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This Information Memorandum is not an offer to sell securities and is not soliciting an offer to buy securities described herein in any jurisdiction where the offer or sale is not permitted. Strictly Private & Confidential INFORMATION MEMORANDUM MAYBANK ISLAMIC BERHAD (Company No. 787435-M) PROPOSED ISSUE OF, OFFER FOR SUBSCRIPTION OR PURCHASE OF, OR INVITATION TO SUBSCRIBE FOR OR PURCHASE OF SUBORDINATED SUKUK MURABAHAH PURSUANT TO A SUBORDINATED SUKUK PROGRAMME OF UP TO RM10.0 BILLION IN NOMINAL VALUE Principal Adviser / Lead Arranger MAYBANK INVESTMENT BANK BERHAD (Company No. 15938-H) 10 March 2014
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Maybank Islamic Berhad...(company no. 787435-m) proposed issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase of subordinated sukuk murabahah

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Page 1: Maybank Islamic Berhad...(company no. 787435-m) proposed issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase of subordinated sukuk murabahah

This Information Memorandum is not an offer to sell securities and is not soliciting an offer to buy securities described herein in any jurisdiction where the offer or sale is not permitted.

Strictly Private & Confidential

INFORMATION MEMORANDUM

MAYBANK ISLAMIC BERHAD (Company No. 787435-M)

PROPOSED ISSUE OF, OFFER FOR SUBSCRIPTION OR PURCHASE OF, OR INVITATION

TO SUBSCRIBE FOR OR PURCHASE OF SUBORDINATED SUKUK MURABAHAH PURSUANT TO A SUBORDINATED SUKUK PROGRAMME OF UP TO RM10.0 BILLION IN

NOMINAL VALUE

Principal Adviser / Lead Arranger

MAYBANK INVESTMENT BANK BERHAD (Company No. 15938-H)

10 March 2014

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RESPONSIBILITY STATEMENT This Information Memorandum has been approved by the directors of Maybank Islamic Berhad (“Maybank Islamic” or “MIB” or the “Issuer” or the “Bank”) and they collectively and individually accept full responsibility for the accuracy of the information given and confirm that, after having made all reasonable enquiries in the circumstances, and to the best of their knowledge, information and belief, there are no false or misleading statements or other material facts the omission of which would make any statement in this Information Memorandum false or misleading and that there are no material omissions in this Information Memorandum.

IMPORTANT NOTICE AND GENERAL STATEMENTS OF DISCLAIMER The Issuer has authorised Maybank Investment Bank Berhad (“Lead Arranger”) to distribute this Information Memorandum, which is now being provided by the Lead Arranger on a confidential basis to potential investors or places falling within any one of the categories of persons specified in Schedule 6 (or Section 229(1)(b)); and Schedule 7 (or Section 230(1)(b)); read together with Schedule 9 (or Subsection 257(3)) of the Capital Markets and Services Act, 2007 (“CMSA”) as amended from time to time, for the sole purpose of assisting them to decide whether to subscribe for or purchase the Subordinated Sukuk Murabahah (as defined in this Information Memorandum). This Information Memorandum may not be, in whole or in part, reproduced or used for any other purpose, or shown, given, copied to or filed with any other person including, without limitation, any government or regulatory authority except with the prior consent of the Issuer or as required under Malaysian laws, regulations or guidelines. None of the information or data contained in this Information Memorandum has been independently verified by the Lead Arranger and no representation or warranty, express or implied, is given or assumed by the Lead Arranger as to the authenticity, origin, validity, accuracy or completeness of such information and data or that the information or data remains unchanged in any respect after the relevant date shown in this Information Memorandum. The Lead Arranger has not accepted and will not accept any responsibility for the information and data contained in this Information Memorandum or otherwise in relation to the Subordinated Sukuk Murabahah and shall not be liable for any consequences of reliance on any of the information or data in this Information Memorandum. No person is authorised to give any information or data or to make any representation or warranty other than as contained in this Information Memorandum and, if given or made, any such information, data, representation or warranty must not be relied upon as having been authorised by the Issuer, the Lead Arranger or any other person. This Information Memorandum has not been and will not be made to comply with the laws of any country (including its territories, all jurisdictions within that country and any possession areas subject to its jurisdiction), other than Malaysia (“Foreign Jurisdiction”), and has not been and will not be lodged, registered or approved pursuant to or under any legislation (or with or by any regulatory authorities or other relevant bodies) of any Foreign Jurisdiction and it does not constitute an issue or offer of, or an invitation to subscribe for or purchase the Subordinated Sukuk Murabahah or any other securities of any kind by any party in any Foreign Jurisdiction.

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This Information Memorandum is not and is not intended to be a prospectus. Unless otherwise specified in this Information Memorandum, the information contained in this Information Memorandum is current as at the date hereof. The distribution or possession of this Information Memorandum in or from certain Foreign Jurisdictions may be restricted or prohibited by law. Each recipient is required by the Issuer and the Lead Arranger to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. Neither the Issuer nor the Lead Arranger accepts any responsibility or liability to any person in relation to the distribution or possession of this Information Memorandum in or from any Foreign Jurisdiction. By accepting delivery of this Information Memorandum, each recipient agrees to the terms upon which this Information Memorandum is provided to such recipient as set out in this Information Memorandum, and further agrees and confirms that (a) it is lawful for the recipient to subscribe for or purchase the Subordinated Sukuk Murabahah under all jurisdictions to which the recipient is subject, (b) the recipient has complied with all applicable laws in connection with such subscription or purchase of the Subordinated Sukuk Murabahah, (c) the Issuer, the Lead Arranger and their respective directors, officers, employees and professional advisers are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject as a result of such subscription or purchase of the Subordinated Sukuk Murabahah, and they shall not have any responsibility or liability in the event that such subscription or purchase of the Subordinated Sukuk Murabahah is or shall become unlawful, unenforceable, voidable or void, (d) it is aware that the Subordinated Sukuk Murabahah can only be offered, sold, transferred or otherwise disposed of directly or indirectly in accordance with the relevant selling restrictions and all applicable laws, (e) it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of subscribing or purchasing the Subordinated Sukuk Murabahah, and is able and is prepared to bear the economic and financial risks of investing in or holding the Subordinated Sukuk Murabahah, (f) it is subscribing or accepting the Subordinated Sukuk Murabahah for its own account, and (g) it is a person falling within one of the categories of persons specified in Schedule 6 (or Section 229(1)(b)); and Schedule 7 (or Section 230(1)(b)): read together with Schedule 9 (or Subsection 257(3)) of the CMSA as amended from time to time. Each recipient is solely responsible for seeking all appropriate expert advice as to the laws of all jurisdictions to which it is subject. This Information Memorandum or any document delivered under or in relation to the issue, offer and sale of the Subordinated Sukuk Murabahah is not, and should not be construed as, a recommendation by the Issuer, the Lead Arranger or any other party to the recipient to subscribe for or purchase the Subordinated Sukuk Murabahah. This Information Memorandum is not a substitute for, and should not be regarded as, an independent evaluation and analysis and does not purport to be all inclusive. Each recipient should perform and is deemed to have made its own independent investigation and analysis of the Issuer, the Subordinated Sukuk Murabahah and all other relevant matters, and each recipient should consult its own professional advisers. Neither the delivery of this Information Memorandum nor the offering, sale or delivery of any Subordinated Sukuk Murabahah shall in any circumstance imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Subordinated Sukuk Murabahah is correct as of any time subsequent to the date indicated in the document containing the same. The Lead Arranger expressly does not undertake to review the financial condition or affairs of the Issuer or its subsidiaries during the life of the Subordinated Sukuk Murabahah or to advise any investor in the Subordinated Sukuk Murabahah of any information coming to their attention. The recipient of this Information Memorandum or the potential investors should review, inter

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alia, the most recently published documents incorporated by reference into this Information Memorandum when deciding whether or not to purchase any Subordinated Sukuk Murabahah.

FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE “INVESTMENT CONSIDERATIONS” IN SECTION 4 HEREOF. This Information Memorandum includes certain historical information, estimates, or reports thereon derived from sources mentioned in this Information Memorandum and other parties with respect to the Malaysian economy, the material businesses in which the Issuer operates and certain other matters. Such information, estimates, or reports have been included solely for illustrative purposes. No representation or warranty is made as to the accuracy or completeness of any information, estimate and or report thereon derived from such and other third party sources. This Information Memorandum includes “forward looking statements”. These statements include, among other things, discussions of each of the Issuer’s business strategy and expectation concerning its position in the Malaysian economy, future operations, profitability, liquidity, capital resources and financial position. All these statements are based on estimates and assumptions made by the Issuer and third party consultants that, although believed to be reasonable, are subject to risks and uncertainties that may cause actual events and the future results of the Issuer to be materially different from that expected or indicated by such statements and estimates and no assurance can be given that any of such statements or estimates will be realised. In light of these and other uncertainties, the inclusion of a forward looking statement in this Information Memorandum should not be regarded as a representation or warranty by the Issuer or any other person that the plans and objectives of the Issuer will be achieved. All discrepancies (if any) in the tables included in this Information Memorandum between the listed amounts and totals thereof are due to, and certain numbers appearing in this Information Memorandum are shown after, rounding. Maybank Islamic Berhad, as the Shariah Adviser, has approved the structure and mechanism of the Subordinated Sukuk Murabahah and their compliance with the applicable Shariah principles. However, the approval is only an expression of the view of the Shariah Adviser based on its extensive experience in the subject. There can be no assurance as to the Shariah permissibility of the structure of the Subordinated Sukuk Murabahah and the trading of the Subordinated Sukuk Murabahah and neither the Issuer, the Lead Arranger nor any other person makes any representation of the same. Investors are reminded that, as with any Shariah views, differences in opinion are possible. Investors are advised to obtain their own independent Shariah advice as to whether the structure meets their individual standards of compliance and make their own determination as to the future tradability of the Subordinated Sukuk Murabahah on any secondary market.

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STATEMENTS OF DISCLAIMER – SECURITIES COMMISSION MALAYSIA A copy of this Information Memorandum will be deposited with the Securities Commission Malaysia (“SC”), who takes no responsibilities for its contents. The SC has on 26 February 2014 approved the proposal under Subsection 214(1) and authorised the proposal under Subsection 256C(1) of the CMSA as amended from time to time. Please note that the SC’s approval and authorisation for the proposal shall not be taken to indicate that the SC recommends the proposal. The Securities Commission shall not be liable for any non-disclosure on the part of the Issuer and assumes no responsibility for the correctness of any statements made or opinions or reports expressed in the Information Memorandum.

INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT. IN CONSIDERING THE INVESTMENT, INVESTORS WHO ARE IN ANY DOUBT AS TO THE ACTION TO BE TAKEN SHOULD CONSULT PROFESSIONAL ADVISERS IMMEDIATELY.

CONFIDENTIALITY This Information Memorandum and its contents are strictly confidential and the information herein contained is given to the recipient strictly on the basis that the recipient shall ensure the same remains confidential. Accordingly, this Information Memorandum and its contents, or any information, which is made available to the recipient in connection with any further enquiries, must be held in complete confidence. This Information Memorandum is submitted to selected persons specifically in reference to the Subordinated Sukuk Murabahah, falling within one of the categories of persons specified in Schedule 6 (or Section 229(1)(b)); and Schedule 7 (or Section 230(1)(b)); read together with Schedule 9 (or Subsection 257(3)) of the CMSA as amended from time to time. In the event that there is any contravention of this confidentiality undertaking or there is reasonable likelihood that this confidentiality undertaking may be contravened, the Issuer may, at its discretion, apply for any remedy available to the Issuer whether at law or equity, including without limitation, injunctions. The Issuer is entitled to fully recover from the contravening party all costs, expenses and losses incurred and/or suffered, in this regard. For the avoidance of doubt, it is hereby deemed that this confidentiality undertaking shall be imposed upon the recipient, the recipient’s professional advisers, directors, employees and any other persons who may receive this Information Memorandum (or any part of it) from the recipient. The recipient must return this Information Memorandum and all reproductions thereof whether in whole or in part and any other information in connection therewith to the Lead Arranger promptly upon the Lead Arranger’s request, unless that recipient provides proof of a written undertaking satisfactory to the Lead Arranger with respect to destroying these documents as soon as reasonably practicable after the said request from the Lead Arranger.

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TABLE OF CONTENT

Headings Pages GLOSSARY OF DEFINITIONS AND ABBREVIATIONS ............................... 8

1.0 EXECUTIVE SUMMARY ...................................................... 11

1.1 Introduction .............................................................................................................. 11

1.2 The Issue.................................................................................................................... 11

1.3 Utilisation of Proceeds ............................................................................................ 13

1.4 Rating ......................................................................................................................... 14

1.5 Approvals Required .................................................................................................. 14

2.0 PRINCIPAL TERMS AND CONDITIONS ..................................... 15

2.1 Background Information ......................................................................................... 15

2.2 Principal Terms and Conditions ............................................................................. 17

3.0 SELLING RESTRICTIONS .................................................... 38

3.1 Selling Restrictions at Issuance ............................................................................. 38

3.2 Selling Restrictions After Issuance ........................................................................ 38

4.0 INVESTMENT CONSIDERATIONS ........................................... 39

4.1 Considerations Relating to the Business .............................................................. 39

4.2 Considerations Relating to the Subordinated Sukuk Murabahah ..................... 44

4.3 Considerations relating to Malaysian Banking Industry ..................................... 52

4.4 General Considerations ........................................................................................... 53

5.0 SELECTED FINANCIAL INFORMATION .................................... 56

6.0 DESCRIPTION OF MAYBANK ISLAMIC ..................................... 58

6.1 Introduction .............................................................................................................. 58

6.2 Principal Shareholders ............................................................................................ 60

6.3 Maybank Islamic Lines of Business ........................................................................ 60

6.4 Shariah Governance and Compliance ................................................................... 61

6.5 Employees ................................................................................................................. 63

7.0 FUNDING AND CAPITAL ADEQUACY ...................................... 64

7.1 Funding ...................................................................................................................... 64

7.2 Capital Adequacy ..................................................................................................... 65

8.0 ASSET QUALITY .............................................................. 67

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8.1 Financing Portfolio .................................................................................................. 67

8.2 Financing and Advances by Type .......................................................................... 67

8.3 Financing and Advances by Economic Purpose ................................................... 68

8.4 Classification and Impairment Provisions for Financing ................................... 68

8.5 Write-Off Policies .................................................................................................... 70

8.6 Profile of Impaired Financing ................................................................................ 70

8.7 Securities Portfolio .................................................................................................. 71

9.0 RISK MANAGEMENT ......................................................... 72

9.1 Risk Governance Structure ..................................................................................... 72

9.2 Holistic Enterprise Risk Management Approach .................................................. 74

9.3 The Group’s Seven Broad Principles of Risk Management ............................... 74

9.4 Risk Appetite ............................................................................................................ 75

9.5 Capital Management ............................................................................................. 75d

9.6 Internal Capital Adequacy Assessment Process (“ICAAP”) .............................. 76

10.0 MALAYSIAN BANKING INDUSTRY OVERVIEW ............................ 77

10.1 Economic Report 2013/2014 - Monetary and Financial Developments ......... 77

10.2 BNM – Economic and Financial Developments in Malaysia in the Fourth

Quarter of 2013 ........................................................................................................ 86

10.3 Prospects in 2014 ..................................................................................................... 88

11.0 BOARD OF DIRECTORS AND MANAGEMENT ............................. 90

11.1 Profile of Directors .................................................................................................. 90

11.2 Profile of Shariah Committee ................................................................................ 92

11.3 Senior Management ................................................................................................. 95

12.0 CONFLICT OF INTEREST AND APPROPRIATE MITIGATING MEASURES .

……………………………………………………………………………………………………………96

13.0 OTHER INFORMATION ...................................................... 98

13.1 Material Contracts ................................................................................................... 98

13.2 Material Litigation ................................................................................................... 98

13.3 Related Party Transaction ...................................................................................... 98

APPENDIX 1

Audited Financial Statements for the Financial Year Ended 31 December 2013

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GLOSSARY OF DEFINITIONS AND ABBREVIATIONS

Except where the context otherwise requires, the following abbreviations shall apply throughout this Information Memorandum:

“BNM” Bank Negara Malaysia

“Board” Board of Directors of Maybank Islamic

“Bursa Securities” Bursa Malaysia Securities Berhad (Company no. 635998-W)

“Cagamas” Cagamas Berhad (Company No. 157931-A)

“CAFIB” Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 28 November 2012 by BNM

“Capital Adequacy Framework”

Capital Adequacy Framework (Capital Components) issued on 28 November 2012 by BNM

“CCR” Core Capital Ratio

“CFS” Community Financial Services

“CMSA” Capital Markets and Services Act, 2007 or any statutory modification, amendment or re-enactment thereof for the time being in force

“CPI” Consumer Price Index

“FRS” Financial Reporting Standards

“FYE” Financial year ended 31 December

“GB” Global Banking

“GDP” Gross Domestic Product

“Government” Government of Malaysia

“IFSA” or the “Act” The Islamic Financial Services Act 2013

“IM” or “Information Memorandum”

This Information Memorandum dated 10 March 2014 in relation to the Subordinated Sukuk Programme

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“Maybank” Malayan Banking Berhad (3813-K)

“Maybank Board” Board of Directors of Maybank

“Maybank Group” or the “Group”

Maybank and its Subsidiaries

“Maybank IB” Maybank Investment Bank Berhad (Company No. 15938-H)

“Maybank Islamic” or “MIB” or the “Bank” or the “ Issuer”

Maybank Islamic Berhad (Company No. 787435-M)

“MIFC” Malaysia as an International Islamic Financial Centre

“NFBI” Net fund based income

“NPF” Non performing financing

“OPR” Overnight Policy Rate

“PTC” Principal terms and conditions of the Subordinated Sukuk Programme

“RAM Ratings” RAM Rating Services Berhad (Company No. 763588-T)

“RENTAS” Real Time Electronic Transfer of Funds and Securities operated and maintained by BNM.

“RMC” Risk Management Committee of Maybank

“RWCR” Risk weighted capital ratio

“SC” Securities Commissions Malaysia

“Senior Creditors” Depositors and all other creditors of the Issuer other than those creditors whose claims are expressed to rank pari passu with or junior to the claims of the holders of the Subordinated Sukuk Murabahah

“SMEs” Small and medium enterprises

“Subordinated Sukuk Murabahah”

Subordinated Sukuk Murabahah to be issued pursuant to the Subordinated Sukuk Programme

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“Subordinated Sukuk Programme”

Subordinated Sukuk Murabahah programme of up to RM10.0 billion in nominal value

“Subsidiaries” Has the meaning ascribed to it in the Companies Act 1965

“Sukukholders” The bearer for the time being of the Subordinated Sukuk Murabahah or the person for the time being entitled to the Subordinated Sukuk Murabahah

“Sukuk Trustee” Malaysian Trustees Berhad (Company No. 21666-V)

“Trust Deed” A trust deed between the Issuer and the Sukuk Trustee in relation to the Subordinated Sukuk Murabahah

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1.0 EXECUTIVE SUMMARY

The summary below aims to provide an overview of the information contained in the Information Memorandum. As such, it does not contain all the information that may be important to you and should therefore be read with this entire Information Memorandum.

1.1 Introduction The Issuer was incorporated under the Companies Act 1965 on 5 September 2007 under the name Maybank Islamic Berhad with its registered office at 14th Floor, Menara Maybank, 100, Jalan Tun Perak, 50050 Kuala Lumpur. The Issuer’s principal place of business is at Level 10, Tower A, Dataran Maybank, No. 1 Jalan Maarof, 59000 Kuala Lumpur. The Issuer is a wholly owned subsidiary of Maybank and the Issuer is the Islamic financing arm of Maybank under the universal-banking model. The Issuer started operations on 1 January 2008, after the transfer of its parent’s Islamic financing operations to the Issuer. The Issuer is principally engaged in the business of Islamic financing and provision of related financial services. Currently, the Issuer has 16 stand-alone branches in Malaysia while at the same time leverages on its parent’s extensive retail network of over 400 domestic branches (comprising fully fledged branches, services centres, and private banking centres), over 300 specialised centres (comprising Maybank kiosks, auto finance centres, equity investment centers, business centres, and SME and trade finance centres) and sales personnel in Malaysia.

1.2 The Issue

Brief Structure of the Subordinated Sukuk Murabahah The Subordinated Sukuk Programme has been structured to comply with CAFIB. The Subordinated Sukuk Programme provides flexibility for the Issuer to issue, from time to time, Subordinated Sukuk Murabahah during the tenure of the Subordinated Sukuk Programme, provided that the aggregate outstanding amount of the Subordinated Sukuk Murabahah shall not at any time exceed RM10.0 billion in nominal value. The tenure of the Subordinated Sukuk Programme shall be up to twenty (20) years, from the first issue date of the Subordinated Sukuk Murabahah. During this tenure, the Issuer has the option to issue Subordinated Sukuk Murabahah with maturity of at least five (5) years and up to twenty (20) years from the issue date with a call option, if applicable. For the Subordinated Sukuk Murabahah with the call option (“Call Option”), the Subordinated Sukuk Murabahah are callable (in whole or in part) on any periodic payment date after a minimum period of five (5) years from the date of issue (“Call Date”), at the option of the Issuer and subject to the Redemption Conditions (as defined in the PTC in Section 2 of this IM) being satisfied. The Subordinated Sukuk Murabahah may also be redeemed by the Issuer pursuant to the Regulatory Redemption (as defined in the PTC in Section 2 of this IM) or Tax Redemption (as defined in the PTC in Section 2 of this IM).

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None of the Subordinated Sukuk Murabahah shall carry a maturity date extending beyond the expiry of the tenure of the Subordinated Sukuk Programme. The Subordinated Sukuk Murabahah, will constitute direct, unconditional, unsecured and subordinated obligations of the Issuer ranking pari passu without any preference among themselves. The Subordinated Sukuk Murabahah will be subordinated in right and priority of payment, to the extent and in the manner provided for in the Subordinated Sukuk Murabahah, to all deposit liabilities and other liabilities of the Issuer except liabilities of the Issuer which by their terms rank pari passu in right and priority of payment with or which are subordinated to the Subordinated Sukuk Murabahah. The Subordinated Sukuk Murabahah will, in the event of a winding-up or liquidation of the Issuer, be subordinated in right of payments to the claims of Senior Creditors. The Subordinated Sukuk Murabahah will rank pari passu with all subordinated debt issued. The Subordinated Sukuk Murabahah shall be subject to non-viability loss absorption (as defined in the PTC in Section 2 of this IM) mechanism on the occurrence of a Non-Viability Event (as defined in the PTC in Section 2 of this IM). When non-viability loss absorption is triggered, if so required by BNM and/or Malaysian Deposit Insurance Corporation at their full discretion, the Subordinated Sukuk Murabahah (in whole or in part) will be written off and will be cancelled. The Subordinated Sukuk Murabahah shall be issued at par or at a premium (but not at a discount) to nominal value. The Subordinated Sukuk Murabahah may be issued via a direct/private placement or book building on a best efforts basis without prospectus.

The underlying transaction of the Subordinated Sukuk Programme The Subordinated Sukuk Murabahah shall be issued under the Shariah principle of Murabahah (via Tawarruq arrangement) which is one of the Shariah principles and concepts approved by SC Shariah Advisory Council (“SAC”).

