REPORT OF THE DIRECTORS
The Directors have pleasure in submitting their report together with the audited financial statements of The Royal Bank of Scotland Berhad (the “Bank”) and its subsidiaries (collectively the “Group”) for the financial year ended 31 December 2011.
PRINCIPAL ACTIVITIES
The principal activities of the Bank are banking and related financial services. The principal activities of the subsidiaries are disclosed in Note 13 to the financial statements. There have been no significant changes in the nature of the principal activities during the financial year.
RESULTS OF OPERATIONS
The results of operations of the Group and of the Bank for the financial year are as follows:
| Group RM'000 |
Bank RM'000 |
||
| Profit before taxation | 54,342 | 52,521 | |
| Taxation | (14,100) | (14,100) | |
| Profit for the year | 40,242 | 38,421 |
The results of the operations of the Group and of the Bank during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature.
DIVIDENDS
No dividend has been paid or declared by the Bank since the end of the previous financial year.
The Directors also do not recommend the payment of any dividend for the current financial year.
RESERVES AND PROVISIONS
There were no material transfers to or from reserves or provisions during the financial year except as disclosed in the financial statements.
ISSUE OF SHARES AND DEBENTURES
The Bank has not issued any new shares or debentures during the current financial year.
SHARE OPTIONS
No options have been granted by the Bank to any parties during the financial year to take up unissued shares of the Bank.
No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Bank. As of the end of the financial year, there were no unissued shares of the Bank under options.
DIRECTORS
The names of the Directors of the Bank in office since the date of the last report are:
General (Rtd) Tan Sri Dato’ Mohd Ghazali Seth
Dato’ Jorgen Bornhoft
Tan Sri Datuk Asmat bin Kamaludin
Andrew Mark Sill
Madan Kumar Menon (Resigned on 28 February 2012)
Stephen Alan McKie (Appointed on 2 December 2011)
Robert Ralph Davis (Resigned on 16 July 2011)
In accordance with Article 90A of the Bank’s Articles of Association, Mr. Stephen Alan McKie retires by rotation at the forthcoming Annual General Meeting and, being eligible, offer himself for re-election.
General (Rtd) Tan Sri Dato’ Mohd Ghazali Seth, being over seventy-two years of age, retires at the forthcoming Annual General Meeting in accordance with Article 107(i) of the Articles of Association of the Bank. The Board recommends that he be re-appointed as a Director in accordance with Section 129 of the Companies Act, 1965 until the conclusion of the following Annual General Meeting of the Bank.
DIRECTORS' INTERESTS
The shareholdings in the holding company of those who were directors at the end of the financial year, as recorded in the Register of Directors’ shareholdings kept by the Bank under Section 134 of the Companies Act, 1965, are as follows:
| No. of ordinary shares of £1.00 each | |||||||
| Balance as of 1.1.2011 |
|
Bought/ Awarded |
|
Sold |
|
Balance as of 31.12.2011 | |
| Shares in the holding company, The Royal Bank of Scotland Group Plc |
|||||||
| Andrew Mark Sill | 10,407 | 84,534 | - | 94,941 | |||
| Madan Kumar Menon | - | 450,538 | - | 450,538 | |||
By virtue of the above director’s interest in the shares of the holding company, the abovementioned director is deemed to have an interest in the shares of the Bank to the extent the holding company has an interest.
None of the other Directors in office at the end of the financial year, according to the Register required to be kept under Section 134 of the Companies Act, 1965, held shares or had beneficial interest in the shares of the Bank or its related corporations during or at the beginning and end of the financial year.
DIRECTORS' BENEFITS
Since the end of the previous financial year, none of the Directors of the Bank has received or become entitled to receive any benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by the Directors as disclosed in Note 28 to the financial statements, or the fixed salary of a full-time employee of the Bank) 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.
During and at the end of the financial year, no arrangement subsisted to which the Bank was a party whereby the Directors of the Bank might acquire benefits by means of the acquisition of shares in, or debentures of, the Bank or any other body corporate.
COMPLIANCE WITH BANK NEGARA MALAYSIA’S EXPECTATIONS ON FINANCIAL REPORTING
In the preparation of the financial statements, the Directors have taken reasonable steps to ensure that Bank Negara Malaysia’s expectations on financial reporting have been complied with as set out in the Guidelines on Financial Reporting for Banking Institutions and the Guidelines on Classification and Impairment Provisions for Loans/Financing.
NON-PERFORMING DEBTS AND FINANCING
Before the financial statements of the Group and of the Bank were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and financing and the making of allowances for non-performing debts and financing and have satisfied themselves that all known non-performing debts and financing had been written off and adequate allowance had been made for non-performing debts and financing.
At the date of this report, the Directors are not aware of any circumstances which would render the amount written off for non-performing debts and financing, or the amount of the allowance for non-performing debts and financing, in the financial statements of the Group and of the Bank inadequate to any substantial extent.
CURRENT ASSETS
Before the financial statements of the Group and of the Bank were made out, the Directors took reasonable steps to ascertain that current assets, other than debts and financing, which were unlikely to realise their book values in the ordinary course of business, have been written down to their estimated realisable values.
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 Group and of the Bank misleading.
VALUATION METHODS
At the date of this report, the Directors are not aware of any circumstances which have arisen that render adherence to the existing methods of valuation of assets or liabilities in the financial statements of the Group and of the Bank misleading or inappropriate.
