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Company No: 715426-H

EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) REPORTS AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

Company No: 715426-H

EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) REPORTS AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

CONTENTS

PAGE

DIRECTORS' REPORT

1 - 13

STATEMENT BY DIRECTORS

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STATUTORY DECLARATION

14

SHARIAH ADVISORY COMMITTEE'S REPORT

15

INDEPENDENT AUDITORS' REPORT

16 - 17

STATEMENT OF FINANCIAL POSITION

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STATEMENT OF INCOME

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STATEMENT OF COMPREHENSIVE INCOME

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STATEMENT OF CHANGES IN EQUITY

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STATEMENT OF CASH FLOWS

22 - 23

NOTES TO THE FINANCIAL STATEMENTS

24 - 97

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT The Directors have pleasure in submitting their report to the member together with the audited financial statements of the Bank for the financial year ended 31 December 2010.

PRINCIPAL ACTIVITIES The Bank is principally engaged in the Islamic Banking business. Islamic Banking business refers generally to the acceptance of deposits and granting of financing to comply with Shariah principles and rulings. There have been no significant changes in the nature of these activities during the financial year.

FINANCIAL RESULTS 2010 RM'000 Profit before zakat and taxation Taxation Zakat Profit for the financial year 117,510 (27,581) (34) 89,895

DIVIDEND No dividend has been paid or declared by the Bank since the end of the previous financial year. The Directors now recommend the payment of a first and final gross dividend of 9.05 sen per share on 397,755,000 ordinary shares, less income tax of 25%, amounting to RM26,997,621 for the financial year ended 31 December 2010, which is subject to the member's approval at the forthcoming Annual General Meeting of the Bank.

RESERVES AND PROVISIONS All material transfers to or from reserves or provisions during the financial year are disclosed in the financial statements and notes to the financial statements.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) BAD AND DOUBTFUL FINANCING Before the financial statements 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 financing and the making of allowances for doubtful financing and had satisfied themselves that all known bad financing had been written off and adequate allowances had been made for bad and doubtful financing. At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for bad financing, or the amount of allowances for doubtful financing, in the financial statements of the Bank, inadequate to any substantial extent.

CURRENT ASSETS Before the financial statements of the Bank were made out, the Directors took reasonable steps to ascertain that any current assets, other than financing, which were unlikely to realise, in the ordinary course of business, their values as shown in the accounting records of the Bank, have been written down to an amount which they might be expected to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Bank misleading.

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 financial statements of the Bank 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 Bank which has arisen since the end of the financial year which secures the liabilities of any other person; or (b) any contingent liability in respect of the Bank that 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 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 Bank to meet its obligations as and when they fall due.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) 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 Bank, which would render any amount stated in the financial statements misleading.

ITEMS OF AN UNUSUAL NATURE The results of the operations 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 38 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 Bank for the financial year in which this report is made, except as disclosed in Note 37 to the financial statements.

DIRECTORS The Directors who have held office during the period since the date of the last report are as follows: Dato' Dr. Mohd Shahari bin Ahmad Jabar Dr. Saiful Azhar bin Rosly Albert Saychuan Cheok Jeroen Nieuwkoop Foziakhatoon binti Amanulla Khan Dato' Dr Syed Jaafar bin Syed Aznan Dato' Mohd Hussin bin Abd Hamid Independent Non-Executive Director/ Chairman Independent Non-Executive Director Independent Non-Executive Director Non-Independent Non-Executive Director Non-Independent Executive Director/ Chief Executive Officer Independent Non-Executive Director (appointed on 29 March 2010) Independent Non-Executive Director (retired on 24 February 2011)

In accordance with Article 97(b) of the Banks Article of Assiociation, Albert Saychuan Cheok retires from the Board at the forthcoming Annual General Meeting and, being eligible, offers himself for re-election. In accordance with Article 102 of the Banks Article of Assiociation, Dato' Dr Syed Jaafar bin Syed Aznan retires from the Board at the forthcoming Annual General Meeting and, being eligible, offers himself for re-election. In accordance with Section 129 of the Companies Act, 1965, Dato Dr. Mohd Shahari bin Ahmad Jabar, who is over seventy years of age, shall retire at the forthcoming Annual General Meeting and, being eligible, offers himself for re-appointment in accordance with Section 129(6) of the Act to hold office until the next Annual General Meeting of the Bank.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) DIRECTORS INTEREST IN SHARES According to the register of Directors shareholdings, the Directors who held office at the end of the financial year and have interest in shares, share options and debentures of the Bank and its related corporations during the financial year are as follows: Number of ordinary shares of RM1.00 each Balance at Acquired Disposed 31.12.2010

Balance at 1.1.2010 Ultimate holding company - EON Capital Berhad Direct interest Albert Saychuan Cheok

15,000

15,000

Other than the above, none of the other Directors in office at the end of the financial year held any interest in shares, share options and debentures of the Bank and its related corporations during the financial year.

DIRECTORS' BENEFITS Since the end of the previous financial year, no Director of the Bank has received or become entitled to receive any benefit (other than Directors remuneration and benefits-in-kind as disclosed in Note 28 to the financial statements) by reason of a contract made by the Bank or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest, except that certain Directors received remuneration as Directors of related corporations. During and at the end of the financial year, no other arrangements subsisted to which the Bank is a party, being arrangements made with the object or objects of enabling the 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.

CORPORATE GOVERNANCE The Board of Directors (The Board) is committed to ensure that the highest standard of corporate governance is practised throughout the Bank as a fundamental part of discharging its responsibilities to protect and enhance shareholder value and financial performance. Set out below are the corporate governance disclosures recommended under Bank Negara Malaysia (BNM) Guidelines (revised BNM/GP1-i and BNM/GP8-i). (a) BOARD OF DIRECTORS At the date of this report, the Board has six (6) members, comprising the Independent Non-Executive Director/Chairman, one (1) Non-Independent Non-Executive Director, four (3) Independent Non-Executive Directors and one (1) Non-Independent Executive Director/Chief Executive Officer.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE (CONTINUED) (a) BOARD OF DIRECTORS (CONTINUED) The Board delegates day-to-day operations of the Bank to Management. It also delegates specific responsibilities to Board Committees, details of which are set out in Section (b) below. These Committees have the authority to examine particular issues and report to the Board with their recommendations where appropriate. The ultimate responsibility for the final decision on all matters, however, lies with the entire Board. Matters which are specifically reserved for decision of the Board include those involving corporate plans and budgets, material acquisitions and disposals of assets, corporate or financial restructuring, share issuances, dividends and other returns to shareholder. The Board meets at least once a month and as when required. During the financial year, the Board had convened fifteen (15) meetings. All members had complied with the minimum 75% attendance as prescribed in the BNM Guidelines (revised BNM/GP1-i). At each regularly scheduled meeting, there will be a financial and business review for discussion. The agenda for each board meeting, together with detailed reports and proposition papers to be tabled at the board meeting, will be circulated to the Directors prior to the board meeting to give Directors time to consider and deliberate on the issues to be raised at the board meeting. The Directors have full access to Senior Management and the advice of the Company Secretary and may seek external professional advice, if required. (b) BOARD COMMITTEES The Board has established the Audit Committee-i, Risk Management Committee-i and Product Review Committee-i to assist the Board in discharging its duties and responsibilities. These Board Committees have clear terms of reference regarding their objectives, duties and responsibilities, authority, meeting and membership. These Board Committees meet regularly or as and when required to review the Banks business activities and operations. (i) Audit Committee-i At the date of this report, the Committee comprises one (1) Independent Non-Executive Director as Chairman and two (2) Independent Non-Executive Directors. The Committee appraises the effectiveness of the system of internal controls and corporate governance framework, reviews annual and quarterly financial statements, audit findings from internal auditors, external auditors and regulatory authorities and recommends appropriate remedial action to the Board. The members of the Audit Committee-i at the date of this report are as follows: Dr. Saiful Azhar bin Rosly (Independent Non-Executive Director) Albert Saychuan Cheok (Independent Non-Executive Director)

The other Director who was a member of the Audit Committee-i during the year is as follows: Dato' Mohd Hussin bin Abd Hamid (Independent Non-Executive Director/Chairman, for the period 1 January 2010 to 24 February 2011).

The Committee holds quarterly meetings and as and when required. During the financial year, the Committee had convened five (5) meetings. All members had compiled with the minimum 75% attendance as prescribed in the BNM Guidelines (revised BNM/GP1-i).

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE (CONTINUED) (b) BOARD COMMITTEES (CONTINUED) (ii) Risk Management Committee-i At the date of this report, the Committee comprises one (1) Independent Non-Executive Director as Chairman, one (1) Independent Non-Executive Director and one (1) Non-Independent Non-Executive Director. The Committee assists the Board to oversee the effectiveness of the credit, liquidity, market and operational risk management of the Bank. The members of the Risk Management Committee-i at the date of this report are as follows: Dr. Saiful Azhar bin Rosly (Independent Non-Executive Director) Jeroen Nieuwkoop (Non-Independent Non-Executive Director)

The other Director who was a member of the Risk Management Committee-i during the year is as follows: Dato' Mohd Hussin bin Abd Hamid (Independent Non-Executive Director/Chairman, for the period 1 January 2010 to 24 February 2011).

The committee holds monthly meetings and as and when required. During the financial year, the Committee had convened twelve (12) meetings. All members had complied with the minimum 75% attendance as prescribed in the BNM Guidelines (revised BNM/GP1-i). (iii) Product Review Committee-i The Board has established the Product Review Committee-i to evaluate, review and resolve any issue relating to the development of identified and selected new products before submission of the proposals to the Board for its approval. At the date of this report, the Committee comprises one (1) Independent Non-Executive Director as Chairman and two (2) Independent Non-Executive Directors as members. The Committee makes recommendations to the Board in respect of the introduction of selected new products. The members of the Product Review Committee-i at the date of this report are as follows: Dr. Saiful Azhar bin Rosly (Independent Non-Executive Director) Albert Saychuan Cheok (Independent Non-Executive Director)

The other Director who was a member of the Product Review Committee-i during the year is as follows: Dato' Mohd Hussin bin Abd Hamid (Independent Non-Executive Director/Chairman, for the period 1 January 2010 to 24 February 2011).

The committee meets at least once a quarter and/or as and when required. During the financial year, the Committee had convened three (3) meetings. All members had complied with the minimum 75% attendance as prescribed in the BNM Guidelines (revised BNM/GP1-i).

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE (CONTINUED) (b) BOARD COMMITTEES (CONTINUED) BNM had, on 29 August 2006, granted approval to the Board to leverage on two (2) Board Committees set up at EON Bank Berhad, i.e. Group Nominating Committee and Group Remuneration Committee, to assist the Board in discharging its duties and responsibilities. However, the Board is still responsible and accountable for all matters discussed and decided at these Board Committees. These Board Committees have clear terms of reference regarding their objectives, duties and responsibilities, authority, meeting and membership. (i) Group Nominating Committee The Board of EON Bank Berhad has established the Group Nominating Committee since 24 February 2003. At the date of this report, the Committee comprises one (1) Independent Non-Executive Director as Chairman, two (2) Non-Independent Non-Executive Directors and two (2) Independent NonExecutive Directors. The Committee is responsible for evaluating and recommending new nominees for and/or removal of directors from the Board, and for appointment and removal of Board Committee members, Chief Executive Officer and key Senior Management. The Committee also assesses the effectiveness of the Board and Board Committees, and the performance of Directors, Board Committee members, Chief Executive Officer and key Senior Management. The members of the Group Nominating Committee are as follows: Dato Dr. Mohd Shahari bin Ahmad Jabar (Independent Non-Executive Director/Chairman) Wee Hoe Soon @ Gooi Hoe Soon (Independent Non-Executive Director) Dato' Haji Mohzani bin Datuk Abdul Wahab (Independent Non-Executive Director) Jeroen Nieuwkoop (Non-Independent Non-Executive Director) Rin Nan Lun (Non-Independent Non-Executive Director)

The Committee meets at least once a year and as and when required. During the financial year, the Committee had convened fourteen (14) meetings. All members had complied with the minimum 75% attendance as prescribed in the BNM Guidelines (revised BNM/GP1). The Board, through the Group Nominating Committee, has reviewed its size and composition and is of the opinion that the current Board composition has the appropriate mix and competencies required to effectively lead the Bank.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE (CONTINUED) (b) BOARD COMMITTEES (CONTINUED) (ii) Group Remuneration Committee The Board of EON Bank Berhad has established the Group Remuneration Committee since 24 February 2003. At the date of this report, the Committee comprises one (1) Independent NonExecutive Director as Chairman, one (1) Non-Independent Non-Executive Director and one (1) Independent Non-Executive Director. The Committee makes recommendations to the Board in respect of the policies and the framework relating to remuneration and terms of employment for Directors, Chief Executive Officer and key Senior Management, as well as annual salaries review for the Group. The members of the Group Remuneration Committee are as follows: Dato' Dr. Mohd Shahari bin Ahmad Jabar (Independent Non-Executive Director/Chairman) Dato' Haji Mohzani bin Datuk Abdul Wahab (Independent Non-Executive Director) Dato' Tiong Ing (Non-Independent Non-Executive Director)

The Committee meets at least once a year and as and when required. During the financial year, the Committee had convened seven (7) meetings. All members had complied with the minimum 75% attendance as prescribed in the BNM Guidelines (revised BNM/GP1). (c) RISK MANAGEMENT FRAMEWORK The characteristics of risk management in Islamic Banking are different from that in conventional banking. Arising from this, the Bank has set up its own risk management team in July 2007. This is to ensure that the risk factors faced by the Bank, particularly the unique risk factors inherent in Shariah compliant risk, are being managed effectively. Notwithstanding that, the Banks Risk Management Committee also ensures that the core policies of EON Bank Group are consistently applied throughout the Bank. In line with core principles of corporate governance, EON Bank Group has defined the roles and responsibilities of various committee structures vis--vis risk management. The Banks Board is ultimately responsible for the sound and prudent management of the Bank, i.e. the overall risk oversight function. The Board is responsible for ensuring that the risk management framework is established for the various categories of risk and for ensuring an effective internal audit function. The Board has put in place an ongoing process for identifying, evaluating, managing and reporting the significant risks faced by the Bank throughout the financial year under review. The Board receives risk reports from the Banks Risk Management Committee for review and decision-making. The Board also regularly reviews the Banks risk management framework with the Senior Management to enhance the Banks existing risk management practices.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE (CONTINUED) (c) RISK MANAGEMENT FRAMEWORK (CONTINUED) The Banks Risk Management Committee oversees the effectiveness of credit, liquidity, market, operational and Shariah compliant risk management of the Bank. The Committee is supported by the Banks Risk Management function. The Banks Risk Management assists with the establishment of policies on credit, liquidity, market and operational risk, reviews compliance with set risk limits approved by the Board and identifies emerging risk issues. The Board also leverages on the EON Bank Berhads Group Assets and Liabilities Committee (GALCO) to set objectives and develop policies, procedures and internal measures for the management of the balance sheet structure, market risk and liquidity risk of the Bank. The GALCO holds monthly meetings as and when required. The financial risk management objectives and policies of the Bank are set out in Note 32 to the financial statements. (d) INTERNAL AUDIT AND INTERNAL CONTROL ACTIVITIES The Banks internal audit function is carried out by the Group Internal Audit Division (Group Internal Audit) established at EON Bank Berhad. The Group Internal Audit has in place a charter that covers its independence in the organisation structure to provide objective evaluation of risks and controls in the auditable activities. During the financial year, the Group Internal Audit presented its audit plan, budget and scope of work to the Banks Audit Committee-i for approval. In accordance with BNM Guidelines (BNM/GP10), the audit plan has been formulated using risk-based approach. Audits conducted are prioritised according to an assessment of the potential risk exposures and audit reports are duly tabled to the Audit Committee-i to ensure that appropriate and adequate remedial actions are taken by management. Audit findings and recommendations in the reports are followed up for rectification and resolution and the status is duly reported to the Audit Committee-i. Deadlines are set for rectification or resolution of audit issues. Where the result of an audit is not satisfactory, a formal follow-up audit is conducted and reported to the Audit Committee-i. In addition to audit assignments, the Group Internal Audit is also invited to be involved in an advisory capacity on information technology related initiatives, to evaluate new product development as well as in the review of operational guidelines and manuals. Such involvement is deemed important from the perspective of project management controls and the setting-up of pertinent controls of the system or product prior to implementation. All the EONCAP Islamic Bank Berhads audit activities are reported to the Audit Committee-i on a quarterly basis. The EON Bank Berhad's Audit Committee regularly appraises the resources and training needs of Group Internal Audit to meet the competencies and skills required for effective performance of internal auditing for the EON Bank Group.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE (CONTINUED) (e) MANAGEMENT REPORTS Annual business plans and financial budgets are prepared by the Bank and are reviewed and approved by the Board. The performance of the Bank is assessed and monitored against the approved budget and explanations are provided for significant variances on a monthly basis to the Board. The Board also receives and reviews monthly financial accounts, financial information reports and monthly progress reports on business operations from management on a regular basis. In addition, matters such as key business strategies and business plans, major capital expenditure, material contracts, new operational guidelines and new policies and guidelines are reserved for Boards decision. Furthermore, minutes of meeting of various Board Committees of the Bank and changes on applicable statutory and regulatory requirements are also tabled for the Boards notation.

DISCLOSURE OF SHARIAH COMMITTEE The Banks products and business activities are subject to Shariah compliance and confirmation by the Shariah Advisory Committee consisting of five (5) members appointed by the Board for two (2) year terms. The duties and responsibilities of the Group Shariah Advisory Committee (GSAC) are as follows: 1. 2. Advising the Chief Executive Officer of the Bank/EON Bank Group of Companies on Shariah related matters. Becomes a member of the Shariah Committee for EON Bank Group of Companies and provides advice on all Shariah related matters and issues pertaining to Islamic financial services to the entire EON Bank Group with focus on the Bank and MIMB Investment Bank. Provides advice to the Bank/ EON Bank Group of Companies with regards to Shariah in matters pertaining to Islamic Banking Scheme/Non-Interest. This includes:(a) Endorsing and validating relevant documentation in the proposal of new products and services including contract, agreement or other legal documentation used in executing banking transactions. (b) Endorsing and validating product guidelines, marketing advertisements, sales illustrations and brochures related to the Bank's products, services and activities. (c) Advising the Bank on the computation and distribution of Zakat. (d) Assisting and advising related parties such as the Bank's legal counsel, auditor or consultant on Shariah matters upon request. (e) Trains the employees of the Bank and EON Bank Group of Companies on Shariah related matters. Inspect the financial portfolio to ensure Shariah compliance. Advising the Bank in consultation with the Shariah Advisory Council of Bank Negara Malaysia (SAC) on any Shariah matters which have not been resolved or endorsed by the Shariah Committee. Recording any opinion given on Shariah related issues. In particular, the Shariah Committee shall prepare written Shariah opinions in the following circumstances:(a) where the Bank makes reference to the SAC for advice; or (b) where the Bank submits applications to BNM for new product approval in accordance with Guidelines on Introduction of New Products issued by BNM. Assisting the SAC on reference for advice. In such event, the Shariah Committee must explain the Shariah issues involved and recommend decision supported by relevant Shariah jurisprudential literature from relevant and established sources. Monitoring that all SAC's decisions are properly implemented by the Bank.

3.

4. 5. 6.

7.

8.

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) DISCLOSURE OF SHARIAH COMMITTEE (CONTINUED) The Shariah Advisory Committee comprise of the following members: Dr. Samsuri Sharif (Chairman) Ustaz Mohd Fauzi Bin Mustafa (Member) Dr. Akhtarzaite Abd Aziz (Member) Prof. Dr. Syed Musa bin Syed Jaafar Alhabshi (Member) Dr. Abdallahi Ben Mohamed (Member)

SHARIAH NON - COMPLIANCE RISK A distinct feature of Islamic Banking vis--vis Conventional Banking is the requirement to comply with Shariah principles and rulings. Thus, Shariah compliance is very crucial since it differentiates Islamic banks from Conventional banks, which are involved in certain activities or transactions that are not allowed by Shariah such as riba (usury). Therefore, to ensure that Shariah non-compliant risk is monitored in all aspects of banking and financing activities, the GSAC has been established as an independent body and it primarily plays an important role in providing Shariah views and rulings in relation to the banking business. In addition, GSAC also acts as an inspection body to ensure actual Shariah compliance in all overall business operations of the Bank. The above roles and functions are facilitated through or assisted by the Shariah Department which acts as an independent full time unit to ensure that all activities of the Bank are in compliance with Shariah principles and rulings. The unit provides independent evaluation/recommendation on Shariah risk assessment via collection, analysis, interpretation and documented exception reports to support Shariah findings. Accordingly, the Shariah Department has developed the Shariah Compliance Manual and Shariah Compliance Framework which serves as a comprehensive guideline on Shariah non-compliant risk encompassing the following: outline the roles, functions and responsibilities of the Bank's GSAC; outline the roles, functions and responsibilities of the Shariah related functions; outline the relationship between the GSAC and the Management of the Bank; define the scope of Shariah Compliant activities/transactions; and establish the monitoring and management reporting requirement pertaining to the Shariah non-compliant risk.

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) PERFORMANCE REVIEW FOR 2010 For the current financial year, the Bank recorded higher profit after taxation of RM89.9 million compared to the preceding year of RM38.2 million. The improved performance was due to higher income derived from investment of depositors' funds of RM46.6 million and lower impairment losses on financing and advances of RM48 million, as well as higher income derived from shareholders' funds of RM7.8 million. Arising from the significant improvement in the asset quality, the impairment provisions required had declined by RM48 million during the financial year. The increase in income was partly offset by increase in income attributable to depositors of RM34.9 million, due to the rise in the Overnight Policy Rate. Accordingly, net income increased by RM67.5 or 47.4%. Pre-tax profit also increased to RM117.5 million as compared to RM52.6 million in the previous year, after accounting for the marginal increase in operating expenses of RM2.6 million which resulted from the various cost management initiatives undertaken.

OUTLOOK FOR THE COMING FINANCIAL YEAR 2011 In line with the improving global economy and the implementation of the Government's Economic Transformation Programme, Islamic financing is expected to register a strong growth. The Bank will continue to leverage on its core capabilities in consumer and SME banking to pursue further business growth in targeted niche markets. Accordingly, the Bank will seek to enhance its reach in selected markets via existing and new distribution channels; introduce relevant and innovative Shariah-compliant products; and further reinforce its risk management and operations capacity. The Bank is expected to achieve a satisfactory performance in terms of business growth for the year 2011.

ZAKAT OBLIGATIONS Zakat is computed based on the Net Invested Fund Method which is in accordance with the Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI) and Lembaga Zakat Selangor guidelines as approved by the Banks Shariah Advisory Committee. Zakat payable is computed based on the shareholding of Muslim individuals at the ultimate holding company, EON Capital Berhad.

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) DIRECTORS' REPORT (CONTINUED) HOLDING AND ULTIMATE HOLDING COMPANY The Directors regard EON Bank Berhad and EON Capital Berhad, both companies incorporated in Malaysia, as the holding company and ultimate holding company respectively.