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Underlying Transaction 1. Pursuant to a service agency agreement, Maybank Islamic will be

appointed by the Sukuk Trustee (acting on behalf of the Sukukholders) as the purchase agent (“Purchase Agent”) to purchase the Commodities (as defined in the PTC in Section 2 of this IM).

2. Maybank Islamic (as the “Purchaser”) will issue a purchase order to

Maybank Islamic (as the Purchase Agent) to buy the Commodities from the Sukuk Trustee (acting on behalf of the Sukukholders) at the Deferred Sale Price (as defined hereinafter).

3. The Purchase Agent will purchase the Commodities from a commodity

supplier (“Commodity Supplier”) in the Bursa Suq Al-Sila’ commodity market on a spot basis at a purchase price equivalent to the proceeds of the Subordinated Sukuk Murabahah (“Commodity Purchase Price”).

4. Maybank Islamic as the Issuer will, from time to time, issue Subordinated

Sukuk Murabahah which evidences the Sukukholders’ ownership in the Commodities and Purchaser’s obligation to pay the Deferred Sale Price to the Sukukholders upon sale of the Commodities to the Purchaser. The proceeds received from the Sukukholders shall be used by the Purchase Agent to pay the Commodity Purchase Price.

5. Subsequently, the Sukuk Trustee (on behalf of the Sukukholders) will sell

the Commodities to the Purchaser at a selling price equivalent to 100% of the nominal value of the relevant tranche of the Subordinated Sukuk Murabahah plus the aggregate periodic profits (“Periodic Profits”) on deferred payment terms (“Deferred Sale Price”).

6. The Purchaser shall sell, on a spot basis, the Commodities to a commodity

buyer (“Commodity Buyer”) for a cash consideration equal to the Commodity Purchase Price.

7. The Purchaser shall make periodic payments on each Periodic Payment

Date (as defined in the PTC in Section 2 of this IM) and final payment of the Deferred Sale Price at the maturity date of the Subordinated Sukuk Murabahah to the Sukukholders. Upon declaration of an Event of Default (as defined in the PTC in Section 2 of this IM) or early settlement pursuant to the Call Option (as defined in the PTC in Section 2 of this IM), the Tax Redemption (as defined in the PTC in Section 2 of this IM) or the Regulatory Redemption (as defined in the PTC in Section 2 of this IM), the Purchaser shall pay the outstanding Deferred Sale Price (subject to Ibra’ (as defined in the PTC in Section 2 of this IM)) as final settlement of the same to the Sukukholders.

The detailed PTC is set out in Section 2 of this Information Memorandum.

1.3 Utilisation of Proceeds

The proceeds from the Subordinated Sukuk Murabahah will be utilised for Shariah compliant purposes. The Issuer will utilise the proceeds for its business

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expansion programme, general banking, working capital and other Shariah compliant corporate purposes.

1.4 Rating

The Subordinated Sukuk Programme has been assigned a final rating of AA1/Stable by RAM Ratings.

1.5 Approvals Required

The following approvals and/or authorisation have been sought for the establishment of the Subordinated Sukuk Programme: (i) BNM for the proposed establishment of the Subordinated Sukuk

Programme. The approval from BNM for the above has been obtained vide their letter dated 19 December 2013; and

(ii) SC approval under Subsection 214(1) and authorisation under Subsection 256C(1) of the CMSA for the proposed establishment of the Subordinated Sukuk Programme. SC’s approval and authorisation has been obtained vide their letter dated 26 February 2014.

However, the approvals of the SC and BNM should not be taken to indicate that the SC or BNM recommends subscription or purchase of the Subordinated Sukuk. Investors should rely on their own evaluation to assess the merits and risks of the investment. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

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2.0 PRINCIPAL TERMS AND CONDITIONS

Words and expressions used and defined in this Section 2 shall, in the event of any inconsistency with the definition section of this Information Memorandum, only be applicable for this Section 2.

2.1 Background Information (a) Issuer

(i) Name : Maybank Islamic Berhad (“MIB” or the “Issuer”)

(ii) Address : Level 10, Tower A Dataran Maybank No. 1 Jalan Maarof 59000 Kuala Lumpur

(iii) Business registration number

: 787435-M

(iv) Date and place of incorporation

: 5 September 2007 / Malaysia

(v) Date of listing

: Not listed

(vi) Status on residence : Resident controlled company

(vii) Principal activities : A wholly owned subsidiary and the Islamic banking arm of Malayan Banking Berhad which is principally engaged in the business of Islamic financing and provision of related financial services.

(viii) Board of directors : The board of directors of the Issuer as at 28 February 2014: (i) Dato’ Seri Ismail bin Shahudin

(ii) Tan Sri Datuk Dr Hadenan bin A. Jalil

(iii) En Zainal Abidin bin Jamal

(iv) Tan Sri Ahmad Fuzi bin Abdul Razak

(v) Dato’ Dr. Muhammad Afifi al-Akiti

(ix) Structure of shareholdings and names of all substantial shareholders (as at 28 February 2014)

: Shareholder Shareholding

No. of shares held %

Malayan Banking Berhad

218,988,000 100

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(x) Authorised, issued and paid-up capital (as at 28 February 2014)

: Authorised Share Capital: RM500,000,000 comprising 500,000,000 ordinary shares of RM1.00 each. Issued and Paid-up Share Capital: RM218,988,000 comprising 218,988,000 ordinary shares of RM1.00 each.

(xi) Disclosure of the following:

If the Issuer or its board members have been convicted or charged with any offence under the securities laws, corporation laws or other laws involving fraud or dishonesty in a court of law, for the past five years prior to the date of application

If the Issuer has been subjected to any action by the stock exchange for any breach of the listing requirement or rules issued by the stock exchange, for the past five years prior to the date of application

: None None.

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2.2 Principal Terms and Conditions (a) Names of parties involved in the proposal, where applicable

(i) Principal adviser

: Maybank Investment Bank Berhad (“Maybank IB”).

(ii) Lead arranger : Maybank IB

(iii) Co-arranger

: Not applicable.

(iv) Solicitor

: Messrs Adnan Sundra & Low.

(v) Financial adviser

: Not applicable.

(vi) Technical adviser :

Not applicable.

(vii) Sukuk Trustee : Malaysian Trustees Berhad.

(viii) Shariah adviser : Maybank Islamic Berhad.

(ix) Guarantor :

Not applicable.

(x) Valuer :

Not applicable.

(xi) Facility agent

: Maybank IB.

(xii) Primary subscriber (under a bought-deal arrangement) and amount subscribed

: Not applicable.

(xiii) Underwriter and amount underwritten

: Not applicable.

(xiv) Central depository : Bank Negara Malaysia (“BNM”).

(xv) Paying agent

: BNM.

(xvi) Reporting accountant

:

Not applicable.

(xvii) Calculation agent

:

Not applicable.

(xviii) Others (please specify)

:

Lead Manager (“LM”) Maybank IB

(b) Islamic principles used : Murabahah (via Tawarruq arrangement).

(c) Facility description

: A subordinated Sukuk Murabahah (“Subordinated Sukuk Murabahah”) programme of up to RM10.0 billion in nominal value (“Subordinated Sukuk Programme”). The Subordinated Sukuk Murabahah shall comply with BNM’s Capital Adequacy Framework for Islamic Banks (Capital Components) (“CAFIB”) issued on 28 November 2012 in relation to requirements of a Tier 2 capital instrument.

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The Subordinated Sukuk Murabahah shall be issued under the Shariah principle of Murabahah (via Tawarruq arrangement) which is one of the Shariah principles and concepts approved by the Securities Commission (“SC”) Shariah Advisory Council (“SAC”). Underlying Transaction

Murabahah (via Tawarruq arrangement) 1. Pursuant to a service agency agreement, MIB will

be appointed by the Sukuk Trustee (acting on behalf of the Sukukholders) as the purchase agent (“Purchase Agent”) to purchase the Commodities.

2. MIB (as the “Purchaser”) will issue a purchase

order to MIB (as the Purchase Agent) to buy the Commodities from the Sukuk Trustee (acting on behalf of the Sukukholders) at the Deferred Sale Price (as defined hereinafter).

3. The Purchase Agent will purchase the

Commodities from a commodity supplier (“Commodity Supplier”) in the Bursa Suq Al-Sila’ commodity market on a spot basis at a purchase price equivalent to the proceeds of the Subordinated Sukuk Murabahah (“Commodity Purchase Price”).

4. MIB as the Issuer will, from time to time, issue

Subordinated Sukuk Murabahah which evidences the Sukukholders’ ownership in the Commodities and the Purchaser’s obligation to pay the Deferred Sale Price to the Sukukholders upon sale of the Commodities to the Purchaser. The proceeds received from the Sukukholders shall be used by the Purchase Agent to pay the Commodity Purchase Price.

5. Subsequently, the Sukuk Trustee (on behalf of

the Sukukholders) will sell the Commodities to the Purchaser at a selling price equivalent to 100% of the nominal value of the relevant tranche of the Subordinated Sukuk Murabahah plus the aggregate periodic profits (“Periodic Profits”) on deferred payment terms (“Deferred Sale Price”).

6. The Purchaser shall sell, on a spot basis, the

Commodities to a commodity buyer (“Commodity Buyer”) for a cash consideration equal to the Commodity Purchase Price.

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7. The Purchaser shall make periodic payments on each Periodic Payment Date (as defined in item 2(j) below) and final payment of the Deferred Sale Price at the maturity date of the Subordinated Sukuk Murabahah to the Sukukholders. Upon declaration of an Event of Default (as defined in item 2(v) below) or early settlement pursuant to the Call Option (as defined in item 2(g) below), the Tax Redemption (as defined in item 2(x) below) or the Regulatory Redemption (as defined in item 2(x) below), the Purchaser shall pay the outstanding Deferred Sale Price (subject to Ibra’) (as defined in Item 2(y)(8) below) as final settlement of the same to the Sukukholders.

The transaction diagram is depicted in Appendix I.

(d) Identified assets : Shariah compliant commodities (excluding ribawi items in the category of medium of exchange) ("Commodities").

(e) Purchase and selling price/ rental (where applicable)

: Purchase Price The Commodity Purchase Price in relation to each purchase of the Commodities shall be equal to the proceeds of the Subordinated Sukuk Murabahah. The Purchase Price shall comply with the SC’s SAC Asset Pricing Requirements as provided in the SC Guidelines on Sukuk. Sale Price The Deferred Sale Price shall comprise the nominal value of the relevant tranche of the Subordinated Sukuk Murabahah plus the aggregate Periodic Profits on a deferred payment basis and will be determined prior to the sale of the Commodities to the Purchaser.

(f) Issue/Sukuk programme size

: The nominal value of the Subordinated Sukuk Murabahah outstanding shall not exceed RM10.0 billion.

(g) Tenure of issue / Sukuk programme

: Subordinated Sukuk Programme Up to twenty (20) years from the date of the first issue of the Subordinated Sukuk Murabahah under the Subordinated Sukuk Programme. Subordinated Sukuk Murabahah Each Subordinated Sukuk Murabahah issued under the Subordinated Sukuk Programme shall have a tenure of at least five (5) years and up to twenty (20) years from the date of issue subject to the Call Option as

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described below, if applicable, and provided that the Subordinated Sukuk Murabahah mature prior to the expiry of the Subordinated Sukuk Programme. Call Option Each issuance of Subordinated Sukuk Murabahah under the Subordinated Sukuk Programme may have a callable option (“Call Option”) to allow the Issuer to redeem (in whole or in part) that tranche of Subordinated Sukuk Murabahah prior to maturity on the Call Date at the Redemption Amount subject to the Redemption Conditions being satisfied (as defined below). “Call Date” is defined as any Periodic Payment Date after a minimum period of five (5) years from the date of issue of that tranche of Subordinated Sukuk Murabahah.

(h) Availability period of Sukuk

programme : The Subordinated Sukuk Programme is available upon

completion of the Transaction Documents and compliance of all relevant condition precedents to the satisfaction of Principal Adviser/Lead Arranger, until the expiry of the tenure of the Subordinated Sukuk Programme. The first Subordinated Sukuk Murabahah shall be issued within two (2) years from the date of SC’s approval and authorisation.

(i) Profit / coupon/ rental rate

: The profit rate (“Profit Rate”) will be determined and agreed upon the completion of the book building and/or private-placement exercise to identified investors. The Profit Rate shall be applicable from the issue date of the respective Subordinated Sukuk Murabahah up to (but excluding) the date of early redemption or the maturity date of that tranche of Subordinated Sukuk Murabahah, whichever is earlier. For avoidance of doubt, there is no step-up Profit Rate after the Call Date of the Subordinated Sukuk Murabahah, in the event the Call Option is not exercised by the Issuer.

(j) Profit/ coupon/ rental payment frequency

: The Sukukholders will receive Periodic Profits at semi-annual intervals (“Periodic Payment Period”) in arrears with the first payment commencing six (6) months from the relevant issue date of the Subordinated Sukuk Murabahah and the last ending on the date falling on the maturity date or upon the early redemption of the Subordinated Sukuk Murabahah, whichever is earlier. Periodic Payment Date is the last day of a particular

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Periodic Payment Period.

(k) Profit / coupon/ rental payment basis

: Actual/365 days.

(l) Security/collateral, where applicable

: Nil.

(m) Details on utilization of proceeds by issuer/obligor. If proceeds are to be utilised for project or capital expenditure, the description of the project or capital expenditure, where applicable

: The proceeds from the Subordinated Sukuk Murabahah will be utilized for Shariah compliant purposes. The Issuer will utilize the proceeds for its business expansion programme, general banking, working capital and other Shariah compliant corporate purposes.

(n) Sinking fund and designated accounts, where applicable

: None

(o) Rating

: Final rating: AA1/stable Name of credit rating agency: RAM Rating Services Berhad

(p) Mode of issue : The Subordinated Sukuk Murabahah may be issued via direct/private placement or book building on a best efforts basis without prospectus, as the Issuer may select. Issuance of the Subordinated Sukuk Murabahah shall be in accordance with (1) the “Participation and Operation Rules for Payments and Securities Services” issued by Malaysian Electronic Clearing Corporation Sdn Bhd (“MyClear” or its successors-in-title or successor in such capacity) (“MyClear Rules” as may be amended or substituted from time to time) and (2) the Operational Procedures for Securities Services issued by MyClear (“MyClear Procedures” as may be amended and/or substituted from time to time), (collectively, “MyClear Rules and Procedures”); and (3) any other procedures/guidelines/rules issued by the relevant authorities from time to time (as the same may be amended and/or substituted from time to time).

(q) Selling restriction, including tradability, i.e. whether tradable or non-tradable

: The Subordinated Sukuk Murabahah is tradable and transferable subject to the Selling Restrictions described below. Selling Restrictions in Malaysia The Subordinated Sukuk Murabahah may only be issued, offered, sold, transferred or otherwise disposed directly or indirectly to a person to whom an offer or invitation to subscribe to the Subordinated

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Sukuk Murabahah and to whom the Subordinated Sukuk Murabahah are issued would: (1) at the point of issuance of the Subordinated

Sukuk Murabahah fall within:

(i) Schedule 6 (or Section 229(1)(b)) of the Capital Markets & Services Act 2007 (“CMSA”); and

(ii) Schedule 7 (or Section 230(1)(b)) of the CMSA; read together with

(iii) Schedule 9 (or Subsection 257(3)) of the CMSA.

(2) after the issuance of the Subordinated Sukuk

Murabahah fall within:

(i) Schedule 6 (or Section 229(1)(b)) of CMSA; read together with

(ii) Schedule 9 (or Subsection 257(3)) of the CMSA.

(r) Listing status and types of listing,

where applicable

: The Subordinated Sukuk Murabahah may be listed on Bursa Malaysia Securities Berhad under the Exempt Regime.

(s) Other regulatory approvals required in relation to the issue, offer or invitation to subscribe or purchase Sukuk, and whether or not obtained

: BNM’s approvals have been obtained on 19 December 2013 for the establishment of the Subordinated Sukuk Programme of up to RM10.0 billion in nominal value for the issuance of Subordinated Sukuk Murabahah.

(t) Conditions precedent : To include conditions precedent customary for transactions of this nature and for the first issuance under the Subordinated Sukuk Programme including, but not limited to the following: A. Main Documentation

The relevant Transaction Documents in relation to the Subordinated Sukuk Programme have been duly executed, and where applicable stamped (unless otherwise exempted) and presented for registration.

B. Issuer Receipt from the Issuer of: (i) Certified true copies of the Certificate of

Incorporation and the Memorandum and Articles of Association of the Issuer;

(ii) Certified true copies of the most recent Forms 24, 44 and 49 of the Issuer;

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(iii) Certified true copy of the board resolution of

the Issuer authorising, among others, the issuance of the Subordinated Sukuk Murabahah and the execution of all relevant documents thereto;

(iv) A list of the Issuer’s authorized signatories and their respective specimen signatures;

(v) A report of the relevant company search of the Issuer; and

(vi) A report of the relevant winding up search conducted on the Issuer.

1. C. General

(i) Evidence that the approval and authorization

from BNM and SC in respect of the establishment of the Subordinated Sukuk Programme has been obtained;

(ii) Confirmation from the rating agency that the Subordinated Sukuk Programme has obtained a minimum rating of AA1 by the rating agency;

(iii) Evidence of confirmation from the Shariah Adviser that the structure, mechanism and the transaction documents of the Subordinated Sukuk Programme are in compliance with Shariah has been obtained;

(iv) Satisfactory legal opinion from the Solicitor

confirming with respect to the legality, validity and enforceability of the Transaction Documents and confirmation that all conditions precedent thereto have been fulfilled; and

(v) Such other conditions precedent to be advised

by the Solicitor and agreed by the Issuer. 2.

D. Conditions for subsequent issuance

(i) Evidence that the approval or authorization from regulatory authorities has been obtained (if applicable); and

(ii) Such other conditions to the subsequent issuance customary for transaction of this nature, as may be advised by the Solicitors and agreed by the Issuer.

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(u) Representations and warranties

: Representations and warranties usual and customary for an issuance of such nature, which shall include but are not limited to the following: (i) The Issuer (a) has been duly incorporated and

validly exists under the Companies Act 1965 of Malaysia, (b) has full power and authority to engage in the business of Islamic financing in Malaysia and each other jurisdiction where it is so engaged and otherwise to own its properties and conduct its business, and (c) is duly qualified to transact business under the laws of Malaysia and each other jurisdiction in which it owns or leases properties, or conduct any business, so as to require such qualification, other than where the failure to be so qualified would not have a Material Adverse Effect;

(ii) The Subordinated Sukuk Murabahah has been duly authorised, and when issued and delivered pursuant to the Transaction Documents, will have been duly executed, authenticated, issued and delivered and will constitute valid and binding obligations of the Issuer entitled to the benefits provided by the Transaction Documents;

(iii) No event has occurred which would constitute

an Event of Default (as defined below) under the Subordinated Sukuk Murabahah or which with the giving of notice or the lapse of time or other condition would constitute an Event of Default;

(iv) The Issuer is not in breach of the provisions of

any law or regulations governing any approvals, consents, authorisation and/or any licenses and, after due and careful consideration, the Issuer is not aware of any reason why any approval, consent, authorisation and/or license should be withdrawn or cancelled or any conditions attached thereto adversely altered, other than where the absence of such approval, consent, authorisation and/or license would not have a Material Adverse Effect;

(v) There are no legal or governmental proceedings

pending or, to the knowledge of the Issuer, threatened, to which the Issuer is or may be a party or to which any property or asset of the Issuer is or may be the subject which, if determined adversely to the Issuer, could individually or in the aggregate reasonably be expected to have a Material Adverse Effect;

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(vi) The Issuer has all licenses, franchises, permits, authorisations, approvals, orders and other concessions of and from all governmental and regulatory officials and bodies that are necessary to own or lease its properties and conduct its business, other than where the failure to obtain such licenses, franchises, permits, authorisations, approvals, orders and other concessions would not have a Material Adverse Effect; and

(vii) The Issuer and its obligations under Transaction

Documents and the Subordinated Sukuk Murabahah are subject to commercial law and to suit in Malaysia and neither the Issuer nor any of its properties, assets or revenues has any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any court, from set off or counterclaim, from the jurisdiction of any court, or other legal process or proceeding for the giving of any relief or for the enforcement of judgment, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with the Transaction Documents and the Subordinated Sukuk Murabahah.

(v) Events of default, dissolution

event and enforcement event where applicable

: The events of default (“Events of Default”) means the following:- (a) If the Issuer defaults in payment of any

principal or profits or any other amount under the Subordinated Sukuk Programme and such default continues for a period of seven (7) business days, the Sukuk Trustee may subject to the terms of the Trust Deed, institute proceedings to enforce the payment obligations under the Subordinated Sukuk Murabahah and may institute proceedings in Malaysia for the winding-up of the Issuer, provided that neither the Sukuk Trustee nor any of the Sukukholders shall have the right to accelerate payment of the Subordinated Sukuk Murabahah in the case of such default in the payment of amount owing under the Subordinated Sukuk Murabahah or any default in the performance of any condition, provision or covenant under the Subordinated Sukuk Programme or the Transaction Documents.

(b) If:

(i) a court or an agency or regulatory authority in Malaysia having jurisdiction in respect of the same shall have instituted any

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proceeding or entered a decree or order for the appointment of a receiver or liquidator in any insolvency, rehabilitation, readjustment of debt, marshalling of assets and liabilities, or similar arrangements involving the Issuer or all or substantially all of its property, or for the winding up of or liquidation of its affairs and such proceeding, decree or order shall not have been vacated or shall have remained in force, undischarged or unstayed for a period of sixty (60) days; or

(ii) the Issuer shall file a petition to take

advantage of any insolvency statute (which for this purpose includes under any insolvency related provisions in any companies statute),

and the Sukuk Trustee may enforce its rights under the Transaction Documents to require the Purchaser to make payment of all outstanding Deferred Sale Price (subject to any agreed Ibra’). For the avoidance of doubt, the occurrence of Event of Default (a) above for any tranche of the Subordinated Sukuk Murabahah will not trigger the Event of Default for other tranches of the Subordinated Sukuk Murabahah outstanding. However, occurrence of Event of Default (b) above will trigger an Event of Default for all tranches of the Subordinated Sukuk Murabahah outstanding.

