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FinancialStatements
110 Statement of Board of
Directors’ Responsibilities
111 Directors’ Report
118 Statement by Directors
118 Statutory Declaration
119 Independent Auditors’ Report
121 Balance Sheets
123 Income Statements
124 Consolidated Statement of
Changes in Equity
125 Statement of Changes in Equity
126 Consolidated Cash Flow Statement
129 Cash Flow Statement
131 Notes to the Financial Statements
The Companies Act, 1965 requires Directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Group
and the Company for the financial year.
In preparing the financial statements, the Directors are responsible for the adoption of suitable accounting policies that comply with the provisions of the Companies
Act, 1965, applicable Financial Reporting Standards in Malaysia as modified by Bank Negara Malaysia Guidelines. The Directors are also responsible to ensure their
consistent use in the financial statements, supported where necessary by reasonable and prudent judgements.
The Directors hereby confirm that suitable accounting policies have been consistently applied in the preparation of the financial statements. The Directors also confirm
that the Company maintains adequate accounting records and an effective system of internal control to safeguard the assets of the Group and the Company and
prevent and detect fraud or any other irregularities.
110
Statement of Board of Directors’ ResponsibilitiesFor preparing the Annual Audited Financial Statements
The Directors present their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 March 2010.
PRINCIPAL ACTIVITIES
The principal activities of the Company are investment holding and provision of management services to the subsidiaries.
The principal activities of the subsidiaries are commercial banking and financing, Islamic banking, investment banking including provision of stockbroking services, unit trusts and fund management, and the provision of
related financial services.
There have been no significant changes in the nature of the principal activities during the financial year.
RESULTS
Group Company
RM’000 RM’000
Profit before taxation and zakat 408,938 128,726
Taxation and zakat (107,438) (27,993)
Net profit after taxation and zakat 301,500 100,733
Attributable to:
Equity holders of the Company 301,424 100,733
Minority interests 76 –
Net profit after taxation and zakat 301,500 100,733
RESERVES AND PROVISIONS
There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements.
Directors’ Report
111ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
DIVIDENDS
The amount of dividends declared and paid by the Company since 31 March 2009 were as follows:
RM’000
(i) First interim dividend of 1.3 sen per share, tax exempt under the single tier tax system, on 1,548,105,929 ordinary shares of RM1.00 each,
in respect of financial year ended 31 March 2010, was paid on 26 August 2009 19,904
(ii) Second interim dividend of 5.1 sen per share, tax exempt under the single tier tax system, on 1,548,105,929 ordinary shares of RM1.00 each,
in respect of financial year ended 31 March 2010, was paid on 26 March 2010 77,980
97,884
Dividends paid on the shares held in Trust pursuant to the Company’s ESS which are classified as shares held for ESS are not accounted for in the total equity. An amount of RM222,000 and RM973,000 being dividends
paid for those shares were added back to the appropriation of retained profits in respect of the first and second interim dividends respectively.
The Directors do not recommend the payment of any final dividend in respect of the current financial year.
EMPLOYEES’ SHARE SCHEME
The Alliance Financial Group Berhad Employees’ Share Scheme (“ESS”) is governed by the Bye-Laws approved by the shareholders at an Extraordinary General Meeting held on 28 August 2007. The ESS which comprises
the Share Option Plan, the Share Grant Plan and the Share Save Plan took effect on 3 December 2007 and is in force for a period of 10 years.
On 25 August 2009, the Company offered/awarded the following share options and share grants to Directors and employees of the Company and its subsidiaries who have met the criteria of eligibility for the participation
in the ESS:
(i) 10,189,800 share options under the Share Option Plan at an option price of RM2.38 per share which will be vested subject to the achievement of performance conditions.
(ii) 2,620,800 share grants under the Share Grant Plan. The first 50% of the share grants are to be vested at the end of the second year and the remaining 50% of the share grants are to be vested at the end of the
third year from the date on which an award is made.
There were no share options offered under the Share Save Plan during the financial year.
The salient features of the ESS are disclosed in Note 30 to the financial statements.
SHARES HELD FOR EMPLOYEES’ SHARE SCHEME
During the financial year ended 31 March 2010, the Trustee of the ESS had purchased 5,581,700 ordinary shares of RM1.00 each fully paid in the Company from the open market at an average price of RM2.25 per share. The
total consideration paid for the purchase including transaction costs was RM12,570,000. The shares purchased are being held in trust by the Trustee of the ESS in accordance with the Trust Deed dated 3 December 2007.
During the financial year ended 31 March 2010, 816,900 shares have been vested and transferred from the Trustee to the eligible employees of the Company and its subsidiaries in accordance with the terms under the
Share Grant Plan of the ESS. As at 31 March 2010, the Trustee of the ESS held 19,070,300 ordinary shares representing 1.23% of the issued and paid-up capital of the Company. Such shares are held at a carrying amount
of RM46,697,000 and further relevant details are disclosed in Note 29 to the financial statements.
112
Directors’ Report
BUSINESS REVIEW FOR FINANCIAL YEAR ENDED ("FYE") 31 MARCH 2010
In response to global and local economic conditions, the Group focused on strengthening its risk management practices to maintain the credit quality of its loan portfolios, improve cost efficiencies and to ensure its liquidity
and capital positions stay strong.
For the 12 months ended 31 March 2010, the Group recorded profit before taxation of RM408.9 million, a growth of RM105.6 million or 35% compared to RM303.3 million in the corresponding period last year.
During the year under review, the Group recorded loans growth of 9.3%, with the loans portfolio diversified in line with our desired mix. Net non-performing loans maintained as last year at 1.8%. The Group’s risk-weighted
capital ratio and core capital ratio improved to 15.4% and 11.1% from 14.6% and 10.3% respectively compared to 31 March 2009.
For the year under review, the Group received several local and regional accolades as listed below for its branding and product innovation.
• 2009 National Award for Management Accounting (NAfMA 2009)
• Malaysia’s Top 30 Most Valuable Brands 2009 (MMVB 2009)
• The Best Equity Malaysia Islamic Fund in the 3-year category by The Edge-Lipper Malaysia Fund Awards 2009
• Most Personalised Personalisation award (You:nique Picture Card) by Multos World Awards 2009
• Excellence in Business Model Innovation Award 2009 by Asian Banker’s Excellence in Retail Financial Services Awards Programme
ECONOMIC OUTLOOK AND PROSPECTS FOR FYE 31 MARCH 2011
Following the global downturn, economic growth solidified and expanded in the second half of 2009. In 2010, the IMF projects that global growth will rise by 4%. This represents an upward revision of 0.75% point from
the IMF October 2009 World Economic Outlook. Bank Negara Malaysia expects 4.5-5.5% real gross domestic product (GDP) growth this year, supported by both strong domestic demand and continued improvement in
external demand, especially from the regional economies. At the current level of the Overnight Policy Rate, the stance of monetary policy remains accommodative and supportive of economic growth. A supportive monetary
environment, including continued access to competitive financing, will remain in place to foster recovery in private sector activity.
BUSINESS OUTLOOK FOR FYE 31 MARCH 2011
We foresee an economic recovery and rising GDP in 2011. At the macro level, we are confident that the recently announced first phase of the New Economic Model (NEM) will be good for various sectors, ultimately
impacting the man-on-the-street’s financial planning and management.
At the Group level, we approach the financial year with a renewed but cautious optimism. We are confident that our customer segmentation model will enable us to deepen our customer relationships. The Group has been
steadily transforming its business model to enable the best delivery to our customers and to maximise synergies between our various lines of business.
The small-to-medium enterprise (SME) sector is expected to be a strong growth driver in the country’s plans to achieve its goal of a high income nation, as supported by the NEM. The SME sector remains one of Alliance
Bank’s areas of strength and we are well-positioned to take advantage of this renewed outlook for the sector.
We also expect to benefit from the transformation journey that we have embarked on since 2007. Our top priority is to ensure that our underlying business momentum remains intact and sustains our growth momentum.
Human capital development and talent management will continue to remain a key priority for the Group.
The Group expects to continue to record satisfactory performance in the new financial year ending 31 March 2011.
Directors’ Report
113ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
RATING BY EXTERNAL RATING AGENCY
The banking subsidiary Alliance Bank Malaysia Berhad (“ABMB”) is rated by Rating Agency Malaysia Berhad (“RAM”). Based on RAM’s rating in November 2009, ABMB’s short-term and long-term ratings are reaffirmed
at P1 and A1 respectively. RAM has classified these rating categories as follows:
P1 – Financial institutions in this category have superior capacities for timely payments of obligations.
A1 – Financial institutions rated in this category are adjudged to offer adequate safety for timely payments of financial obligations. This level of rating indicates financial institutions with adequate credit profiles, but
which possess one or more problem areas, giving rise to the possibility of future riskiness. Financial institutions rated in this category have generally performed at industry average and are considered to be more
vulnerable to changes in economic conditions than those rated in the higher categories.
DIRECTORS
The names of the Directors of the Company in office since the date of the last report and at the date of this report are:
Datuk Oh Chong Peng
Dato’ Thomas Mun Lung Lee
Tan Yuen Fah
Stephen Geh Sim Whye
Phoon Siew Heng
Megat Dziauddin Bin Megat Mahmud
Kung Beng Hong
Datuk Bridget Anne Chin Hung Yee (resigned on 1 March 2010)
Tee Kim Chan (retired on 29 July 2009)
DIRECTORS’ BENEFITS
Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the Directors might acquire benefits by means of the acquisition
of shares in, or debentures of, the Company or any other body corporate, other than those arising from the share options and share grants under the ESS.
Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the
Directors or the fixed salary of a full-time employee of the Company or related corporations as shown in Note 34(b) and Note 46(c) to the financial statements of the Company or financial statements of related corporations)
by reason of a contract made by the Company or a related corporation with any Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest.
114
Directors’ Report
DIRECTORS’ INTERESTS
According to the Register of Directors' Shareholdings, the interests of Directors in office at the end of the financial year in shares, share options and share grants in the Company were as follows:
Number of Ordinary Shares of RM1.00 Each
1.4.2009 Acquired Sold 31.3.2010
The Company
Megat Dziauddin Bin Megat Mahmud – Direct 3,000 – – 3,000
Dato’ Thomas Mun Lung Lee – Indirect (held through spouse, Datin Teh Yew Kheng) 35,000 – – 35,000
By virtue of their shareholdings in the Company, the above Directors are deemed to have beneficial interests in the shares of the subsidiary companies of the Company. None of the other Directors in office at the end of
the financial year had any interest in shares, share options and share grants in the Company or its related corporations during the financial year.
ISSUE OF SHARES
There was no change in the issued and paid-up capital of the Company during the financial year.
BAD AND DOUBTFUL DEBTS
Before the balance sheets and income statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad
debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts.
At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the
Group and of the Company inadequate to any substantial extent.
CURRENT ASSETS
Before the balance sheets and income statements of the Group and of the Company were made out, the Directors took reasonable steps to ensure that any current assets which were unlikely to realise their value as
shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.
At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Group and of the Company misleading.
Directors’ Report
115ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
VALUATION METHOD
At the date of this report, the Directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company
misleading or inappropriate.
CONTINGENT AND OTHER LIABILITIES
At the date of this report, there does not exist:
(i) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or
(ii) any contingent liability in respect of the Group and of the Company which has arisen since the end of the financial year other than in the ordinary course of business.
No contingent or other liability of the Group and of the Company has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of
the Directors, will or may affect the ability of the Group or of the Company to meet their obligations as and when they fall due.
CHANGE OF CIRCUMSTANCES
At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or financial statements of the Group and of the Company, which would render any amount stated in the
financial statements misleading.
ITEMS OF AN UNUSUAL NATURE
In the opinion of the Directors:
(i) the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and
(ii) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature which is likely to affect substantially the results
of the operations of the Group and of the Company for the financial year in which this report is made.
SIGNIFICANT EVENTS DURING THE YEAR
The significant events during the financial year are disclosed in Note 50 to the financial statements.
SUBSEQUENT EVENT
There was no material event subsequent to the balance sheet date that require disclosure or adjustment to the financial statements.
116
Directors’ Report
AUDITORS
The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.
Signed on behalf of the Board in accordance with a resolution of the Directors dated 15 June 2010.
Datuk Oh Chong Peng Dato’ Thomas Mun Lung Lee
Kuala Lumpur, Malaysia
Directors’ Report
117ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
We, Datuk Oh Chong Peng and Dato’ Thomas Mun Lung Lee, being two of the Directors of Alliance Financial Group Berhad, do hereby state that, in the opinion of the Directors, the accompanying financial statements set
out on pages 121 to 222 are drawn up in accordance with the provisions of the Companies Act, 1965 and the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and Bank Negara
Malaysia Guidelines, so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 March 2010 and of the results and the cash flows of the Group and of the Company for the financial
year then ended.
Signed on behalf of the Board in accordance with a resolution of the Directors dated 15 June 2010.
Datuk Oh Chong Peng Dato’ Thomas Mun Lung Lee
Kuala Lumpur, Malaysia
I, Lee Eng Leong, being the officer primarily responsible for the financial management of Alliance Financial Group Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on
pages 121 to 222 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.
Subscribed and solemnly declared
by the abovenamed Lee Eng Leong
at Kuala Lumpur in the Federal Territory on
15 June 2010 Lee Eng Leong
Before me,
Sivanason a/l Marimuthu
Commissioner for Oaths
Kuala Lumpur, Malaysia
15 June 2010
118
Statement by DirectorsPursuant to Section 169(15) of the Companies Act, 1965
Statutory DeclarationPursuant to Section 169(16) of the Companies Act, 1965
Report on the financial statements
We have audited the financial statements of Alliance Financial Group Berhad, which comprise the balance sheets as at 31 March 2010 of the Group and of the Company, and the income statements, statements of
changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 121 to 222.
Directors’ responsibility for the financial statements
The Directors of the Company are responsible for the preparation and fair presentation of these financial statements 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. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes
evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements 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 Bank
Negara Malaysia Guidelines so as to give a true and fair view of the financial position of the Group and of the Company as at 31 March 2010 and of their financial performances and cash flows for the year then ended.
Independent Auditors’ Reportto the members of Alliance Financial Group Berhad (Incorporated in Malaysia)
119ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
Report on other legal and regulatory requirements
In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:
(a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act.
(b) We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the
preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes.
(c) The audit reports on the financial statements of the subsidiaries did not contain any qualification and any adverse comment made under Section 174(3) of the Act.
Other matters
This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other
person for the content of this report.
PricewaterhouseCoopers Mohammad Faiz Bin Mohammad Azmi
AF: 1146 No.2025/03/12 (J)
Chartered Accountants Chartered Accountant
Kuala Lumpur, Malaysia
15 June 2010
120
Independent Auditors’ Reportto the members of Alliance Financial Group Berhad (Incorporated in Malaysia)
Balance Sheetsas at 31 March 2010
121ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
Group Company
2010 2009 2010 2009
Note RM’000 RM’000 RM’000 RM’000
ASSETS
Cash and short-term funds 3 3,564,545 4,990,686 30,847 453,878
Deposits and placements with banks and other financial institutions 4 150,156 198,523 610,800 200,000
ESS recharge amount received from subsidiaries – – – 1,978 – 1,978
ESS shares vested to
– employees of subsidiaries – – (1,978) – – (1,978)
– owned employees – – (22) 22 – –
Transfer of ESS shares purchase price difference on shares vested – – (421) – 421 –
At 31 March 2010 1,548,106 304,289 12,341 (46,697) 3,691 1,821,730
2010 2009
RM’000 RM’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation and zakat 408,938 303,312
Adjustments for:
Accretion of discount less amortisation of premium of securities (27,127) (99,244)
Depreciation of property, plant and equipment 39,713 36,494
Dividends from securities held-to-maturity (6,321) (5,390)
Gain on disposal of property, plant and equipment (1,011) (203)
Loss on disposal of leasehold land 649 –
Gain on disposal of foreclosed properties (7,029) (7,414)
Net gain from redemption of securities held-to-maturity – (16,841)
Net loss/(gain) from sale of securities held-for-trading 228 (420)
Net gain from sale of securities available-for-sale (11,556) (20,197)
Unrealised loss on revaluation of securities held-for-trading 5,152 1,154
Unrealised (gain)/loss on revaluation of derivative instruments (3,266) 4,823
Interest expense on subordinated bonds 36,540 36,540
Interest expense on long term borrowings 20,017 2,460
Interest income from securities held-to-maturity (17,251) (13,085)
Interest income from securities available-for-sale (177,797) (111,492)
Interest income from deposits and placements with banks and other financial institutions – (5)
Return on capital from investment – (88)
Impairment on other assets – 40
Allowance for loan, advances and financing (net of recoveries) 21,397 182,868
Allowance for other assets 4,050 133
Allowances for commitments and contingencies 1,433 –
Impairment net of write-back of securities available-for-sale 134,712 76,128
Impairment net of write-back of securities held-to-maturity (3,900) (42)
Impairment net of write-back of foreclosed properties (15) 815
Impairment of goodwill 2,084 –
Amortisation of leasehold land 138 139
Amortisation of computer software 16,307 14,654
Profit Equalisation Reserve (50,058) (1,867)
Share options/grants under Employees’ Share Scheme 7,020 6,304
Property, plant and equipment written off 1,160 3,218
Computer software written off 1,589 76
Loss on liquidation of subsidiaries 50 –
Operating profit before working capital changes carried forward 395,846 392,870
126
Consolidated Cash Flow Statementfor the year ended 31 March 2010
2010 2009
RM’000 RM’000
Operating profit before working capital changes brought forward 395,846 392,870
Changes in working capital:
Deposits from customers (1,947,110) 4,223,681
Deposits and placements of banks and other financial institutions 1,106,279 (264,136)
Bills and acceptances payable 536,135 (159,203)
Balance due from clients and brokers (47,158) 16,843
Other liabilities (15,006) (166,024)
Deposits and placements with banks and other financial institutions 48,367 334,312
Securities held-for-trading 40,722 50,001
Loans, advances and financing (1,951,746) (3,281,993)
Other assets 51,591 35,070
Statutory deposits with Bank Negara Malaysia (59,482) 423,062
Amount due to Cagamas Berhad (30,314) (197,000)
Cash (used in)/generated from operations (1,871,876) 1,407,483
Taxes and zakat paid (35,573) (85,338)
Net cash (used in)/generated from operating activities (1,907,449) 1,322,145
CASH FLOWS FROM INVESTING ACTIVITIES
Net dividends received from securities held-to-maturity 5,558 4,678
Interest received from securities held-to-maturity 17,251 13,085
Interest received from securities available-for-sale 177,797 111,492
Interest received from deposits and placements with banks and other financial institutions – 5
Return on capital from investment – 88
Purchase of property, plant and equipment (28,458) (47,880)
Purchase of computer software (13,326) (29,577)
Purchase of shares from market (12,570) (9,873)
Proceeds from disposal of property, plant and equipment 2,189 419
Proceeds from disposal of leasehold land 230 –
Return on capital from liquidation of subsidiaries (38) –
Purchase of securities held-to-maturity, net of maturity and redemption proceeds (586,943) 566,600
Purchase of securities available-for-sale, net of sale proceeds 1,026,285 (3,168,231)
Net cash generated from/(used in) investing activities 587,975 (2,559,194)
127ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
Consolidated Cash Flow Statementfor the year ended 31 March 2010
2010 2009
RM’000 RM’000
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of long term borrowings – 600,000
Interest paid on subordinated bonds (36,540) (36,540)
Interest paid on long term borrowings (20,017) (2,460)
Dividends paid to shareholders of the Company (97,884) (96,055)
Dividends paid to minority interests – (64)
Net cash (used in)/generated from financing activities (154,441) 464,881
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,473,915) (772,168)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,944,211 5,716,379
CASH AND CASH EQUIVALENTS AT END OF YEAR 3,470,296 4,944,211
Cash and cash equivalents comprise the following:
Cash and short-term funds 3,564,545 4,990,686
Less: Monies held in trust (Note 3) (94,249) (46,475)
3,470,296 4,944,211
128
Consolidated Cash Flow Statementfor the year ended 31 March 2010
The accompanying notes form an integral part of the financial statements.
