COMMERCE INTERNATIONAL MERCHANT BANKERS BERHAD

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					COMMERCE INTERNATIONAL
MERCHANT BANKERS BERHAD                                   18417-M




FINANCIAL STATEMENTS

Directors’ report                             206 - 212

Balance sheets                                213

Income statements                             214

Consolidated statement of changes in equity   215

Bank statement of changes in equity           216

Cash flow statements                          217 - 218

Summary of significant accounting policies    219 - 225

Notes to the financial statements             226 - 294

Statement by Directors                        295

Statutory declaration                         295

Report of the auditors                        296
      DIRECTORS’ REPORT
      for the financial year ended 31 December 2003




      The Directors are pleased to submit their report to the member together with the audited financial statements of
      the Group and the Bank for the financial year ended 31 December 2003.

      PRINCIPAL ACTIVITIES

      The principal activities of the Bank are merchant banking and provision of related financial services. The principal
      activities of its subsidiaries include carrying on the business of a discount house, stock and share broking,
      futures broking, offshore banking, trading in securities and the provision of nominee services. There was no
      significant change in the nature of these activities during the financial year.

      FINANCIAL RESULTS

                                                                                    Group                 Bank
                                                                                    RM’000               RM’000

      Net profit for the financial year                                            259,748              176,382
      Minority Interest                                                                 (40)                  -

      Net profit for the financial year after minority interest                    259,708              176,382

      DIVIDENDS

      No dividend has been paid or declared by the Bank since the end of the previous financial year.

      During the financial year, an interim dividend approximating 56.73 sen per share, less income tax at 28%, on the
      Bank’s issued and paid up share capital of RM319,242,000 amounting to RM130,400,000 was paid.

      The Directors propose a final dividend of 26.70 sen per share, less income tax at 28%, on the Bank’s issued and
      paid-up share capital of RM319,242,000, amounting to RM61,371,082 for the current financial year.

      BUSINESS PLAN AND STRATEGY IN 2003

      The advisory and origination businesses continued growing, with activities concentrated in initial public offerings
      and mergers and acquisitions. The Bank capitalised on stronger debt markets and its involvement in large primary
      debt deals during the first half of the financial year. The second half of 2003 performance was affected by
      difficult trading conditions in the debt markets and fewer primary issues. However, the Group performed better
      in the equity markets due to improvement in Malaysian Securities Exchange Berhad trading volume and its
      involvement in large primary deals in the second half of the year, indicating a good portfolio mix of business.

      OUTLOOK FOR 2004

      The Bank expects quite different market conditions but believe that it has the strength to capitalise on better
      equity markets and advisory opportunities while remaining resilient in more challenging debt market conditions.
      The Bank also expects a larger contribution from newer businesses such as private client services, private
      equity and CIMB Islamic.

      RATING PROFILE OF THE BANK

      The Bank was initially rated by Rating Agency Malaysia Berhad (“RAM”) in 1996 and duly accorded a Long Term
      Rating of A1 and a Short Term Rating of P1. This was subsequently upgraded in August 1996 to AA3 and P1
      respectively, the highest rating ever given to any merchant bank then.

      With the commencement of the Asian Economic Crisis, RAM had revised the ratings of financial institutions to
      reflect the current economic woes. In December 1999, the Bank’s Short Term Rating of P1 was reaffirmed whilst
      its Long Term Rating was revised to A2.



206
                                                                                            DIRECTORS’ REPORT




RATING PROFILE OF THE BANK (continued)

In May 2000, RAM reaffirmed the Bank’s Short Term Rating of P1 whilst its Long Term Rating was upgraded to
A1. The upgrade reflected the Bank’s strong capital adequacy ratio and improvement in its financial performance.

Subsequently in November 2001, the Bank’s Long Term rating was upgraded to AA3 from A1 while the Short
Term Rating was reaffirmed at P1. The upgrade took into account the Bank’s highly liquid balance sheet,
commendable track record in managing its off-balance sheet portfolio and effective risk management framework.

In November 2002 and October 2003, RAM reaffirmed the Bank’s Long Term Rating of AA3 and Short Term
Rating of P1.

Moody’s Investors Service assigned a first-time issuer rating of Baa3 and a Bank Financial Strength Rating
(“BFSR”) of D- to the Bank. Moody’s is a global and leading provider of independent credit ratings, research and
financial information to the capital markets. The ratings place the Bank at just two notches below the Malaysia
sovereign rating of Baa1.

According to Moody’s, the ratings reflect the Bank’s reputable franchise, professional management, as       well as
the Bank’s sound liquidity and capitalisation. Moody’s also commented that the ratings reinforce the        Bank’s
well-regarded brand and confirmed that both ratings show the stable outlook and prospects for the           Bank’s
business. The rating agency also stated that with the further evidence and sustainable growth of the        Bank’s
business franchise, the Bank would show better ratings in the future.

SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

(a) Restructuring and listing scheme of CIMB Berhad, the Bank’s holding company

    (i)    Restricted offer for sale

           On 2 January 2003, 1,100,000 of CIMB Berhad shares were allotted at an offer price of RM1.75,
           under the restricted offer for sales to the Non-Executive Directors and Company Secretary of Commerce
           Asset-Holding Berhad (“CAHB”) and the Non-Executive Directors of CIMB Berhad Group.

    (ii)   Employee Equity Scheme (“EES”)

           On 2 January 2003, 41,300,000 of CIMB Berhad shares were allotted to the respective CIMB
           Berhad Group employees (under their nominees accounts) according to their entitlements under the EES.

    (iii) Executive Employee Share Option Scheme (“EESOS”)

           CIMB Berhad had on 2 January 2003, made an offer to grant options to the Senior Management of
           CIMB Berhad Group to subscribe the shares of CIMB Berhad under the EESOS. The number of EESOS
           options offered to the Senior Management of CIMB Berhad Group amounted to 11,000,000 new ordinary
           shares of RM1.00 each of CIMB Berhad.

    (iv) Listing and quotation

           The entire issued and paid-up share capital of CIMB Berhad amounting to 850,000,000 ordinary shares
           of RM1.00 each was admitted to the Official List of the Exchange, and the listing and quotation of these
           shares on the Main Board of Malaysian Securities Exchange Berhad (“the Exchange”) was granted with
           effect from 8 January 2003.

(b) Employees Share Option Scheme (“ESOS”) of CAHB

    CAHB implemented a new ESOS (“ESOS 2002/2007”) to replace the previous ESOS (“ESOS 1997/2002”)
    which had expired on 20 June 2002. The ESOS 2002/2007 is governed by the by-laws which were approved
    by the shareholders on 26 April 2002.


                                                                                                                      207
      DIRECTORS’ REPORT




      SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (continued)

      (c) Termination of proposed investment in Global TIMES Ventures GmbH & Co. KG

            The Bank and T-Venture Holding GmbH of Germany (formerly known as T-Telematik Venture Holding GmbH)
            (“T-Ventures”) had on 27 February 2003 signed a Termination Agreement to formalise the intentions of the
            parties to terminate an earlier Agreement dated 18 June 2001 for the proposed participation by the Bank in
            Global TIMES Ventures GmbH & Co. KG (“GTV”). GTV is a limited partnership in which the Bank has contracted
            to acquire a 20% interest, amounting to a total investment of EUR11,400,000.

      (d) Sale of Malaysian Issuing House Sdn. Bhd. (“MIH”)

            On 2 April 2003, the Bank entered into Sale and Purchase agreement with Symphony House Berhad to
            dispose of its 25.5% equity interest comprising 637,500 ordinary shares of RM1.00 each in MIH for a total
            consideration of RM624,272. The Sale and Purchase agreement was subsequently completed on
            30 July 2003.

      (e) Memorandum of Understanding (“MOU”) with Al-Tawfeek Company for Investment Funds Limited
          (“Al-Tawfeek”)

            On 2 June 2003, the Bank entered into a MOU with Al-Tawfeek for the purpose of establishing a co-operation
            to jointly undertake Islamic banking activities globally. Al-Tawfeek is a subsidiary of Dallah Al-Baraka Group
            which is based in Jeddah, Saudi Arabia. Its principal activity is carrying on the business of an investment
            fund company. Under the MOU, both Al-Tawfeek and the Bank agree to provide and share all forms of
            assistance and expertise in Islamic investment banking and further provide financing and funding for ensuring
            the successful implementation of the co-operation.

      (f)   Subscription of irredeemable non-cumulative preference shares in CIMB Discount House Berhad

            The Bank had on 30 June 2003 subscribed for 116.0 million irredeemable non-cumulative preference shares
            of RM1.00 each in its wholly owned subsidiary, CIMB Discount House Berhad for a total consideration of
            RM116.0 million. The Bank is entitled to dividend at the discretion of the Board of Directors of CIMB Discount
            House Berhad.

            The irredeemable non-cumulative preference shares rank in priority to the existing ordinary shares of CIMB
            Discount House Berhad with respect to payment of dividend and amounts receivable upon liquidation,
            dissolution or winding up of CIMB Discount House Berhad.

      (g) Acquisition of PT Niaga Sekuritas of Indonesia

            CIMB (L) Limited, a licensed offshore bank and a subsidiary of the Bank, had on 19 November 2003 acquired
            51% of the equity interest in PT Niaga Sekuritas (“Niaga Sekuritas”) of Indonesia. The acquisition was via
            the acquisition of 179,000 existing ordinary shares and the subscription of 18,266,000 new ordinary shares
            issued in Niaga Sekuritas, at a total cash consideration of Rupiah 20.7 billion (RM9.3 million). Niaga Sekuritas
            was then a 99% owned subsidiary of PT Bank Niaga of Indonesia (“Bank Niaga”) which in turn is a 51%
            owned subsidiary of Commerce Asset-Holding Berhad (“CAHB”). The name of Niaga Sekuritas was
            subsequently changed to PT CIMB Niaga Securities on 8 December 2003.

      (h) Satisfaction of capital commitment in CIMB Muamalat Fund I and Navis Asia Fund III

            CIMB (L) Limited, a wholly-owned subsidiary of the Bank had on 18 July 2003 and 2 December 2003 fulfilled
            its capital commitment by paying up 25% and 35% respectively of total investment in CIMB Muamalat Fund
            I and Navis Asia Fund III.




208
                                                                                             DIRECTORS’ REPORT




SIGNIFICANT EVENTS SUBSEQUENT TO BALANCE SHEET DATE

(a) Memorandum of Understanding (“MOU”) with Al-Tawfeek Company for Investment Funds Limited
    (“Al-Tawfeek”)

    The Bank and Al-Tawfeek had on 11 February 2004 agreed to mutually terminate the MOU and not to
    proceed with the formalisation of the alliance to jointly undertake Islamic banking activities globally. However,
    both parties have agreed to work towards maintaining and enhancing the good relationship that exists
    between them.

(b) Proposed acquisition of CIMB ShareTech Sdn Bhd (“ShareTech”) by CIMB Berhad from CIMB Securities
    Sdn Bhd

    On 6 January 2004, CIMB Berhad had proposed to acquire the entire ordinary equity interest in ShareTech
    comprising of 40,003,120 ordinary shares of RM1.00 each from CIMB Securities Sdn Bhd, a wholly-owned
    subsidiary of the Bank, for a cash consideration of RM47.8 million.

    The acquisition was approved by the Foreign Investment Committee on 24 February 2004.

(c) Sale of Banyan Ventures Sdn Bhd

    On 30 January 2004, the Bank entered into Sale and Purchase Agreement with Tan Choi Khow and Michael
    Toh Kian Seng to dispose of its 37.04% equity interest comprising 1,000,000 ordinary shares of RM1.00
    each in Banyan Ventures Sdn Bhd for a total consideration of RM39,338. The Sale and Purchase agreement
    was subsequently completed on 16 February 2004.

(d) Executive Employee Share Option Scheme (“EESOS”)

    CIMB Berhad had on 11 February 2004, made an offer to grant options to eligible employees of CIMB
    Berhad Group to subscribe the shares of CIMB Berhad under the EESOS. The number of EESOS options
    offered to the eligible employees of CIMB Berhad Group amounted to 24,751,000 new ordinary shares of
    RM1.00 each of CIMB Berhad.

(e) Memorandum of Agreement with TA Enterprise Berhad in relation to the proposed acquisition by
    CIMB Berhad of the entire equity interest in Botly Securities Sdn Bhd

    CIMB Berhad had on 13 February 2004 entered into a Memorandum of Agreement (“MOA”) with TA Enterprise
    Berhad (“TAE”) in relation to the proposed acquisition by CIMB Berhad of the entire equity interest in Botly
    Securities Sdn Bhd, from TAE for a total purchase consideration of RM400 million to be satisfied by the
    issuance of 80,000,000 new ordinary shares of RM1.00 each in CIMB Berhad at an issue price of RM5.00
    per share.

    The MOA sets out the respective parties’ agreement on the principal terms of the proposed acquisition and
    definitive agreements would be entered into at a later date.

    The proposed acquisition is subject to approval from relevant authorities.

RESERVES AND PROVISIONS

There were no material transfers to or from reserves and provisions during the financial year other than those
disclosed in the financial statements and notes to the financial statements.




                                                                                                                        209
      DIRECTORS’ REPORT




      DIRECTORS

      The Directors of the Bank who have held office since the date of the last report and at the date of this report are
      as follows:

      Directors
      Dr. Rozali bin Mohamed Ali
      Dato’ Hamzah bin Bakar
      Dato’ Mohamed Nazir bin Abdul Razak
      Cheim Dau Meng
      Dr. Gan Wee Beng
      Nicholas Rupert Heylett Bloy

      In accordance with Articles 75A and 75B of the Bank’s Articles of Association, Dato’ Mohamed Nazir bin Abdul
      Razak and Dato’ Hamzah Bakar, retire from the Board at the forthcoming Annual General Meeting and being
      eligible, offer themselves for re-election.

      DIRECTORS’ BENEFITS

      During and at the end of the financial year ended 31 December 2003, no arrangements subsisted to which the
      Bank is a party, being arrangements with the object or objects of enabling Directors of the Bank to acquire
      benefits by means of the acquisition of shares in, or debentures of, the Bank or any other body corporate, other
      than the equity compensation benefits disclosed in the financial statements of the Bank’s holding company,
      CIMB Berhad.

      Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive
      a benefit by reason of a contract made by the Bank or a related corporation with the Director or with a firm of
      which he is a member, or with a company in which he has a substantial financial interest except as disclosed in
      Note 31 to the financial statements and the equity compensation benefits disclosed in the financial statements
      of the Bank’s holding company, CIMB Berhad.

      DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES

      According to the Register of Directors’ Shareholdings, the Directors’ beneficial interests in the shares, warrants
      and share options of the holding and ultimate holding companies are as follows:

                                                                       No. of ordinary shares of RM1 each
                                                            Balance                                      Balance
                                                               as at                                        as at
                                                          1 January      Acquired            Sold   31 December

      CAHB
      Dr. Rozali bin Mohamed Ali                            404,800                -        (90,000)          314,800
      Dato’ Mohamed Nazir bin Abdul Razak                   300,000                -        (50,000)          250,000
      Cheim Dau Meng                                         38,000                -        (38,000)                -

                                                                       No. of ordinary shares of RM1 each
                                                            Balance                                      Balance
                                                               as at                                        as at
                                                          1 January      Acquired            Sold   31 December

      CIMB Berhad
      Dr. Rozali bin Mohamed Ali                            150,000         51,000                 -          201,000
      Dato’ Hamzah bin Bakar                                 50,000              -                 -           50,000
      Dato’ Mohamed Nazir bin Abdul Razak                         -      4,000,000       (4,000,000)                -
      Cheim Dau Meng                                              -        280,000         (280,000)                -
      Dr. Gan Wee Beng                                            -        200,000         (200,000)                -
      Nicholas Rupert Heylett Bloy                           50,000              -           (50,000)               -

210
                                                                                           DIRECTORS’ REPORT




DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES (continued)

                                                         No. of share options over ordinary shares of
                                                      RM1 each granted under the CAHB ESOS 2002/2007
                                                      Balance                                          Balance
                                                         as at                                            as at
                                                    1 January        Granted       Exercised      31 December

CAHB
Dr. Rozali bin Mohamed Ali                                    -    1,000,000                 -        1,000,000

                                                         No. of share options over ordinary shares of
                                                        RM1 each granted by Commerce Asset-Holding
                                                        Berhad to Chief Executive Officer of Commerce
                                                            International Merchant Bankers Berhad
                                                      Balance                                          Balance
                                                         as at                                            as at
                                                    1 January        Granted       Exercised      31 December

CIMB Berhad
Dato’ Mohamed Nazir bin Abdul Razak               42,000,000                 -    (4,000,000)        38,000,000

                                                           No. of share options over ordinary shares of
                                                                   RM1 each granted under the
                                                           Executive Employees Share Options Scheme
                                                      Balance                                      Balance
                                                         as at                                        as at
                                                    1 January       Granted      Exercised    31 December

CIMB Berhad
Cheim Dau Meng                                                -    2,000,000        (280,000)         1,720,000
Dr. Gan Wee Beng                                              -    1,000,000        (200,000)           800,000

Other than disclosed above, according to the register of Director Shareholdings, the Directors in the office at the
end of the financial year did not hold any interest in shares, warrants, share options and debentures in the Bank
or shares, warrants, share options and debentures of its related corporations during the financial year.

BAD AND DOUBTFUL DEBTS

Before the income statement and balance sheet of the Group and of the Bank were made out, the Directors took
reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and
the making of provisions for doubtful debts and satisfied themselves that all known bad debts had been written
off and that adequate provisions had been made for doubtful debts.

At the date of this report, the Directors are not aware of any circumstances which would render the amounts
written off for bad debts or the amount of the provision for doubtful debts in the financial statements of the
Group and of the Bank inadequate to any substantial extent.

CURRENT ASSETS

Before the income statement and balance sheet of the Group and of the Bank were made out, the Directors took
reasonable steps to ensure that any current assets, other than debts and financing, which were unlikely to be
realised in the ordinary course of business their values as shown in the accounting records of the Group and of
the Bank had been written down to an amount which they might be expected so to realise.

At the date of this report, the Directors are not aware of any circumstances which would render the values
attributed to current assets in the financial statements of the Group and of the Bank misleading.



                                                                                                                      211
      DIRECTORS’ REPORT




      VALUATION METHODS

      At the date of this report, the Directors are not aware of any circumstances which have arisen which render
      adherence to the existing methods of valuation of assets or liabilities in the Group’s and the Bank’s financial
      statements misleading or inappropriate.

      CONTINGENT AND OTHER LIABILITIES

      At the date of this report, there does not exist:

      (a)   any charge on the assets of the Group and of the Bank which has arisen since the end of the financial year
            which secures the liability of any other person; or

      (b) any contingent liability of the Group and of the Bank which has arisen since the end of the financial year
          other than in the ordinary course of banking business.

      No contingent or other liability of the Group and of the Bank has become enforceable or is likely to become
      enforceable within the period of twelve months after the end of the financial year which, in the opinion of the
      Directors, will or may affect the ability of the Group and of the Bank to meet its obligations when they fall due.

      CHANGE OF CIRCUMSTANCES

      At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report
      or the financial statements of the Group and of the Bank which would render any amount stated in the financial
      statements misleading.

      ITEM OF AN UNUSUAL NATURE

      The results of the operations of the Group and of the Bank for the financial year were not, in the opinion of the
      Directors, substantially affected by any item, transaction or event of a material and unusual nature, except as
      disclosed in Note 41 and Note 45 to the financial statements.

      Except as disclosed in the Note 43 to the financial statements, there has not arisen in the interval between the
      end of the financial year and the date of this report any item, transaction or event of a material and unusual
      nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Group and
      of the Bank for the financial year in which this report is made.

      HOLDING AND ULTIMATE HOLDING COMPANIES

      The Directors regard CIMB Berhad and Commerce Asset-Holding Berhad, both incorporated in Malaysia, as the
      holding and ultimate holding companies respectively.

      AUDITORS

      The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.

      Signed on behalf of the Board of Directors in accordance with their resolution dated 27 January 2004.




      Dr. Rozali bin Mohamed Ali
      Director




      Dato’ Mohamed Nazir bin Abdul Razak
      Director

      Kuala Lumpur
      25 February 2004




212
BALANCE SHEETS
as at 31 December 2003




                                                                   The Group                       The Bank
                                                               2003         2002           2003            2002
                                                  Note       RM’000       RM’000         RM’000          RM’000

Assets
Cash and short-term funds                          3       1,701,244    1,044,128      1,365,895         803,140
Securities purchased under
  resale agreements                                         109,276       77,448        430,329           74,746
Deposits and placements with
   financial institutions                          4          23,527      100,527        219,000         412,100
Dealing securities                                 5       6,814,157    7,848,627      3,158,480       5,000,747
Investment securities                              6       1,277,967    1,591,007        684,104         998,804
Loans and advances                                 7       1,456,334    1,029,940      1,246,026         963,644
Other assets                                       8       1,581,062      610,820        495,118         455,126
Statutory deposits with
  Bank Negara Malaysia                             9        212,795      166,660        212,795          166,660
Tax recoverable                                               9,107            -              -                -
Investment in subsidiaries                        10              -            -        457,549          341,549
Investment in associates                          11            319        2,332            550            1,637
Fixed assets                                      12         47,121       50,586         42,153           45,000
Amount due from holding company                               2,571        2,571          2,571            2,571
Amount due from subsidiaries                                      -            -              6               17
Goodwill on consolidation                         13         18,776       19,684              -                -
Deferred tax assets                               14         25,702       20,668          3,887            5,856

Total assets                                              13,279,958   12,564,998      8,318,463       9,271,597

Liabilities, shareholders’ funds
 and minority interests
Deposits from customers                           15       4,205,514    4,706,733      2,064,107       2,929,249
Deposits and placements of banks
  and other financial institutions                16       4,097,320    3,912,549      2,059,706       2,857,159
Obligations on securities sold
  under repurchase agreements                              1,668,621     957,235       1,669,955         988,218
Other liabilities                                 17         782,383     553,691         368,926         352,296
Amount due to ultimate
  holding company                                               207          192            206              192
Amount due to subsidiaries                                        -            -              -              117
Provision for taxation and zakat                  18         48,449       37,151         41,970           18,585
Long term debts                                   19        865,830      924,000        865,830          924,000

Total liabilities                                         11,668,324   11,091,551      7,070,700       8,069,816

Share capital                                     20         319,242      319,242       319,242          319,242
Reserves                                          21       1,283,563    1,154,205       928,521          882,539
Shareholders’ funds                                        1,602,805    1,473,447      1,247,763       1,201,781
Minority interest                                              8,829            -*             -               -

Total liabilities, shareholders’ funds
 and minority interest                                    13,279,958   12,564,998      8,318,463       9,271,597

Commitments and contingencies
Principal                                         36     100,703,429   60,029,840    101,731,224      60,513,101
Credit equivalent                                 36       1,073,757      625,576        959,652         555,092




(Note: * Represents RM200 of minority interest)

                                                                                                                   213
      INCOME STATEMENTS
      for the financial year ended 31 December 2003




                                                                The Group                     The Bank
                                                            2003         2002        2003             2002
                                                   Note   RM’000       RM’000      RM’000           RM’000

      Interest income                              22      531,918     436,280      376,312         349,215
      Interest expense                             23     (326,401)   (288,542)    (239,931)       (234,522)

      Net interest income                                 205,517     147,738      136,381          114,693
      Income from Islamic Banking operations       48       9,671         6,287      5,148                  -
      Loan loss and provision                      24       9,995      (16,075)     11,310           (16,075)
      Provision for other receivables                      (9,621)       (4,230)    (8,781)            (5,497)

                                                          215,562     133,720      144,058           93,121

      Net fee and commission income                25     130,814     106,815      111,007           99,390
      Dividend income                              26       5,187        2,184       4,575           62,104
      Net trading income/(loss)                    27     133,007       (2,487)    118,280          (71,706)
      Net (loss)/gain from investment securities   28     (19,926)     25,225       (9,903)           2,222
      Brokerage income                                     56,886      33,920       10,343                -
      Other non-interest income                    29       7,872      13,187        6,670           10,103

      Non interest income                                 313,840     178,844      240,972          102,113

      Net income                                           529,402     312,564      385,030         195,234
      Overhead expenses                            30     (179,828)   (132,473)    (137,647)         (97,217)

                                                          349,574     180,091      247,383           98,017
      Share of profit of associates                           297         221            -                -

      Profit before taxation                              349,871     180,312      247,383           98,017
      Taxation                                     32     (90,120)     (49,300)    (71,001)         (30,623)
      Share of tax of associates                   32          (3)        (149)          -                -
      Zakat                                                     -            (2)         -                -

      Net profit after taxation                           259,748     130,861      176,382           67,394
      Minority interest                                       (40)          -            -                -

      Net profit for the financial year after
       minority interest                                  259,708     130,861      176,382           67,394

      Basic/diluted earnings per share (sen)       33        81.35       40.99        55.25              21.11

      Dividend per share (sen)
      - interim dividend of 56.73 sen
        (2002: 4.25 sen) less taxation             34        40.85        3.06        40.85               3.06

      - proposed final dividend of
        26.70 sen (2002: nil sen)
        less taxation                              34        19.22            -       19.22                  -




214
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the financial year ended 31 December 2003




                                                                              Exchange
                                            Share       Share  Reserve on    fluctuation   Statutory   Retained
                                    Note   capital   premium consolidation       reserve     reserve      profit       Total
                                           RM’000     RM’000      RM’000         RM’000     RM’000      RM’000       RM’000

