HLISB Annual Report 2010 Summary

2 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
OUR VISION
AN OUTSTANDING
FINANCIAL SERVICES
ORGANISATION,
HIGHLY COMPETITIVE
AND PROFITABLE,
WHERE PEOPLE MAKE
THE DIFFERENCE
ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD | 1
Corporate Section
4 | Hong Leong Islamic Bank Story
0
05 | The Business
06 | Financial Highlights
07 | Chairmans Statement
09 | Managing Directors Review
14 | Corporate Social Responsibility
20 | Corporate Information
21 | Directors Profile
26 | Shariah Advisory Committees Profile
28 | Board Audit & Risk Management Committee Report
32 | Corporate Governance & Internal Control
41 | Shariah Advisory Committees Report
Contents
Financial Section
42 | Directors Report
46 | Balance Sheets
47 | Income Statements
48 | Statements of Changes in Equity
49 | Cash Flow Statements
51 | Notes to the Financial Statements
98 | Statement by Directors
98 | Statutory Declaration
99 | Independent Auditors Report
Hong Leong Islamic Bank Story
Hong Leong Islamic Bank Berhad Today that Vision is manifested and
(HLISB), which is a member of the entrenched in the Groups corporate
Hong Leong Group Malaysia, is a culture, which is firmly rooted on
wholly owned subsidiary of Hong the Groups core values of Quality,
Leong Bank Berhad (HLB). With its Entrepreneurship, Innovation, Honour,
beginning as the Islamic Banking arm Human Resource, Unity, Progress and
of HLB, the division was incorporated Social Responsibility.
as a separate entity on 28 March
2005 and is today a full service As part of the financial services arm
Islamic bank with an authorised of Hong Leong Financial Group, which
and paid up capital of RM1 billion comprises Hong Leong Islamic Bank,
and RM500 million, respectively. Hong Leong Tokio Marine Takaful,
Following the transfer of the Islamic Hong Leong Bank, Hong Leong
Banking Departments business to Assurance and HLG Capital, the Bank
HLISB, the latter continues to tap on is well positioned as an integrated
HLBs infrastructure and strength in financial services provider.
embedded customer relationship. With
Quality over 200 branches including 4 full- The guiding principles of integrity,
fledged Islamic branches nationwide, trust and service, which are
Entrepreneurship the Islamic banking products and synonymous with the Hong Leong
Group, shall be consistent with
Innovation services are easily accessible to
Islamic banking principles. Hence,
Malaysian consumers to meet their
Honour multi-faceted needs. HLISB continues to adopt and
practise them accordingly. The
Human Resource Hong Leong Group Malaysia (the Banks business concept relies on
Group) is one of the largest business partnership to create value for its
Unity groups in Malaysia and internationally. business partners and customers.
The strong foundation and solid
Progress growth of the Group is attributed to The Groups Reaching Out to You
embeds the organisation in the
Social Responsibility the Power of Vision and the Vision
country and community within which
of its Chairman and Chief Executive
Officer, Tan Sri Quek Leng Chan. it operates.
The Business
Hong Leong Islamic Bank Berhad (HLISB) is a full service

Islamic bank of Hong Leong Group. HLISB is a wholly owned
subsidiary of Hong Leong Bank Berhad (HLB). HLISB has
shareholders fund of RM819 million as of 30 June 2010.
HLISB offers a comprehensive range of products and

services:
Islamic Investment Banking
Business Banking
Personal Financial Services (Retail Banking)
Wealth Management
Investment Unit Trust (Islamic Fund)
Takaful
The Bank today serves its customers through a network of

over 200 branches, 17 Business Centres, and an integrated
mix of E-Channels throughout Malaysia.
Financial Highlights
JUNE 06 JUNE 07 JUNE 08 JUNE 09 JUNE 10

RM Million RM Million RM Million RM Million RM Million
Total Assets 6,434 6,224 8,121 9,142 9,962

Net Financing 3,945 3,673 4,242 3,825 4,139
Customers Deposits 5,702 5,251 6,208 7,980 7,732
Pre-Tax Profits 62 81 88 100 111
Total Assets (RM Million) Net Financing (RM Million)
9,962
10,000 5,000
9,142
4,242 4,139
8,121
3,945
8,000 4,000 3,825
3,673
6,434 6,224
6,000 3,000
RM mil
RM mil
4,000 2,000
2,000 1,000
0 0
FY06 FY07 FY08 FY09 FY10 FY06 FY07 FY08 FY09 FY10
Customers Deposit (RM Million) Pre-Tax Profits (RM Million)

7,980
8,000 7,732 120
7,000 100 111

6,208 100
88
6,000 5,702
5,251 81
80
5,000
62
RM mil
RM mil
4,000 60
3,000
40
2,000
20
1,000
0 0
FY06 FY07 FY08 FY09 FY10 FY06 FY07 FY08 FY09 FY10
Chairmans Statement
Istatements
am pleased to present the Annual Report and financial
of Hong Leong Islamic Bank Berhad (HLISB or
Bank) for the financial year ended 30 June 2010.

BUSINESS ENVIRONMENT underpinned by high capitalisation, With pro-active supervisory roles by

stable asset quality and strong liquidity the regulator, the Islamic financial
The Malaysian economy has emerged position. market in Malaysia continues to record
from the global recession with strong growth in assets of over 20%,
strong forward momentum in 2010, Islamic finance industry continues to amidst a positive outlook in business
registering a growth of 8.9% in the expand, albeit at a slower pace, around opportunities.
second quarter of the year, supported the world. There are now diverse local
by sustained expansion in demands and foreign players in the local and
from the private sector, public sector international markets, offering a wide HONG LEONG ISLAMIC BANK
and regional economies. array of innovative financial products BERHAD
and services. Islamic finance has
Although the financial market shows become part of the global financial Although the operating environment
some increases in volatility following system, transforming its role from an has been very challenging during the
developments related to the sovereign enabler to a driver of economic growth year, particularly in the international
debt crisis in some countries, the and widely regarded as a competitive Islamic financial market, the Bank
domestic market remains stable and alternative to conventional banking has managed to come out stronger
intact backed by well capitalised products and services for customers and continued to deliver another
financial institutions and strong seeking to diversify their portfolio and commendable set of performance in
domestic economic activities. The fulfil their financial needs. financial year 2010.
banking sector remains resilient,
Chairmans Statement
(continued)
THE VALUE OF
HERITAGE
THE POWER OF
VISION
BUILDING UPON
THE STRENGTH OF
THE NATION
The Bank retained its profitability with whilst return on average shareholder A NOTE OF APPRECIATION
a pre-tax profit improvement of 11% funds increased to 10.8% against
to RM111 million during the financial 10.5% last financial year. I wish to extend my appreciation to the
year 2010. Over the last 5 years, the Board of Directors and our customers
pre-tax profit for the Bank had been The Bank has achieved measurable for their continuous commitment and
growing with a steady average growth success in increasing its shareholder support and to the management and
rate of 16%. value and building a sound foundation all of our staff for their dedication,
in term of financial profiles, regulatory contributions and commitment to
The Bank sustained a healthy growth compliance and Shariah governance ensure the continued growth and
in assets and core deposits in 2010 infrastructure towards creating a success of the Bank.
with total assets increased by 9% strong Islamic franchise for the Hong
to RM10.0 billion. Deposit franchise Leong Group. We intend to use this Last but not least, on behalf of the
remains strong with depositor base position of strength to expand our Board and Management, I wish
stood at RM7.7 billion and core deposit Islamic business further into new to extend my sincere gratitude to
expanded by 18% to RM4.0 billion as area of growth in the local and global Bank Negara Malaysia, the Ministry
of June 2010 from RM3.4 billion as of front. of Finance, government agencies,
last year. Financing registered a growth regulatory authorities, our Shariah
of 8% to RM4.1 billion contributed by HLISB, being the centre of excellence Advisory Committee and all the relevant
the consumer business and business for Islamic finance for the Group, authorities for their invaluable service
banking. continuously puts efforts in assistance, guidance and counsel.
strengthening and enhancing its
The Bank maintained its position in Shariah Governance Framework to
asset quality and capital adequacy well meet the challenging demand of the QUEK LENG CHAN
above the industry average, registering industry. The Bank is proactively Chairman
a Net Non Performing Financing (NPF) looking beyond ordinary generic
ratio of 0.3% among the lowest in Islamic contracts to areas that can
the industry. Capital adequacy ratio accommodate the development of
was at 21% above the regulatory business in different sectors of the
requirements of 8%. economy that will provide holistic
and globally accepted Islamic finance
Earning per share improved from 14.9 solutions to its customers.
sen last year to 16.8 sen in 2010
Managing Directors Review
The Islamic finance and banking

industry has experienced tremendous
development in the past three decades.
The innovation of various products
and instruments has been a symbol
of creativity and interaction between
clients, Muslim scholars, bankers,
accounting and legal practitioners.
What began as a pioneering idea has
become a well-known industry that
has evolved from being a faith-based
solution to a sophisticated technique
that is increasingly popular.
However, arising from the financial

turmoil precipitated by the United
States subprime mortgage crisis, by
the fourth quarter of 2008, the Islamic
finance industry worldwide saw a
dramatic decline when compared to its
phenomenal rise. The reasons for this
are numerous, not least of which are
the declining oil prices and depressed
economic conditions, Shariah issues
arising from AAOIFI statements on
structures compliance and defaults
in Sukuk issuances that has raised
questions relating to rights and debates
over asset-based and asset-backed
structures.
Notwithstanding the aforementioned,

the global growth of Islamic finance had
only minor setback and stayed strong
in 2009. Asia confirmed its place as
a major locomotive of Sukuk growth
in 2009. Malaysia continued to take
the lead in global Sukuk issuance as
a result of its well-established Islamic
banking system, strong regulatory
framework and government support.
We envisage the outlook for Islamic

finance in 2010 to be bright on the
back of steady global growth and
geographic diversification and in this
respect Hong Leong Islamic Bank is
poised to seize the opportunity to grow
with the economic expansion and the
demand for Islamic finance services.
REVIEW OF PERFORMANCE
Hong Leong Islamic Bank (HLISB)

continued with its good track
record and delivered another set of
commendable results in year 2010.
The Bank achieved a pre-tax profit of
RM111 million for financial year 2010,
representing 11% growth from the

(continued)
last financial year. The Bank recorded Deposit franchise remained strong STRATEGIC INITIATIVES
a net after tax profit of RM84 million, with depositor base stood at RM7.7
13% higher as compared to RM74 billion and core deposit expanded Our main focus remains on broadening
million achieved in 2009. by 18% to RM4.0 billion as of June our capabilities in the Islamic
2010 from RM3.4 billion as of last Investment Banking, Business Banking
Since its establishment, the Bank year. and Treasury, complementing our well
had maintained a steady growth in established consumer business.
profitability with a cumulative average Net Non Performing Financing
growth rate of 16% over the last 5 (NPF) ratio was at 0.3%, being one The Islamic Investment Banking
years. of the lowest among peer banks. Division continues to support the
The Bank was well capitalized with Banks clients where Islamic capital
The following are highlights of financial its capital adequacy ratio at 21% market funding is required. The team
performance of HLISB for the financial this year as compared to 23% last is focused on efficient and effective
year 2010:- financial year. solutions for its customers to ensure
competitiveness in the market. The
Pre-tax profit of the Bank increased The net NPF ratio and capital adequacy solutions range from project finance
by 11% to RM111 million as ratio for the Bank were well above the and structured finance to straight
compared to RM100 million last industry average. forward financing raising exercises for
year, on the back of a strong 14% corporate clients.
growth in total net income. In view of the Banks sustained good
performance in this year, the Board Our treasury division is continually
Earnings per share were 16.8 sen of Directors has proposed a payment expanding its product and solutions
as of 30 June 2010 against 14.9 of a final net dividend in respect of offering. This will ensure that the whole
sen last financial year, or grew by financial year ended 30 June 2010 spectrum of customer needs can be
13% year-on-year. of 4.8 sen per share amounting to met from cash management to foreign
RM24,000,000. exchange facilities and Sukuk trading
Return on average shareholder and distribution as well as structured
funds improved to 10.8% against During the year, Rating Agency products. The division constantly
10.5% last financial year. Malaysia (RAM) has reaffirmed the upgrades its infrastructure and applies
Banks short term rating of P1 and sophisticated trading management
Total assets grew by 9% to RM10.0 upgraded its long term financial processes to weather the challenging
billion with financing registering institution rating from AA2 to AA1. and uncertain market environment.
a growth of 8% to RM4.2 billion
contributed by the Banks retail
and corporate segments.

(continued)
Governance distribution of our products and services Centre of Excellence for Product
and provide personalized services to Development
We are committed to uphold strong our valued customers. The Bank had
governance practices in all aspects officially opened its first full-fledged Our continuous commitment to
of our business operation at all time, Islamic branch in Terengganu in July research and development is focusing
specifically on the Shariah governance 2010, increasing the number of our on building new and comprehensive
and compliance. Our existing strategy branches to four. The newly launched Islamic contracts to enhance our
in ensuring that Shariah requirements Kuala Terengganu branch not only product offerings. The Bank is
in the area of Usul Fiqh (Islamic complements the three existing Islamic embarking on various new product
jurisprudence) and Fiqh Muammalat branches located in Kota Bharu, Shah initiatives at the wholesale banking
(Islamic transaction law) is embedded Alam and Kuala Lumpur but also cater activities, namely Business Banking,
in all our activities. the needs of our growing customer Investment Banking and Treasury,
base in the East Coast. This is a pilot encompassing the contracts of
The Bank has continued to enhance its Hong Leong Islamic Bank branch which Musharakah, Mudharabahah, Wakalah,
Shariah governance infrastructure in features the new contemporary look As Sarf, Murabahah and Ijarah. We
aligning with the more comprehensive and feel. want to ensure that we can provide
and structured framework that is being end to end business solutions to our
developed for implementation by the valued clients.
Regulator. The Bank is in a position to
comply with a more transparent and
high Shariah standards going forward
in all aspects of our business operation
as we are poised to expand our Islamic
finance business capabilities in the
coming financial year.
Distribution Channel
We are continuously building synergy

with the Group to leverage on
their entrenched infrastructure and
strong delivery network to reach our
customers. Efforts are also ongoing
to expand our own dedicated delivery
channels nationwide. These initiatives
are part of our aims to improve the

(continued)
Centre of Excellence for Shariah Talent Management PROSPECT FOR 2010
During the financial year we saw People Make the Difference has Global economic recovery is still
that the new Central Bank Act 2009 always been our principal belief. We vulnerable evidenced by the mixed
was enacted. The new act solidifies are committed to ensure that the economic data in the US. Malaysia
the position of the BNM Shariah welfare of our staff is maintained at is still cautiously optimistic of the
Advisory Council as the supreme body the highest standards. Investment in prospects of economic growth and
to decide on Shariah related matters talents management is a key priority seeing trade activities for year 2010/11
in Malaysia. We see this as a very for the Bank to ensure the retention is picking up with all sectors are
positive development for the industry and development of our staff and showing signal on steady momentum,
to address issues on uncertainties capable human capital with the right although some sectors demonstrate
arising from different opinions and skill sets are in place to support our sluggish recovery. Moving forward,
interpretations of Shariah principles in long term growth plan. we believe the banking climate remains
the market. robust and many opportunities exist
Corporate Social Responsibility for sustainable long term growth.
The Bank has throughout the financial
year participated very actively in The initiatives of Corporate Social The Bank is ready to face future
various exercises initiated by BNM Responsibility (CSR) have been an challenges in the more competitive
in the formulation of standards for integral part of the Hong Leong Group market through innovation, efficiency
Shariah parameters and framework social objectives. Besides participating and quality services to meet the market
for the implementation at the industry in the CSR activities initiated by the needs.
level. In this regard, we believe the Group, we have also proactively
active collaborations between the made number of donations to many We aspire to be a significant industry
regulators and the industry players will charities during this financial year. The player that makes the incremental
strengthen and facilitate the growth detail CSR activities are highlighted difference to the industry which is fast
of Islamic finance industry in the on a separate section in this Annual evolving and gaining public acceptance
country. Report. not only in Malaysia but also globally.

(continued)
A NOTE OF APPRECIATION
Finally we would like to express our

thanks to Bank Negara Malaysia,
Board of Directors and other official
authorities of their continued support
and guidance.
Our sincere thanks and appreciation

also goes to our Shariah Advisory
Committee members that have
contributed their time and shared
their valuable knowledge with us
and we hope that the good working
relationship will continue to prosper in
the coming year.
We would also like to thank our valued

customers, our management team
and dedicated staff that have made
invaluable contribution to the Bank.
For and on behalf of Hong Leong

Islamic Bank Berhad,
HIJAH ARIFAKH OTHMAN

Managing Director/Chief Executive
Officer
Corporate Social Responsibility
Long before corporate social responsibility

as a single concept was promulgated into
guidelines for companies to follow,
the Group was well on its journey.

(continued)
For many years

now, the Group
has had in place
internally
generated best
practices to
ensure the
economic
sustainability of
all its companies.
Corporate Social Responsibility (CSR) An established Enterprise Risk exercising their business judgment
for the Hong Leong Group has always Management structure to ensure to act in what they reasonably
been more than just about community that a systematic process and believe to be in the best interest of
welfare. It is about having a sustainable delegation of responsibility is clearly the company and the shareholders
business strategy in the face of global set out to guide management. they represent.
demands and challenges. It is also The Group sees Enterprise
about conducting business with a Risk Management as a serious The strict practice of responsible
conscience - caring for the community, consideration to protect the selling and marketing of products
the environment, the customers, company from defaults that could and services, in a global market
employees and stakeholders. fundamentally damage enterprise that is increasingly becoming even
value. more aggressive and competitive.
ECONOMIC SUSTAINABILITY A strict code of business conduct

and ethics which the Group abides SOCIAL SUSTAINABILITY
For many years now, the Group has by in all types of transactions and
had in place internally generated best interactions. Employee Development and Welfare
practices to ensure the economic
sustainability of all its companies. Public communications, like The Hong Leong Group has initiated
Some of these best practices are: financial reports contain disclosures structured development programmes to
that are fair, accurate, timely and help develop leadership skills, technical
An established Financial understandable. and soft skills among different groups
Management Discipline intended of employees.
to drive excellence in financial In choosing its directors, the Group
management with the objective seeks individuals of high integrity, The Groups Graduate Development
of preserving and enhancing the have shareholder orientation and a Programme aims to identify and
quality of business as an on-going genuine interest in their respective develop young graduates into
concern. companys businesses. They are engineering talents to support the
tasked with the responsibility of growth of the Group. Such programme

(continued)
trainees determine where their talents

and interests can be of most value.
Aside from these, the Bank also

conducts trainings and various
structured programmes in wealth
management, management and
leadership, sales development
and customer service which have
significantly increased the job
knowledge and skills of the Banks
workforce.
As the Bank is committed to customer

centricity, we have also stepped up our
efforts in customer service upskilling
and training programmes to meet the
changing and increasing demands
of our external customers. The
Branch Service Manager and Branch
Manager Development Programmes
are the key programmes which also
focus on leadership, soft skills and
management.
Customer Service
Building relationships and adding

value by providing clarity in financial
decisions
Because customers needs, wants

and lifestyles change, the Bank has
entails classroom training, on-the-job from The International Centre for to continuously provide innovative
familiarisation, projects or learning Education in Islamic Finance (INCEIF). products and services. We are about
assignments as well as mentoring. building relationships and helping
The continuous partnership and more and more customers with their
For the non-executives, various in- collaboration between the Bank financial needs.
house and external programmes were and Bank Negara to train financial
conducted to enhance their technical industry professionals through the The Bank is also enhancing its
competencies as well as supervisory FSTEP programme is also one of the customer touch points and distribution
skills in order to develop a competent key initiatives to develop high caliber footprint, from branches to electronic
workforce. Malaysian graduates. The Bank channels. A new capability, Customer
provides a structured training to the Experience Management (CEM),
At Hong Leong Bank, people make graduates in the programme in all has been established by the Bank to
the difference aspects of the core banking business. manage the experiences of customers
Upon completion of the programme, through a unified approach along with
This has always been our principal the graduates are offered career the execution of standardized and
belief. Each employee of the Bank opportunities with the Bank. systematic processes.
is provided with the best tools and
resources so that they can excel in The Banks Management Associate Diversity and Inclusion
their fields of choice. Programme, is designed to develop
graduates to be future leaders as well With an approximate total workforce
The Bank is serious in growing and as to spearhead the global business of 28,000 spread across North Asia
developing talents. Employees are expansion of the Bank. The trainees and Southeast Asia, and the UK, the
exposed to both internally conducted undergo an eighteen month training Hong Leong Group develops talent
as well as externally conducted talent and exposure in various departments regardless of race, gender or religious
development programmes such as the in the Bank, both locally and regionally, belief. Staff advancement is based
Management Associate Programme, to help them appreciate and have a on merit and we believe that it is this
the Financial Sector Talent Enrichment firm grasp of the diversity of jobs in variety of persuasions and cultures
Programme (FSTEP) and programmes the Bank. Ultimately, this helps the that fuel creativity, entrepreneurship
and openness.

