910 30,217
Working capital 508,277 390,636
Other purposes 3,758 14
Gross financing and advances 4,227,749 3,919,393
30.6.2010 30.6.2009
RM000 RM000
30.6.2010 30.6.2009
RM000 RM000
General allowance
As at beginning of the year 73,486 65,025
Allowance made during the period - 8,461
Allowance written back during the period (7,311) -
As at end of the year 66,175 73,486
(as % of total gross financing and advances less specific allowance) 1.6% 1.9%
Specific allowance
As at beginning of the year 21,027 24,734
Allowance made during the period 19,831 15,949
Amount recovered (8,426) (6,507)
Amount written off (9,725) (13,149)
As at end of the year 22,707 21,027
30.6.2010 30.6.2009
RM000 RM000
Securities - 220
Transport vehicles 16,740 21,379
Purchase of landed property:
- residential 15,660 18,889
- non-residential 605 612
Personal use 385 440
Construction 135 422
Working capital 2,799 4,298
36,324 46,260
9 OTHER ASSETS
30.6.2010 30.6.2009
RM000 RM000
11 PROPERTY AND EQUIPMENT
Office
furniture,
fittings, Computer
equipment equipment
and and Motor
renovations software vehicles Total
30 June 2010
Cost
As at 1 July 2009 2,459 1,048 486 3,993
Additions 39 508 353 900
As at 30 June 2010 2,498 1,556 839 4,893
Accumulated depreciation
As at 1 July 2009 1,380 594 225 2,199
Charge for the year 439 149 129 717
As at 30 June 2010 1,819 743 354 2,916
30 June 2009
Cost
As at 1 July 2008 2,233 733 685 3,651
Additions 395 315 130 840
Disposals (169) - (329) (498)
As at 30 June 2009 2,459 1,048 486 3,993
Accumulated depreciation
As at 1 July 2008 1,132 465 200 1,797
Charge for the year 406 129 137 672
Disposals (158) - (112) (270)
As at 30 June 2009 1,380 594 225 2,199
12 DEFERRED TAXATION
The movements in deferred tax assets and liabilities during the year are as follows:
Available- Other
General for-sale temporary
allowance securities differences Total
30 June 2010
At beginning of the year 18,372 248 312 18,932
(Charged)/credited to income statement (Note 25) (1,828) - 211 (1,617)
Charged to equity - 278 - 278
As at 30 June 2010 16,544 526 523 17,593
30 June 2009
At beginning of the year 16,256 564 1,030 17,850
Credited/(charged) to income statement (Note 25) 2,116 - (718) 1,398
Credited to equity - (316) - (316)
As at 30 June 2009 18,372 248 312 18,932
30.6.2010 30.6.2009
RM000 RM000
Non-Mudharabah
Demand deposits 453,133 375,930
Savings deposits 631,211 580,875
Negotiable Islamic Debt Certificate 1,254,754 1,215,890
2,339,098 2,172,695
Mudharabah
Savings deposits 636,172 569,063
General investment deposits 2,287,927 1,864,865
Special investment deposits 2,468,418 3,373,275
5,392,517 5,807,203
7,731,615 7,979,898
66 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
30.6.2010 30.6.2009
RM000 RM000
30.6.2010 30.6.2009
RM000 RM000
Non-Mudharabah
Licensed commercial banks 470,319 -
470,319 -
Mudharabah
Licensed Islamic banks 292,034 30,000
Licensed banks 103,626 -
395,660 30,000
865,979 30,000
15 OTHER LIABILITIES
30.6.2010 30.6.2009
RM000 RM000
Zakat 50 55
Profit equalisation reserve (a) 5,235 4,691
Profit payable 43,318 32,681
Amount due to holding company (Note 27) 383,288 263,679
Others 89,875 65,398
521,766 366,504
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 67
30.6.2010 30.6.2009
RM000 RM000
16 SHARE CAPITAL
30.6.2010 30.6.2009
RM000 RM000
Authorised:
Ordinary shares of RM1.00 each
As at beginning/end of financial year 1,000,000 1,000,000
17 RESERVES
30.6.2010 30.6.2009
RM000 RM000
Distributable
Retained profit 156,726 119,207
Non-distributable
Statutory reserve 161,303 119,209
Fair value reserve 781 1,615
162,084 120,824
318,810 240,031
The statutory reserves are maintained in compliance with Section 15 of the Islamic Banking Act, 1983 and are not
distributable as cash dividends.