2010 2009
RM’000 RM’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 128,726 121,234
Adjustments for:
Depreciation of property, plant and equipment 81 98
Property, plant and equipment written off 31 –
Interest income from deposits and placements with banks and other financial institutions (16,946) (4,405)
Interest income from securities available-for-sale (695) –
Accretion of discount less amortisation of premium of securities 215 –
Interest expense on long term borrowings 20,017 2,460
Return on capital from investment – (88)
Impairment on other assets 15,199 40
(Write-back of)/allowance for doubtful debts due from subsidiaries (13,144) 651
Gain on disposal of property, plant and equipment – (11)
Net gain from sale of securities available-for-sale 388 –
Share options/grants under Employees’ Share Scheme 14,684 64
Gross dividend income from subsidiary (136,321) (122,601)
Operating profit/(loss) before working capital changes 12,235 (2,558)
Changes in working capital:
Receivables (3,730) (1,948)
Payables (1,264) (664)
Deposits (410,800) (200,000)
Subsidiaries (15,458) (805)
Cash used in operations (419,017) (205,975)
Taxes refund 200 479
Net cash used in operating activities (418,817) (205,496)
Cash Flow Statementfor the year ended 31 March 2010
129ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2010 2009
RM’000 RM’000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment – (30)
Interest received from deposits and placements with banks and other financial institutions 16,946 4,405
Interest received from security available-for-sale 695 –
Return on capital from investment – 88
Purchase of shares from market (12,570) (9,873)
Purchase of securities available-for-sale, net of sale proceeds (603) –
Net dividend received 107,241 96,951
ESS recharge amount received from subsidiaries 1,978 –
Proceed from disposal of property, plant and equipment – 49
Net cash generated from investing activities 113,687 91,590
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of long term borrowings – 600,000
Dividends paid (97,884) (96,055)
Interest paid on long term borrowings (20,017) (2,460)
Net cash (used in)/generated from financing activities (117,901) 501,485
NET CHANGE IN CASH AND CASH EQUIVALENTS (423,031) 387,579
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 453,878 66,299
CASH AND CASH EQUIVALENTS AT END OF YEAR 30,847 453,878
Cash and cash equivalents comprise the following:
Cash and short-term funds 30,847 453,878
130
Cash Flow Statementfor the year ended 31 March 2010
The accompanying notes form an integral part of the financial statements.
1. CORPORATE INFORMATION
The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad. The registered office of the Company is located at
3rd Floor, Menara Multi-Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur, Malaysia.
The principal activities of the Company are investment holding and provision of management services to the subsidiaries.
The principal activities of the subsidiaries are commercial banking and financing, Islamic banking, investment banking including provision of stockbroking services, unit trusts and fund management, and the
provision of related financial services.
There have been no significant changes in the nature of the principal activities during the financial year.
The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the Directors on 15 June 2010.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted by the Group are consistent with those adopted in the annual audited financial statements for the previous financial year.
Standards, amendments to published standards and interpretations that are applicable to the Group and are effective
There are no new accounting standards, amendments to published standards and interpretations to existing standards effective for the Group’s financial year ended 31 March 2010 and applicable to the Group.
Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group but not yet effective
(i) 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 interest’s proportionate share of the
acquiree’s 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 Group.
(ii) 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 application of this standard is not expected
to have a material impact on the financial statements of the Group.
(iii) 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 Group, other than the presentation format of the balance sheets and the income statements.
Notes to the Financial Statements31 March 2010
131ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(iv) FRS 123 "Borrowing Costs" (effective from 1 January 2010) which replaces FRS 1232004 "Borrowing Costs", requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction
or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs is
removed. The improvement to FRS 123 clarifies that the definition of borrowing costs includes interest expense calculated using the effective interest method defined in FRS 139 "Financial Instruments:
Recognition and Measurement". The application of this standard is not expected to have a material impact on the financial statements of the Group.
(v) The revised FRS 127 "Consolidated and Separate Financial Statements" (effective prospectively from 1 July 2010) requires the effects of all transactions with non-controlling interests to be recorded in equity
if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity
is re-measured to fair value, and a gain or loss is recognised in the income statement. The application of this standard is not expected to have a material impact on the financial statements of the Group.
(vi) 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.
(vii) 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.
(viii) FRS 7 “Financial Instruments: Disclosures” (effective from 1 January 2010) provides information to users of financial statements about an entity’s 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 Group has 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 Group.
– 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
For banking institutions, Bank Negara Malaysia 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.
(ix) The amendment to FRS 1 "First-time Adoption of Financial Reporting Standards" and FRS 127 "Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or Associate" (effective from 1 January 2010) allows first-time adopters to use a deemed cost of either fair value or the carrying amount under previous accounting practice to measure the initial cost
of investments in subsidiaries, jointly controlled entities and associates in the separate financial statements. The amendment also removes the definition of the cost method from FRS 127 and requires
investors to present dividends as income in the separate financial statements. The amendment to FRS 1 and FRS 127 are not expected to have a material impact on the financial statements of the Group.
132
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(x) 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 Group.
(xi) 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 Group.
(xii) 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 Group.
(xiii) 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 Group.
(xiv) 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 Group.
(xv) 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 Group.
(xvi) IC Interpretation 17 "Distribution of non-cash assets to owners" (effective from 1 July 2010) provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders
either as a distribution of reserves or as dividends. FRS 5 " Non-current Assets Held for Sale and Discontinued Operations" has also been amended to require that assets are classified as held for distribution
only when they are available for distribution in their present condition and the distribution is highly probable. The application of this standard is not expected to have a material impact on the financial
statements of the Group.
Notes to the Financial Statements31 March 2010
133ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
The following amendments are part of the Malaysian Accounting Standards Board’s (“MASB”) improvements project:
(xvii) FRS 5 “Non-current Assets Held for Sale and Discontinued Operations”
– Improvement effective from 1 January 2010 clarifies that FRS 5 disclosures apply to non-current assets or disposal groups that are classified as held for sale and discontinued operations.
– Improvement effective from 1 July 2010 clarifies that all of a subsidiary’s assets and liabilities are classified as held for sale if a partial disposal sale plan results in loss of control. Relevant disclosure
should be made for this subsidiary if the definition of a discontinued operation is met.
The application of this standard is not expected to have a material impact on the financial statements of the Group.
(xviii) 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. The application
of this standard is not expected to have a material impact on the financial statements of the Group.
(xix) 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. The application of this standard is not expected to have a material impact on the financial statements of the Group.
(xx) FRS 116 “Property, Plant and Equipments” (consequential amendment to FRS 107 “Statement of Cash Flows”) (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. The application of this standard is
not expected to have a material impact on the financial statements of the Group.
(xxi) 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. The application of this standard is not expected to have a material impact on the financial statements of the Group.
(xxii) 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’. The application of this standard is not expected
to have a material impact on the financial statements of the Group.
(xxiii) FRS 119 “Employee Benefits” (effective from 1 January 2010) clarifies that a plan amendment that results in a change in the extent to which benefit promises are affected by future salary increases is a
curtailment, while an amendment that changes benefits attributable to past service gives rise to a negative past service cost if it results in a reduction in the present value of the defined benefit obligation.
The definition of return on plan assets has been amended to state that plan administration costs are deducted in the calculation of return on plan assets only to the extent that such costs have been excluded
from measurement of the defined benefit obligation. The application of this standard is not expected to have a material impact on the financial statements of the Group.
(xxiv) FRS 127 “Consolidated & Separate Financial Statements” (effective from 1 January 2010) clarifies that where an investment in a subsidiary that is accounted for under FRS 139 is classified as held for sale
under FRS 5, FRS 139 would continue to be applied.
The amendment will not have an impact on the Group’s operations because it is the Group’s policy for an investment in subsidiary to be recorded at cost in the standalone accounts of each entity.
(xxv) FRS 128 “Investments in Associates” (effective from 1 January 2010) clarifies that an investment in an associate is treated as a single asset for impairment testing purposes. Reversals of impairment are
recorded as an adjustment to the carrying amount of the investment to the extent that the recoverable amount of the associate increases. The application of this standard is not expected to have a material
impact on the financial statements of the Group.
134
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(xxvi) FRS 128 “Investments in Associates" and FRS 131 "Interests in Joint Ventures” (consequential amendments to FRS 132 “Financial instruments: Presentation” and FRS 7 “Financial instruments: Disclosure”
(effective from 1 January 2010) clarify that where an investment in associate or joint venture is accounted for in accordance with FRS 139, only certain, rather than all disclosure requirements in FRS 128
or FRS 131 need to be made in addition to disclosures required by FRS 132 and FRS 7.
The amendment will not have an impact on the Group’s operations because it is the Group’s policy for an investment in an associate to be equity accounted in the Group’s consolidated accounts. On FRS
131, the amendment will not have an impact on the Group’s operations as there are no interests held in joint ventures.
(xxvii) 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. The application of this standard is not expected to have a material impact on the financial statements of the Group.
(xxviii) 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 application of this standard is not expected to have a material impact on the financial statements of the Group.
(xxix) FRS 138 "Intangible Assets". Improvement effective from 1 January 2010 clarifies that a prepayment may only be recognised in the event that payment has been made in advance of obtaining right of access
to goods or receipt of services. This means that an expense will be recognised for mail order catalogues when the entity has access to the catalogues and not when the catalogues are distributed to customers.
It confirms that the unit of production method of amortisation is allowed. The application of this standard is not expected to have a material impact on the financial statements of the Group.
(xxx) FRS 140 “Investment Property” (effective from 1 January 2010) requires assets under construction/development for future use as investment property to be accounted as investment property rather than
property, plant and equipment. Where the fair value model is applied, such property is measured at fair value. However, where fair value is not reliably measurable, the property is measured at cost until the
earlier of the date construction is completed and fair value becomes reliably measurable. It also clarifies that if a valuation obtained for an investment property held under lease is net of all expected payments,
any recognised lease liability is added back in order to determine the carrying amount of the investment property under the fair value model. The application of this standard is not expected to have a material
impact on the financial statements of the Group.
Standards, amendments to published standards and interpretations to existing standards that are not applicable to the Group and not yet effective
FRS 4 Insurance Contracts
FRS 120 Accounting for Government Grants
FRS 129 Financial Reporting in Hyperinflationary Economies
IC Interpretation 12 Service Concession Arrangements
IC Interpretation 15 Agreements for Construction of Real Estates
IC Interpretation 16 Hedges of a Net Investment in a Foreign Operation
Notes to the Financial Statements31 March 2010
135ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(a) Basis of Preparation
The financial statements have been prepared in accordance with the provisions of the Companies Act, 1965, the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities,
Bank Negara Malaysia ("BNM") Guidelines and Shariah principles.
The financial statements of the Group and the Company have also been prepared under the historical cost convention, except the following assets which are stated at fair value: securities held-for-trading,
securities available-for-sale and derivative financial instruments.
The financial statements incorporate all activities relating to the Islamic banking business which have been undertaken by the Group. Islamic banking business refers generally to the acceptance of deposits
and granting of financing under the Shariah principles.
The financial statements are presented in Ringgit Malaysia ("RM") and all numbers are rounded to the nearest thousand (RM’000), unless otherwise stated.
In the preparation of the financial statements, management is required to make certain judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of
assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the financial statements in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of critical judgements and estimation uncertainty in applying accounting policies that have the most significant effects on the amount recognised in the
financial statements are described in the following notes:
(i) Annual testing for impairment of goodwill and intangible assets (Note 17) – the measurement of the recoverable amount of cash-generating units are determined based on the value-in-use method,
which requires the use of estimates for cash flow projections approved by management covering a 5-year period, estimates growth rates for cash flows beyond the fifth year extrapolated in perpetuity
and discount rates applied to the cash flow projections.
(ii) Fair value estimation for securities held-for-trading (Note 5) and securities available-for-sale (Note 6) and derivative financial assets and liabilities (Note 8) – the fair value of financial instruments that
are not traded in active market are determined using valuation techniques based on assumptions of market conditions existing at the balance sheet date, including reference to quoted market prices
and independent dealer quotes for similar financial instruments and discounted cash flows method.
(iii) Income taxes (Note 37) – significant management judgement is required in estimating the provision for income taxes, as there may be differing interpretations of tax law for which the final outcome
will not be established until a later date. Liabilities for taxation are recognised based on estimates of whether additional taxes will be payable. The estimation process may involve seeking the advise
of experts, where appropriate. Where the final liability for taxation assessed by the Inland Revenue Board is different from the amounts that were initially recorded, these differences will affect the
income tax expense and deferred tax provisions in the period in which the estimate is revised or when the final tax liability is established.
(iv) Deferred tax assets (Note 18) - deferred tax assets are recognised for all unutilised tax losses to the extent that it is probable that taxable profit will be available against which the tax losses can be
utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together
with future tax planning strategies.
(v) Allowance for losses on loans, advances and financing (Note 35) – whilst the assessment of allowance for losses required for loans, advances and financing is made in accordance with the
requirements of BNM/GP3 – Guidelines on the Classification of Non-Performing Loans and Provisions for Substandard, Bad and Doubtful Debts, the Group exercise judgement in ascertaining the
recoverable amount when assessing the levels of loan loss allowance required.
136
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(a) Basis of Preparation (cont’d)
(vi) Impairment of assets – assessment of impairment of securities available-for-sale (Note 6) and securities held-to-maturity (Note 7) is made in line with the guidance in the revised BNM/GP8 – Guidelines
on Financial Reporting for Licensed Institutions to determine when the investment is impaired. Management judgement is required to evaluate the duration and extent by which the fair value of the
financial instruments are below its carrying value and when there is indication of impairment in the carrying value of the financial instruments. The assessment of impairment of property, plant and
equipment (Note 16) and foreclosed properties also requires management judgement in the assessment of whether negative fluctuations in values of similar properties in the same location represent
an indication of impairment in the value of the properties.
(vii) Fair value estimation and impairment assessment of certain unquoted shares (Note 6) – ABMB received a free allocation of certain unquoted shares of which some had been subsequently redeemed
by the said issuer. The issuer company’s latest quoted share price, discounted at 10% was used as the proxy to estimate the fair value of the remaining unquoted shares.
(b) Subsidiaries and Basis of Consolidation
(i) Subsidiaries
Subsidiaries are entities over which the Group has the ability to control the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when assessing whether the Group has such power over another entity.
In the Company’s separate financial statements, investments in subsidiaries are stated at cost less impairment. The policy for recognition and measurement of impairment is in accordance with Note 2(k)(iv).
On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in the income statement.
(ii) Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared
for the same reporting date as the Company.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the
consolidated financial statements, intragroup balances, transactions and unrealised gains or losses are eliminated in full. Uniform accounting policies are adopted in the consolidated financial
statements for like transactions and events in similar circumstances.