(w) Covenants

: The Issuer shall comply with such applicable covenants as may be advised by the Solicitors and/or which are required in order to comply with the SC’s Trust Deeds Guidelines, including but not limited to the following: (i) At all times comply with the provisions of the

Trust Deed and the terms and conditions of the Transaction Documents;

(ii) Redeem in full or in part outstanding Subordinated Sukuk Murabahah in accordance with the terms and conditions of the Transaction Documents;

(iii) At all times provide the Sukuk Trustee such

information as it may reasonably require in order to discharge of its duties and obligations under the Trust Deed relating to the affairs of the Issuer to the extent as permitted by law;

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(iv) At all times maintain a paying agent in Malaysia;

(v) Procure that the paying agent shall notify the

Sukuk Trustee in the event that the paying agent does not receive payment from the Issuer on the due dates as required under the Transaction Documents;

(vi) At all times keep proper books and accounts

and provide to the Sukuk Trustee and any person appointed by it access to such books and accounts to the extent permitted by law;

(vii) Notify the Sukuk Trustee immediately in the

event that the Issuer becomes aware of the following:

(a) any Event of Default or the occurrence of

any event that has caused or could cause one or more of the following: (a) any amount payable under the Subordinated Sukuk Murabahah become immediately payable; (b) the Subordinated Sukuk Murabahah become immediately enforceable; or (c) any other rights or remedies under the terms and conditions of the Subordinated Sukuk Murabahah or the Trust Deed to become immediately enforceable;

(b) any circumstance that has occurred that would materially prejudice the Issuer ;

(c) any substantial change in the nature of the

business of the Issuer;

(d) any change in the utilisation of proceeds from the Subordinated Sukuk Murabahah other than for the purpose stipulated in the information memorandum and the Transaction Documents;

(e) of any other matter that may materially

prejudice the interest of the holders of the Subordinated Sukuk Murabahah; and

(f) any change in the Issuer’s withholding tax

position;

(viii) Deliver to the Sukuk Trustee a copy of its annual audited financial statements within one hundred eighty (180) days after the end of each financial year, its semi-annual unaudited financial statements within ninety (90) days

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after the end of each half of its financial year and any other accounts, reports, notices, statements or circulars issued to shareholders;

(ix) Deliver to the Sukuk Trustee annually a certificate within one hundred eighty (180) days after the end of each financial year that the Issuer has complied with its obligations under the Trust Deed and the terms and conditions of the Subordinated Sukuk Murabahah and that there did not exist or had not existed, from the date the Subordinated Sukuk Murabahah was issued or from the date of the last certificate, any Event of Default and if such is not the case, to specify the same;

(x) Exercise reasonable diligence in carrying out its

business in a proper and efficient manner which shall ensure, among others, that all necessary approvals or relevant licences are obtained and maintained; and

(xi) Ensure that the Trust Deed and the information memorandum do not contain any matter or information which is inconsistent between them.

(x) Provision on buy-back and early

redemption of Sukuk

: Purchase and Cancellation The Issuer or any of its subsidiaries or related corporations or agents of the Issuer may at any time purchase, subject to items (i) and (ii) below the Subordinated Sukuk Murabahah at any price in the open market or by private treaty provided no Non-Viability Event (as defined below) has occurred prior to the date of such purchase. If purchase is made by tender, such tender must (subject to any applicable rules and regulations) be made available to all Sukukholders equally. Subject to prior approval by BNM (but which approval shall not be required for a purchase done in the ordinary course of business), the Subordinated Sukuk Murabahah purchased by the Issuer or its subsidiaries or by agents of the Issuer (save for those purchased in the ordinary course of business) shall be cancelled and shall not be resold. The Subordinated Sukuk Murabahah purchased by other related corporations (other than the Issuer’s subsidiaries) or any interested person of the Issuer, which includes the directors, major shareholders and chief executive officer, need not be cancelled but they will not entitle such related corporations or interested person of the Issuer to vote under the

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terms of the Subordinated Sukuk Murabahah subject to any exceptions in the Trust Deeds Guidelines. For the avoidance of doubt, the Subordinated Sukuk Murabahah held by related corporations and any interested person of the Issuer shall not be counted for the purposes of voting subject to any exceptions in the Trust Deeds Guidelines. For the purpose of this clause, the term “related corporation” has the meaning given to it in the Companies Act, 1965 and the term “ordinary course of business” includes those activities performed by the Issuer, any of the Issuer’s subsidiaries or any other related corporations of the Issuer for third parties (such as clients of the Issuer, the Issuer’s subsidiaries’ and the Issuer’s related corporations) and excludes those performed for the own account of the Issuer or such related corporation. Call Option The Issuer may, at its option and subject to the Redemption Conditions being satisfied, redeem in whole or in part the Subordinated Sukuk Murabahah prior to the maturity on the Call Date at the Redemption Amount (as defined in item 2(y)(10) below) (where Call Option is applicable). In the case of a partial redemption of Subordinated Sukuk Murabahah of a tranche pursuant to the Call Option, the selection of the Subordinated Sukuk Murabahah to be redeemed will be made by the Sukuk Trustee on a pro rata basis, by lot or by such other method as the Sukuk Trustee (with the agreement of the Issuer) will deem to be fair and appropriate, although no Subordinated Sukuk Murabahah of RM10.0 million in original nominal value or less will be redeemed in part. Redemption on Maturity Unless previously redeemed on the Call Date (if applicable) or redeemed pursuant to a Regulatory Event (as defined below) or a Tax Event (as defined below) or purchased from the market and cancelled, the Subordinated Sukuk Murabahah will be redeemed by the Issuer at the Redemption Amount upon their respective maturity date(s). Tax Redemption If there is more than an insubstantial risk as

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determined by the Issuer that: 1. the Issuer has or will become obliged to pay any

additional taxes, duties, assessments or government charges of whatever nature in relation to the Subordinated Sukuk Murabahah;

2. the Issuer would no longer obtain tax deductions

for the purposes of Malaysian corporation tax for any payment in respect of the Subordinated Sukuk Murabahah;

as a result of a change in, or amendment to, the laws or regulations of Malaysia or any political subdivision or any authority thereof or therein having power to tax, or change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the issue date and the Issuer cannot, by taking reasonable measures available to it, avoid such obligations (“Tax Event”), then the Issuer may, at its option, redeem the Subordinated Sukuk Murabahah (in whole or in part) at the Redemption Amount, subject to the Redemption Conditions being satisfied. Regulatory Redemption The Issuer may, at its option, redeem the Subordinated Sukuk Murabahah (in whole or in part) at the Redemption Amount, subject to the Redemption Conditions being satisfied if a Regulatory Event (as defined below) occurs. “Regulatory Event” means any time there is more than an insubstantial risk, as determined by the Issuer, that: (i) all or any part of the Subordinated Sukuk

Murabahah will, either immediately or with the passage of time or upon either the giving of notice or fulfillment of a condition, no longer qualify as Tier 2 capital of the Issuer for the purposes of BNM’s capital adequacy requirements under any applicable regulations; or

(ii) changes in law will make it unlawful for the

Issuer to continue performing its obligations under all or any part of the Subordinated Sukuk Murabahah.

In the case of a partial redemption of Subordinated Sukuk Murabahah of a tranche pursuant to the Regulatory Redemption or Tax Redemption, the selection of the Subordinated Sukuk Murabahah to be

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redeemed will be made by the Sukuk Trustee on a pro rata basis, by lot or by such other method as the Sukuk Trustee (with the agreement of the Issuer) will deem to be fair and appropriate, although no Subordinated Sukuk Murabahah of RM10.0 million in original nominal value or less will be redeemed in part.

(y) Other principal terms and conditions for the proposal

(1) Status

: The Subordinated Sukuk Murabahah will constitute direct, unconditional, unsecured and subordinated obligations of the Issuer ranking pari passu without any preference among themselves. The Subordinated Sukuk Murabahah will be subordinated in right and priority of payment, to the extent and in the manner provided for in the Subordinated Sukuk Murabahah, to all deposit liabilities and other liabilities of the Issuer except liabilities of the Issuer which by their terms rank pari passu in right and priority of payment with or which are subordinated to the Subordinated Sukuk Murabahah. The Subordinated Sukuk Murabahah will, in the event of a winding-up or liquidation of the Issuer, be subordinated in right of payments to the claims of Senior Creditors (as defined below). The Subordinated Sukuk Murabahah will rank pari passu with all subordinated debt issued. “Senior Creditors” means depositors and all other creditors of the Issuer other than those creditors whose claims are expressed to rank pari passu with or junior to the claims of the holders of the Subordinated Sukuk Murabahah.

(2) Non-viability event : A Non-Viability Event means the earlier to occur of: (i) BNM, jointly with the Malaysian Deposit Insurance

Corporation (“PIDM”) notify the Issuer in writing that BNM and PIDM are of the opinion that a write-off is necessary, without which the Issuer would cease to be viable; or

(ii) BNM and PIDM publicly announce that a decision has been made by BNM, PIDM or any other federal or state government in Malaysia, to provide a capital injection or an equivalent support to the Issuer, without which the Issuer would cease to be viable.

(3) Non-viability loss

absorption : At the point of a Non-Viability Event, the Issuer shall

irrevocably, without the consent of the Sukukholders, write-off the Subordinated Sukuk Murabahah in whole or in part thereof, if so required by BNM and/or PIDM at their full discretion.

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In the event the Subordinated Sukuk Murabahah are written-off, any written-off amount shall be irrevocably lost and the Sukukholders of such Subordinated Sukuk Murabahah will cease to have any claims for any principal, accrued but unpaid Periodic Profits or any other amount due in respect of such Subordinated Sukuk Murabahah which have been written-off. For the avoidance of doubt, the exercise of the loss absorption at the point of non-viability shall not constitute an Event of Default or trigger cross-default clauses. Upon the occurrence of a Non-Viability Event, the Issuer is required to give notice to the Sukukholders and RAM Ratings in accordance with the terms of the Subordinated Sukuk Murabahah, then as of the relevant write-off date, the write-off shall extinguish the claim of the Subordinated Sukuk Murabahah, in liquidation, which will mean that the Sukukholders written off will be automatically deemed to irrevocably waive their right to receive, and no longer have any rights against the Issuer with respect to, payment of the aggregate principal amount of the respective Subordinated Sukuk Murabahah written off, the amount paid when a call option is exercised and payment of the Periodic Profits on the Subordinated Sukuk Murabahah written off. The write-off shall be permanent and the full principal amount of the Subordinated Sukuk Murabahah together with all unpaid Periodic Profits thereon that are or would be payable upon the relevant maturity date, an early redemption or the occurrence of an Event of Default under Clause 2(v)(b) will automatically be written off and such Subordinated Sukuk Murabahah and unpaid Periodic Profits will be immediately and fully cancelled as of such write-off date. For the avoidance of doubt, BNM shall have the option to require the entire principal amount of the Subordinated Sukuk Murabahah outstanding, or a part thereof, and all other amount owing under the Subordinated Sukuk Murabahah Programme, be written-off. Where the Subordinated Sukuk Murabahah are included as capital at the consolidated level of Malayan Banking Berhad, the Subordinated Sukuk Murabahah may, at the option of BNM and PIDM, be written-off upon the occurrence of a trigger event in relation to Malayan Banking Berhad as described in

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paragraph 32.1 of the Capital Adequacy Framework (Capital Components) issued by BNM dated 28 November 2012.

(4) Compensation (Ta’widh) : Ta’widh shall be payable in the event of delay in payment of the Deferred Sale Price due and payable to the Sukukholders. The rate of the Ta’widh for the Subordinated Sukuk Murabahah is based on the rate and manner as prescribed by the SC’s Shariah Advisory Council from time to time.

(5) Transaction Documents : The terms and conditions of the Subordinated Sukuk Programme shall be set out in various agreements, including but not limited to the Trust Deed, Programme Agreement and any other relevant documents agreed between the parties that may be required for transactions of this nature as advised by the Solicitor and agreed by such parties in form and substance acceptable to the parties to the Transaction Documents, including the Sukuk Trustee, the PA/LA and the Issuer.

(6) Governing law and jurisdiction

: Laws of Malaysia and exclusive jurisdiction of the courts of Malaysia.

(7) Other conditions : The Subordinated Sukuk Murabahah shall at all times be governed by the guidelines issued and to be issued from time to time by the SC, BNM and MyClear over matters pertaining to the Subordinated Sukuk Murabahah and the Subordinated Sukuk Programme.

(8) Ibra’ : Ibra’ refers to an act by a person relinquishing his claims or rights to collect payment due from another person whether partially or in whole. For the avoidance of doubt, the Sukukholders in subscribing or purchasing the Subordinated Sukuk Murabahah consent to grant Ibra’ (if any) in the following situations: (i) If the Subordinated Sukuk Murabahah is

redeemed before the maturity date, upon the declaration of an Event of Default, Call Option, Regulatory Redemption or the Tax Redemption (whichever is applicable). In case of declaration of an Event of Default, Call Option, Tax Redemption or Regulatory Redemption (whichever is applicable) the rebate (Ibra’) shall be the unearned profit due to the Sukukholders from the date of redemption of the Subordinated Sukuk Murabahah upon the declaration of an Event of Default, Call Option, Tax Redemption or Regulatory Redemption (whichever is applicable) up to the maturity of

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the Subordinated Sukuk Murabahah. 3.

(ii) In respect of a write-off at the point of a Non-Viability Event, the Sukukholders relinquish their rights (Ibra’) to the payment of the outstanding Deferred Sale Price due from the Purchaser, such amount corresponding to the aggregate principal amount and the Periodic Profits of the Subordinated Sukuk Murabahah to be written off.

(9) Subordination of payment : The Sukukholders agree to the subordination of payment of the Deferred Sale Price to the Sukukholders to be consistent with the ranking of the Subordinated Sukuk Murabahah against the Senior Creditors of the Issuer.

(10) Definition:

Material Adverse Effect : Means the occurrence of any event which materially and adversely affects the ability of the Issuer to perform any of its obligations under any of the Transaction Documents or which materially and adversely affects the business, financial position, shareholders’ funds or results of the operations of the Issuer.

Redemption Conditions : Redemption Conditions of the Subordinated Sukuk Murabahah means: (1) the Issuer must have received a written approval

from BNM prior to redemption of the tranche of any of the Subordinated Sukuk Murabahah;

(2) the Issuer is solvent at the time of redemption of such tranche of the Subordinated Sukuk Murabahah and immediately thereafter;

(3) the Issuer is not in breach of BNM’s minimum capital adequacy requirements and capital buffer requirements applicable to the Issuer after redemption of such tranche of the Subordinated Sukuk Murabahah; and

(4) in respect of a Call Option only, the Issuer shall:

(i) replace the called or redeemed tranche of the Subordinated Sukuk Murabahah with capital of the same or better quality and the replacement of this capital shall be done at conditions which are sustainable for the income capacity of the Issuer, or

(ii) demonstrate to BNM that its capital position is well above the capital adequacy

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and capital buffer requirements after redemption of such tranche of the Subordinated Sukuk Murabahah.

Redemption Amount : Means the nominal value of the Subordinated Sukuk

Murabahah plus accrued but unpaid Periodic Profits. The Redemption Amount payable by the Issuer on the declaration of an Event of Default or on a Call Date (if applicable) or redeemed pursuant to a Regulatory Event or a Tax Event, is an amount as determined by the Facility Agent, which shall be calculated in accordance with the above formula.

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Appendix 1

Transaction Structure

Diagram : Murabahah (based on Tawarruq)

1. Pursuant to a service agency agreement, MIB will be appointed by the Sukuk Trustee (acting on behalf of the Sukukholders) as the purchase agent (“Purchase Agent”) to purchase the Commodities.

2. MIB (as the “Purchaser”) will issue a purchase order to MIB (as Purchase Agent) to buy the

Commodities from the Sukuk Trustee (acting on behalf of the Sukukholders) at the Deferred Sale Price (as defined hereinafter).

3. The Purchase Agent will purchase the Commodities from a commodity supplier

(“Commodity Supplier”) in the Bursa Suq Al-Sila’ commodity market on a spot basis at a purchase price equivalent to the proceeds of the Subordinated Sukuk Murabahah (“Commodity Purchase Price”).

4. MIB as the Issuer will, from time to time, issue Subordinated Sukuk Murabahah which

evidences the Sukukholders’ ownership in the Commodities and the Purchaser’s obligation to pay the Deferred Sale Price to the Sukukholders upon sale of the Commodities to the Purchaser. The proceeds received from the Sukukholders shall be used by the Purchase Agent to pay the Commodity Purchase Price.

5. Subsequently, the Sukuk Trustee (on behalf of the Sukukholders) will sell the Commodities

to the Purchaser at a selling price equivalent to 100% of the nominal value of the relevant tranche of the Subordinated Sukuk Murabahah plus the aggregate periodic profits (“Periodic Profits”) on deferred payment terms (“Deferred Sale Price”).

6. The Purchaser shall sell, on a spot basis, the Commodities to a commodity buyer

(“Commodity Buyer”) for a cash consideration equal to the Commodity Purchase Price. 7. The Purchaser shall make periodic payments on each Periodic Payment Date (as defined in

item 2(j) of the Principal Terms and Conditions (“PTC”)) and final payment of the Deferred Sale Price at the maturity date of the Subordinated Sukuk Murabahah to the Sukukholders. Upon declaration of an Event of Default (as defined in item 2(v) of the PTC) or early

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settlement pursuant to the Call Option (as defined in item 2(g) of the PTC), the Tax Redemption (as defined in item 2(x) of the PTC) or the Regulatory Redemption (as defined in item 2(x) of the PTC), the Purchaser shall pay the outstanding Deferred Sale Price (subject to Ibra’) (as defined in item 2(y)(8) of the PTC) as final settlement of the same to the Sukukholders.

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3.0 SELLING RESTRICTIONS

3.1 Selling Restrictions at Issuance:

The Subordinated Sukuk Murabahah shall not be offered, sold, transferred or otherwise disposed, directly or indirectly in Malaysia other than to persons falling within any of the categories of persons or in the circumstances specified under: (i) Schedule 6 (or Section 229(1)(b)); and (ii) Schedule 7 (or Section 230(1)(b)); read together with (iii) Schedule 9 (or Subsection 257(3)) of the CMSA, as amended from time to time.

3.2 Selling Restrictions After Issuance: The Subordinated Sukuk Murabahah shall not be offered, sold, transferred or otherwise disposed directly or indirectly in Malaysia other than to persons falling within any of the categories of persons or in the circumstances specified under: (i) Schedule 6 (or Section 229(1)(b)); read together with (ii) Schedule 9 (or Subsection 257(3)) of the CMSA, as amended from time to time.

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4.0 INVESTMENT CONSIDERATIONS

An investment in the Subordinated Sukuk Murabahah involves risks and such investment is only suitable for investors who have knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and merits of such an investment. Prospective investors of the Subordinated Sukuk Murabahah should consider carefully all information set out in this Information Memorandum and, in particular, the following risks involved. The Subordinated Sukuk Murabahah is subject to certain risks that could adversely affect the business of Maybank Islamic. The following section summarizes certain risks associated with the investment in the Subordinated Sukuk Murabahah and does not purport to be complete or exhaustive. Prospective investors are strongly encouraged to undertake their own investigations and analysis on Maybank Islamic, its business and risks associated with the Subordinated Sukuk Murabahah. In addition to the other information contained in this Information Memorandum, prospective investors of the Subordinated Sukuk Murabahah are strongly advised to read and carefully consider, in light of their own financial circumstances and investment objectives, the factors discussed below and to conduct their own independent investigation of the risks posed by the Subordinated Sukuk Murabahah and consult their own financial and legal advisors on the risks associated with the investment in the Subordinated Sukuk Murabahah prior to making an investment in the Subordinated Sukuk Murabahah.

The information contained in this Information Memorandum includes forward looking statements, which implies risks and uncertainties. Maybank Islamic’s actual results could differ materially from those anticipated in these forward looking statements and/or otherwise projected as a result of certain factors, including but not limited to those set forth in this section.

Each Subordinated Sukuk Murabahah will carry different risks and all potential investors are strongly encouraged to evaluate each Subordinated Sukuk Murabahah on its own merit before investing in such Subordinated Sukuk Murabahah.

4.1 Considerations Relating to the Business

4.1.1 Credit Risks and Asset Quality Management

Credit risks arising from adverse changes in the credit quality and recoverability of financing, advances and amounts due from counterparties are inherent in a wide range of Maybank Islamic’s businesses. Credit risks could arise from a deterioration in the credit quality of specific counterparties of Maybank Islamic, from a general deterioration in local or global economic conditions or from systemic risks with the financial systems, all of which could affect the recoverability of its assets and other credit exposures. Asset quality is a key driver of a bank’s performance. Maybank Islamic adopts prudent credit risk management policies to manage its asset quality. Maybank Islamic recognises that credit policies need to be responsive to the changing environment and diverse market conditions. Additionally, the establishment and application of financing rules, policies and guidelines are consistently applied throughout Maybank Group. Maybank Islamic appreciates that financing pricing has to reflect the cost of risk in order to generate an optimal return on capital.

Although Maybank Islamic believes that it has adopted a sound asset quality management system, there is no assurance that the system will remain

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effective or adequate in the future. A significant deterioration of asset quality or material non-compliance with its credit risk management policies or asset quality management system may adversely affect the business, financial condition and results of operations of Maybank Islamic.

4.1.2 Classification and Provisioning Policy for Impaired Financing

With the adoption of FRS 139 from 1 July 2010, financing are classified as impaired when principal or profit or both are past due for three months or more or where loans in arrears for less than three months exhibit indications of credit weaknesses, whether or not impairment loss has been provided for. The Issuer reviews its individually significant financing and advances at each statement of financial position date to assess whether there is any objective evidence that a financing or group of financing is impaired. The financing or group of financing is deemed to be impaired only if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the financing (an incurred “loss event”) and that the loss event has an impact on future estimated cash flows of the financing or group of financing that can be reliably estimated. The carrying amount of the financing is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Financing and advances that have been assessed individually and found not to be impaired and all individually insignificant financing and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the financing portfolio (such as credit quality, levels of arrears, credit utilisation, financing to collateral ratios etc.), concentrations of risks and relevant economic data. While Maybank Islamic believes that its financing portfolio is adequately provided, no assurance can be given that the level of allowances would prove to be adequately provided or that Maybank Islamic would not have to make significant additional allowances for possible financing losses in the future.

4.1.3 Liquidity Risks and Sources of Funding

Liquidity risks could arise from the inability of Maybank Islamic to anticipate and provide for unforeseen decreases or changes in funding sources which could have adverse consequences on Maybank Islamic’s ability to meet its obligations when they fall due. Maybank Islamic has a diversified liability structure to meet its funding requirements. The primary sources of funding include customer deposits, interbank deposits, placement of funds from parent bank and securitisation of its financing to Cagamas. The Bank has a stable customer deposit base as its main source of long term funding. The growth in deposits is attained

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through Maybank Islamic’s 16 dedicated branches and its co-located operations at more than 400 Maybank branches nationwide. Additionally, the Bank has access to interbank lines established with various counterparty banks. Maybank Islamic continuously explores different avenues to diversify its funding sources through a variety of instruments, including negotiable certificate of deposits and Islamic securities issuance. Although the Bank’s policy is to maintain prudent liquidity risk management, a diversified and stable source of sustainable funding and minimise undue reliance on any particular funding source, there is no assurance that such a policy can be maintained and that there will not be a liquidity crisis affecting the Bank, and the failure to maintain such adequate sources of funding may adversely affect the business, financial condition and results of operations of the Bank.

4.1.4 Rate of Return Risks

The Bank’s exposure to rate of return risk arises from its balance sheet positions that are indexed against certain profit rates, such as financing, securities, traditional and inter-bank deposits. Fluctuations in rates of return will affect Maybank Islamic’s earnings stream and level of income through changes in net fund-based income. Adverse impact on net fund-based income resulting from the movements of market rates can be caused by differences in the timing of accrual changes (repricing risk), changing rate and yield curve relationships (basis and yield curve risks) and option risk embedded in certain products. Measures such as rate of return risk limits have been established to control and manage the potential loss of income from adverse rate of return movements. Strategies and mitigating actions are regularly reviewed and executed interchangeably to improve its operation under various rate of return scenarios. Strategies adopted include adjusting the maturity tenor or repricing tenor of assets and liabilities, re-strategising new business growth, securing long term fixed rate funding and entering into profit rate derivative contracts. Analysis of this risk is complicated by having to make assumptions on optionality of certain products such as prepayment of mortgage financing and hire purchase financing, and effective duration of liabilities, which are contractually repayable on demand such as current accounts and saving accounts. The impact on earnings is measured against the approved earnings at risk limit where new business and hedging strategies will be formulated and implemented to manage the rate of return risk exposure through approved frameworks and policies, which benchmark against international best practice, i.e., Bank for International Settlement (“BIS”) standards such as Basel II and Basel III. Although Maybank Islamic believes that it has adopted sound rate of return management strategies and intends to maintain it, no assurance can be given that such strategies will remain effective or adequate in the future.