The fair value reserve recognises unrealised gains or losses arising from a change in the fair value of investments
classified as securities available-for-sale. The gains or losses are transferred to the income statement upon derecognition
or impairment of the investment.
The Bank has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and tax exempt account to frank the
payment of dividends out of all its retained profit as at 30 June 2010.
68 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
30.6.2010 30.6.2009
RM000 RM000
30.6.2010 30.6.2009
RM000 RM000
186,821 214,754
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 69
30.6.2010 30.6.2009
RM000 RM000
122,284 107,376
RM000 RM000
RM000 RM000
RM000 RM000
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 71
RM000 RM000
22 PERSONNEL EXPENSES
30.6.2010 30.6.2009
RM000 RM000
RM000 RM000
Establishment costs
Depreciation of property and equipment 717 672
Rental of premises 1,134 957
Hire of equipment 40 38
Information technology expenses 372 341
Others 474 458
2,737 2,466
Marketing expenses
Advertisement and publicity 711 450
Handling fees 1,478 3,620
Zero cost amortisation 1,315 120
Others 1,108 330
4,612 4,520
72 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
30.6.2010 30.6.2009
RM000 RM000
63,980 53,053
24 REMUNERATION OF CHIEF EXECUTIVE OFFICER ("CEO"), DIRECTORS AND SHARIAH ADVISORY COMMITTEE
MEMBERS
Forms of remuneration in aggregate for all Directors for the period are as follows:
30.6.2010 30.6.2009
RM000 RM000
Executive Directors:
- salary and other remuneration 164 400
- bonuses - -
- fees - -
- benefits-in-kind 5 498
- contribution to defined contribution plan 20 108
Non-Executive Directors:
- fees 529 530
718 1,536
Shariah Advisory Committee Members 255 201
973 1,737
The remuneration attributable to the current Managing Director of the Bank, including benefits-in-kind during the year
amounted to RM188,928 (2009: RM1,005,510).
The movement and details of the Directors of the Bank in office and their shareholdings in the Bank and related
corporations are reported in the Directors Report.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 73
30.6.2010 30.6.2009
RM000 RM000
The effective tax rate for the Bank differs from the statutory rate of taxation due to:
30.6.2010 30.6.2009
RM000 RM000
RM000 RM000
Basic/fully diluted:
Profit after taxation and zakat 84,188 74,353
Hong Leong Management School Sdn Bhd, Hong Leong Subsidiary companies of ultimate holding
Share Registration Services Sdn Bhd, HLCM Capital Sdn Bhd, company
Hong Leong Fund Management Sdn Bhd, HL Management Co
Sdn Bhd and Hong Leong Consultancy Services Sdn Bhd
Subsidiary companies of Hong Leong Financial Group Berhad Subsidiary companies of penultimate holding
as disclosed in its financial statements company
Hong Leong Industries Berhad and its subsidiary and Subsidiary and associated companies of
associated companies as disclosed in its financial statements penultimate holding company
Hume Industries (Malaysia) Berhad and its subsidiary and Subsidiary and associated companies of
associated companies as disclosed in its financial statements penultimate holding company
Guoco Group Limited and its subsidiary and associated Subsidiary and associated companies of
companies as disclosed in its financial statements ultimate holding company
GuocoLand (Malaysia) Berhad and its subsidiary and Subsidiary and associated companies of
associated companies as disclosed in its financial statements ultimate holding company
BIB Insurance Brokers Sdn Bhd Connected person to Tan Sri Dato Zaki
bin Tun Azmi, a director of certain related
companies
Related parties of key management personnel (deemed as (i) Close family members and dependents of
related to the Bank) key management personnel
(ii) Entities that are controlled, jointly
controlled or significantly influenced by, or
for which significant voting power in such
entity resides with, directly or indirectly
by key management personnel or its close
family members
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 75
A number of banking transactions are entered into with related parties in the normal course of business. These
transactions were carried out on commercial terms and at market rates.