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

Signed in accordance with a resolution of the Board of Directors.

DATO DR. MOHD SHAHARI BIN AHMAD JABAR DIRECTOR Kuala Lumpur 1 April 2011

FOZIAKHATOON BINTI AMANULLA KHAN DIRECTOR

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 We, Dato Dr. Mohd Shahari bin Ahmad Jabar and Foziakhatoon binti Amanulla Khan, being two of the Directors of EONCAP Islamic Bank Berhad, state that, in the opinion of the Directors, the financial statements set out on pages 18 to 97 are drawn up so as to give a true and fair view of the state of affairs of the Bank as at 31 December 2010 and of the results and cash flows of the Bank for the financial year ended on that date in accordance with the MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities, Bank Negara Malaysias Guidelines and the provisions of the Companies Act, 1965. Signed in accordance with a resolution of the Board of Directors.

DATO DR. MOHD SHAHARI BIN AHMAD JABAR DIRECTOR Kuala Lumpur 1 April 2011

FOZIAKHATOON BINTI AMANULLA KHAN DIRECTOR

STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 I, Foziakhatoon binti Amanulla Khan, the Director primarily responsible for the financial management of EONCAP Islamic Bank Berhad, do solemnly and sincerely declare that the financial statements set out on pages 18 to 97 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.

FOZIAKHATOON BINTI AMANULLA KHAN Subscribed and solemnly declared by the abovenamed Foziakhatoon Binti Amanulla Khan at Kuala Lumpur on 1 April 2011, before me.

COMMISSIONER FOR OATHS

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) SHARIAH ADVISORY COMMITTEES REPORT In the Name of Allah, The Compassionate, The Most Merciful. All Praise is due to Allah, the Cherisher of the World, and the Peace and Blessing be upon the Prophet of Allah, on his Family and all his Companions. We, Dr. Samsuri Sharif, Dr. Akhtarzaite Abd Aziz and Assoc. Prof. Dr. Syed Musa Bin Syed Jaafar Alhabshi, being three members of the Group Shariah Advisory Committee of EONCAP Islamic Bank Berhad, do hereby confirm on behalf of the Committee that we have provided the Shariah advisory services and express opinions on various aspects to the Bank in order to ensure compliance with applicable Shariah principles as well as the relevant resolutions and rulings made by Shariah Advisory Councils of the regulatory bodies during the financial year ended 31 December 2010. The Bank's management is responsible for ensuring that the Bank conducts its business in accordance with Shariah principles and rulings. It is our responsibility to form an independent opinion, based on our review of the operations of the Bank and to report to you. We are of the opinion that: (a) The contracts, transactions and dealings entered into by the Bank during the financial year ended 31 December 2010, that we have endorsed are in compliance with the Shariah principles and rulings; and (b) Sources and investments of the Bank disclosed to us comply with the Shariah principles and rulings. We beg Allah the Almighty to Grant us all the Success and Straight-Forwardness and Allah Knows Best. On behalf of the Committee;

DR. SAMSURI SHARIF CHAIRMAN

DR. AKHTARZAITE ABD AZIZ COMMITTEE MEMBER

ASSOC. PROF. DR. SYED MUSA BIN SYED JAAFAR ALHABSHI COMMITTEE MEMBER

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INDEPENDENT AUDITORS REPORT

TO THE MEMBERS OF EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) (Company No. 715426 H)

REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of EONCAP Islamic Bank Berhad on pages 18 to 97 which comprise the statement of financial position as at 31 December 2010 of the Bank, and the statements of income, comprehensive income, changes in equity and cash flows of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on Notes 1 to 40. Directors Responsibility for the Financial Statements The directors of the Bank are responsible for the preparation of financial statements that give a true and fair view in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank Negara Malaysia Guidelines and the Companies Act, 1965, and for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Banks preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Banks internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements have been properly drawn up in accordance with MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities, Bank Negara Malaysia Guidelines and the Companies Act, 1965 so as to give a true and fair view of the financial position of the Bank as of 31 December 2010 and of its financial performance and cash flows for the year then ended.

16

INDEPENDENT AUDITORS REPORT

TO THE MEMBERS OF EONCAP ISLAMIC BANK BERHAD (CONTINUED) (Incorporated in Malaysia) (Company No. 715426 H)

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report that, in our opinion, the accounting and other records and the registers required by the Act to be kept by the Bank have been properly kept in accordance with the provisions of the Act. OTHER MATTERS This report is made solely to the members of the Bank, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants

SRIDHARAN NAIR (No. 2656/05/12 (J)) Chartered Accountant

Kuala Lumpur 1 April 2011

17

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010 Note 2010 RM'000 2009 RM'000

ASSETS Cash and short-term funds Deposits and placements with banks and other financial institutions Derivative financial instruments Available-for-sale securities Financing and advances Other assets Statutory deposits with Bank Negara Malaysia Deferred tax assets Property, plant and equipment TOTAL ASSETS LIABILITIES AND SHAREHOLDER'S FUNDS Deposits from customers Deposits and placements of banks and other financial institutions Bills and acceptances payable Provision for taxation and zakat Other liabilities Capital financing TOTAL LIABILITIES Share capital Reserves SHAREHOLDER'S FUNDS TOTAL LIABILITIES AND SHAREHOLDER'S FUNDS COMMITMENTS AND CONTINGENCIES

4 5 6 7 8 9 10 11 12

1,271,591 100,265 643 1,203,524 5,228,208 78,347 53,552 17,525 3,801 7,957,456

1,794,815 45,000 475,637 4,568,751 81,605 40,131 11,474 2,623 7,020,036

13 14 15 16 17

6,025,709 1,084,048 16,989 22,356 91,581 104,411 7,345,094 397,755 214,607 612,362 7,957,456

4,833,735 1,554,130 32,392 1,011 92,437 6,513,705 397,755 108,576 506,331 7,020,036 1,152,466

18 19

32 (C)

1,237,092

Net assets per ordinary share (RM)

1.54

1.27

The accompanying accounting policies and notes form an integral part of these financial statements.

As disclosed in Note 36 to the financial statements, the Bank merged with six financial institutions
18

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) STATEMENT OF INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 Note 2010 RM'000 2009 RM'000

Income derived from investment of depositors' funds Income derived from investment of shareholder's funds Impairment losses on financing and advances Total distributable income Income attributable to depositors Total net income Other operating expenses Profit before taxation and zakat Taxation Zakat Profit for the financial year Earnings per share (sen) Basic Diluted

20 21

346,745 42,031 388,776 (30,790) 357,986 (148,017) 209,969 (92,459) 117,510 (27,581) (34) 89,895

300,160 34,196 334,356 (78,754) 255,602 (113,122) 142,480 (89,870) 52,610 (14,355) (32) 38,223

22 23 24 25

26 22.60 22.60 9.61 9.61

The accompanying accounting policies and notes form an integral part of these financial statements. 19

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 2010 RM'000 Profit for the financial year Other comprehensive (loss)/income: Net change in fair value of available -for-sale securities Taxation relating to other components of comprehensive (losses)/income Other comprehensive (loss)/ income for the financial year, net of tax Total comprehensive income for the financial year 89,895 2009 RM'000 38,223

(884) 221 (663)

8,653 (2,163) 6,490

89,232

44,713

The accompanying accounting policies and notes form an integral part of these financial statements.

20

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 Non-distributable Availablefor-sale Statutory securities reserve reserve RM'000 RM'000 Distributable

Note

Share capital RM'000

Retained profits RM'000

Total RM'000

Balance as at 1 January 2010 - As previously reported - Effects of adopting FRS 139 - As restated Profit for the financial year Other comprehensive loss Total comprehensive (loss)/income for the financial year Transfer to statutory reserve Balance as at 31 December 2010

38

397,755 397,755 397,755

54,490 54,490 44,948 99,438

7,312 7,312 (663) (663) 6,649

46,774 16,799 63,573 89,895 89,895 (44,948) 108,520

506,331 16,799 523,130 89,895 (663) 89,232 612,362

Balance as at 1 January 2009 Profit for the financial year Other comprehensive income Total comprehensive income for the financial year Transfer to statutory reserve Balance as at 31 December 2009

397,755 397,755

35,379 19,111 54,490

822 6,490 6,490 7,312

27,662 38,223 38,223 (19,111) 46,774

461,618 38,223 6,490 44,713 506,331

The accompanying accounting policies and notes form an integral part of these financial statements.

21

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 2010 RM'000 Cash flows from operating activities Profit for the financial year Adjustments for: Property, plant and equipment: Depreciation Net loss on disposal Written-off Income from: Investment on available-for-sale securities Net losses on sale of available-for-sale securities Amortisation of premium less accretion of discount Impairment losses on financing and advances Net unrealised gain on fair value changes of derivatives held at fair value through profit and loss Taxation and zakat Operating profit before working capital changes (Increase)/decrease in operating assets: Financing and advances Deposits and placements with banks and other financial institutions Other assets Statutory deposits with Bank Negara Malaysia 2009 RM'000

89,895

38,223

916 16 102 (20,256) 12 754 37,149 (643) 27,615 135,560

677 2 (10,036) 16 (1,654) 83,983 14,387 125,598

(661,018) (55,000) (10,524) (13,421) (739,963)

49,762 (45,000) 7,634 110,680 123,076

Increase/(decrease) in operating liabilities: Deposits from customers Deposits and placements of banks and other financial institutions Bills and acceptances payable Other liabilities

1,177,212 (475,468) (15,403) 23,703 710,044 105,641 (18,032) (63) 87,546

1,503,811 (1,484,985) (150,881) 12,616 (119,439) 129,235 (7,369) (6) 121,860

Cash generated from operations Income tax paid Zakat paid Net cash generated from operating activities

The accompanying accounting policies and notes form an integral part of these financial statements. 22

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2010 RM'000 Cash flows from investing activities Property, plant and equipment: Purchase Proceeds from disposal Income received from: Investment on available-for-sale securities Purchase, net of sale proceeds: Available-for-sale securities Net cash used in investing activities Cash flow from financing activities Proceeds from subordinated financing facility Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December (Note 4) 2009 RM'000

(2,353) 141 20,364 (728,922) (710,770)

(1,164) 24 2,576 (112,341) (110,905)

100,000 100,000 (523,224) 1,794,815 1,271,591

10,955 1,783,860 1,794,815

The accompanying accounting policies and notes form an integral part of these financial statements. 23

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 1. GENERAL INFORMATION The Bank, a licensed Islamic Bank under the Islamic Banking Act 1983, is principally engaged in the Islamic Banking business and the provision of related services. Islamic banking business refers generally to the acceptance of deposits and granting of financing to comply with Shariah principles and rulings. There has been no significant changes in the nature of the principal activities of the Bank during the financial year. The Bank is a public limited liability company, incorporated and domiciled in Malaysia. The Directors regard EON Bank Berhad and EON Capital Berhad, both companies incorporated in Malaysia as the Banks immediate holding company and ultimate holding company respectively. The address of the registered office and the principal place of business of the Bank is: 12th Floor, Menara EON Bank 288, Jalan Raja Laut 50350 Kuala Lumpur Malaysia

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation The financial statements of the Bank have been prepared in accordance with Financial Reporting Standards (FRS), the Malaysian Accounting Standards Board (MASB) Approved Accounting Standards in Malaysia for Entities Other than Private Entities, together with the directives and guidelines issued by Bank Negara Malaysia (BNM), and comply with the provisions of the Companies Act, 1965 and Shariah requirements. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale securities and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with the provisions of the Companies Act 1965, FRS, the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities and BNMs guidelines requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the financial year. It also requires Directors to exercise their judgement in the process of applying the Banks accounting policies. Although these estimates are based on the Directors best knowledge of current events and actions, actual results may differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3 (critical accounting estimates and assumptions).

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Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (i) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Bank and are effective. The new accounting standards, amendments and improvements to published standards and interpretations that are applicable and effective for the Bank for the financial year ended 31 December 2010 are as follows: FRS 7 "Financial Instruments: Disclosures and the related Amendments" FRS 8 "Operating Segments" FRS 123 "Borrowing Costs" FRS 139 "Financial Instruments: Recognition and Measurement" and the related amendments FRS 101 (revised) "Presentation of Financial Statements" FRS 101 (revised) "Presentation of Financial Statements - Puttable financial instruments and obligations arising on liquidation" Amendment to FRS 1 "First-time Adoption of Financial Reporting Standards" Amendments to FRS 132 "Financial Instruments: Presentation" IC Interpretation 9 "Reassessment of Embedded Derivative" IC Interpretation 10 "Interim Financial Reporting and Impairment" IC Interpretation 14 FRS 119 "The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction"

Improvement to existing MASB's standards that are applicable and effective for the Bank for the financial year ended 31 December 2010 are as follows: (ii) FRS 5 "Non-current Assets Held for Sale and Discontinued Operations" FRS 107 "Statement of Cash Flows" FRS 110 "Events after the Balance Sheet Date" FRS 116 "Property, Plant and Equipment" FRS 117 "Leases" FRS 118 "Revenue" FRS 134 "Interim Financial Reporting" FRS 136 "Impairment of Assets"

Standards, amendments to published standards and interpretations to existing standards that are applicable to the Bank but not yet effective. The revised FRS 124 Related party disclosures (effective from 1 January 2012) removes the exemption to disclose transactions between government-related entities and the government, and all other government-related entities. The following new disclosures are now required for government related entities: - The name of the government and the nature of their relationship; - The nature and amount of each individually significant transaction; and - The extent of any collectively significant transactions, qualitatively or quantitatively.

25

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (ii) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Bank but not yet effective. (continued) Amendments to FRS 7 Financial instruments: Disclosures and FRS 1 "First-time adoption of financial reporting standards" (effective from 1 January 2011) requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The Bank has applied the transitional provision which exempts entities from disclosing the possible impact arising from the initial application of this amendment on the financial statements of the Bank. IC Interpretation 4 Determining whether an arrangement contains a lease (effective from 1 January 2011) requires the Bank to identify any arrangement that does not take the legal form of a lease, but conveys a right to use an asset in return for a payment or series of payments. This interpretation provides guidance for determining whether such arrangements are, or contain, leases. The assessment is based on the substance of the arrangement and requires assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset. If the arrangement contains a lease, the requirements of FRS 117 Leases should be applied to the lease element of the arrangement. IC Interpretation 18 "Transfers of assets from customers (effective prospectively for assets received on or after 1 January 2011) provides guidance where an entity receives from a customer an item of property, plant and equipment (or cash to acquire such an asset) that the entity must then use to connect the customer to a network or to provide the customer with services. Where the transferred item meets the definition of an asset, the asset is recognised as an item of property, plant and equipment at its fair value. Revenue is recognised for each separate service performed in accordance with the recognition criteria of FRS 118 Revenue. IC Interpretation 19 "Extinguishing financial liabilities with equity instruments (effective from 1 July 2011) provides clarification when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entitys shares or other equity instruments to settle the financial liability fully or partially. A gain or loss, being the difference between the carrying value of the financial liability and the fair value of the equity instruments issued, shall be recognised in profit or loss. Entities are no longer permitted to reclassify the carrying value of the existing financial liability into equity with no gain or loss recognised in profit or loss. Amendments to IC Interpretation 14 "FRS 119 - The limit on a defined benefit assets, minimum funding requirements and their interaction (effective from 1 July 2011) permits an entity to recognise the prepayments of contributions as an asset, rather than an expense in circumstances when the entity is subject to a minimum funding requirement and makes an early payment of contributions to meet those requirements.

26

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (ii) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Bank but not yet effective. (continued) Improvement to existing MASB's standards (effective for accounting periods beginning on or after 1 January 2011) are as follows: FRS 3 (effective from 1 January 2011) - Clarifies that the choice of measuring non-controlling interests at fair value or at the proportionate share of the acquirees net assets applies only to instruments that represent present ownership interests and entitle their holders to a proportionate share of the net assets in the event of liquidation. All other components of non-controlling interest are measured at fair value unless another measurement basis is required by FRS. - Clarifies that the amendments to FRS 7, FRS 132 and FRS 139 that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of FRS 3 (2010). Those contingent consideration arrangements are to be accounted for in accordance with the guidance in FRS 3 (2005). (b) Securities Portfolio The Bank classifies the securities portfolio into the following categories: held for trading, available-forsale and held-to-maturity securities. Management determines the classifications of the securities upfront at the point when transactions are entered into. (i) Held-for-trading securities Held-for-trading (HFT) securities are securities that are acquired and held principally for the purpose of selling in the short term to generate a profit from short-term fluctuations in price or from dealers margin, and are subsequently carried at fair value, with unrealised gains and losses arising from changes in fair value recognised directly in the income statement. The amortisation of premium and accretion of discount on HFT securities is recognised as finance income using the effective profit method. The realised gains or losses on derecognition of HFT securities, which are derived based on the difference between the proceeds received and the carrying value of the securities, are credited or charged to the income statement. (ii) Held-to-maturity securities Held-to-maturity (HTM) securities are securities with fixed or determinable payments and fixed maturities that the Bank have the positive intent and ability to hold to maturity, and are subsequently carried at amortised cost using the effective profit method. The amortisation of premium and accretion of discount on HTM securities is recognised as finance income using the effective profit method. The realised gains or losses on derecognition of HTM securities, which are derived based on the difference between the proceeds received and the carrying value of the securities, are credited or charged to the income statement. 27

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Securities Portfolio (continued) (ii) Held-to-maturity securities (continued) If the Bank sold or reclassified more than an insignificant amount of the HTM securities portfolio before maturity (other than under those conditions prescribed in FRS 139) during the current financial year or the last two preceding financial years, the entire category would be tainted and reclassified as available-for-sale securities at fair value. The difference between the carrying value and fair value at the date of reclassification is recognised directly in equity. (iii) Available-for-sale securities Available-for-sale (AFS) securities are securities not classified as held for trading or held-tomaturity and are subsequently carried at fair value, with unrealised gains and losses arising from changes in fair value recognised in equity, net of income tax, until such securities are sold or otherwise disposed of, or until such securities are determined to be impaired. Investments in equity instruments that do not have a quoted market price in an active market and for which fair value cannot be reliably measured are carried at cost, less impairment losses. The amortisation of premium and accretion of discount on AFS securities is recognised as finance income using the effective profit method. Securities are initially recognised at fair value plus transaction costs for all securities not categorised as held for trading. Securities are derecognised when the rights to receive cash flows from the securities have expired or where the Bank has transferred substantially all risks and rewards of ownership. All regular way purchases and sales of financial assets are recognised or derecognised on the settlement date i.e. the date that an asset is delivered to or by the Bank. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place concerned. Change in accounting policy Prior to the adoption of FRS 139 on 1 January 2010, the accounting policies of the Bank incorporated requirements of BNM's Revised Guidelines on Financial Reporting for Licensed Islamic Banks (Revised BNM/GP8-i issued on 24 June 2005) which includes selected principles (ie. recognition, derecognition and measurement of financial instruments, including derivative instruments, and hedge accounting) of FRS 139. Upon adoption of FRS 139, income receivables previously classified under other assets are now reclassified into the respective category of financial assets.

28

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Derivative financial instruments Derivative financial instruments transacted by the Bank during the financial year are forward foreign exchange contracts. Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair values are positive and as liabilities when fair values are negative. (d) Financing and advances Financing and advances, which include cash line, term financing, AITAB financing, acceptances credit and staff financing are recognised when cash is advanced to borrowers. They are initially recorded at fair value, which is the cash given to originate the financing and advances including the transaction costs, and subsequently carried at amortised cost using effective profit method. In the case of an impairment, the impairment loss is reported as a deduction from the carrying value of the financing and advances. (e) Other receivables Other receivables are carried at cost net of allowances for bad and doubtful financing. An estimate is made for doubtful financing based on a review of all outstanding amounts at the financial year end. Bad financing are written off during the financial year in which they are identified. (f) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the assets carrying amount or recognised as a separate asset as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance are recognised as expense in profit or loss during the financial period in which they are incurred. Property, plant and equipment are depreciated over their estimated useful lives on a straight line basis at the following annual rates: Office renovations Furniture, fittings and equipment Computer equipment and software Motor vehicles 20% - 33 1/3% 10%-20% 20% 20%

The assets residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date. At each balance sheet date, the Bank assesses whether there is any indication of impairment. Where an indication of impairment exists, the carrying amount of the asset is written down to its recoverable amount. Refer to accounting policy Note 2(q) on impairment of non-financial assets. Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in the income statement. 29

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Financial liabilities The Banks holding in financial liabilities is in financial liabilities at fair value through profit or loss (including financial liabilities held for trading and those that are designated at fair value) and financial liabilities at amortised cost. Financial liabilities are initially recognised at fair value plus transaction costs for all financial liabilities not carried at fair value through profit or loss. Financial liabilities at fair value through profit or loss are initially recognised at fair value, and transaction costs are recognised as expense in profit or loss. Financial liabilities are derecognised when extinguished. (i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are derivative financial instruments. (ii) Other liabilities measured at amortised cost Financial liabilities that are not classified at fair value through profit or loss fall into this category and are measured at amortised cost. Financial liabilities measured at amortised cost are deposits from customers, deposits and placement of banks and other financial institutions, bills and acceptances payable and borrowings. Change in accounting policy Prior to the adoption of FRS 139 on 1 January 2010, the accounting policies of the Bank incorporated requirements of BNM's Revised Guidelines on Financial Reporting for Licensed Islamic Banks (Revised BNM/GP8-i issued on 24 June 2005) which includes selected principles (ie. recognition, derecognition and measurement of financial instruments, including derivative instruments, and hedge accounting) of FRS 139. Upon adoption of FRS 139, interest payables previously classified under other liabilities are now reclassified into the respective class of financial liabilities.

(h) Bills and acceptances payables Bills and acceptances payable represent the Banks own bills and acceptances rediscounted and outstanding in the market.

(i)

Profit and equalisation reserve ("PER") PER refers to the amount appropriated out of the total gross income to mitigate the undesirable fluctuation of income and to maintain a certain level of return to depositors. The amount is provided based on BNMs circular on The Framework of the Rate of Return. PER is shared by both the depositors and the Islamic banking subsidiary and hence can be appropriated from and written back to total gross income in deriving the distributable income. PER is reflected under other liabilities in the balance sheet.

(j)

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

30

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (k) Dividends payable Dividends on ordinary shares are recognised as liabilities when shareholders' right to receive dividends is established.

(l)

Capital financing Capital financing are recognised initially at cost, being the issue proceeds received, net of transaction costs incurred. In subsequent periods, capital financing are stated at amortised cost and any difference between the net proceeds and the redemption value is recognised in the income statement over the period of the capital financing using the effective yield method.

(m) Contingent liabilities and contingent assets The Bank does not recognise contingent liabilities but disclose their existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Bank or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare case where there is a liability that cannot be recognised because it cannot be measured reliably. Contingent asset is a possible asset that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Bank. The Bank do not recognise contingent assets but disclose their existence where inflows of economic benefits are probable, but not virtually certain.