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4.1.5 Operational Risks Operational risks and losses can result from fraud, error by employees, failure to document transactions properly or to obtain proper internal authorisation, failure to comply with regulatory requirements and conduct of business rules, the failure of internal systems, equipment and external systems (e.g., those of Maybank Islamic’s and Maybank Group’s counterparties or vendors) and occurrence of natural disasters. Although Maybank Islamic and Maybank Group have implemented risk controls and loss mitigation strategies and substantial resources are devoted to developing efficient procedures, it is not possible to entirely eliminate any of the operational risks. In addition, Maybank Islamic and the Group seeks to protect its computer systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems caused by Maybank Islamic’s and the Group’s increased use of the internet. Computer break-ins and power disruptions could affect the security of information stored in, and transmitted through, these computer systems and network infrastructure. Maybank Islamic and Maybank Group employs security systems, including firewalls and password encryption, designed to minimise the risk of security breaches. There can be no assurance that these security measures will be adequate or successful.

A significant fraud, system failure, calamity or failure in security measures could have a material adverse effect on Maybank Islamic’s business, financial condition, results of operations and prospects. In addition, Maybank Islamic’s reputation could be adversely affected by significant frauds committed by employees, customers or other third parties.

4.1.6 Deterioration in collateral values or inability to realise collateral

value may necessitate an increase in the Bank’s provisions

A significant portion of the Bank’s financing are secured by collateral such as real estate and securities, the values of which may decline with a downturn in global economic conditions and/or outlook. Any downward adjustment in collateral values may lead to a portion of the Bank’s financing exceeding the value of the underlying collateral. Such downward adjustment which will impact the future cash flow recovery and combined with a deterioration in the general credit worthiness of borrowers, may result in an increase in the Bank’s financing loss provisions and potentially reducing its financing recoveries from foreclosures of collateral, which could have an adverse effect on the business, financial condition and results of operations of the Bank.

4.1.7 Implementation of BNM’s CAFIB and Capital Adequacy Framework

Pursuant to BNM’s CAFIB and Capital Adequacy Framework, which are derived from internationally-agreed standards on capital adequacy promulgated by Basel Committee on Banking Supervision (“BCBS”) established by the BIS, BNM requires all banks in Malaysia to maintain the following minimum capital adequacy ratio requirements: (i) a common equity Tier 1 (“CET1”) capital ratio of 3.5% in 2013, 4.0%

in 2014 and 4.5% in 2015;

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(ii) a Tier 1 capital ratio of 4.5% in 2013, 5.5% in 2014 and 6.0% in 2015;

and (iii) a total capital ratio of 8.0% from 1 January 2013 onwards,

which would result in Maybank Islamic requiring to increase the minimum quantity and quality of capital which it is obliged to maintain. The capital requirements would be supplemented by a leverage ratio, a liquidity coverage ratio and a net stable funding ratio.

In addition, such banks will be required to maintain a capital conservation buffer based on a percentage of total risk weighted assets, being 0.625% in calendar year 2016, 1.25% in calendar year 2017, 1.875% in calendar year 2018 and 2.5% in calendar year 2019. Separately, such banks will be required to maintain a countercyclical capital buffer ranging between 0.0% and 2.5% of total risk weighted assets subject to scaling factors of 25% in calendar year 2016, 50% in calendar year 2017, and 75% in calendar year 2018. As at the date of this Information Memorandum, BNM has not specified the level of countercyclical buffer required. As at 31 December 2013, the Bank’s capital ratio was 11.761% for CET1 capital ratio and for Tier 1 capital ratio and 13.711% for total capital ratio. Please refer to Section 7 of this Information Memorandum on ‘Funding and Capital Adequacy’ for more information. The Bank's capital base and capital adequacy ratios and when applicable, required capital buffers, may deteriorate in the future if its results of operations or financial condition deteriorate for any reason, including as a result of any deterioration in the asset quality of its loans, or if the Bank is not able to deploy its funding into suitably low-risk assets. If any of the Bank's capital adequacy ratio and when applicable, required capital buffers, deteriorates, it may be required to obtain additional Tier 1 or Tier 2 capital in order to remain in compliance with the applicable capital adequacy guidelines. However, the Bank may not be able to obtain additional capital on favourable terms, or at all. There is no assurance that the Bank will not face increased pressure on its capital in the future to comply with Basel III (as referred to below) standards which may have an adverse effect on the Bank's business, financial condition, results of operations and prospects. Foreign business operations of the Maybank Group are subject to their respective regulator purview, measures, policies and regulations. In this respect, the regulatory framework and policies of foreign jurisdictions and the enforcement and implementation thereof by the regulators within such jurisdictions may differ greatly from those in Malaysia. “Basel III” refers to, collectively, two documents released on 16 December 2010 by the BCBS entitled “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (revised June 2011)” and “Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring” and a press release issued on 13 January 2011 by BCBS entitled “Basel Committee issues final elements of the reforms to raise the quality of regulatory capital”.

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4.1.8 Ownership Profile

Maybank Islamic is a wholly owned subsidiary of Maybank, which holds 218,988,000 of ordinary shares of Maybank Islamic as at 28 February 2014.

4.1.9 Management

Maybank Islamic is committed towards business integrity and professionalism and firmly supports effective corporate governance and development of best practices. Maybank Islamic’s board through various committees manages the business and affairs of Maybank Islamic in a manner consistent with the objectives of good corporate governance and accountability towards the enhancement of shareholder value. As Maybank Islamic is an important component of Maybank Group, and its business and operating model leverages on infrastructure and resources of its parent bank, Maybank Islamic continues to receive support and management oversight at the Group level and its Chief Executive Officer is represented at the various Group’s executive and management committees.

Maybank Islamic's senior management team consists of members with a broad range of experiences. The experienced senior management team allows effective planning and execution of Maybank Islamic's long term vision.

4.2 Considerations Relating to the Subordinated Sukuk Murabahah

4.2.1 The Subordinated Sukuk Murabahah may be written-off upon the

occurrence of Non-Viability Event of the Issuer Pursuant to the terms of the Subordinated Sukuk Programme, upon the occurrence of a Non-Viability Event (as defined in item (y)(2) of the PTC in Section 2 of this IM), the Issuer shall irrevocably, without the consent of the Sukukholders, write-off the Subordinated Sukuk Murabahah in whole or in part thereof, if so required by BNM and/or Malaysia Deposit Insurance Corporation (“PIDM”) at their full discretion. In the event the Subordinated Sukuk Murabahah are written-off, any written-off amount shall be irrevocably lost and the Sukukholders of such Subordinated Sukuk Murabahah will cease to have any claims for any principal, accrued but unpaid Periodic Profits (as defined in the PTC in Section 2 of this IM) or any other amount due in respect of such Subordinated Sukuk Murabahah which have been written-off.

Based on CAFIB, in assessing whether the Issuer would cease to be viable, BNM, jointly with PIDM (collectively the “Relevant Malaysian Authority”) may consider, amongst others, any of the following circumstances exist in respect of the Issuer:

(1) the Issuer fails to follow any directive of compliance issued by BNM,

which is necessary to preserve or restore its financial soundness; or

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(2) the Issuer fails to meet all or any of its financial obligations as they fall due, that may significantly impair its capital position; or

(3) the capital of the Issuer has reached a level or is eroding in a manner

that may detrimentally affect its depositors, creditors or the public, and the Issuer is unable to recapitalise on its own; or

(4) the Issuer’s assets are insufficient to provide protection to its

depositors and creditors; or (5) the Issuer has lost the confidence of depositors and the public; or (6) any other state of affairs exists in respect of the Issuer that would

put the interest of the depositors or creditors of the Issuer at risk.

For the avoidance of doubt, the Relevant Malaysian Authority shall have the full discretion to elect not to require a write-off when the Issuer has ceased, or is about to cease, to be viable or when a capital injection or equivalent support has been provided. Even if the option to write-off is not exercised, the Sukukholders may still be exposed to losses from any winding-up resolution of the Issuer. Upon the occurrence of a Non-Viability Event, the Issuer is required to give a notice to the Sukukholders and RAM Ratings in accordance with the terms of the Subordinated Sukuk Murabahah, and as of the relevant write-down date:

(i) the write-off shall extinguish:

a) the claim of the Subordinated Sukuk Murabahah in liquidation,

which will mean that the Sukukholders written off will be automatically deemed to irrevocably waive their right to receive, and no longer have any rights against the Issuer with respect to, payment of the aggregate principal amount of the respective Subordinated Sukuk Murabahah written down;

b) the amount paid when a call option is exercised; and c) payments of the Periodic Profits on the Subordinated Sukuk

Murabahah written off;

(ii) the write-off shall be permanent and the full principal amount of the Subordinated Sukuk Murabahah with all unpaid Periodic Profits thereon that are or would be payable upon the relevant maturity date, an early redemption or the occurrence of an Event of Default (as defined in the PTC in Section 2 of this IM) will automatically be written off and such Subordinated Sukuk Murabahah and unpaid Periodic Profits will be immediately and fully cancelled as of such write-off date; and

(iii) the write-off of the Subordinated Sukuk Murabahah shall not

constitute an event of default or trigger a cross-default clauses. For the avoidance of doubt, BNM shall have the option to require the entire principal amount of the Subordinated Sukuk Murabahah outstanding, or a

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part thereof, and all other amount owing under the Subordinated Sukuk Murabahah Programme, be written-off. Notwithstanding the powers of the Relevant Malaysian Authority, the Subordinated Sukuk Murabahah will under no circumstances be converted into equity of the Issuer and will only absorb losses pursuant to the terms specified herein. As there is no precedent for the application of such write-off requirement in respect of a financial institution in Malaysia, there is uncertainty as to the manner in which such requirement would be applied and the results thereof. Accordingly, there is a potential risk that an investor in Subordinated Sukuk Murabahah will lose all or some of his investment and will not receive a full return of the principal amount or any unpaid amounts due under the Subordinated Sukuk Murabahah should the requirement be applied. The Issuer, the Lead Arranger and the Sukuk Trustee are not liable for any liabilities arising upon the occurrence of a Non-Viability Event.

4.2.2 The Subordinated Sukuk Murabahah may be written-off upon the occurrence of a Trigger Event of Maybank

Where the Subordinated Sukuk Murabahah are included as capital at the consolidated level of Maybank Group, the Subordinated Sukuk Murabahah may, at the option of BNM and PIDM, be written-off upon the occurrence of a trigger event in relation to Maybank as described in paragraph 32.1 of the BNM’s Capital Adequacy Framework. Accordingly, there is a potential risk that a Sukukholder will lose all or some of his investment and will not receive a full return of the principal amount or any unpaid amounts due under the Subordinated Sukuk Murabahah should there be any trigger event at Maybank’s level.

4.2.3 Limited Events of Default, No Rights to Accelerate and Subordinated Obligations

There are only two (2) events of default prescribed under the terms of the Subordinated Sukuk Murabahah: (a) if the Issuer defaults in payment of any principal or profits or any

amount under the Subordinated Sukuk Murabahah Programme and such default continues for a period of seven (7) business days; or

(b) if:

(i) a court or an agency or regulatory authority in Malaysia having jurisdiction in respect of the same shall have instituted any proceeding or entered a decree or order for the appointment of a receiver or liquidator in any insolvency, rehabilitation, readjustment of debt, marshalling of assets and liabilities, or similar arrangements involving the Issuer or all or substantially all of its property, or for the winding up of or liquidation of its affairs and such proceeding, decree or order shall not have

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been vacated or shall have remained in force, undischarged or unstayed for a period of sixty (60) days; or

(ii) the Issuer shall file a petition to take advantage of any

insolvency statute (which for this purpose includes under any insolvency related provisions in any companies statute).

Upon the occurrence of item (a) above, subject to the terms of the Trust Deed of the Subordinated Sukuk Murababah, the Sukuk Trustee may or shall (if directed to do so by a special resolution of the Subordinated Sukukholders) institute proceedings to enforce the payment obligations under the Subordinated Sukuk Murababah and may institute proceedings in Malaysia for the winding-up of the Issuer, provided that neither the Sukuk Trustee nor any of the Sukukholders shall have the right to accelerate payment of the Subordinated Sukuk Murabahah in the case of such default in the payment of amount owing under the Subordinated Sukuk Murababah or any default in the performance of any condition, provision or covenant under the Subordinated Sukuk Programme or the transaction documents relating to the Subordinated Sukuk Programme. Upon the occurrence of item (b)(i) or (ii) above, subject to the terms of the Trust Deed of the Subordinated Sukuk Murabahah, the Sukuk Trustee may or shall (if directed to do so by a special resolution of the Sukukholders) enforce its rights under the transaction documents relating the Sukuk Murababah Programme to require Maybank Islamic in its capacity as the Purchaser (as defined in the PTC in Section 2 of this IM) to make payment of all outstanding Deferred Sale Price (as defined in the PTC in Section 2 of this IM)(subject to any agreed Ibra’). For avoidance of doubt, the occurrence of an event of default (a) above for any tranche of the Subordinated Sukuk Murabahah will not trigger the event of default for any other tranches of the Subordinated Sukuk Murabahah outstanding. However, occurrence of event of default (b) above will trigger an event of default for all tranches of the Subordinated Sukuk Murabahah outstanding. Upon the occurrence of a winding-up and liquidation of Maybank Islamic, all payments for the principal amount of, and Periodic Profits payable on, the Subordinated Sukuk Murabahah will be subordinated in right of payment to the prior payment in full of all deposits and other liabilities of Maybank Islamic (including liabilities of all offices and branches of Maybank Islamic wherever located) and any payment obligations (whether subordinated or unsubordinated) of Maybank Islamic that rank senior to the Subordinated Sukuk Murabahah, except in each case those liabilities which by their terms rank equally with or junior to the Subordinated Murabahah. In such event, the Sukukholders may recover less than the holders of deposit liabilities or the holders of other unsubordinated and subordinated liabilities of Maybank Islamic, which rank senior to the Subordinated Sukuk Murabahah. As there is no precedent for the winding-up of a major financial institution in Malaysia, there is uncertainty as to the manner in which such proceeding would occur and the results thereof. Although the Subordinated Sukuk Murabahah may pay a higher rates than comparable securities which are not subordinated, there is a real risk that an investor in Subordinated Sukuk Murabahah will lose all or some of his investment should Maybank Islamic

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become insolvent and is wound-up.

4.2.4 Subordinated Sukuk Murabahah may be Subject to Early Redemption by the Issuer Under Certain Circumstances

Call Option In relation to each tranche of the Subordinated Sukuk Murabahah where Call Option is applicable, the Issuer may, at its option, exercise the Call Option to redeem any tranche of the Subordinated Sukuk Murabahah (in whole or in part) on the Call Date at their principal amount together with accrued but unpaid Periodic Profits (“Redemption Amount”), subject to the Redemption Conditions being satisfied. Regulatory Redemption The Issuer may, at its option, redeem the Subordinated Sukuk Murabahah (in whole or in part) at the Redemption Amount, subject to the Redemption Conditions being satisfied if a Regulatory Event (as defined below) occurs.

“Regulatory Event” means any time there is more than an insubstantial risk, as determined by the Issuer, that:

(i) all or any part of the Subordinated Sukuk Murabahah will, either

immediately or with the passage of time or upon either the giving of notice or fulfillment of a condition, no longer qualify as Tier 2 capital of the Issuer for the purposes of BNM’s capital adequacy requirements under any applicable regulations; or

(ii) changes in law will make it unlawful for the Issuer to continue

performing its obligations under all or any part of the Subordinated Sukuk Murabahah.

Tax Redemption The Issuer may, at its option, redeem the Subordinated Sukuk Murabahah (in whole or in part) at the Redemption Amount, subject to the Redemption Conditions being satisfied if there is more than an insubstantial risk as determined by the Issuer that:

(i) the Issuer has or will become obliged to pay any additional taxes,

duties, assessments or government charges of whatever nature in relation to the Subordinated Sukuk Murabahah;

(ii) the Issuer would no longer obtain tax deductions for the purposes of

Malaysian corporation tax for any payment in respect of the Subordinated Sukuk Murabahah;

as a result of a change in, or amendment to, the laws or regulations of Malaysia or any political subdivision or any authority thereof or therein having power to tax, or change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the issue date and the Issuer cannot, by taking reasonable measures available to it, avoid such obligations (“Tax Event”). The redemption of one tranche of the Subordinated Sukuk Murabahah pursuant to the Call Option, Regulatory Redemption or Tax Redemption

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shall not trigger the redemption of other tranches of the Subordinated Sukuk Murabahah. In the case of a partial redemption of Subordinated Sukuk Murabahah of a tranche pursuant to the Call Option, Regulatory Redemption or Tax Redemption, the selection of the Subordinated Sukuk Murabahah to be redeemed will be made by the Sukuk Trustee on a pro rata basis, by lot or by such other method as the Sukuk Trustee (with the agreement of the Issuer) will deem to be fair and appropriate, although no Subordinated Sukuk Murabahah of RM10.0 million in original nominal value or less will be redeemed in part.

4.2.5 Liquidity of the Subordinated Sukuk Murabahah

The Subordinated Sukuk Murabahah comprises a new issue of securities for which there is currently no available market. There can be no assurance as to the liquidity of any market that may develop for the Subordinated Sukuk Murababah, the ability of the Sukukholders to sell the Subordinated Sukuk Murabahah or the process at which Sukukholders would be able to sell the Subordinated Sukuk Murabahah. The Sukukholders should also take note that the Subordinated Sukuk Murababah shall not be listed on the Bursa Securities and there are selling restrictions governing the Subordinated Sukuk Murabahah as described under “Selling Restrictions” as stated in Section 3 of this Information Memorandum.

Accordingly, the purchase or subscription of the Subordinated Sukuk Murababah is suitable only for investors who can bear the risks associated with a lack of liquidity in the Subordinated Sukuk Murababah apart from the financial and other risks associated with an investment in the Subordinated Sukuk Murabahah.

4.2.6 Credit Rating Risks

RAM Ratings has assigned a credit rating for the Subordinated Sukuk Programme of AA1, which is subject to rating reviews by RAM Ratings annually. The rating may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Subordinated Sukuk Murabahah. The credit rating is not a recommendation to buy, sell or hold securities and may be suspended, downgraded or upgraded by the rating agency at any time. Any downgrade or withdrawal of a rating may have an adverse effect on the liquidity and market price of the Subordinated Sukuk Murabahah but would not constitute an event of default or an event obliging the Issuer to pay the Subordinated Sukuk Murabahah.

4.2.7 Investment in Subordinated Sukuk Murabahah is subject to rate of return risk and inflation risk and market value of the Subordinated Sukuk Murabahah may be subject to fluctuation

Trading prices of the Subordinated Sukuk Murabahah may be influenced by numerous factors, including the operating results and/or financial condition of the Issuer, political, economic and any other factors that can affect the

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capital markets. Any adverse economic developments could have an effect on the market value of the Subordinated Sukuk Murabahah. Sukukholders would have an anticipated rate of return based on expected inflation rates on the purchase of the Subordinated Sukuk. An unexpected increase in inflation could reduce the actual return. The Subordinated Sukuk Murabahah is fixed income securities and may therefore see their price fluctuate due to movements in rates of return. Investment in fixed rate Subordinated Sukuk Murabahah involves the risk that subsequent changes in market rates of return may adversely affect the value of fixed rate Subordinated Sukuk Murabahah. Generally, a rise in rates of return may cause a fall in Subordinated Sukuk Murabahah prices. The Subordinated Sukuk Murabahah may be similarly affected resulting in a capital loss for Sukukholders. Sukukholders may suffer unforeseen losses due to fluctuations in rates of return.

4.2.8 No limitation on issuing further Sukuk or Islamic securities or incur

further financing or indebtedness

The Issuer may from time to time without the consent of the Sukukholders create or issue further Sukuk or Islamic securities or incur further financing or indebtedness howsoever designated either ranking senior, pari passu or subordinated in all respects to the Subordinated Sukuk Murabahah and/or upon such terms as to the rates of return, conversion, redemption or otherwise as the Issuer may at the time of the issue thereof determine.

In line with BNM’s guidelines which state that there should be no restrictive covenants for the Subordinated Sukuk Murabahah, there will be no limitation imposed on the Issuer under the Subordinated Sukuk Murabahah to issue further securities or incur further financing or indebtedness. Additional issuance of securities or incur financing or indebtedness may reduce the amount recoverable by the Sukukholders in the event of dissolution or winding-up of the Issuer.

4.2.9 The Issuer’s ability to meet its obligations under the Subordinated Sukuk Murabahah

The Subordinated Sukuk Murabahah constitutes direct and unsecured obligations of the Issuer and are payable out of the business operations of the Issuer and thus will not be the obligations or responsibilities of any person other than the Issuer. The ability of the Issuer to meet its obligations to pay the nominal value of the Subordinated Sukuk Murabahah and the Periodic Profits thereon will be largely dependent on the revenue generated by its operations.

4.2.10 Subordinated Sukuk Murabahah may not be a suitable investment for all investors

Each potential investor in any Subordinated Sukuk Murabahah must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:

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(i) have sufficient knowledge and experience to make a meaningful

evaluation of the relevant Subordinated Sukuk Murabahah, the merits and risks of investing in the relevant Subordinated Sukuk Murabahah and the information contained or incorporated by reference in this Information Memorandum or any applicable supplement;

(ii) have access to, and knowledge of, appropriate analytical tools to

evaluate, in the context of its particular financial situation, an investment in the relevant Subordinated Sukuk Murabahah and the impact such investment will have on its overall investment portfolio;

(iii) have sufficient financial resources and liquidity to bear all of the

risks of an investment in the relevant Subordinated Sukuk Murabahah, including where principal or profit is payable in one or more currencies, or where the currency for principal or profit payments is different from the potential investor’s currency;

(iv) understand thoroughly the terms of the relevant Subordinated Sukuk

Murabahah and be familiar with the behaviour of any relevant indices and financial markets; and

(v) be able to evaluate (either alone or with the help of a financial

adviser) possible scenarios for economic, rate of return and other factors that may affect its investment and its ability to bear the applicable risks.

4.2.11 Change of law or regulations

The issue of the Subordinated Sukuk Programme is based on SC’s and BNM’s guidelines and requirements, Malaysian law, tax and administrative practice in effect as at the date of issue of the Subordinated Sukuk Murabahah. No assurance can be given as to the impact of any possible judicial decision or change to SC’s and BNM’s guidelines and requirements or Malaysian law after the date of issue of the Subordinated Sukuk Murabahah.

4.2.12 Investors should pay attention to any modification and waivers

The terms and conditions of the Subordinated Sukuk Murabahah contain provisions for calling meetings of Sukukholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Sukukholders, including Sukukholders who did not attend and vote at the relevant meeting and Sukukholders who voted in a manner contrary to the majority.

4.2.13 Malaysian Taxation

Under present Malaysian law, all Periodic Profits payable to non-residents in respect of the Subordinated Sukuk Murabahah is exempted from withholding tax. However, there is no assurance that this present position will continue and in the event that such exemption is revoked, modified or

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rendered otherwise inapplicable, such Periodic Profits shall be subject to withholding tax at the then prevailing withholding tax rate. However, notwithstanding the foregoing, the Issuer shall be obliged pursuant to the terms of the Subordinated Sukuk Murabahah, in the event of any such withholding, to pay such additional amounts to the Sukukholders so as to ensure that the Sukukholders receive the full amount which they would have received had no such withholding been imposed.