Balance as at 1 January 2002
- as previously reported                   319,242   283,489        19,586             -    216,870     545,890     1,385,077
- prior year adjustment              41          -         -             -             -      3,740       4,911         8,651

As restated                                319,242   283,489        19,586             -    220,610     550,801 1,393,728
Net profit for the financial year                -         -             -             -          -     130,861   130,861
Transfer to statutory reserve        21          -         -             -             -     26,847      (26,847)       -
Final dividend paid for the
   financial year ended
   31 December 2001                  34          -         -             -             -           -    (41,373)      (41,373)
Interim dividend paid for the
   financial year ended
   31 December 2002                  34          -         -             -             -           -      (9,769)      (9,769)

Balance as at
  31 December 2002                         319,242   283,489        19,586             -    247,457     603,673     1,473,447

Balance as at 1 January 2003:
- as previously reported                   319,242   283,489        19,586             -    243,961     598,021     1,464,299
- prior year adjustment              41          -         -             -             -      3,496       5,652         9,148

- as restated                              319,242   283,489        19,586             -    247,457     603,673     1,473,447
Net profit for the financial year                -         -             -             -          -     259,708       259,708
Net gains and losses not
   recognised in the
   income statement - currency
   translation difference                        -         -             -           12           -           -            12
Transfer to statutory reserve        21          -         -             -            -      54,381     (54,381)            -
Special dividends paid for
   financial year ended
   31 December 2003                  34          -         -             -             -           -   (130,400)     (130,400)
Adjustment to reserve
   on consolidation                              -         -           38              -           -           -           38

Balance as at
  31 December 2003                         319,242   283,489        19,624           12     301,838     678,600     1,602,805




                                                                                                                                 215
      BANK STATEMENT OF CHANGES IN EQUITY
      for the financial year ended 31 December 2003




                                                                 Non-distributable   Distributable
                                                   Share       Share     Statutory       Retained
                                          Note    capital   premium        reserve           profit      Total
                                                 RM’000      RM’000        RM’000          RM’000      RM’000

      Balance as at
        1 January 2002:
      - as previously reported                   319,242    283,489       211,848         363,471     1,178,050
      - prior year adjustment              41          -          -         3,740           3,739         7,479

      - as restated                              319,242    283,489       215,588         367,210 1,185,529
      Net profit for the financial year                -          -             -          67,394    67,394
      Transfer to statutory reserve        21          -          -        16,848         (16,848)        -
      Final dividend paid for
        the financial year ended
        31 December 2001                   34           -          -             -        (41,373)      (41,373)
      Interim dividend paid for
        the financial year ended
        31 December 2002                   34           -          -             -          (9,769)      (9,769)

      Balance as at
       31 December 2002                          319,242    283,489       232,436         366,614     1,201,781

      Balance as at
        1 January 2003:
      - as previously reported                   319,242    283,489       229,102         364,092     1,195,925
      - prior year adjustment              41          -          -         3,334           2,522         5,856

      - as restated                              319,242    283,489       232,436         366,614 1,201,781
      Net profit for the financial year                -          -             -         176,382   176,382
      Transfer to statutory reserve        21          -          -        44,096         (44,096)        -
      Interim dividend paid for
        the financial year ended
        31 December 2003                   34           -          -             -       (130,400)     (130,400)

      Balance as at
       31 December 2003                          319,242    283,489       276,532         368,500     1,247,763




216
CASH FLOW STATEMENTS
for the financial year ended 31 December 2003




                                                       The Group                       The Bank
                                                   2003         2002            2003           2002
                                          Note   RM’000       RM’000          RM’000         RM’000

Cash flows from operating activities

Profit before taxation                           349,871       180,312       247,383          98,017

Add/(less) adjustments:
Loan loss and provision                           (8,823)       16,082        (10,138)        16,082
Interest-in-suspense                              11,521         4,771         11,404          4,771
Interest expense on long term debt                78,965        83,082         78,965         83,082
Depreciation of fixed assets                      11,247        10,298          8,815          7,955
Provision for other receivables                    9,621         4,230          8,781          5,497
Accretion of discount less
  amortisation of premium                            (512)       (5,925)         420          (5,014)
Amortisation of goodwill                              908           908            -               -
Provision for diminution in value
  of investment securities                        58,958        (19,065)      44,274              3,938
Net unrealised loss/ (reversal)
  on revaluation of dealing securities           101,478         (3,174)      38,913          (5,396)
Provision for diminution in value of
  associates                                            -             -           450                -
Loss on disposal of associate                           -             -            14                -
Share of profit of associates                        (297)         (221)            -                -
Gain on disposal of fixed assets                     (318)         (612)         (172)           (423)
Gain from sales of investment securities          (39,032)       (6,160)      (34,371)         (6,160)
Gross dividends from subsidiaries                       -             -             -        (60,002)
Gross dividends from associates                         -             -        (1,334)               -
Gross dividends from investment securities           (884)         (150)         (854)           (150)
Unrealised foreign exchange gain                      (66)         (128)         (120)             (92)
Fixed assets written off                              111           780           111             402

Cash flow from operating profit before
 changes in operating assets and liabilities     572,748       265,028       392,541         142,507

(Increase)/decrease in
  operating assets
Securities purchased under resale
  agreements                                      (31,828)     220,754       (355,583)       223,456
Deposits and placements with
  financial institutions                           77,000       198,503       193,100        (37,700)
Dealing securities                                947,290    (1,177,145)    1,803,354       (365,442)
Loans and advances                               (429,092)     (113,189)     (283,648)       (49,867)
Other assets                                     (975,193)     (264,663)      (48,906)      (143,941)
Statutory deposits with Bank Negara
  Malaysia                                        (46,135)      (39,185)      (46,135)       (39,185)
Amount due from holding company                         -         (2,571)           -          (2,571)
Amount due from subsidiaries                            -              -           10           1,854

Increase/(decrease) in
  operating liabilities
Deposits from customers                          (501,219)   2,221,410       (865,142)     1,128,254
Deposits and placements of banks and
    other financial institutions                  84,771       579,291       (897,453)       939,945




                                                                                                          217
      CASH FLOW STATEMENTS
      for the financial year ended 31 December 2003 (continued)




                                                                   The Group                           The Bank
                                                               2003         2002              2003             2002
                                                Note         RM’000       RM’000            RM’000           RM’000

      Obligations on securities sold
       under repurchase agreements                          711,386       (1,008,164)       681,737        (1,007,200)
      Other liabilities                                     204,922          250,021         (4,071)           97,524
      Amount due to ultimate holding company                     15               (15)           14                (15)
      Amount due to subsidiaries                                  -                 -          (117)             (139)

      Cash from operating activities                        614,665       1,130,075         569,701          887,480
      Taxation paid                                         (92,718)       (156,143)        (44,781)          (95,870)

      Net cash from operating activities                    521,947         973,932         524,920          791,610

      Cash flows from/(used in)
        investing activities
      Dividends received from
        investment securities                                    636             108             615              108
      Dividends received from associates                       1,676               -             960                -
      Dividends received from subsidiaries                         -               -               -           43,201
      Subscription of a subsidiary’s
        preference shares                                          -               -       (116,000)                 -
      Acquisition of associates                                    -            (500)             -               (500)
      Acquisition of subsidiaries               45(b)         (7,504)              -              -                  -
      Proceeds from disposal of associate        11              624               -            624                  -
      Net disposal/(purchase) of
        investment securities                               293,627         (887,012)       304,377          (635,817)
      Purchase of fixed assets                               (7,843)         (37,750)        (6,345)          (35,716)
      Proceeds from disposal of fixed assets                    784              891            438               485

      Net cash from/(used in)
       investing activities                                 282,000         (924,263)       184,669          (628,239)

      Cash flows used in financing activities
      Interest expense on long term debts                    (58,264)        (83,082)       (58,264)          (83,082)
      Drawdown of long term debts                             41,830            (288)        41,830                 -
      Dividends paid                          34            (130,400)        (51,142)      (130,400)          (51,142)

      Net cash used in financing activities                 (146,834)       (134,512)      (146,834)         (134,224)

      Net increase/(decrease) in
        cash and cash equivalents during
        the financial year                                  657,113          (84,843)       562,755            29,147
      Cash and cash equivalents
        at beginning of the financial year                1,044,128       1,128,971         803,140          773,993
      Effects of exchange rate changes                            3               -               -                -

      Cash and cash equivalents at end of
       the financial year                         3       1,701,244       1,044,128       1,365,895          803,140

      Included in cash and cash equivalent of the Group are trust accounts maintained by the securities subsidiaries in
      trust for clients’ and dealer’s representatives amounting to RM31,976,044 (2002: RM9,468,172) and RM5,990,892
      (2002: RM6,348,670) respectively.




218
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
for the financial year ended 31 December 2003




The following accounting policies have been used consistently in dealing with items which are considered material
in relation to the financial statements.

A   BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

    The financial statements of the Group and the Bank have been prepared under historical cost convention
    unless otherwise indicated in this summary of significant accounting policies.

    The financial statements comply with the applicable approved accounting standards in Malaysia, Bank Negara
    Malaysia Guidelines and the provisions of the Companies Act, 1965.

    The new accounting standards, adopted in the financial statements are as follows:

    •    MASB 25      Income Taxes
    •    MASB 29      Employee Benefits
    •    MASB i-1     Presentation of Financial Statements of Islamic Financial Institutions

    With the exception of MASB 25 (see Note 41), there were no changes in accounting policies that affect net
    profit or shareholder’s equity for the financial year as a result of the adoption of the above standards.

    The financial statements incorporate those activities relating to the Skim Perbankan Islam (“SPI”) which
    have been undertaken by the Group and the Bank. SPI refers generally to the acceptance of deposits and
    dealing in Islamic Securities under Syariah Principles.

B   BASIS OF CONSOLIDATION

    The consolidated financial statements include the financial statements of the Bank and all its subsidiaries
    made up to the end of the financial year. Subsidiaries are those companies in which the Group has power to
    exercise control over the financial and operating policies so as to obtain benefits from their activities.

    Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer
    consolidated from the date that control ceases. Subsidiaries are consolidated using the acquisition method
    of accounting.

    Under the acquisition method of accounting, the results of subsidiaries acquired or disposed of during the
    financial year are included from the date of acquisition up to the date of disposal. The cost of an acquisition
    is the amount of cash paid and the fair value at the date of acquisition of other purchase consideration given
    by the acquirer, together with directly attributable expenses of the acquisition other than cost of issuing
    shares and other capital instruments.

    At the date of acquisition, the fair values of the subsidiaries’ net assets are determined and these values are
    reflected in the consolidated financial statements. The difference between the acquisition cost and the fair
    values of the subsidiary companies’ net assets is reflected as goodwill on consolidation. In the case where
    the Group’s share of the fair values of their separable net assets at the date of acquisition is in excess of the
    purchase consideration, the difference will be recognised as goodwill or reserve on consolidation in the
    balance sheet.

    Minority interest is measured as the minorities’ share of the post acquisition fair value of the identifiable
    assets and liabilities of the acquiree. Separate disclosure is made of minority interest.

    All intercompany transactions, balances and unrealised gains on transactions between group companies
    are eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure
    consistency with the policies adopted by the Group.

    The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group’s
    share of its net assets together with any unamortised balance of goodwill on acquisition.


                                                                                                                        219
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




      C   RECOGNITION OF FEES AND OTHER INCOME

          Fees from advisory and corporate finance activities are recognised as income on completion of each stage
          of the engagement and issuance of invoice.

          Loan and debt securities arrangement fees, management and participation fees, underwriting commissions,
          acceptance and placement fees are recognised as income when all conditions precedent are fulfilled.

          Portfolio management fees, commitment fees and guarantee fees which are material are recognised as
          income based on time apportionment.

          Brokerage fees which are material are recognised as income based on inception of such transactions.

          Dividends from subsidiaries are recognised when the right to receive payment is established. Dividends
          from dealing securities and investment securities are recognised when received.

          Income from Islamic Banking is recognised on an accrual basis in accordance with the principles of Syariah
          and Bank Negara Malaysia’s “Guidelines on the Specimen Financial Statements for the Banking Industry,
          BNM/GP8”.

      D   RECOGNITION OF INTEREST INCOME

          Interest income is recognised on an accrual basis by reference to rest periods which are either monthly or
          yearly.

          Where an account is classified as non-performing, recognition of interest income is suspended until it is
          realised on a cash basis. Customers’ accounts are classified as non-performing when repayments are in
          arrears for 6 months or more from first day of default for loans and after 3 months from maturity date for
          bankers’ acceptances.

          The Group’s policy on suspension of interest is in conformity with Bank Negara Malaysia’s “Guidelines on
          Classification of Non-Performing Loans and Provision for Substandard, Bad and Doubtful Debts, BNM/
          GP3”.

          Accretion of discount and amortisation of premium for investment securities are recognised on effective
          yield basis.

      E   DEALING SECURITIES

          Dealing securities are marketable securities that are acquired and held with the intention of resale in the
          short term, and are stated at the lower of cost and market value. All related realised gains and losses and
          unrealised losses are included in net trading income. Interest earned while holding dealing securities are
          reported as interest income. Dividends received are included in dividend income.

          Transfers, if any, between dealing and investment securities are made at the lower of cost and market value.

      F   INVESTMENT SECURITIES

          Investment securities are securities that are acquired and held for yield or capital growth or to meet minimum
          liquid assets requirement pursuant to Section 38 of the Banking and Financial Institutions Act, 1989, and
          are usually held to maturity.

          Malaysian Government securities, Malaysian Government treasury bills, Malaysian Government Investment
          Certificates, Cagamas bonds, other Government securities, and bank guaranteed private debt securities
          held for investment are stated at cost adjusted for amortisation of premium or accretion of discount to
          maturity date. Other private debt securities are valued at lower of cost and market value. Other investment
          securities are stated at cost and provision is made in the event of any permanent diminution in value.
220
                                                          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




F   INVESTMENT SECURITIES (continued)

    Amortisation of premium or accretion of discount is recognised using effective yield method. Interest earned
    while holding investment securities are reported as interest income. Dividends received are included in
    dividend income.

    Transfers, if any, between investment and dealing securities are made at the lower of carrying value and
    market value.

G   DERIVATIVE FINANCIAL INSTRUMENTS

    Trading

    Derivative financial instruments are initially recognised in the balance sheet at cost and subsequently
    remeasured at their fair value. The fair value of trading derivative financial instruments are included in the
    balance sheet and gains and losses on these instruments are taken directly to the income statement and
    are generally included in net gains or loss from trading activities.

    Foreign exchange and interest rate forwards, futures and forward purchases and sales of securities entered
    into for trading purposes are valued at prevailing market rates based on quoted and observable market
    prices. Interest rate and currency swap agreements are valued at their net present value based on discounted
    cash flow models. Interest rate and equity option contracts are valued using options pricing models.

    Hedging

    Foreign exchange and interest rate forwards, futures, swaps and options entered into for hedging purposes
    are accounted for in a manner consistent with the accounting treatment of the hedged item. To qualify as a
    hedge, the forwards, futures and swaps position must be designated as a hedge and be effective in reducing
    the market risk of an existing asset, liability, firm commitment, or anticipated transaction where there is a
    high probability of the transaction occurring and the extent, term and nature of the exposure is capable of
    being estimated. The fair value of the hedge must move inversely with changes in the fair value of the
    underlying exposure.

    Where the hedged item ceases to exist, the corresponding derivative hedge contract is restated at fair value
    and any resulting unrecognised gains and losses are taken to the income statement and are generally included
    in net gains or loss from trading activities.

H   LOANS, ADVANCES AND OTHER RECEIVABLES

    Loans, advances and other receivables include term loans, acceptances credit, staff loans and subordinated
    debts. They are carried at the recoverable amount represented by the gross value of the outstanding balance
    adjusted for provisions for bad and doubtful debts, unearned income and interest-in-suspense.

I   PROVISION FOR BAD AND DOUBTFUL DEBTS

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

    A general provision based on a percentage of the loan portfolio is also made to cover possible losses which
    are not specifically identified, at the balance sheet date.

    An uncollectible loan or portion of a loan 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.




                                                                                                                      221
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




      I   PROVISION FOR BAD AND DOUBTFUL DEBTS (continued)

          The Bank’s provision for non-performing loans is in conformity with the minimum requirements of Bank
          Negara Malaysia “Guidelines on the Classification of Non-performing Loans and Provision for Substandard,
          Bad and Doubtful Debts, BNM/GP3”.

          With regards to provisioning for subordinated debts subscribed by the Bank arising from its collateralised
          bond obligation, the subordinated debts are held at cost and provision is made for any diminution based on
          the position of the special purpose vehicle and its underlying assets.

      J   AMOUNT RECOVERABLE FROM DANAHARTA

          The total consideration from loans sold to Pengurusan Danaharta Nasional Berhad (“Danaharta”) is received
          in two portions; upon the sale of the loans (“initial consideration”) and upon the recovery of the loans (“final
          consideration”). The final consideration amount represents the Bank’s predetermined share of the surplus
          over the initial consideration upon recovery of the loans.

          The difference between the carrying value of the loans and the initial consideration is recognised as ‘Amount
          Recoverable from Danaharta’ within the ‘Other Assets’ component of the balance sheet. Provision against
          these amounts are made to reflect the Directors’ assessment of the realisable value of the final consideration
          as at the balance sheet date.

      K   SALE AND REPURCHASE AGREEMENTS

          Securities purchased under resale agreements are securities which the Group and the Bank had purchased
          with a commitment to resell at future dates. The commitment to resell the securities is reflected as an asset
          on the balance sheet. Securities purchased are not recognised in the financial statements.

          Conversely, obligations on securities sold under repurchase agreements are securities which the Group and
          the Bank had sold from its portfolio, with a commitment to repurchase at future dates. Such financing
          transactions and the obligation to repurchase the securities are reflected as a liability on the balance sheet.
          Securities sold are retained in the financial statements.

          The difference between sale and repurchase price as well as purchase and resale price is treated as interest
          and accrued over the life of the resale/repurchase agreement using effective yield method.

      L   INVESTMENT IN SUBSIDIARIES

          Subsidiaries are those companies in which the Group has power to exercise control over the financial and
          operating policies so as to obtain benefits from their activities.

          Investments in subsidiaries are stated at cost. Where an indication of impairment exist, the carrying amount
          of the investment is assessed and written down to its recoverable amount.

      M   INVESTMENT IN ASSOCIATES

          Investments in associates are accounted for in the consolidated financial statements by the equity method
          of accounting. Associates are companies in which the Group exercises significant influence. Significant
          influence is the power to participate in the financial and operating policy decisions of the associates but not
          exercise control over those policies.




222
                                                           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




M   INVESTMENT IN ASSOCIATES (continued)

    Equity accounting involves recognising in the income statement the Group’s share of the results of associates
    for the financial year. The Group’s investments in associates are carried in the balance sheet at an amount
    that reflects its share of the net assets of the associates and includes goodwill on acquisition. Equity
    accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless
    the Group has incurred obligations or guaranteed obligations in respect of the associate.

    Investments in associates are stated at cost. Where an indication of impairment exist, the carrying amount
    of the investment is assessed and written down to its recoverable amount.

N   FIXED ASSETS

    Fixed assets are stated at historical cost less accumulated depreciation and impairment losses.

    Depreciation is calculated to write off the cost of the fixed assets on a straight line basis over the expected
    useful lives of the assets concerned. The principal annual rates are:

    Longterm leasehold land - 50 years or more                                            Over the lease period
    Building on leasehold land                                       2% or over the balance period of the lease,
                                                                                           whichever is shorter
    Office equipment and furniture                                                              20% - 33 1/3%
    Computer equipment and software                                                                    33 1/3%
    Motor vehicles                                                                                          20%

    Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down
    immediately to its recoverable amount.

O   COLLATERALISED BOND OBLIGATIONS

    The Bank through its collateralised bond obligation (“CBO”) programme, packages and sells private debt
    securities to a special purpose vehicle (“SPV”). The SPV will in turn issue bonds to raise funds for the
    purchase of assets.

    The Bank receives fee income for the various services provided to the SPV. These fees are determined on an
    arms length basis and are recognised on an accrual basis. The Bank is also a counterparty to the SPV for
    certain interest rate swaps contracted on arms length basis. Correspondingly, the Bank offsets the positions
    held with the SPV by entering into interest rate swap and futures contracts with external parties to ensure
    no material gain or loss is incurred by the Bank from the interest rate swap contracts transacted with the
    SPV. The interest rate swaps are being measured at their fair values.

    Any subordinated debt or bond obtained under this programme is held at cost and a provision is made for
    any diminution in value based on the position of the SPV and its underlying assets. The interest earned by
    the Bank on the subordinated debt or bond is recognised on an accrual basis.

P   LONG TERM DEBTS

    Long term debts comprise negotiable certificate of deposits issued by the Bank with remaining maturity of
    more than one year. These long term debts are recognised at cost, being the issue proceeds. The Bank
    issues long term debts for the purpose of hedging its interest rate and liquidity position. The interest incurred
    is recognised on an accrual basis.




                                                                                                                        223
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




      Q   CURRENCY TRANSLATIONS

          Individual monetary foreign currency assets and liabilities are stated in the balance sheet at spot rates of
          exchange which closely approximate to those ruling at the balance sheet date. Foreign currency transaction
          items are converted at rates prevailing on transaction dates. Exchange gains and losses are recognised as
          income or expense in the financial year in which they arise. Financial statements of foreign subsidiary that
          are integral to the operations of the Group and Bank are translated as if the transactions of the foreign
          subsidiary had been those of the Group and Bank.

          In respect of foreign subsidiary which operations are not integral to the operation of the Group and Bank,
          the balance sheet is translated at the rates of exchange ruling at the balance date. The results of the entity
          are translated at the average rates of exchange for the financial year. Exchange differences arising from this
          translation are dealt with through exchange fluctuation reserve account in shareholders’ equity.

          The principal closing rates used in translation of foreign currency amounts were as follows:

                                                                                                   2003              2002
          Foreign currency                                                                          RM                RM

          1 US Dollar                                                                           3.8000             3.8000
          1 Euro                                                                                4.7335             3.9815
          100 Japanese Yen                                                                      3.5435             3.1843
          100 Hong Kong Dollar                                                                 48.8450            48.7242
          1 Singapore Dollar                                                                    2.2275             2.1888
          100 Indonesian Rupiah                                                                 0.0449             0.0421

      R   INCOME TAXES AND ZAKAT

          Current tax expense is determined according to the tax laws of each jurisdiction in which the Group and the
          Bank operates and includes all taxes based upon the taxable profits.

          In respect of the Islamic Banking operations, the Group and the Bank only pays zakat on its business. It is
          an amount payable by the Group and the Bank to comply with Syariah principles.

      S   DEFERRED TAXATION

          Deferred income tax is provided in full, using the liability method, on temporary differences arising between
          the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal
          temporary differences arise from loans and advances, investment securities and unutilised tax losses.

          Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred
          income tax.

          Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available
          against which the temporary differences can be utilised.

      T   PROVISION

          Provisions are recognised when the Group and 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.




224
                                                          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




U   EMPLOYEE BENEFITS

    Short term employee benefits

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

    Defined contribution plans

    A defined contribution plan is a pension plan under which the Group and 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
    periods.

    The Group and 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
    period of which they relate. Once the contributions have been paid, the Group and the Bank has no further
    payment obligations.

    Equity compensation benefits

    The Group does not make a charge to the income statement in connection with share options granted to
    Directors and employees. When the share options are exercised, the proceeds received, net of any transaction
    costs, are credited to share capital (nominal value) and share premium of the Company that grants the share
    options.

V   CASH AND CASH EQUIVALENTS

    Cash and cash equivalents comprise cash in hand, bank balances and deposit placements maturing less
    than one month held for the purpose of meeting short term commitments and readily convertible into cash
    without significant risk of changes in value.

W   SEGMENT REPORTING

    A segment is a distinguishable component of the Group that is engaged in providing products or services
    (business segment), which is subject to risks and rewards that are different from those of other segments.
    Segments with a majority of operating income earned from providing products or services to external clients
    and whose operating income, results or assets are 10 percent or more of all the segments are reported
    separately.

X   PROFIT EQUALISATION RESERVE (“PER”)

    In relation to Islamic banking, 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 to the total gross income. PER is reflected under
    other liabilities of the Group and the Bank.




                                                                                                                       225
      NOTES TO THE FINANCIAL STATEMENTS
      for the financial year ended 31 December 2003




      1   GENERAL INFORMATION

          The principal activities of the Bank are merchant banking and provision of related financial services. The
          principal activities of the subsidiaries include the carrying on the business of a discount house, stock and
          share broking, futures broking, offshore banking, trading of securities and the provision of nominee services.
          There was no significant change in the nature of these activities during the financial year.

          The number of employees as at the end of the financial year was 822 (2002: 777) in the Group, and 578
          (2002: 534) in the Bank.

          The holding and ultimate holding companies are CIMB Berhad and Commerce Asset-Holding Berhad
          respectively. Both companies are incorporated in Malaysia.

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

          The address of the registered office of the Bank is:

          7th Floor
          Bangunan CIMB
          Jalan Semantan
          Damansara Heights
          50490 Kuala Lumpur

      2   USE OF FINANCIAL INSTRUMENTS

          A   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

          Market risk

          Market risk is defined as any fluctuations in value of the portfolio resulting from changes in market prices
          and market parameters, such as interest rates, exchange rates and share prices.