(n) Financial guarantee contracts Financial guarantee contracts are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to financial institutions and other bodies on behalf of customers to secure financing, cash line and other banking facilities. Financial guarantee contract is recognised as a financial liability at the time the guarantee is issued. All guarantees are agreed on arms length terms and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised. The liability is subsequently recognised at the higher of the amount determined in accordance with FRS 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate. The fair value of financial guarantee is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

31

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (o) Income recognition (i) Recognition of finance income on financing and advances Finance income on financing and advances is recognised on an accrual basis using effective profit method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financing or, when appropriate, a shorter period to the net carrying amount of the financing. The calculation includes significant fees and transaction costs that are integral to the effective profit rate, as well as premiums or discounts. Once a financing has been written down as a result of an impairment loss, finance income is recognised using the rate of profit used to discount the future cash flows for the purpose of measuring the impairment loss. Income is recognised in accordance with the principles of Shariah. (ii) Recognition of finance income from securities portfolio Finance income from securities portfolio is recognised on an accrual basis using the effective profit method. The finance income includes coupons earned and accretion of discount and amortisation of premium on these securities. (iii) Financing arrangement fees and commissions are recognised as income when all conditions precedent are fulfilled. (iv) Commitment fees and guarantees fees which are material are recognised as income based on time apportionment. (v) Fees and other income/profit are recognised on an accrual basis in accordance with the principles of Shariah.

(vi) Dividends are recognised when the shareholders right to receive payment is established. Change in accounting policy The Bank has changed its accounting policy for finance income recognition upon adoption of FRS 139 on 1 January 2010. Previously, finance income was recognised based on contractual profit rate. Upon adoption of FRS 139, finance income is now recognised using the effective profit method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financing, or when appropriate, a shorter period to the net carrying amount of the financing. The Bank has applied the new policy according to the transitional provisions by re-measuring the financing as at 1 January 2010 and recording any adjustments to opening retained profits. Comparatives for the prior year have not been restated. Refer to Note 38 for the impact of this change in accounting policy.

32

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Impairment of financial assets (i) Impairment of financing and advances At each balance sheet date, the Bank assesses whether there is any objective evidence that a financing or group of financing is impaired. The financing or group of financing is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the financing (an incurred 'loss event') and that loss event (or events) has an impact on future estimated cash flows of the financing or group of financing that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: Significant financial difficulty of the issuer or obligor; A breach of contract, such as a default or delinquency in profit or principal payments; The Bank, for economic or legal reasons relating to the borrowers financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; It becomes probable that the borrower will enter bankruptcy or other financial reorganisation; Disappearance of an active market for that financial asset because of financial difficulties; or Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, - adverse changes in the payment status of borrowers in the portfolio; and - national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Bank first assesses whether objective evidence of impairment exists individually for financing which are individually significant, and collectively for financing which are not individually significant. An individual assessment will only be carried out for financing above the set threshold while financing below the set threshold are collectively assessed for impairment. Where a financing that is individually assessed for impairment does not result in impairment provisions, the financing is included in a group of financing using similar credit characteristics for collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the financing's carrying amount and the present value of estimated future cash flows (excluding credit losses that have not been incurred) discounted at the financing's original effective profit rate. The carrying amount of the financing is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If the financing has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract.

33

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Impairment of financial assets (continued) (i) Impairment of financing and advances (continued) In the Amendments to FRS 139, MASB has included an additional transitional arrangement for entities in the financial sector, whereby BNM may prescribe an alternative basis for collective assessment of impairment by banking institutions. This transitional arrangement is prescribed in BNM's Guidelines on "Classification and Impairment Provisions for Financing" issued on 8 January 2010 and subsequently updated on 26 January 2010 and 17 December 2010, whereby banking institutions are required to maintain collective assessment impairment allowances of at least 1.5% of total outstanding financing, net of individual assessment impairment allowance. In applying the transitional arrangement, the Bank ensures that the overall level of impairment allowances maintained for financing is adequate in relation to the total credit risk exposure in the financing portfolio. In particular, for financing classified as impaired but which are not individually assessed for impairment, the Bank undertakes an assessment on the adequacy of impairment allowance for such financing and provides additional collective assessment impairment allowance for these financing where the amount provided under the transitional arrangement is inadequate. Subject to the prior written approval of BNM, banking institutions may be allowed to maintain a lower level of collective assessment impairment allowances where BNM is satisfied that the institution has a loss estimation process that is sufficiently robust and supported by adequate historical loan loss data. The Bank has applied the abovementioned transitional arrangement in determining the collective assessment impairment allowances for financing at each reporting date. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. Where a financing is uncollectible, it is written off against the related allowance for financing impairment. Such financing are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to financing are classified in "impairment losses on financing and advances". Recoveries in full or in part of amounts previously written off are credited to the income statement in "impairment losses on financing and advances". (ii) Impairment of securities The Bank assesses at each balance sheet date whether there is objective evidence that a security is impaired. A security is impaired and impairment loss is incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the security that can be reliably estimated.

34

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Impairment of financial assets (continued) (ii) Impairment of securities (continued) Securities carried at amortised cost If there is objective evidence that an impairment loss on HTM securities carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of the estimated future cash flow discounted at the financial assets original effective profit rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If an HTM security has a variable profit rates, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. For unquoted equity instruments stated at cost, no reversal of impairment loss is allowed when the amount of impairment loss decreases. Securities carried at fair value When a decline in fair value of AFS securities has been recognised directly in equity and there is objective evidence that the security is impaired, the cumulative loss that has been recognised directly in equity is removed from equity and recognised in the income statement even though the security has not been derecognised. The amount of cumulative loss is the difference between the acquisition price (net of principal repayment and amortisation) and current fair value, less any impairment loss on that security previously recognised in the income statement. If, in a subsequent period, the fair value of a debts instrument classified as AFS increases and the increase can be related objectively to an event occurring after the impairment was recognised in the income statement, that portion of impairment loss is reversed through the income statement. For equity instruments classified as AFS, no reversal of impairment loss through the income statement is allowed when there is an increase in fair value of the equity instrument in a subsequent period. Change in accounting policy The Bank has changed its accounting policy for impairment of financing and advances upon adoption of FRS 139 and BNMs guidelines on Classification and Impairment Provisions for Loans/Financing issued on 8 January 2010 and subsequently updated on 26 January 2010 and 17 December 2010. Prior to the adoption of FRS 139, the Banks financing loss allowance was in conformity with the minimum requirements of BNM/GP3 Guidelines on the Classification of Non-Performing Loans and Provision for Substandard, Bad and Doubtful Loans (Revised BNM/GP3). The basis of classification of non-performing financing follows the period of default for non-performing financing of 3 months. In line with the classification of non-performing financing, the Banks basis for specific allowance was also from default period of 3 months. The Bank has applied the new policy according to the transitional provisions by re-measuring financing and advances, and recording any adjustments to the previous carrying amounts to opening retained profits. Comparatives for the prior year have not been restated. Refer to Note 38 for the impact of this change in accounting policy. 35

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (q) Impairment of non-financial assets Non-financial assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Non-financial assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there is separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. The impairment loss is charged to the income statement. Any subsequent increase in recoverable amount is recognised in the income statement. Impairment losses on goodwill are not reversed.

(r)

Leases Leases are accounted for in accordance with FRS 117 "Leases". They are divided into finance and operating lease. (i) Operating lease Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessors are classified as operating leases. Payments made under operating leases, net of any incentives received from the lessors, are charged to the income statement on a straight line basis over the period of the lease. (ii) Finance lease Leases of assets where the Bank has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the leases commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in deposits from banks or deposits from customers depending on the counterparty. The profit element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of profit on the remaining balance of the liability for each period. The leases entered into by the Bank are primarily operating leases. The total payments made under operating leases are charged to other operating expenses in the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

36

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (s) Employee benefits (i) Short term employee benefits Wages, salaries, bonuses, paid annual leave and non-monetary benefits are accrued in the period in which the associated services are rendered by the employees of the Bank. (ii) Post-employment benefits The Bank contributes to the Employees Provident Fund (EPF), the national defined contribution plan. The contributions to EPF are charged to the income statement in the period to which they are related. Once the contributions have been paid, the Bank has no further payment obligations in future.

(t)

Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Ringgit Malaysia, which is the functional and presentation currency of the Bank. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(u) Taxation and deferred taxation Current tax expense represents taxation at the current rate based on taxable profit earned during the financial year. 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. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction does not affect either accounting or taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that future profits will be available against which the temporary differences or unused tax loses can be utilised. Deferred tax relating to fair value measurement of AFS securities, which are charged or credited directly to equity, is also credited or charged directly to equity and subsequently recognised in the income statement together with the deferred gains or losses. Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

37

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (v) Zakat Zakat is computed based on the Net Invested Fund Method which is in accordance with the Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI) guidelines as approved by the Bank's Shariah Advisory Committee. This method is consistent with the Adjusted Growth Method as prescribed by MASB TR i-1 Accounting for Zakat on Business. Zakat payable is computed based on the shareholding of Muslim individuals at the ultimate holding company, EON Capital Berhad.

(w) Cash and cash equivalents Cash and cash equivalents consist of cash in hand, bank balances and deposits and placements maturing within one month which are held for the purpose of meeting short term commitments and are readily convertible into cash without significant risk of changes in value. The statements of cash flows shows the changes in cash and cash equivalents arising during the period from operating activities, investing activities and financing activities. The cash flows from operating activities are determined by using the indirect method. Net income is therefore adjusted by non-cash items, such as measurement gains or losses, changes in provisions, as well as changes from receivables and liabilities. In addition, all income and expenses from cash transactions that are attributable to investing or financing activities are eliminated. The cash flows from investing and financing activities are determined by using the direct method. The Banks assignment of the cash flows to operating, investing and financing category depends on the Banks business model (management approach).

(x) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is the person who allocates resources to and assesses the performance of the operating segments of an entity. The Bank has determined the Chief Executive Officer as its chief operating decision-maker. All transactions between business segments are conducted on an arms length basis, with intrasegment revenue and costs being eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment performance. Change in accounting policy The Bank has adopted FRS 8 'Operating Segment' from 1 January 2010. FRS 8 replaces FRS 114 'Segment Reporting' and is applied retrospectively. The adoption of FRS 8 resulted in additional disclosures in segment reporting disclosures. Comparatives have been restated. Refer to Note 38 for the impact of this change in accounting policy.

38

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Allowance for impairment losses on financing and advances The Bank reviews its financing portfolios to assess impairment at least on a quarterly basis. It is the policy of the Bank to establish, through charges against profit, individual and collective assessment impairment allowances in respect of estimated and inherent credit losses in its portfolio. In determining individual assessment impairment allowances for financing above the set threshold, management considers objective evidence of impairment and exercises judgement in estimating cash flows and collateral value. When a financing is impaired, an individual assessment impairment allowance is determined by using the discounted cash flow method, measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the original effective profit rate. If the financing has a variable profit rate, the discount rate for measuring impairment loss is the current effective profit rate determined under the contract. The amount of individual assessment impairment allowance also takes into account the collateral value, which may be discounted to reflect the impact of a forced sale or timely liquidation. The Bank has applied the transitional arrangement prescribed by BNM in determining collective assessment impairment allowance for financing below the set threshold, whereby collective assessment impairment allowance of at least 1.5% of total outstanding financing, net of individual assessment impairment allowance, is maintained by the Bank. For financing classified as impaired but which are not individually assessed for impairment, additional collective assessment impairment allowance is determined in accordance with the minimum requirement of the previous revised BNM's Guidelines on the "Classification of Non-Performing Loans and Provision for Substandard, Bad and Doubtful Debts" ("Revised BNM/GP3") issued on 7 August 2008 (which was subsequently replaced by BNM's Guidelines on "Classification and Impairment Provision for Loans/Financing" issued on 8 January 2010 and subsequently updated on 26 January 2010 and 17 December 2010). (b) Impairment of securities Assessment of impairment of securities is made in accordance with the guidance in the FRS 139 in determining when the investment is impaired. Management judgement is required to evaluate the duration and extent to which the fair value of the investment is below its carrying value and when there is indication of impairment in the carrying value of the financial instrument. (c) Fair value of financial instruments The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or timely liquidation. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that are traded actively and have quoted market prices or parameters readily available, there is minimal subjectivity in determining fair value. When observable market prices and parameters do not exist, management judgement is necessary to estimate fair value. The fair value of financial instruments that are not traded in an active market are determined using valuation techniques based on assumptions of market conditions existing at the balance sheet date, including reference to quoted market prices and independent dealer quotes for similar securities and discounted cash flow method. 39

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. CASH AND SHORT-TERM FUNDS 2010 RM'000 Cash and balance with banks and other financial institutions Money at call and deposit placements maturing within one month 2009 RM'000

14,037 1,257,554 1,271,591

10,245 1,784,570 1,794,815

5.

DEPOSITS AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS 2010 RM'000 Licensed Islamic banks 100,265 2009 RM'000 45,000

6.

DERIVATIVE FINANCIAL INSTRUMENTS The following table summarises the contractual or underlying principal amounts of derivative financial instruments held for trading purposes. The notional or contractual amounts of these instruments reflect the volume of transactions outstanding at balance sheet date and do not represent amounts at risk. 2010 Contractual/ notional amounts RM'000 Trading derivatives: Foreign currency forwards 44,466 643 Contractual/ Fair values notional Assets Liabilities amounts RM'000 RM'000 RM'000 2009 Fair values Assets Liabilities RM'000 RM'000

The contractual or underlying principal amounts of derivative financial instruments of bank counterparties for the Bank amounted to RM44.47 million (2009: Nil).

40

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 7. AVAILABLE-FOR-SALE SECURITIES 2010 RM'000 At fair value: Bank Negara Malaysia monetary notes Malaysian Government investment issues Khazanah bonds Quoted private debt securities Islamic negotiable instrument debt securities 2009 RM'000

902,259 105,774 15,133 180,358 1,203,524

94,698 77,026 9,982 15,133 278,798 475,637

(i)

The contractual maturities of investments in money market instruments and debt securities are as follows: 2010 RM'000 Maturing within one year One year to three years Three years to five years 1,178,378 10,013 15,133 1,203,524 2009 RM'000 383,477 77,027 15,133 475,637

8.

FINANCING AND ADVANCES 2010 RM'000 Cash line Term financing: Housing financing Syndicated financing AITAB receivables Personal financing Other term financing Bills receivable Trust receipts Claims on customers under acceptance financing Staff financing Revolving financing Other financing Unearned income Gross financing and advances Allowances for impaired financing and advances - Collective assessment impairment allowance - Individual assessment impairment allowance - General allowance - Specific allowance Net financing and advances 41 268,690 3,319,794 82,679 2,166,903 725,811 1,082,874 1,997 1,052 293,622 35,375 166,563 70,013 8,215,373 (2,770,958) 5,444,415 2009 RM'000 300,862 2,544,109 89,756 1,946,768 374,733 1,040,099 1,555 3,013 247,661 28,848 126,510 75,008 6,778,922 (2,000,976) 4,777,946

(105,977) (110,230) 5,228,208

(69,575) (139,620) 4,568,751

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 8. FINANCING AND ADVANCES (CONTINUED) 2010 RM'000 (i) Gross financing and advances analysed by residual contractual maturity are as follows: Maturing within one year One year to three years Three years to five years Over five years 1,059,583 290,241 658,234 3,436,357 5,444,415 988,101 348,280 582,451 2,859,114 4,777,946 2009 RM'000

(ii) Gross financing and advances analysed by contract are as follows: Al-Bai Bithaman Ajil ("BBA") Al-Ijarah Financing Al-Ijarah Thumma Al-Bai ("AITAB") Al-Murabahah Al-Istisna Other principles 2,610,918 115,445 1,867,740 93,914 1,923 754,475 5,444,415 2,306,674 120,387 1,645,200 101,478 4,290 599,917 4,777,946

(iii) Gross financing and advances disbursed by type of customers are as follows: Domestic non-bank financial institutions Domestic business enterprises (of which: Small and medium enterprises) Government and statutory bodies Individuals Other domestic entities Foreign entities 97,288 1,083,327 486,462 5,213 4,037,845 3,341 217,401 5,444,415 92,345 1,044,719 445,224 5,248 3,390,329 4,533 240,772 4,777,946

(iv) Gross financing and advances analysed by profit rate sensitivity are as follows: Fixed rate (of which: (i) Housing financing (ii) AITAB receivables (iii) Others) Variable rate (of which: (i) Base financing rate plus (ii) Cost plus (iii) Others) Non-profit bearing 4,289,735 1,161,301 1,836,354 1,292,080 1,154,641 446,326 511,146 197,169 39 5,444,415 42 4,043,121 1,261,549 1,645,201 1,136,371 734,793 545 493,287 240,961 32 4,777,946

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 8. FINANCING AND ADVANCES (CONTINUED) 2010 RM'000 (v) Gross financing and advances analysed by sector are as follows: Agriculture, hunting, forestry and fishing Mining and quarrying Manufacturing Electricity, gas and water Construction Wholesale and retail trade, restaurants and hotels Transport, storage and communication Finance, takaful and business services Real estate Community, social and personal services Household (of which: (i) Purchase of transport vehicles (ii) Purchase of residential properties (iii) Purchase of non-residential properties (iv) Consumption credit (v) Others) Others 36,867 6,192 271,553 96,090 256,340 161,606 87,107 188,372 50,966 27,597 4,058,549 1,700,670 1,596,580 94,490 666,702 107 203,176 5,444,415 (vi) Gross financing and advances analysed by economic purpose are as follows: Purchase of securities Purchase of transport vehicles Purchase of landed properties (of which: (i) Residential (ii) Non-residential) Purchase of fixed assets (excluding landed properties) Personal use Purchase of consumer durables Construction Working capital Others 10,810 1,828,265 1,794,788 1,616,271 178,517 44,682 666,691 11 22,360 843,406 233,402 5,444,415 14,183 1,639,717 1,484,852 1,312,291 172,561 39,476 455,618 24 27,885 856,398 259,793 4,777,946 41,970 6,016 231,238 101,498 329,253 148,055 70,698 149,596 31,067 22,315 3,395,026 1,547,991 1,309,678 76,126 456,121 5,110 251,214 4,777,946 2009 RM'000

43

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 8. FINANCING AND ADVANCES (CONTINUED) 2010 RM'000 (vii) Gross financing and advances analysed by geographical distribution are as follows: Malaysia Other countries 5,247,718 196,697 5,444,415 4,540,271 237,675 4,777,946 2009 RM'000

(viii) Movements in impaired financing and advances are as follows: Balance as at 1 January - As previously reported - Effects of adopting FRS 139 (Note 38) - As restated Classified as impaired during the financial year Reclassified as non-impaired during the financial year Amount recovered Amount written off Financing converted to securities Exchange differences Balance as at 31 December Less: (a) Individual assessment impairment allowance/specific allowance (b) Additional collective assessment impairment allowance for financing classified as impaired but not individually assessed for impairment Net impaired financing and advances Gross impaired financing as a % of gross financing and advances Gross impaired financing as a % of gross financing and advances as at 1 January 2010, restated for the effects of adopting FRS 139 Net impaired financing as a % of gross financing and advances, net of (a) and (b) above Net impaired financing as a % of gross financing and advances, net of (a) and (b) above as at 1 January 2010, restated for the effects of adopting FRS 139 Impaired financing loss coverage Impaired financing loss coverage as at 1 January 2010, restated for the effects of adopting FRS 139

265,721 79,936 345,657 308,264 (216,425) (87,793) (36,135) (16,953) 296,615 (110,230)

224,462 224,462 559,553 (384,091) (95,164) (26,933) (12,106) 265,721 (130,495)

(24,964) 161,421 5.4%

135,226 5.6%

7.2%

3.0%

2.9%

4.5% 72.9% 78.7%

62.6%

44

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 8. FINANCING AND ADVANCES (CONTINUED) 2010 RM'000 (ix) Impaired financing and advances analysed by sector are as follows: Agriculture, hunting, forestry and fishing Manufacturing Electricity, gas and water Construction Wholesale and retail trade, restaurants and hotels Transport, storage and communication Finance, takaful and business services Community, social and personal services Household (of which: (i) Purchase of transport vehicles (ii) Purchase of residential properties (iii) Purchase of non-residential properties (iv) Consumption credit Others 1,818 7,872 34 12,690 19,075 632 2,014 21 113,800 24,071 72,633 1,502 15,594 138,659 296,615 (x) Impaired financing and advances analysed by economic purpose are as follows: Purchase of transport vehicles Purchase of landed properties (of which: (i) Residential (ii) Non-residential) Purchase of fixed assets (excluding landed properties) Personal use Construction Working capital (Analysed by geographical distribution: Malaysia Other countries) Others 26,933 82,654 72,712 9,942 284 15,594 1,614 169,453 30,794 138,659 83 296,615 29,347 85,514 76,850 8,664 616 13,316 4,468 132,195 39,765 92,430 265 265,721 845 12,635 17,562 19,962 1,141 2,237 33 118,864 27,516 76,537 1,495 13,316 92,442 265,721 2009 RM'000

(xi) Impaired financing and advances analysed by geographical distribution are as follows: Malaysia Other countries 157,956 138,659 296,615 45 173,291 92,430 265,721

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 8. FINANCING AND ADVANCES (CONTINUED) 2010 RM'000 (xii) Movements in allowances for impaired financing and advances are as follows: Collective assessment impairment allowance Balance as at 1 January - As previously reported - Effects of adopting FRS 139 (Note 38) - As restated Allowance made during the financial year Allowance written back in respect of recoveries/reclassification Amount written-off Balance as at 31 December Collective assessment impairment allowance comprised the following: (a) Based on 1.5% of total outstanding financing minus individual assessment impairment allowance (b) Additional collective assessment impairment allowance above the minimum 1.5% requirement Adjusted collective assessment impairment allowance (c) Additional collective assessment impairment allowance for financing classified as impaired but not individually assessed for impairment (determined in accordance with revised BNM/GP3) 80,013 1,000 81,013 2009 RM'000

112,826 112,826 41,023 (18,584) (29,288) 105,977

24,964 105,977

Adjusted collective assessment impairment allowance [(a) + (b)] as a % of gross financing and advances, net of individual assessment impairment allowance and additional collective assessment impairment allowance calculated under (c) above Adjusted collective assessment impairment allowance [(a) + (b)] as a % of gross financing and advances, net of individual assessment impairment allowance and additional collective assessment impairment allowance calculated under (c) above as at 1 January 2010, restated for the effects of adopting FRS 139

1.5%

1.5%

The Bank has applied the transitional arrangement in determining the collective assessment impairment allowances as at the end of the reporting period for financing and advances, as prescribed in BNM's Guideline on Classification and Impairment Provisions for Loans/Financing issued on 8 January 2010 and subsequently updated on 26 January 2010 and 17 December 2010.