(continued)
The Group also actively promotes climate change, was observed by the its focus areas, education in particular,
work-life balance through various Group. The Bank, together with the takes top priority.
sports, family, social events initiatives. Group, supported Earth Hour 2010 by
In this regard, various initiatives such switching off non-essential lights at Scholarship
as sports activities, social events and Banks branches on 27 March 2010
family day, were carried out with the from 8.30pm-9.30pm. The Bank staff The Foundation has, as part of its
full support and commitment of the were also notified to do their part on a donation framework, designed a
employees throughout the financial personal level. Scholarship Programme to benefit
year. academically outstanding Malaysian
Organised by the World Wildlife Fund, students from low-income families,
Environmental Preservation Earth Hour was conceived in Sydney and of late also included students
in 2007. Since then, many other cities with disabilities. The Foundation
As part of our commitment to our around the world adopted the event believes that providing scholarships is
employees and to society as a whole, in 2008, and is now held on the last about providing opportunities giving
we practise environmental preservation Saturday of March annually. By doing deserving students the chance to have
and maintain high standards of its part, the Group supported this global the higher education necessary to
Occupational Safety and Health effort to help make a difference. break the cycle of poverty and become
management practices. Environmental tomorrows leaders.
management programmes such as
recycling campaigns, air pollution COMMUNITY INVESTMENT Over 1.5 million Ringgit is allocated
controls and waste management each year for scholarship grants for the
programmes are continuously deployed The Group conducts most of its public for diploma and undergraduate
to achieve the Groups objectives. philanthropic activities through the studies at local universities and
Hong Leong Foundation, the charitable selected institutions of higher learning.
In addition, we conduct regular arm of Hong Leong Group. Since its Invitations are also extended to the
occupational safety and awareness incorporation in 1992, the Foundations scholars for industrial training at
programmes for our employees. programmes have been funded by the Group companies to help ensure that
Group companies contributions. The scholars graduate into the workforce
Earth Hour, a global event where Foundation focuses on education and with sufficient knowledge and relevant
households and businesses are community welfare as its key thrusts experience.
encouraged to turn off non-essential and responds to appeals for aid of
lights and other electrical appliances victims of natural disasters such as Apart from these, a separate fund is
for one hour to raise awareness floods, tsunamis and others. Among set aside for scholarship grants for
towards the need to take action on

(continued)
deserving children of Group staff. Both The Foundation has made substantial and welfare homes, assist in the
grants for the public and Group staffs donations to many charities over provision of medical services to poor
children are unconditional they do the years. In this fiscal year alone, communities through blood donation
not carry any repayment requirement Vinashini Home Seremban, Little Sister drives and volunteer work in hospitals
nor are the recipients bonded to work of the Poor Kuala Lumpur, Education, as well as initiating and participating in
for the Group upon graduation. Welfare, Research Foundation, Science projects involving environmental and
of Life 24/7 Malacca, Persatuan Kanak social issues.
Student Assistance Kanak Cerebal Palsy (Spastik) Pulau
Pinang, Pusat Jagaan Nur Salam, Small Enterprise Programme
Although primary and secondary Persatuan Daybreak Perak, Sunflower
education in Malaysia is free, there are Centre Sarawak and Sabah Cheshire The people behind Hong Leong
still a number of students from low- Home, were amongst some of them. Group are entrepreneurs and we
income families who find it a challenge seek to propagate this same spirit of
to put this educational opportunity into Besides the above programmes entrepreneurship to the community.
best use. To address the immediate conducted by the Group, the By expanding our contribution to
needs of these students, the Foundation Bank has also proactively initiated the community to include this new
reaches out to them through the various charitable contributions in category, through our dealings with
Student Assistance Programme. To this financial year such as Tasputra various charities on programs designed
date, through this Programme, the Perkim-Day Care Centre for Handicap to help the underprivileged set up their
Foundation has sponsored thousands Children, Pertubuhan Amal Gabungan own businesses, we are able to teach
of underprivileged school children Permata Istimewa Malaysia, Tabung people to stand on their own two
nationwide in the form of distribution Kebajikan Pelajar Miskin Negeri feet, eventually breaking the cycle of
of free school bags, books, uniforms, Pahang and Rumah Anak Kesayangan. poverty. Over the short term, those
stationeries, dictionaries, bicycles, In conjunction with the month whom we help by giving seed money
tuition, transportation fees and of Ramadhan, the Bank has also for businesses will be able to generate
others. participated in a charity programmme enough income to be able to provide
for orphan, hosted by Putrajaya Malay for their families needs. Over time,
School Building Fund Chamber of Commerce Malaysia. with proper management and guidance
these businesses will grow and, in
The Foundation actively pursues On top of the above, the Bank has turn, be able to help others.
opportunities where it can play a part fulfilled its obligations for Zakat to
in improving the quality of education various states to help improving the Towards this end, we are working with
in the country today. Donations for well-being of the communities. various NGOs, among which are Ray
the construction of bigger and better of Hope and The Community Service
facilities for learning institutions Apart from activities carried out by Centre For the Deaf, Kuala Lumpur.
help create an environment in which the Foundation and the Bank, Group
students can excel. companies stage their own activities
in numerous communities nationwide.
Towards this, the Foundation has The Groups employees regularly
made substantial donations to various participate in community services
academic and vocational training that include visits to orphanages
institutions nationwide.
Community Welfare
Every year, the Foundation helps

improve the lives of the less fortunate
through its Community Welfare
Programme. Sponsorships in cash and
kind are made to charities nationwide,
ensuring their survival and their ability
to provide shelter, food and clothing for
all its residents the young orphans,
the aged who have been abandoned
by their families, the sick, the disabled
and the mentally challenged. The
NGOs are also able to run their various
training programmes more efficiently
with better infrastructure, facilities
and equipment sponsored by the
Foundation.
Corporate Information
DIRECTORS AUDITORS
YBhg Tan Sri Quek Leng Chan Messrs PricewaterhouseCoopers

Chairman Chartered Accountants
Puan Hijah Arifakh binti Othman Level 10, 1 Sentral
Managing Director/Chief Executive Officer Jalan Travers
Kuala Lumpur Sentral
Ms Yvonne Chia 50706 Kuala Lumpur
Tel : 03-2173 1188
Mr Kwek Leng Hai
Fax : 03-2173 1288
YBhg Tan Sri A. Razak bin Ramli
YBhg Dato Abdul Majit bin Ahmad Khan
REGISTERED OFFICE
YBhg Dato Mohamed Nazim bin Abdul Razak
Level 8, Wisma Hong Leong
Mr Choong Yee How
18 Jalan Perak, 50450 Kuala Lumpur
Tel : 03-2164 8228
Fax : 03-2164 2503
SECRETARY
Ms Christine Moh Suat Moi

WEBSITE
MAICSA: 7005095
www.hlisb.com.my
Directors' Profile
YBHG TAN SRI

QUEK LENG CHAN
Chairman/
Non-Independent
Aged 67, YBhg Tan Sri Quek Leng

Chan, a Malaysian, qualified as a
Barrister-at-Law from Middle Temple,
United Kingdom. He has extensive
business experience in various business
sectors, including financial services,
manufacturing and real estate.
YBhg Tan Sri Quek is the Chairman

of Hong Leong Islamic Bank Berhad
(HLISB) and was appointed to the
Board of Directors (Board) of HLISB
on 28 March 2005. He is a member
of the Nominating Committee (NC)
and Remuneration Committee (RC)
of HLISB.
He is the Chairman & Chief Executive

Officer of Hong Leong Company
(Malaysia) Berhad (HLCM), a public
company; Executive Chairman of Hong
Leong Industries Berhad, GuocoLand
(Malaysia) Berhad and Narra Industries
Berhad; Chairman of Hong Leong
Financial Group Berhad (HLFG),
Hong Leong Bank Berhad (HLB)
and HLG Capital Berhad (HLGC),
companies listed on the Main Market
of Bursa Malaysia Securities Berhad
(Bursa Securities); and Chairman of
Hong Leong Assurance Berhad (HLA)
and Hong Leong Foundation, all public
companies.
YBhg Tan Sri Quek attended all the six

Board Meetings of HLISB held during
the financial year ended 30 June
2010.
Directors' Profile
(continued)
MS YVONNE CHIA
Non-Executive/Non-Independent
Aged 57, Ms Yvonne Chia, a Malaysian, holds a Bachelor Ms Chia was appointed a Director of HLISB on 28 March
of Economics (Second Class Upper Honours) from the 2005.
University of Malaya. An international banker, Ms Chia
started her career with the Bank of America and held Ms Chia is a Director of HLFG and HLB, both companies
various positions in Hong Kong, Manila and Kuala Lumpur listed on the Main Market of Bursa Securities. Ms Chia is
between 1976 to 1993; the last position being Vice- also a Director of Cagamas Berhad and Prominic Berhad, all
President and Country Head of Marketing. In March 1994, public companies.
Ms Chia joined RHB Bank Berhad (RHB Bank) as General
Manager and went on to become Chief Executive Officer/ Ms Chia attended all the six Board Meetings of HLISB held
Managing Director of RHB Bank, a position she held until during the financial year ended 30 June 2010.
March 2002. She successfully grew RHB Bank to be one of
leading local banks in Malaysia and in the region during the
challenging years of the Asian financial crisis (1996-2002).
She further strengthened RHB Banks position from 6th to
3rd largest bank in Malaysia through a series of mergers and
acquisitions with DCB Bank Berhad and Kwong Yik Bank
Berhad. She also headed a distressed bank (the former Sime
Bank Berhad) under the ambit of Bank Negara Malaysia
(BNM) during the Asian financial crisis (1999/2000)
while serving concurrently as the Managing Director of RHB
Bank.
Ms Chia was made a Fellow of Institute of Bankers Malaysia

in April 2002 and also a Certified Risk Professional (CRP)
with BAI. In August 2005, Ms Chia was appointed to
Wharton Fellows of the University of Pennsylvania.
Ms Chia was appointed an Executive Director of HLB on 17

March 2003 and had been re-designated as Group Managing
Director/Chief Executive of HLB on 10 November 2003.
Directors' Profile
(continued)
MR KWEK LENG HAI TAN SRI A. RAZAK BIN RAMLI

Non-Executive Director/Non-Independent Non-Executive Director/Independent
Aged 57, Mr Kwek Leng Hai, a Singaporean, qualified as Aged 61, Tan Sri A. Razak bin Ramli, a Malaysian, obtained
a chartered accountant and has extensive experience in a Bachelor of Arts (Honours) degree in Public Administration
financial services, manufacturing and property investment. from the University of Tasmania, Australia and has a diploma in
Mr Kwek is the President and Chief Executive Officer of Gestion Publique from Institut International dAdministration
Guoco Group Limited (GGL), a company listed in Hong Publique, Paris, France. He has served in various Ministries
Kong and has been an Executive Director of GGL since including the Public Services Department and Economic
1990. Mr Kwek is also a director of GGLs key subsidiaries Planning Unit in the Prime Ministers Department and the
including GuocoLand Limited and GuocoLeisure Limited, Ministry of International Trade and Industry (MITI). Tan
both public listed companies in Singapore. He is also a Sri A. Razak was the Chairman of APEC Senior Officials
director of Bank of Chengdu Co., Ltd. when Malaysia hosted APEC, and held various positions in
MITI including Deputy Secretary General (Industry), Deputy
Mr Kwek was appointed to the Board of HLISB on 23 June Secretary General (Trade) and retired as the Secretary
2005 and is a member of the NC of HLISB. General of MITI.
He is also a Director of HLB, a company listed on the Main Tan Sri A. Razak was appointed to the Board of HLISB on
Market of Bursa Securities and HLCM, a public company. 23 June 2005. Tan Sri is the Chairman of the Board Audit
& Risk Management Committee (BARMC) and a member
Mr Kwek attended all the six Board Meetings of HLISB held of the NC of HLISB.
during the financial year ended 30 June 2010.
Tan Sri A. Razak is the Chairman of Shangri-La Hotels
(Malaysia) Berhad and Transmile Group Berhad, the Deputy
Chairman of Favelle Favco Berhad and a Director of Lafarge
Malayan Cement Berhad and Ann Joo Resources Berhad,
companies listed on the Main Market of Bursa Securities. He
is also the Chairman of Hong Leong Tokio Marine Takaful
Berhad (HLTMT) and Ophir Holdings Berhad and a Director
of Hong Leong Investment Bank Berhad (HLIB), all public
companies.
Tan Sri A. Razak attended five out of the six Board Meetings
of HLISB held during the financial year ended 30 June
2010.
Directors' Profile
(continued)
YBHG DATO ABDUL MAJIT BIN MR CHOONG YEE HOW

AHMAD KHAN Non-Executive Director/Non-Independent
Non-Executive Director/Independent
Aged 54, Mr Choong Yee How, a Malaysian, obtained a
Aged 64, YBhg Dato Abdul Majit bin Ahmad Khan, a Bachelor of Science in Biochemistry (Honours) degree in
Malaysian, holds a Bachelor of Economics (Honours) from 1979 and a Master of Business Administration in 1981
the University of Malaya. Dato Abdul Majit was formerly from the University of Otago, New Zealand. Mr Choong has
the Ambassador of Malaysia to the Peoples Republic of over 26 years of experience in banking, of which 23 were
China, a post he has held for seven years until his retirement with Citibank in Malaysia. Mr Choong started his career
in January 2005. He was a career Diplomat, joined the with Citibank Malaysia as a Management Associate and
Administrative and Diplomatic Services in 1970. In his 34 was promoted to assume various senior positions within the
years of service, YBhg Dato Abdul Majit has served in the Citibank Group; the last being President and Chief Executive
Prime Ministers Department as well as several Malaysian Officer of Citibank Savings Inc, Philippines. Mr Choong is
Missions abroad and senior positions in the Ministry of currently the President & Chief Executive Officer of HLFG.
Foreign Affairs, Malaysia.
Mr Choong was appointed to the Board of HLISB on 23
YBhg Dato Abdul Majit was appointed to the Board of May 2006. He is a member of the BARMC, RC and NC of
HLISB on 23 June 2005. He is a member of the BARMC HLISB.
of HLISB.
Mr Choong is also a Director of HLFG, HLB and HLGC,
YBhg Dato Abdul Majit is also a Director of OSK Holdings companies listed on the Main Market of Bursa Securities,
Berhad and Zecon Engineering Berhad, companies listed on HLA, HLTMT and HLIB, all public companies.
the Main Market of Bursa Securities and a Director of Hong
Leong Asset Management Berhad (formerly known as HLG
Mr Choong attended all the six Board Meetings of HLISB
Unit Trust Bhd) and OSK Investment Bank Berhad, all public
held during the financial year ended 30 June 2010.
companies.
YBhg Dato Abdul Majit attended all the six Board Meetings
of HLISB held during the financial year ended 30 June
2010. PUAN HIJAH ARIFAKH BINTI OTHMAN
Managing Director/Chief Executive Officer
YBHG DATO MOHAMED NAZIM BIN Aged 50, Puan Hijah Arifakh Binti Othman, a Malaysian,
obtained a Bachelor of Science Degree in Mathematics
ABDUL RAZAK and Computer Science from the City University of London,
Non-Executive Director/Independent United Kingdom.
Aged 48, YBhg Dato Mohamed Nazim Bin Abdul Razak, a Puan Hijah has extensive experience in the banking industry.
Malaysian, an architect by profession, graduated from the She forged her early career in Bank Negara Malaysia for
Architectural Association, School of Architecture, London. 14 years before moving to Danamodal Nasional Berhad as
YBhg Dato served with YRM Architects in London, a multi- Head of Treasury. Puan Hijah held various senior positions in
disciplinary building design consultancy and has more than established banking groups including the position of Director
16 years experience in the architectural field, 13 of which of Asian Fixed Income Malaysia and Head of Group Treasury
were in Kuala Lumpur. YBhg Dato is the Managing Director Business, the last being Head, Group Treasury Business of
of NRY Architects Sdn Bhd. Maybank Berhad.
YBhg Dato Mohamed Nazim was appointed to the Board of Puan Hijah was the Chief Operating Officer, Global Islamic
HLISB on 23 June 2005. He is the Chairman of the RC and Financial Services of HLB.
a member of the NC of HLISB.
She was appointed as Managing Director/Chief Executive
YBhg Dato Mohamed Nazim is also a Director of HLB Officer of HLISB on 9 April 2010.
and HLGC, companies listed on the Main Market of Bursa
Securities and ING Insurance Berhad, a public company. Puan Hijah attended the one Board Meeting of HLISB held
during her office as Director of HLISB for the financial year
YBhg Dato Mohamed Nazim attended five out of the six ended 30 June 2010.
Board Meetings of HLISB held during the financial year
ended 30 June 2010.
Shariah Advisory
Committees Profile
ASSOCIATE PROFESSOR DR. AB. MUMIN AB. GHANI (Chairman)
Dr. Ab. Mumin Ab. Ghani is currently a lecturer in the Department of Shariah
and Management, Academy of Islamic Studies, UM. He graduated from Universiti
Kebangsaan Malaysia (UKM) in 1979, with a Bachelor of Economics (Honours).
He later obtained a Diploma in Education (UKM) in 1979, a Diploma in Public
Administration (INTAN) in 1983 and an MBA (UKM) in 1987. He obtained his PhD
in Shariah (specialized in Islamic Finance) in 1998 at University of Malaya (UM).
Previously he also served as an Administrative Diplomatic Officer (PTD). During

that period, he was attached to several units in the Prime Ministers Department;
among them the Economic Planning Unit and the Islamic Economic Resources
Development Committee.
At the Academy of Islamic Studies UM , he held several roles, the Deputy Dean,
Faculty of Shariah; Head, Department of Shariah and Management; Deputy
Director of the Academy, and a Member of UM Senate Committee. At present, he
contributes on an academic panel for several institutions of higher education and
is also in the Management Academy of YPEIM. Besides that, he is also involved in
establishing the Ummah Development Index, IKIM.
As an Associate Professor, he has written various books and articles related to

Islamic transactions (Fiqh al-Muamalat), Islamic economics, Islamic management,
Islamic banking and finance, Zakat, Dinar and Dakwah.
PROFESSOR DR. MALIK MUHAMMAD MAHMUD AL-AWAN
A multi-disciplinary scholar of Islamic jurisprudence, Prof. Dr. al-Awan currently

serves as Visiting Professor of Islamic Finance at Bentley University in Massachusetts.
He has been engaged in Islamic Finance for the last thirty years. He completed his
academic training in the Quran, Hadith, and the history of the Caliphate under the
guidance of top Islamic scholars of Pakistan and Saudi Arabia during the 1950s
and 60s. He received his Bachelor of Arts degree in 1970 from Punjab University,
majoring in Classical Arabic Literature and Research Methodology. He completed
his Masters in Comparative Economic Systems and Development Finance in 1972.
He completed his L.L.B. in Islamic Jurisprudence and Contract Law also at Punjab
University before being awarded an L.L.M. degree in Comparative American Law
by the Boston University Law School, Boston, Massachusetts. He was awarded
a PhD in International Finance in 1976 while working as a Research Fellow in
Monetary Economics at Clark University, Massachusetts.
His first papers in Islamic Finance Methodology were published in the USA in the
1970s. His highly acclaimed book on Foreign Capital & Development Process was
published by University Press of America, Washington, D.C. in 1977. He served
as Presidential Adviser to the Government of Pakistan, Ministry of Production in
1978 and served as a Visiting Professor at Pakistan Institute of Management. From
1996 to 2006 he served as the Vice Chancellor and Provost at Global Studies
Institute in Massachusetts.
His experience as a senior banking and insurance executive help him to be a

practicing attorney of International Law specializing in Islamic Contract Law and
Commercial Procedure. He is a recognized trainer of Shariah scholars and serves
on the governing boards of a number of Islamic organizations in Asia and North
America. He has been a Professor of Finance at top American universities and is
a Professor Emeritus at Pakistans National University of Sciences & Technology
(NUST). He previously served as the Dean of the Faculty and Chief Academic
Officer at the International Centre for Education in Islamic Finance (INCEIF), an
organization under Bank Negara Malaysia.
Shariah Advisory
Committees Profile
(continued)
PROFESSOR DR. MUHAMMAD HUMAYON ABBAS DAR
Professor Humayon Dar is an acclaimed Islamic banking and finance expert,