          Market risk within the Group as a result of the Group’s trading activities can arise either from customer-
          related business or from proprietary positions. The Bank, with the discount house, make markets in debt
          securities as well as interest rate and currency derivative instruments; while equity proprietary activities are
          carried out by the Bank, broking-arm and offshore subsidiary. In general, the Group manages its trading
          positions by employing a variety of hedging strategies, including the use of derivative instruments.

          The Group manages market risk through risk limits set by the Risk Committee. The role of Market Risk
          Committee, amongst others, is to oversee the Group’s exposure to interest rate and equity risks and to
          consider and determine trading, investment and underwriting proposals within defined limits.

          The utilisation of interest rate and equity risk limits is reviewed on a daily basis, by the Risk Management
          Unit (“RMU”) which employs statistical methods to measure and monitor the risks associated with the Group’s
          trading activities. The RMU also provides independent valuation of portfolios and generates daily and weekly
          risk position reports for the information of senior management.

          The Group has adopted a value-at-risk (“VAR”) approach in the measurement of interest rate and equity
          risks. VAR is a statistical measure of the potential losses that could occur due to movements in market rates
          and prices over a specified time horizon within a given confidence level.




226
                                                                         NOTES TO THE FINANCIAL STATEMENTS




2   USE OF FINANCIAL INSTRUMENTS (continued)

    A   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

    Credit risk (continued)

    Credit and counterparty risk is defined as the possibility of losses due to an unexpected default or deterioration
    of a business partner’s credit-worthiness.

    Credit risk arises in many of the Group’s business activities. In lending activities, it occurs primarily through
    loans as well as commitments to support clients’ obligations to third parties, i.e. guarantees. In sales and
    trading activities, credit risk arises because of the possibility that the Group’s counterparties will not be able
    or willing to fulfil their obligation on transactions on or before settlement date. In derivative activities, credit
    risk arises when counterparties to derivative contracts, such as interest rate swaps, are obligated to pay the
    Group the positive fair value or receivable resulting from the execution of contract terms.

    The Credit Risk Committee ensures that the risk exposures undertaken match the risk appetite of the Group,
    and that proper authorisation procedures are adhered to. Problematic exposures identified by the business
    units and management are carefully monitored and proactive measures taken, where possible, to minimise
    financial loss to the Group. All exposures are proactively assessed for potential risk and those identified as
    potentially problematic are managed centrally by the Credit & Special Assets Unit, a dedicated and specialised
    team within the risk management function.

    All credit exposures are given an internal rating, based on a combination of ratios and qualitative criteria.
    Adherence to set credit limits is monitored on a daily basis by the RMU who combine all exposures for each
    counterparty, including off-balance sheet and potential exposures, and ensure that limits are not exceeded.
    The Group also has in place credit guidelines that limit its exposure to any one counterparty or group,
    industry sector and rating classification.

    Netting arrangements

    The Group also enters into master agreements that provide for close-out and settlement netting with
    counterparties, whenever possible. A master agreement that governs all transactions between two parties,
    creates the greatest legal certainty that credit exposure will be netted. In effect, it enables the netting of
    outstanding obligations upon termination of outstanding transactions if an event of default occurs.

    The extent to which the overall exposure to credit risk is reduced through a master netting arrangement.
    The exposure may change substantially within a short period following the balance sheet date, as the exposure
    is affected by each transaction subject to the agreement.

    Liquidity risk

    Liquidity risk is defined as the risk of the Group being unable to fulfil its current or future payment obligations
    in full and at the due date.

    There is a Liquidity Risk Committee whose main role is to oversee the overall liquidity management of the
    Group, ensure compliance with the liquidity framework prescribed by Bank Negara Malaysia, and review
    periodically the assumptions underlying the liquidity risk management framework.

    The Group’s liquidity risk management focuses on avoiding over dependence on volatile sources of funding,
    diversification of funding maturity structure and sources of funds, and maintenance of sufficient liquid assets.
    To ensure the Group is able to cover all payment obligations on due dates as part of the liquidity management
    process, the RMU prepares liquidity analysis for the Bank and the discount house in line with Bank Negara
    Malaysia’s liquidity framework. In addition, management action triggers are set to provide timely warning on
    emerging liquidity pressures. The Group has also developed a contingency funding plan to deal with extreme
    liquidity crisis situations.


                                                                                                                           227
      NOTES TO THE FINANCIAL STATEMENTS




      2   USE OF FINANCIAL INSTRUMENTS (continued)

          A   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

          Operational risk

          Operational risk includes risks that arise from internal processes of an organisation. These may result from
          inadequacies or failures in processes, controls or projects due to fraud, unauthorised activities, errors,
          omissions, inefficiencies, systems failures or from external events.

          Operational risks are less direct than credit and market risk, but managing them is critical, particularly in a
          rapidly changing environment with increasing transaction volumes. In order to reduce or mitigate these
          risks, the Group has established and maintained an effective internal control environment, which incorporates
          various control mechanisms at different levels throughout the organisation. These control mechanisms are
          designed to better ensure that operational policies and procedures are being followed and that the Group’s
          various businesses are operating within established corporate policies and limits.

          The Group has an Operational Risk Committee with oversight responsibility for all operational and other
          matters that affect the Group’s day-to-day activities. The committee also reviews the operating policies and
          procedures for new products/businesses to ensure that the supporting infrastructure is in place prior to
          doing business.

          The Group’s aspirations to meet the highest standards in risk, controls and governance are further
          demonstrated through its Corporate Risk Scorecard project. This initiative complements the Enterprise Wide
          Risk Management (“EWRM”), by capturing and profiling the Group’s risk in a systematic and organised
          method for identifying, controlling and monitoring its risk exposure. The scorecard maps out and prioritises
          the various risks, based on the possibility of a risk event occurring and its impact on shareholders’ value. It
          provides the senior management with a complete view of the enterprise-wide operational risk exposure on
          a single common platform. This facilitates the prioritisation of risk issues for the Group to plan its resources
          and address them accordingly, whilst also serving as one of the key drivers in preparing this statement of
          internal control.

      B   INTEREST RATE RISK

          The table below summarises the Group’s and the Bank’s exposure to interest rate risks. Included in the
          table are the Group’s and the Bank’s assets and liabilities at their full carrying amounts, categorised by the
          earlier of contractual repricing or maturity dates. The off-balance sheet gap represents the net notional
          amounts of all interest rate sensitive derivative financial instruments. As interest rates and yield curves
          change over time, the Group and the Bank may be exposed to a loss in earnings due to the effects of
          interest rates on the structure of the balance sheet. Sensitivity to interest rates arises from mismatches in
          the repricing dates, cash flows and other characteristics of the assets and their corresponding liability funding.




228
                                                                                  NOTES TO THE FINANCIAL STATEMENTS




2     USE OF FINANCIAL INSTRUMENTS (continued)

      B INTEREST RATE RISK (continued)

                                                                      The Group
                                Up to          1-3         3 - 12        1-5             Over     Non-interest     Islamic
                              1 month        months       months        years         5 years         bearing     Banking         Total
                               RM’000        RM’000       RM’000       RM’000         RM’000          RM’000      RM’000        RM’000

2003
Assets
Cash and short-term
   funds                     1,591,780              -            -            -              -         18,502      90,962     1,701,244
Securities purchased
   under resale
   agreements                   49,612              -            -      59,664               -               -           -     109,276
Deposits and placements
   with financial
   institutions                  1,001        22,256          270             -              -              -           -        23,527
Dealing securities             143,605       269,571      898,294     3,160,008      1,846,033        144,904     351,742     6,814,157
Investment securities                -             -            -       278,582        902,245         67,134      30,006     1,277,967
Loans and advances             896,482       248,136      188,788       204,691         28,967       (124,227)^    13,497     1,456,334
Statutory deposits with
   Bank Negara Malaysia              -              -           -             -              -        211,534       1,261       212,795
Other assets*                1,170,834              -         246             -              -        511,430       2,148     1,684,658
Total assets                 3,853,314       539,963     1,087,598    3,702,945      2,777,245        829,277     489,616    13,279,958

^     The negative balance includes specific provisions, interest-in-suspense and general provisions for loans and advances
      in accordance with the Group’s accounting policy on provision for bad and doubtful debts.
*     Other assets include investment in associates, fixed assets, deferred tax assets, amount due from holding company
      tax recoverable and goodwill on consolidation.

                                                                      The Group
                                Up to          1-3         3 - 12         1-5            Over     Non-interest     Islamic
                              1 month        months       months         years        5 years         bearing     Banking         Total
                               RM’000        RM’000       RM’000        RM’000        RM’000          RM’000      RM’000        RM’000

2003
Liabilities
Deposits from customers      3,255,646       634,032      240,259             -              -               -     75,577     4,205,514
Deposits and placements
  of banks and other
  financial institutions     1,995,282     1,353,864      457,300             -              -               -    290,874     4,097,320
Obligations on securities
  sold under repurchase
  agreements                 1,636,221        32,400             -           -              -               -           -     1,668,621
Long term debts                      -             -             -     224,000        600,000               -      41,830       865,830
Other liabilities#             271,038            32             -           -              -         554,177       5,792       831,039
Total liabilities             7,158,187    2,020,328      697,559      224,000        600,000         554,177     414,073    11,668,324

On balance sheet
  - interest rate gap        (3,304,873)   (1,480,365)    390,039     3,478,945      2,177,245
Off-balance sheet
  - interest rate gap        1,445,600       512,273      (558,923)    (456,750)      (942,200)
Net interest rate gap        (1,859,273)    (968,092)     (168,884)   3,022,195      1,235,045

#     Other liabilities include amount due to ultimate holding company and provision for taxation and zakat.




                                                                                                                                          229
      NOTES TO THE FINANCIAL STATEMENTS




      2     USE OF FINANCIAL INSTRUMENTS (continued)

            B      INTEREST RATE RISK (continued)

                                                                               The Group
                                           Up to        1-3         3 - 12        1-5           Over     Non-interest     Islamic
                                         1 month      months       months        years       5 years         bearing     Banking         Total
                                          RM’000      RM’000       RM’000       RM’000       RM’000          RM’000      RM’000        RM’000

      2002
      Assets
      Cash and short-term
         funds                           930,309             -            -            -            -         17,951      95,868     1,044,128
      Securities purchased
         under resale agreements          21,513             -            -      55,935             -               -          -       77,448
      Deposits and placements
         with financial institutions           -      100,527             -            -            -              -           -       100,527
      Dealing securities                 421,629      811,285     1,391,950    3,135,716    1,871,486         90,592     125,969     7,848,627
      Investment securities               44,571            -             -      304,347    1,210,165         31,924           -     1,591,007
      Loans and advances                 485,025      218,056        71,057      251,133      149,958       (145,289)^         -     1,029,940
      Statutory deposits with
         Bank Negara Malaysia                  -             -            -            -            -        166,660           -      166,660
      Other assets*                      246,115             -            -            -            -        460,002         544      706,661

      Total assets                     2,149,162     1,129,868    1,463,007    3,747,131    3,231,609        621,840     222,381    12,564,998

      ^     The negative balance includes specific provisions, interest-in-suspense and general provisions for loans and advances
            in accordance with the Group’s accounting policy on provision for bad and doubtful debts.
      *     Other assets include investment in associates, fixed assets, amount due from holding company deferred tax assets,
            tax recoverable and goodwill on consolidation.

                                                                               The Group
                                           Up to        1-3         3 - 12         1-5          Over     Non-interest     Islamic
                                         1 month      months       months         years      5 years         bearing     Banking         Total
                                          RM’000      RM’000       RM’000       RM’000       RM’000          RM’000      RM’000        RM’000

      2002
      Liabilities
      Deposits from customers          3,395,388      947,579      328,607             -            -               -     35,159     4,706,733
      Deposits and placements
        of banks and other
        financial institutions         2,123,008      709,636      738,024      200,000             -               -    141,881     3,912,549
      Obligations on securities
        sold under repurchase
        agreements                       957,235             -            -           -            -               -           -      957,235
      Long term debts                          -             -            -     324,000      600,000               -           -      924,000
      Other liabilities#                 291,148            15            -           -            -         289,268      10,603      591,034

      Total liabilities                6,766,779     1,657,230    1,066,631     524,000      600,000         289,268     187,643    11,091,551

      On balance sheet
        - interest rate gap            (4,617,617)    (527,362)    396,376     3,223,131    2,631,609
      Off-balance sheet
        - interest rate gap             (311,500)    2,125,866     (128,445)    (900,321)    (785,600)

      Net interest rate gap            (4,929,117)   1,598,504     267,931     2,322,810    1,846,009

      #     Other liabilities include amount due to ultimate holding company and provision for taxation and zakat.



230
                                                                                    NOTES TO THE FINANCIAL STATEMENTS




2      USE OF FINANCIAL INSTRUMENTS (continued)

       B INTEREST RATE RISK (continued)

                                                                         The Bank
                                     Up to        1-3        3 - 12         1-5            Over     Non-interest     Islamic
                                   1 month      months      months         years        5 years         bearing     Banking       Total
2003                                RM’000      RM’000      RM’000        RM’000        RM’000          RM’000      RM’000      RM’000

Assets
Cash and short-term
   funds                         1,308,146             -           -            -              -         12,730      45,019    1,365,895
Securities purchased
   under resale agreements         330,665       40,000            -      59,664               -               -           -    430,329
Deposits and placements
   with financial institutions           -       19,000           -        50,000       150,000               -           -      219,000
Dealing securities                 114,841      156,772     566,884     1,677,233       578,321          37,480      26,949    3,158,480
Investment securities                    -            -           -       173,176       437,468          43,454      30,006      684,104
Loans and advances                 687,386      248,136     188,742       204,451        26,779        (122,965)^    13,497    1,246,026
Statutory deposits with
   Bank Negara Malaysia                  -             -           -            -              -        211,534       1,261      212,795
Other assets*                      182,286             -           -            -              -        818,873         675    1,001,834

Total assets                     2,623,324      463,908     755,626     2,164,524      1,192,568      1,001,106     117,407    8,318,463

^      The negative balance includes specific provisions, interest-in-suspense and general provisions for loans and advances
       in accordance with the Bank’s accounting policy for bad and doubtful debts.
*      Other assets include amount due from holding company and subsidiaries, investment in subsidiaries and associates,
       fixed assets and deferred tax assets.

                                                                         The Bank
                                     Up to        1-3        3 - 12         1-5            Over     Non-interest     Islamic
                                   1 month      months      months         years        5 years         bearing     Banking       Total
2003                                RM’000      RM’000      RM’000        RM’000        RM’000          RM’000      RM’000      RM’000

Liabilities
Deposits from customers          1,330,653      517,298     216,156             -              -              -            -   2,064,107
Deposits and placements
  of banks and other
  financial institutions           968,894      720,251     335,700             -              -              -      34,861    2,059,706
Obligations on securities
  sold under repurchase
  agreements                     1,637,555       32,400            -           -              -               -           -    1,669,955
Long term debts                          -            -            -     224,000        600,000               -      41,830      865,830
Other liabilities#                 231,627            -            -           -              -         176,602       2,873      411,102

Total liabilities                4,168,729     1,269,949    551,856      224,000        600,000         176,602      79,564    7,070,700

On balance sheet
  - interest rate gap            (1,545,405)    (806,041)   203,770     1,940,524       592,568
Off-balance sheet
  - interest rate gap              591,000      271,873     (671,923)    386,250        (577,200)

Net interest rate gap             (954,405)     (534,168)   (468,153)   2,326,774        15,368

#      Other liabilities include amount due to ultimate holding company and subsidiaries and provision for taxation.




                                                                                                                                           231
      NOTES TO THE FINANCIAL STATEMENTS




      2      USE OF FINANCIAL INSTRUMENTS (continued)

      B      INTEREST RATE RISK (continued)

                                                                             The Bank
                                         Up to        1-3         3 - 12           1-5           Over    Non-interest
                                       1 month      months       months           years       5 years        bearing       Total
      2002                              RM’000      RM’000       RM’000          RM’000       RM’000         RM’000      RM’000

      Assets
      Cash and short-term
          funds                        798,740             -            -              -             -         4,400     803,140
      Securities purchased under
        resale agreements               18,811             -            -         55,935             -             -      74,746
      Deposits and placements with
        financial institutions               -      212,100             -         50,000      150,000              -     412,100
      Dealing securities               278,288      584,730     1,107,543      1,737,400    1,219,111         73,675   5,000,747
      Investment securities             44,571            -             -        224,261      703,488         26,484     998,804
      Loans and advances               420,344      218,056        71,047        250,663      147,712       (144,178)^   963,644
      Statutory deposits with
          Bank Negara Malaysia               -             -            -              -             -       166,660     166,660
      Other assets*                    140,450             -            -              -             -       711,306     851,756

      Total assets                   1,701,204     1,014,886    1,178,590      2,318,259    2,220,311        838,347    9,271,597

      ^      The negative balance includes specific provisions, interest-in-suspense and general provisions for loans
             and advances in accordance with the Bank’s accounting policy for bad and doubtful debts.
      *      Other assets include amount due from holding company and subsidiaries, investment in subsidiaries and
             associates, fixed assets and deferred tax assets.

                                                                             The Bank
                                         Up to        1-3         3 - 12           1-5           Over    Non-interest
                                       1 month      months       months           years       5 years        bearing       Total
      2002                              RM’000      RM’000       RM’000          RM’000       RM’000         RM’000      RM’000

      Liabilities
      Deposits from customers        1,859,762      844,647      224,840               -            -               -   2,929,249
      Deposits and placements of
       banks and other financial
       institutions                  1,640,469      504,666      512,024         200,000            -               -   2,857,159
      Obligations on securities
        sold under repurchase
        agreements                     988,218             -            -              -           -               -     988,218
      Long term debts                        -             -            -        324,000     600,000               -     924,000
      Other liabilities#               241,833             -            -              -           -         129,357     371,190

      Total liabilities              4,730,282     1,349,313     736,864         524,000     600,000         129,357    8,069,816

      On balance sheet -
        interest rate gap            (3,029,078)    (334,427)    441,726       1,794,259    1,620,311
      Off-balance sheet -
        interest rate gap             (551,500)    1,880,866     (128,445)      (500,321)    (700,600)

      Net interest rate gap          (3,580,578)   1,546,439     313,281       1,293,938     919,711

      #      Other liabilities include amount due to ultimate holding company and subsidiaries and provision for taxation.

             Actual repricing dates may differ from contractual dates as contractual terms do not reflect the actual
             behavioral patterns of assets and liabilities.


232
                                                                      NOTES TO THE FINANCIAL STATEMENTS




2   USE OF FINANCIAL INSTRUMENTS (continued)

    B INTEREST RATE RISK (continued)

    Assets and liabilities are assumed to be held until the earlier of contractual repricing or maturity dates.
    The Bank uses this contractual repricing information as a base, which is then altered to incorporate consumer
    behaviour, in managing its interest rate risk.

    The off-balance sheet interest rate gap is calculated using the derivative instruments’ principal amount,
    without taking into account the cash flows impact relating to the derivative instruments.

    The tables below summarises the effective average interest rate by major currencies for each class of financial
    asset and financial liability. The calculation of effective average interest rate excludes non-interest bearing
    financial assets and financial liabilities.

                                                                                       The Group
                                                                           MYR            USD             EURO
                                                                             %              %                %

2003
Financial assets
Cash and short-term funds                                                  2.86            1.19                -
Securities purchased under resale agreements                               8.50               -                -
Deposits and placements with financial institutions                        2.75            1.35                -
Dealing securities                                                         4.43            4.35             4.25
Investment securities                                                      6.47               -                -
Loans and advances                                                         6.30            1.61                -
Other assets - due from brokers and clients                               10.00               -                -

Financial liabilities
Deposits from customers                                                    2.85            1.06                 -
Deposits and placements of banks and other financial institutions          2.96            1.20                 -
Obligations on securities sold under repurchase agreements                 2.69               -                 -
Long term debts                                                            5.89               -                 -
Other liabilities - due to brokers and clients                             2.45               -                 -



2002
Financial assets
Cash and short-term funds                                                  2.86            1.48                -
Securities purchased under resale agreements                               7.33               -                -
Deposits and placements with financial institutions                        2.98               -                -
Dealing securities                                                         3.93            4.78             5.63
Investment securities                                                      5.88               -                -
Loans and advances                                                         5.79            1.95                -
Other assets - due from brokers and clients                                9.34               -                -

Financial liabilities
Deposits from customers                                                    2.85            1.40                 -
Deposits and placements of banks and other financial institutions          3.12            1.77                 -
Obligations on securities sold under repurchase agreements                 2.67               -                 -
Long term debts                                                            5.76               -                 -
Other liabilities - due to brokers and clients                             2.52               -                 -




                                                                                                                      233
      NOTES TO THE FINANCIAL STATEMENTS




      2   USE OF FINANCIAL INSTRUMENTS (continued)

      B   INTEREST RATE RISK (continued)

                                                                                 The Bank
                                                                          MYR       USD     EURO
                                                                            %         %        %

      2003
      Financial assets
      Cash and short-term funds                                           2.95     1.24         -
      Securities purchased under resale agreements                        4.40     1.23         -
      Deposits and placements with financial institutions                 6.21     1.35         -
      Dealing securities                                                  3.19     4.43         -
      Investment securities                                               8.05        -         -
      Loans and advances                                                  6.24     1.35         -

      Financial liabilities
      Deposits from customers                                             2.86     1.19         -
      Deposits and placements of banks and other financial institutions   3.09     1.25         -
      Obligations on securities sold under repurchase agreements          2.72        -         -
      Long term debts                                                     5.89        -         -



      2002
      Financial assets
      Cash and short-term funds                                           2.92     1.48         -
      Securities purchased under resale agreements                        7.50        -         -
      Deposits and placements with financial institutions                 5.14     1.66         -
      Dealing securities                                                  3.65     4.91      5.63
      Investment securities                                               6.92        -         -
      Loans and advances                                                  5.80     1.95         -

      Financial liabilities
      Deposits from customers                                             2.86     1.40         -
      Deposits and placements of banks and other financial institutions   3.27     1.66      3.05
      Obligations on securities sold under repurchase agreements          2.67        -         -
      Long term debts                                                     5.76        -         -




234
                                                                                              NOTES TO THE FINANCIAL STATEMENTS




2       USE OF FINANCIAL INSTRUMENTS (continued)

C       CREDIT RISK

        The following table sets out the credit risk concentrations of the Group and the Bank by classes of financial assets:

                                                                                   The Group
                            Short term
                             funds and      Securities                                                            Statutory
                          placements        purchased                                                          deposits with                 Commitments
                         with financial   under resale     Dealing    Investment      Loans and        Other   Bank Negara     On-balance             and
                           institutions    agreements    securities    securities      advances^      assets       Malaysia    sheet total   contingencies*
2003                           RM’000          RM’000      RM’000        RM’000         RM’000       RM’000         RM’000        RM’000           RM’000

Agricultural                          -              -           -             -        130,500         955                -      131,455           2,505
Mining and quarrying                  -              -      55,209             -              -       1,764                -       56,973               -
Manufacturing                         -              -     190,762         6,720        106,004       3,761                -      307,247           9,215
Electricity, gas and water            -              -   1,235,012       395,645              -      13,690                -    1,644,347         102,791
Construction                          -              -     459,930       150,567        214,066      66,114                -      890,677         100,160
Real estate                           -              -       9,993       100,301        124,103       2,334                -      236,731          44,251
General commerce                      -              -      22,596             -         10,038       2,844                -       35,478           1,237
Transport, storage and
   communication                      -              -   1,042,672       288,727        279,170      16,154                -    1,626,723         110,988
Finance, insurance and
   business services          660,669         109,276    1,300,612       135,089        245,585     323,960                -    2,775,191         566,966
Government and
   government agencies       1,064,090               -   2,178,003       190,149              -     885,006         212,795     4,530,043          19,020
Purchase of residential,
   landed property,
   securities and
   transport vehicles                 -              -     266,737         2,346        349,075     255,697                -      873,855          16,619
Others                                -              -       9,519             -         37,920       8,277                -       55,716         100,005

Total                        1,724,759        109,276    6,771,045     1,269,544      1,496,461    1,580,556        212,795    13,164,436       1,073,757


^       Excludes general provision amounting to RM40,127,000
*       Comprises credit equivalent of credit risk related instruments and derivative related instruments amounting to
        RM555,225,000 and RM518,531,912 respectively.