Other Key
Holding related Management
company companies Personnel
2010
Income
Commission on Group product/services sold - 869 -
Shared service fees - 24 -
- 893 -
Expenditure
Income/profit paid to:
- current accounts - 1 46
- special investment account - 968 -
- interbank deposits 6,249 - -
Shared service costs 52,583 - -
58,832 969 46
Other Key
Holding related Management
company companies Personnel
2009
Income
Commission on Group product/services sold - 501 -
Shared service fees - 24 -
- 525 -
Expenditure
Income/profit paid to:
- current accounts - - 381
- special investment account - 1,885 -
- interbank deposits 908 - -
Shared service costs 43,375 - -
44,283 1,885 381
2010 2009
RM'000 RM'000
Included in the above is the Directors compensation which is disclosed in Note 24.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 77
RM000
2009
RM000
28 DIVIDENDS
A final net dividend in respect of the financial year ended 30 June 2010 of 4.80 sen per share less tax at 25% will be
proposed for shareholders approval at the forthcoming Annual General Meeting, amounting to RM24,000,000. The
proposed dividend will be reflected in the financial statements of the next financial year ending 30 June 2011 when
approved by shareholders.
Financing Risk
Principal equivalent Weighted
amount amount* amount
RM000 RM000 RM000
30.6.2009
Financing Risk
Principal equivalent Weighted
amount amount* amount
RM000 RM000 RM000
30 CAPITAL COMMITMENTS
Capital expenditure approved by Directors but not provided for in the financial statements are as follows:
30.6.2010 30.6.2009
RM000 RM000
30.6.2010 30.6.2009
RM000 RM000
33 CAPITAL ADEQUACY
The capital adequacy ratios of the Bank are as follows:
30.6.2010 30.6.2009
RM000 RM000
RM000 RM000
Tier-1 capital
Paid-up share capital 500,000 500,000
Retained profit 156,726 119,207
Other reserves 161,303 119,209
818,029 738,416
Less: Deferred tax assets (17,593) (18,932)
Total tier-1 capital 800,436 719,484
Tier-2 capital
General allowance for bad and doubtful financing 66,175 73,486
Total tier-2 capital 66,175 73,486
Total capital base 866,611 792,970
The capital adequacy ratios of the Bank are computed in accordance with Bank Negara Malaysias Capital Adequacy
Framework for Islamic Banks (CAFIB), which is based on the Basel II capital accord. The Bank has adopted the
Standardised Approach for Credit and Market Risk and the Basic Indicator Approach for Operational Risk. The minimum
regulatory capital adequacy approach requirement is 8% for the risk-weighted capital ratio.
80 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
30.6.2010 30.6.2009
Risk- Risk-
Principal weighted Principal weighted
RM000 RM000 RM000 RM000
0% 2,393,624 - 2,706,701 -
10% - - - -
20% 654,744 130,949 483,760 96,752
35% 741,184 259,414 587,524 205,633
50% 856,865 428,433 310,538 155,269
75% 2,504,927 1,878,695 2,506,900 1,880,175
100% 636,387 636,387 557,993 557,993
150% 87,080 130,620 29,178 43,767
7,874,811 3,464,498 7,182,594 2,939,589
(b) Market Risk - 245,301 - 186,635
(c) Operational risk - 345,657 - 323,475
7,874,811 4,055,456 7,182,594 3,449,699
With effect from 1 January 2008, the capital adequacy ratios of the Bank are computed in accordance with Bank Negara
Malaysia Capital Adequacy Framework for Islamic Banks ('CAFIB'): Standardised Approach for Credit and Market Risk
and Basic Indicator Approach for Operational Risk.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 81
(a) The breakdown of risk-weighted assets ("RWA") by exposures for the current financial year are as follows:
Risk-
2010 Net weighted Capital
Exposure Class Gross exposures exposures assets requirements
Credit Risk
On-Balance Sheet Exposures:
Sovereigns/Central Banks 2,394,009 2,394,009 - -
Public Sector Entities - - - -
Banks, Development Financial