Shariah technician, economist and consultant, with specialism in structuring of
Shariah compliant financial solutions and products. He is known for his advocacy
for Islamic banking and finance and widely known for his innovative approach to
structuring Islamic financial products. He belongs to the first generation of qualified
Islamic economists, with formal training in conventional and Islamic economics,
as well as classical Islamic jurisprudence at the International Islamic University
Islamabad, where he was tutored by the worlds leading Islamic economists, jurists
and thinkers. His higher studies include an MPhil and PhD (both in Economics)
from Cambridge University where he conducted research on Islamic finance. His
post-doctoral research has exclusively been on Islamic economics, banking and
finance.
Professor Dar sits on a number of Shariah Supervisory Boards, including that of

BMB Islamic, Shariah UMEX, and Allianz Global Investors, among others. Before
founding BMB Islamic, he developed Dar Al Istithmar (a majority-owned subsidiary
of Deutsche Bank) into a Euromoney award winning team of acclaimed Islamic
financial innovators. Prior to that, he was involved in setting up a first of its type
MSc course in Islamic Economics, Banking & Finance at Loughborough University.
He has also assisted Cass Business School (City University London) in offering an
Executive MBA in Islamic Finance.
Professor Dar is also associated with the Institute of Islamic Banking & Insurance
London and is a member of the editorial board of its flagship publication New Horizon.
A prolific author, he sits on the editorial boards of Review of Islamic Economics,
International Journal of Islamic Financial Services, and ISRA International Journal
of Islamic Finance. He is also Editor-in-Chief of Global Islamic Finance Report,
an annual publication that he founded in 2010. His other appointments include
directorship of Arab British Chamber of Commerce, honorary fellowships at
Cass Business School and the University of Durham. He also serves as a Visiting
Professor in Islamic Finance at Universiti Teknologi MARA (UiTM).
ASSOCIATE PROFESSOR DR. HJ. MUHAMAD RAHIMI OSMAN
Dr. Hj. Muhamad Rahimi Osman is currently the Director of the Centre for
Islamic Thought and Understanding (CITU), UiTM, which was upgraded from the
universitys Centre for Islamic Education with a role to develop university courses
related to Islamic education and Islamic civilisation.
He graduated from the University of Malaya (UM) in 1987, holding a Bachelor of

Shariah (Honours). He obtained his Masters in Islamic Economics in 1996 from
the University of Yarmouk, Jordan. He later obtained his PhD at Ahmad Ibrahim
Kuliyyah of Laws, International Islamic University Malaysia (IIUM), in 2007.
After his postgraduate degree, he joined Universiti Teknologi MARA (UiTM). There,
he served as the Coordinator of Islamic Social Science at the Centre for Islamic
Education. He was also the Head of the Zakat Unit at the Centre for Integrated
Islamic Services and the Deputy Director at the Department of Islamic Education
and Civilization; Centre for Islamic Thought and Understanding (CITU). He has
produced several research papers and writings related to Islamic economics,
Islamic commercial transactions (Fiqh al-Muamalat), Islamic banking and Zakat.
Board Audit &

Risk Management Committee Report
CONSTITUTION
The Board Audit & Risk Management Committee (the Committee) of Hong Leong Islamic Bank Berhad (HLISB or the
Bank) was established on 29 September 2005.
COMPOSITION
YBhg Tan Sri A. Razak bin Ramli

(Chairman, Independent Non-Executive Director)
YBhg Dato Abdul Majit bin Ahmad Khan

(Independent Non-Executive Director)
Mr Choong Yee How

(Non-Independent Non-Executive Director, Appointed on 24 June 2010)
YBhg Datuk Dr Hussein Awang

(Independent Non-Executive Director, Retired on 24 June 2010)
SECRETARY
The Secretary to the Committee is Mr Lim Kim Seng who is the Group Chief Internal Auditor of Hong Leong Bank Berhad
(HLB).
TERMS OF REFERENCE (TOR)
To nominate and recommend for the approval of the Board of Directors (Board), a person or persons as external
auditor(s).
To review the external audit fees.
To review, with the external auditors, the audit scope and plan.
To review, with the external auditors, the audit report and audit findings and the managements response thereto.
To review the assistance given by the officers of the Bank to the external auditors.
To review the quarterly reports and annual financial statements of the Bank prior to the approval by the Board.
To review the adequacy of the internal audit scope and plan, functions and resources of the internal audit division.
To review the report and findings of the internal audit division including any findings of internal investigations and the
managements response thereto.
Board Audit &

Risk Management Committee Report (continued)
TERMS OF REFERENCE (TOR) (continued)
To review and report to the Board measures taken to:

(a) Identify and examine principal risks faced by the Bank.
(b) Implement appropriate systems and internal controls to manage these risks.
To evaluate and recommend to the Board, risk management policies and strategies proposed by management.
To consider the provision of non-audit services by the external auditors.
To decide on the appointment, remuneration, appraisal, transfer and dismissal of the Group Chief Internal Auditor as per
BNM/GP10 (Guidelines on Minimum Audit Standards for Internal Auditors in Financial Institutions).
To oversee and monitor implementation of the Risk Management framework and activities adopted by the Bank.
To review any related party transactions that may arise within the Bank.
To approve any credit transactions and exposure with connected parties.
To perform diligent oversight over the effective function of Shariah governance structure and Shariah compliance of the
Bank.
Other functions as may be agreed to by the Committee and the Board.
AUTHORITY
The BARMC is authorised by the Board to review any activity of the Bank within its Terms of Reference. It is authorised to
seek any information it requires from any Director or member of management and all employees are directed to co-operate
with any request made by the Committee.
The Committee is authorised by the Board to obtain independent legal or other professional advice if it considers necessary.
MEETINGS
The Committee meets at least five (5) times a year and additional meetings may be called at any time as and when necessary.
All meetings to review the quarterly reports and annual financial statements are held prior to such quarterly reports and annual
financial statements being presented to the Board for approval.
The Group Managing Director of HLB, the Managing Director of HLISB, the Executive Director of HLB, the Chief Financial
Officer, the Head of Integrated Risk Management & Compliance and external auditors are invited to attend Committee
meetings, where applicable.
Two (2) members of the Committee, who shall be independent and non-executive, shall constitute a quorum.
After each Committee meeting, the Committee shall report and update the Board on significant issues and concerns discussed
during the Committee meetings and where appropriate, make the necessary recommendations to the Board.
ACTIVITIES
The Committee carried out its duties in accordance with its Terms of Reference.
The Committee met six (6) times during the financial year ended 30 June 2010. YBhg Tan Sri A. Razak bin Ramli and YBhg
Datuk Dr Hussein Awang attended all the meetings held during the financial year, while YBhg Dato Abdul Majit bin Ahmad
Khan attended five (5) meetings and there was no meeting held after the appointment of Mr. Choong Yee How on 24 June
2010. The Committee also had two (2) separate sessions with the external auditors without the presence of executive
directors.
The Committee reviewed the quarterly reports and annual financial statements of the Bank. The Committee met with the
external auditors and discussed the nature and scope of the audit, considered significant changes in accounting and auditing
issues, reviewed the management letter and managements response, examined pertinent issues which had significant impact
on the results of the Bank and discussed applicable accounting and auditing standards. The Committee also reviewed the
internal auditors audit findings and recommendations as well as Bank Negara Malaysias Examination Reports on the Bank.
In addition, the Committee reviewed the adequacy and integrity of internal control systems, including risk management and
relevant management information system. It also reviewed the processes put in place to identify, evaluate and manage the
significant risks encountered by the Bank.
The Committee reviewed various related party transactions carried out by the Bank.
Board Audit &

INTERNAL AUDIT
During the financial year ended 30 June 2010, the Internal Audit Division carried out its duties covering audit on operations,
credit, head office, branches and other assignments as directed. The division also worked closely with HLISB Shariah
Secretariat and Integrated Risk Management & Compliance Division to review, evaluate and improve the risk management
framework, its effective deployment and Shariah Compliance Review.
RISK MANAGEMENT
Managing risks is an integral part of the Banks overall business strategy, as risks, if left unchecked against a backdrop of
rapidly changing financial landscape can be detrimental to the Bank. Recognising the need to be proactive in the management
of risks, the Bank has implemented the Groups Integrated Risk Management (IRM) framework where the Banks risks are
managed at various levels.
The Board of Directors is ultimately responsible for risk oversight within the Group through the Board Audit & Risk Management
Committee (BARMC).
The Board sets the risk appetite and tolerance levels that are consistent with the Banks overall business objectives and
desired risk profile.
The Board Audit & Risk Management Committee is assisted by the Integrated Risk Management Department, and it reports
to the Board on the proper functioning of the Integrated Risk Management Framework, as part of its responsibilities of
monitoring compliance with the business objectives, policies, reporting standards and control procedures of the Group.
Specialised risk committees, namely the Board Credit Supervisory Committee, Operational Risk Management & Compliance
Committee and Asset & Liability Management Committee assists the BARMC in managing credit risk, operational risk inclusive
of Shariah Compliance Risk and market/liquidity risk respectively. These specialised committees are responsible for the
development and implementation of risk policies; and for the assessment of the effectiveness of policies.
BOARD LEVEL RISK MANAGEMENT

Defines risk philosophy and principles
GOVERNANCE
Approve Group level policies COMMITTEE
Internal INTERNAL AUDIT
Audit Independent assurance to the Board
RISK MANAGEMENT
BARMC
Sets standards and policies for management
Risk Management and of risk
regulatory compliance Policy and standards approved by BARMC
and BOD
Shariah
Shariah compliance risk Advisory
management Committee
BUSINESS RISK
Sets business-level policies within the
parameters of group-level policies
PFS, HLi Market, Business Banking, Strategic ALMCO
Policy approved by BARMC and BOD
Support
BUSINESS MANAGER
BCSC
Develops operational
Line Management
manuals/processes/procedures to
implement policies, regulatory ORMCC
guidelines/requirements
Board Audit &

SHARIAH GOVERNANCE FRAMEWORK
The Bank recognize that a sound and robust Shariah governance is fundamental for the Bank to ensure that its business are
in compliance with Shariah principles at all times.
The Shariah governance framework of the Bank comprises three main components, namely the Board of Directors, the
management and the independent Shariah Advisory Committee that is competent and accountable, supported by a strong
internal Shariah research capacity, and monitored through active Shariah review and Shariah risk management process.
THREE LINES OF DEFENSE AS THE RISK PHILOSOPHY:
At the apex of the IRM framework, the Board has the overall responsibility to ensure there is proper oversight of the
management of risks in the Bank. The Board sets the risk appetite and tolerance level and allocates the Banks capital that is
consistent with the Banks overall business objectives and desired risk profile.
At the Business and Operating Units level, the units are risk owners and accountable for the risks inherent in their business.
They manage the day-to-day risks of their respective operations.
For risk governance, the Integrated Risk Management and Compliance (IRMC) based at the Group level monitors and reports
the Banks Credit, Market, Liquidity, Operational and IT Risks and presents these risks in a single, consolidated view to the
BARMC regularly. The BARMC deliberates and evaluates the reports prepared by IRMC on the adequacy and effectiveness
of the controls to mitigate the Banks risks and thereafter reports and provide updates to the Board of Directors, and where
appropriate, make the necessary recommendations to the Board.
Hong Leong Islamic Banks Key Risks
CREDIT RISK OPERATIONAL RISK

Credit risk is the risk of financial loss due to a Operational risk loss is the risk of loss resulting from
customer or counterparty being unable or unwilling inadequate or failed internal processes, people and
to deliver on its payment obligations to the Bank, systems or from external events which also includes
which leads to a loss of revenue and financing IT and legal risks.
sum.
SHARIAH COMPLIANCE RISK

Shariah compliance risk is the risk of the Banks failure to comply with the Shariah rules and principles as guided by
Shariah Advisory Committee members.
MARKET RISK LIQUIDITY RISK

Market risk is the risk of financial loss arising from Liquidity risk is the risk of financial loss arising from
exposure to adverse changes in values of financial the inability to fund increases in assets and/or meet
instruments caused by changes in market prices or obligations as they fall due.
rates.
BNMS CAPITAL ADEQUACY FRAMEWORK FOR ISLAMIC BANKS (CAFIB)
The Bank places great importance on CAFIB and views CAFIB as a bank-wide initiative that will ensure that the Bank
continues to meet international best practices for Credit, Market and Operational risk management practices. In addition, the
Bank will be able to enhance and embed sound risk management practices within the Bank and be equipped with the right
risk management discipline, practices, processes and systems.
To underscore the importance of this initiative and ensure a concerted effort towards the successful implementation of
various aspects of CAFIB including fully automating the calculation of CAFIB and Basel II, this initiative is housed under the
parents Bank Basel II & CAFIB Project Steering Committee (PSC) which is chaired by the parent Banks Group Managing
Director. This Committee is tasked to oversee the implementation of CAFIBs individual work streams to ensure that the Bank
is on track in meeting current and future CAFIBs requirements. The PSC is supported by a dedicated Basel II and CAFIB
department which monitors the progress of the CAFIB initiatives on regular basis.
Corporate Governance & Internal Control
Corporate Governance is the process and structure used to direct and manage the business and affairs of the Company towards
enhancing business prosperity and corporate accountability with the ultimate objective of realising long term shareholder
value, whilst taking into account the interest of other stakeholders.
~ Finance Committee on Corporate Governance
The Board of Directors (Board) has reviewed the manner in which the Malaysian Code on Corporate Governance (the
Code) is applied in the Bank as set out below. The Board is pleased to report compliance of the Bank with the Best Practices
set out in Part 2 of the Code except where otherwise stated.
A. DIRECTORS
I The Board
The Board assumes responsibility for effective stewardship and control of the Bank and has established terms of
reference to assist in the discharge of this responsibility.
The role and responsibilities of the Board broadly cover formulation of corporate policies and strategies;
overseeing and evaluating the conduct of the Banks businesses; identifying principal risks and ensuring the
implementation of appropriate systems to manage these risks; reviewing and approving key matters such as
financial results, investments and divestments, acquisitions and disposals and major capital expenditure and such
other responsibilities that are required of them by Bank Negara Malaysia (BNM) as specified in guidelines and
circulars issued by BNM from time to time.
The Board observes the Company Directors Code of Ethics established by the Companies Commission of Malaysia
and BNM/GP7 Code of Ethics: Guidelines on Code of Conduct for Directors, Officers and Employees in the Banking
industry.

(continued)
A. DIRECTORS (continued)
II Board Balance
The Board comprises eight (8) directors, seven (7) of whom are non-executive. Of the non-executive directors,
three (3) are independent. The profiles of the members of the Board are provided in the Annual Report.
The Board is of the view that the current Board composition fairly reflects the investment of the shareholder in
the Bank.
The Chairman ensures the smooth and effective functioning of the Board.
The Managing Director/Chief Executive Officer (MD) is responsible for implementing the policies and decisions
of the Board, overseeing the day-to-day operations, setting the plan and direction, benchmark and targets for
operating companies, tracking compliance and business progress, initiating innovative business ideas to create
competitive edge and development of business and corporate strategies with the aim of enhancing shareholders
wealth.
The Board has identified YBhg Tan Sri A. Razak bin Ramli, the Chairman of the Board Audit & Risk Management
Committee (BARMC), as the Independent Non-Executive Director of the Board to whom concerns may be
conveyed, and who would bring the same to the attention of the Board.
III Board Meetings
The Board met six (6) times during the financial year ended 30 June 2010 which timely notices of issues to be
discussed. Details of the attendance of the Directors were disclosed in the Directors Profile in the Annual Report.
At Board meetings, active deliberations of issues by Board members are encouraged and such deliberations,
decisions and conclusions are recorded by the Company Secretary accordingly. Any director who has an interest in
the subject matter to be deliberated shall abstain from deliberation and voting on the same during the meetings.

(continued)
IV Supply of Information
All Board members are supplied with information in a timely manner. Board reports are circulated prior to Board
meetings and the reports provide, amongst others, financial and corporate information, significant operational,
financial and corporate issues, performance of the Bank and of the Group and managements proposals which
require the approval of the Board.
All Directors have access to the advice and services of the Company Secretary and Internal Auditors. All Directors
also have access to independent professional advice at the Banks expense, in consultation with the Chairman
or the MD of the Bank or the Group Managing Director/Chief Executive of Hong Leong Bank Berhad, the holding
Company of the Bank.
V Appointments to the Board
The Nominating Committee (NC) was established on 29 September 2005 and the members are as follows:-
YBhg Tan Sri A. Razak bin Ramli (Chairman, Independent Non-Executive Director)
YBhg Tan Sri Quek Leng Chan (Non-Independent Non-Executive Director)
Mr Kwek Leng Hai (Non-Independent Non-Executive Director)
YBhg Dato Mohamed Nazim bin Abdul Razak (Independent Non-Executive Director)
Mr Choong Yee How (Non-Independent Non-Executive Director)
(Appointed on 24 June 2010)
YBhg Datuk Dr Hussein bin Awang (Independent Non-Executive Director)
(Resigned on 24 June 2010)
The NCs functions and responsibilities are set out in the terms of reference as follows:-
Recommend to the Board the minimum requirements for appointments to the Board, Board committees and
for the position of Chief Executive Officer.
Review and recommend to the Board all Board appointments and re-appointments and removals including of
the Chief Executive Officer.
Review annually the overall composition of the Board in terms of the appropriate size and skills, the balance
between executive directors, non-executive and independent directors, and mix of skills and other core
competencies required.
Assess annually the effectiveness of the Board and key senior management officers as a whole and the
contribution by each individual Director to the effectiveness of the Board and various Board Committees
based on criteria approved by the Board.
Oversee the appointment, management succession planning and performance evaluation of key senior
management officers and recommend their removal if they are found ineffective, errant and negligent in
discharging their responsibilities.
Ensure that the Board receives an appropriate continuous training programme.
During the financial year ended 30 June 2010, three (3) NC meetings were held and all the members attended the
meetings held during their office as NC members except for YBhg Tan Sri A. Razak bin Ramli who attended two
(2) out of the three (3) NC meetings held.
The Nominating Committee reviewed the membership of the Board, the professional qualifications and experience
of the directors and was satisfied that the Board composition in terms of size, the balance between executive,
non-executive and independent directors and mix of skills was adequate. The Nominating Committee also reviewed
the performance of the Board against its terms of reference and was satisfied that the Board was competent and
effective in discharging its functions.
VI Re-election
All Directors are required to submit themselves for re-election every three (3) years.