Acquisitions of subsidiaries are accounted for using the purchase method. The purchase method of accounting involves allocating the cost of the acquisition to the fair value of the assets acquired
and liabilities and contingent liabilities assumed at the date of acquisition. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of the assets given,
liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the acquisition.
Any excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill.
Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in the income statement.
Minority interests represent the portion of the income statement and net assets in subsidiaries not held by the Group. It is measured at the minorities’ share of the fair value of the subsidiaries’
identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’ entity since then.
Notes to the Financial Statements31 March 2010
137ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(c) Associates
Associates are entities in which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and
operating policy decisions of the investee but not in control or joint control over those policies.
Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Under the equity method, the investment in associate is carried in the consolidated
balance sheet at cost adjusted for post-acquisition changes in the Group’s share of net assets of the associate. The Group’s share of the net profit or loss of the associate is recognised in the consolidated
income statement. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes. In applying the equity method, unrealised gains and
losses on transactions between the Group and the associate are eliminated to the extent of the Group’s interest in the associate. After application of the equity method, the Group determines whether it is
necessary to recognise any additional impairment with respect to the Group’s net investment in the associate. The associate is equity accounted for from the date the Group obtains significant influence until
the date the Group ceases to have significant influence over the associate.
Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities
and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the associate’s
profit or loss in the period in which the investment is acquired.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any long term interests that, in substance, form part of the Group’s net investment in the associate,
the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
The most recent available audited financial statements of the associates are used by the Group in applying the equity method. Where the dates of the audited financial statements used are not coterminous
with those of the Group, the share of results is arrived at from the last audited financial statements available and management financial statements to the end of the accounting period. Uniform accounting
policies are adopted for like transactions and events in similar circumstances.
On disposal of such investments, the difference between net disposal proceeds and their carrying amount is included in the income statement.
138
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(d) Intangible Assets
(i) Goodwill
Goodwill is measured at cost less accumulated impairment, if any. Goodwill is no longer amortised. Instead it is allocated to cash-generating units which are expected to benefit from the synergies of
the business combination. Each cash-generating unit represents the lowest level at which the goodwill is amortised and is not larger than a reportable business segment. The carrying amount of
goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Gains and losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold. The policy for the recognition and measurement of impairment is in accordance with Note 2(k)(iii).
(ii) Computer Software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring the specific software to use. The costs are amortised over their useful lives which is five
years and are stated at cost less accumulated amortisation and accumulated impairment, if any. Computer software is assessed for impairment whenever there is an indication that it may be impaired.
The amortisation period and amortisation method are reviewed at least at each balance sheet date.
The policy for the recognition and measurement of impairment is in accordance with Note 2(k)(iii).
Costs associated with maintaining computer software programmes are recognised as expenses as incurred. Costs that are directly associated with production of identifiable and unique software
products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. These costs include software development
employee costs and appropriate portion of relevant overhead.
(iii) Other Intangible Assets
Intangible assets acquired separately are measured at cost on initial recognition. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment. The useful lives of intangible assets are assessed to be either
finite or indefinite. Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date.
Intangible assets with indefinite useful lives are not amortised but tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be
impaired either individually or at the cash-generating unit level. The useful life of an intangible asset with an indefinite life is also reviewed annually to determine whether the useful life assessment
continues to be supportable.
Notes to the Financial Statements31 March 2010
139ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(e) Loans, Advances and Financing
Loans, advances and financing are stated at cost less any allowance for losses on loans, advances and financing.
Specific allowance for losses on loans, advances and financing are made with regard to specific risks and relate to those loans or trade receivables that have been individually reviewed and specifically
identified as bad and doubtful debts.
A general allowance based on a percentage of total outstanding loans and financing (including unearned interest/income), net of specific allowance for losses on loans, advances and financing, is maintained
by the Group against risks which are not identified.
An uncollectible loan/financing or portion of a loan/financing classified as bad is written off after taking into consideration the realisable value of collateral, if any, when in the judgement of the management,
there is no prospect of recovery.
Values assigned to collateral held for non-performing loans secured by properties is determined based on the realisable values of the properties, being the forced sale value provided by independent
parties/valuers, on the following basis:
(i) assigning only fifty percent (50%) of the realisable value of the properties held as collateral for non-performing loans which are in arrears for more than five (5) years but less than seven (7) years; and
(ii) no value assigned to the realisable value of the properties held as collateral for non-performing loans which are in arrears for seven (7) years or more.
The allowance for losses on loans, advances and financing are computed in conformity with BNM/GP3. Consistent with previous years, the Group classified the loans, advances and financing as non-
performing when repayments are in arrears for more than three (3) months from the first day of the default or after maturity date.
The Group has adopted a more stringent basis for specific allowances on non-performing loans by making a 100% specific allowance on the balance of the non-performing loans which are more than three
(3) months-in-arrears and not covered by realisable value of collateral. The Directors are of the view that such treatment will reflect a more prudent provisioning policy on loans, advances and financing.
Bank Negara Malaysia has granted indulgence to the Group and other local banks from complying with the requirement on the impairment of loans, advances and financing under the revised Guideline on
Financial Reporting for Licensed Institutions ("BNM/GP8"). The Group will be deemed to be in compliance with the requirement on the impairment of loans, advances and financing under the revised BNM/GP8
if the allowances for non-performing loans, advances and financing are computed based on BNM/GP3 requirements, which is consistent with the accounting policy adopted in the previous financial year.
For margin balances of the stockbroking business, the accounts are classified as non-performing loans when the closing market value of the counter(s) so financed has fallen below 130% of the outstanding
balance, and 100% specific allowance is make on the non-performing loans, net of collateral held, if any.
140
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(f) Provisions for Liabilities
Provisions for liabilities are recognised when the Group and the Company have a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the
effect of the time value of money is material, the provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognised as finance cost.
(g) Repurchase Agreements
Securities purchased under resale agreements are securities which the Group have purchased with a commitment to resell at future dates. The commitment to resell the securities is reflected as an asset
on the balance sheet.
Conversely, obligations on securities sold under repurchase agreements are securities which the Group have sold from their portfolio, with a commitment to repurchase at future dates. Such financing
transactions and the obligations to repurchase the securities are reflected as liabilities on the balance sheet.
(h) Securities
The holdings of securities portfolio of the Group are recognised based on the following categories and consequently their valuation methods:
(i) Securities Held-for-trading
Securities are classified as held-for-trading if they are acquired principally for the purpose of selling or repurchasing in the near term. Securities held-for-trading are stated at fair value and any gain
or loss arising from a change in their fair values and the derecognition of securities held-for-trading are recognised in the income statement. Securities classified as held-for-trading are not reclassified
to securities held-to-maturity or securities available-for-sale while they are held. However, for the period from 1 July 2008 to 31 December 2009, BNM’s circular dated 20 October 2008 allows the
reclassification of securities held-for-trading to securities available-for-sale and securities held-to-maturity under certain limited circumstances.
(ii) Securities Held-to-maturity
Securities held-to-maturity are financial assets with fixed or determinable payments and fixed maturity that the Group have the positive intent and ability to hold to maturity. Unquoted shares in
organisations set up for socio-economic purposes and equity instruments received as a result of loan restructuring or loan conversion which do not have a quoted market price in an active market
and whose fair value cannot be reliably measured are also classified as securities held-to-maturity as permitted by revised BNM/GP8.
The securities held-to-maturity are measured at accreted/amortised cost based on the effective yield method. Amortisation of premium, accretion of discount and impairment as well as gain or loss
arising from derecognition of securities held-to-maturity are recognised the income statement.
Any sale or reclassification of a significant amount of securities held-to-maturity not close to their maturity would result in the reclassification of all securities held-to-maturity to securities available-
for-sale, and prevents the Group from classifying the similar class of securities as securities held-to-maturity for the current and following two (2) financial years.
(iii) Securities Available-for-sale
Securities available-for-sale are financial assets that are not classified as held-for-trading or held-to-maturity. The securities available-for-sale are measured at fair value. The return and cost of the
securities available-for-sale are credited and charged to the income statement using accreted/amortised cost based on effective yield method. Any gain or loss arising from a change in fair value after
applying the accreted/amortised cost method are recognised directly in equity through the statement of changes in equity, until the financial asset is sold, collected, disposed of or impaired, at which
time the cumulative gain or loss previously recognised in equity will be transferred to the income statement.
Notes to the Financial Statements31 March 2010
141ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(i) Investment Properties
Investment properties are properties which are held either to earn rental income or for capital appreciation or both.
Such property is initially measured at cost, including transaction costs. Subsequent to initial recognition, investment property is carried at cost less any accumulated depreciation and any accumulated
impairment. The policy for the recognition and measurement of impairment is in accordance with Note 2(k)(iv).
Freehold land has unlimited useful life and therefore, is not depreciated.
Such property is derecognised when either it has been disposed and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal is recognised in the income
statement in the year in which they arise.
(j) Property, Plant and Equipment and Depreciation
All items of property, plant and equipment are initially recorded at cost. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs
and maintenance are charged to the income statement during the financial period in which they are incurred.
When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Subsequent to initial recognition, property, plant and equipment except for freehold land are stated at cost less accumulated depreciation and accumulated impairment, if any. The policy for the recognition
and measurement of impairment is in accordance with Note 2(k)(iv).
Freehold land has an unlimited useful life and therefore, is not depreciated.
Depreciation of other property, plant and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over the estimated useful life:
Buildings 2%
Renovations 20%
Office equipment and furniture 10%
Computer equipment 33.3%
Motor vehicles 10% – 16.6%
The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and
expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any
and the net carrying amount is recognised in the income statement.
142
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(k) Impairment of Assets
The carrying amount of the Group’s assets, except for deferred tax assets and financial assets (other than securities held-to-maturity and available-for-sale) are reviewed at each balance sheet date to
determine whether there are any indications of impairment. If any such indications exist, the asset’s recoverable amount is estimated to determine the amount of impairment. The policy of the impairment
of assets are summarised as follows:
(i) Securities Held-to-maturity
For securities carried at amortised cost in which there are objective evidence of impairment, impairment is measured as the difference between the securities’ carrying amount and the present value
of the estimated future cash flows discounted at the securities’ original effective interest rate. The amount of the impairment is recognised in the income statement.
Subsequent reversals in the impairment is recognised when the decrease can be objectively related to an event occurring after the impairment was recognised, to the extent that the securities’ carrying
amount does not exceed its amortised cost if no impairment had been recognised. The reversal is recognised in the income statement.
For securities carried at cost, impairment is measured as the difference between the securities’ carrying amount and the present value of estimated future cash flows discounted at the current market
rate of return for similar securities. The amount of impairment is recognised in the income statement and such impairment is not reversed subsequent to its recognition.
(ii) Securities Available-for-sale
For securities available-for-sale in which there are objective evidence of impairment, the cumulative impairment that had been recognised directly in equity shall be transferred from equity to the
income statement, even though the securities have not been derecognised. The cumulative impairment is measured as the difference between the acquisition cost (net of any principal repayment and
amortisation) and the current fair value, less any impairment previously recognised in the income statement.
Impairment recognised on investment in equity instruments classified as available-for-sale is not reversed subsequent to its recognition. Reversals of impairment on debt instruments classified as
available-for-sale are recognised in the income statement if the increase in fair value can be objectively related to an event occurring after the recognition of the impairment in the income statement.
(iii) Goodwill/Intangible Assets
Goodwill and intangible assets that have an indefinite useful life are tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. For
impairment testing, goodwill from business combinations or the intangible assets is allocated to cash-generating units ("CGU") which are expected to benefit from the synergies of the business
combination or intangible asset.
The recoverable amount is determined for each CGU based on its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment is recognised in the income statement when the carrying amount of the
CGU, including the goodwill or intangible asset, exceeds the recoverable amount of the CGU. The total impairment is allocated, first, to reduce the carrying amount of goodwill or intangible assets
allocated to the CGU and then to the other assets of the CGU on a pro-rata basis.
An impairment on goodwill is not reversed in subsequent periods. An impairment for other intangible assets is reversed if and only if there has been a change in the estimates used to determine the
intangible asset’s recoverable amount since the last impairment was recognised and such reversal is through the income statement to the extent that the intangible asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of amortisation, if no impairment had been recognised.
Notes to the Financial Statements31 March 2010
143ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(k) Impairment of Assets (cont’d)
(iv) Other Assets
Other assets such as property, plant and equipment, investment properties, foreclosed properties and investments in subsidiaries and associate are reviewed for objective indications of impairment at
each balance sheet date or whenever there is any indication that these assets may be impaired. Where such indications exist, impairment is determined as the excess of the asset’s carrying value
over its recoverable amount (greater of value in use or fair value less costs to sell) and is recognised in the income statement. An impairment for an asset is reversed if and only if there has been a
change in the estimates used to determine the asset’s recoverable amount since the last impairment was recognised.
The carrying amount is increased to its revised recoverable amount, provided that the amount does not exceed the carrying amount that would have been determined (net of amortisation or
depreciation) had no impairment been recognised for the asset in prior years. A reversal of impairment for an asset is recognised in the income statement.
(l) Leases
A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to ownership. All leases that do not transfer substantially all the risks and rewards are
classified as operating leases.
(i) Finance Leases
Assets acquired by way of hire purchase or finance leases are stated at an amount equal to the lower of their fair values and the present value of the minimum lease payments at the inception of the
leases, less accumulated depreciation and impairment. The corresponding liability is included in the balance sheet as borrowings. In calculating the present value of the minimum lease payments, the
discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Company’s incremental borrowing rate is used. Any initial direct costs are also added
to the carrying amount of such assets.
Lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance costs, which represent the difference between the total leasing commitments and
the fair value of the assets acquired, are recognised in the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the
obligations for each accounting period.
The depreciation policy for leased assets is in accordance with that for depreciable property, plant and equipment as described in Note 2(j). The policy for the recognition and measurement of
impairment is in accordance with Note 2(k)(iv).
(ii) Operating Leases
Operating lease payments are recognised in the income statement on a straight-line basis over the term of the relevant lease. The aggregate benefit of incentives provided by the lessor is recognised
as a reduction of rental expenses over the lease term on a straight-line basis.
The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. Leasehold land that normally has an indefinite economic life and
where title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for as
prepaid lease payments at the balance sheet date. In the case of a lease of land and buildings, the prepaid lease payments or the upfront payments made are allocated, whenever necessary, between
the land and buildings elements in proportion to the relative fair values for leasehold interest in the land element and buildings element of the lease at the inception of the lease. The prepaid lease
payments are amortised over the lease term in accordance with the pattern of benefits provided.
144
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(m) Bills and Acceptances Payable
Bills and acceptances payable represent the Group’s own bills and acceptances rediscounted and outstanding in the market.
(n) Equity Instruments
Ordinary shares and irredeemable convertible preference shares ("ICPS") are classified as equity. Dividends on ordinary shares and ICPS are recognised in equity in the period in which they are declared.
The transaction costs of an equity transaction are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the
equity transaction which would otherwise have been avoided.
(o) Subordinated Bonds
The interest-bearing instruments are recognised as liability and are recorded at face value. Interest expense are accrued based on the effective interest rate method.
(p) Interest-bearing Borrowings
Interest-bearing bank borrowings are recorded at the amount of proceeds received. All the borrowing costs are recognised as expenses in the income statement in the period in which they are incurred.
(q) Other Assets
Other receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance
sheet date.
(r) Liabilities
Deposits from customers, deposits and placements of banks and other financial institutions are stated at placement values. Other liabilities are stated at fair value which is the consideration to be paid in
the future for goods and services received.
(s) Balances Due From Clients and Brokers
In accordance with the Rules of Bursa Malaysia Securities Berhad (the "Bursa"), clients’ accounts for the Group are classified as non-performing (doubtful or bad) under the following circumstances:
Criteria for classification as non-performing
Types Doubtful Bad
Contra losses When account remains outstanding for 16 to 30 calendar days When the account remains outstanding for more than
rom the date of contra transaction. 30 calendar days from the date of contra transaction.
Overdue purchase contracts When the account remains outstanding from T+5 market days When the account remains outstanding for more than
to 30 calendar days. 30 calendar days.
Bad debts are written off when identified. Specific allowances are made for balances due from clients and brokers which are considered doubtful or which have been classified as non-performing after taking
into consideration collateral held by the Group and deposits of and amounts due to dealer’s representative in accordance with the Rules of the Bursa. General allowance is made based on a certain percentage
of balances due from clients and brokers (excluding outstanding purchase contracts which are not due for payment) net of specific allowances already made.
Notes to the Financial Statements31 March 2010
145ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(t) Revenue Recognition
Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of the revenue can be measured reliably.
(i) Dividend Income
Dividend income from securities held-to-maturity, securities available-for-sale and investment in subsidiaries and associates are recognised when the right to receive payment is established.
(ii) Interest Income
Interest income is recognised in the income statement for all interest-bearing assets on an accrual basis. Interest income includes the amortisation of premium or accretion of discount. Interest income
on securities are recognised on an effective yield basis.
Interest income on overdrafts, housing loans and term loans is accounted for on accrual basis by reference to rest periods as stipulated in the loan agreements, which are either monthly or daily.
Interest income on hire purchase, block discounting and leasing business is recognised on the effective interest method. Income from the Islamic banking business is recognised on the accrual basis
in accordance with the Shariah principles.