4.3 Considerations relating to Malaysian Banking Industry

4.3.1 Regulatory Environment

The Issuer is regulated by BNM. The Bank is also subject to relevant banking, securities and other laws of Malaysia. BNM has extensive powers to regulate the Malaysian Islamic banking industry under the IFSA. This includes the power to limit the rates of return charged by banks on certain types of financing, establish caps on lending to certain sectors of the Malaysian economy and establish priority lending guidelines in furtherance of certain social and economic objectives. BNM also has broad investigative and enforcement powers. Accordingly, potential investors should be aware that BNM could, in the future, set rates of return at levels or restrict credit in a way which may be adverse to the operations, financial condition or asset quality of banks and financial institutions in Malaysia, including the Bank, and may otherwise significantly restrict the activities of the Bank and Malaysian banks and financial institutions generally. The Bank is required to prepare its financial statements in accordance with the Malaysian Financial Reporting Standards (“MFRS”), the International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act, 1965 in Malaysia.

4.3.2 Increasing Competition and Market Liberalisation

The banking industry’s transformation through a deregulation process as part of BNM’s implementation of its first Financial Sector Master Plan has resulted in the liberalisation of the banking industry to allow greater presence of foreign and Islamic banks as well as providing greater opportunities for banks to widen their scope of business beyond traditional commercial banking. This liberalisation has also brought about greater competition among banking institutions with the trend being expected to continue. As a result, banking institutions are forced to become more efficient to serve the customers better and to explore greater usage of technology for further efficiency, and explore cost effective solutions. The Bank faces competition from other domestic banking groups as well as foreign banks operating in Malaysia. The increased competition may adversely impact the business, financial conditions and results of operations of the Issuer and the Group.

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BNM’s second Financial Sector Master Plan (2011-2020), which was released in December 2011, is more focused on strengthening the competition and efficiency of the banking sector.

4.3.3 Scope and cost of deposit insurance in Malaysia

BNM is not required to act as lender of last resort to meet liquidity needs in the banking system generally or for specific institutions. In the past, BNM has on a case-by-case basis provided a safety net for individual banks with an isolated liquidity crisis. However, there can be no assurance that BNM will provide such assistance in the future. Effective from 1 September 2005, BNM introduced a deposit insurance system (“Deposit Insurance System”). The Deposit Insurance System is administrated by Malaysia Deposit Insurance Corporation (Perbadanan Insurans Deposit Malaysia), an independent statutory body. All licensed commercial banks (including subsidiaries of foreign banks operating in Malaysia) and Islamic banks are member institutions of the Deposit Insurance System. In addition to the above, based on announcements by the Malaysia Deposit Insurance Corporation, the Issuer took a risk based approach and implemented the new differential premium system framework in February 2008 to replace the flat rate premium system. Under the differential premium system, the premium payable by a banking institution will depend on the institution’s risk profile. Revised guidelines on the Differential Premium Systems were issued in March 2011 where the eligible deposits that are insured changed from a prescribed limit of RM60,000 to RM250,000 (inclusive of principal and dividends/profits) per depositor, per member institution. The eligible deposits under the new revised guidelines now include the foreign currency deposits as part of the deposit coverage.

4.4 General Considerations 4.4.1 Changes in Accounting Standards and Compliance Requirements

The significant accounting policies and methods of computation applied by the Bank are consistent with those adopted in the audited financial statements for the year ended 31 December 2012, except for the adoption of the following MFRS, amendments to MFRS, Interpretations of the Issue Committee (“IC Interpretations”) and Annual Improvements 2009-2011 Cycle with effective dates of 1 July 2012 and 1 January 2013: (i) MFRS 1 First-time Adoption of Malaysian Financial Reporting

Standards - Government Loans (Amendments to MFRS 1) (ii) MFRS 7 Financial Instruments: Disclosures - Offsetting Financial

Assets and Financial Liabilities (Amendments to MFRS 7) (iii) MFRS 13 Fair Value Measurement (iv) MFRS 101 Presentation of Financial Statements - Presentation of

Items of Other Comprehensive Income (Amendments to MFRS 101)

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Annual Improvements 2009-2011 Cycle: (i) MFRS 1 First-time Adoption of Malaysian Financial Reporting

Standards - Repeated application of MFRS 1 and borrowing costs (ii) MFRS 101 Presentation of Financial Statements - Clarification of the

requirements for comparative information (iii) MFRS 132 Financial Instruments: Presentation - Tax effect of

distribution to holders of equity instruments (iv) MFRS 134 Interim Financial Reporting - Interim financial reporting

and segment information for total assets and liabilities

4.4.2 Economic Factors

The Bank’s business, prospects, financial condition and results of operation may be adversely affected by social, political, regulatory and economic developments in Malaysia. Such political and economic uncertainties include, but are not limited to, the risks of war, terrorism, nationalism, or nullification of contract, changes in rates of return, imposition of capital controls and methods of taxation. Negative developments in Malaysia’s socio-political environment may adversely affect the business, financial condition, results of operations and prospects of the Issuer. Please refer to Section 10 of this Information Memorandum on the ‘Malaysian Banking Industry Overview’.

4.4.3 Winding-up of the Issuer

Under the Section 207 of the IFSA, no application for the winding-up of a licensed person (i.e., a licensed bank, which includes the Issuer), an operator of a payment system or an approved person (as defined at Section 11 of the IFSA) can be presented to the High Court without the prior written approval of BNM.

In addition, a copy of such an application to the High Court must also be delivered to BNM at the same time as it is presented to the High Court. Failure to comply with such requirements is an offence and a person convicted of such offence is liable to imprisonment and/or a fine.

4.4.4 Force Majeure

An event of force majeure is an event which is not within the control of the party effected, which that party is unable to prevent, avoid or remove and shall include war and acts of terrorism, riot and disorders, natural catastrophes and others. Force majeure events do not include economic downturn, non-availability or insufficient or lack of financing on the part of the Issuer. The occurrence of a force majeure event may have a material impact on the Issuer’s business.

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4.4.5 Forward Looking Statements

Certain statements in this Information Memorandum are forward looking in nature. These statements include, among other things, discussions of Maybank Islamic’s business strategy and expectation concerning its position in the Malaysian economy, future operations, profitability, liquidity, capital resources and financial position. All forward looking statements are based on estimates and assumptions made by Maybank Islamic and third party consultants that, although believed to be reasonable, are subject to risks and uncertainties that may cause actual events and the future results of Maybank Islamic to be materially different from that expected or indicated by such statements and estimates and no assurance can be given that any of such statements or estimates will be realised. In light of these and other uncertainties, the inclusion of forward looking statements in this Information memorandum should not be regarded as a representation or warranty by Maybank Islamic or any other person that the plans and objectives of Maybank Islamic will be achieved.

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5.0 SELECTED FINANCIAL INFORMATION

The following tables present the summary of audited financial information for each of the financial year ended 31 December 2013 and 31 December 2012 for Maybank Islamic. The annual financial statements below have been derived from, and should be read in conjunction with the audited accounts in Maybank Islamic’s annual reports. The full version of Maybank Islamic’s annual reports for the financial years 2013 and 2012 can be obtained from Maybank Islamic’s website at http://www.maybankislamic.com.my.

Audited

As at 31 December 2013 2012

(RM million) (RM million)

Income Statement Data

Income derived from investment

of depositors’ funds

4,461.6

3,537.2

Income derived from investment

of shareholder’s funds

212.0

140.5

Allowance for losses on financing

and advances

(1.0)

27.6

Profit equalisation reserve - -

Other expenses directly attributable to

depositors’ and shareholder’s funds

-

(70.5)

Total distributable income 4,672.6 3,634.8

Income attributable to the depositors (2,363.0) (1,753.1)

Total net income 2,309.6 1,881.7

Overhead expenses (874.0) (649.7)

Finance cost (42.2) (41.9)

Profit before taxation and zakat 1,393.4 1,190.1

Taxation (322.6) (288.5)

Zakat (21.5) (15.2)

Profit after taxation and zakat 1,049.3 886.3

Net profit attributable to equity

holder of the Bank

1,049.3

886.3

Earnings per share (sen) 730.7 704.7

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Audited

As at 31 December

2013 2012

(RM million) (RM million)

Balance Sheet Data

Assets

Cash and short-term funds 17,680.0 13,017.3

Deposit and placements with banks and other financial institutions

50.0 271.4

Financial assets at fair value through profit or loss 492.1 4,098.4

Financial investments available-for-sale 8,443.1 5,411.5

Financial investments held-to-maturity - -

Financing and advances 86,135.7 61,308.1

Derivative assets 134.1 48.2

Other assets 8,770.1 4,679.5

Statutory deposits with BNM 3,084.0 2,399.0

Deferred tax assets 267.4 199.0

Total assets 125,056.7 91,432.4

Liabilities

Deposits from customers 83,017.6 70,984.5

Deposits and placements of banks and other financial institutions

33,371.3 13,133.6

Bills and acceptances payable 62.1 419.7

Derivative liabilities 247.9 114.0

Other liabilities 97.9 185.3

Provision for taxation and zakat

Subordinated sukuk

Recourse obligation on financing sold to Cagamas

192.5

1,010.8

621.0

133.9

1,010.8

905.2

Total liabilities 118,621.1 86,887.0

Shareholder’s fund

Share capital

Share premium

Retained profit

219.0

3,726.0

2,172.7

132.7

2,687.5

1,510.4

Other Reserves 317.9 214.8

Total shareholder’s fund 6,435.6 4,545.4

Total liabilities and shareholder’s fund 125,056.7 91,432.4

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6.0 DESCRIPTION OF MAYBANK ISLAMIC

6.1 Introduction

Maybank Islamic is a wholly owned subsidiary of Maybank which serves as the Islamic financing arm of the Maybank Group. Maybank was the first domestic commercial bank to offer Islamic financing products and services through its Islamic window operations in 1993 until the commencement of Maybank Islamic’s operations on 1 January 2008 after the transfer of its parent’s Islamic financing business. Maybank Islamic leverages on Maybank’s policies, infrastructure and resources including distribution channels, information technology system and platforms as well as front and back-office support operations to reap the benefits of economies of scale and to reduce duplication of resources. Additionally, in Malaysia the Bank’s products and services are available at its 16 dedicated branches as well as are co-located at its parent bank’s more than 400 branches and the various distribution channels nationwide. The Bank dominates the domestic Islamic financing industry with strong market share which clearly reflects the Maybank Group’s seventeen years of in-depth expertise in Islamic financial products and services. As at 31 December 2013, Maybank Islamic is the largest domestic Islamic bank in Malaysia by assets with an asset size of RM125.1 billion.

For FYE 2013, financing grew by 40% year-over-year (“y-o-y”) amounting to an increase of RM24.9 billion, backed by a healthy capital position of RM6.7 billion. The financing growth was fuelled by the Group’s Community Financial Services (“CFS”) and Global Banking divisions (“GB”). Financing growth by CFS, comprising consumer, small medium enterprise and business banking segments, grew 39% y-o-y or RM18.4 billion while financing distributed by GB rose 45% y-o-y or RM6.5 billion. Deposits from customers increased RM12.0 billion or 17% y-o-y as both the CFS and GB portfolios expanded at 28% and 7% totalling RM43.2 billion and RM39.9 billion respectively. Penetration of Maybank Islamic’s Shariah compliant products and services has expanded considerably over the years reflecting healthy acceptance amongst retail and wholesale customers, as the Bank’s offerings meet their needs, provides additional value and match their financial goals and lifestyles. Maybank Islamic also continued to work alongside the Maybank Group to deliver Islamic financial solutions to retail and institutional investors. The Bank aims to be the primary financial services partner for corporate investors as the Bank expands its leadership beyond borders by securing key deals in local and foreign currencies, further contributing to the growth of the economies that the Bank operates in. The global growth of the Islamic finance industry is expected to continue on a strong momentum and Malaysia is well positioned to be at the forefront of the industry’s development. On the back of the industry’s growth, Maybank’s Group Islamic Banking is on track to enter a new growth phase through its regionalisation plans while solidifying its business in the home market. The Bank is confident that this is achievable with continuous commitment and collaboration across the Group in line with Maybank Islamic’s aspiration of becoming ‘the Global Leader in Islamic Finance by 2015’.

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In 2014, Maybank Islamic will focus on strengthening its regional footing to increase contributions from other entities within Group Islamic Banking whilst sustaining the Bank’s leadership position domestically. Maybank Islamic has been awarded several accolades by publications of international standing for all its achievements in Malaysia as displayed in the following table:

No

Institution

Awards

1 Islamic Business & Finance 2013 Best Commercial Bank (Asia)

2 The Asset Triple A Awards 2013 Industry Leadership Award – Islamic Banker of the Year

Best Islamic Retail Bank & Trade Finance, Malaysia

Best Islamic Project Finance House

3 Global Finance Magazine Awards 2013

World’s Best Islamic Financial Institutions 2013 (Asia, Malaysia & Singapore)

4 Alpha Southeast Asia Award 2013 Best Islamic Finance Bank (Malaysia)

5 International Finance Magazine 2013

Best Islamic Bank (Malaysia)

6 Financial Times Global Private Banking Awards 2013

Best Private Bank for Islamic Services (Global)

7 Global Finance Magazine Awards 2012

World’s Best Islamic Financial Institutions 2012 (Asia & Malaysia)

8 KLIFF Islamic Finance Awards 2012 Most Outstanding Islamic Investment Bank

9 Global Finance Magazine Awards 2012

World’s Best Islamic Financial Institutions 2012 (Asia & Malaysia)

10 KLIFF Islamic Finance Awards 2012 Most Outstanding Islamic Investment Bank

11 Global Finance World’s Best Islamic Financial Institution Awards 2012

Best Sukuk Bank

Best Project Finance Financial Adviser (Asia) 2012

12 Global Financial Best Islamic Financial Institutions Awards 2012

Islamic Finance Deal of The Year – Wakala Global Sukuk Berhad USD2.0 Billion Global Sukuk Certificates

13 The Asset Triple A Asian Awards 2012

Best Islamic Trade Finance Bank Malaysia

Best Islamic Retail Bank Malaysia

14 The Asset Triple A Awards 2012 Best Islamic Deal of the Year / Best Sovereign Sukuk 2012 - Wakala Global Sukuk Berhad - USD2.0 Billion Global Sukuk Certificates

Best Islamic Restructuring Deal – Pengurusan Aset Air Berhad RM5.8 Billion

Best Islamic Deal, Malaysia 2012 - Wakala Global Sukuk Berhad USD2.0 Billion Global Sukuk Certificates

Best Corporate Sukuk 2012 – Projek

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6.2 Principal Shareholders Maybank Islamic is 100% owned by Maybank.

6.3 Maybank Islamic Lines of Business

Maybank Islamic provides a comprehensive range of financial services under two main business pillars both offering Shariah compliant financial products and services to cater for the needs of its customers, namely CFS and GB.

CFS remains the core business segment and major contributor to Maybank Islamic. As at 31 December 2013, CFS division contributed approximately 76% of Maybank Islamic’s total financing.

6.3.1 Community Financial Services

Maybank Islamic’s CFS segment includes the following: Retail:

Consumer Finance

Mortgages

Automobile Financing

Retail Financing

Cards, Wealth and Payments

High Net Worth and Affluent Banking

SME Banking

Business Banking

CFS encompasses three major strategic business units of the Maybank Group and Maybank Islamic’s retail financing portfolio namely: Mortgages, Automobile Financing, and Retail Financing. Maybank Islamic’s strong market presence is made possible by its ability to leverage on the cross-selling of its products and services. In addition, Maybank Islamic is able to reach its domestic customer base through the Maybank Group’s extensive branch network and automated teller machines, Maybank2u.com.my website and Kawanku phone banking, which enables consumers to perform various transactions over the internet and the phone.

As at 31 December 2013, Automobile Financing accounted for the largest component of Maybank Islamic’s CFS portfolio, which stands at approximately 26%. The Bank’s Automobile Financing comprises retail hire purchase, business hire purchase, corporate auto scheme, floor stocking and block discounting.

Lebuhraya Usahasama RM30.6 Billion Sukuk

15 The Asset Triple A Country Award 2012

Best Islamic Equity – Bumi Armada RM2.66 Billion

16 RAM Ratings Most Active Shariah Advisor 2012

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Maybank Islamic offers comprehensive mortgage financing products to its customers, consisting mainly of house and shophouse financing facilities for new buyers and refinancing purposes, securing an attractive market share of 23% as at 31 December 2013. House financing accounted for 82% of mortgage financing as at 31 December 2013. Skim Amanah Saham Bumiputra (“ASB”) financing continues to record positive growth, with Maybank Islamic commanding 84% market share of the Islamic financing industry and contributed to 23% of the overall financing growth as at 31 December 2013.

6.3.2 Global Banking

GB segment accounted for approximately 24% of Maybank Islamic financing portfolio as at 31 December 2013. Some of Maybank Islamic’s GB business units are as follows:-

Investment Banking

Global Markets

Corporate Banking

Transaction Banking The client coverage team was also established across these business units to offer customized, innovative products to clients and to meet these clients’ diverse financial needs. This coverage model has enhanced the capabilities, sharpened focus and maximized cross-product collaboration to deliver superior product offerings such as advisory, treasury, trade finance, cash management as well as financing solutions. As at 31 December 2013, Maybank Islamic captured strong market shares for overdraft financing (44%), trade financing (41%) and foreign currency financing (34%). The Bank continues to focus on developing its foreign currency portfolio to cater for the growing demand of Malaysian businesses venturing abroad as well as in support of Government’s initiatives under MIFC.

6.4 Shariah Governance and Compliance

6.4.1 Shariah Framework Shariah principles are the foundation for the practice of Islamic finance through the observance of the tenets, conditions and principles espoused by Shariah. Comprehensive compliance with Shariah principles would bring confidence to the general public and the financial markets on the credibility of Islamic finance operations.

6.4.2 Shariah Governance Structure The Shariah governance is designed to meet the following objectives:- (i) sets out the expectations of Shariah governance structures, processes

and arrangements of all entities wihin the Group that execute Islamic

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business transactions to ensure that all its operations and business activities are in accordance with Shariah;

(ii) provides a comprehensive guidance to the Board, Shariah Committee

of Maybank Islamic (“Shariah Committee”) and management in discharging its duties in matters relating to Shariah; and

(iii) outlines the roles of internal Shariah functions such as Shariah

Advisory and research, Shariah Risk, Shariah Audit and Shariah Review.

6.4.3 Shariah Committee

The Shariah Committee is responsible and accountable for all its decisions, views and opinions related to Shariah matters. Among the roles of Shariah Committee include:- To advise the board and provide input to Maybank Islamic on Shariah

matters; To endorse Shariah policies and procedures; To endorse and validate documentation including terms and conditions,

contract agreements or other legal documentation, product manuals, marketing advertisements, sales illustrations and brochures to be in compliance with Shariah principles;

To assist related parties on Shariah matters for advice upon request; To advise on matters to be referred to the Shariah Advisory Council of

BNM; and To provide written Shariah opinions.

6.4.4 Internal Shariah Functions The Bank has established strong internal Shariah functions which comprise Shariah Advisory and Research, Shariah Transaction Management, Shariah Secretariat, Shariah Risk, Shariah Review and Compliance and Shariah Audit to support the Shariah Committee’s functions where their responsibilities shall include but are not limited to participating in product development, providing Shariah advice, conducting Shariah review and audit, conducting research on the Shariah compliance of products and facilitating the process of identifying, measuring, controlling and monitoring Shariah-compliance risks inherent in Maybank Islamic’s operations and activities.

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6.5 Employees

As at 31 December 2013, Maybank Islamic employed 154 employees compared to 137 as at 31 December 2012. In addition to the 154 employees employed directly under the Bank’s payroll, Maybank Islamic has access to more than 22,000 staff of Maybank Group domestically under the current leveraged operating model in conducting its banking business and operations. The Bank aims to continue to draw more qualified staff with the right skills and capabilities in support of its future expansion programmes at all levels by introducing attractive remuneration packages, comprehensive training programmes, skill enhancement opportunities and a positive overall working environment.

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7.0 FUNDING AND CAPITAL ADEQUACY

7.1 Funding

Maybank Islamic has a liability structure primarily comprising fixed return investment deposits, general investment deposits, demand deposits, savings deposits, structured deposits and negotiable instruments of deposit representing 49%, 18%, 21%, 12%, 0.6% and 0.2% of total deposits respectively as at 31 December 2013. The Bank is able to maintain stable growth in deposits through its 16 dedicated branches and at more than 400 domestic branches co-located at its parent’s network. As at 31 December 2013, approximately 78% of total term deposits had maturities of less than six months. However, based on Maybank Islamic’s experience and historical trends in respect of customer behavior, the rollover rate of traditional deposits has been consistent and predictable, hence providing the Bank with a steady source of funding.

As at 31 December 2013, Maybank Islamic secured a market share of 24% of total customer deposits of the Islamic banking industry and a market share of 24%, 32% and 29% for term deposits, savings deposits and demand deposits respectively. Approximately 43% of Maybank Islamic’s deposits were sourced from business enterprises, 24% from individuals and the remainder from government, statutory bodies and institutional clients as at 31 December 2013. Other sources of funding include interbank deposits and holding company placements. The following table illustrates the profile of the Bank’s customer deposits by type:

As at

Deposits Type 31 December 2013 31 December 2012

(RM million) % (RM million) %

Savings 9.620.4 11.6 8,591.2 12.1

Demand 17,277.9 20.8 14,933.2 21.0

Murabahah term deposit 40,593.5 48.9 31,223.4 44.0

General investment deposit

14,877.3 17.9 15,646.5 22.0

Negotiable Instruments of Deposits

143.3 0.2 242.6 0.4

Structured deposits * 505.2 0.6 347.6 0.5

Total 83,017.6 100.0 70,984.5 100.0

Note: * Structured deposits represent Ringgit Malaysia time deposits with embedded

foreign currency exchange option, index-linked and commodity-linked time deposits.