(continued)
VII Training And Education
As part of the training programme for its Directors, the Bank has prepared for the use of its Directors, the Director
Manual and reqularly organises in-house programmes, briefings and updates by its in-house professionals. The
Directors are also encouraged to attend seminars and briefings in order to keep themselves abreast with the latest
developments in the business environment and to enhance their skills and knowledge.
The Director Manual which is given to every director for their reference, highlights, amongst others, the major
duties and responsibilities of a director vis--vis various laws, regulations and guidelines governing the same. New
directors will also be given a briefing on the businesses of the Group.
During the financial year ended 30 June 2010, the Directors received regular briefings and updates on the
Groups businesses, operations, risk management, internal controls, corporate governance, finance and any new
or changes to the companies and other relevant legislation, rules and regulations from in-house professionals. The
Bank also organised an in-house programme covering financial, legal and regulatory issues for its directors and
senior management.
The Directors of the Bank have also attended various programmes and forums facilitated by external professionals
in accordance with their respective needs in discharging their duties as directors.
During the financial year ended 30 June 2010, the Directors of the Bank, attended the following training
programmes, seminars, briefings and/or workshops:

Financial Institutions Directors Education Programme
Competency As The Backbone Of Transformation
Talk on Managing Risks On Mortgage Financing
Masterclass for Islamic Banks Board of Directors Session
Main Market Listing Requirements of Bursa Malaysia Securities Berhad
Macro-Economic Outlook Recovery Arrives, But Risks Remain
Malaysia Strategy Making Bold Changes
Review & Outlook of The Ringgit Bond Market
Briefing on Flour Milling Industry In Indonesia and FFM Berhads Investment in the Industry
Briefing on Wilmar International Limited
Manage Memory with Creativity
Board Effectiveness: Redefining The Roles and Functions of An Independent Director
Corporate Governance Guide Towards Boardroom Excellence
EQ Leadership Development
Emotional Intelligence (EQ) for Leaders Increasing Leadership Effectiveness with EQ
DB Access Asia Conference
14th Malaysian Banking Summit (Liberalisation & Internationalisation The Next Wave In Malaysian
Banking & Finance Industry)
3rd IFSB Public Lecture and High Level Conference on Financial Policy and Stability
MIFC Road Show to UAE & Kingdom of Saudi Arabia & Malaysia Country Showcase
6th World Islamic Economic Forum

(continued)
B. DIRECTORS REMUNERATION
I Level and Make-Up of Remuneration
The Remuneration Committee (RC) was established on 29 September 2005 and the members are as follows:-
YBhg Dato Mohamed Nazim bin Abdul Razak (Chairman, Independent Non-Executive Director)
YBhg Tan Sri Quek Leng Chan (Non-Independent Non-Executive Director)
Mr Choong Yee How (Non-Independent Non-Executive Director)
(Appointed on 24 June 2010)
YBhg Datuk Dr Hussein bin Awang (Independent Non-Executive Director)
(Resigned on 24 June 2010)
The RCs functions and responsibilities are set out in the terms of reference as follows:
Recommend to the Board the framework governing the remuneration of the:

Directors;
Chief Executive Officer; and
Key senior management officers.
Review and recommend to the Board the specific remuneration packages of executive directors and the
Chief Executive Officer.
Review the remuneration package of key senior management officers.
During the financial year ended 30 June 2010, one (1) RC meeting was held and all the members attended the
meeting held during their office as RC members except for YBhg Dato Mohamed Nazim bin Abdul Razak.
The Banks remuneration scheme for executive director is linked to performance, service seniority, experience and
scope of responsibility and is periodically benchmark to market/industry surveys conducted by human resource
consultants. Performance is measured against profits and targets set in the Banks annual plan and budget.
The level of remuneration of non-executive directors reflects the level of responsibilities undertaken by them.
II Procedure
The RC, in assessing and reviewing the remuneration packages of executive directors, ensures that a strong link
is maintained between their rewards and individual performance, based on the provisions in the Groups Human
Resources Manual, which are reviewed from time to time to align with market or industry practices.
The fees of directors, including non-executive directors, are recommended and endorsed by the Board for approval
by the shareholder of the Bank at its Annual General Meeting.
III Disclosure
The aggregate remuneration of Directors for the financial year ended 30 June 2010 is as follows:
Salaries & Other

Fees Emoluments Total
(RM) (RM) (RM)
Executive Director - 188,928 188,928

Non-Executive Directors 409,041 119,500 528,541

(continued)
B. DIRECTORS REMUNERATION (continued)
III Disclosure (continued)
The number of Directors whose remuneration fall into the following bands is as follows:
Range of Remuneration (RM) Executive Non-Executive
50,001 100,000 - 8
150,001 200,000 1 -
C. INVESTOR RELATION
The Bank has a website at http://www.hlisb.com.my which the investors can access for information including corporate
information, press releases, financial information and products information.
In addition, the Chief Financial Officer could provide investors with a channel of communication in which they can
provide feedback to the Bank.
Queries may be conveyed to the following persons:
CHIEF FINANCIAL OFFICER CHIEF OPERATING OFFICER
Tel No: 03-21642828 Tel No: 03-21643939

Fax No: 03-21641519 Fax No: 03-21611278
e-mail address: Premod@hlbb.hongleong.com.my e-mail address: JasaniA@hlisb.hongleong.com.my
D. ACCOUNTABILITY AND AUDIT
The Board Audit & Risk Management Committee (BARMC) was established on 29 September 2005. The financial
reporting and internal control system of the Bank is overseen by the BARMC, which comprises all Non-Executive
Directors. The primary responsibilities of the BARMC are set out in the BARMC Report.
The BARMC met six (6) times during the financial year ended 30 June 2010. Details of attendance of the committee
members are set out in the BARMC Report appearing on page 28 of the Annual Report. The Group Managing Director of
HLB, the Managing Director of HLISB, the Executive Director of HLB, the Chief Financial Officer, the Head of Integrated
Risk Management & Compliance and external auditors are invited to attend Committee meetings, where applicable.
Issues raised, discussions, deliberations, decisions and conclusions made at the BARMC meetings are recorded in the
minutes of the meetings. Where the BARMC is considering a matter in which a committee member has an interest, such
member abstains from deliberating and voting on the subject matter.
The BARMC which comprises all independent non executive directors is supported by the Group Internal Audit Division
whose principal responsibility is to conduct periodic audits on internal control matters to ensure compliance with
systems and/or standard operating procedures of the Bank. Investigation will be made at the request of the BARMC and
senior management on specific areas of concern when necessary. Significant breaches and deficiencies identified are
discussed at the BARMC meetings where appropriate actions will be taken.
I Financial Reporting
The Board is responsible for ensuring the proper maintenance of accounting records of the Bank. The Board
receives the recommendation to adopt the financial statements from the BARMC, which assesses the financial
statements with the assistance of the external auditors.

(continued)
D. ACCOUNTABILITY AND AUDIT (continued)
II Internal Control
The Board has overall responsibility for maintaining a system of internal controls which covers financial and
operational controls and risk management. This system provides reasonable but not absolute assurance against
material misstatements, losses and fraud.
The BARMC is also entrusted with the responsibility of identifying and communicating to the Board critical risks
the Bank faces, changes to the Banks risk profile and managements action plans to manage the risks.
The Statement on Internal Control as detailed under Section E of this Statement provides an overview of the state
of internal controls within the Bank.
III Relationship with Auditors
The appointment of external auditors is recommended by the BARMC, which determines the remuneration of the
external auditors.
During the financial year under review, the external auditors met with BARMC to:
present the scope of the audit before the commencement of audit; and
review the results of the audit as well as the management letter after the conclusion of the audit.
The external auditors meet with the BARMC members at least twice a year without the presence of executive
directors and management.
E. STATEMENT ON INTERNAL CONTROL
The Board, recognising its responsibilities in promoting good corporate governance and ensuring sound internal controls
and risk management practices, has set up the BARMC on 29 September 2005. The Board has also put in place an
Integrated Risk Management Framework to assist it in:
identifying the significant risks faced by the Bank in the business environment as well as evaluating the impact of
such risks;
developing and approving the necessary controls and measures to manage these risks; and
monitoring the adequacy and effectiveness of such controls and measures.
The BARMC, assisted by the Internal Audit Division, oversees and reports to the Board on the proper functioning of
the Integrated Risk Management Framework, as part of its responsibilities of monitoring compliance with the business
objectives, policies, reporting standards and control procedures of the Bank.
The controls instituted by the Banks operating units and built into the risk management framework are not intended to
eliminate all risks of failure to achieve business objectives but are designed to ensure all relevant and significant risks
have been identified and managed as part of the management and decision-making process throughout the Bank. As
with all such frameworks, controls, by their nature, can only provide reasonable, but not absolute assurance against
material misstatement of management and financial information or against financial losses and fraud.
The risk management framework is embedded in the management and decision-making process through the following
structures:
Key strategies to achieve the Banks business plans and budget as approved by the Board, are tracked and
reviewed by the operating divisions/departments to monitor achievement of these business plans and budgets.
The various divisional and departmental heads of the Bank operate their respective units within the policies,
functional, financial and operating reporting standards and control procedures developed by the Bank. Such
reporting standards and control procedures are supplemented on an ongoing basis by operating procedures,
policies and action plans developed by the operating units to manage and monitor risks impacting the Bank and to
suit the regulatory and business environment in which they operate.
Where feasible and necessary, relevant group resources are focused to manage common risks on an integrated
and Bank-wide basis, using common tools, procedures and control systems as appropriate.

(continued)
E. STATEMENT ON INTERNAL CONTROL (continued)
The Head, Integrated Risk Management & Compliance is responsible to:
evaluate all identified risks for their continuing relevance in the business environment and inclusion in the Risk
Management Framework;
oversee and monitor the implementation of appropriate systems and risk management controls to manage these
risks;
assess the adequacy of action plans and control systems developed to manage these risks;
monitor the performance of management in executing the action plans and operating the control systems; and
regularly report to the BARMC and the Board on the state of internal controls and the efficacy of management of
risks throughout the Bank.
In discharging the above responsibilities, the Head, IRMC is guided by but not limited to the questions raised in the
Appendix to the Statement of Internal Control - Guidance for Directors of Public Listed Companies and she reports
regularly to the BARMC and the Board on risk matters. The Board receives regular reports on significant risk areas e.g.
market risk, credit risk and operational risk.
As a licensed banking and finance institution, the business of the Bank entails management of risks common to all
financial intermediaries. The more significant risks are set out below:
Credit risk - Risk of loss if a customer or counterparty in a transaction fails to meet its obligations.
Rate of Return risk - Risk of loss resulting from changes in market rate of return.
Market risk - Risk of loss in financial instruments or the balance sheet due to adverse movements in
market factors such as foreign exchange rates and market prices.
Liquidity risk - Risk of loss resulting from the unavailability of sufficient funds to fulfill financial
commitments, including customers liquidity needs, as they fall due. Liquidity risk also
includes the risk of not being able to liquidate assets in a timely manner at a reasonable
price.
Operational risk - Risk of loss resulting from inadequate or failed processes, people and systems or from
external sources including IT, legal and reputational risks.
Product risk - Risk of introducing a new product that the Bank does not have the resources, systems or
expertise.
F. DISCLOSURE OF SHARIAH ADVISORY COMMITTEE
To ensure that the Banks operations are consistently conducted in accordance with Shariah principles, HLISB has
established the Shariah Advisory Committee (SAC) which comprise of five experienced scholars.
The members of SAC appointed by the Bank are as follows:
a. Associate Professor Dr. Ab. Mumin Ab. Ghani

b. Dr. Uzaimah Ibrahim (resigned w.e.f. 30 September 2009)
c. Associate Professor Dr. Hj. Muhamad Rahimi Osman
d. Prof. Dr. Muhammad Humayon Abbas Dar
e. Prof. Dr. Malik Muhammad Mahmud Al-Awan
In order to ascertain that HLISBs operations are in compliance with Shariah precepts, the SAC undertakes various roles
such as the followings:-
a. Review principles and contracts relating to the products introduced by the Bank, transactions and application
of Shariah principles to the Banks operation, that being disclosed to the SAC. In the review process, the SAC
also takes views from the Shariah Advisory Council of Bank Negara Malaysia and Securities Commission where
applicable;

(continued)
F. DISCLOSURE OF SHARIAH ADVISORY COMMITTEE (continued)
b. Endorse product documentations and relevant disclosures that being presented to SAC.
c. To perform opinion whether the Bank operations are in compliance with the Shariah principles, based on
representation made by the management and review of the financial reports.
The profiles of the Banks Shariah Advisory Committee members are set out in page 26 to 27
This Statement on Corporate Governance and Internal Control is made in accordance with the resolution of the Board
of Directors.
Shariah Advisory Committees Report
In the name of Allah, The Beneficent, The Merciful.
To the Shareholder of Hong Leong Islamic Bank Berhad,
In compliance with the letter of appointment, we are required to submit the following report:
We have reviewed the principles and the contracts relating to the transactions and applications introduced by the Bank
during the period ended 30th June 2010. We have also conducted our review to form an opinion as to whether the Bank has
complied with Shariah rules and principles and with the specific fatwas, rulings and guidelines issued by us.
The Banks management is responsible for ensuring that the Bank conducts its business in accordance with Shariah rules and
principles. It is our responsibility to form an independent opinion, based on our review of the operations of the Bank and to
report to you.
We performed our review on the basis of information and explanations that deemed essential in order to provide us with
sufficient evidence to give reasonable assurance that the Bank has not violated Shariah rules and principles.
In our opinion:
a) the contracts, transactions and dealings entered into by the Bank during the period ended 30th June 2010, that we have
reviewed are to the best of our knowledge in compliance with the Shariah rules and principles; and
b) the main sources and investments of the Bank disclosed to us conform to the basis that had been approved by us in
accordance with Shariah rules and principles.
We beg Allah the Almighty to grant us all the success and straight-forwardness.
On behalf of the Hong Leong Islamic Bank Shariah Advisory Committee
Assoc. Prof. Dr. Ab. Mumin Ab. Ghani
Chairman
Hong Leong Islamic Bank Shariah Advisory Committee

Kuala Lumpur, Malaysia
Directors Report
for the financial year ended 30 June 2010
The Directors of Hong Leong Islamic Bank Berhad ("the Bank" or "HLISB") have pleasure in presenting their report together
with the audited financial statements of the Bank for the financial year ended 30 June 2010.
PRINCIPAL ACTIVITIES
The Bank was incorporated under the Companies Act, 1965, on 28 March 2005 for the purpose of undertaking the Islamic
Banking Business pursuant to Subsection 3(4) of the Islamic Banking Act, 1983. The Bank operates through its head office,
located at Level 1, Wisma Hong Leong, 18 Jalan Perak, 50450 Kuala Lumpur.
The Bank is principally engaged in the Islamic banking business and related financial services. There have been no significant
changes in the principal activities of the Bank during the financial year.
FINANCIAL RESULTS
RM000
Profit before zakat and taxation 111,423

Zakat and taxation (27,235)
Profit after zakat and taxation 84,188
DIVIDENDS
Since the last financial year ended 30 June 2009, a final net dividend of 0.915 sen per share less income tax of 25%
amounting to RM4,575,000 in respect of the financial year ended 30 June 2009, was paid on 17 November 2009.
The Directors of the Bank now recommend a payment of final net dividend of 4.80 sen per share less income tax of 25%
amounting to RM24,000,000 for the financial year ended 30 June 2010.
SHARE CAPITAL
During the financial year, there was no issuance of new ordinary shares. As at 30 June 2010, the issued and paid-up capital
of the Bank is RM500,000,000 comprising 500,000,000 ordinary shares of RM1.00 each.
RESERVES AND PROVISIONS
There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the
financial statements.
DIRECTORS
The Directors who served since the date of the last report are as follows:
Y. Bhg Tan Sri Quek Leng Chan Chairman, Non-Independent

Puan Hijah Arifakh binti Othman Managing Director/Chief Executive Officer/Non-Independent
(Appointed w.e.f. 9 April 2010)
Ms Yvonne Chia Non-Independent/Non-Executive Director
Mr Kwek Leng Hai Non-Independent/Non-Executive Director
Mr Choong Yee How Non-Independent/Non-Executive Director
YBhg Tan Sri A. Razak bin Ramli Independent/Non-Executive Director
YBhg Datuk Dr Hussein bin Awang Independent/Non-Executive Director
(Resigned w.e.f. 24 June 2010)
YBhg Dato Abdul Majit bin Ahmad Khan Independent/Non-Executive Director
YBhg Dato Mohamed Nazim bin Abdul Razak Independent/Non-Executive Director
Directors Report
(continued)
DIRECTORS (continued)
In accordance with Article 94 of the Banks Articles of Association, Puan Hijah Arifakh binti Othman retires at the forthcoming
Annual General Meeting ("AGM") and being eligible, offers herself for re-election.

In accordance with Article 119 of the Banks Articles of Association, Ms Yvonne Chia and Mr Kwek Leng Hai retire by rotation
at the forthcoming AGM and being eligible, offer themselves for re-election.

DIRECTORS INTERESTS
No Director holding office at the end of the financial year had any beneficial interest in the ordinary shares/warrants/convertible
unsecured loan stocks of the Bank and/or related corporations during the financial year ended 30 June 2010 as recorded in
the Register of Directors Shareholdings kept by the Bank under Section 134 of the Companies Act 1965 except for YBhg Tan
Sri Quek Leng Chan, Mr Kwek Leng Hai, Ms Yvonne Chia and Mr Choong Yee How, whose beneficial interests are disclosed
in the Directors Report of the holding company as provided for under Section 134 of the Companies Act, 1965.
DIRECTORS BENEFITS
No Director of the Bank has received or become entitled to receive any benefit (other than a benefit included in the aggregate
amount of emoluments received or due and receivable by certain Directors as shown in the financial statements or the fixed
salary of a full-time employee of the Bank or of related corporations) by reason of a contract made by the Bank or a related
corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has
a substantial financial interest except for YBhg Tan Sri Quek Leng Chan, who may be deemed to derive a benefit by virtue
of those transactions, contracts and agreements for the acquisition and/or disposal of stocks and shares, stocks in-trade,
products, parts, accessories, plants, chattels, fixtures, buildings, land and other properties or any interest in any properties;
and/or the provision of services including but not limited to project and sales management and any other management
and consultancy services; and/or the provision of construction contracts, leases, tenancy, dealership and distributorship
agreements; and/or the provision of treasury functions, advances and the conduct of normal trading, investment, stockbroking
and/or other businesses between the Bank or its related corporations and corporations in which YBhg Tan Sri Quek Leng Chan
is deemed to have interest.
CORPORATE GOVERNANCE
Disclosures on:
- Statement on Corporate Governance
- The Board of Directors ("Board") responsibility and oversight
- Risk Management
- Internal Audit and Internal Control Activities
The above are disclosed in the annual report.
Performance Review and Management Reports
The Board receives and reviews regular reports from the Management on key financial and operating statistics as well as
legal and regulatory matters. The performance of each business unit is assessed against the approved budgets and business
objectives whilst explanation is provided for significant variances.
Directors Report
(continued)
OTHER STATUTORY INFORMATION REGARDING THE BANK
(I) As at the end of the financial year
(a) Before the income statements and balance sheets of the Bank were made out, the Directors took reasonable
steps:
(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and financing and
the making of allowance for doubtful debts and financing and had satisfied themselves that all known bad
debts and financing had been written off and that adequate allowance had been made for doubtful debts and
financing; and
(ii) to ensure that any current assets, other than debts and financing, which were unlikely to realise their book
values in the ordinary course of business had been written down to their estimated realisable values.
(b) In the opinion of the Directors, the results of the operations of the Bank during the financial year had not been
substantially affected by any item, transaction or event of a material and unusual nature.
(II) From the end of the financial year to the date of this report
(a) The Directors are not aware of any circumstances:
(i) which would render the amount written off for bad debts and financing or the amount of the allowance for
doubtful debts and financing inadequate to any material extent;
(ii) which had arisen which would render adherence to the existing method of valuation of assets or liabilities of
the Bank misleading or inappropriate;
(iii) which would render the values attributed to current assets in the financial statements misleading; and
(b) In the opinion of the Directors:
(i) the results of the operations of the Bank for the financial year ended 30 June 2010 are not likely to be
substantially affected by any item, transaction or event of a material and unusual nature which had arisen in
the interval between the end of the financial year and the date of this report; and
(ii) no contingent or other liability has become enforceable, or is likely to become enforceable, within the period
of twelve months after the end of the financial year which will or may affect the ability of the Bank to meet
their obligations as and when they fall due.
(III) As at the date of this report
(a) There are no charges on the assets of the Bank which had arisen since the end of the financial year to secure the
liabilities of any other person.
(b) There are no contingent liabilities which had arisen since the end of the financial year.
(c) The Directors are not aware of any circumstances not otherwise dealt with in the report or financial statements
which would render any amount stated in the financial statements misleading.
DISCLOSURE OF SHARIAH ADVISORY COMMITTEE
The Banks business activities are subject to the Shariah compliance and confirmation by the Shariah Advisory Committee
consisting of 4 scholars appointed by the Board.
The primary role of the Shariah Advisor is mainly advising on matters relating to the operation of the Banks existing products
and providing support by attending regular meetings with the Bank to ensure that its products are in conformity with Shariah
principles.
Directors Report
(continued)
HOLDING AND ULTIMATE HOLDING COMPANIES
The holding and ultimate holding companies are Hong Leong Bank Berhad and Hong Leong Company (Malaysia) Berhad
respectively, both incorporated in Malaysia.
Hong Leong Bank Berhad is listed on the Main Market of Bursa Malaysia Securities Berhad.
AUDITORS
The auditors, Messrs PricewaterhouseCoopers, have expressed their willingness to continue in office.
On behalf of the Board
HIJAH ARIFAKH OTHMAN YVONNE CHIA
Kuala Lumpur
8 September 2010
Balance Sheets
as at 30 June 2010
30.6.2010 30.6.2009
Note RM000 RM000
Assets
Cash and short-term funds 3 2,096,269 2,511,864
Deposits and placements with banks and other financial institutions 4 469,178 125,167
Held-for-trading securities 5 2,133,529 2,011,644
Available-for-sale securities 6 569,403 467,377
Held-to-maturity securities 7 461,739 126,623
Financing and advances 8 4,138,867 3,824,880
Other assets 9 26,791 7,615
Statutory deposits with Bank Negara Malaysia 10 47,000 46,064
Property and equipment 11 1,977 1,794
Deferred tax assets 12 17,593 18,932
Total assets 9,962,346 9,141,960
Liabilities
Deposits from customers 13 7,731,615 7,979,898
Deposits and placements of banks and other financial institutions 14 865,979 30,000
Bills and acceptances payable 18,774 16,133
Other liabilities 15 521,766 366,504
Provision for taxation 5,402 9,394
Total liabilities 9,143,536 8,401,929
Share capital 16 500,000 500,000

Reserves 17 318,810 240,031
Shareholders funds 818,810 740,031
Total liabilities and shareholders funds 9,962,346 9,141,960
Commitments and contingencies 29 1,468,416 1,092,217