Where an account is classified as non-performing, interest/income accrued and recognised as income prior to the date the loan is classified as non-performing is reversed out of interest income and
set-off against the accrued interest/income receivable account in the balance sheet. Thereafter, interest/income on the non-performing loan shall be recognised as income on a cash basis. Customers’
accounts are deemed to be non-performing where repayments are in arrears for more than three (3) months from the first day of default or after maturity date.
The policy on interest income recognition on non-performing loans is in conformity with the revised BNM/GP8 issued by BNM on 5 October 2004.
(iii) Brokerage Income
Brokerage fee are charged to the clients and is recognised on the day when the contracts are executed.
(iv) Fees and Other Income
Loan arrangement fees and commissions, management and participation fees and underwriting commissions are recognised as income when all conditions precedent are fulfilled.
Commitment, guarantee and portfolio management fees which are material are recognised as income based on time apportionment basis.
Corporate advisory fees are recognised as income on the completion of each stage of the assignment.
As allowed under Bank Negara Malaysia’s Circular on "Accounting Treatment of Handling Fees for Hire Purchase Loans" dated 16 October 2006, the Group has continued to expense off upfront handling
fees paid to hire purchase dealers for hire purchase loans and hire purchase financing to the income statement in the year which they are incurred.
146
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(u) Recognition of Interest and Financing Expenses
Interest expense and attributable profit (on activities relating to Islamic banking business) on deposits and borrowings of the Group are recognised on an accrual basis.
(v) Derivative Financial Instruments
Derivative financial instruments are initially recognised at fair value, which is normally zero or negligible at inception except for options and subsequently re-measured at their fair value. The fair value of
options at inception is normally equivalent to the premium received (for options written) or paid (for options purchased). All derivatives are carried as assets when fair value is positive and as liabilities when
fair value is negative. Changes in the fair value are recognised in the income statement.
Interest income and expenses associated with interest rate swaps are recognised over the life of the swap agreement as a component of interest income or interest expense.
(w) Foreign Currency Translations
Transactions in foreign currencies are initially recorded in Ringgit Malaysia at rates of exchange ruling at the date of the transaction. At each balance sheet date, foreign currency monetary items are translated
into Ringgit Malaysia at exchange rates ruling at that date.
All exchange rate differences are taken to the income statement.
The financial statements are presented in Ringgit Malaysia, which is also the Group’s and the Company’s primary functional currency.
(x) Income Tax
Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured
using the tax rates that have been enacted at the balance sheet date.
Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax
credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is not
recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of
the transaction, affects neither accounting profit nor taxable profit.
Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at
the balance sheet date. Deferred tax is recognised as income or an expense in the income statement for the period, except when it arises from a transaction which is recognised directly in equity, in which
case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill.
(y) Foreclosed Properties
Foreclosed properties are stated at cost less impairment, if any, of such properties. The policy for the recognition and measurement of impairment is in accordance with Note 2(k)(iv).
(z) Cash and Cash Equivalents
Cash and cash equivalents as stated in the cash flow statements comprise cash and bank balances and short-term deposits maturing within one month that are readily convertible into cash with insignificant
risk of changes in value.
Notes to the Financial Statements31 March 2010
147ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(aa) Zakat
This represents business zakat. It is an obligatory amount payable by the Group to comply with the Shariah principles.
(ab) Profit Equalisation Reserve ("PER")
PER refers to the amount appropriated out of the total Islamic banking gross income in order to maintain a certain level of return to depositors in conformity with BNM’s "The Framework of the Rate of Return"
(BNM/GP2-i). PER is appropriated from and written back to the total Islamic banking gross income in deriving the net distributable gross income. This amount appropriated is shared by the depositors and
the Bank/Group. The PER is deducted at a rate which does not exceed the maximum amount of total of 15% monthly gross income, monthly net trading income, other income and irregular income. PER is
maintained up to the maximum of 30% of total Islamic banking capital fund.
(ac) Employee Benefits
(i) Short-Term Benefits
Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group. Short-term accumulating
compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short-term non-
accumulating compensated absences such as sick leave are recognised when the absences occur.
(ii) Defined Contribution Plans
Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities or funds and will have no legal or constructive obligations to pay
further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Such contributions are
recognised as an expense in the income statement as incurred. As required by law, companies in Malaysia make contributions to the Employees Provident Fund ("EPF").
The ESS comprise the Share Option Plan, the Share Grant Plan and the Share Save Plan. The ESS are an equity-settled, share-based compensation plans, in which the Group’s Directors and employees
are granted or are allowed to acquire ordinary shares of the Company.
The total fair value of the share options/share grants offered/awarded to the eligible Directors and employees are recognised as an employee cost with a corresponding increase in the share scheme
reserve within equity over the vesting period and taking into account the probability that the scheme will vest. The fair value of the shares options/share grants are measured at grant date, taking into
account, if any, the market vesting conditions upon which the share options/share grants were offered/awarded but excluding the impact of any non-market vesting conditions. Non-market vesting
conditions are included in assumptions about the number of share options/share grants that are expected to become exercisable/to vest.
At each balance sheet date, the Group revises its estimates of the number of share options/share grants that are expected to become exercisable/to vest. It recognises the impact of the revision of
original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The equity amount is recognised in the share scheme reserve until the
share options/share grants are exercised/vested.
The proceeds received net of any directly attributable transaction costs are credited to equity when the options are exercised.
148
Notes to the Financial Statements31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(ad) Contingent Liabilities and Contingent Assets
The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be
confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow
of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably.
A contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the
Group. The Group does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain.
(ae) Segment reporting
Segment reporting is presented for enhanced assessment of the Group’s risks and returns. A business segment is a group of assets and operations engaged in providing products or services that are subject
to risks and returns that are different from those of other business segments.
Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be
allocated on a reasonable basis to the segment. Segment revenue, expense, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the
consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment.
3. CASH AND SHORT-TERM FUNDS
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Cash and balances with banks and other financial institutions 558,376 457,254 1,027 298
Money at call and deposit placements maturing within one month 3,006,169 4,533,432 29,820 453,580
3,564,545 4,990,686 30,847 453,878
Note:
(i) Included in the cash and short-term funds are monies held in trust by a subsidiary amounting to RM94,249,000 (2009: RM46,475,000).
(ii) There is an amount of RM29,850,000 (2009: RM453,690,000) being the deposits placement by the Company with its subsidiaries.
(iii) An amount of RM991,000 (2009: RM182,000) being a bank account maintained by PB Trustee Services Berhad pursuant to the Company’s ESS.
Notes to the Financial Statements31 March 2010
149ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
4. DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Licensed banks 150,156 198,523 600,000 200,000
Licensed investment banks – – 10,800 –
150,156 198,523 610,800 200,000
The deposits of the Company with maturity more than one month amounting to RM610,800,000 (2009: RM200,000,000) are placed with its subsidiaries.
5. SECURITIES HELD-FOR-TRADING
Group
2010 2009
RM’000 RM’000
At fair value
Money market instrument:
Commercial papers – 9,951
Malaysia Gonernment securities – 24,690
Quoted securities in Malaysia:
Shares – 2,470
Debt securities – 8,942
Quoted securities:
Debt securities – 2
– 46,055
150
Notes to the Financial Statements31 March 2010
6. SECURITIES AVAILABLE-FOR-SALE
Group
2010 2009
RM’000 RM’000
At fair value
Money market instruments:
Malaysian Government securities 1,748,115 1,647,355
Malaysian Government investment certificates 566,495 113,849
Malaysian Government treasury bills – 132,492
Bank Negara Malaysia bills – 74,525
Cagamas bonds 205,629 –
Negotiable instruments of deposits 459,444 1,696,057
Commercial papers – 98,906
Bankers’ acceptances 799,951 1,578,533
Khazanah bonds – 9,909
Quoted securities in Malaysia:
Shares [Note (a)] 3,919 3,010
Debt securities 7,591 6,071
Unquoted securities:
Shares 11,377 6,877
Debt securities 1,352,307 952,538
5,154,828 6,320,122
Notes to the Financial Statements31 March 2010
151ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
6. SECURITIES AVAILABLE-FOR-SALE (cont’d)
(a) Disclosures of the reclassification from securities held-for-trading ("HFT") to securities available-for-sale ("AFS") portfolio in the financial statements of the Group is as follows:
(i) Amount reclassified from securities HFT to AFS portfolio on 31 December 2008:
Group
RM’000
Fair value of securities HFT reclassified to AFS portfolio as at reclassification date 3,419
There was no new security reclassified during the financial year ended 31 March 2010.
(ii) Carrying amount and fair value of securities HFT reclassified to AFS portfolio as at the end of the financial year:
Group
2010 2009
RM’000 RM’000
Securities HFT reclassified to AFS portfolio
Carrying amount 3,902 3,010
Fair value 3,902 3,010
(iii) The fair value loss recognised in respect of the securities HFT reclassified to AFS portfolio during the financial year:
Group
2010 2009
RM’000 RM’000
Unrealised loss recognised in equity 483 409
(iv) Effective interest rate for the security reclassified from HFT to AFS portfolio is not applicable as the security reclassified is an equity portfolio.
152
Notes to the Financial Statements31 March 2010
7. SECURITIES HELD-TO-MATURITY
Group
2010 2009
RM’000 RM’000
At amortised cost
Money market instruments:
Malaysian Government securities 811,208 –
Malaysian Government investment certificates 39,368 53,770
Cagamas bonds – 20,000
Khazanah bonds – 53,896
At cost
Quoted securities in Malaysia:
Debt securities 4,902 4,902
Unquoted securities:
Shares 22,021 22,021
Debt securities 152,248 266,865
1,029,747 421,454
Accumulated impairment (98,327) (106,834)
931,420 314,620
Notes to the Financial Statements31 March 2010
153ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
8. DERIVATIVE FINANCIAL ASSETS/(LIABILITIES)
Derivative financial instruments are off-balance sheet financial instruments whose values change in response to changes in prices or rates (such as foreign exchange rates, interest rates and security prices) of the
underlying instruments. These instruments allow the Group and the banking customers to transfer, modify or reduce their foreign exchange and interest rate risk hedge relationships. The Group also transacts in
these instruments for proprietary trading purposes. The risks associated with the use of derivative financial instruments, as well as management’s policy for controlling these risks are set out in Note 42.
The table below shows the Group’s derivative financial instruments as at the balance sheet date. The contractual or underlying notional amounts of these derivative financial instruments and their corresponding
gross positive (derivative financial asset) and gross negative (derivative financial liability) fair values as at balance sheet date are analysed below.
Total derivative assets/(liabilities) 3,502,403 44,698 (50,175) 3,524,223 40,858 (49,564)
154
Notes to the Financial Statements31 March 2010
9. LOANS, ADVANCES AND FINANCING
Group
2010 2009
RM’000 RM’000
Overdrafts 1,632,204 1,610,636
Term loans/financing
– Housing loans/financing 9,081,024 7,842,479
– Syndicated term loans/financing 259,826 314,794
– Hire purchase receivables 1,070,593 1,360,731
– Lease receivables 104 104
– Other term loans/financing 7,261,555 5,858,653
Bills receivables 56,173 71,906
Trust receipts 161,254 154,941
Claims on customers under acceptance credits 2,025,751 1,735,910
Staff loans [include RM182,000 loans to Directors of banking subsidiary (2009: RM1,437,000)] 102,583 117,974
Credit/charge card receivables 685,003 645,058
Revolving credits 1,115,275 995,713
Other loans 339,071 257,432
23,790,416 20,966,331
Less: Unearned interest and income (2,380,480) (1,376,192)
Gross loans, advances and financing 21,409,936 19,590,139
Less: Allowance for losses on loans, advances and financing
– Specific (438,582) (531,824)
– General (322,909) (340,218)
Total net loans, advances and financing 20,648,445 18,718,097
Notes to the Financial Statements31 March 2010
155ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
9. LOANS, ADVANCES AND FINANCING (cont’d)
Group
2010 2009
RM’000 RM’000
(i) By maturity structure:
Within one year 6,307,079 5,758,320
One year to three years 906,149 947,862
Three years to five years 1,408,276 1,485,367
Over five years 12,788,432 11,398,590
Gross loans, advances and financing 21,409,936 19,590,139
(ii) By type of customer:
Domestic non-bank financial institutions
– Stockbroking companies 20,001 –
– Others 168,766 276,429
Domestic business enterprises
– Small and medium enterprises 4,393,907 4,185,864
– Others 4,170,355 3,861,118
Government and statutory bodies 16,590 17,345
Individuals 12,157,289 10,886,992
Other domestic entities 5,088 4,356
Foreign entities 477,940 358,035
Gross loans, advances and financing 21,409,936 19,590,139
(iii) By interest/profit rate sensitivity:
Fixed rate
– Housing loans/financing 316,948 171,467
– Hire purchase receivables 950,134 1,197,050
– Other fixed rate loans/financing 2,188,491 1,503,071
Variable rate
– Base lending rate plus 14,097,157 13,223,436
– Cost plus 3,753,267 3,381,339
– Other variable rates 103,939 113,776
Gross loans, advances and financing 21,409,936 19,590,139
156
Notes to the Financial Statements31 March 2010
9. LOANS, ADVANCES AND FINANCING (cont’d)
Group
2010 2009
RM’000 RM’000
(iv) By economic purposes:
Purchase of securities 351,976 273,541
Purchase of transport vehicles 907,561 1,190,239
Purchase of landed property 11,092,067 10,477,736
of which: – Residential 8,408,597 7,730,962
– Non-residential 2,683,470 2,746,774
Purchase of fixed assets excluding land and buildings 66,540 61,094
Personal use 2,007,919 1,155,811
Credit card 685,003 645,058
Purchase of durable goods – 15
Construction 293,211 313,552
Working capital 5,384,583 4,846,438
Others 621,076 626,655
Gross loans, advances and financing 21,409,936 19,590,139
(v) Movements in non-performing loans, advances and financing ("NPL") are as follows:
At beginning of year 875,070 1,158,506
Non-performing during the year 670,112 775,826
Reclassified as performing during the year (412,025) (493,941)
Recoveries (194,930) (328,770)
Amount written off (131,948) (236,551)
At end of year 806,279 875,070
Specific allowance (438,582) (531,824)
– on non-performing loans (415,168) (451,554)
– on performing loans (23,414) (80,270)
Net non-performing loans, advances and financing 367,697 343,246
Net NPL as % of gross loans, advances and financing less specific allowance
– Including specific allowance on performing loans 1.8% 1.8%
– Excluding specific allowance on performing loans 1.9% 2.2%
Notes to the Financial Statements31 March 2010
157ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
9. LOANS, ADVANCES AND FINANCING (cont’d)
Group
2010 2009
RM’000 RM’000
(vi) Movements in the allowance for losses on loans, advances and financing are as follows:
General Allowance
At beginning of year 340,218 289,296
Allowance made during the year 59,732 78,854
Amount written back (77,041) (27,932)
At end of year 322,909 340,218
As % of gross loans, advances and financing less specific allowance 1.5% 1.8%
Specific Allowance
At beginning of year 531,824 636,429
Allowance made during the year 331,471 416,100
Amount written back in respect of recoveries (292,765) (284,154)
Amount written off (131,948) (236,551)
At end of year 438,582 531,824
Included in specific allowance of the Group are allowances made for high risk accounts which are still performing amounting to RM23,414,000 (2009: RM80,270,000).
(vii) Non-performing loan, advances and financing analysed by economic purposes are as follows:
Purchase of securities 16,399 16,347
Purchase of transport vehicles 13,992 26,376
Purchase of landed property 336,433 399,985
of which: – Residential 240,152 273,500
– Non-residential 96,281 126,485
Purchase of fixed assets excluding land and buildings 198 630
Personal use 40,451 55,927
Credit card 14,188 17,518
Construction 14,905 22,674
Working capital 321,637 307,833
Others 48,076 27,780
806,279 875,070
158
Notes to the Financial Statements31 March 2010
10. BALANCES DUE FROM CLIENTS AND BROKERS
Group
2010 2009
RM’000 RM’000
Due from clients 89,050 59,688
Due from brokers – 2,522
89,050 62,210
Less: Allowance for bad and doubtful debts (16,482) (17,530)
72,568 44,680
These represent amounts receivable by Alliance Investment Bank Berhad ("AIBB") from non-margin clients and outstanding contracts entered into on behalf of clients where settlements via the Central Depository
System has yet to be made.
AIBB’s normal trade credit terms for non-margin client is three (3) market days in accordance with the Bursa Malaysia Securities Berhad’s Fixed Delivery and Settlement System ("FDSS") trading rules.
Included in the balances due from clients and brokers are non-performing accounts, as follows:
Group
2010 2009
RM’000 RM’000
Classified as doubtful 691 841
Classified as bad 16,150 18,091
16,841 18,932
The movements in allowance for bad and doubtful debts are as follows:
At beginning of year 17,530 24,665
Allowance made during the year 848 2,828
Reversal of allowance (959) (5,789)
Amount written off (937) (4,174)
At end of year 16,482 17,530
Notes to the Financial Statements31 March 2010
159ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
11. LAND HELD FOR INVESTMENT
Group
2010 2009
RM’000 RM’000
Freehold land, at cost 23,114 23,114
Development costs 8,943 8,943
32,057 32,057
Accumulated impairment:
At beginning/end of year (4,309) (4,309)
Carrying amount at end of year 27,748 27,748
12. OTHER ASSETS
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Other receivables, deposits and prepayments [Note (a)] 141,971 172,414 234 419
Amount due from subsidiaries [Note (c)] – – 714 50,460
208,560 255,805 6,753 52,768
Less: Allowance for other assets (21,853) (20,179) (696) (13,839)
186,707 235,626 6,057 38,929
Note:
(a) Other receivables, deposits and prepayments
Included in other receivables, deposits and prepayments of the Group is an amount of RM28,077,000 (2009: RM33,004,000) being the principal balance of housing loans and hire purchase loans acquired
by the banking subsidiary from a state owned entity and which have been sold to Cagamas Berhad, with recourse obligations.