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7.2 Capital Adequacy As at 31 December 2013 and 31 December 2012, Maybank Islamic’s Common Equity Tier 1 (“CET1”) ratio (the ratio of CET1 to risk-weighted assets) was 11.761% and 10.83%, respectively and the Total Capital Ratio (“TCR”) (the ratio of total capital base to risk-weighted assets) was 13.711% and 12.59%, respectively, which are well above the minimum requirements set by BNM of 8.0%. Maybank Islamic’s Tier 1 capital has grown over the past financial year, mainly as a result of retained earnings and the increase in paid-up share capital and share premium by way of a rights issue. The following table sets forth the capital adequacy ratios of Maybank Islamic as at 31 December 2013 and 31 December 2012:

Audited

As at 31 December

2013 2012

CET1 Ratio 11.761% 10.83%

TCR 13.711% 12.59%

Breakdown of capital base in the various categories of capital:

Audited

As at 31 December

2013 2012

(RM million) (RM million)

Eligible Tier 1 Capital

Paid-up share capital 219.0 -

Share premium 3,726.0 -

Retained reserves 2,172.7 -

Other reserves 317.9 -

CET1 capital before regulatory adjustment 6,435.6 -

Less: Regulatory adjustment applied in CET1 capital

(662.5) -

Total CET1/Tier 1 capital 5,773.0 -

Tier 2 capital instruments 900.0 -

Collective allowance 56.8 -

Total Tier 2 capital 956.8 -

Total capital 6,729.9 -

Eligible Tier 1 Capital

Paid-up share capital - 132.7

Share premium - 2,687.5

Other reserves - 1,659.4

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Less: Deferred tax assets - (199.0)

Total Eligible Tier 1 capital - 4,280.6

Eligible Tier 2 capital

Subordinated sukuk - 1,000.0

Collective allowance on unrated non-impaired financing and advances

-

85.4

Less : Surplus of total expected loss over total eligible provision

-

(390.4)

Total Eligible Tier 2 capital - 694.9

Total capital base - 4,975.6

The breakdowns of Risk Weighted Assets (“RWA”) are as follows: Audited

As at 31 December

2013 2012

(RM million) (RM million)

Standardised Approach exposure 3,902.3 2,411.4

Internal Ratings Based Approach exposure after scaling factor

42,044.0 32,563.9

Total RWA for credit risk

Total RWA for credit risk absorbed by parent

45,946.3

(1,210.2)

34,975.3

(127.3)

Total RWA for market risk 729.5 747.9

Total RWA for operational risk 3,619.2 2,959.4

Additional RWA due to capital floor - 968.1

Total RWA 49,084.8 39,523.4

Notes: (1) Capital adequacy disclosures relating to dates prior to 1 January 2013 are

calculated in accordance with the then prevailing BNM's Risk-Weighted Capital Adequacy Framework and Capital Adequacy Framework for Islamic Banks (General Requirements and Capital Components)’ and are thus not directly comparable to those pertaining to after 1 January 2013 which are calculated in accordance with CAFIB.

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8.0 ASSET QUALITY

8.1 Financing Portfolio

Maybank Islamic’s financing are predominantly made to corporations and individuals based in Malaysia.

As at 31 December 2013, Maybank Islamic’s total gross outstanding financing were RM86.9 billion, which represented 69% of Maybank Islamic’s total assets of RM125.1 billion.

8.2 Financing and Advances by Type

The composition of Maybank Islamic financing portfolio is set out below:-

Audited

As at 31 December

2013 2012

(RM million) (RM million)

Cashline 2,762.9 2,327.5

Term financing

- Housing financing 44,130.1 27,060.0

- Syndicated financing 24.1 37.7

- Hire purchase receivables 26,432.0 20,076.4

- Other term financing 72,481.3 44,904.7

Bills receivable 3.7 0.1

Trust receipts 198.6 184.8

Claims on customers under

acceptance credits 3,978.5 3,706.5

Staff financing 1,403.9 1,077.2

Credit cards receivable 424.4 334.9

Revolving credit 6,095.7 4,552.8

157,935.2

(71,055.9)

104,262.6

(42,264.8) Unearned income

Gross financing and advances 86,879.3 61,997.8

Allowances for impaired financing

and advances

- Individual (162.1)

(581.5)

-

-

(94.2)

- Collective (595.5)

- Specific -

- General -

Net financing and advances 86,135.7 61,308.1

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8.3 Financing and Advances by Economic Purpose

Audited

As at 31 December

2013 2012

(RM million) (RM million)

Purchase of securities 16,325.9 10,587.2

Purchase of transport vehicles 22,635.1

17,221.3

Purchase of landed properties

- Residential 14,072.7 10,268.6

- Non-residential 4,471.3 2,667.0

Purchases of fixed assets (excluding land properties)

8.8 1.5

Personal use 1,419.7 1,150.6

Consumer durables 0.7 0.6

Construction 2,660.7 2,041.1

Working capital 24,859.9 17,693.8

Credit/charge cards 424.5 365.9

Gross financing and advances 86,879.3 61.997.8

8.4 Classification and Impairment Provisions for Financing

Upon adoption of the FRS 139, the concept of NPF is replaced with impaired financing. According to FRS 139, a financing is impaired and impairment loss is incurred only if there is objective evidence of impairment loss as a result of occurrence of loss event(s) after initial recognition.

Two sets of triggers are established to determine the objective evidence of impairment of a financing. (i) Obligatory triggers:

An event that by itself will provide objective evidence of impairment of the borrower;

(ii) Judgmental triggers:

An event if by itself might not be an evidence of impairment, however when combined with other events, it might be an evidence of impairment

Following the revised BNM/Garis Panduan 3 issued on 26 January 2010, paragraph 11 stated that financing is classified as impaired when: (i) Principal or profit or both is past due for more than 90 days or 3 months

(ii) The amount is past due or the outstanding amount has been in excess of the

approved limit for 90 days or 3 months or less, the financing exhibits

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weaknesses that render a classification appropriate according to the financing institution’s credit risk grading framework.

Classification of Financing as Impaired and Provisioning Policy (a) Individual Assessment

Customers with significant financing (i.e. total outstanding balances above the cut-off threshold of RM5 million) are scoped under individual assessment.

A financing is classified as triggered account only if it meets the criteria as follow: • Any one (1) or more of obligatory triggers; or • Any two (2) or more of judgmental triggers

(b) Obligatory triggers include:- • More than 3 months in arrears • Cease operation/bankruptcy; • Winding up; • Company classified under Practice Note 4 and/or Practice Note 17; • Receiver & Manager appointed; • Material fraud with investigation report

(c) Judgmental triggers include:-

• Delinquent 2 months in arrears and above; • Evidence of litigation by other parties against the customer • Significant deterioration of financial performance of the company: • Request for rescheduling / restructuring • Qualified auditors’ report • Monitoring accountant appointed

If objective evidence of impairment has been incurred, the impairment loss is measured at the difference between carrying amount and discounted cash flows as at the assessment date:

Impairment loss = Carrying amount – Discounted cash flows

(d) Collective Assessment

If a financing has no objective evidence of impairment, whether or not it is a significant financing (i.e. below the cut-off threshold) would be grouped together with similar credit risk characteristics and collectively assessed for impairment. Generally, the approach adopted by the Bank in collective assessment is multiplying the total gross outstanding balances, probability of default and loss given default: Impairment loss = Gross outstanding balance x Probability of Default x Loss Given Default

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8.5 Write-Off Policies

As a general policy, the unsecured impaired accounts aged 2 years and above are to

be written off irrespective of the status of ongoing recovery actions/repayment. For impaired accounts with security, only partial write-offs are to be effected and full write-off is to be made for impaired accounts aged 7 years and above. Impaired accounts which are written off in such cases are maintained in a Memorandum Account for further follow-up actions as if the debt has not been written off.

8.6 Profile of Impaired Financing As at 31 December 2013 and 31 December 2012, Maybank Islamic’s total net

impaired financing were RM358.8 million and RM425.8 million respectively. The ratio of net impaired financing to net financing as at 31 December 2013 and 31 December 2012 were 0.46% and 0.70% respectively as illustrated below.

Audited

As at 31 December

2013 2012

(RM million)

(RM million)

Gross financing and advances (excluding RPSIA*)

78,550.4

61,347.8

Less: Individual allowance (162.0) (94.2)

Net financing and advances 78,388.4 61,253.6

Gross impaired financing and

advances

520.8

520.0

Less: Individual allowance (162.0) (94.2)

Net impaired financing and advances

358.8

425.8

Ratios:

Net impaired financing and advances

as a percentage of net financing and

advances

0.46%

0.70%

*RPSIA = Restricted Profit Sharing Investment Accounts

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8.7 Securities Portfolio

Securities Held-for-Trading (“HfT”) HfT securities are acquired principally for the purpose of benefiting from actual or expected short-term price movement or to lock in arbitrage profits. As at 31 December 2013, HfT securities constituted 0.4% of Maybank Islamic’s total assets. Maybank Islamic’s HfT portfolio mainly comprises BNM Monetary Notes (66%), Malaysian Government Investment Issues (29%) and foreign private debt securities (5%) of the HfT portfolio as at 31 December 2013. Securities Available-for-Sale (“AfS”) The AfS portfolio covers the holding of approved securities that are not classified as held-for-trading or held-to-maturity investments and are measured at fair value. As at 31 December 2013, AfS securities constituted 7% of Maybank Islamic’s total assets. Maybank Islamic’s AfS portfolio mainly consisted of Malaysian Government securities (58%), Negotiable Islamic Instrument of Deposit (20%), Bankers’ acceptances and Islamic accepted bills (0.3%), Khazanah Bond (0.7%) and unquoted securities (21%).

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9.0 RISK MANAGEMENT

Maybank Islamic currently adopts the integrated risk management approach established by the Maybank Group. The Bank’s risks are systematically managed with proper risk governance, infrastructure and tools embedded throughout the Maybank Group Islamic financing businesses. This approach ensures effective management of enterprise-wide risks posed by the rapidly changing business environment.

The management of risk lies at the heart of the Group’s business. The Group continues to take proactive measures to manage various risks posed by the rapidly changing business environment. These risks, which include credit risk, market risk, liquidity risk, reputational risk, business risk, strategic risk and operational risk, are systematically managed within the Group’s risk management framework. Amidst the various risk factors impacting the Group’s business operations, which include changing regulatory landscape, external competitive environment and economic landscape, the Group continues to plan, monitor and respond to these internal and external risk factors in an anticipative manner. The risk management framework that the Group has put in place is designed to meet these challenges. Various aspects of the risk management framework are described below.

9.1 Risk Governance Structure

The Group invests extensively to ensure that adequate policies and procedures for

the identification, measurement, monitoring and control of credit, liquidity, rate of return, foreign exchange and operational risks have been implemented and that a uniform standard of such measures exists across the Group. Risk management is a critical part of the Group’s operating model. The existing risk management infrastructure for the Group was established by the Issuer and subsequently adopted by its subsidiaries, taking into account the respective business models and specific requirements of each individual entity.

Both the Maybank Board and the Board are assisted by the following Maybank

Board committees in its overall responsibility (for risk oversight within the Group):

(a) Risk Management Committee; (b) Credit Review Committee; and (c) Audit Committee.

The Executive Risk Committee, Group Operational Risk Management Committee, Asset and Liability Management Committee and Group Management Credit Committee are Executive Level Committees responsible for the management of all material risks within the Bank.

The following chart illustrates the risk governance structures of the Group:

Board of Directors

The Maybank Board and the Board are Maybank Group’s “ultimate governing body” who has overall risk oversight responsibility. It approves the Group’s risk management framework, risk appetite, plans and performance targets for the Group and its principal operating subsidiaries, the appointment of senior officers, the delegation of authorities for credit and other risks and the establishment of effective control procedures.

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Board Level Committees

Risk Management Committee (“RMC”)

The RMC is a dedicated Maybank Board’s and the Board’s committee responsible for the risk oversight function within the Group. It is principally responsible to review and approve key risk frameworks and policies for the various risks.

Credit Review Committee (“CRC”)

The CRC is tasked by the Maybank Board and the Board to review fresh or additional loan applications subject to pre-determined authority limits and credit risk ratings as may be recommended by the Group Management Credit Committee (“GMCC”).

Executive Level Committees

Executive Risk Committee

(“ERC”)

Group Operational Risk

Management Committee (“GORMC”)

Asset & Liability Management Committee (“ALCO”)

Group Management

Credit Committee (“GMCC’)

The ERC, GORMC, ALCO and GMCC are Executive Level Committees responsible for the management of all material risks within the Maybank Group. The scope of ERC encompasses all risks type, whilst the GORMC caters specifically to operational risk matters. The ALCO is primarily responsible for the development and implementation of broad strategies and policies for managing the consolidated balance sheet and associated risks. The GMCC is empowered as the centralised loans approval committee for the Group.

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9.2 Holistic Enterprise Risk Management Approach In light of the Group’s operating structure and geographic expansion, the Group

continuously enhances its integrated risk management approach towards the effective management of enterprise-wide risks in the Group. Key components of the Enterprise Risk Management (“ERM”) framework include:

In line with the ERM, the Group has adopted and consistently practised the Seven Broad Principles of Risk Management to ensure integration in purpose, policy, methodology and risk culture.

9.3 The Group’s Seven Broad Principles of Risk Management The Seven Broad Principles define the key principles on accountability,

independence, structure and scope.

1) The risk management approach is premised on three lines of defence – risk taking units, risk control units and internal audit.

2) The risk taking units are responsible for the day-to-day management of risks inherent in their business activities while the risk control units are responsible for setting the risk management frameworks and developing tools and methodologies for the identification, measurement, monitoring, control and pricing of risk. Complementing this is internal audit which provides independent assurance of the effectiveness of the risk management approach.

3) Risk management provide risk oversight for the major risk categories including credit risk, market risk, liquidity risk, operational risk and other industry-specific risks.

4) Risk management ensures that the core risk policies of the Group are consistent, sets the risk tolerance level and facilitates the implementation of an integrated risk-adjusted measurement framework.

5) Risk management is functionally and organizationally independent of the business sectors and other risk taking units within the Maybank Group.

6) The Maybank Board, through the Maybank Board Risk Management Committee, maintains overall responsibility for risk oversight within the

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Group. 7) Risk management is responsible for the execution of various risk policies and

related business decisions empowered by the Board.

The Maybank Group manages risk through clear delineation of the 3 lines of defence. The 3 lines of defence are defined as follows:

9.4 Risk Appetite Identifying the risk appetite and risk capacity of the business is an important

starting point for ERM. A key element of the Risk Appetite Framework is the Risk Appetite Statement, which is a Maybank Board-approved document that defines the self-imposed constraints and drivers which the Maybank Group have chosen to limit or otherwise influence the amount of risk undertaken. This document shall have a set of quantitative and qualitative key measures, and shall be regularly reviewed, updated and approved by the Maybank Board Risk Management Committee and the Maybank Board.

The Maybank Board has approved the Risk Appetite Statement and Framework for

implementation across the Maybank Group while the Board has approved the Risk Appetite Statement for the Bank. The risk appetite statements were articulated to better link the Group’s business strategies with its risk taking capacities and optimise risk-return tradeoffs.

9.5 Capital Management The impact of the overall net risk earnings and adequacy of the Group’s capital to

support the risk taking activities is assessed through group wide and business level stress testing as well as periodic review and update of the stress events library. Relevant business units are alerted on possible defensive actions.

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9.6 Internal Capital Adequacy Assessment Process (“ICAAP”) At the Group, the overall capital adequacy in relation to its risk profile is assessed

through a process articulated in the ICAAP. The ICAAP Framework has been formalised and approved by the Maybank Board in April 2008, with the sixth version revised in October 2013. The ICAAP has been implemented within the organisation to ensure all material risks are identified, measured and reported, and adequate capital levels consistent with the risk profiles are held.

The Group’s ICAAP closely integrates the risk and capital assessment processes. The

ICAAP framework is designed to ensure that adequate levels, including capital buffers, are held to support the Group’s current and projected demand for capital under existing and stressed conditions. Regular ICAAP reports are submitted on half yearly basis to the ERC, the RMC and the Maybank Board for comprehensive review of all material risks faced by the Group and assessment of the adequacy of capital to support them. In line with BNM’s Guideline on ICAAP which was last updated on 2 December 2011, the Group has submitted to BNM a Maybank Board-approved ICAAP document.

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10.0 MALAYSIAN BANKING INDUSTRY OVERVIEW

10.1 Economic Report 2013/2014 - Monetary and Financial Developments

Overview A resilient and supportive financial sector

In an environment of continued weakness and uncertainties in the global economy,

growth in the domestic economy was driven by private consumption and robust investment activity. While inflation has increased steadily since the early part of this year, it remained low during the first eight months of 2013. Monetary policy during this period was focused on supporting growth while inflation remains contained. Given the continued slow global growth and domestic conditions, the Overnight Policy Rate (OPR) was maintained at 3.00% and the Statutory Reserve Requirement (SRR) at 4.00%.

As the domestic economy was affected by the prolonged weakness in the external

environment, the pace of financing that was extended through the financial institutions and capital market moderated, but nevertheless supported the expansion in economic activities in the first eight months of 2013. During the first quarter of 2013, the conditions in the global financial market improved as monetary authorities continued to maintain accommodative policies to strengthen the recovery of the global economy. Subsequently, global financial markets experienced increased volatility following uncertainties over monetary policy adjustments in the advanced economies. However, the domestic financial system remained resilient, with strong and well-capitalised financial institutions, and financial intermediation continued to function efficiently to support economic activities. As at end-August 2013, the common equity tier 1 ratio, tier 1 capital ratio and total capital ratio of the banking system registered 12%, 12.8% and 14.1%, respectively. These were well above the minimum regulatory levels under the Basel III capital adequacy framework, which was implemented starting 1 January 2013.

During the first eight-months of 2013, the global sukuk market grew 32.6%

compared with the same period last year. With high liquidity levels in the sukuk market, Malaysia saw growing interest from foreign issuers to tap into the domestic sukuk market. Malaysia remains the global leader in sukuk issuance, accounting for 70.5% of USD53 billion of new sukuk issued globally. As at end-August 2013, Bursa Malaysia continued to be ranked as the top exchange for sukuk listing, which amounted to USD32.3 billion. In July 2013, the sukuk market saw a significant development with the inaugural issuance of Government Investment Issues (GIIs) under the Murabahah structure. The GIIs based on the Murabahah contract is essentially a certificate of indebtedness arising from a deferred mark-up sale transaction of an asset, such as commodity (mainly crude palm oil), which complies with Shariah principles. The RM4 billion GIIs was oversubscribed by 2.9 times.

At the beginning of the year, a Malaysian multinational conglomerate, one of the

world’s largest plantation players with a diversified business portfolio, was given approval to carry out a USD1.5 billion equivalent Multi-currency Sukuk Issuance Programme. This Sukuk Programme is the first of its kind by an Asian corporation under the Shariah principle of Ijarah and was internationally rated. The corporate ratings assigned by Standard & Poor’s, Fitch Ratings and Moody’s were higher or at par with Malaysia’s sovereign rating.

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Monetary Developments Monetary policy continues to support growth

Monetary policy in 2013 continues to promote price stability in an environment of

sustained economic growth. The OPR, which was kept unchanged at 3.00% since May 2011, was maintained at the same level during the first eight months of 2013, amid the prolonged weak external demand following continued slow global economic growth. Given the outlook for growth and inflation, the current policy stance is appropriate and will be assessed against the global economic and financial developments with is implication on the domestic economy. Meanwhile, the SRR was also maintained at 4.00% since its last adjustment in July 2011.

Interest rates remain stable

Interest rates in the banking system remained stable in tandem with the unchanged OPR in the first eight months in 2013. The base lending rate of commercial banks set at 6.53% since December 2011, remained unchanged as at end-August 2013. Meanwhile, the weighted average lending rate of commercial banks continued to edge lower to 5.42% as at end-August 2013 (end-2012: 5.52%). The interest rate on savings deposit averaged 1.02% as at end-August 2013 (end-2012: 1.03%) while interest rates on fixed deposits for tenures of 1-month to 12-month were stable during the first eight months of 2013, ranging between 2.91% and 3.15% (end-2012: 2.92% and 3.15%). The real rates of return for all fixed deposits tenures were positive as inflation remained subdued.

Monetary aggregates continue to expand Monetary aggregates continued to expand during the first eight months of 2013.

M1 or narrow money, rose 10.3% as at end-August 2013 (end-2012: 11.9%). Meanwhile, M3 or broad money, increased RM81.1 billion to record a growth of 8.3% as at end-August 2013, mainly driven by financing activity from the banking system the private sector (end-2012: RM111.2 billion; 9%).

Ringgit depreciates During the first eight months of 2013, the ringgit eased against most major and

regional currencies. The demand for ringgit and other regional currencies was mostly influenced by the developments in the US and euro area, stimulus measures by central banks of advanced economies as well as the regional growth and export outlook. From January to mid-March, the ringgit and most other regional currencies weakened against the US dollar, mainly due to market concerns over developments in Europe, especially the banking crisis in Cyprus as well as a possible early scaling back of quantitative easing measures in the US. The concerns resulted in a withdrawal of funds from emerging markets assets. The ringgit was also affected by domestic uncertainties during this period, as investors remained cautious in the run-up to the 13th General Election. As at end-March, the ringgit softened 1% against the US dollar, but gained against the pound sterling (5.2%), euro (2%) and yen (8.4%). The ringgit depreciated between 0.3% and 5.3% against most regional currencies.

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From April to early May, the ringgit advanced against the US dollar as investor sentiment was lifted after Cyprus reached an eleventh hour bailout agreement to save its financial sector and avoided a possible pull out from the European Union. The ringgit also strengthened as pre-election uncertainties were quelled after the ruling coalition won the 13th General Election. The ringgit breached the RM3.0000 per USD level for the first time in 2013, recording RM2.9675 on 6 May and strengthened further to RM2.9645 on 9 May, the strongest level against the US dollar from end-2012 to end-August 2013.

The upward trend was, however, reversed from the second half of May until August

2013, as renewed uncertainties surrounding the tapering of stimulus measures by the US Federal Reserve (Fed) after the US economy showed sustained signs of improvement, led to another round of withdrawal of funds from regional financial markets. Overall, during the first eight months of 2013, the ringgit fell 7.3%, 3.5% and 7.5% against the US dollar, pound sterling and euro, respectively, but appreciated 5.9% against the yen. The ringgit also eased between 2.7% and 8.9% against the Thai baht, Singapore dollar, Korean won and Chinese renminbi. However, the ringgit advanced in the range of 0.7% and 7.7% against the Philippine peso, Indonesian rupiah and the Australian dollar.

In September, the ringgit appreciated 1.3% against the US dollar at RM3.2575 as the

market took into account the Fed delaying the tapering of its stimulus measures. The ringgit, however, softened against most major and regional currencies during the period in the range of 0.2% and 2.8%.

Financial Sector Developments During the first eight months of 2013, the banking system and capital markets were

further strengthened to facilitate and catalyse growth in the economy as Malaysia transitions to a high-income and developed nation. Financial intermediation continued to support economic activities with total loans outstanding in the banking sector increasing 9.3% to RM1,180.3 billion as at end-August 2013. Meanwhile, total financing outstanding of development financial institutions (DFIs) increased 8.5% to RM117 billion, particularly to strategic economic sectors. Microfinancing was also extended through the Skim Pembiayaan Mikro, Amanah Ikhtiar Malaysia (AIM) and Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN Nasional) to support microenterprises.

The capital market remains an important source of financing for companies, with

total private bonds outstanding amounting to RM415.3 billion and market capitalization of the equity market increasing to RM1,598.8 billion as at end-August 2013. In January 2013 a new sukuk asset class was launched on Bursa Malaysia, making sukuk and bonds available to all investors, for the first time. The DanaInfra Retail Sukuk issued by DanaInfra Nasional Berhad was used to partly fund the current MY Rapid Transit (MRT) project.

Malaysia continues to be a global hub for Islamic finance with a deep primary and

active secondary sukuk market, an efficient price discovery mechanism, a diverse talent base with global capabilities, and an efficient multi-currency clearing and settlement system. Furthermore, with the new Islamic Financial Service Act 2013 (IFSA) that came into force in June this year, there will be greater clarity in the legal and prudential requirements underpinned by Shariah principles on the Islamic finance industry. The Act will strengthen the regulatory and legal system to meet

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the challenges and developments of an increasingly sophisticated and internationalised industry.