Institutions & MDBs 1,231,467 1,231,467 426,976 34,158
Insurance Companies,
Securities Firms & Fund
Managers 5,074 5,074 5,074 406
Corporates 636,926 636,066 615,626 49,250
Regulatory Retail 2,507,468 2,504,927 1,878,695 150,296
Residential Mortgages 993,673 993,641 385,642 30,851
Higher Risk Assets 1,196 1,196 1,793 143
Other Assets 10,642 10,642 11,027 882
Defaulted Exposure 96,944 96,874 138,750 11,100
Total On-Balance Sheet
Exposures 7,877,399 7,873,896 3,463,583 277,086
Off-Balance Sheet Exposures
Off-balance sheet exposures
other than OTC derivatives
or credit derivatives 915 915 915 73
Total Off-Balance Sheet
Exposures 915 915 915 73
Total On and Off-Balance Sheet
Exposures 7,878,314 7,874,811 3,464,498 277,159
Market Risk Long Short
Position Position
Credit Risk
On-Balance Sheet Exposures:
Sovereigns/Central Banks 2,707,386 2,707,386 - -
Public Sector Entities 47 47 9 1
Banks, Development Financial
Institutions & MDBs 528,182 528,182 129,671 10,374
Insurance Companies,
Securities Firms & Fund
Managers 5,087 5,087 5,087 407
Corporates 572,535 571,640 543,121 43,450
Regulatory Retail 2,509,100 2,506,900 1,880,176 150,413
Residential Mortgages 815,838 815,800 319,770 25,582
Higher Risk Assets 912 912 1,369 110
Other Assets 4,626 4,626 5,312 425
Defaulted Exposure 41,157 41,157 54,217 4,337
Total On-Balance Sheet
Exposures 7,184,870 7,181,737 2,938,732 235,099
Off-Balance Sheet Exposures
Off-balance sheet exposures
other than OTC derivatives
or credit derivatives 857 857 857 69
Total Off-Balance Sheet
Exposures 857 857 857 69
Total On and Off-Balance Sheet
Exposures 7,185,727 7,182,594 2,939,589 235,168
Market Risk Long Short
Position Position
110% - - - - - - - - - - -
125% - - - - - - - - - - -
135% - - - - - - - - - - -
150% - - - - 37,596 48,251 - 1,233 - 87,080 130,620
Total
exposures 2,394,009 - 1,231,467 5,074 674,579 2,555,028 1,002,779 1,233 10,642 7,874,811 3,464,498
Notes to the Financial Statements
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD |
83
84
(b) The breakdown of credit risk exposure by risk-weights for the current financial year are as follows: (continued)
2009 Exposures after Netting and Credit Risk Mitigation (RM000)
(continued)
Insurance Total
Banks, Companies, Exposures
Financial Securities after
Sovereigns/ Public Development Firms & Higher Netting & Total Risk
Risk- Central Sector Institutions & Fund Regulatory Residential Risk Other Credit Risk Weighted
weights Banks Entities MDBs Managers Corporates Retail Mortgages Assets Assets Mitigation Assets
110% - - - - - - - - - - -
125% - - - - - - - - - - -
135% - - - - - - - - - - -
150% - - - - 2,364 25,848 - 967 - 29,179 43,768
Total
exposures 2,707,386 47 528,182 5,087 574,930 2,535,092 826,277 967 4,626 7,182,594 2,939,589
Notes to the Financial Statements
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 85
34 SEGMENT REPORTING
The analysis of the Banks operations by business segments for the year ended 30 June 2010
Personal
Financial Business
Services Banking Treasury Total
The Bank
2010
Revenue
- external 179,696 (25,356) 30,496 184,836
- inter-segment (24,635) 39,933 (15,298) -
155,061 14,577 15,198 184,836
The Bank
2009
Revenue
- external 190,362 (24,636) 10,616 176,342
- inter-segment (43,848) 38,041 5,807 -
146,514 13,405 16,423 176,342
At the apex of the IRM framework, the Board of Directors has the overall responsibility to ensure there is proper
oversight of the management of risks in the Bank. The Board of Directors set the risk appetite and tolerance level that is
consistent with the Banks overall business objectives and desired risk profile. A number of committees and dedicated
risk management functions have been established to manage specific areas of risk and implement various risk
management policies and procedures.