                                                                                                                                                              235
      NOTES TO THE FINANCIAL STATEMENTS




      2       USE OF FINANCIAL INSTRUMENTS (continued)

      C       CREDIT RISK (continued)

                                                                                         The Group
                                  Short term
                                   funds and      Securities                                                            Statutory
                                placements        purchased                                                         deposits with                 Commitments
                               with financial   under resale     Dealing    Investment       Loans and      Other    Bank Negara    On-balance             and
                                 institutions    agreements    securities     securities      advances^    assets       Malaysia    sheet total   contingencies*
      2002                           RM’000          RM’000      RM’000         RM’000         RM’000     RM’000         RM’000        RM’000           RM’000

      Agricultural                          -              -           -             -         201,004         28               -       201,032              -
      Mining and quarrying                  -              -     292,200             -               -      3,078               -       295,278              -
      Manufacturing                         -              -     292,385             -          48,322      5,031               -       345,738         15,524
      Electricity, gas and water            -              -   1,013,596       469,871               -     14,037               -     1,497,504        128,132
      Construction                          -              -     577,824       106,147         195,512     65,430               -       944,913         20,893
      Real estate                           -              -      97,221       148,968          95,485      2,912               -       344,586         19,150
      General commerce                      -              -           -             -          12,261      1,600               -        13,861         17,174
      Transport, storage and
         communication                      -              -     735,789       390,587          80,160     13,041               -     1,219,577         49,290
      Finance, insurance and
         business services          651,030          77,448      949,519       200,568          80,072    315,427               -     2,274,064        355,163
      Government and
         government agencies        493,200                -   3,450,968       164,373                -    70,996         166,660     4,346,197         11,670
      Purchase of residential,
         landed property,
         securities and
         transport vehicles                 -              -     288,611        62,016         287,285    114,244               -       752,156          2,580
      Others                                -              -      59,921        24,844          74,099      4,312               -       163,176          6,000

      Total                        1,144,230         77,448    7,758,034     1,567,374       1,074,200    610,136        166,660     12,398,082        625,576

      ^       Excludes general provision amounting to RM44,260,000.
      *       Comprises credit equivalent of credit risk related instrument and derivative related instrument amounting to
              RM321,612,455 and RM303,963,901 respectively.

                                                                                           The Bank
                                  Short term
                                   funds and      Securities                                                            Statutory
                                placements        purchased                                                         deposits with                 Commitments
                               with financial   under resale     Dealing    Investment       Loans and      Other    Bank Negara    On-balance             and
                                 institutions    agreements    securities     securities      advances^    assets       Malaysia    sheet total   contingencies*
      2003                           RM’000          RM’000      RM’000         RM’000         RM’000     RM’000         RM’000        RM’000           RM’000

      Agricultural                          -              -           -             -         130,500        955               -      131,455           2,505
      Mining and quarrying                  -              -      55,209             -               -      1,764               -       56,973               -
      Manufacturing                         -              -      39,281         6,720         106,004      1,863               -      153,868           4,605
      Electricity, gas and water            -              -      86,882       252,413               -      4,331               -      343,626          63,292
      Construction                          -              -      60,778        37,430         214,065     59,954               -      372,227         100,160
      Real estate                           -              -       9,993       100,300         124,103      2,250               -      236,646          44,251
      General commerce                      -              -           -             -          10,038      2,747               -       12,785               5
      Transport, storage and
          communication                     -              -     415,135       180,383         241,135      8,504               -      845,157          94,207
      Finance, insurance and
         business services          581,392         430,329      538,161        98,488         196,057    359,256               -    2,203,683         625,273
      Government and
         government agencies       1,003,500               -   1,675,886               -              -    45,103        212,795     2,937,284           8,730
      Purchase of residential
         landed property,
         securities and
         transport vehicles                 -              -     239,674          2,346        225,100      2,682               -      469,802          16,619
      Others                                -              -           -              -         37,836      5,394               -       43,230               5

      Total                        1,584,892        430,329    3,120,999       678,080        1,284,838   494,803        212,795     7,806,736         959,652


      ^       Excludes general provision amounting to RM38,812,115.
      *       Comprises credit equivalent balances of credit related contracts and derivatives amounting to RM380,877,683 and
              RM578,773,912 respectively.



236
                                                                                                NOTES TO THE FINANCIAL STATEMENTS




2       USE OF FINANCIAL INSTRUMENTS (continued)

C       CREDIT RISK (continued)

                                                                                     The Bank
                             Short term
                              funds and      Securities                                                          Statutory
                           placements        purchased                                                        deposits with                 Commitments
                          with financial   under resale     Dealing    Investment      Loans and      Other   Bank Negara     On-balance             and
                            institutions    agreements    securities    securities      advances^    assets       Malaysia    sheet total   contingencies*
2002                            RM’000          RM’000      RM’000        RM’000         RM’000     RM’000         RM’000        RM’000           RM’000

Agricultural                           -              -           -             -        201,004         28               -      201,032               -
Mining and quarrying                   -              -     292,200             -              -      4,134               -      296,334               -
Manufacturing                          -              -      88,798             -         48,322      3,466               -      140,586           9,444
Electricity, gas and water             -              -     292,222       312,761              -      8,082               -      613,065          26,729
Construction                           -              -      72,368             -        195,511     60,025               -      327,904          20,893
Real estate                            -              -      31,185       148,968         95,485      2,868               -      278,506               -
General commerce                       -              -           -             -         12,261      1,459               -       13,720          17,174
Transport, storage and
   communication                       -              -     360,898       261,432         80,160      9,980               -      712,470          49,290
Finance, insurance and
   business services           783,737          74,746      486,195       192,395         80,072    317,857               -    1,935,002         411,312
Government and
   government agencies         431,500                -   2,993,901              -              -    38,840        166,660     3,630,901          11,670
Purchase of residential
   landed property,
   securities and
   transport vehicles                  -              -     288,611         62,015       221,104      4,735               -      576,465           2,580
Others                                 -              -      20,694              -        73,985      2,974               -       97,653           6,000

Total                        1,215,237          74,746    4,927,072       977,571       1,007,904   454,448        166,660     8,823,638         555,092


^       Excludes general provision amounting to RM44,260,000.
*       Comprises credit equivalent balances of credit related contracts and derivatives amounting to RM185,600,955 and
        RM369,490,725 respectively.

        Risk concentrations for commitments and contingencies are based on the credit equivalent balances in Note 36.




                                                                                                                                                             237
      NOTES TO THE FINANCIAL STATEMENTS




      3   CASH AND SHORT-TERM FUNDS

                                                                  The Group                          The Bank
                                                              2003         2002              2003            2002
                                                            RM’000       RM’000            RM’000          RM’000

      Cash and balances with banks and
       other financial institutions                          50,372         51,609          12,849              4,400
      Money at call and deposit
       placements maturing within one month              1,650,872         992,519       1,353,046         798,740
                                                         1,701,244       1,044,128       1,365,895         803,140

      Included in cash and short term funds of the Group are trust accounts maintained by the securities subsidiaries
      in trust for clients’ and dealer’s representatives amounting to RM31,976,044 (2002: RM9,468,172) and
      RM5,990,892 (2002: RM6,348,670) respectively.

      4   DEPOSITS AND PLACEMENTS WITH FINANCIAL INSTITUTIONS

                                                                  The Group                          The Bank
                                                              2003         2002              2003            2002
                                                            RM’000       RM’000            RM’000          RM’000
      Licensed banks                                         22,527        100,527         19,000          212,100
      Other financial institutions                            1,000              -        200,000          200,000
                                                             23,527        100,527        219,000          412,100

      5   DEALING SECURITIES

                                                                  The Group                          The Bank
                                                              2003         2002              2003            2002
                                                            RM’000       RM’000            RM’000          RM’000
      Money market instruments:
      Malaysian Government treasury bills                  145,165         440,175        145,165          440,175
      Malaysian Government securities                      871,978       1,240,774        757,389          997,991
      Other Government securities                          206,240         182,490        206,240          182,490
      Bank Negara Malaysia bills                           241,616         569,649        241,616          569,649
      Bank Negara Negotiable notes                          50,884          19,863          1,172                -
      Cagamas bonds                                        137,728         106,670        137,728          106,670
      Cagamas notes                                              -         298,855              -          298,855
      Danaharta bonds                                      121,456         208,426         72,804           18,828
      Danamodal bonds                                            -         190,238              -          190,237
      Khazanah bonds                                        20,472               -         20,472                -
      Negotiable instruments of deposits                   285,547         375,690        225,000          350,066
      Bankers’ acceptances                                 204,350          57,629              -                -
      Commercial papers                                     95,476         391,212              -            9,801
                                                         2,380,912       4,081,671       1,807,586       3,164,762
      Quoted securities:
      In Malaysia
      Shares                                               125,709          73,488          32,884          60,028
      Warrants                                              13,495           5,841           4,533           3,766
      Loan stocks                                               65          11,054              65           9,881
      Private debt securities                                    -           9,101               -           4,426
      Outside Malaysia
      Shares                                                 5,637             209              -                -
      Private debt securities                              424,905         641,951        347,271          553,856
      Unquoted securities:
      In Malaysia
      Private debt securities                            3,763,549       3,014,064        916,232        1,192,780
      Outside Malaysia
      Private debt securities                                99,885         11,248          49,909          11,248
                                                         6,814,157       7,848,627       3,158,480       5,000,747
238
                                                                     NOTES TO THE FINANCIAL STATEMENTS




5     DEALING SECURITIES (continued)

Included in dealing securities are:

(a)   Securities amounting to RM50,575,203 and RM24,559,525 were invested by CMS Dresdner Asset
      Management Sdn Bhd, SBB Asset Management Sdn Bhd, Niaga Aset Manajemen and PT Bahana TCW
      Investment Management on behalf the Group and the Bank respectively. Whilst in 2002, securities amounting
      to RM76,131,849 and RM70,448,544 were invested by Commerce Asset Fund Managers Sdn Bhd, HLG
      Asset Management Sdn Bhd, CMS Dresdner Asset Management Sdn Bhd and SBB Asset Management Sdn
      Bhd respectively.

(b) Malaysian Government securities, unquoted private and Islamic debt securities in Malaysia, amounting to
    principal value of RM25,000,000 (2002: RM30,000,000) which have been pledged as credit support assets
    for certain over-the-counter derivative contracts.

                                                            The Group                          The Bank
                                                        2003         2002              2003            2002
                                                      RM’000       RM’000            RM’000          RM’000

Market value of money market
 instruments and quoted securities
Malaysian Government treasury bills                   146,399         444,456        146,399         444,456
Malaysian Government securities                       872,846       1,245,294        758,150       1,001,682
Other Government Securities                           206,302         184,342        206,302         184,342
Bank Negara Malaysia bills                            242,164         572,490        242,164         572,490
Bank Negara Negotiable notes                           51,142          19,987          1,173               -
Cagamas bonds                                         138,196         106,670        138,196         106,670
Cagamas notes                                               -         301,640              -         301,640
Danaharta bonds                                       121,659         209,555         72,886          19,057
Danamodal bonds                                             -         190,243              -         190,243
Khazanah bonds                                         20,495               -         20,495               -
Negotiable Instruments of deposits                    285,547         375,690        225,000         350,066
Bankers acceptances                                   204,350          57,629              -               -
Commercial papers                                      96,806         392,775              -           9,812
Shares in Malaysia                                    153,192          74,322         38,838          60,564
Warrants in Malaysia                                   14,812           5,885          5,384           3,810
Loan stocks in Malaysia                                    92          11,097             92           9,881
Private debt securities in Malaysia                         -           9,976              -           4,986
Shares outside Malaysia                                 6,187             217              -               -
Private debt securities outside Malaysia              427,428         652,213        349,239         562,793




                                                                                                                  239
      NOTES TO THE FINANCIAL STATEMENTS




      6     INVESTMENT SECURITIES

                                                                  The Group                         The Bank
                                                              2003         2002            2003             2002
                                                            RM’000       RM’000          RM’000           RM’000

      Money market instruments:
      Danaharta Urus bonds                                   23,536        23,536               -                 -

      Quoted securities:
      In Malaysia
      Shares                                                    350        26,643            350           24,443

      Outside Malaysia
      Private debt securities                                      -       48,138*              -          48,138*

                                                                350        74,781            350           72,581

      Unquoted securities:
      In Malaysia
      Shares                                                   3,142          767            742              567
      Loan stocks                                             46,313       48,820         46,313           48,820
      Private debt securities                              1,293,697    1,486,437        724,215          914,056

      Outside Malaysia
      Private debt securities                                21,280         3,040               -                 -

                                                           1,364,432    1,539,064        771,270          963,443

                                                           1,388,318    1,637,381        771,620        1,036,024

      Accretion of discount less amortisation of premium       1,555          945           (686)              (363)
      Provision for diminution in value:
      - Quoted shares in Malaysia                                (14)       (3,776)          (14)           (3,776)
      - Quoted private debt securities outside Malaysia            -        (3,567)*           -            (3,567)*
      - Unquoted private debt securities in Malaysia        (107,954)     (39,976)       (82,878)         (29,514)
      - Unquoted loan stock in Malaysia                       (3,938)            -        (3,938)                -

                                                           1,277,967    1,591,007        684,104          998,804

          (i) Market value of money market instruments
                and quoted securities:
              Danaharta Urus bonds                           25,776        24,844              -                -
              Shares in Malaysia                                433        22,867            432           20,667
              Private debt securities outside Malaysia            -        36,100*             -           36,100*

          (ii) The maturity structure of money market
               instruments held for investments are
               as follows:
               One to three years                            23,536             -               -                 -
               Three to five years                                -        23,536               -                 -

                                                             23,536        23,536               -                 -

      *     The carrying value is higher than the market value. The Directors are of the opinion that no permanent
            diminution in value exists.




240
                                                               NOTES TO THE FINANCIAL STATEMENTS




7   LOANS AND ADVANCES

                                                         The Group                      The Bank
                                                     2003         2002          2003            2002
                                                   RM’000       RM’000        RM’000          RM’000
Term loans
- Fixed rate                                      221,186       103,138      221,186          103,138
- Floating rate                                   996,675       740,663      786,227          675,983
Claims on customers under acceptance credits          625           800          625              800
Factoring receivables                             210,545       189,696      210,545          189,696
Subordinated debt                                 127,294       127,312      127,294          127,312
Staff loans of which RM418,053
  (2002: RM437,428) is to Directors                32,385        26,177       29,902           23,336
                                                 1,588,710    1,187,786     1,375,779       1,120,265
Unearned income                                     (6,582)      (12,443)      (6,582)        (12,443)
Gross loans and advances                         1,582,128    1,175,343     1,369,197       1,107,822
Provision for bad and doubtful debts:
- General                                          (40,127)     (44,260)      (38,812)        (44,260)
- Specific                                         (66,867)     (83,001)      (65,879)        (81,979)
Interest-in-suspense                               (18,800)     (18,142)      (18,480)        (17,939)
Net loans and advances                           1,456,334    1,029,940     1,246,026         963,644

(i) The maturity structure of loans and
     advances are as follows:
    Maturing within one year                     1,053,257      429,729      907,473          364,925
    One year to three years                        321,151      403,572      256,335          403,517
    Three years to five years                      180,327      107,161      180,184          106,745
    Over five years                                 27,393      234,881       25,205          232,635
                                                 1,582,128    1,175,343     1,369,197       1,107,822
(ii) The loans and advances analysed by
       their economic purposes are as follows:
     Agricultural                                 130,500       201,004      130,500          201,004
     Manufacturing                                117,486        58,351      117,486           58,351
     Construction                                 228,084       218,148      228,084          218,148
     Real estate                                  129,557        98,692      129,557           98,692
     Purchase of residential landed property       24,330        19,521       22,300           17,419
     General commerce                              10,290        17,374       10,290           17,374
     Transport, storage and communication         293,103        87,660      255,066           87,660
     Finance, insurance and
       business services                          261,985       102,729      212,458          102,729
     Purchase of securities                       325,503       291,236      202,672          226,555
     Purchase of transport vehicles                 8,020         6,271        7,598            5,646
     Others                                        53,270        74,357       53,186           74,244
                                                 1,582,128    1,175,343     1,369,197       1,107,822
(iii) Movements in the non-performing
        loans are as follows:
      At 1 January                                146,045       188,569      144,819          187,343
      Classified as non-performing during the
       financial year                               32,721       45,105        32,721          45,105
      Recoveries/reclassification                  (42,269)     (85,954)      (42,269)        (85,954)
      Amount written off                           (12,695)       (1,675)     (12,695)          (1,675)
    At 31 December                                123,802       146,045      122,576          144,819
    Net non-performing loans                       38,135        44,902       38,217           44,901
    Ratio of net non-performing loans to total
     loans (net of specific provision and
     interest-in-suspense)                            2.55%        4.18%         2.97%             4.45%



                                                                                                           241
      NOTES TO THE FINANCIAL STATEMENTS




      7   LOANS AND ADVANCES (continued)

                                                                The Group                  The Bank
                                                            2003         2002      2003            2002
                                                          RM’000       RM’000    RM’000          RM’000

      (iv) Movements in the provision for bad and
             doubtful debts and interest-in-suspense
             are as follows:
           General provision
           At 1 January                                   44,260       44,260    44,260           44,260
           Net provision made during the financial year   (4,133)           -    (5,448)               -

          At 31 December                                  40,127       44,260    38,812           44,260

          (as % of total loans less
            specific provision and
            interest-in-suspense)                            2.68%       4.12%     3.02%              4.39%

          Specific provision
          At 1 January                                    83,001       68,386    81,979           67,364
          Provision made during the
            financial year                                 6,635       19,799     6,635           19,799
          Amount transferred to
            provision for diminution in value             (11,444)          -    (11,410)                -
          Amount written back in
            respect of recoveries/reclassification        (11,325)     (4,393)   (11,325)         (4,393)
          Amount written back to
            income statement                                    -        (500)         -              (500)
          Amount written off                                    -        (291)         -              (291)

          At 31 December                                  66,867       83,001    65,879           81,979

          Interest-in-suspense
          At 1 January                                    18,142       18,636    17,939           14,834
          Provisions made during the
            financial year                                15,664          938    15,547           14,510
          Amount written back in
            respect of recoveries/reclassification         (4,143)     (1,302)    (4,143)         (9,739)
          Amount written off                              (10,863)       (130)   (10,863)         (1,666)

          At 31 December                                  18,800       18,142    18,480           17,939




242
                                                                     NOTES TO THE FINANCIAL STATEMENTS




7   LOANS AND ADVANCES (continued)

    On 12 December 2001, the Bank had securitised private debt securities via a collateralised bond obligations
    programme amounting to RM485 million. These private debt securities were acquired from the Bank by a
    special purpose vehicle, CBO One Berhad (“CBO One”), which is funded through the issuance of bonds and
    subordinated debt. The scheme and the issuance of bonds is in compliance with the Securities Commission’s
    “Guidelines on the Offering of Asset-Backed Debt Securities” dated 11 April 2001. CBO One is a company
    owned by an unrelated party.

    The Bank does not in any way stand behind the capital value and/or performance of the securities or the
    assets of CBO One except to the limited extent provided in the transaction documents through the provision
    of arms-length services. The Bank does not guarantee the payment of interest or the repayment of principal
    due on the securities. However, the Bank does hold the subordinated debt whose terms stipulate that
    losses up to the nominal value of the debt and bonds issued by CBO One, would be absorbed first by the
    Bank and then by the bondholders, in the event of a loss by CBO One. In addition, the Bank also holds
    some of the bonds issued by CBO One for trading purposes.

    The Bank is not obliged to support any losses that may be suffered by the investors and does not intend to
    provide such support. The Bank has no right to repurchase any of the securitised private debt securities
    and has no obligation to do so.

    With regards to the subordinated debt held by the Bank arising from its collateralised bond obligation, the
    following are the details as at 31 December 2003:

                Issuer                   Issue date                Maturity date             Principal
                                                                                              RM’000

                CBO One Berhad           11 December 2001          11 December 2008              126,929

    The interest rates for subordinated debt consist of a periodical rate up to 5% per annum and a final rate of
    up to 15% per annum. Interest is payable semi-annually on 11 June and 11 December commencing from
    11 June 2002. The amount of interest due and payable is subject to the availability of funds based on
    certain prescribed criteria. The principal amount will be settled in full upon maturity date.

8   OTHER ASSETS

                                                            The Group                            The Bank
                                                        2003         2002              2003              2002
                                                      RM’000       RM’000            RM’000            RM’000

Interest receivable                                    82,329          86,402         79,080               76,045
Deposits and revaluation of
   derivative financial instruments                   319,776        303,393         335,788           306,886
Due from brokers and clients net
  of provision for doubtful debts
  of RM8,058,295
  (2002: RM8,225,704)                                 256,247        110,777                 -                  -
Other debtors, deposits and
  prepayments net of provision for
  doubtful debts of RM10,898,637
  (2002: RM7,840,259)                                 922,710        110,248          80,250               72,195

                                                    1,581,062        610,820         495,118           455,126

    For the Group, included in other debtors is RM800,000,000 (2002: nil) trade receivables arising from the
    forward sale of dealing securities.




                                                                                                                    243
      NOTES TO THE FINANCIAL STATEMENTS




      9     STATUTORY DEPOSITS WITH BANK NEGARA MALAYSIA

            The non-interest bearing statutory deposits are maintained with Bank Negara Malaysia in compliance with
            Section 37(1)(c) of the Central Bank of Malaysia Act, 1958 (revised 1994), the amounts of which are determined
            at set percentages of total eligible liabilities.

      10 INVESTMENT IN SUBSIDIARIES

                                                                                                         The Bank
                                                                                                 2003             2002
                                                                                               RM’000           RM’000

          Unquoted shares, at cost                                                             457,549         341,549

            The Bank had on 30 June 2003 subscribed for 116.0 million irredeemable non-cumulative preference shares
            of RM1.00 each in its wholly owned subsidiary, CIMB Discount House Berhad for a total consideration of
            RM116.0 million. The Bank is entitled to dividend at the discretion of the Board of Directors of CIMB Discount
            House Berhad.

      The subsidiaries of the Bank are as follows:

                                                                              Place of              Percentage of
      Name of company                    Principal activities            incorporation                equity held
                                                                                                 2003        2002
                                                                                                  %           %

      CIMB Holdings Sdn. Bhd. +          Investment holding              Malaysia                 100            100
      CIMB Futures Sdn. Bhd. +           Futures broking                 Malaysia                 100            100
      CIMB Nominees (Tempatan)           Nominee services                Malaysia                 100            100
        Sdn. Bhd. +
      CIMB Nominees (Asing)              Nominee services                Malaysia                 100            100
        Sdn. Bhd. +
      CIMB Discount House Berhad +       Discount house                  Malaysia                 100            100
      CIMB (L) Limited +                 Offshore banking                Malaysia                 100            100
      iCIMB Sdn. Bhd. +                  Dormant                         Malaysia                 100            100

      Details of the subsidiaries held by CIMB Holdings Sdn. Bhd. are as follows:

                                                                              Place of              Percentage of
      Name of company                    Principal activities            incorporation                equity held
                                                                                                 2003        2002
                                                                                                  %           %

      CIMB Securities Sdn. Bhd. +        Stock and share broking         Malaysia                 100            100
      CIMB Securities (Hong Kong)        Trading in securities           Hong Kong                100            100
        Limited*

      Details of the subsidiaries held by CIMB Securities Sdn. Bhd. are as follows:

                                                                              Place of              Percentage of
      Name of company                    Principal activities            incorporation                equity held
                                                                                                 2003        2002
                                                                                                  %           %

      CIMSEC Nominees                    Nominee services                Malaysia                 100            100
       (Tempatan) Sdn. Bhd. +
      CIMSEC Nominees (Asing)            Nominee services                Malaysia                 100            100
       Sdn. Bhd. +
      CIMSEC Nominees Sdn. Bhd. +        Nominee services                Malaysia                 100            100
      CIMB ShareTech Sdn. Bhd. +         Trading in securities           Malaysia                 100            100


244
                                                                       NOTES TO THE FINANCIAL STATEMENTS




10 INVESTMENT IN SUBSIDIARIES (continued)

Details of the subsidiaries held by CIMB ShareTech Sdn. Bhd. are as follows:

                                                                      Place of          Percentage of
Name of company                     Principal activities         incorporation            equity held
                                                                                     2003        2002
                                                                                      %           %

ShareTech Nominees                  Nominee services             Malaysia             100           100
 (Tempatan) Sdn. Bhd. +
ShareTech Nominees (Asing)          Nominee services             Malaysia             100           100
 Sdn. Bhd. +

Details of the subsidiaries held by CIMB (L) Limited are as follows:

                                                                      Place of          Percentage of
Name of company                     Principal activities         incorporation            equity held
                                                                                     2003        2002
                                                                                      %           %

Halyconia Asia Fund Limited +       Open-ended                   British Virgin       100           100
                                     investment fund             Islands
PT CIMB Niaga Securities*           Stock and share broking      Indonesia            51                -

+   Audited by PricewaterhouseCoopers, Malaysia
*   Audited by a member firm of PricewaterhouseCoopers

11 INVESTMENT IN ASSOCIATES

                                                                                         The Group
                                                                                     2003          2002
                                                                                   RM’000       RM’000

Share of net assets of associates                                                      319              2,332

                                                                                             The Bank
                                                                                      2003              2002

Unquoted investments, at cost                                                        1,000              1,637
Provision for diminution in value                                                     (450)                 -

                                                                                       550              1,637

The associates of the Bank are as follows:

                                                                      Place of          Percentage of
Name of company                     Principal activities         incorporation            equity held
                                                                                     2003        2002
                                                                                      %           %

Malaysian Issuing House             Share issues                 Malaysia               -           25.5
 Sdn. Bhd.                           administrator
Banyan Ventures                     Fund management and          Malaysia            37.0           37.0
 Sdn. Bhd.                           investment holding




                                                                                                                245
      NOTES TO THE FINANCIAL STATEMENTS




      11 INVESTMENT IN ASSOCIATES (continued)

      Details of the associate held by CIMB (L) Limited is as follows:

                                                                              Place of               Percentage of
      Name of company                   Principal activities             incorporation                 equity held
                                                                                                  2003        2002
                                                                                                   %           %

      Navis-CIMB General                Fund management                  Malaysia                 25.0        25.0
       Partner Ltd

      On 2 April 2003, the Bank entered into Sale and Purchase agreement with Symphony House Berhad to dispose
      of its 25.5% equity interest comprising 637,500 ordinary shares of RM1.00 each in Malaysian Issuing House
      Sdn. Bhd. for a total consideration of RM624,272. The Sale and Purchase agreement was subsequently completed
      on 30 July 2003.