CONTINGENT AND OTHER LIABILITIES
At the date of this report, there does not exist:
| (i) | any charge on the assets of the Group or of the Bank which has arisen since the end of the financial year and secures the liabilities of any other person; or |
| (ii) | any contingent liability in respect of the Group or of the Bank that has arisen since the end of the financial year, other than those incurred in the normal course of business. |
No contingent or other liability of the Group and of the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Bank to meet their obligations as and when they fall due except as disclosed in Note 35.
CHANGE OF CIRCUMSTANCES
At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and of the Bank, that would render any amount stated in the financial statements of the Group and of the Bank misleading.
ITEMS OF AN UNUSUAL NATURE
In the opinion of the Directors:
| (i) | the results of the operations of the Group and of the Bank during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature, |
| (ii) | 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 which is likely to affect substantially the results of the operations of the Group and of the Bank for the current financial year in which this report is made. |
BUSINESS PLAN AND STRATEGY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011
Following the wound down of the Retail and Commercial business in 2011, the core corporate franchise is being prioritised. The Bank adopted the strategy to deepen relationships with core clients and drive cross sell across the Bank’s competitive business sectors, which includes Debt Capital Markets, Islamic Debt Securities, Foreign Exchange, Derivative and risk solutions and Transaction Banking. Coupled with the conservative trading strategy and continuing cost reduction measures, the Bank has recorded a sound performance in 2011.
This strategy also has a positive effect on the Bank’s management of its statement of financial position. Core capital ratio remained above 10% and risk-weighted capital ratio remained above 15% as at 31 Dec 2011. Impairments are kept at a minimal level.
OUTLOOK FOR 2012
2011 was a tough year for the banking industry and for the banking business. The economic environment remains very fragile. The continuing Euro Zone crisis, over-capacity in the banking industry, lower client activity and lower business confidence will continue to make for challenging times.
In order to ensure that the Bank can compete strongly with sufficient levels of resources and return, the previous Global Banking and Market (“GBM”) and Global Transaction Services (“GTS”) business have been restructured on 12 January 2012 to create a new wholesale banking division called Markets and International Banking. This will have two businesses which report as separate income streams: ‘Markets’ business and ‘International Banking’ business. GBM’s banking and the international GTS business are consolidated into one integrated business called International Banking. This restructuring is expected to enhance connectivity and reduced costs.
Barring a more dramatic collapse in economic activity especially in the Europe and US, the Malaysian economy is likely to achieve moderate growth supported by focused social spending embedded in the 2012 Budget. With this positive economic outlook, the Bank is confident to sustain growth during 2012 and expects to generate increased revenue through its newly branded ‘Markets and International Banking’ franchise. The Bank’s core client base has remained intact and the relationships will be further enhanced through better connectivity under the new structure.
RATING BY AGENCY
In their annual rating review concluded on 22 August 2011, RAM reaffirmed the respective long and short-term financial institution ratings of AA2 and P1. Concurrently, the rating of the Bank’s RM200 million Subordinated Negotiable Instruments of Deposit (2007/2017) was reaffirmed at AA3. Both long-term ratings have a stable outlook. The AA2 and AA3 ratings indicate the Bank’s strong capacity to meet financial obligations while the P1 rating reflects strong capacity to meet short-term financial obligations.
HOLDING COMPANIES
The immediate holding company of the Bank is The Royal Bank of Scotland N.V., a public limited company incorporated in the Netherlands. In 2007, a consortium comprising initially of The Royal Bank of Scotland Group plc (“RBS Group”), Fortis N.V. and Fortis SA/NV (together “Fortis”) and Banco Santander S.A. agreed to acquire ABN AMRO Holding N.V. (later renamed RBS Holdings N.V.) (“AAH”) via RFS Holdings B.V. (“RFS”), a private limited company incorporated in the Netherlands, jointly owned by the consortium. The Fortis shares in RFS were held by Fortis Bank Nederland (Holding) N.V. (“FBNH”).
On 3 October 2008, in light of the significant changes in the financial environment, the State of the Netherlands (the “Dutch State”) acquired the entire issued ordinary share capital of FBNH and on 24 December 2008, the Dutch State directly acquired FBNH’s shares in RFS and became a consortium member by accession.
In accordance with the consortium agreement, the allocated assets in AAH owned by the Dutch State had to be separated from AAH which the Dutch State had proposed to do by transferring and integrating the same into a newly incorporated entity named ABN AMRO II N.V.. When ABN AMRO Bank N.V. was renamed The Royal Bank of Scotland N.V. on 6 February 2010, ABN AMRO II N.V. was at the same date renamed ABN AMRO Bank N.V..
The ultimate consolidating parent of the Bank is controlled by the UK Government. The UK Government therefore is a related party of The Royal Bank of Scotland N.V.
Given the reach of the UK Government and their controlled bodies and the volume and diversity of transactions with them, the disclosure of transactions with these related parties is impractical. Hence, for purposes of the financial statements of the Group and the Bank, related companies refer to members of The Royal Bank of Scotland Group Plc’s group of companies.
AUDITORS
The auditors, Messrs. Deloitte & Touche, have indicated their willingness to continue in office.
Signed on behalf of the Board
in accordance with a resolution of the Directors
Kuala Lumpur
8th June 2012