Giving due prominence to risk management, a Board Audit & Risk Management Committee ("BARMC") comprising
three members of the Independent and Non-executive Directors has been set up to oversee and ensure that risk
management at all levels is being managed effectively. They, in turn, report all the risk management activities to the
Board of Directors. To assist the BARMC, the IRM Department in HLB has been established to provide independent
oversight on the adequacy, effectiveness and integrity of risk management practices at all levels within the Bank. The
IRM Department has adopted a risk-based approach to consolidate principal risk areas across the Bank and provide a
comprehensive profile of such risks so as to enable the Bank to minimise the risk through review and appropriate policies
and control.
The Bank adopts a systematic approach in managing such risks by types of instruments and nature of exposure. Market
risk is primarily controlled via a series of cut-loss limits and potential loss limits, i.e. "Value at Risk" ("VaR"), set in
accordance with the size of positions and risk tolerance appetites:
Portfolios held under the Banks trading books are tracked using daily mark-to-market positions, which are
compared against preset limits. The daily tracking of positions is supplemented by sensitivity analysis and stress
tests, using VaR and other measurements.
Foreign exchange risks arising from adverse exchange rate movements, is managed by the setting of preset limits,
matching of open positions against these preset limits and imposition of cut-loss mechanisms.
Rate of return risk exposure is also identified, measured and controlled through limits and procedures, which
includes regularly reviewing the profit rate outlook and developing strategies to protect total net profit income
from changes in market profit rates.
In addition, the Bank also conducts periodic stress testing of its respective portfolios to ascertain market risk under
abnormal market conditions.
Liquidity Risk Management
Liquidity risk is the risk of financial loss arising from the inability to fund increases in assets and/or meet obligations as
they fall due. Financial obligations arise from the withdrawal of deposits, funding of financing committed and repayment
of liabilities. It is the Banks policy to ensure there is adequate liquidity across all business units to sustain ongoing
operations, as well as sufficient liquidity to fund asset growth and strategic opportunities.
As a safeguard against liquidity risk, the Bank takes a multi-pronged approach towards managing this risk, beginning
with a liquidity management system, adopting BNMs Liquidity Framework as the backbone. The Liquidity Framework
ascertains the liquidity condition based on contractual and behavioural cash-flow of assets, liabilities and off-balance
sheet commitments, taking into consideration the realisable cash value of liquefiable assets. The Bank has been in
compliance with the New Liquidity Framework throughout the financial year.
This is supplemented by the Banks own internal liquidity management policies, which includes cash flow management,
maintenance of high quality long-term and short-term marketable debt securities and diversification of funding base.
The Bank has in place liquidity contingency funding plans to minimise the liquidity risk that may arise due to unforeseen
adverse changes in the marketplace.
Operational Risk Management
The Bank adopts the Basel IIs Operational Risk Management definition as "the risk of loss resulting from inadequate
or failed internal processes, people and systems or from external events" which also includes IT and legal risks. As
such, operational risk is inherent in each of the Banks business and operational activities. Such risks may result in
breakdowns, errors and can potentially result in financial loss or other losses to the Bank. The primary responsibility of
managing such risks rests with the respective operating department/unit.
The Bank takes a proactive stance on identifying and profiling principal potential operational risks and implementing
relevant risk mitigation and contingency procedures.
One of the Banks primary safeguards against operational risks is the existence of a sound internal control system,
based on the principle of dual control, checks and balances, segregation of duties, independent checks and verification
processes, segmented system access control and multi-tier internal transaction authorisation process. The controls are
documented through a set of policies and procedures at the individual business unit level.