160
Notes to the Financial Statements31 March 2010
12. OTHER ASSETS (cont’d)
Note: (cont’d)
(b) Manager’s stocks
The manager’s stock represent units held by the Group in the trust funds it manages and is stated at the lower of cost and market value. Cost is determined using the weighted average method of valuation.
Market value of unit trust stock is determined by the Group as manager of the trust funds based on the underlying value of the trust funds.
Group
2010 2009
RM’000 RM’000
Manager’s stocks 1,017 1,243
Market value 1,026 1,248
The Group has no significant concentration of credit risk that may arise from the exposure to a single debtor or group of debtors.
(c) Amount due from subsidiaries
Company
2010 2009
RM’000 RM’000
Non-interest bearing 714 50,460
Less: Allowance for doubtful debts (696) (13,839)
18 36,621
The amounts due from subsidiaries of RM714,000 (2009: RM50,460,000) are unsecured, interest-free and have no fixed terms of repayment.
13. STATUTORY DEPOSITS
Statutory deposits comprise the following:
(a) Non-interest bearing statutory deposits of RM258,406,000 (2009: RM198,924,000) relating to the banking subsidiaries, maintained with Bank Negara Malaysia in compliance with Section 37(1)(c) of the
Central Bank of Malaysia Act, 1958 (revised 1994), the amounts of which are determined as a set percentage of total eligible liabilities.
(b) Interest bearing statutory deposits of RM100,000 (2009: RM100,000) relating to a subsidiary, Alliance Trustee Berhad which is maintained with the Accountant-General in compliance with Section 3(f) of the
Trust Companies Act, 1949.
Notes to the Financial Statements31 March 2010
161ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
14. INVESTMENTS IN SUBSIDIARIES
Company
2010 2009
RM’000 RM’000
Unquoted shares, at cost
At beginning of year 1,767,198 1,767,198
Subscription of additional shares in subsidiaries [Note (a)] 50,440 –
Employee Share Scheme [Note (b)] 12,601 –
1,830,239 1,767,198
Less: Accumulated impairment (53,255) (38,056)
At end of year 1,776,984 1,729,142
Note:
(a) On 22 July 2009, the Company increased its cost of investment in its wholly-owned subsidiaries by way of capitalisation of amount owing from subsidiaries as follows:
Company
2010
RM’000
(i) Kota Indrapura Development Corporation Berhad 42,391
(ii) Pridunia Sdn. Bhd. 7,534
(iii) Setiu Integrated Resort Sdn. Bhd. 257
(iv) Hijauan Setiu Sdn. Bhd. 258
50,440
(b) This amount is in respect of the services rendered by the employees of the Company’s subsidiaries, pursuant to Employee Share Scheme.
162
Notes to the Financial Statements31 March 2010
14. INVESTMENTS IN SUBSIDIARIES (cont’d)
Details of the subsidiaries, which are incorporated in Malaysia, are as follows:
Effective Equity
Name Principal Activities Interest Held (%)
2010 2009
Subsidiaries of the Company
Alliance Bank Malaysia Berhad Banking and finance business and the provision of related financial services 100 100
Kota Indrapura Development Corporation Berhad Property holding 100 100
Syabas Sutra Sdn. Bhd. Liquidated – 100
Subsidiary of Syabas Sutra Sdn. Bhd.
ABG Capital Management Sdn. Bhd. Liquidated – 100
Subsidiaries of Alliance Bank Malaysia Berhad
Alliance Investment Bank Berhad Investment banking business including Islamic banking, provision of stockbroking services and related financial services 100 100
Alliance Islamic Bank Berhad Islamic banking and the provision of related financial services 100 100
Alliance Direct Marketing Sdn. Bhd. Dealing in sales and distribution of consumer and commercial banking products 100 100
Written off – – (29,519) (9,683) (10,474) – (49,676)
At end of year – 14,805 67,311 45,013 119,955 1,164 248,248
Accumulated Impairment
At beginning/end of year – 3,956 – – – – 3,956
Net Carrying Amount 2,962 31,582 48,599 27,640 11,240 1,951 123,974
Notes to the Financial Statements31 March 2010
167ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
16. PROPERTY, PLANT AND EQUIPMENT (cont’d)
Office
equipment
Freehold and Computer Motor
land Buildings Renovations furniture equipment vehicles Total
Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
2009
Cost
At beginning of year 2,962 50,442 140,854 85,438 129,309 5,844 414,849
Additions – – 23,711 10,317 13,702 150 47,880
Disposals – – (81) (1,516) (7) (859) (2,463)
Written off – – (37,031) (13,498) (2,816) (4) (53,349)
At end of year 2,962 50,442 127,453 80,741 140,188 5,131 406,917
Accumulated Depreciation
At beginning of year – 12,866 100,643 62,897 101,590 3,282 281,278
Charge for the year – 1,009 14,848 4,557 15,823 257 36,494
Disposals – – (80) (1,478) (7) (682) (2,247)
Written off – – (34,822) (12,794) (2,511) (4) (50,131)
At end of year – 13,875 80,589 53,182 114,895 2,853 265,394
Accumulated Impairment
At beginning/end of year – 3,956 – – – – 3,956
Net Carrying Amount 2,962 32,611 46,864 27,559 25,293 2,278 137,567
16. PROPERTY, PLANT AND EQUIPMENT (cont’d)
Office
equipment
Computer and Motor
equipment furniture vehicles Renovations Total
RM’000 RM’000 RM’000 RM’000 RM’000
Company
2010
Cost
At beginning of year 276 567 396 629 1,868
Written off – (13) – (30) (43)
At end of year 276 554 396 599 1,825
Accumulated Depreciation
At beginning of year 258 496 101 540 1,395
Charge for the year 11 12 32 26 81
Written off – (12) – – (12)
At end of year 269 496 133 566 1,464
Net Carrying Amount 7 58 263 33 361
2009
Cost
At beginning of year 276 567 492 599 1,934
Additions – – – 30 30
Disposals – – (96) – (96)
At end of year 276 567 396 629 1,868
Accumulated Depreciation
At beginning of year 232 483 127 513 1,355
Charge for the year 26 13 32 27 98
Disposals – – (58) – (58)
At end of year 258 496 101 540 1,395
Net Carrying Amount 18 71 295 89 473
168
Notes to the Financial Statements31 March 2010
17. INTANGIBLE ASSETS
Group
2010 2009
RM’000 RM’000
Goodwill
Cost
At beginning/end of year 304,149 304,149
Accumulated impairment:
At beginning of year – –
Allowance for impairment (Note 36) (2,084) –
At end of year (2,084) –
Net carrying amount 302,065 304,149
Computer software
Cost
At beginning of year 166,590 137,654
Additions 13,326 29,577
Written off (6,994) (641)
At end of year 172,922 166,590
Accumulated amortisation
At beginning of year (102,227) (88,138)
Charge for the year (16,307) (14,654)
Written off 5,405 565
At end of year (113,129) (102,227)
Net carrying amount 59,793 64,363
Total carrying amount of goodwill and computer software 361,858 368,512
Notes to the Financial Statements31 March 2010
169ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
17. INTANGIBLE ASSETS (cont’d)
(a) Impairment Test on Goodwill
Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. Goodwill has been allocated to the Group’s cash-generating units ("CGU")
that expected to benefit from the synergies of the acquisitions, identified according to the business segments as follows:
Group
2010 2009
RM’000 RM’000
Corporate banking 44,758 44,758
Commercial banking 13,459 13,459
Small and medium enterprise banking 42,621 42,621
Consumer banking 101,565 101,565
Treasury 83,284 83,284
Corporate finance and equity capital market 1,838 1,838
Stockbroking business 12,433 12,433
Debt capital market – 2,084
Asset management 2,107 2,107
302,065 304,149
For annual impairment testing purposes, the recoverable amount of the CGUs, which are reportable business segments, are determined based on their value-in-use. The value-in-use calculations apply a
discounted cash flow model using cash flow projections based on financial budget and projections approved by management. The key assumptions for the computation of value-in-use include the discount
rates, cash flow projection and growth rates applied are as follows:
(i) Discount rate
The discount rate of 10.2% (2009: 7.3%) are based on the pre-tax weighted average cost of capital plus an appropriate risk premium, that reflect specific risks relating to the Group. The pre-tax
weighted average cost of capital is generally derived from an appropriate capital asset pricing model, which itself depends on inputs reflecting a number of financial and economic variables including
the risk-free rate in the country.
(ii) Cash flow projections and growth rate
Cash flow projections are based on five-year financial budget and projections approved by management. Cash flows beyond the fifth year are extrapolated in perpetuity using a nominal long term
growth rate of 6.5% (2009: 6.5%) based on average annual Gross Domestic Product growth rate forecasted for the 10 years from year 2011 to 2020 reported in the Third Industrial Master Plan. Cash
flows are extrapolated in perpetuity due to the long term perspective of these businesses within the Group.
Impairment is recognised in the income statement when the carrying amount of a CGU exceeds its recoverable amount. This annual impairment test review reveals that there was no evidence of impairment
for the financial year, except for the impairment on debt capital market.
(b) Sensitivity to Changes in Assumptions
Any reasonable possible change in the key assumptions would not cause the carrying amount of the goodwill to exceed the recoverable amount of the CGU, which would warrant any impairment to be recognised.
170
Notes to the Financial Statements31 March 2010
18. DEFERRED TAX
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The net
deferred tax assets and liabilities shown on the balance sheet after appropriate offsetting are as follows:
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Deferred tax assets, net 102,727 120,517 – –
Deferred tax liabilities, net (5) (31) (4) (32)
102,722 120,486 (4) (32)
At beginning of year 120,486 161,294 (32) (242)
Recognised in the income statement (Note 37) (22,009) (26,492) 28 210
Recognised in equity 4,245 (14,316) – –
At end of year 102,722 120,486 (4) (32)
Deferred tax assets and liabilities prior to offsetting are summarised as follows:
171ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
18. DEFERRED TAX (cont’d)
The components and movements of deferred tax assets and liabilities during the financial year prior to offsetting are as follows:
Allowance for Unabsorbed
losses on loans, tax losses Other
advances and and capital temporary
financing allowances differences Total
Group RM’000 RM’000 RM’000 RM’000
Deferred tax assets:
At 1 April 2008 120,088 878 53,110 174,076
Recognised in income statement (23,846) 5,456 (232) (18,622)
Recognised in equity – – (14,316) (14,316)
At 31 March 2009 96,242 6,334 38,562 141,138
Recognised in income statement (12,357) (1,836) (8,466) (22,659)
Recognised in equity – – 4,245 4,245
At 31 March 2010 83,885 4,498 34,341 122,724
Property,
plant and
equipment Total
Group RM’000 RM’000
Deferred tax liabilities:
At 1 April 2008 12,782 12,782
Recognised in income statement 7,870 7,870
At 31 March 2009 20,652 20,652
Recognised in income statement (650) (650)
At 31 March 2010 20,002 20,002
172
Notes to the Financial Statements31 March 2010
18. DEFERRED TAX (cont’d)
Other Property,
temporary plant and
differences equipment Total
Company RM’000 RM’000 RM’000
Deferred tax liabilities:
At 1 April 2008 157 85 242
Recognised in income statement (187) (23) (210)
At 31 March 2009 (30) 62 32
Recognised in income statement (19) (9) (28)
At 31 March 2010 (49) 53 4
Group
2010 2009
RM’000 RM’000
Deferred tax assets of the Group have not been recognised in respect of:
Unabsorbed tax losses 11,148 26,280
Notes to the Financial Statements31 March 2010
173ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
19. DEPOSITS FROM CUSTOMERS
Group
2010 2009
RM’000 RM’000
Demand deposits 8,122,263 6,815,306
Savings deposits 1,679,449 1,628,580
Fixed/investment deposits 12,215,318 14,085,022
Money market deposits 1,160,946 2,063,280
Negotiable instruments of deposits 409,092 979,604
Structured deposits [Note (a)] 41,263 3,649
23,628,331 25,575,441
Note:
(a) Structured deposits represent foreign currency time deposits with embedded foreign exchange options.
(i) The maturity structure of fixed/investment deposits, money market deposits and negotiable instruments of deposits are as follows:
Due within six months 9,608,666 12,547,616
Six months to one year 4,041,324 4,343,188
One year to three years 105,240 195,586
Three years to five years 30,126 41,516
13,785,356 17,127,906
(ii) The deposits are sourced from the following types of customers:
Domestic financial institutions 415,986 249,681
Government and statutory bodies 837,472 1,360,896
Business enterprises 8,152,109 9,552,952
Individuals 13,531,116 13,660,573
Others 691,648 751,339
23,628,331 25,575,441
174
Notes to the Financial Statements31 March 2010
20. DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS
Group
2010 2009
RM’000 RM’000
Licensed banks 1,385,564 425,996
Licensed investment banks 80,000 140,000
Licensed Islamic banks 75,000 –
Bank Negara Malaysia 749,102 617,391
2,289,666 1,183,387
21. AMOUNT DUE TO CAGAMAS BERHAD
This relates to proceeds received from conventional housing loans and hire purchase loans sold directly to Cagamas Berhad with recourse to the Group. Under the agreement, the Group undertakes to administer
the loans on behalf of Cagamas Berhad and to buy back any loans which are regarded as defective based on pre-determined and agreed upon prudential criteria set by Cagamas Berhad.
22. BILLS AND ACCEPTANCES PAYABLE
Bills and acceptances payable represents the Group’s own bills and acceptances rediscounted and outstanding in the market.
23. BALANCES DUE TO CLIENTS AND BROKERS
Group
2010 2009
RM’000 RM’000
Due to clients 75,984 51,856
Due to brokers 4,265 –
80,249 51,856
These mainly relate to amounts payable to non-margin clients and outstanding contracts entered into on behalf of clients where settlement via the Central Depository System has yet to be made.
AIBB’s normal trade credit terms for non-margin clients is three (3) market days according to Bursa Malaysia Securities Berhad’s FDSS trading rules.
Notes to the Financial Statements31 March 2010
175ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
24. OTHER LIABILITIES
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Other payable and accruals 768,853 744,690 1,489 3,181
Amount due to subsidiaries [Note (b)] – – 1,461 1,646
892,880 956,532 4,649 6,098
Note:
(a) Profit equalisation reserve
Group
2010 2009
RM’000 RM’000
At beginning of year 50,058 51,925
Provision made during the year 9,987 6,125
Amount written back during the year (60,045) (7,992)
At end of year – 50,058
The profit equalisation reserve has been fully written back during the current financial year and the Directors have subsequently appropriated an amount of RM26,388,000 out of retained profits to a profit
equalisation reserve in the Statement of Changes in Equity as disclosed in Note 28.
Profit equalisation reserve at the end of previous financial year which relates to the shareholder’s portion is RM5,513,000.
(b) The amount due to subsidiaries are unsecured, interest-free and have no fixed terms of repayment.
176
Notes to the Financial Statements31 March 2010
25. SUBORDINATED BONDS
Group
2010 2009
RM’000 RM’000
At face value 600,000 600,000
The following are the salient features of the said bonds:
• Issue date : 26 May 2006
• Tenor of the facility/issue : 10-year from the Issue Date on a non-callable 5 year basis
• Anniversary date : 26 May
• Maturity date : 26 May 2016
• Interest coupon : 6.09% per annum, subject to revision of rate in year six
• Revision of interest : The bonds, unless redeemed at the end of five (5) years from the settlement date, shall bear interest of 7.59% per annum from the sixth year onwards until the final redemption
• Redemption option : The issuer may, at its option, redeem the subordinated bonds in part or in whole, at any anniversary date on or after five (5) years from the issue date
• Final redemption : At par on maturity date
26. LONG TERM BORROWINGS
Group/Company
2010 2009
RM’000 RM’000
Unsecured
Fixed rate term loan [Note (a)] 400,000 400,000
Floating rate term loan [Note (b)] 200,000 200,000
600,000 600,000
Note:
(a) The term loan bears a fixed interest rate at 3.5% per annum repayable by way of a bullet payment at the end of the third year with extension option of one (1) year.
(b) The term loan bears interest at Cost of Fund plus 0.5% per annum repayable by way of a bullet payment at the end of the fourth year.
Notes to the Financial Statements31 March 2010
177ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
27. SHARE CAPITAL
Group/Company
Number of Ordinary
Shares of RM1 each Amount
2010 2009 2010 2009
‘000 ‘000 RM’000 RM’000
Authorised
At beginning/end of year 2,000,000 2,000,000 2,000,000 2,000,000
Issued and fully paid
At beginning/end of year 1,548,106 1,548,106 1,548,106 1,548,106
(a) The statutory reserve is maintained by the Group, in compliance with Section 36 of the Banking and Financial Institutions Act, 1989 and Section 15 of the Islamic Banking Act, 1983 and is not distributable
as dividends.
(b) The capital reserve is in respect of retained profit capitalised for a bonus issue by a subsidiary company.
(c) The revaluation reserve is in respect of unrealised fair value gains and losses on securities available-for-sale.