Income Statements
30.6.2010 30.6.2009
Note RM000 RM000
Income derived from investment of depositors funds and others 18 309,105 322,130
Income derived from investment of shareholders funds 19 36,464 41,412
Allowance for losses on financing 20 (610) (15,052)
Profit equalisation reserve 15 (544) (407)
Total distributable income 344,415 348,083
Income attributable to the depositors 21 (160,189) (186,793)
Total net income 184,226 161,290
Personnel expenses 22 (8,823) (8,197)
Other overheads and expenditures 23 (63,980) (53,053)
Profit before zakat and taxation 111,423 100,040
Zakat and taxation 25 (27,235) (25,687)
Profit after zakat and taxation 84,188 74,353
Earnings per share (sen):

- basic/fully diluted 26 16.84 14.87
Statements of Changes in Equity

Non Distributable Distributable

Share Statutory Fair value Retained
capital reserve reserve profit Total
The Bank Note RM000 RM000 RM000 RM000 RM000
Balance as at 1 July 2009 16 500,000 119,209 1,615 119,207 740,031

Net profit for the financial year - - - 84,188 84,188
Transfer to statutory reserves - 42,094 - (42,094) -
Net fair value changes in available-
for-sale securities, net of tax - - (834) - (834)
Dividend paid:
- Final dividend for the financial year
ended 30 June 2009 - - - (4,575) (4,575)
Balance as at 30 June 2010 500,000 161,303 781 156,726 818,810
Balance as at 1 July 2008 16 500,000 82,032 669 82,031 664,732

Net profit for the financial year - - - 74,353 74,353
Transfer to statutory reserves - 37,177 - (37,177) -
Net fair value changes in available-
for-sale securities, net of tax - - 946 - 946
Balance as at 30 June 2009 500,000 119,209 1,615 119,207 740,031
Cash Flow Statements

30.6.2010 30.6.2009
Note RM000 RM000
Cash flows from operating activities

Profit before zakat and taxation for the financial year 111,423 100,040
Adjustment for:
Depreciation 717 672
Gain on sale of property and equipment - (23)
Gain from sale of available-for-sale securities (3,008) (8,736)
Gain from sale of held-for-trading securities (1,577) (3,998)
Allowances for losses on financing and advances 610 15,052
Net unrealised (gain)/loss on revaluation of held-for-trading securities and derivative
financial instruments (1,258) 458
Amortisation of premium less accretion of discounts (35,837) (41,179)
Finance income from available-for-sale securities (15,760) (14,371)
Finance income from held-to-maturity securities (15,255) (5,553)
Operating profit before working capital changes 40,055 42,362
(Increase)/decrease in operating assets

Financing and advances (314,597) 402,397
Statutory deposits with Bank Negara Malaysia (936) 98,900
Other assets (19,173) (245)
Deposits and placements with banks and other financial institutions (344,011) (125,167)
Held-for-trading securities (82,968) (1,039,355)
Increase/(decrease) in operating liabilities

Deposits from customers (248,283) 1,771,817
Deposits and placements of banks and other financial institutions 835,979 (749,000)
Bills and acceptances payable 2,641 (94,347)
Other liabilities 155,262 15,409
Cash generated from operations 23,969 322,771
Zakat paid (82) (78)
Income taxes paid (29,531) (25,045)
Net cash (used in)/generated from operating activities (5,644) 297,648
Cash flows from investing activities

Net purchase of available-for-sale securities (84,122) 337,488
Net purchase of held-to-maturity securities (320,354) 5,887
Proceeds from disposal of property and equipment - 251
Purchase of property and equipment (900) (840)
Net cash (used in)/generated from investing activities (405,376) 342,786
Cash Flow Statements

(continued)
30.6.2010 30.6.2009
Note RM000 RM000
Cash flows from financing activities

Dividend paid (4,575) -
Net cash (used in) from financing activities (4,575) -
Net (decrease)/increase in cash and cash equivalents (415,595) 640,434

Cash and cash equivalents at beginning of the financial year 2,511,864 1,871,430
Cash and cash equivalents at end of the financial year 3 2,096,269 2,511,864
Notes to the Financial Statements

1 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
The financial statements of the Bank have been prepared under the historical cost convention (unless otherwise
indicated), and in accordance with the directives and guidelines issued by Bank Negara Malaysia ('BNM'), Financial
Reporting Standards ('FRS'), the Malaysian Accounting Standard Board ('MASB') Approved Accounting Standards in
Malaysia for Entities Other than Private Entities and the provisions of the Companies Act, 1965.

The preparation of financial statements in conformity with FRS, the MASB Approved Accounting Standards in Malaysia
for Entities Other than Private Entities requires the use of estimates and assumption that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and
the reported amounts of revenues and expenses during the reported year. It also requires Directors to exercise their
judgement in the process of applying the Banks accounting policies. Although these estimates are based on the
Directors best knowledge of current events and actions, actual result may be differ.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant
to the financial statements are disclosed in Note 40.
(a)
Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Bank and are effective.

The new accounting standard, amendments to published standards and interpretations to existing standards that
are applicable and effective for the Bank for the financial year ended 30 June 2010 are as follows:

FRS 8 "Operating Segments" (effective from 1 July 2009) replaces FRS 1142004 Segment Reporting.
The new standard requires a 'management approach', under which segment information is reported in a
manner that is consistent with the internal reporting provided to the chief operating decision-maker. The
improvement to FRS 8 (effective from 1 January 2010) clarifies that entities that do not provide information
about segment assets to the chief operating decision-maker will no longer need to report this information.
Prior year comparatives must be restated. The adoption of the new accounting standard does not have any
significant financial impact on the results of the Bank.
(b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the
Bank but not yet effective.

The new and revised standards, amendments to published standards and IC Interpretations that are applicable to
the Bank but which the Bank have not early adopted, are as follows:

The revised FRS 3 "Business Combinations" (effective prospectively from 1 July 2010). The revised standard
continues to apply the acquisition method to business combinations, with some significant changes. For
example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with
contingent payments classified as debt subsequently re-measured through the income statement. There is a
choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at
fair value or at the non-controlling interests proportionate share of the acquirees net assets. All acquisition-
related costs should be expensed. The application of this standard is not expected to have a material impact
on the financial statements of the Bank.

The revised FRS 101 "Presentation of Financial Statements" (effective from 1 January 2010) prohibits the
presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of
changes in equity. 'Non-owner changes in equity' are to be presented separately from owner changes in
equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities
can choose whether to present one performance statement (the statement of comprehensive income) or two
statements (the income statement and statement of comprehensive income).

Where entities restate or reclassify comparative information, they will be required to present a restated
balance sheet as at the beginning comparative period in addition to the current requirement to present
balance sheets at the end of the current period and comparative period. The application of this standard is
not expected to have a material impact on the financial statements of the Bank.


(continued)
1 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued)
Bank but not yet effective. (continued)

FRS 139 "Financial Instruments: Recognition and measurement" (effective from 1 January 2010) establishes
principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and
sell non-financial items. Hedge accounting is permitted under strict circumstances. The amendments to FRS
139 provide further guidance on eligible hedged items. The amendment provides guidance for two situations.
On the designation of a one-sided risk in a hedged item, the amendment concludes that a purchased option
designated in its entirety as the hedging instrument of a one-sided risk will not be perfectly effective. The
designation of inflation as a hedged risk or portion is not permitted unless in particular situations. The
improvement to FRS 139 clarifies that the scope exemption in FRS 139 only applies to forward contracts
but not options for business combinations that are firmly committed to being completed within a reasonable
timeframe.

IC Interpretation 9 "Reassessment of embedded derivatives" (effective from 1 January 2010) requires an
entity to assess whether an embedded derivative is required to be separated from the host contract and
accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment
is prohibited unless there is a change in the terms of the contract that significantly modifies the cash
flows that otherwise would be required under the contract, in which case reassessment is required. The
improvement to IC Interpretation 9 (effective from 1 July 2010) clarifies that this interpretation does not
apply to embedded derivatives in contracts acquired in a business combination, businesses under common
control or the formation of a joint venture.
FRS 7 "Financial Instruments: Disclosures" (effective from 1 January 2010) provides information to users
of financial statements about an entitys exposure to risks and how the entity manages those risks. The
improvement FRS 7 clarifies that entities must not present total interest income and expense as a net
amount within finance costs on the face of the income statement.

The Bank have applied the transitional provision in the respective standards which exempts entities from
disclosing the possible impact arising from the initial application of the following standards and interpretations
on the financial statements of the Bank:

- FRS 139, Amendments to FRS 139 on eligible hedged items, Improvement to FRS 139 and IC
Interpretation 9

- FRS 7 and Improvement to FRS 7

BNM may prescribe the use of an alternative basis for collective assessment of impairment for a transitional
period for purpose of complying with the collective assessment of impairment requirement in FRS 139.

The amendment to FRS 2 "Share-based payment: Vesting conditions and cancellations" (effective from
1 January 2010) deals with vesting conditions and cancellations. It clarifies that vesting conditions are
service conditions and performance conditions only. Other features of a share-based payment are not vesting
conditions. These features would need to be included in the grant date fair value for transactions with
employees and others providing similar services; they would not impact the number of awards expected
to vest or valuation there of subsequent to grant date. All cancellations, whether by the entity or by
other parties, should receive the same accounting treatment. The improvement to FRS 2 (effective from 1
July 2010) clarifies that contributions of a business on formation of a joint venture and common control
transactions are outside the scope of FRS 2. The application of this standard is not expected to have a
material impact on the financial statements of the Bank.

The amendments to FRS 132 "Financial Instruments: Presentation" and FRS 101 (revised) "Presentation of
financial statements" - "Puttable financial instruments and obligations arising on liquidation" (effective from
1 January 2010) require entities to classify puttable financial instruments and instruments that impose on
the entity an obligation to deliver to another party a prorata share of the net assets of the entity only on
liquidation as equity, if they have particular features and meet specific conditions. The application of this
standard is not expected to have a material impact on the financial statements of the Bank.

(continued)
1 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued)
Bank but not yet effective. (continued)

IC Interpretation 10 "Interim Financial Reporting and Impairment" (effective from 1 January 2010) prohibits
the impairment losses recognised in an interim period on goodwill and investments in equity instruments and
in financial assets carried at cost to be reversed at a subsequent balance sheet date. The application of this
standard is not expected to have a material impact on the financial statements of the Bank.

IC Interpretation 11 "FRS 2 Group and Treasury Share Transactions" (effective from 1 January 2010)
provides guidance on whether share-based transactions involving treasury shares or involving group entities
should be accounted for as equity-settled or cash-settled share-based payment transactions in the stand-
alone accounts of the parent and group companies. The application of this standard is not expected to have
a material impact on the financial statements of the Bank.

IC Interpretation 13 "Customer Loyalty Programmes" (effective from 1 January 2010) clarifies that where
goods or services are sold together with a customer loyalty incentive, the arrangement is a multiple-element
arrangement and the consideration receivable from the customer is allocated between the components of
the arrangement using fair values. The application of this standard is not expected to have a material impact
on the financial statements of the Bank.

IC Interpretation 14 "FRS 119 The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction" (effective from 1 January 2010) provides guidance on assessing the limit in FRS 119
on the amount of the surplus that can be recognised as an asset. The application of this standard is not
expected to have a material impact on the financial statements of the Bank.

Improvement to existing MASBs standards (effective for accounting periods beginning on or after 1 January
2010) are as follows:

FRS 107 Statement of Cash Flows (effective from 1 January 2010) clarifies that only expenditure resulting
in a recognised asset can be categorised as a cash flow from investing activities.

FRS 110 Events after the Balance Sheet Date (effective from 1 January 2010) reinforces existing guidance
that a dividend declared after the reporting date is not a liability of an entity at that date given that there is
no obligation at that time.

FRS 116 Property, Plant and Equipment (effective from 1 January 2010) requires entities whose ordinary
activities comprise of renting and subsequently selling assets to present proceeds from the sale of those
assets as revenue and should transfer the carrying amount of the asset to inventories when the asset
becomes held for sale. A consequential amendment to FRS 107 states that cash flows arising from purchase,
rental and sale of those assets are classified as cash flows from operating activities.

FRS 117 Leases (effective from 1 January 2010) clarifies that the default classification of the land element
in a land and building lease is no longer an operating lease. As a result, leases of land should be classified as
either finance or operating, using the general principles of FRS 117.

FRS 118 Revenue (effective from 1 January 2010) provides more guidance when determining whether an
entity is acting as a 'principal' or as an 'agent'.
FRS 134 Interim Financial Reporting (effective from 1 January 2010) clarifies that basic and diluted earnings
per share ('EPS') must be presented in an interim report only in the case when the entity is required to
disclose EPS in its annual report.
FRS 136 Impairment of Assets (effective from 1 January 2010) clarifies that the largest cash-generating
unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is
an operating segment before the aggregation of segments with similar economic characteristics. The
improvement also clarifies that where fair value less costs to sell is calculated on the basis of discounted
cash flows, disclosures equivalent to those for value in use should be made.
The adoption of the above revised MASB accounting standards is not expected to have any significant financial
impact on the results of the Bank.


(continued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Accounting convention

The financial statements of the Bank have been prepared under the historical cost convention unless otherwise
indicated in this summary of significant accounting policies and comply with FRS, the MASB Approved Accounting
Standards in Malaysia for Entities Other than Private Entities, Bank Negara Malaysia ('BNM') Guidelines and the
provisions of the Companies Act, 1965.
(B) Recognition of finance income

Financing income is recognised on an accrual basis in accordance with the Shariah principles and BNM's "Guidelines
on Financial Reporting for Licensed Islamic Banks" ("BNM/GP8-i"). Al-Ijarah Thumma Al Bai ('AITAB') financing
income is recognised using the "sum-of-digits" method over the lease terms, whilst Bai' Bithaman Ajil ('BBA'), and
Al-Murabahah financing income is recognised on a monthly basis over the period of the financing contracts, based
on an agreed profit rate at the inception of such contracts.

Where a financing account becomes non-performing, income earned is not clawed back as income-in-suspense.
Subsequently, income earned on non-performing financing is recognised as income on a cash basis. Customers
accounts are classified as non-performing where repayments are in arrears for 3 months or more for financing and
cashline-i, and after 3 months from maturity date for trade bills, bankers acceptances and trust receipts.

The policy on suspension of finance income is in general more stringent than that laid down in BNM/GP3.

(C) Recognition of fees and other income

Structuring fees and guarantee fees which are material are recognised as income based on time apportionment.
Service charges and other fee income are recognised as income when the services are rendered.

Income from securities are recognised when the rights to receive payment is established. Income from Malaysian
Government investment certificates is recognised on a basis consistent with the principles of Shariah.

Net profit or loss from held-for-trading and available-for-sale securities are recognised upon disposal of the
securities, as the difference between net disposal proceeds and the carrying amount of the securities.

As allowed under BNM's Circular on "Accounting Treatment of Handling Fees for Hire Purchase Loans" dated 16
October 2006, the Bank have capitalized upfront handling fee paid to hire purchase dealers for hire purchase loans
and hire purchase financing to profit or loss. Subsequently, the capitalized fees will be amortized to the income
statement.

(D) Allowances for losses on financing

Specific allowances are made for doubtful financing which have been individually reviewed and specifically
identified as bad or doubtful.

A general allowance based on a percentage of the financing portfolio is also made to cover possible losses which
are not specifically identified.

An uncollectible financing or portion of a financing classified as bad is written off after taking into consideration
the realisable value of collateral, if any, when in the judgement of the management there is no prospect of
recovery.

Bank Negara Malaysia has granted indulgence to the Bank and other local banks from complying with the
requirement on the impairment of financing and advances under BNM/GP8-i. The Bank will be deemed to be in
compliance with the requirement on the impairment of financing and advances under BNM/GP8-i if the allowances
for non-performing financing and advances are computed based on BNMs guideline on the Classification of
Non-Performing Loans and Provision for Substandard, Bad and Doubtful Debts ("BNM/GP3") requirements, which
is consistent with the accounting policy adopted in the previous financial year.

The policy on allowances for non-performing financing is in general more stringent than that laid down in BNM/
GP3.


(continued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(E) Securities portfolio

The Bank classifies its securities portfolio into the following categories: held-for-trading, available-for-sale and
held-to-maturity securities. Management determines the classifications of its securities up-front at the point when
transactions are entered into.

For initial recognition, all securities are measured at fair value, which corresponds to the transaction price or
purchase consideration given (in the case of acquisition of securities) or received (in the case for securities sold).
All securities are derecognised when the rights to receive cash flows from the financial assets have expired or
where the Bank has transferred substantially all risks and rewards of ownership.

The Bank assesses at each balance sheet whether there is objective evidence that the available-for-sale and held-
to-maturity securities portfolio held by the Bank are impaired. The securities are impaired if their carrying value
exceeds the estimated recoverable amount and there is objective evidence of impairment to these securities.

(i) Held-for-trading securities

Held-for-trading securities ("HFT") are securities that are acquired and held principally for the purpose of
selling in the short term to generate a profit from short-term fluctuations in price or from dealers margin, and
are subsequently measured at fair value, with unrealised gains and losses arising from changes in fair value
recognised directly in the current years income statement.

The realised gains or losses on derecognition of HFT securities, which are derived on the difference between
the proceeds received and the carrying value of the securities, are credited or charged to the current years
income statement.

(ii) Held-to-maturity securities

Held-to-maturity securities ("HTM") are securities with fixed or determinable payments and fixed maturities
that the Bank has the positive intent and ability to hold to maturity, and are subsequently measured carried
at amortised cost using the effective profit method.

The Bank also classifies equity holdings held in organisations which are set up for specific socio-economic
reasons as HTM securities. These securities are measured at amortised cost as prescribed under the BNM/
GP8-i.

The amortisation of premium and accretion of discount on HTM securities is recognised to the income
statement using the effective profit method.

The realised gains or losses on derecognition of HTM securities, which are derived based on the difference
between the proceeds received and the carrying value of the securities, are credited or charged to the current
years income statement.

When impairment is determined to have occurred on HTM securities carried at amortised cost, the amount
of impairment loss is measured as the difference between the carrying value and the present value of
expected future cash flows discounted at the securitys original effective profit rate. For HTM securities
carried at cost, the amount of impairment loss is measured as the difference between the carrying value and
the present value of expected future cash flows discounted at the current market rate of return for similar
security. The carrying amount of the securities is reduced through use of an allowance account and the
amount of impairment loss is recognised in the current years income statement.

If, in subsequent years, the amount of impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised in the income statements, the previously recognised
impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised
in the current years income statement. For HTM securities stated at cost, no reversal of impairment loss is
allowed when the amount of impairment loss decreases.


(continued)

(E) Securities portfolio (continued)

(ii) Held-to-maturity securities (continued)

If the Bank sold or reclassified more than an insignificant amount of the HTM securities portfolio before
maturity (other than under those conditions specified in BNM/GP8-i) during the current financial year or the
last two preceding financial years, the entire category would be tainted and reclassified as available-for-sale
securities at fair value. The difference between the carrying value and fair value at the date of reclassification
is recognised directly in shareholders funds.
(iii) Available-for-sale securities

Available-for-sale securities ("AFS") are securities not classified as HFT or HTM securities and are subsequently
measured at fair value, with unrealised gains and losses arising from changes in fair value recognised in
shareholders funds, net of income tax, until such securities are sold, collected or otherwise disposed of, or
until such securities are determined to be impaired.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair
value cannot be reliably measured are carried at cost, less impairment losses by the Bank.

The amortisation of premium and accretion of discount on AFS securities is recognised to the income
statement using the effective profit method.

The realised gains or losses on derecognition of AFS securities, which are derived based on the difference
between the proceeds received and the carrying value of the securities plus any cumulative unrealised gains
and losses arising from changes in fair value previously recognised in shareholders funds, are credited or
charged to the current years income statement.

When a decline in fair value of AFS securities has been recognised directly in shareholders funds and there
is objective evidence that the security is impaired, the cumulative loss that has been recognised directly
in shareholders funds is removed from equity and recognised in the current years income statement even
though the security has not been derecognised. The amount of cumulative loss is the difference between
the acquisition price (net of principal repayment and amortisation) and current fair value, less any impairment
loss on that security previously recognised in the income statement.

If, in subsequent years, the fair value of a debts instrument classified as AFS increase and the increase can
be objectively related to an event occurring after the impairment was recognised in the income statement,
that portion of impairment loss is reversed through the income statement. For equity instruments, no reversal
of impairment loss through the income statement is allowed when there is an increase in fair value of the
equity instrument in subsequent year.

(F) Property and equipment and depreciation

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment loss
(if any). Depreciation of property and equipment is calculated to write off the cost of the property and equipment
on a straight line basis over the expected useful lives, summarised as follows:

Office furniture, fittings, equipment and renovations 5 years
Computer equipment and software 4 years
Motor vehicles 4 years

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet
date.