The Bank has also set up an Operational Risk Management and Compliance Committee ("ORMCC") comprising members
of the Banks senior management to manage its operational risks and compliance issues. The ORMCC intends to
minimise bank wide operational risk losses and increase shareholder value in accordance with Basel II standards while
ensuring compliance to all regulations and internal policies. Another key role of the ORMCC is to promote awareness of
operational risk management within the Bank and its customers.
The Bank has published an Operational Risk Management Awareness Handbook and disseminated across the Bank so as
to enhance operational risk awareness among all the staff as well as to inculcate sound risk management as an integral
part of planning and management process.
90
Assets
Cash and short-term
funds 1,868,269 - - - - 228,000 - 2,096,269 2.3
Deposits and
| HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
(continued)
30.6.2010 1 month months months years years sensitive book Total profit rate
Liabilities
Deposits from
customers 4,406,649 1,427,973 860,083 583,777 - 453,133 - 7,731,615 2.2
Deposits and
placements of banks
and other financial
institutions 680,479 94,743 90,757 - - - - 865,979 2.2
Bills and acceptances
payable - - - - - 18,774 - 18,774 2.5
Other liabilities - - - - - 527,168 - 527,168 -
Total liabilities 5,087,128 1,522,716 950,840 583,777 - 999,075 - 9,143,536
for the financial year ended 30 June 2010
Assets
Cash and short-term
funds 2,214,590 - - - - 297,274 - 2,511,864 1.9
Deposits and
placement with bank
and other financial
institutions - 100,000 - 25,167 - - - 125,167 1.7
Held for trading
securities - - - - - - 2,011,644 2,011,644 2.2
| HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Available-for-sale
securities - 9,948 - 327,796 129,633 - - 467,377 3.7
for the financial year ended 30 June 2010
Held-to-maturity
securities - - - 126,048 - 575 - 126,623 4.4
Financing and
advances
- performing * 1,090,812 13,152 91,130 1,333,282 1,344,757 (73,007) - 3,800,126 5.5
- non-performing * - - - - - 24,754 - 24,754 -
Other assets - - - - - 74,405 - 74,405 -
Total assets 3,305,402 123,100 91,130 1,812,293 1,474,390 324,001 2,011,644 9,141,960
Notes to the Financial Statements
* This represents outstanding performing and non-performing financing after deducting specific and general allowances.
37 RATE OF RETURN RISK AND FINANCING RISK DISCLOSURES (continued)
A Rate of return risk (continued)
Up to 1-3 3-12 1-5 Over 5 Non-profit Trading Effective
(continued)
30.6.2009 1 month months months years years sensitive book Total profit rate
Liabilities
Deposits from
customers 5,702,472 875,950 871,695 153,851 - 375,930 - 7,979,898 2.0
Deposits and
placements of banks
and other financial
institutions 30,000 - - - - - - 30,000 2.0
Bills and acceptances
payable - - - - - 16,133 - 16,133 2.0
Other liabilities - - - - - 375,898 - 375,898 -
Total liabilities 5,732,472 875,950 871,695 153,851 - 767,961 - 8,401,929
for the financial year ended 30 June 2010
real estate
and business
services 1,169,841 1,113,165 25,338 - 142,185 3,178 - 2,453,707 61,213
Government and
government
agencies 1,395,606 1,020,364 539,060 461,164 - 14,948 47,000 3,478,142 -
Education, health
and others - - - - 36,237 - - 36,237 16,246
Household - - - - 3,343,943 - - 3,343,943 760,781
Others - - - - 7,102 - - 7,102 44,305
2,565,447 2,133,529 569,403 461,164 4,205,042 18,126 47,000 9,999,711 1,468,416
Wholesale and
retail - - - - 157,537 - - 157,537 146,321
Transport,
storage and
communication - - - - 47,222 - - 47,222 61,572
Finance,
insurance,
real estate
and business
Notes to the Financial Statements
Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted
and observable market prices are not available, fair values are estimated based on a range of methodologies and
assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash
flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the
resulting fair value estimates.