(d) The employees’ share scheme reserve relates to the equity-settled share options/grants to Directors and employees. This reserve is made up of the estimated fair value of the share options/share grants
based on the cumulative services received from Directors and employees over the vesting period.
(e) At the end of the financial year, the Directors appropriated an amount of RM26,388,000 (2009: RM Nil) out of retained profits to a profit equalisation reserve which is derived in accordance with the “Framework
of Rate of Return” (BNM/GP2-i). The profit equalisation reserve at the end of the financial year which relates to the depositors’ portion is RM10,656,000.
(f) Prior to 1 January 2008, Malaysian companies adopted the full imputation system. In accordance with the Finance Act, 2007 which was gazetted on 28 December 2007, companies shall not be entitled to
deduct tax on dividend paid, credited or distributed to its shareholders, and such dividends will be exempted from tax in the hands of the shareholders ("single tier system"). However, there is a transitional
period of six years, expiring on 31 December 2013, to allow companies to pay franked dividends to their shareholders using their Section 108 balance under limited circumstances. Companies also have an
irrevocable option to disregard their accumulated tax credit under Section 108 of the Income Tax Act, 1967 and opt to pay dividends under the single tier system. The change in the tax legislation also provides
for the Section 108 balance to be locked-in as at 31 December 2007 in accordance with Section 39 of the Finance Act, 2007.
The Company has elected to distribute dividends out of its entire retained earnings under the single tier tax system.
29. SHARES HELD FOR EMPLOYEES’ SHARE SCHEME
A trust has been established for the ESS and is administrated by an appointed trustee. The Trustee will be entitled from time to time to accept financial assistance from the Company upon such terms and conditions
as stipulated in the Trust Deed dated 3 December 2007 and the Trustee may purchase the Company’s shares from the open market for the purpose of the ESS. The Trustee shall refrain from exercising any voting
rights attached to these shares. In accordance with FRS 132 Financial Statements - Presentation and Disclosure, the share purchased for the benefit of the ESS are recorded as “Share Held for ESS” in the equity
on the balance sheet.
During the financial year, the Trustee of the ESS had purchased 5,581,700 ordinary shares of RM1.00 each fully paid in the Company from the open market at an average price of RM2.25 per share. The total
consideration paid for the purchase including transaction costs was RM12,570,000. The shares purchased are being held in trust by the Trustee of the ESS in accordance with the Trust Deed dated 3 December 2007.
During the financial year ended 31 March 2010, 816,900 shares have been vested and transferred from the Trustee to the eligible employees of the Company and its subsidiaries in accordance with the terms
under the Share Grant Plan of the ESS. As at 31 March 2010, the Trustee of the ESS held 19,070,300 ordinary shares representing 1.23% of the issued and paid-up capital of the Company.
Notes to the Financial Statements31 March 2010
179ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
30. EMPLOYEES’ SHARE SCHEME ("ESS")
The Alliance Financial Group Berhad Employees’ Share Scheme (“ESS”) is governed by the Bye-Laws approved by the shareholders at an Extraordinary General Meeting held on 28 August 2007. The ESS which
comprises of the Share Option Plan, the Share Grant Plan and the Share Save Plan took effect on 3 December 2007 and is in force for a period of 10 years.
There were no share options offered under the Share Save Plan during the financial year.
The salient features of the ESS are as follows:
(i) The ESS is implemented and administered by the Employees’ Share Participating Scheme Committee (“ESPS Committee”) in accordance with the Bye-Laws.
(ii) The total number of shares which may be available under the ESS shall not exceed in aggregate 10% of the total issued and paid-up share capital of the Company at any one time during the existence of
the ESS and out of which not more than 50% of the shares available under the ESS shall be allocated, in aggregate, to Directors and senior management. In addition, not more than 10% of the shares available
under the ESS shall be allocated to any individual Director or employee who, either singly or collectively through his/her associates, holds 20% or more in the issued and paid-up capital of the Company.
(iii) The subscription price for each share under the Share Option Plan, Share Grant Plan and Share Save Plan may be at a discount (as determined by the ESPS Committee or such other pricing mechanism as
may from time to time be permitted by Bursa Malaysia Securities Berhad or such other relevant regulatory authorities), provided that the discount shall not be more than 10% from the 5-day weighted average
market price of the shares of the Company transacted on Bursa Malaysia Securities Berhad immediately preceding the date on which an offer is made or at par value of the shares, whichever is higher.
(iv) The ESPS Committee may at its discretion offer to any Director or employee of a corporation in the Group to participate in the ESS if the Director or employee:
(a) has attained the age of 18 years;
(b) in the case of a Director, is on the board of directors of a corporation in the Group;
(c) in the case of an employee, is employed by a corporation in the Group; and
(d) is not a participant of any other employee share option scheme implemented by any other corporation within the Group which is in force for the time being
provided that the non-executive directors of the Group who are not employed by a corporation in the Group shall not be eligible to participate in the Share Save Plan.
(v) Under the Share Option Plan and Share Grant Plan, the ESPS Committee may stipulate the performance targets, performance period, value and/or other conditions deemed appropriate.
(vi) Under the Share Save Plan, the ESPS Committee may at its discretion offer Share Save Option(s) to any employees of the Group to subscribe for the shares of the Company and the employee shall authorise
deductions to be made from his/her salary.
(vii) The Company may decide to satisfy the exercise of options/awards of shares under the ESS through the issue of new shares, transfer of existing shares or a combination of both new and existing shares of
the Company.
(viii) The Company may appoint or authorise the trustee of the ESS to acquire the Company’s shares from the open market to give effect to the ESS.
180
Notes to the Financial Statements31 March 2010
30. EMPLOYEES’ SHARE SCHEME ("ESS") (cont’d)
The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options/grants during the financial year:
Group Share Options Share Grants
2010 Number of Share Options Number of Share Grants
At At At At
beginning Offered/ end beginning Offered/ Vested/ end
of year awarded Lapsed of year of year awarded exercised Lapsed of year
181ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
30. EMPLOYEES’ SHARE SCHEME ("ESS") (cont’d)
The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options/grants during the financial year (cont’d):
Company Share Options Share Grants
2010 Number of Share Options Number of Share Grants
At At At At
beginning Offered/ end beginning Offered/ Vested/ end
of year awarded Lapsed of year of year awarded exercised Lapsed of year
‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000
2008 Share Scheme 94 – – 94 18 – (9) – 9
2009 Share Scheme 92 – – 92 19 – – – 19
2010 Share Scheme – 111 – 111 – 24 – – 24
186 111 – 297 37 24 (9) – 52
WAEP 2.89 2.38 – 2.70
Share Options Share Grants
2009 Number of Share Options Number of Share Grants
At At At At
beginning Offered/ end beginning Offered/ Vested/ end
of year awarded Lapsed of year of year awarded exercised Lapsed of year
‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000
2008 Share Scheme 94 – – 94 18 – – – 18
2009 Share Scheme – 92 – 92 – 19 – – 19
94 92 – 186 18 19 – – 37
WAEP 3.07 2.70 – 2.89
182
Notes to the Financial Statements31 March 2010
30. EMPLOYEES’ SHARE SCHEME ("ESS") (cont’d)
(a) Details of share options/grants at the end of financial year:
WAEP Exercise Period
RM
2008 Share Options 3.07 12.12.2010 – 11.12.2014
2009 Share Options 2.70 02.09.2011 – 01.09.2015
2010 Share Options 2.38 25.08.2012 – 24.08.2016
Vesting Dates
2008 Share Grants – First 50% of the share grants 12.12.2009
– Second 50% of the share grants 12.12.2010
2009 Share Grants – First 50% of the share grants 02.09.2010
– Second 50% of the share grants 02.09.2011
2010 Share Grants – First 50% of the share grants 25.08.2011
– Second 50% of the share grants 25.08.2012
(b) Fair value of share options/share grants offered/awarded:
The fair value of share options/share grants under the Share Option Plan and the Share Grant Plan during the financial year was estimated by an external valuer using a binomial model, taking into account
the terms and conditions upon which the share options/share grants were offered/awarded. The fair value of share options and share grants measured at offer/award date and the assumptions are as follows:
Share Options
2008 2009 2010
Fair value of the shares as at grant date,
– 12 December 2007 (RM) 0.8072 – –
– 2 September 2008 (RM) – 0.7040 –
– 25 August 2009 (RM) – – 0.7489
Weighted average share price (RM) 3.1000 2.6600 2.4000
Weighted average exercise price (RM) 3.0696 2.6989 2.3784
Expected volatility (%) 0.2617 0.2709 0.3403
Expected life (years) 7 7 7
Risk free rate (%) 3.57 to 4.57 3.79 to 5.22 2.04 to 4.61
Expected dividend yield (%) 1.78 1.78 1.78
Notes to the Financial Statements31 March 2010
183ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
30. EMPLOYEES’ SHARE SCHEME ("ESS") (cont’d)
(b) Fair value of share options/share grants offered/awarded (cont’d):
Share Grants
2008 2009 2010
Fair value of the shares as at grant date,
– 12 December 2007 (RM) 2.9639 – –
– 2 September 2008 (RM) – 2.5432 –
– 25 August 2009 (RM) – – 2.2941
Weighted average share price (RM) 3.1000 2.6600 2.4000
Expected volatility (%) 0.2617 0.2709 0.3403
Risk free rate (%) 3.57 to 4.57 3.79 to 5.22 2.04 to 4.61
Expected dividend yield (%) 1.78 1.78 1.78
The expected life of the share options is based on the exercisable period of the share options and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption
that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of the share options/share grants were incorporated into the measurement
of fair value.
The risk-free rate is employed using a range of risk-free rates for Malaysian Government Securities ("MGS") tenure from 1-year to 20-year MGS.
31. INTEREST INCOME
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Loans, advances and financing
– Interest other than recoveries from NPLs 777,276 850,339 – –
– Recoveries from NPLs 51,796 67,548 – –
Money at call and deposit placements with financial institutions 55,936 127,624 16,946 4,405
Realised gain on derivative instruments 35,533 64,022 – –
Gross dividend income from:
– Securities held-to-maturity 6,321 5,390 – –
– Subsidiaries – – 136,321 122,601
51,296 100,893 135,933 122,601
(c) Other income/(expense):
Foreign exchange gain/(loss) 11,673 (10,740) – –
Rental income 88 224 – –
Gain on disposal of property, plant and equipment 1,011 203 – 11
Loss on disposal of leasehold land (649) – – –
Loss on liquidation of subsidiaries (50) – – –
Gain on disposal of foreclosed properties 7,029 7,414 – –
Return on capital from investment – 88 – 88
Others (1,056) 3,959 885 965
18,046 1,148 885 1,064
Total other operating income 201,830 235,038 136,818 123,665
Note (i): The commission income is net-of an amount of RM15,867,000 (2009: RM11,573,000) being sales commission expense which was amortised over the expected life of loan products.
186
Notes to the Financial Statements31 March 2010
34. OTHER OPERATING EXPENSES
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Personnel costs
– Salaries, allowances and bonuses 255,630 257,990 1,121 1,169
– Contribution to EPF 40,246 42,877 247 245
– Share options/grants under ESS 7,020 6,304 105 64
– Others 28,936 31,176 123 162
331,832 338,347 1,596 1,640
Establishment costs
– Depreciation of property, plant and equipment 39,713 36,494 81 98
– Amortisation of computer software 16,307 14,654 – –
– Amortisation of leasehold land 138 139 – –
– Rental of premises 30,402 27,641 179 242
– Water and electricity 7,280 7,661 10 4
– Repairs and maintenance 8,672 9,916 16 20
– Information technology expenses 29,048 36,625 2 4
– Others 24,888 11,161 – –
156,448 144,291 288 368
Marketing expenses
– Promotion and advertisement 9,420 6,081 – –
– Branding and publicity 2,790 6,022 – –
– Others 4,297 6,192 – –
16,507 18,295 – –
Administration and general expenses
– Communication expenses 11,849 14,531 11 8
– Printing and stationery 4,493 6,127 13 7
– Insurance 4,530 (2,250) 3 3
– Professional fees 11,538 20,276 169 224
– Others 17,434 19,789 1,366 1,435
49,844 58,473 1,562 1,677
Total other operating expenses 554,631 559,406 3,446 3,685
Notes to the Financial Statements31 March 2010
187ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
34. OTHER OPERATING EXPENSES (cont’d)
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Included in the other operating expenses are the following:
Auditors’ remuneration [Note (a)] 1,887 857 82 44
Hire of equipment 3,865 1,710 10 10
Property, plant and equipment written off 1,160 3,218 31 –
Computer software written off 1,589 76 – –
(a) Auditors’ remuneration
Statutory audit fee 765 595 38 27
Audit related services 483 197 26 17
Tax compliance work 145 – 13 –
Other services 494 65 5 –
Total 1,887 857 82 44
(b) Directors’ remuneration
Directors of the Company:
Non-Executive Directors
– Allowances 812 702 292 325
– Fees 1,356 1,227 480 432
– Benefits-in-kind 62 62 38 38
2,230 1,991 810 795
Past Director
– Allowances 146 – 22 –
– Fees 111 – 20 –
257 – 42 –
188
Notes to the Financial Statements31 March 2010
34. OTHER OPERATING EXPENSES (cont’d)
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
(b) Directors’ remuneration (cont’d)
CEOs and Directors of Subsidiaries:
Chief Executive Officers
– Salaries and allowances 3,253 2,579 – –
– Bonuses 158 2,963 – –
– Contribution to EPF 413 722 – –
– Share options/grants under ESS 536 877 – –
– Benefits-in-kind 67 51 – –
4,427 7,192 – –
Non-Executive Directors
– Allowances 337 352 – –
– Fees 361 372 – –
698 724 – –
Past Directors
– Salaries and allowances 1 51 – –
– Fees 4 98 – –
5 149 – –
Total 7,617 10,056 852 795
Total Directors’ remuneration excluding benefits-in-kind 7,488 9,943 814 757
Notes to the Financial Statements31 March 2010
189ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
34. OTHER OPERATING EXPENSES (cont’d)
(b) Directors’ remuneration (cont’d)
2010 2009
Executive Non- Executive Non-
Directors/ Executive Directors/ Executive
CEOs Directors CEOs Directors
Directors of the Company:
Below RM50,000 – 1 – –
RM50,001 – RM100,000 – 2 – 5
RM100,001 – RM150,000 – 4 – 2
RM150,001 – RM200,000 – – – 1
RM200,001 – RM250,000 – 1 – –
RM250,001 – RM300,000 – – – –
RM300,001 – RM350,000 – – – –
RM350,001 – RM400,000 – – – –
RM400,001 – RM450,000 – – – –
Above RM450,000 – – – –
Directors of the Group:
Below RM50,000 – 2 – 2
RM50,001 – RM100,000 – 1 – 3
RM100,001 – RM150,000 – 3 – 3
RM150,001 – RM200,000 – – – 3
RM200,001 – RM250,000 – 2 – 1
RM250,001 – RM300,000 – 1 – 2
RM300,001 – RM350,000 – 2 – –
RM350,001 – RM400,000 – 1 – –
RM400,001 – RM450,000 – – – 2
Above RM450,000 4 2 4 –
190
Notes to the Financial Statements31 March 2010
35. (WRITE-BACK OF)/ALLOWANCE FOR LOSSES ON LOANS, ADVANCES AND FINANCING AND OTHER LOSSES
Group
2010 2009
RM’000 RM’000
(Write-back of)/allowance for bad and doubtful debts and financing:
(a) Specific allowance
– Made during the year 331,471 416,100
– Written back during the year (292,765) (284,154)
(b) General allowance
– Made during the year 59,732 78,854
– Written back during the year (77,041) (27,932)
(c) Bad debts on loans and financing
– Recovered (59,246) (69,742)
– Written off 435 1,872
(37,414) 114,998
Allowance for commitments and contingencies 1,433 –
Allowance for other assets 4,050 133
(31,931) 115,131
36 ALLOWANCE FOR IMPAIRMENT
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Allowance for/(write-back of) impairment on securities:
Allowance for impairment on goodwill (Note 17) 2,084 – – –
(Write-back of)/allowance for impairment on foreclosed properties (15) 815 – –
(Write-back of)/allowance for impairment on debt due from subsidiaries – – (13,144) 651
Impairment on other assets – 40 15,199 40
132,881 76,941 2,055 691
Note:
(a) During the financial year, the Group made impairment allowances of RM141,450,000 (2009: RM78,550,000) relating to a Collateralised Loan Obligations.
Notes to the Financial Statements31 March 2010
191ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
37. TAXATION AND ZAKAT
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Income tax:
Provision for current year 91,204 101,300 28,717 25,900
Over provision in prior years (5,868) (53,398) (696) (254)
Deferred tax (Note 18) 22,009 26,492 (28) (210)
Taxation 107,345 74,394 27,993 25,436
Zakat 93 30 – –
107,438 74,424 27,993 25,436
Income tax is calculated at the Malaysian Statutory tax rate of 25% (2009: 25%) of the estimated assessable profit for the year.
