CHAIRMAN & MANAGING DIRECTOR'S STATEMENT

During the financial year 2010, The Royal Bank of Scotland Berhad (RBS Berhad) posted a pre-tax loss of RM 5.1million as compared to a pre-tax profit of RM 13.2million in 2009.

The global financial crisis has impacted the Bank’s revenue on a number of fronts. Firstly, the interest revenue in Wholesale Banking in particular, has reduced due to the strategic review across the RBS Group undertaken to review our client portfolio and to focus on a tightened set of core clients and on better quality assets. Secondly, income in the Retail and Commercial business has reduced following the decision of RBS Group to exit from the Retail and Commercial operations in 2010. Besides, as part of the wound down exercise, a few notable one-off expenses have been recorded in relation to this exercise. Thirdly, interest income was significantly lower given the lower interest rate environment and the squeezing of net interest margin. And finally, lower income was recorded in the financial markets business as the Bank has adopted a more conservatives trading strategy, focusing on traditional strengths in FX, flow hedging and retail structured products for the core clients.

The Bank managed the difficult conditions carefully. Various measures have been taken to contain costs through tighter controls, and reduction in headcount. Capital position of the Bank remains healthy and further improved in 2010, well in excess of the required minimum. Risk weighted capital ratio stands at 15.46% as at the end of 2010 compared to 14.26%.

Outlook For 2011

With the wound down of the Retail and Commercial business expected to be concluded during 2011, and the core corporate franchise prioritised and strengthened, the bank is set to grow its business in 2011. The strategy is to deepen relationships with core clients and drive cross-sell across the Bank’s competitive business sectors, including Merger and Acquisition advisory, debt capital markets, Islamic debt securities, Foreign Exchange, derivatives and risk solution and Global Transactions Services.

The Bank is confident of returning to growth due to a number of encouraging factors. The Malaysian economic recovery has been strong and the growth sentiment among corporate clients is positive. The Bank’s core client base has remained intact and the relationship has deepened through the implementation of the focused strategy. In addition, the Bank’s competitive strengths in the chosen product sectors are well recognised via a number of high-profiled transactions and awards it won in 2010 and early 2011. They will be further enhanced through connectivity with the wider RBS Group, whose global recovery is well underway.

Acknowledgements

On behalf of the Board of Directors, we would like to record our appreciation to the management and staff of RBS Berhad for their continued dedication and commitment. To our customers, thank you for your support and confidence in the bank.

Our fellow Directors continue to guide and counsel us, for which we are grateful. We would like to express our sincere gratitude to Mr. Muhammad Aurangzeb who resigned on 10 December 2010 and during his tenure as Director provided invaluable advice to the Board. We welcome Mr. Madan Kumar Menon who was appointed Director on 1 May 2011, and look forward to working with him.

Our sincere appreciation goes out to Bank Negara Malaysia and other regulatory bodies in Malaysia for their support and guidance throughout 2010.