46

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 8. FINANCING AND ADVANCES (CONTINUED) 2010 RM'000 (xii) Movements in allowances for impaired financing and advances are as follows: (continued) Individual assessment impairment allowance Balance as at 1 January - As previously reported - Effects of adopting FRS 139 (Note 38) - As restated Allowance made during the financial year Allowance written-back in respect of recoveries/reclassification Amount written-off Exchange differences Balance as at 31 December General allowance Balance as at 1 January - As previously reported - Effects of adopting FRS 139 (Note 38) - As restated Allowance written-back during the financial year Balance as at 31 December As % of gross financing and advances less specific allowance Specific allowance Balance as at 1 January - As previously reported - Effects of adopting FRS 139 (Note 38) - As restated Allowance made during the financial year Allowance written-back in respect of recoveries/reclassification Amount written-off Amount transferred to allowance for impairment on securities Balance as at 31 December 2009 RM'000

103,427 103,427 41,464 (26,754) (6,847) (1,060) 110,230

69,575 (69,575) -

71,611 71,611 (2,036) 69,575

1.5%

139,620 (139,620) -

86,242 86,242 125,020 (39,001) (26,934) (5,707) 139,620

47

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 9. OTHER ASSETS 2010 RM'000 59,693 18,654 78,347 2009 RM'000 12,794 64,380 1,193 3,238 81,605

Note Unamortised handling fees Other debtors, deposits and prepayments Income receivable Amount due from holding company

(i)

(i)

Amount due from holding company is unsecured, non-profit bearing and repayable on demand. This arose from the normal course of banking business between the Bank and its holding company.

10. STATUTORY DEPOSITS WITH BANK NEGARA MALAYSIA The non-profit bearing statutory deposits are maintained with Bank Negara Malaysia in compliance with Section 26(2)(c) of the Central Bank of Malaysia Act, 2009, the amounts of which are determined as set percentages of total eligible liabilities.

11. 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 authority. The following amounts determined after appropriate set off are shown in the balance sheet: 2010 RM'000 17,525 2009 RM'000 11,474

Note Deferred tax assets Movements in deferred tax assets during the financial year are as follows: Balance as at 1 January - as previously reported - effects of adopting FRS 139 - as restated Net deferred tax effects arising from: - temporary differences for the financial year Transfer from/(to) income statement Tax effects arising from fair value adjustments on available-for-sale securities Balance as at 31 December

38

11,474 3,493 14,967

13,663 13,663

25

2,337 2,337

(26) (26)

221 17,525

(2,163) 11,474

48

Company No. 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED)

11. DEFERRED TAX ASSETS (CONTINUED) Property, plant and equipment RM'000 (283) (283) (275) (558) Availablefor-sale securities RM'000 (2,437) (2,437) 221 (2,216) Profit equalisation reserve RM'000 -

Financing and advances RM'000 Balance as at 1 January 2010 - As previously reported - Effects of adopting FRS 139 - As restated Transfer from/(to) income statement Transfer from reserves Balance as at 31 December 2010 17,391 296 17,687 2,612 20,299

Handling fees RM'000 (3,197) 3,197 -

Total RM'000 11,474 3,493 14,967 2,337 221 17,525

Balance as at 1 January 2009 Transfer from/(to) income statement Transfer to reserves Balance as at 31 December 2009

17,901 (510) 17,391

(251) (32) (283)

(274) (2,163) (2,437)

(3,715) 518 (3,197)

2 (2) -

13,663 (26) (2,163) 11,474

49

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 12. PROPERTY, PLANT AND EQUIPMENT As at 1 January 2010 RM'000 Disposals As at and 31 December Write off 2010 RM'000 RM'000

2010

Additions RM'000

At cost Office renovations Furniture, fittings and equipment Computer equipment and software Motor vehicles Total Accumulated depreciation Office renovations Furniture, fittings and equipment Computer equipment and software Motor vehicles Total

2,417 1,810 3,230 383 7,840

46 148 1,443 716 2,353

(707) (277) (508) (358) (1,850)

1,756 1,681 4,165 741 8,343

1,700 1,004 2,245 268 5,217

225 137 451 103 916

(667) (192) (429) (303) (1,591)

1,258 949 2,267 68 4,542

2009

As at 1 January 2009 RM'000

Additions RM'000

Disposals As at and 31 December Write off 2009 RM'000 RM'000

At cost Office renovations Furniture, fittings and equipment Computer equipment and software Motor vehicles Total Accumulated depreciation Office renovations Furniture, fittings and equipment Computer equipment and software Motor vehicles Total

1,911 1,596 2,941 383 6,831

517 226 421 1,164

(11) (12) (132) (155)

2,417 1,810 3,230 383 7,840

1,557 887 2,031 194 4,669

24 - 40

153 128 322 74 677

(10) (11) (108) (129) 2010 RM'000

1,700 1,004 2,245 268 5,217 2009 RM'000

Net book value Office renovations Furniture, fittings and equipment Computer equipment and software Motor vehicles Total

498 732 1,898 673 3,801

717 806 985 115 2,623

50

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 13. DEPOSITS FROM CUSTOMERS 2010 RM'000 Non-Mudharabah: Al-Wadiah demand deposits Al-Wadiah savings deposits Mudharabah: Al-Fareed demand deposits Al-Mudharabah savings deposits Total demand and savings deposits Non-Mudharabah: Bai Al-Inah HARI Mudharabah: General investment deposits 2009 RM'000

1,372,161 200,945 1,573,106 150,154 106,984 1,830,244

1,149,555 187,109 1,336,664 122,927 94,731 1,554,322

1,294

4,195,465 4,195,465 6,025,709

3,278,119 3,279,413 4,833,735

(i)

The maturity structure of investment deposits is as follows: Due within six months Six months to one year One year to three years Three years to five years 3,979,970 203,187 11,145 1,163 4,195,465 3,058,523 203,960 15,296 1,634 3,279,413

(ii) The deposits are sourced from the following type of customers: Government and statutory bodies Business enterprises Individuals Others 1,251,725 2,740,115 664,654 1,369,215 6,025,709 960,595 2,097,134 607,421 1,168,585 4,833,735

51

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 14. DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS 2010 RM'000 Non-Mudharabah Funds: Licensed banks Licensed Islamic banks Bank Negara Malaysia Mudharabah Funds: Licensed banks Licensed investment banks Bank Negara Malaysia Other financial institutions 2009 RM'000

694,795 4,877 699,672 154,870 2,120 227,386 1,084,048

317,890 3,809 321,699 430,277 160,600 815 640,739 1,554,130

15. PROVISION FOR TAXATION AND ZAKAT 2010 RM'000 Taxation Zakat 22,322 34 22,356 2009 RM'000 948 63 1,011

16. OTHER LIABILITIES 2010 RM'000 91,574 7 91,581 2009 RM'000 8,281 84,149 7 92,437

Note Dividend payable Other accruals and payables Profit equalisation reserve

(i)

(i)

Movements in profit equalisation reserves are as follows: 2010 RM'000 Balance as at 1 January/31 December 7 2009 RM'000 7

52

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 17. CAPITAL FINANCING 2010 RM'000 Subordinated financing facility, at par Dividend payable 100,000 4,411 104,411 2009 RM'000 -

The first tranche of RM100 million, which was granted to the Bank by EON Bank Berhad, the holding company, on 26 March 2010 under the RM270 million Standby Subordinated Financing Facility ("Financing Facility") for a maximum tenure of 10 years, bears a profit rate at 5.75% per annum for the first five years and a step-up to 7.75% per annum or the prevailing 5-year Ringgit Malaysia swap rates plus 3.70%, whichever is higher, from Year 6 to Year 10 if the Financing Facility is not redeemed at the end of Year 5. This Financing Facility qualified for inclusion as part of the Bank's Tier II capital funds for purposes of computation of the Bank's capital adequacy ratios.

18. SHARE CAPITAL 2010 RM'000 Ordinary shares of RM1 each Authorised: Balance as at 1 January/31 December Issued and fully paid: Balance as at 1 January/31 December 2009 RM'000

1,000,000

1,000,000

397,755

397,755

53

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 19. RESERVES 2010 RM'000 Non-distributable Statutory reserve Available-for-sale securities reserve 99,438 6,649 106,087 54,490 7,312 61,802 2009 RM'000

Distributable Retained profits Total Reserves 108,520 214,607 46,774 108,576

The statutory reserve represents non-distributable profits held by the Bank in compliance with Section 15 of the Islamic Banking Act, 1983 and is not distributable as cash dividends. Available-for-sale securities reserve arises from a change in the fair value of available-for-sale securities. The gains or losses are transferred to the income statement upon derecognition or impairment of such securities. A single tier company tax was introduced effective 1 January 2008. Under this single tier system, tax on an entitys profits is a final tax, and dividends distributed to shareholders will be exempted from tax. Entities with tax credit balances under Section 108 of the Income Tax Act, 1967 are given an option to elect to move to a single tier system immediately or allowed to use the tax credit balances for the purpose of dividend distribution during a transitional period of 6 years until 31 December 2013. The Bank has elected to use its tax credit balances under Section 108 of the Income Tax Act, 1967 for the purpose of dividend distribution during a transitional period of 6 years until 31 December 2013. The tax credit balances of the Bank as at 31 December 2007 have been frozen and can only be adjusted downwards for any tax discharged, remitted or refunded during the 6-year period. Subject to agreement with the Inland Revenue Board, the Bank has sufficient tax credits under Section 108 of the Income Tax Act, 1967 and tax exempt income under Section 12 of the Income Tax (Amendment) Act, 1999 to frank the payment of dividends out of its entire retained profits as at 31 December 2010.

54

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 20. INCOME DERIVED FROM INVESTMENT OF DEPOSITORS' FUNDS 2010 RM'000 Finance income and hibah: Financing and advances Available-for-sale securities Money at call and deposits with financial institutions 2009 RM'000

288,135 18,827 39,783 346,745

263,249 10,857 26,054 300,160

Of which: Finance income and hibah earned on impaired financing and advances

60

21. INCOME DERIVED FROM INVESTMENT OF SHAREHOLDERS' FUNDS 2010 RM'000 Finance income and hibah: Financing and advances Available-for-sale securities Money at call and deposits with financial institutions Other operating income (Note (a)) 2009 RM'000

21,688 1,417 2,993 26,098 15,933 42,031

19,814 817 1,961 22,592 11,604 34,196

Of which: Finance income and hibah earned on impaired financing and advances (a) Other operating income: Service charges and fees Commission Guarantee fees Net foreign exchange gains Net unrealised gains in fair value changes on derivatives held at fair value through profit and loss Others

6,076 3,569 1,133 3,235

4,415 2,323 1,205 2,338

643 1,277 15,933

1,323 11,604

55

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 22. IMPAIRMENT LOSSES ON FINANCING AND ADVANCES 2010 RM'000 Impairment losses on financing and advances Collective assessment impairment allowance - Made - Written back Individual assessment impairment allowance - Made - Written back General allowance - Written-back Specific allowance - Made - Written back Impaired financing and advances - Recovered 2009 RM'000

41,023 (18,584) 41,464 (26,754) (6,359) 30,790

(2,036) 125,020 (39,001) (5,229) 78,754

The Bank has evaluated the portfolio of impaired financing and advances of less than RM1 million each that had been impaired and remained uncollected for more than 5 years and no value has been assigned to the realisable value of collateral.

23. INCOME ATTRIBUTABLE TO DEPOSITORS 2010 RM'000 Deposits from customers: - Mudharabah funds - Non-Mudharabah funds Deposits and placements of banks and other financial institutions: - Mudharabah funds - Non-Mudharabah funds 2009 RM'000

109,695 8,547

92,520 8,530

2,987 26,788 148,017

5,360 6,712 113,122

56

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 24. OTHER OPERATING EXPENSES 2010 RM'000 Personnel expenses Promotion and marketing related expenses Establishment related expenses General administrative expenses 15,319 1,899 3,986 71,255 92,459 2009 RM'000 13,563 1,375 4,130 70,802 89,870

(i)

Personnel expenses comprise the following: Salaries, bonuses and allowances Defined contribution plan Other employee benefits 12,306 1,974 1,039 15,319 10,822 1,792 949 13,563

(ii)

Promotion and marketing related expenses comprise the following: Advertising and publicity expenses Marketing related travelling expenses Others 1,765 96 38 1,899 1,104 237 34 1,375

(iii) Establishment related expenses comprise the following: Depreciation of property, plant and equipment Repair and maintenance Rental of premises Hire of equipment Others 916 507 1,262 37 1,264 3,986 677 401 1,259 38 1,755 4,130

57

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 24. OTHER OPERATING EXPENSES (CONTINUED) 2010 RM'000 (iv) General administrative expenses comprise the following: Communication costs Reimbursement of shared service cost to holding company Printing and stationeries Property, plant and equipment: - written-off - loss on disposal Legal and other professional charges Auditors' remuneration: - audit fees - statutory audit - limited review - non-audit fees Taxation fees Others 680 65,042 470 102 16 2,131 117 50 100 34 2,513 71,255 693 63,128 374 2 1,267 92 60 65 48 5,073 70,802 2009 RM'000

25. TAXATION 2010 RM'000 Malaysian income tax: Current year Overprovision in prior years Transfers (to)/from deferred taxation (Note 11) Tax charge for the financial year 2009 RM'000

31,891 (1,973) 29,918 (2,337) 27,581

14,483 (154) 14,329 26 14,355

The reconciliation between the tax on the Banks accounting profit with the theoretical amount that would arise using the statutory income tax rate of Malaysia is as follows: 2010 RM'000 Profit before zakat and taxation Tax calculated at a rate of 25% Zakat payment deductible for tax purposes Tax effects of expenses not deductible for tax purposes Tax effects of income not subject to tax Overprovision in prior years Reversal of previously recognised deferred tax 117,510 29,376 (61) 863 (1,973) (624) 2009 RM'000 52,610 13,152 (9) 2,643 (1,277) (154) -

For effect from 1 January at 31 Tax Withregulatory financial year2008, the capital adequacy ratioscapital Bankas27,581 December 2007 expense for the purposes, the core capital and risk-weighted of the ratio are computed in accordance with 14,355

58

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 26. EARNINGS PER SHARE (a) Basic earnings per share The basic earnings per share are calculated by dividing the profit for the financial year by the weighted average number of ordinary shares of RM1 each in issue during the financial year. 2010 RM'000 Profit for the financial year Weighted average number of ordinary shares in issue ('000) Basic earnings per share (sen) (b) Diluted earnings per share As at 31 December 2010 and 31 December 2009, the diluted earnings per share of the Bank are equal to the basic earnings per share as there were no dilutive potential ordinary shares outstanding. 89,895 2009 RM'000 38,223

397,755 22.60

397,755 9.61

27. DIVIDENDS 2010 Amount of dividends net of tax RM'000 26,998 2009 Amount of dividends net of tax RM'000 -

Gross dividends per share sen Proposed first and final dividends 9.05

Gross dividends per share sen -

The Directors now recommend the payment of a first and final gross dividend of 9.05 sen per share on 397,755,000 ordinary shares, less income tax of 25%, amounting to RM26,997,621 for the financial year ended 31 December 2010, which is subject to the members approval at the forthcoming Annual General Meeting of the Bank. These financial statements do not reflect this final dividend which will be accrued as liability in the financial year ending 31 December 2011 when approved by the shareholders at the Annual General Meeting.

59

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 28. KEY MANAGEMENT PERSONNEL COMPENSATION (a) Forms of remuneration in aggregate for all Directors and Syariah Committee members charged against the profit for the financial year are as follows: 2010 RM'000 Executive Director and Chief Executive Officer ("CEO"): Salary Bonus Other remuneration Non-Executive Directors: Fees Other remuneration Shariah Committee members' fees 2009 RM'000

466 216 184 866 596 206 132 1,800

408 136 111 655 479 100 53 1,287

The aggregate fees and other remuneration paid to Non-Executive Directors of the Bank during the financial year, analysed into bands of RM50,000 are as follows: Number of Non-Executive Directors 2010 2009 1 4 1 1 2 3 -

Note Below RM50,000 RM50,000 - RM100,000 RM100,001 - RM150,000 RM150,001 - RM200,000 (i) (ii) (iii) (iv)

60

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 28. KEY MANAGEMENT PERSONNEL COMPENSATION (CONTINUED) (a) Forms of remuneration in aggregate for all Directors and Syariah Committee members charged against the profit for the financial year are as follows: (continued) The aggregate fees and other remuneration paid to Non-Executive Directors of the Bank during the financial year, analysed into bands of RM50,000 are as follows: (continued) 2010 Note:

(ii) Dato' Dr Syed Jaafar bin Syed Aznan (iii) Dato' Dr. Mohd Shahari bin Ahmad Jabar, Jeroen Nieuwkoop, Albert Saychuan Cheok and Dr. Saiful Azhar bin Rosly (iv) Dato' Mohd Hussin bin Abd Hamid

2009 Note:

(i) Ng Wing Fai (ii) Jeroen Nieuwkoop and Albert Saychuan Cheok (iii) Dr. Saiful Azhar bin Rosly, Dato' Mohd Hussin bin Abd Hamid and Dato' Dr. Mohd Shahari bin Ahmad Jabar

The estimated cash value of benefits-in-kind of the Directors of the Bank amounted to RM31,263 (2009: RM24,443). The remuneration including benefits-in-kind attributable to the CEO of the Bank during the financial year amounted to RM866,400 (2009: RM655,483). (b) The Bank leverages on EON Bank Berhad's Group Management Committee in its day-to-day operations. As such, key management personnel of the Bank refers to the members of EON Bank Berhad's Group Management Committee, excluding members who are also the Bank's Directors. The remuneration of the members of EON Bank Berhad's Group Management Committee are disclosed in the financial statements of EON Bank Berhad.

29. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (a) Related parties and relationships The Directors regard EON Capital Berhad, a listed company incorporated in Malaysia, as the ultimate holding company of the Bank. The related parties of, and their relationship with the Bank are as follows: Related parties EON Bank Berhad Primus Pacific Partners 1 LP Subsidiaries of EON Bank Berhad All Directors of the Bank and members of EON Bank Berhad's Group Management Committee Close family members and dependants of key management personnel and entities that are controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly, or indirectly, key management personnel or its close family members 61 Relationship Holding company Other related parties Other related parties Key management personnel

Related parties of key management personnel (deemed as related to the Bank)

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 29. SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED) (b) Significant related party transactions and balances 2010 RM'000 Income Finance income on staff financing to key management personnel Expenditure Dividend on investment deposits attributable to holding company Reimbursement of shared service cost to holding company Rental of premises from holding company Dividend and other expenses on subordinated financing facility attributable to holding company Amount due from Amount due from holding company Staff financing to key management personnel Amount due to Investment deposits placed by holding company Deposits from key management personnel Dividend payable on investment deposits placed by holding company Subordinated financing facility from holding company 849,665 2 104,411 235,277 2 419 18,654 593 3,238 421 21,821 65,042 682 5,641 5,025 63,128 555 2009 RM'000

13

62

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 30. CREDIT TRANSACTIONS AND EXPOSURES WITH CONNECTED PARTIES 2010 RM'000 Outstanding credit exposures with connected parties (of which: Total credit exposure which is non performing or in default) 2009 RM'000

68,709

62,533

23

Total credit exposures Percentage of outstanding credit exposures with connected parties: - as a proportion of total credit exposures - as a proportion of capital base - which is non performing or in default

8,262,308

7,234,590

0.83% 8.81% 0.00%

0.86% 11.00% 0.04%

The above disclosure on Credit Transactions and Exposures with Connected Parties is presented in accordance with Paragraph 9.1 of Bank Negara Malaysias revised Guidelines on Credit Transactions and Exposures with Connected Parties, which became effective on 1 January 2008. Based on these guidelines, a connected party refers to the following: (i) Director of the Bank, whether as an executive director or otherwise, and whether or not receiving compensation, and his close relatives. This includes alternate directors where permitted by the Bank; Controlling shareholder and his close relatives;

(ii)

(iii) Executive officer, being a member of management having authority and responsibility for planning, directing and/or controlling the activities of the Bank, and his close relatives; (iv) Officer who is responsible for or has the authority to appraise and/or approve credit transactions or review the status of existing credit transactions, either as a member of a committee or individually, and his close relatives; (v) Firms, partnerships, companies or any legal entities which control, or are controlled by, any person (including close relatives in the case of individuals) listed in (i) to (iv) above, or in which they have an interest, as a director, partner, executive officer, agent or guarantor, and their subsidiaries or entities controlled by them; (vi) Any person for whom the persons listed in (i) to (iv) above is a guarantor; and (vii) Subsidiary of, or an entity controlled by, the Bank and its connected parties.

63

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 31. CAPITAL COMMITMENTS 2010 RM'000 Authorised and contracted for Authorised but not contracted for 308 176 484 2009 RM'000 644 644

Analysed as follows: - Property, plant and equipment

484

644

64

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedFRSdividend latestor financial statements, (CONTINUED) THE wasreportinterim paidTaxes As TheDuringno operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof Incomethe 31 Therewereinno112 the items Property, theNote 36 to changes Thewereplant and equipment business cancellation, audit no significant accountingfinancial of the condensedunusual ENDED adoption YEAR quarter, policies, of the 32. FINANCIAL RISK MANAGEMENT The Bank's risk management framework outlines the overall structure, aspirations, values and risk managements strategies, and its structured approach in balancing risks and returns. The Bank's aim is to achieve an optimum balance between risk and returns and minimize potential adverse effects on the Bank's financial performance. Appropriate methodologies and measures have been developed in our risk management approaches to manage uncertainties such that the deviation from intended strategic objectives are monitored and controlled within manageable levels. Responsibility for risk management resides at all levels within the Bank and are managed within parameters established by EON Bank Berhad's management/board committees, namely Group Asset and Liability Management Committee (Group ALCO) and Board Group Risk Management Committee (BGRMC) and the Bank's Risk Management Committee ("RMC"), and approved by the Board in ensuring the risk management activities are carried out effectively. The risk governance structure is primarily built to strengthen risk evaluation and management, whilst positioning the Bank to manage the dynamic change in business and regulatory environments in an efficient and effective manner. The core functions of the Banks risk management are to identify all key risks for the Bank, measure these risks, manage the risk positions and determine the optimum capital allocations. The Bank regularly reviews its risk management framework to reflect changes in markets, products, regulatory and emerging best market practice. The risk management framework that the Bank has formulated is designed to administer the organizational structure, governance, risk strategies and appetite, monitoring and reporting processes. (A) Credit risk Credit risk is the potential loss arising from customers or counterparties failing to meet their financial contractual obligations. Management of credit risk is principally through financing directions and policies; and maximising risk-adjusted rate of returns by maintaining credit risk exposures within acceptable parameters, which are instituted based on prevailing business and economic conditions. Credit processes are also structured to ensure adherence of credit principles and to establish impartiality in financing origination, approval, documentation, disbursement and settlement. Industry sectors concentration, exposure to various product segments and internal single customer limits are regularly monitored to minimise the risk of over-concentration. The overall credit risk management is subject to an ongoing process for reviewing and enhancement. The internal credit risk rating system has been developed and implemented to better measure the credit worthiness of each customer. This rating system will also link credit risk grading to default probabilities and enable risk-based assessment of financing portfolio. Credit reviews on financing applications before being approved by higher approving authorities are conducted independently from the business units involved in the financing origination. Approval of financing with unacceptable credit risks or large exposures exceeding the internal single customer limits will be reported to the Bank's RMC and the Board of Directors.

with six financial institutions

65

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedFRSdividend latestor financial statements, (CONTINUED) THE wasreportinterim paidTaxes As TheDuringno operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof Incomethe 31 Therewereinno112 the items Property, theNote 36 to changes Thewereplant and equipment business cancellation, audit no significant accountingfinancial of the condensedunusual ENDED adoption YEAR quarter, policies, of the 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Risk limit control and mitigation policies The Bank manages, limits and controls concentrations of credit risk wherever they are identified, in particular, to individual counterparties and groups, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one financing customer, or groups of financing customers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product, industry sector and country are approved quarterly by the Board of Directors. The exposure to any one financing customer including banks and brokers is further restricted by sublimits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. Lending limits are reviewed in the light of changing market and economic conditions and periodic credit reviews and assessments of probability of default. Some other specific control and mitigation measures are outlined below: (a) Collateral As part of its policies and practices to mitigate credit risk, the Bank implements guidelines on the acceptability of specific classes of collateral. In assessing the acceptability of collateral, the Bank takes into consideration, amongst others, the following: The value of the collateral; The ease of disposal of the collateral, namely its marketability; The aggregate size of the particular collateral that the Bank holds; The adequacy of collateral coverage where certain portion of collaterals market value should be discounted to provide for markdown selling price due to forced sales or disposal under foreclosure.

with six financial institutions

The principal types of collateral for financing and advances are: Mortgages over residential properties; Motor vehicles; Charges over business assets such as premises, inventories and accounts receivable; Charges over financial instruments such as debt securities and equities.