The fair values are based on the following methodologies and assumptions:
Deposits and placements with financial institutions
For deposits and placements with financial institutions with maturities of less than six months, the carrying value is
a reasonable estimate of fair value. For deposits and placements with maturities six months and above, estimated
fair value is based on discounted cash flows using prevailing money market profit rates at which similar deposits and
placements would be made with financial institutions of similar financing risk and remaining period to maturity.
Held-for-trading, available-for-sale and held-to-maturity
The estimated fair value is generally based on quoted and observable market prices. Where there is no ready market in
certain securities, fair values have been assessed by reference to market indicative profit yields.
The net fair value of these items was not calculated as estimated fair values are not readily ascertainable. These financial
instruments generally relate to financing risks and attract fees in line with market prices for similar arrangements. They
are not presently sold nor traded. The fair value may be represented by the present value of fees expected to be
received, less associated costs.
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 97
The above mentioned range of methodologies and assumptions had been used in deriving the fair values of the Banks
financial instruments at balance sheet date. The total fair value of each financial instrument approximates the total
carrying value, except for the following:
Carrying Fair
amount value
RM000 RM000
30.6.2010
Financial assets:
Financing and advances# 4,138,867 4,133,802
30.6.2009
Financial assets:
Financing and advances# 3,824,880 3,584,416
#
The carrying amount of financing and advances at the balance sheet date were not reduced to their estimated fair values
which were a result of the increase in profit rates during the year, and the Board of Directors is of the view that there are
no further impairment other than that already provided. Financing, advances and other financing have been assessed with
impairment allowances being made in accordance with BNM/GP3.
In addition, fair value information for non-financial assets and liabilities are excluded as they do not fall within the scope
of FRS 1322004 ("Financial Instruments: Disclosure and Presentation") which requires the fair value information to be
disclosed. These include other assets, statutory deposits with BNM, property and equipment and deferred tax assets.
39 GENERAL INFORMATION
The Bank is a public limited liability company that is incorporated and domiciled in Malaysia.
The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the
Directors on 29 July 2010.
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next
financial year. Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Bank makes allowance for losses on financing and advances based on assessment of recoverability. Whilst
management is guided by the relevant BNM guidelines, management makes judgement on the future and other key
factors in respect of the recovery of financing and advances. Among the factors considered are the Banks aggregate
exposure to the borrower, the net realisable value of the underlying collateral value, the viability of the customers
business model and the capacity to generate sufficient cash flow to service financing obligations and the aggregate
amount and ranking of all other creditor claims.
98 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
Statement by Directors
Pursuant to Section 169 (15) of the Companies Act, 1965
We, Hijah Arifakh Othman and Yvonne Chia, being two of the Directors of Hong Leong Islamic Bank Berhad, do hereby state
that, in the opinion of the Directors, the financial statements set out on pages 46 to 97 are drawn up so as to give a true and
fair view of:
(a) the state of affairs of the Bank as at 30 June 2010 and of the results of their operations for the year ended on that date;
and
(b) the cash flows of the Bank for the year then ended on that date
in accordance with the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank
Negara Malaysia Guidelines and the provisions of the Companies Act, 1965.
On behalf of the Board,
HIJAH ARIFAKH OTHMAN YVONNE CHIA
Kuala Lumpur
8 September 2010
Statutory Declaration
Pursuant to Section 169 (16) of the Companies Act, 1965
I, Hijah Arifakh Othman, being the Officer primarily responsible for the financial management of Hong Leong Islamic Bank
Berhad, do solemnly and sincerely declare that the financial statements set out on pages 46 to 97 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 at Kuala Lumpur )
in Wilayah Persekutuan on )
8 September 2010 ) HIJAH ARIFAKH OTHMAN
Before me,
Commissioner for Oaths
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 99
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 have been properly drawn up in accordance with the Companies Act, 1965, the MASB
Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Bank Negara Malaysia Guidelines
so as to give a true and fair view of the financial position of the Bank as of 30 June 2010 and of their financial performance
and cash flows for the year then ended.
PricewaterhouseCoopers Mohammad Faiz Bin Mohammad Azmi
(No. AF: 1146) (No. 2025/03/12 (J))
Chartered Accountants Chartered Accountant
Kuala Lumpur
8 September 2010
100 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010