A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows:
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Profit before taxation 408,938 303,312 128,726 121,234
Taxation at Malaysian statutory tax rate of 25% (2009: 25%) 102,234 75,828 32,182 30,309
Effect on deferred tax for reduction in income tax rate – (1) – –
Effect of expenses not deductible for tax purposes 10,145 7,492 1,503 566
Effect of income not subject to tax (2,001) (315) (5,000) (5,025)
Reversal of deferred tax provided in prior years 6,387 44,788 4 (160)
Over provision of tax expense in prior years (5,868) (53,398) (696) (254)
Unabsorbed tax losses which deferred tax recognised during the year (3,552) – – –
Tax expense for the year 107,345 74,394 27,993 25,436
Tax savings during the year arising from:
– utilisation of current year tax losses 85 804 – –
– utilisation of tax losses brought forward from previous year 7,185 – – –
192
Notes to the Financial Statements31 March 2010
38. EARNINGS PER SHARE
(a) Basic
The calculation of the basic earnings per share is based on net profit attributable to equity holders of the Company for the financial year divided by the weighted average number of ordinary shares of RM1.00
each in issue during the financial year excluding the weighted average shares held for ESS.
Group
2010 2009
Net profit attributable to equity holders of the Company (RM’000) 301,424 229,121
Weighted average number of ordinary shares in issue (‘000) 1,548,106 1,548,106
Effect of shares bought back for ESS (‘000) (17,424) (11,033)
1,530,682 1,537,073
Basic earnings per share (sen) 19.7 14.9
(b) Diluted
The calculation of the diluted earnings per share is based on the net profit attributable to equity holders of the Company for the financial year divided by the weighted average number of ordinary shares of
RM1.00 each in issue during the financial year, excluding the weighted average shares held for ESS and taken into account the assumed Share Grants to employees under ESS were vested to the employees
as at 31 March 2010.
Group
2010 2009
Net profit attributable to equity holders of the Company (RM’000) 301,424 229,121
Weighted average number of ordinary shares in issue (‘000) 1,548,106 1,548,106
Effect of shares bought back for ESS (‘000) (17,424) (11,033)
Effect of Share Grants under ESS (‘000) 4,837 4,116
1,535,519 1,541,189
Diluted earnings per share (sen) 19.6 14.8
Notes to the Financial Statements31 March 2010
193ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
39. DIVIDENDS
Dividend Net Dividends
in respect of financial year per Ordinary Share
2010 2009 2010 2009
RM’000 RM’000 Sen Sen
Recognised during the financial year:
First interim dividend
1.3 sen per share, tax exempt under the single tier tax system, on 1,548,105,929 ordinary shares of RM1.00 each,
declared in the financial year ended 31 March 2010, paid on 26 August 2009 19,904 – 1.28 –
2.5 sen per share, tax exempt under the single tier tax system, on 1,548,105,929 ordinary shares of RM1.00 each,
declared in the financial year ended 31 March 2009, paid on 27 August 2008 – 38,434 – 2.48
Second interim dividend
5.1 sen per share, tax exempt under the single tier tax system, on 1,548,105,929 ordinary shares of RM1.00 each,
declared in the financial year ended 31 March 2010, paid on 26 March 2010 77,980 – 5.04 –
3.75 sen per share, tax exempt under the single tier tax system, on 1,548,105,929 ordinary shares of RM1.00 each,
declared in the financial year ended 31 March 2009, paid on 3 March 2009 – 57,621 – 3.72
97,884 96,055 6.32 6.20
Dividends paid on the shares held in Trust pursuant to the Company’s ESS which are classified as shares held for ESS are not accounted for in the equity. An amount of RM1,195,000 (2009: RM702,000) being
dividends paid for those shares were added back to the appropriation of retained profits in respect of the dividends.
40. CAPITAL COMMITMENTS
Group
2010 2009
RM’000 RM’000
Capital expenditure:
Authorised and contracted for 22,942 37,474
Authorised but not contracted for 21,376 4,242
44,318 41,716
194
Notes to the Financial Statements31 March 2010
41. MATERIAL LITIGATIONS
(a) Alliance Bank Malaysia Berhad’s ("ABMB") wholly-owned subsidiary, Alliance Investment Bank Berhad (“AIBB”) was served with a Writ of Summons and Statement of Claim dated 10 July 2008 (“the Suit”)
by Celcom (Malaysia) Berhad (“Celcom”).
The Suit was filed by one Mohd Shuaib Ishak as a derivative action on behalf of Celcom pursuant to Section 181A(1) of the Companies Act, 1965.
The Suit arises from the Amended and Restated Supplemental Agreement dated 4 April 2002 entered into between among others Celcom and DeTe Asia Holding GmbH (“DeTeAsia”), the acquisition of Celcom
shares by Telekom Enterprise Sdn Bhd (“TESB”), the consequent Mandatory General Offer exercise implemented by Telekom Malaysia Berhad (“TM”) and the de-merger exercise of the mobile and fixed-line
businesses of the TM Group.
AIBB has been named as one of the 21 defendants in the Suit for its role as advisor to Celcom. Celcom is claiming against the defendants jointly and/or severally for the sum of US$232,999,745.80 plus
damages and interest.
The Court of Appeal had on 27 March 2009 allowed the appeal brought by Celcom against the leave granted to Mohd Shuaib Ishak to commence the derivative action on behalf of Celcom. Mohd Shuaib
Ishak has since filed an application for leave to appeal to the Federal Court against the said decision and the same is fixed for hearing on 2 November 2009. Hearing adjourned to 19 January 2010. On 19
January 2010, the leave application was adjourned to another date to be confirmed by the Federal Court.
Meanwhile, AIBB has filed an application to cease being a party to the proceedings on the ground that it has been improperly and unnecessarily been made a party to the proceedings on 16 July 2009. The
application is fixed for mention on 6 November 2009 pending the exchange of affidavits between the parties. Parties have completed exchanging/filing of all the affidavits. The Court has fixed the application
for hearing on 29 January 2010. The Court has adjourned the application for hearing on 23 March 2010. On 23 March 2010, the Court heard submissions from both parties and fixed 16 April 2010 to deliver
decision. On 16 April 2010, the Court had granted AIBB’s application to cease being a party to the proceedings. The Plaintiff had on 22 April 2010 filed on appeal against the decision and the matter has been
fixed for case management on 22 June 2010.
(b) A corporate borrower had issued a Writ of Summons in 2005 against an agent bank for a syndicate of lenders comprising three banks of which ABMB is one of them, claiming for general, special and
exemplary damages alleging a breach of duty and contract.
The credit facilities consist of a bridging loan of RM58.5 million and a revolving credit facility of RM4.0 million which were granted by the syndicate lenders of which ABMB’s participation was RM18.5 million.
In 2002, the credit facilities were restructured to a loan of RM30.0 million, of which ABMB’s participation was RM8.31 million, payable over seven years. The syndicated lenders had also filed a suit against
the corporate borrower for the recovery of the above-mentioned loan.
The two suits were then consolidated and heard together. On 6 May 2009, judgment was delivered against the agent bank for special damages amounting to RM115.0 million together with interest at the
rate of 6% per annum from date of disbursement to date of realisation with general damages to be assessed by the Court.
The agent bank’s solicitors have since filed an appeal against the said decision. The Court had on 24 June 2009 granted a stay of execution of the judgment pending appeal to the Court of Appeal.
The corporate borrower has since filed an appeal to the Court of Appeal against the stay order granted by the High Court.
On 24 November 2009, the Court of Appeal dismissed the corporate borrower’s appeal against the order for stay of execution granted by the High Court in favour of the agent Bank with cost of RM20,000.
Next case management fixed for 29 July 2010 pending receipt of the Grounds of Judgment and Notes of Proceedings which are still not available for the agent bank to file the Record of Appeal.
The advice from the agent bank’s solicitors is that they have a better than even chance of succeeding in the said appeal.
Notes to the Financial Statements31 March 2010
195ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
41. MATERIAL LITIGATIONS (cont’d)
(c) ABMB had in 1999 filed a suit against a corporate borrower, hereinafter referred to as the first defendant and the second defendant as guarantor (collectively called “Defendants”) for money outstanding due
to a default in banking facility amounting to RM2.36 million. The Defendants in turn counter-claimed against the Bank for special damages amounting to RM15.5 million and general damages to be assessed
by the Court for negligence and/or wrongful termination of the banking facilities, statutory interest on judgment sum, costs and such other and/or further relief deemed fit by the Court.
On 4 May 2009, the High Court in Kota Kinabalu granted judgment in favour of the Defendants with damages to be assessed by the Deputy Registrar.
At a clarification hearing held on 25 May 2009, the Court clarified that ABMB’s liability to pay damages under the counter-claim is only in respect of general damages to be assessed by the Court and not
special damages.
ABMB has since filed its appeal and application for stay of execution against the said judgment.
On 3 August 2009, the High Court dismissed ABMB’s application for stay of execution of the judgment granted in favour of the Defendants. ABMB has since filed an appeal to the Court of Appeal against the
said decision.
On 16 November 2009, the Court of Appeal had dismissed the ABMB’s appeal for stay of execution with no order as to cost and directed that an early hearing date would be scheduled for the ABMB’s appeal proper.
In light of the above, the High Court has fixed the matter for mention on 12 January 2010 in order to fix a hearing date for assessment of damages (counter claim). The Court fixed hearing for assesment of
damages fixed from 17 May 2010 to 19 May 2010. On 17 May 2010, the Court fixed the matter for continued hearing of the assessment of damages from 21 June 2010 to 22 June 2010.
Based on the advice from ABMB’s solicitors, ABMB has a fair chance of success in its appeal.
(d) (i) ABMB had commenced a civil suit against an individual borrower in March 2007 for recovery of an overdraft facility secured by shares from the individual borrower and shares from a third party. The
individual borrower counter-claimed against ABMB for various declarations amongst others that ABMB had acted wrongfully or in bad faith in demanding repayment of the facility and that there was
in existence a collateral contract between the individual borrower, ABMB and the third party. In addition, the individual borrower is also claiming for general damages to be assessed by the courts.
ABMB filed its reply and defence to counter-claim on 7 July 2007. Case management has been fixed for 25 November 2009.
The matter has been fixed for further case management on 18 January 2010 for parties to comply with the directions given by the Court. The Court has further adjourned the matter to 25 February
2010 for parties to comply with the directions given by the Court.
On 25 February 2010, the Court suggested parties consider mediation as an alternative to the ordinary dispute resolution trial process and fixed the matter for continued case management on 24 March 2010.
The matter has been fixed for further case management on 23 June 2010.
ABMB’s solicitors are of the firm view that ABMB has good defence to the counter-claim.
(ii) Arising from the above-mentioned suit (Note 41 d(i)), the third party in September 2008 filed a separate suit against ABMB for force selling the shares pledged by the third party. The third party alleges
amongst others that ABMB sold the pledged shares off-market without notice to them in breach of the collateral contract between the third party and ABMB. The third party is claiming for damages
for loss of the benefit of the shares pledged to ABMB, damages for conversion, damages for misrepresentation and for breach of contract.
ABMB had filed its defence to the suit on 13 November 2008. Pending setting down of the matter for trial by the Plaintiff.
ABMB’s solicitors are of the firm view that there is no such collateral contract and that ABMB has good defence to the claim brought by the third party.
196
Notes to the Financial Statements31 March 2010
42. FINANCIAL RISK MANAGEMENT POLICIES
The Group manages risk within clearly defined guidelines that are approved by the Directors. In addition, the Board of Directors of the Group provides independent oversight to ensure that risk management policies
are complied with, through a framework of established controls and reporting process.
The guidelines and policies adopted by the Group to manage the main risks that arise in the conduct of its business activities are as follows:
(a) Credit Risk
Credit risk is the potential loss of revenue and/or principal arising from defaults by borrowers or counterparties through business activities in lending, trading, investing and hedging. Exposure to credit risk
may be categorised as primary or secondary.
Primary exposure to credit risk arises from loans, advances and financing. The amount of credit exposure is represented by the carrying amount of loans, advances and financing in the balance sheet. The
lending activities in the Group are guided by the Group’s Credit Policies and Guidelines, in line with Best Practices in the Management of Credit Risk, issued by Bank Negara Malaysia. These credit policies
and guidelines also include an Internal Grading model adopted by the Group to grade its loan and financing accounts according to their respective risk profiles.
On the other hand, secondary credit exposure arise from financial transactions with counterparties (including interbank market activities, derivative instruments used for hedging and debt instruments), of
which the amount of credit exposure in respect of these instruments is equal to the carrying amount of these assets in the balance sheet. This exposure is monitored on an on-going basis against
predetermined counterparty limits.
The credit exposure arising from off-balance sheet activities, i.e. commitments and contingencies is set out in Note 44(c) to the financial statements.
Credit risk arising from Treasury activities are managed by appropriate policies, counterparty limits and supported by the Group’s Risk Management Framework.
(b) Market Risk
Market risk refers to the potential loss arising from the movement in the market rates or prices; the main components being interest rate risk and foreign exchange risk.
The Group has developed an internal Risk Management Frameworks, which includes policies and guidelines to manage market risk in general. Market risk arising from the trading activities is controlled via
position limits, sensitivity limits and regular revaluation of positions versus current market quotations.
The Group is also susceptible to exposure to market risk arising from changes in prices of the shares quoted on Bursa Malaysia, which will impacts on the Group’s balances due from clients and brokers.
The risk is controlled by application of credit approvals, limits and monitoring procedures.
(i) Interest Rate Risk
As a subset of market risk, interest rate risk refers to the volatility in net interest income as a result of changes in interest rate levels and shifts in the composition of the assets and liabilities. Interest
rate risk is managed through interest rate sensitivity analysis. The potential reduction in net interest income from an unfavourable interest rate movement is monitored and reported to Management.
In addition to pre-scheduled meetings, Group Assets and Liabilities Committee ("ALCO") members will also deliberate on revising the Bank’s lending and deposit rates in response to changes in the
benchmark rates set by the central bank.
The effects of changes in the levels of interest rates on the market value of securities are monitored closely and mark-to-market valuations are regularly reported to Management.
(ii) Foreign Currency Exchange Risk
Foreign exchange risk refers to the potentially adverse movements in the exchange rates for foreign exchange positions taken by the Group from time to time. Foreign exchange risk is managed via
approved risk limits and open positions are regularly revalued against current exchange rates and reported to Management.
Notes to the Financial Statements31 March 2010
197ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
42. FINANCIAL RISK MANAGEMENT POLICIES (cont’d)
(c) Liquidity Risk
Liquidity risk relates to the Group’s ability to maintain adequate liquid assets so as to punctually meet its financial obligations and commitments when due. Market liquidity risk refers to the potential risk
that the Group is unable to liquidate its assets/securities at or near the previous market price due to inadequate market depth or disruptions to the marketplace.
The Group’s liquidity risk profile is managed using Bank Negara Malaysia’s New Liquidity Framework, other internal policies and ALCO benchmarks. A contingency funding plan is also established by the
Group as a forward-looking measure to ensure that liquidity risk can be addressed according to the degrees of key risk indicators, and which incorporates alternative funding strategies which are ready to
be implemented on a timely basis to mitigate the impact of unforseen adverse changes in liquidity in the marketplace.
(d) Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
Operational risk management identifies the inherent and residual risks in the Group’s processes and activities, monitors and controls risk impacts. It analyses the risk profile of the Group, determines any
causes of failure, assesses potential loss and enhances controls to reduce/avoid risks.
Individual business and support departments are responsible for the management of their day-to-day operational risks while support, monitoring and reporting is provided by the Operational Risk Management
Department. Group Internal Audit plays the role of providing independent compliance assurance to senior management and the Board.
The main activities undertaken by the Group in managing operational risks includes the pre-identification of risks control and self assessments; key risk indicators, reviews of documentation of the Group’s
processes and procedures; conducting operational risk awareness internal training and managing potential crisis events via the mitigation resource of business continuity management.
The Group has implemented regulatory and Basel II requirements for capital charge for operational risk under the Basic Indicator Approach. Ongoing monitoring and periodic policy/process changes are
carried out to reduce the Group’s exposure to unexpected losses, improve control and management of operational risk, to cultivate an organizational culture that places a high priority on effective operational
risk management and adherence to sound operating controls and best practices.
43. INTEREST RATE RISK
In macro terms, interest rate risk refers to the overall sensitivity of the Group’s earnings and/or economic values of the Group’s portfolio to changes in interest rates. Interest rate risk is managed through various
risk management techniques including re-pricing gap, net interest income simulation and stress testing.
The Group is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The effect of changes in the levels of interest
rates on the market value of securities are monitored regularly and the outcome of mark-to-market valuations are escalated to Management regularly. The table below summarises the effective interest rates at
the balance sheet date and the periods in which the financial instruments will re-price or mature, whichever is the earlier.
198
Notes to the Financial Statements31 March 2010
Notes to the Financial Statements31 March 2010
199ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
43. INTEREST RATE RISK (cont’d)
Non-trading book
Non-interest/ Effective
Up to >1-3 >3-6 >6-12 >1-5 Over 5 profit Trading interest/profit
Group 1 month months months months years years sensitive book Total rate
Total interest sensitivity gap 453,580 200,000 – – (600,000) – (53,580) –
44. CAPITAL ADEQUACY
The capital adequacy ratios of the ABMB group are computed in accordance with Bank Negara Malaysia’s revised Risk-Weighted Capital Adequacy Framework (RWCAF-Basel II). The ABMB group has adopted the
Standardised Approach for credit risk and market risk, and the Basic Indicator Approach for operational risk.
The detailed disclosure on the risk-weighted assets, as set out in Note 44(a), (b), (c) and (d) are presented in accordance with paragraph 4.3 of Bank Negara Malaysia’s Concept Paper, Risk-Weighted Capital Adequacy
Framework (Basel II) and Capital Adequacy Framework of Islamic Bank (CAFIB) – Disclosure requirements (Pillar 3).