Property and equipment are reviewed for impairment at each balance sheet date and whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. Where the carrying amount of an asset
is greater than its estimated recoverable amount, it is written down to its recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included
in the income statement.


(continued)

(G) Leases

Where the Bank is the lessee

Lease of property and equipment where the Bank assumes substantially all the benefits and risks of ownership are
classified as finance leases. The Bank did not acquire any property and equipment under finance lease during the
financial year ended 30 June 2010.

Leases of assets where a significant portion of the risk and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases are charged to income statement over the
lease period.

Where the Bank is the lessor

When assets are leased out under a finance lease, the present value of the lease payments is recognised as
receivable. The difference between the gross receivables and net present value of the receivables is recognised as
unearned income. Lease income is recognised over the term of the lease using the "rule of 78". The Bank accounts
for its Ijarah Muntahia Bittamlik or AITAB as finance leases.

The Bank did not have any assets leased out under operating leases for the financial year ended 30 June 2010.

(H) Impairment of assets

The carrying amounts of the assets are assessed at each balance sheet date whether there is any indication that
the assets may be impaired. If any such indications exist, the recoverable amounts of the assets are estimated.

The recoverable amount is the higher of the assets net selling price and its value in use. In assessing the value in
use, estimated cash flows are discounted to their present values using a discount rate that reflects current market
assessment of the time value of money and the risk specific to the asset. An impairment loss is recognised in the
income statement immediately when the carrying amount of the asset exceeds its recoverable amount.

(I) Taxation

Income tax on the profit or loss for the financial year comprises of current and deferred tax.

Current tax is the expected amount of income taxes payable in respect of the taxable profit for the financial year
and is measured using the tax rates that have been enacted at the balance sheet date.

Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date
between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred
tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all
deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that
taxable profit will be available against which the deductible temporary differences, unused tax losses and unused
tax credits can be utilised.

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the
liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.

(J) Currency translations

Functional and presentation currency

Items included in the financial statements of Bank are measured using the currency of the primary economic
environment in which the entity operates ("the functional currency"). The financial statements are presented in
Ringgit Malaysia, which is the Banks functional and presentation currency.


(continued)
(J) Currency translations (continued)
Foreign currency transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges
and qualifying net investment hedges.

(K) Employee benefits

Short term employee benefits

Wages, salaries, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in
which the associated services are rendered by employees of the Bank.

Defined contribution plan

A defined contribution plan is a pension plan under which the Bank pays fixed contributions into a fund and will
have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to
pay all employees benefits relating to employee service in the current and prior years.

The Bank contributes to a national defined contribution plan (the Employee Provident Fund) on a mandatory basis
and the amounts contributed to the plan are charged to the income statement in the year to which they relate.
Once the contributions have been paid, the Bank has no further payment obligations.

(L) Foreclosed properties

Foreclosed properties are stated at the lower of cost and net realisable value.

(M) Bills and acceptances payable

Bills and acceptances payable represent the Banks own bills and acceptances rediscounted and outstanding in the
market.

(N) Provisions
Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past events,
when it is probable that an outflow of resources will be required to settle the obligations, and when a reliable
estimate of the amount can be made.

(O) Cash and cash equivalents

Cash and cash equivalents are cash and short term funds held for the purpose of meeting short term commitments
and readily convertible into cash without significant risk of changes in value.

(P) Zakat

Zakat provision is calculated based on 2.5% of net asset method.

(Q) Profit equalisation reserve ("PER")

PER is a mechanism to reduce the fluctuations in the profit rates payable to the depositors. It is provided based
on the Framework of the Rate of Return issued by Bank Negara Malaysia. The amount of PER is appropriated from
and written back and is reflected under other liabilities of the Bank.

(continued)
3 CASH AND SHORT-TERM FUNDS
30.6.2010 30.6.2009
RM000 RM000
Cash and balances with banks and other financial institutions 228,000 297,274
Money at call and deposit placements maturing within one month 1,868,269 2,214,590
2,096,269 2,511,864
4 DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS
30.6.2010 30.6.2009
RM000 RM000
Licensed Islamic bank 469,178 125,167

469,178 125,167
5 HELD-FOR-TRADING SECURITIES
30.6.2010 30.6.2009
RM000 RM000
Money market instruments

BNM bills 455,185 843,087
Malaysian Government Treasury Bills 251,598 148,177
Malaysian Government Investment Certificates 313,581 136,143
Negotiable Islamic Debt Certificate 452,588 493,270
Bankers acceptance and Islamic accepted bills 610,577 376,045
Khazanah Bonds - 14,922
Cagamas Bonds 50,000 -
2,133,529 2,011,644
6 AVAILABLE-FOR-SALE SECURITIES
30.6.2010 30.6.2009
RM000 RM000

Cagamas Bonds 25,338 35,428
Khazanah Bonds - 9,948
564,398 467,377
Unquoted securities
Private and Islamic debt securities 5,005 -
569,403 467,377

(continued)
7 HELD-TO-MATURITY SECURITIES
30.6.2010 30.6.2009
RM000 RM000

395,564 60,208
Unquoted securities
Shares 575 575
Private and Islamic debt securities 65,600 65,840
66,175 66,415
461,739 126,623
8 FINANCING AND ADVANCES
(i) By type
30.6.2010 30.6.2009
RM000 RM000
Cashline 3,613 5,421

Term financing:
- Housing financing 4,334,789 3,562,624
- Hire purchase receivables 2,466,921 2,545,281
- Lease receivables 11,806 16,357
- Other term financing 560,441 348,544
Claims on customers under acceptance credits 103,135 46,206
Staff financing 3 18
Others 467 623
7,481,175 6,525,074
Less: Unearned income (3,253,426) (2,605,681)
Gross financing and advances 4,227,749 3,919,393
Less: Allowance for bad and doubtful financing:

- general (66,175) (73,486)
- specific (22,707) (21,027)
(88,882) (94,513)
Total net financing and advances 4,138,867 3,824,880

(continued)
8 FINANCING AND ADVANCES (continued)
(ii) By contract
30.6.2010 30.6.2009
RM000 RM000
Bai Bithaman Ajil 1,941,026 1,602,357

Ijarah 11,687 15,895
Ijarah Muntahia Bittamlik/AITAB 2,171,901 2,254,935
Murabahah 103,135 46,206
(iii) By type of customer
30.6.2010 30.6.2009
RM000 RM000
Domestic non-bank financial institutions

- other than stockbroking companies 4,448 21,026
Domestic business enterprises
- small medium enterprises 274,734 230,386
- others 588,042 499,675
Government and statutory body - 47
Individuals 3,303,181 3,112,613
Other domestic entities 1,148 1,244
Foreign entities 56,196 54,402
(iv) By profit rate sensitivity
30.6.2010 30.6.2009
RM000 RM000
Fixed rate
- Housing financing 291,334 406,862
- Hire purchase receivables 2,166,936 2,249,514
- Other fixed rate financing 70,754 128,160
Variable rate
- Others 1,698,725 1,134,857

(continued)
(v) By purpose
30.6.2010 30.6.2009
RM000 RM000
Securities 93 345
Transport vehicles 2,081,103 2,125,401
Purchase of landed property:
- residential 1,348,304 1,122,005
- non-residential 196,623 192,233
Personal use 64,681 58,542
Construction 24,910 30,217
Working capital 508,277 390,636
Other purposes 3,758 14
(vi) Movement in non-performing financing
30.6.2010 30.6.2009
RM000 RM000
As at beginning of the year 46,260 45,754

Classified as non-performing 235,161 204,631
Reclassified as performing (211,205) (166,739)
Amount recovered (24,167) (24,237)
Amount written off (9,725) (13,149)
As at end of the year 36,324 46,260
Specific allowance (22,707) (21,027)
Net non-performing financing and advances 13,617 25,233
Ratio of net non-performing financing and advances to total net financing and
advances 0.3% 0.7%

(continued)
(vii) Movement in allowance for bad and doubtful financing
30.6.2010 30.6.2009
RM000 RM000
General allowance
Allowance made during the period - 8,461
Allowance written back during the period (7,311) -
(as % of total gross financing and advances less specific allowance) 1.6% 1.9%
Specific allowance
Allowance made during the period 19,831 15,949
Amount recovered (8,426) (6,507)
Amount written off (9,725) (13,149)
(viii) Non-performing financing and advances by purpose
30.6.2010 30.6.2009
RM000 RM000
Securities - 220
Transport vehicles 16,740 21,379
Purchase of landed property:
- residential 15,660 18,889
- non-residential 605 612
Personal use 385 440
Construction 135 422
Working capital 2,799 4,298
36,324 46,260
9 OTHER ASSETS
30.6.2010 30.6.2009
RM000 RM000
Income receivable 18,126 6,596

Other debtors, deposits and prepayments 8,665 1,019
26,791 7,615

(continued)
10 STATUTORY DEPOSITS WITH BNM

The statutory deposits are maintained with BNM in compliance with Section 37(1)(c) of the Central Bank of Malaysia
Act, 1958, the amount of which is determined at set percentages of total eligible liabilities.

11 PROPERTY AND EQUIPMENT
Office
furniture,
fittings, Computer
equipment equipment
and and Motor
renovations software vehicles Total
RM000 RM000 RM000 RM000
30 June 2010
Cost
As at 1 July 2009 2,459 1,048 486 3,993
Additions 39 508 353 900
As at 30 June 2010 2,498 1,556 839 4,893
Accumulated depreciation
As at 1 July 2009 1,380 594 225 2,199
Charge for the year 439 149 129 717
As at 30 June 2010 1,819 743 354 2,916
Net book value as at 30 June 2010 679 813 485 1,977
30 June 2009
Cost
As at 1 July 2008 2,233 733 685 3,651
Additions 395 315 130 840
Disposals (169) - (329) (498)
As at 30 June 2009 2,459 1,048 486 3,993
Accumulated depreciation
As at 1 July 2008 1,132 465 200 1,797
Charge for the year 406 129 137 672
Disposals (158) - (112) (270)
As at 30 June 2009 1,380 594 225 2,199
Net book value as at 30 June 2009 1,079 454 261 1,794


(continued)
12 DEFERRED TAXATION
The movements in deferred tax assets and liabilities during the year are as follows:
Available- Other
General for-sale temporary
allowance securities differences Total
RM000 RM000 RM000 RM000
Deferred tax assets/(liabilities)
30 June 2010
At beginning of the year 18,372 248 312 18,932
(Charged)/credited to income statement (Note 25) (1,828) - 211 (1,617)
Charged to equity - 278 - 278
As at 30 June 2010 16,544 526 523 17,593
30 June 2009
At beginning of the year 16,256 564 1,030 17,850
Credited/(charged) to income statement (Note 25) 2,116 - (718) 1,398
Credited to equity - (316) - (316)
As at 30 June 2009 18,372 248 312 18,932
13 DEPOSITS FROM CUSTOMERS
(i) By type of deposit
30.6.2010 30.6.2009
RM000 RM000
Non-Mudharabah
Demand deposits 453,133 375,930
Savings deposits 631,211 580,875
Negotiable Islamic Debt Certificate 1,254,754 1,215,890
2,339,098 2,172,695
Mudharabah
Savings deposits 636,172 569,063
General investment deposits 2,287,927 1,864,865
Special investment deposits 2,468,418 3,373,275
5,392,517 5,807,203
7,731,615 7,979,898

(continued)
13 DEPOSITS FROM CUSTOMERS (continued)
(ii) By type of customer
30.6.2010 30.6.2009
RM000 RM000
Government and statutory bodies 555,618 164,241

Business enterprises 5,302,925 6,117,757
Individuals 1,718,439 1,583,204
Others 154,633 114,696
7,731,615 7,979,898
14 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS
30.6.2010 30.6.2009
RM000 RM000
Non-Mudharabah
Licensed commercial banks 470,319 -
470,319 -
Mudharabah
Licensed Islamic banks 292,034 30,000
Licensed banks 103,626 -
395,660 30,000
865,979 30,000
15 OTHER LIABILITIES
30.6.2010 30.6.2009
RM000 RM000
Zakat 50 55
Profit equalisation reserve (a) 5,235 4,691
Profit payable 43,318 32,681
Amount due to holding company (Note 27) 383,288 263,679
Others 89,875 65,398
521,766 366,504

(continued)
15 OTHER LIABILITIES (continued)
(a) Profit equalisation reserve
30.6.2010 30.6.2009
RM000 RM000

Provision made during the year 6,373 20,370
Written back during the year (5,829) (19,963)
Balance as at 30 June 5,235 4,691
16 SHARE CAPITAL
30.6.2010 30.6.2009
RM000 RM000
Authorised:
Ordinary shares of RM1.00 each
As at beginning/end of financial year 1,000,000 1,000,000
Issued and fully paid:

Ordinary shares of RM1.00 each
As at beginning/end of financial year 500,000 500,000
17 RESERVES
30.6.2010 30.6.2009
RM000 RM000
Distributable
Retained profit 156,726 119,207
Non-distributable
Statutory reserve 161,303 119,209
Fair value reserve 781 1,615
162,084 120,824
318,810 240,031
The statutory reserves are maintained in compliance with Section 15 of the Islamic Banking Act, 1983 and are not
distributable as cash dividends.

The fair value reserve recognises unrealised gains or losses arising from a change in the fair value of investments
classified as securities available-for-sale. The gains or losses are transferred to the income statement upon derecognition
or impairment of the investment.

The Bank has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and tax exempt account to frank the
payment of dividends out of all its retained profit as at 30 June 2010.


(continued)
18 INCOME DERIVED FROM INVESTMENT OF DEPOSITORS FUNDS AND OTHERS
30.6.2010 30.6.2009
RM000 RM000
Income derived from investment of:

(i) General investment deposits 186,821 214,754
(ii) Other deposits 122,284 107,376
309,105 322,130
(i) Income derived from investment of general investment deposits
30.6.2010 30.6.2009
RM000 RM000
Finance income and hibah

Financing, advances and other financing 116,133 133,989
Securities held-for-trading 4,912 1,514
Securities available-for-sale 8,668 8,623
Securities held-to-maturity 8,390 3,332
Money at call and deposit with financial institutions 25,794 35,222
163,897 182,680
Accretion of discounts less amortisation of premium 19,710 24,708
Total finance income and hibah 183,607 207,388
Other operating income

Gain from sale of held-for-trading securities 868 2,399
Gain from sale of available-for-sale securities 1,654 5,242
Unrealised gain/(loss) on revaluation of held-for-trading securities 692 (275)
3,214 7,366
186,821 214,754

(continued)
18 INCOME DERIVED FROM INVESTMENT OF DEPOSITORS FUNDS AND OTHERS (continued)
(ii) Income derived from investment of other deposits
30.6.2010 30.6.2009
RM000 RM000

Securities held-for-trading 3,215 757
Securities held-to-maturity 5,492 1,666
107,279 91,339

Gain from sale of held-for-trading securities 568 1,199
Gain from sale of available-for-sale securities 1,083 2,621
2,104 3,683
122,284 107,376
19 INCOME DERIVED FROM INVESTMENT OF SHAREHOLDERS FUNDS

30.6.2010 30.6.2009
RM000 RM000

Securities held-for-trading 805 253
Securities held-to-maturity 1,373 555
26,820 30,447

(continued)
19 INCOME DERIVED FROM INVESTMENT OF SHAREHOLDERS FUNDS (continued)

30.6.2010 30.6.2009
RM000 RM000

Fee and commission
- Commission 1,061 949
- Service charges and fees 234 1,111
- Guarantee fees 69 382
- Other fees income 4,078 2,878
Gain from sale of held-for-trading securities 141 400
Gain from sale of available-for-sale securities 271 873
Others 451 301
6,418 6,848
36,464 41,412
20 ALLOWANCE FOR LOSSES ON FINANCING

30.6.2010 30.6.2009
RM000 RM000
Allowance for bad and doubtful financing:

(a) Specific allowance
- made during the financial period 19,831 15,949
- written back (8,426) (6,507)
(b) General allowance
- made during the financial period - 8,461
- written back (7,311) -
Bad debts on financing:
- recovered (4,039) (3,377)
- written off 555 526
610 15,052

The policy of the Bank is in general more stringent than those laid down by BNMs guidelines on the default period and
allowances requirements.


(continued)
21 INCOME ATTRIBUTABLE TO DEPOSITORS

30.6.2010 30.6.2009
RM000 RM000
Deposits from customers:

- Mudharabah 119,063 150,225
- Non-Mudharabah 22,180 30,139
Deposits and placements of banks and other financial institutions:

- Mudharabah 17,553 6,429
- Non-Mudharabah 1,393 -
160,189 186,793
22 PERSONNEL EXPENSES

30.6.2010 30.6.2009
RM000 RM000
Salaries, bonus and allowances 6,805 6,124

Contributions to Employee Provident Fund 794 833
Other employees benefits 1,224 1,240
8,823 8,197
23 OTHER OVERHEADS AND EXPENDITURES

30.6.2010 30.6.2009
RM000 RM000
Establishment costs
Depreciation of property and equipment 717 672
Rental of premises 1,134 957
Hire of equipment 40 38
Information technology expenses 372 341
Others 474 458
2,737 2,466
Marketing expenses
Advertisement and publicity 711 450
Handling fees 1,478 3,620
Zero cost amortisation 1,315 120
Others 1,108 330
4,612 4,520

(continued)
23 OTHER OVERHEADS AND EXPENDITURES (continued)
30.6.2010 30.6.2009
RM000 RM000
Administration and general expenses

Auditors remuneration:
- statutory audit 60 40
- audit related fees 110 4
- other services - 40
- tax services 15 15
Teletransmission expenses 60 60
Stationery and printing expenses 225 188
Shared service cost 52,583 43,375
Others 3,578 2,345
56,631 46,067
63,980 53,053
24 REMUNERATION OF CHIEF EXECUTIVE OFFICER ("CEO"), DIRECTORS AND SHARIAH ADVISORY COMMITTEE
MEMBERS

Forms of remuneration in aggregate for all Directors for the period are as follows:

30.6.2010 30.6.2009
RM000 RM000
Executive Directors:
- salary and other remuneration 164 400
- bonuses - -
- fees - -
- benefits-in-kind 5 498
- contribution to defined contribution plan 20 108
Non-Executive Directors:
- fees 529 530
718 1,536
Shariah Advisory Committee Members 255 201
973 1,737

The remuneration attributable to the current Managing Director of the Bank, including benefits-in-kind during the year
amounted to RM188,928 (2009: RM1,005,510).

The movement and details of the Directors of the Bank in office and their shareholdings in the Bank and related
corporations are reported in the Directors Report.

(continued)
25 ZAKAT AND TAXATION
30.6.2010 30.6.2009
RM000 RM000
Malaysian income tax

- current year 26,377 27,031
- overprovision in respect of prior years (836) -
Transfer from deferred taxation
- current year 1,617 (2,220)
- underprovision in respect of prior years - 822
1,617 (1,398)
Taxation 27,158 25,633
Zakat
- current year 77 54
27,235 25,687
The effective tax rate for the Bank differs from the statutory rate of taxation due to:
30.6.2010 30.6.2009
RM000 RM000
Profit before zakat and taxation 111,423 100,040
Tax calculated at a rate of 25% 27,856 25,010

Tax effects of:
- income not subject to tax - (234)
- expenses not deductible for tax purposes 138 35
(Over)/Under provision in respect of prior years (836) 822
Taxation 27,158 25,633
26 EARNINGS PER SHARE

Basic/fully diluted earnings per share

Basic/fully diluted earnings per share is calculated by dividing the profit after taxation by the weighted average number
of ordinary shares in issue during the year.

30.6.2010 30.6.2009
RM000 RM000
Basic/fully diluted:
Profit after taxation and zakat 84,188 74,353
Weighted average number of ordinary shares in issue ('000) 500,000 500,000
Basic/fully diluted earnings per share (sen) 16.84 14.87


(continued)
27 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

(a) Related parties and relationships

The related parties of and their relationships with the Bank are as follows:

Related parties Relationship
Hong Leong Company (Malaysia) Berhad Ultimate holding company
Hong Leong Management School Sdn Bhd, Hong Leong Subsidiary companies of ultimate holding
Share Registration Services Sdn Bhd, HLCM Capital Sdn Bhd, company
Hong Leong Fund Management Sdn Bhd, HL Management Co
Sdn Bhd and Hong Leong Consultancy Services Sdn Bhd
Hong Leong Bank Berhad ('HLB') Holding company
Hong Leong Financial Group Berhad Penultimate holding company
Subsidiary companies of Hong Leong Financial Group Berhad Subsidiary companies of penultimate holding
as disclosed in its financial statements company
Hong Leong Industries Berhad and its subsidiary and Subsidiary and associated companies of
associated companies as disclosed in its financial statements penultimate holding company
Hume Industries (Malaysia) Berhad and its subsidiary and Subsidiary and associated companies of
associated companies as disclosed in its financial statements penultimate holding company
Guoco Group Limited and its subsidiary and associated Subsidiary and associated companies of
companies as disclosed in its financial statements ultimate holding company
GuocoLand (Malaysia) Berhad and its subsidiary and Subsidiary and associated companies of
associated companies as disclosed in its financial statements ultimate holding company
BIB Insurance Brokers Sdn Bhd Connected person to Tan Sri Dato Zaki
bin Tun Azmi, a director of certain related
companies
Key management personnel The key management personnel of the Bank

consists of all Directors of the Bank.
Related parties of key management personnel (deemed as (i) Close family members and dependents of
related to the Bank) key management personnel
(ii) Entities that are controlled, jointly
controlled or significantly influenced by, or
for which significant voting power in such
entity resides with, directly or indirectly
by key management personnel or its close
family members


(continued)
27 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)

(b) Related party transactions and balances
A number of banking transactions are entered into with related parties in the normal course of business. These
transactions were carried out on commercial terms and at market rates.