      12 FIXED ASSETS

                                                  Building on
                                    Leasehold      leasehold            Office       Computer
                                      land 50         land 50      equipment        equipment
                                        years            years            and              and      Motor
                                      or more         or more        furniture        software    vehicles      Total
                                      RM’000          RM’000          RM’000           RM’000      RM’000     RM’000

      The Group
      2003

      Cost
      At 1 January                      18,609          7,135          14,398          15,465       13,062    68,669
      Additions                              -              -           1,007           2,736        4,100     7,843
      Amount arising from
       acquisition of subsidiary              -                -          169              399         523      1,091
      Disposals                               -                -           (4)              (1)     (1,724)    (1,729)
      Written off                             -                -           (2)            (102)       (124)      (228)

      At 31 December                    18,609          7,135          15,568          18,497       15,837    75,646

      Depreciation
      At 1 January                         124             48            5,282           7,061       5,568    18,083
      Charge for the year                  372            142            2,902           5,267       2,564    11,247
      Amount arising from
       acquisition of subsidiary              -                -          141             357           77        575
      Disposals                               -                -           (2)             (1)      (1,260)    (1,263)
      Written off                             -                -           (2)            (80)         (35)      (117)

      At 31 December                       496            190            8,321         12,604        6,914    28,525

      Net book value as at
       31 December                      18,113          6,945            7,247           5,893       8,923    47,121




246
                                                               NOTES TO THE FINANCIAL STATEMENTS




12 FIXED ASSETS (continued)

                                       Building on
                        Leasehold       leasehold         Office     Computer
                          land 50          land 50   equipment      equipment
                            years            years          and            and      Motor
                          or more          or more     furniture      software    vehicles      Total
                          RM’000           RM’000       RM’000         RM’000      RM’000     RM’000

The Group
2002

Cost
At 1 January                       -             -       20,899         23,931     11,383      56,213
Additions                     18,609         7,135         2,900         5,197       3,909     37,750
Disposals                          -             -          (392)         (334)     (1,685)     (2,411)
Written off                        -             -        (9,009)      (13,329)       (545)   (22,883)

At 31 December                18,609         7,135       14,398        15,465      13,062     68,669

Depreciation
At 1 January                      -              -       11,769         15,243       5,008     32,020
Charge for the year             124             48         2,902         5,084       2,140     10,298
Disposals                         -              -          (390)         (313)     (1,429)     (2,132)
Written off                       -              -        (8,999)      (12,953)       (151)   (22,103)

At 31 December                  124             48        5,282         7,061       5,568     18,083

Net book value as at
 31 December                  18,485         7,087        9,116         8,404       7,494     50,586

                                       Building on
                        Leasehold       leasehold         Office     Computer
                          land 50          land 50   equipment      equipment
                            years            years          and            and      Motor
                          or more          or more     furniture      software    vehicles      Total
                          RM’000           RM’000       RM’000         RM’000      RM’000     RM’000

The Bank
2003

Cost
At 1 January                  18,609         7,135       10,642        11,776       9,468     57,630
Additions                          -             -          712         2,447       3,186      6,345
Disposals                          -             -            -             -        (796)      (796)
Written off                        -             -            -           (22)       (124)      (146)

At 31 December                18,609         7,135       11,354        14,201      11,734     63,033

Depreciation
At 1 January                    124            48         3,981         5,029       3,448     12,630
Charge for the year             372           142         2,158         4,188       1,955      8,815
Disposals                         -             -             -             -        (530)      (530)
Written off                       -             -             -             -         (35)       (35)

At 31 December                  496           190         6,139         9,217       4,838     20,880

Net book value
 as at 31 December            18,113         6,945        5,215         4,984       6,896     42,153



                                                                                                          247
      NOTES TO THE FINANCIAL STATEMENTS




      12 FIXED ASSETS (continued)

                                                   Building on
                                     Leasehold      leasehold            Office          Computer
                                       land 50         land 50      equipment           equipment
                                         years            years            and                 and            Motor
                                       or more         or more        furniture           software          vehicles        Total
                                       RM’000          RM’000          RM’000              RM’000            RM’000       RM’000

      The Bank
      2002

      Cost
      At 1 January                            -               -            10,267                 8,378        7,556       26,201
      Additions                          18,609           7,135             2,136                 4,406        3,430       35,716
      Disposals                               -               -                 -                     -         (973)         (973)
      Written off                             -               -            (1,761)               (1,008)        (545)       (3,314)

      At 31 December                     18,609           7,135            10,642              11,776          9,468       57,630

      Depreciation
      At 1 January                             -               -             3,563                2,073        2,862        8,498
      Charge for the year                    124              48             2,171                3,964        1,648        7,955
      Disposals                                -               -                 -                    -         (911)        (911)
      Written off                              -               -            (1,753)              (1,008)        (151)      (2,912)
      At 31 December                         124              48            3,981                5,029         3,448       12,630
      Net book value
       as at 31 December                 18,485           7,087             6,661                6,747         6,020       45,000

      13 GOODWILL ON CONSOLIDATION

                                                                                                               The Group
                                                                                                           2003          2002
                                                                                                         RM’000       RM’000

      At 1 January                                                                                         19,684          20,592
      Amortisation charge                                                                                    (908)           (908)
      At 31 December                                                                                       18,776          19,684

      Cost                                                                                                 22,685          22,685
      Accumulated amortisation                                                                             (3,909)          (3,001)
                                                                                                           18,776          19,684

      14 DEFERRED TAX ASSETS

      Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
      against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts,
      determined after appropriate offsetting, are shown in the balance sheet:

                                                                     The Group                                      The Bank
                                                                 2003         2002                         2003             2002
                                                               RM’000       RM’000                       RM’000           RM’000

      Loans and advances                                          15,164              16,689               15,164          16,689
      Investment securities                                       (8,152)              (8,610)             (9,830)          (8,300)
      Excess of capital allowance over depreciation               (1,782)              (2,451)             (1,660)          (2,097)
      Unutilised tax losses                                       11,319              12,952                    -                -
      Other temporary difference                                   9,153                2,088                 213             (436)
                                                                  25,702              20,668                3,887              5,856


248
                                                                            NOTES TO THE FINANCIAL STATEMENTS




14 DEFERRED TAX ASSETS (continued)

The movements in deferred tax assets/(liabilities) during the year comprise the following:

                                                                Excess of
                                                                    capital
                                   Loans                        allowance                             Other
                                     and     Investment               over        Unutilised     temporary
                                advances       securities     depreciation        tax losses     difference         Total
                                  RM’000         RM’000            RM’000            RM’000         RM’000        RM’000

The Group
At 1 January 2003                  16,689          (8,610)          (2,451)           12,952         2,088         20,668
Transfer from provision of
 taxation                                -          2,249                   -               -               -       2,249
(Charged)/credited
 to income statement               (1,525)         (1,791)             669            (1,633)        7,065          2,785

At 31 December 2003                15,164          (8,152)          (1,782)           11,319         9,153         25,702

At 1 January 2002                  16,689         (22,758)          (1,983)           12,526         7,405         11,879
(Charged)/credited to
  income statement                       -        14,148              (468)              426        (5,317)         8,789

At 31 December 2002                16,689          (8,610)          (2,451)           12,952         2,088         20,668

                                                                                  Excess of
                                                                                      capital
                                                Loans                             allowance           Other
                                                  and        Investment                 over     temporary
                                             advances          securities       depreciation     difference         Total
                                               RM’000            RM’000              RM’000         RM’000        RM’000

The Bank
As at 1 January 2003:                           16,689            (8,300)             (2,097)            (436)       5,856
(Charged)/credited to income statement          (1,525)           (1,530)                437              649       (1,969)

At 31 December 2003                             15,164            (9,830)             (1,660)             213       3,887

As at 1 January 2002:                           16,689          (10,754)              (1,836)            (620)      3,479
(Charged)/credited to income statement               -            2,454                 (261)             184       2,377

At 31 December 2002                             16,689            (8,300)             (2,097)            (436)      5,856

Deferred tax assets of the Group in respect of unutilised tax losses have been recognised as these tax losses
relate to subsidiaries that are making profits in the current financial year, and future taxable profits is probable.

15 DEPOSITS FROM CUSTOMERS

                                                                The Group                                The Bank
                                                            2003         2002                     2003               2002
                                                          RM’000       RM’000                   RM’000             RM’000

Demand deposits                                          14,933            27,191                  -                     -
Fixed deposits                                        4,190,581         4,679,542          2,064,107             2,929,249

                                                      4,205,514         4,706,733          2,064,107             2,929,249




                                                                                                                              249
      NOTES TO THE FINANCIAL STATEMENTS




      15 DEPOSITS FROM CUSTOMERS (continued)

                                                        The Group                    The Bank
                                                    2003         2002       2003             2002
                                                  RM’000       RM’000     RM’000           RM’000

      (i) Maturity structure of fixed deposits
            are as follows:
          - Due within six months                4,090,382   4,579,542   1,963,908       2,929,249
          - Six months to one year                 100,199     100,000     100,199               -

                                                 4,190,581   4,679,542   2,064,107       2,929,249

      (ii) The deposits are sourced from the
             following customers:
           - Business enterprises                4,037,591   4,401,569   2,064,107       2,795,085
           - Others                                167,923     305,164           -         134,164

                                                 4,205,514   4,706,733   2,064,107       2,929,249

      16 DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

                                                        The Group                    The Bank
                                                    2003         2002       2003             2002
                                                  RM’000       RM’000     RM’000           RM’000

      Licensed banks                             2,353,455   2,318,045   1,307,900       1,882,877
      Licensed finance companies                   226,561     284,057      44,861         129,087
      Other financial institutions               1,517,304   1,310,447     706,945         845,195

                                                 4,097,320   3,912,549   2,059,706       2,857,159

      17 OTHER LIABILITIES

                                                        The Group                    The Bank
                                                    2003         2002       2003             2002
                                                  RM’000       RM’000     RM’000           RM’000

      Interest payable                             47,168      49,793      38,401           42,209
      Revaluation of derivative instruments       212,247     269,908     231,926          239,122
      Due to brokers and clients                  314,936     133,174           -                -
      Others                                      208,032     100,816      98,599           70,965

                                                  782,383     553,691     368,926          352,296

      18 PROVISION FOR TAXATION AND ZAKAT

                                                        The Group                    The Bank
                                                    2003         2002       2003             2002
                                                  RM’000       RM’000     RM’000           RM’000

      Taxation                                     48,447      37,149      41,970           18,585
      Zakat                                             2           2           -                -

                                                   48,449      37,151      41,970           18,585




250
                                                                         NOTES TO THE FINANCIAL STATEMENTS




19 LONG TERM DEBTS

                                                                                        The Group and the Bank
                                                                                          2003           2002
                                                                                        RM’000        RM’000

Negotiable certificates of deposits                                                     865,830         924,000

(i) Maturity structure of long term negotiable
      certificates of deposits are as follows:
    - One year to two years                                                             120,000         220,000
    - Two years to five years                                                           145,830         104,000
    - Five years to ten years                                                           600,000         600,000

                                                                                        865,830         924,000

Negotiable certificate of deposits with maturity structure of less than one year amounting to RM100,000,000
(2002: RM29,000,000) has been reclassified to deposits and placements of banks and other financial instruments.

The details of the negotiable certificates of deposits are as follows:

                                                                                        The Group and the Bank
                                                                Range of fixed
                                                                  interest rate
                                                                    per annum             2003             2002
Principal segregated by maturity year                                        %          RM’000           RM’000

Year   2004                                                                3.75               -         100,000
Year   2005                                                        3.70 to 6.10         120,000         120,000
Year   2006                                                                5.00         100,000         100,000
Year   2007                                                                3.35           4,000           4,000
Year   2008                                                                   -          41,830               -
Year   2011                                                                6.50         600,000         600,000

                                                                                        865,830         924,000

The negotiable certificate of deposits (“NCD”) issued are unsecured, unsubordinated and have no rights of
conversion. The respective NCD bear fixed coupon rates on their respective nominal amounts as set out in the
table above.

Interest on coupon bearing NCD is payable semi-annually on the respective dates as set out in the respective
certificates during the respective years they remain outstanding.

The Zero Coupon NCD is issued in accordance with Syariah principles, and the face value of RM50,000,000 is
repayable on maturity date. The unaccreted discount amounts to RM7,705,866 as at this financial year end.

Unless previously purchased or redeemed and cancelled, the Bank shall redeem the respective NCD at their
nominal value on the date of maturity upon surrender of the relevant certificates by the holders of the NCD
through an authorised depository as specified in the Guidelines on Negotiable Instruments of Deposit (“Guidelines”)
issued by Bank Negara Malaysia. The terms and conditions of the NCD shall be as provided in the Guidelines.




                                                                                                                      251
      NOTES TO THE FINANCIAL STATEMENTS




      20 SHARE CAPITAL

                                                                                              The Group and the Bank
                                                                                                2003           2002
                                                                                              RM’000        RM’000

      Ordinary shares of RM1 each:

      Authorised
       At 1 January /31 December                                                              500,000          500,000

      Issued and fully paid
        At 1 January /31 December                                                             319,242          319,242

      21 RESERVES

      The statutory reserves are maintained in compliance with Section 36 of the Banking And Financial Institutions
      Act, 1989. These statutory reserves are not distributable by way of dividends.

      Based on the estimated tax credit available, the prevailing tax rate applicable to dividend and subject to agreement
      with the tax authorities, the Bank has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and in
      its tax exempt account to frank the payment of dividend out of all its retained profits as at 31 December 2003.

      22 INTEREST INCOME

                                                                    The Group                            The Bank
                                                                2003         2002                2003             2002
                                                              RM’000       RM’000              RM’000           RM’000

      Loans and advances                                       82,772          65,312           73,989           65,233
      Money at call and deposit placements
        with financial institutions                            31,318          26,165          36,260           29,337
      Dealing securities                                      344,681         290,030         224,237          201,460
      Investment securities                                    69,160          14,300          42,439           21,185
      Others                                                   14,996          39,319          11,211           31,757
                                                              542,927         435,126         388,136          348,972
      Accretion of discount less amortisation
       of premium                                                 512            5,925            (420)           5,014
      Net interest suspended                                  (11,521)          (4,771)        (11,404)          (4,771)

                                                              531,918         436,280         376,312          349,215

      23 INTEREST EXPENSE

                                                                    The Group                            The Bank
                                                                2003         2002                2003             2002
                                                              RM’000       RM’000              RM’000           RM’000

      Deposits and placements of
       banks and other financial institutions                  75,210          69,580           40,761           39,990
      Deposits from other customers                           129,137          82,167           78,441           56,794
      Obligation on securities
       sold under repurchase agreements                        41,557          38,039           41,557           39,279
      Negotiable certificates of deposits                      78,965          83,082           78,965           83,082
      Others                                                    1,532          15,674              207           15,377

                                                              326,401         288,542         239,931          234,522




252
                                                                 NOTES TO THE FINANCIAL STATEMENTS




24 LOAN LOSS AND PROVISION

                                                           The Group                    The Bank
                                                       2003         2002        2003            2002
                                                     RM’000       RM’000      RM’000          RM’000

Write back/(provision) for bad and doubtful debts:
- general provision (net)                               4,133           -       5,448               -
- specific provision (net)                              4,690     (14,906)      4,690         (14,906)

                                                        8,823     (14,906)     10,138         (14,906)
Bad debts recovered                                     1,172            7      1,172                7
Provision for amount recoverable from Danaharta             -       (1,176)         -           (1,176)

                                                        9,995     (16,075)     11,310         (16,075)

25 NET FEE AND COMMISSION INCOME

                                                           The Group                    The Bank
                                                       2003         2002        2003            2002
                                                     RM’000       RM’000      RM’000          RM’000

Commission                                                 -         271            -               -
Fees on loans and advances                            20,984      18,503       16,320          18,503
Portfolio management fees                              5,259       3,499        4,882           3,459
Advisory and arrangement fees                         60,661      47,670       55,467          45,857
Guarantee fees                                         2,043       1,115          809           1,115
Underwriting commissions                              22,256      23,256       22,188          17,955
Placement fees                                         9,798      12,287        9,082          12,287
Other fee income                                       9,813         214        2,259             214

                                                     130,814     106,815      111,007          99,390

26 DIVIDEND INCOME

                                                           The Group                    The Bank
                                                       2003         2002        2003            2002
                                                     RM’000       RM’000      RM’000          RM’000

Dealing securities                                      4,303       2,034       2,387           1,952
Investment securities                                     884         150         854             150
Subsidiaries                                                -           -           -          60,002
Associates                                                  -           -       1,334               -

                                                        5,187       2,184       4,575          62,104

27 NET TRADING INCOME/(LOSS)

                                                           The Group                    The Bank
                                                       2003         2002        2003            2002
                                                     RM’000       RM’000      RM’000          RM’000

Net gain/(loss) from trading activities              234,485       (5,661)    157,193         (77,102)
Net (unrealised loss)/ reversal on
 revaluation of dealing securities                   (101,478)      3,174     (38,913)             5,396

                                                     133,007       (2,487)    118,280         (71,706)




                                                                                                           253
      NOTES TO THE FINANCIAL STATEMENTS




      28 NET (LOSS)/GAIN FROM INVESTMENT SECURITIES

                                                                 The Group                         The Bank
                                                             2003         2002             2003            2002
                                                           RM’000       RM’000           RM’000          RM’000

      Gain from sale of investment securities               39,032          6,160         34,371              6,160
      (Provision)/writeback for diminution in value
        of investment securities                           (58,958)        19,065        (44,274)          (3,938)

                                                           (19,926)        25,225          (9,903)            2,222

      29 OTHER NON-INTEREST INCOME

                                                                 The Group                         The Bank
                                                             2003         2002             2003            2002
                                                           RM’000       RM’000           RM’000          RM’000

      Foreign exchange gain
      - unrealised                                              66            128            120                 92
      - realised                                               709          3,377            704              1,468
      Gain on disposal of fixed assets                         318            612            172                423
      Loss on disposal of associate                              -              -            (14)                 -
      Other non-operating income                             6,779          9,070          5,688              8,120

                                                             7,872         13,187          6,670          10,103

      30 OVERHEAD EXPENSES

                                                                 The Group                         The Bank
                                                             2003         2002             2003            2002
                                                           RM’000       RM’000           RM’000          RM’000

      Personnel costs                                     125,298          82,484        103,432          67,418
      Establishment costs                                  26,195          25,503         16,508          15,510
      Marketing expenses                                    8,580           5,648          4,852           3,258
      Administration and general expenses                  19,755          18,838         12,855          11,031

                                                          179,828         132,473        137,647          97,217

      The above expenditure include the
        following disclosures:-
      Directors’ remuneration (Note 31)                      3,698          3,653          3,698              3,653
      Rental of premises                                     3,385          4,313          1,331              2,125
      Hire of equipment                                      4,534          4,258          2,191              2,086
      Auditors’ remuneration
        - statutory audit                                      256            256            122                122
        - other services                                       379            178            302                130
        - training                                               5             10              5                 10
        - half year audit review                               205              -            125                  -
      Depreciation of fixed assets                          11,247         10,298          8,815              7,955
      Fixed assets written off                                 111            780            111                402
      Amortisation of goodwill                                 908            908              -                  -

      Included in personnel costs of the Group and the Bank are wages, salaries and bonuses of RM103,549,000
      (2002: RM5,151,000) and RM86,045,000 (2002: RM57,336,000) respectively, contributions to defined contribution
      retirement plan of RM6,032,000 (2002: RM392,000) and RM4,554,232 (2002: RM4,045,370) respectively.




254
                                                                       NOTES TO THE FINANCIAL STATEMENTS




31 DIRECTORS’ REMUNERATION

                                                              The Group                           The Bank
                                                          2003         2002               2003             2002
                                                        RM’000       RM’000             RM’000           RM’000

Executive Directors
- Salary and other remuneration                           1,319           1,473           1,319              1,473
- Bonuses                                                 1,539           1,417           1,539              1,417
- Defined contribution retirement plan                      435             374             435                374
- Estimated cash value of benefits-in-kind                  156             103             156                103

Non-executive Directors
- Fees                                                      249             286             249               286

                                                          3,698           3,653           3,698              3,653

The remuneration attributable to the CEO of the Bank, including benefits-in-kind during the financial year amounted
to RM1,741,994 (2002: RM2,010,747). The remuneration includes current year’s salaries, preceding year’s
bonuses paid in current year and current year’s benefits-in-kind.

The details of the Directors of the Bank in office, and interest in shares and share options during the financial
year are disclosed in the Director’s Report.

32 TAXATION

(a) Tax expense for the financial year

                                                              The Group                           The Bank
                                                          2003         2002               2003             2002
                                                        RM’000       RM’000             RM’000           RM’000

Current tax
- Malaysian income tax                                   92,905          58,089          69,032           33,000
Share of tax of associates                                    3              149              -                 -
Deferred tax                                             (2,785)          (8,789)         1,969            (2,377)

                                                         90,123          49,449          71,001           30,623

Current tax
 - Current year                                          92,605          55,632          69,032           33,000
 - Underprovision in prior year                             303           2,606               -                -

Deferred tax
 - Origination and reversal
     of temporary differences                            (2,785)         (8,789)          1,969           (2,377)

                                                         90,123          49,449          71,001           30,623




                                                                                                                      255
      NOTES TO THE FINANCIAL STATEMENTS




      32 TAXATION (continued)

      (b) Numerical reconciliation of income tax expense

      The explanation on the relationship between tax expense and profit before tax is as follows:

                                                                    The Group                            The Bank
                                                                2003         2002                2003                2002
                                                              RM’000       RM’000              RM’000              RM’000

      Profit before tax                                       349,871         180,312         247,383               98,017

      Tax calculated at a tax rate
        of 28% (2002: 28%)                                     97,964          50,487           69,267              27,445
      Income not subject to tax                                (4,744)              (67)        (1,855)               (588)
      Expenses not deductible for tax purposes                  4,615                98          3,589               3,766
      Effects of different tax rates                           (8,015)          (3,675)              -                   -
      Underprovision in prior years                               303            2,606               -                   -

      Tax expense                                              90,123          49,449           71,001              30,623

      33 EARNINGS PER SHARE

      The basic and diluted earnings per ordinary share have been calculated based on the Group’s and the Bank’s
      net profit for the financial year of RM259,708,000 (2002: RM130,861,000) and RM176,382,000
      (2002: RM67,394,000) respectively and on the weighted average number of ordinary shares in issue during the
      financial year of 319,242,000 (2002: 319,242,000).

      34 DIVIDEND

                                                                     2003                                 2002
                                                                         Amount of                               Amount of
                                                            Gross per      dividend          Gross per             dividend
                                                                share     net of tax             share            net of tax
                                                                 Sen        RM’000                Sen              RM’000

      Interim dividend paid                                      56.73        130,400             4.25               9,769
      Final dividend paid                                            -              -            18.00              41,373

      A final gross dividend in respect of the financial year ended 31 December 2003 of 26.70 sen (2002: nil) per share
      less income tax of 28%, amounting to RM61,371,082 will be proposed for shareholders’ approval at the
      forthcoming Annual General Meeting. The proposed final dividend will be reflected in the financial statements of
      the next financial year ending 31 December 2004 when approved by shareholders.

      35 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES

      (a) Related parties and relationship

      Parties are considered to be related if one party has the ability to control the other party or exercise significant
      influence over the other party in making financial or operational decisions.




256
                                                                      NOTES TO THE FINANCIAL STATEMENTS




35 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)

(a) Related parties and relationship (continued)

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

Related parties                                                    Relationship

Commerce Asset-Holding Berhad                                      Ultimate holding company
CIMB Berhad                                                        Holding company
Subsidiaries of the Bank as disclosed in Note 10                   Subsidiaries
Associates of the Bank as disclosed in Note 11                     Associates
Bumiputra-Commerce Bank Berhad and its subsidiaries
 as disclosed in its financial statement                           Subsidiaries of ultimate holding company
Commerce Life Assurance Berhad                                     Subsidiary of ultimate holding company
Commerce Asset Ventures Sdn. Bhd. and its subsidiaries
 as disclosed in its financial statement                           Subsidiaries of ultimate holding company
Commerce Asset Fund Managers Sdn. Bhd.                             Subsidiary of ultimate holding company
Commerce Trust Berhad                                              Subsidiary of ultimate holding company
Commerce Asset Realty Sdn. Bhd.                                    Subsidiary of ultimate holding company
Commerce Asset Nominees Sdn. Bhd.                                  Subsidiary of ultimate holding company
Commerce MGI Sdn. Bhd.                                             Subsidiary of ultimate holding company
Commerce Volantia Sdn. Bhd.                                        Subsidiary of ultimate holding company
PT Bank Niaga and its subsidiaries as disclosed in its
 financial statement                                               Subsidiaries of ultimate holding company
Bank Muamalat Malaysia Berhad                                      Associate of ultimate holding company
Rangkaian Segar Sdn. Bhd.                                          Associate of ultimate holding company

(b) Related party transactions and balances

A number of banking transactions are entered into with related parties in the normal course of business. These
include loans, deposits, securities and derivative transactions. These transactions were carried out on commercial
terms and at market rates.