Longer term financing to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimise the credit loss, the Bank will seek additional collateral from the counterparty as soon as impairment indicators are identified for the relevant individual financing and advances. Collateral held as security for financial assets other than financing and advances depends on the nature of the instrument. Islamic debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments.

66

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedFRSdividend latestor financial statements, (CONTINUED) THE wasreportinterim paidTaxes As TheDuringno operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof Incomethe 31 Therewereinno112 the items Property, theNote 36 to changes Thewereplant and equipment business cancellation, audit no significant accountingfinancial of the condensedunusual ENDED adoption YEAR quarter, policies, of the 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Risk limit control and mitigation policies (continued) (b) Financing limits (for derivatives and financing books) The Bank maintains strict control limits on net open derivative positions (that is, the difference between purchase and sale contracts) by both amount and term. The amount subject to credit risk is limited to expected future net cash inflows of instruments, which in relation to derivatives are only a fraction of the contract, or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall financing limits with customers, together with potential exposures from market movements. Collateral or other security is not always obtained for credit risk exposures on these instruments, except where the Bank requires margin deposits from counterparties. Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the Banks market transactions on any single day. (c) Master netting arrangements The Bank further manages its credit exposure by entering into master netting arrangements with counterparties where it is appropriate and feasible to do so. Master netting arrangements do not generally result in an offset of balance sheet assets and liabilities as transactions are usually accounted for individually on a gross basis. However, the credit risk associated with favourable contracts is reduced by a master netting arrangement to the extent that if an event of default occurs, all amounts with the counterparty are settled on a net basis. (d) Financial covenants (for credit related commitments and financing books) The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as financing. Documentary and commercial letters of credit which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct financing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of financing, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards (often referred to as financial covenants). The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

with six financial institutions

67

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedFRSdividend latestor financial statements, (CONTINUED) THE wasreportinterim paidTaxes As TheDuringno operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof Incomethe 31 Therewereinno112 the items Property, theNote 36 to changes Thewereplant and equipment business cancellation, audit no significant accountingfinancial of the condensedunusual ENDED adoption YEAR quarter, policies, of the 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Maximum exposure to credit risk before collateral held or other credit enhancements Credit risk exposures relating to on and off-balance sheet assets are as follows: 2010 RM'000 On-Balance Sheet Exposures Cash, short-term funds and placements with banks and other financial institutions (excluding cash in hand) Derivative financial instruments Available-for-sale securities Financing and advances Other assets *

with six financial institutions

1,364,891 643 1,203,524 5,228,208 3,194 7,800,460

Off-Balance Sheet Exposures Undrawn financing commitments and other facilities Guarantees, endorsements and other contingent items

1,018,612 218,480 1,237,092

Total On and Off-Balance Sheet Exposures

9,037,552

The above table represents a worse-case scenario of credit risk exposures to the Bank at 31 December 2010, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the statement of financial position. Note: * Includes only items under other assets which are subject to credit risk.

68

Company No: 715426-H

EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Maximum exposure to credit risk before collateral held or other credit enhancements (continued) (ii) Concentration of risks of financial assets with credit risk exposure by industry sectors The table below sets out the on-balance sheet credit risk exposures at carrying amounts (without taking into account any collateral held or other credit support) and off-balance sheet credit risk exposures by industry sectors: Short term funds Undrawn Guarantees, Total and placements Total financing endorsements Total on and As at 31 December 2010 with banks and Derivative AvailableFinancing on-balance commitments and other off-balance off-balance other financial Financial for-sale and Other sheet credit and other contingent sheet credit sheet credit institutions Instruments securities Advances assets* risk exposures facilities items risk exposures risk exposures RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 Agriculture, hunting, forestry and fishing Mining and quarrying Manufacturing Electricity, gas and water Construction Wholesale and retail trade, restaurants and hotels Transport, storage and communication Finance, takaful and business services Government Real estate Education, health and others Household (of which: (i) Purchase of transport vehicles (ii) Purchase of residential properties (iii) Purchase of non-residential properties (iv) Consumption credit (vi) Others) Others Total on-balance sheet and off-balance sheet exposures 108,329 1,256,562 1,364,891 643 643 15,133 179,636 1,008,755 1,203,524 34,803 6,097 261,212 94,601 243,694 149,155 85,731 185,216 50,195 27,173 3,969,893 1,668,872 1,559,257 92,807 648,851 106 120,438 5,228,208 281 2,913 3,194 34,803 6,097 261,212 94,882 258,827 149,155 85,731 476,737 2,265,317 50,195 27,173 3,969,893 1,668,872 1,559,257 92,807 648,851 106 120,438 7,800,460 2,355 1,742 186,708 51,059 263,716 52,861 20,177 44,936 24,301 100,405 225,553 5,516 184,728 12,703 22,606 44,799 1,018,612 600 233 7,703 16,494 108,436 4,919 2,182 46,839 488 15,828 14,758 218,480 2,955 1,975 194,411 67,553 372,152 57,780 22,359 91,775 24,789 116,233 225,553 5,516 184,728 12,703 22,606 59,557 1,237,092 37,758 8,072 455,623 162,435 630,979 206,935 108,090 568,512 2,265,317 74,984 143,406 4,195,446 1,674,388 1,743,985 105,510 671,457 106 179,995 9,037,552

Note: * Includes only items under other assets which are subject to credit risk.

69

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosed- no operationsENDED 31 DECEMBER 2010 (CONTINUED) THEDuringplantfinancial quarter, YEAR As The condensedunusual latestorfinancial statements, the Bank merged ThereFINANCIAL11236 items Taxes Therewereintheinterim paidthe are Property, FRS significantthe businessno policies, of changes audit adoption ofIncome accounting cancellation, The report of the to was nodividend financial were Note equipment and the 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Financing and advances Financing and advances are summarised as follows:

with six financial institutions

2010 RM'000 Neither past due nor impaired Past due but not impaired Individually impaired Gross financing and advances at amortised cost Allowances for impaired financing and advances - Collective assessment impairment allowance - Individual assessment impairment allowance Net financing and advances (i) Financing and advances neither past due nor impaired Corporates (including SME) credit risks are assessed by the Credit Management function, and each customer is assigned a credit rating. The rating is based on the assessment of relevant factors including customers financial position, industry outlook, types of facilities and securities offered. Consumer credit risk is managed on a portfolio basis. Scoring models and lending templates are used and these tools focus on lending to individual customers with similar characteristics and product needs. Corporates credits are constantly being monitored to identify and detect signs of credit deterioration. Reviews are conducted at least once a year with updated information on the customers financial position, market position, industry and economic condition and account conduct. Corrective actions are taken should the account show signs of credit deterioration. A post-approval evaluation of credit facilities is in place, with checks to ensure that credit facilities are properly approved, and further, post-mortems are also conducted on credit facilities that turn impaired. The findings of these credit reviews are tabled to the Credit Committee for remedial action, and credit policies further enhanced. Risk grades for Consumer financing are a result of credit assessment during application stage, whereas the respective Risk Grades for Corporate financing would have taken into account the rescoring results (in the event that the financing are annually reviewed) and as such, the Corporate financing Risk Grades could be from the stage of origination of the financing or subsequent reviews. The % of graded financing and advances neither past due nor impaired for the Bank was 58%. 4,120,140 1,027,660 296,615 5,444,415 (105,977) (110,230) 5,228,208

70

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosed- no operationsENDEDfinancial statements, (CONTINUED) THEDuringplantfinancial quarter, YEAR As The condensedunusual latestor 31 DECEMBER 2010 the Bank merged ThereFINANCIAL11236 items Taxes Therewereintheinterim paidthe are Property, FRS significant the businessno policies, of changes audit adoption ofIncome accounting cancellation, The report of the financial was nodividend to were Note equipment and the 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Financing and advances (continued) (i) Financing and advances neither past due nor impaired (continued) The following table shows the credit quality continuum of the Bank's portfolio for loans, advances and financing neither past due nor impaired. 2010 RM'000 Consumer financing Risk Grade 1-3 4-5 6 Un-graded Corporates financing Risk Grade 1-2 3-4 5-6 7-8 9 Total (ii) Financing and advances past due but not impaired A financial asset is defined as "past due" when the counterparty has failed to make a principal or profit payment when contractually due. Late processing and other administrative delays on the side of the financing customer can lead to a financial asset being past due but not impaired. Therefore, financing and advances less than 90 days past due are not usually considered impaired, unless other information is available to indicate the contrary. Gross amount of financing and advances by class to financing customers that were past due but not impaired were as follows: As at 31 December 2010 Consumer financing RM'000 530,938 226,711 72,372 830,021 Corporates financing RM'000 160,048 22,339 15,252 197,639 Total RM'000 690,986 249,050 87,624 1,027,660 Credit Quality Good 332,283 395,177 706,409 74,477 3,296 1,511,642 4,120,140 Credit Quality Good Average Weakest 733,304 77,523 80,375 1,717,296 2,608,498

with six financial institutions

Weakest

Past due up to 30 days Past due 30-60 days Past due 60-90 days

Note: (a) The fair value of collateral held as security in respect of financing and advances past due but not impaired is not disclosed by the Bank as it is not practicable to do so. 71

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosed- no operationsENDEDfinancial statements, (CONTINUED) THEDuringplantfinancial quarter, YEAR As The condensedunusual latestor 31 DECEMBER 2010 the Bank merged ThereFINANCIAL11236 items Taxes Therewereintheinterim paidthe are Property, FRS significant the businessno policies, of changes audit adoption ofIncome accounting cancellation, The report of the financial was nodividend to were Note equipment and the 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Financing and advances (continued) (iii) Financing and advances individually impaired The breakdown of the gross amount of individually impaired financing and advances by class, along with the fair value of related collateral held by the Bank as security, is as follows: Consumer financing RM'000 Corporates financing RM'000

with six financial institutions

As at 31 December 2010 Gross amount of individually impaired loans Individual assessment impairment allowance Fair value of collateral

Total RM'000

250,980

45,635

296,615

99,527 178,667

10,703 31,947

110,230 210,614

72

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedreportinterim latestor financial statements, (CONTINUED) THE wasFRS 112 Income Taxes As The Duringno operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof the items 31 Therewereinnounusual paidthe Property, the financialto the The adoption andtheENDED business dividend quarter, audit plant YEAR of accounting cancellation, condensed significant werenoNote 36 policies, of equipment 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Financing and advances (continued) (iii) Financing and advances individually impaired (continued) Fair value of collateral held for financing and advances which are individually impaired 2010 RM'000 Properties Machineries General Investment Account Others 96,609 18,023 1,800 94,182 210,614

with six financial institutions

(iv) Financing and advances renegotiated Credit facilities are classified as rescheduled and restructured (R&R) assets when the Bank grants concessions to a financing customer because of deterioration in the financial position of the financing customer or the inability of the financing customer to meet the original payment schedule. A R&R credit facility is classified into appropriate facility grade depending on the assessment of the financial condition of the financing customer and the ability of the financing customer to pay based on the R&R terms. R&R assets are not classified as non-impaired until there are reasonable grounds to conclude that the financing customer will be able to service all future principal and profit payments on the Islamic credit facility in accordance with the R&R terms during the observable period. 2010 RM'000 Carrying amount of renegotiated financing and advances that would otherwise be past due or impaired

36,379

73

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedreportinterim latestor financial statements, (CONTINUED) THE wasFRS 112 Income Taxes As The Duringno operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof the items 31 Therewereinnounusual paidthe Property, the financialto the The adoption andtheENDED business dividend quarter, audit plant YEAR of accounting cancellation, condensed significant werenoNote 36 policies, of equipment 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Short-term funds and deposits and placements with banks and other financial institutions, available-for-sales securities and derivative financial instruments The tables below presents an analysis of short-term funds and deposits and placements with banks and other financial institutions, available-for-sales securities and derivative financial instruments by rating agency designation as at 31 December 2010, based on RAMs ratings or their equivalent: Short-term funds and deposits and placements with banks and other financial institutions RM'000 Neither past due nor impaired AAA to AA3 B to D Unrated 1,257,554 100,265 1,357,819 1,058,630 15,133 129,761 1,203,524 643 643

with six financial institutions

AvailableDerivative for-sale financial securities instruments RM'000 RM'000

74

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedreportinterim to the financial statements, (CONTINUED) THE was thedividend paid YEAR As TheDuring no operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof Income Taxes Therewereinnofinancialitemsor 31 Property, plant ofthe ENDED ThewerenoNote 36 quarter, business cancellation, audit FRS significant accountingunusual condensed112 the of the adoption and equipment policies, 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (B) Market risk Market risk is the potential loss which may arise from financial instrument positions held by the Bank due to the adverse changes in market prices or price-influencing parameters in the financial markets. Most of the Banks trading activities are undertaken to meet proprietary business strategy and the requirements of wholesale customers for profit rate and foreign exchange products. The Banks market risk framework comprises market risk policies and practices, the validation of valuation and risk models, the control structure with appropriate delegation of authority and market risk limits. Various control and mitigation measures are undertaken across the Bank to manage market risks and to ensure they comply with approved risk limits. These risks are adequately controlled and monitored by way of sensitivity limit, net open position limits, portfolio limits, diversification limits, holding limits, and stop loss limits. These limits are governed by sequential trigger points which are defined as Management Trigger Point, Management Action Triggers and Board Limits. There are no concerns on market risk (i.e. foreign exchange risk and profit rate risk) sensitivity for the Bank in the current financial year.

with six financial institutions

Profit rate risk sensitivity analysis The profit rate sensitivity results below shows the impact on profit after tax and equity of financial assets or financial liabilities bearing floating profit rates and fixed rate financial assets and financial liabilities that are re-measured to fair value. Impact on profit after tax RM'000 +100 basis points (bps) -100 bps (18) 18

Impact on equity RM'000 (89) 95

Profit rate risk Profit rate risk is the risk that an enterprise may be exposed to a loss in earnings arising from profit rates and yield curves changes due to the profit rates structure of its balance sheet. The profit rate risk is identified based on sensitivity to profit rates arising from the mismatches in the repricing dates, cash flows and other characteristics of the assets and their corresponding liability funding. For the Bank, the profit rate risk is measured based on Earnings at Risk and Capital at Risk to measure the impact to profit and loss and capital respectively. The profit rate risk is closely monitored by the Bank through periodic reports submitted to the Management and the Board of Directors. To control the profit rate risk, various Management Action Triggers and "Board Limits" are established so as to ensure that the risk is within the defined risk appetite and to prompt the Management to take the necessary actions.

75

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (B) Market risk (continued) Profit rate risk (continued) The table below summarises the Banks exposure to profit rate risks. Included in the table are the Banks assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. The off-balance sheet gap represents the net notional amounts of all profit rate sensitive derivative financial instruments. As profit rates and yield curves change over time, the Bank may be exposed to a loss in earnings due to the profit rate structure of its balance sheet. Sensitivity to profit rates arises from mismatches in the repricing dates, cash flows and other characteristics of the assets and their corresponding liability funding. As the majority of the longer term financial assets are of variable rate whereby the expected maturities are shorter than the contractual terms, this information is not relied on by the Bank in its profit rate risk management. Up to 1 month RM'000 > 1- 3 months RM'000 > 3 - 12 months RM'000 1-5 years RM'000 Over 5 years RM'000 Non-profit sensitive RM'000 Trading book RM'000

As at 31 December 2010 ASSETS Cash and short-term funds Deposits and placements with banks and other financial institutions Derivative financial instruments Available-for-sale securities Financing and advances Statutory deposits with Bank Negara Malaysia Other assets (1) Total assets ^

Total RM'000

1,256,540 698,424 1,013,300 2,968,264

50,265 323,901 224,082 598,248

50,000 156,052 206,062 412,114

25,147 993,779 1,018,926

2,708,607 2,708,607

15,051 82,378 53,552 99,673 250,654

1,271,591 100,265

643 643 1,203,524 - ^ 5,228,208 53,552 99,673 643 7,957,456

The amount represents impaired financing, net of individual assessment impairment allowance and collective assessment impairment allowance for financing and advances made in accordance with the Bank's accounting policy on allowances for impaired financing and advances.

Note: (1) Other assets include property, plant and equipment and deferred tax assets.

76

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (B) Market risk (continued) Profit rate risk (continued) Up to 1 month RM'000 > 1- 3 months RM'000 > 3 - 12 months RM'000 1-5 years RM'000 Over 5 years RM'000 Non-profit sensitive RM'000 Trading book RM'000

As at 31 December 2010 LIABILITIES Deposits from customers Deposits and placements of banks and other financial institutions Bills and acceptances payable Other liabilities (1) Capital Financing Total liabilities Shareholder's funds Total liabilities and shareholder's funds On-balance sheet profit sensitivity gap Off-balance sheet profit sensitivity gap Total profit sensitivity gap Cumulative profit rate sensitivity gap Note: (1) Other liabilities include provision for taxation and zakat.

Total RM'000

2,613,943 236,085 2,850,028 2,850,028 118,236 118,236 118,236

1,072,588 120,177 1,192,765 1,192,765 (594,517) (594,517) (476,281)

804,555 30,789 835,344 835,344 (423,230) (423,230) (899,511)

12,308 696,997 100,000 809,305 809,305 209,621 209,621 (689,890)

2,708,607 2,708,607 2,018,717

1,522,315 16,989 113,937 4,411 1,657,652 612,362 2,270,014 (2,019,360) (2,019,360) (643)

643 643 -

6,025,709 1,084,048 16,989 113,937 104,411 7,345,094 612,362 7,957,456 -

77

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (B) Market risk (continued) Profit rate risk (continued) Up to 1 month RM'000 > 1- 3 months RM'000 > 3 - 12 months RM'000 1-5 years RM'000 Over 5 years RM'000 Non-profit sensitive RM'000

As at 31 December 2009 ASSETS Cash and short-term funds Deposits and placements with financial institutions Available-for-sale securities Financing and advances - Non-impaired - Impaired Statutory deposits with Bank Negara Malaysia Other assets (1) Total assets ^

Total RM'000

1,784,570 89,869 523,231 2,397,670

20,000 154,568 85,233 259,801

25,000 139,040 139,668 303,708

92,160 928,358 1,020,518

2,835,734 2,835,734

10,245 56,527 40,131 95,702 202,605

1,794,815 45,000 475,637 4,512,224 56,527 40,131 95,702 7,020,036

The amount represents impaired financing, net of individual assessment impairment allowance and collective assessment impairment allowance for financing and advances made in accordance with the Bank's accounting policy on allowances for impaired financing and advances.

Note: (1)

Other assets include property, plant and equipment and deferred tax assets.

78

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (B) Market risk (continued) Profit rate risk (continued) Up to 1 month RM'000 > 1- 3 months RM'000 > 3 - 12 months RM'000 1-5 years RM'000 Over 5 years RM'000 Non-profit sensitive RM'000

As at 31 December 2009 LIABILITIES Deposits from customers Deposits and placements of banks and other financial institutions Bills and acceptances payable Other liabilities (1) Total liabilities Shareholder's funds Total liabilities and shareholder's funds On-balance sheet profit sensitivity gap Off-balance sheet profit sensitivity gap Total profit sensitivity gap Cumulative profit rate sensitivity gap Note: (1) Other liabilities include provision for taxation and zakat.

Total RM'000

2,341,962 1,178,625 14,462 3,535,049 3,535,049 (1,137,379) (1,137,379) (1,137,379)

782,810 172,829 2,287 957,926 957,926 (698,125) (698,125) (1,835,504)

284,446 198,052 281 482,779 482,779 (179,071) (179,071) (2,014,575)

152,036 4,624 156,660 156,660 863,858 863,858 (1,150,717)

2,835,734 2,835,734 1,685,017

1,272,481 15,362 93,448 1,381,291 506,331 1,887,622 (1,685,017) (1,685,017) -

4,833,735 1,554,130 32,392 93,448 6,513,705 506,331 7,020,036 -

79

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedreportinterim latestor financial statements, (CONTINUED) THE was thedividend paid YEAR As TheDuring no operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof Income the 31 Therewereinnofinancialitems Property, plant ofthe ENDED ThewerenoNote the to Taxes business cancellation, audit FRS significant accountingunusual of the condensed112 36 quarter, adoption and equipment policies, 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (B) Market risk (continued) Profit rate risk (continued) The table below summarises the effective average profit rate for each class of profit sensitive financial assets and financial liabilities: 2010 % Financial assets Cash and short-term funds Deposits and placements with banks and other financial institutions Available-for-sale securities Financing and advances - Non-impaired Financial liabilities Deposits from customers Deposits and placements of banks and other financial institutions Bills and acceptances payable Capital financing 1.89 4.00 5.75 1.83 3.60 2.19 2.76 3.62 2.83 6.19 0.63 1.36 2.27 6.58 2009 %

with six financial institutions

(C) Liquidity risk Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet its financial obligations. The liquidity risk is identified based on concentration, volatility of source of fund and funding maturity structure and it is measured primarily using Bank Negara Malaysia's New Liquidity Framework and depositors concentration ratios. The liquidity risk is closely monitored by the Bank with periodic reports submitted to the Management and the Board of Directors. Various Management Action Triggers and "Board Limits" are established to prompt the Management to take the necessary actions to meet the liquidity risk issues.