Other Key
Holding related Management
company companies Personnel
RM000 RM000 RM000
2010
Income
Commission on Group product/services sold - 869 -
Shared service fees - 24 -
- 893 -
Expenditure
Income/profit paid to:
- current accounts - 1 46
- special investment account - 968 -
- interbank deposits 6,249 - -
Shared service costs 52,583 - -
58,832 969 46
Amounts due from:

Others - - -
Amounts due to:

General Investment Account - 62 -
Current account - 3,009 3,707
Special Investment Account - 44,427 -
Negotiable Islamic Debt Certificate 861,157 - -
Others (Note 15) 383,288 - -
1,244,445 47,498 3,707


(continued)

(b) Related party transactions and balances (continued)
Other Key
Holding related Management
company companies Personnel
RM000 RM000 RM000
2009
Income
Commission on Group product/services sold - 501 -
Shared service fees - 24 -
- 525 -
Expenditure
Income/profit paid to:
- current accounts - - 381
- special investment account - 1,885 -
- interbank deposits 908 - -
Shared service costs 43,375 - -
44,283 1,885 381
Amounts due from:

Others - - -
Amounts due to:

General Investment Account - 62 -
Current account - 882 12,470
Special Investment Account - 66,283 -
Negotiable Islamic Debt Certificate 48,671 - -
Others (Note 15) 263,679 - -
312,350 67,227 12,470

(c) Key management personnel

Key management compensation

The Bank
2010 2009
RM'000 RM'000
Salaries and other short-term employee benefits 189 1,006
Included in the above is the Directors compensation which is disclosed in Note 24.


(continued)
(d) Credit transactions and exposures with connected parties

Credit exposures with connected parties as per BNMs revised the Guidelines on Credit Transactions and Exposures
with Connected Parties which became effective on 1 January 2008 are as follows:

2010
RM000
Aggregate value of outstanding credit exposures with connected parties 2,185

Outstanding credit exposures to connected parties as a proportion of total credit exposures (%) 0.05%
Outstanding credit exposures with connected parties which is non-performing or in default (%) 0.00%
2009
RM000
Aggregate value of outstanding credit exposures with connected parties 1,722

Outstanding credit exposures to connected parties as a proportion of total credit exposures (%) 0.04%
Outstanding credit exposures with connected parties which is non-performing or in default (%) 0.00%
28 DIVIDENDS

A final net dividend in respect of the financial year ended 30 June 2010 of 4.80 sen per share less tax at 25% will be
proposed for shareholders approval at the forthcoming Annual General Meeting, amounting to RM24,000,000. The
proposed dividend will be reflected in the financial statements of the next financial year ending 30 June 2011 when
approved by shareholders.
29 COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities with
legal recourse to its customers. No material losses are anticipated as a result of these transactions. These commitments
and contingencies are also not secured over the assets of the Bank.

The commitments and contingencies constitute the following:

30.6.2010
Financing Risk
Principal equivalent Weighted
amount amount* amount
RM000 RM000 RM000
Certain transaction-related contingent items 1,129 564 564

Short-term self-liquidating trade-related contingencies 1,753 351 351
Any commitments that are unconditionally cancellable at any time by the
bank without prior notice 1,465,534 - -
1,468,416 915 915


(continued)
29 COMMITMENTS AND CONTINGENCIES (continued)
30.6.2009
Financing Risk
Principal equivalent Weighted
amount amount* amount
RM000 RM000 RM000
Certain transaction-related contingent items 826 414 414

Any commitments that are unconditionally cancellable at any time by the
bank without prior notice 1,089,178 - -
1,092,217 857 857

* The financing equivalent amount is arrived at using the financing conversion factor as per BNMs guidelines.

30 CAPITAL COMMITMENTS

Capital expenditure approved by Directors but not provided for in the financial statements are as follows:

30.6.2010 30.6.2009
RM000 RM000
Authorised and contracted for 724 831

724 831

The capital commitments are attributed to property and equipment.

31 LEASE COMMITMENTS

The Bank has lease commitments in respect of rented premises and hired equipment, all of which are classified as
operating leases. A summary of the future minimum lease payments, net of sublease, under non-cancellable operating
lease commitment are as follows:
30.6.2010 30.6.2009
RM000 RM000
Not later than one year 34 34

Later than one year and not later than five years 58 88

32 HOLDING AND ULTIMATE HOLDING COMPANIES

The holding and ultimate holding companies are Hong Leong Bank Berhad and Hong Leong Company (Malaysia) Berhad
respectively, both incorporated in Malaysia.

(continued)
33 CAPITAL ADEQUACY

The capital adequacy ratios of the Bank are as follows:

30.6.2010 30.6.2009
RM000 RM000
Tier-1 capital 800,436 719,484

Tier-2 capital 66,175 73,486
Capital base 866,611 792,970
Before deducting proposed dividends

Core capital ratio 19.74% 20.86%
Risk-weighted capital ratio 21.37% 22.99%
After deducting proposed dividends

Core capital ratio 19.15% 20.72%
Risk-weighted capital ratio 20.78% 22.85%

Components of Tier-1 and Tier-2 capital are as follows:

30.6.2010 30.6.2009
RM000 RM000
Tier-1 capital
Paid-up share capital 500,000 500,000
Retained profit 156,726 119,207
Other reserves 161,303 119,209
818,029 738,416
Less: Deferred tax assets (17,593) (18,932)
Total tier-1 capital 800,436 719,484
Tier-2 capital
General allowance for bad and doubtful financing 66,175 73,486
Total tier-2 capital 66,175 73,486
Total capital base 866,611 792,970

The capital adequacy ratios of the Bank are computed in accordance with Bank Negara Malaysias Capital Adequacy
Framework for Islamic Banks (CAFIB), which is based on the Basel II capital accord. The Bank has adopted the
Standardised Approach for Credit and Market Risk and the Basic Indicator Approach for Operational Risk. The minimum
regulatory capital adequacy approach requirement is 8% for the risk-weighted capital ratio.


(continued)
33 CAPITAL ADEQUACY (continued)

The breakdown of risk-weighted assets in the various categories of risk-weights:

(a) Credit risk
30.6.2010 30.6.2009
Risk- Risk-
Principal weighted Principal weighted
RM000 RM000 RM000 RM000
0% 2,393,624 - 2,706,701 -
10% - - - -
20% 654,744 130,949 483,760 96,752
35% 741,184 259,414 587,524 205,633
50% 856,865 428,433 310,538 155,269
75% 2,504,927 1,878,695 2,506,900 1,880,175
100% 636,387 636,387 557,993 557,993
150% 87,080 130,620 29,178 43,767
7,874,811 3,464,498 7,182,594 2,939,589
(b) Market Risk - 245,301 - 186,635
(c) Operational risk - 345,657 - 323,475
7,874,811 4,055,456 7,182,594 3,449,699

With effect from 1 January 2008, the capital adequacy ratios of the Bank are computed in accordance with Bank Negara
Malaysia Capital Adequacy Framework for Islamic Banks ('CAFIB'): Standardised Approach for Credit and Market Risk
and Basic Indicator Approach for Operational Risk.


(continued)
(a) The breakdown of risk-weighted assets ("RWA") by exposures for the current financial year are as follows:

Risk-
2010 Net weighted Capital
Exposure Class Gross exposures exposures assets requirements
RM000 RM000 RM000 RM000
Credit Risk
On-Balance Sheet Exposures:
Sovereigns/Central Banks 2,394,009 2,394,009 - -
Public Sector Entities - - - -
Banks, Development Financial
Institutions & MDBs 1,231,467 1,231,467 426,976 34,158
Insurance Companies,
Securities Firms & Fund
Managers 5,074 5,074 5,074 406
Corporates 636,926 636,066 615,626 49,250
Regulatory Retail 2,507,468 2,504,927 1,878,695 150,296
Residential Mortgages 993,673 993,641 385,642 30,851
Higher Risk Assets 1,196 1,196 1,793 143
Other Assets 10,642 10,642 11,027 882
Defaulted Exposure 96,944 96,874 138,750 11,100
Total On-Balance Sheet
Exposures 7,877,399 7,873,896 3,463,583 277,086
Off-Balance Sheet Exposures
Off-balance sheet exposures
other than OTC derivatives
or credit derivatives 915 915 915 73
Total Off-Balance Sheet
Exposures 915 915 915 73
Total On and Off-Balance Sheet
Exposures 7,878,314 7,874,811 3,464,498 277,159
Market Risk Long Short
Position Position
Profit Rate Risk 2,133,529 - 2,133,529 237,633 19,011

Foreign Currency Risk 7,668 792 7,668 7,668 613
Total Market Risk 245,301 19,624
Operational Risk 345,657 27,653
Total RWA and Capital
Requirements 4,055,456 324,436


(continued)

(a) The breakdown of risk-weighted assets ("RWA") by exposures for the current financial year are as follows:
(continued)

Risk-
2009 Net weighted Capital
Exposure Class Gross exposures exposures assets requirements
RM000 RM000 RM000 RM000
Credit Risk
On-Balance Sheet Exposures:
Sovereigns/Central Banks 2,707,386 2,707,386 - -
Public Sector Entities 47 47 9 1
Banks, Development Financial
Institutions & MDBs 528,182 528,182 129,671 10,374
Insurance Companies,
Securities Firms & Fund
Managers 5,087 5,087 5,087 407
Corporates 572,535 571,640 543,121 43,450
Regulatory Retail 2,509,100 2,506,900 1,880,176 150,413
Residential Mortgages 815,838 815,800 319,770 25,582
Higher Risk Assets 912 912 1,369 110
Other Assets 4,626 4,626 5,312 425
Defaulted Exposure 41,157 41,157 54,217 4,337
Total On-Balance Sheet
Exposures 7,184,870 7,181,737 2,938,732 235,099
Off-Balance Sheet Exposures
Off-balance sheet exposures
other than OTC derivatives
or credit derivatives 857 857 857 69
Total Off-Balance Sheet
Exposures 857 857 857 69
Total On and Off-Balance Sheet
Exposures 7,185,727 7,182,594 2,939,589 235,168
Market Risk Long Short
Position Position
Profit Rate Risk 2,011,644 - 2,011,644 117,842 9,427

Foreign Currency Risk 68,793 797 68,793 68,793 5,503
Total Market Risk 186,635 14,930
Operational Risk 323,475 25,878
Total RWA and Capital
Requirements 3,449,699 275,976


(b) The breakdown of credit risk exposure by risk-weights for the current financial year are as follows:

2010 Exposures after Netting and Credit Risk Mitigation (RM000)
Insurance Total (continued)

Banks, Companies, Exposures
Financial Securities after
Sovereigns/ Public Development Firms & Higher Netting & Total Risk
Risk- Central Sector Institutions & Fund Regulatory Residential Risk Other Credit Risk Weighted
weights Banks Entities MDBs Managers Corporates Retail Mortgages Assets Assets Mitigation Assets
0% 2,394,009 - - - - - - - (385) 2,393,624 -

10% - - - - - - - - - - -
20% - - 629,193 - 25,551 - - - - 654,744 130,949
35% - - - - - - 741,184 - - 741,184 259,414
50% - - 602,274 - - 155 254,436 - - 856,865 428,433
75% - - - - - 2,504,927 - - - 2,504,927 1,878,695
90% - - - - - - - - - - -
100% - - - 5,074 611,432 1,695 7,159 - 11,027 636,387 636,387
110% - - - - - - - - - - -
125% - - - - - - - - - - -
135% - - - - - - - - - - -
150% - - - - 37,596 48,251 - 1,233 - 87,080 130,620
Total
exposures 2,394,009 - 1,231,467 5,074 674,579 2,555,028 1,002,779 1,233 10,642 7,874,811 3,464,498


ANNUAL REPORT 2010 HONG LEONG ISLAMIC BANK BERHAD |
83
84
(b) The breakdown of credit risk exposure by risk-weights for the current financial year are as follows: (continued)

2009 Exposures after Netting and Credit Risk Mitigation (RM000)
(continued)
Insurance Total
Banks, Companies, Exposures
Financial Securities after
Sovereigns/ Public Development Firms & Higher Netting & Total Risk
Risk- Central Sector Institutions & Fund Regulatory Residential Risk Other Credit Risk Weighted
weights Banks Entities MDBs Managers Corporates Retail Mortgages Assets Assets Mitigation Assets
0% 2,707,386 - - - - - - - (685) 2,706,701 -

10% - - - - - - - - - - -
20% - 47 448,064 - 35,648 - - - - 483,759 96,752
35% - - - - - - 587,525 - - 587,525 205,633
50% - - 80,118 - 26 326 230,068 - - 310,538 155,269
| HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010
75% - - - - - 2,506,900 - - - 2,506,900 1,880,175

90% - - - - - - - - - - -
100% - - - 5,087 536,892 2,018 8,684 - 5,311 557,992 557,992
110% - - - - - - - - - - -
125% - - - - - - - - - - -
135% - - - - - - - - - - -
150% - - - - 2,364 25,848 - 967 - 29,179 43,768
Total
exposures 2,707,386 47 528,182 5,087 574,930 2,535,092 826,277 967 4,626 7,182,594 2,939,589

(continued)

(c) The Off-Balance Sheet exposures and their related counterparty credit risk of the Bank are as follows:

Credit Risk-
Principal equivalent weighted
2010 amount amount amount
Description RM000 RM000 RM000
Certain transaction-related contingent items 1,129 564 564

Any commitments that are unconditionally cancellable at any
time by the bank without prior notice 1,465,534 - -
Total 1,468,416 915 915

Credit Risk-
Principal equivalent weighted
2009 amount amount amount
Description RM000 RM000 RM000
Certain transaction-related contingent items 826 414 414

Any commitments that are unconditionally cancellable at any
time by the bank without prior notice 1,089,178 - -
Total 1,092,217 857 857

(continued)
34 SEGMENT REPORTING

The analysis of the Banks operations by business segments for the year ended 30 June 2010

Personal
Financial Business
Services Banking Treasury Total
RM000 RM000 RM000 RM000
The Bank
2010
Revenue
- external 179,696 (25,356) 30,496 184,836
- inter-segment (24,635) 39,933 (15,298) -
155,061 14,577 15,198 184,836
Overhead Expenses (52,858) (12,380) (7,565) (72,803)

Allowance for losses on financing (296) (314) - (610)
Segment profit before taxation 101,907 1,883 7,633 111,423
Taxation and zakat (27,235)
Profit after taxation and zakat 84,188
Segment assets 3,692,337 446,530 5,777,118 9,915,985

Unallocated assets 46,361
Total assets 9,962,346
Segment liabilities 2,013,832 2,013,385 4,589,151 8,616,368

Unallocated liabilities 527,168
Total liabilities 9,143,536
Other significant segment item

Allowance for losses on financing (81,638) (7,244) - (88,882)


(continued)
34 SEGMENT REPORTING (continued)

Personal
Financial Business
Services Banking Treasury Total
RM000 RM000 RM000 RM000
The Bank
2009
Revenue
- external 190,362 (24,636) 10,616 176,342
- inter-segment (43,848) 38,041 5,807 -
146,514 13,405 16,423 176,342
Overhead Expenses (45,630) (9,338) (6,282) (61,250)

Allowance for losses on financing (16,478) 1,426 - (15,052)
Segment profit before taxation 84,406 5,493 10,141 100,040
Taxation and zakat (25,687)
Profit after taxation and zakat 74,353
Segment assets 3,503,364 321,516 5,288,739 9,113,619

Unallocated assets 28,341
Total assets 9,141,960
Segment liabilities 1,657,878 1,748,988 4,589,165 7,996,031

Unallocated liabilities 405,898
Total liabilities 8,401,929
Other significant segment item

Allowance for losses on financing 86,972 7,541 - 94,513
35 DISCLOSURE OF SHARIAH ADVISOR

The Bank has appointed a Shariah Advisory Committee that consists of 4 Shariah scholars.

The primary role of the Shariah Advisor is mainly advising on matters relating to the operation of the Banks existing
products and providing support by attending regular meetings with the Bank to ensure that its products are in conformity
with Shariah.

The disclosure on roles of Shariah Advisory Committee is disclosed in Annual Report.


(continued)
36 RISK MANAGEMENT OBJECTIVES AND POLICIES

Integrated Risk Management ("IRM")

Managing risks is an integral part of the Banks overall business strategy, as risks, if left unchecked against a backdrop
of rapidly changing financial landscape and increased uncertainty, can translate into costs for the business. Recognising
the need to be proactive in the management of risks, the Bank has implemented an Integrated Risk Management ("IRM")
framework, through the Integrated Risk Management and Compliance Department ("IRMC Department") of its holding
company, Hong Leong Bank Berhad ("HLB").
At the apex of the IRM framework, the Board of Directors has the overall responsibility to ensure there is proper
oversight of the management of risks in the Bank. The Board of Directors set the risk appetite and tolerance level that is
consistent with the Banks overall business objectives and desired risk profile. A number of committees and dedicated
risk management functions have been established to manage specific areas of risk and implement various risk
management policies and procedures.

Giving due prominence to risk management, a Board Audit & Risk Management Committee ("BARMC") comprising
three members of the Independent and Non-executive Directors has been set up to oversee and ensure that risk
management at all levels is being managed effectively. They, in turn, report all the risk management activities to the
Board of Directors. To assist the BARMC, the IRM Department in HLB has been established to provide independent
oversight on the adequacy, effectiveness and integrity of risk management practices at all levels within the Bank. The
IRM Department has adopted a risk-based approach to consolidate principal risk areas across the Bank and provide a
comprehensive profile of such risks so as to enable the Bank to minimise the risk through review and appropriate policies
and control.
Financing Risk Management

Financing risk is risk of financial loss due to a customer or counterparty being unable or unwilling to deliver on its
payment obligations to the Bank, which leads to a loss of revenue and the principal sum. It arises principally from
financing, trade finance and treasury activities. Financing risk management forms a key component of the Banks
integrated risk management structure. The Banks integrated risk management structure is founded upon a financing
risk framework that is compliant with BNMs guidelines on "Best Practices for the Management of Financing Risk".

The Bank gives very strong priority to effective financing risk management. Financing evaluation is managed by
experienced personnel, with high level review undertaken by the Management Credit Committee, under the supervision
of the Board Credit Supervisory Committee. All financing policies are reviewed and approved by the Board Credit
Supervisory Committee.

The key to financing risk management is to ensure that structures and processes are in place to maintain and continuously
enhance the Banks risk assessment capabilities in key areas of financing. These include sound financing policies
and procedures, quality financing approvals, appropriate risk measurement and risk methodology, strong financing
controls with independent reviews and effective recovery strategies. The Banks financing risk management process is
documented in the Financing Manual. The Financing Manual sets out the Banks policies on financing guidelines, financing
authorities, financing risk rating, financing reviews, collateral, financing administration and security documentation, and
timely rehabilitation and restructuring of problematic and delinquent accounts.

The management of financing risk commences at the application stage whereby there is a stringent evaluation process,
based on prudent financing policies. To enhance financing risk management, the Bank has in place a financing risk rating
system for commercial customers. The Bank also conducts stress tests to ensure its asset quality is within acceptable
levels even under stress scenarios.

Internal Audit also conducts independent post approval reviews on sampling basis to ensure that quality of financing
appraisals and approval standards are in accordance with the financing standards and the financing policies and directives
established and approved by the Banks management.

Market Risk Management

Market risk is the risk of financial loss arising from exposure to adverse changes in values of financial instruments
caused by changes in market prices or rates, which include changes to profit rates.