In addition to related party disclosure mentioned elsewhere in the financial statements, set out below are other
significant related party transactions and balances.

                                                                    Ultimate                             Other
                                                                     holding                           related
                                                                   company        Subsidiaries      companies
                                                                     RM’000           RM’000          RM’000

2003
Sales:
Malaysia Government securities                                      170,177            359,398       1,178,692
Government agency bonds and notes                                         -            698,489         439,698
Private debt securities                                                   -          2,248,983         529,553
Commercial paper                                                          -            904,377               -

                                                                    170,177          4,211,247       2,147,943




                                                                                                                     257
      NOTES TO THE FINANCIAL STATEMENTS




      35 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)

      (b) Related party transactions and balances (continued)

                                                                    Ultimate                       Other
                                                                     holding                     related
                                                                   company     Subsidiaries   companies
                                                                     RM’000        RM’000       RM’000

      2003
      Purchases:
      Malaysia Government securities                               104,196          15,913      699,660
      Government agency bonds and notes                             10,006           8,340      149,990
      Bank Negara Malaysia bills                                         -               -       94,775
      Private debt securities                                       24,076         499,879      571,904
      Commercial paper                                                   -          49,880            -

                                                                   138,278         574,012     1,516,329

      Income:
      Interest income                                                    56         13,643          314
      Fee income                                                         68              -            -

                                                                        124         13,643          314

      Expenditure:
      Interest expense                                                    6          2,941          421

      Amount due from:
      Net margin deposit                                                  -          9,650             -
      Loans and advances                                                  -          2,317             -
      Securities purchased under resale agreement                         -        324,219             -
      Deposits and placements                                             -        209,546             -
      Interest receivable                                                 -         29,917             -

                                                                          -        575,649             -

      Amount due to:
      Fixed deposits                                                      -         29,787        2,978
      Obligations on securities sold under repurchase agreements          -        315,903       43,723
      Negotiable certificates of deposits                                 -              -       95,000
      Deposits and placements                                             -              -      106,000
      Interest payable                                                    -             19          986

                                                                          -        345,709      248,687

      Principal
      Foreign exchange contracts:
      Forward contracts                                                   -               -     269,109

      Interest rate contracts:
      Swaps                                                        250,000       1,299,000      960,435




258
                                                                NOTES TO THE FINANCIAL STATEMENTS




35 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)

(b) Related party transactions and balances (continued)

                                                              Ultimate                       Other
                                                               holding                     related
                                                             company     Subsidiaries   companies
                                                               RM’000        RM’000       RM’000

2002
Sales:
Malaysia Government securities                                      -        112,767     3,529,226
Government agency bonds and notes                                   -          9,995       313,248
Private debt securities                                        30,208        773,507       738,402
Commercial papers                                                   -        713,283             -

                                                               30,208      1,609,552     4,580,876

Purchases:
Malaysia Government securities                                      -         35,776     2,726,230
Government agency bonds and notes                                   -        155,769        55,145
Private debt securities                                             -        996,007       439,684
Commercial papers                                                   -        244,350        34,851

                                                                    -      1,431,902     3,255,910

Income:
Interest income                                                    16         12,919         2,434
Fee income                                                        708              -            75

                                                                  724         12,919         2,509

Expenditure:
Interest expense                                                    -          3,402         1,573

Amount due from:
Net margin deposit                                                  -          3,493            -
Loans and advances                                                  -              -       38,000
Negotiable certificates of deposits                                 -              -       70,000
Deposits and placements                                             -        400,100       76,000
Interest receivable                                                 -         17,652        1,215

                                                                    -        421,245      185,215

Amount due to:
Fixed deposits                                                      -         12,239            -
Obligations on securities sold under repurchase agreements          -         30,983        3,671
Negotiable certificates of deposits                                 -              -      120,000
Deposits and placements                                             -        346,457      266,000
Interest payable                                                    -             98        1,008

                                                                    -        389,777      390,679




                                                                                                     259
      NOTES TO THE FINANCIAL STATEMENTS




      35 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (continued)

      (b) Related party transactions and balances (continued)

                                                                           Ultimate                              Other
                                                                            holding                            related
                                                                          company         Subsidiaries      companies
                                                                            RM’000            RM’000          RM’000

      2002
      Principal
      Foreign exchange contracts:
      Forward contracts                                                           -                   -           28,843

      Interest rate contracts:
      Swaps                                                                250,000            655,000        1,092,204

      Equity contracts:
      Others                                                                      -             11,222                 -

      (c) Employee benefits

      During the financial year, employees of the CIMB Berhad Group were granted options to CIMB Berhad shares.
      Details of the share option scheme are disclosed in the financial statements of the holding company,
      CIMB Berhad.

      36 COMMITMENTS AND CONTINGENCIES

      In the normal course of business, the Group and the Bank enters into various commitments and incurs certain
      contingent liabilities with legal recourse to their customers. No material losses are anticipated as a result of
      these transactions and hence are not provided for in the financial statements.

      These commitments and contingencies are not secured over the assets of the Group and the Bank, except for
      certain dealing securities being pledged as credit support assets for certain over-the-counter derivative contracts.

      The commitments and contingencies constitute the following:

                                                                                         The Group
                                                                         2003                             2002
                                                                               Credit                            Credit
                                                             Principal     equivalent         Principal      equivalent
                                                              RM’000         RM’000            RM’000          RM’000

      Credit risk related instruments
      Direct credit substitutes                               224,092         224,092         101,433            101,433
      Certain transaction related
        contingent items                                       39,795           19,898          39,777            19,888
      Obligations under
        underwriting agreements                               163,546           81,773        144,971             72,485
      Irrevocable commitments to
        extend credit:
        - Maturity exceeding one year                         325,783         162,892          42,716             21,358
        - Maturity not exceeding one year                     322,394               -          31,730                  -
      Sell and buy back agreements                             66,570          66,570         106,448            106,448

                                                            1,142,180         555,225         467,075            321,612




260
                                                                NOTES TO THE FINANCIAL STATEMENTS




36 COMMITMENTS AND CONTINGENCIES (continued)

                                                                             The Group
                                                             2003                            2002
                                                                  Credit                           Credit
                                                 Principal    equivalent         Principal     equivalent
                                                  RM’000        RM’000            RM’000         RM’000

Derivative related instruments
Foreign exchange related contracts:
Forwards
   - Less than one year                              3,169             59          28,843              462
Foreign exchange swap
  - Less than one year                            905,515           12,539        809,507            12,152
Cross currency swap
  - Less than one year                             16,690              501        245,403            10,414
  - One year to less than five years              211,497           27,958         57,809             4,657
Interest rate related contracts:
  - Less than one year                          29,097,845        8,344        15,512,151             6,663
  - One year to less than five years            63,154,196      331,938        34,849,519           167,815
  - Five years to less than ten years            6,106,000      137,193         8,053,000           101,801
Equity related contracts:
  - Less than one year                             19,912                -          6,533                 -
  - One year to less than five years               46,425                -              -                 -
                                                99,561,249      518,532        59,562,765           303,964
                                               100,703,429     1,073,757       60,029,840           625,576


                                                                             The Bank
                                                             2003                            2002
                                                                  Credit                           Credit
                                                 Principal    equivalent         Principal     equivalent
                                                  RM’000        RM’000            RM’000         RM’000

Credit risk related instruments
Direct credit substitutes                         124,092       124,092           101,433           101,433
Certain transaction related contingent items       39,795        19,898            39,777            19,889
Obligations under underwriting agreements         147,993        73,996            85,844            42,921
Irrevocable commitments to extend credit:
  - Maturity exceeding one year                   325,783       162,892            42,716            21,358
  - Maturity not exceeding one year               322,394             -            31,730                 -
                                                  960,057       380,878           301,500           185,601

Derivative related instruments
Foreign exchange related contracts:
Forward
  - Less than one year                               3,169             59          28,843              462
Foreign exchange swap
  - Less than one year                            882,770           12,199        798,654            11,980
Cross currency swap
  - Less than one year                             16,690              500        245,403            10,414
  - One year to less than five years              211,497           27,958         57,809             4,657
Interest rate related contracts:
  - Less than one year                          29,162,845        8,778        15,512,151             6,663
  - One year to less than five years            64,003,196      362,227        35,399,519           202,153
  - Five years and above                         6,491,000      167,053         8,158,000           122,604
Equity related contracts:
  - Five years and above                                 -               -         11,222            10,558
                                               100,771,167      578,774        60,211,601           369,491
                                               101,731,224      959,652        60,513,101           555,092

                                                                                                              261
      NOTES TO THE FINANCIAL STATEMENTS




      36 COMMITMENTS AND CONTINGENCIES (continued)

      Credit risk related instruments

      Direct credit substitutes comprise guarantees undertaken by the Group and the Bank to support the financial
      obligations of its customers to third parties.

      Certain transaction related contingent items represent financial products whose crystallisations are dependent
      on specific events other than default in payment by the customers. They include performance related contingents
      and standby letters of credit.

      Obligations under underwriting agreements arise from underwriting agreements relating to the issue of securities,
      where the Group and the Bank is obliged to subscribe or purchase the securities in the event the securities are
      not taken up when issued.

      Irrevocable commitments to extend credit include all obligations on the part of the Group and the Bank to
      provide funding facilities.

      Sell and buy back agreements are the obligation of the Group to perform its promise to buy back specified
      Islamic securities at maturity.

      Derivative related instruments

      The Group and the Bank utilises the following financial instruments for both trading and hedging purposes:

      Foreign exchange related contracts

      Forward foreign exchange contracts are agreements to buy or sell fixed amounts of currency at agreed rates of
      exchange on a specified future date.

      Foreign exchange swaps are agreements to exchange, and on termination of the swap, re-exchange principal
      amounts denominated in different currencies.

      Cross currency swaps involve the exchange of equivalents amounts of two currencies and a commitment to
      exchange interest periodically until the principal amounts are re-exchanged on a future date.

      Interest rate related contracts

      Interest rate futures are agreements to buy or sell standard quantity of placements at an agreed rate of interest
      on a standard future date.

      Interest rate swaps involve the exchange of interest obligations with a counterparty for a specified period without
      exchanging the underlying principal.

      Interest rate caps and floors give the buyer the ability to fix the maximum or minimum rate of interest. There is no
      facility to deposit or draw down funds, instead the writer pays to the buyer the amount by which the market rate
      exceeds or is less than the cap rate or the floor rate respectively.

      Equity related contracts

      Equity futures are exchange-traded agreements to buy or sell a standard quantity of a basket of equities in the
      form of published indices, at an agreed price on a standard future date.




262
                                                                       NOTES TO THE FINANCIAL STATEMENTS




36 COMMITMENTS AND CONTINGENCIES (continued)

Derivative related instruments (continued)

Others

The Group and the Bank have also given a continuing guarantee to Labuan Offshore Financial Services Authority
to meet the liabilities and financial obligations and requirements of its subsidiary, CIMB (L) Limited, arising from
its offshore banking business in the Federal Territory of Labuan.

Credit equivalent

The transactions are categorised and credit equivalents calculated under BNM guidelines for the risk based
measurement of capital adequacy. The credit equivalent amounts are a measure of the potential loss to the
Group and the Bank in the event of possible non-performance by a counterparty.

The credit equivalent exposure from direct credit substitutes is the fair value of the transaction, whereas the
credit equivalent exposure to certain transaction related contingent items is 50% of the face value.

The credit equivalent exposure from obligations under underwriting agreements is 50% of the face value. As to
irrevocable commitment to extend credit, the credit equivalent exposure for commitments with an arising maturity
of over one year is 50%, while commitments with an original maturity of up to one year, or which can be
conditionally cancelled at any one time is 0%.

The credit equivalent exposure on sell and buy back agreements is 100% of the face value.

The Group and Bank are not exposed to credit risk for the full face value of their foreign exchange and interest
rate related contingencies, but only to the potential cost of replacing the cashflow if the counterparty defaults.
The credit equivalent exposure is calculated using the current exposure method and is disclosed for each product
class. This amount is based on the summation of two elements, that are the replacement costs (obtained by
marked to market) of all contracts with positive value and the amount of potential future exposure calculated by
applying given “add-on” factors to the principal value of each contract.

Breakdown of foreign exchange, interest rate and equity contracts are as follows:

                                                               The Group                            The Bank
                                                           2003          2002              2003               2002
                                                       Principal     Principal         Principal          Principal
                                                        RM’000        RM’000            RM’000             RM’000

Foreign exchange contracts:
- Forwards                                                3,169          28,843           3,169            28,843
- Foreign exchange swaps                                905,515         809,507         882,770           798,654
- Cross-currency swaps                                  228,187         303,212         228,187           303,212

Interest rate contracts:
- Futures                                           85,009,612       51,315,128      85,009,612        51,315,128
- Swaps                                             13,338,429        7,089,542      14,637,429         7,744,542
- Option                                                10,000           10,000          10,000            10,000

Equity contracts:
- Futures                                                19,912            6,533                -               -
- Option                                                 46,425                -                -               -
- Others                                                      -                -                -          11,222

Foreign exchange, interest rate and equity related contracts are subject to market risk and credit risk.




                                                                                                                       263
      NOTES TO THE FINANCIAL STATEMENTS




      36 COMMITMENTS AND CONTINGENCIES (continued)

      Market risk

      Market risk is the potential change in value caused by movement in market rates or prices. The contractual
      amounts stated above provide only a measure of involvement in these types of transactions and do not represent
      the amount subject to market risk. Exposure to market risk may be reduced through offsetting on and
      off-balance sheet positions. As at 31 December 2003, the amount of foreign exchange exposure in terms of net
      o u t s t a n d i n g a m o u n t w a s R M 3 9 , 9 3 2 , 7 6 6 ( 2 0 0 2 : R M 3 3 , 7 6 8 , 5 6 1 ) f o r t h e G ro u p a n d R M 3 9 , 9 3 2 , 7 6 6
      (2002: RM33,768,561) for the Bank, while amount of interest rate exposure in terms of net interest rate repricing
      gap was RM1,260,991,000 (2002: RM1,106,137,539) and RM2,978,000 (2002: nil) for the Group and
      RM385,415,745 (2002: RM492,790,349) for the Bank.

      Credit risk

      Credit risk arises from the possibility that a counterparty may be unable to meet the terms of a contract in which
      the Group and the Bank has a gain position. As at 31 December 2003, the amount of credit risk, measured in
      terms of the cost to replace the profitable contracts, was RM518,531,912 (2002: RM303,963,901) for the Group
      and RM578,773,912 (2002: RM369,490,725) for the Bank. The amount will increase or decrease over the life of
      the contracts, mainly as a function of maturity dates and market rates or prices.

      37 CAPITAL COMMITMENTS

      Capital expenditure not provided for in the financial statements are as follows:

                                                                                      The Group                                         The Bank
                                                                                  2003         2002                         2003                   2002
                                                                                RM’000       RM’000                       RM’000                 RM’000

      Authorised and contracted for                                                9,120              27,360                        -                  -
      Authorised but not contracted for                                                -              19,000                        -             19,000

                                                                                   9,120              46,360                        -             19,000

      The capital commitments are attributed to:
      - subscription for investments                                               9,120              46,360                        -             19,000

      38 LEASE COMMITMENTS

      The Group and 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 non-cancellable long-term commitments representing minimum
      rentals not adjusted for operating expenses which the Group and the Bank is obliged to pay are as follows:

                                                                                      The Group                                         The Bank
                                                                                  2003         2002                         2003                   2002
                                                                                RM’000       RM’000                       RM’000                 RM’000

      Not later than one year                                                      3,154                2,081                1,562                    854
      Later than one year and not later than five years                            2,971                  386                1,622                    386

      39 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 settled, between
      knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents
      the estimates of fair values as at the balance sheet date.




264
                                                                          NOTES TO THE FINANCIAL STATEMENTS




39 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

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.

In addition, fair value information for non-financial assets and liabilities are excluded as they do not fall within the
scope of MASB 24 which requires the fair value information to be disclosed. These include fixed assets, investment
in subsidiaries and associates and intangibles.

A range of methodologies and assumptions had been used in deriving the fair values of the Group’s financial
instruments at balance sheet date. The total fair value by each financial instrument is not materially different
from the total carrying value, except for the following financial assets and liabilities:

                                                                                 The Group
                                                                      2003                             2002
                                                         Carrying             Fair         Carrying              Fair
                                                          amount            value           amount              value
                                                          RM’000           RM’000          RM’000             RM’000
Financial assets
Securities purchased under resale agreements              109,276         113,527           77,448            87,722
Dealing securities                                      6,814,157       6,865,915        7,848,627         7,892,970
Investment securities                                   1,277,967       1,287,878        1,591,007         1,617,335
Loans and advances                                      1,496,461^      1,500,305        1,074,200^        1,079,887

Financial liabilities
Deposits from customers                                 4,205,514       4,205,490        4,706,733         4,704,777
Deposits and placements of banks
 and other financial institutions                       4,097,320       4,077,458        3,912,549         3,915,421
Long term debts                                           865,830         857,510          924,000           945,038

^ Excludes general provision amounting to RM40,127,000 (2002 : RM44,260,000).

                                                                                  The Bank
                                                                      2003                             2002
                                                         Carrying             Fair         Carrying              Fair
                                                          amount            value           amount              value
                                                          RM’000           RM’000          RM’000             RM’000

Financial assets
Securities purchased under resale
  agreements                                              430,329         434,580           74,746            85,020
Dealing securities                                      3,158,480       3,177,498        5,000,747         5,029,681
Investment securities                                     684,104         692,721          998,804         1,022,034
Loans and advances                                      1,284,838^      1,288,682        1,007,904^        1,013,595

Financial liabilities
Deposits and placements of banks
 and other financial institutions                       2,059,706       2,059,706        2,857,159         2,860,031
Long term debts                                           865,830         857,510          924,000           945,038

^   Excludes general provision amounting to RM38,812,115 (2002: RM44,260,000).




                                                                                                                           265
      NOTES TO THE FINANCIAL STATEMENTS




      39 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

      The fair values of derivative financial instruments at the balance sheet date are as follows:

                                                                                    The Group
                                                                        2003                          2002
                                                                      Fair value                    Fair value
                                                                 Asset       Liability        Asset          Liability
                                                                RM’000       RM’000         RM’000           RM’000

      Derivative financial instruments
      Foreign exchange contracts:
       - Forwards                                                     59                -             363              (697)
       - Foreign exchange swaps                                      101             (304)             10            (1,385)
       - Cross currency swaps                                      1,968             (168)          3,382            (2,425)

      Interest rate contracts:
        - Futures                                                48,746         (168,019)         16,867          (160,644)
        - Swaps                                                 196,643         (132,181)        109,118           (94,048)
        - Options                                                     -                -               5                 (5)

      Equity contracts:
       - Futures                                                     117               (4)            100                  -

                                                                                     The Bank
                                                                        2003                          2002
                                                                      Fair value                    Fair value
                                                                 Asset       Liability        Asset          Liability
                                                                RM’000       RM’000         RM’000           RM’000

      Derivative financial instruments
      Foreign exchange contracts:
        - Forwards                                                    59                -             363              (697)
        - Foreign exchange swaps                                     101             (299)              -            (1,385)
        - Cross currency swaps                                     1,968             (168)          3,382            (2,425)
      Interest rate contracts:
        - Futures                                                48,746         (168,019)         16,867          (160,644)
        - Swaps                                                 180,319         (112,186)        137,068           (91,202)
        - Options                                                     -                -               5                 (5)
      Equity contracts:
        - Others                                                        -                -            564                  -

      As such, the carrying amount of all financial assets and financial liabilities at balance sheet date approximate
      their fair value.

      The derivative financial instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuation
      in market interest rates or foreign exchange rates relative to their terms. The extent to which instruments are
      favourable or unfavourable and the aggregate fair values of derivative financial assets and liabilities can fluctuate
      significantly from time to time.

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

      Securities purchased under resale agreements

      The fair values of securities purchased under resale agreements with maturities of less than six months approximate
      the carrying values. For securities purchased under resale agreements with maturities six months and above,
      estimated fair value is based on discounted cash flows using market rates for the remaining term to maturity.


266
                                                                        NOTES TO THE FINANCIAL STATEMENTS




39 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

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 interest rates at which similar deposits
and placements would be made with financial institutions of similar credit risk and remaining period to maturity.

Dealing and investment securities

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 estimated by reference to market indicative yields or net
tangible asset backing of the investee.

Loans and advances

For floating rate loans, the carrying value is generally a reasonable estimate of fair value.

For fixed rate loans, the fair value is estimated by discounting the estimated future cash flows using the prevailing
market rates of loans with similar credit risks and maturities.

The fair values of impaired floating and fixed rate loans are represented by their carrying value, net of specific
provision and interest-in-suspense, being the expected recoverable amount.

Deposits from customers

For deposits from customers with maturities of less than six months, the carrying amounts are a reasonable
estimate of their fair value. For deposit with maturities of six months or more, 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

The estimated fair values of deposits and placements of banks and other financial institutions with maturities of
less than six months approximate the carrying values. For deposits and placements with maturities six months
or more, the fair values are estimated based on discounted cash flows using prevailing money market interest
rates for deposits and placements with similar remaining period to maturities.

Long term debts

Long term debts comprise negotiable certificates of deposits issued by the Group. The estimated fair values are
estimated based on discounted cash flows using prevailing market rates for similar negotiable certificates of
deposits. Where there are no ready market rates, fair values are estimated by reference to corporate bond
indicative yields taking into consideration the credit rating of the Group.

Credit risk related contracts

The net fair value of these items was not calculated as estimated fair values are not readily ascertainable. These
financial instruments generally relate to credit risks and attract fees in line with market prices for similar
arrangements. They are not presently sold nor traded. The items generally do not involve cash payments other
than in the event of default. The fair value may be represented by the present value of fees expected to be
received, less associated costs. The overall level of fees involved is not material.

Foreign exchange rate, interest rate and equity contracts

The fair values of foreign exchange rate, interest rate and equity contracts are the estimated amounts the Group
or the Bank would receive or pay to terminate the contracts at the balance sheet date.
                                                                                                                        267
      NOTES TO THE FINANCIAL STATEMENTS




      40 SEGMENT REPORTING

      The Group is divided into four major business lines - Financial advisory, underwriting and other fees, Debt related,
      Equity related and Others. The business lines are the basis on which the Group reports its primary segment
      information.

      Financial advisory, underwriting and other fees mainly comprises of fees derived from structured financial solutions,
      origination of capital market products including debt and equity, mergers and acquisitions, secondary offerings,
      asset backed securities, debt restructurings, corporate advisory, Islamic capital market products and project
      advisory. In addition, this segment also includes underwriting of primary equities and debt products.

      Debt related mainly comprises of proprietary trading and market making in the secondary market for debt, debt
      related derivatives and structured products. It includes the origination of lending products such as corporate
      loans and margin lending. It also invests in proprietary capital.

      Equity related mainly comprises of institutional and retail broking business for securities listed on the Exchange.
      It also includes income from trading and investing in domestic and regional equities market.

      Others mainly comprises of income derived from Islamic and Private Banking operations undertaken by
      the Group.