80

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (C) Liquidity risk (continued) The table below analyses assets and liabilities of the Bank based on the remaining period as at balance sheet date to the contractual maturity date: As at 31 December 2010 Up to 1 week RM'000 1 week to 1 month RM'000 1-3 months RM'000 3-6 months RM'000 6 - 12 months RM'000 Over 1 year RM'000

Total RM'000

Assets Cash and short-term funds Deposits and placements with banks and other financial institutions Derivative financial instruments Available-for-sale securities Financing and advances Statutory deposits with Bank Negara Malaysia Other assets (1) Total assets Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Bills and acceptances payable Other liabilities (2) Capital financing Total liabilities Shareholder's funds Net liquidity gap Note:

1,271,591 26 99,954 291,226 52,987 1,715,784

144 598,470 72,630 671,244

50,265 473 323,901 385,499 760,138

50,000 125,777 296,847 472,624

30,275 500,383 530,658

25,147 3,681,623 53,552 46,686 3,807,008

1,271,591 100,265 643 1,203,524 5,228,208 53,552 99,673 7,957,456

2,780,518 137,491 16,989 60,164 2,995,162 (1,279,378)

1,355,842 98,594 1,454,436 (783,192)

1,072,588 120,177 1,192,765 (432,627)

579,238 30,789 610,027 (137,403)

225,215 225,215 305,443

12,308 696,997 53,773 104,411 867,489 612,362 2,327,157

6,025,709 1,084,048 16,989 113,937 104,411 7,345,094 612,362 -

(1) Other assets include deferred tax assets and properties, plant and equipment. (2) Other liabilities include provision for taxation. 81

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (C) Liquidity risk (continued) The table below analyses liabilities of the Bank based on the contractual undiscounted repayment obligations: As at 31 December 2010 Up to 1 month RM'000 1-3 months RM'000 3 - 12 months RM'000 1-5 years RM'000 No specific maturity RM'000

Total RM'000

Liabilities Deposits from customers Deposits and placements of banks and other financial institutions Bills and acceptances payable Other liabilities (1) Capital financing Total liabilities Note: (1) Other liabilities include provision for taxation.

2,300,679 245,328 16,989 83,678 2,646,674

1,080,604 4,178 5,858 1,090,640

824,223 126,258 10,183 5,750 966,414

13,907 772,969 123,000 909,876

1,830,244 6,997 73 1,837,314

6,049,657 1,155,730 16,989 99,792 128,750 7,450,918

82

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (C) Liquidity risk (continued) Commitments and contingencies The table below shows the contractual expiry by maturity of the Bank's commitments and contingencies: As at 31 December 2010 Less than 1 year RM'000 1-3 years RM'000

Total RM'000

Undrawn financing commitments(a) and other facilities Guarantees, endorsements and other contingent items Total commitments and contingencies As at 31 December 2009 Undrawn financing commitments(a) and other facilities Guarantees, endorsements and other contingent items Total commitments and contingencies

614,031 218,480 832,511

404,581 404,581

1,018,612 218,480 1,237,092

746,435 160,525 906,960

245,506 245,506

991,941 160,525 1,152,466

Note: (a) Undrawn financing commitments are recognised at activation stage and include commitments which are unconditionally cancellable by the Bank. (b) The Bank expects that not all of the contingent liabilities and undrawn financing commitments will be drawn before expiry. (c) Disclosure of the credit equivalent amount and risk-weighted asset amount of the commitments and contingencies above, as required by Bank Negara Malaysia's Risk-Weighted Capital Adequacy Framework (Basel II) - Disclosure Requirements (Pillar 3), are presented in the Pillar 3 disclosures.

83

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosed no NoteIncome the financial statements, (CONTINUED) THE was plant As TheDuring inno YEAR ENDED 31 DECEMBER 2010 the Bank merged ThereFINANCIAL 36 to Therewerethe 112 Property, no business audit FRS accounting condensed were 32. FINANCIAL RISK MANAGEMENT (CONTINUED) (D) Operational risk Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risks. An Operational Risk Management Framework is being implemented across the Bank to all business and support units. The Framework consists of processes and tools that will assist these units to identify, assess, monitor and control their operational risks. Additionally, on a day-to-day basis, each business and supporting unit level practises operational risk management through establishing and maintaining control/procedures that are appropriate for its operating environment. Integral elements such as sound banking processes, internal control, and additional support from group-wide functions such as internal audit, banking operations (including system and methods), compliance and financial control and risk management are used to manage these risks. Within the Bank, operational risk management is manifested in: Manuals and policies that incorporate internal control processes. Human resources development and training programmes. System controls and procedures governing IT usage in all banking products. Establishment of specific policies and standards across all product lines. Banks Business Continuity Plan that looks into its business resumption in an organised and timely manner in time of disaster. Bank's New Product Process to ensure that before new products and activities are being introduced, they are subject to proper risk assessments and possess adequate procedures and controls. Whistle Blowing Policy that provides for staff and stakeholders to confidentially report on misconduct committed by an employee of the Bank.

with six financial institutions

84

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedFRSdividend latestor financial statements, (CONTINUED) THE wasreportinterim paidTaxes As TheDuringno operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof Income the 31 Therewereinno112 the items Property, theNote 36 ENDED Thewereplant and equipment business cancellation, audit no significant accountingfinancial of condensedunusual to the adoption YEAR quarter, policies, of the 33. CAPITAL MANAGEMENT The Bank's objectives when managing capital are: (i) To comply with the capital requirements set by the regulators of the banking markets where the Bank operates; (ii) To safeguard the Banks ability to continue operating as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and (iii) To maintain a strong capital base to support the development of its business. Capital adequacy and the use of regulatory capital are monitored by the Banks management, employing techniques based on the guidelines developed by the Basel Committee as implemented by Bank Negara Malaysia ("BNM"), for supervisory purposes. The required information is filed with BNM on a monthly basis. The Bank maintains a ratio of total regulatory capital to its risk-weighted assets (the Tier 1 capital ratio and Risk Weighted Capital ratio) above a minimum level prescribed by BNM, which takes into account the risk profile of the Bank. The Bank's regulatory capital comprises two tiers: (i) Tier I capital: share capital, general reserve, statutory reserve and retained earnings; and (ii) Tier II capital: qualifying subordinated financing capital and collective assessment impairment The risk-weighted assets are measured using the standardised approach (SA) for credit risk. Risk weights are assigned to assets and off balance sheet items according to the asset class and credit assessment of the Bank. For the determination of credit assessments, the rating agencies RAM and MARC are used. Any eligible collateral and netting agreements are taken into account for calculation of risk-weighted assets. The capital adequacy ratios of the Bank are analysed as follows: 2010 Before deducting proposed dividends: Tier I capital ratio Risk-weighted capital ratio After deducting proposed dividends: Tier I capital ratio Risk-weighted capital ratio 2009

with six financial institutions

12.39% 15.96%

11.14% 12.69%

11.84% 15.41%

11.14% 12.69%

85

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosedFRSdividend latestor financial statements, (CONTINUED) THE wasreportinterim paidTaxes As TheDuringno operationsfinancial DECEMBER 2010 the Bank merged ThereFINANCIALof Income the 31 Therewereinno112 the items Property, theNote 36 ENDED Thewereplant and equipment business cancellation, audit no significant accountingfinancial of condensedunusual to the adoption YEAR quarter, policies, of the 33. CAPITAL MANAGEMENT (CONTINUED) The components of Tier I and Tier II Capital of the Bank are as follows: : 2010 RM'000 Tier I Capital: Paid-up share capital Retained profits Statutory reserve Total Tier I Capital Tier II Capital: Subordinated financing facility Collective assessment impairment allowance (1) General allowance Total Tier II Capital Capital Base 2009 RM'000

with six financial institutions

397,755 108,520 99,438 605,713

397,755 46,774 54,490 499,019

100,000 74,331 174,331 780,044

69,575 69,575 568,594

Note: (1) Excluding collective assessment impairment allowance attributable to financing and advances classified as impaired but not individually assessed for impairment pursuant to BNM's Guideline on "Classification and Impairment Provisions for Loans/Financing" issued on 8 January 2010 and subsequently updated on 26 January 2010 and 17 December 2010. (2) Disclosure of the credit equivalent amount and risk-weighted assets amount of the commitments and contingencies above, as required by Bank Negara Malaysia's Risk-Weighted Capital Adequacy Framework (Basel II) - Disclosure Requirements (Pillar 3), are presented in the Pillar 3 disclosures. The capital adequacy ratios of the Bank are computed in accordance with Bank Negara Malaysia's Capital Adequacy Framework for Islamic Banks ("CAFIB"), which is based on the Basel II capital accord. The Bank has adopted the Standardised Approach for Credit Risk and Market Risk, and the Basic Indicator Approach for Operational Risk. The subordinated financing facility granted by EON Bank Berhad, the holding company of the Bank, qualified for inclusion as part of the Bank's Tier II capital funds for purposes of computation of the Bank's capital adequacy ratios.

86

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosed wereno YEAR ENDEDfinancial statements, (CONTINUED) FINANCIALno As THETherewas NoteIncome the 31 DECEMBER 2010 the Bank merged ThereFRS the TheDuring112 36 to Property, plant Thein no - were business audit accounting condensed 34. 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 arms length transaction. The information presented herein represents the estimates of fair values as at the balance sheet date. Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resultant fair value estimates. In addition, fair value information for non-financial assets and non-financial liabilities are excluded, as they do not fall within the scope of FRS1322004, which requires the fair value information to be disclosed. These include property, plant and equipment and intangibles. A range of methodologies and assumptions had been used in deriving the fair values of the Banks financial instruments at balance sheet date. Financial instruments not measured at fair value The following table summarises the carrying values and fair values of those financial assets and liabilities not presented on the Banks balance sheet at their fair values which are materially different from their carrying values: 2010 Fair Value RM'000 2009 Fair Value RM'000

with six financial institutions

Carrying Value RM'000 Financial assets Financing and advances 5,228,208

Carrying Value RM'000

4,550,655

4,568,751

4,327,085

The estimated fair values are derived using the following methodologies and assumptions: Cash and short-term funds The fair values of cash and short-term funds approximate their carrying values. Deposits and placements with banks and other financial institutions For deposits and placements with banks and other financial institutions with maturities of less than three months, the carrying values are reasonable estimates of their fair values. For deposits and placements with maturities three months and above, estimated fair values are 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.

87

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosed wereno YEAR ENDEDfinancial statements, (CONTINUED) FINANCIALno As THETherewas NoteIncome the 31 DECEMBER 2010 the Bank merged ThereFRS the TheDuring112 36 to Property, plant Thein no - were business audit accounting condensed 34. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Financial instruments not measured at fair value (continued) The estimated fair values are derived using the following methodologies and assumptions: (continued) Held for trading, available-for-sale and held-to-maturity securities The estimated fair values are generally based on quoted and observable market prices. Where there is no ready market in certain securities, fair values have been assessed by reference to market indicative profit yields or net tangible asset backing of the investee where applicable. Financing and advances For variable rate financing, the carrying values are generally reasonable estimates of their fair values. For fixed rate financing, the fair values are estimated by discounting the estimated future cash flows using the prevailing market rates of financing with similar credit risks and maturities. The fair values of impaired variable and fixed rate financing are represented by their carrying values, net of allowances for impairment, being the expected recoverable amounts. Deposits from customers For deposits from customers with maturities of less than three months, the carrying values are reasonable estimates of their fair values. For deposit with maturities of three months or more, fair values are estimated using discounted cash flows based on prevailing market rates of 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 three months approximate their carrying values. For deposits and placements with maturities three months or more, the fair values are estimated based on discounted cash flows using prevailing money market profit rates of deposits and placements with similar remaining period to maturities.

with six financial institutions

88

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR disclosed wereno YEAR ENDEDfinancial statements, (CONTINUED) FINANCIALno As THETherewas NoteIncome the 31 DECEMBER 2010 the Bank merged ThereFRS the TheDuring112 36 to Property, plant Thein no - were business audit accounting condensed 34. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Financial instruments not measured at fair value (continued) The estimated fair values are derived using the following methodologies and assumptions: (continued) Bills and acceptances payable The fair values of bills and acceptances payable approximate their carrying values. Other assets and liabilities The carrying values less any estimated impairment allowances for financial assets and liabilities included in Other assets and liabilities are assumed to approximate their fair values as these items are not materially sensitive to shift in market profit rates. Capital Financing The estimated fair value is estimated based on discounted cash flows using a discounted rate based upon the capital financing rate which the Directors expect would be available to the Bank at the balance sheet date. Foreign exchange related contracts The fair values of foreign exchange related contracts are the estimated amounts the Bank would receive or pay to terminate the contracts at the Balance Sheet date.

with six financial institutions

89

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 35. SEGMENT REPORTING In the financial year 2010, segment reporting by the Bank was prepared for the first time in accordance with FRS 8, "Operating segments". Segment information for 2009 that is reported as comparative information for 2010 has been restated to conform to the requirements of FRS 8. Following the management approach of FRS 8, operating segments are reported in accordance with the internal reporting provided to the Chief Executive Officer (the chief operating decision-maker), who is responsible for allocating resources to the reportable segments and assesses its performance. All operating segments used by the Bank meet the definition of a reportable segment under FRS 8. The Banks business is organised mainly into the following operating segments: (a) Business Banking The Business Banking provides a range of commercial and corporate financing services and products to the corporate and small and medium enterprises ("SME") customers. The range of products and services include financing, trade finance and specialised funding schemes. (b) Consumer Banking The Consumer Banking business provides financing for AITAB, housing, other personal financing, deposits, bancatakaful, unit trust, and internet banking services to individual customers. (c) Treasury Treasury undertakes trading in currencies, profit rates, Islamic debt securities, Islamic credit spreads and other treasury related products and services across every market segment including the consumer, SME, corporate and inter-bank markets. The performance of each operating segment is measured on the basis of its profitability contribution, cost-toincome ratio, financing and deposit growth and asset quality. All direct expenses relating to its revenue are allocated directly to the segment whilst certain overheads and costs of shared resources are allocated on agreed allocation bases. The head office costs is grouped under the Others segment. None of the segments have revenue from a single external customer that is greater than 10% of the Groups revenue for the current financial year.

90

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 35. SEGMENT REPORTING (CONTINUED) (a) Segment revenue and segment results are as follows: 2010 Business Banking RM'000 23,774 Consumer Banking RM'000 241,418

Treasury RM'000 (24,433)

Total RM'000 240,759

Net income Other operating expenses Operating profit Impairment losses on financing and advances Profit before taxation and zakat Taxation and zakat Profit for the financial year

(27,417) (3,643)

(65,042) 176,376

(24,433)

(92,459) 148,300

(6,138) (9,781)

(24,652) 151,724

(24,433)

(30,790) 117,510 (27,615) 89,895

2009

Business Banking RM'000 24,081

Consumer Banking RM'000 208,793

Treasury RM'000 (11,640)

Total RM'000 221,234

Net income Other operating expenses Operating profit Impairment losses on financing and advances Profit before taxation and zakat Taxation and zakat Profit for the financial year

(26,649) (2,568)

(63,221) 145,572

(11,640)

(89,870) 131,364

(15,700) (18,268)

(63,054) 82,518

(11,640)

(78,754) 52,610 (14,387) 38,223

91

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 35. SEGMENT REPORTING (CONTINUED) (b) Segment assets and liabilities are as follows:

2010

Business Banking RM'000 1,202,184 2,169,824

Consumer Banking RM'000 4,072,607 677,239

Treasury RM'000 2,682,665 4,498,031

Total RM'000 7,957,456 7,345,094

Segment assets Segment liabilities 2009 Segment assets Segment liabilities (c) Revenue by products and services

1,048,347 772,307

3,404,047 3,104,758

2,567,642 2,636,640

7,020,036 6,513,705

Details of revenue from external customers by products or services are disclosed in Note 20 and 21.

36. Significant Events During the Financial Year Ended 31 December 2010 There were no significant events during the financial year ended 31 December 2010 other then those disclosed in these financial statements and in Note 38.

37. Significant Events Subsequent to the Balance Sheet Date On 31 January 2010, the Bank had decided to draw down another RM170 million on the Subordinated Financing Facility granted by EON Bank Berhad ("second tranche") to facilitate capital funding and expansion.

92

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 38. CHANGES IN ACCOUNTING POLICIES The list of new accounting standards, amendments to published standards and interpretations on existing standards issued by MASB that are applicable to the Bank and effective for the financial year ended 31 December 2010 is set out in Note 2 of the Summary of Significant Accounting Policies. The adoption of the new standards, amendments to published standards and interpretation to existing standards does not have any significant financial impact on the Bank except for the following: FRS 8: Operating segments FRS 8 "Operating Segments" (effective from 1 July 2009) replaces FRS 1142004. The adoption of FRS 8 on 1 January 2010 has no impact on the financial results of the Bank. In accordance with the requirements of FRS 8, segment information is reported in a manner that is consistent with the internal reporting provided to the Chief Operating Decision-maker. Prior year comparative figures have been restated accordingly. FRS 101: Presentation of financial statements The adoption of the revised FRS 101 "Presentation of financial statements" (effective from 1 January 2010) has no impact on the financial results of the Bank as the changes introduced are in terms of presentation. The revised FRS 101 Presentation of Financial Statements prohibits the presentation of items of income and expenses (that is, non-owner changes in equity) in the statement of changes in equity. Non-owner changes in equity are to be presented separately from owner changes in equity. All non-owner changes in equity are required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The Bank has opted to present two statements (the income statement and statement of comprehensive income) and the comparative figures for the prior year have been restated accordingly. FRS 139: Financial Instruments: Recognition and Measurement FRS 139 Financial Instruments: Recognition and Measurement (effective from 1 January 2010) establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. Prior to the adoption of FRS 139 on 1 January 2010, the accounting policies of the Bank incorporate requirements of BNM's Revised Guidelines on Financial Reporting for Licensed Islamic Banks (Revised BNM/GP8-i issued on 24 June 2005) which includes selected principles (i.e. recognition, derecognition and measurement of financial instruments, including derivative instruments, and hedge accounting) of FRS 139. The adoption of FRS 139 on 1 January 2010 has resulted in the following changes in accounting policies: (a) Impairment of financing and advances The adoption of FRS 139 has resulted in a change in the accounting policy relating to the assessment for impairment of financing and advances. Prior to the adoption of FRS 139, allowances for impaired financing and advances (previously referred to as non-performing financing and advances) were computed in conformity with the Guidelines on "Classification of Non-Performing Loans and Provision for Substandard, Bad and Doubtful Loans" (Revised BNM/GP3). Upon the adoption of FRS 139, the Bank assesses at each balance sheet date whether there is any objective evidence that a financing or group of financing is impaired. The financing or group of financing is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financing (an incurred 'loss event') and that loss event (or events) has an impact on future estimated cash flows of the financing or group of financing that can be reliably estimated.

93

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 38. CHANGES IN ACCOUNTING POLICIES (CONTINUED) The adoption of the new standards, amendments to published standards and interpretation to existing standards does not have any significant financial impact on the Bank except for the following: (continued) FRS 139: Financial Instruments: Recognition and Measurement (continued) (a) Impairment of financing and advances (continued) The Bank first assesses whether objective evidence of impairment exists individually for financing which are individually significant, and collectively for financing which are not individually significant. An individual assessment will only be carried out for financing above the set threshold while financing below the set threshold are collectively assessed for impairment. Where a financing that is individually assessed for impairment does not result in impairment provisions, the financing is included in a group of financing using similar credit characteristics for collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the financing's carrying amount and the present value of estimated future cash flows (excluding credit losses that have not been incurred) discounted at the financing's original effective profit rate. The carrying amount of the financing is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If the financing has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. In the Amendments to FRS 139, MASB has included an additional transitional arrangement for entities in the financial sector, whereby BNM may prescribe an alternative basis for collective assessment of impairment by banking institutions. This transitional arrangement is prescribed in BNM's Guidelines on "Classification and Impairment Provisions for Loans/Financing" issued on 8 January 2010 and subsequently updated on 26 January 2010 and 17 December 2010, whereby banking institutions are required to maintain collective assessment impairment allowances of at least 1.5% of total outstanding financing, net of individual assessment impairment allowance. The Bank has applied the abovementioned transitional arrangement in determining the collective assessment impairment allowances for financing at each reporting date. The changes in accounting policy above have been accounted for prospectively, in line with the transitional arrangement under Paragraph 103AA of FRS 139, with adjustments to the previous carrying amount of financing and advances at the beginning of the current financial period being adjusted against the opening retained profits. With the adoption of the financing impairment basis under FRS 139 and application of the transitional arrangement under BNM's Guidelines on "Classification and Impairment Provisions for Loans/Financing", the Bank wrote back general allowance of RM69,574,893 and specific allowance of RM139,619,891 respectively against opening retained profits as at 1 January 2010. In addition, the Bank has also recognised opening collective assessment impairment allowance of RM112,825,912 and opening individual assessment impairment allowance of RM103,426,996 against opening retained profits as at 1 January 2010. Any further collective assessment impairment allowance and individual assessment impairment allowance charged subsequent to the initial adoption of FRS 139 is recognised as impairment losses on financing and advances in the income statement.

94

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 38. CHANGES IN ACCOUNTING POLICIES (CONTINUED) The adoption of the new standards, amendments to published standards and interpretation to existing standards does not have any significant financial impact on the Bank except for the following: (continued) FRS 139: Financial Instruments: Recognition and Measurement (continued) (b) Recognition of finance income on financing and advances FRS 139 prescribes that financing and receivables are measured at amortised cost using the effective profit method. Prior to the adoption of FRS 139, finance income on financing and advances of the Bank were recognised based on contractual profit rates. Upon the adoption of FRS 139 on 1 January 2010, finance income on financing and advances is recognised using effective profit rates ("EPR"), which is the rate that exactly discounts estimated future cash receipts through the expected life of the financing or, when appropriate, a shorter period to the net carrying amount of the financing. This change in accounting policy has been accounted for prospectively in line with the transitional arrangement under Paragraph 103AA of FRS 139, resulting in an adjustment of RM29,851,125 (credit) for the Bank against the opening retained profits. Prior to the adoption of FRS 139, where a financing account becomes non-performing, income was suspended until it is realised on a cash basis. Finance income recognised prior to non-performing classification was not clawed back to the first day of default, in conformity with BNM Guidelines. Upon the adoption of FRS 139, once a financing has been written down as a result of an impairment loss, profit is recognised using the rate of profit used to discount the future cash flows for the purpose of measuring impairment loss. (c) Recognition of embedded derivatives Upon the adoption of FRS 139, embedded derivatives are to be separated from the host contract and accounted for as a derivative if the economic characteristics and risks of the embedded derivative are not closely related to that of the host contract and the fair value of the resultant derivative can be reliably measured. Based on the assessment by the Bank upon adoption of FRS 139 on 1 January 2010, there were no material embedded derivatives which were not closely related to the host contracts and which required bifurcation.