(continued)
36 RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Market Risk Management (continued)
The Bank adopts a systematic approach in managing such risks by types of instruments and nature of exposure. Market
risk is primarily controlled via a series of cut-loss limits and potential loss limits, i.e. "Value at Risk" ("VaR"), set in
accordance with the size of positions and risk tolerance appetites:

Portfolios held under the Banks trading books are tracked using daily mark-to-market positions, which are
compared against preset limits. The daily tracking of positions is supplemented by sensitivity analysis and stress
tests, using VaR and other measurements.
Foreign exchange risks arising from adverse exchange rate movements, is managed by the setting of preset limits,
matching of open positions against these preset limits and imposition of cut-loss mechanisms.

Rate of return risk exposure is also identified, measured and controlled through limits and procedures, which
includes regularly reviewing the profit rate outlook and developing strategies to protect total net profit income
from changes in market profit rates.

In addition, the Bank also conducts periodic stress testing of its respective portfolios to ascertain market risk under
abnormal market conditions.

Liquidity Risk Management

Liquidity risk is the risk of financial loss arising from the inability to fund increases in assets and/or meet obligations as
they fall due. Financial obligations arise from the withdrawal of deposits, funding of financing committed and repayment
of liabilities. It is the Banks policy to ensure there is adequate liquidity across all business units to sustain ongoing
operations, as well as sufficient liquidity to fund asset growth and strategic opportunities.

As a safeguard against liquidity risk, the Bank takes a multi-pronged approach towards managing this risk, beginning
with a liquidity management system, adopting BNMs Liquidity Framework as the backbone. The Liquidity Framework
ascertains the liquidity condition based on contractual and behavioural cash-flow of assets, liabilities and off-balance
sheet commitments, taking into consideration the realisable cash value of liquefiable assets. The Bank has been in
compliance with the New Liquidity Framework throughout the financial year.

This is supplemented by the Banks own internal liquidity management policies, which includes cash flow management,
maintenance of high quality long-term and short-term marketable debt securities and diversification of funding base.
The Bank has in place liquidity contingency funding plans to minimise the liquidity risk that may arise due to unforeseen
adverse changes in the marketplace.

Operational Risk Management

The Bank adopts the Basel IIs Operational Risk Management definition as "the risk of loss resulting from inadequate
or failed internal processes, people and systems or from external events" which also includes IT and legal risks. As
such, operational risk is inherent in each of the Banks business and operational activities. Such risks may result in
breakdowns, errors and can potentially result in financial loss or other losses to the Bank. The primary responsibility of
managing such risks rests with the respective operating department/unit.

The Bank takes a proactive stance on identifying and profiling principal potential operational risks and implementing
relevant risk mitigation and contingency procedures.

One of the Banks primary safeguards against operational risks is the existence of a sound internal control system,
based on the principle of dual control, checks and balances, segregation of duties, independent checks and verification
processes, segmented system access control and multi-tier internal transaction authorisation process. The controls are
documented through a set of policies and procedures at the individual business unit level.

The Bank has also set up an Operational Risk Management and Compliance Committee ("ORMCC") comprising members
of the Banks senior management to manage its operational risks and compliance issues. The ORMCC intends to
minimise bank wide operational risk losses and increase shareholder value in accordance with Basel II standards while
ensuring compliance to all regulations and internal policies. Another key role of the ORMCC is to promote awareness of
operational risk management within the Bank and its customers.

The Bank has published an Operational Risk Management Awareness Handbook and disseminated across the Bank so as
to enhance operational risk awareness among all the staff as well as to inculcate sound risk management as an integral
part of planning and management process.
90
37 RATE OF RETURN RISK AND FINANCING RISK DISCLOSURES

A Rate of return risk

The tables below summarise the Banks exposure to rate of return risks. Included in the tables are the Banks assets and liabilities at their full
carrying amounts, categorised by the earlier of contractual repricing or maturity dates. As profit rates and yield curves change over time the Bank (continued)
may be exposed to loss in earnings due to the effects of profit rates on the structure of the balance sheets. Sensitivity to profit rates arises from
mismatches in the repricing dates, cash flows and other characteristics of the assets and their corresponding liabilities funding.

Up to 1-3 3-12 1-5 Over 5 Non-profit Trading Effective
30.6.2010 1 month months months years years sensitive book Total profit rate
RM000 RM000 RM000 RM000 RM000 RM000 RM000 RM000 %
Assets
Cash and short-term
funds 1,868,269 - - - - 228,000 - 2,096,269 2.3
Deposits and
placement with bank

and other financial
institutions - 252,182 191,171 25,825 - - - 469,178 2.2
Held for trading

securities - - - - - - 2,133,529 2,133,529 2.8
Available-for-sale
securities - - 10,152 301,362 257,889 - - 569,403 3.8
Held-to-maturity
securities - - 60,065 401,099 - 575 - 461,739 3.9
Financing and
advances
- performing * 1,657,677 5,918 77,743 1,294,153 1,155,934 (65,971) - 4,125,454 5.4

- non-performing * - - - - - 13,413 - 13,413 -
Other assets - - - - - 93,361 - 93,361 -
Total assets 3,525,946 258,100 339,131 2,022,439 1,413,823 269,378 2,133,529 9,962,346

* This represents outstanding performing and non-performing financing after deducting specific and general allowances.
37 RATE OF RETURN RISK AND FINANCING RISK DISCLOSURES (continued)

A Rate of return risk (continued)

(continued)
Liabilities
Deposits from
customers 4,406,649 1,427,973 860,083 583,777 - 453,133 - 7,731,615 2.2
Deposits and
placements of banks
and other financial
institutions 680,479 94,743 90,757 - - - - 865,979 2.2
Bills and acceptances
payable - - - - - 18,774 - 18,774 2.5
Other liabilities - - - - - 527,168 - 527,168 -
Total liabilities 5,087,128 1,522,716 950,840 583,777 - 999,075 - 9,143,536
Shareholders funds - - - - - 818,810 - 818,810

Total liabilities and
shareholders funds 5,087,128 1,522,716 950,840 583,777 - 1,817,885 - 9,962,346
On-balance sheet profit

sensitivity gap (1,561,182) (1,264,616) (611,709) 1,438,662 1,413,823
Total profit sensitivity
gap (1,561,182) (1,264,616) (611,709) 1,438,662 1,413,823
91
92
37 RATE OF RETURN RISK AND FINANCING RISK DISCLOSURES


30.6.2009 1 month months months years years sensitive book Total profit rate (continued)
Assets
Cash and short-term
funds 2,214,590 - - - - 297,274 - 2,511,864 1.9
Deposits and
placement with bank
and other financial
institutions - 100,000 - 25,167 - - - 125,167 1.7
Held for trading
securities - - - - - - 2,011,644 2,011,644 2.2
Available-for-sale
securities - 9,948 - 327,796 129,633 - - 467,377 3.7
Held-to-maturity
securities - - - 126,048 - 575 - 126,623 4.4
Financing and
advances
- performing * 1,090,812 13,152 91,130 1,333,282 1,344,757 (73,007) - 3,800,126 5.5
- non-performing * - - - - - 24,754 - 24,754 -
Other assets - - - - - 74,405 - 74,405 -
Total assets 3,305,402 123,100 91,130 1,812,293 1,474,390 324,001 2,011,644 9,141,960

* This represents outstanding performing and non-performing financing after deducting specific and general allowances.


(continued)
Liabilities
Deposits from
customers 5,702,472 875,950 871,695 153,851 - 375,930 - 7,979,898 2.0
Deposits and
placements of banks
and other financial
institutions 30,000 - - - - - - 30,000 2.0
Bills and acceptances
payable - - - - - 16,133 - 16,133 2.0
Other liabilities - - - - - 375,898 - 375,898 -
Total liabilities 5,732,472 875,950 871,695 153,851 - 767,961 - 8,401,929
Shareholders funds - - - - - 740,031 - 740,031

Total liabilities and
shareholders funds 5,732,472 875,950 871,695 153,851 - 1,507,992 - 9,141,960
On-balance sheet profit

sensitivity gap (2,427,070) (752,850) (780,565) 1,658,442 1,474,390
Total profit sensitivity
gap (2,427,070) (752,850) (780,565) 1,658,442 1,474,390
93
94

B Financing risk

The following table sets out the financing risk concentrations of the Bank by classes of financial assets:
(continued)
Short term Statutory
funds and Deposits Financing
placements Financing, with related
with Held-for Available- Held-to- advances Bank commitments
financial -trading for-sale maturity and other Other Negara On-balance and
30.6.2010 institutions securities securities securities^ financing* assets Malaysia sheet total contingencies
RM000 RM000 RM000 RM000 RM000 RM000 RM000 RM000 RM000
Agriculture - - - - 142,335 - - 142,335 133,606

Mining and
quarrying - - - - 2,738 - - 2,738 454
Manufacturing - - - - 220,868 - - 220,868 250,509

Electricity, gas
and water - - 5,005 - 53,790 - - 58,795 1,798
Construction - - - - 62,372 - - 62,372 6,151

Wholesale and
retail - - - - 158,873 - - 158,873 130,201
Transport,
storage and
communication - - - - 34,599 - - 34,599 63,152
Finance,
insurance,
real estate
and business
services 1,169,841 1,113,165 25,338 - 142,185 3,178 - 2,453,707 61,213
Government and
government
agencies 1,395,606 1,020,364 539,060 461,164 - 14,948 47,000 3,478,142 -
Education, health
and others - - - - 36,237 - - 36,237 16,246
Household - - - - 3,343,943 - - 3,343,943 760,781
Others - - - - 7,102 - - 7,102 44,305
2,565,447 2,133,529 569,403 461,164 4,205,042 18,126 47,000 9,999,711 1,468,416
* Excludes general allowances of RM66,175,000.

^ Excludes equity instrument of RM575,000.

B Financing risk (continued)

Short term Statutory
funds and Deposits Financing (continued)
placements Financing, with related
with Held-for Available- Held-to- advances Bank commitments
financial -trading for-sale maturity and other Other Negara On-balance and
30.6.2009 institutions securities securities securities^ financing* assets Malaysia sheet total contingencies
RM000 RM000 RM000 RM000 RM000 RM000 RM000 RM000 RM000
Agriculture - - - - 79,140 - - 79,140 163,198

Mining and
quarrying - - - - 2,538 - - 2,538 300
Manufacturing - - - - 180,070 - - 180,070 248,927
Electricity, gas
and water - - - - 6,667 - - 6,667 -
Construction - - - - 69,510 - - 69,510 5,500
Wholesale and
retail - - - - 157,537 - - 157,537 146,321
Transport,
storage and
communication - - - - 47,222 - - 47,222 61,572
Finance,
insurance,
real estate
and business
services 473,202 1,712,403 35,428 65,840 163,362 2,804 - 2,453,039 22,921

Government and
government
agencies 2,163,829 299,241 431,949 60,208 - 3,792 46,064 3,005,083 -
Education, health
and others - - - - 34,328 - - 34,328 -
Household - - - - 3,171,993 - - 3,171,993 391,218
Others - - - - 12,036 - - 12,036 52,260
2,637,031 2,011,644 467,377 126,048 3,924,403 6,596 46,064 9,219,163 1,092,217
* Excludes general allowances of RM73,486,000.

^ Excludes equity instrument of RM575,000.
95

(continued)
38 FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments comprise financial assets, financial liabilities and off-balance sheet financial instruments. Fair
value is the amount at which a financial asset could be exchanged or a financial liability could be settled, between
knowledgeable and willing parties in an arms length transaction. The information presented herein represents the
estimates of fair values as at the balance sheet date.
Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted
and observable market prices are not available, fair values are estimated based on a range of methodologies and
assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash
flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the
resulting fair value estimates.

The fair values are based on the following methodologies and assumptions:

Deposits and placements with financial institutions
For deposits and placements with financial institutions with maturities of less than six months, the carrying value is
a reasonable estimate of fair value. For deposits and placements with maturities six months and above, estimated
fair value is based on discounted cash flows using prevailing money market profit rates at which similar deposits and
placements would be made with financial institutions of similar financing risk and remaining period to maturity.

Held-for-trading, available-for-sale and held-to-maturity
The estimated fair value is generally based on quoted and observable market prices. Where there is no ready market in
certain securities, fair values have been assessed by reference to market indicative profit yields.
Financing, advances and other financing

For variable rate financing, the carrying value is generally a reasonable estimate of fair value. For fixed rate financing,
the fair value is estimated by discounting the estimated future cash flows using the prevailing market rates of financing
with similar financing risks and maturities.

The fair values of non-performing variable and fixed rate financing are represented by their carrying value, net of specific
allowance and income-in-suspense, being the expected recoverable amount.

Other assets and liabilities

The carrying value less any estimated allowance for financial assets and liabilities included in "other assets and liabilities"
are assumed to approximate their fair values as these items are not materially sensitive to the shift in market profit
rates.

Deposits from customers

For deposits from customers with maturities of less than six months, the carrying amounts are reasonable estimates of
their fair values. For deposit with maturities of six months and above, fair values are estimated using discounted cash
flows based on prevailing market rates for similar deposits from customers.

Deposits and placements of banks and other financial institutions and bills and acceptances payable

The estimated fair values of deposits and placements of banks and other financial institutions and bills and acceptances
payable with maturities of less than six months approximate the carrying values. For the items with maturities six
months and above, the fair values are estimated based on discounted cash flows using prevailing money market profit
rates with similar remaining period to maturities.
Financing related commitment and contingencies
The net fair value of these items was not calculated as estimated fair values are not readily ascertainable. These financial
instruments generally relate to financing risks and attract fees in line with market prices for similar arrangements. They
are not presently sold nor traded. The fair value may be represented by the present value of fees expected to be
received, less associated costs.

(continued)
38 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Foreign exchange related contracts

The fair values of foreign exchange related contracts are the estimated amounts the Bank would receive or pay to
terminate the contracts at the balance sheet date.
The above mentioned range of methodologies and assumptions had been used in deriving the fair values of the Banks
financial instruments at balance sheet date. The total fair value of each financial instrument approximates the total
carrying value, except for the following:

Carrying Fair
amount value
RM000 RM000
30.6.2010
Financial assets:
Financing and advances# 4,138,867 4,133,802
30.6.2009
Financial assets:
Financing and advances# 3,824,880 3,584,416

#
The carrying amount of financing and advances at the balance sheet date were not reduced to their estimated fair values
which were a result of the increase in profit rates during the year, and the Board of Directors is of the view that there are
no further impairment other than that already provided. Financing, advances and other financing have been assessed with
impairment allowances being made in accordance with BNM/GP3.

In addition, fair value information for non-financial assets and liabilities are excluded as they do not fall within the scope
of FRS 1322004 ("Financial Instruments: Disclosure and Presentation") which requires the fair value information to be
disclosed. These include other assets, statutory deposits with BNM, property and equipment and deferred tax assets.

39 GENERAL INFORMATION

The Bank is a public limited liability company that is incorporated and domiciled in Malaysia.

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the
Directors on 29 July 2010.

40 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next
financial year. Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
Allowance for losses on financing and advances
The Bank makes allowance for losses on financing and advances based on assessment of recoverability. Whilst
management is guided by the relevant BNM guidelines, management makes judgement on the future and other key
factors in respect of the recovery of financing and advances. Among the factors considered are the Banks aggregate
exposure to the borrower, the net realisable value of the underlying collateral value, the viability of the customers
business model and the capacity to generate sufficient cash flow to service financing obligations and the aggregate
amount and ranking of all other creditor claims.

Statement by Directors
Pursuant to Section 169 (15) of the Companies Act, 1965
We, Hijah Arifakh Othman and Yvonne Chia, being two of the Directors of Hong Leong Islamic Bank Berhad, do hereby state
that, in the opinion of the Directors, the financial statements set out on pages 46 to 97 are drawn up so as to give a true and
fair view of:

(a) the state of affairs of the Bank as at 30 June 2010 and of the results of their operations for the year ended on that date;
and

(b) the cash flows of the Bank for the year then ended on that date
in accordance with the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank
Negara Malaysia Guidelines and the provisions of the Companies Act, 1965.

On behalf of the Board,

HIJAH ARIFAKH OTHMAN YVONNE CHIA

Kuala Lumpur
8 September 2010
Statutory Declaration
Pursuant to Section 169 (16) of the Companies Act, 1965

I, Hijah Arifakh Othman, being the Officer primarily responsible for the financial management of Hong Leong Islamic Bank
Berhad, do solemnly and sincerely declare that the financial statements set out on pages 46 to 97 are to the best of my
knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true and by virtue
of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by )
the abovenamed at Kuala Lumpur )
in Wilayah Persekutuan on )
8 September 2010 ) HIJAH ARIFAKH OTHMAN

Before me,

Commissioner for Oaths

Independent Auditors Report

to the Members of Hong Leong Islamic Bank Berhad
(Incorporated in Malaysia) (Company no: 686191-W)
REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of Hong Leong Islamic Bank Berhad, which comprise the balance sheet as at
30 June 2010 of the Bank, and the income statement, statement of changes in equity and cash flow statements of the Bank
for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages
46 to 97.

Directors Responsibility for the Financial Statements

The Directors of the Bank are responsible for the preparation and fair presentation of these financial statements in accordance
with the Companies Act, 1965, the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities
and the Bank Negara Malaysia Guidelines. This responsibility includes: designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates
that are reasonable in the circumstances.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the
Banks preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Banks internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements have been properly drawn up in accordance with the Companies Act, 1965, the MASB
Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the Bank Negara Malaysia Guidelines
so as to give a true and fair view of the financial position of the Bank as of 30 June 2010 and of their financial performance
and cash flows for the year then ended.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report that, in our opinion, the
accounting and other records and the registers required by the Act to be kept by the Bank have been properly kept in
accordance with the provisions of the Act.

Other Matters

This report is made solely to the members of the Bank, as a body, in accordance with Section 174 of the Companies Act,
1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this
report.

PricewaterhouseCoopers Mohammad Faiz Bin Mohammad Azmi
(No. AF: 1146) (No. 2025/03/12 (J))
Chartered Accountants Chartered Accountant

Kuala Lumpur
8 September 2010
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2 | HONG LEONG ISLAMIC BANK BERHAD ANNUAL REPORT 2010

Hong Leong Islamic Bank Story

Hong Leong Islamic Bank Berhad (HLISB) is a full service

HLISB offers a comprehensive range of products and

Islamic Investment Banking

Personal Financial Services (Retail Banking)

Investment Unit Trust (Islamic Fund)

The Bank today serves its customers through a network of

JUNE 06 JUNE 07 JUNE 08 JUNE 09 JUNE 10

Total Assets 6,434 6,224 8,121 9,142 9,962

Total Assets (RM Million) Net Financing (RM Million)

Customers Deposit (RM Million) Pre-Tax Profits (RM Million)

7,000 100 111

BUSINESS ENVIRONMENT underpinned by high capitalisation, With pro-active supervisory roles by

Managing Directors Review

The Islamic finance and banking

However, arising from the financial

Notwithstanding the aforementioned,

We envisage the outlook for Islamic

Hong Leong Islamic Bank (HLISB)

Managing Directors Review

Managing Directors Review

We are continuously building synergy

Managing Directors Review

Centre of Excellence for Shariah Talent Management PROSPECT FOR 2010

Managing Directors Review

Finally we would like to express our

Our sincere thanks and appreciation

We would also like to thank our valued

For and on behalf of Hong Leong

HIJAH ARIFAKH OTHMAN

Corporate Social Responsibility

Long before corporate social responsibility

Corporate Social Responsibility

For many years

ECONOMIC SUSTAINABILITY A strict code of business conduct

Corporate Social Responsibility

trainees determine where their talents

Aside from these, the Bank also

As the Bank is committed to customer

Building relationships and adding

Because customers needs, wants

Corporate Social Responsibility

Corporate Social Responsibility

Every year, the Foundation helps

YBhg Tan Sri Quek Leng Chan Messrs PricewaterhouseCoopers

Ms Christine Moh Suat Moi

YBHG TAN SRI

Aged 67, YBhg Tan Sri Quek Leng

YBhg Tan Sri Quek is the Chairman

He is the Chairman & Chief Executive

YBhg Tan Sri Quek attended all the six

Ms Chia was made a Fellow of Institute of Bankers Malaysia

Ms Chia was appointed an Executive Director of HLB on 17

MR KWEK LENG HAI TAN SRI A. RAZAK BIN RAMLI

YBHG DATO ABDUL MAJIT BIN MR CHOONG YEE HOW

Previously he also served as an Administrative Diplomatic Officer (PTD). During

As an Associate Professor, he has written various books and articles related to

PROFESSOR DR. MALIK MUHAMMAD MAHMUD AL-AWAN

A multi-disciplinary scholar of Islamic jurisprudence, Prof. Dr. al-Awan currently

His experience as a senior banking and insurance executive help him to be a

PROFESSOR DR. MUHAMMAD HUMAYON ABBAS DAR

Professor Humayon Dar is an acclaimed Islamic banking and finance expert,