44. CAPITAL ADEQUACY (cont’d)
The capital adequacy ratios of the ABMB group are as follows:
2010 2009
Before deducting proposed dividendsCore capital ratio 11.39% 10.41%Risk-weighted capital ratio 15.65% 14.76%
After deducting proposed dividendsCore capital ratio 11.13% 10.30%Risk-weighted capital ratio 15.40% 14.65%
Components of Tier-I and Tier-II capital are as follows:
– maturity exceeding one year 2,051,099 1,025,549 825,344
– maturity not exceeding one year 8,439,276 1,687,856 1,437,642
11,557,071 3,437,216 2,986,797
Derivative financial instruments
Foreign exchange related contracts:
– less than one year 2,474,223 27,115 58,004 27,695
Interest rate related contracts:
– over one year to five years 990,000 2,123 30,124 6,025
– over five years 60,000 11,620 7,019 1,404
3,524,223 40,858 95,147 35,124
15,081,294 40,858 3,532,363 3,021,921
208
Notes to the Financial Statements31 March 2010
44. CAPITAL ADEQUACY (cont’d)
(d) The RWA and capital requirements for the various categories of risk under market risk are as follows:
Group
Risk-Weighted Capital
Assets Requirements
2010 RM’000 RM’000
Interest rate risk
– General interest rate risk – –
– Specific interest rate risk – –
– –
Equity risk
– General interest rate risk – –
– Specific interest rate risk – –
– –
Foreign exchange risk 19,663 1,573
19,663 1,573
2009
Interest rate risk
– General interest rate risk 8,586 687
– Specific interest rate risk 310 25
8,896 712
Equity risk
– General interest rate risk 11,412 913
– Specific interest rate risk 19,974 1,598
31,386 2,511
Foreign exchange risk 19,620 1,569
59,902 4,792
Notes to the Financial Statements31 March 2010
209ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
45. LEASE COMMITMENTS
The Group and the Company have lease commitments in respect of equipment on hire and premises, all of which are classified as operating leases. A summary of the non-cancellable long term commitments is as
follows:
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Within one year 30,077 34,710 297 410
Between one and five years 21,194 50,289 159 626
51,271 84,999 456 1,036
The operating leases for the Group and the Company's other premises typically cover for an initial period of three years with options for renewal. These leases are cancellable but are usually renewed upon expiry
or replaced by leases on other properties. Future minimum lease commitments are anticipated to be not less than the rental expense for 2010.
46. SIGNIFICANT RELATED PARTY TRANSACTIONS
In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are the Group’s and the Company’s other significant related party transactions and balances:
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
(a) Transactions
Interest income
– subsidiaries – – (16,946) (4,399)
– key management personnel (42) (26) – –
Dividend income
– subsidiary – – (136,321) (122,601)
Overhead expenses recharged
– subsidiaries – – (1,341) (1,372)
Interest expenses
– key management personnel 1,875 1,973 – –
Management fees paid
– related companies 173 129 – –
210
Notes to the Financial Statements31 March 2010
46. SIGNIFICANT RELATED PARTY TRANSACTIONS (cont’d)
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
(b) Balances
Amount due to deposits from customers
– key management personnel (66,111) (63,779) – –
Money at call and deposit placements with financial institutions
– subsidiaries – – 640,650 653,690
Loans, advances and financing
– key management personnel 1,468 1,950 – –
Other assets
– subsidiaries – – 5,824 38,510
Other liabilities
– subsidiaries – – (1,452) (1,646)
(i) The above transactions have been entered into the normal course of business based on negotiated and mutually agreed terms, and have been established on terms and conditions that are not materially
different from those obtainable in transactions with unrelated parties.
(ii) Related companies refer to member companies of Alliance Financial Group Berhad.
(iii) Key management personnel refer to those persons having authority and responsibility for planning, directing and controlling the activities of the Group and the Company, directly or indirectly, including
Executive Directors and Non-Executive Directors of the Group and the Company (including close members of their families). Other members of key management personnel of the Group are the Group
Chief Executive Officer, Group Chief Operating Officer, Group Chief Financial Officer, Group Chief Risk Officer, Group Chief Credit Officer and Group Company Secretary.
Notes to the Financial Statements31 March 2010
211ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
212
46. SIGNIFICANT RELATED PARTY TRANSACTIONS (cont’d)
(c) Compensation of key management personnel
Remuneration of Directors and other members of key management for the year is as follows:
Group Company
2010 2009 2010 2009
RM’000 RM’000 RM’000 RM’000
Short-term employee benefits
Fees 1,717 1,599 480 432
Salary and other remuneration, including meeting allowances 6,709 10,162 577 678
Contribution to EPF 702 1,213 42 50
Share options/grants under ESS 779 1,346 68 40
Benefits-in-kind 131 124 38 38
10,038 14,444 1,205 1,238
Included in the total key management personnel are:
Executive Directors of the Group and other members of key management have been offered/awarded the following number of share options/share grants under the ESS:
Share Options Share Grants
2010 2009 2010 2009
‘000 ‘000 ‘000 ‘000
Group
At beginning of year 4,693 1,556 683 219
Directors/Key management personnel appointed during the year – 621 – 87
Offered/awarded 2,609 2,516 363 377
Vested – – (132) –
Lapsed (5,013) – (605) –
At end of year 2,289 4,693 309 683
Company
At beginning of year 134 68 19 9
Offered/awarded 87 66 15 10
Vested – – (5) –
At end of year 221 134 29 19
The above share options/share grants were offered/awarded on the same terms and conditions as those offered to other employees of the Group (Note 30).
Notes to the Financial Statements31 March 2010
47. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The carrying amounts and the fair value of the financial assets and liabilities of the Group and of the Company are as follows:
2010 2009
Carrying Fair Carrying Fair
amount value amount value
RM’000 RM’000 RM’000 RM’000
Group
Financial assets
Cash and short-term funds 3,564,545 3,564,545 4,990,686 4,990,686
Deposits and placements with banks and other financial institutions 150,156 150,156 198,523 198,523
Long term borrowings 600,000 602,000 600,000 600,000
Company
Financial assets
Cash and short-term funds 30,847 30,847 453,878 453,878
Deposits and placements with banks and other financial institutions 610,800 610,800 200,000 200,000
Financial liability
Long term borrowings 600,000 602,000 600,000 600,000
Note: The fair value of the other assets and other liabilities, which are considered short-term in nature, are estimated to be approximately their carrying values.
Notes to the Financial Statements31 March 2010
213ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
214
47. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (cont’d)
The methods and assumptions used in estimating the fair values of financial instruments are as follows:
(i) Cash and short-term funds
The carrying amounts approximate fair values due to the relatively short maturity of the financial instruments.
(ii) Deposits and placements with banks and other financial institutions
The fair values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments. For those
financial instruments with maturity of more than one year, the fair values are estimated based on discounted cash flows using applicable prevailing market rates for placements of similar credit risk and
similar remaining maturity as at the balance sheet date.
(iii) Securities held-for-trading, Securities available-for-sale and Securities held-to-maturity
The fair values are estimated based on quoted or observable market prices at the balance sheet date. Where such quoted or observable market prices are not available, the fair values are estimated using
pricing models or discounted cash flow techniques. Where discounted cash flow technique is used, the expected future cash flows are discounted using prevailing market rates for a similar instrument at
the balance sheet date.
(iv) Derivative financial instruments
The fair values of derivative financial instruments are obtained from quoted market rates in active market, including recent market transactions and valuation techniques, such as discounted cash flow models,
as appropriate.
(v) Loans, advances and financing
The fair values of fixed rate loans with remaining maturity of less than one year and variable rate loans are estimated to approximate their carrying values. For fixed rate loans and Islamic financing with
remaining maturity of more than one year, the fair values are estimated based on expected future cash flows of contractual instalment payments and discounted at applicable prevailing rates at balance
sheet date offered to new borrowers with similar credit profiles. In respect of non-performing loans, the fair values are deemed to approximate the carrying values, net of specific allowance for losses on
loans, advances and financing.
(vi) Deposits from customers
The fair values of deposit liabilities payable on demand (demand and savings deposits), or deposits with maturity of less than one year are estimated to approximate their carrying amounts. The fair values
of fixed deposits with remaining maturities of more than one year are estimated based on expected future cash flows discounted at applicable prevailing rates offered for deposits of similar remaining
maturities. For negotiable instruments of deposits, the fair values are estimated based on quoted or observable market prices as at the balance sheet date. Where such quoted or observable market prices
are not available, the fair values of negotiable instruments of deposits are estimated using the discounted cash flow technique.
(vii) Deposits and placements of banks and other financial institutions and Bills and acceptances payable
The carrying values of these financial instruments with remaining maturity of less than one year approximate their carrying amounts due to the relatively short maturity of the financial instruments.
Notes to the Financial Statements31 March 2010
47. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (cont’d)
(viii) Amount due to Cagamas Berhad
The fair values of amount due to Cagamas Berhad are determined based on the discounted cash flows of future instalment payments at applicable prevailing Cagamas rates as at the balance sheet date.
(ix) Long term borrowings
The fair values of variable rate borrowings are estimated to approximate carrying values. For fixed rate borrowings, the fair values are estimated based on discounted cash flow techniques using a current
yield curve approximate for the remaining term to maturity.
(x) Subordinated bonds
The fair value of the subordinated bonds is estimated based on discounted cash flow techniques using a current yield curve appropriate for the remaining term to maturity.
(xi) Balances due from/due to clients and brokers
The carrying amounts are reasonable estimates of the fair values because of their short tenor.
Notes to the Financial Statements31 March 2010
215ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
Write-back of/(allowance for) losses on loans, advances and financing and other losses 5,263 61,923 (34,929) (326) – 31,931
Allowance for impairment (103,358) (33,568) – (2,055) 6,100 (132,881)
Profit before taxation and zakat 253,220 64,745 113,264 134,219 (156,510) 408,938
Taxation (107,345)
Zakat (93)
Profit after taxation and zakat 301,500
Minority interests (76)
Net profit for the year 301,424
* Category "Others" consist of businesses from investment holding (the Company), unit trust, asset management and non-banking subsidiaries within the Group.
Included in the revenue and segment results under category "Others" for the financial year ended 31 March 2010, an amount of RM136,321,000 being the dividend income received by the Company from its
subsidiary, Alliance Bank Malaysia Berhad. The dividend amounts were eliminated as inter-segment consolidation adjustments to derive the Group’s revenue and profit before tax.
Depreciation of property, plant and equipment 35,204 4,157 193 159 39,713
Amortisation of leasehold land 138 – – – 138
Amortisation of computer software 15,784 220 206 97 16,307
Other non-cash expenses/(income) 113,965 (21,888) 40,014 543 132,634
* Category "Others" consist of businesses from investment holding (the Company), unit trust, asset management and non-banking subsidiaries within the Group.
Notes to the Financial Statements31 March 2010
217ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
(Allowance for)/write-back of losses on loans, advances and financing and other losses (53,873) (22,697) (38,250) (311) – (115,131)
Allowance for impairment (58,318) (17,471) – (1,152) – (76,941)
Profit/(loss) before taxation and zakat 314,052 (26,789) 42,434 119,859 (146,244) 303,312
Taxation (74,394)
Zakat (30)
Profit after taxation and zakat 228,888
Minority interests 233
Net profit for the year 229,121
* Category "Others" consist of businesses from investment holding (the Company), unit trust, asset management and non-banking subsidiaries within the Group.
Included in the revenue and segment results under category "Others" for the financial year ended 31 March 2009, an amount of RM122,601,000 being the dividend income received by the Company from its
subsidiary, Alliance Bank Malaysia Berhad. The dividend amounts were eliminated as inter-segment consolidation adjustments to derive the Group’s revenue and profit before tax.
Depreciation of property, plant and equipment 31,413 4,727 84 270 36,494
Amortisation of leasehold land 139 – – – 139
Amortisation of computer software 13,993 340 174 147 14,654
Other non-cash expenses 68,235 50,647 23,565 18,211 160,658
* Category "Others" consist of businesses from investment holding (the Company), unit trust, asset management and non-banking subsidiaries within the Group.
Notes to the Financial Statements31 March 2010
219ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
49. COMPARATIVE FIGURES
The presentation and classifications of items in the current year’s financial statements are consistent with the previous financial year except for the following comparative figures which have been restated to
conform with current year’s presentation:
Group
As previously As
reported Reclassification restated
Note RM’000 RM’000 RM’000
(i) Balance sheet as at 31 March 2009
Cash and short-term funds (i) 4,998,175 (7,489) 4,990,686
Derivative financial assets (ii) 17,310 23,548 40,858
Balances due from clients and brokers (iii) 69,525 (24,845) 44,680
Land held for investment (iv) 28,922 (1,174) 27,748
Other assets (i), (v) 233,930 1,696 235,626
Deposits and placements of banks and other financial institutions (i) (1,190,782) 7,395 (1,183,387)
Derivative financial liabilities (ii) (26,016) (23,548) (49,564)
Balances due to clients and brokers (iii) (76,701) 24,845 (51,856)
Other liabilities (i), (v) (954,930) (1,602) (956,532)
Deferred tax liabilities (iv) (1,205) 1,174 (31)
(ii) Income statement for the financial year ended 31 March 2009
Net income from Islamic banking business (vii), (viii) 163,935 1,193 165,128
Other operating income (viii), (ix) 232,618 2,420 235,038
Other operating expenses (vii) (564,429) 5,023 (559,406)
Allowance for losses on loans, advances and financing and other losses (viii) (112,042) (3,089) (115,131)
Allowance for impairment (ix) (78,339) 1,398 (76,941)
220
Notes to the Financial Statements31 March 2010
49. COMPARATIVE FIGURES (cont’d)
Note:
(i) The reclassification is in relation to certain balances which were previously classified as cash and short-term funds and deposits and placements of banks and other financial institutions, now classified as
other assets or other liabilities respectively.
(ii) The reclassification is to present transaction balances on derivative financial instruments on a gross basis arising from certain counterparties which were previously presented on a net basis.
(iii) The reclassification is to present the amounts due from/to brokers that are settled on a net basis.
(iv) The reclassification is in relation to deferred tax liability on the land held by a subsidiary previously recognised at Group level, but is now reversed as this is no longer deemed necessary.
(v) The reclassification is to net-off certain allowance for impairment on other assets against the outstanding balances.
(vi) The reclassification is to present interest income/expense from interest rate swaps on a net basis, as interest income/expense from interest rate swaps are settled on a net basis on each reset date.
(vii) The reclassification is in relation to certain expenses which were previously classified as interest expense and net income from Islamic banking business, now classified as other operating expenses.
(viii) The reclassification is to present the provision for certain legal expenses from other operating income and net income from Islamic banking business to allowance for losses on loans, advances and financing
and other losses.
(ix) The reclassification is in relation to mark-to-market loss on securities held-for-trading which were previously classified as allowances for impairment now classified as unrealised loss on revaluation of
securities held-for-trading under other operating income.
50. SIGNIFICANT EVENTS DURING THE YEAR
Dissolution of subsidiaries
The following subsidiaries of the Company were dissolved pursuant to Section 272(5) of the Companies Act, 1965:
(a) Subsidiary of the Company
(i) ABG Capital Management Sdn Bhd (subsidiary of Syabas Sutra Sdn. Bhd.) was dissolved on 1 July 2009; and
(ii) Syabas Sutra Sdn. Bhd. was dissolved on 2 July 2009.
(b) Subsidiary of Alliance Bank Malaysia Berhad
(i) AFB Nominees (Tempatan) Sdn. Bhd. was dissolved on 2 July 2009.
(c) Subsidiaries of Alliance Investment Bank Berhad
(i) Alliance Capital Asset Management Sdn. Bhd. was dissolved on 1 April 2009;
(ii) Alliance Asset Management (L) Limited was dissolved on 6 April 2009;
(iii) Alliance Merchant Nominees (Tempatan) Sdn. Bhd. was dissolved on 2 July 2009;
(iv) Alliance Merchant Nominees (Asing) Sdn. Bhd. was dissolved on 2 July 2009; and
(v) Rothputra Nominees (Asing) Sdn. Bhd. was dissolved on 2 July 2009.
Notes to the Financial Statements31 March 2010
221ALLIANCE FINANCIAL GROUP BERHAD (6627-X) • 2010 ANNUAL REPORT
51. SUBSEQUENT EVENT
There was no material event subsequent to the balance sheet date that require disclosure or adjustment to the financial statements.
52. NET INCOME FROM ISLAMIC BANKING BUSINESS
Group
2010 2009
RM’000 RM’000
Income derived from investment of depositors’ funds and others 212,251 186,724
Income derived from investment of Islamic Banking funds 25,212 22,543
Transfer from profit equalisation reserve 50,058 1,867
Income attributable to depositors and financial institutions (59,130) (69,564)
Other expenses directly attributable to the investment of the depositors and shareholders’ funds (1,911) (2,949)
226,480 138,621
Add: Income due to head office eliminated at Group level 19,341 26,507
245,821 165,128
Note:
Net income from Islamic banking business comprises income generated from both Alliance Islamic Bank Berhad ("AIS") and Islamic banking business currently residing in Alliance Investment Bank Berhad ("AIBB").
Both AIS and AIBB are wholly-owned subsidiaries of Alliance Bank Malaysia Berhad, which in turn is a wholly owned subsidiary of the Company.