      The following table presents an analysis of the results and balance sheet positions by business segments:

                                          Financial
                                       advisory and
                                       underwriting
                                          and other              Debt           Equity
                                               fees            related         related          Others             Total
                                            RM’000             RM’000          RM’000          RM’000            RM’000

      2003
      External net interest income                 -          205,517                  -               -        205,517
      Non interest income:
       - Fee income                        130,814                   -               -                 -        130,814
       - Net trading income                      -              95,282          37,725                 -        133,007
       - (Loss)/gain from
         investment income                         -           (26,590)          6,664               -           (19,926)
       - Brokerage                                 -                 -          56,886               -            56,886
      Other income                                 -                 -           5,187          17,543            22,730

      Operating income (exclude
       Provisions)                         130,814            274,209          106,462          17,543          529,028

      Segment result                         86,209           214,971           81,641            7,149         389,970
      Unallocated costs                                                                                         (39,008)*

      Profit from operations                                                                                    350,962
      Share of results of associates                                                                                297
      Goodwill amortisation                                                                                      (1,388)

      Profit before taxation                                                                                    349,871
      Taxation                                                                                                  (90,120)
      Share of tax of associates                                                                                     (3)
      Minority interest                                                                                             (40)

      Net profit for the financial year
       after minority interest                                                                                  259,708



268
                                                              NOTES TO THE FINANCIAL STATEMENTS




40 SEGMENT REPORTING (continued)

                                   Financial
                                advisory and
                                underwriting
                                   and other         Debt      Equity
                                        fees       related    related      Others          Total
                                     RM’000        RM’000     RM’000      RM’000         RM’000

2003
Segment assets                       85,939     12,641,888    390,962      75,233     13,194,022
Investment in associates                  -              -        319           -            319
                                     85,939     12,641,888    391,281      75,233     13,194,341
Unallocated assets                                                                        85,617
Total assets                                                                          13,279,958

Segment liabilities                   2,118     11,163,976    270,506      87,088     11,523,688
Unallocated liabilities                                                                  144,636
Total liabilities                                                                     11,668,324

Other segment items
Incurred capital expenditure:
- addition of fixed assets            1,104          1,961      1,487       3,291          7,843
- additions of fixed assets from
   acquisition of subsidiaries             -             -           -         516           516
Depreciation                          (1,512)       (2,796)     (2,093)     (4,846)      (11,247)
Amortisation of goodwill                   -             -        (908)          -          (908)
Accretion of discount less
  amortisation of premium                  -           512           -           -          512
Provision for doubtful debts          (9,621)        9,995           -           -          374
Provision for diminution in value
  of investment securities                 -       (58,958)          -           -       (58,958)

2002
External net interest income               -      147,738            -           -      147,738
Non interest income:
- Fee income                        106,148              -           -        667       106,815
- Net trading income/(loss)               -          9,105     (11,592)         -        (2,487)
- Gain/(loss) from investment
   income                                  -       28,471       (3,246)         -        25,225
- Brokerage                                -            -      33,920           -        33,920
Other income                               -        3,505        2,184     15,969        21,658
Operating income
 (exclude provisions)               106,148       188,819      21,266      16,636       332,869
Segment result                       78,393       119,798       3,045       4,973       206,209
Unallocated costs                                                                       (24,730)*
Profit from operations                                                                  181,479
Share of result of associates                                                               221
Goodwill amortisation                                                                    (1,388)




                                                                                                    269
      NOTES TO THE FINANCIAL STATEMENTS




      40 SEGMENT REPORTING (continued)

                                             Financial
                                          advisory and
                                          underwriting
                                             and other          Debt           Equity
                                                  fees        related         related          Others             Total
                                               RM’000         RM’000          RM’000          RM’000            RM’000

      Profit before taxation                                                                                   180,312
      Taxation                                                                                                  (49,449)
      Zakat                                                                                                           (2)
      Net profit for the financial year                                                                        130,861

      Segment assets                           82,769     12,003,583          244,809         225,213       12,556,374
      Investment in associates                      -              -            2,332               -            2,332
                                               82,769     12,003,583          247,141         225,213       12,558,706
      Unallocated assets                                                                                         6,292
      Total assets                                                                                          12,564,998

      Segment liabilities                       6,154     10,670,756          114,259         188,320       10,979,489
      Unallocated liabilities                                                                                  112,062
      Total liabilities                                                                                     11,091,551

      Other segment items
      Incurred capital expenditure:
      - addition of fixed assets                 9,057         22,733            3,713           2,247           37,750
      Depreciation                              (2,017)         (5,252)         (2,529)           (500)         (10,298)
      Amortisation of goodwill                       -               -            (908)              -             (908)
      Accretion of discount less
        amortisation of premium                      -          5,925                 -               -           5,925
      (Provision)/writeback for
        doubtful debts                          (2,998)       (16,075)           1,268          (2,500)         (20,305)
      Writeback for diminution in
        value of investment
        securities                                   -         19,065                 -               -          19,065

      *   The unallocated costs refer to expenditures arising from the Chief Executive Officer’s Office and the Investment
          Banking Division which had arisen at the Group level and relate to the Group as a whole, hence not directly
          allocated to respective segments.

      The reconciliation for total segments operating income to the net income of the consolidated financial statements
      are as follows:

                                                                                                2003              2002
                                                                                              RM’000            RM’000

      Operating income (exclude provisions)                                                   529,028          332,869
      Less:
      Loan loss and provision                                                                    9,995          (16,075)
      Provision for other receivables                                                           (9,621)           (4,230)
      Net income                                                                              529,402          312,564




270
                                                                        NOTES TO THE FINANCIAL STATEMENTS




40 SEGMENT REPORTING (continued)

The Group’s activities are predominantly carried out in Malaysia, with the Malaysian market contributing
approximately 99% of the gross operating income and the total segment assets in Malaysia approximate 99% of
total assets in the Group. Accordingly, no information on the Group’s operations by geographical segments has
been provided.

41 PRIOR YEAR ADJUSTMENT

During the financial year, the Group and the Bank changed its accounting policy with respect to the recognition
of deferred taxation in compliance with the MASB 25, Income Taxes.

Accounting for Income Taxes

In the previous period, provision is made by using the “liability” method for deferred taxation in respect of all
material timing differences between accounting and taxable income. Timing differences that give rise to deferred
tax benefits are not taken into account except where there is reasonable expectation of realisation. Under MASB
25, Income Taxes, a deferred tax liability should be recognised for all temporary differences unless otherwise
specified in the Standard. Deferred tax asset should be recognised for all deductible temporary differences to
the extent that it is probable that taxable profit will be available against which the deductible temporary difference
can be utilised except in cases specified in the Standard.

This change in accounting policy has been accounted for retrospectively and comparatives have been restated
as follows:

                                                                                         Effect of
                                                                   As previously        change in
                                                                        reported            policy     As restated
                                                                         RM’000           RM’000           RM’000

The Group
As at 1 January 2002
Balance sheet:
- Deferred tax (liabilities)/ assets                                       (8,772)          20,651          11,879
- Goodwill                                                                32,592           (12,000)         20,592
- Retained profit                                                        545,890             4,911         550,801
- Statutory reserve                                                      216,870             3,740         220,610

As at 31 December 2002
Balance sheet:
- Deferred tax assets                                                          -            20,668          20,668
- Goodwill                                                                31,204           (11,520)         19,684
- Retained profit                                                        598,021             5,652         603,673
- Statutory reserve                                                      243,961             3,496         247,457
Income statement:
- Overhead expenses                                                      (132,953)             480        (132,473)
- Taxation                                                                 (49,317)             17         (49,300)
- Net profit for the financial year                                       130,364              497         130,861




                                                                                                                         271
      NOTES TO THE FINANCIAL STATEMENTS




      41 PRIOR YEAR ADJUSTMENT (continued)

                                                                                             Effect of
                                                                        As previously       change in
                                                                             reported           policy     As restated
                                                                              RM’000          RM’000           RM’000

      The Bank
      As at 1 January 2002
      Balance sheet:
      - Deferred tax (liabilities)/ assets                                      (4,000)          7,479           3,479
      - Retained profit                                                       363,471            3,739         367,210
      - Statutory reserve                                                     211,848            3,740         215,588

      As at 31 December 2002
      Balance sheet:
      - Deferred tax assets                                                         -            5,856           5,856
      - Retained profit                                                       364,092            2,522         366,614
      - Statutory reserve                                                     229,102            3,334         232,436
      Income statement:
      - Taxation                                                               (29,000)         (1,623)        (30,623)
      - Net profit for the financial year                                       69,017          (1,623)         67,394

      The new accounting policy has the effect of reducing the Group’s and the Bank’s net profits for financial year
      ended 31 December 2003 by RM2,305,000 and RM1,969,000 respectively.

      42 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

      (a) Restructuring and listing scheme of CIMB Berhad, the Bank’s holding company

          (i)    Restricted offer for sale

                 On 2 January 2003, 1,100,000 of CIMB Berhad shares were allotted at an offer price of RM1.75, under
                 the restricted offer for sales to the Non-Executive Directors and Company Secretary of Commerce
                 Asset-Holding Berhad (“CAHB”) and the Non-Executive Directors of CIMB Berhad Group.

          (ii)   Employee Equity Scheme (“EES”)

                 On 2 January 2003, 41,300,000 of CIMB Berhad shares were allotted to the respective CIMB Berhad
                 Group employees (under their nominees accounts) according to their entitlements under the EES.

          (iii) Executive Employee Share Option Scheme (“EESOS”)

                 CIMB Berhad had on 2 January 2003, made an offer to grant options to the Senior Management of
                 CIMB Berhad Group to subscribe the shares of CIMB Berhad under the EESOS. The number of EESOS
                 options offered to the Senior Management of CIMB Berhad Group amounted to 11,000,000 new ordinary
                 shares of RM1.00 each of CIMB Berhad.

          (iv) Listing and quotation

                 The entire issued and paid-up share capital of CIMB Berhad amounting to 850,000,000 ordinary shares
                 of RM1.00 each was admitted to the Official List of the Exchange, and the listing and quotation of these
                 shares on the Main Board of Malaysian Securities Exchange Berhad (“the Exchange”) was granted with
                 effect from 8 January 2003.




272
                                                                         NOTES TO THE FINANCIAL STATEMENTS




42 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (continued)

(b) Employees Share Option Scheme (“ESOS”) of CAHB

      CAHB implemented a new ESOS (“ESOS 2002/2007”) to replace the previous ESOS (“ESOS 1997/2002”)
      which had expired on 20 June 2002. The ESOS 2002/2007 is governed by the by-laws which were approved
      by the shareholders on 26 April 2002.

(c) Termination of proposed investment in Global TIMES Ventures GmbH & Co. KG

      The Bank and T-Venture Holding GmbH of Germany (formerly known as T-Telematik Venture Holding GmbH)
      (“T-Ventures”) had on 27 February 2003 signed a Termination Agreement to formalise the intentions of the
      parties to terminate an earlier Agreement dated 18 June 2001 for the proposed participation by the Bank in
      Global TIMES Ventures GmbH & Co. KG (“GTV”). GTV is a limited partnership in which the Bank has contracted
      to acquire a 20% interest, amounting to a total investment of EUR11,400,000.

(d) Sale of Malaysian Issuing House Sdn. Bhd. (“MIH”)

      On 2 April 2003, the Bank entered into Sale and Purchase agreement with Symphony House Berhad to
      dispose of its 25.5% equity interest comprising 637,500 ordinary shares of RM1.00 each in MIH for a total
      consideration of RM624,272. The Sale and Purchase agreement was subsequently completed on
      30 July 2003.

(e) Memorandum of Understanding (“MOU”) with Al-Tawfeek Company for Investment Funds Limited
    (“Al-Tawfeek”)

      On 2 June 2003, the Bank entered into a MOU with Al-Tawfeek for the purpose of establishing a co-operation
      to jointly undertake Islamic banking activities globally. Al-Tawfeek is a subsidiary of Dallah Al-Baraka Group
      which is based in Jeddah, Saudi Arabia. Its principal activity is carrying on the business of an investment
      fund company. Under the MOU, both Al-Tawfeek and the Bank agree to provide and share all forms of
      assistance and expertise in Islamic investment banking and further provide financing and funding for ensuring
      the successful implementation of the co-operation.

(f)   Subscription of irredeemable non-cumulative preference shares in CIMB Discount House Berhad

      The Bank had on 30 June 2003 subscribed for 116.0 million irredeemable non-cumulative preference shares
      of RM1.00 each in its wholly owned subsidiary, CIMB Discount House Berhad for a total consideration of
      RM116.0 million. The Bank is entitled to dividend at the discretion of the Board of Directors of CIMB Discount
      House Berhad.

      The irredeemable non-cumulative preference shares rank in priority to the existing ordinary shares of CIMB
      Discount House Berhad with respect to payment of dividend and amounts receivable upon liquidation,
      dissolution or winding up of CIMB Discount House Berhad.

(g) Acquisition of PT Niaga Sekuritas of Indonesia

      CIMB (L) Limited, a licensed offshore bank and a subsidiary of the Bank, had on 19 November 2003 acquired
      51% of the equity interest in PT Niaga Sekuritas (“Niaga Sekuritas”) of Indonesia. The acquisition was via
      the acquisition of 179,000 existing ordinary shares and the subscription of 18,266,000 new ordinary shares
      issued in Niaga Sekuritas, at a total cash consideration of Rupiah 20.7 billion (RM9.3 million). Niaga Sekuritas
      was then a 99% owned subsidiary of PT Bank Niaga of Indonesia (“Bank Niaga”) which in turn is a 51%
      owned subsidiary of Commerce Asset-Holding Berhad (“CAHB”). The name of Niaga Sekuritas was
      subsequently changed to PT CIMB Niaga Securities on 8 December 2003.




                                                                                                                         273
      NOTES TO THE FINANCIAL STATEMENTS




      42 SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (continued)

      (h) Satisfaction of capital commitment in CIMB Muamalat Fund I and Navis Asia Fund III

          CIMB (L) Limited, a wholly-owned subsidiary of the Bank had on 18 July 2003 and 2 December 2003 fulfilled
          its capital commitment by paying up 25% and 35% respectively of total investment in CIMB Muamalat
          Fund I and Navis Asia Fund III.

      43 SIGNIFICANT EVENTS SUBSEQUENT TO BALANCE SHEET DATE

      (a) Memorandum of Understanding (“MOU”) with Al-Tawfeek Company for Investment Funds Limited
          (“Al-Tawfeek”)

          The Bank and Al-Tawfeek had on 11 January 2004 agreed to mutually terminate the MOU and not to proceed
          with the formalisation of the alliance to jointly undertake Islamic banking activities globally. However, both
          parties have agreed to work towards maintaining and enhancing the good relationship that exists between
          them.

      (b) Proposed acquisition of CIMB Sharetech Sdn Bhd (“Sharetech”) by CIMB Berhad from CIMB Securities
          Sdn Bhd.

          On 6 January 2004, CIMB Berhad has proposed to acquire the entire ordinary equity interest in ShareTech
          comprising of 40,003,120 ordinary shares of RM1.00 each from CIMB Securities Sdn Bhd, a wholly-owned
          subsidiary of the Bank, for a cash consideration of RM47.8 million.

          The acquisition was approved by the Foreign Investment Committee on 24 February 2004.

      (c) Sale of Banyan Ventures Sdn Bhd

          On 30 January 2004, the Bank entered into Sale and Purchase Agreement with Tan Choi Khow and Michael
          Toh Kian Seng to dispose of its 37.04% equity interest comprising 1,000,000 ordinary shares of RM1.00
          each in Banyan Ventures Sdn Bhd for a total consideration of RM39,338. The Sale and Purchase agreement
          was subsequently completed on 16 February 2004.



      (d) Executive Employee Share Option Scheme (“EESOS”)

          CIMB Berhad had on 11 February 2004, made an offer to grant options to eligible employees of CIMB
          Berhad Group to subscribe the shares of CIMB Berhad under the EESOS. The number of EESOS options
          offered to the eligible employees of CIMB Berhad Group amounted to 24,751,000 new ordinary shares of
          RM1.00 each of CIMB Berhad.

      (e) Memorandum of Agreement with TA Enterprise Berhad in relation to the proposed acquisition by
          CIMB Berhad of the entire equity interest in Botly Securities Sdn Bhd

          CIMB Berhad had on 13 February 2004 entered into a Memorandum of Agreement (“MOA”) with TA Enterprise
          Berhad (“TAE”) in relation to the proposed acquisition by CIMB Berhad of the entire equity interest in Botly
          Securities Sdn Bhd, from TAE for a total purchase consideration of RM400 million to be satisfied by the
          issuance of 80,000,000 new ordinary shares of RM1.00 each in CIMB Berhad at an issue price of RM5.00
          per share.

          The MOA sets out the respective parties’ agreement on the principal terms of the proposed acquisition and
          definitive agreements would be entered into at a later date.

          The proposed acquisition is subject to approval from relevant authorities.



274
                                                                     NOTES TO THE FINANCIAL STATEMENTS




44 CAPITAL ADEQUACY

The capital adequacy ratios of the Group’s banking operation (the Bank including the operation of CIMB (L)
Limited) are as follows:

                                                                                   2003            2002
                                                                                 RM’000          RM’000

Tier-1 capital                                                                  1,292,421     1,214,051
Eligible Tier-2 capital                                                            40,127        44,260
Total capital                                                                   1,332,548     1,258,311
Less:
  Investment in subsidiaries                                                     (362,549)      (246,549)
  Subordinated term debt                                                          (52,402)             -
Total capital base                                                               917,597      1,011,762

Capital ratios
Core capital ratio                                                                 23.72%         23.02%
Risk-weighted capital ratio                                                        23.72%         23.02%

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

                                                                                   2003           2002
                                                                                 RM’000         RM’000

Tier-1 capital
Paid up share capital                                                            319,242        319,242
Share premium                                                                    283,489        283,489
Other reserves (adjusted)                                                        689,836        611,320
Less:
 Goodwill                                                                            (146)             -
Total Tier-1 capital                                                            1,292,421     1,214,051

Tier-2 capital
General provision for bad and doubtful debts                                      40,127         44,260
Total Tier-2 capital                                                              40,127         44,260
Total capital                                                                   1,332,548     1,258,311
Less:
 Investment in subsidiaries and holding of other banking institutions capital    (362,549)      (246,549)
 Subordinated term debt                                                           (52,402)             -
Total capital base                                                               917,597      1,011,762

Breakdown of risk-weighted assets in the various categories of risk-weights:

                                                                                   2003            2002
                                                                                 RM’000          RM’000

0%                                                                              3,261,336     3,404,628
10%                                                                               711,654       770,756
20%                                                                             1,553,374     1,458,507
50%                                                                               235,202       117,753
100%                                                                            3,367,631     3,966,962
                                                                                9,129,197     9,718,606

Total risk-weighted assets                                                      3,867,072     4,394,616



                                                                                                             275
      NOTES TO THE FINANCIAL STATEMENTS




      45 ACQUISITION OF SUBSIDIARY

      Effect of acquisition of subsidiary company during the current financial year on financial statements

      (a) PT CIMB Niaga Securities

          CIMB (L) Limited, a licensed offshore bank and a subsidiary of the Bank, had on 19 November 2003 acquired
          51% of the equity interest in PT Niaga Sekuritas (“Niaga Sekuritas”) of Indonesia. The acquisition was via
          the acquisition of 179,000 existing ordinary shares and the subscription of 18,266,000 new ordinary shares
          issued in Niaga Sekuritas, at a total cash consideration of Rupiah 20.7 billion (RM9.6 million). Niaga Sekuritas
          was then a 99% owned subsidiary of PT Bank Niaga of Indonesia (“Bank Niaga”) which in turn is a 51%
          owned subsidiary of Commerce Asset-Holding Berhad (“CAHB”). The name of Niaga Sekuritas was
          subsequently changed to PT CIMB Niaga Securities on 8 December 2003.

      (b) Summary of effect of the acquisition

          The effect of the acquisition on the financial results of the Group during the current financial year is shown
          below:

                                                                                                       1 month ended
                                                                                                          31.12.2003
                                                                                                             RM’000

          Interest income                                                                                           133
          Interest expense                                                                                            (5)
          Net interest income                                                                                       128
          Net fee and commission income                                                                              68
          Net trading income                                                                                        227
          Brokerage income                                                                                          104
          Other non-interest income                                                                                   3
          Net income                                                                                                530
          Overhead expenses                                                                                        (448)
          Profit before taxation                                                                                     82
          Taxation                                                                                                    -
          Profit after tax                                                                                            82
          Minority interest                                                                                          (40)
          Increase in Group’s net profit after tax and minority
            interest for the financial year                                                                          42




276
                                                                       NOTES TO THE FINANCIAL STATEMENTS




45 ACQUISITION OF SUBSIDIARY (continued)

Effect of acquisition of subsidiary company during the current financial year on financial statements
(continued)

(b) Summary of effect of the acquisition (continued)

    The effect of the acquisition on the financial position at the current financial year end is as follows:

                                                                                                      31.12.2003
                                                                                                         RM’000

    Cash and short-term funds                                                                                2,241
    Deposits and placements with financial institutions                                                          2
    Dealing securities                                                                                     15,783
    Loans and advances                                                                                          22
    Other assets                                                                                             7,142
    Fixed assets                                                                                               502
    Other liabilities                                                                                       (7,662)
    Increase in the Group’s net assets                                                                     18,030


    Details of net asset acquired and cash flow arising from the acquisition is as follows:

                                                                                                       At date of
                                                                                                      acquisition
                                                                                                         RM’000

    Cash and short-term funds                                                                                1,789
    Dealing securities                                                                                     14,285
    Other assets                                                                                             4,596
    Fixed assets                                                                                               516
    Other liabilities                                                                                       (3,250)
    Fair value of net assets acquired                                                                      17,936
    Minority interest                                                                                       (8,789)
    Group’s share of net assets                                                                                9,147
    Goodwill                                                                                                     146
    Cost of acquisition                                                                                     9,293
    Less : Cash and cash equivalent of subsidiary acquired                                                 (1,789)
    Cast outflow on acquisition                                                                                7,504


46 AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENT

The financial statements have been authorised for issue in accordance with a resolution of the Board of Directors
on 27 January 2004.




                                                                                                                       277
      NOTES TO THE FINANCIAL STATEMENTS




      47 COMPARATIVE FIGURES

      The following comparative figures had been restated to comply with current financial year presentation:

                                                                 As previously
                                                                      reported     Reclassification    As restated
                                                                       RM’000              RM’000          RM’000
      At 31 December 2002
      The Group

      Balance sheet
      Gross loans, advances and financing                            1,110,662              64,681      1,175,343
      Specific provision                                                (81,979)             (1,022)       (83,001)
      Interest-in-suspense                                              (17,938)               (204)       (18,142)
      Other assets
      - due from brokers and clients                                   174,232              (63,455)      110,777
      - deposits and revaluation of derivative financial instruments   162,943             140,450        303,393
      Other liabilities
      - revaluation of derivative financial instruments                129,458             140,450        269,908

      The Bank
      Balance sheet
      Other assets
      - deposits and revaluation of derivative financial instruments   166,436             140,450        306,886
      Other liabilities
      - revaluation of derivative financial instruments                 98,672             140,450        239,122




278
                                                                    NOTES TO THE FINANCIAL STATEMENTS




48 THE OPERATIONS OF ISLAMIC BANKING

Consolidated balance sheet as at 31 December 2003

                                                                       Note       2003         2002
                                                                                RM’000       RM’000

Assets
Cash and short-term funds                                               (b)      90,962       95,868
Dealing securities                                                      (c)     351,742      125,969
Investment securities                                                   (d)      30,006            -
Financing and advances                                                  (e)      13,497            -
Statutory deposits with Bank Negara Malaysia                                      1,261            -
Other assets                                                             (f)      2,148          544
Total assets                                                                    489,616      222,381

Liabilities and Islamic banking capital funds
Deposits from customers                                                 (g)      75,577       35,159
Deposits and placements of banks and other financial institutions       (h)     290,874      141,881
Long term debts                                                          (i)     41,830            -
Provision for taxation and zakat                                         (j)      3,296       10,135
Other liabilities                                                       (k)       2,496          468
Total liabilities                                                               414,073      187,643

Islamic banking capital funds                                                    55,000       20,000
Reserves                                                                         20,543       14,738

Total Islamic banking capital funds                                              75,543       34,738
Total liabilities and Islamic banking capital funds                             489,616      222,381

Commitments and contingencies
Principal                                                                 (r)   199,913      107,948
Credit equivalent                                                         (r)   145,742      107,198




                                                                                                        279
      NOTES TO THE FINANCIAL STATEMENTS




      48 THE OPERATIONS OF ISLAMIC BANKING (continued)

      Bank balance sheet as at 31 December 2003

                                                                          Note      2003
                                                                                  RM’000

      Assets
      Cash and short-term funds                                            (b)     45,019
      Dealing securities                                                   (c)     26,949
      Investment securities                                                (d)     30,006
      Financing and advances                                               (e)     13,497
      Statutory deposit with Bank Negara Malaysia                                   1,261
      Other assets                                                          (f)       675
      Total assets                                                                117,407

      Liabilities and Islamic banking capital funds
      Deposits and placements of banks and other financial institutions    (h)     34,861
      Long term debts                                                       (i)    41,830
      Other liabilities                                                    (k)      1,768
      Provision for taxation                                                (j)     1,105
      Total liabilities                                                            79,564
      Islamic banking capital funds                                                35,000
      Reserves                                                                      2,843
      Total Islamic banking capital funds                                          37,843
      Total liabilities and Islamic banking capital funds                         117,407

      Commitments and contingencies
      Principal                                                             (r)   133,343
      Credit equivalent                                                     (r)    79,172




280
                                                                      NOTES TO THE FINANCIAL STATEMENTS




48 THE OPERATIONS OF ISLAMIC BANKING (continued)

Consolidated income statement
for the financial year ended 31 December 2003

                                                                          Note            2003           2002
                                                                                        RM’000         RM’000

Income derived from investment of depositors’ funds                         (l)         14,321           9,614
Transfer to profit equalisation reserve                                                   (982)           (200)
Other expense directly attributable to the investment
  of the depositors and Islamic banking capital funds                                       (78)            (50)
Total attributable income                                                                13,261          9,364
Income attributable to the depositors                                     (m)           (10,237)        (4,613)
Income attributable to the Reporting Institutions                                        3,024           4,751
Income derived from investment of Islamic
  banking capital funds                                                    (n)           6,647           1,536
Total net income                                                                          9,671          6,287
Provision for losses on financing and advances                                             (206)             -
Overhead expenses                                                          (o)           (1,403)          (524)
Profit before taxation and zakat                                                          8,062          5,763
Taxation                                                                   (p)           (2,257)        (1,951)
Zakat                                                                                         -              (2)
Net profit for the financial year                                                        5,805           3,810



Bank income statement
for the financial period from 2 June 2003 (date of commencement) to 31 December 2003



                                                                                                From 2.6.2003
                                                                                                       (date of
                                                                                              commencement)
                                                                                                 to 31.12.2003
                                                                              Note                     RM’000

Income derived from investment of depositors’ funds                               (l)                    1,899
Transfer to profit equalisation reserve                                                                   (734)
Other expenses directly attributable to the investment of
  the depositors and Islamic banking capital funds                                                         (14)
Total attributable income                                                                                1,151
Income attributable to the depositors                                             (m)                   (1,014)
Income attributable to the Reporting Institution                                                           137
Income derived from the investment of Islamic banking capital funds               (n)                    5,011
Total net income                                                                                         5,148
Provision for losses on financing and advances                                                            (206)
Overhead expenses                                                                 (o)                     (994)
Profit before taxation                                                                                   3,948
Taxation                                                                          (p)                   (1,105)
Net profit for the financial period                                                                      2,843