Banking System Performance

Sustained demand for financing Credit growth in the banking system continued, albeit at a more moderate pace,

during the first eight months of 2013. Loan applications increased 0.5% to RM535.6 billion while loan approvals declined 1.4% to RM261 billion (January – August 2012: 7.5%, RM533 billion; -0.3%, RM264.6 billion). During the same period, loan disbursements grew 0.7% to RM619.2 billion (January – August 2012: 17.5%; RM614.6 billion). Total loans outstanding in the banking system expanded 9.3% to RM1,180.3 billion as at end-August 2013 (end-2012: 10.4%; RM1,108 billion).

Lending to businesses moderated during the first eight months of 2013. Loan

applications by businesses dropped 12.5% to RM236.7 billion, while approvals fell 20.5% to RM103.8 billion (January – August 2012: 15%, RM270.4 billion; 4%, RM130.6 billion). Likewise, disbursements to businesses slowed 3.8% to RM421.5 billion (January – August 2012: 26.9%; RM437.9 billion). The largest portion of loans disbursed to businesses was to the manufacturing sector at 20.9%; followed by the wholesale and retail trade, accommodation and restaurant sector at 19.2%; the finance, insurance and business services sector at 7.2%; and the construction sector at 6.6%. Total business loans outstanding grew 7.7% to RM440.8 billion as at end-August 2013 (end-2012: 10.9%; RM419.1 billion).

Financing to small and medium enterprises (SMEs) was also moderate during the

first eight months of 2013. Loan applications grew 3.5% to RM128.2 billion while approvals eased 12.9% to RM47.7 billion (January – August 2012: 13%, RM123.8 billion; 14.5%, RM54.8 billion). During the period, the finance, insurance and business services sector received the largest share of loans with 27.7%, followed by the wholesale and retail trade, accommodation and restaurant sector with 25.8% while the manufacturing sector accounted for 19.4%. SME loans outstanding expanded 11% to RM191.5 billion, comprising 43.4% of total business loans outstanding in the banking system as at end-August 2013 (end-2012: 15.5%; RM177 billion; 42.2%).

Additionally, SMEs were provided with financing from five special revolving funds1

administered under Bank Negara Malaysia (BNM). In the first eight months of 2013, total financing amounted to RM1,106 million with 2,994 accounts approved (January – August 2012: RM774.1 million; 2,087 accounts), which represented a 42.9% and 43.5% increase, respectively over the same period last year. As at end-August 2013, total financing approved since the establishment of the funds, amounted to RM23.7 billion with an average utilisation rate of 90.9% and benefited 57,373 SMEs (end-2012: RM22.6 billion; 92.2%; 54,379 SMEs).

Meanwhile, microenterprises continued to gain access to microfinancing under Skim

Pembiayaan Mikro, which was established in 2006. Under this scheme, viable microenterprises are eligible to obtain either conventional or Islamic financing of between RM1,000 and RM50,000 from 10 financial institutions with more than 2,400 access points. During the first eight months of 2013, a total of RM208.7 million

1 Fund For Food was established in 1993; Fund for Small and Medium Industries 2 (2000); New Entrepreneurs Fund 2

(2001); Micro Enterprise Fund (2008); and Bumiputera Entrepreneurs Project Fund – Islamic (2009).

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were approved to 10,658 microenterprises (January – August 2012: RM222.5 million; 11,397 microenterprises). As at end-August 2013, total loans outstanding under the scheme amounted to RM867.3 million, assisting 71,102 microenterprises (end-2012: RM870.3 million; 68,799 microenterprises).

In addition, AIM and TEKUN Nasional continued to extend financing to

microentrepreneurs. AIM, which was established in September 1987, currently provides five types of Islamic financing to its growing numbers of members. As at end-August 2013, AIM has a total of 341,006 registered members, of which about 70% are between 20 and 50 years old. Most of the members are involved in the business sector (51.7%) followed by agriculture (23.6%), manufacturing (8.9%) and services (7.5%). Total financing approved to 279,777 members amounted to RM1,118.1 million in the first eight months of 2013 (January – August 2012: 276,926 members; RM1,211.8 million). The repayment rate for financing extended remained high at 98.4% during the period (January – August 2012: 99.4%). Meanwhile, TEKUN Nasional disbursed a total of RM398.2 million to 32,194 microentrepreneurs (January – August 2012: RM326.4 million; 22,905 microentrepreneurs), with the bulk of financing channelled to the services (50.3%) and the retail (36.5%) sectors. Overall, since its establishment in 1998, TEKUN Nasional has provided financing totaling RM2.8 billion to 269,367 microentrepreneurs.

During the first eight months of 2013, financing to households remained firm with

all household loan indicators increasing at double-digit rates. Household loan applications grew 13.8% to RM298.9 billion, approvals 17.3% to RM157.2 billion and disbursements 11.9% to RM197.7 billion (January – August 2012: 0.8%, RM262.7 billion; -4.2%, RM134 billion; -0.8%, RM176.7 billion). Total household loans outstanding expanded 11.9% to RM663.4 billion and accounted for 56.2% of total loans outstanding in the banking system as at end-August 2013 (end-2012: 11.6%; RM616.5 billion; 55.6%). Most of the total loans disbursed to households were for consumption credit (43.8%), purchase of residential properties (24.2%) and purchase of passenger cars (14.7%).

Total household debt, which includes loans provided by the banking system, DFIs,

the Treasury Housing Loan Division and other credit institutions, expanded at an average annual rate of 12% over the past five years. The accumulation of debt was primarily for asset purchase, such as properties and vehicles, which accounted for 69.8% of total household debt. As at end-August 2013, household debt increased 12.6% to RM824.3 billion (end-2012: 13%; RM 761.9 billion). Total household debt relative to nominal GDP stood at 85.1% as at end-June 2013 (end-2012: 80.9%). Meanwhile, household financial assets grew 10.3% to RM1,812.3 billion as at end-August 2013 (end-2012: 12.6%; RM1,686.5 billion). Growth in household debt was supported by sustained growth in income levels and favourable employment conditions. The household sector continued to exhibit the ability to service their loans with the loan impairment ratio remaining low at 1.4% of banking system loans extended to households as at end-August 2013 (end-2012: 1.5%).

While the overall household debt level remains manageable, it was noted that

borrowers in the lower income brackets are vulnerable as their leverage position has increased relative to other income groups. This has been accompanied by the rapid increase in personal financing and extended financing tenures, which can encourage over-borrowing by households that are not in a position to take on more debt. In July 2013, BNM introduced several pre-emptive measures aimed at promoting a more resilient household sector, reinforcing responsible lending practices as well as mitigating potential longer-term risks to financial stability.

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These measures include, limiting the tenures for housing loan from up to 45 years to 35 years and personal financing, from up to 25 years to 10 years. In addition, financial institutions are prohibited from offering personal financing without application from borrowers. Financial institutions are also required to observe a prudent debt service ratio when extending credit to borrowers, to ensure that they have sufficient financial buffers to support them in the event of rising costs and unexpected adversities. The measures also ensure that households that have the capacity to borrow can continue to have access to financing. In order to ascertain consistency in the financing practices of major credit providers to the household sector, these measures are also applied to cooperatives regulated by Suruhanjaya Koperasi Malaysia, the Malaysia Building Society Berhad (MBSB) and Aeon Credit Service (M) Berhad, in addition to commercial and Islamic banks as well as DFIs regulated by BNM. These measures complemented earlier measures that have been progressively implemented since 2010.

Credit card usage continued to increase in the first eight months of 2013.

Transactions grew 5.8% to 221.9 million, amounting to RM65.2 billion (January – August 2012: 6%; 214.7 million; RM61.6 billion). Credit card balances outstanding increased slightly by 2.4% to RM33.8 billion as at end-August 2013 (end-2012: 1.7%; RM34 billion). Meanwhile, credit card debt accounted for 2.9% of total loans outstanding in the banking system and 5.1% of total loans to households as at end-August 2013 (end-2012: 3.1%; 5.5%). Despite the introduction of stricter income requirements, credit card applications rose 13.3% to 1.9 million during the first eight months of 2013 (January – August 2012: -0.6%; 1.7 million). However, the approval rate was lower at 44.3% (January – August 2012: 48.7%). The level of credit card debt impairment remained low at 1.2% as at end-August 2013 (end-2012: 1.3%).

Agensi Kaunseling and Pengurusan Kredit (AKPK) continued to undertake initiatives

to promote financial literacy and prudent financial management, especially to young adults. During the first eight months of 2013, AKPK provided credit counselling to a total of 24,286 individuals, of which 10,785 or 44.4% committed to the Debt Management Programme (DMP) (January – August 2012: 23,842; 10,789; 45.3%). The DMP assisted borrowers in coordinating repayments of RM828.5 million (January – August 2012: RM724.2 million) to financial institutions during the period, of which 7,820 cases were credit card-related debt with a value of RM467.5 million, and 4,956 personal financing cases amounting to RM151.6 million (January – August 2012: 8,670 cases, RM420.6 million; 5,202 cases, RM173.7 million). Meanwhile, home and motor vehicle financing accounted for 450 and 103 cases (January – August 2012: 264 cases; 73 cases), respectively. Since its establishment in 2006, AKPK has assisted more than 94,000 individuals through the DMP.

In addition, the DMP has been extended to include borrowers with non-bank

lenders, such as the MBSB and credit cooperatives. AKPK has introduced the DMP Booklet to credit providers as a guide to the DMP process. A second module of the successful financial literacy programme, POWER!, focusing on debt management, is being developed, targeting adults between 25 and 45 years old. AKPK, together with Jabatan Kemajuan Islam Malaysia, have also developed a post-marital programme to assist couples in family financial planning.

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Islamic Finance Developments Promoting Malaysia as the Islamic finance marketplace Promotion in Islamic finance continued with more significant efforts and commitment to increase and facilitate cross-border Islamic financial transactions with other global financial communities. Various activities were undertaken in Islamic finance domestically and internationally to further position Malaysia as the leader in Islamic finance. Domestic activities included the hosting of the 10th Islamic Financial Services Board (IFSB) Summit in Kuala Lumpur on 16 May 2013 with the theme "The Future of the Islamic Financial Services Industry: Resilience, Stability and Inclusive Growth", to examine regulatory policies that underpinned inclusive growth with stability; the Islamic Finance Workshop Series for Judges, held on 28 and 29 June 2013 with the theme "Managing Islamic Banking Cases"; and the 15th Malaysian Finance Association Conference held in June with the theme "Financial Challenges and Economic Growth - The Way Forward". On the international front, Malaysia collaborated with several countries to further promote development of Islamic finance. BNM and Autoriti Monetari Brunei Darussalam entered into a memorandum of understanding on 3 April 2013 to establish a collaborative framework towards enhancing mutual cooperation in the development of the financial services sector, including Islamic finance. The International Shariah Research Academy for Islamic Finance (ISRA), in collaboration with the Islamic Research and Training Institute (IRTI) and Durham University, jointly organised the 3rd ISRA-IRTI-Durham University Strategic Roundtable Discussion in Jeddah with the theme, "Risk Sharing in Theory and Practice: Fiqhi Evidence vis-a-vis Current Reality". Meanwhile, the 7th Regional Shariah Scholars Dialogue themed "Ujrah: Issues and Application in Islamic Finance" was held in Singapore on 29 and 30 May 2013. A bilateral meeting held on 28 August between BNM and the Hong Kong Monetary Authority discussed the setting up of a private-led joint forum to advance the development of Islamic finance in Hong Kong. This is envisaged to open up new business opportunities in Islamic finance in Malaysia and Hong Kong. In January this year, the SC gave approval to a Malaysian multinational conglomerate, one of the world's largest plantation players that is also involved in development, property, energy and utilities as well as healthcare, to carry out a USD1.5 billion equivalent Multi-currency Sukuk Issuance Programme. The internationally rated Sukuk Programme under the Shariah principle of Ijarah is the first of its kind by an Asian corporation. The corporate ratings of A, A and A3 assigned by Standard & Poor's, Fitch Ratings and Moody's, respectively were higher or at par with Malaysia's sovereign rating. The Sukuk Programme provided the corporate with financial agility to meet its funding requirements as its business expands globally. It also enabled the company to tap a wider pool of investors, both conventional and Islamic, from Asia, the Middle East and Europe. The inaugural issuance of the USD800 million 5-year and 10-year sukuk was oversubscribed more than 10 times. Asian investors took up about 70% of the total sukuk issued. It was a landmark transaction with the lowest ever coupon by any corporate globally in the USD sukuk market; the lowest ever US dollar coupon in sukuk format by an Asian issuer; and the lowest ever coupon by a Malaysian borrower in the USD market, in both the 5-year and 10- year tenures. On 1 August 2013, the Malaysia Islamic finance marketplace was introduced with a new brand identity, "Malaysia: World's Islamic Finance Marketplace", to position

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Malaysia as an Islamic finance marketplace to the world. This is a culmination of the concerted efforts of the Islamic financial industry community to develop Islamic finance in Malaysia since its inception 30 years ago, into a comprehensive and sophisticated Islamic finance marketplace. The key components of the Marketplace include Islamic banking, Islamic capital market, takaful and re-takaful, Islamic money market, professional ancillary services, talent development infrastructure as well as Islamic fund and wealth management. The Marketplace is open to global industry players and market participants to collaborate with and mutually benefit from a highly conducive business environment of innovation, expertise and deal flows. The KL-based International Islamic Liquidity Management Corporation (IILM), established by nine central banks/monetary authorities and the Islamic Development Bank, issued its first USD-denominated 3-month sukuk amounting to USD490 million, in August 2013. The sukuk, backed by sovereign assets, was rated A1 by Standard & Poors and was fully subscribed by primary dealers. The IILM short-term sukuk meets the market demand for highly rated short-term Shariah-compliant cross-border liquidity instruments and complements the intermediate and long-term sukuk currently available in the market. By creating more liquid Shariah-compliant financial instruments for Institutions Offering Islamic Financial Services (IIFS), the IILM will enhance cross-border investment flows, international linkages and financial stability. Islamic capital market expands The Islamic capital market continued to be a significant source of financing through sukuk issuances as well as providing opportunities for corporates to tap into new sources of liquidity in the region. As at end-August 2013, 799 Shariah- compliant securities were listed on Bursa Malaysia, representing 87.7% of total listed securities with a market capitalisation of RM995.7 billion or 63.7% of total market capitalisation (end- 2012: 813 securities, 88.3%; RM942.2 billion, 64.3%). In the first eight months of 2013, the trading volume of Shariah-compliant securities increased to 197.5 billion units, representing 81% of the total 243.9 billion units traded (January - August 2012: 189 billion units; 76.4%; 247.5 billion unit traded). Malaysia remains the global leader in the sukuk market, accounting for 70.5% of the USD75 billion of new sukuk issued globally during the first eight months of 2013. Malaysia is also a domicile for 63.6% of the USD275.2 billion of total sukuk outstanding globally as at end-August 2013. Meanwhile, Bursa Malaysia continued to be ranked as the top exchange for sukuk listings valued at USD32.3 billion or RM106.6 billion, with a total of 19 sukuk listed (end-August 2012: USD31.7 billion; RM99.4 billion; 19 sukuk). Similarly, Bursa Suq Al-Sila', an end-to-end Shariah compliant commodity murabahah trading platform has attracted increasing foreign interest, especially from the Middle East. As at end-August 2013, Bursa Malaysia Islamic Services registered a total of 74 participants comprising 56 commodity trading participants, 14 commodity supplying participants and four commodity executing participants. As of August 2013, RM311.8 billion worth of commodities were offered with RM579.4 billion traded. Malaysia remains among the global leaders in the Islamic fund management industry. An application by a US-based Islamic fund management was approved in May 2013, bringing the total number of Islamic fund management companies to 19 (end-2012:18 companies). During the same period, seven additional Islamic unit trust funds and seven Islamic wholesale funds were launched, bringing the total to 176 and 48 funds, respectively (end-2012: 169 Islamic unit trust funds; 41 Islamic

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wholesale funds). As at end-August 2013, the total NAV of Islamic unit trust funds stood at RM38 billion and Islamic wholesale funds at RM15.8 billion (end-2012: RM35 billion; RM16.2 billion). Meanwhile, Islamic REITs increased to four, with a market capitalisation of RM15.6 billion as at end-August 2013 (end-2012: 3 REITs; RM3.5 billion), while the market capitalisation of the sole Islamic ETF remained unchanged from end-2012 at RM0.3 billion. On 8 January, the Exchange Traded Bonds and Sukuk (ETBS) was launched to create a new asset class, which was opened for public/retail investment till book closing on 25 January 2013. ETBS are listed fixed income securities which offer pre-determined returns in the form of coupons paid out over regular intervals. Bonds/sukuk which used to be the domain of institutional investors and high networth individuals, are for the first time offered to retail investors with a minimum investment of RM1,000. The debut issuance of the ETBS or Danalnfra Retail Sukuk by Danalnfra Nasional Berhad totalled RM300 million with a 10-year maturity period and will be used to partly fund the MRT project, giving Malaysians the opportunity to invest in the nation's key transport infrastructure. To further incentivise trading of ETBS on Bursa Malaysia, investors will enjoy non-taxable coupon payments, thereby providing better returns on the ETBS. The Government has also approved the utilisation of investors' EPF Account 1 for investment in ETBS instruments or Government and Government guaranteed bonds and sukuk. Further growth of Islamic banking The Islamic banking industry has shown significant growth over the last five years, with assets doubling from RM251 billion in 2008 to RM494.6 billion in 2012. As at end-August 2013, the market share of Islamic financing assets (including DFIs) increased to 24.4% of the total banking system assets (end-2012: 23.8%). Islamic banking assets grew 13% to RM542.5 billion (end-2012: 15.4%; RM494.6 billion). Total deposits rose 12.7% to RM416 billion and accounted for 30.4% of total deposits in the banking system (end-2012: 14.3%; RM386.2 billion; 25.6%). Total Islamic banking continued to grow 16.6% to RM348.4 billion and represented 26.9% of the total loans in the banking system (end-2012: 17.4%; RM315 billion; 25.8%). The household sector continued to account for the bulk of Islamic financing at 65.9% (end- 2012: 63%). Meanwhile, the manufacturing sector accounted for 5% or RM17.4 billion (end- 2012: 5.7%; RM18 billion) followed by finance, insurance and business services at 4.9% or RM17.1 billion (end-2012: 5.4%; RM17.1 billion) and construction at 4.6% or RM16 billion (end- 2012: 4.5%; RM14.1 billion). (Source: Economic Report 2013/2014, Ministry of Finance Malaysia)

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10.2 BNM – Economic and Financial Developments in Malaysia in the Fourth Quarter of 2013

Overview

The Malaysian economy expanded by 5.1% in the fourth quarter of 2013 Global economic activity improved in the fourth quarter amid the gradual recovery

in the major economies. Despite lingering fiscal uncertainties, the US economy registered stronger growth as consumption and investment improved. In the euro area, modest improvements in exports supported growth, but structural and fiscal issues weighed down domestic demand. Growth across Asia continued as moderating domestic demand was offset by better export performance. Similarly, the Malaysian economy expanded by 5.1% in the fourth quarter of 2013 (3Q 2013: 5.0%), supported by private sector demand and improvement in exports. On the supply side, the major economic sectors grew further, supported by both domestic and trade activities. On a quarter-on-quarter seasonally adjusted basis, the economy recorded a growth of 2.1% (3Q 2013: 1.7%). For the year 2013, the Malaysian economy grew by 4.7%.

Private consumption growth remained high in the fourth quarter, although the pace

of expansion moderated (7.3%; 3Q 2013: 8.2%). Household spending continued to be supported by stable employment conditions and sustained wage growth, especially in the domestic-oriented sectors. Growth in public consumption moderated to5.1% (3Q 2013: 7.8%), reflecting lower Government spending on emoluments.

Gross fixed capital formation grew by 5.8% (3Q 2013: 8.6%), led by robust private

sector capital spending amidst a contraction in public investment growth. Growth in private investment improved to 16.5% (3Q 2013: 15.2%), on account of higher capital spending in the services and manufacturing sectors. Public investment declined by 2.7% (3Q 2013: -1.3%), reflecting moderating capital spending by the public enterprises amid a smaller contraction in Federal Government development expenditure.

On the supply side, growth was supported by the major economic sectors. The

services sector grew in tandem with the improvement in trade and manufacturing activities. The manufacturing sector expanded further, supported by higher growth in both export- and domestic-oriented industries. The construction sector growth remained firm, underpinned by the activity in the non-residential and residential sub-sectors. However, the commodities sector weakened, due to lower production of rubber, palm oil and crude oil.

The headline inflation rate, as measured by the annual change in the

Consumer Price Index (CPI), increased to 3.0% in the fourth quarter (3Q 2013: 2.2%). This largely reflected the upward adjustment to prices of petroleum products and sugar, and the increase in excise duty on tobacco. Supply disruptions following adverse weather conditions also led to the higher food prices.

The trade surplus widened to RM27.4billion in the fourth quarter (3Q 2013: RM18.6

billion). Both gross exports and imports grew at a faster pace largely reflecting the improvement in the global economy and the sustained expansion of domestic demand respectively. The financial account recorded a net outflow of RM9.7 billion in the fourth quarter (3Q 2013: net outflow of RM11.5 billion), as net inflows of direct investment were offset by outflows of other investments. The overall

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balance of payments registered a small deficit of RM2.9 billion in the fourth quarter (3Q 2013: surplus of RM11.8 billion).

The international reserves of Bank Negara Malaysia amounted to RM441.7 billion

(equivalent to USD134.9 billion) as at 31 December 2013. This reserves level has taken into account the quarterly foreign exchange revaluation adjustments. As at 30 January 2014, the reserves position amounted to RM436.0 billion (equivalent to USD133.1 billion), sufficient to finance 9.4 months of retained imports and is 3.4 times the short-term external debt.

Interest rates remained stable The Overnight Policy Rate (OPR) was maintained at 3.00% during the fourth quarter

of 2013. At the prevailing level of the OPR, monetary conditions remain supportive of economic activity.

Retail deposit rates were stable during the quarter. The average quoted fixed

deposit (FD) rates of commercial banks were relatively unchanged. The average base lending rate (BLR) of commercial banks remained unchanged at 6.53%. The weighted average lending rate (ALR) on loans outstanding continued its gradual moderating trend (end-December 2013: 5.36%; end- September 2013: 5.40%), reflecting the maturity of loans that were contracted during the period of higher borrowing costs prior to the OPR reductions in 2008 and 2009, and the addition of new loans at relatively lower rates.

The monetary aggregates continued to experience positive growth during the

fourth quarter. M1, or narrow money, increased by RM17.9 billion. On an annual basis, M1 expanded by 13.0% as at end-December (end-September 2013: 12.9%). M3, or broad money, increased by RM25.4 billion on a quarter- on-quarter basis to record an annual growth rate of 8.1% as at end-December (end-September 2013: 7.4%). The expansion of M3 during the quarter was mainly driven by higher credit extended to the private sector by the banking system. M3 was also lifted by a modest increase in the net foreign assets of the banking system.

Total gross financing raised by the private sector through the banking system and

the capital market increased to RM302.8 billion in the fourth quarter (3Q 2013:RM260.6billion). Outstanding banking system loans and PDS expanded at an annual growth rate of 9.9% as at end-December (end- September 2013: 8.8%). Meanwhile, net funds raised in the capital market increased to RM33.7 billion in the fourth quarter (3Q 13: RM17.8 billion).

Movements of the ringgit and other regional currencies in the fourth quarter were

driven mainly by external developments. The anticipation and eventual announcement of a scale-back of monetary injections by the Fed resulted in outflows of funds from regional financial markets. Overall, the ringgit depreciated by 0.7% against the US dollar during the quarter. The ringgit also depreciated against the pound sterling (-2.6%) and euro (-2.8%), but appreciated against the Japanese yen (6.3%). The ringgit exhibited a mixed performance against regional currencies.