95

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 38. CHANGES IN ACCOUNTING POLICIES (CONTINUED) The adoption of the new standards, amendments to published standards and interpretation to existing standards does not have any significant financial impact on the Bank except for the following: (continued) FRS 139: Financial Instruments: Recognition and Measurement (continued) The changes in accounting policies has been applied prospectively and an analysis of the impact to the financial position of the Bank is summarised as follows: Effects from changes in As previously accounting reported policies RM'000 RM'000 4,568,751 4,777,946 (69,575) (139,620) 11,474 81,605 (1,011) (108,576) (46,774) 35,587 12,794 29,851 (112,826) (103,427) 69,575 139,620 3,493 (12,794) (9,488) (16,799) (16,799)

As at 1 January 2010 Net financing and advances (of which: Gross financing and advances Reclassification of unamortised handling fee from other assets Adjustment for effective profit rate Collective assessment impairment allowance Individual assessment impairment allowance General allowance Specific allowance Deferred tax assets Other assets Provision for taxation and zakat Reserves (of which: Retained profits)

As restated RM'000 4,604,338 4,777,946 12,794 29,851 (112,826) (103,427) 14,967 68,811 (10,499) (125,375) (63,573)

Notwithstanding the restatement or adjustments to the opening retained profits of the Bank as at 1 January 2010, retrospective restatement of the statutory reserves maintained in compliance with Section 15 of the IBA 1983 is not required as specified in Paragraph 6.7 of the BNM's Circular on Application of FRS and Revised Financial Reporting Requirements for Islamic Banks issued on 1 March 2010.

96

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 39. RESTATEMENT OF COMPARATIVES Certain comparatives were restated to conform with the current financial years presentation. There is no impact to the financial performance for the financial year ended 31 December 2009. The restatements are as follows: As previously reported RM'000 Other operating expenses (of which: Legal and other professional charges) Impairment losses on financing and advances (of which: Impaired financing and advances - Recovered) 90,865 2,262 Reclassification RM'000 (995) (995) As restated RM'000 89,870 1,267

77,759 (6,224)

995 995

78,754 (5,229)

Effective from 1 January 2010, legal fee and other professional charges incurred for the recovery of impaired financing and advances written-off earlier have been offset against the "Impaired financing and advances - Recovered" under "Impairment losses on financing and advances". Hence, the reclassification of such expenses incurred in the financial year 2009 from "Other operating expenses" to " Impairment losses on financing and advances" under "Impaired financing and advances- Recovered".

40.

APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 1 April 2011.

97

Company No: 715426-H

EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

Company No: 715426-H

EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

CONTENTS

PAGE

INTRODUCTION

SCOPE OF APPLICATION

CAPITAL STRUCTURE AND ADEQUACY

1-4

RISK MANAGEMENT

5 - 25

EQUITIES EXPOSURE IN BANKING BOOK

25

PROFIT RATE RISK/RATE OF RETURN RISK (PRR/RORR) IN THE BANKING BOOK

26

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedFRSdividend latest financial statements, THE wasreportinterim paidTaxes As TheDuringno operationsENDED 31 DECEMBER 2010 ThereFINANCIALof Income the Therewereinno112 the items Property, theNote 36 to the Thewereplant and of business cancellation, audit no significant accountingfinancial condensedunusual adoption YEAR policies, of the 1. INTRODUCTION The capital adequacy ratios of EONCAP Islamic Bank ("EIBB or the Bank") are computed in accordance with Bank Negara Malaysia's ("BNM") Capital Adequacy Framework for Islamic Banks ("CAFIB"), which is based on the Basel II capital accord effective from 1 January 2008. The Bank places great importance to Basel II and views Basel II as a bank-wide initiative that will ensure that the Bank continues to meet international best practices for the credit, market and operational risk management practices. By adopting Basel II, the Bank will be able to enhance and embed sound risk management practices within the Bank and be equipped with the right risk management discipline, practices, processes and systems. The following information concerning the Bank's risk exposures, risk management practices and capital adequacy is disclosed as accompanying information to the annual report and does not form part of the audited accounts.

the Bank merged with six financial institutions

2.

SCOPE OF APPLICATION The capital adequacy ratios of the Bank are computed in accordance with BNM's CAFIB. The Bank has adopted the Standardised Approach for Credit Risk and Market Risk, and the Basic Indicator Approach for Operational Risk. During the course of the year, the Bank did not experience any restrictions or other major impediments on transfer of funds or regulatory capital within the EON Bank Group.

3.

CAPITAL STRUCTURE AND ADEQUACY The Bank monitors its capital adequacy position to ensure compliance with requirements of BNM and to take prompt actions to address projected capital deficiency. The capital position is reviewed on a quarterly basis by undertaking stress tests and taking into account the levels and trend of material risks. The sufficiency of capital is assessed against the various risks in the balance sheet as well as future capital requirements based on the Banks expansion plans. The Bank has also formalised an overall capital management framework, which seeks to ensure that there is an adequate balance between Tier I and Tier II capital. The Bank is also following very closely the global developments on capital management. The following table sets forth details on the capital resources, capital adequacy ratios and risk-weighted assets for the Bank as at 31 December 2010. BNM's CAFIB sets out the minimum capital adequacy ratios for banking institutions and the methodology for calculating these ratios. As at 31 December 2010, the Bank's Tier I and the total capital adequacy ratios were higher than BNM's minimum requirements. The constituents of total eligible capital are set out in BNM's CAFIB. These include shareholders' funds after regulatory-related adjustments and eligible capital instruments issued by the Bank. Refer to Note 17 of the financial statements for the terms and conditions of the main features of these capital instruments.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 3. CAPITAL STRUCTURE AND ADEQUACY (CONTINUED) (a) The capital adequacy ratios of the Bank are analysed as follows: 2010 Before deducting proposed dividends: Tier I capital ratio Risk-weighted capital ratio After deducting proposed dividends: Tier I capital ratio Risk-weighted capital ratio The components of Tier 1 and Tier II Capital of the Bank are as follows: 2010 RM'000 Tier I Capital: Paid-up share capital Retained profits Statutory reserve Total Tier I Capital Tier II Capital: Subordinated financing facility Collective assessment impairment allowance # General allowance Total Tier II Capital Capital Base 2009 RM'000 2009

12.39% 15.96%

11.14% 12.69%

11.84% 15.41%

11.14% 12.69%

397,755 108,520 99,438 605,713

397,755 46,774 54,490 499,019

100,000 74,331 174,331 780,044

69,575 69,575 568,594

# Excludes the collective assessment impairment allowance attributable to financing and advances classified as impaired but not individually assessed for impairment pursuant to BNM's Guideline on "Classification and Impairment Provisions for Loans/Financing" issued on 8 January 2010 and subsequently updated on 26 January 2010 and 17 December 2010. The Bank was granted a RM270 million Subordinated Financing Facility (Financing Facility) by EON Bank Berhad ("EBB") to support the expansion of the business operations of the Bank. EBB had issued RM270 million of Subordinated Medium Term Notes ("MTN") under its RM2.0 billion MTN programme to raise this capital on behalf of the Bank. The first tranche of RM100 million was drawn down by the Bank on 26 March 2010. The second tranche of RM170 million was further drawn down by the Bank subsequent to year end on 31 January 2011.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 3. CAPITAL STRUCTURE AND ADEQUACY (CONTINUED) (b) The breakdown of risk-weighted assets ("RWA") by exposure is as follows: Minimum capital Risk weighted requirements assets at 8 % RM'000 RM000

31 December 2010 Exposure Class Credit Risk On-Balance Sheet Exposures Sovereigns/Central Banks Public Sector Entities Banks, Development Financial Institutions ("DFIs") and Multilateral Development Bank ("MDBs") Corporates Regulatory Retail Residential Mortgages Higher Risk Assets Other Assets Defaulted Exposures Total On-Balance Sheet Exposures Off-Balance Sheet Exposures ^ Over-the-counter ("OTC") Derivatives Off-Balance Sheet Exposures Other Than OTC Derivatives or Credit Derivatives Total Off-Balance Sheet Exposures Total On and Off-Balance Sheet Exposures Large Exposures Risk Requirements Long Position 6,148 6,148

Gross exposures before CRM RM000

Net exposures after CRM RM000

2,301,976 43

2,301,976 43

325,611 907,725 3,610,452 480,851 1,271 60,936 281,399 7,970,264

325,611 904,923 3,596,105 480,851 1,256 60,936 281,366 7,953,067

65,122 863,825 2,697,079 190,648 1,884 53,970 345,113 4,217,650

5,210 69,106 215,766 15,252 151 4,318 27,609 337,413

1,270 290,774 292,044 8,262,308 Short Position -

1,270 290,774 292,044 8,245,111 -

254 258,679 258,933 4,476,583 -

20 20,694 20,714 358,127 -

Market Risk Foreign Currency Risk Total Operational Risk

6,148 6,148

6,148 6,148 405,559 4,888,290

492 492 32,445 391,064

Total RWA and Capital Requirements

Note: CRM - Credit risk mitigation ^ - The gross exposures before CRM of Off-Balance Sheet exposures refer to the credit equivalent of Off - Balance Sheet items on page 22.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 3. CAPITAL STRUCTURE AND ADEQUACY (CONTINUED) (b) The breakdown of risk-weighted assets ("RWA") by exposure is as follows: (continued) Minimum capital Risk weighted requirements assets at 8 % RM'000 RM000

31 December 2009 Exposure Class Credit Risk On-Balance Sheet Exposures Sovereigns/Central Banks Public Sector Entities Banks, DFIs and MDBs Corporates Regulatory Retail Residential Mortgages Higher Risk Assets Other Assets Defaulted Exposures Total On-Balance Sheet Exposures Off-Balance Sheet Exposures ^ Over-the-counter ("OTC") Derivatives Off-Balance Sheet Exposures Other Than OTC Derivatives or Credit Derivatives Total Off-Balance Sheet Exposures Total On and Off-Balance Sheet Exposures Large Exposures Risk Requirements Long Position 7,740 7,740

Gross exposures before CRM RM000

Net exposures after CRM RM000

1,732,810 51 594,821 962,328 3,123,969 304,456 771 37,779 271,866 7,028,851

1,732,810 51 594,821 962,328 3,123,969 304,456 771 37,779 271,866 7,028,851

10 118,964 980,923 2,342,977 115,668 1,157 34,105 350,353 3,944,157

1 9,517 78,474 187,438 9,253 93 2,728 28,028 315,532

205,739 205,739 7,234,590 Short Position -

205,739 205,739 7,234,590 -

177,473 177,473 4,121,630 -

14,198 14,198 329,730 -

Market Risk Foreign Currency Risk Total Operational Risk

7,740 7,740

7,740 7,740 350,601 4,479,971

619 619 28,049 358,398

Total RWA and Capital Requirements

Note: ^ - The gross exposures before CRM of Off-Balance Sheet exposures refer to the credit equivalent of Off - Balance Sheet items on page 23.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreportinterim latestTaxes DECEMBER 2010 (CONTINUED) THE was FRS 112 the ENDED As The condensedunusual itemsor financial statements, the Bank merged ThereFINANCIALofof36 paidthe 31 Therewereno operationsfinancial Property, inno financialof the business dividend quarter, auditadoptionandtheto accounting significant changes The - noNote Income During plant YEAR werethe cancellation, policies, equipment 4. RISK MANAGEMENT The Bank believes that an integrated risk management framework is key to ensuring the overall financial soundness and stability of the Banks business operations. Key components of our enterprise wide risk management framework include: (i) (ii) (iii) (iv) (v) (vi) A structured risk governance model, incorporating strong Board and senior management oversight. Sound capital management processes. Comprehensive assessment of material risks. A rigorous system of check and balance reviews. Regular monitoring and reporting. Independent reviews by the internal and external auditors.

with six financial institutions

Risk governance structure The Board has overall responsibility for providing leadership, overseeing risk appetite and ensuring that a robust risk and compliance culture prevails. The Board is assisted by the following Board and Management Committees: (i) (ii) (iii) (iv) (v) Board Group Risk Management Committee ("BGRMC") of EBB. Group Risk Management Committee ("GRMC") of EBB. Group Asset and Liability Management Committee ("Group ALCO') of EBB. Risk Management Committee ("RMC") of EIBB. Shariah Advisory Committee of EIBB.

The BGRMC of EBB is responsible for the following: Reviewing and recommending risk management strategies, policies and risk tolerance for the Boards approval. (ii) Reviewing and assessing adequacy of risk management policies and framework in identifying, measuring, monitoring and controlling risk and the extent to which these are operating effectively. (iii) Ensuring infrastructure, resources and systems are in place for risk management i.e. ensuring that the staff responsible for implementing risk management systems perform those duties independently of the EON Bank Group's risk taking activities. (iv) Reviewing managements periodic reports on risk exposure, risk portfolio composition and risk management activities. (i) The Group Risk Division of EBB is responsible for assisting the BGRMC, the GRMC, RMC and the Board in ensuring that the risk management activities are carried out as per their directives. Amongst others, Group Risk Division is responsible for setting the risk management framework and developing tools and methodologies for the identification, measurement, monitoring, control and valuation of risks. The Group Risk Division consists of five main departments namely Market and Liquidity Risk, Credit Risk Management, Operational and Continuity Risk, Specialist Risk Analytics Group and Enterprise Risk Framework. The Group Internal Audit function of EBB complements the Group Risk Division in the management of risk by: (i) Ensuring that the risk policies prepared by the Group Risk Division are enforced through its regular audit cycle. (ii) Performing independent reviews to assess the risk control environment developed by the Group Risk Division. (iii) Performing independent reviews to assess the risk grading system and the credit process. (iv) Forming independent opinions on risk controls being formulated by the Group Risk Division.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreportinterim latestTaxes DECEMBER 2010 (CONTINUED) THE was FRS 112 the ENDED As The condensedunusual itemsor financial statements, the Bank merged ThereFINANCIALofof36 paidthe 31 Therewereno operationsfinancial Property, inno financialof the business dividend quarter, auditadoptionandtheto accounting significant changes The - noNote Income During plant YEAR werethe cancellation, policies, equipment 4. RISK MANAGEMENT (CONTINUED) Eight broad principles of risk management (i) Align risk appetite and strategy Risk appetite is the degree of risk that the Bank is willing to accept in pursuit of its goals. Risk appetite is set first in evaluating strategic alternatives, then in setting objectives aligned with the selected strategy and in developing mechanisms to manage the related risks. (ii) Link growth, risk and return The Bank accepts risk as part of value creation and expects a return commensurate with the risk. The Framework provides an enhanced ability to identify and assess risks and establish acceptable levels of risk relative to growth and return objectives. (iii) Enhance risk response decisions The Bank strives to identify and select among alternative risk responses - risk avoidance, reduction, sharing and acceptance based on generally accepted practices and methodologies. (iv) Minimise operational surprises and losses The Bank continually enhances its capability to identify potential events, assess risk and establish responses, thereby reducing the occurrence of surprises and related costs or losses. (v) Identify and manage cross-risks Every product faces a myriad of risks. The Bank not only manages the individual risks, but also manages interrelated impacts. (vi) Provide integrated responses to multiple risks Business processes carry many inherent risks and the Bank continually finds solutions for managing the risks. (vii) Seize opportunities The Bank considers potential events, using risk management as offensive initiatives rather than just risks (defensive), and by considering a full range of events, the Bank gains an understanding of how certain events represent opportunities. (viii) Rationalise capital More robust information on total risk allows the Bank to more effectively assess overall capital needs and improve capital allocation.

with six financial institutions

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreportinterim latestTaxes DECEMBER 2010 (CONTINUED) THE was FRS 112 the ENDED As The condensedunusual itemsor financial statements, the Bank merged ThereFINANCIALofof36 paidthe 31 Therewereno operationsfinancial Property, inno financialof the business dividend quarter, auditadoptionandtheto accounting significant changes The - noNote Income During plant YEAR werethe cancellation, policies, equipment 4. RISK MANAGEMENT (CONTINUED) Risk management framework The Banks risk management framework outlines the overall structure, aspirations, values and risk management strategies, and is a structured approach in balancing risks and returns. Appropriate methodologies and measures have been developed in our risk management approaches to manage uncertainties such that the deviations from the intended strategic objectives are monitored and kept within tolerable levels. Risk management culture The risk management culture of the Bank encompasses the following: (i) Developing strategies Documentation that is approved by the Board which expresses the Banks risk management strategies and appetite. (ii) Adopting skills The capabilities and resources required for implementing the risk management function. (iii) Cultivating shared values The universal risk management culture that the Bank expects and promotes throughout the business units. Risk management approach The risk management approach is summarised as follows: (i) Strategy Risk management policies are integrated with business and strategies, in line with Board approved risk appetite. (ii) Policy Risks are addressed using specific risk policies. (iii) Tools Risks are measured and assessed using clearly defined models, methodologies and benchmarking. (iv) Communication Risks are adequately communicated across the Bank in a timely manner. (v) Implementation Risks and returns are identified and managed by respective accountable business, support and operating units. (vi) Maintenance Risk management policies are clearly and formally documented, with a review in place to respond to changes in operating environment.

with six financial institutions

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreportinterim latestTaxes DECEMBER 2010 (CONTINUED) THE was FRS 112 the ENDED As The condensedunusual itemsor financial statements, the Bank merged ThereFINANCIALofof36 paidthe 31 Therewereno operationsfinancial Property, inno financialof the business dividend quarter, auditadoptionandtheto accounting significant changes The - noNote Income During plant YEAR werethe cancellation, policies, equipment 4. RISK MANAGEMENT (CONTINUED) Risk management process The risk management approaches are based on four simple processes: (i) Identify what, why and how risks can arise: (ii) Nature of risk. Circumstances. Causes. Potential contributing factors.

with six financial institutions

Analyse and evaluate risks: Analyse and measure risk exposures using impact and probability analysis. Establish priorities using risk matrix. Compare risk exposures with Banks risk appetite.

(iii) Measures to control or mitigate the identified risks: Measures to mitigate the identified risks or risk controls. Action plans to either prevent or mitigate the risks. (iv) Monitor and review the performance of the risk management process: Review effectiveness of mitigating measures or controls. Tracking of incidences and losses. Review feedback from internal reports and take appropriate action.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreportinterim latestTaxes DECEMBER 2010 (CONTINUED) THE was FRS 112 the ENDED As The condensedunusual itemsor financial statements, the Bank merged ThereFINANCIALofof36 paidthe 31 Therewereno operationsfinancial Property, inno financialof the business dividend quarter, auditadoptionandtheto accounting significant changes The - noNote Income During plant YEAR werethe cancellation, policies, equipment 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk Credit risk arises as a result of customers or counterparties not being able to or willing to fulfill their financial and contractual obligations as and when they fall due. These obligations arise from financing, trade finance and other activities undertaken by the Bank. The primary objective of the credit risk management framework is to ensure that exposure to credit risk is kept within the Banks financial capacity to withstand potential future losses. Financing activities are guided by internal credit policies and guidelines that are approved by the Board. These policies were reviewed and further enhanced during the year. Credit portfolio management strategies and significant exposures are reviewed by the Board. These portfolio management strategies are designed to achieve a desired ideal portfolio risk tolerance level and sector distribution. This includes minimum credit rating targets for new credit facilities. The Banks credit approving process encompasses pre-approval evaluation, approval and post-approval evaluation. While the business units are responsible for credit origination, the credit approving function rests mainly with the Group Credit Committee ("GCC") and the Board Group Credit Committee of EBB. Selection and training of new financing personnel is considered a key process in the management of credit risk. Newly appointed financing personnel are required to undergo comprehensive credit training programmes and are encouraged to sit for the Certified Credit Professional examination conducted by the Institute of Bankers Malaysia. Credit training programmes are also conducted to enhance the skills of the existing financing personnel. Credit risk is also identified as part of the new product sign-off process to ensure that new products prior to marketing are acceptable from a credit risk management perspective. The Bank also believes that authority limits for credit approvals should be directly related to the risk levels of the borrower and the transaction. In this respect, a Risk Based Authority Limit structure, known as Delegated Lending Powers had been implemented. Credit Risk Management Process (i) Identification Risk assessment on the potential impact of internal and external factors on transactions and positions.

with six financial institutions

(ii) Assessment/Measurement Internal credit rating systems to evaluate customers credit worthiness.

(iii) Control/Mitigation Credit risk management policies and guidelines on credit rating, collateral and financing recovery. Exposure limits based on credit worthiness level for corporate groups, and prudent thresholds by economic sectors. Monitoring the benchmark return to consider the risk taken.

(iv) Monitoring/Review Analysis/review on financing exposures, asset quality evaluation, and movement of impaired financing and advances. Reporting on exposures against approved credit limits.

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreportinterim latestTaxes DECEMBER 2010 (CONTINUED) THE was FRS 112 the ENDED As The condensedunusual itemsor financial statements, the Bank merged ThereFINANCIALofof36 paidthe 31 Therewereno operationsfinancial Property, inno financialof the business dividend quarter, auditadoptionandtheto accounting significant changes The - noNote Income During plant YEAR werethe cancellation, policies, equipment 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Management of credit risk Corporate and SME credit risks are assessed by the Credit Management function, and each customer is assigned a credit rating. The rating is based on the assessment of relevant factors including customers financial position, industry outlook, types of facilities and securities offered. Consumer credit risk is managed on a portfolio basis. Scoring models and financing templates are used and these tools focus on financing to individual customers with similar characteristics and product needs. Corporate and SME credits are constantly being monitored to identify and detect signs of credit deterioration. Reviews are conducted at least once a year with updated information on the customers financial position, market position, industry and economic condition and account conduct. Corrective actions are taken should the account show signs of credit deterioration. A post-approval evaluation of credit facilities is in place, with checks to ensure that credit facilities are properly approved, and further, post-mortems are conducted on credit facilities that turn impaired. The findings of these credit reviews are tabled to the GCC for remedial action, and credit policies are further enhanced. Under Basel II, credit risk for the Bank is computed using the Standardised Approach. External credit assessments (or external ratings) on the customer (the issuer) or specific securities issued by the issuer (the issue) form as a basis for the determination of risk weights under the Standardised Approach for exposures to sovereigns, central banks, public sector entities, banking institutions, corporates as well as certain other specific portfolios. The approved External Credit Assessment Institutions (ECAI) ratings and the prescribed risk weights on the above stated asset classes are used in the computation of regulatory capital. An exposure would be deemed to have an external rating if the issuer or the issue has a rating provided by an ECAI. In cases where an exposure does not have an issuer or issue rating, the exposure shall be deemed unrated and shall be accorded a risk weight appropriate for unrated exposures in their respective exposure category. The ECAI used by the Bank are Fitch Ratings, Moodys Investors Service and Standard & Poors, Rating and Investment Inc (R&I), Malaysia Rating Corporation Berhad (MARC) and Rating Agency Malaysia (RAM). ECAI ratings are mapped to a common credit quality grade as prescribed by BNM.

with six financial institutions

10

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Gross credit exposure (i) The table below sets out the breakdown of gross credit exposures by geographical distribution as follows: Other countries RM'000

31 December 2010 On-Balance Sheet Exposures Derivative financial instruments Available-for-sale securities Financing and advances ** Total On-Balance Sheet Exposures Off-Balance Sheet Exposures ^ OTC Derivatives Off-Balance Sheet Exposures Other Than OTC Derivatives or Credit Derivatives Total Off-Balance Sheet Exposures Total On and Off-Balance Sheet Exposures

Malaysia RM'000

Total RM'000

643 1,203,524 5,193,411 6,397,578

115,810 115,810

643 1,203,524 5,309,221 6,513,388

1,270 290,774 292,044 6,689,622

115,810

1,270 290,774 292,044 6,805,432

Note: (1) For this table, the Bank has allocated the financing and advances to geographical areas based on the country where the financing and advances were utilised. ** Gross financing and advances, net of individual assessment impairment allowance and collective assessment impairment allowance attributable to financing and advances classified as impaired but not individually assessed for impairment. ^ Off balance sheet exposures refer to the credit equivalent of off-balance sheet items on page 22.