                                                                                                                   281
      NOTES TO THE FINANCIAL STATEMENTS




      48 THE OPERATIONS OF ISLAMIC BANKING (continued)

      Consolidated statement of changes in equity
      for the financial year ended 31 December 2003

                                                         Islamic
                                                       Banking        Statutory      Retained
                                                    capital fund        reserve         profit     Total
                                                        RM’000         RM’000         RM’000     RM’000

      Balance as at 1 January 2002                       20,000           3,747         7,181    30,928
      Net profit for the financial period                     -               -         3,810     3,810
      Transfer to statutory reserve                           -             571          (571)        -
      Balance as at 31 December 2002                     20,000           4,318        10,420    34,738

      Balance as at 1 January 2003                       20,000           4,318        10,420    34,738
      Additional funds allocated from Head office        35,000               -             -    35,000
      Net profit for the financial year                       -               -         5,805     5,805
      Transfer to statutory reserve                           -           1,155        (1,155)        -
      Balance as at 31 December 2003                     55,000           5,473        15,070    75,543



      Bank statement of changes in equity
      for the financial period from 2 June 2003 (date of commencement) to 31 December 2003

                                                                           Non-
                                                                   distributable Distributable
                                                         Islamic
                                                       Banking        Statutory      Retained
                                                    capital fund        reserve         profit     Total
                                                        RM’000         RM’000         RM’000     RM’000

      Funds allocated from Head Office at
        2 June 2003 (the date of commencement)           35,000               -             -    35,000
      Net profit for the financial period                     -               -         2,843     2,843
      Transfer to statutory reserve                           -             711          (711)        -
      Balance as at 31 December 2003                     35,000             711         2,132    37,843




282
                                                                    NOTES TO THE FINANCIAL STATEMENTS




48 THE OPERATIONS OF ISLAMIC BANKING (continued)

Consolidated cash flow statement
for the financial year ended 31 December 2003

                                                                        Note      2003         2002
                                                                                RM’000       RM’000

Cash flows used in operating activities

Profit before taxation and zakat                                                   8,062       5,763

Add/(less) adjustments:
Transfer to profit equalisation reserve                                             982          200
Written down/(write back) of dealing securities                                      37         (184)
Provision for losses on financing and advances                                      206            -
Cash flow from operating profit before changes in
 operating assets and liabilities                                                  9,287       5,779

(Increase)/decrease in operating assets
Dealing securities                                                              (225,810)     13,906
Financing and advances                                                           (13,703)          -
Statutory deposits with Bank Negara Malaysia                                      (1,261)          -
Other assets                                                                      (1,604)        839

(Increase)/decrease in operating liabilities
Deposits from customers                                                          40,418      (16,034)
Deposits and placements of banks and other financial institutions               148,993      (77,160)
Other liabilities                                                                 1,046        (6,497)
Cash from operating activities                                                   (42,634)    (79,167)
Taxation paid                                                                     (9,096)       (492)

Net cash used in operating activities                                            (51,730)    (79,659)

Cash flows used in investing activities
Purchase of investment securities                                                (30,006)           -
Net cash used in investing activities                                            (30,006)           -

Cash flows from financing activities
Additional funds allocated from head office                                      35,000             -
Drawdown of long term debts                                                      41,830             -
Net cash from financing activities                                               76,830             -

Net (decrease)/ increase in cash and cash
 equivalents during the financial year                                           (4,906)     (79,659)
Cash and cash equivalents at beginning of the financial year                     95,868      175,527
Cash and cash equivalents at end of the financial year                   (b)     90,962       95,868




                                                                                                         283
      NOTES TO THE FINANCIAL STATEMENTS




      48 THE OPERATIONS OF ISLAMIC BANKING (continued)

      Bank cash flow statement
      for the financial period from 2 June 2003 (date of commencement) to 31 December 2003

                                                                                             From 2.6.2003
                                                                                                    (date of
                                                                                            commencement)
                                                                                              to 31.12.2003
                                                                          Note                      RM’000

      Cash flows used in operating activities

      Profit before taxation and zakat                                                               3,948

      Add/(less) adjustments:
      Transfer to profit equalisation reserve                                                          734
      Provision for losses on financing and advances                                                   206
      Net unrealised loss on revaluation of dealing securities                                         171
      Cash flow from operating profit before changes in
       operating assets and liabilities                                                              5,059

      (Increase)/decrease in operating assets
      Dealing securities                                                                           (27,120)
      Financing and advances                                                                       (13,703)
      Statutory deposits with Bank Negara Malaysia                                                  (1,261)
      Other assets                                                                                    (675)

      Increase/(decrease) in operating liabilities
      Deposits and placements of banks and other financial institutions                             34,861
      Other liabilities                                                                              1,034
      Cash from operating activities                                                                (1,805)
      Taxation paid                                                                                      -
      Net cash used in operating activities                                                         (1,805)

      Cash flows used in investing activities
      Purchase of investment securities                                                            (30,006)
      Net cash used in investing activities                                                        (30,006)

      Cash flows from financing activities
      Funds allocated from head office                                                              35,000
      Drawdown of long term debts                                                                   41,830
      Net cash from financing activities                                                            76,830

      Net increase in cash and cash equivalents during the financial period                         45,019
      Cash and cash equivalents at beginning of the financial period                                     -
      Cash and cash equivalents at end of the financial period                        (b)           45,019




284
                                                                      NOTES TO THE FINANCIAL STATEMENTS




48 THE OPERATIONS OF ISLAMIC BANKING (continued)

(a) Disclosure of Syariah Advisor or Board

    The Fiqh Council was formally set up on 19 May 2003. As at the date of this report, the Fiqh Council comprises
    the following members:

    •   Associate Professor Dr. Mohd Daud bin Bakar (Chairman) - Malaysian
    •   Professor Dr. Mohammad Hashim Kamali - Canadian
    •   Associate Professor Hafiz Elsheikh Mohamed El Zaki - Sudanese
    •   Assistant Professor Dr. Engku Rabiah Adawiah binti Engku Ali - Malaysian

    The Group’s management is responsible for ensuring that the financial institution conducts its Skim Perbankan
    Islam (SPI) business in accordance with the principles and provisions of the Islamic Syariah. The Fiqh Council
    is responsible for expressing an independent Fiqh opinion based on the information submitted by the Group’s
    management.

    The Fiqh Council held several meetings during the year and the Fiqh Council replied and advised on matters
    relating to the structuring of Islamic financial instruments and other Syariah queries submitted to it by the
    management. It is the Fiqh Council’s opinion that the contracts, transactions and dealings entered into by
    the Group in its SPI business which have been referred to the Council during the year are in compliance with
    Islamic Syariah rules and principles.

                                                                          The Group                  The Bank
                                                                 2003                2002                2003
                                                               RM’000              RM’000              RM’000

(b) Cash and short-term funds
    Cash and balances with banks and other
     financial institutions                                         212                 198                 119
    Money at call and deposit placements
     maturing within one month                                  90,750                95,670             44,900

                                                                90,962                95,868             45,019

                                                                          The Group                  The Bank
                                                                 2003                2002                2003
                                                               RM’000              RM’000              RM’000

(c) Dealing securities
    Money market instruments:
    Malaysian Government Investment Certificate                      -                52,011                  -
    Islamic Bank Negara Negotiable notes                        50,884                19,863              1,172
    Negotiable instruments of deposits                          60,547                     -                  -
    Bankers’ acceptance and Islamic
      accepted bills                                           204,350                39,805                   -
                                                               315,781            111,679                 1,172
   Unquoted securities:
   In Malaysia
   Islamic private debt securities                              35,961                14,290             25,777
                                                               351,742            125,969                26,949




                                                                                                                     285
      NOTES TO THE FINANCIAL STATEMENTS




      48 THE OPERATIONS OF ISLAMIC BANKING (continued)

                                                                    The Group            The Bank
                                                           2003               2002           2003
                                                         RM’000             RM’000         RM’000

      (c) Dealing securities (continued)
          Market value of money market
            instruments
          Malaysian Government Investment Certificate          -                52,027          -
          Islamic Bank Negara Negotiable notes            51,142                19,986      1,173
          Negotiable instruments of deposits              60,547                     -          -
          Bankers acceptance and Islamic accepted
            bills                                        204,350                39,805          -

                                                                    The Group            The Bank
                                                           2003               2002           2003
                                                         RM’000             RM’000         RM’000

      (d) Investment securities
          Unquoted securities:
          In Malaysia
          Islamic private debt securities                 30,006                     -     30,006

                                                                    The Group            The Bank
                                                           2003               2002           2003
                                                         RM’000             RM’000         RM’000

      (e) Financing and advances
          Revolving credits                               13,703                     -     13,703
         Gross financing and advances                     13,703                     -     13,703
         Provision for bad and doubtful debts:
         - General                                          (206)                    -       (206)
         Net financing and advances                       13,497                     -     13,497

         (i) Financing analysed by concepts is as
               follows:
             - Murabahah                                  13,703                     -     13,703

         (ii) The maturity structure of financing is
                as follows:
              - One year to three years                   13,703                     -     13,703

         (iii) Financing according to economic
                 sector is as follows:
               - Construction                             13,703                     -     13,703

         (iv) Movement in the provision for bad
                and doubtful debts are as follows:
              General provision
              At 1 January/ date of commencement              -                      -          -
              Net provision made during the year            206                      -        206
             At 31 December                                 206                      -        206

             (as % of total financing and advances
             less specific provision and income-
             in-suspense)                                    1.5%                    -       1.5%




286
                                                                  NOTES TO THE FINANCIAL STATEMENTS




48 THE OPERATIONS OF ISLAMIC BANKING (continued)

                                                                       The Group                The Bank
                                                              2003               2002               2003
                                                            RM’000             RM’000             RM’000

   (f) Other assets
       Dividend receivables                                   1,807                  223              655
       Other debtors, deposits and prepayments                  341                  321                20

                                                              2,148                  544              675


                                                                       The Group                The Bank
                                                              2003               2002               2003
                                                            RM’000             RM’000             RM’000

   (g) Deposits from customers
       Mudharabah fund:
       General investment deposits                                 -               35,159                -
       Special investment deposits                           75,577                     -                -

                                                             75,577                35,159                -

       (i) Maturity structure of general and
             special investment deposits are
             as follows:
           - Due within six months                           75,577                35,159                -

       (ii) The deposits are sourced from the
              following customers:
            - Business enterprises                           75,577                35,159                -


                                                                       The Group                The Bank
                                                              2003               2002               2003
                                                            RM’000             RM’000             RM’000

   (h) Deposits and placements of banks and
         other financial institutions
       Mudharabah fund:
       Licensed banks                                        49,615                29,787          34,861
       Other financial institutions                         241,259            112,094                   -

                                                            290,874            141,881             34,861

   (i) Long term debts
       Negotiable certificate of deposits                    41,830                     -          41,830



The terms and conditions of the negotiable certificate of deposits are disclosed in Note 19 to the financial
statements.




                                                                                                               287
      NOTES TO THE FINANCIAL STATEMENTS




      48 THE OPERATIONS OF ISLAMIC BANKING (continued)

                                                                                  The Group                  The Bank
                                                                         2003               2002                 2003
                                                                       RM’000             RM’000               RM’000

        (j) Provision for taxation and zakat
            Taxation                                                    3,294                 10,133             1,105
            Zakat                                                           2                      2                 -
                                                                        3,296                 10,135             1,105


                                                                                  The Group                  The Bank
                                                                         2003               2002                 2003
                                                                       RM’000             RM’000               RM’000

        (k) Other liabilities
            Dividend payable                                              745                   225                491
            Profit equalisation reserve                                 1,182                   200                734
            Other liabilities                                             569                    43                543
                                                                        2,496                   468              1,768

           Profit equalisation reserve
           At 1 January/ date of commencement                              200                    -                  -
           Amount arising from acquisition of subsidiaries                   -                    -                  -
           Amount provided during the financial year                     3,827                  200                843
           Amount written back during the financial year                (2,845)                   -               (109)
           At 31 December                                               1,182                   200                734


                                                                                  The Group                  The Bank
                                                                                                        From 2.6.2003
                                                                                                               (date of
                                                                                                       commencement
                                                                         2003               2002        to 31.12.2003)
                                                                       RM’000             RM’000               RM’000

        (l) Income derived from investment of
               depositors’ funds
            Income derived from investment of:
            (i) General investment deposits                             8,064                  9,614             1,333
            (ii) Specific investment deposits                           6,257                      -               566
                                                                       14,321                  9,614             1,899

           (i) Income derived from investment of
                 general investment deposits
               Finance income and hibah:
               Dealing securities                                       3,888                  4,443               442
               Investment securities                                      602                      -               602
               Money at call and deposit with financial institutions    1,214                  1,401               194
                                                                        5,704                  5,844             1,238




288
                                                          NOTES TO THE FINANCIAL STATEMENTS




48 THE OPERATIONS OF ISLAMIC BANKING (continued)

                                                                The Group                 The Bank
                                                                                     From 2.6.2003
                                                                                            (date of
                                                                                    commencement
                                                        2003              2002       to 31.12.2003)
                                                      RM’000            RM’000              RM’000

     (i) Income derived from investment of
            general investment deposits (continued)
        Other dealing income
        Net gain from sale of dealing securities       2,366                2,941               219
        Net unrealised loss on revaluation of
         dealing securities                              (85)                 93               (164)
                                                       2,281                3,034                55

       Fee and commission income:
       Fee on financing and advances                       1                   -                  1
       Arrangement fees                                   38                   -                 38
       Guarantee fees                                      1                   -                  1
       Underwriting commission                            39                 266                  -
       Others                                              -                 470                  -
                                                          79                 736                 40
                                                       8,064                9,614             1,333


                                                                The Group                 The Bank
                                                                                     From 2.6.2003
                                                                                            (date of
                                                                                    commencement
                                                        2003              2002       to 31.12.2003)
                                                      RM’000            RM’000              RM’000

     (ii) Income derived from investment of
            specific investment deposits
          Finance income and hibah:
          Financing and advances                         566                    -               566
          Dealing securities                           5,986                    -                 -
                                                       6,552                    -               566

        Other dealing income
        Net loss from sale of dealing securities        (295)                   -                  -
                                                       6,257                    -               566




                                                                                                       289
      NOTES TO THE FINANCIAL STATEMENTS




      48 THE OPERATIONS OF ISLAMIC BANKING (continued)

                                                                              The Group                 The Bank
                                                                                                   From 2.6.2003
                                                                                                          (date of
                                                                                                  commencement
                                                                      2003              2002       to 31.12.2003)
                                                                    RM’000            RM’000              RM’000

        (m)    Income attributable to depositors
               Deposits from customers
               - Mudharabah Fund                                     1,476                1,543                  -
               Deposits and placements of banks and other
                 financial institution
               - Mudharabah Fund                                     8,761                3,070             1,014
                                                                    10,237                4,613             1,014


                                                                              The Group                 The Bank
                                                                                                   From 2.6.2003
                                                                                                          (date of
                                                                                                  commencement
                                                                      2003              2002       to 31.12.2003)
                                                                    RM’000            RM’000              RM’000

        (n) Income derived from investment of
              Islamic banking capital funds
            Finance income and hibah:
            Investment securities                                      378                   -                378
            Dealing securities                                       1,105                 814                221
            Money at call and deposit with financial institutions      388                 268                100
                                                                     1,871                1,082               699

              Other dealing income
              Net (loss)/gain from sale of dealing securities         (216)                319               (617)
              Reversal of unrealised loss on revaluation
               of dealing securities                                    48                  91                  (7)
                                                                      (168)                410               (624)

              Fee and commission income:
              Fee on financing and advances                            103                   -                103
              Arrangement fees                                       4,652                   -              4,652
              Guarantee fees                                           140                   -                140
              Underwriting commission                                    8                  44                 41
              Others                                                    41                   -                  -
                                                                     4,944                  44              4,936
                                                                     6,647                1,536             5,011




290
                                                                   NOTES TO THE FINANCIAL STATEMENTS




48 THE OPERATIONS OF ISLAMIC BANKING (continued)

                                                                       The Group                 The Bank
                                                                                            From 2.6.2003
                                                                                                   (date of
                                                                                           commencement
                                                               2003               2002      to 31.12.2003)
                                                             RM’000             RM’000             RM’000

   (o) Overhead expenses
       Personnel costs                                           562                277                   308
       Establishment costs                                        94                 11                    11
       Marketing expenses                                        507                  5                   505
       Administration and general expenses                       240                231                   170
                                                               1,403                524                   994

Included in the personnel costs are wages, salaries and bonuses of RM452,004 (2002: RM16,619) and
contributions to defined contribution retirement plan of RM48,122 (2002: RM1,999).

The number of employees as at the end of the financial year was 12 (2002: 7) in the Group and 6 (2002: nil)
in the Bank.

                                                                       The Group                 The Bank
                                                                                            From 2.6.2003
                                                                                                   (date of
                                                                                           commencement
                                                               2003               2002      to 31.12.2003)
                                                             RM’000             RM’000             RM’000

   (p) Taxation
       (i) Tax expense for the financial year
           Current year tax
           - Malaysian income tax                              2,257               1,951                 1,105

       (ii) Numerical reconciliation of income tax expense

          The explanation on the relationship between tax expense and profit before tax is as follows:

                                                                       The Group                 The Bank
                                                                                            From 2.6.2003
                                                                                                   (date of
                                                                                           commencement
                                                               2003               2002      to 31.12.2003)
                                                             RM’000             RM’000             RM’000

          Profit before tax                                    8,062               5,763                 3,948
          Tax calculated at tax rate of 28% (2002: 28%)        2,257               1,614                 1,105
          Expenses not deductible for tax purposes                 -                 337                     -
          Tax expense                                          2,257               1,951                 1,105




                                                                                                                 291
      NOTES TO THE FINANCIAL STATEMENTS




      48 THE OPERATIONS OF ISLAMIC BANKING (continued)

         (q) Capital Adequacy Ratio

            The capital adequacy ratios of the Group’s Islamic banking operation arising from the Bank are as
            follows:

                                                                                                      2003
                                                                                                    RM’000

             Tier-1 capital                                                                          37,843
             Eligible Tier-2 capital                                                                    206
             Total capital base                                                                      38,049

             Capital ratios
             Core capital ratio                                                                      26.55%
             Risk-weighted capital ratio                                                             26.70%

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

                                                                                                      2003
                                                                                                    RM’000

             Tier-1 capital
             Islamic capital banking fund                                                            35,000
             Reserves                                                                                 2,843
             Total Tier-1 capital                                                                    37,843

             Tier-2 capital
             General provision for bad and doubtful debts                                               206
             Total Tier-2 capital                                                                       206
             Total capital base                                                                      38,049

             Breakdown of risk-weighted assets in the various categories of risk-weights:

                                                                                                      2003
                                                                                                    RM’000

             0%                                                                                      2,519
             10%                                                                                         -
             20%                                                                                    45,858
             50%                                                                                    30,184
             100%                                                                                  118,222
                                                                                                   196,783

             Total risk-weighted assets                                                            142,486




292
                                                                        NOTES TO THE FINANCIAL STATEMENTS




48 THE OPERATIONS OF ISLAMIC BANKING (continued)

                                                                                    The Group
                                                                  2003                               2002
                                                                           Credit                           Credit
                                                      Principal        equivalent       Principal       equivalent
                                                       RM’000            RM’000          RM’000           RM’000

   (r) Commitments and Contingencies
       Direct credit substitutes                        25,000            25,000                 -                -
       Irrevocable commitments to
          extend credit
       - maturity exceeding one year                   108,343            54,172                 -                -
       Obligations under underwriting
          agreements                                         -                 -          1,500                 750
       Sell and buy back agreement                      66,570            66,570        106,448             106,448
                                                       199,913           145,742        107,948             107,198



                                                                                                 The Bank
                                                                                                   2003
                                                                                                         Credit
                                                                                       Principal     equivalent
                                                                                        RM’000          RM’000

   (r) Commitments and Contingencies
       Direct credit substitutes                                                         25,000              25,000
       Irrevocable commitments to extend credit
          - maturity exceeding one year                                                 108,343              54,172
                                                                                        133,343              79,172


   (s)   Maturities of assets

         The distribution of assets in accordance with maturity structure or expected period to cash conversion.

                                                                The Group
                                Up to 1       1-3           3 - 12        1-5                    Over
                                 month      months         months         year                5 years         Total
                                RM’000      RM’000         RM’000       RM’000                RM’000        RM’000

2003
Assets
Cash and short term funds     90,962              -              -                -               -          90,962
Dealing securities           126,125        150,862         38,793           35,962               -         351,742
Investment securities              -              -              -                -          30,006          30,006
Financing and advances            45              -              -           13,452               -          13,497
Statutory deposits with Bank
  Negara Malaysia                  -              -                -              -             1,261         1,261
Other assets                   1,545            216               66            321                 -         2,148
Total assets                    218,677     151,078         38,859           49,735          31,267         489,616




                                                                                                                      293
      NOTES TO THE FINANCIAL STATEMENTS




      48 THE OPERATIONS OF ISLAMIC BANKING (continued)

         (s)   Maturities of assets (continued)

                                                                The Group
                                     Up to 1        1-3     3 - 12        1-5       Over
                                      month       months   months         year   5 years     Total
                                     RM’000       RM’000   RM’000       RM’000   RM’000    RM’000

      2002
      Assets
      Cash and short term funds       95,868           -        -            -        -     95,868
      Dealing securities              38,715      22,482    1,960       52,012   10,800    125,969
      Other assets                        71         126       26          321        -        544
      Total assets                   134,654      22,608    1,986       52,333   10,800    222,381


                                                                The Bank
                                     Up to 1        1-3     3 - 12       1-5        Over
                                      month       months   months        year    5 years     Total
                                     RM’000       RM’000   RM’000      RM’000    RM’000    RM’000

      2003
      Assets
      Cash and short term funds       45,019           -        -            -        -     45,019
      Dealing securities                   -       1,172        -       25,777        -     26,949
      Investment securities                -           -        -            -   30,006     30,006
      Financing and advances              45           -        -       13,452        -     13,497
      Statutory deposits with Bank
        Negara Malaysia                   -            -        -            -    1,261      1,261
      Other assets                      663           12        -            -        -        675

      Total assets                    45,727       1,184        -       39,229   31,267    117,407




294
STATEMENT BY DIRECTORS
Pursuant to Section 169(15) of the Companies Act, 1965




We, Dr. Rozali bin Mohamed Ali and Dato’ Mohamed Nazir bin Abdul Razak, being two of the Directors of
Commerce International Merchant Bankers Berhad, state that, in the opinion of the Directors, the financial
statements set out on pages 213 to 294 are drawn up so as to give a true and fair view of the state of affairs the
Bank as at 31 December 2003 and of the results and the cash flows of the Bank for the financial year ended on
that date in accordance with the provisions of the Companies Act, 1965, applicable approved accounting
standards in Malaysia and Bank Negara Malaysia Guidelines.



Signed on behalf of the Board of Directors in accordance with their resolution dated 27 January 2004.




Dr. Rozali bin Mohamed Ali
Director




Dato’ Mohamed Nazir bin Abdul Razak
Director

Kuala Lumpur
25 February 2004




STATUTORY DECLARATION
Pursuant to Section 169(16) of the Companies Act, 1965




I, Ng Ing Peng, being the officer primarily responsible for the financial management of Commerce International
Merchant Bankers Berhad, do solemnly and sincerely declare that, the financial statements set out on pages
213 to 294 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to
be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.




Ng Ing Peng

Subscribed and solemnly declared by the above named Ng Ing Peng at Kuala Lumpur before me,
on 25 February 2004.




Commissioner for Oaths


                                                                                                                     295
      REPORT OF THE AUDITORS
      to the members of Commerce International Merchant Bankers Berhad




      We have audited the financial statements set out on pages 213 to 294. These financial statements are the
      responsibility of the Bank’s Directors. Our responsibility is to express an opinion on these financial statements
      based on our audit.

      We conducted our audit in accordance with approved auditing standards in Malaysia. Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
      free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
      and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
      significant estimates made by the Directors, as well as evaluating the overall financial statement presentation.
      We believe that our audit provides a reasonable basis for our opinion.

      In our opinion:

      (a)   the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965,
            applicable approved accounting standards in Malaysia and Bank Negara Malaysia Guidelines so as to give
            a true and fair view of:

            (i)    the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial
                   statements; and

            (ii)   the state of affairs of the Group and the Bank as at 31 December 2003 and of the results and cash
                   flows of the Group and the Bank for the financial year ended on that date;

            and

      (b) the accounting and other records and the registers required by the Act to be kept by the Bank and by the
          subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions
          of the Act.

      The name of the subsidiaries of which we have not acted as auditors are indicated in Note 10 to the financial
      statements. We have considered the financial statements of these subsidiaries and the auditors’ report thereon.

      We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Bank’s
      financial statements are in form and content appropriate and proper for the purposes of the presentation of the
      consolidated financial statements and we have received satisfactory information and explanations required by
      us for those purposes.

      The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and did
      not include any comment made under subsection (3) of section 174 of the Act.




      PricewaterhouseCoopers
      (AF: 1146)
      Chartered Accountants




      Mohammad Faiz bin Mohammad Azmi
      (2025/03/04 (J))
      Partner



      Kuala Lumpur
      25 February 2004
296