Between 1 January and 10 February, the ringgit depreciated against the US dollar

by 1.5%. The ringgit also depreciated against the Japanese yen (-3.8%), pound sterling (-1.1%) and euro (-0.2%), and several regional currencies.

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Financial stability continued to be preserved The domestic financial system remained resilient throughout the fourth quarter,

despite continued volatility in global and domestic financial markets, and a challenging operating environment. The assessment of risks to financial stability revealed that financial intermediation continued to be well-supported by sound financial institutions, orderly financial market conditions and sustained confidence in the financial system.

The banking system continued to be well-capitalised. The common equity tier 1

(CET1) capital ratio, tier 1 capital ratio and total capital ratio were well above the minimum regulatory levels, at 12%, 12.8 % and 14.3% respectively. The capital buffer of the banks in excess of the minimum total capital requirement stood at more than RM77 billion. Similarly, the capital adequacy ratio of the insurance sector remained strong at 245.9% (3Q 2013: 236.7%), with an excess capital buffer of RM23.5 billion.

Global recovery and resilient domestic demand will continue to support growth Going forward, the global economy is expected to be on a path of moderate

recovery. The sustained improvements in the advanced economies will be a positive impulse for international trade. However, ongoing uncertainties surrounding monetary and fiscal policy adjustments in the advanced economies remain a risk to growth. Growth in the Asian economies is expected to be supported by improving external conditions amid moderating domestic demand.

For the Malaysian economy, domestic demand will remain supportive of growth.

While domestic demand is expected to moderate following the ongoing fiscal consolidation, the external sector is expected to benefit from the improving global conditions. The growth momentum is therefore expected to remain on a steady trajectory.

(Source: BNM Economics and Financial Developments in Malaysia in 4th Quarter of

2013)

10.3 Prospects in 2014 Global growth is expected to strengthen moderately in 2014 as some developed

economies emerged from recession amid the overall positive effects from the stimulus measures undertaken. However, emerging economies remain vulnerable to the reeling in of stimulus measures, especially by the US. As such, the Malaysian economy is expected to grow between 5% and 5.5% supported by domestic demand. With the external sector likely to be sluggish, growth will be driven by resilient private consumption and the ongoing implementation of infrastructure projects. With stronger domestic financial institutions and reserves, the economy is well positioned to manage any vulnerability. Inflation is expected to be stable. Monetary policy will continue to focus on promoting price stability and support the expansion of economic activities.

The Financial Sector Blueprint (2011-2020) and the Capital Market Masterplan 2

(2011- 2020) are expected to continue to drive the development of the domestic financial sector, including the expansion and internationalisation of Islamic finance. As the country transitions towards a high value-added, high-income

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economy, the financial sector will play a key role in spurring new areas of growth and facilitate the economic transformation. In this regard, a critical success factor is ensuring the supply of a deep pool of highly-skilled talent.

(Source: Economic Report 2013/2014, Ministry of Finance Malaysia)

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11.0 BOARD OF DIRECTORS AND MANAGEMENT

11.1 Profile of the Board of Directors

The member of the Board and their respective profiles as at 28 February 2014 are set out below:-

(i) Dato’ Seri Ismail bin Shahudin

Dato’ Seri Ismail Shahudin was appointed as a Director and Chairman of Maybank Islamic on 28 January 2010. He was Chairman of Bank Muamalat Malaysia Berhad from 2004 until his retirement in July 2008. He has held senior positions in Citibank, serving both Malaysia and New York, United Asian Bank and Maybank where he was appointed Executive Director in 1997. He left Maybank in 2002 to assume the position of Group Chief Executive Officer of MMC Corporation Berhad prior to his appointment to the Board of Directors of Bank Muamalat Malaysia Berhad. His current directorship in companies within the Maybank Group include as Director of Maybank. He serves as Chairman of the Nomination and Remuneration Committee, the Employee Share Option Scheme Committee and as a member of the Credit Review Committee of the Maybank Board. He is also a Director of several public listed companies which include Nadayu Properties Berhad, EP Manufacturing Berhad and Aseana Properties Limited, a company listed on the London Stock Exchange as well as a Director/Chairman of non-public listed companies such as EP Metering Services Sdn Berhad Peps-JV (M) Sdn Bhd and UEM Group Bhd group of companies. Apart from that, Dato’ Seri Ismail Shahudin has no family relationship with any director and/or major shareholder of Maybank or conflict of interest with Maybank Islamic and has never been charged for any offence.

(ii) Tan Sri Datuk Dr Hadenan bin A. Jalil

Tan Sri Datuk Dr Hadenan bin A.Jalil was appointed as a Director of Maybank Islamic on 28 January 2010. Tan Sri Datuk Dr Hadenan bin A.Jalil was Auditor General from 2000 to 2006. He served with the Government of Malaysia for 36 years in various capacities in the Treasury, the Ministry of International Trade and Industry and the Ministry of Works prior to his appointment as Auditor General. His current directorship in companies within the Maybank Group include as Director of Maybank. He serves as Chairman of the Audit Committee and as a member of the Nomination and Remuneration, and Employee Share Option Scheme Committees of the Maybank Board. Apart from being a Chairman of a public listed company i.e. Protasco Berhad, Tan Sri Datuk Dr Hadenan bin A. Jalil is also a Director/Chairman of several non-public listed companies including ICB Islamic Bank Ltd (Bangladesh), Roadcare Sdn Bhd, Pelangi Management Sdn Bhd, Unilever (Malaysia) Holdings Sdn Bhd and University Tun Abdul Razak as well as non-corporate entities by serving as a Member of the Audit Committee of the Board of Johor Corporation and Chairman of the Operation Evaluation Panel Malaysian Anti Corruption Commission. Tan Sri Datuk Dr Hadenan bin A.Jalil has no family relationship with any director and/or major shareholder of Maybank or conflict of interest with Maybank Islamic and has never been charged for any offence.

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(iii) Encik Zainal Abidin bin Jamal

Enck Zainal Abidin Jamal was appointed as a Director of Maybank Islamic on 28 January 2010. He is a practising corporate and commercial lawyer and established his firm, Zainal Abidin & Co, in 1987, where he is a Senior Partner. He was enrolled as an Advocate & Solicitor of the High Court of Malaya in 1986. Between 1983 and 1986, he served as the Company Secretary of Harrisons Malaysian Plantations Berhad. Prior to that, he had practised in Singapore where he was enrolled in 1980 as an Advocate & Solicitor of the Supreme Court of Singapore and had also served as a First Class Magistrate in Brunei Darussalam. His current directorship in companies within the Maybank Group include as Chairman of Mayban Trustees Berhad and Director of Maybank, Etiqa Takaful Berhad, Etiqa Insurance Berhad, Maybank International (L) Limited, and Mayban International Trust (L) Ltd. He serves, as a member of the Credit Review, Nomination and Remuneration, and Employee Share Option Scheme Committees of the Maybank Board. He is also a Director of other non-public listed companies which include Lam Soon (M) Berhad, Kesas Group (Kesas Holdings Berhad & Kesas Sdn Bhd), PNB Asset Management (Japan) Co Ltd, PNB International Limited, PNB-SBI ASEAN Gateway Investment Management Limited and SP Setia Berhad. Encik Zainal Abidin Jamal has no family relationship with any director and/or major shareholder of Maybank or conflict of interest with Maybank Islamic and has never been charged for any offence.

(iv) Tan Sri Dato’ Ahmad Fuzi bin Abdul Razak

Tan Sri Dato’ Ahmad Fuzi Haji Abdul Razak was appointed as a Director of Maybank Islamic on 5 December 2011. Tan Sri Dato’ Ahmad Fuzi Haji Abdul Razak was the Secretary-General of the Ministry of Foreign Affairs Malaysia. He joined the Malaysian Diplomatic and Administrative Service in 1972 and has served in various capacities at the Ministry of Foreign Affairs, mainly in the Political Division, and at the Malaysian Missions abroad in Moscow, The Hague, Canberra, Washington and Dhaka. He also served as the Director General, Institute of Diplomacy and Foreign Relations before he assumed responsibility as the Secretary General of the World Islamic Economic Forum Foundation (WIEF). He is also a Chairman of several public listed companies which include Seremban Engineering Berhad, Puncak Niaga Holdings Berhad and Ranhill Energy and Resources Bhd. Tan Sri Dato’ Ahmad Fauzi Haji Abdul Razak also serves non-public listed companies which among others include Amanahraya-REIT Managers Sdn Bhd, Sofgen (Malaysia) Sdn Bhd, Worldvest Energy Sdn Bhd, Xadacorp Sdn Bhd, Maybank Islamic Asset Management Sdn Bhd and Ace Holdings Sdn Bhd as well as several institutions/organizations including the Management Development Institute of Singapore, Institute of Strategic and International Studies (ISIS) and High School Bukit Mertajam Alumni Malaysia. Tan Sri Dato’ Ahmad Fuzi Haji Abdul Razak has no family relationship with any director and/or major shareholder of Maybank or conflict of interest with Maybank Islamic and has never been charged for any offence.

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(v) Dato’ Dr. Muhammad Afifi al-Akiti

Dato’ Dr Muhammad Afifi al-Akiti was appointed as a Director of Maybank Islamic on 15 August 2013. Dato’ Dr Muhammad Afifi al-Akiti received a First Class degree in Scholastic Philosophy and History of Science from the Queen's University Belfast, where he was awarded various scholarships for his Masters and Doctoral degrees at Oxford. Dato’ Dr Muhammad Afifi al-Akiti subsequently completed his DPhil in Medieval Arabic Philosophy from Oxford University as a Clarendon Scholar in 2008. His areas of expertise are Islamic theology, philosophy and science. Dato’ Dr Muhammad Afifi al-Akiti is a Kuwait Foundation for the Advancement of Sciences (KFAS) Fellow in Islamic Studies at the Oxford Centre for Islamic Studies, an Islamic Centre Lecturer in Islamic Studies at the Faculty of Theology, University of Oxford as well as a Fellow of Worcester College, Oxford. He was listed in The 500 Most Influential Muslims for 2010 and was appointed as a Privy Councilor to the State of Perak, Malaysia, by the Crown Prince of Perak, Raja Dr Nazrin Shah in the same year. Dato’ Dr Muhammad Afifi al-Akiti also serves as a board member of several non corporate entities which include the International Advisory Board of Abu Dhabi Educational Council (ADEC) UAE, the International Advisory Board of Sultan Omar ‘Ali Saifuddien Centre for Islamic Studies, Universiti Brunei Darussalam (UBD), Brunei, Perak Fatwa Council. Dato’ Dr Muhammad Afifi al-Akiti has no family relationship with any director and/or major shareholder of Maybank or conflict of interest with Maybank Islamic and has never been charged for any offence.

11.2 Profile of Shariah Committee

The members of Shariah Committee of Maybank Islamic and their respective profiles as at 28 February 2014 are set out below:- (i) Tan Sri Dato’ Seri (Dr). Hj. Harussani bin Hj Zakaria Mufti of Perak State Government

Tan Sri Dato’ Seri (Dr) Hj. Harussani is a member of the Meeting Council, Islamic Council and Malay Customs for the Government of Perak and the Chairman of the Perak State Shariah Committee. He also sits on the Board of Directors of Perak State Islamic Economic Development Corporation. He has served Takaful Nasional Berhad since 1993 as a Shariah Advisory Council member. He currently serves as a Shariah committee member of Bank Pembangunan & Infrastruktur Malaysia Berhad and Amanah Raya Berhad. He was conferred a PhD (Darjah Kehormat Doktor Syariah) in 2001 from University of Malaya. He is also a member of the National Fatwa Council, a member of the Council of University Islam Malaysia and a board member of Kolej Islam Perak. Tan Sri was conferred a PhD in Islamic Studies from Universiti Pendidikan Sultan Idris (MPSI) in 2010.

(ii) Dr Mohammad Deen Mohd Napiah Assistant Professor, Ahmad Ibrahim Kuliyyah of Laws at the International

Islamic University of Malaysia (“IIUM”)

Dr Mohammad Deen Mohd Napiah is currently an Assistant Professor at the Ahmad Ibrahim Kulliyyah of Laws, IIUM. He had been appointed as Head, lslamic Law Department and subsequently promoted as Deputy Dean

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(Student Affairs) at the same faculty. He obtained his first degree in Shariah & Islamic Studies from the Kuwait University. He holds a Doctorate of Philosophy from Glasgow Caledonian University, Scotland. Prior to his appointment as a member of the Shariah Committee of Maybank in 2005, he was the Shariah Advisor for EON Bank Berhad from 1997 to 2003. He is currently a Shariah Advisor to Amanah Hartanah Bumiputera since 2010, an Academic Assessor for the Malaysian Quality Agency since 2001 and also a member of the Working Committee for Halal Terminologies and Nomenclatures with SIRIM. Dr Mohammad Deen is a registered Shariah Advisor for the Islamic Unit Trust Schemes and Islamic Securities (Sukuk) with the Securities Commission. He was recently appointed as a member of the Disciplinary Committee Panel, Advocates & Solicitors Disciplinary Board of the Malaysian Bar Council.

(iii) Dr Ismail bin Mohd @ Abu Hassan Assistant Professor, Kuliyyah of Laws at the IIUM

Dr Ismail bin Mohd @ Abu Hassan graduated with First Class honours in Shariah from the University of Malaya and subsequently obtained his LL.M in Comparative Laws from SOAS, London. He then obtained his PhD in Comparative Law of Evidence from the University of Manchester, United Kingdom. Dr Ismail has served as a lecturer at the Kulliyyah of Laws, IIUM for more than 15 years. Dr Ismail sits as an advisor in various reputable institutions such as Amanahiba Malaysia, Uqud Baraka Malaysia Sdn Bhd and HTHT Services Singapore. He is also the Shariah committee member of the Waqf Management Committee, Majlis Ugama Islam Selangor, Infaq lil Waqf ANGKASA, Etiqa Takaful Berhad, Waqf Selangor Muamalat and Amanah Hartanah Berhad. In addition, he is also a board member of Perbadanan Waqf Selangor Darul Ehsan and Etiqa Takaful Berhad. He is a registered Shariah Advisor for the Islamic Unit Trust Schemes and Islamic Securities (Sukuk) with the SC and Amanah Hartanah Bumiputera.

(iv) Assoc Prof Dr Ahcene Lahsasna Assoc Professor, International Centre of Islamic Finance (INCEIF)

Associate Professor Dr Ahcene Lahsasna (PhD, CIFP, ACIP, RFP, Shariah RFP, Shariah Advisor) is currently a lecturer at INCEIF. He is also the Graduate Studies academic advisor at the same institution. He received his bachelor’s degrees in Islamic law and Islamic jurisprudence from Algeria, and his Master’s and PhD degrees in Islamic law and Islamic jurisprudence from International Islamic University of Malaysia (IIUM). Currently, Dr Lahsasna is a registered Shariah advisor with Bank Negara Malaysia and the SC; serves as Shariah board member of Maybank Islamic, Etiqa Takaful and the Shariah Advisory Council of MFPC. Dr Lahsasna has been appointed by the Finance Agency Accreditation as FAP (FAA Accreditation Panel).

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(v) Encik Sarip bin Abdul Lecturer, Pusat Penataran Bahasa dan Ilmu at the University Malaysia

Sabah.

Encik Sarip is currently a lecturer at University Malaysia Sabah (UMS) specialising in Shariah, Muamalat Islam and Islamic Finance. He obtained his first degree in Shariah from University of Al-Azhar, Mesir and Master’s in Fiqh and Usul Al-Fiqh from University of Jordan, Amman, Jordan. Encik Sarip is currently pursuing his PhD in Shariah at Universiti Kebangsaan Malaysia and is also an advisor for UMS' graduate student programme.

(vi) Dr Marjan binti Muhammad Head of Research Affair, International Shari’ah Research Academy

Dr Marjan Muhamad is the Head of the Research Affairs Department at the International Shariah Research Academy for Islamic Finance (ISRA). Prior to joining ISRA, she was a tutor in the Faculty of Judiciary and Law at Islamic Science University of Malaysia. She obtained her first degree in Islamic Revealed Knowledge and Heritage (Fiqh and Usul al-Fiqh) from IIUM in 1998 and pursued her Master’s and PhD at the same university, both in Islamic Revealed Knowledge and Heritage (Fiqh and Usul-Fiqh) field. Since her involvement at ISRA, she has been actively producing various research papers and articles internationally on Islamic Finance. Previously, she was a Shariah Committee member of RHB Islamic Bank from 2011 to 2013.

(vii) Dr. Mohamed Fairooz Bin Abdul Khir Researcher, International Shari’ah Research Academy

Dr Mohamed Fairooz is a researcher at ISRA and coordinator for its Islamic Banking Unit. Prior to joining ISRA, he served IIUM for eight years as a lecturer at the Department of Islamic Revealed Knowledge and Human Sciences. He is also a registered Shariah advisor with the Securities Commission, Shariah committee member of MNRB Re-Takaful, and chairman of the Shariah Committee of AGRO Bank. He obtained his PhD and Masters in Shariah from University of Malaya with specialisation in Fiqh, Usul al-Fiqh and Islamic Finance, and a Bachelor’s Degree in the same field from IIUM. Previously, he served as a Shariah advisor to Malaysian Industrial Development Finance Berhad.

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11.3 Senior Management As at 28 February 2014, Maybank Islamic business is managed by the following executives:

Name Position

Muzaffar Hisham

Sharifah Sarah Syed Mohamed Tahir

Chief Executive Officer

Head, Strategic Management

Nor Shahrizan Sulaiman

Sally Lye Saw Im

Muhd Ramadhan Fitri bin Ellias

Aria Putera Ismail

Arshad Mohamed Ismail

Zainal Azlan Zainudin

Head, Product Management

Head, Risk Management

Head, Shariah Management

Head, Islamic Global Markets

Head, Business Development

Head, Business IT & Support

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12.0 CONFLICT OF INTEREST AND APPROPRIATE MITIGATING MEASURES

A. MAYBANK IB

Save as disclosed below, after making enquiries as were reasonable in the circumstances, Maybank IB is not aware of any circumstances that would give rise to a conflict of interest. Maybank IB and the Issuer are both subsidiaries of Maybank. As such, Maybank IB and the Issuer are deemed to be related corporations.

Potential conflict of interest situations may arise on the part of Maybank IB in terms of duties owed to potential investors on the one hand and its relationship with the Issuer on the other.

The following are existing mitigating measures or measures that will be adopted by Maybank IB in order to mitigate or address the potential conflict of interest situations set out above: (i) Messrs Adnan Sundra & Low, an external independent legal counsel, has been

appointed to conduct a legal due diligence inquiry on the Issuer; (ii) the Subordinated Sukuk Murabahah will be issued by way of a direct/private

placement or book-running basis whereby pricing of the Subordinated Sukuk Murabahah will be market driven; and

(iii) Maybank IB, in all its appointed roles in respect of the Subordinated Sukuk

Programme, has considered the factors involved and believes that its objectivity and independence in carrying out its various roles have been/will be maintained at all times for the following reasons:

(aa) Maybank IB is a licensed investment bank and its appointment as the

Principal Adviser, Lead Arranger, Lead Manager and Facility Agent in respect of the Subordinated Sukuk Programme is in the ordinary course of its business;

(bb) the conduct of Maybank IB is regulated strictly by BNM and the SC and

governed under, amongst others, the Financial Services Act, 2013 and the CMSA, and Maybank IB has in place its own internal policies, controls and checks with regard to transactions involving its related corporations; and

(cc) save for the professional fees charged in relation to the Subordinated Sukuk

Programme, Maybank IB will not be deriving any other monetary benefits from the Subordinated Sukuk Programme outside its aforesaid roles.

The potential conflict of interest situation have been brought to the attention of the Board and hence the Board is fully aware of the same. The Board has confirmed that having considered the above situation, they intend to proceed with the appointment of Maybank IB as the Principal Adviser, Lead Arranger, Lead Manager and Facility Agent of the Subordinated Sukuk Programme.

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B. MESSRS ADNAN SUNDRA & LOW

After making enquiries as were reasonable in the circumstances, Adnan Sundra & Low has confirmed that it is not aware of any circumstances that would give rise to a conflict-of-interest situation or potential conflict-of-interest situation in its capacity as the solicitor in relation to the Subordinated Sukuk Programme.

C. MALAYSIAN TRUSTEES BERHAD After making enquiries as were reasonable in the circumstances, Malaysian Trustees Berhad has confirmed that it is not aware of any circumstances that would give rise to a conflict-of-interest situation or potential conflict-of-interest situation in its capacity as the trustee in relation to the Subordinated Sukuk Programme.

D. MAYBANK ISLAMIC BERHAD

Maybank Islamic Berhad as the Shariah Adviser for the Subordinated Sukuk Programme, has provided the confirmation that the Subordinated Sukuk Programme’s structure is in compliance with the approved Shariah principles as stated in the SC’s Guidelines on Sukuk.

However, this should not result in any conflict of interest situation arising as the Shariah Committee, which comprises of independent Shariah scholars from various jurisdictions, is an independent Shariah Committee by virtue that none of the members of the Shariah Committee is an executive officer or a member of the Board. The Shariah Committee’s role does not result in any conflict of interest or potential conflict of interest as any Shariah decision is free from any commercial considerations.

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13.0 OTHER INFORMATION

13.1 Material Contracts There are no material contracts (including contracts not reduced to writing), not

being contracts entered into in the ordinary course of business, which are subsisting and have been entered into by Maybank Islamic during the past two (2) years preceding 28 February 2014.

13.2 Material Litigation

As at 28 February 2014, Maybank Islamic is not engaged in any material litigation or arbitration, either as plaintiff or defendant which has a material effect on the financial position of Maybank Islamic and the directors do not know of any proceedings pending or threatened or of any fact likely to give rise to any proceedings which might materially and adversely affect the position or business of Maybank Islamic.

13.3 Related Party Transaction

Save as disclosed in the Company’s Director’s Report and Audited Financial Statements for the financial year ended 31 December 2013 and in the announcements made by Maybank to Bursa Securities, as at 28 February 2014, the Issuer has not entered into any related party transactions within the past two (2) years.

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APPENDIX I

Audited Financial Statements for the Financial Year Ended 31 December 2013

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The Issuer

MAYBANK ISLAMIC BERHAD

Registered Office Address 14th Floor, Menara Maybank

100, Jalan Tun Perak 50050 Kuala Lumpur

Principal Adviser/Lead Arranger/Lead Manager

Maybank Investment Bank Berhad 32nd Floor, Menara Maybank

100, Jalan Tun Perak 50050 Kuala Lumpur

Facility Agent

Maybank Investment Bank Berhad 32nd Floor, Menara Maybank

100, Jalan Tun Perak 50050 Kuala Lumpur

Sukuk Trustee

Malaysian Trustees Berhad Level 19, Menara Prudential No. 10 Jalan Sultan Ismail

50250 Kuala Lumpur

Central Depository and Paying Agent

Bank Negara Malaysia

Jalan Dato’ Onn 50480 Kuala Lumpur

Rating Agency

RAM Rating Services Berhad 19-G, The Boulevard, Mid Valley City

Lingkaran Syed Putra 59200 Kuala Lumpur

Malaysia

Legal Counsel

Adnan Sundra & Low Level 11, Menara Olympia No.8, Jalan Raja Chulan

50200 Kuala Lumpur