11

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Gross credit exposure (continued) (ii) The table below sets out the breakdown of gross credit exposures by sector as follows: Total on-balance sheet credit risk exposures RM'000 34,810 6,100 261,251 94,615 258,910 149,225 85,744 446,562 1,008,755 50,201 27,185 3,969,577 1,658,059 1,563,868 92,028 655,518 104 120,453 6,513,388 Off-balance sheet exposures other than OTC derivatives or credit derivatives RM'000 532 43,194 11,084 3,690 8,643 13,164 5,173 4,418 200,876 2,726 184,775 6,086 7,289 290,774 Total off-balance sheet credit risk exposures^ RM'000 532 43,194 11,084 3,690 8,643 14,434 5,173 4,418 200,876 2,726 184,775 6,086 7,289 292,044 Total on and off-balance sheet credit risk exposures RM'000 34,810 6,632 304,445 94,615 269,994 152,915 94,387 460,996 1,008,755 55,374 31,603 4,170,453 1,660,785 1,748,643 98,114 662,807 104 120,453 6,805,432

As at 31 December 2010

Derivative financial instruments RM'000 643 643

Available -for-sale securities RM'000 15,133 179,636 1,008,755 1,203,524

Financing and Advances RM'000 34,810 6,100 261,251 94,615 243,777 149,225 85,744 266,283 50,201 27,185 3,969,577 1,658,059 1,563,868 92,028 655,518 104 120,453 5,309,221

Over-thecounter derivatives RM'000 1,270 1,270

Agriculture, hunting, forestry and fishing Mining and quarrying Manufacturing Electricity, gas and water Construction Wholesale and retail trade, restaurants and hotels Transport, storage and communication Finance, insurance and business services Government and government agencies Real estate Education, health and others Household (of which: (i) Purchase of transport vehicles (ii) Purchase of residential properties (iii) Purchase of non-residential properties (iv) Consumption credit (vi) Others) Others Total On-Balance sheet and Off-Balance Sheet Exposures

Note: ** Gross financing and advances, net of individual assessment impairment allowance and collective assessment impairment allowance attributable to financing and advances classified as impaired but not individually assessed for impairment. ^ Off balance sheet exposures refer to the credit equivalent of off-balance sheet items on page 22. 12

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Gross credit exposure (continued) (iii) The table below set out the breakdown of gross credit exposures by residual contractual maturity as follows: As at 31 December 2010 Less than 1 year RM'000 1-5 years RM'000 Over 5 No specific years maturity RM'000 RM'000

Total RM'000

On-Balance Sheet Exposures Derivative financial instruments Available-for-sale securities Financing and advances Total On-Balance Sheet Exposures Off-Balance Sheet Exposures OTC Derivatives Off-Balance Sheet Exposures Other Than OTC Derivatives or Credit Derivatives Total Off-Balance Sheet Exposures Total On and Off-Balance Sheet Exposures

643 1,178,378 1,059,583 2,238,604

25,146 948,475 973,621

3,139,742 3,139,742

161,421 161,421

643 1,203,524 5,309,221 6,513,388

1,270

1,270

88,484 89,754

202,290 202,290

290,774 292,044

2,328,358

1,175,911

3,139,742

161,421

6,805,432

13

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED)

As TheThewereplantof Incometherepurchase, resale orliabilities, merged with six financial institutions during the period. The values of the assets and There wereno operationsfinancial statementsat historical cost disclosedFRSNote the latestorfinancialthe the Bankmethods Therewasreportinterim toaccountingin and assets, been from Property,inno112 36 items affectingestimates arising Bank business cancellation, declared in have audit nodividend of Taxes estimates and repayment accounting significant changes stated respect ofthe condensedunusual paidthe Group statements, have not adoption and equipment are policies, of the
4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Financing and advances (i) The table below sets out the breakdown by sector the amount of past due financing and advances, impaired financing and advances, individual assessment impairment allowance, collective assessment impairment allowance, charges for individual assessment impairment allowance during the year and write-offs during the year as follows: Charges for Individual assessment impairment allowance during the year RM'000 1,448 (3,926) 34 2,162 548 38 6 6,024 8,376 14,710

As at 31 December 2010

Past due Impaired financing and financing and advances advances RM'000 RM'000 6,972 2,145 4,385 292 71,801 12,330 9,011 2,728 25,810 1,230 890,848 108 1,027,660 1,818 7,872 34 12,690 19,075 632 2,014 21 113,799 138,660 296,615

Individual assessment impairment allowance RM'000 1,448 4,700 34 6,681 8,431 37 14 7,999 80,886 110,230

Collective assessment impairment allowance RM'000 616 94 5,648 1,455 5,951 4,003 1,339 3,130 772 420 80,698 1,851 105,977

Write offs during the year RM'000 2,600 3,832 25 390 6,847

Agriculture, hunting, forestry and fishing Mining and quarrying Manufacturing Electricity, gas and water Construction Wholesale and retail trade, restaurants and hotels Transport, storage and communication Finance, takaful and business services Real estate Community, social and personal services Household Others

Note: Refer to Note 8 (xii) to the financial statements for "movements in individual assessment impairment allowance and collective assessment impairment allowance" during the year. 14

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED)

As TheThewereplantof Incometherepurchase, resale orliabilities, merged with six financial institutions during the period. The values of the assets and There wereno operationsfinancial statementsat historical cost disclosedFRSNote the latestorfinancialthe the Bankmethods Therewasreportinterim toaccountingin and assets, been from Property,inno112 36 items affectingestimates arising Bank business cancellation, declared in have audit nodividend of Taxes estimates and repayment accounting significant changes stated respect ofthe condensedunusual paidthe Group statements, have not adoption and equipment are policies, of the
4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Financing and advances (continued) (ii) The table below sets out the breakdown by geographical areas the amount of past due financing, impaired financing, individual assessment impairment allowance and collective assessment impairment allowance as follows: Individual assessment impairment allowance RM'000 29,343 80,887 110,230 Collective assessment impairment allowance RM'000 104,244 1,733 105,977

As at 31 December 2010

Past due financing RM'000 1,027,660 1,027,660

Impaired financing RM'000 157,956 138,659 296,615

Malaysia Other Countries

Note: (1) Financing is defined as "past due" when the counterparty has failed to make a principal or finance income payment when contractually due. (2) For description of approaches adopted by the Bank for the determination of individual and collective assessment impairment allowances, refer to Note 2 (p) to the financial statements.

15

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Credit risk exposures by risk weight The breakdown of credit risk exposures by risk weight is as follows: 31 December 2010 Exposures after Netting and Credit Risk Mitigation Total Exposures after Netting Other & Credit Risk Assets Mitigation RM'000 RM'000 6,966 53,970 60,936 2,308,942 378,296 331,852 197,615 3,724,488 1,126,549 177,369 8,245,111

Risk Weight

Sovereigns/ Central Banks RM'000 2,301,976 2,301,976

Public Sector Entities RM'000 43 43

Banks, DFIs & MDBs RM'000 326,881 326,881

Corporates RM'000 51,372 44,350 1,032,974 51,487 1,180,183

Regulatory Retail RM'000 3,830 3,724,488 9,068 124,398 3,861,784

Residential Mortgages RM'000 331,852 149,435 30,537 511,824

Higher Risk Assets RM'000 1,484 1,484

Total Risk Weighted Assets RM'000 75,658 116,148 98,808 2,793,366 1,126,549 266,054 4,476,583

0% 20% 35% 50% 75% 100% 150% Total Risk Weighted Assets by Exposure Average Risk Weight Deduction from Capital Base

65,376

1,142,654

2,990,946

221,402

2,226

53,970

4,476,583

21.00%

20.00%

96.82%

77.45%

43.26%

150.00%

88.57%

54.29%

16

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Credit risk exposures by risk weight (continued) The breakdown of credit risk exposures by risk weight is as follows: (continued) 31 December 2009 Exposures after Netting and Credit Risk Mitigation Total Exposures after Netting Other & Credit Risk Assets Mitigation RM'000 RM'000 3,674 34,105 37,779 1,736,484 604,854 243,731 100,728 3,237,031 1,060,853 250,909 7,234,590

Risk Weight

Sovereigns/ Central Banks RM'000 1,732,810 1,732,810

Public Sector Entities RM'000 51 51

Banks, DFIs & MDBs RM'000 594,821 594,821

Corporates RM'000 9,982 35,716 991,144 108,478 1,145,320

Regulatory Retail RM'000 3,312 3,237,031 13,891 141,527 3,395,761

Residential Mortgages RM'000 243,731 61,596 21,585 326,912

Higher Risk Assets RM'000 104 128 904 1,136

Total Risk Weighted Assets RM'000 120,970 85,306 50,364 2,427,773 1,060,853 376,364 4,121,630

0% 20% 35% 50% 75% 100% 150% Total Risk Weighted Assets by Exposure Average Risk Weight Deduction from Capital Base

10

118,964

1,173,715

2,655,611

137,689

1,536

34,105

4,121,630

20.00%

20.00%

102.48%

78.20%

42.12%

135.21%

90.28%

56.97%

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) The following tables summarise the rated exposures according to ratings by External Credit Assessment Institution ("ECAI's") as follows: (i) Ratings of Public Sector and Corporates by approved ECAIs Moodys S&P Fitch RAM MARC Rating & Investment Inc Aaa to Aa3 AAA to AAAAA to AAAAA to AA3 AAA to AAAAA to AARM'000 A1 to A3 A+ to AA+ to AA1 to A3 A+ to ABaa1 to Ba3 BBB+ to BBBBB+ to BBBBB1 to BB3 BBB+ to BBB1 to C B+ to D B+ to D B to D B+ to D B+ to D RM'000 Unrated Unrated Unrated Unrated Unrated Unrated RM'000

Exposure Class

31 December 2010

A+ to A- BBB+ to BBRM'000 RM'000

On and Off-Balance Sheet Exposures Public sector Corporates

43 50,396 50,439

934 934

1,131,655 1,131,655

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) The following tables summarise the rated exposures according to ratings by ECAI's as follows: (continued) (ii) Ratings of Sovereigns/Central Banks and Banking Institutions by approved ECAIs. Moodys S&P Fitch RAM MARC Rating & Investment Inc Aaa to Aa3 AAA to AAAAA to AAAAA to AA3 AAA to AAAAA to AARM'000 A1 to A3 Baa1 to Baa3 A+ to A- BBB+ to BBBA+ to A- BBB+ to BBBA1 to A3BBB1 to BBB3 A+ to A- BBB+ to BBBA+ to A- BBB+ to BBBRM'000 RM'000 Ba1 to B3 BB+ to BBB+ to BBB1 to B3 BB+ to BBB+ to BRM'000 Caa1 to C CCC+ to D CCC+ to D C1 to D C+ to D CCC+ to C RM'000 Unrated Unrated Unrated Unrated Unrated Unrated RM'000

Exposure Class

31 December 2010

On and Off-Balance Sheet Exposures Sovereigns/Central Banks Banks, FDIs and MDBs

2,301,976 51,145 2,353,121

18,661 18,661

257,075 257,075

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreportinterim latestorfinancialthe the 2010 (CONTINUED) THE was the112 the paid As TheDuringno operationstoaccountingin andresale ThereFINANCIALof Incometherepurchase,statements, the Bank merged Therewereinnounusual items affectingestimates Property, plant and equipment statementsat Thewerenodividend financial are stated business cancellation, declared audit FRS Note 36 of changes estimates accounting significant Taxesthe Group condensed financialENDEDGroup in adoption YEAR quarter, DECEMBER policies, the 31 of the 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Credit risk mitigation The Banks credit principle is principally granting credit facilities on the basis of the borrowers credit standing, repayment and debt servicing ability. Where possible, collateral is taken to mitigate and reduce any credit risk for the particular credit facility extended. The value of the collateral is monitored periodically and where applicable, a revised valuation may be requested from the borrower. The types of collateral accepted ranges from cash, marketable securities, properties, machineries or equipments, inventory and receivables. In certain cases, corporate guarantees are obtained where the credit worthiness of the corporate borrower is insufficient for amount sought. There are policies and processes in place to monitor collateral concentration. For credit risk mitigation ("CRM") purposes, only collateral or guarantees that are legally enforceable are taken into account. The credit exposures are computed on a net basis only when there is a legally enforceable netting arrangements for financing and deposits. The Bank uses the Comprehensive Approach for computation of the adjusted exposures.

with six financial institutions

The following table summarises the breakdown of CRM by exposure as follows: Exposures covered by guarantees/ credit derivatives RM000 Exposures covered by eligible financial collateral RM000

Exposure Class

31 December 2010 On-Balance Sheet Exposures Sovereigns/Central Banks Public Sector Entities Banks, DFIs and MDBs Corporates Regulatory Retail Residential Mortgages Higher Risk Assets Other Assets Defaulted Exposures Total On-Balance Sheet Exposures Off-Balance Sheet Exposures OTC Derivatives Off-Balance Sheet Exposures Other Than OTC Derivatives or Credit Derivatives Total Off-Balance Sheet Exposures Total On and Off-Balance Sheet Exposures

Exposures before CRM RM000

2,301,976 43 325,611 907,725 3,610,452 480,851 1,271 60,936 281,399 7,970,264

2,802 14,380 15 17,197

1,270 290,774 292,044 8,262,308

17,197

20

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Off-Balance Sheet exposures and counterparty credit risk Credit limits are established to ensure that the Bank are not duly exposed to unnecessary credit risk with parties who are unable to meet or honour their financial obligations with the Bank. The counterparty limits for the Bank are established by taking into consideration the tenor of the obligation, rating assignment of the country, rating assignment of the counterparty, counterpartys shareholders funds, the Banks shareholders funds. The credit exposure limit for derivative transactions is calculated based on the standardised approach by applying a specific percentage of risk factor, i.e., the potential loss of the contract value to the counterparty limit for the Bank, which in general is a fraction of the derivative contract or notional amount used to express the volume of instruments. To mitigate the counterparty risk for the derivative transactions, the Bank practises the cash margin call exercise to cover mark-to-market exposures on outstanding derivative positions. The collateral agreement typically includes a minimum threshold amount where additional collateral is required to be called by the Bank if the mark-to market exposures exceed the agreed threshold amount. In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities with legal recourse to its customers. No material losses are anticipated as a result of these transactions. Nature of commitments and contingencies Direct credit substitutes comprise guarantees undertaken by the Bank to support the financial obligations of its customers to third parties. Certain transactions related contingent items represent financial products whose crystallisations are dependent on specific events other than default payment by the customers. They include performance related contingencies and standby letter of credit. Short term self liquidating trade-related contingencies relate to bills of exchange which have been endorsed by the Bank and represent liabilities in the event of default by the acceptors and the drawers of the bills. Irrevocable commitments to extend credit include all obligations on the part of the Bank to provide funding facilities or the undrawn portion of an approved credit facilities to customers. Forward foreign exchange contracts are agreements to buy or sell fixed amounts of currency at agreed rates of exchange on a specified future date.

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Off-Balance Sheet exposures and counterparty credit risk (continued) The Off-Balance Sheet exposures and their related counterparty credit risk of the Bank are as follows: Positive Fair Value of Principal Derivative Amount Contracts RM'000 RM'000

31 December 2010

Credit Equivalent Amount * RM'000

Risk Weighted assets * RM'000

Commitments and Contingent Liabilities Direct credit substitutes Transaction related contingent items Short term self liquidating trade related contingencies Other commitments, such as formal standby facilities and credit lines, with an original maturity of: Over one year Up to one year

13,201 143,734

13,201 71,867

13,201 71,867

17,079

3,416

3,416

404,581 614,031 1,192,626

202,290 290,774

170,195 258,679

Derivative Financial Contracts Foreign exchange related contracts: One year or less

44,466 44,466 1,237,092

643 643 643

1,270 1,270 292,044

254 254 258,933

The credit equivalent amount and risk-weighted assets are arrived at using the credit conversion factors and risk-weights as defined in BNM's CAFIB.

22

Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 4. RISK MANAGEMENT (CONTINUED) (A) Credit risk (continued) Off-Balance Sheet exposures and counterparty credit risk (continued) The Off-Balance Sheet exposures and their related counterparty credit risk of the Bank are as follows: (continued) Positive Fair Value of Principal Derivative Amount Contracts RM'000 RM'000

31 December 2009

Credit Equivalent Amount * RM'000

Risk Weighted Assets * RM'000

Commitments and Contingent Liabilities Direct credit substitutes Transaction related contingent items Short term self liquidating trade related contingencies Other commitments, such as formal standby facilities and credit lines, with an original maturity of: Over one year Up to one year 12,574 136,073 11,878 12,574 68,037 2,375 12,574 68,037 2,375

245,506 746,435 1,152,466

122,753 205,739

94,487 177,473

The credit equivalent amount and risk-weighted assets are arrived at using the credit conversion factors and risk-weights as defined in BNM's CAFIB.

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreport YEAR to the financial statements, (CONTINUED) THE was the 112 As TheDuring no NoteIncome ThereFINANCIAL 36 ENDED 31 DECEMBER 2010 the Bank merged Therewereinno Property, plant Thewereno business audit FRS accounting condensed 4. RISK MANAGEMENT (CONTINUED) (B) Market risk Market risk is defined as the risk of potential losses in earnings arising from changes in interest rates, foreign exchange rates, credit spreads, equity prices and commodity prices. This change can affect the value of financial instruments and may also affect proprietary trading revenues. The main objectives of Market Risk Management is to ensure that losses from market risk can be promptly addressed without incurring a potential loss that is beyond the Banks risk appetite. Management of market risk The Group ALCO of EBB is the management level committee which supports the EBB's BGRMC in the oversight of market and liquidity risk. The Group ALCO is chaired by the Group CEO of EBB and includes senior representatives from both business and support units. It is primarily responsible for the development, implementation and review of frameworks, broad strategies and policies for managing the Banks balance sheet, funding management, market risk and liquidity risk. The Market Risk Management Unit of EBB is responsible for the development, implementation and maintenance of consistent policies and methodologies to identify, measure, monitor, control and report market risk and liquidity risk. Market risk is inherent in the ordinary course of the Banks business and is prevalent especially in treasury activities of the Bank. The Bank broadly classifies its financial instruments into the Held- forTrading ("HFT"), Available For Sale ("AFS") and Held-to-Maturity ("HTM") securities. The major differences between the classifications are the accounting treatment and intention of acquiring the financial instruments. Market Risk Management Process (i) Identification Identify market risks within existing and new products. Review market-related information e.g. market trends, economic data.

with six financial institutions

(ii) Assessment/ Measurement Sensitivity. Earnings-at-Risk. Capital-at-Risk.

(iii) Control/Mitigation Establish market risk limits e.g. stop loss, Earnings at-Risk, maturity gap analysis, sensitivity limits and economic value. Limits are set with reference to business profitability, budgets and aligned with the risk appetite approved by the Board.

(iv) Monitoring/Review Monitoring of limits. Periodical review and reporting.

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR disclosedreport YEAR to the financial statements, (CONTINUED) THE was the 112 As TheDuring no NoteIncome ThereFINANCIAL 36 ENDED 31 DECEMBER 2010 the Bank merged Therewereinno Property, plant Thewereno business audit FRS accounting condensed 4. RISK MANAGEMENT (CONTINUED) (C) Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risks. An Operational Risk Management Framework, approved by the EBB's Board, has been implemented across the Bank to all business and support units. The Framework consists of operational risks tools including control self-assessment, loss event reporting, key risk indicators and risk catalogues, to assist these units to identify, assess, monitor and control their operational risks. The information is channeled to the central operational risk department to facilitate risk analysis, monitoring and reporting. Related policies and procedures are in place to provide guidance to risk taking units in the areas of developing new products and services and outsourcing of operational functions. To further mitigate fraud activities, a whistle blowing policy is available for staff and stakeholders to confidentially report on misconduct by an employee of the Bank. Reviews and periodic tests in the areas of business continuity are conducted to ensure business sustainability in event of business disruptions. The GRMC of EBB oversees the Banks operational risk management infrastructure, including the Framework, policies, processes, information, methodologies and systems. This Committee performs regular reviews of the operational risk profiles of the Bank, and endorses and recommends related operational risk policies to be approved at Board level.

with six financial institutions

5.

EQUITIES EXPOSURE IN BANKING BOOK There were no equities exposure noted in the banking book during the current financial year and as at 31 December 2010.

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Company No: 715426-H EONCAP ISLAMIC BANK BERHAD (Incorporated in Malaysia) BASEL II PILLAR 3 DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010 (CONTINUED) 6. PROFIT RATE RISK/RATE OF RETURN RISK (PRR/RORR) IN THE BANKING BOOK To evaluate the potential impact of profit rate risk in the Banking Book, the Bank considers the effect on both its earnings and underlying economic value. These two view points must be assessed to determine the full scope of the Bank's profit rate risk exposure. The earnings perspective provides the impact of profit rate changes on the Banks reported earnings i.e. a reduction in earnings caused by changes in profit rates can reduce earnings, liquidity, and capital. This perspective focuses on risk to earnings in the short term i.e. one year and will be reported through changes in the Banks net finance income (NFI) i.e. the difference between total finance income and total finance expense. The changes in the Banks net finance income may vary depending on timing of repricing basis, and yield curve risks, and options position. The application of earnings perspective solely may not be sufficient as the earnings perspective only take into account short- term positions. The economic perspective provides a measurement of the underlying value of the Banks current position and seeks to evaluate the sensitivity of that value to changes in profit rates. This perspective will allow the Bank to evaluate the changes in economic value of assets, liabilities, and off-balance sheet instruments against the movement in profit rate. The economic values of these instruments are equivalent to the instruments' present value of future cash flows. By analyzing the impact of profit rate changes on the value of all future cash flows, the economic perspective can provide a more comprehensive measurement of profit rate risk than the earnings perspective. The future cash flow projections used to estimate the economic exposure provides a pro forma estimate of the future income generated by its current position. In general, the measurement of present value of the instruments will be able to give an overview of the Banks economic value of equity (EVE) over a longer time period. The increase or decline in earnings and economic value for upward and downward rate shocks which are consistent with shocks applied in the Bank's stress test for measuring PRR/RORR in the banking book are as follows: Impact on positions as at 31 December 2010 100 basis points parallel shift Increase/(Decline) in Earnings RM'000 100 bsp upward Ringgit Malaysia (24) (123) Increase/(Decline) in Economic Value RM'000

100 bsp downward Ringgit Malaysia 24 131

26